diff --git a/parsed_sections/legal_matters/2013/AMC_amc_legal_matters.txt b/parsed_sections/legal_matters/2013/AMC_amc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..96e39fc9145aaff51f20dbc7fd4debaadfb3cfeb
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/AMC_amc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A common stock offered hereby will be passed upon for us by Weil, Gotshal & Manges LLP. Paul, Weiss, Rifkind, Wharton & Garrison LLP advised the underwriters in connection with the offering of our Class A common stock.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/AR_antero_legal_matters.txt b/parsed_sections/legal_matters/2013/AR_antero_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0bfc1da617f1f50573b3ee541432b257cd28b687
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/AR_antero_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of our common stock offered by this prospectus will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/AUGG_augusta_legal_matters.txt b/parsed_sections/legal_matters/2013/AUGG_augusta_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..28fafc09f648ebaaa5507ff71ec2ca877edbff70
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/AUGG_augusta_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Sichenzia Ross Friedman Ference LLP, New York, New York, will pass upon the validity of the shares of common stock offered by the selling stockholders under this prospectus.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/AXGN_axogen-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/AXGN_axogen-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1c96a9d1d44ddd9e503d6169cbefcfdc479b8cc8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/AXGN_axogen-inc_legal_matters.txt
@@ -0,0 +1,2500 @@
+LEGAL MATTERS 
+ Certain legal matters in connection with the securities offered hereby will be passed upon for us by
+Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania and Kaplan, Strangis and Kaplan, P.A., Minneapolis, Minnesota. Certain legal matters in connection with this offering will be passed upon for the underwriters by Orrick, Herrington
+& Sutcliffe LLP, San Francisco, California. 
+
+ 
+ 90 
+
+Table of Contents
+
+ EXPERTS 
+
+The financial statements of the Company as of December 31, 2012 and 2011, and for the years then ended included in this prospectus
+and registration statement, have been included in reliance of the reports on Lurie Besikof Lapidus & Company, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.
+
+ 
+ 91 
+
+Table of Contents
+
+ WHERE YOU CAN FIND MORE INFORMATION 
+
+We have filed with the SEC a registration statement under the Securities Act of 1933 that registers the distribution of the common shares
+offered under this prospectus. The registration statement contains additional relevant information about us and the common shares. The rules and regulations of the SEC allow us to omit from this prospectus certain information included in the
+registration statement. Statements contained in this prospectus as to the contents of any documents that we have filed as an exhibit to the registration statement are qualified in their entirety by reference to the exhibits for a complete statement
+of their terms and conditions. 
+ In addition, we file annual, quarterly and current reports, proxy statements and other
+information with the SEC. You may read and copy this information and the registration statement at the SEC public reference room located at 100 F Street, N.E., Washington D.C. 20549. You may obtain information on the operation of the Public
+Reference Room by calling the SEC at 1-800-SEC-0330. Any information we file with the SEC is also available on the SEC s website at http://www.sec.gov. We also maintain a website at http://www.axogeninc.com/secfilings.html through which
+you can access our SEC filings. We have included our website address in this prospectus solely as an inactive textual reference. The information contained on, or that can be accessed through, our website is not part of this prospectus. 
+
+ 
+ 92 
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+INDEX TO FINANCIAL STATEMENTS 
+
+Audited Consolidated Financial Statements 
+ 
+
+ Report of Independent Registered Public Accounting Firm
+
+ 
+ 
+F-2
+ 
+
+ Consolidated Balance Sheets as of December 31, 2012 and 2011
+
+ 
+ 
+F-3
+ 
+
+ Consolidated Statements of Operations for the Years Ended December 31, 2012 and
+2011
+
+ 
+ 
+F-4
+ 
+
+ Consolidated Statements of Shareholders Equity (Deficit) for the Years Ended December 
+31, 2012 and 2011
+
+ 
+ 
+F-5
+ 
+
+ Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and
+2011
+
+ 
+ 
+F-6
+ 
+
+ Notes to Consolidated Financial Statements
+
+ 
+ 
+F-7
+ 
+
+Unaudited Condensed Consolidated Financial Statements
+ 
+
+ Condensed Consolidated Balance Sheets as of March 31, 2013 and 2012
+
+ 
+ 
+F-26
+ 
+
+ Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and
+2012
+
+ 
+ 
+F-27
+ 
+
+ Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and
+2012
+
+ 
+ 
+F-28
+ 
+
+ Notes to Condensed Consolidated Financial Statements
+
+ 
+ 
+F-29
+ 
+
+ 
+ F-1
+
+Table of Contents
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+ To the Shareholders and 
+ Board
+of Directors of 
+ AxoGen, Inc. 
+ We have audited the accompanying consolidated balance sheets of AxoGen, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations, shareholders equity
+(deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit.
+
+ We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
+Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an
+audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
+expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
+in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a
+reasonable basis for our opinion. 
+ In our opinion, the consolidated financial statements referred to above present fairly, in
+all material respects, the financial position of AxoGen, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the
+United States of America. 
+ /s/ LURIE BESIKOF LAPIDUS & COMPANY, LLP 
+ Minneapolis, Minnesota 
+ March 12, 2013 
+
+ 
+ F-2
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+ CONSOLIDATED BALANCE SHEETS 
+
+ December 31, 2012 and 2011 
+ 
+
+ 
+ 
+December 31,
+2012
+ 
+ 
+December 31,
+2011
+ 
+
+ Assets
+
+ 
+
+ 
+
+ Current assets:
+
+ 
+
+ 
+
+ Cash and cash equivalents
+
+ 
+$
+13,907,401
+ 
+ 
+$
+8,190,781
+ 
+
+ Accounts receivable
+
+ 
+ 
+1,050,089
+ 
+ 
+ 
+797,654
+ 
+
+ Inventory
+
+ 
+ 
+3,151,109
+ 
+ 
+ 
+1,760,540
+ 
+
+ Prepaid expenses and other
+
+ 
+ 
+187,256
+ 
+ 
+ 
+133,500
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current assets
+
+ 
+ 
+18,295,855
+ 
+ 
+ 
+10,882,475
+ 
+
+ Property and equipment, net
+
+ 
+ 
+108,534
+ 
+ 
+ 
+247,824
+ 
+
+ Goodwill
+
+ 
+ 
+ 
+ 
+ 
+ 
+169,987
+ 
+
+ Intangible assets
+
+ 
+ 
+573,731
+ 
+ 
+ 
+899,480
+ 
+
+ Deferred financing costs
+
+ 
+ 
+1,252,443
+ 
+ 
+ 
+295,276
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+$
+20,230,563
+ 
+ 
+$
+12,495,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Liabilities and Shareholders Equity (Deficit)
+
+ 
+
+ 
+
+ Current liabilities:
+
+ 
+
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+$
+1,479,752
+ 
+ 
+$
+1,585,100
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+ 
+ 
+ 
+ 
+434,734
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current liabilities
+
+ 
+ 
+1,479,752
+ 
+ 
+ 
+2,019,834
+ 
+
+ Long-term debt
+
+ 
+ 
+ 
+ 
+ 
+ 
+4,403,737
+ 
+
+ Note Payable Revenue Interest Purchase Agreement
+
+ 
+ 
+21,580,252
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total liabilities
+
+ 
+ 
+23,060,004
+ 
+ 
+ 
+6,423,571
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Shareholders equity (deficit):
+
+ 
+
+ 
+
+ Common stock, $.01 par value; 50,000,000 shares authorized; 11,122,573 and 11,062,188 shares issued and
+outstanding
+
+ 
+ 
+111,226
+ 
+ 
+ 
+110,622
+ 
+
+ Additional paid-in capital
+
+ 
+ 
+54,908,226
+ 
+ 
+ 
+54,391,784
+ 
+
+ Accumulated deficit
+
+ 
+ 
+(57,848,893
+) 
+ 
+ 
+(48,430,935
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total shareholders equity (deficit)
+
+ 
+ 
+(2,829,441
+) 
+ 
+ 
+6,071,471
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+$
+20,230,563
+ 
+ 
+$
+12,495,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ The accompanying notes are an integral part of these consolidated financial statements. 
+
+ 
+ F-3
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+ CONSOLIDATED STATEMENTS OF OPERATIONS 
+
+ Years ended December 31, 2012 and 2011 
+
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+
+ Revenues
+
+ 
+$
+7,691,704
+ 
+ 
+$
+4,849,470
+ 
+
+ Cost of goods sold
+
+ 
+ 
+1,961,877
+ 
+ 
+ 
+2,426,544
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Gross profit
+
+ 
+ 
+5,729,827
+ 
+ 
+ 
+2,422,926
+ 
+
+ Costs and expenses:
+
+ 
+
+ 
+
+ Sales and marketing
+
+ 
+ 
+6,883,953
+ 
+ 
+ 
+4,378,694
+ 
+
+ Research and development
+
+ 
+ 
+1,427,211
+ 
+ 
+ 
+697,355
+ 
+
+ General and administrative
+
+ 
+ 
+5,220,599
+ 
+ 
+ 
+4,315,604
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total costs and expenses
+
+ 
+ 
+13,531,763
+ 
+ 
+ 
+9,391,653
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Loss from operations
+
+ 
+ 
+(7,801,936
+) 
+ 
+ 
+(6,968,727
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Other income (expense):
+
+ 
+
+ 
+
+ Interest expense
+
+ 
+ 
+(1,391,342
+) 
+ 
+ 
+(1,094,657
+) 
+
+ Interest expense deferred financing costs
+
+ 
+ 
+(986,844
+) 
+ 
+ 
+(1,223,126
+) 
+
+ Change in fair value of warrant liability
+
+ 
+ 
+ 
+ 
+ 
+ 
+62,305
+ 
+
+ Other income
+
+ 
+ 
+23,972
+ 
+ 
+ 
+4,985
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total other income (expense)
+
+ 
+ 
+(2,354,214
+) 
+ 
+ 
+(2,250,493
+) 
+
+ Loss before income taxes
+
+ 
+ 
+(10,156,150
+) 
+ 
+ 
+(9,219,220
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Income tax benefit
+
+ 
+ 
+738,192
+ 
+ 
+ 
+ 
+ 
+
+ Net Loss
+
+ 
+ 
+(9,417,958
+) 
+ 
+ 
+(9,219,220
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Preferred Stock dividends (assumes all paid)
+
+ 
+ 
+ 
+ 
+ 
+ 
+(1,028,351
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net loss available to common shareholders
+
+ 
+$
+(9,417,958
+) 
+ 
+$
+(10,247,571
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Weighted Average Common Shares outstanding basic and diluted
+
+ 
+ 
+11,089,425
+ 
+ 
+ 
+3,697,390
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Loss Per Common share basic and diluted
+
+ 
+$
+(0.85
+) 
+ 
+$
+(2.77
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ The accompanying notes are an integral part of these consolidated financial statements. 
+
+ 
+ F-4
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+ CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT) 
+
+ Years ended December 31, 2012 and 2011 
+
+ 
+
+ 
+ 
+Series A Convertible
+Preferred
+Stock
+ 
+ 
+Common Stock
+ 
+ 
+Additional
+Paid-in
+Capital
+
+ 
+ 
+Accumulated
+Deficit
+
+ 
+ 
+Total
+Stockholders 
+Deficit
+
+ 
+
+ 
+ 
+Shares
+ 
+ 
+Amount
+ 
+ 
+Shares
+ 
+ 
+Amount
+ 
+ 
+ 
+ 
+
+ Balance, December 31, 2010
+
+ 
+ 
+2,544,750
+ 
+ 
+$
+1,125,000
+ 
+ 
+ 
+1,205,624
+ 
+ 
+$
+12,056
+ 
+ 
+ 
+9,934,980
+ 
+ 
+$
+(38,183,364
+) 
+ 
+$
+(27,111,328
+) 
+
+ Stock-based compensation
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+250,044
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+250,044
+ 
+
+ Exercise of stock options
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+98,700
+ 
+ 
+ 
+987
+ 
+ 
+ 
+25,493
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+26,480
+ 
+
+ Director Stock Compensation
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+27,275
+ 
+ 
+ 
+273
+ 
+ 
+ 
+74,727
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+75,000
+ 
+
+ Conversion of preferred stock, debt, and accrued interest into Common Stock and shares exchange in Merger
+
+ 
+ 
+(2,544,750
+) 
+ 
+ 
+(1,125,000
+) 
+ 
+ 
+5,001,854
+ 
+ 
+ 
+50,019
+ 
+ 
+ 
+21,447,936
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+20,372,955
+ 
+
+ Preferred Stock dividend payable forfeited
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+7,076,729
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+7,076,729
+ 
+
+ Warrant Liability forfeited
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,607,510
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,607,510
+ 
+
+ Merger Closing LecTec shares
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,305,026
+ 
+ 
+ 
+43,050
+ 
+ 
+ 
+11,804,866
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+11,847,916
+ 
+
+ Issuance of common stock
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+423,709
+ 
+ 
+ 
+4,237
+ 
+ 
+ 
+995,763
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+1,000,000
+ 
+
+ Issuance of warrants
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+173,736
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+173,736
+ 
+
+ Series B preferred stock dividends
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(292,330
+) 
+ 
+ 
+(292,330
+) 
+
+ Series C preferred stock dividends
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(515,577
+) 
+ 
+ 
+(515,577
+) 
+
+ Series D preferred stock dividends
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(220,444
+) 
+ 
+ 
+(220,444
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(9,219,220
+) 
+ 
+ 
+(9,219,220
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Balance, December 31, 2011
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+11,062,188
+ 
+ 
+$
+110,622
+ 
+ 
+$
+54,391,784
+ 
+ 
+$
+(48,430,935
+) 
+ 
+$
+6,071,471
+ 
+
+ Stock-based compensation
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+495,077
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+495,077
+ 
+
+ Exercise of stock options
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+58,340
+ 
+ 
+ 
+583
+ 
+ 
+ 
+15,069
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+15,652
+ 
+
+ Stock Grant for Services
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+7,500
+ 
+ 
+ 
+75
+ 
+ 
+ 
+21,300
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+21,375
+ 
+
+ Cancellation of shares
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(5,455
+) 
+ 
+ 
+(54
+) 
+ 
+ 
+(14,946
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,999
+) 
+
+ Merger Closing Fractional shares
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(58
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(58
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(9,417,958
+) 
+ 
+ 
+(9,417,958
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Balance, December 31, 2012
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+11,122,573
+ 
+ 
+$
+111,226
+ 
+ 
+$
+54,908,226
+ 
+ 
+$
+(57,848,893
+) 
+ 
+$
+(2,829,441
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ The accompanying notes are an integral part of these consolidated financial statements. 
+
+ 
+ F-5
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+ CONSOLIDATED STATEMENTS OF CASH FLOWS 
+
+ Years ended December 31, 2012 and 2011 
+
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+
+ Cash flows from operating activities:
+
+ 
+
+ 
+
+ Net loss
+
+ 
+$
+(9,417,958
+)
+ 
+$
+(9,219,220
+)
+
+ Adjustments to reconcile net loss to net cash used for operating activities:
+
+ 
+
+ 
+
+ Depreciation
+
+ 
+ 
+187,749
+ 
+ 
+ 
+273,528
+ 
+
+ Amortization of intangible assets
+
+ 
+ 
+127,080
+ 
+ 
+ 
+67,147
+ 
+
+ Loss on impairment
+
+ 
+ 
+299,654
+ 
+ 
+ 
+ 
+ 
+
+ Loss on abandonment of license
+
+ 
+ 
+147,826
+ 
+ 
+ 
+ 
+ 
+
+ Amortization of deferred financing costs
+
+ 
+ 
+352,667
+ 
+ 
+ 
+1,223,126
+ 
+
+ Amortization of debt discount
+
+ 
+ 
+161,529
+ 
+ 
+ 
+23,643
+ 
+
+ Stock-based compensation
+
+ 
+ 
+495,077
+ 
+ 
+ 
+250,044
+ 
+
+ Directors Stock Compensation
+
+ 
+ 
+ 
+ 
+ 
+ 
+15,000
+ 
+
+ Stock grant for service
+
+ 
+ 
+21,375
+ 
+ 
+ 
+ 
+ 
+
+ Cancellation of shares
+
+ 
+ 
+(14,999
+) 
+ 
+ 
+ 
+ 
+
+ Change in fair value of warrant liability
+
+ 
+ 
+ 
+ 
+ 
+ 
+(62,305
+) 
+
+ Interest added to note payable
+
+ 
+ 
+780,252
+ 
+ 
+ 
+55,562
+ 
+
+ Change in assets and liabilities:
+
+ 
+
+ 
+
+ Accounts receivable
+
+ 
+ 
+(252,435
+)
+ 
+ 
+(368,954
+)
+
+ Inventory
+
+ 
+ 
+(1,390,570
+) 
+ 
+ 
+142,249
+ 
+
+ Prepaid expenses and other
+
+ 
+ 
+(53,757
+) 
+ 
+ 
+20,070
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+ 
+(105,348
+) 
+ 
+ 
+500,820
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash used for operating activities
+
+ 
+ 
+(8,661,858
+)
+ 
+ 
+(7,079,290
+)
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Cash flows from investing activities:
+
+ 
+
+ 
+
+ Purchase of property and equipment
+
+ 
+ 
+(48,459
+) 
+ 
+ 
+(20,610
+) 
+
+ Acquisition of intangible assets
+
+ 
+ 
+(78,825
+)
+ 
+ 
+(68,856
+)
+
+ Cash acquired with Merger
+
+ 
+ 
+ 
+ 
+ 
+ 
+7,201,638
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash (used for) provided by investing activities
+
+ 
+ 
+(127,284
+)
+ 
+ 
+7,112,172
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Cash flows from financing activities:
+
+ 
+
+ 
+
+ Proceeds from issuance of long-term debt
+
+ 
+ 
+ 
+ 
+ 
+ 
+10,500,000
+ 
+
+ Proceeds from issuance of note payable
+
+ 
+ 
+15,961,294
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from issuance of common stock
+
+ 
+ 
+ 
+ 
+ 
+ 
+1,000,000
+ 
+
+ Repayments of long-term debt
+
+ 
+ 
+(161,292
+)
+ 
+ 
+(4,732,857
+)
+
+ Debt issuance costs
+
+ 
+ 
+(1,309,834
+)
+ 
+ 
+(434,772
+)
+
+ Proceeds from exercise of stock options
+
+ 
+ 
+15,652
+ 
+ 
+ 
+26,480
+ 
+
+ Merger
+
+ 
+ 
+(58
+) 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by financing activities
+
+ 
+ 
+14,505,762
+ 
+ 
+ 
+6,358,851
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net increase in cash and cash equivalents
+
+ 
+ 
+5,716,620
+ 
+ 
+ 
+6,391,733
+ 
+
+ Cash and cash equivalents, beginning of year
+
+ 
+ 
+8,190,781
+ 
+ 
+ 
+1,799,048
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Cash and cash equivalents, end of period
+
+ 
+$
+13,907,401
+ 
+ 
+$
+8,190,781
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Supplemental disclosures of cash flow activity:
+
+ 
+
+ 
+
+ Cash paid for interest
+
+ 
+$
+649,108
+ 
+ 
+$
+1,029,753
+ 
+
+ Supplemental disclosure of non-cash investing and financing activities:
+
+ 
+
+ 
+
+ Payments of long term debt with proceeds from note payable (this amount represents a payment made by PDL directly to MidCap
+Financial SBIC, LP)
+
+ 
+$
+4,838,706
+ 
+ 
+$
+ 
+ 
+
+ Conversion of preferred stock, convertible debt and accrued interest into common stock
+
+ 
+
+ 
+ 
+21,497,955
+ 
+
+ Accretion of dividends of Series B preferred stock
+
+ 
+ 
+ 
+ 
+ 
+ 
+292,330
+ 
+
+ Accretion of dividends of Series C preferred stock
+
+ 
+ 
+ 
+ 
+ 
+ 
+515,577
+ 
+
+ Accretion of dividends of Series D preferred stock
+
+ 
+ 
+ 
+ 
+ 
+ 
+220,444
+ 
+
+ Preferred stock dividend payable forfeited with the Merger
+
+ 
+ 
+ 
+ 
+ 
+ 
+7,076,729
+ 
+
+ Warrant Liability forfeited with the Merger
+
+ 
+ 
+ 
+ 
+ 
+ 
+2,607,510
+ 
+
+ Debt discount related to warrants issued with debt
+
+ 
+ 
+ 
+ 
+ 
+ 
+173,736
+ 
+
+ Net assets acquired on Merger
+
+ 
+ 
+ 
+ 
+ 
+ 
+11,847,916
+ 
+
+ Note and accrued interest retired with the Merger
+
+ 
+ 
+ 
+ 
+ 
+ 
+4,555,562
+ 
+
+ Directors stock compensation included in prepaid expenses
+
+ 
+ 
+ 
+ 
+ 
+ 
+60,000
+ 
+
+ The accompanying notes are an integral part of these consolidated financial statements. 
+
+ 
+ F-6
+
+Table of Contents
+
+ AXOGEN, INC. 
+
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+
+December 31, 2012 and 2011 
+ 
+
+1.
+Basis of Presentation 
+
+ The accompanying consolidated financial statements include the accounts of AxoGen, Inc. (the Company or AxoGen )
+and its wholly owned subsidiary AxoGen Corporation ( AC ) as of December 31, 2012 and December 31, 2011 and the years then ended. The Company s consolidated financial statements have been prepared in accordance with
+accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have been eliminated in consolidation. 
+ 
+
+2.
+Organization and
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/AXR_amrep-corp_legal_matters.txt b/parsed_sections/legal_matters/2013/AXR_amrep-corp_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..281810eba7d9338e7fb7aec6679401c1b78b3790
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/AXR_amrep-corp_legal_matters.txt
@@ -0,0 +1,69 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the subscription rights and the shares of common stock offered by this prospectus have been passed upon for us by Derrick & Briggs, LLP. Certain federal U.S. tax matters have been passed upon for us by Drinker Biddle & Reath LLP, as set forth under Material U.S. Federal Income Tax Consequences. 
+
+ 
+
+EXPERTS
+
+ 
+
+The consolidated financial statements of AMREP Corporation appearing in its Annual Report on Form 10-K for the year ended April 30, 2012 and for each of the three years in the period ended April 30, 2012, have been audited by McGladrey LLP, an independent registered public accounting firm, as set forth in their report thereon and incorporated by reference into this prospectus. Such consolidated financial statements are incorporated by reference into this prospectus in reliance upon such report, incorporated herein by reference, and upon the authority of such firm as experts in auditing and accounting.
+
+ 
+
+MATERIAL CHANGES
+
+ 
+
+There have been no material changes in our affairs that have occurred since April 30, 2012, that have not been described in a Form 8-K or Form 10-Q filed under the Exchange Act.
+
+ 
+
+INCORPORATION BY REFERENCE
+
+ 
+
+We have filed with the SEC a registration statement under the Securities Act with respect to the subscription rights and underlying shares of common stock offered hereby. As permitted by the rules and regulations of the SEC, this prospectus, which forms a part of such registration statement, does not contain all the information set forth in the registration statement. In this regard, the SEC allows us to incorporate by reference certain information in the prospectus and registration statement, which means that we can disclose important information to you by referring you to those documents. These documents contain important information about us and our financial condition. This information incorporated by reference is an important part of the registration statement and this prospectus.
+
+ 
+
+We incorporate by reference the documents listed below, except information furnished under Item 2.02 or Item 7.01 of Form 8-K, which is neither deemed filed nor incorporated by reference herein:
+
+ 
+
+ 
+
+Our Annual Report on Form 10-K for the year ended April 30, 2012, filed on July 26, 2012;
+
+ 
+
+ 
+
+The information specifically incorporated by reference into our Annual Report on Form 10-K from our definitive proxy statement on Schedule 14A, filed with the SEC on August 29, 2012;
+
+ 
+
+ 
+
+Our Quarterly Reports on Form 10-Q for the periods ended July 31, 2012, October 31, 2012 and January 31, 2013 and filed on September 13, 2012, December 12, 2012 and March 15, 2013; and
+
+ 
+
+ 
+
+Our Current Reports on Form 8-K filed on May 30, 2012, August 14, 2012, August 15, 2012, August 28, 2012, September 20, 2012, October 2, 2012, October 15, 2012, November 21, 2012, January 3, 2013, January 23, 2013, March 22, 2013, April 3, 2013 and May 21, 2013.
+
+ 
+
+ 
+
+47
+
+ 
+
+ 
+
+In addition, we also incorporate by reference all documents we file under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (a) after the initial filing date of the registration statement of which this prospectus is a part and before the effectiveness of the registration statement and (b) after the effectiveness of the registration statement and before the termination of
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/BCC_boise_legal_matters.txt b/parsed_sections/legal_matters/2013/BCC_boise_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..72388cc96103747244ae71c56cc906aa0d220efe
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/BCC_boise_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered hereby has been passed upon for us by Kirkland & Ellis LLP (a partnership that includes professional corporations), Chicago, Illinois. The underwriters have been represented by Winston & Strawn LLP, Chicago, Illinois. Kirkland & Ellis LLP has from time to time represented and may continue to represent, Madison Dearborn and some of its affiliates in connection with various legal matters. Certain partners of Kirkland & Ellis LLP are members of a limited partnership that is an investor in one or more investment funds affiliated with Madison Dearborn.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/BFAM_bright_legal_matters.txt b/parsed_sections/legal_matters/2013/BFAM_bright_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9089f78cf7a0129b76e0e6c5ab391c2f6dab3da6
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/BFAM_bright_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the issuance of the shares of common stock to be sold in this offering will be passed upon for us by Ropes & Gray LLP, Boston, Massachusetts. Some attorneys of Ropes & Gray LLP are members in RGIP, LLC, which is a direct investor in Bright Horizons Family Solutions Inc. and is also an investor in certain investment funds affiliated with Bain Capital Partners, LLC. RGIP, LLC directly and indirectly owns less than 1% of our common stock and is a selling stockholder in this offering. The validity of the common stock offered hereby will be passed upon on behalf of the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/BGSF_bgsf-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/BGSF_bgsf-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a12d2b52e5395087fc74f1167b1458e695976648
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/BGSF_bgsf-inc_legal_matters.txt
@@ -0,0 +1 @@
+legal matters and proceedings arising out of our normal course of business. While uncertainties are inherent in the final outcome of such matters, we believe the disposition of such proceedings will not have a material effect on our financial position or our results of operations. Seasonality Our business experiences seasonal fluctuations. Our quarterly operating results are affected by the number of billing days in a quarter, as well as the seasonality of our customers business. Demand for our Light Industrial staffing services is higher during the second and third quarters of the year and peaks in the third quarter. Demand for our Light Industrial staffing services is lower during the first and fourth quarters, in part due to limitations to customer shutdowns and adverse weather conditions in the winter months. Demand for our Multifamily staffing services is higher during the second and third quarters of the year due to the increased turns in multifamily units during the summer months when schools are not in session. In addition, our cost of services typically increases in the first quarter primarily due to the reset of payroll taxes. Our working capital requirements are primarily driven by temporary worker payments and customer accounts receivable receipts. Since receipts from customers lag payments to temporary workers, working capital requirements increase substantially in periods of growth. The staffing industry has historically been cyclical, often acting as an indicator of both economic downturns and upswings. Staffing customers tend to use temporary staffing to supplement their existing workforces and generally hire direct workers when long-term demand is expected to increase. As a consequence, our revenues tend to increase quickly when the economy begins to grow and, conversely, our revenues can also decrease quickly when the economy begins to weaken. Employees and Temporary Workers At September 29, 2013, we had 169 full-time staff employees at our corporate and branch offices and we hired 56 full-time staff employees in connection with the acquisition of the assets of InStaff. During Fiscal 2012, we assigned approximately 10,600 temporary workers. None of our staff employees or temporary workers is represented by a labor union, and we are not aware of any current efforts or plans to organize any of our staff employees or temporary workers. We have never experienced any material labor disruptions. Properties We lease our corporate headquarters in Plano, Texas, which is approximately 6,500 square feet of space. We lease all of our branch offices, which are located throughout the US, through operating leases with terms that range from six months to five years. We also have month to month leases. We believe that our facilities are adequate for our current needs.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/BLMN_bloomin_legal_matters.txt b/parsed_sections/legal_matters/2013/BLMN_bloomin_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c47ec47fbafe82fbc7ca64152de0ec68c90e52bc
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/BLMN_bloomin_legal_matters.txt
@@ -0,0 +1 @@
+legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. Commissions and Discounts The representatives have advised us and the selling stockholders that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed. The following table shows the public offering price, underwriting discount and proceeds before expenses to the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares. Per Share Without Option With Option Public offering price $ $ $ Underwriting discount $ $ $ Proceeds, before expenses, to the selling stockholders $ $ $ Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CBKM_consumers_legal_matters.txt b/parsed_sections/legal_matters/2013/CBKM_consumers_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c3925fd1d86168cbf6a4b7d14e41b28471709e23
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CBKM_consumers_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock issuable upon exercise of the rights and offered by this prospectus will be passed upon for us by Squire Sanders (US) LLP, Cleveland, Ohio.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CDW_cdw-corp_legal_matters.txt b/parsed_sections/legal_matters/2013/CDW_cdw-corp_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5171c6c441b03e23663f796ff1205f8cce7a0223
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CDW_cdw-corp_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters Kirkland & Ellis LLP, Chicago, Illinois will pass upon the validity of the common stock offered hereby on our behalf. Some of the partners of Kirkland & Ellis LLP are, through various entities, investors in investment funds affiliated with Madison Dearborn. Kirkland & Ellis LLP represents entities affiliated with Madison Dearborn in connection with various legal matters. Certain legal matters will be passed upon for the underwriters by Winston & Strawn LLP, Chicago, Illinois.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CGABL_carlyle_legal_matters.txt b/parsed_sections/legal_matters/2013/CGABL_carlyle_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0c66890e8b0437ed522e48242f593540d3484266
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CGABL_carlyle_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common units representing limited partner interests will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. An investment vehicle composed of certain partners of Simpson Thacher & Bartlett LLP, members of their families, related parties and others owns interests representing less than 1% of the capital commitments of certain investment funds advised by Carlyle.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000026076_cubic_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000026076_cubic_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e89cfcc4e598fbf94dc1c97c1464306e38abfbaa
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000026076_cubic_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters Our counsel, Latham & Watkins LLP, San Diego, California, will pass on the validity of the shares of common stock offered by this prospectus. The underwriters have been represented by Davis Polk & Wardwell LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000732412_multiband_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000732412_multiband_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..954e100ff9f3ca62d0e9ce60fbe2eb4974384f34
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000732412_multiband_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with the notes will be passed upon for us by Winthrop & Weinstine, P.A., Minneapolis, Minnesota.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000741114_isatori_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000741114_isatori_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cf319c6679dd00f87cced95b1614086e0b5c20f1
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000741114_isatori_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Beatty & Wozniak, P.C. of Denver, Colorado has provided its opinion on the validity of the Common Stock offered by this prospectus.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000764667_sionix_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000764667_sionix_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0cc06f28f78ff239aa94aa3e3dbc58385e8b6dc5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000764667_sionix_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS Richardson & Patel LLP and its principals have accepted our common stock in exchange for services rendered to us in the past and, although the law firm and its principals are under no obligation to do so, they may continue to accept our common stock for services rendered by them. As of the date of this prospectus, Richardson & Patel LLP and its principals collectively hold 6,764,600 shares of our common stock, and warrants to purchase up to 1,041,000 shares of our common stock. Table of Contents PART II INFORMATION NOT REQUIRED IN PROSPECTUS OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemized statement of all expenses, all of which we will pay, in connection with the registration of the common stock offered hereby: Amount SEC registration fee $ 462 Printing fees 1,500 * Legal fees 25,000 * Accounting fees and expenses 7,500 * Miscellaneous 5,000 * Total $ 39,462 * * Estimated. INDEMNIFICATION OF DIRECTORS AND OFFICERS Nevada law generally permits us to indemnify our directors, officers and employees. Pursuant to the provisions of Nevada Revised Statutes 78.7502, a corporation may indemnify its directors, officers and employees as follows: (a) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, against expenses, actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable for breach of his fiduciary duties as a director or officer pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. (b) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any action by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation against expenses actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. (c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys fees, actually and reasonably incurred by him in connection with the defense. II-1 Table of Contents Charter Provisions and Other Arrangements of the Registrant Article 5 of our articles of incorporation provides for the indemnification of any and all persons who serve as our director or officer to the fullest extent permitted under Nevada law. We currently carry directors and officers liability insurance covering our directors and officers. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers, or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. RECENT SALES OF UNREGISTERED SECURITIES During the past three years, the registrant has issued and sold the following unregistered securities: During December 2009, we completed an offering of $240,000 in principal amount of convertible debentures to a group of institutional and accredited investors. The 10% Convertible Debentures mature on various dates beginning in May 2010 through June 2010 or sooner if declared due and payable by the holder upon the occurrence of an event of default, and bear interest at the rate of 10% per annum. The debentures will be convertible into common stock at a conversion price of $0.15 per share from and after such time as the authorized common stock is increased in accordance with applicable federal and state laws. As part of the above offering, we issued warrants to purchase 1,000,000 shares of common stock at exercise price of $0.25 per shares. The warrants have a term of five years and begin to expire in July 2013. We relied on Section 4(2) of the Securities Act of 1933 to issue the shares in a non-public offering inasmuch as the securities were offered and sold without any form of general solicitation or general advertising and the offerees were accredited investors. In January and February, 2010, we issued 203,000 shares of common stock in exchange for $20,000 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cash in a non-public offering, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. In February and March, 2010, we issued 440,000 shares of common stock to various noteholders in return for their agreement to extend the expiration of their notes. We relied on Section 4(2) of the Securities Act, and Regulation D promulgated thereunder, in this non-public offering as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. On April 28, 2010 we borrowed $75,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933 to make these non-public offerings inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On May 25, 2010, we issued 2,792,537 shares of common stock in exchange for $251,328 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cash in a non-public offering, as the common stock was issued in a non-public offering without any form of general solicitation or general advertising and the acquirers were accredited investors. On May 25, 2010 we borrowed $35,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933, to make these non-public offerings inasmuch as the securities were issued to accredited investors only without any form of general solicitation. II-2 Table of Contents On June 22, 2010, we issued 8,333,333 shares of common stock together with warrants to purchase 8,333,333 shares of common stock, for gross proceeds of $500,000. We relied on Section 4(2) of the Securities Act of 1933 to make these non-public offerings inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On June 23, 2010, we issued 360,013 shares of common stock for conversion of debt in the amount of $54,518 (including interest). We relied on section 3(a)(9) of the Securities Act of 1933 to issue the securities inasmuch as the shares were issued in a conversion of notes held by our existing security holders, and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. On June 23, 2010, we issued 458,680 shares of common stock to various noteholders in return for their agreement to extend the expiration of their notes. We relied on Section 4(2) of the Securities Act, and Regulation D promulgated thereunder, as providing an exemption from registering the sale of these shares of common stock under the Securities Act. On June 23, 2010, we issued 2,577,520 shares of common stock in exchange for $226,202 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cancellation of indebtedness in a non-public offering, as the common stock was issued in a non-public offering without any form of general solicitation or general advertising and the acquirers were accredited investors. On July 16, 2010, we issued 200,000 shares of common stock in exchange for $16,000 of future services. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock as consideration for the services, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. On July 29, 2010, we issued 1,346,511 shares of common stock in exchange for $94,256 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cancellation of this indebtedness, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. On August 13, 2010, we entered into a financing with nine investors for the purchase and sale of an aggregate of 6,833,331 units at a purchase price of $0.06 per unit for a total financing of $410,000. Each unit consisted of one restricted share of common stock and a warrant to purchase the number of shares of Common Stock equal to the number of units purchased by the investor multiplied by 50%, for a total of 3,416,664 shares available for purchase through the warrants. The warrants are valid for a period of 5 years from the closing date and are exercisable at a price of $0.17 per share. We relied on Section 4(2) of the Securities Act of 1933 to make these non-public offerings inasmuch as the securities were issued to accredited investors only without any form of general solicitation. In conjunction with this offering, which was completed in December 2010, we issued to a registered broker-dealer, a five year warrant for the purchase of 2,125,000 shares of common stock with an exercise price of $0.06. On August 18, 2010, Sionix and Ascendiant Capital Group, LLC ( Ascendiant ) entered into a Settlement Agreement pursuant to which we agreed to issue 4,000,000 shares of our common stock to Ascendiant in exchange for extinguishment of the claims against us and dismissal of the Litigation. On August 20, 2010, the presiding judge entered an Order Approving Settlement of Claim, pursuant to which the Settlement Agreement became binding on Sionix and Ascendiant, and, on August 23, 2010, the Settlement Shares were issued to Ascendiant. The terms and conditions of the issuance of the Settlement Shares were approved, after a hearing upon the fairness of such terms and conditions at which Ascendiant had the right to appear. The issuance of the Settlement Shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a)(10) of such Act. On August 30, 2010, we entered into a financing with five (5) investors for the purchase and sale of an aggregate of 3,416,665 units at a purchase price of $0.06 per unit for a total financing of $205,000. Each unit consisted of one restricted share of common stock and a warrant to purchase the number of shares of Common Stock equal to the number of units purchased by the investor multiplied by 50%, for a total of 1,708,332 shares available for purchase through the warrants. The warrants are valid for a period of 5 years from the closing date and are exercisable at a price of $0.17 per share. We relied on Section 4(2) of the Securities Act of 1933, as amended, to make these non-public offerings inasmuch as the securities were issued to accredited investors only without any form of general solicitation. II-3 Table of Contents On September 9, 2010 we borrowed $35,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933 to make this non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On September 24, 2010, we issued 250,000 shares of common stock in exchange for $12,500 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cancellation of this indebtedness, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. During the year ended September 30, 2010, we issued 37,629,046 shares of common stock for conversion of debt in the amount of $2,071,668 (including interest). The conversions were effected as a result of extension of an offer to substantially all of its note-holders to convert their outstanding notes, plus accrued interest, into common stock at a specific conversion price, generally $0.06 per share. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in conversion of debt in a non-public offering, as the common stock was issued in a non-public offering without any form of general solicitation or general advertising and the acquirers were accredited investors. On October 13, 2010, we entered into a financing with nine investors for the purchase and sale of an aggregate of 6,683,334 units at a purchase price of $0.06 per unit for a total financing of $401,000. Each unit consisted of one restricted share of common stock and a warrant to purchase the number of shares of Common Stock equal to the number of units purchased by the investor multiplied by 50%, for a total of 3,341,667 shares available for purchase through the warrants. The warrants are valid for a period of 5 years from the closing date and are exercisable at a price of $0.17 per share. We relied on Section 4(2) of the Securities Act of 1933, as amended, to make the non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. In November and December, 2010, we issued 3,597,932 shares of common stock for conversion of debt in the amount of $191,255 (including interest). We relied on Section 4(2) of the Securities Act, and Regulation D promulgated thereunder, as providing an exemption from registering the sale of these shares of common stock in a non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On December 7, 2010, we issued 3,747,004 shares of common stock in exchange for $151,529 of services previously rendered. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for cancellation of this indebtedness, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. On December 13, 2010, we entered into a financing with three investors for the purchase and sale of an aggregate of 3,666,667 units at a purchase price of $0.06 per unit for a total financing of $220,000. Each unit consisted of one restricted share of common stock and a warrant to purchase the number of shares of Common Stock equal to the number of units purchased by the investor multiplied by 50%, for a total of 1,833,333 shares available for purchase through the warrants. The warrants are valid for a period of 5 years from the closing date and are exercisable at a price of $0.17 per share. We relied on Section 4(2) of the Securities Act of 1933, as amended, to make the non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On December 21, 2010, we issued 1,000,000 shares of common stock in exchange for $39,000 of future services. We relied on section 4(2) of the Securities Act of 1933 to issue the common stock in exchange for these services, as the common stock was issued without any form of general solicitation or general advertising and the acquirers were accredited investors. II-4 Table of Contents On November 24, 2010, we entered into an additional Settlement Agreement with Ascendiant pursuant to which we agreed to issue 5,800,000 shares of its common stock to Ascendiant in exchange for extinguishment of the claims against us and dismissal of the litigation. On December 17, 2010, the presiding judge in the Litigation entered an Order Approving Settlement of Claim, pursuant to which the Settlement Agreement became binding on Sionix and Ascendiant, and, on December 17, 2010, the Settlement Shares were issued to Ascendiant. The terms and conditions of the issuance of the Settlement Shares were approved, after a hearing upon the fairness of such terms and conditions at which Ascendiant had the right to appear. The issuance of the Settlement Shares was exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a)(10) of such Act. On January 11, 2011 we borrowed $65,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933, as amended, to make the offerings inasmuch as the securities were issued in a non-public offering to accredited investors only without any form of general solicitation. On April 4, 2011 we borrowed $35,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933to make this non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. On April 6, 2011, we completed a private placement in which we sold and issued 21,191,685 units of our securities to 22 accredited investors at a purchase price of $0.06 per unit, for aggregate gross proceeds of $1,271,501.12. Each unit consisted of one (1) share of common stock and included 50% warrant coverage such that each investor received a warrant to purchase a number of shares of common stock equal to 50% of the number of units purchased by the investor, for a total of 10,595,843 shares of common stock issuable upon exercise of the investor warrants. The warrants are valid for a period of five years from the closing date and are exercisable at a price of $0.17 per share. The investors were existing stockholders or otherwise had a pre-existing relationship with us prior to this offering. In connection with the offering, we issued to a registered broker-dealer, a five year warrant for the purchase of up to 1,637,500 shares of common stock at an exercise price of $0.06 per share, and a placement fee in the amount of $100,000 in cash. The issuance of the units and the warrant to the broker-dealer were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, inasmuch as the securities were issued to accredited investors only without any form of general solicitation or general advertising. In April 2011 we reduced the exercise price of a warrant issued to customer in connection with a settlement we entered into with the customer. The per share exercise price of the warrant was reduced from $0.17 to $0.07. We relied on Section 3(a)(9) of the Securities Act as providing an exemption from registering the issuance of the warrant as modified inasmuch as the modified warrant was issued to an existing security holder exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the modification. On May 19, 2011 we borrowed $55,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933to make this non-public offering inasmuch as the securities were issued to accredited investors only without any form of general solicitation. II-5 Table of Contents On September 16, 2011 we borrowed $40,000 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to an accredited investor without any form of general solicitation. On October 17, 2011 we borrowed $37,500 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to an accredited investor without any form of general solicitation. For the quarter ended June 30, 2011 we issued 15,882,249 shares of common stock for conversion of debt in the amount of $801,991 (including interest). We relied on Section 3(a)(9) of the Securities Act as providing an exemption from registering the issuance of these shares of common stock under the Securities Act inasmuch as the conversion was made with our existing security holders exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. On November 8, 2011 we closed an offering of 12% debentures in the principal amount of $300,000 to TCA Global Credit Master Fund, LP. The debenture is dated October 31, 2011 and matures on July 31, 2012. We have an optional right of redemption prior to maturity. We must redeem the debenture on the maturity date at a redemption premium of 7.5%. We granted to the investor a continuing, first priority security interest in certain property belonging to us to secure the prompt payment, performance, and discharge in full of all of our obligations under the debenture, Securities Purchase Agreement, and Pledge Agreement. Subject to certain conditions being met, at our request the investor must purchase additional debentures in two tranches, each in an amount up to $350,000. We relied on Section 4(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to an accredited investor without any form of general solicitation. On November 9, 2011, we completed a private placement in which we sold 1,666,667 units of our securities to an accredited investor at a purchase price of $0.06 per unit for aggregate gross proceeds of $100,000. Each unit consisted of one share of common stock and a warrant for the purchase of one-half a share of common stock, for a total of 833,333 shares of common stock. The warrants are exercisable at a price of $0.17 per share and expire on November 9, 2014. We relied on Section 4(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to an accredited investor without any form of general solicitation. On November 23, 2011 we borrowed $100,000 in principal amount through a 6% Convertible Redeemable Note maturing on November 23, 2012. Sionix has an optional right of redemption prior to maturity upon a five (5) day notice and payment of a 40% premium on the unpaid principal amount of the loan. Sionix paid fees of $15,000 in connection with the funding of this loan. In addition, the Company received a commitment in the form of a promissory note from the lender pursuant to which the lender will provide the Company with funding of up to an additional $300,000 at the Company's discretion beginning on June 1, 2012, at which time $100,000 will become available, on each of June 1, 2012, July 1, 2012 and August 1, 2012 (the "Additional Financing"). In conjunction with obtaining the Additional Financing, the Company issued 500,000 shares of common stock to the lender (the "Lender's Shares"). If the Company fails to draw down all of the funds made available by the Additional Financing between June 1, 2012 and August 1, 2012, the lender will be entitled to keep the common stock. If the Company draws down all of the funds made available by the Additional Financing between June 1, 2012 and August 1, 2012, the lender will use the Lender's Shares toward the conversion of the outstanding principal into shares of the Company's common stock. The conversion price for each share of common stock will be equal to 70% of the lowest closing bid price of the common stock for a period of five trading days, but no lower than $0.001 per share. II-6 Table of Contents On December 13, 2011 we borrowed $42,500 from Asher Enterprises, Inc. The loan is evidenced by a promissory note and matures 270 days from the issuance date. The note accrues interest at the rate of 8% per annum until the principal amount and all accrued interest is converted into common stock at the request of the borrower. The borrower can convert the note into common stock at a 45% discount to the VWAP as of the conversion date upon request, but cannot convert until 180 days have elapsed from the date of the note. We relied on Section 4(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to an accredited investor without any form of general solicitation. During the three months ended December 31, 2011, we issued 3,758,808 shares of common stock for conversion of debt in the amount of $93,600 (including interest). We relied on Section 3(a)(9) of the Securities Act as providing an exemption from registering the issuance of these shares of common stock under the Securities Act inasmuch as the conversion was made with our existing security holders exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. On February 2, 2012 we issued to War Chest Capital Multi-Strategy Fund, LLC a 9.875% Convertible Promissory Note dated January 19, 2012 in the principal amount of $65,000 maturing on January 19, 2013. War Chest Capital Multi-Strategy Fund, LLC has the right, beginning 180 days after the issue date, to convert the accrued interest and principal under this note into common stock. The amount of shares issued would be determined by the then fair market value of our shares multiplied by 60%. We have the right to prepay the note without penalty. In the event of default, the note will accrue interest at the rate equal to the lesser of (i) 15% per annum in addition to the Interest Rate or (ii) the highest rate permitted by law, per annum until all outstanding principal, interest and fees are repaid in full. On March 2, 2012 we entered into a Securities Purchase Agreement with REVH2O LLC (the REVH2O ) pursuant to which REVH2O agreed to purchase 4,166,667 units, consisting of common stock and warrants. The transaction was completed on March 6, 2012. The purchase price was $0.06 per unit for a total proceeds of $250,000. Each unit consists of one restricted share of our common stock and a warrant to purchase one-half share of our common stock. The warrant has a term of three years from the closing date and is exercisable at a price of $0.17 per share. REVH2O is an accredited investor with which we have a prior relationship. During April 2012, we issued 5,011,590 shares of common stock for services to officers and directors. We relied on Section 4(2) of the Securities Act, as providing an exemption from registering the sale of these shares of common stock under the Securities Act In April 2012, we entered into an agreement with Ascendiant Capital Group, LLC ("Ascendiant") for the sale of $550,000 of unsecured Convertible Debentures (the Primary Debentures ) to accredited investors (the Debenture Holders ) which bear an interest rate of 8% and are due to be repaid 18 months from the closing date. The Debenture Holders received guaranteed interest on the original principal amount for a twelve-month period. Ascendiant placed $200,000 of the Primary Debentures and we terminated the offering and the Primary Debentures were converted into common stock. The Primary Debentures were convertible into our common stock during the forty-five days following the issue date at a floor price of $0.08, and from the issue date until September 28, 2012 at a conversion price of no more than $0.13, based on the average of the three lowest closing bid prices for the common stock during the ten consecutive trading days immediately preceding the conversion request. After this period the conversion price was to be 75% of the average of the three lowest closing bid prices for the common stock during the ten consecutive trading days immediately preceding the conversion request. We had the right to demand immediate conversion of the Primary Debentures or some part of them if, at any time prior to the maturity date, our common stock had, for any twenty consecutive trading-day period, reported a closing bid price of $0.40 per share or greater and reported daily trading volume of 300,000 shares or more. At the time the Primary Debentures were issued, we issued a total of 2,700,000 warrants to the Debenture Holders, which can be exercised for a period of 3 years from the closing date at an exercise price of $0.10. To induce conversion, the Company issued an additional 2,300,000 warrants to the Debenture Holders which can be exercised for a period of 5 years after the date issued at an exercise price of $0.08 per share. II-7 Table of Contents On May 17, 2012 we issued 214, 984 shares of common stock to warrant holder Mark M. Krist in a cashless exercise of a warrant. As part of the transaction we cancelled 500,000 warrant shares. On May 24, 2012 we issued 260,000 shares of common stock to warrant holder Thomas Leggiere in a cashless exercise of a warrant. As part of the transaction we cancelled 500,000 warrant shares. We relied on Section 3(a)(9) of the Securities Act as providing an exemption from registering the issuance of these shares of common stock under the Securities Act inasmuch as the conversion was made with our existing security holders exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting the exchange. On September 21, 2012 we issued a 6% Convertible Redeemable Note in the principal amount $100,000 to GEL Properties. The note matures on September 21, 2013. We have an optional right of redemption prior to maturity upon a five-day notice and payment of a 50% premium on the unpaid principal amount of the loan. We paid fees of $6,000 in connection with the funding of this loan. In addition, we received a commitment in the form of a promissory note from GEL Properties pursuant to which it will provide us with funding of an additional $300,000, $100,000 of which will become available, on each of July 1, 2103, August 15, 2013 and October 1, 2013. The conversion price for each share of common stock will be equal to 70% of the lowest closing bid price of the common stock for a period of five trading days, but no lower than $0.001 per share. On September 29, 2012 we entered into a securities purchase agreement dated September 25, 2012 with several accredited investors ( Holders ) for the purchase and sale of $1,025,000 of our convertible notes (the September 2012 Notes ) and warrants. The September 2012 Notes bear interest at the rate of 10% per annum beginning as of September 25, 2012, and mature on June 25, 2013. On the closing date, we paid to the Holders nine months of pre-paid interest on the original principal amount of the September 2012 Notes (based on the agreed nine-month term of the September 2012 Notes). The September 2012 Notes are convertible at any time at the option of the Holders into our common stock at a conversion price based on 80% of the average of the three lowest closing prices for the common stock during the ten consecutive trading days immediately preceding the conversion request, however the conversion price may not exceed $0.04, and may not be lower than $0.02 per share. We may redeem the September 2012 Notes at any time prior to maturity with ten days prior notice to the Holders, and payment of a premium of 25% on the unpaid principal amount. In addition the September 2012 Notes and related securities purchase agreement contain representations, warranties and covenants that are customary for financings of this type. We also issued warrants ( Warrants ) to the Holders for the purchase of up to 23,125,000 shares of Company common stock, pro rata in proportion to the amount invested, which can be exercised for a period of five years from the closing date, with a fixed exercise price of $0.08 per share. We relied on Section 4(a)(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to a small number of accredited investors without any form of general solicitation. On January 25, 2013 we entered into a securities purchase agreement dated January 25, 2013 with two accredited investors ( Holders ) for the purchase and sale of $140,000 of our convertible notes (the January 2013 Notes ). The January 2013 Notes bear interest at the rate of 10% per annum beginning as of January 25, 2013, and mature on September 30, 3014. The January 2013 Notes are convertible at any time at the option of the Holders (subject to an increase in our Authorized common shares, or a Reverse Split of our existing Outstanding common shares with no change to its Authorized common shares) into shares of our common stock at a conversion price based on 80% of the average of the three lowest closing prices for the common stock during the ten consecutive trading days immediately preceding the conversion request, however the conversion price may not exceed $0.04 and may not be lower than $0.02 per share. We may redeem the January 2013 Notes at any time prior to maturity with ten days prior notice to the Holders, and payment of a premium of 25% on the unpaid principal amount. In addition the January 2013 Notes and related securities purchase agreement contain representations, warranties and covenants that are customary for financings of this type. We relied on Section 4(a)(2) of the Securities Act of 1933, to make this offering in as much as the securities were issued to a small number of accredited investors without any form of general solicitation. EXHIBITS No. Description 2.1 Agreement and Plan of Merger dated July 1, 2003 (1) 3.1 Amended and Restated Articles of Incorporation (1) & Certificate of Amendment to Articles of Incorporation. ** 3.2 Bylaws (1) 5.1 Legal Opinion of Richardson & Patel LLP *** 10.1 Form of Convertible Debenture, dated as of June 18, 2007, issued by the registrant to certain investors. (2) 10.3 Form of Warrant, dated as of June 18, 2007, issued by the registrant to certain investors. (2) 10.4 Notice of Grant of Stock Option to David Ross (3) II-8 Table of Contents 10.5 Stock Option Agreement between the registrant and David Ross (3) 10.6 Notice of Grant of Stock Option to Rodney Anderson (3) 10.7 Stock Option Agreement between the registrant and Rodney Anderson (3) 10.8 Form of Securities Purchase Agreement for 12% Convertible Debentures (4) 10.9 Sionix Corporation 12% Convertible Debenture due July 29, 2008 (4) 10.10 Form of Common Stock Purchase Warrant dated July 29, 2008 (4) 10.11 Form of Unit Offering Securities Purchase Agreement (5) 10.12 Form of Common Stock Purchase Warrant (5) 10.13 Amended and Restated Promissory Notes with Calico Capital Management LLC, BRAX Capital LLC and Gene Salkind (6) 10.14 Second Amended and Restated Convertible Promissory Notes dated March 17, 2008 with Calico Capital Management LLC, BRAX Capital LLC and Gene Salkind (7) 10.15 Form of Subordinated 10% Debenture (8) 10.16 Form of Common Stock Purchase Warrant (8) 10.17 Consulting Agreement dated February 21, 2008 between the registrant and John H. Foster, Ph.D. (9) 10.18 Notice of Grant of Stock Option to John H. Foster (9) 10.19 Stock Option Agreement between the registrant and Dr. John H. Foster (9) 10.20 Notice of Grant of Stock Option (9) 10.21 Stock Option Agreement between the registrant and Dr. W. Richard Laton (9) 10.22 Waiver and Amendment #2 to Debenture dated August 23, 2011 between the registrant and Bernard Brogan (16) 10.23 Employment Agreement dated December 16, 2009 between the registrant and David R. Wells (10) 10.24 Form of Subordinated 10% Debenture (10) 10.25 Form of Common Stock Purchase Warrant (10) 10.26 Form of Securities Purchase Agreement entered into on December 13, 2010 (11) 10.27 Form of Warrant Agreement entered into on December 13, 2010 (11) 10.28 Employment Agreement effective January 1, 2011 between the registrant and David R. Wells (11) 10.29 Form of Securities Purchase Agreement entered into on April 6, 2011 (12) 10.30 Form of Warrant Agreement entered into on April 6, 2011 (12) 10.31 Supply Agreement dated May 3, 2010 with PERC Water Corporation (16) 10.32 Securities Purchase Agreement dated October 31, 2011 between the registrant and TCA Global Credit Master Fund, LP (13) 10.33 Senior Secured Redeemable Debenture issued on October 31, 2011 in favor of TCA Global Credit Master Fund, LP (13) 10.34 Security Agreement dated October 31, 2011 in favor of TCA Global Credit Master Fund, LP (13) 10.35 Pledge and Escrow Agreement dated October 31, 2011 among the registrant, TCA Global Credit Master Fund, LP and David Kahan, P.A. (13) 10.36 Form of Securities Purchase Agreement dated November 9, 2011 (13) 10.37 Form of Warrant to Purchase Common Stock dated November 9, 2011 (13) 10.37 Water Treatment Agreement dated February 21, 2012 between the registrant and McFall, Incorporated (14) 10.38 Securities Purchase Agreement dated March 2, 2012 between the registrant and REVH2O LLC (15) 10.39 Warrant for the purchase of common stock dated March 2, 2012 and issued to REVH2O LLC (15) 10.40 Form of Securities Purchase Agreement dated April 2012 for 8% Convertible Debenture and Warrant Financing (16) 10.41 Form of 8% Convertible Debenture (16) 10.42 Registration Rights Agreement in connection with 8% Convertible Debenture and Warrant Financing (16) 10.43 Form of Warrant in connection with 8% Convertible Debenture and Warrant Financing (16) 10.44 6% Convertible Redeemable Note dated September 21, 2012 issued to GEL Properties (16) 10.45 Form of Securities Purchase Agreement for 10% Convertible Promissory Notes (16) 10.46 Form of 10% Convertible Promissory Notes (16) 10.47 Form of Warrant issued together with 10% Convertible Promissory Notes (16) 10.48 Termination Agreement dated October 8, 2012 between the registrant and Ascendiant Capital Markets, LLC (16) 10.49 Securities Purchase Agreement dated March 12, 2012 between Williston Basin I, LLC and certain investors (16) II-9 Table of Contents 10.50 Offer of Position for Board of Directors to Kenneth Calligar dated July 31, 2012 (16) 10.51 Offer of Position for Board of Directors to Bernard Brogan dated July 31, 2012 (16) 10.52 Offer of Position for Board of Directors to Dr. Henry Sullivan dated October 23, 2012 (16) 21 Subsidiaries of the registrant* 23.1 Consent of Kabani & Company, LLC * 23.2 Consent of Richardson & Patel LLP (included in Exhibit 5.1)*** 101.1INS XBRL Instant Document** 101.1SCH XBRL Taxonomy Extension Schema Document** 101.1CAL XBRL Taxonomy Extension Calculation Linkbase Document** 101.1DEF XBRL Taxonomy Extension Definition Linkbase Document** 101.1LAB XBRL Taxonomy Extension Label Linkbase Document** 101.1PRE XBRL Taxonomy Extension Presentation Linkbase Document** ________________ *Filed herewith. ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these Sections. *** To be filed by Amendment (1) Incorporated by reference to registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on July 15, 2003. (3) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on October 23, 2008. (4) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on July 30, 2008. (5) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on May 29, 2008. (6) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on January 28, 2008. (7) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on March 24, 2008. (8) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on March 3, 2008. (9) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on February 25, 2008. (10) Incorporated by reference to the registrant s Annual Report on Form 10-K, file no. 002-95626-D, filed with the Commission on January 13, 2010. (11) Incorporated by reference to the registrant's Registration Statement on Form S-1 filed with the Commission on March 10, 2011. (12) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on April 8, 2011. (13) Incorporated by reference to the registrant s Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on November 16, 2011. (14) Incorporated by reference to the registrant's Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on March 6, 2012. (15) Incorporated by reference to the registrant's Current Report on Form 8-K, file no. 002-95626-D, filed with the Commission on March 6, 2012. (16) Incorporated by reference to the registrant's Annual Report on Form 10-K, file no. 002-95626-D, filed with the Commission on December 31, 2012. II-10 Table of Contents Item 17. Undertakings. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; II-11 Table of Contents (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000791770_sqbg-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000791770_sqbg-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6f83c080abcf1231ef28a4f59e11feb9b285b6ae
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000791770_sqbg-inc_legal_matters.txt
@@ -0,0 +1,24 @@
+LEGAL MATTERS
+ 23
+
+ 
+ 
+
+ EXPERTS
+ 24
+
+ 
+ 
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION
+ 24
+
+ 
+ 
+
+ INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS
+ 24
+
+ 
+
+ (i)
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000826773_unitek_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000826773_unitek_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..08afd02e2185bd62ba1d99168922640130ba07e4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000826773_unitek_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000842722_fuse_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000842722_fuse_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..18e0f0f07a2bc5a1523f42e042427ea2791816ab
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000842722_fuse_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock being offered hereby has been passed upon by Roetzel & Andress, Fort Lauderdale, Florida.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000855874_community_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000855874_community_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..31e5d3f5dd2df6950b82f9c8f97ada738fceea85
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000855874_community_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby and selected other legal matters in connection with the offering will be passed upon for us by the law firm of Kilpatrick Townsend & Stockton LLP, Washington, DC. Certain legal matters with respect to this offering will be passed upon for the underwriters by Elias, Matz, Tiernan & Herrick L.L.P. Gary R. Bronstein, a partner in the law firm of Kilpatrick Townsend & Stockton LLP, beneficially owns 12,499 shares of Tri-County Financial common stock.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000861838_aceragen_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000861838_aceragen_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f7ecae1c7465138ea65d79db915b0b64831ab54f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000861838_aceragen_legal_matters.txt
@@ -0,0 +1 @@
+Table of Contents UNDERWRITING We are offering the shares of common stock and warrants, including the pre-funded warrants, described in this prospectus through Piper Jaffray & Co. as underwriter. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriter, and the underwriter has agreed to purchase from us, shares of common stock, pre-funded warrants to purchase up to shares of common stock and warrants to purchase up to shares of common stock. The underwriter is committed to purchase all the shares of common stock, pre-funded warrants and warrants offered by us if it purchases any shares of common stock, pre-funded warrants and warrants. Certain of our existing principal stockholders and their affiliated entities have indicated an interest in purchasing up to $2.5 million of shares of our common stock and warrants to purchase shares of our common stock in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares and warrants to any of these existing principal stockholders and any of these existing principal stockholders could determine to purchase more, less or no shares and warrants in this offering. The underwriter has advised us that it proposes to offer the shares of common stock and warrants directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that same price less a concession not in excess of a combined $ per share of common stock and related warrants. The underwriter may allow and the dealers may re-allow a concession of not more than a combined $ per share of common stock and related warrants on sales to certain other brokers and dealers. After the offering, these figures may be changed by the underwriter. Each share of common stock is being offered together with a warrant to purchase up to shares of our common stock and each pre-funded warrant is being offered together with a warrant to purchase up to shares of common stock. The shares of common stock, warrants and pre-funded warrants will be issued separately and no CUSIP number will be issued for any unit of common stock, warrants and/or pre-funded warrants. There is no market through which the warrants or pre-funded warrants may be sold and purchasers may not be able to resell the warrants or pre-funded warrants purchased under this prospectus. The underwriters have advised us that they currently intend to make a market in the common stock. However, the underwriters are not obligated to do so and may discontinue market-making activities at any time without notice. No assurance can be given as to the liquidity of the trading market for the common stock. The underwriting fee per share of common stock and related warrant is equal to the public offering price per share of common stock and related warrant, less the amount paid by the underwriter to us per share of common stock and related warrant and the underwriting fee per pre-funded warrant is equal to the public offering price per pre-funded warrant, less the amount paid by the underwriter to us per pre-funded warrant. The following table shows the (i) per combined share and related warrant underwriting discounts and commissions and (ii) total underwriting discounts and commissions to be paid to the underwriter in connection with this offering. Per Combined Share and Related Warrant Per Pre-Funded Warrant Total Public offering price $ $ $ Underwriting discounts and commissions paid by us $ $ $ Proceeds to us, before expenses $ $ $ We are also offering to those purchasers, which propose to purchase shares of common stock in this offering that would result in the purchaser, together with its affiliates and certain related parties, - 140 - Table of Contents beneficially owning more than 9.9% of our outstanding common stock following the consummation of this offering, the opportunity to purchase, in lieu of the shares of our common stock that would result in ownership in excess of 9.9%, warrants to purchase such excess shares of our common stock. The purchase price for each such pre-funded warrant would equal the per share public offering price for the common stock in this offering less the $0.01 per share exercise price of each such pre-funded warrant, and the exercise price of these pre-funded warrants would equal $0.01 per share. We estimate that the total fees and expenses payable by us, excluding underwriting discounts and commissions, will be approximately $ . Pursuant to the terms of the underwriting agreement, we have also agreed to reimburse the underwriter for expenses, including reasonable fees and disbursements of counsel, relating to this offering of up to $150,000, which amount is included in the above total and shall not be increased without our prior written consent. We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriter may be required to make in respect of those liabilities. We and each of our directors and executive officers are subject to lock-up agreements that prohibit us and them from offering for sale, pledging, selling, contracting to sell, selling any option or contract to purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, lend or otherwise transferring or disposing of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, from entering into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, or making any demand for, or exercising any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for common stock, or making any public announcement of the intention to do any of the foregoing, for a period of at least 90 days following the date of the underwriting agreement without the prior written consent of Piper Jaffray & Co. The lock-up agreements do not prohibit our directors and executive officers from transferring shares of our common stock for bona fide estate or tax planning purposes, subject to certain requirements, including that the transferee be subject to the same lock-up terms, participating in any exchange of underwater options with us, acquiring or exercising stock options issued pursuant to our existing stock option plans, or entering into plans that satisfy the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, provided that no sales are made under such plans during the lock-up period. The lock-up agreements do not prohibit us from issuing shares upon the exercise or conversion of securities outstanding on the date of this prospectus. The lock-up provisions do not prevent us from selling shares to the underwriter pursuant to the underwriting agreement, or prevent us from granting options to acquire securities under our existing stock option plans or issuing shares upon the exercise or conversion of securities outstanding on the date of this prospectus. The 90-day lock-up period in all of the lock-up agreements is subject to extension if (i) during the last 17 days of the lock-up period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, if, within three days of that issuance or occurrence, Piper Jaffray & Co. publishes or otherwise distributes a research report or makes a public appearance concerning us, unless Piper Jaffray & Co. waives the extension in writing. - 141 - Table of Contents Our shares are quoted on the Nasdaq Capital Market under the symbol IDRA. To facilitate the offering, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock during and after the offering. Specifically, the underwriter may over-allot or otherwise create a short position in the common stock for its own account by selling more shares of common stock than we have sold to it. Short sales involve the sale by the underwriter of a greater number of shares than it is required to purchase in the offering. The underwriter may close out any short position by either exercising its option to purchase additional shares or purchasing shares in the open market. The underwriter may also engage in passive market making transactions in our common stock. Passive market making consists of displaying bids on the Nasdaq Capital Market limited by the prices of independent market makers and effecting purchases limited by those prices in response to order flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net purchases that each passive market maker may make and the displayed size of each bid. Passive market making may stabilize the market price of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time. This prospectus in electronic format may be made available on web sites maintained by the underwriter, and the underwriter may distribute prospectus supplements electronically. From time to time in the ordinary course of their respective businesses, the underwriter and certain of its affiliates may in the future engage in commercial banking or investment banking transactions with us and our affiliates. - 142 - Table of Contents LEGAL MATTERS The validity of the securities offered hereby will be passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts. Dechert LLP, New York, New York, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000864264_simon_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000864264_simon_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..45a029ccfa6238ea50a16dab68a77b42d883fe0a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000864264_simon_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for us by Munger, Tolles & Olson, LLP, Los Angeles, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000878375_american_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000878375_american_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a073f9e747a1e8b8c72cd497ab308d24fecdebce
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000878375_american_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters 162
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000884504_thermoener_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000884504_thermoener_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..440c0b6707fe1816c91940de275e5eec17683fc9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000884504_thermoener_legal_matters.txt
@@ -0,0 +1,1179 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the common stock has been
+passed upon for us by Nixon Peabody LLP, 100 Summer Street, Boston, Massachusetts 02110.
+
+ 
+
+EXPERTS
+
+ 
+
+The consolidated financial statements
+of ThermoEnergy Corporation as of December 31, 2011 and 2010 and for the years then ended included in this prospectus and elsewhere
+in the Registration Statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered
+public accountants and successor to the practice of CCR LLP, upon the authority of said firm as experts in auditing and accounting
+in giving said report.
+
+ 
+
+WHERE YOU CAN FIND MORE INFORMATION
+
+ 
+
+We file annual, quarterly and current
+reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the
+Internet at the SEC's website at www.sec.gov and on the investor relations page of our website at http://ir.stockpr.com/thermoenergy/sec-filings.
+Information on, or accessible through, our website is not part of this prospectus. You may also read and copy any document
+we file with the SEC at the SEC's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can also
+obtain copies of the documents upon the payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330
+for further information on the operation of the Public Reference Room.
+
+ 
+
+This prospectus omits some information
+contained in the registration statement in accordance with SEC rules and regulations. You should review the information
+and exhibits included in the registration statement for further information about us and the securities we are offering. Statements
+in this prospectus concerning any document we filed as an exhibit to the registration statement or that we otherwise filed with
+the SEC are not intended to be comprehensive and are qualified by reference to these filings. You should review the complete document
+to evaluate these statements.
+
+ 
+
+ 59
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+ 
+
+CONSOLIDATED FINANCIAL STATEMENTS
+
+ 
+
+As of and For the Years ended December
+31, 2011 and 2010 
+
+ 
+
+With
+
+ 
+
+Report of Independent Registered Public
+Accounting Firm
+
+ 
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC
+ACCOUNTING FIRM
+
+ 
+
+Board of Directors and Stockholders
+
+ThermoEnergy Corporation
+
+ 
+
+We have audited the accompanying consolidated
+balance sheet of ThermoEnergy Corporation (a Delaware corporation) and subsidiaries (the "Company") as of December
+31, 2011, and the related consolidated statements of operations, stockholders deficiency, and cash flows for the year then
+ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an
+opinion on these financial statements based on our audit. The consolidated financial statements of the Company as of December
+31, 2010 and for the year then ended were audited by CCR LLP. We have since succeeded to the practice of such firm.
+
+ 
+
+We conducted our audits in accordance
+with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
+perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The
+Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our
+audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
+in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control
+over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
+supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
+made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
+basis for our opinion.
+
+ 
+
+In our opinion, the consolidated financial
+statements referred to above present fairly, in all material respects, the financial position of ThermoEnergy Corporation and
+subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the two years
+in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
+
+ 
+
+The accompanying financial statements
+have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial
+statements, the Company incurred a net loss of $17,386,000 during the year ended December 31, 2011, and, as of that date, the
+Company s current liabilities exceeded its current assets by $3,387,000 and its total liabilities exceeded its total assets
+by $4,603,000. These conditions, along with other matters as set forth in Note 2, raise substantial doubt about the Company s
+ability to continue as a going concern. Management s plans in regard to these matters are also described in Note 2. The
+financial statements do not include any adjustments that might result from the outcome of this uncertainty.
+
+ 
+
+/s/ GRANT THORNTON LLP
+
+ 
+
+Boston, Massachusetts
+
+May 14, 2012
+
+ 
+
+ F-2
+
+ 
+
+ 
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+CONSOLIDATED BALANCE SHEETS
+
+(in thousands, except share and par
+value amounts)
+
+ 
+
+ 
+ December
+ 31,
+ 2011
+ 
+ December 31,
+ 2010
+ 
+
+ ASSETS 
+ 
+ 
+
+ Current Assets: 
+ 
+ 
+
+ Cash 
+ $3,056 
+ $4,299 
+
+ Accounts receivable, net 
+ 4,228 
+ 1,043 
+
+ Costs in excess of billings 
+ 132 
+ — 
+
+ Inventories 
+ 167 
+ 65 
+
+ Other current assets 
+ 590 
+ 289 
+
+ Total Current Assets 
+ 8,173 
+ 5,696 
+
+ 
+ 
+ 
+
+ Property and equipment, net 
+ 544 
+ 560 
+
+ Other assets 
+ 72 
+ 61 
+
+ 
+ 
+ 
+
+ TOTAL ASSETS 
+ $8,789 
+ $6,317 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS' DEFICIENCY 
+ 
+ 
+
+ Current Liabilities: 
+ 
+ 
+
+ Accounts payable 
+ $2,640 
+ $722 
+
+ Convertible debt, current portion 
+ 1,250 
+ — 
+
+ Accrued payroll taxes 
+ 599 
+ 1,470 
+
+ Billings in excess of costs 
+ 5,131 
+ 1,880 
+
+ Derivative liability, current portion 
+ 706 
+ — 
+
+ Other current liabilities 
+ 1,234 
+ 1,995 
+
+ Total Current Liabilities 
+ 11,560 
+ 6,067 
+
+ 
+ 
+ 
+
+ Long Term Liabilities: 
+ 
+ 
+
+ Derivative liability 
+ 101 
+ 2,852 
+
+ Convertible debt, net 
+ 1,571 
+ 8,892 
+
+ Other long term liabilities 
+ 160 
+ 180 
+
+ Total Long Term Liabilities 
+ 1,832 
+ 11,924 
+
+ 
+ 
+ 
+
+ Total Liabilities 
+ 13,392 
+ 17,991 
+
+ 
+ 
+ 
+
+ Commitments and contingencies (Note 12) 
+ 
+ 
+
+ 
+ 
+ 
+
+ Stockholders' Deficiency: 
+ 
+ 
+
+ Preferred Stock, $0.01 par value: authorized: 30,000,000
+ shares at December 31, 2011 and 20,000,000 shares at December 31, 2010: 
+ 
+ 
+
+ Series A Convertible Preferred Stock,
+ liquidation value of $1.20 per share: designated: 208,334 shares at December 31, 2011 and 10,000,000 shares at December 31,
+ 2010; issued and outstanding: 208,334 shares at December 31, 2011 and 2010 
+ 2 
+ 2 
+
+ Series B Convertible Preferred Stock,
+ liquidation preference of $2.40 per share: designated: 12,000,000 shares at December 31, 2011 and 6,454,621 shares at December
+ 31, 2010; issued and outstanding: 11,664,993 shares at December 31, 2011 and 5,968,510 shares at December 31, 2010 
+ 117 
+ 60 
+
+ Common Stock, $.001 par value: authorized –
+ 425,000,000 shares at December 31, 2011 and 300,000,000 shares at December 31, 2010; issued: 85,167,098 shares at December
+ 31, 2011 and 55,681,918 shares at December 31, 2010; outstanding: 85,033,301 shares at December 31, 2011 and 55,548,121 shares
+ at December 31, 2010 
+ 85 
+ 55 
+
+ Additional paid-in capital (Note 1) 
+ 108,727 
+ 84,351 
+
+ Accumulated deficit (Note 1) 
+ (113,510) 
+ (96,124)
+
+ Treasury stock, at cost: 133,797
+ shares at December 31, 2011 and 2010 
+ (18) 
+ (18)
+
+ Total ThermoEnergy Corporation Stockholders Deficiency 
+ (4,597) 
+ (11,674)
+
+ Noncontrolling interest 
+ (6) 
+ — 
+
+ Total Stockholders Deficiency 
+ (4,603) 
+ (11,674)
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES AND STOCKHOLDERS 
+ DEFICIENCY 
+ $8,789 
+ $6,317 
+
+ 
+
+See notes to consolidated financial statements.
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+CONSOLIDATED STATEMENTS OF OPERATIONS
+
+(in thousands, except share and per
+share amounts)
+
+ 
+
+ 
+ Year Ended December 31, 
+
+ 
+ 2011 
+ 2010 
+
+ 
+ 
+ 
+
+ Revenue 
+ $5,583 
+ $2,874 
+
+ Cost of revenue 
+ 5,179 
+ 2,799 
+
+ Gross profit 
+ 404 
+ 75 
+
+ 
+ 
+ 
+
+ Operating Expenses: 
+ 
+ 
+
+ General and administrative 
+ 4,807 
+ 5,800 
+
+ Engineering, research and development 
+ 299 
+ 643 
+
+ Sales and marketing 
+ 2,448 
+ 1,281 
+
+ Total operating expenses 
+ 7,554 
+ 7,724 
+
+ 
+ 
+ 
+
+ Loss from operations 
+ (7,150) 
+ (7,649)
+
+ 
+ 
+ 
+
+ Other income (expense): 
+ 
+ 
+
+ Warrant expense 
+ — 
+ (107)
+
+ Gain on payroll tax settlement 
+ — 
+ 2,263 
+
+ Loss on extinguishment of debt (Note 1) 
+ (12,551) 
+ (5,620)
+
+ Derivative liability income (expense) 
+ 3,936 
+ (293)
+
+ Equity in losses of joint venture 
+ (389) 
+ (74)
+
+ Interest and other expense, net 
+ (1,232) 
+ (3,376)
+
+ Total
+ other expense 
+ (10,236) 
+ (7,207)
+
+ 
+ 
+ 
+
+ Net loss 
+ (17,386) 
+ (14,856)
+
+ Net loss attributable to noncontrolling interest 
+ 57 
+ — 
+
+ 
+ 
+ 
+
+ Net loss attributable to ThermoEnergy Corporation 
+ (17,329) 
+ (14,856)
+
+ Deemed dividend on Series B Convertible Preferred Stock
+ (Note 1) 
+ — 
+ (1,894)
+
+ 
+ 
+ 
+
+ Net loss attributable to ThermoEnergy Corporation common
+ stockholders 
+ $(17,329) 
+ $(16,750)
+
+ 
+ 
+ 
+
+ Loss per share attributable to ThermoEnergy Corporation
+ common stockholders, basic and diluted 
+ $(0.30) 
+ $(0.31)
+
+ 
+ 
+ 
+
+ Weighted average shares used in computing loss per share,
+ basic and diluted 
+ 56,819,885 
+ 54,041,586 
+
+ 
+
+See notes to consolidated financial statements.
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
+DEFICIENCY 
+
+(in thousands, except share and per share amounts)
+
+Years Ended December 31, 2011 and 2010
+
+ 
+
+ 
+ Series A
+ 
+Convertible 
+Preferred 
+Stock 
+ Series B
+ 
+Convertible 
+Preferred 
+Stock 
+ Common
+ 
+Stock 
+ Additional
+ 
+Paid-In 
+Capital 
+ Accumulated
+ 
+Deficit 
+ Treasury
+ 
+Stock 
+ Noncontrolling
+ 
+Interest 
+ Total 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at
+ December 31, 2009 
+ $2 
+ $30 
+ $54 
+ $66,711 
+ $(81,268) 
+ $- 
+ $- 
+ $(14,471)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stock
+ options issued to officers, directors and employees 
+ 
+ 
+ 
+ 2,066 
+ 
+ 
+ 
+ 2,066 
+
+ Common
+ Stock issued for services (200,000 shares) 
+ 
+ 
+ 
+ 54 
+ 
+ 
+ 
+ 54 
+
+ Convertible
+ Notes and accrued interest converted to Common Stock (1,802,445 shares at $0.24 per share) 
+ 
+ 
+ 1 
+ 432 
+ 
+ 
+ 
+ 433 
+
+ Convertible
+ debt and accrued interest converted to Series B Convertible Preferred Stock (791,668 shares at $2.40 per share) (Note 1) 
+ 
+ 8 
+ 
+ 6,898 
+ 
+ 
+ 
+ 6,906 
+
+ Series
+ B Convertible Preferred Stock and warrants issued for cash, net of issuance costs of $375 (2,083,334 shares at $2.40 per share) 
+ 
+ 21 
+ 
+ 4,604 
+ 
+ 
+ 
+ 4,625 
+
+ Series
+ B Convertible Preferred Stock and warrants issued for settlement with Convertible note holders (55,554 shares at $2.40 per
+ share) 
+ 
+ 1 
+ 
+ 533 
+ 
+ 
+ 
+ 534 
+
+ Beneficial
+ conversion features recognized upon issuance of short term borrowings 
+ 
+ 
+ 
+ 3,053 
+ 
+ 
+ 
+ 3,053 
+
+ Purchase of treasury stock
+ (50,000 shares at $0.35 per share) 
+ 
+ 
+ 
+ 
+ 
+ (18) 
+ 
+ (18)
+
+ Net
+ Loss (Note 1) 
+ 
+ 
+ 
+ 
+ (14,856) 
+ 
+ 
+ (14,856)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31,
+ 2010 
+ 2 
+ 60 
+ 55 
+ 84,351 
+ (96,124) 
+ (18) 
+ - 
+ (11,674)
+
+ Stock
+ options issued to officers, directors and employees 
+ 
+ 
+ 
+ 1,002 
+ 
+ 
+ 
+ 1,002 
+
+ Common
+ Stock issued for services (600,000 shares) 
+ 
+ 
+ 1 
+ 113 
+ 
+ 
+ 
+ 114 
+
+ Conversion
+ of Series B Convertible Stock (118,518 shares) to Common Stock (1,185,180 shares) 
+ 
+ (1) 
+ 1 
+ 
+ 
+ 
+ 
+ — 
+
+ Conversion
+ and tender of convertible debt and accrued interest to Series B Convertible Preferred Stock and warrants 
+ 
+ 58 
+ 
+ 14,080 
+ 
+ 
+ 
+ 14,138 
+
+ Exercise
+ of Common Stock purchase warrants for cash, net of issuance costs of $196 (27,700,000 shares at $0.095 per share) 
+ 
+ 
+ 28 
+ 2,408 
+ 
+ 
+ 
+ 2,436 
+
+ Issuance
+ of Common Stock purchase warrants 
+ 
+ 
+ 
+ 4,879 
+ 
+ 
+ 
+ 4,879 
+
+ Derecognition
+ of beneficial conversion features on extinguished debt 
+ 
+ 
+ 
+ (2,003) 
+ 
+ 
+ 
+ (2,003)
+
+ Repricing of warrants 
+ 
+ 
+ 
+ 1,799 
+ 
+ 
+ 
+ 1,799 
+
+ Reclassification
+ of derivative liabilities to equity 
+ 
+ 
+ 
+ 2,037 
+ 
+ 
+ 
+ 2,037 
+
+ Debt
+ discount recognized upon issuance of convertible debt 
+ 
+ 
+ 
+ 61 
+ 
+ 
+ 
+ 61 
+
+ Contributions
+ to joint venture on behalf of noncontrolling interest 
+ 
+ 
+ 
+ 
+ 
+ 
+ (63) 
+ (63)
+
+ Net
+ Loss 
+ 
+ 
+ 
+ 
+ (17,386) 
+ 
+ 57 
+ (17,329)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2011 
+ $2 
+ $117 
+ $85 
+ $108,727 
+ $(113,510) 
+ $(18) 
+ $(6) 
+ $(4,603)
+
+ 
+
+ 
+
+ 
+
+See notes to consolidated financial statements.
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+
+(in thousands)
+
+ 
+ Year Ended December 31, 
+
+ 
+ 2011 
+ 2010 
+
+ Operating Activities: 
+ 
+ 
+
+ Net loss (Note 1) 
+ $(17,386) 
+ $(14,856)
+
+ Adjustment to reconcile net loss to net cash used in operating
+ activities: 
+ 
+ 
+
+ Stock option expense 
+ 1,002 
+ 2,066 
+
+ Warrant expense 
+ — 
+ 107 
+
+ Common stock issued for services 
+ 114 
+ 54 
+
+ Gain on payroll tax settlement 
+ — 
+ (2,263)
+
+ Loss on extinguishment of debt (Note
+ 1) 
+ 12,513 
+ 5,620 
+
+ Loss on disposal of property, plant
+ and equipment 
+ 62 
+ — 
+
+ Equity in losses of joint venture 
+ 389 
+ 74 
+
+ Derivative liability (income) expense 
+ (3,936) 
+ 293 
+
+ Non-cash interest added to debt 
+ 245 
+ 941 
+
+ Series B Preferred Convertible Stock
+ and warrants issued for note holder settlement expenses 
+ — 
+ 534 
+
+ Purchase of treasury stock 
+ — 
+ (18)
+
+ Depreciation 
+ 89 
+ 52 
+
+ Amortization of discount on convertible
+ debt 
+ 687 
+ 2,243 
+
+ Increase (decrease) in cash arising from changes in assets
+ and liabilities: 
+ 
+ 
+
+ Accounts receivable 
+ (3,185) 
+ (1,036)
+
+ Costs in excess of billings 
+ (132) 
+ — 
+
+ Inventories 
+ (102) 
+ 9 
+
+ Other current assets 
+ (307) 
+ (84)
+
+ Accounts payable 
+ 1,918 
+ (90)
+
+ Billings in excess of costs 
+ 3,251 
+ 1,482 
+
+ Other current liabilities 
+ (1,303) 
+ (707)
+
+ Other long-term liabilities 
+ (20) 
+ (49)
+
+ 
+ 
+ 
+
+ Net cash used in operating activities 
+ (6,101) 
+ (5,628)
+
+ 
+ 
+ 
+
+ Investing Activities: 
+ 
+ 
+
+ Investment in joint venture 
+ (400) 
+ (61)
+
+ Purchases of property
+ and equipment 
+ (135) 
+ (371)
+
+ 
+ 
+ 
+
+ Net cash used in investing activities 
+ (535) 
+ (432)
+
+ 
+ 
+ 
+
+ Financing Activities: 
+ 
+ 
+
+ Proceeds from issuance of Series B
+ Convertible Preferred Stock and warrants, net of issuance costs of $375 
+ — 
+ 4,625 
+
+ Proceeds from issuance of common stock,
+ net of issuance costs of $196 
+ 2,436 
+ — 
+
+ Proceeds from issuance of convertible
+ promissory notes 
+ 5,760 
+ 4,625 
+
+ Payments on convertible
+ promissory notes 
+ (2,803) 
+ — 
+
+ 
+ 
+ 
+
+ Net cash provided by financing activities 
+ 5,393 
+ 9,250 
+
+ 
+ 
+ 
+
+ Net change in cash 
+ (1,243) 
+ 3,190 
+
+ Cash, beginning of year 
+ 4,299 
+ 1,109 
+
+ Cash, end of year 
+ $3,056 
+ $4,299 
+
+ 
+ 
+ 
+
+ Supplemental schedule of non-cash financing activities: 
+ 
+ 
+
+ Conversion and
+ tender of convertible debt and accrued interest to Series B Convertible Preferred Stock and warrants 
+ $14,138 
+ $1,900 
+
+ Conversion of
+ convertible notes and accrued interest to common stock 
+ $— 
+ $433 
+
+ Debt (premium)
+ discount recognized on convertible debt 
+ $(131) 
+ $3,053 
+
+ Accrued interest
+ added to debt 
+ $153 
+ $323 
+
+ 
+ 
+ 
+
+ 
+
+See notes to consolidated financial statements.
+
+ 
+
+ F-6
+
+ 
+
+ 
+
+ 
+
+THERMOENERGY CORPORATION
+
+NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+
+December 31, 2011 and 2010
+
+ 
+
+Note 1: Organization and summary
+of significant accounting policies
+
+ 
+
+Nature of
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000901842_blue_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000901842_blue_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e04ec8e3a0fe84c61f8a562a6c9a13f73a03dc9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000901842_blue_legal_matters.txt
@@ -0,0 +1 @@
+Plan Category Number of Common Shares to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Common Shares Remaining Available for Future Issuance Under Equity Plans (Excluding Shares Reflected in Column (a)) (a) (b) Equity compensation plans approved by stockholders - - - Equity compensation plans not approved by stockholders - - - Total $ - $ - $ - 2012 Director Compensation The Company pays each of our non-employee directors in common stock of the Company a fee of $1,500 for each meeting of our Board, and a fee of $350 for each committee meeting that each attends. An employee of the Company or a subsidiary receives no additional compensation for serving as a director. Directors are also eligible to receive stock options, restricted stock and deferred share unit grants under our 1998 Equity Incentive Plan. In December 2012, each non-employee director of the Company was awarded 1,000 shares of our stock for performance during 2012. Mr. Regnier received 8,000 shares of restricted stock as discussed above under Executive Compensation. Fees Earned or Paid in Cash(1) Stock Awards (2) Option Awards Non Equity Incentive Plan Compensation All Other Compensation Total Compensation Name Year ($) ($) ($) ($) ($) ($) Donald H. Alexander 2012 $ 37,500 $ 8,500 - - - $ 45,500 Robert D. Taylor 2012 $ 17,950 $ 8,500 - - - $ 26,450 James L. Gegg 2012 $ 3,350 $ 4,250 - - - $ 7,600 (1) Fees earned were converted to shares of the Company s common stock during 2012. In December, 2012, the following shares of common stock were issued to the non-employee directors: Mr. Alexander 8,223 shares; Mr. Taylor 3,989 shares; and Mr. Gegg 745 shares. (2) All non-employee directors received 2,000 shares, except M. Gegg, who received 1,000 shares, which vested immediately. Management s estimate of the fair value of our common stock at December 24, 2012, the grant date, was $4.25 per share based upon the last trade which occurred on December 19, 2012. LEGAL MATTERS The validity of the issuance of the common stock offered hereby will be passed upon for us by Husch Blackwell LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0000907686_plures_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0000907686_plures_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..75f844018105606d7d3bfb09f6e86fa4afcb0618
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0000907686_plures_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Ruskin, Moscou Faltischek P.C. has acted as counsel to the Company.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001011664_elbit_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001011664_elbit_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d64ec5d3c092f45b5a9454fe6436622ef28e0274
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001011664_elbit_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the ordinary shares being offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Yigal Arnon & Co., Tel Aviv, Israel.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001024657_west-corp_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001024657_west-corp_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21f2f210f26001393d68ce92862a1dcfaae1c833
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001024657_west-corp_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this offering, including the validity of the shares of common stock offered hereby, will be passed upon for us by Sidley Austin LLP. Ropes & Gray LLP has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001029581_modsys_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001029581_modsys_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0ce4bd12a3de155cc4a27c81cf0de05dce5af20b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001029581_modsys_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the ordinary shares being offered by this prospectus and other legal matters concerning this offering relating to Israeli law will be passed upon for us by Herzog, Fox & Neeman, with a business address at Asia House, 4 Weizmann St., Tel Aviv, Israel 64239. Certain other legal matters relating to United States law will be passed upon by Cooley LLP, with a business address at 500 Boylston St, Boston, MA 02116.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001052257_agritech_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001052257_agritech_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..35dc2aaea7a27b0a68e899a446530171e15c9b81
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001052257_agritech_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Quarles & Brady LLP, Milwaukee, Wisconsin, will pass upon the validity of the securities offered by this prospectus as our counsel. Ellenoff Grossman & Schole LLP, New York, New York, is acting as counsel for the Placement Agent in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001071264_jacksonvil_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001071264_jacksonvil_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..03b18abff2608379ab359e0cc2a75e2dd02e17f8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001071264_jacksonvil_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with any offering of securities made by this prospectus and the material U.S. federal income tax consequences of this rights offering will be passed upon for us by McGuireWoods LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001082176_kleangas_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001082176_kleangas_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a18b942cabdd489d4d25797911a327918f66a8b8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001082176_kleangas_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon by Barry J. Miller, Esq., of Farmington Hills, Michigan.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001092839_dune_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001092839_dune_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e725cb468e3990d59cd4bea59707016e277e4dd6
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001092839_dune_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters 29
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001095996_william_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001095996_william_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..407ccf0dadb0c74a7dba2bec2fbe1c61f4f12d3f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001095996_william_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A Common Stock offered by this prospectus has been passed upon for us by Latham & Watkins LLP, Costa Mesa, California. The validity of the shares of Class A Common Stock offered hereby has been passed upon for the underwriters by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001104358_broadview_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001104358_broadview_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001104358_broadview_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001117480_chimerix_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001117480_chimerix_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..75a01ce1ced13fecd9da337739bd7bbfd29d7dac
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001117480_chimerix_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, San Diego, California. The underwriters are being represented by Davis Polk & Wardwell LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001131543_ambit_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001131543_ambit_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..45483af549417750a180c9cd6dfb2096b64c21c0
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001131543_ambit_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, San Diego, California. Latham & Watkins LLP, San Diego, California, is counsel for the underwriters in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001137204_epm-live_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001137204_epm-live_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0ba1beba877317bba8d7f578d942bc3a0211329a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001137204_epm-live_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters relating to the validity of the issuance of the common stock offered by this prospectus will be passed upon for us by Perkins Coie LLP, Seattle, Washington.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001138817_first_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001138817_first_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b0665e120f64ee049ad9a030f5667875ea5b0f09
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001138817_first_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS 44
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001143921_vantagesou_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001143921_vantagesou_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..39d3dd4bc2cebdda17eddf08b28a394fb3e5861f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001143921_vantagesou_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares offered by this prospectus will be passed upon for us by Womble Carlyle Sandridge & Rice, LLP. Wyrick Robbins Yates & Ponton LLP is acting as counsel for the underwriters in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001158863_wageworks_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001158863_wageworks_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..479b11afa55d394f1912e57cd95f538210462a9f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001158863_wageworks_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Latham & Watkins LLP, Menlo Park, California is representing the underwriters in this offering. Certain members of, and investment partnerships comprised of members of, and persons associated with, Wilson Sonsini Goodrich & Rosati own an interest representing less than 0.1% of our common stock.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001159019_tribute_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001159019_tribute_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3ac46684784d74e0aded60b5eb1d88042dd704fd
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001159019_tribute_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters 23
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001168197_liposcienc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001168197_liposcienc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..24f36e2af9f1d83858ff9ad063220ada43227f59
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001168197_liposcienc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, Reston, Virginia. The underwriters are being represented by Gibson, Dunn & Crutcher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001195734_potbelly_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001195734_potbelly_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..979a1ed5d47adb018f0fa7c70d9d2d7fccfe16a0
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001195734_potbelly_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Mayer Brown LLP, Chicago, Illinois, has passed upon the validity of the common stock offered hereby on our behalf. The underwriters are being represented by Sidley Austin LLP, Chicago, Illinois. Sidley Austin LLP has represented us on certain matters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001259515_control4_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001259515_control4_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..20c36e7b7eb48fd6dc156863f50157512f52d609
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001259515_control4_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Goodwin Procter LLP, Menlo Park, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cooley LLP, Palo Alto, California. Cooley LLP has in the past provided, and continues to provide, legal services to us.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001269021_portola_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001269021_portola_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c4c1bd2f713ac7b657ae9721e89cbd4759bd114f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001269021_portola_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters Cooley LLP, San Francisco and Palo Alto, California, will pass upon the validity of the shares of common stock offered hereby. The underwriters are being represented by Davis Polk & Wardwell LLP, Menlo Park, California, in connection with the offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001270073_intercept_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001270073_intercept_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3c506363ff8d398027d290ffd12dc1019b934114
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001270073_intercept_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered by the selling stockholders in this offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. Goodwin Procter LLP, New York, New York, is acting as counsel for the underwriter in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001295503_miscor_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001295503_miscor_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8f43eef19640943586a8c5ec4b558d56de99231b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001295503_miscor_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters, including the validity of the shares of common stock offered in this prospectus, have been passed upon for us by our counsel, Ulmer & Berne LLP, 1660 West 2nd Street, Suite 1100, Cleveland, Ohio 44113-1448.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001296286_longhai_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001296286_longhai_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2ee4d942115ac15caa66f69fbb003b7bc91e468e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001296286_longhai_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Lewis and Roca LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001318173_usmetals_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001318173_usmetals_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d8354c9fb907778716fe25d46c6f13561a284d3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001318173_usmetals_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters The validity of the issuance of the common stock offered hereby will be passed upon for us by Dennis Brovarone, Attorney at Law.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001327467_celator_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001327467_celator_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3314277af9fad74792594d4e84f5ede04535aa02
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001327467_celator_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the issuance of the common stock offered by this prospectus will be passed upon for us by Duane Morris LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001342287_general_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001342287_general_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7cff1e61a85cfdb32e4ca95008a2e1069670b91d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001342287_general_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered in this prospectus is being passed upon for us by Christopher A. Wilson, Esq. Blank Rome LLP, New York, New York, is acting as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001348334_barracuda_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001348334_barracuda_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21afd168e3629e792457a136d469b47f539efde9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001348334_barracuda_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, which has acted as our counsel in connection with this offering, will pass upon the validity of the shares of common stock being offered by this prospectus. The underwriters have been represented by Fenwick & West LLP, Mountain View, California. Certain members of, and investment partnerships comprised of members of, and persons associated with, Wilson Sonsini Goodrich & Rosati, P.C., own common stock representing less than 0.04% of our outstanding common stock as converted as of August 31, 2013.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355128_zco_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355128_zco_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d2f4f560a577a38ab487f799d71ae1f893233a89
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355128_zco_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered in this prospectus will be passed upon for us by Mayer Brown LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355468_sungard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355468_sungard_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eb40e7a0d8d6bf8423bedef738b01bc0b96f4d3e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355468_sungard_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355470_sungard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355470_sungard_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eb40e7a0d8d6bf8423bedef738b01bc0b96f4d3e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355470_sungard_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355606_sungard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355606_sungard_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eb40e7a0d8d6bf8423bedef738b01bc0b96f4d3e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355606_sungard_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355616_sungard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355616_sungard_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eb40e7a0d8d6bf8423bedef738b01bc0b96f4d3e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355616_sungard_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001355630_inflow-llc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001355630_inflow-llc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eb40e7a0d8d6bf8423bedef738b01bc0b96f4d3e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001355630_inflow-llc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001358651_neiman_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001358651_neiman_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..48a329f0a791ea333ee34882dc9a3e5021b82fd7
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001358651_neiman_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters relating to this offering will be passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001363573_mv_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001363573_mv_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6143219f4ef4476f125b5fced11c0d4022912465
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001363573_mv_legal_matters.txt
@@ -0,0 +1,1398 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the common stock offered
+hereby will be passed upon for us by Erwin & Thompson LLP, 1 East Liberty Street, Suite 424, Reno, Nevada 89504.
+
+ 
+
+No expert or
+counsel, other than Gottbetter & Partners, LLP, named in this prospectus as having prepared or certified any part of this prospectus
+or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with
+the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with
+the offering, an interest, direct or indirect, in the registrant or its subsidiary. Nor was any such person connected with the
+registrant or its subsidiary as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
+Gottbetter & Partners, LLP is counsel to us and receives legal fees in accordance with an executed retainer agreement
+in connection with the preparation and filing of this prospectus and the registration statement in which it is contained.. As discussed
+in the section of this prospectus titled "Security Ownership of Certain Beneficial Owners," Gottbetter & Partners,
+LLP is a 9.9% owner of our common stock.
+
+ 
+
+EXPERTS
+
+ 
+
+The consolidated financial statements as
+of January 31, 2012 and 2011 included in this Prospectus and in the Registration Statement have been so included in reliance on
+the report of MaloneBailey, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration
+Statement, given on the authority of said firm as experts in auditing and accounting.
+
+ 
+
+ 64
+
+ 
+
+ 
+
+ 
+
+WHERE YOU CAN FIND MORE INFORMATION
+
+ 
+
+After the effectiveness of the registration
+statement of which this prospectus is a part, we will be required to file annual reports, quarterly reports, current reports and
+other information with the SEC. You may read or obtain a copy of these reports at the SEC s public reference room at 100
+F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference room and
+their copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains registration statements, reports,
+proxy information statements and other information regarding registrants that file electronically with the SEC. The address of
+the website is http://www.sec.gov.
+
+ 
+
+We have filed with the SEC a registration
+statement on Form S-1 under the Securities Act to register the shares offered by this prospectus. The term "registration
+statement" means the original registration statement and any and all amendments thereto, including the schedules and exhibits
+to the original registration statement or any amendment. This prospectus is part of that registration statement. This prospectus
+does not contain all of the information set forth in the registration statement or the exhibits to the registration statement.
+For further information with respect to us and the shares we are offering pursuant to this prospectus, you should refer to the
+registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract, agreement
+or other document referred to are not necessarily complete, and you should refer to the copy of that contract or other documents
+filed as an exhibit to the registration statement. You may read or obtain a copy of the registration statement at the SEC s
+public reference facilities and Internet site referred to above.
+
+ 
+
+DISCLOSURE OF COMMISSION POSITION ON
+INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
+
+ 
+
+Under the Nevada Revised Statutes, our
+directors and officers are not individually liable to us or our stockholders for any damages as a result of any act or failure
+to act in their capacity as an officer or director unless it is proven that:
+
+ 
+
+ His act or failure to act constituted a breach of his fiduciary duty as a director or officer; and
+
+ 
+
+ His breach of these duties involved intentional misconduct, fraud or a knowing violation of law.
+
+ 
+
+Nevada law allows corporations to provide
+broad indemnification to its officers and directors. At the present time, our Articles of Incorporation and Bylaws also
+provide for broad indemnification of our current and former directors, trustees, officers, employees and other agents. 
+
+ 
+
+Insofar as indemnification for liabilities
+arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that
+in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities
+Act and is, therefore, unenforceable. 
+
+ 
+
+ 65
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE
+COMPANY)
+
+ INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
+
+ 
+
+ Report of Independent Registered Public Accounting Firm 
+ F-2 
+
+ 
+ 
+
+ Consolidated Balance Sheets as of January 31, 2013 and 2012 
+ F-3 
+
+ 
+ 
+
+ Consolidated Statements of Expenses for the years ended January 31, 2013 and 2012 and for the period from April 19,
+ 2004 (inception) through January 31, 2013 
+ F-4 
+
+ 
+ 
+
+ Consolidated Statements of Changes in Stockholders Deficit for the period from April 19, 2004 (inception) through
+ January 31, 2013 
+ F-5 
+
+ 
+ 
+
+ Consolidated Statements of Cash Flows for the years ended January 31, 2013 and 2012 and for the period from April 19,
+ 2004 (inception) through January 31, 2013 
+ F-7 
+
+ 
+ 
+
+ Notes to Consolidated Financial Statements 
+ F-8 
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC
+ACCOUNTING FIRM
+
+ 
+
+To the Board of Directors
+
+California Gold Corp.
+
+(An Exploration Stage Company)
+
+La Ca ada, California
+
+ 
+
+ We have audited the accompanying consolidated
+balance sheets of California Gold Corp. and its subsidiary (an exploration stage company) (collectively, the "Company")
+as of January 31, 2013 and 2012, and the related statements of expenses, stockholders deficit, and cash flows for the years
+then ended and for the period from inception (April 19, 2004) through January 31, 2013. These financial statements are the responsibility
+of California Gold Corporation s management. Our responsibility is to express an opinion on these financial statements based
+on our audits. 
+
+ 
+
+We conducted our audits in accordance with
+the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
+an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is
+not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
+consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
+circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over
+financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
+the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
+by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
+basis for our opinion.
+
+ 
+
+ In our opinion, the financial statements
+referred to above present fairly, in all material respects, the financial position of California Gold Corp. and its subsidiary
+as of January 31, 2013 and 2012 and the results of their expenses and their cash flows for the years then ended and for the period
+from inception (April 19, 2004) through January 31, 2013 in conformity with accounting principles generally accepted in the United
+States of America. 
+
+ 
+
+ The accompanying financial statements
+have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements,
+the Company has a working capital deficit as of January 31, 2013 and has suffered recurring losses from operations, which raises
+substantial doubt about its ability to continue as a going concern. Management s plans regarding those matters are described
+in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 
+
+ 
+
+MaloneBailey, LLP
+
+ www.malonebailey.com 
+
+Houston, Texas
+
+ 
+
+ May 7, 2013 
+
+ 
+
+ F-2
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE COMPANY)
+
+CONSOLIDATED BALANCE SHEETS
+
+ 
+
+ 
+ January 31, 
+ 2013 
+ January 31, 
+ 2012 
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ 
+ 
+ 
+
+ Current assets: 
+ 
+ 
+
+ Cash 
+ $ 259,200 
+ $ 828,181 
+
+ Other receivables 
+ - 
+ 5,907 
+
+ Prepaid expenses 
+ 16,283 
+ 27,556 
+
+ Total current assets 
+ 275,483 
+ 861,644 
+
+ 
+ 
+ 
+
+ Property and equipment, net 
+ 6,104 
+ 7,865 
+
+ Mining rights 
+ 91,250 
+ 47,500 
+
+ Total assets 
+ $ 372,837 
+ $ 917,009 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS' DEFICIT 
+ 
+ 
+
+ 
+ 
+ 
+
+ Current liabilities: 
+ 
+ 
+
+ Accounts payable 
+ $ 47,466 
+ $ 50,333 
+
+ Accounts payable - related party 
+ 101,873 
+ - 
+
+ Derivative liabilities 
+ 327,661 
+ 1,817,100 
+
+ Other accrued liabilities - related
+ party 
+ 56,500 
+ 2,500 
+
+ Total current liabilities 
+ 533,500 
+ 1,869,933 
+
+ Total liabilities 
+ 533,500 
+ 1,869,933 
+
+ 
+ 
+ 
+
+ Stockholders' deficit: 
+ 
+ 
+
+ Preferred stock, par value $0.001 per share, 22,000,000
+ shares authorized; 22,000,000 shares issued and outstanding 
+ 22,000 
+ 22,000 
+
+ Common stock, par value $0.001 per
+ share, 300,000,000 shares authorized; 115,201,260 and 109,451,260 shares issued and outstanding at January 31, 2013 and 2012,
+ respectively 
+ 115,201 
+ 109,451 
+
+ Additional paid-in capital 
+ 2,534,588 
+ 2,037,546 
+
+ Deficit accumulated during the exploration
+ stage 
+ (2,832,452 ) 
+ (3,121,921 ) 
+
+ Total stockholders' deficit 
+ (160,663 ) 
+ (952,924 ) 
+
+ Total liabilities and stockholders'
+ deficit 
+ $ 372,837 
+ $ 917,009 
+
+ 
+
+ The accompanying notes are an integral
+part of these audited consolidated financial statements. 
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE COMPANY)
+
+CONSOLIDATED STATEMENTS OF EXPENSES
+
+ 
+
+ 
+ Year Ended 
+January 31,
+ 
+2013 
+ Year Ended 
+January 31,
+ 
+2012 
+ April 19, 
+ 2004
+ 
+(Inception) 
+to January 
+31, 2013 
+
+ 
+ 
+ 
+ 
+
+ Expenses: 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Mineral property expenses 
+ $ 233,718 
+ $ 355,653 
+ $ 667,473 
+
+ Bad debt expense 
+ - 
+ - 
+ 559,483 
+
+ Depreciation expense 
+ 1,761 
+ 944 
+ 2,705 
+
+ General and administrative expenses 
+ 1,066,824 
+ 940,985 
+ 3,155,990 
+
+ Total operating expenses 
+ 1,302,303 
+ 1,297,582 
+ 4,385,651 
+
+ Loss from operations 
+ (1,302,303 ) 
+ (1,297,582 ) 
+ (4,385,651 ) 
+
+ 
+ 
+ 
+ 
+
+ Other income (expenses): 
+ 
+ 
+ 
+
+ Interest income 
+ 938 
+ 2,060 
+ 3,289 
+
+ Interest expense 
+ - 
+ - 
+ (1,763 ) 
+
+ Realized and unrealized gain on derivatives, net 
+ 1,591,424 
+ 1,032,704 
+ 1,561,881 
+
+ Amortization of debt discount 
+ - 
+ - 
+ (9,618 ) 
+
+ Foreign currency exchange loss 
+ (590 ) 
+ - 
+ (590 ) 
+
+ Total other income (expenses) 
+ 1,591,772 
+ 1,034,764 
+ 1,553,199 
+
+ Net income (loss) 
+ $ 289,469 
+ $ (262,818 ) 
+ $ (2,832,452 ) 
+
+ 
+ 
+ 
+ 
+
+ Income (loss) per common share: 
+ 
+ 
+ 
+
+ Income (loss) per common share - basic and diluted 
+ $ 0.00 
+ $ (0.00 ) 
+ 
+
+ Weighted
+ average number of common shares outstanding - basic and diluted 
+ 114,401,945 
+ 104,474,612 
+ 
+
+ 
+
+ The accompanying notes are an integral
+part of these audited consolidated financial statements. 
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE COMPANY)
+
+CONSOLIDATED STATEMENTS OF CHANGES IN
+STOCKHOLDERS' DEFICIT
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Deficit 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Accumulated 
+ 
+
+ 
+ Common
+ Stock 
+ Preferred
+ Stock 
+ Additional 
+
+ Paid-In 
+ During
+ the 
+
+ Exploration
+ 
+ 
+
+ 
+ Shares 
+ Amount 
+ Shares 
+ Amount 
+ Capital 
+ Stage 
+ Total 
+
+ Balance - April 19, 2004 (inception) 
+ - 
+ $ - 
+ - 
+ $ - 
+ $ - 
+ $ - 
+ $ - 
+
+ Loss for the year ended January 31, 2005 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+
+ Balance - January 31, 2005 
+ - 
+ $ - 
+ - 
+ $ - 
+ $ - 
+ $ - 
+ $ - 
+
+ Common stock issued for cash 
+ 46,990,000 
+ 46,990 
+ - 
+ - 
+ (39,590 ) 
+ - 
+ 7,400 
+
+ Common stock issued for cash 
+ 6,985,000 
+ 6,985 
+ - 
+ - 
+ 4,015 
+ - 
+ 11,000 
+
+ Common stock issued for cash 
+ 1,778,000 
+ 1,778 
+ - 
+ - 
+ 54,222 
+ - 
+ 56,000 
+
+ Loss for the year ended January 31, 2006 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (29,275 ) 
+ (29,275 ) 
+
+ Balance - January 31, 2006 
+ 55,753,000 
+ $ 55,753 
+ - 
+ $ - 
+ $ 18,647 
+ $ (29,275 ) 
+ $ 45,125 
+
+ Loss for the year ended January 31, 2007 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (21,158 ) 
+ (21,158 ) 
+
+ Balance - January 31, 2007 
+ 55,753,000 
+ $ 55,753 
+ - 
+ $ - 
+ $ 18,647 
+ $ (50,433 ) 
+ $ 23,967 
+
+ Common stock issued for services 
+ 12,700,000 
+ 12,700 
+ - 
+ - 
+ (10,700 ) 
+ - 
+ 2,000 
+
+ Cancellation of common stock 
+ (44,450,000 ) 
+ (44,450 ) 
+ - 
+ - 
+ 44,450 
+ - 
+ - 
+
+ Common
+ stock issued for expenses paid by officer 
+ 31,000,002 
+ 31,000 
+ - 
+ - 
+ - 
+ - 
+ 31,000 
+
+ Common
+ stock issued for convertible debentures 
+ 1,190,000 
+ 1,190 
+ - 
+ - 
+ 593,810 
+ - 
+ 595,000 
+
+ Contributed capital for donated services 
+ - 
+ - 
+ - 
+ - 
+ 235,668 
+ - 
+ 235,668 
+
+ Loss for the year ended January 31, 2008 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (935,664 ) 
+ (935,664 ) 
+
+ Balance - January 31, 2008 (unaudited) 
+ 56,193,002 
+ $ 56,193 
+ - 
+ $ - 
+ $ 881,875 
+ $ (986,097 ) 
+ $ (48,029 ) 
+
+ Cancellation of common stock 
+ (2,000,000 ) 
+ (2,000 ) 
+ - 
+ - 
+ 2,000 
+ - 
+ - 
+
+ Common stock issued for cash 
+ 4,000,000 
+ 4,000 
+ - 
+ - 
+ 16,000 
+ - 
+ 20,000 
+
+ Common stock issued for cash 
+ 120,000 
+ 120 
+ - 
+ - 
+ 59,880 
+ - 
+ 60,000 
+
+ 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+
+ Loss for the year ended January 31, 2009 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (75,062 ) 
+ (75,062 ) 
+
+ Balance - January 31, 2009 
+ 58,313,002 
+ $ 58,313 
+ - 
+ $ - 
+ $ 959,755 
+ $ (1,061,159 ) 
+ $ (43,091 ) 
+
+ Cancellation of common stock 
+ (250,000 ) 
+ (250 ) 
+ - 
+ - 
+ 250 
+ - 
+ - 
+
+ Loss for the year ended January 31, 2010 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (182,521 ) 
+ (182,521 ) 
+
+ Balance - January 31, 2010 
+ 58,063,002 
+ $ 58,063 
+ - 
+ $ - 
+ $ 960,005 
+ $ (1,243,680 ) 
+ $ (225,612 ) 
+
+ Common stock issued for services 
+ 4,500,000 
+ 4,500 
+ - 
+ - 
+ 229,945 
+ - 
+ 234,445 
+
+ Cancellation of common stock 
+ (15,000,000 ) 
+ (15,000 ) 
+ - 
+ - 
+ (48,000 ) 
+ - 
+ (63,000 ) 
+
+ 
+
+ The accompanying notes are an integral part of these audited
+consolidated financial statements. 
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE COMPANY)
+
+CONSOLIDATED STATEMENTS OF CHANGES IN
+STOCKHOLDERS' DEFICIT
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Deficit 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Accumulated 
+ 
+
+ 
+ Common
+ Stock 
+ Preferred
+ Stock 
+ Additional 
+
+ Paid-In 
+ During
+ the 
+
+ Exploration 
+ 
+
+ 
+ Shares 
+ Amount 
+ Shares 
+ Amount 
+ Capital 
+ Stage 
+ Total 
+
+ Common stock, preferred stock, and derivative
+ warrants instruments sold in private placement offering at $0.025 per share, less offering costs of
+ $15,500 
+ 41,478,258 
+ 41,478 
+ 22,000,000 
+ 22,000 
+ 1,523,478 
+ - 
+ 1,586,956 
+
+ Derivatives resulting on above stock issued 
+ 
+ 
+ 
+ 
+ (1,323,133 ) 
+ 
+ (1,323,133 ) 
+
+ Common stock issued for convertible notes 
+ 3,660,000 
+ 3,660 
+ - 
+ - 
+ 179,205 
+ - 
+ 182,865 
+
+ Contribution to capital on forgiveness of related
+ party debt 
+ - 
+ - 
+ - 
+ - 
+ 157,291 
+ 
+ 157,291 
+
+ Loss for the year ended January 31, 2011 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (1,615,423 ) 
+ (1,615,423 ) 
+
+ Balance - January 31, 2011 
+ 92,701,260 
+ $ 92,701 
+ 22,000,000 
+ $ 22,000 
+ $ 1,678,791 
+ $ (2,859,103 ) 
+ $ (1,065,611 ) 
+
+ Stock-based compensation 
+ 500,000 
+ 500 
+ - 
+ - 
+ 505,039 
+ - 
+ 505,539 
+
+ Common stock and warrants sold in over-allotment offering at
+ $0.025 per share, 
+less offering costs totaling $3,500 
+ 16,000,000 
+ 16,000 
+ - 
+ - 
+ 380,500 
+ - 
+ 396,500 
+
+ Derivatives resulting on above warrants issued 
+ - 
+ - 
+ - 
+ - 
+ (544,034 ) 
+ - 
+ (544,034 ) 
+
+ Common stock issued for acquisition of mining rights
+ at $0.001 per share 
+ 250,000 
+ 250 
+ - 
+ - 
+ 17,250 
+ - 
+ 17,500 
+
+ Loss for the period ended January 31, 2012 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (262,818 ) 
+ (262,818 ) 
+
+ Balance - January 31, 2012 
+ 109,451,260 
+ $ 109,451 
+ 22,000,000 
+ $ 22,000 
+ $ 2,037,546 
+ $ (3,121,921 ) 
+ $ (952,924 ) 
+
+ Stock-based compensation 
+ 2,250,000 
+ 1,250 
+ - 
+ - 
+ 431,527 
+ - 
+ 432,777 
+
+ Common stock and warrants sold in private placement offering
+ at $0.04 per share, 
+less offering costs totaling $1,750 
+ 4,250,000 
+ 4,250 
+ - 
+ - 
+ 164,000 
+ - 
+ 168,250 
+
+ Derivatives resulting on above warrants issued 
+ - 
+ - 
+ - 
+ - 
+ (101,985 ) 
+ - 
+ (101,985 ) 
+
+ Common stock issued for acquisition of mining rights
+ at $0.015 per share 
+ 250,000 
+ 250 
+ - 
+ - 
+ 3,500 
+ - 
+ 3,750 
+
+ Cancellation of common stock 
+ (1,000,000 ) 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+
+ Income for the period ended January 31, 2013 
+ - 
+ - 
+ - 
+ - 
+ - 
+ 289,469 
+ 289,469 
+
+ Balance - January 31, 2013 
+ 115,201,260 
+ $ 115,201 
+ 22,000,000 
+ $ 22,000 
+ $ 2,534,588 
+ $ (2,832,452 ) 
+ $ (160,663 ) 
+
+ 
+
+ The accompanying notes are an integral part of these audited
+consolidated financial statements. 
+
+ 
+
+ F-6
+
+ 
+
+ 
+
+ 
+
+CALIFORNIA GOLD CORP.
+
+(AN EXPLORATION STAGE COMPANY)
+
+CONSOLIDATED STATEMENTS OF CASH FLOWS
+
+ 
+
+ 
+ Year Ended 
+January 31, 2013 
+ Year Ended 
+January 31,
+ 
+2012 
+ April 19, 2004
+ 
+(Inception) 
+to January 
+31, 2013 
+
+ Cash flows from operating activities: 
+ 
+ 
+ 
+
+ Net income (loss) 
+ $ 289,469 
+ $ (262,818 ) 
+ $ (2,832,452 ) 
+
+ Adjustments to reconcile net income
+ (loss) to net cash used in operating activities: 
+ 
+ 
+ 
+
+ Depreciation expense 
+ 1,761 
+ 944 
+ 2,705 
+
+ Stock-based compensation 
+ 125,000 
+ - 
+ 125,000 
+
+ Stock-based compensation - related party 
+ 307,777 
+ 505,539 
+ 1,316,429 
+
+ Amortization of debt discount 
+ - 
+ - 
+ 9,618 
+
+ Unrealized and realized gain on derivatives, net 
+ (1,591,424 ) 
+ (1,032,704 ) 
+ (1,561,881 ) 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+ 
+
+ Other receivables 
+ 5,907 
+ (5,907 ) 
+ - 
+
+ Prepaid expenses 
+ 11,273 
+ (27,556 ) 
+ (16,283 ) 
+
+ Prepaid expenses - related party 
+ - 
+ 33,784 
+ - 
+
+ Accounts payable 
+ (2,867 ) 
+ 23,204 
+ (10,881 ) 
+
+ Accounts payable - related party 
+ 101,873 
+ (52,250 ) 
+ 259,538 
+
+ Other accrued expenses - related party 
+ 54,000 
+ - 
+ 56,642 
+
+ Interest accrued on notes payable from
+ related party 
+ - 
+ - 
+ 1,621 
+
+ Net cash used in operating activities 
+ (697,231 ) 
+ (817,764 ) 
+ (2,649,944 ) 
+
+ Cash flows from investing activities: 
+ 
+ 
+ 
+
+ Purchase of property and equipment 
+ - 
+ (8,809 ) 
+ (8,809 ) 
+
+ Acquisition of mining rights 
+ (40,000 ) 
+ (10,000 ) 
+ (70,000 ) 
+
+ Net cash used in investing activities 
+ (40,000 ) 
+ (18,809 ) 
+ (78,809 ) 
+
+ Cash flows from financing activities: 
+ 
+ 
+ 
+
+ Proceeds from related party loans 
+ - 
+ - 
+ 92,430 
+
+ Proceeds from common and preferred stock issued, net of
+ offering costs 
+ 168,250 
+ 396,500 
+ 2,958,523 
+
+ Payments from cancellation of common
+ stock 
+ - 
+ - 
+ (63,000 ) 
+
+ Net cash provided by financing activities 
+ 168,250 
+ 396,500 
+ 2,987,953 
+
+ Net increase (decrease) in cash 
+ (568,981 ) 
+ (440,073 ) 
+ 259,200 
+
+ Cash - beginning of period 
+ 828,181 
+ 1,268,254 
+ - 
+
+ Cash - end of period 
+ $ 259,200 
+ $ 828,181 
+ $ 259,200 
+
+ 
+ 
+ 
+ 
+
+ Supplemental disclosure of cash flow information: 
+ 
+ 
+ 
+
+ Cash paid during the period for : 
+ 
+ 
+ 
+
+ Interest 
+ $ - 
+ $ - 
+ $ - 
+
+ Income taxes 
+ $ - 
+ $ - 
+ $ - 
+
+ 
+ 
+ 
+ 
+
+ Non-cash investing and financing activities: 
+ 
+ 
+ 
+
+ Contributed capital - loss on extinguishment of debt owed
+ to related party 
+ $ - 
+ $ - 
+ $ 374 
+
+ Debt discount due to derivative liabilities 
+ $ - 
+ $ - 
+ $ 9,618 
+
+ Contributed capital - payables settled by stockholder 
+ $ - 
+ $ - 
+ $ 157,665 
+
+ Issuance of common stock for convertible notes 
+ $ - 
+ $ - 
+ $ 3,660 
+
+ Re-class of derivatives related to convertible notes 
+ $ - 
+ $ - 
+ $ 91,365 
+
+ Issuance of derivative warrant instruments 
+ $ 101,985 
+ $ 544,034 
+ $ 1,969,152 
+
+ Related party note receivable write-off 
+ $ - 
+ $ - 
+ $ 557,927 
+
+ Common stock cancellation 
+ $ 1,000 
+ $ - 
+ $ 62,700 
+
+ Issuance of common stock for acquisition of mining rights 
+ $ 3,750 
+ $ 17,500 
+ $ 21,250 
+
+ 
+
+ The accompanying notes are an integral
+part of these audited consolidated financial statements. 
+
+ 
+
+ F-7
+
+ 
+
+ 
+
+ 
+
+ CALIFORNIA GOLD CORP. 
+
+ (AN EXPLORATION STAGE COMPANY) 
+
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+
+ 
+
+NOTE 1 - GENERAL ORGANIZATION AND BUSINESS
+
+ 
+
+California Gold Corp. ("California
+Gold" or the "Company") is a Nevada corporation whose principal focus is the identification, acquisition and
+development of rare and precious metals mining properties in the Americas. The Company is still in the exploration stage and has
+not generated any revenues from its mining properties to date.
+
+ 
+
+The Company was incorporated on April 19,
+2004 under the name of Arbutus Resources Inc. On August 9, 2007, the Company changed its name to US Uranium Inc. On March 9, 2009,
+the Company changed its name to California Gold Corp.
+
+ 
+
+NOTE 2 -
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001373707_tetraphase_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001373707_tetraphase_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9ae966a4a608ffa6c7f26937f311b89175e8e7cd
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001373707_tetraphase_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock being offered will be passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters related to this offering will be passed upon for the underwriters by Latham & Watkins LLP, Boston, Massachusetts.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001378992_berry_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001378992_berry_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f302840bbc677f903f10ac068b1be9453b0d89be
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001378992_berry_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Wachtell, Lipton, Rosen & Katz, New York, New York, will pass upon for us the validity of the shares of our common stock offered hereby. The underwriters have been represented by Cahill Gordon & Reindel LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001385228_dnib_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001385228_dnib_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3bddbb082ffae1b1561212759669f976acff6b33
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001385228_dnib_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the underwriters by Davis Polk & Wardwell LLP, Menlo Park, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001391636_cyan-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001391636_cyan-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d4fe5b9f05654cae3c18c49303cc93d751d3583
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001391636_cyan-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California, which has acted as our counsel in connection with this offering, will pass upon the validity of the shares of common stock being offered by this prospectus. The underwriters are being represented by Cooley LLP, San Francisco, California, in connection with this offering. Cooley LLP has in the past provided, and continues to provide, legal services to us. Certain members of, and investment partnerships comprised of members of, and persons associated with, Cooley LLP own an interest representing less than 0.05% of our common stock.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001401670_american_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001401670_american_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22370b15f937e697f501f77231088df5c73425de
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001401670_american_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Scott D. Olson, Esq. has opined on the validity of the shares of common stock being offered hereby. EXPERTS The financial statements included in this prospectus and in the registration statement have been audited by DKM Certified Public Accountants an independent registered public accounting firm, to the extent and for the period set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
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+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
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+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, Palo Alto, California. Davis Polk & Wardwell LLP, Menlo Park, California is representing the underwriters in this offering.
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+LEGAL MATTERS The validity of the shares sold by us under this prospectus will be passed upon for us by Baker & Hostetler LLP in Los Angeles, California. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The Company s Articles of Incorporation provides for the mandatory indemnification of directors, senior officers, former directors, as well as their respective heirs and personal or other legal representatives, or any other person, to the greatest extent permitted by the Nevada Revised Statute. These indemnification provisions may be sufficiently broad to permit indemnification of the registrant s executive officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. No pending material litigation or proceeding involving our directors, executive officers, employees or other agents as to which indemnification is being sought exists, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed a registration statement on Form S-1 to register with the SEC the sale of our shares. This prospectus is a part of that registration statement and constitutes a prospectus of Seven Arts. As allowed by SEC rules, this prospectus does not contain all of the information that you can find in the registration statement or the exhibits to the registration statement. You should refer to the registration statement and its exhibits for additional information that is not contained in this prospectus. We have included additional information on our company in our various periodic filings with the Securities and Exchange Commission currently available at http://www.sec.gov/edgar.html. We have not authorized anyone to provide you with information that differs from that contained in this prospectus. You should not assume that the information contained in this prospectus is accurate as on any date other than the date of the prospectus. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, in any jurisdiction to or from any person to whom it is not lawful to make any such offer or solicitation in such jurisdiction. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. Total SEC registration fee $ Printing and engraving expenses $ * Legal fees and expenses $* Accounting fees and expenses $ * Blue sky fees and expenses $* Transfer agent and registrar fees and expenses $ * Miscellaneous $ * Total $* ______ *Estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 78.502 of the Nevada Revised Statutes ("NRS") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believe to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. With respect to actions or suits by or in the right of the corporation, Section 78.7502 of the NRS provides that a corporation may indemnify those serving in the capacities mentioned above against expenses, including amounts paid in settlement and attorneys fees actually and reasonably incurred in connection with the defense or settlement of the action or suit, provided that such person acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation shall indemnify him against expenses, including attorneys fees, actually and reasonably incurred by him in connection with the defense. Section 78.751 of the NRS provides that the articles of incorporation, the bylaws or an agreement made by the corporation may provide that the expenses of officers and directors incurred in defending an action, suit or proceeding must be paid by the corporation in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined that he is not entitled to be indemnified by the corporation. Section 78.751 further provides that indemnification and advancement of expense provisions contained in the NRS shall not be deemed exclusive of any rights to which a director, officer, employee or agent may be entitled, whether contained in the articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, provided, however, that no indemnification may be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. The Registrant s articles of incorporation limit the liability of its directors and officers to the fullest extent permitted by Nevada law. This is intended to allow the Registrant s directors and officers the benefit of Nevada law which provides that directors and officers of Nevada corporations may be relieved of liabilities for damages for breach of their fiduciary duties as directors and officers, except under certain circumstances, including (i) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or (ii) the wilful or grossly negligent payment of unlawful distributions. The Registrant s bylaws provide for indemnification to the fullest extent permitted by Nevada law and permit the Registrant to advance expenses to its directors and officers to the fullest extent permitted by Nevada law upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it should be ultimately determined that they are not entitled to indemnification by the Registrant. The Registrant maintains officer and director liability insurance for its officers and directors with respect to liabilities arising out of certain matters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In our fiscal year ended June 30, 2012, we issued an aggregate of 85,107 common shares, comprised of the following. All shares were issued pursuant to Section 3(a)(9) of the Securities Act of 1933, except where noted with an *,are unregistered for which shares were issued under Regulation D of Section 506 of the Securities Exchange Act of 1934 : First quarter issuances: a), b) 4,540 shares were issued in satisfaction of $3,188,028 of outstanding loans payable and accrued interest, consisting of $225,000 of convertible notes payable and $2,963,028 of film and production loans. The conversions were done at contractual share prices ranging from $280.00 to $2,800.00 per share. Second quarter issuances: c) 3,314 shares were issued in satisfaction of $612,336 of convertible debt at an average conversion price of $184.00 per share. d) 2,037 shares were issued on the conversion of two convertible notes totalling $427,706 at an average conversion price of $209.97/ share. e) 2,492 shares were issued in satisfaction of $906,000 of corporate loans at an average conversion price of $371.60 per share. f) 286 shares were issued for cash to two third-party investors for aggregate consideration of $400,000 at $1,400.00per share Third quarter issuances: g) 4,821 shares were issued in satisfaction of $943,580 loan film debt at an average conversion price of approximately $196.00 per share. h) 3,262 shares were issued in satisfaction of $929,596 of indebtedness at an average conversion price of $289.26 per share. i) 2,494 shares were issued on conversion of certain promissory notes aggregating $516,568 at an average conversion price of $210.00 per share. j) 2,196 shares were issued to a third party in satisfaction of $698,736 of film loans at an average conversion price of $318.20 per share. m) 857 shares were issued for cash to a third-party investor for approximately $8,600, or at $10.00 per share. Fourth quarter issuances: n) 5,557 shares were issued to a third party in partial payment of $430,000 of debt at an average conversion price of $77.40 per share. o) 8,712 shares were issued to a third party in satisfaction of $980,000 of debt at an average conversion price of $112.40 per share.* p) 8,028 shares were issued to a third party in satisfaction of $725,000 of debt at an average conversion price of $90.40 per share. q) 2,006 shares were issued to a third party in satisfaction of a $100,000 film tax-credit loan at an average conversion price of $49.80 per share. r) 804 shares were issued to a third party for approximately $100,000, or at $124.40 per share. s) 7,808 shares were issued to a third party in satisfaction of $494,152 of loans at an average conversion price of $63.20 per share*. t) 17,857 shares were issued to Peter Hoffman in satisfaction of $877,824 of our indebtedness to him at $49.20 per share. * u) 2,750 shares were issued in connection with $200,000 of the construction loan for 807 Esplanade, or at $72.80 per share. In our fiscal year ended June 30, 2013, we have issued an aggregate of 29,266,636 common shares, comprised of: First quarter issuances: v) 65,805 shares were issued to third parties in satisfaction of an aggregate of $ 779,874 of film debt at an average conversion price of $11.80 share. w) 24,135 shares were issued to third parties in satisfaction of an aggregate of $586,114 of various convertible loans at an average conversion price of $24.20 share. x) 18,979 shares were issued to third parties in satisfaction of an aggregate of $591,231 of debt at an average conversion price of $31.20 per share. y) 4,029 shares were issued to in connection with $150,000 of indebtedness related to 807 Esplanade, or at $37.20 per share. z) 8,071 shares were issued to third parties in satisfaction of an aggregate of $339,000 of fee debt at an average price of $42.00 per share. aa) 429 shares were issued to a third party for the purchase price of $300,000, or $700.00 per share.* Second quarter issuances: ab) 9,189 shares were issued to third parties in satisfaction of an aggregate of $431,934 of film debt at a conversion price of $50.00 per share. ac) 3,455 shares were issued upon conversion of 38,000 Series B preferred shares. ad) 7,000 shares were issued to Mr. Hoffman, in satisfaction of $1,190,000 of our indebtedness to him. *. ae) 1,773 shares were issued in connection with $42,723 of indebtedness related to 807 Esplanade, or at $24.00 per share af) 3,027 shares were issued to third parties in satisfaction of an aggregate of $133,537 of various convertible loans at an average conversion price of $44.00 share. ag) 1,704 shares were issued to a third parties in satisfaction of an aggregate of $31,232 of expense debt at an average conversion price of $18.32 per share. Third quarter issuances: ah) 122,515 common shares were issued in satisfaction of film and production debt totalling $844,707 converted at an average conversion price of $6.80 per share. ai) 30,618 common shares were issued in satisfaction of various debt totalling $173,075 converted at an average conversion price of $5.60 per share. aj) 1,000 common shares were issued at $5.00 per share upon conversion of $5,000 in debt based on a music contract ak) 16,215 shares were issued as collateral in settlement of an outstanding judgement related to Nine Miles Down UK Ltd at $17.00 per share in satisfaction of a debt of $275,246 Fourth quarter issuances: al) 1,8526,519 common shares were issued upon conversion of convertible debt totaling $ 468,009, , under the original conversion terms of the convertible debentures.. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. Exhibits Exhibit No. Description ** 2.1 Asset Acquisition Agreement dated as of July 1, 2010 between Seven Arts Entertainment Inc. and Seven Arts Pictures Plc* 2.1.1 Amendment to Asset Transfer Agreement dated January 27, 2011 (filed herewith) 2.1.2 Second amendment to Asset Transfer Agreement (filed herewith) 3.1. Articles of Incorporation of Seven Arts Entertainment Inc.* 3.2. By-Laws of Seven Arts Entertainment Inc.* 3.2.1. Amended By-Laws of Seven Arts Entertainment Inc. (filed herewith) 3.3 Certificate of designation of Series A preferred stock (filed herewith) 3.4 Certificate of designation of Series B preferred stock(revised) (filed herewith) 3.4.1 Amendment to the Certificate of Designation of Series B preferred stock (filed herewith) 4.1 Specimen Common Stock Certificate* 5.1 Opinion of Baker& Hostetler LLP, as to the validity of the common stock** 10.1 Form of Lock-Up Agreement** 10.2 Employment Agreement, dated September 2, 2004/Peter Hoffman * 10.2.1 Restated Employment Agreement, dated October 1, 2004/Peter Hoffman * 10.2.2 Employment Agreement Amendment, dated December 1, 2008/Peter Hoffman * 10.2.3 Second Employment Agreement Amendment, dated July 1, 2010/Peter Hoffman * 10.2.4 Third Employment Agreement Amendment, dated January 1, 2011/Peter Hoffman * 10.3 RESERVED 10.4 RESERVED 10.5 RESERVED* 10.6 Loan and Security Agreement, dated as of February 15, 2006, among Arrowhead Target Fund Ltd. Seven Arts Future Flows I, LLC, Seven Arts Filmed Entertainment Limited, and Seven Arts Pictures Inc.* 10.7 Master Agreement, dated December 2006, among Cheyne Specialty Finance Fund L.P. and Arrowhead Consulting Group LLC and Seven Arts Pictures PLC, Seven Arts Filmed Entertainment, Ltd., Seven Arts Pictures, Inc., Seven Arts Future Flows I and affiliates* 10.8 RESERVED* 10.9 Credit Agreement, dated October 11, 2007, between Seven Arts Louisiana, LLC and Advantage Capital Community Development Fund, L.L.C.* 10.10 Assignment Agreement, dated April 22, 2008, among Cheyne Specialty Finance Fund L.P., Seven Arts Filmed Entertainment Limited, Peter Hoffman, Seven Arts Pictures Plc, Seven Arts Future Flows I LLC and other parties affiliated with Seven Arts Pictures Plc.* 10.11 Stock Sale Agreement, dated October 2008, between Seven Arts Pictures Plc, Smith & Williamson Trustees (Jersey) Limited and Armadillo Investments Ltd.* 10.12 Convertible Loan Agreement, dated October 15, 2008, between Seven Arts Pictures Plc and Trafalgar Capital Specialized Investment* 10.13 Bridging Loan Agreement, dated January 31, 2008, between Seven Arts Pictures Plc and Trafalgar Capital Specialized Investment* 10.14 Guarantee and Debenture, dated January 31, 2008, from Seven Arts Pictures Plc and Seven Arts Filmed Entertainment Limited to Trafalgar Capital Specialized Investment* 10.15 Intercompany Agreement, dated November 1, 2004, between Seven Arts Pictures Plc and Seven Arts Pictures, Inc.* 10.16 Letter Agreement, dated September 2, 2004, Regarding the Intercompany Agreement between Seven Arts Pictures Plc and Seven Arts Filmed Entertainment Limited* 10.17 Distribution Agreement, between Seven Arts Filmed Entertainment Limited and Seven Arts Louisiana LLC* 10.18 RESERVED 10.19 RESERVED 10.20 RESERVED 10.21 Loan Agreement, dated December 17, 2007, between Palm Finance Corporation and Gone to Hell Limited* 10.22 Loan Agreement, dated May 7, 2007 among Palm Finance Corporation and affiliates of Seven Arts Pictures Plc* 10.23 Intercompany Agreement between Seven Arts Pictures Inc. and Seven Arts Entertainment Inc.* 10.24 RESERVED 10.25 RESERVED 10.26 RESERVED 10.27 RESERVED 10.28 RESERVED 10.29 RESERVED 10.30 RESERVED 10.31 Stock Incentive Plan (filed as exhibit 10.1 to the registration statement on Form S-8 filed February 1, 2012 and incorporated herein by reference) 10.32 Security Purchase Agreement between SAE and |JMJ Financial dated June 27, 2012 10.32.1 Secured promissory note dated June 27, 2012 (filed herewith) 10.32.2 Security agreement dated June 27, 2012 between SAE and JMJ Financial (filed herewith) 10.32.3 Common Stock Purchase Warrant dated June 27, 2012 (filed herewith) 10.32.4 Personal Guaranty and Recourse Agreement dated June 27, 2012 (filed herewith) 10.32.5 Representations and Warranties agreement dated June 27, 2012 (filed herewith) 10.32.6 Additional Default Provisions 10.33 Record Manufacturing and Distribution Agreement 10.34 Forbearance and Workout Agreement Number 6 10.35 Recording Agreement between Seven Arts Entertainment and BonesBone Thugs-N-Harmony 10.36 Recording Agreement between Seven Arts Entertainment and DMX 10.37 Loan Agreement between New Moon Pictures, LLC and Seven Arts Filmed Entertainment Louisiana LLC, dated August 15, 2009 21.1 List of Subsidiaries (filed herewith) 23.1 Consent of The Hall Group CPA s (filed herewith) 23.2 Consent of Baker & Hostetler LLP (included in exhibit 5.1)** 24.1 Powers of Attorney (included on the signature page to this Registration Statement) ——————— * Filed as an exhibit to Amendment No. 4 to Registration Statement on Form F-1 on September 27, 2010 and incorporated herein by reference.. ** To be filed at a future date. b. Financial Statement Schedules None. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining liability under the Securities Act to any purchaser: (i) If the registrant is relying on Rule 430B: (A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and (B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or (ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on November 12, 2013. SEVEN ARTS ENTERTAINMENT INC. By: /s/ Kate Hoffman Kate Hoffman Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Peter Hoffman as his or her true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him or her and in his or her name, place and stead in any and all capacities to execute in the name of each such person who is then an officer or director of the Registrant any and all amendments (including post-effective amendments) to this Registration Statement, and any registration statement relating to the offering hereunder pursuant to Rule 462 under the Securities Act of 1933 and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises as fully as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Name Title Date /s/ Hubert Gibbs Chairman November 12, 2013 Hubert Gibbs /s/ Katrin Hoffman Chief Executive Officer, Director and Katrin Hoffman Authorized Representative in the United States (Principal Executive Officer) November 12, 2013 /s/Candace Wernick Chief Financial Officer November 12, 2013 Candace Wernick (Principal Financial and Accounting Officer) /s/ Elaine New Director November 12, 2013 Elaine New /s/ Anthony Hickox Director November 12, 2013 Anthony Hickox /s/ David Furth Director November 12, 2013 David Furth REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Management of Seven Arts Entertainment, Inc. (formerly Seven Arts Pictures, Plc.) We have audited the accompanying consolidated balance sheets of Seven Arts Entertainment, Inc. (formerly Seven Arts Pictures, Plc.) as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive income, cash flows and stockholders equity for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We were not engaged to examine management s assertion about the effectiveness of Seven Arts Entertainment, Inc. s internal control over financial reporting as of June 30, 2013 and 2012 and, accordingly, we do not express an opinion thereon. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. As discussed in Note 15 to the financial statements, the June 30, 2012 financial statements have been restated to correct a misstatement. Our opinion is not modified with respect to this matter. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seven Arts Entertainment, Inc. (formerly Seven Arts Pictures, Plc.) as of June 30, 2013 and 2012, and the results of its operations, comprehensive income and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ The Hall Group, CPAs The Hall Group, CPAs Dallas, Texas October 15, 2013 F- 2 Seven Arts Entertainment, Inc. (Formerly Seven Arts Pictures, Plc) Consolidated Balance Sheets June 30, 2013 June 30, 2012 (Restated) ASSETS Cash and cash equivalents $4,884 $120,658 Accounts receivable, net of allowance for doubtful accounts of $40,000 and $171,062 110,043 192,035 Due from related parties 205,787 2,116,538 Fee income receivable from related parties, net of allowance for doubtful accounts of $1,190,000 2,055,000 3,235,000 Other receivables and prepayments 455,019 849,845 Total Current Assets 2,830,732 6,514,076 Film costs, less accumulated amortization of $13,877,172 and $11,832,900 8,368,686 14,612,609 Music assets, less amortization of $408,205 and $0 296,795 4,289,158 Building Improvements, less amortization of $165,526 and $0 4,102,525 4,551,270 Property & Equipment 7,458 16,137 TOTAL ASSETS $15,606,196 $29,983,250 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable 1,824,141 1,152,977 Accrued liabilities 2,486,514 2,758,844 Due to related parties 1,681,701 1,712,134 Shares to be issued - 200,000 Participation and residuals 96,819 114,215 Convertible debt 4,073,901 4,162,460 Mortgage and construction loans 3,743,286 3,001,271 Film & production loans 7,814,412 6,124,428 Deferred income 954,265 849,080 Total Current Liabilities 22,675,039 20,075,409 Provision for earn-out - 50,000 TOTAL LIABILITIES $22,675,039 $20,125,409 STOCKHOLDERS' EQUITY Convertible redeemable Series A preferred stock at $10 stated value, 125,125 and 125,125 authorized and outstanding 1,251,250 1,251,250 Convertible redeemable Series B preferred stock at $100 stated value, 200,000 authorized, 43,850 and 181,850 outstanding 5,525,458 9,163,636 Convertible redeemable Series B shares held in escrow - (3,163,636) Common stock; $0.01 par value; 249,000,000 authorized, 2,316,165 and 1,740 issued and outstanding 2,578,521 17,399 Additional paid in capital 22,072,882 18,214,831 Shares held as collateral (455,246) - Other Comprehensive income (13,555) (13,555) Accumulated deficit (38,154,995) (15,612,085) Warrants to be distributed 480,371 - Total Seven Arts Entertainment Inc. equity(deficit) (6,715,314) 9,857,840 Non-controlling interest 353,530 - Total Shareholders' equity(deficit) (7,068,843) 9,857,840 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,606,196 $29,983,250 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Seven Arts Entertainment, Inc. (Formerly Seven Arts Pictures, Plc) Consolidated Statements of Operations and Comprehensive Loss Year Ended June 30, 2013 2012 Restated Revenue: Film revenue $ 841,956 $ 823,006 Music revenue 574,435 - Fee Income Revenue – related party - 3,235,000 Post production revenue 106,417 - Total revenue 1,522,808 4,058,006 Amortization of film costs and music assets 2,452,477 3,996,576 Impairment of film costs and music assets 6,772,376 9,494,247 Other cost of revenue 359,313 899,065 Development Costs abandoned 2,837,545 - Cost of revenue 12,421,711 14,389,888 Gross loss (10,898,903 ) (10,331,882 ) General and administrative expenses 3,706,774 2,251,139 Bad debt expense 3,582,919 307,481 Total operating expenses 7,289,693 2,558,620 Loss from operations (18,188,596 ) (12,890,502 ) Other income - 4,489,721 Interest expense (4,227,472 ) (2,752,682 ) Total non-operating income (expense) (4,227,472 ) 1,737,039 Loss before taxes (22,416,068 ) (11,153,463 ) Net loss (22,416,068 ) (11,153,463 ) Less: Net loss attributable to non-controlling interests (353,530 ) - Net loss attributable to Seven Arts Entertainment, Inc. $ (22,062,538 ) $ (11,153,463 ) Comprehensive loss: Net loss (22,416,068 ) (11,153,463 ) Other Comprehensive income/loss - (13,555 ) Comprehensive loss (22,416,068 ) (11,167,018 ) Less: Comprehensive loss attributable to non-controlling interests (353,530 ) - Comprehensive loss attributable to Seven Arts Entertainment, Inc. $ (22,062,538 ) $ (11,167,018 ) Weighted average shares of common stock outstanding: Basic 169,352 22,652 169,352 22,652 Diluted Basic profit/ (loss) per share $ 130.28 $ 492.98 Diluted profit/ (loss) per share $ 130.28 $ 492.98 The accompanying notes are an integral part of these consolidated financial statements F- 4 Seven Arts Entertainment , Inc. Statement of Stockholders' Equity Convertible Preferred Retained Preferred Preferred Preferred Common Deferred Deferred Non Redeemable Shares held as Earnings/ Other Non- Stockholders' Stock Class A Stock Class B Stock Class B Stock Stock 2 Stock 1 Additional Convertible Loans Collateral Warrants to be Accumulated Comprehensive Controlling Equity Shares Amount Shares Amount In Escrow Shares Amount Shares Amount Shares Amount Paid-In Capital Shares Amount Amount Distributed Deficit loss Interest Total Balance at 30 June 2011 - $ - - $ - 132,157 $ 1,121,208 2,268,120 $ 3,876,745 13,184,000 $ 11,636,594 $ 9,880,781 1,750,000 $ 3,432,450 $ - $ -19,952,188 $ -2,037,337 $ 7,958,253 Impact of Asset Transfer Agreement (132,157 ) (1,121,208 ) (2,268,120 ) (3,876,745 ) (13,184,000 ) (11,636,594 ) (9,880,781 ) (1,750,000 ) (3,432,450 ) 19,952,188 2,037,337 (7,958,253 ) One for one share issue on transfer of assets from Seven Arts Pictures Plc 93 925 (925 ) 0 Transfer of Seven Arts Pictures Plc (PLC) assets and liabilities to Seven Arts Entertainment, Inc. 8,406,849 8,406,849 Shares issued to Seven Arts Pictures Plc to cover remaining liabilities 29 286 (286 ) - Common stock issued for cash 22 218 499,792 500,010 Common stock issued for consultancy fees 75 751 639,776 640,527 Common stock issued in exchange for debt 1,269 12,686 6,561,179 6,573,865 Common stock issued on convertible notes 253 2,533 2,585,887 2,588,420 Issued Series A preference stock at $10 par value 125,125 1,251,250 1,251,250 Issued Series B preference stock at $100 par value 181,850 4,762,952 4,762,952 Series B preference shares held in escrow (120,000 ) (3,163,636 ) (3,163,636 ) Options issued for wages and benefits 173,797 173,797 Foreign currency translation adjustments (13,555 ) (13,555 ) Net loss (8,271,186 ) (8,271,186 ) Balance at 30 June 2012 125,125 1,251,250 181,850 4,762,952 (120,000 ) (3,163,636 ) 1,740 17,399 - - - - 18,866,069 - - - (8,271,186 ) (13,555 ) 13,449,293 Restatement for PS Series B revaluation (Note 15) 4,400,684 4,400,684 Restatement for impairment of music assets (Note 15) (3,035,000 ) (3,035,000 ) Restatement for reversal of Relatd Party fee income (Note 15) (7,540,898 ) (7,540,898 ) Restatement for adjusted Related Party fee income recognized (Note 15) 3,235,000 3,235,000 Adjustment for 25 million shares pledged in relation to debt - Note 15 (651,229 ) (651,229 ) As restated (Note 15) 125,125 1,251,250 181,850 9,163,636 (120,000 ) (3,163,636 ) 1,740 17,399 - - - - 18,214,840 - - - (15,612,084 ) (13,555 ) 9,857,850 Common shares issued in connection with debt agreement 86 857 179,143 (180,000 ) - Common Stock Issued to CEO in connection with debt agreement 7,000 70,000 (70,000 ) - Sales of Common Stock for Cash 9 86 - - 299,914 300,000 Stock warrant dividend declared 480,371 (480,371 ) - Preferred stock converted to Common Stock (38,000 ) (1,001,819 ) 3,455 34,545 967,274 - Preferred stock cancelled in connection with settlements (100,000 ) (2,636,363 ) 100,000 2,636,363 - Escrowed Series B PS released 20,000 527,273 527,273 Common Stock Issued upon conversion of convertible debt 2,023,140 2,072,046 1,301,088 3,373,134 Common Stock Issued for Services 264,522 221,442 1,067,523 1,288,965 Common Stock held as collatoral for legal settlement 16,215 162,146 113,100 (275,246 ) - Net loss (22,062,539 ) (353,530 ) (22,416,068 ) 125,125 $ 1,251,250 43,850 $ 5,525,454 - (0 ) 2,316,165 $ 2,578,521 - - - - $ 22,072,882 - - $ (455,246 ) $ 480,371 $ (38,154,995 ) $ (13,555 ) $ (353,530 ) $ (7,068,843 ) The accompanying notes are an integral part of these consolidated financial statements F- 5 Seven Arts Entertainment Inc. (Formerly Seven Arts Pictures, Plc.) Consolidated Statements of Cash Flows June 30, 2013 June 30, 2012 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (22,416,067 ) $ (11,167,019 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 8,679 8,403 Amortization of Film Costs and Music Assets 2,452,477 3,996,574 Impairment of Film Costs 2,054,171 6,459,248 Impairment of Music costs 4,718,205 3,035,000 Amortization of Leasehold improvements 164,811 - Common Stock Issued for Services 1,288,974 640,527 Stock Option Expense - 173,797 Bad debt 3,538,580 - Development costs abandoned 3,196,858 - Forgiveness of Debt and Interest - (4,489,721 ) (Increase) Decrease in Accounts Receivable 359 239,856 Decrease in Due from Related Parties 42,204 609,436 Increase in Fee Income Receivable from Related Party - (3,235,000 ) (Increase)Decrease in Other Receivables and Prepayments (13,573 ) 771,050 (Increase) in Film Costs (1,051,378 ) (1,934,871 ) (Increase) in Music Assets (606,770 ) (1,324,158 ) Increase (Decrease) in Accounts Payable 1,546,377 (1,417,293 ) Increase(Decrease) in Accrued Liabilities 460.274 186,957 Increase in Due to Related Parties (30,433 ) 1,060,905 Increase in Accrued Interest included in notes payable 4,043,129 2,939,546 Increase in Deferred Income 105,185 441,317 (Decrease) in VAT Payable - (1,477,584 ) Increase (Decrease) in Provision for Earn Out (50,000 ) 50,000 Net Cash Used in Operating Activities (547,939 ) 56,669 CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES : Building Improvements (466,066 ) (4,551,270 ) Net Cash Used in Investing Activities (466,066 ) (4,551,270 ) Proceeds from Borrowings 1,838,163 3,991,047 Cash Payments on Debt (1,239,931 ) (1,313,337 ) Issuance of Preferred Stock for Cash - 1,251,250 Issuance of Common Stock for Cash 300,000 500,000 Net increase in Equity from Asset Transfer - 177,484 Net Cash Provided by (Used for) Financing Activities 898,232 4,606,444 NET INCREASE (DECREASE) IN CASH (115,774 ) 111,873 CASH AT BEGINNING OF PERIOD 120,658 8,785 CASH AT END OF PERIOD $ 4,884 $ 120,658 Supplemental disclosure of Non-cash Investing and Financing activities: Assumption of Debt $ - $ 3,001,270 Shares of common stock issued for services $ 1,288,945 $ 640,527 Shares of common stock issued in exchange for accounts payable $ 875,214 $ - Shares of common stock issued as collateral $ 455,246 $ - Shares of common stock pledged in connection with debt $ 70,000 $ - Shares of common stock issued in payment of debt and interest $ 3,373,134 $ 9,163,636 Conversion of Preferred Shares Series B to common stock $ 1,001,819 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 6 Seven Arts Entertainment, Inc. (Formerly Seven Arts Pictures, Plc.) Notes to Consolidated Financial Statements June 30, 2013 and 2012 NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities, History and Organization: Seven Arts Entertainment, Inc. (herein referred to as "the Company", "Seven Arts" or "SAE,"), a Nevada Corporation, is the continuation of the business of Seven Arts Pictures Plc. ("PLC"), which was founded in 2002 as an independent motion picture production and distribution company engaged in the development, acquisition, financing, production, and licensing of theatrical motion pictures for exhibition in domestic (i.e., the United States and Canada) and foreign theatrical markets, and for subsequent worldwide release in other forms of media, including home video and pay and free television. The Company currently owns interests in 33 completed motion pictures, subject in certain instances to the prior financial interests of other parties. As discussed herein, in late February 2012, the Company formed Seven Arts Music, Inc. ("SAM") and acquired 52 completed sound recordings of the recording artist DMX from David Michery ("Michery") with the rights to additional albums and acquired 100% of the stock of Big Jake Music ("BJM"). As a result, the Company is also in the business of producing and distributing recorded music. On June 30, 2012 Seven Arts Filmed Entertainment LLC ("SAFELA") was transferred to the Company. SAFELA, which is now 60% owned by the Company, has a 30 year lease to operate a film production and post-production facility at 807 Esplanade in New Orleans, Louisiana. The post production facility commenced operations on August 12, 2012. On Aug 14, 2012 Seven Arts Filmed Entertainment Louisiana LLC ("SAFELA"), commenced operation of Seven Arts Post at the Company s production facility located at 807 Esplanade Ave., New Orleans, Louisiana. On June 11, 2010, SAE, was formed and became a wholly owned subsidiary of PLC. As of June 11, 2010, the Company entered into an Asset Transfer Agreement, as amended on January 27, 2011 and again on August 31, 2011, to transfer certain assets with a cost basis from PLC to SAE, in exchange for assumption by SAE of certain indebtedness and for one share of common stock of SAE for each ordinary share of PLC which have been distributed to shareholders. Additionally, 29 shares (2,000,000 shares as adjusted for reverse stock splits discussed herein) of SAE were issued to PLC in order to satisfy any remaining obligations. This transfer was approved by the PLC shareholders at an Extraordinary General Meeting on June 11, 2010. The purpose of this transfer was to eliminate our status as a foreign private issuer and to assume compliance with all obligations of a domestic issuer under all applicable state and Federal securities laws. Our intention in executing this transaction was to redomicile our business with no change in the economic interests of our shareholders. Subsequent to the transfer SAE became is a United States issuer and commenced regular quarterly reporting from the first quarter ended September 30, 2011. On August 31, 2011, NASDAQ approved the substitution of one share of SAE, Inc. stock for the Company's NASDAQ listing, effective at the opening of trading on September 1, 2011. On that date, each of the Company's ordinary shares were exchanged for one share of common stock of SAE, and commenced trading on NASDAQ as the successor to the Company's NASDAQ listing. This transaction was approved by the Company s shareholders at the Company s Extraordinary General Meeting on June 11, 2010. F- 7 On November 8, 2011, the Company's listing predecessor, PLC, was placed into involuntary creditors liquidation under English law (See Note 13 – Commitments and Contingencies). Certain indebtedness of PLC remained with PLC and will be subject to administration or payment in those administration proceedings. In accordance with the asset transfer agreement, PLC has been issued 571 shares of common stock of SAE in order to satisfy these obligations. On February 23, 2012, the Company formed Seven Arts Music, Inc. ("SAM") and acquired 52 completed sound recordings of the recording artist DMX from David Michery ("Mr. Michery") with the rights to additional albums and acquired 100% of the stock of Big Jake Music ("BJM"). As a result, the Company is also in the business of producing and distributing recorded music. In connection with the acquisition of the music assets of Michery, the Company issued 100 ,000 shares of our Series B convertible preferred stock, par value $100 convertible at approximately $1.10 per share) to Michery and his assigns . 50,000 shares of the Company s Series B convertible preferred stock were held in escrow and to be released to Michery and his assigns only if two DMX albums and two Bone Thugs-N-Harmony albums generate an aggregate of net earnings before interest and taxes of $5,000,000 during the next five fiscal years During the quarter ended December 31, 2012, Mr. Michery converted and sold 38,000 of the 50,000 shares of Series B that he and his assigns held. The Company and Mr. Michery have agreed the remaining 50,000 shares of Series B in escrow will be disposed of by release of 20,000 shares of the Series B convertible preferred stock to Mr. Michery in full satisfaction of any claims he may have against the Company and the balance of the 30,000 shares of Series B will be cancelled. The release of the 20,000 shares has been recognized as services in the accompanying financial statements. As of June 30, 2013, Mr. Michery or his assigns hold 32,000 shares of Series B convertible preferred stock. In connection with the acquisition of the stock of BJM, the Company issued 80 ,000 shares of the Company s Series B convertible preferred stock, par value $100 convertible at approximately $1.10 per share) to Jake Shapiro and his assigns with 70,000 of these shares held in escrow to be released to Shapiro and his assigns only if certain specific terms are met : 40,000 shares were subject to proving valuation and usage of certain advertising credits and 30,000 shares were subject to an earnout over a two year period. The Company entered into a settlement agreement with Mr. Shapiro on February 27, 2013 and all shares of Series B preferred stock held in escrow for him and persons associated with him have been cancelled, with Mr. Shapiro and his assigns still holding 10,000 shares of Series B convertible preferred stock as of March 31, 2013. The name and the website of Big Jake Music were also reassigned to Mr. Shapiro as part of the settlement agreement. Seven Arts Pictures Louisiana LLC, ("SAPLA"), a related party of the Company, entered into a Credit Agreement with Advantage Capital Community Development Fund LLC dated October 11, 2007, for the acquisition and improvement of the production and post-production facility located at 807 Esplanade Avenue in New Orleans, Louisiana ("807 Esplanade") for aggregate principal advances of up to $3,700,000. This agreement was guaranteed by the Company s predecessor. Approximately $3,700,000 plus interest has been drawn under the terms of this Credit Agreement, as of June 30, 2012. The Company has now assumed the liability for $1,000,000 of this amount plus a contingent sum of $750,000 (contingent on receipt of at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance. A construction loan of $1,850,000 previously guaranteed by the Company has now also been assumed by the Company. ,The Company through SAFELA, has a 30 year lease on the property 807 Esplanade to operate a film production and post-production facility. On January 1, 2012, Seven Arts Film Entertainment Limited ("SAFE") sold all of its film assets to SAE for assumption of indebtedness. SAFE ceased operations on May 31, 2013 on closing of its office in London, England. The Company plans to file for creditors voluntary liquidation of SAFE in England. The asset transfer agreement had no impact on the Company s consolidated financial statements. F- 8 Capital Structure: SAE s authorized capital is 250,000,000 shares of capital stock. SAE has authorized the following classes of stock: 249,000,000 of common stock, $.01 par value per share. As of June 30, 2013, there are 2,316,165 shares of common stock outstanding . Each outstanding share of common stock entitles the holder thereof to one vote per share on matters submitted to a vote of stockholders. 125,125 shares of Series A Preferred Stock with a $10.00 stated value per share. All of such authorized shares were issued to one shareholder in November 2011. These shares have a conversion price to common stock of $10.50 per share. 200,000 shares Series B Preferred Stock with a $100.00 stated value per share. As of June 30, 2013, there are 43,580 shares outstanding. The per share conversion price for the Series B Preferred Stock is $1.10 per share. On September 14, 2012 the Company s common stock began trading on the OTC Market s OTCQB marketplace. The Company s common shares trade under the Company s symbol "SAPX." The Company is applying to trade on the highest OTC marketplace, OTCQX, but is trading on the OTCQB tier until the Company is eligible to trade on the OTCQX. Trading of the Company s common stock on The NASDAQ Capital Market was suspended at the opening of business on September 14, 2012, due to the fact that the Company did not meet the $1 minimum bid price stock listing requirement of NASDAQ for ten trading days prior to September 20, 2012, the expiration date on the Company s six-month extension to meet this listing requirement. On September 14, 2012, the Company s common stock began trading on the OTC Market s OTCQB marketplace. The Company s common stock is quoted under the symbol "SAPX." The Company is applying to trade on the highest OTC marketplace, OTCQX, but is quoted on the OTCQB tier until the Company is eligible to be quoted on the OTCQX. On January 28, 2013, at a shareholders meeting, an increase in the number of authorized shares of the Company s shares to 250,000,000 was approved, with 1,000,000 designated for preferred shares, and 249,000,000 as common shares. The Board of Directors was also authorized to increase the number of shares of the Company s common stock issuable in the Company s 2012 Stock Incentive Plan from 71,429 to 15,000,000. Seven Arts also, subject to appropriate and required regulatory filings and approvals, declared a warrant dividend to those persons beneficially owning its common stock as of the close of the markets on August 31, 2012. For every ten pre-reverse split shares of common stock held as of such date and time, the holders thereof are entitled to receive one warrant as a dividend. Until its expiration date, each warrant, once distributed following such approvals, will be exercisable for the purchase of one share of the Company's post-reverse split common stock at a price equivalent to today's post-reverse split closing bid price. The warrants will expire on the earlier of (i) the date that the holder disposes of the common stock in respect of which the warrant dividend was declared, if such disposition occurs on or before the close of the markets on October 31, 2012, or (ii) 5:00 p.m., PST, on June 30, 2014. Seven Arts does not expect that a secondary market will develop for such warrants. Reverse Stock-Splits: On October 31, 2013, May 2, 2013 and August 31, 2012 , the Company effected one-for-twenty, one-for-fifty and one-for-seventy reverse stock splits, respectively, collectively referred to as the Stock Splits. Unless otherwise noted, all impacted amounts included in the consolidated financial statements and notes thereto have been retroactively adjusted for the Stock Splits. Unless otherwise noted, impacted amounts include shares of common stock authorized and outstanding, share issuances and cancellations, shares underlying preferred stock, convertible notes, warrants and stock options, shares reserved, conversion prices of convertible securities, exercise prices of warrants and options, and loss per share. F- 9 Audited Financial Statements: The accompanying audited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. These financial statements are audited and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet, statement of operations, statement of stockholders equity and statement of cash flows for the periods presented in accordance with accounting principles generally accepted in the United States. Basis of Presentation: The accompanying consolidated financial statements include the accounts of Seven Arts Entertainment, Inc. ("SAE"), and its subsidiaries: Seven Arts Filmed Entertainment, Limited ("SAFE, Ltd.") (100% owned) Seven Arts Music, Inc. ("SAM") (100% owned) and Big Jake Music, Inc. ("BJM") (100% owned) Seven Arts Filmed Entertainment Louisiana LLC ("SAFELA") (As of June 30, 2012) (60% owned by SAE, 40% owned by Palm Finance) The Company consolidates its subsidiaries in accordance with Accounting Standards Codification ("ASC") 810, " Business Combinations" , and specifically ASC 810-10-15-8 which states, "The usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule, ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation." The Company does not have any variable interest or special purpose entities. The Company presents Palm Finance s 40% share of SAFELA s profit or loss as a noncontrolling interest. The Company prepares its financial statements on the accrual basis of accounting and in accordance with Generally Accepted Accounting Principles of the United States of America ("US GAAP"). All material intercompany balances and transactions are eliminated. Management believes that all adjustments necessary for a fair presentation of the results of the years ended June 30, 2032 and 2012 have been made. F- 10 Going Concern The accompanying consolidated financial statements are prepared under a going concern basis in accordance with US generally accepted accounting principles ("GAAP") which contemplates the realization of assets and discharge of liabilities and commitments in the normal course of business. For the year ended June 30, 2013, the Company recorded a loss from operations of $18,188,596, and utilized cash in operations of $547,938. As of June 30, 2013, the Company had a working capital deficit of approximately $19,844,000. These factors, among others, raise substantial doubt about the Company s ability to continue as a going concern. The Company s ability to continue as a going concern is dependent upon its ability to return to profitability or to develop additional sources of financing or capital. The Company s financial statements do not include any adjustments that might result from the outcome of these uncertainties. Historically, the Company s main source of cash was through the exploitation of its films, sales of equity and debt financing. However, the Company has not released or distributed a new film since July 2012. The Company s next film, Schism, is expected to be released in March, 2014, and the Company also intends to release the next DMX album in early 2014 and the Thugs Bones N Harmony album in December 2013. Additionally, management has begun to implement cost reductions including reducing the size of its staff and size of its UK office and expects to be able to continue to obtain additional financing. No assurance can be given that the financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. The most significant estimates made by management in the preparation of the financial statements relate to ultimate revenue and costs of its films which are used in the amortization and impairment of film costs, estimates for allowances and income taxes. Accordingly, actual results could differ from those estimates. Emerging Growth Company Critical Accounting Policy Disclosure: The JOBS Act contains provisions that relax certain requirements for "emerging growth companies" for which we qualify. For as long as we are an emerging growth company, which may be for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act. , unlike other public companies, we will not be required to: (i) comply with any new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies under Section 102 (b)(1) of the JOBS Act; (ii) provide an auditor's attestation report on management's assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (iii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; or (iv) comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We currently intend to take advantage of such extended transition period. Since we are not required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. F- 11 Significant Accounting Policies: The Company s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense. It is also necessary for management to determine, measure and allocate resources and obligations within the financial process according to those principles. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements. Revenue Recognition: FILMS The Company recognizes revenue from the sale (minimum guarantee or non-refundable advances) or licensing arrangement (royalty agreements) of a film in accordance with ASC 605-15 " Revenue Recognition". Revenue will be recognized only when all of the following criteria have been met: a)Persuasive evidence of a sale or licensing arrangement with a customer exists. b)The film is complete and, in accordance with the terms of the arrangement, has been delivered or is available for immediate and unconditional delivery. (i.e. the "notice of delivery" ("NOD") has been sent and there is a master negative available for the customer). c)The license period of the arrangement has begun and the customer can begin its exploitation, exhibition, or sale. d) The arrangement fee is fixed or determinable. e)Collection of the arrangement fee is reasonably assured. A written agreement with clients (purchase order, letter, contract, etc.), indicating the film name, territory and period is required for the recognition of revenue. Revenue is recognized when the performance criteria in the contracts have been met. The customer generally confirms agreement by their signature on the contract. Minimum guarantee revenue (i.e., non-refundable advances) is recognized as and when the film is available for delivery to the respective territories. Cash deposits received on the signing of the contracts are recorded as deferred revenue until the film is available for delivery (as described above) at which point the deferred revenue is recognized as revenue. The Company does not recognize any revenues relating to minimum guarantee on any motion picture or related amortization expense on that picture until United States theatrical release if it has agreed with the licensees that delivery or payment of minimum guarantee will be delayed for any material period of time to permit such a theatrical release. Royalty revenue, which equates to an agreed share of gross receipts of films, is recognized as income as and when the Company is notified of the amounts by the customers through their royalty reports. Revenue is recorded net of any sales or value added taxes charged to customers. MUSIC Revenue, which equates to an agreed share of gross receipts, is recognized as income when the Company is notified of the amounts by the distribution agent through their distribution reports. Revenue is recorded: a)net of any sales or value added taxes charged to customers b)net of discounts agreed with customers c)net of returns provision agreed with the distributor and d)grossed up for the distribution fee charged by the distribution agent. F- 12 Revenue from digital distribution will be reported by the various digital platforms such as iTunes in their periodic reports and posted as received. FILM TAX CREDITS Many countries make tax credits available to encourage film production in the territory. Seven Arts benefits from tax credits in: a)The UK and several other European territories for their European productions b)Canada for their Canadian productions c)Louisiana for their US productions d)Tax preferred financing deals These tax credits may be treated as a reduction in the capitalized costs of the film assets they are financing or as producer fees to us if the tax credits are earned and owned by a company in the Group and paid to us as overhead or producer fees. Fee Income Receivable from Related Party Revenue in the form of fee income is due to the Company from a related party, SAPLA (owned by the wife of Peter Hoffman, the Company s former CEO) for developer, advisory and financial services provided by the Company as concerns infrastructure and historic rehabilitation tax credits earned by SAPLA. In accordance with an intercompany agreement between SAE and SAPLA, the cash proceeds from the disposition of the tax credits earned by SAPLA are due to SAE. The Company has recognized the fair value of the services as revenue with any excess received as a capital contribution by the related party. Foreign Currency Transactions and Comprehensive Income: The Company s functional currency, as well as that of all the Company s subsidiaries, is the US Dollar. The functional currency of the Company s predecessor, was the Pound Sterling ("GPB"), and some transactions which are generated in the United Kingdom are denominated in GBP. F- 13 Assets and liabilities generated in a currency other than the functional currency are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within shareholders equity. Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations. The Company no longer has any operations generated in a currency other than the functional currency and therefore there is no resulting other comprehensive income/loss. The Company records transaction gains and losses in the consolidated statements of operations related to the recurring measurement and settlement of such transactions. To date, the Company has not hedged any transactional currency exposure but will keep such exposures under review and where appropriate may enter into such transactions in future. Income Taxes: The Company has adopted ASC 740-10 "Income Taxes", which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable. Cash and Cash Equivalents: Cash and cash equivalents includes cash in banks with original maturities of three months or less and are stated at cost which approximates market value, which in the opinion of management, are subject to an insignificant risk of loss in value. The cash and cash equivalents of the Company consisted of cash balances held on deposit with banks, including various accounts denominated in US Dollars, Pounds Sterling and Euros. Accounts Receivable: Accounts Receivable are carried at their face amount, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and establishes an allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions, and on a history of write offs and collections. The Company s policy is generally not to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments have not been received within agreed upon invoice terms. Write offs are recorded at a time when a customer receivable is deemed uncollectible. The Company s allowance for doubtful accounts was $40,000 and $171,062 at June 30, 2013 and June 30, 2012, respectively. Substantially all of the trade receivables in the consolidated financial statements are pledged as security for borrowings by the Company. Due To/Due From Related Parties In September 2004, the Company s predecessor entered into an agreement with SAP under which SAP provided the services of Mr. Peter Hoffman for the amount of his contracted salary and the Los Angeles office and staff of SAP Inc. to the Company s predecessor at cost. Pursuant to two inter Company agreements, SAP also from time-to-time owned limited liability companies in the United States which distributed the Company s motion pictures for a fee, with all profits ensuing to the benefit of the Company. These companies also provided other services to the Company at no fee other than Mr. Hoffman s salary and the direct third-party costs of SAP s Los Angeles office, all of which were reflected in the Company s financial statements. Portions of Mr. Hoffman s salary have not been paid to him and have been reflected as Due To Related Party. As of June 30, 2013 and 2012, $1,665,762 and $1,698,578 (Restated), respectively, was owed to Mr. Hoffman for unpaid salary and unreimbursed expenses, as well as repayment of cash he advanced the Company or its predecessors. These other services may include accounting services, audits of distribution statements, collection of accounts receivable, supervision of production of motion pictures and similar day-to-day aspects of the Company s business. SAP assigned to the Company any proceeds arising from services performed by SAP on its behalf. SAP was granted the power and authority to enter into agreements on the Company s behalf. These agreements were terminated from December 31, 2011. SAP directly or through related various Louisiana limited liability companies have, from time-to-time, made non-interest bearing advances to the Company or its subsidiaries or have received advances back from the Company, and have paid expenses on each other s behalf. F- 14 Other Receivables and Prepayments: The Company has entered into contracts for investor relations and consulting services to assist in future fundraising activities. A portion of these services were prepaid with shares of common stock that vested immediately and will be amortized over the period the services are to be provided. Additionally, the Company had approximately $200,000 in revenue to be received from digital platforms on the film, The Pool Boys, which has been earned but not received as of June 30, 2012. The Company also has prepaid some legal costs, which will be released when services are performed, or related transaction is completed. As of June 30, 2013 substantially all of the balance represents prepaid legal fees. Film Costs: Film costs include the unamortized costs of completed films which have been produced by the Company or for which the Company has acquired distribution rights, libraries acquired as part of acquisitions of companies and films in progress and in development. For films produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest and production overhead. Costs of acquiring and producing films are amortized using the individual-film-forecast method, whereby these costs are amortized and participations and residuals costs are accrued in the proportion that current year s revenue bears to management s estimate of ultimate revenue at the beginning of the current year expected to be recognized from the exploitation, exhibition or sale of the films. The majority of a film's costs (approximately 80% or more) are generally amortized within three years of the picture's initial release. Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release. Film costs are stated at the lower of amortized cost or estimated fair value. Individual film costs are reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film is less than its unamortized cost. The fair value of the film is determined using management s future revenue and cost estimates and a discounted cash flow approach. Impairment is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film. Estimates of future revenue involve measurement uncertainty, and therefore it is possible that reductions in the carrying value of investment in films may be required as a consequence of changes in management s future revenue estimates. Films are included in the general "library" category when initial release dates are at least three years prior to the acquisition date. Films in progress include the accumulated costs of productions which have not yet been completed. Films in development include costs of acquiring film rights to books, stage plays or original screenplays and costs to adapt such projects. Such costs are capitalized and, upon commencement of production, are transferred to production costs. Projects in development are written off at the earlier of the date they are determined not to be recoverable or when abandoned. All Exploitation Costs (comprising of direct costs, including marketing, advertising, publicity, promotion, and other distribution expenses) incurred in connection with the distribution of a film ) are expensed as incurred in accordance with ASC 720- 926- 25-3 . The Company begins to accrue participation costs after a film is released when it is probable that such costs will become payable. Participation costs are accrued using the individual-film- forecast method, which accrues participation costs in the same ratio that current period actual revenue bears to the estimated remaining unrecognized ultimate revenue as of the beginning of the current fiscal year. Music Assets: The initial material assets that were acquired comprise 52 completed sound recordings including two completed albums with "DMX", up to two additional albums from "DMX" and up to five albums from "Bone Thugs-N-Harmony". Music assets include the unamortized costs of completed albums, singles and videos which have been produced by the Company or for which the Company has acquired distribution rights, libraries acquired as part of acquisitions and albums in progress and in development. For albums produced by the Company, capitalized costs include all direct production and financing costs, capitalized interest and production overhead. Costs of acquiring and producing music assets will be amortized using the individual-album-forecast method, whereby these costs are amortized in the proportion that current year s revenue bears to management s estimate of ultimate revenue at the beginning of the current year expected to be recognized from the exploitation or sale of the music. F- 15 Building Improvements: On June 30, 2012, the Company acquired SAFELA, which was previously a related party company. SAFELA has a 30 year lease on 807 Esplanade, New Orleans, Louisiana, which was constructed as a production and post-production facility. The Company has since assumed the liability for $1,000,000 of these loans plus a contingent sum of $750,000 (contingent on receipt of the tax credit revenue of at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA) due to an agreement with the now mortgagor Palm Finance. Additionally, a construction loan of $1,850,000 previously guaranteed by the Company has now been assumed by the Company for the property at 807 Esplanade. The Company did not receive any consideration or benefit when they assumed the mortgage and construction loans, and have looked to the authoritative guidance on guarantees as a analogy. As the guidance on financial guarantees does not address which account would be set up as an offsetting entry when the liability is recognized at the inception of the guarantee, the Company has determined to call this asset balance created upon assumption of the debt "Building Improvements related to indebtedness" The Building Improvements will be amortized in a manner similar to leasehold improvements, over the life of the lease (30 years). The post production facility commenced operations on July 1, 2012. Property & Equipment: Equipment is carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, which are 3 to 5 years. Impairment of Long Lived Assets: The Company evaluates, on a periodic basis, long-lived assets to be held and used for impairment in accordance with the reporting requirements of ASC 360-10, " Accounting for the Impairment or Disposal of Long-Lived Assets ". The evaluation is based on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, then an estimate of the discounted value of expected future operating cash flows is used to determine whether the asset is recoverable and the amount of any impairment is measured as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows. Deferred Income: Any income received from customers before a film is delivered for release, (such as deposits on distribution contracts) is recorded as a liability called deferred income in case the film does not reach completion and the income has to be returned to customers. Provision for earn-out for David Michery/Big Jake Music: The Company s Asset Purchase Agreement with David Michery provided for 50,000 of the Company s $100 stated, Convertible Redeemable Series B Preferred Shares, be held in Escrow until the Net EBIT (as defined in the agreement) from distribution of the DMX Albums and two albums embodying the performance of Bone Thugs-n-Harmony exceeds $5,000,000, as confirmed by the Company s independent auditor. At the end of five years, should the Net EBIT be less than $5,000,000, the shares will be released on a fractional basis, as defined in the agreement. As of the year ended June 30, 2012 the Company ha determined the estimated fair value of the earnout to be $0. The PS held in escrow were released or cancelled as of a settlement agreement with Mr. Michery in February 2013, described previously. In connection with the acquisition of the stock of BJM, the Company issued 10,000 shares of the Company s Series B convertible preferred stock, par value $100 convertible at approximately $1.10 per share) to Jake Shapiro and his assigns and agreed to issue an additional 70,000 shares of Series B convertible preferred stock to Shapiro and his assigns if certain specific terms were met; 40,000 shares were subject to proving valuation and usage of certain advertising credits and 30,000 shares were subject to an earnout over a two year period. The 70,000 shares were held in escrow, until their cancellation in relation to a settlement with BJM, in February 2013, described previously. As of June 30, 2012, the Company had determined the fair value of the earnout with regard until the proving of the media credits to be $50,000, which the Board believed was the value of an equivalent public relations campaign.. Mr. Shapiro did have the right to seek an independent valuation. As the shares held in escrow against the valuation of the media credits were cancelled, as part of the settlement (Note 1) the earn-out has been derecognized on the accompanying financial statements. F- 16 Asset Transfer Agreement: On June 11, 2010, Seven Arts Entertainment, Inc. ("SAE"), a Nevada Corporation, was formed and became a wholly owned subsidiary of Seven Arts Pictures Plc. As of June 11, 2010, the Company entered into an Asset Transfer Agreement, This was approved by the PLC shareholders at an Extraordinary General Meeting on that date, and was subsequently amended on January 27, 2011 and again on August 31, 2011, to transfer all of the assets with a cost basis from PLC to SAE, in exchange for assumption by SAE of certain indebtedness and for one share of common stock of SAE for each ordinary share of PLC which have been distributed to shareholders. Additionally, 28,571 shares of SAE were issued to PLC in order to satisfy any remaining obligations . The purpose of this transfer was to eliminate our status as a foreign private issuer and to assume compliance with all obligations of a domestic issuer under all applicable state and Federal securities laws. The Company s intention in executing this transaction was to redomicile our business with no change in the economic interests of the Company s shareholders. As the majority of the Company s shareholders were domestic we felt they would be better served by the Company as a domestic issuer. The assets and certain of the liabilities of SAP Plc. were transfered at net book value. All related party balances of PLC were left in the original company as were the shares in SAFE(UK) Ltd and Cinematic Finance Ltd. All disputed debts were left with the PLC. The " consideration paid for the asset transfer was a one for one share exchange of PLC shares for shares of SAE Inc. and an issuance of a further 2,000,000 (pre-split) (28,571 post-split ) shares in SAE Inc. The issuance of the 2,000,000 shares was booked at the closing market price on August 31 2011, which was $0.66/ share. The Board approved the issuance of the 2 million shares (pre-reverse split) to satisfy any remaining obligations in PLC, which approximated the amount of the liabilities left behind at the time of the issuance. Although the transfer agreement amendment was executed on January 27, 2011, the PLC remained the parent company through August 31, 2011. until all procedures and approvals were in place with NASDAQ, DWAC and the transfer agent to finalize the one share of common stock of SAE for each ordinary share of PLC to be distributed to shareholders and trading of SAE to take over from PLC The fair value of the 2,000,000 shares was determined at the closing market price on August 31 2011, which was $0.66/share. Earnings Per Share: Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share include the effects of any outstanding options, warrants and other potentially dilutive securities. For the periods presented, there were no potentially dilutive securities outstanding, therefore basic earnings per share equals diluted earnings per share. Basic and diluted earnings per share ("EPS") are based on weighted-average common shares and exclude shares that would have an anti-dilutive effect. In accordance with ASC 260-10-45-19, the Company did not consider any potential common shares in the computation of diluted EPS as of June 30, 2013 and 2012, due to the loss from continuing operations, as they would have an anti-dilutive effect on EPS. Share Based Payments: The Company accounts for share based payments using a fair value based method whereby compensation cost is measured at the grant date based on the value of the services received and is recognized over the service period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued. In calculating this fair value, there are certain assumptions used such as the expected life of the option, risk-free interest rate, dividend yield, volatility and forfeiture rate. The use of a different estimate for any one of these components could have a material impact on the amount of calculated compensation expense. Segment Reporting: The Company has three operating segments based on its major lines of businesses: a motion picture producer and distributor, music label, and post-production facility. Each operating segment derives its revenues from the sale of products or services, respectively and each is the responsibility of a group of senior management of the Company who has knowledge of product and service specific operational risks and opportunities. The Company s chief operating decision maker reviews and evaluates separate sets of financial information for decisions regarding resources allocation and performance assessments. Fair Value Measurements: ASC Topic 820, " Fair Value Measurements and Disclosures ", defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair value of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Corporation s credit worthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. F- 17 Derivative Instruments: The Company s policy is to not use derivative or hedging financial instruments for trading or speculative purposes, except certain embedded derivatives derived from certain conversion features or reset provisions attached to the convertible debentures, as described in Note 9. Reclassification: Certain prior year balances were reclassified to conform with current year presentation. Recently Issued Accounting Pronouncements: In October 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-07, "Entertainment - Films (Topic 926): Accounting for Fair Value Information That Arises after the Measurement date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs." ASU No. 2012-07 eliminates the rebuttable presumption that the condition leading to the write-off of unamortized film costs existing after the balance sheet date also existed as of the balance sheet date. In addition, in performing the impairment test, an entity is no longer required to incorporate the effects of changes in estimates resulting from evidence arising subsequent to the balance sheet date if the information would not have been considered by market participants at the balance sheet date. This guidance was effective for the Company's impairment assessments performed on or after December 15, 2012. The Company does not expect the adoption of and other recently issued accounting pronouncements to have a significant impact on the Company s results of operations, financial position or cash flow. F- 18 NOTE 3 – RELATED PARTY DUE TO/DUE FROM Related Party Due/From at June 30, 2013 consisted of: Consolidated SAE, Inc. SAFE SAFELA Balance Due from: SAMT 13,000 13,000 SAPLA 173,006 173,006 Peter Hoffman 19,781 19,781 Total 186,006 205,787 Peter Hoffman (1,272,112) (393,650) (1,665,762 ) SAFE (UK) (2,383) (13,556) (15,939 ) (1,274,495) (407,206) (1,603,367 ) CONSOLIDATED BALANCE As of June 30, 2012 SAE INC SAFE (Restated) SAP Inc $1,801,098 $(20,850) $1,780,248 SAPLA 336,290 - 336,290 Peter Hoffman (1,679,617) (18,961) (1,698,578) SAFE (UK) - (13,556) (13,556) $457,771 $(53,367) $404,404 SAP, Inc. has pledged an interest in its shares of the Company s stock to secure certain indebtedness for which SAP, Inc. and the Company are jointly liable such as the Apollo and Armadillo debts. The stock of SAP, Inc. (previously owned by Peter Hoffman) was transferred to the listing predecessor of SAE on September 1, 2011. SAP Inc. and Louisiana Companies : The Company s former Chief Executive Officer who is on a leave of absence, Peter Hoffman, controls several companies, including (prior to September 10, 2011) Seven Arts Pictures, Inc. ("SAP, Inc.") that are not part of the Company but from which it obtained or transferred distribution rights or other assets related to the business and which control production of the motion pictures. The agreements with Mr. Hoffman, and the companies controlled by him, provide that all revenues related to the Company s business payable to Mr. Hoffman or any of these related party companies is due to the Company, except Mr. Hoffman s salary, bonus and stock ownership. None of these affiliates are variable interest or special purpose entities. Prior to January 1, 2012, pursuant to a related party agreement, SAP, Inc. held ownership of limited liability corporations in the United States, with all distribution rights and profits thereof being due to SAFE, Ltd. In addition, they have also provided other services for Seven Arts Pictures Plc. and SAFE, Ltd. and SAE, Inc. at no fee other than Mr. Hoffman s salary and the direct third party costs of the Los Angeles office, all of which are reflected in the financial statements of SAFE, Ltd. These other services include any reasonable requests of the management of the Company including accounting services, audits of distribution statements, collection of accounts receivable, supervision of production of motion pictures and similar day-to-day aspects of the Company s business. Effective January 1, 2012 no further such transactions were conducted. As of June 30, 2013, the amount due from the related party, SAP, Inc, was determined to be uncollectible due to SAP, Inc. having been transferred to PLC, which is in liquidation proceedings. Therefore, $1,868,547 was included in Bad Debt expense in the accompanying financial statements. F- 20 Peter Hoffman: In September 2004, the Company s predecessor entered into an agreement with SAP under which SAP provided the services of Mr. Peter Hoffman for the amount of his contracted salary and the Los Angeles office and staff of SAP Inc. to the Company s predecessor at cost. Pursuant to two inter Company agreements, SAP also from time-to-time owned limited liability companies in the United States which distributed the Company s motion pictures for a fee, with all profits ensuing to the benefit of the Company. These companies also provided other services to the Company at no fee other than Mr. Hoffman s salary and the direct third-party costs of SAP s Los Angeles office, all of which were reflected in the Company s financial statements. Portions of Mr. Hoffman s salary have not been paid to him and have been reflected as Due To Related Party. During the year ended June 30, 2013, 357 (25,000,000 pre-split) and 7000 (7,000,000 pre-split) shares were issued in exchange for $914,786, and $1,190,000, respectively, of the Due to related party balance. The 357 shares have been pledged to JMJ Financial in connection with a $500,000 convertible debenture, as collateral against repayment of the note. The 7,000 shares have been pledged to Tonaquint Inc, in connection with a total of $590,000 in convertible debentures, under the terms of an amendment dated October 5, 2012, as collateral against repayment of the note. (Note 9) In the event of a default on either of the notes the holder may transfer and sell the pledged shares and apply the proceeds against the outstanding amounts on the notes. Per agreements between the Company and Mr. Hoffman in respect to the pledged shares, if the pledged shares are sold and applied to the note balance, or if the shares are not utilized by the pledges and returned to the Company, Mr. Hoffman s Due to related party balance as of the date of the agreements, will be reinstated. Due to the future obligation to in substance repurchase the shares and reinstate the Due to related party balance, the shares have been treated as if issued for no consideration, and a liability for $2,104,786 was recognized included in the Due to related party balance for the obligation to reinstate the Due to balance. SAPLA Guarantee: Seven Arts Pictures Louisiana LLC, ("SAPLA") a related party of the Company, entered into a Credit Agreement with Advantage Capital Community Development Fund LLC dated October 11, 2007, for the acquisition and improvement of the production and post-production facility located at 807 Esplanade Avenue in New Orleans, Louisiana for aggregate principal advances of up to $3,700,000. This agreement was guaranteed by the Company s predecessor. Approximately $3,700,000 plus interest has been drawn under the terms of this Credit Agreement, as of June 30, 2012. The Company has since assumed the liability for $1,000,000 of this amount plus a contingent sum of $750,000 due to Advantage Capital (contingent on receipt of the tax credit revenue of at least $5,000,000 in cash proceeds from the tax credits to be earned by SAPLA ) due to an agreement with the now mortgagor Palm Finance. A construction loan of $1,850,000 previously guaranteed by the Company has now been assumed by the Company for the property at 807 Esplanade. The Company did not receive any consideration or benefit when they assumed the mortgage and construction loans, and have looked to the authoritative guidance on guarantees as a analogy. As the guidance on financial guarantees does not address which account would be set up as an offsetting entry when the liability is recognized at the inception of the guarantee, the Company has determined to call this asset balance created upon assumption of the debt "Building Improvements related to indebtedness" The Building Improvements will be amortized in a manner similar to leasehold improvements, over the life of the lease (30 years). SAPLA Advances: On February 28, 2012, the Company took out a convertible loan of $200,000 which was in turn loaned to SAPLA to cover outstanding interest payments which were due on the construction loan on 807 Esplanade previously guaranteed by the Company. Three additional convertible loans were taken out totalling $600,000 during the year ended June 30, 2012 and then loaned to SAPLA to pay down the construction loan on the property at 807 Esplanade, as to not further delay the construction and opening of the facility. As of June 30, 2013, the convertible loan balance, after conversions, on the Company s financial statements is approximately $325,000. NOTE 4 – FEE INCOME RECEIVABLE FROM RELATED PARTY (RESTATED) SAPLA has filed for historical rehabilitation tax credits available from the United States (26%) and Louisiana (25%) on approximately $9,500,000 of historical rehabilitation expenses paid in connection with the renovation of the building and property at 807 Esplanade Avenue in New Orleans, Louisiana (the "Property") and reflected in a compilation of expenses by an independent accounting firm. SAPLA has filed the Part I application for historic rehabilitation credits and has received the Part II and Part III approvals from the United States Department of Parks with respect to the Property : SAPLA will allocate the Federal historic rehabilitation credits to investors in its lessee, 807 Esplanade Ave. MT LLC ("MT"), and receive cash or reduction in indebtedness as a result of such allocation. SAPLA will assign the Louisiana historic rehabilitation for cash. F- 21 SAPLA has also filed for Louisiana film infrastructure tax credits (40%) on all of its investment of approximately $11,500,000 in connection with the Property to date, as reflected in an audit report of an independent accounting firm (which also includes audits of all rehabilitation expenses). SAPLA has approval from Louisiana that the Property is a certified state film infrastructure project and SAFELA, as lessee of MT, is now operating a production and post - production facility at the Property. To date Louisiana has certified approximately $6,500,000 of the $11,500,000 film infrastructure expenditure filed for , the tax credits accruing on which SAPLA will assign for cash, with the remaining expenses remaining under consideration by the Louisiana Department of Economic Development ("LED"). SAPLA has received no objections to any of its film rehabilitation expenses from LED as reflected in the audit report submitted to LEDF on July 2, 2012. Under a published Opinion of the Attorney General of Louisiana, the Louisiana tax credits vest upon certification as a film infrastructure project which occurred in 2008. Revenue is not recognized until the required audit or compilation is complete and available to be submitted to the appropriate agency. Under the terms of the related party agreement between SAPLA and SAE Inc. proceeds received from the disposition of the tax credits earned by SAPLA on the building are due to SAE to reduce the notes payable to Palm Finance and as fees for services provided by the Company . SAPLA is due to receive approximately $9,447,544 from disposition of Louisiana and Federal historic rehabilitation and film infrastructure tax credits for the restoration and the establishment of a post-production facility at 807 Esplanade. SAPLA will pay the proceeds from disposition of such tax credits to SAE Inc. as fee income. The Company provided "developer" services as concerns oversight of the rehabilitation work carried out on the facility, as well as advisory services in connection with the obtaining of the tax credits, and financial services related to the loans and mortgage. The Company has concluded the services evidence an earning process, in the providing of a service, and as such have recognized revenue in relation to the fair value of the services provided. The fair value of $3,235,000 was determined based on the amounts stated as "qualified expenses" and determined to be reasonable and industry standard in the required audit of cost report expenditures performed on the project by an independent accountant. Any excess over the fair value of the services received by the Company from SAPLA will be recognized as a contribution to capital. As of December 31, 2012, the current director of LED had toured 807 Esplanade and seemed satisfied with his review. He requested the building get a permanent business license and to confirm that the equipment in the building is permanent. The permanent business license was obtained on April 1 and the permanency of the equipment was confirmed by that date as well. As of June 30, 2013, the Louisiana Department of Economic Development has not issued a Tax Credit Certification Letter as pertains to the LFI credits, and on June 23, 2013 SAPLA received a letter from the Louisiana Economic Development ("LED") office that they could "not proceed further with any consideration to approve" the tax credits until SAPLA proves they have the correct occupational license from the city. SAPLA does have the appropriate license and is currently appealing this notification. In light of these subsequent occurrences, management has determined that the amount underlying the LFI credits should be reserved against as of June 30, 2013, until such time as the Tax Credit Certification Letter is received by SAPLA. Additionally, the State Historic Preservation Office ("SHPO") has not yet issued their Part III approval, confirming what amount of the tax credits they are approving. In October 2012 the SHPO sent SAPLA some questions on their expenditures, which were answered by the independent auditor who performed the required audit of the cost expenditures, but there has been no further correspondence since. SAPLA is pursuing the issue with SHPO to force them to state the amount of tax credits they are approving, based on a recent law in Louisiana which says SHPO must state which line item they are disallowing. Therefore, the Company has also determined to reserve against the amount of the proceeds representing the LHR credits, until such time as SAPLA resolves the issue with SHPO and receives a Part III approval. The total reserve recognized as of June 30, 2013 for the fee income from related party is $1,180,000, which represents the cash proceeds underlying the LFI and LHR tax credits in excess of the $3,235,000 recognized as revenue, and reduces the receivable amount to the amount the Company has determined to be known to be collectible, the amount of the cash proceeds underlying the Federal tax credits. NOTE 5 – FILM COSTS Film costs as of June 30, 2013 and June 30, 2012 are as follows: June 30, 2013 June 30, 2012 Released, net of accumulated amortization $3,314,728 $7,365,186 Completed and not released — — In production 1,209,931 6,286,587 In development 3,844,027 960,835 $8,368,686 $14,612,608 Amortization of film costs was $2,044,272 and $3,996,576 for the years ended June 30, 2013 and 2012. The Company estimates that its amortization expense in the next year will be $1,275,000. The Company reviews capitalized film costs for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable or at least once per year. Determination of recoverability is based on an estimate of future cash flows resulting from the use of the asset, and its eventual disposition. Measurement of an impairment loss for the assets is based on the fair value of the asset as estimated using a discounted cash flow model. As a result of the impairment evaluation the Company recognized an impairment of $2,054,171 and $9,494,247 (Restated) in the years ended June 30, 2013 and 2012, respectively, based on reduced ultimate revenue estimations. All Exploitation Costs (comprising of direct costs, including marketing, advertising, publicity, promotion, and other distribution expenses) incurred in connection with the distribution of a film) are expensed as incurred in accordance with ASC 720-926-25-3. No participations have been recorded as the Company does not believe anything will be due in the next 12 months. F- 22 NOTE 6 – MUSIC ASSETS Music assets are as follows: June 30, 2012 June 30, 2013 (Restated) Music assets 5,423,205 $6,324,158- Intangible Assets – music assets - 1,000,000 5,423,205 7,324,158 Impairment recognized during the year 4,718,205 3,035,000 Total music assets 705,000 4,289,158 Less: Accumulated amortization 408,205 - Total music assets, net of accumulated amortization 296,795 $4,289,158 There were two separate transactions in which SAE acquired the "music assets". One was an Asset Purchase Agreement with David Michery, which was accounted for as an asset purchase. In this transaction SAE acquired the music assets comprised of masters recordings. The other was the BJM acquisition, in which SAE acquired the stock of BJM, which was accounted for as a business combination The initial material assets that were acquired from David Michery comprise 52 completed sound recordings including two completed albums with "DMX", up to two additional albums from "DMX" and up to five albums from "Bone Thugs-N-Harmony". The music assets were initially recorded at the fair value of the preferred stock issued, less the amount of preferred stock held in escrow, which was $5,000,000. The BJM transaction qualified as an acquisition of a business, as defined in ASC 805-10-55-2, as the Company, the acquirer, gained control of BJM by issuing Series B Preferred Stock as consideration. BJM falls under the definition of a business, as set forth in ASC 805-10-55-4 through 7, as although BJM was not operational, they had inputs, in the form of intangible assets, including access to artists and customers and distribution channels and were pursuing a plan to produce outputs (the recordings and CDs or digital downloads). . At the time of acquisition the only assets were the intangibles, and certain media credits, which could not be precisely valued. BJM s common shares were not publically traded, and therefore, were also difficult to value. In accordance with ASC ASC 505-50-30-6 which gives guidance on how to measure the equity issued in a non-monetary exchange, as the value of the Company s Series B Preferred Stock was determined as the most readily determinable, the consideration was calculated as the fair value of the Series B Preferred Stock, which was determined to be $1,000,000. Per the guidelines for acquisition accounting, as the only asset was the intangible assets, which could not be clearly and separately identified in a cost effective manner,, the $1,000,000 consideration was allocated to the fair value of "Intanbible Assets - music assets". The contracts with DMX and BTH allow for royalties varying from 12% to 20%, based on sales and other varying terms, be paid to the artists after initial advances are recouped by the Company. The Company does not anticipate that any additional royalties will be due after recoupment. The Company capitalized $606,774 and $1,324,158 in music costs during the years ended June 30, 2013 and 2012, respectively, representing costs incurred in the production of the current DMX album and related videos.. The Company will begin to amortize the music assets once the related records are released, over the estimated life of the recorded performance using a method that reasonably relates the amount to the net revenue expected to be realized. F- 23 NOTE 9 – LOANS Indebtedness as of June 30, 2013 consists of: Interest Issuance Maturity Lender Balance Rate Date Date Film and Production Loans: Palm Finance Corporation $5,479,777 18% Forebearance agreement /workout agreement number 6 Palm Finance Corporation 2,221,572 18% Forebearance agreement /workout agreement number 6 Palm Finance Corporation 113,064 10% 7/30/2012 Due on demand or on settlement of the Content litigation $7,814,412 Conversions: Trafalgar Capital $585,729 9% 10/15/2008 8/31/2009 Conversion price is Market price JMJ Financial 438,373 10% 6/29/2012 10/27/2012 Conversion is only on default and is the lower of $0.04 or 80% of the average of market price as defined in agreement GHP 137,573 18% 1/21/2011 4/30/2012 Conversion price is Market price Tonaquint 447,975 8% 8/22/12 7/2/13 The conversion price shall be the fixed conversion price of $0.04 subject to standard anti-
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001408351_cardinal_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001408351_cardinal_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..00e618918e3a1bf8b089a65f10f0b06f333cab99
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001408351_cardinal_legal_matters.txt
@@ -0,0 +1,4032 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the common stock offered hereby
+will be passed upon by Legal & Compliance, LLC, West Palm Beach, Florida.
+
+ 
+
+EXPERTS
+
+ 
+
+The financial statements appearing in this
+prospectus and registration statement on Form S-1 have been audited by MaloneBailey, LLP, independent certified public accountants,
+as set forth in their report thereon appearing elsewhere in this prospectus and in the registration statement on Form S-1, and
+such report is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.
+
+ 
+
+ 36
+
+ 
+
+ 
+
+ 
+
+FINANCIAL STATEMENTS
+
+ 
+
+Our fiscal year end is December 31. We will
+provide audited financial statements to our stockholders on an annual basis; the statements will be audited by a firm registered
+with the Public Company Accounting Oversight Board.
+
+ 
+
+The unaudited financial statements for the period
+end March 31, 2013 and audited financial statements for the years ended December 31, 2012 and December 31, 2011 follow:
+
+ 
+
+ 
+ INDEX
+
+ 
+ 
+
+ FINANCIAL STATEMENTS (Unaudited)
+ 
+
+ 
+ Balance Sheets
+ F-1
+
+ 
+ Statements of Expenses
+ F-2
+
+ 
+ Statements of Cash Flows
+ F-3
+
+ Notes to Financial Statements
+ F-4
+
+ 
+ 
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+ F-9
+
+ FINANCIAL STATEMENTS (Audited)
+ 
+
+ 
+ Balance Sheets
+ F-10
+
+ 
+ Statements of Operations
+ F-11
+
+ 
+ Statements of Changes in Stockholders Equity (Deficit)
+ F-12
+
+ 
+ Statements of Cash Flows
+ F-13
+
+ Notes to Financial Statements
+ F-14
+
+ 
+
+ 37
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Balance Sheets
+
+(Unaudited)
+
+ 
+
+ 
+ March 31, 2013 
+ December 31, 2012 
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ CURRENT ASSETS 
+ 
+ 
+
+ Cash 
+ $1,453 
+ $3,460 
+
+ Accounts receivable - related party 
+ - 
+ 16,978 
+
+ Investments 
+ 16,940 
+ 124,740 
+
+ 
+ 
+ 
+
+ Total Current Assets 
+ 18,393 
+ 145,178 
+
+ 
+ 
+ 
+
+ PROPERTY AND EQUIPMENT, net 
+ 21,262 
+ 20,073 
+
+ 
+ 
+ 
+
+ OIL AND GAS PROPERTIES (full cost method) 
+ 
+ 
+
+ Unproved properties, net of accumulated depletion, depreciation, amortization, and impairment of $579,963 and $579,963, respectively 
+ 671,972 
+ 653,222 
+
+ 
+ 
+ 
+
+ OTHER ASSETS 
+ 
+ 
+
+ Cash bond 
+ 20,000 
+ - 
+
+ Security deposit 
+ 3,452 
+ 3,452 
+
+ 
+ 
+ 
+
+ Total Other Assets 
+ 23,452 
+ 3,452 
+
+ 
+ 
+ 
+
+ TOTAL ASSETS 
+ $735,079 
+ $821,925 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS EQUITY 
+ 
+ 
+
+ CURRENT LIABILITIES 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ $119,535 
+ $50,948 
+
+ Related party payables 
+ 81,871 
+ 122,845 
+
+ Notes payable 
+ 53,000 
+ - 
+
+ Derivative liability 
+ 49,079 
+ 74,240 
+
+ 
+ 
+ 
+
+ Total Current Liabilities 
+ 303,485 
+ 248,033 
+
+ 
+ 
+ 
+
+ LONG-TERM LIABILITIES 
+ 
+ 
+
+ Convertible notes, net of debt discount of $24,187 and $-0-, respectively 
+ 108,813 
+ - 
+
+ Asset retirement obligation 
+ 7,979 
+ 7,760 
+
+ 
+ 
+ 
+
+ Total Long-Term Liabilities 
+ 116,792 
+ 7,760 
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES 
+ 420,277 
+ 255,793 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS EQUITY 
+ 
+ 
+
+ Common stock, 100,000,000 shares
+ authorized at par value of $0.00001; 34,777,500 and 34,545,000 shares issued and outstanding, respectively 
+ 348 
+ 346 
+
+ Additional paid-in capital 
+ 3,835,425 
+ 3,518,752 
+
+ Accumulated other comprehensive loss 
+ (2,200,660) 
+ (2,092,860)
+
+ Retained earnings (deficit) 
+ (1,320,311) 
+ (860,106)
+
+ 
+ 
+ 
+
+ TOTAL STOCKHOLDERS EQUITY 
+ 314,802 
+ 566,132 
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 
+ $735,079 
+ $821,925 
+
+ 
+
+The accompanying notes are an integral part
+of these unaudited financial statements.
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Operations and Other Comprehensive
+Loss
+
+(Unaudited)
+
+ 
+
+ 
+ For the Three Months Ended 
+
+ 
+ March 31, 
+
+ 
+ 2013 
+ 2012 
+
+ 
+ 
+ 
+
+ REVENUES 
+ 
+ 
+
+ Oil and gas revenues 
+ $1,871 
+ $1,487 
+
+ 
+ 
+ 
+
+ Total Revenues 
+ 1,871 
+ 1,487 
+
+ 
+ 
+ 
+
+ OPERATING EXPENSES 
+ 
+ 
+
+ Well operating costs 
+ 1,709 
+ 1,795 
+
+ Depreciation and amortization expense 
+ 1,751 
+ 676 
+
+ Accretion expense 
+ 219 
+ 28 
+
+ General and administrative 
+ 480,512 
+ 26,517 
+
+ 
+ 
+ 
+
+ Total Operating Expenses 
+ 484,191 
+ 29,016 
+
+ 
+ 
+ 
+
+ LOSS FROM OPERATIONS 
+ (482,320) 
+ (27,529)
+
+ 
+ 
+ 
+
+ OTHER INCOME (EXPENSES) 
+ 
+ 
+
+ Interest expense, net 
+ (3,046) 
+ - 
+
+ Gain (loss) on derivative 
+ 25,161 
+ - 
+
+ 
+ 
+ 
+
+ Total Other Income (Expenses) 
+ 22,115 
+ - 
+
+ 
+ 
+ 
+
+ NET LOSS 
+ $(460,205) 
+ $(27,529)
+
+ 
+ 
+ 
+
+ OTHER COMPREHENSIVE LOSS 
+ 
+ 
+
+ Change in value of investments 
+ (107,800) 
+ (2,156)
+
+ 
+ 
+ 
+
+ NET COMPREHENSIVE LOSS 
+ $(568,005) 
+ $(29,685)
+
+ 
+ 
+ 
+
+ Basic and diluted loss per common share 
+ (0.01) 
+ (0.00)
+
+ 
+ 
+ 
+
+ Weighted average shares outstanding (basic and diluted) 
+ 34,768,848 
+ 34,500,000 
+
+ 
+
+The accompanying notes are an integral part
+of these unaudited financial statements.
+
+ 
+
+ F-2
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Stockholders Equity
+
+(Unaudited)
+
+ 
+
+ 
+ 
+ 
+ 
+ Accumulated 
+ 
+
+ 
+ 
+ Additional 
+ 
+ Other 
+ 
+
+ 
+ Common Stock 
+ Paid-In 
+ Accumulated 
+ Comprehensive 
+ Total 
+
+ 
+ Shares 
+ Amount 
+ Capital 
+ Deficit 
+ Loss 
+ Equity 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2012 
+ 34,545,000 
+ $346 
+ $3,518,752 
+ $(860,106) 
+ $(2,092,860) 
+ $566,132 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for services 
+ 217,500 
+ 2 
+ 271,873 
+ 
+ 
+ 271,875 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for property 
+ 15,000 
+ - 
+ 18,750 
+ 
+ 
+ 18,750 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Beneficial conversion feature 
+ 
+ 
+ 26,050 
+ 
+ 
+ 26,050 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Unrealized holding gains and losses for available-for-sale-securities 
+ 
+ 
+ 
+ 
+ (107,800) 
+ (107,800)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss 
+ - 
+ - 
+ - 
+ (460,205) 
+ - 
+ (460,205)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at March 31, 2013 
+ 34,777,500 
+ $348 
+ $3,835,425 
+ $(1,320,311) 
+ $(2,200,660) 
+ $314,802 
+
+ 
+
+The accompanying notes are an integral part
+of these unaudited financial statements.
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Cash Flows
+
+(Unaudited)
+
+ 
+
+ 
+ For the Three Months Ended 
+
+ 
+ March 31, 
+
+ 
+ 2013 
+ 2012 
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES 
+ 
+ 
+
+ Net loss 
+ $(460,205) 
+ $(27,529)
+
+ Adjustments to reconcile net loss to net cash used in operations: 
+ 
+ 
+
+ Depreciation 
+ 1,751 
+ 676 
+
+ Accretion 
+ 219 
+ 28 
+
+ Amortization of debt discount 
+ 1,863 
+ - 
+
+ Stock based compensation 
+ 271,875 
+ - 
+
+ Gain on derivative liabilities 
+ (25,161) 
+ - 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+
+ Accounts receivable 
+ - 
+ (15,000)
+
+ Accounts receivable - related party 
+ 16,978 
+ - 
+
+ Accounts payable - related party 
+ (2,974) 
+ - 
+
+ Accounts payable and accrued expenses 
+ 68,587 
+ (2,635)
+
+ 
+ 
+ 
+
+ Net Cash Used in Operating Activities 
+ (127,067) 
+ (44,460)
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES 
+ 
+ 
+
+ Notes receivable 
+ - 
+ (20,000)
+
+ Purchase of property and equipment 
+ (2,940) 
+ - 
+
+ Sale of oil properties 
+ - 
+ 75,000 
+
+ 
+ 
+ 
+
+ Net Cash Provided by (Used in) Investing Activities 
+ (2,940) 
+ 55,000 
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES 
+ 
+ 
+
+ Proceeds from notes payable - related party 
+ 22,500 
+ - 
+
+ Proceeds from notes payable 
+ 186,000 
+ - 
+
+ Repayment of notes payable -related party 
+ (80,500) 
+ (10,022)
+
+ 
+ 
+ 
+
+ Net Cash Provided by (Used in) Investing Activities 
+ 128,000 
+ (10,022)
+
+ 
+ 
+ 
+
+ NET (DECREASE) INCREASE IN CASH 
+ (2,007) 
+ 518 
+
+ CASH AT BEGINNING OF PERIOD 
+ 3,460 
+ 111 
+
+ 
+ 
+ 
+
+ CASH AT END OF PERIOD 
+ $1,453 
+ $629 
+
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 
+ 
+ 
+
+ 
+ 
+ 
+
+ CASH PAID FOR: 
+ 
+ 
+
+ Interest 
+ $- 
+ $- 
+
+ Income Taxes 
+ $- 
+ $- 
+
+ 
+ 
+ 
+
+ NON-CASH INVESTING AND FINANCING ACTIVITIES: 
+ 
+ 
+
+ Common stock issued for oil and gas properties 
+ $18,750 
+ $- 
+
+ Unrealized gain (loss) on AFS securities 
+ $(107,800) 
+ $(2,156)
+
+ Debt discount from beneficial conversion feature 
+ $26,050 
+ $- 
+
+ Related party debt issued for cash bond 
+ $20,000 
+ $- 
+
+ 
+
+The accompanying notes are an integral part
+of these unaudited financial statements.
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+Notes to the Condensed Financial Statements
+
+For the Periods Ended March 31, 2013 and December
+31, 2012
+
+ 
+
+NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+The accompanying financial
+statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal
+recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2013,
+and for all periods presented herein, have been made.
+
+ 
+
+Certain information
+and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
+accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements
+be read in conjunction with the financial statements and notes thereto included in the Company s December 31, 2012 audited
+financial statements. The results of operations for the period ended March 31, 2013 and 2012 are not necessarily indicative of
+the operating results for the full year.
+
+ 
+
+Nature of Operations and Organization
+
+ 
+
+Cardinal Energy Group, LLC (the "Company")
+was organized as a Limited Liability Company ("LLC") on March 10, 2009 under the laws of the State of Ohio.
+
+ 
+
+Effective September
+23, 2012 the Company entered into a Share Exchange Agreement with Koko Ltd., a Nevada company ("Koko"), whereby the
+Company agreed to issue 100 percent of its issued and outstanding shares of common stock in exchange for Koko issuing the shareholders
+of the Company 31,050,000 shares of Koko. The transaction was accounted for as a reverse-merger recapitalization with Koko the
+acquirer for legal purposes and the Company the acquirer for accounting purposes. Pursuant to this agreement the Company changed
+its corporate name from Cardinal Energy Group, LLC to Cardinal Energy Group, Inc. The shareholders of Koko retained 3,450,000 common
+shares in the transaction. The number of authorized shares in the surviving entity remained at 100,000,000.
+
+ 
+
+The Company has been
+engaged in the exploration, development, exploitation and production of oil and natural gas. The Company sells its oil and gas
+products primarily to domestic purchasers of oil and gas production. Its operations are presently focused in the State of California.
+The recoverability of the capitalized exploration and development costs for these properties is dependent upon the existence of
+economically recoverable reserves, the ability of Cardinal Energy Group, Inc. to obtain the necessary financing to complete exploration
+and development, and future profitable production or proceeds from disposition of such property. 
+
+ 
+
+Basis of Presentation and Use of Estimates
+
+ 
+
+These financial statements have been prepared
+in accordance with accounting principles generally accepted in United States of America which requires management to make estimates
+and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported
+year. Actual results may differ from those estimates.
+
+ 
+
+Revenues and direct operating expenses of the
+California properties represent members interest in the properties acquired for the periods prior to the closing date
+and are presented on the accrual basis of accounting and in accordance with generally accepted accounting principles. The financial
+statements presented are not indicative of the results of operations of the acquired properties going forward due to changes in
+the business and inclusion of the above mentioned expenses.
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+Notes to the Condensed Financial Statements
+
+For the Periods Ended March 31, 2013 and December
+31, 2012
+
+ 
+
+NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
+
+ 
+
+Oil and Gas Properties
+
+ 
+
+The Company follows the full cost method of
+accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for
+and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical
+activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly
+attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction
+of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between
+capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.
+
+ 
+
+Depletion and depreciation of proved oil and
+gas properties is calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include
+the estimated future costs to develop proved reserves. Oil and gas reserves are converted to a common unit of measure based on
+the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of unevaluated properties are not included in the costs
+subject to depletion. These costs are assessed periodically for impairment.
+
+ 
+
+During the three months ended March 31, 2013,
+the Company issued 15,000 shares of its common stock valued at fair market value of $18,750 for oil and gas property. The acquisition
+expense was capitalized.
+
+ 
+
+Accounts Receivable
+
+ 
+
+The Company establishes
+provisions for losses on accounts receivable if it determines that it will not collect all or part of the outstanding balance.
+The Company regularly reviews collectability and establishes or adjusts the allowance as necessary using the specific identification
+method. At March 31, 2013 and December 31, 2012, no reserve for allowance for doubtful accounts was needed.
+
+ 
+
+New Accounting Pronouncements
+
+ 
+
+Management has considered all recent accounting
+pronouncements issued since the last audit of our financial statements. The Company s management believes that these recent
+pronouncements will not have a material effect on the Company s financial statements.
+
+ 
+
+NOTE 2 – GOING CONCERN
+
+ 
+
+The Company currently utilizes production revenues
+to fund its operating expenses. The Company s minimal cash flows from operations, projected cost of capital improvements
+of the oil and gas wells, and its projected operating losses to be incurred raise substantial doubt about its ability to continue
+as a going concern. The Company plans to use additional equity financing through fiscal year 2013 to fund potential acquisitions
+and business expansion.
+
+ 
+
+NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
+
+ 
+
+ASC 820 defines fair value as the price
+that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
+at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in
+pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation
+technique. These inputs can be readily observable, market corroborated,
+or generally unobservable. The Company classifies fair value balances based on the observability of those inputs.
+
+ 
+
+ F-6
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+Notes to the Condensed Financial Statements
+
+For the Periods Ended March 31, 2013 and December
+31, 2012
+
+ 
+
+NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
+
+ 
+
+The following tables set forth by level within
+the fair value hierarchy the Company s financial assets and liabilities that were accounted for at fair value as of March
+31, 2013 and December 31, 2012. As required by ASC 820, a financial instrument s level within the fair value hierarchy is
+based on the lowest level of input that is significant to the fair value measurement. The Company s assessment of the significance
+of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities
+and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the
+years ended March 31, 2013 and December 31, 2012.
+
+ 
+
+The carrying amounts reported in the balance
+sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value
+based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and
+recognized at fair value as of March 31, 2013 and December 31, 2012, on a recurring basis:
+
+ 
+
+Assets and liabilities at fair value on a recurring basis at March
+31, 2013:
+
+ 
+
+ 
+ Level 1 
+ Level 2 
+ Level 3 
+ Total 
+
+ Assets 
+ 
+ 
+ 
+ 
+
+ Marketable securities 
+ $16,940 
+ - 
+ - 
+ $16,940 
+
+ Total 
+ $16,940 
+ - 
+ - 
+ $16,940 
+
+ 
+ 
+ 
+ 
+ 
+
+ Liabilities 
+ 
+ 
+ 
+ 
+
+ Derivative liability 
+ - 
+ - 
+ $49,079 
+ $49,079 
+
+ Total 
+ - 
+ - 
+ $49,079 
+ $49,079 
+
+ 
+
+Assets and liabilities at fair value on a recurring basis at December
+31, 2012:
+
+ 
+
+ 
+ Level 1 
+ Level 2 
+ Level 3 
+ Total 
+
+ Assets 
+ 
+ 
+ 
+ 
+
+ Marketable securities 
+ $124,740 
+ - 
+ - 
+ $124,740 
+
+ Total 
+ $124,740 
+ - 
+ - 
+ $124,740 
+
+ 
+ 
+ 
+ 
+ 
+
+ Liabilities 
+ 
+ 
+ 
+ 
+
+ Derivative liability 
+ - 
+ - 
+ $74,240 
+ $74,240 
+
+ Total 
+ - 
+ - 
+ $74,240 
+ $74,240 
+
+ 
+
+The balance of the derivative liability decreased
+from $74,240 on December 31, 2012 to $49,079 on March 31, 2013. This is due to the change in fair value of $25,161, which was recorded
+as gain on derivative in "Statement of Operations and Other Comprehensive Loss".
+
+ 
+
+The carrying value of short term financial
+instruments including cash, accounts payable, accrued expenses and short-term borrowings approximate fair value due to the short
+period of maturity for these instruments. The long-term debentures payable approximates fair value since the related rates of interest
+approximate current market rates.
+
+ 
+
+ F-7
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+Notes to the Condensed Financial Statements
+
+For the Periods Ended March 31, 2013 and December
+31, 2012
+
+ 
+
+NOTE 4 - STOCKHOLDERS EQUITY
+
+ 
+
+During the three months ended March 31, 2013,
+the Company issued 217,500 shares of common stock for services valued at fair market value of $271,875.
+
+ 
+
+During the three months
+ended March 31, 2013 the Company issued 15,000 shares of common stock valued at fair market value of $18,750 for the acquisition
+of oil and gas property.
+
+ 
+
+NOTE 5 -
+RELATED PARTY TRANSACTIONS
+
+ 
+
+On January
+23, 2013 the Company entered into an agreement in which a related party transferred a $20,000 bond to the Company.
+
+ 
+
+Various general and administrative expenses
+of the Company as well as loans for operating purposes have been paid for or made by related parties of the Company. During the
+three months ended March 31, 2013, the Company received cash of $22,500 on these payables, had $14,345 in expenses paid on behalf
+of the Company, and made payments totaling $80,500 on these related party payables. Related party payables totaled $81,871 and
+$122,845 at March 31, 2013 and December 31, 2012, respectively. These amounts payable bear no interest, are uncollateralized and
+due on demand.
+
+ 
+
+NOTE 6 - CONVERTIBLE NOTES PAYABLE
+
+ 
+
+On February
+26, 2013 the Company borrowed $53,000 from an unrelated third party entity in the form of a convertible note. The
+note bears interest at a rate of 8.0 percent per annum, with principal and interest due one year from issuance. The principal
+balance of the note along with accrued interest is convertible after 180 days, at the option of the note holder, into the Company s
+common stock at 58 percent of the current market price. The current market price is defined as the average of the lowest three
+trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion date. The
+note is not convertible at March 31, 2013. 
+
+ 
+
+During
+the three months ended March 31, 2013 pursuant to a convertible debenture offering the Company borrowed $133,000. The convertible
+notes accrue interest at 8% per annum, with principal and interest due two years from issuance. The notes carry a default
+interest rate of 12% per annum. The notes are exercisable for two years from the issue date into shares of the Company s
+common stock at a price of $1 per share.
+
+ 
+
+The Company
+analyzed the convertible debts for derivative accounting consideration under ASC 815 "Derivatives and Hedging" and
+determined that derivative accounting is not applicable. The Company further analyzed the convertible debts for a beneficial conversion
+feature under ASC 470-20 on the date of the notes and determined that a beneficial conversion feature exists. The intrinsic value
+of the beneficial conversion feature was determined to be $26,050 and was recorded as debt discount. During the three months ended
+March 31, 2013, debt discount of $1,863 was amortized. 
+
+ 
+
+NOTE 7 – WARRANTS AND WARRANT DERIVATIVE
+LIABILITY
+
+ 
+
+On December 31, 2012 the Company issued 30,000
+units at $1.00 per unit resulting in total cash proceeds of $30,000. Each unit sold consists of one share of the Company s
+common stock, one Class A Redeemable Warrant, and one Class B Redeemable Warrant.
+
+ 
+
+ F-8
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+Notes to the Condensed Financial Statements
+
+For the Periods Ended March 31, 2013 and December
+31, 2012
+
+ 
+
+NOTE 7 – WARRANTS AND WARRANT DERIVATIVE LIABILITY (continued)
+
+ 
+
+The Class A warrants are exercisable into one
+share of the Company s common stock at $5.00 per share, expire on December 31, 2015, and are callable by the Company any
+time after December 31, 2014 upon 30 days written notice by the Company. If the holders do not exercise the warrants within 30
+days of receiving notice from the Company, the warrants terminate 30 days from the date of notice.
+
+ 
+
+The Class B warrants are exercisable into one
+share of the Company s common stock at $9.375 per share, expire on December 31, 2017, and are callable by the Company any
+time after December 31, 2015 upon 30 days written notice by the Company. If the holders do not exercise the warrants within 30
+days of receiving notice from the Company, the warrants terminate 30 days from the date of notice.
+
+ 
+
+For both the Class A and Class B warrants,
+the exercise price and/or the number of shares of common stock to be issued upon exercise is subject to adjustment in certain cases.
+Such adjustments would be triggered in instances where the Company does any of the following: a) pays a stock dividend, splits
+or reverse-splits its common stock; b) issues common stock, convertible securities, or debentures to obtain shares at a price less
+than the warrant exercise price; or c) distributes to shareholders evidences of its indebtedness or securities or assets.
+
+ 
+
+The Company has analyzed this price adjustment
+provision under ASC 815 "Derivative and Hedging" and determined that these instruments should be classified as liabilities
+and recorded at fair value do to there being no explicit limit to the number of shares to be delivered upon settlement of the warrants.
+The Company has estimated the fair value of the derivative using the Black-Scholes option-pricing model at March 31, 2013. Assumptions
+included (1) 0.38-.80% risk-free interest rate, (2) expected term is the remaining term of the warrant, (3) expected volatility
+of 181.34-185.16%, (4) zero expected dividends, (5) exercise prices as set within the agreements, (6) common stock price of the
+underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted. At March 31, 2013
+the embedded derivative liability was valued at $49,079 and a gain of $25,161 was recorded.
+
+ 
+
+NOTE 8 –
+COMMITMENTS AND CONTINGENCIES
+
+ 
+
+Litigation
+
+ 
+
+The Company may be
+party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to
+the Company and which can be reasonably estimated are accrued. Such accruals are based the Company s estimates of the outcomes
+of such matters and its experience in contesting, litigating and settling similar matters. There is no litigation or contingencies
+that require accrual or disclosure as of March 31, 2013 and December 31, 2012.
+
+ 
+
+NOTE 9 – SUBSEQUENT EVENTS
+
+ 
+
+In April 2013 the Company borrowed $42,500
+from an unrelated third party entity in the form of a convertible note. The
+note bears interest at a rate of 8.0 percent per annum, with principal and interest due one year from issuance. The principal
+balance of the note along with accrued interest is convertible after 180 days, at the option of the note holder, into the Company s
+common stock at a 58 percent of the current market price. The current market price is defined as the average of the lowest
+three trading prices for the Common Stock during the ten day period on the latest complete trading day prior to the conversion
+date. 
+
+ 
+
+ F-9
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
+FIRM
+
+ 
+
+The Board of Directors and Shareholders of
+
+Cardinal Energy Group, Inc.
+
+Dublin, OH
+
+ 
+
+We have audited the accompanying balance sheets of Cardinal Energy
+Group, Inc. and its subsidiaries (collectively, the "Company") as of December 31, 2012 and 2011, and the related statements
+of operations and comprehensive loss, shareholders equity and cash flows for the years then ended. These financial statements
+are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements
+based on our audits.
+
+ 
+
+We conducted our audits in accordance with standards of the Public
+Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
+assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were
+we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
+control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
+the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly,
+we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
+financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
+as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
+opinion.
+
+ 
+
+In our opinion, the financial statements referred to above present
+fairly, in all material respects, the financial position of Cardinal Energy Group, Inc. and its subsidiaries as of December 31,
+2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with accounting
+principles generally accepted in the United States of America.
+
+ 
+
+The accompanying financial statements have been prepared assuming
+that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, Cardinal has negative working
+capital and suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going
+concern. Management s plans regarding those matters are described in Note 2. The financial statements do not include any
+adjustments that might result from the outcome of this uncertainty.
+
+ 
+
+ /s/
+ MALONEBAILEY, LLP
+ 
+
+ MaloneBailey, LLP
+ 
+
+ www.malonebailey.com
+ 
+
+ Houston, Texas
+ 
+
+ March 27, 2013
+ 
+
+ 
+
+ F-10
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Balance Sheets
+
+ 
+
+ 
+ December 31, 
+ December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ CURRENT ASSETS 
+ 
+ 
+
+ Cash 
+ $3,460 
+ $111 
+
+ Accounts receivable - related party 
+ 16,978 
+ - 
+
+ Investments 
+ 124,740 
+ 4,620 
+
+ 
+ 
+ 
+
+ Total Current Assets 
+ 145,178 
+ 4,731 
+
+ 
+ 
+ 
+
+ PROPERTY AND EQUIPMENT, net 
+ 20,073 
+ 9,975 
+
+ 
+ 
+ 
+
+ OIL AND GAS PROPERTIES (full cost method) 
+ 
+ 
+
+ Unproved properties, net of accumulated depletion, depreciation, 
+amortization, and impairment of $579,963 and $-0-, respectively 
+ 653,222 
+ 1,304,584 
+
+ 
+ 
+ 
+
+ OTHER ASSETS 
+ 
+ 
+
+ Security deposit 
+ 3,452 
+ 1,000 
+
+ 
+ 
+ 
+
+ Total Other Assets 
+ 3,452 
+ 1,000 
+
+ 
+ 
+ 
+
+ TOTAL ASSETS 
+ $821,925 
+ $1,320,290 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS EQUITY 
+ 
+ 
+
+ CURRENT LIABILITIES 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ $50,948 
+ $11,925 
+
+ Related party payables 
+ 122,845 
+ 10,022 
+
+ Derivative liability 
+ 74,240 
+ - 
+
+ 
+ 
+ 
+
+ Total Current Liabilities 
+ 248,033 
+ 21,947 
+
+ 
+ 
+ 
+
+ LONG-TERM LIABILITIES 
+ 
+ 
+
+ Asset retirement obligation 
+ 7,760 
+ 3,986 
+
+ 
+ 
+ 
+
+ Total Long-Term Liabilities 
+ 7,760 
+ 3,986 
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES 
+ 255,793 
+ 25,933 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS EQUITY 
+ 
+ 
+
+ Common stock, 100,000,000 shares authorized at par value of $0.00001; 
+34,545,000 and 31,050,000 shares issued and outstanding, respectively 
+ 346 
+ 311 
+
+ Additional paid-in capital 
+ 3,518,752 
+ 3,547,877 
+
+ Accumulated other comprehensive loss 
+ (2,092,860) 
+ (2,212,980)
+
+ Retained earnings (deficit) 
+ (860,106) 
+ (40,851)
+
+ 
+ 
+ 
+
+ TOTAL STOCKHOLDERS EQUITY 
+ 566,132 
+ 1,294,357 
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 
+ $821,925 
+ $1,320,290 
+
+ 
+
+The accompanying notes are an integral part
+of these financial statements.
+
+ 
+
+ F-11
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Operations and Other Comprehensive
+gain (loss)
+
+ 
+
+ 
+ For the Years Ended 
+
+ 
+ December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ REVENUES 
+ 
+ 
+
+ Oil and gas revenues 
+ $21,162 
+ $11,727 
+
+ 
+ 
+ 
+
+ Total Revenues 
+ 21,162 
+ 11,727 
+
+ 
+ 
+ 
+
+ COST OF SALES 
+ 
+ 
+
+ Well operating costs 
+ 21,934 
+ 3,384 
+
+ 
+ 
+ 
+
+ Total Cost of Sales 
+ 21,934 
+ 3,384 
+
+ 
+ 
+ 
+
+ GROSS MARGIN 
+ (772) 
+ 8,343 
+
+ 
+ 
+ 
+
+ OPERATING EXPENSES 
+ 
+ 
+
+ Depreciation and amortization expense 
+ 4,100 
+ 2,366 
+
+ Accretion expense 
+ 173 
+ 110 
+
+ Bad debt expense 
+ 20,000 
+ - 
+
+ Impairment 
+ 579,963 
+ - 
+
+ Loss on settlement of accounts payable 
+ 7,650 
+ - 
+
+ General and administrative 
+ 206,585 
+ 39,613 
+
+ 
+ 
+ 
+
+ Total Operating Expenses 
+ 818,471 
+ 42,089 
+
+ 
+ 
+ 
+
+ LOSS FROM OPERATIONS 
+ (819,243) 
+ (33,746)
+
+ 
+ 
+ 
+
+ OTHER INCOME (EXPENSES) 
+ 
+ 
+
+ Interest expense, net 
+ (12) 
+ (4,529)
+
+ Other 
+ - 
+ (3,588)
+
+ 
+ 
+ 
+
+ Total Other Expenses 
+ (12) 
+ (8,117)
+
+ 
+ 
+ 
+
+ LOSS BEFORE INCOME TAXES 
+ (819,255) 
+ (41,863)
+
+ PROVISION FOR INCOME TAXES 
+ - 
+ - 
+
+ 
+ 
+ 
+
+ NET LOSS 
+ $(819,255) 
+ $(41,863)
+
+ 
+ 
+ 
+
+ OTHER COMPREHENSIVE GAIN (LOSS) 
+ 
+ 
+
+ Change in value of investments 
+ 120,120 
+ (12,320)
+
+ 
+ 
+ 
+
+ NET COMPREHENSIVE LOSS 
+ $(699,135) 
+ $(54,183)
+
+ 
+ 
+ 
+
+ Basic and diluted loss per common share 
+ (0.03) 
+ (0.00)
+
+ 
+ 
+ 
+
+ Weighted average shares outstanding (basic and diluted) 
+ 31,996,630 
+ 19,425,678 
+
+ 
+
+The accompanying notes are an integral part
+of these financial statements.
+
+ 
+
+ F-12
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Stockholders Equity
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ Accumulated 
+ 
+
+ 
+ 
+ Additional 
+ 
+ Other 
+ 
+
+ 
+ Common Stock 
+ Paid-In 
+ Accumulated 
+ Comprehensive 
+ Total 
+
+ 
+ Shares 
+ Amount 
+ Capital 
+ Deficit 
+ Loss 
+ Equity 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2010 
+ 15,795,508 
+ $158 
+ $2,178,913 
+ $1,012 
+ $(2,200,660) 
+ $(20,577)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for cash 
+ 388,125 
+ 4 
+ 83,111 
+ 
+ 
+ 83,115 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for oil and gas properties 
+ 14,515,223 
+ 145 
+ 1,294,789 
+ 
+ 
+ 1,294,934 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for conversion of debt 
+ 351,144 
+ 4 
+ 60,493 
+ 
+ 
+ 60,497 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Distributions 
+ 
+ 
+ (69,429) 
+ 
+ 
+ (69,429)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Unrealized holding gains and losses for available-for-sale-securities 
+ 
+ 
+ 
+ 
+ (12,320) 
+ (12,320)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss for year ended December 31, 2011 
+ - 
+ - 
+ - 
+ (41,863) 
+ 
+ (41,863)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2011 
+ 31,050,000 
+ 311 
+ 3,547,877 
+ (40,851) 
+ (2,212,980) 
+ 1,294,357 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Recapitalization pursuant to acquisition 
+of Koko, Ltd. 
+ 3,450,000 
+ 35 
+ (35) 
+ - 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for settlement of accounts payable 
+ 15,000 
+ - 
+ 15,150 
+ 
+ 
+ 15,150 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued for cash 
+ 30,000 
+ - 
+ 30,000 
+ 
+ 
+ 30,000 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Recognition of derivative 
+liability on warrants 
+ 
+ 
+ (74,240) 
+ 
+ 
+ (74,240)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Unrealized holding gains and losses for 
+available-for-sale-securities 
+ 
+ 
+ 
+ 
+ 120,120 
+ 120,120 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss for year ended December 31, 2012 
+ - 
+ - 
+ - 
+ (819,255) 
+ - 
+ (819,255)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2012 
+ 34,545,000 
+ $346 
+ $3,518,752 
+ $(860,106) 
+ $(2,092,860) 
+ $566,132 
+
+ 
+
+The accompanying notes are an integral part
+of these financial statements.
+
+ 
+
+ F-13
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Statements of Cash Flows
+
+ 
+
+ 
+ For the Years Ended 
+
+ 
+ December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES 
+ 
+ 
+
+ Net loss 
+ $(819,255) 
+ $(41,863)
+
+ Adjustments to reconcile net loss to net cash provided by operations: 
+ 
+ 
+
+ Loss on sale of asset 
+ - 
+ 1,595 
+
+ Loss on settlement of accounts payable 
+ 7,650 
+ - 
+
+ Bad debt expense 
+ 20,000 
+ - 
+
+ Impairment 
+ 579,963 
+ - 
+
+ Accretion 
+ 173 
+ 110 
+
+ Depreciation 
+ 4,100 
+ 2,366 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+
+ Accounts receivable – related party 
+ (16,978) 
+ - 
+
+ Other assets 
+ (2,452) 
+ (1,000)
+
+ Accounts payable - related party 
+ 85,898 
+ - 
+
+ Accounts payable and accrued expenses 
+ 46,523 
+ 20,567 
+
+ 
+ 
+ 
+
+ Net Cash Used in Operating Activities 
+ (94,378) 
+ (18,225)
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES 
+ 
+ 
+
+ Cash paid on note receivable 
+ (20,000) 
+ - 
+
+ Purchase of property and equipment 
+ (14,198) 
+ - 
+
+ Sale of oil properties 
+ 75,000 
+ - 
+
+ 
+ 
+ 
+
+ Net Provided by Investing Activities 
+ 40,802 
+ - 
+
+ 
+ 
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES 
+ 
+ 
+
+ Repayment of loan payable 
+ - 
+ (5,372)
+
+ Capital contribution 
+ - 
+ 83,115 
+
+ Distribution 
+ - 
+ (69,429)
+
+ Cash received on notes payable - related party 
+ 46,500 
+ 10,022 
+
+ Cash paid on related-party notes payable 
+ (19,575) 
+ - 
+
+ Cash received on sale of common stock 
+ 30,000 
+ - 
+
+ 
+ 
+ 
+
+ Net Cash Used in Financing Activities 
+ 56,925 
+ 18,336 
+
+ 
+ 
+ 
+
+ NET (DECREASE) INCREASE IN CASH 
+ 3,349 
+ 111 
+
+ CASH AT BEGINNING OF PERIOD 
+ 111 
+ - 
+
+ 
+ 
+ 
+
+ CASH AT END OF PERIOD 
+ $3,460 
+ $111 
+
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: 
+ 
+ 
+
+ 
+ 
+ 
+
+ CASH PAID FOR: 
+ 
+ 
+
+ Interest 
+ $12 
+ $230 
+
+ Income Taxes 
+ - 
+ - 
+
+ 
+ 
+ 
+
+ NON-CASH FINANCING ACTIVITIES: 
+ 
+ 
+
+ Non-cash contribution of capital 
+ $- 
+ $1,294,934 
+
+ Debt converted to equity 
+ - 
+ 60,497 
+
+ Unrealized gain (loss) on AFS securities 
+ 120,120 
+ (12,320)
+
+ Asset retirement obligation 
+ - 
+ 3,876 
+
+ Loan settled by Fixed Assets 
+ - 
+ 21,468 
+
+ Recapitalization of Koko 
+ 35 
+ 
+
+ Derivative liability from issuance of warrants 
+ 74,240 
+ 
+
+ Revision of ARO estimate 
+ (3,601) 
+ 
+
+ Shares issued for settlement of accounts payable 
+ 15,150 
+ 
+
+ 
+
+The accompanying notes are an integral part
+of these financial statements.
+
+ 
+
+ F-14
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+Nature of Operations and Organization
+
+ 
+
+Cardinal Energy Group, LLC (the "Company")
+was organized as a Limited Liability Company ("LLC") on March 10, 2009 under the laws of the State of Ohio.
+
+ 
+
+Effective September 23, 2012 the Company entered
+into a Share Exchange Agreement with Koko Ltd., a Nevada company ("Koko"), whereby the Company agreed to issue 100
+percent of its issued and outstanding shares of common stock in exchange for Koko issuing the shareholders of the Company 31,050,000
+shares of Koko. The transaction was accounted for as a reverse-merger recapitalization with Koko the acquirer for legal purposes
+and the Company the acquirer for accounting purposes. Pursuant to this agreement the Company changed its corporate name from Cardinal
+Energy Group, LLC to Cardinal Energy Group, Inc. The shareholders of Koko retained 3,450,000 common shares in the transaction.
+The number of authorized shares in the surviving entity remained at 100,000,000.
+
+ 
+
+The Company has been engaged in the exploration,
+development, exploitation and production of oil and natural gas. The Company sells its oil and gas products primarily to domestic
+purchasers of oil and gas production. Its operations are presently focused in the State of California. The recoverability of the
+capitalized exploration and development costs for these properties is dependent upon the existence of economically recoverable
+reserves, the ability of Cardinal Energy Group, Inc. to obtain the necessary financing to complete exploration and development,
+and future profitable production or proceeds from disposition of such property. 
+
+ 
+
+During 2011, the Company acquired leases and
+working interests located in California and Ohio valued at $1,294,934. The value associated with these leases and working interests
+were assigned to unproved property as the wells were not producing at sustainable levels to be classified as proved reserves.
+
+ 
+
+Basis of Presentation and Use of Estimates
+
+ 
+
+These financial statements have been prepared
+in accordance with accounting principles generally accepted in United States of America which requires management to make estimates
+and assumptions that affect the reported amounts of assets, liabilities, and the disclosures of revenues and expenses for the reported
+year. Actual results may differ from those estimates.
+
+ 
+
+Revenues and direct operating expenses of the
+California properties represent shareholders interest in the properties acquired for the periods prior to the closing
+date and are presented on the accrual basis of accounting and in accordance with generally accepted accounting principles. The
+financial statements presented are not indicative of the results of operations of the acquired properties going forward due to
+changes in the business and inclusion of the above mentioned expenses.
+
+ 
+
+Cash and Cash Equivalents
+
+ 
+
+Cash and cash equivalents are all highly liquid
+investments with an original maturity of three months or less at the time of purchase and are recorded at cost, which approximates
+fair value.
+
+ 
+
+Allowance for Doubtful Accounts
+
+ 
+
+Uncollectible accounts receivable are charged
+directly against earnings when they are determined to be uncollectible. Use of this method does not result in a material difference
+from the valuation method required by generally accepted accounting principles. At December 31, 2012 and 2011, no reserve for allowance
+for doubtful accounts was needed.
+
+ 
+
+Oil and Gas Properties
+
+ 
+
+The Company follows the full cost method of
+accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for
+and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical
+activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly
+attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction
+of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between
+capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.
+
+ 
+
+ F-15
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+Depletion and depreciation of proved oil and
+gas properties is calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include
+the estimated future costs to develop proved reserves. Oil and gas reserves are converted to a common unit of measure based on
+the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of unevaluated properties are not included in the costs
+subject to depletion. These costs are assessed periodically for impairment. For the year ended December 31, 2012, management decided
+to forego development on certain unproved property leases. As a result, $579,963 of cost associated with these leases was transferred
+into the evaluated property pool and ultimately impaired. As of December 31, 2012 and 2011 there were no proved reserves.
+
+ 
+
+Ceiling Test
+
+ 
+
+In applying the full cost method, the Company
+performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of oil and gas property and equipment
+is limited to the "estimated present value" of the future net revenues from its proved reserves, discounted at a 10-percent
+interest rate and based on current economic and operating conditions, plus the cost of properties not being amortized, plus the
+lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related
+to any book and tax basis differences of the properties. Impairments on unproved properties transferred into the evaluated property
+pool were $579,963 and $0 for the years ended December 31, 2012 and 2011 respectively.
+
+ 
+
+Property and Equipment
+
+ 
+
+Support equipment and other property and equipment
+are valued at cost and depreciated over their estimated useful lives, using the straight-line method over estimated useful lives
+of 3 to 5 years. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on
+dispositions of equipment are reflected in income or loss from operations.
+
+ 
+
+Valuation of Long-Lived Assets
+
+ 
+
+The Company follows ASC 360 regarding the valuations
+and carrying values of its long-lived assets. Long-lived tangible assets and definite-lived intangible assets are reviewed for
+possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
+The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining
+whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows
+of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and
+their estimated fair values.
+
+ 
+
+Stock-based Compensation
+
+ 
+
+The Company follows the provisions of ASC 718
+which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income
+statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock-based
+compensation.
+
+ 
+
+Equity instruments issued to non-employees
+for goods or services are accounted at fair value when the service is complete or a performance commitment date is reached, whichever
+is earlier.
+
+ 
+
+Basic Loss per Share
+
+ 
+
+Basic loss per share is calculated by dividing
+the Company s net loss applicable to common stockholders by the weighted average number of common shares during the period.
+Diluted loss per share is calculated by dividing the Company s net loss available to common stockholders by the diluted weighted
+average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted
+number of shares adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as
+of December 31, 2012 or 2011.
+
+ 
+
+ F-16
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+Asset Retirement Obligation
+
+ 
+
+The Company follows FASB ASC 410, Asset Retirement
+and Environmental Obligations which requires entities to record the fair value of a liability for asset retirement obligations
+("ARO") and record a corresponding increase in the carrying amount of the related long-lived asset. The asset retirement
+obligation primarily relates to the abandonment of oil and gas properties. The present value of the estimated asset retirement
+cost is capitalized as part of the carrying amount of oil and gas properties and is depleted over the useful life of the asset.
+The settlement date fair value is discounted at our credit adjusted risk-free rate in determining the abandonment liability. The
+abandonment liability is accreted with the passage of time to its expected settlement fair value. Revisions to such estimates are
+recorded as adjustments to ARO. At the time the abandonment cost is incurred, the Company is required to recognize a gain or loss
+if the actual costs do not equal the estimated costs included in ARO. The ARO is based upon numerous estimates and assumptions,
+including future abandonment costs, future recoverable quantities of oil and gas, future inflation rates, and the credit-adjusted
+risk-free interest rate. The ARO is $7,760 and $3,986 as of December 31, 2012 and 2011. The Company accreted $173 and $110 to ARO
+during the year ended December 31, 2012 and 2011, respectively.
+
+ 
+
+Available-for-Sale Securities
+
+ 
+
+The Company s available-for-sale securities
+consist of investments in marketable securities. The Company carries its investment at fair value based upon quoted market prices.
+Unrealized holding gains (losses) on available-for-sale securities are excluded from earnings and reported as accumulated other
+comprehensive gain (loss), a separate component of stockholders equity (deficit), until realized. The Company recorded unrealized
+gains (losses) of $120,120 and ($12,320) during the years ended December 31, 2012 and 2011, respectively. Accumulated Other Comprehensive
+Losses were $2,092,860 and $2,212,980 as of December 31, 2012 and 2011, respectively.
+
+ 
+
+Income Taxes
+
+ 
+
+The Company accounts for income taxes in accordance
+with accounting guidance now codified as ASC 740, "Income Taxes," which requires that the Company recognize deferred
+tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets
+and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit
+(expense) results from the change in net deferred tax assets or deferred tax liabilities.
+
+ 
+
+A valuation allowance is recorded when it is
+more likely than not that some or all deferred tax assets will not be realized.
+
+ 
+
+The Company applies the provisions of ASC 740, "Accounting
+for Uncertainty in Income Taxes". The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise s
+financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition
+and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification,
+interest and penalties, accounting in interim periods, disclosure and transition. The Company did not identify any material uncertain
+tax positions on returns that have been filed or that will be filed. The Company did not recognize any interest or penalties for
+unrecognized tax benefits during the years ended December 31, 2012 and 2011, nor were any interest or penalties accrued as of December
+31, 2012.
+
+ 
+
+Concentration
+
+ 
+
+The Company sold all of its oil and natural
+gas production to one customer in 2012 and 2011.
+
+ 
+
+Revenue and Cost Recognition
+
+ 
+
+The Company uses the sales method to account
+for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold
+to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on the interest in the properties.
+These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining
+reserves. Costs associated with production are expensed in the period incurred.
+
+ 
+
+During the years ended December 31, 2012 and
+2011, the Company recorded revenues of $21,162 and $11,727, respectively. These revenues were generated on relatively insignificant
+volumes produced during these years. The volumes were not at a sustainable level to support proved reserves.
+
+ 
+
+ F-17
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+New Accounting Pronouncements
+
+ 
+
+In May 2011, the FASB issued Accounting Standards
+Update (ASU) 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
+Requirements in U.S. GAAP and IFRSs". ASU 2011-04 amends the Fair Value Measurement Topic of the ASC to clarify the FASB s
+intent about the application of existing fair value measurement requirements and change certain principles or requirements for
+measuring fair value or disclosing information about fair value measurements. ASU 2011-04 became effective for interim and annual
+fiscal periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on Cardinal s
+financial statements.
+
+ 
+
+In June 2011, the FASB issued ASU 2011-05 "Comprehensive
+Income (Topic 220): Presentation of Comprehensive Income." ASU 2011-05 is intended to increase the prominence of comprehensive
+income in the financial statements by requiring that an entity that reports items of comprehensive income do so in either one continuous
+or two consecutive financial statements. ASU 2011-05 also requires separate presentation on the face of the financial statements
+for items reclassified from other comprehensive income into net income. Subsequently, in December 2011, the FASB deferred the effective
+date of the provisions of ASU 2011-05 relating to the presentation of reclassification adjustments out of accumulated other comprehensive
+income. The provisions of ASU 2011-05 not deferred by the FASB became effective for interim and annual fiscal periods beginning
+after December 15, 2011. Retroactive application is required. The adoption of ASU 2011-05 did not have a material impact on Cardinal s
+financial statements.
+
+ 
+
+In February 2013, the FASB issued ASU 2013-02
+"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" (ASU 2013-02). ASU 2013-02 amends ASU
+2011-05 and requires that entities disclose additional information about amounts reclassified out of Accumulated Other Comprehensive
+Income (AOCI) by component. Significant amounts reclassified out of AOCI are required to be presented either on the face of the
+Consolidated Statements of Income and Comprehensive Income or in the notes to the financial statements. The requirements of ASU
+2013-02 are effective for fiscal years and interim periods in those years beginning after December 15, 2012. Cardinal does not
+expect the adoption of ASU 2013-02 to have a material impact on Cardinal s financial statements.
+
+ 
+
+NOTE 2 – GOING CONCERN
+
+ 
+
+The Company currently utilizes production revenues
+to fund its operating expenses. The Company s negative cash flows from operations, working capital deficit, projected cost
+of capital improvements of the oil and gas wells, and its projected operating losses to be incurred raise substantial doubt about
+its ability to continue as a going concern. The Company plans to use additional equity financing through fiscal year 2013 to fund
+potential acquisitions and business expansion. The financial statements do not include any adjustments that might be necessary
+should the Company be unable to continue as a going concern. 
+
+ 
+
+NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS
+
+ 
+
+ASC 820 defines fair value as the price that
+would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
+measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the
+asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs
+can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on
+the observability of those inputs.
+
+ 
+
+The following tables set forth by level within
+the fair value hierarchy the Company s financial assets and liabilities that were accounted for at fair value as of December
+31, 2012 and 2011. As required by ASC 820, a financial instrument s level within the fair value hierarchy is based on the
+lowest level of input that is significant to the fair value measurement. The Company s assessment of the significance of
+a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities
+and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for the
+years ended December 31, 2012 and 2011.
+
+ 
+
+ F-18
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+The carrying amounts reported in the balance
+sheets for cash, accounts receivable, loans payable, and accounts payable and accrued expenses, approximate their fair market value
+based on the short-term maturity of these instruments. The following table presents assets and liabilities that are measured and
+recognized at fair value as of December 31, 2012 and 2011, on a recurring basis:
+
+ 
+
+Assets and liabilities measured at fair value on a recurring basis
+at December 31, 2012:
+
+ 
+ Level 1 
+ Level 2 
+ Level 3 
+ Total 
+
+ Assets 
+ 
+ 
+ 
+ 
+
+ Marketable securities 
+ $124,740 
+ $- 
+ $- 
+ $124,740 
+
+ Total 
+ $124,740 
+ $- 
+ $- 
+ $124,740 
+
+ 
+ 
+ 
+ 
+ 
+
+ Liabilities 
+ 
+ 
+ 
+ 
+
+ Derivative liability 
+ $- 
+ $- 
+ $74,240 
+ $74,240 
+
+ Total 
+ $- 
+ $- 
+ $74,240 
+ $74,240 
+
+ 
+
+Assets measured at fair value on a recurring basis at
+December 31, 2011:
+
+ 
+
+ 
+ Level 1 
+ Level 2 
+ Level 3 
+ Total 
+
+ Assets 
+ 
+ 
+ 
+ 
+
+ Marketable securities 
+ $4,620 
+ $- 
+ $- 
+ $4,620 
+
+ Total 
+ $4,620 
+ $- 
+ $- 
+ $4,620 
+
+ 
+
+The carrying value of short term financial
+instruments including cash, accounts payable, accrued expenses and short-term borrowings approximate fair value due to the short
+period of maturity for these instruments. The long-term debentures payable approximates fair value since the related rates of interest
+approximate current market rates.
+
+ 
+
+NOTE 4 – OIL AND GAS PROPERTIES
+
+ 
+
+The Company holds oil and gas leases in California
+and Ohio. The oil and gas leases are classified as unproved properties due to the limited oil and gas production from the properties.
+The Company recorded impairment of its oil and gas properties in the amount of $579,963 and $0 as of December 31, 2012 and 2011
+respectively.
+
+ 
+
+During the year ended December 31, 2012, the
+Company sold interests in its oil and gas properties for $75,000. The sales were recorded as a reduction in the basis in the properties
+and no gain or loss was recognized on the transactions.
+
+ 
+
+NOTE 5 – NOTE RECEIVABLE
+
+ 
+
+During the year ended December 31, 2012 the
+Company paid $20,000 to a third-party entity in the form of a note receivable. The note is unsecured, bears interest of 4% per
+annum, and was due in October 2012. The note is currently in default. The Company fully allowed for the note and recorded $20,000
+of bad debt expense as of December 31, 2012.
+
+ 
+
+NOTE 6 – COMMON STOCK
+
+ 
+
+During the year ended December 31, 2011 the
+Company issued 388,125 shares of common stock for cash of $83,115.
+
+ 
+
+During the year ended December 31, 2011 the
+Company issued 14,515,223 shares of common stock for oil and gas properties. The shares were valued at $1,294,934.
+
+ 
+
+During the year ended December 31, 2011 the
+Company issued 351,144 shares of common stock for conversion of debt. The shares were valued at $60,497.
+
+ 
+
+At December 31, 2012, the Company had 100,000,000
+shares of common stock authorized and 34,545,000 shares of common stock issued and outstanding.
+
+ 
+
+ F-19
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+On September 23, 2012 the Company issued 3,450,000
+shares of common stock in connection with the reverse merger with Koko, Ltd. (see Note 1).
+
+ 
+
+In October
+2012 the Company approved a one for two and a half reverse stock split of the Company s outstanding common stock. The reverse
+stock split became effective on November 5, 2012 and as a result of the reverse stock split, the issued and outstanding shares
+of the Company s common stock decreased to 34,500,000 shares, without any change in the par value of such shares. These financial
+statements and accompanying notes to the financial statements give retroactive effect to the reverse stock split for all periods
+presented.
+
+ 
+
+During
+the year ended December 31, 2012, the Company issued 30,000 units at $1.00 per unit resulting in total cash proceeds of $30,000.
+Each unit sold consists of one share of the Company s common stock, one Class A Redeemable Warrant, and one Class B Redeemable
+Warrant (see Note 11).
+
+ 
+
+During
+the year ended December 31, 2012, the Company issued 15,000 shares of stock for settlement of accounts payable. The shares were
+valued at $1.01 per share for a total fair value of $15,150. The company recognized a loss on settlement of accounts payable in
+the amount of $7,650.
+
+ 
+
+NOTE 7 – RELATED PARTY TRANSACTIONS
+
+ 
+
+Various general and
+administrative expenses of the Company as well as loans for operating purposes have been paid for or made by related parties of
+the Company. During the year ended December 31, 2012 the Company received cash of $46,500 on these payables, had $85,898 in expenses
+paid on behalf of the Company, and made payments totaling $19,575 on these related-party payables. Related party payables totaled
+$122,845 and $10,022 at December 31, 2012 and 2011, respectively. These amounts payable bear no interest, are uncollateralized
+and due on demand.
+
+ 
+
+NOTE 8 – ASSET RETIREMENT OBLIGATION
+
+ 
+
+The following table sets forth the principal
+sources of change of the asset retirement obligation for the years ended December 31, 2012 and 2011:
+
+ 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ Asset retirement obligations, beginning of period 
+ $3,986 
+ $- 
+
+ Revisions in estimated liabilities 
+ 3,601 
+ - 
+
+ Asset retirement obligations assumed 
+ - 
+ 3,876 
+
+ Accretion expense 
+ 173 
+ 110 
+
+ 
+ 
+ 
+
+ Asset retirement obligations, end of period 
+ $7,760 
+ $3,986 
+
+ 
+
+The Company does not maintain an escrow agreement
+or performance bond to assure the administration of the plugging and abandonment obligations assumed.
+
+ 
+
+NOTE 9 – INCOME TAXES
+
+ 
+
+The Company s provision for income taxes
+was $-0- for the years ended December 31, 2012 and 2011, respectively, since the Company has accumulated taxable losses from operations.
+ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it
+is more likely than not that some or all of the deferred tax assets will not be realized. In the Company s opinion, it is
+uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly,
+a full valuation allowance equal to the deferred tax asset has been recorded.
+
+ 
+
+The total deferred tax asset is calculated
+by multiplying a 39 percent marginal tax rate by the cumulative Net Operating Loss ("NOL"). At December 31, 2012, the
+Company has available $844,956 of NOL s which expire in various years beginning in 2031 and carrying forward through 2032.
+The tax effects of significant items comprising the Company s net deferred taxes as of December 31, 2012 and 2011 were as follows:
+
+ 
+
+ F-20
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+ 
+ December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ Cumulative NOL 
+ $844,956 
+ $40,851 
+
+ 
+ 
+ 
+
+ Deferred Tax Assets: 
+ 
+ 
+
+ Net operating loss carry forwards 
+ 329,533 
+ 15,932 
+
+ Valuation allowance 
+ (329,533) 
+ (15,932)
+
+ 
+ $- 
+ $- 
+
+ 
+
+The provision for income taxes differs from
+the amounts which would be provided by applying the statutory federal income tax rate of 39 percent to net loss before provision
+for income taxes for the following reasons:
+
+ 
+
+ 
+ December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ Income tax benefit at U. S. federal statutory rates: 
+ $(329,533) 
+ $(15,932)
+
+ Change in valuation allowance 
+ 329,533 
+ 15,932 
+
+ 
+ $- 
+ $- 
+
+ 
+
+The Company files federal and Ohio income tax
+returns subject to statutes of limitations. The years ended December 31, 2012, 2011, and 2010 are subject to examination by federal
+and state tax authorities.
+
+ 
+
+NOTE 10 – WARRANTS AND WARRANT DERIVATIVE
+LIABILITY
+
+ 
+
+On December
+31, 2012 the Company issued 30,000 units at $1.00 per unit resulting in total cash proceeds of $30,000. Each unit sold consists
+of one share of the Company s common stock, one Class A Redeemable Warrant, and one Class B Redeemable Warrant. 
+
+ 
+
+The Class
+A warrants are exercisable into one share of the Company s common stock at $5.00 per share, expire on December 31, 2015,
+and are callable by the Company any time after December 31, 2014 upon 30 days written notice by the Company. If the holders do
+not exercise the warrants within 30 days of receiving notice from the Company, the warrants terminate 30 days from the date of
+notice.
+
+ 
+
+The Class
+B warrants are exercisable into one share of the Company s common stock at $9.375 per share, expire on December 31, 2017,
+and are callable by the Company any time after December 31, 2015 upon 30 days written notice by the Company. If the holders do
+not exercise the warrants within 30 days of receiving notice from the Company, the warrants terminate 30 days from the date of
+notice.
+
+ 
+
+For both
+the Class A and Class B warrants, the exercise price and/or the number of shares of common stock to be issued upon exercise is
+subject to adjustment in certain cases. Such adjustments would be triggered in instances where the Company does any of the following:
+a) pays a stock dividend, splits or reverse-splits its common stock; b) issues common stock, convertible securities, or debentures
+to obtain shares at a price less than the warrant exercise price; or c) distributes to shareholders evidences of its indebtedness
+or securities or assets.
+
+ 
+
+The Company
+has analyzed this price adjustment provision under ASC 815 "Derivative and Hedging" and determined that these instruments
+should be classified as liabilities and recorded at fair value do to there being no explicit limit to the number of shares to be
+delivered upon settlement of the warrants. The Company has estimated the fair value of the derivative using the Black-Scholes option-pricing
+model. Assumptions included (1) 0.72-1.18% risk-free interest rate, (2) expected term is the term of the warrant, (3) expected
+volatility of 304-389%, (4) zero expected dividends, (5) exercise prices as set for thin the agreements, (6) common stock price
+of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted. At December
+31, 2012 the embedded derivative liability was valued at $74,240.
+
+ 
+
+ F-21
+
+ 
+
+ 
+
+ 
+
+Cardinal Energy Group, Inc.
+
+(Formerly Koko, Ltd.)
+
+Notes to the Financial Statements
+
+For the Periods Ended December 31, 2012 and
+2011
+
+ 
+
+Changes in stock purchase warrants during the
+periods ended December 31, 2011 and December 31, 2012 are as follows:
+
+ 
+
+ 
+ 
+ 
+ Weighted 
+Average 
+ 
+ Aggregate 
+ 
+ Weighted 
+Average 
+
+ 
+ Number of 
+ 
+ Exercise 
+ Intrinsic 
+ 
+ Remaining 
+
+ 
+ Warrants 
+ 
+ Price 
+ Value 
+ Exercisable 
+ Life 
+
+ Outstanding, December 31, 2011 
+ - 
+ $
+ - 
+ $
+ - 
+ - 
+ $
+ - 
+
+ Exercisable, December 31, 2011 
+ - 
+ - 
+ 
+ 
+ - 
+
+ Granted 
+ 60,000 
+ $4.00 
+ $ 
+ 60,000 
+ 5 years 
+
+ Exercised 
+ - 
+ - 
+ 
+ 
+ - 
+
+ Cancelled 
+ - 
+ - 
+ 
+ 
+ - 
+
+ Outstanding, December 31, 2012 
+ 60,000 
+ $4.00 
+ $- 
+ 60,000 
+ 5 years 
+
+ Exercisable, December 31, 2012 
+ 60,000 
+ $4.00 
+ $- 
+ 60,000 
+ 5 years 
+
+ 
+
+NOTE 11 – COMMITMENTS AND CONTINGENCIES
+
+ 
+
+Litigation
+
+ 
+
+The Company may be party to various legal actions
+arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably
+estimated are accrued. Such accruals are based the Company s estimates of the outcomes of such matters and its experience
+in contesting, litigating and settling similar matters. There is no litigation or contingencies that require accrual or disclosure
+as of December 31, 2012 and 2011.
+
+ 
+
+NOTE 12 – SUBSEQUENT EVENTS
+
+ 
+
+On January 9, 2013 the Company issued 100,000
+shares of common stock for prepaid services.
+
+ 
+
+On February 6, 2013 the Company issued 227,500
+restricted shares of common stock for services.
+
+ 
+
+On February 6, 2013 the Company issued 15,000
+restricted shares of common stock for acreage contribution.
+
+ 
+
+On January 23, 2013 the Company entered into
+an agreement in which a related party transferred a $20,000 bond to the Company.
+
+ 
+
+Subsequent to December 31, 2012 the Company
+borrowed $53,000 from an unrelated third party entity in the form of a convertible
+note. The note bears interest at a rate of 8.0 percent per annum, with principal and interest due one year from
+issuance. The principal balance of the note along with accrued interest is convertible after 180 days, at the option of the note
+holder, into the Company s common stock at a 58 percent of the current market price. The current market price is defined as the
+average of the lowest three trading prices for the Common Stock during the ten day period on the latest complete trading day
+prior to the conversion date. 
+
+ 
+
+Subsequent to December 31, 2012 pursuant to
+a convertible debenture offering the Company borrowed $83,000. The convertible notes accrue interest at 8% per annum, with
+principal and interest due two years from issuance. The notes carry a default interest rate of 12% per annum. The notes
+are exercisable for two years from the issue date into shares of the Company s common stock at a price of $1 per share.
+
+ 
+
+Subsequent to December 31, 2012 the Company
+made payments on related party advances of $35,500.
+
+ 
+
+ F-22
+
+ 
+
+ 
+
+ 
+
+PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
+
+ 
+
+ITEM 13.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
+
+ 
+
+The estimated expenses of the offering (assuming
+all shares are sold), all of which are to be paid by the registrant, are as follows:
+
+ 
+
+ SEC Registration Fee 
+ $500.00 
+
+ Printing Expenses 
+ 3,000.00 
+
+ Accounting Fees and Expenses 
+ 8,000.00 
+
+ Legal Fees and Expenses 
+ 7,500.00 
+
+ Blue Sky Fees/Expenses 
+ 3,000.00 
+
+ Transfer Agent Fees 
+ 3,000.00 
+
+ TOTAL 
+ $25,000.00 
+
+ 
+
+ITEM 14.INDEMNIFICATION OF DIRECTORS AND OFFICERS.
+
+ 
+
+Subsection 1 of the Nevada Revised Statute 
+78.7502 provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
+pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by
+or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the
+corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation,
+partnership, joint venture, trust or other enterprise, against expenses, including attorneys fees, judgments, fines and
+amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if
+the person:
+
+ 
+
+(a) Is not liable pursuant to NRS 78.138;
+or
+
+ 
+
+(b) Acted in good faith and in a manner which
+he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal
+action or proceeding, had no reasonable cause to believe the conduct was unlawful.
+
+ 
+
+The termination of any action, suit or proceeding
+by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption
+that the person is liable pursuant to NRS 78.138 or did not act in good faith and in a manner which he or she reasonably
+believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding,
+he or she had reasonable cause to believe that the conduct was unlawful.
+
+ 
+
+Subsection 2 of the Nevada Revised Statute Annotated
+ 78.7502 provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to
+any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by
+reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at
+the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust
+or other enterprise against expenses, including amounts paid in settlement and attorneys fees actually and reasonably incurred
+by the person in connection with the defense or settlement of the action or suit if the person:
+
+ 
+
+(a) Is not liable pursuant to NRS 78.138;
+or
+
+ 
+
+(b) Acted in good faith and in a manner which
+he or she reasonably believed to be in or not opposed to the best interests of the corporation.
+
+ 
+
+Indemnification may not be made for any claim,
+issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals
+therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent
+that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that
+in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the
+court deems proper.
+
+ 
+
+Subsection 3 of the Nevada Revised Statute Annotated
+ 78.7502 provides that to the extent that a director, officer, employee or agent of a corporation has been successful on
+the merits or otherwise in defense of any action, suit or proceeding referred to in subsections 1 and 2, or in defense of any claim,
+issue or matter therein, the corporation shall indemnify him or her against expenses, including attorneys fees, actually
+and reasonably incurred by him or her in connection with the defense.
+
+ 
+
+The only statute, charter provision, bylaw,
+contract, or other arrangement under which any controlling person, director or officer of the Registrant is insured or indemnified
+in any manner against any liability which he may incur in his capacity as such, is as follows:
+
+ 
+
+ 38
+
+ 
+
+ 
+
+ 
+
+Article 3 of our Articles of Incorporation
+and Article X of our Bylaws provide to the general effect that we will indemnify a control person, officer or director from liability,
+thereby making us responsible for any expenses or damages incurred by such control person, officer or director in any action brought
+against them based on their conduct in such capacity, provided they did not engage in fraud or criminal activity.
+
+ 
+
+ITEM 15.RECENT SALES OF UNREGISTERED SECURITIES.
+
+ 
+
+The Registrant has sold the following securities
+that were made in reliance on exemption from registration provided by under Section 4(a)(2) of the Securities Act of 1933, as amended,
+as we reasonably believed that the investors were sophisticated, that no general solicitations were involved, and the transactions
+did not otherwise involve a public offering (all share amounts give effect to a 1 for 2.5 reverse stock split of our common stock
+effective as of November 5, 2012):
+
+ 
+
+In December 2010, we issued 233,000 shares of
+common stock to 27 individuals in consideration of $0.50 per share or a total of $116,500.
+
+ 
+
+In March 2011, we issued 7,000 shares of common
+stock to 2 individuals in consideration of $0.50 per share or a total of $3,500.
+
+ 
+
+In May 2011, we issued 10,000 shares of common
+stock to one individual in consideration of $0.50 per share or a total of $5,000.
+
+ 
+
+On September 30, 2012, we issued 31,050,000
+shares of our unregistered common stock to 32 individuals and/or entities in exchange for all of the issued and outstanding ownership
+interests of Cardinal Energy Group, LLC.
+
+ 
+
+On
+December 31, 2012 we issued 30,000 units at $1.00 per unit resulting in total cash proceeds of $30,000. Each unit consists of one
+share of our common stock, one Class A Redeemable Warrant and one Class B Redeemable Warrant. The Class A warrants are exercisable
+into one share of our common stock at $5.00 per share, expire on December 31, 2015, and are callable by us any time after December
+31, 2014 upon 30 days written notice by us. If the holders do not exercise the warrants within 30 days of receiving notice from
+us, the warrants terminate 30 days from the date of notice. The Class B warrants are exercisable into one share of our common stock
+at $9.375 per share, expire on December 31, 2017, and are callable by us any time after December 31, 2015 upon 30 days written
+notice by us. If the holders do not exercise the warrants within 30 days of receiving notice from us, the warrants terminate 30
+days from the date of notice. For both the Class A and Class B warrants, the exercise price and/or the number of shares of common
+stock to be issued upon exercise is subject to adjustment in certain cases. Such adjustments would be triggered in instances where
+we do any of the following: a) pay a stock dividend, split or reverse-split our common stock; b) issue common stock, convertible
+securities, or debentures to obtain shares at a price less than the warrant exercise price; or c) distribute to shareholders evidences
+of its indebtedness or securities or assets.
+
+ 
+
+On
+February 26, 2013 we borrowed $53,000 from an unrelated third party entity in the form of a convertible note. The
+note bears interest at a rate of 8.0 percent per annum, with principal and interest due one year from issuance. The principal
+balance of the note along with accrued interest is convertible after 180 days, at the option of the note holder, into our common
+stock at 58 percent of the average of the lowest three trading prices for our common stock during the ten day period on the
+latest complete trading day prior to the conversion date. 
+
+ 
+
+During
+the three months ended March 31, 2013 pursuant to a convertible debenture offering the Company borrowed $133,000. The convertible
+notes accrue interest at 8% per annum, with principal and interest due two years from issuance. The notes carry a default
+interest rate of 12% per annum. The notes are exercisable for two years from the issue date into shares of our common stock at
+a price of $1 per share.
+
+ 
+
+During the three months
+ended March 31, 2013, we issued 217,500 shares of common stock for services valued at fair market value of $271,875.
+
+ 
+
+During the three months
+ended March 31, 2013 we issued 15,000 shares of common stock valued at fair market value of $18,750 for the acquisition of oil
+and gas property.
+
+ 
+
+ 39
+
+ 
+
+ 
+
+ 
+
+ITEM 16.EXHIBITS.
+
+ 
+ 
+
+ Exhibit
+ 
+ 
+ 
+ Incorporated by reference
+ 
+ Filed
+
+ No.
+ 
+ Document Description
+ 
+ Form
+ 
+ Date
+ 
+ Number
+ 
+ herewith
+
+ 3.1(a)
+ 
+ Articles of Incorporation of Koko, Ltd.
+ 
+ S-1
+ 
+ 3/12/09
+ 
+ 3.1
+ 
+ 
+
+ 3.1(b)
+ 
+ Articles of Merger and Amendment of Koko, Ltd. and Cardinal Energy Group, LLC.
+ 
+ 8-K
+ 
+ 10/17/12
+ 
+ 2.1
+ 
+ 
+
+ 3.1(c)
+ 
+ Amendment to Articles of Incorporation of Cardinal Energy Group, Inc.
+ 
+ 10-Q
+ 
+ 5/15/13
+ 
+ 3.1(b)
+ 
+ 
+
+ 3.2
+ 
+ Bylaws of Koko, Ltd.
+ 
+ S-1
+ 
+ 3/12/09
+ 
+ 3.2
+ 
+ 
+
+ 3.3
+ 
+ Articles of Organization of Continental Energy Partners, LLC.
+ 
+ 8-K
+ 
+ 10/4/12
+ 
+ 3.3
+ 
+ 
+
+ 3.4
+ 
+ Amended Articles of Organization of Cardinal Energy Group, LLC.
+ 
+ 8-K
+ 
+ 10/4/12
+ 
+ 3.4
+ 
+ 
+
+ 3.5
+ 
+ Operating Agreement of Cardinal Energy Group, LLC.
+ 
+ 8-K
+ 
+ 10/4/12
+ 
+ 3.5
+ 
+ 
+
+ 4.1
+ 
+ Form of Class A Redeemable Warrant.
+ 
+ 10-Q
+ 
+ 5/15/13
+ 
+ 4.1
+ 
+ 
+
+ 4.2
+ 
+ Form of Class B Redeemable Warrant.
+ 
+ 10-Q
+ 
+ 5/15/13
+ 
+ 4.2
+ 
+ 
+
+ 4.3
+ 
+ Form of Subscription Agreement.
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ X
+
+ 5.1
+ 
+ Opinion of Legal & Compliance, LLC.
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ X
+
+ 10.1
+ 
+ License Agreement with Gregory Ruff.
+ 
+ S-1
+ 
+ 6/13/11
+ 
+ 10.1
+ 
+ 
+
+ 10.2
+ 
+ Share Exchange Agreement.
+ 
+ 8-K
+ 
+ 10/4/12
+ 
+ 10.4
+ 
+ 
+
+ 10.3
+ 
+ Commercial Lease Agreement – Triangle Commercial Properties, LLC.
+ 
+ 10-K
+ 
+ 4/1/13
+ 
+ 10.2
+ 
+ 
+
+ 10.4
+ 
+ 8% Convertible Promissory Note dated February 26, 2013.
+ 
+ 10-Q
+ 
+ 5/15/13
+ 
+ 10.6
+ 
+ 
+
+ 10.5
+ 
+ Form of 8% Convertible Debenture.
+ 
+ 10-Q
+ 
+ 5/15/13
+ 
+ 10.7
+ 
+ 
+
+ 10.6
+ 
+ Consulting Agreement with Atlanta Capital Partners, LLC dated May 31, 2013.
+ 
+ 8-K
+ 
+ 6/07/13
+ 
+ 10.8
+ 
+ 
+
+ 10.7
+ 
+ Working Interest Purchase Agreement with HLA Interests, LLC dated July 3, 2013
+ 
+ 8-K
+ 
+ 7/08/13
+ 
+ 10.1
+ 
+ 
+
+ 10.8
+ 
+ Form of Secured Promissory Note
+ 
+ 8-K
+ 
+ 7/08/13
+ 
+ 10.2
+ 
+ 
+
+ 10.9
+ 
+ Form of Security Agreement
+ 
+ 8-K
+ 
+ 7/08/13
+ 
+ 10.3
+ 
+ 
+
+ 14.1
+ 
+ Code of Ethics
+ 
+ 10-K
+ 
+ 4/1/10
+ 
+ 14.1
+ 
+ 
+
+ 23.1
+ 
+ Consent of MaloneBailey LLP.
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ X
+
+ 23.2
+ 
+ Consent of Legal & Compliance, LLC.
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ X
+
+ 99.1
+ 
+ Audit Committee Charter
+ 
+ 10-K
+ 
+ 4/1/10
+ 
+ 99.1
+ 
+ 
+
+ 99.2
+ 
+ Disclosure Committee Charter
+ 
+ 10-K
+ 
+ 4/1/10
+ 
+ 99.2
+ 
+ 
+
+ 
+
+ 40
+
+ 
+
+ 
+
+ 
+
+ITEM 17.UNDERTAKINGS.
+
+ 
+
+1. The undersigned registrant hereby undertakes
+to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
+
+ 
+
+(i)To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933.
+
+ 
+
+(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
+recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
+set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
+(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or
+high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
+to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate
+offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
+
+ 
+
+(iii)To include any material information with respect to the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001409565_puramed_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001409565_puramed_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e514738917fcb67839319d857522f1bc3bd08157
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001409565_puramed_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of our common stock offered by the Selling Stock Holders has been passed upon by the law firm of Lucosky Brookman LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001411688_container_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001411688_container_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3bfdcc4bfee613c2dcb4acd46e3f3782e24e73ec
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001411688_container_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP, New York, New York. Simpson Thacher & Bartlett LLP, New York, New York, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001412283_momentive_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001412283_momentive_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001412283_momentive_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001412286_momentive_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001412286_momentive_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001412286_momentive_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001412287_momentive_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001412287_momentive_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001412287_momentive_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001415301_del_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001415301_del_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8405e7f4a3400c1768afdf9936f3aa6d984971a5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001415301_del_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by White & Case LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001415624_yume-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001415624_yume-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..842a2871ca318411aaccb63c7426cb8a82e0d699
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001415624_yume-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Fenwick & West LLP, Mountain View, California. The validity of the shares of common stock being offered by this prospectus will be passed upon for the underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001416436_bausch_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001416436_bausch_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f9b55df77964f8620a36edab5ae0fd131e25c1f4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001416436_bausch_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters relating to this offering will be passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York. Cravath, Swaine & Moore LLP, New York, New York will act as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001418091_twitter_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001418091_twitter_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..319e8ffca48e2c224ba734f362b3ef10257f63c9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001418091_twitter_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, which has acted as our counsel in connection with this offering, will pass upon the validity of the shares of our common stock being offered by this prospectus. As of the date of this prospectus, an investment fund associated with Wilson Sonsini Goodrich & Rosati, P.C. beneficially owns 8,904 shares of our convertible preferred stock, which will be converted into 8,904 shares of our common stock upon completion of this offering. The underwriters have been represented by Davis Polk & Wardwell LLP, Menlo Park, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001418780_colorstars_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001418780_colorstars_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ecddd99b87ae4f017567102edaa4b6bf9a4508ae
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001418780_colorstars_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares offered hereby will be passed upon for the Company by Gribben & Associates, Inc., 19200 Von Karman, Suite 400, Irvine, California 92612.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001420030_targeted_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001420030_targeted_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6acf77962aab298fb16d9e0761676021d81e2c4f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001420030_targeted_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Ellenoff Grossman & Schole LLP, 150 East 42nd Street, New York, New York 10017, will pass upon the validity of the securities offered in this prospectus.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001429496_pbf_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001429496_pbf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759fc5a488902d5b8c30fc6e952f34caea18a00d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001429496_pbf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001429658_biolectron_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001429658_biolectron_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..42856cdc06db9fc46912bdecfad138c80af08e07
--- /dev/null
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+LEGAL MATTERS The validity of the notes and the related guarantees offered hereby has been passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York. Certain partners of Cleary Gottlieb Steen & Hamilton LLP are members of a limited liability company that is an investor in one or more investment funds advised by TPG, including investment funds that have a beneficial equity interest in the Company. Cleary Gottlieb Steen & Hamilton LLP represents TPG in connection with legal matters. Ice Miller LLP have passed upon certain matters governed by the laws of the state of Indiana, Gunster, Yoakley & Stewart, P.A. have passed upon certain matters governed by the laws of the state of Florida, and Reed Smith LLP have passed upon certain matters governed by the laws of the state of California. Table of Contents
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diff --git a/parsed_sections/legal_matters/2013/CIK0001431230_sungard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001431230_sungard_legal_matters.txt
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+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees have been passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. In rendering its opinion, Simpson Thacher & Bartlett LLP will rely upon the opinion of Sheppard, Mullin, Richter & Hampton LLP as to all matters governed by the laws of the State of California and the opinion of Blank Rome LLP as to all matters governed by the laws of the State of Florida and the Commonwealth of Pennsylvania. An investment vehicle comprised of several partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others own interests representing less than 1% of the capital commitments of funds affiliated with three of the Sponsors: Blackstone, KKR and Silver Lake.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001431897_annie-s_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001431897_annie-s_legal_matters.txt
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+LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby will be passed upon for Annie s, Inc. by Proskauer Rose LLP, New York, New York. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York, in connection with this offering.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001436174_american_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001436174_american_legal_matters.txt
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index 0000000000000000000000000000000000000000..2f3b651c5551b5685521342da770db12e559cd2a
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+LEGAL MATTERS Davis Graham & Stubbs LLP of Denver, Colorado has provided its opinion on the validity of the Common Stock offered by this prospectus.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001436304_kythera_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001436304_kythera_legal_matters.txt
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@@ -0,0 +1 @@
+Legal Matters The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Latham & Watkins LLP, Menlo Park, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, Menlo Park, California. Certain attorneys affiliated with Latham & Watkins LLP own approximately 1,200 shares of our common stock.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001440770_china_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001440770_china_legal_matters.txt
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+(105) Includes 5,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 5,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (106) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (107) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (108) Carl Nelson has the voting and investment power as the President, Chairman and CEO of ISSC Management. (109) Includes 1,500 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,500 shares of Common Stock which may be issued upon exercise of Class D Warrants. (110) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (111) Includes 3,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 3,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (112) Includes 947 shares of Common Stock which may be issued upon exercise of Class C Warrants and 947 shares of Common Stock which may be issued upon exercise of Class D Warrants. (113) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (114) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (115) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (116) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (117) Includes 10,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 10,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (118) Includes 3,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 3,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (119) Includes 2,500 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,500 shares of Common Stock which may be issued upon exercise of Class D Warrants. (120) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (121) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (122) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (123) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (124) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (125) David Kass has the voting and investment power as the Managing Member of DBK LLC , the General Partner of Richmond Capital LP. (126) Includes 10,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 10,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (127) Includes 3,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 3,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (128) Includes 5,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 5,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (129) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (130) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (131) Includes 1,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 1,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. (132) Includes 2,000 shares of Common Stock which may be issued upon exercise of Class C Warrants and 2,000 shares of Common Stock which may be issued upon exercise of Class D Warrants. DESCRIPTION OF SECURITIES Our authorized capital stock consists of 100,000,000 shares of Common Stock, with a par value of $0.0001 per share, and 50,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of May 7, 2013, there were 16,775,113 shares of our Common Stock issued and outstanding and no shares of our Preferred Stock outstanding. As of today, our shares of Common Stock are held by 96 stockholders of record. Common Stock Our Common Stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our Common Stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our Common Stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our Common Stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors. Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our Common Stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore. Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our Common Stock will be entitled to receive pro rata all assets available for distribution to such holders. In the event of any merger or consolidation with or into another company in connection with which shares of our Common Stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our Common Stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our Common Stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our Common Stock. Preferred Stock Our board of directors is authorized by our Articles of Incorporation to issue the authorized shares of our preferred stock in one or more series. Our board of directors is authorized, within any limitations prescribed by law and our Articles of Incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including, but not limited to, the following: 1. The number of shares constituting that series and the distinctive designation of that series; 2. The dividend rate on the shares of that series, the conditions and time upon which such dividends shall be payable, and whether dividends will be cumulative or non-cumulative; 3. Whether that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; 4. Whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; 5. Whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption; 6. Whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; 7. The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; 8. Any other relative rights, preferences and limitations of that series. Provisions in Our Articles of Incorporation and By-Laws That Would Delay, Defer or Prevent a Change in Control Our Articles of Incorporation authorize our board of directors to issue a class of preferred stock commonly known as a blank check preferred stock. Specifically, the preferred stock may be issued from time to time by the board of directors as shares of one (1) or more classes or series. Our board of directors, subject to the provisions of our Articles of Incorporation and limitations imposed by law, is authorized to adopt resolutions; to issue the shares; to fix the number of shares; to change the number of shares constituting any series; and to provide for or change the following: the voting powers; designations; preferences; and relative, participating, optional or other special rights, qualifications, limitations or restrictions, including the following: dividend rights, including whether dividends are cumulative; dividend rates; terms of redemption, including sinking fund provisions; redemption prices; conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock. In each such case, we will not need any further action or vote by our shareholders. One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of director s authority described above may adversely affect the rights of holders of Common Stock. For example, preferred stock issued by us may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the Common Stock at a premium or may otherwise adversely affect the market price of the Common Stock. Dividend Policy We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Common Stock Purchase Warrants During the period from July 15, 2010 to August 17, 2010 we issued three year warrants to purchase our Common Stock at various exercise prices as set forth below: Title of Warrant Exercise Price Total Number of Shares of Common Stock Subject to Issuance Upon Exercise Series A $ 2.19 314,285(1) Series B $ 2.63 314,285(1) Series C $ 3.70 497,302(2) Series D $ 4.75 497,302(2) Series E $ 0.25 1,000,000(1) Series F(i) $ 1.75 31,429(3) Series F(ii) $ 2.64 94,329(3) Series F(iii) $ 2.64 104,592(3) Series G $ 2.64 50,000(4) (1) Series A, B and E Warrants were issued to 5 Selling Stockholders pursuant to or in connection with a Share Exchange Agreement dated as of July 9, 2010. (2) Series C and D Warrants were issued to 105 Selling Stockholders in a series of private placements pursuant to Subscription Agreement dated between July 9, 2010 and August 17, 2010. (3) Series F Warrants were issued to private placement agents in connection with the private placements dated July 9, 2010 and August 17, 2010, including 31,429 shares of Common Stock issuable to Hunter Wise upon exercise of Series F(i) Warrants at exercise price of $1.75 per share, 94,329 shares of Common Stock issuable to Hunter Wise upon exercise of Series F(ii) Warrants at exercise price of $2.64 per share, and 104,592 shares of Common Stock issuable to American Capital Partners upon exercise of Series F(iii) Warrants at exercise price of $2.64 per share. (4) On July 9, 2010, the Company issued Series G warrants to purchase 50,000 shares of Common Stock with an exercise price of $2.64 to Guzov Ofsink, LLC, the Company s prior counsel. The Series F warrants were issued pursuant to the terms of advisory agreements between the Company and the placement agents. All of the above warrants contain the following provisions: Cashless Exercise. Subject to certain exceptions, the holders may make a cashless exercise if a registration statement covering the resale of the shares of Common Stock issuable upon exercise of the Warrants is not in effect on February 13, 2011. Maximum Exercise; 9.9% Limitation. The holder is not permitted to exercise the warrant to the extent that on the date of exercise the exercise would result in beneficial ownership by the holder and its affiliates of more than 9.9% of the outstanding shares of Common Stock on such date. Adjustment for Stock Splits, Stock Dividends, Recapitalizations, Etc. The exercise price of the warrants and the number of shares of common stock issuable on exercise of the warrants will be appropriately adjusted to reflect any stock dividend, stock split, stock distribution, combination of shares, reverse split, reclassification, recapitalization or other similar event affecting the number of outstanding shares. Adjustment for Reorganization, Consolidation, Merger, Etc. If we merge or consolidate with or into any other person, or are a party to certain other corporate reorganizations, then, in each case, the holder of the warrant (on exercise at any time after the consummation of such transaction) will be entitled to receive, the stock and other securities and property (including cash) which the holder would have been entitled to receive if the holder had exercised the warrant immediately prior to the effectiveness of the transaction. Options We have not issued and do not have outstanding any options to purchase shares of our Common Stock. Convertible Securities We have not issued and do not have outstanding any securities convertible into shares of our Common Stock or any rights convertible or exchangeable into shares of our Common Stock. Nevada Anti-Takeover Laws Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our Articles of Incorporation and By-laws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company. Transfer Agent and Registrar The registrar and transfer agent for the Company s capital stock is Empire Stock Transfer, Inc., 1859 Whitney Mesa Drive, Henderson, Nevada 89014 and its main telephone number is 702-818-5898. SHARES ELIGIBLE FOR FUTURE SALE As of April 18, 2012, there were issued and outstanding (i) 16,775,113 shares of our Common Stock and (ii) warrants to purchase an aggregate of 2,907,726 shares of our Common Stock. We currently have obligation to register for resale by the holders thereof an aggregate of the 2,627,376 shares of our Common Stock issuable upon exercise of warrants. We are not required to register 280,350 shares of Common Stock issuable upon exercise of the Series F and Series G warrants at this time. Shares Covered by this Prospectus All of the 5,390,422 shares being registered in this offering may be sold without restriction under the Securities Act, so long as the registration statement of which this prospectus is a part is, and remains, effective. Rule 144 Under Rule 144, a person who has beneficially owned restricted shares of our Common Stock or warrants for at least six months and at least twelve months from the date the Company filed Form 10 information to cease to be a shell company is entitled to sell its securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (2) we are subject to the reporting requirements under the Exchange Act for at least 90 days before the sale and (3) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale. Persons who have beneficially owned restricted shares of our Common Stock or warrants for at least at least six months and at least twelve months from the date the Company filed Form 10 information to cease to be a shell company , but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of: o 1% of the total number of securities of the same class then outstanding, which will equal approximately 167,751 shares immediately after this offering; or o the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale; provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144. The selling stockholders will not be governed by the foregoing restrictions when selling their shares pursuant to this prospectus. MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS General The following is a general summary of certain material U.S. federal income tax consequences to an investor of the acquisition, ownership and disposition of the Common Stock purchased by the investor pursuant to this offering. As used in this discussion, we , our and us refers to China Electronics Holdings, Inc. This discussion assumes that an investor will hold each share of our Common Stock issued and purchased pursuant to this offering as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code ). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to an investor in light of that investor s particular circumstances. In addition, this discussion does not address (a) U.S. federal non-income tax laws, such as estate or gift tax laws, (b) state, local or non-U.S. tax consequences, or (c) the special tax rules that may apply to certain investors, including, without limitation, banks, insurance companies, financial institutions, broker-dealers, taxpayers that have elected mark-to-market accounting, taxpayers subject to the alternative minimum tax provisions of the Code, tax-exempt entities, governments or agencies or instrumentalities thereof, regulated investment companies, real estate investment trusts, persons whose functional currency is not the U.S. dollar, U.S. expatriates or former long-term residents of the United States, or investors that acquire, hold, or dispose of our common stock as part of a straddle, hedge, wash sale, constructive sale or conversion transaction or other integrated transaction. Additionally, this discussion does not consider the tax treatment of entities treated as partnerships or other pass-through entities for U.S. federal income tax purposes or of persons who hold our common stock through such entities. The tax treatment of a partnership and each partner thereof will generally depend upon the status and activities of the partnership and such partner. Thus, partnerships, other pass-through entities and persons holding our common stock through such entities should consult their own tax advisors. This discussion is based on current provisions of the Code, its legislative history, U.S. Treasury regulations promulgated under the Code, judicial opinions, and published rulings and procedures of the U.S. Internal Revenue Service ( IRS ), all as in effect on the date of this prospectus. These authorities are subject to differing interpretations or to change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with respect to the tax consequences discussed below, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained. As used in this discussion, the term U.S. person means a person that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized (or treated as created or organized) in or under the laws of the United States or of any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) it has in effect a valid election to be treated as a U.S. person under applicable U.S. Treasury regulations. As used in this discussion, the term U.S. holder means a beneficial owner of our common stock that is a U.S. person, and the term non-U.S. holder means a beneficial owner of our common stock (other than an entity that is treated as a partnership or other pass-through entity for U.S. federal income tax purposes) that is not a U.S. person. THIS DISCUSSION IS ONLY A SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR IN OUR COMMON STOCK IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS, AND ANY APPLICABLE TAX TREATY. U.S. Holders Taxation of Distributions A U.S. holder will be required to include in gross income as ordinary income the amount of any dividend paid on the shares of our Common Stock. A distribution on such shares will be treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits generally will constitute a return of capital that will be applied against and reduce (but not below zero) the U.S. holder s adjusted tax basis in our common stock. Any remaining excess generally will be treated as gain from the sale or other disposition of the common stock and will be treated as described under Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock below. Any dividends we pay to a U.S. holder that is treated as a taxable corporation for U.S. federal income tax purposes generally will qualify for the dividends-received deduction if the applicable holding period and other requirements are satisfied. With certain exceptions, if the applicable holding period and other requirements are satisfied, dividends we pay to a non-corporate U.S. holder generally will constitute qualified dividends that will be subject to tax at the maximum tax rate accorded to long-term capital gains for tax years beginning on or before December 31, 2010, after which the tax rate applicable to dividends is scheduled to return to the tax rate generally applicable to ordinary income. If PRC taxes apply to any dividends paid to a U.S. holder on our common stock, such taxes may be treated as foreign taxes eligible for credit against such holder s U.S. federal income tax liability (subject to certain limitations), and such U.S. holder may be entitled to certain benefits under the income tax treaty between the United States and the PRC. U.S. holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the income tax treaty between the United States and the PRC. Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock In general, a U.S. holder must treat any gain or loss recognized upon a sale, taxable exchange, or other taxable disposition of our common stock as capital gain or loss. Any such capital gain or loss will be long-term capital gain or loss if the U.S. holder s holding period for the common stock so disposed of exceeds one year. In general, a U.S. holder will recognize gain or loss in an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder s adjusted tax basis in the common stock so disposed of. Long-term capital gain recognized by a non-corporate U.S. holder generally will be subject to a maximum tax rate of 15 percent for tax years beginning on or before December 31, 2010, after which the maximum long-term capital gains tax rate is scheduled to increase to 20 percent. The deduction of capital losses is subject to various limitations. If PRC taxes apply to any gain from the disposition of our common stock by a U.S. holder, such taxes may be treated as foreign taxes eligible for credit against such holder s U.S. federal income tax liability (subject to certain limitations), and such U.S. holder may be entitled to certain benefits under the income tax treaty between the United States and the PRC. U.S. holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the income tax treaty between the United States and the PRC. Non-U.S. Holders Taxation of Distributions In general, any distribution we make to a non-U.S. holder of shares of our common stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute a dividend for U.S. federal income tax purposes. Unless we are treated as an 80/20 company for U.S. federal income tax purposes, as described below, any dividend paid to a non-U.S. holder with respect to shares of our common stock that is not effectively connected with the non-U.S. holder s conduct of a trade or business within the United States, as described below, generally will be subject to U.S. federal withholding tax at a rate of 30 percent of the gross amount of the dividend, unless such non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN). Any distribution not constituting a dividend will be treated first as reducing the non-U.S. holder s adjusted tax basis in its shares of our common stock (but not below zero) and, to the extent such distribution exceeds the non-U.S. holder s adjusted tax basis, as gain from the sale or other disposition of the common stock, which will be treated as described under Gain on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock below. There is a possibility that we may qualify as an 80/20 company for U.S. federal income tax purposes. In general, a U.S. corporation is an 80/20 company if at least 80 percent of its gross income earned directly or from subsidiaries during an applicable testing period is active foreign business income. The 80 percent test is applied on a periodic basis. If we qualify as an 80/20 company, a percentage of any dividend paid by us generally will not be subject to U.S. federal withholding tax. You should consult with your own tax advisors regarding the amount of any such dividend subject to withholding tax in this circumstance. Dividends we pay to a non-U.S. holder that are effectively connected with such non-U.S. holder s conduct of a trade or business within the United States (and, if certain income tax treaties apply, are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. holder) generally will not be subject to U.S. withholding tax, provided such non-U.S. holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. federal income tax, net of certain deductions, at the same graduated individual or corporate tax rates applicable to U.S. persons. If the non-U.S. holder is a corporation, dividends that are effectively connected income may also be subject to a branch profits tax at a rate of 30 percent (or such lower rate as may be specified by an applicable income tax treaty). Gain on Sale, Taxable Exchange or Other Taxable Disposition of Common Stock A non-U.S. holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a sale, exchange or other disposition of common stock, unless: o the gain is effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, under certain income tax treaties, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. holder); o the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; or o we are or have been a United States real property holding corporation ( USRPHC ) for U.S. federal income tax purposes at any time during the shorter of the five year period ending on the date of disposition or the non-U.S. holder s holding period for the common stock disposed of, and, generally, in the case where our common stock is regularly traded on an established securities market, the non-U.S. holder has owned, directly or indirectly, more than 5 percent of the common stock disposed of, at any time during the shorter of the five year period ending on the date of disposition or the non-U.S. holder s holding period for the common stock disposed of. There can be no assurance that our common stock will be treated as regularly traded on an established securities market for this purpose. Unless an applicable tax treaty provides otherwise, gain described in the first and third bullet points above generally will be subject to U.S. federal income tax, net of certain deductions, at the same tax rates applicable to U.S. persons. Any gains described in the first bullet point above of a non-U.S. holder that is a foreign corporation may also be subject to an additional branch profits tax at a 30 percent rate (or a lower applicable tax treaty rate). Any U.S. source capital gain of a non-U.S. holder described in the second bullet point above (which may be offset by U.S. source capital losses during the taxable year of the disposition) generally will be subject to a flat 30 percent U.S. federal income tax (or a lower applicable tax treaty rate). In connection with the third bullet point above, we generally will be classified as a USRPHC if the fair market value of our United States real property interests equals or exceeds 50 percent of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. We believe that we currently are not a USRPHC, and we do not anticipate becoming a USRPHC (although no assurance can be given that we will not become a USRPHC in the future). Information Reporting and Backup Withholding We generally must report annually to the IRS and to each holder the amount of dividends and certain other distributions we pay to such holder on our common stock and the amount of tax, if any, withheld with respect to those distributions. In the case of a non-U.S. holder, copies of the information returns reporting those distributions and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement. Information reporting is also generally required with respect to proceeds from the sales and other dispositions of our common stock to or through the U.S. office (and in certain cases, the foreign office) of a broker. In addition, backup withholding of U.S. federal income tax, currently at a rate of 28 percent, generally will apply to distributions made on our common stock to, and the proceeds from sales and other dispositions of our common stock by, a non-corporate U.S. holder who: o fails to provide an accurate taxpayer identification number; o is notified by the IRS that backup withholding is required; or o in certain circumstances, fails to comply with applicable certification requirements. A non-U.S. holder generally may eliminate the requirement for information reporting (other than with respect to distributions, as described above) and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. holder s or a non-U.S. holder s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances. MATERIAL PRC INCOME TAX CONSIDERATIONS The following discussion summarizes the material PRC income tax considerations relating to the ownership of our Common Stock following the consummation of this offering. Resident Enterprise Treatment On March 16, 2007, the Fifth Session of the Tenth National People s Congress passed the Enterprise Income Tax Law of the PRC ( EIT Law ), which became effective on January 1, 2008. Under the EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. Pursuant to the EIT Law and its implementing rules, enterprises established outside China whose de facto management bodies are located in China are considered resident enterprises and subject to the uniform 25% enterprise income tax rate on global income. According to the implementing rules of the EIT Law, de facto management body refers to a managing body that in practice exercises overall management control over the production and business, personnel, accounting and assets of an enterprise. The EIT Law and the interpretation of many of its provisions, including the definition of resident enterprise, are unclear. It is also uncertain how the PRC tax authorities would interpret and implement the EIT Law and its implementing rules. Our management is substantially based in the PRC and expected to be based in the PRC in the future, although two of our executive officers and one of our directors are not PRC nationals. It remains uncertain whether the PRC tax authorities would determine that we are a resident enterprise or a non-resident enterprise. Given the short history of the EIT Law and lack of applicable legal precedent, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a non-PRC company such as us. If the PRC tax authorities determine that we are a resident enterprise for PRC enterprise income tax purposes, a number of tax consequences could follow. First, we could be subject to the enterprise income tax at a rate of 25% on our global taxable income. Second, the EIT Law provides that dividend income between qualified resident enterprises is exempt from income tax. It is unclear whether the dividends we receive would constitute dividend income between qualified resident enterprises and would therefore qualify for tax exemption. As of the date of this prospectus, there has not been a definitive determination as to the resident enterprise or non-resident enterprise status of us. However, since it is not anticipated that we would receive dividends or generate other income in the near future, we are not expected to have any income that would be subject to the 25% enterprise income tax on global income in the near future. We will consult with the PRC tax authorities and make any necessary tax payment if we (based on future clarifying guidance issued by the PRC), or the PRC tax authorities, determine that we are a resident enterprise under the EIT Law, and if we were to have income in the future. Dividends From PRC Operating Companies If we are not treated as resident enterprises under the EIT Law, then dividends that we receive may be subject to PRC withholding tax. The EIT Law and the implementing rules of the EIT Law provide that (A) an income tax rate of 25% will normally be applicable to investors that are non-resident enterprises, or non-resident investors, which (i) have establishments or premises of business inside the PRC, and (ii) the income in connection with their establishment or premises of business is sourced from the PRC or the income is earned outside the PRC but has actual connection with their establishments or places of business inside the PRC, and (B) an income tax rate of 10% will normally be applicable to dividends payable to investors that are non-resident enterprises, or non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC. As described above, the PRC tax authorities may determine the resident enterprise status of entities organized under the laws of foreign jurisdictions, on a case-by-case basis. We are a holding company and substantially all of our income may be derived from dividends. Thus, if we are considered as a non-resident enterprise under the EIT Law and the dividends paid to us are considered income sourced within the PRC, such dividends received may be subject to the income tax described in the foregoing paragraph. As of the date of this prospectus, there has not been a definitive determination as to the resident enterprise or non-resident enterprise status of us. As indicated above, however, we are not expected to be paid any dividends in the near future. We will consult with the PRC tax authorities and make any necessary tax withholding if, in the future, we were to be paid any dividends and we (based on future clarifying guidance issued by the PRC), or the PRC tax authorities, determine that we are a non-resident enterprise under the EIT Law. Dividends that Non-PRC Resident Investors Receive From Us; Gain on the Sale or Transfer of Our Common Stock If dividends payable to (or gains recognized by) our non-resident investors are treated as income derived from sources within the PRC, then the dividends that non-resident investors receive from us and any such gain on the sale or transfer of our common stock, may be subject to taxes under PRC tax laws. Under the EIT Law and the implementing rules of the EIT Law, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are non-resident enterprises, or non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC but the relevant income is not effectively connected with the establishment or place of business, to the extent that such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of common stock by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. The dividends paid by us to non-resident investors with respect to our Common Stock, or gain non-resident investors may realize from sale or the transfer of our common stock, may be treated as PRC-sourced income and, as a result, may be subject to PRC tax at a rate of 10%. In such event, we also may be required to withhold a 10% PRC tax on any dividends paid to non-resident investors. In addition, non-resident investors in our common stock may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of our common stock after the consummation of the offering if such non-resident investors and the gain satisfy the requirements under the EIT Law and its implementing rules. However, under the EIT Law and its implementing rules, we would not have an obligation to withhold income tax in respect of the gains that non-resident investors (including U.S. investors) may realize from the sale or transfer of our common stock from and after the consummation of this offering. If we were to pay any dividends in the future, we would again consult with the PRC tax authorities and if we (based on future clarifying guidance issued by the PRC), or the PRC tax authorities, determine that we must withhold PRC tax on any dividends payable by us under the EIT Law, we will make any necessary tax withholding on dividends payable to our non-resident investors. If non-resident investors as described under the EIT Law (including U.S. investors) realized any gain from the sale or transfer of our common stock and if such gain were considered as PRC-sourced income, such non-resident investors would be responsible for paying 10% PRC income tax on the gain from the sale or transfer of our common stock. As indicated above, under the EIT Law and its implementing rules, we would not have an obligation to withhold PRC income tax in respect of the gains that non-resident investors (including U.S. investors) may realize from the sale or transfer of our common stock from and after the consummation of this offering. Penalties for Failure to Pay Applicable PRC Income Tax Non-resident investors in us may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of our common stock after the consummation of this offering if such non-resident investors and the gain satisfy the requirements under the EIT Law and its implementing rules, as described above. According to the EIT Law and its implementing rules, the PRC Tax Administration Law (the Tax Administration Law ) and its implementing rules, the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises (the Administration Measures ) and other applicable PRC laws or regulations (collectively the Tax Related Laws ), where any gain derived by non-resident investors from the sale or transfer of our common stock is subject to any income tax in the PRC, and such non-resident investors fail to file any tax return or pay tax in this regard pursuant to the Tax Related Laws, they may be subject to certain fines, penalties or punishments, including without limitation: (1) if a non-resident investor fails to file a tax return and present the relevant information in connection with tax payments, the competent tax authorities shall order it to do so within the prescribed time limit and may impose a fine up to RMB 2,000, and in egregious cases, may impose a fine ranging from RMB 2,000 to RMB 10,000; (2) if a non-resident investor fails to file a tax return or fails to pay all or part of the amount of tax payable, the non-resident investor shall be required to pay the unpaid tax amount payable, a surcharge on overdue tax payments (the daily surcharge is 0.05% of the overdue amount, beginning from the day the deferral begins), and a fine ranging from 50% to 500% of the unpaid amount of the tax payable; (3) if a non-resident investor fails to file a tax return or pay the tax within the prescribed time limit according to the order by the PRC tax authorities, the PRC tax authorities may collect and check information about the income items of the non-resident investor in the PRC and other payers (the Other Payers ) who will pay amounts to such non-resident investor, and send a Notice of Tax Issues to the Other Payers to collect and recover the tax payable and impose overdue fines on such non-resident investor from the amounts otherwise payable to such non-resident investor by the Other Payers; (4) if a non-resident investor fails to pay the tax payable within the prescribed time limit as ordered by the PRC tax authorities, a fine may be imposed on the non-resident investor ranging from 50% to 500% of the unpaid tax payable; and the PRC tax authorities may, upon approval by the director of the tax bureau (or sub-bureau) of, or higher than, the county level, take the following compulsory measures: (i) notify in writing the non-resident investor s bank or other financial institution to withhold from the account thereof for payment of the amount of tax payable, and (ii) detain, seal off, or sell by auction or on the market the non-resident investor s commodities, goods or other property in a value equivalent to the amount of tax payable; or (5) if the non-resident investor fails to pay all or part of the amount of tax payable or surcharge for overdue tax payment, and cannot provide a guarantee to the tax authorities, the tax authorities may notify the frontier authorities to prevent the non-resident investor or their legal representative from leaving the PRC. PLAN OF DISTRIBUTION The Selling Stockholders identified in this prospectus may offer and sell up to an aggregate of 5,390,422 shares of our Common Stock. The Selling Stockholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. The Selling Stockholders may sell all or a portion of the shares of Common Stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of Common Stock are sold through underwriters or broker-dealers, the Selling Stockholders will be responsible for underwriting discounts or commissions or agent s commissions. The shares of Common Stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions: on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; in the over-the-counter market; in transactions otherwise than on these exchanges or systems or in the over-the-counter market; through the writing of options, whether such options are listed on an options exchange or otherwise; ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; purchases by a broker-dealer as principal and resale by the broker-dealer for its account; an exchange distribution in accordance with the rules of the applicable exchange; privately negotiated transactions; short sales; sales pursuant to Rule 144; broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share; and a combination of any such methods of sale. If the Selling Stockholders effect such transactions by selling shares of Common Stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the Selling Stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The Selling Stockholders may also sell shares of Common Stock short and deliver shares of Common Stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The Selling Stockholders may also loan or pledge shares of Common Stock to broker-dealers that in turn may sell such shares. The Selling Stockholders and any broker-dealer participating in the distribution of the shares of Common Stock may be deemed to be underwriters within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares of Common Stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers. Under the securities laws of some states, the shares of Common Stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of Common Stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any Selling Stockholder will sell any or all of the shares of Common Stock registered pursuant to the shelf registration statement of which this prospectus is a part. The Selling Stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the Selling Stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of Common Stock and the ability of any person or entity to engage in market-making activities with respect to the shares of Common Stock. We have agreed to pay all expenses of the registration of the shares of common stock including, without limitation, Commission filing fees and expenses of compliance with state securities or blue sky laws; provided, however, that a Selling Stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the Selling Stockholders against liabilities, including some liabilities under the Securities Act, in accordance with our agreement to register the shares, or the Selling Stockholders will be entitled to contribution. We may be indemnified by the Selling Stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the Selling Stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements, or we may be entitled to contribution. Once sold under the registration statement of which this prospectus is a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates. LEGAL MATTERS The validity of the shares of Common Stock offered by this prospectus will be passed upon for us by Eaton & Van Winkle LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001443075_ishares_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001443075_ishares_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e3ded7c17c2f52c27d2b8fa5828f422a8808eb1
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001443075_ishares_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Shares has been passed upon for the Sponsor by Richards, Layton & Finger, P.A. Clifford Chance US LLP, as special United States tax counsel to the Sponsor, has provided an opinion regarding certain federal income tax matters relating to the Trust and the Shares.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001452751_nimble_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001452751_nimble_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d6d14c41b639574ffc91946ad1ac8eab2400bc4d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001452751_nimble_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, Mountain View, California. Certain legal matters relating to the offering will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001477598_omthera_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001477598_omthera_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5c1bdb4a72d015539f5a5a2c4f6d242dc1328ac7
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001477598_omthera_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts and for the underwriters by Latham & Watkins LLP.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001482080_cellular_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001482080_cellular_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ad9fc26a432c9926bb62020f5b0a2de9e8fe63d5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001482080_cellular_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters Godfrey & Kahn, S.C., Milwaukee, Wisconsin, will pass upon the validity of the shares of common stock offered hereby. Shareholders of Godfrey & Kahn, S.C. have a beneficial interest in 132,855 of our shares. Simpson Thacher & Bartlett LLP, New York, New York, will represent the underwriters.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001488501_metrospace_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001488501_metrospace_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a18b942cabdd489d4d25797911a327918f66a8b8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001488501_metrospace_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon by Barry J. Miller, Esq., of Farmington Hills, Michigan.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001495229_stream_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001495229_stream_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..01fcbf1715a0387c026f019fbf7890f88f4cef54
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001495229_stream_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Sidley Austin LLP has advised the Managing Owner in connection with the Shares being offered hereby. Sidley Austin LLP also advises the Managing Owner with respect to its responsibilities as managing owner of, and with respect to matters relating to, the Trust and the Fund. Sidley Austin LLP has prepared the sections Material U.S. Federal Income Tax Considerations with respect to U.S. federal income tax laws and Purchases By Employee Benefit Plans with respect to ERISA. Sidley Austin LLP has not represented, nor will it represent, the Trust, the Fund or the Shareholders in matters relating to the Trust or the Fund and no other counsel has been engaged to act on their behalf. Richards, Layton & Finger, P.A., special Delaware counsel to the Trust, has advised the Trust in connection with the legality of the Shares being offered hereby. Certain opinions of counsel have been filed with the SEC as exhibits to the Registration Statement of which this Prospectus is a part.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001496818_stealth_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001496818_stealth_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0f193866b5d543e78722bc8d7283245c9dd65032
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001496818_stealth_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The Law Office of Conrad C. Lysiak, P.S., 601 West First Avenue, Suite 903, Spokane, Washington 99201, telephone (509) 624-1475 has passed on the legality of the shares being sold in this public offering.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001499275_groovy_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001499275_groovy_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..84ccbb919b753f327ac30d2e32d1eb572cda0e1f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001499275_groovy_legal_matters.txt
@@ -0,0 +1,8750 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the common stock offered by this prospectus will be passed upon for us by Anslow + Jaclin, LLP, Manalapan, New Jersey.
+
+ 
+
+87
+
+ 
+
+ 
+
+EXPERTS
+
+ 
+
+The consolidated financial statements of our company included in this prospectus and in the registration statement as of July 31, 2012 and 2011, and for the years ended July 31, 2012 and 2011 and for the period from July 8, 2009 (inception) to July 31, 2012 have been audited by GBH CPAs, PC, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance on such report, given the authority of said firm as an expert in auditing and accounting.
+
+ 
+
+WHERE YOU CAN FIND MORE INFORMATION 
+
+ 
+
+We filed with the Securities and Exchange Commission a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, N.E. Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
+
+ 
+
+We file periodic reports under the Exchange Act, including annual, quarterly and special reports, and other information with the Securities and Exchange Commission. These periodic reports and other information are available for inspection and copying at the regional offices, public reference facilities and website of the Securities and Exchange Commission referred to above.
+
+ 
+
+Index To Consolidated Financial Statements
+
+ 
+
+ Our fiscal year end is July 31. We will provide audited financial statements to our stockholders on an annual basis; the statements will be audited by an independent registered public accounting firm. 
+
+ 
+
+ Our financial statements immediately follow: 
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+
+ 
+
+ 
+
+ 
+
+ INDEX
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+ 
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+ 
+
+ Audited Financial Statements
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+ 
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+ 
+
+ 
+
+ 
+ Report Of Independent Registered Public Accounting Firm
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+ 
+
+ F-1
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+ 
+
+ 
+
+ 
+
+ 
+ Balance Sheets
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+ 
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+ F-2
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+
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+ 
+ Statements of Operations
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+ 
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+ F-3
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+ 
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+ 
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+ 
+
+ 
+ Statement of Stockholders Equity (Deficit)
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+ 
+ Statements of Cash Flows
+
+ 
+
+ F-5
+
+ 
+
+ 
+ Notes To Financial Statements
+
+ 
+
+ F-6
+
+ 
+
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+ 
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+ 
+
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+
+ 
+
+ 
+
+ 
+
+ 
+
+ Unaudited Financial Statements
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+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ Balance Sheets
+
+ 
+
+ F-11
+
+ 
+
+ 
+
+ 
+
+ 
+ Statement of Operations
+
+ 
+
+ F-12
+
+ 
+
+ 
+
+ 
+
+ 
+ Statement of Cash Flows
+
+ 
+
+ F-13
+
+ 
+
+ 
+ Notes To Financial Statements
+
+ 
+
+ F-14
+
+ 
+
+88
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+ 
+
+To the Shareholders
+
+Santo Mining Corp.
+
+(formerly Santo Pita Corporation)
+
+(A Development Stage Company)
+
+Bella Vista, Santo Domingo, Dominican Republic
+
+ 
+
+We have audited the accompanying balance sheets of Santo Mining Corp. (the Company ) as of July 31, 2012 and 2011, and the related statements of operations, stockholders equity (deficit), and cash flows for the years ended July 31, 2012 and 2011, the period from July 8, 2009 (inception) to July 31, 2012. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits.
+
+ 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+
+ 
+
+In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of the Company as of July 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, and the period from July 8, 2009 (inception) to July 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
+
+ 
+
+The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has not generated revenues since inception and has an accumulated deficit. These factors raise substantial doubt about the Company s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
+
+ 
+
+/s/ GBH CPAs, PC
+
+ 
+
+GBH CPAs, PC
+
+www.gbhcpas.com
+
+Houston, Texas
+
+November 13, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-1
+
+89
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+
+ (A Development Stage Company)
+
+ BALANCE SHEETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ July 31,
+
+ 2012
+
+ 
+
+ 
+
+ 
+
+ July 31
+
+ 2011
+
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CURRENT ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Cash
+
+ 
+
+ $
+
+ 
+
+ 50,793
+
+ 
+
+ $
+
+ 
+
+ 2,187
+
+ 
+
+ Total Current Assets
+
+ 
+
+ 
+
+ 
+
+ 50,793
+
+ 
+
+ 
+
+ 
+
+ 2,187
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Mineral claim
+
+ 
+
+ 
+
+ 
+
+ 63,912
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ Website, net of amortization of $1,340 and $303, respectively
+
+ 
+
+ 
+
+ 
+
+ 3,540
+
+ 
+
+ 
+
+ 
+
+ 4,577
+
+ 
+
+ 
+
+ 
+
+ Deposit
+
+ 
+
+ 
+
+ 
+
+ 16,826
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+
+ $
+
+ 
+
+ 135,071
+
+ 
+
+ $
+
+ 
+
+ 6,764
+
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CURRENT LIABILITIES 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+
+ $
+
+ 
+
+ 46,172
+
+ 
+
+ $
+
+ 
+
+ 3,790
+
+ 
+
+ 
+
+ 
+
+ Related party payable
+
+ 
+
+ 
+
+ 
+
+ 79,696
+
+ 
+
+ 
+
+ 
+
+ 36,137
+
+ 
+
+ TOTAL LIABILITIES
+
+ 
+
+ 
+
+ 125,868
+
+ 
+
+ 
+
+ 
+
+ 39,927
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Preferred stock, 450,000,000 shares authorized, $0.00001 par value; 0 shares issued and outstanding
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Common stock, 450,000,000 shares authorized, $0.00001 par value; 63,635,340 and 62,962,505 shares issued and outstanding, respectively
+
+ 
+
+ 
+
+ 
+
+ 636
+
+ 
+
+ 
+
+ 
+
+ 630
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Additional paid-in capital
+
+ 
+
+ 
+
+ 
+
+ 290,123
+
+ 
+
+ 
+
+ 
+
+ 38,320
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Deficit accumulated during development stage
+
+ 
+
+ 
+
+ 
+
+ (281,556)
+
+ 
+
+ 
+
+ 
+
+ (72,113)
+
+ 
+
+ TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+
+ 
+
+ 9,203
+
+ 
+
+ 
+
+ 
+
+ (33,163)
+
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ $
+
+ 
+
+ 135,071
+
+ 
+
+ $
+
+ 
+
+ 6,764
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these financial statements.
+F-2 
+
+ 
+
+90
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+
+ (A Development Stage Company)
+
+ STATEMENTS OF OPERATIONS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Year Ended
+
+ July 31, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Year Ended
+
+ July 31, 2011
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Period from
+
+ July 8, 2009 (Inception) to
+
+ July 31, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ OPERATING EXPENSES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Consulting fees
+
+ 
+
+ $
+
+ 
+
+ 92,422
+
+ 
+
+ $
+
+ 
+
+ 18,589
+
+ 
+
+ $
+
+ 
+
+ 111,011
+
+ 
+
+ 
+
+ 
+
+ Executive compensation
+
+ 
+
+ 
+
+ 
+
+ 7,327
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 7,327
+
+ 
+
+ 
+
+ 
+
+ General and administrative
+
+ 
+
+ 
+
+ 
+
+ 16,877
+
+ 
+
+ 
+
+ 
+
+ 14,584 
+
+ 
+
+ 
+
+ 
+
+ 33,431 
+
+ 
+
+ 
+
+ 
+
+ Transfer agent fees
+
+ 
+
+ 
+
+ 
+
+ 4,804
+
+ 
+
+ 
+
+ 
+
+ 8,515
+
+ 
+
+ 
+
+ 
+
+ 13,319
+
+ 
+
+ 
+
+ 
+
+ Legal and accounting fees
+
+ 
+
+ 
+
+ 
+
+ 87,995 
+
+ 
+
+ 
+
+ 
+
+ 28,304
+
+ 
+
+ 
+
+ 
+
+ 116,299
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+
+ 
+
+ 
+
+ 209,425 
+
+ 
+
+ 
+
+ 
+
+ 69,992
+
+ 
+
+ 
+
+ 
+
+ 281,387
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Other income (expense):
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Foreign currency transaction gain (loss)
+
+ 
+
+ 
+
+ 
+
+ (18)
+
+ 
+
+ 
+
+ 
+
+ 10
+
+ 
+
+ 
+
+ 
+
+ (173) 
+
+ 
+
+ 
+
+ 
+
+ Interest income
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 4
+
+ 
+
+ 
+
+ 
+
+ 4
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Total other income (expense)
+
+ 
+
+ 
+
+ 
+
+ (18) 
+
+ 
+
+ 
+
+ 
+
+ 14 
+
+ 
+
+ 
+
+ 
+
+ (169) 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ $
+
+ 
+
+ (209,443)
+
+ 
+
+ $
+
+ 
+
+ (69,978)
+
+ 
+
+ $
+
+ 
+
+ (281,556)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Basic and diluted loss per common share
+
+ 
+
+ $
+
+ 
+
+ (0.00)
+
+ 
+
+ $
+
+ 
+
+ (0.00)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Basic and diluted weighted average number 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ of common shares outstanding
+
+ 
+
+ 
+
+ 
+
+ 63,105,091
+
+ 
+
+ 
+
+ 
+
+ 62,962,505
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these financial statements.
+F-3
+
+ 
+
+91
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+
+ (A Development Stage Company)
+
+ STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
+
+ For the period from July 8, 2009 (inception) to July 31, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Common Stock
+
+ 
+
+ 
+
+ Additional
+
+ Paid-In
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Deficit Accumulated
+
+ During Development
+
+ 
+
+ 
+
+ Total
+
+ Stockholders'
+
+ 
+
+ 
+
+ 
+
+ Shares 
+
+ 
+
+ Amount 
+
+ 
+
+ Capital 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Stage
+
+ 
+
+ Deficit
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Balances, July 8, 2009 (inception)
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Balances, July 31, 2009
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for cash on
+
+ July 30, 2010
+
+ 
+
+ 
+37,500,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 375
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+4,625
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+-
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 5,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for cash on
+
+ July 31, 2010
+
+ 
+
+ 
+
+ 25,462,505
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 255
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 33,695
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 33,950
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (2,135)
+
+ 
+
+ 
+
+ 
+
+ (2,135)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Balances, July 31, 2010
+
+ 
+
+ 62,962,505
+
+ 
+
+ 
+
+ 
+
+ 630
+
+ 
+
+ 
+
+ 
+
+ 38,320
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (2,135)
+
+ 
+
+ 
+
+ 
+
+ 36,815
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (69,978)
+
+ 
+
+ 
+
+ 
+
+ (69,978)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Balances, July 31, 2011
+
+ 
+
+ 62,962,505
+
+ 
+
+ 
+
+ 
+
+ 630
+
+ 
+
+ 
+
+ 
+
+ 38,320
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (72,113)
+
+ 
+
+ 
+
+ 
+
+ (33,163)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for cash on
+
+ March 2, 2012
+
+ 
+
+ 337,500
+
+ 
+
+ 
+
+ 
+
+ 3
+
+ 
+
+ 
+
+ 
+
+ 149,997
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 150,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for cash on
+
+ on July 19, 2012
+
+ 
+
+ 102,000
+
+ 
+
+ 
+
+ 
+
+ 1
+
+ 
+
+ 
+
+ 
+
+ 50,999
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 51,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Share issued for services
+
+ 
+
+ 233,335
+
+ 
+
+ 
+
+ 
+
+ 2
+
+ 
+
+ 
+
+ 
+
+ 46,665
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 46,667
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares transferred between related parties for mineral claim
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 4,142
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 4,142
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (209,443)
+
+ 
+
+ 
+
+ 
+
+ (209,443)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Balances, July 31, 2012
+
+ 
+
+ 63,635,340
+
+ 
+
+ $
+
+ 
+
+ 636
+
+ 
+
+ $
+
+ 
+
+ 290,123
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ (281,556)
+
+ 
+
+ $
+
+ 
+
+ 9,203
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these financial statements.
+F-4
+
+ 
+
+92
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+(A Development Stage Company)
+STATEMENTS OF CASH FLOWS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Year Ended
+
+ July 31,
+
+ 2012
+
+ 
+
+ 
+
+ 
+
+ Year Ended
+
+ July 31,
+
+ 2011
+
+ 
+
+ 
+
+ 
+
+ Period from
+
+ July 8, 2009
+
+ (Inception) to
+
+ July 31, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ $
+
+ 
+
+ (209,443)
+
+ 
+
+ $
+
+ 
+
+ (69,978)
+
+ 
+
+ $
+
+ 
+
+ (281,556)
+
+ 
+
+ 
+
+ 
+
+ Adjustments to reconcile net loss to net cash used in operating activities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Amortization expense
+
+ 
+
+ 
+
+ 
+
+ 1,037
+
+ 
+
+ 
+
+ 
+
+ 303
+
+ 
+
+ 
+
+ 
+
+ 1,340
+
+ 
+
+ 
+
+ 
+
+ Share-based compensation
+
+ 
+
+ 
+
+ 
+
+ 46,667
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 46,667
+
+ 
+
+ 
+
+ 
+
+ Changes in operating assets and liabilities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+
+ 
+
+ 
+
+ 42,382
+
+ 
+
+ 
+
+ 
+
+ 3,790
+
+ 
+
+ 
+
+ 
+
+ 46,172
+
+ 
+
+ 
+
+ 
+
+ Prepaid expense and deposit
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 15,720
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ Net cash used in operating activities
+
+ 
+
+ 
+
+ 
+
+ (119,357)
+
+ 
+
+ 
+
+ 
+
+ (50,165)
+
+ 
+
+ 
+
+ 
+
+ (187,377)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Payment of deposit on mineral claim
+
+ 
+
+ 
+
+ 
+
+ (16,826)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (16,826)
+
+ 
+
+ 
+
+ 
+
+ Purchase of mineral claim 
+
+ 
+
+ 
+
+ 
+
+ (59,770)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (59,770)
+
+ 
+
+ 
+
+ 
+
+ Payments for website
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (4,880)
+
+ 
+
+ 
+
+ 
+
+ (4,880)
+
+ 
+
+ Net cash used in investing activities
+
+ 
+
+ 
+
+ 
+
+ (76,596)
+
+ 
+
+ 
+
+ 
+
+ (4,880)
+
+ 
+
+ 
+
+ 
+
+ (81,476)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Proceeds from sale of stock
+
+ 
+
+ 
+
+ 
+
+ 201,000
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 239,950
+
+ 
+
+ 
+
+ 
+
+ Proceeds from related party payable
+
+ 
+
+ 
+
+ 
+
+ 43,559
+
+ 
+
+ 
+
+ 
+
+ 34,500
+
+ 
+
+ 
+
+ 
+
+ 79,696
+
+ 
+
+ Net cash provided by financing activities
+
+ 
+
+ 
+
+ 
+
+ 244,559
+
+ 
+
+ 
+
+ 
+
+ 34,500
+
+ 
+
+ 
+
+ 
+
+ 319,646
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net change in cash
+
+ 
+
+ 
+
+ 
+
+ 48,606
+
+ 
+
+ 
+
+ 
+
+ (20,545)
+
+ 
+
+ 
+
+ 
+
+ 50,793
+
+ 
+
+ Cash and cash equivalents, beginning of period
+
+ 
+
+ 
+
+ 
+
+ 2,187
+
+ 
+
+ 
+
+ 
+
+ 22,732
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Cash and cash equivalents, end of period
+
+ 
+
+ $
+
+ 
+
+ 50,793
+
+ 
+
+ $
+
+ 
+
+ 2,187
+
+ 
+
+ $
+
+ 
+
+ 50,793
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL CASH FLOW DISCLOSURES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Interest paid
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 4
+
+ 
+
+ $
+
+ 
+
+ 4
+
+ 
+
+ 
+
+ 
+
+ Income tax paid
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ - 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ NONCASH INVESTING AND FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares transferred between related parties for mineral claim
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ 4,142
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ 4,142
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these financial statements.
+F-5
+
+ 
+
+93
+
+ 
+
+ 
+
+SANTO MINING CORP.
+(A Development Stage Company)
+NOTES TO FINANCIAL STATEMENTS
+
+ 
+
+NOTE 1. - DESCRIPTION OF BUSINESS
+
+ 
+
+Santo Mining Corp. (formerly Santo Pita Corporation) (referred to as we, the Company or Santo Mining ) was incorporated in the State of Nevada on July 8, 2009.
+
+ 
+
+The Company s original business operations were divided into two segments: 1) through an informative and interactive website, where both dentists and patients can access dental information and have online consultations; and 2) mobile teeth whitening service.
+
+ 
+
+In 2012, the Company s management decided to redirect the Company s business focus towards identifying and pursuing options regarding the acquisition of mineral exploration property with the focus on gold and other precious metals in north western Dominican Republic.
+
+ 
+
+On July 30, 2012, the Company entered into a mineral property acquisition agreement (the "Acquisition Agreement") with GEXPLO, SRL (the "Vendor") and Rosa Habeila Feliz Ruiz, an officer and director of the Company, whereby the Company agreed to acquire from the Vendor an undivided one hundred percent (100%) interest in and to a mineral claim known as Alexia, which is located in the province of Dajabon, in the municipalities of Dajabon and Partido, specifically in the sections Chaucey, La Gorra and Partido Arriba, covering Los Indios, Pueblo Nuevo, Hatico Viejo, El Junco, La Gallina, Tahuique and Charo located in the Dajabon 5874-I (11) and Loma de Cabrera 5874-II (19) topographical sheets. Pursuant to the terms of the Acquisition Agreement, in consideration of an undivided 100% interest in and to the Alexia Claim, the Vendor will receive 6,456,600 shares of the Company s common stock transferred from Ms. Ruiz and the cancellation of the promissory note for $59,770 from the Company to the Vendor dated May 31, 2012.
+
+ 
+
+After the Company completed its acquisition of Alexia, the Company began to operate in the mining business.
+
+ 
+
+NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+The summary of significant accounting policies presented below is designed to assist in understanding Santo Mining s financial statements. Such financial statements and accompanying notes are the representations of the Company s management, which is responsible for the integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America ( U.S. GAAP ) in all material respects and have been consistently applied in preparing the accompanying financial statements.
+
+ 
+
+Use of Estimates
+
+ 
+
+The Company prepares its financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
+
+ 
+
+Foreign Currency Adjustments Functional Currency is the U.S. Dollar
+
+ 
+
+The Company's functional currency for all operations worldwide is the U.S. dollar. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Income statement accounts are translated at average rates for the year. Any translation adjustments are reflected as a separate component of stockholders equity and have no effect on current earnings. Gains and losses resulting from foreign currency transactions are included in current results of operations. Aggregate foreign currency transaction gains and losses included in operations totaled a loss of $18 in 2012 and a gain of $10 in 2011.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ F-6 
+
+94
+
+ 
+
+ 
+
+NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
+
+ 
+
+Stock Split
+
+ 
+
+On March 26, 2012, we effected a 1-for-4.5 forward stock split of our common stock. On July 9, 2012, we effected a 4-for-1 reverse stock split of our common stock. All share and per share amounts have been restated retroactively for the impact of the splits.
+
+ 
+
+Reclassifications
+
+ 
+
+Certain amounts have been reclassified to conform to the current period presentation.
+
+ 
+
+Cash and Cash Equivalents 
+
+ 
+
+Santo Mining considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
+
+ 
+
+Mineral Exploration and Development Costs
+
+ 
+
+All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines or to develop mine areas substantially in advance of production are also capitalized once proven and probable reserves exist, and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects, including related property and equipment costs, are charged to mining costs. To determine if these costs are in excess of their recoverable amount, periodic evaluations of the carrying value of capitalized costs and any related property and equipment costs are performed. These evaluations are based upon expected future cash flows and/or estimated salvage value. And no impairment charges have been recorded by the Company. As of July 31, 2012, the Company capitalized $63,912 of mineral claim acquisition costs.
+
+ 
+
+Website
+
+ 
+
+Website is carried at cost, with amortization provided on a straight-line basis over its estimated useful lives of five years. During the years ended July 31, 2012, 2011 and the period from July 8, 2009 (Inception) through July 31, 2012, the Company recorded amortization expense of $1,037, $303 and $1,340, respectively.
+
+ 
+
+Income Taxes
+
+ 
+
+Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company computes a deferred tax asset for net operating losses carried forward. The potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
+
+ 
+
+Fair Values of Financial Instruments
+
+ 
+
+Management believes that the carrying amounts of the Company s financial instruments, consisting primarily of cash and accounts payable, approximated their fair values as of July 31, 2012 and 2011, due to their short-term nature.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-7
+
+95
+
+ 
+
+ 
+
+NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
+
+ 
+
+Stock-based Compensation
+
+ 
+
+The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual for feature rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
+
+ 
+
+Basic and Diluted Earnings (Loss) Per Common Share
+
+ 
+
+The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an as converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For all periods presented, there were no potentially dilutive securities outstanding.
+
+ 
+
+Subsequent Events
+
+ 
+
+The Company evaluated events subsequent to July 31, 2012 through the date the financial statements were issued for disclosure considerations.
+
+ 
+
+Recently Issued Accounting Pronouncements
+
+ 
+
+The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.
+
+ 
+
+NOTE 3. - GOING CONCERN
+
+ 
+
+These financial statements have been prepared on a going concern basis, which implies Santo Mining will continue to meet its obligations and continue its operations for the next fiscal year. As of July 31, 2012, Santo Mining has not generated revenues, has working capital deficit and has accumulated losses of $281,556 since inception. These factors raise substantial doubt regarding Santo Mining s ability to continue as a going concern. The continuation of Santo Mining as a going concern is dependent upon financial support from its stockholders, the ability of Santo Mining to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should Santo Mining be unable to continue as a going concern.
+
+ 
+
+NOTE 4. - EQUITY TRANSACTIONS
+
+ 
+
+The Company s authorized capital stock consists of: 450,000,000 shares of common stock with a $0.00001 par value and 450,000,000 shares of preferred stock with a $0.00001 par value. As of July 31, 2012, the Company has not issued any preferred shares.
+
+ 
+
+On July 30, 2010, the Company sold 37,500,000 shares of common stock to the Company s officer and director, Ms. Rosa Habeila Feliz Ruiz for $5,000.
+
+ 
+
+On July 31, 2010, the Company sold 25,462,505 shares of common stock for $33,950.
+
+ 
+
+On March 2, 2012, the Company sold 337,500 shares of common stock for $150,000 in a private placement transaction. These shares were issued pursuant to Regulation S of the Exchange Act of 1933.
+
+ 
+
+F-8
+
+ 
+
+96
+
+ 
+
+ 
+
+NOTE 4. - EQUITY TRANSACTIONS (continued)
+
+ 
+
+On July 19, 2012, the Company sold 102,000 shares of common stock for $51,000 in a private placement transaction. These shares were sold pursuant to Regulation S of the Exchange Act of 1933.
+
+ 
+
+During the year ended July 31, 2012, the Company agreed to issue 233,335 shares of common stock to a third party vendor for services. These shares were valued and recorded at their fair value of $46,667.
+
+ 
+
+NOTE 5. - RELATED PARTY TRANSACTIONS
+
+ 
+
+As of July 31, 2012 and 2011, the Company had payable of $79,696 and $36,137, respectively, to Ms. Ruiz for the advances she made to the Company to cover incorporation costs of the Company and ongoing legal and accounting fees related to the Company s SEC reporting obligations. These advances bear no interest, are unsecured and are due on demand.
+
+ 
+
+On May 31, 2012, the Company entered into a promissory note with GEXPLO, SRL, a company owned by the Company s then corporate secretary, Mr. Alain French. The total amount loaned was $59,770 as of May 31, 2012 for exploration expenses that the Company paid on GEXPLO s behalf for Alexia Claim which was acquired by the Company in July 2012. The loan is non-interest bearing and matures on December 31, 2012. The loan was cancelled by the Company as consideration in the Acquisition Agreement, on July 30, 2012.
+
+ 
+
+On July 30, 2012, under the Acquisition Agreement, Ms. Rosa agreed to transfer 6,456,600 shares of the Company s common stock she owned to GEXPLO, a company owned by Mr. Alain French, the Company s new President, Chief Executive Officer and Director, for a mineral right previously owned by GEXPLO. The Company recorded $4,142 for the mineral right and the same amount in paid-in capital for the shares transferred as the result of this related party transaction.
+
+ 
+
+NOTE 6. - INCOME TAXES
+
+ 
+
+Santo Mining uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Since inception, Santo Mining incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is $281,556 at July 31, 2012, and will begin to expire in the year 2029. The net operating loss carry-forward amount is subject to IRS Section 382 limitation as the result of shares transferred by our officer in July 2012, described in Note 1.
+
+ 
+
+At July 31, 2012, deferred tax assets consisted of the following:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 2012
+
+ 
+
+ 
+
+ 
+
+ 2011
+
+ 
+
+ 
+
+ 
+
+ Deferred tax asset (net operating loss carry-forward)
+
+ 
+
+ $ 
+
+ 
+
+ 95,729
+
+ 
+
+ $ 
+
+ 
+
+ 24,954
+
+ 
+
+ 
+
+ 
+
+ Less: valuation allowance
+
+ 
+
+ 
+
+ 
+
+ (95,729)
+
+ 
+
+ 
+
+ 
+
+ (24,954) 
+
+ 
+
+ 
+
+ 
+
+ Deferred tax asset, net
+
+ 
+
+ $ 
+
+ 
+
+ -
+
+ 
+
+ $ 
+
+ 
+
+ - 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-9
+
+ 
+
+97
+
+ 
+
+ 
+
+NOTE 7. - SUBSEQUENT EVENTS
+
+ 
+
+In September 2012, 116,665 shares were issued to a third party vendor for services. These shares were valued at $23,333.
+
+ 
+
+On September 17, 2012, the Company sold 600,000 shares of common stock for $300,000.
+
+ 
+
+On September 17, 2012, the Company exercised its right of first refusal to purchase two additional mineral properties, Walter (the Walter Claim ) and Maria (the Maria Claim ), from GEXPLO pursuant to the Acquisition Agreement . In exchange for the Walter Claim and the Maria Claim, Rosa Habeila Feliz Ruiz transferred 13,181,460 of her shares of the Company s common stock to the Vendor.
+
+ 
+
+On October 12, 2012, the Company amended the Acquisition Agreement (the Amendment ) with GEXPLO and Rosa Habeila Feliz Ruiz. Pursuant to the Amendment, the Company would no longer have right of first refusal to purchase the Shalee and Daniel claims and instead would have right of first refusal to purchase the Henry, Francesca, Eliza, and Nathaniel claims.
+
+ 
+
+On October 12, 2012, the Company exercised its right of first refusal to purchase four additional mineral properties, Henry (the Henry Claim ), Francesca (the Francesca Claim ), Eliza (the Eliza Claim ) and Nathaniel (the Nathaniel Claim ), from the Vendor pursuant to the Acquisition Agreement. In exchange for the Claims, Rosa Habeila Feliz Ruiz transferred 12,644,943 of her shares of the Company s common stock to the Vendor.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-10
+
+ 
+
+98
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ BALANCE SHEETS
+
+ (Unaudited)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ April 30,
+
+ 2013
+
+ 
+
+ 
+
+ 
+
+ July 31,
+
+ 2012
+
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CURRENT ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Cash
+
+ 
+
+ $
+
+ 
+
+ 45,293
+
+ 
+
+ $
+
+ 
+
+ 50,793
+
+ 
+
+ Prepaid expense
+
+ 
+
+ 
+
+ 
+
+ 103,500
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ Total Current Assets
+
+ 
+
+ 
+
+ 
+
+ 148,793
+
+ 
+
+ 
+
+ 
+
+ 50,793
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Mineral claims
+
+ 
+
+ 
+
+ 
+
+ 579,315
+
+ 
+
+ 
+
+ 
+
+ 63,912
+
+ 
+
+ 
+
+ 
+
+ Website, net of amortization of $1,745 and $1,340, respectively
+
+ 
+
+ 
+
+ 
+
+ 3,345
+
+ 
+
+ 
+
+ 
+
+ 3,540
+
+ 
+
+ 
+
+ 
+
+ Deposits
+
+ 
+
+ 
+
+ 
+
+ 106,247
+
+ 
+
+ 
+
+ 
+
+ 16,826
+
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+
+ $
+
+ 
+
+ 837,700
+
+ 
+
+ $
+
+ 
+
+ 135,071
+
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND STOCKHOLDERS' EQUITY
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CURRENT LIABILITIES 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+
+ $
+
+ 
+
+ 124,395
+
+ 
+
+ $
+
+ 
+
+ 46,172
+
+ 
+
+ 
+
+ 
+
+ Related party payable
+
+ 
+
+ 
+
+ 
+
+ 149,696
+
+ 
+
+ 
+
+ 
+
+ 79,696
+
+ 
+
+ 
+
+ 
+
+ Convertible note payable
+
+ 
+
+ 
+
+ 
+
+ 46,277
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ Derivative liability
+
+ 
+
+ 
+
+ 
+
+ 6,890
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ TOTAL LIABILITIES
+
+ 
+
+ 
+
+ 
+
+ 327,258
+
+ 
+
+ 
+
+ 
+
+ 125,868
+
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ STOCKHOLDERS' EQUITY
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Preferred stock, 450,000,000 shares authorized, $0.00001 par value; none issued and outstanding
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Common stock, 450,000,000 shares authorized, $0.00001 par value; 69,431,269 and 63,635,340 shares issued and outstanding, respectively
+
+ 
+
+ 
+
+ 
+
+ 694
+
+ 
+
+ 
+
+ 
+
+ 636
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Additional paid-in capital
+
+ 
+
+ 
+
+ 
+
+ 1,349,951
+
+ 
+
+ 
+
+ 
+
+ 290,123
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Deficit accumulated during the development stage
+
+ 
+
+ 
+
+ 
+
+ (840,203)
+
+ 
+
+ 
+
+ 
+
+ (281,556)
+
+ 
+
+ TOTAL STOCKHOLDERS' EQUITY
+
+ 
+
+ 
+
+ 
+
+ 510,442
+
+ 
+
+ 
+
+ 
+
+ 9,203
+
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
+
+ 
+
+ $
+
+ 
+
+ 837,700
+
+ 
+
+ $
+
+ 
+
+ 135,071
+
+ 
+
+ 
+
+ 
+
+ 
+
+See accompanying notes to unaudited financial statements.
+F-11
+
+ 
+
+99
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+
+ (A Development Stage Company)
+
+ STATEMENTS OF OPERATIONS
+
+ (Unaudited)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Three Months Ended
+April 30,
+
+ 
+
+ 
+
+ 
+
+ Nine Months Ended
+
+ April 30,
+
+ 
+
+ 
+
+ 
+
+ From
+
+ July 8, 2009 (Inception)
+
+ to April 30,
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 2013
+
+ 
+
+ 
+
+ 
+
+ 2012
+
+ 
+
+ 
+
+ 
+
+ 2013
+
+ 
+
+ 
+
+ 
+
+ 2012
+
+ 
+
+ 
+
+ 
+
+ 2013
+
+ 
+
+ OPERATING EXPENSES 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Consulting fees
+
+ 
+
+ $
+
+ 
+
+ 166,511
+
+ 
+
+ $
+
+ 
+
+ 2,310
+
+ 
+
+ $
+
+ 
+
+ 310,239
+
+ 
+
+ $
+
+ 
+
+ 8,950
+
+ 
+
+ $
+
+ 
+
+ 421,250
+
+ 
+
+ General and administrative 
+
+ 
+
+ 
+
+ 
+
+ 55,276
+
+ 
+
+ 
+
+ 
+
+ 5,867
+
+ 
+
+ 
+
+ 
+
+ 147,984
+
+ 
+
+ 
+
+ 
+
+ 25,008
+
+ 
+
+ 
+
+ 
+
+ 202,061
+
+ 
+
+ Legal and accounting fees
+
+ 
+
+ 
+
+ 
+
+ 54,476
+
+ 
+
+ 
+
+ 
+
+ 16,331
+
+ 
+
+ 
+
+ 
+
+ 100,257
+
+ 
+
+ 
+
+ 
+
+ 41,875
+
+ 
+
+ 
+
+ 
+
+ 216,556
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+
+ 
+
+ 
+
+ 276,263
+
+ 
+
+ 
+
+ 
+
+ 24,508
+
+ 
+
+ 
+
+ 
+
+ 558,480
+
+ 
+
+ 
+
+ 
+
+ 75,833
+
+ 
+
+ 
+
+ 
+
+ 839,867
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ OTHER INCOME (EXPENSES)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Foreign currency transaction loss
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (16)
+
+ 
+
+ 
+
+ 
+
+ (173)
+
+ 
+
+ Change in fair value of derivative liability
+
+ 
+
+ 
+
+ 
+
+ 212
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 212
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 212
+
+ 
+
+ Interest expense
+
+ 
+
+ 
+
+ 
+
+ (379)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (379)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (375)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Total other expenses
+
+ 
+
+ 
+
+ 
+
+ (167)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (167)
+
+ 
+
+ 
+
+ 
+
+ (16)
+
+ 
+
+ 
+
+ 
+
+ (336)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss 
+
+ 
+
+ $
+
+ 
+
+ (276,430)
+
+ 
+
+ $
+
+ 
+
+ (24,508)
+
+ 
+
+ $
+
+ 
+
+ (558,647)
+
+ 
+
+ $
+
+ 
+
+ (75,849)
+
+ 
+
+ $
+
+ 
+
+ (840,203)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Basic and diluted loss per common share 
+
+ 
+
+ $
+
+ 
+
+ (0.00)
+
+ 
+
+ $
+
+ 
+
+ (0.00)
+
+ 
+
+ $
+
+ 
+
+ (0.01)
+
+ 
+
+ $
+
+ 
+
+ (0.00)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Basic and diluted weighted average 
+
+ number of common shares outstanding 
+
+ 
+
+ 
+
+ 
+
+ 66,251,271
+
+ 
+
+ 
+
+ 
+
+ 63,185,026
+
+ 
+
+ 
+
+ 
+
+ 64,823,026
+
+ 
+
+ 
+
+ 
+
+ 63,036,135
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+See accompanying notes to unaudited financial statements.
+F-12
+
+100
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SANTO MINING CORP.
+(A Development Stage Company)
+STATEMENTS OF CASH FLOWS
+
+ (Unaudited)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Nine Months
+
+ Ended
+
+ April 30, 2013
+
+ 
+
+ 
+
+ 
+
+ Nine Months
+
+ Ended
+
+ April 30, 2012
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ From
+
+ July 8, 2009
+
+ (Inception) to
+
+ April 30, 2013
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+
+ $
+
+ 
+
+ (558,647)
+
+ 
+
+ $
+
+ 
+
+ (75,849)
+
+ 
+
+ $
+
+ 
+
+ (840,203)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Adjustments to reconcile net loss to net cash used in operating activities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Amortization expense
+
+ 
+
+ 
+
+ 
+
+ 405
+
+ 
+
+ 
+
+ 
+
+ 794
+
+ 
+
+ 
+
+ 
+
+ 1,745
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Share-based compensation
+
+ 
+
+ 
+
+ 
+
+ 167,132
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 213,799
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Amortization of debt discount
+
+ 
+
+ 
+
+ 
+
+ 379
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 379
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Change in fair value of derivative liability
+
+ 
+
+ 
+
+ 
+
+ (212)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (212)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Changes in operating assets and liabilities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Accounts payable and accrued expenses
+
+ 
+
+ 
+
+ 
+
+ 78,223
+
+ 
+
+ 
+
+ 
+
+ 2,266
+
+ 
+
+ 
+
+ 
+
+ 124,395
+
+ 
+
+ 
+
+ Net cash used in operating activities
+
+ 
+
+ 
+
+ 
+
+ (312,720)
+
+ 
+
+ 
+
+ 
+
+ (72,789)
+
+ 
+
+ 
+
+ 
+
+ (500,097)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Payment of deposits on mineral claims
+
+ 
+
+ 
+
+ 
+
+ (106,247)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (106,247)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Loan to related party
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (42,537)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Purchase of mineral claims
+
+ 
+
+ 
+
+ 
+
+ (29,523)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (106,119)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Payments for website
+
+ 
+
+ 
+
+ 
+
+ (210)
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ (5,090)
+
+ 
+
+ 
+
+ Net cash used in investing activities
+
+ 
+
+ 
+
+ 
+
+ (135,980)
+
+ 
+
+ 
+
+ 
+
+ (42,537)
+
+ 
+
+ 
+
+ 
+
+ (217,456)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Proceeds from sale of common stock
+
+ 
+
+ 
+
+ 
+
+ 390,200
+
+ 
+
+ 
+
+ 
+
+ 150,000
+
+ 
+
+ 
+
+ 
+
+ 630,150
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Proceeds from issuance of convertible note
+
+ 
+
+ 
+
+ 
+
+ 53,000
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 53,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Proceeds from related party payable
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 43,744
+
+ 
+
+ 
+
+ 
+
+ 79,696
+
+ 
+
+ 
+
+ Net cash provided by financing activities
+
+ 
+
+ 
+
+ 
+
+ 443,200
+
+ 
+
+ 
+
+ 
+
+ 193,744
+
+ 
+
+ 
+
+ 
+
+ 762,846
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Net change in cash
+
+ 
+
+ 
+
+ 
+
+ (5,500)
+
+ 
+
+ 
+
+ 
+
+ 78,418
+
+ 
+
+ 
+
+ 
+
+ 45,293
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Cash, beginning of period
+
+ 
+
+ 
+
+ 
+
+ 50,793
+
+ 
+
+ 
+
+ 
+
+ 2,187
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Cash, end of period 
+
+ 
+
+ $
+
+ 
+
+ 45,293
+
+ 
+
+ $
+
+ 
+
+ 80,605
+
+ 
+
+ $
+
+ 
+
+ 45,293
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL CASH FLOWS DISCLOSURES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Interest paid
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 4
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Income taxes paid
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ NONCASH INVESTING AND FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares transferred between related parties for mineral claims
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ 6,654
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 
+
+ 10,796
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Fair value of derivative liability
+
+ 
+
+ $
+
+ 
+
+ 7,102
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 7,102
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Liability accrued for purchase of mineral claims
+
+ 
+
+ $
+
+ 
+
+ 70,000
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 70,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for purchase of mineral claims
+
+ 
+
+ $
+
+ 
+
+ 392,400
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 392,400
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Shares issued for prepaid expenses
+
+ 
+
+ $
+
+ 
+
+ 103,500
+
+ 
+
+ $
+
+ 
+
+ -
+
+ 
+
+ $
+
+ 
+
+ 103,500
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+See accompanying notes to unaudited financial statements.
+
+F-13
+
+ 
+
+101
+
+ 
+
+ 
+
+SANTO MINING CORP.
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+(Unaudited)
+
+ 
+
+NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
+
+ 
+
+The accompanying unaudited interim financial statements of Santo Mining Corp. ( Santo Mining or the Company ) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ( SEC ), and should be read in conjunction with the audited financial statements and notes thereto contained in Santo Mining s Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2012. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2012 as reported in the Form 10-K have been omitted.
+
+ 
+
+Fair Value Measurement
+
+ 
+
+The Company values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
+
+ 
+
+As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
+
+ 
+
+The three levels of the fair value hierarchy defined by ASC 820 are as follows:
+
+ 
+
+Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
+
+ 
+
+Level 2 Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.
+
+ 
+
+Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management s best estimate of fair value. The Company uses Level 3 to value its derivative instruments.
+
+ 
+
+The following table sets forth by level with the fair value hierarchy the Company s financial assets and liabilities measured at fair value on April 30, 2013.
+
+ 
+
+ 
+
+ 
+
+ Level 1
+
+ 
+
+ 
+
+ Level 2
+
+ 
+
+ 
+
+ Level 3
+
+ 
+
+ 
+
+ Total
+
+ 
+
+ Liabilities
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Derivative liabilities
+
+ 
+
+ $ - 
+
+ 
+
+ 
+
+ $ - 
+
+ 
+
+ 
+
+ $ 6,890
+
+ 
+
+ 
+
+ $ 6,890
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-14
+
+ 
+
+102
+
+ 
+
+ 
+
+NOTE 2. GOING CONCERN
+
+ 
+
+These financial statements have been prepared on a going concern basis, which implies Santo Mining will continue to meet its obligations and continue its operations for the next fiscal year. As of April 30, 2013, Santo Mining has not generated revenues and has accumulated losses of $840,203 since inception. Santo mining has not commenced operations. These factors raise substantial doubt regarding Santo Mining s ability to continue as a going concern. The continuation of Santo Mining as a going concern is dependent upon financial support from its stockholders, the ability of Santo Mining to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should Santo Mining be unable to continue as a going concern.
+
+ 
+
+The Company intends to continue seeking and investigating potentially revenue producing projects through its mining operations. No assurances can be given as to the likelihood of it obtaining any revenue producing projects.
+
+ 
+
+NOTE 3. MINERAL CLAIMS
+
+ 
+
+When this report uses the word property or claim it refers to a concession application which according to the Dominican Mining Law grants the holder with certain preferential rights including future exclusive rights to prospect, explore and exploit metallic minerals within its designated boundaries.
+
+ 
+
+On July 30, 2012, under the Acquisition Agreement, Ms. Ruiz agreed to transfer 6,456,600 shares of the Company s common stock she owned to GEXPLO SRL ( GEXPLO ), a company owned by Mr. Alain French, the Company s new President, Chief Executive Officer and Director, for a mineral right previously owned by GEXPLO. The Company recorded $4,142 (original costs incurred by GEXPLO to obtain the claim) for the mineral right and the same amount in paid-in capital for the shares transferred as the result of this related party transaction.
+
+ 
+
+On September 17, 2012, the Company exercised its right of first refusal to purchase two additional mineral properties, the Walter Claim and the Maria Claim, from GEXPLO pursuant to the Acquisition Agreement. In exchange for the Walter Claim and the Maria Claim, Rosa Habeila Feliz Ruiz, the Secretary of the Company, transferred 13,181,460 of her shares of the Company s common stock to the Vendor. The Vendor is owned by Alain French, our President, Chief Executive Officer and Director. 
+
+ 
+
+On October 12, 2012, the Company amended the Acquisition Agreement with GEXPLO and Rosa Habeila Feliz Ruiz, an officer and director of the Company. Pursuant to the Amendment, the Company would no longer have right of first refusal to purchase the Shalee and Daniel claims and instead would have right of first refusal to purchase the Henry, Francesca, Kato f/k/a Eliza, and Nathaniel claims. 
+
+ 
+
+On October 12, 2012, the Company exercised its right of first refusal to purchase four additional mineral properties, the Henry Claim, the Francesca Claim, the Kato f/k/a Claim and the Nathaniel Claim, from the Vendor pursuant to the Acquisition Agreement. In exchange for the Claims, Rosa Habeila Feliz Ruiz transferred 12,644,943 of her shares of the Company s common stock to the Vendor. The Vendor is owned by Alain French, our President, Chief Executive Officer and Director.
+
+ 
+
+On March 25, 2013, the Company agreed to purchase from Alain French 100% right, title and interest in the RICHARD Mineral Exploration Concession Application in the Dominican Republic, consisting of 220 Hectares located in Dominican Republic, and any deposits of minerals on RICHARD for $10,000 and 1,000,000 shares of the Company s common stock, par value $0.00001. As of April 30, 2013, the Company has recorded mineral claims of $177,400, including $167,400 fair value of the shares and $10,000 payable to the related party. 
+
+ 
+
+On April 3, 2013, the Company agreed to purchase from Alain French 100% right, title and interest in the CHARLES Mineral Exploration Concession Application in the Dominican Republic consisting of 220 Hectares located in Dominican Republic, and any deposits of minerals on CHARLES for an initial payment of $10,000 at closing, a second payment of $50,000 in 90 days, and 1,500,000 shares of the Company s common stock, par value $0.00001. As of April 30, 2013, the Company has recorded mineral claims of $285,000, including $225,000 fair value of the shares and $60,000 payable to the related party. 
+
+ 
+
+F-15
+
+103
+
+ 
+
+ 
+
+NOTE 4. RELATED PARTY TRANSACTIONS
+
+ 
+
+As of April 30, 2013 and July 31, 2012, the Company had payable of $79,696 to Ms. Ruiz for the advances she made to the Company to cover incorporation costs of the Company and ongoing legal and accounting fees related to the Company s SEC reporting obligations. These advances bear no interest, are unsecured and are due on demand.
+
+ 
+
+On May 31, 2012, the Company entered into a promissory note with GEXPLO, SRL, a company owned by the Company s then corporate secretary, Mr. Alain French. The total amount loaned was $59,770 as of May 31, 2012 for exploration expenses that the Company paid on GEXPLO s behalf for Alexia Claim which was acquired by the Company in July 2012. The loan is non-interest bearing and matures on December 31, 2012. The loan was cancelled by the Company as consideration in the Acquisition Agreement, on July 30, 2012. See Note 3 for the shares transferred between Ms. Ruiz and GEXPLO.
+
+ 
+
+As of April 30, 2013, the Company had made advances to GEXPLO, a company owned by the Company's President, for a total of $96,247 for exploration expenses he paid on the Company's behalf.
+
+ 
+
+As described in Note 3, as of April 30, 2013, the Company accrued related party payable of $70,000 for mineral claims, RICHARD and CHARLES, the Company acquired from Alain French during the current quarter.
+
+ 
+
+NOTE 5. CONVERTIBLE NOTES
+
+ 
+
+On April 19, 2013, the Company borrowed $53,000 from Asher Enterprises, Inc. under a Convertible Promissory Note. The note is unsecured, bears interest at 8% per annum and matures on January 22, 2014. The note is convertible into common stock of the Company and the conversion price shall equal the variable conversion price of 47% multiplied by the average of the lowest three (3) trading prices for the common stock during the thirty (30) trading day period ending on the latest complete trading day prior to the conversion date.
+
+ 
+
+The Company analyzed the Convertible Promissory Note for derivative accounting consideration under FASB ASC 470 and determined that the embedded conversion feature, with a grant date fair value of $7,102 (See Note 6), qualified for accounting treatment as a financial derivative (See Note 6). The Company recognized a discount of $7,102 on this note as result of the embedded conversion feature being a financial derivative. The discount will be amortized by the Company through interest expense over the life of the note.
+
+ 
+
+A summary of value changes to the Convertible Promissory Note for the period ended April 30, 2013 is as follows:
+
+ 
+
+ 
+
+ Principal amount
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 53,000
+
+ 
+
+ 
+
+ 
+
+ Less: discount related to fair value of the embedded conversion feature
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ (7,102
+
+ 
+
+ )
+
+ 
+
+ Add: amortization of discount
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 379
+
+ 
+
+ 
+
+ 
+
+ Carrying value at April 30, 2013
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 46,277
+
+ 
+
+ 
+
+ 
+
+During the nine months ended April 30, 2013, the Company recorded $379 amortization of the debt discount.
+
+ 
+
+NOTE 6. DERIVATIVE LIABILITY
+
+ 
+
+The Company has determined that the variable conversion price under its $53,000 Convertible Promissory Note causes the embedded conversion feature to be a financial derivative. The Company may not have enough authorized common shares to settle its obligation if the note holder elects to convert the note to common shares when the trading price is lower than certain threshold.
+
+ 
+
+The fair value of the conversion feature is recognized as a financial derivative at issuance and is measured at fair value at each reporting period. The fair values of the financial derivative were calculated using a modified binomial valuation model with the following assumptions at April 19, 2013 and April 30, 2013:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-16
+
+104
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ April 19,
+
+ 
+
+ 
+
+ 
+
+ April 30,
+
+ 
+
+ 
+
+ 
+
+ 2013
+
+ 
+
+ 
+
+ 
+
+ 2013
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Market value of common stock on measurement date (1)
+
+ 
+
+ $0.14
+
+ 
+
+ 
+
+ 
+
+ $0.14
+
+ 
+
+ Adjusted conversion price (2)
+
+ 
+
+ $0.066
+
+ 
+
+ 
+
+ 
+
+ $0.063
+
+ 
+
+ Risk free interest rate (3)
+
+ 
+
+ 0.13%
+
+ 
+
+ 
+
+ 
+
+ 0.11%
+
+ 
+
+ Life of the note in years
+
+ 
+
+ 0.77 years
+
+ 
+
+ 
+
+ 
+
+ 0.77 years
+
+ 
+
+ Expected volatility (4)
+
+ 
+
+ 423%
+
+ 
+
+ 
+
+ 
+
+ 387%
+
+ 
+
+ Expected dividend yield (5)
+
+ 
+
+ -
+
+ 
+
+ 
+
+ 
+
+ -
+
+ 
+
+ 
+
+ (1) 
+
+ 
+
+ The market value of common stock is based on closing market price as of April 19, 2013 and April 30, 2013.
+
+ 
+
+ (2) 
+
+ 
+
+ The adjusted conversion price is calculated based on conversion terms described in the note agreement.
+
+ 
+
+ (3) 
+
+ 
+
+ The risk-free interest rate was determined by management using the 1 year Treasury Bill as of the respective Offering or measurement date.
+
+ 
+
+ (4) 
+
+ 
+
+ The volatility factor was estimated by management using the historical volatilities of the Company s stock
+
+ 
+
+ (5) 
+
+ 
+
+ 
+Management determined the dividend yield to be 0% based upon its expectation that it will not pay dividends for the foreseeable future
+
+ 
+
+The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:
+
+ 
+
+ 
+
+ 
+
+ Financial Derivatives
+
+ 
+
+ Fair value at April 19, 2013
+
+ 
+
+ $ 7,102
+
+ 
+
+ Change in fair value of derivative liability
+
+ 
+
+ (212) 
+
+ 
+
+ Fair value at April 30, 2013
+
+ 
+
+ $ 6,890 
+
+ 
+
+NOTE 7. COMMON STOCK
+
+ 
+
+In September 2012, 116,665 shares were issued to a third-party vendor for services. These shares were recorded at their fair value of $23,332. The Company expensed the entire amount during the nine months period ended April 30, 2013 for the services rendered.
+
+ 
+
+On September 17, 2012, the Company sold 600,000 shares of common stock for $300,000.
+
+ 
+
+Equity Enhancement Program with Hanover Holdings I, LLC
+
+ 
+
+On March 11, 2013, the Company entered into a common stock purchase agreement ( Purchase Agreement ) with Hanover Holdings I, LLC, a New York limited liability company ( Hanover ). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, Hanover is committed to purchase up to $16,000,000 (the Total Commitment ) worth of the Company s Common Stock (the Shares ), over the 36-month term of the Purchase Agreement.
+
+ 
+
+Also on March 11, 2013, Hanover deposited $90,000, as an Administrative Fee, into an escrow account, which was disbursed to the Company promptly after the filing of an initial registration statement with the SEC on March 15, 2013.
+
+ 
+
+The Company issued 1,044,264 shares of the Company s common stock to Hanover for services. The fair value of these shares, $167,500, was recorded as offering cost as a reduction to addition paid-in capital.
+
+ 
+
+In connection with the execution of the Purchase Agreement, the Company and Hanover also entered into a registration rights agreement. Pursuant to the Registration Rights Agreement, the Company filed an initial registration statement ( Registration Statement ) with the SEC on March 15, 2013 (the Filing Deadline ) and agreed to have it declared effective at the earlier of (A) the 90th calendar day after the earlier of (1) the Filing Deadline and (2) the date of which such initial Registration Statement is filed with the SEC and (B) the fifth business day after the date the Company is notified by the SEC that such Registration Statement will not be reviewed or will not be subject to further review (the Effectiveness Deadline ). On June 10, 2013, the Company withdrew the Registration Statement. As of the date of this Report, the Company is renegotiating the terms of the Purchase Agreement with Hanover. 
+
+ 
+
+F-17
+
+ 
+
+105
+
+ 
+
+ 
+
+If the initial Registration Statement is not declared effective by the Effectiveness Deadline, the Company is required to issue to Hanover additional shares of the Company s common stock equal to the quotient obtained by dividing (a) $167,500 by (b) the arithmetic average of the VWAPs over the 10 trading day period immediately preceding the Effectiveness Deadline, rounded up to the nearest whole share (the Additional Commitment Shares ). As of the date of this Report, the Company has not issued additional common stock to Hanover and is negotiating a resolution with regard to the Additional Commitment Shares.
+
+ 
+
+If at any time all of the Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company has agreed to file with the SEC one or more additional Registration Statements so as to cover all of the Registrable Securities not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
+
+ 
+
+On April 5, 2013, the Company issued 635,000 shares of common stock for services. The fair value of these shares, $108,000, was recorded as follows: $4,500 as share-based compensation and $103,500 as prepaid expense for the service not been received yet.
+
+ 
+
+Also on April 5, 2013, the Company issued 900,000 shares of common stock for services. The fair value of these shares, $139,300, was recorded as share-based compensation.
+
+ 
+
+As of April 30, 2013, the Company has recorded 2,500,000 shares of common stock, at fair value of $392,400 for purchase of mineral claims.
+
+ 
+
+NOTE 8. SUBSEQUENT EVENTS 
+
+On June 12, 2013, the Company issued to JMJ Financial (the Lender ) convertible promissory note as of the same date in the principal amount of $335,000 (the Note ) with a maturity date of June 11, 2013, for total consideration of $300,000 (the Consideration ). The interest rate of the Note is 0% if repaid within the first 90 days, and shall increase to 12% after 90 days.
+
+Upon the closing on June 12, 2013, the Lender paid to the Company consideration in the amount of $60,000. The Lender may pay additional consideration, as chosen by the lender, up to an additional $150,000. Thereafter, the Lender may pay additional consideration to the Company by mutual agreement up to a total consideration of $300,000. 
+
+Pursuant to the terms of the Note, the Lender may elect to convert all or part of the outstanding unpaid principal and accrued interest into shares of the Company s common stock (up to an amount that would result in JMJ Financial holding no more than 4.99% of the outstanding shares of common stock of the Company) at a conversion price of the lesser of: (i) $0.138, or (ii) 60% of the lowest trade price in the 25 trading days preceding the conversion.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+F-18
+
+ 
+
+106
+
+ 
+
+ 
+
+8,950,000 Shares of Common Stock
+
+ 
+
+SANTO MINING CORP, INC.
+
+ 
+
+PROSPECTUS
+
+ 
+
+YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
+
+ 
+
+Until _____________, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
+
+ 
+
+The date of this prospectus is , 2013
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+107
+
+ 
+
+ 
+
+PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS
+
+ 
+
+Item. 13 Other Expenses Of Issuance And Distribution.
+
+ 
+
+ 
+
+ Securities and Exchange Commission registration fee
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 195
+
+ 
+
+ 
+
+ 
+
+ Federal Taxes
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 0
+
+ 
+
+ 
+
+ 
+
+ State Taxes and Fees
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 0
+
+ 
+
+ 
+
+ 
+
+ Transfer Agent Fees
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 0
+
+ 
+
+ 
+
+ 
+
+ Accounting fees and expenses
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 3,000
+
+ 
+
+ 
+
+ 
+
+ Legal fees and expense
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 10,000
+
+ 
+
+ 
+
+ 
+
+ Blue Sky fees and expenses
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 0
+
+ 
+
+ 
+
+ 
+
+ Miscellaneous
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 0
+
+ 
+
+ 
+
+ 
+
+ Total
+
+ 
+
+ 
+
+ 
+
+ $
+
+ 
+
+ 13,195
+
+ 
+
+ 
+
+ 
+
+All amounts are estimates other than the Commission s registration fee. We are paying all expenses of
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001500237_rexit-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001500237_rexit-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5cf1ea0aa2ceaeb693d9fb39f7c86e91fbac4cc3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001500237_rexit-inc_legal_matters.txt
@@ -0,0 +1,2166 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the shares of common stock being offered hereby
+will be passed upon for us by David Lubin & Associates, PLLC. 
+
+ 
+
+EXPERTS
+
+ 
+
+ Our financial statements as of December 31, 2012 and
+December 31, 2011 and for the period then ended and cumulative from inception August 13, 2010, appearing in this prospectus
+and registration statement have been audited by ZBS Group, LLP, an independent registered Public Accounting Firm, as set
+forth on their report thereon appearing elsewhere in this prospectus, and are included in reliance upon such report given
+upon the authority of such firm as experts in accounting and auditing. 
+
+ 
+
+AVAILABLE INFORMATION
+
+ 
+
+We have filed a registration statement
+on Form S-1 under the Securities Act of 1933, as amended, relating to the shares of common stock being offered by this prospectus,
+and reference is made to such registration statement. This prospectus constitutes the prospectus of REXIT, INC. filed as part of
+the registration statement, and it does not contain all of the information in the registration statement, as certain portions have
+been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
+
+ 
+
+We are subject to the informational requirements of the Securities
+Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange
+Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at
+100 F Street N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC
+at 100 F Street N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may
+also obtain this information by visiting the SEC's Internet website at http://www.sec.gov.
+
+ 
+
+We furnish our stockholders with annual reports containing audited
+financial statements.
+
+ 
+
+ 31
+
+ 
+
+ 
+
+ 
+
+ INDEX TOFINANCIAL STATEMENTS 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ PAGE 
+
+ 
+ 
+
+ Audit Report 
+ F-1 
+
+ 
+ 
+
+ 
+ 
+
+ Balance Sheets 
+ 
+
+ As of December 31, 2012 and 2011 
+ F-2 
+
+ 
+ 
+
+ Statement Of Operations 
+ 
+
+ For The Years Ended December 31, 2012 and 2011, 
+ 
+
+ and Cumulative Since August 13, 2010 (Inception) to December 31, 2012 
+ F-3 
+
+ 
+ 
+
+ 
+ 
+
+ Statements of Stockholder's Deficiency 
+ 
+
+ For the Period August 13, 2010 (Inception) to December 31, 2012 
+ F-4 
+
+ 
+ 
+
+ Statements Of Cash Flows 
+ 
+
+ For The Years Ended December 31, 2012 and 2011, 
+ 
+
+ and Cumulative Since August 13, 2010 (Inception) to December 31, 2012 
+ F-5 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ Notes To Financial Statements December 31, 2012 
+ F6 - F9 
+
+ 
+ 
+
+ 
+ 
+
+ Condensed Balance Sheets 
+ 
+
+ As of March 31, 2013 and December 31, 2012 
+ F-10 
+
+ 
+ 
+
+ Condensed Statements Of Operations 
+ 
+
+ For the three-month periods ended March 31, 2013 and 2012, 
+ 
+
+ and Cumulative Since August 13, 2010 (Inception) to March 31, 2013 
+ F-11 
+
+ 
+ 
+
+ Condensed Statements Of Cash Flows 
+ 
+
+ For the three-month periods ended March 31, 2013 and 2012, 
+ 
+
+ and Cumulative Since August 13, 2010 (Inception) to March 31, 2013 
+ F-12 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ Notes To Condensed Financial Statements March 31, 2013 
+ F13 - F16 
+
+ 
+
+ 32
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+ 
+
+ 
+
+To the Board of Directors and Stockholders of Rexit,
+Inc.
+
+ 
+
+We have audited the accompanying balance sheets of
+Rexit, Inc. (A development stage company) as of December 31, 2012 and December 31, 2011, and the related statements of
+operations, stockholders equity, and cash flows for the years ended December 31, 2012 and December 31, 2011 and the
+period August 13, 2010 (inception) to December 31, 2012. Rexit, Inc. s management is responsible for these financial
+statements. Our responsibility is to express an opinion on these financial statements based on our audits.
+
+ 
+
+We conducted our audits in accordance with the standards of
+the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have,
+nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of
+internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
+but not for the purpose of expressing an opinion on the effectiveness of the company s internal control over financial reporting.
+Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
+as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
+opinion.
+
+ 
+
+In our opinion, the financial statements referred
+to above present fairly, in all material respects, the financial position of Rexit, Inc. as of December 31, 2012 and
+December 31, 2011 and the results of its operations, and its cash flows for the years ended December 31, 2012 and December
+31, 2011 and the period August 13, 2010 (inception) to December 31, 2012, in conformity with accounting principles generally
+accepted in the United States of America.
+
+ 
+
+The accompanying financial statements have been prepared
+assuming that the Company will continue as a going concern. As discussed in Note 2 of the financial statements, the
+Company is in development stage with limited operations and resources, which raises substantial doubt about its ability to continue
+as a going concern. Management s plans regarding those matters are also described in Note 2. The financial statements do
+not include any adjustments that might result from the outcome of this uncertainty.
+
+ 
+
+/s/ ZBS Goup, LLP.
+
+ZBS Group, LLP.
+
+Melville, NY 11747
+
+ 
+
+April 30, 2013
+
+ 
+
+ 
+
+ 
+
+115 Broad Hollow Road, Suite 350 Melville, New York
+11747 
+
+Tel: (516) 394-3344 Fax: (516) 908-7867
+
+www.zbscpas.com
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc. 
+
+ (A Development Stage Company) 
+
+ Balance Sheet 
+
+ December 31, 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ 
+ 2012 
+ 2011 
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ 
+ 
+ 
+
+ CURRENT ASSETS 
+ 
+ 
+
+ Cash 
+ $100 
+ $- 
+
+ TOTAL CURRENT ASSETS 
+ 100 
+ - 
+
+ 
+ 
+ 
+
+ TOTAL ASSETS 
+ $100 
+ $- 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDER'S DEFICIENCY 
+ 
+ 
+
+ 
+ 
+ 
+
+ CURRENT LIABILITIES 
+ 
+ 
+
+ Accrued Taxes Payable 
+ $300 
+ $300 
+
+ 
+ 
+ 
+
+ TOTAL CURRENT LIABILITIES 
+ 300 
+ 300 
+
+ 
+ 
+ 
+
+ STOCKHOLDER'S EQUITY 
+ 
+ 
+
+ Preferred Stock - 50,000,000 Shares Authorized; 
+ 
+ 
+
+ $.0001 Par Value Per Share; 300,000 Shares Issued and Outstanding 
+ 30 
+ 30 
+
+ Common Stock - 300,000,000 Shares Authorized; 
+ 
+ 
+
+ $.0001 Par Value Per Share; 30,000,000 Shares Issued and Outstanding 
+ 3,000 
+ 3,000 
+
+ Additional Paid-In Capital 
+ 10,683 
+ 10,170 
+
+ Deficit Accumulated During Development Stage 
+ (13,913) 
+ (13,500)
+
+ TOTAL STOCKHOLDER'S DEFICIENCY 
+ (200) 
+ (300)
+
+ 
+ 
+ 
+
+ TOTAL LIABILITIES AND 
+ 
+ 
+
+ STOCKHOLDER'S DEFICIENCY 
+ $100 
+ $- 
+
+ 
+
+ 
+
+ F-2
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc. 
+
+ (A Development
+ Stage Company) 
+
+ Statements of
+ Operations 
+
+ For
+ the Years Ended December 31, 
+
+ 
+
+ 
+ 2012 
+ 2011 
+ Cumulative
+ 
+ since
+ August 13, 2010
+
+(Inception) to
+
+December 31, 2012 
+
+ 
+ 
+ 
+ 
+
+ EXPENSES 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Start
+ Up Costs 
+ $413 
+ $300 
+ $13,913 
+
+ 
+ 
+ 
+ 
+
+ Net
+ Loss 
+ $(413) 
+ $(300) 
+ $(13,913)
+
+ 
+ 
+ 
+ 
+
+ Basic
+ and Diluted Loss Per Share 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+
+ Weighted Average Number
+ of Common Shares Outstanding 
+ 30,000,000 
+ 30,000,000 
+ 30,000,000 
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc.
+
+ (A Development
+ Stage Company)
+
+ Statements of
+ Stockholder's Deficiency
+
+ For
+ the Period August 13, 2010 (Inception) to December 31, 2012
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Deficit 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Accumulated 
+ 
+
+ 
+ Preferred
+ Stock 
+ Common
+ Stock 
+ Additional 
+ During 
+ Total 
+
+ 
+ Shares 
+ Preferred 
+ Shares 
+ Common 
+ Paid-in 
+ Development 
+ Stockholder's 
+
+ 
+ Outstanding 
+ Stock 
+ Outstanding 
+ Stock 
+ Capital 
+ Stage 
+ Deficiency 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at August 13, 2010 (Date of Inception) 
+ - 
+ $- 
+ - 
+ $- 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Shares issued for expenses 
+ 300,000 
+ 30 
+ 30,000,000 
+ 3,000 
+ 9,870 
+ - 
+ 12,900 
+
+ Net Loss - 2010 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (13,200) 
+ (13,200)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2010 
+ 300,000 
+ 30 
+ 30,000,000 
+ 3,000 
+ 9,870 
+ (13,200) 
+ (300)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net Loss - 2011 
+ - 
+ - 
+ - 
+ - 
+ 300 
+ (300) 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2011 
+ 300,000 
+ 30 
+ 30,000,000 
+ 3,000 
+ 10,170 
+ (13,500) 
+ (300)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net Loss - 2012 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (413) 
+ (413)
+
+ Capital Contribution 
+ - 
+ - 
+ - 
+ - 
+ 513 
+ - 
+ 513 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31,
+ 2012 
+ 300,000 
+ $30 
+ 30,000,000 
+ $3,000 
+ $10,683 
+ $(13,913) 
+ $(200)
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc.
+
+ (A Development
+ Stage Company)
+
+ Statements of
+ Cash Flows
+
+ For
+ the Years Ended December 31,
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 2012 
+ 2011 
+ Cumulative
+ 
+ since
+ August 13, 2010 (Inception) to December 31, 2012 
+
+ 
+ 
+ 
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES 
+ 
+ 
+ 
+
+ Net Loss 
+ $(413) 
+ $(300) 
+ $(13,913)
+
+ 
+ 
+ 
+ 
+
+ Adjustments to reconcile net loss 
+ 
+ 
+ 
+
+ to net cash provided by operating activities: 
+ 
+ 
+ 
+
+ Start Up Costs Satisfied with Equity Instruments 
+ 413 
+ 300 
+ 13,913 
+
+ 
+ 
+ 
+ 
+
+ NET CASH PROVIDED BY 
+ 
+ 
+ 
+
+ OPERATING ACTIVITIES 
+ - 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+
+ NET CASH PROVIDED BY FINANCING
+ ACTIVITIES 
+ 
+ 
+ 
+
+ Additional Capital Contributions 
+ 100 
+ - 
+ 100 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ NET INCREASE IN CASH 
+ 100 
+ - 
+ 100 
+
+ 
+ 
+ 
+ 
+
+ CASH -
+ BEGINNING 
+ - 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+
+ CASH - ENDING 
+ $100 
+ $- 
+ $100 
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Financial Statements
+
+December
+31, 2012
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+Nature of Business
+
+ 
+
+Rexit
+Inc. (the "Company"), a Maryland corporation, was formed on August 13, 2010 to acquire and make real estate investments
+that relate to income-producing commercial real estate, such as office, retail, multi-family residential and industrial properties.
+The Company s initial focus will be on investments located in the New York metropolitan area.
+
+ 
+
+The Company recently adapted the
+calendar year as its basis of reporting.
+
+ 
+
+Development-Stage Company 
+
+ 
+
+The Company
+is a development-stage company as defined in Accounting Standards Codification (ASC) 915. The Company is considered a development-stage
+entity because it is devoting substantially all of its efforts to raising capital and establishing its business and principal operations.
+
+ 
+
+Start Up Costs
+
+ 
+
+In accordance with Accounting Standards
+Codification (ASC) 920, costs related to start up activities, including organizational costs, are expensed as incurred.
+
+ 
+
+Cash Equivalents
+
+ 
+
+For the purpose of the statement
+of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original
+maturities of twelve months or less.
+
+ 
+
+ F-6
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Financial Statements
+
+December
+31, 2012
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+(Continued)
+
+ 
+
+Income Taxes
+
+ 
+
+The Company accounts for income
+taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current period and for
+the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income
+items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available
+tax benefits not expected to be realized in the immediate future.
+
+ 
+
+The Company reviews tax positions
+taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain
+tax position. The Company did not have any material unrecognized tax benefit at December 31, 2012. The Company recognizes interest
+accrued and penalties related to unrecognized tax benefits in tax expense. During the period ended December 31, 2012, the Company
+recognized no interest and penalties.
+
+ 
+
+The Company files U.S. federal
+tax returns and tax returns in various states. All tax periods since inception remain open to examination by the taxing jurisdictions
+to which the Company is subject.
+
+ 
+
+The
+Company has approximately $13,913 in net operating loss carryforwards ("NOL s") available to reduce future taxable
+income giving rise to a deferred tax asset of approximately $3,235. These carryforwards begin to expire in year 2030. Due to the
+uncertainty as to the Company s ability to generate sufficient taxable income in the future and utilize the NOL s
+before they expire, the Company has recorded a valuation allowance to reduce the net deferred tax asset to zero. The difference
+between the U.S. statutory federal rate of 15% and the effective rate of 0% is due to a state tax rate of 8.25% and a change in
+valuation allowance of 23.25%. 
+
+ 
+
+ 
+
+Use of Estimates
+
+ 
+
+The preparation of financial statements
+in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
+that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
+
+ 
+
+ F-7
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Financial Statements
+
+December
+31, 2012
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+(Continued)
+
+ 
+
+Fair Value of Financial Instruments
+
+ 
+
+The Company discloses fair value
+information about financial instruments based upon certain market assumptions and pertinent information available to management.
+As of December 31, 2012 there were no financial instruments outstanding.
+
+ 
+
+Earnings Per Common Share
+
+ 
+
+The Company presents basic and
+diluted earnings per share. Basic and diluted earnings per share reflect the actual weighted average of common
+shares issued and outstanding during the period. There are no dilutive or potentially dilutive instruments outstanding as of December
+31, 2012.
+
+ 
+
+ 
+
+NOTE 2GOING CONCERN
+
+ 
+
+The
+Company s ability to continue as a going concern in the next twelve months is dependent upon its ability to obtain capital
+financing from investors sufficient to meet current and future obligations while trying to attain profitable operations.
+
+ 
+
+While the financial statements
+have been prepared on the basis of accounting principles applicable to a going concern, the current global economic turbulence
+and liquidity crisis cast substantial doubt upon validity of this assumption. If the going concern assumption was not appropriate
+for these financial statements, then adjustments would be necessary in the carrying values of the assets and liabilities, the reported
+net losses and the balance sheet classifications used.
+
+ 
+
+ F-8
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Financial Statements
+
+December
+31, 2012
+
+ 
+
+ 
+
+NOTE 3COMMON STOCK
+
+ 
+
+The Company is authorized to issue
+300,000,000 shares of common stock and 50,000,000 shares of preferred stock, at $.0001 par value, respectively. The company issued
+30,000,000 shares of common stock and 300,000 shares of preferred stock to the sole shareholder, in exchange for various start
+up expenses paid by the shareholder on behalf of the Company. Given the absence of a "regular, active public market"
+and no previous sales of the Company common stock, the Company determined the fair value of the initial shares issued to be the
+consideration paid by the shareholder for expenses incurred by the Company. The Company took the following into consideration in
+making this determination; the Company had no transactions or activity prior to and immediately subsequent to the initial stock
+sale other than the start up expenses incurred.
+
+ 
+
+Preferred stock provides for a
+liquidation preference of $1 per share, in the event of liquidation. A liquidation event is defined as follows:
+
+ 
+
+(i)a merger, consolidation or other business combination in which the Corporation is not the surviving
+entity in such transaction
+
+ 
+
+(ii)an acquisition of any voting securities of the Company by any entity or person, immediately after
+which such entity or person has beneficial ownership of fifty-one percent (51%) or more of the then outstanding shares or the combined
+voting power of the Corporation s then outstanding voting securities
+
+ 
+
+(iii)the sale or other disposition of all or substantially all of the assets of the Company
+
+ 
+
+ 
+
+NOTE 4SUBSEQUENT EVENTS
+
+ 
+
+The company evaluated subsequent events through April 30, 2013, the date the financial statements
+were available to be issued.
+
+ 
+
+ F-9
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc. 
+
+ (A Development
+ Stage Company) 
+
+ Condensed
+ Balance Sheets 
+
+ 
+ 
+ 
+
+ 
+ March 31, 
+ December 31, 
+
+ 
+ 2013 
+ 2012 
+
+ ASSETS 
+ 
+ 
+
+ 
+ 
+ 
+
+ CURRENT ASSETS 
+ 
+ 
+
+ Cash 
+ $475 
+ $100 
+
+ TOTAL
+ CURRENT ASSETS 
+ 475 
+ 100 
+
+ 
+ 
+ 
+
+ TOTAL
+ ASSETS 
+ $475 
+ $100 
+
+ 
+ 
+ 
+
+ LIABILITIES
+ AND STOCKHOLDER'S EQUITY 
+ 
+ 
+
+ 
+ 
+ 
+
+ CURRENT LIABILITIES 
+ 
+ 
+
+ Accrued Taxes Payable 
+ $75 
+ $300 
+
+ 
+ 
+ 
+
+ TOTAL
+ CURRENT LIABILITIES 
+ 75 
+ 300 
+
+ 
+ 
+ 
+
+ STOCKHOLDER'S EQUITY 
+ 
+ 
+
+ Preferred Stock - 50,000,000
+ Shares Authorized; 
+ 
+ 
+
+ $.0001 Par Value Per Share; 300,000 Shares
+ Issued and Outstanding 
+ 30 
+ 30 
+
+ Common Stock - 300,000,000
+ Shares Authorized; 
+ 
+ 
+
+ $.0001 Par Value Per Share; 30,000,000 Shares
+ Issued and Outstanding 
+ 3,000 
+ 3,000 
+
+ Additional Paid-In Capital 
+ 14,332 
+ 10,683 
+
+ Deficit Accumulated During
+ Development Stage 
+ (16,962) 
+ (13,913)
+
+ TOTAL
+ STOCKHOLDER'S EQUITY 
+ 400 
+ (200)
+
+ 
+ 
+ 
+
+ TOTAL
+ LIABILITIES AND 
+ 
+ 
+
+ STOCKHOLDER'S
+ EQUITY 
+ $475 
+ $100 
+
+ 
+
+ F-10
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc. 
+
+ (A Development
+ Stage Company) 
+
+ Condensed Statements
+ of Operations 
+
+ For
+ the Periods Ended March 31, 
+
+ 
+
+ 
+ 2013 
+ 2012 
+ Cumulative
+ 
+ since
+ August 13, 2010 (Inception) to March
+ 31, 2013 
+
+ 
+ 
+ 
+ 
+
+ EXPENSES 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Start Up Costs 
+ $3,049 
+ $300 
+ $16,962 
+
+ 
+ 
+ 
+ 
+
+ Net Loss 
+ $(3,049) 
+ $(300) 
+ $(16,962)
+
+ 
+ 
+ 
+ 
+
+ Basic and Diluted Loss
+ Per Share 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+
+ Weighted Average Number of Common Shares
+ Outstanding 
+ 30,000,000 
+ 30,000,000 
+ 30,000,000 
+
+ 
+
+ 
+
+ F-11
+
+ 
+
+ 
+
+ 
+
+ Rexit Inc.
+
+ (A Development
+ Stage Company)
+
+ Condensed Statements
+ of Cash Flows
+
+ For
+ the Periods Ended March 31,
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 2013 
+ 2012 
+ Cumulative
+ 
+ since
+ August 13, 2010 (Inception) to March
+ 31, 2013 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES 
+ 
+ 
+ 
+
+ Net Loss 
+ $(3,049) 
+ $(300) 
+ $(16,962)
+
+ 
+ 
+ 
+ 
+
+ Adjustments to reconcile net loss 
+ 
+ 
+ 
+
+ to net cash provided by operating activities: 
+ 
+ 
+ 
+
+ Start Up Costs Satisfied with Equity Instruments 
+ 3,049 
+ 300 
+ 16,962 
+
+ 
+ 
+ 
+ 
+
+ NET CASH PROVIDED BY 
+ 
+ 
+ 
+
+ OPERATING ACTIVITIES 
+ - 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+
+ NET CASH PROVIDED BY FINANCING
+ ACTIVITIES 
+ 
+ 
+ 
+
+ Additional Capital Contributions 
+ 375 
+ 300 
+ 475 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ NET INCREASE IN CASH 
+ 375 
+ 300 
+ 475 
+
+ 
+ 
+ 
+ 
+
+ CASH - BEGINNING 
+ 100 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+
+ CASH - ENDING 
+ $475 
+ $300 
+ $475 
+
+ 
+
+ F-12
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Condensed Financial Statements
+
+March
+31, 2013
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+Nature of Business
+
+ 
+
+Rexit
+Inc. (the "Company"), a Maryland corporation, was formed on August 13, 2010 to acquire and make real estate investments
+that relate to income-producing commercial real estate, such as office, retail, multi-family residential and industrial properties.
+The Company s initial focus will be on investments located in the New York metropolitan area.
+
+ 
+
+The Company recently adapted the
+calendar year as its basis of reporting.
+
+ 
+
+Development-Stage Company 
+
+ 
+
+The Company
+is a development-stage company as defined in Accounting Standards Codification (ASC) 915. The Company is considered a development-stage
+entity because it is devoting substantially all of its efforts to raising capital and establishing its business and principal operations.
+
+ 
+
+Start Up Costs
+
+ 
+
+In accordance with Accounting Standards
+Codification (ASC) 920, costs related to start up activities, including organizational costs, are expensed as incurred.
+
+ 
+
+Cash Equivalents
+
+ 
+
+For the purpose of the statement
+of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original
+maturities of twelve months or less.
+
+ 
+
+ F-13
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Condensed Financial Statements
+
+March
+31, 2013
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+(Continued)
+
+ 
+
+Income Taxes
+
+ 
+
+The Company accounts for income
+taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current period and for
+the estimated future tax effect attributable to temporary differences and carryforwards. Measurement of deferred income
+items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available
+tax benefits not expected to be realized in the immediate future.
+
+ 
+
+The Company reviews tax positions
+taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain
+tax position. The Company did not have any material unrecognized tax benefit at March 31, 2013. The Company recognizes interest
+accrued and penalties related to unrecognized tax benefits in tax expense. During the period ended March 31, 2013, the Company
+recognized no interest and penalties.
+
+ 
+
+The Company files U.S. federal
+tax returns and tax returns in various states. All tax periods since inception remain open to examination by the taxing jurisdictions
+to which the Company is subject.
+
+ 
+
+The
+Company has approximately $16,962 in net operating loss carryforwards ("NOL s") available to reduce future taxable
+income giving rise to a deferred tax asset of approximately $3,944. These carryforwards begin to expire in year 2030. Due to the
+uncertainty as to the Company s ability to generate sufficient taxable income in the future and utilize the NOL s
+before they expire, the Company has recorded a valuation allowance to reduce the net deferred tax asset to zero. The difference
+between the U.S. statutory federal rate of 15% and the effective rate of 0% is due to a state tax rate of 8.25% and a change in
+valuation allowance of 23.25%. 
+
+ 
+
+ F-14
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Condensed Financial Statements
+
+March
+31, 2013
+
+ 
+
+ 
+
+NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+(Continued)
+
+ 
+
+Use of Estimates
+
+ 
+
+The preparation of financial statements
+in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
+that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
+
+ 
+
+Fair Value of Financial Instruments
+
+ 
+
+The Company discloses fair value
+information about financial instruments based upon certain market assumptions and pertinent information available to management.
+As of March 31, 2013 there were no financial instruments outstanding.
+
+ 
+
+Earnings Per Common Share
+
+ 
+
+The Company presents basic and
+diluted earnings per share. Basic and diluted earnings per share reflect the actual weighted average of common shares
+issued and outstanding during the period. There are no dilutive or potentially dilutive instruments outstanding as of March 31,
+2013.
+
+ 
+
+NOTE 2GOING CONCERN
+
+ 
+
+The
+Company s ability to continue as a going concern in the next twelve months is dependent upon its ability to obtain capital
+financing from investors sufficient to meet current and future obligations while trying to attain profitable operations.
+
+ 
+
+While the financial statements
+have been prepared on the basis of accounting principles applicable to a going concern, the current global economic turbulence
+and liquidity crisis cast substantial doubt upon validity of this assumption. If the going concern assumption was not appropriate
+for these financial statements, then adjustments would be necessary in the carrying values of the assets and liabilities, the reported
+net losses and the balance sheet classifications used.
+
+ 
+
+ F-15
+
+ 
+
+ 
+
+ 
+
+Rexit Inc.
+
+(A Development Stage Company)
+
+Notes To Condensed Financial Statements
+
+March
+31, 2013
+
+ 
+
+ 
+
+NOTE 3COMMON STOCK
+
+ 
+
+The Company is authorized to issue
+300,000,000 shares of common stock and 50,000,000 shares of preferred stock, at $.0001 par value, respectively. The company issued
+30,000,000 shares of common stock and 300,000 shares of preferred stock to the sole shareholder, in exchange for various start
+up expenses paid by the shareholder on behalf of the Company. Given the absence of a "regular, active public market"
+and no previous sales of the Company common stock, the Company determined the fair value of the initial shares issued to be the
+consideration paid by the shareholder for expenses incurred by the Company. The Company took the following into consideration in
+making this determination; the Company had no transactions or activity prior to and immediately subsequent to the initial stock
+sale other than the start up expenses incurred.
+
+ 
+
+Preferred stock provides for a
+liquidation preference of $1 per share, in the event of liquidation. A liquidation event is defined as follows:
+
+ 
+
+(i)a merger, consolidation or other business combination in which the Corporation is not the surviving
+entity in such transaction
+
+ 
+
+(ii)an acquisition of any voting securities of the Company by any entity or person, immediately after
+which such entity or person has beneficial ownership of fifty-one percent (51%) or more of the then outstanding shares or the combined
+voting power of the Corporation s then outstanding voting securities
+
+ 
+
+(iii)the sale or other disposition of all or substantially all of the assets of the Company
+
+ 
+
+NOTE 4SUBSEQUENT EVENTS
+
+ 
+
+The company evaluated subsequent events through April 30, 2013, the date the financial statements
+were available to be issued.
+
+ 
+
+ F-16
+
+ 
+
+ 
+
+ 
+
+PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
+
+ 
+
+INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
+
+ 
+
+Our Certificate of Incorporation, as amended, provides to the
+fullest extent permitted by the State of Maryland our directors, or officers shall not be personally liable to us or our shareholders
+for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of our Articles of Incorporation,
+as amended, is to eliminate our right and our shareholders (through shareholders' derivative suits on behalf of our company) to
+recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches
+resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the
+indemnification provisions in our Certificate of Incorporation, as amended, are necessary to attract and retain qualified persons
+as directors and officers.
+
+ 
+
+Insofar as indemnification for liabilities arising under the
+Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
+provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification
+is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
+against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling
+person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or
+controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
+the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
+by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
+ 
+
+ 
+
+ II-1
+
+ 
+
+ 
+
+ 
+
+OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
+
+ 
+
+The following table sets forth an itemization
+of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:
+
+ 
+
+ Nature of Expense 
+ Amount 
+
+ 
+ 
+
+ SEC Registration fee 
+ $ 14.26 
+
+ 
+ 
+
+ Accounting fees and expenses 
+ $ 5,800.00 
+
+ 
+ 
+
+ Legal fees and expenses 
+ $ 12,500.00 
+
+ 
+ 
+
+ Total: 
+ $ 18,314.26 
+
+ 
+
+ 
+
+INDEMNIFICATION OF DIRECTORS AND OFFICERS
+
+ 
+
+Our Articles of Incorporation, as amended, provides to the fullest
+extent permitted by Maryland law, that our directors and officers shall not be personally liable to us or our shareholders for
+damages for breach of such director's or officer's fiduciary duty. The effect of this provision of our Articles of Incorporation,
+as amended, is to eliminate our right and our shareholders (through shareholders' derivative suits on behalf of our company) to
+recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches
+resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the
+indemnification provisions in our Articles of Incorporation, as amended, are necessary to attract and retain qualified persons
+as directors and officers.
+
+ 
+
+Insofar as indemnification for liabilities arising under the
+Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing
+provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification
+is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
+against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling
+person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or
+controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
+the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
+by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
+
+ 
+
+ II-2
+
+ 
+
+ 
+
+ 
+
+RECENT SALES OF UNREGISTERED SECURITIES
+
+ 
+
+The following sets forth information regarding all sales of
+our unregistered securities during the past three years. None of the holders of the shares issued below have subsequently transferred
+or disposed of their shares and the list is also a current listing of the Company's stockholders.
+
+ 
+
+During the last three years, we have issued unregistered securities
+to the persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions
+or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act
+of 1933 by virtue of Section 4(2) thereof. No advertising or general solicitation was employed in offering the securities. All
+recipients had adequate access, through their relationships with us, to information about us.
+
+ 
+
+ On August 13, 2010 we sold 30,000,000
+shares of our common stock to Shmuel Eisenberger. The purchase price for such shares was equal to, $0.0001 per share, amounting
+to $3,000. On such date said amount was fully paid. Such issuance was made pursuant to the exemption from the registration
+requirements of the Securities Act provided by Regulation D. Said issuance was made in reliance upon an exemption from registration
+provided under Section 4(2) of the Securities Act of 1933, as amended. Mr. Eisenberger is a founder of our Company
+and had access to all of the information which would be required to be included in a registration statement, and the transaction
+did not involve a public offering. 
+
+ 
+
+ On August 31, 2010 we sold 300,000
+shares of our Series A preferred stock to Shmuel Eisenberger. The purchase price for such shares was equal to, $0.0001 per share,
+amounting to $30. On such date said amount was fully paid. Such issuance was made pursuant to the exemption from the
+registration requirements of the Securities Act provided by Regulation D. Said issuance was made in reliance upon an exemption
+from registration provided under Section 4(2) of the Securities Act of 1933, as amended. Mr. Eisenberger is a founder
+of our Company and had access to all of the information which would be required to be included in a registration statement, and
+the transaction did not involve a public offering. 
+
+ 
+
+EXHIBITS
+
+ 
+
+ EXHIBIT 
+ 
+ 
+
+ NUMBER 
+ 
+ DESCRIPTION 
+
+ 
+ 
+ 
+
+ 3.1 
+ 
+ Articles of Incorporation of the Company (1) 
+
+ 
+ 
+ 
+
+ 3.2 
+ 
+ Certificate of Designations, Preferences and Rights of Series
+ A Preferred Stock (1) 
+
+ 
+ 
+ 
+
+ 3.3 
+ 
+ By-Laws of the Company (1) 
+
+ 
+ 
+ 
+
+ 3.4 
+ 
+ Amendment No. 1 to Bylaws 
+
+ 
+ 
+ 
+
+ 4.1 
+ 
+ Form of Common Stock Certificate of the Company (1) 
+
+ 
+ 
+ 
+
+ 4.2 
+ 
+ Form of Series A Preferred Stock Certificate of the Company
+ (1) 
+
+ 
+ 
+ 
+
+ 5.1 
+ 
+ Opinion of David Lubin & Associates, PLLC 
+
+ 
+ 
+ 
+
+ 10.1 
+ 
+ Subscription Agreement (1) 
+
+ 
+ 
+ 
+
+ 10.2 
+ 
+ Escrow Agreement among the Company, the investor and David Lubin
+ & Associates, PLLC as escrow agent (1) 
+
+ 
+ 
+ 
+
+ 16 
+ 
+ Freed Maxick CPAs, P.C. Letter 
+
+ 
+ 
+ 
+
+ 23.1 
+ 
+ Consent of Independent Registered Public Accounting Firm 
+
+ 
+ 
+ 
+
+ 23.2 
+ 
+ Consent of legal counsel (see Exhibit 5.1) 
+
+ 
+ 
+ 
+
+ (1) Incorporated by reference to the corresponding exhibits
+ in the registration statement on Form S-1 filed with the SEC
+ on September 2, 2012. 
+
+ 
+
+ II-3
+
+ 
+
+ 
+
+ 
+
+UNDERTAKINGS
+
+ 
+
+The undersigned registrant hereby undertakes to:
+
+ 
+
+(a)(1) File, during any period in which it offers or sells securities,
+a post-effective amendment to this registration statement to:
+
+ 
+
+(i) Include any prospectus required by Section 10(a)(3) of the
+Securities Act;
+
+ 
+
+(ii) Reflect in the prospectus any facts or events which, individually
+or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any
+increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which
+was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form
+of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent
+no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee"
+table in the effective registration statement;
+
+ 
+
+(iii) Include any additional or changed material information
+on the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001503579_station_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001503579_station_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001503579_station_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001503754_jpm-xf_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001503754_jpm-xf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b985c42fd5559044c2e2685ed4c5ef7d3800d72d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001503754_jpm-xf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares will be passed upon for the Sponsor by Richards, Layton & Finger, P.A. Davis Polk & Wardwell LLP, special United States tax counsel to the Trust, will render an opinion regarding the material United States federal income tax consequences relating to the shares. Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001504937_vaporin_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001504937_vaporin_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1850aefa97c18b78ae2692d66d1792f3464e5085
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001504937_vaporin_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Sichenzia Ross Friedman and Ference LLP, New York, New York, will pass upon the validity of the shares of our common stock to be sold in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001506325_electric_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001506325_electric_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3da940e5ec349257ea71c59b04ae4f039fe18f65
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001506325_electric_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with the securities will be passed upon for us by Jonathan D. Leinwand, P.A. Mr. Leinwand will not receive a direct or indirect interest in the issuer and has never been a promoter, underwriter, voting trustee, director, officer, or employee of our company. Nor does Mr. Leinwand have any contingent based agreement with us or any other interest in, or connection to, us.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001508128_passport_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001508128_passport_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d9f6f4ef97c38ee02a52e0783de759aacb93d033
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001508128_passport_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS McMillan LLP will pass upon the validity of the shares of common stock to be sold in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001510333_zika_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001510333_zika_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c9a786b884a5b2bd799a8b04a6ffe2695a8fcea5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001510333_zika_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS David Lubin & Associates, PLLC opined on the validity of the shares of common stock being offered hereby. AVAILABLE INFORMATION We have filed a registration statement on Form S-1 under the Securities Act with the Securities and Exchange Commission. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For additional information about us and our securities, we refer you to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract or any other documents to which we refer are not necessarily complete. In each instance, reference is made to the copy of the contract or document filed as an exhibit to the registration statement, and each statement is qualified in all respects by that reference. You may read and copy any document which we file with the Securities and Exchange Commission at the Securities and Exchange Commission s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of Public Reference Room by calling the Securities and Exchange Commission at 1 800 SEC 0330. We file reports, proxy statements, and other information with the Securities and Exchange Commission and these reports, proxy statements, and other information can be inspected on the Internet at http://www.sec.gov. We are also subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934. We file annual, quarterly and current reports, and other information with the Securities and Exchange Commission. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have had no changes in or disagreements with our independent registered public accountant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Brooklyn, State of New York, on October 29, 2013. WNS STUDIOS, INC. By: /s/ Moses Gross Name: Moses Gross Title: President, Chief Executive Officer, Treasurer, Secretary and Director (Principal Executive, Financial and Accounting Officer) Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following person in the capacities and on the dates indicated. Date: Signature: Name: Title: October 29, 2013 /s/ Moses Gross Moses Gross President, Chief Executive Officer, Treasurer, and Director (Principal Executive, Financial and Accounting Officer) PROSPECTUS 250,000 SHARES OF COMMON STOCK WNS STUDIOS, INC _______________ Dealer Prospectus Delivery Obligation Until _____________ ___, 2013, all dealers that effect transactions in these securities whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Part II Information Not Required In The Prospectus Other Expenses of Issuance and Distribution The costs of this offering are as follows: Securities and Exchange Commission registration fee $ 6.82 Accounting fees and expenses $ 7500 Legal fees and expenses $ 7000 Edgar filing fees $ 500 Total $ 15,006.82 All amounts are estimates other than the Commission's registration fee. We are paying all expenses of the offering listed above. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS Our officers and directors are indemnified as provided by the Nevada Revised Statutes and our bylaws. Under the Nevada Revised Statutes, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. Our Articles of Incorporation do not specifically limit our directors' immunity. Excepted from that immunity are: (a) a willful failure to deal fairly with the company or its stockholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct. II-1 Our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by Nevada law; provided, however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided, further, that we shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by our board of directors, (c) is provided by us, in our sole discretion, pursuant to the powers vested in us under Nevada law or (d) is required to be made pursuant to the bylaws. Our bylaws also provide that we may indemnify a director or former director of subsidiary corporation and we may indemnify our officers, employees or agents, or the officers, employees or agents of a subsidiary corporation and the heirs and personal representatives of any such person, against all expenses incurred by the person relating to a judgment, criminal charge, administrative action or other proceeding to which he or she is a party by reason of being or having been one of our directors, officers or employees. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and control persons pursuant to the foregoing provisions or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy, and is, therefore, unenforceable. RECENT SALES OF UNREGISTERED SECURITIES On May 15, 2009, we issued 3,600,000 shares of our common stock to Mr. Yehoshua Lustig, our former President and director of the Company. These shares were issued in consideration for $360. The shares were issued under Section 4(2) of the Securities Act of 1933, as amended. Mr. Lustig was an officer and director of the Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering. From May 2009 through February 2010, we sold 900,000 shares of common stock to 45 investors in a private placement made pursuant to the exemption from the registration requirements of the Securities Act provided by Regulation S. The consideration paid for such shares was $0.001 per share, amounting in the aggregate to $900. Each purchaser represented to us that such purchaser was not a United States person (as defined in Regulation S) and was not acquiring the shares for the account or benefit of a United States person. Each purchaser further represented that at the time of the origination of contact concerning the subscription for the units and the date of the execution and delivery of the subscription agreement for such units, such purchaser was outside of the United States. We did not make any offers in the United States, and there were no selling efforts in the United States. There were no underwriters or broker-dealers involved in the private placement and no underwriting discounts or commissions were paid. II-2 Exhibit Description 3.1 Articles of Incorporation of Registrant* 3.2 By-Laws of Registrant* 3.3 Form of Stock Certificate* 4.1 Promissory Note dated October 1, 2010 made by the Registrant in favor of Shmuel s Hatzlacha Consulting, Inc.* 4.2 Promissory Note dated November 1, 2011 made by Registrant in favor of P&G Holdings LLC ** 5.1 Opinion of David Lubin & Associates, PLLC regarding the legality of the securities being registered *** 10.1 Form of Regulation S Subscription Agreement and Investment Representation* 10.2 Going Public Engagement dated May 16, 2009 between Shumel s Hatzlacha Consulting Inc. and WNS Studios, Inc.* 10.3 Amendment dated October 1, 2010 to Going Public Engagement dated May 16, 2009 between Shumel s Hatzlacha Consulting Inc. and WNS Studios, Inc.* 10.4 Office Services Agreement dated May 16, 2009 between WNS Studios and SE Executive Services Inc.* 10.5 Agreement dated November 14, 2011 between Moses Gross and Yeshosha Lustig ** 10.6 Release dated November 14, 2011 by Shmuel Shneilbalg ** 10.7 Lease Agreement dated November 1, 2011 between Hendrix III Realty Corp. and WNS Studios Inc. ** 23.1 Consent of Wolinetz, Lafazan, P.C. 23.2 Consent of David Lubin & Associates, PLLC (included in Exhibit 5.1) * Previously filed as an Exhibit to the Registration Statement filed with the Securities and Exchange Commission on February 3, 2011, file number 333-172050. ** Previously filed as an Exhibit to the Registration Statement filed with the Securities and Exchange Commission on January 26, 2012, file number 333-172050. *** Previously filed as an Exhibit to the Registration Statement filed with the Securities and Exchange Commission on August 29, 2013, file number 333-190886 II-3 The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of this registration statement, or most recent post-effective amendment, which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement; Notwithstanding the forgoing, any increase or decrease in Volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the commission pursuant to Rule 424(b)if, in the aggregate, the changes in the volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement. (c) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in the registration statement. 2. That, for the purpose of determining any liability under the Securities Act,each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. To remove from registration by means of a post-effective amendment any of the securities being registered hereby which remain unsold at the termination of the offering. 4. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to officers, directors, and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted our director, officer, or other controlling person in connection with the securities registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the final adjudication of such issue. 5. Each prospectus filed pursuant to Rule 424(b) as part of a Registration statement relating to an offering, other than registration statements relying on Rule 430(B) or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by referenced into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling person sin connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue. II-4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders WNS Studios, Inc. We have audited the accompanying balance sheet of WNS Studios, Inc. (a Development Stage Company) ( the Company ) as of April 30, 2013 and 2012 and the related statements of operations, stockholders deficiency and cash flows for the years ended April 30, 2013 and 2012, and the period May 15, 2009 (inception) to April 30, 2013. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. Also, an audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WNS Studios, Inc. at April 30, 2013 and 2012, and the results of its operations and its cash flows for the years ended April 30, 2013 and 2012, and the period May 15, 2009 (inception) to April 30, 2013 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a net loss for the year ended April 30, 2013 and the period May 15, 2009 (inception) to April 30, 2013, has had no revenues and has a working capital deficiency and stockholders' deficiency at April 30, 2013. These factors raise substantial doubt about the Company s ability to continue as a going concern. Management s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. WOLINETZ, LAFAZAN & COMPANY, P.C. Rockville Centre, New York July 19, 2013 WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET ASSETS April 30, 2012 April 30, 2013 Current Assets: Cash and Cash Equivalents $ 767 $ 566 Total Current Assets 767 566 Total Assets $ 767 $ 566 LIABILITIES AND STOCKHOLDERS DEFICIENCY Current Liabilities: Accrued Liabilities $ 10,925 $ 17,033 Total Current Liabilities 10,925 17,033 Long-Term Debt: Note Payable Related Party 33,133 68,926 Total Liabilities 44,058 85,959 Commitments and Contingencies Stockholders Deficiency: Preferred Stock, $.0001 par value; 10,000,000 shares authorized, none issued and outstanding - - Common Stock, $.0001 par value; 100,000,000 shares authorized, 4,500,000 shares issued and outstanding 450 450 Additional Paid-In Capital 810 810 Deficit Accumulated During the Development Stage (44,551 ) (86,653 ) Total Stockholders Deficiency (43,291 ) (85,393 ) Total Liabilities and Stockholders Deficiency $ 767 $ 566 The accompanying notes are an integral part of these financial statements. WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS For the Period For the For the May 15, 2009 Year Ended Year Ended (Inception) to April 30, 2012 April 30, 2013 April 30, 2013 Revenues: $ - $ - $ - Costs and Expenses: Rent 5,700 3,000 25,500 Consulting Fees - - 9,670 Professional Fees 25,375 29,723 85,098 Other General and Administrative Expenses 1,977 6,122 12,573 Total Costs and Expenses 33,052 38,845 132,841 Loss from Operations (33,052 ) (38,845 ) (132,841 ) Other Income (Expense): Extinguishment of Debt 52,894 - 52,894 Interest Expense (1,598 ) (3,257 ) (6,706 ) Total Other Income (Expense) 51,296 (3,257 ) 46,188 Net Income (Loss) $ 18,244 $ (42,102 ) $ (86,653 ) Basic and Diluted Income (Loss) Per Common Share $ 0.00 $ (0.01 ) Weighted Average Common Shares Outstanding 4,500,000 4,500,000 The accompanying notes are an integral part of these financial statements. WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF STOCKHOLDERS DEFICIENCY FOR THE PERIOD MAY 15, 2009 (INCEPTION) TO APRIL 30, 2013 Additional Deficit Accumulated During the Common Stock Paid-in Development Shares Amount Capital Stage Total Balance, May 15, 2009 - $ - $ - $ - $ - Common Stock Issued to Founder at $.0001 per share, May 15, 2009 3,600,000 360 - - 360 Common Stock Issued to Private Investors at $.001 per share, February 8, 2010 900,000 90 810 - 900 Net Loss for the year ended April 30, 2010 - - - (29,955 ) (29,955 ) Balance, April 30, 2010 4,500,000 450 810 (29,955 ) (28,695 ) Net Loss for the year ended April 30, 2011 - - - (32,840 ) (32,840 ) Balance, April 30, 2011 4,500,000 450 810 (62,795 ) (61,535 ) Net Income for the year ended April 30, 2012 - - - 18,244 18,244 Balance, April 30, 2012 4,500,000 450 810 (44,551 ) (43,291 ) Net Loss for the year ended April 30, 2013 - - - (42,102 ) (42,102 ) Balance, April 30, 2013 4,500,000 $ 450 $ 810 $ (86,653 ) $ (85,393 ) The accompanying notes are an integral part of these financial statements. WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS For the Period For the For the May 15, 2009 Year Ended Year Ended (Inception) to April 30, 2012 April 30, 2013 April 30, 2013 Cash Flows from Operating Activities: Net Income (Loss) $ 18,244 $ (42,102 ) $ (86,653 ) Extinguishment of Debt (52,894 ) - (52,894 ) Adjustments to Reconcile Net Income (Loss) to Net Cash (Used) in Operating Activities: Increase (Decrease) in Accrued Liabilities (12,551 ) 6,108 28,898 Net Cash (Used) in Operating Activities (47,201 ) (35,994 ) $ (110,649 ) Cash Flows from Investing Activities: - - - Cash Flows from Financing Activities: Proceeds from Sale of Common Stock - - 1,260 Proceeds of Note Payable-Related Party 33,133 35,793 68,926 Proceeds from Note and Loans Payable 13,235 - 41,029 Net Cash Provided by Financing Activities 46,368 35,793 111,215 Increase (Decrease) in Cash (833 ) (201 ) 566 Cash and Cash Equivalents Beginning of Period 1,600 767 - Cash and Cash Equivalents End of Period $ 767 $ 566 $ 566 Supplemental Cash Flow information: Interest Paid $ - $ - $ - Income Taxes Paid $ - $ - $ - Supplemental disclosure of non cash financing activities: Memorialization of Loan Payable to Note Payable $ 24,644 The accompanying notes are an integral part of these financial statements. WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE 1 - Summary of Significant Accounting Policies Organization WNS Studios, Inc. ( the Company ) was incorporated on May 15, 2009 under the laws of the State of Nevada. The Company has not yet generated revenues from planned principal operations and is considered a development stage company. The Company intends to promote, sell and distribute films for studios. There is no assurance, however, that the Company will achieve its objectives or goals. Cash and Cash Equivalents The Company considers all highly-liquid investments purchased with a maturity of three months or less to be cash equivalents. Revenue Recognition For revenue from product sales, the Company will recognize revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101). SAB No. 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management s judgment regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments will be provided for in the same period the related sales are recorded. Advertising Costs Advertising costs will be charged to operations when incurred. The Company did not incur any advertising costs during the period May 15, 2009 (inception) to April 30, 2013. Income Taxes The Company accounts for income taxes using the asset and liability method, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Income (Loss) Per Share The computation of income (loss) per share is based on the weighted average number of common shares outstanding during the period presented. Diluted income (loss) per common share is the same as basic income (loss) per common share as there are no potentially dilutive securities outstanding (options and warrants). WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE 1 - Summary of Significant Accounting Policies (Continued) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. Research and Development Research and development costs will be charged to expense as incurred. The Company did not incur any research and development costs during the period May 15, 2009 (inception) to April 30, 2013. Fair Value Measurements The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, or which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active, or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets of liabilities. Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities. The Company s financial instruments include cash and equivalents, accrued liabilities, and notes payable. Those items are determined to be Level 1 fair value measurements. The carrying amounts of cash and cash equivalents and accrued liabilities approximates fair value because of the short maturity of these instruments. The recorded value of long-term debt approximates its fair value as the terms and rates approximate market rates. Recent Accounting Pronouncements Management does not believe there would have been a material effect on the accompanying financial statements had any recently issued, but not yet effective, accounting standards been adopted in the current period. WNS STUDIOS, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS NOTE 2 - Going Concern The Company is a development stage company and has not commenced planned principal operations. The Company has no revenues and has incurred a net loss of $42,102 for the year ended April 30, 2013 and a net loss of $86,653 for the period May 15, 2009 (inception) to April 30, 2013. In addition, the Company has a working capital deficiency of $16,467 and stockholders' deficiency of $85,393 at April 30, 2013. These factors raise substantial doubt about the Company s ability to continue as a going concern. There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001510524_graystone_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001510524_graystone_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..56e979029865501e608b0bc3d495a7560d7ac5da
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001510524_graystone_legal_matters.txt
@@ -0,0 +1,398 @@
+Legal Matter
+
+ 
+
+Certain legal matters with respect to the issuance of the securities offered hereby were passed upon by Brinen & Associates, LLC.
+
+ 
+
+Financial Statements and Supplementary Data
+
+ 
+
+The Company's financial statements for the year ended December 31, 2011, have been audited to the extent indicated in their report by Sam Kan & Company. an independent registered public accounting firm. The financial statements have been prepared in accordance with generally accepted accounting principles. Please see the Financial Statements Index on page F-1.
+
+ 
+
+ 
+
+21
+
+Table of Contents
+
+ 
+
+MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
+
+ 
+
+Revenue
+
+ 
+
+Results of Operations
+
+ 
+
+For the Six Months Ended June 30, 2012 and 2011, the Company generated the following revenue:
+
+ 
+
+ 
+ 
+
+Nine Month Ended September 30,
+
+ 
+
+ 
+ 
+
+2012
+
+ 
+ 
+
+2011
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Sales, net
+
+ 
+
+$
+
+88,478
+
+ 
+ 
+
+$
+
+81,209
+
+ 
+
+Cost of Goods Sold
+
+ 
+ 
+
+55,278
+
+ 
+ 
+ 
+
+30,079
+
+ 
+
+Gross Profit
+
+ 
+ 
+
+33,200
+
+ 
+ 
+ 
+
+51,130
+
+ 
+
+ 
+
+For Six Months Ended June 30, 2012 and 2011, the Company generated the following expenses:
+
+ 
+
+ 
+ 
+
+Nine Month Ended September 30,
+
+ 
+
+ 
+ 
+
+2012
+
+ 
+ 
+
+2011
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+General and Administrative
+
+ 
+
+$
+
+911,643
+
+ 
+ 
+
+$
+
+23,694
+
+ 
+
+Legal and Professional
+
+ 
+ 
+
+737,803
+
+ 
+ 
+ 
+
+263,259
+
+ 
+
+Research and Development
+
+ 
+ 
+
+90,805
+
+ 
+ 
+ 
+
+170,545
+
+ 
+
+ 
+ 
+ 
+
+1,740,251
+
+ 
+ 
+ 
+
+406,368
+
+ 
+
+ 
+
+The Company's research and development expenses are related to the Company's mining activities in Peru and include exploration on the Company's mining properties.
+
+ 
+
+Liquidity and Capital Resources
+
+ 
+
+The following is a summary of our balance sheet for the Nine Months Ended June 30, 2012:
+
+ 
+
+Nine Months Ended September 30,
+
+ 
+
+2012
+
+ 
+
+ 
+ 
+ 
+
+Cash
+
+ 
+
+$
+
+63,053
+
+ 
+
+Accounts receivable
+
+ 
+ 
+ 
+ 
+
+Other Long-tern assets
+
+ 
+ 
+
+302,913
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+
+Stockholders' Equity
+
+ 
+ 
+
+(295,099)
+
+ 
+
+ 
+
+In the opinion of management, available funds will not satisfy our growth requirements for the next twelve months. The Company expects that its current revenue will allow us to satisfy our current operations and our reporting requirement for the next twelve months. However, if our revenue decreases we may not able to support our current operations and reporting obligations without obtaining additional funds. We believe our currently available capital resources will allows us to begin operations within our natural resource division and maintain its operation over the course of the next 12 months; however, our other expansion plans would be put on hold until we could raise sufficient capital. The Company expects that it needs to raise between $200,000 and $500,000 to acquire the necessary equipment to begin full mining operations in Peru and approximately $2,000,000 to fully execute on its expected business plan in Suriname. We cannot guaranty that we will be able to raise additional funds. Moreover, in the event that we can raise additional funds, we cannot guaranty that additional funding will be available on favorable terms.
+
+ 
+
+ 
+
+22
+
+Table of Contents
+
+ 
+
+Going Concern
+
+ 
+
+We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive exploration activities. For these reasons our auditors stated in their report that they have substantial doubt we will be able to continue as a going concern.
+
+ 
+
+Accounting and Audit Plan
+
+ 
+
+We expect are audit fees to be approximately $10,000 for the 10-K and $1,500 - $5,000 to review our 10-Q. In the next twelve months, we anticipate spending approximately $30,000 to pay for our accounting and audit requirements.
+
+ 
+
+Off-balance sheet arrangements
+
+ 
+
+We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
+
+ 
+
+Critical Accounting Policies
+
+ 
+
+Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our historical financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
+
+ 
+
+Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
+
+ 
+
+We have not had any disagreements with our auditors on any matters of accounting principles, practices, or financial statement disclosure.
+
+ 
+
+Quantitative and Qualitative Disclosures about Market Risk
+
+ 
+
+Not applicable.
+
+ 
+
+Identification of Directors and Executive Officers.
+
+ 
+
+Our directors and executive officers and additional information concerning them are as follows: 
+
+ 
+
+Name
+
+ 
+
+Age
+
+ 
+
+Position
+
+Paul Howarth
+
+ 
+44
+ 
+
+CEO, Director
+
+Joseph Mezey
+
+ 
+37
+ 
+
+President, CFO and Director
+
+ 
+
+Paul Howarth, CEO/ Director. Mr. Howarth is our CEO and a member of the Board of Directors. In May 2010, Mr. Howarth co-founded The Graystone Company with Joseph Mezey. In 2007, Mr. Howarth became involved with Renard Properties, LLC which acquires and invests in real estate throughout the US. Mr. Howarth is the managing member of Renard Properties, LLC. Renard Properties is an affiliate of the Company due to the fact that it owns more than 10% of the Common Stock of the Company. From August 2008 July 2010, Mr. Howarth was the CEO and member of the Board of Directors of Forterus, Inc. Forterus is a behavioral health company focusing on drug and alcohol rehabilitation. From February 2006- July 2008, Mr. Howarth served as the Senior Vice-President of Bear Stearns and Co. Bear Stearns and Co. was a global investment bank and securities trading and brokerage firm. Mr. Howarth was responsible for the purchase of mortgages from mortgage bankers that were secured by Bear Stearns or its affiliates. From 2004 - 2006, Mr. Howarth worked as a license real estate broker in California. From 2002 2004, Mr. Howarth served as the Director of Production of Home Loan Center where he was responsible for 13 sales managers and over 150 sales staff. Home Loan Center was a mortgage broker/bank and was acquired by Lendingtree.com in 2004. Mr. Howarth received his B.A. from Seton Hall University.
+
+ 
+
+Except as stated above, none of the Companies or entities Mr. Howarth has previously worked for is a parent, subsidiary or other affiliate of the Company.
+
+ 
+
+ 
+
+23
+
+Table of Contents
+
+ 
+
+Joseph Mezey, President/Director. Mr. Mezey is our President and a member of the Board of Directors. In May 2010, Mr. Mezey co-founded The Graystone Company with Paul Howarth. In December 2010, Mr. Mezey became a member of the LLC Renard Properties. Mr. Mezey has no duties or responsibilities with regard to Renard Properties. Renard Properties acquires and invests in real estate throughout the US. Renard Properties is an affiliate of the Company due to the fact that it owns more than 10% of the Common Stock of the Company. Since July 2008, Mr. Mezey has worked as the President of WTL Group, Inc,, his family s company, which is in involved in the manufacturing and sell of products produced in China. WTL Group is an affiliate of the Company due to the fact that it owns more than 10% of the Common Stock of the Company. From August 2008 June 2010, Mr. Mezey was previously a member of the Board of Directors of Forterus, Inc. and served as its CEO from February through August 2008. Forterus is a behavioral health company focusing on drug and alcohol rehabilitation. From March 2007 - May 2008, Mr. Mezey was also the CEO of the Mezey Howarth Racing Stables which owned, raced and breed thoroughbreds throughout the United States. From January 2005 April 2007, Mr. Mezey was the President/COO of NAPP Tour, Inc. (North American Poker Tour). NAAP Tour created a new processional poker tour that was to be aired on television. From 2004 - 2005, Mr. Mezey was the Chief Legal Officer and Interim Chief Accounting Officer of College Partnership, Inc. College Partnership provided college preparatory services to high school student and their parents including SAT courses, selection of majors and college selection. While at College Partnership Mr. Mezey worked with the auditors and finance department to create a system of accounting control and procedures. From 2003 - 2004, Mr. Mezey worked for Vision Direct Marketing as its Vice-President of Operations and General Counsel. Mr. Mezey graduated from Georgetown University Law Center with an LL.M. in Securities and Financial Regulation. Mr. Mezey received his J.D., with cum laude honors, from New England School of Law and his B.S. from Virginia Commonwealth University.
+
+ 
+
+Except as stated above, none of the Companies or entities Mr. Mezey has previously worked for is a parent, subsidiary or other affiliate of the Company.
+
+ 
+
+The foregoing persons are promoters of
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001511159_drewrys_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001511159_drewrys_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..21d75ad1c6648364e8cade0aebabd74cd48b2de2
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001511159_drewrys_legal_matters.txt
@@ -0,0 +1,3941 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the securities offered
+by this prospectus will be passed upon for us by Law Offices of Michael H. Hoffman, P.A.
+
+EXPERTS
+
+ 
+
+Our financial statements have been audited
+for the period ending December 31, 2012 and 2011 by Alan Swift CPA PA, as set forth in their report included in this prospectus.
+Their report is given upon their authority as experts in accounting and auditing.
+
+ 
+
+INTERESTS OF NAMED EXPERTS AND COUNSEL
+
+ 
+
+No expert or counsel named in this prospectus
+as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being
+registered or upon other legal matters in connection with the registration or offering of the common stock offered hereby was employed
+on a contingency basis, or had, or is to receive, in connection with such offering, a substantial interest, direct or indirect,
+in the Company, nor was any such person connected with the Company as a promoter, managing or principal underwriter, voting trustee,
+director, officer, or employee.
+
+ 
+
+WHERE YOU CAN FIND MORE INFORMATION
+
+ 
+
+We have filed with the SEC a Form S-1 Registration
+Statement under the Securities Act with respect to the securities offered by this prospectus. This prospectus does not include
+all of the information contained in the registration statement or the exhibits and schedules filed therewith. You should refer
+to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any
+of our contracts, agreements or other documents, the references are not necessarily
+
+ 47 
+
+ 
+
+ 
+
+ 
+
+complete and you should refer to the exhibits
+attached to the registration statement for copies of the actual contract, agreement or other document.
+
+ 
+
+We will file annual, quarterly and special
+reports and other information with the Securities and Exchange Commission. You can read these SEC filings and reports, including
+the registration statement, over the Internet at the SEC s website at www.sec.gov. You can also obtain
+copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE,
+Washington, DC 20549, on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330
+for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security
+holders, including audited financial statements, at no charge upon receipt of your written request to us at Drewrys Brewing Company
+5402 Brittany Drive, McHenry, IL 60050
+
+ 
+
+FINANCIAL STATEMENTS
+
+ 
+
+Our
+balance sheets as of December 31, 2012 (audited) and September
+30, 2013 (unaudited), and the related statements of operations, shareholders equity and cash flows for the period October
+11, 2010, our inception, through December 31, 2012 (audited), the three months period ended September
+30, 2013 and 2012 (unaudited), the nine
+month period ended September
+30, 2013 (unaudited), the nine
+month period ended September 30, 2012 (unaudited), and cumulative for the period October 11, 2010, our inception, through September
+30, 2013 (unaudited) are included in this prospectus. These financial statements have been prepared on the basis of
+accounting principles generally accepted in the United States and are expressed in United States Dollars.
+
+ 
+
+DEALER PROSPECTUS DELIVERY OBLIGATION
+
+ 
+
+No dealer, salesman or any other person has
+been authorized to give any information or to make any representations other than those contained in this prospectus, and, if given
+or made, such information or representations may not be relied on as having been authorized by us or any of the underwriters. Neither
+the delivery of this prospectus nor any sale made hereunder shall under any circumstances create an implication that there has
+been no change in our affairs since the date of this prospectus. This prospectus does not constitute any offer to sell, or solicitation
+of any offer to buy, by any person in any jurisdiction in which it is unlawful for any such person to make such an offer or solicitation.
+Neither the delivery of this prospectus nor any offer, solicitation or sale made hereunder, shall under any circumstances create
+any implication that the information herein is correct as of any time subsequent to the date of the prospectus.
+
+ 
+
+Until ____________________, 2013 (90
+days from the effective date of this prospectus), all dealers that effect transactions in these securities, whether or not participating
+in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus
+when acting as underwriters and with respect to their unsold allotments or subscriptions.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 48 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Drewrys Brewing Company
+
+(A Development Stage Company)
+
+Index to Financial Statements
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+INDEX TO FINANCIAL STATEMENTS
+
+ 
+
+ 
+
+ 
+ Page
+
+ 
+ 
+
+ Audited Financial Statements December 31, 2012
+ 
+
+ Report of Independent Registered Public Accounting Firm
+ F-2
+
+ Balance Sheet
+ F-3
+
+ Statements of Operations
+ F-4
+
+ Statements of Stockholders Equity (Deficit)
+ F-5
+
+ Statements of Cash Flows
+ F-6
+
+ Notes to Financial Statements
+ F-7 to F-13
+
+ 
+
+ 
+
+ 
+ Condensed Balance Sheets as of September 30, 2013
+(unaudited) and as of December 31, 2012 (audited)
+
+ 
+ 
+
+ F-14
+
+ 
+ Condensed Statements of Operations for the three
+and nine months ended September 30, 2013 and 2012 (unaudited) and for the period October 11, 2010 (inception) to September 30,
+2013 (unaudited)
+
+ 
+ 
+
+ 
+
+ F-15
+
+ 
+ Condensed Statements of Cash Flows for the nine months
+ended September 30, 2013 and 2012, and for the period October 11, 2010 (inception) to September 30, 2013 (unaudited)
+
+ 
+ 
+
+ F-16
+
+ 
+ Condensed Statements of Changed in Stockholders Equity
+ (Deficit) for the period from
+
+ October 11, 2010 (inception) to September 30, 2013 (unaudited)
+
+ 
+ 
+
+ F-17
+
+ Notes to Condensed Financial Statements (unaudited)
+ F-18 to F-24
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ F-1 
+
+ 
+
+ 
+
+ 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC
+ACCOUNTING FIRM
+
+ 
+
+To the Board of Directors and
+
+Stockholders of Drewrys Brewing Company
+
+(A Development Stage Company)
+
+ 
+
+We have audited the accompanying balance
+sheets of Drewrys Brewing Company (A Developmental Stage Company) as of December 31, 2012 and 2011, and the related statements
+of operations, changes in stockholders deficiency, and cash flows for each of the years ended December 31, 2012 and 2011,
+and for the period from October 11, 2010 (inception) to December 31, 2012. Drewrys Brewing Company s management is responsible
+for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
+
+We conducted our audits in accordance with
+the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
+the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company
+is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
+consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
+circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control over
+financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
+the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
+by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
+basis for our opinion.
+
+In our opinion, the financial statements
+referred to above present fairly, in all material respects, the financial position of Drewrys Brewing Company (A Developmental
+Stage Company) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years ended
+December 31, 2012 and 2011, and for the period October 11, 2010 (inception) through to December 31, 2012, in conformity with accounting
+principles generally accepted in the United States of America.
+
+The accompanying financial statements
+have been prepared assuming that Drewrys Brewing Company will continue as a going concern. As discussed in Note 6 to the financial
+statements, Drewrys Brewing Company is in the development stage and has suffered recurring losses, and has an accumulated deficit
+of $37,959 for the period from October 11, 2010 (Inception) to December 31, 2012, and has a negative cash flow from operations
+of $14,264 from inception. These factors raise substantial doubt about Drewrys Brewing Company's ability to continue as a going
+concern. Management's plans concerning these matters are also described in Note 6. The financial statements do not include any
+adjustments that might result from the outcome of this uncertainty.
+
+ 
+ 
+
+ 
+
+ Alan R. Swift, CPA, P.A.
+
+ Certified Public Accountants and Consultants
+
+ 
+ 
+
+ 
+ Palm Beach Gardens, Florida
+
+ December 11, 2013
+
+ 
+
+ 
+
+ F-2 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ BALANCE SHEETS
+
+ 
+
+ 
+ 
+ 
+
+ ASSETS
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ 
+ December 31, 2012 
+ December 31, 2011
+
+ CURRENT ASSETS: 
+ 
+ 
+
+ Cash and equivalents 
+ $128 
+ $51 
+
+ Total Current Assets 
+ 128 
+ 51 
+
+ 
+ 
+ 
+
+ OTHER ASSETS: 
+ 
+ 
+
+ Trademarks 
+ 560 
+ 560 
+
+ Total Other Assets 
+ 560 
+ 560 
+
+ 
+ 
+ 
+
+ Total Assets 
+ $688 
+ $611 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS' DEFICIENCY
+
+ 
+ 
+ 
+
+ CURRENT LIABILITIES: 
+ 
+ 
+
+ Accounts payable and accrued liabilities 
+ $22,195 
+ $13,388 
+
+ Advances from related party 
+ 5,043 
+ — 
+
+ Total Liabilities 
+ 27,238 
+ 13,388 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS' DEFICIENCY: 
+ 
+ 
+
+ Common stock , par value $.001; 75,000,000 shares authorized; 
+ 
+ 
+
+ 9,023,500 shares issued and outstanding as of December 31, 2012 and 
+ 
+ 
+
+ 9,000,000 as of December 31, 2011 
+ $9,024 
+ $9,000 
+
+ Subscription receivable 
+ — 
+ (3,130)
+
+ Additional paid in capital 
+ 2,385 
+ 59 
+
+ Deficit accumulated during the development stage 
+ (37,959) 
+ (18,706)
+
+ Total Stockholders' Deficiency 
+ (26,550) 
+ (12,777)
+
+ 
+ 
+ 
+
+ Total Liabilities and Stockholders' Deficiency 
+ $688 
+ $611 
+
+ 
+
+ 
+
+ 
+
+ F-3 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ STATEMENTS OF OPERATIONS
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ For the period
+
+ 
+ For the 
+ For the 
+ from Inception
+
+ 
+ year ended 
+ year ended 
+ (October 11, 2010) to
+
+ 
+ December 31, 2012 
+ December 31, 2011 
+ December 31, 2012
+
+ 
+ 
+ 
+ 
+
+ REVENUES 
+ $— 
+ $— 
+ $— 
+
+ 
+ 
+ 
+ 
+
+ EXPENSES 
+ 
+ 
+ 
+
+ Advertising and Promotion 
+ 823 
+ — 
+ 823 
+
+ General and Administrative 
+ 11,680 
+ 5,307 
+ 17,386 
+
+ Professional Fees 
+ 6,750 
+ 4,500 
+ 19,250 
+
+ Impairment 
+ — 
+ 500 
+ 500 
+
+ Total Operating Expenses 
+ 19,253 
+ 10,307 
+ 37,959 
+
+ 
+ 
+ 
+ 
+
+ Loss Before Income Taxes 
+ (19,253) 
+ (10,307) 
+ (37,959)
+
+ 
+ 
+ 
+ 
+
+ Provision for Income Taxes 
+ — 
+ — 
+ — 
+
+ 
+ 
+ 
+ 
+
+ Net loss 
+ $(19,253) 
+ $(10,307) 
+ $(37,959)
+
+ 
+ 
+ 
+ 
+
+ Basic and diluted net loss per common share 
+ ** 
+ ** 
+ 
+
+ 
+ 
+ 
+ 
+
+ Weighted average number of common shares outstanding 
+ 9,003,555 
+ 9,000,000 
+ 
+
+ 
+ 
+ 
+ 
+
+ ** Less than $.01 
+ 
+ 
+ 
+
+ 
+
+ F-4 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ STATEMENT OF STOCKHOLDERS' DEFICIENCY
+
+ FROM OCTOBER 11, 2010 (INCEPTION) THROUGH DECEMBER 31, 2012
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ Additional 
+ Accumulated 
+ Total
+
+ 
+ 
+ 
+ Subscription 
+ Paid in 
+ (Deficit) During 
+ Stockholders'
+
+ Par Value of $0.001 
+ Shares 
+ Amount 
+ Receivable 
+ Capital 
+ Development Stage 
+ Equity/(Deficit)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Inception - October 11, 2010 
+ — 
+ $— 
+ $— 
+ $— 
+ $— 
+ $— 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common shares issued to founder for 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ subscription agreement on October 11, 2010 ($0.10/share) 
+ 9,000,000 
+ 9,000 
+ (9,000) 
+ — 
+ — 
+ — 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Capital contribution 
+ — 
+ — 
+ — 
+ 59 
+ — 
+ 59 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 2,550 
+ — 
+ — 
+ 2,550 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Loss for the period from inception on October 11, 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 2010 to December 31, 2010 
+ — 
+ — 
+ — 
+ — 
+ (8,399) 
+ (8,399)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2010 
+ 9,000,000 
+ 9,000 
+ (6,450) 
+ 59 
+ (8,399) 
+ (5,790)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 3,320 
+ — 
+ — 
+ 3,320 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss for the year ended December 31, 2011 
+ — 
+ — 
+ — 
+ — 
+ (10,307) 
+ (10,307)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2011 
+ 9,000,000 
+ 9,000 
+ (3,130) 
+ 59 
+ (18,706) 
+ (12,777)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 3,130 
+ — 
+ — 
+ 3,130 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common shares issued for cash ($0.10/share) 
+ 13,500 
+ 14 
+ — 
+ 1,336 
+ — 
+ 1,350 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common shares issued for services ($0.10/share) 
+ 10,000 
+ 10 
+ — 
+ 990 
+ — 
+ 1,000 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss for the year ended December 31, 2012 
+ — 
+ — 
+ — 
+ — 
+ (19,253) 
+ (19,253)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance at December 31, 2012 
+ 9,023,500 
+ $9,024 
+ $— 
+ $2,385 
+ $(37,959) 
+ $(26,550)
+
+ 
+
+ 
+
+ F-5 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ STATEMENTS OF CASH FLOWS
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ For the period
+
+ 
+ For the 
+ For the 
+ from Inception
+
+ 
+ year ended 
+ year ended 
+ (October 11, 2010) to
+
+ 
+ December 31, 2012 
+ December 31, 2011 
+ December 31, 2012
+
+ OPERATING ACTIVITIES: 
+ 
+ 
+ 
+
+ Net loss 
+ $(19,253) 
+ $(10,307) 
+ $(37,959)
+
+ Adjustments to reconcile net loss to net cash used in operating activities: 
+ 
+ 
+ 
+
+ Impairment loss 
+ — 
+ 500 
+ 500 
+
+ Stock issued for services 
+ 1,000 
+ — 
+ 1,000 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+ 
+
+ Increase in accounts payable and accrued expenses 
+ 8,807 
+ 6,438 
+ 22,195 
+
+ 
+ 
+ 
+ 
+
+ Net cash used in operating activities 
+ (9,446) 
+ (3,369) 
+ (14,264)
+
+ 
+ 
+ 
+ 
+
+ INVESTING ACTIVITIES: 
+ 
+ 
+ 
+
+ Acquisition of trademarks 
+ — 
+ — 
+ (560)
+
+ Acquisition of label designs 
+ — 
+ — 
+ (500)
+
+ 
+ 
+ 
+ 
+
+ Net cash used in investing activities 
+ — 
+ — 
+ (1,060)
+
+ 
+ 
+ 
+ 
+
+ FINANCING ACTIVITIES: 
+ 
+ 
+ 
+
+ Advances from related party, net 
+ 5,043 
+ — 
+ 5,043 
+
+ Payments on subscription agreement 
+ 3,130 
+ 3,320 
+ 9,000 
+
+ Issuance of stock for cash 
+ 1,350 
+ — 
+ 1,350 
+
+ Capital contribution 
+ — 
+ — 
+ 59 
+
+ 
+ 
+ 
+ 
+
+ Net cash provided by financing activities 
+ 9,523 
+ 3,320 
+ 15,452 
+
+ 
+ 
+ 
+ 
+
+ NET INCREASE IN CASH 
+ 77 
+ (49) 
+ 128 
+
+ 
+ 
+ 
+ 
+
+ CASH BEGINNING BALANCE 
+ 51 
+ 100 
+ — 
+
+ 
+ 
+ 
+ 
+
+ CASH ENDING BALANCE 
+ $128 
+ $51 
+ $128 
+
+ 
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
+ 
+ 
+ 
+
+ Taxes paid 
+ $— 
+ $— 
+ $— 
+
+ Interest paid 
+ $— 
+ $— 
+ $— 
+
+ 
+ 
+ 
+ 
+
+ NONCASH TRANSACTIONS AFFECTING OPERATING, 
+ 
+ 
+ 
+
+ INVESTING, AND FINANCING ACTIVITIES: 
+ 
+ 
+ 
+
+ Issuance of common stock for subscription agreement 
+ $— 
+ $— 
+ $9,000 
+
+ F-6 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+NOTE 1. GENERAL ORGANIZATION AND BUSINESS
+
+ 
+
+Drewrys Brewing Company ("the Company")
+is a development stage company, incorporated in the State of Nevada on, October 11, 2010, to develop and market a line of low-priced
+and craft beers. The intent is to provide consumers with malt beverages that appeal to their price point.
+
+ 
+
+Drewrys plan is to sell their beers
+in the wholesale market, targeting select regional wholesalers and distributors in the Midwest and Atlantic/New England regions.
+
+ 
+
+The Company s fiscal year ends on December
+31st.
+
+ 
+
+Through December 31, 2012, the Company was
+in the development stage and has not carried on any significant operations and has generated no revenues. The Company had incurred
+a loss due to professional and administrative fees incurred/accrued since inception. The accompanying financial statements have
+been prepared assuming that the Company will continue as a going concern. These matters, among others, raise substantial doubt
+about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the
+amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going
+concern. (See Note 6)
+
+ 
+
+NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
+PRACTICES
+
+ 
+
+Basis of Presentation
+
+ 
+
+The Company has not earned any revenue from
+operations. Accordingly, the Company s activities have been accounted for as those of a "Development Stage Enterprise"
+as set forth in Accounting Standards Codification ("ASC") 915 "Development Stage Entities". Among the disclosures
+required by ASC 915 are that the Company s financial statements be identified as those of a development stage company, and
+that the statements of operations, stockholders equity/(deficiency) and cash flows disclose activity since the date of the
+Company s inception.
+
+ 
+
+Accounting Basis
+
+ 
+
+These financial statements are prepared on
+the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
+
+ 
+
+Cash and Cash Equivalents
+
+ 
+
+For the purpose of the financial statements
+cash equivalents include all highly liquid investments with maturity of three months or less. As of December 31, 2012 and 2011,
+the Company had no cash equivalents.
+
+ 
+
+Earnings (Loss) per Share
+
+ 
+
+In accordance with accounting guidance now
+codified as FASB ASC Topic 260, "Earnings per Share," The basic earnings (loss) per share are calculated by dividing
+the Company's net income available to common shareholders by the weighted average number of common shares outstanding during the
+year. The diluted earnings (loss) per share are calculated by dividing the Company's net income (loss) available to common shareholders
+by the diluted weighted average number of shares outstanding during the year.
+
+ F-7 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+The diluted weighted average number of shares
+outstanding is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity.
+There are no diluted shares outstanding for any periods reported.
+
+ 
+
+Dividends
+
+ 
+
+The Company has not adopted any policy regarding
+payment of dividends. No dividends have been paid during the periods shown, and none are contemplated in the near future.
+
+ 
+
+Income Taxes
+
+ 
+
+The Company adopted FASB ASC 740, Income Taxes,
+at its inception. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable
+to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.
+Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected
+to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
+on deferred tax assets and liabilities of a change in tax rates are recognized in income in the period that includes the enactment
+date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities.
+The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their
+characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
+than not that some portion or all of the deferred tax assets will not be realized. No deferred tax assets or liabilities were recognized
+as of December 31, 2012 or 2011.
+
+ 
+
+Professional Fees
+
+ 
+
+The Company will expense professional fees
+as incurred. The professional fees were $6,750 and $4,500 for the period ending December 31, 2012 and 2011, respectively.
+
+ 
+
+Use of Estimates
+
+ 
+
+The preparation of financial statements in
+conformity with accounting principles generally accepted in the United States of America requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
+at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
+could differ from those estimates.
+
+ 
+
+Revenue Recognition
+
+ 
+
+The Company has no current source of revenue;
+therefore the Company has not yet adopted any policy regarding the recognition of revenue.
+
+ 
+
+Property
+
+ 
+
+The company does not own any real estate or
+other properties. The company's office is located 5402 Brittany Drive, McHenry Illinois 60050. Our contact number is 815- 575-4815.
+The business office is located at the home of Francis Manzo, the CEO of the company at no charge to the company.
+
+ 
+
+Recently Issued Accounting Pronouncements 
+
+ F-8 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+In February 2013, FASB issued Accounting Standards
+Update 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total
+Amount of the Obligation is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This guidance requires
+an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation
+within the scope of this guidance is fixed at the reporting date. This stipulates that (1) it will include the amount the entity
+agreed to pay for the arrangement between them and the other entities that are also obligated to the liability and (2) any additional
+amount the entity expects to pay on behalf of the other entities. The objective of this update is to provide guidance for the recognition,
+measurement, and disclosure of obligations resulting from joint and several liability arrangements. The amendments in this update
+are effective for fiscal periods (and interim reporting periods within those years) beginning after December 15, 2013. This standard
+is not expected to have a material impact on the Company s reported results of operations or financial position.
+
+ 
+
+In February 2013, FASB issued Accounting standards
+update 2013-02, Comprehensive Income Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.
+This update requires an entity to provide information amount the amount reclassified out of accumulated other comprehensive income
+by component. The entity is also required to disclose significant amounts reclassified out of accumulated other comprehensive income
+by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to
+net income in its entirety in the same reporting periods. For other amounts that are not required under U.S. GAAP to be reclassified
+in their entirety to net income, an entity is required to cross-reference to other discourses required under U.S. GAAP that provide
+additional detail about those amounts. The objective in this Update is to improve the reporting of reclassifications out of accumulated
+other comprehensive income. The amendments in this update should be applied prospectively for reporting periods beginning after
+December 15, 2012. This standard is not expected to have a material impact on the Company s reported results of operations
+or financial position.
+
+ 
+
+Identifiable Intangible Assets
+
+ 
+
+As of December 31, 2012 and December 31, 2011,
+$560 and $560, respectively of costs related to registering our trademarks, It has been determined that the trademark have an indefinite
+useful life and are not subject to amortization. However, the trademark will be reviewed for impairment annually or more frequently
+if impairment indicators arise.
+
+ 
+
+Impairment of Long-Lived Assets
+
+ 
+
+The Company accounts for its long-lived assets
+in accordance with ASC Topic 360-10-05, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic
+360-10-05 requires that long-lived assets, such as our trademarks, be reviewed for impairment annually, or whenever events or changes
+in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses
+recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including
+eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded
+equal to the difference between the asset s carrying value and fair value or disposable value. No impairments were recorded
+for years ended December 31, 2012, and $500 for the year ended December 31, 2011.
+
+ 
+
+ F-9 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+Stock-Based Compensation
+
+ 
+
+In December 2004, the FASB issued FASB Accounting
+Standards Codification No. 718, Compensation –Stock Compensation. Under FASB Accounting Standards Codification
+No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date
+fair value and recognize the costs in the financial statements over the period during which employees are required to provide services.
+Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation
+rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair
+value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The
+Company applies this statement prospectively.
+
+ 
+
+Equity instruments ("instruments")
+issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards
+Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the
+measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance
+commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are
+vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each
+particular grant as defined in the FASB Accounting Standards Codification.
+
+ 
+
+Fair value of Financial Instruments
+
+ 
+
+The Company considers that the carrying amount
+of financial instruments, including accounts payable and accrued liabilities, and advances from related parties approximate fair
+value because of the short maturity of these instruments.
+
+ 
+
+Related Parties
+
+ 
+
+Related parties, which can be a corporation,
+individual, investor or another entity are considered to be related if the party has the ability, directly or indirectly, to control
+the other party or exercise significant influence over the Company in making financial and operation decisions. Companies are also
+considered to be related if they are subject to common control or common significant influence. The Company has these relationships.
+
+ 
+
+Business Segments
+
+ 
+
+The Company operates in one segment and therefore
+segment information is not presented.
+
+ 
+
+Reclassification
+
+ 
+
+Certain amounts from prior periods have been
+reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or
+cash flows.
+
+ 
+
+Subsequent Events
+
+ 
+
+We evaluated subsequent events through the
+date and time our financial statements were issued for potential recognition or disclosure in the accompanying financial statements.
+Other than the disclosures included in these financial statements, we did not identify any events or transactions that should be
+recognized or disclosed in the accompanying financial statements.
+
+ 
+
+ F-10 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+NOTE 3. INCOME TAXES
+
+ 
+
+The Company provides for income taxes under
+ASC Topic 740 which requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and
+liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the
+tax rates in effect currently.
+
+ 
+
+ASC Topic 740 requires the reduction of deferred
+tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all
+of the deferred tax assets will not be realized. In the Company's opinion, it is uncertain whether they will generate sufficient
+taxable income in the future to fully utilize the net deferred tax asset. Details are as follows:
+
+ 
+
+ 
+ For the year ended 
+ For the year ended
+
+ 
+ December 31, 2012 
+ December 31, 2011
+
+ Income tax expense (asset) at statutory rate 
+ $(6,546) 
+ $(3,504)
+
+ Valuation allowance 
+ 6,546 
+ 3,504 
+
+ 
+ 
+ 
+
+ Income tax expense per books 
+ $0 
+ $0 
+
+ 
+ 
+ 
+
+ Net deferred tax asset consists of the following components: 
+ 
+ 
+
+ 
+ 
+ 
+
+ NOL Carryover 
+ $12,906 
+ $6,360 
+
+ Valuation allowance 
+ ($12,906) 
+ (6,360)
+
+ 
+ 
+ 
+
+ Net deferred tax asset 
+ $0 
+ $0 
+
+ 
+
+The valuation allowance was established to
+reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company s
+continued operating losses and the uncertainty of the Company s ability to offset future taxable income through 2032. Utilization
+of these net operating loss carry forwards may be limited in accordance with IRCD Section 3.82 in the event of certain shifts in
+ownership.
+
+ 
+
+The net change in the valuation allowance for
+the year ended December 31, 2012 and 2011 was an increase of $6,546 and $3,504, respectively.
+
+ 
+
+The Company's federal income tax returns are
+no longer subject to examination by the IRS for the years prior to 2009, and the related state income tax returns are no longer
+subject to examination by state authorities for the years prior to 2009.
+
+ 
+
+NOTE 4. STOCKHOLDERS' EQUITY
+
+ 
+
+Common Stock
+
+ 
+
+There are 75,000,000 Common Shares at $0.001
+par value authorized with 9,023,500 issued and outstanding as of December 31, 2012. The sole officer and director of the Company
+owns 9,000,000 of these shares.
+
+ 
+
+ F-11 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+For the year ended December 31, 2010, the Company
+issued 9,000,000 shares of common stock for cash of $9,000 ($0.10/share), of which $9,000 was a subscription receivable. During
+the year ended 2010, $2,550 of capital contribution was collected against the stock subscription receivable. During 2011, $3,320
+of stock subscription receivable was collected. During 2012, $3,130 of stock subscription receivable was collected.
+
+ 
+
+For the year ended December 31, 2012, the Company
+issued 13,500 shares of common stock for cash of $1,350 ($0.10/share)
+
+ 
+
+For the year ended December 31, 2012, the Company
+issued 10,000 shares of common stock having a value of $1,000 ($0.10/share) in exchange for services rendered.
+
+ 
+
+NOTE 5. RELATED PARTY TRANSACTIONS
+
+ 
+
+Advances from related parties represent advances
+granted by Francis Manzo, III. Mr. Manzo pays for certain administrative expenses and is reimbursed by the Company. These advances
+have no fixed terms of repayment, are unsecured, and bear no interest. During the year ended December 31, 2012, Mr. Manzo advanced
+the company $5,693 and was reimbursed $650 for purposes of paying operating expenses on behalf of the Company. As of December 31,
+2012 and December 31, 2011, the Company has a loan from Mr. Manzo with an outstanding balance of $5,043 and $0 respectively.
+
+ 
+
+The officer and director of the Company is
+involved in other business activities and may, in the future, become involved in other business opportunities that become available.
+They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy
+for the resolution of such conflicts.
+
+ 
+
+NOTE 6. GOING CONCERN
+
+ 
+
+As reflected in the accompanying financial
+statements, the Company is in the development stage with no operations, has an accumulated deficit during the development stage
+of $37,959 for the period from October 11, 2010 (inception) to December 31, 2012, and has a negative cash flow from operations
+of $14,264 from inception. This raises substantial doubt about its ability to continue as a going concern. The financial statements
+do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
+
+ 
+
+As of December 31, 2012, the Company has not
+emerged from the development stage. In view of these matters, recoverability of any asset amounts shown in the accompanying financial
+statements is dependent upon the Company's ability to begin operations and to achieve a level of profitability. Since inception,
+the Company has financed its activities principally from the sale of equity securities and loans from principal stockholder. The
+Company intends on financing its future development activities and its working capital needs largely from loans and the sale of
+public equity securities with some additional funding from other traditional financing sources, including term notes, until such
+time that funds provided by operations are sufficient to fund working capital requirements.
+
+ 
+
+Management believes that actions presently
+being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue
+as a going concern.
+
+ 
+
+ F-12 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO FINANCIAL STATEMENTS
+
+AS OF DECEMBER 31, 2012 AND 2011
+
+ 
+
+NOTE 7. TRADEMARKS AND LABEL DESIGNS
+
+ 
+
+The Company owns trademarks for its 
+various brands of beer. These costs provide future benefit to the Company and are considered to have an infinite life at this time.
+The life of these assets will be re-evaluated when they are placed into service.
+
+ 
+
+The trademarks were purchased from Francis
+Manzo, Chief Executive Officer of Drewrys (a related party), for $560. These intangible assets are being valued at cost, and are
+not considered to be impaired at this time.
+
+ 
+
+The Company acquired label designs for $500
+from a third party during the period from October 11, 2010 (inception) through December 31, 2010. The Company has determined that
+the designs no longer have value and an impairment loss for the full amount of $500 was recorded during the year ended December
+31, 2011.
+
+ 
+
+NOTE 8. SUBSEQUENT EVENTS
+
+ 
+
+In preparing these financial statements, the
+Company has evaluated events and transactions for potential recognition or disclosure as follows:
+
+ 
+
+Subsequent to December 31, 2012, the Company
+issued 158,000 shares in common stock for cash.
+
+ 
+
+In January of 2013, the Company entered into
+a five year agreement with an unrelated third party for the purpose of serving as the Company s stock transfer agent.
+
+ 
+
+In February of 2013, the Company entered into
+a two year brewing agreement with a third party for beer production.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ F-13 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ CONDENSED BALANCE
+ SHEETS
+
+ 
+ As of 
+ As of
+
+ 
+ September 30, 2013 
+ December 31, 2012
+
+ 
+ (Unaudited) 
+ (Audited)
+
+ ASSETS 
+ 
+ 
+
+ CURRENT ASSETS: 
+ 
+ 
+
+ Cash and equivalents 
+ $45,395 
+ $128 
+
+ Prepaid expenses 
+ 137,727 
+ — 
+
+ Total Current Assets 
+ 183,122 
+ 128 
+
+ 
+ 
+ 
+
+ OTHER ASSETS: 
+ 
+ 
+
+ Trademarks 
+ 560 
+ 560 
+
+ Total Other Assets 
+ 560 
+ 560 
+
+ 
+ 
+ 
+
+ Total Assets 
+ $183,682 
+ $688 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 
+ 
+ 
+
+ 
+ 
+ 
+
+ CURRENT LIABILITIES: 
+ 
+ 
+
+ Accounts payable and accrued liabilities 
+ $23,711 
+ $22,195 
+
+ Advances from related parties 
+ 14,016 
+ 5,043 
+
+ Note payable, current portion 
+ 62,727 
+ — 
+
+ Total Current Liabilities 
+ 100,454 
+ 27,238 
+
+ 
+ 
+ 
+
+ LONG TERM LIABILITIES: 
+ 
+ 
+
+ Note payable, net of current portion 
+ 22,273 
+ — 
+
+ Total Long Term Liabilities 
+ 22,273 
+ — 
+
+ 
+ 
+ 
+
+ Total Liabilities 
+ 122,727 
+ 27,238 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS' EQUITY (DEFICIENCY): 
+ 
+ 
+
+ Common stock , par value $.001; 75,000,000 shares authorized; 12,214,500 shares issued as of September 30, 2013 and 9,023,500 as of December 31, 2012 
+ $12,215 
+ $9,024 
+
+ Subscription receivable 
+ (1,500) 
+ — 
+
+ Additional paid in capital 
+ 318,294 
+ 2,385 
+
+ Deficit accumulated during the development stage 
+ (268,054) 
+ (37,959)
+
+ Total Stockholders' Equity/(Deficiency) 
+ 60,955 
+ (26,550)
+
+ 
+ 
+ 
+
+ Total Liabilities and Stockholders' Equity/(Deficiency) 
+ $183,682 
+ $688 
+
+ 
+
+ F-14 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ CONDENSED
+ STATEMENTS OF OPERATIONS
+
+ (Unaudited)
+
+ 
+ For the 
+ For the 
+ For the 
+ For the 
+ For the period
+
+ 
+ three month 
+ three month 
+ nine month 
+ nine month 
+ from Inception
+
+ 
+ period ended 
+ period ended 
+ period ended 
+ period ended 
+ (October 11, 2010) to
+
+ 
+ September 30, 2013 
+ September 30, 2012 
+ September 30, 2013 
+ September 30, 2012 
+ September 30, 2013
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ REVENUES 
+ $10,727 
+ $— 
+ $11,176 
+ $— 
+ $11,176 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Cost of Goods Sold 
+ 6,394 
+ — 
+ 6,394 
+ — 
+ 6,394 
+
+ Gross Profit 
+ 4,333 
+ — 
+ 4,782 
+ — 
+ 4,782 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ OPERATING EXPENSES 
+ 
+ 
+ 
+ 
+ 
+
+ Advertising and Promotion 
+ 20,103 
+ — 
+ 28,670 
+ — 
+ 29,493 
+
+ Contract Brewing Fees 
+ — 
+ — 
+ 5,000 
+ — 
+ 5,000 
+
+ General and Administrative 
+ 5,252 
+ 1,973 
+ 6,966 
+ 4,353 
+ 24,352 
+
+ Outside Consulting 
+ 125,485 
+ — 
+ 171,564 
+ — 
+ 171,564 
+
+ Professional Fees 
+ 9,387 
+ 500 
+ 19,627 
+ 1,500 
+ 38,877 
+
+ Impairment 
+ — 
+ — 
+ — 
+ — 
+ 500 
+
+ Total Operating Expenses 
+ 160,227 
+ 2,473 
+ 231,827 
+ 5,853 
+ 269,786 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Loss from Operations 
+ (155,894) 
+ (2,473) 
+ (227,045) 
+ (5,853) 
+ (265,004)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Other Expenses 
+ 
+ 
+ 
+ 
+ 
+
+ Interest Expense 
+ (2,550) 
+ — 
+ (3,050) 
+ — 
+ (3,050)
+
+ Total Other Expenses 
+ (2,550) 
+ — 
+ (3,050) 
+ — 
+ (3,050)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Income (Loss) Before Income Taxes 
+ (158,444) 
+ (2,473) 
+ (230,095) 
+ (5,853) 
+ (268,054)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Provision for Income Taxes 
+ — 
+ — 
+ — 
+ — 
+ — 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net (loss) 
+ $(158,444) 
+ $(2,473) 
+ $(230,095) 
+ $(5,853) 
+ $(268,054)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Basic and diluted net loss per common share 
+ ** 
+ ** 
+ ** 
+ ** 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Weighted average number of common shares outstanding 
+ 12,150,632 
+ 9,002,772 
+ 10,394,249 
+ 9,000,931 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ ** Less than $.01 
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+ F-15 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ CONDENSED
+ STATEMENTS OF CASH FLOWS
+
+ (Unaudited)
+
+ 
+ 
+ 
+ For the period
+
+ 
+ For the 
+ For the 
+ from Inception
+
+ 
+ nine months ended 
+ nine months ended 
+ (October 11, 2010) to
+
+ 
+ September 30, 2013 
+ September 30, 2012 
+ September 30, 2013
+
+ OPERATING ACTIVITIES: 
+ 
+ 
+ 
+
+ Net loss 
+ $(230,095) 
+ $(5,853) 
+ $(268,054)
+
+ Adjustments to reconcile net loss to net cash used in operating activities: 
+ 
+ 
+ 
+
+ Impairment loss 
+ — 
+ — 
+ 500 
+
+ Stock issued for services 
+ 303,300 
+ — 
+ 304,300 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+ 
+
+ (Increase)/decrease in prepaid expenses 
+ (137,727) 
+ — 
+ (137,727)
+
+ Increase/(decrease) in accounts payable and accrued expenses 
+ 1,516 
+ (2,170) 
+ 23,711 
+
+ Net cash used in operating activities 
+ (63,006) 
+ (8,023) 
+ (77,270)
+
+ 
+ 
+ 
+ 
+
+ INVESTING ACTIVITIES: 
+ 
+ 
+ 
+
+ Acquisition of trademarks 
+ — 
+ — 
+ (560)
+
+ Acquisition of label designs 
+ — 
+ — 
+ (500)
+
+ Net cash provided by (used in) investing activities 
+ — 
+ — 
+ (1,060)
+
+ 
+ 
+ 
+ 
+
+ FINANCING ACTIVITIES: 
+ 
+ 
+ 
+
+ Advances from related parties, net 
+ 8,973 
+ 4,570 
+ 14,016 
+
+ Proceeds from note payable 
+ 85,000 
+ — 
+ 85,000 
+
+ Payments on subscription agreement 
+ — 
+ 3,130 
+ 9,000 
+
+ Issuance of stock for cash 
+ 14,300 
+ 500 
+ 15,650 
+
+ Capital contribution 
+ — 
+ — 
+ 59 
+
+ Net cash provided by (used in) financing activities 
+ 108,273 
+ 8,200 
+ 123,725 
+
+ 
+ 
+ 
+ 
+
+ NET INCREASE IN CASH 
+ 45,267 
+ 177 
+ 45,395 
+
+ CASH BEGINNING BALANCE 
+ 128 
+ 51 
+ — 
+
+ CASH ENDING BALANCE 
+ $45,395 
+ $228 
+ $45,395 
+
+ 
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
+ 
+ 
+ 
+
+ Taxes paid 
+ $— 
+ $— 
+ $— 
+
+ Interest paid 
+ $— 
+ $— 
+ $— 
+
+ 
+ 
+ 
+ 
+
+ NONCASH TRANSACTIONS AFFECTING OPERATING, INVESTING, AND FINANCING ACTIVITIES: 
+ 
+ 
+ 
+
+ Issuance of common stock for subscription agreement 
+ $1,500 
+ $— 
+ $9,000 
+
+ 
+
+ F-16 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ DREWRYS BREWING COMPANY
+
+ (A DEVELOPMENT STAGE COMPANY)
+
+ CONDENSED
+ STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
+
+ FROM OCTOBER 11, 2010 (INCEPTION) THROUGH SEPTEMBER 30, 2013
+
+ (Unaudited)
+
+ 
+ Common Stock 
+ Subscription 
+ Additional 
+ Accumulated (Deficit) During 
+Development 
+ Total Stockholders 
+
+ Par Value of $0.001 
+ Shares 
+ Amount 
+ Receivable 
+ Paid in Capital 
+ Stage 
+ Equity/(Deficit)
+
+ Inception - October 11, 2010 
+ — 
+ $— 
+ $— 
+ $— 
+ $— 
+ $— 
+
+ Common shares issued to founder for subscription agreement on October 11, 2010 
+ 9,000,000 
+ 9,000 
+ (9,000) 
+ — 
+ — 
+ — 
+
+ Capital contribution 
+ — 
+ — 
+ — 
+ 59 
+ — 
+ 59 
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 2,550 
+ — 
+ — 
+ 2,550 
+
+ Loss for the period from inception on October 11, 2010 to December 31, 2010 
+ — 
+ — 
+ — 
+ — 
+ (8,399) 
+ (8,399)
+
+ Balance at December 31, 2010 
+ 9,000,000 
+ 9,000 
+ (6,450) 
+ 59 
+ (8,399) 
+ (5,790)
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 3,320 
+ — 
+ — 
+ 3,320 
+
+ Net Loss for the year ended December 31, 2011 
+ — 
+ — 
+ — 
+ — 
+ (10,307) 
+ (10,307)
+
+ Balance at December 31, 2011 
+ 9,000,000 
+ 9,000 
+ (3,130) 
+ 59 
+ (18,706) 
+ (12,777)
+
+ Payments on subscription receivable 
+ — 
+ — 
+ 3,130 
+ — 
+ — 
+ 3,130 
+
+ Common shares issued for cash ($0.10/share) 
+ 13,500 
+ 14 
+ — 
+ 1,336 
+ — 
+ 1,350 
+
+ Common shares issued for services ($0.10/share) 
+ 10,000 
+ 10 
+ — 
+ 990 
+ — 
+ 1,000 
+
+ Net Loss for the year ended December 31, 2012 
+ — 
+ — 
+ — 
+ — 
+ (19,253) 
+ (19,253)
+
+ Balance at December 31, 2012 
+ 9,023,500 
+ 9,024 
+ — 
+ 2,385 
+ (37,959) 
+ (26,550)
+
+ Common shares issued for service ($0.10/share) 
+ 3,033,000 
+ 3,033 
+ — 
+ 300,267 
+ 
+ 303,300 
+
+ Common shares issued for cash ($0.10/share) 
+ 158,000 
+ 158 
+ (1,500) 
+ 15,642 
+ 
+ 14,300 
+
+ Net Loss for the nine months ended September 30, 2013 
+ — 
+ — 
+ — 
+ — 
+ (230,095) 
+ (230,095)
+
+ Balance at September 30, 2013 
+ 12,214,500 
+ $12,215 
+ $(1,500) 
+ $318,294 
+ $(268,054) 
+ $60,955 
+
+ 
+
+ F-17 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+NOTE 1. GENERAL ORGANIZATION AND BUSINESS
+
+ 
+
+Drewrys Brewing Company ("the Company")
+is a development stage company, incorporated in the State of Nevada on, October 11, 2010, to develop and market a line of low-priced
+and craft beers. The intent is to provide consumers with malt beverages that appeal to their price point.
+
+ 
+
+Drewrys plan is to sell their beers
+in the wholesale market, targeting select regional wholesalers and distributors in the Midwest and Atlantic/New England regions.
+
+ 
+
+The Company s fiscal year ends on December
+31st.
+
+ 
+
+The Company has a limited operating history
+upon which to base an evaluation of the current business and future prospects and has yet to achieve substantial commercial sales
+of its initial products. The Company will continue to be considered a development stage entity until it has begun significant operations
+and is generating significant revenues.
+
+ 
+
+The Company has minimal revenues to date. Since
+its inception, the Company has been dependent upon the receipt of capital investment to fund its continuing activities. In addition
+to the normal risks associated with a new business venture, there can be no assurance that the Company's business plan will be
+successfully executed. Our ability to execute our business model will depend on our ability to obtain additional financing and
+achieve a profitable level of operations. There can be no assurance that sufficient financing will be obtained, or can we give
+any assurance that we will generate substantial revenues or that our business operations will prove to be profitable.
+
+ 
+
+The accompanying financial statements have
+been prepared assuming that the Company will continue as a going concern. These matters, among others, raise substantial doubt
+about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the
+amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going
+concern. (See Note 7)
+
+ 
+
+NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
+PRACTICES
+
+ 
+
+Basis of Presentation
+
+ 
+
+The unaudited financial statements included
+in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission
+for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of
+management, necessary for a fair presentation. These financial statements have not been audited.
+
+ 
+
+Certain information and footnote disclosures
+normally included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted
+pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate
+to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements
+and notes for the year ended December 31, 2012 included in the Company s annual report on Form 10-K. The financial data for
+the nine months ended September 30, 2013 may not necessarily reflect the results to be anticipated for the complete year ended
+December 31, 2013.
+
+ 
+
+ F-18 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+Development Stage Company
+
+ 
+
+The Company has earned limited revenue from
+operations. Accordingly, the Company s activities have been accounted for as those of a "Development Stage Enterprise"
+as set forth in Accounting Standards Codification ("ASC") 915 "Development Stage Entities". Among the disclosures
+required by ASC 915 are that the Company s financial statements be identified as those of a development stage company, and
+that the statements of operations, stockholders equity/(deficiency) and cash flows disclose activity since the date of the
+Company s inception.
+
+ 
+
+Accounting Basis
+
+ 
+
+These financial statements are prepared on
+the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
+
+ 
+
+Cash and Cash Equivalents
+
+ 
+
+For the purpose of the financial statements
+cash equivalents include all highly liquid investments with maturity of three months or less. As of September 30, 2013 and December
+31, 2012, the Company has no cash equivalents.
+
+ 
+
+Earnings (Loss) per Share
+
+ 
+
+In accordance with accounting guidance now
+codified as FASB ASC Topic 260, "Earnings per Share," the basic earnings (loss) per share are calculated by dividing
+the Company's net income available to common shareholders by the weighted average number of common shares outstanding during the
+year. The diluted earnings (loss) per share are calculated by dividing the Company's net income (loss) available to common shareholders
+by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding
+is the basic weighted number of shares adjusted as of the first of the year for any potentially dilutive debt or equity. There
+are no diluted shares outstanding for any periods reported.
+
+ 
+
+Dividends
+
+ 
+
+The Company has not adopted any policy regarding
+payment of dividends. No dividends have been paid during the periods shown, and none are contemplated in the near future.
+
+ 
+
+Income Taxes
+
+ 
+
+The Company adopted FASB ASC 740, Income Taxes,
+at its inception. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable
+to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.
+Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected
+to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
+on deferred tax assets and liabilities of a change in tax rates are recognized in income in the period that includes the enactment
+date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities.
+The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their
+characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
+than not that some portion or all of the deferred tax assets will not be realized. No deferred tax assets or liabilities were recognized
+as of September 30, 2013 or December 31, 2012.
+
+ F-19 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+Use of Estimates
+
+ 
+
+The preparation of financial statements in
+conformity with accounting principles generally accepted in the United States of America requires management to make estimates
+and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
+at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
+could differ from those estimates.
+
+ 
+
+Revenue Recognition
+
+ 
+
+The Company recognizes revenue when:
+
+ 
+
+-Persuasive evidence of an arrangement exists;
+
+-Shipment has occurred;
+
+-Price is fixed or determinable; and
+
+-Collectability is reasonably assured
+
+ 
+
+The Company closely follows the provisions
+of Staff Accounting Bulletin No. 104 as described above. For the three and nine month periods ended September 30, 2013 and 2012
+the Company has recognized $10,727 and $11,176, and $0 and $0, respectively of revenues and for the period from October 10, 2010
+(inception) through September 30, 2013 the Company has recognized $11,176 in revenues.
+
+ 
+
+Cost of Goods Sold
+
+ 
+
+Cost of goods sold includes cost of inventories
+sold.
+
+ 
+
+Property
+
+ 
+
+The company does not own any real estate or
+other properties. The company's office is located 5402 Brittany Drive, McHenry Illinois 60050. Our contact number is 815- 575-4815.
+The business office is located at the home of Francis Manzo, the CEO of the company at no charge to the company.
+
+ 
+
+Recently Issued Accounting Pronouncements
+
+ 
+
+The Company has adopted all recently issued
+accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated
+to have a material effect on the financial position or results of operations of the Company.
+
+ 
+
+Identifiable Intangible Assets
+
+ 
+
+As of September 30, 2013 and December 31, 2012,
+$560 and $560, respectively of costs related to registering our trademarks, have been capitalized. It has been determined that
+the trademarks have an indefinite useful life and are not subject to amortization. However, the trademark will be reviewed for
+impairment annually or more frequently if impairment indicators arise.
+
+ 
+
+Impairment of Long-Lived Assets
+
+ 
+
+The Company accounts for its long-lived assets
+in accordance with ASC Topic 360-10-05, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic
+360-10-05 requires that long-lived assets, such as our trademarks, be reviewed for impairment annually, or whenever events or changes
+in
+
+ F-20 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+circumstances indicate that the historical
+cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset
+by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash
+flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset s
+carrying value and fair value or disposable value. No impairments were recorded for the three months ended September 30, 2013 and
+2012.
+
+ 
+
+Stock-Based Compensation
+
+ 
+
+In December 2004, the FASB issued FASB Accounting
+Standards Codification No. 718, Compensation – Stock Compensation. Under FASB Accounting Standards Codification
+No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date
+fair value and recognize the costs in the financial statements over the period during which employees are required to provide services.
+Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation
+rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair
+value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The
+Company applies this statement prospectively.
+
+ 
+
+Equity instruments ("instruments")
+issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards
+Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the
+measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance
+commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are
+vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each
+particular grant as defined in the FASB Accounting Standards Codification.
+
+ 
+
+Fair value of Financial Instruments
+
+ 
+
+The Company considers that the carrying amount
+of financial instruments, including accounts payable and accrued liabilities, and advances from related parties approximate fair
+value because of the short maturity of these instruments.
+
+ 
+
+Related Parties
+
+ 
+
+Related parties, which can be a corporation,
+individual, investor or another entity are considered to be related if the party has the ability, directly or indirectly, to control
+the other party or exercise significant influence over the Company in making financial and operation decisions. Companies are also
+considered to be related if they are subject to common control or common significant influence. The Company has these relationships.
+
+ 
+
+Business Segments
+
+ 
+
+The Company operates in one segment and therefore
+segment information is not presented.
+
+ 
+
+Reclassification
+
+ 
+
+Certain amounts from prior periods have been
+reclassified to conform to the current period presentation. These reclassifications had no impact on the Company's net loss or
+cash flows.
+
+ F-21 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+Subsequent Events
+
+ 
+
+We evaluated subsequent events through the
+date and time our financial statements were issued for potential recognition or disclosure in the accompanying financial statements.
+Other than the disclosures included in these financial statements, we did not identify any events or transactions that should be
+recognized or disclosed in the accompanying financial statements.
+
+ 
+
+NOTE 3. INCOME TAXES
+
+ 
+
+The Company adopted FASB ASC 740, Income Taxes,
+at its inception. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable
+to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.
+Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected
+to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
+on deferred tax assets and liabilities of a change in tax rates are recognized in income in the period that includes the enactment
+date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities.
+The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their
+characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely
+than not that some portion or all of the deferred tax assets will not be realized. No deferred tax assets or liabilities were recognized
+as of September 30, 2013 or December 31, 2012.
+
+ 
+
+NOTE 4. STOCKHOLDERS' EQUITY
+
+ 
+
+Common Stock
+
+ 
+
+There are 75,000,000 Common Shares at $0.001
+par value authorized with 12,214,500 issued and outstanding as of September 30, 2013. The sole officer and director of the Company
+owns 9,000,000 of these shares.
+
+ 
+
+For the year ended December 31, 2010, the Company
+issued 9,000,000 shares of common stock for cash of $9,000 ($0.10/share), of which $9,000 was a subscription receivable. During
+the year ended 2010, $2,550 of capital contribution was collected against the stock subscription receivable. During 2011, $3,320
+of stock subscription receivable was collected. During 2012, $3,130 of stock subscription receivable was collected.
+
+ 
+
+For the year ended December 31, 2012, the Company
+issued 13,500 shares of common stock for cash of $1,350 ($0.10/share).
+
+ 
+
+For the year ended December 31, 2012, the Company
+issued 10,000 shares of common stock having a value of $1,000 ($0.10/share) in exchange for services rendered.
+
+ 
+
+On June 3, 2013, the Company issued 3,033,000
+shares of restricted stock ($0.10/share) in exchange for consulting services having a value of $303,300 to be provided by Venture
+Capital Clinic Corp. through December 31, 2013.
+
+ 
+
+For the nine months ended September 30, 2013,
+the Company issued 158,000 shares of common stock for cash of $15,800 ($0.10/share), of which $1,500 was a subscription receivable.
+
+ 
+
+ F-22 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+NOTE 5. RELATED PARTY TRANSACTIONS
+
+ 
+
+Advances from related parties represent advances
+granted by Francis Manzo, III. Mr. Manzo pays for certain administrative expenses and is reimbursed by the Company. These advances
+have no fixed terms of repayment, are unsecured, and bear no interest. During the nine months ended September 30, 2013, Mr. Manzo
+advanced the company $8,973 for purposes of paying operating expenses on behalf of the Company. As of September 30, 2013 and December
+31, 2012, the Company has a loan from Mr. Manzo with an outstanding balance of $14,016 and $5,043 respectively.
+
+ 
+
+The officer and director of the Company is
+involved in other business activities and may, in the future, become involved in other business opportunities that become available.
+They may face a conflict in selecting between the Company and other business interests. The Company has not formulated a policy
+for the resolution of such conflicts.
+
+ 
+
+NOTE 6. NOTE PAYABLE
+
+ 
+
+On June 3, 2013, the Company acquired a $85,000
+note payable secured by the Company s total assets. The note bears a fixed interest rate of 12% per annum, compounded annually,
+and matures on December 1, 2014. Interest shall accrue for the first 6 months and be due and payable in one lump sum installment
+in the amount of $4,750 on December 31, 2013. Thereafter, principal and accrued interest shall be due and payable in 12 consecutive
+monthly installments in the amount of $7,552.15 beginning on January 1, 2014 and ending on December 1, 2014.
+
+ 
+
+NOTE 7. GOING CONCERN
+
+ 
+
+As reflected in the accompanying financial
+statements, the Company is in the development stage with no operations, has an accumulated deficit during the development stage
+of $268,054 for the period from October 11, 2010 (inception) to September 30, 2013, and has a negative cash flow from operations
+of $77,270 from inception. This raises substantial doubt about its ability to continue as a going concern. The financial statements
+do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
+
+ 
+
+As of September 30, 2013, the Company has not
+emerged from the development stage. In view of these matters, recoverability of any asset amounts shown in the accompanying financial
+statements is dependent upon the Company's ability to begin operations and to achieve a level of profitability. Since inception,
+the Company has financed its activities principally from the sale of equity securities and loans from principal stockholder. The
+Company intends on financing its future development activities and its working capital needs largely from loans and the sale of
+public equity securities with some additional funding from other traditional financing sources, including term notes, until such
+time that funds provided by operations are sufficient to fund working capital requirements.
+
+ 
+
+Management believes that actions presently
+being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue
+as a going concern.
+
+ 
+
+NOTE 8. TRADEMARKS AND LABEL DESIGNS
+
+ 
+
+The Company owns trademarks for its 
+various brands of beer. These costs provide future benefit to the Company and are considered to have an infinite life at this time.
+The life of these assets will be re-evaluated when they are placed into service.
+
+ 
+
+ F-23 
+
+ 
+
+ 
+
+ 
+
+DREWRYS BREWING COMPANY
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO CONDENSED FINANCIAL
+STATEMENTS
+
+(AS OF SEPTEMBER 30, 2013)
+
+(Unaudited)
+
+ 
+
+The trademarks were purchased from Francis
+Manzo, Chief Executive Officer of Drewrys (a related party), for $560. These intangible assets are being valued at cost, and are
+not considered to be impaired at this time.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ F-24 
+
+ 
+
+ 
+
+ 
+
+Item 2. Management s Discussion and
+Analysis of Financial Condition and Results of Operations.
+
+ 
+
+FORWARD LOOKING INFORMATION
+
+ 
+
+The following discussion
+and analysis of the Company s financial condition and results of operations should be read with the condensed financial statements
+and related notes contained in this quarterly report on Form 10-Q ("Form 10-Q"). All statements other than statements
+of historical fact included in this Form 10-Q are, or may be deemed to be, forward-looking statements within the meaning of Section
+27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve known and unknown
+risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements
+to be materially different than any expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking
+statements by terminology such as "may," "will," "should," "expects," "plans,"
+"anticipates," "believes," "estimates," "predicts," "potential," "continue,"
+or the negative of these terms or other comparable terminology. Important factors that could cause actual results to differ materially
+from those discussed in such forward-looking statements include: 1. General economic factors including, but not limited to, changes
+in interest rates and trends in disposable income; 2. Information and technological advances; 3. Cost of products sold; 4. Competition;
+and 5. Success of marketing, advertising and promotional campaigns. The Company is subject to specific risks and uncertainties
+related to its business model, strategies, markets and legal and regulatory environment. You should carefully review the risks
+described in this Form 10-Q and in other documents the Company files from time to time with the SEC. You are cautioned not to place
+undue reliance on the forward-looking statements, which speak only as of the date of this Form 10-Q. The Company undertakes
+no obligation to publicly release any revisions to the forward-looking statements to reflect events or circumstances after the
+date of this document.
+
+ 
+
+OVERVIEW
+
+ 
+
+Business
+
+ 
+
+The Company was formed in
+October 2010 as a Nevada corporation to produce and market a line of low-priced and craft beers under Company owned brand names.
+All activity to date has been related to the formation of our business, formulation of our business plan and initial start-up operations,
+investigating sources of contract brewers investigating potential distribution channels for our products and financing activities.
+There can be no assurance that we will be able to successfully introduce our initial products or any other products into the commercial
+marketplace.
+
+ 
+
+We were formed to develop
+and market craft beers. We have sold our first complete production run of keg beer our second production of keg and bottled beer
+was produced and partially sold on November 4 subsequent to the end of the quarter. While we expect to continue producing our products
+and selling into the marketplace, we cannot assure you that we will have profitable operations.
+
+ 
+
+Results of Operations
+
+ 
+
+In the three months ended
+September 30, 2013, the Company had $10,727 in sales of products and $6,394 in Cost of Sales. Selling, general and administrative
+expenses were $160,227. As a result the Company lost $158,444 in the three months ended September 30, 2013.
+
+ 
+
+In the three months ended
+September 30, 2012, the Company had $0 in sales of products and $0 in Cost of Sales. Selling, general and administrative expenses
+were $2,473. As a result the Company lost $2,473 in the three months ended September 30, 2012.
+
+ 49 
+
+ 
+
+ 
+
+ 
+
+In the nine months ended
+September 30, 2013, the Company had $11,176 in sales of products and $6,394 in Cost of Sales. Selling, general and administrative
+expenses were $231,827. As a result the Company lost $230,095 in the nine months ended September 30, 2013.
+
+ 
+
+In the nine months ended
+September 30, 2012 the Company had $0 in sales of products and $0 in Cost of Sales. Selling, general and administrative expenses
+were $5,853 As a result the Company lost $5,853 in the nine months ended September 30, 2012.
+
+ 
+
+Liquidity and Capital Resources
+
+ 
+
+During the nine months ended
+September 30, 2013, working capital increased $109,778 to a surplus of $82,668 from a deficit of $27,110. The primary reason for
+the increase was the increase in cash of $45,267 and $137,727 in prepaid expenses and offset by an increase in note payable current
+portion of $62,727 and and increase in due to shareholder of $8,973 and an increase in accounts payable of $1,516. During this
+same period, stockholders equity increased $87,505. The increase in stockholders equity is due to the net proceeds
+from the sale of the common stock $14,300 and shares issued for services of $303,000 offset by the net loss for the period of ($230,095).
+
+ 
+
+Cash flows
+
+ 
+
+Net cash used in operating
+activities was $63,006 for the nine months ended September 30, 2013. In the 2013 period cash was used by our loss from operations
+and decreases in accrued expenses offset by cash provided by our increase in due to shareholder and accounts payable and issuance
+of common stock for services.
+
+ 
+
+Net cash used in operating
+activities was $8,023 for the nine months ended September 30, 2012. In the 2012 period cash was used by our loss from operations
+and increases in inventories and prepaid expenses and decreases in accrued expenses and due to shareholder offset by cash provided
+by our increase in accounts payable.
+
+ 
+
+Net cash provided by financing
+activities for the nine months ended September 30, 2013 was $108,273 and reflects common stock issued for cash described below
+and loan proceeds of $85,000.
+
+ 
+
+Net cash provided by financing
+activities for the nine months ended September 30, 2012 was $8,200 and reflects stock issued for cash and advances from related
+parties.
+
+ 
+
+Recent Financing Transactions 
+
+ 
+
+During the nine months ended
+September 30, 2013, the Company sold 158,000 shares of Common Stock at $0.10 per share, for a total of $15,800, of which $1,500
+is a subscription receivable.
+
+ 
+
+During the nine months ended
+September 30, 2013, the Company issued 3,033,000 shares of Common Stock for consulting services valued at $0.10 per share for a
+total of $303,000.
+
+ 
+
+Off Balance Sheet Arrangements
+
+ 
+
+We do not have any off-balance
+sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter
+into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in
+our financial statements in accordance with generally accepted accounting principles in the United States.
+
+ 50 
+
+ 
+
+ 
+
+ 
+
+Critical Accounting Policies and Estimates
+
+ 
+
+Management s discussion
+and analysis of its financial condition and results of operations is based upon our financial statements, which have
+been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires
+us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure
+of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the reported
+amounts of revenues and expenses and the valuation of our assets and contingencies. We believe our estimates and assumptions to
+be reasonable under the circumstances. However, actual results could differ from those estimates under different assumptions or
+conditions. Our financial statements are based on the assumption that we will continue as a going concern. If we are unable to
+continue as a going concern we would experience additional losses from the write-down of assets.
+
+ 
+
+Going Concern 
+
+ 
+
+The Company is currently
+a development stage company and its continued existence is dependent upon the Company s ability to resolve its liquidity
+problems, principally by obtaining additional debt financing and/or equity capital. The Company has yet to generate a significant
+internal cash flow, and until sales of products increase significantly from current levels, the Company is highly dependent upon
+debt and equity funding, should continuing debt and equity funding requirements not be met the Company s operations may cease
+to exist.
+
+ 
+
+New Accounting Pronouncements
+
+ 
+
+The company has adopted
+all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective,
+is not anticipated to have a material effect on the financial position or results of operations of the Company.
+
+ 
+
+Item 3. Quantitative and Qualitative Disclosures
+About Market Risk 
+
+ 
+
+Not applicable for a smaller
+reporting company.
+
+ 
+
+Item 4. Controls and Procedures.
+
+ 
+
+Evaluation of Disclosure
+Controls and Procedures. We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e)
+under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized
+that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute,
+assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and
+procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
+disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions
+about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
+under all potential future conditions. Based on his evaluation as of the end of the period covered by this report, our Principal
+Executive Officer who also serves as our principal accounting officer, has concluded that our disclosure controls and procedures
+were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission
+reports (i) is recorded, processed, summarized and reported within the
+
+ 51 
+
+ 
+
+ 
+
+ 
+
+time periods specified in SEC rules and forms and (ii) is
+accumulated and communicated to our management, including our Principal Executive Officer, to allow timely decisions regarding
+required disclosure.
+
+ 
+
+Changes in Internal Control over Financial Reporting. There
+have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected,
+or is reasonably likely to materially affect, our internal control over financial reporting.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 52 
+
+ 
+
+ 
+
+PART II
+
+ 
+
+INFORMATION NOT REQUIRED IN PROSPECTUS
+
+ 
+
+Item 13. Other Expenses
+of Issuance and Distribution
+
+ 
+
+The following is a list of the expenses to
+be incurred by us in connection with the preparation and filing of this registration statement. All of the following amounts shown
+are estimates:
+
+ SEC registration fee 
+ $40 
+
+ Printing expenses 
+ 500 
+
+ Legal fees and expenses 
+ 5,000 
+
+ Accounting fees and expenses 
+ 5,000 
+
+ Blue sky fees and expenses 
+ 2,000 
+
+ Transfer Agent fees 
+ 2,300 
+
+ Miscellaneous 
+ 160 
+
+ 
+ 
+
+ Total 
+ $15,000 
+
+ 
+
+Item 14. Indemnification
+of Directors and Officers
+
+ 
+
+None of our directors will have personal liability
+to us or any of our shareholders for monetary damages for breach of fiduciary duty as a director involving any act or omission
+of any such director since provisions have been made in the Articles of Incorporation limiting such liability. The foregoing provisions
+will not eliminate or limit the liability of a director (i) for any breach of the director s duty of loyalty to us or our
+shareholders, (ii) for acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law,
+(iii) under applicable Sections of the Florida Business Corporation Act, (iv) the payment of dividends in violation of applicable
+Sections of the Florida Business Corporation Act or (v) for any transaction from which the director derived an improper personal
+benefit.
+
+ 
+
+Our articles of incorporation and bylaws provide
+for indemnification of our directors, officers, and employees in most cases for any liability suffered by them or arising out of
+their activities as our directors, officers, and employees, if they were not engaged in willful misfeasance or malfeasance in the
+performance of his or her duties; provided that in the event of a settlement the indemnification will apply only when the Board
+of Directors approves such settlement and reimbursement as being for the best interests of the Corporation. Our articles
+of incorporation and bylaws, therefore, limit the liability of directors to the maximum extent permitted by the Florida Business
+Corporation Act.
+
+ 
+
+Our officers and directors are accountable
+to us as fiduciaries, which mean they are required to exercise good faith and fairness in all dealings affecting us. In the event
+that a shareholder believes the officers and/or directors have violated their fiduciary duties to us, the shareholder may, subject
+to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce the shareholder s rights,
+including rights under certain federal and state securities laws and regulations to recover damages from and require an accounting
+by management. Shareholders who have suffered losses in connection with the purchase or sale of our securities in connection
+with such sale or purchase, including the misapplication by any such officer or director of the proceeds from the sale of these
+securities, may be able to recover such losses from us.
+
+ 
+
+ 53 
+
+ 
+
+ 
+
+ 
+
+Insofar as indemnification for liabilities
+arising under the Securities Act might be permitted to directors, officers or persons controlling our company under the provisions
+described above, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against
+public policy as expressed in the Securities Act and is therefore unenforceable.
+
+ 
+
+Item 15. Recent Sales
+of Unregistered Securities
+
+ 
+
+The following is a summary of transactions
+by us from October 11, 2010, which is our inception, through the date of this registration statement involving sales of our securities
+that were not registered under the Securities Act. Each offer and sale was made in reliance on Section 4(2) of the Securities
+Act, as transactions by an issuer not involving any public offering. The purchasers were "accredited investors,"
+officers or directors of the registrant or known to the registrant and its management through pre-existing business and/or personal
+relationships. All purchasers were provided access to all material information which they requested, and all information
+necessary to verify such information and were afforded access to management of the registrant in connection with their purchases.
+All holders of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging
+such intent to the registrant. All stock certificates representing such securities that were issued contained restrictive legends,
+prohibiting further transfer of the stock certificates representing such securities, without such securities either being first
+registered or otherwise exempt from registration under the Securities Act, in any further resale or disposition.
+
+ 
+
+On October 11, 2010, the Company issued 9,000,000
+shares of common stock for cash of $9,000 ($0.001/share), of which $9,000 was a subscription receivable. During the year ended
+2010, $2,550 of capital contribution was collected against the stock subscription receivable. During 2011, $3,320 of stock subscription
+receivable was collected. During 2012, $3,130 of stock subscription receivable was collected.
+
+ 
+
+On June 3, 2013, the Company issued 3,033,000
+shares of restricted stock ($0.10/share) in exchange for consulting services to be provided by Venture Capital Clinic Corp. through
+December 31, 2013.
+
+ 
+
+During the nine months ended September 30, 2013, the Company sold 158,000 shares of Common Stock at $0.10
+per share, for a total of $15,800, of which $1,500 is a subscription receivable.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 54 
+
+ 
+
+ 
+
+ 
+
+Item 16. Exhibits and
+Financial Statement Schedules
+
+ 
+
+(a) Exhibits
+
+ 
+
+The following exhibits are filed with this
+Registration Statement on Form S-1:
+
+ 
+
+ Exhibit No.
+ 
+ Description
+
+ 
+ 
+ 
+ 
+ 
+
+ 3.1
+ 
+ Articles of Incorporation, as currently in effect*
+
+ 3.2
+ 
+ Bylaws, as currently in effect*
+
+ 4.1
+ 
+ Specimen common stock certificate*
+
+ 5.1
+ 
+ Opinion of Law Offices of Michael H. Hoffman, P.A.
+
+ 5.2
+ 
+ Opinion of Law Offices of Michael H. Hoffman, P.A.
+
+ 10.1
+ 
+ Subscription
+Agreement for Common Stock
+
+ 10.2
+ 
+ Promissory Note from registrant to Wellesley Capital Management Corp. dated June 15, 2013
+
+ 10.3
+ 
+ Stock Transfer Agent Agreement between the registrant and Pacific Stock Transfer Inc. dated June 15, 2012
+
+ 10.4
+ 
+ Consulting Agreement between the registrant and Venture Capital Clinic Corp.
+
+ 23.1
+ 
+ Consent of Alan R.Swift CPA P.A.
+
+ 23.2
+ 
+ Consent of Law Offices of Michael H. Hoffman, P.A. (included in Exhibit 5.2)
+
+ 
+ 
+ 
+ 
+ 
+
+ 
+____________ 
+
+ 
+
+* Included as an Exhibit to our
+Registration Statement on Form S-1 filed on June 14, 2012
+
+ 
+
+(b) Financial Statement
+Schedules
+
+ 
+
+All schedules have been omitted because the
+information required to be presented in them is not applicable or is shown in the financial statements or the related notes.
+
+ 
+
+Item 17. Undertakings.
+
+ 
+
+The undersigned registrant hereby undertakes:
+
+ 
+
+1. To file, during any period in
+which offers or sales are being made, a post-effective amendment to this registration statement:
+
+ 
+
+(i) To
+include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
+
+ 
+
+(ii) To
+reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
+post-effective amendment thereof) which, individually or together, represent a fundamental change in the information set forth
+in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
+total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end
+of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
+if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering
+price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
+
+ 
+
+ 55 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(iii) To
+include any material information with respect to the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001514682_healthcare_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001514682_healthcare_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..af4c427224e1c87b7cfafb76d9ea534644b6d5a3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001514682_healthcare_legal_matters.txt
@@ -0,0 +1,10257 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the shares offered hereby
+will be passed upon for us by Loeb & Loeb LLP.
+
+ 
+
+EXPERTS
+
+ 
+
+The consolidated balance sheets of HCCA
+and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, stockholders' equity,
+and cash flows for each of the years in the two year period ended December 31, 2011 appearing in this registration statement have
+been audited by Thomas J. Harris, Certified Public Accountant, an independent registered public accounting firm, to the extent
+and for the period set forth in their report appearing elsewhere in this prospectus and in the registration statement.
+
+ 
+
+The balance sheets of Selway Capital
+Acquisition Corporation as of December 31, 2012 and 2011, and the related statements of operations, stockholder s
+equity and cash flows for the year ended December 31, 2012, for the period from January 12, 2011 (inception) to December 31,
+2011 and for the cumulative period from January 12, 2011 (inception) to December 31, 2012 have been audited by McGladrey LLP,
+independent registered public accounting firm, to the extent and for the period set forth in their report appearing elsewhere
+in this prospectus and in the registration statement.
+
+ 
+
+ 54
+
+ 
+
+ 
+
+ 
+
+Selway Capital Acquisition Corporation
+
+ 
+
+Index to Financial Statements
+
+ 
+
+ AUDITED FINANCIAL STATEMENTS FOR HCCA FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Report of Independent Registered Public Accounting Firm
+ 
+ F-3
+
+ 
+ 
+ 
+
+ Restated Consolidated Balance Sheet:
+ 
+ F-4
+
+ December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Restated Consolidated Statements of Operations:
+ 
+ F-5
+
+ Years ended December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Restated Consolidated Statement of Stockholders Equity
+ 
+ F-6
+
+ December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Restated Consolidated Statements of Cash Flows:
+ 
+ F-7
+
+ Years ended December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Restated Notes to Financial Statements:
+ 
+ F-8
+
+ December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ AUDITED FINANCIAL STATEMENTS FOR SELWAY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Report of Independent Registered Public Accounting Firm
+ 
+ F-19
+
+ 
+ 
+ 
+
+ Balance Sheet:
+ 
+ F-20
+
+ December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Statement of Operations:
+ 
+ F-21
+
+ 
+ January 12, 2011 (date
+of inception) to December 31, 2011 and 2012 and year ended December 31, 2012
+
+ 
+ 
+
+ 
+ 
+ 
+
+ Statement of Stockholder s Equity
+ 
+ F-22
+
+ December 31, 2011 and 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Statement of Cash Flows:
+ 
+ 
+
+ 
+ January 12, 2011 (date
+of inception) to December 31, 2011 and 2012 and year ended December 31, 2012
+
+ 
+ F-23
+
+ 
+ 
+ 
+
+ Notes to Financial Statements:
+ 
+ F-24
+
+ December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION
+ 
+ 
+
+ 
+ 
+ 
+
+ Pro Forma Condensed Combined Balance Sheet:
+ 
+ F-38
+
+ December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Notes to Unaudited Pro Forma Condensed Combined Balance Sheet:
+ 
+ F-39
+
+ December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Pro Forma Condensed Combined Income Statement:
+ 
+ F-42
+
+ Year ended December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ Notes to Pro Forma Condensed Combined Income Statement:
+ 
+ F-43
+
+ Year ended December 31, 2012
+ 
+ 
+
+ 
+ 
+ 
+
+ UNAUDITED FINANCIAL STATEMENTS FOR HCCA FOR THE THREE MONTHS ENDED MARCH 31, 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Consolidated Balance Sheet:
+ 
+ F-45
+
+ December 31, 2012 and March 31, 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Consolidated Statements of Operations:
+ 
+ F-46
+
+ Three months ended March 31, 2012 and 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Consolidated Statements of Cash Flows: 
+ 
+ F-47
+
+ Three months ended March 31, 2012 and 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Notes to Financial Statements:
+ 
+ F-48
+
+ March 31, 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ UNAUDITED FINANCIAL STATEMENTS FOR SELWAY FOR THE THREE MONTHS ENDED MARCH 31, 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Condensed Balance Sheets:
+ 
+ F-58
+
+ December 31, 2012 and March 31, 2013
+ 
+ 
+
+ 
+ 
+ 
+
+ Condensed Statement of Operations:
+ 
+ F-59
+
+ 
+ Three months ended March
+31, 2012 and 2013 and January 12, 2011 (date of inception) to March 31, 2013
+
+ 
+ 
+
+ 
+ 
+ 
+
+ Condensed Statement of Cash Flows:
+ 
+ F-60
+
+ 
+ Three months ended March
+31, 2012 and 2013 and January 12, 2011 (date of inception) to March 31, 2013
+
+ 
+ 
+
+ 
+ 
+ 
+
+ Notes to Condensed Financial Statements:
+ 
+ F-61
+
+ March 31, 2013
+ 
+ 
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ Index to Financial Statements
+
+ 
+
+ 
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+ F-3
+
+ 
+ 
+
+ Restated Consolidated Balance Sheet: 
+ 
+
+ December 31, 2011 and 2012 
+ F-4
+
+ 
+ 
+
+ Restated Consolidated Statements of Operations: 
+ 
+
+ Year ended December 31, 2011 and 2012 
+ F-5
+
+ 
+ 
+
+ Restated Consolidated Statement of Stockholders Equity 
+ 
+
+ December 31, 2011 and 2012 
+ F-6
+
+ 
+ 
+
+ Restated Consolidated Statements of Cash Flows: 
+ 
+
+ Year ended December 31, 2011 and 2012 
+ F-7
+
+ 
+ 
+
+ Restated Notes to Financial Statements: 
+ 
+
+ December 31, 2012 
+ F-8
+
+ 
+
+ F-2
+
+ 
+
+ 
+
+ 
+
+THOMAS J.
+HARRIS
+
+CERTIFIED PUBLIC ACCOUNTANT
+
+3901 STONE WAY N., SUITE 202
+
+SEATTLE, WA 98103
+
+206.547.6050
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC
+ACCOUNTING FIRM
+
+To the Board of Directors
+
+Healthcare Corporation of America & Subsidiaries
+
+ 
+
+We have audited the accompanying balance
+sheets of Healthcare Corporation of America & Subsidiaries as of December 31, 2011(Restated) and December 31, 2012 (Restated)
+and the related restated statements of operations, stockholders equity and cash flows for each of the years ended December
+31, 2012 (Restated), and December 31, 2011 (Restated). Healthcare Corporation of America & Subsidiaries management is responsible
+for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
+
+ 
+
+We conducted our audits in accordance with
+the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
+the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company
+is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
+consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
+circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control over
+financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
+the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
+by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
+basis for our opinion.
+
+ 
+
+In our opinion, the financial statements
+referred to above present fairly, in all material respects, the financial position of Healthcare Corporation of America & Subsidiaries
+as of December 31, 2011(Restated) and 2012 (Restated), and the restated results of its operations and cash flows for the periods
+then ended in conformity with generally accepted accounting principles in the United States of America.
+
+ 
+
+As discussed in Note 2 to the financial
+statements, the 2011 and 2012 financial statements have been restated to correct a misstatement.
+
+ 
+
+/s/ Thomas J. Harris
+
+ 
+
+Seattle, Washington
+
+February 28, 2013
+
+May 15, 2013 as to Note 2 and restatement 
+
+ 
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ Consolidated Balance Sheet
+
+ Audited
+
+ 
+
+ 
+ Restated 
+ Restated
+
+ 
+ December 31, 
+ December 31,
+
+ 
+ 2011 
+ 2012
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ Current assets: 
+ 
+ 
+
+ Cash 
+ $3,354,385 
+ $1,791,089 
+
+ Accounts receivable 
+ 451,180 
+ 572,637 
+
+ Rebates receivable 
+ 
+ 1,323,474 
+
+ Other receivable 
+ 
+ 40,867 
+
+ Inventory 
+ 285,708 
+ 573,540 
+
+ Prepaid Loan Fees 
+ 
+ 488,229 
+
+ Total current assets 
+ 4,091,273 
+ 4,789,836 
+
+ 
+ 
+ 
+
+ Property and equipment, net of accumulated depreciation, restated 
+ 824,284 
+ 1,114,055 
+
+ 
+ 
+ 
+
+ Other assets: 
+ 
+ 
+
+ Security deposits 
+ 66,131 
+ 66,131 
+
+ Other 
+ 33,488 
+ 58,743 
+
+ 
+ 99,619 
+ 124,874 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Other Assets 
+ 
+ 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Total Other Assets 
+ 
+ — 
+
+ Total assets 
+ $5,015,176 
+ $6,028,765 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ LIABILITIES 
+ 
+ 
+
+ Current liabilities: 
+ 
+ 
+
+ Accrued Compensation 
+ 
+ $— 
+
+ Accounts payable 
+ $6,301,691 
+ $4,520,223 
+
+ Accrued expenses 
+ 207,100 
+ 453,057 
+
+ Accrued taxes payable 
+ 6,391 
+ 11,071 
+
+ Note payable 
+ 
+ 4,947,613 
+
+ Reedemable preferred stock 
+ 
+ 458,800 
+
+ Warrant liability 
+ 
+ 518,587 
+
+ Current portion of long term debt 
+ 78,800 
+ 137,703 
+
+ Total current liabilities 
+ 6,593,982 
+ 11,047,054 
+
+ Long-term liabilities: 
+ 
+ 
+
+ Convertible Notes Payable 
+ 
+ — 
+
+ Total long-term liabilities 
+ 
+ — 
+
+ 
+ 
+ 
+
+ Total current liabilities 
+ 6,593,982 
+ 11,047,054 
+
+ 
+ 
+ 
+
+ Long term liabilities: 
+ 
+ 
+
+ Deferred rent 
+ 48,296 
+ 64,133 
+
+ Leases payable 
+ 439,953 
+ 399,382 
+
+ 
+ 
+ 
+
+ Total long term liabilities 
+ 488,249 
+ 463,515 
+
+ 
+ 
+ 
+
+ Total Liabilities 
+ 7,082,231 
+ 11,510,569 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS' DEFICIT 
+ 
+ 
+
+ Common stock, no par value, 50,000,000 authorized, 
+ 
+ 
+
+ 37,879,809 and 40,000,009 shares issued and outstanding 
+ 3,525,294 
+ 3,556,056 
+
+ Stock redemption 
+ 
+ (100,000)
+
+ Accumulated deficit, restated 
+ (5,592,349) 
+ (8,937,860)
+
+ Total stockholders' equity 
+ (2,067,055) 
+ (5,481,804)
+
+ Total liabilities and stockholders equity 
+ $5,015,176 
+ $6,028,765 
+
+ 
+
+The accompanying notes are an integral part of these statements.
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ Consolidated Statement of Operations
+
+ Audited
+
+ 
+
+ 
+ 
+ 
+
+ 
+ Restated 
+ Restated 
+
+ 
+ Year Ended 
+ Year Ended 
+
+ 
+ December 31, 
+ December 31, 
+
+ 
+ 2011 
+ 2012 
+
+ 
+ 
+ 
+
+ Sales 
+ $24,928,065 
+ $28,663,284 
+
+ 
+ 
+ 
+
+ Cost of Sales 
+ 23,919,518 
+ 24,068,906 
+
+ 
+ 
+ 
+
+ Gross Profit 
+ 1,008,547 
+ 4,594,378 
+
+ 
+ 
+ 
+
+ General and administrative expenses: 
+ 
+ 
+
+ Wages and taxes 
+ 1,795,693 
+ 3,166,830 
+
+ Commissions 
+ 376,566 
+ 1,286,842 
+
+ Advertising and marketing 
+ 12,196 
+ 78,466 
+
+ Legal and professional 
+ 123,395 
+ 467,246 
+
+ Computer and internet 
+ 35,735 
+ 13,649 
+
+ Travel and entertainment 
+ 47,347 
+ 153,384 
+
+ Insurance 
+ 105,104 
+ 626,456 
+
+ Office and postage 
+ 55,721 
+ 184,365 
+
+ Rent 
+ 217,499 
+ 182,455 
+
+ Depreciation and amortization 
+ 64,236 
+ 205,997 
+
+ Bad debts 
+ 1,931,310 
+ 695,833 
+
+ Other office and miscellaneous 
+ 116,462 
+ 238,080 
+
+ Total operating expenses 
+ 4,881,264 
+ 7,299,603 
+
+ Income/(Loss) from operations 
+ (3,872,717) 
+ (2,705,225)
+
+ 
+ 
+ 
+
+ Other income (expense): 
+ 
+ 
+
+ Interest income 
+ 
+ 1,017 
+
+ Interest (expense) 
+ (8,274) 
+ (634,319)
+
+ Other (expense) 
+ 
+ (6,984)
+
+ Income/(Loss) before taxes 
+ (3,880,991) 
+ (3,345,511)
+
+ 
+ 
+ 
+
+ Provision/(credit) for taxes on income 
+ - 
+ - 
+
+ Net Income/(loss) 
+ $(3,880,991) 
+ $(3,345,511)
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Basic earnings/(loss) per common share 
+ $(0.10) 
+ $(0.09)
+
+ 
+ 
+ 
+
+ Weighted average number of shares outstanding 
+ 37,879,809 
+ 38,939,909 
+
+ 
+
+The accompanying notes are an integral part of these statements.
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ Consolidated Statement of Stockholders' Deficit
+
+ Audited
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+
+ 
+ Common stock 
+ Stock 
+ Accumulated 
+ 
+
+ 
+ Shares 
+ Amount 
+ Redemption 
+ Deficit 
+ Totals 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance, December 31, 2010 (audited), restated 
+ 21,878,450 
+ $1,529,060 
+ 
+ $(1,711,358) 
+ $(182,298)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stock-based compensation 
+ 10,469,109 
+ 410,529 
+ 
+ 
+ 410,529 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock cancelled 
+ (1,392,000) 
+ (57,500) 
+ 
+ 
+ (57,500)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock issued 
+ 6,924,250 
+ 1,643,205 
+ 
+ 
+ 1,643,205 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net (loss) for the period 
+ 
+ 
+ 
+ (3,880,991) 
+ (3,880,991)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance, December 31, 2011 (audited), restated 
+ 37,879,809 
+ 3,525,294 
+ 
+ (5,592,349) 
+ (2,067,055)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common and preferred shares issued 
+ 2,120,200 
+ 30,762 
+ 
+ 
+ 30,762 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stock redemption 
+ 
+ 
+ (100,000) 
+ 
+ (100,000)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net (loss) for the period 
+ 
+ 
+ 
+ (3,345,511) 
+ (3,345,511)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance, December 31, 2012 (audited), restated 
+ 40,000,009 
+ $3,556,056 
+ $(100,000) 
+ $(8,937,860) 
+ $(5,481,804)
+
+ 
+
+The accompanying notes are an integral part of these statements.
+
+ 
+
+ F-6
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ Consolidated Statement of Cash Flows
+
+ Audited
+
+ 
+
+ 
+ 
+ 
+
+ 
+ Restated 
+ Restated 
+
+ 
+ December 31, 
+ December 31, 
+
+ 
+ 2011 
+ 2012 
+
+ 
+ 
+ 
+
+ Cash flows from operating activities: 
+ 
+ 
+
+ Net income (loss) 
+ $(3,880,991) 
+ $(3,345,511)
+
+ 
+ 
+ 
+
+ Adjustments to reconcile net (loss) to cash 
+ 
+ 
+
+ provided (used) by operating activities: 
+ 
+ 
+
+ Common stock issued for services 
+ 410,529 
+ 
+
+ Depreciation and amortization, restated 
+ 64,236 
+ 205,997 
+
+ Change in current assets and liabilities: 
+ 
+ 
+
+ Accounts receivable 
+ (439,069) 
+ (121,457)
+
+ Rebates 
+ 
+ (1,323,474)
+
+ Other receivables 
+ 
+ (40,867)
+
+ Inventory 
+ (284,419) 
+ (287,832)
+
+ Prepaid expenses and other current assets 
+ (45,349) 
+ (513,484)
+
+ Other assets 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ 5,915,286 
+ (1,530,823)
+
+ Deferred rent, restated 
+ 56,402 
+ 16,478 
+
+ Net cash flows from operating activities 
+ 1,796,625 
+ (6,940,973)
+
+ 
+ 
+ 
+
+ Cash flows from investing activities: 
+ 
+ 
+
+ Purchase of fixed assets, restated 
+ (880,761) 
+ (495,768)
+
+ 
+ 
+ 
+
+ Net cash flows from investing activities 
+ (880,761) 
+ (495,768)
+
+ 
+ 
+ 
+
+ Cash flows from financing activities: 
+ 
+ 
+
+ Proceeds from sale of common stock 
+ 1,643,205 
+ 30,762 
+
+ Proceeds from notes payable 
+ 
+ 4,947,613 
+
+ Redeemable preferred stock 
+ 
+ 458,800 
+
+ Warrants issued 
+ 
+ 518,587 
+
+ Redemption of common stock 
+ (57,500) 
+ (100,000)
+
+ Proceeds/(payments) from capital leases, restated 
+ 510,647 
+ 17,683 
+
+ 
+ 
+ 
+
+ Net cash flows from financing activities 
+ 2,096,352 
+ 5,873,445 
+
+ Net cash flows 
+ 3,012,216 
+ (1,563,296)
+
+ 
+ 
+ 
+
+ Cash and equivalents, beginning of period 
+ 342,169 
+ 3,354,385 
+
+ Cash and equivalents, end of period 
+ $3,354,385 
+ $1,791,089 
+
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR: 
+ 
+ 
+
+ Interest 
+ $(8,274) 
+ $(231,262)
+
+ Income taxes 
+ 
+ $- 
+
+ 
+
+The accompanying notes are an integral part of these statements.
+
+ 
+
+ 
+
+ F-7
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+Note 1 - Summary of Significant Accounting Policies
+
+ 
+
+ General Organization
+and Business
+
+ 
+
+Healthcare Corporation of America ("HCCA") and
+its subsidiaries, are New Jersey Corporations. The consolidated companies are primarily engaged in the health
+benefits industry which provides benefit management services and mail order pharmacy fulfillment. The subsidiaries are
+Prescription Corporation of America Benefits ("PCB") and Prescription Corporation of America ("PCA").
+HCCA was incorporated on February 26, 2008, PCB was incorporated on October 7, 2010, and PCA was incorporated on January 11,
+2008.
+
+ 
+
+Basis of presentation
+
+ 
+
+The accompanying consolidated financial
+statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.
+GAAP"). Changes in classification of 2011 amounts have been made to conform to current presentations.
+
+ 
+
+Basis of consolidated
+
+ 
+
+The consolidated financial statements include
+the accounts of HCCA and its wholly-owned subsidiaries PCA and PCB, (collectively, the "Company").
+All significant intercompany transactions and balances have been eliminated in consolidation.
+
+ 
+
+Use of estimates
+
+ 
+
+The preparation of financial statements
+in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
+reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
+and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
+
+ 
+
+Cash and cash equivalents
+
+ 
+
+For purposes of the statement of cash flows,
+we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be
+cash equivalents. For cash management purposes, the Company concentrates its cash holdings in multiple checking accounts at Chase
+Bank. The balances in these accounts may exceed the federally insured limit of $250,000 by the Federal Deposit Insurance Corporation
+in case of bank failure. At December 31, 2012, the Company had $1,040,836 in excess of the insurance limit at this bank.
+
+ 
+
+Property and Equipment
+
+ 
+
+The Company values its investment in property
+and equipment at cost less accumulated depreciation. Depreciation is computed primarily by the straight line method over the estimated
+useful lives of the assets ranging from five to thirty-nine years.
+
+ 
+
+Inventory
+
+ 
+
+Inventory is recorded at lower of cost or market; cost is computed
+on a first-in first-out basis. The inventory consists of finished goods. Inventory at year end was $573,540.
+
+ 
+
+ 
+
+ F-8
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+Accounts receivable
+
+ 
+
+Trade receivables are carried at original
+invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method. Management determines
+uncollectible accounts by regularly evaluating individual customer receivables and considering a customer s financial condition,
+credit history, and current economic conditions and by using historical experience applied to an aging of accounts. Recoveries
+of trade receivables previously written off are recorded when received.
+
+ 
+
+Revenue recognition
+
+ 
+
+Benefit management services revenues are recognized over the
+period in which members are entitled to receive benefits. Mail order pharmacy fulfillment sales consist of amounts due from third
+party payors and member copayment.
+
+ 
+
+Rebates received from the pharmaceutical
+manufacturers are recorded as reduction of cost of revenues and the portion of the rebate payable to customers is treated as reduction
+of revenue.
+
+ 
+
+Stock-based
+compensation 
+
+ 
+
+The Company accounts for equity awards based on the fair value
+of the common stock at the date of issue. Expense is recognized upon vesting.
+
+ 
+
+Fair value of financial
+instruments and derivative financial instruments
+
+ 
+
+We have adopted Accounting Standards Codification
+regarding Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. The carrying amounts of cash,
+accounts payable, accrued expenses, and other current liabilities approximate fair value because of the short maturity of these
+items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and,
+therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold
+or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of foreign exchange,
+commodity price or interest rate market risks.
+
+ 
+
+Federal income taxes
+
+ 
+
+Deferred income taxes
+are reported for timing differences between items of income or expense reported in the financial statements and those reported
+for income tax purposes in accordance with Accounting Standards Codification regarding Accounting for Income Taxes, which requires
+the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for
+the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
+liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are
+measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
+to be recovered or settled. Deferred taxes are provided for the estimated future tax effects attributable to temporary differences
+and carryforwards when realization is more likely than not.
+
+ 
+
+Net Income Per Share
+of Common Stock
+
+ 
+
+We have adopted Accounting Standards Codification
+regarding Earnings per Share, which requires presentation of basic and diluted EPS on the face of the income statement for all
+entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation
+to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share
+of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during
+the period. We do not compute fully diluted earnings per share because they are antidilutive.
+
+ 
+
+ 
+
+ F-9
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+ Internal Website
+Development Costs
+
+ 
+
+Under ASC350-50, Website Development
+Costs, costs and expenses incurred during the planning and operating stages of the Company's website are expensed as incurred. Under
+ASC 350-50, costs incurred in the website application and infrastructure development stages are capitalized by the Company and
+amortized to expense over the website's estimated useful life or period of benefit. 
+
+ 
+
+ Impairment of
+Long-Lived Assets
+
+ 
+
+The Company evaluates the recoverability
+of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment
+or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or
+the useful life has changed.
+
+ 
+
+ Deferred Offering
+Costs
+
+ 
+
+The Company defers as other assets the
+direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion
+of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering
+costs are charged to operations during the period in which the offering is terminated. During 2012, the Company incurred $689,264
+in offering costs which were capitalized and amortized over the life of the loan.
+
+ 
+
+ Common Stock
+Registration Expenses
+
+ 
+
+The Company considers incremental costs
+and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain
+date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses
+are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
+
+ 
+
+Risk Concentration
+
+ 
+
+The Company grants unsecured credit to its customers. The Company
+continuously monitors the payment performance of its customers to ensure collections and minimize losses. Management does not believe
+that significant credit risks exist at December 31, 2012. Management has determined that an allowance for doubtful accounts is
+not necessary at December 31, 2012 since no losses have been incurred to date.
+
+ 
+
+Advertising
+
+ 
+
+The Company expenses all costs of advertising
+as incurred. The advertising costs included in general and administrative expenses for the year ended December 31, 2011 and 2012
+were $12,196 and $78,466, respectively
+
+ 
+
+ 
+
+Note 2 – Restatement 
+
+ 
+
+The financial statements have been revised to correct an error
+in accounting for the Company s sales, accounts receivable, cost of sales, accounts payable, capital leases, accrued rent
+and accrued taxes. In accordance with U.S. GAAP, the Company calculated and recognized adjustments accordingly.
+
+ 
+
+ F-10
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+ 
+
+The following table represents the effects of the restated statements
+as of December 31, 2011 and 2012.
+
+ 
+
+ 
+ Restated 
+ Original 
+ Restated 
+ Original 
+
+ 
+ 12/31/2011 
+ 12/31/2011 
+ 12/31/2012 
+ 12/31/2012 
+
+ Accounts receivable 
+ $- 
+ 
+ $572,637 
+ $1,220,065 
+
+ 
+ 
+ 
+ 
+ 
+
+ Rebates Receivable 
+ $- 
+ $- 
+ $1,323,474 
+ $1,638,000 
+
+ 
+ 
+ 
+ 
+ 
+
+ Property and Equipment, net 
+ $824,284 
+ $338,631 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ Accounts payable 
+ $6,301,691 
+ $2,559,592 
+ $4,520,223 
+ $1,514,857 
+
+ 
+ 
+ 
+ 
+ 
+
+ Leases payable 
+ $510,647 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ Deferred rent 
+ $56,402 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ Accrued taxes 
+ $6,391 
+ $- 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ Sales 
+ $24,928,065 
+ $28,226,088 
+ $28,663,284 
+ $38,401,140 
+
+ 
+ 
+ 
+ 
+ 
+
+ Cost of Sales 
+ $23,919,518 
+ $25,406,749 
+ $24,068,906 
+ $31,650,232 
+
+ 
+ 
+ 
+ 
+ 
+
+ General and Administrative expenses 
+ $4,881,266 
+ $2,876,835 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ Accumulated deficit 
+ $(5,592,349) 
+ $(1,762,462) 
+ $(8,937,860) 
+ $(4,970,540)
+
+ 
+
+ 
+
+Note 3 – Commitments and Contingencies 
+
+ 
+
+Operating leases:
+
+ 
+
+The Company leases office space in Denville, New Jersey and
+office equipment. The office lease requires the following minimum rental payments:
+
+ 
+
+ 
+
+ Minimum Rental Payments 
+
+ 
+ Premise 
+
+ 2013 
+ $202,140 
+
+ 2014 
+ 212,888 
+
+ 2015 
+ 207,733 
+
+ 2016 
+ 219,270 
+
+ 2017 
+ 36,630 
+
+ Thereafter 
+ - 
+
+ 
+ $878,661 
+
+ 
+
+Rent expense for the period ended December 31, 2011 and 2012
+was $217,499 and $182,455.
+
+ 
+
+ F-11
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+The Company also has a deferred rental agreement with
+their landlord. The Company has recorded deferred rent at December 31, 2011 of $56,402 and $72,888 on December 31, 2012. The
+deferral amortizes over the life of the lease that expires in February 2017.
+
+ 
+
+Note 4 – Employment Agreements
+
+ 
+
+In 2012, the Company entered into employment agreements with
+four of its senior officers. The agreements specify an aggregate guaranteed salaries of $930,000 each year of employment. The agreements
+allow the Company to terminate these individuals for cause. At December 31, 2012 the Company has four remaining agreements.
+
+ 
+
+Note 5 – Litigation
+
+ 
+
+During 2012, the Company filed suit against its past adjudicator
+of claims for overcharges, over payment on claims, errors and misclassifications, and rebates owed from drug manufacturers for
+over $5 million. The Company s General Counsel has advised management that the outcome of this lawsuit is undeterminable,
+and as a result, the Company has not recorded any receivable and will record any revenue when and if received. The adjudicator
+of claims filed a counterclaim in the amount of $2.9 million for amounts it claims are owed to it by the Company
+
+ 
+
+On August 14, 2012, the Company entered into a settlement with
+a shareholder to buy back 500,000 shares of common stock for $100,000. The settlement also called for the Company to pay $50,000
+to the shareholder to settle claims against the company . As of December 31, 2012, the Company had not received the 500,000 shares
+of common stock but had paid the settlement. The Company received these shares in February 2013. A stock redemption was recorded
+on December 31, 2012 in the amount of $100,000.
+
+ 
+
+Note 6 - Common Stock
+
+ 
+
+During 2011, the Company issued 10,469,109 shares of common
+stock with a fair value range of $0.03 to $0.31 to its full-time employees and consultants in recognition of their efforts to assist
+and develop the Company. Stock-based compensation costs amounted to $410,529. These shares vested immediately and are freely tradable.
+
+ 
+
+During 2012, the Company issued 2,120,200 shares of common stock
+with a fair value range of $0.01 to $0.31. These shares are freely tradable.
+
+ 
+
+During 2012, the Company settled a suit with a shareholder to
+repurchase 500,000 shares of its common stock. These shares were recorded as a stock redemption for $100,000 and the shares were
+received in February 2013.
+
+ 
+
+ F-12
+
+ 
+
+ 
+
+ 
+
+ 
+
+Note 7 – Property and Equipment
+
+ 
+
+The Company values its investment in property
+and equipment at cost less accumulated depreciation.
+
+ 
+
+Following is a detailed break-out of the
+Company s property and equipment:
+
+ 
+
+ 
+ 2011 
+ 2012 
+
+ Furniture and fixtures 
+ $883,195 
+ $1,374,126 
+
+ Leasehold improvements 
+ 5,325 
+ 10,162 
+
+ 
+ 
+ 
+
+ 
+ 888,520 
+ 1,384,288 
+
+ Accumulated depreciation 
+ (64,236) 
+ (270,233)
+
+ 
+ 
+ 
+
+ Net property and equipment 
+ $824,284 
+ $1,114,055 
+
+ 
+
+The Company recorded depreciation expense of $64,236 and $205,997
+for the years ended December 31, 2011 and 2012, respectively.
+
+ 
+
+ F-13
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+ 
+
+ 
+
+Note 8 – Long Term Debt – Leases
+
+ 
+
+Long-term debt at December 31, 2012 is summarized as follows:
+
+ 
+
+ 
+ Due within 
+ Due after 
+ Total 
+
+ 
+ One year 
+ One Year 
+ 12/31/2012 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $2,140 including 8% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ $22,416 
+ $123,592 
+ $146,008 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,712 including 8% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 17,932 
+ 137,370 
+ 155,302 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,117 including 12% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 8,952 
+ 32,049 
+ 41,001 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,764 including 12% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 17,939 
+ 16,694 
+ 34,633 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,672 including 12% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 17,008 
+ 15,828 
+ 32,836 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $764 including 7% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 7,757 
+ 15,715 
+ 23,472 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,383 including 6.2% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 15,089 
+ 16,053 
+ 31,142 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $212 including 7% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 2,169 
+ 4,182 
+ 6,351 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $1,159 including 6.9% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 11,869 
+ 22,853 
+ 34,722 
+
+ 
+ 
+ 
+ 
+
+ Note payable in monthly installments 
+ 
+ 
+ 
+
+ of $763 including 6.9% interest, secured 
+ 
+ 
+ 
+
+ by equipment 
+ 7,818 
+ 15,046 
+ 22,864 
+
+ 
+ 
+ 
+ 
+
+ 
+ $128,949 
+ $399,382 
+ $528,331 
+
+ 
+
+ F-14
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+ Future maturities of long term debt are as follows: 
+ 
+
+ 
+ 
+
+ December 31, 2013 
+ $123,819 
+
+ December 31, 2014 
+ 85,531 
+
+ December 31, 2015 
+ 46,700 
+
+ December 31, 2016 
+ 68,810 
+
+ December 31, 2017 
+ 74,522 
+
+ 
+ $399,382 
+
+ 
+
+Note 9 - Income Taxes
+
+ 
+
+The provision (benefit) for income taxes for the years ended
+December 31, 2011 and 2012, were as follows:
+
+ 
+
+ 
+ Year Ended December 31, 
+
+ 
+ 2011 
+ 2012 
+
+ 
+ 
+ 
+
+ Current Tax Provision: 
+ 
+ 
+
+ Federal- 
+ 
+ 
+
+ Taxable income 
+ $- 
+ $- 
+
+ 
+ 
+ 
+
+ Total current tax provision 
+ $- 
+ $- 
+
+ 
+ 
+ 
+
+ Deferred Tax Provision: 
+ 
+ 
+
+ Federal- 
+ 
+ 
+
+ Loss carryforwards 
+ $1,319,537 
+ $1,137,473 
+
+ Change in valuation allowance 
+ (1,319,537) 
+ (1,137,473)
+
+ 
+ 
+ 
+
+ Total deferred tax provision 
+ $- 
+ $- 
+
+The Company had deferred income tax assets as of December 31,
+2011, and 2012, as follows:
+
+ 
+
+ 
+ December 31, 
+
+ 
+ 2011 
+ 2012 
+
+ 
+ 
+ 
+
+ Loss carryforwards 
+ $1,901,399 
+ $3,038,872 
+
+ Less - Valuation allowance 
+ (1,901,399) 
+ (3,038,872)
+
+ 
+ 
+ 
+
+ Total net deferred tax assets 
+ $- 
+ $- 
+
+ 
+
+The Company provided a valuation allowance
+equal to the deferred income tax assets for the years ended December 31, 2011, and 2012, because it is not presently known whether
+future taxable income will be sufficient to utilize the loss carryforwards.
+
+ 
+
+ F-15
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+As of December 31, 2011, and 2012, the
+Company had approximately $5,592,349 and $8,937,859, respectively, in tax loss carryforwards that can be utilized in future periods
+to reduce taxable income, and will begin to expire in the year 2035.
+
+ 
+
+Note 10 – Note Payable and Preferred Stock
+
+ 
+
+On September 19, 2012, the Company entered into a bridge loan
+agreement that created debt of $5,925,000, which is shown on the Balance Sheet as Note Payable of $5,466,200, Warrant Liability
+of $518,587 and Redeemable Preferred Stock of $458,800. Additionally, warrants were attached to the note payable allowing the holders
+to purchase 296,250 shares of common stock of Selway Capital Acquisition Corporation ("Selway"). The warrants have
+a strike price of $15 per share and have a life of 4 years. The Company has valued these warrants at $1.7505 using the Black Scholes
+pricing method.
+
+ 
+
+In the event that the merger does not take place the preferred
+stock is valued at zero or convertible to 3.7% of the outstanding common shares of HCA stock. As of December 31, 2012, there were
+40,000,009 outstanding shares, 3.7% of which would be 1,480,000 shares. The last recorded transaction for sales of HCA common stock
+was in June 2012 at $0.31 per share. Due to a lack of marketability and liquidity, The Company has determined this to be a conservative
+value for the Redeemable Preferred Stock.
+
+ 
+
+The Company incurred $689,264 in offering related costs which
+are being amortized over the life of the loan. The note payable will be converted into 592,500 of merging company common shares
+as part of the merger agreement dated January 25, 2013.
+
+ 
+
+Note 11 – Prior Period Adjustment
+
+ 
+
+During 2011, management determined that an error had been made
+in prior year consolidated financial statements. The Company recorded the issuance of common stock of 2,900,000 shares in 2011
+erroneously. This error resulted in the understatement of common stock by $100,000 on the December 31, 2010 financials. The Company
+also adjusted the fair market value of shares issued to full-time employees and outside consultants in December 2010. This error
+resulted in an overstatement of common stock of $206,080. The net adjustment to correct the consolidated financial statements amounted
+to $106,080.
+
+ 
+
+These adjustments corrected net loss for the year ended December
+31, 2010 to $912,449 from $1,012,137.
+
+ 
+
+Note 12 – Subsequent Events 
+
+ 
+
+On January 25, 2013, the Company signed a definitive merger
+agreement to merge the Company with and into Selway. Pursuant to the agreement, Selway agreed to acquire all of the issued and
+outstanding securities in exchange for 5,200,000 shares of stock and 1,185,000 shares in exchange for the outstanding preferred
+stock and note payable. On April 10, 2013, the transactions contemplated by the agreement closed.
+
+ 
+
+The contract also has an earn out component that requires the
+Company to achieve certain financial goals. The determination shall be based on the combined company s audited financial
+statements.
+
+ 
+
+1.1.4 million shares shall be issued if the combined company achieves consolidated revenue of at least $150 million for the 12
+month period ending June 30, 2014.
+
+ 
+
+2.1.4 million shares shall be issued based if the combined company achieves consolidated revenue of at least $300 million for
+the 12 month period ending June 30, 2015.
+
+a.Should #1 not be achieved but #2 is achieved, the full 2.8 million shares will be issued.
+
+ 
+
+3.Cash Flow Note: Shareholders of record of HCCA prior to the merger shall receive a $10 million note from the company with the
+following provision. 25% of all free cash flow after the first $2 million of free cash flow based on audited financials will be
+distributed to those shareholders. The note has no expiration date.
+
+ 
+
+ F-16
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ RESTATED NOTES
+TO FINANCIAL STATEMENTS
+
+December 31, 2012
+
+ 
+
+4.In the case of a sale of the combined company at a price per share of at least $15 per share, all shares will be issued immediately
+prior to the closing and the remaining balance due on the cash flow note will be paid immediately.
+
+ 
+
+The foregoing targets are to be met on an all-or-nothing basis,
+and there shall be no partial awards.
+
+ 
+
+In addition, at the time of the merger certain members of HCCA s
+management received an aggregate of 1,500,000 shares of Selway common stock, which shares were fully vested but placed in escrow
+to be released in three equal installments of 500,000 shares on each September 30, 2013, June 30, 2014 and June 30, 2015. HCCA
+expects to record a one-time expense reflecting the estimated market value of these shares at the time of the merger.
+
+ 
+
+ F-17
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+ 
+
+INDEX TO FINANCIAL STATEMENTS
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ Page
+
+ 
+ 
+ 
+
+ Report of Independent Registered Public Accounting Firm— McGladrey LLP
+ 
+ F-19
+
+ 
+ 
+ 
+
+ Balance Sheet
+ 
+ F-20
+
+ 
+ 
+ 
+
+ Statement of Operations
+ 
+ F-21
+
+ 
+ 
+ 
+
+ Statement of Stockholders Equity
+ 
+ F-22
+
+ 
+ 
+ 
+
+ Statement of Cash Flows
+ 
+ F-23
+
+ 
+ 
+ 
+
+ Notes to Financial Statements
+ 
+ F-24
+
+ 
+
+ F-18
+
+ 
+
+ 
+
+ 
+
+ 
+
+Report of Independent Registered Public
+Accounting Firm
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+To the Board of Directors and Stockholders
+
+Selway Capital Acquisition Corporation
+
+ 
+
+We have audited the accompanying balance sheets of Selway Capital
+Acquisition Corporation as of December 31, 2012 and 2011 and the related statements of operations, stockholders' equity, and cash
+flows for the year ended December 31, 2012, for the period from January 12, 2011 (date of inception) to December 31, 2011 and
+for the cumulative period from January 12, 2011 (inception) to December 31, 2012. These financial statements are the responsibility
+of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
+
+ 
+
+We conducted our audits in accordance with the standards of
+the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
+reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to
+have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration
+of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
+but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting.
+Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
+disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
+as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for
+our opinion.
+
+ 
+
+In our opinion, the financial statements referred to
+above present fairly, in all material respects, the financial position of Selway Capital Acquisition Corporation as of
+December 31, 2012 and 2011, and the results of its operations and its cash flows for the year ended December 31, 2012, for
+the period from January 12, 2011 (date of inception) to December 31, 2011 and for the cumulative period from January 12, 2011
+(inception) to December 31, 2012 in conformity with U.S. generally accepted accounting principles.
+
+ 
+
+The accompanying financial statements have been prepared assuming
+the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company will face mandatory
+liquidation by May 14, 2013 if a business combination is not consummated, which raises substantial doubt about its
+ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
+of this uncertainty.
+
+ 
+
+ 
+
+ 
+
+/s/ McGladrey LLP
+
+ 
+
+McGladrey LLP 
+
+New York, NY 
+
+March 22, 2013
+
+ 
+
+ 
+
+ F-19
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Selway Capital Acquisition Corporation
+
+ (a development stage company)
+
+ BALANCE SHEETS
+
+ 
+
+ ASSETS 
+ December
+ 31, 2012 
+ December
+ 31, 2011 
+
+ Current assets 
+ 
+ 
+
+ Cash 
+ $5,036 
+ $156,483 
+
+ Interest Receivable 
+ 1,782 
+ 129 
+
+ Prepaid Expenses 
+ 4,957 
+ 38,540 
+
+ Total Current Assets 
+ 11,775 
+ 195,152 
+
+ 
+ 
+ 
+
+ Investment held in trust 
+ 20,600,086 
+ 20,600,000 
+
+ Due from underwriters 
+ 3,554 
+ 3,554 
+
+ Total Assets 
+ $20,615,415 
+ $20,798,706 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS'
+ EQUITY 
+ 
+ 
+
+ Current liabilities 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ $312,405 
+ $165,079 
+
+ Deferred underwriting compensation of which up to
+ $300,000 may be paid to redeeming shareholders 
+ 400,000 
+ 400,000 
+
+ Deferred legal fees related
+ to the offering 
+ 100,000 
+ 100,000 
+
+ Total Current Liabilities 
+ 812,405 
+ 665,079 
+
+ 
+ 
+ 
+
+ Warrant liability 
+ 2,253,333 
+ - 
+
+ 
+ 
+ 
+
+ Total Liabilities 
+ 3,065,738 
+ 665,079 
+
+ 
+ 
+ 
+
+ Common stock subject to possible
+ redemption, 1,500,000 shares (at redemption value) 
+ 15,150,000 
+ 15,150,000 
+
+ 
+ 
+ 
+
+ Stockholders' equity 
+ 
+ 
+
+ Preferred stock, $.0001 par value; 1,000,000 shares
+ authorized; no shares issued and outstanding 
+ - 
+ - 
+
+ Common stock, $.0001 par value; 30,000,000 shares
+ authorized; 2,500,000 shares (including up to 1,500,000 shares subject to possible redemption) issued and outstanding 
+ 250 
+ 250 
+
+ Additional paid-in-capital 
+ 5,098,941 
+ 5,098,941 
+
+ Deficit accumulated during development
+ stage 
+ (2,699,514) 
+ (115,564)
+
+ 
+ 
+ 
+
+ Total stockholders' equity 
+ 2,399,677 
+ 4,983,627 
+
+ 
+ 
+ 
+
+ Total liabilities and stockholders'
+ equity 
+ $20,615,415 
+ $20,798,706 
+
+ 
+
+The accompanying notes are an integral
+part of these financial statements 
+
+ 
+
+ F-20
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Selway Capital Acquisition Corporation
+
+ (a development stage company)
+
+ STATEMENT OF OPERATIONS
+
+ 
+
+ 
+
+ 
+ Year
+ Ended 
+
+ December 31, 2012 
+ January
+ 12, 2011 
+ (date of inception) to 
+
+ December 31, 2011 
+ January
+ 12, 2011 
+ (date of inception) to
+
+ December 31, 2012 
+
+ Revenue 
+ $- 
+ $- 
+ $- 
+
+ General and administrative expenses 
+ 348,091 
+ 115,693 
+ 463,784 
+
+ 
+ 
+ 
+ 
+
+ Loss from operations 
+ (348,091) 
+ (115,693) 
+ (463,784)
+
+ Change in fair value of warrants 
+ (2,253,333) 
+ - 
+ (2,253,333)
+
+ Interest and dividend income 
+ 17,474 
+ 129 
+ 17,603 
+
+ 
+ 
+ 
+ 
+
+ Net loss attributable to common
+ stockholder not subject to possible redemption 
+ $(2,583,950) 
+ $(115,564) 
+ $(2,699,514)
+
+ 
+ 
+ 
+ 
+
+ Weighted average number of
+ common shares outstanding, basic and diluted 
+ 2,500,000 
+ 834,972 
+ 1,684,902 
+
+ 
+ 
+ 
+ 
+
+ Basic and diluted net loss
+ per share 
+ $(1.03) 
+ $(0.14) 
+ $(1.60)
+
+ 
+
+ The accompanying notes are an integral part of these financial
+ statements
+
+ 
+
+ F-21
+
+ 
+
+ 
+
+ 
+
+ Selway Capital Acquisition Corporation
+
+ (a development stage company)
+
+ STATEMENT OF STOCKHOLDER'S EQUITY
+
+ 
+
+ 
+
+ 
+ Common
+ Stock 
+ Additional 
+ Deficit
+ accumulated during 
+ Total 
+
+ 
+ Shares 
+ Amount
+ $.0001 par 
+ paid-in
+ 
+
+ capital 
+ development
+ stage 
+ stockholders'
+ equity 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Sale
+ of shares of common stock issued to initial stockholder on February 23, 2011 at $0.05 per share 
+ 500,000 
+ 50 
+ $24,950 
+ $- 
+ $25,000 
+
+ Sale
+ of 2,000,000 units, net of underwriters' discount and offering expenses (including 1,500,000 shares subject to possible redemption)
+ on November 14th, 2011 at $10.00 per unit 
+ 2,000,000 
+ 200 
+ 18,473,891 
+ 
+ 18,474,091 
+
+ Net
+ proceeds subject to possible redemption of 1,500,000 shares 
+ - 
+ - 
+ (15,150,000) 
+ 
+ (15,150,000)
+
+ Sale
+ of private placement warrants 
+ - 
+ - 
+ 1,750,000 
+ 
+ 1,750,000 
+
+ Sale
+ of underwriters unit purchase option 
+ 
+ 
+ 100 
+ 
+ 100 
+
+ Net
+ loss for the period 
+ - 
+ - 
+ - 
+ (115,564) 
+ (115,564)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance
+ at December 31, 2011 
+ 2,500,000 
+ $250 
+ $5,098,941 
+ $(115,564) 
+ $4,983,627 
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net
+ loss for the year 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ - 
+ - 
+ - 
+ (2,583,950) 
+ (2,583,950)
+
+ Balance
+ at December 31, 2012 
+ 2,500,000 
+ $250 
+ $5,098,941 
+ $(2,699,514) 
+ $2,399,677 
+
+ 
+
+The accompanying
+notes are an integral part of these financial statements
+
+ 
+
+ F-22
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Selway Capital Acquisition Corporation
+
+ (a development stage company)
+
+ STATEMENT OF CASH FLOWS
+
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Cash
+ Flows from Operating Activities 
+ For
+ the Year Ended 
+
+ December 31, 2012 
+ January
+ 12, 2011 
+ (date of inception) to 
+
+ December 31, 2011 
+ January
+ 12, 2011 
+ (date of inception) to 
+
+ December 31, 2012 
+
+ Net Loss 
+ $(2,583,950) 
+ $(115,564) 
+ $(2,699,514)
+
+ Adjustments to reconcile net loss to net cash
+ used in operating activities: 
+ 
+ 
+ 
+
+ Changes in fair value of warrant liability 
+ 2,253,333 
+ - 
+ 2,253,333 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+ 
+
+ Increase in interest receivable 
+ (1,653) 
+ (129) 
+ (1,782)
+
+ Increase in interest earned on investments held
+ in trust, net of $15,735 in 2012 withdrawn from trust account 
+ (86) 
+ - 
+ (86)
+
+ Increase in receivables due from underwriters 
+ - 
+ (3,554) 
+ (3,554)
+
+ Decrease (increase) in prepaid expenses 
+ 33,583 
+ (38,540) 
+ (4,957)
+
+ Increase in accounts payable and accrued expenses 
+ 175,291 
+ 108,321 
+ 283,612 
+
+ 
+ 
+ 
+ 
+
+ Net cash used in operating
+ activities 
+ (123,482) 
+ (49,466) 
+ (172,948)
+
+ 
+ 
+ 
+ 
+
+ Cash Flows from Investing Activities 
+ 
+ 
+ 
+
+ Investments held in trust 
+ - 
+ (20,600,000) 
+ (20,600,000)
+
+ 
+ 
+ 
+ 
+
+ Cash Flows from Financing Activities 
+ 
+ 
+ 
+
+ Proceeds from note payable, stockholder 
+ - 
+ 160,500 
+ 160,500 
+
+ Repayment of note payable, stockholder 
+ - 
+ (160,500) 
+ (160,500)
+
+ Proceeds from note payable, related party 
+ - 
+ 50,000 
+ 50,000 
+
+ Repayment of note payable, related party 
+ - 
+ (50,000) 
+ (50,000)
+
+ Proceeds from issuance of stock to initial stockholder 
+ - 
+ 25,000 
+ 25,000 
+
+ Proceeds from public offering 
+ - 
+ 20,000,000 
+ 20,000,000 
+
+ Proceeds from issuance of warrants 
+ - 
+ 1,750,000 
+ 1,750,000 
+
+ Proceeds from underwriters unit purchase option 
+ - 
+ 100 
+ 100 
+
+ Payment of offering costs 
+ (27,965) 
+ (969,151) 
+ (997,116)
+
+ 
+ 
+ 
+ 
+
+ Net cash (used in) provided
+ by financing activities 
+ $(27,965) 
+ $20,805,949 
+ $20,777,984 
+
+ 
+ 
+ 
+ 
+
+ Net (decrease) increase in cash 
+ (151,447) 
+ 156,483 
+ 5,036 
+
+ 
+ 
+ 
+ 
+
+ Cash at beginning of the
+ period 
+ 156,483 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+
+ Cash at the end of the
+ period 
+ $5,036 
+ $156,483 
+ $5,036 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Supplemental Disclosure of
+ Non-Cash Financing Activities: 
+ 
+ 
+ 
+
+ Deferred underwriter's compensation 
+ $- 
+ $400,000 
+ $400,000 
+
+ Deferred legal fees related to the offering 
+ $- 
+ $100,000 
+ $100,000 
+
+ Accrual of offering costs 
+ $- 
+ $56,758 
+ $28,792 
+
+ 
+
+The accompanying
+notes are an integral part of these financial statements
+
+ 
+
+ F-23
+
+ 
+
+ 
+
+ 
+
+Selway Capital Acquisition Corporation
+
+(a development stage company)
+
+ 
+
+NOTES TO FINANCIAL STATEMENTS
+
+ 
+
+NOTE A — DESCRIPTION OF ORGANIZATION AND BUSINESS
+OPERATIONS
+
+ 
+
+Selway Capital Acquisition Corporation (a corporation in the
+development stage) ("the Company") was incorporated in Delaware on January 12, 2011. The Company was formed for the
+purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable
+share transaction or other similar business transaction, one or more operating businesses or assets that the Company has not yet
+identified ("Business Transaction"). The Company has neither engaged in any business operations nor generated any
+revenue to date. The Company is considered to be in the development stage as defined in FASB Accounting Standard Codification,
+or ASC 915, "Development Stage Entities," and is subject to the risks associated with activities of development stage
+companies.
+
+ 
+
+ 
+
+ F-24
+
+ 
+
+ 
+
+ 
+
+ 
+
+NOTE B — OFFERING AND BUSINESS OPERATIONS
+
+ 
+
+The registration statement for the Company's initial public
+offering (the "Offering") was declared effective November 7, 2011 (the "Effective Date"). The Company
+consummated the Offering on November 14, 2011 and received gross proceeds of $20,000,000 as well as $1,750,000 from the sale of
+warrants to Selway Capital Holdings LLC, an affiliate of the Company s officers and directors, on a private placement basis
+(see Note F). The Company offered 2,000,000 units at $10.00 per unit ("Units"). Each Unit consists of one callable
+Series A Share of the Company s common stock, $0.0001 par value, and one redeemable common stock purchase warrant ("Warrant").
+Each Warrant will entitle the holder to purchase from the Company one share of common stock at an exercise price of $7.50 commencing
+on the later of (a) one year from the date of the prospectus for the Offering and (b) 30 days after the completion of a Business
+Transaction, and will expire five years from the date of the prospectus for the Offering. The Warrants will be redeemable by the
+Company at a price of $0.01 per Warrant upon 30 days prior notice after the Warrants become exercisable, only in the event that
+the last sale price of the Company s common stock is at least $17.50 per share for any 20 trading days within a 30 trading
+day period ending on the third business day prior to the date on which notice of redemption is given. In no event will the Warrants
+be redeemable for cash at a price greater than $0.01 per Warrant.
+
+ 
+
+The Company s management has broad discretion with respect
+to the specific application of the net proceeds of its Offering, although substantially all of the net proceeds of the Offering
+are intended to be generally applied toward consummating a Business Transaction. Furthermore, there is no assurance that the Company
+will be able to successfully effect a Business Transaction. An amount equal to approximately 103% of the gross proceeds of the
+Offering are held in a trust account ("Trust Account") and invested in U.S. "government securities," within
+the meaning of Section 2(a)(16) of the Investment Company Act of 1940 (the "1940 Act") with a maturity of 180 days
+or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940 Act, until the earlier
+of (i) the consummation of a Business Transaction or (ii) the distribution of the Trust Account as described below.
+
+ 
+
+The Company, after signing a definitive agreement for the acquisition
+of one or more target businesses may elect not to submit the transaction for stockholder approval. If no stockholder approval
+is sought, the Company will proceed with a Business Transaction if it is approved by its board of directors and less than 75.0%
+of the public stockholders exercise their redemption rights. Only in the event that the Company seeks stockholder approval in
+connection with its Business Transaction, the Company will proceed with a Business Transaction only if a majority of the outstanding
+shares of common stock voted (calculated as of the close of business on the date set forth in the relevant proxy materials as
+the last date on which stockholders may vote their shares of common stock) are voted in favor of the Business Transaction. However,
+the Company s sponsor s, officers , directors or their affiliates participation in privately-negotiated
+transactions (as described in our prospectus and solely in the event the Company seeks stockholder approval), if any, could result
+in the approval of a Business Transaction even if a majority of our public stockholders indicate their intention to vote against,
+such Business Transaction. In connection with such a vote, if a Business Transaction is approved and consummated, stockholders
+may elect to redeem their shares of common stock for a pro-rata portion of the Trust Account. These shares of common stock were
+classified as temporary equity upon the completion of the Offering, in accordance with FASB ASC 480-10. Selway Capital Holdings,
+LLC (the "sponsor") has agreed, in the event the Company seeks stockholder approval of a Business Transaction, to
+vote its initial shares in the same manner as a majority of the public stockholders who vote at the special or annual meeting
+called for such purpose. The sponsor and the Company s officers and directors have also agreed to vote shares of common
+stock acquired by them in the Offering or in the aftermarket in favor of a Business Transaction submitted to the Company s
+stockholders for approval.
+
+ 
+
+The Company s sponsor, officers and directors have agreed
+that the Company will only have 18 months from the consummation of the Offering (such period commencing on November 14, 2011)
+to consummate its Business Transaction. If the Company does not consummate a Business Transaction within such 18 month period,
+it shall (i) cease all operations except for the purposes of winding up; (ii) redeem 100% of its public shares of common stock
+for a per share pro rata portion of the trust account, net of any taxes payable on interest earned thereon (which redemption would
+completely extinguish such holders rights as stockholders, including the right to receive further liquidation distributions,
+if any) and (iii) as promptly as possible following such redemption, dissolve and liquidate the balance of its net assets to its
+remaining stockholders, as part of its plan of dissolution and liquidation. This 18-month period expires May 14, 2013. The Company
+may not be able to consummate a Business Transaction before this date, which raises a substantial doubt about the Company s
+ability to continue as a going concern. The financial statements do not include any adjustments as a result of this uncertainty.
+
+ 
+
+ F-25
+
+ 
+
+ 
+
+ 
+
+ 
+
+The sponsor has waived its right to participate in any redemption
+with respect to its initial shares. However, if the sponsor or any of the Company s officers, directors or affiliates acquires
+shares of common stock in or after the Offering, they will be entitled to a pro rata share of the Trust Account upon the Company s
+dissolution and liquidation in the event the Company does not consummate a Business Transaction within the required time period.
+In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
+(including Trust Account assets) will be less than the initial public offering price per Unit in the Offering.
+
+ 
+
+Immediately prior to the Offering, the sponsor purchased, in
+a private placement, 2,333,333 warrants prior to the Offering at a price of $0.75 per warrant (a purchase price of $1,750,000)
+from the Company. The sponsor agreed that the warrants purchased by it will not be sold or transferred until 30 days following
+consummation of a Business Transaction, subject to certain limited exceptions. If the Company does not complete a Business Transaction,
+then the proceeds will be part of the liquidating distribution to the public stockholders and the warrants issued to the sponsor
+will expire worthless. As described above, the fair value of the warrants are being recorded as a liability at their fair market
+value at each period. The difference between the fair value of the warrants and the purchase price paid by the sponsor was recorded
+as a contribution to capital.
+
+ 
+
+At the Offering, the Company entered into a Services Agreement
+with Selway Capital LLC, which is an affiliate of the sponsor, for a monthly fee beginning November 14, 2011, for up to 6 months,
+of $5,000 for office space, secretarial, and administrative services. Since we had not completed a Business Transaction by May
+14, 2012, Selway Capital LLC has agreed to provide such services free of charge until we complete a Business Transaction or are
+forced to liquidate. This agreement will expire upon the earlier of the distribution or liquidation of the Trust Account to the
+Company s then-public stockholders or 18 months from the consummation of the Offering (such period commencing on November
+14, 2011).
+
+ 
+
+The sponsor is entitled to registration rights pursuant to
+a registration rights agreement signed on the date of the prospectus for the Offering. The sponsor is entitled to demand registration
+rights and certain "piggy-back" registration rights with respect to its shares of common stock, the warrants and the
+common stock underlying the warrants, commencing on the date such common stock or warrants are released from escrow. The Company
+will bear the expenses incurred in connection with the filing of any such registration statements.
+
+ 
+
+The Company paid the underwriters a 2.5% underwriting discount
+in connection with the offering. The following additional contingent fees may become payable: (A) a contingent fee equal to 2.0%
+of the aggregate Offering amount, payable to the underwriters, provided, however, that the underwriters will not receive the deferred
+underwriting discount with respect to those units as to which the component shares have been redeemed for cash in connection with
+a Business Transaction, and (B) at the closing date of any sale, 5% of the gross proceeds from the sale of any shares of the Company's
+common stock that are issued prior to or in conjunction with the Business Transaction in the event that such sale is attributable
+to services rendered by Aegis Capital Corp. ("Aegis"), the representative of the underwriters of the Offering.
+
+ 
+
+Additionally, the Company sold to Aegis, for $100, as additional
+compensation, an option to purchase up to a total of 100,000 units at $12.50 per unit. The Company estimated based upon a Black-
+Scholes model, that the fair value of the option on the date of sale would be approximately $449,000 using an expected life of
+five years, volatility of 59.5%, and a risk-free interest rate of 0.91%. However, because the units do not have a trading history,
+the volatility assumption was based on information currently available to the Company. The Company believed the volatility estimate
+calculated was a reasonable benchmark to use in estimating the expected volatility of the units. The volatility calculation was
+based on the most recent trading day average volatility of publicly traded companies in the technology, defense and security,
+telecommunications and small-cap sectors. Although an expected life of five years was used in the calculation, if the Company
+does not consummate a Business Transaction within the prescribed time period and automatically dissolves and subsequently liquidates
+the trust account, the option will become worthless. The underwriters option is exercisable at any time, in whole or in
+part, commencing on the later of the consolidation of each series of our common stock into one class of common stock after consummation
+of a Business Transaction, post-acquisition tender offer or post-acquisition automatic trust liquidation, as the case may be,
+or one year from the date of the prospectus for the Offering and expiring on the earlier of five years from the date of the prospectus
+for the Offering or the day immediately prior to the day on which the Company and all of its predecessors and successors have
+been dissolved. The units issuable upon exercise of this option are identical to the Units in the Offering.
+
+ 
+
+ F-26
+
+ 
+
+ 
+
+ 
+
+ 
+
+The Company effected a 1-for-1.090909 reverse stock split of
+all the outstanding shares of common stock on October 24, 2011 and a 1 for 1.375 reverse stock split of all the outstanding shares
+of common stock on November 3, 2011. Accordingly, all common share and per common share amounts for all periods presented in these
+financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect these reverse stock splits.
+
+ 
+
+NOTE C—INVESTMENT HELD IN TRUST
+
+ 
+
+Subsequent to the IPO, an amount of $20,600,000 (including
+$400,000 of deferred underwriters fees) was deposited in the Trust Account held with the Company s stock transfer agent,
+American Stock Transfer, and invested only in United States "government securities" within the meaning of Section
+2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less until the earlier of (i) the consummation
+of a Business Transaction or (ii) liquidation of the Company. The United States government securities reside in an account at
+Wells Fargo Bank, while the cash amount resides in a JP Morgan Chase cash account.
+
+ 
+
+As of December 31, 2012, investment securities in the Company s
+Trust Account had a carrying value of $20,600,086 made up of $20,599,570 (excluding accrued interest) in Treasury Bills and $516
+in cash. The Treasury Bills have a maturity value of $20,604,000 and mature on February 21, 2013. During the twelve month period
+ended December 31, 2012, the Company withdrew from the trust account $15,735 of interest earned on the investments held in trust
+in accordance with the trust agreement. As of December 31, 2011, investment securities in the Company s Trust Account had
+a carrying value of $20,600,000 made up of $20,584,734 (excluding accrued interest) in Treasury Bills and $15,263 in cash. During
+the period November 14, 2011 (date of IPO) to December 31, 2011, the Company did not withdraw from the trust account any interest
+earned on the investments held in trust. The Company classifies its United States Treasury and equivalent securities as held-to-maturity
+in accordance with FASB ASC 320, "Investments — Debt and Equity Securities". Held-to-maturity securities are
+those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are
+recorded at amortized cost on the accompanying balance sheets and adjusted for the amortization or accretion of premiums or discounts.
+The carrying amount, excluding accrued interest income, gross unrealized holding gains and fair value of held to maturity securities
+at December 31, 2012 and 2011 were as follows:
+
+ 
+
+ 
+ Carrying Amount 
+ Gross Unrealized
+ 
+ Holding Gains / (Loss) 
+ Fair Value 
+
+ U.S. Treasury Securities Held-to-maturity: 
+ 
+ 
+ 
+
+ As of December 31, 2012 
+ $20,599,570 
+ $3,564 
+ $20,603,135 
+
+ As of December 31, 2011 
+ $20,584,737 
+ $(46) 
+ $20,584,691 
+
+ 
+
+The company has accreted a portion of the discount on these
+Securities and recognized $1,782 of related interest income. Such amount is included in interest receivable on the accompanying
+December 31, 2012 balance sheet bringing the amortized cost basis to $20,601,352.
+
+ 
+
+NOTE D — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+Development stage company
+
+ 
+
+The Company complies with the reporting requirements of FASB
+ASC 915, "Development Stage Entities." At December 31, 2012, the Company had not commenced any operations nor generated
+revenue to date. All activity through December 31, 2012, relates to the Company s formation, the Offering as well as the
+beginning efforts to identify a prospective target business. The Company will not generate any operating revenues until after
+completion of a Business Transaction, at the earliest. The Company does generate non-operating income in the form of interest
+income on the designated Trust Account.
+
+ 
+
+ F-27
+
+ 
+
+ 
+
+Net
+loss per common share
+
+ 
+
+The Company complies with accounting and disclosure requirements
+of FASB ASC 260, "Earnings Per Share." Net loss per common share is computed by dividing net loss by the weighted
+average number of common shares outstanding for the period. The effect of the 2,000,000 outstanding warrants issued in connection
+with the Offering, the 2,333,333 outstanding warrants issued in connection with the private placement and the 100,000 units (and
+underlying shares and warrants) issued in connection with the underwriters purchase option have not been considered in
+diluted loss per share calculations since the effect of such securities would be anti-dilutive. As a result, diluted loss per
+common share is the same as basic loss per common share for the period.
+
+ 
+
+Warrant liability
+
+ 
+
+The Company accounts for the warrants issued in connection with
+the Offering and the private placement in accordance with the guidance on Accounting for Certain Financial Instruments with Characteristics
+of both Liabilities and Equity, which provides that the Company classifies the warrant instrument as a liability at its fair value
+and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance
+sheet date until exercised, and any change in fair value is recognized in the Company's statement of operations.
+
+ 
+
+Fair value of financial instruments
+
+ 
+
+Under FASB ASC 820, "Fair Value Measurements and Disclosures,"
+we are required to record certain financial assets and liabilities at fair value and may choose to record other financial assets
+and financial liabilities at fair value as well. Also under U.S. GAAP, we are required to record nonfinancial assets and liabilities
+at fair value due to events that may or may not recur in the future, such as an impairment event. When we are required to record
+such assets and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would
+be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair
+value is determined based on significant inputs contained in a fair value hierarchy as follows:
+
+ 
+
+ Level 1
+ Quoted prices for identical assets or liabilities in active markets to
+ which we have access at the measurement date.
+
+ 
+ 
+
+ Level 2
+ Inputs other than quoted prices included within Level 1 that are observable for the asset
+ or liability, either directly or indirectly.
+
+ 
+ 
+
+ Level 3
+ Unobservable inputs for the asset or liability.
+
+ 
+
+ 
+
+The determination of where assets and liabilities fall within
+this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
+
+ 
+
+The following tables present information about the Company s
+assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2012 and 2011, and indicates the
+fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
+
+ 
+
+ Description 
+ December
+
+ 31, 2012 
+ Quoted
+
+ Prices in
+ Active
+ Markets
+
+ (Level 1) 
+ Significant
+
+ Other
+ Observable
+ Inputs
+
+ (Level 2) 
+ Significant
+
+ Other
+ Unobservable
+ Inputs
+
+ (Level 3) 
+
+ Assets: 
+ 
+ 
+ 
+ 
+
+ United States Treasury Securities 
+ $20,603,135 
+ $20,603,135 
+ $- 
+ $- 
+
+ Liabilities: 
+ 
+ 
+ 
+ 
+
+ Warrant Liability 
+ $2,253,333 
+ $- 
+ $2,253,333 
+ $- 
+
+ 
+
+ Description 
+ December
+
+ 31, 2011 
+ Quoted
+
+ Prices in
+ Active
+ Markets
+
+ (Level 1) 
+ Significant
+
+ Other
+ Observable
+ Inputs
+
+ (Level 2) 
+ Significant
+
+ Other
+ Unobservable
+ Inputs
+
+ (Level 3) 
+
+ Assets: 
+ 
+ 
+ 
+ 
+
+ United States Treasury Securities 
+ $20,584,691 
+ $20,584,691 
+ $- 
+ $- 
+
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+Warrant Liability: The fair value
+of the derivate warrant liability was determined by the Company using the quoted market prices for the publicly traded warrants.
+On reporting dates where there are no active trades the Company uses the last reported closing trade price of the warrants to determine
+the fair value (Level 2). The fair value at December 31, 2011 was not considered significant.
+
+ 
+
+United States Treasury Securities: The
+Company used Level 1 inputs to value the U.S. Treasury securities in our trust account for disclosure purposes.
+
+ 
+
+We have other non-derivative financial instruments, such as
+cash, a note receivable, pre-paid expenses, accounts payable, and accrued expenses whose carrying amounts approximate fair value.
+
+ 
+
+Concentration of credit risk
+
+ 
+
+At December 31, 2012, financial instruments that potentially
+expose the Company to credit risk consist of cash and cash held in Trust Account. The Company maintains its cash balances in various
+financial institutions. The Company maintains cash in accounts which, at times, exceeds insurance limits. The Company has not
+experienced any losses in connection with these accounts.
+
+ 
+
+Cash and cash equivalents
+
+ 
+
+The Company considers all highly liquid investments purchased
+with an original maturity of three months or less to be cash equivalents. 
+
+ F-28
+
+ 
+
+ 
+
+ 
+
+Use of estimates
+
+ 
+
+The preparation of financial statements in conformity with
+accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
+that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
+the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
+from those estimates.
+
+ 
+
+Income tax
+
+ 
+
+The Company complies with FASB ASC 740,
+"Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income
+taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases
+of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates
+applicable to the periods in which the differences are expected to affect taxable income. The Company complies with the
+provisions of Financial Accounting Standards Board Accounting Standard Codification or FASB ASC 740-10-25 which establishes
+recognition requirements for the accounting for income taxes. The section prescribes a recognition threshold and a
+measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken
+in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon
+examination by taxing authorities. There were no unrecognized tax benefits as of December 31, 2012. The Company recognizes
+accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the
+payment of interest and penalties at December 31, 2012. The Company is currently not aware of any issues under review that
+could result in significant payments, accruals or material deviation from its position. The Company s income tax
+returns for the year ended December 31, 2011 are subject to examination by federal, state and local tax authorities.
+
+ 
+
+ 
+
+NOTE E — RELATED PARTY TRANSACTIONS
+
+ 
+
+The Company issued notes to Selway Capital LLC amounting to
+$50,000 in January and February 2011. These amounts were repaid in February 2011. The Company issued a $70,000 unsecured promissory
+note to the sponsor on February 23, 2011. The note was non-interest bearing and was payable on the earlier of February 22, 2012
+or the consummation of the Offering. The Company issued other unsecured promissory notes to the sponsor for $25,000, $4,000, $10,500,
+$5,500, $25,000, $15,000, and $5,500 on May 18, 2011, June 8, 2011, June 14, 2011, June 30, 2011, July 25, 2011, and September
+26, 2011, and October 14, 2011, respectively. Each was due one year from the issue date or upon completion of the Offering. Due
+to the short-term nature of the notes, the fair value of the notes approximates their carrying amount. All these notes were paid
+in full upon the closing of the Offering.
+
+ 
+
+On February 23, 2011, the Company issued to its
+sponsor (i) 575,000 shares of restricted common stock (75,000 of which were forfeited on December 20, 2011 because
+the underwriters over-allotment option was not exercised), for an aggregate amount of $25,000 in cash. All common
+share amounts and per common share amounts have been retroactively adjusted, where applicable, to reflect the forfeiture of
+the overallotment. The purchase price for each share of common stock was approximately $0.05 per share, as adjusted for forfeiture. The
+sponsor has agreed that the shares of common stock purchased by it prior to consummation of the Offering will not be sold
+or transferred until 12 months following consummation of a Business Transaction, subject to certain limited exceptions.
+
+ 
+
+As mentioned in Note B above, the Company paid Selway Capital
+LLC a total of $5,000 per month for office space, administrative services and secretarial support for a 6 month period beginning
+November 14, 2011 and ending May 14, 2012. Since we had not completed a Business Transaction by May 14, 2012, Selway Capital LLC
+has agreed to provide such services free of charge until we complete a Business Transaction or are forced to liquidate.
+
+ 
+
+ F-29
+
+ 
+
+ 
+
+ 
+
+NOTE F—COMMON STOCK AND WARRANTS
+
+ 
+
+The Company effected a 1-for-1.090909 reverse stock split of
+all the outstanding shares of common stock on October 24, 2011 and a 1 for 1.375 reverse stock split of all the outstanding shares
+of common stock on November 3, 2011. Accordingly, all common share and per common share amounts for all periods presented in these
+financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect these reverse stock splits.
+
+ 
+
+The Company's Amended and Restated Certificate of Incorporation
+has designated out of the Company's common stock as Series A, Series B and Series C shares. All outstanding shares prior to the
+Offering were designated Series C shares as further described below. On November 14, 2011, investors purchased 2,000,000 Units
+in the Offering, with each Unit consisting of one callable Series A share and one redeemable warrant to purchase one share of
+common stock. Effective February 6, 2012, investors in the Units became eligible to split the Unit into its component parts.
+
+ 
+
+The Company s callable Series A Shares have the same
+rights as the other series of common stock, except that holders of such callable Series A Shares are entitled to redeem all or
+a portion of such callable Series A Shares in connection with the Company s initial Business Transaction and are entitled
+to share ratably in the trust account, including the deferred underwriting discounts and commissions and accrued but undistributed
+interest, net of (i) taxes payable, (ii) interest income earned on the trust account (approximately $10.30 per share) and (iii)
+a pro rata share of the trust account released to the Company for each callable Series A Share converted to a Series C Share upon
+completion of a Business Transaction, plus any remaining net assets, if the Company dissolves and liquidates the trust account
+prior to a Business Transaction. The callable Series A Shares will be automatically consolidated with all other classes of the
+Company s common stock upon consummation of the Company s Business Transaction or post-acquisition tender offer or
+will be automatically converted into the right to receive a pro rata share of the trust account upon completion of the post-acquisition
+automatic trust liquidation, as the case may be. There were no callable series B shares outstanding as of date of these financial
+statements.
+
+ 
+
+The Company s callable Series B Shares are identical
+to the callable Series A Shares, except that the callable Series B Shares have the right to participate in a post-acquisition
+tender or post-acquisition automatic trust liquidation. If the Company elects to grant its public stockholders their redemption
+rights by means of a post-acquisition tender offer or post-acquisition automatic trust liquidation, then each outstanding callable
+Series A Share will automatically be converted into a callable Series B Share immediately following consummation of the Business
+Transaction. Public stockholders who hold callable Series B Shares will be entitled to participate in the post-acquisition tender
+offer by tendering their callable Series B Shares in accordance with the instructions included in the Schedule TO and related
+tender offer documents to be filed with the SEC. The callable Series B Shares will be automatically consolidated with all other
+classes of the Company s common stock upon consummation of our post-acquisition tender offer or will be automatically converted
+into the right to receive a pro rata share of the trust account upon completion of the post-acquisition automatic trust liquidation,
+as the case may be.
+
+ 
+
+The Company s Series C Shares are identical to the callable
+Series B Shares, except that the Series C Shares do not have the right to redeem all or a portion of such Series C Shares in connection
+with the Business Transaction or to participate in a post-acquisition tender offer or post-acquisition automatic trust liquidation.
+If the Company elects to grant the Company s public stockholders their redemption rights by means of a post-acquisition
+tender offer or post-acquisition automatic trust liquidation, the Company must seek that certain significant stockholders (holders
+of 5% or more of the public shares who are also accredited investors) elect to convert all of their callable Series A Shares into
+Series C Shares immediately prior to consummation of the Business Transaction. Regardless of the requirements of the Company s
+target business, in no event would the Company be able to seek conversions of less than the amount necessary to maintain the 75.0%
+threshold. The exchange ratio of callable Series A Shares for Series C Shares may be at a one-for-one basis, or at other exchange
+ratios to be negotiated with the individual stockholders, which means that such stockholders may receive a proportionally greater
+number of shares than other stockholders would receive in the post-acquisition company. No consideration will be paid to stockholders
+who elect to convert other than the exchange of callable Series A Shares for Series C Shares.
+
+ 
+
+The Series C Shares outstanding as of December 31, 2012 consist
+of 500,000 Series C Shares (the "Founder Shares"), and are subject to certain transfer restrictions. The holders of
+the Founder Shares have agreed not to exercise redemption rights with respect to such shares and have agreed not to tender their
+shares in an issuer tender offer in connection with the Company s Business Transaction, and to vote the Founder Shares in
+the same manner as a majority of the public stockholders in connection with a stockholder vote to approve the initial Business
+Transaction and/or amend Article Fifth of the Company s Amended and Restated Certificate of Incorporation (the article that
+contains all of the special provisions applicable to the Company prior to and in connection with the Company s initial Business
+Transaction) prior to consummation of the Business Transaction. If the Company is unable to consummate a Business Transaction
+within the allotted time, the Company s sponsor, officers and directors have agreed with respect to the Founder Shares to
+waive their rights to participate in any trust account liquidation distribution, but not with respect to any public shares they
+acquire in the Offering or in the aftermarket.
+
+ 
+
+ F-30
+
+ 
+
+ 
+
+ 
+
+ 
+
+Warrants
+
+ 
+
+Each redeemable warrant included in the units entitles the
+holder to purchase one share of common stock at a price of $7.50. The redeemable warrants offered hereby will become exercisable
+on the later of November 7, 2012 and the consolidation of each series of the Company s common stock into one class of common
+stock after consummation of the Business Transaction, post-acquisition tender offer or post-acquisition automatic trust liquidation,
+as the case may be. Holders of the redeemable warrants may elect to exercise them on a cashless basis by paying the exercise price
+by surrendering their warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product
+of the number of shares underlying the redeemable warrants, multiplied by the difference between the exercise price of the redeemable
+warrants and the "fair market value" (defined below) by (y) the fair market value. The "fair market value"
+means the average reported last sale price of our common stock for the 10 trading days ending on the third trading day prior to
+the date on which the notice of on the third trading day prior to the date on which the notice of cashless exercise is delivered
+to the warrant agent. The Company would not receive additional proceeds to the extent the redeemable warrants are exercised on
+a cashless basis. Although the redeemable warrants and the common stock underlying them have been registered, the redeemable warrants
+will only be exercisable by paying the exercise price in cash if an effective registration statement covering the common stock
+issuable upon exercise of the redeemable warrants is effective and a prospectus relating to the common stock issuable upon exercise
+of the redeemable warrants is available for use by the holders of the redeemable warrants. The warrant holders are not entitled
+to a net-cash settlement in connection with the warrants under any circumstances.
+
+ 
+
+The redeemable warrants will expire on November 7, 2016 or
+earlier upon redemption by the Company or the Company s dissolution and the liquidation of the trust account in the event
+the Company does not consummate a Business Transaction within the time allowed. Once the redeemable warrants become exercisable,
+the Company may redeem the outstanding redeemable warrants:
+
+ 
+
+ 
+ 
+ in whole but not in part;
+
+ 
+
+ 
+ 
+ at a price of $0.01 per redeemable warrant;
+
+ 
+
+ 
+ 
+ upon a minimum of 30 days prior written notice of redemption; and
+
+ 
+
+ 
+ 
+ if, and only if, the last sale price of the Company s common stock on the exchange
+ on which the Company s securities may be traded equals or exceeds $17.50 per share for any 20 trading days within a
+ 30 trading day period ending three business days before the Company sends the notice of redemption.
+
+ 
+
+Immediately prior to the Offering, Selway Capital Holdings
+LLC purchased 2,333,333 warrants at a price of $0.75 per warrant for an aggregate purchase price of approximately $1,750,000 in
+a private placement. These warrants are identical to the public warrants, except: (1) for certain restrictions on transfer; (2)
+the placement warrants are non-redeemable; and (3) the placement warrants may be exercised during the applicable exercise period
+on a for cash or cashless basis, even if there is not an effective registration statement relating to the shares underlying the
+placement warrants, so long as such warrants are held by the Company s sponsor, officers, directors, their designees or
+their affiliates. Since the amount paid for the warrants was in excess of their face value on the date of the acquisition, no
+compensation was recorded.
+
+ 
+
+In connection with the Offering and with the private placement
+described above, the Company issued five-year warrants to purchase an aggregate of 4,333,333 common shares at an initial exercise
+price of $7.50 per share. The terms of the warrants contain a restructuring price adjustment provision, such that, in the event
+the Company completes a business combination subsequent to the initial Business Combination that results in the Company's shares
+no longer being listed on a national exchange or the OTC Bulletin Board, the exercise price of the warrants will decrease by a
+formula that causes the warrants to not be indexed to the Company's own shares. Although the Company does not believe it is likely
+that this price adjustment provision will be triggered, the warrants have been accounted for as a liability amounting to $2,253,333
+at December 31, 2012.
+
+ 
+
+ F-31
+
+ 
+
+ 
+
+ 
+
+ 
+
+NOTE G — PREFERRED STOCK
+
+ 
+
+The Company is authorized to issue 1,000,000 shares of preferred
+stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
+As of December 31, 2012 and 2011, the Company has not issued any shares of preferred stock.
+
+ 
+
+NOTE H — INCOME TAXES
+
+ 
+
+Deferred income tax assets and liabilities consist of the tax
+effects of temporary differences related to the following:
+
+ 
+
+ 
+ 2012 
+ 2011 
+
+ Deferred tax assets 
+ 
+ 
+
+ Net operating losses 
+ $168,000 
+ $35,000 
+
+ Organization costs 
+ 10,000 
+ 13,000 
+
+ 
+ 178,000 
+ 48,000 
+
+ Valuation allowance 
+ (178,000) 
+ (48,000)
+
+ 
+ 
+ 
+
+ Net deferred tax assets 
+ $- 
+ $- 
+
+ 
+ 
+ 
+
+Valuation allowances are established, when necessary, to reduce
+deferred tax assets to the amount expected to be realized. The Company established a valuation allowance against the entire deferred
+tax asset at December 31, 2012 and 2011, respectively, due to the fact that it is more likely than not that the deferred tax asset
+will not be realized in the near-term.
+
+ 
+
+Since the date of inception, the Company has accumulated Federal
+and state operating loss carryforwards of approximately $420,000 that expire at various dates through 2032. The provision (benefit)
+for income taxes differs from the amount that would result from applying the federal statutory rate as follows:
+
+ 
+
+ 
+ Year Ended December 31, 
+
+ 
+ 2012 
+ 2011 
+
+ U.S Federal statutory rate 
+ (34.0)% 
+ (34.0)%
+
+ State income taxes, net of federal benefit 
+ (5.9) 
+ (5.9)
+
+ Permanent differences - warrant valuation 
+ 34.9 
+ - 
+
+ Change in valuation allowance 
+ 5.0 
+ 39.9 
+
+ Effective tax rate 
+ -% 
+ -%
+
+ 
+ 
+ 
+
+ F-32
+
+ 
+
+ 
+
+ 
+
+ 
+
+NOTE I – SUBSEQUENT EVENTS
+
+ 
+
+On January 25, 2013, the Company entered into an Agreement and
+Plan of Merger (the "Agreement") with Selway Merger Sub, Inc., the Company s wholly-owned subsidiary, Healthcare
+Corporation of America ("Target"), Prescription Corporation of America, a wholly-owned subsidiary of Target ("PCA"),
+Gary Sekulski, as representative of the Target stockholders, and Edmundo Gonzalez, as the Company s representative. Upon
+the closing of the transactions contemplated in the Agreement, Merger Sub will merge (the "Merger") with and into Target,
+with Target as the surviving corporation. Pursuant to the Merger, all holders of capital stock of Target will have their securities
+converted into the right to receive securities of the Company, and Target will become the Company s wholly owned subsidiary.
+
+ 
+
+Acquisition Consideration
+
+ 
+
+Holders of all of the issued and outstanding shares of common
+stock of Target immediately prior to the time of the Merger shall, by virtue of the Merger and without any action on the part of
+any of the parties to the Agreement, have each of their shares of common stock of Target converted into the right to receive; (i)
+a proportional amount of 5,200,000 shares of Selway common stock and promissory notes with an aggregate face value of $7,500,000
+(collectively, the "Closing Payment"), plus (ii) a proportional amount of up to 2,800,000 shares of Selway common stock,
+if any, (the "Earnout Payment Shares") issuable upon the combined company achieving certain consolidated gross revenue
+thresholds as more fully described below, plus (iii) the right to receive a proportional amount of the proceeds from the exercise
+of certain warrants being issued to Selway Capital Holdings, LLC, a Delaware limited liability company, Selway s sponsor,
+as more fully described below. A portion of the Closing Payment (520,000 shares and promissory notes with an aggregate face value
+of $750,000) is being placed in escrow for a period of 12 months following the Merger to satisfy indemnification obligations of
+the Target, if any, as more fully described below. The promissory notes included in the Closing Payment will be non-interest bearing
+and subordinated to all senior debt of the combined company in the event of a default under such senior debt. The notes will be
+repaid from 75% of 25% of the combined company s free cash-flow (defined as in the notes) in excess of $2,000,000. The combined
+company will be obligated to repay such notes if, among other events, there is a transaction that that results in a change of control
+of the combined company.
+
+ 
+
+The Earnout Payment Shares, if any, will be issued as follows:
+(i) 1,400,000 shares if the combined company achieves consolidated gross revenue of $150,000,000 for the twelve months ended March
+31, 2014 or June 30, 2014; and (ii) 1,400,000 shares if the combined company achieves consolidated gross revenue of $300,000,000
+for the twelve months ended March 31, 2015 or June 30, 2015. In the event the combined company does not achieve the first earnout
+threshold, but does achieve the second earnout threshold, then all of the Earnout Payment Shares shall be issued. If the combined
+company consolidates, merges or transfers substantially all of its assets prior to June 30, 2015 at a valuation of at least $15.00
+per share, then all of the Earnout Payment Shares not previously paid out shall be issued immediately prior to such transaction.
+If, prior to achieving either earnout threshold the combined company acquires another business in exchange for its equity or debt
+securities, then any remaining earnout thresholds may be adjusted by the independent members of the combined company s board
+of directors in their sole discretion.
+
+ 
+
+In connection with a bridge financing (the "Bridge Financing")
+completed by the Target in September 2012, the Target issued 59.25 units, each unit consisting of 10,000 preferred shares and a
+promissory note with a face value of $100,000. At the time of the Merger holders of all of the issued and outstanding shares of
+preferred stock of Target will, by virtue of the Merger and without any action on the part of any of the parties to the Agreement,
+have each of their shares of preferred stock of Target converted into the right to receive a proportional amount of 592,500 shares
+of Selway common stock. In accordance with the terms of the promissory notes issued in the Bridge Financing, at the time of the
+Merger such notes shall automatically be converted into the right to receive the applicable portion of 592,500 shares of Selway
+common stock, provided, however, that if the holder of such note owns shares issued in Selway s initial public offering and
+agrees to waive their redemption rights with respect to such shares, then a proportional portion of their notes will not be converted
+to shares and will become due as of the completion of the Merger.
+
+ F-33
+
+ 
+
+ 
+
+ 
+
+ 
+
+Certain customers of Target currently hold warrants to purchase
+2,000,000 shares of Target at an exercise price of $1.00 per share. At the time of the Merger, by virtue of the Merger and without
+any action on the part of any of the parties to the Agreement, such warrants shall convert into the right to receive warrants to
+purchase an aggregate of 85,000 shares of Selway common stock at an exercise price of $7.50 per share (the "Customer Payment
+Warrants").
+
+ 
+
+Upon completion of the Merger, certain members of the Target s
+management will receive promissory notes with an aggregate face value of $2,500,000 (the "Management Incentive Notes"),
+which notes will be non-interest bearing and subordinated to all senior debt of the combined company in the event of a default
+under such senior debt. The Management Incentive Notes will be repaid from 25% of 25% of the combined company s free cash-flow
+(defined as in the notes) in excess of $2,000,000. The combined company will be obligated to repay such notes if, among other events,
+there is a transaction that that results in a change of control of the combined company.
+
+ 
+
+Certain members of the Target s management will be entitled
+to receive a portion of an aggregate of 1,500,000 shares of Selway common stock (the "Management Incentive Shares"),
+which shares will vest in three equal installments of 500,000 shares on each of September 30, 2013, June 30, 2014 and June 30,
+2015. If the combined company consolidates, merges or transfers substantially all of its assets prior to June 30, 2015 at a valuation
+of at least $15.00 per share, then all of the Management Incentive Shares will vest immediately before, and subject to, the consummation
+of such transaction.
+
+ 
+
+Amendment to Sponsor Warrants
+
+ 
+
+In connection with Selway s initial public offering, Selway s
+sponsor acquired warrants to purchase an aggregate of 2,333,333 shares of Selway common stock at an exercise price of $7.50 per
+share for an aggregate purchase price of $1,750,000. At the time of the Merger, by virtue of the Merger and without any action
+on the part of any of the parties to the Agreement, such warrants will convert into the right to receive: (i) an aggregate of 100,000
+shares of Selway common stock, and (ii) warrants to purchase an aggregate of 1,000,000 shares of Selway common stock at an exercise
+price of $10.00 per share (the "Exchange Warrants"). The proceeds from the exercise of the Exchange Warrants will be
+paid: (i) 75% to the holders of all of the issued and outstanding shares of common stock of Target immediately prior to the time
+of the Merger, and (ii) 25% to certain members of the Target s management. The Exchange Warrants are only exercisable for
+cash, may not be exercised on a cashless basis, and must be exercised if the closing price for the combined company s common
+stock exceeds $12.00 per share for 20 trading days in any 30-trading-day period.
+
+ 
+
+Incentive Warrants
+
+ 
+
+Pursuant to the terms of the Agreement, Selway may issue warrants
+to purchase up to 175,000 shares of common stock of Selway with an exercise price of $7.50 per share (the "Customer Incentive
+Warrants") to an existing customer of Target. Similarly, pursuant to the terms of the Agreement, the Target may secure new
+customer agreements for the provision of services by the Target, and the combined company shall, for every $10,000,000 in new receivables
+related to such new customer agreements, issue warrants to purchase an aggregate of 15,000 shares of Selway common stock at an
+exercise price of $10.00 per share (the "Other Customer Incentive Warrants").
+
+ 
+
+Conditions to Closing
+
+ 
+
+The obligation of each party to complete the Merger and other
+transactions contemplated by the Agreement are conditioned on the satisfaction of the following conditions: (i) the Target stockholders
+approving the Agreement and the Merger; (ii) the absence of a prohibition to the Merger under any applicable law; (iii) the absence
+of any lawsuit seeking to enjoin the Merger; and (iv) holders of not less than 25% of the shares issued in Selway s initial
+public offering having agreed to convert such shares to Series C Shares.
+
+ 
+
+The obligation of Selway to complete the Merger and the other
+transactions contemplated by the Agreement are conditioned, among other things, on the satisfaction of the following conditions:
+(i) the Target having duly performed all of its obligations; (ii) all of the Target s representations and warranties being
+materially true, correct and complete; (iii) the absence of any material adverse change or material adverse effect; (iv) holders
+of less than 10% of Target s common stock having exercised their appraisal rights; (v) receipt of all necessary consents
+and governmental approvals; (vi) receipt of an opinion relating to New Jersey law from Target s counsel; (vii) delivery of
+all additional agreements to be delivered at the time of the Merger; and (viii) delivery of Target s audited financial statements
+for the years ended December 31, 2012 and 2011.
+
+ 
+
+ F-34
+
+ 
+
+ 
+
+ 
+
+ 
+
+The obligation of Target to complete the Merger and the other
+transactions contemplated by the Agreement are conditioned, among other things, on the satisfaction of the following conditions:
+(i) Selway having duly performed all of its obligations; (ii) delivery of all additional agreements to be delivered at the time
+of the Merger; (iii) Selway having entered into agreements providing for net cash to the combined company of not less than $11,000,000;
+and (iv) Selway having entered into agreements providing for a credit facility for the combined company of not less than $4,000,000.
+
+ 
+
+Indemnification; Escrow of Closing Payment
+
+ 
+
+If the Target violates, misrepresents or breaches any of its
+representations, warranties, and covenants, it has agreed to indemnify Selway for up to 10% of the Closing Payment. For that purpose,
+of the Closing Payment, an aggregate of 520,000 shares and promissory notes with an aggregate face value of $750,000 are being
+held in escrow for a period of 12 months following the Merger in order to satisfy any indemnification obligations of the Target.
+If Selway violates, misrepresent or breaches any of its representations, warranties, and covenants, it has agreed to indemnify
+the Target stockholders up to 10% of the Closing Payment, payable in cash (up to $5,950,000). For purposes of the indemnification
+provisions of the Agreement, each share included in the Closing Payment will be deemed to be worth $10.00, and the promissory notes
+will be deemed to be worth their face value.
+
+ 
+
+Termination
+
+ 
+
+Either party may terminate the agreement in the event that the
+Merger has not taken place by March 8, 2013, or if Selway has not been able to enter into agreements providing for a credit facility
+for the combined company of not less than $4,000,000 prior to February 28, 2013, if there is not material breach of the agreement
+by the terminating party, in which case each party shall bear their own expenses. No party has terminated the agreement as of the
+date hereof. Selway may terminate the agreement if the approval of the board of directors of Target of the Agreement is not in
+effect or there is a lawsuit initiated or court order in effect that would prevent or delay the Merger to later than March 31,
+2013; provided that, upon termination due to any of the foregoing, the Target must issue to Selway warrants to purchase shares
+equal to 4.9% of the issued and outstanding shares of common stock of Target at the time of such termination. Upon a default, the
+non-defaulting party may terminate the Agreement upon 10 business days notice, subject to such breach being cured prior
+to the earlier of March 8, 2013, and the expiration of such 10 business days notice.
+
+ 
+
+Board of Directors of the Combined Company; Voting Agreement
+
+ 
+
+The agreement provides that, for the two year period following
+the Merger, Gary Sekulski, as the representative of the stockholders of Target, will designate three persons to the combined company s
+board of directors, Edmundo Gonzalez, as Selway s representative, will designate one person to the combined company s
+board and such designees will unanimously designate three persons to the combined company s board of directors, pursuant
+to the terms of a voting agreement to be entered into at closing.
+
+ 
+
+Registration Rights
+
+ 
+
+The Company has agreed to register all shares included in the
+Closing Payment, the Earnout Payment Shares, the shares underlying the Exchange Warrants, and the shares issued as compensation
+for the Bridge Financing pursuant to the terms of a Registration Rights Agreement to be entered into at closing or pursuant to
+the terms of such securities.
+
+ 
+
+Post-Merger Tender Offer 
+
+ 
+
+Following the Merger, the Company will be required to commence
+a tender offer to grant holders of shares issued in its initial public offering the right to redeem such shares for a pro rata
+portion of the trust account set up at the time of the initial public offering, all in accordance with Selway s amended and
+restated certificate of incorporation and bylaws.
+
+ 
+
+In accordance with Selway s amended and restated certificate
+of incorporation and bylaws, and as described in its initial public offering prospectus, prior to the consummation of the Merger,
+the Company will file a Current Report on Form 8-K with the SEC that will include disclosure regarding the Target and the Merger
+similar to what would be included in a proxy statement compliant with U.S. securities regulations regarding the solicitation of
+stockholder votes to approve the Merger. After the Merger, the Company will commence an issuer tender offer for all of its Series
+B Shares, which will consist of all public shares for which the applicable holder has not elected to waive redemption rights and
+convert such shares to Series C Shares.
+
+ 
+
+If the Company fails to commence the tender offer within 30
+days of consummation of the Merger, or it fails to complete the tender offer within 6 months of consummation of the Merger (but
+in no event later than August 7, 2013), then it will automatically liquidate the trust account and release to its Series B stockholders
+a pro rata portion of the trust account. The holders of Series C Shares and public warrant holders will continue to hold their
+securities in Selway.
+
+ 
+
+ F-35
+
+ 
+
+ 
+
+ 
+
+ 
+
+UNAUDITED CONDENSED COMBINED PRO FORMA
+
+FINANCIAL INFORMATION
+
+ 
+
+The
+following unaudited pro forma condensed balance sheet as of December 31, 2012 combines the historical consolidated balance
+sheet of Selway Capital Acquisition Corporation (the "Company" or "SCAC") as of December 31, 2012, and
+the balance sheet of Healthcare Corporation of America and Subsidiaries ("HCCA") as of December 31, 2012, under the
+acquisition method of accounting, giving effect of the exchange of shares between the Company and HCCA. SCAC is the
+surviving, publicly-traded legal entity. The business combination of the Company and HCCA is being accounted for as a
+reverse recapitalization of HCCA, since the Company is a shell corporation as defined under Rule 12b-2 of the Exchange
+Act. HCCA is being treated as the accounting acquirer in this
+transaction due to the following factors:
+
+ 
+
+1)HCCA s management pre-closing is the same as the management post-closing;
+
+ 
+
+2)The members of the board of directors pre-closing represent the majority of directors post closing, with one
+ SCAC director being added; and
+
+ 
+
+3)The majority of shares post-closing are still owned by HCCA shareholders, who will represent 60% of SCAC shares
+ outstanding, if all shares subject to conversion in our post-closing tender offer, actually convert to Series C
+ (non-redeemable) common shares, and 65% of SCAC shares outstanding if all shares subject to conversion do not convert to
+ Series C shares and opt to receive their pro rata cash in trust at the time of the post-closing tender offer. Estimates
+ of HCCA s ownership do not include shares underlying warrants held by public investors and the SCAC sponsors or the
+ restricted shares held by management. However, HCCA shareholders would still have 51% of SCAC shares post-closing when
+ including shares underlying warrants and restricted shares and assuming all redeemable shares convert to Series C shares,
+ and 54% of
+ SCAC shares post-closing if all shares subject to conversion
+ do not convert to Series C shares and opt to receive their
+ pro rata cash in trust at the time of the post-closing tender offer. In the table below, HCCA Selling Shareholders represent
+ HCCA shareholders who exchanged their shares for
+ SCAC shares, as well as preferred stock holders of HCCA and
+ bridge note
+ holders, who also exchanged their securities for SCAC shares at the time of the merger.
+
+ 
+
+ 
+ Pro Forma (All 
+Redeemable 
+Shares Convert 
+to Common) 
+ 
+ Pro Forma (All 
+Redeemable 
+Shares Tender 
+for Cash) 
+ 
+
+ HCCA Selling Shareholders 
+ 6,390,012 
+ 60% 
+ 6,390,012 
+ 65%
+
+ All Other Shareholders 
+ 4,228,446 
+ 40% 
+ 3,388,481 
+ 35%
+
+ Total Basic Shares 
+ 10,618,458 
+ 100% 
+ 9,778,493 
+ 100%
+
+ 
+ 
+ 
+ 
+ 
+
+ Employee Stock in Escrow 
+ 1,575,000 
+ 
+ 1,575,000 
+ 
+
+ Total HCCA 
+ 7,965,012 
+ 51% 
+ 7,965,012 
+ 54%
+
+ 
+ 
+ 
+ 
+ 
+
+ Warrants 
+ 3,296,250 
+ 
+ 3,296,250 
+ 
+
+ Total All Others 
+ 7,524,696 
+ 49% 
+ 6,684,731 
+ 46%
+
+ Total Shares, Fully Diluted 
+ 15,489,708 
+ 100% 
+ 14,649,743 
+ 100%
+
+ 
+
+ F-36
+
+ 
+
+ 
+
+ 
+
+The unaudited pro forma
+condensed combined financial information is for illustrative purposes only and should be read in conjunction
+with "Management s Discussion and Analysis of Financial Condition and Results of Operations of HCCA," and
+the consolidated financial statements of HCCA and the related notes thereto included elsewhere in this Form 8-K. The
+historical financial information has been adjusted to give effect to pro forma events that are related and/or directly
+attributable to the business combination, are factually supportable and are expected to have a continuing impact on the
+combined company s results. These events are the issuance of shares to HCCA shareholders, the repayment of bridge notes
+payable, the conversion of certain bridge notes into Series C common shares, the issuance of notes payable, the sale of
+additional Series C common shares and the conversion of outstanding sponsor warrants into Series C commons shares. In
+addition, the Company is in the process of conducting a tender offer of shares issued in SCAC s initial public
+offering. The proforma financial statements also include the pro forma impact of the minimum and maximum tender of such
+shares. The unaudited pro forma condensed combined financial statements do not purport to represent what the results of
+operations or financial condition of the combined company would actually have been had the business combination in fact
+occurred as of such date or to project the combined company s results of operations for any future period or as of any
+future date.
+
+ 
+
+At the closing of the business combination,
+all the outstanding shares of HCCA common stock were exchanged for, 5,200,000 shares of SCAC Series C common stock. Interest free
+sellers notes were issued with an aggregate face value of $7,500,000 and these shall be paid from 75% of 25% of the combined
+company s free cash above $2 million, measured annually. The management team shall receive 1,500,000 restricted shares of
+SCAC over the three years following the transaction, which shares will be accounted for as stock based compensation, with cliff
+vesting and will be recognized as expense at the vesting date, as well as interest free management notes, which in aggregate total
+$2,500,000, and which shall also be paid from 25% of 25% of free cash flow above $2,000,000 measured annually. HCCA shareholders
+and management shall have the right to receive, Earnout Payment Shares, which shall be issued as follows: (i) 1,400,000 shares
+if the combined company achieves consolidated gross revenue of $150,000,000 for the twelve months ended March 31, 2014 or June
+30, 2014; and (ii) 1,400,000 shares if the combined company achieves consolidated gross revenue of $300,000,000 for the twelve
+months ended March 31, 2015 or June 30, 2015. In the event the combined company does not achieve the first earnout threshold, but
+does achieve the second earnout threshold, then all of the Earnout Payment Shares shall be issued. If the combined company consolidates,
+merges or transfers substantially all of its assets prior to June 30, 2015 at a valuation of at least $15.00 per share, then all
+of the Earnout Payment Shares not previously paid out shall be issued immediately prior to such transaction. The Company evaluated
+the projected cash flow of the earnout threashold at the date of combination and based upon its projections, the earnout shares
+have been determined to have no value.
+
+ 
+
+Advisory Securities
+
+ 
+
+Pursuant to an agreement dated March 4,
+2013 and in consideration for certain advisory services rendered, Chardan Capital Markets, LLC, an underwriter in Selway s
+initial public offering, will receive 5% of the total amount of each of the Closing Payment shares and notes, Management Incentive
+Shares and Notes, and Earnout Payment Shares issued in connection with the merger. Each of the securities issued to Chardan will
+be identical to the respective securities issued in the merger. These are amount are in addition to those listed above.
+
+ 
+
+The following unaudited pro forma condensed
+consolidated statement of operations for the year ended December 31, 2012, combines the historical consolidated statement of operations
+of SCAC for the year ended December 31, 2012 and the consolidated statement of operations of HCA for the year ended December 31,
+2012, giving effect to exchange of shares as if it had occurred on January 1, 2012.
+
+ 
+
+The unaudited pro forma condensed consolidated
+financial statements are based on the estimates and assumptions set forth in the notes to such statements, which have been made
+solely for purposes of developing such pro forma information. The pro forma adjustments are based upon available information and
+certain assumptions that are factually supportable and that we believe are reasonable under the circumstances, and are subject
+to revision. The unaudited pro forma condensed consolidated financial statements are presented for informational purposes only,
+and we cannot provide any assurances that the assumptions used in the preparation of the pro forma condensed consolidated financial
+statements will ultimately prove to be correct. The unaudited pro forma information is not necessarily indicative of the financial
+position or results of operations that may have actually occurred had the exchange of shares taken place on the dates noted or
+the future financial position or operating results of the combined company.
+
+ 
+
+ F-37
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+ 
+
+PRO FORMA CONDENSED COMBINED BALANCE
+SHEET
+
+ 
+
+as of December 31, 2012
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ Pro Forma 
+ Pro Forma 
+ Pro Forma 
+ Pro Forma 
+
+ 
+ SCAC 
+ 
+ 
+ Business 
+ Business 
+ (No 
+ (No 
+ (Maximum 
+ (Maximum 
+
+ 
+ (As 
+ 
+ 
+ Combination 
+ Combination 
+ shares
+ tendered) 
+ shares
+ tendered) 
+ shares
+ tendered) 
+ conversion) 
+
+ 
+ Reported) 
+ HCCA 
+ 
+ Adjustments 
+ Combined 
+ Adjustments 
+ Combined 
+ Adjustments 
+ Combined 
+
+ Assets 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Cash 
+ $5,036 
+ $1,791,089 
+ 4 
+ $(56,311) 
+ $6,655,142 
+ 10 
+ $8,483,733 
+ $15,138,874 
+ 11 
+ ($8,483,647) 
+ $6,655,228 
+
+ 
+ 
+ 
+ 2 
+ (69,912) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 7 
+ 5,722,309 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 9 
+ $(737,070) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Other current assets 
+ 6,739 
+ 3,960,701 
+ 4 
+ (488,229) 
+ 3,479,211 
+ 
+ 
+ 3,479,211 
+ 
+ - 
+ 3,479,211 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Property and equipment 
+ - 
+ 1,114,055 
+ 
+ 
+ 1,114,055 
+ 
+ 
+ 1,114,055 
+ 
+ - 
+ 1,114,055 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Restricted cash held in trust 
+ 20,600,086 
+ - 
+ 2 
+ (2,900,006) 
+ 8,651,726 
+ 10 
+ (8,651,726) 
+ - 
+ 
+ 
+ - 
+
+ 
+ 
+ 
+ 7 
+ (9,048,354) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Other assets 
+ 3,554 
+ 124,874 
+ 
+ 
+ 128,428 
+ 
+ 
+ 128,428 
+ 
+ - 
+ 128,428 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total Assets 
+ $20,615,415 
+ $6,990,719 
+ 
+ $(7,577,572) 
+ $20,028,562 
+ 
+ $(167,993) 
+ $19,860,568 
+ 
+ $(8,483,647) 
+ $11,376,922 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Liabilities and 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stockholders' Equity 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Accounts payable, accrued expenses and other current liabilities 
+ $812,405 
+ $2,116,688 
+ 4 
+ $(56,311) 
+ $2,328,787 
+ 10 
+ $(167,993) 
+ $2,160,794 
+ 
+ 
+ $2,160,794 
+
+ 
+ 
+ 
+ 2 
+ (142,849) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 7 
+ (175,696) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 9 
+ (100,000) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 9 
+ (125,450) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Note payable 
+ - 
+ 4,947,613 
+ 1 
+ 5,349,418 
+ 5,349,418 
+ 
+ 
+ 5,349,418 
+ 
+ 
+ 5,349,418 
+
+ 
+ 
+ 
+ 2 
+ (4,947,613) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Management incentive notes payable 
+ 
+ 
+ 6 
+ 1,671,693 
+ 1,671,693 
+ 
+ 
+ 1,671,693 
+ 
+ 
+ 1,671,693 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Redeemable preferred stock 
+ - 
+ 458,800 
+ 3 
+ (458,800) 
+ - 
+ 
+ 
+ - 
+ 
+ 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total current liabilities 
+ 812,405 
+ 7,523,101 
+ 
+ 1,014,392 
+ 9,349,898 
+ 
+ (167,993) 
+ 9,181,905 
+ 
+ - 
+ 9,181,905 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Long term debt and other non-current liabilities 
+ - 
+ 463,515 
+ 
+ 
+ 463,515 
+ 
+ 
+ 463,515 
+ 
+ 
+ 463,515 
+
+ Warrant liability 
+ 2,253,333 
+ 518,587 
+ 5 
+ (364,537) 
+ 1,714,050 
+ 
+ 
+ 1,714,050 
+ 
+ 
+ 1,714,050 
+
+ 
+ 
+ 
+ 8 
+ (693,333) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total long term liabilities 
+ 2,253,333 
+ 982,102 
+ 
+ (1,057,870) 
+ 2,177,565 
+ 
+ - 
+ 2,177,565 
+ 
+ - 
+ 2,177,565 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total liabilities 
+ $3,065,738 
+ $8,505,203 
+ 
+ $(43,478) 
+ $11,527,463 
+ 
+ $(167,993) 
+ $11,359,470 
+ 
+ $- 
+ $11,359,470 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Ordinary shares subject to possible redemption,
+ 1,500,000 shares (at redemption value) 
+ 15,150,000 
+ - 
+ 7 
+ (8,872,658) 
+ 6,277,342 
+ 10 
+ (6,277,342) 
+ - 
+ 
+ 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total Temporary Equity 
+ 15,150,000 
+ - 
+ 
+ (8,872,658) 
+ 6,277,342 
+ 
+ (6,277,342) 
+ - 
+ 
+ - 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stockholders' equity (deficiency): 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Preferred Stock 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ - 
+ 
+ 
+ - 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Common stock 
+ 250 
+ 3,556,056 
+ 1 
+ (3,556,056) 
+ 904 
+ 
+ 
+ 904 
+ 11 
+ (84) 
+ 820 
+
+ 
+ 
+ 
+ 1 
+ 554 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 2 
+ 31 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 3 
+ 59 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 8 
+ 10 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Additional paid in capital 
+ 5,098,941 
+ - 
+ 1 
+ (4,563,429) 
+ 8,631,139 
+ 10 
+ 6,277,342 
+ 14,908,481 
+ 11 
+ (8,483,563) 
+ 6,424,918 
+
+ 
+ 
+ 
+ 2 
+ 3,097,900 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 3 
+ 458,741 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 6 
+ (1,671,693) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 7 
+ 5,722,309 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 8 
+ 999,990 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 9 
+ (511,620) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stock Redemption 
+ - 
+ (100,000) 
+ 1 
+ 100,000 
+ - 
+ 
+ 
+ - 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Accumulated deficit 
+ (2,699,514) 
+ (4,970,540) 
+ 1 
+ 2,669,514 
+ (6,408,286) 
+ 
+ 
+ (6,408,286) 
+ 
+ 
+ (6,408,286)
+
+ 
+ 
+ 
+ 2 
+ (977,387) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 4 
+ (488,229) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 8 
+ (306,667) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 5 
+ 364,537 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Stockholders' equity (deficiency) 
+ 2,399,677 
+ (1,514,484) 
+ 
+ 1,338,563 
+ 2,223,756 
+ 
+ 6,277,342 
+ 8,501,098 
+ 
+ (8,483,647) 
+ 17,452 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total Liabilities &
+ Stockholders' Equity 
+ $20,615,415 
+ $6,990,719 
+ 
+ $(7,577,573) 
+ $20,028,561 
+ 
+ $(167,993) 
+ $19,860,568 
+ 
+ $(8,483,647) 
+ $11,376,922 
+
+ 
+
+See notes to unaudited condensed combined pro forma balance
+sheet
+
+ 
+
+ F-38
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+NOTES TO UNAUDITED PRO FORMA CONDENSED
+COMBINED BALANCE SHEET
+
+December 31, 2012
+
+ 
+
+1To recognize reverse recapitalization at closing, consideration to HCCA shareholders and to combine
+the shareholders' deficiency of HCCA, the accounting acquirer, with the stockholders equity of SCAC and give effect to the
+issuance of 5,535,000 shares of SCAC s $.0001 par value common stock and $8.0 million of noninterest bearing promissory sellers'
+notes, which have a present value of $5,349,418. 5,200,000 shares are closing consideration to HCCA shareholders and 335,000 shares
+are considersation for HCCA's M&A advisor. $7,500,000 of the notes are consideration for HCCA selling shareholders and $500,000
+are notes to the HCCA M&A advisor, which have been discounted based upon anticipated future cash flow payments at a discount
+rate of 6.5%.
+
+ 
+
+ Common stock HCCA 
+ $3,556,056 
+ 
+
+ Commons stock issued in exchange for HCCA shares 
+ 
+ $554 
+
+ Additional paid in capital 
+ $4,563,429 
+ 
+
+ Stock redemption 
+ 
+ $100,000 
+
+ Accumulated deficit 
+ 
+ $2,669,514 
+
+ Notes payable 
+ 
+ $5,349,418 
+
+ 
+
+2To reflect repayment of $5,925,000 bridge notes payable, recognition of unamortized bridge loan
+discount of $977,387 as interest expense and payment of accrued interest payable of $69,918 and the conversion of $3,025,000 of
+principal and $72,931 of accrued interest into 316,456 Series C common shares, and payment of $2,900,000 of principal through release
+of cash in trust.
+
+ 
+
+ Notes payable 
+ $4,947,613 
+ 
+
+ Retained earnings 
+ 977,387 
+ 
+
+ Accrued interest payable 
+ 142,849 
+ 
+
+ Common stock 
+ 
+ $31 
+
+ Cash in trust 
+ 
+ 2,900,006 
+
+ Cash 
+ 
+ 69,912 
+
+ Additional paid in capital 
+ 
+ 3,097,900 
+
+ 
+ 
+ 
+
+ 
+
+The repayment of the HCCA bridge loans is computed as follows:
+
+ 
+
+ Bridge loan principal amount 
+ 
+ $5,925,000 
+
+ 
+ 
+ 
+
+ Shares of 5% Shareholders who are also bridge loan holders, and who are electing to convert their shares from Redeemable Series A Redeemable Common to Series C Common. HCCA used the cash released from trust related to these shares pay down the bridge loan of these investors 
+ 
+ 281,554 
+
+ 
+ 
+ 
+
+ Cash released from Trust from these investors (281,554 shares X $10.30/share) 
+ 
+ $2,900,006 
+
+ - Underwriters' discount in trust, paid to UW 
+ $0.20 
+ $(56,311)
+
+ - Payment of bridge principal 
+ 
+ $(2,900,000)
+
+ Net Cash to HCCA from share conversion and payment of bridge loan 
+ 
+ $(56,305)
+
+ 
+ 
+ 
+
+ - Interest paid in cash related to re-paid portion of bridge loan 
+ 
+ $(69,918)(a)
+
+ Net Cash paid by HCCA 
+ 
+ $(126,222)
+
+ 
+ 
+ 
+
+ Principal paid via conversion of bridge loan into Series C common 
+ 
+ $3,025,000 
+
+ Interest paid via conversion into Series C common 
+ 
+ $72,931(a)
+
+ Total to be converted into Series C common due to bridge loan (as of 12/31/2012) 
+ 
+ $3,097,931 
+
+ 
+
+3To reflect convsersion of redeamble preferred stock into 592,500 Series C common shares
+
+ 
+
+ Redeemable preferred stock 
+ $458,800 
+ 
+
+ Common stock 
+ 
+ $59 
+
+ Additional paid in capital 
+ 
+ 458,741 
+
+ 
+
+4To reflect payment of deferred underwriters fee upon release of cash in trust, and to expense prepaid
+loan fees upon repayment of bridge loans payable.
+
+ 
+
+ Deferred underwriting compensation 
+ $56,311 
+ 
+
+ Retained earnings 
+ 488,229 
+ 
+
+ Cash 
+ 
+ $56,311 
+
+ Prepaid loan fees 
+ 
+ 488,229 
+
+ 
+
+ F-39
+
+ 
+
+ 
+
+ 
+
+5To reflects conversion of 296,250 warrants held by bridge loan holders valued by HCCA at $518,587, into warrants of the Company
+and valued at the Selway warrants, at $0.52/warrant, or $154,050, as of the business combination.
+
+ 
+
+ Warrant liability 
+ 364,537 
+ 
+
+ Retained earnings 
+ 
+ 364,537 
+
+ 
+
+6To reflect the issuance of $2,500,000 of non-interest bearing Management Sellers' Notes, which are part of the consideration,
+and which have a present value of $1,671,693and have been discounted based upoin anticipated futre cash flow payments at 6.5%.
+Managers are also shareholders and part of the transaction has these managers receiving extra consideration for their stakes in
+HCCA.
+
+ 
+
+ Additional paid-in capital 
+ $1,671,693 
+ 
+
+ Management incentive notes payable 
+ 
+ $1,671,693 
+
+ 
+
+7To reflect sale of new 878,481 Series C Common shares to third parties upon holders of 878,481 Series
+A Redeemable Common shares agreeing to waive redemption rights and convert their shares into Series C common shares, as follows:
+
+ 
+
+ Cash 
+ 5,722,309 
+ 
+
+ Cash in trust 
+ 
+ 9,048,354 
+
+ Deferred underwriting compensation 
+ 175,696 
+ 
+
+ Shares subject to redemption 
+ 8,872,658 
+ 
+
+ Additional paid in capital 
+ 
+ 5,722,309 
+
+ 
+
+The sale of the shares has been computed as follows:
+
+ 
+
+ Size of offering to investors 
+ 
+ $6,149,367 
+
+ Price per share 
+ 
+ $7.00 
+
+ Shares converting from Series A Redeemable Common (backed by cash in trust) to Series C 
+ 
+ 878,481(c)
+
+ 
+ 
+ 
+
+ Cash in trust per Series A Redeemable Common Share 
+ 
+ $10.30 
+
+ 
+ 
+ 
+
+ Cash Released from Trust 
+ 
+ $9,048,354(c)
+
+ - Underwriters' discount in trust plus placement fees 
+ $0.20 
+ $175,696 
+
+ - Placement fees 
+ $0.06 
+ $49,311 
+
+ - Cash back to shareholder of Series A Redeemable Common 
+ $3.53 
+ $3,101,038 
+
+ 
+ 
+ 
+
+ = Net Cash to HCCA 
+ 
+ $5,722,309 
+
+ 
+ 
+ 
+
+ Net Cash per Share to HCCA 
+ 
+ $6.51 
+
+ 
+
+(c)Shareholders owning these shares shall agree not to redeem, causing the trust to release $10.30/share to HCCA, and HCCA shall
+pay these shareholders $3.53/share in cash, pay the underwriters $0.20/share, pay $0.06/share in placement
+fees, and keep $6.51/share
+
+ 
+
+8To reflect conversion of 1,333,333 sponsor warrants into 100,000 Series C common shares at a price of $10 per share and to
+reflect compensation expense of $306,667 on the difference in value between the warrants exchanged for shares
+
+ 
+
+ Common stock 
+ 
+ 10 
+
+ Warrant liability 
+ 693,333 
+ 
+
+ Additional paid in capital 
+ 
+ 999,990 
+
+ Retained earnings 
+ 306,667 
+ 
+
+ 
+
+ F-40
+
+ 
+
+ 
+
+ 
+
+9To reflect payment of deferred legal fees paid at closing of business combination, payment of accounts payable at closing,
+and transaction-related costs due to legal, accounting and filing fees which reduced Additional paid in capital
+
+ 
+
+ Deferred legal fees 
+ 100,000 
+ 
+
+ Accounts payable due at business combination 
+ 125,450 
+ 
+
+ Additional paid in capital 
+ 511,620 
+ 
+
+ Cash 
+ 
+ 737,070 
+
+ 
+
+10To reflect the release of funds raised by Selway Capital Acquisition Corporation's initial public offering and reclassification
+of shares subject to redemption. The Company believes that these disclosures are directly attributable to the Merger because they are events
+described in the Company s initial public offering prospectus and required to occur subsequent to the Merger. These events
+will have a continuing impact on the Company as it describes the minimum and maximum impact of the tender offer of the Company s
+shares required to be disclosed in the Company s initial public offering prospectus.
+
+ 
+
+ Cash 
+ $8,483,733 
+ 
+
+ Cash in trust 
+ 
+ $8,651,726 
+
+ Deferred underwriting compensation 
+ 167,993 
+ 
+
+ Shares subject to redemption 
+ 6,277,342 
+ 
+
+ Additional paid in capital 
+ 
+ 6,277,342 
+
+ 
+
+11To record the payment of common stock subject to conversion assuming minimum stockholder conversion
+to Series C Common, post business combination, (839,965 shares at $10.30 per share) and return of accrued underwriters fees of
+$167,993. The Company believes that these disclosures are directly attributable to the Merger because they are events
+described in the Company s initial public offering prospectus and required to occur subsequent to the Merger. These events
+will have a continuing impact on the Company as it describes the minimum and maximum impact of the tender offer of the Company s
+shares required to be disclosed in the Company s initial public offering prospectus.
+
+ 
+
+ Cash 
+ 
+ $8,483,647 
+
+ Common stock 
+ $84 
+ 
+
+ Additional Paid-in capital 
+ 8,483,563 
+ 
+
+ 
+
+ F-41
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+PRO FORMA CONDENSED COMBINED INCOME STATEMENT
+
+FOR THE YEAR ENDED DECEMBER 31, 2012
+
+ 
+
+ 
+ For the Year Ended 
+ 
+ 
+ 
+ 
+ 
+ Pro Forma 
+ Pro Forma 
+
+ 
+ December
+ 31, 2012 
+ 
+ Business 
+ Business 
+ Pro
+ Forma 
+ Pro Forma 
+ Adjustments 
+ Combined 
+
+ 
+ SCAC
+
+ (AS Reported) 
+ HCA 
+ 
+ Combination
+
+Adjustments 
+ Combination
+
+Combined 
+ (No
+ shares tendered)
+
+ Adjustments 
+ Combined
+
+ (No shares tendered) 
+ (Maximum
+ Shares 
+
+ Tendered) 
+ (Maximum
+ Shares
+
+ Tendered) 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Sales 
+ $- 
+ $38,401,140 
+ 
+ 
+ $38,401,140 
+ 
+ $38,401,140 
+ 
+ $38,401,140 
+
+ Cost of Sales 
+ - 
+ 31,650,232 
+ 
+ 
+ 31,650,232 
+ 
+ 31,650,232 
+ 
+ 31,650,232 
+
+ Gross Profit 
+ - 
+ 6,750,908 
+ 
+ 
+ 6,750,908 
+ 
+ 6,750,908 
+ 
+ 6,750,908 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ General and administrative expense 
+ 348,091 
+ 7,299,603 
+ 
+ 
+ 7,647,694 
+ 
+ 7,647,694 
+ 
+ 7,647,694 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Loss before other income (loss) 
+ (348,091) 
+ (548,695) 
+ 
+ 
+ (896,786) 
+ 
+ (896,786) 
+ 
+ (896,786)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Change in fair value of warrants 
+ (2,253,333) 
+ 
+ 
+ 
+ (2,253,333) 
+ 
+ (2,253,333) 
+ 
+ (2,253,333)
+
+ Stock-based compensation 
+ 
+ 
+ 1 
+ (11,025,000) 
+ (11,025,000) 
+ 
+ (11,025,000) 
+ 
+ (11,025,000)
+
+ Interest Expense 
+ 
+ 
+ 2 
+ (682,500) 
+ (682,500) 
+ 
+ (682,500) 
+ 
+ (682,500)
+
+ Other income (loss) 
+ 17,474 
+ (640,286) 
+ 
+ 
+ (622,812) 
+ 
+ (622,812) 
+ - 
+ (622,812)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss 
+ $(2,583,950) 
+ $(1,188,981) 
+ 
+ $(11,707,500) 
+ $(15,480,431) 
+ $- 
+ $(15,480,431) 
+ $- 
+ $(15,480,431)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net loss per common share to controlling interests 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Basic net loss per ordinary
+ share 
+ $(1.03) 
+ $(0.03) 
+ 
+ 
+ $(1.46) 
+ 
+ $(1.46) 
+ 
+ $(1.58)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Weighted average ordinary shares outstanding 
+ 2,500,000 
+ 38,939,909 
+ 3 
+ 
+ 10,618,458 
+ 
+ 10,618,458 
+ 
+ 9,778,493 
+
+ 
+
+ F-42
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+NOTES TO UNAUDITED PRO FORMA CONDENSED
+COMBINED INCOME STATEMENT
+
+For the Year Ended December 31, 2012
+
+ 
+
+1To reflect stock-based compensation to HCCA management related to the 1,575,000 shares of
+ SCAC that were granted at the merger but are being held in escrow, at a price per share of $7 per share, which is the price per
+ share at
+ which Series C shares were purchased by investors at the time of
+ the business combination.
+
+ 
+
+ Stock-based compensation 
+ $11,025,000 
+
+ 
+
+2To reflect imputed interest on Sellers' Notes, which collectively total $10.5 million with $7,500,000 being for the benefit
+of all shareholders, $2,500,000 being consideration for the benefit of the manager-owners, and $500,000 being consideration for
+the M&A advisor. The interest rate used is HCCA's estimated borrowing cost of 6.5%, and no principal payments are assumed during
+2013. This pro forma expense shows the imputed interest as if the notes were in place for all of 2012.
+
+ 
+
+ Interest Expense 
+ $682,500 
+
+ 
+
+3Pro forma net loss per share was calculated by dividing pro forma net loss by the weighted average number of shares as follows:
+
+ 
+
+ 
+ Series B 
+ Series C 
+ Pro Forma (At 
+Business 
+Combination) 
+ Pro Forma 
+(No shares 
+tendered) 
+ Pro Forma 
+(Maximum 
+shares 
+tendered) 
+
+ Redeemable stock backed by cash in trust 
+ 839,965 
+ 
+ 839,965 
+ - 
+ - 
+
+ HCCA selling shareholders 
+ 
+ 5,200,000 
+ 5,200,000 
+ 5,200,000 
+ 5,200,000 
+
+ Conversion of HCCA note holders and preferred stockholders 
+ 
+ 1,190,012 
+ 1,190,012 
+ 1,190,012 
+ 1,190,012 
+
+ Employee restricted shares to be released from escrow over 3 years 
+ 
+ 1,575,000 
+ 1,575,000 
+ 1,575,000 
+ 1,575,000 
+
+ Public shareholders 
+ 
+ 878,481 
+ 878,481 
+ 1,718,446 
+ 878,481 
+
+ Selway sponsor shares 
+ 
+ 600,000 
+ 600,000 
+ 600,000 
+ 600,000 
+
+ Other shareholders 
+ 
+ 335,000 
+ 335,000 
+ 335,000 
+ 335,000 
+
+ Total 
+ 839,965 
+ 9,778,493 
+ 10,618,458 
+ 10,618,458 
+ 9,778,493 
+
+ 
+
+Series B shares shown above are the result of conversion
+of Selway's Series A redeemable shares at the business combination. These are identical to Series A and are redeemable in cash.
+The company is holding restricted cash in trust equal to $10.30 per share for the possible redemption of these Series B shares.
+At the business combination, 1,160,035 shares of Selway's Series A redeemable stock were converted to non-redeemable Series C shares,
+and these include the Public Shareholders listed above as well as certain note holders in HCCA, who were also Series A holders.
+
+ 
+
+In the scenario listed above, Pro Forma (No shares
+tendered), the Redeemable Series B convert to Series C and are included in the Public Shareholders total.
+
+ 
+
+For the scenario list above, Pro Forma (Maximum shares
+tendered), the 839,965 Series B Redeemable common shares are all redeemed by shareholders, all other shares described above remain
+the same.
+
+ 
+
+The Scenarios above represent the basic shares at
+the business combination, and none of the scenarios include the following:
+
+ 
+
+ Warrants held by public and other investors, which have a strike price of $7.50 
+ 2,296,250 
+
+ Warrants held by the Selway sponsor, which have a strike price of $10 
+ 1,000,000 
+
+ Total restricted shares and warrants 
+ 3,296,250 
+
+ 
+
+ F-43
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES 
+
+ 
+ 
+ 
+ 
+ Index to Financial Statements 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+
+ Consolidated Balance Sheet:
+ 
+ 
+ 
+ 
+
+ December 31, 2012 and March 31, 2013
+ 
+ 
+ 
+ F-45
+
+ 
+ 
+ 
+ 
+ 
+
+ Consolidated Statements of Operations:
+ 
+ 
+ 
+ 
+
+ Three months ended March 31, 2012 and 2013
+ 
+ 
+ 
+ F-46
+
+ 
+ 
+ 
+ 
+ 
+
+ Consolidated Statements of Cash Flows: 
+ 
+ 
+ 
+ 
+
+ Three months ended March 31, 2012 and 2013
+ 
+ 
+ 
+ F-47
+
+ 
+ 
+ 
+ 
+ 
+
+ Notes to Financial Statements:
+ 
+ 
+ 
+ 
+
+ March 31, 2013
+ 
+ 
+ 
+ F-48
+
+ 
+
+ 
+
+ F-44
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES
+
+ 
+ Consolidated Balance Sheet
+
+ 
+
+ 
+ 
+ 
+
+ 
+ Audited / Restated 
+ Unaudited 
+
+ 
+ December 31, 
+ March 31, 
+
+ 
+ 2012 
+ 2013 
+
+ 
+ 
+ 
+
+ ASSETS 
+ 
+ 
+
+ Current assets: 
+ 
+ 
+
+ Cash 
+ $1,791,089 
+ $408,978 
+
+ Accounts receivable 
+ 572,637 
+ 2,068,835 
+
+ Rebates receivable 
+ 1,323,474 
+ 1,544,906 
+
+ Other receivable 
+ 40,867 
+ 299,946 
+
+ Inventory 
+ 573,540 
+ 457,004 
+
+ Prepaid Loan Fees 
+ 488,229 
+ 315,913 
+
+ Total current assets 
+ 4,789,836 
+ 5,095,582 
+
+ 
+ 
+ 
+
+ Property and equipment, net of accumulated depreciation, restated 
+ 1,114,055 
+ 1,409,773 
+
+ 
+ 
+ 
+
+ Other assets: 
+ 
+ 
+
+ Security deposits 
+ 66,131 
+ 66,131 
+
+ Other 
+ 58,743 
+ 1,000 
+
+ 
+ 124,874 
+ 67,131 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Other Assets 
+ 
+ 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Total Other Assets 
+ 
+ — 
+
+ Total assets 
+ $6,028,765 
+ $6,572,486 
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ LIABILITIES 
+ 
+ 
+
+ Current liabilities: 
+ 
+ 
+
+ Accrued Compensation 
+ 
+ $— 
+
+ Accounts payable 
+ $4,520,233 
+ $5,445,746 
+
+ Accrued expenses 
+ 453,057 
+ 537,134 
+
+ Accrued taxes payable 
+ 11,071 
+ 32,870 
+
+ Customer deposits 
+ 
+ 804,698 
+
+ Note payable 
+ 4,947,613 
+ 4,947,613 
+
+ Reedemable preferred stock 
+ 458,800 
+ 458,800 
+
+ Warrant liability 
+ 518,587 
+ 518,587 
+
+ Current portion of long term debt 
+ 137,703 
+ 169,745 
+
+ Total current liabilities 
+ 11,047,064 
+ 12,915,193 
+
+ Long-term liabilities: 
+ 
+ 
+
+ Convertible Notes Payable 
+ 
+ — 
+
+ Total long-term liabilities 
+ 
+ — 
+
+ 
+ 
+ 
+
+ Total current liabilities 
+ 11,047,064 
+ 12,915,193 
+
+ 
+ 
+ 
+
+ Long term liabilities: 
+ 
+ 
+
+ Deferred rent 
+ 64,133 
+ 59,909 
+
+ Leases payable 
+ 399,382 
+ 494,659 
+
+ 
+ 
+ 
+
+ Total long term liabilities 
+ 463,515 
+ 554,568 
+
+ 
+ 
+ 
+
+ Total Liabilities 
+ 11,510,579 
+ 13,469,761 
+
+ 
+ 
+ 
+
+ STOCKHOLDERS' DEFICIT 
+ 
+ 
+
+ Common stock, no par value, 50,000,000 authorized, 
+ 
+ 
+
+ 37,879,809 and 40,000,009 shares issued and outstanding 
+ 3,556,056 
+ 3,936,056 
+
+ Stock redemption 
+ (100,000) 
+ 
+
+ Accumulated deficit, restated 
+ (8,937,860) 
+ (10,833,331)
+
+ Total stockholders' equity 
+ (5,481,804) 
+ (6,897,275)
+
+ Total liabilities and stockholders equity 
+ $6,028,775 
+ $6,572,486 
+
+ 
+
+ The
+accompanying notes are an integral part of these statements.
+
+ 
+
+ 
+
+ F-45
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ Consolidated Statement of Operations 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ Unaudited 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+ 
+ Three months 
+ Three months
+
+ 
+ Ended 
+ Ended
+
+ 
+ March 31, 
+ March 31,
+
+ 
+ 2012 
+ 2013
+
+ 
+ 
+ 
+
+ Sales 
+ $5,677,089 
+ $11,961,723 
+
+ 
+ 
+ 
+
+ Cost of Sales 
+ 4,767,120 
+ 10,605,500 
+
+ 
+ 
+ 
+
+ Gross Profit 
+ 909,969 
+ 1,356,223 
+
+ 
+ 
+ 
+
+ General and administrative expenses: 
+ 
+ 
+
+ Wages and taxes 
+ 549,242 
+ 862,532 
+
+ Stock based compensation 
+ 
+ 480,000 
+
+ Commissions 
+ 243,512 
+ 443,848 
+
+ Advertising and marketing 
+ 10,556 
+ 24,449 
+
+ Legal and professional 
+ 125,384 
+ 416,471 
+
+ Computer and internet 
+ 1,152 
+ 20,733 
+
+ Travel and entertainment 
+ 26,476 
+ 102,956 
+
+ Insurance 
+ 157,657 
+ 261,573 
+
+ Office and postage 
+ 33,388 
+ 62,137 
+
+ Rent 
+ 57,905 
+ 50,919 
+
+ Depreciation and amortization 
+ 51,428 
+ 74,693 
+
+ Bad debts 
+ 
+ 
+
+ Other office and miscellaneous 
+ 25,454 
+ 43,577 
+
+ Total operating expenses 
+ 1,282,154 
+ 2,843,888 
+
+ Income/(Loss) from operations 
+ (372,185) 
+ (1,487,665)
+
+ 
+ 
+ 
+
+ Other income (expense): 
+ 
+ 
+
+ Interest income 
+ 
+ 84 
+
+ Interest (expense) 
+ (6,179) 
+ (407,891)
+
+ Other (expense) 
+ (2,915) 
+ 
+
+ Income/(Loss) before taxes 
+ (381,279) 
+ (1,895,472)
+
+ 
+ 
+ 
+
+ Provision/(credit) for taxes on income 
+ — 
+ — 
+
+ Net Income/(loss) 
+ $(381,279) 
+ $(1,895,472)
+
+ 
+ 
+ 
+
+ 
+ 
+ 
+
+ Basic earnings/(loss) per common share 
+ $(0.01) 
+ $(0.05)
+
+ 
+ 
+ 
+
+ Weighted average number of shares outstanding 
+ 38,939,909 
+ 40,250,009 
+
+ 
+
+ The
+accompanying notes are an integral part of these statements.
+
+ 
+
+ F-46
+
+ 
+
+ 
+
+ 
+
+ HEALTHCARE CORPORATION OF AMERICA AND SUBSIDIARIES 
+
+ Consolidated Statement of Cash Flows 
+
+ Unaudited 
+
+ 
+
+ 
+
+ 
+ March 31, 
+ March 31,
+
+ 
+ 2012 
+ 2013
+
+ 
+ 
+ 
+
+ Cash flows from operating activities: 
+ 
+ 
+
+ Net income (loss) 
+ $(381,279) 
+ $(1,895,472)
+
+ 
+ 
+ 
+
+ Adjustments to reconcile net (loss) to cash 
+ 
+ 
+
+ provided (used) by operating activities: 
+ 
+ 
+
+ Common stock issued for services 
+ 
+ 480,000 
+
+ Depreciation and amortization 
+ 51,428 
+ 74,693 
+
+ Amortization of capital raising expenses 
+ 
+ 172,316 
+
+ Change in current assets and liabilities: 
+ 
+ 
+
+ Accounts receivable 
+ 275,115 
+ (1,496,198)
+
+ Rebates 
+ 
+ (221,432)
+
+ Other receivables 
+ 
+ (259,079)
+
+ Inventory 
+ (24,879) 
+ 116,536 
+
+ Prepaid expenses and other current assets 
+ (127,000) 
+ 57,743 
+
+ Other assets 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ (2,327,035) 
+ 1,031,400 
+
+ Deferred rent 
+ — 
+ (1,415)
+
+ Customer deposits 
+ 564,824 
+ 804,698 
+
+ Net cash flows from operating activities 
+ (1,968,826) 
+ (1,136,210)
+
+ 
+ 
+ 
+
+ Cash flows from investing activities: 
+ 
+ 
+
+ Purchase of fixed assets, restated 
+ (31,292) 
+ (370,411)
+
+ 
+ 
+ 
+
+ Net cash flows from investing activities 
+ (31,292) 
+ (370,411)
+
+ 
+ 
+ 
+
+ Cash flows from financing activities: 
+ 
+ 
+
+ Proceeds from sale of common stock 
+ — 
+ 
+
+ Proceeds from notes payable 
+ 
+ 
+
+ Redeemable preferred stock 
+ 
+ 
+
+ Warrants issued 
+ 
+ 
+
+ Redemption of common stock 
+ — 
+ 
+
+ Proceeds/(payments) from capital leases 
+ (64,601) 
+ 124,510 
+
+ 
+ 
+ 
+
+ Net cash flows from financing activities 
+ (64,601) 
+ 124,510 
+
+ Net cash flows 
+ (2,064,719) 
+ (1,382,111)
+
+ 
+ 
+ 
+
+ Cash and equivalents, beginning of period 
+ 3,354,385 
+ 1,791,089 
+
+ Cash and equivalents, end of period 
+ $1,289,666 
+ $408,978 
+
+ 
+ 
+ 
+
+ SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR: 
+ 
+ 
+
+ Interest 
+ $(43,038) 
+ $(132,339)
+
+ Income taxes 
+ 
+ $— 
+
+ 
+
+ The
+accompanying notes are an integral part of these statements.
+
+ 
+
+ F-47
+
+ 
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013 
+
+ 
+
+Note 1 - Summary of Significant Accounting Policies
+
+ 
+
+ General Organization
+and Business
+
+ 
+
+Healthcare Corporation of America ("HCCA")
+and its subsidiaries, are New Jersey Corporations. The consolidated companies are primarily engaged in the health benefits
+industry which provides benefit management services and mail order pharmacy fulfillment. The subsidiaries are Prescription
+Corporation of America Benefits ("PCB") and Prescription Corporation of America ("PCA"). HCCA was incorporated on February 26, 2008, PCB was incorporated on October 7, 2010, and PCA was
+incorporated on January 11, 2008.
+
+ 
+
+Basis of presentation
+
+ 
+
+The accompanying consolidated financial
+statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.
+GAAP"). Changes in classification of 2012 amounts have been made to conform to current presentations.
+
+ 
+
+Basis of consolidated
+
+ 
+
+The consolidated financial statements include
+the accounts of HCCA and its wholly-owned subsidiaries PCA and PCB, (collectively, the "Company"). All
+significant intercompany transactions and balances have been eliminated in consolidation.
+
+ 
+
+Use of estimates
+
+ 
+
+The preparation of financial statements
+in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
+reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
+and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
+
+ 
+
+Cash and cash equivalents
+
+ 
+
+For purposes of the statement of cash flows,
+we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than three months to be
+cash equivalents. For cash management purposes, the Company concentrates its cash holdings in multiple checking accounts at Chase
+Bank. The balances in these accounts may exceed the federally insured limit of $250,000 by the Federal Deposit Insurance Corporation
+in case of bank failure.
+
+ 
+
+Property and Equipment
+
+ 
+
+The Company values its investment in property
+and equipment at cost less accumulated depreciation. Depreciation is computed primarily by the straight line method over the estimated
+useful lives of the assets ranging from five to thirty-nine years.
+
+ 
+
+Inventory
+
+ 
+
+Inventory is recorded at lower of cost or market; cost is computed
+on a first-in first-out basis. The inventory consists of finished goods. Inventory at year end was $573,540.
+
+ 
+
+ F-48
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+Accounts receivable
+
+ 
+
+Trade receivables are carried at original
+invoice amount. Accounts receivable are written off to bad debt expense using the direct write-off method. Management determines
+uncollectible accounts by regularly evaluating individual customer receivables and considering a customer s financial condition,
+credit history, and current economic conditions and by using historical experience applied to an aging of accounts. Recoveries
+of trade receivables previously written off are recorded when received.
+
+ 
+
+Revenue recognition:
+
+ 
+
+Benefit management services revenues are recognized over the
+period in which members are entitled to receive benefits. Mail order pharmacy fulfillment sales consist of amounts due from 3rd
+party payors and member copayments.
+
+ 
+
+Rebates received from the pharmaceutical manufacturers are recorded
+as reduction of cost of revenues and the portion of the rebate payable to customers is treated as reduction of revenue.
+
+ 
+
+Stock-based
+compensation 
+
+ 
+
+The Company accounts for equity awards based on the fair value
+of the common stock at the date of issue. Expense is recognized upon vesting.
+
+ 
+
+Fair value of financial
+instruments and derivative financial instruments
+
+ 
+
+We have adopted Accounting Standards Codification
+regarding Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. The carrying amounts of cash,
+accounts payable, accrued expenses, and other current liabilities approximate fair value because of the short maturity of these
+items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and,
+therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. We do not hold
+or issue financial instruments for trading purposes, nor do we utilize derivative instruments in the management of foreign exchange,
+commodity price or interest rate market risks.
+
+ 
+
+Federal income taxes
+
+ 
+
+Deferred income taxes
+are reported for timing differences between items of income or expense reported in the financial statements and those reported
+for income tax purposes in accordance with Accounting Standards Codification regarding Accounting for Income Taxes, which requires
+the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for
+the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
+liabilities and their respective tax bases, and for tax loss and credit carryforwards. Deferred tax assets and liabilities are
+measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
+to be recovered or settled. Deferred taxes are provided for the estimated future tax effects attributable to temporary differences
+and carryforwards when realization is more likely than not.
+
+ 
+
+Net Income Per Share
+of Common Stock
+
+ 
+
+We have adopted Accounting Standards Codification
+regarding Earnings per Share, which requires presentation of basic and diluted EPS on the face of the income statement for all
+entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation
+to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share
+of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during
+the period. We do not compute fully diluted earnings per share because they are antidilutive.
+
+ 
+
+ F-49
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+ Internal Website
+Development Costs
+
+ 
+
+Under ASC350-50, Website Development
+Costs, costs and expenses incurred during the planning and operating stages of the Company's website are expensed as incurred. Under
+ASC 350-50, costs incurred in the website application and infrastructure development stages are capitalized by the Company and
+amortized to expense over the website's estimated useful life or period of benefit. 
+
+ 
+
+ Impairment of
+Long-Lived Assets
+
+ 
+
+The Company evaluates the recoverability
+of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment
+or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or
+the useful life has changed.
+
+ 
+
+ Deferred Offering
+Costs
+
+ 
+
+The Company defers as other assets the
+direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion
+of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering
+costs are charged to operations during the period in which the offering is terminated. During 2012, the Company incurred $689,264
+in offering costs which were capitalized and amortized over the life of the loan.
+
+ 
+
+ Common Stock
+Registration Expenses
+
+ 
+
+The Company considers incremental costs
+and expenses related to the registration of equity securities with the SEC, whether by contractual arrangement as of a certain
+date or by demand, to be unrelated to original issuance transactions. As such, subsequent registration costs and expenses
+are reflected in the accompanying financial statements as general and administrative expenses, and are expensed as incurred.
+
+ 
+
+Risk Concentration
+
+ 
+
+The Company grants unsecured credit to its customers. The Company
+continuously monitors the payment performance of its customers to ensure collections and minimize losses. Management does not believe
+that significant credit risks exist at December 31, 2012. Management has determined that an allowance for doubtful accounts is
+not necessary at December 31, 2012 since no losses have been incurred to date.
+
+ 
+
+Advertising:
+
+ 
+
+The Company expenses all costs of advertising
+as incurred. The advertising costs included in general and administrative expenses for the year ended December 31, 2012 was $78,446
+and $4,894 at March 31, 2013.
+
+ 
+
+ 
+
+Note 2 – Restatement 
+
+ 
+
+The financial statements have been revised to correct an error
+in accounting for the Company s sales, accounts receivable, cost of sales, accounts payable, capital leases, accrued rent
+and accrued taxes. In accordance with U.S. GAAP, the Company calculated and recognized adjustments accordingly.
+
+ 
+
+ 
+
+ F-50
+
+ 
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+The following table represents the effects of the restated statements
+as of December 31, 2011 and 2012.
+
+ 
+
+ 
+ Restated
+
+ 12/31/2011
+ 
+ Original
+
+ 12/31/2011
+ 
+ Restated
+
+ 12/31/2012
+ 
+ Original
+
+ 12/31/2012
+ 
+
+ Accounts receivable 
+ $— 
+ 
+ $572,637 
+ $1,220,065 
+
+ Rebates Receivable 
+ $— 
+ $— 
+ $1,323,474 
+ $1,638,000 
+
+ Property and Equipment, net 
+ $824,284 
+ $338,631 
+ $— 
+ $— 
+
+ Accounts payable 
+ $6,301,691 
+ $2,559,592 
+ $4,520,223 
+ $1,514,857 
+
+ Lease payable 
+ $510,647 
+ $— 
+ $— 
+ $— 
+
+ Deferred rent 
+ $56,402 
+ $— 
+ $— 
+ $— 
+
+ Accrued taxes 
+ $6,391 
+ $— 
+ $— 
+ $— 
+
+ Sales 
+ $24,928,065 
+ $28,226,088 
+ $28,663,284 
+ $38,401,140 
+
+ Cost of Sales 
+ $23,919,518 
+ $25,406,749 
+ $24,068,906 
+ $31,650,232 
+
+ General and Administrative expenses 
+ $4,881,266 
+ $2,876,835 
+ $— 
+ $— 
+
+ Accumulated deficit 
+ $(5,592,349) 
+ $(1,762,462) 
+ $(8,937,860) 
+ $(4,970,540)
+
+ 
+
+Note 3 – Commitments and Contingencies
+
+ 
+
+Operating leases
+
+ 
+
+The Company leases office space in Denville, New Jersey and
+office equipment. The office lease requires the following minimum rental payments:
+
+ 
+
+ Minimum Rental Payments 
+
+ 
+ Premise 
+
+ 2014 
+ $196,189 
+
+ 2015 
+ 177,578 
+
+ 2016 
+ 154,347 
+
+ 2017 
+ 130,613 
+
+ 2018 
+ 101,569 
+
+ Thereafter 
+ — 
+
+ 
+ $760,297 
+
+ 
+
+ 
+
+ F-51
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+Rent expense for the period ended December 31, 2012 was $182,455
+and $42,575 for the period ended March 31, 2013.
+
+ 
+
+The Company also has a deferred rental agreement with their
+landlord. The Company has recorded deferred rent at December 31, 2012 of $72,888 and $65,814 on March 31, 2013. The deferral amortizes
+over the life of the lease that expires in February 2017.
+
+ 
+
+Note 4 – Employment Agreements
+
+ 
+
+In 2012, the Company entered into employment agreements with
+four of its senior officers. The agreements specify an aggregate guaranteed salaries of $930,000 each year of employment. The agreements
+allow the Company to terminate these individuals for cause. At December 31, 2012 the Company has four remaining agreements.
+
+ 
+
+Note 5 – Litigation
+
+ 
+
+During 2012, the Company filed suit against its past adjudicator
+of claims for overcharges, over payment on claims, errors and misclassifications, and rebates owed from drug manufacturers for
+over $5 million. The Company s General Counsel has advised management that the outcome of this lawsuit is undeterminable,
+and as a result, the Company has not recorded any receivable and will record any revenue when and if received. The adjudicator
+of claims filed a counterclaim in the amount of $2.9 million for amounts it claims are owed to it by the Company
+
+ 
+
+On August 14, 2012, the Company entered into a settlement with
+a shareholder to buy back 500,000 shares of common stock for $100,000. The settlement also called for the Company to pay $50,000
+to the shareholder to settle claims against the company. As of December 31, 2012, the Company had not received the 500,000 shares
+of common stock but had paid the settlement. The Company received these shares in February 2013. A stock redemption was recorded
+on December 31, 2012 in the amount of $100,000.
+
+ 
+
+Note 6 - Common Stock
+
+ 
+
+During 2011, the Company issued 10,469,109 shares of common
+stock with a fair value range of $0.03 to $0.31 to its full-time employees and consultants in recognition of their efforts to assist
+and develop the Company. Stock-based compensation costs amounted to $410,529. These shares vested immediately and are freely tradable.
+
+ 
+
+During 2012, the Company issued 2,120,200 shares of common stock
+with a fair value range of $0.01 to $0.31. These shares are freely tradable.
+
+ 
+
+During 2012, the Company settled a suit with a shareholder to
+repurchase 500,000 shares of its common stock. These shares were recorded as a stock redemption for $100,000 and the shares were
+received in February 2013.
+
+ 
+
+During the first quarter of 2013, The Company issued 500,000
+fully vested shares to key employees and consultants. The Company has recognized a one-time stock based compensation in the amount
+of $480,000.
+
+ 
+
+ F-52
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+Note 7 – Property and Equipment
+
+ 
+
+The Company values its investment in property
+and equipment at cost less accumulated depreciation.
+
+ 
+
+Following is a detailed break-out of the
+Company s property and equipment:
+
+ 
+
+ 
+ 12/31/2012 
+ 3/31/2013 
+
+ Furniture and fixtures 
+ $1,374,126 
+ $1,744,539 
+
+ Leasehold improvements 
+ 10,162 
+ 10,162 
+
+ 
+ 1,384,288 
+ 1,754,701 
+
+ Accumulated depreciation 
+ (270,233) 
+ (344,928)
+
+ Net property and equipment 
+ $1,114,055 
+ $1,409,773 
+
+ 
+
+The Company recorded depreciation expense of $205,997 and $74,693
+for the year ended December 31, 2012 and period ended March 31, 2013, respectively.
+
+ 
+
+ F-53
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+Note 8 – Long Term Debt – Leases
+
+ 
+
+Long-term debt at March 31, 2013 is summarized as follows:
+
+ 
+
+ 
+ Due within One Year 
+ Due after One Year 
+ Total 3/31/2013 
+
+ Note payable in monthly installments
+
+ of $2,140 including 8% interest, secured
+
+ by equipment
+ 
+ $22,867 
+ $117,703 
+ $140,570 
+
+ Note payable in monthly installments
+
+ of $1,712 including 8% interest, secured
+
+ by equipment
+ 
+ 18,294 
+ 132,658 
+ 150,952 
+
+ Note payable in monthly installments
+
+ of $1,117 including 12% interest, secured
+
+ by equipment
+ 
+ 9,224 
+ 29,638 
+ 38,862 
+
+ Note payable in monthly installments
+
+ of $1,764 including 12% interest, secured
+
+ by equipment
+ 
+ 18,488 
+ 11,861 
+ 30,349 
+
+ Note payable in monthly installments
+
+ of $1,672 including 12% interest, secured
+
+ by equipment
+ 
+ 17,529 
+ 11,246 
+ 28,775 
+
+ Note payable in monthly installments
+
+ of $764 including 7% interest, secured
+
+ by equipment
+ 
+ 7,894 
+ 13,690 
+ 21,584 
+
+ Note payable in monthly installments
+
+ of $1,383 including 6.2% interest, secured
+
+ by equipment
+ 
+ 15,324 
+ 12,133 
+ 27,457 
+
+ Note payable in monthly installments
+
+ of $212 including 7% interest, secured
+
+ by equipment
+ 
+ 2,208 
+ 3,615 
+ 5,823 
+
+ Note payable in monthly installments
+
+ of $1,159 including 6.9% interest, secured
+
+ by equipment
+ 
+ 12,076 
+ 19,755 
+ 31,831 
+
+ Note payable in monthly installments
+
+ of $763 including 6.9% interest, secured
+
+ by equipment
+ 
+ 7,954 
+ 13,006 
+ 20,960 
+
+ Note payable in monthly installments
+
+ of $3,663 including 12.3% interest, secured
+
+ by equipment
+ 
+ 26,324 
+ 129,354 
+ 155,678 
+
+ 
+ $158,182 
+ $494,659 
+ $652,841 
+
+ 
+
+Future maturities of long term debt are as follows:
+
+ 
+
+ 
+ 
+
+ March 31, 2015 
+ $153,573 
+
+ March 31, 2016 
+ 127,907 
+
+ March 31, 2017 
+ 115,671 
+
+ March 31, 2018 
+ 97,508 
+
+ 
+ $494,659 
+
+ 
+
+ 
+
+ 
+
+ F-54
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+Note 9 - Income Taxes
+
+ 
+
+The provision (benefit) for income taxes for the years ended
+December 31, 2011 and 2012 were as follows:
+
+ 
+
+ 
+ Year Ended December 31,
+
+ 
+ 2011 
+ 2012
+
+ 
+ 
+ 
+
+ Current Tax Provision: 
+ 
+ 
+
+ Federal- 
+ 
+ 
+
+ Taxable income 
+ $— 
+ $— 
+
+ Total current tax provision 
+ $— 
+ $— 
+
+ 
+ 
+ 
+
+ Deferred Tax Provision: 
+ 
+ 
+
+ Federal- 
+ 
+ 
+
+ Loss carryforwards 
+ $1,319,537 
+ $1,137,473 
+
+ Change in valuation allowance 
+ (1,319,537) 
+ (1,137,473)
+
+ Total deferred tax provision 
+ $— 
+ $— 
+
+ 
+ 
+ 
+
+The Company had deferred income tax assets as of December 31,
+2011 and 2012, as follows:
+
+ 
+
+ 
+ December 31,
+
+ 
+ 2011 
+ 2012
+
+ 
+ 
+ 
+
+ Loss carryforwards 
+ $1,901,399 
+ $3,038,872 
+
+ Less - Valuation allowance 
+ (1,901,399) 
+ (3,038,872)
+
+ Total net deferred tax assets 
+ $— 
+ $— 
+
+ 
+
+The Company provided a valuation allowance
+equal to the deferred income tax assets for the years ended December 31, 2011 and 2012, because it is not presently known whether
+future taxable income will be sufficient to utilize the loss carryforwards.
+
+ 
+
+ F-55
+
+ 
+
+ 
+
+ 
+
+HEALTHCARE CORPORATION OF AMERICA AND
+SUBSIDIARIES
+
+ NOTES TO FINANCIAL
+STATEMENTS
+
+March 31, 2013
+
+ 
+
+As of December 31, 2011, and 2012, the
+Company had approximately $5,592,349 and $8,937,859, respectively, in tax loss carryforwards that can be utilized in future periods
+to reduce taxable income, and will begin to expire in the year 2035.
+
+ 
+
+Note 10 – Note Payable and Preferred Stock
+
+ 
+
+On September 19, 2012, the Company entered into a bridge loan
+agreement that created debt of $5,925,000, which is shown on the Balance Sheet as Note Payable of $5,466,200, Warrant Liability
+of $518,587 and Redeemable Preferred Stock of $458,800. Additionally, warrants were attached to the note payable allowing the holders
+to purchase 296,250 shares of common stock of Selway Capital Acquisition Corporation ("Selway"). The warrants have
+a strike price of $15 per share and have a life of 4 years. The Company has valued these warrants at $1.7505 using the Black Scholes
+pricing method.
+
+ 
+
+In the event that the merger does not take place the preferred
+stock is valued at zero or convertible to 3.7% of the outstanding common shares of HCA stock. As of December 31, 2012, there were
+40,000,009 outstanding shares, 3.7% of which would be 1,480,000 shares. The last recorded transaction for sales of HCA common stock
+was in June 2012 at $0.31 per share. Due to a lack of marketability and liquidity, The Company has determined this to be a conservative
+value for the Redeemable Preferred Stock.
+
+ 
+
+The Company incurred $689,264 in offering related costs which
+are being amortized over the life of the loan. The note payable will be converted into 592,500 of merging company common shares
+as part of the merger agreement dated January 25, 2013.
+
+ 
+
+Note 11 – Subsequent Events 
+
+ 
+
+On January 25, 2013, the Company signed a definitive merger
+agreement to merge the Company with and into Selway . Pursuant to the agreement, Selway agreed to acquire all of the issued and
+outstanding securities in exchange for 5,200,000 shares of stock and 1,185,000 shares in exchange for the outstanding preferred
+stock and note payable. On April 10, 2013, the transactions contemplated by the agreement closed.
+
+ 
+
+The agreement also has an earn out component that requires the
+Company to achieve certain financial goals. The determination shall be based on the combined company s audited financial
+statements.
+
+ 
+
+1.1.4 million shares shall be issued if the combined company achieves consolidated revenue of at least $150 million for the 12
+month period ending June 30, 2014.
+
+ 
+
+2.1.4 million shares shall be issued based if the combined company achieves consolidated revenue of at least $300 million for
+the 12 month period ending June 30, 2015.
+
+a.Should #1 not be achieved but #2 is achieved, the full 2.8 million shares will be issued.
+
+ 
+
+3.Cash Flow Note: Shareholders of record of HCCA prior to the merger shall receive a $10 million note from the company with the
+following provision. 25% of all free cash flow after the first $2 million of free cash flow based on audited financials will be
+distributed to those shareholders. The note has no expiration date.
+
+ 
+
+4.In the case of a sale of the combined company at a price per share of at least $15 per share, all shares will be issued immediately
+prior to the closing and the remaining balance due on the cash flow note will be paid immediately.
+
+ 
+
+The foregoing targets are to be met on an all-or-nothing basis,
+and there shall be no partial awards.
+
+ 
+
+In addition, at the time of the merger certain members of HCCA s
+management received an aggregate of 1,500,000 shares of Selway common stock, which shares were fully vested but placed in escrow
+to be released in three equal installments of 500,000 shares on each of September 30, 2013, June 30, 2014 and June 30, 2015. HCCA
+expects to record a one-time expense reflecting the estimated market value of these shares at the time of the merger.
+
+ 
+
+ F-56
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+ 
+
+INDEX TO FINANCIAL STATEMENTS
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ Page
+
+ 
+ 
+ 
+
+ Condensed Balance Sheet
+ 
+ F-58
+
+ 
+ 
+ 
+
+ Condensed Statement of Operations
+ 
+ F-59
+
+ 
+ 
+ 
+
+ Condensed Statement of Cash Flows
+ 
+ F-60
+
+ 
+ 
+ 
+
+ Notes to Condensed Financial Statements
+ 
+ F-61
+
+ 
+
+ F-57
+
+ 
+
+ 
+
+ 
+
+Selway Capital
+Acquisition Corporation
+
+(a development
+stage company)
+
+CONDENSED
+BALANCE SHEETS
+
+ 
+
+ 
+ March 31, 2013
+
+(Unaudited) 
+ December 31,
+
+2012 
+
+ ASSETS 
+ 
+ 
+
+ Current assets 
+ 
+ 
+
+ Cash 
+ $6,486 
+ $5,036 
+
+ Interest Receivable 
+ 196 
+ 1,782 
+
+ Prepaid Expenses 
+ 5,886 
+ 4,957 
+
+ Total Current Assets 
+ 12,568 
+ 11,775 
+
+ 
+ 
+ 
+
+ Investment held in trust 
+ 20,600,000 
+ 20,600,086 
+
+ Due from underwriters 
+ 3,554 
+ 3,554 
+
+ Total Assets 
+ $20,616,122 
+ $20,615,415 
+
+ 
+ 
+ 
+
+ LIABILITIES AND STOCKHOLDERS' EQUITY 
+ 
+ 
+
+ Current liabilities 
+ 
+ 
+
+ Accounts payable and accrued expenses 
+ $431,185 
+ $312,405 
+
+ 
+ 
+ 
+
+ Deferred underwriting compensation of which up to $300,000 may be paid to redeeming shareholders 
+ 400,000 
+ 400,000 
+
+ Deferred legal fees related to the offering 
+ 100,000 
+ 100,000 
+
+ Note payable, stockholder 
+ 70,000 
+ - 
+
+ Total Current Liabilities 
+ 1,001,185 
+ 812,405 
+
+ 
+ 
+ 
+
+ Warrant liability 
+ 3,900,000 
+ 2,253,333 
+
+ Total Liabilities 
+ 4,901,185 
+ 3,065,738 
+
+ 
+ 
+ 
+
+ Common stock subject to possible redemption, 1,500,000 shares (at redemption value) 
+ 15,150,000 
+ 15,150,000 
+
+ 
+ 
+ 
+
+ Stockholders' equity 
+ 
+ 
+
+ Preferred stock, $.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding 
+ - 
+ - 
+
+ Common stock, $.0001 par value; 30,000,000 shares authorized; 2,500,000 shares (including up to 1,500,000 shares subject to possible redemption) issued and outstanding 
+ 250 
+ 250 
+
+ Additional paid-in-capital 
+ 5,098,941 
+ 5,098,941 
+
+ Deficit accumulated during development stage 
+ (4,534,254) 
+ (2,699,514)
+
+ 
+ 
+ 
+
+ Total stockholders' equity 
+ 564,937 
+ 2,399,677 
+
+ 
+ 
+ 
+
+ Total liabilities and stockholders' equity 
+ $20,616,122 
+ $20,615,415 
+
+ 
+
+The accompanying
+notes are an integral part of these condensed financial statements
+
+ 
+
+ F-58
+
+ 
+
+ 
+
+ 
+
+Selway Capital
+Acquisition Corporation
+
+(a development
+stage company)
+
+CONDENSED
+STATEMENT OF OPERATIONS
+
+ (Unaudited)
+
+ 
+
+ 
+ Three Months Ended 
+March 31, 2013 
+ Three
+ Months Ended 
+March 31, 2012 (Revised) 
+ January 12, 2011 
+(date of inception) to 
+March 31, 2013 
+
+ Revenue 
+ $- 
+ $- 
+ $- 
+
+ General and administrative expenses 
+ 192,625 
+ 109,244 
+ 656,409 
+
+ 
+ 
+ 
+ 
+
+ Loss from operations 
+ (192,625) 
+ (109,244) 
+ (656,409)
+
+ Change in fair value of warrants 
+ (1,646,667) 
+ (1,213,333) 
+ (3,900,000)
+
+ Interest and dividend income 
+ 4,552 
+ 2,653 
+ 22,155 
+
+ 
+ 
+ 
+ 
+
+ Net loss attributable to common stockholder not subject to possible redemption 
+ $(1,834,740) 
+ $(1,319,924) 
+ $(4,534,254)
+
+ 
+ 
+ 
+ 
+
+ Weighted average number of common shares outstanding, basic and diluted 
+ 2,500,000 
+ 2,500,000 
+ 1,775,805 
+
+ 
+ 
+ 
+ 
+
+ Basic and diluted net loss per share 
+ $(0.73) 
+ $(0.53) 
+ $(2.55)
+
+ 
+
+The accompanying
+notes are an integral part of these condensed financial statements
+
+ 
+
+ F-59
+
+ 
+
+ 
+
+ 
+
+Selway Capital
+Acquisition Corporation
+
+(a development
+stage company)
+
+CONDENSED
+STATEMENT OF CASH FLOWS
+
+(Unaudited)
+
+ 
+
+ Cash Flows from Operating Activities 
+ Three Months 
+Ended March 31, 
+2013 
+ Three Months 
+Ended March 31, 
+2012 
+(Revised) 
+ January 12, 2011 
+(date of 
+inception) to 
+March 31, 2013 
+
+ Net Loss 
+ $(1,834,740) 
+ $(1,319,924) 
+ $(4,534,254)
+
+ Adjustments to reconcile net loss to net cash used in operating activities: 
+ 
+ 
+ 
+
+ Changes in fair value of warrant liability 
+ 1,646,667 
+ 1,213,333 
+ 3,900,000 
+
+ Changes in operating assets and liabilities: 
+ 
+ 
+ 
+
+ Increase in interest receivable 
+ 1,586 
+ (2,389) 
+ (196)
+
+ Increase in interest earned on investments held in trust, net of $21,959 withdrawn from trust account since inception 
+ 86 
+ (263) 
+ - 
+
+ Increase in receivables due from underwriters 
+ - 
+ - 
+ (3,554)
+
+ Decrease (increase) in prepaid expenses 
+ (929) 
+ 10,964 
+ (5,886)
+
+ Increase in accounts payable and accrued expenses 
+ 118,780 
+ 60,277 
+ 402,392 
+
+ 
+ 
+ 
+ 
+
+ Net cash used in operating activities 
+ (68,550) 
+ (38,002) 
+ (241,498)
+
+ 
+ 
+ 
+ 
+
+ Cash Flows from Investing Activities 
+ 
+ 
+ 
+
+ Investments held in trust 
+ - 
+ - 
+ (20,600,000)
+
+ 
+ 
+ 
+ 
+
+ Cash Flows from Financing Activities 
+ 
+ 
+ 
+
+ Proceeds from note payable, stockholder 
+ - 
+ - 
+ 160,500 
+
+ Repayment of note payable, stockholder 
+ - 
+ - 
+ (160,500)
+
+ Proceeds from note payable, related party 
+ 70,000 
+ - 
+ 120,000 
+
+ Repayment of note payable, related party 
+ - 
+ - 
+ (50,000)
+
+ Proceeds from issuance of stock to initial stockholder 
+ - 
+ - 
+ 25,000 
+
+ Proceeds from public offering 
+ - 
+ - 
+ 20,000,000 
+
+ Proceeds from issuance of warrants 
+ - 
+ - 
+ 1,750,000 
+
+ Proceeds from underwriters unit purchase option 
+ - 
+ - 
+ 100 
+
+ Payment of offering costs 
+ - 
+ (27,966) 
+ (997,116)
+
+ 
+ 
+ 
+ 
+
+ Net cash (used in) provided by financing activities 
+ $70,000 
+ $(27,966) 
+ $20,847,984 
+
+ 
+ 
+ 
+ 
+
+ Net (decrease) increase in cash 
+ 1,450 
+ (65,968) 
+ 6,486 
+
+ 
+ 
+ 
+ 
+
+ Cash at beginning of the period 
+ 5,036 
+ 156,483 
+ - 
+
+ 
+ 
+ 
+ 
+
+ Cash at the end of the period 
+ $6,486 
+ $90,515 
+ $6,486 
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Supplemental Disclosure of Non-Cash Financing Activities: 
+ 
+ 
+ 
+
+ Deferred underwriter's compensation 
+ $- 
+ $- 
+ $400,000 
+
+ Deferred legal fees related to the offering 
+ $- 
+ $- 
+ $100,000 
+
+ Accrual of offering costs 
+ $- 
+ $- 
+ $28,792 
+
+ 
+
+The accompanying
+notes are an integral part of these condensed financial statements
+
+ 
+
+ F-60
+
+ 
+
+ 
+
+ 
+
+Selway Capital Acquisition Corporation
+
+(a development stage company)
+
+ 
+
+NOTES TO
+THE CONDENSED FINANCIAL STATEMENTS
+
+ 
+
+NOTE A — DESCRIPTION OF
+ORGANIZATION AND BUSINESS OPERATIONS
+
+ 
+
+Selway Capital Acquisition
+Corporation (a corporation in the development stage) (the "Company" or "Selway") was incorporated in
+Delaware on January 12, 2011. The Company was formed for the purpose of acquiring, through a merger, capital stock exchange,
+asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one
+or more operating businesses or assets ("Business Transaction"). The Company did not engage in any business
+operations nor generated any revenue during the three months ended March 31, 2013. Prior to the Business Transaction
+described in Note H, the Company was considered to be in the development stage as defined in FASB Accounting
+Standard Codification, or ASC 915, "Development Stage Entities."
+
+ 
+
+These unaudited condensed financial
+statements as of March 31, 2013, for the period from January 12, 2011 (inception) through March
+31, 2013 and for the three months ended March 31, 2012 and 2013 have been prepared in accordance with U.S. Generally Accepted
+Accounting Principles ("GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly,
+they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the
+opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature.
+Interim results are not necessarily indicative of the results that may be expected for the year.
+
+ 
+
+These unaudited condensed interim
+financial statements should be read in conjunction with the audited financial statements and notes thereto for the period ended
+December 31, 2012 included in the Company's Current Report on Form 10-K filed with the U.S. Securities and Exchange Commission
+on March 22, 2013. The accounting policies used in preparing these unaudited financial statements are consistent with those described
+in the December 31, 2012 audited financial statements. The December 31, 2012 balance sheet is derived from the audited balance
+sheet included in the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the U.S.
+Securities and Exchange Commission on March 22, 2013 (the "Form 10-K").
+
+ 
+
+Revised Prior Period Amounts
+
+ 
+
+While preparing its financial statements
+for the three months ended March 31, 2013, the Company identified and corrected an error related to the accounting for the Company s
+outstanding warrants for the period ending March 31, 2012. The Company determined that its outstanding warrants should have been
+accounted as a liability recorded at fair value and that this liability should be re-measured at each reporting period with changes
+in fair value being reflected in the statement of operations. The determination of this accounting methodology was made as a result
+of potential adjustments to the exercise price of the warrants in certain circumstances as described in the warrant agreements
+which do not meet the criteria for equity treatment described in ASC 815-45-7D. This accounting did not result in a significant
+change to the financial statements for the period ended December 31, 2011 and therefore no changes were made to this period.
+The balance sheet and statement of operations for the period ended March 31, 2012 have been revised to reflect a warrant liability
+and corresponding warrant mark-to-market expense.
+
+ 
+
+The adjustments to the period ended
+March 31, 2012 are as follows:
+
+ 
+
+ 
+ Three Months Ended 
+March 31, 2012 
+
+ 
+ As
+
+Reported 
+ As
+
+Revised 
+
+ Warrant Liability 
+ $- 
+ $1,213,333 
+
+ 
+ 
+ 
+
+ Change in fair value of warrant liability 
+ - 
+ (1,213,333)
+
+ Net loss 
+ (106,591) 
+ (1,319,924)
+
+ Net loss per share 
+ (0.04) 
+ (0.53)
+
+ 
+
+ F-61
+
+ 
+
+ 
+
+ 
+
+ NOTE
+B — OFFERING AND BUSINESS OPERATIONS
+
+ 
+
+The registration statement for the
+Company's initial public offering (the "Offering") was declared effective November 7, 2011 (the "Effective Date").
+The Company consummated the Offering on November 14, 2011 and received gross proceeds of $20,000,000 as well as $1,750,000 from
+the sale of warrants to Selway Capital Holdings LLC, an affiliate of the Company s officers and directors, on a private
+placement basis (see Note F). The Company offered 2,000,000 units at $10.00 per unit ("Units"). Each Unit consists
+of one callable Series A Share of the Company s common stock, $0.0001 par value, and one redeemable common stock purchase
+warrant ("Warrant"). Each Warrant will entitle the holder to purchase from the Company one share of common stock at
+an exercise price of $7.50 commencing on the later of (a) one year from the date of the prospectus for the Offering and (b) 30
+days after the completion of a Business Transaction, and will expire five years from the date of the prospectus for the Offering.
+The Warrants will be redeemable by the Company at a price of $0.01 per Warrant upon 30 days prior notice after the Warrants become
+exercisable, only in the event that the last sale price of the Company s common stock is at least $17.50 per share for any
+20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of redemption
+is given. In no event will the Warrants be redeemable for cash at a price greater than $0.01 per Warrant.
+
+ 
+
+The Company s management had
+broad discretion with respect to the specific application of the net proceeds of its Offering, although substantially all of the
+net proceeds of the Offering were intended to be generally applied toward consummating a Business Transaction. An amount equal to approximately
+103% of the gross proceeds of the Offering were held in a trust account ("Trust Account") and invested in U.S. "government
+securities," within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 (the "1940 Act") with
+a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the 1940
+Act, until the earlier of (i) the consummation of a Business Transaction or (ii) the distribution of the Trust Account as described
+below.
+
+ 
+
+The Company, after signing a
+definitive agreement for the acquisition of one or more target businesses could elect not to submit the transaction for
+stockholder approval. If no stockholder approval was sought, the Company could proceed with a Business Transaction if it was
+approved by its board of directors and less than 75.0% of the public stockholders exercise their redemption rights. Only in
+the event that the Company sought stockholder approval in connection with its Business Transaction, the Company would proceed
+with a Business Transaction only if a majority of the outstanding shares of common stock voted (calculated as of the close of
+business on the date set forth in the relevant proxy materials as the last date on which stockholders may vote their shares
+of common stock) were voted in favor of the Business Transaction. However, the Company s sponsor s,
+officers , directors or their affiliates participation in privately-negotiated transactions (as described
+in the Company s prospectus for the Offering and solely in the event the Company sought stockholder approval), if any,
+could result in the approval of a Business Transaction even if a majority of the Company s public stockholders
+indicated their intention to vote against, such Business Transaction. In connection with such a vote, if a Business
+Transaction was approved and consummated, stockholders may elect to redeem their shares of common stock for a pro-rata
+portion of the Trust Account. These shares of common stock were classified as temporary equity upon the completion of the
+Offering, in accordance with FASB ASC 480-10. Selway Capital Holdings, LLC (the "sponsor") agreed, in the event
+the Company sought stockholder approval of a Business Transaction, to vote its initial shares in the same manner as
+a majority of the public stockholders who vote at the special or annual meeting called for such purpose. The sponsor and
+the Company s officers and directors also agreed to vote shares of common stock acquired by them in the Offering or in
+the aftermarket in favor of a Business Transaction submitted to the Company s stockholders for approval.
+
+ 
+
+The Company s sponsor,
+officers and directors agreed that the Company would only have 18 months from the consummation of the Offering (such period
+commencing on November 14, 2011) to consummate its Business Transaction. If the Company did not consummate a Business
+Transaction within such 18 month period, it would (i) cease all operations except for the purposes of winding up; (ii) redeem
+100% of its public shares of common stock for a per share pro rata portion of the trust account, net of any taxes payable on
+interest earned thereon (which redemption would completely extinguish such holders rights as stockholders, including
+the right to receive further liquidation distributions, if any) and (iii) as promptly as possible following such redemption,
+dissolve and liquidate the balance of its net assets to its remaining stockholders, as part of its plan of dissolution and
+liquidation. This 18-month period would have expired on May 14, 2013. As described in Note H, the Business Transaction was
+consummated on April 10, 2013. 
+
+ 
+
+ F-62
+
+ 
+
+ 
+
+ 
+
+The sponsor has waived its right
+to participate in any redemption with respect to its initial shares. However, if the sponsor or any of the Company s officers,
+directors or affiliates acquired shares of common stock in or after the Offering, they would be entitled to a pro rata share of
+the Trust Account upon the Company s dissolution and liquidation in the event the Company did not consummate a Business
+Transaction within the required time period. In the event of such distribution, it is possible that the per share value of the
+residual assets remaining available for distribution (including Trust Account assets) would be less than the initial public offering
+price per Unit in the Offering.
+
+ 
+
+Immediately prior to the Offering,
+the sponsor purchased, in a private placement, 2,333,333 warrants prior to the Offering at a price of $0.75 per warrant (a purchase
+price of $1,750,000) from the Company. The sponsor agreed that the warrants purchased by it would not be sold or transferred until
+30 days following consummation of a Business Transaction, subject to certain limited exceptions. If the Company did not complete
+a Business Transaction, then the proceeds would be part of the liquidating distribution to the public stockholders and the warrants
+issued to the sponsor would expire worthless. As described above, the fair value of the warrants are being recorded as a liability
+at their fair market value at each period. The difference between the fair value of the warrants and the purchase price paid by
+the sponsor was recorded as a contribution to capital.
+
+ 
+
+At the Offering, the Company entered
+into a Services Agreement with Selway Capital LLC, which is an affiliate of the sponsor, for a monthly fee beginning November
+14, 2011, for up to 6 months, of $5,000 for office space, secretarial, and administrative services. Since we had not completed
+a Business Transaction by May 14, 2012, Selway Capital LLC agreed to provide such services free of charge until we completed a
+Business Transaction or were forced to liquidate. This agreement would expire upon the earlier of the distribution or liquidation
+of the Trust Account to the Company s then-public stockholders or 18 months from the consummation of the Offering (such
+period commencing on November 14, 2011). The agreement expired on April 10, 2013.
+
+ 
+
+The sponsor is entitled to registration
+rights pursuant to a registration rights agreement signed on the date of the prospectus for the Offering. The sponsor is entitled
+to demand registration rights and certain "piggy-back" registration rights with respect to its shares of common stock,
+the warrants and the common stock underlying the warrants, commencing on the date such common stock or warrants are released from
+escrow. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
+
+ 
+
+The Company paid
+the underwriters a 2.5% underwriting discount in connection with the offering. The following additional contingent fees
+would become payable: (A) a contingent fee equal to 2.0% of the aggregate Offering amount, payable to the underwriters,
+provided, however, that the underwriters would not receive the deferred underwriting discount with respect to those units as
+to which the component shares had been redeemed for cash in connection with a Business Transaction, and (B) at the closing
+date of any sale, 5% of the gross proceeds from the sale of any shares of the Company's common stock that were issued prior
+to or in conjunction with the Business Transaction in the event that such sale is attributable to services rendered by Aegis
+Capital Corp. ("Aegis"), the representative of the underwriters of the Offering. On April 10, 2013, contingent
+fees of $112,788 and $139,204 were paid to Chardan Capital Markets, LLC and Aegis, respectively, in connection
+with the Business Transaction. 
+
+ 
+
+Additionally, the Company sold to
+Aegis, for $100, as additional compensation, an option to purchase up to a total of 100,000 units at $12.50 per unit. The Company
+estimated based upon a Black- Scholes model, that the fair value of the option on the date of sale would be approximately $449,000
+using an expected life of five years, volatility of 59.5%, and a risk-free interest rate of 0.91%. However, because the units
+do not have a trading history, the volatility assumption was based on information currently available to the Company. The Company
+believed the volatility estimate calculated was a reasonable benchmark to use in estimating the expected volatility of the units.
+The volatility calculation was based on the most recent trading day average volatility of publicly traded companies in the technology,
+defense and security, telecommunications and small-cap sectors. Although an expected life of five years was used in the calculation,
+if the Company does not consummate a Business Transaction within the prescribed time period and automatically dissolves and subsequently
+liquidates the trust account, the option will become worthless. The underwriters option is exercisable at any time, in
+whole or in part, commencing on the later of the consolidation of each series of our common stock into one class of common stock
+after consummation of a Business Transaction, post-acquisition tender offer or post-acquisition automatic trust liquidation, as
+the case may be, or one year from the date of the prospectus for the Offering and expiring on the earlier of five years from the
+date of the prospectus for the Offering or the day immediately prior to the day on which the Company and all of its predecessors
+and successors have been dissolved. The units issuable upon exercise of this option are identical to the Units in the Offering.
+
+ 
+
+ F-63
+
+ 
+
+ 
+
+ 
+
+The Company effected a 1-for-1.090909
+reverse stock split of all the outstanding shares of common stock on October 24, 2011 and a 1 for 1.375 reverse stock split of
+all the outstanding shares of common stock on November 3, 2011. Accordingly, all common share and per common share amounts for
+all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect
+these reverse stock splits.
+
+ 
+
+NOTE C—INVESTMENT HELD
+IN TRUST
+
+ 
+
+Subsequent to the Offering,
+an amount of $20,600,000 (including $400,000 of deferred underwriters fees) was deposited in the Trust Account held with
+the Company s stock transfer agent, American Stock Transfer, and invested only in United States
+"government securities" within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a
+maturity of 180 days or less until the earlier of (i) the consummation of a Business Transaction or (ii) liquidation of the
+Company. During the three months ended March 31, 2013, the United States government securities were in an account at Wells
+Fargo Bank, while the cash amount was in a JP Morgan Chase cash account.
+
+ 
+
+As of March 31, 2013, investment
+securities in the Company s Trust Account had a carrying value of $20,600,000 made up of $10,499,449 (excluding accrued
+interest) in Treasury Bills and $10,100,551 in cash. The Treasury Bills had a maturity value of $10,500,000 and mature on April
+18, 2013. For the period from January 12, 2011 (inception) through March 31, 2013, the Company withdrew from the trust account
+$21,959 of interest earned on the investments held in trust in accordance with the trust agreement. The Company classifies its
+United States Treasury and equivalent securities as held-to-maturity in accordance with FASB ASC 320, "Investments —
+Debt and Equity Securities". Held-to-maturity securities are those securities which the Company has the ability and intent
+to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance sheets
+and adjusted for the amortization or accretion of premiums or discounts. The carrying amount, excluding accrued interest income,
+gross unrealized holding gains and fair value of held to maturity securities at March 31, 2013 were as follows:
+
+ 
+
+ 
+ Carrying 
+Amount 
+ Gross 
+Unrealized
+ Holding 
+Gains / 
+(Loss) 
+ Fair Value 
+
+ U.S. Treasury Securities Held-to-maturity: 
+ 
+ 
+ 
+
+ As of March 31, 2013 
+ $10,499,449 
+ $373 
+ $10,499,822 
+
+ As of December 31, 2012 
+ $20,599,570 
+ $3,564 
+ $20,603,135 
+
+ 
+
+The company has accreted a portion
+of the discount on these Securities and recognized $196 of related interest income. Such amount is included in interest receivable
+on the accompanying March 31, 2013 balance sheet bringing the amortized cost basis to $10,499,645.
+
+ 
+
+NOTE D — SUMMARY OF SIGNIFICANT
+ACCOUNTING POLICIES
+
+ 
+
+Development stage company
+
+ 
+
+The Company complies with the
+reporting requirements of FASB ASC 915, "Development Stage Entities." At March 31, 2013, the Company had not
+commenced any operations nor generated revenue to date. All activity through March 31, 2013, relates to the Company s
+formation, the Offering as well as the beginning efforts to identify a prospective target business. The Company will not
+generate any operating revenues until after completion of its Business Transaction. The Company does
+generate non-operating income in the form of interest income on the designated Trust Account.
+
+ 
+
+ F-64
+
+ 
+
+ 
+
+ 
+
+Net loss per common share
+
+ 
+
+The Company complies with accounting and disclosure requirements
+of FASB ASC 260, "Earnings Per Share." Net loss per common share is computed by dividing net loss by the weighted average
+number of common shares outstanding for the period. The effect of the 2,000,000 outstanding warrants issued in connection with
+the Offering, the 2,333,333 outstanding warrants issued in connection with the private placement and the 100,000 units (and underlying
+shares and warrants) issued in connection with the underwriters purchase option have not been considered in diluted loss
+per share calculations since the effect of such securities would be anti-dilutive. As a result, diluted loss per common share is
+the same as basic loss per common share for the period.
+
+ 
+
+Fair value of financial instruments
+
+ 
+
+Under FASB ASC 820, "Fair Value Measurements and Disclosures,"
+we are required to record certain financial assets and liabilities at fair value and may choose to record other financial assets
+and financial liabilities at fair value as well. Also under U.S. GAAP, we are required to record nonfinancial assets and liabilities
+at fair value due to events that may or may not recur in the future, such as an impairment event. When we are required to record
+such assets and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would
+be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair value
+is determined based on significant inputs contained in a fair value hierarchy as follows:
+
+ 
+
+ Level 1
+ Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
+
+ 
+ 
+
+ Level 2
+ Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
+
+ 
+ 
+
+ Level 3
+ Unobservable inputs for the asset or liability.
+
+ 
+
+The determination of where assets and liabilities fall within
+this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
+
+ 
+
+The following tables present information about the
+Company s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013 and December
+31, 2012 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such
+fair value:
+
+ 
+
+ Description 
+ March
+ 31, 2013 
+ Quoted
+ Prices in
+ Active
+ Markets
+ (Level 1) 
+ Significant
+ Other
+ Observable
+ Inputs
+ (Level 2) 
+ Significant
+ Other
+ Unobservable
+ Inputs
+ (Level 3) 
+
+ Assets: 
+ 
+ 
+ 
+ 
+
+ United States Treasury Securities 
+ $10,499,822 
+ $10,499,822 
+ $- 
+ $- 
+
+ Liabilities: 
+ 
+ 
+ 
+ 
+
+ Warrant Liability 
+ $3,900,000 
+ $- 
+ $3,900,000 
+ $- 
+
+ 
+
+ Description
+ 
+ December
+
+31, 2012
+ 
+ 
+ Quoted
+
+Prices in
+
+Active
+
+Markets
+
+(Level 1)
+ 
+ 
+ Significant
+
+Other
+
+Observable
+
+Inputs
+
+(Level 2)
+ 
+ 
+ Significant
+
+Other
+
+Unobservable
+
+Inputs
+
+(Level 3)
+ 
+
+ Assets:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ United States Treasury Securities
+ 
+ $
+ 20,603,135
+ 
+ 
+ $
+ 20,603,135
+ 
+ 
+ $
+ -
+ 
+ 
+ $
+ -
+ 
+
+ Liabilities:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Warrant Liability
+ 
+ $
+ 2,253,333
+ 
+ 
+ $
+ -
+ 
+ 
+ $
+ 2,253,333
+ 
+ 
+ $
+ -
+ 
+
+ 
+
+Warrant Liability: The fair value
+of the derivate warrant liability was determined by the Company using the quoted market prices for the publicly traded warrants.
+On reporting dates where there are no active trades the Company uses the last reported closing trade price of the warrants to determine
+the fair value (Level 2).
+
+ 
+
+United States Treasury Securities: The
+Company used Level 1 inputs to value the U.S. Treasury securities in our trust account for disclosure purposes.
+
+ 
+
+We have other non-derivative financial instruments, such as
+cash, a note receivable, pre-paid expenses, accounts payable, and accrued expenses whose carrying amounts approximate fair value.
+
+ 
+
+ F-65
+
+ 
+
+ 
+
+ 
+
+Concentration of credit risk
+
+ 
+
+At March 31, 2013, financial instruments that potentially expose
+the Company to credit risk consist of cash and cash held in Trust Account. The Company maintains its cash balances in various financial
+institutions. The Company maintains cash in accounts which, at times, exceeds insurance limits. The Company has not experienced
+any losses in connection with these accounts.
+
+ 
+
+Cash and cash equivalents
+
+ 
+
+The Company considers all highly liquid investments purchased
+with an original maturity of three months or less to be cash equivalents.
+
+ 
+
+Use of estimates
+
+ 
+
+The preparation of financial statements in conformity with accounting
+principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
+the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
+statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
+estimates.
+
+ 
+
+Income tax
+
+ 
+
+The Company complies with FASB ASC 740, "Income Taxes," which requires an asset and liability
+approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences
+between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts,
+based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The
+Company's deferred tax asset at March 31, 2013, relating to expenses recorded for book purposes which are not yet deductible for
+tax purposes, is approximately $253,321. Valuation allowances are established, when necessary, to reduce deferred tax assets to
+the amount expected to be realized. The Company established a valuation allowance against the entire deferred tax asset at March
+31, 2013. The Company complies with the provisions of Financial Accounting Standards Board Accounting Standard Codification or
+FASB ASC 740-10-25 which establishes recognition requirements for the accounting for income taxes. The section prescribes a recognition
+threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected
+to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon
+examination by taxing authorities. There were no unrecognized tax benefits as of March 31, 2013. The Company recognizes accrued
+interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest
+and penalties at March 31, 2013. The Company is currently not aware of any issues under review that could result in significant
+payments, accruals or material deviation from its position. The Company's income tax returns for the years ended December 31, 2011
+and December 31, 2012 are subject to examination by federal, state and local tax authorities.
+
+ 
+
+NOTE E — RELATED PARTY TRANSACTIONS
+
+ 
+
+On February 23, 2011, the Company issued to its sponsor (i)
+575,000 shares of restricted common stock (75,000 of which were forfeited on December 20, 2011 because the underwriters 
+over-allotment option was not exercised), for an aggregate amount of $25,000 in cash. All common share amounts and per common share
+amounts have been retroactively adjusted, where applicable, to reflect the forfeiture of the overallotment. The purchase price
+for each share of common stock was approximately $0.043 per share. The sponsor has agreed that the shares of common stock purchased
+by it prior to consummation of the Offering will not be sold or transferred until 12 months following consummation of a Business
+Transaction, subject to certain limited exceptions.
+
+ 
+
+ F-66
+
+ 
+
+ 
+
+ 
+
+As mentioned in Note B above, the Company paid Selway
+Capital LLC a total of $5,000 per month for office space, administrative services and secretarial support for a 6 month
+period beginning November 14, 2011 and ending May 14, 2012. Since the Company had not completed a Business Transaction by
+May 14, 2012, Selway Capital LLC agreed to provide such services free of charge until the Company completed a
+Business Transaction or was forced to liquidate.
+
+ 
+
+The Company issued unsecured promissory notes to the sponsor
+for $35,000, $25,000, and $10,000 on January 29, 2013, February 1, 2013, and March 21, 2013, respectively. The notes were non-interest
+bearing and payable upon closing of the business combination. Due to the short-term nature of the notes, the fair value of the
+notes approximates their carrying amount. All of these notes were paid in full on April 10, 2013 in conjunction with the closing
+of the Company s Business Transaction with Healthcare Corporation of America.
+
+ 
+
+NOTE F—COMMON STOCK AND WARRANTS
+
+ 
+
+The Company effected a 1-for-1.090909 reverse stock split of
+all the outstanding shares of common stock on October 24, 2011 and a 1 for 1.375 reverse stock split of all the outstanding shares
+of common stock on November 3, 2011. Accordingly, all common share and per common share amounts for all periods presented in these
+financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect these reverse stock splits.
+
+ 
+
+The Company's Amended and Restated Certificate of Incorporation
+has designated Series A, Series B and Series C shares out of the Company's common stock. All outstanding shares prior to the Offering
+were designated Series C shares as further described below. On November 14, 2011, investors purchased 2,000,000 Units in the Offering,
+with each Unit consisting of one callable Series A share and one redeemable warrant to purchase one share of common stock. Effective
+February 6, 2012, investors in the Units became eligible to split the Unit into its component parts.
+
+ 
+
+The Company s callable Series A Shares have the same rights
+as the other series of common stock, except that holders of such callable Series A Shares were entitled to redeem all or a portion
+of such callable Series A Shares in connection with the Company s initial Business Transaction and were entitled to share
+ratably in the trust account, including the deferred underwriting discounts and commissions and accrued but undistributed interest,
+net of (i) taxes payable, (ii) interest income earned on the trust account (approximately $10.30 per share) and (iii) a pro rata
+share of the trust account released to the Company for each callable Series A Share converted to a Series C Share upon completion
+of a Business Transaction, plus any remaining net assets, if the Company dissolved and liquidated the trust account prior to a
+Business Transaction. The callable Series A Shares would be automatically consolidated with all other classes of the Company s
+common stock upon consummation of the Company s Business Transaction or post-acquisition tender offer or would be automatically
+converted into the right to receive a pro rata share of the trust account upon completion of the post-acquisition automatic trust
+liquidation, as the case may be. There were 2,000,000 callable series A shares outstanding as of March 31, 2013.
+
+ 
+
+The Company s callable Series B Shares are identical
+to the callable Series A Shares, except that the callable Series B Shares have the right to participate in a post-acquisition
+tender or post-acquisition automatic trust liquidation. If the Company elected to grant its public stockholders their
+redemption rights by means of a post-acquisition tender offer or post-acquisition automatic trust liquidation, then each
+outstanding callable Series A Share would automatically be converted into a callable Series B Share immediately following
+consummation of the Business Transaction. Public stockholders who held callable Series B Shares would be entitled to
+participate in the post-acquisition tender offer by tendering their callable Series B Shares in accordance with the
+instructions included in the Schedule TO and related tender offer documents to be filed with the SEC. The callable Series B
+Shares would be automatically consolidated with all other classes of the Company s common stock upon consummation of
+the Company s post-acquisition tender offer or would be automatically converted into the right to receive a pro rata share of the
+trust account upon completion of the post-acquisition automatic trust liquidation, as the case may be. There were no callable
+series B shares outstanding as of March 31, 2013.
+
+ 
+
+ F-67
+
+ 
+
+ 
+
+ 
+
+The Company s Series C Shares are identical to the callable
+Series B Shares, except that the Series C Shares do not have the right to redeem all or a portion of such Series C Shares in connection
+with the Business Transaction or to participate in a post-acquisition tender offer or post-acquisition automatic trust liquidation.
+If the Company elected to grant the Company s public stockholders their redemption rights by means of a post-acquisition tender
+offer or post-acquisition automatic trust liquidation, the Company would seek that certain significant stockholders (holders of
+5% or more of the public shares who are also accredited investors) elected to convert all of their callable Series A Shares into
+Series C Shares immediately prior to consummation of the Business Transaction. Regardless of the requirements of the Company s
+target business, in no event would the Company be able to seek conversions of less than the amount necessary to maintain the 75.0%
+threshold. The exchange ratio of callable Series A Shares for Series C Shares may be at a one-for-one basis, or at other exchange
+ratios to be negotiated with the individual stockholders, which means that such stockholders may receive a proportionally greater
+number of shares than other stockholders would receive in the post-acquisition company. No consideration would be paid to stockholders
+who elected to convert other than the exchange of callable Series A Shares for Series C Shares.
+
+ 
+
+The Series C Shares outstanding as of March 31, 2013 consist
+of 500,000 Series C Shares (the "Founder Shares"), and are subject to certain transfer restrictions. The holders of
+the Founder Shares have agreed not to exercise redemption rights with respect to such shares and have agreed not to tender their
+shares in an issuer tender offer in connection with the Company s Business Transaction, and to vote the Founder Shares in
+the same manner as a majority of the public stockholders in connection with a stockholder vote to approve the initial Business
+Transaction and/or amend Article Fifth of the Company s Amended and Restated Certificate of Incorporation (the article that
+contains all of the special provisions applicable to the Company prior to and in connection with the Company s initial Business
+Transaction) prior to consummation of the Business Transaction. If the Company is unable to consummate a Business Transaction within
+the allotted time, the Company s sponsor, officers and directors have agreed with respect to the Founder Shares to waive
+their rights to participate in any trust account liquidation distribution, but not with respect to any public shares they acquire
+in the Offering or in the aftermarket.
+
+ 
+
+Warrants
+
+ 
+
+Each redeemable warrant included in the units entitles the holder
+to purchase one share of common stock at a price of $7.50. The redeemable warrants offered hereby will become exercisable upon
+the consolidation of each series of the Company s common stock into one class of common stock after consummation of the Business
+Transaction, post-acquisition tender offer or post-acquisition automatic trust liquidation, as the case may be. Holders of the
+redeemable warrants may elect to exercise them on a cashless basis by paying the exercise price by surrendering their warrants
+for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares underlying
+the redeemable warrants, multiplied by the difference between the exercise price of the redeemable warrants and the "fair
+market value" (defined below) by (y) the fair market value. The "fair market value" means the average reported
+last sale price of our common stock for the 10 trading days ending on the third trading day prior to the date on which the notice
+of on the third trading day prior to the date on which the notice of cashless exercise is delivered to the warrant agent. The Company
+would not receive additional proceeds to the extent the redeemable warrants are exercised on a cashless basis. Although the redeemable
+warrants and the common stock underlying them have been registered, the redeemable warrants will only be exercisable by paying
+the exercise price in cash if an effective registration statement covering the common stock issuable upon exercise of the redeemable
+warrants is effective and a prospectus relating to the common stock issuable upon exercise of the redeemable warrants is available
+for use by the holders of the redeemable warrants. The warrant holders are not entitled to a net-cash settlement in connection
+with the warrants under any circumstances.
+
+ 
+
+The redeemable warrants will expire on November 7, 2016 or earlier
+upon redemption by the Company or the Company s dissolution and the liquidation of the trust account in the event the Company
+does not consummate a Business Transaction within the time allowed. Once the redeemable warrants become exercisable, the Company
+may redeem the outstanding redeemable warrants:
+
+ 
+
+ 
+ 
+ in whole but not in part;
+
+ 
+
+ 
+ 
+ at a price of $0.01 per redeemable warrant;
+
+ 
+
+ 
+ 
+ upon a minimum of 30 days prior written notice of redemption; and
+
+ 
+
+ 
+ 
+ if, and only if, the last sale price of the Company s common stock on the exchange on which the Company s securities may be traded equals or exceeds $17.50 per share for any 20 trading days within a 30 trading day period ending three business days before the Company sends the notice of redemption.
+
+ 
+
+ F-68
+
+ 
+
+ 
+
+ 
+
+Immediately prior to the Offering, Selway Capital Holdings LLC
+purchased 2,333,333 warrants at a price of $0.75 per warrant for an aggregate purchase price of approximately $1,750,000 in a private
+placement. These warrants are identical to the public warrants, except: (1) for certain restrictions on transfer; (2) the placement
+warrants are non-redeemable; and (3) the placement warrants may be exercised during the applicable exercise period on a for cash
+or cashless basis, even if there is not an effective registration statement relating to the shares underlying the placement warrants,
+so long as such warrants are held by the Company s sponsor, officers, directors, their designees or their affiliates. Since
+the amount paid for the warrants was in excess of their face value on the date of the acquisition, no compensation was recorded.
+
+ 
+
+In connection with the Offering and with the private placement
+described above, the Company issued five-year warrants to purchase an aggregate of 4,333,333 common shares at an initial exercise
+price of $7.50 per share. The terms of the warrants contain a restructuring price adjustment provision, such that, in the event
+the Company completes a business combination subsequent to the initial Business Combination that results in the Company's shares
+no longer being listed on a national exchange or the OTC Bulletin Board, the exercise price of the warrants will decrease by a
+formula that causes the warrants to not be indexed to the Company's own shares. Although the Company does not believe it is likely
+that this price adjustment provision will be triggered, the warrants have been accounted for as a liability amounting to $3,900,000
+at March 31, 2013.
+
+ 
+
+NOTE G — PREFERRED STOCK
+
+ 
+
+The Company is authorized to issue 1,000,000 shares of preferred
+stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.
+As of March 31, 2013, the Company has not issued any shares of preferred stock.
+
+ 
+
+NOTE H – SUBSEQUENT EVENTS 
+
+ 
+
+On January 25, 2013, the Company entered into an Agreement and
+Plan of Merger (the "Agreement") with Selway Merger Sub, Inc., the Company s wholly-owned subsidiary, Healthcare
+Corporation of America ("Target"), Prescription Corporation of America, a wholly-owned subsidiary of Target ("PCA"),
+Gary Sekulski, as representative of the Target stockholders, and Edmundo Gonzalez, as the Company s representative, pursuant
+to which, upon the closing of the transactions contemplated in the Agreement, Merger Sub would merge (the "Merger")
+with and into Target, with Target as the surviving corporation. On April 10, 2013, the Merger and other transactions pursuant to
+the Agreement closed, and Target became the Company s wholly owned subsidiary.
+
+ 
+
+Acquisition Consideration
+
+ 
+
+Holders of all of the issued and outstanding shares of common
+stock of Target immediately prior to the time of the Merger had each of their shares of common stock of Target converted into the
+right to receive; (i) a proportional amount of 5,200,000 shares of Selway common stock and promissory notes with an aggregate face
+value of $7,500,000 (collectively, the "Closing Payment"), plus (ii) a proportional amount of up to 2,800,000 shares
+of Selway common stock, if any, (the "Earnout Payment Shares") issuable upon the combined company achieving certain
+consolidated gross revenue thresholds as more fully described below, plus (iii) the right to receive a proportional amount of the
+proceeds from the exercise of certain warrants being issued to Selway Capital Holdings, LLC, a Delaware limited liability company,
+the Company s sponsor, as more fully described below. A portion of the Closing Payment (520,000 shares and promissory notes
+with an aggregate face value of $750,000) was placed in escrow for a period of 12 months following the Merger to satisfy indemnification
+obligations of the Target, if any, as more fully described below. The promissory notes included in the Closing Payment are non-interest
+bearing and subordinated to all senior debt of the combined company in the event of a default under such senior debt. The notes
+will be repaid from 75% of 25% of the combined company s free cash-flow (defined as in the notes) in excess of $2,000,000.
+The combined company will be obligated to repay such notes if, among other events, there is a transaction that that results in
+a change of control of the combined company.
+
+ 
+
+ F-69
+
+ 
+
+ 
+
+ 
+
+The Earnout Payment Shares, if any, will be issued as follows:
+(i) 1,400,000 shares if the combined company achieves consolidated gross revenue of $150,000,000 for the twelve months ended March
+31, 2014 or June 30, 2014; and (ii) 1,400,000 shares if the combined company achieves consolidated gross revenue of $300,000,000
+for the twelve months ended March 31, 2015 or June 30, 2015. In the event the combined company does not achieve the first earnout
+threshold, but does achieve the second earnout threshold, then all of the Earnout Payment Shares shall be issued. If the combined
+company consolidates, merges or transfers substantially all of its assets prior to June 30, 2015 at a valuation of at least $15.00
+per share, then all of the Earnout Payment Shares not previously paid out shall be issued immediately prior to such transaction.
+If, prior to achieving either earnout threshold the combined company acquires another business in exchange for its equity or debt
+securities, then any remaining earnout thresholds may be adjusted by the independent members of the combined company s board
+of directors in their sole discretion.
+
+ 
+
+In connection with a bridge financing (the "Bridge Financing")
+completed by the Target in September 2012, the Target issued 59.25 units, each unit consisting of 10,000 preferred shares and a
+promissory note with a face value of $100,000. At the time of the Merger, holders of all of the issued and outstanding shares of
+preferred stock of Target had each of their shares of preferred stock of Target converted into the right to receive a proportional
+amount of 592,500 shares of Selway Series C common stock and warrants to purchase 296,250 shares of Selway common stock. In accordance
+with the terms of the promissory notes issued in the Bridge Financing, at the time of the Merger notes in the aggregate amount
+of $3,159,591.78 (including principal and interest accrued to date) were converted into 315,959 shares of Selway Series C common
+stock and notes in the aggregate principal amount of $3,025,000 were repaid in full.
+
+ 
+
+On the Closing Date, certain members of the Target s management
+received promissory notes with an aggregate face value of $2,500,000 (the "Management Incentive Notes"), which notes
+are non-interest bearing and subordinated to all senior debt of the combined company in the event of a default under such senior
+debt. The Management Incentive Notes will be repaid from 25% of 25% of the combined company s free cash-flow (defined as
+in the notes) in excess of $2,000,000. The combined company will be obligated to repay such notes if, among other events, there
+is a transaction that that results in a change of control of the combined company.
+
+ 
+
+In addition, at the time of the Merger, certain members of HCCA s management received an aggregate
+of 1,500,000 shares of Selway common stock , which shares were fully vested but placed in escrow to be released in three equal
+installments of 500,000 shares on each of September 30, 2013, June 30, 2014 and June 30, 2015. HCCA expects to record a one-time
+expense, estimated not to exceed $12,000,000, reflecting the estimated market value of these shares at the time of the merger.
+
+ 
+
+In conjunction with the merger of Merger Sub into Target:
+
+ 
+
+ 
+ 
+ The Company entered into exchange agreements with 3 beneficial holders of Target s bridge loan holders who were also beneficial holders of greater than 5% of Selway s Series A common stock. Pursuant to the exchange agreements, such holders converted an aggregate of 281,554 shares of Selway s Series A common stock to Selway s Series C common stock. In conjunction with the exchange, such holders were repaid bridge notes in the aggregate principal amount of $3,025,000.
+
+ 
+ 
+ The Company entered into exchange agreements with 3 beneficial holders of greater than 5% of Selway s Series A common stock. Pursuant to the exchange agreements, such holders converted an aggregate of 878,481 shares of Selway s Series A common stock to Selway s Series C common stock and received $3.53 per share of Series A common stock exchanged, or an aggregate of $3,101,037.93.
+
+ 
+ 
+ An aggregate of $11,948,360.50 was released from Selway s trust account, reflecting the number of shares of Series A common stock that were converted into Series C common stock, of which $232,007 was paid to the underwriters from Selway s initial public offering.
+
+ 
+ 
+ The placement warrants held by the Company s founders were converted into the right to receive: (i) an aggregate of 100,000 shares of Selway common stock; and (ii) warrants to purchase an aggregate of 1,000,000 shares of Selway common stock at an exercise price of $10.00 per share (the "Exchange Warrants"). The proceeds from the exercise of the exchange warrants will be paid: (i) 75% to the holders of all of the issued and outstanding shares of common stock of Target immediately prior to the time of the merger; and (ii) 25% to certain members of Target management. The exchange warrants are only exercisable for cash, may not be exercised on a cashless basis, and must be exercised if the closing price for the combined company s common stock exceeds $12.00 per share for 20 trading days in any 30-trading-day period.
+
+ 
+
+ F-70
+
+ 
+
+ 
+
+ 
+
+In addition, Target waived the condition to closing that a revolving
+credit facility in the aggregate amount of $5 million be in place at closing. Such facility subsequently closed on April 11, 2013
+and is described further below.
+
+ 
+
+Indemnification; Escrow of Closing Payment
+
+ 
+
+Pursuant to the Agreement, if the Target violates, misrepresents
+or breaches any of its representations, warranties, and covenants, it has agreed to indemnify Selway for up to 10% of the Closing
+Payment. For that purpose, of the Closing Payment, an aggregate of 520,000 shares and promissory notes with an aggregate face value
+of $750,000 are being held in escrow for a period of 12 months following the Merger in order to satisfy any indemnification obligations
+of the Target. If Selway violates, misrepresent or breaches any of its representations, warranties, and covenants, it has agreed
+to indemnify the Target stockholders up to 10% of the Closing Payment, payable in cash (up to $5,950,000). For purposes of the
+indemnification provisions of the Agreement, each share included in the Closing Payment will be deemed to be worth $10.00, and
+the promissory notes will be deemed to be worth their face value.
+
+ 
+
+Board of Directors of the Combined Company; Voting Agreement
+
+ 
+
+In connection with the closing of
+the Merger, on April 10, 2013, the Company entered into a voting agreement pursuant to which, for a two year period, Gary Sekulski,
+as the representative of the stockholders of HCCA before the Merger, will designate three persons to the combined company s
+board of directors, Edmundo Gonzalez, as Selway s representative, will designate one person to the combined company s
+board and such designees will unanimously designate three persons to the combined company s board of directors. 
+
+ 
+
+Registration Rights
+
+ 
+
+In connection with transactions contemplated by the Agreement
+, the Company also entered into a registration rights agreement to register all shares included in the Closing Payment, the Earnout
+Payment Shares, the shares underlying the Exchange Warrants, and the Selway shares issued as compensation for the Bridge Financing
+completed by HCCA in September 2012, pursuant to the terms of a Registration Rights Agreement entered into at the closing of the
+merger (all such securities issued in connection with the merger, the "Merger Securities"). The holders of the majority
+of the Merger Securities are entitled to make up to two demands that the Company register such securities at any time commencing
+six months following the consummation of the merger. In addition, the holders have certain "piggy-back" registration
+rights with respect to registration statements filed subsequent to Selway s consummation of an acquisition transaction. The
+Company will bear the expenses incurred in connection with the filing of any such registration statements. 
+
+ 
+
+Advisory Securities
+
+ 
+
+The Company is obligated to pay Chardan Capital Markets,
+LLC the following in consideration of its services in connection with the Merger transactions described above:
+
+ 
+
+ Five percent of all equity consideration issued in the transaction.
+
+ Promissory notes having an aggregate principal amount of five percent of all promissory notes issued in connection with the
+transaction, on the same terms and conditions as the promissory notes issued in the transaction.
+
+ 
+
+ F-71
+
+ 
+
+ 
+
+ 
+
+Post-Merger Tender Offer 
+
+ 
+
+The Company commenced a tender offer for all of its
+outstanding Series B shares on May 10, 2013. Selway is offering $10.30 for each outstanding share of Series B
+common stock outstanding. If the tender offer is not completed
+by August 14, 2013, the Company will be required to terminate the tender offer and automatically liquidate the trust account and
+distribute a pro rata portion of the trust account ($10.30 per share) to each holder of Series B common stock, and the Series B
+common stock will be canceled. 
+
+ 
+
+Revolving Credit Facility
+
+ 
+
+On April 11, 2013, Prescription Corporation of America ("PCA")
+and PCA Benefits, Inc. (PCA and PCA Benefits, Inc., together, the "Borrower"), the wholly-owned subsidiaries of HCCA,
+entered into a credit and security agreement with a fund managed by Muneris Capital Group ("Lender") for a secured
+revolving credit facility with an initial aggregate credit limit of $5,000,000. The facility has a term of three years, through
+April 11, 2016, during which the loan proceeds are to be used solely for working capital. The Lender may, at its discretion, increase
+the credit limit in increments of $250,000, up to a maximum facility limit of $25,000,000. Interest is payable on a monthly basis,
+commencing May 1, 2013, at an annual rate of prime (as determined by Wells Fargo Bank of San Francisco) plus 1.75%. The interest
+rate will automatically reduce to prime plus 0.75% if: (i) the principal amount outstanding under the facility exceeds $7,500,000
+and; (ii) the fixed charge coverage ratio (as defined in the agreement) is at least 3-to-1 as of the end of any two consecutive
+calendar months. The facility is guaranteed by HCCA and the agreement grants the Lender a first priority security interest in certain
+collateral, which includes the Borrower s accounts receivable, bank deposit accounts and all personal property (other than
+intellectual property) and fixtures. The facility contains certain financial covenants, including the requirement to maintain:
+(i) a ratio of current assets to current liabilities of at least 2-to-1; (ii) from October 2013 to December 2013, the fixed charge
+coverage ratio existing as of the end of September 2013, and after December 2013, a fixed charge coverage ratio of at least 1.2-to-1;
+and (iii) a loan turnover rate of 25, as calculated by dividing: (A) 365 by (B) the result achieved by dividing: (i) the product
+of the aggregate of all accounts receivable collected during the relevant Test Period (generally defined as the last three calendar
+months then ended), multiplied by 4; by (ii) the outstanding principal balance of the credit facility as of the last business day
+of such Test Period. The agreement also includes customary negative covenants and financial reporting requirements, as well as
+certain customary events of default that would render all outstanding amounts under the agreement immediately due and payable,
+including but not limited to: (i) Borrower failing to pay amount amounts due within 2 business days of notice; (ii) Lender ceasing
+to have a valid perfected first priority security interest in any material portion of the collateral; (iii) Borrower or HCCA, as
+guarantor, undergoing any change of control, including the occurrence of a merger or consolidation, a disposition of a substantial
+portion of Borrower s assets, or Borrower s inability to find a reasonably satisfactory replacement for a chief executive
+officer within 30 days of the current chief executive officer s termination or resignation from such post.
+
+ 
+
+ F-72
+
+ 
+
+ 
+
+ 
+
+SELWAY CAPITAL ACQUISITION CORPORATION
+
+ 
+
+12,639,708
+shares of Common Stock (for Resale)
+
+2,200,000
+shares of Common Stock and 100,000 Warrants (for Issuance)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+PROSPECTUS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+__________
+__, 2013
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+No dealer, salesperson or any other person
+is authorized to give any information or make any representations in connection with this offering other than those contained in
+this prospectus and, if given or made, the information or representations must not be relied upon as having been authorized by
+us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the securities
+offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction
+in which the offer or solicitation is not authorized or is unlawful.
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+PART II – INFORMATION
+NOT REQUIRED IN PROSPECTUS
+
+ 
+
+ITEM 13. Other Expenses of
+Issuance and Distribution
+
+ 
+
+We will pay all expenses in connection with
+the registration and sale of the Common Stock by the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001515116_tango_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001515116_tango_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0e3ec9615d9c9c138c10f553d2885cb65b522b8f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001515116_tango_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are currently no legal proceedings or claims that will have a material adverse effect on our business, financial condition or operating results. BK Consulting & Associates, P.C., and its General Counsel, Steven M. Sager have opined as to the legality of the Company s securities.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001515732_juniper_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001515732_juniper_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001515732_juniper_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001515734_juniper_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001515734_juniper_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001515734_juniper_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001515735_juniper_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001515735_juniper_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e59b114cf143b23dec74903d3b45906bdb06e1f9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001515735_juniper_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Notes and the enforceability of obligations under the Notes and guarantees being issued were passed upon for us by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001516376_apmex_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001516376_apmex_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..60139fdfac8c88359295b30fe740b0664d25b910
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001516376_apmex_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the units offered in this prospectus is being passed upon for the Trust by Osler, Hoskin & Harcourt LLP. Osler, Hoskin & Harcourt LLP has provided an opinion to the Trust (a copy of which is attached to the registration statement of which this prospectus forms a part) related to the tax disclosure under the caption "Tax Considerations Canadian Federal Income Tax Considerations." Loeb & Loeb LLP is acting as U.S. counsel to the Trust. DLA Piper LLP (US) is acting as Special U.S. Tax Counsel to the Trust. DLA Piper LLP (US) has provided an opinion to the Trust (a copy of which is attached to the registration statement of which this prospectus forms a part) related to the tax disclosure under the caption "Tax Considerations U.S. Federal Income Tax Considerations." SNR Denton US LLP is acting as U.S. counsel for the underwriters in this offering. Certain legal matters relating to the issue and sale in Canada of units offered hereby will be passed upon by Osler, Hoskin & Harcourt LLP on behalf of the Trust and by Blake, Cassels & Graydon LLP on behalf of the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001517391_portus_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001517391_portus_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..77995a1c4fffb1dfea54825b354dd80b571eaf2a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001517391_portus_legal_matters.txt
@@ -0,0 +1,5169 @@
+legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
+
+ 
+
+Szafurman, Lakind, Blumstein & Blader, PC of 101 Grovers Mill Rd., #200 Lawrenceville, New Jersey 08648 will
+
+ pass on the validity of the common stock being offered pursuant to this registration statement. 
+
+ 
+
+The financial statements included in this prospectus and the registration statement have been audited by Malone Bailey LLP, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
+
+ 
+
+LEGAL PROCEEDINGS
+
+ 
+
+From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
+
+ 
+
+During the past ten years:
+
+ 
+
+1) No petition pursuant to the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of any of our officers or directors, or any partnership in which any such officer or director was a general partner at or within 2 years before the time of such filing, or any corporation or business association of which any such officer or director was an executive officer at or within 2 years before the time of such filing;
+
+2) None of our officers or directors has been convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
+
+ 
+
+3) None of our officers or directors has been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining any such officer or director from, or otherwise limiting, the following activities:
+
+49
+
+(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
+
+ 
+
+(ii) Engaging in any type of business practice; or
+
+ 
+
+(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
+
+ 
+
+4) None of our officers or directors has been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of any such officer or director to engage in any activity described in paragraph (f) (3) (i) of Item 401(f) of Regulation S-K, or to be associated with persons engaged in any such activity;
+
+ 
+
+5) None of our officers or directors has been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated;
+
+ 
+
+6) None of our officers or directors has been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
+
+ 
+
+7) None of our officers or directors has been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
+
+ 
+
+(i) Any federal or state securities or commodities law or regulation; or
+
+ 
+
+(ii) Any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
+
+ 
+
+(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
+
+ 
+
+8) None of our officers or directors has been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3 (a) (26) of the Exchange Act (15 U.S.C. 78c (a) (26)), any registered entity (as defined in Section 1 (a) (29) of the Commodity Exchange Act (7 U.S.C. 1 (a) (29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
+
+50
+
+ 
+
+WHERE YOU CAN FIND ADDITIONAL INFORMATION
+
+ 
+
+We filed with the SEC a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. 
+
+ 
+
+We file annual, quarterly, and current reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC s website at www.sec.gov. Those filings are also available to the public on our corporate website at www.portusholdings.com. The information we file with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC s prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.
+
+The exhibits to the registration statement should be referenced for the complete contents of these contracts and documents. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov .
+
+ 
+
+Upon the completion of this offering, we will be subject to the information reporting requirements of the Securities Act and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.portus-inc.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus. 
+
+51
+
+Item 8. Financial Statements and Supplementary Data 
+
+ 
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+ 
+
+To the Board of Directors 
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(a development stage company) 
+
+Fort Lauderdale, FL 
+
+ 
+
+We have audited the consolidated balance sheets of
+
+PORTUS HOLDINGS INC.
+
+ and its subsidiary, a development stage company, (the Company ) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders equity (deficit), and cash flows for the year ended December 31, 2012, the nine months ended December 31, 2011, and the period from March 31, 2011 (inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+
+ 
+
+In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
+
+PORTUS HOLDINGS INC.
+
+ as of December 31, 2012 and 2011 and the results of their operations and their cash flows for the year ended December 31, 2012, the nine months ended December 31, 2011, the period from March 31, 2011 (inception) through and December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. 
+
+ 
+
+The accompanying financial statements have been prepared assuming that Portus Holdings Inc. will continue as a going concern. As discussed in Note 3 to the financial statements, Portus Holdings Inc. suffered losses from operations which raises substantial doubt about its ability to continue as a going concern. Management s plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 
+
+ 
+
+/s/ MALONEBAILEY, LLP 
+
+www.malonebailey.com 
+
+Houston, Texas 
+
+April 16, 2013 
+
+ 
+
+ 
+
+52
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY) 
+
+CONSOLIDATED BALANCE SHEETS 
+
+ 
+
+ 
+
+ 
+
+December 31,
+
+2012 
+
+ 
+
+ 
+
+December 31,
+
+2011 
+
+ 
+
+ASSETS 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CURRENT ASSETS 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Cash 
+
+ 
+
+$ 
+
+35,299 
+
+ 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+Acquisition Deposit 
+
+ 
+
+ 
+
+40,000 
+
+ 
+
+ 
+
+ 
+
+- 
+
+ 
+
+TOTAL ASSETS 
+
+ 
+
+$ 
+
+75,299 
+
+ 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+LIABILITIES AND STOCKHOLDERS' EQUITY 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CURRENT LIABILITIES 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Accounts Payable 
+
+ 
+
+$ 
+
+12,435 
+
+ 
+
+ 
+
+$ 
+
+85 
+
+ 
+
+TOTAL CURRENT LIABILITIES 
+
+ 
+
+ 
+
+12,435 
+
+ 
+
+ 
+
+ 
+
+85 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+STOCKHOLDERS' EQUITY 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Preferred stock, $0.0001 par value, authorized: 75,000,000 shares, Issued and outstanding: None 
+
+ 
+
+ 
+
+- 
+
+ 
+
+ 
+
+ 
+
+- 
+
+ 
+
+Common stock, $0.0001 par value, authorized: 425,000,000 shares, Issued and outstanding: 112,967,500 and 112,500,000 shares issued and outstanding respectively 
+
+ 
+
+ 
+
+11,297 
+
+ 
+
+ 
+
+ 
+
+11,250 
+
+ 
+
+Additional Paid in Capital 
+
+ 
+
+ 
+
+459,953 
+
+ 
+
+ 
+
+ 
+
+(7,500) 
+
+ 
+
+Deficit accumulated during the development stage 
+
+ 
+
+ 
+
+(408,386) 
+
+ 
+
+ 
+
+ 
+
+(3,835) 
+
+ 
+
+TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 
+
+ 
+
+ 
+
+62,864 
+
+ 
+
+ 
+
+ 
+
+(85) 
+
+ 
+
+TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 
+
+ 
+
+$ 
+
+75,299 
+
+ 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these consolidated financial statements.
+
+ 
+
+53
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY) 
+
+CONSOLIDATED STATEMENTS OF OPERATIONS 
+
+ 
+
+ 
+
+ 
+
+For the 
+
+twelve months 
+
+ended 
+
+December 31, 
+
+2012 
+
+ 
+
+ 
+
+For the 
+
+nine months 
+
+ended 
+
+December 31, 
+
+2011 
+
+ 
+
+ 
+
+For the 
+
+period from 
+
+March 31, 
+
+2011 
+
+(inception) to 
+
+December 31, 
+
+2012 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Finance and accounting 
+
+ 
+
+$ 
+
+38,608 
+
+ 
+
+ 
+
+$ 
+
+3,000 
+
+ 
+
+ 
+
+$ 
+
+41,608 
+
+ 
+
+Legal 
+
+ 
+
+ 
+
+25,000 
+
+ 
+
+ 
+
+ 
+
+750 
+
+ 
+
+ 
+
+ 
+
+25,750 
+
+ 
+
+General and administrative 
+
+ 
+
+ 
+
+340,943 
+
+ 
+
+ 
+
+ 
+
+85 
+
+ 
+
+ 
+
+ 
+
+341,028 
+
+ 
+
+Total Expenses 
+
+ 
+
+ 
+
+404,551 
+
+ 
+
+ 
+
+ 
+
+3,835 
+
+ 
+
+ 
+
+ 
+
+408,386 
+
+ 
+
+NET INCOME (LOSS) 
+
+ 
+
+$ 
+
+(404,551) 
+
+ 
+
+ 
+
+$ 
+
+(3,835) 
+
+ 
+
+ 
+
+$ 
+
+(408,386) 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+NET LOSS PER SHARE 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Basic and diluted 
+
+ 
+
+$ 
+
+(0.00) 
+
+ 
+
+ 
+
+$ 
+
+(0.00) 
+
+ 
+ 
+
+ 
+
+n/a 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+WEIGHTED AVERAGE NUMBER OF SHARES 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Basic and diluted 
+
+ 
+
+ 
+
+112,716,291 
+
+ 
+
+ 
+
+ 
+
+112,500,000 
+
+ 
+
+ 
+
+ 
+
+n/a 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these consolidated financial statements. 
+
+54
+
+ 
+
+PORTUS HOLDINGS INC.
+
+(A Development Stage Company) 
+
+Statements of Changes in Stockholders' (Deficit) 
+
+For the Period from March 31, 2011 (Inception) to December 31, 2012 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Additional
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Preferred Stock
+
+ 
+
+ 
+
+Common Stock
+
+ 
+
+ 
+
+Paid-In
+
+ 
+
+ 
+
+Accumulated
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Shares
+
+ 
+
+ 
+
+Amount
+
+ 
+
+ 
+
+Shares
+
+ 
+
+ 
+
+Amount
+
+ 
+
+ 
+
+Capital
+
+ 
+
+ 
+
+Deficit
+
+ 
+
+ 
+
+Total
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+March 31, 2011 (Inception), shares issued at $0.0001 per share 
+
+ 
+
+ 
+
+- 
+
+ 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+ 
+
+ 
+
+112,500,000 
+
+ 
+
+ 
+
+$ 
+
+11,250 
+
+ 
+
+ 
+
+$ 
+
+(7,500 
+
+) 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+ 
+
+$ 
+
+3,750 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Net loss 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(3,835) 
+
+ 
+
+ 
+
+ 
+
+(3,835) 
+
+ 
+
+Balance December 31, 2011 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+112,500,000 
+
+ 
+
+ 
+
+ 
+
+11,250 
+
+ 
+
+ 
+
+ 
+
+(7,500) 
+
+ 
+
+ 
+
+ 
+
+(3,835) 
+
+ 
+
+ 
+
+ 
+
+(85) 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+- 
+
+ 
+
+Shares issued at $1.00 per share 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+467,500 
+
+ 
+
+ 
+
+ 
+
+47 
+
+ 
+
+ 
+
+ 
+
+467,453 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+467,500 
+
+ 
+
+Net loss 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(404,551) 
+
+ 
+
+ 
+
+ 
+
+(404,551) 
+
+ 
+
+Balance December 31, 2012 
+
+ 
+
+ 
+
+- 
+
+ 
+
+ 
+
+$ 
+
+- 
+
+ 
+
+ 
+
+ 
+
+112,967,500 
+
+ 
+
+ 
+
+$ 
+
+11,297 
+
+ 
+
+ 
+
+$ 
+
+459,953 
+
+ 
+
+ 
+
+$ 
+
+(408,386) 
+
+ 
+
+ 
+
+$ 
+
+62,864 
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these consolidated financial statements. 
+
+ 
+
+55
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY) 
+
+STATEMENTS OF CASH FLOWS
+
+ 
+
+ 
+
+ 
+
+For the 
+
+Twelve
+
+Months 
+
+Ended 
+
+December 31, 
+
+2012
+
+ 
+
+ 
+
+For the
+
+Nine Months
+
+Ended 
+
+December 31,
+
+2011
+
+ 
+
+ 
+
+For the 
+
+period from 
+
+March 31, 
+
+2011 
+
+(Inception) to 
+
+December 31, 
+
+2012
+
+ 
+
+CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Net loss
+
+ 
+
+$
+
+(404,551
+
+)
+
+ 
+
+$
+
+(85
+
+)
+
+ 
+
+$
+
+(408,386
+
+)
+
+Adjustments to reconcile net loss to net cash used in operating activities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Increase / (Decrease) in accounts payable
+
+ 
+
+ 
+
+12,350
+
+ 
+
+ 
+
+ 
+
+(3,665
+
+)
+
+ 
+
+ 
+
+12,435
+
+ 
+
+NET CASH USED IN OPERATING ACTIVITIES
+
+ 
+
+ 
+
+(392,201)
+
+ 
+ 
+
+ 
+
+(3,750)
+
+ 
+ 
+
+ 
+
+(395,951)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH FLOWS FROM INVESTING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Cash paid for deposit on acquisition
+
+ 
+
+ 
+
+(40,000)
+
+ 
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(40,000)
+
+ 
+
+NET CASH USED IN INVESTING ACTIVITIES
+
+ 
+
+ 
+
+(40,000)
+
+ 
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(40,000)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH FLOWS FROM FINANCING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Proceeds from sale of common stock
+
+ 
+
+ 
+
+467,500
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+471,250
+
+ 
+
+NET CASH PROVIDED BY FINANCING ACTIVITIES
+
+ 
+
+ 
+
+467,500
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+471,250
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+INCREASE (DECREASE) IN CASH
+
+ 
+
+ 
+
+35,299
+
+ 
+
+ 
+
+ 
+
+(3,750)
+
+ 
+ 
+
+ 
+
+35,299
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH, BEGINNING OF PERIOD
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+3,750
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH, END OF PERIOD
+
+ 
+
+$
+
+35,299
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+$
+
+35,299
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Interest paid
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+Income taxes paid
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these consolidated financial statements.
+
+ 
+
+56
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY) 
+
+NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
+
+NOTE 1 ORGANIZATION AND BUSINESS OPERATIONS 
+
+ 
+
+PORTUS HOLDINGS INC.
+
+ (the Company ) was incorporated in the State of Nevada on March 31, 2011. The Company is a Development Stage Company as defined by ASC 915-10. During 2012, the Company changed its fiscal year end to December 31 from March 31. 
+
+ 
+
+The Company s principal business is focused on creating a multilingual, multiple functionality, and global food and beverage service platform ( Portus Cloud ). Portus Cloud is a global, multilingual, cloud based food and beverage service portal where customers will be able to manage an entire food and beverage service business or enterprise anywhere in the world, anytime and in any language. 
+
+ 
+
+On October 12, 2012 Portus and Portus
+
+Acquisition
+
+ Corp., our wholly owned subsidiary, entered into a Share Exchange Agreement with SureQuest and its wholly owned SureQuestTX. 
+
+ 
+
+NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
+
+ 
+
+a) Basis of Presentation 
+
+ 
+
+The financial statements have been prepared according to GAAP. 
+
+ 
+
+b) Cash and Cash Equivalents 
+
+ 
+
+The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. 
+
+ 
+
+c) Use of Estimates and Assumptions 
+
+ 
+
+The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates. 
+
+ 
+
+d) Fair Value of Financial Instruments 
+
+ 
+
+ASC Topic 820-10 requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2012. 
+
+ 
+
+The respective carrying value of certain on-balance-sheet financial instruments approximates their fair values. These financial instruments include cash, stock subscriptions receivable, and accounts payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value, or they are receivable or payable on demand. 
+
+57
+
+e) Income Taxes 
+
+ 
+
+The Company follows FASB Codification Topic 740-10-25 (ASC 740-10-25) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. 
+
+ 
+
+Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. 
+
+ 
+
+f) Basic and Diluted Net Loss per Share 
+
+ 
+
+The Company computes net loss per share in accordance with ASC Topic 260-10, Earnings per Share . ASC Topic 260-10 requires presentation of both basic and diluted per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all potentially dilutive shares if their effect is anti-dilutive. The Company had no dilutive common stock equivalents as of December 31, 2012. 
+
+ 
+
+g) Development Stage Company 
+
+ 
+
+Based on the Company's business plan, it is a development stage Company since planned principle operations have not yet commenced. Accordingly, the Company presents its financial statements in conformity with the accounting principles generally accepted in the United States of America that apply to developing enterprises. As a development stage enterprise, the Company discloses its retained earnings (or deficit accumulated) during the development stage and the cumulative statements of operations and cash flows from commencement of development stage to the current balance sheet date. The development stage began on March 31, 2011, when the Company was organized. 
+
+ 
+
+h) Principles of Consolidation 
+
+ 
+
+The accompanying financial statements include the accounts of
+
+PORTUS HOLDINGS INC.
+
+ and its 100% owned subsidiary Portus
+
+Acquisition
+
+ Corp. All intercompany accounts and transactions have been eliminated. 
+
+ 
+
+i) Recent Pronouncements 
+
+ 
+
+The Company does not expect any recent accounting pronouncements to have a material impact on the Company's financial position, operations, or cash flows. 
+
+ 
+
+58
+
+NOTE 3 GOING CONCERN 
+
+ 
+
+The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has no sources of income, limited stockholders equity and has incurred a net loss of $ 408,386 from March 31, 2011 (inception) to date. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. 
+
+ 
+
+In view of these matters, continuation as a going concern is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations. The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern. 
+
+ 
+
+The Company plans to improve its financial condition through additional sales of common stock. However, there is no assurance that the Company will be successful in accomplishing this objective. Management believes that this plan provides an opportunity for the Company to continue as a going concern. 
+
+ 
+
+NOTE 4 DEPOSIT 
+
+ 
+
+On October 12, 2012 Portus and Portus
+
+Acquisition
+
+ Corp., our wholly owned subsidiary, entered into a Share Exchange Agreement with Surequest Systems, Inc., a Delaware Corporation, ( SureQuest ) and its wholly owned subsidiary Surequest Systems, Inc., a Texas corporation, ( SureQuestTX ) 
+
+ 
+
+The Agreement provides in part for the Company to acquire all of the issued and outstanding shares of common stock of SureQuestTX in exchange for all of the issued and outstanding shares of common stock of Portus Acquisition Corp. A good faith deposit in the amount of $40,000 was issued at that time. The deposit is not refundable in the event the transaction is not completed. We believe that the acquisition of SureQuest is probable only if we are able to raise $5,000,000. The closing is contingent on the acceptance of the registration statement and the contract calls for closing within 30 days of the acceptance of the registration statement. To complete the closing, we will need to have $5,000,000 in cash deposited in Portus Acquisitions Corp. and exchange 100% of the shares of Portus Acquisitions Corp for 100% of the shares of SureQuest Systems of Texas. However, if we are unable to raise at least $5,000,000 in the offering or from other sources, we will not be able to close. 
+
+NOTE 5 - CAPITAL STOCK 
+
+ 
+
+Preferred Stock. The Company has authorized 75,000,000 shares of preferred stock with a par value of $0.0001 per share. These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors. The Company has not issued any preferred shares as of December 31, 2012.
+
+ 
+
+Common Stock . As of December 31, 2011, the Company has authorized 425,000,000 shares of common stock with a par value of $0.0001 per share. As of December 31, 2011, there were 112,500,000 shares issued and outstanding that were sold on March 31, 2011 for $3,750 to the Company s founder. 
+
+59
+
+During the year ended December 31, 2012 the Company received $467,500 in exchange for 467,500 shares of its common stock. At December 31, 2012 there were 112,967,500 shares issued and outstanding. 
+
+ 
+
+NOTE 6 - INCOME TAXES 
+
+ 
+
+The Company is subject to income taxes in the United States of America. As of December 31, 2012, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $408,000. Section 382 of the Internal Code allows post-change corporations to use pre-change net operating losses, but limit the amount of losses that may be used annually to a percentage of the entity value of the corporation at the date of the ownership change. The applicable percentage is the federal long-term tax-exempt rate for the month during which the change in ownership occurs. As of December 31, 2012, the Company had an estimated deferred tax asset from its net operating losses of $139,000, of which 100% has been fully reserved.
+
+ 
+
+NOTE 7 RELATED PARTY TRANSACTIONS 
+
+ 
+
+During 2012, the Company paid $180,800 in management fees to its parent company, Portus, Inc. 
+
+ 
+
+NOTE 8 SUBSEQUENT EVENTS 
+
+ 
+
+On January 19, 2013 the
+
+Company received a loan in cash in the amount of $50,000 from its parent, Portus Inc
+
+.
+
+ 
+
+ The note is unsecured and does not bear interest.
+
+ 
+
+On February 8, 2013 the
+
+Company
+
+received a loan in cash in the amount of $25,000 from its parent Portus Inc. The note is unsecured and does not bear interest.
+
+ 
+
+During the first quarter of 2013, the Company has entered into subscription agreements with various individuals for 23,000 shares of its common stock for $23,000. 
+
+ 
+
+On
+
+February
+
+ 8, 2013, Portus paid $25,000 to SureQuestTX, for licensing rights to its data base and functional platform in order to launch Portus Cloud. 
+
+ 
+
+Additionally, the Company s CEO contributed $4,000 in cash. 
+
+ 
+
+60
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY) 
+
+CONSOLIDATED BALANCE SHEETS 
+
+(Unaudited) 
+
+ 
+
+ 
+
+ 
+
+June 30,
+
+ 
+
+ 
+
+December 31,
+
+ 
+
+ 
+
+ 
+
+2013
+
+ 
+
+ 
+
+2012
+
+ 
+
+ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CURRENT ASSETS
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Cash
+
+ 
+
+ 
+- 
+
+ 
+ 
+ 
+35,299 
+
+ 
+
+Acquisition deposit
+
+ 
+
+ 
+65,000 
+
+ 
+ 
+ 
+40,000 
+
+ 
+
+TOTAL ASSETS
+
+ 
+
+ 
+65,000 
+
+ 
+ 
+ 
+75,299 
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+CURRENT LIABILITIES
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Accounts payable
+
+ 
+
+ 
+21,800 
+
+ 
+ 
+ 
+12,435 
+
+ 
+
+Accrued expenses
+
+ 
+
+ 
+2,589 
+
+ 
+ 
+ 
+- 
+
+ 
+
+Bank overdraft
+
+ 
+
+ 
+1,447 
+
+ 
+ 
+ 
+ 
+ 
+
+Notes payable to parent
+
+ 
+
+ 
+75,000 
+
+ 
+ 
+ 
+- 
+
+ 
+
+TOTAL CURRENT LIABILITIES
+
+ 
+
+ 
+100,836 
+
+ 
+ 
+ 
+12,435 
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Preferred stock, $0.0001 par value, authorized: 75,000,000 shares, Issued and outstanding: None
+
+ 
+
+ 
+- 
+
+ 
+ 
+ 
+- 
+
+ 
+
+Common stock, $0.0001 par value, authorized: 425,000,000 shares, Issued and outstanding: 113,043,526 and 112,967,500 shares issued and outstanding respectively
+
+ 
+
+ 
+11,304 
+
+ 
+ 
+ 
+11,297 
+
+ 
+
+Additional paid in capital
+
+ 
+
+ 
+562,485 
+
+ 
+ 
+ 
+459,953 
+
+ 
+
+Deficit accumulated during the development stage
+
+ 
+
+ 
+(609,625)
+
+ 
+ 
+ 
+(408,386)
+
+ 
+
+TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+(35,836)
+
+ 
+ 
+ 
+62,864 
+
+ 
+
+TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
+
+ 
+
+ 
+65,000 
+
+ 
+ 
+ 
+75,299 
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these unaudited consolidated financial statements. 
+
+ 
+
+61
+
+PORTUS HOLDINGS INC.
+
+(A DEVELOPMENT STAGE COMPANY)
+
+CONSOLIDATED STATEMENTS OF OPERATIONS
+
+(Unaudited)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+For the
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+period from
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+March 31,
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+2011
+
+ 
+
+ 
+
+ 
+
+For the three months ended June 30,
+
+ 
+
+ 
+
+For the six months ended June 30,
+
+ 
+
+ 
+
+(inception) to
+
+ 
+
+ 
+
+ 
+
+2013
+
+ 
+
+ 
+
+2012
+
+ 
+
+ 
+
+2013
+
+ 
+
+ 
+
+2012
+
+ 
+
+ 
+
+June 30, 2013
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Finance and accounting
+
+ 
+
+$
+
+11,850
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+15,350
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+56,958
+
+ 
+
+Legal
+
+ 
+
+ 
+
+1,363
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+21,674
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+47,424
+
+ 
+
+General and administrative
+
+ 
+
+ 
+
+71,488
+
+ 
+
+ 
+
+ 
+
+(2)
+
+ 
+ 
+
+ 
+
+161,626
+
+ 
+
+ 
+
+ 
+
+(4)
+
+ 
+ 
+
+ 
+
+502,654
+
+ 
+
+Total operating expenses
+
+ 
+
+ 
+
+84,701
+
+ 
+
+ 
+
+ 
+
+(2)
+
+ 
+ 
+
+ 
+
+198,650
+
+ 
+
+ 
+
+ 
+
+(4)
+
+ 
+ 
+
+ 
+
+607,036
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Net operating income (loss)
+
+ 
+
+ 
+
+(84,701)
+
+ 
+ 
+
+ 
+
+2
+
+ 
+
+ 
+
+ 
+
+(198,650)
+
+ 
+ 
+ 
+
+4
+
+ 
+ 
+
+ 
+
+(607,036)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Other income (expenses):
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Interest expense
+
+ 
+
+ 
+
+(1,517)
+
+ 
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+(2,589)
+
+ 
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+(2,589)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Net income (loss)
+
+ 
+
+$
+
+(86,218)
+
+ 
+ 
+
+$
+
+2
+
+ 
+
+ 
+
+$
+
+(201,239)
+
+ 
+ 
+
+$
+
+4
+
+ 
+ 
+
+$
+
+(609,625)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+NET LOSS PER SHARE
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Basic and diluted
+
+ 
+
+$
+
+(0.00)
+
+ 
+ 
+
+$
+
+0.00
+
+ 
+ 
+
+ 
+(0.00)
+
+ 
+ 
+
+ 
+0.00
+
+ 
+ 
+
+$
+
+n/a
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+WEIGHTED AVERAGE NUMBER OF SHARES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Basic and diluted
+
+ 
+
+ 
+
+112,977,678
+
+ 
+
+ 
+
+ 
+
+112,500,000
+
+ 
+
+ 
+
+ 
+
+112,992,684
+
+ 
+
+ 
+
+ 
+
+112,500
+
+ 
+
+ 
+
+ 
+
+n/a
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these unaudited consolidated financial statements.
+
+ 
+
+ 
+
+62
+
+PORTUS HOLDINGS INC.
+
+(A DEVELOPMENT STAGE COMPANY)
+
+STATEMENTS OF CASH FLOWS
+
+(Unaudited)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+March 31, 2011
+
+ 
+
+ 
+
+ 
+
+For the six months ended June 30,
+
+ 
+
+ 
+
+(Inception) through
+
+ 
+
+ 
+
+ 
+
+2013
+
+ 
+
+ 
+
+2012
+
+ 
+
+ 
+
+June 30, 2013
+
+ 
+
+CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Net income (loss)
+
+ 
+
+$
+
+(201,239)
+
+ 
+ 
+
+$
+
+4
+
+ 
+
+ 
+
+$
+
+(609,625)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Adjustments to reconcile net loss to net cash used in operating activities:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Stock based compensation
+
+ 
+
+ 
+
+13,905
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+13,905
+
+ 
+
+Increase in accounts payable and accrued expenses
+
+ 
+
+ 
+
+13,401
+
+ 
+
+ 
+
+ 
+
+(4)
+
+ 
+ 
+
+ 
+
+25,837
+
+ 
+
+NET CASH USED IN OPERATING ACTIVITIES
+
+ 
+
+ 
+
+(173,933)
+
+ 
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+(569,883)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH FLOWS FROM INVESTING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Cash paid for licensing agreement
+
+ 
+
+ 
+
+(25,000)
+
+ 
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+(65,000)
+
+ 
+
+NET CASH USED IN INVESTING ACTIVITIES
+
+ 
+
+ 
+
+(25,000)
+
+ 
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+(65,000)
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH FLOWS FROM FINANCING ACTIVITIES
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ Proceeds from
+
+notes payable to parent
+
+ 
+
+ 
+
+75,000
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+75,000
+
+ 
+
+Proceeds from sale of common stock
+
+ 
+
+ 
+
+88,634
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+559,884
+
+ 
+
+NET CASH PROVIDED BY FINANCING ACTIVITIES
+
+ 
+
+ 
+
+163,634
+
+ 
+
+ 
+
+ 
+
+0
+
+ 
+
+ 
+
+ 
+
+634,884
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+INCREASE (DECREASE) IN CASH
+
+ 
+
+ 
+
+(35,299)
+
+ 
+ 
+
+ 
+
+0
+
+ 
+
+ 
+
+ 
+
+1
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH, BEGINNING OF PERIOD
+
+ 
+
+ 
+
+35,299
+
+ 
+
+ 
+
+ 
+
+-
+
+ 
+
+ 
+
+ 
+
+0
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+CASH, END OF PERIOD
+
+ 
+
+$
+
+0
+
+ 
+
+ 
+
+$
+
+0
+
+ 
+
+ 
+
+$
+
+1
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Interest paid
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+Income taxes paid
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+$
+
+-
+
+ 
+
+ 
+
+The accompanying notes are an integral part of these unaudited consolidated financial statements.
+
+ 
+
+63
+
+PORTUS HOLDINGS INC.
+
+ 
+
+(A DEVELOPMENT STAGE COMPANY)
+
+NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
+
+ 
+
+NOTE 1 ORGANIZATION AND BUSINESS OPERATIONS
+
+ 
+
+PORTUS HOLDINGS INC.
+
+ (the Company ) was incorporated in the State of Nevada on March 31, 2011. The Company is a Development Stage Company as defined by ASC 915-10. During 2012, the Company changed its fiscal year end to December 31 from March 31.
+
+ 
+
+The Company s principal business is focused on creating a multilingual, multiple functionality, and global food and beverage service platform ( Portus Cloud ). Portus Cloud is a global, multilingual, cloud based food and beverage service portal where customers will be able to manage an entire food and beverage service business or enterprise anywhere in the world, anytime and in any language.
+
+ 
+
+The financial information included herein is unaudited and has been prepared consistent with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8, Rule 8.03 of Regulation S-K. Accordingly, these financial statements do not include all information required by generally accepted accounting principles for annual financial statements. These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2012. These interim financial statements contain all adjustments necessary in the opinion of management for a fair statement of results for the interim periods presented.
+
+ 
+
+The results of operations for the six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year. 
+
+NOTE 2 GOING CONCERN
+
+The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has no sources of income, limited stockholders equity and has incurred a net loss of $609,625 from March 31, 2011 (inception) to date. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
+
+ 
+
+In view of these matters, continuation as a going concern is dependent upon the continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations. The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.
+
+ 
+
+The Company plans to improve its financial condition through additional sales of common stock. However, there is no assurance that the Company will be successful in accomplishing this objective. Management believes that this plan provides an opportunity for the Company to continue as a going concern.
+
+ 
+
+NOTE 3 DEPOSITS
+
+ 
+
+On October 12, 2012 Portus and Portus
+
+Acquisition
+
+ Corp., our wholly owned subsidiary, entered into a Share Exchange Agreement with Surequest Systems, Inc., a Delaware Corporation, ( SureQuest ) and its wholly owned subsidiary Surequest Systems, Inc., a Texas corporation, ( SureQuestTX ).
+
+64
+
+The Agreement provides in part for the Company to acquire all of the issued and outstanding shares of common stock of SureQuestTX in exchange for all of the issued and outstanding shares of common stock of Portus Acquisition Corp. A good faith deposit in the amount of $40,000 was issued at that time. The deposit is not refundable in the event the transaction is not completed.
+
+On Feburary 8, 2013, Portus paid $25,000 to SureQuestTX, for licensing rights to its data base and functional platform in order to launch Portus Cloud. As June 30, 2013, Portus Cloud has not yet launched.
+
+ 
+
+NOTE 4 
+
+NOTES PAYABLE TO PARENT
+
+ 
+
+On January 19, 2013
+
+,
+
+ the
+
+c
+
+Company received a loan of $50,000 from its parent Portus Inc. The note is unsecured and does not bear
+
+ 
+
+On February 8, 2013
+
+,
+
+the Company received a loan of $25,000 from its parent Portus Inc. The note is unsecured and does not bear interest
+
+.
+
+ 
+
+NOTE 5 - CAPITAL STOCK
+
+ 
+
+During the six months ended June 30, 2013, the Company received $88,634 in exchange for 66,756 shares of its common stock and issued 9,270 shares of its common stock in exchange for services valued at $13,905. At June 30, 2013, there were 113,043,526 shares issued and outstanding.
+
+ 
+
+NOTE 6 RELATED PARTY TRANSACTIONS 
+
+ 
+
+During the period ended June 30, 2012, the Company paid $11,000 in management fees to its parent company, Portus, Inc.
+
+ 
+
+NOTE 7 SUBSEQUENT EVENTS
+
+ 
+
+The Company has issued 36,500 shares to German investors for $1.50 per share since June 30, 2013.
+
+ 
+
+The Company has entered into a consulting agreement with Jack Burkman and Associates. Burkman received 2,000,000
+
+shares of Portus Holdings Inc. common stock from its
+
+ parent company, Portus, Inc. as compensation. No written agreement exists between Portus Inc and the Company relative to the shares.
+
+ The Company will record the transaction on the books of Portus Holdings Inc at the date of the transaction.
+
+ 
+
+ 
+
+65
+
+PORTUS HOLDINGS INC.
+
+ 
+
+10,000,000 Shares of Common Stock
+
+PROSPECTUS
+
+ 
+
+ 
+
+ 
+
+YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
+
+ 
+
+Until _____________, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
+
+ 
+
+The Date of This Prospectus is 
+
+ 
+
+_________________
+
+, 2013
+
+ 
+
+PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
+
+ 
+
+Item 13. Other Expenses of Issuance and Distribution
+
+ 
+
+The following table sets forth costs and expenses payable by Portus Holdings Inc. in connection with the sale of common shares being registered. All amounts except the SEC filing are estimates.
+
+ 
+
+SEC registration fee
+
+ 
+
+$
+
+4,092
+
+ 
+
+Accounting and Audit fees and expenses
+
+ 
+
+$
+
+10,000.00
+
+ 
+
+Legal fees and expenses
+
+ 
+
+$
+
+50,000.00
+
+ 
+
+Miscellaneous
+
+ 
+
+$
+
+2,500.00
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+Total
+
+ 
+
+$
+
+66,592
+
+ 
+
+ 
+
+The foregoing are estimates only.
+
+ 
+
+Item 14. Indemnification of Directors and Officers
+
+ 
+
+Our Bylaws and Articles of Incorporation provide that we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether criminal, civil, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he or she is or was a director or officer of the Company, or, while an officer or director of the Company, is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including attorneys fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to our best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she believed to be in or not opposed to our best interests and, with respect to any criminal action or proceeding, that he or she had reasonable cause to believe that his or her conduct was unlawful.
+
+66
+
+Our Bylaws allow us to purchase and maintain insurance for any person who is or was a director or officer of the Company, or is or was serving at request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not he or she is indemnified against such liability or expense pursuant to the indemnification provisions of our Bylaws and whether or not the Company would have the power or would be required to indemnify him or her against such liabilities pursuant to such indemnification provisions or Nevada or other applicable law.
+
+Our Bylaws also provide that to the same extent as it may do for any officer or director, the Company may indemnify and advance expenses to any person who is not and was not a director or officer of the Company, but who is or was an employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise.
+
+ 
+
+Nevada Law
+
+We are incorporated pursuant to the laws of the State of Nevada. Section 78.7502 of the Nevada Revised Statues provides that a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation partnership, joint venture, trust or other enterprise, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interest of the corporation, and that, with respect to any criminal action or proceeding, he or she had reasonably cause to believe that his or her conduct was unlawful.
+
+Section 78.7502 of the Nevada Revised Statutes, also, provides a Nevada corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys fees actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
+
+Section 78.7502 of the Nevada Revised Statues provides that discretionary indemnification pursuant to that Section 78.7502, unless ordered by a court or advanced pursuant to Subsection 2 of Section 78.751 of the Nevada Revised Statutes, by the corporation may be only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made by:
+
+67
+
+ 
+
+-
+
+By the stockholders;
+
+ 
+
+ 
+
+-
+
+By the board of directors by majority vote of a quorum consisting of directors who were not parties
+
+to the action, suit or proceeding;
+
+ 
+
+ 
+
+-
+
+If a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or
+
+ 
+
+ 
+
+-
+
+If a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained
+
+,
+
+ by independent legal counsel in a written opinion.
+
+ 
+
+The Articles of Incorporation, the Bylaws or an agreement made by a corporation may provide that the expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred an in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law.
+
+ 
+
+The indemnification and advancement of expenses authorized in or ordered by a court pursuant to Nevada Revised Statutes Section 78.751:
+
+ 
+
+ 
+
+ 
+
+Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the articles of incorporation or any bylaw, agreement, vote or stockholders or disinterested directors or otherwise, for either an action in his or her official capacity or an action in another capacity while holding his or her office, except that indemnification, unless ordered by a court pursuant to Section 78.7502 of the Nevada Revised Statutes or for the advancement of expenses made pursuant to Subsection 2 of the Section 78.751 of the Nevada Revised Statutes, may not be made to or on behalf of any director or officer if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action; and
+
+ 
+
+ 
+
+ 
+
+Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person.
+
+ 
+
+Insofar as indemnification for liabilities arising pursuant to the Securities Act of 1933, as amended (the Securities Act ), may be permitted to directors, officers and controlling persons of the Company pursuant to Nevada law, or otherwise, we have been advised the opinion of Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than payment by us for expenses incurred or paid by a director, officer or controlling person of the Company in successful defense of any action, suit, or proceeding) is asserted by director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction, the question of whether such indemnification by it is against public policy in the Securities Act and will be governed by the final adjudication of such issue.
+
+ 
+
+68
+
+ 
+
+Item 15. Recent Sales of Unregistered Securities 
+
+ 
+
+We were incorporated in the State of Nevada on March 31, 2011. In connection with incorporation, we issued 112,500,000 shares of common stock to our founder, Michael Burns for a total of $3,750 in cash. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act and were issued as founders shares. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a public offering as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a public offering. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
+
+ 
+
+On June 5, 2012, the Company entered into a stock purchase agreement with Portus Inc., a Nevada corporation, whereby Portus acquired 112,500,000, consisting of all of the Company s issued and outstanding shares of common stock for a purchase price for the common stock was $22,500. Portus Inc. is an entity in which George Dale Murray, our President, Chief Executive Officer, Chief Financial Officer and Director, is the sole stockholder. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a public offering as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a public offering. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
+
+ 
+
+From August 2012 to April 2013, we sold through a private offering a total of 500,500 shares of common stock to 16 investors, at a price per share of $1.00 for an aggregate offering price of $500,500.
+
+ These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act since the issuance shares by us did not involve a public offering. The offering was not a public offering as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a public offering. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.
+
+ 
+
+In the period from April 1, 2013 through
+
+September 30, 2013
+
+, the Company sold
+
+80,756
+
+ shares of common stock to seven investors through a private offering for aggregate proceeds to the company of $
+
+121,134
+
+. The above securities were not registered under the Securities Act. These securities qualified for exemption under Regulation S promulgated under the Securities Act
+
+ because the offer or sale occurred in an offshore transaction and no directed selling efforts were made in the United States by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing.
+
+69
+
+We made this determination based on the representations of the investors, which included, in pertinent part, that such shareholders were not a U.S. person as that term is defined in Rule 902(k) of Regulation S under the Act, and that such shareholders were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that the shareholders understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption there
+
+ 
+
+from.
+
+ Additionally, no offering of the securities has or will be made to a US person for a period of six months from the closing date of the offering. Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Regulation S of the Securities Act.
+
+ 
+
+On June 21, 201
+
+3
+
+and on September 17, 2013
+
+,
+
+Portus Inc
+
+transferred 250,000
+
+ shares
+
+ and 200,000 shares
+
+of its
+
+PORTUS HOLDINGS INC.
+
+common stock to Clay Edmonds, the Company s Executive Vice President, as a bonus for services rendered. The shares were in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act. Our reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree and us.
+
+ 
+
+Item 16. Exhibits and Financial Statement Schedules
+
+ 
+
+The following exhibits are filed with this Registration Statement on Form S-1. 
+
+ 
+
+Exhibit
+
+No.
+
+ 
+
+ 
+
+Description
+
+ 
+
+ 
+
+ 
+
+3.1
+
+(1) 
+
+Articles of Incorporation
+
+3.2
+
+(2)
+
+Amended Articles of Incorporation
+
+3.4
+
+(1)
+
+Bylaws
+
+4.1
+
+(1)
+
+Specimen Stock Certificate
+
+5.1
+
+ 
+
+Opinion of
+
+Szaferman Lakind Blumstein & Blader, PC
+
+10.1
+
+ (3)
+
+Stock Purchase Agreement, dated June 5, 2012, by and among Solido Ventures, Inc, Portus Inc, and Michael Burns.
+
+10.2
+
+(4)
+
+Share Exchange Agreement, dated October 12, 2012, by and among
+
+PORTUS HOLDINGS INC.
+
+, Portus
+
+Acquisition
+
+ Corp., SureQuest
+
+Systems
+
+ Inc.,
+
+and SureQuest Systems Inc.
+
+10.3
+
+ (5)
+
+Software as a Service Licensing Agreement, dated February 8, 2013, by and between
+
+PORTUS HOLDINGS INC.
+
+ and SureQuest Systems, Inc.
+
+10.4
+
+ 
+
+Florida Lease Agreement
+
+10.5
+
+ 
+
+Executive Vice President Employment Agreement
+
+23.1
+
+ 
+
+Consent of Malone Bailey
+
+2
+
+3.2
+
+ 
+
+Consent of
+
+Szaferman Lakind Blumstein & Blader, PC
+
+ (included in Exhibit 5.1, hereto)
+
+70
+
+ 
+
+ 
+
+ 
+
+101.INS*
+
+ 
+
+XBRL Instance Document
+
+ 
+
+ 
+
+ 
+
+101.SCH*
+
+ 
+
+XBRL Taxonomy Schema
+
+ 
+
+ 
+
+ 
+
+101.CAL*
+
+ 
+
+XBRL Taxonomy Calculation Linkbase
+
+ 
+
+ 
+
+ 
+
+101.DEF*
+
+ 
+
+XBRL Taxonomy Definition Linkbase
+
+ 
+
+ 
+
+ 
+
+101.LAB*
+
+ 
+
+XBRL Taxonomy Label Linkbase
+
+ 
+
+ 
+
+ 
+
+101.PRE*
+
+ 
+
+XBRL Taxonomy Presentation Linkbase
+
+ 
+
+ 
+
+(1)
+
+Previously filed as an exhibit to the Company s Form 10-12-G filed with the SEC May 16, 2011.
+
+ 
+
+(2)
+
+Previously filed as an exhibit to the Company s Form 8-K filed with the SEC on June 18, 2012.
+
+ 
+
+(3)
+
+Previously filed as an exhibit to the Company s Form 8-K filed with the SEC on June 6, 2012.
+
+ 
+
+(4)
+
+Previously filed as an exhibit to the Company s Form 8-K filed with the SEC on October 16, 2012.
+
+ 
+
+(5)
+
+Previously filed as an exhibit to the Company s Registration Statement on Form S-1 filed with the SEC on July 2, 2013.
+
+ 
+
+*XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
+
+ 
+
+Item 17. Undertakings
+
+ 
+
+(A) The undersigned Registrant hereby undertakes:
+
+ 
+
+(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
+
+i. To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
+
+ 
+
+ii. To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
+
+ 
+
+iii. To include any material information with respect to the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001518238_montalvo_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001518238_montalvo_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bb1c01818d21a82b1a7f9ac9198bac2479c7f749
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001518238_montalvo_legal_matters.txt
@@ -0,0 +1 @@
+Outstanding Equity Awards at Fiscal Year-End The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of March 31, 2013: Name and Principal Position Number of Securities Underlying Unexercised Options Exercisable Number of Securities Underlying Unexercised Options Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock that Have Not Vested Market Value of Shares or Units of Stock that Have Not Vested Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested George Frederick Meyer, former — — — — — — — — Alex Viecco, CEO — — — — — — — — Carlos Gonzalez Rivera, COO, CFO — — — — — — — — Sergio Gonzalez Rivera, President — — — — — — — — Daniel Cahill, Director of Sales — — — — — — — — EMPLOYMENT AGREEMENTS Employment with the President On January 1, 2012, the Company and Carlos Gonzalez ("CG"), entered into an Employment Agreement (the "Employment Agreement"), to employ CG as the Company s President. The initial term of employment under the agreement is from January 1, 2012 (the "Effective Date") until December 31, 2014, unless sooner terminated in accordance with the terms of the Employment Agreement. Pursuant to the Employment Agreement, CG is entitled to a salary of $72,000 per annum for the period beginning on the Effective Date through December 31, 2012. The salary of CG was extended through December 31, 2013. Employment with the Chief Operating Officer On January 1, 2012, the Company and Sergio Gonzalez ("SG"), entered into an Employment Agreement (the "Employment Agreement"), to employ CG as the Company s Chief Operating Officer. The initial term of employment under the agreement is from January 1, 2012 (the "Effective Date") until December 31, 2014, unless sooner terminated in accordance with the terms of the Employment Agreement. Pursuant to the Employment Agreement, SG is entitled to a salary of $72,000 per annum for the period beginning on the Effective Date through December 31, 2012. The salary of SG was extended through December 31, 2013. Employment with the Chief Executive Officer On January 1, 2012, the Company and Alex Viecco ("AV"), entered into an Employment Agreement (the "Employment Agreement"), to employ CG as the Company s Chief Executive Officer. The initial term of employment under the agreement is from January 1, 2012 (the "Effective Date") until December 31, 2014, unless sooner terminated in accordance with the terms of the Employment Agreement. Pursuant to the Employment Agreement, AV is entitled to a salary of $72,000 per annum for the period beginning on the Effective Date through December 31, 2012. The salary of AV was extended through December 31, 2013. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of October 31, 2013 (except as otherwise indicated), regarding beneficial ownership of our Common Stock by (i) each person who is known by us to own beneficially more than 5% of the Common Stock, (ii) each of our directors and nominees for director, (iii) each of the Named Executive Officers (as defined below) and (iv) all our directors and executive officers as a group. As used in the table below, the term beneficial ownership with respect to a security consists of sole or shared voting power, including the power to vote or direct the vote, and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the 60 days immediately following October 31, 2013. As of October 31, 2013, we had 68,015,012 shares of Common Stock outstanding. Name and Address of Beneficial Owner (*) Beneficial Ownership (a) Percent of Class (b) Sergio Gonzalez Rivera 8,037,595 11.8 % Daniel Cahill (c) 3,161,342 4.7 % Carlos Gonzalez Rivera 8,037,595 11.8 % Alex Viecco 8,037,595 11.8 % Charles Duff (d) 6,228,057 9.2 % Ronald Shoemaker 6,237,295 9.2 % All Directors and Executive Officers as a group 27,274,127 40.1 * The address for all officers, directors and beneficial owners is 5301 N. Commerce Avenue, Suite F, Moorpark, California 93021. (a) Security ownership is direct unless indicated otherwise. Security ownership information for beneficial owners is taken from statements filed with the Securities and Exchange Commission pursuant to Sections 13(d), 13(g) and 16(a) and/or information made known to the Company. (b) Based on 68,015,012 shares of our Common Stock outstanding as of September 16, 2013. (c) Includes 1,157,741 shares held by DPC Consultants, LLC. Daniel Cahill holds voting and dispositive power over DPC Consultants, LLC. (d) Includes 1,440,405 shares held by Point Loma Capital, Inc. and 1,402,503 shares held by CMFD Group, LLC. Charles Duff holds voting and dispositive power over Point Loma Capital, Inc. and CMFD Group, LLC. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION Currently, there are no contemplated transactions that the Company may enter into with our officers, directors or affiliates. If any such transactions are contemplated we will file such disclosure in a timely manner with the Commission on the proper form making such transaction available for the public to view. The Company has no formal written employment agreement or other contracts with our current director and officer and director and there is no assurance that the services to be provided by them will be available for any specific length of time in the future. The amounts of compensation and other terms of any full time employment arrangements would be determined, if and when, such arrangements become necessary. LEGAL MATTERS The validity of the Common Stock offered in this Prospectus has been passed upon for us by Kane Kessler, P.C., 1350 Avenue of the Americas, New York, New York 10019.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001522211_greenpower_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001522211_greenpower_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bc4de3505bb163da346f19371530596dfb5ed456
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001522211_greenpower_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Cassidy & Associates, Beverly Hills, California, has given its opinion as attorneys-at-law regarding the validity of the issuance of the Shares offered by the Company. A member of the law firm of Cassidy & Associates is an officer and director of Tiber Creek and may be considered the beneficial owner of the 250,000 shares of common stock of the Company owned by Tiber Creek.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001524931_chuy-s_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001524931_chuy-s_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1000bf83feff8cc8f512f446b7362629fcc289b5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001524931_chuy-s_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Jones Day, Dallas, Texas, will pass upon the validity of our shares of common stock offered by this prospectus. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001525773_intelsat_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001525773_intelsat_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7664c3d377bdf41115fd11755d2a081437473cba
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001525773_intelsat_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS We are being represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, with respect to legal matters of United States federal securities and New York State law. The underwriters are being represented by Latham & Watkins LLP, New York, New York, with respect to legal matters of United States federal securities and New York State law. The validity of the shares offered hereby and certain legal matters as to Luxembourg law will be passed upon for us by Elvinger, Hoss & Prussen and for the underwriters by Arendt & Medernach.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001526160_fleetmatic_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001526160_fleetmatic_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..01ac59eeb643b5e2c3b0ac38dd86b39a41e1092c
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001526160_fleetmatic_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to U.S. federal law in connection with this offering will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters with respect to Irish law in connection with the validity of the shares being offered by this prospectus and other legal matters will be passed upon for us by Maples and Calder, Dublin, Ireland. Certain legal matters with respect to U.S. federal law in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, Menlo Park, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001526796_ignite_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001526796_ignite_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..675e7412cf9176312151dfaccf72a5ed046591d1
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001526796_ignite_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS King & Spalding LLP, Atlanta, Georgia will pass upon the validity of the common stock offered hereby on our behalf. The underwriters are represented by Cravath, Swaine & Moore LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001528098_saleen_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001528098_saleen_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4645e4ec4b49afca6ea29ec74329da4d89a685e8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001528098_saleen_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Stubbs Alderton & Markiles, LLP will pass upon the validity of the common stock offered by this prospectus for us.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001532961_nv5_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001532961_nv5_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2c22ef916759b83744e4779adf71161e04c2f49c
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001532961_nv5_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered by this prospectus and other legal matters will be passed upon for us by DLA Piper LLP (US), Phoenix, Arizona. The underwriters have been represented by Loeb & Loeb LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001533454_northern_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001533454_northern_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..31c2f7b7d1ead75f0030af26bd33403cd0ac28d7
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001533454_northern_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common units offered by this prospectus and certain other legal matters will be passed upon for us by Vinson & Elkins L.L.P., Houston, Texas. The underwriters are being represented by Baker Botts L.L.P., Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001533526_global_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001533526_global_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d60cf6798fd63206a3194ac52ccfbcbaa0c04165
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001533526_global_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Unless otherwise specified in the prospectus supplement accompanying this prospectus, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, will provide opinions regarding the authorization and validity of the common stock offered by this prospectus for us and the selling stockholder, and the underwriters will be represented by Cravath, Swaine & Moore LLP, New York, New York. Paul, Weiss, Rifkind, Wharton & Garrison LLP has represented KPS and its related parties from time to time in various matters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001534101_xtreme_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001534101_xtreme_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..564afdf2d08bae2101b4c6ec82cc79b5d68f8ad4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001534101_xtreme_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Cassidy & Associates, Beverly Hills, California ( Cassidy & Associates ), has given its opinion as attorneys-at-law regarding the validity
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001534271_logicnow_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001534271_logicnow_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e07ee14656e054b7abea1ad95ddadbb1c15f604d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001534271_logicnow_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters Willkie Farr & Gallagher LLP, New York, New York, will pass on certain matters related to the common shares offered by this prospectus for us, with respect to United States laws. Arendt & Medernach, Luxembourg will pass on the validity of the common shares offered by this prospectus for us with respect to the laws of the Grand Duchy of Luxembourg. The underwriters have been represented in connection with this offering with respect to United States laws by Cravath, Swaine & Moore LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001534317_national_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001534317_national_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1cfec1f46b897184630448c985effa4d30afdc51
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001534317_national_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters The validity of our ordinary shares and the ADSs and certain other legal matters in connection with the offering will be passed upon for us, as to Jamaican law, by Patterson Mair Hamilton, Kingston, Jamaica, and, as to U.S. federal and New York state law, by Akerman Senterfitt LLP, New York, New York. Certain matters of Jamaican law will be passed upon for the underwriters by Myers, Fletcher & Gordon, Kingston, Jamaica and, as to U.S. federal and New York state law, by Simpson Thacher & Bartlett LLP, New York, New York. Myers, Fletcher & Gordon performs legal services for us from time to time.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001534727_applied_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001534727_applied_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e0092eb9b7a5ca10c1a65187b6f061c1e0bd7300
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001534727_applied_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered in this prospectus is being passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles, California. Morrison & Foerster LLP, San Francisco, California, is acting as counsel for the underwriter in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001535148_iq_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001535148_iq_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a67ac9701af48a0b8e45ce8190df00b1b7d3e870
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001535148_iq_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Shares will be passed upon for the Sponsor by Katten Muchin Rosenman LLP, New York, New York, who, as special US tax counsel to the Trust, will also render an opinion regarding the material US federal income tax consequences relating to the Shares.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001539894_atlas_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001539894_atlas_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7a037c678b635ee705ce0323b1d3bfe236f94b41
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001539894_atlas_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the ordinary shares offered hereby will be passed upon for us by Conyers Dill & Pearman (Cayman) Limited. DLA Piper LLP (US) is acting as United States securities counsel to Atlas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001542597_green_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001542597_green_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..387a9943b6386bde7acb6b3b7d6ff2055618fcc9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001542597_green_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters The validity of the shares of common stock offered by this prospectus will be passed upon for us by Latham & Watkins LLP, Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001548678_focus_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001548678_focus_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3e0e01e48177358679e4f729c4128edb7ebd08a2
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001548678_focus_legal_matters.txt
@@ -0,0 +1 @@
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of February 11, 2013, certain information concerning beneficial ownership of shares of our common stock with respect to (i) each person known to us to own 5% or more of the outstanding shares of our common stock, (ii) each director of our company, (iii) the executive officers of our company, and (iv) all directors and officers of our company as a group: Number of Shares Beneficially Percentage of Name and Address (1) Owned (2) Common Stock TBK327 Partners, LLC (3) 38,730,000 (5) 76.2 % Christopher Ferguson (3)(4) 38,730,000 (5) 76.2 % Theresa Carlise (4) -0- — Michael Paleschi (4) -0- — Jeffrey A. Smock (4) -0- — Michael D. Traina 12,490,000 32.6 % Atalaya Special Opportunities Fund IV (Tranche B) (7) 5,227,841 (6) 11.9 % All Officers and Directors as a group (4 persons) 38,730,000 76.2 % (1) The address for the above identified persons is c/o Focus Venture Partners, Inc., 969 Postal Road, Suite 100, Allentown, Pennsylvania 18109. (2) Applicable percentage ownership is based on 38,337,500 shares of common stock outstanding as of February 5, 2013, together with securities exercisable or convertible into shares of common stock within 60 days of February 5, 2013 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of February 5, 2013, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (3) Christopher Ferguson, together with his wife, are the sole owners and the managing members of TBK327 Partners LLC and they collectively have voting and dispositive control over the securities held by TBK327 Partners LLC. (4) Executive Officer and/or Director of our company. (5) Represents 24,980,000 shares of common stock and 13,750,000 shares of common stock issuable upon conversion of Series A Preferred Stock. (6) Represents 5,227,841 shares of common stock issuable upon exercise of a common stock purchase warrant dated December 3, 2012 which is exercisable on a cash or cashless basis at an exercise price of $0.0001. (7) Ivan Zinn exercises economic and voting power over the shares held by Atalaya. Their address is c/o Atalaya Administrative LLC, 780 Third Avenue, 27 th Floor, New York, New York 10017. DESCRIPTION OF SECURITIES Common Stock The Company is presently authorized to issue up to 100,000,000 shares of common stock, $.0001 par value per share, of which 38,337,500 shares of common stock are presently issued and outstanding. The holders of the Company s common stock are entitled to receive dividends equally when, as and if declared by the Board of Directors, out of funds legally available therefor. The holders of the Company s common stock have sole voting rights, one vote for each share held of record, and are entitled upon liquidation of the Company to share ratably in the net assets of the Company available for distribution after payment of all obligations of the Company and after provision has been made with respect to each class of stock, if any, having preference over the common stock, currently including the Company s preferred stock. Shares of the Company's common stock do not have cumulative voting rights and vote as a class on all matters requiring stockholder approval. Therefore, the holders of a majority of the shares of the Company s common stock may elect all of the directors of the Company, control its affairs and day-to-day operations. The shares of common stock are not redeemable and have no preemptive or similar rights. All outstanding shares of the Company's common stock are validly issued, fully paid for and non-assessable. - 53 - Preferred Stock The Company s Articles of Incorporation authorize our Board of Directors to provide for the issuance of up to 10,000,000 shares of preferred stock in one or more series, subject to any limitations prescribed by the laws of the State of Nevada, but without further shareholder action. Our Board of Directors may establish the number of shares to be included in each such series, fix the designations, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof, and increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding) without any further vote or action by the stockholders. Our Board of Directors may authorize and issue preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the Company s common stock. The issuance of preferred stock, for example in connection with a shareholder right's plan, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding stock. Our Board of Directors have authorized and issued 100,000 shares of the Company s Series A Preferred Stock. The Series A Preferred Stock has a stated value of $11 per share and is convertible into our common stock at a conversion price of $0.08 per share representing 13,750,000 shares of common stock. Furthermore, the Series A Preferred Stock votes on an as-converted basis. The Series A Preferred Stock does not carry preferential liquidation rights. The Company, in its sole discretion my redeem the Series A Preferred Stock by paying the holder 110% of the Stated Value. Warrants On July 23, 2012, the Company entered into an amendment of that certain Corporate Advisory Agreement dated January 1, 2012 with HFP Capital Markets LLC ("HFP") whereby the Company issued HFP a common stock purchase warrant to acquire 2,870,000 shares of common stock at a price per share of $0.08 for a period of five years. The warrants can be cancelled by the Company if financing as a result of this Agreement, net of fees, is not in excess of $1,150,000. On December 3, 2012, the Company entered into a Credit Agreement with Atalaya Special Opportunities Fund IV (Tranche B), as lender and Atalaya Administrative LLC, as agent ("Atalaya"). Under the terms of the Credit Agreement, Atalaya agreed, among other things and subject to certain restrictions, to provide the Company with a revolving loan commitment of $8,500,000 and a term loan commitment of $8,000,000. The Company pursuant to the terms of the Credit Agreement issued to Atalaya a common stock purchase warrant ("Warrant ) to purchase 5,277,841 shares of common stock of the Company. The exercise price per share is $0.0001 and the holder is entitled to exercise the Warrant on a cashless basis. The Warrant expires on December 3, 2022. The Warrant is subject to anti-dilution adjustments if certain dilutive transactions occur, unless specifically exempted by the Warrant, such as issuance of common stock, options, warrants or similar securities or a decrease in the subscription, exercise, conversion or exchange price of these securities. In addition, commencing on the earliest of (a) December 3, 2016 (b) the acceleration of obligations under the Credit Agreement (c) an event of default (d) a value event such as a merger, disposition, IPO other than a qualified IPO or change in control and ending the earlier of (a) a qualified IPO or (b) the expiration of the warrant, Atalaya may put the warrant on 60 days notice and the Company is obligated to repurchase the warrant for cash. The value of the put price is determined by the greater of (a) the Equity Value, as defined by the Warrant, per common share of the Company (b) the Put Formula Value, as defined by the Warrant, per common share of the Company. EXPERTS Our consolidated financial statements at December 31, 2011 and 2010 and for the years then ended have been audited by De Joya Griffith & Company LLC and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report. Further, the financial statements at December 31, 2011 and for the years then ended for MDT Labor, LLC (d/b/a MDT Technical) have been audited by G3 of PA LLC and are included herein in reliance upon the authority of such firm as an expert in accounting and auditing in giving such report. LEGAL MATTERS The validity of the shares of common stock offered through this prospectus will be passed on by Fleming PLLC, 49 Front Street, Suite #206, Rockville Centre, New York 11570. Stephen M. Fleming, the managing member, is a shareholder of our company and received 430,000 shares of common stock as compensation from Focus. - 54 -
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001549065_taxus_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001549065_taxus_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e95d2a97b62b78265941c710c352965f34e5b711
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001549065_taxus_legal_matters.txt
@@ -0,0 +1 @@
+controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court s decision. STOCK TRANSFER AGENT Our transfer agent is Action Stock Transfer Corp, located at 2469 E. Fort Union Blvd, Ste 214, Salt Lake City, UT 84121. Phone number: 801-274-1088. Action Stock Transfer Corp is registered with SEC. LEGAL MATTERS The validity of the securities offered hereby has been passed upon for us by Bernard & Yam, LLP, New York, New York. Shanxi Yingzheng Law Firm, a law firm registered and located in Yuci, Shanxi Province, China, has provided an opinion regarding the validity of our Chinese subsidiary and the contractual arrangements between Hongshan Energy, Hongshan Pharmaceuticals and Renji Pharmaceuticals.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001549941_bleach_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001549941_bleach_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a80f3c7e8353daa3f86c378189a7ee3039233351
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001549941_bleach_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered in this prospectus is being passed upon for us by Akerman Senterfitt LLP. Moritt Hock & Hamroff LLP is acting as counsel for the underwriter in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001550536_privileged_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001550536_privileged_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..145a1d4e24d3a9f2ac80d03aff3c8b070ab95a4c
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001550536_privileged_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of our Common Stock offered hereby will be passed upon for us by Durham Jones & Pinegar, P.C., Salt Lake City, Utah.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001550935_fronteo_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001550935_fronteo_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4a6563122665a03e8214c48b24d4180ad3290a31
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001550935_fronteo_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered hereby has been passed upon for us by DLA Piper Tokyo Partnership, Tokyo, Japan. Certain legal matters in connection with this offering will be passed upon for us by DLA Piper LLP (US), Boston, Massachusetts. In addition, legal matters relating to Japan in connection with this offering will be passed upon for us by DLA Piper Tokyo Partnership, Tokyo, Japan. Reed Smith LLP, New York, New York is acting as United States counsel to the underwriters in this offering. Anderson Mori & Tomotsune, Tokyo, Japan, is acting as Japanese counsel to the underwriters in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001551060_qunar_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001551060_qunar_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6bbde2665f35ba3d85daeac46c0702f2f8352389
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001551060_qunar_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters as to the United States federal and New York law in connection with this offering will be passed upon for us by Davis Polk & Wardwell LLP. Certain legal matters as to the United States federal and New York law in connection with this offering will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP. The validity of the Class B ordinary shares represented by the ADSs offered in this offering and certain other legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder. Legal matters as to PRC law will be passed upon for us by TransAsia Lawyers and for the underwriters by Haiwen & Partners. Davis Polk & Wardwell LLP may rely upon Maples and Calder with respect to matters governed by Cayman Islands law and TransAsia Lawyers with respect to matters governed by PRC law. Simpson Thacher & Bartlett LLP may rely upon Haiwen & Partners with respect to matters governed by PRC law.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001553404_pacific_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001553404_pacific_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bf86bb7a835d75e20c9d6856c3945de70d179bc3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001553404_pacific_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters Macdonald Tuskey, of Suite 400, 570 Granville Street, Vancouver, BC, V6C 3P1 has provided an opinion on the validity of the shares of our common stock being offered pursuant to this prospectus.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001553588_sfx_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001553588_sfx_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6481453e4092491c48a8235b8486b132435e935f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001553588_sfx_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters The validity of the common stock we are offering will be passed upon by Reed Smith LLP, New York, New York for the company. The underwriters have been represented by White & Case LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001554225_maryjane_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001554225_maryjane_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e3521da6f86c775520b262739deca293cce34413
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001554225_maryjane_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555012_np_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555012_np_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555012_np_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555013_np-losee_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555013_np-losee_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555013_np-losee_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555014_np-red_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555014_np-red_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555014_np-red_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555032_np-palace_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555032_np-palace_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555032_np-palace_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555309_np_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555309_np_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555309_np_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555365_whitewave_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555365_whitewave_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ade1732026fffbcd7f148351f1b18f87137b97a5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555365_whitewave_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters The validity of the shares of common stock offered hereby is being passed upon for us by Wilmer Cutler Pickering Hale and Dorr LLP. Cravath, Swaine & Moore LLP is acting as counsel for the underwriters in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001555492_fairway_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001555492_fairway_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4175905bedafc9732ba36c96977c1395ae07ac9f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001555492_fairway_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A common stock offered by this prospectus will be passed upon for us by Fulbright & Jaworski L.L.P., New York, New York. The underwriters have been represented by Shearman & Sterling LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001556169_anchor_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001556169_anchor_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6786c61a26816cf7ed6f893ae414707c68cf8cbc
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001556169_anchor_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares offered hereby is being passed upon for the Company by Joel Bernstein Esq., Miami, Florida.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001556377_life-stem_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001556377_life-stem_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e16f2c83393152b278cdc6a2807bf5339f7cb237
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001556377_life-stem_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS David Lubin & Associates, PLLC has opined on the validity of the shares of common stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001558465_petrogress_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001558465_petrogress_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7d20bbfb1b1808966a833edd00800210d83e4d15
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001558465_petrogress_legal_matters.txt
@@ -0,0 +1 @@
+legal matters with respect to the validity of the shares of common stock offered hereby will be passed upon for us by Martin & Pritchett, P.A., Attorneys at Law, Huntersville, North Carolina.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001559001_arrow_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001559001_arrow_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6a00792575aca43e8e8d596b4add88f2190661c6
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001559001_arrow_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS WiseLaw, P.C., 9901 IH-10 West, Suite 800, San Antonio, Texas 78230, has passed upon the validity of the shares being offered and certain other legal matters and is representing us in connection with this offering. Mr. Wise is not a shareholder of the Company. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1, of which this prospectus is a part, with the U.S. Securities and Exchange Commission. Upon completion of the registration, we will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith, will file all requisite reports, such as Forms 10-K, 10-Q and 8-K, proxy statements and information statements under Section 14 of the Exchange Act and other information with the Commission. Such reports, proxy statements, this registration statement and other information, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street NE, Washington, D.C. 20549. Copies of all materials may be obtained from the Public Reference Section of the Commission's Washington, D.C. office at prescribed rates. You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. You may request, and we will voluntarily provide, a copy of our filings, including our annual report, which will contain audited financial statements, at no cost to you, by writing or telephoning us at the following address and telephone number: Arrow Cars International Inc., Calle del Escritor Herrera Santaolla No. 2, Malaga, Spain 29140; Tel.: 0034 952623297
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001559954_maniatv_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001559954_maniatv_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..092fd2688302b2fa81f768e9e30d7d6c36e71376
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001559954_maniatv_legal_matters.txt
@@ -0,0 +1,2717 @@
+________________________
+ 
+
+ Subject to Completion, Dated May 9 , 2013.
+ 
+
+ 2
+ 
+
+ 
+
+ 
+
+ TABLE OF CONTENTS
+ 
+
+ 
+ Page 
+
+ 
+
+ PROSPECTUS SUMMARY
+ 5
+
+ Who We Are 
+ 5
+
+ Our Strategy 
+ 6
+
+ Risks Related to Our Business 
+ 7
+
+ Corporate Information 
+ 8
+
+ The Offering
+ 8
+
+ 
+
+ RISK FACTORS
+ 11
+
+ Risks Related to Our Business and Our Industry
+ 11
+
+ Risks Related to Our Company, this Offering and Ownership of 
+ Our Common Stock 
+ 19
+
+ Risks Relating to the JOBS Act
+ 25
+
+ 
+
+ USE OF PROCEEDS 
+ 27
+
+ 
+
+ DETERMINATION OF OFFERING PRICE 
+ 28
+
+ 
+
+ DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES 
+ 28
+
+ 
+
+ PLAN OF DISTRIBUTION 
+ 29
+
+ 
+
+ LEGAL PROCEEDINGS 
+ 30
+
+ 
+
+ DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL 
+
+ PERSONS 
+ 31
+
+ Background Information about Our Officers and Directors 
+ 31
+
+ 
+
+ EXECUTIVE COMPENSATION 
+ 33
+
+ Summary Compensation
+ 33
+
+ Directors Compensation
+ 34
+
+ 2010 Stock Incentive Plan
+ 34
+
+ Limitation on Liability and Indemnification Matters
+ 36
+
+ 
+
+ PRINCIPAL STOCKHOLDERS
+ 38
+
+ Future Sales by Existing Stockholders 
+ 39
+
+ 
+
+ DESCRIPTION OF SECURITIES 
+ 39
+
+ Authorized Capitalization
+ 39
+
+ Common Stock 
+ 39
+
+ Preferred Stock 
+ 41
+
+ Options 
+ 41
+
+ Convertible Note 
+ 41
+
+ Voting Agreement 
+ 42
+
+ Anti-Takeover Provisions 
+ 42
+
+ Shares Eligible for Future Sale
+ 43
+
+ Rule 144
+ 43
+
+ 
+
+ 
+
+ 
+
+ 3
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ DESCRIPTION OF BUSINESS 
+ 44
+
+ Introduction 
+ 44
+
+ Our Market Opportunity 
+ 46
+
+ Our Strategy 
+ 48
+
+ Competition 
+ 50
+
+ Privacy
+ 51
+
+ Intellectual Property
+ 52
+
+ Seasonality
+ 53
+
+ Corporate Information
+ 53
+
+ Employees
+ 53
+
+ 
+
+ MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL 
+
+ CONDITION AND RESULTS OF OPERATIONS 
+ 54
+
+ Overview
+ 54
+
+ Plan of Operations
+ 54
+
+ How We Make Money
+ 55
+
+ Key Performance Indicators
+ 55
+
+ Basis of Presentation
+ 56
+
+ Results of Operations for the year ended December 31, 2012 as
+
+ compared to the year ended December 31, 2011 
+ 57
+
+ Results of Operations for the year ended December 31, 2011 
+
+ as compared to the year ended December 31, 2010 
+ 58
+
+ Liquidity and Capital Resources 
+ 59
+
+ Future Liquidity and Cash Requirements 
+ 59
+
+ Critical Accounting Policies and Estimates 
+ 60
+
+ Use of Estimates 
+ 60
+
+ Allowance for Doubtful Accounts
+ 60
+
+ Revenue Recognition
+ 60
+
+ Recent Accounting Pronouncements 
+ 60
+
+ 
+
+ DESCRIPTION OF PROPERTY 
+ 61
+
+ 
+
+ CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 
+ 61
+
+ 
+
+ MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 
+
+ MATTERS 
+ 61
+
+ Reports 
+ 63
+
+ Stock Transfer Agent 
+ 63
+
+ 
+
+ SUBSCRIPTION AGREEMENT AND PROCEDURES 
+ 63
+
+ 
+
+ EXPERTS AND LEGAL COUNSEL 
+ 63
+
+ 
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION 
+ 64
+
+ 
+
+ FINANCIAL STATEMENTS 
+ F-1
+
+ 
+
+ DEALER PROSPECTUS DELIVERY OBLIGATION
+ 
+
+ Until ____________________, (90 days after the effective date of this prospectus) all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
+ 
+
+ 
+
+ 4
+ 
+
+ 
+
+ 
+
+ 
+
+ PROSPECTUS SUMMARY
+ 
+
+ This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the sections entitled Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and accompanying notes before making an investment decision. 
+ 
+
+ maniaTV Inc. 
+ 
+
+ Who We Are
+ 
+
+ We were founded in 2009 by Drew Massey to build a leading pop-culture Internet, mobile and app-based video entertainment destination. Mr. Massey has over 20 years of experience in the media and entertainment industries and has extensive experience working with leading advertising agencies and brands, producing online content, building media businesses, and developing relationships with top talent agencies and celebrities. We are currently in operations with the website www.maniaTV.com which has entertainment content and generates pageviews and advertising revenue. We intend to leverage our founder s experience in Internet television, brand advertising, and premium celebrity shows, to build a leading network of original pop-culture Internet TV shows that will be available through our maniaTV jukebox . 
+ 
+
+ Mr. Massey is our founder, Chairman and Chief Executive Officer. From January 2003 until July 2007, he served as the Chief Executive Officer of The ManiaTV! Network, Inc., an Internet television pioneer. While at The ManiaTV! Network, he initiated a strategy of creating professionally produced pop-culture programming anchored by well-known celebrity hosts. His first celebrity show was a live nightly Internet TV talk show with comedian and actor Tom Green, Tom Green Live! , which launched in 2006. Prior to Tom Green Live! , Mr. Green had his own late-night talk show on MTV, had previously served as guest host for The Late Show with David Letterman, and was married to actress Drew Barrymore. We believe the Tom Green Live! show was the first live celebrity Internet TV show, and its launch was covered in dozens of media outlets including a live interview of Tom Green on The Tonight Show with Jay Leno and a national syndicated story by the Associated Press. Following the successful launch of the Tom Green Live! show, Mr. Massey introduced a weekly Internet TV talk show with musician Dave Navarro named Spread TV , which launched in 2007. Mr. Navarro is a popular American guitarist and television personality who is currently hosting the second season of Spike TV s Ink Master . Navarro previously hosted CBS s Rock Star and co-starred with Carmen Electra in MTV s 'Til Death Do Us Part: Carmen & Dave . During the production of these shows, Mr. Massey and his team developed new production techniques and ways to leverage new, emerging technologies that enabled them to produce professional-looking, network-style programming for a fraction of the cost of cable and TV networks. One of our principal operating strategies will be to develop professionally produced, pop-culture programming including: celebrity talk shows; reality shows; celebrity, athlete, artist and band interviews; concerts and other music-related shows; comedy shows; and game shows. 
+ 
+
+ 
+
+ 5
+ 
+
+ 
+
+ 
+
+ Drew Massey has over 20 years of experience working in the media and entertainment industries. He started his career in 1992 working in the publishing industry for Forbes, Inc. where he created a new division, the American Heritage Custom Publishing Group. Following his tenure at Forbes, Mr. Massey founded P.O.V. (Point of View), a lifestyle magazine for young, professional men. P.O.V. launched in 1995 and received various industry accolades, including being named the Adweek Startup of the Year and the Adweek Hot Up & Comer . From 1995 to 2000, Massey and his team sold advertising to nearly 200 different brands while working with leading advertising agencies and attracted a number of well-known celebrities and athletes to appear on the magazine s cover including: Michael Richards (Seinfeld), Matthew Perry (Friends), Samuel Jackson, Matt Dillon, Tyra Banks, John Cusack, Kiefer Sutherland, Jeff Goldblum, KISS, Brett Farve, Ashley Judd, Grant Hill, Eric Lindros, Edward Burns, Matthew Broderick, Minnie Driver, Joaquin Phoenix, Stephen Dorff, Jon Favreau, Jenna Elfman, Mira Sorvino, Oscar de la Hoya, Jeff Goldberg, Jeff Gordon, Anna Kournikova, Debra Messing, Mena Suvari, and Daniela Pestova. 
+ 
+
+ We largely plan to make money the way that television always has through the sale of advertising. Internet advertising consists of advertising that appears on desktop and laptop computers, as well as mobile phones and tablets. A September 2012 report by eMarketer projects that Internet advertising will grow from approximately $26 billion in 2010 to approximately $52 billion in 2015, or a 5-year compound annual growth rate of approximately 14.9%. We plan to initially target the display advertising segment of the U.S. Internet advertising market and, to a lesser degree, the mobile advertising segment. 
+ 
+
+ We intend to focus our pop-culture programming on the youth and young adult population. This demographic is critical to advertisers because of the strong influence that youth and young adults typically have on the spending habits of family members and others. Youth and young adults are often so-called early adopters , setting trends that are later adopted by other demographic groups, and consequently we believe that savvy marketers are keenly interested in how to more effectively reach and influence them. 
+ 
+
+ Our Strategy
+ 
+
+ Our mission is to build a leading Internet, mobile and app-based video entertainment destination website that houses a jukebox of original, pop-culture oriented Internet TV shows. Our strategy is centered on the development of a production studio, the maniaTV Creative Show Factory, that will enable us to work with producers, writers, celebrities and other Hollywood talent to create original, network-style shows, available both live and on-demand and delivered via the Internet, that are designed to appeal to the pop-culture interests of youth and young adults. Key elements of our strategy include: 
+ 
+
+ 
+ Opening the maniaTV Creative Show Factory - We plan to open a production studio to create original programming with producers, writers, celebrities and other talent and build our jukebox of pop-culture content. 
+ 
+
+ 
+
+ 6
+ 
+
+ 
+
+ 
+
+ 
+ Building an exclusive library of content focused on pop culture that will appeal to youth and young adults We plan to develop an exclusive library of professionally produced, pop-culture programming, including celebrity talk shows, reality shows, concerts and celebrity interviews, that we believe will appeal to younger audiences, primarily 18-34 year olds, who have become increasingly more difficult to access through traditional media such as television, newspapers, magazines and radio. 
+ 
+
+ 
+ Producing network-style programming at a fraction of network and cable TV costs - We intend to leverage our founder s knowledge and experience to produce high-quality, network-style programming at a fraction of the production costs of comparable shows produced for network and cable television. 
+ 
+
+ 
+ Leveraging celebrity endorsements and active celebrity participation in our marketing and branding efforts - We plan to anchor our pop-culture programming with established celebrity personalities and leverage their fan bases and social followers, marketability and press worthiness to grow our audience and create brand awareness. 
+ 
+
+ 
+ Providing anytime-anywhere access to our programming - Our maniaTV Jukebox provides anytime, on-demand access to our content library, and we intend to create a downloadable App for viewing our content anywhere on a host of platforms. 
+ 
+
+ 
+ Leveraging our high-quality programming and production capabilities to build strong, direct relationships with advertising agencies and brands - We believe that our studio and production capabilities and our celebrity-based, pop-culture programming will enable us to sell highly customizable advertising solutions directly to advertising agencies at rates higher than standard advertising network rates. 
+ 
+
+ Risks Related to Our Business
+ 
+
+ Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully under the caption Risk Factors, and include but are not limited to the following: 
+ 
+
+ 
+ We may not be successful in our efforts to grow our audience and successfully monetize our programming content; 
+ 
+
+ 
+ We generate substantially all of our revenue from advertising. The loss of advertisers, reduction in spending by advertisers, or failure to add new advertisers could seriously harm our business; 
+ 
+
+ 
+ Our business requires us to invest in new programming before we will receive any revenue therefrom, and audiences may not like our programming and other entertainment content which would adversely affect our results of operations; 
+ 
+
+ 
+ We face many competitive challenges, any of which could adversely affect our prospects, results of operations and financial condition; 
+ 
+
+ 
+
+ 7
+ 
+
+ 
+
+ 
+
+ 
+ Our business is subject to complex and evolving laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, which could harm our business; 
+ 
+
+ 
+ Our CEO has control over key decision making as a result of his control of a majority of our voting stock; 
+ 
+
+ 
+ The market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your shares at or above the initial public offering price; and 
+ 
+
+ 
+ Substantial blocks of our total outstanding shares may be sold into the market as further described in Shares Eligible for Future Sale. If there are substantial sales of shares of our common stock, the price of our Class A common stock could decline significantly. 
+ 
+
+ Corporate Information
+ 
+
+ We were incorporated in the State of Colorado on April 8, 2009 under the name M Incorporated and changed our name in September 2012 to maniaTV Inc. We have a December 31 fiscal-year end. Accordingly, all references herein to a fiscal year refer to the 12 months ended December 31 of such year. 
+ 
+
+ ManiaTV , the maniaTV logo, and other common law trademarks or services marks of maniaTV appearing in this prospectus are the exclusive property of maniaTV Inc. All other service marks, trademarks and trade names referred to in this prospectus are property of their respective holders. 
+ 
+
+ Our headquarters are currently located at 8335 Sunset Boulevard, West Hollywood, California 90069. Once we complete this offering, we intend to lease a studio in the Los Angeles area that we will use to produce programming and for our executive offices. Our phone number is (855) 886-2642. Our website is www.maniaTV.com. The information that can be accessed through our website is not part of, and is not incorporated, into this prospectus. 
+ 
+
+ The Offering
+ 
+
+ Following is a brief summary of this offering. Please see the Plan of Distribution section for a more detailed description of the terms of the offering.
+ 
+
+ 
+ Securities Being Offered
+ 
+ We are offering 1,111,111 shares of our Class A common stock on a best-efforts basis with a minimum of 555,556 shares and a maximum of 1,111,111 shares. 
+
+ 
+ 
+ 
+
+ Offering Price per Share
+ 
+ $0.90
+
+ 
+ 
+ 
+
+ Offering Period
+ 
+ The 1,111,111 shares are being offered for a period not to exceed 150 days, unless extended by our board of directors for an additional 90 days. 
+
+ 
+
+ 
+
+ 8
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+ 
+ 
+
+ Gross Proceeds to Our 
+ Company
+ 
+ $ 500,000 (Minimum Offering)
+ $1,000,000 (Maximum Offering)
+
+ 
+ 
+ 
+
+ Use of Proceeds
+ 
+ We intend to use the proceeds of this offering to open a studio in the Los Angeles area in order to produce fresh premium content, to hire core staff on the programming and advertising sides of our business, to make technological investments in backend broadband servers, to begin developing a maniaTV mobile app, for general and administrative expenses, and for the costs of the offering. See Use of Proceeds. 
+
+ 
+ 
+ 
+
+ Class A common stock outstanding before the offering
+ 
+ 1,127,779 shares
+
+ 
+ 
+ 
+
+ Class B common stock outstanding before the offering
+ 
+ 7,205,555 shares
+
+ 
+ 
+ 
+
+ Class A common stock to be outstanding after the offering
+ 
+ 1,683,335 (Minimum offering)
+ 2,238,890 (Maximum offering)
+
+ 
+ 
+ 
+
+ Class B common stock to be outstanding after the offering
+ 
+ 7,205,555 (Minimum offering)
+ 7,205,555 (Maximum offering)
+
+ 
+ 
+ 
+
+ Total Class A and Class B common stock to be outstanding after the offering
+ 
+ 8,888,890 (Minimum offering)
+ 9,444,445 (Maximum offering)
+
+ 
+ 
+ 
+
+ Voting Rights
+ 
+ Shares of Class A common stock are entitled to one vote per share.
+ 
+
+ Shares of Class B common stock are entitled to ten votes per share.
+ 
+
+ Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law. Mr. Massey, who after our initial public offering will control approximately 97.4% of the voting power of our outstanding capital stock, assuming that the maximum offering is sold, will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors. See Description of Securities. 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 9
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ Plan of Distribution
+ 
+ This is a self-underwritten offering. This prospectus is part of a registration statement that permits Drew Massey, our Chief Executive Officer and a director, to sell the Shares directly to the public, with no commission or other remuneration payable to him for any Shares he sells. The officers and directors will not purchase Shares in this offering, including, but not limited to, purchases of Shares in order to reach the minimum offering amount.
+
+ 
+ 
+ 
+
+ Escrow Account
+ 
+ Pending sale of the $500,000 minimum, all proceeds will be held in a non-interest bearing escrow account by the Escrow Agent for this offering. The Escrow Agent is Corporate Stock Transfer, Inc. Funds will be deposited in this escrow account promptly following receipt. In the event the minimum is not sold within the 150-day offering period or any extension of an additional 90 days at our discretion, this offering will terminate and all funds will be returned promptly to subscribers by the Escrow Agent without any deductions or payment of interest. Subscribers will not be entitled to a return of funds from such escrow during the 150-day offering period or any extension period, for a potential total of 240 days. See Use of Proceeds and Plan of Distribution. 
+
+ 
+ 
+ 
+
+ Subscription Agreement and 
+ Procedures
+ 
+ We will accept no subscriptions or indications of interest until our registration statement is effective. At that point, all subscriptions must be made by the execution and delivery of a subscription agreement, a form of which is attached to this prospectus as Annex A. Subscriptions are not binding until accepted.
+
+ 
+
+ 
+
+ 10
+ 
+
+ 
+
+ 
+
+ RISK FACTORS
+ 
+
+ An investment in these securities involves an exceptionally high degree of risk and is extremely speculative in nature. Following are what we believe are all of the material risks involved if you decide to purchase shares in this offering.
+ 
+
+ Risks Related to Our Business and Our Industry
+ 
+
+ We are an early stage company with an unproven business model and a limited operating history, and you should consider any investment in us a high-risk investment whereby you could lose your entire investment.
+ 
+
+ We are an early stage company with and a new and unproven business plan and a limited operating history. As an investor, you should be aware that our limited operating history makes it difficult for you to evaluate our business and prospects based on prior performance. Moreover, early stage companies frequently experience significant unanticipated difficulties, delays and expenses, and we cannot assure you that our business as described in this prospectus will ever be achieved or prove successful. If we cannot effectuate our business plan in a timely and profitable manner, you could lose your entire investment. 
+ 
+
+ Internet television is a new and emerging market, which makes it difficult to evaluate our current business and future prospects.
+ 
+
+ Internet television is a new and emerging market, and our current business and future prospects are difficult to evaluate. The market for Internet television has undergone rapid and dramatic changes in its relatively short history and is subject to significant challenges. Many new entrants into Internet television have failed despite expending considerable resources. As a result, the future revenue and income potential of our business is highly uncertain. You should consider our business and prospects in light of the risks and difficulties we may encounter in this new and rapidly evolving market, which risks and difficulties include, among others: 
+ 
+
+ 
+ our new, evolving and unproven business model;
+ 
+ our ability to retain our current viewers, acquire new viewers and increase the amount of time that these viewers spend on our website; 
+ 
+ our ability to effectively monetize our audience; and
+ 
+ our ability to retain existing advertisers, attract new advertisers and prove to advertisers that advertising to our audience through our website is effective enough to justify a pricing structure that is profitable for us. 
+ 
+
+ Our company is small and third parties may choose not to work with us due to our size and limited resources.
+ 
+
+ Our company currently only has one employee and we intend to remain leanly staffed for the foreseeable future. Our success will depend upon our ability to convince third parties such as advertisers, celebrities and content owners to work with us, and such third parties may choose to engage with larger, well-established companies due to brand recognition, longer operating histories and greater financial resources.
+ 
+
+ 
+
+ 11
+ 
+
+ 
+
+ 
+
+ The industry in which we operate is highly competitive.
+ 
+
+ The entertainment industry is intensely competitive, and we compete for content, audiences and advertising dollars against a variety of sources including broadcast, cable and satellite television, movie studios and independent film producers and distributors, online, digital and mobile properties, and other entertainment outlets. The entertainment industry is becoming increasingly dominated by large multi-national, multi-media entities that control key film, magazine, television and/or Internet content, as well as key network, cable, Internet and other distribution outlets. Virtually all of these competitors are substantially larger than we are, have been in business longer, and have numerous advantages over us including the ability to acquire financing for their projects and attract superior properties, personnel, actors and/or celebrity hosts. Our competitors may also have preferential access to content writers, producers, important technologies, data on viewers to our website, competitive information, and other important resources. There can be no assurance that we will be able to compete successfully in the future against existing or potential competitors, or that competition will not have a material adverse effect on our business, financial condition or results of operations. 
+ 
+
+ If our efforts to attract new viewers and to retain our existing viewers are not successful, our growth prospects and revenue will be materially and adversely affected. 
+ 
+
+ Our ability to grow our business and generate advertising revenue depends on retaining and expanding our audience and increasing the amount of time that our audience spends on our website. If we fail to grow our audience, particularly in key demographics such as young adults, we will be unable to grow our advertising revenue, and our business will be materially and adversely affected. 
+ 
+
+ Our ability to grow our audience and improve our viewer demographics is dependent upon our ability to: 
+ 
+
+ 
+ provide viewers with a consistent, high-quality, user-friendly experience; 
+ 
+ build out our content library with compelling content that our viewers will enjoy; and 
+ 
+ innovate and keep pace with the offerings of our competitors.
+ 
+
+ In addition, we have limited resources and will be largely reliant upon viral marketing to build consumer awareness of our service. If our viral marketing strategy is unsuccessful, we may need to build our brand through more traditional marketing campaigns which will increase our marketing expenses and could have an adverse effect on our results of operations. We cannot assure you that we will be successful in maintaining or expanding our audience, and our failure to do so would materially reduce our revenue and adversely affect our business, operating results and financial condition. 
+ 
+
+ 
+
+ 12
+ 
+
+ 
+
+ 
+
+ Our business requires us to spend a substantial investment of capital on new programming, and we will have to pay the expenses of such programming before we will receive any revenue therefrom.
+ 
+
+ To achieve and maintain our competitiveness, we will need to introduce compelling new programming to our viewers. The development and production of new programming will require us to significantly increase our expenditures, and we will consequently bear greater financial risk. A significant amount of time may elapse between the time of our expenditures on new programming and the receipt of revenue therefrom, if any, which will adversely affect our liquidity. If we do not have funds available to introduce new programming, we may not be able to service our existing audience, acquire new audience or attract or retain advertisers, each of which could inhibit the implementation of our business plan and have a material adverse effect on our business, results of operations or financial condition.
+ 
+
+ Audiences may not accept or like our programming and other entertainment content. 
+ 
+
+ The entertainment industry is characterized by continual changes in consumer interests and in the types of programming and personalities who are of interest. These market characteristics are exacerbated by the hypercompetitive nature of the market, and we will be expected to continually introduce new content. Our performance will depend, in part, on our ability to continue to deliver fresh programming, develop new talent relationships that address the interests of our viewers, and license or develop new programming on a timely and cost-effective basis. The development of our programming library entails significant investment and risks. We may not be successful. If we are unable to satisfy the ever-changing interests of consumers, our business, results of operations and financial condition could be materially and adversely affected.
+ 
+
+ An increasing number of individuals are utilizing devices other than personal computers to access the Internet, and our business may suffer if we are unable to adequately display our programming on these devices
+ 
+
+ The number of individuals who access the Internet through devices other than a personal computer, such as smartphones, tablets, televisions and set-top box devices, has increased dramatically, and we believe this trend is likely to continue. These devices generally have lower processing speed, power and functionality than traditional personal computers which could make viewing our programming on these devices more difficult or less compelling to our viewing audience. Moreover, many of these devices access the Internet through wireless infrastructure which may inhibit or prevent high-quality streaming of content. If we are unable to successfully ensure that our programming is available on such platforms and devices, or if our programming becomes less compelling to our viewers because of such devices, our business will suffer. 
+ 
+
+ Our failure to convince advertisers of the benefits of advertising on our website would harm our business. 
+ 
+
+ We currently derive nearly all of our revenue from the sale of advertising and expect to continue to derive most of our revenue from the sale of advertising in the future. Our ability to attract and retain advertisers and to generate advertising revenue depends on a number of factors, including: 
+ 
+
+ 
+
+ 13
+ 
+
+ 
+
+ 
+
+ 
+ increasing our audience and the amount of time that our viewing audience spends on our website; 
+ 
+ competing effectively with other companies for advertising dollars; 
+ 
+ continuing to develop and diversify our advertising base and expand our offerings to include delivery channels such as mobile devices; and 
+ 
+ keeping pace with our competition and with changes in technology; 
+ 
+
+ Our agreements with advertisers are generally short term and may be terminated at any time by the advertiser. Advertisers are spending only a small amount of their overall advertising budget on our website, may view advertising with us as experimental and may leave us for competing alternatives at any time. We may never succeed in capturing a greater share of our advertisers core advertising spending, particularly if we are unable to achieve the scale and market penetration necessary to demonstrate the effectiveness of our website, or if our advertising model proves ineffective or uncompetitive when compared to alternatives. Failure to demonstrate the value of our website would result in reduced spending by, or loss of, existing or potential future advertisers, which would materially harm our revenue and business. 
+ 
+
+ Our success depends upon the continued acceptance of online advertising as an alternative or supplement to offline advertising.
+ 
+
+ The percentage of the advertising market allocated to online advertising lags significantly behind the percentage of time spent by people consuming online media. Growth of our business is dependent upon advertisers increasing their online advertising budgets which may or may not happen. Many advertisers still have limited experience with online advertising and may continue to devote significant portions of their advertising budgets to traditional media. Any lack of growth in the market for online advertising could result in reduced revenue or increased marketing expenses, which would harm our operating results and financial condition. Moreover, even if advertisers increase their online advertising expenditures as a whole, we cannot assure you that we will capture any increased online advertising expenditures. 
+ 
+
+ The impact of worldwide economic conditions, including their effect on advertising budgets and discretionary consumer spending, may adversely affect our business and operating results. 
+ 
+
+ Our financial condition is affected by worldwide economic conditions and their impact on advertising spending. Expenditures by advertisers generally tend to reflect overall economic conditions, and to the extent that the economy continues to stagnate, reductions in spending by advertisers could have a serious adverse impact on our business. In addition, any subscription service we may attempt to sell would be considered discretionary on the part of some of our viewers, who may choose to use a competing free service. To the extent that overall economic conditions reduce spending on discretionary activities, our ability to retain and add subscribers could be hindered, which could reduce our subscription revenue and negatively impact our business.
+ 
+
+ 
+
+ 14
+ 
+
+ 
+
+ 
+
+ Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations. 
+ 
+
+ Our revenue and operating results could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside our control. As a result, comparing our operating results on a period-to-period basis may not be possible or relevant. In addition to other risk factors discussed in this Risk Factors section, factors that may contribute to the variability of our quarterly and annual results include: 
+ 
+
+ 
+ our ability to effectively grow our audience;
+ 
+ our ability to attract and retain advertisers; 
+ 
+ our ability to effectively manage our growth; 
+ 
+ the effect of increased competition in our business; 
+ 
+ our ability to keep pace with changes in our competition and in technology; 
+ 
+ interruptions in service, whether or not we are responsible for such interruptions, and any related impact on our reputation; 
+ 
+ costs associated with defending any litigation, including intellectual property infringement litigation; 
+ 
+ our ability to successfully add new programming in a timely and cost-effective manner; 
+ 
+ the impact of general economic conditions on our revenue and expenses; and 
+ 
+ changes in government regulation affecting our business.
+ 
+
+ Seasonal variations in audience and advertising behavior may also cause fluctuations in our financial results. For example, we may experience higher advertising sales during the fourth quarter of each calendar year due to greater advertiser demand during the holiday season. In addition, we may experience changes in audience behavior due to fluctuations in Internet usage during vacation and holiday periods as well. Expenditures by advertisers are also cyclical and discretionary in nature, reflecting overall economic conditions, the economic prospects of specific advertisers or industries, budgeting constraints, buying patterns and a number of other factors, many of which are outside our control. We believe these seasonal trends will result in fluctuations in our financial results and make period-to-period comparisons of such financial results more difficult.
+ 
+
+ We have experienced increased growth in recent periods. If we fail to effectively manage our growth, our business and operating results may suffer. 
+ 
+
+ We have experienced increased growth in the past nine months which has placed, and will continue to place, significant demands on our management and infrastructure. We expect that our business plan will require substantial financial, operational and technical resources, and we will need to recruit, integrate and retain skilled and experienced personnel in order to be effective. Qualified individuals are in high demand, particularly in the digital media industry. Moreover, as our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure, which will require significant expenditures and allocation of resources. Our business, operating results and financial condition will suffer if we are unable to grow and scale in a productive, efficient and cost-effective manner. 
+ 
+
+ 
+
+ 15
+ 
+
+ 
+
+ 
+
+ We may acquire other companies which could divert our management s attention, result in additional dilution to our shareholders and otherwise disrupt our operations and harm our operating results. 
+ 
+
+ We may in the future seek to acquire businesses, content, products or technologies that we believe could complement or expand our offerings, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. In addition, we do not have any experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including: 
+ 
+
+ 
+ incurrence of acquisition-related costs; 
+ 
+ diversion of management s attention from other business concerns; 
+ 
+ unanticipated costs or liabilities associated with the acquisition; 
+ 
+ harm to our existing business relationships with business partners and advertisers as a result of the acquisition; 
+ 
+ harm to our brand and reputation; 
+ 
+ the potential loss of key employees; 
+ 
+ use of resources that are needed in other parts of our business; and 
+ 
+ use of substantial portions of our available cash to consummate the acquisition.
+ 
+
+ In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process. Acquisitions may also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. 
+ 
+
+ Our success depends upon our viewing audience s high-speed Internet access. 
+ 
+
+ Our business model requires consumers to access our programming content through Internet connections including, to a lesser degree, mobile connections. Consequently, our success will depend on third-party Internet service providers and wireless telecommunication companies providing and expanding the availability of high-speed Internet access with the speed and data capacity required to permit high-quality streaming of content. These factors are outside of our control, and any future limitations on broadband Internet access and availability, Internet or wireless network outages, interruptions, bandwidth constraints, rate increases, data usage limits, or intentional blocking of our websites would adversely affect our ability to service our viewers and advertisers.
+ 
+
+ 
+
+ 16
+ 
+
+ 
+
+ 
+
+ Changes in how network operators handle and charge for access to data that travel across their networks could adversely impact our business.
+ 
+
+ We rely upon the ability of viewers to access our service through the Internet. To the extent that network operators implement usage-based pricing such as bandwidth caps, or otherwise try to limit or monetize access to their networks by data providers, we could incur greater operating expenses and our business could be negatively impacted. Furthermore, to the extent network operators were to create tiers of Internet access service and either charge us for or prohibit us from being available through these tiers, our business could be negatively impacted. Many network operators that provide consumers with access to the Internet, such as Comcast, Time Warner Cable and Cablevision, also provide these consumers with multichannel video programming. This may create an incentive for these parties to use their network infrastructure in a manner adverse to our continued growth and success. To the extent that network operators are able to provide preferential treatment to their data as opposed to ours, our business could be negatively impacted.
+ 
+
+ We could face liability for content displayed on our websites, and we might not have adequate resources to fully defend ourselves against third-party actions.
+ 
+
+ We may be subjected to third-party claims for defamation, negligence, copyright or trademark infringement, or other legal theories relating to our programming. These types of claims have been brought, sometimes successfully, against various media companies in the past. We could also be subjected to claims based upon the content that is accessible from our websites and distribution network through links to other websites. Regardless of the merits, the expense of defending any such litigation may have a substantial impact if our insurance carriers fail to cover the cost of the litigation, and the time required to defend the actions could divert management s attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation could have a material adverse effect on our business, results of operations and cash flows.
+ 
+
+ Piracy of our entertainment content, including digital copyright theft and other unauthorized exhibitions of our content, may decrease the revenue we receive from our programming and adversely affect our business and profitability.
+ 
+
+ We are fundamentally an entertainment content production and distribution company, and our success is dependent in part upon our ability to monetize our entertainment content. The theft of our programming, digital content, brands, and other intellectual property has the potential to significantly affect us and the value of our content. Copyright theft and other unauthorized uses of content are particularly prevalent in many parts of the world that lack effective enforcements mechanisms and are becoming increasingly easier due to the wide availability of higher bandwidth, reduced storage costs, tools that undermine security features such as encryption, and the ability of pirates to cloak their identities online. The theft or unauthorized use of our content may have an adverse effect on our business, because it could reduce the revenue that we are able to receive from the legitimate use of our content and thereby inhibit our ability to recoup the expenses incurred in creating works. Moreover, if we have to engage in legal action to protect our intellectual property and prevent the unauthorized use of our content, these efforts may adversely affect our profitability and may not ultimately be successful. 
+ 
+
+ 
+
+ 17
+ 
+
+ 
+
+ 
+
+ Government regulation of the Internet is evolving, and unfavorable developments could have an adverse effect on our operating results. 
+ 
+
+ We are subject to general business regulations and laws, as well as regulations and laws specific to the Internet. Such laws and regulations cover taxation, user privacy, data collection and protection, copyrights, electronic contracts, sales procedures, automatic subscription renewals, credit card processing procedures, consumer and child protections, broadband Internet access and content restrictions, We cannot guarantee that we have been or will be fully compliant in every jurisdiction, as it is not entirely clear how existing laws and regulations governing issues such as privacy, taxation and consumer protection apply to the Internet. The adoption of any laws or regulations that adversely affect the popularity or growth in use of the Internet, including laws limiting Internet neutrality, could decrease viewer demand for our service offerings and increase our cost of doing business. Future regulations, or changes in laws and regulations or their existing interpretations or applications, could also hinder our operational flexibility, raise compliance costs and result in additional historical or future liabilities for us, resulting in adverse impacts on our business and our operating results. 
+ 
+
+ Interruptions or delays in service arising from our own systems or from our third-party vendors could impair the delivery of our service and harm our business. 
+ 
+
+ We rely on computer systems, including systems of third-party vendors, to deliver our content in a dependable, timely, and efficient manner. We have previously experienced, and expect to continue to experience, periodic service interruptions and delays involving these systems, and we do not currently maintain a live fail-over capability that would allow us to switch our operations from one facility to another in the event of a service outage. Both our own systems and those of our third-party vendors are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. They also are subject to break-ins, sabotage, intentional acts of vandalism, the failure of physical, administrative, and technical security measures, terrorist acts, natural disasters, human error, the financial insolvency of our third-party vendors and other unanticipated problems or events. The occurrence of any of these events could result in interruptions in our service and in unauthorized access to, or alteration of, the content and data contained on our systems and that these third-party vendors store and deliver on our behalf. We exercise no control over our third-party vendors, which makes us more vulnerable to any errors, interruptions, or delays in their operations. Any disruption in the services provided by these vendors could have a significant adverse impact on our business reputation, audience relations and operating results. Upon expiration or termination of any of our agreements with third-party vendors, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. 
+ 
+
+ 
+
+ 18
+ 
+
+ 
+
+ 
+
+ Risks Related to Our Company, this Offering and Ownership of Our Common Stock
+ 
+
+ Buying low-priced penny stocks is very risky and speculative and since our shares will be a penny stock, it will be more difficult for investors to sell their shares.
+ 
+
+ The shares being offered are defined as a penny stock under the Securities Exchange Act of 1934, and rules of the U.S. Securities and Exchange Commission. The Exchange Act and such penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally, institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker-dealer must make a suitability determination for each purchaser and receive the purchaser s written agreement prior to the sale. In addition, the broker-dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain required disclosures. Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect your ability to resell any shares you may purchase in this offering in the public markets.
+ 
+
+ Our Class A common stock currently has no trading market and if a trading market does not develop, investors will have difficulty selling their shares.
+ 
+
+ There is presently no demand for our Class A common stock and no public market for the shares being offered in this prospectus. While we do intend to apply for quotation in the Over-the-Counter Bulletin Board, we cannot guarantee that our application will be approved and our stock listed and quoted for sale. If no market ever develops for our common stock, it will be difficult for you to sell any shares you purchase in this offering. In such a case, you may find that you are unable to achieve any benefit from your investment or to liquidate your shares without considerable delay, if at all. In addition, if we fail to have our common stock quoted on a public trading market, your common stock will not have a quantifiable value and it may be difficult, if not impossible, to ever resell your shares, resulting in an inability to realize any value from your investment.
+ 
+
+ The over-the-counter market for stock such as ours has had extreme price and volume fluctuations.
+ 
+
+ The securities of companies such as ours have historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as new product developments and trends in our industry and in the investment markets generally, as well as economic conditions and variations in our operational results, may have a negative effect on the market price of our common stock.
+ 
+
+ 
+
+ 19
+ 
+
+ 
+
+ 
+
+ We are selling this offering without an underwriter and may be unable to sell any shares.
+ 
+
+ This offering is self-underwritten, and we intend to sell the shares through our founder, Chairman, CEO and acting CFO, Drew Massey, who will receive no commissions. We do not plan to engage the services of an underwriter to sell the shares. We will hold investment meetings and invite our business associates, friends, relatives and acquaintances in an effort to sell the shares to them; however, there is no guarantee that we will be able to sell any of the shares. In the event we are unable to sell at least the minimum number of the shares in this offering, we will be forced to promptly return all funds to subscribers without any deductions or payment of interest. 
+ 
+
+ The investors may sustain a loss of their investment based on the offering price of our common stock.
+ 
+
+ The price of our Class A common stock in this offering has not been determined by any independent financial evaluation, market demand or other mechanism, third-party underwriter, or by our auditors, and is therefore, arbitrary. Because we have no significant operating history and have generated limited revenues to date, the price of our Class A common stock is not based on past earnings, nor is the price of our Class A common stock indicative of the current market value of the assets owned by us. As a result, the price of the Class A common stock in this offering may not reflect how the stock is received on the market. There can be no assurance that the shares offered hereby are worth the price for which they are offered and investors may therefore lose all or a portion of their investment.
+ 
+
+ You will incur immediate and substantial dilution of the price you pay for your shares. 
+ 
+
+ Our existing shareholders acquired their shares for substantially less than you will pay for any shares you purchase in this offering. As a result, these existing shareholders who control a majority of our outstanding stock will have substantially lower cost basis in their stock than investors in this offering, and as such may have interests that differ from investors in this offering. Your investment in this offering will result in the immediate and substantial dilution of the net tangible book value of your shares from the $0.90 you pay for them. As of December 31, 2012, our net tangible book value was $64,768 or approximately $0.008 per share. Assuming that $960,000 of maximum net proceeds are realized from this offering, the dilution to new investors from the offering price of $0.90 per share will be approximately $0.791 per share, and the gain by existing shareholders will be approximately $0.101 per share. Assuming that $460,000 of minimum net proceeds are realized from this offering, the dilution to new investors from the offering price of $0.90 per share will be approximately $0.841 per share, and the gain by existing shareholders will be approximately $0.051 per share. To the extent outstanding stock options are ultimately exercised, there will be further dilution to investors in this offering.
+ 
+
+ 
+
+ 20
+ 
+
+ 
+
+ 
+
+ We will have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return. 
+ 
+
+ We will have broad discretion over the use of proceeds from this offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment in us. Our failure to apply the net proceeds of this offering effectively could compromise our ability to pursue our business plan. 
+ 
+
+ All of our common stock is restricted but could become eligible for resale under Rule 144; this could cause the market price of our common stock to drop significantly, even if our business is doing well.
+ 
+
+ Of our total outstanding shares following this offering, 8,333,334 or 93.7% (minimum) or 88.2% (maximum) are restricted from immediate resale but may be sold into the market beginning in ________, 2013 (90 days after date of this prospectus), subject to volume and manner of sale limitations under Rule 144. This could cause the market price of our common stock to drop significantly, even if our business is doing well. After this offering, we will have outstanding 9,444,445 shares (maximum) or 8,888,890 (minimum) of common stock based on the number of shares outstanding at December 31, 2012. This includes the common shares we are selling in this offering, which may be resold in the public market immediately. As restrictions on resale end, the market price of our stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them.
+ 
+
+ We do not expect to pay dividends on common stock.
+ 
+
+ We have not paid any cash dividends with respect to our common stock, and it is unlikely that we will pay any dividends on our common stock in the foreseeable future. Earnings, if any, that we may realize will be retained in the business for further development and expansion. 
+ 
+
+ We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for shareholder approval, which could cause your investment to be diluted.
+ 
+
+ Our Articles of Incorporation currently authorize the board of directors to issue up to 100,000,000 shares of Class A common stock, up to 10,000,000 shares of Class B common stock, and up to 5,000,000 shares of Preferred Stock. The power of the board of directors to issue shares of common stock, preferred stock, or warrants or options to purchase shares of common stock or preferred stock, is generally not subject to shareholder approval and may have the effect of diluting your investment.
+ 
+
+ 
+
+ 21
+ 
+
+ 
+
+ 
+
+ By issuing preferred stock, we may be able to delay, defer or prevent a change of control. 
+ 
+
+ Our Articles of Incorporation permit us to issue, without approval from our shareholders, a total of 5,000,000 shares of preferred stock. Our board of directors can also determine the rights, preferences, privileges and restrictions granted to, or imposed upon, and shares of preferred stock we issue and to fix the number of shares constituting any series and the designation of such series. It is possible that our board of directors, in determining the rights, preferences and privileges to be granted when the preferred stock is issued, may include provisions that have the effect of delaying, deferring or preventing a change in control, discouraging bids for our common stock at a premium over the market price, or that adversely affect the market price of and the voting and other rights of the holders of our common stock.
+ 
+
+ We have limited financial resources, and we may be unable to acquire additional financing if needed. 
+ 
+
+ We have limited financial resources. Although we believe that the proceeds from this offering will be adequate to support our operations for the next 12 months, we are an early stage company and may experience unanticipated difficulties, delays and expenses that could force us to either seek additional capital or scale back our operations significantly. In the event that we needed additional capital, there are no assurances that any such financings can be obtained on favorable terms, if at all. Moreover, any public or private offerings we pursue may dilute the ownership interests of our shareholders. 
+ 
+
+ Our founder has control over key decision making as a result of his control of a majority of our voting stock. 
+ 
+
+ As a result of the shares he holds, as well as voting arrangements with another shareholder, Drew Massey, our founder, Chairman, CEO and acting CFO, will be able to exercise voting rights with respect to an aggregate of 7,205,555 shares of Class B common stock and up to 416,667 shares of Class A common stock, which will represent up to 97.4% of the voting power of our outstanding capital stock following our initial public offering assuming all shares are sold. As a result, Mr. Massey has the ability to control the outcome of all matters submitted to our shareholders for approval, including the election of any directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other shareholders may support, or conversely this concentrated control could result in the consummation of such a transaction that our other shareholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock due to the limited voting power of such stock relative to the Class B common stock and might harm the relative market price of our Class A common stock. In addition, Mr. Massey has the ability to control the management and major strategic investments of our company as a result of his position as our CEO and his ability to control the election or replacement of our directors. In the event of his death, the shares of our capital stock that Mr. Massey owns will be transferred to the persons or entities that he designates. As a board member and officer, Mr. Massey owes certain fiduciary duties to our shareholders and must act in good faith in a manner he reasonably believes to be in the best interests of our shareholders. However, as a shareholder, even a controlling shareholder, Mr. Massey is entitled to vote his shares, and shares over which he has voting control as a result of voting arrangements, in his own interests, which may not always be in the interests of our shareholders generally. For a description of these voting arrangements, see Description of Securities Voting Agreements. 
+ 
+
+ 
+
+ 22
+ 
+
+ 
+
+ 
+
+ The two class structure of our common stock has the effect of concentrating voting control with our founder and CEO; this limits our other shareholders and your ability to influence corporate matters. 
+ 
+
+ Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this offering, has only one vote per share. Drew Massey, our founder, Chairman, CEO and acting CFO, holds all of the Class B shares outstanding and will hold approximately 97.4% of the voting power of our outstanding capital stock immediately following this offering assuming all shares are sold. As a result, Mr. Massey will continue to have significant influence over the management and affairs of the company and control over matters requiring shareholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentrated voting control will limit your ability to influence corporate matters and could adversely affect the market price of our Class A common stock. 
+ 
+
+ If we lose the services of our founder, we could possibly have to suspend our business or cease operations. 
+ 
+
+ Drew Massey, our founder, Chairman, CEO and acting CFO, devotes substantially all of his time and attention to operating our business and is currently our only employee. Mr. Massey is critical to our vision, strategic direction, culture, programming and relationships with advertisers and talent. Our success depends entirely upon Mr. Massey s decision making, as well as his continued service and engagement. We do not maintain key-man insurance for Mr. Massey. Moreover, we do not have an employment agreement with him and he is not contractually bound to continue his service to us for any period of time or to not pursue other business or personal interests. Mr. Massey has been and continues to be involved in a few startups/ventures where he spends very minimal amounts of his time and attention. We cannot assure you that at some time in the future he will not decide to spend more time on some other business venture and less time on our business. The loss of Mr. Massey or his time and attention, even partially or temporarily, would materially and adversely harm our business and could force us to suspend or cease our operations. 
+ 
+
+ Our lack of experience as a public company could cause you to lose your entire investment.
+ 
+
+ We have never operated as a public company. We have no experience in complying with the various rules and regulations which are required of a public company. As a result, we may not be able to operate successfully as a public company, even if our overall operations are successful. We plan to comply with all of the various rules and regulations which are required of a public company. However, if we cannot operate successfully as a public company, your investment may be materially adversely affected and you could lose your entire investment in us.
+ 
+
+ 
+
+ 23
+ 
+
+ 
+
+ 
+
+ Our general and administrative expenses will increase as a public reporting company.
+ 
+
+ Upon the completion of this public offering our general and administrative expenses will increase. These expenses will include legal, accounting and financial compliance costs. Among other costs, new expenses include annual audits of our financial statements, review of our unaudited financial statements, legal reviews of our filings and Edgar filing costs. Additionally, we must ensure that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis.
+ 
+
+ If we fail to implement and maintain effective internal controls over our financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected, we may be less able to detect fraud, and we may be subject to sanctions by regulatory authorities. 
+ 
+
+ Section 404 of the Sarbanes-Oxley Act of 2002 requires that every public company include in its annual report a management report on such company's internal controls over financial reporting systems that contains an assessment of the effectiveness of such internal controls. We are currently in the process of determining the effectiveness of our existing internal controls over our financial reporting systems and whether such controls are compliant with Section 404. In the event that we determine that our existing internal controls are inadequate, we would need to implement new processes and procedures which could result in higher operating expenses, as well as outside auditor fees. We currently do not have any full-time accounting personnel, and Mr. Massey, our founder, Chairman and CEO, serves as our acting Chief Financial Officer. However, Mr. Massey has not been trained as an accountant. As a result of our limited resources, we may have difficulty in achieving and maintaining the adequacy of our internal controls and could need to hire additional personnel. The failure to maintain effective internal controls could reduce the reliability of our financial statements, increase the potential for fraud and result in a loss of investor confidence. Moreover, if we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the U.S. Securities and Exchange Commission. Any of the foregoing events could adversely affect our financial results or could cause our stock price to fall. 
+ 
+
+ We do not have an audit or compensation committee, and shareholders will have to rely on our board of directors to perform these functions. 
+ 
+
+ We do not have an audit or compensation committee comprised of independent directors, and these functions are performed by all of the members of our board of directors. None of our board members has the experience or background necessary to be qualified to be an audit committee financial expert under the rules of the U.S. Securities and Exchange Commission, and this may impair their ability to analyze our financial statements and evaluate our internal controls and the procedures for financial reporting. Until we have a qualified and independent audit committee, there may be less oversight of management decisions and activities and little ability for minority shareholders to challenge or reverse those activities and decisions, even if they are not in the best interests of minority shareholders. 
+ 
+
+ 
+
+ 24
+ 
+
+ 
+
+ 
+
+ Only the first $250,000 of proceeds in the Offering Escrow Account will be federally insured by the FDIC.
+ 
+
+ To the extent that we are successful in raising more than $250,000 in our offering, any funds in excess of the $250,000 which are held in the Offering Escrow Account will not be federally insured by the FDIC, and therefore, if Key Bank goes out of business it is highly likely that any funds in excess of $250,000 would be lost and not be returned to investors in this offering.
+ 
+
+ If we do not file a Registration Statement on Form 8-A to become a mandatory reporting company under Section 12(g) of the Securities Exchange Act of 1934, we will continue as a reporting company but we will not be subject to the proxy statement or other information requirements of the 1934 Act, our securities will not be eligible to be quoted on the OTC Bulletin Board, and our officers, directors and 10% stockholders will not be required to submit reports to the SEC on their stock ownership and stock trading activity, all of which could reduce the value of your investment and the amount of publicly available information about us.
+ 
+ As a result of this offering, assuming it is declared effective in the year ended December 31, 2013, Section 15(d) of the Securities Exchange Act of 1934, would require that we will file periodic reports with the Securities and Exchange Commission covering the period through December 31, 2013, including a Form 10-K for the year ending December 31, 2013. Prior to attempting to secure a qualification for our securities to trade on the Over the Counter Bulletin Board, we intend to voluntarily file a registration statement on Form 8-A which will subject us to all of the reporting requirements of the 1934 Act. This will require us to file quarterly and annual reports with the SEC and will also subject us to the proxy rules of the SEC. In addition, our officers, directors and 10% stockholders will be required to submit reports to the SEC on their stock ownership and stock trading activity. We are not required under Section 12(g) or otherwise to become a mandatory 1934 Act filer unless we have more than 500 shareholders and total assets of more than $10 million on December 31, 2013. If we do not file a registration statement on Form 8-A at or prior to December 31, 2013, and if we have less than three hundred record holders on January 1, 2014, our reporting obligations under Section 15(d) will be suspended and we will not be required to file periodic reports following our Form 10-K for the year ended December 31, 2013.
+ 
+
+ Risks Relating to the JOBS Act
+ 
+
+ The recently enacted JOBS Act will allow our company to postpone the date by which it must comply with certain laws and regulations intended to protect investors and to reduce the amount of information provided in reports filed with the SEC. We cannot be certain if these delayed or reduced obligations will make our common stock less attractive to investors. 
+ 
+
+ The JOBS Act was intended to reduce the regulatory burden on emerging growth companies . So long as we qualify as an emerging growth company, we will, among other things: 
+ 
+
+ 
+
+ 25
+ 
+
+ 
+
+ 
+
+ 
+ be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; 
+ 
+
+ 
+ be exempt from the say on pay provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the say on golden parachute provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act ) and certain disclosure requirements of the Dodd-Frank Act relating to compensation of Chief Executive Officers; 
+ 
+
+ 
+ be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act, as amended and instead provide a reduced level of disclosure concerning executive compensation; and 
+ 
+
+ 
+ be exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor s report on the financial statements. 
+ 
+ We currently intend to take advantage of all reduced regulatory and reporting requirements that will be available to us so long as we qualify as an emerging growth company , and we have elected not to opt out of the extension of time to comply with new or revised financial accounting standards available under Section 107(b)(1) of the JOBS Act. Among other things, this means that our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting which may increase the risk that weaknesses or deficiencies in the internal control over financial reporting go undetected. Likewise, we may elect not to provide certain information, including certain financial information and certain information regarding compensation of executive officers, which would otherwise have been required to provide in filings with the SEC, which may make it more difficult for investors and securities analysts to evaluate us. As a result, investor confidence in our company and the market price of our common stock may be adversely affected. 
+ 
+
+ Notwithstanding the above, we are also currently a smaller reporting company , meaning that we have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a smaller reporting company , at such time as we cease being an emerging growth company , the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company . Specifically, similar to emerging growth companies , smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations in our SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an emerging growth company or smaller reporting company may make it harder for investors to analyze the Company s results of operations and financial prospects and could make our common stock less attractive to investors. 
+ 
+
+ 
+
+ 26
+ 
+
+ 
+
+ 
+
+ USE OF PROCEEDS
+ 
+
+ We have estimated the total proceeds from this offering to be $500,000, assuming a minimum subscription, or $1,000,000, assuming all shares are sold, which we cannot guarantee. These proceeds do not include offering costs, which we estimate to be $40,000. We expect to use the proceeds from this offering as set forth below, during the first 12 months after successful completion of this offering:
+ 
+
+ 
+ 
+ 
+ Minimum
+ Offering
+ ($500,000)
+ 
+ Total
+ Proceeds of
+ ($750,000)
+ 
+ Maximum
+ Offering
+ ($1,000,000)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Total Proceeds
+ 
+ $500,000
+ 
+ $750,000
+ 
+ $1,000,000
+
+ Less: Estimated Offering Expenses(1)
+ 
+ 40,000
+ 
+ 40,000
+ 
+ 40,000
+
+ 
+ 
+ $460,000
+ 
+ $710,000
+ 
+ $ 960,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Programming(2)
+ 
+ $200,000
+ 
+ $300,000
+ 
+ $ 400,000
+
+ Sales and Marketing(3)
+ 
+ $ 75,000
+ 
+ $112,500
+ 
+ $ 150,000
+
+ Technology(4)
+ 
+ $ 50,000
+ 
+ $ 75,000
+ 
+ $ 100,000
+
+ General and Administrative
+ 
+ $ 75,000
+ 
+ $112,500
+ 
+ $ 150,000
+
+ Working Capital
+ 
+ $ 60,000
+ 
+ $110,000
+ 
+ $ 160,000
+
+ _________________________
+ 
+
+ (1)
+ Offering expenses include legal, accounting, printing, and escrow agent fees. The escrow agent fees are estimated at $1,500. 
+ (2)
+ Includes salaries for producers, production and creative personnel, payment for purchasing non-sponsored programming, talent fees to celebrities, and a live studio lease.
+ (3)
+ Consists of minimal sales staff and audience development costs (e.g., ad buys, partnerships and contests).
+ (4)
+ Includes approximately $50,000 upfront for hardware and software and $5,000 per month thereafter.
+ 
+
+ The allocation of the net proceeds of this offering set forth above is based on our cost estimates and current business plans. If actual costs exceed these estimates or unanticipated events require a change in our plans, we may find it necessary or advisable to reallocate some of the proceeds or may be unable to fund certain activities.
+ 
+
+ Specifically, the primary use of proceeds will be an investment to open a studio in the Los Angeles area in order to produce fresh daily premium content to be added to the maniaTV.com library. The secondary use of proceeds is the hiring of the core staff on the programming and advertising sides of the business. Additionally, we will make smaller technological investments in backend broadband servers and the development of a maniaTV App.
+ 
+
+ Until we use the net proceeds for the above purposes, we intend to invest such funds in short-term, interest-bearing, investment-grade obligations and deposit accounts.
+ 
+
+ We believe that our available cash and existing sources of funding, together with the minimum proceeds of this offering and interest earned thereon, will be adequate to maintain our current and planned operations for at least the next twelve months.
+ 
+
+ 27
+ 
+
+ 
+
+ 
+
+ 
+
+ DETERMINATION OF OFFERING PRICE
+ 
+
+ The offering price of the shares has not been determined by any independent financial evaluation, market mechanism or by our auditors, and is therefore, arbitrary. Because we have no significant operating history and have generated limited revenues to date, the price of our Class A common stock is not based on past earnings, nor is the price of our Class A common stock indicative of the current market value of the assets owned by us. As a result, the price of the Class A common stock in this offering may not reflect how the stock is received on the market. There can be no assurance that the shares offered hereby are worth the price for which they are offered and investors may therefore lose a portion or all of their investment. 
+ 
+
+ DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES
+ 
+
+ Dilution represents the difference between the offering price and the net tangible book value per share immediately after completion of this offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution arises mainly as a result of our arbitrary determination of the offering price of the shares being offered. Dilution of the value of the shares you purchase is also a result of the lower book value of the shares held by our existing stockholders. As of December 31, 2012, the net tangible book value of our shares was $64,768, or approximately $0.008 per share, based upon 8,333,334 shares outstanding. Throughout this Dilution section, we have assumed that all Class B shares have been converted to Class A shares.
+ 
+
+ Upon completion of this offering, but without taking into account any change in the net tangible book value after completion of this offering, other than that resulting from the sale of the minimum (maximum) Shares and receipt of the proceeds of $500,000 ($1,000,000), less offering expenses of $40,000, the net tangible book value of the 9,444,445 shares to be outstanding, assuming a maximum subscription, will be $1,024,768, or approximately $0.109 per Share. If the minimum number of Shares is sold, of which there can be no guarantee, the net tangible book value of the 8,888,890 shares to be outstanding would be $524,768, or approximately $0.059 per share. Accordingly, the net tangible book value of the Shares held by our existing stockholders will be increased by $0.101 per share, assuming a maximum subscription and by $0.051 assuming a minimum subscription. Assuming a maximum subscription, without any additional investment on their part, and the purchasers of Shares in this offering will incur immediate dilution (a reduction in net tangible book value per Share from the offering price of $0.90 per Share) of $0.791 per share. If we sell the minimum amount, they will incur immediate dilution (a reduction in net tangible book value per Share from the offering price of $0.90 per Share) of $0.841 per share. 
+ 
+
+ After completion of the sale of the minimum number of shares in this offering, the new shareholders will own approximately 6.3% of the total number of shares then outstanding, for which they will have made a cash investment of $500,000, or $0.90 per Share. Upon completion of the sale of the maximum number of Shares in this offering, the new shareholders will own approximately 11.8% of the total number of shares then outstanding, for which they will have made a cash investment of $1,000,000, or $0.90 per Share. The existing stockholders will own approximately 93.7% and 88.2% based on the minimum and maximum proceeds received of the total number of shares then outstanding, for which they have made contributions of cash and/or services and/or other assets, totaling $10.00 or $0.000001 per share.
+ 
+
+ 28
+ 
+
+ 
+
+ 
+
+ 
+
+ The following table illustrates the per share dilution to new investors, assuming both the minimum and maximum number of shares being offered, and does not give any effect to the results of any operations subsequent to December 31, 2012 or the date of this registration statement:
+ 
+
+ 
+ 
+ 
+ Minimum
+ Offering
+ 
+ Maximum
+ Offering
+
+ 
+ 
+ 
+ 
+ 
+
+ Public Offering Price Per Share
+ 
+ $0.900
+ 
+ $0.900
+
+ Net Tangible Book Value Prior to This Offering
+ 
+ $0.008
+ 
+ $0.008
+
+ Net Tangible Book Value After This Offering
+ 
+ $0.051
+ 
+ $0.101
+
+ Immediate Dilution Per Share to New Investors
+ 
+ $0.841
+ 
+ $0.791
+
+ 
+
+ The following table summarizes the number and percentage of shares purchased, the amount and percentage of consideration paid and the average price per Share paid by our existing stockholders and by new investors in this offering:
+ 
+
+ 
+ 
+ 
+ Total
+
+ 
+ 
+ Price
+ Per Share
+ 
+ Number of
+ Shares Held
+ 
+ Percent of
+ Ownership
+ 
+ Consideration
+ Paid
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Existing Shareholders
+ 
+ $0.00
+ 
+ 8,333,334 
+ 
+ 93.7% (Min)
+ 88.2% (Max)
+ 
+ $ 10 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Investors in This Offering
+ (Minimum)
+ 
+ $0.90
+ 
+ 555,556 
+ 
+ 6.3%
+ 
+ $ 500,000 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Investors in This Offering
+ (Maximum)
+ 
+ $0.90
+ 
+ 1,111,111 
+ 
+ 11.8%
+ 
+ $1,000,000 
+
+ 
+
+ PLAN OF DISTRIBUTION
+ 
+
+ We are offering 1,111,111 shares of our Class A common stock on a self-underwritten, best-efforts basis with a minimum of 555,556 shares and a maximum of 1,111,111 shares. These shares will be sold through Drew Massey who serves as our Chief Executive Officer, President, Acting Chief Financial Officer, Secretary and a director. Our officers and directors will not purchase shares in this offering, including, but not limited to, purchases of Shares in order to reach the minimum offering amount.
+ 
+
+ In offering the securities on our behalf, Drew Massey will rely on the safe harbor from broker dealer registration set out in Rule 3a4-1 under the Securities Exchange Act of 1934. We believe that Drew Massey specifically meets the provisions of Rule 3a4-1(a)(1)-(3) and (4)(ii) because he is not subject to a statutory disqualification, as that term is defined under Section 3(a)39 of the Securities Exchange Act of 1934; he will not be compensated, directly or indirectly for his participation in the offering; he will not be, at the time of his participation, an associated person of a broker or dealer; and he will meet all of the elements of Rule 3a4-1(a)(4)(ii). 
+ 
+
+ The shares will be sold at the fixed price of $0.90 per Share until the completion of this offering. There is no minimum amount of subscription required by any particular investor. 
+ 
+
+ 
+
+ 29
+ 
+
+ 
+
+ 
+
+ The shares will only be offered and sold in states where the shares have been registered or qualified for sale or where there is an exemption from such registration available which we have complied with.
+ 
+
+ This offering will commence on the date of this prospectus and continue for a period of 150 days, unless we extend the offering period for an additional 90 days, or unless the offering is completed or otherwise terminated by us for a potential total of 240 days (the Expiration Date ). If we extend the offering beyond the initial 150 days, it would most likely be because we are getting close to the minimum and we believe that with a little more time and effort we could reach the minimum or it could be because we have exceeded the minimum but we believe that with a little more time and effort we could raise additional funds. If we do extend the offering beyond the initial 150 days we will use email or regular mail to contact the persons who have already invested and advise them that we are extending the offering.
+ 
+
+ Pending the receipt and payment of any checks gathered to satisfy the $500,000 minimum, all proceeds will be held in a non-interest bearing escrow by the Escrow Agent for this offering at Key Bank in Denver, Colorado. The Escrow Agent is Corporate Stock Transfer, Inc., who has the sole signature authority over this account and determines whether the minimum offering requirements are satisfied. Funds will be deposited in this escrow account promptly following receipt. In the event the minimum is not sold within the 150-day offering period or any extension of an additional 90 days at our discretion, this offering will terminate and all funds will be returned promptly to subscribers by the Escrow Agent without any deductions or payment of interest. Subscribers will not be entitled to a return of funds from such escrow during the 150-day offering period or any extension period, for a potential total of 240 days. Once the minimum offering requirements are satisfied, the funds will be released to us for use in the implementation of our business plans. (See Use of Proceeds. ) The offering will then continue until the maximum offering is sold and the total of $1,000,000 is received, or the offering expires, whichever first occurs. Once the maximum amount has been raised, all funds collected up to the maximum will be deposited directly into our operating bank account for use in operations. In the event the minimum offering amount is not sold prior to the Expiration Date, all monies will be returned to investors, without interest or deduction.
+ 
+
+ There is currently no market for any of our shares, and we cannot give any assurance that our shares will have any market value. Although we intend to apply for trading of our common stock on the Over-the-Counter Bulletin Board electronic quotation service, public trading of our common stock may never materialize. In addition, if a market for our stock does materialize, we cannot give any assurances that a public market for our securities may be sustained.
+ 
+
+ LEGAL PROCEEDINGS
+ 
+
+ We are not involved in any pending legal proceeding nor are we aware of any pending or threatened litigation against us. In addition, there has been no litigation filed against us during the last ten years, and during the same period none of our officers and directors has been involved in any criminal proceedings, bankruptcy filings or other litigation of the type which is required to be disclosed.
+ 
+
+ 
+
+ 30
+ 
+
+ 
+
+ 
+
+ DIRECTORS, EXECUTIVE OFFICERS, 
+ PROMOTERS AND CONTROL PERSONS
+ 
+
+ Each of our directors is elected by the stockholders to a term of one year and serves until his successor is elected and qualified. Each of our officers is appointed by the board of directors to a term of one year and serves until his or her successor is duly appointed and qualified, or until he or she is removed from office. The board of directors has no committees.
+ 
+
+ The name, age and position of our officers and directors are set forth below:
+ 
+
+ 
+ Name
+ 
+ Age
+ 
+ Position(s)
+
+ 
+ 
+ 
+ 
+ 
+
+ Drew C. Massey
+ 
+ 42
+ 
+ President, Chief Executive Officer, Acting Chief Financial Officer, Secretary and Director
+
+ Warren W. Littlefield
+ 
+ 60
+ 
+ Director
+
+ Bruce E. Cunningham
+ 
+ 43
+ 
+ Director
+
+ D. Scott Massey
+ 
+ 47
+ 
+ Director
+
+ 
+
+ The persons named above are expected to hold said offices/positions until the next annual meeting of our stockholders. These are our only officers, directors, promoters and control persons.
+ 
+
+ Background Information about Our Officers and Directors
+ 
+
+ Drew Massey, Chief Executive Officer, Acting Chief Financial Officer, Secretary, and Director. Drew Massey is our founder and he has served as its CEO, acting CFO and a director since April 2009. From January 2003 to July 2007, Mr. Massey served as the Chief Executive Officer and Chairman of the board of directors of The ManiaTV Network, Inc. From July 2007 to March 2009, Mr. Massey served as Chairman of the board of directors of The ManiaTV Network, Inc. Prior to that, Mr. Massey launched national men s magazine POV in 1994 and served as President until March 2000. He has been and continues to be involved in a few startups/ventures, but he spends very minimal amounts of his time and attention on these other business ventures. Mr. Massey graduated from Boston College with a bachelor s degree in Economics and Finance in 1992. We believe that Mr. Drew Massey s twenty years of advertising, media and entertainment experience enables him to make valuable contributions to our board of directors.
+ 
+
+ 
+
+ 31
+ 
+
+ 
+
+ 
+
+ 
+
+ Warren Littlefield, Director. Warren Littlefield has served on our board of directors since September 2012. He founded The Littlefield Company in 1999 which develops and produces television programming for both network and cable. Littlefield had a history-making 2 decade career (1979-1999) at NBC where under his watch as President of the Entertainment Division, NBC won 168 Emmy awards. In this role he oversaw the development and production of NBC s prime-time, late-night and Saturday-morning entertainment programming. While at NBC, Littlefield was responsible for developing many of the series that defined quality programming. As head of the comedy department he developed THE COSBY SHOW, THE GOLDEN GIRLS, ALF, and THE FRESH PRINCE OF BEL-AIR. In his last four years with the network, Mr. Littlefield orchestrated a renaissance at NBC and a return to first place in the ratings race fueled by SEINFELD, ER, FRIENDS, FRASIER, MAD ABOUT YOU, JUST SHOOT ME, 3RD ROCK FROM THE SUN, NEWSRADIO, HOMICIDE: LIFE ON THE STREETS. In his final year at NBC, he supervised the development of WILL & GRACE and THE WEST WING. He initiated the development of LAW AND ORDER: SVU which began the industry trend of procedural spin-offs. During his last three seasons with the network, NBC sold an industry record $6.5 billion in prime-time advertising--$2 billion more than its closest competitor. In 2012, Doubleday published Littlefield s New York Times bestselling memoir TOP OF THE ROCK: INSIDE THE RISE AND FALL OF MUST SEE TV which documents his record-breaking years at NBC. Littlefield is on the Board of Directors of Dynamic Digital Depth (an AIM listed 3D technology company). He graduated from Hobart and William Smith Colleges in Geneva, New York and received a Bachelor of Arts Degree in Psychology. We believe that Mr. Littlefield s 30-plus years of entertainment experience qualify him to serve as a member of our board of directors.
+ 
+
+ Bruce E. Cunningham, Director. Bruce E. Cunningham, Esq., has served on our board of directors since September 2012. Mr. Cunningham is presently Managing Director of Roundtable Venture Partners, LLC. From December 2005 to November 2011, Mr. Cunningham served in a variety of capacities for Jones International, Ltd. and its subsidiaries, a leading media and entertainment conglomerate, including Chief Operating Officer; Chief Strategy Officer; Executive Vice President, Corporate Development; and Chief Legal Officer. During his tenure at Jones, he led several prominent media transactions including the $100 million leveraged buyout of Jones Media Group by Dial Global (NASDAQ: DIAL), a radio programming syndication company affiliated with Oaktree Capital Management and The Gores Group. Mr. Cunningham began his legal career in 1996 with the Silicon Valley-based law firm of Brobeck, Phleger & Harrison LLP where his legal practice focused on media, technology and emerging growth companies. He has also served in leadership roles at Morrison & Foerster LLP and Greenberg Traurig LLP, as well as Inflow, Inc., a leading Internet data center provider, where he served as its Vice President of Strategy and Corporate Development. Mr. Cunningham graduated from the University of Virginia School of Law where he was a Society of Cincinnati Scholar, and he earned his B.A. in Economics from Trinity University where was inducted into the Phi Beta Kappa honor society. Mr. Cunningham has also attended the Aresty Institute of Executive Education at the University of Pennsylvania s Wharton School of Business, as well as the Darden School of Business at the University of Virginia. We believe that Mr. Cunningham s legal training and experience and his 7 years of executive experience with media companies qualifies him to serve as a member of our board of directors.
+ 
+
+ 
+
+ 32
+ 
+
+ 
+
+ 
+
+ D. Scott Massey, Director. Scott Massey has served as one of our directors since September 2012. Mr. Massey has served as Senior Vice President Corporate Partnerships for the Jacksonville Jaguars since he joined the Jaguars in May 2012 to lead the team s sponsorship group. Prior to joining the Jaguars, he spent nine years at the PGA TOUR where he served as Vice President, Business Development/Title Sponsor Relations overseeing many of the TOUR s title sponsor relationships, ranging from automotive (BMW Championship, Honda Classic, Hyundai Tournament of Champions) to financial and insurance services (Wells Fargo Championship, The Barclays, Travelers Championship) to consumer products (Sony Open in Hawaii, HP Byron Nelson Championship) and others. Prior to this role, Mr. Massey managed several of the PGA TOUR s largest Official Marketing Partnerships, including Anheuser-Busch, Delta Airlines, IBM and MasterCard. Prior to joining the PGA TOUR, he held sales and marketing roles with several sports related companies including International Management Group (IMG), golfweb.com and Quokka Sports. Mr. Massey also brings wireless telecom experience to our board of directors, having served as Vice President of Sales for PureMatrix and Director of Business Development for PacketVideo both of which entailed working with wireless carriers in Europe (Orange, O2) and North America (Sprint). Mr. Massey grew up in Boulder, CO and is a graduate of the University of Colorado, earning his Bachelor s Degree in finance in 1987. We believe that Mr. Massey s 20 plus years of media and sports marketing experience plus his wireless telecom experience qualify him to serve as a member of our board of directors.
+ 
+
+ EXECUTIVE COMPENSATION
+ 
+
+ Summary Compensation 
+ 
+
+ The following table sets forth information for our two most recently completed fiscal years concerning the compensation of the Principal Executive Officer. There are no other executive officers, and no employees earned a salary over $100,000 in the last two completed fiscal years.
+ 
+
+ 
+ Name and 
+ Principal Position
+ Year
+ Salary
+ ($)
+ Bonus
+ ($)
+ Stock Awards
+ ($)
+ Option
+ Awards
+ ($)
+ Non-Equity
+ Incentive Plan
+ Compensation
+ ($)
+ Nonqualified
+ Deferred
+ Compensation
+ Earnings ($)
+ All Other
+ Compensation
+ ($)
+ Total ($)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Drew Massey
+ 2012
+ $150,000
+ $140,000
+ -
+ -
+ -
+ -
+ -
+ $290,000
+
+ 
+ 2011
+ $ --
+ -
+ -
+ -
+ -
+ -
+ $43,121
+ $43,121
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+
+ During the year ended December 31, 2012, we started paying Mr. Massey compensation as we started generating positive cash flow. Accordingly, during this period he was paid a salary of $150,000 and a year end bonus of $140,000. We expect to continue to pay Mr. Massey a significant part of our free cash flow until such time as we close our initial public offering. At that time we will continue paying him an annual salary of $150,000 plus bonuses as determined by our board of directors.
+ 
+
+ In September 2012 we purchased a vehicle for the use of Mr. Massey using cash generated from our business. We do not have an employment agreement with Mr. Massey.
+ 
+
+ 
+
+ 33
+ 
+
+ 
+
+ 
+
+ Directors Compensation
+ 
+
+ Our directors have not been paid any compensation for serving as directors of the Company, and there are no specific plans or understandings with respect to future compensation other than the issuance of annual stock options or restricted stock in amounts which have not been determined.
+ 
+
+ 2010 Stock Incentive Plan
+ 
+
+ During April 2010, our board of directors and our stockholders adopted our 2010 Stock Incentive Plan (the 2010 Plan or the Plan ). The following is a summary of the 2010 Plan.
+ 
+
+ Description of the Plan
+ 
+
+ The board of directors believes that the 2010 Plan will advance the interests of the Company by encouraging and providing for the acquisition of an equity interest in the Company by employees, officers, directors, consultants, advisors, and service providers who provide services to the Company, and by providing additional incentives and motivation toward superior Company performance. The Board believes it also will enable the Company to attract and retain the services of key employees, officers, directors, consultants, and service providers by providing additional incentives and motivation toward superior Company performance.
+ 
+
+ General
+ 
+
+ The total number of shares that may be issued pursuant to Stock Incentives under this Plan shall not exceed Ten Million (10,000,000), subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.
+ 
+
+ The 2010 Plan will be administered by the board of directors or a committee appointed by our board of directors. Our board of directors has administered the Plan since it was created. The board of directors has full and exclusive power within the limitations set forth in the Plan to make all decisions and determinations regarding the selection of participants and the granting of awards; establishing the terms and conditions relating to each award; adopting rules, regulations and guidelines; and interpreting the Plan. The board of directors will determine the appropriate mix of stock options and stock awards to be granted to best achieve the objectives of the Plan. The 2010 Plan may be amended by the board of directors, without the approval of stockholders, but no such amendments may increase the number of shares issuable under the Plan or adversely affect any outstanding awards without the consent of the holders thereof.
+ 
+
+ Eligibility
+ 
+
+ Key employees and directors of the Company or its subsidiaries and consultants, advisors and service providers who are eligible to receive shares which are registered on SEC Form S-8 are eligible to receive awards under the 2010 Plan.
+ 
+
+ 
+
+ 34
+ 
+
+ 
+
+ 
+
+ Types of Awards
+ 
+
+ The board of directors may determine the type and terms and conditions of awards under the 2010 Plan. Awards may be granted in a combination of stock options, stock appreciation rights, and/or stock awards. Such awards may have terms providing that the settlement or payment of one type of award automatically reduces or cancels the remaining award. Awards under the Plan may include the following:
+ 
+
+ Stock Options. Stock options entitle their holders to purchase shares of Common Stock at a specified price for a specified period. The exercise price of each option may not be less than 100% of fair market value on the date of grant. 
+ 
+
+ Any stock option granted in the form of an incentive stock option will be intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. Only options granted to employees qualify for incentive stock option treatment. No incentive stock option shall be granted after April 2, 2020, which is 10 years from the date the Plan was initially adopted. A stock option may be exercised in whole or in installments, which may be cumulative. Shares of Common Stock purchased upon the exercise of a stock option must be paid for in full at the time of the exercise in cash or such other consideration determined by the board of directors. Payment may include tendering shares of Common Stock or surrendering of a stock award, or a combination of methods.
+ 
+
+ Stock Appreciation Rights. A stock appreciation right is the right to receive a payment equal to the excess of the fair market value of a specified number of shares of Common Stock on the date the stock appreciation right is exercised over the fair market value on the date of grant of the stock appreciation right. Any stock appreciation rights granted under the 2010 Plan will require that payment upon exercise be in the form of Common Stock of the Company.
+ 
+
+ Stock Awards. Stock awards are awards made in Common Stock or denominated in Common Stock units which entitle the recipient to receive future payments in either shares, cash, or a combination thereof. Awards may be subject to conditions established by the board of directors and set forth in the award agreement, and which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, and other measurements of performance. Awards may be subject to restrictions and contingencies regarding vesting and eventual payment as the board of directors may determine.
+ 
+
+ Terms of Awards. All awards made under the 2010 Plan may be subject to vesting and other contingencies as determined by the board of directors and will be evidenced by agreements approved by the board of directors which set forth the terms and conditions of each award. The board of directors, in its discretion, may accelerate or extend the period for the exercise or vesting of any awards.
+ 
+
+ Generally, all awards, except non-incentive stock options, granted under the 2010 Plan shall be nontransferable except by will or in accordance with the laws of descent and distribution or pursuant to a domestic relations order. During the life of the participant, awards can be exercised only by the participant. The board of directors may permit a participant to designate a beneficiary to exercise or receive any rights that may exist under the 2010 Plan upon the participant s death.
+ 
+
+ 
+
+ 35
+ 
+
+ 
+
+ 
+
+ Change in Control
+ 
+
+ Upon the occurrence of an event constituting a change in control of the Company as defined in the 2010 Plan, all awards outstanding will become immediately vested.
+ 
+
+ Tax Consequences
+ 
+
+ The following are the federal tax consequences generally arising with respect to awards granted under the 2010 Plan. The grant of an option will create no tax consequences for an optionee or the Company. The optionee will have no taxable income upon exercising an incentive stock option (except that the alternative minimum tax may apply), and the Company will receive no deduction when an incentive stock option is exercised. Upon exercising an option other than an incentive stock option, the optionee must recognize ordinary income equal to the difference between the exercise price and the fair market value of the stock on the date of exercise; the Company will be entitled to a tax deduction for the same amount. The tax treatment for an optionee on a disposition of shares acquired through the exercise of an option depends on how long the shares have been held and whether such shares were acquired by exercising an incentive stock option or by exercising an option other than an incentive stock option. Generally, there will be no tax consequences to the Company in connection with the disposition of shares acquired under an option except that the Company may be entitled to a tax deduction in the case of a disposition of shares acquired under the incentive stock option before the applicable incentive stock option holding periods have been satisfied.
+ 
+
+ With respect to other awards granted under the 2010 Plan that are settled either in cash or in stock or other property that is either transferable or not subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the cash or fair market value of shares and the Company will be entitled to a deduction for the same amount. With respect to awards that are restricted as to transferability or subject to substantial risk of forfeiture, the participant must recognize ordinary income equal to the fair market value of the shares received at the time the shares or other property became transferable or not subject to substantial risk of forfeiture, whichever occurs earlier; the Company will be entitled to a deduction for the same amount.
+ 
+
+ Stock Option Grants
+ 
+
+ We granted a total of 363,346 options exercisable at $0.12 per share to a total of 18 persons in November 2010, and none of these persons have ever been officers or directors of the Company, except that three of these persons, William Littlefield, Bruce Cunningham and Scott Massey, became directors in September 2012. These options expire November 1, 2020.
+ 
+
+ Limitations on Liability and Indemnification Matters 
+ 
+ Our amended and restated articles of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Colorado Business Corporation Act. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for: 
+ 
+
+ 
+
+ 36
+ 
+
+ 
+
+ 
+
+ 
+ any breach of the director s duty of loyalty to us or our stockholders; 
+ 
+
+ 
+ any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; 
+ 
+
+ 
+ unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 7-106-401 of the Colorado Business Corporation Act; or 
+ 
+
+ 
+ any transaction from which the director derived an improper personal benefit. 
+ 
+
+ Our amended and restated articles of incorporation and bylaws require us to indemnify our directors, executive officers and other key employees to the maximum extent not prohibited by the Colorado Business Corporation Act or any other applicable law and allow us to indemnify other officers, employees and other agents as set forth in the Colorado Business Corporation Act or any other applicable law. 
+ 
+
+ We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, and executive officers, in addition to the indemnification provided for in our amended and restated articles of incorporation and bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys fees, judgments, penalties, fines and settlement amounts actually and reasonably incurred by a director or executive officer in any action, suit, or proceeding arising out of their services as one of our directors or executive officers, provided that the director or executive officer acted in good faith and in a manner he reasonably believes to be in or not opposed to the best interests of our company. We believe that these charter provisions and indemnification agreements are necessary to attract and retain qualified persons such as directors and officers. We also plan to maintain directors and officers liability insurance. 
+ 
+
+ The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. 
+ 
+
+ At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 
+ 
+
+ Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (Securities Act), may be permitted to directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. 
+ 
+
+ 
+
+ 37
+ 
+
+ 
+
+ 
+
+ PRINCIPAL STOCKHOLDERS
+ 
+
+ The following table sets forth information with respect to the beneficial ownership of our common stock as of March 31, 2013, and as adjusted to reflect the sale of Class A common stock offered by us in our initial public offering, for: 
+ 
+
+ 
+ each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A common stock or Class B common stock; 
+ 
+ each of our directors; 
+ 
+ each of our named executive officers; and
+ 
+ all of our directors and executive officers as a group.
+ 
+
+ We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of Class A common stock or Class B common stock that they beneficially own. 
+ 
+
+ Applicable percentage ownership is based on 1,261,113 shares of Class A common stock and 7,205,555 shares of Class B common stock outstanding at November 15, 2012, assuming conversion of the $100,000 convertible promissory note into 133,334 shares of Class A common stock. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options, held by that person that are currently exercisable or that will become exercisable within 60 days of March 31, 2013. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o maniaTV Inc., 8335 Sunset Boulevard, West Hollywood, California 90069. 
+ 
+
+ 
+ Name of Beneficial Owner
+ Shares Beneficially Owned
+ Prior to Offering
+ % of Total Voting Power Before Offering
+ % of Total Voting Power After Minimum Offering
+ % of Total Voting Power After Maximum Offering
+
+ Class A
+ Class B
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Drew Massey
+ 416,667(1)
+ (33.0%) 
+ 7,205,555 
+ (100%) 
+ 98.8%
+ 98.1%
+ 97.4%
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Warren W. Littlefield
+ 62,500(2)
+ (4.7%) 
+ -- 
+ 0.1%
+ 0.1%
+ 0.1%
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Bruce Cunningham
+ 41,667(3)
+ (3.2%) 
+ -- 
+ 0.1%
+ 0.1%
+ 0.1%
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Scott Massey
+ 41,667(4)
+ (3.2%) 
+ -- 
+ 0.1%
+ 0.1%
+ 0.1%
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ EBX V, L.P.
+ 416,667(5)
+ (33.0%) 
+ -- 
+ 0%
+ 0%
+ 0%
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ All Officers and Directors as
+ a group (4 persons)
+ 562,501 
+ (40.0%) 
+ 7,205,555 
+ 98.9%
+ 98.1%
+ 97.4%
+
+ 
+
+ 
+
+ 38
+ 
+
+ 
+
+ 
+
+ _____________________
+ 
+
+ (1)
+ Represents 416,667 shares of Class A common stock owned by EBX V, L.P. for which Mr. Massey has a proxy and power of attorney to vote the shares.
+ (2)
+ Represents 62,500 shares of Class A common stock underlying options held by Mr. Littlefield.
+ (3)
+ Represents 41,667 shares of Class A common stock underlying options held by Mr. Cunningham.
+ (4)
+ Represents 41,667 shares of Class A common stock underlying options held by Mr. Massey.
+ (5)
+ Drew Massey has a proxy and power of attorney to vote these shares.
+ 
+
+ Future Sales by Existing Stockholders
+ 
+
+ A total of 8,333,334 shares have been issued to the existing stockholders, all of which are restricted securities, as that term is defined in Rule 144 of the Rules and Regulations of the SEC promulgated under the Act. Under Rule 144, such shares can be publicly sold, subject to volume restrictions and certain restrictions on the manner of sale. Any sale of shares held by the existing stockholders (after applicable restrictions expire) and/or the sale of shares purchased in this offering (which would be immediately resalable after the offering), may have a depressive effect on the price of our common stock in any market that may develop, of which there can be no assurance.
+ 
+
+ DESCRIPTION OF SECURITIES
+ 
+
+ The following is a description of the material terms of our second amended and restated certificate of incorporation. This summary does not purport to be complete and is qualified in its entirety by reference to the actual terms and provisions of our second amended and restated certificate of incorporation, a copy of which has been filed as an exhibit to the registration statement of which this prospectus is a part. 
+ 
+
+ Authorized Capitalization 
+ 
+
+ Our authorized capital stock consists of: (i) 100,000,000 shares of Class A common stock, no par value; (ii) 10,000,000 shares of Class B common stock, no par value; and (iii) 5,000,000 shares of preferred stock, no par value. 
+ 
+
+ Common Stock 
+ 
+
+ Except with respect to voting and conversion, shares of Class A common stock and Class B common stock are identical in all respects. 
+ 
+
+ As of March 31, 2013, there were 3 holders of our Class A common stock and one holder of our Class B common stock. The holders of our common stock are entitled to the following rights: 
+ 
+
+ 
+
+ 39
+ 
+
+ 
+
+ 
+
+ Voting Rights 
+ 
+
+ One share of Class A common stock entitles the holders to one vote, and one share of Class B common stock entitles the holder to ten votes. Except as set forth below, all actions submitted to a vote of our stockholders are voted on by the holders of Class A common stock and Class B common stock voting together as a single class. The affirmative vote of the holders of a majority of the outstanding shares of Class A common stock or Class B common stock, voting separately as a class, is required to approve such matters as may require a class vote under the Colorado Business Corporation Act. 
+ 
+
+ Dividends and Other Distributions 
+ 
+
+ Holders of Class A common stock and Class B common stock will share equally in any dividends and other distributions in cash, stock or property (including distributions upon liquidation and consideration to be received upon a sale or conveyance of all or substantially all of our assets), declared by our Board, subject to any preferential rights of the holders of any then outstanding preferred stock. In the case of dividends or other distributions payable on the Class A common stock or the Class B common stock in shares of such stock, including distributions pursuant to stock splits or dividends, only Class A common stock will be distributed with respect to the Class A common stock and only Class B common stock will be distributed with respect to the Class B common stock. In no event will any of the Class A common stock or Class B common stock be split, divided or combined unless each other class of common stock is proportionately split, divided or combined. 
+ 
+
+ Convertibility 
+ 
+
+ The Class B common stock is convertible at any time at the option of the holder of the Class B common stock, into Class A common stock on a share-for-share basis. The shares of our Class B common stock will automatically convert into Class A common stock on a share-for-share basis (1) upon the sale or other transfer to a person that is not an affiliate of Drew Massey. 
+ 
+
+ Preemptive Rights 
+ 
+
+ Neither the Class A common stock nor the Class B common stock carry any preemptive rights entitling a holder to subscribe for or receive shares of any class of our stock or any other securities convertible into shares of any class of our stock. Our Board possesses the power to issue shares of authorized but unissued Class A common stock, Class B common stock and preferred stock without further stockholder action. 
+ 
+
+ 
+
+ 40
+ 
+
+ 
+
+ 
+
+ Liquidation, Dissolution or Winding Up 
+ 
+
+ In the event of any liquidation, dissolution or winding up, whether voluntarily or involuntarily, the holders of the Class A common stock and the Class B common stock shall be entitled to share ratably in any of our assets legally available for distribution to stockholders after payment or provision for payment of our debts and other liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution or liquidation preferences. In either such case, we must pay the applicable distributions or preferential amounts to the holders of any preferred stock before we pay distributions to the Class A common stock and the Class B common stock. 
+ 
+
+ Preferred Stock
+ 
+
+ Our board of directors will have the authority, without approval by the stockholders, to issue up to a total of 5,000,000 shares of preferred stock in one or more series. Our board of directors may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders. As of the date of this Prospectus, there are no outstanding shares of preferred stock and we have no current plans to issue any shares of preferred stock.
+ 
+
+ Options 
+ 
+
+ We have issued a total of 363,346 options exercisable at $0.12 per share pursuant to our 2010 Stock Incentive Plan. See Executive Compensation 2010 Stock Incentive Plan for more information on the 2010 Stock Option Plan and the options granted thereunder.
+ 
+
+ Convertible Note
+ 
+
+ In February 2011 we issued a convertible promissory note in the amount of $100,000 to an investor. The note is payable with our Class A common stock on the earlier of (i) December 31, 2013 or (ii) the closing of an initial public offering resulting in gross proceeds in an amount of not less than five hundred thousand dollars ($500,000). The note accrues interest at the rate of six percent (6%) per annum from February 3, 2011 until the note is paid or converted. 
+ 
+
+ The note is automatically converted into shares of common stock on the earlier of the completion of the initial public offering or December 31, 2013. If it is converted on the completion of the initial public offering, the note plus accrued interest will be converted at the public offering price. The note provides that if the note is converted on the completion of the initial public offering, the interest amount due is 20% of the note or $20,000. Therefore, on the completion of our initial public offering, the note and interest will be convertible into 133,334 shares of Class A common stock.
+ 
+
+ 
+
+ 41
+ 
+
+ 
+
+ 
+
+ If the note is not converted until December 13, 2013, then all principal and accrued but unpaid interest will be converted into such number of shares of common stock that would be equal to a pre-money valuation of the Company equal to $15,000,000.
+ 
+
+ Voting Agreement
+ 
+
+ Drew Massey, our CEO, has entered into a voting agreement with one of our stockholders which will remain in effect after the completion of this offering. This voting agreement is represented by an irrevocable proxy from EBX V, L.P., which owns a total of 416,667 shares of Class A common stock. This irrevocable proxy grants Drew Massey the power to vote the shares owned by EBX V, L.P. at his complete discretion on all matters to be voted upon by stockholders, and the proxy does not have an expiration date. A copy of this proxy is filed as an exhibit to the registration statement of which this prospectus is a part.
+ 
+
+ Anti-Takeover Provisions 
+ 
+
+ So long as the outstanding shares of our Class B common stock represent a majority of the combined voting power of common stock, Drew Massey will effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company, which will have the effect of delaying, deferring or discouraging another person from acquiring control of our company. 
+ 
+
+ After such time as the shares of our Class B common stock no longer represent a majority of the combined voting power of our common stock, the provisions of our amended and restated articles of incorporation and our bylaws may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. 
+ 
+ Amended and Restated Articles of Incorporation and Bylaw Provisions 
+ 
+ Our amended and restated articles of incorporation and our bylaws include a number of provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes in control of our company, even after such time as the shares of our Class B common stock no longer represent a majority of the combined voting power of our common stock, including the following: 
+ 
+
+ 
+ Dual Class Stock. As described above in Common Stock Voting Rights, our amended and restated articles of incorporation provides for a dual class common stock structure, which provides Drew Massey, our founder and CEO, with the ability to control the outcome of matters requiring stockholder approval, even if he owns significantly less than a majority of the shares of our outstanding Class A and Class B common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. 
+ 
+
+ 
+ Stockholder Action; Special Meeting of Stockholders. Our restated certificate of incorporation provides that stockholders will be able to take action by written consent. When the outstanding shares of our Class B common stock represent less than a majority of the combined voting power of our common stock, our stockholders will no longer be able to take action by written consent, and will only be able to take action at annual or special meetings of our stockholders. Stockholders will not be permitted to cumulate their votes for the election of directors.
+ 
+ 42
+ 
+ 
+
+ 
+ Issuance of Undesignated Preferred Stock. Our board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by the board of directors. The existence of authorized but unissued shares of preferred stock enables our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. 
+ 
+
+ Shares Eligible for Future Sale
+ 
+
+ When we complete the maximum offering, we will have outstanding 2,238,890 shares of our Class A common stock and 7,205,555 shares of Class B common stock. The 1,111,111 shares of our Class A common stock sold in this offering will be freely transferable unless they are purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of our Class A common stock and our Class B common stock will be restricted, which means they were originally issued in offerings that were not registered on a registration statement filed with the SEC. These restricted shares may be resold only through registration under the Securities Act or under an available exemption from registration, including the exemption provided by Rule 144.
+ 
+
+ Rule 144 
+ 
+
+ In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144. 
+ 
+
+ In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of: 
+ 
+
+ 
+ 1% of the number of shares of common stock then outstanding, which will equal approximately 94,444 shares immediately after the maximum offering, or
+ 
+
+ 
+ the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. 
+ 
+
+ Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. 
+ 
+
+ 43
+ 
+
+ 
+
+ 
+
+ 
+
+ DESCRIPTION OF OUR BUSINESS
+ 
+
+ Introduction
+ 
+
+ We were founded in 2009 by Drew Massey to build a leading pop-culture Internet, mobile and app-based video entertainment destination. Mr. Massey has over 20 years of experience in the media and entertainment industries and has extensive experience working with leading advertising agencies and brands, producing online content, building a media business, and developing relationships with top talent agencies and celebrities. We are currently in operations with the website www.maniaTV.com which has entertainment content and generates pageviews and advertising revenue. We intend to leverage our founder s experience in Internet television, brand advertising, and premium celebrity shows, to build a leading network of original pop-culture TV shows that will be available through our maniaTV jukebox . 
+ 
+
+ 
+
+ 
+ maniaTV homepage at www.maniaTV.com
+ 
+
+ 
+
+ 44
+ 
+
+ 
+
+ 
+
+ Mr. Massey is our founder, Chairman and Chief Executive Officer. From January 2003 until July 2007, he served as the Chief Executive Officer of The ManiaTV! Network, Inc., an Internet television pioneer. While at The ManiaTV! Network, he initiated a strategy of creating professionally produced pop-culture programming anchored by well-known celebrity hosts. His first celebrity show was a live nightly Internet TV talk show with comedian and actor Tom Green, Tom Green Live! , which launched in 2006. Prior to Tom Green Live! , Mr. Green had his own late-night talk show on MTV, had previously served as guest host for The Late Show with David Letterman, and was married to actress Drew Barrymore. We believe the Tom Green Live! show was the first live celebrity Internet TV show, and its launch was covered in dozens of media outlets including a live interview of Tom Green on The Tonight Show with Jay Leno and a national syndicated story by the Associated Press. Tom Green cited one of his main reasons for turning to Internet TV was his dissatisfaction with the lack of creative control over his cable television program on MTV. Following the successful launch of the Tom Green Live! show, Mr. Massey introduced a weekly Internet TV talk show with musician Dave Navarro named Spread TV which launched in 2007. Mr. Navarro is a popular American guitarist and television personality who is currently hosting the second season of Spike TV s Ink Master . Navarro previously hosted CBS s Rock Star and co-starred in MTV s 'Til Death Do Us Part: Carmen & Dave with Carmen Electra. During the production of these shows, Mr. Massey and his team developed new production techniques and ways to leverage new, emerging technologies that enabled them to produce professional-looking, network-style programming for a fraction of the cost of cable and TV networks. One of our principal operating strategies will be to develop professionally produced, pop-culture programming including: celebrity talk shows; reality shows; celebrity, athlete, artist and band interviews; concerts and other music-related shows; comedy shows; and game shows. 
+ 
+
+ Drew Massey has over 20 years of experience working in the media and entertainment industries. He started his career in 1992 working in the publishing industry for Forbes, Inc. where he created a new division, the American Heritage Custom Publishing Group. Following his tenure at Forbes, Mr. Massey founded P.O.V. (Point of View), a lifestyle magazine for young, professional men. P.O.V. launched in 1995 and received various industry accolades, including being named the Adweek Startup of the Year and the Adweek Hot Up & Comer . From 1995 to 2000, Massey and his team sold advertising to nearly 200 different brands while working with leading advertising agencies and attracted a number of well-known celebrities and athletes to appear on the magazine s cover including: Michael Richards (Seinfeld), Matthew Perry (Friends), Samuel Jackson, Matt Dillon, Tyra Banks, John Cusack, Kiefer Sutherland, Jeff Goldblum, KISS, Brett Farve, Ashley Judd, Grant Hill, Eric Lindros, Edward Burns, Matthew Broderick, Minnie Driver, Joaquin Phoenix, Stephen Dorff, Jon Favreau, Jenna Elfman, Mira Sorvino, Oscar de la Hoya, Jeff Goldberg, Jeff Gordon, Anna Kournikova, Debra Messing, Mena Suvari, and Daniela Pestova. 
+ 
+
+ We will seek to leverage the experience and expertise of Drew Massey, our founder, Chairman and Chief Executive Officer, to become a leading pop-culture Internet, mobile and app-based video entertainment destination. We believe that, through the prior experience of Mr. Massey, we have extensive experience working with leading advertising agencies and brands, relationships with content and advertising partners, extensive online content production expertise, and many connections with top talent agencies and celebrities, which will further our ability to execute our business plan. 
+ 
+
+ 
+
+ 45
+ 
+
+ 
+
+ 
+
+ Our Market Opportunity
+ 
+
+ We largely plan to make money the way that television always has through the sale of advertising. Our revenue from advertising sales constituted approximately 100% of our gross revenue in 2011 and 2012, and we expect to continue to derive most of our revenue from the sale of advertising in the future. 
+ 
+
+ We believe that our primary addressable market opportunity for advertising sales exists within the Internet advertising market in the United States. Internet advertising consists of advertising that appears on desktop and laptop computers, as well as mobile phones and tablets. According to an April 2012 report published by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers LLP (PwC), aggregate Internet advertising revenues in the U.S. totaled approximately $26.0 billion in 2010 and grew to approximately $31.7 billion in 2011. Notably, according to this report, revenues from Internet advertising for 2011 surpassed cable television for the first time ever, and Internet advertising revenues have now surpassed every major advertising category other than broadcast television, including cable television, newspaper, magazines, radio, video games and cinema. Growth in Internet advertising is also expected to continue for the foreseeable future. A September 2012 report by eMarketer projects that Internet advertising will grow from approximately $26 billion in 2010 to approximately $52 billion in 2015, or a 5-year compound annual growth rate of approximately 14.9%. 
+ 
+
+ The Internet advertising market is generally divided as follows:
+ 
+
+ 
+ Display Advertising - Advertiser pays an Internet company for space to display a banner ad, video advertisement, rich media ad or sponsorship on one or more of the Internet company s webpages.
+ 
+
+ 
+ Search Fees - Advertisers pay fees to Internet companies to list and/or link their company site domain name to a specific search word or phrase.
+ 
+
+ 
+ Classifieds and Auctions - Advertisers pay fees to Internet companies to list specific products or services (e.g., online job boards and employment listings, real estate listings, automotive listings, auction-based listings, yellow pages).
+ 
+
+ 
+ Lead Generation - Advertisers pay fees to Internet advertising companies that refer qualified purchase inquiries or provide consumer information where the consumer opts into being contacted by a marketer. These processes are priced on a performance basis (e.g., cost-per-action, -lead or -inquiry), and can include user applications (e.g., for a credit card), surveys, contests (e.g., sweepstakes), or registrations. 
+ 
+
+ 
+ Mobile Advertising - Advertising tailored to and delivered through wireless mobile devices such as smartphones and tablets. 
+ 
+
+ 
+ Email - A form of direct marketing that uses banner ads, links or advertiser sponsorships which appear in email newsletters, email marketing campaigns and other commercial email communications. 
+ 
+
+ 
+
+ 46
+ 
+
+ 
+
+ 
+
+ We plan to initially target the display advertising segment of the U.S. Internet advertising market and, to a lesser degree, the mobile advertising segment. The September 2012 Report by eMarketer projected Internet display advertising will grow from approximately $9.9 billion in 2010 to approximately $23.1 billion in 2015, or a 5-year compound annual growth rate of approximately 18.5%. Display advertising sales constituted approximately 100% of our gross revenue in 2011 and 2012, and we expect to continue to derive most of our revenue from the sale of display advertising in the future. We have not had any mobile advertising sales to date and do not anticipate generating any material amount of mobile advertising revenue for some time. However, this market segment is important for strategic reasons, so we intend to devote a portion of our efforts to establishing this segment of our business. 
+ 
+
+ The display advertising market is generally separated into the following four segments:
+ 
+
+ 
+ Video - TV-like, digital video commercials that appear in live, on-demand and downloadable streaming content. Video ads commonly appear as in-page video commercials or before/during/after content such as streaming videos, music videos, animation, etc. 
+ 
+
+ 
+ Sponsorships - Custom content and/or experiences created for a specific advertiser that often incorporate various ad elements such as display advertising, brand logos, or pre-roll video. Examples of sponsorships include:
+ 
+
+ -
+ Custom-built webpages that incorporate an advertiser s brand and house a collection of content typically centered around a particular theme; 
+ 
+
+ -
+ Content and section sponsorship where an advertiser exclusively sponsors a particular section of the website; and
+ 
+
+ -
+ Sweepstakes and contest sponsorships where an advertiser sponsors a branded sweepstakes or contest that includes submissions and judging. 
+ 
+
+ 
+ Banner Ads Advertisements that are embedded into a web page and are typically intended to attract traffic by linking to the website of the advertiser. 
+ 
+
+ 
+ Rich Media - Advertisements that incorporate animation, sound, and/or interactivity. Rich media ads may appear in differing ad formats such as banner ads, buttons and interstitials (e.g., ads which appear in the transition between two pages of content, pop-up windows, etc.). 
+ 
+
+ Although we may from time to time receive revenue from all four display advertising segments, we believe that our Internet television offerings are particularly well suited for video advertising, and we plan to focus our initial advertising sales efforts on the video segment of the U.S. display advertising market and, to a lesser degree, the sponsorship advertising segment. The September 2012 report released by eMarketer projected that the Internet video advertising segment will grow from approximately $1.42 billion in 2010 to approximately $6.96 billion in 2015, or a 5-year compound annual growth rate of approximately 37.42%. Moreover, Internet sponsorship advertising will grow from approximately $710 million in 2010 to approximately $2.6 billion in 2015, or a 5-year compound annual growth rate of approximately 29.64%.
+ 
+
+ 47
+ 
+
+ 
+
+ 
+
+ 
+
+ The youth and young adult population that we intend to focus our pop-culture programming towards presents another key facet of our market opportunity. According to a January 2012 report by comScore, the millennial generation in the United States, consisting of individuals born between 1981 and 2000, is approximately 79 million strong with direct purchasing power of approximately $170 billion per year. This demographic group is approximately 65% larger than the 48 million Generation X ers (i.e., born between 1965 and 1980) and is the largest generation in the U.S. since the Baby Boomers (i.e., born between 1946 and1964). However, beyond its massive size and strong purchasing power, we believe that so-called Millennials are even more critical to advertisers because of the strong influence that youth and young adults typically have on the spending habits of family members and others. Youth and young adults are often so-called early adopters setting trends that are later adopted by other demographic groups, and consequently we believe that savvy marketers are keenly interested in how to more effectively reach and influence them. 
+ 
+
+ We believe that marketing through traditional mediums such as television, newspaper, magazines and radio is becoming increasingly ineffective for younger generations, and recent industry research has shown sharp declines in broadcast and cable viewership for certain key demographic groups. According to Nielsen, in the fall of 2012, the major broadcast networks lost an average of 15% of their viewers in the 18-49 demographic compared with the first two weeks of last season. Additionally, Nielsen found that the youth-focused cable television networks, MTV and Comedy Central, experienced sharp declines in the 18-49 demographic, with a 41% decline at MTV and a 27% drop at Comedy Central. Nielsen also reported that MTV s annual Video Music Awards show dropped over 50% to 6.1 million viewers from 12.5 million in 2011. Moreover, according to the January 2012 report by comScore, even when an advertiser can reach them through traditional television, the Millennial generation has proven to be harder to persuade with television advertising than members of older generations. 
+ 
+
+ Our Strategy
+ 
+
+ Our mission is to build a leading Internet, mobile and app-based video entertainment destination website that houses a jukebox of original, pop-culture oriented TV shows. Our strategy is centered on the development of a production studio, the maniaTV Creative Show Factory , that will enable us work with producers, writers, celebrities and other Hollywood talent to create original, network-style shows, available both live and on-demand and delivered via the Internet, that are designed to appeal to the pop-culture interests of youth and young adults. Key elements of our strategy include:
+ 
+
+ 
+ Opening a production studio: The maniaTV Creative Show Factory 
+We plan to use the proceeds of this offering to open a production studio in the Los Angeles-area to serve as our creative show factory. This studio will serve as our platform to co-create original programming with producers, writers, celebrities and other talent to build our jukebox of pop-culture content.
+ 
+
+ 
+
+ 48
+ 
+
+ 
+
+ 
+
+ 
+ Building an exclusive library of content focused on pop culture that will appeal to youth and young adults
+The company plans to focus its efforts on developing an exclusive library of professionally produced, pop-culture programming including: celebrity talk shows; reality shows; celebrity, athlete, artist and band interviews; concerts and other music-related shows; comedy shows; and game shows. We believe that our pop-culture content will have particular appeal to younger audiences, primarily 13-34 year olds, who have become increasingly more difficult to access through traditional media such as television, newspapers, magazines and radio. Although we plan to develop most of our library of content ourselves, we may from time-to-time license additional video content from third parties. Our long-term goal is to build an extensive library of content that is regularly updated with new programming. An example of the type of pop-culture content we re targeting is the 10-episode series of Snorfin that we produced with MADtv s Bobby Lee and is available via our website. 
+ 
+ Show logo and picture of the host, MADtv s Bobby Lee, for the
+ Snorfin series we produced.
+ 
+
+ 
+ Producing network-style programming at a fraction of network and cable TV costs
+Production costs for network and cable television are very high. We believe these high costs increase the underwriting risks for producers and distributors of new content, as well as decrease the choices available for consumers. We intend to leverage our founder s knowledge and experience to produce network-style programming at a fraction of the production costs of comparable shows produced for network and cable television. 
+ 
+
+ 
+ Leveraging celebrity endorsements and active celebrity participation in our marketing and branding efforts
+We plan to anchor our pop-culture programming with established celebrity personalities and leverage their fan bases and social followers, marketability and press worthiness to grow our audience and create brand awareness. We will seek to use revenue-sharing arrangements and other incentive mechanisms to develop strong relationships with our celebrities and incent them to serve as our marketing ambassadors. For example, we anticipate bearing all costs of production for our programs. However, we will seek to pay our celebrities lower upfront fees in exchange for a percentage of any net revenue received from their shows. We will seek to promote the shows, build the maniaTV brand, and proactively leverage our celebrities fan bases by requiring minimum promotional activities on the part of our celebrities, such as requirements to promote the shows using social media (e.g., Twitter, Facebook and Myspace), provide interviews and other promotional appearances, and participate in press tours.
+ 
+
+ 
+
+ 49
+ 
+
+ 
+
+ 
+
+ 
+ Providing anytime-anywhere access to our programming
+We believe that the Internet and the proliferation of digital video recorders for television have made consumers increasingly accustomed to accessing video content anytime they choose. Similarly, the increased availability of reliable broadband connectivity and video-enabled mobile devices, such as tablets, smartphones, netbooks and laptops, is driving demand for video services irrespective of the consumer s location. We refer to this as anytime-anywhere access and we intend to capitalize on these trends by building the maniaTV Jukebox that will provide anytime, on-demand access to our content library and a downloadable App for viewing our content anywhere on a host of platforms including mobile devices, online videogame consoles (e.g., Microsoft s Xbox), and Internet-to-TV devices (e.g., Apple TV, Roku, Google TV). 
+ 
+
+ 
+ Leveraging our high-quality programming and production capabilities to build strong, direct relationships with advertising agencies and brands
+To date, the majority of our advertising sales have come through third-party advertising networks that effectively serve as wholesalers for the Internet advertising market. Our studio and production capabilities will also enable us to create custom high quality programming and highly customizable, integrated advertising campaigns designed exclusively for certain advertisers. These campaigns may include a combination of: (i) sponsorship where an advertiser s product and messaging are directly integrated into our show, (ii) in-video advertisements (e.g., pre-roll, post-roll, mid-roll advertisements), and (iii) banner advertisements that are delivered either alongside a video or on the top or side of a web page. Our studio and production capabilities will also enable us to create custom programming and other content exclusively created or produced for certain advertisers. We believe that our production of celebrity-based, pop-culture programming will better enable us to sell customizable advertising solutions directly to advertising agencies at higher rates than standard advertising network rates. 
+ 
+
+ Competition
+ 
+
+ The entertainment industry is intensely competitive, and we compete for content, audiences and advertising dollars against a variety of sources including broadcast, cable and satellite television, movie studios and independent film producers and distributors, online, digital and mobile properties, and other entertainment outlets. The entertainment industry is becoming increasingly dominated by large multi-national, multi-media entities that control key film, magazine, television and/or Internet content, as well as key network, cable, Internet and other distribution outlets. Some of our competitors within the online video market include Viacom (one of the largest owners of cable TV channels and programming), YouTube (a video-sharing website owned by Google), Vevo (a music video website), and Hulu (a website that provides subscription service and free ad-supported on-demand streaming video). Virtually all of these competitors are substantially larger than we are, have been in business longer, and have numerous advantages over us including the ability to acquire financing for their projects and attract superior properties, personnel, actors and/or celebrity hosts. Our competitors may also have preferential access to content writers, producers, important technologies, data on viewers to our website, competitive information, and other important resources. There can be no assurance that we will be able to compete successfully in the future against existing or potential competitors, or that competition will not have a material adverse effect on our business, financial condition or results of operations. 
+ 
+
+ 
+
+ 50
+ 
+
+ 
+
+ 
+
+ Privacy
+ 
+
+ Government Regulation
+ 
+
+ As a company conducting business on the Internet, we are subject to a number of foreign and domestic laws and regulations relating to information security, data protection and privacy, among other things. We are also subject to a variety of legal and regulatory restrictions on how and to whom we market to, for instance marketing to children, which may limit our ability to generate advertising revenue and extend our brand image. Many of these laws and regulations are still evolving and could be interpreted in ways that could harm our business. In the area of information security and data protection, the laws in several states require companies to implement specific information security controls to protect certain types of personally identifiable information. Likewise, all but a few states have laws in place requiring companies to notify users if there is a security breach that compromises certain categories of their personally identifiable information. Any failure on our part to comply with these laws may subject us to significant liabilities. 
+ 
+
+ We are also subject to federal and state laws regarding privacy of audience data. Our privacy policy and terms of use describe our practices concerning the use, transmission and disclosure of viewer information and are posted on our website. Any failure to comply with our posted privacy policy or privacy-related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. Further, any failure by us to adequately protect the privacy or security of our viewers information could result in a loss of confidence in our service among existing and potential viewers, and ultimately, in a loss of viewers and advertising customers, which could adversely affect our business. 
+ 
+
+ Privacy Policy
+ 
+
+ We collect and use certain types of information from our viewers in accordance with the privacy policy that is posted on our website. We may collect personally identifiable information directly from viewers when they register with our website, set up a profile, participate in surveys or otherwise provide information directly to us, send emails or other written or electronic communications to us, and post information on areas of our website that may be viewed by other users or the public. We may also obtain information about our viewers from other viewers and third parties. Our policy is to use the collected information to customize and personalize advertising and content for viewers and to enhance our viewers experience when using our website. 
+ 
+
+ We may also use automated data collection technology, such as tracking cookies, to collect non-personally identifiable information in order to help us track user interactions with our website. Third-party advertisers may also use tracking technologies in order to collect non-personally identifiable information regarding use of our website. Although we believe that we have implemented commercially reasonable physical and electronic security measures to protect against the loss, misuse, and alteration of personally identifiable information, no security measures are perfect or impenetrable, and we may be unable to anticipate or prevent unauthorized access to our viewers personally identifiable information. 
+ 
+
+ 
+
+ 51
+ 
+
+ 
+
+ 
+
+ Intellectual Property
+ 
+
+ Our business is significantly based on the creation, acquisition, use and protection of intellectual property which is primarily in the form of our audio-visual content. While most of the intellectual property we use is created by us, we may also obtain rights to use intellectual property through license agreements with third parties. These licenses will typically limit our use of intellectual property to specific uses and for specific time periods. 
+ 
+
+ We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We control access to our proprietary information by entering into proprietary information and invention assignment agreements with our employees and confidentiality agreements with third parties. We also attempt to monitor for any infringing uses of our intellectual property by third parties. 
+ 
+
+ In addition to these contractual arrangements, we also may rely on a combination of trade secret and copyright protections, and trademark and domain name registrations to protect our content and other intellectual property. We have one registered trademark ManiaTV that was initially filed on November 18, 1998 by our founder, Drew Massey, and re-registered for 10 years on August 18, 2011. We own and operate the website www.maniaTV.com, which domain name expires on November 17, 2018. We also own domain names maniaTV.org (expires on July 6, 2013), maniaTV.net (expires on July 6, 2013) and maniaTV.tv (expires on April 1, 2013). We do not own any patents, nor do we have any pending patent applications. ManiaTV , the maniaTV logo, and other common law trademarks or services marks of maniaTV appearing in this prospectus are the exclusive property of maniaTV. All other service marks, trademarks and trade names referred to in this prospectus are property of their respective holders. 
+ 
+
+ The success of our business depends in part on our ability to maintain and monetize our intellectual property rights to our entertainment content. We are fundamentally a content company and theft of our brands, digital content and other intellectual property has the potential to significantly affect us and the value of our content. Copyright theft is particularly prevalent in many parts of the world that lack effective copyright and technical protective measures similar to those existing in the U.S. or that lack effective enforcement of such measures. The interpretation of copyright, privacy and other laws as applied to our content, and piracy detection and enforcement efforts, remain in flux. The failure to strengthen or the weakening of existing intellectual property laws could make it more difficult for us to adequately protect our intellectual property and negatively affect its value. 
+ 
+
+ Circumstances outside our control could pose a threat to our intellectual property rights. For example, copyright theft may have an adverse effect on our business, because it may reduce the revenue that we are able to receive from the legitimate sale and distribution of our content, undermine lawful distribution channels and inhibit our ability to recoup or profit from the costs incurred to create such works. Also, the efforts we have taken to prevent the unauthorized distribution, performance and copying of our content may not be sufficient. 
+ 
+
+ Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to do business, thereby harming our operating results. 
+ 
+
+ 
+
+ 52
+ 
+
+ 
+
+ 
+
+ Companies in the media and entertainment, Internet, and other industries may own large numbers of patents, copyrights and trademarks and may request license agreements, threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights. In the future and as our business grows, we may face allegations by third parties, including our competitors, that we have infringed their trademarks, copyrights, patents and other intellectual property rights. 
+ 
+
+ Seasonality
+ 
+
+ Our business has experienced and is expected to continue to experience seasonality due to, among other things, seasonal advertising patterns and seasonal influences on audiences viewing habits and attendance. Typically, we can expect our revenue from advertising to be the lowest in the first quarter and highest in the fourth quarter due to the holiday season. The effects of these variances make it difficult to estimate future operating results based on the results of any specific quarter. Viewership is also affected by products and programs available on other media, including traditional cable and television programming.
+ 
+
+ Corporate Information
+ 
+
+ Our headquarters are currently located at 8335 Sunset Boulevard, West Hollywood, California 90069, but once we complete this offering, we intend to lease a studio in the Los Angeles area which we will use to produce videos and for our executive offices. Our phone number is (855) 886-2642. Our website is www.maniaTV.com. The information on or that can be accessed through our website is not part of, and is not incorporated, into this prospectus. 
+ 
+
+ Employees 
+ 
+
+ As of March 31, 2013, we had one full-time employee and he is not represented by a labor union or other labor organization. We also have approximately six independent contractors who provide services to the Company. 
+ 
+
+ 
+
+ 53
+ 
+
+ 
+
+ 
+
+ MANAGEMENT S DISCUSSION AND ANALYSIS OF 
+ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
+ 
+
+ The following discussion and analysis of the combined results of operations and financial condition of maniaTV Inc. for the fiscal years ended December 31, 2011 and 2012 should be read in conjunction with the Selected Financial Data and the audited financial statements and related notes for the years ended December 31, 2011 and 2012, that are included elsewhere in this prospectus. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements.
+ 
+
+ Overview
+ 
+
+ We are an Internet television company focused on building a leading pop-culture Internet, mobile and app-based video entertainment destination. We deliver a library of entertainment programming directly to consumers via the Internet on maniaTV.com. We were incorporated in April 2009 and are headquartered in West Hollywood, California.
+ 
+
+ In 2011, we recorded revenue of $95,041, an operating loss of $52,922, and a net loss of ($59,246). In 2012, we recorded revenue of $750,655, operating income of $395,179, and net income of $75,975. The primary reason we had a net loss in 2011 was due to the fact that we were focused on consummating a financing transaction for most of 2011. The increase in our revenues and net income in 2012 is primarily due to management refocusing on selling advertising and generating revenues instead of focusing on raising capital.
+ 
+
+ Plan of Operations
+ 
+
+ Our mission is to build a leading Internet, mobile and app-based video entertainment destination website that houses a jukebox of original, pop-culture oriented TV shows. Our plan of operations for the first 12 months following this offering include: 
+ 
+
+ 
+ Within the first 90 days after we close the offering, we plan to open the maniaTV Creative Show Factory , a production studio that will allow us to create original programming with producers, writers, celebrities and other talent and build our jukebox of pop-culture content. We expect to use about 15% of the proceeds from this offering to fund the studio. The cost to open the studio will be approximately $100,000 to $200,000.
+ 
+
+ 
+ Once our studio is open, we expect to start building and expanding our exclusive library of content focused on pop culture that will appeal to youth and young adults who have become increasingly more difficult to access through traditional media such as television, newspapers, magazines and radio. We should be producing content within 60-90 days after our studio is open. We expect to use about 25% of the proceeds for programming and development of our exclusive content library.
+ 
+ 54
+ 
+ 
+ 
+ Approximately 90 days after we close the offering, we expect to start to expand our sales team and build strong, direct relationships with advertising agencies and brands. We expect to use about 15% of the proceeds of our offering for sales and marketing efforts.
+ 
+
+ 
+ 
+ Within the 90 days after opening our studio, we expect to start to invest in application development, distribution partners and infrastructure to expand the opportunities to view our content anywhere on a host of platforms in order to provide anytime-anywhere access. We expect to use about 5% of the proceeds of our offering for this purpose.
+ 
+
+ 
+ In about nine to twelve months after closing the offering, we expect to start the development of a new product offering that would provide viewers with access to premium portions of our entertainment programming on a monthly subscription fee basis. We expect to use about 5% of the proceeds of our offering for this purpose.
+ 
+
+ How We Make Money
+ 
+
+ We currently derive all of our revenue from the sale of advertising on our website by packaging our entertainment programming with different forms of advertising, including video, banner ads, site sponsored and direct brand integration advertising. To date, our revenue growth has been attributable to selling advertising through traditional computer-based platforms. We also plan to generate additional revenue through expanding anytime-anywhere access to our content through smartphones, tablets and other viewing platforms that would allow us to offer additional distribution channels to current and potential advertisers for delivery of their advertising messages. Moreover, we plan to also provide viewers with access to premium entertainment programming on a monthly subscription fee basis. 
+ 
+
+ Key Performance Indicators
+ 
+
+ Management believes that the following financial and operating measurements are key indicators of the strength of our business:
+ 
+
+ Audience 
+ 
+
+ The size of our audience is a primary performance metric we focus on in order to grow our revenue. The more persons who view our content and who visit multiple pages of content, the more pageviews we have which results in an increased advertising inventory to be sold to advertisers. The more visits by existing and new viewers drives more revenue opportunities for display advertising (banners) and video advertising (pre-rolls, mid-rolls, etc.) in addition to sponsorship opportunities. Our website generated approximately 36 million and 21 millon pageviews, with 6 million and 11 million unique visitors in 2010 and 2011, respectively. For the year ended December 31, 2012, our website generated approximately 290 million pageviews and 37 million unique visitors. 
+ 
+ 55
+ 
+ 
+ A unique visitor is the count of how many different people access a Web site. For example, if a user leaves and comes back to the site five times during the measurement period, that person is counted as one unique visitor. Unique visitors are determined by the number of unique IP addresses on incoming requests that a site receives. Depending on configuration issues and type of ISP service, in some cases, one IP address can represent many users; in other cases, several IP addresses can be from the same user. The more unique visitors ultimately results in a larger audience.
+ 
+
+ Advertising Revenue
+ 
+
+ Revenue generated from campaigns sold directly to advertising agencies and/or top brand clients is the most advantageous type of revenue to generate for the company. Direct agency/client advertising is sold at a premium rate (cost per thousand viewers). Revenue generated from advertising networks generally delivers a lower rate (cost per thousand viewers) than revenue from advertising agencies, but it allows us to monetize unsold or remnant inventory that would otherwise not be sold. Continuing to focus on selling all of the daily advertising inventory generated is a primary performance goal. We generated $95,041 and $750,655 in advertising revenue in 2011 and 2012, respectively. All revenue in 2011 and 2012 has been generated by advertising networks.
+ 
+ Premium Subscriptions
+ 
+
+ To date, all our revenue is generated through the sale of advertising, however, we plan to develop a premium offering that would permit our audience to view extra content via a nominal monthly subscription fee. Revenue generated from premium subscriptions is a potential future performance indicator that we plan to track, as we have no premium subscription revenue to date.
+ 
+
+ Basis of Presentation
+ 
+
+ Revenue 
+ 
+
+ We generate advertising revenue primarily from advertising display (video and banner ads), site sponsored and direct brand integration advertising, which is typically sold on a cost-per-thousand impressions, or CPM, basis. Advertising campaigns typically range from one to six months, and advertisers generally pay us based on a minimum number of impressions or the satisfaction of other criteria, such as total video views. In the future we may earn referral revenue when, for example, a listener clicks on an advertisement and signs up for membership with an advertiser. We also have arrangements with advertising agencies and brokers pursuant to which we provide the ability to sell advertising inventory on our service directly to advertisers. We report revenue under these arrangements net of amounts due to agencies and brokers. 
+ 
+ 56
+ 
+ 
+ Costs and Expenses
+ 
+
+ Costs and expenses consist of sales and marketing, content development and acquisition, technology, and general and administrative expenses. Content development expenses have been negligible to date but are expected to become a significant component of our costs and expenses once we open our production studio and begin to produce new shows. We also expect to hire new employees in order to support our anticipated growth. In any particular period, the timing of additional hires could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue. We anticipate that our costs and expenses will increase in the future. Our costs and expenses include: 
+ 
+
+ 
+ Sales and Marketing Expenses - Compensation and commissions related to sales, marketing and advertising personnel. In addition, marketing and sales expenses include third-party marketing, branding, advertising, audience measurement and research services, and public relations expenses, as well as facility and other supporting overhead costs. We expect marketing and sales expenses to increase as we build out our sales team.
+ 
+
+ 
+ Content Development and Acquisition Expenses Expenses principally relating to the production and acquisition of content, as well as talent fees paid to celebrities. It is expected that this will become our primary expense item as we grow our company. Content acquisition expenses may also include royalties paid for content we license and distribute to our viewers. 
+ 
+
+ 
+ 
+ Technology Expenses - Infrastructure costs related to content storage, delivery and streaming, maintaining our Internet television service, and creating and serving advertisements through third-party ad servers, including the employee costs associated with supporting these functions. Technology expenses also include our product development expenses for information technology, consulting, facilities-related expenses and costs associated with supporting our website and developing additional distribution channels for our content.
+ 
+
+ 
+ General and Administrative Expenses Expenses relating to employee salaries and benefits for finance, accounting, legal, internal information technology and other administrative personnel. In addition, general and administrative expenses include outside legal and accounting services, facility and other supporting overhead costs. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our finance and administrative functions. We also expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, investor relations costs and SEC compliance costs.
+ 
+
+ 
+ Provision for Income Taxes. Income tax expenses consist of state and federal income taxes. Since our inception, we have been subject to income taxes only in the United States, and we do not contemplate operations outside the U.S. for the foreseeable future. 
+ 
+ 57
+ 
+ 
+ Results of Operation for year ended December 31, 2012 as compared to the year ended December 31, 2011
+ 
+
+ Revenues for the year ended December 31, 2012 increased by $655,614, or approximately 690%, to $750,655 from $95,041 for the year ended December 31, 2011. The increase in revenues was due to management refocusing on selling advertising and generating revenues instead of focusing on raising capital.
+ 
+
+ Cost of sales for the year ended December 31, 2012 increased by $189,606, or approximately 290%, to $254,956 from $65,350 for the year ended December 31, 2011. The increase in cost of sales was due to increased sales and marketing expenses. 
+ 
+
+ General and administrative expenses for the year ended December 31, 2012 increased by $308,133, or approximately 395%, to $386,086 from $77,957 for the year ended December 31, 2011. The increase was due in large part to the $290,000 salary and bonuses paid to our CEO in 2012 while he was not paid any salary or bonuses in the corresponding period in 2011.
+ 
+
+ The interest expense for the two twelve-month periods was relatively constant since most of the interest expense was related to the $100,000 promissory note that was outstanding during both periods.
+ 
+
+ There was a provision for income tax of $18,545 in the year ended December 31, 2012 compared to no such provision in the year ended December 31, 2011. This was due to the fact that we had a net income in the 2012 period and a net loss in the 2011 period.
+ 
+
+ Net income for the year ended December 31, 2012 increased by $135,221 to $75,975 from a net loss of $59,246 in the year ended December 31, 2011. The primary reason for the large improvement in income was the 690% increase in revenues from 2011. This large increase in revenues was somewhat offset by the 395% increase in general and administrative expenses in the 2012 period.
+ 
+
+ Results of Operation for the year ended December 31, 2011 as compared to the year ended December 31, 2010
+ 
+
+ Revenues for the year ended December 31, 2011 decreased by $88,251, or approximately 48%, to $95,041 from $183,292 for the year ended December 31, 2010. This decrease in revenues was primarily due to our management s focus on a financing transaction in 2011 that eventually was not consummated.
+ 
+
+ Cost of Sales for the year ended December 31, 2011 decreased by $46,218, or approximately 41.4%, to $65,350 from $111,568 for the year ended December 31, 2010. The decrease was mainly due to managing the selling expenses to adjust to the lower revenue.
+ 
+
+ General and administrative expenses for the year ended December 31, 2011 increased by $57,764, or approximately 28.6%, to $77,953 for the year ended December 31, 2010. The increase was due to increased accounting fees and shareholder consulting expenses related to a financing transaction which was not consummated.
+ 
+ 58
+ 
+
+ Interest expense increased by $5,757 to $6,324 for the year ended December 31, 2011 from $567 in the year ended December 31, 2010. The interest was related to a $100,000 loan the Company received in February of 2011. 
+ 
+
+ We had a net loss of ($59,246) for the year ended December 31, 2011 as compared to a net income of $37,869 for the year ended December 31, 2010. The primary reason we went from a net profit in 2010 to a net loss in 2011 was due to the fact that we were focused on consummating a financing transaction for most of 2011.
+ 
+ Liquidity and Capital Resources
+ 
+
+ As of December 31, 2012, we had a negative working capital of ($3,598) compared to negative working capital of ($18,274) as of December 31, 2011.
+ 
+
+ Net cash provided by operating activities was $62,226 for the year ended December 31, 2012 as compared to $1,352 for the year ended December 31, 2011. This improvement in net cash for the most recent twelve-month period was due to our net income of $75,975 as compared to the net loss of $59,246 in the year ended December 31, 2011. This increased net cash position was offset in large part by the $178,141 increase in accounts receivable for the year ended December 31, 2012. 
+ 
+ There was $70,392 cash used for investing activities in the year ended December 31, 2012 compared to no cash used for investing activities in the year ended December 31, 2011. The cash was used to purchase a Company vehicle.
+ 
+
+ There was no cash provided by or used for financing activities during the year ended December 31, 2012 as compared to $100,000 of net cash provided by financing activities in the year ended December 31, 2011. This $100,000 represented the proceeds of a $100,000 convertible promissory note received in February 2011.
+ 
+
+ Future Liquidity and Cash Requirements
+ 
+
+ We believe we will be able to fund our future cash requirements for operations from our cash available, operating cash flows, additional borrowings, and issuance of equity securities. We believe these sources of funds, including the minimum $500,000 in proceeds from this offering, will be sufficient to continue our operations and planned expenditures set forth in the Use of Proceeds table for the next 12 months. If we are not successful in this offering, we believe we will be able to continue to slowly grow our business with current cash available and operating cash-flow until we choose to complete a future offering to accelerate growth. If we are not successful in this offering and are unable to generate sufficient cash flow from operations to fund the continued expansion of our sales and to satisfy the related working capital requirements for the next twelve months, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital. Additionally, we may be required to sell material assets or operations or delay or forego expansion and growth opportunities. We might not be able to effect these alternative strategies on satisfactory terms, if at all. Our ability to satisfy such obligations also depends upon our future performance, which in turn is subject to general economic conditions, and to financial, business and other factors affecting our operations, including factors beyond our control. See Risk Factors included in this Prospectus.
+ 
+
+ 59
+ 
+ 
+ For a discussion of the outstanding $100,000 convertible promissory note, see page 41 above.
+ 
+
+ Critical Accounting Policies and Estimates
+ 
+
+ Certain of the Company s accounting policies are important to the portrayal of the Company s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances.
+ 
+ While our significant accounting policies are more fully described in Note 2 to our combined financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis:
+ 
+
+ Use of Estimates
+ 
+
+ The preparation of financial statements in conformity with accounting principles generally acted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. 
+ 
+
+ Allowance for Doubtful Accounts
+ 
+
+ The Company does not maintain an allowance for doubtful accounts.
+ 
+
+ Revenue Recognition
+ 
+
+ The Company recognizes revenue when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. As such, advertising revenues are recognized as advertising services are rendered, delivered, collection is assured, and price is determined. 
+ 
+
+ Recent Accounting Pronouncements
+ 
+
+ In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ( ASU 2011-04 ). ASU 2011-04 was issued to achieve common fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011. We do not believe our adoption of ASU 2011-04 in the first quarter of 2012 will have a material impact on our financial position, results of operations or cash flows.
+ 
+ 60
+ 
+ 
+ In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income ( ASU 2011-05 ). ASU 2011-05 allows an entity to have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011. In November 2011, the Board decided to defer the effective date of certain changes related to the presentation of reclassification adjustments. A final effective date for those changes is expected to be issued soon. While ASU 2011-05 will require us to change the manner in which we present other comprehensive income and its components on a retrospective basis, we do not believe our adoption of ASU 2011-05 in the first quarter of 2012 will have a material impact on our financial position, results of operations or cash flows.
+ 
+ 
+ DESCRIPTION OF PROPERTY
+ 
+
+ We currently have a temporary office located at 8335 Sunset Boulevard, West Hollywood, California 90069. Once we complete this offering, we intend to lease a studio in the Los Angeles area which we will use to produce videos and as our executive offices.
+ 
+
+ CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
+ 
+
+ When we were first formed on April 8, 2009, we borrowed $10,100 from Drew Massey in order to purchase certain assets from The ManiaTV Network, Inc. and its major secured creditor. This loan was repaid without interest during the latter part of 2009.
+ 
+
+ Indemnification Agreements
+ 
+ We have entered into indemnification agreements with each of our directors and our executive officer. The indemnification agreements and our amended and restated articles of incorporation and bylaws will require us to indemnify our directors to the fullest extent permitted by Colorado law. For more information regarding these agreements, see Executive Compensation Limitations on Liability and Indemnification Matters
+ 
+
+ MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+ 
+
+ No public market currently exists for shares of our common stock. Following completion of this offering, we intend to apply to have our common stock listed for quotation on the Over-the-Counter Bulletin Board. As of March 31, 2013, we had three holders of our Class A common stock and one holder of our Class B common stock.
+ 
+
+ The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
+ 
+ 61
+ 
+ 
+ A purchaser is purchasing penny stock which limits the ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
+ 
+
+ The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:
+ 
+ 
+ contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; 
+ 
+ contains a description of the broker s or dealer s duties to the client and of the rights and remedies available to the client with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended; 
+ 
+ contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; 
+ 
+ contains a toll-free telephone number for inquiries on disciplinary actions; 
+ 
+ defines significant terms in the disclosure document or in the conduct of trading penny stocks; and 
+ 
+ contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.
+ 
+
+ The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the client: 
+ 
+
+ 
+ the bid and offer quotations for the penny stock; 
+ 
+ the compensation of the broker-dealer and its salesperson in the transaction; 
+ 
+ the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and 
+ 
+ monthly account statements showing the market value of each penny stock held in the client s account. 
+ 
+
+ In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
+ 
+ 62
+ 
+
+ Reports
+ 
+
+ Once our registration statement under
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001560046_sqn-aif_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001560046_sqn-aif_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e762abd60a2b4b4658de9dbe310ccac4923516bd
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001560046_sqn-aif_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The legality of the units has been passed upon and the statements under the caption Material U.S. Federal Income Tax Consequences as they relate to federal income tax matters have been reviewed and passed upon by Troutman Sanders LLP, Irvine, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561092_avangard_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561092_avangard_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d9f29017c75caf557471338ccd1da07c51c96404
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561092_avangard_legal_matters.txt
@@ -0,0 +1,587 @@
+LEGAL
+MATTERS
+
+ 
+
+The
+validity of the securities offered hereby will be passed upon for us by Legal & Compliance, LLC, West Palm Beach, FL.
+
+ 
+
+EXPERTS
+
+ 
+
+The
+financial statements of Avangard Capital Group, Inc. as of September 30, 2012 and the period from June 13, 2012 (inception) through
+June 30, 2012, included in this prospectus, have been included herein in reliance on the report by Friedman LLP our independent
+public accounting firm, given on the authority that the firm are experts in accounting and auditing. There is no familial relationship
+between Simon Friedman, our corporate secretary and a Director with any partner or employee of Friedman LLP. 
+
+ 
+
+COMMISSION S
+POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
+
+ 
+
+Insofar
+as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling
+persons of the company pursuant to any provisions contained in its Articles of Incorporation, Bylaws, or otherwise, the Company
+has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy
+as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
+(other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company
+in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
+with the securities being registered, the Company will, unless in the opinion of the Company s legal counsel the matter
+has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification
+is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
+
+ 
+
+ - 29 -
+
+ 
+
+ 
+
+ 
+
+WHERE
+YOU CAN FIND MORE INFORMATION
+
+ 
+
+We
+are subject to informational filing requirements of the U.S. Securities Exchange Act of 1934, as amended, and its rules and regulations.
+This means that we will file reports and other information with the U.S. Securities and Exchange Commission. You can inspect and
+copy this information at the Public Reference Facility maintained by the SEC at Judiciary Plaza, 100 F Street, N.E. Washington
+D.C. 20549. You can receive additional information about the operation of the SEC s Public Reference Facilities by calling
+the SEC at 1-800-SEC-0330. The SEC maintains a Web site that will contain the reports and other information that we file electronically
+with the Commission and the address of that website is http://www.sec.gov. Statements contained in this prospectus as to
+the intent of any contract or other document referred to are not necessarily complete, and, in each instance, reference is made
+to the copy of the particular contract or other document filed as an exhibit to this registration statement, each statement being
+qualified in all respects by this reference.
+
+ 
+
+This
+prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations
+provided in this prospectus. We have not authorized anyone to provide you with any information other than that provided in this
+prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities
+in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of
+any date other than the date on the front of the document.
+
+ 
+
+ - 30 -
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC.
+
+ 
+
+FINANCIAL
+STATEMENTS (Unaudited)
+
+ 
+
+PERIOD
+ENDED SEPTEMBER 30, 2012
+
+ 
+
+TABLE
+OF CONTENTS
+
+ 
+
+ 
+ Page
+
+ 
+ 
+
+ Financial
+ Statements (Unaudited)
+ 
+
+ 
+ 
+
+ Balance
+ Sheet
+ F-2
+
+ 
+ 
+
+ Statement
+ of Income
+ F-3
+
+ 
+ 
+
+ Statement
+ of Stockholders Equity
+ F-4
+
+ 
+ 
+
+ Statement
+ of Cash Flow
+ F-5
+
+ 
+ 
+
+ Notes
+ to Financial Statements
+ F-6
+
+ 
+
+ F-1
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC. 
+
+ 
+
+BALANCE SHEET
+
+ 
+
+SEPTEMBER 30, 2012
+
+(Unaudited)
+
+ 
+
+ ASSETS 
+ 
+
+ Current
+ assets 
+ 
+
+ Cash 
+ $650,220 
+
+ Floor
+ plan financing receivable 
+ 155,400 
+
+ Bridge
+ loan receivable 
+ 95,000 
+
+ Fees
+ receivable 
+ 3,712 
+
+ Interest
+ receivable 
+ 2,633 
+
+ Total
+ current assets 
+ $906,965 
+
+ 
+ 
+
+ LIABILITIES
+ AND STOCKHOLDERS EQUITY 
+ 
+
+ Current
+ liabilities 
+ 
+
+ Accounts
+ payable 
+ $10,300 
+
+ Total
+ current liabilities 
+ 10,300 
+
+ 
+ 
+
+ Stockholders 
+ equity 
+ 
+
+ Convertible
+ Preferred Stock Series A, $0.0001 par value, 300,000,000 authorized; 905,000 shares issued and outstanding; 
+ 90 
+
+ Common
+ stock, $0.0001 par value, 1,000,000,000 authorized; Class A, 10,000,000 shares issued and outstanding 
+ 1,000 
+
+ Additional
+ paid in-capital 
+ 904,910 
+
+ Retained
+ earnings 
+ (9,335)
+
+ Total
+ stockholders equity 
+ 896,665 
+
+ Total
+ liabilities and stockholders equity 
+ $906,965 
+
+ 
+
+See
+notes to financial statements.
+
+ 
+
+ F-2
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC. 
+
+ 
+
+STATEMENT OF INCOME 
+
+ 
+
+FOR THE THREE MONTHS
+ENDED SEPTEMBER 30, 2012 
+
+(Unaudited)
+
+ 
+
+ Revenues 
+ 
+
+ Origination fees 
+ $8,645 
+
+ Interest
+ revenue 
+ 7,556 
+
+ 
+ 16,201 
+
+ 
+ 
+
+ Operating expenses 
+ 
+
+ General
+ and administrative 
+ 26,906 
+
+ 
+ 26,906 
+
+ Net
+ loss 
+ $(10,705)
+
+ 
+ 
+
+ Net loss per share attributable to common stockholders
+ - basic and diluted 
+ (0.00)
+
+ 
+ 
+
+ Weighted average number of common shares used
+ in computation - basic and diluted 
+ 10,000,000 
+
+ 
+
+See notes to financial statements.
+
+ 
+
+ F-3
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC.
+
+ 
+
+STATEMENT OF STOCKHOLDERS 
+EQUITY
+
+ 
+
+FOR THE THREE MONTHS
+ENDED SEPTEMBER 30, 2012
+
+(Unaudited)
+
+ 
+
+ 
+ Preferred
+ Stock 
+ Common
+ Stock 
+ Additional Paid 
+ Retained 
+ 
+ Total 
+
+ 
+ Shares 
+ Amount 
+ Shares 
+ Amount 
+ in
+ Capital 
+ Earnings 
+ Subscriptions 
+ Stockholders Equity 
+
+ Balance,
+ June 30, 2012 
+ 905,000 
+ $90 
+ 10,000,000 
+ $1,000 
+ $904,910 
+ $1,370 
+ $(744,451) 
+ $162,919 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Subscription
+ received 
+ - 
+ - 
+ - 
+ - 
+ - 
+ - 
+ 744,451 
+ 744,451 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Net
+ loss 
+ - 
+ - 
+ - 
+ - 
+ - 
+ (10,705) 
+ - 
+ (10,705)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Balance,
+ September 30, 2012 
+ 905,000 
+ $90 
+ 10,000,000 
+ $1,000 
+ $904,910 
+ $(9,335) 
+ $- 
+ $896,665 
+
+ 
+
+See notes to financial statements.
+
+ 
+
+ F-4
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC.
+
+ 
+
+STATEMENT OF CASH FLOWS
+
+ 
+
+FOR THE THREE MONTHS
+ENDED SEPTEMBER 30, 2012
+
+(Unaudited)
+
+ 
+
+ Cash flows from operating activities 
+ 
+
+ Net loss 
+ $(10,705)
+
+ Adjustments to reconcile net income
+ to net cash used in operating activities
+ 
+
+ Changes in assets and liabilities 
+ 
+
+ Floor plan financing receivable 
+ (14,510)
+
+ Fees receivable 
+ (2,589)
+
+ Interest receivable 
+ (2,023)
+
+ Accounts
+ payable 
+ 9,900 
+
+ Net cash
+ used in operating activities 
+ (19,927)
+
+ 
+ 
+
+ Cash flows from investing activities 
+ 
+
+ Bridge loan
+ receivable 
+ (95,000)
+
+ Net cash
+ used in investing activities 
+ (95,000)
+
+ 
+ 
+
+ Cash flows from financing activities 
+ 
+
+ Subscription
+ received 
+ 744,451 
+
+ Net cash
+ provided by financing activities 
+ 744,451 
+
+ 
+ 
+
+ Net increase in cash 
+ 629,524 
+
+ Cash, beginning of period 
+ 20,696 
+
+ Cash, end of period 
+ $650,220 
+
+ 
+
+See notes to financial statements.
+
+ 
+
+ F-5
+
+ 
+
+ 
+
+ 
+
+AVANGARD
+CAPITAL GROUP, INC.
+
+ 
+
+NOTES
+TO FINANCIAL STATEMENTS (Unaudited)
+
+ 
+
+ 
+
+1
+– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+ 
+
+Description
+of
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561196_sport_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561196_sport_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0d1bddc4ab9cfce298d68926df3790cdf1d2d3d7
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561196_sport_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business; however, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time, that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material, adverse affect on our business, financial condition or operating results.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561299_comhear_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561299_comhear_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0a7d4ba7f3bf6f875b7a73ee0bcdf396c275eefd
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561299_comhear_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the shares of common stock offered hereby will be passed upon for us by Greenberg Traurig, LLP, Irvine, California. EXPERTS Li and Company, PC has audited, as set forth in their report appearing elsewhere in this prospectus, our financial statements for the period from inception (September 8, 2011) through December 31, 2011 and as of and for the fiscal year ended December 31, 2012. We have included our financial statements in the prospectus in reliance on Li and Company, PC s report, given on their authority as experts in accounting and auditing. AVAILABLE INFORMATION Upon the effectiveness of our registration statement on Form S-1, of which this prospectus is made part, we intend to file a registration statement on Form 8-A under the Securities Exchange Act of 1934 for purposes of registering our common stock pursuant to Section 12(g) under that Act. Upon the filing of the Form 8-A registration statement, we will become subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, will file reports, proxy statements and other information with the SEC. Our reports, proxy statements and other information filed pursuant to the Securities Exchange Act of 1934 may be inspected and copied, at prescribed rates, at the Public Reference Room maintained by the SEC at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the SEC s Web site is http://www.sec.gov. We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Pursuant to Section 107 of the JOBS Act, an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies, unless the "emerging growth company" elects to opt-out of the extended transition period. We have irrevocably elected to opt-out of extended transition period provided in Section 7(a)(2)(B) of the Securities Act, meaning that we will comply with new or revised accounting standards on the same terms as publicly traded companies in the U.S. generally. We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock offered hereby. As permitted by the rules and regulations of the SEC, this prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. Copies of the registration statement and the exhibits are on file with the SEC and may be obtained from the SEC s Web site or upon payment of the fee prescribed by the SEC, or may be examined, without charge, at the offices of the SEC set forth above. For further information, reference is made to the registration statement and its exhibits. [Back Cover Page] 3,792,825 Shares PLAYBUTTON CORPORATION Common Stock Until [90 days after the effective date], 2013, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of a dealer to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following table sets forth estimated expenses we expect to incur in connection with the resale of the shares being registered. All such expenses are estimated except for the SEC registration fee. SEC registration fee $ 513 Printing expenses $ 2,000 Fees and expenses of counsel for the Company $ 25,000 Fees and expenses of accountants for Company $ 15,000 Miscellaneous $ 5,000 Total $ 47,513 Item 14. Indemnification of Directors and Officers. (a) Certificate of Incorporation. Our Certificate of Incorporation provide that to the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, a director of our corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. (b) Bylaws. Our Bylaws provide that we may indemnify our directors, officers, employees and other agents to the fullest extent permitted under the Delaware General Corporation Law. We have obtained liability insurance for our officers and directors. (c) Agreement. We have entered into separate indemnification agreements with each of our directors and officers. These agreements require us, among other things, to indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from actions not taken in good faith or in a manner the indemnitee believed to be opposed to the best interests of our corporation), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Item 15. Recent Sales of Unregistered Securities. Playbutton Corporation was formed on October 12, 2012 under the laws of the State of Delaware under the name Playbutton Acquisition Corp. Upon our organization, we issued to three parties 241,182 shares of our common stock each. The issuances were conducted pursuant to Section 4(a)(2) of the Securities Act of 1933 ("Securities Act"). No commissions or finder s fees were paid in connection with the issuances. On October 15, 2012, we entered into a Unit Exchange Agreement with Playbutton, LLC and the six members of Playbutton, LLC pursuant to which the members of Playbutton, LLC agreed to transfer to us all of the issued and outstanding membership interests of Playbutton, LLC in exchange for our issuance of 3,384,079 shares of our common stock to the members of Playbutton, LLC. On the same date, we entered into an Intellectual Property Purchase Agreement with Parte, LLC, the owner of the patents, trademark and other proprietary rights relating to the Playbutton product, pursuant to which Parte sold to Playbutton, LLC all right, title and interest in and to all patents, trademark and other proprietary rights relating to the Playbutton product in consideration of our issuance of 892,375 shares of our common stock to Parte. The transactions under the above agreements closed on December 18, 2012, at which time all shares were issued. The issuances were conducted pursuant to Section 4(a)(2) of the Securities Act. No commissions or finder s fees were paid in connection with the issuances. Between October 2012 and May 2013, we conducted the private placement sale of 1,264,275 units of our securities at the offering price of $2.00 per unit to 43 investors. Each unit consisted of two shares of our common stock and one warrant to purchase an additional share of our common stock at an exercise price of $1.50 per share. The warrants have a term of five years from the date of issuance. In connection with the placement, we engaged WFS Investments, Inc., of Dallas, Texas, to act as placement agent and paid WFG sales commissions of 8% of the gross sales price on all sales of units made by WFG. The sale of the units were made to only to accredited investors, as such term is defined in Rule 501(a) under the Securities Act, in accordance with Section 4(a)(2) of the Securities Act and Rule 506 thereunder. In May 2013, and in connection with our hiring of a new vice president of sales and partnerships, we issued to the officer 25,000 shares of our common stock as an inducement to accept our offer of employment. The issuance was conducted pursuant to Section 4(a)(2) of the Securities Act. No commissions or finder s fees were paid in connection with the issuance. II-1 Item 16. Exhibits and Financial Statement Schedules. 3.1 Certificate of Incorporation of the Registrant* 3.2 Amendment to Certificate of Incorporation of the Registrant* 3.3 Bylaws of the Registrant* 4.1 Specimen common stock certificate* 4.2 Form of private placement warrant held by selling stockholders* 5.1 Opinion of Greenberg Traurig, LLP* 10.1 Unit Award Agreement dated March 1, 2012 between Playbutton, LLC and Adam Tichauer* 10.2 Playbutton 2011 Equity Incentive Plan* 10.3 Unit Exchange Agreement dated October 15, 2012 between Registrant, Playbutton, LLC and the members of Playbutton, LLC* 10.4 Intellectual Property Purchase Agreement dated October 15, 2012 between Registrant, Playbutton, LLC and Parte, LLC* 10.5 License Agreement dated October 15, 2012 between Playbutton, LLC and Parte, LLC* 10.6 Form of Registration Rights Agreement between Registrant and selling stockholders* 10.7 Consulting Agreement dated December 20, 2012 between Playbutton, LLC and Parte, LLC* 10.8 Amendment No. 1 dated March 14, 2013 to Registration Rights Agreement between Registrant and selling stockholders* 10.9 Form of Indemnification Agreement between Registrant and its officers and directors* 21.1 List of Subsidiaries* 23.1 Consent of Greenberg Traurig, LLP, filed as part of Exhibit 5.1* 23.2 Consent of Li and Company, PC — Previously filed. II-2 Item 17. Undertakings. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Pre-Effective Amendment No. 2 to Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York on August 1 , 2013. PLAYBUTTON CORPORATION By: /s/ Adam Tichauer Adam Tichauer, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated. Signatures Title Date /s/ Adam Tichauer Chief Executive Officer, August 1, 2013 Adam Tichauer Chief Financial Officer and Director (Chief Accounting Officer) /s/ Mark Hill Chairman of the Board August 1, 2013 Mark Hill /s/ James Canton, Ph.D. Director August 1, 2013 James Canton, Ph.D. /s/ Nick Dangerfield Director August 1, 2013 Nick Dangerfield II-4 The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED AUGUST 1 , 2013 PROSPECTUS 3,792,825 Shares Common Stock This prospectus relates to shares of common stock of Playbutton Corporation that may be offered for sale for the account of the selling
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diff --git a/parsed_sections/legal_matters/2013/CIK0001561387_benefytt_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561387_benefytt_legal_matters.txt
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@@ -0,0 +1 @@
+Table of Contents Index to Financial Statements represent the depreciation in value of the Class A common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions. Enforcement of Legal Rights All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada. Taxation and Eligibility for Investment Canadian purchasers of Class A common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the Class A common stock in their particular circumstances and about the eligibility of the investment by the purchaser under relevant Canadian legislation. Table of Contents Index to Financial Statements LEGAL MATTERS The validity of the issuance of the shares of Class A common stock offered hereby will be passed upon for us by Davis Polk & Wardwell LLP, New York, New York. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001561627_exone-co_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561627_exone-co_legal_matters.txt
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index 0000000000000000000000000000000000000000..86662a1123c696b62cd34678c781cd68a95237af
--- /dev/null
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@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this offering will be passed upon for us by Buchanan Ingersoll & Rooney PC, Pittsburgh, Pennsylvania. Nelson Mullins Riley & Scarborough LLP, Washington, D.C., will pass upon certain legal matters for the underwriters.
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diff --git a/parsed_sections/legal_matters/2013/CIK0001561697_corgreen_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561697_corgreen_legal_matters.txt
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index 0000000000000000000000000000000000000000..33640d41a5402b7ed88ec854f49c154d7fd5c750
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@@ -0,0 +1 @@
+LEGAL MATTERS We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our director, officer or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Our address for service of process in Aspen Asset Management Services, LLC., 6623 Las Vegas Blvd., S, Suite 255, Las Vegas, NV 89119. Table of Contents
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diff --git a/parsed_sections/legal_matters/2013/CIK0001561781_nexus_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561781_nexus_legal_matters.txt
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index 0000000000000000000000000000000000000000..aba0c91d44e8651bfe357da3657b9b62f4ef2f9d
--- /dev/null
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@@ -0,0 +1,962 @@
+legal matters and is representing us in connection with this offering.
+
+DESCRIPTION OF OUR BUSINESS
+
+Executive Summary
+
+Nexus Enterprise Solutions, Inc. ( Nexus ) was incorporated in the State of Wyoming on October 19, 1995 as Global Link Technologies, Inc. On June 10, 2008, Global Link Technologies filed Articles of Amendment with the State of Wyoming changing its name to MutuaLoan Corporation. On June 16, 2011 (as filed with the State of Wyoming on September 16, 2011), MutuaLoan Corporation entered into a business combination with Nexus Enterprise Solutions, Inc. ( Nexus Florida ). The business combination was accounted for as a reverse merger recapitalization. The accounting target/legal acquirer was MutuaLoan. The accounting acquirer/legal target was Nexus Florida. Nexus is currently conducting operations and generating revenue. On April 5, 2011, John Limansky was appointed as a director and also as Chief Executive Officer of the Company. On June 3, 2011, Maureen Morgan Bokzam was appointed as a director and also as Vice President. In January of 2012, Jason Foster was appointed as Chief Executive Officer of the Company. 
+
+The Company has commenced full business operations and is generating revenues. The company does not consider itself to be a blank check company as defined in Rule 419 of Regulation C of the Securities Act of 1933. Based upon the above, the Company believes it is not within the scope of Rule 419. The Company has not been subject to any bankruptcy, receivership or similar proceeding. 
+
+21
+
+Because its business is customer-driven, its revenue requirements will be reviewed and adjusted based on sales. The costs associated with operating as a public company are included in its budget. Management will be responsible for the preparation of much of the required documents to keep the costs to a minimum. Management believes that its revenue stream will be sufficient to fund its operations over the next twelve months. 
+
+The Company has been issued an opinion by our auditors that raised substantial doubt about its ability to continue as a going concern based on its current financial position. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, its revenue generation and/or issuance of common shares.
+
+Principal services and their markets
+
+Our Company s primary service is lead generation for its customers. The Company s target customers are currently companies in the insurance and financial service industries, but we intend to expand to additional industries in the future. Below, our lead generation service and process are detailed in an effort to explain the methods by which our company generates revenue. 
+
+LEAD GENERATION DEFINITION: A lead, in a marketing context, is a potential sales contact: an individual or organization that expresses an interest in your goods or services. Leads are typically obtained through the referral of an existing customer, or through a direct response to advertising/publicity. A company's marketing department is typically responsible for lead generation. Pursuing and closing leads normally falls to the company's sales department. For example, a vendor will display their wares at an industry trade show, hoping to attract the attention of qualified buyers attending the exhibit. Each inquiry for more vendor information would be a "lead," which might subsequently be developed into a sale. A company's lead generation efforts and its approach to dealing with leads can significantly impact its success in the marketplace. We use two separate methods of acquiring leads, which are online generation and offline generation. 
+
+Online generation
+
+There are many ways to generate leads online. Each has its own formula that needs to be perfected in
+
+order to find the balance between quantity and quality. The online lead generation methods used by our Company are as follows, with each including a description of how the process involved with each type of lead generation method is utilized. 
+
+1. Proprietary Lead Portals : provides several ways for advertisers to put targeted offers in front of a
+
+buying consumer audience via a proprietary network of websites all specifically built for a broad or
+
+specific industry. For this service, our customers pay per generated lead on a cost per lead (the delivery of just the name and contact details) or cost per acquisition basis (an actual credit card paid transaction.)
+
+2. Search engine optimization (SEO): is the process of improving the volume or quality of traffic to a website from search engines via "natural" or un-paid ("organic" or "algorithmic") search results as opposed to search engine marketing (SEM) which deals with paid inclusion. Typically, the earlier (or higher) a site appears in the search results list, the more visitors it will receive from the search engine. SEO may target different kinds of search, including image search, local search, video search, and industry-specific vertical search engines. This gives a web site web presence. As an Internet marketing strategy, SEO considers how search engines work and what people search for. Optimizing a website primarily involves editing its content and HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines.
+
+The acronym "SEO" can refer to "search engine optimizers," a term adopted by an industry of consultants who carry out optimization projects on behalf of clients, and by employees who perform SEO services in-house. Search engine optimizers may offer SEO as a stand-alone service or as a part of a broader marketing campaign. Because effective SEO may require changes to the HTML source code of a site, SEO tactics may be incorporated into web site development and design. The term "search engine friendly" may be used to describe web site designs, menus, content management systems, images, videos, shopping carts, and other elements that have been optimized for the 
+
+22
+
+purpose of search engine exposure. Another class of techniques, known as black hat SEO or spamdexing, use methods such as link farms, keyword stuffing and article spinning that degrade both the relevance of search results and the user experience of search engines. Search engines look for sites that employ these techniques in order to remove them from their indices.
+
+3. Pay Per Click: is an Internet advertising model used on websites, in which advertisers pay a host only when their ad is clicked. With search engines, advertisers typically bid on keyword phrases relevant to their target market. Content sites commonly charge a fixed price per click rather than use a bidding system.
+
+Cost per click (CPC) is the amount of money an advertiser pays search engines and other Internet publishers for a single click on its advertisement that brings one visitor to its website. In contrast to the generalized portal, this seeks to drive a high volume of traffic to one site. It does this by offering financial incentives (in the form of a percentage of revenue) to affiliated partner sites. 
+
+4. Email Advertising: is a form of direct marketing which uses electronic mail as a means of communicating commercial or fundraising messages to an audience. In its broadest sense, every e-mail sent to one of our customer s potential or current client could be considered e-mail marketing. However, the term is usually used to refer to:
+
+ sending e-mails with the purpose of enhancing the relationship of a merchant with its current or previous customers and to encourage customer loyalty and repeat business,
+
+ sending e-mails with the purpose of acquiring new customers or convincing current customers to
+
+purchase something immediately,
+
+ adding advertisements to e-mails sent by other companies to their customers, and
+
+5. Online Internet Publishers: are companies specializing in lead generation and buy email, search, and banner traffic to drive potential leads to proprietary portals that they own. Using ads promoting information about products and services, potential leads arrive at these portals at which time they are required to fill out their full contact information. The prospects then choose freely what advertisements they are interested in by opting into or filling out a custom form of each offer they want more information about. Since each lead opts in, the Internet publishers capture the IP ( Internet Protocol ) address of the computer each lead comes from, as well as the date and time of capture. 
+
+6. Website Banner Advertisements: A web banner or banner ad is a form of advertising on the World Wide Web. This form of online advertising entails embedding an advertisement into a web page. It is intended to attract traffic to a website by linking to the website of the advertiser. The advertisement is constructed from an image,, JavaScript program or multimedia object employing technologies such as Java, Shockwave or Flash, often employing animation, sound, or video to maximize presence. 
+
+The web banner is displayed when a web page that references the banner is loaded into a web browser.
+
+This event is known as an "impression". When the viewer clicks on the banner, the viewer is directed to the website advertised in the banner. This event is known as a "click through". In many cases, banners are delivered by a central ad server. When the advertiser scans their log files and detects that a web user has visited the advertiser's site from the content site by clicking on the banner ad, the advertiser sends the content provider some small amount of money. This payback system is often how the content provider is able to pay for the Internet access to supply the content in the first place. Usually though, advertisers use ad networks to serve their advertisements, resulting in a revenue sharing system and higher quality ad placement. Web banners function the same way as traditional advertisements are intended to function: notifying consumers of the product or service and presenting reasons why the consumer should choose the product in question, although web banners differ in that the results for advertisement campaigns may be monitored real-time and may be targeted to the viewer's interests. 
+
+7. Blogs: A weblog, web log or simply a blog, is a web application which contains periodic time-stamped posts on a common webpage. These posts are often but not necessarily in reverse chronological order. Such a website would 
+
+23
+
+typically be accessible to any Internet user. "Weblog" is a portmanteau of "web" and "log". The term "blog" came into common use as a way of avoiding confusion with the term server log.
+
+8. Social Networking: is a term that describes use of social networks, online communities, blogs, wikis or any other online collaborative media for marketing, sales, public relations and customer service.
+
+Common social media marketing tools include Twitter, LinkedIn, Facebook, Flickr, Wikipedia, Orkut and YouTube.
+
+In the context of internet marketing, social media refers to a collective group of web properties whose content is primarily published by users, not direct employees of the property (e.g., the vast majority of video on YouTube is published by non-YouTube employees).
+
+9. Affiliate Network: is an Internet-based marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts. It is an application of crowdsourcing. Examples include rewards sites, where users are rewarded with cash or gifts, for the completion of an offer, and the referral of others to the site.
+
+The affiliate marketing industry has four core players: the merchant (also known as 'retailer' or 'brand'), the network, the publisher (also known as 'the affiliate') and the customer. The market has grown in complexity to warrant a secondary tier of players, including affiliate management agencies, superaffiliates and specialized third parties vendors.
+
+Affiliate marketing overlaps with other Internet marketing methods to some degree, because affiliates often use regular advertising methods. Those methods include organic search engine optimization, paid search engine marketing, e-mail marketing, and in some sense display advertising. On the other hand, affiliates sometimes use less orthodox techniques, such as publishing reviews of products or services offered by a partner.
+
+10. Affiliate Programs: using one website to drive traffic to another is a form of online marketing, which is frequently overlooked by advertisers. While search engines, e-mail, and website syndication capture much of the attention of online retailers, affiliate marketing carries a much lower profile. Still, affiliates continue to play a significant role in e-retailers' marketing strategies.
+
+Offline Lead Generation
+
+Live Phone Lead Transfer Division
+
+Using a combination of a predictive dialer call center solution and an overseas outsourced call center solution, our Company is able to generate custom live transfer leads for our customers. We utilize this method of lead generation in situations where we are confident that a high volume of live leads can be generated and sold for a profit. It is possible to charge high prices for leads generated by using this method, and it also allows our customers to meet profitability goals and acquisition costs goals.. Competitive pricing will be determined from the ability to generate a certain volume of leads/day for each of our customers. The necessity to increase or decrease our use of this method of lead generation for our customers will be determined each day based on the amount of leads generated. 
+
+Revenue Model and Distribution methods of the products or services 
+
+Our revenue model is based on customer development. We either purchase leads from accredited brokers or locate leads based on the methods described above, and then resell those leads to our customers through our automated system. The leads must meet the stringent criteria of our system. The leads are vetted through our fraud filters in order to ensure quality.
+
+We are currently focusing our attention on the auto insurance market, but expect to expand to other industries in the very near future.
+
+Nexus Enterprise Solutions, Inc. (Nexus) is redefining the current prospect and lead generation and acquisition industry by developing an information exchange service which allows sellers and buyers of leads, and other information assets, to operate in an optimized, transparent, and efficient way to transact deals in a more efficient 
+
+24
+
+manner than what is experienced in today s markets and systems. This is accomplished primarily through systems and processes which enable enhanced business intelligence and management thereby empowering stakeholders on both sides of the transaction to make well-informed and meaningful connections with each other
+
+Our Company generates revenue through its lead generation services, which are comprised of the lead generation methods described above and are accessed by our customers through our automated system. The cost of developing an automated system such as ours is prohibitive for a majority of companies. We fulfill a need by allowing these companies to use our technology, forms, landing pages etc, for a fee. We currently are back logged with the amount of companies looking to buy and sell leads to us, our carriers and agencies. In return, we get compensated when we sell a lead by charging our customers a fee for each lead purchased. 
+
+The Company will identify and address additional target markets for its services other than the insurance and financial industries with market research and feedback from its customers.
+
+Status of any publicly announced new product or service 
+
+None
+
+Competition, competitive position in the industry and methods of competition
+
+Competition
+
+We see very little competition for our business model, and do not anticipate such competition to become significant in the future. While it is possible that our business model may be duplicated in the future, at the current time we believe our system and business method of providing both online and offline lead generation services as one automated system is unique and therefore results in little competition from our competitors, including our competitors in the lead generation business. 
+
+Platform
+
+Lead generation services do exist. However, our automated solution is a mass market product that enables potential buyers and sellers to quickly purchase and sell various leads. We are in the process of creating and operating a platform which will create a new method for facilitating such transactions.
+
+Strategy
+
+Structured as a technology services company, our business model is designed to provide an automated solution to the lead generating process. We anticipate in the near future having a solid footprint with minimal competition.
+
+Sources and availability of raw materials and the names of principal suppliers
+
+The Company does not rely on any real raw materials. 
+
+Patents and Trademarks
+
+The Company currently has no patents or trademarks on its brand name and has not and does not intend to seek protection for our brand name or our lead generation system at this time; however, as business develops and operations continue, it may seek such protection. Despite efforts to protect its proprietary rights, such as its brand and service names, since it has no patent or trademark rights unauthorized persons may attempt to copy aspects of the Company business, including its web site design, services, product information and sales mechanics or to obtain and use information that it regards as proprietary. Any encroachment upon the company proprietary information, including the unauthorized use of its brand name, the use of a similar name by a competing company or a lawsuit initiated against it for infringement upon another company's proprietary information or improper use of their trademark, may affect its ability to create brand name recognition, cause customer confusion and/or have a detrimental effect on its business. Litigation or proceedings before the U.S. or International Patent and Trademark Offices may be necessary in the future to enforce our intellectual property rights, to protect its trade secrets and domain name and/or to determine the validity and scope of the proprietary rights of others. Any such litigation or 
+
+25
+
+adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations and/or results of operations. 
+
+Government Approval
+
+The company does not require any government approval for its services. As a lead generation service provider, its business will not be subject to any environmental laws.
+
+Government and Industry Regulation
+
+The Company will be subject to local and international laws and regulations that relate directly or indirectly to its operations. It will also be subject to common business and tax rules and regulations pertaining to the operation of its business. The Company believes that the effects of existing or probable governmental regulations will be additional responsibilities of the management of the Company to ensure that the Company is in compliance with securities regulations as they apply to the Company s products as well as ensuring that the company does not infringe on any proprietary rights of others with respect to its products. The Company will also need to maintain accurate financial records in order to remain complaint with securities regulations as well as any corporate tax liability it incurs. 
+
+Research and Development Activities 
+
+Other than personal time spent researching our proposed business, the Company has spent additional funds on research and development that was included as part of consulting services received to date. The Company plans on spending funds on the development of its lead generation system as well as a more refined platform that will facilitate more efficient purchases and sales of leads for our customers. 
+
+Employees and Employment Agreements
+
+With the majority of the Company's back office operational costs outsourced and variable, Nexus
+
+Enterprise Solutions, Inc. is able to maintain a small employee base focused on income producing activities. Currently, the Company has nine (9) total employees.
+
+The Company has an employment Agreement with John Limansky, who is a director as well as the President of the Company. The Agreement is dated June 7, 2011 and shall be in effect until terminated either for cause, which may be effected immediately, or without cause, which may be effected by either party upon thirty days written notice. The compensation to be earned pursuant to the Agreement is 200,000 shares of common stock per year. There is no cash payment earned pursuant to the Agreement. 
+
+Organization
+
+The Company is comprised of one corporation. All of our operations are conducted through this corporation.
+
+DESCRIPTION OF PROPERTY
+
+The Company operations are currently being conducted out of the Company office located at 5340 N Federal Hwy STE 206 Lighthouse Point, FL 33406 1375; (561) 767-4346. It considers that the current principal office space arrangement adequate and will reassess its needs based upon the future growth of the Company. 
+
+LEGAL PROCEEDINGS
+
+The Company is not involved in any pending legal proceeding nor is it aware of any pending or threatened litigation against us.
+
+26
+
+MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
+
+No public market currently exists for shares of the Company s common stock. Following completion of this offering, The Company intends to apply to have its common stock quoted on the Over-the-Counter Bulletin Board.
+
+Penny Stock Rules
+
+The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
+
+A purchaser is purchasing penny stock which limits the ability to sell the stock. The shares offered by this prospectus constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
+
+The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:
+
+a.
+
+contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading;
+
+b.
+
+contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended;
+
+c.
+
+contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" price for the penny stock and the significance of the spread between the bid and ask price;
+
+d.
+
+contains a toll-free telephone number for inquiries on disciplinary actions;
+
+e.
+
+defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
+
+f.
+
+contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation;
+
+The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
+
+a.
+
+the bid and offer quotations for the penny stock;
+
+b.
+
+the compensation of the broker-dealer and its salesperson in the transaction;
+
+c.
+
+the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
+
+d.
+
+monthly account statements showing the market value of each penny stock held in the customer's account.
+
+In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
+
+27
+
+Holders of Our Common Stock 
+
+As of the date of this Prospectus, there are 19,186,648 shares of the Company s common stock outstanding. The Company has 212 holders of its common stock. 
+
+Reports
+
+Upon the effectiveness of the Registration Statement of which this Prospectus is a part, it will be subject to certain reporting requirements and will file with the SEC annual reports including annual financial statements, certified by the Company s independent accountants, and un-audited quarterly financial statements in its quarterly reports filed electronically with the SEC. All reports and information filed by the Company can be found at the SEC website, www.sec.gov.
+
+Stock Transfer Agent
+
+First American Stock Transfer, Inc. of 4747 N. 7th Street, Suite 170, Phoenix, AZ 85014, Phone: (602)-485-1346, Fax: (602)-788-0423, has been appointed as the Company s stock transfer agent. 
+
+MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
+
+Overview
+
+Nexus Enterprise Solutions, Inc. ( Nexus ) was incorporated in the State of Wyoming on October 19, 1995 as Global Link Technologies, Inc. On June 10, 2008, Global Link Technologies filed Articles of Amendment with the State of Wyoming changing its name to MutuaLoan Corporation. On June 16, 2011 (as filed with the State of Wyoming on September 16, 2011), MutuaLoan Corporation entered into a business combination with Nexus Enterprise Solutions, Inc. ( Nexus Florida ). The business combination was accounted for as a reverse merger recapitalization. The accounting target/legal acquirer was MutuaLoan. The accounting acquirer/legal target was Nexus Florida. Nexus is currently conducting operations and generating revenue.
+
+ 
+
+The Company operations are currently being conducted out of the Company office located at 5340 N Federal Hwy STE 206 Lighthouse Point, FL 33406 1375; (561) 767-4346.
+
+Results of Operations 
+
+We have generated $571,923 in revenue during the three months ended March 31, 2013, and we have incurred $399,847 in cost of sales for the same period. This compares with revenue of $142,950 during the three months ended March 31, 2012, during which time we incurred $89,052 in cost of sales. We generated $1,095,853 in revenue during the year ended December 31, 2012, and we incurred $670,438 in cost of sales for the same period. From our inception on June 6, 2011 through December 31, 2011 we generated $29,877 in revenue and we incurred $37,282 in cost of sales for the same period. The increase in the amount of revenue from the three months ended March 31, 2012 as well as from our fiscal year ended December 31, 2012 is due to a larger client base as well as greater revenue being generated from some of our larger clients. 
+
+We have incurred $199,698 in operating expenses for the three month period ended March 31, 2013, which compares with operating expenses of $925,380 for the three month period ended March 31, 2012. We incurred $1,814,355 in operating expenses for the year ended December 31, 2012. From our inception on June 6, 2011 through December 31, 2011 we incurred $300,521 in operating expenses. The increase in operating expenses from our fiscal year ended December 31, 2011 through our fiscal year ended December 31, 2012 was due to an increased reliance on consultants during the development of our platform and website. The decrease in operating expenses from the three months ended March 31, 2012 as well as from our fiscal year ended December 31, 2012 is attributed to a decrease in our consulting fees as our platform and website have been completed. We anticipate continued revenue growth over the next 12 months as our website becomes more visible to search engines on the internet. Our cost of sales grows in correlation with our sales but not proportionately. We pay a percentage of the fees we earn for 
+
+28
+
+directing internet traffic to the insurance companies to those who direct the internet traffic to our website. As more customers access our website directly we will pay a smaller percentage of revenues to other websites even though the total cost of sales is expected to increase. In our initial stages of operations we incurred considerable costs through the issuance of shares of our common stock to the consultants involved in developing our business plan and marketing approach. Our research and development expense was $65,000 during the three month period ended March 31, 2013, and $103,078 for the three month period ended March 31, 2012. Our research and development expense was $51,301 from inception through December 31, 2011, and $227,944 for the year ended December 31, 2012. We incurred the research and development costs in developing our website and platform. Our research and development expense increased from the year ended December 31, 2011 through the year ended December 31, 2012 due to the creation and development of our platform and website. Our research and development expense decreased during the most recent period due to the fact that our website and platform have now been completed. 
+
+We incurred a net loss of $28,183 for the three month period ended March 31, 2013 and a net loss of $873,393 for the three month period ended March 31, 2012. We incurred a net loss of $326,754 for the period from inception through December 31, 2011 and $1,395,833 for the year ended December 31, 2012. Our net losses increased from our fiscal year ended December 31, 2011 through our fiscal year ended December 31, 2012 due to an increase in our research and development and consulting fees as our platform and website were being developed. Our net losses decreased during the three months ended March 31, 2013 due to the fact that we are generating greater amounts of revenue, while our operating expenses, including research and development costs and consulting fees have decreased. We expect our net losses to continue to decrease over the next twelve months as our revenues increase and our operating expenses decrease. We have been dependent on consultants since inception due to the fact that we were building and developing our Company business model and business plan, which is technology based. Now that our business plan and services have been completed and implemented, we have begun to decrease our reliance on consultants and we see no potential for further increase in reliance upon consultants as we grow over the next 12 months. 
+
+The following table provides selected financial data about the Company as of March 31, 2013. For detailed financial information, see the financial statements included in this prospectus.
+
+ Balance Sheet Data: 
+
+March 31, 2013
+
+ Cash 
+
+$ 28,237
+
+ Total assets 
+
+$ 521,634
+
+ Total liabilities 
+
+$ 656,433
+
+ Stockholders' deficit 
+
+$(134,799)
+
+The following table provides selected financial data about the Company for the year ended December 31, 2012. For detailed financial information, see the financial statements included in this prospectus.
+
+ Balance Sheet Data: December 31, 2012 
+
+ Cash 
+
+$ 62,214
+
+ Total assets 
+
+$ 305,417
+
+ Total liabilities 
+
+$ 424,396
+
+ Stockholders' deficit 
+
+$(118,979)
+
+If we succeed in developing clients for our services and generating sufficient sales, we will become profitable. We cannot guarantee that this will ever occur. Our plan is to continue operating in a manner which will be successful. If the company must obtain capital to continue its operations in addition to its current revenue stream, the Company will generate cash flow through the sale of its common stock. 
+
+Going Concern
+
+29
+
+In its audited financial statements as of December 31, 2012, the Company was issued an opinion by its auditors that raised substantial doubt about the ability to continue as a going concern based on the company s current financial position. 
+
+Immediate Plan of Operation:
+
+At present management will concentrate on the completion of the Registration Statement while concurrently continuing to expand its customer base and develop its lead generation methods and services. 
+
+Continuing Plan of Operation:
+
+Successful growth and development of the company business strategy depends on the basic principles of supply, demand, and correlated values are completely askew in the current lead and information asset marketplace especially in the insurance and financial services industries. Some of the devaluation of these products can be attributed to commoditization in a matured market; however, most of the forces causing this downward spiral of value can be directly attributed to the following factors:
+
+ Extensive and growing intermediation between buyers and sellers
+
+ Selling Leads to Carriers, Agencies and Aggregators
+
+ Forging partnerships to increase our lead traffic
+
+ Information quality issues driven in part from overall lower pricing to the seller
+
+ Cost prohibition and lack of technology expertise for many smaller, medium, and some large players, 
+
+provides a substantial barrier that forces many sellers to leverage long established aggregation partners
+
+ Market manipulation by larger players through exclusivity and preferred partner arrangements
+
+ Matured Internet marketing techniques such as Search Engine Optimization (SEO), Search Engine Marketing 
+
+(SEM), online advertising, etc., have driven marketing costs up to the point many good marketing companies have had to shift to other channels reducing available high quality sourced leads
+
+ 
+
+A significant opportunity exists for the creation of an open market exchange that provides transparency, visibility, quality and control to all participants. The initial industries of insurance and other financial services leads are candidates to start, but there are multiple other industries and applications of the core technologies and systems which comprise the Nexus Exchange platform. The continuing plan of the Company s operations will be to expand our lead generation services, which the Company believes will also expand its customer base and revenue stream. 
+
+Concurrent Developments (0-12 months)
+
+The Company will continue to develop and add to its customer base through marketing and advertising, while also adding additional types of services to its already existing services. The goal for the Company in the next twelve months is to further develop its lead generation services, while also facilitating larger numbers of lasting connections between its customers and their clients through lead generation derived from search engine marketing and online as well as offline techniques. 
+
+Liquidity and capital resources
+
+As of March 31, 2013, we had cash or cash equivalents of $28,237. As of December 31, 2012, we had cash or cash equivalents of $62,214. 
+
+30
+
+Net cash used in operating activities was $33,977 for the three month period ended March 31, 2013. Net cash used in operating activities was $293,590 for the three months ended March 31, 2012. Net cash used in operating activities was $502,124 for the year ended December 31, 2012. We used $305,802 from inception through December 31, 2011. We believe that with our existing cash flows we have sufficient cash to meet our operating requirements for the next twelve months due to the fact that our revenues are increasing while our operating expenses are decreasing. We believe that the amount of revenue we are generating coupled with our lower operating expenses will allow us to meet our operating requirements during the next twelve months. If our revenue is not sufficient to allow us to meet our cash requirements during the next twelve months, the company may need to raise additional funds through the sale of its equity securities. 
+
+Cash flows used in investing activities was $-0- for the three month period ended March 31, 2013 and the three month period ended March 31, 2012. Cash flows used in investing activities was $1,745 from our inception on June 6, 2011 through December 31, 2011. Cash flows used in investing activities was $-0- for the year ended December 31, 2012. We do not anticipate significant cash outlays for investing activities over the next 12 months.
+
+Cash flows provided by financing activities was $-0- for the three month period ended March 31, 2013. Cash flows provided by financing activities was $580,000 for the three month period ended March 31, 2012. Cash flows provided by financing activities was $540,000 for the year ended December 31, 2012. Cash flows provided by financing activities was $331,885 for the period from June 6, 2011 through December 31, 2011. The 2011 amount includes $67,500 from the issuance of common stock for cash and $264,385 from related party loans. The 2012 amount includes $580,000 from the issuance of common stock for cash offset by $40,000 of payments on related party loans.
+
+As of March 31, 2013, our total assets were $521,634 and our total liabilities were $656,433. As of December 31, 2012, our total assets were $305,417 and our total liabilities were $424,396. Included in our assets of as of March 31, 2013 was $28,237 of cash, $367,088 of accounts receivable, net and deposits of $125,000. Included in our assets as of December 31, 2012 was $62,214 of cash, $116,807 of accounts receivable, net and deposits of $125,000. We expect to be able to conduct our planned operations for a minimum of twelve months using currently available capital resources. 
+
+Our principal source of liquidity will be the revenue generated from our operations. We are generating increased amounts of revenue, and while we are currently operating at a loss, we believe that our revenue stream will be a sufficient source of liquidity for us. If we do not generate a sufficient amount of revenue , we may need to raise additional funds through the sale of our equity securities. We expect variation in revenues to account for the difference between a profit and a loss. Also business activity is closely tied to the U.S. economy. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully continue to develop our lead generation services and our ability to generate revenues.
+
+ 
+
+ In any case, we try to operate with minimal overhead. Our primary activity will be to seek to develop clients for our services and, consequently, our sales. If we succeed in developing clients for our services and generating sufficient sales, we will become profitable. We cannot guarantee that this will ever occur. Our plan is to build our company in any manner which will be successful.
+
+Off-Balance Sheet Arrangements
+
+The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
+
+31
+
+Revenue Recognition
+
+The Company records revenue on the accrual basis when all goods and services have been performed and delivered, the amounts are readily determinable, and collection is reasonably assured. The Company has generated revenue of $1,697,653 since its inception through March 31, 2013. 
+
+CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
+
+AND FINANCIAL DISCLOSURE
+
+None.
+
+DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
+
+Directors of the Company are elected by the stockholders to a term of one year and serve until their successors are elected and qualified. Officers of the Company are appointed by the Board of Directors to a term of one year and serve until their successors are duly appointed and qualified, or until the officer is removed from office. The Board of Directors has no nominating, auditing or compensation committees.
+
+The name, address, age and position of the company officer and director is set forth below:
+
+Name and Address
+
+Age
+
+Position(s)
+
+John Limansky
+
+34
+
+Director, President,
+
+3457 Ringsby Court
+
+Unit 307
+
+Denver, CO 80216
+
+Maureen Morgan Bokzam
+
+33
+
+Director, Vice President
+
+8806 Grand Bayou Court
+
+Tampa, FL 33635
+
+Jason Foster
+
+43
+
+Chief Executive Officer
+
+17584 Colonial Park Drive
+
+Monument, CO 80132
+
+The persons named above are expected to hold said offices/positions until the next annual meeting of our stockholders. The persons named above are the company s only officers, directors, promoters and control persons. Below is the business experience of each above listed individual during at least the last five years:
+
+Background Information about Our Officers and Directors
+
+John Limansky is a physician in internal medicine. His background in finance includes 5 years experience
+
+as an equities trader in New York. He combines his knowledge in finance with his medical experience to generate ideas for future growth in health insurance leads. Dr. Limansky holds a B.S. from UCLA as well as a doctorate of medicine and is currently pursuing a board certification in Internal medicine. Since June 23, 2010, he has been employed by Exempla St. Joseph Hospital. During the previous year and a half, he has also been President of Nexus Enterprise Solutions, Inc. Since February 28, 2012, he has acted as President of My Child Care Co, LLC. Since March 27, 2012, he has acted as Managing Partner of Cityality Tours, LLC. Mr. Limansky has no other employment history other than detailed herein in the past five years. Immediately prior to his employment with Exempla, Mr. Limansky was attending medical school full time. 
+
+Maureen Morgan Bokzam graduated from the University of Toledo, Ohio, first in 2001 with a Bachelor of Pharmacy in Pharmaceutical Sciences, and a minor in Chemistry. Then she graduated from graduate school in 2003 earning a Doctor of Pharmacy, PharmD. degree. She has served the communities she's resided for nearly a decade as 
+
+32
+
+a retail pharmacist. Maureen works for a major retail pharmacy chain, CVS. Mrs. Bokzam has worked for CVS since October of 2004, in addition to the director and officer position she currently holds with Nexus Enterprise Solutions, Inc. She was also selected to be a pharmacy manager as well as a preceptor for pharmacy students several years ago. Mrs. Bokzam has not been employed or held any position in any company other than her positions at CVS and Nexus Enterprise Solutions, Inc. during the previous five years. 
+
+Jason Foster is a technology leader with over 20 years of experience crafting solutions in a variety of technologies, architectures, and business domains. He has been in information technology leadership and management for much of the last 15 years serving a wide variety of organizations from small startups to Fortune 500 companies. While working at Deluxe Corporation as Senior Solutions Architect, Jason architected the public ecommerce websites for several brands in the direct to consumer space. At one point those sites annually combined for over 250 million page views and over 4.5 million orders processed. That experience has taught Jason time-tested approaches to technology that accommodates significant scalability and operational stability. In 2006, Jason started Thought Ascent, a software development and technology consultancy, which grew from 1 consultant to over 12 and over $1M in annual revenues within 18 months. Mr. Foster has continued to act as President and CEO of Throught Ascent during the previous five years, which has been his primary employment during such period, in addition to his recent acceptance of the Chief Executive Officer position with Nexus Enterprise Solutions, Inc. Jason is also the founder of Brilliant Life which is a non-profit organization dedicated to teaching and training technology skills to underprivileged and disadvantaged individuals. Jason serves on the Community Advisory Board of Ridge View Academy and the Betty Marler Center which are Denver Public Schools charter schools serving incarcerated juveniles.
+Corporate Governance
+
+The Company does not have a compensation committee and it does not have an audit committee financial expert. It does not have a compensation committee because its Board of Directors consists of only two directors and there is no compensation at this time. There is no independent audit committee financial expert because it is believed the cost related to retaining a financial expert at this time is prohibitive in the circumstances of the Company. Further, because there are no operations, at the present time, it is believed the services of a financial expert are not warranted.
+
+Conflicts of Interest 
+
+The Company does not currently foresee any conflict of interest.
+
+EXECUTIVE COMPENSATION
+
+Currently, the company directors and officers receive no cash compensation for their services with the exception of Maureen Morgan Bokzam, who receives a salary of $60,000 per year. John Limansky receives equity compensation in an amount of 200,000 common shares per year. The 200,000 shares issued to John Limansky during each of the years ended December 31, 2012 and 2011 were issued valued with an aggregate grant date fair value of $50,000 and $4,000, respectively. The 200,000 shares accrued in 2012 by John Limansky have not been issued as of the date of this Prospectus. Our officers and directors are reimbursed for any out-of-pocket expenses that they incur on its behalf. 
+
+In the future, the Company may approve payment of salaries for officers and directors. The Company also does not currently offer or have any benefits, such as health or life insurance, available to its employees.
+
+33
+
+SUMMARY COMPENSATION TABLE
+
+Name and Principal Position
+
+Year
+
+Salary
+
+Bonus
+
+Stock Awards
+
+Option Awards
+
+Non-Equity Incentive Plan Compen-sation
+
+Change in Pension Value and Non-qualified Deferred Compen-sation Earnings
+
+All Other Compen-sation
+
+Total
+
+John Limansky President, Director (1)
+
+Maureen Morgan Bokzam, Vice President, Director
+
+Jason Foster, Chief Executive Officer (2)
+
+2012
+
+2011
+
+2012
+
+2011
+
+2012
+
+2011
+
+0
+
+0
+
+$60,000
+
+$60,000
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+$50,000
+
+$4,000
+
+0
+
+0
+
+$375,000
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+$50,000 
+
+$4,000
+
+$60,000
+
+$60,000
+
+$375,000
+
+0
+
+(1) The stock award to John Limansky represents 200,000 common shares awarded to Mr. Limansky each year under his employment agreement. The first grant occurred on June 16, 2012 and the 200,000 common shares were valued at $4,000 on that date. The award is recognized over the service period of one year. During the period ended December 31, 2011, no expense was recognized as the amount is nominal ($2,170). The $4,000 was recognized during fiscal 2012. The second grant occurred on June 16, 2012 and the 200,000 common shares were valued at $50,000, but were not issued. This award is being expensed over the service period through June 15, 2013. During the year ended December 31, 2012, an aggregate of $31,198 was expensed under these issuances. The remaining $22,802 will be expensed through June 15, 2013.
+
+(2) The stock award to Jason Foster represents 1,500,000 common shares awarded to Mr. Foster. The first grant occurred on February 27, 2012 and the 750,000 common shares were valued at $187,500 on that date. The award was expensed immediately in 2012. The second grant occurred on October 11, 2012 and the 750,000 common shares were valued at $187,500 on that date. The award was expensed immediately in 2012.
+
+34
+
+OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
+
+Option Awards
+
+Stock Awards
+
+Name
+
+Number of Securities Underlying Unexercised Options (#) Exercisable
+
+Number of Securities Underlying Unexercised Options (#) Unexercisable
+
+Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options (#)
+
+Option Exercise Price
+
+Option Expiration Date
+
+Number of Shares or Units of Stock That Have Not Vested (#)
+
+Market Value of Shares or Units of Stock That Have Not Vested
+
+Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
+
+Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
+
+John Limansky
+
+Maureen Morgan Bokzam
+
+Jason Foster
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+N/A
+
+N/A
+
+N/A
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+DIRECTOR COMPENSATION
+
+Name
+
+Fees Earned or Paid in Cash
+
+Stock Awards
+
+Option Awards
+
+Non-Equity Incentive Plan Compensation
+
+Change in Pension Value and Nonqualified Deferred Compensation Earnings
+
+All Other Compensation
+
+Total
+
+John Limansky
+
+Maureen Morgan Bokzam
+
+Jason Foster
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+0
+
+Option Grants. No option grants have been exercised by the executive officers named in the Summary Compensation Table. The Company does not currently have any stock option plans in place. 
+
+Aggregated Option Exercises and Fiscal Year-End Option Value. There have been no stock options exercised by the executive officers named in the Summary Compensation Table.
+
+35
+
+Long-Term Incentive Plan ( LTIP ) Awards. There have been no awards made to a named executive officers in the last completed fiscal year under any LTIP.
+
+Compensation of Directors
+
+Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, our director in such capacity.
+
+Employment Agreements
+
+The Company has an employment Agreement with John Limansky, who is a director as well as the President of the Company. The Agreement is dated June 7, 2011 and shall be in effect until terminated either for cause, which may be effected immediately, or without cause, which may be done by either party by giving thirty days written notice. The compensation to be earned pursuant to the Agreement is 200,000 shares of common stock per year. There is no cash payment earned pursuant to the Agreement. The Company has a three year oral agreement with Mrs. Bokzam, whereby the Company agreed to pay her $60,000 per year, as well as an annual bonus of 5% of Gross Profit as compensation for her serving as an officer and director of the Company. The Company has a one year oral agreement with Mr. Foster that automatically renews each year if not terminated, whereby Mr. Foster is to receive $60,000 per year as well as an annual bonus of 5% of Gross Profit as compensation for his services as an officer of the Company. 
+
+The Company does not have any employment contracts with any of its other officers or directors other than has been described above. 
+
+SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
+
+The following table sets forth, as of the date of this prospectus, the total number of shares owned beneficially by the Company directors, officers and key employees, individually and as a group, and the present owners of 5% or more of its total outstanding shares. The table also reflects what the percentage of ownership will be assuming completion of the sale of all shares in this offering, which cannot be guaranteed The stockholders listed below have direct ownership of their shares and possesses sole voting and dispositive power with respect to the shares.
+
+ 
+
+No. of
+
+No. of
+
+ 
+
+Percentage 
+
+Name of
+
+Shares
+
+Shares
+
+ 
+
+of Ownership
+
+Beneficial
+
+Before
+
+After
+
+Before 
+
+After
+
+Owner
+
+Offering
+
+Offering (3)
+
+Offering(1)(2) 
+
+Offering (1)(2)
+
+John Limansky
+
+ 
+
+200,000
+
+100,000
+
+1.04%
+
+ 0.52%
+
+Maureen Morgan Bokzam (7) 
+
+4,500,000
+
+4,326,000
+
+23.45% 
+
+ 22.55%
+
+Jason Foster
+
+ 
+
+1,500,000
+
+1,326,000
+
+7.82%
+
+ 6.91%
+
+All Officers and
+
+Directors as a Group
+
+6,200,000
+
+5,752,000
+
+32.31%
+
+ 29.98%
+
+Adam Wasserman
+
+4,500,000
+
+4,326,000
+
+23.45%
+
+22.55%
+
+Cliste Consulting
+
+ (4)
+
+4,500,000
+
+4,326,000
+
+23.45%
+
+22.55%
+
+ 
+
+ 
+
+Demali Consulting, LLC
+
+(5)
+
+1,500,000
+
+0
+
+7.82%
+
+0%
+
+ 
+
+CMB Family 
+
+Investment Co., LP (6)
+
+1,500,000
+
+0
+
+7.82%
+
+0% 
+
+36
+
+(1) All ownership is beneficial and of record, unless indicated otherwise based on 19,186,648 shares outstanding as of the date of this Prospectus. The selling stockholders are under no obligation known to the Company to sell any shares of common stock at this time. 
+
+(2) The Beneficial owner has sole voting and investment power with respect to the shares shown
+
+(3) Assumes the sale of all shares of common stock registered pursuant to this Prospectus. The selling stockholders are under no obligation known to us to sell any shares of common stock at this time. 
+
+(4) Owned by Maureen Morgan Bokzam
+
+(5) Owned by Kristy Ricetti and Marlene Wasserman, who is the mother of Adam Wasserman
+
+(6) Owned by Siham Bokzam, who is the non-affiliate mother-in-law of Maureen Morgan Bokzam
+
+(7) Represents the shares beneficially owned by Cliste Consulting, which is owned by Maureen Morgan Bokzam. 
+
+Future Sales by Principal Stockholders
+
+A total of 5,450,000 shares have been issued to the company officers and directors and are restricted securities, as that term is defined in Rule 144 of the Rules and Regulations of the SEC promulgated under the Act. Under Rule 144, such shares can be publicly sold, subject to volume restrictions and certain restrictions on the manner of sale, commencing six months after their acquisition. Any sale of these shares (after applicable restrictions expire) may have a depressive effect on the price of our common stock in any market that may develop, of which there can be no assurance. The principal stockholders do not have any plans to sell their shares at any time after this offering is complete. 
+
+TRANSACTIONS WITH RELATED PERSONS,
+
+PROMOTERS AND CERTAIN CONTROL PERSONS
+
+As of March 31, 2013, December 31, 2012 and December 31, 2011, the Company had aggregate notes payable outstanding to shareholders and officers of $127,485, $127,485 and $305,985, respectively. These notes are unsecured bear interest between 0% and 6% and are due on demand. During the year ended December 31, 2012, the Company converted $138,500 of principal of these notes into 1,885,000 shares of common stock. In addition, during the year ended December 31, 2012, the Company made payments of $40,000 on these outstanding notes.
+
+As of March 31, 2013, December 31, 2012 and December 31, 2011, accrued interest on the outstanding related party notes payable totaled $60,272, $59,711 and $52,818, respectively. 
+
+Other accrued liabilities consisted of accrued payroll to officers of $118,000 as of March 31, 2013, December 31, 2012 and December 31, 2011. 
+
+ 
+
+During March 2012, the Company advanced $30,000 to an employee for future business expenses. The advance was subsequently reimbursed to the Company on August 13, 2012.
+
+There are not currently any conflicts of interest by or among its current officers, directors, key employees or advisors. The Company has not yet formulated a policy for handling conflicts of interest; however, it intends to do so upon completion of this offering and, in any event, prior to hiring any additional employees.
+
+ 
+
+37
+
+INDEMNIFICATION
+
+Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Act ) may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the By-Laws of the company, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore unenforceable. 
+
+In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or other control person in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it, is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
+
+We are not obligated to pay any of the expenses of any attorney or other advisor engaged by a selling stockholder. We have not agreed to indemnify any selling stockholders against losses, claims, damages and liabilities, including liabilities under the Securities Act.
+
+AVAILABLE INFORMATION
+
+The Company has filed a registration statement on
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561952_trans_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561952_trans_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b9cdbacc709a47aa738c9734aa7b92a64e85dc86
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561952_trans_legal_matters.txt
@@ -0,0 +1,3052 @@
+LEGAL MATTERS 
+
+The validity of the Notes will be passed upon for us by Jenner & Block LLP. 
+
+EXPERTS 
+ The consolidated financial statements as of December 29, 2012 and December 31, 2011, and for each of the three years in the period ended December 29, 2012, included in this Prospectus have been audited by
+Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority
+as experts in accounting and auditing. 
+
+ 
+ 185
+
+Table of Contents
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION 
+
+In connection with the offering of the Notes pursuant to this prospectus, we have filed with the SEC a registration statement on
+Form S-1 under the Securities Act of which this prospectus forms a part. As permitted by SEC rules, this prospectus omits information included in the registration statement. For further information with respect to us, the guarantors or the
+offering, you should refer to the registration statement, including its exhibits. With respect to statements in this prospectus about the contents of any contract, agreement or other document, we refer you to the copy of such contract, agreement or
+other document filed or incorporated by reference as an exhibit to the registration statement, and each such statement is qualified in all respects by reference to the document to which it refers. 
+
+You may read and copy any documents that we file at the SEC s public reference room at 100 F Street, N.E., Washington, D.C.
+20549 at prescribed rates. You may call the SEC at 1-800-SEC-0330 to obtain further information about the public reference room. In addition, the SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements
+and other information about issuers that file electronically with the SEC, including US Food, Inc. The SEC s website address is included in this prospectus as an inactive textual reference only. 
+
+Regardless of whether we are subject to the reporting requirements of the Exchange Act, we have agreed that from the time we first become
+subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act and for so long as any of the Notes under the Indenture remain outstanding, we will file with the SEC (unless such filing is not permitted under
+the Exchange Act or by the SEC), the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if we were so subject.
+
+ You may also obtain a copy of the registration statement and other information that we file with the SEC at no cost by
+calling us or writing to us at the following address: 
+ US Foods, Inc. 
+
+9399 W. Higgins Road, Suite 600 
+ Rosemont, IL 60018 
+ (847) 720-8000 
+
+ 
+ 186
+
+Table of Contents
+
+ INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Audited Consolidated Financial Statements
+
+ 
+
+ Report of Independent Registered Public Accounting Firm
+
+ 
+ 
+F-2
+ 
+
+ Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011
+
+ 
+ 
+F-3
+ 
+
+ Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-4
+ 
+
+ Consolidated Statements of Shareholder s Equity for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-5
+ 
+
+ Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2012, December 
+31, 2011 and January 1, 2011
+
+ 
+ 
+F-6
+ 
+
+ Notes to Consolidated Financial Statements
+
+ 
+ 
+F-7
+ 
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Unaudited Consolidated Interim Financial Statements
+
+ 
+
+ Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012
+
+ 
+ 
+F-52
+ 
+
+ Consolidated Statements of Comprehensive (Loss) Income for the 13-weeks Ended March 
+30, 2013 and March 31, 2012
+
+ 
+ 
+F-53
+ 
+
+ Consolidated Statements of Cash Flows for the 13-weeks Ended March 30, 2013 and March 31,
+2012
+
+ 
+ 
+F-54
+ 
+
+ Notes to Unaudited Consolidated Financial Statements
+
+ 
+ 
+F-55
+ 
+
+ 
+ F-1
+
+Table of Contents
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+
+To the Board of Directors and Shareholder of 
+
+US Foods, Inc. 
+ Rosemont, Illinois 
+
+We have audited the accompanying consolidated balance sheets of US Foods, Inc. and subsidiaries (the Company ) as of December 29, 2012
+and December 31, 2011, and the related consolidated statements of comprehensive loss, shareholder s equity, and cash flows for each of the three years in the period ended December 29, 2012. These financial statements are the
+responsibility of the Company s management. Our responsibility is to express an opinion on the financial statements based on our audits. 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
+financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
+effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
+assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+
+In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of US Foods, Inc. and
+subsidiaries as of December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2012, in conformity with accounting principles generally
+accepted in the United States of America. 
+ /s/ DELOITTE & TOUCHE LLP 
+ Chicago, Illinois 
+ March 7, 2013 
+
+ 
+ F-2
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED BALANCE SHEETS 
+ AS OF DECEMBER 29, 2012 AND
+DECEMBER 31, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+December 29,
+2012
+ 
+ 
+December 31,
+2011
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ CURRENT ASSETS:
+
+ 
+
+ 
+
+ Cash and cash equivalents
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+
+ Accounts receivable net
+
+ 
+ 
+1,216,612
+ 
+ 
+ 
+1,133,303
+ 
+
+ Vendor receivables net
+
+ 
+ 
+93,025
+ 
+ 
+ 
+105,869
+ 
+
+ Inventories
+
+ 
+ 
+1,092,492
+ 
+ 
+ 
+851,418
+ 
+
+ Prepaid expenses
+
+ 
+ 
+74,499
+ 
+ 
+ 
+71,277
+ 
+
+ Deferred taxes
+
+ 
+ 
+8,034
+ 
+ 
+ 
+30,915
+ 
+
+ Other current assets
+
+ 
+ 
+33,387
+ 
+ 
+ 
+40,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current assets
+
+ 
+ 
+2,760,506
+ 
+ 
+ 
+2,435,515
+ 
+
+ PROPERTY AND EQUIPMENT Net
+
+ 
+ 
+1,706,388
+ 
+ 
+ 
+1,596,817
+ 
+
+ GOODWILL
+
+ 
+ 
+3,833,301
+ 
+ 
+ 
+3,818,088
+ 
+
+ OTHER INTANGIBLES Net
+
+ 
+ 
+889,453
+ 
+ 
+ 
+984,682
+ 
+
+ DEFERRED FINANCING COSTS
+
+ 
+ 
+49,038
+ 
+ 
+ 
+54,548
+ 
+
+ OTHER ASSETS
+
+ 
+ 
+24,720
+ 
+ 
+ 
+26,777
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+
+ 
+
+ CURRENT LIABILITIES:
+
+ 
+
+ 
+
+ Bank checks outstanding
+
+ 
+$
+161,791
+ 
+ 
+$
+205,110
+ 
+
+ Accounts payable
+
+ 
+ 
+1,239,790
+ 
+ 
+ 
+973,389
+ 
+
+ Accrued expenses and other current liabilities
+
+ 
+ 
+388,306
+ 
+ 
+ 
+391,169
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+48,926
+ 
+ 
+ 
+203,118
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current liabilities
+
+ 
+ 
+1,838,813
+ 
+ 
+ 
+1,772,786
+ 
+
+ LONG-TERM DEBT
+
+ 
+ 
+4,764,899
+ 
+ 
+ 
+4,437,840
+ 
+
+ DEFERRED TAX LIABILITIES
+
+ 
+ 
+365,496
+ 
+ 
+ 
+344,191
+ 
+
+ OTHER LONG-TERM LIABILITIES
+
+ 
+ 
+479,642
+ 
+ 
+ 
+500,630
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total liabilities
+
+ 
+ 
+7,448,850
+ 
+ 
+ 
+7,055,447
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES (See Note 20)
+
+ 
+
+ 
+
+ SHAREHOLDER S EQUITY:
+
+ 
+
+ 
+
+ Common stock, $1.00 par value authorized, issued, and outstanding, 1,000 shares
+
+ 
+ 
+1
+ 
+ 
+ 
+1
+ 
+
+ Additional paid-in capital
+
+ 
+ 
+2,324,391
+ 
+ 
+ 
+2,323,052
+ 
+
+ Accumulated deficit
+
+ 
+ 
+(383,652
+) 
+ 
+ 
+(332,479
+) 
+
+ Accumulated other comprehensive loss
+
+ 
+ 
+(126,184
+) 
+ 
+ 
+(129,594
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total shareholder s equity
+
+ 
+ 
+1,814,556
+ 
+ 
+ 
+1,860,980
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-3
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
+ FOR THE FISCAL
+YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ NET SALES
+
+ 
+$
+21,664,921
+ 
+ 
+$
+20,344,869
+ 
+ 
+$
+18,862,092
+ 
+
+ COST OF GOODS SOLD
+
+ 
+ 
+17,971,949
+ 
+ 
+ 
+16,839,850
+ 
+ 
+ 
+15,451,991
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Gross profit
+
+ 
+ 
+3,692,972
+ 
+ 
+ 
+3,505,019
+ 
+ 
+ 
+3,410,101
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING EXPENSES:
+
+ 
+
+ 
+
+ 
+
+ Distribution, selling and administrative costs
+
+ 
+ 
+3,349,539
+ 
+ 
+ 
+3,193,747
+ 
+ 
+ 
+3,055,251
+ 
+
+ Restructuring and tangible asset impairment charges
+
+ 
+ 
+8,923
+ 
+ 
+ 
+71,892
+ 
+ 
+ 
+10,512
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+ 
+3,358,462
+ 
+ 
+ 
+3,265,639
+ 
+ 
+ 
+3,065,763
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING INCOME
+
+ 
+ 
+334,510
+ 
+ 
+ 
+239,380
+ 
+ 
+ 
+344,338
+ 
+
+ INTEREST EXPENSE Net
+
+ 
+ 
+311,812
+ 
+ 
+ 
+307,614
+ 
+ 
+ 
+341,718
+ 
+
+ LOSS ON EXTINGUISHMENT OF DEBT
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ (Loss) income before income taxes
+
+ 
+ 
+(8,725
+) 
+ 
+ 
+(144,245
+) 
+ 
+ 
+2,620
+ 
+
+ INCOME TAX PROVISION (BENEFIT)
+
+ 
+ 
+42,448
+ 
+ 
+ 
+(42,074
+) 
+ 
+ 
+15,585
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET LOSS
+
+ 
+ 
+(51,173
+) 
+ 
+ 
+(102,171
+) 
+ 
+ 
+(12,965
+) 
+
+ OTHER COMPREHENSIVE (LOSS) INCOME Net of tax:
+
+ 
+
+ 
+
+ 
+
+ Changes in retirement benefit obligations, net of income tax benefit of $8,632, $11,336 and $12,224
+
+ 
+$
+(14,160
+) 
+ 
+$
+(17,629
+) 
+ 
+$
+(19,018
+) 
+
+ Changes in fair value of derivative, net of income tax provision (benefit) of $10,726, $11,256 and $(895)
+
+ 
+ 
+17,570
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+(1,393
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMPREHENSIVE LOSS
+
+ 
+$
+(47,763
+) 
+ 
+$
+(102,294
+) 
+ 
+$
+(33,376
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ See notes to consolidated financial statements.
+
+ 
+ F-4
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF SHAREHOLDER S EQUITY 
+ FOR THE
+FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+ Number of
+Common
+Shares
+
+ 
+ 
+ Common
+
+Shares
+at Par
+Value
+
+ 
+ 
+ Additional
+Paid-In
+Capital
+
+ 
+ 
+Accumulated
+Deficit
+ 
+ 
+Accumulated Other
+Comprehensive Loss
+ 
+ 
+Total
+Shareholder s
+Equity
+ 
+
+ 
+ 
+ 
+ 
+ 
+Retirement
+Benefit
+Obligation
+ 
+ 
+Interest
+Rate Swap
+Derivative
+ 
+ 
+Total
+ 
+ 
+
+ BALANCE January 2, 2010
+
+ 
+ 
+1,000
+ 
+ 
+$
+ 
+ 
+ 
+$
+2,297,389
+ 
+ 
+$
+(217,343
+) 
+ 
+$
+(74,835
+) 
+ 
+$
+(34,225
+) 
+ 
+$
+(109,060
+) 
+ 
+$
+1,970,986
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+
+ Changes in retirement benefit obligations net of $12,224 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+(19,018
+) 
+
+ Changes in fair value of interest rate swap derivative net of $895 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE January 1, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,301,692
+ 
+ 
+ 
+(230,308
+) 
+ 
+ 
+(93,853
+) 
+ 
+ 
+(35,618
+) 
+ 
+ 
+(129,471
+) 
+ 
+ 
+1,941,913
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+
+ Changes in retirement benefit obligations net of $11,336 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+(17,629
+) 
+
+ Changes in fair value of interest rate swap derivative net of $11,256 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+
+ Other
+
+ 
+ 
+ 
+ 
+ 
+ 
+1
+ 
+ 
+ 
+(55
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(54
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 31, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+1
+ 
+ 
+ 
+2,323,052
+ 
+ 
+ 
+(332,479
+) 
+ 
+ 
+(111,482
+) 
+ 
+ 
+(18,112
+) 
+ 
+ 
+(129,594
+) 
+ 
+ 
+1,860,980
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+
+ Changes in retirement benefit obligations net of $8,632 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+(14,160
+) 
+
+ Changes in fair value of interest rate swap derivative net of $10,726 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 29, 2012
+
+ 
+ 
+1,000
+ 
+ 
+$
+1
+ 
+ 
+$
+2,324,391
+ 
+ 
+$
+(383,652
+) 
+ 
+$
+(125,642
+) 
+ 
+$
+(542
+) 
+ 
+$
+(126,184
+) 
+ 
+$
+1,814,556
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-5
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF CASH FLOWS 
+ FOR THE FISCAL YEARS
+ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year
+Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+$
+(51,173
+) 
+ 
+$
+(102,171
+) 
+ 
+$
+(12,965
+) 
+
+ Adjustments to reconcile net loss to net cash provided by operating activities:
+
+ 
+
+ 
+
+ 
+
+ Depreciation and amortization
+
+ 
+ 
+355,892
+ 
+ 
+ 
+342,732
+ 
+ 
+ 
+307,522
+ 
+
+ Gain on disposal of property and equipment
+
+ 
+ 
+(1,493
+) 
+ 
+ 
+(308
+) 
+ 
+ 
+(3,222
+) 
+
+ Loss on extinguishment of debt
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ Tangible asset impairment charges
+
+ 
+ 
+7,530
+ 
+ 
+ 
+9,260
+ 
+ 
+ 
+2,172
+ 
+
+ Amortization of deferred financing costs
+
+ 
+ 
+18,052
+ 
+ 
+ 
+18,913
+ 
+ 
+ 
+18,403
+ 
+
+ Deferred tax provision (benefit)
+
+ 
+ 
+42,142
+ 
+ 
+ 
+(41,600
+) 
+ 
+ 
+14,656
+ 
+
+ Share-based compensation expense
+
+ 
+ 
+4,312
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+3,482
+ 
+
+ Provision for doubtful accounts
+
+ 
+ 
+10,701
+ 
+ 
+ 
+17,567
+ 
+ 
+ 
+25,980
+ 
+
+ Changes in operating assets and liabilities, net of acquisitions of businesses:
+
+ 
+
+ 
+
+ 
+
+ (Increase) decrease in receivables
+
+ 
+ 
+(56,639
+) 
+ 
+ 
+(116,229
+) 
+ 
+ 
+12,505
+ 
+
+ (Increase) decrease in inventories
+
+ 
+ 
+(214,998
+) 
+ 
+ 
+23,989
+ 
+ 
+ 
+(36,216
+) 
+
+ (Increase) decrease in prepaid expenses and other assets
+
+ 
+ 
+(758
+) 
+ 
+ 
+(6,281
+) 
+ 
+ 
+185
+ 
+
+ Increase in accounts payable and bank checks outstanding
+
+ 
+ 
+198,227
+ 
+ 
+ 
+109,086
+ 
+ 
+ 
+87,944
+ 
+
+ (Decrease) increase in accrued expenses and other liabilities
+
+ 
+ 
+(27,299
+) 
+ 
+ 
+59,557
+ 
+ 
+ 
+22,320
+ 
+
+ Decrease in securitization restricted cash
+
+ 
+ 
+ 
+ 
+ 
+ 
+13,964
+ 
+ 
+ 
+38,650
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by operating activities
+
+ 
+ 
+315,919
+ 
+ 
+ 
+419,167
+ 
+ 
+ 
+481,416
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Acquisition of businesses
+
+ 
+ 
+(106,041
+) 
+ 
+ 
+(41,385
+) 
+ 
+ 
+ 
+ 
+
+ Proceeds from sales of property and equipment
+
+ 
+ 
+19,685
+ 
+ 
+ 
+7,487
+ 
+ 
+ 
+15,057
+ 
+
+ Purchases of property and equipment
+
+ 
+ 
+(293,456
+) 
+ 
+ 
+(304,414
+) 
+ 
+ 
+(271,504
+) 
+
+ Other investing
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,837
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash used in investing activities
+
+ 
+ 
+(379,812
+) 
+ 
+ 
+(338,312
+) 
+ 
+ 
+(258,284
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Proceeds from debt refinancing
+
+ 
+ 
+1,269,625
+ 
+ 
+ 
+900,000
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from other borrowings
+
+ 
+ 
+2,031,000
+ 
+ 
+ 
+225,000
+ 
+ 
+ 
+ 
+ 
+
+ Redemption of senior notes
+
+ 
+ 
+ 
+ 
+ 
+ 
+(1,064,159
+) 
+ 
+ 
+ 
+ 
+
+ Payment for debt financing costs and fees
+
+ 
+ 
+(35,088
+) 
+ 
+ 
+(29,569
+) 
+ 
+ 
+ 
+ 
+
+ Principal payments on debt and capital leases
+
+ 
+ 
+(2,983,567
+) 
+ 
+ 
+(339,287
+) 
+ 
+ 
+(30,826
+) 
+
+ Repurchase of senior subordinated notes
+
+ 
+ 
+(175,338
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+761
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+(3,734
+) 
+ 
+ 
+(3,222
+) 
+ 
+ 
+(3,916
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by (used in) financing activities
+
+ 
+ 
+103,659
+ 
+ 
+ 
+(301,277
+) 
+ 
+ 
+(30,005
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
+
+ 
+ 
+39,766
+ 
+ 
+ 
+(220,422
+) 
+ 
+ 
+193,127
+ 
+
+ CASH AND CASH EQUIVALENTS Beginning of year
+
+ 
+ 
+202,691
+ 
+ 
+ 
+423,113
+ 
+ 
+ 
+229,986
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH AND CASH EQUIVALENTS End of year
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+ 
+$
+423,113
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ Cash paid during the year for:
+
+ 
+
+ 
+
+ 
+
+ Interest (net of amounts capitalized)
+
+ 
+$
+286,420
+ 
+ 
+$
+229,553
+ 
+ 
+$
+314,253
+ 
+
+ Income taxes net of refunds
+
+ 
+ 
+369
+ 
+ 
+ 
+418
+ 
+ 
+ 
+206
+ 
+
+ Property and equipment purchases included in accounts payable
+
+ 
+ 
+25,137
+ 
+ 
+ 
+48,389
+ 
+ 
+ 
+28,652
+ 
+
+ Capital lease additions
+
+ 
+ 
+21,810
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Contingent consideration payable for business acquisitions
+
+ 
+ 
+5,500
+ 
+ 
+ 
+3,570
+ 
+ 
+ 
+ 
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-6
+
+Table of Contents
+
+ US FOODS, INC. 
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+ AS OF DECEMBER
+29, 2012 AND DECEMBER 31, 2011 AND FOR THE FISCAL YEARS ENDED 
+ DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011
+
+ 
+ 
+
+ 
+
+1.
+OVERVIEW AND BASIS OF PRESENTATION 
+ US Foods, Inc. and its consolidated subsidiaries is referred to herein as we, our, us, the Company, or US Foods . We are a 100% owned subsidiary
+of USF Holding Corp. 
+ Ownership On July 3, 2007 (the Closing Date ), USF Holding Corp.,
+through a wholly owned subsidiary, acquired all of our predecessor company s common stock and certain related assets from Koninklijke Ahold N.V. ( Ahold ) for approximately $7.2 billion (the Acquisition ). Through a series
+of related transactions, USF Holding Corp. became our direct parent company. USF Holding Corp. is a corporation formed and controlled by investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., and Kohlberg Kravis
+Roberts & Co. (collectively the Sponsors ). 
+ Business Description US Foods markets and
+distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States including independently owned single location restaurants, regional concepts, national chains, hospitals, nursing homes, hotels and
+motels, country clubs, fitness centers, government and military organizations, colleges and universities, and retail locations. 
+
+Basis of Presentation The Company operates on a 52-53 week fiscal year with all periods ending on a Saturday. When a
+53-week fiscal year occurs, we report the additional week in the fourth quarter. The fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011 are also referred to herein as the years 2012, 2011 and 2010,
+respectively. The consolidated financial statements representing the 52-week fiscal year 2012 are for the calendar period January 1, 2012 through December 29, 2012. The consolidated financial statements representing the 52-week fiscal year
+2011 are for the calendar period January 2, 2011 through December 31, 2011. The consolidated financial statements representing the 52-week fiscal year 2010 are for the calendar period January 3, 2010 through January 1, 2011.
+
+ Certain prior period disclosures have been reclassified to conform with current period disclosures. Also, certain omitted
+disclosures related to prior years have been added during the current year. 
+ 
+
+2.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561967_us-foods_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561967_us-foods_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b9cdbacc709a47aa738c9734aa7b92a64e85dc86
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561967_us-foods_legal_matters.txt
@@ -0,0 +1,3052 @@
+LEGAL MATTERS 
+
+The validity of the Notes will be passed upon for us by Jenner & Block LLP. 
+
+EXPERTS 
+ The consolidated financial statements as of December 29, 2012 and December 31, 2011, and for each of the three years in the period ended December 29, 2012, included in this Prospectus have been audited by
+Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority
+as experts in accounting and auditing. 
+
+ 
+ 185
+
+Table of Contents
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION 
+
+In connection with the offering of the Notes pursuant to this prospectus, we have filed with the SEC a registration statement on
+Form S-1 under the Securities Act of which this prospectus forms a part. As permitted by SEC rules, this prospectus omits information included in the registration statement. For further information with respect to us, the guarantors or the
+offering, you should refer to the registration statement, including its exhibits. With respect to statements in this prospectus about the contents of any contract, agreement or other document, we refer you to the copy of such contract, agreement or
+other document filed or incorporated by reference as an exhibit to the registration statement, and each such statement is qualified in all respects by reference to the document to which it refers. 
+
+You may read and copy any documents that we file at the SEC s public reference room at 100 F Street, N.E., Washington, D.C.
+20549 at prescribed rates. You may call the SEC at 1-800-SEC-0330 to obtain further information about the public reference room. In addition, the SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements
+and other information about issuers that file electronically with the SEC, including US Food, Inc. The SEC s website address is included in this prospectus as an inactive textual reference only. 
+
+Regardless of whether we are subject to the reporting requirements of the Exchange Act, we have agreed that from the time we first become
+subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act and for so long as any of the Notes under the Indenture remain outstanding, we will file with the SEC (unless such filing is not permitted under
+the Exchange Act or by the SEC), the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if we were so subject.
+
+ You may also obtain a copy of the registration statement and other information that we file with the SEC at no cost by
+calling us or writing to us at the following address: 
+ US Foods, Inc. 
+
+9399 W. Higgins Road, Suite 600 
+ Rosemont, IL 60018 
+ (847) 720-8000 
+
+ 
+ 186
+
+Table of Contents
+
+ INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Audited Consolidated Financial Statements
+
+ 
+
+ Report of Independent Registered Public Accounting Firm
+
+ 
+ 
+F-2
+ 
+
+ Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011
+
+ 
+ 
+F-3
+ 
+
+ Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-4
+ 
+
+ Consolidated Statements of Shareholder s Equity for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-5
+ 
+
+ Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2012, December 
+31, 2011 and January 1, 2011
+
+ 
+ 
+F-6
+ 
+
+ Notes to Consolidated Financial Statements
+
+ 
+ 
+F-7
+ 
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Unaudited Consolidated Interim Financial Statements
+
+ 
+
+ Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012
+
+ 
+ 
+F-52
+ 
+
+ Consolidated Statements of Comprehensive (Loss) Income for the 13-weeks Ended March 
+30, 2013 and March 31, 2012
+
+ 
+ 
+F-53
+ 
+
+ Consolidated Statements of Cash Flows for the 13-weeks Ended March 30, 2013 and March 31,
+2012
+
+ 
+ 
+F-54
+ 
+
+ Notes to Unaudited Consolidated Financial Statements
+
+ 
+ 
+F-55
+ 
+
+ 
+ F-1
+
+Table of Contents
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+
+To the Board of Directors and Shareholder of 
+
+US Foods, Inc. 
+ Rosemont, Illinois 
+
+We have audited the accompanying consolidated balance sheets of US Foods, Inc. and subsidiaries (the Company ) as of December 29, 2012
+and December 31, 2011, and the related consolidated statements of comprehensive loss, shareholder s equity, and cash flows for each of the three years in the period ended December 29, 2012. These financial statements are the
+responsibility of the Company s management. Our responsibility is to express an opinion on the financial statements based on our audits. 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
+financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
+effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
+assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+
+In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of US Foods, Inc. and
+subsidiaries as of December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2012, in conformity with accounting principles generally
+accepted in the United States of America. 
+ /s/ DELOITTE & TOUCHE LLP 
+ Chicago, Illinois 
+ March 7, 2013 
+
+ 
+ F-2
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED BALANCE SHEETS 
+ AS OF DECEMBER 29, 2012 AND
+DECEMBER 31, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+December 29,
+2012
+ 
+ 
+December 31,
+2011
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ CURRENT ASSETS:
+
+ 
+
+ 
+
+ Cash and cash equivalents
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+
+ Accounts receivable net
+
+ 
+ 
+1,216,612
+ 
+ 
+ 
+1,133,303
+ 
+
+ Vendor receivables net
+
+ 
+ 
+93,025
+ 
+ 
+ 
+105,869
+ 
+
+ Inventories
+
+ 
+ 
+1,092,492
+ 
+ 
+ 
+851,418
+ 
+
+ Prepaid expenses
+
+ 
+ 
+74,499
+ 
+ 
+ 
+71,277
+ 
+
+ Deferred taxes
+
+ 
+ 
+8,034
+ 
+ 
+ 
+30,915
+ 
+
+ Other current assets
+
+ 
+ 
+33,387
+ 
+ 
+ 
+40,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current assets
+
+ 
+ 
+2,760,506
+ 
+ 
+ 
+2,435,515
+ 
+
+ PROPERTY AND EQUIPMENT Net
+
+ 
+ 
+1,706,388
+ 
+ 
+ 
+1,596,817
+ 
+
+ GOODWILL
+
+ 
+ 
+3,833,301
+ 
+ 
+ 
+3,818,088
+ 
+
+ OTHER INTANGIBLES Net
+
+ 
+ 
+889,453
+ 
+ 
+ 
+984,682
+ 
+
+ DEFERRED FINANCING COSTS
+
+ 
+ 
+49,038
+ 
+ 
+ 
+54,548
+ 
+
+ OTHER ASSETS
+
+ 
+ 
+24,720
+ 
+ 
+ 
+26,777
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+
+ 
+
+ CURRENT LIABILITIES:
+
+ 
+
+ 
+
+ Bank checks outstanding
+
+ 
+$
+161,791
+ 
+ 
+$
+205,110
+ 
+
+ Accounts payable
+
+ 
+ 
+1,239,790
+ 
+ 
+ 
+973,389
+ 
+
+ Accrued expenses and other current liabilities
+
+ 
+ 
+388,306
+ 
+ 
+ 
+391,169
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+48,926
+ 
+ 
+ 
+203,118
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current liabilities
+
+ 
+ 
+1,838,813
+ 
+ 
+ 
+1,772,786
+ 
+
+ LONG-TERM DEBT
+
+ 
+ 
+4,764,899
+ 
+ 
+ 
+4,437,840
+ 
+
+ DEFERRED TAX LIABILITIES
+
+ 
+ 
+365,496
+ 
+ 
+ 
+344,191
+ 
+
+ OTHER LONG-TERM LIABILITIES
+
+ 
+ 
+479,642
+ 
+ 
+ 
+500,630
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total liabilities
+
+ 
+ 
+7,448,850
+ 
+ 
+ 
+7,055,447
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES (See Note 20)
+
+ 
+
+ 
+
+ SHAREHOLDER S EQUITY:
+
+ 
+
+ 
+
+ Common stock, $1.00 par value authorized, issued, and outstanding, 1,000 shares
+
+ 
+ 
+1
+ 
+ 
+ 
+1
+ 
+
+ Additional paid-in capital
+
+ 
+ 
+2,324,391
+ 
+ 
+ 
+2,323,052
+ 
+
+ Accumulated deficit
+
+ 
+ 
+(383,652
+) 
+ 
+ 
+(332,479
+) 
+
+ Accumulated other comprehensive loss
+
+ 
+ 
+(126,184
+) 
+ 
+ 
+(129,594
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total shareholder s equity
+
+ 
+ 
+1,814,556
+ 
+ 
+ 
+1,860,980
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-3
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
+ FOR THE FISCAL
+YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ NET SALES
+
+ 
+$
+21,664,921
+ 
+ 
+$
+20,344,869
+ 
+ 
+$
+18,862,092
+ 
+
+ COST OF GOODS SOLD
+
+ 
+ 
+17,971,949
+ 
+ 
+ 
+16,839,850
+ 
+ 
+ 
+15,451,991
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Gross profit
+
+ 
+ 
+3,692,972
+ 
+ 
+ 
+3,505,019
+ 
+ 
+ 
+3,410,101
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING EXPENSES:
+
+ 
+
+ 
+
+ 
+
+ Distribution, selling and administrative costs
+
+ 
+ 
+3,349,539
+ 
+ 
+ 
+3,193,747
+ 
+ 
+ 
+3,055,251
+ 
+
+ Restructuring and tangible asset impairment charges
+
+ 
+ 
+8,923
+ 
+ 
+ 
+71,892
+ 
+ 
+ 
+10,512
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+ 
+3,358,462
+ 
+ 
+ 
+3,265,639
+ 
+ 
+ 
+3,065,763
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING INCOME
+
+ 
+ 
+334,510
+ 
+ 
+ 
+239,380
+ 
+ 
+ 
+344,338
+ 
+
+ INTEREST EXPENSE Net
+
+ 
+ 
+311,812
+ 
+ 
+ 
+307,614
+ 
+ 
+ 
+341,718
+ 
+
+ LOSS ON EXTINGUISHMENT OF DEBT
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ (Loss) income before income taxes
+
+ 
+ 
+(8,725
+) 
+ 
+ 
+(144,245
+) 
+ 
+ 
+2,620
+ 
+
+ INCOME TAX PROVISION (BENEFIT)
+
+ 
+ 
+42,448
+ 
+ 
+ 
+(42,074
+) 
+ 
+ 
+15,585
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET LOSS
+
+ 
+ 
+(51,173
+) 
+ 
+ 
+(102,171
+) 
+ 
+ 
+(12,965
+) 
+
+ OTHER COMPREHENSIVE (LOSS) INCOME Net of tax:
+
+ 
+
+ 
+
+ 
+
+ Changes in retirement benefit obligations, net of income tax benefit of $8,632, $11,336 and $12,224
+
+ 
+$
+(14,160
+) 
+ 
+$
+(17,629
+) 
+ 
+$
+(19,018
+) 
+
+ Changes in fair value of derivative, net of income tax provision (benefit) of $10,726, $11,256 and $(895)
+
+ 
+ 
+17,570
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+(1,393
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMPREHENSIVE LOSS
+
+ 
+$
+(47,763
+) 
+ 
+$
+(102,294
+) 
+ 
+$
+(33,376
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ See notes to consolidated financial statements.
+
+ 
+ F-4
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF SHAREHOLDER S EQUITY 
+ FOR THE
+FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+ Number of
+Common
+Shares
+
+ 
+ 
+ Common
+
+Shares
+at Par
+Value
+
+ 
+ 
+ Additional
+Paid-In
+Capital
+
+ 
+ 
+Accumulated
+Deficit
+ 
+ 
+Accumulated Other
+Comprehensive Loss
+ 
+ 
+Total
+Shareholder s
+Equity
+ 
+
+ 
+ 
+ 
+ 
+ 
+Retirement
+Benefit
+Obligation
+ 
+ 
+Interest
+Rate Swap
+Derivative
+ 
+ 
+Total
+ 
+ 
+
+ BALANCE January 2, 2010
+
+ 
+ 
+1,000
+ 
+ 
+$
+ 
+ 
+ 
+$
+2,297,389
+ 
+ 
+$
+(217,343
+) 
+ 
+$
+(74,835
+) 
+ 
+$
+(34,225
+) 
+ 
+$
+(109,060
+) 
+ 
+$
+1,970,986
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+
+ Changes in retirement benefit obligations net of $12,224 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+(19,018
+) 
+
+ Changes in fair value of interest rate swap derivative net of $895 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE January 1, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,301,692
+ 
+ 
+ 
+(230,308
+) 
+ 
+ 
+(93,853
+) 
+ 
+ 
+(35,618
+) 
+ 
+ 
+(129,471
+) 
+ 
+ 
+1,941,913
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+
+ Changes in retirement benefit obligations net of $11,336 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+(17,629
+) 
+
+ Changes in fair value of interest rate swap derivative net of $11,256 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+
+ Other
+
+ 
+ 
+ 
+ 
+ 
+ 
+1
+ 
+ 
+ 
+(55
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(54
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 31, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+1
+ 
+ 
+ 
+2,323,052
+ 
+ 
+ 
+(332,479
+) 
+ 
+ 
+(111,482
+) 
+ 
+ 
+(18,112
+) 
+ 
+ 
+(129,594
+) 
+ 
+ 
+1,860,980
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+
+ Changes in retirement benefit obligations net of $8,632 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+(14,160
+) 
+
+ Changes in fair value of interest rate swap derivative net of $10,726 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 29, 2012
+
+ 
+ 
+1,000
+ 
+ 
+$
+1
+ 
+ 
+$
+2,324,391
+ 
+ 
+$
+(383,652
+) 
+ 
+$
+(125,642
+) 
+ 
+$
+(542
+) 
+ 
+$
+(126,184
+) 
+ 
+$
+1,814,556
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-5
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF CASH FLOWS 
+ FOR THE FISCAL YEARS
+ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year
+Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+$
+(51,173
+) 
+ 
+$
+(102,171
+) 
+ 
+$
+(12,965
+) 
+
+ Adjustments to reconcile net loss to net cash provided by operating activities:
+
+ 
+
+ 
+
+ 
+
+ Depreciation and amortization
+
+ 
+ 
+355,892
+ 
+ 
+ 
+342,732
+ 
+ 
+ 
+307,522
+ 
+
+ Gain on disposal of property and equipment
+
+ 
+ 
+(1,493
+) 
+ 
+ 
+(308
+) 
+ 
+ 
+(3,222
+) 
+
+ Loss on extinguishment of debt
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ Tangible asset impairment charges
+
+ 
+ 
+7,530
+ 
+ 
+ 
+9,260
+ 
+ 
+ 
+2,172
+ 
+
+ Amortization of deferred financing costs
+
+ 
+ 
+18,052
+ 
+ 
+ 
+18,913
+ 
+ 
+ 
+18,403
+ 
+
+ Deferred tax provision (benefit)
+
+ 
+ 
+42,142
+ 
+ 
+ 
+(41,600
+) 
+ 
+ 
+14,656
+ 
+
+ Share-based compensation expense
+
+ 
+ 
+4,312
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+3,482
+ 
+
+ Provision for doubtful accounts
+
+ 
+ 
+10,701
+ 
+ 
+ 
+17,567
+ 
+ 
+ 
+25,980
+ 
+
+ Changes in operating assets and liabilities, net of acquisitions of businesses:
+
+ 
+
+ 
+
+ 
+
+ (Increase) decrease in receivables
+
+ 
+ 
+(56,639
+) 
+ 
+ 
+(116,229
+) 
+ 
+ 
+12,505
+ 
+
+ (Increase) decrease in inventories
+
+ 
+ 
+(214,998
+) 
+ 
+ 
+23,989
+ 
+ 
+ 
+(36,216
+) 
+
+ (Increase) decrease in prepaid expenses and other assets
+
+ 
+ 
+(758
+) 
+ 
+ 
+(6,281
+) 
+ 
+ 
+185
+ 
+
+ Increase in accounts payable and bank checks outstanding
+
+ 
+ 
+198,227
+ 
+ 
+ 
+109,086
+ 
+ 
+ 
+87,944
+ 
+
+ (Decrease) increase in accrued expenses and other liabilities
+
+ 
+ 
+(27,299
+) 
+ 
+ 
+59,557
+ 
+ 
+ 
+22,320
+ 
+
+ Decrease in securitization restricted cash
+
+ 
+ 
+ 
+ 
+ 
+ 
+13,964
+ 
+ 
+ 
+38,650
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by operating activities
+
+ 
+ 
+315,919
+ 
+ 
+ 
+419,167
+ 
+ 
+ 
+481,416
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Acquisition of businesses
+
+ 
+ 
+(106,041
+) 
+ 
+ 
+(41,385
+) 
+ 
+ 
+ 
+ 
+
+ Proceeds from sales of property and equipment
+
+ 
+ 
+19,685
+ 
+ 
+ 
+7,487
+ 
+ 
+ 
+15,057
+ 
+
+ Purchases of property and equipment
+
+ 
+ 
+(293,456
+) 
+ 
+ 
+(304,414
+) 
+ 
+ 
+(271,504
+) 
+
+ Other investing
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,837
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash used in investing activities
+
+ 
+ 
+(379,812
+) 
+ 
+ 
+(338,312
+) 
+ 
+ 
+(258,284
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Proceeds from debt refinancing
+
+ 
+ 
+1,269,625
+ 
+ 
+ 
+900,000
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from other borrowings
+
+ 
+ 
+2,031,000
+ 
+ 
+ 
+225,000
+ 
+ 
+ 
+ 
+ 
+
+ Redemption of senior notes
+
+ 
+ 
+ 
+ 
+ 
+ 
+(1,064,159
+) 
+ 
+ 
+ 
+ 
+
+ Payment for debt financing costs and fees
+
+ 
+ 
+(35,088
+) 
+ 
+ 
+(29,569
+) 
+ 
+ 
+ 
+ 
+
+ Principal payments on debt and capital leases
+
+ 
+ 
+(2,983,567
+) 
+ 
+ 
+(339,287
+) 
+ 
+ 
+(30,826
+) 
+
+ Repurchase of senior subordinated notes
+
+ 
+ 
+(175,338
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+761
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+(3,734
+) 
+ 
+ 
+(3,222
+) 
+ 
+ 
+(3,916
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by (used in) financing activities
+
+ 
+ 
+103,659
+ 
+ 
+ 
+(301,277
+) 
+ 
+ 
+(30,005
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
+
+ 
+ 
+39,766
+ 
+ 
+ 
+(220,422
+) 
+ 
+ 
+193,127
+ 
+
+ CASH AND CASH EQUIVALENTS Beginning of year
+
+ 
+ 
+202,691
+ 
+ 
+ 
+423,113
+ 
+ 
+ 
+229,986
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH AND CASH EQUIVALENTS End of year
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+ 
+$
+423,113
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ Cash paid during the year for:
+
+ 
+
+ 
+
+ 
+
+ Interest (net of amounts capitalized)
+
+ 
+$
+286,420
+ 
+ 
+$
+229,553
+ 
+ 
+$
+314,253
+ 
+
+ Income taxes net of refunds
+
+ 
+ 
+369
+ 
+ 
+ 
+418
+ 
+ 
+ 
+206
+ 
+
+ Property and equipment purchases included in accounts payable
+
+ 
+ 
+25,137
+ 
+ 
+ 
+48,389
+ 
+ 
+ 
+28,652
+ 
+
+ Capital lease additions
+
+ 
+ 
+21,810
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Contingent consideration payable for business acquisitions
+
+ 
+ 
+5,500
+ 
+ 
+ 
+3,570
+ 
+ 
+ 
+ 
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-6
+
+Table of Contents
+
+ US FOODS, INC. 
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+ AS OF DECEMBER
+29, 2012 AND DECEMBER 31, 2011 AND FOR THE FISCAL YEARS ENDED 
+ DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011
+
+ 
+ 
+
+ 
+
+1.
+OVERVIEW AND BASIS OF PRESENTATION 
+ US Foods, Inc. and its consolidated subsidiaries is referred to herein as we, our, us, the Company, or US Foods . We are a 100% owned subsidiary
+of USF Holding Corp. 
+ Ownership On July 3, 2007 (the Closing Date ), USF Holding Corp.,
+through a wholly owned subsidiary, acquired all of our predecessor company s common stock and certain related assets from Koninklijke Ahold N.V. ( Ahold ) for approximately $7.2 billion (the Acquisition ). Through a series
+of related transactions, USF Holding Corp. became our direct parent company. USF Holding Corp. is a corporation formed and controlled by investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., and Kohlberg Kravis
+Roberts & Co. (collectively the Sponsors ). 
+ Business Description US Foods markets and
+distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States including independently owned single location restaurants, regional concepts, national chains, hospitals, nursing homes, hotels and
+motels, country clubs, fitness centers, government and military organizations, colleges and universities, and retail locations. 
+
+Basis of Presentation The Company operates on a 52-53 week fiscal year with all periods ending on a Saturday. When a
+53-week fiscal year occurs, we report the additional week in the fourth quarter. The fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011 are also referred to herein as the years 2012, 2011 and 2010,
+respectively. The consolidated financial statements representing the 52-week fiscal year 2012 are for the calendar period January 1, 2012 through December 29, 2012. The consolidated financial statements representing the 52-week fiscal year
+2011 are for the calendar period January 2, 2011 through December 31, 2011. The consolidated financial statements representing the 52-week fiscal year 2010 are for the calendar period January 3, 2010 through January 1, 2011.
+
+ Certain prior period disclosures have been reclassified to conform with current period disclosures. Also, certain omitted
+disclosures related to prior years have been added during the current year. 
+ 
+
+2.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561971_e-h_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561971_e-h_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b9cdbacc709a47aa738c9734aa7b92a64e85dc86
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561971_e-h_legal_matters.txt
@@ -0,0 +1,3052 @@
+LEGAL MATTERS 
+
+The validity of the Notes will be passed upon for us by Jenner & Block LLP. 
+
+EXPERTS 
+ The consolidated financial statements as of December 29, 2012 and December 31, 2011, and for each of the three years in the period ended December 29, 2012, included in this Prospectus have been audited by
+Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority
+as experts in accounting and auditing. 
+
+ 
+ 185
+
+Table of Contents
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION 
+
+In connection with the offering of the Notes pursuant to this prospectus, we have filed with the SEC a registration statement on
+Form S-1 under the Securities Act of which this prospectus forms a part. As permitted by SEC rules, this prospectus omits information included in the registration statement. For further information with respect to us, the guarantors or the
+offering, you should refer to the registration statement, including its exhibits. With respect to statements in this prospectus about the contents of any contract, agreement or other document, we refer you to the copy of such contract, agreement or
+other document filed or incorporated by reference as an exhibit to the registration statement, and each such statement is qualified in all respects by reference to the document to which it refers. 
+
+You may read and copy any documents that we file at the SEC s public reference room at 100 F Street, N.E., Washington, D.C.
+20549 at prescribed rates. You may call the SEC at 1-800-SEC-0330 to obtain further information about the public reference room. In addition, the SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements
+and other information about issuers that file electronically with the SEC, including US Food, Inc. The SEC s website address is included in this prospectus as an inactive textual reference only. 
+
+Regardless of whether we are subject to the reporting requirements of the Exchange Act, we have agreed that from the time we first become
+subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act and for so long as any of the Notes under the Indenture remain outstanding, we will file with the SEC (unless such filing is not permitted under
+the Exchange Act or by the SEC), the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if we were so subject.
+
+ You may also obtain a copy of the registration statement and other information that we file with the SEC at no cost by
+calling us or writing to us at the following address: 
+ US Foods, Inc. 
+
+9399 W. Higgins Road, Suite 600 
+ Rosemont, IL 60018 
+ (847) 720-8000 
+
+ 
+ 186
+
+Table of Contents
+
+ INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Audited Consolidated Financial Statements
+
+ 
+
+ Report of Independent Registered Public Accounting Firm
+
+ 
+ 
+F-2
+ 
+
+ Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011
+
+ 
+ 
+F-3
+ 
+
+ Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-4
+ 
+
+ Consolidated Statements of Shareholder s Equity for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-5
+ 
+
+ Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2012, December 
+31, 2011 and January 1, 2011
+
+ 
+ 
+F-6
+ 
+
+ Notes to Consolidated Financial Statements
+
+ 
+ 
+F-7
+ 
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Unaudited Consolidated Interim Financial Statements
+
+ 
+
+ Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012
+
+ 
+ 
+F-52
+ 
+
+ Consolidated Statements of Comprehensive (Loss) Income for the 13-weeks Ended March 
+30, 2013 and March 31, 2012
+
+ 
+ 
+F-53
+ 
+
+ Consolidated Statements of Cash Flows for the 13-weeks Ended March 30, 2013 and March 31,
+2012
+
+ 
+ 
+F-54
+ 
+
+ Notes to Unaudited Consolidated Financial Statements
+
+ 
+ 
+F-55
+ 
+
+ 
+ F-1
+
+Table of Contents
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+
+To the Board of Directors and Shareholder of 
+
+US Foods, Inc. 
+ Rosemont, Illinois 
+
+We have audited the accompanying consolidated balance sheets of US Foods, Inc. and subsidiaries (the Company ) as of December 29, 2012
+and December 31, 2011, and the related consolidated statements of comprehensive loss, shareholder s equity, and cash flows for each of the three years in the period ended December 29, 2012. These financial statements are the
+responsibility of the Company s management. Our responsibility is to express an opinion on the financial statements based on our audits. 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
+financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
+effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
+assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+
+In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of US Foods, Inc. and
+subsidiaries as of December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2012, in conformity with accounting principles generally
+accepted in the United States of America. 
+ /s/ DELOITTE & TOUCHE LLP 
+ Chicago, Illinois 
+ March 7, 2013 
+
+ 
+ F-2
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED BALANCE SHEETS 
+ AS OF DECEMBER 29, 2012 AND
+DECEMBER 31, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+December 29,
+2012
+ 
+ 
+December 31,
+2011
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ CURRENT ASSETS:
+
+ 
+
+ 
+
+ Cash and cash equivalents
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+
+ Accounts receivable net
+
+ 
+ 
+1,216,612
+ 
+ 
+ 
+1,133,303
+ 
+
+ Vendor receivables net
+
+ 
+ 
+93,025
+ 
+ 
+ 
+105,869
+ 
+
+ Inventories
+
+ 
+ 
+1,092,492
+ 
+ 
+ 
+851,418
+ 
+
+ Prepaid expenses
+
+ 
+ 
+74,499
+ 
+ 
+ 
+71,277
+ 
+
+ Deferred taxes
+
+ 
+ 
+8,034
+ 
+ 
+ 
+30,915
+ 
+
+ Other current assets
+
+ 
+ 
+33,387
+ 
+ 
+ 
+40,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current assets
+
+ 
+ 
+2,760,506
+ 
+ 
+ 
+2,435,515
+ 
+
+ PROPERTY AND EQUIPMENT Net
+
+ 
+ 
+1,706,388
+ 
+ 
+ 
+1,596,817
+ 
+
+ GOODWILL
+
+ 
+ 
+3,833,301
+ 
+ 
+ 
+3,818,088
+ 
+
+ OTHER INTANGIBLES Net
+
+ 
+ 
+889,453
+ 
+ 
+ 
+984,682
+ 
+
+ DEFERRED FINANCING COSTS
+
+ 
+ 
+49,038
+ 
+ 
+ 
+54,548
+ 
+
+ OTHER ASSETS
+
+ 
+ 
+24,720
+ 
+ 
+ 
+26,777
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+
+ 
+
+ CURRENT LIABILITIES:
+
+ 
+
+ 
+
+ Bank checks outstanding
+
+ 
+$
+161,791
+ 
+ 
+$
+205,110
+ 
+
+ Accounts payable
+
+ 
+ 
+1,239,790
+ 
+ 
+ 
+973,389
+ 
+
+ Accrued expenses and other current liabilities
+
+ 
+ 
+388,306
+ 
+ 
+ 
+391,169
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+48,926
+ 
+ 
+ 
+203,118
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current liabilities
+
+ 
+ 
+1,838,813
+ 
+ 
+ 
+1,772,786
+ 
+
+ LONG-TERM DEBT
+
+ 
+ 
+4,764,899
+ 
+ 
+ 
+4,437,840
+ 
+
+ DEFERRED TAX LIABILITIES
+
+ 
+ 
+365,496
+ 
+ 
+ 
+344,191
+ 
+
+ OTHER LONG-TERM LIABILITIES
+
+ 
+ 
+479,642
+ 
+ 
+ 
+500,630
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total liabilities
+
+ 
+ 
+7,448,850
+ 
+ 
+ 
+7,055,447
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES (See Note 20)
+
+ 
+
+ 
+
+ SHAREHOLDER S EQUITY:
+
+ 
+
+ 
+
+ Common stock, $1.00 par value authorized, issued, and outstanding, 1,000 shares
+
+ 
+ 
+1
+ 
+ 
+ 
+1
+ 
+
+ Additional paid-in capital
+
+ 
+ 
+2,324,391
+ 
+ 
+ 
+2,323,052
+ 
+
+ Accumulated deficit
+
+ 
+ 
+(383,652
+) 
+ 
+ 
+(332,479
+) 
+
+ Accumulated other comprehensive loss
+
+ 
+ 
+(126,184
+) 
+ 
+ 
+(129,594
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total shareholder s equity
+
+ 
+ 
+1,814,556
+ 
+ 
+ 
+1,860,980
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-3
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
+ FOR THE FISCAL
+YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ NET SALES
+
+ 
+$
+21,664,921
+ 
+ 
+$
+20,344,869
+ 
+ 
+$
+18,862,092
+ 
+
+ COST OF GOODS SOLD
+
+ 
+ 
+17,971,949
+ 
+ 
+ 
+16,839,850
+ 
+ 
+ 
+15,451,991
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Gross profit
+
+ 
+ 
+3,692,972
+ 
+ 
+ 
+3,505,019
+ 
+ 
+ 
+3,410,101
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING EXPENSES:
+
+ 
+
+ 
+
+ 
+
+ Distribution, selling and administrative costs
+
+ 
+ 
+3,349,539
+ 
+ 
+ 
+3,193,747
+ 
+ 
+ 
+3,055,251
+ 
+
+ Restructuring and tangible asset impairment charges
+
+ 
+ 
+8,923
+ 
+ 
+ 
+71,892
+ 
+ 
+ 
+10,512
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+ 
+3,358,462
+ 
+ 
+ 
+3,265,639
+ 
+ 
+ 
+3,065,763
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING INCOME
+
+ 
+ 
+334,510
+ 
+ 
+ 
+239,380
+ 
+ 
+ 
+344,338
+ 
+
+ INTEREST EXPENSE Net
+
+ 
+ 
+311,812
+ 
+ 
+ 
+307,614
+ 
+ 
+ 
+341,718
+ 
+
+ LOSS ON EXTINGUISHMENT OF DEBT
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ (Loss) income before income taxes
+
+ 
+ 
+(8,725
+) 
+ 
+ 
+(144,245
+) 
+ 
+ 
+2,620
+ 
+
+ INCOME TAX PROVISION (BENEFIT)
+
+ 
+ 
+42,448
+ 
+ 
+ 
+(42,074
+) 
+ 
+ 
+15,585
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET LOSS
+
+ 
+ 
+(51,173
+) 
+ 
+ 
+(102,171
+) 
+ 
+ 
+(12,965
+) 
+
+ OTHER COMPREHENSIVE (LOSS) INCOME Net of tax:
+
+ 
+
+ 
+
+ 
+
+ Changes in retirement benefit obligations, net of income tax benefit of $8,632, $11,336 and $12,224
+
+ 
+$
+(14,160
+) 
+ 
+$
+(17,629
+) 
+ 
+$
+(19,018
+) 
+
+ Changes in fair value of derivative, net of income tax provision (benefit) of $10,726, $11,256 and $(895)
+
+ 
+ 
+17,570
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+(1,393
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMPREHENSIVE LOSS
+
+ 
+$
+(47,763
+) 
+ 
+$
+(102,294
+) 
+ 
+$
+(33,376
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ See notes to consolidated financial statements.
+
+ 
+ F-4
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF SHAREHOLDER S EQUITY 
+ FOR THE
+FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+ Number of
+Common
+Shares
+
+ 
+ 
+ Common
+
+Shares
+at Par
+Value
+
+ 
+ 
+ Additional
+Paid-In
+Capital
+
+ 
+ 
+Accumulated
+Deficit
+ 
+ 
+Accumulated Other
+Comprehensive Loss
+ 
+ 
+Total
+Shareholder s
+Equity
+ 
+
+ 
+ 
+ 
+ 
+ 
+Retirement
+Benefit
+Obligation
+ 
+ 
+Interest
+Rate Swap
+Derivative
+ 
+ 
+Total
+ 
+ 
+
+ BALANCE January 2, 2010
+
+ 
+ 
+1,000
+ 
+ 
+$
+ 
+ 
+ 
+$
+2,297,389
+ 
+ 
+$
+(217,343
+) 
+ 
+$
+(74,835
+) 
+ 
+$
+(34,225
+) 
+ 
+$
+(109,060
+) 
+ 
+$
+1,970,986
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+
+ Changes in retirement benefit obligations net of $12,224 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+(19,018
+) 
+
+ Changes in fair value of interest rate swap derivative net of $895 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE January 1, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,301,692
+ 
+ 
+ 
+(230,308
+) 
+ 
+ 
+(93,853
+) 
+ 
+ 
+(35,618
+) 
+ 
+ 
+(129,471
+) 
+ 
+ 
+1,941,913
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+
+ Changes in retirement benefit obligations net of $11,336 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+(17,629
+) 
+
+ Changes in fair value of interest rate swap derivative net of $11,256 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+
+ Other
+
+ 
+ 
+ 
+ 
+ 
+ 
+1
+ 
+ 
+ 
+(55
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(54
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 31, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+1
+ 
+ 
+ 
+2,323,052
+ 
+ 
+ 
+(332,479
+) 
+ 
+ 
+(111,482
+) 
+ 
+ 
+(18,112
+) 
+ 
+ 
+(129,594
+) 
+ 
+ 
+1,860,980
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+
+ Changes in retirement benefit obligations net of $8,632 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+(14,160
+) 
+
+ Changes in fair value of interest rate swap derivative net of $10,726 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 29, 2012
+
+ 
+ 
+1,000
+ 
+ 
+$
+1
+ 
+ 
+$
+2,324,391
+ 
+ 
+$
+(383,652
+) 
+ 
+$
+(125,642
+) 
+ 
+$
+(542
+) 
+ 
+$
+(126,184
+) 
+ 
+$
+1,814,556
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-5
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF CASH FLOWS 
+ FOR THE FISCAL YEARS
+ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year
+Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+$
+(51,173
+) 
+ 
+$
+(102,171
+) 
+ 
+$
+(12,965
+) 
+
+ Adjustments to reconcile net loss to net cash provided by operating activities:
+
+ 
+
+ 
+
+ 
+
+ Depreciation and amortization
+
+ 
+ 
+355,892
+ 
+ 
+ 
+342,732
+ 
+ 
+ 
+307,522
+ 
+
+ Gain on disposal of property and equipment
+
+ 
+ 
+(1,493
+) 
+ 
+ 
+(308
+) 
+ 
+ 
+(3,222
+) 
+
+ Loss on extinguishment of debt
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ Tangible asset impairment charges
+
+ 
+ 
+7,530
+ 
+ 
+ 
+9,260
+ 
+ 
+ 
+2,172
+ 
+
+ Amortization of deferred financing costs
+
+ 
+ 
+18,052
+ 
+ 
+ 
+18,913
+ 
+ 
+ 
+18,403
+ 
+
+ Deferred tax provision (benefit)
+
+ 
+ 
+42,142
+ 
+ 
+ 
+(41,600
+) 
+ 
+ 
+14,656
+ 
+
+ Share-based compensation expense
+
+ 
+ 
+4,312
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+3,482
+ 
+
+ Provision for doubtful accounts
+
+ 
+ 
+10,701
+ 
+ 
+ 
+17,567
+ 
+ 
+ 
+25,980
+ 
+
+ Changes in operating assets and liabilities, net of acquisitions of businesses:
+
+ 
+
+ 
+
+ 
+
+ (Increase) decrease in receivables
+
+ 
+ 
+(56,639
+) 
+ 
+ 
+(116,229
+) 
+ 
+ 
+12,505
+ 
+
+ (Increase) decrease in inventories
+
+ 
+ 
+(214,998
+) 
+ 
+ 
+23,989
+ 
+ 
+ 
+(36,216
+) 
+
+ (Increase) decrease in prepaid expenses and other assets
+
+ 
+ 
+(758
+) 
+ 
+ 
+(6,281
+) 
+ 
+ 
+185
+ 
+
+ Increase in accounts payable and bank checks outstanding
+
+ 
+ 
+198,227
+ 
+ 
+ 
+109,086
+ 
+ 
+ 
+87,944
+ 
+
+ (Decrease) increase in accrued expenses and other liabilities
+
+ 
+ 
+(27,299
+) 
+ 
+ 
+59,557
+ 
+ 
+ 
+22,320
+ 
+
+ Decrease in securitization restricted cash
+
+ 
+ 
+ 
+ 
+ 
+ 
+13,964
+ 
+ 
+ 
+38,650
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by operating activities
+
+ 
+ 
+315,919
+ 
+ 
+ 
+419,167
+ 
+ 
+ 
+481,416
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Acquisition of businesses
+
+ 
+ 
+(106,041
+) 
+ 
+ 
+(41,385
+) 
+ 
+ 
+ 
+ 
+
+ Proceeds from sales of property and equipment
+
+ 
+ 
+19,685
+ 
+ 
+ 
+7,487
+ 
+ 
+ 
+15,057
+ 
+
+ Purchases of property and equipment
+
+ 
+ 
+(293,456
+) 
+ 
+ 
+(304,414
+) 
+ 
+ 
+(271,504
+) 
+
+ Other investing
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,837
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash used in investing activities
+
+ 
+ 
+(379,812
+) 
+ 
+ 
+(338,312
+) 
+ 
+ 
+(258,284
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Proceeds from debt refinancing
+
+ 
+ 
+1,269,625
+ 
+ 
+ 
+900,000
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from other borrowings
+
+ 
+ 
+2,031,000
+ 
+ 
+ 
+225,000
+ 
+ 
+ 
+ 
+ 
+
+ Redemption of senior notes
+
+ 
+ 
+ 
+ 
+ 
+ 
+(1,064,159
+) 
+ 
+ 
+ 
+ 
+
+ Payment for debt financing costs and fees
+
+ 
+ 
+(35,088
+) 
+ 
+ 
+(29,569
+) 
+ 
+ 
+ 
+ 
+
+ Principal payments on debt and capital leases
+
+ 
+ 
+(2,983,567
+) 
+ 
+ 
+(339,287
+) 
+ 
+ 
+(30,826
+) 
+
+ Repurchase of senior subordinated notes
+
+ 
+ 
+(175,338
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+761
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+(3,734
+) 
+ 
+ 
+(3,222
+) 
+ 
+ 
+(3,916
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by (used in) financing activities
+
+ 
+ 
+103,659
+ 
+ 
+ 
+(301,277
+) 
+ 
+ 
+(30,005
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
+
+ 
+ 
+39,766
+ 
+ 
+ 
+(220,422
+) 
+ 
+ 
+193,127
+ 
+
+ CASH AND CASH EQUIVALENTS Beginning of year
+
+ 
+ 
+202,691
+ 
+ 
+ 
+423,113
+ 
+ 
+ 
+229,986
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH AND CASH EQUIVALENTS End of year
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+ 
+$
+423,113
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ Cash paid during the year for:
+
+ 
+
+ 
+
+ 
+
+ Interest (net of amounts capitalized)
+
+ 
+$
+286,420
+ 
+ 
+$
+229,553
+ 
+ 
+$
+314,253
+ 
+
+ Income taxes net of refunds
+
+ 
+ 
+369
+ 
+ 
+ 
+418
+ 
+ 
+ 
+206
+ 
+
+ Property and equipment purchases included in accounts payable
+
+ 
+ 
+25,137
+ 
+ 
+ 
+48,389
+ 
+ 
+ 
+28,652
+ 
+
+ Capital lease additions
+
+ 
+ 
+21,810
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Contingent consideration payable for business acquisitions
+
+ 
+ 
+5,500
+ 
+ 
+ 
+3,570
+ 
+ 
+ 
+ 
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-6
+
+Table of Contents
+
+ US FOODS, INC. 
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+ AS OF DECEMBER
+29, 2012 AND DECEMBER 31, 2011 AND FOR THE FISCAL YEARS ENDED 
+ DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011
+
+ 
+ 
+
+ 
+
+1.
+OVERVIEW AND BASIS OF PRESENTATION 
+ US Foods, Inc. and its consolidated subsidiaries is referred to herein as we, our, us, the Company, or US Foods . We are a 100% owned subsidiary
+of USF Holding Corp. 
+ Ownership On July 3, 2007 (the Closing Date ), USF Holding Corp.,
+through a wholly owned subsidiary, acquired all of our predecessor company s common stock and certain related assets from Koninklijke Ahold N.V. ( Ahold ) for approximately $7.2 billion (the Acquisition ). Through a series
+of related transactions, USF Holding Corp. became our direct parent company. USF Holding Corp. is a corporation formed and controlled by investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., and Kohlberg Kravis
+Roberts & Co. (collectively the Sponsors ). 
+ Business Description US Foods markets and
+distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States including independently owned single location restaurants, regional concepts, national chains, hospitals, nursing homes, hotels and
+motels, country clubs, fitness centers, government and military organizations, colleges and universities, and retail locations. 
+
+Basis of Presentation The Company operates on a 52-53 week fiscal year with all periods ending on a Saturday. When a
+53-week fiscal year occurs, we report the additional week in the fourth quarter. The fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011 are also referred to herein as the years 2012, 2011 and 2010,
+respectively. The consolidated financial statements representing the 52-week fiscal year 2012 are for the calendar period January 1, 2012 through December 29, 2012. The consolidated financial statements representing the 52-week fiscal year
+2011 are for the calendar period January 2, 2011 through December 31, 2011. The consolidated financial statements representing the 52-week fiscal year 2010 are for the calendar period January 3, 2010 through January 1, 2011.
+
+ Certain prior period disclosures have been reclassified to conform with current period disclosures. Also, certain omitted
+disclosures related to prior years have been added during the current year. 
+ 
+
+2.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001561972_great_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001561972_great_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b9cdbacc709a47aa738c9734aa7b92a64e85dc86
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001561972_great_legal_matters.txt
@@ -0,0 +1,3052 @@
+LEGAL MATTERS 
+
+The validity of the Notes will be passed upon for us by Jenner & Block LLP. 
+
+EXPERTS 
+ The consolidated financial statements as of December 29, 2012 and December 31, 2011, and for each of the three years in the period ended December 29, 2012, included in this Prospectus have been audited by
+Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority
+as experts in accounting and auditing. 
+
+ 
+ 185
+
+Table of Contents
+
+ WHERE YOU CAN FIND ADDITIONAL INFORMATION 
+
+In connection with the offering of the Notes pursuant to this prospectus, we have filed with the SEC a registration statement on
+Form S-1 under the Securities Act of which this prospectus forms a part. As permitted by SEC rules, this prospectus omits information included in the registration statement. For further information with respect to us, the guarantors or the
+offering, you should refer to the registration statement, including its exhibits. With respect to statements in this prospectus about the contents of any contract, agreement or other document, we refer you to the copy of such contract, agreement or
+other document filed or incorporated by reference as an exhibit to the registration statement, and each such statement is qualified in all respects by reference to the document to which it refers. 
+
+You may read and copy any documents that we file at the SEC s public reference room at 100 F Street, N.E., Washington, D.C.
+20549 at prescribed rates. You may call the SEC at 1-800-SEC-0330 to obtain further information about the public reference room. In addition, the SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements
+and other information about issuers that file electronically with the SEC, including US Food, Inc. The SEC s website address is included in this prospectus as an inactive textual reference only. 
+
+Regardless of whether we are subject to the reporting requirements of the Exchange Act, we have agreed that from the time we first become
+subject to the reporting requirements of Section 13(a) or Section 15(d) of the Exchange Act and for so long as any of the Notes under the Indenture remain outstanding, we will file with the SEC (unless such filing is not permitted under
+the Exchange Act or by the SEC), the annual reports, information, documents and other reports that the Company is required to file with the SEC pursuant to such Section 13(a) or 15(d) or would be so required to file if we were so subject.
+
+ You may also obtain a copy of the registration statement and other information that we file with the SEC at no cost by
+calling us or writing to us at the following address: 
+ US Foods, Inc. 
+
+9399 W. Higgins Road, Suite 600 
+ Rosemont, IL 60018 
+ (847) 720-8000 
+
+ 
+ 186
+
+Table of Contents
+
+ INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Audited Consolidated Financial Statements
+
+ 
+
+ Report of Independent Registered Public Accounting Firm
+
+ 
+ 
+F-2
+ 
+
+ Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011
+
+ 
+ 
+F-3
+ 
+
+ Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-4
+ 
+
+ Consolidated Statements of Shareholder s Equity for the Fiscal Years Ended December 
+29, 2012, December 31, 2011 and January 1, 2011
+
+ 
+ 
+F-5
+ 
+
+ Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2012, December 
+31, 2011 and January 1, 2011
+
+ 
+ 
+F-6
+ 
+
+ Notes to Consolidated Financial Statements
+
+ 
+ 
+F-7
+ 
+
+ 
+
+ 
+ 
+Page
+ 
+
+ Unaudited Consolidated Interim Financial Statements
+
+ 
+
+ Consolidated Balance Sheets as of March 30, 2013 and December 29, 2012
+
+ 
+ 
+F-52
+ 
+
+ Consolidated Statements of Comprehensive (Loss) Income for the 13-weeks Ended March 
+30, 2013 and March 31, 2012
+
+ 
+ 
+F-53
+ 
+
+ Consolidated Statements of Cash Flows for the 13-weeks Ended March 30, 2013 and March 31,
+2012
+
+ 
+ 
+F-54
+ 
+
+ Notes to Unaudited Consolidated Financial Statements
+
+ 
+ 
+F-55
+ 
+
+ 
+ F-1
+
+Table of Contents
+
+ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
+
+To the Board of Directors and Shareholder of 
+
+US Foods, Inc. 
+ Rosemont, Illinois 
+
+We have audited the accompanying consolidated balance sheets of US Foods, Inc. and subsidiaries (the Company ) as of December 29, 2012
+and December 31, 2011, and the related consolidated statements of comprehensive loss, shareholder s equity, and cash flows for each of the three years in the period ended December 29, 2012. These financial statements are the
+responsibility of the Company s management. Our responsibility is to express an opinion on the financial statements based on our audits. 
+
+We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
+we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
+financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
+effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
+assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 
+
+In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of US Foods, Inc. and
+subsidiaries as of December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2012, in conformity with accounting principles generally
+accepted in the United States of America. 
+ /s/ DELOITTE & TOUCHE LLP 
+ Chicago, Illinois 
+ March 7, 2013 
+
+ 
+ F-2
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED BALANCE SHEETS 
+ AS OF DECEMBER 29, 2012 AND
+DECEMBER 31, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+December 29,
+2012
+ 
+ 
+December 31,
+2011
+ 
+
+ ASSETS
+
+ 
+
+ 
+
+ CURRENT ASSETS:
+
+ 
+
+ 
+
+ Cash and cash equivalents
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+
+ Accounts receivable net
+
+ 
+ 
+1,216,612
+ 
+ 
+ 
+1,133,303
+ 
+
+ Vendor receivables net
+
+ 
+ 
+93,025
+ 
+ 
+ 
+105,869
+ 
+
+ Inventories
+
+ 
+ 
+1,092,492
+ 
+ 
+ 
+851,418
+ 
+
+ Prepaid expenses
+
+ 
+ 
+74,499
+ 
+ 
+ 
+71,277
+ 
+
+ Deferred taxes
+
+ 
+ 
+8,034
+ 
+ 
+ 
+30,915
+ 
+
+ Other current assets
+
+ 
+ 
+33,387
+ 
+ 
+ 
+40,042
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current assets
+
+ 
+ 
+2,760,506
+ 
+ 
+ 
+2,435,515
+ 
+
+ PROPERTY AND EQUIPMENT Net
+
+ 
+ 
+1,706,388
+ 
+ 
+ 
+1,596,817
+ 
+
+ GOODWILL
+
+ 
+ 
+3,833,301
+ 
+ 
+ 
+3,818,088
+ 
+
+ OTHER INTANGIBLES Net
+
+ 
+ 
+889,453
+ 
+ 
+ 
+984,682
+ 
+
+ DEFERRED FINANCING COSTS
+
+ 
+ 
+49,038
+ 
+ 
+ 
+54,548
+ 
+
+ OTHER ASSETS
+
+ 
+ 
+24,720
+ 
+ 
+ 
+26,777
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL ASSETS
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+
+ 
+
+ CURRENT LIABILITIES:
+
+ 
+
+ 
+
+ Bank checks outstanding
+
+ 
+$
+161,791
+ 
+ 
+$
+205,110
+ 
+
+ Accounts payable
+
+ 
+ 
+1,239,790
+ 
+ 
+ 
+973,389
+ 
+
+ Accrued expenses and other current liabilities
+
+ 
+ 
+388,306
+ 
+ 
+ 
+391,169
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+48,926
+ 
+ 
+ 
+203,118
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total current liabilities
+
+ 
+ 
+1,838,813
+ 
+ 
+ 
+1,772,786
+ 
+
+ LONG-TERM DEBT
+
+ 
+ 
+4,764,899
+ 
+ 
+ 
+4,437,840
+ 
+
+ DEFERRED TAX LIABILITIES
+
+ 
+ 
+365,496
+ 
+ 
+ 
+344,191
+ 
+
+ OTHER LONG-TERM LIABILITIES
+
+ 
+ 
+479,642
+ 
+ 
+ 
+500,630
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total liabilities
+
+ 
+ 
+7,448,850
+ 
+ 
+ 
+7,055,447
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMMITMENTS AND CONTINGENCIES (See Note 20)
+
+ 
+
+ 
+
+ SHAREHOLDER S EQUITY:
+
+ 
+
+ 
+
+ Common stock, $1.00 par value authorized, issued, and outstanding, 1,000 shares
+
+ 
+ 
+1
+ 
+ 
+ 
+1
+ 
+
+ Additional paid-in capital
+
+ 
+ 
+2,324,391
+ 
+ 
+ 
+2,323,052
+ 
+
+ Accumulated deficit
+
+ 
+ 
+(383,652
+) 
+ 
+ 
+(332,479
+) 
+
+ Accumulated other comprehensive loss
+
+ 
+ 
+(126,184
+) 
+ 
+ 
+(129,594
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total shareholder s equity
+
+ 
+ 
+1,814,556
+ 
+ 
+ 
+1,860,980
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ TOTAL LIABILITIES AND SHAREHOLDER S EQUITY
+
+ 
+$
+9,263,406
+ 
+ 
+$
+8,916,427
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-3
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 
+ FOR THE FISCAL
+YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ NET SALES
+
+ 
+$
+21,664,921
+ 
+ 
+$
+20,344,869
+ 
+ 
+$
+18,862,092
+ 
+
+ COST OF GOODS SOLD
+
+ 
+ 
+17,971,949
+ 
+ 
+ 
+16,839,850
+ 
+ 
+ 
+15,451,991
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Gross profit
+
+ 
+ 
+3,692,972
+ 
+ 
+ 
+3,505,019
+ 
+ 
+ 
+3,410,101
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING EXPENSES:
+
+ 
+
+ 
+
+ 
+
+ Distribution, selling and administrative costs
+
+ 
+ 
+3,349,539
+ 
+ 
+ 
+3,193,747
+ 
+ 
+ 
+3,055,251
+ 
+
+ Restructuring and tangible asset impairment charges
+
+ 
+ 
+8,923
+ 
+ 
+ 
+71,892
+ 
+ 
+ 
+10,512
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Total operating expenses
+
+ 
+ 
+3,358,462
+ 
+ 
+ 
+3,265,639
+ 
+ 
+ 
+3,065,763
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ OPERATING INCOME
+
+ 
+ 
+334,510
+ 
+ 
+ 
+239,380
+ 
+ 
+ 
+344,338
+ 
+
+ INTEREST EXPENSE Net
+
+ 
+ 
+311,812
+ 
+ 
+ 
+307,614
+ 
+ 
+ 
+341,718
+ 
+
+ LOSS ON EXTINGUISHMENT OF DEBT
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ (Loss) income before income taxes
+
+ 
+ 
+(8,725
+) 
+ 
+ 
+(144,245
+) 
+ 
+ 
+2,620
+ 
+
+ INCOME TAX PROVISION (BENEFIT)
+
+ 
+ 
+42,448
+ 
+ 
+ 
+(42,074
+) 
+ 
+ 
+15,585
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET LOSS
+
+ 
+ 
+(51,173
+) 
+ 
+ 
+(102,171
+) 
+ 
+ 
+(12,965
+) 
+
+ OTHER COMPREHENSIVE (LOSS) INCOME Net of tax:
+
+ 
+
+ 
+
+ 
+
+ Changes in retirement benefit obligations, net of income tax benefit of $8,632, $11,336 and $12,224
+
+ 
+$
+(14,160
+) 
+ 
+$
+(17,629
+) 
+ 
+$
+(19,018
+) 
+
+ Changes in fair value of derivative, net of income tax provision (benefit) of $10,726, $11,256 and $(895)
+
+ 
+ 
+17,570
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+(1,393
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ COMPREHENSIVE LOSS
+
+ 
+$
+(47,763
+) 
+ 
+$
+(102,294
+) 
+ 
+$
+(33,376
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ 
+ See notes to consolidated financial statements.
+
+ 
+ F-4
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF SHAREHOLDER S EQUITY 
+ FOR THE
+FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands, except for share data) 
+
+ 
+ 
+ 
+
+ 
+ 
+ Number of
+Common
+Shares
+
+ 
+ 
+ Common
+
+Shares
+at Par
+Value
+
+ 
+ 
+ Additional
+Paid-In
+Capital
+
+ 
+ 
+Accumulated
+Deficit
+ 
+ 
+Accumulated Other
+Comprehensive Loss
+ 
+ 
+Total
+Shareholder s
+Equity
+ 
+
+ 
+ 
+ 
+ 
+ 
+Retirement
+Benefit
+Obligation
+ 
+ 
+Interest
+Rate Swap
+Derivative
+ 
+ 
+Total
+ 
+ 
+
+ BALANCE January 2, 2010
+
+ 
+ 
+1,000
+ 
+ 
+$
+ 
+ 
+ 
+$
+2,297,389
+ 
+ 
+$
+(217,343
+) 
+ 
+$
+(74,835
+) 
+ 
+$
+(34,225
+) 
+ 
+$
+(109,060
+) 
+ 
+$
+1,970,986
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,916
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+3,482
+ 
+
+ Changes in retirement benefit obligations net of $12,224 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(19,018
+) 
+ 
+ 
+(19,018
+) 
+
+ Changes in fair value of interest rate swap derivative net of $895 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+ 
+ 
+(1,393
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(12,965
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE January 1, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2,301,692
+ 
+ 
+ 
+(230,308
+) 
+ 
+ 
+(93,853
+) 
+ 
+ 
+(35,618
+) 
+ 
+ 
+(129,471
+) 
+ 
+ 
+1,941,913
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+9,960
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,222
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+14,677
+ 
+
+ Changes in retirement benefit obligations net of $11,336 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(17,629
+) 
+ 
+ 
+(17,629
+) 
+
+ Changes in fair value of interest rate swap derivative net of $11,256 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+ 
+ 
+17,506
+ 
+
+ Other
+
+ 
+ 
+ 
+ 
+ 
+ 
+1
+ 
+ 
+ 
+(55
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(54
+) 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(102,171
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 31, 2011
+
+ 
+ 
+1,000
+ 
+ 
+ 
+1
+ 
+ 
+ 
+2,323,052
+ 
+ 
+ 
+(332,479
+) 
+ 
+ 
+(111,482
+) 
+ 
+ 
+(18,112
+) 
+ 
+ 
+(129,594
+) 
+ 
+ 
+1,860,980
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+761
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(3,734
+) 
+
+ Share-based compensation expense
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4,312
+ 
+
+ Changes in retirement benefit obligations net of $8,632 tax benefit
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+(14,160
+) 
+ 
+ 
+(14,160
+) 
+
+ Changes in fair value of interest rate swap derivative net of $10,726 tax provision
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+ 
+ 
+17,570
+ 
+
+ Net loss
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(51,173
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ BALANCE December 29, 2012
+
+ 
+ 
+1,000
+ 
+ 
+$
+1
+ 
+ 
+$
+2,324,391
+ 
+ 
+$
+(383,652
+) 
+ 
+$
+(125,642
+) 
+ 
+$
+(542
+) 
+ 
+$
+(126,184
+) 
+ 
+$
+1,814,556
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-5
+
+Table of Contents
+
+ US FOODS, INC. 
+ CONSOLIDATED STATEMENTS OF CASH FLOWS 
+ FOR THE FISCAL YEARS
+ENDED DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011 
+ (in thousands) 
+
+ 
+ 
+ 
+
+ 
+ 
+Year Ended
+ 
+ 
+Year Ended
+ 
+ 
+Year
+Ended
+ 
+
+ 
+ 
+December 29,
+ 
+ 
+December 31,
+ 
+ 
+January 1,
+ 
+
+ 
+ 
+2012
+ 
+ 
+2011
+ 
+ 
+2011
+ 
+
+ CASH FLOWS FROM OPERATING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Net loss
+
+ 
+$
+(51,173
+) 
+ 
+$
+(102,171
+) 
+ 
+$
+(12,965
+) 
+
+ Adjustments to reconcile net loss to net cash provided by operating activities:
+
+ 
+
+ 
+
+ 
+
+ Depreciation and amortization
+
+ 
+ 
+355,892
+ 
+ 
+ 
+342,732
+ 
+ 
+ 
+307,522
+ 
+
+ Gain on disposal of property and equipment
+
+ 
+ 
+(1,493
+) 
+ 
+ 
+(308
+) 
+ 
+ 
+(3,222
+) 
+
+ Loss on extinguishment of debt
+
+ 
+ 
+31,423
+ 
+ 
+ 
+76,011
+ 
+ 
+ 
+ 
+ 
+
+ Tangible asset impairment charges
+
+ 
+ 
+7,530
+ 
+ 
+ 
+9,260
+ 
+ 
+ 
+2,172
+ 
+
+ Amortization of deferred financing costs
+
+ 
+ 
+18,052
+ 
+ 
+ 
+18,913
+ 
+ 
+ 
+18,403
+ 
+
+ Deferred tax provision (benefit)
+
+ 
+ 
+42,142
+ 
+ 
+ 
+(41,600
+) 
+ 
+ 
+14,656
+ 
+
+ Share-based compensation expense
+
+ 
+ 
+4,312
+ 
+ 
+ 
+14,677
+ 
+ 
+ 
+3,482
+ 
+
+ Provision for doubtful accounts
+
+ 
+ 
+10,701
+ 
+ 
+ 
+17,567
+ 
+ 
+ 
+25,980
+ 
+
+ Changes in operating assets and liabilities, net of acquisitions of businesses:
+
+ 
+
+ 
+
+ 
+
+ (Increase) decrease in receivables
+
+ 
+ 
+(56,639
+) 
+ 
+ 
+(116,229
+) 
+ 
+ 
+12,505
+ 
+
+ (Increase) decrease in inventories
+
+ 
+ 
+(214,998
+) 
+ 
+ 
+23,989
+ 
+ 
+ 
+(36,216
+) 
+
+ (Increase) decrease in prepaid expenses and other assets
+
+ 
+ 
+(758
+) 
+ 
+ 
+(6,281
+) 
+ 
+ 
+185
+ 
+
+ Increase in accounts payable and bank checks outstanding
+
+ 
+ 
+198,227
+ 
+ 
+ 
+109,086
+ 
+ 
+ 
+87,944
+ 
+
+ (Decrease) increase in accrued expenses and other liabilities
+
+ 
+ 
+(27,299
+) 
+ 
+ 
+59,557
+ 
+ 
+ 
+22,320
+ 
+
+ Decrease in securitization restricted cash
+
+ 
+ 
+ 
+ 
+ 
+ 
+13,964
+ 
+ 
+ 
+38,650
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by operating activities
+
+ 
+ 
+315,919
+ 
+ 
+ 
+419,167
+ 
+ 
+ 
+481,416
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM INVESTING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Acquisition of businesses
+
+ 
+ 
+(106,041
+) 
+ 
+ 
+(41,385
+) 
+ 
+ 
+ 
+ 
+
+ Proceeds from sales of property and equipment
+
+ 
+ 
+19,685
+ 
+ 
+ 
+7,487
+ 
+ 
+ 
+15,057
+ 
+
+ Purchases of property and equipment
+
+ 
+ 
+(293,456
+) 
+ 
+ 
+(304,414
+) 
+ 
+ 
+(271,504
+) 
+
+ Other investing
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+(1,837
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash used in investing activities
+
+ 
+ 
+(379,812
+) 
+ 
+ 
+(338,312
+) 
+ 
+ 
+(258,284
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH FLOWS FROM FINANCING ACTIVITIES:
+
+ 
+
+ 
+
+ 
+
+ Proceeds from debt refinancing
+
+ 
+ 
+1,269,625
+ 
+ 
+ 
+900,000
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from other borrowings
+
+ 
+ 
+2,031,000
+ 
+ 
+ 
+225,000
+ 
+ 
+ 
+ 
+ 
+
+ Redemption of senior notes
+
+ 
+ 
+ 
+ 
+ 
+ 
+(1,064,159
+) 
+ 
+ 
+ 
+ 
+
+ Payment for debt financing costs and fees
+
+ 
+ 
+(35,088
+) 
+ 
+ 
+(29,569
+) 
+ 
+ 
+ 
+ 
+
+ Principal payments on debt and capital leases
+
+ 
+ 
+(2,983,567
+) 
+ 
+ 
+(339,287
+) 
+ 
+ 
+(30,826
+) 
+
+ Repurchase of senior subordinated notes
+
+ 
+ 
+(175,338
+) 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Proceeds from parent company common stock sales
+
+ 
+ 
+761
+ 
+ 
+ 
+9,960
+ 
+ 
+ 
+4,737
+ 
+
+ Parent company common stock repurchased
+
+ 
+ 
+(3,734
+) 
+ 
+ 
+(3,222
+) 
+ 
+ 
+(3,916
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ Net cash provided by (used in) financing activities
+
+ 
+ 
+103,659
+ 
+ 
+ 
+(301,277
+) 
+ 
+ 
+(30,005
+) 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ NET INCREASE (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
+
+ 
+ 
+39,766
+ 
+ 
+ 
+(220,422
+) 
+ 
+ 
+193,127
+ 
+
+ CASH AND CASH EQUIVALENTS Beginning of year
+
+ 
+ 
+202,691
+ 
+ 
+ 
+423,113
+ 
+ 
+ 
+229,986
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ CASH AND CASH EQUIVALENTS End of year
+
+ 
+$
+242,457
+ 
+ 
+$
+202,691
+ 
+ 
+$
+423,113
+ 
+
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+ 
+ 
+
+ 
+
+ 
+
+ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
+
+ 
+
+ 
+
+ 
+
+ Cash paid during the year for:
+
+ 
+
+ 
+
+ 
+
+ Interest (net of amounts capitalized)
+
+ 
+$
+286,420
+ 
+ 
+$
+229,553
+ 
+ 
+$
+314,253
+ 
+
+ Income taxes net of refunds
+
+ 
+ 
+369
+ 
+ 
+ 
+418
+ 
+ 
+ 
+206
+ 
+
+ Property and equipment purchases included in accounts payable
+
+ 
+ 
+25,137
+ 
+ 
+ 
+48,389
+ 
+ 
+ 
+28,652
+ 
+
+ Capital lease additions
+
+ 
+ 
+21,810
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ Contingent consideration payable for business acquisitions
+
+ 
+ 
+5,500
+ 
+ 
+ 
+3,570
+ 
+ 
+ 
+ 
+ 
+
+ See notes to consolidated financial statements. 
+
+ 
+ F-6
+
+Table of Contents
+
+ US FOODS, INC. 
+ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
+ AS OF DECEMBER
+29, 2012 AND DECEMBER 31, 2011 AND FOR THE FISCAL YEARS ENDED 
+ DECEMBER 29, 2012, DECEMBER 31, 2011 AND JANUARY 1, 2011
+
+ 
+ 
+
+ 
+
+1.
+OVERVIEW AND BASIS OF PRESENTATION 
+ US Foods, Inc. and its consolidated subsidiaries is referred to herein as we, our, us, the Company, or US Foods . We are a 100% owned subsidiary
+of USF Holding Corp. 
+ Ownership On July 3, 2007 (the Closing Date ), USF Holding Corp.,
+through a wholly owned subsidiary, acquired all of our predecessor company s common stock and certain related assets from Koninklijke Ahold N.V. ( Ahold ) for approximately $7.2 billion (the Acquisition ). Through a series
+of related transactions, USF Holding Corp. became our direct parent company. USF Holding Corp. is a corporation formed and controlled by investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., and Kohlberg Kravis
+Roberts & Co. (collectively the Sponsors ). 
+ Business Description US Foods markets and
+distributes fresh, frozen and dry food and non-food products to foodservice customers throughout the United States including independently owned single location restaurants, regional concepts, national chains, hospitals, nursing homes, hotels and
+motels, country clubs, fitness centers, government and military organizations, colleges and universities, and retail locations. 
+
+Basis of Presentation The Company operates on a 52-53 week fiscal year with all periods ending on a Saturday. When a
+53-week fiscal year occurs, we report the additional week in the fourth quarter. The fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011 are also referred to herein as the years 2012, 2011 and 2010,
+respectively. The consolidated financial statements representing the 52-week fiscal year 2012 are for the calendar period January 1, 2012 through December 29, 2012. The consolidated financial statements representing the 52-week fiscal year
+2011 are for the calendar period January 2, 2011 through December 31, 2011. The consolidated financial statements representing the 52-week fiscal year 2010 are for the calendar period January 3, 2010 through January 1, 2011.
+
+ Certain prior period disclosures have been reclassified to conform with current period disclosures. Also, certain omitted
+disclosures related to prior years have been added during the current year. 
+ 
+
+2.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001562039_cst_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001562039_cst_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..05f74ac1b2bba04ae5a156de2fe4deaa7dee3a8a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001562039_cst_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of our common stock offered hereby will be passed upon for us by Jackson Walker L.L.P., San Antonio, Texas. Certain additional legal matters will be passed upon for us by Baker Botts L.L.P., Houston, Texas. Certain legal matters will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001562636_voz_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001562636_voz_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0374f7f244dcd521ffa5531520a988bf3236f547
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001562636_voz_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The Law Offices of David E. Wise, P.C., 9901 IH-10 West, Suite 800, San Antonio, Texas 78230, has passed upon the validity of the shares being offered and certain other legal matters and is representing us in connection with this offering. Mr. Wise is not a shareholder of the Company. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1, of which this prospectus is a part, with the U.S. Securities and Exchange Commission ( SEC ). We have not previously been required to comply with the reporting requirements of the Securities Exchange Act of 1934. After the effective date of our registration statement, we will be required to file annual, quarterly and current reports or other information with the SEC as provided by Section 15(d) of the Securities Exchange Act of 1934. You may read and copy any reports, statements or other information we file with the SEC at the public reference facilities maintained by the Commission at 100 F Street NE, Washington, D.C. 20549. Copies of all materials may be obtained from the Public Reference Section of the Commission s Washington, D.C. office at prescribed rates. You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. You may request, and we will voluntarily provide, a copy of our filings, including our annual report, which will contain audited financial statements, at no cost to you, by writing or telephoning us at the following address and telephone number: Voz Mobile Cloud Ltd., 190 Middle Road, #19-05, Fortune Centre, Singapore 688979l Tel.: +65 67958729 FINANCIAL STATEMENTS Our audited financial statements for the periods from January 1, 2011, to December 31, 2011, and from January 1, 2012, to December 31, 2012, commence on page F-1 are included in this prospectus. We have not authorized any dealer, salesperson or other person to provide any information or make any representations about Voz Mobile Cloud Ltd., except the information or representations contained in this prospectus. You should not rely on any additional information or representations if made. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy any securities: except the common stock covered by this prospectus in any jurisdiction in which the distribution, offer or solicitation is not authorized in any jurisdiction where the dealer or other salesperson is not qualified to make the offer or solicitation; to any person who is not a United States resident or who is outside the jurisdiction of the United States The delivery of this prospectus or any accompanying sale does not imply that: there have been no changes in the affairs of Voz Mobile Cloud Ltd. after the date of this prospectus; or the information contained in this prospectus is correct after the date of this prospectus. During the 180 days following the date of this prospectus, all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters. PROSPECTUS 10,000,000 Shares of Common Stock VOZ MOBILE CLOUD LTD. __________, 2013 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The estimated expenses of the offering all of which are to be paid by the registrant are as follows (to be provided by Amendment): SEC Registration Fee $ 272.80 Printing Expenses 5,000.00 Accounting Fees and Expenses 14,250.00 Legal Fees and Expenses 25,000.00 Blue Sky Fees/Expenses 0 Miscellaneous 5,477.20 TOTAL $ 50,000.00 Item 14. Indemnification of Officers and Directors Article VII, Section 7 of the Company s Bylaws provide that the Company shall indemnify its officers, directors, employees and agents to the fullest extent permitted by the laws of Washington. The Washington
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001563315_next_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001563315_next_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..164cd20395848f81df14204dcfc4dfbb0b97857d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001563315_next_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our director, officer or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Our address for service of process in Nevada is 1000 East William Street, Suite 204, Carson City, Nevada 89701.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001563699_covisint_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001563699_covisint_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..62217dd406fc4ecca97f5ed01975e6062c936a06
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001563699_covisint_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of the common stock offered hereby will be passed upon for us by Honigman Miller Schwartz and Cohn LLP. G. Scott Romney, a partner of Honigman Miller Schwartz and Cohn LLP, is a member of Compuware s board of directors. In connection with his service to the Compuware board of directors, Mr. Romney currently holds stock options and restricted stock units giving him the right to acquire approximately 148,044 shares of Compuware s common stock. Certain other members of Honigman Miller Schwartz and Cohn LLP own an aggregate of 700 shares of Compuware s common stock. Goodwin Procter LLP has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001564601_gdc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001564601_gdc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8b734003f7e571646bc5468f22c385a4bcd60d9b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001564601_gdc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the ADSs and certain other legal matters as to the United States federal and New York law in connection with this offering will be passed upon for us by Shearman & Sterling LLP. Certain legal matters as to the United States federal and New York law in connection with this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. The validity of the ordinary shares represented by the ADSs offered in this offering and certain other legal matters as to Cayman Islands law will be passed upon for us by Walkers. Legal matters as to PRC law will be passed upon for us by Commerce & Finance Law Offices and for the underwriters by Haiwen & Partners. Shearman & Sterling LLP may rely upon Walkers with respect to matters governed by Cayman Islands law and Commerce & Finance Law Offices with respect to matters governed by PRC law. Skadden, Arps, Slate, Meagher & Flom LLP may rely upon Haiwen & Partners with respect to matters governed by PRC law.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001564709_truett_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001564709_truett_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c610f3c129f395ec0dd5e7e96f6628321af57076
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001564709_truett_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of our Class A common stock offered hereby will be passed upon for us by Morrison & Foerster LLP, New York, New York. The underwriters are being represented by K&L Gates LLP, Seattle, Washington and Irvine, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001564863_omega_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001564863_omega_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1d7fef9c14d3aeab0b5208cc7ee2f1e39dbc4de9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001564863_omega_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Stepp Law Corporation opined on the validity of the shares of common stock being offered hereby. WHERE YOU CAN FIND MORE INFORMATION At your request, we will provide you, without charge, a copy of any document filed as exhibits in this prospectus. If you want more information, write or call us at: TRANSLATION GROUP INC. 311 S Division street, Carson City NV 89703 Tel: (702) 425 3296 Attention: Kamilya Kucherova , Chief Executive Officer
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001565337_textura_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001565337_textura_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5baa55653b147cc30b2e7ff99fd7001b401fd00b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001565337_textura_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Mayer Brown LLP, Chicago, Illinois. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Chicago, Illinois.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001565347_votorantim_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001565347_votorantim_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..897ba4a64b38c0215f7c2839dcfe8fe81bc58f19
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001565347_votorantim_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this global offering relating to United States law and the validity of the ADSs being offered by this prospectus will be passed upon for us by White & Case LLP. Certain legal matters in connection with this global offering relating to Brazilian law and the validity of our units and the underlying shares will be passed upon for us by Machado, Meyer, Sendacz e Opice Advogados. Certain legal matters concerning this global offering relating to United States law will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP. Certain legal matters in connection with this global offering relating to Brazilian law will be passed upon for the underwriters by Pinheiro Guimar es Advogados. Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001565700_hutn-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001565700_hutn-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c97cfe5767002caa9e3f212afe37c8a86d553022
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001565700_hutn-inc_legal_matters.txt
@@ -0,0 +1,43 @@
+LEGAL MATTERS
+ 
+
+ The validity of the common shares being offered hereby will be passed upon by J.M. Walker & Associates, Attorneys At Law, Centennial, Colorado.
+ 
+
+ WHERE YOU CAN FIND MORE INFORMATION
+ 
+
+ At your request, we will provide you, without charge, a copy of any document filed as exhibits in this prospectus. If you want more information, write or call us at:
+ 
+
+ Twentyfour/seven Ventures, Inc.
+ 132 W. 11th Avenue
+ Denver, Colorado 80204
+ Telephone: (720) 266-6996
+ 
+
+ Our fiscal year ends on December 31st. Upon completion of this offering, we will be a reporting company and file annual, quarterly and current reports with the SEC. 
+ 
+
+ We have filed a registration statement on Form S-1 under the Securities Act with the SEC for the securities offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For additional information about us and our securities, we refer you to the registration statement and the accompanying exhibits and schedules. Statements contained in this prospectus regarding the contents of any contract or any other documents to which we refer are not necessarily complete. 
+ 
+
+ In each instance, reference is made to the copy of the contract or document filed as an exhibit to the registration statement, and each statement is qualified in all respects by that reference. Copies of the registration statement and the accompanying exhibits and schedules may be inspected without charge (and copies may be obtained at prescribed rates) at the public reference facility of the SEC at Room 1024, 100 F Street, N.E. Washington, D.C. 20549. 
+ 
+
+ You can request copies of these documents upon payment of a duplicating fee by writing to the SEC. You may call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference rooms. Our filings, including the registration statement, will also be available to you on the Internet web site maintained by the SEC at http://www.sec.gov . 
+ 
+
+ 
+
+ 37
+ 
+
+ 
+
+ 
+
+ TWENTYFOUR/SEVEN VENTURES, INC.
+ 
+
+ Consolidated
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001565984_paulsboro_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001565984_paulsboro_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759fc5a488902d5b8c30fc6e952f34caea18a00d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001565984_paulsboro_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566011_pbf_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566011_pbf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759fc5a488902d5b8c30fc6e952f34caea18a00d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566011_pbf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566026_paulsboro_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566026_paulsboro_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759fc5a488902d5b8c30fc6e952f34caea18a00d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566026_paulsboro_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566049_arcturus_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566049_arcturus_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3dc2720cf97d866770954fbf32811173b9860229
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566049_arcturus_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters concerning this offering will be passed upon for us by Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, New York, New York. Certain legal matters with respect to the legality of the issuance of the securities offered by this prospectus will be passed upon for us by Zysman, Aharoni, Gayer & Co., Tel Aviv, Israel. As of the date of this prospectus, certain partners with Zysman Aharoni Gayer & Co. Law Offices beneficially own 401,070 ordinary shares and options to purchase 58,700 of our ordinary shares. Certain legal matters related to the offering will be passed upon for the underwriters by Troutman Sanders LLP, New York, New York and Yigal Arnon & Co., Tel-Aviv, Israel.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566097_pbf_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566097_pbf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759fc5a488902d5b8c30fc6e952f34caea18a00d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566097_pbf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the notes and the related guarantees offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566243_arax_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566243_arax_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e16f2c83393152b278cdc6a2807bf5339f7cb237
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566243_arax_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS David Lubin & Associates, PLLC has opined on the validity of the shares of common stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566844_mazor_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566844_mazor_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d3ee22c950caa525507a4e46146b3ffdd6f9e2d2
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566844_mazor_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters concerning this offering will be passed upon for us by Zysman, Aharoni, Gayer and Sullivan & Worcester LLP, New York, New York. Certain legal matters with respect to the legality of the issuance of the ordinary shares offered by this prospectus will be passed upon for us by CBLS Law Offices, Tel Aviv, Israel. Certain legal matters relating to this offering will be passed upon for the underwriters by Latham & Watkins LLP, Boston, Massachusetts.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001566897_diamond_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001566897_diamond_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e7cd822b3c917f271143bd683a1509891bf095b3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001566897_diamond_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by our counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. Howard S. Lanznar, a partner of Katten Muchin Rosenman LLP, is the Executive Vice President and Chief Administrative Officer of each of Diamond LLC and Diamond International. Additionally, Richard M. Daley, who has agreed to serve as a member of the Board of Directors of Diamond International upon the consummation of this offering, is Of Counsel at Katten Muchin Rosenman LLP. See Management, Executive Compensation, Principal and Selling Stockholders and Certain Relationships and Related Party Transactions. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York, in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001567488_imag_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001567488_imag_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..612074abce12910263dcff1587ba759d2ef1b711
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001567488_imag_legal_matters.txt
@@ -0,0 +1 @@
+We believe each of these persons has sole voting and investment power over the shares they own, unless otherwise noted. The address of our directors and executive officers is our address. Number Percentage Before* After* Before* After * Alvin Ayers 2,500,000 2,636,030 29.32 % 30.92 % Victor J. Hugo, Jr. 100,000 102,484 1.173 % 1.202 % Edwin B. Salmon) 2,500,000 2,610,525 29.32 % 30.62 % All directors and officers as a group (3 persons) 5,100,000 5,349,039 59.82 % 62.74 % PV Enterprises International, Inc. Suite 305, 1850 SE 17th Street, Ft. Lauderdale, FL 33316 3,000,000 none 35.186 % 0 % *Before and after the dividend distribution. **Less than one percent. RELATED PARTY TRANSACTIONS AND RELATIONSHIPS We have not engaged in any related party transactions in our last fiscal year and current year to date of this prospectus, except the following: We have minimal needs for office space. Currently the operations are performed from offices provided by our executive officers in their homes at a cost to us of $975 per month on a month to month basis. On December 18, 2012, we issued an aggregate of 5,100,000 shares of our common stock to our directors and officers for services. MARKET INFORMATION AND RELATED STOCKHOLDER MATTERS Public Market Information At the date of this prospectus, there is no public market for our common stock. We have made arrangements with a securities broker-dealer as a market maker to apply to the Financial Industry Regulatory Authority (FINRA) for a trading symbol as soon as practicable after the effective date of the registration statement of which this prospectus is a part. You have no assurance as to if or when a trading symbol will be issued and if or when a trading market may develop. Our Stockholders At the date of this prospectus, we have five record and beneficial holders of our common stock. Following the dividend distribution by PV Enterprises International, we expect to have approximately 1,225 record holders and approximately 1,925 total beneficial holders of our common stock. We expect that approximately 1,119 stockholders of record and approximately 1,194 of the total beneficial holders of PV Enterprises International will each be entitled to a total dividend of less than one share (only a fractional share) of our common stock. We cannot predict how many of the fractional share holders will elect to purchase the balance of one whole share, but we anticipate that few, if any will do so. See, "How PV International Holdings Will Distribute Our Shares". - 28 - Dividends We have not paid a cash dividend on our common stock and do not expect to pay a cash dividend in the foreseeable future. Our board of directors has the sole authority to declare dividends. Our payment of dividends in the future will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors. Our Transfer Agent Our transfer agent is Olde Monmouth Stock Transfer Co., Inc., 200 Memorial Pkwy, Atlantic Highlands, New Jersey 07716. Olde Monmouth s telephone number is 732-872-2727. DESCRIPTION OF OUR SECURITIES The following description of our common stock is qualified in our entirety by reference to our Articles of Incorporation, as amended, our bylaws and Florida corporation law. We are authorized to issue 250,000,000 shares of common stock, $0.001 par value per share. The number of shares owned by PV Enterprises International, the only shares we then had issued and outstanding, have been adjusted for a reverse stock split reducing our issued and outstanding shares to exactly three million shares. At the date of this prospectus, we have 8,526,000 shares issued and outstanding. Holders of our common stock: have one vote per share on election of each director and other matters submitted to a vote of stockholders; have equal rights with all holders of issued and outstanding common stock to receive dividends from funds legally available therefore, if any, when, as and if declared from time to time by the board of directors; are entitled to share equally with all holders of issued and outstanding common stock in all of our assets remaining after payment of liabilities, upon liquidation, dissolution or winding up of our affairs; do not have preemptive, subscription or conversion rights; and do not have cumulative voting rights. Preferred stock Our board of directors, without further stockholder approval, may issue up to ten million shares of preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights granted to the holders of any series of preferred stock could adversely affect the voting power of the holders of common stock and issuance of preferred stock may delay, defer or prevent a change in our control. - 29 - HOW PV ENTERPRISES INTERNATIONAL WILL DISTRIBUTE OUR SHARES On June 21, 2012, PV Enterprises International s board of directors declared a dividend to be paid to holders of its common stock consisting of all 3,000,000 shares, as adjusted for a reverse stock split on December 13, 2012, or 35.19 percent of our common stock which PV Enterprises International now owns. PV Enterprises International s board of directors, which included at that time Messrs. Ayers and Salmon, determined that PV Enterprises International did not have an interest in pursuing our business. PV Enterprises International has declared the record date for payment of the dividend as July 12, 2013. This date is subject to change based on the definitive market notification by FINRA. The shares will be as soon as practicable following the effective date of the registration statement of which this prospectus is a part. PV Enterprises International had 529,294,117 common shares issued and outstanding on July 1, 2013. Even though certain shares issued by PV Enterprises International after June 21, 2012 were issued with an express waiver of participation in the dividend, we cannot be certain PV Enterprises International notified the receiving stockholders about this waiver or that it will be feasible to impose this waiver. Accordingly, we are not including the waiver shares in our calculations and PV Enterprises International will distribute one share of our common stock for each 176.43 shares of PV Enterprises International common stock participating in the dividend, subject to decrease for any shares issued after July 1, 2013. We will not issue fractional shares. If you own more than 177 shares of PV Enterprises International on the record date, any fractional share you would otherwise receive will be rounded up to one whole share. If you own less than 177 shares of PV Enterprises International on the record date, you will be entitled to receive only a fractional share, in which case you may elect to either (i) buy the balance of the fractional such that you will own one full share of our common stock or (ii) sell your fractional share to us. The price for a fractional share in both cases will be determined by the weighted average of closing price per share of our common stock for the ten trading days following the first day our common stock trades. As soon as practicable after the effective of the registration statement of which this prospectus is a part, we will mail a certificate to you representing the whole shares you are entitled to receive, if you are entitled to receive at least one whole share before rounding. If you are not entitled to receive at least one whole share before rounding, but receive only a fractional share, we will mail you notice of your opportunity to elect to sell to us the fractional share you or buy the balance of a whole share. The notice will enclose a postage prepaid postcard for you to notify us of your election. If you elect to sell your fractional share to us, you are not required to do anything and we will mail you a check as soon as practicable after the price per share is established as described in the immediately preceding paragraph. If you elect to purchase the balance of a whole share, you must receive your election on postage prepaid postcard, or other correspondence, not more than thirty days following the mailing of our notice to you. We will mail you a bill for the balance of the fractional share as practicable after the price per share is established as described in the immediately preceding paragraph. If at that time you wish to continue with your purchase of the balance of the fractional share, we must receive your payment by check or money order within fifteen days of the mailing of the billing to you. PV Enterprises International is deemed to be a statutory underwriter of our shares for purposes of the distribution of the dividend. Holders of PV Enterprises International s common stock will not be required to take any action to receive our common stock. As soon as practicable following the effective date of the registration statement of which this prospectus is a part, our transfer agent will mail a stock certificate of each PV Enterprises International stockholder of record and credit Cede & Co., the nominee of The Depository Trust & Clearing Corporation, with the number of our shares of common stock required to satisfy the distribution to beneficial holders of PV Enterprises International s commons stock held in brokerage accounts. Neither PV Enterprises International, we nor any other person will receive any proceeds in connection with the dividend distribution by PV Enterprises International. We are paying all of the costs of the registration statement of which this prospectus is a part. We are solely responsible for the content of the registration statement and of this prospectus. We have undertaken the registration of the shares because of the potential benefit our management believes we may derive from being a publicly traded company, both in raising additional debt or equity financing and in marketing our planned products. FEDERAL INCOME TAX TREATMENT OF THE DIVIDEND DISTRIBUTION PV Enterprises International owns less than eighty percent of our common stock. Therefore, we expect the dividend distribution to be taxable. However, the value of our stock for tax purposes immediately following the distribution (which we will not be able to determine prior to the distribution) will be first applied to reduce the taxable basis the stockholder has in his or her PV Enterprises International stock. Stockholders who are not individual U.S. citizen or resident taxpayers may experience a different federal income tax treatment. We are not obtaining a ruling from the Internal Revenue Service or an opinion of tax counsel covering the tax treatment as described in this paragraph. We encourage you to consult your tax adviser regarding the proper federal income tax treatment of the dividend for your individual circumstances. SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. We have 8,526,000 shares of our common stock issued and outstanding at the date of this prospectus. The 5,526,000 shares held by our directors, officers and others are restricted securities and the resale of the shares into the public securities market will be subject to Rule 144. The 249,039 shares issued to our directors, officers and controlling persons pursuant to the registration statement of which is prospectus is a part will not be restricted securities, but will, nevertheless, be subject to the reporting requirements, broker s transaction requirements and one-percent per each three month limitation of Rule 144. - 30 - Under Rule 144, as now in effect, restricted securities of an issuer who has been filing reports with the U.S. Securities and Exchange Commission for at least ninety days may be resold into the public market held by non-affiliates of the issuer without any limitation on amount beginning six months after the respective stockholders purchased their shares from us or from one of our directors, officers or control persons. At the date of this prospectus, none of our restricted securities have been held for more than six months. After this six month period, our directors, officers and control persons (those who own ten percent or more of our common stock) will be limited to selling not more than one percent of the then issued and outstanding number of our shares in any three month period, must file a Form 144 with the Commission and must sell the shares in unsolicited broker s transactions , as defined in the rule and are subject to other limitations. LEGAL MATTERS Certain legal matters with respect to the validity of the shares of common stock offered hereby will be passed upon for us by Jackson L. Morris, Attorney at Law, Tampa, Florida. Mr. Morris owns 426,000 shares of our common stock which he has received as partial payment of fees and he will receive 1,984 shares in the dividend distribution based on his share ownership in PV Enterprises International, for total share ownership of 427,984 shares.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001569737_jishanye_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001569737_jishanye_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d936012bbdd93166959990fcb67da6155331faf
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001569737_jishanye_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The Chiang Law Offices passed upon the validity of the common stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001570765_market_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001570765_market_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8df3563d3875bc602c4bb6711eae8e510aef156f
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001570765_market_legal_matters.txt
@@ -0,0 +1,648 @@
+LEGAL MATTERS
+
+ 
+
+The validity of the Shares has been passed
+on for the Sponsor by Dechert LLP, New York, NY, which, as special U.S. federal income tax counsel to the Sponsor, has also rendered
+an opinion regarding the material federal income tax consequences relating to the Shares.
+
+ 
+
+EXPERTS
+
+ 
+
+The financial statements incorporated in
+this Prospectus have been audited by [ ], an independent registered public accounting firm.
+
+ 
+
+WHERE YOU
+CAN FIND MORE INFORMATION
+
+ 
+
+This Prospectus is a part of a registration
+statement on Form S-1 filed by the Sponsor with the SEC under the Securities Act. As permitted by the rules and regulations of
+the SEC, this Prospectus does not contain all of the information contained in the registration statement and the exhibits and schedules
+thereto. For further information about the Trust and about the securities offered hereby, you should consult the registration statement
+and the exhibits and schedules thereto. You should be aware that statements contained in this Prospectus concerning the provisions
+of any documents filed as an exhibit to the registration statement or otherwise filed with the SEC are not necessarily complete,
+and in each instance reference is made to the copy of such document as so filed.
+
+ 
+
+The Trust is subject to the informational
+requirements of the Exchange Act and the Sponsor, on behalf of the Trust, will file quarterly and annual reports and other information
+with the SEC. The reports and other information can be inspected at the public reference facilities of the SEC located at 100 F
+Street, NE, Washington, DC 20549 and online at www.sec.gov. You may also obtain copies of such material from the public
+reference facilities of the SEC at 100 F Street, NE, Washington, DC 20549, at prescribed rates. You may obtain more information
+concerning the operation of the public reference facilities of the SEC by calling the SEC at 1-800-SEC-0330 or visiting online
+at www.sec.gov.
+
+ 
+
+GLOSSARY
+
+ 
+
+In this Prospectus, each of the following
+terms has its respective meaning set forth below:
+
+ 
+
+ ANAV Adjusted NAV.
+See Description of the Trust Agreement Valuation of Gold, Computation of Net Asset Value and Adjusted Net Asset Value 
+for a description of how the AVAV of the Trust is calculated. The ANAV of the Trust is used to calculate the fees of the Trustee
+and the Sponsor.
+
+ 
+
+ Authorized Participant 
+A person who (1) is a registered broker-dealer or other securities market participant, such as a bank or other financial institution,
+that is not required to register as a broker-dealer to engage in securities transactions, (2) is a DTC Participant or an Indirect
+Participant, and (3) has in effect a valid Authorized Participant Agreement.
+
+ 42
+
+ 
+
+ 
+
+ Authorized Participant Agreement 
+ An agreement entered into by each Authorized Participant, the Sponsor and the Trustee which provides the procedures for
+the creation and redemption of Baskets and for the delivery of the gold and any cash (if cash is then an asset of the Trust) required
+for such creations and redemptions.
+
+ 
+
+ Basket A block of [
+ ] Shares or such number of Shares as the Sponsor, upon written notice to the Trustee, may from time to time determine.
+
+ 
+
+ Book-Entry System The
+Federal Reserve/Treasury Book Entry System for United States and federal agency securities.
+
+ 
+
+ Business Day or business
+day any day other than (i) a Saturday or Sunday, or (ii) any day on which the NYSE Arca is closed for regular trading.
+
+ 
+
+ Cash Proceeds The difference
+between the value of a Delivery Applicant s Shares and the value of the Gold Bars to be delivered to the Delivery Applicant.
+
+ 
+
+ CFTC The Commodity
+Futures Trading Commission, an independent agency with the mandate to regulate commodity futures and option markets in the United
+States.
+
+ 
+
+ Clearing Agency Any
+clearing agency or similar system other than the Book-Entry System or DTC.
+
+ 
+
+ Code The Internal Revenue
+Code of 1986, as amended.
+
+ 
+
+ Commodity Exchange Act or CEA 
+ The Commodity Exchange Act of 1936, as amended.
+
+ 
+
+ Custodian [ ], a [
+ ], or its successor selected by the Sponsor and appointed by the Trustee.
+
+ 
+
+ Custody Agreement The
+Custody Agreement, which governs the custody of the Trust s gold.
+
+ 
+
+ Custody Rules The rules,
+regulation, practices and customs of the LBMA, the Bank of England or any applicable regulatory body which apply to gold made available
+in physical form by the Custodian.
+
+ 
+
+ Delivery Applicant 
+An investor who would like to take delivery of Gold Bars in exchange for its Shares and delivers its Shares after submitting a
+qualifying Delivery Application.
+
+ 
+
+ Delivery Application 
+The document that expresses a Delivery Applicant s non-binding intention to exchange Shares for Gold Bars on the Share Submission
+Day.
+
+ 
+
+ Delivery Fee The fee
+covering the cost of preparing and transporting Gold Bars from the Custodian or the precious metals dealer to the location specified
+by a Delivery Applicant in its Delivery Application.
+
+ 
+
+ Share Submission Day - A delivery
+day, which is any business day.
+
+ 
+
+ DTC The Depository
+Trust Company, a limited purpose trust company organized under New York law, a member of the United States Federal Reserve System,
+a clearing corporation within the meaning of the New York Uniform Commercial Code and a clearing agency 
+registered pursuant to the provisions of Section 17A of the Exchange Act.
+
+ 
+
+ DTC Participant a participant
+in DTC, such as a bank, broker, dealer or trust company.
+
+ 
+
+ ERISA The Employee
+Retirement Income Security Act of 1974, as amended.
+
+ 
+
+ Exchange or NYSE
+Arca NYSE Arca, the venue where Shares are listed and traded.
+
+ 
+
+ Exchange Act The Securities
+Exchange Act of 1934, as amended.
+
+ 
+
+ Exchange Fee A fee
+paid by Delivery Applicants to the Sponsor in the exchange process and is used to recoup the expenses the Sponsor bears for OTC
+transactions. The Exchange Fee is paid in addition to the Sponsor Fee.
+
+ 43
+
+ 
+
+ 
+
+ Fine Ounce An Ounce
+of 100% pure gold. The number of Fine Ounces in a gold bar may be calculated by multiplying the gross weight in Ounces by the fineness,
+expressed as a fraction of the fine metal content in parts per 1,000.
+
+ 
+
+ FINRA The Financial
+Industry Regulatory Authority.
+
+ 
+
+ FSA The Financial Services
+Authority, an independent non-governmental body that exercises statutory regulatory power under the FSM Act.
+
+ 
+
+ FSM Act The United
+Kingdom Financial Services and Markets Act 2000.
+
+ 
+
+ Gold Bars The physical
+gold bullion the Trust may hold, consisting of London Bars.
+
+ 
+
+ Indirect Participant 
+An entity that has access to the DTC clearing system by clearing securities through, or maintaining a custodial relationship with,
+a DTC Participant.
+
+ 
+
+ IRA Individual retirement
+account.
+
+ 
+
+ IRS The Internal Revenue
+Service.
+
+ 
+
+ LBMA The London Bullion
+Market Association, a trade association that acts as the coordinator for activities conducted on behalf of its members and other
+participants in the London bullion market. The LBMA acts as the principal point of contact between the London bullion market and
+its regulators. A primary function of the LBMA is its involvement in the promotion of refining standards by maintenance of the
+ London Good Delivery Lists, which are the lists of LBMA accredited melters and assayers of gold. Further, the LBMA
+coordinates market clearing and vaulting, promotes good trading practices and develops standard documentation. The major participating
+members of the LBMA are regulated by the FSA in the United Kingdom under the FSM Act.
+
+ 
+
+ London Good Delivery Bar or
+ London Bar A bar of gold meeting the London Good Delivery Standards, i.e., the specifications for
+weight, dimensions, fineness (or purity), identifying marks and appearance of gold bars set forth in The Good Delivery Rules
+for Gold and Silver Bars published by the LBMA.
+
+ 
+
+ London PM Fix The afternoon
+session of the twice daily fix of the price of a Fine Ounce of gold that starts at 3:00 PM London, England, time and is performed
+in London by the five members of the London gold fix.
+
+ 
+
+ Non-U.S. Investor An
+investor that is not a U.S. Investor.
+
+ 
+
+ NYSE Arca The NYSE
+Arca Marketplace operated by NYSE Arca Equities, Inc.
+
+ 
+
+ One Ounce Bar or 1 Ounce
+Bar A gold bar containing one (1) Fine Ounce of gold.
+
+ 
+
+ OTC or over-the-counter 
+ The global over-the-counter market for the trading of gold that consists of transactions in spot, forwards, and options
+and other derivatives.
+
+ 
+
+ Ounce A troy ounce,
+equal to 1.0971428 ounces avoirdupois. Avoirdupois is the system of weights used in the United States and Great Britain
+for goods other than precious metals, gems and drugs. In that system, a pound consists of 16 ounces and an ounce consists of 16
+drams.
+
+ 
+
+ Plans Employee benefit
+plans and certain other plans and arrangements, including individual retirement accounts and annuities, Keogh plans, and certain
+collective investment funds or insurance company general or separate accounts in which such plans or arrangements are invested,
+that are subject to ERISA and/or section 4975 of the Code.
+
+ 
+
+ Processing Fees The
+Exchange Fee and the Delivery Fee.
+
+ 
+
+ Securities Act The
+Securities Act of 1933, as amended.
+
+ 
+
+ Share Submission - A binding
+and irrevocable request by a Delivery Applicant to take delivery of physical Gold Bars in exchange for Shares based on instructions
+in the Delivery Application.
+
+ 44
+
+ 
+
+ 
+
+ Share Submission Quantity 
+The smallest whole number of Shares that equate to the net assets of the Trust corresponding to the Fine Ounce content of the Gold
+Bars requested.
+
+ 
+
+ Shares Units of fractional
+undivided beneficial interest in the Trust, which are issued by the Trust and named Market Vectors Redeemable Gold Shares. 
+
+ 
+
+ Shipping Carrier A
+conventional shipping carrier such as the U.S. Postal Service, Federal Express or United Parcel Service.
+
+ 
+
+ Sponsor Van Eck Associates
+Corporation, a Delaware corporation.
+
+ 
+
+ Sponsor Fee The fee
+to compensate the Sponsor for its services as sponsor of the Trust, including its assumption of the following administrative and
+marketing expenses incurred by the Trust: the Trustee s monthly fee and out-of-pocket expenses; the Custodian s fee;
+expenses reimbursable under the Custody Agreement; exchange listing fees; SEC registration fees; printing and mailing costs; maintenance
+expenses for the Trust s website; audit fees and up to $100,000 per annum in legal expenses.
+
+ 
+
+ Tonne One metric tonne,
+which is equivalent to 1,000 kilograms or 32,150.7465 Ounces.
+
+ 
+
+ Trust Market Vectors
+Redeemable Gold Trust, a New York trust formed pursuant to the Trust Agreement.
+
+ 
+
+ Trust Agreement The
+Depository Trust Agreement between the Sponsor and the Trustee under which the Trust is formed and which sets forth the rights
+and duties of the Sponsor, the Trustee and the Custodian.
+
+ 
+
+ Trust Allocated Account 
+The allocated gold account of the Trust established with the Custodian. The Trust Allocated Account will be used to hold the individually
+identified bars of gold deposited with the Trust.
+
+ 
+
+ Trustee or BNYM 
+ The Bank of New York Mellon, a banking corporation organized under the laws of the State of New York] with trust powers.
+
+ 
+
+ Unallocated Account 
+The unallocated account of the Trust, an Authorized Participant or the precious metals dealer established with the Custodian. Gold
+is said to be held in unallocated form when the person in whose name gold is so held is entitled to receive delivery of gold in
+the amount standing to the credit of that person s account, but that person has no ownership interest in any particular gold
+that the custodian for financial assets maintaining the account owns or holds. The Trust s Unallocated Account will be used
+to facilitate (1) the transfer of gold deposits and gold redemption distributions in connection with the creation and redemption
+of Baskets; (2) the exchange by the precious metals dealer of Gold Bars held by the Trust into Gold Bars requested by a Delivery
+Applicant; and (3) any sale of gold made by the Trust.
+
+ 
+
+ U.S. Investor An investor
+that is (1) an individual who is treated as a citizen or resident of the United States for U.S. federal tax purposes, (2) a corporation
+or partnership (or other entity treated as such for those purposes) that is created or organized in the United States or under
+the laws of the United States or of any state thereof or the District of Columbia; (3) an estate other than an estate the income
+of which, from non-U.S. sources that is not effectively connected with the conduct of a trade or business within the United States,
+is not includible in gross income, (4) a trust if a court within the United States is able to exercise primary supervision over
+the administration of the trust and one or more persons described in clauses (1), (2), or (3) have the authority to control all
+substantial decisions of the trust, or (5) an eligible trust that has made a valid election under applicable Treasury regulations
+to continue to be treated as a domestic trust.
+
+ 
+
+ 1940 Act The Investment
+Company Act of 1940, as amended.
+
+ 45
+
+ 
+
+ 
+
+APPENDIX
+A
+
+[Delivery Application]
+
+ 
+
+[To be provided by amendment]
+
+ 
+
+ 
+
+ 
+
+Report of Independent Registered Public
+Accounting Firm
+
+ 
+
+[To be provided by amendment]
+
+ 
+
+ 
+
+ 
+
+Statement of Financial Condition
+
+ 
+
+[To be provided by amendment]
+
+ 
+
+ 
+
+ 
+
+MARKET VECTORS REDEEMABLE GOLD TRUST
+
+ 
+
+___________,000 Shares
+
+ 
+
+PROSPECTUS
+
+ 
+
+[ ]
+
+ 
+
+Until (insert date), all dealers that effect
+transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This
+is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold
+allotments or subscriptions.
+
+ 
+
+ 
+
+ 
+PART II INFORMATION NOT REQUIRED
+IN PROSPECTUS
+
+ 
+
+Item 13. Other Expenses of Issuance and Distribution.
+
+ 
+
+The Trust shall not bear any expenses incurred
+in connection with the issuance and distribution of the securities being registered. These expenses shall be paid by the Sponsor.
+All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee:
+
+ 
+
+ SEC registration fee 
+ $136.40 
+
+ FINRA filing fee 
+ * 
+
+ Stock Exchange Listing fee 
+ * 
+
+ Printing and engraving 
+ * 
+
+ Legal fees and expenses 
+ * 
+
+ Accounting fees and expenses 
+ * 
+
+ Transfer agent and registrar fees 
+ * 
+
+ Miscellaneous 
+ * 
+
+ 
+
+*To be completed by amendment.
+
+ 
+
+Item 14. Indemnification of Directors and Officers.
+
+ 
+
+Section 5.8(b) of the Trust Agreement provides
+that the Sponsor and its members, managers, directors, officers, employees, agents and affiliates (as such term is defined under
+the Securities Act) (each, a Sponsor Indemnified Party ) shall be indemnified from the Trust and held harmless against
+any loss, liability or expense (including the reasonable fees and expenses of counsel) arising out of or in connection with the
+performance of its obligations under the Trust Agreement and under each other agreement entered into by the Sponsor in furtherance
+of the administration of the Trust (including Authorized Participant Agreements to which the Sponsor is a party, including the
+Sponsor s indemnification obligations thereunder) or any actions taken in accordance with the provisions of the Trust Agreement
+or with respect to the review of any Delivery Application or any action to effect instructions of a Delivery Applicant pursuant
+to a Delivery Application, or given by a DTC Participant or Indirect Participant acting on behalf of a Delivery Applicant, to the
+extent such loss, liability or expense was incurred without (i) gross negligence, bad faith, willful misconduct or willful malfeasance
+on the part of such Sponsor Indemnified Party in connection with the performance of its obligations under the Trust Agreement or
+any such other agreement or any actions taken in accordance with the provisions of the Trust Agreement, any Delivery Application
+or any such other agreement or (ii) reckless disregard on the part of such Sponsor Indemnified Party of its obligations and duties
+under the Trust Agreement, any Delivery Application or any such other agreement. Such indemnity shall also include payment from
+the Trust of the reasonable costs and expenses incurred by such Sponsor Indemnified Party in investigating or defending itself
+against any such loss, liability or expense or any claim therefor.
+
+ 
+
+Item 15. Recent Sales of Unregistered Securities.
+
+ 
+
+Not applicable.
+
+ 
+
+Item 16. Exhibits and Financial Statement Schedules.
+
+ 
+
+(a) Exhibits
+
+ 
+
+ Exhibit No. 
+ Exhibit Description
+
+ 4.1 
+ Form of Depositary Trust Agreement*
+
+ 4.2 
+ Form of Authorized Participant Agreement*
+
+ 4.3 
+ Form of Certificate of Shares of the Trust (included as Exhibit A to the Depositary Trust Agreement)*
+
+ 5.1 
+ Opinion of Dechert LLP as to legality*
+
+ 8.1 
+ Opinion of Dechert LLP as to tax matters*
+
+ 10.1 
+ Form of Allocated Bullion Account Agreement (included as Exhibit B to the Depositary Trust Agreement)*
+
+ 10.2 
+ Form of Unallocated Bullion Account Agreement (included as Exhibit C to the Depositary Trust Agreement)*
+
+ 23.1 
+ Consent of Independent Public Auditors *
+
+ 23.2 
+ Consent of Dechert LLP (included as part of Exhibit 5.1).*
+
+ 23.3 
+ Consent of Dechert LLP (included as part of Exhibit 8.1).*
+
+ 24.1 
+ Powers of Attorney (included on signature page to this Registration Statement as filed with
+
+ 
+ the Securities and Exchange Commission on March 4, 2013.)
+
+ 
+
+*To be filed by amendment.
+
+ II-46
+
+ 
+
+ 
+
+(b) Financial Statement Schedules
+
+ 
+
+Not applicable.
+
+ 
+
+Item 17. Undertakings.
+
+ 
+
+The undersigned Registrant hereby undertakes:
+
+ 
+
+(1) To file, during any period in which offers
+or sales are being made, a post-effective amendment to this registration statement:
+
+ 
+
+(i) To include any prospectus required by
+section 10(a)(3) of the Securities Act of 1933;
+
+ 
+
+(ii) To reflect in the prospectus any facts
+or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof)
+which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.
+Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities
+offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering
+range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if,
+in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set
+forth in the Calculation of Registration Fee table in the effective registration statement; and
+
+ 
+
+(iii) To include any material information
+with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such
+information in the registration statement.
+
+ 
+
+(2) That, for the purpose of determining
+any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement
+relating to the securities offered therein, and
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001571759_ineedmd_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001571759_ineedmd_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..04fe7213fc8fbf2bb785ff772e58df24b884ddb0
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001571759_ineedmd_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for us by Naccarato & Associates located at 1100 Quail Street, Suite 100, Newport Beach, California 92660.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001571804_green_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001571804_green_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..af3337b62fa0dbc4ebaead8ec7012c6794039552
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001571804_green_legal_matters.txt
@@ -0,0 +1 @@
+As of now, we do not trade on the Over-The-Counter Bulletin Board. Once we start trading, the value of our investors investment could decrease due to the volatility associated with Bulletin Board. Other factors might decrease the value of the stock such as: failure to obtain our operating budget and profit, decline in demand for our common stock, general economic trends, etc. As for cash dividends, we have never paid any on our common stock, and we do not expect to pay any, at any time in the future. Hence, a return on investment will depend solely on an increase of our common stock on the market. We do not have any experience as a public company. We have never operated a public company and we have never dealt with all the rules and regulations required from such a company. For that reason, if we do not operate successfully as a public company, the investors might lose all the investments with us. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER AND CONTROL PERSONS The following table sets forth as of January 31, 2013, the names, positions and ages of our current executive officers and directors Name and Address of Executive Officer and/or Director Age Position Andrei Catalin Ispas 2620 S Maryland Parkway, #14-857, Las Vegas, NV, 89109 34 President, Secretary, Treasurer and Director The following is a brief description of the business experience of our executive officers, director and significant employees: Andrei Catalin Ispas has acted as our President, Secretary, Treasurer and sole Director since our incorporation on July 5, 2012. Our president will be devoting approximately 40% of his business time to our operations. Once we expand operations, and are able to attract more customers to purchase our services, Mr. Ispas has agreed to commit more time as required. Because Mr. Ispas will only be devoting limited time to our operations, our operations may be sporadic and occur at times which are convenient to him. As a result, operations may be periodically interrupted or suspended which could result in a lack of revenues and a cessation of operations. Roland Asmar is our promoter. Mr. Asmar has assisted with our incorporation process and is not currently involved in any of our corporate affairs other as stated below. He did not receive anything of value from us nor do we owe any consideration to Mr. Asmar for the incorporation service. Additionally, Mr. Asmar is the owner of Traduction Syllatra which we contracted to provide translation services on our behalf. Other than the above, we have no plans to receive any further service or assets from Mr. Roland in the future Our Director s Biography Catalin Ispas has studied languages, from 1993 to 1996, at the Scoala Profesionala Dimitrie Ghika. From 2002 to 2011, specialising in German French and Romanian, he has worked as an independent translator in the field of translation of official immigration documents in his native city of Comanesti, Romania. Page | 25 In early 2012, he began working on AnyTranslation Corp. He had researched the translation business, studied business management on his own, and in July of 2012, Mr. Ispas founded and incorporated AnyTranslation Corp. Mr. Ispas s experience and training as a translator, and his in our business as its founder, has led to our conclusion that Mr. Ispas should be serving as a member of our board of director in light of our business and structure. TERM OF OFFICE Each of our directors is appointed to hold office until the next annual meeting of our stockholders or until his respective successor is elected and qualified, or until he resigns or is removed in accordance with the provisions of the Nevada Revised Statues. Our officers are appointed by our Board of Directors and hold office until removed by the Board or until their resignation. DIRECTOR INDEPENDENCE Our board of directors is currently composed of one member ,Andrei Catalin Ispas, who does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to each director that no relationships exists which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by the directors and us with regard to each director s business and personal activities and relationships as they may relate to us and our management. COMMITTEES OF THE BOARD OF DIRECTORS Our Board of Directors has no committees. We do not have a standing nominating, compensation or audit committee. SIGNIFICANT EMPLOYEES We have no employees. Our sole officer and director, Andrei Catalin Ispas, is an independent contractor to us and currently devotes approximately twenty hours per week to company matters. After receiving funding pursuant to our business plan Mr. Ispas intends to devote as much time as the Board of Directors deems necessary to manage the affairs of the company. EXECUTIVE COMPENSATION MANAGEMENT COMPENSATION The following tables set forth certain information about compensation paid, earned or accrued for services by our President, and Secretary and all other executive officers (collectively, the Named Executive Officers ) from inception on July 5, 2012 until January 31, 2013: Summary Compensation Table Page | 26 Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation ($) All Other Compensation ($) Total ($) Andrei Catalin Ispas, President, Treasurer and Secretary July 5, 2012to January 31, 2013 -0- -0- -0- -0- -0- -0- -0- -0- There are no current employment agreements between the company and its officers. Mr. Ispas currently devotes approximately twenty hours per week to manage the affairs of the Company. He has agreed to work with no remuneration until such time as the company receives sufficient revenues necessary to provide management salaries. At this time, we cannot accurately estimate when sufficient revenues will occur to implement this compensation, or what the amount of the compensation will be. No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by us for the benefit of our officer or director or employees. Director Compensation The following table sets forth director compensation as of January 31, 2013: Name Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Andrei Catalin Ispas -0- -0- -0- -0- -0- -0- -0- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Andrei Catalin Ispas will not be paid for any underwriting services that he performs on our behalf with respect to this offering. On July 16, 2012, we issued a total of 5,000,000 shares of restricted common stock to Andrei Catalin Ispas, our sole officer and director in consideration of $5,000. Mr. Ispas will not be repaid from the proceeds of this offering. There is no due date for the repayment of the funds advanced by Mr. Ispas. Mr. Ispas will be repaid from revenues of operations if and when we generate revenues to pay the obligation. There is no assurance that we will ever generate revenues from our operations. The obligation to Mr. Ispas does not bear interest. There is no written agreement evidencing the advancement of funds by Mr. Ispas or the repayment of the funds to Mr. Ispas. The entire transaction was oral. Roland Asmar is our promoter. Mr. Asmar has assisted with our incorporation process and is not currently involved in any of our corporate affairs other as stated below. He did not receive anything of value from us nor do we owe any consideration to Mr. Asmar for the incorporation service. Additionally, Mr. Asmar is the owner of Page | 27 Traduction Syllatra which we contracted to provide translation services on our behalf. Other than the above, we have no plans to receive any further service or assets from Mr. Roland in the future. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of January 31, 2013 by: (i) each person (including any group)known to us to own more than five percent (5%) of any class of our voting securities, (ii) our director, and or (iii) our officer. Unless otherwise indicated, the stockholder listed possesses sole voting and investment power with respect to the shares shown. Title of Class Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percentage Common Stock Andrei Catalin Ispas 2620 S Maryland Parkway, #14-857, Las Vegas, NV, 89109 5,000,000 shares of common stock (direct) 100 % (1) A beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on January 31, 2013. As of January 31, 2013, there were 5,000,000 shares of our common stock issued and outstanding. PLAN OF DISTRIBUTION AnyTranslation Corp. has 5,000,000 shares of common stock issued and outstanding as of the date of this prospectus. The Company is registering an additional of 4,000,000 shares of its common stock for sale at the price of $0.02 per share. There is no arrangement to address the possible effect of the offering on the price of the stock. Mr.Ispas will deliver prospectuses to these individuals and to others who he believes might have interest in purchasing part of this offering. In order to buy shares you must complete and execute the subscription agreement and return it to the Company Address: 2620 S Maryland Parkway, #14-857, Las Vegas, Nevada, 89109 We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned immediately to the subscriber, without interest or deductions. Subscriptions for securities will be accepted or rejected within 48 hours after we receive them. In connection with the Company s selling efforts in the offering, Andrei Catalin Ispas will not register as a broker-dealer pursuant to Section 15 of the Exchange Act, but rather will rely upon the safe harbor provisions of SEC Rule 3a4-1, promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act ). Generally speaking, Rule 3a4-1 provides an exemption from the broker-dealer registration requirements of the Exchange Act for persons associated with an issuer that participate in an offering of the issuer s securities. Mr. Ispas is not subject to any statutory disqualification, as that term is defined in Section 3(a)(39) of the Exchange Act. Mr. Ispas will not be compensated in connection with his participation in the offering by the payment of commissions or other remuneration based either directly or indirectly on transactions in our securities. Mr. Ispas is not, nor has he been within the past 12 months, a broker or dealer, and he is not, nor has he been within the past 12 months, an associated person of a broker or dealer. At the end of the offering, Mr. Ispas will continue to Page | 28 primarily perform substantial duties for the Company or on its behalf otherwise than in connection with transactions in securities. Mr. Ispas will not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on Exchange Act Rule 3a4-1(a)(4)(i) or (iii). AnyTranslation Corp. will receive all proceeds from the sale of the 4,000,000 shares being offered. The price per share is fixed at $0.02 for the duration of this offering. Although our common stock is not listed on a public exchange or quoted over-the-counter, we intend to seek to have our shares of common stock quoted on the Over-the Counter Bulletin Board. In order to be quoted on the OTC Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, nor can there be any assurance that such an application for quotation will be approved. The Company will not offer its shares for sale through underwriters, dealers, agents or anyone who may receive compensation in the form of underwriting discounts, concessions or commissions from the Company and/or the purchasers of the shares for whom they may act as agents. DESCRIPTION OF SECURITIES GENERAL Our authorized capital stock consists of 75,000,000 shares of common stock, par value $0.001 per share. Our Articles of Incorporation do not authorized us to issue and preferred stock. As of January 31, 2013, there were 5,000,000 shares of our common stock issued and outstanding that was held by one registered stockholder of record, and no shares of preferred stock issued and outstanding. COMMON STOCK The following is a summary of the material rights and restrictions associated with our common stock. The holders of our common stock currently have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled to one non-cumulative vote per share on all matters on which stock holders may vote. All shares of common stock now outstanding are fully paid for and non-assessable and all shares of common stock which are the subject of this offering, when issued, will be fully paid for and non-assessable. Please refer to the Company s Articles of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities of holders of the Company s securities. There are no outstanding options or warrants to purchase, or securities convertible into, our common stock. There is one holder of record for our common stock. The record holder is our sole officer and director who holds 5,000,000 shares of our common stock. ANTI-TAKEOVER LAW Currently, we have no Nevada shareholders and since this offering will not be made in the State of Nevada, no shares will be sold to its residents. Further, we do not do business in Nevada directly or through an affiliate corporation and we do not intend to do so. Accordingly, there are no anti-takeover provisions that have the affect of delaying or preventing a change in our control. Page | 29 DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our Articles of Incorporation provide that we will indemnify an officer, director, or former officer or director, to the full extent permitted by law. We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by one of our director, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. We will then be governed by the court s decision. LEGAL MATTERS No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001572552_asterias_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001572552_asterias_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..61ce155a264a655493ecf1311054d1dae215aa56
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001572552_asterias_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the Series B Shares, the Series A Shares into which the Series B Share may be converted, and the redemption rights included in the units offered by this prospectus has been passed upon for Asterias by Thompson, Welch, Soroko & Gilbert LLP, San Francisco and San Rafael, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001572684_ucp-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001572684_ucp-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e061b92d39322d6f0408c67ac9633ad839e1a26
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001572684_ucp-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this offering, including the validity of the shares of our Class A common stock offered hereby, will be passed upon for us by Sidley Austin LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, Menlo Park, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573024_corecomm_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573024_corecomm_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573024_corecomm_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573025_corecomm_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573025_corecomm_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573025_corecomm_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573026_digicom_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573026_digicom_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573026_digicom_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573027_bv-bc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573027_bv-bc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573027_bv-bc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573028_broadview_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573028_broadview_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573028_broadview_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573031_broadview_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573031_broadview_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573031_broadview_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573032_broadview_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573032_broadview_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573032_broadview_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573033_bridgecom_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573033_bridgecom_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573033_bridgecom_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573053_open_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573053_open_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573053_open_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573056_infohighwa_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573056_infohighwa_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573056_infohighwa_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573057_info_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573057_info_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573057_info_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573059_eureka_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573059_eureka_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573059_eureka_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573061_eureka_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573061_eureka_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573061_eureka_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573062_eureka_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573062_eureka_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573062_eureka_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573063_atx_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573063_atx_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573063_atx_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573065_atx_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573065_atx_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573065_atx_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573066_arc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573066_arc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573066_arc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573067_a-r-c_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573067_a-r-c_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee6602e3dc0e728c1069e753c7f5d7e14e0364ad
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573067_a-r-c_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity and enforceability of the Notes and the related guarantees have been passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001573166_jones_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001573166_jones_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f27d0ca1ddcae7a1c48e85cb0f41d5b8ba3e00bd
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001573166_jones_legal_matters.txt
@@ -0,0 +1 @@
+Legal matters The validity of our Class A common stock offered by this prospectus will be passed upon for us by Baker Botts L.L.P., Austin, Texas. Certain legal matters in connection with this offering will be passed upon for the underwriters by Vinson & Elkins L.L.P., Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574109_gemshares_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574109_gemshares_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d75f370981a19886b34be436ab3e9ccd11af8dc
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574109_gemshares_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters The validity of the Shares will be passed upon for the Sponsor by Dechert LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574719_andy_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574719_andy_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..444084905591b4583cb3c65b41c443f7781386ba
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574719_andy_legal_matters.txt
@@ -0,0 +1,1759 @@
+LEGAL MATTERS
+
+The validity of the common stock offered hereby will be passed upon for Andy Business Conglomerate, USA by Harrison Law, P.A., 8955 US Highway 301 N. #203 Parrish FL 34219. Harrison Law, P.A. will be providing the opinion of the validity of the shares of the Company. 
+
+CONFLICT OF INTERESTS
+
+Currently there are no mutual clients of Harrison Law, P.A. and Andy Business Conglomerate, USA. In the event a client is referred by Harrison Law, P.A. to ABC there is no financial arrangement whereby Harrison Law, P.A. receives any of the monies earned by Andy Business Conglomerate, USA. The only fees paid to Harrison Law, P.A., if any, will be for legal advice and work.
+
+WHERE YOU CAN FIND FURTHER INFORMATION
+
+Andy Business Conglomerate, USA will be subject to the informational requirements of the Securities Exchange Act of 1934, and in accordance therewith files reports, or information statements and other information with the Securities and Exchange Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street N. E., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a web site that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Commission. The address of the Commission s web site is http://www.sec.gov. 
+
+Andy Business Conglomerate, USA has filed with the Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the common stock being offered hereby. As permitted by the rules and regulations of the Commission, this prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to Andy Business Conglomerate, USA and the common stock offered hereby, reference is made to the registration statement, and such exhibits and schedules. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at the addresses set forth above, and copies of all or any part of the registration statement may be obtained from such service fleets upon payment of the fees prescribed by the Commission. In addition, the registration statement may be accessed at the Commission s web site. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete within the Form S-1 and, in each instance, reference is made to the copy of such contract or document filed as an additional exhibit to the registration statement filed with the Securities and Exchange Commission, each such statement being qualified in all respects by such reference.
+
+I-29
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+FINANCIAL STATEMENTS
+
+CONTENTS
+
+ 
+ 
+ 
+
+Report of Independent Registered Public Accounting Firm
+
+ 
+F-2
+
+ 
+ 
+ 
+
+ Balance Sheets:
+
+ December 31, 2012 and 2011 (audited)
+
+ 
+F-3
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Operations:
+
+ For the years ended December 31, 2012 and 2011 (audited)
+
+ 
+F-4
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Changes in Stockholders Equity:
+
+ For the years ended December 31, 2012 and 2011 (audited) 
+
+ 
+F-5
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Cash Flows:
+
+ For the years ended December 31, 2012 and 2011 (audited)
+
+ 
+F-6
+
+ 
+ 
+ 
+ 
+ 
+
+Notes to Financial Statements
+
+ 
+F-7
+
+II-1
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ 
+
+Drake, Klein, & Messineo, CPAs PA
+
+2451 N. McMullen Booth Road, Suite.308
+
+Clearwater, FL 33759
+
+855.334.0934 Toll free
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+The Board of Directors and Stockholders
+
+We have audited the accompanying balance sheet of as of and 2011, and the related statement of operations, stockholders deficiency, and cash flows from Inception (January 28, 2011) through and the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 
+
+We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
+
+In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of as from Inception (January 28, 2011) through , and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
+
+The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has significant net losses and cash flow deficiencies. Those conditions raise substantial doubt about the Company s ability to continue as a going concern. Management s plans regarding those matters are described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 
+
+/s/ DKM Certified Public Accountants
+
+DKM Certified Public Accountants
+
+Clearwater, Florida
+
+June 3, 2013
+
+II-2
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Balance Sheets (audited)
+
+For the Years Ended December 2012 and 2011 (audited)
+
+ 
+ 
+As of December 31,
+
+ 
+ 
+2012
+
+2011
+
+ 
+ASSETS
+
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+Current Assets:
+
+ 
+ 
+
+ 
+Cash and Cash Equivalents
+
+111
+
+101,408
+
+ 
+Total Current Assets
+
+111 
+
+101,408
+
+Shareholder loan receivable
+
+250,000
+
+150,000
+
+Total Assets
+
+$ 250,111 
+
+$ 251,408
+
+ 
+ 
+ 
+ 
+
+ 
+LIABILITIES AND STOCKHOLDERS' EQUITY
+
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+Current Liabilities:
+
+ 
+ 
+
+ 
+Income Tax Payable
+
+ 52,209
+
+58,175
+
+Total Current Liabilities
+
+52,209
+
+58,175
+
+Total Liabilities
+
+52,209
+
+58,175
+
+ 
+ 
+ 
+
+Stockholders' Equity:
+
+ 
+ 
+
+ Common Stock; 1,000,000,000 shares authorized; $.001 per share par value; 7,329,200 shares issued outstanding, respectively 
+
+7,329
+
+7,329
+
+ Additional Paid-In Capital
+
+65,963
+
+65,963
+
+ Common Stock Receivable
+
+-
+
+(14,000)
+
+ Retained Earnings 
+
+124,610
+
+133,941
+
+Total Equity 
+
+197,902
+
+193,233
+
+Total Liabilities and Stockholders' Equity (Deficit)
+
+$ 250,111
+
+$ 251,408
+
+The accompanying notes are an integral part of these statements.
+
+II-3
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statements of Operations
+
+For the Years Ended December 2012 and 2011(audited)
+
+ 
+For the Years Ending 
+
+December 31,
+
+ 
+2012
+
+2011
+
+Revenue:
+
+ 
+ 
+
+ Consulting Income
+
+- 
+
+200,000
+
+ 
+ 
+ 
+
+Operating Expenses:
+
+ 
+ 
+
+ General and Administrative
+
+297
+
+884
+
+ Professional Fees
+
+15,000
+
+7,000
+
+Total Operating Expenses
+
+(15,297)
+
+(7,884)
+
+ 
+ 
+ 
+
+Net (Loss) Income from Operations
+
+Before Income Taxes
+
+(15,297)
+
+192,116
+
+Benefit From (Provision For) Income Taxes
+
+5,966
+
+ (58,175)
+
+Net (Loss) Income 
+
+$ (9,331)
+
+$ 133,941
+
+ 
+ 
+ 
+
+Basic and Diluted (loss) income per share
+
+( 0.00)
+
+ 0.02
+
+ 
+ 
+ 
+
+Weighted average number of shares outstanding
+
+7,329,200
+
+7,329,200
+
+The accompanying notes are an integral part of these statements.
+
+II-4
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statement of Stockholders Equity
+
+For the Years Ending December 2012 and 2011(audited)
+
+ 
+Common Stock
+
+ 
+Additional Paid in Capital
+
+ 
+Accumulated
+
+Deficit/ Retained Earnings
+
+ 
+Total
+
+ 
+Shares
+
+ 
+Amount
+
+ 
+Common
+
+Stock
+
+Receivable
+
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Balance as of January 1, 2011
+
+-
+
+ 
+-
+
+ 
+ -
+
+ -
+
+ -
+
+ 
+-
+
+ Common Stock Issuance
+
+7,329,200
+
+$
+
+7,329
+
+$
+
+65,963
+
+ 
+ 
+$
+
+73,292
+
+ Common Stock Receivable
+
+ 
+ 
+ 
+ 
+ 
+(14,000)
+
+ 
+ 
+(14,000)
+
+ Net Income
+
+ 
+ 
+ 
+ 
+ 
+ 
+133,941
+
+ 
+133,941
+
+Balance as of December 31, 2011
+
+7,329,200
+
+$
+
+7,329
+
+ 
+$ 65,963
+
+$(14,000)
+
+$ 133,941
+
+$
+
+193,233
+
+ Collection of Common Stock Receivable
+
+ 
+ 
+ 
+ 
+- 
+
+ 14,000
+
+ 
+ 
+14,000
+
+ Net Loss
+
+ 
+
+ 
+ 
+ 
+- 
+
+ 
+(9,331)
+
+ 
+(9,331)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Balance at December 31, 2012
+
+7,329,200
+
+$
+
+7,329
+
+$
+
+ 65,963 
+
+$ -
+
+$ 124,610
+
+$
+
+197,902
+
+The accompanying notes are an integral part of these statements.
+
+II-5
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statements Cash Flows
+
+For the Years Ended December 2012 and 2011(audited)
+
+ 
+For the Years Ending,
+
+December 31,
+
+ 
+2012
+
+2011
+
+Cash Flows from Operating Activities:
+
+ 
+ 
+
+ Net (Loss) Income 
+
+(9,331)
+
+133,941
+
+Adjustments to reconcile net (loss) income to net cash provided by operations:
+
+ 
+ 
+
+ Changes in assets and liabilities:
+
+ 
+ 
+
+ Income Tax Payable
+
+(5,966)
+
+58,175
+
+Net Cash Flows (Used) Provided by Operating Activities
+
+(15,297)
+
+192,116
+
+ 
+ 
+ 
+
+Cash Flows From Investing Activities
+
+ 
+ 
+
+ Loans Made 
+
+(100,000)
+
+(150,000)
+
+Net Cash Used by Investing Activities
+
+(100,000)
+
+(150,000)
+
+ 
+ 
+ 
+
+Cash Flows from Financing Activities
+
+ 
+ 
+
+ Collection of Common Stock Receivable
+
+14,000
+
+-
+
+ Proceeds from Issuance of Common Stock
+
+-
+
+59,292
+
+Net Cash Provided by Financing Activities
+
+14,000
+
+59,292
+
+ 
+ 
+ 
+
+Change in Cash and Cash Equivalents
+
+(101,297)
+
+101,408
+
+Cash and Cash equivalents, beginning of period
+
+101,408
+
+ 
+
+Cash and Cash equivalents End of period
+
+111
+
+101,408
+
+ 
+ 
+ 
+
+Supplemental Cash Flow Information
+
+ 
+ 
+
+ Cash paid for interest
+
+-
+
+-
+
+ Cash paid for taxes
+
+-
+
+-
+
+ 
+ 
+ 
+
+Non Cash Financing Activities
+
+ 
+ 
+
+ Common Stock Receivable
+
+-
+
+14,000
+
+The accompanying notes are an integral part of these statements.
+
+II-6
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the years ended December 31, 2012 and 2011 (audited)
+
+NOTE 1. 
+
+ NATURE OF BUSINESS
+
+ORGANIZATION
+
+We provide business consulting and marketing services to small to medium size companies. 
+
+The company has a single location in Las Vegas, Nevada where it presently operates. The company faces competition from local and nationally recognized firms. The Company is headquartered in Las Vegas, Nevada. The elected fiscal year end is December 31.
+
+NOTE 2.
+
+ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+BASIS OF PRESENTATION AND USE OF ESTIMATES 
+
+The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.
+
+In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the result of operations for the years ended December 31, 2012 and 2011; (b) the financial position at and December 31, 2012 and 2011 and (c) cash flows for the years ended December 31, 2012 and 2011 have been made.
+
+CASH and CASH EQUIVALENTS 
+
+The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents at December 31, 2012 and 2011.
+
+REVENUE RECOGNITION
+
+The Company recognizes revenue when it is realized or realizable and estimable. Revenue from consulting services is recognized according to the terms of the consulting agreement. Generally, consulting revenue will be recognized into income as the services are performed. 
+
+NET EARNINGS (LOSS) PER SHARE
+
+In accordance with ASC 260-10, Earnings Per Share, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings 
+
+(loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. At December 31, 2012 and 2011 there were no potentially dilutive securities.
+
+ADVERTISING
+
+Advertising costs are expensed as incurred. No advertising costs were incurred for the years ending December 31, 2012 and 2011.
+
+RECENTLY ACCOUNTING PRONOUNCEMENTS
+
+The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2012 through the date these financial statements were issued.
+
+FAIR VALUE OF FINANCIAL INSTRUMENTS
+
+FASB ASC Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This ASC also establishes a fair value hierarchy that distinguishes 
+
+II-7
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the years ended December 31, 2012 and 2011 (audited)
+
+(Continued)
+
+FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
+
+between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). 
+
+The three levels of the fair value hierarchy are described below:
+
+Level 1
+
+Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
+
+Level 2
+
+Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable data by correlation or other means.
+
+Level 3
+
+Inputs that are both significant to the fair value measurement and unobservable.
+
+NOTE 3. 
+
+ INCOME TAXES
+
+The Company has adopted the provisions of ASC 740-10, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. 
+
+The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of December 31, 2012, tax years 2012 and 2011 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
+
+The benefit from (provision for) income taxes from continuing operations consisted of the following:
+
+ 
+2012
+
+2011
+
+Current:
+
+ 
+ 
+
+ Federal
+
+ $ 5,966 
+
+ $ (58,175)
+
+NOTE 4
+
+ SHAREHOLDER LOAN RECEIVABLE
+
+During the period ended December 31, 2011, the Company advanced a shareholder $150,000. During 2012, the Company advanced an additional $100,000 to a shareholder. These loans receivable are due on demand and are non-interest bearing. There were no payments received by the Company for these advances through December 31, 2012. 
+
+NOTE 5. 
+
+ COMMITMENTS AND CONTINGENCIES
+
+The controlling shareholders have pledged support to fund continuing operations, as necessary. From time to time, the Company is dependent upon the continued support of these parties, through temporary advances or through arrangements of their personal credit. However there is no written commitment to this effect.
+
+II-8
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the years ended December 31, 2012 and 2011 (audited)
+
+(Continued)
+
+NOTE 5. 
+
+ COMMITMENTS AND CONTINGENCIES (continued)
+
+The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties
+
+The Company does not have employment contracts with its key employees, including the officers of the Company. 
+
+LEGAL MATTERS
+
+From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company s financial position or results of operations.
+
+NOTE 6.
+
+GOING CONCERN
+
+The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a decreasing gross profits, increasing general expenses and negative working capital. The Company is currently evaluating acquisitions and other business opportunities. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company s continuation as a going concern is dependent upon its ability to generate revenues through its existing or new business directions and its ability to find additional funding.
+
+NOTE 7.
+
+STOCKHOLDERS EQUITY
+
+As of December 31, 2012 and 2011, the Company had 7,329,200 shares of common stock issued and outstanding. The total consideration paid for these shares was $73,292. Of this amount, $59,292 was collected in 2011. There was an additional $14,000 that was received in January 2012 in exchange for the shares issued in 2011. The $14,000 was recorded as a common stock receivable at December 31, 2011 and is presented as an offset to equity in the balance sheet. 
+
+NOTE 8.
+
+FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
+
+FINANCIAL INSTRUMENTS
+
+The Company s financial assets are comprised of cash and cash equivalents and shareholder loans receivable. Our liabilities consist of income taxes payable.
+
+The carrying values for the financial instruments approximate fair value due to the short maturity of such instruments. 
+
+Financial instruments that could subject us to concentrations of credit risk are primarily cash and cash equivalents. Our cash and cash equivalents are within FDIC limits. 
+
+ 
+
+LIQUIDITY RISK
+
+The Company s objective in managing liquidity risk is to maintain sufficient available reserves to meet its liquidity requirements at any point in time. The Company achieves this by managing capital and operating expenditures and maintaining sufficient funds for anticipated short-term spending in our cash and cash equivalent accounts.
+
+NOTE 9. 
+
+SUBSEQUENT EVENTS 
+
+In 2013, the company has recognized repayment of $225,000 of the shareholder loan receivable leaving a remaining balance due the company of $25,000.
+
+The Company has evaluated subsequent events through the date the financial statements were issued to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.
+
+II-9
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+FINANCIAL STATEMENTS
+
+CONTENTS
+
+ 
+ 
+ 
+
+Report of Independent Registered Public Accounting Firm
+
+ 
+F-2
+
+ 
+ 
+ 
+
+ Balance Sheets:
+
+ March 31, 2013 (unaudited)
+
+ 
+F-3
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Operations:
+
+ For the three months ended March 31, 2013 and 2012 (unaudited)
+
+ 
+F-4
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Changes in Stockholders Equity:
+
+ For the period ended March 31, 2013 (unaudited) 
+
+ 
+F-5
+
+ 
+ 
+ 
+ 
+ 
+
+ Statements of Cash Flows:
+
+ For the three months ended March 31, 2013 and 2012 (unaudited)
+
+ 
+F-6
+
+ 
+ 
+ 
+ 
+ 
+
+Notes to Financial Statements
+
+ 
+F-7
+
+II-10
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ 
+
+ 
+
+Drake, Klein, & Messineo, CPAs PA
+
+2451 N. McMullen Booth Road, Suite.308
+
+Clearwater, FL 33759
+
+855.334.0934 Toll free
+
+REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
+
+To the Board of Directors and
+
+Stockholders of 
+
+We have reviewed the accompanying balance sheet of as of March 31, 2013, and the related statements of operations and retained earnings, and cash flows for the three months ended March 31, 2013 and 2012. These financial statements are the responsibility of the company s management.
+
+We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
+
+Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
+
+The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has significant net losses and cash flow deficiencies. Those conditions raise substantial doubt about the Company s ability to continue as a going concern. Management s plans regarding those matters are described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 
+
+/s/ DKM Certified Public Accountants
+
+DKM Certified Public Accountants
+
+Clearwater, Florida
+
+June 3, 2013
+
+II-11
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Balance Sheets
+
+March 31, 2013 and December 31, 2012
+
+ 
+ 
+
+March 31, 2013
+
+(unaudited)
+
+December 31, 2012
+
+(audited)
+
+ 
+ASSETS
+
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+Current Assets:
+
+ 
+ 
+
+ 
+Cash and Cash Equivalents
+
+551
+
+111
+
+ 
+Total Current Assets
+
+551
+
+111 
+
+Shareholder loan receivable
+
+250,000
+
+250,000
+
+Total Assets
+
+$ 250,551
+
+$ 250,111 
+
+ 
+ 
+ 
+ 
+
+ 
+LIABILITIES AND STOCKHOLDERS' EQUITY
+
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+Current Liabilities:
+
+ 
+ 
+
+ 
+Income Tax Payable
+
+52,209
+
+ 52,209
+
+Total Current Liabilities
+
+52,209
+
+52,209
+
+ 
+- 
+
+- 
+
+Total Liabilities
+
+52,209
+
+52,209
+
+ 
+ 
+ 
+
+Stockholders' Equity:
+
+ 
+ 
+
+ Common Stock; 1,000,000,000 shares authorized; $.001 per share par value; 7,329,200 shares issued outstanding, respectively 
+
+7,329
+
+7,329
+
+ Additional paid-in capital
+
+66,463
+
+65,963
+
+ Common Stock Receivable
+
+ 
+ 
+
+ Retained Earnings 
+
+124,550
+
+124,610
+
+Total Equity 
+
+198,342
+
+197,902
+
+Total Liabilities and Stockholders' Equity (Deficit)
+
+$ 250,551
+
+$ 250,111
+
+The accompanying notes are an integral part of these statements.
+
+II-12
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statements of Operations
+
+For the Three Months Ended March 31, 2013 and 2012 (unaudited)
+
+ 
+2013
+
+2012
+
+Revenue:
+
+- 
+
+- 
+
+ 
+ 
+ 
+
+Operating Expenses:
+
+ 
+ 
+
+ General and Administrative
+
+60
+
+117
+
+ Professional Fees
+
+- 
+
+15,000
+
+Total Operating Expenses
+
+ 60 
+
+15,117
+
+Net Loss From Operations
+
+(60)
+
+(15,117)
+
+ 
+ 
+ 
+
+Net Loss 
+
+$ (60)
+
+$ (15,117)
+
+ 
+ 
+ 
+
+Basic and Diluted (loss) income per share
+
+(0.00)
+
+( 0.00)
+
+ 
+ 
+ 
+
+Weighted average number of shares outstanding
+
+7,329,200
+
+7,329,200
+
+The accompanying notes are an integral part of these statements.
+
+II-13
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statement of Stockholders Equity
+
+For the Three Months Ended March 31, 2013 (unaudited) 
+
+ 
+Common Stock
+
+Additional Paid in Capital
+
+Accumulated
+
+Deficit/ Retained Earnings
+
+Total
+
+ 
+Shares
+
+Amount
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+Balance at December 31, 2012
+
+7,329,200
+
+$ 7,329
+
+$ 65,963 
+
+$ 124,610
+
+$ 197,902
+
+ Capital Contribution
+
+ 
+ 
+500
+
+ 
+500
+
+ Net Loss
+
+ 
+ 
+ 
+(60)
+
+(60)
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+Balance, March 31, 2013
+
+7,329,200
+
+$ 7,329
+
+$ 66,463
+
+$ 124,550
+
+$ 198,342
+
+The accompanying notes are an integral part of these statements.
+
+II-14
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+ANDY BUSINESS CONGLOMERATE, USA
+
+Statements Cash Flows
+
+For the Three Months Ending March 31, 2013 and 2012 (unaudited)
+
+ 
+For the Three Months Ending March 31, 
+
+ 
+2013
+
+2012
+
+Cash Flows from Operating Activities:
+
+ 
+ 
+
+ Net Loss 
+
+(60)
+
+(15,117)
+
+Adjustments to reconcile Net loss to net cash 
+
+used by operations:
+
+ 
+ 
+
+ Changes in assets and liabilities:
+
+-
+
+-
+
+ Income Tax Payable
+
+-
+
+-
+
+Net Cash Flows Used by Operating Activities
+
+(60)
+
+(15,117)
+
+ 
+ 
+ 
+
+Cash Flows From Investing Activities
+
+ 
+ 
+
+ Loans Made 
+
+-
+
+(100,000) 
+
+Net Cash Used by Investing Activities
+
+-
+
+(100,000)
+
+ 
+ 
+ 
+
+Cash Flows from Financing Activities
+
+ 
+ 
+
+ Contribution of Additional Paid in Capital
+
+500
+
+-
+
+ Collection of Common Stock Receivable
+
+-
+
+14,000
+
+Net Cash Provided by Financing Activities
+
+500
+
+14,000
+
+ 
+ 
+ 
+
+Change in Cash and Cash Equivalents
+
+440
+
+(101,117)
+
+Cash and Cash equivalents, beginning of period
+
+111
+
+101,408
+
+Cash and Cash equivalents End of period
+
+551
+
+291
+
+ 
+ 
+ 
+
+Supplemental Cash Flow Information
+
+ 
+ 
+
+ Cash paid for interest
+
+-
+
+-
+
+ Cash paid for taxes
+
+-
+
+-
+
+ 
+ 
+ 
+
+Non Cash Financing Activities
+
+ 
+ 
+
+ Common Stock Receivable
+
+-
+
+-
+
+The accompanying notes are an integral part of these statements.
+
+II-15
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the Three Months Ending March 31, 2013and 2012 (unaudited)
+
+NOTE 1. 
+
+ NATURE OF BUSINESS
+
+ORGANIZATION
+
+We provide business consulting and marketing services to small to medium size companies. 
+
+The company has a single location in Las Vegas, Nevada where it presently operates. The company faces competition from local and nationally recognized firms. The Company is headquartered in Las Vegas, Nevada. The elected fiscal year end is December 31.
+
+NOTE 2.
+
+ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
+
+BASIS OF PRESENTATION AND USE OF ESTIMATES 
+
+The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.
+
+In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying unaudited condensed consolidated financial statements. Operating results for the three-month period ended March 31, 2013, are not necessarily indicative of the results to be expected for other interim periods or for the full year then ended December 31, 2013. These unaudited condensed financial statements should be read in conjunction with the financial statements and accompanying notes thereto included in the financial statements for the year ended December 31, 2012.
+
+CASH and CASH EQUIVALENTS 
+
+The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents at March 31, 2013 and December 31, 2012.
+
+REVENUE RECOGNITION
+
+The Company recognizes revenue when it is realized or realizable and estimable. Revenue from consulting services is recognized according to the terms of the consulting agreement. Generally, consulting revenue will be recognized into income as the services are performed. 
+
+NET EARNINGS (LOSS) PER SHARE
+
+In accordance with ASC 260-10, Earnings Per Share, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings 
+
+(loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. At March 31, 2013 and December 31, 2012 there were no potentially dilutive securities.
+
+ADVERTISING
+
+Advertising costs are expensed as incurred. No advertising costs were incurred for the years ending December 31, 2012 and 2011.
+
+RECENTLY ACCOUNTING PRONOUNCEMENTS
+
+The Company reviews new accounting standards as issued. No new standards had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented and does not anticipate the need for any future restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements issued subsequent to March 31, 2013 through the date these financial statements were issued.
+
+II-16
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the Three Months Ending March 31, 2013and 2012 (unaudited)
+
+(Continued)
+
+NOTE 2.
+
+ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
+
+FAIR VALUE OF FINANCIAL INSTRUMENTS
+
+FASB ASC Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This ASC also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). 
+
+The three levels of the fair value hierarchy are described below:
+
+Level 1
+
+Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
+
+Level 2
+
+Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable data by correlation or other means.
+
+Level 3
+
+Inputs that are both significant to the fair value measurement and unobservable.
+
+NOTE 3.
+
+SHAREHOLDER LOAN RECEIVABLE
+
+During the period ended December 31, 2011, the Company advanced a shareholder $150,000. During the three months ended March 31, 2012, the Company advanced an additional $100,000 to a shareholder. These loans receivable are payable on demand and are non-interest bearing. There were no payments received by the Company for these advances through March 31, 2013. 
+
+NOTE 4. 
+
+ COMMITMENTS AND CONTINGENCIES
+
+The controlling shareholders have pledged support to fund continuing operations, as necessary. From time to time, the Company is dependent upon the continued support of these parties, through temporary advances or through arrangements of their personal credit. However there is no written commitment to this effect.
+
+The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties
+
+The Company does not have employment contracts with its key employees, including the officers of the Company. 
+
+LEGAL MATTERS
+
+From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company s financial position or results of operations.
+
+NOTE 5.
+
+GOING CONCERN
+
+The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a decreasing gross profits, increasing general expenses and negative working capital. The Company is currently evaluating acquisitions and other business opportunities. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company s continuation as a going concern is dependent upon its ability to generate revenues through its existing or new business directions and its ability to find additional funding.
+
+II-17
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+Andy Business Conglomerate, USA
+
+Notes to Financial Statements
+
+For the Three Months Ending March 31, 2013and 2012 (unaudited)
+
+(Continued)
+
+NOTE 6.
+
+STOCKHOLDERS EQUITY
+
+As of March 31, 2013, the Company had 7,329,200 shares of common stock issued and outstanding. 
+
+NOTE 7.
+
+FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
+
+FINANCIAL INSTRUMENTS
+
+The Company s financial assets are comprised of cash and cash equivalents and shareholder loans receivable. Our liabilities consist of income taxes payable.
+
+The carrying values for the financial instruments approximate fair value due to the short maturity of such instruments. 
+
+Financial instruments that could subject us to concentrations of credit risk are primarily cash and cash equivalents. Our cash and cash equivalents are within FDIC limits. 
+
+ 
+
+LIQUIDITY RISK
+
+The Company s objective in managing liquidity risk is to maintain sufficient available reserves to meet its liquidity requirements at any point in time. The Company achieves this by managing capital and operating expenditures and maintaining sufficient funds for anticipated short-term spending in our cash and cash equivalent accounts
+
+NOTE 8. 
+
+SUBSEQUENT EVENTS 
+
+Subsequent to March 31, 2013, the company has recognized repayment of $225,000 of the shareholder loan receivable leaving a remaining balance due the company of $25,000.
+
+The Company has evaluated subsequent events through the date the financial statements were issued to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included.
+
+II-18
+
+Link to Table of Contents
+
+Link to Financial Statements
+
+PART II
+
+INFORMATION NOT REQUIRED IN THE PROSPECTUS
+
+Item 13. Other Expenses of Issuance and Distribution
+
+The following table sets forth the costs and expenses payable by Andy Business Conglomerate, USA in connection with the sale of the securities being registered. All amounts are estimates except the Securities and Exchange Commission registration fee and the Accounting Fees and Expenses:
+
+Registration Fee
+
+$221.65
+
+Federal taxes, state taxes and fees
+
+$0.00
+
+Printing and Engraving Expenses
+
+$1,000.00
+
+Accounting Fees and Expenses
+
+$9,500.00
+
+Legal Fees and Expenses
+
+$60,000.00
+
+Transfer Agent's Fees and Expenses
+
+$500.00
+
+Miscellaneous
+
+$1,000.00
+
+Total
+
+$72,221.65
+
+We will bear all the costs and expenses associated with the preparation and filing of this registration statement including the registration fees of the
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574741_np-auburn_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574741_np-auburn_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574741_np-auburn_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574754_np_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574754_np_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574754_np_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574767_np-fh_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574767_np-fh_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574767_np-fh_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574785_np-gold_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574785_np-gold_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574785_np-gold_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574788_sonoma_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574788_sonoma_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574788_sonoma_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574790_station_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574790_station_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574790_station_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574795_station_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574795_station_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574795_station_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574800_np-ip_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574800_np-ip_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574800_np-ip_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574801_np-lake_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574801_np-lake_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574801_np-lake_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574802_np-lml-llc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574802_np-lml-llc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574802_np-lml-llc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574804_np-magic_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574804_np-magic_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574804_np-magic_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574805_np-mt_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574805_np-mt_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574805_np-mt_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574806_np_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574806_np_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574806_np_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574807_np-opco_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574807_np-opco_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574807_np-opco_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574808_sc-sp-1_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574808_sc-sp-1_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574808_sc-sp-1_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574810_sc-sp-3_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574810_sc-sp-3_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574810_sc-sp-3_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574812_sc-sp-5_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574812_sc-sp-5_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574812_sc-sp-5_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574813_sc-sp_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574813_sc-sp_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574813_sc-sp_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574816_np-past_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574816_np-past_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574816_np-past_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574818_np-rancho_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574818_np-rancho_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574818_np-rancho_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574820_np-reno_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574820_np-reno_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574820_np-reno_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574821_np-river_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574821_np-river_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574821_np-river_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574822_np-santa_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574822_np-santa_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574822_np-santa_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574825_np-sonoma_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574825_np-sonoma_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574825_np-sonoma_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574826_np_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574826_np_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574826_np_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574829_np-texas_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574829_np-texas_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574829_np-texas_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574832_sc-butte_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574832_sc-butte_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574832_sc-butte_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574835_sc-madera_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574835_sc-madera_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574835_sc-madera_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574836_sc-madera_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574836_sc-madera_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574836_sc-madera_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574840_sc-sonoma_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574840_sc-sonoma_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574840_sc-sonoma_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574841_sc-sonoma_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574841_sc-sonoma_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b65e22c49a2e146a82d2b0301696732d4fd0f8d4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574841_sc-sonoma_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Company by Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, California and Brownstein Hyatt Farber Schreck, LLP, Las Vegas, Nevada.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001574985_business_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001574985_business_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a66ef897656e11a1ffff235e3b68be6e0813ba12
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001574985_business_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Abby Ertz, Esq., has acted as our legal counsel in providing an opinion for this filing. Business Security Consultants, Inc.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001575878_city_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001575878_city_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..24b5d82f1a76027a733e00837da8d1cfeccb4a7c
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001575878_city_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this offering, including the validity of the shares of our common stock offered hereby, will be passed upon for us by Proskauer Rose LLP, Los Angeles, California. Proskauer Rose LLP has from time to time, and may continue to represent, the Sponsors, the existing stockholders and some of their respective affiliates in connection with various legal matters. Certain legal matters in connection with this offering will be passed upon for the underwriters by Willkie Farr & Gallagher LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001576263_mirati_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001576263_mirati_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..198849cdcf631dd4128a8aa3787cd8a9f715271a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001576263_mirati_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, San Diego, California. The underwriters are being represented by Latham & Watkins LLP, San Diego, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001576336_ajs_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001576336_ajs_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7c8666d7c13bdd6628e77aec38d5dff0c6c33df4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001576336_ajs_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., counsel to New AJS Bancorp, AJS Bancorp, MHC, Old AJS Bancorp and A.J. Smith Federal, issued to New AJS Bancorp its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion. Crowe Horwath LLP has provided an opinion to us regarding the Illinois state income tax consequences of the conversion. Certain legal matters will be passed upon for Keefe, Bruyette & Woods, Inc. by Kilpatrick, Townsend & Stockton LLP, Washington, D.C.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001577902_blutek_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001577902_blutek_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..66af42976b155d38f3c589568068b082a00cfb7e
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001577902_blutek_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS W. Scott Lawler Attorney at Law, 4960 S. Gilbert Road, Suite 1-111, Chandler, Arizona 85249, will pass upon certain matters relating to the legality of the common stock offered hereby for us.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001578932_oci_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001578932_oci_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..872c6fface4ce69d8d442e56d85e79ed2604f5ef
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001578932_oci_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common units and certain other legal matters will be passed upon for us by Latham & Watkins LLP, Houston, Texas. Certain tax and other legal matters will be passed upon for us by Latham & Watkins LLP, Houston, Texas. Certain legal matters in connection with our common units offered hereby will be passed upon for the underwriters by Andrews Kurth LLP, Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001580095_black_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001580095_black_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c719b3091214faf2d89324d85d24fd0ad8a936d0
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001580095_black_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The Law Office of Conrad C. Lysiak, P.S. 601 West First Avenue, Suite 903, Spokane, Washington 99201, telephone (509) 624-1475 passed on the legality of the shares being offered in this prospectus.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001581043_associated_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001581043_associated_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d2ae0f2fd998265ba3aea0ed8e1605fac03af5a9
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001581043_associated_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Simpson Thacher & Bartlett LLP, Palo Alto, California. Certain legal matters relating to this offering will be passed upon for the underwriters by Cahill Gordon & Reindel LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001581220_xalles_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001581220_xalles_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1fac19d37fba5bc51ba499790b5e2c936bc15f78
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001581220_xalles_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Rimon P.C. has opined on the validity of the shares of common stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001581316_colorado_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001581316_colorado_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..95d35c06face5a2ec4b8fa10e634eac406e0b349
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001581316_colorado_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our directors, officers or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001581834_esir1-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001581834_esir1-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fee6c768c70f30965d11c34a192a796294829cf8
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001581834_esir1-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MA ITERS Attorney Joseph D. Nicholes has opined on the validity of the shares of common stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001581889_quartet_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001581889_quartet_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ddf9e9b45f8c3086cebf37c0af5a967e7cfa56f5
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001581889_quartet_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Graubard Miller, New York, New York, is acting as our counsel in connection with the registration of our securities under the Securities Act of 1933, and as such, will pass upon the validity of the securities offered in this offering. McDermott Will & Emery LLP, New York, New York, is acting as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001582086_blue_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001582086_blue_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2efbee1f0424a16f43e956a414b79566d0052f53
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001582086_blue_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters relating to this offering will be passed upon for us by Appleby (Bermuda) Limited, Hamilton, Bermuda and by Cravath, Swaine & Moore LLP, New York, New York. Sidley Austin LLP, New York, New York will act as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001583513_stg-group_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001583513_stg-group_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d3fb3a8957ddd0cc96a7baa84061d6c4b8c0e69a
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001583513_stg-group_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California, is acting as our counsel in connection with the registration of our shares under the Securities Act of 1933, and as such, will pass upon the validity of the securities offered in this offering. McDermott Will & Emery LLP, New York, New York, is acting as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001583671_science_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001583671_science_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..232705f3cebf1f0b5837e85f06aa92ed5311ae75
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001583671_science_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS An opinion regarding the validity of the issuance of the shares of our common stock offered hereby will be provided by Cane Clark, LLP. A copy of the correspondence pursuant to which Cane Clark, LLP provides that opinion is included as an exhibit to the registration statement of which this prospectus is a part.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001585064_fidelity_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001585064_fidelity_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..af0305d11ceac146b526ab69e55771c09a8fd868
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001585064_fidelity_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered in this offering will be passed upon for us by Debevoise & Plimpton LLP, New York, New York and for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001585583_del-taco_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001585583_del-taco_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7b26f3a2daadd9ff6bc0d20c47f283d88ca0afb4
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001585583_del-taco_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS McDermott Will & Emery LLP, New York, New York, is acting as counsel in connection with the registration of our securities under the Securities Act, and as such, will pass upon the validity of the securities offered in this prospectus. In connection with this offering Akin Gump Strauss Hauer & Feld LLP is acting as counsel to the underwriters.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001585755_arias_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001585755_arias_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b79939378d5b0a903eb00d12d268cd19dc0a1cef
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001585755_arias_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The Law Offices of Thomas C. Cook, Ltd. has opined on the validity of the shares of common and preferred stock being offered hereby.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIK0001586160_dtlr_legal_matters.txt b/parsed_sections/legal_matters/2013/CIK0001586160_dtlr_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..03f4ea56ac773e88201076318e5bd134cbd43871
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIK0001586160_dtlr_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Dechert LLP, New York, New York. Latham & Watkins LLP, Chicago, Illinois, is acting as counsel for the underwriters in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/CIVB_civista_legal_matters.txt b/parsed_sections/legal_matters/2013/CIVB_civista_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..88aafae28c1dcd7c0a68c88406f6398aa2104ee3
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/CIVB_civista_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS 83
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/COTY_coty-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/COTY_coty-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f5d3001502b59add24135c8721339f8a91bd7e22
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/COTY_coty-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A common stock offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP, New York, New York. Davis Polk & Wardwell LLP, New York, New York, is acting as counsel to the underwriters. Davis Polk & Wardwell LLP has in the past provided, and may continue to provide, legal services to the Company.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/ENTA_enanta_legal_matters.txt b/parsed_sections/legal_matters/2013/ENTA_enanta_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..43fae7b289ea9287fd74843da55e7932b3371baa
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/ENTA_enanta_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Edwards Wildman Palmer LLP. Nathaniel S. Gardiner, Esq., a partner of Edwards Wildman Palmer LLP, is our corporate secretary. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/ESNT_essent_legal_matters.txt b/parsed_sections/legal_matters/2013/ESNT_essent_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fc48ebdb111ba5dca4ffeb1dad955108ca18c54b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/ESNT_essent_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common shares offered in this offering will be passed upon for us by Conyers Dill & Pearman Limited, Hamilton, Bermuda. Certain other legal matters relating to the offering will be passed upon for us by Willkie Farr & Gallagher LLP, New York, New York. Various legal matters relating to this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/ESPR_esperion_legal_matters.txt b/parsed_sections/legal_matters/2013/ESPR_esperion_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f7d693c85c41a191715a6eab8158892c05125a44
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/ESPR_esperion_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the underwriters by Davis Polk & Wardwell LLP, Menlo Park, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/EVTC_evertec_legal_matters.txt b/parsed_sections/legal_matters/2013/EVTC_evertec_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..41088bbf163484034546b964c511c93c6286b8e6
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/EVTC_evertec_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Certain legal matters in connection with this offering will be passed upon for us by Akin Gump Strauss Hauer & Feld LLP, New York, New York. The validity of the shares of common stock offered hereby will be passed upon for us by Goldman Antonetti & C rdova, LLC, San Juan, Puerto Rico. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cahill Gordon & Reindel LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/FANG_diamondbac_legal_matters.txt b/parsed_sections/legal_matters/2013/FANG_diamondbac_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..977478a7a1226bc5a9e0b8230e56993b0ebededc
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/FANG_diamondbac_legal_matters.txt
@@ -0,0 +1,8132 @@
+LEGAL MATTERS
+93
+
+DIVIDEND POLICY
+38
+ 
+EXPERTS
+93
+
+CAPITALIZATION
+39
+ 
+WHERE YOU CAN FIND MORE INFORMATION
+93
+
+PRICE RANGE OF COMMON STOCK
+40
+ 
+INFORMATION INCORPORATED BY REFERENCE
+93
+
+SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL DATA
+41
+ 
+GLOSSARY OF OIL AND NATURAL GAS TERMS
+A-1
+
+UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT
+46
+ 
+RESERVE REPORT OF RYDER SCOTT COMPANY, L.P.
+B-1
+
+BUSINESS
+50
+ 
+INDEX TO FINANCIAL STATEMENTS
+F-1
+
+MANAGEMENT
+70
+ 
+PART II INFORMATION NOT REQUIRED IN PROSPECTUS
+II-1
+
+RELATED PARTY TRANSACTIONS
+73
+ 
+SIGNATURES
+S-1
+
+PRINCIPAL STOCKHOLDERS
+77
+ 
+EXHIBIT INDEX
+E-1
+
+DESCRIPTION OF CAPITAL STOCK
+80
+ 
+ 
+ 
+
+ABOUT THIS PROSPECTUS 
+You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. You should read the entire prospectus, as well as the documents incorporated by reference herein that are described under Where You Can Find More Information and Information Incorporated by Reference. We and the underwriters are only offering to sell, and only seeking offers to buy, shares of our common stock in jurisdictions where offers and sales are permitted. 
+The information contained in this prospectus or in any document incorporated in this prospectus is accurate and complete only as of the date hereof or thereof, respectively, regardless of the time of delivery of this prospectus or of any sale of our common stock by us or the underwriters. Our business, financial condition, results of operations and prospects may have changed since that date. 
+Industry and Market Data 
+This prospectus includes industry data and forecasts that we obtained from internal company surveys, publicly available information and industry publications and surveys. Our internal research and forecasts are based on management s understanding of industry conditions, and such information has not been verified by independent sources. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. 
+Unless the context otherwise requires, the information in this prospectus assumes that the underwriters will not exercise their option to purchase additional shares. 
+ 
+
+i
+
+Table of Contents
+
+PROSPECTUS SUMMARY 
+Diamondback Energy, Inc., or Diamondback, was incorporated in Delaware on December 30, 2011, and did not conduct any material business operations until October 11, 2012 when Diamondback merged with its parent entity, Diamondback Energy LLC, with Diamondback continuing as the surviving entity. Prior to the merger, Diamondback Energy LLC was a holding company and did not conduct any material business operations other than its ownership of Diamondback s common stock and the membership interests in Diamondback O&G LLC, or Diamondback O&G (formerly known as Windsor Permian LLC, or Windsor Permian). As a result of the merger, Windsor Permian became a wholly-owned subsidiary of Diamondback. Also on October 11, 2012, Wexford Capital LP, or Wexford, our equity sponsor, caused all of the outstanding equity interests in Windsor UT LLC, or Windsor UT, to be contributed to Windsor Permian prior to the merger in a transaction we refer to as the Windsor UT Contribution. In this prospectus, the combined consolidated historical financial information, operational data and reserve information for Diamondback present the assets and liabilities of Diamondback and its subsidiaries, including Windsor UT, as if they were combined for all periods presented. Although the financial and other information is reported on a combined consolidated basis, such presentation is not necessarily indicative of the results that would have been obtained if Diamondback had owned and operated such subsidiaries from their inception. In this prospectus, we refer to Diamondback, together with its consolidated subsidiaries, as we, us, our or the Company. This prospectus includes certain terms commonly used in the oil and natural gas industry, which are defined elsewhere in this prospectus in the Glossary of Oil and Natural Gas Terms. 
+Diamondback Energy, Inc. 
+Overview 
+We are an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. This basin, which is one of the major producing basins in the United States, is characterized by an extensive production history, a favorable operating environment, mature infrastructure, long reserve life, multiple producing horizons, enhanced recovery potential and a large number of operators. 
+We began operations in December 2007 with our acquisition of 4,174 net acres with production at the time of acquisition of approximately 800 BOE/d from 34 gross (16.8 net) wells in the Permian Basin. Subsequently, we acquired approximately 49,861 additional net acres, which brought our total net acreage position in the Permian Basin to 54,035 net acres at June 30, 2013. We are the operator of approximately 99% of this acreage. As of June 30, 2013, we had drilled 230 gross (209 net) wells, and participated in an additional 19 gross (eight net) non-operated wells, in the Permian Basin. Of these 249 gross (216 net) wells, 240 were completed as producing wells and nine were in various stages of completion. In the aggregate, as of June 30, 2013, we held interests in 274 gross (242 net) producing wells in the Permian Basin. As discussed in more detail under Recent Developments Pending Acquisitions, we have entered into agreements to acquire approximately 11,150 additional net acres in the Permian Basin.
+Our activities are primarily focused on the Clearfork, Spraberry, Wolfcamp, Cline, Strawn and Atoka formations, which we refer to collectively as the Wolfberry play. The Wolfberry play is characterized by high oil and liquids rich natural gas, multiple vertical and horizontal target horizons, extensive production history, long-lived reserves and high drilling success rates. The Wolfberry play is a modification and extension of the Spraberry play, the majority of which is designated in the Spraberry trend area field. According to the U.S. Energy Information Administration, the Spraberry trend area ranks as the second largest oilfield in the United States, based on 2009 reserves. 
+As of December 31, 2012, our estimated proved oil and natural gas reserves were 40,210 MBOE based on a reserve report prepared by Ryder Scott Company, L.P., or Ryder Scott, our independent reserve engineer. Of these reserves, approximately 29.5% are classified as proved developed producing, or PDP. Proved undeveloped, or PUD, reserves included in this estimate are from 306 vertical gross well locations on 40-acre spacing and four gross horizontal well locations. As of December 31, 2012, these proved reserves were approximately 65% oil, 21% natural gas liquids and 14% natural gas. 
+We have 867 identified potential vertical drilling locations on 40-acre spacing based on our evaluation of applicable geologic and engineering data as of June 30, 2013, and we have an additional 1,128 identified potential vertical drilling locations based on 20-acre downspacing. We have also identified 862 potential horizontal drilling locations in multiple horizons on our acreage. We intend to grow our reserves and production through development drilling, exploitation and exploration activities on this multi-year project inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. The gross estimated ultimate recoveries, or EURs, from our future PUD vertical wells on 40-acre spacing, as estimated by Ryder Scott, range from 102 MBOE per well, consisting of 46 MBbls of oil, 151 MMcf of natural gas and 31 MBbls of natural gas liquids, to 158 MBOE per well, consisting of 112 MBbls 
+
+1
+
+Table of Contents
+
+of oil, 114 MMcf of natural gas and 27 MBbls of natural gas liquids, with an average EUR per well of 133 MBOE, consisting of 91 MBbls of oil, 101 MMcf of natural gas and 25 MBbls of natural gas liquids. We also intend to continue to refine our drilling pattern and completion techniques in an effort to increase our average EUR per well from vertical wells drilled on 40-acre spacing. We currently anticipate a reduction of approximately 20% in our EURs from vertical wells drilled on 20-acre spacing. 
+The following table summarizes certain operating information of our properties. The information is as of June 30, 2013 except as otherwise noted. 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Estimated Net Proved
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+Identified Potential
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Reserves at
+ 
+Average
+
+ 
+ 
+ 
+ 
+Average
+ 
+Drilling Locations(1)
+ 
+2013 Budget
+ 
+December 31, 2012
+ 
+Daily
+
+ 
+ 
+Net
+ 
+Working
+ 
+ 
+ 
+ 
+ 
+Gross
+ 
+Net
+ 
+Capex
+ 
+ 
+%
+ 
+Production
+
+Basin
+ 
+Acreage(2)
+ 
+Interest
+ 
+Gross
+ 
+Net
+ 
+Wells(3)
+ 
+Wells(3)
+ 
+(In millions)
+ 
+MBOE
+Developed
+ 
+(BOE/d)(4)
+
+Permian
+ 
+54,035
+ 
+88
+%
+ 
+1,729
+
+ 
+1,472
+
+ 
+74
+ 
+65
+ 
+$290.0 - $320.0
+ 
+40,210
+30.7
+ 
+7,164
+
+________________
+
+(1)
+Reflects 867 gross and (809 net) identified potential vertical drilling locations on 40-acre spacing, and 862 gross (663 net) identified potential horizontal drilling locations ranging in length from 4,500 feet to 9,500 feet in various horizons from the Clearfork to the Cline based on our evaluation of applicable geologic and engineering data. Some of these horizontal drilling locations require pooling acreage with other operators. We have an additional 1,128 gross (1,031 net) identified potential vertical drilling locations based on 20-acre downspacing. The drilling locations on which we actually drill wells will ultimately depend on the availability of capital, regulatory approvals, oil and natural gas prices, costs, actual drilling results and other factors. 
+
+(2)
+Does not give effect to our pending acquisitions of approximately 11,150 additional net acres. See Recent Developments Pending Acquisitions. 
+
+(3)
+Includes 38 gross (33 net) operated vertical wells, 33 gross (30 net) operated horizontal wells, two gross (one net) non-operated vertical wells and one gross (one net) non-operated horizontal well. 
+
+(4)
+During June 2013. 
+
+We currently estimate our 2013 capital budget for drilling and infrastructure will be approximately $290.0 million to $320.0 million. We do not have a specific acquisition budget since the timing and size of acquisitions cannot be accurately forecasted. We intend to allocate these expenditures approximately as follows: 
+
+ 
+$267.6 million for the drilling and completion of operated wells, of which approximately 65% is allocated to horizontal wells; 
+
+ 
+$9.0 million for our participation in the drilling and completion of non-operated wells; and 
+
+ 
+$25.0 million for the construction of infrastructure to support production, including investments in water disposal infrastructure and gathering line projects. 
+
+ 
+The amount and timing of these capital expenditures are largely discretionary and within our control. We could choose to defer a portion of these planned 2013 capital expenditures depending on a variety of factors, including but not limited to the success of our drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs and the level of participation by other interest owners. 
+During the six months ended June 30, 2013, our aggregate capital expenditures for drilling and infrastructure were $112.1 million, and we spent an additional $6.2 million for leasehold acquisitions.
+We were using three horizontal drilling rigs as of June 30, 2013. Due to the success of our horizontal drilling program to date, we expect to add a fourth horizontal drilling rig during 2013 which will enable us to drill and complete more wells than we originally contemplated for our 2013 drilling program. As a result of our expected increase in our horizontal drilling activity, and assuming the additional wells we complete produce at rates similar to those of our existing wells, we currently anticipate that our full-year 2013 production will be at or above the high end of our previously announced production guidance, with expected production increases weighted towards the second half of 2013. Our ability to achieve our production guidance is forward-looking and subject to numerous assumptions and risks. See Risk Factors Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that may result in a total loss of investment and adversely affect our business, financial condition or results of operations on page 28 of this prospectus.
+
+2
+
+Table of Contents
+
+Our Business Strategy 
+Our business strategy is to increase stockholder value through the following: 
+
+ 
+Grow production and reserves by developing our oil-rich resource base. We intend to actively drill and develop our acreage base in an effort to maximize its value and resource potential. Through the conversion of our undeveloped reserves to developed reserves, we will seek to increase our production, reserves and cash flow while generating favorable returns on invested capital. As of June 30, 2013, we had 867 identified potential vertical drilling locations and 862 identified potential horizontal drilling locations on our acreage in the Permian Basin based on 40-acre spacing and an additional 1,128 vertical locations based on 20-acre downspacing. We were operating a one vertical rig drilling program as of June 30, 2013, as we increase our focus on horizontal wells. 
+
+ 
+Focus on increasing hydrocarbon recovery through horizontal drilling and increased well density. We believe there are opportunities to target various intervals in the Wolfberry play with horizontal wells. Our initial horizontal focus has been on the Wolfcamp B interval in Midland and Upton Counties. Our first two horizontal wells were completed in 2012 and had lateral lengths of less than 4,000 feet. Subsequently, we have drilled or are currently drilling 17 horizontal wells as operator and have participated in one additional horizontal well as a non-operator, 19 of which are Wolfcamp B wells and one of which is a Clearfork well. These wells have had lateral lengths ranging from approximately 4,300 feet to 10,300 feet. In the future, we expect that our optimal average lateral lengths will be in the range of 7,500 feet to 8,000 feet, although the actual length will vary depending on the layout of our acreage and other factors. We expect that longer lateral lengths will result in higher per well recoveries and lower development costs per BOE. During the first six months of 2013, we were able to drill our horizontal wells with approximately 7,500 foot lateral lengths to total depth in an average of 21 days and we recently drilled a 10,353 foot lateral well in 19 days. Our future horizontal drilling program is designed to further capture the upside potential that may exist on our properties. We also believe our horizontal drilling program may significantly increase our recoveries per section as compared to drilling vertical wells alone. Horizontal drilling may also be economical in areas where vertical drilling is currently not economical or logistically viable. In addition, we believe increased well density opportunities may exist across our acreage base. We closely monitor industry trends with respect to higher well density, which could increase the recovery factor per section and enhance returns since infrastructure is typically in place. We were using three horizontal drilling rigs as of June 30, 2013, and currently intend to add a fourth horizontal rig in the fourth quarter of 2013, and are currently contemplating adding one or two additional horizontal drilling rigs in 2014.
+
+ 
+Leverage our experience operating in the Permian Basin. Our executive team, which has an average of approximately 24 years of industry experience per person and significant experience in the Permian Basin, intends to continue to seek ways to maximize hydrocarbon recovery by refining and enhancing our drilling and completion techniques. The time to reach total depth, or TD, for our vertical Wolfberry wells decreased from an average of 18 days during the second quarter of 2011 to an average of 14 days during the period from April 2012 through August 2012 to an average of 11 days during the fourth quarter of 2012 to an average of eight days during the second quarter of 2013, with three of our recent vertical wells reaching TD in less than seven days. Our focus on efficient drilling and completion techniques, and the reduction in time to reach TD, is an important part of the continuous drilling program we have planned for our significant inventory of identified potential drilling locations. We believe that the experience of our executive team in deviated and horizontal drilling and completions should help reduce the execution risk normally associated with these complex well paths. In addition, our completion techniques are continually evolving as we evaluate hydraulic fracturing practices that may potentially increase recovery and reduce completion costs. Our executive team regularly evaluates our operating results against those of other operators in the area in an effort to benchmark our performance against the best performing operators and evaluate and adopt best practices. 
+
+ 
+Enhance returns through our low cost development strategy of resource conversion, capital allocation and continued improvements in operational and cost efficiencies. In the current commodity price environment, our oil and liquids rich asset base provides attractive returns. Our acreage position in the Wolfberry play is generally in contiguous blocks which allows us to develop this acreage efficiently with a manufacturing strategy that takes advantage of economies of scale and uses centralized production and fluid handling facilities. We are the operator of approximately 99% of our acreage. This operational control allows us to more efficiently manage the pace of development activities and the gathering and marketing of our production and control operating costs and technical applications, including horizontal development. Our average 88% working interest in our acreage allows us to realize the majority of the benefits of these activities and cost efficiencies. 
+
+ 
+Pursue strategic acquisitions with exceptional resource potential. We have a proven history of acquiring leasehold positions in the Permian Basin that have substantial oil-weighted resource potential and can achieve attractive returns on invested capital. Our executive team, with its extensive experience in the Permian Basin, has 
+
+3
+
+Table of Contents
+
+what we believe is a competitive advantage in identifying acquisition targets and a proven ability to evaluate resource potential. We regularly review acquisition opportunities and intend to pursue acquisitions that meet our strategic and financial targets. As discussed in more detail under Recent Developments Pending Acquisitions, we have entered into agreements to acquire approximately 11,150 additional net acres in the Permian Basin.
+
+ 
+Maintain financial flexibility. We seek to maintain a conservative financial position. Upon completion of our initial public offering in October 2012, we used a portion of the net proceeds from the offering to repay the entire balance outstanding under our revolving credit facility. On December 28, 2012, the borrowing base under our revolving credit facility was redetermined, resulting in an increase in our availability to $135.0 million, and it was redetermined again on May 6, 2013, resulting in an increase in availability to $180.0 million. We used a portion of the net proceeds of our May 2013 common stock offering to repay all borrowings outstanding under our revolving credit facility and, as of the date of this prospectus, we have the full $180.0 million of borrowing base availability. 
+
+ 
+Our Strengths 
+We believe that the following strengths will help us achieve our business goals: 
+
+ 
+Oil rich resource base in one of North America s leading resource plays. All of our leasehold acreage is located in one of the most prolific oil plays in North America, the Permian Basin in West Texas. The majority of our current properties are well positioned in the core of the Wolfberry play. We believe that our historical vertical development success will be complemented with horizontal drilling locations that could ultimately translate into an increased recovery factor on a per section basis. Our production for the six months ended June 30, 2013 was approximately 73% oil, 15% natural gas liquids and 12% natural gas. As of December 31, 2012, our estimated net proved reserves were comprised of approximately 65% oil and 21% natural gas liquids, which allows us to benefit from the currently more favorable pricing of oil and natural gas liquids as compared to natural gas. 
+
+ 
+Multi-year drilling inventory in one of North America s leading oil resource plays. We have identified a multi-year inventory of potential drilling locations for our oil-weighted reserves that we believe provides attractive growth and return opportunities. As of June 30, 2013, we had 867 identified potential vertical drilling locations based on 40-acre spacing and an additional 1,128 identified potential vertical drilling locations based on 20-acre downspacing. We also believe that there are a significant number of horizontal locations that could be drilled on our acreage. Based on our initial results and those of other operators in the area to date, combined with our interpretation of various geologic and engineering data, we have identified 862 potential horizontal locations on our acreage. These locations exist across most of our acreage blocks and in multiple horizons. Of the 862 locations, 376 are in the Wolfcamp A horizon or the Wolfcamp B horizon, with the remaining locations in either the Clearfork, Spraberry, Wolfcamp C or Cline horizons. We have assigned horizontal locations to the Lower Spraberry, but have not assigned locations to other intervals within the Spraberry, which we believe may have development potential. Our current horizontal location count is based on 880 foot spacing between wells in the Wolfcamp B horizon in Midland and Upton Counties, and 1,320 foot spacing between wells in all other counties and horizons. The ultimate inter-well spacing may be less than these amounts, which would result in a higher location count. Based on horizontal wells drilled to date, we currently estimate that EURs for our Wolfcamp B horizontal wells will be approximately 550 to 650 MBOE for lateral lengths averaging 7,500 feet. In addition, we have approximately 182 square miles of proprietary 3-D seismic data covering our acreage. This data facilitates the evaluation of our existing drilling inventory and provides insight into future development activity, including horizontal drilling opportunities and strategic leasehold acquisitions. 
+
+ 
+Experienced, incentivized and proven management team. Our executive team has an average of approximately 24 years of industry experience per person, most of which is focused on resource play development. This team has a proven track record of executing on multi-rig development drilling programs and extensive experience in the Permian Basin. In addition, our executive team has significant experience with both drilling and completing horizontal wells as well as horizontal well reservoir and geologic expertise, which will be of strategic importance as we expand our horizontal drilling activity. Prior to joining us, our Chief Executive Officer held management positions at Apache Corporation, Laredo Petroleum Holdings, Inc. and Burlington Resources. 
+
+ 
+Favorable and stable operating environment. We have focused our drilling and development operations in the Permian Basin, one of the oldest hydrocarbon basins in the United States, with a long and well-established production history and developed infrastructure. With approximately 380,000 wells drilled in the Permian Basin since the 1940s, we believe that the geological and regulatory environment is more stable and predictable, and that we are faced with less operational risks, in the Permian Basin as compared to emerging hydrocarbon basins. 
+
+ 
+High degree of operational control. We are the operator of approximately 99% of our Permian Basin acreage. This operating control allows us to better execute on our strategies of enhancing returns through operational and 
+
+4
+
+Table of Contents
+
+cost efficiencies and increasing ultimate hydrocarbon recovery by seeking to continually improve our drilling techniques, completion methodologies and reservoir evaluation processes. Additionally, as the operator of substantially all of our acreage, we retain the ability to adjust our capital expenditure program based on commodity price outlooks. This operating control also enables us to obtain data needed for efficient exploration of horizontal prospects. 
+
+ 
+Financial flexibility to fund expansion. We have a conservative balance sheet. We will seek to maintain financial flexibility to allow us to actively develop our drilling, exploitation and exploration activities in the Wolfberry play and maximize the present value of our oil-weighted resource potential. As of the date of this prospectus, we had no borrowings outstanding under our revolving credit facility and available borrowing capacity of $180.0 million. We expect that our borrowing base will be further increased as we increase our reserves. 
+
+Recent Developments 
+Pending Acquisitions. We recently entered into two separate definitive agreements to acquire additional leasehold interests in the Permian Basin for an aggregate purchase price of $165.0 million, subject to certain adjustments. On August 2, 2013, we entered into a purchase and sale agreement in which we agreed to acquire from an unrelated third party certain assets located in northwestern Martin County, Texas, consisting of a 100% working interest (80% net revenue interest) in 4,506 gross and net acres, with 16 gross and net producing vertical wells, an estimated 1,138 MBOE of proved developed reserves (including 167 MBOE attributable to two PDNP wells) as of July 1, 2013 and 457 gross (365 net) BOE per day of production during July 2013. We have identified approximately 96 gross and net horizontal drilling locations on this acreage, of which 32 gross and net locations are located in the Wolfcamp B interval, with lateral lengths expected to range from approximately 5,000 feet to 8,000 feet. In addition, on August 1, 2013, we entered into a purchase and sale agreement in which we agreed to acquire from an unrelated third party certain assets located in southwestern Dawson County, Texas, consisting of a 70% working interest (54% net revenue interest) in 9,390 gross (6,647 net) acres, with 28 gross (18 net) producing vertical wells, an estimated 838 MBOE of proved developed reserves (including 77 MBOE attributable to one PDNP well) as of June 1, 2013 and 777 gross (417 net) BOE per day of production during June 2013. We have identified approximately 156 gross (109 net) potential horizontal drilling locations on this acreage, of which 53 gross (37 net) locations are located in the Wolfcamp B interval, with lateral lengths ranging from approximately 5,000 feet to 9,500 feet. Estimated proved reserves for both acquisitions relate solely to existing vertical wells, are based on management s internal assessment of information provided to us in the course of our due diligence, and have not been verified by us or any independent petroleum engineers. Both acquisitions remain subject to completion of due diligence and satisfaction of other closing conditions and may not be completed. We will be the operator of all of the acreage to be acquired in these acquisitions. We expect to close these acquisitions by the end of September 2013. We intend to fund the purchase price for these acquisitions from cash on hand and the net proceeds from this offering. See Use of Proceeds included elsewhere in this prospectus.
+Horizontal Wells. In 2012, we began testing the horizontal well potential of our acreage. Our first horizontal well was the Janey 16H in Upton County with a 3,842 foot lateral in the Wolfcamp B interval. We are the operator of this well with a 100% working interest. It was completed in June 2012 and had a peak 24-hour initial production, or IP, rate of 618 BOE/d and a peak consecutive 30-day average initial production rate of 486 BOE/d, of which 86% was oil. Through June 30, 2013, the Janey 16H had produced a total of 61 MBbls of oil and 73 MMcf of natural gas. Our second horizontal well was the Kemmer 4209H in Midland County. It is a non-operated well in which we own a 47% working interest. It was completed in September 2012 in the Wolfcamp B interval with a 3,733 foot lateral. The production as reported to us by the operator was a peak 24-hour initial production rate of 892 BOE/d and a peak consecutive 30-day average initial production rate of 712 BOE/d, of which 85% was oil. Through June 30, 2013, the Kemmer 4209H had produced a total of 63 MBbls of oil and 64 MMcf of natural gas. Based on the decline curve analysis of the current production, we anticipate that the EUR for each of these wells will be in the range of 400 to 500 MBOE. 
+Subsequent to the Janey 16H and Kemmer 4209H wells, we have drilled or are currently drilling 17 horizontal wells as operator and have participated in one additional horizontal well as a non-operator, all of which are Wolfcamp B wells in various stages of development. The table below presents certain data regarding our horizontal wells. 
+
+5
+
+Table of Contents
+
+Horizontal Wells: Midland County
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+Kemmer 4209H(b)
+ 
+3,733 
+ 
+15
+ 
+892
+ 
+712(d)
+ 
+85%
+
+ST NW 2501H
+ 
+4,451 
+ 
+19
+ 
+1,054
+ 
+655(d)
+ 
+90%
+
+ST NW 2502H
+ 
+4,351 
+ 
+16
+ 
+651
+ 
+500(c)
+ 
+88%
+
+Sarah Ann 3812H(b)
+ 
+4,830 
+ 
+18
+ 
+892
+ 
+711(d)
+ 
+88%
+
+ST W 4301H
+ 
+7,141 
+ 
+29
+ 
+1,136
+ 
+916(d)
+ 
+85%
+
+ST W 701H
+ 
+7,280 
+ 
+29
+ 
+1,042(d)
+ 
+N/A(e)
+ 
+94%
+
+ST W 4302H
+ 
+7,071 
+ 
+30
+ 
+701(d)
+ 
+N/A(e)
+ 
+93%
+
+ST W 706H
+ 
+7,541 
+ 
+Currently completing 30 stage frac
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Horizontal Wells: Upton County
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+Janey 16H
+ 
+3,842 
+ 
+16
+ 
+618
+ 
+486(c)
+ 
+86%
+
+Neal A Unit 8-1H
+ 
+7,441 
+ 
+32
+ 
+871
+ 
+697(c)
+ 
+87%
+
+Janey 3H
+ 
+4,411 
+ 
+19
+ 
+724
+ 
+488(d)
+ 
+82%
+
+Neal B Unit 8-2H
+ 
+6,501 
+ 
+26
+ 
+1,134
+ 
+617(d)
+ 
+73%
+
+Kendra A Unit 1H
+ 
+7,411 
+ 
+30
+ 
+970
+ 
+677(d)
+ 
+82%
+
+Jacee A Unit 1H
+ 
+7,541 
+ 
+30
+ 
+1,085
+ 
+632(d)
+ 
+83%
+
+Janey 2H
+ 
+4,572 
+ 
+19
+ 
+930(d)
+ 
+N/A(e)
+ 
+87%
+
+Janey 4H
+ 
+4,564 
+ 
+10
+ 
+880(d)
+ 
+N/A(e)
+ 
+77%
+
+Charlotte A Unit 1H
+ 
+10,353 
+ 
+Currently completing 39 stage frac
+
+Neal C Unit 8 3H
+ 
+6,851 
+ 
+Currently completing 15 stage frac
+
+Horizontal Wells: Andrews County
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+UL III 4-1H
+ 
+4,051 
+ 
+Flowback operations underway
+
+UL Viper 6-1H
+ 
+7,540 
+ 
+Well drilled; frac scheduled
+
+ 
+ 
+ 
+ 
+ 
+
+(a)
+During the period for which the Peak 30 day IP Rate is presented except in the case of the ST W 701H, Janey 2H and Janey 4H wells, which is based on the Peak 24-hour IP rate.
+
+(b)
+Non-operated.
+ 
+ 
+
+(c)
+On gas lift.
+
+(d)
+On sub pump.
+
+(e)
+A peak 30 day IP Rate is not available.
+
+In addition, we are currently drilling three additional horizontal wells. The production results from the wells in Midland and Upton Counties, along with geoscience and engineering data that we have gathered and analyzed, give us confidence that our acreage in Midland and Upton Counties is prospective in the Wolfcamp B interval. 
+Risk Factors 
+Investing in our common stock involves risks that include the speculative nature of oil and natural gas exploration, competition, volatile oil and natural gas prices and other material factors. You should read carefully the section of this prospectus entitled Risk Factors beginning on page 15 for an explanation of these risks before investing in our common stock. In particular, the following considerations may offset our competitive strengths or have a negative effect on our strategy or operating activities, which could cause a decrease in the price of our common stock and a loss of all or part of your investment: 
+
+6
+
+Table of Contents
+
+ 
+Our business is difficult to evaluate because of our limited operating history. 
+
+ 
+Difficulties managing the growth of our business may adversely affect our financial condition and results of operations. 
+
+ 
+Failure to develop our undeveloped acreage could adversely affect our future cash flow and income. 
+
+ 
+Our exploration and development operations require substantial capital that we may be unable to obtain, which could lead to a loss of properties and a decline in our reserves. 
+
+ 
+Our future success depends on our ability to find, develop or acquire additional oil and natural gas reserves. 
+
+ 
+The volatility of oil and natural gas prices due to factors beyond our control greatly affects our profitability. 
+
+ 
+Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present values of our reserves. 
+
+ 
+Our producing properties are located in the Permian Basin of West Texas, making us vulnerable to risks associated with a concentration of operations in a single geographic area. In addition, we have a large amount of proved reserves attributable to a small number of producing horizons within this area. 
+
+ 
+We depend upon several significant purchasers for the sale of most of our oil and natural gas production. The loss of one or more of these purchasers could limit our access to suitable markets for the oil and natural gas we produce. 
+
+ 
+Our operations are subject to various governmental regulations which require compliance that can be burdensome and expensive. 
+
+ 
+Any failure by us to comply with applicable environmental laws and regulations, including those relating to hydraulic fracturing, could result in governmental authorities taking actions that adversely affect our operations and financial condition. 
+
+ 
+Our operations are subject to operational hazards for which we may not be adequately insured. 
+
+ 
+Our failure to successfully identify, complete and integrate future acquisitions of properties or businesses could reduce our earnings and slow our growth. 
+
+ 
+Our two largest stockholders control a significant percentage of our common stock and their interests may conflict with yours. 
+
+For a discussion of other considerations that could negatively affect us, see Risk Factors beginning on page 15 and Cautionary Note Regarding Forward-Looking Statements on page 37 of this prospectus. 
+Our Equity Sponsor 
+We were formed by our equity sponsor, Wexford Capital LP, or Wexford, which is a Greenwich, Connecticut-based SEC-registered investment advisor with approximately $4.9 billion under management as of December 31, 2012. Wexford has made public and private equity investments in many different sectors and has particular expertise in the energy and natural resources sector. Upon completion of this offering, assuming Wexford or its affiliates make no additional purchases or our common stock, Wexford will beneficially own approximately 25.5% of our common stock (approximately 25.2% if the underwriters option to purchase additional shares is exercised in full). As a result, Wexford will continue to be able to exercise significant control over all matters requiring stockholder approval, including the election of directors, changes to our organizational documents and significant corporate transactions. In connection with our initial public offering in October 2012, we entered into an advisory services agreement with Wexford under which Wexford provides us with financial and strategic advisory services related to our business. We are also party to certain other agreements with Wexford and its affiliates. For a description of the advisory services agreement and other agreements with Wexford and its affiliates, see Related Party Transactions beginning on page 73 of this prospectus. Although our management believes that the terms of these related party agreements are reasonable, it is possible that we could have negotiated more favorable terms for such transactions with unrelated third parties. The existence of these related party agreements may give Wexford the ability to further influence and maintain control over many matters affecting us. 
+Our History 
+Diamondback was incorporated in Delaware on December 30, 2011, and did not conduct any material business operations until October 11, 2012 when Diamondback merged with its parent entity, Diamondback Energy LLC, with Diamondback continuing as the surviving entity. Prior to the merger, Diamondback Energy LLC was a holding company and did not conduct any material business operations other than its ownership of Diamondback s common stock and the 
+
+7
+
+Table of Contents
+
+membership interests in Windsor Permian LLC, or Windsor Permian. As a result of the merger, Windsor Permian became a wholly-owned subsidiary of Diamondback. Also on October 11, 2012, Wexford, our equity sponsor, caused all of the outstanding equity interests in Windsor UT to be contributed to Windsor Permian prior to the merger in a transaction we refer to as the Windsor UT Contribution. The Windsor UT Contribution was treated as a combination of entities under common control with assets and liabilities transferred at their carrying amounts in a manner similar to a pooling of interests. The operations of Windsor Permian and Windsor UT, as limited liability companies, were not subject to federal income taxes. On the date of the merger, a corresponding first day tax expense to net income from continuing operations was recorded to establish a net deferred tax liability for differences between the tax and book basis of Diamondback s assets and liabilities. This charge was $54,142,000. We refer to the historical results of Windsor Permian and Windsor UT prior to October 11, 2012 as our Predecessors. 
+Immediately after the merger on October 11, 2012, we acquired from Gulfport Energy Corporation, or Gulfport, all of Gulfport s oil and natural gas interests in the Permian Basin, which we refer to as the Gulfport properties, in exchange for shares of our common stock and a promissory note, in a transaction we refer to as the Gulfport transaction. The Gulfport transaction was treated as a business combination accounted for under the acquisition method of accounting with the identifiable assets and liabilities recognized at fair value on the date of transfer. For more information regarding the Gulfport transaction, see Related Party Transactions Gulfport Transaction and Investor Rights Agreement and Shares Eligible for Future Sale Registration Rights beginning on pages 73 and 84, respectively, of this prospectus. 
+On October 17, 2012, we completed our initial public offering, or IPO, of 14,375,000 shares of common stock, which included 1,875,000 shares of common stock issued pursuant to the over-allotment option exercised by the underwriters. The stock was priced at $17.50 per share and we received net proceeds of approximately $234.1 million from the sale of these shares of common stock, net of offering expenses and underwriting discounts and commissions.
+On May 21, 2013, we completed an underwritten public offering of 5,175,000 shares of our common stock, including 675,000 shares issued pursuant to an option to purchase additional shares exercised by the underwriters, which offering we refer to in this prospectus as the May 2013 offering. The public offering price was $29.25 per share, and we received net proceeds of approximately $144.4 million, after underwriting discounts and commissions and estimated expenses. We used a portion of the net proceeds from the May 2013 offering to repay in full all borrowings outstanding under our revolving credit facility and intend to use the remaining proceeds to fund a portion of our exploration and development activities and for general corporate purposes, which may include leasehold interest and property acquisitions and working capital.
+On June 24, 2013, Gulfport and certain entities controlled by Wexford completed an underwritten secondary public offering of 6,000,000 shares of our common stock and, on July 5, 2013, the underwriters purchased an additional 869,222 shares of our common stock from these selling stockholders pursuant to an option to purchase such additional shares granted to the underwriters. We refer to this offering by the selling stockholders as the June 2013 secondary offering. The shares in the June 2013 secondary offering were sold to the public at $34.75 per share, and the selling stockholders received all the net proceeds from the sale of their shares.
+Emerging Growth Company 
+We are, and through December 31, 2013 will remain, an emerging growth company within the meaning of the federal securities laws. For as long as we are an emerging growth company, we will not be required to comply with certain requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions until we are no longer an emerging growth company. For a description of the qualifications and other requirements applicable to emerging growth companies and certain elections that we have made due to our status as an emerging growth company, see Risk Factors Risks Related to this Offering and our Common Stock We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors on page 34 of this prospectus. 
+Our Offices 
+Our principal executive offices are located at 500 West Texas, Suite 1225, Midland, Texas, and our telephone number at that address is (432) 221-7400. We also lease additional office space in Midland and in Oklahoma City, Oklahoma. Our website address is www.diamondbackenergy.com. Information contained on our website does not constitute part of this prospectus. 
+ 
+
+8
+
+Table of Contents
+
+The Offering 
+
+Common stock offered by us 
+4,000,000 shares (4,600,000 shares if the underwriters option to purchase additional shares is exercised in full).
+
+ 
+
+Option to purchase additional shares 
+We have granted the underwriters a 30-day option to purchase up to an aggregate of 600,000 additional shares of our common stock.
+
+ 
+
+Common stock to be outstanding immediately after completion of this offering 
+46,161,532 shares (46,761,532 shares if the underwriters option to purchase additional shares is exercised in full).
+
+ 
+
+Use of proceeds 
+We expect to receive approximately $161.3 million of net proceeds from the sale of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, based on an assumed public offering price of $42.08 per share (the last sales price of our common stock on the NASDAQ Global Select Market on August 12, 2013) (or approximately $185.5 million if the underwriters option to purchase additional shares is exercised in full). Following the closing of this offering, we intend to use the net proceeds to fund our pending acquisitions of additional acreage in the Permian Basin. To the extent the pending acquisitions are not consummated, or the applicable purchase prices are less than we currently estimate, we intend to use any remaining net proceeds from this offering to fund a portion of our exploration and development activities and for general corporate purposes, which may include leasehold interest and property acquisitions and working capital. See Use of Proceeds on page 38 of this prospectus. 
+
+ 
+
+Dividend policy 
+We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future.
+
+ 
+
+NASDAQ Global Select Market symbol 
+ FANG 
+
+ 
+
+Risk Factors 
+You should carefully read and consider the information set forth under heading Risk Factors beginning on page 15 of this prospectus and all other information set forth in this prospectus before deciding to invest in our common stock. 
+
+Except as otherwise indicated, all information contained in this prospectus: 
+
+ 
+assumes the underwriters do not exercise their option to purchase additional shares of our common stock; and 
+
+ 
+excludes 2,500,000 shares of common stock reserved for issuance under our equity incentive plan, including: 
+
+ 
+245,716 restricted stock units issued to certain employees under the terms of their employment agreements; 
+
+ 
+33,330 restricted stock units issued to our non-employee directors as part of their director compensation; and 
+
+ 
+options to purchase 913,000 shares of our common stock granted to certain of our employees. 
+
+ 
+
+9
+
+Table of Contents
+
+Summary Combined Consolidated Historical and Pro Forma Financial Data 
+The following table sets forth our summary historical combined consolidated financial data as of and for each of the periods indicated. The summary historical combined consolidated financial data as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 are derived from our historical audited combined consolidated financial statements incorporated by reference into this prospectus. The summary historical combined consolidated balance sheet data as of December 31, 2010 are derived from our audited consolidated balance sheets of the Predecessors as of that date, which is not included in or incorporated by reference into this prospectus. The consolidated statements of operations data for the six months ended June 30, 2013 and June 30, 2012 and the consolidated balance sheet data at June 30, 2013 are derived from our unaudited consolidated financial statements appearing in our most recent Quarterly Report on Form 10-Q incorporated by reference into this prospectus. The consolidated balance sheet data at June 30, 2012 are derived from our unaudited consolidated financial statements that are not included in or incorporated by reference into this prospectus. The unaudited pro forma financial data give effect to (a) the Gulfport transaction and (b) the distribution by Windsor Permian to its equity holder of its minority equity interests in Bison Drilling and Field Services LLC, or Bison, and Muskie Holdings LLC, or Muskie, as described under the heading Related Party Transactions beginning on page 73 of this prospectus, as if these transactions occurred on January 1, 2012. The unaudited pro forma C Corporation financial data presented give effect to income taxes assuming we operated as a taxable corporation since inception for the 2011 and 2010 historical columns and since December 31, 2011 for the 2012 historical and pro forma columns. Operating results for the periods presented below are not necessarily indicative of results that may be expected for any future periods. You should review this information together with Management s Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference into this prospectus and Selected Historical Combined Consolidated Financial Data and Unaudited Pro Forma Condensed Consolidated Financial Statement beginning on pages 41 and 46, respectively, of this prospectus as well as our combined consolidated historical financial statements and their related notes incorporated by reference into this prospectus and the statements of revenues and direct operating expenses of certain property interests of Gulfport and their related notes included elsewhere in this prospectus. 
+
+10
+
+Table of Contents
+
+ 
+Historical
+ 
+Pro Forma
+ 
+Historical
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended 
+December 31,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+
+Statement of Operations Data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil and natural gas revenues 
+$
+74,303,000
+
+ 
+$
+32,381,000
+
+ 
+$
+97,455,000
+
+ 
+$
+74,962,000
+
+ 
+$
+47,875,000
+
+ 
+$
+26,442,000
+
+Other revenues 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+1,491,000
+
+ 
+811,000
+
+Expenses:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Lease operating expense 
+11,522,000
+
+ 
+6,318,000
+
+ 
+23,361,000
+
+ 
+16,793,000
+
+ 
+10,597,000
+
+ 
+4,589,000
+
+Production taxes 
+3,623,000
+
+ 
+1,579,000
+
+ 
+4,804,000
+
+ 
+3,691,000
+
+ 
+2,366,000
+
+ 
+1,347,000
+
+Gathering and transportation 
+380,000
+
+ 
+146,000
+
+ 
+523,000
+
+ 
+424,000
+
+ 
+202,000
+
+ 
+106,000
+
+Oil and natural gas services 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+1,733,000
+
+ 
+811,000
+
+Depreciation, depletion and amortization 
+25,553,000
+
+ 
+10,416,000
+
+ 
+34,205,000
+
+ 
+26,273,000
+
+ 
+15,601,000
+
+ 
+8,145,000
+
+General and administrative 
+5,092,000
+
+ 
+2,837,000
+
+ 
+10,376,000
+
+ 
+10,376,000
+
+ 
+3,655,000
+
+ 
+3,036,000
+
+Asset retirement obligation accretion expense 
+88,000
+
+ 
+41,000
+
+ 
+122,000
+
+ 
+98,000
+
+ 
+65,000
+
+ 
+38,000
+
+Total expenses 
+46,258,000
+
+ 
+21,337,000
+
+ 
+73,391,000
+
+ 
+57,655,000
+
+ 
+34,219,000
+
+ 
+18,072,000
+
+Income from operations 
+28,045,000
+
+ 
+11,044,000
+
+ 
+24,064,000
+
+ 
+17,307,000
+
+ 
+15,147,000
+
+ 
+9,181,000
+
+Other income (expense):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Interest income 
+ 
+
+ 
+2,000
+
+ 
+3,000
+
+ 
+3,000
+
+ 
+11,000
+
+ 
+34,000
+
+Interest expense 
+(1,020,000)
+
+ 
+(2,054,000)
+
+ 
+(3,610,000)
+
+ 
+(3,610,000)
+
+ 
+(2,528,000)
+
+ 
+(836,000)
+
+Other income 
+777,000
+
+ 
+1,011,000
+
+ 
+2,132,000
+
+ 
+2,132,000
+
+ 
+ 
+
+ 
+ 
+
+Gain (loss) on derivative instruments 
+3,029,000
+
+ 
+5,165,000
+
+ 
+2,617,000
+
+ 
+2,617,000
+
+ 
+(13,009,000)
+
+ 
+(148,000)
+
+Loss from equity investment 
+ 
+
+ 
+(67,000
+)
+ 
+ 
+
+ 
+(67,000
+)
+ 
+(7,000
+)
+ 
+ 
+
+Total other income (expense), net 
+2,786,000
+
+ 
+4,057,000
+
+ 
+1,142,000
+
+ 
+1,075,000
+
+ 
+(15,533,000)
+
+ 
+(950,000)
+
+Net income (loss) before income taxes 
+30,831,000
+
+ 
+15,101,000
+
+ 
+25,206,000
+
+ 
+18,382,000
+
+ 
+(386,000
+)
+ 
+8,231,000
+
+Provision for income taxes 
+10,964,000
+
+ 
+ 
+
+ 
+54,903,000
+
+ 
+54,903,000
+
+ 
+ 
+
+ 
+ 
+
+Net income (loss) 
+$
+19,867,000
+
+ 
+$
+15,101,000
+
+ 
+$
+(29,697,000
+)
+ 
+$
+(36,521,000
+)
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Earnings per common share
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+$
+0.52
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+$
+0.52
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Weighted average common shares outstanding
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+38,237,149
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+38,476,719
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+11
+
+Table of Contents
+
+ 
+Historical
+ 
+Pro Forma
+ 
+Historical
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended 
+December 31,
+ 
+Year Ended December, 31
+
+ 
+2013
+ 
+2012(1)
+ 
+2012
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+
+Pro Forma C Corporation Data(3):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net income (loss) before income taxes 
+ 
+ 
+$
+15,101,000
+
+ 
+$
+25,206,000
+
+ 
+$
+18,382,000
+
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+Pro forma for income taxes 
+ 
+ 
+5,384,000
+
+ 
+8,973,000
+
+ 
+6,553,000
+
+ 
+ 
+
+ 
+ 
+
+Pro forma net income (loss) 
+ 
+ 
+$
+9,717,000
+
+ 
+$
+16,233,000
+
+ 
+$
+11,829,000
+
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Pro forma earnings per common share
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic
+ 
+ 
+$
+0.66
+
+ 
+$
+0.63
+
+(5) 
+$
+0.60
+
+(4) 
+ 
+ 
+ 
+
+Diluted
+ 
+ 
+$
+0.66
+
+ 
+$
+0.63
+
+(5) 
+$
+0.60
+
+(4) 
+ 
+ 
+ 
+
+Pro forma weighted average common shares outstanding
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic
+ 
+ 
+14,697,496
+
+ 
+25,856,823
+
+(5) 
+19,720,734
+
+(4) 
+ 
+ 
+ 
+
+Diluted
+ 
+ 
+14,697,496
+
+ 
+25,859,863
+
+(5) 
+19,723,774
+
+(4) 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Selected Cash Flow and Other Financial Data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net income (loss) 
+$
+19,867,000
+
+ 
+$
+15,101,000
+
+ 
+ 
+ 
+$
+(36,521,000
+)
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+Depreciation, depletion and amortization 
+25,553,000
+
+ 
+10,416,000
+
+ 
+ 
+ 
+26,273,000
+
+ 
+16,104,000
+
+ 
+8,145,000
+
+Other non-cash items 
+6,847,000
+
+ 
+(4,273,000
+)
+ 
+ 
+ 
+56,390,000
+
+ 
+13,845,000
+
+ 
+344,000
+
+Change in operating assets and liabilities 
+(2,469,000)
+
+ 
+1,417,000
+
+ 
+ 
+ 
+3,550,000
+
+ 
+1,435,000
+
+ 
+(11,528,000)
+
+Net cash provided by operating activities 
+$
+49,798,000
+
+ 
+$
+22,661,000
+
+ 
+ 
+ 
+$
+49,692,000
+
+ 
+$
+30,998,000
+
+ 
+$
+5,192,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net cash used in investing activities 
+$
+(138,675,000
+)
+ 
+$
+(59,616,000
+)
+ 
+ 
+ 
+$
+(183,078,000
+)
+ 
+$
+(81,108,000
+)
+ 
+$
+(55,236,000
+)
+
+Net cash provided by financing activities 
+$
+144,417,000
+
+ 
+$
+32,337,000
+
+ 
+ 
+ 
+$
+152,785,000
+
+ 
+$
+52,950,000
+
+ 
+$
+51,733,000
+
+ 
+As of June 30,
+ 
+As of December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+
+Balance sheet data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Cash and cash equivalents 
+$
+81,898,000
+
+ 
+$
+2,341,000
+
+ 
+$
+26,358,000
+
+ 
+$
+6,959,000
+
+ 
+$
+4,119,000
+
+Other current assets 
+34,638,000
+
+ 
+23,226,000
+
+ 
+23,917,000
+
+ 
+23,853,000
+
+ 
+20,947,000
+
+Oil and gas properties, net using full cost 
+method of accounting 
+677,446,000
+
+ 
+268,353,000
+
+ 
+552,640,000
+
+ 
+220,465,000
+
+ 
+144,552,000
+
+Other property and equipment, net 
+3,726,000
+
+ 
+1,540,000
+
+ 
+1,602,000
+
+ 
+684,000
+
+ 
+11,059,000
+
+Other assets 
+931,000
+
+ 
+1,998,000
+
+ 
+2,184,000
+
+ 
+11,617,000
+
+ 
+638,000
+
+ Total assets 
+$
+798,639,000
+
+ 
+$
+297,458,000
+
+ 
+$
+606,701,000
+
+ 
+$
+263,578,000
+
+ 
+$
+181,315,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Current liabilities 
+97,487,000
+
+ 
+51,897,000
+
+ 
+79,232,000
+
+ 
+42,298,000
+
+ 
+19,070,000
+
+Note payable-long term 
+121,000
+
+ 
+339,000
+
+ 
+193,000
+
+ 
+ 
+
+ 
+ 
+
+Note payable-credit facility-long term 
+ 
+
+ 
+90,000,000
+
+ 
+ 
+
+ 
+85,000,000
+
+ 
+44,767,000
+
+Note payable-related party-long term
+ 
+
+ 
+14,110,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Derivative instruments-long term 
+ 
+
+ 
+1,667,000
+
+ 
+388,000
+
+ 
+6,139,000
+
+ 
+1,374,000
+
+Asset retirement obligations 
+2,324,000
+
+ 
+1,221,000
+
+ 
+2,125,000
+
+ 
+1,104,000
+
+ 
+742,000
+
+Deferred income taxes 
+71,098,000
+
+ 
+ 
+
+ 
+62,695,000
+
+ 
+ 
+
+ 
+ 
+
+Member s/stockholders equity 
+627,609,000
+
+ 
+138,224,000
+
+ 
+462,068,000
+
+ 
+129,037,000
+
+ 
+115,362,000
+
+Total liabilities and member s/stockholders equity 
+$
+798,639,000
+
+ 
+$
+297,458,000
+
+ 
+$
+606,701,000
+
+ 
+$
+263,578,000
+
+ 
+$
+181,315,000
+
+12
+
+Table of Contents
+
+ 
+Historical
+ 
+Pro Forma
+ 
+Historical
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended 
+December 31,
+ 
+Year Ended December, 31
+
+ 
+2013
+ 
+2012(1)
+ 
+2012
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+
+Other financial data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Adjusted EBITDA(6) 
+$
+55,399,000
+
+ 
+$
+22,806,000
+
+ 
+$
+63,003,000
+
+ 
+$
+48,223,000
+
+ 
+$
+31,758,000
+
+ 
+$
+17,398,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+_________
+
+(1)
+The years ended December 31, 2011 and 2010 and the six months ended June 30, 2012 reflect the combined historical financial data of Windsor Permian LLC and Windsor UT LLC due to the transfer of a business between entities under common control. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(2)
+The year ended December 31, 2012 reflects (a) the combined historical financial data of Windsor Permian LLC and Windsor UT LLC due to the transfer of a business between entities under common control and (b) the results of operations attributable to the acquisition of properties from Gulfport Energy Corporation beginning October 11, 2012, the closing date of the property acquisition. See Note 1 and Note 2 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(3)
+Diamondback was formed as a holding company on December 30, 2011, and did not conduct any material business operations until October 11, 2012 when Diamondback merged with its parent entity, Diamondback Energy LLC, with Diamondback continuing as the surviving entity. Diamondback is a C-Corp under the Internal Revenue Code and is subject to income taxes. The Company computed a pro forma income tax provision for 2012 as if the Company and the Predecessors were subject to income taxes since December 31, 2011. For 2011 and 2010 comparative purposes, we have included pro forma financial data to give effect to income taxes assuming the earnings of the Company and the Predecessors had been subject to federal income tax as a subchapter C corporation since inception. If the earnings of the Company and the Predecessors had been subject to federal income tax as a subchapter C corporation since inception, we would have incurred net operating losses for income tax purposes in each period. We would have been in a net deferred tax asset, or DTA, position as a result of such tax losses and would have recorded a valuation allowance to reduce each period s DTA balance to zero. A valuation allowance to reduce each period s DTA would have resulted in an equal and offsetting credit for the respective expenses or an equal and offsetting debit for the respective benefits for income taxes, with the resulting tax expenses for each 2011 and 2010 of zero. The unaudited pro forma data is presented for informational purposes only, and does not purport to project our results of operations for any future period or our financial position as of any future date. The pro forma tax provision has been calculated at a rate based upon a federal corporate level tax rate and a state tax rate, net of federal benefit, incorporating permanent differences. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(4)
+The Company s pro forma basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the common shares issued upon the merger of Diamondback Energy LLC into Diamondback were outstanding for the entire year. Diluted earnings per share reflects the potential dilution, using the treasury stock method, which assumes that options were exercised and restricted stock awards and units were fully vested. During periods in which the Company realizes a net loss, options and restricted stock awards would not be dilutive to net loss per share and conversion into common stock is assumed not to occur. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(5)
+The Company s pro forma basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the common shares issued upon the merger of Diamondback Energy LLC into Diamondback and as if the common shares issued to Gulfport upon the closing of the Gulfport transaction were outstanding for the entire year. Diluted earnings per share reflects the potential dilution, using the treasury stock method, which assumes that options were exercised and restricted stock awards and units were fully vested. During periods in which the Company realizes a net loss, options and restricted stock awards would not be dilutive to net loss per share and conversion into common stock is assumed not to occur. See Note 1 to our combined consolidated financial statements for the year ended December 31, 2012 incorporated by reference into this prospectus. 
+
+(6)
+Adjusted EBITDA is a non-GAAP financial measure. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our net income (loss), see Selected Historical Combined Consolidated Financial Data and Unaudited Pro Forma Condensed Consolidated Financial Statement beginning on pages 41 and 46, respectively, of this prospectus. 
+
+13
+
+Table of Contents
+
+Summary Historical Reserve Data 
+The following table sets forth estimates of our net proved oil and natural gas reserves as of December 31, 2012 and 2011, based on the reserve report prepared by Ryder Scott, and as of December 31, 2010, based on the reserve report prepared by Pinnacle Energy Services, LLC, or Pinnacle. Each reserve report was prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC. You should refer to Risk Factors, Business Oil and Natural Gas Data Proved Reserves, Business Oil and Natural Gas Production Prices and Production Costs Production and Price History beginning on pages 15, 56 and 59, respectively, of this prospectus and Management s Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and notes thereto incorporated by reference into this prospectus in evaluating the material presented below. 
+ 
+
+ 
+ 
+ 
+ 
+Historical
+
+ 
+ 
+ 
+ 
+Year Ended December 31,
+
+ 
+ 
+ 
+ 
+2012
+ 
+2011
+ 
+2010
+
+Estimated proved developed reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+7,189,367
+
+ 
+3,949,099
+
+ 
+3,371,460
+
+Natural gas (Mcf)
+ 
+ 
+ 
+12,864,941
+
+ 
+5,285,945
+
+ 
+4,336,720
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+2,999,440
+
+ 
+1,263,710
+
+ 
+1,126,431
+
+Total (BOE)
+ 
+ 
+ 
+12,332,964
+
+ 
+6,093,800
+
+ 
+5,220,678
+
+Estimated proved undeveloped reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+19,007,492
+
+ 
+14,151,337
+
+ 
+16,258,700
+
+Natural gas (Mcf)
+ 
+ 
+ 
+21,705,207
+
+ 
+15,265,522
+
+ 
+18,358,360
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+5,251,989
+
+ 
+3,785,849
+
+ 
+4,706,536
+
+Total (BOE)
+ 
+ 
+ 
+27,877,016
+
+ 
+20,481,440
+
+ 
+24,024,963
+
+Estimated Net Proved Reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+26,196,859
+
+ 
+18,100,436
+
+ 
+19,630,160
+
+Natural gas (Mcf)
+ 
+ 
+ 
+34,570,148
+
+ 
+20,551,467
+
+ 
+22,695,080
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+8,251,429
+
+ 
+5,049,559
+
+ 
+5,832,967
+
+Total (BOE)(1)
+ 
+ 
+ 
+40,209,979
+
+ 
+26,575,240
+
+ 
+29,245,641
+
+Percent proved developed
+ 
+ 
+ 
+30.7
+%
+ 
+22.9
+%
+ 
+17.9
+%
+
+______________
+
+(1)
+Estimates of reserves as of December 31, 2012, 2011 and 2010 were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the 12-month periods ended December 31, 2012, 2011 and 2010, respectively, in accordance with revised SEC guidelines applicable to reserve estimates as of the end of such periods. Reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for undeveloped acreage. The reserve estimates represent our net revenue interest in our properties. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. 
+
+ 
+
+14
+
+Table of Contents
+
+RISK FACTORS 
+An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in or incorporated by reference into this prospectus before deciding to invest in our common stock. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The risks described below are not the only ones facing us. Additional risks not presently known to us or which we currently consider immaterial also may adversely affect us. 
+Risks Related to the Oil and Natural Gas Industry and Our Business 
+Our business is difficult to evaluate because we have a limited operating history. 
+Diamondback Energy, Inc. was incorporated in Delaware on December 30, 2011. Prior to October 11, 2012, all of our historical oil and natural gas assets, operations and results described in this prospectus were those of Windsor Permian and Windsor UT which, prior to our initial public offering, were entities controlled by our equity sponsor, Wexford. Immediately prior to the effectiveness of the registration statement relating to our initial public offering, Windsor Permian became our wholly-owned subsidiary and we acquired the oil and natural gas assets of Gulfport located in the Permian Basin in the Gulfport transaction. The oil and natural gas properties described in this prospectus have been acquired by Windsor Permian, Gulfport and Windsor UT since December 2007. As a result, there is only limited historical financial and operating information available upon which to base your evaluation of our performance. 
+We may have difficulty managing growth in our business, which could adversely affect our financial condition and results of operations. 
+As a recently-formed company, growth in accordance with our business plan, if achieved, could place a significant strain on our financial, technical, operational and management resources. As we expand our activities and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical, operational and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrences of unexpected expansion difficulties, including the failure to recruit and retain experienced managers, geologists, engineers and other professionals in the oil and natural gas industry, could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan. 
+Approximately 83% of our net leasehold acreage is undeveloped, and that acreage may not ultimately be developed or become commercially productive, which could cause us to lose rights under our leases as well as have a material adverse effect on our oil and natural gas reserves and future production and, therefore, our future cash flow and income. 
+Approximately 83% of our net leasehold acreage is undeveloped, or acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves. In addition, many of our oil and natural gas leases require us to drill wells that are commercially productive, and if we are unsuccessful in drilling such wells, we could lose our rights under such leases. Our future oil and natural gas reserves and production and, therefore, our future cash flow and income are highly dependent on successfully developing our undeveloped leasehold acreage. 
+Our development and exploration operations require substantial capital and we may be unable to obtain needed capital or financing on satisfactory terms or at all, which could lead to a loss of properties and a decline in our oil and natural gas reserves. 
+The oil and natural gas industry is capital intensive. We make and expect to continue to make substantial capital expenditures in our business and operations for the exploration for and development, production and acquisition of oil and natural gas reserves. During the six months ended June 30, 2013 and the year ended December 31, 2012, our total capital expenditures, including expenditures for leasehold acquisitions, drilling and infrastructure, were approximately $118.3 million and $111.8 million, respectively. Our 2013 capital budget for drilling, completion and infrastructure, including investments in water disposal infrastructure and gathering line projects, is currently estimated to be approximately $290.0 million to $320.0 million. To date, we have financed capital expenditures primarily with funding from Wexford, our equity sponsor, borrowings under our revolving credit facility, cash generated by operations and the net proceeds of our public offerings of our common stock. Neither Wexford nor any of its affiliates has made any commitment to provide us additional funding, and you should not assume that any of them will provide any debt or equity funding to us in the future. 
+
+15
+
+Table of Contents
+
+In the near term, we intend to finance our capital expenditures with cash flow from operations, proceeds from the May 2013 offering and this offering and borrowings under our revolving credit facility. Our cash flow from operations and access to capital are subject to a number of variables, including: 
+
+ 
+our proved reserves; 
+
+ 
+the volume of oil and natural gas we are able to produce from existing wells; 
+
+ 
+the prices at which our oil and natural gas are sold; and 
+
+ 
+our ability to acquire, locate and produce new reserves. 
+
+We cannot assure you that our operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures. Further, our actual capital expenditures in 2013 could exceed our capital expenditure budget. In the event our capital expenditure requirements at any time are greater than the amount of capital we have available, we could be required to seek additional sources of capital, which may include traditional reserve base borrowings, debt financing, joint venture partnerships, production payment financings, sales of assets, offerings of debt or equity securities or other means. We cannot assure you that we will be able to obtain debt or equity financing on terms favorable to us, or at all. 
+If we are unable to fund our capital requirements, we may be required to curtail our operations relating to the exploration and development of our prospects, which in turn could lead to a possible loss of properties and a decline in our oil and natural gas reserves, or we may be otherwise unable to implement our development plan, complete acquisitions or take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our production, revenues and results of operations. In addition, a delay in or the failure to complete proposed or future infrastructure projects could delay or eliminate potential efficiencies and related cost savings. 
+Our success depends on finding, developing or acquiring additional reserves. 
+Our future success depends upon our ability to find, develop or acquire additional oil and natural gas reserves that are economically recoverable. Our proved reserves will generally decline as reserves are depleted, except to the extent that we conduct successful exploration or development activities or acquire properties containing proved reserves, or both. To increase reserves and production, we undertake development, exploration and other replacement activities or use third parties to accomplish these activities. We have made, and expect to make in the future, substantial capital expenditures in our business and operations for the development, production, exploration and acquisition of oil and natural gas reserves. We may not have sufficient resources to acquire additional reserves or to undertake exploration, development, production or other replacement activities, such activities may not result in significant additional reserves and we may not have success drilling productive wells at low finding and development costs. Furthermore, although our revenues may increase if prevailing oil and natural gas prices increase significantly, our finding costs for additional reserves could also increase. 
+Our failure to successfully identify, complete and integrate pending and future acquisitions of properties or businesses could reduce our earnings and slow our growth. 
+There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Our ability to complete acquisitions is dependent upon, among other things, our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which we do not currently operate, which could result in unforeseen operating difficulties and difficulties in coordinating geographically dispersed operations, personnel and facilities. In addition, if we enter into new geographic markets, we may be subject to additional and unfamiliar legal and regulatory requirements. Compliance with regulatory requirements may impose substantial additional obligations on us and our management, cause us to expend additional time and resources in compliance activities and increase our exposure to penalties or fines for non-compliance with such additional legal requirements. Completed acquisitions could require us to invest further in operational, financial and management information systems and to attract, retain, motivate and effectively manage additional employees. The inability to effectively manage the integration of acquisitions, including our pending acquisitions, could reduce our focus on subsequent acquisitions and current operations, which, in turn, could negatively impact our earnings and growth. Our financial position and results of operations may fluctuate significantly from period to period, based on whether or not significant acquisitions are completed in particular periods. 
+Properties we acquire may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties that we acquire or obtain protection from sellers against such liabilities. 
+Acquiring oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are 
+
+16
+
+Table of Contents
+
+inexact and inherently uncertain. In connection with the assessments, we perform a review of the subject properties, but such a review will not necessarily reveal all existing or potential problems. In the course of our due diligence, we may not inspect every well or pipeline. We cannot necessarily observe structural and environmental problems, such as pipe corrosion, when an inspection is made. We may not be able to obtain contractual indemnities from the seller for liabilities created prior to our purchase of the property. We may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations. 
+We may incur losses as a result of title defects in the properties in which we invest. 
+It is our practice in acquiring oil and natural gas leases or interests not to incur the expense of retaining lawyers to examine the title to the mineral interest. Rather, we rely upon the judgment of oil and gas lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before attempting to acquire a lease in a specific mineral interest. 
+Prior to the drilling of an oil or natural gas well, however, it is the normal practice in our industry for the person or company acting as the operator of the well to obtain a preliminary title review to ensure there are no obvious defects in title to the well. Frequently, as a result of such examinations, certain curative work must be done to correct defects in the marketability of the title, and such curative work entails expense. Our failure to cure any title defects may delay or prevent us from utilizing the associated mineral interest, which may adversely impact our ability in the future to increase production and reserves. Additionally, undeveloped acreage has greater risk of title defects than developed acreage. If there are any title defects or defects in the assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss. 
+Our project areas, which are in various stages of development, may not yield oil or natural gas in commercially viable quantities. 
+Our project areas are in various stages of development, ranging from project areas with current drilling or production activity to project areas that consist of recently acquired leasehold acreage or that have limited drilling or production history. From inception through June 30, 2013, we drilled a total of 230 gross wells and participated in an additional 19 gross non-operated wells, of which 240 wells were completed as producing wells and nine wells were in various stages of completion. If the wells in the process of being completed do not produce sufficient revenues to return a profit or if we drill dry holes in the future, our business may be materially affected. 
+Our identified potential drilling locations, which are part of our anticipated future drilling plans, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. 
+As of June 30, 2013, we had 867 gross (809 net) identified potential vertical drilling locations on our existing acreage based on 40-acre spacing and an additional 1,128 gross (1,031 net) identified potential vertical drilling locations based on 20-acre downspacing. We have also identified 862 gross (663 net) potential horizontal drilling locations in multiple horizons on our acreage. As of December 31, 2012, only 306 of our gross identified potential vertical drilling locations and four of these identified potential horizontal drilling locations were attributed to proved reserves. These drilling locations, including those without proved undeveloped reserves, represent a significant part of our growth strategy. Our ability to drill and develop these locations depends on a number of uncertainties, including the availability of capital, construction of infrastructure, inclement weather, regulatory changes and approvals, oil and natural gas prices, costs, drilling results and the availability of water. Further, our identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional interpretation. We cannot predict in advance of drilling and testing whether any particular drilling location will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable or whether wells drilled on 20-acre downspacing will produce at the same rates as those on 40-acre spacing. The use of technologies and the study of producing fields in the same area will not enable us to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in sufficient quantities to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon bearing formation or experience mechanical difficulties while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If we drill additional wells that we identify as dry holes in our current and future drilling locations, our drilling success rate may decline and materially harm our business. While to date we are the operator of or have participated in a total of 20 horizontal wells on our acreage, we cannot assure you that the analogies we draw from available data from these or other wells, more fully explored locations or producing fields will be applicable to our drilling locations. Further, initial production rates reported by us or other operators in the Permian Basin may not be indicative of future or long-term production rates. Because of these uncertainties, we do not know if the potential drilling locations we have identified will ever be drilled or if we will be able to produce oil or natural gas from these or any other potential drilling locations. As such, our actual drilling activities may materially differ from those presently identified, which could adversely affect our business. 
+
+17
+
+Table of Contents
+
+Our acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. In a highly competitive market for acreage, failure to drill sufficient wells to hold acreage may result in a substantial lease renewal cost or, if renewal is not feasible, loss of our lease and prospective drilling opportunities. 
+Leases on oil and natural gas properties typically have a term of three to five years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. As of December 31, 2012, we had leases representing 581 net acres expiring in 2013, 2,157 net acres expiring in 2014, 17,826 net acres expiring in 2015, 6,893 net acres expiring in 2016 and 1,820 net acres expiring in 2017. The cost to renew such leases may increase significantly, and we may not be able to renew such leases on commercially reasonable terms or at all. Any reduction in our current drilling program, either through a reduction in capital expenditures or the unavailability of drilling rigs, could result in the loss of acreage through lease expirations. In addition, in order to hold our current leases expiring in 2014 and 2015, we will need to operate at least a four-rig program. We cannot assure you that we will have the liquidity to deploy these rigs in this time frame, or that commodity prices will warrant operating such a drilling program. Any such losses of leases could materially and adversely affect the growth of our asset basis, cash flows and results of operations. 
+The volatility of oil and natural gas prices due to factors beyond our control greatly affects our profitability. 
+Our revenues, operating results, profitability, future rate of growth and the carrying value of our oil and natural gas properties depend significantly upon the prevailing prices for oil and natural gas. Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, including: 
+
+ 
+the domestic and foreign supply of oil and natural gas; 
+
+ 
+the level of prices and expectations about future prices of oil and natural gas; 
+
+ 
+the level of global oil and natural gas exploration and production; 
+
+ 
+the cost of exploring for, developing, producing and delivering oil and natural gas; 
+
+ 
+the price of foreign imports; 
+
+ 
+political and economic conditions in oil producing countries, including the Middle East, Africa, South America and Russia; 
+
+ 
+the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls; 
+
+ 
+speculative trading in crude oil and natural gas derivative contracts; 
+
+ 
+the level of consumer product demand; 
+
+ 
+weather conditions and other natural disasters; 
+
+ 
+risks associated with operating drilling rigs; 
+
+ 
+technological advances affecting energy consumption; 
+
+ 
+domestic and foreign governmental regulations and taxes; 
+
+ 
+the continued threat of terrorism and the impact of military and other action, including U.S. military operations in the Middle East; 
+
+ 
+the proximity and capacity of oil and natural gas pipelines and other transportation facilities; 
+
+ 
+the price and availability of alternative fuels; and 
+
+ 
+overall domestic and global economic conditions. 
+
+These factors and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, during the past five years, the posted price for West Texas intermediate light sweet crude oil, which we refer to as West Texas Intermediate or WTI, has ranged from a low of $30.28 per barrel, or Bbl, in December 2008 to a high of $145.31 per Bbl in July 2008. The Henry Hub spot market price of natural gas has ranged from a low of $1.82 per million British thermal units, or MMBtu, in April 2012 to a high of $13.31 per MMBtu in July 2008. During 2012, West Texas Intermediate prices ranged from $77.72 to $109.39 per Bbl and the Henry Hub spot market price of natural gas ranged from $1.82 to $3.77 per MMBtu. On July 1, 2013, the West Texas Intermediate posted price for crude oil was $97.94 per Bbl and the Henry Hub spot market price of natural gas was $3.52 per MMBtu. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our operations, financial condition and level of expenditures for the development of our oil and natural gas reserves. In addition, lower oil and natural gas prices may reduce the amount of oil and natural gas that we can produce economically. This may result in our having to make substantial downward adjustments 
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+to our estimated proved reserves. If this occurs or if our production estimates change or our exploration or development results deteriorate, full cost accounting rules may require us to write down, as a non-cash charge to earnings, the carrying value of our oil and natural gas properties. 
+We have entered into price swap derivatives and may in the future enter into forward sale contracts or additional price swap derivatives for a portion of our production, which may result in our making cash payments or prevent us from receiving the full benefit of increases in prices for oil and natural gas. 
+We use price swap derivatives to reduce price volatility associated with certain of our oil sales. Under these swap contracts, we receive a fixed price per barrel of oil and pay a floating market price per barrel of oil to the counterparty based on New York Mercantile Exchange Light Sweet Crude Oil pricing, Argus Louisiana light sweet pricing or Inter-Continental Exchange pricing. The fixed-price payment and the floating-price payment are offset, resulting in a net amount due to or from the counterparty. For the purpose of locking-in the value of a swap, we enter into counter-swaps from time to time. Under the counter-swap, we receive a floating price for the hedged commodity and pay a fixed price to the counterparty. The counter-swap is effective in locking-in the value of a swap since subsequent changes in the market value of the swap are entirely offset by subsequent changes in the market value of the counter-swap. 
+In December 2007, we placed a swap contract covering 1,680,000 Bbls of crude oil for the period from January 2008 to December 2012 at various fixed prices. In April 2008, we entered into a series of counter-swaps to lock-in the value of certain of these swaps settling 1,188,000 Bbls of crude oil swaps. In June 2009, we entered into an additional series of counter-swaps to lock-in the value of most of the remaining swaps settling 324,000 Bbls of crude oil swaps. Locking in the value of our swaps with counter-swaps, without entering into new swaps, exposes us to commodity price risks on the originally swapped position. As of December 31, 2010 and 2009, all of our swap contracts were locked-in with counter swaps. In October 2011, we placed a swap contract covering 1,000 Bbls per day of crude oil for the period from January 1, 2012 through December 31, 2013 at a fixed price of $78.50 per barrel for 2012 and $80.55 per barrel for 2013. In February 2013, we entered into swap contract at a fixed price of $109.70 per barrel covering 365,000 Bbls of crude oil from May 2013 to April 2014 that will settle against the average of the prompt month Brent Crude futures price. In June 2013, we entered into a swap contract at a fixed price of $100.20 per barrel covering 365,000 Bbls of crude oil from July 2013 to June 2014. Our current goal is to hedge from 40% to 70% of our production. The contracts described above and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase. In addition, these arrangements may limit the benefit to us of increases in the price of oil. Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instruments. 
+Our hedging transactions expose us to counterparty credit risk. 
+Our hedging transactions expose us to risk of financial loss if a counterparty fails to perform under a derivative contract. Disruptions in the financial markets could lead to sudden decreases in a counterparty s liquidity, which could make them unable to perform under the terms of the derivative contract and we may not be able to realize the benefit of the derivative contract. 
+The inability of one or more of our customers to meet their obligations may adversely affect our financial results. 
+In addition to credit risk related to receivables from commodity derivative contracts, our principal exposure to credit risk is through receivables from joint interest owners on properties we operate (approximately $7.1 million at June 30, 2013) and receivables from purchasers of our oil and natural gas production (approximately $16.4 million at June 30, 2013). Joint interest receivables arise from billing entities that own partial interests in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we wish to drill. We are generally unable to control which co-owners participate in our wells. 
+We are also subject to credit risk due to the concentration of our oil and natural gas receivables with several significant customers. For the six months ended June 30, 2013, three purchasers accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Shell Trading (US) Company (15%); and Occidental Energy Marketing, Inc. (14%). For the year ended December 31, 2012, three purchasers accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Occidental Energy Marketing, Inc. (16%); and Andrews Oil Buyers, Inc. (10%). For the years ended December 31, 2011 and 2010, one purchaser, Windsor Midstream LLC, an entity controlled by Wexford, our equity sponsor, accounted for approximately 79% of our revenue in both periods. No other customer accounted for more than 10% of our revenue during these periods. This concentration of customers may impact our overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. Current economic circumstances may further increase these risks. We do not require our customers to post collateral. The inability or failure of our significant customers or joint working interest owners to meet their obligations to us or their insolvency or liquidation may materially adversely affect our financial results. 
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+Our method of accounting for investments in oil and natural gas properties may result in impairment of asset value. 
+We account for our oil and natural gas producing activities using the full cost method of accounting. Accordingly, all costs incurred in the acquisition, exploration and development of proved oil and natural gas properties, including the costs of abandoned properties, dry holes, geophysical costs and annual lease rentals are capitalized. We also capitalize direct operating costs for services performed with internally owned drilling and well servicing equipment. All general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change. Income from services provided to working interest owners of properties in which we also own an interest, to the extent they exceed related costs incurred, are accounted for as reductions of capitalized costs of oil and natural gas properties. Depletion of evaluated oil and natural gas properties is computed on the units of production method, whereby capitalized costs plus estimated future development costs are amortized over total proved reserves. The average depletion rate per barrel equivalent unit of production was $24.44 and $23.70 for the six months ended June 30, 2013 and 2012, respectively. The average depletion rate per barrel equivalent unit of production was $23.90, $25.41 and $17.78 for the years ended December 31, 2012, 2011 and 2010, respectively. Depreciation, depletion and amortization expense for oil and natural gas properties for the six months ended June 30, 2013 and 2012 were $25.2 million and $10.2 million, respectively. Depreciation, depletion and amortization expense for oil and natural gas properties for the years ended December 31, 2012, 2011 and 2010 was $25.8 million, $15.4 million and $7.4 million, respectively. 
+The net capitalized costs of proved oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depreciation, depletion, amortization and impairment, exceed the discounted future net revenues of proved oil and natural gas reserves, the excess capitalized costs are charged to expense. Beginning December 31, 2009, we have used the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date in estimating discounted future net revenues. 
+No impairment on proved oil and natural gas properties was recorded for the six months ended June 30, 2013 or the years ended December 31, 2012, 2011 and 2010. We may, however, experience ceiling test write downs in the future. See Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates Method of accounting for oil and natural gas properties incorporated by reference into this prospectus for a more detailed description of our method of accounting. 
+ 
+Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. 
+Oil and natural gas reserve engineering is not an exact science and requires subjective estimates of underground accumulations of oil and natural gas and assumptions concerning future oil and natural gas prices, production levels, ultimate recoveries and operating and development costs. As a result, estimated quantities of proved reserves, projections of future production rates and the timing of development expenditures may be incorrect. Our historical estimates of proved reserves and related valuations as of December 31, 2012 and 2011 are based on reports prepared by Ryder Scott, an independent petroleum engineering firm. Our historical estimates of proved reserves and related valuations as of December 31, 2010 are based on a report prepared by Pinnacle, an independent petroleum engineering firm. Ryder Scott and Pinnacle, as applicable, conducted a well-by-well review of all our properties for the periods covered by their respective reserve reports using information provided by us. Over time, we may make material changes to reserve estimates taking into account the results of actual drilling, testing and production. Also, certain assumptions regarding future oil and natural gas prices, production levels and operating and development costs may prove incorrect. Any significant variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, the classifications of reserves based on risk of recovery and estimates of future net cash flows. A substantial portion of our reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Numerous changes over time to the assumptions on which our reserve estimates are based, as described above, often result in the actual quantities of oil and natural gas that we ultimately recover being different from our reserve estimates. 
+The estimates of reserves as of December 31, 2012, 2011 and 2010 included in this prospectus were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the 12-month periods ended December 31, 2012, 2011 and 2010, respectively, in accordance with the revised SEC guidelines applicable to reserve estimates for such periods. Reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for unproved undeveloped acreage. The reserve estimates represent our net revenue interest in our properties. 
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+The timing of both our production and our incurrence of costs in connection with the development and production of oil and natural gas properties will affect the timing of actual future net cash flows from proved reserves. 
+SEC rules could limit our ability to book additional proved undeveloped reserves in the future. 
+SEC rules require that, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement has limited and may continue to limit our ability to book additional proved undeveloped reserves as we pursue our drilling program. Moreover, we may be required to write down our proved undeveloped reserves if we do not drill those wells within the required five-year timeframe. 
+The development of our proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate. 
+Approximately 69% of our total estimated proved reserves at December 31, 2012 were proved undeveloped reserves and may not be ultimately developed or produced. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations. The reserve data included in the reserve reports of our independent petroleum engineers assume that substantial capital expenditures are required to develop such reserves. We cannot be certain that the estimated costs of the development of these reserves are accurate, that development will occur as scheduled or that the results of such development will be as estimated. Delays in the development of our reserves or increases in costs to drill and develop such reserves will reduce the future net revenues of our estimated proved undeveloped reserves and may result in some projects becoming uneconomical. In addition, delays in the development of reserves could force us to reclassify certain of our proved reserves as unproved reserves. 
+Our producing properties are located in the Permian Basin of West Texas, making us vulnerable to risks associated with operating in a single geographic area. In addition, we have a large amount of proved reserves attributable to a small number of producing horizons within this area. 
+All of our producing properties are geographically concentrated in the Permian Basin of West Texas. As a result of this concentration, we may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, availability of equipment, facilities, personnel or services market limitations or interruption of the processing or transportation of crude oil, natural gas or natural gas liquids. In addition, the effect of fluctuations on supply and demand may become more pronounced within specific geographic oil and natural gas producing areas such as the Permian Basin, which may cause these conditions to occur with greater frequency or magnify the effects of these conditions. Due to the concentrated nature of our portfolio of properties, a number of our properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on our financial condition and results of operations. 
+In addition to the geographic concentration of our producing properties described above, at December 31, 2012, all of our proved reserves were attributable to the Wolfberry play. This concentration of assets within a small number of producing horizons exposes us to additional risks, such as changes in field-wide rules and regulations that could cause us to permanently or temporarily shut-in all of our wells within a field. 
+We depend upon several significant purchasers for the sale of most of our oil and natural gas production. The loss of one or more of these purchasers could, among other factors, limit our access to suitable markets for the oil and natural gas we produce. 
+The availability of a ready market for any oil and/or natural gas we produce depends on numerous factors beyond the control of our management, including but not limited to the extent of domestic production and imports of oil, the proximity and capacity of natural gas pipelines, the availability of skilled labor, materials and equipment, the effect of state and federal regulation of oil and natural gas production and federal regulation of natural gas sold in interstate commerce. In addition, we depend upon several significant purchasers for the sale of most of our oil and natural gas production. For the six months ended June 30, 2013, three purchasers accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Shell Trading (US) Company (15%); and Occidental Energy Marketing, Inc. (14%). For the year ended December 31, 2012, three purchasers accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Occidental Energy Marketing, Inc. (16%); and Andrews Oil Buyers, Inc. (10%). For the years ended December 31, 2011 and 2010, one purchaser, Windsor Midstream LLC, an entity controlled by Wexford, our equity sponsor, accounted for approximately 79% of our revenue in both periods. No other customer accounted for more than 10% of our revenue during these periods. We cannot assure you that we will continue to have ready access to suitable markets for our future oil and natural gas production. 
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+The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies or personnel may restrict our operations. 
+The oil and natural gas industry is cyclical, which can result in shortages of drilling rigs, equipment, raw materials (particularly sand and other proppants), supplies and personnel. When shortages occur, the costs and delivery times of rigs, equipment and supplies increase and demand for, and wage rates of, qualified drilling rig crews also rise with increases in demand. In accordance with customary industry practice, we rely on independent third party service providers to provide most of the services necessary to drill new wells. If we are unable to secure a sufficient number of drilling rigs at reasonable costs, our financial condition and results of operations could suffer, and we may not be able to drill all of our acreage before our leases expire. In addition, we do not have long-term contracts securing the use of our existing rigs, and the operator of those rigs may choose to cease providing services to us. In addition, although we intend to increase the number of rigs we have operating in 2013, we cannot guarantee that we will be able to do so. Shortages of drilling rigs, equipment, raw materials (particularly sand and other proppants), supplies, personnel, trucking services, tubulars, fracking and completion services and production equipment could delay or restrict our exploration and development operations, which in turn could impair our financial condition and results of operations. 
+Our operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows. 
+Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing processes. Historically, we have been able to purchase water from local land owners for use in our operations. According to the Lower Colorado River Authority, during 2011, Texas experienced the lowest inflows of water of any year in recorded history. As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. If we are unable to obtain water to use in our operations from local sources, we may be unable to economically drill for or produce oil and natural gas, which could have an adverse effect on our financial condition, results of operations and cash flows. 
+Declining general economic, business or industry conditions may have a material adverse effect on our results of operations, liquidity and financial condition. 
+Concerns over global economic conditions, energy costs, geopolitical issues, inflation, the availability and cost of credit, the European debt crisis, the United States mortgage market and a weak real estate market in the United States have contributed to increased economic uncertainty and diminished expectations for the global economy. These factors, combined with volatile prices of oil, natural gas and natural gas liquids, declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and a recession. In addition, continued hostilities in the Middle East and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the economies of the United States and other countries. Concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices. If the economic climate in the United States or abroad deteriorates further, worldwide demand for petroleum products could diminish, which could impact the price at which we can sell our oil, natural gas and natural gas liquids, affect the ability of our vendors, suppliers and customers to continue operations and ultimately adversely impact our results of operations, liquidity and financial condition. 
+We have incurred losses from operations during certain periods since our inception and may do so in the future. 
+We incurred a net loss of $36.5 million for the year ended December 31, 2012. Our development of and participation in an increasingly larger number of drilling locations has required and will continue to require substantial capital expenditures. The uncertainty and risks described in this prospectus may impede our ability to economically find, develop and acquire oil and natural gas reserves. As a result, we may not be able to achieve or sustain profitability or positive cash flows from our operating activities in the future. 
+ 
+Part of our strategy involves drilling in existing or emerging shale plays using the latest available horizontal drilling and completion techniques; therefore, the results of our planned exploratory drilling in these plays are subject to risks associated with drilling and completion techniques and drilling results may not meet our expectations for reserves or production. 
+Our operations involve utilizing the latest drilling and completion techniques as developed by us and our service providers. Risks that we face while drilling include, but are not limited to, landing our well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running our casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that we face while completing our wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore 
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+after completion of the final fracture stimulation stage. The results of our drilling in new or emerging formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer or emerging formations and areas often have limited or no production history and consequently we are less able to predict future drilling results in these areas. 
+Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period. If our drilling results are less than anticipated or we are unable to execute our drilling program because of capital constraints, lease expirations, access to gathering systems, and/or declines in natural gas and oil prices, the return on our investment in these areas may not be as attractive as we anticipate. Further, as a result of any of these developments we could incur material write-downs of our oil and natural gas properties and the value of our undeveloped acreage could decline in the future. 
+Conservation measures and technological advances could reduce demand for oil and natural gas. 
+Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas services and products may have a material adverse effect on our business, financial condition, results of operations and cash flows. 
+The marketability of our production is dependent upon transportation and other facilities, certain of which we do not control. If these facilities are unavailable, our operations could be interrupted and our revenues reduced. 
+The marketability of our oil and natural gas production depends in part upon the availability, proximity and capacity of transportation facilities owned by third parties. Our oil production is transported from the wellhead to our tank batteries by our gathering system. Our purchasers then transport the oil by truck to a pipeline for transportation. Our natural gas production is generally transported by our gathering lines from the wellhead to an interconnection point with the purchaser. We do not control these trucks and other third party transportation facilities and our access to them may be limited or denied. Insufficient production from our wells to support the construction of pipeline facilities by our purchasers or a significant disruption in the availability of our or third party transportation facilities or other production facilities could adversely impact our ability to deliver to market or produce our oil and natural gas and thereby cause a significant interruption in our operations. If, in the future, we are unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, we may be required to shut in or curtail production. Any such shut in or curtailment, or an inability to obtain favorable terms for delivery of the oil and natural gas produced from our fields, would adversely affect our financial condition and results of operations. 
+Our operations are subject to various governmental laws and regulations which require compliance that can be burdensome and expensive. 
+Our oil and natural gas operations are subject to various federal, state and local governmental regulations that may be changed from time to time in response to economic and political conditions. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas wells below actual production capacity to conserve supplies of oil and gas. In addition, the production, handling, storage, transportation, remediation, emission and disposal of oil and natural gas, by-products thereof and other substances and materials produced or used in connection with oil and natural gas operations are subject to regulation under federal, state and local laws and regulations primarily relating to protection of human health and the environment. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, permit revocations, requirements for additional pollution controls and injunctions limiting or prohibiting some or all of our operations. Moreover, these laws and regulations have continually imposed increasingly strict requirements for water and air pollution control and solid waste management. Significant expenditures may be required to comply with governmental laws and regulations applicable to us. We believe the trend of more expansive and stricter environmental legislation and regulations will continue. See Business Regulation beginning on page 62 of this prospectus for a description of the laws and regulations that affect us. 
+Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays. 
+Hydraulic fracturing is an important common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations, including shales. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The federal Safe Drinking Water Act, or SDWA, regulates the underground injection of substances through the Underground Injection Control, or UIC, program. 
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+Hydraulic fracturing is generally exempt from regulation under the UIC program, and the hydraulic fracturing process is typically regulated by state oil and natural gas commissions. The Environmental Protection Agency, or EPA, however, has recently taken the position that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UIC program, specifically as Class II UIC wells. At the same time, the White House Council on Environmental Quality is conducting an administration-wide review of hydraulic fracturing practices and the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities. Moreover, the EPA announced on October 20, 2011 that it is also launching a study regarding wastewater resulting from hydraulic fracturing activities and currently plans to propose standards by 2014 that such wastewater must meet before being transported to a treatment plant. As part of these studies, the EPA has requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. These studies, depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. 
+Legislation to amend the SDWA to repeal the exemption for hydraulic fracturing from the definition of underground injection and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. 
+On August 16, 2012, the EPA published final regulations under the federal Clean Air Act that establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA s rule package includes New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds, or VOCs, and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities. The final rule seeks to achieve a 95% reduction in VOCs emitted by requiring the use of reduced emission completions or green completions on all hydraulically-fractured wells constructed or refractured after January 1, 2015. The rules also establish specific new requirements regarding emissions from compressors, controllers, dehydrators, storage tanks and other production equipment. These rules will require a number of modifications to our operations, including the installation of new equipment to control emissions from our wells by January 1, 2015. The EPA received numerous requests for reconsideration of these rules from both industry and the environmental community, and court challenges to the rules were also filed. The EPA intends to issue revised rules in 2013 that are likely responsive to some of these requests. For example, on April 12, 2013, the EPA published a proposed amendment extending compliance dates for certain storage vessels. The final revised rules could require modifications to our operations or increase our capital and operating costs without being offset by increased product capture. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements with any certainty. In addition, the U.S. Department of the Interior published a revised proposed rule on May 24, 2013 that would update existing regulation of hydraulic fracturing activities on federal lands, including requirements for disclosure, well bore integrity and handling of flowback water. 
+In addition, there are certain governmental reviews either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. The federal government is currently undertaking several studies of hydraulic fracturing s potential impacts, the results of which are expected between later in 2013 and 2014. 
+These ongoing or proposed studies, depending on their degree of pursuit and whether any meaningful results are obtained, could spur initiatives to further regulate hydraulic fracturing under the SDWA or other regulatory authorities. The U.S. Department of Energy has conducted an investigation into practices the agency could recommend to better protect the environment from drilling using hydraulic-fracturing completion methods. Additionally, certain members of Congress have called upon the U.S. Government Accountability Office to investigate how hydraulic fracturing might adversely affect water resources, the SEC to investigate the natural gas industry and any possible misleading of investors or the public regarding the economic feasibility of pursuing natural gas deposits in shale formations by means of hydraulic fracturing, and the U.S. Energy Information Administration to provide a better understanding of that agency s estimates regarding natural gas reserves, including reserves from shale formations, as well as uncertainties associated with those estimates. 
+Several states, including Texas, have adopted or are considering adopting regulations that could restrict or prohibit hydraulic fracturing in certain circumstances and/or require the disclosure of the composition of hydraulic fracturing fluids. The Texas Railroad Commission recently adopted rules and regulations requiring that well operators disclose the list of chemical ingredients subject to the requirements of federal Occupational Safety and Health Act, or OSHA, to state regulators and on a public internet website. We plan to use hydraulic fracturing extensively in connection with the development and production of certain of our oil and natural gas properties and any increased federal, state, local, foreign or international regulation of hydraulic fracturing could reduce the volumes of oil and natural gas that we can economically recover, which could materially and adversely affect our revenues and results of operations. 
+There has been increasing public controversy regarding hydraulic fracturing with regard to the use of fracturing fluids, impacts on drinking water supplies, use of water and the potential for impacts to surface water, groundwater and the 
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+environment generally. A number of lawsuits and enforcement actions have been initiated across the country implicating hydraulic fracturing practices. If new laws or regulations are adopted that significantly restrict hydraulic fracturing, such laws could make it more difficult or costly for us to perform fracturing to stimulate production from tight formations as well as make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is further regulated at the federal or state level, our fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such legislative changes could cause us to incur substantial compliance costs, and compliance or the consequences of any failure to comply by us could have a material adverse effect on our financial condition and results of operations. At this time, it is not possible to estimate the impact on our business of newly enacted or potential federal or state legislation governing hydraulic fracturing. 
+ 
+Our operations may be exposed to significant delays, costs and liabilities as a result of environmental, health and safety requirements applicable to our business activities. 
+We may incur significant delays, costs and liabilities as a result of federal, state and local environmental, health and safety requirements applicable to our exploration, development and production activities. These laws and regulations may, among other things: (i) require us to obtain a variety of permits or other authorizations governing our air emissions, water discharges, waste disposal or other environmental impacts associated with drilling, producing and other operations; (ii) regulate the sourcing and disposal of water used in the drilling, fracturing and completion processes; (iii) limit or prohibit drilling activities in certain areas and on certain lands lying within wilderness, wetlands, frontier and other protected areas; (iv) require remedial action to prevent or mitigate pollution from former operations such as plugging abandoned wells or closing earthen pits; and/or (v) impose substantial liabilities for spills, pollution or failure to comply with regulatory filings. In addition, these laws and regulations may restrict the rate of oil or natural gas production. These laws and regulations are complex, change frequently and have tended to become increasingly stringent over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs and liens, the suspension or revocation of necessary permits, licenses and authorizations, the requirement that additional pollution controls be installed and, in some instances, issuance of orders or injunctions limiting or requiring discontinuation of certain operations. Under certain environmental laws that impose strict as well as joint and several liability, we may be required to remediate contaminated properties currently or formerly operated by us or facilities of third parties that received waste generated by our operations regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. In addition, the risk of accidental and/or unpermitted spills or releases from our operations could expose us to significant liabilities, penalties and other sanctions under applicable laws. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, our business, prospects, financial condition or results of operations could be materially adversely affected. 
+Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect our ability to conduct drilling activities in some of the areas where we operate. 
+Oil and natural gas operations in our operating areas can be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Seasonal restrictions may limit our ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs. Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. The designation of previously unprotected species in areas where we operate as threatened or endangered could cause us to incur increased costs arising from species protection measures or could result in limitations on our exploration and production activities that could have an adverse impact on our ability to develop and produce our reserves. 
+The adoption of derivatives legislation by the U.S. Congress could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our business. 
+The adoption of derivatives legislation by the U.S. Congress could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price, interest rate and other risks associated with our business. The U.S. 
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+Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173), which, among other provisions, establishes federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. The legislation was signed into law by the President on July 21, 2010. In its rulemaking under the legislation, the Commodities Futures Trading Commission, or CFTC, has issued a final rule on position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents (with exemptions for certain bona fide hedging transactions). The CFTC s final rule was set aside by the U.S. District Court for the District of Columbia on September 28, 2012 and remanded to the CFTC to resolve ambiguity as to whether statutory requirements for such limits to be determined necessary and appropriate were satisfied. As a result, the rule has not yet taken effect, although the CFTC has indicated that it intends to appeal the court s decision and that it believes the Dodd-Frank Act requires it to impose position limits. The impact of such regulations upon our business is not yet clear. Certain of our hedging and trading activities and those of our counterparties may be subject to the position limits, which may reduce our ability to enter into hedging transactions. 
+In addition, the Dodd-Frank Act does not explicitly exempt end users (such as us) from the requirement to use cleared exchanges, rather than hedging over-the-counter, and the requirements to post margin in connection with hedging activities. While it is not possible at this time to predict when the CFTC will finalize certain other related rules and regulations, the Dodd-Frank Act and related regulations may require us to comply with margin requirements and with certain clearing and trade-execution requirements in connection with our derivative activities, although whether these requirements will apply to our business is uncertain at this time. If the regulations ultimately adopted require that we post margin for our hedging activities or require our counterparties to hold margin or maintain capital levels, the cost of which could be passed through to us, or impose other requirements that are more burdensome than current regulations, our hedging would become more expensive and we may decide to alter our hedging strategy. The financial reform legislation may also require us to comply with margin requirements and with certain clearing and trade-execution requirements in connection with our existing or future derivative activities, although the application of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our derivative instruments to spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties. The new legislation and any new regulations could significantly increase the cost of derivative contracts (including through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our derivative contracts in existence at that time, and increase our exposure to less creditworthy counterparties. If we reduce or change the way we use derivative instruments as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Finally, the legislation was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. Our revenues could therefore be adversely affected if a consequence of the legislation and regulations is to lower commodity prices. Any of these consequences could have a material adverse effect on our consolidated financial position, results of operations or cash flows. 
+Proposed changes to U.S. tax laws, if adopted, could have an adverse effect on our business, financial condition, results of operations and cash flows. 
+The U.S. President s Fiscal Year 2014 Budget Proposal includes provisions that would, if enacted, make significant changes to U.S. tax laws. These changes include, but are not limited to, (i) eliminating the immediate deduction for intangible drilling and development costs, (ii) eliminating the deduction from income for domestic production activities relating to oil and natural gas exploration and development, (iii) the repeal of the percentage depletion allowance for oil and natural gas properties, (iv) an extension of the amortization period for certain geological and geophysical expenditures and (iv) implementing certain international tax reforms. These proposed changes in the U.S. tax laws, if adopted, or other similar changes that reduce or eliminate deductions currently available with respect to oil and natural gas exploration and development, could adversely affect our business, financial condition, results of operations and cash flows. 
+ 
+The adoption of climate change legislation by Congress could result in increased operating costs and reduced demand for the oil and natural gas we produce. 
+In December 2009, the EPA issued an Endangerment Finding that determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because, according to the EPA, emissions of such gases contribute to warming of the earth s atmosphere and other climatic changes. These findings by the EPA allowed the agency to proceed with the adoption and implementation of regulations that would restrict emissions of GHGs under existing provisions of the federal Clean Air Act. Subsequently, the EPA adopted two sets of related rules, one of which purports to regulate emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources of emissions such as power plants or industrial facilities. The EPA finalized the motor vehicle rule, which purports to limit emissions of GHGs from motor vehicles manufactured in model years 2012 2016, in April 2010 and it became effective in January 2011. A recent rulemaking proposal by the EPA and the Department of Transportation s National 
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+Highway Traffic Safety Administration seeks to expand the motor vehicle rule to include vehicles manufactured in model years 2017 2025. The EPA adopted the stationary source rule, also known as the Tailoring Rule, in May 2010, and it also became effective in January 2011. The Tailoring Rule establishes new GHG emissions thresholds that determine when stationary sources must obtain permits under the Prevention of Significant Deterioration, or PSD, and Title V programs of the Clean Air Act. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet best available control technology standards, which will be established by the states or, in some instances, by the EPA on a case-by-case basis. Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., including natural gas liquids fractionators and local natural gas/distribution companies, beginning in 2011 for emissions occurring in 2010. In November 2010, the EPA expanded its existing GHG reporting rule to include onshore and offshore oil and natural gas production and onshore processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in 2012 for emissions occurring in 2011. 
+The EPA has continued to adopt GHG regulations of other industries, such as the March 2012 proposed GHG rule restricting future development of coal-fired power plants. The proposed rule underwent an extended public comment process, which concluded on June 25, 2012. The EPA is also under a legal obligation pursuant to a consent decree with certain environmental groups to issue new source performance standards for refineries. The EPA is also considering additional regulation of greenhouse gases as air pollutants. As a result of this continued regulatory focus, future GHG regulations of the oil and gas industry remain a possibility. In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases and almost one-half of the states have already taken legal measures to reduce emissions of greenhouse gases primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Although the U.S. Congress has not adopted such legislation at this time, it may do so in the future and many states continue to pursue regulations to reduce greenhouse gas emissions. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants, to acquire and surrender emission allowances corresponding with their annual emissions of GHGs. The number of allowances available for purchase is reduced each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of allowances is expected to escalate significantly. 
+Restrictions on emissions of methane or carbon dioxide that may be imposed in various states could adversely affect the oil and natural gas industry. Currently, while we are subject to certain federal GHG monitoring and reporting requirements, our operations are not adversely impacted by existing federal, state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing greenhouse gas emissions would impact our business. 
+In addition, there has been public discussion that climate change may be associated with extreme weather conditions such as more intense hurricanes, thunderstorms, tornados and snow or ice storms, as well as rising sea levels. Another possible consequence of climate change is increased volatility in seasonal temperatures. Some studies indicate that climate change could cause some areas to experience temperatures substantially colder than their historical averages. Extreme weather conditions can interfere with our production and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations. 
+A change in the jurisdictional characterization of some of our assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our revenues to decline and operating expenses to increase. 
+Section 1(b) of the Natural Gas Act of 1938, or the NGA, exempts natural gas gathering facilities from regulation by the Federal Energy Regulatory Commission, or FERC. We believe that the natural gas pipelines in our gathering systems meet the traditional tests FERC has used to establish whether a pipeline performs a gathering function and therefore is exempt from FERC s jurisdiction under the NGA. However, the distinction between FERC regulated transmission services and federally unregulated gathering services is a fact-based determination. The classification of facilities as unregulated gathering is the subject of ongoing litigation, so the classification and regulation of our gathering facilities are subject to change based on future determinations by FERC, the courts or Congress, which could cause our revenues to decline and operating expenses to increase and may materially adversely affect our business, financial condition or results of operations. In addition, FERC has adopted regulations that may subject certain of our otherwise non-FERC jurisdictional facilities to FERC annual reporting and daily scheduled flow and capacity posting requirements. Additional rules and legislation pertaining to those and other matters may be considered or adopted by FERC from time to time. Failure to comply with those regulations in the future could subject us to civil penalty liability, which could have a material adverse effect on our business, financial condition or results of operations. 
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+We rely on a few key employees whose absence or loss could adversely affect our business. 
+Many key responsibilities within our business have been assigned to a small number of employees. The loss of their services could adversely affect our business. In particular, the loss of the services of one or more members of our executive team, including our Chief Executive Officer, Travis D. Stice, could disrupt our operations. We have employment agreements with these executives which contain restrictions on competition with us in the event they cease to be employed by us. However, as a practical matter, such employment agreements may not assure the retention of our employees. Further, we do not maintain key person life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death of our key employees. 
+A significant reduction by Wexford of its ownership interest in us could adversely affect us 
+Prior to October 11, 2012, Wexford beneficially owned 100% of our equity interests. Upon completion of our initial public offering, Wexford beneficially owned approximately 44.4% of our common stock. Upon completion of this offering, assuming Wexford or its affiliates make no additional purchases of our common stock, Wexford will beneficially own approximately 25.5% of our common stock (approximately 25.2% if the underwriters option to purchase additional shares is exercised in full). Further, the Chairman of our Board of Directors is an affiliate of Wexford. We believe that Wexford s substantial ownership interest in us provides Wexford with an economic incentive to assist us to be successful. Upon the expiration of the lock-up restrictions on transfers or sales of our securities by or on behalf of entities controlled by Wexford imposed in connection with this offering, Wexford will not be subject to any obligation to maintain its ownership interest in us and may elect at any time thereafter to sell all or a substantial portion of or otherwise reduce its ownership interest in us. If Wexford sells all or a substantial portion of its ownership interest in us, Wexford may have less incentive to assist in our success and its affiliate(s) that serve as members of our board of directors may resign. Such actions could adversely affect our ability to successfully implement our business strategies which could adversely affect our cash flows or results of operations. We also receive certain services, including drilling services from entities controlled by Wexford. These service contracts may generally be terminated on 30-days notice. In the event Wexford ceases to own a significant ownership interest in us, such services may not be available to us on terms acceptable to us, if at all. 
+Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that may result in a total loss of investment and adversely affect our business, financial condition or results of operations. 
+Our drilling activities are subject to many risks. For example, we cannot assure you that new wells drilled by us will be productive or that we will recover all or any portion of our investment in such wells. Drilling for oil and natural gas often involves unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient oil or natural gas to return a profit at then realized prices after deducting drilling, operating and other costs. The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that oil or natural gas is present or that it can be produced economically. The costs of exploration, exploitation and development activities are subject to numerous uncertainties beyond our control, and increases in those costs can adversely affect the economics of a project. Further, our drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including: 
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+unusual or unexpected geological formations; 
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+loss of drilling fluid circulation; 
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+title problems; 
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+facility or equipment malfunctions; 
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+unexpected operational events; 
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+shortages or delivery delays of equipment and services; 
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+compliance with environmental and other governmental requirements; and 
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+adverse weather conditions. 
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+Any of these risks can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties. 
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+Our development and exploratory drilling efforts and our well operations may not be profitable or achieve our targeted returns. 
+Historically, we have acquired significant amounts of unproved property in order to further our development efforts and expect to continue to undertake acquisitions in the future. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. We acquire unproved properties and lease undeveloped acreage that we believe will enhance our growth potential and increase our earnings over time. However, we cannot assure you that all prospects will be economically viable or that we will not abandon our investments. Additionally, we cannot assure you that unproved property acquired by us or undeveloped acreage leased by us will be profitably developed, that new wells drilled by us in prospects that we pursue will be productive or that we will recover all or any portion of our investment in such unproved property or wells. 
+Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient commercial quantities to cover the drilling, operating and other costs. The cost of drilling, completing and operating a well is often uncertain, and many factors can adversely affect the economics of a well or property. Drilling operations may be curtailed, delayed or canceled as a result of unexpected drilling conditions, equipment failures or accidents, shortages of equipment or personnel, environmental issues and for other reasons. In addition, wells that are profitable may not meet our internal return targets, which are dependent upon the current and expected future market prices for oil and natural gas, expected costs associated with producing oil and natural gas and our ability to add reserves at an acceptable cost. 
+Operating hazards and uninsured risks may result in substantial losses and could prevent us from realizing profits. 
+Our operations are subject to all of the hazards and operating risks associated with drilling for and production of oil and natural gas, including the risk of fire, explosions, blowouts, surface cratering, uncontrollable flows of natural gas, oil and formation water, pipe or pipeline failures, abnormally pressured formations, casing collapses and environmental hazards such as oil spills, gas leaks and ruptures or discharges of toxic gases. In addition, our operations are subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. The occurrence of any of these events could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties, suspension of operations and repairs required to resume operations. 
+We endeavor to contractually allocate potential liabilities and risks between us and the parties that provide us with services and goods, which include pressure pumping and hydraulic fracturing, drilling and cementing services and tubular goods for surface, intermediate and production casing. Under our agreements with our vendors, to the extent responsibility for environmental liability is allocated between the parties, (i) our vendors generally assume all responsibility for control and removal of pollution or contamination which originates above the surface of the land and is directly associated with such vendors equipment while in their control and (ii) we generally assume the responsibility for control and removal of all other pollution or contamination which may occur during our operations, including pre-existing pollution and pollution which may result from fire, blowout, cratering, seepage or any other uncontrolled flow of oil, gas or other substances, as well as the use or disposition of all drilling fluids. In addition, we generally agree to indemnify our vendors for loss or destruction of vendor-owned property that occurs in the well hole (except for damage that occurs when a vendor is performing work on a footage, rather than day work, basis) or as a result of the use of equipment, certain corrosive fluids, additives, chemicals or proppants. However, despite this general allocation of risk, we might not succeed in enforcing such contractual allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into contractual arrangements with terms that vary from the above allocations of risk. As a result, we may incur substantial losses which could materially and adversely affect our financial condition and results of operation. 
+In accordance with what we believe to be customary industry practice, we historically have maintained insurance against some, but not all, of our business risks. Our insurance may not be adequate to cover any losses or liabilities we may suffer. Also, insurance may no longer be available to us or, if it is, its availability may be at premium levels that do not justify its purchase. The occurrence of a significant uninsured claim, a claim in excess of the insurance coverage limits maintained by us or a claim at a time when we are not able to obtain liability insurance could have a material adverse effect on our ability to conduct normal business operations and on our financial condition, results of operations or cash flow. In addition, we may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause us to restrict our operations, which might severely impact our financial position. We may also be liable for environmental damage caused by previous owners of properties purchased by us, which liabilities may not be covered by insurance. 
+Since hydraulic fracturing activities are part of our operations, they are covered by our insurance against claims made for bodily injury, property damage and clean-up costs stemming from a sudden and accidental pollution event. However, we may 
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+not have coverage if we are unaware of the pollution event and unable to report the occurrence to our insurance company within the time frame required under our insurance policy. We have no coverage for gradual, long-term pollution events. In addition, these policies do not provide coverage for all liabilities, and we cannot assure you that the insurance coverage will be adequate to cover claims that may arise, or that we will be able to maintain adequate insurance at rates we consider reasonable. A loss not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows. 
+ 
+Competition in the oil and natural gas industry is intense, which may adversely affect our ability to succeed. 
+The oil and natural gas industry is intensely competitive, and we compete with other companies that have greater resources than us. Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties. 
+Our use of 2-D and 3-D seismic data is subject to interpretation and may not accurately identify the presence of oil and natural gas, which could adversely affect the results of our drilling operations. 
+Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. In addition, the use of 3-D seismic and other advanced technologies requires greater predrilling expenditures than traditional drilling strategies, and we could incur losses as a result of such expenditures. As a result, our drilling activities may not be successful or economical. 
+We will be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with Section 404 or if the costs related to compliance are significant, our profitability, stock price and results of operations and financial condition could be materially adversely affected. 
+We will be required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 as of December 31, 2013. Section 404 requires that we document and test our internal control over financial reporting and issue management s assessment of our internal control over financial reporting. This section also requires that our independent registered public accounting firm opine on those internal controls if and when we become a large accelerated filer, as defined in the SEC rules, or if we otherwise cease to qualify for an exemption from the requirement to provide auditors attestation on internal controls afforded to emerging growth companies under the Jumpstart Our Business Startups Act enacted by the U.S. Congress in April 2012. We are currently evaluating our existing controls against the standards adopted by the Committee of Sponsoring Organizations of the Treadway Commission. During the course of our ongoing evaluation and integration of our internal control over financial reporting, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through this review. 
+We believe that the out-of-pocket costs, the diversion of management s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act could be significant. If the time and costs associated with such compliance exceed our current expectations, our results of operations could be adversely affected. 
+We cannot be certain at this time that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404 of the Sarbanes-Oxley Act or that we or our auditors will not identify material weaknesses in internal control over financial reporting. If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act or if we or our auditors identify and report such material weaknesses, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition. 
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+Increased costs of capital could adversely affect our business. 
+Our business and operating results could be harmed by factors such as the availability, terms and cost of capital, increases in interest rates or a reduction in our credit rating. Changes in any one or more of these factors could cause our cost of doing business to increase, limit our access to capital, limit our ability to pursue acquisition opportunities, reduce our cash flows available for drilling and place us at a competitive disadvantage. Continuing disruptions and volatility in the global financial markets may lead to an increase in interest rates or a contraction in credit availability impacting our ability to finance our operations. We require continued access to capital. A significant reduction in the availability of credit could materially and adversely affect our ability to achieve our planned growth and operating results. 
+We recorded stock-based compensation expense in 2012 and the first quarter of 2013 and we may incur substantial additional compensation expense related to our future grants of stock compensation which may have a material negative impact on our operating results for the foreseeable future. 
+As a result of outstanding stock-based compensation awards, we recorded $6.3 million of compensation expense in 2012 and $1.4 million of compensation expense in the first six months of 2013. In addition, our compensation expenses may increase in the future as compared to our historical expenses because of the costs associated with our existing and possible future incentive plans. These additional expenses could adversely affect our net income. The future expense will be dependent upon the number of share-based awards issued and the fair value of the options or shares of common stock at the date of the grant; however, they may be significant. We will recognize expenses for restricted stock awards and stock options generally over the vesting period of awards made to recipients. 
+Our level of indebtedness may increase and reduce our financial flexibility. 
+As of the date of this prospectus, we have $180.0 million of borrowing base availability under our revolving credit facility. In the future, we may incur significant indebtedness under our revolving credit facility or otherwise in order to make acquisitions, to develop our properties or for other purposes. 
+Our level of indebtedness could affect our operations in several ways, including the following: 
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+a significant portion of our cash flows could be used to service our indebtedness; 
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+a high level of debt could increase our vulnerability to general adverse economic and industry conditions; 
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+the covenants contained in the agreements governing our outstanding indebtedness will limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; 
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+a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; 
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+our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; 
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+a high level of debt may make it more likely that a reduction in our borrowing base following a periodic redetermination could require us to repay a portion of our then-outstanding bank borrowings; and 
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+a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes. 
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+A high level of indebtedness increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness depends on our future performance. General economic conditions, oil and natural gas prices and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital. 
+Our revolving credit facility contains restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities. 
+Our revolving credit facility contains restrictive covenants that limit our ability to, among other things: 
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+incur additional indebtedness; 
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+create additional liens; 
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+sell assets; 
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+merge or consolidate with another entity; 
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+pay dividends or make other distributions; 
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+engage in transactions with affiliates; and 
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+enter into certain swap agreements. 
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+In addition, our revolving credit facility requires us to maintain certain financial ratios and tests. The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business. 
+If we are unable to comply with the restrictions and covenants in our revolving credit facility, there could be an event of default under the terms of our revolving credit facility, which could result in an acceleration of repayment. 
+If we are unable to comply with the restrictions and covenants in our revolving credit facility, there could be an event of default under the terms of this facility. Our ability to comply with these restrictions and covenants, including meeting the financial ratios and tests under our revolving credit facility, may be affected by events beyond our control. As a result, we cannot assure that we will be able to comply with these restrictions and covenants or meet such financial ratios and tests. In the event of a default under our revolving credit facility, the lenders under such facility could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend our revolving credit facility or obtain needed waivers on satisfactory terms. 
+Our borrowings under our revolving credit facility expose us to interest rate risk. 
+Our earnings are exposed to interest rate risk associated with borrowings under our revolving credit facility, which bear interest at a rate elected by us that is based on the prime, LIBOR or federal funds rate plus margins ranging from 1.25% to 3.50% depending on the base rate used and the amount of the loan outstanding in relation to the borrowing base. As of May 21, 2013 (the last day on which borrowings were outstanding under our revolving credit facility), the weighted average interest rate on such borrowings was 2.70%. If interest rates increase, so will our interest costs, which may have a material adverse effect on our results of operations and financial condition. 
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+Any significant reduction in our borrowing base under our revolving credit facility as a result of the periodic borrowing base redeterminations or otherwise may negatively impact our ability to fund our operations. 
+Under our revolving credit facility, which currently provides for a $180.0 million borrowing base, we are subject to semi-annual and other elective collateral borrowing base redeterminations based on our oil and natural gas reserves. Any significant reduction in our borrowing base as a result of such borrowing base redeterminations or otherwise may negatively impact our liquidity and our ability to fund our operations and, as a result, may have a material adverse effect on our financial position, results of operation and cash flow. 
+Loss of our information and computer systems could adversely affect our business. 
+We are heavily dependent on our information systems and computer based programs, including our well operations information, seismic data, electronic data processing and accounting data. If any of such programs or systems were to fail or create erroneous information in our hardware or software network infrastructure, possible consequences include our loss of communication links, inability to find, produce, process and sell oil and natural gas and inability to automatically process commercial transactions or engage in similar automated or computerized business activities. Any such consequence could have a material adverse effect on our business. 
+A terrorist attack or armed conflict could harm our business. 
+Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States or other countries may adversely affect the United States and global economies and could prevent us from meeting our financial and other obligations. If any of these events occur, the resulting political instability and societal disruption could reduce overall demand for oil and natural gas, potentially putting downward pressure on demand for our services and causing a reduction in our revenues. Oil and natural gas related facilities could be direct targets of terrorist attacks, and our operations could be adversely impacted if 
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+infrastructure integral to our customers operations is destroyed or damaged. Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at all. 
+Risks Related to this Offering and Our Common Stock 
+Our two largest stockholders control a significant percentage of our common stock, and their interests may conflict with those of our other stockholders. 
+Upon completion of this offering, Wexford and Gulfport (assuming neither Wexford nor Gulfport or any of their respective affiliates makes any additional purchases of our common stock) will beneficially own approximately 25.5% and 12.3%, respectively, of our common stock or 25.2% and 12.1%, respectively, if the underwriters exercise their option to purchase additional shares in full. See Principal Stockholders on page 77 of this prospectus. In addition, individuals affiliated with Wexford and Gulfport serve on our Board of Directors, and Gulfport has the right to designate one individual as a nominee for election to our Board of Directors so long as it continues to beneficially own more than 10% of our outstanding common stock. As a result, Wexford and Gulfport, together, are able to control, and Wexford alone will continue to be able to exercise significant influence over, matters requiring stockholder approval, including the election of directors, changes to our organizational documents and significant corporate transactions. This concentration of ownership makes it unlikely that any other holder or group of holders of our common stock will be able to affect the way we are managed or the direction of our business. The interests of Wexford and Gulfport with respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other stockholders. This continued concentrated ownership will make it impossible for another company to acquire us and for you to receive any related takeover premium for your shares unless Wexford approves the acquisition. 
+ 
+The corporate opportunity provisions in our certificate of incorporation could enable Wexford, our equity sponsor, or other affiliates of ours to benefit from corporate opportunities that might otherwise be available to us. 
+Subject to the limitations of applicable law, our certificate of incorporation, among other things: 
+
+ 
+permits us to enter into transactions with entities in which one or more of our officers or directors are financially or otherwise interested; 
+
+ 
+permits any of our stockholders, officers or directors to conduct business that competes with us and to make investments in any kind of property in which we may make investments; and 
+
+ 
+provides that if any director or officer of one of our affiliates who is also one of our officers or directors becomes aware of a potential business opportunity, transaction or other matter (other than one expressly offered to that director or officer in writing solely in his or her capacity as our director or officer), that director or officer will have no duty to communicate or offer that opportunity to us, and will be permitted to communicate or offer that opportunity to such affiliates and that director or officer will not be deemed to have (i) acted in a manner inconsistent with his or her fiduciary or other duties to us regarding the opportunity or (ii) acted in bad faith or in a manner inconsistent with our best interests. 
+
+These provisions create the possibility that a corporate opportunity that would otherwise be available to us may be used for the benefit of one of our affiliates. 
+We have engaged in transactions with our affiliates and expect to do so in the future. The terms of such transactions and the resolution of any conflicts that may arise may not always be in our or our stockholders best interests. 
+We have engaged in transactions and expect to continue to engage in transactions with affiliated companies. As described under the caption Related Party Transactions beginning on page 73 of this prospectus, these transactions include, among others, drilling services provided to us by Bison Drilling and Field Services, LLC, real property leased by us from Fasken Midland, LLC and certain administrative services provided to us by Everest Operations Management LLC. Each of these entities is either controlled by or affiliated with Wexford, and the resolution of any conflicts that may arise in connection with such related party transactions, including pricing, duration or other terms of service, may not always be in our or our stockholders best interests because Wexford may have the ability to influence the outcome of these conflicts. For a discussion of potential conflicts, see Risks Related to this Offering and our Common Stock Our two largest stockholders control a significant percentage of our common stock, and their interests may conflict with those of our other stockholders on page 33 of this prospectus. 
+We incur increased costs as a result of being a public company, which may significantly affect our financial condition. 
+We completed our initial public offering in October 2012. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. We also incur costs associated with our public company 
+
+33
+
+Table of Contents
+
+reporting requirements and with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the Financial Industry Regulatory Authority. These rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly, and we expect that these costs may increase further after we are no longer an emerging growth company. These rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. 
+ 
+However, for as long as we remain an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. 
+Since the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2013, we will cease to be an emerging growth company as of December 31, 2013. After we are no longer an emerging growth company, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not emerging growth companies, including Section 404 of the Sarbanes-Oxley Act. See Risks Related to the Oil and Natural Gas Industry and Our Business We will be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with Section 404 or if the costs related to compliance are significant, our profitability, stock price and results of operations and financial condition could be materially adversely affected on page 30 of this prospectus. 
+We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors. 
+We are, and through December 31, 2013 will remain, an emerging growth company, as defined in the Jumpstart our Business Startups Act of 2012, and until we cease to be an emerging growth company we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. 
+Under the Jumpstart Our Business Startups Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves to this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 
+If the price of our common stock fluctuates significantly, your investment could lose value. 
+Although our common stock is listed on the NASDAQ Select Global Market, we cannot assure you that an active public market will continue for our common stock. If an active public market for our common stock does not continue, the trading price and liquidity of our common stock will be materially and adversely affected. If there is a thin trading market or float for our stock, the market price for our common stock may fluctuate significantly more than the stock market as a whole. Without a large float, our common stock would be less liquid than the stock of companies with broader public ownership and, as a result, the trading prices of our common stock may be more volatile. In addition, in the absence of an active public trading market, investors may be unable to liquidate their investment in us. Furthermore, the stock market is subject to significant price and volume fluctuations, and the price of our common stock could fluctuate widely in response to several factors, including: 
+
+ 
+our quarterly or annual operating results; 
+
+ 
+changes in our earnings estimates; 
+
+ 
+investment recommendations by securities analysts following our business or our industry; 
+
+ 
+additions or departures of key personnel; 
+
+ 
+changes in the business, earnings estimates or market perceptions of our competitors; 
+
+34
+
+Table of Contents
+
+ 
+our failure to achieve operating results consistent with securities analysts projections; 
+
+ 
+changes in industry, general market or economic conditions; and 
+
+ 
+announcements of legislative or regulatory changes. 
+
+The stock market has experienced extreme price and volume fluctuations in recent years that have significantly affected the quoted prices of the securities of many companies, including companies in our industry. The changes often appear to occur without regard to specific operating performance. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company and these fluctuations could materially reduce our stock price. 
+Future sales of our common stock, or the perception that such future sales may occur, may cause our stock price to decline. 
+Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. See Shares Eligible for Future Sale beginning on page 83 of this prospectus. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional common or preferred stock. Except for any shares purchased by our affiliates, all of the shares sold in our initial public offering, our May 2013 offering and the June 2013 secondary offering are, and all of the shares sold in this offering will be, freely tradable. Our directors and executive officers, Gulfport and certain entities controlled by Wexford are subject to agreements that limit their ability to sell our common stock held by them. These holders cannot sell or otherwise dispose of any shares of our common stock for a period of 60 days after the date of this prospectus, or in the case of Gulfport, 60 days after the date of the prospectus (June 18, 2013) for the June 2013 secondary offering, without the prior written approval of Credit Suisse Securities (USA) LLC. However, these lock-up agreements are subject to certain specific exceptions, including transfers of common stock as a bona fide gift or by will or intestate succession and transfers to such person s immediate family or to a trust or to an entity controlled by such holder, provided that the recipient of the shares agrees to be bound by the same restrictions on sales and, in the case of our executive officers and directors, the right of such individuals to sell up to 300,000 shares in the aggregate. In connection with this offering, Credit Suisse Securities (USA) LLC granted a release of the lock-up agreements entered into by us, each of our directors and officers and certain entities controlled by Wexford in connection with the June 2013 secondary offering. In connection with our initial public offering, we also granted DB Energy Holdings LLC, or DB Holdings, and Gulfport certain registration rights obligating us to register with the SEC their shares of our common stock. In the event that one or more of our stockholders sells a substantial amount of our common stock in the public market, or the market perceives that such sales may occur, the price of our stock could decline. 
+If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline. 
+The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating results do not meet their expectations, our stock price could decline. 
+We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock. 
+Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. 
+Provisions in our certificate of incorporation and bylaws and Delaware law make it more difficult to effect a change in control of the company, which could adversely affect the price of our common stock. 
+The existence of some provisions in our certificate of incorporation and bylaws and Delaware corporate law could delay or prevent a change in control of our company, even if that change would be beneficial to our stockholders. Our certificate of incorporation and bylaws contain provisions that may make acquiring control of our company difficult, including: 
+
+ 
+provisions regulating the ability of our stockholders to nominate directors for election or to bring matters for action at annual meetings of our stockholders; 
+
+35
+
+Table of Contents
+
+ 
+limitations on the ability of our stockholders to call a special meeting and act by written consent; 
+
+ 
+the ability of our board of directors to adopt, amend or repeal bylaws, and the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained for stockholders to amend our bylaws; 
+
+ 
+the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to remove directors; 
+
+ 
+the requirement that the affirmative vote of holders representing at least 66 2/3% of the voting power of all outstanding shares of capital stock be obtained to amend our certificate of incorporation; and 
+
+ 
+the authorization given to our board of directors to issue and set the terms of preferred stock without the approval of our stockholders. 
+
+These provisions also could discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions. As a result, these provisions could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders, which may limit the price that investors are willing to pay in the future for shares of our common stock. 
+We do not intend to pay cash dividends on our common stock in the foreseeable future, and therefore only appreciation of the price of our common stock will provide a return to our stockholders. 
+We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future. Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors deemed relevant by our board of directors. In addition, the terms of our revolving credit facility prohibit us from paying dividends and making other distributions. As a result, only appreciation of the price of our common stock, which may not occur, will provide a return to our stockholders. 
+ 
+
+36
+
+Table of Contents
+
+CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 
+This prospectus, including the documents incorporated by reference, contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our: 
+
+ 
+business strategy; 
+
+ 
+exploration and development drilling prospects, inventories, projects and programs; 
+
+ 
+expectations regarding the consummation of the pending acquisitions described under "Summary Recent Developments Pending Acquisitions";
+
+ 
+oil and natural gas reserves; 
+
+ 
+identified drilling locations; 
+
+ 
+ability to obtain permits and governmental approvals; 
+
+ 
+technology; 
+
+ 
+financial strategy; 
+
+ 
+realized oil and natural gas prices; 
+
+ 
+production; 
+
+ 
+lease operating expenses, general and administrative costs and finding and development costs; 
+
+ 
+future operating results; and 
+
+ 
+plans, objectives, expectations and intentions. 
+
+All of these types of statements, other than statements of historical fact included or incorporated by reference in this prospectus, are forward-looking statements. These forward-looking statements may be found in the Prospectus Summary, Risk Factors and Business beginning on pages 1, 15 and 50, respectively, in Management s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report for the year ended December 31, 2012 incorporated by reference herein and in our Quarterly Reports on Form 10-Q for the three months ended March 31, 2013 and June 30, 2013 incorporated by reference herein and elsewhere in this prospectus and the documents incorporated herein. In some cases, you can identify forward-looking statements by terminology such as may, could, should, expect, plan, project, intend, anticipate, believe, estimate, predict, potential, pursue, target, seek, objective or continue, the negative of such terms or other comparable terminology. 
+The forward-looking statements contained or incorporated by reference in this prospectus are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, our management s assumptions about future events may prove to be inaccurate. Our management cautions all readers that the forward-looking statements contained in this prospectus are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the many factors including those described under Risk Factors herein and in our Annual Report on Form 10-K for the year ended December 31, 2012 incorporated by reference herein and elsewhere in this prospectus. All forward-looking statements contained in this prospectus or included in a document incorporated by reference herein speak only as of the date hereof or thereof, respectively. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. 
+ 
+
+37
+
+Table of Contents
+
+USE OF PROCEEDS 
+Our net proceeds from the sale of 4,000,000 shares of common stock in this offering are estimated to be approximately $161.3 million, after deducting underwriting discounts and commissions and estimated offering expenses, based on an assumed public offering price of $42.08 per share (the last sales price of our common stock on the NASDAQ Global Select Market on August 12, 2013). The net proceeds would be approximately $185.5 million if the underwriters option to purchase additional shares is exercised in full. Following the closing of this offering, we intend to use the net proceeds to fund our pending acquisitions of additional acreage in the Permian Basin. To the extent the pending acquisitions are not consummated, or the applicable purchase prices are less than we currently estimate, we intend to use any remaining net proceeds from this offering to fund a portion of our exploration and development activities and for general corporate purposes, which may include leasehold interest and property acquisitions and working capital. 
+
+DIVIDEND POLICY 
+We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant. In addition, the terms of our revolving credit facility restrict the payment of dividends to the holders of our common stock and any other equity holders. 
+
+38
+
+Table of Contents
+
+CAPITALIZATION 
+The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2013: 
+
+ 
+on an actual basis; and 
+
+ 
+as adjusted to give effect to the sale of 4,000,000 shares of our common stock in this offering, our receipt of an estimated $161.3 million of net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, and the use of the net proceeds to fund the pending acquisitions as described under the caption Use of Proceeds on page 38.
+
+You should read the following table in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations and our combined consolidated financial statements and related notes which are incorporated by reference into this prospectus. 
+
+ 
+ 
+As of June 30, 2013
+
+ 
+ 
+Actual
+ 
+As Adjusted
+
+ 
+ 
+ 
+ 
+ 
+
+Cash and cash equivalents 
+ 
+$
+81,898,000
+
+ 
+$
+78,185,200
+
+ 
+ 
+ 
+ 
+ 
+
+Debt:
+ 
+ 
+ 
+ 
+
+ Revolving credit facility 
+ 
+$
+ 
+
+ 
+$
+ 
+
+ Note payable
+ 
+266,000
+
+ 
+266,000
+
+ Total debt 
+ 
+266,000
+
+ 
+266,000
+
+Stockholders equity:
+ 
+ 
+ 
+ 
+
+ Common stock, par value $0.01; 100,000,000 shares authorized and 42,161,532 shares issued and outstanding actual; and 100,000,000 shares authorized and 46,161,532 shares issued and outstanding as adjusted 
+ 
+422,000
+
+ 
+462,000
+
+ Additional paid-in capital 
+ 
+659,394,000
+
+ 
+820,641,200
+
+ Accumulated deficit 
+ 
+(32,207,000)
+
+ 
+(32,207,000
+)
+
+Total stockholders equity
+ 
+627,609,000
+
+ 
+788,896,200
+
+Total capitalization 
+ 
+$
+627,875,000
+
+ 
+$
+789,162,200
+
+39
+
+Table of Contents
+
+PRICE RANGE OF COMMON STOCK 
+Our common stock is listed and traded on the NASDAQ Global Select Market under the symbol FANG. Our common stock began trading on October 12, 2012 at an initial public offering price of $17.50 per share. 
+The following table sets forth the range of high and low sales prices of our common stock for the periods presented: 
+
+Year
+ 
+Quarter
+ 
+High
+ 
+Low
+
+2012
+ 
+4th Quarter(1)
+ 
+$19.89
+ 
+$15.65
+
+2013
+ 
+1st Quarter
+ 
+$27.21
+ 
+$18.60
+
+2013
+ 
+2nd Quarter
+ 
+$35.91
+ 
+$23.83
+
+2013
+ 
+3rd Quarter(2)
+ 
+$43.84
+ 
+$33.42
+
+_______________
+
+(1)
+Represents the period from October 12, 2012, the date on which our common stock began trading on the NASDAQ Global Select Market, through December 31, 2012. 
+
+(2)
+Through August 12, 2013. 
+
+The closing price of our common stock on the NASDAQ Global Select Market on August 12, 2013 was $42.08 per share. Immediately prior to this offering, we had 42,161,532 issued and outstanding shares of common stock, which were held by six holders of record. This number does not include owners for whom common stock may be held in street name or whose common stock is restricted. 
+
+40
+
+Table of Contents
+
+SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL DATA 
+The following selected historical combined consolidated financial data as of December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012 are derived from our audited combined consolidated financial statements incorporated by reference into this prospectus. The selected combined consolidated balance sheet data as of December 31, 2010 and the selected historical combined consolidated financial data for 2009 and 2008 are derived from our audited financial statements of the Predecessors not included in or incorporated by reference into this prospectus. The consolidated statements of operations data for the six months ended June 30, 2013 and June 30, 2012 and the consolidated balance sheet data at June 30, 2013 are derived from our unaudited consolidated financial statements appearing in our most recent Quarterly Report on Form 10-Q incorporated by reference into this prospectus. The consolidated balance sheet data at June 30, 2012 are derived from our unaudited consolidated financial statements that are not included in or incorporated by reference into this prospectus. The unaudited pro forma C Corporation financial data presented give effect to income taxes assuming we operated as a taxable corporation since inception for the 2011, 2010, 2009 and 2008 columns and since December 31, 2011 for the 2012 columns. Operating results for the periods presented below are not necessarily indicative of results that may be expected for any future periods. You should review this information together with Management s Discussion and Analysis of Financial Condition and Results of Operations and our historical combined consolidated financial statements and related notes which are incorporated by reference into this prospectus. 
+
+41
+
+Table of Contents
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+ 
+2009
+ 
+2008
+
+Statement of Operations Data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil and natural gas revenues 
+$
+74,303,000
+
+ 
+$
+32,381,000
+
+ 
+$
+74,962,000
+
+ 
+$
+47,875,000
+
+ 
+$
+26,442,000
+
+ 
+$
+12,716,000
+
+ 
+$
+18,239,000
+
+Other revenues 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+1,491,000
+
+ 
+811,000
+
+ 
+ 
+
+ 
+ 
+
+Expenses:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Lease operating expense 
+11,522,000
+
+ 
+6,318,000
+
+ 
+16,793,000
+
+ 
+10,597,000
+
+ 
+4,589,000
+
+ 
+2,366,000
+
+ 
+3,375,000
+
+Production taxes 
+3,623,000
+
+ 
+1,579,000
+
+ 
+3,691,000
+
+ 
+2,366,000
+
+ 
+1,347,000
+
+ 
+663,000
+
+ 
+1,009,000
+
+Gathering and transportation 
+380,000
+
+ 
+146,000
+
+ 
+424,000
+
+ 
+202,000
+
+ 
+106,000
+
+ 
+42,000
+
+ 
+53,000
+
+Oil and natural gas services 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+1,733,000
+
+ 
+811,000
+
+ 
+ 
+
+ 
+ 
+
+Depreciation, depletion and amortization 
+25,553,000
+
+ 
+10,416,000
+
+ 
+26,273,000
+
+ 
+15,601,000
+
+ 
+8,145,000
+
+ 
+3,216,000
+
+ 
+10,200,000
+
+Impairment of oil and gas properties 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+83,164,000
+
+General and administrative 
+5,092,000
+
+ 
+2,837,000
+
+ 
+10,376,000
+
+ 
+3,655,000
+
+ 
+3,036,000
+
+ 
+5,063,000
+
+ 
+5,460,000
+
+Asset retirement obligation accretion expense 
+88,000
+
+ 
+41,000
+
+ 
+98,000
+
+ 
+65,000
+
+ 
+38,000
+
+ 
+28,000
+
+ 
+24,000
+
+Total expenses 
+46,258,000
+
+ 
+21,337,000
+
+ 
+57,655,000
+
+ 
+34,219,000
+
+ 
+18,072,000
+
+ 
+11,378,000
+
+ 
+103,285,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Income (loss) from operations 
+28,045,000
+
+ 
+11,044,000
+
+ 
+17,307,000
+
+ 
+15,147,000
+
+ 
+9,181,000
+
+ 
+1,338,000
+
+ 
+(85,046,000)
+
+Other income (expense):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Interest income 
+ 
+
+ 
+2,000
+
+ 
+3,000
+
+ 
+11,000
+
+ 
+34,000
+
+ 
+35,000
+
+ 
+625,000
+
+Interest expense 
+(1,020,000
+)
+ 
+(2,054,000)
+
+ 
+(3,610,000)
+
+ 
+(2,528,000)
+
+ 
+(836,000)
+
+ 
+(11,000)
+
+ 
+ 
+
+Other income 
+777,000
+
+ 
+1,011,000
+
+ 
+2,132,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Gain (loss) on derivative instruments 
+3,029,000
+
+ 
+5,165,000
+
+ 
+2,617,000
+
+ 
+(13,009,000)
+
+ 
+(148,000)
+
+ 
+(4,068,000)
+
+ 
+(9,528,000)
+
+Loss from equity investment 
+ 
+
+ 
+(67,000)
+
+ 
+(67,000)
+
+ 
+(7,000)
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Total other income (expense), net 
+2,786,000
+
+ 
+4,057,000
+
+ 
+1,075,000
+
+ 
+(15,533,000)
+
+ 
+(950,000)
+
+ 
+(4,044,000)
+
+ 
+(8,903,000)
+
+Net income (loss) before income taxes 
+30,831,000
+
+ 
+15,101,000
+
+ 
+18,382,000
+
+ 
+(386,000)
+
+ 
+8,231,000
+
+ 
+(2,706,000)
+
+ 
+(93,949,000)
+
+Provision for income taxes 
+10,964,000
+
+ 
+ 
+
+ 
+54,903,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Net income (loss) 
+$
+19,867,000
+
+ 
+$
+15,101,000
+
+ 
+$
+(36,521,000
+)
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+$
+(2,706,000
+)
+ 
+$
+(93,949,000
+)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Earnings per common share
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+$
+0.52
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+$
+0.52
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Weighted average common shares outstanding
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+38,237,149
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+38,476,719
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Pro Forma C Corporation Data(3):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net income (loss) before income taxes 
+ 
+ 
+$
+15,101,000
+
+ 
+$
+18,382,000
+
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+$
+(2,706,000
+)
+ 
+$
+(93,949,000
+)
+
+Pro forma for income taxes 
+ 
+ 
+5,384,000
+
+ 
+6,553,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Pro forma net income (loss) 
+ 
+ 
+$
+9,717,000
+
+ 
+$
+11,829,000
+
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+$
+(2,706,000
+)
+ 
+$
+(93,949,000
+)
+
+Pro forma earnings per common share(4)
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+ 
+ 
+$
+0.66
+
+ 
+$
+0.60
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+ 
+ 
+$
+0.66
+
+ 
+$
+0.60
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Weighted average shares outstanding(4)
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic 
+ 
+ 
+14,697,496
+
+ 
+19,720,734
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Diluted 
+ 
+ 
+14,697,496
+
+ 
+19,723,774
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+42
+
+Table of Contents
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+ 
+2009
+ 
+2008
+
+Selected Cash Flow and Other Financial Data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net income (loss) 
+$
+19,867,000
+
+ 
+$
+15,101,000
+
+ 
+$
+(36,521,000
+)
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+$
+(2,706,000
+)
+ 
+$
+(93,949,000
+)
+
+Depreciation, depletion and amortization 
+25,553,000
+
+ 
+10,416,000
+
+ 
+26,273,000
+
+ 
+16,104,000
+
+ 
+8,145,000
+
+ 
+3,216,000
+
+ 
+10,200,000
+
+Other non-cash items 
+6,847,000
+
+ 
+(4,273,000
+)
+ 
+56,390,000
+
+ 
+13,845,000
+
+ 
+344,000
+
+ 
+4,109,000
+
+ 
+92,715,000
+
+Change in operating assets and liabilities 
+(2,469,000)
+
+ 
+1,417,000
+
+ 
+3,550,000
+
+ 
+1,435,000
+
+ 
+(11,528,000)
+
+ 
+(1,917,000)
+
+ 
+3,076,000
+
+Net cash provided by operating activities 
+$
+49,798,000
+
+ 
+$
+22,661,000
+
+ 
+$
+49,692,000
+
+ 
+$
+30,998,000
+
+ 
+$
+5,192,000
+
+ 
+$
+2,702,000
+
+ 
+$
+12,042,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Net cash used in investing activities 
+$
+(138,675,000
+)
+ 
+$
+(59,616,000
+)
+ 
+$
+(183,078,000
+)
+ 
+$
+(81,108,000
+)
+ 
+$
+(55,236,000
+)
+ 
+$
+(32,150,000
+)
+ 
+$
+(84,197,000
+)
+
+Net cash provided by financing activities 
+$
+144,417,000
+
+ 
+$
+32,337,000
+
+ 
+$
+152,785,000
+
+ 
+$
+52,950,000
+
+ 
+$
+51,733,000
+
+ 
+$
+23,849,000
+
+ 
+$
+80,183,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+ 
+2009
+ 
+2008
+
+Balance sheet data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Cash and cash equivalents 
+$
+81,898,000
+
+ 
+$
+2,341,000
+
+ 
+$
+26,358,000
+
+ 
+$
+6,959,000
+
+ 
+$
+4,119,000
+
+ 
+$
+2,430,000
+
+ 
+$
+8,029,000
+
+Other current assets 
+34,638,000
+
+ 
+23,226,000
+
+ 
+23,917,000
+
+ 
+23,853,000
+
+ 
+20,947,000
+
+ 
+2,263,000
+
+ 
+1,390,000
+
+Oil and gas properties, net using full cost method of accounting 
+677,446,000
+
+ 
+268,353,000
+
+ 
+552,640,000
+
+ 
+220,465,000
+
+ 
+144,552,000
+
+ 
+89,778,000
+
+ 
+73,786,000
+
+Well equipment to be used in development of oil and gas properties 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+5,413,000
+
+ 
+8,503,000
+
+Other property and equipment, net 
+3,726,000
+
+ 
+1,540,000
+
+ 
+1,602,000
+
+ 
+684,000
+
+ 
+11,059,000
+
+ 
+106,000
+
+ 
+161,000
+
+Other assets 
+931,000
+
+ 
+1,998,000
+
+ 
+2,184,000
+
+ 
+11,617,000
+
+ 
+638,000
+
+ 
+83,000
+
+ 
+ 
+
+Total assets 
+$
+798,639,000
+
+ 
+$
+297,458,000
+
+ 
+$
+606,701,000
+
+ 
+$
+263,578,000
+
+ 
+$
+181,315,000
+
+ 
+$
+100,073,000
+
+ 
+$
+91,869,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Current liabilities 
+$
+97,487,000
+
+ 
+$
+51,897,000
+
+ 
+$
+79,232,000
+
+ 
+$
+42,298,000
+
+ 
+$
+19,070,000
+
+ 
+$
+13,973,000
+
+ 
+$
+18,012,000
+
+Note payable-long term 
+121,000
+
+ 
+339,000
+
+ 
+193,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Note payable credit facility-long term 
+ 
+
+ 
+90,000,000
+
+ 
+ 
+
+ 
+85,000,000
+
+ 
+44,767,000
+
+ 
+ 
+
+ 
+ 
+
+Note payable-related party-long term 
+ 
+
+ 
+14,110,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Derivative instruments-long term 
+ 
+
+ 
+1,667,000
+
+ 
+388,000
+
+ 
+6,139,000
+
+ 
+1,374,000
+
+ 
+1,416,000
+
+ 
+2,868,000
+
+Asset retirement obligations 
+2,324,000
+
+ 
+1,221,000
+
+ 
+2,125,000
+
+ 
+1,104,000
+
+ 
+742,000
+
+ 
+482,000
+
+ 
+374,000
+
+Deferred income taxes
+71,098,000
+
+ 
+ 
+
+ 
+62,695,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Stockholders equity 
+627,609,000
+
+ 
+138,224,000
+
+ 
+462,068,000
+
+ 
+129,037,000
+
+ 
+115,362,000
+
+ 
+84,202,000
+
+ 
+70,615,000
+
+Total liabilities and member s/stockholders equity 
+$
+798,639,000
+
+ 
+$
+297,458,000
+
+ 
+$
+606,701,000
+
+ 
+$
+263,578,000
+
+ 
+$
+181,315,000
+
+ 
+$
+100,073,000
+
+ 
+$
+91,869,000
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+ 
+2009
+ 
+2008
+
+Other financial data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Adjusted EBITDA(5) 
+$
+55,399,000
+
+ 
+$
+22,806,000
+
+ 
+$
+48,223,000
+
+ 
+$
+31,758,000
+
+ 
+$
+17,398,000
+
+ 
+$
+4,617,000
+
+ 
+$
+8,967,000
+
+_____________
+
+43
+
+Table of Contents
+
+(1)
+The years ended December 31, 2011 and 2010 and the six months ended June 30, 2012 reflect the combined historical financial data of Windsor Permian LLC and Windsor UT LLC due to the transfer of a business between entities under common control. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(2)
+The year ended December 31, 2012 reflects (a) the combined historical financial data of Windsor Permian LLC and Windsor UT LLC due to the transfer of a business between entities under common control and (b) the results of operations attributable to the acquisition of properties from Gulfport Energy Corporation beginning October 11, 2012, the closing date of the property acquisition. See Note 1 and Note 2 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(3)
+Diamondback was formed as a holding company on December 30, 2011, and did not conduct any material business operations until October 11, 2012 when Diamondback merged with its parent entity, Diamondback Energy LLC, with Diamondback continuing as the surviving entity. Diamondback is a C-Corp under the Internal Revenue Code and is subject to income taxes. The Company computed a pro forma income tax provision for 2012 as if the Company and the Predecessors were subject to income taxes since December 31, 2011. For 2011, 2010, 2009 and 2008 comparative purposes, we have included pro forma financial data to give effect to income taxes assuming the earnings of the Company and the Predecessors had been subject to federal income tax as a subchapter C corporation since inception. If the earnings of the Company and the Predecessors had been subject to federal income tax as a subchapter C corporation since inception, we would have incurred net operating losses for income tax purposes in each period. We would have been in a net deferred tax asset, or DTA, position as a result of such tax losses and would have recorded a valuation allowance to reduce each period s DTA balance to zero. A valuation allowance to reduce each period s DTA would have resulted in an equal and offsetting credit for the respective expenses or an equal and offsetting debit for the respective benefits for income taxes, with the resulting tax expenses for each 2011 and 2010 of zero. The unaudited pro forma data is presented for informational purposes only, and does not purport to project our results of operations for any future period or our financial position as of any future date. The pro forma tax provision has been calculated at a rate based upon a federal corporate level tax rate and a state tax rate, net of federal benefit, incorporating permanent differences. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(4)
+The Company s pro forma basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the common shares issued upon the merger of Diamondback Energy LLC into Diamondback were outstanding for the entire year. Diluted earnings per share reflects the potential dilution, using the treasury stock method, which assumes that options were exercised and restricted stock awards and units were fully vested. During periods in which the Company realizes a net loss, options and restricted stock awards would not be dilutive to net loss per share and conversion into common stock is assumed not to occur. See Note 1 to our combined consolidated financial statements incorporated by reference into this prospectus. 
+
+(5)
+Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net income (loss) before income taxes, gain/loss on derivative instruments, interest expense, depreciation, depletion and amortization, impairment of oil and gas properties, non-cash equity based compensation and asset retirement obligation accretion expense. Adjusted EBITDA is not a measure of net income (loss) as determined by United States generally accepted accounting principles, or GAAP. Management believes Adjusted EBITDA is useful because it allows it to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company s financial performance, such as a company s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measure of other companies or to such measure in our revolving credit facility. 
+
+The following presents a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income (loss). 
+
+44
+
+Table of Contents
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012(1)
+ 
+2012(2)
+ 
+2011(1)
+ 
+2010(1)
+ 
+2009
+ 
+2008
+
+Net income (loss):
+$
+19,867,000
+
+ 
+$
+15,101,000
+
+ 
+$
+(36,521,000
+)
+ 
+$
+(386,000
+)
+ 
+$
+8,231,000
+
+ 
+$
+(2,706,000
+)
+ 
+$
+(93,949,000
+)
+
+(Gain) loss on derivative instruments 
+(3,029,000)
+
+ 
+(5,165,000)
+
+ 
+(2,617,000)
+
+ 
+13,009,000
+
+ 
+148,000
+
+ 
+4,068,000
+
+ 
+9,528,000
+
+Interest expense 
+1,020,000
+
+ 
+2,054,000
+
+ 
+3,610,000
+
+ 
+2,528,000
+
+ 
+836,000
+
+ 
+11,000
+
+ 
+ 
+
+Depreciation, depletion and amortization 
+25,553,000
+
+ 
+10,416,000
+
+ 
+26,273,000
+
+ 
+16,104,000
+
+ 
+8,145,000
+
+ 
+3,216,000
+
+ 
+10,200,000
+
+Impairment of oil and gas properties 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+83,164,000
+
+Non-cash equity based compensation expense 
+936,000
+
+ 
+359,000
+
+ 
+2,477,000
+
+ 
+438,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Asset retirement obligation accretion expense 
+88,000
+
+ 
+41,000
+
+ 
+98,000
+
+ 
+65,000
+
+ 
+38,000
+
+ 
+28,000
+
+ 
+24,000
+
+Deferred income tax provision 
+10,964,000
+
+ 
+ 
+
+ 
+54,903,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Adjusted EBITDA 
+$
+55,399,000
+
+ 
+$
+22,806,000
+
+ 
+$
+48,223,000
+
+ 
+$
+31,758,000
+
+ 
+$
+17,398,000
+
+ 
+$
+4,617,000
+
+ 
+$
+8,967,000
+
+45
+
+Table of Contents
+
+UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT 
+Diamondback Energy, Inc. 
+Unaudited Pro Forma Condensed Consolidated Financial Statement 
+Introduction 
+The following unaudited pro forma condensed consolidated statement of operations and related notes of the Company have been prepared to show the effect of the Gulfport transaction and the distribution by Windsor Permian to its equity holders of its minority equity interests in Bison and Muskie. The unaudited pro forma condensed consolidated statement of operations should be read together with the Company s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013 and the historical Statements of Revenues and Direct Operating Expenses of certain property interests of Gulfport Energy Corporation included in this prospectus. The accompanying unaudited pro forma condensed consolidated statement of operations is based on assumptions and include adjustments as explained in the accompanying notes. 
+The acquisition of certain property interests of Gulfport Energy Corporation (the Gulfport properties) was treated as a business combination accounted for under the acquisition method of accounting with the identifiable assets recognized at fair value on the date of transfer. 
+The pro forma data presented reflect events directly attributable to the described transactions and certain assumptions the Company believes are reasonable. The pro forma data are not necessarily indicative of financial results that would have been attained had the described transactions occurred on the dates indicated below. The pro forma data also necessarily exclude various operation expenses related to the Gulfport properties and the statement of operations should not be viewed as indicative of operations in future periods. As the current operator of the properties acquired by the Company upon completion of the Gulfport transaction, the Company does not expect any material impact from these transactions on its existing employees or infrastructure. 
+The Gulfport transaction was completed on October 11, 2012, and the distribution of the equity interests in Bison and Muskie occurred in June 2012. 
+The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 assumes that the described transactions occurred on January 1, 2012. 
+ 
+
+46
+
+Table of Contents
+
+Diamondback Energy, Inc. 
+Unaudited Pro Forma Condensed Consolidated Statement of Operations 
+Year ended December 31, 2012 
+
+ 
+ 
+ 
+ 
+Gulfport Properties
+ 
+ 
+ 
+ 
+
+ 
+ 
+Diamondback
+ 
+Nine Months Ended
+ 
+ 
+ 
+ 
+
+ 
+ 
+Energy, Inc.
+ 
+September 30, 2012
+ 
+Pro Forma
+ 
+ 
+
+ 
+ 
+Historical
+ 
+Historical
+ 
+Adjustments
+ 
+Pro Forma
+
+Revenues:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil and natural gas revenues
+ 
+$
+74,962,000
+
+ 
+$
+21,217,000
+
+ 
+$
+1,276,000
+
+(a) 
+$
+97,455,000
+
+Costs and expenses:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Lease operating expenses
+ 
+16,793,000
+
+ 
+6,359,000
+
+ 
+209,000
+
+(a) 
+23,361,000
+
+Production taxes
+ 
+3,691,000
+
+ 
+1,119,000
+
+ 
+(6,000
+)
+(a) 
+4,804,000
+
+Gathering and transportation
+ 
+424,000
+
+ 
+ 
+
+ 
+99,000
+
+(a) 
+523,000
+
+Depreciation, depletion and amortization
+ 
+26,273,000
+
+ 
+ 
+
+ 
+7,932,000
+
+(c) 
+34,205,000
+
+General and administrative
+ 
+10,376,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+10,376,000
+
+Asset retirement obligation accretion expense
+ 
+98,000
+
+ 
+ 
+
+ 
+24,000
+
+(b) 
+122,000
+
+Total costs and expenses
+ 
+57,655,000
+
+ 
+7,478,000
+
+ 
+8,258,000
+
+ 
+73,391,000
+
+Income (loss) from operations
+ 
+17,307,000
+
+ 
+13,739,000
+
+ 
+(6,982,000
+)
+ 
+24,064,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Other income (expense)
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Interest income
+ 
+3,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+3,000
+
+Interest expense
+ 
+(3,610,000
+)
+ 
+ 
+
+ 
+ 
+
+ 
+(3,610,000
+)
+
+Other income
+ 
+2,132,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+2,132,000
+
+Gain on derivative instruments
+ 
+2,617,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+2,617,000
+
+Loss from equity investment
+ 
+(67,000
+)
+ 
+ 
+
+ 
+67,000
+
+(d) 
+ 
+
+Total other income (expense), net
+ 
+1,075,000
+
+ 
+ 
+
+ 
+67,000
+
+ 
+1,142,000
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Income (loss) before income taxes
+ 
+18,382,000
+
+ 
+13,739,000
+
+ 
+(6,915,000
+)
+ 
+25,206,000
+
+Provision for income taxes
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Deferred income tax provision
+ 
+54,903,000
+
+ 
+ 
+
+ 
+ 
+
+ 
+54,903,000
+
+Net income (loss)
+ 
+$
+(36,521,000
+)
+ 
+$
+13,739,000
+
+ 
+$
+(6,915,000
+)
+ 
+$
+(29,697,000
+)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Pro forma loss per common share(e)
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+$
+(1.15
+)
+
+Diluted
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+$
+(1.15
+)
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Pro forma weighted average common shares outstanding(e)
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Basic
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+25,856,823
+
+Diluted
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+25,859,863
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+47
+
+Table of Contents
+
+Diamondback Energy, Inc. 
+Notes to Unaudited Pro Forma Condensed Consolidated 
+Financial Statements 
+1. Basis of Presentation 
+The historical financial information is derived from the historical financial statements of Diamondback Energy, Inc. and the historical statements of revenues and direct operating expenses of certain property interests of Gulfport Energy Corporation. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2012 assumes that the Gulfport transaction and the distribution of the equity interests in Bison and Muskie occurred on January 1, 2012. 
+2. Pro Forma Assumptions and Adjustments 
+We made the following adjustments in the preparation of the unaudited pro forma condensed consolidated statement of operations. 
+
+(a)
+To record the operating results of the certain property interests of Gulfport Energy Corporation from the nine months ended September 30, 2012 to the closing date of the Gulfport transaction on October 11, 2012. 
+
+(b)
+To record incremental accretion of discount of asset retirement obligations associated with the Gulfport transaction. 
+
+(c)
+To record incremental depletion, depreciation, and amortization of oil and natural gas properties associated with the Gulfport transaction, amortized on a unit-of-production basis over the remaining life of total proved reserves. 
+
+(d)
+To record the effects of the distribution of minority equity interests in Bison and Muskie to Windsor Permian s sole member which occurred on June 15, 2012. 
+
+(e)
+The Company s pro forma basic earnings per share amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period, as if the common shares issued in connection with the Gulfport transaction (7,914,036 shares) and to DB Holdings in connection with the merger of Diamondback Energy LLC with and into Diamondback Energy, Inc. (14,697,496 shares) were outstanding for the entire year. Diluted earnings per share reflects the potential dilution, using the treasury stock method, which assumes that options were exercised and restricted stock awards and units were fully vested. 
+
+3. Other Income Tax and Earnings Per Share Considerations 
+As presented in the unaudited pro forma condensed consolidated statement of operations, income tax expense includes the $54,142,000 charge relating to the change in tax status as of October 11, 2012 and the related income taxes incurred as a result of operations from October 11, 2012 to December 31, 2012. The following supplemental pro forma information gives effect to income taxes assuming the Company operated as a taxable corporation since December 31, 2011. 
+
+ 
+ 
+Pro forma
+ 
+Pro forma,
+
+ 
+ 
+ C Corporation Data(a)
+ 
+as adjusted(b)
+
+Income before income taxes
+ 
+$
+18,382,000
+
+ 
+$
+25,206,000
+
+Pro forma provision for income taxes
+ 
+6,553,000
+
+ 
+8,973,000
+
+Pro forma net income
+ 
+$
+11,829,000
+
+ 
+$
+16,233,000
+
+Pro forma earnings per common share
+ 
+ 
+ 
+ 
+
+Basic
+ 
+$
+0.60
+
+ 
+$
+0.63
+
+Diluted
+ 
+$
+0.60
+
+ 
+$
+0.63
+
+Pro forma weighted average common shares outstanding
+ 
+ 
+ 
+ 
+
+Basic
+ 
+19,720,734
+
+ 
+25,856,823
+
+Diluted
+ 
+19,723,774
+
+ 
+25,859,863
+
+(a)
+The pro forma financial data adjusts the Diamondback Energy, Inc. historical column to give effect to income taxes assuming the earnings of the Company had been subject to federal income tax as a subchapter C corporation since December 31, 2011, thus excluding the $54,142,000 charge relating to the change in tax status as of October 11, 2012. The pro forma tax provision has been calculated at a rate based upon a federal corporate level tax rate and a state tax rate, net of federal benefit, incorporating permanent differences. 
+
+(b)
+The pro forma financial data adjusts the pro forma column to give effect to income taxes assuming the earnings of the Company had been subject to federal income tax as a subchapter C corporation since December 31, 2011, thus excluding the $54,142,000 charge relating to the change in tax status as of October 11, 2012. The pro forma tax provision has been 
+
+48
+
+Table of Contents
+
+calculated at a rate based upon a federal corporate level tax rate and a state tax rate, net of federal benefit, incorporating permanent differences. 
+4. Pro Forma Adjusted EBITDA 
+Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net income (loss) before income taxes, gain/loss on derivative instruments, interest expense, depreciation, depletion and amortization, impairment of oil and gas properties, non-cash equity based compensation and asset retirement obligation accretion expense. Adjusted EBITDA is not a measure of net income (loss) as determined by United States generally accepted accounting principles, or GAAP. Management believes Adjusted EBITDA is useful because it allows it to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company s financial performance, such as a company s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measure of other companies or to such measure in our credit facility. 
+The following presents a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the net loss reported in the unaudited pro forma condensed consolidated statement of operations. 
+
+ 
+ 
+Year Ended December 31,
+ 
+
+ 
+ 
+2012
+ 
+
+Pro forma net loss:
+ 
+$
+(29,697,000
+)
+ 
+
+(Gain) loss on derivative instruments 
+ 
+(2,617,000)
+
+ 
+
+Interest expense 
+ 
+3,610,000
+
+ 
+
+Depreciation, depletion and amortization 
+ 
+34,205,000
+
+ 
+
+Non-cash equity based compensation expense 
+ 
+2,477,000
+
+ 
+
+Asset retirement obligation accretion expense 
+ 
+122,000
+
+ 
+
+Deferred income tax provision 
+ 
+54,903,000
+
+ 
+
+Pro forma Adjusted EBITDA 
+ 
+$
+63,003,000
+
+ 
+
+49
+
+Table of Contents
+
+BUSINESS 
+General 
+Overview 
+We are an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. This basin, which is one of the major producing basins in the United States, is characterized by an extensive production history, a favorable operating environment, mature infrastructure, long reserve life, multiple producing horizons, enhanced recovery potential and a large number of operators. 
+We began operations in December 2007 with our acquisition of 4,174 net acres with production at the time of acquisition of approximately 800 BOE/d from 34 gross (16.8 net) wells in the Permian Basin. Subsequently, we acquired approximately 49,861 additional net acres, which brought our total net acreage position in the Permian Basin to 54,035 net acres at June 30, 2013. We are the operator of approximately 99% of this acreage. As of June 30, 2013, we had drilled 230 gross (209 net) wells, and participated in an additional 19 gross (eight net) non-operated wells, in the Permian Basin. Of these 249 gross (216 net) wells, 240 were completed as producing wells and nine were in various stages of completion. In the aggregate, as of June 30, 2013, we held interests in 274 gross (242 net) producing wells in the Permian Basin. As discussed in more detail under Recent Developments Pending Acquisitions, we have entered into agreements to acquire approximately 11,150 additional net acres in the Permian Basin.
+Our activities are primarily focused on the Clearfork, Spraberry, Wolfcamp, Cline, Strawn and Atoka formations, which we refer to collectively as the Wolfberry play. The Wolfberry play is characterized by high oil and liquids rich natural gas, multiple vertical and horizontal target horizons, extensive production history, long-lived reserves and high drilling success rates. The Wolfberry play is a modification and extension of the Spraberry play, the majority of which is designated in the Spraberry Trend area field. According to the U.S. Energy Information Administration, the Spraberry trend area ranks as the second largest oilfield in the United States, based on 2009 reserves. 
+As of December 31, 2012, our estimated proved oil and natural gas reserves were 40,210 MBOE based on a reserve report prepared by Ryder Scott Company, L.P., or Ryder Scott, our independent reserve engineers. Of these reserves, approximately 29.5% are classified as proved developed producing, or PDP. Proved undeveloped, or PUD, reserves included in this estimate are from 306 vertical gross well locations on 40-acre spacing and four gross horizontal well locations. As of December 31, 2012, these proved reserves were approximately 65% oil, 21% natural gas liquids and 14% natural gas. 
+We have 867 identified potential vertical drilling locations on 40-acre spacing based on our evaluation of applicable geologic and engineering data as of June 30, 2013, and we have an additional 1,128 identified potential vertical drilling locations based on 20-acre downspacing. We have also identified 862 potential horizontal drilling locations in multiple horizons on our acreage. We intend to grow our reserves and production through development drilling, exploitation and exploration activities on this multi-year project inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. The gross estimated ultimate recoveries, or EURs, from our future PUD vertical wells on 40-acre spacing, as estimated by Ryder Scott, range from 102 MBOE per well, consisting of 46 MBbls of oil, 151 MMcf of natural gas and 31 MBbls of natural gas liquids, to 158 MBOE per well, consisting of 112 MBbls of oil, 114 MMcf of natural gas and 27 MBbls of natural gas liquids, with an average EUR per well of 133 MBOE, consisting of 91 MBbls of oil, 101 MMcf of natural gas and 25 MBbls of natural gas liquids. We also intend to continue to refine our drilling pattern and completion techniques in an effort to increase our average EUR per well from vertical wells drilled on 40-acre spacing. We currently anticipate a reduction of approximately 20% in our EURs from vertical wells drilled on 20-acre spacing. 
+ 
+Recent Developments 
+Pending Acquisitions. We recently entered into two separate definitive agreements to acquire additional leasehold interests in the Permian Basin for an aggregate purchase price of $165.0 million, subject to certain adjustments. On August 2, 2013, we entered into a purchase and sale agreement in which we agreed to acquire from an unrelated third party certain assets located in northwestern Martin County, Texas, consisting of a 100% working interest (80% net revenue interest) in 4,506 gross and net acres, with 16 gross and net producing vertical wells, an estimated 1,138 MBOE of proved developed reserves (including 167 MBOE attributable to two PDNP wells) as of July 1, 2013 and 457 gross (365 net) BOE per day of production during July 2013. We have identified approximately 96 gross and net horizontal drilling locations on this acreage, of which 32 gross and net locations are located in the Wolfcamp B interval, with lateral lengths expected to range from approximately 5,000 feet to 8,000 feet. In addition, on August 1, 2013, we entered into a purchase and sale agreement in which we agreed to acquire from an unrelated third party certain assets located in southwestern Dawson County, Texas, consisting of a 70% working 
+
+50
+
+Table of Contents
+
+interest (54% net revenue interest) in 9,390 gross (6,647 net) acres, with 28 gross (18 net) producing vertical wells, an estimated 838 MBOE of proved developed reserves (including 77 MBOE attributable to one PDNP well) as of June 1, 2013 and 777 gross (417 net) BOE per day of production during June 2013. We have identified approximately 156 gross (109 net) potential horizontal drilling locations on this acreage, of which 53 gross (37 net) locations are located in the Wolfcamp B interval, with lateral lengths ranging from approximately 5,000 feet to 9,500 feet. Estimated proved reserves for both acquisitions relate solely to existing vertical wells, are based on management s internal assessment of information provided to us in the course of our due diligence, and have not been verified by us or any independent petroleum engineers. Both acquisitions remain subject to completion of due diligence and satisfaction of other closing conditions and may not be completed. We will be the operator of all of the acreage to be acquired in these acquisitions. We expect to close these acquisitions by the end of September 2013. We intend to fund the purchase price for these acquisitions from cash on hand and the net proceeds from this offering. See Use of Proceeds included elsewhere in this prospectus.
+Horizontal Wells. In 2012, we began testing the horizontal well potential of our acreage. Our first horizontal well was the Janey 16H in Upton County with a 3,842 foot lateral in the Wolfcamp B interval. We are the operator of this well with a 100% working interest. It was completed in June 2012 and had a peak 24-hour IP rate of 618 BOE/d and a peak consecutive 30-day average initial production rate of 486 BOE/d, of which 86% was oil. Through June 30, 2013, the Janey 16H had produced a total of 61 MBbls of oil and 73 MMcf of natural gas. Our second horizontal well was the Kemmer 4209H in Midland County. It is a non-operated well in which we own a 47% working interest. It was completed in September 2012 in the Wolfcamp B interval with a 3,733 foot lateral. The production as reported to us by the operator was a peak 24-hour initial production rate of 892 BOE/d and a peak 30-day average initial production rate of 712 BOE/d, of which 85% was oil. Through June 30, 2013, the Kemmer 4209H had produced a total of 63 MBbls of oil and 64 MMcf of natural gas. Based on the decline curve analysis of the current production, we anticipate that the EUR for each of these wells will be in the range of 400 to 500 MBOE. 
+Subsequent to the Janey 16H and Kemmer 4209H wells, we have drilled or are currently drilling 17 horizontal wells as operator and have participated in one additional horizontal well as a non-operator, all of which are Wolfcamp B wells in various stages of development. The table below presents certain data regarding our horizontal wells. 
+ 
+
+Horizontal Wells: Midland County
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+Kemmer 4209H(b)
+ 
+3,733 
+ 
+15
+ 
+892
+ 
+712(d)
+ 
+85%
+
+ST NW 2501H
+ 
+4,451 
+ 
+19
+ 
+1,054
+ 
+655(d)
+ 
+90%
+
+ST NW 2502H
+ 
+4,351 
+ 
+16
+ 
+651
+ 
+500(c)
+ 
+88%
+
+Sarah Ann 3812H(b)
+ 
+4,830 
+ 
+18
+ 
+892
+ 
+711(d)
+ 
+88%
+
+ST W 4301H
+ 
+7,141 
+ 
+29
+ 
+1,136
+ 
+916(d)
+ 
+85%
+
+ST W 701H
+ 
+7,280 
+ 
+29
+ 
+1,042(d)
+ 
+N/A(e)
+ 
+94%
+
+ST W 4302H
+ 
+7,071 
+ 
+30
+ 
+701(d)
+ 
+N/A(e)
+ 
+93%
+
+ST W 706H
+ 
+7,541 
+ 
+Currently completing 30 stage frac
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Horizontal Wells: Upton County
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+Janey 16H
+ 
+3,842 
+ 
+16
+ 
+618
+ 
+486(c)
+ 
+86%
+
+Neal A Unit 8-1H
+ 
+7,441 
+ 
+32
+ 
+871
+ 
+697(c)
+ 
+87%
+
+Janey 3H
+ 
+4,411 
+ 
+19
+ 
+724
+ 
+488(d)
+ 
+82%
+
+Neal B Unit 8-2H
+ 
+6,501 
+ 
+26
+ 
+1,134
+ 
+617(d)
+ 
+73%
+
+Kendra A Unit 1H
+ 
+7,411 
+ 
+30
+ 
+970
+ 
+677(d)
+ 
+82%
+
+Jacee A Unit 1H
+ 
+7,541 
+ 
+30
+ 
+1,085
+ 
+632(d)
+ 
+83%
+
+Janey 2H
+ 
+4,572 
+ 
+19
+ 
+930(d)
+ 
+N/A(e)
+ 
+87%
+
+Janey 4H
+ 
+4,564 
+ 
+10
+ 
+880(d)
+ 
+N/A(e)
+ 
+77%
+
+Charlotte A Unit 1H
+ 
+10,353 
+ 
+Currently completing 39 stage frac
+
+Neal C Unit 8 3H
+ 
+6,851 
+ 
+Currently completing 15 stage frac
+
+51
+
+Table of Contents
+
+Horizontal Wells: Andrews County
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+Peak
+ 
+Peak 30 Day
+ 
+ 
+
+ 
+ 
+Lateral
+ 
+Number of
+ 
+24-HR IP
+ 
+IP Rate
+ 
+ 
+
+Well Name
+ 
+Length
+ 
+Frac Stages
+ 
+(BOE/d)
+ 
+(BOE/d)
+ 
+% Oil(a)
+
+UL III 4-1H
+ 
+4,051 
+ 
+Flowback operations underway
+
+UL Viper 6-1H
+ 
+7,540 
+ 
+Well drilled; frac scheduled
+
+ 
+ 
+ 
+ 
+ 
+
+(a)
+During the period for which the Peak 30 day IP Rate is presented except in the case of the ST W 701H, Janey 2H and Janey 4H wells, which is based on the Peak 24-hour IP rate.
+
+(b)
+Non-operated.
+ 
+ 
+
+(c)
+On gas lift.
+
+(d)
+On sub pump.
+
+(e)
+A peak 30 day IP Rate is not available.
+
+In addition, we are currently drilling three additional horizontal wells. The production results from the wells in Midland and Upton Counties, along with geoscience and engineering data that we have gathered and analyzed, give us confidence that our acreage in Midland and Upton Counties is prospective in the Wolfcamp B interval. 
+Our Business Strategy 
+Our business strategy is to increase stockholder value through the following: 
+
+ 
+Grow production and reserves by developing our oil-rich resource base. We intend to actively drill and develop our acreage base in an effort to maximize its value and resource potential. Through the conversion of our undeveloped reserves to developed reserves, we will seek to increase our production, reserves and cash flow while generating favorable returns on invested capital. As of June 30, 2013, we had 867 identified potential vertical drilling locations and 862 identified potential horizontal drilling locations on our acreage in the Permian Basin based on 40-acre spacing and an additional 1,128 vertical locations based on 20-acre downspacing. We were operating a one vertical rig drilling program as of June 30, 2013, as we increase our focus on horizontal wells. 
+
+ 
+Focus on increasing hydrocarbon recovery through horizontal drilling and increased well density. We believe there are opportunities to target various intervals in the Wolfberry play with horizontal wells. Our initial horizontal focus has been on the Wolfcamp B interval in Midland and Upton Counties. Our first two horizontal wells were completed in 2012 and had lateral lengths of less than 4,000 feet. Subsequently, we have drilled or are currently drilling 17 horizontal wells as operator and have participated in one additional horizontal well as a non-operator, 19 of which are Wolfcamp B wells and one of which is a Clearfork well. These wells have had lateral lengths ranging from approximately 4,300 feet to 10,300 feet. In the future, we expect that our optimal average lateral lengths will be in the range of 7,500 feet to 8,000 feet, although the actual length will vary depending on the layout of our acreage and other factors. We expect that longer lateral lengths will result in higher per well recoveries and lower development costs per BOE. During the first six months of 2013, we were able to drill our horizontal wells with approximately 7,500 foot lateral lengths to total depth in an average of 21 days and we recently drilled a 10,353 foot lateral well in 19 days. Our future horizontal drilling program is designed to further capture the upside potential that may exist on our properties. We also believe our horizontal drilling program may significantly increase our recoveries per section as compared to drilling vertical wells alone. Horizontal drilling may also be economical in areas where vertical drilling is currently not economical or logistically viable. In addition, we believe increased well density opportunities may exist across our acreage base. We closely monitor industry trends with respect to higher well density, which could increase the recovery factor per section and enhance returns since infrastructure is typically in place. We were using three horizontal drilling rigs as of June 30, 2013, and currently intend to add a fourth horizontal rig in the fourth quarter of 2013, and are currently contemplating adding one or two horizontal drilling rigs in 2014.
+
+ 
+Leverage our experience operating in the Permian Basin. Our executive team, which has an average of approximately 24 years of industry experience per person and significant experience in the Permian Basin, intends to continue to seek ways to maximize hydrocarbon recovery by refining and enhancing our drilling and completion techniques. The time to reach total depth, or TD, for our vertical Wolfberry wells decreased from an average of 18 days during the second quarter of 2011 to an average of 14 days during the period from April 2012 through August 2012 to an average of 11 days during the fourth quarter of 2012 to an average of eight days during the second quarter of 2013, with three of our recent vertical wells reaching TD in less than seven days. Our focus on efficient drilling and completion techniques, and the reduction in time to reach TD, is an important part of the continuous 
+
+52
+
+Table of Contents
+
+drilling program we have planned for our significant inventory of identified potential drilling locations. We believe that the experience of our executive team in deviated and horizontal drilling and completions should help reduce the execution risk normally associated with these complex well paths. In addition, our completion techniques are continually evolving as we evaluate hydraulic fracturing practices that may potentially increase recovery and reduce completion costs. Our executive team regularly evaluates our operating results against those of other operators in the area in an effort to benchmark our performance against the best performing operators and evaluate and adopt best practices. 
+
+ 
+Enhance returns through our low cost development strategy of resource conversion, capital allocation and continued improvements in operational and cost efficiencies. In the current commodity price environment, our oil and liquids rich asset base provides attractive returns. Our acreage position in the Wolfberry play is generally in contiguous blocks which allows us to develop this acreage efficiently with a manufacturing strategy that takes advantage of economies of scale and uses centralized production and fluid handling facilities. We are the operator of approximately 99% of our acreage. This operational control allows us to more efficiently manage the pace of development activities and the gathering and marketing of our production and control operating costs and technical applications, including horizontal development. Our average 88% working interest in our acreage allows us to realize the majority of the benefits of these activities and cost efficiencies. 
+
+ 
+Pursue strategic acquisitions with exceptional resource potential. We have a proven history of acquiring leasehold positions in the Permian Basin that have substantial oil-weighted resource potential and can achieve attractive returns on invested capital. Our executive team, with its extensive experience in the Permian Basin, has what we believe is a competitive advantage in identifying acquisition targets and a proven ability to evaluate resource potential. We regularly review acquisition opportunities and intend to pursue acquisitions that meet our strategic and financial targets. As discussed in more detail under Recent Developments Pending Acquisitions, we have entered into agreements to acquire approximately 11,150 additional net acres in the Permian Basin.
+
+ 
+Maintain financial flexibility. We seek to maintain a conservative financial position. Upon completion of our initial public offering in October 2012, we used a portion of the net proceeds from the offering to repay the entire balance outstanding under our revolving credit facility. On December 28, 2012, the borrowing base under our revolving credit facility was redetermined, resulting in an increase in our availability to $135.0 million, and it was redetermined again on May 6, 2013, resulting in an increase in availability to $180.0 million. We used a portion of the net proceeds of our May 2013 common stock offering to repay all borrowings outstanding under our revolving credit facility and, as of the date of this prospectus, we have $180.0 million of borrowing base availability. 
+
+Our Strengths 
+We believe that the following strengths will help us achieve our business goals: 
+
+ 
+Oil rich resource base in one of North America s leading resource plays. All of our leasehold acreage is located in one of the most prolific oil plays in North America, the Permian Basin in West Texas. The majority of our current properties are well positioned in the core of the Wolfberry play. We believe that our historical vertical development success will be complemented with horizontal drilling locations that could ultimately translate into an increased recovery factor on a per section basis. Our production for the six months ended June 30, 2013 was approximately 73% oil, 15% natural gas liquids and 12% natural gas. As of December 31, 2012, our estimated net proved reserves were comprised of approximately 65% oil and 21% natural gas liquids, which allows us to benefit from the currently more favorable pricing of oil and natural gas liquids as compared to natural gas. 
+
+ 
+Multi-year drilling inventory in one of North America s leading oil resource plays. We have identified a multi-year inventory of potential drilling locations for our oil-weighted reserves that we believe provides attractive growth and return opportunities. As of June 30, 2013, we had 867 identified potential vertical drilling locations based on 40-acre spacing and an additional 1,128 identified potential vertical drilling locations based on 20-acre downspacing. We also believe that there are a significant number of horizontal locations that could be drilled on our acreage. Based on our initial results and those of other operators in the area to date, combined with our interpretation of various geologic and engineering data, we have identified 862 potential horizontal locations on our acreage. These locations exist across most of our acreage blocks and in multiple horizons. Of the 862 locations, 376 are in the Wolfcamp A horizon or the Wolfcamp B horizon, with the remaining locations in either the Clearfork, Spraberry, Wolfcamp C or Cline horizons. We have assigned horizontal locations to the Lower Spraberry, but have not assigned locations to other intervals within the Spraberry, which we believe may have development potential. Our current horizontal location count is based on 880 foot spacing between wells in the Wolfcamp B horizon in Midland and Upton Counties, and 1,320 foot spacing between wells in all other counties and horizons. The ultimate inter-well spacing may be less than these amounts, which would result in a higher location count. Based on horizontal wells drilled to date, we currently estimate that EURs for our Wolfcamp B 
+
+53
+
+Table of Contents
+
+horizontal wells will be approximately 550 to 650 MBOE for lateral lengths averaging 7,500 feet. In addition, we have approximately 182 square miles of proprietary 3-D seismic data covering our acreage. This data facilitates the evaluation of our existing drilling inventory and provides insight into future development activity, including horizontal drilling opportunities and strategic leasehold acquisitions. 
+
+ 
+Experienced, incentivized and proven management team. Our executive team has an average of approximately 24 years of industry experience per person, most of which is focused on resource play development. This team has a proven track record of executing on multi-rig development drilling programs and extensive experience in the Permian Basin. In addition, our executive team has significant experience with both drilling and completing horizontal wells as well as horizontal well reservoir and geologic expertise, which will be of strategic importance as we expand our horizontal drilling activity. Prior to joining us, our Chief Executive Officer held management positions at Apache Corporation, Laredo Petroleum Holdings, Inc. and Burlington Resources. 
+
+ 
+Favorable and stable operating environment. We have focused our drilling and development operations in the Permian Basin, one of the oldest hydrocarbon basins in the United States, with a long and well-established production history and developed infrastructure. With approximately 380,000 wells drilled in the Permian Basin since the 1940s, we believe that the geological and regulatory environment is more stable and predictable, and that we are faced with less operational risks, in the Permian Basin as compared to emerging hydrocarbon basins. 
+
+ 
+High degree of operational control. We are the operator of approximately 99% of our Permian Basin acreage. This operating control allows us to better execute on our strategies of enhancing returns through operational and cost efficiencies and increasing ultimate hydrocarbon recovery by seeking to continually improve our drilling techniques, completion methodologies and reservoir evaluation processes. Additionally, as the operator of substantially all of our acreage, we retain the ability to adjust our capital expenditure program based on commodity price outlooks. This operating control also enables us to obtain data needed for efficient exploration of horizontal prospects. 
+
+ 
+Financial flexibility to fund expansion. We have a conservative balance sheet. We will seek to maintain financial flexibility to allow us to actively develop our drilling, exploitation and exploration activities in the Wolfberry play and maximize the present value of our oil-weighted resource potential. As of the date of this prospectus, we had no borrowings outstanding under our revolving credit facility and available borrowing capacity of $180.0 million. We expect that our borrowing base will be further increased as we increase our reserves. 
+
+Our Properties 
+Location and Land 
+We acquired approximately 4,174 net acres in West Texas (near Midland) in the Permian Basin on December 20, 2007, with an effective date of November 1, 2007, from ExL Petroleum, LP, Ambrose Energy I, Ltd. and certain other sellers. Subsequently, we acquired approximately 49,861 additional net acres, which brought our total net acreage position in the Permian Basin to approximately 54,035 net acres at June 30, 2013. Since our initial acquisition in the Permian Basin through June 30, 2013, we drilled or participated in the drilling of 249 gross (216 net) wells on our leasehold in this area, primarily targeting the Wolfberry play. We are the operator of approximately 99% of our Permian Basin acreage. The Permian Basin area covers a significant portion of western Texas and eastern New Mexico and is considered one of the major producing basins in the United States. As discussed in more detail under Recent Developments Pending Acquisitions, we have entered into agreements to acquire approximately 11,150 additional net acres in the Permian Basin.
+Area History 
+Our proved reserves are located in the Permian Basin of West Texas, in particular in the Clearfork, Spraberry, Wolfcamp, Cline, Strawn and Atoka formations. The Spraberry play was initiated with production from several new field discoveries in the late 1940s and early 1950s. It was eventually recognized that a regional productive trend was present, as fields were extended and coalesced over a broad area in the central Midland Basin. Development in the Spraberry play was sporadic over the next several decades due to typically low productive rate wells, with economics being dependent on oil prices and drilling costs. 
+The Wolfcamp formation is a long-established reservoir in West Texas, first found in the 1950s as wells aiming for deeper targets occasionally intersected slump blocks or debris flows with good reservoir properties. Exploration using 2-D seismic data located additional fields, but it was not until the use of 3-D seismic data in the 1990s that the greater extent of the Wolfcamp formation was revealed. The additional potential of the shales within this formation as reservoir rather than just source rocks was not recognized until very recently. 
+During the late 1990s, Atlantic Richfield Company, or Arco, began a drilling program targeting the base of the Spraberry formation at 10,000 feet, with an additional 200 to 300 feet drilled to produce from the upper portion of the Wolfcamp 
+
+54
+
+Table of Contents
+
+formation. Henry Petroleum, a private firm, owned interests in the Pegasus field in Midland and Upton counties. While drilling in the same area as the Arco project, Henry Petroleum decided to drill completely through the Wolfcamp section. Henry Petroleum mapped the trend and began acquiring acreage and drilling wells using multiple slick-water fracturing treatments across the entire Wolfcamp interval. In 2005, former members of Henry Petroleum s Wolfcamp team formed their own private company, ExL Petroleum, and began replicating Henry Petroleum s program. After ExL had drilled 32 productive Wolfcamp/Spraberry wells through late 2007, they monetized a portion of their acreage position, which led to the acquisition that enabled us to begin our participation in this play. Recent advancements in enhanced recovery techniques and horizontal drilling continue to make this play attractive to the oil and gas industry. By mid-2010, approximately half of the rigs active in the Permian Basin were drilling wells in the Wolfberry play. As of June 30, 2013, we held interests in 274 gross (242 net) producing wells. 
+Geology 
+The Permian Basin formed as an area of rapid Mississippian-Pennsylvanian subsidence in the foreland of the Ouachita fold belt. It is one of the largest sedimentary basins in the U.S., and has oil and gas production from several reservoirs from Permian through Ordovician in age. The term Wolfberry was coined initially to indicate commingled production from the Permian Spraberry, Dean and Wolfcamp formations. In this prospectus, we refer to the Clearfork, Spraberry, Wolfcamp, Cline, Strawn and Atoka formations collectively as the Wolfberry play. The Wolfberry play of the Midland Basin lies in the area where the historically productive Spraberry trend geographically overlaps the productive area of the emerging Wolfcamp play. The Spraberry was deposited as turbidites in a deep water submarine fan environment, while the Wolfcamp reservoirs consist of debris-flow and grain-flow sediments, which were also deposited in a submarine fan setting. The best carbonate reservoirs within the Wolfcamp are generally found in proximity to the Central Basin Platform, while the shale reservoirs within the Wolfcamp thicken basinward away from the Central Basin Platform. Both the Spraberry and Wolfcamp contain organic-rich mudstones and shales which, when buried to sufficient depth for maturation, became the source of the hydrocarbons found in the reservoirs. 
+The Wolfberry play can be generally characterized as a combination of low-permeability clastic, carbonate and shale reservoirs which are hydrocarbon-charged and are economic due to the overall thickness of the section (more than 3,000 feet) and application of enhanced stimulation (fracking) techniques. The Wolfberry is an unconventional basin-centered oil resource play, in the sense that there is no regional downdip oil/water contact. 
+Several shale intervals within the Wolfcamp formation are currently being evaluated for horizontal development potential, and initial drilling to explore these intervals commenced in 2012. The shales exhibit micro-darcy permeabilities which result in relatively small drainage areas and recovery factors. Because of this, we believe the horizontal exploitation of these reservoirs will supplement, and not replace, our vertical development program. 
+There are also productive carbonate and shale intervals within the shallower Permian Clearfork formation. Two shale intervals within the Clearfork formation are currently being evaluated for potential horizontal development. Below the Wolfcamp formation lie the Pennsylvanian Strawn and Atoka formations. Although difficult to predict, there are conventional pay intervals that develop locally within these formations which, when present, can add significant reserves. 
+Debris flows within the Spraberry and Wolfcamp carbonates have been observed on 3-D seismic surveys. Initial tests have confirmed the presence of enhanced reservoir. Additionally, structural closures have been mapped and are being evaluated for drilling to test deeper targets. Our extensive geophysical database, which includes approximately 182 square miles of proprietary 3-D seismic data, will be used to enhance grading of future locations. 
+Production Status 
+During the year ended December 31, 2012, net production from our Permian Basin acreage was 1,078,320 BOE, or an average of 2,946 BOE/d, of which 70% was oil, 17% was natural gas liquids and 13% was natural gas. During the six months ended June 30, 2013, our average daily production was approximately 5,694 BOE, of which 73% was oil, 15% was natural gas liquids and 12% was natural gas. 
+Facilities 
+Our land oil and gas processing facilities are typical of those found in the Permian Basin. Our facilities located at well locations include storage tank batteries, oil/gas/water separation equipment and pumping units. 
+
+55
+
+Table of Contents
+
+Future Activity 
+During 2013, we expect to drill an estimated 38 gross (33 net) vertical wells and 33 gross (30 net) horizontal wells on our acreage. We currently estimate that our capital expenditures for 2013 will be between $290.0 million and $320.0 million, which includes costs for infrastructure and non-operated wells but does not include the cost of any land acquisitions. During the six months ended June 30, 2013, we drilled 24 gross (20.5 net) vertical wells and 14 gross (12.5 net) horizontal wells and participated in the drilling of one gross (0.4 net) non-operated well in the Permian Basin. During the six months ended June 30, 2013, our aggregate capital expenditures for drilling and infrastructure were $112.1 million, and we spent an additional $6.2 million for leasehold acquisitions. 
+Oil and Natural Gas Data 
+Proved Reserves 
+SEC Rule-Making Activity 
+In December 2008, the SEC released its final rule for Modernization of Oil and Gas Reporting. These rules require disclosure of oil and gas proved reserves by significant geographic area, using the arithmetic 12-month average beginning-of-the-month price for the year, as opposed to year-end prices as had previously been required, unless contractual arrangements designate the price to be used. Other significant amendments included the following: 
+
+ 
+Disclosure of unproved reserves: probable and possible reserves may be disclosed separately on a voluntary basis. 
+
+ 
+Proved undeveloped reserve guidelines: reserves may be classified as proved undeveloped if there is a high degree of confidence that the quantities will be recovered and they are scheduled to be drilled within the next five years, unless the specific circumstances justify a longer time. 
+
+ 
+Reserves estimation using new technologies: reserves may be estimated through the use of reliable technology in addition to flow tests and production history. 
+
+ 
+Reserves personnel and estimation process: additional disclosure is required regarding the qualifications of the chief technical person who oversees the reserves estimation process. We are also required to provide a general discussion of our internal controls used to assure the objectivity of the reserves estimate. 
+
+ 
+Non-traditional resources: the definition of oil and gas producing activities has expanded and focuses on the marketable product rather than the method of extraction. 
+
+ 
+We adopted the rules effective December 31, 2009, as required by the SEC. 
+
+Evaluation and Review of Reserves 
+Our historical reserve estimates were prepared by Ryder Scott as of December 31, 2012 and 2011 and by Pinnacle as of December 31, 2010, in each case with respect to our assets in the Permian Basin. 
+Each of Ryder Scott and Pinnacle is an independent petroleum engineering firm. The technical persons responsible for preparing our proved reserve estimates meet the requirements with regards to qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Neither independent third-party engineering firm owns an interest in any of our properties or is employed by us on a contingent basis. 
+Under SEC rules, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. If deterministic methods are used, the SEC has defined reasonable certainty for proved reserves as a high degree of confidence that the quantities will be recovered. All of our 2012 proved reserves were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods, (2) volumetric-based methods and (3) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. The proved reserves for our properties were estimated by performance methods, analogy or a combination of both methods. Approximately 85% of the proved producing reserves attributable to producing wells were estimated by performance methods. These 
+
+56
+
+Table of Contents
+
+performance methods include, but may not be limited to, decline curve analysis, which utilized extrapolations of available historical production and pressure data. The remaining 15% of the proved producing reserves were estimated by analogy, or a combination of performance and analogy methods. The analogy method was used where there were inadequate historical performance data to establish a definitive trend and where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate. All proved developed non-producing and undeveloped reserves were estimated by the analogy method. 
+To estimate economically recoverable proved reserves and related future net cash flows, Ryder Scott considered many factors and assumptions, including the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and the SEC pricing requirements and forecasts of future production rates. To establish reasonable certainty with respect to our estimated proved reserves, the technologies and economic data used in the estimation of our proved reserves included production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core analyses, available seismic data and historical well cost and operating expense data. 
+ 
+We maintain an internal staff of petroleum engineers and geoscience professionals who worked closely with our independent reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate our proved reserves relating to our assets in the Permian Basin. Our internal technical team members met with our independent reserve engineers periodically during the period covered by the reserve report to discuss the assumptions and methods used in the proved reserve estimation process. We provide historical information to the independent reserve engineers for our properties such as ownership interest, oil and gas production, well test data, commodity prices and operating and development costs. Our Vice President Reservoir Engineering is primarily responsible for overseeing the preparation of all of our reserve estimates. Our Vice President Reservoir Engineering is a petroleum engineer with over 30 years of reservoir and operations experience and our geoscience staff has an average of approximately 26 years of industry experience per person. Our technical staff uses historical information for our properties such as ownership interest, oil and gas production, well test data, commodity prices and operating and development costs. 
+The preparation of our proved reserve estimates are completed in accordance with our internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following: 
+
+ 
+review and verification of historical production data, which data is based on actual production as reported by us; 
+
+ 
+preparation of reserve estimates by our Vice President Reservoir Engineering or under his direct supervision; 
+
+ 
+review by our Vice President Reservoir Engineering of all of our reported proved reserves at the close of each quarter, including the review of all significant reserve changes and all new proved undeveloped reserves additions; 
+
+ 
+direct reporting responsibilities by our Vice President Reservoir Engineering to our Chief Executive Officer; 
+
+ 
+verification of property ownership by our land department; and 
+
+ 
+no employee s compensation is tied to the amount of reserves booked. 
+
+The following table presents our estimated net proved oil and natural gas reserves and the present value of our reserves as of December 31, 2012 and 2011, based on the reserve report prepared by Ryder Scott, and as of December 31, 2010, based on the reserve report prepared by Pinnacle, each an independent petroleum engineering firm, and such reserve reports have been prepared in accordance with the rules and regulations of the SEC. All our proved reserves included in the reserve reports are located in North America. Ryder Scott and Pinnacle prepared all our reserve estimates as of the periods covered by their respective reports. 
+
+57
+
+Table of Contents
+
+ 
+ 
+ 
+ 
+Historical
+
+ 
+ 
+ 
+ 
+Year Ended December 31,
+
+ 
+ 
+ 
+ 
+2012
+ 
+2011
+ 
+2010
+
+Estimated proved developed reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+7,189,367
+
+ 
+3,949,099
+
+ 
+3,371,460
+
+Natural gas (Mcf)
+ 
+ 
+ 
+12,864,941
+
+ 
+5,285,945
+
+ 
+4,336,720
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+2,999,440
+
+ 
+1,263,710
+
+ 
+1,126,431
+
+Total (BOE)
+ 
+ 
+ 
+12,332,964
+
+ 
+6,093,800
+
+ 
+5,220,678
+
+Estimated proved undeveloped reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+19,007,492
+
+ 
+14,151,337
+
+ 
+16,258,700
+
+Natural gas (Mcf)
+ 
+ 
+ 
+21,705,207
+
+ 
+15,265,522
+
+ 
+18,358,360
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+5,251,989
+
+ 
+3,785,849
+
+ 
+4,706,536
+
+Total (BOE)
+ 
+ 
+ 
+27,877,016
+
+ 
+20,481,440
+
+ 
+24,024,963
+
+Estimated Net Proved Reserves:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+ 
+ 
+ 
+26,196,859
+
+ 
+18,100,436
+
+ 
+19,630,160
+
+Natural gas (Mcf)
+ 
+ 
+ 
+34,570,148
+
+ 
+20,551,467
+
+ 
+22,695,080
+
+Natural gas liquids (Bbls)
+ 
+ 
+ 
+8,251,429
+
+ 
+5,049,559
+
+ 
+5,832,967
+
+Total (BOE)(1)
+ 
+ 
+ 
+40,209,979
+
+ 
+26,575,240
+
+ 
+29,245,641
+
+Percent proved developed
+ 
+ 
+ 
+30.7
+%
+ 
+22.9
+%
+ 
+17.9
+%
+
+______________
+
+(1)
+Estimates of reserves as of December 31, 2012, 2011 and 2010 were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the 12-month periods ended December 31, 2012, 2011 and 2010, respectively, in accordance with revised SEC guidelines applicable to reserve estimates as of the end of such periods. Reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for undeveloped acreage. The reserve estimates represent our net revenue interest in our properties. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates. 
+
+The foregoing reserves are all located within the continental United States. Reserve engineering is a subjective process of estimating volumes of economically recoverable oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results of drilling, testing and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural gas and of future net revenues are based on a number of variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices and future production rates and costs. See Risk Factors beginning on page 15 of this prospectus. We have not filed any estimates of total, proved net oil or natural gas reserves with any federal authority or agency other than the SEC. 
+Additional information regarding our proved reserves can be found in the reserve report as of December 31, 2012 included as Appendix B to this prospectus. 
+Proved Undeveloped Reserves (PUDs) 
+As of December 31, 2012, our proved undeveloped reserves totaled 19,008 MBbls of oil, 21,705 MMcf of natural gas and 5,251 MBbls of natural gas liquids, for a total of 27,877 MBOE. PUDs will be converted from undeveloped to developed as the applicable wells begin production. 
+Changes in PUDs that occurred during 2012 were primarily due to: 
+
+ 
+additions of 3,167 MBOE attributable to extensions resulting from strategic drilling of wells by us to delineate our acreage position; 
+
+ 
+the conversion of approximately 3,224 MBOE attributable to PUDs into proved developed reserves; 
+
+ 
+negative revisions of approximately 625 MBOE in PUDs due to a combination of lower product prices causing wells to reach economic limit earlier, adjustments in working interest and performance revisions; and 
+
+ 
+purchases of reserves in place of 8,077 MBOE. 
+
+58
+
+Table of Contents
+
+Costs incurred relating to the development of PUDs were approximately $50.2 million during 2012. Estimated future development costs relating to the development of PUDs are projected to be approximately $135.8 million in 2013, $132.0 million in 2014, $154.8 million in 2015, $97.9 million in 2016 and $20.0 million in 2017. Since our current executive team assumed management control in 2011, our average drilling costs and drilling times have been reduced. As we continue to develop our properties and have more well production and completion data, we believe we will continue to realize cost savings and experience lower relative drilling and completion costs as we convert PUDs into proved developed reserves in upcoming years. 
+All of our PUD drilling locations are scheduled to be drilled prior to the end of 2017. 
+As of December 31, 2012, 1.2% of our total proved reserves were classified as proved developed non-producing. 
+ 
+Oil and Natural Gas Production Prices and Production Costs 
+Production and Price History 
+The following table sets forth information regarding our net production of oil, natural gas and natural gas liquids, all of which is from the Permian Basin in West Texas, and certain price and cost information for each of the periods indicated: 
+ 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+ 
+Historical
+
+ 
+Six Months Ended June 30,
+ 
+Year Ended December 31,
+
+ 
+2013
+ 
+2012
+ 
+2012
+ 
+2011
+ 
+2010
+
+Production Data:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (Bbls)
+748,244
+
+ 
+317,906
+
+ 
+756,286
+
+ 
+449,434
+
+ 
+280,721
+
+Natural gas (Mcf)
+759,568
+
+ 
+290,171
+
+ 
+833,516
+
+ 
+413,640
+
+ 
+323,847
+
+Natural gas liquids (Bbl)
+155,689
+
+ 
+65,188
+
+ 
+183,114
+
+ 
+86,815
+
+ 
+79,978
+
+Combined volumes (BOE)
+1,030,528
+
+ 
+431,456
+
+ 
+1,078,320
+
+ 
+605,189
+
+ 
+414,674
+
+Daily combined volumes (BOE/d)
+5,694
+
+ 
+2,371
+
+ 
+2,946
+
+ 
+1,658
+
+ 
+1,136
+
+Average Prices(1):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Oil (per Bbl)
+$
+88.59
+
+ 
+$
+91.26
+
+ 
+$
+86.88
+
+ 
+$
+92.24
+
+ 
+$
+76.51
+
+Natural gas (per Mcf)
+3.71
+
+ 
+2.27
+
+ 
+2.85
+
+ 
+3.98
+
+ 
+4.32
+
+Natural gas liquids (per Bbl)
+33.38
+
+ 
+41.59
+
+ 
+37.57
+
+ 
+54.98
+
+ 
+44.56
+
+Combined (per BOE)
+72.10
+
+ 
+75.05
+
+ 
+69.52
+
+ 
+79.11
+
+ 
+63.77
+
+Average Costs (per BOE):
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Lease operating expense
+$
+11.18
+
+ 
+$
+14.64
+
+ 
+$
+15.57
+
+ 
+$
+17.51
+
+ 
+$
+11.07
+
+Gathering and transportation expense
+$
+0.37
+
+ 
+$
+0.34
+
+ 
+$
+0.39
+
+ 
+$
+0.33
+
+ 
+$
+0.26
+
+Production taxes
+$
+3.52
+
+ 
+$
+3.66
+
+ 
+$
+3.42
+
+ 
+$
+3.91
+
+ 
+$
+3.25
+
+Production taxes as a % of sales
+4.9
+%
+ 
+4.9
+%
+ 
+4.9
+%
+ 
+4.9
+%
+ 
+5.1
+%
+
+Depreciation, depletion and amortization
+$
+24.80
+
+ 
+$
+24.14
+
+ 
+$
+24.36
+
+ 
+$
+25.78
+
+ 
+$
+19.64
+
+General and administrative
+$
+4.94
+
+ 
+$
+6.58
+
+ 
+$
+9.62
+
+ 
+$
+6.04
+
+ 
+$
+7.32
+
+______________
+
+(1)
+After giving effect to our hedging arrangements, the average prices per Bbl of oil and per BOE were $85.38 and $69.77, respectively, during the six months ended June 30, 2013, $80.34 and $67.00, respectively, during the six months ended June 30, 2012, $79.68 and $64.47, respectively, during the year ended December 31, 2012, and $92.15 and $79.05, respectively, during the year ended December 31, 2011. Average prices for our hydrocarbons were not impacted by hedging arrangements during 2010. 
+
+Productive Wells 
+As of June 30, 2013, we owned an average 88% working interest in 274 gross (242 net) productive wells. Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. Gross wells are the total number of producing wells in which we have an interest, and net wells are the sum of our fractional working interests owned in gross wells. 
+
+59
+
+Table of Contents
+
+Acreage 
+The following table sets forth information as of June 30, 2013 relating to our leasehold acreage: 
+
+ 
+ 
+Developed Acreage(1)
+ 
+Undeveloped Acreage(2)
+ 
+Total Acreage
+
+Basin
+ 
+Gross(3)
+ 
+Net(4)
+ 
+Gross(3)
+ 
+Net(4)
+ 
+Gross(3)
+ 
+Net(4)
+
+Permian
+ 
+10,520
+
+ 
+8,969
+
+ 
+51,187
+
+ 
+45,066
+
+ 
+61,707
+
+ 
+54,035
+
+___________
+
+(1)
+Developed acres are acres spaced or assigned to productive wells and do not include undrilled acreage held by production under the terms of the lease. 
+
+(2)
+Undeveloped acres are acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether such acreage contains proved reserves. 
+
+(3)
+A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned. 
+
+(4)
+A net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof. 
+
+Undeveloped acreage expirations 
+Many of the leases comprising the undeveloped acreage set forth in the table above will expire at the end of their respective primary terms unless production from the leasehold acreage has been established prior to such date, in which event the lease will remain in effect until the cessation of production. The following table sets forth the gross and net undeveloped acreage, as of December 31, 2012, that will expire over the next five years unless production is established within the spacing units covering the acreage or the lease is renewed or extended under continuous drilling provisions prior to the primary term expiration dates. 
+
+ 
+ 
+2013
+ 
+2014
+ 
+2015
+ 
+2016
+ 
+2017
+
+Basin
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+
+Permian
+ 
+759
+
+ 
+581
+
+ 
+2,651
+
+ 
+2,157
+
+ 
+20,835
+
+ 
+17,286
+
+ 
+6,893
+
+ 
+6,893
+
+ 
+2,626
+
+ 
+1,820
+
+Drilling Results 
+The following table sets forth information with respect to the number of wells completed during the periods indicated. Each of these wells was drilled in the Permian Basin of West Texas. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. Productive wells are those that produce commercial quantities of hydrocarbons, whether or not they produce a reasonable rate of return. 
+
+ 
+Year Ended December 31,
+
+ 
+2012
+ 
+2011
+ 
+2010
+
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+ 
+Gross
+ 
+Net
+
+Development:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Productive
+44
+
+ 
+28
+
+ 
+39
+
+ 
+23
+
+ 
+41
+
+ 
+27
+
+Dry
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Exploratory:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Productive
+14
+
+ 
+7
+
+ 
+7
+
+ 
+4
+
+ 
+ 
+
+ 
+ 
+
+Dry
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+Total:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Productive
+58
+
+ 
+35
+
+ 
+46
+
+ 
+27
+
+ 
+41
+
+ 
+27
+
+Dry
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+ 
+ 
+
+As of December 31, 2012, we had 20 gross (16.3 net) wells in the process of drilling, completing or dewatering or shut in awaiting infrastructure that are not reflected in the above table. 
+
+60
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+
+Title to Properties 
+As is customary in the oil and natural gas industry, we initially conduct only a cursory review of the title to our properties. At such time as we determine to conduct drilling operations on those properties, we conduct a thorough title examination and perform curative work with respect to significant defects prior to commencement of drilling operations. To the extent title opinions or other investigations reflect title defects on those properties, we are typically responsible for curing any title defects at our expense. We generally will not commence drilling operations on a property until we have cured any material title defects on such property. We have obtained title opinions on substantially all of our producing properties and believe that we have satisfactory title to our producing properties in accordance with standards generally accepted in the oil and natural gas industry. Prior to completing an acquisition of producing oil and natural gas leases, we perform title reviews on the most significant leases and, depending on the materiality of properties, we may obtain a title opinion, obtain an updated title review or opinion or review previously obtained title opinions. Our oil and natural gas properties are subject to customary royalty and other interests, liens for current taxes and other burdens which we believe do not materially interfere with the use of or affect our carrying value of the properties. 
+Marketing and Customers 
+We market the majority of the oil and natural gas production from properties we operate for both our account and the account of the other working interest owners in these properties. We sell our natural gas production to purchasers at market prices. In March 2009, we entered into an agreement with Windsor Midstream LLC, or Midstream, an entity controlled by Wexford, our equity sponsor. During 2010 and 2011, Midstream purchased a significant portion of our oil volumes. Effective December 1, 2011 we ceased all sales of our production under this agreement and effective January 1, 2012 the agreement was canceled. We sell all of our natural gas under contracts with terms of greater than twelve months and all of our oil under contracts with terms of twelve months or less, excluding a five year oil purchase agreement with Shell Trading (US) Company, or Shell Trading, described below. 
+We normally sell production to a relatively small number of customers, as is customary in the exploration, development and production business. For the six months ended June 30, 2013, three purchasers accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Shell Trading (US) Company (15%); and Occidental Energy Marketing, Inc. (14%). For the year ended December 31, 2012, three purchasers each accounted for more than 10% of our revenue: Plains Marketing, L.P. (53%); Occidental Energy Marketing, Inc. (16%); and Andrews Oil Buyers, Inc. (10%). For the years ended December 31, 2011 and 2010, one purchaser, Midstream, accounted for approximately 79% of our revenue in both periods. No other customer accounted for more than 10% of our revenue during these periods. If a major customer decided to stop purchasing oil and natural gas from us, revenue could decline and our operating results and financial condition could be harmed. However, based on the current demand for oil and natural gas, and the availability of other purchasers, we believe that the loss of any one or all of our major purchasers would not have a material adverse effect on our financial condition and results of operations, as crude oil and natural gas are fungible products with well-established markets and numerous purchasers. 
+On May 24, 2012, we entered into an oil purchase agreement with Shell Trading, in which we agreed to sell specified quantities of oil to Shell Trading. We are obligated to commence delivery of our oil to Shell Trading upon completion of the reversal of the Magellan Longhorn pipeline and its conversion for oil shipment, which we refer to as the completion date, which is currently anticipated to occur during the third quarter of 2013, although earlier, prorated delivery into the pipeline has begun as the pipeline has commenced line fill and start up operations. We delivered approximately 1,224 gross barrels of oil per day into the pipeline in June 2013 and anticipate additional pro-rated monthly deliveries until reaching full pipeline capacity in late 2013. Our agreement with Shell Trading has an initial term of five years from the completion date. Each party has the right to terminate the agreement by written notice to the other party without any obligations to the other party in the event that the completion date does not occur by January 15, 2014. The agreement may also be terminated by Shell Trading by written notice to us in the event that Shell Trading s contract for transportation on the pipeline is terminated. 
+Our maximum delivery obligation under this agreement is 8,000 gross barrels per day. We have a one-time right to elect to decrease the contract quantity by not more than 20% of the then-current quantity, which decreased contract quantity will be effective for the remainder of the term of the agreement. Shell Trading has agreed to pay to us the price per barrel of oil based on the arithmetic average of the daily settlement price for Light Sweet Crude Oil Prompt Month future contracts reported by the New York Mercantile Exchange over the one-month period, as adjusted based on adjustment formulas specified in the agreement. If we fail to deliver the required quantities of oil under the agreement during any three-month period following the service commencement date, we have agreed to pay Shell Trading a deficiency payment, which is calculated by multiplying (i) the volume of oil that we failed to deliver as required under the agreement during such period by (ii) Magellan s Longhorn Spot tariff rate in effect for transportation from Crane, Texas to the Houston Ship Channel for the period of time for which such deficiency volume is calculated. 
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+Competition 
+The oil and natural gas industry is intensely competitive, and we compete with other companies that have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Our larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than we can, which would adversely affect our competitive position. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties. Further, oil and natural gas compete with other forms of energy available to customers, primarily based on price. These alternate forms of energy include electricity, coal and fuel oils. Changes in the availability or price of oil and natural gas or other forms of energy, as well as business conditions, conservation, legislation, regulations and the ability to convert to alternate fuels and other forms of energy may affect the demand for oil and natural gas. 
+Transportation 
+During the initial development of our fields we consider all gathering and delivery infrastructure in the areas of our production. Our oil is transported from the wellhead to our tank batteries by our gathering systems. The oil is then transported by the purchaser by truck to a tank farm where it is further transported by pipeline. Our natural gas is generally transported from the wellhead to the purchaser s pipeline interconnection point through our gathering system. 
+During the fourth quarter of 2012, we completed construction of a gas gathering system that transports our gas stream to a sour gas pipeline, thereby eliminating the processing and treating expense. In addition, in the first quarter of 2013, we began moving a portion of our produced water by a pipeline connected to a commercial salt water disposal well rather than by truck, and as of July 2013 we were moving a majority of our produced water by pipeline. During the remainder of 2013, we intend to continue the migration of water disposal and oil transportation from truck carriers to pipelines. We believe that the completion of gathering systems, the connection to salt water disposal wells and other actions will help us to reduce our lease operating expense in future periods. 
+Oil and Natural Gas Leases 
+The typical oil and natural gas lease agreement covering our properties provides for the payment of royalties to the mineral owner for all oil and natural gas produced from any wells drilled on the leased premises. The lessor royalties and other leasehold burdens on our properties generally range from 18.75% to 25.00%, resulting in a net revenue interest to us generally ranging from 81.25% to 75.00%. 
+Seasonal Nature of Business 
+Generally, demand for oil and natural gas decreases during the summer months and increases during the winter months. Certain natural gas users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer, which can lessen seasonal demand fluctuations. Seasonal weather conditions and lease stipulations can limit our drilling and producing activities and other oil and natural gas operations in a portion of our operating areas. These seasonal anomalies can pose challenges for meeting our well drilling objectives and can increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay operations. 
+Regulation 
+Oil and natural gas operations such as ours are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities. This legislation and regulation affecting the oil and natural gas industry is under constant review for amendment or expansion. Some of these requirements carry substantial penalties for failure to comply. The regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability. 
+Environmental Matters and Regulation 
+Our oil and natural gas exploration, development and production operations are subject to stringent laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous 
+
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+
+governmental agencies, such as the U.S. Environmental Protection Agency, or the EPA, issue regulations which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from our operations or relate to our owned or operated facilities. The strict and joint and several liability nature of such laws and regulations could impose liability upon us regardless of fault. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect our operations and financial position, as well as the oil and natural gas industry in general. Our management believes that we are in substantial compliance with applicable environmental laws and regulations and we have not experienced any material adverse effect from compliance with these environmental requirements. This trend, however, may not continue in the future. 
+Waste Handling. The Resource Conservation and Recovery Act, as amended, or RCRA, and comparable state statutes and regulations promulgated thereunder, affect oil and natural gas exploration, development and production activities by imposing requirements regarding the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. With federal approval, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Although most wastes associated with the exploration, development and production of crude oil and natural gas are exempt from regulation as hazardous wastes under RCRA, such wastes may constitute solid wastes that are subject to the less stringent requirements of non-hazardous waste provisions. However, we cannot assure you that the EPA or state or local governments will not adopt more stringent requirements for the handling of non-hazardous wastes or categorize some non-hazardous wastes as hazardous for future regulation. Indeed, legislation has been proposed from time to time in Congress to re-categorize certain oil and natural gas exploration, development and production wastes as hazardous wastes. Any such changes in the laws and regulations could have a material adverse effect on our capital expenditures and operating expenses. 
+ 
+Administrative, civil and criminal penalties can be imposed for failure to comply with waste handling requirements. We believe that we are in substantial compliance with applicable requirements related to waste handling, and that we hold all necessary and up-to-date permits, registrations and other authorizations to the extent that our operations require them under such laws and regulations. Although we do not believe the current costs of managing our wastes, as presently classified, to be significant, any legislative or regulatory reclassification of oil and natural gas exploration and production wastes could increase our costs to manage and dispose of such wastes. 
+Remediation of Hazardous Substances. The Comprehensive Environmental Response, Compensation and Liability Act, as amended, also known as CERCLA or the Superfund law, and analogous state laws, generally imposes strict and joint and several liability, without regard to fault or legality of the original conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current owner or operator of a contaminated facility, a former owner or operator of the facility at the time of contamination, and those persons that disposed or arranged for the disposal of the hazardous substance at the facility. Under CERCLA and comparable state statutes, persons deemed responsible parties may be subject to strict and joint and several liability for the costs of removing or remediating previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination), for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. In the course of our operations, we use materials that, if released, would be subject to CERCLA and comparable state statutes. Therefore, governmental agencies or third parties may seek to hold us responsible under CERCLA and comparable state statutes for all or part of the costs to clean up sites at which such hazardous substances have been released. 
+Water Discharges. The Federal Water Pollution Control Act of 1972, as amended, also known as the Clean Water Act, the Safe Drinking Water Act, the Oil Pollution Act, or OPA, and analogous state laws and regulations promulgated thereunder impose restrictions and strict controls regarding the unauthorized discharge of pollutants, including produced waters and other gas and oil wastes, into navigable waters of the United States, as well as state waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the state. The Clean Water Act and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including 
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+
+jurisdictional wetlands, unless authorized by an appropriately issued permit. Spill prevention, control and countermeasure plan requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. These laws and regulations also prohibit certain activity in wetlands unless authorized by a permit issued by the U.S. Army Corps of Engineers. The EPA has also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain individual permits or coverage under general permits for storm water discharges. In addition, on October 20, 2011, the EPA announced a schedule to develop pre-treatment standards for wastewater discharges produced by natural gas extraction from underground coalbed and shale formations. The EPA stated that it will gather data, consult with stakeholders, including ongoing consultation with industry, and solicit public comment on a proposed rule for coalbed methane in 2013 and a proposed rule for shale gas in 2014. Costs may be associated with the treatment of wastewater or developing and implementing storm water pollution prevention plans, as well as for monitoring and sampling the storm water runoff from certain of our facilities. Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions. 
+The Oil Pollution Act is the primary federal law for oil spill liability. The OPA contains numerous requirements relating to the prevention of and response to petroleum releases into waters of the United States, including the requirement that operators of offshore facilities and certain onshore facilities near or crossing waterways must develop and maintain facility response contingency plans and maintain certain significant levels of financial assurance to cover potential environmental cleanup and restoration costs. The OPA subjects owners of facilities to strict, joint and several liability for all containment and cleanup costs and certain other damages arising from a release, including, but not limited to, the costs of responding to a release of oil to surface waters. 
+Noncompliance with the Clean Water Act or OPA may result in substantial administrative, civil and criminal penalties, as well as injunctive obligations. We believe we are in material compliance with the requirements of each of these laws. 
+Air Emissions. The federal Clean Air Act, as amended, and comparable state laws and regulations, regulate emissions of various air pollutants through the issuance of permits and the imposition of other requirements. The EPA has developed, and continues to develop, stringent regulations governing emissions of air pollutants at specified sources. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. For example, on August 16, 2012, the EPA published final regulations under the federal Clean Air Act that establish new emission controls for oil and natural gas production and processing operations, which regulations are discussed in more detail below in Regulation of Hydraulic Fracturing. These laws and regulations may increase the costs of compliance for some facilities we own or operate, and federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal Clean Air Act and associated state laws and regulations. We believe that we are in substantial compliance with all applicable air emissions regulations and that we hold all necessary and valid construction and operating permits for our operations. Obtaining or renewing permits has the potential to delay the development of oil and natural gas projects. 
+Climate Change. In December 2009, the EPA issued an Endangerment Finding that determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because, according to the EPA, emissions of such gases contribute to warming of the earth s atmosphere and other climatic changes. These findings by the EPA allowed the agency to proceed with the adoption and implementation of regulations that would restrict emissions of GHGs under existing provisions of the federal Clean Air Act. Subsequently, the EPA adopted two sets of related rules, one of which purports to regulate emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources of emissions such as power plants or industrial facilities. The EPA finalized the motor vehicle rule, which purports to limit emissions of GHGs from motor vehicles manufactured in model years 2012 2016, in April 2010 and it became effective in January 2011. A recent rulemaking proposal by the EPA and the Department of Transportation s National Highway Traffic Safety Administration seeks to expand the motor vehicle rule to include vehicles manufactured in model years 2017-2025. The EPA adopted the stationary source rule, also known as the Tailoring Rule, in May 2010, and it also became effective in January 2011. The Tailoring Rule establishes new GHG emissions thresholds that determine when stationary sources must obtain permits under the Prevention of Significant Deterioration, or PSD, and Title V programs of the Clean Air Act. Facilities required to obtain PSD permits for their GHG emissions also will be required to meet best available control technology standards, which will be established by the states or, in some instances, by the EPA on a case-by-case basis. Additionally, in September 2009, the EPA issued a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the U.S., including natural gas liquids fractionators and local natural gas/distribution companies, beginning in 2011 for emissions occurring in 2010. In November 2010, the EPA expanded its existing GHG reporting rule to include onshore and offshore oil and natural gas production and onshore processing, transmission, storage and distribution facilities, which may include certain of our facilities, beginning in 2012 for emissions occurring in 2011. In addition, the EPA has continued to adopt GHG regulations of other industries, such as the March 2012 proposed GHG rule restricting future development of coal-fired power plants. The proposed rule underwent an extended public comment process, which concluded on June 25, 2012. The EPA is also under a legal obligation pursuant to a consent decree with certain environmental groups to 
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+issue new source performance standards for refineries. The EPA is also considering additional regulation of greenhouse gases as air pollutants. As a result of this continued regulatory focus, future GHG regulations of the oil and gas industry remain a possibility. 
+ 
+In addition, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of greenhouse gases and almost one-half of the states have already taken legal measures to reduce emissions of greenhouse gases primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Although the U.S. Congress has not adopted such legislation at this time, it may do so in the future and many states continue to pursue regulations to reduce greenhouse gas emissions. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants or major producers of fuels, such as refineries and gas processing plants, to acquire and surrender emission allowances that correspond to their annual emissions of GHGs. The number of allowances available for purchase is reduced each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of such allowances is expected to escalate significantly. 
+Restrictions on emissions of methane or carbon dioxide that may be imposed in various states could adversely affect the oil and natural gas industry. Currently, while we are subject to certain federal GHG monitoring and reporting requirements, our operations are not adversely impacted by existing federal, state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business. 
+In addition, there has been public discussion that climate change may be associated with extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels. Another possible consequence of climate change is increased volatility in seasonal temperatures. Some studies indicate that climate change could cause some areas to experience temperatures substantially colder than their historical averages. Extreme weather conditions can interfere with our production and increase our costs and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting our operations. 
+Regulation of Hydraulic Fracturing 
+Hydraulic fracturing is an important common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations, including shales. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The federal Safe Drinking Water Act, or SDWA, regulates the underground injection of substances through the Underground Injection Control, or UIC, program. Hydraulic fracturing generally is exempt from regulation under the UIC program, and the hydraulic fracturing process is typically regulated by state oil and gas commissions. The EPA, however, has recently taken the position that hydraulic fracturing with fluids containing diesel fuel is subject to regulation under the UIC program, specifically as Class II UIC wells. At the same time, the White House Council on Environmental Quality is coordinating an administration wide review of hydraulic fracturing practices and the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities. Moreover, the EPA announced on October 20, 2011 that it is also launching a study regarding wastewater resulting from hydraulic fracturing activities and currently plans to propose standards by 2014 that such wastewater must meet before being transported to a treatment plant. As part of these studies, the EPA has requested that certain companies provide them with information concerning the chemicals used in the hydraulic fracturing process. These studies, depending on their results, could spur initiatives to regulate hydraulic fracturing under the SDWA or otherwise. 
+Legislation to amend the SDWA to repeal the exemption for hydraulic fracturing from the definition of underground injection and require federal permitting and regulatory control of hydraulic fracturing, as well as legislative proposals to require disclosure of the chemical constituents of the fluids used in the fracturing process, were proposed in recent sessions of Congress. 
+On August 16, 2012, the EPA approved final regulations under the federal Clean Air Act that establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA s rule package includes New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds, or VOCs, and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities. The final rule seeks to achieve a 95% reduction in VOCs emitted by requiring the use of reduced emission completions or green completions on all hydraulically-fractured wells constructed or refractured after January 1, 2015. The rules also establish specific new requirements regarding emissions from compressors, controllers, dehydrators, storage tanks and other production equipment. These rules will require a number of modifications to our operations, including the installation of new equipment to control emissions from our wells by January 1, 2015. The EPA received numerous requests for reconsideration of these rules from both industry and the environmental community, and court challenges to the rules were 
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+also filed. The EPA intends to issue revised rules in 2013 that are likely responsive to some of these requests. For example, on April 12, 2013, the EPA published a proposed amendment extending compliance dates for certain storage vessels. The final revised rules could require modifications to our operations or increase our capital and operating costs without being offset by increased product capture. At this point, we cannot predict the final regulatory requirements or the cost to comply with such requirements with any certainty. In addition, the U.S. Department of the Interior published a revised proposed rule on May 24, 2013 that would update existing regulation for hydraulic fracturing activities on federal lands, including requirements for disclosure, well bore integrity and handling of flowback water. 
+In addition, there are certain governmental reviews either underway or being proposed that focus on environmental aspects of hydraulic fracturing practices. The federal government is currently undertaking several studies of hydraulic fracturing s potential impacts, the results of which are expected between later in 2013 and 2014. These ongoing or proposed studies, depending on their degree of pursuit and whether any meaningful results are obtained, could spur initiatives to further regulate hydraulic fracturing under the SDWA or other regulatory authorities. The U.S. Department of Energy has conducted an investigation into practices the agency could recommend to better protect the environment from drilling using hydraulic-fracturing completion methods. Additionally, certain members of Congress have called upon the U.S. Government Accountability Office to investigate how hydraulic fracturing might adversely affect water resources, the SEC to investigate the natural-gas industry and any possible misleading of investors or the public regarding the economic feasibility of pursuing natural gas deposits in shale formations by means of hydraulic fracturing, and the U.S. Energy Information Administration to provide a better understanding of that agency s estimates regarding natural gas reserves, including reserves from shale formations, as well as uncertainties associated with those estimates. 
+Several states, including Texas, have adopted, or are considering adopting, regulations that could restrict or prohibit hydraulic fracturing in certain circumstances and/or require the disclosure of the composition of hydraulic fracturing fluids. The Texas Legislature adopted new legislation requiring oil and gas operators to publicly disclose the chemicals used in the hydraulic fracturing process, effective as of September 1, 2011. The Texas Railroad Commission has adopted rules and regulations implementing this legislation that will apply to all wells for which the Railroad Commission issues an initial drilling permit on or after February 1, 2012. The new law requires that the well operator disclose the list of chemical ingredients subject to the requirements of the federal Occupational Safety and Health Act (OSHA) for disclosure on an internet website and also file the list of chemicals with the Texas Railroad Commission with the well completion report. The total volume of water used to hydraulically fracture a well must also be disclosed to the public and filed with the Texas Railroad Commission. 
+There has been increasing public controversy regarding hydraulic fracturing with regard to the use of fracturing fluids, impacts on drinking water supplies, use of water and the potential for impacts to surface water, groundwater and the environment generally. A number of lawsuits and enforcement actions have been initiated across the country implicating hydraulic fracturing practices. If new laws or regulations that significantly restrict hydraulic fracturing are adopted, such laws could make it more difficult or costly for us to perform fracturing to stimulate production from tight formations as well as make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is further regulated at the federal or state level, our fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such legislative changes could cause us to incur substantial compliance costs, and compliance or the consequences of any failure to comply by us could have a material adverse effect on our financial condition and results of operations. At this time, it is not possible to estimate the impact on our business of newly enacted or potential federal or state legislation governing hydraulic fracturing. 
+Other Regulation of the Oil and Natural Gas Industry 
+The oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting the oil and natural gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations that are binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production. 
+The availability, terms and cost of transportation significantly affect sales of oil and natural gas. The interstate transportation and sale for resale of oil and natural gas is subject to federal regulation, including regulation of the terms, conditions and rates for interstate transportation, storage and various other matters, primarily by the Federal Energy Regulatory 
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+Commission, or FERC. Federal and state regulations govern the price and terms for access to oil and natural gas pipeline transportation. FERC s regulations for interstate oil and natural gas transmission in some circumstances may also affect the intrastate transportation of oil and natural gas. 
+Although oil and natural gas prices are currently unregulated, Congress historically has been active in the area of oil and natural gas regulation. We cannot predict whether new legislation to regulate oil and natural gas might be proposed, what proposals, if any, might actually be enacted by Congress or the various state legislatures, and what effect, if any, the proposals might have on our operations. Sales of condensate and oil and natural gas liquids are not currently regulated and are made at market prices. 
+Drilling and Production. Our operations are subject to various types of regulation at the federal, state and local level. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations. The state, and some counties and municipalities, in which we operate also regulate one or more of the following: 
+
+ 
+the location of wells; 
+
+ 
+the method of drilling and casing wells; 
+
+ 
+the timing of construction or drilling activities, including seasonal wildlife closures; 
+
+ 
+the rates of production or allowables ; 
+
+ 
+the surface use and restoration of properties upon which wells are drilled; 
+
+ 
+the plugging and abandoning of wells; and 
+
+ 
+notice to, and consultation with, surface owners and other third parties. 
+
+State laws regulate the size and shape of drilling and spacing units or proration units governing the pooling of oil and natural gas properties. Some states allow forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In some instances, forced pooling or unitization may be implemented by third parties and may reduce our interest in the unitized properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose requirements regarding the ratability of production. These laws and regulations may limit the amount of oil and natural gas we can produce from our wells or limit the number of wells or the locations at which we can drill. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction. States do not regulate wellhead prices or engage in other similar direct regulation, but we cannot assure you that they will not do so in the future. The effect of such future regulations may be to limit the amounts of oil and natural gas that may be produced from our wells, negatively affect the economics of production from these wells or to limit the number of locations we can drill. 
+Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production facilities and pipelines and for site restoration in areas where we operate. The U.S. Army Corps of Engineers and many other state and local authorities also have regulations for plugging and abandonment, decommissioning and site restoration. Although the U.S. Army Corps of Engineers does not require bonds or other financial assurances, some state agencies and municipalities do have such requirements. 
+Natural Gas Sales and Transportation. Historically, federal legislation and regulatory controls have affected the price of the natural gas we produce and the manner in which we market our production. FERC has jurisdiction over the transportation and sale for resale of natural gas in interstate commerce by natural gas companies under the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. Since 1978, various federal laws have been enacted which have resulted in the complete removal of all price and non-price controls for sales of domestic natural gas sold in first sales, which include all of our sales of our own production. Under the Energy Policy Act of 2005, FERC has substantial enforcement authority to prohibit the manipulation of natural gas markets and enforce its rules and orders, including the ability to assess substantial civil penalties. 
+FERC also regulates interstate natural gas transportation rates and service conditions and establishes the terms under which we may use interstate natural gas pipeline capacity, which affects the marketing of natural gas that we produce, as well as the revenues we receive for sales of our natural gas and release of our natural gas pipeline capacity. Commencing in 1985, FERC promulgated a series of orders, regulations and rule makings that significantly fostered competition in the business of transporting and marketing gas. Today, interstate pipeline companies are required to provide nondiscriminatory transportation services to producers, marketers and other shippers, regardless of whether such shippers are affiliated with an interstate pipeline company. FERC s initiatives have led to the development of a competitive, open access market for natural gas purchases and sales that permits all purchasers of natural gas to buy gas directly from third-party sellers other than pipelines. However, the natural gas industry historically has been very heavily regulated; therefore, we cannot guarantee that the less stringent 
+
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+
+regulatory approach currently pursued by FERC and Congress will continue indefinitely into the future nor can we determine what effect, if any, future regulatory changes might have on our natural gas related activities. 
+Under FERC s current regulatory regime, transmission services must be provided on an open-access, non-discriminatory basis at cost-based rates or at market-based rates if the transportation market at issue is sufficiently competitive. Gathering service, which occurs upstream of jurisdictional transmission services, is regulated by the states onshore and in state waters. Although its policy is still in flux, FERC has in the past reclassified certain jurisdictional transmission facilities as non-jurisdictional gathering facilities, which has the tendency to increase our costs of transporting gas to point-of-sale locations. 
+Oil Sales and Transportation. Sales of crude oil, condensate and natural gas liquids are not currently regulated and are made at negotiated prices. Nevertheless, Congress could reenact price controls in the future. 
+Our crude oil sales are affected by the availability, terms and cost of transportation. The transportation of oil in common carrier pipelines is also subject to rate regulation. FERC regulates interstate oil pipeline transportation rates under the Interstate Commerce Act and intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect our operations in any materially different way than such regulation will affect the operations of our competitors. 
+Further, interstate and intrastate common carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full capacity, access is governed by prorationing provisions set forth in the pipelines published tariffs. Accordingly, we believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our competitors. 
+State Regulation. Texas regulates the drilling for, and the production, gathering and sale of, oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits. Texas currently imposes a 4.6% severance tax on oil production and a 7.5% severance tax on natural gas production. States also regulate the method of developing new fields, the spacing and operation of wells and the prevention of waste of oil and natural gas resources. States may regulate rates of production and may establish maximum daily production allowables from oil and natural gas wells based on market demand or resource conservation, or both. States do not regulate wellhead prices or engage in other similar direct economic regulation, but we cannot assure you that they will not do so in the future. The effect of these regulations may be to limit the amount of oil and natural gas that may be produced from our wells and to limit the number of wells or locations we can drill. 
+The petroleum industry is also subject to compliance with various other federal, state and local regulations and laws. Some of those laws relate to resource conservation and equal employment opportunity. We do not believe that compliance with these laws will have a material adverse effect on us. 
+Operational Hazards and Insurance 
+The oil business involves a variety of operating risks, including the risk of fire, explosions, blow outs, pipe failures and, in some cases, abnormally high pressure formations which could lead to environmental hazards such as oil spills, natural gas leaks and the discharge of toxic gases. If any of these should occur, we could incur legal defense costs and could be required to pay amounts due to injury, loss of life, damage or destruction to property, natural resources and equipment, pollution or environmental damage, regulatory investigation and penalties and suspension of operations. 
+In accordance with what we believe to be industry practice, we maintain insurance against some, but not all, of the operating risks to which our business is exposed. We currently have insurance policies for onshore property (oil lease property/production equipment) for selected locations, rig physical damage protection, control of well protection for selected wells, comprehensive general liability, commercial automobile, workers compensation, pollution liability (claims made coverage with a policy retroactive date), excess umbrella liability and other coverage. 
+Our insurance is subject to exclusion and limitations, and there is no assurance that such coverage will fully or adequately protect us against liability from all potential consequences, damages and losses. Any of these operational hazards could cause a significant disruption to our business. A loss not fully covered by insurance could have a material adverse affect on our financial position, results of operations and cash flows. See Risk Factors Risks Related to the Oil and Natural Gas Industry and Our Business Operating hazards and uninsured risks may result in substantial losses and could prevent us from realizing profits on page 29 of this prospectus. 
+
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+
+We reevaluate the purchase of insurance, policy terms and limits annually. Future insurance coverage for our industry could increase in cost and may include higher deductibles or retentions. In addition, some forms of insurance may become unavailable in the future or unavailable on terms that we believe are economically acceptable. No assurance can be given that we will be able to maintain insurance in the future at rates that we consider reasonable and we may elect to maintain minimal or no insurance coverage. We may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause us to restrict our operations, which might severely impact our financial position. The occurrence of a significant event, not fully insured against, could have a material adverse effect on our financial condition and results of operations. 
+Generally, we also require our third party vendors to sign master service agreements in which they agree to indemnify us for injuries and deaths of the service provider s employees as well as contractors and subcontractors hired by the service provider. 
+Employees 
+As of June 30, 2013, we had approximately 62 full time employees. None of our employees are represented by labor unions or covered by any collective bargaining agreements. We also hire independent contractors and consultants involved in land, technical, regulatory and other disciplines to assist our full time employees. 
+Facilities 
+Our corporate headquarters is located in Midland, Texas. We also lease additional office space in Midland and in Oklahoma City, Oklahoma. We believe that our facilities are adequate for our current operations. 
+Legal Proceedings 
+In September 2010, Windsor Permian (now known as Diamondback O&G LLC) purchased certain property in Goodhue County, Minnesota from Scott and Susan Wesch that was prospective for hydraulic fracturing grade sand. Prior to this purchase, Scott and Susan Wesch had entered into a Mineral Development Agreement with Robert Stein, and Windsor Permian purchased the property subject to that agreement. Windsor Permian subsequently contributed the property to Muskie. In an amended complaint filed in November 2012 by Robert Stein against Scott and Susan Wesch, Windsor Permian and certain affiliates of Windsor Permian in the first judicial district court in Goodhue County, Minnesota, Stein seeks damages from Windsor Permian and the other defendants alleging, among other things, interference with contractual relationship, interference with prospective advantage and unjust enrichment. In an order filed on May 24, 2013, the judge denied certain motions made by the defendants and set a trial date to determine liability, with a damage phase of the matter to commence on a later date if there is a determination of liability. Following a trial on the liability phase on June 21, 2013, the jury determined that the defendants intentionally interfered with plaintiff s contract but that the interference did not cause the plaintiff to be unable to acquire mining permits prior to the enactment of a frac sand mining moratorium by Goodhue County. In an order filed on July 10, 2013, the judge ordered the damage phase to be set for trial following a pretrial and scheduling conference set for August 12, 2013. We believe these claims are without merit and will continue to vigorously defend this action. While management has determined that the possibility of loss is remote, litigation is inherently uncertain and management cannot determine the amount of loss, if any, that may result.
+We could be subject to various possible loss contingencies which arise primarily from interpretation of federal and state laws and regulations affecting the natural gas and crude oil industry. Such contingencies include differing interpretations as to the prices at which natural gas and crude oil sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Management believes it has complied with the various laws and regulations, administrative rulings and interpretations. 
+Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers compensation claims and employment related disputes. In the opinion of our management, none of these other pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations. 
+
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+
+MANAGEMENT
+Executive Officers and Directors
+Set forth below is the name, age, position and a brief account of the business experience of each of our executive officers and directors as of June 30, 2013. 
+
+Name
+ 
+Age
+ 
+Position
+
+Travis D. Stice 
+ 
+51
+ 
+Chief Executive Officer, Director
+
+Teresa L. Dick 
+ 
+43
+ 
+Chief Financial Officer, Senior Vice President
+
+Russell Pantermuehl 
+ 
+53
+ 
+Vice President Reservoir Engineering
+
+Paul Molnar 
+ 
+57
+ 
+Vice President Geoscience
+
+Michael Hollis 
+ 
+38
+ 
+Vice President Drilling
+
+William Franklin 
+ 
+58
+ 
+Vice President Land
+
+Jeff White 
+ 
+57
+ 
+Vice President Operations
+
+Randall J. Holder 
+ 
+60
+ 
+Vice President, General Counsel and Secretary
+
+Steven E. West 
+ 
+52
+ 
+Director
+
+Michael P. Cross 
+ 
+61
+ 
+Director
+
+David L. Houston 
+ 
+60
+ 
+Director
+
+Mark L. Plaumann 
+ 
+57
+ 
+Director
+
+Travis D. Stice Chief Executive Officer Mr. Stice has served as our Chief Executive Officer since January 2012 and as a director of our Company since November 2012. Prior to his current position with us, he served as our President and Chief Operating Officer from April 2011 to January 2012. Mr. Stice has also served on the board of managers of MidMar Gas LLC, or MidMar, an entity that owns a gas gathering system and processing plant, since 2011 and as Vice President and Secretary of MidMar since April 2012. From November 2010 to April 2011, Mr. Stice served as a Production Manager of Apache Corporation, an oil and gas exploration company. Mr. Stice served as a Vice President of Laredo Petroleum Holdings, Inc, an oil and gas exploration company, from September 2008 to September 2010. From April 2006 until August 2008, Mr. Stice served as a Development Manager of ConocoPhillips/Burlington Resources Mid-Continent Business Unit, an oil and gas exploration company. Prior to that, Mr. Stice held a series of positions at Burlington Resources, an oil and gas exploration company, most recently as a General Manager, Engineering, Operations and Business Reporting of its Mid Continent Division from January 2001 until Burlington Resources acquisition by ConocoPhillips in March 2006. Mr. Stice has over 26 years of industry experience in production operations, reservoir engineering, production engineering and unconventional oil and gas exploration and over 18 years of management experience. Mr. Stice graduated from Texas A&M University with a Bachelor of Science degree in Petroleum Engineering. Mr. Stice is a registered engineer in the State of Texas, and is a 25-year member of the Society of Petroleum Engineers. 
+Teresa L. Dick Chief Financial Officer, Senior Vice President Ms. Dick has served as our Chief Financial Officer and Senior Vice President since November 2009. Prior to her current position with us, Ms. Dick served as our Corporate Controller from November 2007 until November 2009. From June 2006 to November 2007, Ms. Dick held a key management position as the Controller/Tax Director at Hiland Partners, a publicly-traded midstream energy master limited partnership. Ms. Dick has over 19 years of accounting experience, including over eight years of public company experience in both audit and tax areas. Ms. Dick received her Bachelor of Business Administration degree in Accounting from the University of Northern Colorado. Ms. Dick is a certified public accountant and a member of the American Institute of CPAs and the Council of Petroleum Accountants Societies. 
+Russell Pantermuehl Vice President Reservoir Engineering Mr. Pantermuehl joined us in August 2011 as Vice President Reservoir Engineering. Prior to his current position with us, Mr. Pantermuehl served as a reservoir engineering supervisor for Concho Resources Inc., an oil and gas exploration company, from March 2010 to August 2011. Mr. Pantermuehl worked for ConocoPhillips Company as a reservoir engineering advisor from January 2005 to March 2010. Mr. Pantermuehl also worked as an independent consultant in the oil and gas industry from March 2000 to December 2004. Mr. Pantermuehl received a Bachelor of Science degree in Petroleum Engineering from Texas A&M University. 
+
+70
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+
+Paul Molnar Vice President Geoscience Mr. Molnar joined us in August 2011 as Vice President Geoscience. Prior to his current position with us, Mr. Molnar served as a Senior District Geologist for Samson Investment Company, an oil and gas exploration company, from March 2011 to August 2011. Mr. Molnar worked as an asset supervisor and geosciences supervisor for ConocoPhillips Company from April 2006 to February 2011. Mr. Molnar also worked as a geologic advisor for Burlington Resources, an oil and gas exploration company, from December 1996 to March 2006. Mr. Molnar has over 31 years of industry experience. Mr. Molnar received a Master of Science degree in Geology from The State University of New York at Buffalo, New York. 
+Michael Hollis Vice President Drilling Mr. Hollis joined us in September 2011 as Vice President Drilling. Prior to his current position with us, Mr. Hollis served in various roles, most recently as drilling manager at Chesapeake Energy Corporation, an oil and gas exploration company, from June 2006 to September 2011. Mr. Hollis worked for ConocoPhillips Company as a senior drilling engineer from January 2004 to June 2006 and as a process engineer from 2001 to 2003. Mr. Hollis also worked as a production engineer for Burlington Resources from 1998 to 2001 as well as from June 2003 to January 2004. Mr. Hollis received his Bachelor of Science degree in Chemical Engineering from Louisiana State University. 
+William Franklin Vice President Land Mr. Franklin joined us in August 2011 as Vice President Land. Prior to his current position with us, Mr. Franklin worked for ConocoPhillips Company in various land management roles from May 1983 until July 2011. Mr. Franklin received a Bachelor of Arts degree in History from Oklahoma City University. 
+Jeff White Vice President Operations Mr. White joined us in September 2011 as Vice President Operations. Prior to his current position with us, Mr. White worked for Laredo Petroleum Holdings, Inc. as a completion manager from May 2010 to September 2011. Mr. White also worked as a staff engineer for ConocoPhillips from February 2007 to May 2009. In addition, he worked in various engineering and management positions with Anadarko Petroleum from June 1988 to June 2005. Mr. White received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University. He also received a Bachelor of Science degree in Fishery Biology from New Mexico State University. 
+Randall J. Holder Vice President, General Counsel and Secretary Mr. Holder joined us in November 2011 as General Counsel and Vice President responsible for legal and human resources. Prior to his current position with us, Mr. Holder served as General Counsel and Vice President for Great White Energy Services LLC, an oilfield services company, from November 2008 to November 2011. Mr. Holder served as Executive Vice President and General Counsel for R.L. Hudson and Company, a supplier of molded rubber and plastic components, from February 2007 to October 2008. Mr. Holder was in private practice of law and a member of Holder Betz LLC from February 2005 to February 2007. Mr. Holder served as Vice President and Assistant General Counsel for Dollar Thrifty Automotive Group, a vehicle rental company, from January 2003 to February 2005 and, before that, as Vice President and General Counsel for Thrifty Rent-A-Car System, Inc., a vehicle rental company, from September 1996 to December 2002. He also served as Vice President and General Counsel for Pentastar Transportation Group, Inc. from November 1992 to September 1996, which was wholly-owned by Chrysler Corporation. Mr. Holder started his legal career with Tenneco Oil Company where he served as a Division Attorney providing legal services to the company s mid-continent division for ten years. Mr. Holder received a Juris Doctorate degree from Oklahoma City University. 
+Steven E. West Director Mr. West has served as a director of our company since December 2011 and Chairman of the Board since October 2012. Mr. West served as our Chief Executive Officer from January 1, 2009 to December 31, 2011. Since January 2011, Mr. West has been a partner at Wexford Capital LP, focusing on Wexford s private equity energy investments. From August 2006 until December 2010, Mr. West served as senior portfolio advisor at Wexford. From August 2003 until August 2006, Mr. West was the chief financial officer of Sunterra Corporation, a former Wexford portfolio company. From December 1993 until July 2003, Mr. West held senior financial positions at Coast Asset Management and IndyMac Bank. Prior to that, Mr. West worked at First Nationwide Bank, Lehman Brothers and Peat Marwick Mitchell & Co., the predecessor of KPMG LLP. Mr. West holds a Bachelor of Science degree in Accounting from California State University, Chico. We believe Mr. West s background in finance, accounting and private equity energy investments, as well as his executive management skills developed as part of his career with Wexford, its portfolio companies and other financial institutions qualify him to serve on our board of directors. 
+Michael P. Cross Director Mr. Cross has served as a director of our company since October 2012. Mr. Cross is President and owner of Michael P. Cross, Inc., an independent oil and natural gas producer, a position he has held since July 1994. Mr. Cross also currently serves as a director of Warren Equipment Company, a position he has held since 2002. Mr. Cross has also served as a member of the Oklahoma Energy Resources Board since February 2005 and has been a member of the Executive Committee since 2007. Mr. Cross also served as a member of the Board of Directors of the Oklahoma Independent Petroleum Association for over 15 years. Mr. Cross served on the Board of Directors for OGE Energy GP LLC from October 2007 to October 2008. Mr. Cross also served as CEO and President of Windsor Energy Resources, Inc. from December 2005 until December 2006. Mr. Cross served as President and Manager of Twister Gas Services, L.L.C., an oil and gas exploration, production and marketing company, from its inception in 1996 until June 2003 and served as President of its predecessor, 
+
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+Table of Contents
+
+Twister Transmission Company, from 1990 to 1996. Mr. Cross graduated from Oklahoma State University in 1973 with a BS in Business Administration. We believe that Mr. Cross s strong oil and gas background and executive management experience qualify him for service on our board of directors. 
+David L. Houston Director Mr. Houston has served as a director of our company since October 2012. Since 1991, Mr. Houston has been the principal of Houston & Associates, a firm that offers life and disability insurance, compensation and benefits plans and estate planning. Prior to 1991, Mr. Houston was President and Chief Executive Officer of Equity Bank for Savings, F.A., an Oklahoma-based savings bank, and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. In May 1992, in settlement of administrative litigation (and without any finding or admission of guilt) brought by the U.S. Office of Thrift Supervision against him in his capacity as an executive officer of a thrift institution, Mr. Houston entered into a consent order under which he agreed not to serve as an officer of, or participate in the affairs of, insured depository institutions. The order relates to alleged violations of certain lending practices in early 1990 or before. Mr. Houston served on the board of directors and executive committee of Deaconess Hospital, Oklahoma City, Oklahoma, from January 1993 until December 2008 and is the former chair of the Oklahoma State Ethics Commission and the Oklahoma League of Savings Institutions. Mr. Houston has served as a director of Gulfport since July 1998 and is the chairman of its audit committee. He also served as a director of Bronco Drilling Company from May 2005 until December 2010 and was a member of its audit committee. Mr. Houston received a Bachelor of Science degree in business from Oklahoma State University and a graduate degree in banking from Louisiana State University. We believe that Mr. Houston s financial background and his executive management experience qualify him for service on our board of directors. 
+Mark L. Plaumann Director Mr. Plaumann has served as a director of our company since October 2012. He is currently a Managing Member of Greyhawke Capital Advisors LLC, or Greyhawke, which he co-founded in 1998. Prior to founding Greyhawke, Mr. Plaumann was a Senior Vice President of Wexford Capital LP. Mr. Plaumann was formerly a Managing Director of Alvarez & Marsal, Inc. and the President of American Healthcare Management, Inc. He also was Senior Manager at Ernst & Young LLP. Mr. Plaumann served as a director and audit committee chairman for ICx Technologies, Inc. until October 2010 and currently serves as a director and audit committee chairman of Republic Airways Holdings, Inc., and a director of one private company. Mr. Plaumann also has served as a director, an audit committee chairman and a member of the conflicts committee of the general partner of Rhino Resource Partners LP, a coal operating company, since October 2010. Mr. Plaumann holds an M.B.A. and a B.A. in Business from the University of Central Florida. We believe that Mr. Plaumann s service on the boards of other public companies and his executive management experience, including previous experience as chairman of audit committees, qualifies him for service on our board of directors. 
+
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+
+RELATED PARTY TRANSACTIONS 
+Our board of directors has adopted a policy regarding related party transactions. Under the policy, the audit committee reviews and approves all relationships and transaction in which we and our directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their immediate family members, have a direct or indirect material interest. The policy provides that, the following do not create a material direct or indirect interest on behalf of the related party and are therefore not related party transactions: 
+
+ 
+a transaction involving compensation of directors; 
+
+ 
+a transaction involving compensation of an executive officer or involving an employment agreement, severance arrangement, change in control provision or agreement or special supplemental benefit of an executive officer; 
+
+ 
+a transaction with a related party involving less than $120,000; 
+
+ 
+a transaction in which the interest of the related party arises solely from the ownership of a class of our equity securities and all holders of that class receive the same benefit on a pro rata basis; 
+
+ 
+a transaction involving indemnification payments and payments under directors and officers indemnification insurance policies made pursuant to our certificate of incorporation or bylaws or pursuant to any policy, agreement or instrument of the Company or to which the Company is bound; and 
+
+ 
+a transaction in which the interest of the related party arises solely from indebtedness of a 5% shareholder or an immediate family member of a 5% shareholder. 
+
+The policy supplements the conflict of interest provisions in our Code of Business Conduct and Ethics. 
+Prior to the implementation of this policy and the adoption of our Code of Business Conduct and Ethics, the review and approval of related party transactions was the responsibility of our management, and all of the transactions discussed under Related Party Transactions below have been approved by our management, subject to a conflicts of interest policy set forth in our employee handbook, pursuant to which all of our employees must avoid any situations where their personal outside interest could conflict, or even appear to conflict, with the interests of the Company. Although our management believes that the terms of the related party transactions described below are reasonable, it is possible that we could have negotiated more favorable terms for such transactions with unrelated third parties. 
+Gulfport Transaction and Investor Rights Agreement 
+On May 7, 2012, we entered into an agreement with Gulfport in which we agreed to acquire from Gulfport, prior to the effectiveness of the registration statement relating to our initial public offering, all of Gulfport s oil and natural gas properties in the Permian Basin in exchange for (i) shares of our common stock representing 35% of our common stock outstanding immediately prior to the closing of our initial public offering and (ii) approximately $63.6 million in the form of a non-interest bearing promissory note that was repaid in full upon the closing of our initial public offering. The Gulfport transaction was completed on October 11, 2012. The aggregate consideration payable to Gulfport was subject to a post-closing cash adjustment calculated to be approximately $18.6 million and paid to Gulfport in January 2013. Under the agreement, Gulfport is generally responsible for all liabilities and obligations with respect to its Permian Basin properties arising prior to the closing of the transaction and we are responsible for such liabilities and obligations arising after the closing of the transaction. At the closing of the Gulfport transaction, we entered into an investor rights agreement with Gulfport in which Gulfport was granted certain (i) demand and piggyback registration rights, (ii) director nomination rights and (iii) information rights. Mr. David Houston, one of our directors, was designated by Gulfport in accordance with its director nomination rights. Mike Liddell, who served as the Operating Member and Chairman of our subsidiary Diamondback O&G LLC (formerly known as Windsor Permian LLC) prior to the completion of our initial public offering, was formerly the Chairman of the Board and a director of Gulfport and has a 10% interest in DB Holdings. Charles E. Davidson, the Chairman and Chief Investment Officer of Wexford, beneficially owned approximately 13.3% of Gulfport s outstanding common stock as of December 5, 2011 and approximately 9.5% as of March 13, 2012, which interest was reduced to less than 1% as of September 28, 2012. 
+Administrative Services 
+We entered into a shared services agreement, dated March 1, 2008, with Everest Operations Management LLC (formerly, Windsor Energy Resources LLC), or Everest, an entity controlled by Wexford, our equity sponsor. Under this agreement, Everest provided us with administrative and payroll services and office space in Oklahoma City, Oklahoma and we reimbursed Everest in an amount determined by Everest s management based on estimates of the amount of office space provided and the amount of its employees time spent performing services for us. The reimbursement amounts were determined based upon underlying salary costs of employees performing Company related functions, payroll, revenue or headcount relative to other 
+
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+
+companies managed by Everest, or specifically identified invoices processed, depending on the nature of the cost. The initial term of the shared services agreement with Everest was two years. Since the expiration of such two-year period on March 1, 2010, the agreement, by its terms, continued on a month-to-month basis. For the years ended December 31, 2012, 2011 and 2010, we incurred total costs to Everest of approximately $4.4 million, $10.1 million and $8.0 million, respectively, and at December 31, 2012, 2011 and 2010, we owed $13,000, $0.8 million and $0.4 million, respectively, to Everest under this shared services agreement. For the six months ended June 30, 2013, we incurred total costs to Everest of approximately $109,000 and, at June 30, 2013, owed approximately $16,000 to Everest under this shared services agreement. 
+Effective January 1, 2012, we entered into an additional shared services agreement with Everest under which we provide Everest and, at its request, certain of its affiliates with consulting, technical and administrative services, including payroll, human resources administration, accounts payable and treasury services. The initial term of this shared services agreement is two years. Upon expiration of the initial term, the agreement will continue on a month-to-month basis until cancelled by either party upon thirty days prior written notice. Everest, or its affiliates, reimburse us for our dedicated employee time and administrative costs based on the pro rata share of time our employees spend performing these services, including pro rata benefits and bonuses of such employees. For the six months ended June 30, 2013 and the year ended December 31, 2012, Everest and its affiliates reimbursed us $0.8 million and $2.1 million, respectively, for services and overhead under this shared services agreement and, at June 30, 2013 and December 31, 2012, Everest and its affiliates owed us $0 and $1,000, respectively. 
+Diamondback O&G LLC 
+In connection with the completion of our initial public offering, we acquired all of the equity interests in Diamondback O&G LLC (formerly known as Windsor Permian LLC) and Windsor UT from Wexford in exchange for 14,697,496 shares of our common stock. For additional information regarding these transactions, see Prospectus Summary Our History on page 7 of this prospectus. 
+Subordinated Note 
+Effective May 14, 2012, we issued a subordinated note to an affiliate of Wexford pursuant to which, as amended, the Wexford affiliate could, from time to time, advance up to an aggregate of $45.0 million. These advances were solely at the lender s discretion and neither Wexford nor any of its affiliates had any commitment or obligation to provide future capital support to us. The note bore interest at a rate equal to LIBOR plus 0.28% or 8% per annum, whichever was lower. Interest was due quarterly in arrears beginning on July 1, 2012. Interest payments were payable in kind by adding such amounts to the principal balance of this note. The unpaid principal balance and all accrued interest on the note were due and payable in full on January 31, 2015 or the earlier completion of our initial public offering. Any indebtedness evidenced by this note was subordinate in the right of payment to any indebtedness outstanding under our revolving credit facility. On September 30, 2012, there was $30.0 million in aggregate principal amount outstanding under this note. We repaid the outstanding borrowings under this note with a portion of the net proceeds of our initial public offering and the note was terminated. 
+Drilling and Field Services 
+Bison Drilling and Field Services LLC, or Bison, has performed drilling and field services for us under master drilling agreements and master field services agreements. These agreements are terminable by either party on 30 days prior written notice, although neither party will be relieved of its respective obligations arising from a drilling contract being performed prior to such termination. Bison was a wholly-owned subsidiary of Diamondback O&G LLC until March 31, 2011, when various entities controlled by Wexford started contributing capital to Bison. These contributions aggregated $11.5 million and ultimately diluted Diamondback O&G LLC s ownership interest to 52.2%. In September 2011, Diamondback O&G LLC sold a 25% interest in Bison to Gulfport for $6.0 million, subject to adjustment. At the time of the transaction, an affiliate of Wexford beneficially owned approximately 13.3% of Gulfport s common stock, but that ownership is now less than 1%. In April 2012, Gulfport increased its ownership interest in Bison to 40%. As a result of these transactions, Diamondback O&G LLC s ownership interest in Bison was reduced to 22%, with the remaining equity interests in Bison held by Gulfport and various entities controlled by Wexford. In June 2012, Diamondback O&G LLC distributed its remaining interest in Bison to its member, which is an entity controlled by Wexford. For the six months ended June 30, 2013 and the years ended December 31, 2012 and 2011, we were billed $9.6 million, $16.0 million and $16.3 million, respectively, by Bison for drilling and field services. We owed $0.7 million, $0.1 million and $0.2 million to Bison as of June 30, 2013, December 31, 2012 and 2011, respectively. 
+Midland Lease 
+We occupy our corporate headquarters in Midland, Texas under a five-year lease, effective May 15, 2011, with Fasken Midland, LLC, or Fasken, an entity controlled by an affiliate of Wexford. During the six months ended June 30, 2013 and the 
+
+74
+
+Table of Contents
+
+years ended December 31, 2012 and 2011, we paid $82,000, $155,000 and $40,000, respectively, to Fasken under this lease. In the second quarter of 2013, we amended this lease agreement to increase the size of the leased premises.The current monthly rent under the lease is $13,000 and will increase to $15,000 on September 1, 2013 and $21,000 on October 1, 2013. Thereafter, the monthly rent will increase approximately 4% annually on June 1 of each year during the remainder of the lease term. 
+Oklahoma City Lease 
+We occupy office space in Oklahoma City, Oklahoma under a sixty-seven month lease agreement, effective January 1, 2012, with Caliber Investment Group, LLC, or Caliber, an entity controlled by an affiliate of Wexford. During the six months ended June 30, 2013 and the year ended December 31, 2012, we paid $111,000 and $329,000, respectively, to Caliber under this lease. Effective April 1, 2013, we entered into an amendment to this agreement to increase the size of the leased premises, at which time our monthly base rent increased to $19,000 for the remainder of the lease term. We are also responsible for paying a portion of specified costs, fees and expenses associated with the operation of the premises. 
+Area of Mutual Interest and Related Agreements 
+Effective as of November 1, 2007, we and Gulfport entered into an area of mutual interest agreement to jointly acquire oil and gas leases in the Permian Basin. The agreement provides that each party must offer the other party the right to participate in 50% of each such acquisition. We and Gulfport also agreed, subject to certain exceptions, to share third-party costs and expenses in proportion to our and its respective participating interests and pay certain other fees as provided in the agreement. The agreement was terminated upon Gulfport s contribution to us of its oil and gas properties located in the Permian Basin. 
+ 
+In connection with the area of mutual interest agreement, we, Gulfport and Windsor Energy Group, L.L.C., or Energy Group, an entity controlled by Wexford, as the operator, entered into a joint development agreement, effective as of November 1, 2007, pursuant to which we and Gulfport agreed to develop certain jointly-held oil and gas leases in the Permian Basin and Energy Group agreed to act as the operator under the terms of a joint operating agreement, effective as of November 1, 2007. In the event either we or Gulfport had a majority interest in a prospect (as defined in the development agreement), the majority party could designate the operator of its choice. We and Gulfport agreed to designate Energy Group as the operator with respect to the contract area as provided in the joint operating agreement. As operator of these properties, Energy Group was responsible for the daily operations, monthly operation billings and monthly revenue disbursements for the properties in which we held an interest. Effective February 26, 2010, the agreement with Energy Group was terminated and we became the operator of these properties. For the year ended December 31, 2010, Energy Group billed us approximately $4.4 million and at December 31, 2010 we owed Energy Group approximately $0.07 million for these services. Upon becoming operator effective February 26, 2010, we began providing joint interest billing services. For the years ended December 31, 2012, 2011 and 2010, we billed Gulfport $46.4 million, $56.7 million and $32.4 million, respectively, and we billed an entity controlled by Wexford $2.0 million, $5.3 million and $8.8 million, respectively, for such services. At December 31, 2012, 2011 and 2010, Gulfport owed us $0.7 million, $8.6 million and $5.6 million, respectively, and the Wexford controlled entity owed us zero, $0.4 million and zero, respectively. Our joint development agreement with Gulfport was terminated in October 2012 upon Gulfport s contribution to us of its oil and gas properties located in the Permian Basin. 
+Muskie Holdings LLC 
+During 2011, Diamondback O&G LLC purchased certain assets, real estate and rights in a lease covering land in Wisconsin that is prospective for mining oil and natural gas fracture grade sand for $4.2 million from an unrelated third party. On October 7, 2011, Diamondback O&G LLC contributed these assets, real estate and lease rights to a newly-formed entity, Muskie Holdings LLC, or Muskie (now known as Muskie Proppant LLC), in exchange for a 48.6% equity interest. The remaining equity interests in Muskie were held 25% by Gulfport and 26.4% by entities controlled by Wexford. Through additional contributions from the Wexford controlled entities to Muskie, Diamondback O&G LLC s equity interest decreased to approximately 33%. In June 2012, Diamondback O&G LLC distributed its remaining interest in Muskie to its member, which is an entity controlled by Wexford. We began purchasing sand from Muskie in March 2013. We incurred costs of $234,000 for the six months ended June 30, 2013. As of June 30, 2013, we did not owe Muskie any amounts. 
+MidMar 
+We are party to a gas purchase agreement, dated May 1, 2009, as amended, with MidMar Gas LLC, or MidMar, an entity that owns a gas gathering system and processing plant in the Permian Basin. Under this agreement, MidMar is obligated to purchase from us, and we are obligated to sell to MidMar, all of the gas conforming to certain quality specifications produced from certain of our Permian Basin acreage. Following the expiration of the initial ten-year term, the agreement will continue on a year-to-year basis until terminated by either party on 30 days written notice. Under the gas purchase agreement, MidMar is 
+
+75
+
+Table of Contents
+
+obligated to pay us 87% of the net revenue received by MidMar for all components of our dedicated gas, including liquid hydrocarbons, and the sale of residue gas, in each case extracted, recovered or otherwise processed at MidMar s gas processing plant, and 94.56% of the net revenue received by MidMar from the sale of such gas components and residue gas, extracted, recovered or otherwise processed at the Chevron Headlee plant. Travis D. Stice, our Chief Executive Officer, has served as a manager on MidMar s board of managers since April 2011 and as Vice President and Secretary of MidMar since April 2012. An entity controlled by Wexford in which Gulfport and certain entities controlled by Wexford are members owns approximately a 28% equity interest in MidMar. The remaining equity interests in MidMar are owned by nonaffiliated third parties. For the years ended December 31, 2012, 2011 and 2010, MidMar paid us $3.0 million, $3.1 million and $1.1 million, respectively, and at December 31, 2012, 2011 and 2010, MidMar owed us zero, $0.5 million and $0.1 million, respectively, for our portion of the net proceeds from the sale of such gas products and residue gas by MidMar. For the six months ended June 30, 2013, MidMar paid us $2.8 million and, at June 30, 2013, MidMar owed us $0.5 million for our portion of the net proceeds from the sale of such gas products and residue gas by MidMar. 
+Advisory Services Agreement 
+During the period January 1, 2012 through October 11, 2012, Wexford provided certain professional services to us, for which we were billed approximately $0.1 million. On October 11, 2012, we entered into an advisory services agreement with Wexford under which Wexford agreed to provide us with general financial and strategic advisory services related to our business in return for an annual fee of $500,000, plus reasonable out-of-pocket expenses. This agreement has a term of two years and will continue for additional one-year periods unless terminated in writing by either party at least ten days prior to the expiration of the then current term. The agreement may be terminated at any time by either party upon 30 days prior written notice. In the event we terminate the agreement, we are obligated to pay all amounts due through the remaining term of the agreement. In addition, under the terms of the agreement we have agreed to pay Wexford to-be-negotiated market-based fees approved by our independent directors for such services as may be provided by Wexford at our request in connection with future acquisitions and divestitures, financings or other transactions. The services provided by Wexford under the advisory services agreement will not extend to our day-to-day business or operations. In this agreement, we have agreed to indemnify Wexford and its affiliates from any and all losses arising out of or in connection with the agreement except for losses resulting from Wexford s or its affiliates gross negligence or willful misconduct. We incurred total costs of $0.3 million and $0.2 million during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, under this advisory services agreement and, as of June 30, 2013 and December 31, 2012, we owed Wexford $0 and $0.1 million, respectively, under this agreement. We did not incur any costs for professional services from Wexford during the years ended December 31, 2011 and 2010. 
+Registration Rights 
+We have entered into a registration rights agreement with DB Holdings and an investor rights agreement with Gulfport. Under these agreements, each of DB Holdings and Gulfport has certain demand and piggyback registration rights. For more information regarding these agreements, see Gulfport Transaction and Investor Rights Agreement and Shares Eligible for Future Sale Registration Rights on pages 73 and 84, respectively, of this prospectus. The June 2013 secondary offering was undertaken pursuant to these registration rights. We incurred estimated costs of approximately $179,000 in connection with such offering.
+ 
+
+76
+
+Table of Contents
+
+PRINCIPAL STOCKHOLDERS
+The following table sets forth certain information with respect to the beneficial ownership of our common stock as of August 1, 2013 by: 
+
+ 
+each stockholder known by us to be the beneficial owner of more than five percent of the outstanding shares of our common stock; 
+
+ 
+each of our directors; 
+
+ 
+each of our named executive officers; and
+
+ 
+all of our directors and executive officers as a group. 
+
+Except as otherwise indicated, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. 
+ 
+
+ 
+ 
+Shares Beneficially 
+Owned Prior to 
+Offering(1)
+ 
+Shares Beneficially 
+Owned After Offering(1)
+ 
+Shares Beneficially 
+Owned After Offering 
+if Option to Purchase 
+Additional Shares Is 
+Exercised in Full
+
+Name of Beneficial Owner
+ 
+Number
+ 
+Percentage
+ 
+Number
+ 
+Percentage
+ 
+Number
+ 
+Percentage
+
+5% Stockholders:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+DB Energy Holdings LLC(2) 
+ 
+11,092,717
+ 
+26.3
+%
+ 
+11,092,717
+ 
+24.0
+%
+ 
+11,092,717
+ 
+23.7
+%
+
+Gulfport Energy Corporation(3) 
+ 
+5,679,500
+ 
+13.5
+%
+ 
+5,679,500
+ 
+12.3
+%
+ 
+5,679,500
+ 
+12.1
+%
+
+Wellington Management Company, LLP(4) 
+ 
+3,747,150
+ 
+8.9
+%
+ 
+3,747,150
+ 
+8.1
+%
+ 
+3,747,150
+ 
+8.0
+%
+
+Executive Officers and Directors:
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+
+Travis D. Stice(5) 
+ 
+181,372
+ 
+*
+
+ 
+181,372
+ 
+*
+
+ 
+181,372
+ 
+*
+
+Teresa L. Dick(6) 
+ 
+34,671
+ 
+*
+
+ 
+34,671
+ 
+*
+
+ 
+34,671
+ 
+*
+
+Jeff White(7) 
+ 
+67,143
+ 
+*
+
+ 
+67,143
+ 
+*
+
+ 
+67,143
+ 
+*
+
+Russell Pantermuehl(8) 
+ 
+68,906
+ 
+*
+
+ 
+68,906
+ 
+*
+
+ 
+68,906
+ 
+*
+
+Paul Molnar(9) 
+ 
+66,906
+ 
+*
+
+ 
+66,906
+ 
+*
+
+ 
+66,906
+ 
+*
+
+Michael Hollis(10) 
+ 
+66,906
+ 
+*
+
+ 
+66,906
+ 
+*
+
+ 
+66,906
+ 
+*
+
+William Franklin(11) 
+ 
+33,452
+ 
+*
+
+ 
+33,452
+ 
+*
+
+ 
+33,452
+ 
+*
+
+Randall J. Holder(12) 
+ 
+16,786
+ 
+*
+
+ 
+16,786
+ 
+*
+
+ 
+16,786
+ 
+*
+
+Steven E. West(13) 
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+Michael P. Cross(13) 
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+David L. Houston(13) 
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+Mark L. Plaumann(13) 
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+ 
+2,222
+ 
+*
+
+All executive officers, directors and director nominees as a group (12 persons)
+ 
+545,030
+ 
+*
+
+ 
+545,030
+ 
+*
+
+ 
+545,030
+ 
+*
+
+_______________
+
+ *
+Less than 1%. 
+
+(1)
+Percentage of beneficial ownership is based upon 42,161,532 shares of common stock outstanding as of August 1, 2013. For purposes of this table, a person or group of persons is deemed to have beneficial ownership of any shares which such person has the right to acquire within 60 days. For purposes of computing the percentage of outstanding shares held by each person or group of persons named above, any security which such person or group of persons has the right to acquire within 60 days is deemed to be outstanding for the purpose of computing the percentage ownership for such person or persons, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. As a result, the denominator used in calculating the beneficial ownership among our stockholders may differ. 
+
+(2)
+Based solely on Schedule 13D/A filed with the SEC on July 2, 2013 by DB Energy Holdings LLC ( DB Holdings ), Wexford Spectrum Fund, L.P. ( WSF ), Wexford Catalyst Fund, L.P. ( WCF ), Spectrum Intermediate Fund Limited ( SIF ), Catalyst Intermediate Fund Limited ( CIF and, together with DB Holdings, WSF, WCF and SIF, the Funds ), Wexford Capital LP ( Wexford Capital ), Wexford GP LLC ( Wexford GP ), Charles E. Davidson ( Mr. Davidson ), and Joseph M. Jacobs ( Mr. Jacobs ), the Form 4 filed with the SEC on July 9, 2013 by DB Holdings and the Form 4 filed with the SEC on July 9, 2013 by Wexford Capital, Wexford GP, Mr. Davidson and Mr. Jacobs. DB Holdings is a holding 
+
+77
+
+Table of Contents
+
+company managed by Wexford Capital. WSF, WCF, SIF and CIF are investment funds managed by Wexford Capital. Wexford Capital is an investment advisor registered with the SEC, and manages a series of investment funds. Wexford GP is the general partner of Wexford Capital. Mr. Davidson and Mr. Jacobs are the managing members of Wexford GP. DB has shared voting and dispositive power over 11,092,717 shares. WSF has shared voting and dispositive power over 132,339 shares. WCF has shared voting and dispositive power over 20,915 shares. SIF has shared voting and dispositive power over 446,003 shares. CIF has shared voting and dispositive power over 87,962 shares. Wexford Capital, Wexford GP, Mr. Davidson and Mr. Jacobs have shared voting and dispositive power over 11,779,936 shares. Wexford Capital may, by reason of its status as manager or investment manager of the Funds, be deemed to own beneficially the securities of which the Funds possess beneficial ownership. Wexford GP may, as the General Partner of Wexford Capital, be deemed to own beneficially the securities of which the Funds possess beneficial ownership. Each of Mr. Davidson and Mr. Jacobs may, by reason of his status as a controlling person of Wexford GP, be deemed to own beneficially the securities of which the Funds possess beneficial ownership. Each of Wexford Capital, Wexford GP, Mr. Davidson and Mr. Jacobs disclaims beneficial ownership of the securities owned by the Funds except, in the case of Mr. Davidson and Mr. Jacobs, to the extent of their respective interests in the Funds. Wexford s address is Wexford Plaza, 411 West Putnam Avenue, Greenwich, Connecticut 06830. 
+
+(3)
+Based solely on the Form 4 filed with the SEC on July 9, 2013 by Gulfport Energy Corporation. Gulfport Energy Corporation s address is 14313 North May Avenue, Suite 100, Oklahoma City, Oklahoma 73134. 
+
+(4)
+Based solely on Schedule 13G/A filed with the SEC on March 11, 2013 by Wellington Management Company, LLP. These shares are owned of record by clients of Wellington Management. Those clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. No such client is known to have such right or power with respect to more than five percent of this class of securities. Wellington Management has shared voting power over 3,468,678 shares and shared dispositive power over 3,747,150 shares. Wellington Management Company, LLP s address is 280 Congress Street, Boston, Massachusetts 02210. 
+
+(5)
+Includes options to purchase 150,000 shares of our common stock and 28,572 restricted stock units. These 28,572 restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013, but no later than December 31, 2013. Excludes (i) options to purchase 150,000 shares of our common stock and (ii) 28,571 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on April 18, 2014. 
+
+(6)
+Includes options to purchase 25,000 shares of our common stock and 8,571 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 25,000 shares of our common stock and (ii) 8,532 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on September 1, 2014. 
+
+(7)
+Includes options to purchase 50,000 shares of our common stock and 17,143 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 50,000 shares of our common stock and (ii) 17,144 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on September 30, 2014. 
+
+(8)
+Includes options to purchase 50,000 shares of our common stock and 16,906 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 50,000 shares of our common stock and (ii) 16,666 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on August 15, 2014. 
+
+(9)
+Includes options to purchase 50,000 shares of our common stock and 16,906 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 50,000 shares of our common stock and (ii) 16,666 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on August 15, 2014. 
+
+(10)
+Includes options to purchase 50,000 shares of our common stock and 16,906 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 50,000 shares of our common stock and (ii) 16,666 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on September 12, 2014. 
+
+(11)
+Includes options to purchase 25,000 shares of our common stock and 8,452 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 25,000 shares of our common stock and (ii) 8,334 restricted stock units, which will vest, in each case, in two remaining approximately equal annual installments beginning on August 8, 2014. 
+
+78
+
+Table of Contents
+
+(12)
+Includes options to purchase 12,500 shares of our common stock and 4,286 restricted stock units, which restricted stock units will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes (i) options to purchase 37,500 shares of our common stock and (ii) 12,500 restricted stock units which will vest in each case in three remaining approximately equal installments beginning on November 18, 2013. 
+
+(13)
+Includes restricted stock units that will not be settled until the first business day coincident with or next following the date of the first open trading window to occur after April 5, 2013 (which has not yet occurred), but no later than December 31, 2013. Excludes 4,444 restricted stock units, which will vest in two remaining equal annual installments beginning on October 11, 2013. 
+
+79
+
+Table of Contents
+
+DESCRIPTION OF CAPITAL STOCK 
+The following description of our common stock, certificate of incorporation and our bylaws are summaries thereof and are qualified by reference to our certificate of incorporation and our bylaws, copies of which have been filed with the SEC. 
+Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. Our common stock is listed on the NASDAQ Global Select Market under the symbol FANG. 
+Common Stock 
+Holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. Shares of common stock do not have cumulative voting rights, which means that the holders of more than 50% of the shares voting for the election of the board of directors can elect all the directors to be elected at that time, and, in such event, the holders of the remaining shares will be unable to elect any directors to be elected at that time. Our certificate of incorporation denies stockholders any preemptive rights to acquire or subscribe for any stock, obligation, warrant or other securities of ours. Holders of shares of our common stock have no redemption or conversion rights nor are they entitled to the benefits of any sinking fund provisions. 
+In the event of our liquidation, dissolution or winding up, holders of shares of common stock shall be entitled to receive, pro rata, all the remaining assets of our company available for distribution to our stockholders after payment of our debts and after there shall have been paid to or set aside for the holders of capital stock ranking senior to common stock in respect of rights upon liquidation, dissolution or winding up the full preferential amounts to which they are respectively entitled. 
+Holders of record of shares of common stock are entitled to receive dividends when and if declared by the board of directors out of any assets legally available for such dividends, subject to both the rights of all outstanding shares of capital stock ranking senior to the common stock in respect of dividends and to any dividend restrictions contained in debt agreements. All outstanding shares of common stock and any shares sold and issued in this offering will be fully paid and nonassessable by us. 
+Preferred Stock 
+Our board of directors is authorized to issue up to 10,000,000 shares of preferred stock in one or more series. The board of directors may fix for each series: 
+
+ 
+the distinctive serial designation and number of shares of the series; 
+
+ 
+the voting powers and the right, if any, to elect a director or directors; 
+
+ 
+the terms of office of any directors the holders of preferred shares are entitled to elect; 
+
+ 
+the dividend rights, if any; 
+
+ 
+the terms of redemption, and the amount of and provisions regarding any sinking fund for the purchase or redemption thereof; 
+
+ 
+the liquidation preferences and the amounts payable on dissolution or liquidation; 
+
+ 
+the terms and conditions under which shares of the series may or shall be converted into any other series or class of stock or debt of the corporation; and 
+
+ 
+any other terms or provisions which the board of directors is legally authorized to fix or alter. 
+
+We do not need stockholder approval to issue or fix the terms of the preferred stock. The actual effect of the authorization of the preferred stock upon your rights as holders of common stock is unknown until our board of directors determines the specific rights of owners of any series of preferred stock. Depending upon the rights granted to any series of preferred stock, your voting power, liquidation preference or other rights could be adversely affected. Preferred stock may be issued in acquisitions or for other corporate purposes. Issuance in connection with a stockholder rights plan or other takeover defense could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of our company. We have no present plans to issue any shares of preferred stock. 
+
+80
+
+Table of Contents
+
+Related Party Transactions and Corporate Opportunities 
+Subject to the limitations of applicable law, our certificate of incorporation, among other things: 
+
+ 
+permits us to enter into transactions with entities in which one or more of our officers or directors are financially or otherwise interested so long as it has been approved by our board of directors; 
+
+ 
+permits any of our stockholders, officers or directors to conduct business that competes with us and to make investments in any kind of property in which we may make investments; and 
+
+ 
+provides that if any director or officer of one of our affiliates who is also one of our officers or directors becomes aware of a potential business opportunity, transaction or other matter (other than one expressly offered to that director or officer in writing solely in his or her capacity as our director or officer), that director or officer will have no duty to communicate or offer that opportunity to us, and will be permitted to communicate or offer that opportunity to such affiliates and that director or officer will not be deemed to have (i) acted in a manner inconsistent with his or her fiduciary or other duties to us regarding the opportunity or (ii) acted in bad faith or in a manner inconsistent with our best interests. 
+
+See Related Party Transactions beginning on page 73 of this prospectus. 
+Anti-takeover Effects of Provisions of Our Certificate of Incorporation and Our Bylaws 
+Some provisions of our certificate of incorporation and our bylaws contain provisions that could make it more difficult to acquire us by means of a merger, tender offer, proxy contest or otherwise, or to remove our incumbent officers and directors. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging such proposals because negotiation of such proposals could result in an improvement of their terms. 
+Undesignated preferred stock. The ability to authorize and issue undesignated preferred stock may enable our board of directors to render more difficult or discourage an attempt to change control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, the board of directors were to determine that a takeover proposal is not in our best interest, the board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. 
+Stockholder meetings. Our certificate of incorporation and bylaws provide that a special meeting of stockholders may be called only by the Chairman of the Board, the Chief Executive Officer or by a resolution adopted by a majority of our board of directors. 
+Requirements for advance notification of stockholder nominations and proposals. Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors. 
+Stockholder action by written consent. Our certificate of incorporation provides that, except as may otherwise be provided with respect to the rights of the holders of preferred stock, no action that is required or permitted to be taken by our stockholders at any annual or special meeting may be effected by written consent of stockholders in lieu of a meeting of stockholders, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by our board. This provision, which may not be amended except by the affirmative vote of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, makes it difficult for stockholders to initiate or effect an action by written consent that is opposed by our board. 
+Amendment of the bylaws. Under Delaware law, the power to adopt, amend or repeal bylaws is conferred upon the stockholders. A corporation may, however, in its certificate of incorporation also confer upon the board of directors the power to adopt, amend or repeal its bylaws. Our certificate of incorporation and bylaws grant our board the power to adopt, amend and repeal our bylaws at any regular or special meeting of the board on the affirmative vote of a majority of the directors then in office. Our stockholders may adopt, amend or repeal our bylaws but only at any regular or special meeting of stockholders by an affirmative vote of holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. 
+
+81
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+
+Removal of Director. Our certificate of incorporation and bylaws provide that members of our board of directors may only be removed by the affirmative vote of holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. 
+Amendment of the Certificate of Incorporation. Our certificate of incorporation provides that, in addition to any other vote that may be required by law or any preferred stock designation, the affirmative vote of the holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, is required to amend, alter or repeal, or adopt any provision as part of our certificate of incorporation inconsistent with the provisions of our certificate of incorporation dealing with distributions on our common stock, related party transactions, our board of directors, our bylaws, meetings of our stockholders or amendment of our certificate of incorporation. 
+The provisions of our certificate of incorporation and bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests. 
+Choice of Forum 
+Our certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; or (iv) any action asserting a claim against us pertaining to internal affairs of our corporation. Our certificate of incorporation also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to this choice of forum provision. It is possible that a court of law could rule that the choice of forum provision contained in our certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise. 
+Transfer Agent and Registrar 
+Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock. 
+ 
+
+82
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+
+SHARES ELIGIBLE FOR FUTURE SALE 
+Future sales of substantial amounts of our common stock in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of our common stock. We cannot predict the effect, if any, that future sales of shares, or the availability of shares for future sales, will have on the market price of our common stock prevailing from time to time. 
+Sale of Restricted Shares 
+Upon the completion of this offering, we will have 46,161,532 shares of common stock outstanding (or 46,761,532 shares of common stock if the underwriters option to purchase additional shares is exercised in full). Of these shares of common stock, the 14,375,000 shares sold in our initial public offering, the 5,175,000 shares sold in our May 2013 offering and the 6,869,222 shares sold in the June 2013 secondary offering are, and the 4,000,000 shares of common stock being sold in this offering plus any shares sold upon exercise of the underwriters option to purchase additional shares will be, freely tradable without restriction under the Securities Act, except for any such shares held or acquired by an affiliate of ours, as that term is defined in Rule 144 promulgated under the Securities Act, which shares will be subject to the volume limitations and other restrictions of Rule 144 described below. The remaining shares of outstanding common stock are restricted securities, as that phrase is defined in Rule 144, and may be resold only after registration under the Securities Act or pursuant to an exemption from such registration, including, among others, the exemptions provided by Rules 144 and 701 under the Securities Act, which rules are summarized below. These remaining shares of common stock will be available for sale in the public market after the expiration of the lock-up agreements described in Underwriting beginning on page 89 of this prospectus, taking into account the provisions of Rules 144 and 701 under the Securities Act. 
+Rule 144 
+In general, under Rule 144 as currently in effect, a person who is the beneficial owner of restricted shares of our common stock may sell such person s shares upon the earlier of (1) the expiration of a six-month holding period, if we have been subject to the reporting requirements of the Exchange Act for at least 90 days prior to the date of the sale and have filed all reports required thereunder, or (2) the expiration of a one-year holding period. 
+At the expiration of the six-month holding period, assuming we have been subject to the Exchange Act reporting requirements for at least 90 days and have filed all reports required thereunder, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares of our common stock, and a person who was one of our affiliates at any time during the three months preceding a sale would be entitled to sell, within any three-month period, a number of shares of common stock that does not exceed the greater of either of the following: 
+
+ 
+1% of the number of shares of our common stock then outstanding, which will equal approximately 461,615 shares immediately after this offering; or 
+
+ 
+the average weekly trading volume of our common stock on the NASDAQ Global Select Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. 
+
+At the expiration of the one-year holding period, a person who was not one of our affiliates at any time during the three months preceding a sale would be entitled to sell an unlimited number of shares of our common stock without restriction. A person who was one of our affiliates at any time during the three months preceding a sale would remain subject to the volume restrictions described above. 
+Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. 
+Rule 701 
+In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchased shares from us in connection with a compensatory stock or option plan or other written agreement before our initial public offering, or who purchased shares from us after our initial public offering upon the exercise of options granted before our initial public offering, are eligible to resell such shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. If such person is not an affiliate, the sale may be made subject only to the manner-of-sale restrictions of Rule 144. However, substantially all Rule 701 shares are subject to lock-up agreements, as described under Underwriting beginning on page 89 of this prospectus, and will become eligible for sale upon the expiration of the restrictions set forth in these agreements. 
+
+83
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+
+Registration Rights 
+Prior to the closing of our initial public offering, we entered into a registration rights agreement with DB Holdings and an investor rights agreement with Gulfport. Under these agreements, each of DB Holdings and Gulfport has demand and piggyback registration rights. The demand rights enable each such stockholder to require us to register its shares of our common stock with the SEC. The piggyback rights allow each such stockholder to register the shares of our common stock that it owns along with any shares that we register with the SEC. These registration rights are subject to customary conditions and limitations, including the right of the underwriters of an offering to limit the number of shares. All expenses of such registrations (including both demand and piggyback registrations), other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications, will be paid by us. 
+Stock Plans 
+We have filed a registration statement on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under our equity incentive plan. Shares registered under such registration statement are available for sale in the open market following the effective date, unless such shares are subject to vesting restrictions with us, Rule 144 restrictions applicable to our affiliates or the lock-up restrictions described below. 
+Lock-Up Agreements 
+In connection with this offering, we, each of our directors and executive officers and certain entities controlled by Wexford have agreed that, without the prior written consent of Credit Suisse Securities (USA) LLC, we and they will not, directly or indirectly, for a period of 60 days after the date of this prospectus, offer, pledge, sell, contract to sell or otherwise transfer or dispose of any shares of our common stock (other than the shares of our common stock subject to this offering) or any other securities convertible into or exercisable or exchangeable for our common stock. In addition, in connection with the June 2013 secondary offering, Gulfport agreed to similar lock-up restrictions for a period of 60 days following the date of the prospectus (June 18, 2013) for that offering. These lock-up restrictions are subject to certain specific exceptions, including transfers of common stock as a bona fide gift or by will or intestate succession and transfers to such person s immediate family or to a trust or to any entity controlled by such holder, provided that the recipient of the shares agrees to be bound by the same restrictions on sales and, in the case of our executive officers and directors, the right of such individuals to sell up to 300,000 shares in the aggregate. In connection with this offering, Credit Suisse Securities (USA) LLC granted a release of the lock-up agreements entered into by us, each of our directors and executive officers and certain entities controlled by Wexford in connection with the June 2013 secondary offering. For additional information, see Underwriting beginning on page 89 of this prospectus. 
+ 
+
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+
+MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS 
+The following is a general discussion of material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a non-U.S. holder (as defined below). This discussion deals only with common stock purchased in this offering that is held as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment), by a non-U.S. holder. Except as modified for estate tax purposes, the term non-U.S. holder means a beneficial owner of our common stock that is not a U.S. person or a partnership for U.S. federal income and estate tax purposes. A U.S. person is any of the following: 
+
+ 
+an individual who is a citizen or resident of the United States; 
+
+ 
+a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; 
+
+ 
+an estate whose income is subject to U.S. federal income taxation regardless of its source; or 
+
+ 
+trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust, or if it has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. 
+
+An individual may generally be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes, by, among other ways, being present in the United States for at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of the 183-day calculation, all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year are counted. Residents are taxed for U.S. federal income tax purposes as if they were U.S. citizens. 
+This discussion is based upon provisions of the Code, and Treasury Regulations, administrative rulings and judicial decisions, all as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those discussed below. No ruling has been or will be sought from the Internal Revenue Service, or IRS, with respect to the matters discussed below, and there can be no assurance the IRS will not take a contrary position regarding the tax consequences of the acquisition, ownership or disposition of our common stock, or that such contrary position would not be sustained by a court. This discussion does not address all aspects of U.S. federal income and estate taxation, including the impact of the unearned income Medicare contribution tax and does not deal with other U.S. federal tax laws (such as gift tax laws) or foreign, state, local or other tax considerations that may be relevant to non-U.S. holders in light of their personal circumstances. In addition, this discussion does not address tax considerations applicable to investors that may be subject to special treatment under the U.S. federal income tax laws, such as (without limitation): 
+
+ 
+certain former U.S. citizens or residents; 
+
+ 
+shareholders that hold our common stock as part of a straddle, constructive sale transaction, synthetic security, hedge, conversion transaction or other integrated investment or risk reduction transaction; 
+
+ 
+shareholders that acquired our common stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan; 
+
+ 
+shareholders that are partnerships or entities treated as partnerships for U.S. federal income tax purposes or other pass-through entities or owners thereof; 
+
+ 
+shareholders that own, or are deemed to own, more than five percent (5%) of our outstanding common stock (except to the extent specifically set forth below); 
+
+ 
+shareholders subject to the alternative minimum tax; 
+
+ 
+financial institutions, banks and thrifts; 
+
+ 
+insurance companies; 
+
+ 
+tax-exempt entities; 
+
+ 
+real estate investment trusts; 
+
+ 
+ controlled foreign corporations, passive foreign investment companies or corporations that accumulate earnings to avoid U.S. federal income tax; 
+
+ 
+broker-dealers or dealers in securities or foreign currencies; and 
+
+ 
+traders in securities that use a mark-to-market method of accounting for U.S. federal income tax purposes. 
+
+85
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+
+If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds our common stock, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holding our common stock, you should consult your tax advisor. 
+THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND SHOULD NOT BE VIEWED AS TAX ADVICE. INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE AND GIFT TAX LAWS TO THEIR PARTICULAR SITUATION AS WELL AS THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS OR TAX TREATIES AND ANY OTHER U.S. FEDERAL TAX LAWS. 
+Distributions on Common Stock 
+We do not expect to pay any cash distributions on our common stock in the foreseeable future. However, in the event we do make such cash distributions, these distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If any such distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a non-taxable return of capital to the extent of the non-U.S. holder s tax basis in our common stock and thereafter as capital gain from the sale or exchange of such common stock. See Gain on Disposition of Common Stock below. Dividends paid to a non-U.S. holder of our common stock that are not effectively connected with the non-U.S. holder s conduct of a trade or business within the United States will be subject to U.S. withholding tax at a 30% rate, or if an income tax treaty applies, a lower rate specified by the treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide to us or our withholding agent IRS Form W-8BEN (or applicable substitute or successor form) properly certifying eligibility for the reduced rate. Non-U.S. holders that do not timely provide us or our withholding agent with the required certification, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty. 
+Dividends that are effectively connected with a non-U.S. holder s conduct of a trade or business in the United States and, if an income tax treaty so requires, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States, are taxed on a net income basis at the regular graduated rates and in the manner applicable to U.S. persons. In that case, we or our withholding agent will not have to withhold U.S. federal withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements (which may generally be met by providing an IRS Form W-8ECI). In addition, a branch profits tax may be imposed at a 30% rate (or a lower rate specified under an applicable income tax treaty) on a foreign corporation s effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult any applicable income tax treaties that may provide for different rules. 
+Gain on Disposition of Common Stock 
+Subject to the discussion below regarding backup withholding, a non-U.S. holder generally will not be subject to U.S. federal income tax on gain recognized on a disposition of our common stock unless: 
+
+ 
+the gain is effectively connected with the non-U.S. holder s conduct of a trade or business in the United States and, if an income tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States, in which case, the gain will be taxed on a net income basis at the U.S. federal income tax rates and in the manner applicable to U.S. persons, and if the non-U.S. holder is a foreign corporation, the branch profits tax described above may also apply; 
+
+ 
+the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and meets other requirements, in which case, the non-U.S. holder will be subject to a flat 30% tax on the gain derived from the disposition (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses, provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses; or 
+
+ 
+we are or have been a United States real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held our common stock. 
+
+Generally, a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. We believe we currently are a USRPHC. If we are or become a USRPHC, a non-U.S holder nonetheless will not be subject to U.S. federal income tax or withholding in respect of any gain realized on a sale or other disposition of our common stock so long as (i) our common stock is regularly traded on an established securities market for U.S. federal 
+
+86
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+
+income tax purposes and (ii) such non-U.S. holder does not actually or constructively own, at any time during the applicable period described in the third bullet point, above, more than 5% of our outstanding common stock. We expect our common stock to be regularly traded on an established securities market, although we cannot guarantee it will be so traded. Accordingly, a non-U.S holder who actually or constructively owns more than 5% of our common stock would be subject to U.S. federal income tax and withholding in respect of any gain realized on any sale or other disposition of common stock (taxed in the same manner as gain that is effectively connected income, except that the branch profits tax would not apply). Non-U.S. holders should consult their own advisor about the consequences that could result if we are, or become, a USRPHC. 
+Information Reporting and Backup Withholding Tax 
+Dividends paid to you will generally be subject to information reporting and may be subject to U.S. backup withholding. You will be exempt from backup withholding if you properly provide a Form W-8BEN certifying under penalties of perjury that you are a non-U.S. holder or otherwise meet documentary evidence requirements for establishing that you are a non-U.S. holder, or you otherwise establish an exemption. Copies of the information returns reporting such dividends and the tax withheld with respect to such dividends also may be made available to the tax authorities in the country in which you reside. 
+The gross proceeds from the disposition of our common stock may be subject to information reporting and backup withholding. If you receive payments of the proceeds of a disposition of our common stock to or through a U.S. office of a broker, the payment will be subject to both U.S. backup withholding and information reporting unless you properly provide an IRS Form W-8BEN certifying under penalties of perjury that you are a non-U.S. person (and the payor does not have actual knowledge or reason to know that you are a U.S. person) or you otherwise establish an exemption. If you sell your common stock outside the United States through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, then the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, will generally apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your common stock through a non-U.S. office of a broker that has certain relationships with the United States unless the broker has documentary evidence in its files that you are a non-U.S. person and certain other conditions are met, or you otherwise establish an exemption. 
+Backup withholding is not an additional tax. You may obtain a refund or credit of any amounts withheld under the backup withholding rules that exceed your U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS. 
+Federal Estate Tax 
+Our common stock that is owned (or treated as owned) by an individual who is not a citizen or resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death will be included in such individual s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and, therefore, may be subject to U.S. federal estate tax. 
+Foreign Account Tax Compliance Act 
+Under the Foreign Account Tax Compliance Act, or FATCA, a 30% withholding tax will generally apply to dividends on, or gross proceeds from the sale or other disposition of, common stock paid to a foreign financial institution unless the foreign financial institution (i) enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements, (ii) is resident in a country that has entered into an intergovernmental agreement with the United States in relation to such withholding and information reporting and the financial entity complies with related information reporting requirements of such country, or (iii) qualifies for an exemption from these rules. A foreign financial institution generally is a foreign entity that (i) accepts deposits in the ordinary course of a banking or similar business, (ii) as a substantial portion of its business, holds financial assets for the benefit of one or more other persons, or (iii) is an investment entity that, in general, primarily conducts as a business on behalf of customers trading in certain financial instruments, individual or collective portfolio management or otherwise investing, administering, or managing funds, money or certain financial assets on behalf of other persons. In addition, FATCA generally imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners, furnishes identifying information regarding each substantial U.S. owner, or otherwise qualifies for an exemption from these rules. In either case, such payments would include U.S.-source dividends and the gross proceeds from the sale or other disposition of stock that can produce U.S.-source dividends. By its terms, FATCA generally applies to payments of dividends on, or gross proceeds from the sale or disposition of, common stock made after December 31, 2012. However, the Treasury Department has issued final Treasury 
+
+87
+
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+
+regulations and subsequent guidance that defer the application of FATCA s withholding obligations to payments of dividends made on or after July 1, 2014, and payments of gross proceeds made on or after January 1, 2017. 
+The final Treasury regulations and subsequent guidance provide detailed guidance regarding the reporting, withholding and other obligations under FATCA. Investors should consult their tax advisors regarding the possible impact of the FATCA rules on their investment in our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of the 30% withholding tax under FATCA. 
+THE SUMMARY OF MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY. POTENTIAL PURCHASERS OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK. 
+ 
+
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+
+UNDERWRITING 
+Under the terms and subject to the conditions contained in an underwriting agreement dated , 2013, we have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC is acting as representative, the following respective numbers of shares of common stock: 
+ 
+
+Underwriter
+Number of 
+Shares
+
+Credit Suisse Securities (USA) LLC 
+ 
+
+Wells Fargo Securities, LLC 
+ 
+
+Raymond James & Associates, Inc. 
+ 
+
+Tudor, Pickering, Holt & Co. Securities, Inc. 
+ 
+
+Simmons & Company International 
+ 
+
+SunTrust Robinson Humphrey, Inc. 
+ 
+
+Capital One Southcoast, Inc. 
+ 
+
+Scotia Capital (USA) Inc. 
+ 
+
+Sterne, Agee & Leach, Inc. 
+ 
+
+IBERIA Capital Partners L.L.C. 
+ 
+
+Brean Capital, LLC
+ 
+
+Miller Tabak + Co., LLC
+ 
+
+Sidoti & Company, LLC
+ 
+
+Wunderlich Securities, Inc. 
+ 
+
+Total 
+4,000,000
+
+The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. 
+We have granted the underwriters a 30-day option to purchase up to 600,000 additional shares at the public offering price less the underwriting discounts and commissions. 
+The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial offering of the shares of common stock, the underwriters may change the public offering price and concession and discount to broker/dealers. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part. 
+The following table summarizes the compensation and estimated expenses that we will pay: 
+
+ 
+ 
+Per Share
+ 
+Total
+
+ 
+ 
+Without 
+Option
+ 
+With 
+Option
+ 
+Without 
+Option
+ 
+With 
+Option
+
+Underwriting Discounts and Commissions
+ Paid by us 
+ 
+$
+ 
+$
+ 
+$
+ 
+$
+
+Expenses payable by us 
+ 
+$
+ 
+$
+ 
+$
+ 
+$
+
+We estimate that our out-of-pocket expenses for this offering will be approximately $300,000. We have also agreed to reimburse the underwriters for certain of their expenses in an amount up to $20,000 as set forth in the underwriting agreement. 
+Credit Suisse Securities (USA) LLC has informed us that it does not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered. 
+ 
+In connection with this offering, we agreed that, subject to certain exceptions, we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our 
+
+89
+
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+
+common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC for a period of 60 days after the date of this prospectus. 
+Each of our officers and directors and certain entities controlled by Wexford have agreed in connection with this offering that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC for a period of 60 days after the date of this prospectus.
+These lock-up restrictions are subject to certain specific exceptions, including transfers of common stock as a bona fide gift or by will or intestate succession and transfers to such person s immediate family or to a trust or to an entity controlled by such holder, provided that the recipient of the shares agrees to be bound by the same restrictions on sales and, in the case of our executive officers and directors, the right of such individuals to sell up to 300,000 shares in the aggregate. 
+Credit Suisse Securities (USA) LLC, in its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time. When determining whether or not to release the common stock and other securities from lock-up agreements, Credit Suisse Securities (USA) LLC will consider, among other factors, the holder s reasons for requesting the release and the number of shares of common stock or other securities for which the release is being requested. 
+We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect. 
+Our common stock is listed on the NASDAQ Global Select Market under the symbol FANG. On August 12, 2013, the closing price of our common stock was $42.08. 
+The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have from time to time performed, and may in the future perform, various financial advisory, commercial banking and investment banking services for us and for our affiliates in the ordinary course of business for which they have received and would receive customary compensation. 
+In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investments and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments. 
+In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act. 
+
+ 
+Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. 
+
+ 
+Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. 
+
+90
+
+Table of Contents
+
+ 
+Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. 
+
+ 
+Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. 
+
+ 
+In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. 
+
+These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Select Market or otherwise and, if commenced, may be discontinued at any time. 
+A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. 
+Selling Restrictions 
+European Economic Area 
+In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each such state being referred to herein as a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (each such date being referred to herein as a Relevant Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time: 
+(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; 
+(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; 
+(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representative for any such offer; or 
+(d) in any other circumstances which do not require the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive. 
+For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. 
+
+91
+
+Table of Contents
+
+United Kingdom 
+Each underwriter has represented and agreed that: 
+(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or the FSMA, received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Company; and 
+(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. 
+ 
+Hong Kong 
+The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder. 
+Singapore 
+This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. 
+Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law. 
+Japan 
+The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan, or the Financial Instruments and Exchange Law, and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan. 
+ 
+
+92
+
+Table of Contents
+
+LEGAL MATTERS 
+The validity of the shares of common stock that are offered hereby by us will be passed upon by Akin Gump Strauss Hauer & Feld LLP. The underwriters have been represented by Latham & Watkins LLP, Houston, Texas. 
+
+EXPERTS 
+The audited financial statements incorporated by reference or included in this prospectus and elsewhere in the registration statement have been so incorporated by reference or included in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing. 
+Information referenced in this prospectus regarding our estimated quantities of oil and gas reserves and the discounted present value of future net cash flows therefrom is based upon estimates of such reserves and present values prepared by Ryder Scott Company, L.P. as of December 31, 2012 and 2011 and by Pinnacle Energy Services, LLC as of December 31, 2010, each an independent petroleum engineering firm. 
+
+WHERE YOU CAN FIND MORE INFORMATION 
+We have filed with the SEC a registration statement on Form S-1 under the Securities Act covering the securities offered by this prospectus, which constitutes a part of that registration statement. Items included in the registration statement as Part II are omitted from this prospectus in accordance with the rules and regulations of the SEC. For further information about us and the common stock offered by this prospectus, reference is made to the registration statement and the exhibits filed with the registration statement. Statements contained in this prospectus and any prospectus supplement as to the contents of any contract or other document referred to are qualified by reference to each such contract or document filed as part of the registration statement. You may read any materials we file with the SEC free of charge at the SEC s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Copies of all or any part of these documents may be obtained from such office upon the payment of the fees prescribed by the SEC. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov. The registration statement, including all exhibits thereto and amendments thereof, has been filed electronically with the SEC. 
+We are subject to the information and periodic reporting requirements of the Exchange Act, and we file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at http://www.diamondbackenergy.com. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus. 
+
+INFORMATION INCORPORATED BY REFERENCE 
+The SEC allows us to incorporate by reference information from other documents that we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. Information in this prospectus supersedes information incorporated by reference that we filed with the SEC prior to the date of this prospectus. 
+We incorporate by reference into this prospectus and the registration statement of which this prospectus is a part the information or documents listed below that we have filed with the SEC: 
+
+ 
+our Current Report on Form 8-K, filed with the SEC on February 1, 2013; 
+
+ 
+our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013; 
+
+ 
+our
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diff --git a/parsed_sections/legal_matters/2013/FATE_fate_legal_matters.txt b/parsed_sections/legal_matters/2013/FATE_fate_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e7b7429e0bd8ef2daec12e65015e882a503f8aaa
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/FATE_fate_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, San Diego, California. Certain legal matters will be passed upon for the underwriters by Morgan, Lewis & Bockius LLP, Palo Alto, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/GULTU_gulf_legal_matters.txt b/parsed_sections/legal_matters/2013/GULTU_gulf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b3d925822009fce4da714732c45fc4646f278c7d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/GULTU_gulf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity under Delaware law of the royalty trust units offered by this prospectus is being passed upon by Morris, Nichols, Arsht & Tunnell LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/HROW_harrow-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/HROW_harrow-inc_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3e1a469bda8cb353fc0a0e396139394fbd029bdc
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/HROW_harrow-inc_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock being offered hereby will be passed upon for us by Morrison & Foerster LLP, San Diego, California.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/INBKZ_first_legal_matters.txt b/parsed_sections/legal_matters/2013/INBKZ_first_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..35af8887a89807a1cacc9a8dcbbd80db77de46ca
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/INBKZ_first_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The legality of the issuance of the shares offered in this prospectus will be passed on for us by Faegre Baker Daniels LLP, Indianapolis, Indiana. The underwriters are represented by Patton Boggs LLP, Washington, DC.
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diff --git a/parsed_sections/legal_matters/2013/KINS_kingstone_legal_matters.txt b/parsed_sections/legal_matters/2013/KINS_kingstone_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..45e3d09823edd39450d5867c63762a975c86db87
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/KINS_kingstone_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters 45
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/LITB_lightinthe_legal_matters.txt b/parsed_sections/legal_matters/2013/LITB_lightinthe_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e461e47e3be23e859ef748d31becef3c11e4bc7b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/LITB_lightinthe_legal_matters.txt
@@ -0,0 +1 @@
+(1)At the direction of the government of the People's Republic of China in accordance with the Scheme of the Localization Restructuring of Chinese-Foreign Cooperative Accounting Firms, Deloitte Touche Tohmatsu CPA Limited has restructured to a new partnership and changed its name to Deloitte Touche Tohmatsu Certified Public Accountants LLP, effective from January 1, 2013. Deloitte Touche Tohmatsu Certified Public Accountants LLP has succeeded Deloitte Touche Tohmatsu CPA Limited for all purposes and assumed all of the obligations and rights of Deloitte Touche Tohmatsu CPA Limited with effect from January 1, 2013. The offices of Deloitte Touche Tohmatsu Certified Public Accountants LLP are located at 8/F, Deloitte Tower, The Towers, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, People's Republic of China. Table of Contents WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act with respect to underlying ordinary shares represented by the ADSs, to be sold in this offering. A related registration statement on F-6 will be filed with the SEC to register the ADSs. This prospectus, which constitutes a part of the registration statement, does not contain all of the information contained in the registration statement. You should read the registration statement and its exhibits and schedules for further information with respect to us and the ADSs. Immediately upon closing of this offering, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Additional information may also be obtained over the Internet at the SEC's website at www.sec.gov. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated combined financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders' meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, if we so request, will mail to all record holders of ADSs the information contained in any notice of a shareholders' meeting received by the depositary from us. Table of Contents LIGHTINTHEBOX HOLDING CO., LTD. NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2012 AND 2013 (U.S. dollars in thousands, except share data and per share data, or otherwise noted) 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES As of December 31, 2012 As of March 31, 2013 Accrued payroll and staff welfare $ 6,345 $ 6,994 Individual income tax payable 3,702 596 VAT and Business tax payable 398 348 Accrued professional fees 636 786 Accrued advertising fees 911 1,143 Credit card processing charges 370 464 Accrued sales return(1) 116 251 Accrued chargebacks(2) 85 100 Other accrued expenses 248 Table of Contents LEGAL MATTERS We are being represented by Simpson Thacher & Bartlett LLP with respect to certain legal matters of United States federal securities and New York State law. Certain legal matters of United States federal securities and New York State law in connection with this offering will be passed upon for the underwriters by Kirkland & Ellis International LLP. The validity of the ordinary shares represented by the ADSs offered in this offering and legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder. Certain legal matters as to PRC law will be passed upon for us by TransAsia Lawyers and for the underwriters by Han Kun Law Offices. Simpson Thacher & Bartlett LLP may rely upon TransAsia Lawyers with respect to matters governed by PRC law. Kirkland & Ellis International LLP may rely upon Han Kun Law Offices with respect to matters governed by PRC law.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/MMI_marcus_legal_matters.txt b/parsed_sections/legal_matters/2013/MMI_marcus_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c24f5e133e137b56c8cb1ad40d0c7346dafb5ab1
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/MMI_marcus_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Orrick, Herrington & Sutcliffe LLP, San Francisco, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Latham & Watkins LLP, Los Angeles, California.
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diff --git a/parsed_sections/legal_matters/2013/MPAA_motorcar_legal_matters.txt b/parsed_sections/legal_matters/2013/MPAA_motorcar_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2a211c3d04f54806f267cefeebe6dec480451cab
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/MPAA_motorcar_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS Latham & Watkins LLP, Los Angeles, California, will provide an opinion with respect to the validity of the securities.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/NHTC_natural_legal_matters.txt b/parsed_sections/legal_matters/2013/NHTC_natural_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..29fe64c1f9d3f35c4630844511d4badbad737f40
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/NHTC_natural_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for us by Locke Lord LLP, Dallas, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PARR_par_legal_matters.txt b/parsed_sections/legal_matters/2013/PARR_par_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..29d91715656a8be13249efb05a5627ac0a9fd79d
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PARR_par_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of our common stock will be passed upon for us by Porter Hedges LLP, Houston, Texas.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PBF_pbf_legal_matters.txt b/parsed_sections/legal_matters/2013/PBF_pbf_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cb7d4c2574e85553f08c46c4978eacb845051876
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PBF_pbf_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A common stock offered by this prospectus will be passed upon for us by Stroock & Stroock & Lavan LLP, New York, New York.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PHLT_performant_legal_matters.txt b/parsed_sections/legal_matters/2013/PHLT_performant_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6ff569e0625397fd8928dc852081a7d27f409d67
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PHLT_performant_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, San Francisco, California. Kirkland & Ellis LLP, New York, New York, is representing the underwriters in this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PINC_premier_legal_matters.txt b/parsed_sections/legal_matters/2013/PINC_premier_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b7b173db121824e40ec0a156b594a019a061960b
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PINC_premier_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of Class A common stock offered by this prospectus and certain legal matters in connection with this offering will be passed upon for us by McDermott Will & Emery LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cravath, Swaine & Moore LLP.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PRTA_prothena_legal_matters.txt b/parsed_sections/legal_matters/2013/PRTA_prothena_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..27770b0afa3faf4c85b58695161b4b028d529075
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PRTA_prothena_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the issuance of our ordinary shares offered in this prospectus by us and the selling shareholder will be passed upon for us by A&L Goodbody, Dublin, Ireland. Cooley LLP is acting as counsel for the underwriters in connection with this offering.
\ No newline at end of file
diff --git a/parsed_sections/legal_matters/2013/PSIX_power_legal_matters.txt b/parsed_sections/legal_matters/2013/PSIX_power_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1a8e1e1ec2a5dbbb19f1c295558bac17d1c5f7f7
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/PSIX_power_legal_matters.txt
@@ -0,0 +1 @@
+Legal Matters The validity of the shares of common stock offered hereby has been passed upon for us by our counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. Certain legal matters in connection with this offering will be passed upon for the underwriters by Goodwin Procter LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/RIOT_riot_legal_matters.txt b/parsed_sections/legal_matters/2013/RIOT_riot_legal_matters.txt
new file mode 100644
index 0000000000000000000000000000000000000000..759f254a7cf8bc19d2917a29b742b00b27ab7c70
--- /dev/null
+++ b/parsed_sections/legal_matters/2013/RIOT_riot_legal_matters.txt
@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the securities offered hereby will be passed upon for us by Ballard Spahr LLP, Philadelphia, Pennsylvania. Faegre Baker Daniels LLP, Denver, Colorado, has acted as counsel for the underwriter in connection with certain legal matters related to this offering.
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diff --git a/parsed_sections/legal_matters/2013/RMAX_re-max_legal_matters.txt b/parsed_sections/legal_matters/2013/RMAX_re-max_legal_matters.txt
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+LEGAL MATTERS The validity of our Class A common stock offered hereby will be passed upon for us by Morrison & Foerster LLP, San Francisco, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/SAMG_silvercres_legal_matters.txt b/parsed_sections/legal_matters/2013/SAMG_silvercres_legal_matters.txt
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+LEGAL MATTERS Certain legal matters with respect to the common stock offered hereby will be passed upon for us by Bingham McCutchen LLP. Certain legal matters with respect to this offering will be passed upon for the underwriters by Paul, Weiss, Rifkind, Wharton & Garrison LLP.
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diff --git a/parsed_sections/legal_matters/2013/SBLK_star-bulk_legal_matters.txt b/parsed_sections/legal_matters/2013/SBLK_star-bulk_legal_matters.txt
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index 0000000000000000000000000000000000000000..9cb5a25e81d03c02c4ab9b409d2c42b137d1342a
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+LEGAL MATTERS The validity of the securities offered by this prospectus and certain other legal matters relating to United States law are being passed upon for us by Seward & Kissel LLP, New York, New York.
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+LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Orrick, Herrington & Sutcliffe LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by Willkie Farr & Gallagher LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/TMHC_taylor_legal_matters.txt b/parsed_sections/legal_matters/2013/TMHC_taylor_legal_matters.txt
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index 0000000000000000000000000000000000000000..0777baae0b1c249ae223521a1a46790a1528b041
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+LEGAL MATTERS Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, will pass on the validity of the Class A common stock offered by this prospectus for us. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.
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diff --git a/parsed_sections/legal_matters/2013/UI_ubiquiti_legal_matters.txt b/parsed_sections/legal_matters/2013/UI_ubiquiti_legal_matters.txt
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index 0000000000000000000000000000000000000000..85baacf841ec040503451f86865196b2d49c1313
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+LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Sidley Austin LLP, Palo Alto, California. Davis Polk & Wardwell LLP, Menlo Park, California, is representing the underwriters in this offering.
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diff --git a/parsed_sections/legal_matters/2013/VCYT_veracyte_legal_matters.txt b/parsed_sections/legal_matters/2013/VCYT_veracyte_legal_matters.txt
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index 0000000000000000000000000000000000000000..2548cbae470f574112aac0d2f4a1572b2600dd92
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+LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Pillsbury Winthrop Shaw Pittman LLP, San Francisco and Palo Alto, California. Simpson Thacher & Bartlett LLP, Palo Alto, California is representing the underwriters in this offering.
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diff --git a/parsed_sections/legal_matters/2013/XNCR_xencor-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/XNCR_xencor-inc_legal_matters.txt
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index 0000000000000000000000000000000000000000..98a2c159552b27037e508b56f85a489acbc4f008
--- /dev/null
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@@ -0,0 +1 @@
+LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, Santa Monica, California. The underwriters are being represented by Davis Polk & Wardwell LLP, Menlo Park, California.
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diff --git a/parsed_sections/legal_matters/2013/ZTS_zoetis-inc_legal_matters.txt b/parsed_sections/legal_matters/2013/ZTS_zoetis-inc_legal_matters.txt
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@@ -0,0 +1 @@
+Legal matters Certain legal matters, including the legality of the shares being offered herein, will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, and certain legal matters will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
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diff --git a/parsed_sections/prospectus_summary/2004/AGO_assured_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/AGO_assured_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/ALNY_alnylam_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/ALNY_alnylam_prospectus_summary.txt
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+UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents SUMMARY This summary highlights information contained elsewhere in this prospectus that we consider important. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, including the Risk Factors section and our consolidated financial statements and the related notes included in this prospectus, before making an investment in our common stock. OUR BUSINESS Overview Alnylam is a biopharmaceutical company seeking to develop and commercialize new drugs that work through a recently discovered system in cells known as RNA interference, or RNAi. We believe that drugs that work through RNA interference, or RNAi therapeutics, have the potential to become a major class of drugs, like small molecule, protein and antibody drugs. Using our intellectual property and the expertise we have built in RNAi, we are developing a set of biological and chemical methods and know how that we expect to apply in a systematic way to develop RNAi therapeutics for a variety of diseases. We refer to these methods and their systematic application as our product engine . Using our current capabilities, we have initiated programs to develop RNAi therapeutics that will be administered directly to diseased parts of the body, which we refer to as Direct RNAi therapeutics. We believe there are multiple opportunities for Direct RNAi therapeutics. Our current Direct RNAi programs are focused on an eye disease known as age-related macular degeneration, or AMD, and on a central nervous system disorder known as Parkinson s disease, or PD. We expect to initiate a clinical trial for our lead AMD product candidate in 2005. We are also working to extend our capabilities to enable the development of RNAi therapeutics that travel through the blood stream to reach diseased parts of the body, which we refer to as Systemic RNAi therapeutics. We believe Systemic RNAi will be used to treat a broad range of diseases. RNAi is a recently discovered natural mechanism for selectively silencing genes. Genes provide cells with coded instructions for making proteins, and silencing a gene refers to stopping or reducing production of the protein specified, or encoded, by that gene. Our goal is to develop new drugs that use the RNAi mechanism to selectively silence genes encoding proteins that play harmful roles in disease. We intend to develop drugs based on a type of molecule known as small interfering RNA, or siRNA. siRNAs are the molecules within cells that directly trigger RNAi. We expect that our RNAi therapeutics will consist of chemically modified siRNAs designed to silence specific genes. Given the recent availability of the base sequence of the entire human genome, RNAi therapeutics can be designed, in theory, to silence any gene that encodes a protein involved in disease, even if currently this protein cannot be adequately controlled by conventional drugs. The scientific evidence to support the feasibility of developing drugs based on RNAi technology is both preliminary and limited. siRNAs do not naturally possess many of the properties required of drugs, such as the ability to survive in the blood stream and penetrate into diseased tissues. The methods we are developing for our product engine need to introduce these drug-like properties into siRNAs without making these siRNAs unsafe or ineffective. We do not currently know whether we will be successful in developing these methods. Very few drug candidates based on RNAi technology have been tested in animals, and none has been tested in humans. We believe that we have a strong intellectual property position relating to the development and commercialization of siRNAs as therapeutics, consisting of: a concentration of intellectual property rights claiming fundamental features of siRNAs and their use as therapeutics, which includes our ownership of, or exclusive rights to, several issued patents and pending patent applications; a broad portfolio of intellectual property relating to chemical modifications of siRNAs, including over 150 patents licensed from Isis Pharmaceuticals, Inc.; and AMENDMENT NO. 5 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Alnylam Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Table of Contents a number of pending patent applications claiming siRNAs directed to specific targets as treatments for particular diseases. We have filed or licensed over 200 patents and patent applications in the RNAi field. Nevertheless, we may need to acquire additional intellectual property rights in order to develop our products. In addition, our intellectual property rights may not be sufficient to prevent other companies from developing products that compete with any products we may develop. Our goal is to develop and commercialize RNAi therapeutics. To access the substantial funding and expertise required to develop and commercialize RNAi therapeutics, we intend to form strategic collaborations with pharmaceutical companies. In the collaborations we form in the near term, we expect to take the lead role in discovery and early preclinical development of specific RNAi therapeutics, and to share responsibilities with our collaborators in later-stage development and commercialization of these RNAi therapeutics. We expect that our collaborators will provide us with significant funding for the work we perform, access to their development and commercial capabilities, and a share of revenues from products we originate. Our first such alliance is with Merck Co., Inc. Over time, as we expand our capabilities and resources, we expect the nature of the collaborations we form will evolve, so that we take on progressively more responsibility for development and commercialization of products we originate, and retain a greater share of the revenues these products generate. In the longer term, we expect to develop and commercialize RNAi therapeutics independently. Our ability to form appropriate collaborations with pharmaceutical companies will be crucial for our success. The development and commercialization of drugs often takes a decade or more to complete and requires significant expenditures. It is unlikely that we will be able to afford the time or expense involved in the development and commercialization of drugs unless we secure suitable collaborations with pharmaceutical companies. If we are unable to form or to maintain such collaborations, or our collaborators do not perform as we expect them to, we may not be able to develop and commercialize RNAi therapeutics. Moreover, the pharmaceutical marketplace is highly competitive, with hundreds of companies pursuing the same or very similar product opportunities. Even if we do succeed in developing RNAi therapeutics, we may not be able to compete effectively in the marketplace. Our scientific founders have published significant discoveries in the field of RNAi. In addition, we have assembled an experienced management team to implement our business plan. Members of our management team have led discovery, development and commercialization programs for a number of marketed drugs, including Aranesp, Neulasta, Angiomax and Velcade. Potential for RNAi Therapeutics Proteins perform many of the vital functions of the cell and of the human body. Although the roles they play are generally beneficial, in certain circumstances, proteins can be harmful. Many human diseases are caused by the inappropriate behavior of proteins. A particular protein may, for example, be present in too great a quantity, be too active, or appear in the wrong place or at the wrong time. In these circumstances, the ability to stop or reduce production of the protein by selectively silencing the gene that directs its synthesis could be very beneficial in the treatment of the disease. Beginning in 1999, our scientific founders described and provided evidence that the RNAi mechanism occurs in mammalian cells and that its immediate trigger is a type of molecule known as small interfering RNA, or siRNA. They showed that laboratory-synthesized siRNAs could be introduced into the cell and suppress production of specific target proteins. Because it is possible, in theory, to design and synthesize siRNAs specific for any gene of interest, we believe that RNAi therapeutics have the potential to become a broad new class of drugs. We believe that RNAi therapeutics could offer the following benefits: Ability to treat a broad range of diseases. Given the availability of the base sequence of the entire human genome, in theory, it should be possible to design siRNAs to suppress the production of virtually any human protein whose presence or activity causes disease. (Unaudited) Laboratory equipment 5 to 8 351,092 709,045 910,589 Other equipment Delaware 2834 77-0602661 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 300 Third Street Cambridge, Massachusetts 02142 (617) 551-8200 (Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents Ability to target proteins that cannot be targeted effectively by existing drug classes. Many proteins that play important roles in disease cannot be targeted effectively with small molecules and therapeutic proteins, including monoclonal antibodies. In theory, siRNAs should not face the same limitations as these drug classes and, therefore, we believe RNAi therapeutics will be able to target proteins that small molecule and protein drugs cannot currently target. An inherently potent mechanism of action. Each siRNA molecule can trigger destruction of multiple messenger RNA molecules, each of which could otherwise direct the synthesis of many protein molecules. As a result, one siRNA molecule may effectively be able to block the activity of many protein molecules. This inherent potency of the RNAi mechanism suggests a potentially high degree of potency for RNAi therapeutics. Simplified discovery of drug candidates. Identification of siRNA drug candidates has the potential to be much simpler and take considerably less time than other drug classes because, in theory, it will involve a relatively standard process that can be applied in a similar fashion to many successive product candidates. None of these potential benefits has yet been proven. If we are unable to design siRNAs with sufficient stability and the ability to enter tissues and cells, we will not be able to develop safe and effective RNAi therapeutics. Our Business Strategy Our strategy is to use our strong intellectual property position and our expertise in RNAi to develop and commercialize RNAi therapeutics. The key elements of our business strategy are as follows: Pursue product opportunities in a phased approach based on the evolving capabilities of our product engine. We are implementing a phased approach to product development that we believe will allow us to initiate product development activities in three main phases: Direct RNAi Therapeutics: We intend to utilize the current capabilities of our product engine by focusing our efforts on developing RNAi therapeutics that can be administered directly at diseased parts of the body, such as the eye, the brain or the lungs. As part of this phase, we have initiated Direct RNAi programs focused on AMD and PD. Systemic RNAi Therapeutics for liver-based diseases: As we extend the capabilities of our product engine, we intend to develop RNAi therapeutics for liver-based diseases because it appears, on the basis of early preclinical evidence, that the liver takes up siRNAs more readily than other tissues. Systemic RNAi Therapeutics for other diseases: As a third phase of our product development strategy, we will seek to develop RNAi therapeutics that exert their effects in tissues other than the liver. We believe achievement of this objective could permit us to develop Systemic RNAi drugs for a broad range of diseases, such as cancer and autoimmune diseases. Maintain our strong intellectual property position in the RNAi field. We believe we have a strong intellectual property position relating to the development and commercialization of siRNAs as therapeutics. To build upon our existing intellectual property position, we are focusing on patents and patent applications covering fundamental aspects of siRNAs, chemical modifications to siRNAs and specific targets for RNAi therapeutics. Capitalize on our expertise in RNAi and our intellectual property position to gain access to additional resources to develop and commercialize RNAi therapeutics. We believe that we can use our expertise and the strength of our intellectual property to drive the formation of strategic alliances that will provide us with funding and access to important additional resources. We intend to take an active role in these alliances, including maintaining certain development and commercialization rights. We also intend to use our early alliances to expand our own capabilities so that in the future we will be able to develop and commercialize our therapeutic products independently. John M. Maraganore, Ph.D. President and Chief Executive Officer Alnylam Pharmaceuticals, Inc. 300 Third Street Cambridge, Massachusetts 02142 (617) 551-8200 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent for Service) Table of Contents Leverage our intellectual property position by licensing our technology to generate revenues. We intend to generate revenues by granting licenses to our intellectual property to third parties for the development of therapeutics outside our areas of focus and for the development of research reagents and services. Our Product Engine To realize the potential of RNAi therapeutics as a broad new class of drugs, we are developing a set of biological and chemical methods and know how that we expect to apply in a systematic way to develop RNAi therapeutics for a variety of diseases. We refer to these methods and their systematic application as our product engine. We believe that our product engine will provide a systematic approach for identifying siRNA drug candidates, using the following steps: Sequence selection the use of computational tools to design siRNA sequences likely to be selective for the gene that is to be silenced, Potency selection the synthesis and comparison of different siRNAs to determine which are most potent in silencing the target gene, Stabilization the introduction of chemical modifications into potent siRNAs to make them more stable within the body, and Improvement of biodistribution the addition of further chemical groups to stabilized siRNAs to improve their ability to reach different parts of the body. Our Development Programs Using the current capabilities of our product engine, we have initiated two programs to identify specific siRNAs for potential further development as Direct RNAi drug candidates. We expect to initiate additional programs as the capabilities of our product engine evolve. Our current programs are focused on AMD and PD. Age-Related Macular Degeneration AMD can cause severe deterioration of vision and may ultimately cause blindness. The National Eye Institute estimates that over 1.6 million adults over 50 in the United States suffer from advanced AMD. The siRNAs we are exploring would treat wet AMD, a subtype of AMD often associated with severe vision loss. AMD Alliance International estimates that approximately 200,000 new cases of wet AMD are diagnosed in North America each year and 500,000 new cases of wet AMD are diagnosed worldwide each year. We are developing a RNAi therapeutic intended to treat wet AMD by suppressing production of the protein known as vascular endothelial growth factor, or VEGF. VEGF is believed to play a key role in wet AMD by stimulating the growth and leakage of blood vessels that disrupt the retina. We are currently evaluating several siRNAs designed to inhibit the production of VEGF in animal models and expect to begin a clinical trial for an AMD product candidate in 2005. Any siRNA we develop for AMD will be a Direct RNAi drug administered by injection into the eye, the mode of administration used for two drug candidates currently in late stage clinical trials by other companies. We have filed patent applications relating to the use of siRNA to suppress VEGF production for therapeutic purposes. Parkinson s Disease PD is a disorder of the nervous system that the American Parkinson Disease Association estimates afflicts more than 1.5 million people in the United States, and the World Health Organization estimates afflicts approximately four million people worldwide. Current treatments for PD largely focus on treating the symptoms of the disease, which are caused by the shortage of a substance known as dopamine in the brain. There are no drugs currently approved to treat the cause of the disease. The siRNAs we have started to explore as potential treatments for PD are based on treating the suspected cause of PD rather than the Copies to: Steven D. Singer, Esq. Peter N. Handrinos, Esq. Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 (617) 526-6000 Danielle Carbone, Esq. Shearman Sterling LLP 599 Lexington Avenue New York, New York 10022 (212) 848-4000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. Table of Contents symptoms. Instead of replacing the function of missing dopamine in persons with PD, our approach would attempt to prevent the death of dopamine-producing cells that causes this shortage. Based on recent scientific findings, we believe that it may be possible to prevent the death of these cells by using an siRNA to suppress production of a protein known as alpha-synuclein. We recently entered into a collaboration with the Mayo Foundation for Medical Education and Research and the Mayo Clinic Jacksonville, to explore this possibility in animal models of PD. We plan to begin animal model testing by the end of 2004. Early Stage Company We are an early stage company and the approach we are taking to discover and develop drugs is novel and unproven. Our potential product candidates are in early stages of preclinical development where failure is common. Neither we nor any other company has received regulatory approval to market therapeutics utilizing siRNAs. We do not expect any of our product candidates, if successfully developed, to receive regulatory approval for commercial sale for at least several years. See Risk Factors beginning on page 11 for risks related to an investment in our common stock. Corporate Information Alnylam Pharmaceuticals, Inc. was incorporated in Delaware in May 2003. Alnylam Europe, AG, which was incorporated in Germany in June 2000 under the name Ribopharma AG, and Alnylam U.S., Inc., which was incorporated in Delaware in June 2002, are wholly owned subsidiaries of Alnylam Pharmaceuticals, Inc. Alnylam Pharmaceuticals, Inc. acquired Alnylam Europe, AG in July 2003. Our principal executive office is located at 300 Third Street, Cambridge, Massachusetts 02142, and our telephone number is (617) 551-8200. Our internet address is www.alnylam.com. The information on our web site is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus. Our web site address is included in this prospectus as an inactive technical reference only. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. Table of Contents THE OFFERING Common stock offered 5,000,000 shares Common stock to be outstanding after this offering 19,283,332 shares Use of proceeds We expect to use the net proceeds of this offering to fund research and development activities, to fund the acquisition, licensing and protection of intellectual property rights, and for general corporate purposes. See Use of Proceeds for more information. NASDAQ National Market symbol ALNY
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diff --git a/parsed_sections/prospectus_summary/2004/ANGO_angiodynam_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/ANGO_angiodynam_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..64df083b95ae0c84853f2e6b03fb51c87628f63a
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the Risk Factors section and our consolidated financial statements and the related notes. Our Business We design, develop, manufacture and market innovative medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease, or PVD. PVD is a condition in which the arteries or veins that carry blood to or from the legs, arms and organs, other than the heart, become narrowed, obstructed or ballooned. We offer a broad line of therapeutic and diagnostic devices that enable interventional physicians to treat PVD and other non-coronary, or non-heart-related, diseases. Interventional physicians are interventional radiologists, vascular surgeons and others who use image-guided techniques to perform minimally-invasive surgical procedures. The procedures performed by interventional physicians to treat PVD-related and other non-coronary conditions require a variety of medical devices. We have developed a diversified product line to meet our customers needs. Our seven current product lines, and the percentage of our fiscal 2003 revenues they accounted for, include: angiographic catheters (35.6%), hemodialysis catheters (24.4%), percutaneous transluminal angioplasty, or PTA, dilation catheters (7.9%), thrombolytic products (7.8%), image-guided vascular access products (6.9%), endovascular laser venous system products (5.5%) and drainage products (3.4%). We believe that we are well positioned to benefit from growth in the PVD market anticipated to result from ongoing medical and demographic trends. Millennium Research Group reports that over 11 million Americans suffer from PVD. We estimate that aggregate U.S. expenditures on PVD devices that we currently sell will increase from approximately $760 million in 2002 to over $1 billion in 2007. Several factors are driving this growth, including an aging population, higher incidence rates of obesity and diabetes, greater adoption of the minimally invasive procedures performed by interventional physicians, greater public awareness of PVD symptoms and treatments, and the introduction of new image-guided procedures. We sell our products to interventional physicians through a direct sales force in the United States and through distributors in 27 non-U.S. markets. Because physicians believe that the outcome of medical procedures can be significantly affected by the specific device used, they typically influence the purchasing decisions of the hospitals and other institutions in which they practice. Consequently, our physician relationships are critical to our continued growth. In over a decade of serving interventional physicians, our management team and sales representatives have developed valuable relationships with, and brand awareness among interventional physicians. We believe we are the only company whose primary focus is to offer a comprehensive product line for the interventional treatment of PVD. This focus, combined with our responsive, physician-driven product development efforts, engenders brand loyalty among our customer base. By expanding our sales force and introducing innovative products, we have generated strong, consistent sales growth over the past three fiscal years. Approximately 55% of our net sales for fiscal 2003 were from products introduced during the past five fiscal years. From fiscal 2000 to fiscal 2003, we increased sales from $21.8 million to $38.4 million, a compound annual growth rate, or CAGR, of 20.8%. During the same period, we increased earnings from a net loss of $1.4 million to net earnings of $1.2 million. Operating profit (990 ) (739 ) (290 ) 2,388 3,238 2,190 3,207 Other income (expenses) Interest income 16 12 71 45 38 27 11 Interest expense(a) (986 ) (1,005 ) (952 ) (863 ) (1,021 ) (757 ) (632 ) Other, net 257 19 Operating profit (loss) (290 ) 2,388 3,238 2,190 3,207 Other income (expenses) Interest income 71 45 38 27 11 Interest expense (952 ) (863 ) (1,021 ) (757 ) (632 ) Other, net SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers or sales are permitted. The information in this prospectus is only accurate on the date of this prospectus. Our business, financial condition or results of operations may have changed since that date. For investors outside the United States: Neither we nor any of the underwriters for the offering of our common stock have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, our offering and the distribution of this prospectus. Table of Contents Our Strategy We enter market segments in which we believe we can successfully compete with larger diversified competitors as well as single or limited product companies. We intend to continue to expand our product offering by entering new and attractive market segments and investing in research and development. The key elements of our strategy include: expanding our sales and marketing efforts by adding direct sales representatives in the United States and distributors in non-U.S. markets; developing new products and enhancing existing products; offering a broad product line; vertically integrating manufacturing; and acquiring or partnering with complementary businesses. Our History We were founded in 1988 as a division of E-Z-EM, Inc., a leading developer and manufacturer of gastrointestinal contrast agents and related imaging accessories. E-Z-EM is a public company that is traded on the American Stock Exchange under the symbol EZM. In 1992, we were organized in the State of Delaware as a wholly-owned subsidiary of E-Z-EM under the name A.D., Inc. In 1996, E-Z-EM transferred the business of its AngioDynamics division to us, and we changed our name to AngioDynamics, Inc. Our corporate offices and manufacturing capabilities are in a single facility located at 603 Queensbury Avenue, Queensbury, New York, 12804. Our phone number is (518) 798-1215 and our website is www.angiodynamics.com. Information on our website is not a part of this prospectus. Relationship with E-Z-EM, Inc. We are a wholly-owned subsidiary of E-Z-EM. After the completion of this offering, E-Z-EM will own 9,200,000 shares of our common stock. This will constitute approximately 82.5% of the outstanding shares of our common stock, or approximately 80.4% if the underwriters fully exercise their option to purchase additional shares of our common stock. This means that E-Z-EM will control many aspects of our business. E-Z-EM has advised us that it has determined that the division of its two business segments into two separate publicly-held companies is the best way to maximize value for its stockholders, in particular, by allowing AngioDynamics to gain direct access to the capital markets. In addition, we and E-Z-EM have determined that an initial public offering of our common stock will provide working capital for new product development and other corporate purposes. Our separation from E-Z-EM will be accomplished in two steps: this offering and the subsequent distribution by E-Z-EM of its shares of our common stock to its stockholders. This process will enable the distribution by E-Z-EM to be tax-free to E-Z-EM and its stockholders, and will also provide for an efficient and orderly development of a public market for our common stock prior to the distribution. We believe that AngioDynamics will realize benefits from its separation from E-Z-EM, including: Direct Access to Capital Markets. Following the distribution of our shares by E-Z-EM, and subject to the restrictions on our ability to raise capital which are necessary to preserve the tax-free status of the distribution, we will be able to directly access the capital markets to raise equity capital and issue debt securities in an efficient and cost-effective way, as well as to facilitate growth, including through acquisitions. AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents Greater Strategic Focus. We expect that the separation will allow our directors and management to concentrate on developing business and strategic opportunities focused only on our products and customer base. Increased Speed and Responsiveness. As a separate company, we believe that we will be able to make decisions more quickly and assign resources more rapidly and efficiently than we could as part of a larger organization. Better Incentives for Management and Employees and Greater Accountability. The separation will enable us to offer our employees compensation and incentive programs directly linked to the performance of the AngioDynamics business and the market performance of our stock, which we expect to enhance our ability to attract, retain and motivate qualified personnel. E-Z-EM will, in its sole discretion, determine the timing, structure and all terms of the distribution. E-Z-EM has agreed with the underwriters that it will not complete the distribution until at least 120 days after the date of this prospectus without the prior written consent of RBC Capital Markets Corporation. The distribution depends on the satisfaction or waiver of a number of conditions. E-Z-EM has received a private letter ruling from the Internal Revenue Service that the distribution of its shares of our common stock to E-Z-EM stockholders will be tax-free to E-Z-EM and its stockholders. E-Z-EM has advised us that it intends to complete the distribution by February 5, 2005. However, E-Z-EM is not obligated to complete the distribution, and there can be no assurance that the distribution will occur. We have entered into agreements with E-Z-EM related to the separation of our business operations from E-Z-EM, including: master separation and distribution agreement; corporate agreement; and tax allocation and indemnification agreement. The agreements relating to the separation of our business operations from E-Z-EM are described more fully in Relationship and Arrangements with E-Z-EM included elsewhere in this prospectus. Our obligation to indemnify E-Z-EM and its stockholders if our actions cause the distribution by E-Z-EM to fail to qualify as a tax-free distribution could result in substantial liability for us. The terms of these agreements with E-Z-EM were established in the context of a parent-subsidiary relationship and may be more or less favorable to us than if they had been negotiated with unaffiliated third parties. Although E-Z-EM will be able to control our activities prior to its distribution of our common stock, we and E-Z-EM have agreed in the master separation and distribution agreement that, for a period of two years from the date of this offering and subject to limited exceptions, each company will not engage in any activities or lines of business included within the other s business at the time of the offering. Additionally, during this two-year period, the master separation and distribution agreement provides that we and E-Z-EM have no right to claim a corporate opportunity in business opportunities that fall within the other company s current business. Further, we believe that the businesses are sufficiently distinct so as to make it unlikely that each company would be interested in any opportunity that falls outside both of their businesses. (in thousands) Available-for-sale securities (carried on the balance sheet at fair value) Municipal bonds with maturities Due in 1 through 10 years $ 315 $ 315 Due after 10 years and through 20 years 500 500 Due after 20 years 500 500 Other 3 AngioDynamics, Inc. (Exact Name of Registrant as Specified in its Charter) Table of Contents The Offering Common stock offered by us 1,950,000 shares Common stock outstanding after the offering 11,150,000 shares Use of proceeds We intend to use the net proceeds from this offering for new product development, potential acquisitions, repayment of $3.0 million of debt to E-Z-EM and general corporate purposes. See Use of Proceeds. Risk factors See Risk Factors and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in shares of our common stock. Proposed Nasdaq National Market symbol ANGO (in thousands) Available-for-sale securities (carried on the balance sheet at fair value) Municipal bonds with maturities Due after 10 years and through 20 years $ 350 $ 350 Due after 20 years 375 375 Other 4 Delaware 3841 11-3146460 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 603 Queensbury Avenue Queensbury, New York 12804 (518) 798-1215 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Weighted average number of shares used in per share calculations Basic: 9,200,000 9,200,000 9,200,000 9,200,000 9,200,000 Diluted: 9,200,000 9,337,425 9,472,233 9,472,281 9,732,432 Cash flow data: Net cash provided by (used in) operating activities $ 409 $ 1,206 $ 680 $ 547 $ 1,140 Net cash provided by (used in) investing activities 1,499 (715 ) (4,572 ) (4,164 ) (642 ) Net cash provided by (used in) financing activities $ (1,761 ) $ 371 $ 3,306 $ 3,341 $ (105 ) Eamonn P. Hobbs AngioDynamics, Inc. 603 Queensbury Avenue Queensbury, New York 12804 (518) 798-1215 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) (a) Interest expense includes imputed interest on debt to E-Z-EM of $892, $669 and $534 for the fifty-two weeks ended May 31, 2003 and the thirty-nine weeks ended March 1, 2003 and February 28, 2004, respectively. The interest charges are treated as non-cash items for cash flow purposes and increases to additional paid-in capital. Of the $16,148 debt due to E-Z-EM as of February 28, 2004, $13,148 will be capitalized prior to the completion of this offering and the remaining $3,000 will be repaid from the proceeds of this offering. (b) Pro forma as adjusted amounts give effect to the issuance and sale of 1,950,000 shares of our common stock at an initial public offering price of $13.00 per share, the capitalization of $13,148 of debt due to E-Z-EM prior to completion of this offering, the receipt of the estimated net proceeds of approximately $22,200 from this offering, after deducting the underwriting discount and estimated offering expenses payable by us, and the repayment of $3,000 of indebtedness to E-Z-EM. Table of Contents ANGIODYNAMICS, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of E-Z-EM, Inc.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) During the thirty-nine weeks ended February 28, 2004, options for 32,932 shares were granted at $6.52 per share, options for 6,272 shares were forfeited at $4.35 per share, options for 523 shares were forfeited at $6.52 per share, and no options were exercised or expired during the thirty-nine weeks ended February 28, 2004. NOTE P COMMITMENTS AND CONTINGENCIES Leases The Company is committed under noncancellable operating leases for facilities and equipment. During 2001, 2002, 2003 and the thirty-nine weeks ended March 1, 2003 and February 28, 2004, aggregate rental costs under all operating leases were approximately $269,000, $347,000, $435,000, $317,000 and $256,000, respectively. Future annual payments under non-cancellable operating equipment leases in the aggregate which include escalation clauses, with initial remaining terms of more than one year at May 31, 2003, are summarized as follows: (in thousands) 2004 $ 46 2005 35 2006 9 2007 Copies to: Marc A. Berger, Esq. Scott M. Tayne, Esq. Denis S. Frawley, Esq. Davies Ward Phillips & Vineberg LLP 625 Madison Avenue New York, New York 10022 (212) 308-8866 Jonathan B. Abram, Esq. Dorsey & Whitney LLP 50 South Sixth Street Suite 1500 Minneapolis, Minnesota 55402 (612) 340-2600 Table of Contents RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks described below before making an investment decision. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows could be seriously harmed. In any such case, the trading price of our common stock could decline and you could lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this prospectus, including our financial statements and the related notes. Risks Related to our Business If we fail to develop new products and enhance existing products, we could lose market share to our competitors and our results of operations could suffer. The market for interventional devices is characterized by rapid technological change, new and improved product introductions, changes in customer requirements and evolving industry standards. To be successful, we must develop and commercialize new products and enhanced versions of our existing products. Our products are technologically complex and require significant planning, design, development and testing before they may be marketed. This process takes at least nine to 12 months and may take up to several years. Our success in developing and commercializing new versions of our products is affected by our ability to: timely and accurately identify new market trends; accurately assess customer needs; minimize the time and costs required to obtain regulatory clearance or approval; adopt competitive pricing; timely manufacture and deliver products; accurately predict and control costs associated with the development, manufacturing and support of our products; and anticipate and compete effectively with our competitors efforts. Market acceptance of our products depends in part on our ability to demonstrate that our products are cost-effective and easier to use, as well as offer technological advantages. Additionally, we may experience design, manufacturing, marketing or other difficulties that could delay or prevent our development, introduction or marketing of new versions of our products. As a result of such difficulties and delays, our development expenses may increase and, as a consequence, our results of operations could suffer. Competition may decrease our market share and cause our revenues to decline. The markets for interventional devices are highly competitive, and we expect competition to intensify in the future. We may not be able to compete effectively in these markets and we may lose market share to our competitors. The principal competitors in the markets for our products currently include: Boston Scientific Corporation; Cook, Incorporated; Cordis Corporation, a subsidiary of Johnson & Johnson Inc.; C.R. Bard, Inc.; Diomed, Inc.; Medical Components, Inc., or Medcomp; and VNUS Medical Technologies, Inc. Many of our competitors have substantially greater: financial and other resources; variety of products; Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. (continued on next page) Table of Contents technical capabilities; ability to develop and introduce new products; patent portfolios that may present an obstacle to our conduct of business; name recognition; and distribution networks and in-house sales forces. Our competitors may succeed in developing technologies and products earlier, in obtaining patent protection or regulatory clearance earlier or in commercializing new products or technologies more rapidly than us. Our competitors may also develop products and technologies that are superior to those we are developing or that otherwise render our products obsolete or noncompetitive. In addition, we may face competition from providers of other medical therapies, such as pharmaceutical companies, which may offer non-surgical therapies for conditions that are currently or intended to be treated using our products. Our products are generally sold at higher prices than those of our competitors. In the current environment of managed care, economically motivated buyers, consolidation among healthcare providers, increased competition and declining reimbursement rates, we are increasingly being required to compete on the basis of price. If we are not able to compete effectively, our market share and revenues may decline. If we fail to adequately protect our intellectual property rights, our business may suffer. Our success depends in part on obtaining, maintaining and enforcing our patents, trademarks and other proprietary rights, and our ability to avoid infringing the proprietary rights of others. We take precautionary steps to protect our technological advantages and intellectual property. We rely upon patent, trade secret, copyright, know-how and trademark laws, as well as license agreements and contractual provisions, to establish our intellectual property rights and protect our products. These measures may not adequately protect our intellectual property rights. Our patents may not provide commercially meaningful protection, as competitors may be able to design around our patents to produce alternative, non-infringing designs. Additionally, we may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. Although we require our new employees, consultants and corporate partners to execute confidentiality agreements, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, may not provide adequate remedies. If third parties claim that our products infringe their intellectual property rights, we may be forced to expend significant financial resources and management time defending against such actions and our results of operations could suffer. Third parties may claim that our products infringe on third-party patents and other intellectual property rights. Identifying third-party patent rights can be particularly difficult because, in general, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date. Some companies in the medical device industry have used intellectual property infringement litigation to gain a competitive advantage. If a competitor were to challenge our patents, licenses or other intellectual property rights, or assert that our products infringe its patent or other intellectual property rights, we could incur substantial litigation costs, be forced to make expensive changes to our product designs, license rights in order to continue manufacturing and selling our products, or pay substantial damages. Third-party infringement claims, regardless of their outcome, would not only consume our financial resources but also (in thousands) Deferred tax assets Capital loss carryforwards $ 1,219 $ 1,219 Expenses incurred not currently deductible 241 237 Unrealized loss on interest rate swap 176 Impairment of long-lived assets 1,115 999 Inventories 273 250 Other 13 Table of Contents If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. Table of Contents divert our management s time and effort. Such claims could also cause our customers or potential customers to purchase competitors products or defer or limit their purchase or use of our affected products until resolution of the claim. In January 2004, Diomed filed an action against us alleging that our elvs products for the treatment of varicose veins infringe on a patent held by Diomed for a laser system that competes with our elvs products. Diomed s complaint seeks injunctive relief and compensatory and treble damages. For fiscal 2003, sales of our elvs products accounted for approximately 5.5% of our total sales. If Diomed is successful in this action, our results of operations could suffer. See Business Litigation. We are dependent on single and limited source suppliers, which puts us at risk for supplier business interruptions. We currently purchase significant amounts of several key products and product components from single and limited source suppliers. For fiscal 2003, approximately 40% of our revenues were derived from sales of products manufactured for us by third parties. In addition, approximately 67% of our sales growth over our past two fiscal years was attributable to products that we licensed or obtained from third parties. Our principal single source supplier, Medcomp, supplies us with our hemodialysis catheters, which accounted for about 24% of our revenues in fiscal 2003. Medcomp also competes with us by selling a hemodialysis catheter for which it has not granted us exclusive rights and other catheters that we do not license from them. Additionally, we purchase the laser and laser fibers for our elvs products from biolitec, Inc., which also competes with us. Any delays in delivery of or shortages in those products and components could interrupt and delay manufacturing of our products and result in the cancellation of orders for our products. Any or all of these suppliers could discontinue the manufacture or supply of these products and components at any time. We may not be able to identify and integrate alternative sources of supply in a timely fashion or at all. Any transition to alternate suppliers may result in production delays and increased costs and may limit our ability to deliver products to our customers. Furthermore, if we are unable to identify alternative sources of supply, we would have to modify our products to use substitute components, which may cause delays in shipments, increased design and manufacturing costs and increased prices for our products. If we do not maintain our relationships with interventional physicians, our growth will be limited and our business could be harmed. Physicians typically influence the medical device purchasing decisions of the hospitals and other healthcare institutions in which they practice. Consequently, our relationships with interventional physicians are critical to our continued growth. We believe that these relationships are based on the quality of our products, our physician-driven product development efforts, our marketing efforts and our presence at medical society meetings. Any actual or perceived diminution in the quality of our products, or our failure or inability to maintain these other efforts could damage our current relationships, or prevent us from forming new relationships, with interventional physicians and cause our growth to be limited and our business to be harmed. Our lack of customer purchase contracts and our limited order backlog make it difficult to predict sales and plan manufacturing requirements, which can lead to lower revenues, higher expenses and reduced margins. We do not generally have long-term purchase contracts with our customers, who order products on a purchase order basis. Our typical order backlog is less than 10 days. These factors make it difficult to accurately forecast our component and product requirements. Our manufacturing and operating expenses Table of Contents are largely based on anticipated sales volume and a significant portion of these expenses are and will continue to be fixed. We must plan production and order products and product components several months in advance of customer orders. In addition, lead-times for products and product components that we order vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at any given time. These factors expose us to a number of risks such as: if we overestimate our requirements we may be obligated to purchase more inventory than we need; if we underestimate our requirements, we may have an inadequate product or product component inventory, which could interrupt manufacturing of our products and cause delays in shipments and revenues; and we may experience shortages of product components from time to time, which could delay the manufacturing and shipping of our products. If we do not develop or maintain successful relationships with non-U.S. distributors, our growth may be limited, sales of our products may decrease and our results of operations may suffer. For fiscal 2003, we generated approximately 7% of our revenues from sales outside of the United States. All of our non-U.S. sales in recent periods were attributable to third-party distributors, and our success in expanding non-U.S. sales in the future will depend on our ability to develop and manage a network of non-U.S. distributors and on the performance of our distributors. Because we generally do not have long-term contracts with our distributors, our distribution relationships may be terminated on little or no notice. In addition, some of our distributors are not required to purchase any minimum amount of products from us, may sell products that compete with ours or devote more efforts to selling other products, and may stop selling our products at any time. If we lose any significant non-U.S. distributors, or if any of our distributors devote more effort to selling other products than to ours, our non-U.S. sales and results of operations may suffer and our growth may be limited. Additionally, because our products generally compete more on the basis of performance than price, they may not be as attractive to third-party distributors as lower priced products. Consequently, our success in expanding non-U.S. sales may be limited if our distributors lack, or are unable to develop, relationships with important target customers in non-U.S. markets. Our business may be harmed if interventional cardiologists perform more of the procedures that interventional radiologists and vascular surgeons currently perform. We market and sell our products primarily to interventional radiologists and vascular surgeons, who currently perform a large percentage of minimally invasive, image-guided interventional procedures for PVD. Many of our competitors have focused their sales efforts on the cardiology market for interventional procedures. Since we have focused our sales and marketing efforts on interventional radiologists and vascular surgeons, our competitors may have advantages over us for sales to cardiologists. Consequently, if cardiologists perform more of the procedures currently performed by interventional radiologists and vascular surgeons, our revenues may decline and our business may be harmed. Our business could be harmed if we lose the services of our key personnel. Our business depends upon our ability to attract and retain highly qualified personnel, including managerial, sales and technical personnel. We are particularly dependant upon the efforts of Eamonn P. Hobbs, our president and chief executive officer, a bio-medical engineer with over 23 years of experience in Table of Contents The information in this prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our registration statement for our prospectus effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated May 12, 2004 PROSPECTUS 1,950,000 Shares Common Stock Table of Contents the interventional radiology, interventional cardiology and gastroenterology medical device industries. Mr. Hobbs is also the only business executive from the medical device industry to serve on the strategic planning committee of the Society of Interventional Radiology. We compete for such key personnel with other companies, healthcare institutions, academic institutions, government entities and other organizations. We do not maintain key person life insurance on any of our executive officers, and we do not have employment agreements with our executive officers. Our ability to maintain and expand our business may be impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future. Undetected defects may increase our costs and impair the market acceptance of our products. Our products have occasionally contained, and may in the future contain, undetected defects. When these problems occur, we must divert the attention of our engineering personnel to address them. We cannot assure you that we will not incur warranty or repair costs, be subject to liability claims for damages related to product defects, or experience manufacturing, shipping or other delays or interruptions as a result of these defects in the future. Any insurance policies that we may have may not provide sufficient protection should a claim be asserted. In addition, the occurrence of defects may result in significant customer relations problems and injury to our reputation and may impair the market acceptance of our products. If a product liability claim is brought against us or our product liability insurance coverage is inadequate, our business could be harmed. The design, manufacture and marketing of medical devices of the type we produce entail an inherent risk of product liability. Our products are used by physicians to treat seriously ill patients. Those patients may bring claims in a number of circumstances and for a number of reasons, including if our products were misused, if they produced unsatisfactory results and if the instructions for use and operating manuals for our products were found to be inadequate. Claims could also be brought by our customers. We currently are subject to an action claiming that we supplied a defective catheter that contributed to the death of a hemodialysis patient. We believe, based on claims made against us in the past, that our existing product liability insurance coverage, which is provided by E-Z-EM, is reasonably adequate to protect us from any liabilities we might incur. However, E-Z-EM is only obligated to maintain this insurance until the earlier of the anniversary date of the policy and the completion of the distribution by E-Z-EM of our stock to its stockholders. Furthermore, we are obligated to reimburse E-Z-EM for its out-of-pocket expenses under its $500,000 self-insurance retention and for increases in insurance premiums resulting from claims based upon our business. We cannot assure you that our current coverage will be sufficient to satisfy any claim made against us. Further, we may not be able to maintain the same level of coverage following our separation from E-Z-EM, and we may not be able to obtain adequate coverage at a reasonable cost and on reasonable terms, if at all. Any product liability claim brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing any coverage in the future. Additionally, if any such product liability claim or series of claims is brought against us for uninsured liabilities or is in excess of our insurance coverage, our business could be harmed. Further, such claims may require us to recall some of our products, which could result in significant costs to us, and could divert management s attention from our business. Our quarterly operating results are volatile, which may cause our stock price to decline. Our quarterly results of operations have varied significantly in the past and are likely to vary significantly in the future due to a number of factors, many of which are outside of our control, including: changes in our ability to obtain products and product components that are manufactured for us by third parties, as well as variations in prices of these products and product components; delays in the development or commercial introduction of new versions of our products or components we use in our products; This is AngioDynamics, Inc. s initial public offering. AngioDynamics, Inc. is selling 1,950,000 shares of common stock. We expect the public offering price to be between $12.00 and $14.00 per share. Currently, no public market exists for the shares. After pricing the offering, we expect the common stock will be quoted on the Nasdaq National Market under the symbol ANGO. We are a wholly-owned subsidiary of E-Z-EM, Inc. Following completion of this offering, E-Z-EM will own approximately 82.5% of our outstanding shares of common stock. Investing in our common stock involves risks. See Risk Factors beginning on page 7. Table of Contents our ability to attain and maintain production volumes and quality levels for our products and product components; effects of domestic and foreign economic conditions on our industry and/or customers; changes in the demand for our products; changes in the mix of products and systems we sell; delays in obtaining regulatory clearance for new versions of our products; increased product and price competition; changes in the availability of third-party reimbursement for our products; the loss of key sales personnel or distributors; and seasonality in the sales of our products. Due to the factors summarized above, we do not believe that period-to-period comparisons of our results of operations are necessarily meaningful, or should necessarily be relied upon to predict future results of operations. Also, it is possible that in future periods, our results of operations will not meet the expectations of investors or analysts, or any published reports or analyses regarding AngioDynamics. In that event, the price of our common stock could decline, perhaps substantially. Healthcare reform could cause a decrease in demand for our interventional products. There are currently widespread legislative efforts to control healthcare costs in the United States and abroad, which we expect will continue in the future. For example, the Medicare Prescription Drug Improvement and Modernization Act of 2003 provides that from 2004 through 2008, reimbursement levels for durable medical equipment will no longer be increased on an annual basis and a competitive bidding program will be introduced. At this time, we are unable to determine whether and to what extent these changes will apply to our products and our business. Similar legislative efforts in the future could negatively impact demand for our products. Inadequate levels of reimbursement from governmental or other third-party payors for procedures using our products may cause our revenues to decline. Changes in healthcare systems in the United States or elsewhere could adversely affect the demand for our products, as well as the way we conduct business. Third-party payors have adopted, and are continuing to adopt, a number of healthcare policies intended to curb rising healthcare costs. These policies include: controls on government-funded reimbursement for healthcare services and price controls on medical products and services providers; challenges to the pricing of medical procedures or limits or prohibitions on reimbursement for specific devices and therapies through other means; and the introduction of managed care systems in which healthcare providers contract to provide comprehensive healthcare for a fixed cost per person. We are unable to predict whether Federal, state or local healthcare reform legislation or regulation affecting our business may be proposed or enacted in the future, or what effect any such legislation or regulation would have on our business. These policies, or any reductions in the number of authorizations Deferred tax liabilities Excess tax over book depreciation 168 180 Other 8 PRICE $ PER SHARE Table of Contents granted for procedures performed using our current and proposed products or in the levels of reimbursement for those procedures, could cause our revenues to decline. Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets have government-managed healthcare systems that govern reimbursement for new devices and procedures. These systems are subject to the same pressures to curb rising healthcare costs and control healthcare expenditures as those in the United States. If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, sales of our products outside of the United States may decrease and we may fail to achieve or maintain significant non-U.S. sales. If we cannot obtain and maintain approval from governmental agencies, we will not be able to sell our products. Our products are medical devices that are subject to extensive regulation in the United States and in foreign countries where they are sold. Unless an exemption applies, each medical device that we wish to market in the United States must receive either 510(k) clearance or premarket approval from the FDA before the product can be sold. Either process can be lengthy and expensive. The FDA s 510(k) clearance procedure, also known as premarket notification, is the process used for our current products. This process usually takes from four to 12 months from the date the application is submitted to, and filed with, the FDA, but may take significantly longer. Although we have obtained 510(k) clearances for our current products, our clearances may be revoked by the FDA if safety or effectiveness problems develop with the devices. The premarket approval process is much more costly, lengthy and uncertain. It generally takes from one to three years from the date the application is submitted to, and filed with, the FDA, and may take even longer. Achieving premarket approval typically requires clinical trials and may require the filing of numerous amendments over time. Regulatory regimes in other countries similarly require approval or clearance prior to our marketing or selling products in those countries. We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United States. If we are unable to obtain additional clearances or approvals needed to market existing or new products in the United States or elsewhere, or obtain these clearances or approvals in a timely fashion, our revenues and profitability may decline. Modifications to our current products may require new marketing clearances or approvals or require us to cease marketing or recall the modified products until such clearances or approvals are obtained. Any modification to an FDA-cleared medical device that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, requires a new and complete FDA 510(k) clearance or possibly premarket approval. The FDA requires every manufacturer to make its own determination as to whether a modification requires a new 510(k) clearance or premarket approval, but the FDA may review and disagree with any decision reached by the manufacturer. We have modified aspects of some of our devices since receiving regulatory clearance. We believed that some of these modifications did not require new 510(k) clearance or premarket approval and, therefore, we did not seek new 510(k) clearances or premarket approvals. In the future, we may make additional modifications to our products after they have received FDA clearance or approval and, in appropriate circumstances, determine that new clearance or approval is unnecessary. Regulations in other countries in which we market or sell, or propose to market or sell, our products may also require that we make judgments about changes to our products and whether or not those changes are such that regulatory approval or clearance should be obtained. In the United States and elsewhere, regulatory authorities may disagree with our past or future decisions not to seek new clearance or approval and may require us to obtain clearance or approval for modifications to our products. If that were to occur for a previously cleared or approved product, we may be Per Share Table of Contents required to cease marketing or recall the modified device until we obtain the necessary clearance or approval. Under these circumstances, we may also be subject to significant regulatory fines or other penalties. If any of the foregoing were to occur, our business could suffer. If we or our suppliers fail to comply with the FDA s Quality System Regulation and other applicable post-market requirements, our manufacturing operations could be delayed, and our product sales and profitability could suffer and we may be subject to a wide variety of FDA enforcement actions. After a device is placed on the market, numerous regulatory requirements apply. We are subject to inspection and marketing surveillance by the FDA to determine our compliance with all regulatory requirements. If the FDA finds that we have failed to comply, it can institute a wide variety of enforcement actions. Our manufacturing processes and those of our suppliers must comply with the FDA s Quality System regulation, which governs the methods used in, and the facilities and controls used for, the design, testing, manufacture, control, quality assurance, installation, servicing, labeling, packaging, storage and shipping of medical products. The FDA enforces the Quality System regulation through unannounced inspections. If we or one of our suppliers fails a Quality System regulation inspection, or if a corrective action plan adopted by us or one of our suppliers is not sufficient, the FDA may bring an enforcement action, and our operations could be disrupted and our manufacturing delayed. We are also subject to the FDA s general prohibition against promoting our products for unapproved or off-label uses and adverse event reporting requirements. If we or our suppliers violate the FDA s requirements or fail to take adequate corrective action in response to any significant compliance issue raised by the FDA, the FDA can take various enforcement actions, including an order to shut-down manufacturing operations, a recall of products, fines, civil penalties, seizure of our products, refusing our requests for 510(k) clearance or PMA approval of new or modified products, withdrawing 510(k) clearance or PMA approvals already granted to us, and criminal prosecution. If we are subject to FDA enforcement action, our product sales and profitability could suffer. In addition, most other countries require us and our suppliers to comply with manufacturing and quality assurance standards for medical devices that are similar to those in force in the United States before marketing and selling our products in those countries. If we or our suppliers should fail to do so, we would lose our ability to market and sell our products outside of the United States. Even after receiving regulatory clearance or approval, our products may be subject to product recalls, which may harm our reputation and divert managerial and financial resources. The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if there are material deficiencies or defects in design, manufacture, installation, servicing or labeling of the device, or if the governmental entity finds that our products would cause serious adverse health consequences. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects. Any recall of our products may harm our reputation with customers and divert managerial and financial resources. We may require additional capital. Failure to attract additional capital could curtail our growth. We may require additional capital to expand our business. If cash generated internally is insufficient to fund capital requirements, we will require additional debt or equity financing. Needed financing may not be Total Table of Contents available or, if available, may not be available on terms satisfactory to us and may result in significant shareholder dilution. We are subject to significant restrictions on our ability to issue equity securities or convertible debt to ensure that the distribution by E-Z-EM of our stock will be tax-free to E-Z-EM and its stockholders. In addition, covenants in our industrial bond financing and bank line of credit may also restrict our ability to obtain additional debt financing. If we fail to obtain sufficient additional capital in the future, we could be forced to curtail our growth strategy by reducing or delaying capital expenditures and acquisitions, selling assets, restructuring our operations or refinancing our indebtedness. Any disaster at our manufacturing facilities could disrupt our ability to manufacture our products for a substantial amount of time, which could cause our revenues to decrease. We conduct all of our manufacturing and assembly at a single facility in Queensbury, New York. This facility and our manufacturing equipment would be difficult to replace and, if our facility is affected by a disaster, could require substantial lead-time to repair or replace. Additionally, we might be forced to rely on third-party manufacturers or to delay production of our products. Insurance for damage to our property and the disruption of our business from disasters may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, if one of our principal suppliers were to experience a similar disaster, uninsured loss or under-insured loss, we might not succeed in obtaining adequate alternative sources of supplies or products. Any significant uninsured loss, prolonged or repeated disruption, or inability to operate experienced by us or any of our principal suppliers could cause significant harm to our business, financial condition and results of operations. Risks Related to our Relationship with and Separation from E-Z-EM We have limited ability to engage in acquisitions and other strategic transactions using our equity, or to obtain equity financing, because of the Federal income tax requirements for a tax-free distribution. For the distribution of our stock by E-Z-EM to qualify as tax-free to E-Z-EM and its stockholders, E-Z-EM must own at least 80% of the voting power of our outstanding voting stock and 80% of the total number of our outstanding shares of capital stock at the time of the distribution. The shares we will issue in this offering will constitute about 17.5% of our outstanding shares immediately after the offering, or 19.6%, if the underwriters exercise their over-allotment option in full. Following this offering, we will not issue equity securities or convertible debt without E-Z-EM s prior consent if the issuance would cause E-Z-EM to own less than 80% of our outstanding equity or voting power on a fully-diluted basis or otherwise cause the distribution of our stock by E-Z-EM not to be tax-free to E-Z-EM and its stockholders. E-Z-EM s consent right will terminate upon the earlier of: E-Z-EM notifying us that it is abandoning the distribution; completion of the distribution by E-Z-EM; February 5, 2005; or August 5, 2005 if, by February 5, 2005, E-Z-EM obtains an opinion of counsel that completion of the distribution after February 5, 2005 will not result in the distribution being taxable. E-Z-EM may be unwilling to give its consent before completing the distribution or may impose conditions in its consent, including the right to acquire such number of our securities so as to enable it to maintain its percentage ownership of our securities. Additionally, for any distribution of our stock by E-Z-EM to qualify as tax-free to E-Z-EM, there must not be a change in ownership of 50% or greater in either the voting power or value of either our stock or E-Z-EM s stock that is considered to be part of a plan Public offering price $ $ Underwriting discounts and commissions $ $ Net proceeds, before expenses, to AngioDynamics $ $ The underwriters may also purchase up to an additional 292,500 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. The underwriters expect to deliver the shares on or about , 2004. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Table of Contents or series of transactions related to the distribution. This offering of our common stock will be counted towards the 50%, with the result that a subsequent cumulative change in ownership (other than as the result of certain transactions in the public markets) of slightly more than 30% of our outstanding stock would render the distribution taxable to E-Z-EM. For a change in ownership occurring after the distribution to be characterized as part of a plan, there must have been an agreement, understanding, arrangement or substantial negotiations regarding the acquisition or a similar acquisition at some time during the two-year period ending on the date of the distribution. However, the shorter the time period between the distribution and change in ownership, the greater the burden of establishing that the two events are not part of a plan. Because the distribution may not occur until February 5, 2005 (or later if E-Z-EM elects to proceed under an opinion of counsel), we may be subject to restrictions on our ability to issue equity or convertible debt securities until February 2007, or longer. Under a safe harbor provision, a distribution and acquisition will not be considered part of a plan if the distribution is motivated by a corporate business purpose (other than the acquisition) and the acquisition occurs more than six months after the distribution, provided that there was no agreement, understanding, arrangement or substantial negotiations with respect to the acquisition or a similar acquisition during the period that begins one year before the distribution and ends six months thereafter. For the reasons described above, our ability to use our stock for acquisitions and other similar strategic transactions, to raise capital, or for compensation for employees and others, will be restricted. Many of our competitors use their equity to complete acquisitions, to expand their product offerings and speed the development of new technology and to attract and retain employees and other key personnel, giving them a potentially significant competitive advantage over us. Our obligation to indemnify E-Z-EM if we cause the distribution to not be tax-free could discourage or divert a third party from acquiring us and could result in substantial liability. Our master separation and distribution agreement provides that we will indemnify E-Z-EM if the distribution by E-Z-EM of its AngioDynamics shares does not qualify as a tax-free distribution due to actions we take or that otherwise relate to AngioDynamics, including any change of ownership of AngioDynamics. The process for determining whether a change of ownership has occurred under the tax rules is complex. If we do not carefully monitor our compliance with these rules, we might inadvertently cause or permit a change of ownership to occur, triggering our obligation to indemnify E-Z-EM. Our obligation to indemnify E-Z-EM if a change of ownership causes the distribution not to be tax-free could discourage or prevent a third party from making a proposal to acquire us. In addition, our financial obligations under this indemnity obligation could be substantial. If E-Z-EM does not complete its distribution of our common stock, the liquidity of our stock could be limited. E-Z-EM has advised us that it plans to distribute to its stockholders all AngioDynamics common stock that it owns by February 5, 2005. However, completion of the distribution depends on the satisfaction or waiver of a number of conditions that are included in our master separation and distribution agreement with E-Z-EM. These conditions are described in greater detail in Relationship and Arrangements with E-Z-EM The Distribution . We anticipate that these conditions will be satisfied or waived by E-Z-EM. Except for restrictions on our ability to attract additional capital and engage in acquisitions and other strategic transactions, we do not anticipate that our separation from E-Z-EM will have any material impact on our future operations or earnings. E-Z-EM is not obligated to make the distribution and it may not occur. If the distribution is delayed beyond February 5, 2005, the distribution may still be completed in reliance upon an opinion of E-Z-EM s tax counsel. In any event, if the distribution is delayed or not RBC CAPITAL MARKETS ADAMS, HARKNESS & HILL , 2004 Table of Contents completed, the liquidity of our shares will be constrained unless and until E-Z-EM elects to sell some portion of its equity ownership in us. In addition, E-Z-EM has agreed with the underwriters that it will not complete the distribution until at least 120 days after the date of this prospectus without the prior written consent of RBC Capital Markets Corporation. As long as E-Z-EM owns a majority of our common stock, our other stockholders will be unable to affect the outcome of stockholder voting. After the completion of this offering, E-Z-EM will beneficially own at least 80% of the outstanding shares of our common stock. As long as E-Z-EM owns a majority of our outstanding common stock, our other stockholders will generally be unable to affect or change the management or the direction of our company without E-Z-EM s support. Additionally, as long as E-Z-EM owns a majority of our outstanding common stock, E-Z-EM will continue to be able to elect our entire board of directors and, generally, to determine the outcome of all corporate actions requiring stockholder approval. E-Z-EM s interests may differ from or conflict with the interests of our other stockholders. Although E-Z-EM has agreed that, for so long as it owns any of our common stock, it will vote its shares to elect to our board of directors the number of independent directors required to comply with the Nasdaq National Market listing requirements, E-Z-EM will be in a position to control all matters affecting our company, including: our general corporate direction and policies; amendments to our certificate of incorporation and bylaws; acquisitions, sales of our assets, mergers or similar transactions, including transactions involving a change of control or a merger of AngioDynamics into E-Z-EM; future issuances of common stock or other securities of our company; the incurrence of debt by our company; the payment of dividends on our common stock; compensation, stock option and other human resources policy decisions; and the allocation of business opportunities that may be suitable for E-Z-EM and us. Members of two families may have significant influence over our affairs due to their current ownership of a majority of E-Z-EM s stock and their ownership of a significant amount of our stock after the distribution by E-Z-EM is completed. Members of the Stern and Meyers families and their affiliates own in the aggregate approximately 53% of E-Z-EM s outstanding shares of common stock. These stockholders are able to significantly influence all matters requiring E-Z-EM stockholder approval, including the election of directors and significant corporate transactions, such as mergers or other business combinations, and thus may indirectly affect us with respect to these types of matters. Further, if, as we expect, E-Z-EM completes the distribution to its stockholders of the AngioDynamics stock it owns, these two stockholder groups will own approximately 44% of our outstanding common stock (assuming no other issuances of our or E-Z-EM s stock and no changes in their percentage ownership of E-Z-EM stock) and will be able to significantly influence, if not exercise control over, our important corporate and business matters. This control by E-Z-EM before the distribution, and by these stockholders after the distribution, may delay, deter or prevent a third-party from acquiring or merging with us. As a result, this control may not be in the best interests of our other stockholders, and may in turn reduce the market price of our common stock. Table of Contents Table of Contents We cannot rely on E-Z-EM to fund our future capital requirements, and financing from other sources may not be available on favorable terms or at all. In the past, most of our capital needs have been funded by E-Z-EM. However, following this offering, E-Z-EM will be under no obligation to provide funds to finance our working capital or other cash requirements. Financing or financial support from other sources, if needed, may not be available on favorable terms or at all. We believe our capital requirements will vary greatly from quarter to quarter. Capital expenditures, fluctuations in our results of operations, financing activities, acquisitions, investments and inventory and receivables management may contribute to these fluctuations. Although we believe that the proceeds from this offering and our future cash flow from operations will be sufficient to satisfy our working capital, capital expenditure and research and development requirements for at least the next 12 months, we may require or choose to obtain additional debt or equity financing to finance acquisitions or other investments in our business. Future equity financings may be dilutive to the existing holders of our common stock. Future debt financings could involve restrictive covenants. Some of our directors may have conflicts of interest because they are also directors of E-Z-EM, and some of our directors and executive officers own E-Z-EM stock or options to purchase E-Z-EM stock. When we complete this offering of our common stock, three of our directors, Messrs. Echenberg, Meyers and Stern, will also be directors of E-Z-EM. These directors will have obligations to both companies and may have conflicts of interest with respect to matters involving or affecting us, including, for example, acquisitions and other corporate opportunities that may be suitable for both us and E-Z-EM. After completion of this offering, a number of our directors and executive officers will continue to own E-Z-EM stock or options to purchase E-Z-EM stock they acquired as directors or employees of E-Z-EM. These ownership interests could create, or appear to create, potential conflicts of interest when these directors and executive officers are faced with decisions that could have different implications for our company and E-Z-EM. The agreements we have entered into with E-Z-EM in connection with this offering could restrict our operations. We and E-Z-EM have entered into a number of agreements governing our separation from E-Z-EM and our future relationship. The terms and provisions of these agreements may be less favorable to us than terms and provisions we could have obtained in arm s-length negotiations with unaffiliated third parties. Under these agreements with E-Z-EM, we have agreed to take actions, observe commitments and accept terms and conditions that are or may be advantageous to E-Z-EM but are or may be disadvantageous to us. The terms of these agreements include obligations and restrictive provisions, including, but not limited to: an agreement to indemnify E-Z-EM, its affiliates, and each of their respective directors, officers, employees, agents and representatives from all liabilities that arise from our breach of, or performance under, the agreements we have entered into with E-Z-EM in connection with the separation and for any of our liabilities; an agreement to indemnify E-Z-EM for certain tax liabilities and for any action or inaction by us that, if the distribution by E-Z-EM of our stock to its stockholders occurs, causes the distribution to be taxable to E-Z-EM or its stockholders; Table of Contents TABLE OF CONTENTS Page Table of Contents an agreement to not change our significant accounting principles for periods in which our financial results are included in E-Z-EM s consolidated financial statements, unless we are required to do so to comply, in all material respects, with generally accepted accounting principles and SEC requirements; and an agreement not to compete with E-Z-EM s current business activities for a period of two years. We have also agreed that, so long as E-Z-EM is required to consolidate our company within its financial statements, we will use E-Z-EM s auditors, use reasonable efforts to have our annual audit completed on the same date as E-Z-EM s annual audit and provide information and access to E-Z-EM and its auditors. For a further discussion of our agreements with E-Z-EM, see Relationship and Arrangements with E-Z-EM. We face risks associated with being a member of E-Z-EM s consolidated group for Federal income tax purposes. For so long as E-Z-EM continues to own at least 80% of the voting power and value of our capital stock, we will be included in E-Z-EM s consolidated group for Federal income tax purposes. Under a tax allocation and indemnification agreement we have entered into with E-Z-EM, we will pay E-Z-EM the amount of Federal income taxes that we would be required to pay if we were a separate taxpayer not included in E-Z-EM s consolidated return. In addition, by virtue of its controlling ownership and the tax responsibility allocation agreement, E-Z-EM will effectively control substantially all of our tax decisions and will have sole authority to respond to and conduct all tax proceedings, including tax audits relating to E-Z-EM s consolidated income tax returns in which we are included. Moreover, notwithstanding the tax allocation and indemnification agreement, Federal law provides that each member of a consolidated group is liable for the group s entire tax obligation. Thus, to the extent E-Z-EM or other members of the group fail to make any Federal income tax payments required of them by law, we could be liable for the shortfall. For a further discussion of these tax issues, see Relationship and Arrangements with E-Z-EM Tax Allocation and Indemnification Agreement. Risks Relating to the Offering of our Securities We cannot predict the impact of the distribution on the price of our common stock. We cannot predict the effect that the distribution by E-Z-EM of our stock to its stockholders will have on the market price of our common stock. E-Z-EM has advised us that it intends to distribute 9,200,000 shares of our common stock, or approximately 82.5% of our common stock following this offering, by E-Z-EM to its stockholders. Of these shares, approximately 4,300,000 will be eligible for immediate resale in the public markets following the distribution. In addition, significant amounts of common stock may be sold in the open market in anticipation of, or following, the distribution by E-Z-EM. Sales of substantial amounts of our common stock in the public market, or the perception that substantial sales might occur, whether as a result of this distribution or otherwise, could cause the market price of our stock to decline significantly. Our stock price may be volatile because of factors beyond our control, and you may lose all or a part of your investment. Any of the following factors could affect the market price of our common stock: our failure to maintain profitability; Table of Contents our failure to meet financial analysts performance expectations; changes in earnings estimates and recommendations by financial analysts; actual or anticipated variations in our quarterly results of operations; changes in market valuations of similar companies; announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments; the loss of major customers or product or component suppliers; product liability lawsuits or product recalls; and general market, political and economic conditions. In the past, following periods of volatility in the market price of a company s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management s attention and resources that would otherwise be used to benefit the future performance of our business. There is no public market for our common stock, and an active trading market may not develop or be sustained after this offering is completed. Before this offering, E-Z-EM held all of our outstanding common stock, and therefore, there has been no public market for shares of our common stock. An active trading market may not develop or be sustained following completion of this offering. The initial public offering price of the shares has been determined by negotiations between us and representatives of the underwriters. The price may bear no relationship to the price at which our common stock will trade upon completion of this offering. The stock market has experienced significant price and volume fluctuations. Fluctuations or decreases in the trading price of our common stock may adversely affect your ability to trade your shares. Future sales of our common stock by E-Z-EM and E-Z-EM s ownership of a majority of our common stock could cause our stock price to decrease. Our agreements with E-Z-EM will not prevent E-Z-EM from selling its AngioDynamics common stock. Additionally, if the distribution is delayed or not completed, we may be required to prepare and file with the SEC registration statements covering such sales by E-Z-EM, or prepare offering memorandums for use by E-Z-EM in private offerings of our stock. The sale or potential sale by E-Z-EM of AngioDynamics common stock, even of relatively small amounts, could result in a lower trading price of our stock. Additionally, as a result of E-Z-EM s ability to control our company, some investors may be unwilling to purchase our common stock. If the demand for our common stock is reduced because of E-Z-EM s control of our company, the price of our stock could be materially depressed. Provisions in our charter documents, our rights plan, Delaware law and tax considerations related to the distribution by E-Z-EM may delay or prevent a change in control. Provisions in our amended and restated certificate of incorporation and bylaws, our stockholder rights plan and under Delaware law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders. Our amended and restated certificate of incorporation and bylaws Table of Contents contain the following provisions, among others, which may inhibit an acquisition of our company by a third party: a classified board of directors; advance notification procedures for matters to be brought before stockholder meetings; a limitation on who may call stockholder meetings; a prohibition on stockholder action by written consent after the distribution by E-Z-EM; and the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without a stockholder vote. The issuance of stock under our stockholder rights plan could delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. We are also subject to provisions of Delaware law that prohibit us from engaging in any business combination with any interested stockholder, meaning generally that a stockholder who beneficially owns more than 15% of our stock cannot acquire us for a period of three years from the date this person became an interested stockholder unless various conditions are met, such as approval of the transaction by our board of directors. Any of these restrictions could have the effect of delaying or preventing a change in control. For a more complete discussion of these provisions of Delaware law, see Description of Capital Stock Anti-Takeover Provisions. In addition, our master separation and distribution agreement with E-Z-EM provides that we will indemnify E-Z-EM for any taxes due if the distribution fails to qualify as tax-free because of our actions or inactions. An acquisition of us by a third party could have such an effect. As a result, these tax considerations may delay or prevent a third party from acquiring us in a transaction you may otherwise have considered favorable or reduce the amount you receive as part of the transaction. As a new investor, you will experience immediate and substantial dilution in net tangible book value. The initial public offering price per share of our common stock will exceed the net tangible book value per share of our common stock immediately after this offering. Accordingly, if you purchase common stock in this offering, you will incur immediate dilution in pro forma net tangible book value of approximately $9.59 per share. If the holders of outstanding options for our common stock exercise these options in the future, you will incur further dilution. We have not paid and have no plans to pay cash dividends. We have not previously paid any cash dividends and we do not anticipate declaring or paying any cash dividends on our common stock in the foreseeable future. Table of Contents ASSUMPTIONS USED IN THIS PROSPECTUS Throughout this prospectus, our fiscal years ended May 29, 1999, June 3, 2000, June 2, 2001, June 1, 2002 and May 31, 2003 are referred to as fiscal 1999, 2000, 2001, 2002 and 2003, respectively. Our fiscal year consists of 52 or 53 weeks and ends on the Saturday nearest to May 31st in the applicable year. Fiscal year 2000 was a 53-week year. All other fiscal years consisted of 52 weeks. The nine-month periods included in this prospectus consist of 39 weeks ended on March 1, 2003 and February 28, 2004. Unless we indicate otherwise, all of the information in this prospectus: assumes the underwriters do not exercise the option granted by us to purchase additional shares in this offering; does not give effect to the exercise of outstanding options to purchase 1,331,386 shares of common stock under our 1997 Stock Option Plan; does not include an aggregate of 1,166,288 shares of our common stock available for future issuance or grant under our 1997 Stock Option Plan and our 2004 Stock and Incentive Award Plan; and does not give effect to the exercise of options for up to 700,000 shares of our common stock that we will issue to holders of E-Z-EM stock options in connection with the distribution of our common stock to the E-Z-EM stockholders. We have registered the following marks with the U.S. Patent and Trademarks Office: AngioDynamics; Pulse*Spray; and Soft-Vu. This prospectus also contains trademarks of companies other than AngioDynamics, including ELVeS and elvs, trademarks of biolitec, Inc. We have also registered the Internet domain names http://www.angiodynamics.com and http://www.elvslaser.com. Table of Contents FORWARD LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology including anticipate, believe, can, continue, could, estimate, expect, intend, may, plan, potential, predict, should or will or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including those relating to: the unpredictability of our quarterly revenues and results of operations; our ability to keep pace with a rapidly evolving marketplace and to develop and market new and enhanced products; a highly competitive market for medical devices; our reliance on single and limited sources of supply; possible product liability lawsuits and product recalls; inadequate levels of third-party reimbursement to healthcare providers; our ability to obtain U.S. and foreign regulatory clearance for our products; the effect of a disaster at our manufacturing facility; and various risks related to our relationship with E-Z-EM. Other risks, uncertainties and factors, including those discussed under Risk Factors, could cause our actual results to differ materially from those projected in any forward-looking statements we make. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Table of Contents USE OF PROCEEDS We estimate the net proceeds to us from the sale of 1,950,000 shares of common stock being offered by us at an assumed initial public offering of $13.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses, to be approximately $22.2 million, or $25.7 million if our underwriters exercise their over-allotment option in full. We intend to use the net proceeds of this offering for working capital and general corporate purposes, including new product development and potential acquisitions of complementary products and businesses, and to repay debt of $3,000,000 to E-Z-EM. This debt, which we originally incurred in 1997 and subsequently renewed, bears interest at an annual rate of 1.50% and is payable on November 8, 2006. In the past we have had, and in the future we may have, discussions regarding acquisitions of complementary products and businesses. Pending the application of the net proceeds, we intend to invest the net proceeds in short-term, interest-bearing investment-grade securities. See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources for additional information regarding our sources and uses of capital. DIVIDEND POLICY We have never declared or paid cash dividends. We currently intend to retain any future earnings for the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. The discussion and tables above assume no exercise of any outstanding options. As of February 28, 2004, there were 1,331,386 shares of common stock issuable upon exercise of stock options, none of which are currently exercisable, at a weighted average exercise price of $4.51 per share, and an aggregate of 1,166,288 shares available for future grant or issuance under our 1997 Stock Option Plan and our 2004 Stock and Incentive Award Plan. In addition, in connection with E-Z-EM s distribution of our common stock to its stockholders, we will issue options to purchase up to 700,000 shares of our common stock to holders of E-Z-EM stock options at exercise prices below that of the market price of our stock at the time of issuance. To the extent that these options are exercised, there will be further dilution to new investors. Table of Contents
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. While we have highlighted what we believe is the most important information about us and this offering in this summary, you should read the entire prospectus carefully, including the "Risk Factors" and "Forward-Looking Statements" sections and our consolidated financial statements and the notes to those consolidated financial statements before making an investment decision. In this prospectus, references to the "Company," "we," "us" or "our" refer to the consolidated operations of AXIS Capital Holdings Limited ("AXIS Capital") and its direct and indirect subsidiaries and branches, including AXIS Specialty Limited ("AXIS Specialty"), AXIS Re Limited ("AXIS Re"), AXIS Specialty Europe Limited ("AXIS Specialty Europe"), AXIS Reinsurance Company ("AXIS Reinsurance"), AXIS Specialty Insurance Company ("AXIS Insurance"), AXIS Surplus Insurance Company ("AXIS Surplus"), AXIS Re Europe and AXIS Speciality London, unless the context suggests otherwise. References in this prospectus to "dollars" or "$" are to the lawful currency of the United States of America, unless the context otherwise requires. Unless otherwise stated, all figures assume no exercise of the underwriters' over-allotment option. For your convenience, we have provided a Glossary, beginning on page G-1, of selected reinsurance, insurance and investment terms and have printed these terms in boldfaced type the first time they are used in this prospectus. THE COMPANY Overview We provide specialty lines insurance and treaty reinsurance on a global basis, with headquarters in Bermuda. Through our operating subsidiaries and branches based in Bermuda, Ireland, the United States, the United Kingdom and Switzerland, we focus on writing coverage for specialized classes of risk through our team of highly skilled and experienced underwriters. Since our founding in November 2001, we have successfully assembled a strong management team of proven leaders with significant industry experience, established a global underwriting infrastructure and built a broad product portfolio. In 2002, our first full year of operation, we wrote $1.1 billion of gross premiums, generated $265.1 million of net income, produced a combined ratio of 70.7% and earned a return on average equity of 14.7%. In 2003, we wrote $2.3 billion of gross premiums, generated $532.3 million of net income, produced a combined ratio of 73.7% and earned a return on average equity of 22.3%. As of December 31, 2003, we had $2.82 billion of shareholders' equity. We believe that we have established a recognized franchise in the insurance and reinsurance industry and are well-positioned to provide our products to our customers. The insurance and reinsurance industry has experienced severe dislocation as a result of an unprecedented impairment of capital, which has caused a substantial contraction in global underwriting capacity. We believe this impairment has been caused primarily by the following factors: Record loss events in 2001 and 2002; Continued adverse loss development from industry legacy issues; An adverse investment environment; Exit of key players from some markets; and A significant number of ratings downgrades. We believe that from the beginning of 2001 through the end of 2002, capital available to write property and casualty insurance and reinsurance has been impaired by an estimated $243 to $253 billion in potential and realized underwriting and investment losses. This amount is 35% to 36% of the approximately $700 billion in available capital at the end of 2000. At the same time that capacity has declined, we believe the demand for commercial insurance and reinsurance has increased as insureds have become increasingly aware of their risk exposures. These industry developments have Promotion) Order 2001 (as amended) or (4) are persons to whom this document may otherwise lawfully be issued or passed on to (all such persons together being referred to as "relevant persons"). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons. This prospectus does not constitute a prospectus for the purposes of the Irish Companies Acts, 1963 to 2003 and has not been registered with the Registrar of Companies in Ireland. Neither we nor the selling shareholders will make (and have not authorised any person to make) any offer or sale of common shares to the public (within the meaning of the above Acts) wherever situated. Common shares may be offered for sale only to a person whose ordinary business is to buy or sell shares or debentures (whether as principal or agent). The common shares being offered pursuant to this prospectus shall not be offered, transferred or sold in the Netherlands to any person other than to natural or legal persons who trade or invest in securities in the conduct of their profession or trade within the meaning of section 2 of the Exemption Regulation pursuant to The Netherlands Securities Market Supervision Act 1995 ("Vrijstellingsregeling Wet toezicht effectenverkeer 1995"), which includes banks, securities intermediaries (including dealers and brokers), insurance companies, central governments, large international and supernational institutions, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly invest in securities in the conduct of a business or a profession. provided new companies such as ours with an opportunity to provide much needed underwriting capacity at attractive rates in conjunction with improved terms and conditions. During 2003, many companies operating in our markets were recovering from a prolonged period of excess underwriting capacity, which generally produces favorable pricing, terms and conditions for the risks that we underwrite. We believe we will benefit from continued underwriting discipline in most lines of business and from insureds seeking to move their business from insurers and reinsurers with legacy balance sheet issues and reserving shortfalls to financially stronger insurers and reinsurers. In forming the Company, our strategy was to establish an entity with a solid capital base, a strong management team, a globally diversified product portfolio and a cost-effective underwriting platform capable of allowing us to react quickly to changing market dynamics. We believe the ability to execute this strategy in the current market without the burden of historical losses relating to the tragic events of September 11, 2001, asbestos, environmental or other legacy exposures differentiates us from many incumbent insurers and reinsurers. We believe we have begun to successfully execute this strategy, and we are committed to capitalizing on the opportunities created by ongoing market dislocations. We seek to use our management's extensive expertise, experience and long-standing market relationships to identify and underwrite attractively priced risks while delivering innovative insurance and reinsurance solutions to our customers. Our underwriters are focused on constructing a portfolio of risks that utilizes our capital while optimizing the risk-reward characteristics of the portfolio. For our global insurance segment, we have designed our corporate and underwriting structure to create an operating platform that utilizes new procedures and technologies, which we believe provides us with a competitive advantage. We intend to continue to exercise highly disciplined underwriting practices and manage a diverse book of business while seeking to maximize our profitability and generate superior returns on equity. In 2002, our business consisted of two underwriting segments: specialty lines and treaty reinsurance. With effect from January 1, 2003, we added two new segments following our acquisitions of AXIS Reinsurance and AXIS Surplus. Our business now consists of four segments: global insurance (formerly specialty lines), global reinsurance (formerly treaty reinsurance), U.S. insurance and U.S. reinsurance. During the year ended December 31, 2003, we wrote gross premiums of $980.7 million in our global insurance segment, $462.9 million in our global reinsurance segment, $625.9 million in our U.S. insurance segment and $204.1 million in our U.S. reinsurance segment. During the year ended December 31, 2003, we established a European reinsurance office in Zurich and hired a team of underwriters. During the first three months of 2004, this office principally wrote European trade credit and bond reinsurance, motor and general liability reinsurance and property catastrophe reinsurance. We anticipate that this unit will provide growth within our global reinsurance segment in 2004. Our global insurance segment principally consists of specialty lines business that is sourced outside of the United States but covers exposures throughout the world, including: Specialty Risks (including Terrorism, Marine and Aviation War Risk, Political Risk and Professional Lines); Onshore and Offshore Energy; Aviation and Aerospace; Commercial Property; and Marine. Our global reinsurance segment principally consists of treaty reinsurance business that is sourced outside of the United States but covers exposures throughout the world, including: Property (catastrophe-based); SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Workers' Compensation, Personal Accident and Life (catastrophe-based); Aviation and Crop; Trade Credit and Bond; and Motor and General Liability. Our U.S. insurance segment primarily consists of specialty lines business that is sourced in the United States and covers exposures in the United States, including: Commercial Property; Professional Lines; and Commercial Liability. Our U.S. reinsurance segment principally consists of treaty reinsurance business that is sourced in the United States and covers exposures in the United States, including: Professional Lines; Liability; Property; and Marine and Aviation. We produce our business almost exclusively through insurance and reinsurance brokers worldwide who receive a brokerage commission generally equal to a percentage of gross premiums. Our management and underwriting team have longstanding relationships with key insurance and reinsurance brokers, such as Marsh Inc. ("Marsh"), including its subsidiary, Guy Carpenter & Company, Inc. ("Guy Carpenter"), Aon Corporation ("Aon"), Willis Group Holdings Ltd. ("Willis") and Benfield Group ("Benfield"), and with many ceding companies. Competitive Strengths We believe our competitive strengths have enabled, and will continue to enable, us to capitalize on the significant dislocation in the insurance and reinsurance marketplace. These strengths include: Experienced Management and Underwriting Team with Proven Track Record. The extensive depth and knowledge of our management and underwriting teams provide us with the ability to successfully select and price complex risks. Long-Standing Market Relationships. Our underwriters have well-established personal relationships with our insureds, cedents and brokers. Demonstrated Ability to Attract High Quality Talent. From inception, we have successfully targeted and hired high quality management and underwriting talent. Disciplined Approach to Underwriting and Risk Management. Our disciplined, conservative approach to underwriting utilizing peer review processes, combined with our strict management of global aggregate exposures across products and sophisticated modeling capabilities, allow us to realize attractive prices, favorable terms and risk diversification. Low-Cost International Infrastructure and Versatile Underwriting Platform. Our international presence, centralized coordination and proprietary technologies provide us with the flexibility to adapt to market conditions in real time and practice a highly opportunistic underwriting approach. AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Superior Financial Strength. Our insurance subsidiaries are rated "A" (Strong) by Standard & Poor's and "A" (Excellent) by A.M. Best. These ratings are intended to assist policyholders and reflect opinions of our financial strength and our ability to pay policyholder claims and are not applicable to the securities offered in this prospectus. Strategy Our corporate objective is to generate superior returns on capital that appropriately reward us for risks we assume and to increase our revenue only when we deem it profitable, while establishing ourselves as a global leader in providing specialty lines insurance and treaty reinsurance products to our customers. We intend to achieve this objective by executing the following strategies: Establish Global Leadership in Key Business Lines by Leveraging Management's Significant Experience and Relationships. We rely on our senior management team's extensive customer relationships to take advantage of the current dislocation in the insurance market, generate new business and establish ourselves as a leading writer of specialty lines and treaty reinsurance. Opportunistically Manage a Diverse Portfolio of Specialty Risks. We are opportunistic and selective participants in business lines that have been or may be most affected by the significant contraction in global underwriting capacity. Continue Commitment to Highly Disciplined Underwriting Practices. We utilize our disciplined underwriting approach to minimize risk and reduce the volatility of our operating results. Maintain a Conservative Balance Sheet and Superior Financial Ratings. We are committed to maintaining our excellent capitalization, financial strength and ratings over the long-term. Realize Increased Profitability by Maintaining Our Efficient, Low-Cost Infrastructure. We maintain the flexibility provided by our low-cost infrastructure to selectively participate in new business opportunities, or retrench from existing business lines, without incurring significant additional costs. Manage Capital Prudently. We manage our capital prudently relative to our risk exposure to maximize profitability and long-term growth in shareholder value. Risks Relating to Our Company As part of your evaluation of the Company, you should take into account the risks we face in our business. These risks include: Limited Operating History. We began our business in November 2001 and, as a result, there is limited historical financial and operating information available to help you evaluate our performance or an investment in our common shares. Exposure to Natural and Man-Made Disasters. We have substantial exposure to unexpected losses resulting from natural and man-made disasters and other catastrophic events, the incidence and severity of which are inherently unpredictable. Uncertainty of Loss Reserves. To the extent actual claims exceed our expectations, this could cause a material increase in our liabilities and a reduction in our profitability, including an operating loss and reduction of capital. Failure of Loss Limitation Methods. We cannot be sure that the loss limitation methods we employ will be effective to mitigate the effect on our financial condition or results of operations from one or more catastrophic or other events. Emerging Claims and Coverage Issues. Unexpected and unintended issues related to claims and coverage may emerge as practices and conditions change both inside and outside of the insurance and reinsurance industry. Risk Associated with Reinsurance Underwriting. In our reinsurance business, we do not separately evaluate each of the individual risks assumed under reinsurance treaties and are subject to the risk that the ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded may not adequately compensate us for the risks we assume. Loss of Key Employees. If we were to lose the services of members of our management team, our business could be adversely affected. For more information about these and other risks, see "Risk Factors" beginning on page 10. You should carefully consider these risk factors together with all the other information included in this prospectus. Corporate History and Organization We were founded with $1.7 billion of capital and began operations in November 2001 as AXIS Specialty. AXIS Specialty and its subsidiaries became wholly owned subsidiaries of AXIS Capital pursuant to an exchange offer consummated on December 31, 2002 (the "Exchange Offer"). On July 7, 2003, we completed an initial public offering of 15.4 million newly issued common shares and 9.3 million common shares offered by selling shareholders. Set forth below is our corporate organization chart that shows our operating insurance companies and branches: Our principal executive offices are located at 106 Pitts Bay Road, Pembroke HM 08, Bermuda, and our telephone number at that location is (441) 296-2600. CT Corporation System 111 Eighth Avenue, 13th Floor, New York, New York 10011 (Name, address, including zip code, and telephone number, including area code, of agent for service) Recent Developments On March 25, 2004, we renewed our existing credit facility by entering into a three-year $750 million credit facility with a syndicate of commercial banks led by JPMorgan Chase Bank, as administrative agent and lender. Under the terms of this new credit facility, up to $750 million may be used by AXIS Capital, AXIS Specialty, AXIS Re and AXIS Specialty Europe to issue letters of credit and up to $300 million may be used for general corporate purposes, with total borrowings not to exceed $750 million. In addition, we anticipate that AXIS Reinsurance, AXIS Insurance and AXIS Surplus will become parties to this credit facility upon receipt of regulatory approvals from each of their respective state insurance authorities. The new credit facility also contains various loan covenants with which we must comply, including limitations on the incurrence of future indebtedness, future liens, fundamental changes, investments and certain transactions with affiliates. Copies to: Carol S. Rivers, Esq. General Counsel and Secretary AXIS Capital Holdings Limited 106 Pitts Bay Road, Pembroke HM 08, Bermuda Telephone: (441) 296-2600; Facsimile: (441) 296-3140 Phyllis G. Korff, Esq. Susan J. Sutherland, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Telephone: (213) 735-3000; Facsimile: (212) 735-2000 Gary I. Horowitz, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue, New York, New York 10017-3954 Telephone: (212) 455-7113; Facsimile: (212) 455-2502 THE OFFERING Common shares offered by selling shareholders 20,000,000 common shares Common shares to be outstanding after the offering 154,892,341 common shares Over-allotment shares offered by selling shareholders 3,000,000 common shares Use of proceeds We will not receive any of the proceeds from the sale of common shares by the selling shareholders. Dividend policy We paid dividends of $0.07 per common share to all common shareholders of record on September 30, 2003 and December 31, 2003. Our board of directors recently authorized the payment of a dividend of $0.125 per common share to our shareholders of record on March 31, 2004. Any determination to pay dividends will be at the discretion of our board of directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and any other factors our board of directors deems relevant. NYSE symbol "AXS" The number of shares shown to be outstanding after the offering excludes: 19,584,904 common shares that may be issued pursuant to warrants outstanding as of March 31, 2004 at an exercise price of $12.50 per share; 5,758,012 common shares that may be issued pursuant to options that had been granted as of March 31, 2004 at a weighted average exercise price of $16.46 per share; and 7,287,850 additional common shares available for future issuance under our stock option and incentive plans as of March 31, 2004. Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE (1)The financial information for this period reflects our results from November 8, 2001, the date of incorporation of AXIS Specialty, to December 31, 2001. (2)The net loss and loss expense ratio is calculated by dividing net losses and loss expenses by net premiums earned. (3)The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. (4)The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. (5)The combined ratio is the sum of the net loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio. (6)Book value per share is based on total shareholders' equity divided by basic shares outstanding of 152,474,011 as of December 31, 2003, 138,168,520 as of December 31, 2002 and 135,122,688 as of December 31, 2001. Title Of Each Class Of Securities To Be Registered Amount to be Registered(1) Proposed Maximum Offering Price per Share(2) Proposed Maximum Aggregate Offering Price(1)(2) Amount Of Registration Fee(3)
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+Prospectus Summary This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in the ordinary shares. You should read the entire prospectus carefully, including the section entitled "Risk Factors." The terms "we," "us" and "Camtek" mean Camtek Ltd. and its consolidated subsidiaries. Unless otherwise stated, all information contained in this prospectus assumes no exercise of the over-allotment option granted to the underwriters. Camtek We design, develop, manufacture and market automatic optical inspection, or AOI, systems and related products. AOI systems are computerized systems which optically inspect various types of electronic product components for defects caused during the manufacturing process. Our AOI systems are used to enhance both production processes and yields for manufacturers in three industries: the printed circuit board industry, the high density interconnect substrate industry and the semiconductor manufacturing and packaging industry. Our AOI systems provide our customers a high level of defect detection, are highly reliable and offer high throughput. We have sold, in over 30 countries around the world, more than 1,000 of our AOI systems, predominantly to the printed circuit board industry. We believe over 850 of these systems are still in use. Our customer base includes a majority of the largest 100 printed circuit board manufacturers worldwide. Our global, direct customer support network provides responsive, localized support for our installed base, which we believe gives us a competitive advantage. The recent recovery of the global electronics industry is driving manufacturers in the industries we serve to increase their investment in capital equipment. This increase has led to an increase in demand for our AOI systems for expansion, as well as for the replacement of existing systems. As a result, although we experienced operating and net losses during the last three years, we have enjoyed increasing revenues in each of our four most recent quarters. Target Markets Historically, we have derived most of our revenues, and we expect to continue to derive a majority of our revenues, from the sales of our AOI systems to the printed circuit board industry. Printed circuit boards are the foundation of virtually every electronic product. The printed circuit board consists of traces, or lines, of conductive material, such as copper, laminated on either a rigid or flexible insulated base, on which is mounted a broad range of electronic components, interconnected by the conductive lines. We are a leader in providing AOI systems to this industry segment. Leveraging our technology base and position in the printed circuit board industry, in 2002, we expanded our AOI product line to address the high density interconnect substrate industry. High density interconnect substrates are complex intermediate carriers between the printed circuit board and the silicon-based integrated circuit, commonly known as a chip. The conductive lines and the spaces between those lines are much thinner on a high density interconnect substrate than on an ordinary printed circuit board. Although high density interconnect substrates are produced using technologies derived from those used for the production of traditional printed circuit boards, the complexity of these substrates requires separate, specialized manufacturing facilities. Because of their complexity, using AOI throughout the production line becomes more essential in the high density interconnect substrate industry than in the traditional printed circuit board industry. Recently, we entered into the rapidly growing semiconductor manufacturing and packaging industry. This industry is focused on two processes: the manufacturing of silicon wafers, which, when finished, are diced, or separated, into individual integrated circuits; and the subsequent packaging of these individual integrated circuits, a process in which they are mounted onto substrates, interconnected and encapsulated to produce semiconductor packages. The semiconductor packages are then mounted on a printed circuit board by an electronic device manufacturer to eventually create a finished electronic device. Currently, our systems provide AOI at the final stage of silicon wafer manufacturing. The use of AOI at this stage is a relatively new practice, and Copies To: Richard H. Gilden, Esq. Kramer, Levin, Naftalis & Frankel LLP 919 Third Avenue New York, NY 10022 (212) 715-9486 Lior Aviram, Adv. Shiboleth, Yisraeli, Roberts, Zisman & Co. 46 Montefiore St. Tel Aviv 65201, Israel (972) 3-710-3311 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 (212) 735-3574 David S. Glatt, Adv. Meitar Liquornik Geva & Leshem Brandwein 16 Abba Hillel Silver Road Ramat Gan 52506, Israel (972) 3-610-3100 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. the semiconductor industry is just beginning to recognize the importance of AOI in improving production processes and yields. Therefore, we believe that this market represents a significant opportunity for us. Market Opportunity We believe that the key factors that are currently driving the increased need for AOI systems include: the printed circuit board industry's move toward more complex and expensive multi-layer board products, utilizing higher density and higher layer count printed circuit boards, which increases the time required to inspect a given printed circuit board, and, in turn, leads to the need for more AOI equipment; the significant growth in the number of printed circuit board manufacturing facilities in China and the tendency of these manufacturers to use more AOI equipment than in historical printed circuit board markets; the insistence by customers of printed circuit board manufacturers on AOI during the manufacturing process for quality assurance; the increasing density and complexity of high density interconnect substrates and of integrated circuits, which can adversely affect manufacturing yield, thus driving demand for AOI; and the proliferation of larger, twelve inch silicon wafers and their high cost, which requires optical inspection to be fully automated. The Camtek Solution We believe that our AOI systems have been successful in the industries we serve by providing manufacturers with the following benefits: Detection, Throughput and Reliability. Our AOI systems yield a high level of defect detection, with a minimum of false alarms, and provide high throughput and reliability, thereby addressing customers' critical needs. Leveraging Our Printed Circuit Board and High Density Interconnect Substrate Inspection Technologies in New Markets. We leveraged our expertise in image processing software and algorithms in the printed circuit board and high density interconnect substrate industries to introduce a new product line to serve the semiconductor manufacturing and packaging market. Versatility and Flexibility. We design our products with a wide range of performance capabilities to support a broad spectrum of detection levels. This design enables our customers to continue to use our AOI systems as the complexity of the products they manufacture increases and to easily add new features or functionality. User Friendly. Our AOI systems are designed to shorten the time from installation to use on the production line and are also easy to operate and maintain, thereby improving efficiency, increasing throughput and reducing costs. Strategy The key elements of our strategy include: Strengthening Our Position in the Printed Circuit Board and High Density Interconnect Substrate Industries. We are leveraging our cutting-edge inspection products, installed base and industry reputation to target large-scale printed circuit board and high density interconnect substrate manufacturers. In 2003, we introduced the first of our Dragon family of products and our Orion Fine Line system, which are AOI systems targeting these customers. Building a Strong Position in the Semiconductor Manufacturing and Packaging Industry. In the fourth quarter of 2003, we shipped the first of our new Falcon systems aimed at final inspection of silicon wafers in the semiconductor industry. We are devoting, and will continue to devote, significant resources to building a strong position in this market. Expanding Our Presence in the Asia Pacific Region. We are investing in the further development and expansion of our regional teams in the Asia Pacific region in general, and specifically in China, consistent with the migration of printed circuit board manufacturing to this region. During 2003, we increased the size of these regional organizations, and we expect to continue to build these teams as growth in the region warrants. Enhancing Technology Leadership. We have substantial expertise in image processing software and algorithms, electronic hardware, If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box: If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine. electro-optics, physics, mechanics and systems design for AOI products. We will continue to devote our research and development and marketing resources to maintaining and extending our technology leadership position. Increasing Focus on Responsive Customer Service. We believe that an essential factor in our customers' decision to purchase our products is our ability to provide quality and responsive customer support. We primarily utilize our own employees to provide quality customer support services. We maintain customer service and support centers in various locations around the world in close proximity to our customers. We believe that this service and support network provides us with an advantage over some of our competitors. Recent Developments On April 14, 2004, we announced that, based on a preliminary review, we expected to report revenues of between $12.4 to $12.8 million for the first quarter of 2004, representing an increase of approximately 19% to 23%, respectively, over the fourth quarter of 2003, and an increase of 114% to 121%, respectively, over the first quarter of 2003. As a result of the Nasdaq Stock Market's approval of our application to list our ordinary shares on the Nasdaq National Market, our ordinary shares began trading on the Nasdaq National Market on April 22, 2004. On April 27, 2004, we announced that we received an order for our Falcon system from Cypress Semiconductor Corporation, an American manufacturer of high-performance semiconductors for a broad range of markets, including the communications, computation, consumer, automotive and industrial markets. The Falcon is our new AOI system for the semiconductor manufacturing and packaging industries. Valued at approximately $1.2 million, this is the first Falcon order we have received from a customer in the United States. Delivery of the order is scheduled for the second quarter of 2004. On May 10, 2004, a lawsuit was filed against us in the District Court in Nazareth, Israel, by our competitor, Orbotech Ltd., alleging that our Dragon and Falcon systems infringe upon a patent held by Orbotech, and requesting both provisional and permanent injunctions against the manufacture and sale by us of our Dragon and Falcon systems, as well as pecuniary damages. No date has been set by the court for a hearing. Based on our initial review of the claims, we believe that our Dragon and Falcon systems do not infringe upon Orbotech's patent; in any event, the features which are alleged in the claims to infringe upon the patent are not an integral part of those systems, but rather are sold as optional components of those systems. We believe that we have good defenses against Orbotech's claims, which we will be vigorously asserting. Other Information Priortech Ltd., our principal shareholder and the selling shareholder in this offering, through its affiliated companies, engages in various aspects of electronic packaging, including the production and assembly of printed circuit boards and the development and sale of advanced substrates. PCB Technologies, a subsidiary of Priortech, is also one of the largest manufacturers of printed circuit boards in Israel. Priortech currently holds 77.8% of our outstanding ordinary shares and after this offering will hold 54.7% of our outstanding ordinary shares (or 51.9% if the over-allotment option is exercised in full). Priortech is publicly traded on the Tel Aviv Stock Exchange. Our principal executive offices are located at Ramat Gavriel Industrial Zone, P.O. Box 544, Migdal Ha'Emek 23150, Israel, and our telephone number is (972) 4-604-8100. Our website is located at www.camtek.co.il. The information on our website is not incorporated by reference into this prospectus. All references to "dollars" or "$" in this prospectus are to U.S. dollars, and all references to "NIS" are to New Israeli Shekels. The Offering Ordinary shares offered by Camtek 5,000,000 shares Ordinary shares offered by the selling shareholder 3,500,000 shares Ordinary shares to be outstanding after the offering 32,055,847 shares Use of proceeds We plan to use the proceeds of this offering for working capital and general corporate purposes. In addition, we intend to use $2.3 million of the net proceeds to repay short-term indebtedness. We will not receive any proceeds from the sale of ordinary shares by the selling shareholder. See "Use of Proceeds."
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+PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should read this summary together with the entire prospectus, including the information presented under the heading Risk Factors and the more detailed information in the financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. Unless the context indicates otherwise, (1) references in this prospectus to common stock mean our Class A common stock and (2) information presented on a pro forma basis gives effect to our acquisition of Insignia Financial Group, Inc, or Insignia, on July 23, 2003 and the related transactions and financings as described in this prospectus under the heading Unaudited Pro Forma Financial Information. CB Richard Ellis Group, Inc. We are the largest global commercial real estate services firm, based on 2003 revenue, offering a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets. As of December 31, 2003, we operated in 220 offices with over 13,500 employees, excluding affiliate and partner offices, providing commercial real estate services under the CB Richard Ellis brand name. Our business is focused on several service competencies, including strategic advice and execution assistance for property leasing and sales, forecasting, valuations, origination and servicing of commercial mortgage loans, facilities and project management and real estate investment management. We generate revenues both on a per project or transaction basis and from annual management fees. We have a well-balanced, highly diversified base of clients that includes more than 60% of the Fortune 100. Many of our clients are consolidating their commercial real estate-related expenditures with fewer providers and, as a result, awarding their business to those providers that have a strong presence in important markets and the ability to provide a complete range of services worldwide. As a result of this trend and our ability to deliver comprehensive solutions for our clients needs across a wide range of markets, we believe we are well positioned to capture a growing percentage of our clients commercial real estate services expenditures. Industry Overview Our business covers all the various segments that compose the commercial real estate services industry, which includes leasing, sales, property management, facilities management, consulting, mortgage origination and servicing, valuation and appraisal services and investment management. Based upon our experience in these various segments and our management s ongoing internally-generated assessment of the size of the addressable market within each such segment, we believe that the U.S. commercial real estate services industry, excluding investment management, generated approximately $22 billion in revenues during 2003. In addition, we review on a quarterly basis various internally-generated statistics and estimates regarding both office and industrial space within the U.S. commercial real estate services industry, including the total available stock of rentable space and the average rent per square foot of space. Our management believes that changes in the addressable commercial rental market represented by the product of available stock and rent per square foot provide a reliable estimate of changes in the overall commercial real estate services industry because nearly all segments within the industry are affected by changes in those two measurements. We estimate that the product of available stock and rent per square foot grew at a compound annual growth rate of approximately 4.8% from 1993 through 2003. (Loss) income from continuing operations before (benefit) provision for income taxes (40,980 ) (35,054 ) 20,096 3,124 (52,814 ) (Benefit) provision for income taxes (6,276 ) (12,104 ) 8,239 1,250 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Table of Contents During the next few years, we believe the key drivers of revenue growth for the largest commercial real estate services companies will be the following: Outsourcing. Motivated by reduced costs, lower overhead, improved execution across markets, increased operational efficiency and a desire to focus on their core competencies, property owners and occupiers have increasingly contracted out for commercial real estate services, including transaction management, facilities management, project management, lease administration, property management and property accounting. Consolidation. The commercial real estate services industry remains highly fragmented, and we believe that major property owners and corporate users are motivated to consolidate their service provider relationships on a regional, national and global basis to obtain more consistent execution across markets, to achieve economies of scale and enhanced purchasing power and to benefit from streamlined management oversight and the efficiency of single point of contact service delivery. Institutional Ownership of Commercial Real Estate. Institutional owners, such as real estate investment trusts, or REITs, pension funds, foreign institutions and other financial entities, increasingly are acquiring more real estate assets and financing them in the capital markets. We believe it is likely that these owners will outsource management of their portfolios and consolidate their use of commercial real estate services vendors. Our Regions of Operation and Principal Services We have organized our business into, and report our results of operations through, three geographically organized segments: (1) the Americas, (2) Europe, Middle East and Africa, or EMEA, and (3) Asia Pacific. The Americas The Americas is our largest segment of operations and provides a comprehensive range of services throughout the United States and in the largest metropolitan regions in Canada, Mexico and other selected parts of Latin America. Our Americas segment accounted for 73.5% of our 2003 revenue and 73.3% of our revenue for the nine months ended September 30, 2004. Within our Americas segment, we organize our services into the following business areas: Advisory Services. Our advisory services business line accounted for 59.7% of our 2003 revenue and 61.9% of our revenue for the nine months ended September 30, 2004. We believe we are a market leader for the provision of sales and leasing real estate services in many U.S. metropolitan statistical areas (as defined by the U.S. Census Bureau), including New York, Philadelphia, Washington, D.C., Los Angeles, Atlanta, Chicago, Boston and Dallas. Real Estate Services. We provide strategic advice and execution assistance to owners, investors and occupiers of real estate in connection with leasing, disposition and acquisition of property. Mortgage Loan Origination and Servicing. Our wholly owned subsidiary, L.J. Melody & Company, originates and services commercial mortgage loans generally without incurring principal risk. Valuation. We provide valuation services that include market value appraisals, litigation support, discounted cash flow analyses and feasibility and fairness opinions. Outsourcing Services. Our outsourcing services business line accounted for 11.2% of our 2003 revenue and 9.5% of our revenue for the nine months ended September 30, 2004. As of December 31, 2003, we managed approximately 422.8 million square feet of commercial space for property owners and occupiers, which we believe represents one of the largest portfolios in the Americas. EMEA Operating (loss) income $ (20,490 ) $ 17,287 $ 9,292 Add: Depreciation and amortization 31,287 4,579 6,492 Equity (loss) income from unconsolidated subsidiaries (188 ) 82 Federal statutory tax rate (35 )% 35 % 35 % (35 )% Permanent differences 1 15 5 25 State taxes, net of federal benefit (3 ) 3 5 2 Taxes on foreign income which differ from the U.S. statutory rate 21 9 4 11 State NOLs not benefited 1 Change in valuation allowances AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Asset Services. We provide property management, construction management, marketing, leasing, accounting and financial services on a contractual basis for income-producing office, industrial and retail properties owned by local, regional and institutional investors. Corporate Services. We provide a comprehensive set of portfolio management, transaction management, project management, strategic consulting, facilities management and other corporate real estate services to leading global companies and public sector institutions with large, geographically-diverse real estate portfolios. Investment Management Services. Our investment management services business line accounted for 2.6% of our 2003 revenue and 1.9% of our revenue for the nine months ended September 30, 2004. Our wholly owned subsidiary, CB Richard Ellis Investors, L.L.C., provides investment management services to clients that include pension plans, investment funds, insurance companies and other organizations seeking to generate returns and diversification through investment in real estate and sponsors funds and investment programs that span the risk/return spectrum. Europe, Middle East and Africa As of December 31, 2003, our EMEA segment had offices in 28 countries, with its largest operations located in the United Kingdom, France, Spain, the Netherlands and Germany. Operations within the EMEA countries generally include brokerage, investment properties, corporate services, valuation/appraisal services, asset management services, facilities management and other services similar to our Americas segment. We hold strong commercial real estate services market positions in a number of European metropolitan areas, including the leading market position in London in terms of 2003 leased square footage. The EMEA segment accounted for 19.2% of our 2003 revenue and 19.8% of our revenue for the nine months ended September 30, 2004. Asia Pacific As of December 31, 2003, our Asia Pacific segment had offices in 11 countries, with our principal operations located in China (including Hong Kong), Singapore, South Korea, Japan, Australia and New Zealand. The services we provide in our Asia Pacific segment are generally similar to those provided by our Americas and EMEA segments. We believe we are one of only a few companies that can provide a full range of commercial real estate services to large corporations throughout the Asia Pacific region. The Asia Pacific segment accounted for 7.3% of our 2003 revenue and 6.9% of our revenue for the nine months ended September 30, 2004. Our Competitive Position We believe we possess several competitive strengths that position us to capitalize on the positive outsourcing, consolidation and globalization trends in the commercial real estate services industry. Our strengths include the following: Global Brand and Market Leading Positions. For nearly a century, we and our predecessors have built the CB Richard Ellis brand into the largest commercial real estate services provider in the world, based on 2003 revenue. Full Service Capabilities. We provide a full range of commercial real estate services to meet the needs of our clients, and we believe this suite of services represents a broader range globally than nearly all of our competitors. Strong Client Relationships and Client-tailored Service. We have forged long-term relationships with many of our clients. Our clients include more than 60% of the Fortune 100, with nearly half of these clients purchasing more than one service from us. Effective tax rate (15 )% 62 % 51 % CB Richard Ellis Group, Inc. (Exact name of Registrant as specified in its charter) Table of Contents Attractive Business Model. Our business model features a diversified client base, recurring revenue streams, a variable cost structure, low capital requirements and strong cash flow generation. Strong Management Team and Workforce. We have recruited a talented and motivated workforce of over 13,500 employees worldwide, as of December 31, 2003, excluding partner and affiliate offices, who are supported by a strong and deep senior management team consisting of a number of highly-respected executives, most of whom have over 20 years of broad experience in the real estate industry. Although we believe these strengths will create significant opportunities for our business, you should also be aware of the risks that may impact our competitive position, which include the following: Significant Leverage. We have significant debt service obligations and the agreements governing our long-term debt impose operating and financial restrictions on the conduct of our business. Geographic Concentration. A significant portion of our U.S. operations is concentrated in California and in the New York metropolitan area. Adverse effects on these local economies may affect us more than our competitors. Exposure to Risks of International Operations. Because a significant portion of our revenue is derived from operations outside the United States, we are exposed to exchange rate and other foreign social, political and economic risks. Smaller Presence in Some Markets than our Local Competitors. Although we have a large global presence, many of our competitors may be larger on a local or regional basis and devote more resources to these markets. Our Growth Strategy We believe we have built an integrated, global services platform that is unparalleled in our industry. Our primary business objective is to use this platform to garner a disproportionate share of industry revenues relative to our competitors. We believe this will enable us to maximize and sustain our long-term cash flow and increase long-term stockholder value. Our strategy to achieve these business objectives consists of several elements: Increase Revenue from Large Clients. We plan to capitalize on our client management strategy for our large clients, by using relationship management teams to provide these clients with a full range of services globally while maximizing our revenue per client. Capitalize on Cross-selling Opportunities. Because we believe cross-selling represents a large growth opportunity within the commercial real estate services industry, we have dedicated substantial resources and implemented several management initiatives to better enable our workforce to capitalize on these opportunities among our various lines of business. Continue to Grow our Investment Management Business. Our growing investment management business provides us with an attractive revenue source through fees on assets under management and gains on the sale of assets. Focus on Best Practices to Improve Operating Efficiency. In 2001, we launched a best practices initiative, branded People, Platform & Performance, to achieve operating cost reductions, and we continue to strive for efficiency improvements and cost savings in order to maximize our operating margins and cash flow. Delaware 6500 94-3391143 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I. R. S. Employer Identification No. ) 865 South Figueroa Street, Suite 3400 Los Angeles, CA 90017 (213) 438-4880 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) We were incorporated in Delaware on February 20, 2001. Our principal executive offices are located at 865 South Figueroa Street, Suite 3400, Los Angeles, California 90017 and our telephone number is (213) 438-4880. Our website address is www.cbre.com. The information contained on, or accessible through, our website is not part of this prospectus. Kenneth J. Kay Chief Financial Officer CB Richard Ellis Group, Inc. (formerly known as CBRE Holding, Inc.) 865 South Figueroa Street, Suite 3400 Los Angeles, CA 90017 (213) 438-4880 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The Offering Common stock offered by the selling stockholders 15,000,000 shares (or 17,250,000 shares if the underwriters exercise the over-allotment option in full) Common stock to be outstanding after the offering 70,438,865 shares New York Stock Exchange symbol CBG Use of proceeds We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders. Dividend Policy We do not expect to pay any dividends on our common stock for the foreseeable future.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares in this offering. You should read this entire prospectus carefully, including Risk Factors and our financial statements before making an investment decision. References in this prospectus to Akorn, us, we, our, or the Company refer to Akorn, Inc. and its subsidiary, Akorn (New Jersey), Inc., as the context requires. Akorn, Inc. Business Overview Akorn, Inc. manufactures and markets diagnostic and therapeutic pharmaceuticals in specialty areas such as ophthalmology, rheumatology, anesthesia and antidotes, among others. Our customers include physicians, optometrists, wholesalers, group purchasing organizations and other pharmaceutical companies. We are a Louisiana corporation founded in 1971 in Abita Springs, Louisiana. In 1997, we relocated our headquarters and certain operations to Buffalo Grove, Illinois. We also have manufacturing facilities in Decatur, Illinois. We have a wholly owned subsidiary named Akorn (New Jersey), Inc. which has operations in Somerset, New Jersey. Our subsidiary is involved in manufacturing, research and development, and administrative activities related to our ophthalmic segment. We classify our operations into three identifiable business segments: ophthalmic, injectable and contract services. Ophthalmic Segment. We market a line of diagnostic and therapeutic ophthalmic pharmaceutical products. Diagnostic products, primarily used in the office setting, include mydriatics and cycloplegics, anesthetics, topical stains, gonioscopic solutions, angiography dyes and others. Therapeutic products, sold primarily to wholesalers and other national account customers, include antibiotics, anti-infectives, steroids, steroid combinations, glaucoma medications, decongestants/antihistamines and anti-edema medications. Non-pharmaceutical products include various artificial tear solutions, preservative-free lubricating ointments, lid cleansers, vitamin supplements and contact lens accessories. Injectable Segment. We market a line of specialty injectable pharmaceutical products, including anesthesia, poison control (antidotes) and products used in the treatment of rheumatoid arthritis and pain management. These products are marketed to hospitals through wholesalers and other national account customers, as well as directly to medical specialists. Contract Services Segment. We manufacture products for third-party pharmaceutical and biotechnology customers based on their specifications. Government Regulation. Pharmaceutical manufacturers and distributors are subject to extensive regulation by government agencies, including the Food and Drug Administration, or FDA, the Drug Enforcement Administration, or DEA, the Federal Trade Commission, or FTC and other federal, state and local agencies. The federal Food, Drug and Cosmetic Act, or FDC Act, the Controlled Substance Act and other federal statutes and regulations govern or influence the development, testing, manufacture, labeling, storage and promotion of products that we manufacture and market. The FDA inspects drug manufacturers and storage facilities to determine compliance with its Current Good Manufacturing Practices, or cGMP, regulations, non-compliance with which can result in fines, recall and seizure of products, total or partial suspension of production, refusal to approve new drug applications and criminal prosecution. The FDA also has the authority to revoke approval of drug products. FDA approval is required before any drug can be manufactured and marketed. New drugs require a New Drug Application, or NDA, filing, including clinical studies demonstrating the safety and efficacy of the drug. Generic drugs, which are equivalents of existing, off-patent brand name drugs, require an Abbreviated New Drug Application, or ANDA, filing. Business Trends As described more fully in this prospectus, in recent years we have experienced significant regulatory and financial challenges. These combined challenges contributed to circumstances that resulted in our independent registered public accountants indicating in their report related to their audit of our consolidated financial statements for the year ended December 31, 2003 that there exists substantial doubt about our ability to continue as a going concern. In response to these challenges, we have recruited new senior management, addressed our regulatory issues, improved our financial structure and raised additional capital. These improvements have positioned us for future growth and improved operating results. In 2002 and 2003, we continued to work to correct deviations from FDA regulatory requirements at our Decatur facilities, some of which were first identified by the FDA in October 2000. In March 2002, we received a letter from the regional office of the Securities and Exchange Commission, or SEC, informing us that it would recommend enforcement action against us and that we had misstated our income for fiscal years 2000 and 2001. We continued to address these matters with the SEC into 2003. Also, during late 2002 and until October 2003, we were not in compliance with the covenants of our senior debt and from time to time negotiated forbearances. We had substantial operating losses during these periods, as well. In September 2002, we appointed Mr. Arthur S. Przybyl, an experienced executive officer, as our president, and in February 2003 named him our chief executive officer. In March 2003, Mr. Ronald M. Johnson, a former FDA compliance and enforcement official, was appointed to our board of directors. We added Messrs. Arjun C. Waney and Jerry I. Treppel, both experienced investment managers, to our board of directors following our October 2003 Exchange Transaction (as defined below). Mr. Waney was one of the investors in that transaction, and Mr. Treppel has specific expertise in managing investments in health care and related industries. Mr. Jeffrey A. Whitnell, an experienced senior manager in the pharmaceutical business, became our chief financial officer in June 2004. Resolution of deviations identified by the FDA has taken longer than expected although we believe that substantial progress has been made. The FDA inspections in 2000, 2002 and 2003 identified several significant deviations. In response, we have invested approximately $2,000,000 in improved cleaning validation and enhanced process controls and have developed a comprehensive corrective action plan. We have been in regular communication with the FDA and have provided periodic reports of our progress. The FDA s latest inspection of our Decatur facilities was concluded on April 7, 2004. Several deviations were identified for which we provided the FDA with proposed corrective actions. The FDA has initiated no enforcement action against us or any of our products. Rather, the FDA has notified us that another confirmatory inspection will be made to determine whether the deviations identified have been corrected. The confirmatory inspection is anticipated to occur in the fourth quarter of 2004. Until the FDA has confirmed that all corrections have been made, it is highly unlikely that the FDA will approve any of our applications for marketing of new or revised products produced at our Decatur facilities. We believe that we have taken appropriate corrective actions and that the deviations will be found to have been corrected during the FDA s confirmatory inspection. However, there can be no assurance that this will be the case. According to the March 27, 2002 letter from the SEC, we had misstated our income in 2000 and 2001 by allegedly failing to reserve for doubtful accounts receivable and overstating our accounts receivable balance as of December 31, 2000. We determined the need to restate our financial statements for 2000 and 2001, resulting in the recording of a $7,500,000 increase to the allowance for doubtful accounts as of December 31, 2000, which we had originally recorded as of March 31, 2001. On September 25, 2003, we consented to the entry of an administrative cease and desist order with respect to these matters. The consent order also required that we commit to do the following: (A) appoint a special committee comprised entirely of outside directors, (B) within 30 days after entry of the order, have the special committee retain a qualified independent consultant acceptable to the staff to perform a test of our material internal controls, practices, and policies related to accounts receivable, and (C) within 180 days, have the consultant present his or her findings to the commission for review to provide assurance that we are keeping accurate books and records and have devised and maintained a system of adequate internal OPERATING LOSS (6,276 ) (3,565 ) (21,074 ) Interest expense (3,157 ) (3,150 ) (3,768 ) Loss on Exchange Transaction (3,102 ) Other income (expense), net 39 LOSS BEFORE INCOME TAXES (4,797 ) (4,185 ) Income tax provision (benefit) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 accounting controls with respect to our accounts receivables. On October 27, 2003, we engaged Jefferson Wells, International to serve as consultant in this capacity. On February 6, 2004, Jefferson Wells reported its findings to the special committee, such findings being that we have made the necessary personnel changes and procedural improvements required to maintain control over the accounts receivable process and establish the necessary reserves. Jefferson Wells report was delivered to the SEC on February 13, 2004. We believe we have complied with all of the terms of the consent order. In 1997, we entered into a $15,000,000 revolving credit arrangement with The Northern Trust Company, which was increased to $25,000,000 in 1998, and subsequently increased to $45,000,000 in 1999, subject to certain financial covenants and secured by substantially all of our assets. We were notified of default for failure to make payment in September 2002. Under various forbearance agreements, this facility was modified and extended through most of 2003 as we explored ways to restructure our debt. As a condition of our lenders continuing to forbear from exercising remedies against us as a result of certain defaults under our credit agreement, we engaged AEG Partners LLC to assist us in restructuring our credit arrangement. As required by the lenders, on May 9, 2003, we engaged Leerink Swann Company, an investment banking firm, to assist in raising additional financing and explore other strategic alternatives for repaying the debt. On October 7, 2003, a group of investors, including entities controlled by Dr. John N. Kapoor, Ph.D. and Mr. Arjun C. Waney, purchased all of our then outstanding senior bank debt from The Northern Trust Company, a balance of $37,731,000, at a discount. The investors then exchanged that debt with us for Series A 6.0% Participating Convertible Preferred Stock, or Series A Preferred Stock, approximately $2,767,000 in promissory notes, warrants to purchase our common stock, and $5,473,862 in cash from the proceeds of a new term loan (described in the next paragraph). We recorded a $3,102,000 loss from this transaction and we also paid a portion of the legal fees of the investors. We refer to this transaction as the Exchange Transaction. Simultaneously with the consummation of the Exchange Transaction, we entered into a credit agreement with LaSalle Bank National Association ( LaSalle Bank ) providing us with $7,000,000 in term loans and a revolving line of credit of up to $5,000,000 (the New Credit Facility ) to provide for working capital needs, secured by substantially all of our assets. On August 13, 2004, we and LaSalle Bank amended the New Credit Facility to modify certain of the financial covenants. On August 23, 2004, we completed a private placement to certain investors of 141,000 shares of our Series B 6.0% Participating Convertible Preferred Stock, or Series B Preferred Stock, at a price of $100.00 per share, convertible into common stock at a price of $2.70 per share, with warrants to purchase 1,566,667 additional shares of our common stock exercisable until August 23, 2009, with an exercise price of $3.50 per share (the Series B Warrants ). The net proceeds to us after payment of investment banker fees and expenses to Leerink Swann Company and other transaction costs of approximately $1,056,000, were approximately $13,044,000. Under the terms of the private placement, we are required to file the registration statement of which this prospectus is a part to enable the investors to resell the shares of our common stock into which the Series B Preferred Stock is convertible and which may be purchased upon exercise of the Series B Warrants. A portion of the net proceeds of the private placement paid off the term loans from LaSalle Bank. The remainder of the net proceeds will be used for working capital and general corporate purposes. Among other things, the proceeds will pay for the validation testing of our new lyophilization facility, which is expected to become operational by approximately late 2005 or early 2006. On August 26, 2004, in connection with the pay off of our outstanding debt under the New Credit Facility, we and LaSalle Bank amended the New Credit Facility to release the guaranty of Dr. John N. Kapoor and The John N. Kapoor Trust dated September 20, 1989 (the Kapoor Trust ) effective as of such date provided that if prior to November 24, 2004 there is then pending a petition in bankruptcy court against us or our subsidiary and there is then existing a claim that all or any portion of the payoff amount is a fraudulent transfer or a preferential payment, or should otherwise be set aside, then the guaranty shall be reinstated. Pre-Effective Amendment No. 1 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 The Exchange Transaction, coupled with the private placement, has substantially reduced our overall debt from $45,755,000 as of September 30, 2003 to $10,319,000 as of August 31, 2004, and positioned us to improve our operating results. Although we continue to suffer operating losses, for the eight months ended August 31, 2004, we generated positive earnings before interest, taxes, depreciation and amortization ( EBITDA ). Even without resolution of the remaining issues with the FDA, we believe that our ability to sustain historical revenue levels and positive EBITDA is achievable. If we can resolve the remaining issues with the FDA, we believe we will be able to manufacture new or revised products at our Decatur facilities and enhance our revenue. Partially because of our improving financial condition, we have been able to structure new strategic business alliances in an effort to enhance our growth opportunities. On April 21, 2004, we announced the signing of a memo of understanding with Strides Arcolab Limited, a major pharmaceutical manufacturer based in India, to market products for the U.S. hospital market under a joint venture. As a result of negotiations following the execution of the memo of understanding, on September 22, 2004, we entered into agreements with Strides for the development, manufacturing and marketing of grandfathered products, patent-challenging products and ANDA products for the U.S. Hospital and retail markets. Strides will be responsible for developing, manufacturing and supplying products. We will be responsible for sales and marketing of the products. We and Strides each own 50% of the joint venture company and each appointed one of its two managers. Each will contribute $1,250,000 in capital, to be used to finance the preparation of ANDAs by Strides. We will also loan an additional $1,250,000 to the joint venture company that will be advanced to Strides to finance its capital contribution. If within a mutually agreed time period, Strides manufacturing facilities in India have not received a satisfactory cGMP inspection by the FDA, which remains current, and twelve ANDAs for products developed by Strides at its manufacturing facilities in India have not been submitted to the FDA, among other things, we will become the sole owner of the joint venture company and the joint venture company will be entitled to draw on a $1,250,000 letter of credit from an Indian bank that is confirmed by a U.S. bank. On the other hand, if these conditions are met, and if both managers agree, we and Strides may make additional equivalent capital contributions to finance subsequent ANDA preparation costs under a similar arrangement to our initial capital contributions, including an additional loan by us to the joint venture company to finance Strides capital contribution. On July 21, 2004, we and FDC Limited, India s second largest manufacturer and marketer of ophthalmic pharmaceutical products, announced the signing of a purchase and supply agreement, which would provide us with an ophthalmic finished dosage form product pipeline for exclusive use in the U.S. and Canada. The Offering Issuer Akorn, Inc. Address and Phone Number 2500 Millbrook Drive Buffalo Grove, Illinois 60089 (847) 279-6100 OTC Bulletin Board Trading Symbol AKRN.OB Website www.akorn.com (information found on our website is not part of this prospectus) Securities Offered Up to 61,778,323(1) shares of our common stock, no par value by the selling stockholders. Use of Proceeds We will not receive any proceeds from the sale of shares of our common stock covered by this prospectus. We will receive proceeds from the exercise of the warrants described in this prospectus. Included in the shares listed above are 2,700,911 shares of common stock that are estimated to be issuable in respect of accrued and unpaid dividends on our outstanding Series A Preferred Stock and our Series B Preferred Stock from July 1, 2004 through June 30, 2005, and issuable upon the conversion of accrued and unpaid interest on the Tranche A Note and Tranche B Note from September 1, 2004 through August 31, 2005. The number of shares of common stock set forth above is subject to adjustment to prevent dilution resulting from stock splits, stock dividends, the issuance of common stock or securities convertible into or exercisable for common stock at prices below certain thresholds or similar events. Therefore, pursuant to Rule 416, we are also registering such indeterminate number of shares as may be issuable in connection with stock splits, stock dividends or similar events. Other than holders of the Series B Preferred Stock and Series B Warrants, who have direct registration rights for this offering, each of the holders of each of the other securities listed above have piggy back registration rights for this offering. We have reserved for issuance the shares of our common stock identified in this prospectus. Each of the above listed securities which are being sold by the selling stockholders were restricted securities under the Securities Act of 1933, or the Securities Act, prior to this registration. The selling stockholders will determine if and when they will sell their shares and if they will sell their shares at the current market price or at negotiated prices at the time of the sale. Although we have agreed to pay the expenses related to the registration of the shares being offered, we will not receive any proceeds from the sale of the shares by the selling stockholders. 2500 Millbrook Drive, Buffalo Grove, Illinois 60089 (Address, including zip code, of Registrant s principal executive offices) Third Quarter 2004 Accounting Impacts Recent events had certain accounting impacts that will be reflected in our financial statements for the third quarter of 2004, as described below: (1) In July 2004, at our 2004 Annual Meeting of Shareholders, our shareholders approved an increase in the authorized number of shares of common stock to an amount sufficient to allow conversion of our Series A Preferred Stock and exercise of our Series A Warrants. Without that approval, the dividend rate on our Series A Preferred Stock would have increased to 10% per annum from 6% per annum. Because of the increase in the authorized number of shares, our Series A Preferred Stock became mandatorily convertible into shares of our common stock rather than mandatorily redeemable into cash. Accordingly, in July 2004, the Series A Preferred Stock was recharacterized as an equity security rather than as a debt security. The result of that recharacterization is that (a) future dividends and discount accretion related to the Series A Preferred Stock will be reflected as a reduction of our earnings available to common stockholders rather than as interest expense, and (b) we recorded the value of the beneficial conversion feature (resulting from the conversion price being less than the market price of our common stock when the Series A Preferred Stock was issued) imbedded in the Series A Preferred Stock which, in turn, resulted in the recording of a non-cash deemed dividend of approximately $26,410,000. This one-time deemed dividend reduced earnings available to our common stockholders, thereby having a significant adverse impact in reported income (loss) per share. (2) On June 4, 2004, an agreement was reached between us and Novadaq Technologies, Inc. related to our dispute with Novadaq regarding the issuance of a Right of Reference to Novadaq from us for Novadaq s NDA and Drug Master File for specified indications for our drug IC Green. Pursuant to the agreement we reached, we would provide the requested Right of Reference to Novadaq in exchange for Novadaq s repurchase of our holdings in Novadaq at a purchase price of $2,000,000 (U.S.). We received the proceeds in July 2004 and used the proceeds to reduce our outstanding debt obligations. We will report a one-time gain of approximately $1,280,000 during the third quarter of 2004. (3) The August 2004 issuance of our Series B Preferred Stock and Series B Warrants resulted in our recording net proceeds of $13,044,000, the pay down of $7,664,000 of outstanding indebtedness under our New Credit Facility and the write off of $245,000 of unamortized deferred financing fees. (4) The issuance of our Series B Preferred Stock also resulted in a noncash deemed dividend similar to the one described above in respect to our Series A Preferred Stock with a similar adverse impact on reported earnings available to our common stockholders. This deemed dividend is equal to the value assigned to the Series B Warrants (approximately $3,130,000) plus the value assigned to the beneficial conversion feature imbedded in the Series B Preferred Stock (approximately $2,872,000). (5) In August 2004, we resolved a dispute with AEG Partners LLC, or AEG, related to our compensation of AEG in its capacity as our chief restructuring officer. The Letter Agreement dated September 26, 2002, between AEG and us provided for AEG to earn a fee, payable in cash and warrants, upon the successful completion of a refinancing of our indebtedness. In late 2003, we recorded our estimate of both the cash portion and the value of the warrant portion as expenses related to the Exchange Transaction. The resolution of the dispute resulted in a cash payout of $300,000, plus interest from October 2003, and issuance of the AEG Warrants at an exercise price of $0.75 per share. Compared to our late 2003 estimate of cost of settlement, the actual settlement resulted in a net gain of $295,100 in the third quarter of 2004. We determined that none of the anti-dilution provisions in our outstanding securities were triggered by the issuance of the AEG Warrants. Total gross profit 32 30 27 40 15 Selling, general and administrative expenses 27 36 35 40 56 Amortization and write downs of intangibles 11 3 3 3 4 Research and development expenses 3 4 3 4 Arthur S. Przybyl President and Chief Executive Officer Akorn, Inc. 2500 Millbrook Drive Buffalo Grove, Illinois 60089 (847) 279-6100 (Name, Address and Telephone Number, of Agent for Service) Copies to: Kurt L. Kicklighter, Esq. Dalton W. Sprinkle, Esq. Luce, Forward, Hamilton Scripps LLP 600 W. Broadway, Suite 2600 San Diego, California 92101 (619) 236-1414 (1) Operating income (loss) includes the following (in thousands): (a) long-lived asset impairment charges of (i) $1,851 in the six months ended June 30, 2004, (ii) $2,362 in 2002 and (iii) $2,132 in 2001, and (b) restructuring charges of $1,117 in 2001. (2) Interest and other expense includes the following (in thousands): (a) loss on Exchange Transaction of $3,102 in 2003 and (b) dividends and discount accretion related to our Series A Preferred Stock of $1,120 in the six months ended June 30, 2004 and $589 in 2003. After the July 2004 shareholder approval relating to our Series A Preferred Stock, such dividends and accretion do not impact net income (loss) but will continue to impact earnings (loss) per share. (3) Income tax provision (benefit) includes (in thousands) a $9,216 charge in 2002 to establish a full valuation allowance against our net deferred income tax assets. Such net assets continued to be fully offset by a valuation allowance. (4) Current liabilities include (in thousands) $35,870, $35,565 and $44,800 of debt in default as of June 30, 2003, December 31, 2002 and 2001, respectively. That debt was refinanced in 2003 as part of the Exchange Transaction. (5) Long-term obligations include (in thousands) $22,181 and $21,132 of Series A Preferred Stock as of June 30, 2004 and December 31, 2003, respectively. Pursuant to the July 2004 shareholder approval relating to our Series A Preferred Stock, these securities were reclassified into shareholders equity, subsequent to June 30, 2004. Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before investing. Investing in our common stock involves a high degree of risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial also may impair our business. If any of the events described in the following risks occur, our business, results of operations and financial condition could be materially adversely affected. In addition, the trading price of our common stock could decline due to any of the events described in these risks, and you may lose all or part of your investment. Risks Related to Us Our Decatur, Illinois manufacturing facilities are the subject of an FDA Warning Letter. The FDA issued a Warning Letter to us in October 2000 following a routine inspection of our Decatur facilities. An FDA Warning Letter is intended to provide notice to a company of violations of the laws administered by the FDA and to elicit voluntary corrective action. Until the violations identified in the Warning Letter are corrected, the FDA frequently will withhold approval of any marketing applications (ANDAs, NDAs) submitted by the company and will share contents of the Warning Letter with other government agencies (for example, the Veterans Administration or Department of Defense) that may contract to purchase products from the company. Failure to take effective corrective actions can result in the FDA enforcement action such as monetary fines, seizure of products, or injunction that could suspend manufacturing and compel recall of product. The Warning Letter addressed several deviations from regulatory requirements identified during the inspection and requested that we take corrective actions. Since then, additional FDA inspections in 2002 and 2003 have found that certain deviations continued unresolved and have identified additional deviations. In response to the Warning Letter and inspections, we have invested approximately $2,000,000 in improved cleaning validation and enhanced process controls and have developed a comprehensive corrective action plan. We have been in regular communications with the FDA and have provided periodic reports of our progress in making corrections. The FDA s latest inspection of our Decatur facilities was concluded on April 7, 2004. Several deviations were identified for which we provided the FDA with proposed corrective actions. The FDA has initiated no enforcement action against us or any of our products. Rather, the FDA has notified us that another confirmatory inspection will be made to determine whether the deviations identified have been corrected. The confirmatory inspection is anticipated to occur in the fourth quarter of 2004. The noncompliance of our Decatur facilities has prevented us from developing additional products at Decatur, some of which cannot be developed at our other facility. The inability to fully use our Decatur facilities has had a material adverse effect on our business, financial condition and results of operations. If the inspection identifies significant deviations, the FDA may initiate enforcement action including the following: (1) maintain the Warning Letter sanctions and require further corrective actions, which could include a recall of certain products; (2) seek a court-ordered injunction which may include temporary suspension of some or all operations, mandatory recall of certain products, potential monetary penalties or other sanctions; or (3) seize our products. Any of these actions could significantly impair our ability to continue to manufacture and distribute products, generate cash from our operations, and may result in a covenant violation under our senior debt. Any or all of these enforcement actions would have a material adverse effect on our liquidity and our ability to continue as a going concern. Unless and until we correct the FDA deviations at our Decatur facilities, it is doubtful that the FDA will approve any applications that may be submitted by us for products to be manufactured in Decatur. This has adversely impacted, and is likely to continue to adversely impact, our ability to grow sales. See Legal Proceedings. We have experienced recent operating losses, working capital deficiencies and negative cash flows from operations, and these losses and deficiencies may continue in the future. Our recent operating losses, working capital deficiencies and negative cash flows from operations may continue in the future and there can be no assurance that our financial outlook will improve. For the six months ended June 30, 2004 and 2003, we experienced operating losses of $2,084,000 and $2,928,000, respectively, and for the years ended December 31, 2003 and 2002, our operating losses were $6,276,000 and $3,565,000, respectively. At June 30, 2004 and 2003, we had a net working capital deficit of $899,000 and $40,099,000, respectively. We experienced negative cash flows from operations for the year ended December 31, 2003 and the six months ended June 30, 2004 of $1,932,000 and $1,201,000, respectively. Our independent registered public accountants included in their report related to their audit of our most recent audited consolidated financial statements for the year ended December 31, 2003 that our recurring losses from operations in recent years, net working capital deficiency at December 31, 2003, and our involvement in certain ongoing governmental proceedings raise substantial doubt about our ability to continue as a going concern. There can be no assurance that our results of operations will improve in the future. If our results of operations do not improve in the future, your investment in our common stock could be negatively affected. We have invested significant resources in the development of lyophilization manufacturing capability, and we may not realize the benefit of these efforts and expenditures. A significant part of our growth strategy is to develop the capability to manufacture lyophilized (freeze-dried) pharmaceutical products. We have expended approximately $18,335,000 through June 30, 2004, toward the development of lyophilization capability at our Decatur facilities, and we expect that significant human and financial resources will be required to be expended prior to our realization of any benefit from lyophilization. Management estimates that the development of lyophilization capability at our Decatur facilities is approximately one year from completion, in the best of circumstances. However, there is no guarantee that we will be successful in completing development of lyophilization capability, or that other intervening events will not occur that reduce or eliminate the anticipated benefits from such capability. For instance, the market for lyophilized products could significantly diminish or be eliminated, or new technological advances could render the lyophilization process obsolete, prior to our entry into the market. There can be no assurance that we will realize the anticipated benefits from our significant investment into lyophilization capability at our Decatur facilities, and our failure to do so could significantly limit our ability to grow our business in the future. We depend on a small number of distributors, the loss of any of which could have a material adverse effect. A small number of large wholesale drug distributors account for a large portion of our gross sales, revenues and accounts receivable. The following three distributors, AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson Drug Company, accounted for approximately 49% of total gross sales and 32% of total revenues for the six months ended June 30, 2004, and 63% of gross trade receivables as of June 30, 2004. In addition to acting as distributors of our products, these three companies also distribute a broad range of health care products for many other companies. The loss of one or more of these distributors, together with a delay or inability to secure an alternative distribution source for end users, could have a material negative impact on our revenue and results of operations and lead to a violation of debt covenants. A change in purchasing patterns, a decrease in inventory levels, an increase in returns of our products, delays in purchasing products and delays in payment for products by one or more distributors also could have a material negative impact on our revenue and results of operations and lead to a violation of debt covenants. See Business Suppliers and Customers. Certain of our directors are subject to conflicts of interest. Dr. John N. Kapoor, Ph.D., our current chairman of our board of directors and our chief executive officer from March 2001 to December 2002, and a principal shareholder, is affiliated with EJ Financial Proposed Maximum Proposed Maximum Amount of Title of Securities Amount to Be Offering Price Aggregate Registration to Be Registered Registered(1) Per Share(2) Offering Price(3) Fee Enterprises, Inc., a health care consulting investment company. EJ Financial is involved in the management of health care companies in various fields, and Dr. Kapoor is involved in various capacities with the management and operation of these companies. The Kapoor Trust, the beneficiary and sole trustee of which is Dr. Kapoor, is a principal shareholder of each of these companies. As a result, Dr. Kapoor does not devote his full time to our business. Although such companies do not currently compete directly with us, certain companies with which EJ Financial is involved are in the pharmaceutical business. Discoveries made by one or more of these companies could render our products less competitive or obsolete. In addition, one of these companies, NeoPharm, Inc. of which Dr. Kapoor is a director and major stockholder, recently entered into a loan agreement with us. We also owe EJ Financial $255,500 in consulting fees and expense reimbursements from 2001 through August 31, 2004. No payments have previously been made to EJ Financial in respect of this amount payable. We owed the Kapoor Trust $233,700 in consulting fees and expenses from 2001 through August 31, 2004, which we paid in September 2004. Further, the Kapoor Trust has loaned us $5,000,000 resulting in Dr. Kapoor effectively becoming a major creditor of ours as well as a major shareholder. See Financial Condition and Liquidity, and Certain Relationships and Related Transactions. As a result of the relationships described above, Dr. Kapoor s interests may be different from yours. Potential conflicts of interest could have a material adverse effect on our business, financial condition and results of operations. In addition, the Kapoor Trust, Mr. Arjun C. Waney and Argent Fund Management Ltd. collectively hold subordinated promissory notes issued by us in the aggregate principal amount of approximately $2,767,000 (the 2003 Subordinated Notes ). Mr. Waney, one of our directors, serves as chairman and managing director of Argent, 52% of which is owned by Mr. Waney. The 2003 Subordinated Notes mature on April 7, 2006 and bear interest at prime plus 1.75%, but interest payments are currently prohibited under the terms of subordination arrangements with LaSalle Bank. Consequently, Mr. Waney and Argent are also creditors of ours and their interests may be different from yours. See Financial Condition and Liquidity, and Certain Relationships and Related Transactions. Potential conflicts of interest could have a material adverse effect on our business, financial condition and results of operations. We may require additional capital to grow our business and such funds may not be available to us. We may require additional funds to grow our business. We may seek additional funds through public and private financing, including equity and debt offerings. However, adequate funds through the financial markets or from other sources may not be available when needed or on terms favorable to us. The going concern qualification in our independent registered public accountants report related to their audit of our most recent audited consolidated financial statements for the year ended December 31, 2003 may significantly limit the availability of financing sources to us. In addition, because our common stock currently is traded on the OTC Bulletin Board and not listed on a national exchange or quoted on the Nasdaq National Market, we may experience further difficulty accessing the capital markets. Without sufficient additional funding, we may be unable to pursue growth opportunities that we view as essential to the expansion of our business, including the development of lyophilization manufacturing capability at our Decatur facilities. Further, the terms of such additional financing, if obtained, likely will require the granting of rights, preferences or privileges senior to those of our common stock and result in substantial dilution of the existing ownership interests of our common stockholders and could include covenants and restrictions that limit our ability to operate or expand our business in a manner that we deem to be in our best interest. Our growth depends on our ability to timely develop additional pharmaceutical products and manufacturing capabilities. Our strategy for growth is dependent upon our ability to develop products that can be promoted through current marketing and distributions channels and, when appropriate, the enhancement of such marketing and distribution channels. We may not meet our anticipated time schedule for the filing of ANDAs and NDAs or may decide not to pursue ANDAs or NDAs that we have submitted or anticipate submitting. Our internal development of new pharmaceutical products is dependent upon the research and Total revenues 100 100 100 100 100 Gross profit/(loss) Ophthalmic 28 % 15 % 18 % 27 % (2 )% Injectable 3 16 9 12 7 Contract Services 1 (1 ) 0 1 Common Stock, no par value 61,778,323 $2.95 182,246,053 $23,091 development capabilities of our personnel and our infrastructure. There can be no assurance that we will successfully develop new pharmaceutical products or, if developed, successfully integrate new products into our existing product lines. In addition, there can be no assurance that we will receive all necessary FDA approvals or that such approvals will not involve delays, which adversely affect the marketing and sale of our products. Unless and until our issues pending before the FDA are resolved, it is doubtful that the FDA will approve any NDAs or ANDAs we submit for products to be manufactured at our Decatur facilities. Our failure to develop new products, to successfully resolve the compliance issues at our Decatur facilities or to receive FDA approval of ANDAs or NDAs, could have a material adverse effect on our business, financial condition and results of operations. See, Our Decatur, Illinois manufacturing facilities are the subject of an FDA Warning Letter. Our success depends on the development of generic and off-patent pharmaceutical products which are particularly susceptible to competition, substitution policies and reimbursement policies. Our success depends, in part, on our ability to anticipate which branded pharmaceuticals are about to come off patent and thus permit us to develop, manufacture and market equivalent generic pharmaceutical products. Generic pharmaceuticals must meet the same quality standards as branded pharmaceuticals, even though these equivalent pharmaceuticals are sold at prices that are significantly lower than that of branded pharmaceuticals. Generic substitution is regulated by federal and state governments, as is reimbursement for generic drug dispensing. There can be no assurance that substitution will be permitted for newly approved generic drugs or that such products will be subject to government reimbursement. In addition, generic products that third parties develop may render our generic products noncompetitive or obsolete. There can be no assurance that we will be able to consistently bring generic pharmaceutical products to market quickly and efficiently in the future. An increase in competition in the sale of generic pharmaceutical products or our failure to bring such products to market before our competitors could have a material adverse effect on our business, financial condition and results of operations. Further, there is no proprietary protection for most of the branded pharmaceutical products that either we or other pharmaceutical companies sell. In addition, governmental and cost-containment pressures regarding the dispensing of generic equivalents will likely result in generic substitution and competition generally for our branded pharmaceutical products. We attempt to mitigate the effect of this substitution through, among other things, creation of strong brand-name recognition and product-line extensions for our branded pharmaceutical products, but there can be no assurance that we will be successful in these efforts. We are subject to legal proceedings against us, which may prove costly and time-consuming even if meritless. We are currently involved in several pending or threatened legal actions with both private parties and certain government agencies. To the extent that our personnel must spend time and we must expend resources to pursue or contest these various matters, or any additional matters that may be asserted from the time to time in the future, this represents time and money that is not available for other actions that we might otherwise pursue which could be beneficial to our future. In addition, to the extent that we are unsuccessful in any legal proceedings, the consequences could have a negative impact on our business, financial condition and results of operations. See Legal Proceedings. Our revenues depend on sales of products manufactured by third-parties, which we cannot control. We derive a significant portion of our revenues from the sale of products manufactured by third parties, including our competitors in some instances. There can be no assurance that our dependence on third parties for the manufacture of such products will not adversely affect our profit margins or our ability to develop and deliver our products on a timely and competitive basis. If for any reason we are unable to obtain or retain third-party manufacturers on commercially acceptable terms, we may not be able to distribute certain of our products as planned. No assurance can be made that the third-party manufacturers we use will be able to provide us with sufficient quantities of our products or that the products supplied to us will meet our specifications. Any delays or difficulties with third-party manufacturers could adversely affect the marketing and distribution of certain of our products, which could have a material adverse effect on our business, financial condition and results of operations. Dependence on key executive officers. Our success will depend, in part, on our ability to attract and retain key executive officers. We are particularly dependent upon Dr. John N. Kapoor, Ph.D., chairman of our board of directors, and Mr. Arthur S. Przybyl, our chief executive officer. The inability to attract and retain key executive officers, or the loss of one or more of our key executive officers could have a material adverse effect on our business, financial condition and results of operations. We must continue to attract and retain key personnel to be able to compete successfully. Our performance depends, to a large extent, on the continued service of our key research and development personnel, other technical employees, managers and sales personnel and our ability to continue to attract and retain such personnel. Competition for such personnel is intense, particularly for highly motivated and experienced research and development and other technical personnel. We are facing increasing competition from companies with greater financial resources for such personnel. There can be no assurance that we will be able to attract and retain sufficient numbers of highly-skilled personnel in the future, and the inability to do so could have a material adverse effect on our business, and financial condition and results of operations. Risks Related to Our Industry We are subject to extensive government regulations that increase our costs and could subject us to fines and liabilities, prevent us from selling our products or prevent us from operating our facilities. Federal and state government agencies regulate virtually all aspects of our business. The development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record keeping, distribution, storage and advertising of our products, and disposal of waste products arising from such activities, are subject to regulation by the FDA, the DEA, the FTC, the Consumer Product Safety Commission, the Occupational Safety and Health Administration and the Environmental Protection Agency. Similar state and local agencies also have jurisdiction over these activities. Noncompliance with applicable regulatory requirements can result in fines, injunctions, penalties, mandatory recalls or seizures, suspensions of production, recommendations by the FDA against governmental contracts and criminal prosecution. Any of these could have a material adverse effect on our business, financial condition and results of operations. New, modified and additional regulations, statutes or legal interpretation, if any, could, among other things, require changes to manufacturing methods, expanded or revised labeling, the recall, replacement or discontinuation of certain products, additional record keeping and expanded documentation of the properties of certain products and scientific substantiation. Such changes or new legislation could have a material adverse effect on our business, financial condition and results of operations. See Business Government Regulation. FDA regulations. All pharmaceutical manufacturers, including us, are subject to FDA regulation under the authority of the FDC Act. Under the FDC Act, the federal government has extensive administrative and judicial enforcement powers over the activities of pharmaceutical manufacturers to ensure compliance with FDA regulations. Those powers include, but are not limited to, the authority to initiate court action to seize unapproved or non-complying products, to enjoin non-complying activities, to halt manufacturing operations that are not in compliance with cGMP, to recall products, and to seek civil monetary and criminal fines and penalties. Other enforcement activities include refusal to approve product applications or the withdrawal of previously approved applications. Any such enforcement activities, including the restriction or prohibition on sales of products we market or the halting of our manufacturing operations could have a material adverse effect on our business, financial condition and results of operations. In addition, product recalls may be initiated at our discretion, or at the request of the FDA or other government agencies having regulatory authority for pharmaceutical products. Recalls may occur due (1) This number represents the number of shares that have been issued or are issuable upon the conversion or exercise of the preferred stock, warrants and convertible notes described in this Registration Statement, including shares estimated to be issuable in satisfaction of dividends accrued and unpaid through June 30, 2005 and interest accrued and unpaid through August 31, 2005 on such securities. This number is subject to adjustment to prevent dilution resulting from stock splits, stock dividends, the issuance of common stock or securities convertible into or exercisable for common stock at prices below certain thresholds or similar events. Therefore, pursuant to Rule 416 under the Securities Act of 1933, this Registration Statement also registers such indeterminate number of shares as may be issuable in connection with stock splits, stock dividends or similar events. (2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(h) under the Securities Act of 1933. It is not known how many shares of common stock will be purchased under this Registration Statement or at what price such shares will be purchased. The offering price per share and aggregate offering price are derived from the average of the bid and asked prices of the common stock on September 17, 2004, as reported on the OTC Bulletin Board . (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, based upon the average of the bid and asked prices of the common stock on September 17, 2004, as reported on the OTC Bulletin Board , which was $2.95. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. to disputed labeling claims, manufacturing issues, quality defects or other reasons. No assurance can be given that restriction or prohibition on sales, halting of manufacturing operations or recalls of our pharmaceutical products will not occur in the future. Any such actions could have a material adverse effect on our business, financial condition and results of operations. Further, such actions, in certain circumstances, could constitute an event of default under our New Credit Facility. We must obtain approval from the FDA for each pharmaceutical product that we market. The FDA approval process is typically lengthy and expensive, and approval is never certain. Our new products could take a significantly longer time than we expect to gain regulatory approval and may never gain approval. Even if the FDA or another regulatory agency approves a product, the approval may limit the indicated uses for a product, may otherwise limit our ability to promote, sell and distribute a product or may require post-marketing studies or impose other post-marketing obligations. We and our third-party manufacturers are subject to periodic inspection by the FDA to assure regulatory compliance regarding the manufacturing, distribution, and promotion of sterile pharmaceutical products. The FDA imposes stringent mandatory requirements on the manufacture and distribution of sterile pharmaceutical products to ensure their sterility. The FDA also regulates drug labeling, promotion and advertising of prescription drugs. A finding by a governmental agency or court that we are not in compliance the FDA requirements could have a material adverse effect on our business, financial condition and results of operations. If the FDA changes its regulatory position, it could force us to delay or suspend indefinitely, our manufacturing, distribution or sales of certain products. While we believe that all of our current pharmaceuticals are lawfully marketed in the U.S. under current FDA enforcement policies or have received the requisite agency approvals for manufacture and sale, such marketing authority is subject to withdrawal by the FDA. In addition, modifications or enhancements of approved products are in many circumstances subject to additional FDA approvals which may or may not be granted and which may be subject to a lengthy application process. Any change in the FDA s enforcement policy or any decision by the FDA to require an approved NDA or ANDA for one of our products not currently subject to the approved NDA or ANDA requirements or any delay in the FDA approving an NDA or ANDA for one of our products could have a material adverse effect on our business, financial condition and results of operations. A number of products we market are grandfathered drugs that are permitted to be manufactured and marketed without FDA-issued ANDAs or NDAs on the basis of their having been marketed prior to enactment of relevant sections of the FDC Act. The regulatory status of these products is subject to change and/or challenge by the FDA, which could establish new standards and limitations for manufacturing and marketing such products, or challenge the evidence of prior manufacturing and marketing upon which grandfathering status is based. We are not aware of any current efforts by the FDA to change the status of any of our grandfathered products, but there can be no assurance that such initiatives will not occur in the future. Any such change in the status of our grandfathered products could have a material adverse effect on our business, financial condition and results of operations. We are subject to extensive DEA regulation, which could result in our being fined or otherwise penalized. We also manufacture and sell drugs which are controlled substances as defined in the federal Controlled Substances Act and similar state laws, which establishes, among other things, certain licensing, security and record keeping requirements administered by the DEA and similar state agencies, as well as quotas for the manufacture, purchase and sale of controlled substances. The DEA could limit or reduce the amount of controlled substances which we are permitted to manufacture and market. On November 6, 2002, we entered into a Civil Consent Decree with respect to violations alleged by the DEA relating to record keeping and controls surrounding the storage and distribution of controlled substances. Under the terms of the Civil Consent Decree, we, without admitting any of the allegations in the complaint from the DEA, agreed to pay a fine of $100,000, upgrade our security and to remain in substantial compliance with the Comprehensive Drug Abuse Prevention Control Act of 1970. If we do not remain in substantial compliance during the two-year period following the entry of the Civil Consent Decree, we, in addition to other possible sanctions, may be held in contempt of court and ordered to pay an additional $300,000 fine. See Legal Proceedings. A failure to comply with DEA requirements or the Civil Consent Decree could have a material adverse effect on our business, financial condition and results of operations. We may implement product recalls and could be exposed to significant product liability claims; we may have to pay significant amounts to those harmed and may suffer from adverse publicity as a result. The manufacturing and marketing of pharmaceuticals involves an inherent risk that our products may prove to be defective and cause a health risk. In that event, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority. We have recalled products in the past and, based on this experience, believe that the occurrence of a recall could result in significant costs to us, potential disruptions in the supply of our products to our customers and adverse publicity, all of which could harm our ability to market our products. For example, in February 2003, we recalled two products, Fluress and Flouracaine, in a Class II Recall due to container/closure integrity problems resulting in leaking containers. A Class II Recall means that the use of, or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or that the probability of serious health consequences as a result of such use or exposure is remote. We have begun production of Fluress and re-started distribution in September 2004. Production and distribution of Flouracaine is expected to commence in the fourth quarter of 2004. Delays in restarting production and distribution of these past product recalls, or any additional product recalls that occur in the future, could adversely affect our revenue and cash from operations. Although we are not currently subject to any material product liability proceedings, we may incur material liabilities relating to product liability claims in the future. Even meritless claims could subject us to adverse publicity, hinder us from securing insurance coverage in the future and require us to incur significant legal fees and divert the attention of the key employees from running our business. Successful product liability claims brought against us could have a material adverse effect on our business, financial condition and results of operations. We currently have product liability insurance in the amount of $5,000,000 for aggregate annual claims with a $50,000 deductible per incident and a $250,000 aggregate annual deductible. However, there can be no assurance that such insurance coverage will be sufficient to fully cover potential claims. Additionally, there can be no assurance that adequate insurance coverage will be available in the future at acceptable costs, if at all, or that a product liability claim would not have a material adverse effect on our business, financial condition and results of operations. The FDA may authorize sales of some prescription pharmaceuticals on a non-prescription basis, which would reduce the profitability of our prescription products. From time to time, the FDA elects to permit sales of some pharmaceuticals currently sold on a prescription basis, without a prescription. FDA approval of the sale of our products without a prescription would reduce demand for our competing prescription products and, accordingly, reduce our profits. Our industry is very competitive. Additionally, changes in technology could render our products obsolete. We face significant competition from other pharmaceutical companies, including major pharmaceutical companies with financial resources substantially greater than ours, in developing, acquiring, manufacturing and marketing pharmaceutical products. The selling prices of pharmaceutical products typically decline as competition increases. Further, other products now in use, under development or acquired by other pharmaceutical companies, may be more effective or offered at lower prices than our current or future products. The industry is characterized by rapid technological change that may render our products obsolete, and competitors may develop their products more rapidly than we can. Competitors may also be able to complete the regulatory process sooner, and therefore, may begin to market their products in advance of our products. We believe that competition in sales of our products is based primarily on price, service and technical capabilities. There can be no assurance that: (1) we will be able to develop or acquire commercially attractive pharmaceutical products; (2) additional competitors will not enter the market; or (3) competition from other pharmaceutical companies will not have a material adverse effect on our business, financial condition and results of operations. Many of the raw materials and components used in our products come from a single source. We require a supply of quality raw materials and components to manufacture and package pharmaceutical products for ourselves and for third parties with which we have contracted. Many of the raw materials and components used in our products come from a single source and interruptions in the supply of these raw materials and components could disrupt our manufacturing of specific products and cause our sales and profitability to decline. Further, in the case of many of our ANDAs and NDAs, only one supplier of raw materials has been identified. Because FDA approval of drugs requires manufacturers to specify their proposed suppliers of active ingredients and certain packaging materials in their applications, FDA approval of any new supplier would be required if active ingredients or such packaging materials were no longer available from the specified supplier. The qualification of a new supplier could delay our development and marketing efforts. If for any reason we are unable to obtain sufficient quantities of any of the raw materials or components required to produce and package our products, we may not be able to manufacture our products as planned, which could have a material adverse effect on our business, financial condition and results of operations. Our patents and proprietary rights may not adequately protect our products and processes. The patent and proprietary rights position of competitors in the pharmaceutical industry generally is highly uncertain, involves complex legal and factual questions, and is the subject of much litigation. There can be no assurance that any patent applications or other proprietary rights, including licensed rights, relating to our potential products or processes will result in patents being issued or other proprietary rights secured, or that the resulting patents or proprietary rights, if any, will provide protection against competitors who: (1) successfully challenge our patents or proprietary rights; (2) obtain patents or proprietary rights that may have an adverse effect on our ability to conduct business; or (3) are able to circumvent our patent or proprietary rights position. It is possible that other parties have conducted or are conducting research and could make discoveries of pharmaceutical formulations or processes that would precede any discoveries made by us, which could prevent us from obtaining patent or other protection for these discoveries or marketing products developed therefrom. Consequently, there can be no assurance that others will not independently develop pharmaceutical products similar to or obsoleting those that we are planning to develop, or duplicate any of our products. Our inability to obtain patents for, or other proprietary rights in, our products and processes or the ability of competitors to circumvent or obsolete our patents or proprietary rights could have a material adverse effect on our business, financial condition and results of operations. Risks Related to an Investment in Our Common Stock There is a limited market for our common stock. Our common stock is not listed on any exchange or on the Nasdaq Stock Market , although it is traded on the OTC Bulletin Board . There can be no assurance that you will be able to sell your shares of our common stock at any time in the future or at all or that a more active trading market will develop in the foreseeable future. In addition, the price at which you may be able to sell is very unpredictable because there are very few trades in our common stock. Because our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price. Concentrated ownership of our common stock creates a risk of sudden changes in our share price. The sale by any of our large shareholders of a significant portion of that shareholder s holdings could have a material adverse effect on the market price of our common stock. The information contained in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities pursuant to this prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS DATED OCTOBER 13, 2004, SUBJECT TO COMPLETION PROSPECTUS 61,778,323 Shares Akorn, Inc. Common Stock This prospectus relates to the resale of 61,778,323 shares of our common stock by the selling stockholders identified in this prospectus, which have been issued or reserved for issuance upon the conversion or exercise of presently outstanding shares of Series A 6.0% Participating Convertible Preferred Stock, shares of Series B 6.0% Participating Convertible Preferred Stock, warrants and convertible notes, including shares estimated to be issuable in satisfaction of accrued and unpaid dividends and interest on shares of preferred stock and convertible notes, respectively. We are registering 61,778,323 shares of our common stock for resale by the selling stockholders identified in this prospectus on pages 19 through 24. The selling stockholders may sell the shares of common stock described in this prospectus in public or private transactions, at prevailing market prices, or at privately negotiated prices. The selling stockholders may sell shares directly to purchasers or through brokers or dealers. Brokers or dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders. We will not receive any of the proceeds from the sale of the shares by the selling stockholders. The selling stockholders will receive all of the proceeds from the sale of the shares and will pay all underwriting discounts and selling commissions, if any, applicable to the sale of the shares. We will, in the ordinary course of business, receive proceeds from the issuance of shares upon exercise of the warrants described in this prospectus. We will pay the expenses of registration of the sale of the shares. It is not possible at the present time to determine the price to the public in any sale of the shares by the selling stockholders and each selling stockholder reserves the right to accept or reject, in whole or in part, any proposed purchase of shares. Accordingly, the public offering price, the amount of any applicable underwriting discounts and commissions and the net proceeds to the selling stockholders will be determined at the time of such sale by the selling stockholders. Our common stock is traded on the OTC Bulletin Board under the symbol AKRN.OB. On September 17, 2004, the average of the bid and asked prices of our common stock on the OTC Bulletin Board was $2.95. Exercise of warrants and the conversion of subordinated debt and preferred stock may have a substantial dilutive effect on our common stock. If the price per share of our common stock at the time of exercise or conversion of any preferred stock, warrants, options, convertible subordinated debt, or any other convertible securities is in excess of the various exercise or conversion prices of such convertible securities, exercise or conversion of such convertible securities would have a dilutive effect on our common stock. As of August 31, 2004, holders of our convertible securities would receive 44,105,479 shares of our common stock upon conversion and holders of our outstanding warrants and options would receive 18,294,414 shares of our common stock at a weighted average exercise price of $1.69 per share. The amount of such dilution that may result from the exercise or conversion of the foregoing, however, cannot currently be determined as it would depend on the difference between our common stock price and the price at which such convertible securities were exercised or converted at the time of such exercise or conversion. Any additional financing that we secure likely will require the granting of rights, preferences or privileges senior to those of our common stock and which result in substantial dilution of the existing ownership interests of our common shareholders. The terms of our preferred stock may reduce the value of your common stock. We are authorized to issue up to a total of 5,000,000 shares of preferred stock in one or more series. We currently have outstanding 398,172 shares of preferred stock, and thus 4,601,828 additional shares of preferred stock remain authorized for issuance. We issued 141,000 shares of our Series B Preferred Stock in August 2004. Our board of directors may determine whether to issue additional shares of preferred stock and the terms of such preferred stock without further action by our shareholders. If we issue additional shares of preferred stock, it could affect your rights or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. We continue to seek capital for the growth of our business, and this additional capital may be raised through the issuance of additional preferred stock. We experience significant quarterly fluctuation of our results of operation which may increase the volatility of our stock price. Our results of operations may vary from quarter to quarter due to a variety of factors including, but not limited to, the timing of the development and marketing of new pharmaceutical products, the failure to develop such products, delays in obtaining government approvals, including FDA approval of applications for our products, expenditures to comply with governmental requirements for manufacturing facilities, expenditures incurred to acquire and promote pharmaceutical products, changes in our customer base, a customer s termination of a substantial account, the availability and cost of raw materials, interruptions in supply by third-party manufacturers, the introduction of new products or technological innovations by our competitors, loss of key personnel, changes in the mix of products sold by us, changes in sales and marketing expenditures, competitive pricing pressures, expenditures incurred to pursue or contest pending or threatened legal action and our ability to meet our financial covenants. There can be no assurance that we will be successful in avoiding losses in any future period. Such fluctuations may result in volatility in the price of our common stock. Penny Stock rules may make buying or selling our common stock difficult. Trading in our common stock is subject to the penny stock rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock Investing in our common stock involves risks. See Risk Factors beginning on page 8. market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock. The requirements of being a public company may strain our resources and distract management. As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and the Sarbanes-Oxley Act of 2002. These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls for financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight is required. This may divert management s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is October , 2004 The table above excludes 4,418,300 shares of common stock issuable upon exercise of options outstanding with a weighted average exercise price of $2.40 per share and 3,043,500 shares reserved for future issuances under our 2003 Stock Option Plan. See Management Executive Compensation. TABLE OF CONTENTS Page FORWARD-LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE RESULTS Certain statements in this prospectus constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. When used in this prospectus, the words anticipate, believe, estimate and expect and similar expressions are generally intended to identify forward-looking statements. Any forward-looking statements, including statements regarding our intent, belief or expectations are not guarantees of future performance. These statements involve risks and uncertainties and actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to: The factors described in this prospectus under the heading Risk Factors beginning on page 8; Our ability to resolve our FDA compliance issues at our Decatur, Illinois facilities; Our ability to avoid defaults under debt covenants; Our ability to generate cash from operations sufficient to meet our working capital requirements; Our ability to continue as a going concern and to obtain additional funding to operate and grow our business; The effects of federal, state and other governmental regulation of our business; Our success in developing, manufacturing and acquiring new products; Our ability to bring new products to market and the effects of sales of such products on our financial results; The effects of competition from generic pharmaceuticals and from other pharmaceutical companies; Availability of raw materials needed to produce our products; and Other factors referred to in this prospectus. These and other factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this prospectus to conform such statements to actual results or to changes in our expectations. SELLING STOCKHOLDERS We are registering 61,778,323 shares of our common stock for resale by the selling stockholders named below. The term selling stockholders includes each stockholder named below and such stockholder s transferees, pledgees, donees or other successors. Background In this registration statement, we are registering 5,495,350 shares of common stock issuable upon the conversion of shares of Series B Preferred Stock, all of which were purchased by institutional investors in a private placement offering pursuant to subscription agreements between us and each institutional investor dated August 18, 2004, including shares estimated to be issuable in satisfaction of dividends accrued and unpaid through June 30, 2005. These selling stockholders also received Series B Warrants to purchase an aggregate of 1,566,667 shares of common stock, which have an exercise price of $3.50 per share of common stock. We are registering the shares of common stock issuable upon conversion of the shares of Series B Preferred Stock and the shares of common stock issuable upon the exercise of the Series B Warrants pursuant to registration rights in each of the subscription agreements to permit the institutional investors and their respective transferees to resell the shares when they deem appropriate. See Recent Developments. AEG Partners LLC(5) 1,250,000 1,250,000 5.71 % * Abu Alam 45,291 149,927 * 106,250 * Argent Fund Management Ltd.(6) 489,078 930,323 4.41 % 458,500 2.17 % Arun K. Puri Living Trust(7) 1,811,668 1,747,090 7.81 % * Baystar Capital II, L.P.(8) 2,504,262 2,419,136 10.50 % * JRJAY Public Investments, LLC(9) 2,091,938 2,011,215 8.98 % * Merlin BioMed Long Term Appreciation, L.P.(10) 150,255 145,148 * * Merlin BioMed Offshore Fund(11) 350,597 338,679 1.62 % * Millennium Partners, L.P.(12) 751,278 725,741 3.40 % * Morgan Stanley Co. Incorporated(13) 500,852 483,827 2.29 % * Pequot Capital Management, Inc.(14) 16,997,611 17,295,861 66.22 % 900,000 3.40 % Arthur S. Przybyl 190,225 1,203,392 5.52 % 1,019,947 4.90 % John Sabat 181,167 234,709 1.13 % 60,000 * Shritin Shah 45,291 57,427 * 13,750 * Neill Shanahan 18,116 116,221 * 98,750 * Sigma Capital Associates, LLC(15) 300,511 290,296 1.39 % * The John N. Kapoor Trust(16) 26,351,173 29,453,440 64.39 % 3,988,600 10.49 % Jerry Treppel 452,918 446,773 2.12 % 10,000 * Arjun C. Waney 3,763,338 5,104,181 21.03 % 1,470,000 6.06 % Gulu C. Waney 1,811,668 2,272,290 10.16 % 525,200 2.35 % Jai S. Waney 1,268,168 2,014,213 9.22 % 791,250 3.62 % * Represents less than 1%. (1) Dr. Kapoor, the trustee and sole beneficiary of the Kapoor Trust, has served as the chairman of our board of directors since May 1995 and from December 1991 to January 1993. Dr. Kapoor served as our chief executive officer from March 2001 to December 2002. Mr. Przybyl is our president and chief executive officer, positions he has held since September 2002 and February 2003, respectively. Each of Messrs. Przybyl, Treppel and Waney has served on our board of directors since November 2003. Mr. Waney serves as chairman and managing director of, and owns 52% of, Argent Fund Management Ltd. Mr. Treppel is the managing member of the general partner of Wheaten Healthcare Partners LP. AEG served as our restructuring consultant during 2002 and 2003. To our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws, where applicable, and the information contained in the footnotes to this table. (2) The shares set forth in the column include 2,700,911 shares of common stock in the aggregate that are estimated to be issuable in respect of accrued and unpaid dividends on our outstanding Series A Preferred Stock and our Series B Preferred Stock from July 1, 2004 through June 30, 2005, and issuable upon the conversion of accrued and unpaid interest on the Tranche A Note and the Tranche B Note from September 1, 2004 through August 31, 2005, as further detailed in the table below and accompanying footnotes. The number of shares included in this prospectus is subject to adjustment to prevent dilution resulting from stock splits, stock dividends, the issuance of common stock or securities convertible into or exercisable for common stock at prices below certain thresholds or similar events. Therefore, pursuant to Rule 416 under the Securities Act, we are also registering such indeterminate number of shares as may be issuable in connection with stock splits, stock dividends or similar events. (3) Includes all shares beneficially owned, whether directly or indirectly, individually or together with associates, jointly or as community property with a spouse and shares to which each individual has the right to acquire beneficial ownership within 60 days of August 31, 2004, by the exercise of stock options, warrants or otherwise. (4) Percentage of shares of common stock beneficially owned by each stockholder after the offering is based upon 20,622,434 shares of our common stock outstanding as of August 31, 2004, plus shares of common stock issuable within 60 days of such date upon the conversion of preferred stock or notes and exercise of warrants held by that particular holder. However, we did not treat as outstanding the common stock issuable upon the conversion of preferred stock and related dividends or notes and related interest and the exercise of warrants held by persons other than the particular holder. (5) Lawrence M. Adelman, Craig J. Dean and Michael P. Goldsmith, members of AEG Partners, LLC, have shared voting and investment power over the securities. (6) Arjun C. Waney, chairman, managing director and 52% owner of Argent Fund Management Ltd., has voting and investment power over the securities. Mr. Waney disclaims beneficial ownership over the securities. (7) Arun K. Puri is the trustee of the Arun K. Puri Living Trust and is the natural person with voting and investment power over the securities. (8) Baystar Capital Management, LLC is the general partner of Baystar Capital II, L.P. Bay East, L.P., Lawrence Goldfarb and Steven M. Lamar are each a managing member of Baystar Capital Management, LLC. Steven Derby is the general partner of Bay East, L.P. Messrs. Lamar and Goldfarb and Bay East, L.P., in their capacities as the managing members of the BayStar Capital Management, LLC, and Mr. Derby, in his capacity as the general partner of Bay East, L.P., may be deemed to share the power to vote or to direct the vote and to dispose or to direct the disposition of the shares beneficially owned by Baystar Capital II, L.P. Each of Bay East, L.P. and Messrs. Lamar, Goldfarb and Derby disclaim beneficial ownership of the securities set forth in this prospectus except to the extent of any indirect pecuniary interest therein. (9) Jeffrey R. Jay is the natural person with voting and investment power over the securities. (10) Merlin BioMed Group, LLC is the general partner of Merlin BioMed Long Term Appreciation LP. Stuart T. Weisbrod, the managing member of Merlin BioMed Group, LLC, is the natural person with voting and investment power over the securities. (11) Merlin BioMed Group, LLC is the general partner of Merlin BioMed Offshore Fund. Stuart T. Weisbrod, the managing member of Merlin BioMed Group, LLC, is the natural person with voting and investment power over the securities. (12) Millennium Management, LLC, a Delaware limited liability company, is the managing partner of Millennium Partners, L.P., a Cayman Islands exempted company, and consequently has voting control and investment discretion over securities owned by Millennium Partners, L.P. Israel A. Englander is the sole managing member of Millennium Management, LLC. As a result, Mr. Englander may be considered the beneficial owner of any shares deemed to be beneficially owned by Millennium Management. The foregoing should not be construed in and of itself as an admission by either Millennium Management, LLC or Mr. Englander as to beneficial ownership of the shares owned by Millennium Partners. Millennium Partners is an affiliate of a broker-dealer. Millennium Partners purchased the securities convertible or exercisable into the shares of common stock being offered by it under this prospectus in the ordinary course of business, and at the time of the purchase of such securities that are convertible or exercisable into the shares of common stock being offered for resale under this prospectus, Millennium Partners had no agreement or understanding, directly or indirectly, with any person to distribute such securities or the shares of common stock issuable upon conversion or exercise. (13) Morgan Stanley Co. Incorporated is a reporting company or a subsidiary of a reporting company under the Exchange Act. Morgan Stanley Co. Incorporated is a broker-dealer and, as such, is an underwriter. (14) Pequot Capital Management, Inc., which is the investment manager/advisor to the below named funds and exercises sole dispositive and investment power for all shares held of record by the funds named below. Pequot Capital Management, Inc. holds voting power for all shares held of record by the funds named below except for Premium Series PCC Limited, Cell C32, which voting power is held by Premium Series PCC Limited, Cell C32. Arthur J. Samberg is the sole shareholder of Pequot Capital Management, Inc. and disclaims beneficial ownership of the shares except for his pecuniary interest. The number of shares being offered by this prospectus by Pequot Capital Management, Inc. represent 905,835 shares held of record by Pequot Scout Fund, L.P., of which 739,167 shares of common stock issuable upon conversion of the Series A Preferred Stock, and 166,667 shares of common stock issuable upon exercise of Series A Warrants; 905,835 shares held of record by Pequot Navigator Onshore Fund, L.P., of which 739,168 shares of common stock issuable upon conversion of Series A Preferred Stock, and 166,667 shares of common stock issuable upon exercise of Series A Warrants; 6,030,514 shares held of record by Pequot Healthcare Fund, L.P., of which 4,080,945 shares of common stock are issuable upon conversion of Series A Preferred Stock, 920,167 shares of common stock are issuable upon exercise of Series A Warrants, 801,035 shares of common stock are issuable upon conversion of Series B Preferred Stock and 228,367 shares of common stock are issuable upon exercise of Series B Warrants; 7,379,097 shares held of record by Pequot Healthcare Offshore Fund, Inc., of which 4,948,727 shares of common stock are issuable upon conversion of Series A Preferred Stock, 1,115,833 shares of common stock are issuable upon exercise of Series A Warrants, 1,022,915 shares of common stock are issuable upon conversion of Series B Preferred Stock and 291,622 shares of common stock are issuable upon exercise of Series B Warrants; 1,616,008 shares held of record by Pequot Healthcare Institutional Fund, L.P., of which 1,318,675 shares of common stock are issuable upon conversion of Series A Preferred Stock, and AEG Partners LLC 1,250,000 (5) 1,250,000 Abu Alam 36,958 (6) 8,333 45,291 Argent Fund Management Ltd. 395,011 (7) 89,067 5,000 (8) 489,078 Arun K. Puri Living Trust 1,478,335 (9) 333,333 1,811,668 Baystar Capital II, L.P. 1,948,706 (10 ) 555,556 2,504,262 The John N. Kapoor Trust dtd 9/20/89 851,800 15,869,930 (11) 3,578,333 6,051,110 (12) 26,351,173 JRJAY Public Investments, LLC 244,019 1,847,919 (13) 2,091,938 Merlin BioMed Long Term Appreciation, L.P. 116,922 (14) 33,333 150,255 Merlin BioMed Offshore Fund 272,819 (15) 77,778 350,597 Millennium Partners, L.P. 584,611 (16) 166,667 751,278 Morgan Stanley Co. Incorporated 389,741 (17) 111,111 500,852 Pequot Capital Management, Inc. 11,826,682 (18) 2,666,667 1,948,706 (19) 555,556 16,997,611 Arthur S. Przybyl 155,225 (20) 35,000 190,225 John Sabat 147,834 (21) 33,333 181,167 Shritin Shah 36,958 (22) 8,333 45,291 Neill Shanahan 14,783 (23) 3,333 18,116 Sigma Capital Associates, LLC 233,845 (24) 66,666 300,511 Jerry Treppel 369,584 (25) 83,334 452,918 Arjun C. Waney 2,956,671 (26) 666,667 140,000 (27) 3,763,338 Gulu C. Waney 1,478,335 (28) 333,333 1,811,668 Jai S. Waney 1,034,835 (29) 233,333 1,268,168 (1) Each share of Series A Preferred Stock is convertible into a number of shares of common stock equal to the quotient obtained by dividing (x) $100 plus any accrued but unpaid dividends on such share by (y) $0.75, as such numerator and denominator may be adjusted from time to time pursuant to the anti-dilution provisions of the articles of amendment governing the Series A Preferred Stock. (2) Each Series A Warrant is convertible into one share of common stock, subject to anti-dilution adjustments, at an exercise price of $1.00 per share of common stock. (3) Each share of Series B Preferred Stock is convertible into a number of shares of common stock equal to the quotient obtained by dividing (x) $100 plus any accrued but unpaid dividends on such share by (y) $2.70, as such numerator and denominator may be adjusted from time to time pursuant to the anti-dilution provisions of the articles of amendment to our articles of incorporation governing the Series B Preferred Stock. (4) Each Series B Warrant is convertible into one share of common stock, subject to anti-dilution adjustments, at an exercise price of $3.50 per share of common stock. (5) Shares of common stock issuable upon exercise of the AEG Warrants. (6) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 530, 538, and 546. (7) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 5,666, 5,751 and 5,838. (8) Shares issuable upon exercise of Note Warrants. (9) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 21,206, 21,254 and 27,847. (10) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 27,954, 28,373 and 28,799. (11) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 227,650, 231,065 and 234,531. (12) Includes 1,792,439 shares of common stock issuable upon conversion of the Tranche A Note and related interest, 1,499,957 shares of common stock issuable upon conversion of the Tranche B Note and related interest, 1,000,000 shares of common stock issuable upon exercise of the Tranche A Warrant, 667,000 shares of common stock issuable upon exercise of the Tranche B Warrant, 880,000 shares of common stock issuable upon exercise of Guaranty Warrants, and 211,714 shares of common stock issuable upon exercise of Note Warrants. (13) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 26,508, 26,906 and 27,309. (14) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 1,667, 1,702 and 1,728. Risk Factors In analyzing an investment in our common stock offered by this prospectus, you should carefully consider the information set forth under Risk Factors. (15) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 3,914, 3,972 and 4,032. (16) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 8,386, 8,512 and 8,639. (17) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 5,591, 5,675 and 5,760. (18) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 169,650, 172,195 and 174,780. (19) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 27,954, 28,373 and 28,799. (20) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 2,227, 2,260 and 2,294. (21) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 2,121, 2,152 and 2,185. (22) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 530, 538 and 546. (23) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 212, 215 and 218. (24) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 3,354, 3,405 and 3,456. (25) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 5,302, 5,381 and 5,462. (26) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 42,413, 43,049 and 43,695. (27) Includes 80,000 shares of common stock issuable upon exercise of Guaranty Warrants, and 60,000 shares of common stock issuable upon exercise of Note Warrants. (28) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 21,206, 21,524 and 21,847. (29) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 14,844, 15,067 and 15,293. (30) Includes the following number of shares of common stock issuable under additional conversion rights accruing in the event cash dividends are not paid on December 31, 2004, March 31, 2005 and June 30, 2005, respectively: 5,302, 5,381 and 5,462. (1) We are registering the following number of shares of common stock: Issuable upon conversion of our Series B Preferred Stock 5,495,350 Issuable upon exercise of Series B Warrants 1,566,667 Issuable upon conversion of our Series A Preferred Stock 38,018,644 Issuable upon exercise of warrants issued to holders of our Series A Preferred Stock (the Series A Warrants ) 8,155,733 Previously issued upon exercise of Series A Warrants 244,019 Issuable upon conversion of the Convertible Tranche A Promissory Note in the aggregate principal amount of $3,000,000 (the Tranche A Note ) 1,792,439 Issuable upon conversion of the Convertible Tranche B Promissory Note in the aggregate principal amount of $2,000,000 (the Tranche B Note ) 1,499,957 Issuable upon exercise of the Tranche A Common Stock Purchase Warrants issued to the holders of the Tranche A Note (the Tranche A Warrants ) 1,000,000 Issuable upon exercise of the Tranche B Common Stock Purchase Warrants issued to the holders of the Tranche B Note (the Tranche B Warrants ) 667,000 Issuable upon exercise of warrants held by AEG Partners LLC pursuant to a Stock Purchase Warrant dated August 31, 2004 (the AEG Warrants ) 1,250,000 Issuable upon exercise of warrants issued on October 7, 2003 as compensation for personal guarantees of our senior bank debt (the Guaranty Warrants ) 960,000 Issuable upon exercise of warrants issued on October 7, 2003 in conjunction with the issuance of subordinated notes in the aggregate principal amount of $2,767,139 (the Note Warrants ) 276,714 Issued upon exercise of warrants issued to The John N. Kapoor Trust dated September 20, 1989 851,800 PLAN OF DISTRIBUTION The shares of common stock offered for resale through this prospectus may be sold by the selling stockholders and any of their pledgees, assignees and successors-in-interest (including successors by gift, partnership distribution or other non-sale-related transfer effected after the date of this prospectus), from time to time, in one or more transactions at fixed prices, at market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may offer their shares of common stock in one or more of the following transactions: On any national securities exchange or quotation service at which our common stock may be listed or quoted at the time of sale; In the over-the-counter market; In private transactions; Through options, swaps or other derivative securities (whether exchange listed or otherwise); By pledge to secure debts and other obligations; In ordinary brokerage transactions and transactions in which the broker-dealer solicits purchases; In block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; Through purchases by a broker-dealer as principal and resale by the broker-dealer for its account; In settlement of short sales; Through the sale of a specified number of shares at a stipulated price per share by agreement between broker-dealers and the selling stockholders; Sales in other ways not involving market makers or established trading markets, including direct sales to purchasers, sales effected through agents or other privately negotiated transactions; A combination of any of the above methods; or Any other method permitted pursuant to applicable law. If required, we will distribute a supplement to this prospectus to describe material changes in the terms of the offering. The shares of common stock described in this prospectus may be sold from time to time directly by the selling stockholders. Alternatively, the selling stockholders may from time to time offer shares of common stock to or through underwriters, broker/ dealers or agents. The selling stockholders that are also broker-dealers are underwriters within the meaning of the Securities Act. Morgan Stanley Co. Incorporated, a selling stockholder, is a broker-dealer and, as such, is an underwriter. Millennium Partners, L.P., a selling stockholder, is an affiliate of a broker-dealer. Millennium Partners purchased the securities convertible or exercisable into the shares of common stock being offered by it under this prospectus in the ordinary course of business, and at the time of the purchase of such securities that are convertible or exercisable into the shares of common stock being offered for resale under this prospectus, Millennium Partners had no agreement or understanding, directly or indirectly, with any person to distribute such securities or the shares of common stock issuable upon conversion or exercise. The selling stockholders and any broker or any broker-dealers, agents or underwriters that participate with the selling stockholders in the distribution of the shares offered for resale through this prospectus may also be deemed to be underwriters within the meaning of the Securities Act. In these cases, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of the shares offered for resale through this prospectus purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any profits realized by the selling stockholders may be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the selling stockholders may be deemed to be underwriters, they will be subject to the prospectus delivery requirements of the Securities Act. TOTAL 61,778,323 The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares and, if they default in the performance of any of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus as it may be supplemented from time to time, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provisions of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders may also transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. Any shares covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this prospectus. The selling stockholders are not obligated to, and there is no assurance that the selling stockholders will, sell all or any of the shares we are registering. The selling stockholders may transfer, devise or gift such shares by other means not described in this prospectus. Under the Exchange Act, any person engaged in a distribution of our common stock may not simultaneously engage in market-making activities with respect to our common stock for nine business days prior to the start of the distribution. Each selling stockholder, and any other person, who participates in a distribution of our common stock will be subject to the Exchange Act which may limit the timing of purchases and sales of our common stock by such selling stockholder or any such other person. These factors may affect the marketability of our common stock and the ability of brokers or dealers to engage in market-making activities. We will pay all expenses of this registration. These expenses include the filing fees of the SEC, fees under state securities or blue sky laws, and accounting and legal fees. We estimate that our expenses in connection with this registration will be approximately $218,091. All expenses for the issuance of any supplement to this prospectus will be paid by us. The selling stockholders may pay selling commissions or brokerage fees with respect to the sale of the resale shares by them. Some of the selling stockholders will be indemnified by us against certain civil liabilities under securities laws or will be entitled to contribution in connection therewith. We will be indemnified by some of the selling stockholders against certain liabilities under securities laws or will be entitled to contribution in connection therewith. USE OF PROCEEDS We will not receive any of the proceeds from the sale by the selling stockholders of any of the shares of common stock offered for resale through this prospectus. All proceeds from the resale of the shares of our common stock offered for resale through this prospectus will be for the accounts of the selling stockholders. We may receive up to a total of approximately $20,287,703 in the event that all the Series A Warrants, Series B Warrants, Tranche A Warrant, Tranche B Warrant, AEG Warrants, Guaranty Warrants and Note Warrants collectively held by the selling stockholders are exercised at their respective current exercise prices. Warrants, however, can be exercised on a cashless basis. Any proceeds received by us from the exercise of these warrants will be used by us for general corporate purposes. Year Ended December 31, 2004: 1st Quarter $ 3.59 $ 2.00 2nd Quarter 3.78 2.75 3rd Quarter 3.76 2.30 Year Ended December 31, 2003: 1st Quarter $ 1.55 $ 0.50 2nd Quarter 1.30 0.50 3rd Quarter 1.19 0.45 4th Quarter 2.35 1.22 Year Ended December 31, 2002: 1st Quarter $ 4.00 $ 3.31 2nd Quarter 3.73 0.60 3rd Quarter 1.60 0.60 4th Quarter 1.50 0.60 Trading in our common stock is subject to the penny stock rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock. As of August 31, 2004, we had 20,622,434 shares of common stock outstanding, which were held by approximately 596 stockholders of record. This number does not include stockholders for which shares are held in a nominee or street name. The closing price of our common stock on August 31, 2004 was $3.00 per share. The transfer agent for our common stock is Computershare Investor Services, LLC, 2 North LaSalle Street, Chicago, Illinois 60602. DIVIDEND POLICY Our board of directors determines any payment of dividends. We did not pay cash dividends in 2003 or 2002 and do not expect to pay dividends on our common stock in the foreseeable future. Moreover, we are currently prohibited by our New Credit Facility from making any cash dividend payment to holders of our common stock. See Management s Discussion and Analysis of Financial Condition and Results of Operation Financial Condition and Liquidity. Any future decision with respect to dividends will depend on future earnings, operations, capital requirements and availability, restrictions in future financing agreements and other business and financial considerations. RECENT DEVELOPMENTS On August 23, 2004, we completed a private placement of 141,000 shares of our Series B Preferred Stock at a price of $100.00 per share, convertible into common stock at a price of $2.70 per share, along with Series B Warrants to purchase approximately 1,566,667 additional shares exercisable until August 23, 2009, with an exercise price of $3.50 per share. The net proceeds to us after payment of investment banker fees and expenses to Leerink Swann Company and other transaction costs of approximately $1,056,000, were approximately $13,044,000. A portion of the net proceeds was used to pay off our outstanding debt under the New Credit Facility and the remaining portion will be used for working capital and general corporate purposes. The shares of common stock issuable upon conversion of our Series B Preferred Stock and exercise of the Series B Warrants are subject to certain registration rights as set forth in the subscription agreements with the holders of the Series B Preferred Stock and Series B Warrants. Under the subscription agreements, we agreed to file a registration statement on Form S-1 with the SEC by September 22, 2004, for purposes of registering the shares of common stock issuable upon conversion of Series B Preferred Stock and exercise of the Series B Warrants (collectively, the Registrable Securities ). This prospectus is part of a registration statement that has been filed to register the Registrable Securities pursuant to the requirements of the subscription agreements. We agreed to maintain the effectiveness of the registration statement until the earlier of: (1) the holders of Registrable Securities having completed the distribution of the Registrable Securities, or (2) with respect to any holder of Registrable Securities, the Registration Period, which is defined as such time as all Registrable Securities then held by such holder may be sold in compliance with Rule 144 under the Securities Act, within any three-month period. If the registration statement is not declared effective within 120 days from August 23, 2004 (or if the SEC issues any stop order(s) suspending the effectiveness of the registration statement for a period of more than 60 days during such 120 day period), we will pay to each holder an amount equal to 1.0% of the purchase price (the 1.0% Penalty ) for the shares of Series B Preferred Stock purchased by such holder for every 30 days during which the registration statement is not effective, until the earlier to occur of (1) the registration statement becomes effective, (2) the end of the Registration Period, or (3) the exercise by the holder of the Put Option (defined below). If the registration statement is not declared effective within 270 days from August 23, 2004, each holder will have the right, for a period of 60 days following the end of such 270 day period, to compel us to purchase its shares of Series B Preferred Stock for cash in an amount equal to $115 per share (the Put Option and together with the 1.0% Penalty, the Penalty Provisions ). As a result of the Put Option, and pursuant to SEC rules and regulations, our Series B Preferred Stock will be reflected outside of the shareholders equity section of our consolidated balance sheet until this registration statement becomes effective or the exercise period related to the Put Option lapses, at which date the Series B Preferred Stock will be reclassified into shareholders equity. The right to receive payments in cash pursuant to the Penalty Provisions is subordinate to our obligations under the New Credit Facility. In place of any cash payment otherwise due to a holder of Series B Preferred Stock pursuant to the 1.0% Penalty, we may, in our discretion, pay such holder the number of fully paid, validly issued and non-assessable shares of common stock equal to the number obtained by dividing the amount of (1) the cash payment due by (2) the closing price of our common stock, or the average of the reported closing bid and asked prices of such common stock as determined
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000032878_energy_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000032878_energy_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary may not contain all of the information that is important to you. You should read the entire prospectus, including the consolidated financial statements and related notes, before making an investment decision. Our Business Energy Conversion Devices, Inc., or ECD, is a technology, product development and manufacturing company founded by Stanford R. Ovshinsky and his wife Dr. Iris M. Ovshinsky. We are engaged in the invention, engineering, development and commercialization of new materials, products and production technology. Under the direction of Mr. Ovshinsky, our principal inventor, we have established a leadership role in the development of proprietary materials, products and production technology based on our atomically engineered amorphous and disordered materials. We use chemical and structural disorder to provide multiple degrees of freedom to our materials and products that result in our ability to make many new materials. We develop materials that permit us to design and commercialize products such as nickel metal hydride, or NiMH, batteries, thin-film solar cell, or photovoltaic, products and phase-change optical memory media. These products have unique chemical, electrical, mechanical and optical properties and superior performance characteristics. Our proprietary materials, products and technologies are branded as "Ovonic." We have established a multi-disciplinary business, scientific, technical and manufacturing organization to commercialize products based on our technologies. We have enabling proprietary technologies in the important fields of: ALTERNATIVE ENERGY TECHNOLOGY o Energy Storage and Related Technologies Ovonic rechargeable NiMH batteries Ovonic solid hydrogen storage systems Alternative energy vehicles o Energy Generation Ovonic thin-film photovoltaic modules and systems Ovonic regenerative fuel cell technology INFORMATION TECHNOLOGY o Ovonic rewritable optical memory technology o Ovonic Unified Memory o Ovonic Cognitive Computer technology We manufacture and sell our proprietary products through our subsidiaries and joint ventures and through licensing arrangements with major companies throughout the world. In addition, in support of these activities, we are engaged in research and development, production of our proprietary materials and products, as well as in designing and building production machinery. Our extensive patent portfolio includes numerous basic and fundamental patents applicable to each of our lines of business. We invent not only materials, but also develop low-cost production technologies and high-performance products. Our patents, therefore, cover not only materials, but also the production technology and products we develop. Many of our technologies have been commercialized in products such as NiMH consumer batteries and NiMH batteries for transportation applications, photovoltaic products and phase-change rewritable optical memory disks. Our other technologies require further technical development and financial resources from us, our joint venture partners or third parties in order to achieve commercial production. Product manufacturing activities are conducted by us and through our subsidiaries and joint ventures. Our principal manufacturing activity consists of machine building by our Production Technology and Machine Building Division. Our United Solar Ovonic Corp. and United Solar Ovonic LLC subsidiaries manufacture our photovoltaic products. The principal manufacturing activities of our subsidiary, Ovonic Battery Company, Inc., are limited production of our metal hydride negative electrode materials and nickel hydroxide positive electrode materials for NiMH batteries and metal hydride materials. Our Texaco Ovonic Battery Systems LLC joint venture manufactures prismatic NiMH modules and battery packs. The critical factor to large-scale market penetration of products incorporating our technologies is the manufacturing of such products in sufficient quantities to achieve economies of scale, reduce product cost and deliver to the marketplace products that answer basic industry and consumer needs. Our principal executive offices are located at 2956 Waterview Drive, Rochester Hills, Michigan 48309. Our telephone number is (248) 293-0440. We maintain an Internet web site at www.ovonic.com. The information contained on our web site, or on other web sites linked to our web site, is not part of this prospectus. The Offering Common stock outstanding as of March 5, 2004 . . . . . 24,523,001 shares Common stock offered by the selling stockholders . . . . 1,146,678 shares Use of proceeds . . . . . . . . . . All of the net proceeds from the sale of the common stock covered by this prospectus will be received by the selling stockholders who offer and sell shares of common stock. We will not receive any proceeds from the sale of common stock offered by the selling stockholders, although we will receive proceeds from the exercise of the warrants held by the selling stockholders or their subsequent purchasers to purchase 573,339 shares of common stock to the extent these warrants are exercised. Dividend policy . . . . . . . . . . We do not intend to pay cash dividends on our common stock for the foreseeable future. We intend to retain our earnings, if any, for use in the operation and expansion of our business. Nasdaq National Market symbol . . . "ENER" Risk factors . . . . . . . . . . . See "Risk Factors" and other sections included in this prospectus for a discussion of the factors you should carefully consider before deciding to invest in our common stock. Summary Financial Information (In Thousands, Except per Share) STATEMENT OF OPERATIONS INFORMATION: <TABLE> <CAPTION> Six Months Ended December 31, Fiscal Year Ended June 30, -------------------- ---------------------------------------------------- (unaudited) 2003 2002 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Revenues.......................... $ 29,879 $ 34,332 $ 65,179 $ 91,710 $ 71,404 $ 29,979 $ 32,973 Costs and Expenses................ $ 57,379 $ 44,756 $ 98,455 $113,944 $ 81,471 $ 45,914 $ 45,966 Net Loss Before Cumulative Effect of Change in Accounting Principle....................... $(27,698) $ (11,431) $(38,414) $(20,888) $ (5,122) $(16,656) $(13,778) Cumulative Effect of Change in Accounting Principle............ $ - $ 2,216 $ 2,216 $ - $ - $ - $ - Net Loss.......................... $(27,698) $ (9,216) $(36,198) $(20,888) $ (5,122) $(16,656) $(13,778) Basic Net Loss Per Share Before Cumulative Effect of Change in Accounting Principle.. $ (1.22) $ (.52) $ (1.75) $ (.96) $ (.26) $ (1.16) $ (1.06) Basic Net Income Per Share for Cumulative Effect of Change in Accounting Principle............ - .10 .10 - - - - Basic Net Loss Per Share.......... $ (1.22) $ (.42) $ (1.65) $ (.96) $ (.26) $ (1.16) $ (1.06) Diluted Net Loss Per Share Before Cumulative Effect of Change in Accounting Principle... $ (1.22) $ (.52) $ (1.75) $ (.96) $ (.26) $ (1.16) $ (1.06) Diluted Net Income Per Share for Cumulative Effect of Change in Accounting Principle............ - .10 .10 - - - - Diluted Net Loss Per Share $ (1.22) $ (.42) $ (1.65) $ (.96) $ (.26) $ (1.16) $ (1.06) </TABLE> <TABLE> <CAPTION> BALANCE SHEET INFORMATION: As of December 31, As of June 30, --------------------- ---------------------------------------------------- (unaudited) 2003 2002 2003 2002 2001 2000 1999 -------- -------- -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Cash and Cash Equivalents..... $ 16,898 $ 22,960 $ 8,567 $ 42,221 $ 33,055 $ 44,592 $ 19,077 Short-Term Investments........ $ 7,978 $ 84,926 $ 26,802 $ 71,997 $ 48,909 $ 44,724 $ - Total Assets.................. $143,234 $184,028 $153,695 $192,119 $166,105 $148,906 $ 39,808 Long-Term Liabilities......... $ 10,178 $ 13,963 $ 10,187 $ 14,429 $ 18,154 $ 20,059 $ 2,680 Working Capital............... $ 39,828 $ 84,176 $ 37,795 $100,796 $ 92,577 $ 89,789 $ 18,439 Stockholders' Equity.......... $ 99,016 $127,211 $ 99,832 $135,255 $110,741 $ 98,777 $ 23,189 </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000091693_coinmach_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000091693_coinmach_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..55c712bec2e8f01ae064007300674fa7033ee9a8
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+S-1/A TABLE OF CONTENTS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000216543_bny_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000216543_bny_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..65f90ea267b0ec38a0eff649f1507de0d96a6f54
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+PROSPECTUS SUMMARY This prospectus summary highlights selected information from this prospectus to aid your understanding and does not contain all of the information that you need to consider in making your investment decision. It is qualified by the full description of the information contained in this prospectus. To understand all of the terms of the offering of the notes, you should read carefully this entire prospectus. You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption Index of Terms beginning on page 110 of this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000225868_robotic_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000225868_robotic_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
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@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000278041_internatio_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000278041_internatio_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..6296e2cfe1ce8bd73635d5d46bfcc8763bf6796a
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+PROSPECTUS SUMMARY This summary highlights selected information appearing elsewhere in this prospectus. You should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before making an investment decision, and you should pay particular attention to the risks associated with our business and the risks of investing in the preferred stock, which we discuss under "Risk Factors" beginning on page 14, and to our financial statements and related notes beginning on page F-1. ABOUT THE COMPANY Through our subsidiaries, we operate a diversified fleet of U.S. and foreign flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium- to long-term charters and contracts. At September 30, 2004, our fleet consisted of 35 ocean-going vessels, of which 11 were 100% owned by us, nine were 30% owned by us, two were 50% owned by us, seven were leased by us, and six were operated by us under operating contracts. We also own 917 LASH (Lighter Aboard SHip) barges and 32 over-the-road haul-away car carrying trucks that are leased to a company in which we have a 50% interest. Our fleet is deployed by our principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), which includes a transatlantic liner service doing business as "Forest Lines," Waterman Steamship Corporation ("Waterman"), and CG Railway, Inc. ("CG Railway"). Other of our subsidiaries provide ship charter brokerage, agency and other specialized services primarily to our operating segments. We have five operating segments: Liner Services, Time Charter Contracts, Contracts of Affreightment ("COA"), Rail-Ferry Service, and Other. In addition to our five operating segments, we have investments in several unconsolidated entities of which we own 50% or less and do not exercise significant influence over operating and financial activities. For additional information about our operating segments, see note K of the notes to our consolidated financial statements included elsewhere in this prospectus. During the year ended December 31, 2003 and the nine months ended September 30, 2004, those segments made the following contributions to our revenues, gross voyage profit or loss and segment profit or loss: <Table> <Caption> NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 2004 DECEMBER 31, 2003 ---------------------------------------- ---------------------------------------- GROSS VOYAGE SEGMENT GROSS VOYAGE SEGMENT REVENUES PROFIT (LOSS) PROFIT (LOSS) REVENUES PROFIT (LOSS) PROFIT (LOSS) -------- ------------- ------------- -------- ------------- ------------- (IN THOUSANDS) (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> Liner Services............ $ 71,332 $ (429) $(1,043) $ 75,635 $(4,199) $(5,238) Time Charter Contracts.... 87,086 22,144 17,611 129,685 33,048 26,378 Contracts of Affreightment........... 12,048 3,737 2,597 16,189 5,495 3,695 Rail-Ferry Service........ 11,923 (3,382) (4,858) 15,537 (2,926) (5,248) Other..................... 17,094 923 757 20,767 2,422 3,132 -------- ------- ------- -------- ------- ------- Total................... $199,483 $22,993 $15,064 $257,813 $33,840 $22,719 ======== ======= ======= ======== ======= ======= </Table> Liner Services. In our liner services segment we operate four vessels, including one "dockship" that positions barges for pick-up and discharge, on established trade routes with regularly scheduled sailing dates. We receive revenues for the carriage of cargo within the established trading areas and pay the operating and voyage expenses incurred. Our liner services include a U.S. flag service between U.S. Gulf and East Coast ports and ports in the Red Sea and Middle East, and a foreign flag transatlantic service operating between U.S. Gulf and East Coast ports and ports in northern Europe. Time Charter Contracts. Time charters are contracts by which our charterer obtains the right for a specified period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but we retain operating control over the vessel. Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), both as amended. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including without limitation statements regarding (1) estimated fair values of capital assets, the recoverability of the cost of those assets, the estimated future cash flows attributable to those assets, and the appropriate discounts to be applied in determining the net present values of those estimated cash flows; (2) estimated scrap values of assets held for disposal; (3) estimated fair values of financial instruments, such as interest rate and commodity swap agreements; (4) estimated losses (including independent actuarial estimates) under self-insurance arrangements, as well as estimated losses on certain contracts, trade routes, lines of business or asset dispositions; (5) estimated losses attributable to asbestos claims; (6) estimated obligations, and the timing thereof, to the U.S. Customs Service relating to foreign repair work; (7) the adequacy of our capital resources and the availability of additional capital resources on commercially acceptable terms; (8) our ability to remain in compliance with our debt covenants; (9) anticipated trends in government sponsored cargoes; (10) our ability to maintain or increase our government subsidies; (11) the anticipated improvement in the results of our Mexican rail-ferry service; (12) the estimated effect on our results of operations of the American Jobs Creation Act of 2004; and (13) assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "will," "estimate," "intend," "continue," "believe," "expect," "plan" or "anticipate" and other similar words. Such forward-looking statements may be contained in the sections of this prospectus entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," among other places. Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results will differ from those projected or assumed in our forward-looking statements, and those variations could be material. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in the section of this prospectus entitled "Risk Factors" and elsewhere herein. All forward-looking statements contained in this prospectus are made as of the date of this prospectus. Except for our ongoing disclosure obligations under the federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement. We urge you to review carefully the section of this prospectus entitled "Risk Factors" for a more complete discussion of the risks of an investment in the preferred stock. --------------------- INDUSTRY AND OTHER INFORMATION Unless we indicate otherwise, the information about the shipping industry contained in this prospectus, including information about our market positions and market shares, is based on our general knowledge of, and expectations concerning, the industry, including estimates prepared by us using data from various industry sources, and on assumptions we made based on such data and knowledge. We believe that data regarding the shipping industry and our market positions and market shares within such industry provide generally reliable guidance, but such data is inherently imprecise because it is not gathered for each of the specific segments of our business. Further, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the "Risk Factors" section of this prospectus. We have not independently verified data from industry sources and cannot guarantee its accuracy or completeness, but we believe the data is generally accurate and we use it in evaluating our performance and planning our future activities. responsible for voyage expenses, such as fuel, port and stevedoring expenses. Our time charter contracts include charters of three Roll-On/Roll-Off ("RO/RO") vessels to the Military Sealift Command (the "MSC") for varying terms. Also included in this segment are contracts with car manufacturers for six Pure Car/Truck Carriers ("PCTCs"), with an electric utility for a conveyor-equipped, self-unloading coal carrier and with a mining company to provide transportation services at its mine in Papua, Indonesia. Contracts of Affreightment. COAs are contracts by which we undertake to provide space on our vessels for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried. Generally, we are responsible for all operating and voyage expenses. Our COA segment includes a molten sulphur transportation contract with a sulphur transporter. Rail-Ferry Service. In the beginning of 2001, we began a new service, through our subsidiary CG Railway, carrying loaded rail cars between the U.S. Gulf and Mexico. This service uses our two Special Purpose vessels, which were modified to enable them to carry standard size railroad cars. Each vessel has a capacity for 60 standard size rail cars. Other. This segment consists of operations that include more specialized services than the former four segments and subsidiaries that provide ship charter brokerage and agency services. Also included in this segment is our 50% ownership in a car transportation truck company. Unconsolidated Entities. We have a 30% interest in a company owning and operating nine Cement Carriers. We also have a 50% interest in a company owning two newly built Cape-Size Bulk Carriers, and a 50% interest in a company that operates a terminal in Coatzacoalcos, Mexico for our Rail-Ferry Service. Recent Losses. Our net losses in fiscal years 2002 and 2001 were due primarily to impairment losses incurred in 2001 in connection with our adoption of a plan to separate certain of our vessels from our operations and dispose of those vessels, and related expenses incurred in 2001 and 2002 related to the termination of services provided by those vessels. For further information, see the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and note B to our consolidated financial statements included elsewhere in this prospectus. --------------------- Our parent company is a Delaware corporation headquartered in New Orleans, Louisiana, with administrative and sales offices in New York, Nashville and Shanghai, and a network of marketing agents in other major cities around the world. Our principal executive offices are located at 650 Poydras Street, New Orleans, Louisiana 70130, and our telephone number at that address is (504) 529-5461. BUSINESS STRATEGY Our strategy is to - identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques; - seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts; and - provide our customers with reliable, high quality service at a reasonable cost. We believe that our strategy has produced relatively stable operating cash flows for an industry that tends to be cyclical and valuable long-term relationships with our customers. We plan to continue this strategy by expanding our relationships with existing customers, seeking new customers and selectively pursuing acquisitions. HISTORY The company was originally founded as Central Gulf Steamship Corporation in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, a director of the company, and Erik F. Johnsen, our Chairman and Chief Executive Officer. Central Gulf was privately held until 1971 when it merged with Trans Union Corporation ("Trans Union"). In 1978, International Shipholding Corporation was formed to act as a holding company for Central Gulf, LCI, and certain other affiliated companies in connection with the 1979 spin-off by Trans Union of our common stock to Trans Union's stockholders. In 1986, we acquired the assets of Forest Lines, and in 1989, we acquired Waterman. Since our spin-off from Trans Union, we have continued to act solely as a holding company, and our only significant assets are the capital stock of our subsidiaries. COMPETITIVE STRENGTHS Diversification. Our strategy for many years has been to seek and obtain contracts that contribute to a diversification of operations. These diverse operations vary from chartering vessels to the government, to chartering vessels for the transportation of automobiles and sport utility vehicles, transportation of paper, steel, wood and wood pulp products, carriage of supplies for a mining company, transporting molten sulphur, transporting coal for use in generating electricity, and transporting standard size railroad cars. In recent years we have upgraded our fleet and brought the average age of our vessels down to approximately 14.5 years as compared with approximately 17.7 years in 2000. As a result, our management believes that the outlook for fulfilling current contracts, obtaining extensions through the exercise of options by current customers, and obtaining new contracts is good. Stable Cash Flow. We believe that our historical cash flows have been relatively stable for an industry that tends to be cyclical, because of the length and structure of our contracts, the creditworthiness of our customers and our diversified customer and cargo bases. Our cash flow from operations was approximately $38.6 million, $18.4 million and $21.3 million for the years ended December 31, 2003, 2002 and 2001, respectively, and $14.5 million and $28.4 million for the nine-month periods ended September 30, 2004 and 2003, respectively. Our medium- to long-term time charters provide for a daily charter rate that is payable whether or not the charterer utilizes the vessel. These charters generally require the charterer to pay certain voyage operating costs, including fuel, port and stevedoring expenses, and often include cost escalation features covering certain of our expenses. In addition, our COAs guarantee a minimum amount of cargo for transportation, and our diversified cargo and customer bases have contributed to the stability of our operating cash flow. We also believe that the high credit quality of most of our customers and the length of our contracts help reduce the effects of the cyclical nature of the shipping industry. Longstanding Customer Relationships. We currently have medium- to long-term time charters with, or contracts to carry cargo for, the MSC (14% of our fiscal year 2003 revenues) and a variety of high credit quality commercial customers that include International Paper Company (2% of our fiscal year 2003 revenues), P.T. Freeport Indonesia (6% of our fiscal year 2003 revenues), Toyota Motor Corporation (6% of our fiscal year 2003 revenues) and Hyundai Motor Company (6% of our fiscal year 2003 revenues). Most of these companies have been customers of ours for over ten years. Substantially all of our current cargo contracts and charter agreements are renewals or extensions of previous agreements. In recent years, we have been successful in winning extensions or renewals of substantially all of the contracts rebid by our commercial customers, and we have been operating vessels for the MSC for more than 30 years. We believe that our longstanding customer relationships are in part due to our excellent reputation for providing quality specialized maritime service in terms of on-time performance, low cargo loss, minimal damage claims and reasonable rates. Experienced Management Team. Our management team has substantial experience in the shipping industry. Our Chairman has served the company in various management capacities since its founding in 1947. In addition, our President, Executive Vice President, and Chief Financial Officer have over 92 years of collective experience with the company. We believe that the experience of our management team is important to maintaining long-term relationships with our customers. RECENT DEVELOPMENTS NEW TAX LEGISLATION Under current United States tax law, U.S. companies like us and their domestic subsidiaries generally are taxed on all income, whether derived in the United States or abroad. With respect to foreign subsidiaries in which we hold more than a 50 percent interest (referred to in the tax laws as controlled foreign corporations or "CFCs"), we are currently taxed on our pro rata share of foreign shipping income. The recently enacted American Jobs Creation Act of 2004 (the "Jobs Creation Act"), which becomes effective for our company on January 1, 2005, will change the United States tax treatment of our U.S. flag vessels in foreign operations and foreign flag shipping operations. We intend to make an election under the Jobs Creation Act to have most of our U.S. flag operations taxed under a new "tonnage tax" regime rather than under the usual U.S. corporate income tax regime. Once the election is effective, the only U.S. tax on the operation of those vessels will be based on their tonnage, rather than their contribution to our income or profits. Also under the Jobs Creation Act, the taxable income of our CFCs from foreign shipping operations will be deferred until repatriated. For further information regarding the Jobs Creation Act and its estimated effect on our results of operations, see the section of this prospectus entitled "Business -- New Tax Legislation." VESSEL PURCHASE AGREEMENT In November 2004, we entered into an agreement to purchase two used vessels for an aggregate purchase price of approximately $20.0 million. We took delivery of these vessels in early December 2004. These vessels will enable us to maintain two of our Maritime Security Program ("MSP") contracts. We drew on our new $50 million revolving credit facility (see "Description of Indebtedness") to purchase the vessels and intend to use a portion of the proceeds of this offering to repay the amounts drawn. See "Use of Proceeds." RAIL-FERRY SERVICE EXPANSION We also intend to use a portion of the proceeds of this offering to add a second cargo deck to each of the two vessels operating in our rail-ferry service between the U.S. Gulf and Mexico in order to essentially double their capacity. See "Use of Proceeds." We hope to conclude the necessary shipyard modification contracts shortly and expect the vessels to return to service in the second half of 2005. MARITIME SECURITY PROGRAM CONTRACTS In 2003, Congress authorized an extension of the MSP through 2015, increased the number of ships industry-wide eligible to participate in the program from 47 to 60, and increased MSP payments to companies in the program, all to be effective on October 1, 2005. Annual payments for each vessel in the new MSP program will be $2.6 million in years 2006 to 2008, $2.9 million in years 2009 to 2011, and $3.1 million in years 2012 to 2015. On October 15, 2004, Waterman and Central Gulf each filed applications to extend their MSP contracts for another 10 years (i.e., through September 30, 2015), all seven of which were effectively grandfathered in the MSP reauthorization. Simultaneously, we offered additional ships for participation in the MSP. The U.S. Maritime Administration ("MarAd") is expected to announce MSP contract awards on January 14, 2005, and we have no way of knowing at this time whether Waterman or Central Gulf will be awarded contracts for the additional ships. THE OFFERING The following is a brief summary of selected terms of this offering. For a more complete description of the terms of the preferred stock and the notes, see the sections of this prospectus entitled "Description of the Preferred Stock" and "Description of the Notes." Issuer........................ International Shipholding Corporation, a Delaware corporation. Securities Offered............ 800,000 shares of our % convertible exchangeable preferred stock, $1.00 par value per share (880,000 shares if the underwriter exercises its over-allotment option in full). Liquidation Preference........ In the event of our voluntary or involuntary dissolution, liquidation or winding up, holders of the preferred stock will be entitled to a liquidation preference of $50 per share of preferred stock, plus accrued and unpaid dividends, before any distribution of assets may be made to holders of our capital stock ranking junior to the preferred stock. Dividends..................... Dividends will be cumulative from the date of issuance at the annual rate of % of the liquidation preference of the preferred stock, payable quarterly on the day of , , , and , commencing , 2005. The payment of dividends is at the discretion of our board of directors and must come from funds that are legally available for dividend payments. Our board of directors is not required to declare these dividends, and holders of the preferred stock cannot force it to do so. Accrued and unpaid dividends on the preferred stock will not bear interest. For so long as the preferred stock remains outstanding, (1) we will not declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any junior stock or parity stock and (2) neither we, nor any of our subsidiaries, will, subject to certain exceptions, redeem, purchase or otherwise acquire for consideration junior stock or parity stock through a sinking fund or otherwise, in each case unless we have paid or set apart funds for the payment of all accrued and unpaid dividends with respect to the preferred stock and any parity stock for all preceding dividend periods. In addition, prior to December 31, 2007 and regardless of whether we have paid or set apart for payment all accrued and unpaid dividends with respect to the preferred stock and any parity stock for all preceding dividend periods, we will not (1) declare, pay or set apart for payment any dividend or other distribution with respect to any junior stock or (2) redeem, purchase or otherwise acquire any junior stock. See "Description of the Preferred Stock -- Dividends." Conversion Rights............. Unless we redeem or exchange the preferred stock, the preferred stock can be converted at your option at any time into shares of our common stock at an initial conversion price of $ (equivalent to a conversion rate of approximately shares of common stock for each share of preferred stock). The initial conversion price of the preferred stock is subject to adjustment upon the occurrence of certain events, including the payment of a cash dividend on our common stock that, when combined with all other cash dividends paid on our common stock in such calendar year, exceeds on a per-share basis the greater of $0.50 or 3% of the closing price of our common stock on the last trading day prior to the declaration date of such dividend. See "Description of the Preferred Stock -- Conversion." Optional Redemption........... We may redeem the preferred stock, in whole or in part, for cash at any time on or after , 2006 at the following redemption prices: - $ per share if the redemption date is on or after , 2006, provided that the closing price of our common stock has exceeded 150% of the conversion price of the preferred stock for at least 20 trading days during any 30-day trading period ending within five trading days prior to notice of redemption, - $ per share if the redemption date is on or after , 2007, and - $ per share if the redemption date is on or after , 2008, in each case together with accrued and unpaid dividends to, but not including, the date of redemption. See "Description of the Preferred Stock -- Optional Redemption." The preferred stock is not subject to any mandatory redemption (except upon a change in control) or sinking fund provision. Change in Control............. HOLDERS OF THE PREFERRED STOCK WILL NOT BE ENTITLED TO HAVE THE PREFERRED STOCK REDEEMED AT A PREMIUM PRICE IN THE EVENT OF A CHANGE IN CONTROL OF OUR COMPANY. Rather, in such event we may elect to redeem the preferred stock, in whole but not in part, for cash at the following redemption prices: - $ per share if the change in control occurs on or after , 2004 and prior to , 2005, - $ per share if the change in control occurs on or after , 2005 and prior to , 2006, - $ per share if the change in control occurs on or after , 2006 and prior to , 2007, - $ per share if the change in control occurs on or after , 2007 and prior to , 2008, and - $ per share if the change in control occurs on or after , 2008, in each case together with accrued and unpaid dividends to, but not including, the date of redemption. See "Description of the Preferred Stock -- Optional Redemption on Change in Control." In addition, upon a change in control of our company, a holder of the preferred stock may require us to redeem for cash any or all of such holder's shares of the preferred stock at the liquidation preference of the preferred stock, plus any accrued and unpaid cash dividends to, but not including, the date of redemption. See "Description of the Preferred Stock -- Required Redemption on Change in Control." Voting Rights................. Except as provided by Delaware law or our certificate of incorporation, which will include the certificate of designations for the preferred stock, holders of the preferred stock will not be entitled to any voting rights. However, holders of the preferred stock will be entitled to vote as a separate class with the holders of any of our other parity stock having like voting rights to elect two directors if we have not paid the equivalent of six or more quarterly dividends, whether or not consecutive, on the preferred stock or such other parity stock. These voting rights will continue until we pay the full accrued and unpaid dividends on the preferred stock and any of our other parity stock having like voting rights. See "Description of the Preferred Stock -- Voting Rights." The affirmative consent of holders of at least 66 2/3% of the preferred stock and any of our other parity stock having like voting rights, voting separately as a class, will be required for (1) the issuance of any class or series of stock (or security convertible into stock) ranking senior to the preferred stock or such other parity stock as to dividend rights or rights upon our liquidation, winding-up or dissolution, (2) amendments to our certificate of incorporation or by-laws that would materially and adversely affect the terms of the preferred stock or such other parity stock, and (3) certain mergers, consolidations, or share exchanges or the sale of all or substantially all or our assets, unless certain conditions are satisfied as more fully described in the section of this prospectus entitled "Description of the Preferred Stock -- Voting Rights." Ranking....................... The preferred stock will be, with respect to dividend rights and rights upon our liquidation, winding up or dissolution: - junior to all of our existing and future debt obligations; - junior to any class or series of capital stock that we may issue in the future other than our common stock and any capital stock the terms of which provide that such class or series will rank on a parity with or junior to the preferred stock; - on a parity with any class or series of capital stock that we may issue in the future, the terms of which provide that such class or series will rank on a parity with the preferred stock; - senior to our common stock and any other class or series of capital stock that we may issue in the future, the terms of which provide that such class or series will rank junior to the preferred stock; and - effectively junior to all of our subsidiaries' (1) existing and future liabilities and (2) capital stock held by others. Optional Exchange............. At our option, beginning on , 2005 and prior to , 2014, we may exchange the preferred stock in whole, but not in part, on any divided payment date, for our % convertible subordinated notes due 2014, provided (1) all accrued dividends on the preferred stock have been paid or set aside for payment, (2) the notes have been listed or approved for listing on the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, the American Stock Exchange or another similar national securities exchange or securities trading market, and (3) no event of default under the indenture governing the notes has occurred and is continuing or would occur upon the exchange of the preferred stock. If we elect to exchange the preferred stock for notes, the exchange rate will be $50 principal amount of the notes for each share of preferred stock. Convertible Subordinated Notes......................... The notes, if issued, will have the following terms: Denomination................ $50 per note. Interest Rate............... The notes will bear interest at % per year. Interest will be payable quarterly on , , and of each year, beginning on the first interest payment date after the exchange date. Maturity.................... The notes will mature on , 2014. Optional Redemption......... We may redeem the notes, in whole or in part, for cash at any time on or after , 2006 at the following redemption prices: - $ if the redemption date is on or after , 2006, provided that the closing price of our common stock has exceeded 150% of the conversion price of the notes for at least 20 trading days during any 30-day trading period ending within five trading days prior to notice of redemption, - $ if the redemption date is on or after , 2007, and - $ if the redemption date is on or after , 2008, in each case together with accrued and unpaid interest to, but not including, the date of redemption. See "Description of the Notes -- Optional Redemption." The notes are not subject to any mandatory redemption (except upon a change in control) or sinking fund provision. Change in Control........... HOLDERS OF THE NOTES WILL NOT BE ENTITLED TO HAVE THE NOTES REDEEMED AT A PREMIUM PRICE IN THE EVENT OF A CHANGE IN CONTROL OF OUR COMPANY. Rather, in such event we may elect to redeem the notes, in whole but not in part, for cash at the following redemption price: - $ if the change in control occurs on or after , 2004 and prior to , 2005, - $ if the change in control occurs on or after , 2005 and prior to , 2006, - $ if the change in control occurs on or after , 2006 and prior to , 2007, - $ if the change in control occurs on or after , 2007 and prior to , 2008, and - $ if the change in control occurs on or after , 2008, in each case together with accrued and unpaid interest to, but not including, the date of redemption. See "Description of the Notes -- Optional Redemption on Change in Control." In addition, upon a change in control of our company, a holder of the notes may require us to redeem for cash any or all of such holder's notes at a price equal to the aggregate principal amount of such notes, plus any accrued and unpaid interest to, but not including, the date of redemption. See "Description of the Notes -- Required Redemption on Change in Control." Conversion.................. The notes may be converted by the holder at any time prior to maturity into shares of our common stock at the same conversion price applicable to shares of the preferred stock. See "Description of the Preferred Stock -- Conversion." Ranking..................... The notes will be unsecured and subordinated and: - will be subordinate to all of our existing and future senior and unsecured debt; - will rank on a parity with any of our future subordinated debt; - will be subordinate to our secured debt to the extent of the value of the assets securing such debt; and - will be effectively subordinate to all liabilities and preferred stock, if any, of our subsidiaries. Restriction on Dividends.... Prior to December 31, 2007, we will not (1) declare, pay or set apart for payment any dividend or other distribution with respect to our common stock, or (2) redeem, purchase or otherwise acquire any of our common stock. See "Description of the Notes -- Restriction on Dividends." Voting Rights............... Holders of the notes will not be entitled to any voting rights. Use of Proceeds............... We estimate that we will receive net proceeds from this offering of approximately $37.9 million, after deducting the underwriting discount and the financial advisory fee payable to the underwriter and our estimated offering expenses. We intend to use a portion of the proceeds of this offering to repay the amounts drawn on our new $50 million revolving credit facility in early December 2004 to purchase two used vessels (see "Prospectus Summary -- Recent Developments -- Vessel Purchase Agreement"). We also intend to use a portion of the proceeds of this offering to add a second deck to each of the two vessels operating in our rail-ferry service (see "Prospectus Summary -- Recent Developments -- Rail-Ferry Service Expansion"). We will use any remaining proceeds of this offering and the proceeds from any exercise of the underwriter's over-allotment option to acquire additional new or used vessels, to satisfy our working capital requirements or for general corporate purposes. See "Use of Proceeds."
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+highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in the notes or the common stock issuable upon conversion of the notes. You should read this entire prospectus carefully, including the Risk Factors section and the consolidated financial statements and the notes to those statements, before making an investment decision. The Company We are a telecommunications company, providing telephony and related services in Pennsylvania markets as a rural local exchange carrier, or RLEC. We also operate as a competitive local exchange carrier, or CLEC, in three regional Pennsylvania markets that border our RLEC markets, which we refer to as our edge-out markets. In late 2002, we extended our RLEC edge-out business operations into select areas of Pennsylvania s Lehigh Valley. We view this opportunity as an extension of our current Central Pennsylvania market (Lancaster/Reading/York), rather than the establishment of a fourth regional market. We also own and operate other telecommunications-related support businesses which all operate in the deregulated segments of the telecommunications industry and support the operations of our two primary operations. Our principal executive offices are located at 100 CTE Drive, Dallas, Pennsylvania 18612-9774, and our telephone number is 570-631-2700. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents The Notes Notes Offered $300,000,000 principal amount of 3 1/4% Convertible Notes due 2023. Maturity Date July 15, 2023, unless earlier redeemed, repurchased or converted. Interest 3 1/4% per annum on the principal amount, payable semi-annually in arrears in cash on January 15 and July 15 of each year, beginning January 15, 2004. Contingent Interest In addition, we will pay contingent interest for any six-month period from January 15 to July 14 and from July 15 to January 14, with the initial six month period commencing July 15, 2008, if the trading price of the notes for each of the five trading days immediately preceding the first day of the applicable six-month period equals 120% or more of the principal amount of the notes. During any interest period when contingent interest shall be payable, the contingent interest payable per note will equal 0.25% of the average trading price of a note during the five trading days immediately preceding the first day of the applicable six-month interest period. Conversion Holders may convert their notes into shares of our common stock at an initial conversion rate of 17.5439 shares per $1,000 principal amount of notes (representing an initial conversion price of approximately $57.00), subject to adjustment, prior to the close of business on the final maturity date under any of the following circumstances: during any fiscal quarter (but only during such fiscal quarter) commencing after September 30, 2003, if the closing sale price of our common stock exceeds 120% of the then-effective conversion price for at least 20 trading days in the 30 consecutive trading-day period ending on the last trading day of the preceding fiscal quarter; or during the five business-day period after any five consecutive trading-day period in which the trading price per note for each day of such period was less than 98% of the product of the closing sale price of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the notes; or if the notes have been called for redemption; or upon the occurrence of specified corporate events described under Description of Notes Conversion of Notes Conversion Upon Specified Corporate Transactions. AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents Sinking Fund None. Redemption We may redeem any of the notes beginning July 18, 2008, by giving holders at least 30 days notice. We may redeem the notes either in whole or in part at a cash redemption price of 100% of their principal amount, plus accrued and unpaid interest, including contingent interest, if any, and additional interest, if any, to, but excluding, the redemption date. See Description of Notes Optional Redemption by Us. Repurchase at the Option of the Holder upon a Designated Event If a designated event (as described under Description of Notes Repurchase at Option of the Holder Upon a Designated Event ) occurs prior to maturity, holders may require us to repurchase all or part of their notes at a cash repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, including contingent interest, if any, and additional interest, if any, to, but excluding, the repurchase date. Repurchase at the Option of the Holder Holders may require us to repurchase all or part of their notes on July 15 of 2008, 2013 and 2018 at a cash repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, including contingent interest, if any, and additional interest, if any, to, but excluding, the repurchase date. See Description of Notes Repurchase at Option of the Holder. Use of Proceeds We will not receive any of the proceeds upon the resale of the notes or the common stock by any selling securityholders. Registration Rights We have filed a registration statement, of which this prospectus is a part, pursuant to a registration rights agreement with the initial purchasers of the notes. We have also agreed to use our reasonable best efforts to have the registration statement declared effective by April 13, 2004 and to use our reasonable best efforts to keep the shelf registration statement effective until either of the following has occurred: all securities covered by the registration statement have been sold pursuant to this shelf registration statement or pursuant to Rule 144 under the Securities Act or any similar provision then in force; or the expiration of the applicable holding period with respect to the notes and the underlying common stock under Rule 144(k) under the Securities Act, or any successor provision. Commonwealth Telephone Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter) Pennsylvania 4813 23-2093008 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 100 CTE Drive Dallas, Pennsylvania 18612-9774 (570) 631-2700 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents U.S. Federal Income Taxation Under the indenture governing the notes, we have agreed, and by acceptance of a beneficial interest in a note each holder of a note will be deemed to have agreed, to treat the notes as indebtedness for United States federal income tax purposes that is subject to the Treasury regulations governing contingent payment debt instruments and to be bound by our application of these regulations to the notes, including our determination of the comparable yield and projected payment schedule. For United States federal income tax purposes, interest income on the notes will accrue at the rate of 8.00% per year, compounded semi-annually, which represents the yield on our nonconvertible fixed rate debt instruments with no contingent payments, but with terms and conditions otherwise similar to the notes. A United States Holder (as defined) will be required to accrue interest income on a constant yield to maturity basis at this rate (subject to certain adjustments), with the result that a United States Holder generally will recognize taxable income significantly in excess of regular interest payments received while the notes are outstanding. A United States Holder will also recognize gain or loss on the sale, conversion, exchange or retirement of a note in an amount equal to the difference between the amount realized on the sale, conversion, exchange or retirement of a note, including the fair market value of our common stock received upon conversion, and the United States Holder s adjusted tax basis in the note. Any gain recognized on the sale, conversion, exchange or retirement of a note generally will be ordinary interest income; any loss will be ordinary loss to the extent of the interest previously included in income, and thereafter, capital loss. See Material United States Federal Income Tax Considerations. Nasdaq National Market Symbol CTCO.
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+PROSPECTUS SUMMARY The following summary highlights information we present more fully elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors described under the heading Risk Factors and elsewhere in this prospectus. HARKEN ENERGY CORPORATION Our company explores for, develops and produces oil and gas both domestically and internationally. Our domestic operations are primarily located in the onshore and offshore Gulf Coast regions of South Texas and Louisiana. Our international operations are concentrated in Colombia, Peru and Panama. Our company was incorporated in 1973 in the State of California and reincorporated in 1979 in the State of Delaware. Our principal offices are located at 580 WestLake Park Boulevard, Suite 600, Houston Texas 77079, and our telephone number is (281) 504-4000. Unless the context otherwise requires, references to Harken, we, us, our or the Company refer to Harken Energy Corporation and its subsidiaries. THE OFFERING Common stock offered by the selling stockholders 22,715,000 shares Common stock to be outstanding after the offering 208,267,460 shares(1) Use of proceeds We will not receive any proceeds from the sale of the shares of common stock offered by this prospectus. American Stock Exchange Symbol HEC (1) The number of shares of our common stock that are to be outstanding after this offering is based on the number of shares outstanding on January 20, 2004, after giving effect to the conversion of the G-3 Convertible Preferred Shares and the 4.25% European Notes for all of the shares included in the registration statement of which this prospectus forms a part. RECENT DEVELOPMENTS Disposition of Certain Texas Assets On December 15, 2003, we announced that we sold the majority of our oil and gas properties in the Panhandle region of Texas, including West Texas. The purchasers agreed to pay approximately $7.0 million, subject to certain adjustments, for these assets. We consider these assets to be non-core assets as the majority of our domestic reserves and production are located along the Gulf Coast regions of Texas and Louisiana. Our Gulf Coast assets are primarily natural gas. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents We repaid all of our outstanding debt under our revolving bank facility, which was approximately $4.0 million, with a portion of the proceeds from the sale of the Panhandle and West Texas assets, and we terminated that facility. Gulf Coast Activities On January 27, 2004, we provided an update on the operations of our oil and gas assets located in the onshore and offshore Gulf coast regions of Texas and Louisiana. Lapeyrouse Field, Terrebonne Parish, Louisiana: The Thomas Cenac #1, initially drilled in 2001, was placed on compression in the fourth quarter of 2003 and is now in production. We hold a working interest of approximately 28% in this producing well. During the fourth quarter of 2003, two exploitation wells were drilled in the Lapeyrouse field. The AM Dupont #2 was successfully drilled and completed, and is now in production. The JC Dupont #2 well was also drilled and is currently undergoing completion. We hold a working interest of approximately 10% in each of these wells. Raymondville Field, Willacy and Kenedy Counties, Texas: During the fourth quarter of 2003, our development well, the Yturria #3-26 was drilled to a depth of approximately 10,740 feet. The Yturria #3-26 well began production in January 2004. We hold a working interest of approximately 27% in this new well. Lake Raccourci Field, Lafourche Parish, Louisiana The State Lease 1480 #2 was successfully recompleted this month and is now in production. We have an average working interest of approximately 40% in this well. Increased Capital Expenditure Budget On January 30, 2004, we announced that our board of directors approved an $18 million capital expenditure budget for 2004, a $10 million increase as compared to 2003. Approximately $9 million of the capital expenditure budget focuses on the onshore and offshore Gulf Coast regions of Texas and Louisiana. The majority of the budgeted capital will be used to drill five to seven exploratory and development wells in the Lake Raccourci and Lapeyrouse fields in Southern Louisiana. We currently hold an average working interest in the Lake Raccourci producing wells of approximately 40% and hold an average working interest of approximately 28% in the Lapeyrouse producing wells. Our Middle America operations are conducted through our ownership in Global Energy Development plc which is budgeted to spend approximately $9 million in 2004 for the development of the Alcaravan Contract area in Colombia, South America. Global expects to drill approximately three development wells in the Palo Blanco field under the Alcaravan Contract area. FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read the following summary together with the more detailed information regarding us and our common stock being sold in this offering, including our financial statements and the related notes, appearing elsewhere in this prospectus. Except as otherwise indicated by the context, in this prospectus Empi, we, us, and our refer to Empi, Inc. and its subsidiaries, taken as a whole. Empi, Inc. Our Business We are a leading medical device company focused on products used for pain management, orthopedic rehabilitation and physical therapy. We develop, manufacture, market and distribute a diverse range of non-invasive medical devices and related accessories that are primarily used by patients for at-home therapy. We also provide physical therapy equipment and supplies to physicians, physical therapists and other healthcare professionals for use in their clinics. For the year ended December 31, 2003, our net revenues were $150.5 million and our net earnings were $13.3 million, which reflects $5.4 million of recapitalization expenses incurred during the period. For the six months ended June 30, 2004, our net revenues were $79.7 million and our net earnings were $8.4 million. Our products are designed to provide non-invasive, lower-cost treatment alternatives to surgery and traditional methods of physical therapy and pain management. We are a leading provider of electrotherapy devices and accessories, including transcutaneous electrical nerve stimulation, or TENS, devices, which are used to treat chronic and post-surgical acute pain, and neuromuscular electrical stimulation, or NMES, devices, which are used to restore and maintain muscle function. We are also a leading provider of iontophoretic devices and accessories. Iontophoretic devices are non-invasive, needle-free, transdermal drug delivery systems that deliver anti-inflammatory medication and anesthesia. We are also a provider of continuous passive motion, or CPM, devices, which are used to reduce swelling, increase joint range-of-motion and reduce the incidence of complications after surgery or trauma. Our orthotics devices support, protect and rehabilitate joints with impaired range-of-motion and provide pain relief for certain spine conditions. We estimate that we have the number one market share in the U.S. TENS and iontophoresis markets. We also believe we have a leading market position in both the U.S. orthotics and NMES markets. In 2003, approximately 75% of our net revenues were generated by products that we believe hold one of the top three positions in their respective markets. We market, sell and distribute our products in the United States and Germany through our approximately 150-person direct sales force. In the United States, our approximately 125-person direct sales force calls primarily on physical therapists as well as physicians, clinics and hospitals. Our U.S. sales force has relationships with approximately 12,000 physical therapy clinics nationwide. In addition, we maintain a five-person dedicated national accounts group in the United States that focuses on developing relationships with managed care and national rehabilitation providers. We believe that our U.S. sales force represents the largest direct distribution network for physical rehabilitation products in the country. In Germany, our approximately 25-person direct sales force focuses primarily on educating physicians regarding the benefits of our products. In addition to our direct sales force, we have approximately 130 internal sales representatives that provide sales support in both the United States and Germany. Our internal sales representatives assist patients in filing insurance claims, following prescribed therapies and purchasing supplies and accessories for our products. We believe that providing this extensive follow-on patient support helps to develop strong relationships with our patients and their treatment providers thus leading to increased use of our products. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Physical Therapy Products Market According to management estimates based on available industry data, the physical therapy products market generated sales of approximately $1.6 billion in 2002 and is expected to grow approximately 7% per year through 2007. This market is comprised of orthopedic soft goods, pain management and electrotherapy devices, rehabilitation equipment and clinical products and supplies. This market is highly fragmented and characterized by competition among several multi-product companies with significant market share and numerous smaller niche competitors. We believe that we are the only company in the physical therapy products market that competes in each of the electrotherapy, iontophoresis, orthotics and continuous passive motion product categories. We believe that growth in the markets we target is driven by: a shift toward at-home therapy; the increasing awareness and use of non-invasive devices for treatment and rehabilitation; cost-containment initiatives by third-party payors; a growing emphasis on physical fitness and leisure sports, which has led to increased injuries; and a growing elderly population with broad medical coverage and longer life expectancy. Competitive Strengths We attribute our historic success to the following competitive strengths: Leading provider of physical rehabilitation products with a broad product offering. We are a leading provider of TENS, NMES, iontophoretic devices and orthotic devices dispensed or purchased by physical therapy clinics. We also offer a broad variety of complementary products to satisfy the various needs of our physical therapy clinic customers. We believe these characteristics make us an attractive provider of non-invasive medical devices and physical therapy products and accessories for physical therapy clinics. Strong brand recognition and reputation for quality. We have been marketing physical therapy products for over 27 years. We believe that our products have widely recognized brand names and enjoy a reputation for quality, durability and reliability among healthcare professionals. Successful track record of new product introductions. We have a history of new product development and innovation. Since 1997, we have introduced 15 new products and expect to introduce several new products in 2004 and 2005. Most recently, in early 2004, we launched our ActionPatch self-contained, portable iontophoretic device. Leading direct distribution network. We believe that our direct distribution network is the largest in our industry and provides us with a significant competitive advantage with respect to sales of our existing products and the introduction of new products. By using a direct sales force rather than third-party distributors, as most of our competitors do, we are able to establish direct relationships with healthcare providers, which allow us to effectively cross-sell and increase awareness of our products. Strong relationships with managed care organizations and national rehabilitation providers. Our leading market position in our core product lines and the breadth of our product offering have enabled us to secure important preferred provider and managed care contracts. We currently have approximately 600 contracts with leading managed care providers, including over 40 preferred provider arrangements with regional and national operators of physical therapy clinics. Proprietary third-party billing system. We have developed a proprietary third-party billing system that automatically tracks patients and inventory and manages payor profiles. This system has enabled us to bill payors more quickly, thereby improving our third-party reimbursement collection cycles. AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Our principal executive offices are located at 599 Cardigan Road, St. Paul, MN 55126. Our telephone number is (651) 415-9000, and our web site address is www.empi.com. The information contained or incorporated in our web site is not a part of this prospectus. EMPI, INC. (Exact name of registrant as specified in its charter) Table of Contents The Offering Common stock offered by us 1,666,667 shares Common stock offered by the selling shareholders 6,733,333 shares Common stock to be outstanding after this offering 18,399,158 shares Use of proceeds from this offering We intend to use the $20.6 million of net proceeds that we expect to receive from this offering to repay outstanding indebtedness under our term loan facility. We will not receive any proceeds from the sale of common stock by the selling shareholders. Proposed New York Stock Exchange symbol EMP The number of shares of our common stock that will be outstanding after this offering is based on 16,581,837 shares outstanding as of July 30, 2004 and excludes: 2,304,503 shares of our common stock issuable upon the exercise of stock options outstanding as of July 30, 2004, 1,425,351 of which options were then exercisable; approximately 348,000 shares of our common stock issuable upon the exercise of stock options that we expect to grant in connection with this offering at an exercise price equal to the offering price, none of which will then be exercisable; and 1,045,163 shares of our common stock reserved for future grants under our existing stock option plans. Unless we indicate otherwise, all information in this prospectus: assumes no exercise of the underwriters over-allotment option; assumes the exercise by certain of the selling shareholders of options to purchase 150,654 shares of our common stock immediately prior to the consummation of this offering as we have firm commitments for the exercise of such options; assumes an initial public offering price of $15.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus; and gives effect to a 2.6783 for one stock split of our common stock, in the form of a stock dividend, that will occur immediately prior to the closing of this offering. Minnesota 3845 41-1310335 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Number) (IRS Employer Identification No.) 599 Cardigan Road St. Paul, MN 55126 (651) 415-9000 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents Summary Consolidated Financial Data The following table sets forth our summary historical consolidated and as adjusted financial data for the periods indicated. We derived the summary consolidated financial data presented below for each of the three years ended December 31, 2003, 2002, and 2001 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our consolidated statement of income data presented below for the years ended December 31, 2003 and 2002, and our balance sheet data as of December 31, 2003, from our consolidated financial statements, which were audited by Ernst & Young LLP, our independent auditors. We derived our consolidated statement of income data presented below for the year ended December 31, 2001 from our consolidated financial statements, which were audited by Arthur Andersen LLP, our independent auditors during that year. We derived the summary financial data as of and for the six months ended June 30, 2004 and 2003 from our unaudited consolidated interim financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated interim financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial information shown in these statements. The as adjusted balance sheet data as of June 30, 2004 presented below give effect to the completion of this offering and the application of the $20.6 million of net proceeds from this offering to repay indebtedness under our senior secured credit facility as if each had occurred as of June 30, 2004. The as adjusted summary financial data are not necessarily indicative of what our financial position or results of operations would have been if this offering had been completed as of the date indicated, nor are such data necessarily indicative of our financial position or results of operations for any future date or period. Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with Selected Consolidated Financial Data, Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this prospectus. H. Philip Vierling President and Chief Executive Officer Empi, Inc. 599 Cardigan Road St. Paul, MN 55126 (651) 415-9000 (Name, address, including zip code, and telephone number, including area code, of agent for service) (in thousands) Balance Sheet Data: Cash and cash equivalents $ 10,417 $ 11,928 Total assets 113,686 115,197 Long-term debt, including current portion (6) 160,647 140,097 Shareholders deficit (68,434 ) (46,373 ) Copies to: David M. McPherson, Esq. Latham & Watkins LLP 555 Eleventh Street, N.W. Washington, D.C. 20004 (202) 637-2200 Kenneth B. Wallach, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017 (212) 455-2000 (1) Represents $5.1 million in bonuses paid to management and $0.3 million in other expenses incurred in connection with the November 2003 recapitalization. (2) In 2003, other expenses included a $1.0 million write-off of deferred financing costs related to our previous credit facility, $1.2 million of fees paid to our shareholders in connection with the recapitalization and $0.6 million of management fees. These expenses were offset by $0.6 million of other income from Empi Europe. In 2002, other expenses consisted primarily of a $0.6 million management fee and $0.2 million of bank charges. (3) Pro forma net earnings per share is calculated by including in the weighted average share calculation 2,982,018 shares, which represents the number of shares, when multiplied by an offering price of $15.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, is equal to the excess of the 2003 dividends over 2003 net earnings. (4) Pro forma as adjusted net earnings per share is calculated by increasing reported net income by the reduction in interest expense incurred for the year ended December 31, 2003 and for the six months ended June 30, 2004 on the portion of the senior secured credit facility to be repaid with proceeds from this offering, and including in the weighted average shares outstanding calculation the shares expected to be sold in this offering. (5) Adjusted to reflect the sale of 1,666,667 shares of common stock by us at an offering price of $15.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus, as if such sale had occurred on June 30, 2004 and the utilization of the proceeds received by us in this offering to repay debt, the receipt of $0.5 million in proceeds from the exercise of options to purchase 150,654 shares of our common stock immediately prior to the consummation of this offering and the receipt of $1.0 million from the repayment of loans owed to us by certain of our executive officers who are selling shareholders. We have firm commitments for the exercise of such options and for the repayment of such loans. (6) Long-term debt excludes minority interest. Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. This prospectus contains forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, and actual results could differ materially. ZiLOG, Inc. We are a global supplier of 8-bit micrologic semiconductor devices, which are also referred to as embedded control devices. We design, develop, manufacture and market a broad portfolio of these devices for embedded control and communication applications used in our target markets: consumer electronics, home appliances, security systems, point of sale terminals, personal computer peripherals, personal health and medical products as well as industrial and automotive applications. We introduced our first micrologic device in the mid-1970 s and have since established a globally recognized brand. Our micrologic devices typically combine a microprocessor, memory, and peripheral functions on a single device. By embedding their application software on our devices, customers can control a wide variety of products such as consumer appliances, infrared remote controls, security systems and fitness systems. We sell our devices, either directly or through distributors, to a diverse customer base of original equipment manufacturers, or OEMs, in our target end markets. These OEMs include Echostar (Dish Satellite TV brand), Emerson, Hypercom, Philips, Samsung, Thomson Consumer Electronics (GE and RCA brands) and Tyco. We have recently introduced our Z8 Encore! and our eZ80 Acclaim! next-generation flash-based micrologic device families. Flash-based microcontrollers have been identified by Semico Research as the fastest growing segment of the 8-bit market. The eZ80 Acclaim! won the Electron D Or award for Processor of the Year in 2003 from Electronique Magazine. Our Industry We compete in the micrologic device segment, sometimes called the embedded control segment, of the semiconductor industry. This segment is projected by Semico Research Corporation to grow from $9.4 billion in 2002 to $22.6 billion in 2007, a compound annual growth rate, or CAGR, of 19.3%. Our devices are specifically focused on the 8-bit segment of the micrologic device segment, which is predicted to grow from $4.0 billion in 2002 to $5.7 billion in 2007, a CAGR of 7.5%. According to Semico Research, 8-bit flash-based microcontrollers are expected to grow from $1.4 billion in 2002 to $3.7 billion in 2007, a CAGR of 21.5%. (References are from Semico Research Corporation Market Data Update dated June 2003.) Microcontrollers are generally segmented by word length, which is measured in bits ranging from 4-bit through 32-bit architectures. According to Semico Research, 8-bit microcontrollers are used broadly in as many as 200 market categories for both specific and general purpose applications. These devices are generally perceived as the most cost-effective embedded solution for high volume requirements, typically selling for approximately $1.50 per device. Our Products We have four families of microprocessors. The Z8 and Z80 are our legacy microprocessor architectures, and the Z8 Encore! and eZ80 Acclaim! are our next-generation microprocessor architectures. In most of our micrologic devices, a microprocessor is joined with read-only memory, known as ROM, one-time programmable memory, known as OTP, or flash memory to make our microcontroller devices. We also sell the stand-alone general purpose Z80 microprocessor, which does not include integrated memory. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents We also offer our customers the ability to integrate functions (such as network connectivity, timers, serial communication, analog/digital conversion, infrared data transmission and display drivers) on our micrologic devices. These additional functions enhance the capabilities of the customer s end product, which can lower the overall systems costs for our customers. We manufacture other semiconductor devices such as serial communication controllers, on-screen television display controllers, violence blocking microcontrollers, modems and infrared data association transceivers, which we call IrDA. We refer to these semiconductor devices as other devices. We also provide wafer fabrication foundry services for third-party semiconductor companies. Our Competitive Strengths Our business is built on several key strengths, including: Globally Recognized Brand Name We have been providing versatile, highly customizable design solutions since launching our first micrologic device in the 1970 s. Extensive and Easily Customizable Product Portfolio Our flexible core architecture allows electronic manufacturers to differentiate their products, add product functionality and reduce product costs. Established Customer Base Our customer base includes large OEMs in a multitude of end markets. We sell to these OEMs either directly or through distributors. Our Strategy Our objective is to be a leading provider of micrologic devices. To implement our business strategy, we plan to: Focus on Our Core 8-bit Micrologic Business Expand Our Addressable Portion of the 8-bit Market Introduce Devices Targeted at Key Vertical Markets Deliver Complete Solutions to Our Customers Utilize Efficient Manufacturing Recent Developments We held a special meeting of stockholders on February 12, 2004, to vote upon and approve certain proposals, some of which facilitate our plan to list our common stock on the Nasdaq National Market. We plan to list on the Nasdaq National Market in order to, among other things, increase the liquidity of our common stock. We are currently working with Nasdaq regarding our listing application which was filed on December 23, 2003. We will not complete this offering until our common stock has qualified for listing. Our stockholders approved and we effected proposals to increase the authorized size of our Board of Directors, eliminate certain restrictions relating to membership of our Board of Directors and our Nominating Committee, adopt our 2004 Omnibus Stock Incentive Plan and a related amendment to our Amended and Restated Certificate of Incorporation, adopt our 2004 Employee Stock Purchase Plan, approve an amendment to our Amended and Restated Certificate of Incorporation effecting a one-for-two reverse stock split and increase the number of shares of common stock authorized under our Amended and Restated Certificate of Incorporation. Share amounts in this prospectus reflect the one-for-two reverse split of our outstanding common stock that was approved by our Board of Directors on February 18, 2004 and that will be effected on March 1, 2004. Corporate Information We were incorporated in California in 1981 and reincorporated in Delaware in 1997. Our principal executive offices are located at 532 Race Street, San Jose, California 95126, and our telephone number is (408) 558-8500. Our Internet address is www.zilog.com. The information on our website is not a part of this prospectus. Amendment No. 2 Form S-1/A REGISTRATION STATEMENT Under the Securities Act of 1933 Table of Contents The Offering Common Stock we are offering 2,000,000 shares Common Stock offered by selling stockholders 2,000,000 shares Common Stock to be outstanding after the offering 16,546,296 shares Use of proceeds We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, research and development, sales and marketing efforts and the repayment of outstanding indebtedness. We will not receive any proceeds from the sale of common stock by the selling stockholders. Trading The common stock is not listed for trading on any national exchange or for quotation on Nasdaq, but currently trades on the Over-the-Counter Bulletin Board under the symbol ZILG . We have applied for listing of our common stock on the Nasdaq National Market under the symbol ZILG. Dividend Policy We do not intend to pay dividends on our common stock in the foreseeable future. The number of shares outstanding is 14,546,296 as of December 31, 2003. Included in the 14,546,296 shares of common stock issued and outstanding are 599,732 restricted shares of common stock granted under the 2002 Omnibus Stock Incentive Plan. These shares of restricted stock are subject to, among other things, a vesting schedule, repurchase rights if the holders cease to be employed by the Company and the Company s right of first refusal. As of December 31, 2003, a total of 365,128 of these shares had vested, with approximately one-half of the remaining 234,604 shares to vest on each of May 15, 2004 and May 15, 2005. We generally have the right to repurchase until the earliest to occur of (1) the consummation of this offering, (2) a change in control and (3) May 15, 2005 under the following conditions: vested restricted shares of common stock, for the greater of their fair market value or the outstanding loan amount due to the Company with respect to the tax originally attributable to such shares; and unvested shares on termination of employment without cause for the greater of $0.02 per share and the outstanding loan amount due to the Company with respect to the tax originally attributable to such shares. Additionally, upon termination of employment without cause, any outstanding loan amount that relates to such unvested shares is automatically forgiven. The number of shares of common stock indicated as issued and outstanding excludes: 1,226,490 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2003, of which 465,217 option shares were vested and are exercisable as of that date. The weighted average exercise price of all outstanding options was $5.48 as of December 31, 2003. 176,464 shares of common stock to be granted to Mr. Thorburn pursuant to his employment agreement, of which 88,232 shares are to be granted on each of May 13, 2004 and May 13, 2005. These shares will not carry vesting restrictions when issued. 1,500,000 shares of common stock reserved for issuance under the 2004 Omnibus Stock Incentive Plan. 1,250,000 shares of common stock reserved for issuance under the 2004 Employee Stock Purchase Plan. Table of Contents Summary Historical Consolidated Financial Data The following table provides summary consolidated financial data for the periods indicated. You should read the summary financial data set forth below in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations and with the consolidated financial statements and the related notes appearing elsewhere in this prospectus. Amounts under the column Combined, Year Ended Dec. 31, 2002 are presented for convenience of annual comparison and are not presented in accordance with generally accepted accounting principles. All amounts in the tables below are presented in millions except per share amounts. We filed a pre-packaged Chapter 11 reorganization plan with the United States Bankruptcy Court for the Northern District of California on February 28, 2002. The bankruptcy court confirmed the plan on April 30, 2002, and the plan became effective on May 13, 2002. As a result of the bankruptcy court s confirmation of our reorganization plan, we adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, or SOP 90-7, effective May 1, 2002. Under fresh-start reporting our reorganization value has been allocated to our assets and liabilities on a basis which is substantially consistent with the purchase method of accounting. Our financial statements for periods subsequent to our adoption of fresh-start reporting are not comparable with those prepared before our plan was confirmed because they are, in effect, those of a new entity. Pursuant to our reorganization plan, we extinguished $325.7 million of liabilities, which included the $280.0 million principal amount of our former 9 % Senior Secured Notes due 2005, $27.2 million in accrued interest due on the senior notes and $18.5 million of dividends payable on our former series A preferred stock. We refer to the Company after the adoption of fresh-start reporting on May 1, 2002 throughout this prospectus as the Successor Company. We refer to the Company before May 1, 2002 as the Predecessor Company. We have included in-process research and development and goodwill amortization within research and development and special charges and reorganization items, respectively, of the Predecessor Company, whereas these items are each separately reported in the Successor Company s consolidated statement of operations. A black line has been drawn between the accompanying financial statements to distinguish for accounting purposes between the Successor Company and the Predecessor Company. 532 Race Street San Jose, California 95126 (408) 558-8500 (Address, Including Zip Code, and Telephone Number Including Area Code, of Registrant s Principal Executive Offices) (1) Special charges and reorganization items consist of asset impairments, restructuring charges and debt restructuring fees in 2003, 2002 and 2001; asset impairments, restructuring charges and purchased in-process R&D charge in 2000; asset impairments and purchased in-process R&D charge in 1999. See Note 7 of Notes to Consolidated Financial Statements. (2) Excludes contractual interest of $4.2 million in the four months ended April 30, 2002, which was not recorded during the reorganization. (3) Loss per share for the Predecessor Company is not presented because the common stock was not traded on an established trading market. James M. Thorburn Chairman and Chief Executive Officer ZiLOG, Inc. 532 Race Street San Jose, California 95126 (408) 558-8500 (Name, Address, Including Zip Code, and Telephone Number Including Area Code, of Agent for Service) (1) The pro forma column in the consolidated balance sheet data gives effect to the sale by us of 2,000,000 shares of common stock at an assumed public offering price of $14.32 per share after deducting underwriting discounts and commissions and estimated offering expenses payable by us and as further adjusted for the repayment of $5.0 million of indebtedness outstanding under our senior credit facility. (2) ZiLOG-MOD III, Inc. is a subsidiary of ZiLOG which we call MOD III, Inc. Holders of MOD III, Inc. series A preferred stock are entitled to receive an aggregate liquidation preference of $30 million plus any accrued but unpaid dividends on the MOD III, Inc. series A preferred stock from the net proceeds from the sale of one of our wafer fabrication plants located in Nampa, Idaho. We transferred this plant to MOD III, Inc. upon effectiveness of our reorganization plan. Dividends accrue on the MOD III, Inc. series A preferred stock at 9 1/2% per annum and increase the liquidation preference accordingly. Holders of the MOD III, Inc. series B preferred stock are entitled to receive the net sale proceeds from any sale of MOD III, Inc. s assets in excess of the series A preferred stock liquidation preference. ZiLOG, Inc. holds 50% of the outstanding shares of series B preferred stock and 100% of the outstanding shares of common stock. Copies to: Thomas J. Ivey SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 525 University Avenue, Suite 1100 Palo Alto, California 94301 (650) 470-4500 Glen R. Van Ligten Laurel H. Finch HELLER EHRMAN WHITE & MCAULIFFE LLP 2775 Sand Hill Road Menlo Park, CA 94025 (650) 854-4488 Table of Contents
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+PROSPECTUS SUMMARY 1
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+This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our securities. You should carefully read the entire prospectus, including the risk factors and the financial statements. The Company Incorporated in Delaware in 1974, Computer Associates is one of the world's largest providers of management software. We commenced operations in 1976 and completed an initial public offering of common stock in December 1981. We design, market, and license computer software products that allow businesses to efficiently run, manage, and automate critical aspects of their IT operations. Our common stock is traded on the New York Stock Exchange under the symbol "CA." We have a broad portfolio of software products that are designed to operate with all major business computer hardware platforms, operating systems, and products marketed by other hardware and software companies. Our software products include those that we have sold for many years, as well as newer products designed to address our customers' evolving business needs. Where appropriate, our products are specifically designed to work well with our other software products. Because the time, effort, and cost to make different software products work together is high, customers place greater value on software products that work well with one another. We have a large and broad base of customers and estimate that 95% of the Fortune 500 companies currently use our products. When customers enter into a software license agreement with us, they often pay for the right to use our software for a specified period of time. Upon the expiration of the term of the agreement, the customer often must either renew the license agreement or pay usage/maintenance fees, if applicable, for the right to continue to use our software and receive support. We experience contract renewal rates of approximately 80%. We believe that the existing relationships with our customers provide us the opportunity to cross-sell new software products to them. We are considered an Independent Software Vendor (ISV). ISVs develop and license software products that can increase the efficiency of computer hardware platforms or operating systems sold by other vendors. Companies that make the computer hardware and operating systems including Microsoft, IBM, Hewlett-Packard (HP) and Sun Microsystems often encourage and support ISVs. In some cases, these companies sell software that compete with our products. Our Principal Executive Offices We are a corporation organized and existing under the laws of the State of Delaware. Our principal executive office is located at One Computer Associates Plaza, Islandia, New York 11749, and our telephone number is (631) 342-6000. LOSS FROM CONTINUING OPERATIONS (36 ) (270 ) (1,096 ) Income (loss) from discontinued operation, inclusive of realized gain on sale in 2004 of $60, net of income taxes 61 Balance as of March 31, 2002 63 3,878 2,335 (361 ) (1,298 ) 4,617 Net loss (267 ) (267 ) Translation adjustment in 2003 143 143 Reclassification adjustment included in net loss 3 Pre-tax income (loss) from discontinued operation $ 1 $ 5 $ (10 ) Income (loss) from discontinued operation, net of taxes $ 1 $ POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 COMPUTER ASSOCIATES INTERNATIONAL, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware (State or other Jurisdiction of Incorporation or Organization) 13-2857434 (I.R.S. Employer Identification Number) One Computer Associates Plaza Islandia, New York 11749 (631) 342-6000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Jay H. Diamond, Esq. Vice President and Assistant General Counsel One Computer Associates Plaza Islandia, New York 11749 (631) 342-6000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) The Notes Interest We will pay interest on the principal amount of the notes on December 15 and June 15 of each year, commencing on June 15, 2003. Conversion You may convert all or some of the notes at any time prior to the close of business on the business day immediately preceding December 15, 2009 at an initial conversion price of $20.04 per share. The initial conversion price is equivalent to a conversion rate of 49.9002 shares per $1,000 principal amount of notes. Upon a conversion, we may choose to deliver, in lieu of shares of our common stock, cash or a combination of cash and shares of our common stock. The conversion price is subject to adjustment. Upon conversion, you will not receive any cash representing accrued interest. For more information, see "Description of the Notes Conversion of Notes." Conversion in full of the notes will not materially dilute existing shareholders. See "Description of the Notes Potential Dilution Upon Conversion of the Notes." Ranking The notes are senior unsecured indebtedness and rank equally with all of our existing and future senior unsecured indebtedness. The notes are effectively subordinated to all of our future secured indebtedness to the extent of the assets securing that indebtedness and to any indebtedness of our subsidiaries to the extent of the assets of those subsidiaries. As of March 31, 2004, we had approximately $2.3 billion of total consolidated indebtedness, including $460 million outstanding under the notes and approximately $1.8 billion of other senior indebtedness. As of March 31, 2004, the aggregate principal amount of our secured indebtedness was approximately $5.7 million. For more information, see "Description of the Notes Ranking." Global Notes; Book Entry System We issued the notes in registered form without interest coupons and in minimum denominations of $1,000. We have deposited global notes with, or on behalf of, The Depository Trust Company, which we refer to as DTC. DTC and its participants maintain records that show beneficial ownership in the notes, and those interests can be transferred only through those records. See "Description of Notes Book-Entry System." Repurchase of Notes at Your Option Upon a Fundamental Change If we undergo a Fundamental Change, as described in this prospectus, you will have the option to require us to repurchase for cash all or any portion of your notes. We will pay a repurchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date. For more information, see "Description of the Notes Repurchase at Option of the Holder Upon a Fundamental Change." Governing Law The laws of the State of New York govern the indenture and the notes. With copies to: Bruce C. Bennett Covington & Burling 1330 Avenue of the Americas New York, New York 10019 (212) 841-1000
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000356130_emc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000356130_emc_prospectus_summary.txt
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+following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information that you should consider. Therefore, you should also read the more detailed information set out in this prospectus and the consolidated financial statements and related notes included in the back of this prospectus. EMC Insurance Group Inc. Who We Are We are an insurance holding company that conducts operations in property and casualty insurance and reinsurance through our subsidiaries. We primarily focus on the sale of commercial lines of property and casualty insurance to small and medium-sized businesses. We sell these products through independent insurance agents who are supported by our decentralized network of branch offices. Although we actively market our insurance products in 41 states, the majority of our business is marketed and generated in the Midwest. Our property and casualty insurance operations are conducted together with the property and casualty insurance operations of our parent corporation, Employers Mutual, and we operate collectively under the trade name EMC Insurance Companies. Our financial results for the six months ended June 30, 2004 and the year ended December 31, 2003 represent the best first six months and best year, respectively, in our history in terms of net income and earnings per share. Total revenues, net income and earnings per share for the six months ended June 30, 2004 were $185.5 million, $11.8 million and $1.02, respectively, and as of June 30, 2004, we had total assets of $915.1 million and stockholders equity of $182.8 million. Total revenues, net income and earnings per share for the year ended December 31, 2003 were $362.4 million, $20.3 million and $1.78, respectively, and as of December 31, 2003, we had total assets of $899.7 million and stockholders equity of $180.8 million. Our parent corporation, Employers Mutual, is a mutual property and casualty insurance company that currently owns approximately 80.9 percent of our outstanding common stock. As part of this offering, Employers Mutual is selling shares of our common stock and reducing its holdings to approximately 55.7 percent of our outstanding common stock (or approximately 51.5 percent of our outstanding common stock in the event the underwriters elect to exercise the over-allotment option in full). Property and casualty insurance is the most significant segment of our business, representing approximately 73 percent of our premiums earned during 2003. Our property and casualty insurance operations are integrated with those of Employers Mutual and its insurance company subsidiaries and an affiliate through participation in a reinsurance pooling arrangement under which each participant transfers all of its direct insurance business to the pool and, in exchange, receives a designated percentage of the pool s underwriting results. The pool s direct premiums written totaled $1.1 billion in 2003 and the pool s combined statutory surplus was $587.0 million as of December 31, 2003. For a discussion of the pooling arrangement and its benefits, please see Our Organizational Structure below. Our aggregate interest in the pooling arrangement is currently 23.5 percent. After completion of this offering, our aggregate interest will increase to 30.0 percent, effective January 1, 2005. We conduct our property and casualty insurance business through four wholly owned subsidiaries, all of which participate in the pooling arrangement. We offer commercial and personal lines of property and casualty insurance to businesses and individuals, with the focus of our marketing efforts directed at small and medium-sized businesses (which we define as policyholders with annual premiums of less than $100,000). Sales of commercial lines of insurance accounted for approximately 80 percent of the pool s direct premiums written in 2003, with approximately 67 percent of the pool s direct premiums written in 2003 generated by sales through our ten Midwest branch offices. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS We make forward-looking statements in this prospectus, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. Statements regarding the following subjects are forward-looking by their nature: our business strategies; our performance goals; our projected financial condition and operating results, including the operating results of the pooling arrangement; industry and market trends; the impact of technology on our products, operations and business; and any other statements or assumptions that are not historical facts. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. We will update this prospectus only to the extent required under applicable securities laws. If a change occurs, our business, financial condition, liquidity, results of operations, plans and objectives may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you decide to invest in our common stock: the factors referenced in this prospectus, including those set forth under the sections captioned Risk Factors, Management s Discussion and Analysis of Financial Condition and Results of Operations and Business ; general volatility of the property and casualty insurance and reinsurance markets; the market price of our common stock; catastrophic and/or significant weather events; state and federal legislation and regulations; changes in our industry, interest rates or the general economy; adequacy of loss and settlement expense reserves; and rating agency actions. When we use the words believe, expect, anticipate, estimate or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Table of Contents Our property and casualty insurance products are marketed through 16 branch offices located strategically throughout the United States and through a distribution network of approximately 3,100 independent insurance agencies. Each branch office performs its own underwriting, claims, marketing and risk management functions according to policies and procedures established and reviewed by the home office. We believe it is important to our success to have a decentralized network of branch offices, as this allows us to develop marketing strategies, products and pricing that target the needs of individual marketing territories and take advantage of different opportunities for profit in each market. We believe that our operating structure enables us to develop close relationships with the agents and customers with whom we do business. Our reinsurance operations, representing approximately 27 percent of our premiums earned during 2003, are conducted through our wholly owned subsidiary, EMC Reinsurance Company, whose business is limited to assuming the voluntary reinsurance business written directly by Employers Mutual with unaffiliated insurance companies (subject to certain limited exceptions). Under this arrangement, our reinsurance company receives 100 percent of the premiums (less a portion used to reimburse Employers Mutual for the purchase of third-party reinsurance protection) and assumes 100 percent of the related losses and settlement expenses on this business, subject to a maximum loss of $1.5 million with respect to any single occurrence. Our reinsurance company pays an override commission of 4.5 percent of premiums written to Employers Mutual to purchase the $1.5 million cap on losses per occurrence and our reinsurance company reimburses Employers Mutual for the acquisition expenses incurred in producing the business. Due to this arrangement, our reinsurance company s exposure to losses resulting from Hurricane Charley, Hurricane Frances, Hurricane Ivan and Hurricane Jeanne will not exceed $1.5 million per event. The reinsurance arrangement is governed by a quota share agreement between our reinsurance company and Employers Mutual. Our reinsurance company does not participate in the pooling arrangement and does not assume any of the direct insurance business written by any of the pool participants. The pool participants, including our property and casualty insurance companies, are rated A- (Excellent) by A.M. Best Company, Inc. (which we refer to in the prospectus as A.M. Best ). As a result of recent changes to the methodology employed by A.M. Best in assigning ratings to groups of affiliated insurance companies, A.M. Best has informed us that we no longer qualify to be rated on a pool basis as we have in the past, but will instead be rated on a group basis. We do not anticipate that this change in rating methodology will adversely affect our current financial strength rating or financial size category. Our reinsurance company is also rated A- (Excellent) by A.M. Best. A.M. Best s ratings reflect its opinion of an insurance company s financial strength, operating performance and ability to meet its obligations to policyholders. A.M. Best s ratings are not evaluations directed to potential or current investors in our common stock, nor are they recommendations to buy, sell or hold our common stock. Our Strengths and Strategy Our goal is to create stockholder value through disciplined and profitable growth, strong agency relationships, continued operating improvement, customer satisfaction and employee commitment to excellence. To achieve this goal, we have developed a strategy that seeks to capitalize on our strengths. Key aspects of our strengths and strategy include: Achieving underwriting profitability through focused underwriting initiatives and disciplined pricing. We focus on achieving underwriting profitability (as measured by a combined ratio of less than 100 percent) which is fundamental to our long-term financial strength. We have implemented focused underwriting initiatives that are designed to select those risks that present the potential for underwriting profit and avoid those risks that do not. An important component of underwriting profitability is premium rate adequacy, and we strive to maintain discipline in our ($ in thousands) Reserves at 12/31/03 Asbestos $ 1,138 $ 991 $ 756 $ 86 $ 646 $ - Environmental 13 836 316 52 750 - Products1 4,235 2,557 4,657 - - - Casualty excess2 - - - 18,959 24,834 1,866 Reserves at 12/31/02 Asbestos $ 451 $ 1,693 $ 839 $ 80 $ 454 $ - Environmental 14 839 322 49 786 - Products1 2,314 1,856 2,000 - - - Casualty excess2 - - - 13,393 21,472 1,385 Reserves at 12/31/01 Asbestos $ 353 $ 147 $ 220 $ 86 $ 480 $ - Environmental 11 312 131 52 773 - Products1 1,890 1,230 1,364 - - - Casualty excess2 - - - 15,040 21,034 1,575 Paid during 2003 Asbestos $ 14 $ 83 $ 93 $ 2 Environmental 5 6 33 - Products1 705 959 - - Casualty excess2 - - 4,523 386 Paid during 2002 Asbestos $ 18 $ 97 $ 8 $ - Environmental 44 10 12 - Products1 577 586 - - Casualty excess2 - - 5,019 498 Paid during 2001 Asbestos $ 11 $ 49 $ 13 $ 1 Environmental 109 27 8 - Products1 967 562 - - Casualty excess2 - - 4,436 534 1 Products includes the portion of asbestos and environmental claims reported above that are non-premises/operations claims AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents pricing by pursuing rate increases to maintain or improve our underwriting profitability without unduly affecting our ability to attract and retain customers. Pursuing profitable growth by organic expansion. We pursue expansion within our existing markets by maintaining an effective and growing network of independent agencies and providing a consistent, competitive and stable market for our products. We carefully select agencies that share our commitment to providing profitable and competitive insurance products and seek to terminate relationships with agencies that do not generate profitable business. Utilizing our branch network to provide responsive and friendly agent and customer services. Through our decentralized network of 16 branch offices, we work closely with our agency force to provide a consistently responsive level of service for underwriting, claims and customer support. Based on feedback from our agents, we believe our decentralized structure is an important attribute that differentiates us from our competitors, increases agent loyalty and enhances policyholder retention. Utilizing technology and claims management services and tools to control loss costs and improve our operating efficiencies. We employ technology to streamline our underwriting and claims processes and to facilitate efficient and cost-effective communications with our agents and customers. We utilize health care, vehicle repair and other specialists, and our proprietary technology, to review claims and ensure that proper and timely care and/or repairs are provided after a claim has been reported. Remaining committed to financial conservatism. At June 30, 2004, our stockholders equity was $182.8 million. We have maintained a strong balance sheet by following conservative investment practices, incurring little financial debt and maintaining appropriate reserves. At June 30, 2004, approximately 83.7 percent of our invested assets were invested in fixed maturity securities, 82.7 percent of which were investment grade and 22.8 percent of which were government securities. The remaining 16.3 percent of our invested assets were invested in equities, short-term investments and other long-term investments. We have no outstanding debt to unaffiliated companies. Further, we believe we have established conservative reserve levels. Our Organizational Structure Employers Mutual currently owns approximately 80.9 percent of our outstanding common stock. Our property and casualty insurance operations are integrated with the property and casualty insurance operations of Employers Mutual and its insurance company subsidiaries and an affiliate through participation in the reinsurance pooling arrangement that we refer to in this prospectus as the pooling arrangement or the pool. All of our property and casualty insurance companies participate in the pooling arrangement. Employers Mutual and its property and casualty insurance company subsidiaries and an affiliate also participate in the pooling arrangement. Because we conduct our property and casualty insurance operations together with the Employers Mutual pool participants, we share the same business philosophy, management, employees and facilities as Employers Mutual, and offer the same types of insurance products. Our reinsurance company does not participate in the pooling arrangement. The following chart summarizes our and Employers Mutual s organizational structures, including our property and casualty insurance companies, our reinsurance company and the Employers Mutual pool participants (with the percentages indicating approximate current ownership). The companies who participate in the pooling arrangement are indicated in bold type. EMC INSURANCE GROUP INC. (Exact name of Registrant as specified in its charter) Table of Contents (1) Upon completion of this offering, Employers Mutual s ownership will be reduced to approximately 55.7 percent of our outstanding common stock (or approximately 51.5 percent of our outstanding common stock in the event the underwriters elect to exercise the over-allotment option in full). (2) In January 2004, we announced that Farm and City Insurance Company would discontinue writing new business and implement non-renewal procedures on existing business. The operations of this insurance company were limited to writing business in the nonstandard risk automobile market. Farm and City will continue to participate in the pooling arrangement even though it will no longer write business directly. (3) EMC Property & Casualty Company and Union Insurance Company of Providence are wholly owned subsidiaries of Employers Mutual. Employers Mutual controls the board of directors of The Hamilton Mutual Insurance Company of Cincinnati, Ohio under the terms of an affiliation agreement under which Employers Mutual has the right to nominate a majority of the board of directors of Hamilton Mutual for as long as the $10.0 million of surplus notes issued by Hamilton Mutual to Employers Mutual remain outstanding. Table of Contents Under the pooling arrangement, each participating company transfers or cedes to Employers Mutual all of its insurance business (with the exception of voluntary reinsurance business assumed from unaffiliated insurance companies) and, in exchange, assumes from Employers Mutual an amount equal to its specified participation interest in the underwriting results of the pool. Employers Mutual negotiates reinsurance agreements that provide protection to the pool and each of its participants, including protection against losses arising from catastrophic events. All premiums, losses, settlement expenses and other underwriting and administrative expenses (excluding voluntary reinsurance business assumed by Employers Mutual from unaffiliated insurance companies) are prorated among the participants on the basis of their participation interest in the pool. Our aggregate participation interest in the pool is currently 23.5 percent. Upon completion of this offering, our aggregate participation interest will increase to 30.0 percent effective January 1, 2005. After the increase becomes effective on January 1, 2005, we anticipate that our aggregate participation interest will not increase further for the foreseeable future. The following diagram illustrates the operation of the pooling arrangement: (1) Upon completion of this offering, the aggregate participation interest of the Group pool participants will increase from 23.5 percent to 30.0 percent, with the aggregate participation interest of the Employers Mutual pool participants to be reduced from 76.5 percent to 70.0 percent, all effective as of January 1, 2005. The purpose of the pooling arrangement is to spread the risk of an exposure insured by any of the participants among all of the participants. The particular benefits that our property and casualty insurance companies realize from participating in the pooling arrangement include the following: the ability to produce a more uniform and stable underwriting result from year-to-year for each participant than might otherwise be experienced on an individual basis, by spreading the risks over a wide range of: geographic locations, lines of insurance written, rate filings, 717 Mulberry Street Des Moines, Iowa 50309 (515) 280-2511 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents commission plans offered, and policy forms; the ability to benefit from the capacity of the entire pool representing $1.1 billion in direct premiums written in 2003 and $587.0 million in statutory surplus as of December 31, 2003, rather than being limited to policy exposures of a size commensurate with each participant s own assets; the achievement of an A- (Excellent) rating from A.M. Best on the basis of participation in the pool; the ability to take advantage of a significant distribution network of independent agencies that the participants most likely could not access on an individual basis; the ability to negotiate and purchase reinsurance from third-party reinsurers on a combined basis, thereby achieving larger retentions and better pricing; and the ability to achieve and benefit from economies of scale in operations. Recent Developments Four hurricanes have hit the southern United States during the third quarter of 2004. None of the pool participants write a significant amount of direct business in Florida and therefore we do not anticipate a significant amount of direct losses associated with Hurricane Charley, Hurricane Frances or Hurricane Jeanne. The pool participants do write direct business in the Gulf States that were impacted by Hurricane Ivan and we anticipate that our losses from this hurricane will be approximately $2.4 million. Our reinsurance company has exposure to all four of these hurricanes and anticipates it will reach its $1.5 million cap on losses assumed per occurrence on each of them. Total losses associated with these four hurricanes are estimated to be approximately $8.4 million. On an after-tax basis, these hurricane losses will reduce third quarter earnings by approximately $5.5 million or $0.47 per share. During the third quarter of 2004, our actuaries completed their regularly scheduled evaluation of our overall loss reserves, including incurred but not reported reserves, and settlement expense reserves. Based on the results of these evaluations, we will strengthen our prior years reserves by approximately $588,000 during the third quarter of 2004. This increase in reserves will reduce third quarter earnings by approximately $382,000 ($0.03 per share) on an after-tax basis. Mark E. Reese Vice President and Chief Financial Officer EMC Insurance Group Inc. 717 Mulberry Street Des Moines, Iowa 50309 (515) 280-2902 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents
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+PROSPECTUS SUMMARY This summary highlights only selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including "Risk Factors," "Forward Looking Statements" and the consolidated financial statements and notes to those consolidated financial statements beginning on page F-1 before investing in our Class A common stock. In this prospectus, unless the context indicates otherwise, "we," "us," "our," "Bucyrus" and the "Company" and similar terms refer to Bucyrus International, Inc. and its consolidated subsidiaries. Our Company We design, manufacture and market draglines, electric mining shovels and rotary blasthole drills used for surface mining and provide the aftermarket replacement parts and service for these machines. There are only two global manufacturers of a full line of this large excavation machinery and we believe we have the largest installed base of this equipment in the world and the leading market share in draglines and large rotary blasthole drills. Our products are sold to customers throughout the world in every market where surface mining is conducted with modern methods. Through our predecessor companies, we have been producing excavation machines since 1880 and we have a widely recognized brand name. Our machines dug the Panama Canal. Surface mining is safer, has lower extraction costs and is growing faster than underground mining. Growth is driven by increased demand for surface mined commodities such as copper (South America), oil sands (Canada) and coal (Australia, South Africa, the Western United States, and increasingly, China and India). We have established a leading position in these important surface mining regions. We believe that coal surface mining in China and India holds significant potential for long-term growth, and in early 2004, we entered into a $57 million contract for a dragline sale to the China market. We believe that the sale of this dragline, the first of its kind sold into China, marks a new trend towards the adoption of technologically advanced surface mining methods in China. We sell both original equipment manufactured, or OEM, and aftermarket parts and service. OEM machine sales are closely correlated with the strength of commodity markets and maintain and augment our almost $10 billion (calculated by estimated replacement value) installed base, which provides the foundation for our aftermarket activities. Our aftermarket parts and service operations, which are more stable and more profitable than our OEM sales, accounted for approximately 70% of sales over the last ten years. Over that period and throughout commodities cycles, our aftermarket sales have sustained a compound annual growth rate of almost 7%, increasing every year except for one year (1999) in which sales declined 2%. We have a broad and established global presence with a network of 26 sales and service offices located in all countries with major surface mining operations. We manufacture our OEM machines and the majority of aftermarket parts in our facility in South Milwaukee, Wisconsin. We concentrate on producing technologically advanced and productive machines that allow our customers to conduct cost-efficient operations. We are the only surface mining manufacturer of alternating current, or AC, drive draglines and electric mining shovels, which we believe have higher efficiency rates and consume less power than direct current, or DC, powered machines. We also offer advanced computer control systems which allow technicians at our headquarters to remotely monitor and adjust our machines all around the world via the Internet. SOURCES OF MARKET AND INDUSTRY DATA This prospectus includes market share and industry data and forecasts that we have obtained from internal company surveys, market research, consultant surveys, publicly available information and industry publications and surveys. Information regarding historical equipment sales, industry surveys of equipment installation and industry aftermarket purchasing and sales information are derived primarily from databases maintained by the Parker Bay Company, which specializes in providing market research for the mining and earthmoving equipment industries. Third party surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified any of the data from third party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal company surveys and reports, industry forecasts and market research, which we believe to be reliable based upon management's knowledge of the industry, have not been verified by any independent sources. In addition, we do not know what assumptions regarding general worldwide or country specific economic growth were used in preparing the forecasts cited in this prospectus. Except where otherwise noted, statements as to our position relative to our competitors or as to market share refer to the most recent available data. (1)Year ended December 31, 2003. (2)Ten years ended December 31, 2003. Our Industry The equipment we manufacture and service is primarily used to mine copper, coal, oil sands and iron ore. Growth in demand for these commodities is a function of, among other things, economic activity, population increases and continuing improvements in standards of living in many areas of the world. While our aftermarket parts and service sales have grown consistently, mine operators tend to purchase OEM equipment when they anticipate sustained strength in the commodities markets. Prices for copper, coal, oil and iron ore have increased significantly as compared to prior years. For example, as of October 15, 2004, the price of copper was quoted at $1.35/lb, a 55% increase over the prior year price of $0.87/lb. Factors that could support sustained demand for these key commodities include continued economic growth in China, India and the developing world and renewed economic strength in industrialized countries. Our Strengths Market Leader in Most Attractive Markets. We are the only global excavation machinery manufacturer that exclusively focuses on surface mining. Surface mining is primarily employed in, and we have a leadership position in, the regions with the lowest mineral extraction cost and rapid economic development. Advanced Technology. We produce the most advanced surface mining machines available, providing innovative, cost efficient technology and a high degree of reliability to lower customers' operating costs. We are the only surface mining manufacturer of AC powered machines and we offer advanced computer control systems. Largest Installed Base. The estimated replacement value of our worldwide installed base is almost $10 billion, which we believe is the largest installed base of surface mining equipment. This SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 is the foundation for our high margin, predictable and growing aftermarket parts and service business. Significant Backlog and Aftermarket Sales Generate Predictable Cash Flows. Long manufacturing lead times, long-term maintenance contracts and consistent aftermarket sales provide a high degree of predictability on future sales and cash flows. Backlog at October 31, 2004 increased to $277.4 million from $233.6 million at December 31, 2003, a 19% increase. Strong Management Team. Since our current management team, which has an average of 22 years of experience in the industry, was formed in 2000, they have successfully improved product performance, grown sales and market share and improved our cost structure during a period of prolonged weakness in commodity prices and OEM sales. Our senior management owns approximately 3% of our outstanding common stock and has options to purchase 688,800 additional shares of Class A common stock. Our Strategy Capture Aftermarket Parts and Service Opportunity. We believe that we currently capture less than half of the total annual aftermarket sales generated by our installed base. We are pursuing several performance and technology based strategies to capture an increased share of this profitable opportunity. Focus on Growth in Emerging Market Opportunities. As new opportunities emerge in various mining markets across the world, we focus on being the first to establish ourselves as the main surface mining equipment supplier in these new markets. Capture Long-Term Dragline Replacement Opportunity. We believe that many of the approximately 300 draglines manufactured from 1970 to 1984 and currently in place will begin to be replaced during the next 10 years. We estimate the replacement value of these machines to be approximately $5.6 billion. Since our draglines currently make up approximately 90% of the worldwide installed base, we believe we will capture a significant portion of this market opportunity. Focus on Providing the Most Innovative and Reliable Products. We will continue to provide reliable and technologically innovative machines to lower customers' operating costs and improve operating efficiency. We have a long-standing strategic partnership with a United States subsidiary of Siemens A.G., or Siemens, and have approximately 100 engineers engaged in product design and technical support. Expand Margins Through Continuous Cost Discipline and Technological Innovation. Since 2000, our management team has successfully reduced our cost structure and materially increased operating margins. We have also positioned ourselves so that our operating results will benefit from the increased OEM sales we expect to occur in a strong commodities market. Risks Relating to Our Business and this Offering As part of your evaluation of an investment in our Class A common stock, you should take into account the risks to which we are subject. We may be adversely affected by risks related to our business, including, among other things, risks related to key supplier and customer relationships, leverage and to conducting business in foreign countries and foreign currencies. Our industry is highly competitive and subject to cyclical fluctuations and regulatory risks. You should also be aware that there are various risks specific to our Class A common stock, including risks related to, among other things, future potential sales of substantial amounts of our common stock and potential stock price volatility. For more
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000750813_seitel-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000750813_seitel-inc_prospectus_summary.txt
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@@ -0,0 +1 @@
+S-1/A Questions And Answers About This Offering (ii ) Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000759896_eye-care_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000759896_eye-care_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
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+++ b/parsed_sections/prospectus_summary/2004/CIK0000759896_eye-care_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000764843_sedona_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000764843_sedona_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights key aspects of our business and our offering of common stock that are described more fully elsewhere in this Prospectus. This summary does not contain all of the information that you should consider before making an investment decision. You should read the entire Prospectus carefully, including the Risk Factors section beginning on page 6 and our consolidated financial statements and related notes beginning on page F-1, before making an investment decision. OUR COMPANY We are a software application and services provider that develops and markets web-based Customer Relationship Management (CRM) solutions to small to mid-sized businesses (SMBs) such as community banks, credit unions and insurance companies. Our CRM application solution, Intarsia(TM), provides SMBs with the ability to effectively identify, acquire, foster and maintain loyal, profitable customers, thus enabling SMBs to increase the profitability of their customer portfolio and enhance shareholder value. We believe that Intarsia equips SMBs with the ability to build the appropriate strategy to more effectively target the right products to the right people at the right time. We believe that the key to selling CRM successfully and profitably to SMBs is finding a solution that not only meets the organizations' unique industry, business, and budget requirements, but also provides them with proven technology that can be cost effectively integrated into their business. When these needs are met, SMBs can rapidly achieve a positive return on their CRM investment. The SMB market represents the largest and fastest growing opportunity for CRM applications solutions as businesses place increasing emphasis on effectively managing the relationship of, and interaction with, their customers. We believe that this market, characterized by businesses with less than $250 million in revenue and 500 employees, presents the greatest opportunity for CRM providers as the large-sized business (LB) market is becoming saturated with CRM deployments. According to Aberdeen Group's Worldwide CRM Spending: Forecast 2002-2006 research report, the CRM spending in the LB market is expected to grow at a 2002-2006 compounded annual growth rate of 4.0% compared to a much faster growth in the SMB market as indicated in the table below. <TABLE> <CAPTION> ------------------------------- ------------------------ ------------------------ -------------------- NUMBER OF EMPLOYEES 2002 CRM SPENDING 2006 CRM SPENDING CAGR ------------------------------- ------------------------ ------------------------ -------------------- <S> <C> <C> <C> 1 to 19 $577M $794M 9.3% ------------------------------- ------------------------ ------------------------ -------------------- 20 to 499 $1.28B $1.8B 8.9% ------------------------------- ------------------------ ------------------------ -------------------- </TABLE> As a significant segment of the overall SMB market, small and mid-sized financial services organizations, represented by community and regional banks, credit unions, savings and loans, brokerage firms and insurance companies and agencies, have identified CRM as a strategic initiative to improve the customer retention and profitability rates in a marketplace dominated by large national and international companies with greater resources, services and advertising power. Aberdeen Group, in the same report projects that the CRM spending in the financial services market, will represent 18.8% of the overall CRM spending over the next three years. ---------------------------------- ----------------------- VERTICAL MARKET % OF CRM SPENDING ---------------------------------- ----------------------- Manufacturing 25.4% ---------------------------------- ----------------------- Financial Services 18.8% ---------------------------------- ----------------------- Retail and Distribution 13.6% ---------------------------------- ----------------------- Business Services 7.1% ---------------------------------- ----------------------- Government and Education 6.7% ---------------------------------- ----------------------- Transportation and Utilities 6.4% ---------------------------------- ----------------------- Healthcare 5.6% ---------------------------------- ----------------------- Information Technology 5.5% ---------------------------------- ----------------------- Telecommunications 4.7% ---------------------------------- ----------------------- Others 6.2% ---------------------------------- ----------------------- We have strategically targeted small to mid-sized financial services organizations as the first vertical market to introduce our leading CRM application solution. Unlike most traditional, general-purpose CRM applications, Intarsia, is a vertical CRM application solution specifically designed and priced to meet the needs of SMBs with multiple lines-of-business across several vertical industries. Intarsia provides small to mid-sized financial services organizations with a complete and accurate view of their customers' relationships and interactions. This enables them to gain knowledge about their customers' preferences, needs and characteristics and build the appropriate strategies to more effectively target the right products to the right people at the right time. We believe that Intarsia provides those organizations with the ability to effectively identify, acquire, foster and maintain loyal, profitable customers. As part of our efforts to cost effectively capture a major share of the SMB market, we have adopted an indirect distribution channel strategy. We have successfully signed OEM (original equipment manufacturers) and reseller agreements with several leading software and services providers for the financial services market, such as Fiserv Systems, Inc., Sanchez Computer Associates, Inc., Open Solutions Inc., Connecticut Online Computer Center, Inc, Pinkerton Consulting, EastPoint Technologies, Inc., WorldNet Consulting S.A., ACEncrypt Solutions and American International Technology Enterprises, Inc., a member company of AIG. We continue to work on broadening even further our distribution channels and to expand our market penetration both domestically and internationally. In addition, we have been selected by IBM Corporation as one of its Advanced Level Business Partners. We believe that we will need to generate funds from operations and additional sales of securities to meet our working capital requirements over the period through December 31, 2004. In addition to the loss of ($4,212,000) realized during December 31, 2003, we incurred substantial losses from operations of ($6,001,000) and ($10,434,000) during the years ended December 31, 2002 and 2001, respectively. If additional financing is required through December 31, 2004, such funding may not be readily available. These factors raise substantial doubt about our ability to continue as a going concern. Our plans in this regard include expanding the sale and acceptance of our current and future strategic alliance partnerships; targeting new application solutions; and seeking additional debt or equity financing in addition to aggressive cost containment measures. Our Contact Information Our principal executive offices are located at 1003 West 9th Avenue, Second Floor, King of Prussia, Pennsylvania 19406, and our telephone number is (610) 337-8400. We maintain a website on the Internet at http://www.sedonacorp.com. Our website and the information that it contains are not part of this Prospectus. <TABLE> <CAPTION> THE OFFERING <S> <C> Common stock offered by the selling shareholders: 5,651,347 shares Additional common stock to be offered by the selling shareholders upon exercise of all warrants: 1,476,064 shares Common stock to be outstanding after this offering, assuming exercise of all outstanding warrants, options and conversion of convertible securities: 110,328,141 shares Use of proceeds: We will not receive any proceeds from the sale of our common stock by the selling shareholders. If a selling shareholder exercises the warrants he or she holds for cash, we intend to use the net proceeds of such exercise for working capital and general corporate purposes. We may also invest a portion of the net proceeds from the exercise of the warrants, if any, in high-grade short-term interest bearing investments on a temporary basis. OTCBB symbol: SDNA Risk Factors: Investment in our common stock involves a high degree of risk and could result in a loss of your entire investment. See "Risk Factors" beginning on page 6 to read about factors you should consider before buying our common stock. </TABLE> RECENT DEVELOPMENTS Civil Suit: On May 5, 2003, we filed a civil action lawsuit against numerous defendants in the United States District Court, Southern District of New York seeking damages from the defendants named, and other defendants yet to be named, for allegedly participating in the manipulation of our common stock, fraud, misrepresentation, failure to exercise fiduciary responsibility, and/or failure to adhere to trading rules and regulations, tortuous interference, conspiracy and other actions set forth in the complaint. As this is an on-going action, no adjustments have been made to the financial statements related to this matter. In January 2004, we notified one of our consultants, Hunter A. Carr, that he had not performed his required duties noted therein, and is in default of the contracts. We are in the process of trying to resolve the dispute and have suspended payments to the consultant starting in December 2003, pending satisfactory resolution of the matter. Per the agreements, we were obligated to pay $14,910 per month under a litigation support agreement and $6,900 per month under a database participation agreement. Stock Conversions: On December 17, 2003, the holder of Class A, Series F, Convertible Preferred Stock delivered a conversion notice to us requesting conversion of $780,000 principal value preferred stock plus accrued interest of $186,950 into shares of our common stock. The holder received 966,950 shares of our common stock with this conversion. In December 2003, Mr. David Vey, our Chairman of the Board, requested the conversion of two debentures. The first debenture was a $100,000 note, due on December 5, 2003. Mr. Vey converted the outstanding principal balance into 1,000,000 shares of our common stock. The second debenture was a $120,000 note, due January 5, 2004. Mr. Vey converted the outstanding principal balance into 2,000,000 shares of our common stock. There is also $17,000 of interest due on the debentures which will be settled in cash or shares of our common stock, at the option of the holder. In January 2004, Mr. Vey delivered a conversion notice to exercise his rights under a debenture agreement to convert the outstanding principal balance of a $100,000 debenture due January 10, 2004 into 10,000,000 shares of our common stock. The note was converted and the shares issued as of March 19, 2004. In February 2004, Mr. Vey again delivered a conversion notice to exercise his rights under a debenture agreement to convert the outstanding principal balance of a $100,000 debenture due March 14, 2004 into an additional 10,000,000 shares of our common stock. The note was converted and the shares issued as of March 19, 2004. Series H Transaction: In April 2000, we consummated a transaction to purchase the Customer Information Management Systems (CIMS) business unit of Acxiom Corporation for total potential consideration of up to $4,350,000. $550,000 in five-year warrants were issued, $1,300,000 (with face value of $1,500,000) was paid in preferred stock, a minimum required payment of $1,000,000 was due in October 2003, or earlier, if certain performance hurdles were met, and the remaining $1,500,000 would be paid contingent on performance of the business unit acquired. Through June 30, 2003, we had paid $47,000 related to the required payment. There was no contingent payment of $1,500,000 due. The performance period for both the required payment and the contingent payment expired in April 2003. In November 2003, we restructured the agreement with Acxiom. We have issued a promissory note for the $953,000 required payment, at an interest rate of 8% per annum. All unpaid principal and interest are due no later than May 26, 2006. The restructured terms include extension of the conversion date of the Series H Preferred Stock by thirty-six months, until April 1, 2006. Change in Auditors: In June 2003, Ernst & Young LLP ("E&Y") resigned as our independent auditors. Effective August 29, 2003, McGladrey and Pullen LLP was appointed as our independent auditors for the year ended December 31, 2003. The audit report of E&Y on our consolidated financial statements for the years ended December 31, 2002 and December 31, 2001, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that, in their report dated April 8, 2003, E&Y's opinion was modified to include an uncertainty about our ability to continue as a going concern. During its audit for the fiscal year ended December 31, 2002 and December 31, 2001, and for the subsequent interim period through the date of the Form 8-K filing, of June 26, 2003, (i) we had no disagreements with E&Y on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedure, which, if not resolved to E&Y's satisfaction, would have caused E&Y to make reference to the matter in their report, and (ii) there have been no "reportable events" as defined in Item 304 (a)(1)(v) of Regulation S-K. SUMMARY FINANCIAL INFORMATION You should read the following summary of consolidated financial information together with the financial statements and the notes to those statements appearing elsewhere in this Prospectus and the information under "Selected Financial Data," "Risk Factors" and "Management's Discussion and Analysis of Results of Operations and Financial Condition" (in thousands except for per share amounts). <TABLE> <CAPTION> ----------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, Income Statement Data: 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Revenue $ 1,522 $ 2,507 $ 2,157 $ 1,787 $ 244 Loss from Continuing Operations (4,212) (6,001) (10,434) (10,826) (3,264) Gain (Loss) from Discontinued Operations - - - 144 (2,973) Net Loss (4,212) (6,001) (10,434) (10,682) (6,237) Preferred Dividends (15) (303) 154 (889) (601) Net Loss applicable To Common Stockholders (4,227) (6,304) (10,280) (11,571) (6,838) Basic and Diluted Net Loss per Common Share Applicable to continuing Operations $ (0.08) $ (0.13) $ (0.28) $ (0.42) $ (0.18) Loss per Common Share Applicable to discontinued Operations - - - - $ (0.13) Loss per Common Share $ (0.08) $ (0.13) $ (0.28) $ (0.42) $ (0.31) <CAPTION> ----------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, Balance Sheet Data: 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Total Assets 832 1,770 3,786 8,468 2,204 Net Working Capital/(Deficit) (2,745) (3,128) (2,462) (989) 262 Long-Term Obligations 999 12 1,025 1,025 51 Stockholders' Equity/(Deficit) (3,288) (1,847) (302) 3,091 1,431 </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000779681_cape_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000779681_cape_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "risk factors" section, the financial statements and the notes to the financial statements. VERTEX INTERACTIVE, INC. We are a provider of supply chain management technologies, including enterprise software systems and applications, and software integration solutions, that enable our customers to manage their order, inventory and warehouse management needs, consultative services, and software and hardware service and maintenance. We serve our clients through two general product and service lines: (1) enterprise solutions; and (2) service and maintenance for our products and services, including service and maintenance of software and hardware we resell for third parties. Our enterprise solutions include a suite of Java-architected software applications, applications devoted to the AS/400 customer base, as well as a portfolio of "light-directed" systems for inventory, warehouse and distribution center management. We provide a full range of software and hardware services and maintenance on a 24-hour, 7- days a week, 365-days a year basis, including the provision of wireless and wired planning and implementation services for our customers' facilities. For the three and six months ended March 31, 2004, we generated revenues in the amount of $517,816 and $1,350,086 and net losses of $186,634 and $844,834, respectively. In addition, for the year ended September 30, 2003, we generated revenues in the amount of $4,226,187 and a net loss of $3,650,353. As a result of recurring losses from operations and a net deficit in both working capital and stockholders' equity, our auditors, in their report dated January 15, 2004, have expressed substantial doubt about our ability to continue as going concern. Our principal offices are located at 3619 Kennedy Road, South Plainfield, New Jersey 07080, and our telephone number is (908) 756-2000. We are a New Jersey corporation. The Offering Common stock offered by selling stockholders..... Up to 17,000,000 shares, including up to 10,000,000 shares of common stock underlying secured convertible notes in the principal amount of $3,000,000, up to 1,000,000 shares of common stock underlying class C-1 convertible preferred stock, up to 3,000,000 shares of common stock underlying class D convertible preferred stock and up to 3,000,000 shares of common stock issuable upon the exercise of common stock purchase warrants at an exercise price of $.11 per share, based on current market prices and assuming full conversion of the secured convertible notes and the full exercise of the warrants (includes a good faith estimate of the shares underlying secured convertible notes and shares underlying warrants to account for market fluctuations, and antidilution and price protection adjustments, respectively). This number represents 25.9% of our current outstanding common stock. Common stock to be outstanding after the offering.............. Up to 65,551,978 shares Use of proceeds........... We will not receive any proceeds from the sale of the common stock. However, we will receive the sale price of any common stock we sell to the selling stockholders upon exercise of the warrants. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes. However, the selling stockholders will be entitled to exercise the warrants on a cashless basis if the shares of common stock underlying the warrants are not then registered pursuant to an effective registration statement. In the event that the selling stockholder exercises the warrants on a cashless basis, then we will not receive any proceeds. In addition, we have received gross proceeds of $2,250,000 from the sale of the secured convertible notes and the investors are obligated to provide us with an additional $750,000 within five business days of this prospectus being declared effective. The proceeds received from the sale of the secured convertible notes will be used for business development purposes, working capital needs, pre-payment of interest, payment of consulting and legal fees and a short-term borrowing repayment. Over-The-Counter Bulletin Board Symbol... VETX.OB EXPLANATORY NOTE: ON APRIL 28, 2004, WE ENTERED INTO A SECURITIES PURCHASE AGREEMENT WITH FOUR ACCREDITED INVESTORS. ANY ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THIS AGREEMENT THAT WOULD REQUIRE US TO ISSUE SHARES OF COMMON STOCK IN EXCESS OF OUR AUTHORIZED CAPITAL IS CONTINGENT UPON US OBTAINING SHAREHOLDER APPROVAL TO INCREASE OUR AUTHORIZED SHARES OF COMMON STOCK FROM 75,000,000 TO 400,000,000 AND FILING THE CERTIFICATE OF AMENDMENT TO OUR CERTIFICATE OF INCORPORATION. IN ADDITION, ON MAY 26, 2004, WE ENTERED INTO AN INVESTMENT RESTRUCTURING AGREEMENT WITH SIX ACCREDITED INVESTORS. ANY ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THIS AGREEMENT THAT WOULD REQUIRE US TO ISSUE SHARES OF COMMON STOCK IN EXCESS OF OUR AUTHORIZED CAPITAL IS ALSO CONTINGENT UPON US OBTAINING SHAREHOLDER APPROVAL TO INCREASE OUR AUTHORIZED SHARES OF COMMON STOCK FROM 75,000,000 TO 400,000,000 AND FILING THE CERTIFICATE OF AMENDMENT TO OUR CERTIFICATE OF INCORPORATION. ON JULY 8, 2004, WE FILED AN AMENDED PRELIMINARY INFORMATION STATEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION, WHICH WE HAVE RECEIVED COMMENTS ON, STATING THAT A MAJORITY OF THE SHAREHOLDERS OF OUR COMPANY WILL HAVE AUTHORIZED THE INCREASE IN OUR AUTHORIZED SHARES OF COMMON STOCK. WE INTEND ON FILING THE CERTIFICATE OF AMENDMENT TO OUR CERTIFICATE OF INCORPORATION 20 DAYS AFTER THE MAILING AND FILING OF THE DEFINITIVE INFORMATION STATEMENT. WE ARE REGISTERING 17,000,000 SHARES OF COMMON STOCK PURSUANT TO THIS PROSPECTUS THAT ARE UNDERLYING THE SECURED CONVERTIBLE NOTES AND WARRANTS ISSUED IN CONNECTION WITH THE SECURITIES PURCHASE AGREEMENT AND THE CLASSES C-1 AND D CONVERTIBLE PREFERRED STOCK IN CONNECTION WITH THE INVESTMENT RESTRUCTURING AGREEMENT. UPON FILING THE CERTIFICATE OF AMENDMENT, WE WILL AMEND THIS PROSPECTUS TO INCLUDE ADDITIONAL SHARES OF COMMON STOCK THAT ARE ISSUABLE PURSUANT TO THE SECURITIES PURCHASE AGREEMENT AND THE INVESTMENT RESTRUCTURING AGREEMENT. The above information regarding common stock to be outstanding after the offering is based on 54,121,958 shares of common stock outstanding as of July 30, 2004 and assumes the subsequent conversion of our issued secured convertible notes, with interest, and exercise of warrants by our selling stockholders. To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with four accredited investors on April 28, 2004 for the sale of (i) $3,000,000 in secured convertible notes and (ii) warrants to buy 3,000,000 shares of our common stock. This prospectus relates to the resale of the common stock underlying these secured convertible notes and warrants. The investors are obligated to provide us with an aggregate of $3,000,000 as follows: o $1,500,000 was disbursed on April 28, 2004; o $750,000 was disbursed on May 28, 2004; and o $750,000 will be disbursed within five business days of this prospectus being declared effective. Accordingly, we have received a total of $2,250,000 pursuant to the Securities Purchase Agreement. 50% of the secured convertible notes bear interest at 10%, mature two years from the date of issuance, and are convertible into our common stock, at the selling stockholders' option, at the lower of (i) $0.30 or (ii) 60% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The other 50% of the secured convertible notes bear interest at 10%, mature two years from the date of issuance, and are convertible into our common stock, at the selling stockholders' option, at the lower of (i) $0.30 or (ii) 55% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. Accordingly, there is in fact no limit on the number of shares into which the notes may be converted. As of July 30, 2004, the average of the three lowest intraday trading prices for our common stock during the preceding 20 trading days as reported on the Over-The-Counter Bulletin Board was $.09666 and, therefore, the conversion price for 50% of the secured convertible notes was $.057996 and the conversion price for the other 50% of the secured convertible notes was $.053163. Based on these conversion prices, the $3,000,000 secured convertible notes, excluding interest, were convertible into 54,078,965 shares of our common stock. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. See the "Selling Stockholders" and "Risk Factors" sections for a complete description of the secured convertible notes. On May 26, 2004, we entered into an Investment Restructuring Agreement with six accredited investors who are also our principal stockholders. In connection with this transaction, we exchanged 997 shares of class C preferred stock for class C-1 convertible preferred stock on a 1:1 basis and shall issue, on the date that the amendment to the certificate of incorporation increasing the authorized number of shares of common stock is filed and approved with the New Jersey Secretary of State, approximately 7,391 shares of class D convertible preferred stock to MidMark Capital, L.P. in exchange for approximately $7,500,000 of debt and accrued interest owed by us and our subsidiaries to MidMark Capital II, L.P. Each share of the class C-1 convertible preferred stock and class D convertible preferred stock is convertible into $1,000 worth of our common stock, at the selling stockholders' option, at the lower of (i) $0.30 or (ii) 60% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. Accordingly, there is in fact no limit on the number of shares into which the preferred stock may be converted. As of July 30, 2004, the average of the three lowest intraday trading prices for our common stock during the preceding 20 trading days as reported on the Over-The-Counter Bulletin Board was $.09666 and, therefore, the conversion price for the class C-1 and D convertible preferred stock was $.057996. Based on this conversion price, the 997 shares of class C-1 convertible preferred stock were convertible into 17,190,841 shares of our common stock and the 7,391 shares of class D convertible preferred stock were convertible into 127,439,824 shares of our common stock.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000788983_portola_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000788983_portola_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..c6a574bd8206c1b192b81473343c3eaf3a22b5c5
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+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000790708_impco_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000790708_impco_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..3e13c5b751a46c34131d40c863a82cb5493f2323
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+PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section entitled Risk Factors and the consolidated financial statements and accompanying notes, before making an investment decision. Our Company We design, manufacture and supply products and systems that control the pressure and flow of gaseous fuels for use in internal combustion engines. Our products also include internal combustion engines, which have our gaseous fuel control products incorporated on them. Our products and systems enable internal combustion engines to operate on gaseous fuels, including natural gas or propane. Our products improve efficiency, enhance power output, and reduce emissions by electronically sensing and regulating the proper proportion of fuel and air required by the internal combustion engine. Additionally, we have extensive engineering, design and systems integration experience with our customers requirements for product performance, durability and physical configuration. Based on more than 45 years of technology development and expertise in producing cost-effective, safe and durable fuel technology systems, we believe we are positioned to provide enabling products and technologies in the rapidly expanding alternative fuel industry. Our customers use our components and systems on engines ranging from one to 4,000 horsepower. We provide gaseous fuel components, systems and certified gaseous fueled engines to the transportation market and the industrial market, which includes the material handling and stationary and portable power generation markets. A number of original equipment manufacturers, or OEMs, in the transportation, industrial and power generation industries, who are our customers, are developing alternative clean power systems using clean burning gaseous fuels, which decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions in internal combustion engines. We offer the following products, kits and systems to these customers: fuel delivery pressure regulators, fuel injectors, flow control valves, and other components and systems designed to control the pressure, flow and/or metering of gaseous fuels; electronic controls solid-state components and proprietary software that monitor and optimize fuel pressure and flow to meet manufacturers engine requirements; gaseous fueled internal combustion engines engines manufactured by OEMs that are integrated with our fuel delivery and electronic control system; and systems integration services to integrate the gaseous fuel storage, fuel delivery and/or electronic control components and sub-systems to meet OEM and aftermarket requirements. We have been producing and selling gaseous fuel delivery systems and products for over 45 years. We sell these systems and components directly to end users, OEMs and to the aftermarket through more than 400 distributors and dealers worldwide. We are incorporated in Delaware and our common stock is traded on The Nasdaq National Market under the symbol IMCO. Our executive offices are located at 16804 Gridley Place, Cerritos, California 90703. Our telephone number is (562) 860-6666. Our website is www.impco.ws . The information on our website does not constitute part of this prospectus. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents The Offering Common Stock to be offered by the selling stockholders 1,500,000 Shares Common Stock outstanding prior to this offering 17,090,692 Shares Use of Proceeds We will receive no proceeds from the sale of the securities described in this prospectus. The shares of common stock offered hereby are being offered for sale by the selling stockholders. Nasdaq National Market Symbol IMCO (Unaudited) Common Stock: Beginning balance $ 8 $ 8 $ 10 $ 13 $ 16 Issuance of common stock (163,326, 97,572, 328,459, 19,200 and 0 (unaudited) shares, respectively) resulting from the exercise of stock options and warrants 1 1 Issuance of common stock (0, 1,625,000, 2,000,000, 1,500,00 and 0 (unaudited) shares, respectively) resulting from equity offering 2 2 1 Issuance of common stock (0, 0, 0, 2,309,470 and 0 (unaudited) shares, respectively) in connection with an option to acquire a business Amendment No. 1 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) Represents gain on sale of 49% interest in IMPCO BV by BERU Aktiengesellschaft during fiscal 1999. We recorded a pre-tax gain of $2.2 million and an after-tax gain of $1.8 million or $0.20 per share. (2) During fiscal year 1998, shares assumed to be issued upon conversion of our preferred stock were included in the calculation of shares outstanding since the conversion resulted in reportable dilution. During fiscal year 1999, all of our preferred stock was converted to common stock and the diluted earnings per share was calculated as though the conversion occurred at the beginning of fiscal year 1999. (3) See note 9 of the notes to the consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to determine the number of shares used to compute the net income per share. (4) Includes in the eight months ended December 31, 2002 a $24.0 million valuation allowance to establish a reserve for the deferred tax assets that are unlikely to be realized in the next three years (See Critical Accounting Policies and Estimates beginning at p. 17 below) Net cash provided (used) by operating activities from continuing operations 4,152 10,420 5,304 1,684 (751 ) 1,175 Cash flows from investing activities: Purchase of equipment and leasehold improvements (1,792 ) (3,489 ) (3,086 ) (1,711 ) (2,369 ) (1,685 ) Business acquisition cost (411 ) (128 ) (211 ) (2,619 ) (12,209 ) Purchase of available-for-sale securities (15,736 ) Sale of available-for-sale securities 15,785 7 Proceeds from sale of equipment 103 9 3 131 4 Paul Mlotok Director January 30, 2004 /s/ J. DAVID POWERS IMPCO Technologies, Inc. (Exact name of Registrant as specified in its charter) Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000791398_eos_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000791398_eos_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information about our company and may not contain all of the information that you may find important. You should carefully read this entire document, including Risk Factors and our consolidated financial statements and their related notes before making an investment decision. Our Company This prospectus refers to Eos International, Inc., a Delaware corporation, and its operating subsidiaries, including Discovery Toys, Inc., a California corporation, Regal Greetings & Gifts Corporation, an Ontario, Canada corporation, and I.F.S. of New Jersey, Inc., a New Jersey corporation. All references to we, us, and our refer to Eos International, Inc. and its subsidiaries unless otherwise specified. All references to Eos refer to Eos International, Inc. All references to Discovery Toys refer to Discovery Toys, Inc. All references to Regal refer to Regal Greetings & Gifts Corporation. All references to IFS refer to I.F.S. of New Jersey, Inc. Our principal office is located at 199 Elm Street, New Canaan, Connecticut 06840 and our telephone number is (203) 652-2525. Our Business Eos is a public holding company for direct selling companies of consumer goods. Eos owns 100% of the capital stock of Discovery Toys and IFS and 85% of the capital stock of Regal. Discovery Toys is a multi-level marketer of approximately 200 educational products, including toys, games, books, and software. Discovery Toys sells its products to its network of approximately 30,000 independent sales representatives who in turn sell the merchandise to friends, family, neighbors, and co-workers. Discovery Toys principal offices are located in Livermore, California and its geographic markets primarily encompass the United States and Canada. Regal is one of Canada s largest direct selling and mail order distributors of general merchandise to consumers, including stationery and household and giftware items. Regal sells its products to its network of over 400,000 independent sales representatives who in turn sell the merchandise to friends, family, co-workers, and neighbors. Regal distributes merchandise to its independent sales representatives from its 42 representative service centers located throughout Canada as well as from its main warehouse in Mississauga, Ontario. Regal also sells merchandise via its website. IFS sells product-based fundraising programs and services to schools throughout the United States and the Caribbean. School fundraising sponsors provide interested students with IFS products which they sell to their friends, families and neighbors. IFS sells its products to its school fundraising sponsors at 30% to 50% off the aggregate retail price of the products sold by the students. The Offering This prospectus relates to an aggregate of 85,381,594 shares of our common stock, $0.01 par value, offered for resale by the selling stockholders named in this prospectus. The selling stockholders may sell their shares of our common stock from time to time on the principal market on which our stock is traded or in privately negotiated transactions. The selling stockholders will receive all proceeds from any sale of their shares of our common stock, less any brokerage commission or other expenses incurred by them. We will not receive any proceeds from the resale of our common stock by the selling stockholders. United States 53 % $ 2,125 39 % $ 385 88 % $ 813 Canada 46 % 3,320 61 % 3,227 12 % 3,803 Other SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (1) Includes 10,000,000 shares of our common stock held in a rabbi trust in connection with our employment agreement with Jose Ferreira, Jr. We will not receive any of the proceeds from the sale of the shares of common stock because they are being offered by the selling stockholders and we are not offering any shares for sale under this prospectus. Recent Developments As of September 30, 2003, Discovery Toys was out of compliance with its seasonal overadvance amounts and borrowing covenants as defined in Discovery Toys revolving line of credit agreement with PNC Bank, as amended. On October 1, 2003, Discovery Toys and PNC Bank amended the Revolving Credit and Security Agreement to extend the ending date of the seasonal overadvance period from September 30, 2003 to October 31, 2003 and to allow seasonal overadvance amounts of up to $250,000 during October 2003. As of October 31, 2003, there were no borrowings under this line of credit. On December 3, 2003, Discovery Toys received an acknowledgement of default from PNC Bank confirming the occurrence of an Event of Default (as defined in the loan agreement) under Discovery Toys loan agreement with PNC Bank due to a failure by Discovery Toys to maintain the required Tangible Net Worth (as defined in the loan agreement) as of the three months ended September 30, 2003. While PNC Bank informed us that it did not intend to take any immediate action with respect to the Event of Default, upon an Event of Default, PNC Bank could have, at its discretion, terminated the loan and declared the loan immediately due and payable. On December 18, 2003, PNC Bank waived the Event of Default which had occurred as a result of the failure by Discovery Toys to maintain the required Tangible Net Worth provided that actual Tangible Net Worth for the quarter ended September 30, 2003 was not less than ($156,000). Tangible Net Worth was not less than United States 99 % $ 1,132,000 98 % $ 1,225,000 98 % $ 1,322,000 Caribbean 1 2 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents $(156,000) at September 30, 2003. Discovery Toys and PNC Bank also agreed to terms to establish a Seasonal Overadvance Period from April 1, 2004 through October 31, 2004. We believe that the seasonal overadvance amounts will be sufficient to fund Discovery Toys operations for the fiscal year ending September 30, 2004 provided that Discovery Toys remains in compliance with its bank covenants. On December 17, 2003, IFS entered into an amendment to its Revolving Credit and Security Agreement with PNC Bank to extend the term of the line of credit and note payable from December 31, 2003 to December 31, 2004 and to authorize IFS to make a payment of $500,000 to Eos to cover Eos overhead expenses. The amendment also authorized IFS to pay management or other fees to Eos or any affiliate provided that the fees do not exceed an aggregate amount of $300,000 (exclusive of the $500,000 overhead payment to Eos) in any consecutive 12 month period so long as no Default or Event of Default has occurred and to pay the management or other fees on or prior to January 31, 2004 so long as no Default or Event of Default has occurred and is continuing or would occur as a result of such payment. EOS INTERNATIONAL, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1373960 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number) 199 Elm Street New Canaan, Connecticut 06840 (203) 652-2525 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) (*) Includes IFS from the date of acquisition, January 14, 2003, to September 30, 2003. Earnings (loss) before income taxes, minority interest and cumulative effect of change in accounting principle (26 )% (26 )% (6 )% Jose Ferreira, Jr. President and Chief Executive Officer Eos International, Inc. 199 Elm Street New Canaan, Connecticut 06840 (203) 652-2525 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) (1) Due to a reverse merger completed on July 18, 2001 between Eos and Discovery Toys, results for periods prior to that date reflect the financial position and operations of Discovery Toys only. (2)
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000797448_verso_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000797448_verso_prospectus_summary.txt
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+S-1 SUMMARY About Verso Technologies, Inc. The Company designs, manufactures and markets products and solutions that enable carrier, enterprise and government entities to lower telecom costs, reduce network complexity and optimize network resources. The Company focuses on high growth areas within the communications market, with specific emphasis on application-based, turn-key solutions that leverage legacy circuit-based network investments towards converged, packet-based networks. The Company s principal executive offices are located at 400 Galleria Parkway, Suite 300, Atlanta, Georgia 30339, and the Company s telephone number at that address is (678) 589-3500. For more information about the Company, see the section of this document titled Additional Information About the Company. About the Offering and this Prospectus This prospectus covers the resale of up to 13,603,416 shares of Common Stock by the Selling Shareholders identified in this prospectus under the section of this document titled Selling Shareholders. The Company will not receive any proceeds from the resale of shares by any Selling Shareholder. See the section of this document titled Use of Proceeds. The Company has agreed to bear all expenses of registration of the Common Stock offered by this prospectus. This prospectus is part of a registration statement that the Company has filed with the Securities and Exchange Commission (the SEC ) utilizing a shelf registration process. Under the shelf registration process, the Selling Shareholders may, from time to time, sell the Common Stock described in this prospectus. The Company may prepare a prospectus supplement at any time to add, update or change the information contained in this prospectus. This prospectus does not contain all the information you can find in the registration statement or the exhibits filed with or incorporated by reference into the registration statement. You should read this prospectus and any prospectus supplement together with the registration statement, the exhibits filed with or incorporated by reference into the registration statement and the additional information described under the section of this document titled Where You can Find More Information.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000798600_brandpartn_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000798600_brandpartn_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..85cea9dc831f7309639066e6a7e5057ba2468c3d
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in common stock discussed under "Risk Factors" on pages 4 through 15 and the combined and consolidated financial statements, before making an investment decision. We use the term "BrandPartners", "the Company", "we", "us", and "our "in this prospectus to refer to the business of BrandPartners Group, Inc. and its subsidiary Willey Brothers, Inc. The shares of common stock offered by the selling stockholders consist of common stock. If a selling stockholder currently owns derivative securities, such shares will be exercised into shares of common stock immediately prior to the offering to the extent that the selling stockholder sells those shares in the offering. All references to years in this prospectus, unless otherwise noted, refer to our fiscal years, which end on December 31. For example, a reference to "2003" means the twelve-month period that ended December 31, 2003. THE COMPANY We provide banks, brokerage tax service and insurance companies, and traditional retail companies with merchandising, creative/point of sale, furniture, environmental design and build, and marketing services through our wholly-owned subsidiary, Willey Brothers, Inc. ("Willey Brothers"). Our common stock is quoted on the Over the Counter Bulletin Board under the trading symbol "BPTR." As of May 6, 2004, we had outstanding 31,513,554 shares of our common stock. Assuming the exercise of the all of the options and warrants, we will have issued and outstanding 54,549,007 shares of common stock. Our principal executive offices are located at 10 Main Street, Rochester New Hampshire 03839. Our telephone number is (800) 732-3999. Our website is located at http://www.bptr.com. ORGANIZATIONAL HISTORY We were incorporated in New York in August 1984, and prior to August 20, 2001 we were known as Financial Performance Corporation. On August 20, 2001, we reincorporated in Delaware by way of a merger into a wholly-owned Delaware subsidiary and changed our name to BrandPartners Group, Inc. BUSINESS We operate through our wholly-owned subsidiary, Willey Brothers. We purchased 100% of Willey Brothers' common stock on January 16, 2001. Willey Brothers provides financial services firms and other retailers with strategic market intelligence, data mining and network analysis services; creative, point-of-sale, and brand strategy services; system wide merchandising and distribution/logistics services; and branch design, build and project management services. We obtain the services of general contractors and merchandise vendors for our clients and customers. We do not directly perform any construction build out work nor do we maintain any construction equipment required to perform build out construction work. THE SECURITIES BEING OFFERED The securities being offered for resale hereby include shares of common stock issued by us to the selling security holders in connection with a private placement that was exempt from the registration requirements of the Securities Act. The selling security holders are offering for resale an aggregate of 20,782,923 shares of common stock. The number of shares of common stock being offered includes 19,167,923 shares of common stock previously issued and outstanding and 1,615,000 shares of common stock which are issuable upon exercise of options and warrants which shares have not yet been issued. The options and warrants have various exercise prices ranging from $0.01 to $2.75 (See "Selling Shareholders"). Assuming the exercise of all options and warrants for underlying shares of common stock included in this registration statement, we would receive $1,446,450 (See "Use of Proceeds"). REGISTRATION OF SHARES OF COMMON STOCK We have filed a registration statement, of which this Prospectus forms a part, under the Securities Act covering the 20,782,923 shares of common stock at no cost to the holders. We are paying for all of the costs and expenses of the registration. THE OFFERING Common Stock $.01 Par Value Outstanding as of 31,513,554 shares. May 6, 2004. Common Stock offered by selling stockholders 20,782,923 shares of common stock of which 19,167,923 shares of common stock are currently issued and outstanding. Voting Rights The holders of common stock have one vote per share. We refer you to "Description of Securities" Dividend Policy We do not anticipate paying dividends on our common stock.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000799088_carmike_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000799088_carmike_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f8e58fef0c1c5b479e43fa7f51365abb582b2109
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+++ b/parsed_sections/prospectus_summary/2004/CIK0000799088_carmike_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary contains basic information about us and this offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire prospectus carefully, including the section entitled Risk Factors and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. Except as otherwise indicated or required by the context, references to we , our or us refer to Carmike Cinemas, Inc., our subsidiaries and our predecessors. Our Company We are one of the largest motion picture exhibitors in the United States. As of September 30, 2003, we owned, operated or had an interest in 300 theatres with 2,239 screens located in 35 states, making us the second largest exhibitor in the country by number of theatres and the fourth largest by number of screens. We owned 71 of these theatres, leased 225 of these theatres and operated an additional four theatres under shared ownership. We operate a modern theatre circuit; since 1997 we have rebuilt or refurbished approximately 80% of our theatres. Of our 300 theatres, 261 show films on a first-run basis and 39 are discount theatres. In 2002, we generated total revenue of $507.2 million and had a net loss of $39.8 million. For the nine months ended September 30, 2003, we generated total revenue of $361.9 million and net income of $27.0 million. We target small- to mid-size non-urban markets. More than 80% of our theatres are located in communities with populations of fewer than 100,000 people. We believe there are several benefits of operating in small- to mid-size markets, including: Less competition from other exhibitors. We believe a majority of our theatres have limited competition for patrons. We believe most of our markets are already adequately screened and our smaller markets in particular cannot support significantly more screens. In addition, because most of our principal competitors are focused on building megaplexes, we do not expect many of our markets to be targeted by our competitors for new theatres. Lower operating costs. We believe that we benefit from lower labor, occupancy and maintenance costs than most other large exhibitors. For example, as of September 30, 2003, approximately 47% of our hourly employees worked for the federal minimum wage. Additionally, we own 71, or approximately 24%, of our theatres, which we believe provides us with further cost benefits. We believe the percentage of our owned theatres is among the highest of the large public theatre exhibitors. Fewer alternative entertainment opportunities. In our typical markets, patrons have fewer entertainment alternatives than in larger markets, where options such as professional sports and cultural events are more likely to be available. Greater access to film product. We believe we are the sole exhibitor in 75% of our film licensing zones, which we believe provides us with greater flexibility in selecting films that meet the preferences of patrons in our markets. We are the sole exhibitor in many of the small- to mid- size markets in which we operate. The introduction of a competing theatre in these markets could significantly impact the performance of our theatres. In addition, the type of motion pictures preferred by patrons in these markets is typically more limited than in larger markets, which increases the importance of selecting films that will appeal to patrons in our specific theatre markets. (1) As of December 31, 2003 our total debt was $406.4 million. During the quarter ended December 31, 2003, we repaid $18.5 million of outstanding indebtedness, comprised of $12.5 million under our term loan credit agreement, $5.7 million of long-term trade payables (general unsecured claims) and $0.3 million of capital lease obligations and other long-term debt. Our Strategy Our strategic plan has four principal elements: maximize the cash flows of our existing theatre circuit; pursue selected growth opportunities in existing and new markets; further reduce our debt; and leverage the experience of our management team. Maximize the cash flows of our existing theatre circuit. We believe that our strong competitive position in the small- to mid-size markets in which we operate and our focus on customer satisfaction will continue to drive growth in our revenue and profitability while enhancing the stability of our cash flows. Our experience in these markets enables us to manage our film, concession and other theatre-level costs effectively. We seek to increase our revenues and operating margins. In addition to periodically increasing our ticket prices, typically in line with our industry, we focus on maximizing concession sales per patron. We train our employees to minimize waiting time, allowing us to serve more customers before the start of a show, as well as to upsell our patrons into larger sized concession products that carry higher margins. Additionally, we regularly undertake reviews of rent, theatre operating costs and corporate overhead to determine where we can enhance productivity and reduce costs without affecting the quality of our service. We are also focused on continuously upgrading our existing theatres. Since 1997 we have rebuilt or refurbished approximately 80% of our theatres. Rebuilding typically involves conversion of a theatre to stadium seating. Refurbishment can include updating seats, enhancing the sound system, including digital sound, or replacing furnishings. We believe that we will need to invest relatively modest amounts in annual maintenance capital expenditures for the foreseeable future. Pursue selected growth opportunities in existing and new markets. We will continue to seek, on a selective basis, complementary development and acquisition opportunities to further enhance our competitive position in our existing and new markets. We leverage our detailed knowledge of local markets to identify opportunities to build new or replacement theatres or expand existing theatres. We selectively evaluate these opportunities and invest when we believe we can generate attractive rates of return. We believe we can selectively add screen capacity to our existing theatres in growing markets with relatively low capital expenditures. Further reduce our debt. All of the net proceeds from this offering will be used to reduce our existing debt. In addition, we intend to use future cash flows from our operating activities in part to further reduce debt. We believe that debt reduction will increase our financial flexibility and enhance stockholder returns. Leverage the experience of our management team. Carmike Cinemas was founded by members of the Patrick family in 1982, with its predecessor companies dating back to the 1930s. Michael W. Patrick has been our Chief Executive Officer since 1989 and has been with us since our inception. He oversees a senior management team that has an average of more than 20 years of industry experience. We have established a stock compensation plan for members of our senior management that we believe aligns their interests with those of our stockholders. Our ability to execute our strategic plan is subject to various risks, including many of the risks described
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000804073_lowrance_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000804073_lowrance_prospectus_summary.txt
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+Prospectus summary" --> Prospectus summary This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in shares of our common stock. You should read this
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. You
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated. Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data." Our Company Overview KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc. Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives. At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location. Industry The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services. Number of centers at the beginning of the period 1,169 1,242 1,264 1,264 1,264 Openings 44 35 28 24 12 Acquisitions 75 Number of centers at the beginning of the period 1,264 1,264 Openings 24 12 Acquisitions Openings 39 35 44 35 28 12 Acquisitions 13 75 Our Business Strengths Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following: Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers. High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 482 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003. Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability. Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and United States: Alabama 8 Kentucky 14 New York 10 Arizona 23 Louisiana 11 North Carolina 33 Arkansas 2 Maryland 26 Ohio 80 California 143 Massachusetts 49 Oklahoma 6 Colorado 36 Michigan 32 Oregon 20 Connecticut 19 Minnesota 39 Pennsylvania 65 Delaware 5 Mississippi 3 Rhode Island 1 Florida 70 Missouri 32 Tennessee 23 Georgia 31 Nebraska 10 Texas 95 Illinois 96 Nevada 8 Utah 8 Indiana 25 New Hampshire 4 Virginia 54 Iowa 10 New Jersey 51 Washington 58 Kansas 13 New Mexico 6 Wisconsin 24 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 retaining a high quality workforce, which is an important factor in the successful operation of our centers. Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers. Growth Opportunities We are pursuing the following growth opportunities: Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by: Sharing best practices Center directors are incentivized to share best practices; Providing incentives for center directors Bonus programs reward center directors for enrollment growth and overall operating profit performance; Using targeted marketing Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events; Maintaining competitive tuition pricing In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers; Increasing the number and availability of supplemental fee programs We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and Continuing to operate clean, safe and attractive facilities We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 16 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation. Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services. Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services. Transactions Related to This Offering and Our Capital Structure Our Existing Equity Investors KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders." Our Recapitalization Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration. We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock. Dividends on the Class B common stock will be multiplied by dividends on the Class A common stock. Dividends on the Class A and Class B common stock will be pari passu based on their relative dividends. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. However, following the redemption or maturity of the notes, each share of Class B common stock will also be convertible at the option of the holder into shares of Class A common stock. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock. KINDERCARE LEARNING CENTERS, INC. (Exact name of registrant as specified in its charter) DELAWARE (Jurisdiction of incorporation or organization) 8351 (Primary Standard Industrial Classification Code Number) 63-0941966 (I.R.S. Employer Identification Numbers) 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) For a detailed description of the transactions described above, see "Recapitalization." The following chart reflects our ownership structure immediately after this offering: Revolving Credit Facility Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness Revolving Credit Facility." Tender Offer and Consent Solicitation Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this Copies To: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness Senior Subordinated Notes." CMBS Mortgage Loan In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness Mortgage Loan." Our Corporate Information We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus. Net book value $ 1,277 $ 397 $ Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. The Offering Summary of the IDSs and Notes We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note. What are IDSs? IDSs are securities comprised of common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or after a subsequent issuance of notes with OID, a portion of each holder's notes, whether held directly as separate notes or in the form of IDSs, will be exchanged without any further action on the part of the holder, for a portion of the additional notes, such that each holder of separate notes or IDSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes, in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. What payments can I expect to receive as a holder of IDSs or notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right to defer interest payments on our notes, if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see "Description of Notes Terms of the Notes Interest Deferral." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our CALCULATION OF REGISTRATION FEE other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. We expect to make interest and dividend payments quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month. Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of common stock. IDSs have no voting rights separate and apart from the underlying equity securities. Our existing equity investors will own securities that represent approximately % of the voting power of our common equity outstanding immediately following this offering. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, our existing equity investors, or their transferees, will influence the outcome of all matters presented to our stockholders for a vote. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the New York Stock Exchange under the trading symbol "KLC." Listing is subject to our fulfillment of all of the requirements of the New York Stock Exchange, including the distribution of the IDSs to a minimum number of public holders. Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange? The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs? Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued? The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes. Can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and combination of IDSs will occur promptly in accordance with DTC's procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or combination of IDSs. See "Description of IDSs Book Entry Settlement and Clearance Separation and Combination." Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes, upon the continuance of a payment default for 90 days or upon certain bankruptcy events. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable; and Income Deposit Securities (IDSs)(2) Shares of Class A Common Stock, par value $0.01 per share(3) $625,000,000 $79,188(6) % Senior Subordinated Notes(4) Subsidiary Guarantees of % Senior Subordinated Notes(5) if additional IDSs are issued less than 45 days from the closing of this offering, they will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes (whether or not in the form of IDSs) in the future and these notes are sold with OID for U.S. federal income tax purposes, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances." Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and described in more detail in "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes" and "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased. Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3)Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs. (4)Includes $ million aggregate principal amount of KLC's % senior subordinated notes represented by IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering. (5)Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. What will be the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear. Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns. Immediately following such an event, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributed to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences." The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Summary of Our Class A Common Stock Issuer KinderCare Learning Centers, Inc. Shares of Class A common stock represented by IDSs offered hereby shares, or shares if the underwriters' over-allotment option to purchase additional IDSs is exercised in full. Shares of all classes of common stock to be outstanding following the offering and the recapitalization shares of Class A common stock and shares of Class B common stock. Voting rights Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividends. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. Dividend payment dates If declared, dividends will be paid quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month or, if any dividend payment date falls on a day that is not a business day, then on the next day that is a business day. Listing We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Summary of Notes Issuer KinderCare Learning Centers, Inc. Notes $ million aggregate principal amount of % senior subordinated notes represented by IDSs; and $ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs). Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding. Each note will have a principal amount of $ . Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each August, November, February and May, commencing , 2004 to holders of record on the first day of each such month or, if any interest payment date falls on a day that is not a business day, then on the next day that is a business day. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009 but before 2019 we may, subject to certain restrictions, defer interest payments on our notes on up to occasions for up to two quarters per occasion. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Notes Terms of the Notes Interest Deferral." In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The notes will mature on , 2019. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Optional redemption Upon the occurrence of certain tax circumstances, we may, at our option, redeem all, but not less than all, of the notes at any time, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. See "Description of Notes Optional Redemption." Other than as set forth above, we may not redeem the notes at our option prior to , 20 . After , 20 , we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. If we redeem any notes, there will be an automatic separation of IDSs. Change of control Upon the occurrence of a change of control, as defined under "Description of Notes Repurchase at the Option of Holders Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility. State or Other Jurisdiction of Incorporation or Organization Subsequent issuances may affect tax treatment The indenture governing the notes will provide that in the event we issue additional notes in connection with the issuance by us of additional IDSs and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." Ranking of notes and guarantees The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables, except for contractual subordination and statutory priorities provided under the bankruptcy code or other applicable laws. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes; I.R.S. Employer Identification Number we would have had $ million of pari passu indebtedness outstanding, including trade payables; and the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of liens; and consolidations, mergers and transfers of all or substantially all of our assets. Listing We do not anticipate that our notes will be separately listed on any exchange. Representation Letter None of the notes sold separately (not in the form of IDSs) in this offering, which we refer to as the "separate notes," may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See "Underwriting." Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
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+PROSPECTUS SUMMARY This summary highlights some of the information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and our financial statements and notes to those financial statements, before you decide to invest in our common stock. Our Business We are a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices and Internet-based mapping applications. Our map database, which is our principal product, is a highly accurate and detailed digital representation of road transportation networks in the United States, Canada, Western Europe and other regions. This database enables our customers to offer a broad range of dynamic navigation, route planning, location-based information and other geographic information products and services to consumer and commercial users. Products and services that use our database include a variety of features such as real-time, detailed turn-by-turn route guidance, driving directions, route optimization and map displays. We had net revenue of $273 million for the year ended December 31, 2003 and $79 million for the quarter ended March 28, 2004. We believe that our database is the most used source of digital map information for automotive and Internet-based navigation products and services in North America and Europe, and that we are a leading provider of such information for use in mobile devices. Every major automobile manufacturer that currently offers a navigation system in North America and Europe uses our database in one or more of its models, and virtually all of the European, Japanese and United States vehicle navigation systems manufacturers that currently offer a navigation system in North America and Europe, including Harman Becker, Alpine and Siemens, license our database. Since 1999, over 5 million vehicles have been equipped with navigation systems that use our database. Our principal Internet-based customers include AOL/MapQuest, Microsoft/MSN and Yahoo!. In 2003, these leading Internet portals and websites accounted for more than 6 billion route planning transactions derived from our database in North America. Our database offers extensive geographic coverage, including data at various levels of detail for 40 countries on four continents, covering approximately 8.7 million miles of roadway. Our most detailed coverage includes extensive road, route and related travel information, including road classifications, details regarding ramps, road barriers, sign information, street names and addresses and traffic rules and regulations. In addition, our database currently includes over 15 million points of interest, such as airports, hotels, restaurants, retailers, civic offices and cultural sites. Our multi-step database creation, maintenance and delivery process combines our use of proprietary software and technologies with the efforts of a dedicated field force of approximately 480 employees around the world. This process allows us to effectively collect, update and verify road network data with a level of quality and accuracy that allows us to deliver a superior product to our customers. Due to the complexity of our database building process and the depth and breadth of the information it contains, we believe it would take substantial time and resources for a new market entrant to build a digital map database with a comparable level of detail and accuracy. Our Market Opportunity Consumers have traditionally relied on printed maps for vehicle navigation and route planning information. In more recent years, the use of maps in digital form has proliferated, both as a substitute for the uses provided by paper maps and for more advanced functions. In particular, the development of the digital map database industry has been, and continues to be, accelerated by the commercialization of Global Positioning System (GPS) technology. The automotive industry led the This is the initial public offering of our common stock. All of the shares of common stock being sold in this offering are being sold by Philips Consumer Electronic Services B.V. and NavPart I B.V., our principal stockholders. Prior to this offering, Philips and NavPart beneficially owned 83.5% and 9.8%, respectively, of our common stock. We are not selling any shares in this offering and will not receive any proceeds from the sale of the shares by the selling stockholders. Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $20.50 and $22.50 per share. Our common stock has been approved for listing on the New York Stock Exchange under the symbol "NVT." See "Risk Factors" on page 9 to read about factors you should consider before buying shares of our common stock. early adoption of GPS-enabled navigation technologies and is currently the largest consumer of digital map databases such as ours. In addition, a variety of mobile devices have been introduced in recent years that are GPS-enabled and capable of supporting dynamic navigation and location-based service applications. Vehicle navigation systems that provide dynamic navigation assistance have been available to consumers in Western Europe since 1994. The popularity of these systems has increased since their introduction. Over the last three years, an average of 16.2 million new light vehicles were sold annually in Western Europe. We estimate that navigation systems were available as either a standard feature or an option on over 80% of the new vehicles sold in Western Europe in 2003. In a September 2003 report, the independent market research firm of Frost & Sullivan projected that 1.8 million vehicles in Europe in 2003 were equipped with navigation systems, up from 1.2 million vehicles in 2001. In the same report, Frost & Sullivan projected that the number of vehicles equipped with navigation systems in Europe will grow at a compound annual rate of more than 20% over the next five years, reaching a total of 4.6 million units in 2008. Although the U.S. and Canadian light vehicle market is larger in size than that of Western Europe with an average of 18.5 million new light vehicles sold annually over the last three years, the introduction of vehicle navigation systems in North America occurred later than in Western Europe. In 2003, we estimate that navigation systems were available for over 20% of new vehicles sold in North America, primarily in the luxury and sport utility vehicle classes. Frost & Sullivan, in a March 2003 report, projected that the shipments of vehicle navigation units were 430,000 in North America in 2003, up from 220,000 units in 2001. In the same report, Frost & Sullivan also projected shipments of vehicle navigation systems in North America will grow by a compound annual rate of more than 30% over the next five years, reaching a total of 1.7 million units in 2008. The market for consumer GPS-enabled devices such as personal digital assistants, or PDAs, wireless telephones, personal navigation devices, or PNDs, and laptop computers is expected to grow rapidly. Business Communications Company, Inc. (BCC), an independent industry research firm, in a December 2003 report, projected that at least half of all cellular handsets sold in the United States, or 37.5 million units, will incorporate GPS technology by 2008. Furthermore, BCC projected that the United States market for consumer GPS applications other than wireless phones, including PDAs, PNDs and portable vehicular systems, will grow at a rate of 25% per year through 2008. Consumer demand for navigation and location-based services is growing as consumers become familiar with and depend upon real-time electronically delivered information. According to a March 2004 study of wireless telephone users by In-Stat/MDR, an independent market research firm, respondents were interested in practical mapping services and over 60% of these respondents expressed an interest in location-based services such as finding friends or family. We believe opportunities for the use of our map database will increase due to the following reasons: Growing consumer awareness of the value of navigation systems and location-based services; Current low market penetration in all key end markets; Declining prices of navigation systems; Increasing availability of navigation systems for additional classes of vehicles and mobile devices; Advances in navigation technologies, user interfaces and data accuracy; Ability to benefit from new technology and product developments in any navigation devices where a digital map database is an essential component; and Per Share Proliferation of new map-oriented services such as location-based information and traffic data. Our Competitive Strengths We believe that we enjoy a number of important competitive strengths that drive our success and differentiate us from our competitors, including: Market Leadership. We are the leader in providing digital map data to automobile manufacturers and automotive navigation systems manufacturers in North America and Europe and navigation-related Internet application providers in North America. We are well-positioned to penetrate other industries utilizing highly accurate digital map data, such as the emerging GPS-enabled mobile device industry. Extensive Global Coverage. We offer extensive coverage, including 40 countries on four continents covering approximately 8.7 million miles of roadway. Detail and Richness of Our Database. Our database enables real-time door-to-door, turn-by-turn route guidance to specific addresses, points of interest and other locations. Integrated Data Collection Process. We have a data collection process that combines proprietary technology with a global field force of approximately 480 trained technicians that enables us to effectively collect, update and verify detailed road network data. Strong Business Relationships. We have long-standing, collaborative relationships with manufacturers of automobiles, vehicle navigation systems and mobile devices. Consistent Global Specification. Our maintenance of common data standards and a uniform digital mapping approach worldwide enables us to deliver highly accurate, timely and consistent data to our customers and allows us to more rapidly enhance maps and add attributes in new or existing coverage areas. Our Operating Strategy We are committed to enhancing the value of our map database to our customers. Key elements of our operating strategy, which is focused on sustaining our market leadership and competitive differentiation, include: Continuing to Improve Detail, Scope and Value of Our Map Database. We continually improve our database in key regions, such as the United States, Canada and Western Europe. Focusing on Quality and Consistency. We are dedicated to delivering accurate and consistent information in order to increase customer and end-user satisfaction and enhance our position as a high-quality provider of digital map information. Providing a Range of Value-Added Services. We assist our customers in using our database in their products and services and marketing those products and services to their customers and end-users. Improving Our Data Collection, Production and Delivery Technologies. We strive to continually improve our data collection, processing, distribution and deployment capabilities. Total Our Growth Strategy Our objective is to be the leading provider of digital map information and enabling technology for navigation and other geographic information-based products and services. Key elements of our growth strategy include: Capitalizing on Growth in Demand for Vehicle Navigation. We intend to capitalize on the expected growth of the vehicle navigation industry by leveraging our market leadership position and relationships with automobile manufacturers and navigation systems manufacturers. Facilitating Development of New Consumer Applications. We assist our customers in the development and deployment of navigation, route planning and location-based products and services to increase the number of products and services that can use our map database. Expanding Geographically. We intend to strengthen our global presence by expanding into areas that we believe, in collaboration with our customers, have high potential demand. Enhancing and Extending Product Offering. We continually work with our customers to enhance and extend our database product offering and improve functionality to meet the evolving demands of our customers and end-users. Increasing Sales of Map Updates. Our installed base provides growth opportunities via sales of map updates and we are developing a number of initiatives targeted at increasing consumer awareness of the availability and utility of updated map data and simplifying fulfillment logistics in order to promote update purchases. Our Relationship with Philips Philips Consumer Electronic Services B.V., or Philips B.V., is our principal stockholder. As of June 1, 2004, Philips B.V. owned, in the aggregate, 73,132,232 shares of our common stock (approximately 83% of the total issued and outstanding common stock). Following this offering, Philips B.V. will continue to own approximately 42.1% of our issued and outstanding common stock, or 35.8% if the underwriters exercise their overallotment option in full. In addition, the shares of NavPart II B.V., which is the recordholder of 2,580,430 shares of our common stock, are subject to certain put and call rights between NavPart I B.V. and Philips. If Philips acquires the shares of NavPart II pursuant to these rights, Philips would own approximately 45.0% of our issued and outstanding common stock, or 38.8% if the underwriters exercise their overallotment option in full. NavPart I has expressed its intention to require Philips, to the extent Philips does not exercise its right to purchase the shares of NavPart II, to purchase the shares of NavPart II on or about the time of this offering. As a result, Philips B.V. will continue to own a substantial portion of our common stock and may exercise significant influence over corporate decisions requiring stockholder approval. Koninklijke Philips Electronics N.V., or Royal Philips Electronics, is the parent company of Philips B.V. and other subsidiaries that currently have, or have in the past had, relationships with us. In this prospectus, we sometimes refer to Philips B.V., Royal Philips Electronics and these other subsidiaries as Philips. We have had a relationship with Philips since 1988. Philips has provided us with equity and debt financing, and we have procured various goods and services through our relationship with them. Two of our directors currently are employed by Royal Philips Electronics or its subsidiaries, and the Chairman of our board of directors was employed by Royal Philips Electronics or one of its subsidiaries until June 2002 and is currently advising Royal Philips Electronics. These matters are described in further detail under "Certain Relationships and Related Transactions." Public offering price $ $ Underwriting discount $ $ Proceeds, before expenses, to the selling stockholders $ $ The underwriters may also purchase up to an additional 5,875,260 shares from the selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares will be ready for delivery on or about , 2004. Recent Developments Our second quarter ended June 27, 2004. Set forth below is a discussion of our preliminary unaudited financial information for the three and six months ended June 29, 2003 and June 27, 2004. However, we have not finalized our financial statements for this period, and it is possible that our actual results may vary from the information discussed below. Our results of operations for the three months and six months ended June 27, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year 2004. Certain components of the June 27, 2004 results are based upon an assumed initial public offering price of $21.50 per share. Net revenues for the three months ended June 27, 2004 were $97 million compared to $68 million for the three months ended June 29, 2003. Net revenues for the six months ended June 27, 2004 were $176 million compared to $120 million for the six months ended June 29, 2003. The increase in total revenue in both periods was due to increased unit sales to customers, as well as a higher proportion of unit sales where we provided distribution services. Operating income for the three months ended June 27, 2004 was $25 million compared to $21 million for the three months ended June 29, 2003. Operating income for the six months ended June 27, 2004 was $41 million compared to $32 million for the six months ended June 29, 2003. The increase in operating income in both periods was due primarily to our revenue growth in 2004, partially offset by higher operating expenses. The higher operating expenses for the three and six months ended June 27, 2004 primarily arose from increases in expenses of approximately $10 million and $19 million, respectively, associated with the higher proportion of unit sales where we provided distribution services; an increased investment in our database due to geographic expansion, primarily in North America and Europe, and quality improvements of approximately $6 million and $14 million, respectively; increased investments to grow our sales force and expand our product offerings of approximately $5 million and $10 million, respectively; and expenses related to our initial public offering of approximately $1 million in both periods and stock-based compensation charges of approximately $1 million and $2 million, respectively. Net income for the three months ended June 27, 2004 was $15 million compared to $23 million for the three months ended June 29, 2003. Net income for the six months ended June 27, 2004 was $25 million compared to $38 million for the six months ended June 29, 2003. The decrease in net income in both periods was due primarily to foreign currency gains we recognized in the three and six months ended June 29, 2003 of $2 million and $6 million, respectively and the recording of income tax provisions for the three and six months ended June 27, 2004 of $9 million and $15 million, respectively, following the reversal of the valuation allowance related to our net operating loss carryforwards in the fourth quarter of 2003. Basic income per share of common stock for the three months ended June 27, 2004 was $0.18 compared to $0.27 for the three months ended June 29, 2003. Basic income per share of common stock for the six months ended June 27, 2004 was $0.29 compared to $0.46 for the six months ended June 29, 2003. Diluted income per share of common stock for the three months ended June 27, 2004 was $0.17 compared to $0.26 for the three months ended June 29, 2003. Diluted income per share of common stock for the six months ended June 27, 2004 was $0.27 compared to $0.44 for the six months ended June 29, 2003. Corporate Information We originally incorporated in the State of California in August 1985 as Karlin & Collins, Inc., and reincorporated in the State of Delaware in September 1987 as Navigation Technologies Corporation. In February 2004, we changed our name to NAVTEQ Corporation. Our principal executive offices are located at 222 Merchandise Mart, Suite 900, Chicago, Illinois 60654, and our telephone number at that address is (312) 894-7000. We maintain a web site at www.navteq.com. Information contained on, or that may be accessed through, our web site is not part of this prospectus. Credit Suisse First Boston Merrill Lynch & Co. The Offering Common stock offered by the selling stockholders 39,168,402 shares Common stock to be outstanding after this offering 87,621,435 shares Use of proceeds We will not receive any of the proceeds from the sale of shares in this offering. The selling stockholders will receive all net proceeds from the sale of the shares. Dividend policy Except for a special cash dividend in the aggregate amount of approximately $47.2 million paid to our common stockholders on June 18, 2004, we have never declared or paid cash dividends on our common stock. We do not expect to pay any cash dividends in the foreseeable future. See "Dividend Policy" on page 25 for a discussion of the factors that will affect the determination by our board of directors to declare dividends, the restrictions on our ability to pay dividends imposed by our existing credit agreement and other matters concerning our dividend policy.
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+S-1/A Summary 1
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+PROSPECTUS SUMMARY You should read this summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus. Our Business Our principal business activity involves the design, development and worldwide marketing of high quality consumer products for the apparel and accessory markets. We do not manufacture any apparel or accessory products but outsource the manufacturing to third parties. We sell our products to a large number of different retail, distributors and private label customers around the world. Retail customers and distributors purchase finished goods directly from us. Retail customers then sell the product through their retail stores and distributors sell our products to retailers in the international marketplace. Private label customers outsource the production and sourcing of their private label products to us and then sell through their own distribution channels. Private label customers are generally retail chains who desire to sell apparel and accessory products under their own brand name. We work with our private label customers to create their own brand image by custom designing products. In creating a unique brand, our private label customers may provide samples to us or may select styles already available in our showrooms. We believe we have established a reputation among these private label buyers for the ability to arrange for the manufacture of apparel and accessory products on a reliable, expeditious and cost-effective basis. Our branded label products, which include accessories and apparel, are designed, developed and marketed by us internally pursuant to the license agreement under which we have licensed the brand and/or mark. We then outsource the manufacturing and distribution of the branded products. We sell our branded products to the retail customers or distributors. We are then obligated to pay a certain percentage of royalties on our net sales of the branded products to the licensor. We believe that we have established a reputation for our ability to produce a quality branded product in the marketplace. We operate our consumer products business through three wholly-owned operating subsidiaries, Innovo, Inc., or Innovo, Joe's Jeans, Inc., or Joe's, and Innovo Azteca Apparel, Inc., or IAA. Our products are currently manufactured by independent contractors located in Los Angeles, California, Mexico and Asia, including, Hong Kong, China, Korea, Vietnam and India. The products are then distributed out of our warehouse facilities located in Los Angeles or directly from the factory to the customer. For the fiscal year ended November 29, 2003, or fiscal 2003, approximately 22% of our apparel and accessory products were manufactured outside of North America. The rest of our accessory and apparel products for fiscal 2003 were manufactured in the United States (approximately 21%) and Mexico (approximately 57%). All of our products manufactured in Mexico are manufactured by Azteca Productions International, Inc., or Azteca, and/or its affiliates, as discussed below. Azteca is controlled by two of our significant stockholders, Hubert Guez and Paul Guez. Our operations are comprised of two reportable segments: apparel and accessory, with the operations of our Joe's and IAA subsidiaries representing the apparel segment and our Innovo subsidiary conducting business in the accessory segment. Segment revenues are generated from the sale of consumer products by Joe's, IAA and Innovo. Our corporate activities are represented by the operations of Innovo Group Inc., our parent company, or IGI, and our real estate operations are conducted through our wholly-owned subsidiaries, Leasall Management, Inc., or Leasall, and Innovo Realty, Inc., or IRI. Our real estate operations do not currently require a substantial allocation of our resources and are not a significant part of our management's daily operational functions. Thus, our real estate operations are not currently defined as a distinct operating segment, but are classified as "other" along with our other corporate activities. Strategic relationship with two of our significant stockholders, Hubert Guez and Paul Guez, and affiliated companies Beginning in the summer of 2000, we entered into a series of transactions with two of our significant stockholders, Hubert Guez and Paul Guez, and their affiliated companies, such as Azteca and/or Commerce Investment Group LLC, or Commerce. The Guez brothers and their affiliated companies have in the aggregate more than 50 years of experience in the apparel industry with a specialty in denim apparel and related products. As discussed in greater detail below, our strategic relationship with the Guez brothers and their affiliated companies has had many tangible benefits for us. Our relationship with the Guez brothers began in the summer of 2000 when the Guez brothers through their affiliated company, Commerce, which the Guez brothers control, invested in our company. Pursuant to a stock and warrant purchase agreement, Commerce acquired 2,863,637 shares of our common stock and 3,300,000 common stock purchase warrants. An investor rights agreement also provides Commerce with a contractual right to nominate three individuals to our board of directors. Commerce has not exercised this right at this time. Based on a Schedule 13D/A filed with the Securities -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- and Exchange Commission on March 9, 2004 by Commerce, the Guez brothers and their affiliates, they beneficially own in the aggregate approximately 26.47% of our common stock. As part of Commerce's equity investment in our company, we entered into several other arrangements with Commerce in order to reduce our manufacturing and distribution costs and to increase the effectiveness and capacity of our distribution network. Pursuant to a supply agreement and a distribution agreement with Commerce, we agreed to purchase all of our accessory products, which at the time primarily consisted of denim tote bags and aprons, from Commerce and to have Commerce distribute these products out of its Los Angeles distribution facility. Commerce manufactures our accessory products out of its facilities located in Mexico. These agreements were renewed in August 2002 for an additional two-year term and are automatically renewed for additional two-year terms unless terminated by either party with 90 days notice. See "Note 1 - Business Description - Restructuring of Operations" in the Notes to Consolidated Financial Statements for a further discussion of the equity investment by and the terms of the supply and distribution agreements with Commerce. Our strategic relationship with Commerce allowed us to close our domestic manufacturing and distribution facilities and to move forward with diversifying our product mix and offerings to include apparel products in addition to accessory products. In an effort to enter the apparel market quickly and efficiently we, through IAA, acquired Azteca's knit apparel division in August 2001 in exchange for 700,000 shares of our common stock and promissory notes in the amount of $3.6 million. See "Note 3 - Acquisitions - Azteca Production International, Inc. Knit Division" in the Notes to Consolidated Financial Statements for a further discussion of this acquisition. In February 2001, we continued to expand our apparel business by acquiring a ten-year license for the "Joe's" and "Joe's Jean's" brands from JD Design, LLC and forming our Joe's subsidiary. See "Business - License Agreements and Intellectual Property" for a further discussion of this license agreement. This license agreement enables Joe's to create, design and market high-end denim apparel products. Our strategic relationship with the Guez brothers allowed us to quickly and efficiently capitalize on this license and enter into the denim apparel market by outsourcing the manufacture and distribution of the denim apparel products created pursuant to the license to Commerce and its affiliates. During fiscal 2001 and 2002, the combined accessory and denim apparel products purchased from and other services provided by Commerce and/or its affiliates were approximately $5.7 million and $16.0 million, respectively, or 90% and 80%, respectively, of our manufacturing and distribution costs for such periods. During fiscal 2003, our dependence on Commerce and its affiliates decreased for these services but still constituted 68% of our manufacturing and distribution costs for fiscal 2003, or approximately $47.9 million of accessory, craft and denim apparel products from and other services provided by Commerce and/or its affiliates. Although we now use additional suppliers to meet our needs, we intend to continue to take advantage of Commerce's expertise with denim products so long as we believe it is in our best interest. On July 17, 2003, we, through IAA, entered into an asset purchase agreement, or Blue Concept APA, with Azteca and the Guez brothers. Pursuant to the Blue Concept APA, we acquired Azteca's Blue Concept division, or the Blue Concept Division, for a $21.8 million seven-year convertible promissory note, subject to adjustment, or the Blue Concept Note. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Recent Acquisitions and Licenses and - Long Term Debt" and "Note 9 - Long Term Debt - Promissory Note to Azteca in connection with Blue Concept Division Acquisition" in the Notes to Consolidated Financial Statements" for a further discussion of certain terms of this acquisition and the Blue Concept Note. In accordance with the APA and Nasdaq rules, on March 5, 2004, we conducted a special meeting of our stockholders to approve the conversion of approximately $12.5 million of the Blue Concept Note into a maximum of 4,166,667 shares of our common stock. The conversion was approved by our stockholders and as a result, Azteca and the Guez brothers were initially issued 3,125,000 shares of our common stock with the possible issuance of up to 1,041,667 additional shares of common stock upon the occurrence of certain contingencies described in the Blue Concept APA. In addition, as part of the transaction, we entered into another supply agreement with an Azteca affiliate to purchase products to be sold by our Blue Concept Division. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Recent Acquisitions and Licenses" for a further discussion of certain terms of this supply agreement. We have continued to expand our denim product mix by entering into an assignment with Blue Concept LLC, which is controlled by Paul Guez, for all the rights, benefits and obligations of a license agreement between Blue Concept LLC and B.J. Vines, Inc., the owner of the Betsey Johnson(R) brand, for exclusive right to design, market and distribute women's jeans and coordinating denim related apparel, such as t-shirts and tops under the Betsey Johnson(R) brand name in the United States, its territories and possessions, and Canada. We did not compensate Paul Guez for this assignment. 2 -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- On February 16, 2004, Joe's entered into a Master Distribution Agreement, or MDA, with Beyond Blue, Inc., or Beyond Blue, whereby Joe's granted Beyond Blue exclusive distribution rights for Joe's products outside the United States. Beyond Blue, a Los Angeles-based company that specializes in international consulting, distribution and licensing for apparel products, secured an exclusive right to distribute Joe's products outside the United States, subject to current license agreements such as the license with Itochu and Joe's Canadian distributor remaining in place. During fiscal 2003, we moved our headquarters and principal executive offices from 5900 S. Eastern Avenue, Suite 120, Commerce, California 90040 to 5804 East Slauson Avenue, Commerce, California 90040. The 5804 East Slauson Avenue space is utilized under a verbal agreement with Azteca, pursuant to which we pay to Azteca a fee for allocated expenses associated with our use of office and warehouse space and expenses incurred in connection with maintaining such office and warehouse space. These allocated expenses include, but are not limited to: rent, security, office supplies, machine leases and utilities. In addition, we have verbal agreements with Azteca and/or its affiliates regarding the supply and distribution of other apparel products we sell. Other Third Party Manufacturers As discussed above, historically, we have primarily used Commerce and its affiliates for our manufacturing needs. In fiscal 2003, we significantly diversified our apparel products to include a wider array of products, including, but not limited to, denim products. These non-denim products, as well as some denim products, are purchased from third party independent suppliers, including Commerce and/or its affiliates. While we now use numerous suppliers to meet our needs, we intend to continue to take advantage of Commerce's and its affiliates' expertise with denim products when it is in our best interest to do so. ----------------------------------------------------------- We are incorporated under the laws of the State of Delaware. Our corporate headquarters are located at 5804 East Slauson Avenue, Commerce, California, 90040. Our telephone number is (323) 725-5516. We also have operational offices and/or showrooms in Los Angeles, New York, Knoxville and Hong Kong and third party showrooms in New York, Los Angeles, Tokyo and Paris. Although we maintain a website at www.innovogroup.com, we do not intend that the information available through our website be incorporated into this prospectus. For additional information about us and our businesses, see "Where You Can Find More Information." 3 -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- The Offering <TABLE> <S> <C> Issuer........................................................... Innovo Group Inc. Common stock offered by the selling stockholders................. 298,590 Common stock outstanding before and after the offering........... 28,917,850 (excludes 5,000 treasury shares issued but not outstanding) Use of Proceeds.................................................. We will not receive any proceeds from this offering, except the proceeds from the exercise of warrants offered hereby. Registration Rights.............................................. We have agreed to use all reasonable efforts to keep the shelf registration statement, of which this prospectus forms a part, effective until the earlier of: o the first anniversary of the declaration by the Securities and Exchange Commission that the shelf registration statement is effective; o the sale of all of the shares of common stock covered by the shelf registration statement; and o the expiration of the holding period applicable to the shares of common stock held by non-affiliates of Innovo under Rule 144(k) of the Securities Act, or any successor provision, subject to certain exceptions. Trading.......................................................... Our common stock is traded on the Nasdaq SmallCap Market under the symbol "INNO." Risk Factors..................................................... See "Risk Factors" and the other information in this prospectus for a discussion of the factors you should carefully consider before deciding to invest in our common stock. </TABLE> ---------------------------------------------------------------- The outstanding share information is based on our shares outstanding as of March 5, 2004. This information excludes 2,353,332 shares of common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $2.31 and an aggregate of 1,796,668 shares of common stock available for future issuance under our employee and director stock option plan as of March 5, 2004. 4 -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Summary Consolidated Financial Information The following table provides summary consolidated financial data for us for the periods ended and as of the dates indicated. You should read the summary consolidated financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our consolidated financial statements and related notes appearing elsewhere in this prospectus. <TABLE> <CAPTION> Years Ended (in thousands, except per share data) -------------------------------------------------------- 11/29/03 11/30/02 12/01/01 11/30/00 11/30/99 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Net Sales $ 83,129 $ 29,609 $ 9,292 $ 5,767 $ 10,837 Cost of Goods Sold 70,153 20,072 6,335 5,195 6,252 -------- -------- -------------------- -------- Gross Profit 12,976 9,537 2,957 572 4,585 Selling, General & Administrative (2) 19,264 8,092 3,189 4,863 5,401 Depreciation & Amortization 1,227 256 167 250 287 -------- -------- -------------------- -------- Income (Loss) from Operations (7,515) 1,189 (399) (4,541) (1,103) Interest Expense (1,216) (538) (211) (446) (517) Other Income 526 235 84 30 280 Other Expense (68) (174) (3) (99) -- -------- -------- -------------------- -------- Income (Loss) before Income Taxes (8,273) 712 (529) (5,056) (1,340) Income Taxes 44 140 89 -- -- -------- -------- -------------------- -------- Income (Loss) from Continuing Operations (8,317) 572 (618) (5,056) (1,340) Discontinued Operations -- -- -- -- (1) Extrordinary Items (1) -- -- -- (1,095) -- Net Income (Loss) $ (8,317) $ 572 $ (618) $ (6,151) $ (1,341) Income (Loss) per Share from Continuing Operations Basic $ (0.49) $ 0.04 $ (0.04) $ (0.62) $ (0.22) Diluted $ (0.49) $ 0.04 $ (0.04) $ (0.62) $ (0.22) Weighted Average Shares Outstanding Basic 17,009 14,856 14,315 8,163 5,984 Diluted 17,009 16,109 14,315 8,163 5,984 Balance Sheet Data: Total Assets $ 46,365 $ 15,143 $ 10,247 $ 7,416 $ 6,222 Long-Term Debt 22,344 3,387 4,225 1,340 2,054 Stockholders' Equity 16,482 5,068 4,519 3,758 1,730 </TABLE> (1) Represents the loss from the early extinguishments of debt in fiscal 2000. (2) Amount includes a $145,000 impairment write down of long-term assets in 1999 as well as $293,000 related to the termination of a capital lease and $100,000 for the settlement of a lawsuit in 1999, and a $600,000 impairment write down of long-term assets in fiscal 2000. 5 -------------------------------------------------------------------------------- <PAGE>
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+PROSPECTUS SUMMARY This summary highlights selected information about us and the offering that is contained elsewhere in this prospectus. You should read the entire prospectus before making an investment decision, especially the information presented under the heading Risk Factors and the financial statements and related notes included elsewhere in this prospectus, as well as the other documents to which we refer you. Except as otherwise indicated by the context, references in this prospectus to we, us, our, or the Company are to the combined business of U.S. Home Systems, Inc. and its wholly-owned direct subsidiaries, First Consumer Credit, Inc., U.S. Remodelers, Inc., USA Deck, Inc., U.S. Window Corporation and Facelifters Home Systems, Inc., as well as their respective subsidiaries, and in each case do not include the underwriters or selling stockholders. Unless the context otherwise requires, the information in the prospectus assumes that the underwriters will not exercise their over-allotment option. U.S. HOME SYSTEMS, INC. Our Business We manufacture or procure, design, sell and install custom quality, specialty home improvement products and provide financing services to customers of residential remodeling contractors throughout the United States. We had revenues of $78.6 million and net income of $1.5 million for the year ended December 31, 2003, and revenues of $19.4 million and a net loss of $274,380 for the three month period ended March 31, 2004. Home Improvement We manufacture or procure, design, sell and install a range of specialty remodeling products through our home improvement operations including: Kitchen Refacing Products and Services Cabinet refacing Laminate and Corian countertops Replacement sinks, faucets and other related products Bathroom Refacing Products and Services Cabinet refacing Acrylic tub liners and wall surrounds Laminate and Corian vanity tops Replacement sinks, faucets, commodes and other related products Replacement Windows Wood Decks Our home improvement products are marketed directly to consumers through a variety of media sources under the following brands: The Home Depot At-Home Services The Home Depot Cabinet Refacing Century 21 Home Improvements Renewal by Andersen Facelifters Cabinet Clad USA Deck-Designer Deck 1.1zz Form of Underwriting Agreement in connection with the Offering. 2.1* Agreement and Plan of Merger between U.S. Pawn, Inc. and U.S. Remodelers, Inc. dated as of November 3, 2000. 2.2** Agreement and Plan of Merger dated February 13, 2001, by and between U.S. Pawn, Inc. and U.S. Home Systems, Inc. 2.3*** Agreement and Plan of Merger dated September 28, 2001, by and between Home Credit Acquisition, Inc., U.S. Home Systems, Inc., and First Consumer Credit, LLC and its members. 2.4**** Agreement and Plan of Merger by and among Remodelers Credit Corporation, a wholly-owned subsidiary of U.S. Home Systems, Inc., Deck America, Inc., and Shareholders of Deck America, Inc. dated October 16, 2002, and effective as of November 30, 2002. 2.5**** Amendment No. 1 to Agreement and Plan of Merger entered into on November 30, 2002, by and among Remodelers Credit Corporation, U.S. Home Systems, Inc., Deck America, Inc., and Shareholders of Deck America, Inc. 3.1** Certificate of Incorporation of U.S. Home Systems, Inc. as filed with the Secretary of State of Delaware on January 5, 2001. 3.2** Bylaws of U.S. Home Systems, Inc. 4.1** Common Stock specimen U.S. Home Systems, Inc. 5.1 Opinion of Jackson Walker L.L.P. regarding legality of securities being registered. 10.1**** Escrow Agreement effective as of November 30, 2002, by and among Remodelers Credit Corporation, U.S. Home Systems, Inc., Shareholders of Deck America, Inc., and Corporate Stock Transfer. 10.2**** Noncompetition Agreement effective as of November 30, 2002, by and among Remodelers Credit Corporation, U.S. Home Systems, Inc., and Shareholders of Deck America, Inc. 10.3**** Purchase and Sale Contract (Improved Property) executed and effective as of October 16, 2002, by and between Remodelers Credit Corporation and MAD, L.L.C. for improved property situated in Prince William County, City of Woodbridge, Virginia. 10.4**** Cognovit Promissory Note, dated December 4, 2002, in the principal amount of $2,125,000, executed in favor of General Electric Capital Business Asset Funding Corporation, as Payee, by Remodelers Credit Corporation, as Borrower. 10.5**** Guaranty Agreement, dated December 4, 2002, executed in favor of General Electric Capital Business Asset Funding Corporation, as Lender, by U.S. Home Systems, Inc., as Guarantor. 10.6**** Deed of Trust, Security Agreement, Assignment of Leases and Rents, Financing Statement and Fixture Filing, dated as of December 4, 2002, in favor of Lawyers Title Realty Services, Inc., as Trustee, for the benefit of General Electric Capital Business Asset Funding Corporation, as Beneficiary, by Remodelers Credit Corporation, as Trustor. 10.7**** Environmental Indemnity Agreement Regarding Hazardous Substances executed on December 4, 2002, by Remodelers Credit Corporation, as Borrower, and U.S. Home Systems, Inc., as Guarantor, for the benefit of General Electric Capital Business Asset Funding Corporation, as Lender. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Table of Contents Index to Financial Statements We currently operate 21 kitchen, bath and window sales and installation centers in 12 states serving 15 major metropolitan areas and maintain a marketing center in Boca Raton, Florida. We manufacture our cabinet refacing products, custom countertops, and bathroom cabinetry. We also operate five wood deck sales centers, three of which also serve as manufacturing facilities, that collectively serve seven Mid-Atlantic and Northeastern markets. We manufacture the components for our decks utilizing non-arsenic pressure-treated lumber in all of our deck manufacturing facilities. Our home improvement operations reported revenues of $74.2 million and net income of $1.7 million for the year ended December 31, 2003 and revenues of $18.0 million and a net loss of $272,000 for the three month period ended March 31, 2004. The Home Depot Relationship In August 2003, as a result of the successful completion of a pilot program with The Home Depot in selected Mid-Atlantic markets, we entered into an agreement with The Home Depot to sell, furnish and install wood deck systems to The Home Depot customers in over 240 The Home Depot stores in the metropolitan areas of Washington, D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia, Boston, Massachusetts, Hartford, Connecticut and the states of New Jersey and Pennsylvania. In August 2003, we announced a one-year pilot program with The Home Depot whereby we are the exclusive provider of kitchen cabinet refacing products and related installation services in approximately 240 The Home Depot stores in designated markets in California, Colorado, Oregon and Washington. In May 2004, we amended this agreement with The Home Depot to extend the term to May 2006 and to add approximately 83 The Home Depot stores in Michigan and Minnesota to the 240 stores originally included in this program. In February 2004, we entered into a one-year pilot program with The Home Depot to provide custom designed, installed bathtub liners and wall surrounds and related installation services to approximately 130 The Home Depot stores in the Los Angeles and San Diego, California and Denver, Colorado markets. In May 2004 we amended this agreement with The Home Depot to extend the term to May 2006 and to add approximately 193 The Home Depot stores in California, Michigan, Minnesota, Oregon and Washington to the 130 stores originally included in this program. As a result of the recent amendments to our The Home Depot agreements, our kitchen and bathroom refacing products and installation services will be offered in the same 323 The Home Depot stores in designated markets in California, Colorado, Michigan, Minnesota, Oregon and Washington, while our wood deck products will be offered in 240 The Home Depot stores in seven Mid-Atlantic and Northeastern markets. Consumer Finance We operate within a niche market of the home improvement consumer finance industry. We purchase retail installment obligations, or RIOs, from residential remodeling contractors throughout the United States, including RIOs originated by our own home improvement operations. The availability of this financing program provides our home improvement operations with a consistent and reliable financing source and enables us to offer a broad range of credit products to other residential remodeling contractors. As of March 31, 2004, our RIO portfolio was approximately $37.2 million and our average RIO balance was approximately $6,300 with a weighted average maturity of 106 months. During the first quarter of 2003, we changed our consumer finance business model to implement a strategy of buying and holding RIOs rather than packaging them for sale to credit institutions. We believe this new strategy will provide us with greater earnings potential in the long-term because the finance charges earned over the life of the RIOs will be greater than the one-time premium that we previously earned upon the sale of the RIOs. Our consumer finance business generated revenues of $4.3 million and a net loss of $180,000 for the year ended December 31, 2003 and revenues of $1.4 million and a net loss of $2,000 for the three month period ended March 31, 2004. Cash used in investing activities (2,444,830 ) (6,239,066 ) Financing Activities Proceeds from lines of credit and long-term borrowings 10,929,570 10,356,088 Principal payments on lines of credit, long-term debt, and capital leases (9,264,549 ) (5,721,177 ) Credit facility origination costs (670,085 ) Change in restricted cash (47,064 ) Home Improvement Interior products $ 13,940 $ 10,178 $ 76 $ 55 Exterior products 11,272 9,042 587 160 Consumer Finance 42,892 12,632 3 10.8 Receivables Loan and Security Agreement in the aggregate amount of $75,000,000, dated February 11, 2003, among FCC Acceptance Corp. as the Borrower, First Consumer Credit, Inc. as the Servicer, Autobahn Funding Company LLC as a Lender, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main as agent for the Lender, U.S. Bank National Association as the Custodian and the Agent s Bank, and Compu-Link Corporation as the Back-Up Servicer. 10.9 Purchase and Contribution Agreement, dated February 11, 2003, by and between First Consumer Credit, Inc. and FCC Acceptance Corp. 10.10 Custodial and Collateral Agency Agreement, dated February 11, 2003, by and among U.S. Bank National Association, FCC Acceptance Corp., First Consumer Credit, Inc. and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main. 10.11 Sinking Fund Account Agreement, dated February 11, 2003, by and among U.S. Bank National Association, FCC Acceptance Corp., First Consumer Credit, Inc. and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main. 10.12 Parent Guarantee, dated February 11, 2003, by U.S. Home Systems, Inc., as the Guarantor, in favor of FCC Acceptance Corp. and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main on behalf of Autobahn Funding Company LLC. 10.13 Business Advisory, Stockholder and Financial Community Relations Agreement dated May 5, 2003 by and between Bibicoff & Associates, Inc. and U.S. Home Systems, Inc. 10.14 Stock Purchase Agreement dated May 5, 2003, by and between Bibicoff & Associates, Inc. and U.S. Home Systems, Inc. 10.15 Secured Promissory Note dated May 5, 2003, in the principal amount of $274,950 payable to U.S. Home Systems, Inc. by Bibicoff & Associates, Inc. 10.16 Stock Pledge Agreement dated May 5, 2003, by and between Bibicoff & Associates, Inc. and U.S. Home Systems, Inc. 10.17 Guaranty dated May 5, 2003, signed by Harvey Bibicoff guaranteeing the payment of the $274,950 Note by Bibicoff & Associates, Inc. 10.18 Agreement in Respect of Termination of Loan Purchase and Servicing Agreement dated April 30, 2003, by and between Bank One, N.A. and First Consumer Credit, Inc. 10.19 Promissory Note dated May 23, 2003, in the principal amount of $4,000,000 payable by First Consumer Credit, Inc., as Maker, to First Savings Bank, a Federal Savings Bank, as Payee. 10.20 Deed of Trust, Assignment of Rents and Security Agreement dated May 23, 2003, by and between Chickadee Partners, L.P., as Grantor, Richard J. Driscoll, as Trustee, and First Savings Bank, as Beneficiary, which secures the payment of the First Savings Bank Note with certain real estate and improvements located in Transylvania County, North Carolina. 10.21 Security and Pledge Agreement dated May 23, 2003, by and between Chrystine B. Roberts and Mark A. Roberts Joint Tenants, as Pledgor, and First Savings Bank, as Secured Party, which secures the payment of the First Savings Bank Note with a securities account at Charles Schwab & Co., Inc. 10.22 Security and Pledge Agreement dated May 23, 2003, by and between Angela Buchholz Children s Trust, as Pledgor, and First Savings Bank, as Secured Party, which secures payment of the First Savings Bank Note with a securities account at Southwest Securities, Inc. AMENDMENT NO. 7 To FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents Index to Financial Statements Our Strategies Our objective is to grow our home improvement and consumer finance businesses. We intend to pursue this objective through the following business strategies: Expand Our Product Distribution and Grow Our Business Through Our Relationship with The Home Depot. We provide wood deck products and services in over 240 Mid-Atlantic and Northeastern The Home Depot stores. We are an exclusive provider of kitchen and bathroom refacing products and related installation services in approximately 323 The Home Depot stores in designated markets in California, Colorado, Michigan, Minnesota, Oregon and Washington. We will continue to seek opportunities to expand our relationship with The Home Depot into new geographic markets and to add new products in our The Home Depot distribution channel. Build Market Share in New Markets. We plan to expand our presence in new markets through our relationship with The Home Depot. We will also consider offering other non-competing specialty home improvement products under our own brands in our The Home Depot markets. We will seek other opportunities to enter new markets where we do not service The Home Depot customers through strategic acquisitions or organic growth. Grow Our Consumer Finance Segment. Our current consumer finance business strategy will provide us with the opportunity to earn finance charges for the life of the RIO, as opposed to the lesser, one-time premium that we previously earned upon the sale of our RIO portfolios. We believe this strategy will allow us to grow our business with existing contractors and to originate relationships with new contractors. Our consumer finance business strategy provides us with the flexibility to offer sales-enhancing credit programs. Pursue and Successfully Integrate Strategic Acquisitions. The residential remodeling industry is characterized by a proliferation of small local competitors, a need for growth capital, and a potential for significant economies of scale. We will seek acquisition candidates that offer us entry into new markets, complementary products and services, or provide us with additional distribution channels. We will also seek acquisition candidates that provide us with manufacturing, marketing and revenue synergies. Recent Developments On June 18, 2004, we publicly announced that the profitability of our wood deck business would be adversely impacted in the short run primarily by a longer than anticipated permitting process in certain new markets and also by higher than anticipated lumber costs. On the same date, we announced that the rollout of our kitchen cabinet refacing program with The Home Depot in West Coast markets had accelerated, resulting in higher than anticipated start-up expenditures in the fiscal quarter ending June 30, 2004. Additionally, we announced that we estimate our net income for the quarter ending June 30, 2004 will be between $0.05 and $0.08 per diluted share, not giving effect to the issuance of the shares proposed to be issued in this offering, and we expect net income for the year ending December 31, 2004 will be between $0.42 and $0.48 per diluted share, not giving effect to the issuance of the shares proposed to be issued in this offering OUR CORPORATE INFORMATION On February 13, 2001, U.S. Home Systems, Inc., which was then known as U.S. Pawn, Inc., or U.S. Pawn, acquired U.S. Remodelers, Inc., or U.S. Remodelers, by merging its wholly-owned subsidiary with and into U.S. Remodelers with U.S. Remodelers surviving as our wholly owned subsidiary. The terms of the merger required that U.S. Pawn sell all of its pawnshop operations and settle all of its liabilities before the merger could be completed. Simultaneously with the completion of the merger, U.S. Pawn reincorporated in Delaware and changed its name to U.S. Home Systems, Inc. Following the merger, U.S. Home Systems, Inc. succeeded to the business of U.S. Remodelers. Our corporate headquarters is located at 750 State Highway 121 Bypass, Suite 170, Lewisville, Texas 75067. Our telephone number is (214) 488-6300. 10.23 Security and Pledge Agreement dated May 23, 2003, by and between Don A. Buchholz, as Pledgor, and First Savings Bank, as Secured Party, which secures payment of the First Savings Bank Note with a securities account at Southwest Securities, Inc. 10.24 Unconditional Guaranty Agreement dated May 23, 2003, by and between U.S. Home Systems, Inc., as Guarantor, and First Savings Bank, as Lender, which secures payments of the First Savings Bank Note. 10.25 Unconditional Guaranty Agreement dated May 23, 2003, by and between Chickadee Partners, L.P., as Guarantor, and First Savings Bank, as Lender, which secures payments of the First Savings Bank Note. 10.26 Unconditional Guaranty Agreement dated May 23, 2003, by and between Bosque-Chickadee Management Company LLC, as Guarantor, and First Savings Bank, as Lender, which secures payments of the First Savings Bank Note. 10.27 Loan Agreement by and between U.S. Home Systems, Inc. and The Frost National Bank dated May 30, 2003. 10.28 First Amendment dated July 11, 2003, to Loan Agreement by and between U.S. Home Systems, Inc. and The Frost National Bank dated May 30, 2003. 10.29 Revolving Promissory Note in the principal amount of $5,000,000 dated May 30, 2003, payable to The Frost National Bank by U.S. Home Systems, Inc. 10.30 Revolving Promissory Note in the principal amount of $2,000,000 dated May 30, 2003, payable to The Frost National Bank by U.S. Home Systems, Inc. 10.31 Promissory Note in the principal amount of $775,000 dated May 30, 2003, payable to The Frost National Bank by U.S. Home Systems, Inc. 10.32 Form of Guaranty Agreement executed on May 30, 2003, by U.S. Remodelers, Inc., First Consumer Credit, Inc., USA Deck, Inc., Facelifters Home Systems, Inc. and U.S. Window Corporation (collectively, the Subsidiaries ), to secure payment of $7,775,000 payable to The Frost National Bank by U.S. Home Systems, Inc. ( Guaranteed Indebtedness ). 10.33 Form of Security Agreement executed by U.S. Home Systems, Inc. and each of the Subsidiaries pledging Collateral (as defined in the Security Agreement) as security for the Guaranteed Indebtedness owed to The Frost National Bank. 10.34 Pilot Program Agreement among The Home Depot U.S.A., Inc., U.S. Home Systems, Inc. and U.S. Remodelers, Inc. dated as of August 18, 2003. 10.35 Trademark and Service License Agreement by and among The Home Depot, U.S.A., Inc., Homer TLC, Inc., U.S. Home Systems, Inc. and USRI Corporation dated as of August 18, 2003. 10.36 SF&I Program Installer Agreement between The Home Depot U.S.A., Inc. d/b/a The Home Depot and Deck America, Inc. dated as of October 30, 2002, to sell, furnish and install pre-engineered Designer Deck systems to customers of designated The Home Depot stores for initial period of one year. 10.37 First Amendment to SF&I Program Installer Agreement by and between The Home Depot U.S.A., Inc. and USA Deck, Inc. dated as of August 5, 2003. 10.38 Proprietary Information License Agreement between USA Deck, Inc. and Universal Forest Products, Inc. dated as of March , 2003. 10.39 Retail Agreement between Renewal by Andersen Corporation and U.S. Home Systems, Inc. dated as of September 26, 2001. U.S. HOME SYSTEMS, INC. (Exact name of registrant as specified in its charter) (1) Based on 6,583,773 shares of our common stock that were outstanding as of June 21, 2004. Unless otherwise indicated, information contained in this prospectus regarding the number of outstanding shares of common stock does not include or reflect the following: 730,880 shares of common stock issuable upon the exercise of outstanding stock options as of June 21, 2004; and an aggregate of 548,505 shares of common stock reserved for future issuance as of June 21, 2004, under our 2000 Stock Compensation Plan. (2) We have applied for listing of our common stock on the Nasdaq National Market under the symbol USHS upon completion of this offering. Filed herewith. (1) Includes our kitchen, bath, and window products. (2) Includes our wood deck and related products. (3) We acquired our wood deck business in November 2002. (4) We acquired our consumer finance business in October 2001. Operating income (loss) (190 ) (208 ) (398 ) 5 (393 ) (555 ) (152 ) (707 ) (219 ) (926 ) Interest expense 19 47 66 8 74 18 39 57 57 Other income (expense), net 15 1 16 16 3 1 4 1 Table of Contents Index to Financial Statements + Management contract or compensation plan or arrangement. * Previously filed as Exhibit B to the Company s Proxy Statement which was filed with the Commission on December 15, 2000, and which is incorporated herein by reference. ** Previously filed as an exhibit to the Company s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2000, which was filed with the Commission on April 2, 2001, and which is incorporated herein by reference. *** Previously filed as an exhibit to the Company s Current Report on Form 8-K/A which was filed with the Commission on November 27, 2001, and which is incorporated herein by reference. **** Previously filed as an exhibit to the Company s Current Report on Form 8-K/A which was filed with the Commission on February 5, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, which was filed with the Commission on March 24, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Current Report on Form 8-K which was filed with the Commission on February 26, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Current Report on Form 8-K which was filed with the Commission on May 9, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Current Report on Form 8-K which was filed with the Commission on June 10, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Quarterly Report on Form 10-Q which was filed with the Commission on August 12, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Registration Statement on Form S-1 which was filed with the Commission on December 19, 2003, and which is incorporated herein by reference. Previously filed as an exhibit to Amendment No. 1 to the Company s Registration Statement on Form S-1 which was filed with the Commission on March 15, 2004, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, which was filed with the Commission on April 6, 2004, and which is incorporated herein by reference. Previously filed as an exhibit to the Company s Registration Statement on Form S-8 which was filed with the Commission on July 19, 2002, and which is incorporated herein by reference. z Previously filed as an exhibit to Amendment No. 4 to the Company s Registration Statement on Form S-1 which was filed with the Commission on May 27, 2004, and which is incorporated herein by reference. zz Previously filed as an exhibit to Amendment No. 5 to the Company s Registration Statement on Form S-1, which was filed with the Commission on June 16, 2004, and which is incorporated herein by reference. 750 State Highway 121 Bypass, Suite 170 Lewisville, Texas 75067 (214) 488-6300 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Murray H. Gross Chairman, Chief Executive Officer and President U.S. Home Systems, Inc. 750 State Highway 121 Bypass, Suite 170 Lewisville, Texas 75067 Phone: (214) 488-6300 / Facsimile: (972) 459-4800 (Name, address, including zip code, telephone and facsimile numbers, including area code, of agent for service) Table of Contents Index to Financial Statements
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000847597_tengtu_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000847597_tengtu_prospectus_summary.txt
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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES BEFORE MAKING AN INVESTMENT DECISION. IN THIS PROSPECTUS, "TENGTU," "WE," "US," AND "OUR" REFER TO (I)TENGTU INTERNATIONAL CORP., (II) OUR 100% OWNED SUBSIDIARY, BEIJING TENGTU UNITED ELECTRONICS DEVELOPMENT CO., LTD. ("TENGTU UNITED") AND (III) OUR AGENT, BEIJING TENGTU CULTURE & EDUCATION ELECTRONICS DEVELOPMENT CO., LTD. (TENGTU CHINA"), WHICH, BY AGREEMENT, OPERATES ON BEHALF OF OUR SUBSIDIARY. TENGTU INTERNATIONAL CORP. Tengtu International Corp. is a Delaware corporation that owns 100% of Beijing Tengtu United Electronics Development Co., Ltd. Tengtu United has appointed Tengtu China as its agent. As a result, the operations of the business are largely carried out by Tengtu China and affiliated entities. On April 1, 2004 we closed certain agreements with Tengtu China and certain of its affiliates under which we acquired the 43% interest in Tengtu United formerly held by Tengtu China in exchange for the issuance of 30,000,000 shares of our common stock to the estate of Fan Qi Zhang, formerly one of our directors. See "Recent Business Developments - Restructuring." Tengtu United's business focuses on K-12 e-education in China. Tengtu China, on behalf of Tengtu United, is working in cooperation with the Chinese Ministry of Education and certain of its provincial branches, to implement an information technology solution for Chinese schools to fulfill China's goal of making IT-based education and distance learning available to 90% of K-12 schools by 2010. Specifically, Tengtu United is currently engaged in the following lines of operations: o sales of educational content software to Chinese K-12 schools; o sales of special software products for learning applications, resources management, distance learning and web/internet applications contained in its "Total Solution" software package; o development of the Central Broadband Education Resource Center ("CBERC") with a division of the Chinese Ministry of Education, the National Center for Audio/Visual Education ("NCAVE"). CBERC is an electronic resource center and portal containing educational materials that we transmit to schools that download them daily via satellite and that are to be accessible by Internet; o development of Local Broadband Education Resource Centers ("LBERCs") through the sale of turn-key electronic resource centers and portals. It is anticipated that the LBERCs will connect with CBERC and contain their own educational and other materials as mandated by the provincial and local authorities; o sales of computer hardware and systems integration services to Chinese schools; and o the provision of information technology training to teachers. Tengtu International Corp.'s principal and executive office is located at 236 Avenue Road, Toronto, Ontario, Canada M5R 2J4. Our telephone number is (416) 963-3999. THE OFFERING This prospectus relates to the following: 1. The resale by certain of the selling security holders identified in this prospectus of 54,113,678 shares of our common stock; 2. The resale by selling security holders of 8,099,615 share warrants;
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000851560_tarantella_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000851560_tarantella_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY In this prospectus, the Company, Tarantella, we, us, and our refer to Tarantella, Inc., a California corporation. This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000855581_weida_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000855581_weida_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..b6569af1763a5ddd30585739fcc7758588dff4b2
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+PROSPECTUS SUMMARY In this prospectus, the terms "Company," "Weida," "we," "us," and "our" refer to Weida Communications, Inc., a New Jersey corporation, and its subsidiaries. This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors." About Weida Communications, Inc. We provide products and services for satellite-based communications networks in the People's Republic of China ("PRC" or "China") through a series of contractual arrangements which give us control of and a 51% profit-sharing interest in Guangzhou Weida Communications Technology Co., Ltd. (a/k/a Weida Communications Technology Company Limited), a communications service company organized under the laws of the PRC and wholly-owned by PRC citizens ("Weida PRC"). We conduct our business in China solely through certain contractual arrangements among our affiliates, Weida PRC and the shareholders of Weida PRC. Although we do not have an equity interest in Weida PRC, we control and enjoy the economic benefits of Weida PRC through such contractual arrangements. Weida PRC is a wholly privately-owned company established in 2001 in response to the Chinese government recently allowing an individual company to obtain a 100% private, non-governmental and non-military, VSAT satellite license. VSAT (Very Small Aperture Terminal) is a relatively small satellite antenna used by corporations and governments for satellite based point-to-multipoint data communications, such as financial transactions, Internet services, multimedia and television. VSAT offers a number of advantages over terrestrial alternatives for businesses and homes. For private applications, companies can have total control of their own communication system without dependence on other companies. Business and home users also get greater bandwidth than if using ordinary telephone service. Currently, Weida PRC is the only wholly privately-owned company holding a VSAT satellite license in the PRC (the only other privately-owned company to recently hold a license was merged into a joint government venture in January 2004). The scope of the license permits the offer and sale of a variety of broadband satellite communications services, including audio and video services, Internet connectivity, multimedia services, HDTV, and Voice Over IP. The license granted provides Weida PRC the opportunity to develop and deliver such satellite communications in China. Weida PRC is licensed to provide services in the rapidly growing Voice Over IP telephone service market, and to provide such services as a phone operator. Weida PRC is currently delivering service to over 56 customers, with more than 250 VSAT terminals in regular revenue-generating use at June 30, 2004, and has entered into contracts and negotiations with customer targets including brokerage firms, hotels, and national governmental ministries. In August 2004 Weida PRC entered into a cooperation agreement with a subsidiary of China Telecommunications Corporation ("China Telecom"). Pursuant to this agreement, Weida PRC will offer its satellite transmission equipment and network as part of a disaster recovery program and back-up system for China Telecom's major accounts and will furnish Internet capability. The arrangement covers all of China Telecom's divisions. Pursuant to this agreement, the next step will be cooperative efforts between Weida PRC and each China Telecom division to market and sell the satellite transmission equipment and network as part of a disaster recovery program and back-up system for China Telecom's major accounts. Weida PRC expects to receive both equipment payments and continuing service-related UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 fees from purchase orders from China Telecom accounts. Our revenues from the cooperation agreement depend on China Telecom's end-user accounts placing purchase orders. No such purchase orders have yet been obtained, and there is not likely to be a material amount of revenue for Weida PRC from this arrangement before the first quarter of 2005. Weida PRC does not launch or operate the space satellites. Instead, it provides the ground based transmitters and receivers that allow corporate and government customers to use satellite communications. Weida PRC negotiates for and provides satellite bandwidth, provides equipment sales and installations, and, equally important, manages and improves the communications data stream to the customer. Our wholly-owned subsidiary, SCL Ventures, Ltd., a company organized under the laws of the British Virgin Islands ("SCL"), was formed in May 2003 for the purpose of engaging in the telecommunications business in China and entered into a master agreement with Weida PRC which was ratified and approved by the board of directors of SCL in May 2003. As part of the transactions contemplated by the master agreement, we completed in October 2004 the acquisition of 99.99% of the registered capital of Ocean International Holdings Limited, a company incorporated in the Hong Kong Special Administrative Region of the PRC ("OIHL"). The remaining .01% of the registered capital of OIHL is held by one of our executives as a nominal holder in order to meet local Hong Kong legal requirements. OIHL is the sole owner and holder of all of the registered capital of Ocean Tian Di Communication Technology Co., Ltd. (Guangzhou), a wholly-owned foreign enterprise (the "WOFE"). The WOFE has entered into an exclusive service and support agreement with Weida PRC, effective as of September 1, 2004, which provides for the WOFE to provide support services to Weida PRC in exchange for receiving fees equal to 51% of all Weida PRC revenues above certain minimum amounts. Company Information; Recent Share Exchange We were incorporated in March 1985 under the laws of the State of New Jersey as Laser Recording Systems, Inc. We were organized as the successor to several other businesses of our original founder. On May 20, 2003, we and three shareholders owning an aggregate of approximately 67% of our outstanding common stock (prior to giving effect to a one-for-four reverse stock split that took effect on June 11, 2004) entered into a share exchange agreement with SCL and certain of its shareholders. Upon satisfaction of the terms and conditions of the share exchange agreement, as amended, the closing of the share exchange was consummated on June 11, 2004, at which time SCL became our wholly-owned subsidiary and the shareholders of SCL were issued shares representing approximately 96.5% of our outstanding shares. The share exchange with SCL has been accounted for similar to a reverse acquisition in which SCL is the acquirer for accounting purposes. Upon completion of the share exchange, we changed our name from Laser Recording Systems, Inc. to Weida Communications, Inc. Our principal executive offices are located at 515 East Las Olas Boulevard, Suite 1350, Fort Lauderdale, Florida 33301. Our telephone number is (954) 527-7750. Our Internet address is http://www.weida.com. Information contained on our website or that is accessible through our website should not be considered to be part of this prospectus. The Offering Up to 13,435,650 shares of our common stock are being offered by the selling shareholders listed beginning on page 62 of this prospectus. We will not receive any proceeds from the sale of shares by the selling shareholders. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 We issued the shares of common stock to be sold by the selling shareholders in the following transactions: 11,946,961 shares of our common stock issued to the former shareholders of SCL Ventures, Ltd., a company organized under the laws of the British Virgin Islands, in connection with the completion of a share exchange transaction in June 2004. 1,488,689 shares of our common stock issued to certain investors in a series of private placement transactions commencing June 18, 2004. WEIDA COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in Its Charter)
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000866415_internatio_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000866415_internatio_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and the financial statements appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Risk Factors and elsewhere in this prospectus. Our Business We design and manufacture liquid crystal display, or LCD, products and are a supplier to several Fortune 500 companies, major Japanese, other Asian and European corporations and smaller companies operating in a variety of discrete markets. We work as an outsourced manufacturer or provider of design, manufacturing and assembly services. Our target OEM or original equipment manufacturer customers operate in the telecommunications, utilities, automotive, medical, computing, office equipment, home appliance and consumer electronics industries. Our components and modules are used in various electronic products. We are implementing the new technologies of CSTN and TFT module assemblies We assist OEM customers in the design and development of their products and furnish full turnkey manufacturing services. Our services include procuring components, assembling and post-assembly testing of finished products or electronic subassemblies. We provide custom design manufacturing services, for which we design and develop proprietary products that are sold by our OEM customers using their brand name. We also provide enhanced services such as the addition of key pads and back lighting to module assemblies as well as having the capability of producing complete turn key products. Our principal executive offices are located at 599 Menlo Drive, Suite 200, Rocklin, California 95765. Our telephone number is (916) 415-0864. Our website is located at www.idwlcd.com. Offering Summary Common Stock outstanding before the offering 29,892,133 Common Stock offered by selling stockholders(1) 4,650,000 (1) Common Stock outstanding after the offering(1) 30,042,133 (1) (1) Assumes that warrant holders have exercised their warrants to purchase 150,000 shares of common stock in the aggregate. The number of shares of common stock that is being registered by this registration statement is the total number of shares of common stock and shares of common stock that may be issued upon the exercise of warrants, in addition to the registration of the warrants themselves. Balance, November 1, 2003 20,984,913 $ 41,806 $ (37,653 ) $ 71 $ 4,224 Comprehensive income Net income 172 172 Translation adjustment 2 Cash flows from operating activities: Net income (loss) $ 172 $ (603 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 444 415 Stock issued for services 58 Loss on disposal of fixed assets 27 Loss (income) on foreign currency translation U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Consolidated Balance Sheet Data Cash and cash equivalents $ 4,789 $ 1,178 Net current assets from continuing operations 16,350 9,264 Net current assets from discontinued operations Property, plant and equipment, net 5,330 4,796 Total assets from continuing operations 21,680 14,060 Current liabilities 12,010 7,959 Long-term debt and capital lease obligations, net of current portion 407 1,877 Stockholders equity 9,263 4,224 (1) Includes a non-recurring charge of $625,000 for settlement of previously disclosed litigation. Table of Contents RISK FACTORS Investment in our common stock involves risk. You should carefully consider the risks we describe below before deciding to invest. The market price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment. In assessing these risks, you should also refer to the other information included in this prospectus, including our consolidated financial statements and the accompanying notes. You should pay particular attention to the fact that we are a holding company with substantial operations in China and are subject to legal and regulatory environments that in many respects differ from that of the U.S. Our business, financial condition or results of operations could be affected materially and adversely by any of the risks discussed below and any others not foreseen. This discussion contains forward-looking statements. Risks Related to Our Business Adverse trends in the electronics industry may adversely affect our operating results. Our business depends on the electronics industry, which is subject to rapid technological change, short product life cycles and margin pressures. In addition, the electronics industry historically has been cyclical and subject to significant downturns characterized by diminished product demand, accelerated erosion of average selling prices and production over-capacity and is also characterized by upswings in the cycle which can lead to shortages of key components for which there is not always an alternative source. Economic conditions affecting the electronics industry in general or our major customers may adversely affect our operating results. If our customers products fail to gain widespread commercial acceptance, become obsolete, or otherwise suffer from low sales volume, our business and operating results would be negatively impacted. A few customers and applications account for a significant portion of our sales. In fiscal 2003, five customers contributed 48% of total sales revenue, including one customer which contributed 29% of our revenue. This compares with fiscal 2002 when five customers contributed 51% of our total sales revenue and one customer contributed 30% of our revenue. Under present conditions, the loss of any one of these customers could have a material effect on our performance, liquidity and prospects. To reduce this risk, we continue to emphasize custom devices for which customer relationships are generally longer term with lower probability of cancellation. We do not have long-term purchase commitments from our customers and may have to rely on customer forecasts. Custom manufacturers for OEMs must provide increasingly rapid product turnaround and respond to increasingly shorter lead times. A variety of conditions, both specific to individual customers and generally affecting the demand for their products, may cause customers to cancel, reduce or delay orders. Cancellations, reductions or delays by a significant customer or by a group of customers would result in reduced revenue, and could result in excess and obsolete inventory and/or unabsorbed manufacturing capacity, which could adversely affect our business. On occasion, customers require rapid increases in production, which can strain our resources and reduce our margins. Total comprehensive loss (6,959 ) Stock retired (134,000 ) Common stock options exercised 30,000 7 7 Warrants issued 4 Table of Contents Although we have increased our manufacturing capacity, we may lack sufficient capacity at a given time to meet our customers demands if they exceed anticipated levels. We strive for rapid response to customer demand, which can lead to reduced purchasing efficiency and increased material costs. Our customers generally do not provide us with firm, long-term volume purchase commitments. In addition, the worldwide economic slowdown commencing in 2001 led to radically shortened lead times on purchase orders as rapid product cycles became the norm. Although we sometimes enter into manufacturing contracts with our customers, these contracts clarify order lead times, inventory risk allocation and similar matters rather than provide firm, long-term commitments. As a result, customers can generally cancel purchase commitments or reduce or delay orders at any time. The large percentage of our sales to customers in the electronics industry, which is subject to severe competitive pressures, rapid technological change and product obsolescence, increases our inventory and overhead risks. In addition, we make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, facility requirements, personnel needs, and other resource requirements, based on our estimates of customer requirements. The short-term nature of our customers commitments and the possibility of rapid changes in demand for their products reduce our ability to estimate accurately the future requirements of those customers. Because many of our costs and operating expenses are fixed, a reduction in customer demand can harm our gross margins and operating results. In order to transact business, we assess the integrity and creditworthiness of our customer and may, based on this assessment, agree to amortize design, development and set up costs over time and enter into commitments with suppliers. Such assessments are not always accurate and expose us to potential costs, including the write off of costs incurred and inventory obsolescence. We may also occasionally place orders with suppliers based on a customer s forecast or in anticipation of an order. Additionally, from time to time, we may purchase quantities greater than customer orders to secure more favorable pricing, delivery or credit terms. These purchases can expose us to losses from cancellation costs, inventory carrying costs or inventory obsolescence. Failure to optimize our manufacturing potential and cost structure could materially and adversely affect our business and operating results. We strive to fully utilize the manufacturing capacity of our facilities but may not do so on a consistent basis. Our factory utilization is dependent on our success in accurately forecasting demand, predicting volatility, timing volume sales to our customers, balancing our productive resources with product mix, and planning manufacturing services for new or other products that we intend to produce. Demand for contract manufacturing of these products may not be as high as we expect, and we may fail to realize the expected benefit from our investment in our manufacturing facilities. Our profitability and operating results are also dependent upon a variety of other factors, including: utilization rates of our manufacturing lines, downtime due to product changeover, impurities in raw materials causing shutdowns, and maintenance of contaminant-free operations. Table of Contents Moreover, our cost structure is subject to fluctuations from inflationary pressures in China and other geographic regions where we conduct business. China is currently experiencing dramatic growth in its economy. This growth may lead to continued pressure on wages and salaries that may exceed increases in productivity. In addition, these may not be compensated for and may be exacerbated by currency movements. We are also exposed to movement in commodity prices, particularly diesel fuel, which is used to power our manufacturing facilities. We face intense competition, and many of our competitors have substantially greater resources than we do. We operate in a competitive environment that is characterized by price deflation and technological change. We compete with major international and domestic companies. Our major competitors include Three-Five Systems, Inc., Optrex America, Inc., Varitronix Ltd., Wintek Corporation, Truly Semiconductors Limited, and other similar companies primarily located in Japan, Taiwan, Korea, Hong Kong and China. Our competitors may have greater market recognition and substantially greater financial, technical, marketing, distribution, purchasing, manufacturing, personnel and other resources than we do. Furthermore, some of our competitors have manufacturing and sales forces that are geographically diversified, allowing them to reduce transportation expenses, tariff costs and currency fluctuations for certain customers in markets where their facilities are located. Many competitors have production lines that allow them to produce more sophisticated and complex devices than we do and to offer a broader range of display devices to our target customers. Other emerging companies or companies in related industries may also increase their participation in the display and display module markets, which would intensify competition in our markets. We depend on the market acceptance of the products of our customers. Currently, we do not sell products to end users. Instead, we design and manufacture various display product solutions that our customers incorporate into their products. As a result, our success depends almost entirely upon the widespread market acceptance of our customers products. Any significant slowdown in the demand for their products would adversely affect our business. Therefore, we must identify industries that have significant growth potential and establish strong, long-term relationships with OEMs in those industries. Our failure to identify potential growth opportunities or establish these relationships would adversely affect our business. We extend credit to our customers and may not be able to collect all receivables due to us. We extend credit to our customers based on assessments of their financial circumstances, generally without requiring collateral. Our overseas customers may be subject to economic cycles and conditions different from those of our U.S. customers. We may also be unable to obtain satisfactory credit information or adequately secure our credit risk for some of these overseas customers. The extension of credit presents an exposure to risk of uncollected receivables. Additionally, the collectable amounts may not realize the amounts anticipated in U.S. dollar terms when denominated in a foreign currency. Our inability to collect on these accounts may also have an effect on our immediate and long term liquidity as we borrow under an asset based credit line, under which uncollected receivables are a major asset and indicator of performance to our lender and our profitability. Net cash used in investing activities (978 ) (218 ) Cash flows from financing activities: Proceeds from issuance of common stock 4,743 16 Proceeds from issuance of warrants 64 20 Proceeds (Payment) on lines of credit, net 606 (566 ) Proceeds from debt (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.) 599 Menlo Drive, Suite 200 Rocklin, California 95765 (916) 415-0864 (Address and telephone number of principal executive offices) Stephen C. Kircher Chief Executive Officer 599 Menlo Drive, Suite 200 Rocklin, California 95765 (916) 415-0864 (Name, address and telephone number of agent for service) Copies to: David C. Adams, Esq. Bartel Eng Schroder 1331 Garden Highway, Suite 300 Sacramento, California 95833 Telephone: (916) 442-0400 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. Table of Contents We may need to produce higher-end products to remain competitive. Our future success may be partly dependent upon our ability to effectively offer higher-end products that we do not currently supply, including color super twisted neumatic, or CSTN, thin film transistor, or TFT, and organic liquid emissive displays, or OLED, as we believe the high volume markets are moving in these directions. Our plan currently includes offering these new products, but if we fail to offer more complex higher-end products that are desired by the marketplace, our competitive position could decline. The growth of our business depends on our ability to finance new products and services. We operate in a rapidly changing industry. Technological advances, the introduction of new products and new design and manufacturing techniques could adversely affect our business unless we are able to adapt to the changing conditions. To remain competitive, we must continue to incur significant costs in product development, equipment, facilities and invest in working capital. These costs may increase, resulting in greater fixed costs and operating expenses. As a result, we could be required to expend substantial funds for and commit significant resources to the following: research and development activities on existing and potential product solutions; additional engineering and other technical personnel; advanced design, production and test equipment; manufacturing services that meet changing customer needs; technological changes in manufacturing processes; and manufacturing capacity. Our future operating results will depend to a significant extent on our ability to continue to provide new product solutions and electronic manufacturing services that compare favorably on the basis of time to market, cost and performance with the design and manufacturing capabilities of OEMs and competitive third-party suppliers and technologies. Our failure to increase sufficiently our net sales to offset these increased costs would adversely affect our operating results. We are subject to lengthy development periods and product acceptance cycles. We sell our products and services to OEMs, who then incorporate them into the products they sell. OEMs make the determination during their product development programs whether to incorporate our products and services or pursue other alternatives. Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Proposed Title of each class of securities to be Amount of shares to be Proposed maximum offering maximum aggregate offering Amount of registration registered Table of Contents This requires us to make significant investments of time and resources well before our customers introduce their products and before we can be sure that our efforts will generate any significant sales or that we will even recover our initial investment of time and resources. During a customer s entire product development process, we face the risk that our products will fail to meet technical, performance or cost requirements or that they could be replaced by competing products. Even if we complete our design or production processes in a manner satisfactory to our customer, the customer may delay or terminate its product development efforts. The occurrence of any of these events could adversely affect our operating results. The lengthy development period also means that it is difficult to immediately replace unexpected losses of existing or expected business. We are subject to lengthy sales cycles. Our focus on developing a customer base that requires custom displays and devices means that it may take longer to develop strong customer relationships or partnerships. Moreover, factors specific to certain industries also have an impact on our sales cycles. In particular, those customers who operate in or supply to the medical and automotive industries require longer sales cycles as qualification processes are longer and more rigorous, often requiring extensive field audits. These lengthy and challenging sales cycles may mean that it could take longer before our sales and marketing efforts result in revenue to us, if at all. Products we manufacture may contain design or manufacturing defects, which could result in reduced demand for our services and customer claims. We manufacture products to our customers requirements, which can be highly complex and may at times contain design or manufacturing errors or failures. Any defects in the products we manufacture, whether caused by a design, manufacturing or component failure or error, may result in returns, claims, delayed shipments to customers or reduced or cancelled customer orders. If these defects occur, we will incur additional costs, and if in large quantity or too frequent, we may sustain additional costs, loss of business reputation and may incur liability. We could become involved in intellectual property disputes. We do not have any patents, licenses or trademarks material to our business. Instead, we rely on trade secrets, industry expertise and our customers sharing of intellectual property with us. We do not knowingly infringe patents, copyrights or other intellectual property rights owned by other parties; however, in the event of an infringement claim, we may be required to spend a significant amount of money to defend a claim, develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining licenses on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and diversion of our resources and could materially and adversely affect our business and operating results. Registered Table of Contents Our customers may decide to design and/or manufacture the products that they currently purchase from us. Our competitive position could also be adversely affected if one or more of our customers decide to design and/or manufacture their own displays and display modules. We may not be able to compete successfully with these in-house developments by our customers. We may develop new products that may not gain market acceptance. We operate in an industry characterized by frequent and rapid technological advances, the introduction of new products and new design and manufacturing technologies. As a result, we may be required to expend funds and to commit resources to research and development activities, possibly requiring additional engineering and other technical personnel; purchasing new design, production, and test equipment; and continually enhancing design and manufacturing processes and techniques. We may invest in equipment employing new production techniques for existing products and new equipment in support of new technologies that fail to generate adequate returns on the investment due to insufficient productivity, functionality or market acceptance of the products for which the equipment may be used. We could therefore incur significant sums in design and manufacturing services for new product solutions that do not result in sufficient revenue, which would adversely affect our future operating results. Furthermore, customers may change or delay product introductions or terminate existing products without notice for any number of reasons unrelated to us, including lack of market acceptance for a product. Our future operating results will depend significantly on our ability to provide timely design and manufacturing services for new products that compete favorably with design and manufacturing capabilities of OEMs and third party suppliers. Our component and materials suppliers may fail to meet our needs. We do not have long term supply contracts with the majority of our suppliers or for specific components. This generally serves to reduce our commitment risk but does expose us to supply risk and to price increases that we may not be able to pass on to our customers. In our industry, at times, there are shortages of some of the materials and components that we use. In some cases, supply shortages and delays in delivery have resulted in curtailed production or delays in production, which contribute to an increase in inventory levels and loss of profit. We expect that shortages and delays in deliveries of some components will continue to occur from time to time. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain supplies that we use in our business. If we are unable to continue to purchase components from these limited source suppliers or identify alternative suppliers, our business and operating results would be materially and adversely affected. We may also not be able to obtain as competitive pricing for some of our supplies as our competitors. Moreover, some suppliers, for example, those who sell integrated circuits, could be preferential in their sales to our competitors, who may have greater buying power or leverage in negotiations. price per share Table of Contents Future outbreaks of severe acute respiratory syndrome or other communicable diseases may have a negative impact on our business and operating results. In 2003, several economies in Asia, including Hong Kong and southern China, where our operations are located, were affected by the outbreak of severe acute respiratory syndrome, or SARS. If there is a recurrence of an outbreak of SARS, or similar infectious or contagious diseases such as avian flu, it could adversely affect our business and operating results. For example, a future SARS outbreak could result in quarantines or closures to some of our factories, and our operations could be seriously disrupted as the majority of our work force is housed in a single dormitory. In addition, ongoing concerns regarding SARS, particularly its effect on travel, could negatively impact our customers and suppliers, in particular their willingness to travel to do business. Our results could be harmed if compliance with new environmental regulations becomes too burdensome. Our manufacturing processes result in the creation of small amounts of hazardous and/or toxic wastes, including various gases, epoxies, inks, solvents and other organic wastes. We are subject to Chinese governmental regulations related to the use, storage and disposal of such hazardous wastes. We also have our own electrical power generation plant that operates on diesel fuel. The amounts of our hazardous waste are expected to increase in the future as our manufacturing operations increase, and therefore, our cost of compliance is likely to increase. Although we believe we are operating in compliance with applicable environmental laws, there is no assurance that we will be in compliance consistently as such laws and regulations or their interpretation and implementation change. Failure to comply with environmental regulation could result in the imposition of fines, suspension or halting of production or closure of manufacturing operations. Our existing loans mature in 2004 and 2005, and we may not be able to secure alternative financing on acceptable terms. Our financing is currently comprised a mortgage on our properties in China and an asset based line of credit. We have not commenced negotiations to extend or replace the mortgage. Moreover, the asset based line of credit can be withdrawn by the lender. From time to time, we may seek additional equity or debt financing to provide for the capital expenditures required to maintain or expand our design and production facilities and equipment and/or working capital as well as to repay loans if our cash flow from operations is insufficient. We cannot predict with certainty the timing or amount of any such capital requirements. If such financing is not available on satisfactory terms, we may be unable to expand our business or to develop new business at the rate desired, and our operating results may suffer. price Table of Contents We must effectively manage our growth. Failure to manage our growth effectively could adversely affect our operations. We have increased the number of our manufacturing and design programs and plan to expand further the number and diversity of our programs in the future and may increase the number of locations from which we manufacture and sell. Our ability to manage our planned growth effectively will require us to: enhance our operational, financial and management systems; expand our facilities and equipment; and successfully hire, train and motivate additional employees, including the technical personnel necessary to operate our production facilities. An expansion and diversification of our product range, manufacturing and sales locations and customer base would result in increases in our overhead and selling expenses. We may also be required to increase staffing and other expenses as well as our expenditures on plant, equipment and property in order to meet the anticipated demand of our customers. Customers, however, generally do not commit to firm production schedules for more than a short time in advance. Any increase in expenditures in anticipation of future orders that do not materialize would adversely affect our profitability. Customers also may require rapid increases in design and production services that place an excessive short-term burden on our resources. Potential strategic alliances may not achieve their objectives. We are currently exploring strategic alliances designed to enhance or complement our technology or to work in conjunction with our technology, increase our manufacturing capacity, provide additional know-how, components or supplies, and develop, introduce and distribute products and services utilizing our technology and know-how. Any strategic alliances entered into may not achieve their strategic objectives, and parties to our strategic alliances may not perform as contemplated. We may not be able to retain, recruit and train adequate management and production personnel. Our continued operations are dependent upon our ability to identify, recruit and retain adequate management and production personnel in China. We require trained graduates of varying levels and experience and a flexible work force of semi-skilled operators. Many of our current employees come from the more remote regions of China as they are attracted by the wage differential and prospects afforded by Shenzhen and our operations. With the growth currently being experienced in China and competing opportunities for our personnel, there can be no guarantee that a favorable employment climate will continue and that wage rates in China will continue to be internationally competitive. fee Table of Contents We are at risk of double taxation due to transfer pricing. None of the asset based finance or factoring lines we have established will accept receivables from our Chinese subsidiaries as collateral for advances; we therefore invoice our non-Chinese customers through our companies in Hong Kong and the U.S. As a result, we have intercompany invoicing whereby our Chinese subsidiaries invoice the Hong Kong and U.S. entities who then invoice our customers for sales rendered. As required by the tax authorities in each jurisdiction, we seek to apply arms length pricing to this process. Should a tax authority in any jurisdiction consider the pricing not to be arms length, it may deem the prices charged to be different from those we have applied. If this decision were to be applied unilaterally, it could lead to an increase in our overall tax expenses. In addition, we may have to expend resources in defending our positions, irrespective of the outcome determined. Risks Related to International Operations We are dependent on our Chinese manufacturing operations. Our current manufacturing operations are located in China, our sales offices are in the U.S., Europe, Hong Kong, Singapore and China, and our administrative offices are in the U.S. The geographical distances between these facilities create a number of logistical and communications challenges. In addition, because of the location of the manufacturing facilities in China, we could be affected by economic and political instability there, including problems related to labor unrest, lack of developed infrastructure, variances in payment cycles, currency fluctuations, overlapping taxes and multiple taxation issues, employment and severance taxes, compliance with local laws and regulatory requirements, greater difficulty in collecting accounts receivable, and the burdens of cost and compliance with a variety of foreign laws. Moreover, inadequate development or maintenance of infrastructure in China, including adequate power and water supplies, transportation, raw materials availability or the deterioration in the general political, economic or social environment could make it difficult, more expensive and possibly prohibitive to continue to operate our manufacturing facilities in China. The Chinese government could change its policies toward, or even nationalize, private enterprise, which could harm our operations. Over the past several years, the Chinese government has pursued economic reform policies, including the encouragement of private economic activities and decentralization of economic regulation. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time without notice. Changes in policies by the Chinese government resulting in changes in laws, regulations, their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion or imports and sources of supply could materially and adversely affect our business and operating results. The nationalization or other expropriation of private enterprises by the Chinese government could result in the total loss of our investment in China. Common Stock 4,500,000 $ 5.475 (1) $ 24,637,500 $ 3,121.58 Common Stock underlying warrants 150,000(2) $ 5.475 (1) $ 821,250 $ 104.06 Total 4,650,000 $ 25,458,750 $ 3,225.64 (1) Calculated in accordance with Rule 457(c) of the Securities Act of 1933, as amended ( Securities Act ). Estimated for the sole purpose of calculating the registration fee and based upon the average of the bid and ask price per share of our common stock on June 10, 2004, as reported on the OTC Bulletin Board. (2) Represents the number of shares of common stock offered for resale following the exercise of warrants. International DisplayWorks, Inc. hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until it shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. Table of Contents The Chinese legal system has inherent uncertainties that could materially and adversely impact our ability to enforce the agreements governing our operations. We lease the land on which our factories in China are located. The performance of the agreements and the operations of our factories are dependent on our relationship with the local government. Our operations and prospects would be materially and adversely affected by the failure of the local government to honor our agreements or an adverse change in the laws governing them. In the event of a dispute, enforcement of these agreements could be difficult in China. China tends to issue legislation which is subsequently followed by implementing regulations, interpretations and guidelines that can render immediate compliance difficult. Similarly, on occasion, conflicts are introduced between national legislation and implementation by the provinces that take time to reconcile. These factors can present difficulties in our compliance. Unlike the U.S., China has a civil law system based on written statutes in which judicial decisions have limited precedential value. The Chinese government has enacted laws and regulations to deal with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, its experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes in China is therefore unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces and factors unrelated to the legal merits of a particular matter or dispute may influence their determination. Because our operations are international, we are subject to significant worldwide political, economic, legal and other uncertainties. We are incorporated in the U.S. and have subsidiaries in China, Hong Kong, Singapore and the British Virgin Islands. Because we manufacture all of our products in China, substantially all of the net book value of our total fixed assets is located there. However, we sell our products to customers worldwide with concentrations in Hong Kong, North America, Europe, Japan, China and Southeast Asia and may thus have receivables in and goods in transit to those locations. Protectionist trade legislation in the U.S. or foreign countries, such as a change in export or import legislation, tariff or duty structures, or other trade policies, could adversely affect our ability to sell products in these markets, or even to purchase raw materials or equipment from foreign suppliers. Moreover, we are subject to a variety of U.S. laws and regulations, changes to which may affect our ability to transact business with customers or in certain product categories. We are also subject to numerous national, state and local governmental regulations, including environmental, labor, waste management, health and safety matters and product specifications. We are subject to laws and regulations governing our relationship with our employees, including: wage and hour requirements, working and safety conditions, citizenship requirements, work permits and travel restrictions. These include local labor laws and regulations, which may require substantial resources for compliance. We are subject to significant government regulation with regard to property ownership and use in connection with our leased facilities in China, import restrictions, currency restrictions and restrictions on the volume of domestic sales and other areas of regulation, all of which impact our profits and operating results. Table of Contents We face risks associated with international trade and currency exchange. We transact business in a variety of currencies including Hong Kong dollars, Japanese Yen, Singapore dollars, U.S. dollars and the Chinese Yuan Renminbi, or RMB. Increased sales to Europe may result in receivables by us in other currencies, such as the Euro. Although we transact business predominantly in U.S. and Hong Kong dollars, we collect a portion of our revenue and incur approximately 30% of our operating expenses, such as payroll, land rent and other costs associated with running our facilities in China, in RMB. Adverse movements between the selling currency and the RMB would have a material impact on our profitability. Changes in exchange rates would affect the value of deposits of currencies we hold. The RMB has been broadly stable against U.S. dollar in the past three years, but is not fully convertible and fully traded. It is not currently possible to hedge against movement in the RMB exchange rate through conventional means; we are thus not hedged and remain exposed to movement in the exchange rate. The exchange rate of the Hong Kong dollar has been pegged to the U.S. dollar and has not in the past presented a currency exchange risk, though this could change in the future. We also do not currently hedge against exposure to other currencies. We cannot predict with certainty future exchange rates and thus their impact on our operating results. We also had long term debt denominated in RMB, repayable in equal installments over three years, of RMB 10 million (U.S. $1.2 million at current exchange rates). As of October 31, 2003, two installments of RMB 3.3 million each were outstanding and due for repayment in June 2004 and June 2005. An increase in the value of the RMB against the U.S. dollar would result in a translation loss in U.S. dollar terms that would be realized as U.S. dollars from sales revenues are utilized to meet the repayment obligation. Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase revenues could subject us to greater taxes. Under applicable Chinese law, we have been afforded a number of profits tax concessions by, and tax refunds from, Chinese tax authorities on a substantial portion of our operations in China. However, the Chinese tax system is subject to substantial uncertainties with respect to interpretation and enforcement. Following the Chinese government s program of privatizing many state owned enterprises, the Chinese government has attempted to augment its revenues through heightened tax collection efforts. Continued efforts by the Chinese government to increase tax revenues could result in revisions to or changes to tax laws or their interpretation, which could increase our future tax liabilities or deny us expected concessions or refunds. In October 2003, changes to the Chinese Value Added Tax system were announced affecting the recoverability of input VAT beginning January 1, 2004. The exact implementation is still being determined and disseminated. The expense to us will depend not only on the legislation, but also on the reaction of both our suppliers and customers. To date, in fiscal 2004, the effects of the non-recoverability of VAT have cost the Company $141,000. The Company is taking the necessary steps to mitigate the effects of the new VAT legislation. Table of Contents Risk Factor Regarding Planned Asset Acquisition In April 2004, we entered into a binding Memorandum of Understanding ( MOU ) to purchase a color LCD line and additional equipment currently located in Taiwan for Liquid Crystal Modules ( LCM ) production for a purchase price of $6,000,000 on an as is basis. The MOU, as amended, calls for the contract to be executed by June 17, 2004. The assets are subject to primary and secondary security interests underlying loans to the seller, and the net amount still due from the seller to the security holders is in excess of the agreed selling price. We have granted the seller extensions to the MOU deadline to allow the seller to negotiate with the financial institutions in order to provide us with clean title. The equipment, which allows us to produce color LCD products, is a more advanced technology than monochrome and subject to lower yields. Thus, our ability to produce with an acceptable yield will remain unproven until the line has been commissioned and production has commenced. In addition, the removal of the assets from Taiwan is subject to approval from the Taiwanese government and the export processing zone administration where they are located. Moreover, the assets are also subject to import approval by the customs authorities of China. These approvals cannot be obtained until IDW has purchased the assets. Although we are seeking to insure the transportation of the equipment, there could still be certain losses not protected. The equipment and components are to be shipped in numerous containers. There is a risk of loss associated with the packing and transportation of the equipment. If the equipment or components are damaged or do not arrive intact, we could face less than optimal utilization of the equipment as it may be difficult or require some time to obtain replacement components or equipment. We will also require additional factory facilities to install the equipment. Although we have identified a tentative location for the assets, we have not made any contractual commitments and will not do so until the closing of the transaction and delivery date for the equipment is certain. We may therefore have insufficient time to prepare the new facility prior to the arrival of the equipment, which could result in significant storage charges. Removal of the equipment from Taiwan, reinstallation in the PRC is expected to cost an additional $2,000,000 and outfitting the new factory facility, which will provide us with the continuous space needed for the CSTN line as well as additional capacity for other uses, is expected to cost an additional $4,000,000. We also have not accepted any firm orders from customers for color displays to be manufactured from this line due to the uncertainty as to when it will be available. As a result, we may find that when we are ready to go into production, the assets will be underutilized, and the initial start-up costs may exceed revenues from operating the equipment to produce new products. Table of Contents Subject to completion PROSPECTUS Dated: June 16, 2004 4,650,000 Shares INTERNATIONAL DISPLAYWORKS, INC. Common Stock Table of Contents Risks Related to the Offering The market price of our shares is subject to price and volume fluctuations. The markets for equity securities have been volatile. The price of our common shares has been and could continue to be subject to wide fluctuations in response to variations in operating results, news announcements, trading volume, general market trends both domestically and internationally, currency movements and interest rate fluctuations or sales of common shares by our officers, directors and our principal shareholders, customers, suppliers or other publicly traded companies. Certain events, such as the issuance of common shares upon the exercise of our outstanding stock options could also materially and adversely affect the prevailing market price of our common shares. Further, the stock markets in general have recently experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many companies and that have been unrelated or disproportionate to the operating performance of such companies. These fluctuations may materially and adversely affect the market price of our common shares and your ability to resell your shares at or above the price you paid, or at any price. The risk of further liability of former snowboard operations. The Company settled previously disclosed litigation with respect to the snowboard operations of our predecessor companies. There is no statute of limitations on such claims based on age of the snowboard. The passage of time diminishes the likelihood of additional claims occurring. The Company currently does not have insurance coverage to protect against future claims, but is seeking to obtain such coverage. The concentration of share ownership by our officers and directors allows them to control or substantially influence the outcome of matters requiring shareholder approval. As of June 2, 2004, our officers and directors as a group beneficially owned approximately 18.7% of our common shares. As a result, acting together, they may be able to control or substantially influence the outcome of matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. If we fail to maintain our listing, liquidity of our stockholders will be adversely affected. Our common stock is currently traded on the Over the Counter Bulletin Board, and we have filed an application for listing on The Nasdaq SmallCap Market. It is uncertain at this time that our application will be accepted currently, or in the future, but in either event such market has established certain maintenance listing requirements that must be satisfied in order for a company s shares to continue to be listed. Currently, our common stock meets the Nasdaq SmallCap Market maintenance listing requirements. However, if we fail to maintain a minimum Bid Price of $1 per share as set by the Nasdaq SmallCap Market we could lose our listing. Non-cash financing Activities: Stock issued for services $ All of the shares of common stock of International DisplayWorks, Inc. in this offering are being sold by the selling stockholders listed in this prospectus. We will not receive any proceeds from the resale of any common stock by the selling stockholders. The shares being sold by the selling stockholders include up to 150,000 shares that may be resold upon the exercise of outstanding warrants. Our common stock is traded and listed on the Over-the-Counter, or OTC, Bulletin Board, under the symbol IDWK. On June 10, 2004, the last reported sale price for the common stock was $5.50. There is no public market for the warrants. The selling stockholders may, from time to time, sell their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares: (i) ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; (ii) block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (iii) purchases by a broker-dealer as principal and resale by the broker-dealer for its account; (iv) an exchange distribution in accordance with the rules of the applicable exchange; (v) privately negotiated transactions; (vi) to cover short sales made after the date that this Registration Statement is declared effective by the Commission; (vii) broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; (viii) a combination of any such methods of sale; or (ix) any other method permitted pursuant to applicable law. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 4 OF THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is _____________, 2004. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such state. Fiscal 2004: Second Quarter (to April 30) $ 2.48 $ 6.78 First Quarter (to January 31) 0.65 2.95 Fiscal 2003: Fourth Quarter (to October 31) 0.26 0.51 Third Quarter (to July 31) 0.24 0.40 Second Quarter (to April 30) 0.16 0.51 First Quarter (to January 31) 0.14 0.35 Fiscal 2002: Fourth Quarter (to October 31) 0.17 0.32 Third Quarter (to July 31) 0.19 0.48 Second Quarter (to April 30) 0.30 0.46 First Quarter (to January 31) 0.21 0.51 TABLE OF CONTENTS Part I Table of Contents DIVIDEND POLICY We have paid no dividends on our common stock since our inception and may not do so in the future. SELECTED CONSOLIDATED FINANCIAL DATA We derived the consolidated statements of income and balance sheet data presented below as of and for the years ended October 31, 2003 and 2002, the ten months ended October 31, 2001, and the eleven months ended December 31, 2000, from our audited consolidated financial statements. The consolidated statements of income and balance sheet data presented below as of and for the six months ended April 30, 2004 and 2003 are from our unaudited consolidated financial statements. We derived the consolidated statements of income and balance sheet data presented below as of January 1, 2000 from the audited consolidated financial statements of our predecessor, whose operations were discontinued in 1999; such data therefore does not pertain to our current operations and may not present a meaningful comparison. We began our current continuing operations on February 1, 2000. You should read this summary of consolidated financial information in conjunction with the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements included elsewhere in this prospectus. Comprehensive Income (Loss) Net loss (2,571 ) (2,571 ) Translation adjustment 18 Cash flows from operating activities: Net loss $ (808 ) $ (6,942 ) $ (2,571 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 811 1,096 941 Impairment of goodwill 5,287 Amortization of goodwill 432 360 Stock issued for services 16 Warrants issued for extension of debt terms 29 Impairment of machinery 270 Loss on disposal of fixed assets 58 9 Loss (income) on foreign currency translation (17 ) Page Deferred tax assets: $ $ Net operating loss (NOL) carry forwards 3,564 3,255 Depreciation and amortization (4 ) (4 ) Allowance for doubtful accounts receivable 7 38 Inventory obsolescence 77 Write-off of machinery 41 41 Accrued expenses Consolidated Balance Sheet Data Cash and cash equivalents $ 4,789 $ 698 $ 1,178 $ 1,556 $ 982 $ 885 $ 1,930 Net current assets from continuing operations 16,350 5,683 9,264 6,618 5,950 6,151 2,111 Property, plant and equipment, net 5,330 4,974 4,796 5,197 6,389 7,297 2,332 Total assets from continuing operations 21,680 10,657 14,060 11,815 18,058 19,543 3,061 Current liabilities 12,010 5,551 7,959 6,093 5,861 5,631 6,172 Long-term debt and capital lease obligations, net of current portion 407 1,230 1,877 1,280 807 201 2,404 Stockholders equity 9,263 3,876 4,224 4,442 11,390 13,735 4,603 Table of Contents
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+PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS BEFORE MAKING AN INVESTMENT DECISION. We are a provider of software solutions and services to the retail industry. We provide solutions that help retailers understand, create, manage and fulfill consumer demand. Our solutions and services have been developed specifically to meet the needs of the retail industry. Our solutions help retailers improve the efficiency and effectiveness of their operations and build stronger, longer lasting relationships with their customers. We market our software solutions through direct and indirect sales channels primarily to retailers who sell to their customers through traditional retail stores, catalogs and/or internet-enabled storefronts. Our offerings consist of the following components: The ISLAND PACIFIC MERCHANDISE MANAGEMENT suite of applications builds on our long history in retail software design and development and provides our customers with a comprehensive and fully integrated merchandise management solution. Our complete enterprise-level offering of applications and services is designed to assist our customers in maximizing their business potential. The foundation of our application suite is the individual modules that comprise the offering. The modules are: o IP GLADIATOR; o IP GLOBAL NETWORK; o IP INTEGRATOR; o IP BUYER'S WORKMATE; o IP WEATHER IMPACT; o IP BUSINESS PROCESS OPTIMIZATION; o IP CONSUMER RESEARCH; o IP PROFILING; o IP FORECASTING AND REPLENISHMENT; o IP OMNICARD; o IP STORE PEOPLE PRODUCTIVITY; o MERCHANDISING MANAGEMENT; o THE EYE(TM) ANALYSIS AND PLANNING; o REPLENISHMENT AND FORECASTING; o PROMOTION AND EVENTS; o WAREHOUSE; o TICKETING; AND o FINANCIALS. The ISLAND PACIFIC STORE SOLUTION suite of applications builds on our long history of providing multi-platform, client server in-store solutions. We market this set of applications under the name "OnePointe," and "OnePointe International" which is a full business to consumer software infrastructure encompassing a range of integrated store solutions. "OnePointe" is a complete application providing all point-of-sale ("POS") and in-store processor (server) functions for traditional "brick and mortar" retail operations. Our PROFESSIONAL SERVICES provide our customers with expert retail business consulting, project management, implementation, application training, technical and documentation services. This offering ensures that our customers' technology selection and implementation projects are planned and implemented timely and effectively. We also provide development services to customize our applications to meet specific requirements of our customers and ongoing support and maintenance services. We market our applications and services through an experienced professional direct sales force in the United States and in the United Kingdom. We believe our knowledge of the complete needs of multi-channel retailers enables us to help our customers identify the optimal systems for their particular businesses. The customer relationships we develop build recurring support, maintenance and professional service revenues and position us to continuously recommend changes and upgrades to existing systems. Our executive offices are located at 19800 MacArthur Boulevard, Suite 1200, Irvine, California, 92612, telephone number (949) 476-2212.
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other
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+Spectrum Currency Entity by the mechanical systems would be difficult or unusually risky. There may occur the rare instance in which Sunrise Capital Management will override the system to decrease market exposure. Any modification of trading instructions could adversely affect the profitability of an account. Among the possible consequences of such a modification would be (1) the entrance of a trade at a price significantly worse than a system's signal price, (2) the complete negation of a signal which subsequently would have produced a profitable trade, or (3) the premature termination of an existing trade. Sunrise Capital Management is not under any obligation to notify clients, the general partner, or you of this type of deviation from its mechanical systems, since it is an integral part of its overall trading method. A technical trading system consists of a series of fixed rules applied systematically. However, the system still requires Sunrise Capital Management to make subjective judgments. For example, the trading advisor must select the markets it will follow and futures interests it will actively trade, along with the contract months in which it will maintain positions. Sunrise Capital Management must also subjectively determine when to liquidate positions in a contract month which is about to expire and initiate a position in a more distant contract month. Sunrise Capital Management engages in ongoing research that may lead to significant modifications from time to time. Sunrise Capital Management will notify the general partner if modifications to its trading systems or portfolio structure are material. Sunrise Capital Management believes that the development of a commodity trading strategy is a continual process. As a result of further analysis and research into the performance of Sunrise Capital Management's methods, changes have been made from time to time in the specific manner in which these trading methods evaluate price movements in various futures interests, and it is likely that similar revisions will be made in the future. As a result of such modifications, the trading methods that may be used by Sunrise Capital Management in the future might differ from those presently being used. Sunrise Capital Management has discretionary authority to make all trading decisions, including upgrading or downgrading the trading size of the net assets of Spectrum Select it manages to reflect additions, withdrawals, trading profits, and/or trading losses, without prior consultation or notice. In addition, Sunrise Capital Management may from time to time adjust the leverage applicable to the assets allocated to it; provided, however, any such adjustments will be consistent with the leverage parameters described herein and in the overall investment objectives and trading policies of the account it manages for Spectrum Select. Such adjustments may be in respect of certain markets or in respect of the overall CIMCO investment portfolio. Factors which may affect the decision to adjust leverage include: inflows and outflows of capital, ongoing research, volatility of individual markets, risk considerations, and Sunrise Capital Management's subjective judgement and evaluation of general market conditions. Adjustments to leverage may result in greater profits or losses. No assurance can be given that any leverage adjustment will be to your financial advantage. 5. Graham Capital Management, L.P. Graham is a Delaware limited partnership which was organized in May 1994. Graham's main business address is Rock Ledge Financial Center, Rowayton, Connecticut 06853. Graham has been registered with the CFTC as a commodity pool operator and commodity trading advisor since July 1994 and is a member of the National Futures Association in such capacities. Principals Kenneth G. Tropin is the Chairman, the founder and a principal of Graham. Mr. Tropin has developed the majority of Graham's core trading programs and he is additionally responsible for the overall management of the organization, including the investment of its proprietary trading capital. Prior to founding Graham in 1994, Mr. Tropin served as President, Chief Executive Officer, and a Director of John W. Henry & Company, Inc., during which the assets under management grew from approximately $200 million to approximately $1.2 billion. Previously, Mr. Tropin was Senior Vice President at Dean Witter Reynolds, where he served as Director of Managed Futures and as President of Demeter Management Corporation and Dean Witter Futures and Currency Management Inc. Mr. Tropin has also served as Chairman of the Managed Funds Association and its predecessor organization, which he was instrumental in founding during the 1980's. Form of Compensation Paul Sedlack is Chief Executive Officer, the General Counsel and a principal of Graham. He oversees the operation of the finance and administration departments and is also responsible for all legal and compliance matters. Mr. Sedlack began his career at the law firm of Coudert Brothers in New York in 1986 and was resident in Coudert's Singapore office from 1988 to 1989. Prior to joining Graham in June 1998, Mr. Sedlack was a Partner at the law firm of McDermott, Will & Emery in New York, focusing on securities and commodities laws pertaining to the investment management and related industries. Mr. Sedlack received a J.D. from Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and B.S. in Engineering in 1982 from State University of New York at Buffalo. Michael S. Rulle Jr. is the President and a principal of Graham. As President of Graham, Mr. Rulle is responsible for the management of Graham in its day-to-day course of business. Prior to joining Graham in February 2002, Mr. Rulle was President of Hamilton Partners Limited, a private investment company that deployed its capital in a variety of internally managed equity and fixed income alternative investment strategies on behalf of its sole shareholder, Stockton Reinsurance Limited, a Bermuda based insurance company. From 1994 to 1999, Mr. Rulle was Chairman and CEO of CIBC World Markets Corp., the US broker-dealer formerly known as CIBC Oppenheimer Corp. Mr. Rulle served as a member of its Management Committee, Executive Board and Credit Committee and was Co-Chair of its Risk Committee. Business responsibilities included Global Financial Products, Asset Management, Structured Credit and Loan Portfolio Management. Prior to joining CIBC World Markets Corp., Mr. Rulle was a Managing Director of Lehman Brothers and a member of its Executive Committee and held positions of increasing responsibility since 1979. At Lehman, Mr. Rulle founded and headed the firm's Derivative Division, which grew to a $600 million enterprise by 1994. Mr. Rulle received his M.B.A. from Columbia University in 1979, where he graduated first in his class, and he received his bachelor's degree from Hobart College in 1972 with a concentration in political science. Robert E. Murray is the Chief Operating Officer and a principal at Graham and is responsible for the management and oversight of our client services, systematic trading, and technology efforts. Prior to joining Graham, from 1984 until June, 2003, Mr. Murray held positions of increasing responsibility at various Morgan Stanley entities (and predecessors), including Managing Director of the Strategic Products Group, Chairman of Demeter Management Corporation (a commodity pool operator that grew to $2.3 billion in assets under management during Mr. Murray's tenure) and Chairman of Morgan Stanley Futures & Currency Management Inc. (a commodity trading advisor). Mr. Murray is currently a member of the Board of Directors of the National Futures Association and serves on its Membership and Finance Committees. Mr. Murray has served as Vice Chairman and a Director of the Board of the Managed Funds Association. Mr. Murray received a Bachelor's Degree in Finance from Geneseo State University in 1983. Thomas P. Schneider is an Executive Vice President, the Chief Trader and a principal of Graham. He is responsible for managing Graham's systematic futures trading operations, including order execution, formulating policies and procedures, and developing and maintaining relationships with independent executing brokers and futures commission merchants ("FCMs"). Mr. Schneider has also been an NFA arbitrator since 1989 and has served on the MFA's Trading and Markets Committee. Mr. Schneider graduated from the University of Notre Dame in 1983 with a B.B.A. in Finance and received his Executive M.B.A. from the University of Texas at Austin in 1994. From June 1985 through September 1993, Mr. Schneider held positions of increasing responsibility at ELM Financial, Inc., a commodity trading advisor in Dallas, Texas, where he was ultimately Chief Trader, Vice President and Principal responsible for 24-hour trading execution, compliance and accounting. In January 1994, Mr. Schneider began working as Chief Trader for Chang Crowell Management Corporation, a commodity trading advisor in Norwalk, Connecticut, where he was responsible for streamlining operations for more efficient order execution, and for maintaining and developing relationships with over 15 FCMs on a global basis. Robert G. Griffith is an Executive Vice President, the Director of Research and a principal of Graham and focuses primarily on Graham's trend-following trading systems, including portfolio management, asset allocation and trading system development. Mr. Griffith is also in charge of the day-to-day administration of Graham's trend-following trading systems. Prior to joining Graham, Mr. Griffith's company, Veridical Methods, Inc., provided computer programming and consulting services to such firms as GE Capital, Lehman Brothers and Morgan Guaranty Trust. He received his B.B.A. in Management Information systems from the University of Iowa in 1979. Amount of Compensation Fred J. Levin is the Chief Economist, a Senior Discretionary Trader and a principal of Graham specializing in fixed income markets with particular emphasis on short-term interest rates. Prior to joining Graham in March 1999, Mr. Levin was employed as director of research at Aubrey G. Lanston & Co. Inc. From 1991 to 1998, Mr. Levin was the chief economist and a trader at Eastbridge Capital. From 1988 to 1991, Mr. Levin was the chief economist and a trader at Transworld Oil. From 1982 to 1988, Mr. Levin was the chief economist, North American Investment Bank at Citibank. From 1970 to 1982, Mr. Levin headed the domestic research department and helped manage the open market desk at the Federal Reserve Bank of New York. Mr. Levin received an M.A. in economics from the University of Chicago in 1968 and a B.S. from the University of Pennsylvania, Wharton School in 1964. Savvas Savvinidis, C.P.A., joined Graham in April 2003 as Chief Financial Officer and a principal. He was Chief Operating Officer of Agnos Group, L.L.C. from January 2001-February 2003 and had previously served as Director of Operations of Moore Capital Management, Inc., from October 1994 to June 2000, and of Argonaut Capital Management, Inc., from July 1993 to September 1994. From May 1988 to June 1993, he worked at Lehman Brothers and from July 1986 to April 1988, at the North American Investment Bank of Citibank. Upon graduating from St. John's University with a B.S. in Accounting, Mr. Savvinidis started his career with Grant Thornton in 1984, where he received his CPA designation in 1986. He is a member of the New York Society of C.P.A.'s. Robert C. Hill is a discretionary trader of Graham specializing in the energy commodity markets and a principal of Graham. Prior to joining Graham in April 2003, Mr. Hill worked as a consultant at Gerson Lehrman Group. From November 1999 to October 2002, he was employed as Director of Trading at Duke Energy. From March 1997 to October 1999, Mr. Hill was an energy trader at Louis Dreyfus Energy Corp. and from May 1994 to March 1997, he worked for Enterprise Products Company as a distribution coordinator for energy products. Mr. Hill received an M.B.A. in 1997 from the University of St. Thomas in Houston, TX and a B.A. in 1992 from Stephen F. Austin State University. Jason C. Shapiro is a discretionary trader and a principal of Graham. From January 2002 to October 2003, when he joined Graham, Mr. Shapiro was President of Applied Systematic Trading, where he developed its trading program. Mr. Shapiro worked as a portfolio manager for Chelsey Capital from July 2001 to December 2001 and as a proprietary trader for The Gelber Group from September 2000 to April 2001. He served both as a portfolio manager for HCM Capital Management, Inc. and as a principal in Kilgore Capital from the period May 1997 to January 2000. From July 1996 to April 1997, he was engaged in the development of trading programs. He completed the coursework for a Masters of Finance at the London Business School over the 1995-1996 academic year. He worked at the Development Bank of Singapore in Hong Kong (from March 1994 to August 1995), Overseas Chinese Banking Corporation from (from October 1992 to February 1994) and the Hongkong and Shanghai Banking Corporation (from February 1991 to August 1992) in sales and trading positions. Mr. Shapiro received a B.S. in Finance with honors from The University of South Florida in 1989. Steven T. Aibel is a discretionary trader and a Principal of Graham, specializing in global macro markets with a primary focus on foreign exchange. Prior to joining Graham in July 2003, Mr. Aibel worked as a proprietary trader at J.P. Morgan Chase from April 2002 to March 2003 trading foreign exchange. He began his career at Goldman Sachs and Co. in the precious metals area in 1988 until 1993, moving over to the foreign exchange area of Goldman Sachs and Co. until November 1994. Following work in the foreign exchange area of Lehman Brothers from then until June 1995, Mr. Aibel worked at Credit Suisse First Boston as a Deutsche Mark market maker from July 1995 until July 1997 and a proprietary foreign exchange trader from July 1997 until April 2000. Mr. Aibel received an MBA in 1988 with a double major in Finance and International Business and a B.A. in 1987 in Finance, all from George Washington University. Xin-yun Zhang is a discretionary trader and a principal of Graham, specializing in fixed income. Prior to joining Graham in September, 2003, Mr. Zhang worked at Tudor Investment Corp. from January 2000 to August 2003, where his trading focused on US and Japanese government bonds. From October 1995 to January 2000, he was a fixed-income trader for Greenwich Capital. He worked in fixed-income research for Long-Term Capital Management from October 1993 to October 1995. He received a B.S. from Beijing University in 1983 and a Ph.D. in theoretical physics from University of California, San Diego in 1989, and was a post-doctoral research fellow at Rutgers University from 1989-1993. Certain Other Personnel Anthony Bryla, C.P.A., is the Controller of Graham, in charge of the daily and monthly performance reporting and company accounting. Prior to joining GRAHAM in September 1995, Mr. Bryla was an Assistant Accounting Manager at OMR Systems Corp. where he provided back-office and accounting services for such clients as Merrill Lynch and Chase Manhattan Bank, and held positions of increasing responsibility since February 1989. Mr. Bryla is a member of the New Jersey Society of C.P.A.s and graduated from Rutgers University with a B.A. in Business Administration in 1982. Brian Aldershof, Ph.D., CFA, is the Risk Manager, a Vice President and a quantitative research analyst of Graham with significant expertise in mathematics and statistics. Prior to joining Graham, Dr. Aldershof was a professor of mathematics at Lafayette College in Easton, PA. His research interests center on non-linear stochastic systems, especially genetic algorithms. Dr. Aldershof received his A.B. (1985) from Middlebury College, where he completed a double major in Mathematics and Psychology, and his M.S. (1990) and Ph.D. (1991) in Statistics from the University of North Carolina at Chapel Hill where he was a Pogue Fellow. His research in graduate school concerned estimating functionals of probability density functions. During this time, he consulted to the RAND Corporation, the Center for Naval Analyses, and the Environmental Protection Agency. He is a CFA charterholder and a member of the Association for Investment Management and Research. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Graham or its principals. Graham and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Graham trading programs described below. Although Graham maintains records of these trades, clients of Graham are not entitled to inspect these records except in certain limited circumstances. Graham may place block orders with a brokerage firm on behalf of multiple accounts, including accounts in which Graham or its principals have an interest. If Graham or its principals place the same trade orders for their accounts as they do for their clients in a single block order with a brokerage firm, the brokerage firm allocates the trade fill prices assigned to each account in a manner consistent with that firm's policy. Unless an average price of split fills is allocated, split fills generally are allocated to accounts on a "high to low" basis accounts are ranked based on commencement of trading, and the highest split fill prices are allocated to the highest-ranked accounts. Therefore, any advantage a high-ranked account enjoys on a sell order generally is offset by its disadvantage on the buy order. Graham maintains a written policy of prohibiting employees from trading futures, forwards, or options contracts for their personal accounts without the written approval of a Graham compliance officer. Graham also requires its employees with access to certain sensitive information to deliver to Graham copies of their federal income tax returns, which are then reviewed by Graham's compliance committee for compliance with the above-described and other of Graham's internal policies. Systematic Trading Graham's trading systems rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's systems are based on the expectation that they can over time successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. Graham's core trading systems are primarily very long term in nature and are designed to participate selectively in potential profit opportunities that can occur during periods of sustained price trends in a diverse number of U.S. and international markets. The primary objective of the core trading systems is to establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring. The systems are designed to analyze mathematically the recent trading characteristics of each market and statistically compare such characteristics to the long-term historical trading pattern of the particular market. As a result of this analysis, the systems will utilize proprietary risk management and trade filter strategies that are intended to benefit from sustained price trends while reducing risk and volatility exposure. Graham utilizes discretion in connection with its systematic trading programs in determining which markets warrant participation in the programs, market weighting, leverage and timing of trades for new accounts. Graham also may utilize discretion in establishing positions or liquidating positions in unusual market conditions where, in its sole discretion, Graham believes that the risk-reward characteristics have become unfavorable. Discretionary Trading The Discretionary Trading Group was established at Graham in February 1998. Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, the Discretionary Trading Group determines its trades subjectively on the basis of personal assessment of trading data and trading experience. Graham believes that the Discretionary Trading Group's performance results generally are not highly correlated to the results of other discretionary traders or Graham's systematic trading programs. Graham believes the Discretionary Trading Group can generate successful performance results in trading range type markets where there are few long-term trends. The Graham Trading Programs Effective January 1, 2004 the general partner allocated approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Global Diversified Program at 150% Leverage, as described below, and approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Graham Selective Trading Program, as described below, at 150% the standard leverage it applies for such program. Margin requirements over time at standard leverage are expected to average about 15% to 20% of equity for accounts traded by Graham; thus, Graham expects the margin requirements for Spectrum Select over time to average about 20% to 30% of Spectrum Select's net assets. Increased leverage will alter risk exposure and may lead to greater profits and losses and trading volatility and See "Risk Factors Trading Advisor Risks Graham's use of an increased rate of leverage could affect future performance" on page . Subject to the prior approval of the general partner, Graham may, at any time, trade a portion of the partnership's assets pursuant to one or more of Graham's other systematic programs and/or the Discretionary Trading Group discretionary program, and at an increased or reduced rate of leverage. As of December 31, 2003, Graham was managing approximately $624 million of funds in the Global Diversified Program at Standard Leverage, approximately $429 million of funds in the Global Diversified Program at 150% Leverage, approximately $344 million of funds in the Graham Selective Trading Program at Standard Leverage and approximately $4.9 billion of assets in all of its trading programs. The various futures, forwards, and options markets which are traded pursuant to each Graham systematic trading program are identified below under the description of that program. Each Graham systematic trading program generally entails a consistent approach to all futures, forwards, and options markets traded by that program. Graham conducts ongoing research regarding expanding the number of futures, forwards, and options markets each program trades to further the objective of portfolio diversification. Particular futures, forwards, and options markets may be added to, or deleted from, a program at any time without notice. Portfolios may be rebalanced with respect to the weighting of existing markets at any time without notice. Additions, deletions and rebalancing decisions with respect to each program are made based on a variety of factors, including performance, risk, volatility, correlation, liquidity and price action, each of which factors may change at any time. In trading the various futures, forwards, and options markets pursuant to its systematic trading programs, Graham generally applies the systematic trading approach described above under " Systematic Trading." Global Diversified Program The Global Diversified Program was developed in 1995 and utilizes multiple computerized trading models, which are designed to participate in the potential profit opportunities during sustained price trends in approximately 80 global markets. This program features broad diversification in both financial and non-financial markets. The strategies which are utilized are primarily long term in nature and are intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The Global Diversified Program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates (including U.S. and foreign bonds, notes and Eurodollars), 25% in currency forwards (including major and minor currencies), 17% in stock index futures (including all major indices), 15% in softs and agricultural futures (including grains, meats and softs), 8% in metal futures (including gold, aluminum and copper), and 9% in energy futures (including crude oil and natural gas). The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. Graham rebalances the weighting of each market in the portfolio on a monthly basis so as to maintain, on a volatility and risk adjusted basis, consistent exposure to each market over time. Graham Selective Trading Program The Graham Selective Trading Program was developed in 1997 and utilizes an appreciably different trading system than other Graham programs. The Graham Selective Trading Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur. Although the system does not trade against the market trend, it is not a true trend-following system inasmuch as it will only participate in specific types of market moves that meet the restrictive criteria of the model. In general, the Graham Selective Trading Program will participate only in significant market moves that are characterized by a substantial increase in volatility. As a result, it frequently will not participate in market trends in which virtually all trend-following systems would have a position. Due to the extremely selective criteria of the Graham Selective Trading model, the program will normally maintain a neutral position in approximately 50% to 60% of the markets in the portfolio. Discretionary Trading Group Program Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, Graham's Discretionary Trading Group determines trades for the Discretionary Trading Group Program subjectively on the basis of personal judgement and trading experience. The Discretionary Trading Group Program generally utilizes fundamental information as well as certain technical data as the basis for its trading strategies. Fundamental considerations relate to the underlying economic and political forces that ultimately determine the true value of a particular financial instrument or commodity. Fundamental analysis of the Discretionary Trading Group may involve a short- or long-term time horizon. Technical data considered by the Discretionary Trading Group include price patterns, volatility, trading volumes and level of open interest. The Discretionary Trading Group Program trades worldwide in fixed income, equity, foreign exchange and commodity markets. The Discretionary Trading Group Program may take long or short positions in securities, futures, forwards, warrants, options and other financial instruments. Past Performance of Graham Set forth below in Capsule A is the past performance history of the Global Diversified Program at 150% Leverage, one of the programs that will be traded by Graham for Spectrum Select. Capsule B is the past performance for the Graham Selective Trading Program, another program that will be traded by Graham for Spectrum Select. The Graham Select Trading Program Capsule shows performance at standard leverage; however, Graham will trade the portion of the net assets of Spectrum Select allocated to the Graham Selective Trading Program at 150% the standard leverage employed by that program, which will significantly increase volatility as well as profits and losses. The footnotes following Capsule B are an integral part of each Capsule. You are cautioned that the information set forth in the following Capsule performance summaries is not necessarily indicative of, and may have no bearing on, any trading results which may be attained by Graham or Spectrum Select in the future, since past results are not a guarantee of future results. There can be no assurance that Graham or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. CAPSULE A Graham Capital Management, L.P. Global Diversified Program at 150% Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Global Diversified Program at 150% Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: May 1997 Number of open accounts: 15 Aggregate assets overall: $4.87 billion Aggregate assets in program: $428.7 million Worst monthly drawdown: (15.77)% - (November 2001) Worst peak-to-valley drawdown: (24.27)% - (November 2001-April 2002) 2003 annual return: 17.82% 2002 annual return: 32.25% 2001 annual return: 12.16% 2000 annual return: 24.33% 1999 annual return: 6.17% CAPSULE B Graham Capital Management, L.P. Graham Selective Trading Program at Standard Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Graham Selective Trading Program at Standard Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: January 1998 Number of open accounts: 7 Aggregate assets overall: $4.87 billion Aggregate assets in program: $343.7 million Largest monthly drawdown: (15.60)% - (November 2001) Worst peak-to-valley drawdown: (21.41)% - (November 2001-April 2002) 2003 annual return: 21.82% 2002 annual return: 30.11% 2001 annual return: 0.55% 2000 annual return: 7.07% 1999 annual return: 0.91% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. At each monthly closing, the trading advisors for each partnership are currently allocated the net proceeds from additional investments received by that partnership, and redemptions from that partnership are allocated to them, in the following proportions: Spectrum Select Footnotes to Graham's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Graham began trading client accounts. "Inception of trading in program" is the date on which Graham began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Graham pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Graham as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the trading program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated by dividing the net income for the month by the net asset value as of the beginning of the month (including contributions made at the start of the month). In months where asset changes are made mid-month, rates of return are calculated for each segment of the month and compounded. For this purpose, "net income" represents the gross income for the month in question, net of all expenses and performance allocations. The Rate of Return percentage for each year is determined by calculating the percentage return on an investment made as of the beginning of each year. Specifically, a running index is calculated monthly, compounded by the rate of return, the annual percentage being the change in this index for the year divided by the year's initial index. Additions Morgan Stanley Spectrum Technical L.P. 1. Campbell & Company, Inc. Campbell is a Maryland corporation organized in April 1978 as a successor to a partnership originally organized in January 1974. Campbell has been registered with the CFTC as a commodity trading advisor since May 1978 and is a member of the National Futures Association in such capacity. Campbell's principal place of business is located at 210 W. Pennsylvania Ave., Suite 770, Towson, MD 21204. Principals Theresa D. Becks, born in 1963, joined Campbell in June 1991 and has served as the Chief Financial Officer and Treasurer since 1992, and Secretary and a Director since 1994. In addition to her role as Chief Financial Officer, Ms. Becks also oversees administration, compliance and trade operations. Ms. Becks is currently a member of the Board of Directors of the Managed Funds Association. From 1987 to 1991, she was employed by Bank Maryland Corp, a publicly held company, as a Vice President and Chief Financial Officer. Prior to that time, she worked with Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the University of Delaware. Ms. Becks is an associated person of Campbell. D. Keith Campbell, born in 1942, has served as the Chairman of the Board of Directors of Campbell since it began operations, was President until 1994, and was Chief Executive Officer until 1997. Mr. Campbell is the majority voting stockholder of Campbell. From 1971 to 1978, he was a registered representative of a futures commission merchant. Mr. Campbell has acted as a commodity trading advisor since 1972 when, as general partner of the Campbell Fund, a limited partnership engaged in commodity futures trading, he assumed sole responsibility for trading decisions made on behalf of the Fund. Since then, he has applied various technical trading models to numerous discretionary futures trading accounts. Mr. Campbell is registered with the CFTC and NFA as a commodity pool operator. Mr. Campbell is an associated person of Campbell. William C. Clarke, III, born in 1951, joined Campbell in June 1977 and has served as an Executive Vice President since 1991 and a Director since 1984. Mr. Clarke holds a B.S. in Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently oversees all aspects of research, which involves the development of proprietary trading models and portfolio management methods. Mr. Clarke is an associated person of Campbell. Bruce L. Cleland, born in 1947, joined Campbell in January 1993 and has served as President and a Director since 1994, and Chief Executive Officer since 1997. Mr. Cleland has worked in the international derivatives industry since 1973, and has owned and managed firms engaged in global clearing, floor brokerage, trading and portfolio management. Mr. Cleland is currently a member of the Board of Directors of the National Futures Association, and previously served as a member of the Board of Directors of the Managed Funds Association and as a member of the Board of Governors of the COMEX, in New York. Mr. Cleland is a graduate of Victoria University in Wellington, New Zealand where he earned a Bachelor of Commerce and Administration degree. Mr Cleland is an associated person of Campbell. Kevin M. Heerdt, born in 1958, joined Campbell in March 2003 as Executive Vice President Research and was appointed Executive Vice President Research and Information Technology in November 2003. His duties include risk management, research, and the development of quantitatively based hedge fund and options strategies, as well as providing managerial oversight of the information technology team. From February 2002 to March 2003, he was self-employed through Integrity Consulting. Previously, Mr. Heerdt worked for twelve years at Moore Capital Management, Inc., where he was a Director until 1999, and a Managing Director from 2000 to 2002. Mr. Heerdt holds a B.A. in Economics and in International Relations from the University of Southern California. Mr. Heerdt is an associated person of Campbell. James M. Little, born in 1946, joined Campbell in April 1990 and has served as Executive Vice President Business Development and a Director since 1992. Mr. Little holds a B.S. in Economics and Psychology from Purdue University. From 1989 to 1990, Mr. Little was a registered representative of A.G. Edwards & Sons, Inc. From 1984 to 1989, he was the Chief Executive Officer of James Redemptions Little & Associates, Inc., a commodity pool operator and broker-dealer. Mr. Little is the co-author of The Handbook of Financial Futures, and is a frequent contributor to investment industry publications. Mr. Little is an associated person of Campbell. Craig A. Weynand, born in 1969, joined Campbell in October 2003 as Vice President and has served as General Counsel since November 2003. In this capacity, he is involved in all aspects of legal affairs and regulatory oversight, as well as managerial oversight of trade operations. From May 1990 to September 2003, Mr. Weynand was employed by Morgan Stanley, serving as Senior Trader for Morgan Stanley Futures and Currency Management Inc., a commodity trading advisor, until 1998 and as Vice President Director of Product Origination & Analysis for the Morgan Stanley Managed Futures Department until his departure. Mr. Weynand holds a B.S. in International Business and Marketing and an M.B.A. in Economics from New York University, and a J.D. from the Fordham University School of Law. Mr. Weynand is a member of the New York State Bar and serves on the Government Relations Committee of the Managed Funds Association. Mr. Weynand is an associated person of Campbell. C. Douglas York, born in 1958, has been employed by Campbell since November 1992, was appointed a Senior Vice President Trading in 1997, and has served as Executive Vice President Trading since 2003. His duties include managing daily trade execution for the assets under Campbell's management. From 1991 to 1992, Mr. York was the Global Foreign Exchange Manager for Black & Decker. He holds a B.A. in Government from Franklin and Marshall College. Mr. York is an associated person of Campbell. Any principal of Campbell may trade futures and related contracts for his or her own accounts. In addition, Campbell manages proprietary accounts for its deferred compensation plan and for certain principals. Campbell has written procedures that govern proprietary trading by principals. Trading records for proprietary trading accounts are available for review by clients upon reasonable notice. Such trades may or may not be in accordance with the Campbell trading program described below. The Campbell Trading Program Campbell trades the assets allocated to it by the partnership pursuant to its Financial, Metal & Energy Large Portfolio, which trades exclusively in futures and forward contracts, including foreign currencies, precious and base metals, energy products, stock market indices and interest rate futures. As of December 31, 2003, Campbell was managing approximately $5.4 billion of client assets pursuant to the Financial, Metal & Energy Large Portfolio and approximately $6.4 billion in all of its programs. Campbell makes trading decisions using proprietary technical trading models, which analyze market statistics. There can be no assurance that the trading models currently being used will produce results similar to those produced in the past. Campbell's trading models are designed to detect and exploit medium-term to long-term price changes, while also applying proven risk management and portfolio management principles. Campbell believes that utilizing multiple trading models provides an important level of diversification, and is most beneficial when multiple contracts in each market are traded. Every trading model may not trade every market. It is possible that one trading model may signal a long position while another trading model signals a short position in the same market. It is Campbell's intention to offset those signals to reduce unnecessary trading, but if the signals are not simultaneous, both trades will be taken and since it is unlikely that both positions would prove profitable, in retrospect, one or both trades will appear to have been unnecessary. It is Campbell's policy to follow trades signaled by each trading model independently of the other models. Over the course of a medium-term to long-term trend, there are times when the risk of the market does not appear to be justified by the potential reward. In such circumstances, some of Campbell's trading models may exit a winning position prior to the end of a price trend. While there is some risk to this method (for example, being out of the market during a significant portion of a price trend), Campbell's research indicates that this is well compensated for by the decreased volatility of performance that may result. Campbell's trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. Campbell expects to develop Percentage of net assets allocated to each trading advisor as of January 1, 2003 additional trading models and to modify models currently in use and may or may not employ all such models for all clients' accounts. The trading models currently used by Campbell may be eliminated from use if Campbell ever believes such action is warranted. While Campbell normally follows a disciplined systematic approach to trading, on occasion it may override the signals generated by the trading models, such as when market conditions dictate otherwise. While such action may be taken for any reason at any time at Campbell & Company's discretion, it will normally only be taken to reduce risk in the portfolio, and may or may not enhance the results that would otherwise be achieved. Campbell applies risk management and portfolio management strategies to measure and manage overall portfolio risk. These strategies include portfolio structure, risk balance, capital allocation and risk limitation. One objective of risk and portfolio management is to determine periods of relatively high and low portfolio risk, and when such points are reached, Campbell may reduce or increase position size accordingly. It is possible, however, that this reduction or increase in position size may not enhance the results achieved over time. From time to time, Campbell may increase or decrease the total number of contracts held based on increases or decreases in an account's assets, changes in market conditions, perceived changes in portfolio-wide risk factors, or other factors which may be deemed relevant. Campbell estimates that, based on the amount of margin required to maintain positions in the markets currently traded, aggregate margin for all positions held in a client's account will range between 5% and 30% of the account's net assets. From time to time, margin commitments may be above or below this ranges. The number of contracts that Campbell believes can be bought or sold in a particular market without unduly influencing price adversely may at times be limited. In such cases, a client's portfolio would be influenced by liquidity factors because the positions in such markets might be substantially smaller than the positions that would otherwise be taken. 2. Chesapeake Capital Corporation Chesapeake was incorporated under the laws of the Commonwealth of Virginia in February 1988 for the purpose of offering advisory and investment portfolio management services to both retail and institutional investors in trading commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets. On August 19, 1991, Chesapeake was merged into Chesapeake Capital Corporation, an Illinois corporation formed on August 13, 1991. References herein to "Chesapeake" refer to the Virginia corporation prior to August 19, 1991 and the Illinois corporation on and after August 19, 1991. Chesapeake Holding Company is a Virginia corporation that owns all of the issued and outstanding shares of stock of Chesapeake Capital Corporation. Chesapeake has been registered with the CFTC as a commodity trading advisor and as a commodity pool operator since June 20, 1988 and May 8, 1991, respectively, and has also been a member of the National Futures Association since June 20, 1988. Chesapeake's principal place of business is located at 500 Forest Avenue, Richmond, Virginia 23229. All business records will be kept at Chesapeake's principal place of business. Principals R. Jerry Parker, Jr. is the Chairman of the Board of Directors and the Chief Executive Officer of Chesapeake. Mr. Parker has overseen Chesapeake's operations and its trading since its inception. Mr. Parker received a Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in January 1980. Mr. Parker worked in the accounting field for four years after graduating from college and became a licensed Certified Public Accountant in Virginia in 1982. From November 1983 until January 1987, Mr. Parker was employed as an exempt commodity trading advisor by Mr. Richard J. Dennis, a principal and shareholder of Richard J. Dennis & Company, a Chicago-based commodity trading advisor and a commodity pool operator registered with the CFTC, in his "Turtle" training program. From January 1987 until February 1988, Mr. Parker traded for Mr. Thomas Dennis as an exempt commodity trading advisor. From November 1983 through February 1988, Mr. Parker had % % % EMC Capital Management, Inc. 0 0 10.94 Northfield Trading L.P. 0 0 9.07 Rabar Market Research, Inc. 331/3 331/3 37.60 Sunrise Capital Management, Inc. 331/3 331/3 31.07 Graham Capital Management, Inc. Selective Trading Program 162/3 162/3 5.66 Global Diversified Program 162/3 162/3 5.66 Spectrum Technical complete discretionary trading authority over a futures portfolio of U.S. $1 million to U.S. $1.5 million. In February 1988, Mr. Parker ceased trading for Mr. Thomas Dennis and formed Chesapeake, which, as of January 31, 2003, managed approximately U.S. $1.0 billion (notional funds excluded) of client funds. John M. Hoade is the President and the Secretary of Chesapeake. Mr. Hoade received a Bachelor of Science degree in Business Administration from Lynchburg College in 1978. From September 1976 through December 1990, Mr. Hoade was employed by Thurston Metals, Inc., located in Lynchburg, Virginia, in sales, marketing, and general management. Mr. Hoade joined Chesapeake in December 1990 to direct its operations and marketing efforts. Robert S. Parker, Jr. is the Chief Legal Counsel of Chesapeake. Mr. Parker received his Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in 1965. Mr. Parker worked in the accounting field for two years and became a Certified Public Accountant in Virginia. He then attended law school at the College of William and Mary where he received a Juris Doctor degree in 1970. Mr. Parker has been engaged in the practice of law since then, with an emphasis in tax and business matters, including 13 years with Hunton & Williams, where Mr. Parker was a partner. Mr. Parker has been Chief Legal Counsel of Chesapeake since February 1996. Warren K. Coleman is the Chief Financial Officer and a Managing Director of Chesapeake. Mr. Coleman received a Master of Business Administration in 1981 and Bachelor of Business Administration in 1979 from James Madison University. Mr. Coleman became a Certified Public Accountant in 1982 while working for the public accounting firm of Ernst & Young. From February 1982 until March 1998, Mr. Coleman was employed by Philip Morris U.S.A. His job duties at Philip Morris included Plant Controller, Senior Manager responsible for Capital Evaluation and Financial Analysis and Senior Manager responsible for financial software integration. Mr. Coleman joined Chesapeake in March 1998 to direct its financial operations as Chief Financial Officer. Chesapeake and its principals may, from time to time, trade futures, forwards, and options contracts and securities for their own proprietary accounts. Such trades may or may not be in accordance with the Chesapeake trading program described below. Records for these accounts will not be made available to Spectrum Technical. The Chesapeake trading programs Prior to June 1, 1998, the assets allocated to Chesapeake by Spectrum Technical were traded pursuant to its Diversified Program and its Financial and Metals Program. Since June 1, 1998, the assets of Spectrum Technical allocated to Chesapeake have been traded pursuant to its Diversified 2XL Program. The Diversified 2XL Program emphasizes a wide range of diversification with a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. Chesapeake will not trade cash commodities or swap contracts for the partnership without the general partner's consent. Chesapeake may trade on U.S. and non-U.S. exchanges and markets. The decision to add or subtract markets from this program periodically shall be at the sole discretion of Chesapeake. Chesapeake utilizes a variety of trading strategies and programs for its clients' private accounts and for Chesapeake-sponsored investment funds. The programs offered generally by Chesapeake to its clients to trade commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts for their private accounts (i.e., to those clients other than Chesapeake-sponsored investment funds) are the Diversified Program and the Diversified 2XL Program (the "Diversified Trading Programs"). The Diversified Program commenced trading in February 1988. The Diversified Program emphasizes a wide range of diversification by utilizing a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. These futures interest contracts are traded on a highly leveraged basis. The Diversified 2XL Program, which Chesapeake trades for Spectrum Technical, began trading in April 1994. The Diversified 2XL Program employs the same trading system as the Diversified Program, except that the Diversified 2XL Program is generally traded on an increased exposure basis generally equal to approximately two times the exposure or trading level typically applied to a fully-funded Diversified Program account (although at times a different level may be used and the partnership's returns may vary significantly from a 2:1 ratio with the gross returns of private accounts trading the Diversified Program). Ultimately, the appropriate exposure or trading level to be employed by the partnership in its trading, as determined at the sole discretion of Chesapeake, will be determined by the performance factors associated with the partnership and the partnership only, regardless of the intended performance relationship of the partnership to other accounts trading in other programs that may utilize more or less exposure. Since Chesapeake's trading strategies and programs are proprietary and confidential, the discussion below is of a general nature and it is not intended to be exhaustive. As of December 31, 2003, Chesapeake was managing approximately $263.2 million of customer funds in the Diversified 2XL Program (notional funds excluded) and approximately $1.4 billion of client assets in all of its programs (notional funds excluded). In general, Chesapeake analyzes markets, including price action, market volatility, open interest, and volume as a means of predicting market opportunity and discovering any repeating patterns in past historical prices. Chesapeake generally employs a computerized analysis of a large number of interrelated statistical and mathematical formulas and techniques based on an extensive proprietary and confidential database of prices, volume, open interest, and various other market statistics to search for patterns in data and to develop, use, and monitor trading strategies. Chesapeake places primary emphasis on technical analysis in assessing market opportunities. Chesapeake's trading decisions are based on a combination of its systems, its market timing techniques, its trading discretion, judgment, and experience, and on market opportunities. Chesapeake's trading methodology is both systematic and strategic. Trading decisions require the exercise of strategic judgment by Chesapeake in evaluating its technical trading methods, in their possible modification from time to time, and in their implementation. Chesapeake is free to use its discretion whether to follow any trading signals or parameters generated by its technical trading strategies and its Diversified Trading Programs. The decision not to trade certain markets or not to make certain trades indicated by Chesapeake's systems can materially affect performance. Under no circumstances is Chesapeake compelled to follow any of the trading indications generated by the Diversified Trading Programs. Chesapeake has the right to employ any form or method of technical analysis that it deems appropriate in trading its Diversified Trading Programs. By way of example, the technical trading strategies and programs utilized by Chesapeake may be significantly revised from time to time by Chesapeake as a result of ongoing research and development, which seeks to devise new trading strategies and programs, as well as test its current technical strategies and programs. Chesapeake will not notify clients, such as the partnership, of such revisions or changes to its Diversified Trading Programs as they may occur. Exchanges on which transactions may take place will include, but are not limited to, all exchanges in the United States, as well as non-U.S. exchanges which include, but are not limited to, the Belgian Futures and Options Exchange, the London International Financial Futures and Options Exchange Ltd., the International Petroleum Exchange of London Ltd., the London Metal Exchange, the London Commodity Exchange, the Italian Derivatives Market, the March Terme International de France, the Mercado Espa ol de Futuros Financieros, the Eurex Deutschland, the Hong Kong Futures Exchange Ltd., the Montreal Exchange, the Tokyo Commodity Exchange, the Tokyo International Financial Futures Exchange, the Tokyo Stock Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange. In addition, Chesapeake continually monitors numerous markets, both U.S. and non-U.S., and initiates trades at any point it determines that a market is sufficiently liquid and tradable using the methods employed by Chesapeake. Chesapeake renders advice regarding transactions in physical commodities, including exchange of futures for physical transactions. An exchange of futures for physical transaction is a transaction permitted under the rules of many futures exchanges in which two parties exchange a cash market position for a futures market position (or vice versa) without making an open, competitive trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Chesapeake does not currently, but may in the future, utilize swaps on behalf of the partnership with the general partner's consent. A swap transaction is an individually negotiated, non-standardized agreement between two parties to exchange cash flows (and sometimes principal amounts) measured by different interest rates, exchange rates, indices, or prices, with payments generally calculated by reference to a principal amount or quantity. Chesapeake may enter into swap transactions involving or relating to interest rates, currencies, commodities, or indices. Swaps may be utilized for a number of reasons, including to achieve greater exposure to markets in which Chesapeake is constrained by speculative position limits from taking additional positions in exchange-traded contracts, to access markets not accessible through exchange-traded instruments, and to allow customization of positions. Chesapeake may also trade other types of over-the-counter derivative contracts. Chesapeake generally uses between 10% and 30% of the equity in a fully funded account as original margin for trading in the Diversified Program, but at times the margin-to-equity ratio can be higher. The low margin normally required in futures trading permits an extremely high degree of leverage; margin requirements for futures trading being in some cases as little as 2% of the face value (or "exposure") of the contracts traded. Therefore, the gross value of positions held in an account may be several times the value of such account. Consequently, even a slight movement in the prices of open positions in an account could result in immediate and substantial losses to the investor. The Diversified 2XL Program generally trades at approximately double the Diversified Program exposure requiring the use of double of the portion of equity Chesapeake generally uses as margin, which results in approximately double the ratio of the gross value of positions in relation to the value of an account. The risk assumed and, consequently, the potential for profit experienced by a particular account at different times, and by different accounts at the same time, vary significantly according to the program(s) traded, the market conditions, the percentage gained or lost in such account, the size of such account, the brokerage commissions, the management fees and the incentive fees charged to such account, the contracts, if any, excluded from such account by the client, and when such account commenced trading. Accordingly, no investor should expect to achieve the same performance as that of any other account traded previously, simultaneously, or subsequently by Chesapeake. Programs that exclude or emphasize certain markets often perform differently than programs utilizing different markets. On programs that differ in terms of leverage or exposure only (e.g., the Diversified Trading Programs), Chesapeake generally attempts to manage accounts in such programs such that the gross returns (before fees), positive or negative, are a multiple of each other based on the leverage differential (e.g., the Diversified 2XL Program gross returns, positive or negative, are generally intended to be approximately double those of the Diversified Program on an annual or year to date basis). However, many factors can, sometimes significantly, impact account performance and these performance relationships, including, but not limited to, differences in the timing of additions and withdrawals and the resulting adjustment trades, varying fills, changes in position size to reduce risk during losing periods by Chesapeake that impact an account in one program but not other account(s) in other programs that use proportionately higher or lower exposure, differences in brokerage commissions, and other factors. Accordingly, every program will underperform or overperform the anticipated multiple or fraction of a differently leveraged program. Additions and Redemptions in Pool Account Investors in investment fund accounts generally make additions or redeem units at net asset value per unit as of the opening of business on the first business day of each month. In order to provide the appropriate market exposure commensurate with a fund's equity after giving effect to net additions/redemptions, Chesapeake's general practice is to adjust positions as soon as possible after the close of business on the last trading date of the month. Market conditions may dictate the time period over which these trades can be effected. The performance of a fund account relative to the performance of other accounts trading in the same program or to accounts trading within programs that should perform at a level proportionately higher or lower than such account may be significantly different as a result of these adjustment trades. Furthermore, there may be changes in net asset value per unit as a result of such adjustment trades. Based on the level of net additions/redemptions and Chesapeake's determination of liquidity or other market conditions, Chesapeake may also decide to make adjusting trades before the close of business on the last business day of the month. No assurance is given that Chesapeake will be able to avoid the performance discrepancies and the changes described above in connection with pool equity level changes. The use of discretion by Chesapeake in the application of this procedure may affect performance positively or negatively. Further, effecting trades prior to the close of business on the last business day of the month may cause brokerage commissions to be incurred and allocated in the month prior to the month in which the investors making additions participate in pool profits and losses. 3. John W. Henry & Company, Inc. (JWH ) John W. Henry & Company began managing assets in 1981 as a sole proprietorship and was later incorporated in the state of California as John W. Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997, JWH reincorporated in the state of Florida. JWH's offices are at 301 Yamato Road, Suite 2200, Boca Raton, Florida. JWH's registration as a commodity trading advisor became effective in November 1980. JWH is a member of the National Futures Association in this capacity. "JWH" is the registered trademark of John W. Henry & Company, Inc. The John W. Henry Trust, dated July 27, 1990, is the sole shareholder of JWH. Principals Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also a member of the JWH Investment Policy Committee. In addition, he is a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. Mr. Henry oversees trading program design and composition, reviews and approves research and system development proposals prior to implementation in trading, reviews and approves of decisions involving the strategic direction of the firm, and discusses trading activities with trading supervisors. JWH's corporate officers, rather than Mr. Henry, manage JWH's day-to-day operations. Mr. Henry is the exclusive owner of trading systems licensed to Elysian Licensing Corporation, a corporation wholly owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to JWH and utilized by JWH in managing investor accounts. Mr. Henry conducts his business responsibilities for JWH from Boca Raton, Florida, and Boston, Massachusetts. Mr. Henry has served on the Board of Directors of the Futures Industry Association, the National Association of Futures Trading Advisors, and the Managed Futures Trade Association, and has served on the Nominating Committee of the National Futures Association. He has also served on a panel created by the Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative efforts related to electronic trading, common clearing, and issues regarding a potential merger. Since the beginning of 1987, he has devoted, and will continue to devote, considerable time to activities in businesses other than JWH and its affiliates. From January 1999 until February 2002, Mr. Henry was chairman of the Florida Marlins Baseball Club LLC. Effective February 2002, Mr. Henry is Principal Owner of New England Sports Ventures LLC, which owns the Boston Red Sox baseball team, New England Sports Network, and certain real estate, including Fenway Park. He holds comparable positions with the individual business entities engaged in these activities. Mr. Henry is regularly involved in the business of New England Sports Ventures with professional management of the Red Sox (including its president and chief executive officer) and of the other entities owned by New England Sports Ventures. Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of the JWH Board of Directors. His duties include the coordination and allocation of responsibilities among JWH and its affiliates. Prior to joining JWH in January 1994, he was a partner at Chapman and Cutler in Chicago, where he headed the law firm's futures law practice from 1983 to 1993. He also served as general counsel of the MFA and general counsel of the National Association of Futures Trading Advisors. Mr. Mitchell is currently a director of the MFA and a member of the National Futures Association Commodity Pool Operator/Commodity Trading Advisory Committee. In addition, he has served as a member of the National Futures Association Special Committee for the Review of a Multi-tiered Regulatory Approach to National Futures Association Rules, the MFA Government Relations Committee, and the Executive Committee of the Futures Industry Association Law and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian Award for Outstanding Contributions to the Field of Commodity Money Management. He received an A.B. with honors from Dartmouth College and a J.D. from the University of California at Los Angeles, where he was named to the Order of the Coif, the national legal honorary society. Dr. Mark S. Rzepczynski is the president and chief investment officer, and a member of the JWH Investment Policy Committee. He is responsible for day-to-day management of the firm. Dr. Rzepczynski is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. He was Senior Vice President, Research & Trading at JWH from May 1998 through December 2001. Prior to joining JWH in May 1998, he was vice president and director of taxable credit and quantitative research in the fixed income division of Fidelity Management and Research from May 1995 to April 1998, where he oversaw credit and quantitative research recommendations for all Fidelity taxable fixed income funds. From April 1993 to April 1995, he was a portfolio manager and director of research for CSI Asset Management, Inc., a fixed-income money management subsidiary of Prudential Insurance. Dr. Rzepczynski is a board member of the Futures Industry Association. Dr. Rzepczynski has a B.A. cum laude, Honors in Economics from Loyola University of Chicago, and an A.M. and Ph.D. in Economics from Brown University. Mr. Matthew J. Driscoll is a senior vice president, trading, and chief trader and a member of the JWH Investment Policy Committee. He is responsible for the supervision and administration of all aspects of order execution strategies and implementation of trading policies and procedures. Mr. Driscoll joined JWH in March 1991 as a member of the trading department. Since joining the firm, he has held positions of increasing responsibility as they relate to the development and implementation of JWH's trading strategies and procedures; he has played a major role in the development of JWH's 24-hour trading operation. He attended Pace University. Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a member of the JWH Investment Policy Committee. He is responsible for the implementation and oversight of the firm's proprietary strategies and investments. Mr. Koshi joined JWH in August 1988 as a professional in the finance department, and since 1990 has held positions of increasing responsibility in the trading department. He received a B.S. in Finance from California State University at Long Beach. Mr. David M. Kozak is a senior vice president, general counsel, and secretary to the corporation. He is also a principal of JWH Investment Management, Inc. and Westport Capital Management Corporation. Prior to joining JWH in September 1995, he had been a partner at the law firm of Chapman and Cutler, where he concentrated in commodity futures law with an emphasis on commodity money management. Mr. Kozak is Chairman of the MFA's Government Relations Committee. He is also a member of the NFA's Membership Committee, as well as, the NFA's Special Committee on CPO/CTA Disclosure Issues, and the Special Committee for the Review of Multi-tiered Regulatory Approach to NFA Rules. He is currently chairman of the subcommittee on commodity trading advisor and commodity pool operator issues of the Futures Regulation Committee of the Association of the Bar of the City of New York. Mr. Kozak formerly served as the secretary and a director of the MFA, as well as having been a member of the MFA's Executive Committee. He received a B.A. from Lake Forest College, an M.A. from The University of Chicago, and a J.D. from Loyola University of Chicago. Mr. Kenneth S. Webster, CPA is a senior vice president and chief operating officer. He is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, JWH Investment Management, Inc., and JWH Securities, Inc. He is responsible for firm wide operations including management of the investment support, finance, information technology and administration departments. Since joining JWH in January 1995, Mr. Webster has held positions of increasing responsibility. Prior to his employment at JWH, Mr. Webster was the Controller of Chang Crowell Management, a registered CTA, from December 1991 to December 1994. From June 1987 to December 1991, Mr. Webster was employed by Coopers & Lybrand in their financial services audit practice. Mr. Webster received a BBA in Accounting from Pace University. state or any political subdivision thereof, general obligations issued by any agency sponsored by the U.S., certificates of deposit issued by a bank as defined in the Exchange Act or a domestic branch of a foreign bank insured by the FDIC, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds, subject to conditions and restrictions regarding marketability, investment quality, and investment concentration. In addition, such investments may be bought and sold pursuant to designated repurchase and reverse repurchase agreements. To the extent the partnerships' funds are held by the commodity brokers in secured accounts relating to trading in futures or options contracts on non-U.S. exchanges or in forward contracts, such funds may be invested by the commodity brokers, under applicable CFTC regulations, in the instruments described above for customer segregated funds, in equity and debt securities traded on established securities markets in the U.S., and in commercial paper and other debt instruments that are rated in one of the top two rating categories by Moody's Investor Service, Inc. or Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. A significant portion of the partnerships' funds held by the non-clearing commodity broker will be held in secured accounts and will be invested in short-term or medium-term commercial paper rated AAA or the equivalent or in other permitted debt instruments rated AAA or the equivalent. To the extent that the partnerships' funds are held in non-interest-bearing bank accounts, the non-clearing commodity broker or its affiliates will benefit from compensating balance treatment in connection with the non-clearing commodity broker's designation of a bank or banks in which the partnership's assets are deposited, meaning that the non-clearing commodity broker or its affiliates will receive favorable loan rates from such bank or banks by reason of such deposits. To the extent that any excess interest and compensating balance benefits to the non-clearing commodity broker or its affiliates exceed the interest the non-clearing commodity broker is obligated to credit to the partnerships, they will not be shared with the partnerships. THE SPECTRUM SERIES General The Spectrum Series presently consists of five limited partnerships each formed under the laws of Delaware: Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum Global Balanced and Spectrum Currency. Date Partnership Was Formed Mr. Julius A. Staniewicz is vice president, senior strategist and research manager, and a member of the JWH Investment Policy Committee. Since joining JWH in March of 1992, Mr. Staniewicz has held positions of increasing responsibility at the firm. These include long-term strategic planning in the areas of trading and investment strategies, and business development. Mr. Staniewicz received a B.A. in Economics from Cornell University. Mr. Edwin B. Twist is a member of the JWH Board of Directors. He is also a principal of JWH Investment Management, Inc. Mr. Twist joined JWH as internal projects manager in 1991 and has been a director since 1993. His responsibilities include assisting with internal projects. The following is a list of additional principals of JWH: Mr. Andrew D. Willard, vice president, information technology; Mr. Ted A. Parkhill, vice president, marketing; and Mr. William S. Dinon, vice president, director of natural sales. The JWH Investment Programs JWH specializes in managing institutional and individual capital in the global futures, swaps, and forwards markets. JWH currently operates 11 investment programs. JWH utilizes the Original Investment Program and the Financial and Metals Portfolio for Spectrum Technical. The Original Investment Program. The Original Investment Program began trading client capital in October 1982 and was the first program offered by JWH. The Original Investment Program seeks to capitalize on long-term trends in a broad spectrum of worldwide financial and non-financial futures markets including interest rates, global stock indices, currencies, metals, energies, and agricultural markets. This program always maintains a position long or short in every market traded. In 1992, a broad research effort was initiated to enhance the risk/reward ratios of the Original Investment Program without changing its trading philosophy. Global markets were added; sector allocations were shifted, with increased weighting given to financial markets; and some contracts were removed from the program. The quantitative model underlying the program was not changed. Beginning in October 1995, the position size in relation to account equity in this program was reduced approximately 25%. Today, the Original Investment Program is one of JWH's largest and historically best-performing programs, manifesting lower volatility since the above changes were implemented in 1992. The Financial and Metals Portfolio. The Financial and Metals Portfolio, which began trading client capital in October 1984, is JWH's second longest running program. The program seeks to identify and capitalize on intermediate-term price movements in four worldwide market sectors: interest rates, currencies, non-U.S. stock indices, and metals. This program takes a position when trends are identified, but may take a neutral stance or liquidate open positions in nontrending markets. Beginning in August 1992, the position size in relation to account equity in this program was reduced approximately 50%. The quantitative model underlying the program was not changed. Since the changes were implemented in 1992, the Financial and Metals Portfolio has experienced lower volatility. As of December 31, 2003, JWH was managing approximately $69 million of client assets pursuant to its Original Investment Program, approximately $357 million of client assets pursuant to its Financial and Metals Portfolio and approximately $2.1 billion in all of its programs. Investment Philosophy and Methodology. Investment Philosophy. The JWH investment philosophy has been based, since the inception of the firm, on the premise that market prices, rather than market fundamentals, are the key aggregator of information necessary to make investment decisions and that market prices, which may at first seem random, are actually related through time in complex, but discernible ways. This philosophy is based on analysis of historical data that revealed that market adjustments sometimes form price trends that can be exploited for profit. JWH believes there is an inherent return opportunity in participating in price movement trends that its systematic and analytic models have identified. JWH trading programs may participate in either rising or falling trends; they do not have a directional bias nor do they try to forecast Date Partnership Began Operations or predict market turning points. Once a program has established a position in a market that has been identified as trending, no pre-set price target for profits is established given the highly variable nature of market trends. JWH's understanding of the nature of markets is based on the hypothesis that investors' expectations adjust at different times and manifest themselves in long-term price trends. Markets do not adjust immediately to new information. JWH's investment decision process has been designed to analyze and exploit these trends. JWH maintains that changes in market prices initially react to new or emerging information or events, but the aggregate impact on price may be a lengthy process. While prices may at first represent an over or under reaction to new information, prices eventually will reflect all relevant information. In other words, anything that could possibly affect the market price of a commodity or financial instrument including fundamental, political, or psychological factors eventually will be reflected in the price of that commodity or instrument. The foundation for JWH's analysis is, therefore, a study of market price, rather than market fundamentals or the prediction of trends. JWH believes that the price adjustments process takes time, since reactions of market participants to changing market dynamics initially may be inefficient; that is, investors may not react immediately to information because of differing evaluation processes, differing levels of risk tolerance, or uncertainty. Gradual price adjustments manifest themselves in long-term trends, which themselves can influence the course of events and from which profit opportunities can arise. JWH believes that such market inefficiencies can be exploited through a combination of trend detection and risk management. Trend Detection. JWH's research is based on the belief that prices move in trends that are often highly complex and difficult to identify and that trends often last longer than most market participants foresee. JWH believes there is strong economic and statistical evidence to suggest that trends do exist in most markets although they may be difficult to detect. Yet these trend signals can be found through the use of systematic extraction methods. Since the firm's founding, JWH has consistently employed its analytical methods to identify short-term to long-term trends. Comprehensive research undertaken by the firm's founder, John W. Henry, led to the initial development of disciplined systematic quantitative models. JWH's computer models examine market data for systematic price behavior or price relationships that will characterize a trend. When price trends are identified, the JWH trading system generates buy and sell signals for implementing trades. The strict application of these signals is one of the most important aspects of JWH's investment process. JWH considers that price is the combination of the signal plus "noise," where the signal is the trend information and the "noise" is market volatility. Prices are an aggregate of market information, but "noisy" price signals have to be filtered to discover an underlying price trend. The JWH systems examine market data for relationships among movements in prices, detecting frequencies or repetitive behavior hidden within thousands of pieces of raw price data. JWH's trading models seek to identify signals by separating short-term market noise from relevant information and locating a directional opportunity that has favorable risk characteristics. JWH systems may dictate that positions be closed with a loss in order to provide downside protection, but the systems may also provide discipline to stay in markets that are quiescent for long periods of time in order to achieve possible long-term gain for investors. In either case, JWH investment decisions reflect the JWH trading models' assessment of the market itself, not an emotional response to recent economic or political data. JWH models do not follow singular movements in price, characteristic of short-term volatility. Instead, the models seek to identify changes in systematic price behavior over a long period of time, which will characterize a directional opportunity. JWH trading is conducted with a money management perspective. Risk Management. Given the noisy nature of price data, all market signals may not lead to profitable trades. Hence, significant emphasis is placed on risk management techniques to minimize the losses on any particular trade on the portfolio as a whole. Stop-losses are used and managed in a proprietary manner to balance the potential loss in any trade versus the opportunity for maximum profit. Depending on the model used, risk may be managed through variable position size or risk levels for any market. Additionally, modern portfolio techniques are used to construct the overall portfolio for a given program. Spectrum Select March 21, 1991 August 1, 1991 Spectrum Technical April 29, 1994 November 2, 1994 Spectrum Strategic April 29, 1994 November 2, 1994 Spectrum Global Balanced April 29, 1994 November 2, 1994 Spectrum Currency October 20, 1999 July 3, 2000 Each partnership calculates its net asset value per unit independently of the other partnerships. Each partnership's performance depends solely on the performance of its trading advisor(s). Each partnership is continuously offering its units for sale at monthly closings held as of the last day of each month. The purchase price per unit is equal to 100% of the net asset value of a unit as of the date of the monthly closing at which the general partner accepts a subscription. Following is a summary of information relating to the sale of units of each partnership through December 31, 2003: Units Sold These techniques will account for the volatility and correlation for markets as well as behavior during specific market extremes. Portfolio adjustments will be made to account for systematic changes in the relationships across markets. Portfolios are managed to meet longer-term risk and volatility tolerances. Potential Capital Preservation. JWH's overall objective is to provide absolute returns. JWH is an absolute return manager, insofar as it does not manage against a natural benchmark. Relative return managers, such as most traditional equity or fixed income managers, are measured on how they perform relative to some pre-determined benchmark. For these managers, this is a natural course of events, as the benchmark is a readily available alternative to the active management provided. JWH has no such investment benchmark, so its aim is to achieve returns in all market conditions, and is thus considered an absolute return manager. In markets with short-term volatility or where no trends exist conditions which can result in flat or negative performance JWH strives to preserve capital. Some of the JWH programs may take a neutral position (exit a market) rather than risk trading capital. While there can be no guarantee against losses, the JWH trading discipline is designed to preserve capital while waiting for opportunities where programs can generate profits over longer periods of time. Risk management on a market basis accounts for volatility and the fact that markets may turn against the prevailing trend. While JWH is looking for longer-term trends, the preservation of capital is paramount. If a predetermined amount of capital is lost, positions will be closed regardless of fundamental market conditions. Disciplined Investment Process. JWH believes that an investment strategy can only be as successful as the discipline of the manager to adhere to its requirements in the face of market adversity. Unlike discretionary traders, whose decisions may be subject to behavioral biases, JWH practices a disciplined investment process. By quantifying the circumstances under which key investment decisions are made, the JWH methodology offers investors a consistent approach to markets, unswayed by judgmental bias. Disciplined Adaptation to Changing Market Conditions. JWH maintains an absolute commitment to consistent portfolio construction and program integrity. JWH has not been persuaded to change the fundamental elements of the portfolios by short-term performance, although adjustments may be made over time. Nor, over the years, has JWH changed the basic methodologies that identify signals in the markets. JWH believes that its long-term track record has benefited substantially from its adherence to its models during and after periods of negative returns. The dynamic elements of the JWH investment process involve periodic adaptation to changing market conditions and subjective discretionary decisions on such matters as portfolio weightings, leverage, position size, effective trade execution, capacity and entry into new markets all of which depend on professional experience and market knowledge. These changes are made as warranted by JWH's research findings and in the context of JWH's underlying principles. Research. Working in a collaborative effort with JWH's traders and the Investment Policy Committee, the firm's Research Department looks to improve the overall performance of investment models through analysis of the dynamic elements of the investment process. Research also refines risk management techniques and monitors capacity. It examines profit opportunities in markets not currently traded by JWH programs, and in new instruments as they become available. Trade Placement. JWH's experienced traders work on a 24-hour rotation schedule, executing trades worldwide in markets that are the most liquid for the specific trade that is being made. Trades are executed by teams, with each member of the team fully responsible for the trade's fulfillment, and are recorded and reviewed for strict adherence to procedures. Once trade signals are received, traders focus on the manner and speed with which the trade will be executed in an effort to minimize market disturbance at the best price. Depending on market conditions, order size and other factors, traders will decide to execute a trade using a particular order type, which may include "market price," "market-at-discretion" or "market limit." Whether entering or exiting the markets, JWH Trading follows specific procedures designed to help minimize the impact of any immediate adverse price developments. JWH trades electronically on behalf of its client accounts. JWH, in its discretion, may also continue to place orders by traditional means, including telephone and telecopy. JWH believes that electronic trading provides a faster method of accessing the variety of markets that it trades than the traditional method of Units Available For Sale placing trade orders over the telephone. Electronic trading provides for greater order execution risk controls to be incorporated into electronic order placement which should reduce the potential for errors during the order placement process. Electronic trading also increases the overall level of confidentiality for JWH with respect to the marketplace and it will also prevent miscommunication of instructions between JWH and the executing brokers. Trade processing efficiency is another key benefit to electronic trading. Investment Programs. JWH investment programs have different combinations of style, timing, and market characteristics. Investment style differences are primarily based on the number of directional phases that investment programs use for markets long, short or neutral and how position sizes are determined, whether static or dynamic. Timing whether trends are recognized over a short to very long term period is a distinguishing characteristic of JWH investment programs. JWH investment programs can also be distinguished by the markets they trade. While some characteristics may overlap, each investment program has a distinctive combination of style, timing, and markets. This does not mean that one program will have higher returns than another will or that a certain set of characteristics is preferable for one type of market. At times, an investment program may, for certain markets, use a style different from its primary style. Duration of Positions Held. JWH's historical performance demonstrates that, because trends often last longer than most market participants expect, significant returns can be generated from positions held over a long period of time. Therefore, market exposure to profitable positions is not changed based on the time horizon of the trade; positions held for two to four months are not unusual, and positions have been held for more than one year. Losing positions are generally reversed or eliminated relatively quickly, with most closing within a few days or weeks. However, if the JWH system detects a profitable underlying trend, a position trading at a loss may be retained in order to capture the potential benefits of participating in that trend. Throughout the investment process, risk controls designed to reduce the possibility of an extraordinary loss in any one market are maintained. Discretionary Aspects. JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. This could occur, for example, when JWH determines that markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. Subjective aspects in JWH's application of its quantitative models also include the determination of position size in relation to account equity, timing of commencement of trading an account, the investment of assets associated with additions, redemptions, and reallocations, futures contracts used and contract months traded, and effective trade execution. Program Modifications. Proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. While the basic philosophy underlying the firm's investment methodology has remained intact throughout its history, the potential benefits of employing more than one investment methodology, or in varying combinations, is a subject of continual testing, review, and evaluation. Extensive research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a different methodology has indicated that its use might have resulted in improved historical performance. In addition, risk management research and investment program analysis may suggest modifications regarding the relative weighting among various contracts, modifying the style and/or timing used by an investment program to trade a particular contract, the addition or deletion of a contract traded by an investment program, or a change in position size in relation to account equity. However, most investment programs maintain a consistent portfolio composition to allow opportunities in as many major market trends as possible. All cash in a JWH investment program is available for trading, although the amounts committed to margin will vary from time to time. As capital in each JWH investment program increases, additional emphasis and weighting may be placed on certain markets that have historically demonstrated the greatest SSARIS Advisors, LLC 100 100 Total Proceeds Received liquidity and profitability. Furthermore, the weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations, and other factors warrant. Spectrum Technical and Spectrum Currency will generally not be informed of such changes. Oversight of Trading Policies. The JWH Investment Policy Committee is a senior-level advisory group, broadly responsible for evaluating and overseeing trading policies. The Investment Policy Committee provides a forum for shared responsibility, meeting periodically to discuss issues relating to implementation of JWH's investment process and its application to markets, including research on new markets and strategies in relation to JWH trading models. Typical issues analyzed by the Investment Policy Committee include liquidity, position size, capacity, performance cycles, and new product and market strategies. The Investment Policy Committee also makes the discretionary decisions concerning investment program selection, asset allocation, and position size in relation to account equity for the Strategic Allocation Program and the Currency Strategic Allocation Program. Composition of the Investment Policy Committee, and participation in its discussions and decisions by non-members, may vary over time. The Chairman participates in all Investment Policy Committee meetings and decisions. The Investment Policy Committee does not make day-to-day trading decisions. Position Size. Adjustments in position size in relation to account equity have been and continue to be an integral part of JWH's investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in the account that is taken in certain markets or entire investment programs. Such adjustments may be made at certain times for some investment programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, current market volatility, risk exposure, subjective judgment, and evaluation of these and other general market conditions. Such decisions to change the size of a position may positively or negatively affect performance and will alter risk exposure for an account. Adjustments in position size relative to account equity may lead to greater profits or losses, more frequent and larger margin calls, and greater brokerage expense. No assurance is or can be given that such adjustments will result in profits for client accounts. JWH reserves the right to alter, at its sole discretion and without notification to Spectrum Technical and Spectrum Currency, its policy regarding adjustments in position size relative to account equity. Addition, Redemption, and Reallocation of Capital for Commodity Pool or Fund Accounts. Investors purchase or redeem units at net asset value on the close of business on the last business day of the month. In order to provide market exposure commensurate with the funds' equity on the date of these transactions, JWH may, in its sole discretion, adjust its investment of assets associated with additions and redemptions as near as possible to the close of business on the last trading date of the month. The intention is to provide for additions, redemptions, and reallocations at a net asset value that will be the same for each of these transactions, and to eliminate possible variations in net asset values that could occur as a result of inter-day price changes if, for example, additions were calculated on the first day of the subsequent month. Therefore, JWH may, at its sole discretion, adjust its investment of the assets associated with the addition, redemption, or reallocation as near as possible to the close of business on the last business day of the month to reflect the amount then available for trading. Based on JWH's determination of liquidity or other market conditions, JWH may decide to commence trading earlier in the day on, or before, the last business day of the month, or at its sole discretion, delay adjustments to trading for an account to a date or time after the close of business on the last day of the month. No assurance is given that JWH will be able to achieve the objectives described above in connection with fund equity level changes. The use of discretion by JWH in the application of this procedure may affect performance positively or negatively. Physical and Cash Commodities. JWH may trade in physical or cash commodities for immediate or deferred delivery, including specifically gold bullion, as well as futures, options, swaps, and forward contracts when it believes that cash markets offer comparable or superior market liquidity or ability to execute transactions at a single General Partner Contributions price. In addition, the CFTC does not comprehensively regulate cash transactions, which are subject to the risk of counterparty failure, inability, or refusal to perform with respect to such contracts. JWH will not trade physical or cash commodities for the Spectrum Series, other than in connection with exchange of futures for physical transactions, without the general partner's consent. Equity Drawdowns. Historically, only thirty to forty percent of all trades made pursuant to JWH's programs have been profitable. Large profits on a few trades in positions that typically exist for several months have produced favorable results overall. The greatest cumulative percentage decline in daily net asset value that JWH has experienced since inception in any single program on a composite basis was nearly sixty percent. You should understand that similar or greater drawdowns are possible in the future. Legal Concerns. There neither now exists nor has there previously ever been any material administrative, civil, or criminal action against JWH or its principals. Principals of JWH serve on the boards of directors and committees of various organizations, both in and outside of the managed futures industry. In such capacities, these individuals have a fiduciary duty to the other organizations they serve, and they are required to act in the best interests of those organizations, even if those actions were to be adverse to the interests of JWH and its clients. Mr. Henry devotes a substantial portion of his business time to ventures unrelated to JWH and futures trading, and from time to time certain JWH staff members may provide support services for those other business ventures. Those principals and others who supervise and manage JWH staff supporting other business ventures have a conflict of interest in allocating their time, and the time of certain staff members, between their duties to JWH and duties or commitments involving such other business ventures. JWH and Mr. Henry may engage in discretionary trading for their own accounts, as long as such trading does not amount to a breach of fiduciary duty. Such trading will be for the purposes of testing new investment programs and concepts, as well as for proprietary profit. Proprietary trading may involve contract markets that are not traded for client accounts. The reasons for not trading a contract market for clients may include: the contract market does not trade reasonable volume and is not expected to grow such that JWH could trade significant size with appropriate liquidity; the contract markets are liquid but are highly correlated or redundant to existing markets or sectors traded for clients; or the contract markets have excessively high volatility associated with low liquidity and no historical trends. In the course of trading for their own accounts, JWH and Mr. Henry may take positions that are the same or opposite from Spectrum Technical's and Spectrum Currency's positions, due to testing a new quantitative model or investment program, an allocation system, and/or trading pursuant to individual discretionary methods. Trades for the accounts of JWH and Mr. Henry may on occasion receive better fills than Spectrum Technical's and Spectrum Currency's accounts. Records for these accounts will not be made available to you. Employees and principals of JWH (other than Mr. Henry) are not permitted to trade in futures, options on futures, or forward contracts. However, such principals and employees may invest in investment vehicles that trade futures, options on futures, or forward contracts, when an independent trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for which JWH is the trading advisor. Records for these accounts will not be made available to Spectrum Technical or Spectrum Currency. Other Investment Programs Operated by JWH. In addition to the Original Investment Program and the Financial and Metals Portfolio, JWH currently operates 9 other investment programs in four categories for U.S. and non-U.S. investors, none of which are used by JWH for Spectrum Technical. Broadly Diversified programs invest in a broad spectrum of worldwide financial and nonfinancial futures and forward markets including currencies, interest rates, global stock indices, metals, energies, and agricultural commodities. Investment choices include a program that always maintains a position long or short in a market (two-phase investment style), a program that takes a position Number of Limited Partners when trends are identified but may take a neutral stance or liquidate open positions in nontrending markets (three-phase investment style), and a program that uses a combination of the two-phase and three-phase investment styles (five-phase investment style) to invest in both long- and short-term price trends. Financial programs invest in worldwide financial futures and forward markets, including currencies, interest rates, and stock indices, in addition to the metals and energies markets. The range of investment choices includes diversified financial programs, sector-focused programs. Some programs use a two-phase investment style while others use a three-phase investment style. Foreign Exchange programs invest in a wide range of world currencies primarily traded on the interbank market. Investment choices include a program that trades a range of major and minor currencies, a program focused on major currencies only, and a program that trades major currencies against the U.S. dollar. Programs use either the three-phase investment style or a slight variation called three-phase forex which incorporates specialized intra-day volatility filters. Multiple Style programs involve the selection and allocation of assets among the other types of JWH investment programs on a discretionary basis. The Strategic Allocation Program and the Currency Strategic Allocation Program are the only programs offered in this category. The Global Diversified Portfolio. The Global Diversified Portfolio, which began trading client capital in June 1988, seeks to capitalize on intermediate-term price movements in a broad spectrum of worldwide financial and non-financial markets including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses the three-phase investment style. JWH GlobalAnalytics Family of Programs. Introduced in June 1997 as the firm's most broadly diversified investment program, JWH GlobalAnalytics Family of Programs is the result of extensive research and testing by the firm. Unlike other JWH programs, which invest in intermediate- or long-term price movements, JWH GlobalAnalytics invests in both long- and short-term price movements. The program invests in a broad spectrum of worldwide financial and non-financial markets, including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses a five-phase investment style. The Global Financial and Energy Portfolio. The Global Financial and Energy Portfolio, which began trading client capital in June 1994, seeks to identify and capitalize on long-term price movements in five worldwide market sectors: interest rates, global stock indices, currencies, metals, and energies. This program uses the two-phase investment style. Beginning in April 1995, the position size in relation to account equity in this program was reduced approximately 50%. Since the change was implemented, the Global Financial and Energy Portfolio has experienced lower volatility. In 1997, the sector allocation for the program was expanded to include metals. The quantitative model underlying the program was not changed. Effective April 1, 2002, the name of the program was changed to the Global Financial and Energy Portfolio from the Global Financial Portfolio to reflect more accurately its trading. The International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. The Worldwide Bond Program. The Worldwide Bond Program, which began trading client capital in July 1996, seeks to capitalize on intermediate-term trends by investing in the long-term portion of the worldwide interest rate markets. Although the Worldwide Bond Program concentrates in one sector, diversification is achieved by trading the interest rate markets of major industrialized countries. This program uses the three-phase investment style. Due to the limited number of markets traded, the Worldwide Bond Program may be less diversified than other JWH financial programs. Beginning in March 2000, the position size in relation to account equity was increased approximately 25% and was increased an additional 20% in June 2000. These two changes represent an over all position size increase of 50% since March 2000. The quantitative model underlying the program was not changed. The G-7 Currency Portfolio. The G-7 Currency Portfolio, which began trading client capital in February 1991, seeks to identify and capitalize on intermediate-term price movements in the highly liquid Net Asset Value Per Unit currencies of major industrialized nations. These currencies allow for trading outrights against the U.S. dollar or non-dollar cross rates. With the advent of the European Union single currency of 11 countries, the currency exposures formerly traded for Germany, France, and Italy are now executed in the euro. This program uses the three-phase forex investment style. Beginning in May 1998 the position size in relation to account equity in this program was increased approximately 50%. The quantitative model underlying the program was not changed. The Dollar Program. The Dollar Program, which began trading client capital in July 1996, seeks to identify and capitalize on intermediate-term price movements in the currency markets, trading major currencies against the U.S. dollar. This program uses the three-phase investment style. Due to the limited number of markets traded in the Dollar Program, the program may be less diversified than other JWH foreign exchange programs. Beginning in July, 2001, the position size in relation to account equity was increased approximately 25%. The Strategic Allocation Program. The Strategic Allocation Program is JWH's largest program. Its objective is capital appreciation with the reduction of the volatility and risk of loss that typically would be associated with an investment in any one JWH investment program. JWH currently operates 10 other investment programs; any and all of them may be included in the Strategic Allocation Program. JWH, through its Investment Policy Committee, allocates assets among different combinations of its investment programs which each have distinctive style, timing, and market characteristics. The allocation of the Strategic Allocation Program's assets among the investment programs, as well as the selection of the programs used for the Strategic Allocation Program, is dynamic, changing at the discretion of the Investment Policy Committee. While JWH's individual investment programs are technical, trend-following programs, the selection of programs as well as the allocation of assets among the programs in the Strategic Allocation Program are entirely discretionary. JWH is under no obligation to include any particular investment program in the Strategic Allocation Program. Generally, the maximum allocation to an individual program will not exceed 25% of an account's assets. The Investment Policy Committee also monitors and adjusts on an ongoing basis the position size in relation to account equity at which the Strategic Allocation Program trades. Factors which may affect the decision to adjust position size include: ongoing program and portfolio research, portfolio volatility, recent market volatility, perceived risk exposure, and subjective evaluation of general market conditions. Position size can range from 50% to 150% of standard trading levels. The Currency Strategic Allocation Program. The Currency Strategic Allocation Program, which began trading client capital in November 2002, accesses JWH's currency programs as well as the models for individual foreign exchange markets within JWH's non-currency programs to trade a broadly diversified portfolio of world currencies. Its objective is capital appreciation with the reduction of the volatility and risk of loss typically associated with investment in one JWH currency only investment program. JWH currently operates three currency only investment programs and trades currencies in six other investment programs; any and all of the programs or trading models may be included in the Currency Strategic Allocation Program. Allocations among programs and the selection of models are made at the discretion of the Investment Policy Committee in a manner generally similar to that applied to the Strategic Allocation Program. However, the timing and methods used for allocations in this program may not correspond to allocation changes in the Strategic Allocation Program. Maximum exposure to any one currency market will be 30%; discretionary adjustments to position size in relation to account equity can range from 50% to 200% of standard trading levels set annually by the Investment Policy Committee. 4. Winton Capital Management Limited Winton Capital Management Limited organized in 1997, and is a United Kingdom company. Winton became registered with the CFTC as a commodity trading advisor in January 1998 and is a member of the National Futures Association. Winton has its principal office at 1a St. Mary Abbot's Place, London W8 6LS, United Kingdom. Principals David Winton Harding is a director and a principal of Winton. Mr. Harding founded Winton in February 1997. Having graduated from Cambridge University with a First Class Honors Degree, he began his career in the financial industry in 1982. Between September 1982 and December 1984, he held various $ $ $ Spectrum Select* 28,529,412.378 5,084,554.722 554,768,114 3,150,000 37,216 30.31 Spectrum Technical 38,348,176.678 5,651,823.322 585,879,790 3,931,984 42,471 22.64 Spectrum Strategic 15,977,268.178 9,522,731.822 181,882,529 1,011,000 13,823 14.31 Spectrum Global Balanced 7,050,928.248 9,449,071.752 99,259,599 533,234 7,481 15.47 Spectrum Currency 13,995,530.483 13,004,469.517 182,537,858 3,031,645 19,229 15.66 positions as a UK Gilt trader and salesman at two UK stockbrokers: Wood MacKenzie and Johnson Matthey & Wallace. He then joined Sabre Fund Management Ltd., a CFTC-registered CTA located in London, as an assistant technical trader and researcher, and was later promoted to Director of Research. In December 1986, he moved to Brockham Securities Ltd, a privately owned sugar trading and managed futures company, to assist in the development and marketing of the firm's futures fund management services. In February 1987, he left Brockham Securities Ltd and, together with colleagues Michael Adam and Martin Lueck, founded Adam, Harding and Lueck Ltd., a computer-driven, research based CTA. Adam, Harding and Lueck Ltd. became registered with the CFTC in February 1987. By 1989, this firm had grown into the UK's largest CTA, with more than $50 million under management. At that time, the principals sold a 51% stake to E D & F Man Group Ltd., one of the largest distributors of futures funds internationally. Between 1989 and 1993, when assets under management rose from $50 million to $300 million, Mr. Harding headed up Adam, Harding and Lueck Ltd.'s quantitative research team, supervising about 15 full-time research staff, supported by a software team of around a dozen programmers. This team developed a multiplicity of quantitative trading strategies in addition to Adam, Harding and Lueck Ltd.'s successful trend-following trading approach. During this time, he was also involved in the company's international institutional marketing efforts, in particular in Europe, the Middle East, South East Asia, Japan and the U.S. In 1993, Mr. Harding was invited to present a paper to a special symposium of London's prestigious Royal Society, on the subject "Making Money From Mathematical Models." This paper was subsequently incorporated into two books on the subject. In September 1994, E D & F Man Group Ltd. bought out the minority shares owned by Mr. Harding and the original partners, and Adam, Harding and Lueck Ltd. was consolidated into E D & F Man Group Ltd.'s fund management division. Mr. Harding then formed and headed up a new division of E D & F Man Group Ltd., called E D & F Man Group Ltd. Quantitative Research, leading a research team that developed quantitative trading models primarily for use by E D & F Man Group Ltd.'s fund management companies. Mr. Harding left E D & F Man Group Ltd. in August 1996 to begin preparations for the launch of Winton, which he formed in February 1997. Osman Murgian is a founding director and a principal of Winton. Educated in Brighton College in England, Mr. Murgian was also one of the original shareholders and directors of Adam, Harding and Lueck Ltd. Mr. Murgian lives in Nairobi, Kenya, and is the owner of or an investor in a number of international businesses ranging from real estate to transportation. Mr. Murgian has a beneficial interest of more than 10% of Winton's share capital. This interest is held by Festuca Investments Ltd, an Isle of Man investment holding company. Martin John Hunt is a director and a principal of Winton. Mr. Hunt began his career in the UK managed futures industry in October 1983, at which time he was employed as a trainee trader for a trading advisor, Futures Fund Management Ltd. In January 1986, he was appointed manager of the trading operations for Sabre Fund Management, also a trading advisor. In February 1988, he joined Adam, Harding and Lueck Ltd., then a newly established trading advisor, where he was responsible for the company's trading operations. These trading operations were complex, and Mr. Hunt's role was to ensure the efficient execution of the firm's computer-generated futures and interbank orders on over $120 million of assets under management. These orders spanned more than 60 markets, 5 time zones and 15 exchanges worldwide. In August 1991, Mr. Hunt assumed responsibility for marketing and operations at Royston Investments, Ltd, which at the time was a CFTC-registered CTA. In March 1994, he established himself as an independent marketing and compliance consultant to firms in the UK managed futures industry. These consultancy activities continued until February 1997, when he was recruited by David Harding to handle the formation, structuring and subsequent day-to-day running of Winton. At Winton, Mr. Hunt supervises the trading operations, as well as being directly involved in the marketing of Winton's investment management approach worldwide. Mr. Hunt also has responsibility for the firm's regulatory compliance. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Winton or its principals. Winton and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Winton trading programs described below. Although Winton maintains records of these trades, clients of Winton are not entitled to inspect these records except in certain limited circumstances. Description of the Diversified Trading Program Effective January 1, 2004 the general partner allocated 10-15% of Spectrum Technical's assets to Winton's Diversified Trading Program which has been trading since 1997. The Winton Diversified Trading Program uses a statistically-derived systematic model to trade a diversified portfolio of approximately 95 futures contracts. The contracts traded cover a global range and are widely diversified across the financial and commodity sectors. Winton expects the margin requirements for the portion of Spectrum Technical's assets traded pursuant to Winton's Diversified Trading Program to average about 20% of those assets. As of December 31, 2003 Winton Capital Management Limited was managing approximately $321 million pursuant to its Diversified Trading Program and approximately $326 million of client assets in all its programs (notional funds included). Description of Trading Methods and Strategies Winton's investment technique consists of trading a portfolio of around 95 futures contracts on major commodity exchanges and forward markets worldwide, employing a computerized, technical, trend-following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. If rising prices are anticipated, a long position will be established; a short position will be established if prices are expected to fall. The trading methods applied by Winton are proprietary, complex and confidential. As a result, the following discussion is of necessity general in nature and not intended to be exhaustive. Winton plans to continue the testing and reworking of its trading methodology and, therefore, retains the right to revise any methods or strategy, including the technical trading factors used, the markets traded and/or the money management principles applied. A Technical Trend-Following System. Technical analysis refers to analysis based on data intrinsic to a market, such as price and volume. This is to be contrasted with fundamental analysis which relies on factors external to a market, such as supply and demand. The Diversified Trading Program uses no fundamental factors. A trend-following system is one that attempts to take advantage of the observable tendency of the markets to trend, and to tend to make exaggerated movements in both upward and downward directions as a result of such trends. These exaggerated movements are largely explained as a result of the influence of crowd psychology or the herd instinct, amongst market participants. A trend-following system does not anticipate a trend, but seeks to capture it at an appropriate point in time. In fact, trend-following systems are frequently unprofitable for long periods of time in particular markets or market groups, and occasionally they are unprofitable for spells of more than a year, even in large portfolios. However, over a span of years, Winton believes such an approach, applied to a sufficiently diversified portfolio of markets, has proven to be consistently profitable. The Winton trading system works by capturing the probability of the size and direction of future price movements using sophisticated statistical indicators, or oscillators, derived from past price movements which characterize the degree of trending of each market at any time. Winton believes its application of advanced classical statistics to the understanding of market behavior provides it with an edge over other trend following systems. Winton believes this enables its system to suffer smaller losses during the inevitable whipsaw periods of market behavior and thus take better advantage of the significant trends when they occur, by focusing more resources on them. The system is developed using historical market prices in each contract ("in sample data"), and then tested on an independent period of market data ("out of sample data") to ensure that the observations have robust predictive power. This procedure seeks to avoid the risk of over optimising, which occurs when a system is allowed to fit itself to a historically-specific set of market conditions. A Non Discretionary System. Trade selection is not subject to intervention by Winton's principals or traders and therefore is not subject to the influences of individual judgement. As a systemic trading system, the Winton model utilizes expert knowledge to analyze market data and direct trades, thus eliminating the risk of basing a trading program on one indispensable person. Equally important is the fact that non-discretionary systems can be tested in simulation for long periods of time and the model's empirical characteristics can be measured. The system's output is rigorously adhered to in trading the portfolio and intentionally no importance is given to any external or fundamental factors. While it may be seen as unwise to ignore information of obvious value, such as that pertaining to political or economic developments, Winton believes the disadvantage of this approach is far outweighed by the advantage of the discipline that rigorous adherence to such a system instills. Significant profits are often made by the Winton system, by holding on to positions for much longer than conventional wisdom would dictate. An individual taking trading decisions, and paying attention to day-to-day events, could easily be deflected from the chance of fully capitalizing on such trends, when not adhering to such a system. Markets Traded. The Winton system trades in all the easily accessible and liquid U.S. and non-U.S. futures and forward contracts that it practically can. Forward markets include major currencies and precious and base metals, the latter two categories being traded on the London Metal Exchange. Winton is constantly looking for new opportunities to add additional markets to the portfolio, thus further increasing the portfolio's diversification. Diversification of Markets. Taking positions in a variety of unrelated markets has been shown, over time, to decrease system volatility. By employing a sophisticated and systematic schema for placing orders in a wide array of markets, Winton believes it can be demonstrated that there is a high expectation of an overall profit being realized after a sufficient period of time. The trading strategy and account management principles described here are factors upon which Winton will base its trading decisions. Such principles may be revised from time to time by Winton as it deems advisable or necessary. Accordingly, no assurance is given that all of these factors will be considered with respect to every trade or recommendation made or that consideration of any of these factors in a particular situation will lessen risk of loss or increase the potential for profits. Execution of Orders and Order Allocation Winton will select the type of order to be used in executing trades and may use any type of order permitted by the exchange on which the order is placed. Winton may place individual orders for each account or a block order for all accounts in which the same commodity interest is being cleared through the same futures commission merchant. In the latter instance, Winton employs an objective price allocation procedure in which all accounts are listed by account number and then trades are assigned, with the highest number on the list receiving the highest buy and the highest sell and the lowest number on the list receiving the lowest buy and the lowest sell. On occasion, it may direct the futures commission merchant for the accounts to employ the neutral allocation system generally used by the futures commission merchant to assign trades or it may use an average price system in which each client in the block order will receive the average price which is computed by multiplying the price by the quantity executed at each price divided by the total quantity executed. Partial fills will be allocated in proportion to account size. Past Performance of Winton Set forth below in Capsule A is the past performance history of Winton's Diversified Trading Program. The footnotes following Capsule A are an integral part of the Capsule. You are cautioned that the information set forth in the following Capsule performance summary is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by Winton or Spectrum Technical in the future, since past results are not a guarantee of future results. There can be no assurance that Winton or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. CAPSULE A Winton Capital Management Limited Winton Diversified Trading Program Name of commodity trading advisor: Winton Capital Management Limited Name of program: Winton Diversified Trading Program Inception of trading by commodity trading advisor: October 1997 Inception of trading in program: October 1997 Number of open accounts: 33 Aggregate assets overall: 257.8 million Aggregate assets in program: 252.3 million Worst monthly drawdown (12.97)% - (October 1997) Worst peak-to-valley drawdown: (31.09)% - (November 2001-May 2002) 2003 annual return: 25.52% 2002 annual return: 12.86% 2001 annual return: 5.56% 2000 annual return: 9.72% 1999 annual return: 13.24% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Footnotes to Winton's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Winton began trading client accounts. "Inception of trading in program" is the date on which Winton began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Winton pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Winton as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated based on the "Fully-Funded Subset" method as prescribed by the CFTC. The rate of return is calculated by dividing the sum of net performance of the qualifying Fully-Funded Subset by the beginning net assets of the qualifying Fully-Funded Subset, except in periods of significant additions or withdrawals to the accounts in the qualifying Fully-Funded Subset. In such instances, the Fully-Funded Subset is adjusted to exclude accounts with significant additions or withdrawals that would materially distort the rate of return pursuant to the Fully-Funded Subset method. Returns are then compounded to arrive at the year-to-date rate of return. Morgan Stanley Spectrum Strategic L.P. 1. Allied Irish Capital Management, Ltd. Allied Irish is an Irish corporation registered with the CFTC as a commodity trading advisor since January 1994 and is a member of the National Futures Association in that capacity. Allied Irish's business office is located at 85 Pembroke Road, Ballsbridge, Dublin 4. Allied Irish's ultimate parent company is Allied Irish Banks plc, Ireland's largest banking and financial services group. Allied Irish has been authorized by the Irish Financial Services Regulatory Authority (formerly known as Central Bank of Ireland) under the Investment Intermediaries Act, 1995. As a commodity trading advisor, Allied Irish specializes in trading interest rate, currency, and equity index futures contracts, as well as foreign exchange on the interbank cash market. The primary focus of Allied Irish's futures trading is on the U.S. and European, futures exchanges with some participation in other markets. Foreign exchange trading covers the major currencies. Allied Irish began trading for Spectrum Strategic in May 1999. Performance Records A summary of performance information for each partnership from its commencement of operations through December 31, 2003 is set forth in Capsules I through V below. All performance information has been calculated on an accrual basis in accordance with accounting principles generally accepted in the United States of America and is "net" of all fees and charges. You should read the footnotes on page , which are an integral part of the following capsules. You are cautioned that the information set forth in each capsule is not indicative of, and has no bearing on, any trading results that may be attained by any partnership in the future. Past performance is not necessarily indicative of future results. We cannot assure you that a partnership will be profitable or will avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a partnership's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. Capsule I Performance of Spectrum Select Type of pool: publicly-offered fund Inception of trading: August 1991 Aggregate subscriptions: $557,918,114 Current capitalization: $441,522,484 Current net asset value per unit: $30.31 Worst monthly % drawdown past five years: (13.12)% (November 2001) Worst monthly % drawdown since inception: (13.72)% (January 1992) Worst month-end peak-to-valley drawdown past five years: (23.63)% (22 months, October 1998-July 2000) Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months, June 1995-August 1996) Cumulative return since inception: 203.10% Monthly Performance Principals Gerry Grimes is Managing Director of Allied Irish, an associated person of Allied Irish and a member of the Institute of Bankers. He became registered as an associated person of Allied Irish in January 1994. For 10 years up to March 1988, Mr. Grimes was employed by the Central Bank of Ireland in the following investment management positions: Chief Dealer, Money Market Division; Chief Dealer, Management of Official External Reserves; and Chief Forex Dealer. He represented Ireland on sub-committees of the European Central Bank Governors Committee in Basle. He has experience in liquidity and interest rate management, investment of external reserves ($5 billion) and their currency allocation and the management of the Irish pound in the European Exchange Rate Mechanism. Mr. Grimes joined Gandon Securities as a trader in March 1988 where he traded a range of interest rate contracts, and was appointed a Director in October 1990. He was an associated person with Gandon Fund Management from July 1991 to September 1993. From mid 1991, he was responsible for the development of Gandon Fund Management's activities including the marketing and development of managed futures programs. He left Gandon Securities and Gandon Fund Management in September 1993 and joined Allied Irish that month. Mr. Grimes was a founding member of Allied Irish and is responsible for the overall management, development, and control of Allied Irish's activities. Between January and September 2002, Mr. Grimes was also responsible for trading a portion of the Worldwide Financial Futures Program. Ian Kelly became Company Secretary of Allied Irish in August 1997. He is a member of the Institute of Chartered Accountants of Ireland. He is Chief Operating Officer of Allied Irish and is responsible for financial control, compliance, and the back-office and I.T. operations of the company. He joined Allied Irish in August 1997. Prior to joining Allied Irish, he worked from July 1994 to August 1997 in AIB Capital Markets Plc., an investment bank, and before that he worked with Coopers & Lybrand, an accountancy firm, from 1987 to June 1994. John O'Donnell became a non-executive Director of Allied Irish in March 2001. He is Head of Investment Banking in the Capital Markets Division of the AIB Group, a position he was appointed to in March 2001. Prior to this appointment he was Managing Director of AIB International Financial Services Limited, a subsidiary of the AIB Group, from January 1994 to December 1996 and was Managing Director of AIB Corporate Finance Limited, another subsidiary of the AIB Group, from December 1996 to March 2001. Mr. O'Donnell is a Fellow of both the Chartered Institute of Management Accountants and the Chartered Association of Certified Accountants. John Parsons became a Director of Allied Irish in January 1995. He graduated from Queen's University, Belfast with a B.Sc. in Computer Science and Statistics in 1986, and went on to obtain a Master of Business Administration degree from Cardiff University, in 1987. Before joining Allied Irish, Mr. Parsons worked for SBC Warburg in London as a proprietary trader in the Fixed Interest & Treasury Division. Prior to that, he worked with the Bank of Ireland Group from January 1989 to March 1993, initially as a Portfolio Manager with the Bank's fund management group and ultimately as Head of European Government Bonds with the Bank's Treasury operation. Mr. Parsons trades a portion of the Worldwide Financial Futures Program and he is the sole trader of the Equity Program offered by Allied Irish. David Thompson became a Director of Allied Irish in September 2002. He has a Certificate in Actuarial Practices and a Certificate in Investment Management from the Institute of Actuaries in London. Prior to joining Allied Irish, Mr. Thompson worked for Bank of Ireland Group as Head of Proprietary Trading (non-customer flow) between January 2001 and August 2002. Before that he was Head of their Euro Fixed Interest Trading Desk between June 1998 and January 2001 and prior to that worked as a proprietary trader on their fixed interest trading desk in Dublin (July 1995 to June 1998) and as a bond trader in their London office (March 1994 to July 1995). From 1987 to 1994 he worked for Eagle Star Insurance, initially as an actuarial programmer and ultimately as a foreign exchange and bond trader. Mr. Thompson trades a portion of the Worldwide Financial Futures Program. Mr. Treble became a non-executive director of Allied Irish in October 2003 and currently has a pending registration as principal with the NFA. He is Managing Director of AIB Global Treasury, a position he has held since February 2002. Prior to this appointment, he was Managing Director of AIB Month Treasury and International, from February 2001 to February 2002, and he held the position of General Manager, AIB Capital Markets Britain (Treasury & Corporate Banking) from August 1997 to February 2001. He has worked in AIB since 1982 and has an MBA in Financial Services. Allied Irish and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. Allied Irish's Trading Strategies Allied Irish offers three trading programs, but will only trade the Worldwide Financial Futures Program for Spectrum Strategic. Trading for Spectrum Strategic will be at four times the leverage Allied Irish normally applies for the Worldwide Financial Futures Program. The two other trading programs offered by Allied Irish are the Foreign Exchange Program and the Equity Index Program. Worldwide Financial Futures Program The Worldwide Financial Futures Program is designed to provide returns using a multi-trader trading approach on a broad range of financial instruments. The capital is sub-allocated to a range of trading styles, including a portion traded by two individual traders, Mr. Parsons and Mr. Thompson. The allocation of capital to the individual traders and to the trading styles may be altered at the discretion of Allied Irish. A portion is traded using a systematic approach. Diversification is enhanced because no overall house view is imposed on the traders in the program, and this independence of operation is viewed as a key strength. There are the three elements to the current trading approvals. Mr. Thompson's trading style is based on an understanding of the medium to longer term economic, political and demographic trends in the world. An analysis of value is conducted for all major asset classes and fitted to this fundamental framework to determine the likely direction and magnitude of trends in the major financial markets. The timing and size of trades is determined through a combination of technical analysis and assessment of market psychology and positioning. The aim of Mr. Thompson's approach is to enter trends early, building up the size of the position as the trade becomes profitable. Exit of the trades occurs when market sentiment in favour of the trade reaches an extreme, but price movements cease to justify the euphoria. Profitable trades can be run for months at a time, but may be held for shorter periods, depending on the strength of the trends involved. Mr. Parsons' approach to trading markets is based on a fundamental analysis of economic, fiscal, and monetary developments in the world's major economies. Having compiled a set of expectations for the major interest rate, equity, and foreign exchange markets, Mr. Parsons then looks for significant levels of divergence relative to the market's expectations as a signal to enter a particular position. He uses technical analysis to help identify trends and trend changes as well as to seek to improve entry and exit levels. A portion of the Worldwide Financial Futures Program is traded using a technical trading system. The system has been developed to be consistent with Allied Irish's investment approach to financial markets. The system differs from most trend following trading systems in that a profit objective is built into the trade from inception. The system utilizes a break-out oriented approach that attempts to initiate trading at low risk entry points where the market has a higher probability than average of participating in a medium-to long-term trend. The futures contracts currently traded in the Worldwide Financial Futures Program include U.S., European, and Asian interest rate, currency, and stock index contracts. For most contracts, options may also be used from time to time. Options may be either bought or sold in this program. It should be noted that in relation to currency futures on both the Chicago Mercantile Exchange and the financial derivatives division of the New York Cotton Exchange, Allied Irish may convert spot transactions to futures contracts using the exchange for physicals mechanism. As of December 31, 2003, Allied Irish was managing approximately $336 million (notional funds included) of client assets pursuant to the Worldwide Financial Futures Program and approximately $637 million of client assets in all of its programs (notional funds included). Foreign Exchange Program The Foreign Exchange Program specializes in trading the inter-bank foreign exchange market. A fundamental assessment of market information is the main factor underlying the trading approach. To this end an assessment of the fundamental economic policy forces at work in different countries is first made. This is related to socio-political factors in play. A judgment is then made on how much of the economic and political influences are priced in following a review of international capital flows. In this regard consultation is made with a network of experts in the world's currency markets. Finally the price levels are examined in detail to determine appropriate trade parameters. Equity Index Program The program's objective is designed to minimize correlations with major global equity returns. The underlying investment approach is broadly similar to that taken in Allied Irish's other two programs in that the main inputs are an analysis of macroeconomic and global political trends. This program is traded by John Parsons and trades the major stock index futures. Risk Management The management of risk positions takes place at two levels within the programs at the overall program level by the trading controller and at the position taking level where each trader uses his individual money management skills. Given that the programs involve a multi-trader approach, a program controller role is adopted. Mr. Grimes is the trading controller for all three programs. This role involves the following: assessing the performance and risk of the programs from an overall level as distinct from a trader level; monitoring the traders' adherence to the risk parameters for each program as set out below; ensuring that the programs' overall objectives and those of individual traders are compatible; controlling the operations of the order desk and ensuring the positions are agreed between traders, order desk, back office, and counterparty. Mr. Grimes is also responsible for liaising with clients and conveying their views, wishes, and concerns to the trading team. To control the levels of exposure a daily end-of-day position report including contract open positions, margin utilized by contract, and margin utilized by trader is produced for the Worldwide Financial Futures and Equity Index Programs. The report for the Foreign Exchange Program looks at positions in equivalent U.S. dollar amount versus underlying U.S. dollar equity invested. For the Worldwide Financial Futures and Equity Index Programs, margin to equity is used to control position size while in the Foreign Exchange Program a gearing of equity is used to limit position size. Given the nature of the programs offered and the experience of the trading team, a limit of 6% margin to equity (including notional funds) is normally applied for the Worldwide Financial Futures and Equity Index Programs and a gearing of 3 times equity (including notional funds) for the Foreign Exchange Program. 2. Blenheim Capital Management, L.L.C. Blenheim Capital Management, L.L.C. is a Delaware limited liability company which was formed to provide commodity trading advisory services to clients. Through a corporate reorganization in July 2001, Blenheim was merged with Blenheim Investments, Inc., a New Jersey corporation. The ownership and capitalization of Blenheim are materially the same as those which existed in Blenheim Investments, Inc. Additionally, Blenheim succeeds to all the assets and obligations of its predecessor. Blenheim is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator, effective March 2, 1989, and is a member of the National Futures Association. Blenheim's address and telephone number are: Post Office Box 7242, Two Worlds Fair Drive, Somerset, New Jersey 08875-7242; (732) 302-0238. Principals Mr. Willem Kooyker is the Managing Member, Chairman and majority owner of Blenheim. He is registered with the CFTC as an associated person of Blenheim and a member of the National Futures Association in that capacity. He is a former member of the Board of Directors of the NY Coffee, Sugar and Cocoa Exchange, a former president of the NY Cocoa Clearing Association, and a former member of the NY Mercantile Exchange. He received a BA cum laude in Economics from Baruch College in New York and an MBA in International Finance and Economics from New York University. Mr. Kooyker began his trading career in the international commodities business in 1964 with Internatio-Muller in Rotterdam, The Netherlands, where eventually he became managing director of the International Trading Group. He stayed in this position until 1981, when he joined Commodities Corporation, Princeton, New Jersey, where he became President. At the time, Commodities Corporation was an active fund management company, operating predominantly in the futures markets. In October 1984, Mr. Kooyker started a new company, Tricon Holding Company, Ltd., a joint venture between Commodities Corporation and a group of Middle Eastern investors, which was a trading and consulting company in the futures as well as the physicals markets predominantly directed towards energy and industrial commodities. Tricon currently remains only active in the forest products industry, where it operates two sawmills in the western states of the United States. In January 1989, Mr. Kooyker started Blenheim, an independent fund management company and an advisor to several investment funds. Concurrent, but separate from Blenheim, Mr. Kooyker is the largest beneficial owner, but not an officer, of Derivatives Portfolio Management, L.L.C., a Delaware limited liability company formed in 1993 to provide administrative, risk management, and consulting services to institutions, commodity pool operators, and individual fund managers engaged in the financial instruments, securities, and futures markets as well as the cash trading business. DPM is registered with the CFTC as a commodity pool operator, effective January 26, 1994, and is a member of the National Futures Association in that capacity. DPM has a wholly-owned subsidiary named DPM Brokerage, LLC, a Delaware limited liability company formed in 1999 to provide introduction and execution services to individual clients and private investors. DPM Brokerage is registered with the CFTC as an introducing broker, effective August 16, 1999 and is a member of the National Futures Association in that capacity. In 1996, Mr. Kooyker became a 50% shareholder in The Thornton Group, L.L.C., a consulting company to entrepreneurial startup enterprises. Mr. Kooyker is registered with the CFTC as a principal and an associated person of Blenheim. He is also registered as a principal of DPM and DPM Brokerage. Thomas M. Kopczynski is a Vice President of Blenheim. He is registered with the CFTC as a principal and an associated person and is a member of the NFA in that capacity. Mr. Kopczynski has been with Blenheim for ten years. He is an integral part of Blenheim's trading staff. His broad knowledge of the market sectors in which Blenheim trades, retained by extensive analysis and consultation with key industry contacts, facilitates continuous investment opportunities and diversification. Mr. Kopczynski holds a B.S. in Economics with a concentration in Statistics from the Wharton School of the University of Pennsylvania. Guy J. Castranova, is the Secretary of Blenheim and has held this position since its inception. He is the President and Chief Operating Officer of DPM and DPM Brokerage, as well as a Vice President and Controller of Tricon. Mr. Castranova has been with Tricon since October 1986 and is responsible for the risk management of all physicals trading as well as the administration of all general and consolidation accounting. Prior to joining Tricon, Mr. Castranova was an accountant with two energy firms. In 1980 Mr. Castranova graduated from Saint Joseph's University with a BS degree in Accounting. He is registered as an associated person and principal of Blenheim, DPM, and DPM Brokerage, and is a member of the National Futures Association in those capacities. Blenheim and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. If either Blenheim or its principals engage in such trading, you will not be able to inspect such records. Such trades may or may not be in accordance with the Blenheim trading program described below. As of December 31, 2003, Blenheim was managing approximately $68.1 million of client assets pursuant to its trading program. The Blenheim Global Markets Strategy The Global Markets Strategy designed and developed by the management team of Blenheim. The objective of the Global Markets Strategy is to capture substantial profits through the establishment of risk-controlled, strategic investment positions in markets where Blenheim has identified an unsustainable level of market disequilibrium that has not been reflected in the current market price. The essence of Blenheim's trading approach is its ability to use discretion in formulating the most effective mix of trading methodologies, investment vehicles, and markets to maintain performance objectives. As trading opportunities are identified, Blenheim analyzes potential trading applications in order to achieve maximum capital appreciation with prudent risk management procedures. Markets Traded Blenheim's portfolio is highly diversified and draws upon a potential of 35 markets, depending on the opportunities presented at any given time. The major markets traded by Blenheim include energy, industrials, precious metals, softs, grains, global fixed income, currencies and stock indices. Blenheim concentrates in those markets that, in its judgment and discretion, have a high degree of liquidity and a wide spectrum of historical price movement relative to other markets. Instruments Utilized Positions established are typically in derivative instruments such as futures options and OTC transactions. Blenheim may, however, trade to a limited extent in illiquid instruments for which market quotations are not readily available. In addition, Blenheim may trade in securities that are related to the financial and commodities markets currently traded by the fund. However, Blenheim will not be trading securities for Spectrum Strategic. Blenheim's Trading Style Blenheim uses a global macro approach to investing, which utilizes fundamental, geopolitical and technical research and analysis in its evaluation of the markets. Fundamental analysis attempts to examine factors external to the trading market which affect the supply and demand for a particular investment instrument in order to predict future prices. The geopolitial considerations include governmental interference and potential political conflicts which may alter the normal flow of capital and goods. Technical factors assume that market price patterns and price momentum, rather than external influences, indicate the supply and demand factors which are indicative of future price movements. Blenheim considers technical factors such as an instrument's recent price history, current prices of such instrument relative to price of other markets and their historical price relationships. Blenheim studies price charts to assess changes in market sentiment and examines volume and open interest to evaluate market liquidity. The Blenheim traders regularly monitor worldwide economic and political trends in order to identify and evaluate possible market and price imbalances. Operating within a global framework, long-term macroeconomic indicators are assessed on a multinational, country-by-country and market specific basis. Factors such as fiscal/monetary policies and cross-border capital flows are evaluated for their potential impact on the equity, fixed income, currency and commodity markets. Additionally, Blenheim's trading group utilizes econometric signals, as well as numerous other market sentiment indicators, to take advantage of short-term trading opportunities. Portfolio Management and Diversification Various techniques are employed in managing the portfolio and position volatility. In its discretionary trading, Blenheim generally initiates medium-sized positions at a market entry level. This initial position, generally considered the core strategic position, is typically initiated upon Blenheim's determination of an unsustainable level of market disequilibrium that has not been reflected in the current market price. Once market action begins to conform to Blenheim's initial assessment of price behavior, Blenheim will add to the original strategic position. In addition to managing the individual positions, Blenheim will also evaluate the positions within the context of an account's portfolio. Separate strategic positions are evaluated for direct and indirect correlation characteristics in order to further anticipate and manage portfolio volatility. Despite these precautions, Blenheim's trading program may be volatile at times. Diversification in an account's portfolio is a major consideration in its trading approach. While many of its trades are made on a short-term basis, Blenheim's basic strategy is to attempt to participate in long-term, major price movements. Evolution of the Trading Approach The trading strategy of Blenheim has evolved and will continue to do so based on ongoing research, testing of data and trading experience. Prior to 1991, Blenheim traded almost exclusively in commodity markets, with a particular emphasis on energy products. Since then, Blenheim has become active in the global fixed-income, stock indices and currency markets as well. In the past, Blenheim had included non-discretionary systematic computerized analysis in its trading practices. This strategy was driven by a series of trading systems that produced a result that was an amalgam of numerous systemic processes. It was then traded in conjunction with the discretionary approach. Under separate funds, Blenheim also managed a purely financial strategy and a long-only commodity trading strategy incorporating physical commodities. In this regard, Blenheim reserves the right to modify its trading approach to include any one or combination of trading methodologies it finds beneficial to its overall goals. These processes may include discretionary, systematic, or arbitage trading. Blenheim may use derivative instruments including futures, options, and forwards to reach its performance objectives. On rare occasions, Blenheim may withdraw from all markets. Blenheim's diversified portfolio is actively traded on domestic and foreign markets. In the early 1990s, approximately thirty-five percent (35%) to forty-five percent (45%) of equity, including notional funds, was generally committed to margin on commodities positions. Recently the percentage has been between twenty-five percent (25%) and thirty-five percent (35%). In the future the percentage committed may, from time to time, be substantially higher or lower. Variances in Leverage If particular opportunities present themselves based upon fundamental factors, Blenheim may increase the number of positions held. This will result in more capital needed to provide risk margin. Accordingly, within the overall parameters of Blenheim's money management rules, Blenheim employs no hard and fast formula as to the levels of capital committed to discretionary trading or any other trading strategy at any given time. The level of risk margin relative to equity committed to trading positions is expected to vary from period to period. The Blenheim traders will constantly monitor leverage in an effort to try to maximize its positive effects while trying to avoid overexposure to its potential negative characteristics. While there is no guaranty that this approach will be successful, Blenheim has used a consistent risk monitoring system for a number of years, one of the key components thereof involves monitoring the levels of risk margin to equity. Blenheim may leverage the account of Spectrum Strategic differently than the standard account using the Global Market Strategy, but will not leverage the account at more than 50% above the leverage of a standard account. 3. Eclipse Capital Management, Inc. Eclipse is a Delaware corporation organized in July 1983. Eclipse's main business address is 7700 Bonhomme, Suite 500, St. Louis, Missouri 63105. Eclipse has been registered with the CFTC as a commodity trading advisor since August 1986 and is a member of the National Futures Association in such capacity. Eclipse began trading for Spectrum Strategic in June 2000. Principals Thomas W. Moller, the sole shareholder of Eclipse, has served as its President, CEO, and sole director since founding the firm. Mr. Moller received an undergraduate degree in Business and Economics from Vanderbilt University and a graduate degree in Accounting from the University of Kentucky. He was a Certified Public Accountant and has a background in financial planning and investment management. In 1980, as chief financial officer of a privately held company, he designed and implemented one of the first variable rate loan hedge programs using interest rate futures contracts. In 1982, he formed Interest Rate Management, Inc., another commodity trading advisor which provided interest-rate-hedging advisory and management services. Since 1986, Mr. Moller has devoted his time exclusively to Eclipse and is primarily involved in the areas of trading, research, and product development. James R. Klingler, JD is Senior Vice President, Corporate Secretary, and General Counsel. Mr. Klingler has a BA in Economics from Vanderbilt University and a JD from Vanderbilt University School of Law. He previously worked as an associate with the St. Louis law firm of Thompson Coburn (formerly Coburn & Croft) and as a staff attorney with Mercantile Bancorporation, also in St. Louis. From January 1991 to December 1997, he was Compliance Counsel and, subsequently, Associate Vice President with A.G. Edwards & Sons, Inc. Mr. Klingler joined Eclipse in January 1998. Ronald R. Breitigam is Vice President Trading with primary responsibility for the implementation of the firm's trading strategies. After graduating from Pacific Union College in 1982, Mr. Breitigam became an independent floor trader at the Mid-America Commodity Exchange. He served as an institutional broker with Thomson McKinnon (1984-1985) and PaineWebber (1986) and, in 1986, formed his own trading company to work full time implementing various proprietary futures and options trading strategies. Mr. Breitigam joined Eclipse in May 1989. James W. Dille, PhD is Vice President Research and Technology with responsibility for computer-based research, development, and operations. Dr. Dille has undergraduate and graduate engineering degrees from the University of Virginia. He also received a master's and doctorate from Harvard University in Applied Sciences, specializing in the areas of Decision and Control Theory and Computer Science. From 1987 through 1993, he worked for the Boeing Company (formerly, McDonnell Douglas) in the Training Systems and Flight Simulation divisions, where he was responsible for research in the areas of computer architectures and networking. He is an affiliate professor at Washington University in St. Louis, teaching courses in numerical analysis and the simulation and analysis of complex systems. Dr. Dille joined Eclipse in January 1994. At this time, neither Eclipse nor its principals trade for their own account, but each reserves the right to do so in the future. If either Eclipse or its principals engage in such trading, you will not be able to inspect such records. Trading Programs Eclipse currently offers one trading program, the Global Monetary Program. The program is designed primarily for institutions, commodity pools, and certain other qualified investors. The Global Monetary Program employs a systematic trading approach, using multiple trend-following and macroeconomically driven models. Global Monetary Program: This "financial, metals and energy" program requires a minimum investment of $5 million and trades a global portfolio of futures and options on futures on interest rate instruments, currencies, stock indices, precious and base metals, and energy products, as well as interbank spot and forward currency markets. A key characteristic of this program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. As of December 31, 2003, Eclipse was managing approximately $379 million of client assets pursuant to its trading program (notional funds included). Trading Approach The trading program of Eclipse is systematic and its strategies are either macroeconomic or trend-following in nature, with the objective of capitalizing on intermediate- and long-term price trends. Eclipse makes all trading decisions pursuant to its proprietary trading, capital allocation, and risk management models. The Eclipse program makes use of multiple models to accentuate overall diversification. Macro-driven models generate trading signals through the quantitative analysis of environmental, macroeconomic, and intermarket data. Trend identification models use various technical and statistical analysis techniques to identify and evaluate price trends. Capital allocation models determine the percentage of trading capital allocated to various markets and trading models. Eclipse's risk management models were developed with the objective of limiting losses, capturing profits, and conserving capital in choppy, sideways markets. The risk management principles which Eclipse employs include: using stop orders to exit trades when markets are moving against an established position (although, depending on market circumstances, such "stop-loss" orders may be difficult or impossible to execute); diversifying positions among several different markets, futures, and/or futures groups to limit exposure in any one area; using multiple entry and exit points; limiting the assets committed as margin, generally within a range of 5% to 20% of assets managed, at minimum exchange margin requirements, but possibly above or below that range at certain times; and prohibiting the use of unrealized profits in a particular futures contract as margin for additional contracts in the same or a related futures contract. Decisions whether to trade a particular futures contract are based upon various factors, including liquidity, significance in terms of desired degrees of concentration, diversification, and profit potential, both historical and at a given time. These decisions are based upon output generated by a proprietary risk management program, but require the exercise of judgment by principals of Eclipse. The decision not to trade specific contracts for certain periods or to reduce the number of contracts traded may result at times in missing significant profit opportunities which otherwise would be captured by technical strategies. The specific contracts traded in each portfolio have been selected based on liquidity, historical volatility, and the degree of past directional movement. The actual number of contracts held at any particular point in time depends on a number of factors, including evaluation of market volatility and potential risk versus return. There are occasions when a trading model may indicate that no position is appropriate in a particular contract or contract group. In addition to technical trading in futures contracts, Eclipse may also employ trading techniques such as spreads and straddles and may buy or sell futures options. Eclipse may alter its trading programs, including, without limitation, its trading strategies, commodity interests, and markets traded and trading principles if Eclipse determines that such change is in the best interest of the accounts which it manages. Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC SSARIS, a Delaware Limited Liability Company, was organized in May 2001. SSARIS's address is Financial Centre, 695 East Main Street, Suite 102, Stamford, Connecticut 06901. SSARIS has been registered as a commodity trading advisor since August 2001 and as a commodity pool operator since August 2001, and is a member of the National Futures Association in such capacities. SSARIS is a joint venture between State Street Global Alliance LLC, a limited liability company which is majority owned by State Street Global Advisors, Inc., and RTH Partners LLC, a limited liability company owned by the principals of The RXR Group, Inc. State Street Global Advisors, Inc. is a wholly-owned subsidiary of State Street Corporation. SSARIS is affiliated with State Street Global Advisors, the investment management division of State Street Bank and Trust Company, a wholly owned subsidiary of State Street Corporation. Principals Mr. Mark Rosenberg has served as the Chairman, a Director and the Chief Investment Officer of SSARIS since its formation in May 2001 and, as such, is the head of SSARIS's Investment Committee. Mr. Rosenberg is also the Chairman of SSARIS Management LLC. Mr. Rosenberg was the Chairman and Chief Investment Officer of RXR. Mr. Rosenberg has over thirty (30) years experience in the investment management industry. From August 1984 to July 1986, Mr. Rosenberg was employed by Prudential-Bache Securities, Inc., where he headed a group that specialized in institutional hedging and managed futures trading services. From December 1976 to July 1984, Mr. Rosenberg was employed by Merrill Lynch & Co. where he organized a group that was responsible for managing hedging and alternative investment strategies for Merrill's institutional clients. This entity became the Financial Futures and Options Group. Mr. Rosenberg's first job was on the floor of the New York Stock Exchange and subsequently the New York Mercantile Exchange, where he managed proprietary capital using a variety of quantitative techniques for Weis, Voisen & Cannon, a private investment boutique. Mr. Rosenberg is a fourth term Director of the Board of the Futures Industry Association, and arbiter for the NFA and is a member of the Financial Advisory Boards of both the Chicago Mercantile Exchange and the COMEX Division of NYMEX. Mr. Rosenberg is also a Director of the Foundation of Finance and Banking Research. Mr. Rosenberg also is involved in several community activities. He has donated time to Domus House, a refuge for abandoned children, and various entrepreneurial projects targeting low-income families. Mr. Peter A. Hinrichs has served as the Chief Financial Officer of SSARIS since its formation in May 2001 and is a member of SSARIS's Investment Committee. Mr. Hinrichs also is Chief Financial Officer of SSARIS Management LLC. Mr. Hinrichs was with RXR since its founding in 1983, where he was responsible for RXR's financial, administrative and operational functions. Mr. Hinrichs also was a member of RXR's Investment Committee. From September 1981 to July 1984, Mr. Hinrichs was employed by Merrill Lynch Futures Inc. in trading and administration and held a similar position at Prudential from July 1984 to August 1986. Mr. Hinrichs graduated from Curry College in 1981 with a Bachelor of Science degree in Business Management. He is active in his community as a Board member of Fountain House Inc., a non-profit rehabilitation center for the mentally ill, where he serves as an Investment Committee member. He also is active with a number of other charitable organizations. Mr. James F. Tomeo has served as the Chief Operating Officer, a Senior Portfolio Manager and a Director of SSARIS since its formation in May 2001. Mr. Tomeo also is a member of SSARIS's Investment Committee and is responsible for portfolio management, strategic planning and product development. Mr. Tomeo served as Chief Operating Officer and a Senior Portfolio Manager of RXR and was a member of the firm's Investment Committee. Before joining RXR in 1986, Mr. Tomeo worked for Donaldson, Lufkin and Jenrette as an alternative investment consultant, and the LTV Corporation in New York. Mr. Tomeo was formerly an advisor to Institutional Investor on matters related to Japanese pension fund reform, is the former Chairman of the International Committee of the Managed Funds Association and is the US representative to the Education and Research Committee of the Alternative Investment Management Association. Mr. Tomeo graduated from Bucknell University in May 1980 with a Bachelor of Science degree in Business Administration, the University of Hartford in 1987 with an MBA degree, and the Institute of International Studies and Training (Japanese business study program) in November 1988. He studied International Finance and Capital Markets at New York University. Alan J. Brown has been a Director of SSARIS since July 2003. Mr. Brown is a principal of State Street Global Advisors, Group Chief Investment Officer of State Street Global Advisors Worldwide, Chairman of State Street Global Advisors UK, and Executive Vice President of State Street. He is also a member of State Street Global Advisor's Executive Management Group. Mr. Brown is a director of Advanced Investment Partners, European Direct Capital Management, Rexiter Capital Management, Boston Capital Management and Global Alliance, LLC. Mr. Brown is also a member of State Street Global Advisor's Executive Management Group. Prior to joining State Street Global Advisors UK in 1995, Mr. Brown was Managing Director and Chief Investment Officer of PanAgora Asset Management Limited, and prior to that, Managing Director of Posthorn Global Asset Management in London. Mr. Brown began his career in the investment management business in 1974 at Morgan Grenfell, where he spent ten years. Mr. Brown holds a Masters degree in Physics from Cambridge University. Mr. Brown is on the board of the U.S. foundation for The Center for Economic Research and Graduate Education-Economic Institute attached to the Charles University in Prague. Jay Cromarty has been a Director of SSARIS since March 2003. Mr. Cromarty is the President of Global Alliance and a Senior Principal of State Street Global Advisors. Among other duties, Mr. Cromarty provides strategic management and marketing support to all of the Global Alliance investment management businesses. Mr. Cromarty is a director of Advanced Investment Partners, Boston Capital Management and Residential Capital Management. Before joining Global Alliance in May 1998, Mr. Cromarty served as the Managing Director of Sales and Marketing for State Street Global Advisors' Private Asset Management group. Prior to joining State Street Global Advisors in 1996, Mr. Cromarty was Vice President of The Boston Company, Inc., Director of Marketing and Client Service at PanAgora Asset Management and Senior Vice President of NatWest Investment Management. Mr. Cromarty holds a Bachelor of Science degree in Economics from the University of Maine and a Masters of Business Administration degree in Finance and Marketing from Babson College. Christopher M. Pope has been a Director of SSARIS Global Advisors and Director of Institutional Sales, Client Service, and Consultant Relations. Prior to joining State Street Global Advisors in 1988, Mr. Pope was responsible for marketing and client service at Travelers Investment Management Company and Travelers Keystone Fixed Income Advisors. Mr. Pope holds a Bachelor of Science degree from the University of Pennsylvania. Mr. Pope is a charter member of the Certified Employee Benefit Specialist program. Principals and employees of SSARIS are not permitted to trade futures, options on futures, or forward contracts for their own accounts. Principals and employees are, however, permitted to invest in funds traded by SSARIS. SSARIS's Investment Philosophy SSARIS trades its allocation from Spectrum Global Balanced pursuant to a variation of its Balanced Portfolio known as the Global Multi-Strategy program. The development of the trading program utilized for Spectrum Global Balanced stems from RXR's work over the years with institutional clients. In 1986, RXR began managing a portfolio called the Institutional Balanced Portfolio program (now known as the Balanced Portfolio), which was composed of U.S. stock, bond and non-U.S. financial and commodity interests. Its objective was capital appreciation with controlled volatility, a concept pioneered by Professor John Lintner of Harvard University, who conducted research on the addition of managed futures to portfolios of U.S. stocks and bonds. The philosophy for the investment program has its roots in Modern Portfolio Theory and the design of efficiently allocated portfolios. Effective June 1, 1998, RXR broadened the hedged equity and fixed income components to include participation in the world's major developed capital markets and increased the program's leverage to 1.4 times the original Balanced Portfolio Program. The resulting program is now known as the Global Multi-Strategy. SSARIS's Global Multi-Strategy program allocates to hedged equity, hedged fixed income, and long/short global assets. It is diversified by both style (divergence and convergence strategies) and asset class (global stocks, bonds, currencies and real assets). The hedged equity component may be composed of positions in FTSE 100, DAX, Nikkei 225, and S&P 500 futures indices. The hedged fixed income exposure may include British Gilt, German Bund, Japanese & US Treasury futures. Real asset exposure is diversified across energy, precious metal, base metal, and agricultural markets. The investment program uses a multi-determinant model to rebalance the independent strategies. The global stock and bond exposure is managed using models which interpret macroeconomic, relative value, inflation, interest rate, and price-related data. Exposure within the long/short global asset sector is regulated by combining individual market expected return analysis with a system that asset weights each market according to relative volatility and correlation. In the foreign exchange and commodity components, SSARIS analyzes price data to determine profit and risk potential. A proprietary asset allocation model is used to adjust exposure among approximately 40 markets so that no one market or sector can dominate performance. The investment program was designed to provide investors with a global investment alternative. Through the controlled use of futures and forward contracts, SSARIS manages both U.S. and non-U.S. capital markets, currency and commodity exposure in a single, integrated portfolio. As of December 31, 2003, SSARIS was managing approximately $53 million of client assets pursuant to the program utilized for Spectrum Global Balanced and approximately $612 million in all of their programs. Research and Development Research and development calls on the talents of personnel from several areas within the company. SSARIS has developed macro-economic and technical models that can detect price movements resulting from daily market activity and major changes in global business cycles. Using this information, portfolio managers construct investment portfolios that address the specific actuarial assumptions of their clients. No representation is made and no guarantee is given that Spectrum Global Balanced's objective will be realized or that SSARIS will achieve any particular level of performance or amount of profits in its trading for Spectrum Global Balanced's account. Losses incurred in the global and tangible assets component could cause Spectrum Global Balanced's account to substantially underperform accounts managed by asset allocation systems that do not include a managed futures component. Prospective investors must recognize not only that the foregoing discussion attempts to present only the most basic framework describing the trading program employed for Spectrum Global Balanced, but also, due to the proprietary and confidential nature of all trading approaches, any description will inevitably be general in nature. Furthermore, SSARIS's trading methods are continually evolving, as are the markets themselves. Morgan Stanley Spectrum Currency L.P. 1. John W. Henry & Company, Inc. (JWH ) JWH makes trading decisions for Spectrum Currency pursuant to the International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. For a detailed description of JWH, its principals, and trading systems, including the International Foreign Currency Program, see "The Trading Advisors Morgan Stanley Spectrum Technical 3. John W. Henry & Company, Inc." beginning on page . 2. Sunrise Capital Partners, LLC The principals and senior officers of Sunrise Capital Partners are as follows: Martin P. Klitzner Principal, Managing Director Richard C. Slaughter Principal, Managing Director Dr. Gary B. Davis Principal Dr. John V. Forrest Principal Martin M. Ehrlich Principal, Vice President Marie Laufik Principal, Vice President Elissa Davis Principal The principals of Sunrise Capital Partners will make trading decisions for Spectrum Currency pursuant to the Currency Program. For a detailed description of Sunrise Capital Partners, its principals and trading systems, other than the Currency Program, which is discussed below, see "The Trading Advisors Morgan Stanley Spectrum Select 4. Sunrise Capital Management, Inc." beginning on page . The Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, euro currency, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. The Currency Program trades currency futures contracts on the International Monetary Market Division of the Chicago Mercantile Exchange and forward currency contracts in the interbank markets. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as crossrates selectively against each other and/or as outrights against the U.S. dollar. As of December 31, 2003 Sunrise Capital Partners was managing approximately $146 million of client assets pursuant to the Currency Program and approximately $1.7 billion of client assets in all of its programs (notional funds excluded). EXCHANGE RIGHT If the conditions described below are satisfied, you may redeem your units in any partnership as of the last day of any calendar month and use the proceeds to purchase units of any of the other Spectrum Series partnerships. However, a Spectrum Series exchange will only be permitted as of the sixth month-end after you first became an investor in any Spectrum Series partnership, and as of the last day of each month thereafter. Each unit you purchase in a Spectrum Series exchange will be issued and sold at a price per unit equal to 100% of the net asset value of a unit as of the close of business on the exchange date. Any units you redeem in a Spectrum Series exchange will not be subject to a redemption charge. Units you acquire in a Spectrum Series exchange will be subject to redemption charges, but will be deemed to have the same purchase date as the units you exchanged for purposes of determining the applicability of any redemption charges. Thus, for example, if you hold units of Spectrum Strategic for 12 months, exchange those units for units of Spectrum Technical, then redeem any of those units 15 months later, you will not have to pay a redemption charge, because those units will be deemed to have been held for 27 months. When you request a Spectrum Series exchange, additional conditions must be satisfied. First, the partnership from which you are redeeming must have assets sufficient to discharge its liabilities and redeem units. In order to effect a Spectrum Series exchange, you must send a subscription agreement to a Morgan Stanley branch office, and that agreement must be received by the general partner at least five business days prior to the applicable exchange date. In that agreement, you must acknowledge that you are still eligible to purchase units on the exchange date. You must exchange a minimum of 50 units in a Spectrum Series exchange, unless you are liquidating your entire interest in a partnership. A form of subscription agreement is annexed to this prospectus as Exhibit B, and additional copies of the subscription agreement may be obtained by written request to the general partner or from a local Morgan Stanley branch office. In order to effect a Spectrum Series exchange, each partnership must have a sufficient number of units registered and qualified for sale under federal and applicable state securities laws pursuant to a current prospectus. While the general partner intends to maintain a sufficient number of registered units to effect series exchanges, it is under no obligation to do so. Therefore, the general partner cannot assure you that any units will be available for sale on an exchange date. Furthermore, states may impose significant burdens on, or alter the requirements for, qualifying units for sale. In that event, the general partner may not continue qualifying units for sale in those states, and residents of those states would not be eligible for a Spectrum Series exchange. In addition, states may impose more restrictive suitability and/or investment requirements than those set forth in the form of subscription agreement. Any such restrictions may limit the ability of residents of those states to effect a Spectrum Series exchange. In the event that not all subscription agreements can be processed because an insufficient number of units is available for sale on an exchange date, the general partner will allocate units in the manner it determines in its sole discretion. The general partner has not yet determined how it will allocate units in the event there are an insufficient number of units available on an exchange date. Units of any new partnership in the Spectrum Series may be offered to investors pursuant to exercise of the Spectrum Series exchange right. Before purchasing units of a new partnership, you will be required to receive a copy of a prospectus and any supplement to this prospectus describing the new partnership and its units, and you will be required to execute a new subscription agreement to purchase units of that partnership. Since a Spectrum Series exchange is equivalent to a redemption and an immediate reinvestment of the proceeds of the redemption, you should carefully review the portions of this prospectus describing redemptions and the tax consequences before effecting a Spectrum Series exchange. REDEMPTIONS Once you are an investor in a Spectrum Series partnership for at least six months, you may redeem all or part of your units, regardless of when such units were purchased. Redemptions may only be made in whole units, with a minimum of 50 units required for each redemption, unless you are redeeming your entire interest in a partnership. The general partner will redeem your units in the order in which they were purchased. Redemptions will only be effective as of the last day of the month in which a request for redemption in proper form has been timely received by the general partner. A "request for redemption" is a letter in the form specified by the general partner that must be sent by you to a local Morgan Stanley branch office and received by the general partner at least 5 business days prior to the redemption date. A form of request for redemption is annexed to the limited partnership agreement, which agreement is annexed to this prospectus as Exhibit A. Additional copies of the request for redemption may be obtained by written request to the general partner or a local Morgan Stanley branch office. If you redeem units, you will receive 100% of the net asset value of each unit redeemed as of the redemption date, less any applicable redemption charges. Since the general partner must receive your request for redemption at least five business days prior to the redemption date, you will not know the actual amount you are to receive prior to the redemption date. The "net asset value" of a unit is an amount equal to the partnership's net assets allocated to capital accounts represented by units, divided by the number of units outstanding. "Net assets" means the total assets of a partnership, including all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open futures, forwards, and options positions and other assets of the partnership, less the total liabilities of the partnership, including, but not limited to, all brokerage, incentive and management fees, and extraordinary expenses, as determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a futures contract traded on a U.S. exchange means the settlement price on the exchange on which that futures contract is traded on the day net assets are being determined. However, if a futures contract could not have been liquidated on that day because of the operation of daily limits or other rules of the exchange or otherwise, the settlement price on the first subsequent day on which the futures contract could be liquidated will be the market value of that futures contract for that day. The market value of a forward or futures contract traded on a foreign exchange or market means its market value as determined by the general partner on a basis consistently applied for each different variety of forward contract or futures interest. If you redeem units on or prior to the last day of the twelfth month from the date of their purchase, those units will be subject to a redemption charge equal to 2% of their net asset value on the redemption date. If you redeem units after the last day of the twelfth month and on or prior to the last day of the twenty- fourth month from the date of their purchase, those units will be subject to a redemption charge equal to 1% of their net asset value on the redemption date. If you redeem units after the last day of the twenty-fourth month from the date of their purchase, those units will not be subject to a redemption charge. All redemption charges will be paid to Morgan Stanley DW and will not be shared with the financial advisor or additional selling agent who sold the units. Your units will be exempt from redemption charges under the following circumstances: If you redeem units at the first redemption date following notice of an increase in brokerage, management, or incentive fees, those units will not be subject to redemption charges. If you redeem units in a Spectrum Series exchange, the units you redeem will not be subject to redemption charges and, for purposes of determining the applicability of future redemption charges, the units you acquire will be deemed to have the same purchase date as the units you exchanged. If you redeem units of any other partnership for which Demeter serves as the general partner, the units you redeem from the other limited partnership will be subject to any applicable redemption charges, but the Spectrum Series units you purchase will not be subject to redemption charges. If you redeem units and have either paid a redemption charge with respect to the units or held the units for at least 24 months, you will not be subject to redemption charges with respect to any newly purchased units, provided the new units are purchased within twelve months of and in an amount no greater than the net proceeds of the prior redemption, and the units are held for at least six months from the date of purchase. In that event, you will still be subject to the minimum purchase and suitability requirements. The general partner will endeavor to pay redemptions within ten business days after the redemption date. A partnership may be forced to liquidate open futures, forward, and option positions to satisfy redemptions in the event it does not have sufficient cash on hand that is not required as margin on open positions, and may delay payment to limited partners requesting redemption of units of the proportionate part of the net asset value of the unit represented by the sums for which sufficient cash is not available. See "Risk Factors Partnership and Offering Risks Restricted investment liquidity in the units" on page . When you redeem units, payment will be made by credit to your customer account with Morgan Stanley DW, or by check mailed to you if your account is closed. Your right to redeem units is contingent upon the redeeming partnership having assets sufficient to discharge its liabilities on the redemption date, and timely receipt by the general partner of your request for redemption as described above. The terms and conditions applicable to redemptions in general, other than those prohibiting redemptions before the sixth month-end following the closing at which you first became an investor in a Spectrum Series partnership, and providing that redemptions may only be made as of the end of a calendar month, will also apply to redemptions effected on "special redemption dates." See "The Limited Partnership Agreements Books and Records; Reports to Limited Partners" on page . THE COMMODITY BROKERS Morgan Stanley DW Inc., Morgan Stanley & Co. Incorporated, and Morgan Stanley & Co. International Limited Morgan Stanley DW Inc., a Delaware corporation, acts as the partnerships' non-clearing commodity broker. Morgan Stanley DW, as the non-clearing commodity broker, holds each partnership's funds in customer segregated or secured accounts, and provides all required margin funds to the clearing commodity brokers. Morgan Stanley & Co. Incorporated, a Delaware corporation, acts as the partnerships' clearing commodity broker and foreign currency forward counterparty, and Morgan Stanley & Co. International Limited serves as the clearing commodity broker for trades that take place on the London Metal Exchange. Morgan Stanley DW monitors each partnership's futures positions that the clearing commodity brokers report they are carrying for any errors in trade prices or trade fill. Morgan Stanley DW also serves as the non-clearing commodity broker for all, and Morgan Stanley & Co. serves as the clearing commodity broker and foreign exchange counterparty for all but one, of the other commodity pools for which Demeter serves as general partner and commodity pool operator. Morgan Stanley International serves as the clearing commodity broker for the trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW is a financial services company which provides to its individual, corporate, and institutional clients services as a broker in securities, futures, and options, a dealer in corporate, municipal and government securities, an investment adviser, and an agent in the sale of life insurance and various other products and services. Morgan Stanley DW has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley DW is a member firm of the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange, and other major securities exchanges. Morgan Stanley DW is registered with the CFTC as a futures commission merchant and is a member of the National Futures Association in such capacity. Morgan Stanley DW is also registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley DW and its affiliates currently service clients through a network of approximately 700 offices with approximately 12,000 financial advisors servicing individual and institutional client accounts. Morgan Stanley & Co. Incorporated is the clearing commodity broker for all trades for the partnerships, other than for those trades on the London Metal Exchange. Morgan Stanley & Co. has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley & Co. is registered as a futures commission merchant, is a member of the National Futures Association, and is a member of most major U.S. and foreign commodity exchanges. Morgan Stanley & Co. is registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley & Co. International Limited, a United Kingdom corporation, acts as the partnerships' clearing commodity broker solely with regard to any trading on the London Metal Exchange. Morgan Stanley International has its main business office at 25 Cabot Square, Canary Wharf, London E14 4QA, England, is regulated by the United Kingdom Securities and Futures Authority as a member firm, and is a member of the London Metal Exchange and other securities and commodities exchanges worldwide. Morgan Stanley, the parent company of Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International, is a worldwide financial services firm, employing, directly and through its subsidiaries, more than 51,000 people worldwide in offices throughout the United States and 28 foreign countries. Morgan Stanley is a publicly-traded company listed on the New York Stock Exchange; its common stock had a market value of approximately $60 billion at November 30, 2003. At that date, Morgan Stanley had leading market positions in its three primary businesses (securities, asset management and credit services), and it ranked among the top asset managers globally, with over $462 billion in assets under management. Brokerage Arrangements The partnerships' brokerage arrangements with Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International are discussed in "Conflicts of Interest The brokerage arrangements with affiliates of the general partner were not negotiated at arm's-length or reviewed by any independent party for fairness" on page , " Customer agreements with the commodity brokers permit actions which could result in losses or lost profit opportunity" on page , and "Description of Charges Commodity Brokers" beginning on page . The general partner will review at least annually the brokerage arrangements of each partnership to ensure that those arrangements are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: the size of the partnership; the futures, forwards, and options trading activity; the services provided by the commodity brokers or any affiliate thereof to the partnership; the cost incurred by the commodity brokers or any affiliate thereof in organizing and operating the partnership and offering units; the overall costs to the partnership; any excess interest and compensating balance benefits to the commodity brokers from assets held thereby; and if the general partner does not receive any direct compensation from the partnership for its services as general partner, the risks incurred by the general partner as general partner of the partnership; Each customer agreement sets forth a standard of liability for the commodity broker and provides for indemnities of the commodity broker. See "Fiduciary Responsibility and Liability" beginning on page 17. LITIGATION At any given time, the commodity brokers are involved in numerous legal actions, some of which seek significant damages. On January 11, 1999 the SEC brought an action against 28 NASDAQ market makers, including Morgan Stanley & Co., and 51 individuals, including one current and one former trader employed by Morgan Stanley & Co., for certain conduct during 1994. The core of the charges against Morgan Stanley & Co. concerns improper or undisclosed coordination of price quotes with other broker-dealers and related reporting, recordkeeping, and supervisory deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and (2) and 17(a) of the Securities Exchange Act and Rules 15c1-2, 15c2-7 and 17a-3 promulgated thereunder. Without admitting or denying the charges, Morgan Stanley & Co., consented to the entry of a cease and desist order and to the payment of a civil penalty of $350,000, disgorgement of $4,170, and to submit certain of its procedures to an independent consultant for review. In addition, one current and one former trader employed by Morgan Stanley & Co. accepted suspensions of less than two months each and were fined $25,000 and $30,000, respectively. On April 6, 2000, Morgan Stanley & Co., along with 16 other firms, entered into an industry-wide settlement with the SEC, IRS and the Department of Justice (intervening on behalf of a qui tam plaintiff) to resolve litigation and investigations relating to "yield burning" allegations. At the core of the "yield burning" litigation and investigations were allegations that, from 1990 to 1994, escrow providers excessively marked up securities sold to escrow accounts in connection with advance refunding transactions on behalf of municipal bond issuers. The practice was alleged to benefit the escrow provider to the detriment of either the United States Treasury or the municipal issuer. The industry-wide settlement required 17 firms to pay a total of over $139 million (over $120 million to the United States Treasury and over $18 million directly to municipal issuers). Without admitting or denying any wrongdoing, Morgan Stanley & Co. consented to the entry of an order directing that it cease and desist from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and requiring it to pay $2.45 million to the United States Treasury. No payment to municipal issuers was required. On July 14, 2003, the Massachusetts Securities Division filed an administrative complaint alleging that Morgan Stanley DW Inc. filed false information in response to an inquiry from the Massachusetts Securities Division pertaining to mutual fund sales practices. On August 11, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that Morgan Stanley DW Inc. failed to make disclosures of incentive compensation for proprietary and partnered mutual fund transactions. On November 25, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that a former branch manager engaged in securities fraud and dishonest conduct in promoting the sales of proprietary mutual funds. Morgan Stanley DW Inc. answered the first two complaints on August 4 and September 16, 2003, respectively. Hearings on all of these matters are scheduled to commence on May 17, 2004. On September 15, 2003, Morgan Stanley DW Inc. and one of its officers entered into a settlement with the NASD pursuant to a Letter of Acceptance, Waiver and Consent. The Letter of Acceptance, Waiver and Consent alleges violations of applicable NASD rules in connection with various sales contests conducted from October 1999 to December 2002. Under the terms of the settlement, Morgan Stanley DW Inc. and its officer neither admitted nor denied the allegations of the Letter of Acceptance, Waiver and Consent and accepted a censure and the imposition of monetary fines in the amounts of $2 million and $250,000, respectively. On November 17, 2003, Morgan Stanley DW Inc. consented, without admitting or denying the findings, to the entry of an order by the Securities and Exchange Commission that resolved the Securities and Exchange Commission's investigations into certain practices relating to Morgan Stanley DW Inc.'s offer and sale of shares of certain registered investment companies from January 1, 2000 to the date of the order. Pursuant to the order, Morgan Stanley DW Inc. will: (a) distribute for the benefit of certain customers who purchased shares of mutual funds through Morgan Stanley DW Inc. pursuant to the marketing arrangements between Morgan Stanley DW Inc. and certain mutual fund complexes the amount of $50 million; (b) place on its website disclosures relating to certain marketing programs pursuant to which it offered and sold certain mutual funds; (c) prepare a Mutual Fund Bill of Rights that discloses, among other things, the differences in fees and expenses associated with the purchase of different classes or proprietary mutual fund shares; (d) prepare a plan by which certain customers' proprietary Class B shares can be converted to Class A shares; (e) retain an independent consultant to review, among other things, the adequacy of Morgan Stanley DW Inc.'s disclosures with respect to such marketing programs and other matters in connection with Morgan Stanley DW Inc.'s offer and sale of shares of mutual funds and compliance with the order; and (f) adopt the recommendations of the independent consultant. The number of purchase transactions of Class B shares that will be eligible to convert shares is approximately 8,000. The ultimate financial impact on Morgan Stanley DW Inc. of these conversions will depend on many variables, including the number of eligible purchasers who elect to convert to Class A shares (which carry different fees) and the terms of the conversion (which must be acceptable to the independent consultant). During the five years preceding the date of this prospectus, other than as described above, there have been no material criminal, civil, or administrative actions pending, on appeal, or concluded against the commodity brokers, the general partner, or any of their principals, which the general partner believes would be material to an investor's decision to invest in the partnerships. THE LIMITED PARTNERSHIP AGREEMENTS This section of the prospectus summarizes all material provisions of the limited partnership agreement of each partnership that are not discussed elsewhere in the prospectus. A form of the limited partnership agreements is annexed to the prospectus as Exhibit A. Each limited partnership agreement is identical, except as noted otherwise below or in Exhibit A. Capsule II Performance of Spectrum Technical Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $589,811,774 Current capitalization: $538,184,278 Current net asset value per unit: $22.64 Worst monthly % drawdown past five years: (15.59)% (November 2001) Worst monthly % drawdown since inception: (15.59)% (November 2001) Worst month-end peak-to-valley drawdown past five years: (26.57)% (13 months, April 2001-April 2002) Worst month-end peak-to-valley drawdown since inception: (26.57)% (13 months, April 2001-April 2002) Cumulative return since inception: 126.40% Monthly Performance Nature of the Partnerships Spectrum Select was formed on March 21, 1991; Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced were each formed on April 29, 1994; and Spectrum Currency was formed on October 20, 1999. Each partnership was formed under Delaware law. The fiscal year of each partnership begins on January 1 of each year and ends on the following December 31. The units that you purchase and pay for in this offering will be fully paid and nonassessable. You may be liable to a partnership for liabilities that arose before the date of a redemption or Spectrum Series exchange. Your liability, however, will not exceed the sum of your unredeemed capital contribution, undistributed profits, if any, any distributions and amounts received upon a redemption or deemed received on a Spectrum Series exchange, together with interest on any such amount. However, a partnership will not make a claim against you for any amounts received in connection with a redemption of units or a Spectrum Series exchange unless the net assets of the partnership are insufficient to discharge the liabilities of the partnership that arose before any distributions were made to you. The general partner will be liable for all obligations of a partnership to the extent that the assets of the partnership are insufficient to pay those obligations. Management of Partnership Affairs You will not participate in the management or operations of a partnership. Under each limited partnership agreement, the general partner is solely responsible for managing the partnership. The general partner may use a partnership's funds only to operate the business of that partnership. The general partner may hire an affiliate to perform services for the partnership if the general partner determines that the affiliate is qualified to perform the services, and can perform those services under competitive terms that are fair and reasonable. Any agreement with an affiliate must be for a term not in excess of one year and be terminable by the partnership without penalty upon 60 days' prior written notice. Other responsibilities of the general partner include: determining whether a partnership will make a distribution; administering redemptions and series exchanges; preparing monthly and annual reports; preparing and filing tax returns for each partnership; signing documents on behalf of each partnership and its limited partners pursuant to powers of attorney; and supervising the liquidation of a partnership, if necessary. Sharing of Profits and Losses You will have a capital account in each partnership in which you invest, with an initial balance equal to the amount you paid for units of the partnership. The general partner also has a capital account. Each partnership's net assets will be calculated monthly, and your capital account will be adjusted as necessary to reflect any increases or decreases that may have occurred since the preceding month. Profits and losses will be shared by the general partner and limited partners in proportion to the size of their respective capital accounts. For a description of the federal tax allocations, see "Material Federal Income Tax Considerations Partnership Taxation Allocation of Partnership Profits and Losses" on page 129. Restrictions on Transfers or Assignments While you may transfer or assign your units, the transferee or assignee may not become a limited partner without the written consent of the general partner. You may only withdraw capital or profits from a partnership by redeeming units. The general partner may withdraw any portion of its interest in a partnership that exceeds the amount required under the limited partnership agreement without prior notice to or consent of the limited partners. In addition, the general partner may withdraw or assign its entire interest in a partnership if it gives 120 days' prior written notice to the limited partners. If a Month majority of the limited partners elect a new general partner or partners to continue the business of the partnership, the withdrawing general partner must pay all reasonable expenses incurred by the partnership in connection with its withdrawal. Any transfer or assignment of units by you will take effect at the end of the month in which the transfer or assignment is made, subject to the following conditions. A partnership is not required to recognize a transfer or assignment until it has received at least 30 days' prior written notice from the limited partner. The notice must be signed by the limited partner and include the address and social security or taxpayer identification number of the transferee or assignee and the number of units transferred or assigned. A transfer or assignment of less than all units held by you cannot occur if as a result either party to the transfer or assignment would own fewer than the minimum number of units required for an investment in the partnership (subject to certain exceptions relating to gifts, death, divorce, or transfers to family members or affiliates). The general partner will not permit a transfer or assignment of units unless it is satisfied that the transfer or assignment would not be in violation of Delaware law or applicable federal, state, or foreign securities laws; and notwithstanding the transfer or assignment, the partnership will continue to be classified as a partnership rather than as an association taxable as a corporation under the Internal Revenue Code of 1986, as amended. No transfer or assignment of units will be effective or recognized by a partnership if the transfer or assignment would result in the termination of that partnership for federal income tax purposes, and any attempt to transfer or assign units in violation of the limited partnership agreement will be ineffective. The limited partner must pay all costs, including any attorneys' and accountants' fees, related to a transfer or assignment. Amendments; Meetings Each limited partnership agreement may be amended by the general partner and by limited partners owning more than 50% of the units of that partnership. In addition, the general partner may make certain amendments to a limited partnership agreement without the consent of the limited partners, including any amendment that is not adverse to the limited partners or is required by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or to comply with applicable law. However, no amendment may be made to a limited partnership agreement without the consent of all partners affected if that amendment would reduce the capital account of any partner, modify the percentage of profits, losses, or distributions to which any partner is entitled, or change or alter the provisions of the limited partnership agreement relating to amendments requiring the consent of all partners. Upon written request to the general partner delivered either in person or by certified mail, you or your authorized attorney or agent may obtain a list of the names and addresses of, and units owned by, all limited partners in your partnership, provided that you pay reasonable duplicating and postage costs. Limited partners owning at least 10% of the units of a partnership may request a meeting to consider any matter upon which limited partners may vote. Upon receipt of such a request, the general partner must call a meeting of that partnership, by written notice sent by certified mail or delivered in person within 15 days of such request. The meeting must be held at least 30 but not more than 60 days after the mailing by the general partner of notice of the meeting. The notice must specify the date, a reasonable place and time, and the purpose of the meeting. At any meeting of the limited partners, the following actions may be taken upon the affirmative vote of limited partners owning more than 50% of the units: amend the limited partnership agreement; dissolve the partnership; remove and replace the general partner; elect a new general partner or general partners if the general partner terminates or liquidates or elects to withdraw from the partnership, or becomes insolvent, bankrupt, or is dissolved; terminate any contract with the general partner or any of its affiliates on 60 days' prior written notice; and approve the sale of all or substantially all of the assets of the partnership. Any of the foregoing actions may also be taken by limited partners without a meeting, without prior notice, and without a vote, by means of written consents signed by limited partners owning the required number of units. Notice of any actions taken by written consent must be given to non-consenting limited partners within seven business days. Books and Records; Reports to Limited Partners The books and records of each partnership are maintained at its principal office for at least five years. You or your authorized attorney or agent will have the right during normal business hours to inspect and copy the books and records of each partnership of which you are a limited partner. Alternatively, you may request that copies of the books and records be sent to you, provided that you pay all reasonable reproduction and distribution costs. The partnership will retain copies of subscription documentation in connection with purchases and exchanges of units for at least six years. Within 30 days after the close of each calendar month, the general partner will provide such financial and other information with respect to each partnership as the CFTC and National Futures Association, from time to time, may require, together with information concerning any material change in the brokerage commissions or fees payable by the partnerships to any commodity broker. You will also receive within 90 days after the close of each fiscal year an annual report containing audited financial statements for the partnerships. Annual reports will provide a detailed statement of any transactions with the general partner or its affiliates and of fees, commissions, and any compensation paid or accrued to the general partner or its affiliates. By March 15 of each year, the partnership will provide you with the tax information necessary for you to prepare your federal income tax return. The net asset value of each partnership's units, which is estimated daily by the general partner, will be promptly supplied to you upon written request. A written notice, including a description of limited partners' redemption and voting rights, will be mailed to the limited partners of a partnership within seven business days if any of the following events occur: the net asset value of a unit decreases by at least 50% from the net asset value of that unit as of the end of the immediately preceding month; the limited partnership agreement is materially amended; there is any change in trading advisors or any material change in a management agreement; there is any change in commodity brokers or any material change in the compensation arrangements with a commodity broker; there is any change in general partners or any material change in the compensation arrangements with a general partner; there is any change in the partnership's fiscal year; there is any material change in the partnership's trading policies as specified in the limited partnership agreement; or the partnership ceases to trade futures, forwards, and options. If you receive a notice as to a 50% decrease in net asset value per unit, that notice will also advise you that a "special redemption date" will take place when limited partners may redeem their units in the same manner as described under "Redemptions" beginning on page 117 for regular redemption dates. Further, following the close of business on the date of the 50% decrease giving rise to that notice, the partnership will liquidate all existing positions as promptly as reasonably practicable, and will suspend all futures, forwards, and options trading through the special redemption date. The general partner will then determine whether to reinstitute futures, forwards, and options trading or to terminate the partnership. In addition, subject to limits imposed under state guidelines incorporated in the limited partnership agreements, no increase in any of the management, incentive, or brokerage fees payable by the partnerships, or any of the caps on fees, may take effect until the first business day following a redemption date. In the event of such an increase: notice of the increase will be mailed to limited partners at least five business days prior to the last date on which a "request for redemption" must be received by the general partner with respect to the applicable redemption date; the notice will describe the redemption and voting rights of limited partners; and units redeemed at the first redemption date following the notice will not be subject to any redemption charges. Each limited partner expressly agrees that in the event of his death, he waives on behalf of himself and his estate the furnishing of any inventory, accounting, or appraisal of the assets of the partnership and any right to an audit or examination of the books of the partnership. PLAN OF DISTRIBUTION General Morgan Stanley DW is offering units pursuant to a selling agreement with the partnerships and the general partner. This offering is being conducted in accordance with the provisions of Rule 2810 of the Conduct Rules of the NASD. With the approval of the general partner, Morgan Stanley DW may appoint additional selling agents to make offers and sales of the units. These additional selling agents may include any securities broker which is a member in good standing of the NASD, as well as any foreign bank, dealer, institution, or person ineligible for membership in the NASD that agrees not to make any offers or sales of units within the U.S. or its territories, possessions, or areas subject to its jurisdiction, or to U.S. citizens or residents. Any such non-NASD member must also agree to comply with applicable provisions of the Conduct Rules of the NASD in making offers and sales of units. Morgan Stanley DW is offering the units on a "best efforts" basis without any agreement by Morgan Stanley DW to purchase units. The general partner may in the future register additional units of any partnership with the SEC. There is no maximum amount of funds which may be contributed to a partnership. The general partner may in the future subdivide or combine outstanding units of any partnership, in its discretion, provided that any subdivision or combination will not affect the net asset value of any limited partner's interest in the partnership. Each partnership has agreed to indemnify its trading advisors in connection with the offer and sale of units with respect to any misleading or untrue statement or alleged misleading or untrue statement of a material fact or material omission or alleged omission unrelated to its trading advisor(s). Each partnership has also agreed to indemnify Morgan Stanley DW, the general partner and any additional sellers in connection with the offer and sale of units. See "Fiduciary Responsibility and Liability" beginning on page . Continuing Offering Units of each partnership are being offered for sale at monthly closings held on the last day of each month. Units will be offered and sold at the net asset value of a unit of the partnership on the date of the monthly closing. Since you must subscribe for units prior to the month end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The sale amount will be delivered to the partnership that sold the unit. Escrow Arrangements During the continuing offering, if your subscription is not immediately rejected by the general partner, your subscription funds will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. These subscription funds held in escrow will be invested in the escrow agent's interest-bearing money market account, and will earn the interest rate then paid by the bank on that account. If the general partner accepts your subscription, at the applicable month-end closing the escrow agent will pay your subscription funds to the appropriate partnership(s) and pay any interest earned on those funds to Morgan Stanley DW. Morgan Stanley DW in turn will credit your Morgan Stanley DW customer account with the interest. If the general partner rejects a subscription, the escrow agent will promptly pay the rejected subscription funds and any interest earned to Morgan Stanley DW, and Morgan Stanley DW will then credit your Morgan Stanley DW customer account with those amounts, and the funds will be immediately available for investment or withdrawal. If you closed your Morgan Stanley DW customer account, any subscription returned and interest earned will be paid by check. Interest will be earned on subscription funds from the day of deposit with the escrow agent to the day that funds are either paid to the appropriate partnership(s) in the case of accepted subscriptions or paid to Morgan Stanley DW in the case of rejected subscriptions. At all times during the continuing offering, and prior to each closing, subscription funds will be in the possession of the escrow agent, and at no time will the general partner hold or take possession of the funds. Compensation to Morgan Stanley DW Employees and Additional Selling Agents Except as described below, qualified employees of Morgan Stanley DW will receive from Morgan Stanley DW (payable solely from its own funds) a gross sales credit equal to 3% of the net asset value per unit as of the closing for each unit sold by them and issued at the closing. In addition, Morgan Stanley DW will continue to compensate such employees who continue to render services to limited partners with a gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from a partnership each month that are attributable to outstanding units sold by them. This compensation will begin: in the case of Spectrum Select, Spectrum Technical, and Spectrum Strategic, with the seventh month following the closing at which a unit was issued; in the case of Spectrum Global Balanced and Spectrum Currency, with the tenth month following the closing at which a unit was issued; the first month after a unit is issued pursuant to a non-series exchange; or the month as of which such continuous compensation is first payable with respect to units purchased in a Spectrum Series exchange, but with the seventh or tenth month measured from the date the subscriber first became a limited partner in a Spectrum Series partnership. In all cases, qualified Morgan Stanley DW employees will receive continuing compensation until the applicable partnership terminates or the unit is redeemed, whichever comes first. No part of this compensation will be paid by the partnership and, accordingly, net assets will not be reduced as a result of such compensation. Each person receiving continuing compensation must be a Morgan Stanley DW employee at the time of receipt of payment and must be registered as an associated person with the CFTC and be a member of the National Futures Association in such capacity only after either having passed the Series 3 or Series 31 examination or having been "grandfathered" as an associated person qualified to do commodity brokerage under the Commodity Exchange Act and the CFTC's regulations. These employees must also perform additional services, including: (a)inquiring of the general partner from time to time, at the request of limited partners, as to the net asset value of each partnership's units; (b)inquiring of the general partner, at the request of limited partners, regarding the futures, forwards, and options markets and the activities of the partnerships; (c)responding to questions of limited partners with respect to the monthly account statements, annual reports, financial statements, and annual tax information furnished periodically to limited partners; (d)providing advice to limited partners as to when and whether to make additional investments or to redeem or exchange units; (e)assisting limited partners in the redemption or exchange of units; and (f)providing such other services as limited partners from time to time may reasonably request. The additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. In addition, certain officers and directors of the general partner may receive compensation as employees of Morgan Stanley DW based, in part, on the amount of brokerage fees paid by the partnerships to Morgan Stanley DW. The selling agreement among Morgan Stanley DW, the general partner, and the partnerships provides that this compensation may only be paid by Morgan Stanley DW as long as continuing services are provided. Any limited partner may telephone, write, or visit a financial advisor at a Morgan Stanley branch office to avail himself of such services. Morgan Stanley DW will not pay its employees the 3% initial gross sales credit described above with respect to units purchased pursuant to a Spectrum Series exchange or non-Spectrum Series exchange. Such employees will, however, receive continuing gross sales credits with respect to brokerage fees received by Morgan Stanley DW from a partnership at the applicable rate. In the case of an investor who previously redeemed units in a Spectrum Series or non-Spectrum Series partnership and paid a redemption charge or held those units for at least 24 months, and invests in the Spectrum Series within 12 months of the redemption of the old units, the Morgan Stanley DW employee will not receive the initial gross sales credit of 3% but will receive a monthly gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from the partnership each month that are attributable to such units commencing the first month after the units are issued. Morgan Stanley DW may at any time implement cash sales incentive and/or promotional programs for its employees who sell units. These programs will provide for Morgan Stanley DW, and not any partnership or the general partner, to pay Morgan Stanley DW's employees bonus compensation based on sales of units. Any sales or promotional program will be approved by the NASD prior to its start. The aggregate of all compensation paid to employees of Morgan Stanley DW from the initial 3% gross sales credit, the redemption charges received by Morgan Stanley DW, and any sales incentives will not exceed 10% of the proceeds of the sale of units. Morgan Stanley DW may compensate any qualified additional selling agents for each unit sold by it by paying a selling commission, from Morgan Stanley DW's own funds, as determined by Morgan Stanley DW and the additional selling agents, but not to exceed 3% of the net asset value of the unit sold. Additional selling agents who are properly registered as futures commission merchants or introducing brokers with the CFTC and are members of the National Futures Association in such capacity may also receive from Morgan Stanley DW, payable from Morgan Stanley DW's own funds, continuing compensation for providing to limited partners the continuing services described above. This additional compensation paid by Morgan Stanley DW may be up to 42% of the brokerage fees generated by outstanding units sold by additional selling agents and received by Morgan Stanley DW as commodity broker for each partnership (except for employees of affiliates of Morgan Stanley DW, who will be compensated at the same rate as employees of Morgan Stanley DW). Additional selling agents may pay all or a portion of such additional compensation to their employees who have sold units and provide continuing services to limited partners if those employees are properly registered with the CFTC and are members of the National Futures Association. Additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. SUBSCRIPTION PROCEDURE The minimum subscription for most subscribers is $5,000, except that the minimum subscription is: $2,000 in the case of an IRA; or for eligible subscribers purchasing units pursuant to a non-Spectrum Series exchange, the lesser of $5,000, the proceeds from the redemption of 5 units, or 2 units in the case of an IRA, from commodity pools other than any of the Morgan Stanley Charter Series of partnerships, the proceeds from the redemption of 500 units, or 200 units in the case of an IRA, from any Charter Series partnership, or the proceeds from the redemption of such subscriber's entire interest in any other commodity pool for which the general partner serves as general partner and commodity pool operator. A subscription may be for units of one partnership, or may be divided among two or more partnerships, provided that: in the case of a new subscription, the minimum subscription for any one partnership is $1,000; and in the case of a non-Spectrum Series exchange, the minimum subscription for any one partnership is the proceeds of the redemption of 1 unit of the other commodity pool, or 100 units in the case of any Morgan Stanley Charter Series partnership. If you already own units in a partnership and you wish to make an additional investment in the same partnership, you may subscribe for units at a monthly closing with a minimum investment in that partnership of $500. In order to make your first purchase of units of a partnership, other than by means of an exchange, you must complete, sign, and deliver to Morgan Stanley DW a subscription agreement which will authorize the general partner and Morgan Stanley DW to transfer the full subscription amount from your Morgan Stanley DW customer account to the partnership's Escrow Account. If your subscription agreement is received by Morgan Stanley DW and not immediately rejected, you must have the appropriate amount in your Morgan Stanley DW customer account on the first business day following the date that your subscription agreement is received by Morgan Stanley DW. Morgan Stanley DW will deduct the subscription amount from your customer account and transfer funds into escrow with the escrow agent on that date. If you do not have a Morgan Stanley DW customer account or an account with an affiliate of Morgan Stanley DW, or do not have sufficient funds in your existing Morgan Stanley DW customer account, you should make appropriate arrangements with your Morgan Stanley financial advisor, or contact your local Morgan Stanley branch office. Do not mail any payment to the general partner, as it will be returned to you for proper placement with the Morgan Stanley branch office where your account is maintained. In the case of a Spectrum Series exchange or a non-Spectrum Series exchange, you must complete, sign, and deliver to your Morgan Stanley financial advisor a subscription agreement, which will authorize the general partner to redeem all or a portion of your interest in a partnership or another commodity pool for which the general partner serves as general partner and commodity pool operator, subject to terms of the applicable limited partnership agreement, and to use the proceeds, after deducting any applicable redemption charges, to purchase units in one or more of the partnerships. In accordance with an NASD rule, Morgan Stanley DW will not subscribe for units on your behalf if it has discretionary authority over your customer account, unless it gets prior written approval from you. If you subscribe by check, units will be issued subject to the collection of the funds represented by the check. If your check is returned unpaid, Morgan Stanley DW will notify the general partner, and the relevant partnership will cancel the units issued to you represented by the check. Any losses or profits sustained by the partnership allocable to the cancelled units will be allocated among the remaining partners. In the limited partnership agreements, each limited partner agrees to reimburse a partnership for any expense or loss (including any trading loss) incurred in connection with the issuance and cancellation of any units issued to the limited partner. Subscriptions for units are generally irrevocable by subscribers. However, you may revoke your subscription agreement and receive a full refund of the subscription amount and any accrued interest, or revoke the redemption of units in the other commodity pool in the case of an exchange, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. There may be other rescission rights under applicable federal and state securities laws. The general partner may reject any subscription, in whole or in part, in its sole discretion. A sample form of the subscription agreement is annexed to this prospectus as Exhibit B. A separate copy of the subscription agreement accompanies this prospectus or you may obtain one, after delivery of this prospectus, from a local Morgan Stanley branch office. You will not receive any certificate evidencing units, but you will be sent confirmations of purchases in Morgan Stanley DW's customary form. Once you are an investor in a partnership, you may make additional cash purchases of units of that partnership without executing a new subscription agreement, by completing a subscription agreement update form, a sample of which is annexed to this prospectus as Exhibit C, and by contacting your Morgan Stanley financial advisor and authorizing your financial advisor to deduct the additional amount you want to invest from your Morgan Stanley DW customer account. Those amounts will be held in escrow, and applied towards the purchase of units, in the same manner as initial purchases described above. However, if a new prospectus has been issued since the date of your immediately prior subscription agreement, you will be required to complete a new subscription agreement update form. Further, your Morgan Stanley financial advisor will be required to confirm to the general partner that the information you provided, and the representations and warranties you made, in your original subscription agreement, including, in particular, that you satisfy applicable minimum financial suitability requirements, are still true and correct. You may not use the subscription procedure described in this paragraph to purchase additional units in a partnership by way of an exchange, or to purchase units of a partnership in which you are not currently an investor; in either of those cases, you must execute a new subscription agreement. PURCHASES BY EMPLOYEE BENEFIT PLANS ERISA CONSIDERATIONS Units might or might not be a suitable investment for an employee benefit plan. If you are a person with investment discretion on behalf of an employee benefit plan, before proceeding with a purchase of units, you should determine whether the purchase of units is permitted under the governing instruments of the plan, and is appropriate for that particular plan in view of its overall investment policy, the composition and diversification of its portfolio, and the other considerations discussed below. As used in this section, the term "employee benefit plans" refers to plans and accounts of various types, including their related trusts, which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, typically free from federal income tax until such time as funds are distributed from the plan. These plans include corporate pension and profit-sharing plans, such as so-called "401( k)" plans, "simplified employee pension plans," so-called "Keogh" plans for self-employed individuals (including partners), and, for purposes of this discussion, individual retirement accounts, as described in Section 408 of the Internal Revenue Code of 1986, as amended. Notwithstanding the general requirement that investors in one or more partnerships must invest a minimum of $5,000, a minimum purchase requirement of $2,000 has been set for IRAs. The minimum subscription for any one of the partnerships must be at least $1,000. Greater minimum purchases may be mandated by the securities laws and regulations of certain states, and each investor should consult the subscription agreement to determine the applicable investment requirements. If the assets of an investing employee benefit plan were to be treated, for purposes of the reporting and disclosure provisions and certain other of the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as including an undivided interest in each of the underlying assets of a partnership, an investment in units would in general be an inappropriate investment for the plan. A U.S. Department of Labor regulation defines "plan assets" in situations where employee benefit plans purchase equity securities in investment entities such as a partnership. The regulation provides that the assets of an entity will not be deemed to be "plan assets" of an employee benefit plan which purchases an equity security of the entity if the equity security is a "publicly-offered security." A "publicly-offered security" is one which is: freely transferable; held by more than 100 investors independent of the issuer and of each other; and either registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, or sold to the plan as part of a public offering of such securities pursuant to an effective registration statement under the Securities Act of 1933, where the security is then timely registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934. The units currently meet, and it is expected that the units will continue to meet, the criteria of the Regulation. The general partner believes, based upon the advice of its legal counsel, that income earned by the partnerships will not constitute "unrelated business taxable income" under Section 512 of the Internal Revenue Code of 1986 to employee benefit plans and other tax-exempt entities. Although the Internal Revenue Service has issued favorable private letter rulings to taxpayers in somewhat similar circumstances, other taxpayers may not use or cite such rulings as precedent. If you have investment discretion on behalf of an employee benefit plan, you should consult a professional tax adviser regarding the application of the foregoing matters to the purchase of units. Units may not be purchased with the assets of an employee benefit plan if the general partner, Morgan Stanley DW, any additional selling agents, any trading advisor, or any of their respective affiliates either: has investment discretion with respect to the investment of such plan assets; has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the plan assets and that such advice will be based on the particular investment needs of the plan; or is an employer maintaining or contributing to such plan. Subscribing for units does not create an IRA or other employee benefit plan. If you are considering the purchase of units on behalf of an IRA or other employee benefit plan, you must first ensure that the plan has been properly established in accordance with the Internal Revenue Code of 1986 and ERISA and the regulations and administrative rulings thereunder, and that the plan has been adequately funded. Then, after all of the considerations discussed above have been taken into account, the trustee or custodian of a plan who decides to or who is instructed to do so may subscribe for units in one or more of the partnerships, subject to the applicable minimum subscription requirement per partnership. Acceptance of subscriptions on behalf of IRAs or other employee benefit plans is in no respect a representation by the general partner, Morgan Stanley DW, any additional selling agents, any partnership, or any trading advisor that the investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that the investment is appropriate for plans generally or any particular plan. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS Introduction The general partner has been advised by counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion, the following summary correctly describes the material federal income tax consequences to a U.S. taxpayer who invests in a partnership. The opinions appearing in this section are the opinions of Cadwalader, Wickersham & Taft LLP, except as otherwise specifically noted. The following summary is based upon the Internal Revenue Code of 1986, rulings thereon, regulations promulgated thereunder, and existing interpretations thereof, any of which could be changed at any time and which changes could be retroactive. The federal income tax summary and the state and local income tax summary that follow, in general, relate only to the tax implications of an investment in the partnerships by individuals who are citizens or residents of the U.S. Except as indicated below or under "Purchases by Employee Benefit Plans-ERISA Considerations," the summaries do not address the tax implications of an investment in the partnerships by corporations, partnerships, trusts, and other non-individuals. Moreover, the summaries are not intended as a substitute for careful tax planning, particularly since certain of the tax consequences of owning an interest in the partnerships may not be the same for all taxpayers, such as non-individuals or foreign persons, or in light of an investor's personal investment circumstances. A complete discussion of all federal, state, and local tax aspects of an investment in each partnership is beyond the scope of the following summary, and prospective investors are urged to consult their own tax advisors on these matters. Partnership Status The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion under current federal income tax law, each partnership will be classified as a partnership and not as an association (or a publicly traded partnership) taxable as a corporation. This opinion is based upon the facts set forth in this prospectus, including that a principal activity of each partnership consists of buying and selling futures, options, and forward contracts, and at least 90% of the partnership's gross income during each year consists of gains from such trading and interest income. No ruling has been requested from the Internal Revenue Service with respect to classification of each partnership and the general partner does not intend to request such a ruling. If a partnership were treated as an association (or a publicly traded partnership) taxable as a corporation, income or loss of the partnership would not be passed through to its partners, and the partnership would be subject to tax on its income at the rates applicable to corporations without deduction for any distributions to its partners. In addition, all or a portion of any distributions by the partnership to its partners could be taxable to the partners as dividends or capital gains. The discussion that follows assumes that each partnership will be treated as a partnership for federal income tax purposes. Partnership Taxation Partners, rather than a Partnership, are Subject to Federal Income Tax. None of the partnerships will pay federal income tax. Except as provided below with respect to certain nonresident aliens, each limited partner will report his distributive share of all items of partnership income, gain, loss, deduction, and credit for the partnership's taxable year ending within or with the partner's taxable year. A limited partner must report and pay tax on his share of partnership income for a particular year whether or not he has received any distributions from the partnership in that year. The characterization of an item of profit or loss will usually be determined at the partnership level. Syndication Expenses. None of the partnerships nor any partner thereof will be entitled to any deduction for syndication expenses (i.e., those amounts paid or incurred in connection with issuing and marketing units). There is a risk that some of the brokerage fees paid to Morgan Stanley DW could be treated as a nondeductible payment by the partnerships of syndication expenses. Allocation of Partnership Profits and Losses. In general, each limited partnership agreement allocates items of ordinary income and expense pro rata among the partners based upon their respective capital accounts as of the end of the month in which such items are accrued. Net recognized capital gain or loss is generally allocated among all partners based upon their respective capital accounts. However, net recognized capital gain or loss is allocated first to partners who have redeemed units in the partnership during a taxable year to the extent of the difference between the amount received on the redemption and the allocation account as of the date of redemption attributable to the redeemed units. Any remaining net recognized capital gain or loss is next allocated among all those partners whose capital accounts differ from their allocation accounts based on the respective differences for each partner. The special allocation of each partnership's net gain or loss upon a redemption of units, which retains the same character as in the hands of the partnership, may alter the character of a redeeming limited partner's income (by reducing the amount of long-term capital gain recognized upon receipt of redemption proceeds) and may accelerate the recognition of income by the limited partner. These allocation provisions are designed to reconcile tax allocations to economic allocations. However, the general partner cannot assure you that the Internal Revenue Service will not challenge the allocations, including each partnership's tax allocations in respect of redeemed units. If the allocation provided by each limited partnership agreement is not respected by the Internal Revenue Service for federal income tax purposes, the amount of income or loss allocated to the partners for federal income tax purposes may be increased or reduced or the character of the income or loss may be modified. Cash Distributions and Redemptions Because of the special allocation of partnership gain or loss upon a redemption of units, the amounts received upon the partial or complete redemption of a limited partner's units normally will not result in additional taxable income or loss to the limited partner. However, distributions by a partnership and amounts received upon the partial or complete redemption of a limited partner's units will be taxable to the limited partners to the extent cash distributions by a partnership or amounts received upon redemption by a limited partner exceed the partner's adjusted tax basis in his units. Such excess will be taxable to him as though it were a gain from a sale of the units. A loss will be recognized upon a redemption of units only if, following the redemption of all of a limited partner's units, the partner has any tax basis in his units remaining. In such case, the limited partner will recognize loss to the extent of the remaining basis. See "Redemptions." Generally, if a limited partner is not a "dealer" with respect to his interest in the partnership and he has held his interest in the partnership for more than one year, the gain or loss would be long-term capital gain or loss. Gain or Loss on Trading Activity Nature of Partnership Income. Each partnership does not expect to hold its futures, forwards, or options for sale to customers. For federal income tax purposes substantially all of the profit and loss generated by each partnership from its trading activities is expected to be capital gain and loss, which in turn may be either short-term, long-term, or a combination thereof. Nevertheless, certain foreign currency transactions could result in ordinary gain or loss, as discussed below. Further, interest paid to a partnership will be taxable currently to the limited partners as ordinary income. Thus, during taxable years in which little or no profit is generated from trading activities, a limited partner may still have interest income. Mark-to-Market. Section 1256 contracts held at the end of a partnership's taxable year will be treated as having been sold for the fair market value on the last day of the taxable year, and gain or loss will be taken into account for the year. Gain or loss with respect to a Section 1256 contract is generally treated as short-term capital gain or loss to the extent of 40% of the gain or loss, and long-term capital gain or loss to the extent of 60% of the gain or loss. Section 1256 contracts include regulated futures contracts which are futures contracts traded on regulated U.S. and certain foreign exchanges; foreign currency contracts that are traded in the interbank market and relate to currencies for which positions are also traded through regulated futures contracts; and U.S. and certain foreign exchange-traded options on commodities, including options on regulated futures contracts, debt securities, and stock indices. While the partnerships expect that a majority of their trading activities will be conducted in Section 1256 contracts, the partnerships also expect that a portion of their trading activities will be conducted in contracts that do not presently qualify as Section 1256 contracts, such as positions in futures contracts on most foreign exchanges and foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts. Section 988. Currency gain or loss with respect to foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts and futures contracts traded on most foreign exchanges may be treated as ordinary income or loss under Internal Revenue Code of 1986 Section 988. Each partnership has elected to treat these contracts as Section 1256 contracts (i.e., marked-to-market at year end). Pursuant to this election, gain or loss with respect to these contracts is treated as entirely short-term capital gain or loss. Subject to certain limitations, a limited partner, other than a corporation, estate, or trust, may elect to carry back net Section 1256 contract losses to each of the three preceding years. Net Section 1256 contract losses carried back to prior years may only be used to offset net Section 1256 contract gains. Generally, such losses are carried back as 40% short-term capital losses and 60% long-term capital losses. Capital assets not marked to market under Section 1256, such as any non-currency forward contracts, are not subject to the 60/40 tax regime for Section 1256 contracts, and gain or loss on sale generally will be long-term only if such property has been held for more than one year. Straddles. If a partnership incurs a loss upon the disposition of any position which is part of a "straddle" (i.e., two or more offsetting positions), recognition of that loss for tax purposes will be deferred until the partnership recognizes the gain in the offsetting position of the straddle (or successor position, or offsetting position to the successor position). Interest and other carrying charges allocable to positions which are part of a straddle must be capitalized, rather than deducted currently. Certain modified "short sale" rules may apply to positions held by a partnership so that what might otherwise be characterized as long-term capital gain would be characterized as short-term capital gain or potential short-term capital loss as long-term capital loss. For purposes of applying the above rules restricting the deductibility of losses with respect to offsetting positions, if a limited partner takes into account gain or loss with respect to a position held by the partnership, the limited partner will be treated as holding the partnership's position, except to the extent otherwise provided in regulations. Accordingly, positions held by a partnership may limit the deductibility of realized losses sustained by a limited partner with respect to positions held for his own account, and positions held by a limited partner for his own account may limit his ability to deduct realized losses sustained by a partnership. Thus, straddles may not be used to defer gain from one taxable year to the next. Reporting requirements generally require taxpayers to disclose all unrecognized gains with respect to positions held at the end of the taxable year. The above principle, whereby a limited partner may be treated as holding partnership positions, may also apply to require a limited partner to capitalize (rather than deduct) interest and carrying charges allocable to property held by him. Where the positions of a straddle are comprised of both Section 1256 and non-Section 1256 contracts, a partnership will be subject to the mixed straddle rules of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. The appropriate tax treatment of any gains and losses from trading in mixed straddles will depend on what elections a partnership makes. Each partnership has elected to place all of its positions in a "mixed straddle" account which is marked-to-market daily. Under a special account cap, not more than 50% of net capital gain may be long-term capital gain, and not more than 40% of net capital loss may be short-term capital loss. Taxation of Limited Partners Limitations on Deductibility of Partnership Losses. The amount of partnership loss, including capital loss, which a limited partner will be entitled to take into account for federal income tax purposes is limited to the tax basis of his units, except in the case of certain limited partners including individuals and closely-held C corporations, for which he is "at risk" with respect to the units as of the end of the partnership's taxable year in which such loss occurred. Generally, a limited partner's initial tax basis will be the amount paid for each unit. A limited partner's adjusted tax basis will be his initial tax basis reduced by the limited partner's share of partnership distributions, losses, and expenses and increased by his share of partnership income and gains. The amount for which a limited partner is "at risk" with respect to his units in a partnership is generally equal to his tax basis for the units, less: any amounts borrowed in connection with his acquisition of the units for which he is not personally liable and for which he has pledged no property other than his units; any amounts borrowed from persons who have a proprietary interest in the partnership; and any amounts borrowed for which the limited partner is protected against loss through guarantees or similar arrangements. Because of the limitations imposed upon the deductibility of capital losses referred to below, a limited partner's share of a partnership's net capital losses, if any, will not materially reduce his federal income tax on his ordinary income. In addition, certain expenses of a partnership might be deductible by a limited partner only as itemized deductions and, therefore, will not reduce the federal taxable income of a limited partner who does not itemize his deductions. Furthermore, an individual who is subject to the alternative minimum tax for a taxable year may not realize any tax benefit from such itemized deductions. Limitations on Deductibility of Passive Losses. The partnerships' income will not be treated as a "passive activity" for purposes of the limitation on the deduction of passive activity losses. Limited Deduction of Certain Expenses. Certain miscellaneous itemized deductions, such as expenses incurred to maintain property held for investment, are deductible only to the extent that they exceed 2% of the adjusted gross income of an individual, trust, or estate. The amount of certain itemized deductions allowable to individuals is further reduced by an amount equal to the lesser of (i) 3% of the % % % % % % % % % % January 12.76 (1.88 ) (0.81 ) 1.21 (4.96 ) (1.16 ) 3.67 4.78 (1.84 ) February 6.60 (3.41 ) 1.94 (1.19 ) 2.48 0.41 1.13 (6.39 ) 5.10 March (9.17 ) (2.90 ) 11.38 (1.54 ) (2.48 ) 1.31 (1.82 ) 1.24 10.21 April 1.44 (3.20 ) (11.10 ) (4.02 ) 7.18 (4.62 ) (2.93 ) 4.82 3.60 May 6.38 5.64 (0.37 ) (0.43 ) (5.00 ) 3.28 (3.75 ) (3.84 ) 0.69 June (7.42 ) 15.02 (3.62 ) (2.78 ) 5.13 (1.10 ) 0.69 3.21 (1.12 ) July (3.04 ) 9.65 (3.36 ) (3.96 ) (3.90 ) (0.98 ) 9.33 (4.80 ) (2.44 ) August 3.39 4.40 1.34 3.74 0.95 10.29 (5.97 ) (0.35 ) (0.63 ) September (5.41 ) 6.43 8.19 (8.61 ) (1.51 ) 4.35 1.85 5.50 (3.33 ) October 9.14 (6.75 ) 5.37 2.90 (9.96 ) (0.73 ) 0.36 9.92 (0.09 ) November 1.20 (4.68 ) (15.59 ) 12.28 1.84 (6.17 ) 1.01 8.34 0.93 (0.90 ) December 7.66 5.20 2.47 12.06 3.83 5.98 4.57 (3.88 ) 6.09 (1.31 ) Compound Annual/ Period Rate of Return 22.98 23.31 (7.15 ) 7.85 (7.51 ) 10.18 7.49 18.35 17.59 (2.20 ) (2 months) Capsule III Performance of Spectrum Strategic Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $182,893,529 Current capitalization: $121,270,439 Current net asset value per unit: $14.31 Worst monthly % drawdown past five years: (18.47)% (February 2000) Worst monthly % drawdown since inception: (18.47)% (February 2000) Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months, January 2000-October 2000) Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months, January 2000-October 2000) Cumulative return since inception: 43.10% Monthly Performance individual's adjusted gross income in excess of a certain threshold amount and (ii) 80% of such itemized deductions. Moreover, such investment expenses are miscellaneous itemized deductions that are not deductible by a non-corporate taxpayer in calculating its alternative minimum tax liability. Based upon the current and contemplated activities of the partnerships, the general partner has been advised by its legal counsel that, in such counsel's opinion, the expenses incurred by the partnerships in their futures, forwards, and options trading businesses should not be subject to the 2% "floor" or the 3% phaseout, except to the extent that the Internal Revenue Service promulgates regulations that so provide. However, that advice is not binding on a court or the Internal Revenue Service, and the Internal Revenue Service could assert, and a court could agree, that such expenses of the partnerships (including incentive fees) are investment expenses which are subject to these limitations. Tax Liability Will Exceed Distributions. Under federal tax laws, a limited partner must report and pay tax on his share of any partnership income each year, even though the general partner does not intend to make any distributions from the partnerships. Tax on Capital Gains and Losses. In general, for individuals, trusts, and estates, "long-term capital gains" are currently taxed at a maximum marginal tax rate of 20% and "short-term capital gains" and other income are currently taxed at a maximum marginal tax rate of 38.6%. Corporate taxpayers are currently subject to a maximum marginal tax rate of 35% on all capital gains and income. The excess of capital losses over capital gains is deductible by an individual against ordinary income on a one-for-one basis, subject to an annual limitation of $3,000 ($1,500 in the case of married individuals filing a separate return). Excess capital losses may be carried forward. Net losses from Section 1256 contracts are treated as 60% long-term capital loss and 40% short-term capital loss. Such losses may, at the individual taxpayer's election, be carried back to each of the preceding three years and applied against gains from Section 1256 contracts. Alternative Minimum Tax. The alternative minimum tax for individuals is imposed on "alternative minimum taxable income" in excess of certain exemption amounts. Alternative minimum taxable income consists of taxable income determined with certain adjustments and increased by the amount of items of tax preference. Alternative minimum taxable income may not be offset by certain interest deductions, including (in certain circumstances) interest incurred to purchase or carry units in the partnerships. Corporations are also subject to an alternative minimum tax. The extent to which the alternative minimum tax will be imposed will depend on the overall tax situation of each limited partner at the end of such taxable year. Limitation on Deductibility of Interest on Investment Indebtedness. Interest paid or accrued on indebtedness properly allocable to property held for investment is investment interest. Such interest is generally deductible by non-corporate taxpayers only to the extent it does not exceed net investment income. A limited partner's distributive share of net partnership income and any gain from the disposition of units will be treated as investment income, except that a limited partner's net capital gain from the disposition of units is not investment income unless the limited partner waives the benefit of the preferential tax rate on the gain. It is not clear whether a limited partner's distributive share of partnership net capital gain constitutes investment income where such gain is taxed at the maximum rate for capital gains. Interest expense incurred by a limited partner to acquire his units generally will be investment interest. Any investment interest disallowed as a deduction in a taxable year solely by reason of the limitation above is treated as investment interest paid or accrued in the succeeding taxable year. Taxation of Foreign Limited Partners. A nonresident alien individual, foreign corporation, or foreign partnership (a "foreign limited partner") generally should not be deemed to be engaged in a U.S. trade or business solely by virtue of an investment in the partnerships; provided that such foreign limited partner is not a "dealer" in commodities and, in the case of an individual, does not have certain present or former connections with the U.S. (e.g., is not present in the U.S. more than 182 days during his or her taxable year, or, in certain limited circumstances, a prior taxable year) and provided further, that such foreign limited partner is not engaged in a trade or business within the U.S. during the taxable year or, in certain limited circumstances, a prior taxable year to which income, gain, or loss from the partnerships is treated as "effectively connected." Capital gains earned by the partnerships and allocated to such a foreign limited partner will, as a general rule, not be subject to U.S. federal income taxation or withholding, but may be subject to taxation by the jurisdiction in which the foreign limited partner is resident, organized or Month operating. In the event that a partnership were found to be engaged in a U.S. trade or business, a foreign limited partner would be required to file a U.S. federal income tax return for such year and pay tax at full U.S. rates. In the case of a foreign limited partner which is a foreign corporation, an additional 30% "branch profits" tax might be imposed. Furthermore, in such event the partnerships would be required to withhold taxes from the income or gain allocable to such a foreign limited partner under Section 1446 of the Code. A foreign limited partner is not subject to U.S. tax on certain interest income, including income attributable to (i) original issue discount on Treasury bills that have a maturity of 183 days or less or (ii) commercial bank deposits, provided, in either case, that such foreign limited partner is not engaged in a trade or business within the U.S. during a taxable year. Additionally, a foreign limited partner not engaged in a trade or business within the U.S. is not subject to U.S. tax on interest income (other than certain so-called "contingent interest") attributable to obligations issued after July 18, 1984 that are in registered form if the foreign limited partner timely provides the relevant partnership with an IRS Form W-8BEN. Prospective foreign limited partners who are engaged in a U.S. trade or business or who act as dealers in commodities may be subject to U.S. income tax and should consult their tax advisors before investing in a partnership. The estate of a deceased foreign limited partner may be liable for U.S. estate tax and may be required to obtain an estate tax release from the Internal Revenue Service in order to transfer the units of such foreign limited partner. Foreign persons should consult their own tax advisers before deciding whether to invest in the partnerships. Tax Elections. The Internal Revenue Code of 1986 provides for optional adjustments to the basis of partnership property upon distributions of partnership property to a partner (Section 734) and transfers of units, including transfers by reason of death (Section 743), provided that a partnership election has been made pursuant to Section 754. As a result of the complexities and added expense of the tax accounting required to implement such an election, the general partner does not presently intend to make such an election for any of the partnerships. Therefore, any benefits which might be available to the partners by reason of such an election will be foreclosed. Tax Returns and Information. The partnerships will file their information returns using the accrual method of accounting. Within 75 days after the close of each partnership's taxable year, the partnership will furnish each limited partner, and any assignee of the units of a limited partner, copies of the partnership's Schedule K-1 indicating the limited partner's distributive share of tax items and any additional information as is reasonably necessary to permit the limited partners to prepare their own federal and state tax returns. Partnership's Taxable Year. Each partnership has the calendar year as its taxable year. Unrelated Business Taxable Income of Employee Benefit Plan Limited Partners and Other Tax-Exempt Investors. Income allocated to a limited partner which is an employee benefit plan or other tax-exempt entity should not be subject to tax under Section 511 of the Internal Revenue Code of 1986, provided that the units purchased by such plans and entities are not "debt-financed." However, if a partnership were to purchase physical commodities with borrowed funds (whether upon delivery under a futures or forward contract or otherwise) and to sell those commodities at a gain, the gain would likely constitute unrelated business income. The partnerships are entitled to engage in such leveraged purchases of physical commodities. Tax exempt investors should see "Purchases by Employee Benefit Plans ERISA Considerations" above. Tax Audits All partners are required under the Internal Revenue Code of 1986 to report all the partnership items on their own returns consistently with the treatment by the partnership, unless they file a statement with the Internal Revenue Service disclosing the inconsistencies. Adjustments in tax liability with respect to partnership items will be made at the partnership level. The general partner will represent each partnership All of the foregoing statements are based upon the existing provisions of the Internal Revenue Code of 1986 and the regulations promulgated thereunder and the existing administrative and judicial interpretations thereof. The general partner cannot assure you that legislative, administrative, or judicial changes will not occur which will modify such statements. The foregoing statements are not intended as a substitute for careful tax planning, particularly since certain of the federal income tax consequences of purchasing units may not be the same for all taxpayers. The partnerships' tax returns could be audited by the Internal Revenue Service and adjustments to the returns could be made as a result of such audits. If an audit results in adjustment, limited partners may be required to file amended returns and their returns may be audited. Accordingly, prospective purchasers of units are urged to consult their tax advisers with specific reference to their own tax situation under federal law and the provisions of applicable state, local, and foreign laws before subscribing for units. STATE AND LOCAL INCOME TAX ASPECTS In addition to the federal income tax consequences for individuals described under "Material Federal Income Tax Considerations" above, the partnerships and their limited partners may be subject to various state and local taxes. Certain of these taxes could, if applicable, have a significant effect on the amount of tax payable in respect of an investment in the partnerships. A limited partner's distributive share of the realized profits of a partnership may be required to be included in determining his reportable income for state or local tax purposes. Furthermore, state and local tax laws may not reflect recent changes made to the federal income tax law and, therefore, may be inconsistent with the federal income treatment of gains and losses arising from the partnerships' transactions in Section 1256 contracts. Accordingly, prospective limited partners should consult with their own tax advisers concerning the applicability of state and local taxes to an investment in the partnerships. The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in such counsel's opinion, the partnerships should not be liable for New York City unincorporated business tax. Limited partners who are nonresidents of New York State will not be liable for New York State personal income tax on such partners' income from the partnerships, but may be liable for such tax to the extent such limited partners' allocable share of income attributable to the partnerships' transactions involves tangible personal property. Likewise, limited partners who are nonresidents of New York City will not be liable for New York City earnings tax on the partners' income from the partnerships. New York City residents may be subject to New York City personal income tax on the partners' income from the partnerships. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters. LEGAL MATTERS Legal matters in connection with the units being offered hereby, including the discussion of the material federal income tax considerations relating to the acquisition, ownership, and disposition of units, have been passed upon for each partnership and the general partner by Cadwalader, Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038. Cadwalader, Wickersham & Taft LLP also has acted as counsel for Morgan Stanley DW in connection with the offering of units. Cadwalader, Wickersham & Taft LLP may advise the general partner with respect to its responsibilities as general partner of, and with respect to matters relating to, the partnerships. EXPERTS The statements of financial condition of Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., and Morgan Stanley Spectrum Currency L.P., including the schedules of investments, as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003, as well as the statements of financial condition of Demeter Management Corporation as of November 30, 2003 and 2002 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and is included in reliance upon such report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP also acts as independent auditors for Morgan Stanley. WHERE YOU CAN FIND MORE INFORMATION The partnerships filed registration statements relating to the units registered with SEC. This prospectus is part of the registration statements, but the registration statements include additional information. You may read any of the registration statements, or obtain copies by paying prescribed charges, at the SEC's public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 233 Broadway, New York, New York 10279; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. For further information on the public reference rooms, please call the SEC at 1-800-SEC-0330. The registration statements are also available to the public from the SEC's Web site at "http://www.sec.gov." * Data as of November 30, 2003. ** Activity reported with regard to Currencies does not include trading activity which takes place on the Interbank forward currency market. A market participant can make a futures contract to buy or sell a commodity. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of the commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. For example, if we sell one contract of December 2004 wheat on a commodity exchange, we may fulfill the contract at any time prior to the December 2004 delivery date by purchasing one contract of December 2004 wheat on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical commodity. Options on Futures An option on a futures contract or on a physical commodity gives the buyer of the option the right to take a position of a specified amount at a specified price of a specific commodity (the "striking," "strike," or "exercise" price) in the underlying futures contract or commodity. The buyer of a "call" option acquires the right to take a long position (i.e., the obligation to take delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The buyer of a "put" option acquires the right to take a short position (i.e., the obligation to make delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The purchase price of an option is referred to as its "premium." The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Thus, the seller of a call option must stand ready to sell (take a short position in the underlying futures contract) at the striking price if the buyer should exercise the option. The seller of a put option, on the other hand, must stand ready to buy (take a long position in the underlying futures contract) at the striking price. A call option on a futures contract is said to be "in-the-money" if the striking price is below current market levels, and "out-of-the-money" if the striking price is above current market levels. Conversely, a put option on a futures contract is said to be "in-the-money" if the striking price is above current market levels, and "out-of-the-money" if the striking price is below current market levels. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract. An option that is out-of-the-money and not offset by the time it expires becomes worthless. Options usually trade at a premium above their intrinsic value (i.e., the difference between the market price for the underlying futures contract and the striking price), because the option trader is speculating on (or hedging against) future movements in the price of the underlying contract. As an option nears its expiration date, the market and intrinsic value typically move into parity. The difference between an option's intrinsic and market values is referred to as the "time value" of the option. See "Risk Factors Trading and Performance Risks Options trading can be more volatile than futures trading" beginning on page . Forward Contracts Contracts for the future delivery of certain commodities may also be made through banks or dealers pursuant to what are commonly referred to as "forward contracts." A forward contract is a contractual right to purchase or sell a specified quantity of a commodity at or before a specified date in the future at a specified price and, therefore, it is similar to a futures contract. In forward contract trading, a bank or dealer generally acts as principal in the transaction and includes its anticipated profit (the "spread" between the "bid" and the "asked" prices), and in some instances a mark-up, in the prices it quotes for forward contracts. Unlike futures contracts, forward contracts are not standardized contracts; rather, they are the subject of individual negotiation between the parties involved. Because there is no clearinghouse system applicable to forward contracts, forward contracts are not fungible, and there is no direct means of "offsetting" a forward contract by purchase of an offsetting position on the same exchange as one can a futures contract. In recent years, the terms of forward contracts have become more standardized and in some instances such contracts now provide a right of offset or cash settlement as an alternative to making delivery on the contract. See "Risk Factors Trading and Performance Risks The unregulated nature of the forwards markets creates counterparty risks that do not exist in futures trading on exchanges" on page . Hedgers and Speculators The two broad classes of persons who trade futures, forwards, and options contracts are "hedgers" and "speculators." Commercial interests, including farmers, that market or process commodities, and financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign currencies, and stocks, which are exposed to currency, interest rate, and stock market risks, may use the futures markets for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures, forwards, and options contracts. Speculators rarely take delivery of commodities, but rather close out their positions by entering into offsetting purchases or sales of futures, forwards, and options contracts. Since the speculator may take either a long or short position in the futures, forwards, and options markets, it is possible for him to make profits or incur losses regardless of whether prices go up or down. The partnerships will trade for speculative rather than for hedging purposes. Speculator or Hedger? A Tale of Two Investors A kite manufacturer from Iowa received an order for 30 million kites from a distributor in Tokyo. Delivery was to be made in 18 months and the manufacturer would be paid in yen. Since he couldn't possibly know what the dollar/yen exchange rate would be in 18 months, the kite manufacturer used futures contracts to hedge his currency risk and lock in an exchange rate. In that way, he guaranteed his price. There would be no surprises upon delivery. In selling away his risk, he acted as a hedger. At the same time, a managed futures fund trading advisor used a highly sophisticated trading program that indicated a favorable trend for the dollar vs. the yen. The advisor purchased a futures contract. If the advisor's program were reading the market trends accurately and the trend developed, he would sell the contract and earn a profit. In buying a contract for potential profit, he acted as a speculator. The moral of the story? Some use the futures markets to manage business risk and others to profit. Both are vital in this dynamic marketplace. Futures Exchanges Futures exchanges provide centralized market facilities for trading futures contracts and options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the New York Board of Trade. Each futures exchange in the United States has an associated "clearinghouse." Once trades between members of an exchange have been confirmed, the clearinghouse becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each trader's open position in the market. Thereafter, each party to a trade looks only to the clearinghouse for performance. The clearinghouse generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer that enables the clearinghouse to meet its obligations with regard to the "other side" of an insolvent clearing member's contracts. Clearinghouses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearinghouses is to ensure the integrity of trades, and members effecting futures transactions on an organized exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their commodity broker and the clearinghouse. Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast to United States exchanges, certain foreign exchanges are "principals' markets," where trades remain the liability of the traders involved, and the exchange does not become substituted for any party. See "Regulations" below and "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Speculative Position Limits The CFTC and U.S. futures exchanges have established limits, referred to as "speculative position limits" or "position limits," on the maximum net long or net short speculative position that any person or group of persons (other than a hedger, which the partnerships are not) may hold, own, or control in certain futures or options contracts. Among the purposes of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. The CFTC has jurisdiction to establish position limits with respect to all commodities and has established position limits for all agricultural commodities. In addition, the CFTC requires each United States exchange to submit position limits for all commodities traded on such exchange for approval by the CFTC. However, position limits do not apply to many currency futures contracts. Position limits do not apply to forward contract trading or generally to trading on foreign exchanges. See "Risk Factors Trading and Performance Risks The partnerships are subject to speculative position limits" on page . Daily Limits Most United States futures exchanges (but generally not foreign exchanges or banks or dealers in the case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as "daily price fluctuation limits" or more commonly "daily limits." The daily limits establish the maximum amount that the price of a futures or options contract may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular futures or options market, no trades may be made at a price beyond the limit. See "Risk Factors Trading and Performance Risks Market illiquidity may cause less favorable trade prices" on page . Regulations Futures exchanges in the United States are subject to regulation under the Commodity Exchange Act by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. The CFTC also regulates the activities of "commodity trading advisors" and "commodity pool operators" and has adopted regulations with respect to certain of such persons' activities. The CFTC requires a commodity pool operator (such as the general partner) to keep accurate, current, and orderly records with respect to each pool it operates. The CFTC may suspend the registration of a commodity pool operator if the CFTC finds that the operator has violated the Commodity Exchange Act or regulations thereunder and in certain other circumstances. Suspension, restriction, or termination of the general partner's registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the partnerships. The Commodity Exchange Act gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the trading advisors. If the registration of a trading advisor as a commodity trading advisor were to be terminated, restricted, or suspended, the trading advisor would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the relevant partnership. The partnerships themselves are not registered with the CFTC in any capacity. The Commodity Exchange Act requires all "futures commission merchants," such as Morgan Stanley DW and Morgan Stanley & Co., to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers' funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. The partnerships have no present intention of using any introducing brokers in their trading. The Commodity Exchange Act also gives the states certain powers to enforce its provisions and the regulations of the CFTC. You are afforded certain rights for reparations under the Commodity Exchange Act. You may also be able to maintain a private right of action for certain violations of the Commodity Exchange Act. The CFTC has adopted rules implementing the reparation provisions of the Commodity Exchange Act which provide that any person may file a complaint for a reparations award with the CFTC for violation of the Commodity Exchange Act against a floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons. Pursuant to authority in the Commodity Exchange Act, the National Futures Association has been formed and registered with the CFTC as a "registered futures association." At the present time, the National Futures Association is the only non-exchange self-regulatory organization for commodities professionals. National Futures Association members are subject to National Futures Association standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the National Futures Association promulgates rules governing the conduct of commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the National Futures Association responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers, and their respective associated persons and floor brokers. Morgan Stanley DW, the general partner, Morgan Stanley & Co., and the trading advisors are all members of the National Futures Association (the partnerships themselves are not required to become members of the National Futures Association). The CFTC has no authority to regulate trading on foreign commodity exchanges and markets. See "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Margins "Initial" or "original" margin is the minimum amount of funds that a futures trader must deposit with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. "Maintenance" margin is the amount (generally less than initial margin) to which a trader's account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps assure the futures trader's performance of the futures contracts he purchases or sells. Futures contracts are customarily bought and sold on margins that represent a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded, and may be modified from time to time by the exchange during the term of the contract. See "Risk Factors Trading and Performance Risks The partnerships' trading is highly leveraged" on page . Brokerage firms, such as Morgan Stanley DW, Morgan Stanley & Co., and Morgan Stanley International, carrying accounts for traders in futures contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves. The commodity brokers presently intend to require each partnership to make margin deposits equal to the exchange minimum levels for all futures contracts. Trading in the currency forward contract market does not require margin, but generally does require the extension of credit by a bank or dealer to those with whom the bank or dealer trades. Since each partnership's trading will be conducted through a commodity broker, each partnership will be able to take advantage of the commodity brokers' credit lines with several participants in the interbank market. The commodity brokers will require margin with respect to a partnership's trading of currency forward contracts. Margin requirements are computed each day by a trader's commodity broker. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the trader's position. With respect to a partnership's trading, that partnership, and not its limited partners personally or any other partnership, will be subject to margin calls. POTENTIAL ADVANTAGES Developing a comprehensive financial plan entails evaluating options and acting upon those options. In this fast-paced and ever-changing financial environment, selecting from the broad array of investments available can be difficult and time-consuming. Astute investors often turn to professional money managers for the expertise and guidance needed to map out a successful investment strategy. Morgan Stanley, a global leader in financial management, has developed the Spectrum Series of partnerships to provide professional money management in the futures, forwards, and options markets. An investment in a partnership is speculative and involves a high degree of risk. The general partner and Morgan Stanley DW believe that managed futures investments (such as the partnerships) can provide you with the potential for long-term capital appreciation (with commensurate risk), but are appropriate only for the aggressive growth portion of your comprehensive financial plan. See "Risk Factors" beginning on page . Taking the risks into consideration, this investment does offer the following potential advantages. Investment Diversification If you are not prepared to make a significant investment or spend substantial time trading various futures, forwards, and options, you may still participate in these markets through an investment in a Spectrum Series partnership, obtaining diversification from more traditional investments in stocks, bonds, and real estate. The general partner believes, on the basis of the past experience of the partnerships, that the profit potential of a partnership does not depend upon favorable general economic conditions, and that a partnership is as likely to be profitable during periods of declining stock, bond, and real estate markets as at any other time; conversely, a partnership may be unprofitable during periods of generally favorable economic conditions. Managed futures investments can serve to diversify your portfolio and smooth overall portfolio volatility. Modern Portfolio Theory is the academic affirmation of the value of diversification. Modern Portfolio Theory was developed in the 1950s by Nobel Laureates William Sharpe and Harold Markowitz. These two pioneers developed a framework for efficiently diversifying assets within a portfolio. They suggested that investing in any asset class with positive returns and low correlation to other assets improves the overall risk/reward characteristics of the entire portfolio. In 1983, Dr. John H. Lintner of Harvard University focused on the concepts of Modern Portfolio Theory in a study about portfolio diversification. Specifically, Modern Portfolio Theory was utilized to evaluate the addition of a managed futures component to a diversified portfolio comprised of 60% stocks and 40% bonds. The results of Lintner's work demonstrated that by including a variety of assets, such as commodities, in a hypothetical portfolio, an investor may lower the portfolio's overall volatility or risk. Lintner's findings were further supported by the works of Dr. Thomas Schneeweis of the University of Massachusetts, Amherst, in his 1999 study, "The Benefits of Managed Futures." Dr. Schneeweis concluded that "while ... the correlation between managed futures and most traditional investments is approximately zero, when asset returns are segmented according to whether the traditional asset rose or fell, managed futures are often negatively correlated in months when traditional asset returns are negative while being positively correlated when traditional asset returns are positive." The partnerships' combined benefits of growth potential (with commensurate risk) and diversification can potentially reduce the overall volatility of your portfolio, while increasing profits. Whether you are able to lower the overall volatility of your portfolio with managed futures investments will depend in part on the characteristics of your portfolio. Depending on these characteristics, the addition of a managed futures investment could increase or decrease the overall volatility and risk of your portfolio. By combining asset classes, you may create a portfolio mix that provides the potential to offer the greatest possible return within acceptable levels of volatility. While past performance is no guarantee of future results, managed futures investments, such as the partnerships, may profit (with commensurate risk) from futures, forwards, and options market moves, with the potential to enhance your overall portfolio. The trading advisors' speculative trading techniques will be the primary factor in the partnerships' success or failure. You should note that there are always two parties to a futures, forward, or option contract; consequently, for any gain achieved by one party on a contract, a corresponding loss is suffered. Therefore, due to the nature of futures, forwards, and options trading, only 50% of contract interests held by all market participants can experience gain at any one time. Brokerage commissions and other costs of trading may reduce or eliminate any gain that would otherwise be achieved. Few stock and bond investors sell short, so most benefit only when prices are rising. However, managed futures investors profit when they accurately identify sustainable trends, up or down. Thus, whether the futures and forwards markets are rising or declining, managed futures may generate attractive returns. They can, in turn, lose money in either direction as well. The first step toward a sound financial future is to establish your investment objectives. Based on your financial goals, requirements, and investment preferences, your Morgan Stanley financial advisor can help you determine the combination of asset classes as well as the type of trading advisor(s) that most suits your investment profile. Asset allocation is the next critical step to help you achieve your investment objectives. Asset allocation refers to the division of investment dollars over a variety of asset classes in order to reduce overall volatility through portfolio diversification, while increasing the long-term performance potential of an investment portfolio. A fully diversified portfolio should contain cash, income, growth, and aggressive growth investments. % % % % % % % 1980 32.5 (2.8 ) (0.3 ) 24.4 27.7 63.7 N/A 1981 (4.9 ) 1.1 2.7 (1.0 ) (3.3 ) 23.9 N/A 1982 21.5 41.1 37.2 (0.9 ) 11.3 16.7 N/A 1983 22.6 1.8 8.9 24.6 23.3 23.8 N/A 1984 6.3 14.7 16.1 7.9 5.8 8.7 1.4 1985 31.7 32.0 25.0 56.7 41.8 25.5 21.9 1986 18.7 24.1 17.0 69.9 42.8 3.8 (14.4 ) 1987 5.3 (2.7 ) 2.1 24.9 16.8 57.3 43.1 1988 16.6 9.2 9.5 28.6 23.9 21.8 7.3 1989 31.7 18.9 14.0 10.8 17.2 1.8 4.7 1990 (3.1 ) 4.6 7.3 (23.2 ) (16.5 ) 21.0 14.2 1991 30.5 17.9 18.5 12.5 19.0 3.7 10.0 1992 7.6 7.8 8.9 (11.8 ) (4.7 ) (0.9 ) (1.4 ) 1993 10.1 16.4 12.1 32.9 23.1 10.4 10.7 1994 1.3 (6.9 ) (3.5 ) 8.1 5.6 (0.7 ) (7.7 ) 1995 37.6 30.7 21.7 11.6 21.3 13.7 13.9 1996 23.0 (0.4 ) 3.3 6.4 14.0 9.1 9.8 1997 33.4 14.9 10.2 2.1 16.2 10.9 7.6 1998 28.6 13.5 8.6 20.3 24.8 7.0 7.9 1999 21.0 (8.7 ) (1.6 ) 27.3 25.3 (1.2 ) (1.4 ) 2000 (9.1 ) 20.1 9.3 (14.0 ) (12.9 ) 7.9 4.7 2001 (11.9 ) 4.6 10.9 (21.2 ) (16.5 ) 0.8 (0.1 ) 2002 (22.1 ) 17.2 9.4 (15.7 ) (19.6 ) 12.4 14.3 2003 28.7 2.1 8.7 39.2 33.8 8.6 11.6 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Annual Returns of Various Asset Classes Over Time" Table: For the analyses used in this table, the performance of independent indices has been used to represent seven asset classes: U.S. stocks, U.S. Treasury bonds, U.S. corporate bonds, international stocks, global stocks, managed futures, and public managed futures funds. The respective indices used are the Standard and Poor's 500 Stock Index, the Lehman Brothers Treasury Bond Index, the Citigroup Corporate Bond Index, the Morgan Stanley Capital International ("MSCI") EAFE Index, the MSCI World Index, the Barclay CTA Index, and the CISDM Public Fund Index. The S&P 500 Index and the Citigroup Corporate Bond Index are compiled assuming dividends and interest are re-invested. The S&P 500 Index is based on a portfolio of 500 stocks (consisting of 23 energy, 34 materials, 66 industrials, 89 consumer discretionary, 34 consumer staples, 48 health care, 82 financials, 75 information technology, 12 telecom services, and 37 utilities). The weights of the stocks in the portfolio at a given time reflect the stocks' total market capitalization. The S&P 500 Index accounts for approximately 80% of the market capitalization of all stocks listed on the New York Stock Exchange. The Lehman Brothers Treasury Bond Index consists of all existing U.S. Treasury bond issues. The Citigroup Corporate Bond Index is a benchmark of investment grade fixed rate corporate issues with maturities of at least one year and in minimum outstanding amounts of $100 million. The corporate issues encompass such industry sectors as Manufacturing, Service, Energy, Consumer, Transportation, Industrial-Other, Utility, and Finance. The MSCI EAFE Index is comprised of approximately 1,000 companies, representing a market structure of 21 European and Pacific based countries covering 59 industries. The index is used to represent international equities. The MSCI World Index is comprised of more than 1,500 companies, representing a market structure of 23 countries around the world. The index is used to represent global equities, including U.S. and Canadian markets. The Barclay CTA Index provides a benchmark of performance of commodity trading advisors. In order to qualify for inclusion in the Barclay CTA Index, a commodity trading advisor must meet the following criteria: (1) the commodity trading advisor must have four years of prior performance history; and (2) in cases where a commodity trading advisor who is in the Barclay CTA Index introduces an additional program, this additional program is added to the Index only after its second year of trading. In 2003, there were 386 commodity trading advisor programs which were included in the calculation of the Barclay CTA Index. The CISDM Public Fund Index averages managed futures fund performance for public funds. CISDM indices are dollar or equity weighted to reflect performance. To qualify for inclusion in CISDM's fund indices, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restriction on the funds and/or pools that it tracks. As of December 31, 2003, there were 55 public funds included in the calculation of the CISDM Public Fund Index. The S&P 500 Index, Citigroup Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The MSCI World Index performance data for global stocks are provided by Morgan Stanley Capital International Inc., New York, NY. The Lehman Brothers Treasury Bond Index and the Barclay CTA Index performance data for U.S. Treasury bonds and managed futures, respectively, are provided by the Barclay Trading Group Ltd., Fairfield, IA. The CISDM Public Fund Index performance data for public managed futures funds was provided by Managed Account Reports, LLC, New York, NY. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index and the CISDM Public Fund Index reflect results net of actual fees and expenses, the Barclay CTA Index includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships), and the CISDM Public Fund Index includes funds with trading advisors and fee structures that differ from the partnerships. Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index and the public managed futures funds included in the CISDM Public Fund Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, and the CISDM Public Fund Index is believed to be representative of public managed futures funds in general, the performance of the partnerships may differ from the performance reflected in such indices. Correlation to Traditional Investments Managed futures have historically demonstrated the ability to perform independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation, or the potential for managed futures to perform when traditional markets such as stocks and bonds may experience difficulty performing. Of course, managed futures funds will not automatically be profitable during unfavorable periods for these traditional investments, and vice versa. The degree of non-correlation of any given managed futures fund will vary, particularly as a result of market conditions, and some funds will have a significantly lesser degree of non-correlation (i.e., greater correlation) with stocks and bonds than others. To the extent the performance of managed futures and the performance of traditional markets are non-correlated, managed futures may or may not perform as well when traditional markets are performing well. Spectrum Global Balanced, a fund whose trading strategy is to offer a balanced portfolio through exposure to the stock and bond markets in addition to the futures markets, should be distinguished from other managed futures funds. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley DW offers. The factors that influence the stock and bond markets can affect the futures markets in different ways and to varying degrees. In this connection, an article in the June 8, 1998 issue of Business Week, "Commodities are Cheap Time to Leap?" discusses the risks and potential rewards of investing in managed futures funds, noting the low correlation of their performance to stocks and bonds. The following charts were prepared by the general partner to illustrate the correlation of the performance results of each partnership to that of the S&P 500 Index and the Citigroup Corporate Bond Index. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Correlation measures how closely related two data series are, in this case, returns on asset classes. More specifically, the correlation coefficient measures the direction and extent of the linear relationship between two data series. Correlation coefficient values range from 1 to -1. A value greater than 0 implies a positive linear relationship (positive correlation). A value less than 0 implies an inverse linear relationship (negative correlation). A value of 0 implies no linear relationship (no correlation). The following tables and charts were prepared by the general partner to illustrate the correlation coefficient of each partnership's performance results to those of the S&P 500 Index and the Citigroup Corporate Bond Index for the periods specified. The charts also show the number of months the monthly returns of the partnerships were positive or negative with, or different from, the monthly returns of these two indices. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Capsule IV Performance of Spectrum Global Balanced Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $99,792,833 Current capitalization: $52,639,493 Current net asset value per unit: $15.47 Worst monthly % drawdown past five years: (4.99)% (May 1999) Worst monthly % drawdown since inception: (7.92)% (February 1996) Worst month-end peak-to-valley drawdown past five years: (12.44)% (44 months, May 1999-December 2002) Worst month-end peak-to-valley drawdown since inception: (12.44)% (44 months, May 1999-December 2002) Cumulative return since inception: 54.70% Monthly Performance Data: 149 months of trading from August 1991 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Month Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following chart was prepared by the general partner to illustrate the performance of managed futures against that of stocks from January 1980 through December 31, 2003, using the recognized market indices of each asset. Each bar shows index returns during successive 12-month holding periods. The Notes on the next page are an integral part of the following chart. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Managed Futures vs. Stocks" Table: Stocks are represented by the S&P 500 Index, provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by Barclay Trading Group Ltd., Fairfield, IA. Each bar represents the asset class performance derived from successive 12-month hypothetical holding periods or windows. (A 12-month holding period is defined as a period of 12 consecutive months, e.g., from January 1989 to December 1989; the next would be from February 1989 to January 1990, etc.) Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. By overlaying returns, investors can see the potential benefits of a diversified portfolio that includes both traditional and alternative investments. There are many times when both the managed futures and stock indices showed positive performance. Obviously, though, there is no investment that only appreciates. There are 35 periods when managed futures showed negative returns, while stocks experienced 58 periods of negative returns during the studied time frame. While not a guarantee of future results, this chart provides a clear indication of the non-correlated aspect of managed futures. This non-correlation enables investors with managed futures to potentially lower the overall volatility of their portfolios. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. The diversification story supporting managed futures is compelling, as the chart below shows. Since 1980, in every instance where stocks or bonds have declined more than 10%, the managed futures index has risen. Managed Futures vs. Stocks All instances since 1980 where the S&P 500 Index declined more than 10% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Managed Futures vs. Bonds All instances since 1980 where the Citigroup Corporate Bond Index declined more than 10% Data: January 1980 - December 2003. Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index provided by Strategic Financial Solutions, LLC (Memphis, TN) and monthly returns for the Barclay CTA Index provided by Barclay Trading Group Ltd. (Fairfield, IA). Managed futures investments do not replace equities or bonds but rather act as a complement to help smooth overall portfolio returns. Managed Futures data reflects the fee structure of commodity trading advisors managing individual accounts and does not reflect fee structures of commodity pools, which are typically higher. The following chart was prepared by the general partner to illustrate the risk/return characteristics of a portfolio consisting of different combinations of domestic stocks, corporate bonds, international equities, and/or managed futures, based on the performance of recognized market indices of each asset over the period January 1980 December 2003. The Notes on the next page are an integral part of the following chart. Improved Portfolio Efficiency January 1980 through December 2003 U.S. Stocks/Bonds/International Equities/Managed Futures Notes to "Improved Portfolio Efficiency" Table on prior page: Stocks are represented by the S&P 500 Index, corporate bonds are represented by the Citigroup Corporate Bond Index, and international equities are represented by the MSCI EAFE Index, each provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by the Barclay Trading Group Ltd., Fairfield, IA. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Professional Management Professional money management is one of the most significant benefits a managed futures investment can offer. A professional trading advisor has several advantages over an individual investor. Capitalization The trading advisors and funds are well capitalized, enabling the advisors to effectively manage assets in the face of market volatility. Disciplined Trading Strategy Each advisor has its own researched trading strategy, with strict money management policies Planned Strategy Trading advisors research and design trading strategies that seek to provide long-term profit potential. Risk Control Trading advisors apply risk management strategies based on years of research and experience. Research and Development The advisors are committed to ongoing research and development, in an effort to continuously improve upon existing systems and technology in order to keep pace with industry developments and potentially capitalize on market opportunities as they occur. In considering the advantages of utilizing a professional trading advisor, you also should consider the fees a trading advisor will be paid to manage a partnership's account. Depending on the partnership, the annual management fees range from 1.25% to 3.0% of the average month-end net assets of a partnership managed by the trading advisor, and incentive fees range from 15.0% to 20.0% of trading profits. The Trading Advisor Selection Process The general partner has carefully selected the advisors responsible for managing the Spectrum Series utilizing a quantitative and qualitative due diligence process. In addition, the general partner examines trading activity and performance reports daily and conducts on-site due diligence visits and ongoing research and development. Each of the trading advisors for the partnerships was chosen by the general partner based upon a strict selection process, including such criteria as performance history, experience, personnel, and due diligence. The performance history and trading experience of the trading advisors chosen for the partnerships span a range of 5 to 25 years, and each trading advisor employs experienced personnel. Additionally, the general partner monitors daily each trading advisor's activities on behalf of a partnership and periodically conducts on-site due diligence visits to remain abreast of each trading advisor's continuing efforts toward research and development. This selection process is described below. In order for a trading advisor to be selected by the general partner, a qualitative and quantitative due diligence process is undertaken, considering the factors described below. The general partner's primary objective in the selection process is to allocate assets to trading advisors with well-established performance histories and whom it believes have the potential to continue to be successful in the future. Monitoring is an important second phase in the due diligence process. The general partner has invested significant resources into its proprietary Fund Management System, a comprehensive computerized management system. This sophisticated system produces daily control reports generated from actual trading data and enables the general partner to closely monitor the activity and performance of trading advisors relative to their historical profile. Monitoring also occurs on a periodic basis by discussing with the trading advisors their performance relative to profile and peer trading advisors, recent market conditions, and trading opportunities. Ongoing research and development and continued on-site due diligence visits are conducted. While the due diligence process cannot guarantee future success, the general partner believes the process can provide the basis for sound decision-making and can increase the potential for future success. Trading Advisor Evaluation and Selection Screening Trading advisors are screened from a pool of approximately 400. Evaluation Trading advisors are categorized and evaluated based on quantitative and qualitative factors. Selection Trading advisors are selected based on quantitative and qualitative analysis. Monitoring Daily and periodic monitoring and reporting takes place on an ongoing basis. Ruble Hang Seng Index Government Bonds Nikkei 225 Yen 3-year & 10-year bonds All Ordinaries Index Dollar Cocoa Coffee Corn Cotton Feeder cattle Lean hogs Live cattle Lumber Oats Orange juice Pork bellies Rubber Soybean meal Soybean oil Soybeans Sugar Wheat Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Hong Kong dollar Japanese yen Korean won Mexican peso New Zealand dollar Norwegian krone Philippine peso Singapore dollar South African rand Swedish krona Swiss franc U.S. dollar All Ordinaries CAC 40 DAX Dow Jones Industrial FTSE 100 Hang Seng IBEX-35 Plus MIB 30 NASDAQ 100 Nikkei 225 NYSE Composite Russell 2000 S&P Canada 60 S&P 500 Taiwan Stock Index Topix Stock Index INTEREST RATES Australian Bank Bill Australian T-Bond British Long Gilt British Short Sterling Canadian Bankers Acceptances Canadian Government Bond Euro Bond Eurodollar Euribor Euroyen Japanese Government Bond Muni Bond Index New Zealand Bill Spanish Government Bond Swiss Government Bond U.S. T-Bond U.S. T-Note METALS Aluminum Copper Gold Lead Nickel Palladium Platinum Silver Tin Zinc ENERGIES Brent crude oil Crude oil Gas oil Heating oil Natural gas Unleaded gas Each partnership normally trades a portfolio of diverse futures, forwards, and options, but may trade a greater or lesser number of futures, forwards, and options from time to time. Each limited partner will obtain greater diversification in futures, forwards, and options traded than would be possible trading individually, unless substantially more than the minimum investment described herein were committed to the futures, forwards, and options markets. Exchange Right At the sixth month-end after a person first becomes a limited partner in any of the Spectrum Series partnerships, and each calendar month thereafter, a limited partner may shift his investment among the partnerships. This permits a limited partner to select one or more partnerships which best suit his investment needs and objectives, which may change from time to time. A limited partner is not required to pay any redemption charges in connection with a Spectrum Series exchange. Diversified Professional Trading Management Trading decisions for each partnership will be made by trading advisors retained by the general partner. The trading approaches employed on behalf of each partnership by its trading advisors are not available for investments as small as the required minimum investment in each partnership. A limited partner's investment in each partnership is allocated among the trading advisors for such partnership. This permits a limited partner to receive the benefits from different trading systems being employed by such partnership. A limited partner can further diversify his professional trading management by dividing his investment among one or more of the partnerships. For example, an investor owning units of all five partnerships in the Spectrum Series would have the benefit of having his investment managed by eleven trading advisors. Limited Liability Unlike an individual who invests directly in futures, forwards, and options, an investor in a partnership cannot be individually subject to margin calls and cannot lose more than the amount of his/her unredeemed capital contribution, his/her share of undistributed profits, if any, and, under certain circumstances, any distributions and amounts received upon redemption, or deemed received on an exchange of units, and interest thereon. Interest Income Many commodity brokers permit accounts above a certain size to deposit margin for futures, forwards, and options in the form of interest-bearing obligations, such as U.S. Treasury bills, rather than cash, thus enabling the account to earn interest on funds being used for futures trading, or such brokers pay interest at U.S. Treasury bill rates on a portion of the cash deposited in the account. Each partnership deposits its assets in separate commodity trading accounts with the commodity brokers. Morgan Stanley DW credits each partnership at each month-end with interest income as if 80% (100%, in the case of Spectrum Global Balanced) of each partnership's average daily net assets for the month were invested at a prevailing rate on U.S. Treasury bills. Generally, an individual trader would not receive any interest on the funds in his commodity account unless he committed substantially more than the minimum investment required for the partnerships. While the partnerships are credited with interest by Morgan Stanley DW on the respective percentage of their assets deposited as margin as described above, the form of margin posted, whether cash or interest-bearing obligations (such as U.S. Treasury bills), does not reduce the risks inherent in the trading of futures, forwards, and options. Administrative Convenience The partnerships are structured so as to provide limited partners with numerous services designed to alleviate the administrative details involved in engaging directly in futures, forwards, and options trading, including monthly and annual financial reports (showing, among other things, the net asset value of a unit, trading profits or losses, and expenses), and all tax information relating to the partnerships necessary for limited partners to complete their federal income tax returns. SUPPLEMENTAL PERFORMANCE INFORMATION The tables on the following pages contain summary performance information and certain other data for each partnership, supplementing the information in Part I of this prospectus. MORGAN STANLEY SPECTRUM SELECT L.P. All of the performance data below is through December 31, 2003. SPECTRUM SELECT STATISTICS Trading Advisors: EMC Capital Management, Inc. Graham Capital Management, L.P. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Began Trading: August 1, 1991 Total Assets in Fund: $441.5 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets of Graham, 1/12 of 3.00% of Beg. Net Assets of EMC, Northfield, Rabar, and Sunrise Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits to EMC, Northfield, Rabar, and Sunrise, and 20% to Graham Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.34% Standard Deviation of Monthly Returns: 6.85% Annualized Standard Deviation: 23.74% Sharpe Ratio: 0.22 Sortino Ratio: 0.49 Largest Decline Period (6/95 - 8/96): -26.77% Average Recovery (No. of months): 5.75 Average Monthly Loss: -4.18% Standard Deviation of Monthly Loss: 3.14% % of Losing Months: 47.33% Average Monthly Gain: 5.58% Standard Deviation of Monthly Gain: 5.89% % of Winning Months: 52.67% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Select uses the technically-based, aggressive, trend-following trading systems of EMC Capital Management, Inc., Graham Capital Management, L.P., Northfield Trading L.P., Rabar Market Research, Inc., and Sunrise Capital Management, Inc., to participate in a diversified portfolio of futures and currency markets. EMC uses an aggressive systematic trading approach that blends several independent methodologies designed to identify emerging trends and follow existing trends. This program seeks significant returns in favorable market periods, while accepting a commensurate decline in unfavorable market cycles. Northfield uses a purely technical approach utilizing price action itself as analyzed by clients, numerical indicators, pattern recognition, or other techniques designed to provide information about market direction. Rabar uses a systematic approach with discretion, limiting the equity committed to each trade, market and sector. Rabar's trading program uses constant research and analysis of market behavior. Sunrise's investment approach attempts to detect a trend, or lack of a trend, with respect to a particular market by analyzing price movement and volatility over time. Sunrise's trading system consists of multiple, independent and parallel systems, each designed to seek out and extract different market inefficiencies over different time horizons. Graham's trading programs rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's programs are based on the expectation that they can, over time, successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Soybeans Soybean meal Soybean oil Wheat STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index U.S. Dollar Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Japanese yen Mexican peso New Zealand dollar South African rand Singapore dollar Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc ENERGIES Crude oil Heating oil Natural gas Unleaded gas SOFTS Cocoa Coffee Cotton Orange Juice Sugar INTEREST RATES Australian bonds British bonds Canadian bonds Eurodollar German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % % % % % % % % % % January 0.34 (1.23 ) 0.55 (0.93 ) (0.06 ) 2.25 3.35 0.41 1.32 February 2.67 (1.69 ) (3.36 ) 0.94 (0.06 ) 1.49 3.16 (7.92 ) 4.62 March (2.60 ) 0.25 2.91 3.10 0.00 2.24 (2.50 ) (1.08 ) 2.88 April 2.19 (2.09 ) (0.31 ) (4.57 ) 4.13 (1.78 ) (1.65 ) 1.27 2.15 May 4.89 (0.19 ) 0.25 (1.32 ) (4.99 ) (0.35 ) 1.68 (3.13 ) 4.38 June (0.19 ) 1.30 (3.08 ) (0.26 ) 2.28 0.00 3.64 0.46 0.79 July (1.09 ) (0.83 ) 0.00 (2.18 ) (1.67 ) (1.19 ) 11.89 0.83 (1.39 ) August 0.00 0.97 0.51 3.01 (0.19 ) 2.55 (5.92 ) (0.82 ) (1.41 ) September (1.16 ) (4.16 ) (1.20 ) (3.94 ) (0.50 ) 5.11 3.26 2.30 1.61 October (0.92 ) (0.80 ) 2.75 2.25 (1.77 ) 1.18 (1.69 ) 3.77 0.26 November (1.32 ) 2.08 (0.06 ) (0.52 ) 1.93 2.66 (0.37 ) 4.76 2.72 (0.50 ) December 3.48 (4.02 ) 0.93 5.79 1.96 1.27 3.07 (3.88 ) 2.99 (1.21 ) Compound Annual/ Period Rate of Return 6.18 (10.12 ) (0.31 ) 0.87 0.75 16.36 18.23 (3.65 ) 22.79 (1.70 ) (2 months) Capsule V Performance of Spectrum Currency Type of pool: publicly-offered fund Inception of trading: July 2000 Aggregate subscriptions: $185,569,503 Current capitalization: $190,055,920 Current net asset value per unit: $15.66 Worst monthly % drawdown: (5.91)% (July 2001) Worst month-end peak-to-valley drawdown: (11.13)% (5 months, July 2002-November 2002) Cumulative return since inception: 56.60% Monthly Performance Spectrum Select 1.00 0.89 -0.07 0.28 -0.01 CISDM Public Fund Index 1.00 -0.10 0.33 -0.05 S & P 500 Index 1.00 0.20 0.69 Citigroup Corporate Bond Index 1.00 0.10 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Month MORGAN STANLEY SPECTRUM TECHNICAL L.P. All of the performance data below is through December 31, 2003. SPECTRUM TECHNICAL STATISTICS Trading Advisors: Campbell & Company, Inc. Chesapeake Capital Corporation John W. Henry & Company, Inc. Winton Capital Management Limited Began Trading: November 1, 1994 Total Assets in Fund: $538.2 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets to JWH and Winton, 1/12 of 3.00% to Campbell and Chesapeake Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits to Campbell, JWH and Winton, 19.00% to Chesapeake Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.33% Standard Deviation of Monthly Returns: 5.55% Annualized Standard Deviation: 19.22% Sharpe Ratio: 0.28 Sortino Ratio: 0.50 Largest Decline Period (4/01 - 4/02): -26.56% Average Recovery (No. of months): 2.93 Average Monthly Loss: -3.72% Standard Deviation of Monthly Loss: 3.09% % of Losing Months: 47.27% Average Monthly Gain: 5.03% Standard Deviation of Monthly Gain: 3.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Technical is managed by Campbell & Company, Inc., Chesapeake Capital Corporation, John W. Henry & Company, Inc. and Winton Capital Management Limited. These four Trading Advisors employ a combination of investment approaches. Campbell uses a highly disciplined systematic investment approach designed to detect and react to price movements in the futures and forward markets. Campbell's core systematic approach has been used successfully for over twenty years. The trading methodology employed by Chesapeake is based on the analysis of interrelated mathematical and statistical formulas, including the technical analysis of historical data, used to determine optimal price support and resistance levels and market entry and exit points. This trading system was designed in the 1980's and is continually updated based on research. JWH's trading programs use historical data and proprietary systems to detect emerging price trends. Positions are established under strict guidelines and are retained in markets where price movements have exceeded the expectations of most fundamental investors. Winton employs a computerized, technical, trend following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Feeder cattle Lean hogs Live cattle Pork bellies Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Cotton Orange juice Sugar ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Indonesian rupiah Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index Swedish Index Taiwan Index Toronto Index INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar German bonds Japanese bonds Spanish bonds Swiss bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Technical 1.00 0.95 -0.19 0.25 -0.14 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM STRATEGIC L.P. All of the performance data below is through December 31, 2003. SPECTRUM STRATEGIC STATISTICS Trading Advisors: Allied Irish Capital Management, Ltd. Blenheim Capital Management, LLC Eclipse Capital Management, Inc. Began Trading: November 1, 1994 Total Assets in Fund: $121.3 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Fundamental RISK ANALYSIS Compounded Annual Rate of Return: 3.99% Standard Deviation of Monthly Returns: 6.46% Annualized Standard Deviation: 22.38% Sharpe Ratio: 0.00 Sortino Ratio: 0.00 Largest Decline Period (1/00 - 10/00): -43.28% Average Recovery (No. of months): 13.13 Average Monthly Loss: -4.54% Standard Deviation of Monthly Loss: 3.87% % of Losing Months: 47.27% Average Monthly Gain: 5.08% Standard Deviation of Monthly Gain: 4.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Strategic is managed by Allied Irish Capital Management, Ltd., Blenheim Capital Management, LLC and Eclipse Capital Management, Inc. All three trading advisors employ a fundamental investment approach that evaluates key economic indicators such as supply and demand levels and geopolitical conditions, as well as certain technical factors. Allied Irish employs multiple investment professionals using a discretionary trading approach. Several strategies are applied to investments in a broad range of financial instruments. Blenheim's program has a strong global concentration using a discretionary trading approach. Investments are made in markets in which the trading advisor has a clear understanding of fundamental factors and geopolitical forces that influence price behavior. Eclipse employs a systematic trading approach using multiple trend-following and macroeconomic-driven models. A key characteristic of the Eclipse trading program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Lumber Sugar FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Swiss franc METALS Aluminum Copper Gold Nickel Silver Zinc ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas STOCK INDICES CAC 40 Index DAX Index FTSE Index NASDAQ 100 Index Nikkei Index S&P 500 Index INTEREST RATES British bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic 1.00 0.56 -0.03 0.06 0.05 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. All of the performance data below is through December 31, 2003. SPECTRUM GLOBAL BALANCED STATISTICS Trading Advisor: SSARIS Advisors, LLC Began Trading: November 1, 1994 Total Assets in Fund: $52.6 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 1.25% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 4.88% Standard Deviation of Monthly Returns: 2.73% Annualized Standard Deviation: 9.46% Sharpe Ratio: 0.09 Sortino Ratio: 0.15 Largest Decline Period (5/99 - 12/02): -12.44% Average Recovery (No. of months): 6.67 Average Monthly Loss: -1.80% Standard Deviation of Monthly Loss: 1.68% % of Losing Months: 45.45% Average Monthly Gain: 2.30% Standard Deviation of Monthly Gain: 1.92% % of Winning Months: 54.55% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Global Balanced follows the tenets of Modern Portfolio Theory and offers a balanced portfolio that participates in global stocks, global bonds, and alternative investments within managed futures. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley offers. Within global stock and global bond components of the fund, SSARIS Advisors, LLC analyzes various fundamental information, such as growth data, labor wage rates, central bank interest rate policies and inflation, to determine its approaches to these markets. Within the global currency and commodity components of the Fund, SSARIS employs a technical trend-following trading system to analyze price data, determine profit and risk potential and initiate trades overall. SSARIS uses a computer-based model to reallocate assets among various market sectors within each of the independent strategies. The returns achieved by Spectrum Global Balanced will tend to be more highly correlated to the performance of global stock and global bond markets than will be the returns derived within other funds in the Spectrum Series. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybean oil Wheat SOFTS Cotton Sugar ENERGIES Crude oil Gas oil Natural gas METALS Copper Nickel Zinc STOCK INDICES DAX Index FTSE Index Nikkei 225 Index S&P 500 Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Mexican peso New Zealand dollar Singapore dollar Swiss franc INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SEC registration fee 93,397 NASD filing fee 30,500 Printing and engraving 58,333 * Legal fees and expenses, excluding Blue Sky legal fees 30,000 * Accounting fees and expenses 13,333 * Annual Escrow Agent fees Spectrum Global Balanced 1.00 0.56 0.47 0.47 0.37 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index (EAFE) 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Markets traded may include, but are not limited to, the following: FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Greek drachma Hong Kong dollar Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc Thai baht PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SELECTED FINANCIAL DATA AND SELECTED QUARTERLY FINANCIAL DATA The following are the results of operations and selected quarterly financial data for each partnership for the periods indicated. Per unit results for Spectrum Select have been adjusted to reflect a 100-for-1 unit conversion that became effective on June 1, 1998. Spectrum Select Selected Financial Data For the Years Ended December 31, Spectrum Currency 1.00 0.45 -0.11 0.14 0.01 CISDM Public Fund Index 1.00 -0.40 0.29 -0.28 S & P 500 Index 1.00 -0.12 0.86 Citigroup Corporate Bond Index 1.00 -0.03 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the change in fund assets from the inception of trading in each partnership through December 31, 2003, to reflect each partnership's performance and net additions of capital. Spectrum Select Fund Asset History Net Asset Value (in millions) * Spectrum Select had multiple closings during initial offering ** Re-opening of fund in September 1993 and November 1996 *** Effective May 1998, Spectrum Select became part of the Spectrum Series. Spectrum Technical Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic Fund Asset History Net Asset Value (in millions) Spectrum Global Balanced Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ % $ % $ Foreign currency 2,362,577 3.13 3,680 0.01 2,366,257 1,471,600,565 Commodity 3,548,205 4.71 4,379 0.01 3,552,584 12,920 Interest rate 1,057,473 1.40 1,057,473 3,130 Equity 131,610 0.17 131,610 $ % $ % $ Foreign currency 627,263 1.19 109,420 0.21 736,683 15,130,291 Interest Rate 216,798 0.41 216,798 1,053 Equity 936,933 1.78 936,933 291 Commodity 689,471 1.31 (5,870 ) (0.01 ) 683,601 Spectrum Currency Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the monthly performance, on a net asset value basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. The CISDM Public Fund Index represents the dollar-weighted average performance of public managed futures funds. To qualify for inclusion in the CISDM Public Fund Index, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restrictions on the public managed futures funds that it tracks. As of December 31, 2003, there were 55 public managed futures funds included in the calculation of the CISDM Public Fund Index. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison Data: August 1991 through December 2003 Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ $ $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 6,845,291 (1,351,849 ) Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) 18,665,233 (1,547,990 ) Proceeds from litigation settlement 4,636,156 Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison Data: July 2000 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the performance, on a rate of return basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: August 1991 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: July 2000 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV Per Unit 10.00 Aug-91 (6.20) 9.38 Sep-91 6.32 9.97 Oct-91 (2.28) 9.75 Nov-91 (2.93) 9.46 Dec-91 38.67 13.12 31.54 31.19 Jan-92 (13.72) 11.32 Feb-92 (6.09) 10.63 Mar-92 (3.91) 10.21 (22.14) Apr-92 (1.86) 10.02 May-92 (1.42) 9.88 Jun-92 7.19 10.59 3.71 Jul-92 10.72 11.73 17.29 Aug-92 6.69 12.51 33.40 Sep-92 (5.24) 11.86 11.94 18.89 Oct-92 (3.17) 11.48 17.81 Nov-92 1.39 11.64 23.04 Dec-92 (3.58) 11.22 (5.34) (14.45) (14.45) Jan-93 0.31 11.26 (0.54) Feb-93 14.85 12.93 21.64 Mar-93 (0.60) 12.85 14.52 25.83 Apr-93 10.35 14.18 41.48 May-93 1.95 14.46 46.32 Jun-93 0.21 14.49 12.74 36.79 Jul-93 13.90 16.50 40.71 65.04 Aug-93 (0.95) 16.35 30.64 74.28 Sep-93 (4.13) 15.67 8.16 32.17 57.15 Oct-93 (4.97) 14.89 29.72 52.81 Nov-93 (1.30) 14.70 26.28 55.37 Dec-93 8.13 15.90 1.42 41.62 41.62 21.16 Jan-94 (11.67) 14.04 24.70 24.03 Feb-94 (6.79) 13.09 1.21 23.11 Mar-94 12.57 14.73 (7.33) 14.61 44.21 Apr-94 (0.95) 14.59 2.88 45.55 May-94 6.84 15.59 7.81 57.75 Jun-94 10.30 17.19 16.73 18.66 62.32 Jul-94 (4.91) 16.35 (0.93) 39.41 Aug-94 (6.95) 15.22 (6.93) 21.59 Sep-94 1.25 15.41 (10.41) (1.70) 29.92 Oct-94 (4.78) 14.67 (1.50) 27.77 Nov-94 5.68 15.50 5.47 33.18 Dec-94 (2.72) 15.08 (2.11) (5.12) (5.12) 34.36 Jan-95 (8.13) 13.85 (1.32) 23.05 Feb-95 9.61 15.19 16.04 17.44 Mar-95 20.58 18.31 21.42 24.30 42.46 Apr-95 9.06 19.97 36.86 40.79 May-95 11.08 22.18 42.28 53.40 Jun-95 (1.70) 21.80 19.08 26.81 50.47 Jul-95 (10.61) 19.49 19.20 18.09 Aug-95 (4.81) 18.55 21.93 13.48 Sep-95 (7.76) 17.11 (21.52) 11.08 9.19 Oct-95 (3.35) 16.54 12.75 11.05 Nov-95 1.37 16.77 8.15 14.06 Dec-95 11.19 18.64 8.94 23.62 23.62 17.28 Jan-96 (0.38) 18.57 34.05 32.28 Feb-96 (12.11) 16.32 7.49 24.73 Mar-96 (0.22) 16.29 (12.63) (11.05) 10.57 Apr-96 4.07 16.95 (15.11) 16.17 May-96 (3.65) 16.33 (26.37) 4.76 Jun-96 1.37 16.56 1.65 (24.07) (3.71) Jul-96 (1.44) 16.32 (16.27) (0.20) Aug-96 (0.46) 16.24 (12.44) 6.76 Sep-96 3.34 16.79 1.39 (1.90) 8.97 Oct-96 13.30 19.02 15.00 29.65 Nov-96 6.76 20.31 21.11 30.98 Dec-96 (3.36) 19.62 16.90 5.27 5.27 30.13 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total Trading Results 71,369,430 64,137,291 23,265,163 25,510,524 (2,899,839 ) Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 9,573,095 7,678,789 % $ % % % % Jan-97 3.93 20.40 9.82 47.21 Feb-97 4.75 21.36 30.88 40.68 Mar-97 0.31 21.43 9.21 31.58 17.04 Apr-97 (5.46) 20.26 19.53 1.46 May-97 (1.18) 20.02 22.60 (9.73) Jun-97 0.16 20.05 (6.42) 21.13 (8.02) Jul-97 9.74 22.01 34.86 12.92 Aug-97 (6.22) 20.64 27.06 11.25 Sep-97 0.93 20.83 3.87 24.09 21.73 Oct-97 (3.77) 20.05 5.40 21.20 Nov-97 0.62 20.17 (0.66) 20.31 Dec-97 3.35 20.85 0.07 6.22 6.22 11.82 Jan-98 0.87 21.03 3.10 13.22 Feb-98 2.16 21.48 0.55 31.60 Mar-98 0.23 21.53 3.28 0.46 32.19 Apr-98 (6.72) 20.08 (0.88) 18.47 May-98 1.78 20.44 2.08 25.15 Jun-98 0.93 20.63 (4.18) 2.87 24.60 Jul-98 (0.97) 20.43 (7.17) 25.19 Aug-98 19.19 24.35 17.98 49.90 Sep-98 6.24 25.87 25.40 24.19 54.11 Oct-98 (5.14) 24.54 22.42 29.03 Nov-98 (4.16) 23.52 16.61 15.83 Dec-98 1.19 23.80 (8.00) 14.17 14.17 21.28 Jan-99 (2.90) 23.11 9.91 13.31 Feb-99 5.45 24.37 13.45 14.07 Mar-99 (2.50) 23.76 (0.17) 10.36 10.87 Apr-99 3.70 24.64 22.70 21.61 May-99 (4.38) 23.56 15.26 17.67 Jun-99 0.34 23.64 (0.51) 14.59 17.88 Jul-99 (4.40) 22.60 10.62 2.69 Aug-99 (0.44) 22.50 (7.60) 9.02 Sep-99 1.69 22.88 (3.21) (11.56) 9.83 Oct-99 (8.39) 20.96 (14.59) 4.56 Nov-99 3.29 21.65 (7.95) 7.34 Dec-99 1.62 22.00 (3.85) (7.56) (7.56) 5.54 Jan-00 2.86 22.63 (2.08) 7.62 Feb-00 (2.17) 22.14 (9.15) 3.07 Mar-00 (2.08) 21.68 (1.45) (8.75) 0.70 Apr-00 (3.78) 20.86 (15.34) 3.87 May-00 1.58 21.19 (10.06) 3.67 Jun-00 (4.44) 20.25 (6.60) (14.34) (1.84) Jul-00 (2.42) 19.76 (12.57) (3.28) Aug-00 4.71 20.69 (8.04) (15.03) Sep-00 (1.84) 20.31 0.30 (11.23) (21.49) Oct-00 0.44 20.40 (2.67) (16.87) Nov-00 6.47 21.72 0.32 (7.65) Dec-00 8.52 23.57 16.05 7.14 7.14 (0.97) Jan-01 1.36 23.89 5.57 3.38 Feb-01 1.93 24.35 9.98 (0.08) Mar-01 7.27 26.12 10.82 20.48 9.93 Apr-01 (6.93) 24.31 16.54 (1.34) May-01 (0.53) 24.18 14.11 2.63 Jun-01 (1.78) 23.75 (9.07) 17.28 0.47 Jul-01 (0.13) 23.72 20.04 4.96 Aug-01 2.53 24.32 17.54 8.09 Sep-01 6.70 25.95 9.26 27.77 13.42 Oct-01 6.01 27.51 34.85 31.25 Nov-01 (13.12) 23.90 10.04 10.39 Dec-01 0.25 23.96 (7.67) 1.65 1.65 8.91 Jan-02 (1.25) 23.66 (0.96) 4.55 Feb-02 (6.89) 22.03 (9.53) (0.50) Mar-02 3.77 22.86 (4.59) (12.48) 5.44 Apr-02 (3.11) 22.15 (8.89) 6.18 May-02 3.48 22.92 (5.21) 8.16 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Jun-02 12.00 25.67 12.29 8.08 26.77 Jul-02 4.67 26.87 13.28 35.98 Aug-02 3.42 27.79 14.27 34.32 Sep-02 5.18 29.23 13.87 12.64 43.92 Oct-02 (6.12) 27.44 (0.25) 34.51 Nov-02 (4.56) 26.19 9.58 20.58 Dec-02 5.57 27.65 (5.41) 15.40 15.40 17.31 Jan-03 4.70 28.95 22.36 21.18 Feb-03 4.11 30.14 36.81 23.78 Mar-03 (8.99 ) 27.43 (0.80 ) 19.99 5.02 Apr-03 1.02 27.71 25.10 13.99 May-03 8.99 30.20 31.76 24.90 Jun-03 (2.91 ) 29.32 6.89 14.22 23.45 Jul-03 (1.98 ) 28.74 6.96 21.16 Aug-03 0.31 28.83 3.74 18.54 Sep-03 (2.77 ) 28.03 (4.40 ) (4.11 ) 8.02 Oct-03 2.78 28.81 4.99 4.73 Nov-03 (3.02 ) 27.94 6.68 16.90 Dec-03 8.48 30.31 8.13 9.62 9.62 26.50 Compounded annual ROR: 9.34 Standard deviation of monthly returns: 6.85 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.90 ) 9.91 Dec-94 (1.31 ) 9.78 (2.20 ) (2.20 ) Jan-95 (1.84 ) 9.60 Feb-95 5.10 10.09 Mar-95 10.21 11.12 13.70 Apr-95 3.60 11.52 May-95 0.69 11.60 Jun-95 (1.12 ) 11.47 3.15 Jul-95 (2.44 ) 11.19 Aug-95 (0.63 ) 11.12 Sep-95 (3.33 ) 10.75 (6.28 ) Oct-95 (0.09 ) 10.74 7.40 Nov-95 0.93 10.84 9.38 Dec-95 6.09 11.50 6.98 17.59 17.59 Jan-96 4.78 12.05 25.52 Feb-96 (6.39 ) 11.28 11.79 Mar-96 1.24 11.42 (0.70 ) 2.70 Apr-96 4.82 11.97 3.91 May-96 (3.84 ) 11.51 (0.78 ) Jun-96 3.21 11.88 4.03 3.57 Jul-96 (4.80 ) 11.31 1.07 Aug-96 (0.35 ) 11.27 1.35 Sep-96 5.50 11.89 0.08 10.60 Oct-96 9.92 13.07 21.69 30.70 Nov-96 8.34 14.16 30.63 42.89 Dec-96 (3.88 ) 13.61 14.47 18.35 18.35 39.16 Jan-97 3.67 14.11 17.10 46.98 Feb-97 1.13 14.27 26.51 41.43 Mar-97 (1.82 ) 14.01 2.94 22.68 25.99 Apr-97 (2.93 ) 13.60 13.62 18.06 May-97 (3.75 ) 13.09 13.73 12.84 Jun-97 0.69 13.18 (5.92 ) 10.94 14.91 Jul-97 9.33 14.41 27.41 28.78 Aug-97 (5.97 ) 13.55 20.23 21.85 Sep-97 1.85 13.80 4.70 16.06 28.37 Oct-97 0.36 13.85 5.97 28.96 Nov-97 1.01 13.99 (1.20 ) 29.06 Dec-97 4.57 14.63 6.01 7.49 7.49 27.22 Jan-98 (1.16 ) 14.46 2.48 20.00 Feb-98 0.41 14.52 1.75 28.72 Mar-98 1.31 14.71 0.55 5.00 28.81 Apr-98 (4.62 ) 14.03 3.16 17.21 May-98 3.28 14.49 10.70 25.89 Jun-98 (1.10 ) 14.33 (2.58 ) 8.73 20.62 Jul-98 (0.98 ) 14.19 (1.53 ) 25.46 Aug-98 10.29 15.65 15.50 38.86 Sep-98 4.35 16.33 13.96 18.33 37.34 Oct-98 (0.73 ) 16.21 17.04 24.02 Nov-98 (6.17 ) 15.21 8.72 7.42 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Dec-98 5.98 16.12 (1.29 ) 10.18 10.18 18.44 Jan-99 (4.96 ) 15.32 5.95 8.58 Feb-99 2.48 15.70 8.13 10.02 Mar-99 (2.48 ) 15.31 (5.02 ) 4.08 9.28 Apr-99 7.18 16.41 16.96 20.66 May-99 (5.00 ) 15.59 7.59 19.10 Jun-99 5.13 16.39 7.05 14.38 24.36 Jul-99 (3.90 ) 15.75 10.99 9.30 Aug-99 0.95 15.90 1.60 17.34 Sep-99 (1.51 ) 15.66 (4.45 ) (4.10 ) 13.48 Oct-99 (9.96 ) 14.10 (13.02 ) 1.81 Nov-99 1.84 14.36 (5.59 ) 2.64 Dec-99 3.83 14.91 (4.79 ) (7.51 ) (7.51 ) 1.91 Jan-00 1.21 15.09 (1.50 ) 4.36 Feb-00 (1.19 ) 14.91 (5.03 ) 2.69 Mar-00 (1.54 ) 14.68 (1.54 ) (4.11 ) (0.20 ) Apr-00 (4.02 ) 14.09 (14.14 ) 0.43 May-00 (0.43 ) 14.03 (10.01 ) (3.17 ) Jun-00 (2.78 ) 13.64 (7.08 ) (16.78 ) (4.82 ) Jul-00 (3.96 ) 13.10 (16.83 ) (7.68 ) Aug-00 3.74 13.59 (14.53 ) (13.16 ) Sep-00 (8.61 ) 12.42 (8.94 ) (20.69 ) (23.94 ) Oct-00 2.90 12.78 (9.36 ) (21.16 ) Nov-00 12.28 14.35 (0.07 ) (5.65 ) Dec-00 12.06 16.08 29.47 7.85 7.85 (0.25 ) Jan-01 (0.81 ) 15.95 5.70 4.11 Feb-01 1.94 16.26 9.05 3.57 Mar-01 11.38 18.11 12.62 23.37 18.29 Apr-01 (11.10 ) 16.10 14.27 (1.89 ) May-01 (0.37 ) 16.04 14.33 2.89 Jun-01 (3.62 ) 15.46 (14.63 ) 13.34 (5.67 ) Jul-01 (3.36 ) 14.94 14.05 (5.14 ) Aug-01 1.34 15.14 11.41 (4.78 ) Sep-01 8.19 16.38 5.95 31.88 4.60 Oct-01 5.37 17.26 35.05 22.41 Nov-01 (15.59 ) 14.57 1.53 1.46 Dec-01 2.47 14.93 (8.85 ) (7.15 ) (7.15 ) 0.13 Jan-02 (1.88 ) 14.65 (8.15 ) (2.92 ) Feb-02 (3.41 ) 14.15 (12.98 ) (5.10 ) Mar-02 (2.90 ) 13.74 (7.97 ) (24.13 ) (6.40 ) Apr-02 (3.20 ) 13.30 (17.39 ) (5.61 ) May-02 5.64 14.05 (12.41 ) 0.14 Jun-02 15.02 16.16 17.61 4.53 18.48 Jul-02 9.65 17.72 18.61 35.27 Aug-02 4.40 18.50 22.19 36.13 Sep-02 6.43 19.69 21.84 20.21 58.53 Oct-02 (6.75 ) 18.36 6.37 43.66 Nov-02 (4.68 ) 17.50 20.11 21.95 Dec-02 5.20 18.41 (6.50 ) 23.31 23.31 14.49 Jan-03 12.76 20.76 41.71 30.16 Feb-03 6.60 22.13 56.40 36.10 Mar-03 (9.17 ) 20.10 9.18 46.29 10.99 Apr-03 1.44 20.39 53.31 26.65 May-03 6.38 21.69 54.38 35.22 Jun-03 (7.42 ) 20.08 (0.10 ) 24.26 29.88 Jul-03 (3.04 ) 19.47 9.88 30.32 Aug-03 3.39 20.13 8.81 32.96 Sep-03 (5.41 ) 19.04 (5.18 ) (3.30 ) 16.24 Oct-03 9.14 20.78 13.18 20.39 Nov-03 1.20 21.03 20.17 44.34 Dec-03 7.66 22.64 18.91 22.98 22.98 51.64 Compounded annual ROR: 9.33 Standard deviation of monthly returns: 5.55 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 0.10 10.01 Dec-94 0.00 10.01 0.10 0.10 Jan-95 (3.50 ) 9.66 Feb-95 1.45 9.80 Mar-95 7.86 10.57 5.59 Apr-95 0.00 10.57 May-95 (0.66 ) 10.50 Jun-95 (6.38 ) 9.83 (7.00 ) Jul-95 (0.81 ) 9.75 Aug-95 4.00 10.14 Sep-95 (0.39 ) 10.10 2.75 Oct-95 0.30 10.13 1.30 Nov-95 2.76 10.41 4.00 Dec-95 6.24 11.06 9.50 10.49 10.49 Jan-96 3.71 11.47 18.74 Feb-96 (10.29 ) 10.29 5.00 Mar-96 (0.97 ) 10.19 (7.87 ) (3.60 ) Apr-96 6.08 10.81 2.27 May-96 (3.05 ) 10.48 (0.19 ) Jun-96 (2.86 ) 10.18 (0.10 ) 3.56 Jul-96 (4.91 ) 9.68 (0.72 ) Aug-96 1.14 9.79 (3.45 ) Sep-96 5.11 10.29 1.08 1.88 Oct-96 2.92 10.59 4.54 5.90 Nov-96 3.49 10.96 5.28 9.49 Dec-96 (2.65 ) 10.67 3.69 (3.53 ) (3.53 ) 6.59 Jan-97 (0.66 ) 10.60 (7.59 ) 9.73 Feb-97 10.09 11.67 13.41 19.08 Mar-97 6.77 12.46 16.78 22.28 17.88 Apr-97 (6.90 ) 11.60 7.31 9.74 May-97 0.78 11.69 11.55 11.33 Jun-97 (1.63 ) 11.50 (7.70 ) 12.97 16.99 Jul-97 7.65 12.38 27.89 26.97 Aug-97 (4.93 ) 11.77 20.22 16.07 Sep-97 (6.03 ) 11.06 (3.83 ) 7.48 9.50 Oct-97 (6.24 ) 10.37 (2.08 ) 2.37 Nov-97 (2.22 ) 10.14 (7.48 ) (2.59 ) Dec-97 5.62 10.71 (3.16 ) 0.37 0.37 (3.16 ) Jan-98 5.32 11.28 6.42 (1.66 ) Feb-98 (3.37 ) 10.90 (6.60 ) 5.93 Mar-98 0.37 10.94 2.15 (12.20 ) 7.36 Apr-98 (11.06 ) 9.73 (16.12 ) (9.99 ) May-98 (7.40 ) 9.01 (22.93 ) (14.03 ) Jun-98 (0.89 ) 8.93 (18.37 ) (22.35 ) (12.28 ) Jul-98 (5.26 ) 8.46 (31.66 ) (12.60 ) Aug-98 11.82 9.46 (19.63 ) (3.37 ) Sep-98 19.03 11.26 26.09 1.81 9.43 Oct-98 8.44 12.21 17.74 15.30 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total 74,213,042 67,605,728 30,468,895 35,083,619 4,778,950 % $ % % % % Nov-98 (7.94) 11.24 10.85 2.55 Dec-98 2.76 11.55 2.58 7.84 7.84 8.25 Jan-99 (3.55) 11.14 (1.24) 5.09 Feb-99 11.76 12.45 14.22 6.68 Mar-99 (3.45) 12.02 4.07 9.87 (3.53) Apr-99 2.00 12.26 26.00 5.69 May-99 (13.38) 10.62 17.87 (9.15) Jun-99 21.85 12.94 7.65 44.90 12.52 Jul-99 (1.00) 12.81 51.42 3.47 Aug-99 5.31 13.49 42.60 14.61 Sep-99 13.27 15.28 18.08 35.70 38.16 Oct-99 (9.55) 13.82 13.19 33.27 Nov-99 4.85 14.49 28.91 42.90 Dec-99 9.39 15.85 3.73 37.23 37.23 47.99 Jan-00 (1.96) 15.54 39.50 37.77 Feb-00 (18.47) 12.67 1.77 16.24 Mar-00 (2.05) 12.41 (21.70) 3.24 13.44 Apr-00 (10.15) 11.15 (9.05) 14.59 May-00 10.13 12.28 15.63 36.29 Jun-00 (7.82) 11.32 (8.78) (12.52) 26.76 Jul-00 3.71 11.74 (8.35) 38.77 Aug-00 (8.26) 10.77 (20.16) 13.85 Sep-00 (10.40) 9.65 (14.75) (36.85) (14.30) Oct-00 (6.84) 8.99 (34.95) (26.37) Nov-00 6.56 9.58 (33.89) (14.77) Dec-00 10.75 10.61 9.95 (33.06) (33.06) (8.14) Jan-01 (0.94) 10.51 (32.37) (5.66) Feb-01 0.48 10.56 (16.65) (15.18) Mar-01 1.04 10.67 0.57 (14.02) (11.23) Apr-01 (1.69) 10.49 (5.92) (14.44) May-01 (0.10) 10.48 (14.66) (1.32) Jun-01 (3.34) 10.13 (5.06) (10.51) (21.72) Jul-01 (1.38) 9.99 (14.91) (22.01) Aug-01 (0.60) 9.93 (7.80) (26.39) Sep-01 3.83 10.31 1.78 6.84 (32.53) Oct-01 1.07 10.42 15.91 (24.60) Nov-01 1.15 10.54 10.02 (27.26) Dec-01 0.09 10.55 2.33 (0.57) (0.57) (33.44) Jan-02 2.09 10.77 2.47 (30.69) Feb-02 2.51 11.04 4.55 (12.87) Mar-02 4.62 11.55 9.48 8.25 (6.93) Apr-02 (4.94) 10.98 4.67 (1.52) May-02 1.37 11.13 6.20 (9.36) Jun-02 8.00 12.02 4.07 18.66 6.18 Jul-02 (0.42) 11.97 19.82 1.96 Aug-02 2.26 12.24 23.26 13.65 Sep-02 3.10 12.62 4.99 22.41 30.78 Oct-02 (7.13) 11.72 12.48 30.37 Nov-02 (5.97) 11.02 4.55 15.03 Dec-02 4.72 11.54 (8.56) 9.38 9.38 8.77 Jan-03 13.78 13.13 21.91 24.93 Feb-03 (2.21) 12.84 16.30 21.59 Mar-03 (4.28) 12.29 6.50 6.41 15.18 Apr-03 1.87 12.52 14.03 19.35 May-03 0.00 12.52 12.49 19.47 Jun-03 (1.28) 12.36 0.57 2.83 22.01 Jul-03 (1.86) 12.13 1.34 21.42 Aug-03 4.29 12.65 3.35 27.39 Sep-03 3.00 13.03 5.42 3.25 26.38 Oct-03 3.45 13.48 15.02 29.37 Nov-03 (2.23) 13.18 19.60 25.05 Dec-03 8.57 14.31 9.82 24.00 24.00 35.64 Compounded annual ROR: 3.99 Standard deviation of monthly returns: 6.46 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.50 ) 9.95 Dec-94 (1.21 ) 9.83 (1.70 ) (1.70 ) Jan-95 1.32 9.96 Feb-95 4.62 10.42 Mar-95 2.88 10.72 9.05 Apr-95 2.15 10.95 May-95 4.38 11.43 Jun-95 0.79 11.52 7.46 Jul-95 (1.39 ) 11.36 Aug-95 (1.41 ) 11.20 Sep-95 1.61 11.38 (1.22 ) Oct-95 0.26 11.41 14.10 Nov-95 2.72 11.72 17.79 Dec-95 2.99 12.07 6.06 22.79 22.79 Jan-96 0.41 12.12 21.69 Feb-96 (7.92 ) 11.16 7.10 Mar-96 (1.08 ) 11.04 (8.53 ) 2.99 Apr-96 1.27 11.18 2.10 May-96 (3.13 ) 10.83 (5.25 ) Jun-96 0.46 10.88 (1.45 ) (5.56 ) Jul-96 0.83 10.97 (3.43 ) Aug-96 (0.82 ) 10.88 (2.86 ) Sep-96 2.30 11.13 2.30 (2.20 ) Oct-96 3.77 11.55 1.23 15.50 Nov-96 4.76 12.10 3.24 21.61 Dec-96 (3.88 ) 11.63 4.49 (3.65 ) (3.65 ) 18.31 Jan-97 3.35 12.02 (0.83 ) 20.68 Feb-97 3.16 12.40 11.11 19.00 Mar-97 (2.50 ) 12.09 3.96 9.51 12.78 Apr-97 (1.65 ) 11.89 6.35 8.58 May-97 1.68 12.09 11.63 5.77 Jun-97 3.64 12.53 3.64 15.17 8.77 Jul-97 11.89 14.02 27.80 23.42 Aug-97 (5.92 ) 13.19 21.23 17.77 Sep-97 3.26 13.62 8.70 22.37 19.68 Oct-97 (1.69 ) 13.39 15.93 17.35 Nov-97 (0.37 ) 13.34 10.25 13.82 Dec-97 3.07 13.75 0.95 18.23 18.23 13.92 Jan-98 2.25 14.06 16.97 16.01 Feb-98 1.49 14.27 15.08 27.87 Mar-98 2.24 14.59 6.11 20.68 32.16 Apr-98 (1.78 ) 14.33 20.52 28.18 May-98 (0.35 ) 14.28 18.11 31.86 Jun-98 0.00 14.28 (2.12 ) 13.97 31.25 Jul-98 (1.19 ) 14.11 0.64 28.62 Aug-98 2.55 14.47 9.70 33.00 Sep-98 5.11 15.21 6.51 11.67 36.66 Oct-98 1.18 15.39 14.94 33.25 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Nov-98 2.66 15.80 18.44 30.58 Dec-98 1.27 16.00 5.19 16.36 16.36 37.58 Jan-99 (0.06 ) 15.99 13.73 33.03 Feb-99 (0.06 ) 15.98 11.98 28.87 Mar-99 0.00 15.98 (0.12 ) 9.53 32.18 Apr-99 4.13 16.64 16.12 39.95 May-99 (4.99 ) 15.81 10.71 30.77 Jun-99 2.28 16.17 1.19 13.24 29.05 Jul-99 (1.67 ) 15.90 12.69 13.41 Aug-99 (0.19 ) 15.87 9.68 20.32 Sep-99 (0.50 ) 15.79 (2.35 ) 3.81 15.93 Oct-99 (1.77 ) 15.51 0.78 15.83 Nov-99 1.93 15.81 0.06 18.52 Dec-99 1.96 16.12 2.09 0.75 0.75 17.24 Jan-00 (0.93 ) 15.97 (0.13 ) 13.58 Feb-00 0.94 16.12 0.88 12.96 Mar-00 3.10 16.62 3.10 4.01 13.91 Apr-00 (4.57 ) 15.86 (4.69 ) 10.68 May-00 (1.32 ) 15.65 (1.01 ) 9.59 Jun-00 (0.26 ) 15.61 (6.08 ) (3.46 ) 9.31 Jul-00 (2.18 ) 15.27 (3.96 ) 8.22 Aug-00 3.01 15.73 (0.88 ) 8.71 Sep-00 (3.94 ) 15.11 (3.20 ) (4.31 ) (0.66 ) Oct-00 2.25 15.45 (0.39 ) 0.39 Nov-00 (0.52 ) 15.37 (2.78 ) (2.72 ) Dec-00 5.79 16.26 7.61 0.87 0.87 1.63 Jan-01 0.55 16.35 2.38 2.25 Feb-01 (3.36 ) 15.80 (1.99 ) (1.13 ) Mar-01 2.91 16.26 0.00 (2.17 ) 1.75 Apr-01 (0.31 ) 16.21 2.21 (2.58 ) May-01 0.25 16.25 3.83 2.78 Jun-01 (3.08 ) 15.75 (3.14 ) 0.90 (2.60 ) Jul-01 0.00 15.75 3.14 (0.94 ) Aug-01 0.51 15.83 0.64 (0.25 ) Sep-01 (1.20 ) 15.64 (0.70 ) 3.51 (0.95 ) Oct-01 2.75 16.07 4.01 3.61 Nov-01 (0.06 ) 16.06 4.49 1.58 Dec-01 0.93 16.21 3.64 (0.31 ) (0.31 ) 0.56 Jan-02 (1.23 ) 16.01 (2.08 ) 0.25 Feb-02 (1.69 ) 15.74 (0.38 ) (2.36 ) Mar-02 0.25 15.78 (2.65 ) (2.95 ) (5.05 ) Apr-02 (2.09 ) 15.45 (4.69 ) (2.59 ) May-02 (0.19 ) 15.42 (5.11 ) (1.47 ) Jun-02 1.30 15.62 (1.01 ) (0.83 ) 0.06 Jul-02 (0.83 ) 15.49 (1.65 ) 1.44 Aug-02 0.97 15.64 (1.20 ) (0.57 ) Sep-02 (4.16 ) 14.99 (4.03 ) (4.16 ) (0.79 ) Oct-02 (0.80 ) 14.87 (7.47 ) (3.75 ) Nov-02 2.08 15.18 (5.48 ) (1.24 ) Dec-02 (4.02 ) 14.57 (2.80 ) (10.12 ) (10.12 ) (10.39 ) Jan-03 0.34 14.62 (8.68 ) (10.58 ) Feb-03 2.67 15.01 (4.64 ) (5.00 ) Mar-03 (2.60 ) 14.62 0.34 (7.35 ) (10.09 ) Apr-03 2.19 14.94 (3.30 ) (7.83 ) May-03 4.89 15.67 1.62 (3.57 ) Jun-03 (0.19 ) 15.64 6.98 0.13 (0.70 ) Jul-03 (1.09 ) 15.47 (0.13 ) (1.78 ) Aug-03 0.00 15.47 (1.09 ) (2.27 ) Sep-03 (1.16 ) 15.29 (2.24 ) 2.00 (2.24 ) Oct-03 (0.92 ) 15.15 1.88 (5.72 ) Nov-03 (1.32 ) 14.95 (1.52 ) (6.91 ) Dec-03 3.48 15.47 1.18 6.18 6.18 (4.57 ) Compounded annual ROR: 4.88 Standard deviation of monthly returns: 2.73 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Jul-00 0.60 10.06 Aug-00 0.40 10.10 Sep-00 1.39 10.24 2.40 Oct-00 7.32 10.99 Nov-00 (1.64 ) 10.81 Dec-00 3.33 11.17 9.08 11.70 Jan-01 (1.07 ) 11.05 Feb-01 (1.36 ) 10.90 Mar-01 8.44 11.82 5.82 Apr-01 (2.88 ) 11.48 May-01 1.92 11.70 Jun-01 (1.71 ) 11.50 (2.71 ) 15.00 Jul-01 (5.91 ) 10.82 7.55 Aug-01 2.40 11.08 9.70 Sep-01 0.90 11.18 (2.78 ) 9.18 Oct-01 (0.81 ) 11.09 0.91 Nov-01 (0.36 ) 11.05 2.22 Dec-01 12.31 12.41 11.00 11.10 11.10 Jan-02 (3.46 ) 11.98 8.42 Feb-02 (1.75 ) 11.77 7.98 Mar-02 (4.50 ) 11.24 (9.43 ) (4.91 ) Apr-02 2.40 11.51 0.26 May-02 10.34 12.70 8.55 Jun-02 8.98 13.84 23.13 20.35 38.40 Jul-02 (4.41 ) 13.23 22.27 31.51 Aug-02 (4.69 ) 12.61 13.81 24.85 Sep-02 (1.98 ) 12.36 (10.69 ) 10.55 20.70 Oct-02 0.57 12.43 12.08 13.10 Nov-02 (1.05 ) 12.30 11.31 13.78 Dec-02 13.25 13.93 12.70 12.25 12.25 24.71 Jan-03 5.03 14.63 22.12 32.40 Feb-03 0.96 14.77 25.49 35.50 Mar-03 (1.96 ) 14.48 3.95 28.83 22.50 Apr-03 4.07 15.07 30.93 31.27 May-03 3.19 15.55 22.44 32.91 Jun-03 (3.99 ) 14.93 3.11 7.88 29.83 Jul-03 (4.49 ) 14.26 7.79 31.79 Aug-03 (1.26 ) 14.08 11.66 27.08 Sep-03 0.43 14.14 (5.29 ) 14.40 26.48 Oct-03 0.64 14.23 14.48 28.31 Nov-03 4.08 14.81 20.41 34.03 Dec-03 5.74 15.66 10.75 12.42 12.42 26.19 Compounded annual ROR: 13.67 Standard deviation of monthly returns: 4.66 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. GLOSSARY OF TERMS The following glossary may assist prospective investors in understanding certain terms used in this prospectus: Clearing broker. The entity responsible for assuring that futures and options trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trades took place. Commodity broker. The entity responsible for holding the client's funds deposited with it as margin for trades and, if the commodity broker is also a clearing commodity broker, for assuring that futures and options trades for a client are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. In the U.S., commodity brokers are registered under the Commodity Exchange Act as futures commission merchants. Commodity pool. A partnership, trust or similar form of collective investment vehicle which consolidates funds from investors for the purpose of trading in commodity futures, forward, and options contracts. Commodity pool operator. Any person or entity that solicits funds in connection with the sale of interests in a commodity pool or that manages the operations of a commodity pool. A commodity pool operator must register under the Commodity Exchange Act. Counter-trend liquidations. Closing out a position after a significant price move on the assumption that the market is due for a correction. Cross rate. The trading of one foreign currency against another foreign currency. Daily price fluctuation limit. The maximum permitted fluctuation imposed by commodity exchanges in the price of a commodity futures contract for a given commodity that can occur on an exchange on a given day in relation to the previous day's settlement price, which maximum permitted fluctuation is subject to change from time to time by the exchange. These limits generally are not imposed on option contracts or outside the U.S. Delivery. The process of satisfying a futures contract or a forward contract by transferring ownership of a specified quantity and grade of a commodity, product or instrument to the purchaser of the contract. Exchange for physical. A transaction permitted under the rules of futures exchanges in which two parties exchange a cash market (physical) commodity position for a futures contract (or vice versa) without making a trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Forward contract. A cash market transaction in which the buyer and seller agree to the purchase and sale of a specific quantity of a commodity, product, instrument or currency for delivery at some future time under such terms and conditions as the two may agree upon. Fundamental analysis. The analysis of fundamental market information such as supply and demand levels, weather, economic indicators, and geopolitical events. Futures contract. A contract providing for the delivery or receipt at a future date of a specified amount and grade of a traded commodity, product, instrument, or index at a specified price and delivery point, or for cash settlement. A market participant can make a futures contract to buy or sell the underlying commodity, product, instrument or index. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of the commodity, product, instrument, or index or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. Long contract or long position. A contract to accept delivery (i.e., to buy) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Margin. A good faith deposit with a broker to assure fulfillment of a purchase or sale of a futures, forward or options contract. Margins on these contracts do not usually involve the payment of interest. EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 14,706,945 15,188,479 Management fees 10,617,352 7,838,786 7,110,346 6,085,629 6,284,885 Incentive fees 3,750,169 3,009,853 Margin call. A demand for additional funds after the initial good faith deposit required to maintain a customer's account in compliance with the requirements of a particular commodity exchange or of a commodity broker. Non-Spectrum Series exchange. The use of proceeds from the redemption of interests from another commodity pool for which Demeter acts as general partner and commodity pool operator to acquire units in one or more of the Spectrum Series partnerships. Notional funds. The amount by which the nominal account size exceeds the amount of actual funds in the account. Open position. A contractual commitment arising under a long contract or a short contract that has not been extinguished by an offsetting trade or by delivery. Option on a futures contract. A contract that gives the purchaser of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract, if the option is exercised, at the specified price within the specified period of time. Outrights. The trading of one foreign currency against the U.S. dollar as compared to a cross rate trade between two non-U.S. currencies. Parameters. A value that can be freely assigned in a trading system in order to vary the timing of signals. Pattern recognition. The ability to identify patterns that appeared to act as precursors of price advances or declines in the past. Resistance. A previous high. A price level above the market where selling pressure overcomes buying pressure and a price advance is turned back. Secular trend. Intermediate upswings and downswings in price that over a long period of time constitutes a big move. Short contract or short position. A contract to make delivery of (sell) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Spectrum Series exchange. A redemption of units in a Spectrum Series Partnership with the proceeds used to purchase units of one or more of the other partnerships in the Spectrum Series. Speculative position limit. The maximum number of speculative futures or option contracts in any one commodity (on one exchange), imposed by the CFTC or a U.S. commodity exchange, that can be held or controlled at one time by one person or a group of persons acting together. These limits generally are not imposed for trading on markets or exchanges outside the U.S. Stop-loss order. An order to buy or sell at the market when a definite price is reached, either above or below the price of the instrument that prevailed when the order was given. Support. A previous low. A price level below the market where buying interest is sufficiently strong to overcome selling pressure. Systematic technical charting systems. A system that is technical in nature and based on chart patterns as opposed to pure mathematical calculations. Technical analysis. The analysis of technical market information by a trading advisor, such as analyzing actual daily, weekly, and monthly price fluctuations, trading volume variations, and changes in numbers of open positions in various futures and options contracts. Trading advisor. Any person or entity that provides advice as to the purchase or sale of futures, forwards, or options contracts. A commodity trading advisor must register under the Commodity Exchange Act. Total 40,026,137 26,782,529 27,303,546 20,792,574 21,473,364 NET INCOME (LOSS) 34,186,905 40,823,199 3,165,349 14,291,045 (16,694,414 ) Net Income (Loss) Allocation: Limited Partners 33,822,853 40,391,145 3,123,455 14,165,099 (16,455,697 ) General Partner 364,052 432,054 41,894 125,946 (238,717 ) Net Income (Loss) per Unit: Limited Partners 2.66 3.69 0.39 1.57 (1.80 ) General Partner 2.66 3.69 0.39 1.57 (1.80 ) TOTAL ASSETS AT END OF PERIOD 449,549,242 299,604,379 246,043,382 224,581,554 219,366,812 TOTAL NET ASSETS AT END OF PERIOD 441,522,484 295,377,799 241,411,585 220,729,969 213,805,674 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 30.31 27.65 23.96 23.57 22.00 General Partner 30.31 27.65 23.96 23.57 22.00 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 5,648,636 (3,435,893 ) (0.22 ) June 30 30,802,630 21,952,801 1.89 September 30 (7,076,850 ) (16,582,417 ) (1.29 ) December 31 44,838,626 32,252,414 2.28 Total 74,213,042 34,186,905 2.66 2002 March 31 (4,965,948 ) (11,031,500 ) (1.10 ) June 30 35,775,689 29,684,989 2.81 September 30 45,366,560 38,074,946 3.56 December 31 (8,570,573 ) (15,905,236 ) (1.58 ) Total 67,605,728 40,823,199 3.69 2001 March 31 30,525,016 24,046,834 2.55 June 30 (16,536,822 ) (22,611,942 ) (2.37 ) September 30 28,022,232 21,354,388 2.20 December 31 (11,541,531 ) (19,623,931 ) (1.99 ) Total 30,468,895 3,165,349 0.39 Spectrum Technical Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 12,255,064 726,179 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) 22,006,013 (872,972 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 34,261,077 (146,793 ) Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 11,613,896 9,593,178 Total 142,093,478 92,648,909 9,867,449 45,874,973 9,446,385 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 17,835,223 19,176,380 Incentive fees 13,042,559 4,024,921 2,093,709 166,085 430,097 Management fees 10,835,994 7,377,756 7,501,053 9,595,464 10,580,071 Total 54,151,590 31,873,474 29,150,818 27,596,772 30,186,548 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) 18,278,201 (20,740,163 ) Net Income (Loss) Allocation: Limited Partners 86,960,795 60,110,064 (19,062,561 ) 18,053,408 (20,531,494 ) General Partner 981,093 665,371 (220,808 ) 224,793 (208,669 ) Net Income (Loss) per Unit: Limited Partners 4.23 3.48 (1.15 ) 1.17 (1.21 ) General Partner 4.23 3.48 (1.15 ) 1.17 (1.21 ) TOTAL ASSETS AT END OF PERIOD 550,066,920 341,596,812 262,442,204 273,695,028 274,233,195 TOTAL NET ASSETS AT END OF PERIOD 538,184,278 335,821,626 257,974,122 268,133,092 268,755,718 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 22.64 18.41 14.93 16.08 14.91 General Partner 22.64 18.41 14.93 16.08 14.91 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 45,385,367 29,742,112 1.69 June 30 9,441,031 (1,046,326 ) (0.02 ) September 30 (11,784,806 ) (22,120,621 ) (1.04 ) December 31 99,051,886 81,366,723 3.60 Total 142,093,478 87,941,888 4.23 2002 March 31 (14,298,661 ) (20,650,030 ) (1.19 ) June 30 48,100,199 42,172,229 2.42 September 30 73,338,452 61,849,516 3.53 December 31 (14,491,081 ) (22,596,280 ) (1.28 ) Total 92,648,909 60,775,435 3.48 2001 March 31 42,238,835 33,867,655 2.03 June 30 (37,165,746 ) (44,181,065 ) (2.65 ) September 30 22,112,517 15,675,530 0.92 December 31 (17,318,157 ) (24,645,489 ) (1.45 ) Total 9,867,449 (19,283,369 ) (1.15 ) Spectrum Strategic Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 30,251,636 10,648,811 2,132,212 (23,193,914 ) 32,274,037 Net change in unrealized 990,641 2,439,378 2,505,634 (7,577,681 ) 4,264,478 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 (30,771,595 ) 36,538,515 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 3,832,634 3,017,103 Total 31,984,167 14,078,687 6,855,809 (26,938,961 ) 39,555,618 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 5,798,093 5,837,887 Management fees 2,735,685 2,194,958 2,183,596 2,880,999 3,137,509 Incentive fees 2,123,832 264,827 1,269,237 2,451,152 Total 11,470,755 7,764,271 7,336,352 9,948,329 11,426,548 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) (36,887,290 ) 28,129,070 Net Income (Loss) Allocation: Limited Partners 20,281,103 6,238,448 (475,383 ) (36,503,461 ) 27,829,050 General Partner 232,309 75,968 (5,160 ) (383,829 ) 300,020 Net Income (Loss) per Unit: Limited Partners 2.77 0.99 (0.06 ) (5.24 ) 4.30 General Partner 2.77 0.99 (0.06 ) (5.24 ) 4.30 TOTAL ASSETS AT END OF PERIOD 123,656,595 77,094,809 71,489,275 76,427,098 109,444,028 TOTAL NET ASSETS AT END OF PERIOD 121,270,439 75,369,072 68,817,386 74,234,449 107,692,521 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 14.31 11.54 10.55 10.61 15.85 General Partner 14.31 11.54 10.55 10.61 15.85 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 7,634,556 4,781,178 0.75 June 30 2,970,073 442,228 0.07 September 30 7,306,514 4,972,399 0.67 December 31 14,073,024 10,317,607 1.28 Total 31,984,167 20,513,412 2.77 2002 March 31 8,275,813 6,492,203 1.00 June 30 4,753,904 2,944,241 0.47 September 30 6,023,092 3,800,561 0.60 December 31 (4,974,122 ) (6,922,589 ) (1.08 ) Total 14,078,687 6,314,416 0.99 2001 March 31 2,340,103 404,464 0.06 June 30 (1,824,625 ) (3,672,569 ) (0.54 ) September 30 2,975,539 1,217,762 0.18 December 31 3,364,792 1,569,800 0.24 Total 6,855,809 (480,543 ) (0.06 ) Spectrum Global Balanced Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 (2,091,009 ) 2,425,585 Net change in unrealized 1,801,107 56,725 (2,628,436 ) 2,507,530 (1,157,073 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 416,521 1,268,512 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 3,275,958 2,385,751 Total 6,038,905 (2,566,396 ) 3,150,268 3,692,479 3,654,263 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 2,558,008 2,387,515 Management fees 632,782 688,151 705,746 695,117 648,787 Incentive fees 215,651 Total 2,961,397 3,220,522 3,302,867 3,253,125 3,251,953 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) 439,354 402,310 Net Income (Loss) Allocation: Limited Partners 3,043,649 (5,720,328 ) (150,650 ) 433,786 397,258 General Partner 33,859 (66,590 ) (1,949 ) 5,568 5,052 Net Income (Loss) per Unit: Limited Partners 0.90 (1.64 ) (0.05 ) 0.14 0.12 General Partner 0.90 (1.64 ) (0.05 ) 0.14 0.12 TOTAL ASSETS AT END OF PERIOD 53,920,384 51,559,238 58,790,758 56,740,136 58,807,588 TOTAL NET ASSETS AT END OF PERIOD 52,639,493 50,405,432 57,785,760 55,879,750 57,864,012 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.47 14.57 16.21 16.26 16.12 General Partner 15.47 14.57 16.21 16.26 16.12 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 946,959 210,736 0.05 June 30 4,100,730 3,372,448 1.02 September 30 (386,145 ) (1,135,694 ) (0.35 ) December 31 1,377,361 630,018 0.18 Total 6,038,905 3,077,508 0.90 2002 March 31 (690,502 ) (1,526,664 ) (0.43 ) June 30 247,747 (562,004 ) (0.16 ) September 30 (1,414,555 ) (2,219,748 ) (0.63 ) December 31 (709,086 ) (1,478,502 ) (0.42 ) Total (2,566,396 ) (5,786,918 ) (1.64 ) 2001 March 31 815,020 322 June 30 (965,508 ) (1,799,958 ) (0.51 ) September 30 434,123 (386,194 ) (0.11 ) December 31 2,866,633 2,033,231 0.57 Total 3,150,268 (152,599 ) (0.05 ) Spectrum Currency Selected Financial Data For the Years Ended December 31, For the Period from July 3, 2000 (commencement of operations) to December 31, 2000 $ $ $ $ REVENUES Trading profit: Realized 27,952,154 12,877,202 3,998,924 1,126,201 Net change in unrealized (772,909 ) 2,473,166 2,622,814 555,569 Total Trading Results 27,179,245 15,350,368 6,621,738 1,681,770 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 236,461 Total 28,185,655 16,183,891 7,353,454 1,918,231 EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 249,571 Management fees 2,656,229 1,337,848 564,216 171,693 Incentive fees 2,623,290 1,485,875 1,155,201 188,423 $ % $ % $ Foreign currency 641,746 1.27 137,676 0.28 779,422 6,800,258 Interest Rate 806,083 1.60 (1,737 ) 804,346 1,479 Equity (812,665 ) (1.61 ) (812,665 ) 477 Commodity 120,736 0.24 26,606 0.05 147,342 Total 11,388,846 5,900,771 3,017,115 609,687 NET INCOME 16,796,809 10,283,120 4,336,339 1,308,544 Net Income Allocation: Limited Partners 16,514,538 10,038,409 4,119,027 1,134,371 General Partner 282,271 244,711 217,312 174,173 Net Income per Unit: Limited Partners 1.73 1.52 1.24 1.17 General Partner 1.73 1.52 1.24 1.17 TOTAL ASSETS AT END OF PERIOD 192,464,641 98,379,320 49,112,223 18,056,724 TOTAL NET ASSETS AT END OF PERIOD 190,055,920 96,159,452 47,811,741 15,707,232 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.66 13.93 12.41 11.17 General Partner 15.66 13.93 12.41 11.17 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 6,321,965 3,660,402 0.55 June 30 6,641,296 3,268,861 0.45 September 30 (5,055,352 ) (7,367,330 ) (0.79 ) December 31 20,277,746 17,234,876 1.52 Total 28,185,655 16,796,809 1.73 2002 March 31 (4,108,907 ) (4,944,552 ) (1.17 ) June 30 15,457,288 13,231,295 2.60 September 30 (7,254,255 ) (8,531,364 ) (1.48 ) December 31 12,089,765 10,527,741 1.57 Total 16,183,891 10,283,120 1.52 2001 March 31 1,783,392 1,250,137 0.65 June 30 (269,233 ) (687,632 ) (0.32 ) September 30 (230,606 ) (755,594 ) (0.32 ) December 31 6,069,901 4,529,428 1.23 Total 7,353,454 4,336,339 1.24 The partnership's VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. They are also not based on exchange and/or dealer-based maintenance margin requirements. VaR models, including the partnerships', are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the general partner or the trading advisors in their daily risk management activities. Please further note that VaR, as described above, may not be comparable to similarly titled measures used by other entities. Each Partnership's Value at Risk in Different Market Sectors The following tables indicate the VaR associated with each partnership's open positions, as a percentage of total net assets, by primary market risk category as of December 31, 2003 and 2002. Spectrum Select: At December 31, 2003 and 2002, Spectrum Select's total capitalization was approximately $442 million and $295 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.75 ) (0.44 ) Currency (1.19 ) (2.17 ) Interest Rate (0.48 ) (1.25 ) Commodity (1.40 ) (1.22 ) Aggregate Value at Risk (2.64 ) (2.84 ) Spectrum Technical: At December 31, 2003 and 2002, Spectrum Technical's total capitalization was approximately $538 million and $336 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.48 ) (2.14 ) Equity (1.66 ) (0.24 ) Interest Rate (1.16 ) (1.24 ) Commodity (1.45 ) (1.46 ) Aggregate Value at Risk (3.47 ) (2.76 ) Spectrum Strategic: At December 31, 2003 and 2002, Spectrum Strategic's total capitalization was approximately $121 million and $75 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR Spectrum Global Balanced: At December 31, 2003 and 2002, Spectrum Global Balanced's total capitalization was approximately $53 million and $50 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.43 ) (0.79 ) Interest Rate (0.72 ) (0.91 ) Currency (0.70 ) (0.66 ) Commodity (0.19 ) (0.34 ) Aggregate Value at Risk (1.46 ) (1.37 ) Spectrum Currency: At December 31, 2003 and 2002, Spectrum Currency's total capitalization was approximately $190 million and $96 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.60 ) (3.91 ) The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk, listed above for each partnership, represents the VaR of a partnership's open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes. Because the business of each partnership is the speculative trading of futures, forwards, and options, the composition of a partnership's trading portfolio can change significantly over any given time period, or even within a single trading day, which could positively or negatively materially impact market risk as measured by VaR. The tables below supplement the December 31, 2003 VaR (set forth above) by presenting each partnership's high, low, and average VaR, as a percentage of total net assets, for the four quarter-end reporting periods from January 1, 2003 through December 31, 2003. Spectrum Select Market Category High Low Average % % % Equity 1.75 0.42 0.86 Currency 1.32 0.44 1.00 Interest Rate 0.58 0.35 0.47 Commodity 1.40 0.16 0.80 Aggregate Value at Risk 2.64 0.82 1.72 Spectrum Technical Market Category High Low Average Spectrum Strategic Market Category High Low Average % % % Equity (1.69 ) (0.12 ) (0.63 ) Currency (0.93 ) (0.20 ) (0.60 ) Interest Rate (0.24 ) (0.09 ) (0.16 ) Commodity (1.67 ) (1.04 ) (1.22 ) Aggregate Value at Risk (2.61 ) (1.19 ) (1.60 ) Spectrum Global Balanced Market Category High Low Average % % % Equity (1.43 ) (0.59 ) (0.87 ) Interest Rate (0.84 ) (0.37 ) (0.66 ) Currency (0.70 ) (0.19 ) (0.39 ) Commodity (0.31 ) (0.10 ) (0.19 ) Aggregate Value at Risk (1.46 ) (0.76 ) (1.03 ) Spectrum Currency Market Category High Low Average 2003, the partnership's major exposures were to the euro Canadian dollar, Australian dollar, Swiss franc and Japanese yen currency crosses, as well as outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based partnership in expressing VaR in a functional currency other than U.S. dollars. Commodity Energy. At December 31, 2003, the partnership's energy exposure was primarily to futures contracts in crude oil. Price movements in these energy markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future. Metals. The partnership's metals exposure at December 31, 2003 was to fluctuations in the price of base metals such as copper and nickel. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movements in these markets. The Trading Advisor, from time to time, takes positions when market opportunities develop, and the general partner anticipates that the Partnership will continue to do so. Soft Commodities and Agriculturals. At December 31, 2003, the partnership had exposure to the markets that comprise these sectors. Most of the exposure was to the cotton and corn markets. Supply and demand inequalities, severe weather disruptions and market expectations affect price movements in these markets. Morgan Stanley Spectrum Currency L.P. The following was the only trading risk exposure of Spectrum Currency as of December 31, 2003. It may be anticipated, however, that market exposure will vary materially over time. Currency. The partnership's currency exposure at December 31, 2003 was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. At December 31, 2003, the partnership's exposure was to outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based Partnership in expressing VaR in a functional currency other than U.S. dollars. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of each partnership at December 31, 2003: Foreign Currency Balances. Each partnership's primary foreign currency balances were in: Spectrum Select Spectrum Technical Spectrum Strategic Euros Euros British pounds Hong Kong dollars Hong Kong dollars Euros Japanese yen South African rand Hong Kong dollars Spectrum Global Balanced Spectrum Currency Each partnership controls the non-trading risk of these balances by regularly converting them back into U.S. dollars upon liquidation of the respective position. Qualitative Disclosures Regarding Means of Managing Risk Exposure Each partnership and the trading advisors, separately, attempt to manage the risk of a partnership's open positions in essentially the same manner in all market categories traded. The general partner attempts to manage each partnership's market exposure by seeking to have each partnership diversify its assets among different trading advisors in a multi-advisor partnership, each of whose strategies focus on different market sectors and trading approaches, and monitoring the performance of the trading advisors daily. In addition, the trading advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market sensitive instrument. The general partner monitors and controls the risk of each partnership's non-trading instrument, cash. Cash is the only partnership investment directed by the general partner, rather than the trading advisors. THE GENERAL PARTNER The general partner and commodity pool operator of each partnership is Demeter Management Corporation, a Delaware corporation formed on August 18, 1977 to act as a commodity pool operator. Effective in 1977, the general partner became registered with the CFTC as a commodity pool operator and is currently a member of the National Futures Association in such capacity. The general partner's main business office is located at 825 Third Avenue, 9th Floor, New York, New York 10022, telephone (212) 310-6444. The general partner is an affiliate of Morgan Stanley DW in that they are both wholly-owned subsidiaries of Morgan Stanley, which is a publicly-owned company subject to the reporting requirements of the Securities Exchange Act of 1934. Morgan Stanley's SEC file number is 1-11758. The general partner is or has been the general partner and commodity pool operator for 39 commodity pools, including 7 commodity pools that are exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of December 31, 2003, the general partner had approximately $2.7 billion in aggregate net assets under management, making it one of the largest operators of commodity pools in the U.S. As of December 31, 2003, there were approximately 80,500 investors in the commodity pools managed by Demeter. The general partner is required to maintain its net worth at an amount equal to at least 10% of the total contributions to each limited partnership for which it acts as a general partner. Morgan Stanley has contributed to the general partner the capital necessary to permit the general partner to meet its net worth obligations as general partner of each partnership and intends to continue to do so. The general partner's minimum net worth requirements may be modified by the general partner at its option without notice to or the consent of the limited partners, provided the modification does not adversely affect the partnership or the limited partners. The general partner and its principals are not obligated to purchase units but may do so. Pursuant to each limited partnership agreement, the genral partner is required to contribute to each partnership, in $1,000 increments, the greater of 1% of the aggregate capital contributions by all partners and $25,000. As of December 31, 2003, the general partner's capital account in each partnership was equal to: Capital Account $ Demeter Management Corporation Capsule Summary of Performance Information Regarding Commodity Pools Operated (except as otherwise indicated, beginning January 1, 1999 through December 31, 2003) Compound Annual Rates of Return Current Total Net Asset Value(5) Current Net Asset Value per Unit(6) Cumulative Return Since Inception(7) Fund Type/Fund(1) Start Date(2) Close Date(3) Aggregate Subscriptions(4) Worst Monthly % Drawdown(8) Worst Peak- to-Valley % Drawdown(9) $ $ ASSETS Investments in affiliated partnerships 26,396,481 27,173,907 Deferred income taxes 2,248,934 Income taxes receivable 1,689,480 Receivable from affiliated partnerships during any audit and in any dispute with the Internal Revenue Service. Each limited partner will be informed by the general partner of the commencement of an audit of a partnership. In general, the general partner may enter into a settlement agreement with the Internal Revenue Service on behalf of, and binding upon, limited partners owning less than a 1% profits interest if the partnership has more than 100 partners. However, prior to settlement, such a limited partner may file a statement with the Internal Revenue Service stating that the general partner does not have the authority to settle on behalf of the limited partner. The period for assessing a deficiency against a partner in a partnership with respect to a partnership item is the later of three years after the partnership files its return or, if the name and address of the partner does not appear on the partnership return, one year after the Internal Revenue Service is furnished with the name and address of the partner. In addition, the general partner may consent on behalf of each partnership to the extension of the period for assessing a deficiency with respect to a partnership item. As a result, a limited partner's federal income tax return may be subject to examination and adjustment by the Internal Revenue Service for a partnership item more than three years after it has been filed. 2003* Managed futures investments are designed to fit into a total financial plan as aggressive growth vehicles with the potential for long-term capital appreciation (with commensurate risk). Because their performance does not correlate directly with traditional investments, managed futures can truly enhance diversification in a well-balanced portfolio. The table below is an empirical example of how different assets can react to business cycles. In each case, the asset class is represented by a recognized industry index for that asset. ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME U.S. Stocks (S&P 500 Index) U.S. Treasury Bonds (Lehman Brothers Treasury Bond Index) U.S. Corporate Bonds (Citigroup Corporate Bond Index) Non-U.S. Stocks (MSCI EAFE Index) Global Stocks (MSCI World Index) Managed Futures (Barclay CTA Index) Public Managed Futures Funds (CISDM Public Fund Index) Data: 42 months of trading from July 2000 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Trading advisors are analyzed by a combination of quantitative measures and qualitative factors, including: Quantitative Measures Review of historic performance returns Review of performance versus managed futures industry Review of risk, including standard deviation of monthly returns and worst decline periods Scrutiny of performance in key periods Leverage policies of trading advisors Correlation analysis of trading advisor returns versus managed futures industry indices and other asset class indices Qualitative Factors Experience of staff responsible for development and management of trading approach Development of trading advisor's profile Consistency of trading approach On-site office visit to trading advisor headquarters Ongoing commitment to research and development Flexibility to expand in order to meet demands of growth in assets Futures, Forwards, and Options Traded Adding managed futures investments to a traditional portfolio of stocks and bonds can provide qualified investors with access to major world economic markets. At any given time, managed futures investments can participate in a broad array of markets, selected from among approximately 75 global futures and forward markets on approximately 20 exchanges worldwide. PARTICIPATION IN APPROXIMATELY 75 MARKETS WORLDWIDE plus Energies, Agriculturals, and Metals UNITED STATES UNITED KINGDOM FRANCE GERMANY Bonds, Bills, & Notes Dollar S&P 500 FTSE 100 Long Gilt Pound Short Sterling CAC 40 Notional Bond Pibor Bund DAX RUSSIA CHINA JAPAN AUSTRALIA MAJOR FUTURES MARKETS TRADED Managed futures give investors access to a wide range of complex and sophisticated investments from around the world. Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN EXCHANGE STOCK INDICES SPECTRUM SELECT PERFORMANCE 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 31.19% -14.45% 41.62% -5.12% 23.62% 5.27% 6.22% 14.17% -7.56% 7.14% 1.65% 15.40% 9.62% (5 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (7/31/91 = $10) CORRELATION ANALYSIS (8/91 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Select CISDM S&P CITI EAFE SPECTRUM TECHNICAL PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -2.20% 17.59% 18.35% 7.49% 10.18% -7.51% 7.85% -7.15% 23.31% 22.98% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 -12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Technical CISDM S&P CITI EAFE SPECTRUM STRATEGIC PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 0.10% 10.49% -3.53% 0.37% 7.84% 37.23% -33.06% -0.57% 9.38% 24.00% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Strategic CISDM S&P CITI EAFE SPECTRUM GLOBAL BALANCED PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -1.70% 22.79% -3.65% 18.23% 16.36% 0.75% 0.87% -0.31% -10.12% 6.18% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Global Balanced CISDM S&P CITI EAFE MORGAN STANLEY SPECTRUM CURRENCY L.P. All of the performance data below is through December 31, 2003. SPECTRUM CURRENCY STATISTICS Trading Advisors: John W. Henry & Company, Inc. Sunrise Capital Partners, LLC Began Trading: July 3, 2000 Total Assets in Fund: $190.1 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 13.67% Standard Deviation of Monthly Returns: 4.61% Annualized Standard Deviation: 15.96% Sharpe Ratio: 0.61 Sortino Ratio: 1.71 Largest Decline Period (2/89 - 9/89): -11.13% Average Recovery (No. of months): 2.14 Average Monthly Loss: -2.59% Standard Deviation of Monthly Loss: 1.63% % of Losing Months: 44.19% Average Monthly Gain: 4.11% Standard Deviation of Monthly Gain: 3.99% % of Winning Months: 55.81% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC, is structured to exclusively trade a portfolio of diverse world currencies. Each trading advisor implements a technical, trend-following program to participate in international currencies, primarily in the forward dealer markets, futures contracts, and may also trade in spot (cash) currency markets. JWH employs the International Foreign Exchange Program, which seeks to identify and capitalize on intermediate-term price movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. Sunrise's Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as cross-rates selectively against each other and/or as outrights against the U.S. dollar. FUTURES MARKETS TRADED SPECTRUM CURRENCY PERFORMANCE 2000 2001 2002 2003 11.70% 11.10% 12.25% 12.42% (6 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (4/30/87 = $10) CORRELATION ANALYSIS (6/00 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Pro Forma Spectrum Currency CISDM S&P CITI EAFE The following charts were prepared by the general partner to illustrate certain period performance and statistical information relating to the partnerships, from their inception of trading through December 2003. Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Currency Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period FINANCIAL STATEMENTS INDEX Page MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 398,595,952 274,780,334 Net unrealized gain on open contracts (Morgan Stanley & Co.) 25,504,948 20,865,525 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 11,277,017 (2,967,507 ) Total net unrealized gain on open contracts 36,781,965 17,898,018 Net option premiums 1,232,488 Total Trading Equity 436,610,405 292,678,352 Subscriptions receivable 12,688,217 6,690,744 Interest receivable (Morgan Stanley DW) 250,620 235,283 Total Assets 449,549,242 299,604,379 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,405,123 1,876,403 Accrued brokerage fees (Morgan Stanley DW) 2,401,080 1,662,321 Accrued incentive fee 2,227,005 Accrued management fees 993,550 687,856 Total Liabilities 8,026,758 4,226,580 PARTNERS' CAPITAL Limited Partners (14,405,312.114 and 10,567,690.403 Units, respectively) 436,666,633 292,226,000 General Partner (160,190.965 and 113,977.644 Units, respectively) 4,855,851 3,151,799 Total Partners' Capital 441,522,484 295,377,799 Total Liabilities and Partners' Capital 449,549,242 299,604,379 NET ASSET VALUE PER UNIT 30.31 27.65 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 483,512,056 310,115,973 Net unrealized gain on open contracts (Morgan Stanley & Co.) 27,948,353 27,172,226 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 18,485,857 (3,069,013 ) Total net unrealized gain on open contracts 46,434,210 24,103,213 Net option premiums 3,973,725 Total Trading Equity 533,919,991 334,219,186 Subscriptions receivable 15,855,119 7,108,790 Interest receivable (Morgan Stanley DW) 291,810 268,836 Total Assets 550,066,920 341,596,812 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 4,924,640 Accrued brokerage fees (Morgan Stanley DW) 2,947,775 1,906,305 Redemptions payable 2,925,703 3,195,919 Accrued management fees 1,084,524 672,962 Total Liabilities 11,882,642 5,775,186 PARTNERS' CAPITAL Limited Partners (23,512,770.158 and 18,038,726.045 Units, respectively) 532,266,109 332,124,550 General Partner (261,434.166 and 200,799.812 Units, respectively) 5,918,169 3,697,076 Total Partners' Capital 538,184,278 335,821,626 Total Liabilities and Partners' Capital 550,066,920 341,596,812 NET ASSET VALUE PER UNIT 22.64 18.41 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 109,846,761 68,224,648 Net unrealized gain on open contracts (Morgan Stanley & Co.) 5,847,799 7,430,755 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 2,073,986 (499,611 ) Total net unrealized gain on open contracts 7,921,785 6,931,144 Net option premiums 678,280 222,768 Total Trading Equity 118,446,826 75,378,560 Subscriptions receivable 5,143,178 1,654,471 Interest receivable (Morgan Stanley DW) 66,591 61,778 Total Assets 123,656,595 77,094,809 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 811,250 Redemptions payable 655,871 1,115,549 Accrued brokerage fees (Morgan Stanley DW) 650,049 431,596 Accrued management fees 268,986 178,592 Total Liabilities 2,386,156 1,725,737 PARTNERS' CAPITAL Limited Partners (8,385,489.652 and 6,454,424.204 Units, respectively) 119,976,992 74,487,934 General Partner (90,402.219 and 76,351.101 Units, respectively) 1,293,447 881,138 Total Partners' Capital 121,270,439 75,369,072 Total Liabilities and Partners' Capital 123,656,595 77,094,809 NET ASSET VALUE PER UNIT 14.31 11.54 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 50,336,417 49,330,482 Net unrealized gain on open contracts (Morgan Stanley & Co.) 1,845,313 758,782 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 701,727 (12,849 ) Total net unrealized gain on open contracts 2,547,040 745,933 Net option premiums (39,600 ) 712,573 Total Trading Equity 52,843,857 50,788,988 Subscriptions receivable 1,036,417 716,792 Interest receivable (Morgan Stanley DW) 40,110 53,458 Total Assets 53,920,384 51,559,238 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,033,040 896,775 Accrued brokerage fees (Morgan Stanley DW) 194,891 202,109 Accrued management fees 52,960 54,922 Total Liabilities 1,280,891 1,153,806 PARTNERS' CAPITAL Limited Partners (3,364,748.115 and 3,419,596.378 Units, respectively) 52,064,431 49,814,229 General Partner (37,164.331 and 40,584.304 Units, respectively) 575,062 591,203 Total Partners' Capital 52,639,493 50,405,432 Total Liabilities and Partners' Capital 53,920,384 51,559,238 NET ASSET VALUE PER UNIT 15.47 14.57 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ % $ % $ Foreign currency 10,097,643 3.01 967,843 0.29 11,065,486 3,317,707,667 Commodity 2,703,202 0.80 1,100,261 0.33 3,803,463 11,280 Interest rate 9,047,725 2.69 (683,890 ) (0.20 ) 8,363,835 10,261 Equity (486,130 ) (0.14 ) 449,469 0.13 (36,661 ) $ $ ASSETS Equity in futures interests trading accounts: Cash 178,774,244 88,478,803 Net unrealized gain on open contracts (Morgan Stanley & Co.) 4,878,640 5,651,549 Total Trading Equity 183,652,884 94,130,352 Subscriptions receivable 8,709,868 4,178,758 Interest receivable (Morgan Stanley DW) 101,889 70,210 Total Assets 192,464,641 98,379,320 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fees 399,035 239,482 Redemptions payable 1,060,483 1,526,335 Accrued brokerage fees (Morgan Stanley DW) 661,566 316,460 Accrued management fees 287,637 137,591 Total Liabilities 2,408,721 2,219,868 PARTNERS' CAPITAL Limited Partners (12,010,816.426 and 6,739,826.121 Units, respectively) 188,042,673 93,891,619 General Partner (128,591.799 and 162,791.986 Units, respectively) 2,013,247 2,267,833 Total Partners' Capital 190,055,920 96,159,452 Total Liabilities and Partners' Capital 192,464,641 98,379,320 NET ASSET VALUE PER UNIT 15.66 13.93 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) Proceeds from litigation settlement 4,636,156 Total Trading Results 71,369,430 64,137,291 23,265,163 Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 Total 74,213,042 67,605,728 30,468,895 EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 Management fees 10,617,352 7,838,786 7,110,346 Incentive fees 3,750,169 3,009,853 Total 40,026,137 26,782,529 27,303,546 NET INCOME 34,186,905 40,823,199 3,165,349 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 Total 142,093,478 92,648,909 9,867,449 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 Incentive fees 13,042,559 4,024,921 2,093,709 Management fees 10,835,994 7,377,756 7,501,053 Total 54,151,590 31,873,474 29,150,818 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit: Realized 30,251,636 10,648,811 2,132,212 Net change in unrealized 990,641 2,439,378 2,505,634 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 Total 31,984,167 14,078,687 6,855,809 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 Management fees 2,735,685 2,194,958 2,183,596 Incentive fees 2,123,832 264,827 Total 11,470,755 7,764,271 7,336,352 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 Net change in unrealized 1,801,107 56,725 (2,628,436 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 Total 6,038,905 (2,566,396 ) 3,150,268 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 Management fees 632,782 688,151 705,746 Total 2,961,397 3,220,522 3,302,867 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 27,952,154 12,877,202 3,998,924 Net change in unrealized (772,909 ) 2,473,166 2,622,814 Total Trading Results 27,179,245 15,350,368 6,621,738 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 1. Formation; Name A-2 2. Office A-3 3. Business A-3 4. Term; Dissolution; Fiscal Year A-3 Spectrum Select only: A-3 (a) Term A-3 Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: A-3 (a) Term A-3 Spectrum Currency only: A-4 (a) Term A-4 (b) Dissolution A-4 (c) Fiscal Year A-4 5. Net Worth of General Partner A-4 6. Capital Contributions and Offering of Units of Limited Partnership Interest A-5 7. Allocation of Profits and Losses; Accounting; Other Matters A-7 (a) Capital Accounts A-7 (b) Monthly Allocations A-7 (c) Allocation of Profit and Loss for Federal Income Tax Purposes A-7 (d) Definitions; Accounting A-9 (e) Expenses and Limitations Thereof A-9 (f) Limited Liability of Limited Partners A-10 (g) Return of Limited Partner's Capital Contribution A-10 (h) Distributions A-10 (i) Interest on Assets A-10 8. Management and Trading Policies A-10 (a) Management of the Partnership A-10 (b) The General Partner A-11 (c) General Trading Policies A-12 Trading Policies for All Partnerships: A-12 Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency A-12 Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: A-12 Trading Policy for Spectrum Select only: A-13 Trading Policies for Spectrum Global Balanced only: A-13 (d) Changes to Trading Policies A-13 (e) Miscellaneous A-13 9. Audits; Reports to Limited Partners A-14 10. Transfer; Redemption of Units; Exchange Privilege A-15 (a) Transfer A-15 (b) Redemption A-16 (c) Exchange Privilege A-17 11. Special Power of Attorney A-18 12. Withdrawal of Partners A-19 13. No Personal Liability for Return of Capital A-19 14. Standard of Liability; Indemnification A-19 (a) Standard of Liability A-19 (b) Indemnification by the Partnership A-19 (c) Affiliate A-20 (d) Indemnification by Partners A-20 15. Amendments; Meetings A-20 (a) Amendments with Consent of the General Partner A-20 (b) Meetings A-21 (c) Amendments and Actions without Consent of the General Partner A-21 (d) Action Without Meeting A-22 (e) Amendments to Certificate of Limited Partnership A-22 16. Index of Defined Terms A-22 17. Governing Law A-23 18. Miscellaneous A-23 (a) Priority among Limited Partners A-23 (b) Notices A-23 (c) Binding Effect A-23 (d) Captions A-23 Annex A Request for Redemption A-24 Form of Amended and Restated Limited Partnership Agreement for each of the Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P. Boldfaced captions and bracketed text reflect differences in Limited Partnership Agreements. Spectrum Select only: This Agreement of Limited Partnership, made as of March 21, 1991, as amended and restated as of August 31, 1993, as further amended and restated as of October 17, 1996, as further amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: This Agreement of Limited Partnership, made as of May 27, 1994, as amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and between Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Currency only: This Agreement of Limited Partnership, made as of March 6, 2000 (this "Agreement"), by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively, "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership for the purpose of engaging in the speculative trading of future interests. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Formation; Name. The parties hereto do hereby form a limited partnership under the Delaware Revised Uniform Limited Partnership Act, as amended and in effect on the date hereof (the "Act"). The name of the limited partnership is Morgan Stanley Spectrum [Select][Technical][Strategic][Global Balanced][Currency] L.P. (the "Partnership"). The General Partner shall execute and file a Certificate of Limited Partnership of the Partnership (the "Certificate of Limited Partnership") in accordance with the Act, and shall execute, file, record, and publish as appropriate such amendments, assumed name certificates, and other documents as are or become necessary or advisable in connection with the operation of the Partnership, as determined by the General Partner, and shall take all steps which the General Partner may deem necessary or advisable to allow the Partnership to conduct business as a limited partnership where the Partnership conducts business in any jurisdiction, and to otherwise provide that Limited Partners will have limited liability with respect to the activities of the Partnership in all such jurisdictions, and to comply with the law of any jurisdiction. Each Limited Partner hereby undertakes to furnish to the General Partner a power of attorney and such additional information as the General Partner may request to complete such documents and to execute and cooperate in the filing, recording, or publishing of such documents as the General Partner determines appropriate. Total 28,185,655 16,183,891 7,353,454 2. Office. The principal office of the Partnership shall be 825 Third Avenue, 9th Floor, New York, New York 10022, or such other place as the General Partner may designate from time to time. The address of the principal office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other agent as the General Partner shall designate from time to time. 3. Business. The Partnership's business and general purpose is to trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now, or may hereafter be, the subject of futures contract trading), domestic and foreign commodity futures contracts, commodity forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, and any rights pertaining thereto (hereinafter referred to collectively as "Futures Interests") and securities (such as United States Treasury securities) approved by the Commodity Futures Trading Commission (the "CFTC") for investment of customer funds and other securities on a limited basis, and to engage in all activities incident thereto. The objective of the Partnership's business is appreciation of its assets through speculative trading. The Partnership may pursue this objective in any lawful manner consistent with the Partnership's trading policies. The Partnership may engage in the foregoing activities either directly or through any lawful transaction or any lawful activity into which a limited partnership may enter or in which a limited partnership may engage under the laws of the State of Delaware; provided that such transactions or activities do not subject the Limited Partners to any liability in excess of the limited liability provided for herein and contemplated by the Act. 4. Term; Dissolution; Fiscal Year. Spectrum Select only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: ( i) December 31, 2025; ( ii) withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; ( iii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; ( iv) a decline in the Net Asset Value (as defined in Section 7( d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; ( v) a decline in the Partnership's Net Assets (as defined in Section 7( d)(1)) as of the close of business (as determined by the General Partner) on any day to or less than $250,000; ( vi) a determination by the General Partner that the Partnership's Net Assets in relation to the operating expenses of the Partnership make it unreasonable or imprudent to continue the business of the Partnership; ( vii) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; or ( viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Currency only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. (b) Dissolution. Upon the occurrence of an event causing the termination of the Partnership, the Partnership shall terminate and be dissolved. Dissolution, payment of creditors, and distribution of the Partnership's Net Assets shall be effected as soon as practicable in accordance with the Act, except that the General Partner and each Limited Partner (and any assignee) shall share in the Net Assets of the Partnership pro rata in accordance with such Partner's respective capital account, less any amount owing by such Partner (or assignee) to the Partnership. The General Partner shall, at its option, be entitled to supervise the liquidation of the Partnership. Nothing contained in this Agreement shall impair, restrict, or limit the rights and powers of the Partners under the law of the State of Delaware and any other jurisdiction in which the Partnership shall be conducting business to reform and reconstitute themselves as a limited partnership following dissolution of the Partnership, either under provisions identical to those set forth herein or any others which they shall deem appropriate. (c) Fiscal Year. The fiscal year of the Partnership shall begin on January 1 of each year and end on the following December 31. 5. Net Worth of General Partner. The General Partner agrees that at all times, as long as it remains General Partner of the Partnership, it shall maintain its net worth at an amount not less than 10% of the total contributions to the Partnership by all Partners and to any other limited partnership for which it acts as a general partner by all partners; provided, however, that if the total contributions to the Partnership by all such partnership's partners, or to any limited partnership for which it acts as a general partner by all partners, are less than $2,500,000, then with respect to the Partnership and any such limited partnership, the General Partner shall maintain its net worth at an amount of at least 15% of the total contributions to the Partnership by all Partners and of the total contributions to any such limited partnership for which it acts as a general partner by all such partnership's partners or $250,000, whichever is the lesser; and, provided, further, that in no event shall the General Partner's net worth be less than $50,000. For the purposes of this Section 5, "net worth" shall be calculated in accordance with generally accepted accounting principles, except as otherwise specified in this Section 5, with all current assets based on their then current market values. The interests owned by the General Partner in the Partnership and any other partnerships for which it acts as a general partner and any notes and accounts receivable from and payable to any limited partnership in which it has an interest shall not be included as an asset in calculating its net worth, but any notes receivable from an affiliate (as such term is defined in Regulation S-X of the rules and regulations of the Securities and Exchange Commission (the "SEC")) of the General Partner or letters of credit may be included. The General Partner agrees that it shall not be a general partner of any limited partnership other than the Partnership unless, at all times when it is a general partner of any such additional limited partnership, its net worth is at least equal to the net worth required by the preceding paragraph of this Section 5. The requirements of the preceding two paragraphs of this Section 5 may be modified by the General Partner at its option, without notice to or the consent of the Limited Partners, provided that: (a) such modification does not adversely affect the interests of the Limited Partners, and (b) the General Partner obtains a written opinion of counsel for the Partnership that such proposed modification: (i) will not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, (ii) will not adversely affect the status of the Limited Partners as limited partners under the Act, and (iii) will not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder; provided, however, that the General Partner's net worth may not be reduced below the lesser of (A) the net worth required by Section II.B of the Guidelines for Registration of Commodity Pool Programs, as adopted in revised form by the North American Securities Administrators Association, Inc. in September, 1993 (the "NASAA Guidelines"), and (B) the net worth required by such Guidelines as in effect on the date of such proposed modification. 6. Capital Contributions and Offering of Units of Limited Partnership Interest. The General Partner shall contribute to the Partnership, in $1,000 increments, such amount in cash as is necessary to make the General Partner's capital contribution at least equal to the greater of: (a) 1% of aggregate capital contributions to the Partnership by all Partners (including the General Partner's contribution) and (b) $25,000. Such contribution by the General Partner need not exceed the amount described above and shall be evidenced by Units of General Partnership Interest ("Unit(s) of General Partnership Interest"). The General Partner shall maintain its interest in the capital of the Partnership at no less than the amount stated above. The General Partner, without notice to or consent of the Limited Partners, may withdraw any portion of its interest in the Partnership that is in excess of its required interest described above. Interests in the Partnership, other than the General Partnership Interest of the General Partner, shall be Units of Limited Partnership Interest ("Units" or, individually, a "Unit"). The net asset value of a Unit of General Partnership Interest shall at all times be equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. The General Partner, for and on behalf of the Partnership, shall issue and sell Units to persons desiring to become Limited Partners, provided that such persons shall be determined by the General Partner to be qualified investors and their subscriptions for Units shall be accepted by the General Partner, which acceptance the General Partner may withhold in whole or in part in its sole discretion. The minimum subscription for Units per subscriber shall be such amount as the General Partner shall determine from time to time in its sole discretion. The Partnership, directly and/or through Morgan Stanley DW Inc. ("Morgan Stanley DW"), Morgan Stanley & Co. Incorporated ("MS&Co.") or such other selling agent or agents (each, a "Selling Agent") as may be approved by the General Partner, may at any time and from time to time in the sole discretion of the General Partner offer for sale Units and fractions of Units (to the third decimal place) in public and/or private offerings, at prices per Unit, in such minimum amounts, for such periods of time, and on such terms and conditions as the General Partner shall determine in its sole discretion. Units offered during any offering shall be issued and sold by the Partnership as of the close of business (as determined by the General Partner) on the last business day of a fiscal quarter or month and a closing for subscriptions received during such offering shall be held as of such date; provided, however, that the General Partner may hold closings at such other times and for such other periods as it shall determine in its sole discretion to effectuate such offerings. At each such closing, the Partnership shall issue and sell Units to each subscriber whose subscription shall be accepted by the General Partner at a price per Unit to be EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 Management fees 2,656,229 1,337,848 564,216 Incentive fees 2,623,290 1,485,875 1,155,201 determined by the General Partner in its sole discretion; provided, however, that the offering price per Unit during any offering of Units shall not at any time be less than the Net Asset Value of a Unit as of the close of business on the date of the applicable closing at which such Unit shall be issued and sold, unless the newly offered Units' participation in the Partnership's profits and losses is proportionately reduced. During any offering, Units may be subscribed for by the General Partner, Morgan Stanley DW, MS&Co., any trading advisor to the Partnership (each, a "Trading Advisor"), any commodity broker for the Partnership (each, a "Commodity Broker"), and such persons' respective shareholders, directors, officers, partners, employees, principals, and Affiliates. Subscriptions for Units by such persons shall not preclude them from receiving compensation from the Partnership for services rendered by them in their respective capacities as other than Limited Partners. No subscriber for Units during any offering of Units shall become a Limited partner until the General Partner shall: (a) accept such subscriber's subscription at a closing relating to such offering; (b) execute this Agreement on behalf of such subscriber pursuant to the power of attorney in the subscription agreement executed by the subscriber in connection with such offering; and (c) make an entry on the books and records of the Partnership reflecting that such subscriber has been admitted as a Limited Partner. Accepted subscribers shall be deemed Limited Partners at such time as their admission shall be reflected on the books and records of the Partnership. The aggregate of all capital contributions to the Partnership shall be available to the Partnership to carry on its business and no interest shall be paid by the Partnership on any such contribution. In connection with any offering of Units by the Partnership, the General Partner, on behalf of the Partnership, shall: (a) cause to be filed one or more Disclosure Documents and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law with the CFTC and the National Futures Association ("NFA"), Forms D or other applications, notices or forms with the SEC and state securities and Blue Sky administrators, and Registration Statements, Prospectuses (as used hereinafter, the term "Prospectus" shall mean the most recent version of the Prospectus issued by the Partnership, or the most recent version of the Disclosure Document or other offering memorandum prepared, in connection with the particular offering of Units), and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law, with the CFTC, the NFA, the SEC, and the National Association of Securities Dealers, Inc.; (b) qualify by registration or exemption from registration the Units for sale under the Blue Sky and securities laws of such states of the United States and such other jurisdictions as the General Partner in its sole discretion shall deem advisable or as may be required by applicable law; (c) make such arrangements for the sale of Units as it shall deem advisable, including engaging Morgan Stanley DW or any other firm as Selling Agent and entering into a selling agreement with Morgan Stanley DW or such other Selling Agent; and (d) take such action with respect to and in order to effectuate the matters described in clauses (a) through (c) as it shall deem advisable or necessary. The Partnership shall not pay the costs of any offering or any selling commissions relating thereto. No Limited Partner shall have any preemptive, preferential or other rights with respect to the issuance or sale of any additional Units, except as described in the applicable Prospectus. No Limited Partner shall have the right to consent to the admission of any additional Limited Partner. There is no maximum aggregate amount of contributions which may be received by the Partnership. All Units subscribed for shall be issued subject to the collection of good funds. If, at any time, good funds representing payment for Units are not made available to the Partnership because a subscriber has provided bad funds in the form of a bad check or draft or otherwise to Morgan Stanley DW or another Selling Agent which, in turn, has deposited the subscription amount with the escrow agent, the Partnership shall cancel the Units issued to such subscriber represented by such bad funds, and the subscriber's name shall be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership as a result thereof in connection with its Futures Interests trading allocable to such cancelled Units shall be deemed a decrease or increase in Net Assets and allocated among the remaining Partners as described in Section 7. Each Limited Partner agrees to reimburse the Partnership for any expense or loss incurred in connection with the issuance and cancellation of any such Units issued to such Limited Partner. 7. Allocation of Profits and Losses; Accounting; Other Matters. (a) Capital Accounts. A capital account shall be established for each Partner. The initial balance of each Partner's capital account shall be the amount of a Partner's initial capital contribution to the Partnership. (b) Monthly Allocations. As of the close of business (as determined by the General Partner) on the last day of each calendar month ("Determination Date") during each fiscal year of the Partnership, the following determinations and allocations shall be made: (1) The Net Assets of the Partnership (as defined in Section 7(d)(1)), before accrual of the monthly management fees and incentive fees payable to any Trading Advisor, shall be determined. (2) The accrued monthly management fees shall then be charged against Net Assets. (3) The accrued monthly incentive fees, if any, shall then be charged against Net Assets. (4) Any increase or decrease in Net Assets (after the adjustments in subparagraphs (2) and (3) above), over those of the immediately preceding Determination Date (or, in the case of the first Determination Date, the first closing of the sale of Units to the public), shall then be credited or charged to the capital account of each Partner in the ratio that the balance of each account bears to the balance of all accounts. (5) The amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, any amount deemed received by a Partner on a Series Exchange of Units pursuant to Section 10(c) hereof, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership shall be charged to that Partner's capital account. (c) Allocation of Profit and Loss for Federal Income Tax Purposes. As of the end of each fiscal year of the Partnership, the Partnership's realized profit or loss shall be allocated among the Partners pursuant to the following subparagraphs for federal income tax purposes. Such allocations of profit and loss will be pro rata from net capital gain or loss and net operating income or loss realized by the Partnership. For United States federal income tax purposes, a distinction will be made between net short-term gain or loss and net long-term gain or loss. (1) Items of ordinary income (such as interest or credits in lieu of interest) and expense (such as the management fees, incentive fees, brokerage fees and extraordinary expenses) shall be allocated pro rata among the Partners based on their respective capital accounts (exclusive of these items of ordinary income or expense) as of the end of each month in which the items of ordinary income or expense accrued. (2) Net realized capital gain or loss from the Partnership's trading activities shall be allocated as follows: (aa) For the purpose of allocating the Partnership's net realized capital gain or loss among the Partners, there shall be established an allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid by the Partner to the Partnership for the Unit. Allocation accounts shall be adjusted as of the end of each fiscal year and as of the date a Partner completely redeems his Units as follows: (i) Each allocation account shall be increased by the amount of income allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(cc) below. (ii) Each allocation account shall be decreased by the amount of expense or loss allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by the amount of any distribution the holder of the Unit has received with respect to the Unit (other than on redemption of the Unit). (iii) When a Unit is redeemed or exchanged in a Series Exchange, the allocation account with respect to such Unit shall be eliminated. (bb) Net realized capital gain shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units over the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange. (cc) Net realized capital gain remaining after the allocation thereof pursuant to subparagraph (c)(2)(bb) above shall be allocated next among all Partners whose capital accounts are in excess of their Units' allocation accounts (after the adjustments in subparagraph (c)(2)(bb) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that gain to be allocated pursuant to this subparagraph (c)(2)(cc) is greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (dd) Net realized capital loss shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange over the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units. (ee) Net realized capital loss remaining after the allocation thereof pursuant to subparagraph (c)(2)(dd) above shall be allocated next among all Partners whose Units' allocation accounts are in excess of their capital accounts (after the adjustments in subparagraph (c)(2)(dd) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that loss to be allocated pursuant to this subparagraph (c)(2)(ee) is greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (3) The tax allocations prescribed by this Section 7(c) shall be made to each holder of a Unit whether or not the holder is a substituted Limited Partner. In the event that a Unit has been transferred or assigned pursuant to Section 10(a), the allocations prescribed by this Section 7(c) shall be made with respect to such Unit without regard to the transfer or assignment, except that in the year of transfer or assignment the allocations prescribed by this Section 7(c) shall be divided between the transferor or assignor and the transferee or assignee based on the number of months each held the transferred or assigned Unit. For purposes of this Section 7(c), tax allocations shall be made to the General Partner's Units of General Partnership Interest on a Unit-equivalent basis. (4) The allocation of profit and loss for federal income tax purposes set forth herein is intended to allocate taxable profits and loss among Partners generally in the ratio and to the extent that net profit and net loss are allocated to such Partners under Section 7(b) hereof so as to eliminate, to the extent possible, any disparity between a Partner's capital account and his allocation account with respect to each Unit then outstanding, consistent with the principles set forth in Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). Total 11,388,846 5,900,771 3,017,115 (d) Definitions; Accounting. (1) Net Assets. The Partnership's "Net Assets" shall mean the total assets of the Partnership (including, but not limited to, all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open Futures Interests positions and other assets of the Partnership) less the total liabilities of the Partnership (including, but not limited to, all brokerage, management and incentive fees, and extraordinary expenses) determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. Unless generally accepted accounting principles require otherwise, the market value of a Futures Interest traded on a United States exchange shall mean the settlement price on the exchange on which the particular Futures Interest was traded by the Partnership on the day with respect to which Net Assets are being determined; provided, however, that if a Futures Interest could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange upon which that Futures Interest shall be traded or otherwise, the settlement price on the first subsequent day on which the Futures Interest could be liquidated shall be the market value of such Futures Interest for such day. The market value of a forward contract or a Futures Interest traded on a foreign exchange or market shall mean its market value as determined by the General Partner on a basis consistently applied for each different variety of forward contract or Futures Interest. (2) Net Asset Value. The "Net Asset Value" of a Unit shall mean the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the aggregate number of Units of Limited Partnership Interest. (e) Expenses and Limitations Thereof. Morgan Stanley DW shall pay all of the organizational, initial and continuing offering expenses of the Partnership (including, but not limited to, legal, accounting, and auditing fees, printing costs, filing fees, escrow fees, marketing costs and expenses, and other related expenses), and shall not be reimbursed therefor. Subject to the limits set forth below, and except to the extent that Morgan Stanley DW or an affiliate has agreed to pay any such fees, costs or expenses as provided in the Prospectus, the Partnership shall pay its operational expenses. The General Partner shall not be reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for Partnership operations and administration of redemptions and Series Exchanges of Units. The Partnership will be obligated to pay any extraordinary expenses (determined in accordance with generally accepted accounting principles) it may incur. The Partnership's assets held by any Commodity Broker, as provided in Section 7(i), may be used as margin solely for the Partnership's trading. The Partnership shall bear all commodity brokerage fees and commissions and, except as otherwise set forth herein or described in the Prospectus, shall be obligated to pay all liabilities incurred by it, including, without limitation, all fees and expenses incurred in connection with its trading activities (including, but not limited to, floor brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or transfer fees, costs associated with the taking of delivery of Futures Interests, fees for the execution of forward contract transactions, fees for the execution of cash transactions relating to the exchange of futures for physical transactions, and the use of any Commodity Broker's institutional and overnight execution facilities (collectively, "Transaction Fees and Costs")), and management and incentive fees payable to any Trading Advisor. Appropriate reserves may be created, accrued, and charged against Net Assets for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner. Such reserves shall reduce the Net Asset Value of interests in the Partnership for all purposes, including redemptions and Series Exchanges. The following special limits shall apply to the Partnership's fees and expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the aggregate of (i) the management fees payable by the Partnership to the Trading Advisor(s), and (ii) the Partnership's customary and routine administrative expenses (other than commodity brokerage commissions or fees, Transaction Fees and Costs, incentive fees, legal and auditing fees and expenses, and extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net Assets per month, or 6% of the Partnership's Net Assets annually; (b) the monthly incentive fees payable by the Partnership shall not exceed 15% of the Partnership's "Trading Profits" (as defined in the Prospectus) attributable to such Trading Advisor for the applicable calculation period, provided that such incentive fees may be increased by 2% for each 1% by which the aggregate fees and expenses described in clause (a) of this sentence are below the 6% of Net Assets annual limit thereon (i.e., if such fees and expenses are 4% of Net Assets, the maximum incentive fee payable may be increased to 19%); (c) any "roundturn" brokerage commissions (excluding Transaction Fees and Costs) payable by the Partnership to any Commodity Broker shall not exceed 80% of such Commodity Broker's published non-member rates for speculative accounts; and (d) the aggregate of (i) the brokerage commissions or fees payable by the Partnership to any Commodity Broker, (ii) any Transaction Fees and Costs separately payable by the Partnership, and (iii) any net excess interest and compensating balance benefits to any Commodity Broker (after crediting the Partnership with interest), shall not exceed 14% annually of the Partnership's average monthly Net Assets as at the last day of each month during each calendar year. The General Partner or an Affiliate thereof shall pay and shall not be reimbursed for any fees and expenses in excess of any such limits. (f) Limited Liability of Limited Partners. Each Unit, when purchased by a Limited Partner in accordance with the terms of this Agreement, shall be fully paid and nonassessable. No Limited Partner shall be liable for the Partnership's obligations in excess of such Partner's unredeemed capital contribution, undistributed profits, if any, and any distributions and amounts received upon redemption of Units or deemed received on a Series Exchange of Units, together with interest thereon. The Partnership shall not make a claim against a Limited Partner with respect to amounts distributed to such Partner or amounts received by such Partner upon redemption of Units or deemed received upon a Series Exchange of Units unless the Net Assets of the Partnership (which shall not include any right of contribution from the General Partner except to the extent previously made by it pursuant to this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. (g) Return of Limited Partner's Capital Contribution. Except to the extent that a Limited Partner shall have the right to withdraw capital through redemption or Series Exchange of Units in accordance with Section 10(b) or (c), no Limited Partner shall have any right to demand the return of his capital contribution or any profits added thereto, except upon termination and dissolution of the Partnership. In no event shall a Limited Partner be entitled to demand or receive from the Partnership property other than cash. (h) Distributions. The General Partner shall have sole discretion in determining what distributions (other than on redemption or Series Exchange of Units), if any, the Partnership shall make to its Partners. If made, all distributions shall be pro rata in accordance with the respective capital accounts of the Partners and may be made by credit to a Limited Partner's account with Morgan Stanley DW or by check if such account is closed. (i) Interest on Assets. The Partnership shall deposit all of its assets with such Commodity Broker(s) as the Partnership shall utilize from time to time, and such assets shall be used by the Partnership to engage in Futures Interests trading. Unless provided otherwise in the Prospectus, such assets will be invested in securities approved by the CFTC for investment of customer funds or held in non-interest-bearing accounts, and such Commodity Broker(s) will credit the Partnership at month-end with interest income as set forth in the Prospectus or as otherwise set forth in a notice to Limited Partners. 8. Management and Trading Policies. (a) Management of the Partnership. Except as may be otherwise specifically provided herein, the General Partner, to the exclusion of all Limited Partners, shall conduct and manage the business of the Partnership, including, without limitation, the investment of the funds of the Partnership. No Limited Partner shall have the power to represent, act for, sign for, or bind the General Partner or the Partnership. Except as provided herein, no Partner shall be entitled to any salary, draw, or other compensation from the Partnership. Each Limited Partner hereby undertakes to furnish to the General Partner such additional information as may be determined by the General Partner to be required or appropriate for the Partnership to open and maintain an account or accounts with the Partnership's Commodity Broker(s) for the purpose of trading in Futures Interests. The General Partner shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership. The Limited Partners will under no circumstances be permitted to contract away, or be deemed to have contracted away, the fiduciary obligations owed them by the General Partner under statutory or common law. The General Partner shall have fiduciary responsibility for the safekeeping of all of the funds and assets of the Partnership, whether or not in its immediate possession or control, and the General Partner shall not employ, or permit another to employ, such funds or assets in any manner except for the benefit of the Partnership. (b) The General Partner. The General Partner, on behalf of the Partnership, shall retain one or more Trading Advisors to make all trading decisions for the Partnership, and shall delegate complete trading discretion to such Trading Advisors; provided, however, that the General Partner may override any trading instructions: (i) which the General Partner, in its sole discretion, determines to be in violation of any trading policy of the Partnership, as set forth in subsection (c) below; (ii) to the extent the General Partner believes doing so is necessary for the protection of the Partnership; (iii) to terminate the Futures Interests trading of the Partnership; (iv) to comply with applicable laws or regulations; or (v) as and to the extent necessary, upon the failure of a Trading Advisor to comply with a request to make the necessary amount of funds available to the Partnership, to fund distributions, redemptions, or reapportionments among Trading Advisors or to pay the expenses of the Partnership; and provided, further, that the General Partner may make trading decisions at any time at which a Trading Advisor shall become incapacitated or some other emergency shall arise as a result of which such Trading Advisor shall be unable or unwilling to act and a successor Trading Advisor has not yet been retained. The Partnership shall not enter into any agreement with the General Partner, Morgan Stanley, or their respective Affiliates (other than a selling agreement as contemplated by Section 6) which has a term of more than one year and which does not provide that it shall be terminable by the Partnership without penalty upon 60 days' prior written notice by the General Partner; provided, however, that any such agreement may provide for automatic renewal for additional one-year terms unless either the Partnership or the other party to such agreement, upon written notice given not less than 60 days prior to the original termination date or any extended termination date, notifies the other party of its intention not to renew. Subject to the foregoing paragraph, the General Partner is hereby authorized, on behalf of the Partnership, to enter into the form of management agreement described in the Prospectus (each, a "Management Agreement") with each Trading Advisor described in the Prospectus, and to cause the Partnership to pay to each such Trading Advisor the management and incentive fees provided for in the applicable Management Agreement, as described in the Prospectus. The General Partner is further authorized: (a) to modify (including changing the form and amount of compensation and other arrangements and terms) or terminate any Management Agreement in its sole discretion in accordance with the terms of such Management Agreement and to employ from time to time other Trading Advisors pursuant to management agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, which terms may include provision for the payment of an incentive fee to a new or replacement Trading Advisor or Advisors which shall be based on any trading profits which shall be earned by such Trading Advisor(s), irrespective of whether such profits shall exceed trading losses incurred by any previous or existing Trading Advisor or Advisors or by the Partnership as a whole; (b) to enter into the Customer Agreements described in the Prospectus (each, a "Customer Agreement") with the Commodity Brokers described in the Prospectus, and to cause the Partnership to pay to such Commodity Brokers brokerage fees or commissions and Transaction Fees and Costs at the rates provided for in the Customer Agreements and as described in the Prospectus; and (c) to modify (including changing the form and amount of compensation and other arrangements and terms) and terminate the Customer Agreements in its sole discretion in accordance with the terms of such Agreements and to employ from time to time other Commodity Brokers pursuant to customer agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, provided, however, that the General Partner shall review at least annually the brokerage arrangements with the Partnership to ensure that the brokerage fees or commissions paid to any Commodity Broker are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: (i) the size of the Partnership; (ii) the Futures Interests trading activity; (iii) the services provided by the Commodity Broker, the General Partner or any Affiliate thereof to the Partnership; (iv) the cost incurred by the Commodity Broker, the General Partner or any Affiliate thereof in organizing and operating the Partnership and offering Units; (v) the overall costs to the Partnership; (vi) any excess interest and NET INCOME 16,796,809 10,283,120 4,336,339 compensating balance benefits to the Commodity Broker from assets held thereby; and (vii) if the General Partner does not receive any direct compensation from the Partnership for its services as General Partner, the risks incurred by the General Partner as such. The General Partner may subdivide or combine Units in its discretion, provided that no such subdivision or combination shall affect the Net Asset Value of any Limited Partner's interest in the Partnership. (c) General Trading Policies. The General Partner shall require any Trading Advisor retained by the Partnership to follow the trading policies set forth below. The following trading policies are applicable to the Partnership as a whole and do not apply to the trading of any individual Trading Advisor. Trading Policies for All Partnerships: The Partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given Futures Interest due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related Futures Interest. Taking into account the Partnership's open trade equity on existing positions in determining generally whether to acquire additional Futures Interest positions on behalf of the Partnership will not be considered to constitute "pyramiding." The Partnership will not under any circumstances lend money to affiliated entities or otherwise. The Partnership will not utilize borrowings except if the Partnership purchases or takes delivery of commodities. If the Partnership borrows money from the General Partner or any Affiliate thereof, the lending entity in such case (the "Lender") may not receive interest in excess of its interest costs, nor may the Lender receive interest in excess of the amounts which would be charged the Partnership (without reference to the General Partner's financial abilities or guarantees) by unrelated banks on comparable loans for the same purpose, nor may the Lender or any Affiliate thereof receive any points or other financing charges or fees regardless of the amount. Use of lines of credit in connection with its forward trading does not, however, constitute borrowing for purposes of this trading limitation. The Partnership will not permit "churning" of the Partnership's assets. Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: The Trading Advisors will trade only in those Futures Interests that have been approved by the General Partner. The Partnership normally will not establish new positions in a Futures Interest for any one contract month or option if such additional positions would result in a net long or short position for that Futures Interest requiring as margin or premium more than 15% of the Partnership's Net Assets. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Partnership will not acquire additional positions in any Futures Interest if such additional positions would result in the aggregate net long or short positions for all Futures Interests requiring as margin or premium for all outstanding positions more than 662/3% of the Partnership's Net Assets. Under certain market conditions, such as an abrupt increase in margins required by a commodity exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, or both, the Partnership may be required to commit as margin amounts in excess of the foregoing limit. In such event, the Trading Advisors will reduce their open positions to comply with the foregoing limit before initiating new positions. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. Trading Policy for Spectrum Select only: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Global Balanced only: The Trading Advisor will trade only in those Futures Interests that have been approved by the General Partner. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. The Partnership may, with the General Partner's prior approval, purchase "cash" stocks and bonds, or options on stock or bond indices, on a temporary basis under unusual circumstances in which it is not practicable or economically feasible to establish the Partnership's stock index or bond portfolios in the futures markets, and may acquire "cash" instruments in its short-term interest rate futures component. (d) Changes to Trading Policies. The General Partner shall not make any material change in the trading policies in Section 8(c) without obtaining the prior written approval of Limited Partners owning more than 50% of the Units then outstanding. The General Partner will notify the Limited Partners within seven business days after any material change in the Partnership's Trading Policies so approved by the Limited Partners. (e) Miscellaneous. The General Partner may take such other actions as it deems necessary or desirable to manage the business of the Partnership, including, but not limited to, the following: opening bank accounts and paying or authorizing the payment of distributions to the Partners and the expenses of the Partnership, such as brokerage fees and commissions, management and incentive fees, ordinary and extraordinary expenses, and Transaction Fees and Costs. The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) any federal, state, or local tax returns which shall be required to be filed by the Partnership. The General Partner shall cause the Partnership to pay any taxes payable by the Partnership; provided, however, that the General Partner shall not be required to cause the Partnership to pay any tax so long as the General Partner or the Partnership shall be in good faith and by appropriate legal proceedings contesting the validity, applicability, or amount thereof and such contest shall not materially endanger any right or interest of the Partnership. The General Partner shall be authorized to perform all duties imposed by Sections 6221 through 6233 of the Code on the General Partner as "tax matters partner" of the Partnership, including, but not limited to, the following: (a) the power to conduct all audits and other administrative proceedings with respect to Partnership tax items; (b) the power to extend the statute of limitations for all Limited Partners with respect to Partnership tax items; (c) the power to file a petition with an appropriate federal court for review of a final Partnership administrative adjustment; and (d) the power to enter into a settlement with the Internal Revenue Service on behalf of, and binding upon, those Limited Partners having less than a 1% interest in the Partnership, unless a Limited Partner shall have notified the Internal Revenue Service and the General Partner that the General Partner may not act on such Partner's behalf. If the Partnership is required to withhold United States taxes on income with respect to Units held by Limited Partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, or foreign estates, the General Partner may pay such tax out of its own funds and then be reimbursed out of the proceeds of any distribution or redemption with respect to such Units. The General Partner shall keep at the principal office of the Partnership such books and records relating to the business of the Partnership as it deems necessary or advisable, as are required by the Commodity Exchange Act, as amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as shall be required by other regulatory bodies, exchanges, boards, and authorities having jurisdiction. Such books and records shall be retained by the Partnership for not less than five years. The Partnership's books and records shall be available to Limited Partners or their authorized attorneys or agents for inspection and copying during normal business hours of the Partnership and, upon request, the General Partner shall send copies of same to any Limited Partner upon payment by him of reasonable reproduction and distribution costs. Any subscription documentation executed by a Limited Partner in connection with his purchase of Units, Series Exchange or Non-Series Exchange, as applicable, shall be retained by the Partnership for not less than six years. Except as described herein or in the Prospectus, no person may receive, directly or indirectly, any advisory, management, or incentive fee for investment advice who shares or participates in per trade commodity brokerage commissions paid by the Partnership. No Commodity Broker for the Partnership may pay, directly or indirectly, rebates or "give-ups" to the General Partner or any Trading Advisor, and such prohibitions may not be circumvented by any reciprocal business arrangements. Assets of the Partnership shall not be commingled with assets of any other person. Margin deposits and deposits of assets with a Commodity Broker shall not constitute commingling. The General Partner shall devote such time and resources to the Partnership's business and affairs as it, in its sole discretion, shall deem necessary or advisable to effectively manage the Partnership. Subject to Section 5, the General Partner may engage in other business activities and shall not be required to refrain from any other activity or disgorge any profits from any such activity, whether as general partner of additional partnerships formed for investment in Futures Interests or otherwise. The General Partner may engage and compensate, on behalf and from funds of the Partnership, such persons, firms, or corporations, including any Affiliate of the General Partner, as the General Partner in its sole judgment shall deem advisable for the conduct and operation of the business of the Partnership; provided, however, that, except as described herein and in the Prospectus, the General Partner shall not engage any such Affiliate to perform services for the Partnership without having made a good faith determination that: (i) the Affiliate which it proposes to engage to perform such services is qualified to do so (considering the prior experience of the Affiliate or the individuals employed thereby); (ii) the terms and conditions of the agreement pursuant to which such Affiliate is to perform services for the Partnership are no less favorable to the Partnership than could be obtained from equally-qualified unaffiliated third parties, or are otherwise determined by the General Partner to be fair and reasonable to the Partnership and the Limited Partners; and (iii) the maximum period covered by the agreement pursuant to which such Affiliate is to perform services for the Partnership shall not exceed one year, and such agreement shall be terminable without penalty upon 60 days' prior written notice by the Partnership. Nothing contained in the preceding sentence shall prohibit the General Partner from receiving reimbursement from the Partnership for expenses advanced on behalf of the Partnership (other than organizational and offering expenses). No person dealing with the General Partner shall be required to determine its authority to make any undertaking on behalf of the Partnership or to determine any fact or circumstance bearing upon the existence of its authority. 9. Audits; Reports to Limited Partners. The Partnership's books shall be audited annually by an independent certified public accounting firm selected by the General Partner in its sole discretion. The Partnership shall use its best efforts to cause each Partner to receive: (a) within 90 days after the close of each fiscal year an annual report containing audited financial statements (including a statement of income and a statement of financial condition) of the Partnership for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and accompanied by a report of the accounting firm which audited such statements, and such other information as the CFTC and NFA may from time to time require (such annual reports will provide a detailed statement of any transactions with the General Partner or its Affiliates and of fees, commissions and any compensation paid or accrued to the General Partner or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed); (b) within 75 days after the close of each fiscal year (but in no event later than March 15 of each year) such tax information relating to the Partnership as is necessary for such Partner to complete his federal income tax return; (c) within 30 days after the close of each calendar month, such financial and other information with respect to the Partnership as the CFTC and NFA from time to time shall require in monthly reports, together with information concerning any material change in the brokerage commissions and fees payable by the Partnership to any Commodity Broker; and (d) at such times as shall be necessary or advisable in the General Partner's sole discretion, such other information as the CFTC and NFA from time to time shall require under the CEAct to be given to participants in commodity pools. In addition, if any of the following events occurs, notice of such event, including a description of the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner within seven business days after the occurrence of such event: (a) a decrease in the Net Asset Value of a Unit as of the close of business on any business day to 50% or less of the Net Asset Value for such Unit as of the end of the immediately preceding month; (b) any material amendment to this Agreement; (c) any change in Trading Advisors or any material change in the Management Agreement with a Trading Advisor; (d) any change in Commodity Brokers or any material change in the compensation arrangements with a Commodity Broker; (e) any change in general partners or any material change in the compensation arrangements with a general partner; (f) any change in the Partnership's fiscal year; (g) any material change in the Partnership's trading policies; or (h) cessation of Futures Interests trading by the Partnership. In the case of a notice given in accordance with clause (a) of the immediately preceding sentence: (i) such notice shall also advise Limited Partners that a "Special Redemption Date," on a date specified in such notice (but in no event earlier than 15, nor later than 45, days after the mailing of such notice), will take place as of which Limited Partners may redeem their Units in the same manner as provided in Section 10(b) for regular Redemption Dates (a Special Redemption Date may take place on a regular Redemption Date); and (ii) following the close of business on the date of the 50% decrease giving rise to such notice, the Partnership shall liquidate all existing positions as promptly as reasonably practicable and shall suspend all Futures Interests trading through the Special Redemption Date. Thereafter, the General Partner shall determine whether to reinstitute Futures Interests trading or to terminate the Partnership. As used herein, "material change in the Partnership's trading policies" shall mean any material change in those trading policies specified in Section 8(c). The Net Asset Value of a Unit shall be determined daily by the General Partner, and the most recent Net Asset Value calculation shall be promptly supplied by the General Partner in writing to any Limited Partner after the General Partner shall have received a written request from such Partner. In addition, no increase (subject to the limits in the fourth paragraph of Section 7(e)) in any of the management, incentive, or brokerage fees payable by the Partnership, or any caps (other than those described in the fourth paragraph of Section 7(e)) on management fees, incentive fees, brokerage commissions or fees, Transaction Fees and Costs, ordinary administrative expenses, or net excess interest or compensating balance benefits, all as described in the Prospectus, may take effect until the first business day following a Redemption Date, provided that: (i) notice of such increase is mailed to each Limited Partner at least five business days prior to the last date on which a Request for Redemption must be received by the General Partner with respect to the applicable Redemption Date; (ii) such notice shall describe the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15; and (iii) Limited Partners redeeming Units at the first Redemption Date following such notice shall not be subject to the redemption charges described in Section 10(b). 10. Transfer; Redemption of Units; Exchange Privilege. (a) Transfer. A Limited Partner may transfer or assign his Units only as provided in this Section 10(a). No transferee or assignee shall become a substituted Limited Partner unless the General Partner first consents to such transfer or assignment in writing, which consent may be withheld in its sole discretion. Any transfer or assignment of Units which is permitted hereunder shall be effective as of the MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest end of the month in which such transfer or assignment is made; provided, however, that the Partnership need not recognize any transfer or assignment until it has received at least 30 days' prior written notice thereof from the Limited Partner, which notice shall set forth the address and social security or taxpayer identification number of the transferee or assignee and the number of Units to be transferred or assigned, and which notice shall be signed by the Limited Partner. No transfer or assignment of Units will be effective or recognized by the Partnership if the transferee or assignee, or the transferor or assignor (if fewer than all Units held by the transferor or assignor are being transferred or assigned), would, by reason of such transfer or assignment, acquire Units which do not meet the minimum initial subscription requirements, as described in the Prospectus; provided, however, that the foregoing restriction shall not apply to transfers or assignment of Units (i) by the way of gift or inheritance, (ii) to any members of the Limited Partner's family, (iii) resulting from divorce, annulment, separation or similar proceedings, or (iv) to any person who would be deemed an Affiliate of the Limited Partner (for purposes of this clause (iv), the term "Affiliate" also includes any partnership, corporation, association, or other legal entity for which such Limited Partner acts as an officer, director or partner). No transfer or assignment shall be permitted unless the General Partner is satisfied that (i) such transfer or assignment would not be in violation of the Act or applicable federal, state, or foreign securities laws, and (ii) notwithstanding such transfer or assignment, the Partnership shall continue to be classified as a partnership rather than as an association taxable as a corporation under the Code. No transfer or assignment of Units shall be effective or recognized by the Partnership if such transfer or assignment would result in the termination of the Partnership for federal income tax purposes, and any attempted transfer or assignment in violation hereof shall be ineffective to transfer or assign any such Units. Any transferee or assignee of Units who has not been admitted to the Partnership as a substituted Limited Partner shall not have any of the rights of a Limited Partner, except that such person shall receive that share of capital and profits and shall have that right of redemption to which his transferor or assignor would otherwise have been entitled and shall remain subject to the other terms of this Agreement binding upon Limited Partners. No Limited Partner shall have any right to approve of any person becoming a substituted Limited Partner. The Limited Partner shall bear all costs (including any attorneys' and accountants' fees) related to such transfer or assignment of his Units. In the event that the General Partner consents to the admission of a substituted Limited Partner pursuant to this Section 10(a), the General Partner is hereby authorized to take such actions as may be necessary to reflect such substitution of a Limited Partner. (b) Redemption. Except as set forth below and in accordance with the terms hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of his unredeemed capital contribution and undistributed profits, if any, by requiring the Partnership to redeem all or part of his Units at the Net Asset Value thereof, reduced as hereinafter described (any such withdrawal being herein referred to as a "Redemption"). The minimum amount of any redemption is 50 Units, unless a Limited Partner is redeeming his entire interest in the Partnership. Units may be redeemed at the option of a Limited Partner as of, but not before, the sixth month-end following the closing at which the Limited Partner first becomes a Limited Partner of the Partnership or a limited partner of any other partnership offering Units pursuant to the Prospectus (all such partnerships shall be defined collectively as the "Spectrum Series Partnerships" or individually as a "Spectrum Series Partnership"). Thereafter, Units may be redeemed as of the end of any month. However, any Unit redeemed at or prior to the end of the twelfth or twenty-fourth full month following the closing at which such Unit was issued will be assessed a redemption charge equal to 2% or 1%, respectively, of the Net Asset Value of a Unit on the date of such redemption. The foregoing charges will be paid to Morgan Stanley DW. A Limited Partner who purchased Units pursuant to a Non-Series Exchange (as defined in the Prospectus) will not be subject to the foregoing redemption charges with respect to such Units. The number of Units (determined on a per closing basis), expressed as a percentage of Units purchased, which is not subject to a redemption charge is determined by dividing (a) the dollar amount used in a Non-Series Exchange to purchase Units by (b) the total investment in the Partnership. Limited Partners who redeem units of limited partnership interest in a Spectrum Series Partnership and have either paid a redemption charge with respect to such units of limited partnership, or have held such units of limited partnership for at least two years and subsequently purchase Units, will not be subject to redemption charges on the new Units under the following conditions: (a) the subscriber must subscribe for new Units prior to the one-year anniversary of the effective date of the redemption of the units of limited Limited Partners partnership, (b) the subscriber will not be subject to redemption charges with respect to the amount of the subscription for the new Units up to the amount of the proceeds of the redemption (net of any redemption charges), and (c) the subscriber must hold the newly acquired Units for six months from the date of purchase before such Units may be redeemed or exchanged pursuant to a Series Exchange. Such subscribers remain subject to the minimum purchase and suitability requirements. In addition, redemption charges may not be imposed for certain large purchasers of units of limited partnership interest in the Spectrum Series Partnerships, as provided in the Prospectus. A Limited Partner who redeems Units pursuant to a Series Exchange will not be subject to redemption charges with respect to the redeemed Units. Units acquired pursuant to a Series Exchange will be deemed as having the same purchase date as the Units exchanged for purposes of determining the applicability of any redemption charges. Furthermore, a Limited Partner redeeming Units at the first Redemption Date following notice of an increase in certain fees in accordance with the fourth paragraph of Section 9 will not be subject to the foregoing redemption charges. Redemptions of Units will be deemed to be in the order in which they are purchased (assuming purchases at more than one closing), with the Units not subject to a redemption charge being deemed to be the first Units purchased at a closing. Redemption of a Limited Partner's Units shall be effective as of the last day of the first month ending after an irrevocable Request for Redemption in proper form shall have been received by the General Partner ("Redemption Date"); provided, that all liabilities, contingent or otherwise, of the Partnership (except any liability to Partners on account of their capital contributions) shall have been paid or there shall remain property of the Partnership sufficient to pay them. As used herein, "Request for Redemption" shall mean a letter in the form specified by the General Partner and received by the General Partner by 5:00 p.m. (New York City time) at least five business days prior to the date on which such Redemption is to be effective. A form of Request for Redemption is annexed to this Agreement. Additional forms of Request for Redemption may be obtained by written request to the General Partner. Upon Redemption, a Limited Partner (or any assignee thereof) shall receive from the Partnership for each Unit redeemed an amount equal to the Net Asset Value thereof as of the Redemption Date, less any redemption charges and any amount owing by such Partner (and his assignee, if any) to the Partnership pursuant to Section 14(d). If a Redemption is requested by an assignee, all amounts owed to the Partnership under Section 14(d) by the Partner to whom such Unit was sold, as well as all amounts owed by all assignees of such Unit, shall be deducted from the Net Asset Value of such Unit upon Redemption. The General Partner shall endeavor to pay Redemptions within 10 business days after the Redemption Date, except that under special circumstances (including, but not limited to, the inability on the part of the Partnership to liquidate Futures Interests positions or the default or delay in payments which shall be due the Partnership from commodity brokers, banks, or other persons), the Partnership may delay payment to Partners requesting Redemption of Units of the proportionate part of the Net Asset Value of the Units represented by the sums which are the subject of such default or delay. Redemptions will be made by credit to the Limited Partner's customer account with Morgan Stanley or by check mailed to the Limited Partner if such account is closed. The General Partner may, in its absolute discretion, waive any restrictions or charges applicable to redemptions. The foregoing terms and conditions in this Section 10(b), other than those in the second paragraph hereof prohibiting redemptions before the sixth month-end following the closing at which a person first becomes a Limited Partner, shall also apply to redemptions effected on "Special Redemption Dates" held in accordance with Section 9. The General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and such other documents as shall be necessary or desirable to reflect any Redemption pursuant to this Section 10(b). (c) Exchange Privilege. Except as set forth below, a Limited Partner (or any assignee thereof) may redeem his Units effective as of the last business day of any month and authorize the General Partner to use the net proceeds of such redemption to purchase units of limited partnership interest of another Spectrum Series Partnership (such a transfer between Spectrum Series Partnerships being herein referred to as a "Series Exchange"). Series Exchanges shall only be permitted by a Limited Partner as of, but not General Partner before the sixth month-end following the closing at which a Limited Partner first became a limited partner of a Spectrum Series Partnership. The minimum amount of any Series Exchange is 50 Units, unless a Limited Partner is liquidating his entire interest in the Partnership. A Series Exchange shall be effective as of the last business day of the month ending after an Exchange Agreement and Power of Attorney in proper form has been received by the General Partner ("Exchange Date"), provided, that the Partnership has assets sufficient to discharge its liabilities and to redeem Units on the Exchange Date. As used herein, "Exchange Agreement and Power of Attorney" shall mean the form annexed to the Prospectus as Exhibit B, sent by a Limited Partner (or any assignee thereof) to a Morgan Stanley branch office and received by the General Partner at least 5 business days prior to the Exchange Date. Additional forms of the Exchange Agreement and Power of Attorney may be obtained by written request to the General Partner or from a local Morgan Stanley branch office. Upon requesting a Series Exchange, a Limited Partner shall have authorized the General Partner to redeem the number of Units specified therein and to utilize the net proceeds of such redemption to purchase an amount of units of limited partnership interest of one or more other Spectrum Series Partnerships as specified in the Exchange Agreement and Power of Attorney. The General Partner shall cause the net proceeds of the redemption to be delivered to the Spectrum Series Partnership(s) issuing and selling units of limited partnership interest to the redeeming Limited Partner, and shall cause to be mailed to such Limited Partner, within 20 business days after such Exchange Date, a written confirmation thereof. At the next closing on the sale of Units following each Exchange Date, the Partnership shall issue and sell Units with a total Net Asset Value equal to the net proceeds of redemptions from limited partners of other Spectrum Series Partnerships requesting Units on a Series Exchange, provided, that the General Partner, in its capacity as the general partner of each of the Spectrum Series Partnerships, has (i) timely received a properly executed Exchange Agreement and Power of Attorney verifying that such units of limited partnership interest subject to such Series Exchange are owned by the person requesting such Series Exchange and acknowledging that the limited partner remains eligible to purchase Units, and (ii) caused the net proceeds from units of limited partnership interest being redeemed to be transferred to the Partnership in payment of such Units. Each Unit to be purchased with the net proceeds of a redemption of Units of limited partnership interest from a Spectrum Series Partnership shall be issued and sold by the Partnership at a price per Unit equal to 100% of the Net Asset Value of a Unit as of the close of business on the relevant Exchange Date. Each Limited Partner understands that its ability to effect a Series Exchange is conditioned upon units of limited partnership interest of Spectrum Series Partnerships being registered and qualified for sale pursuant to a current Prospectus immediately prior to each Exchange Date. The General Partner shall not have any obligation to have units of limited partnership interest registered. There can be no assurance that any or a sufficient number of units of limited partnership interest will be available for sale on the Exchange Date. If units of limited partnership interest are not registered or qualified for sale under either federal or applicable state securities laws, the General Partner will not be able to effect a Series Exchange for the Limited Partner. Furthermore, certain states may impose significant burdens on, or alter the requirements for, qualifying units of limited partnership interest for sale and in such cases, the General Partner may elect not to continue to qualify units of limited partnership interest for sale in such state or states, and a resident thereof would not be eligible for a Series Exchange. In the event that not all Exchange Agreements and Powers of Attorney can be processed because an insufficient number of units of limited partnership interest are available for sale on an Exchange Date, the General Partner is hereby authorized to allocate units of limited partnership interest in any manner which it deems is reasonable under the circumstances and may allocate a substantial portion of such units of limited partnership interest to new subscribers for Units. The General Partner, on behalf of the Partnership and each Partner, is authorized to execute, file, record, and publish such amendments to this Agreement and such other documents as shall be necessary to reflect any Series Exchange pursuant to this Section 10(c). 11. Special Power of Attorney. Each Limited Partner, by the execution of this Agreement, does irrevocably constitute and appoint the General Partner, with full power of substitution, as his true and lawful agent and attorney-in-fact, in his name, place, and stead, (a) to execute, acknowledge, swear to, deliver, file, and record in his behalf in the Total appropriate public offices and publish: (i) this Agreement and the Certificate of Limited Partnership and amendments thereto; (ii) all instruments that the General Partner deems necessary or appropriate to reflect any amendment, change, or modification of this Agreement or the Certificate of Limited Partnership made in accordance with the terms of this Agreement; (iii) certificates of assumed name; and (iv) all instruments that the General Partner deems necessary or appropriate to qualify or maintain the qualification of the Partnership to do business as a foreign limited partnership in other jurisdictions; and (b) to admit additional Limited Partners and, to the extent that it is necessary under the laws of any jurisdiction, to execute, deliver, and file amended certificates or agreements of limited partnership or other instruments to reflect such admission. The Power of Attorney granted herein shall be irrevocable and deemed to be a power coupled with an interest and shall survive the incapacity, death, dissolution, liquidation, or termination of a Limited Partner. Each Limited Partner hereby agrees to be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to execute a special Power of Attorney on a document separate from this Agreement. In the event of any conflict between this Agreement and any instruments filed by such attorney-in-fact pursuant to the Power of Attorney granted in this Section 11, this Agreement shall control. 12. Withdrawal of Partners. The Partnership shall terminate and be dissolved upon the withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner (unless a new general partner(s) is elected pursuant to Section 15(c) and such remaining general partner(s) shall have elected to continue the business of the Partnership, which any remaining general partner(s) shall have the right to do). The General Partner shall not withdraw or assign all of its interest at any time without giving the Limited Partners 120 days' prior written notice of its intention to withdraw or assign, and, if the Limited Partners thereupon elect a new general partner or partners pursuant to Section 15(c) which elect to continue the business of the Partnership, the withdrawing General Partner shall pay all reasonable expenses incurred by the Partnership in connection with such withdrawal. The General Partner shall be paid the Net Asset Value of its interests in the Partnership as of the date of such withdrawal. The death, incompetency, withdrawal, insolvency, bankruptcy, termination, liquidation, or dissolution of a Limited Partner shall not terminate or dissolve the Partnership, and such Limited Partner, his estate, custodian, or personal representative shall have no right to withdraw or value such Limited Partner's interest in the Partnership except as provided in Section 10. Each Limited Partner (and any assignee of such Partner's interest) expressly agrees that in the event of his death, he waives on behalf of himself and his estate and he directs the legal representative of his estate and any person interested therein to waive the furnishing of any inventory, accounting, or appraisal of the assets of the Partnership and any right to an audit or examination of the books of the Partnership (except to the extent permissible under the sixth paragraph of Section 8(e)). 13. No Personal Liability for Return of Capital. Subject to Section 14, neither the General Partner, Morgan Stanley, nor any Affiliate thereof shall be personally liable for the return or repayment of all or any portion of the capital or profits of any Partner (or assignee), it being expressly agreed that any such return of capital or profits made pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from the General Partner) of the Partnership. 14. Standard of Liability; Indemnification. (a) Standard of Liability. The General Partner and its Affiliates shall not be liable to the Partnership, the Limited Partners, or its or their successors or assigns, for any act, omission, conduct or activity undertaken by or on behalf of the Partnership which the General Partner determines, in good faith, to be in the best interests of the Partnership, unless such act, omission, conduct, or activity constituted misconduct or negligence. (b) Indemnification by the Partnership. The Partnership shall indemnify, defend, and hold harmless the General Partner and its Affiliates from and against any loss, liability, damage, cost, or expense (including attorneys' and accountants' fees and expenses incurred in defense of any demands, claims, or lawsuits) actually and reasonably incurred arising from any act, omission, activity, or conduct undertaken by or on behalf of the Partnership, including, without limitation, any demands, claims, or $ $ $ Morgan Stanley Spectrum Select L.P. Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 Offering of Units 1,676,778.529 41,261,535 41,261,535 Net income 3,123,455 41,894 3,165,349 Redemptions (965,150.030 ) (23,745,268 ) (23,745,268 ) lawsuits initiated by a Limited Partner (or assignee thereof), provided that (1) the General Partner has determined, in good faith, that the act, omission, activity, or conduct giving rise to the claim for indemnification was in the best interests of the Partnership, and (2) the act, omission, activity, or conduct that was the basis for such loss, liability, damage, cost, or expense was not the result of misconduct or negligence. Notwithstanding anything to the contrary contained in the foregoing, neither the General Partner nor any of its Affiliates nor any person acting as a broker-dealer shall be indemnified by the Partnership for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (3) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, provided, with regard to such court approval, the indemnitee must apprise the court of the position of the SEC, and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee, and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a Limited Partner in the right of the Partnership to which the General Partner or any Affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Act and this Section 14(b). The Partnership shall make advances to the General Partner or its Affiliates hereunder only if: (1) the demand, claim, lawsuit, or legal action relates to the performance of duties or services by such persons to the Partnership; (2) such demand, claim, lawsuit, or legal action is not initiated by a Limited Partner; and (3) such advances are repaid, with interest at the legal rate under Delaware law, if the person receiving such advance is ultimately found not to be entitled to indemnification hereunder. Nothing contained in this Section 14(b) shall increase the liability of any Limited Partner to the Partnership beyond the amount of his unredeemed capital contribution, undistributed profits, if any, and any amounts received on distributions and redemptions and deemed received on Series Exchanges, together with interest thereon. All rights to indemnification and payment of attorneys' and accountants' fees and expenses shall not be affected by the termination of the Partnership or the withdrawal, insolvency, or dissolution of the General Partner. The Partnership shall not incur the cost of that portion of liability insurance which insures the General Partner and its Affiliates for any liability as to which the General Partner and its Affiliates are prohibited from being indemnified. (c) Affiliate. As used in this Agreement, the term "Affiliate" of a person shall mean: (i) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such person; (ii) any partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such person; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, such person; or (iv) any officer, director or partner of such person. Notwithstanding the foregoing, solely for purposes of determining eligibility for indemnification under Section 14(b), the term "Affiliate" shall include only those persons performing services for the Partnership. (d) Indemnification by Partners. In the event that the Partnership is made a party to any claim, demand, dispute, or litigation or otherwise incurs any loss, liability, damage, cost, or expense as a result of, or in connection with, any Partner's (or assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) shall indemnify, defend, hold harmless and reimburse the Partnership for such loss, liability, damage, cost and expense to which the Partnership shall become subject (including attorneys' and accountants' fees and expenses). 15. Amendments; Meetings. (a) Amendments with Consent of the General Partner. If, at any time during the term of the Partnership, the General Partner shall deem it necessary or desirable to amend this Agreement, such amendment shall be effective only if embodied in an instrument approved by the General Partner and by Limited Partners owning more than 50% of the Units then outstanding, and if made in accordance with, and to the extent permissible under, the Act. Any amendment to this Agreement or actions taken pursuant to this Section 15 that shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. Notwithstanding the foregoing, the General Partner shall be authorized to amend this Agreement without the consent of any Limited Partner in order to: (i) change the name of the Partnership or cause the Partnership to transact business under another name; (ii) clarify any inaccuracy or any ambiguity, or reconcile any inconsistent provisions herein; (iii) make any amendment to this Agreement that is not adverse to the Limited Partners; (iv) effect the intent of the allocations proposed herein to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (v) attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes; (vi) qualify or maintain the qualification of the Partnership as a limited partnership in any jurisdiction; (vii) delete or add any provision of or to this Agreement required to be deleted or added by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or in order to opt to be governed by any amendment or successor to the Act, or to comply with applicable law; (viii) make any modification to this Agreement to reflect the admission of additional or substitute general partners and to reflect any modification to the Net Worth requirements applicable to the General Partner and any other general partner, as contemplated by Section 5 hereof; (ix) make any amendment that is appropriate or necessary, in the opinion of the General Partner, to prevent the Partnership or the General Partner or its directors, officers or controlling persons from in any manner being subject to the provisions of the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940, as amended (the "Advisers Act"), or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended; and (x) to make any amendment that is appropriate or necessary, in the opinion of the General Partner, to qualify the Partnership under the 1940 Act, and any persons under the 1940 Act and the Advisers Act, if the General Partner reasonably believes that doing so is necessary. Any such supplemental or amendatory agreement shall be adhered to and have the same force and effect from and after its effective date as if the same had originally been embodied in, and formed a part of, this Agreement; provided, however, that no such supplemental or amendatory agreement shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses or distributions to which any Partner is entitled. (b) Meetings. Any Limited Partner or his authorized attorney or agent, upon written request to the General Partner, delivered either in person or by certified mail, and upon payment of reasonable duplicating and postage costs, shall be entitled to obtain from the General Partner by mail a list of the names and addresses of record of all Limited Partners and the number of Units owned by each. Upon receipt of a written request, signed by Limited Partners owning at least 10% of the Units then owned by Limited Partners, that a meeting of the Partnership be called to vote upon any matter upon which all Limited Partners may vote pursuant to this Agreement, the General Partner, by written notice to each Limited Partner of record sent by certified mail or delivered in person within 15 days after such receipt, shall call a meeting of the Partnership. Such meeting shall be held at least 30 but not more than 60 days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time, and the purpose of such meeting. (c) Amendments and Actions without Consent of the General Partner. At any meeting of the Limited Partners, upon the affirmative vote (which may be in person or by proxy) of Limited Partners owning more than 50% of the Units then owned by Limited Partners, the following actions may be taken without the consent of the General Partner: (i) this Agreement may be amended in accordance with, and only to the extent permissible under, the Act; provided, however, that no such amendment shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new general partner or general partners may be elected if the General Partner terminates or liquidates or elects to withdraw from the Partnership pursuant to Section 12, or becomes insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner or any of its Affiliates may be terminated without penalty on not less than 60 days' prior written notice; and (vi) the sale of all or substantially all of the assets of the Partnership may be approved; provided, however, that no such action shall adversely affect the status of the Limited Partners as limited partners under the Act or the classification of the Partnership as a partnership under the federal income tax laws; and provided further, 1940 Act 15(a) Act 1 Advisers Act 15(a) Affiliate 14(c) Agreement Preamble CEAct 8(e) Certificate of Limited Partnership 1 CFTC 3 Code 7(c)(4) Commodity Broker 6 Customer Agreement 8(b) Determination Date 7(b) Exchange Agreement and Power of Attorney 10(c) Exchange Date 10(c) Futures Interests 3 General Partner Preamble Limited Partners Preamble Management Agreement 8(b) Morgan Stanley DW 6 MS & Co. 6 NASAA Guidelines 5 Net Asset Value 7(d)(2) Net Assets 7(d)(1) NFA 6 Non-Series Exchange 10(b) Partners Preamble Partnership 1 Prospectus 6 Pyramiding 8(c)(5) Redemption 10(b) Redemption Date 10(b) Request for Redemption 10(b) SEC 5 Selling Agent 6 Series Exchange 10(c) Special Redemption Date 9 Spectrum Series Partnership(s) 10(b) Trading Advisor 6 Trading Profits 7(e) Transaction Fees and Costs 7(e) Unit(s) of General Partnership Interest 6 Unit(s) 6 Name: Title: Partners' Capital, December 31, 2001 10,074,715.726 238,821,840 2,589,745 241,411,585 Offering of Units 2,459,750.992 62,682,840 130,000 62,812,840 Net income 40,391,145 432,054 40,823,199 Redemptions (1,852,798.671 ) (49,669,825 ) (49,669,825 ) ,000 (Branch Telephone Number) Please enter a SELL order upon receipt of a completed Request for Redemption. Partners' Capital, December 31, 2002 10,681,668.047 292,226,000 3,151,799 295,377,799 Offering of Units 4,942,610.490 141,160,704 1,340,000 142,500,704 Net income 33,822,853 364,052 34,186,905 Redemptions (1,058,775.458 ) (30,542,924 ) (30,542,924 ) Partners' Capital, December 31, 2003 14,565,503.079 436,666,633 4,855,851 441,522,484 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Technical L.P. Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092 Offering of Units 2,591,525.213 40,832,142 40,832,142 Net loss (19,062,561 ) (220,808 ) (19,283,369 ) Redemptions (1,981,247.508 ) (31,707,743 ) (31,707,743 ) Partners' Capital, December 31, 2001 17,280,496.201 255,122,417 2,851,705 257,974,122 Offering of Units 3,538,032.569 58,538,660 180,000 58,718,660 Net income 60,110,064 665,371 60,775,435 Redemptions (2,579,002.913 ) (41,646,591 ) (41,646,591 ) Partners' Capital, December 31, 2002 18,239,525.857 332,124,550 3,697,076 335,821,626 Offering of Units 7,617,427.705 156,115,402 1,240,00 157,355,402 Net income 86,960,795 981,093 87,941,888 Redemptions (2,082,749.238 ) (42,934,638 ) (42,934,638 ) Partners' Capital, December 31, 2003 23,774,204.324 532,266,109 5,918,169 538,184,278 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Strategic L.P. Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449 Offering Units 892,802.518 9,240,482 9,000 9,249,482 Net loss (475,383 ) (5,160 ) (480,543 ) Redemptions (1,362,078.833 ) (14,186,002 ) (14,186,002 ) Partners' Capital, December 31, 2001 6,525,677.114 68,012,216 805,170 68,817,386 Offering of Units 1,160,993.682 13,475,899 13,475,899 Net income 6,238,448 75,968 6,314,416 Redemptions (1,155,895.491 ) (13,238,629 ) (13,238,629 ) Partners' Capital, December 31, 2002 6,530,775.305 74,487,934 881,138 75,369,072 Offering of Units 2,823,095.529 36,375,972 180,000 36,555,972 Net income 20,281,103 232,309 20,513,412 Redemptions (877,978.963 ) (11,168,017 ) (11,168,017 ) Partners' Capital, December 31, 2003 8,475,891.871 119,976,992 1,293,447 121,270,439 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Global Balanced L.P. Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750 Offering of Units 640,074.598 10,254,342 10,254,342 Net loss (150,650 ) (1,949 ) (152,599 ) Redemptions (512,291.775 ) (8,195,733 ) (8,195,733 ) Partners' Capital, December 31, 2001 3,565,247.829 57,127,967 657,793 57,785,760 Offering of Units 572,583.510 8,829,394 8,829,394 Net loss (5,720,328 ) (66,590 ) (5,786,918 ) Redemptions (677,650.657 ) (10,422,804 ) (10,422,804 ) Partners' Capital, December 31, 2002 3,460,180.682 49,814,229 591,203 50,405,432 Offering of Units 690,016.887 10,491,897 10,491,897 Net income 3,043,649 33,859 3,077,508 Redemptions (748,285.123 ) (11,285,344 ) (50,000 ) (11,335,344 ) Partners' Capital, December 31, 2003 3,401,912.446 52,064,431 575,062 52,639,493 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Currency L.P. Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232 Offering of Units 2,572,156.095 28,921,302 277,000 29,198,302 Net income 4,119,027 217,312 4,336,339 Redemptions (125,958.895 ) (1,430,132 ) (1,430,132 ) Partners' Capital, December 31, 2001 3,852,648.433 45,598,611 2,213,130 47,811,741 Offering of Units 3,918,276.910 48,564,478 420,000 48,984,478 Net income 10,038,409 244,711 10,283,120 Redemptions (868,307.236 ) (10,309,879 ) (610,008 ) (10,919,887 ) Partners' Capital, December 31, 2002 6,902,618.107 93,891,619 2,267,833 96,159,452 Offering of Units 6,157,215.998 89,883,376 790,000 90,673,376 Net income 16,514,538 282,271 16,796,809 Redemptions (920,425.880 ) (12,246,860 ) (1,326,857 ) (13,573,717 ) Partners' Capital, December 31, 2003 12,139,408.225 188,042,673 2,013,247 190,055,920 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 34,186,905 40,823,199 3,165,349 Noncash item included in net income: Net change in unrealized (18,883,947 ) (12,501,282 ) 20,155,561 (Increase) decrease in operating assets: Net option premiums (1,232,488 ) 167,063 (167,063 ) Interest receivable (Morgan Stanley DW) (15,337 ) 70,073 584,598 Increase in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 738,759 221,961 208,881 Accrued incentive fee 2,227,005 Accrued management fees 305,694 91,845 86,434 Net cash provided by operating activities 17,326,591 28,872,859 24,033,760 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 142,500,704 62,812,840 41,261,535 Increase in subscriptions receivable (5,997,473 ) (1,699,578 ) (3,407,225 ) Increase (decrease) in redemptions payable 528,720 (719,023 ) 484,897 Redemptions of Units (30,542,924 ) (49,669,825 ) (23,745,268 ) Net cash provided by financing activities 106,489,027 10,724,414 14,593,939 Net increase in cash 123,815,618 39,597,273 38,627,699 Balance at beginning of period 274,780,334 235,183,061 196,555,362 Balance at end of period 398,595,952 274,780,334 235,183,061 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 87,941,888 60,775,435 (19,283,369 ) Noncash item included in net income (loss): Net change in unrealized (22,330,997 ) (12,597,598 ) 28,536,694 (Increase) decrease in operating assets: Net option premiums (3,973,725 ) Interest receivable (Morgan Stanley DW) (22,974 ) 49,837 744,371 Increase (decrease) in operating liabilities: Accrued incentive fees 4,924,640 (111,599 ) Accrued brokerage fees (Morgan Stanley DW) 1,041,470 397,100 51,079 Accrued management fees 411,562 91,431 21,704 Net cash provided by operating activities 67,991,864 48,716,205 9,958,880 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 157,355,402 58,718,660 40,832,142 Increase in subscriptions receivable (8,746,329 ) (2,663,228 ) (3,357,977 ) Increase (decrease) in redemptions payable (270,216 ) 818,573 (1,055,038 ) Redemptions of Units (42,934,638 ) (41,646,591 ) (31,707,743 ) Net cash provided by financing activities 105,404,219 15,227,414 4,711,384 Net increase in cash 173,396,083 63,943,619 14,670,264 Balance at beginning of period 310,115,973 246,172,354 231,502,090 Balance at end of period 483,512,056 310,115,973 246,172,354 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 20,513,412 6,314,416 (480,543 ) Noncash item included in net income (loss): Net change in unrealized (990,641 ) (2,439,378 ) (2,505,634 ) (Increase) decrease in operating assets: Net option premiums (455,512 ) 65,784 (62,352 ) Interest receivable (Morgan Stanley DW) (4,813 ) 27,581 217,520 Increase (decrease) in operating liabilities: Accrued incentive fees 811,250 (289,687 ) Accrued brokerage fees (Morgan Stanley DW) 218,453 7,354 14,950 Accrued management fees 90,394 3,043 (11,028 ) Net cash provided by (used for) operating activities 20,182,543 3,978,800 (3,116,774 ) CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 36,555,972 13,475,899 9,249,482 Increase in subscriptions receivable (3,488,707 ) (1,002,535 ) (189,876 ) Increase (decrease) in redemptions payable (459,678 ) (956,549 ) 765,005 Redemptions of Units (11,168,017 ) (13,238,629 ) (14,186,002 ) Net cash provided by (used for) financing activities 21,439,570 (1,721,814 ) (4,361,391 ) Net increase (decrease) in cash 41,622,113 2,256,986 (7,478,165 ) Balance at beginning of period 68,224,648 65,967,662 73,445,827 Balance at end of period 109,846,761 68,224,648 65,967,662 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,077,508 (5,786,918 ) (152,599 ) Noncash item included in net income (loss): Net change in unrealized (1,801,107 ) (56,725 ) 2,628,436 (Increase) decrease in operating assets: Net option premiums 752,173 (712,573 ) 192,500 Interest receivable (Morgan Stanley DW) 13,348 40,360 191,236 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) (7,218 ) (17,837 ) 17,157 Accrued management fees (1,962 ) (4,846 ) 4,661 Net cash provided by (used for) operating activities 2,032,742 (6,538,539 ) 2,881,391 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 10,491,897 8,829,394 10,254,342 Increase in subscriptions receivable (319,625 ) (105,151 ) (81,007 ) Increase in redemptions payable 136,265 171,491 122,794 Redemptions of Units (11,335,344 ) (10,422,804 ) (8,195,733 ) Net cash provided by (used for) financing activities (1,026,807 ) (1,527,070 ) 2,100,396 Net increase (decrease) in cash 1,005,935 (8,065,609 ) 4,981,787 Balance at beginning of period 49,330,482 57,396,091 52,414,304 Balance at end of period 50,336,417 49,330,482 57,396,091 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 16,796,809 10,283,120 4,336,339 Noncash item included in net income: Net change in unrealized 772,909 (2,473,166 ) (2,622,814 ) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) (31,679 ) (19,622 ) 4,876 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 345,106 161,731 99,484 Accrued incentive fees 159,553 (673,773 ) 880,379 Accrued management fees 150,046 70,317 43,254 Net cash provided by operating activities 18,192,744 7,348,607 2,741,518 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 90,673,376 48,984,478 29,198,302 (Increase) decrease in subscriptions receivable (4,531,110 ) (1,536,641 ) 412,033 Increase (decrease) in redemptions payable (465,852 ) 1,361,111 (2,072,127 ) Redemptions of Units (13,573,717 ) (10,919,887 ) (1,430,132 ) Net cash provided by financing activities 72,102,697 37,889,061 26,108,076 Net increase in cash 90,295,441 45,237,668 28,849,594 Balance at beginning of period 88,478,803 43,241,135 14,391,541 Balance at end of period 178,774,244 88,478,803 43,241,135 Morgan Stanley Spectrum Select L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $441,522,484 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 11,095,838 2.51 691,093 0.16 11,786,931 14,607,137,889,667 Commodity 20,983,272 4.75 (175,989 ) (0.04 ) 20,807,283 11,866 Interest rate 1,338,070 0.31 (87,559 ) (0.02 ) 1,250,511 11,094 Equity 5,391,145 1.22 5,391,145 3,874 Grand Total: 38,808,325 8.79 427,545 0.10 39,235,870 Unrealized Currency Loss (2,453,905 ) Total Net Unrealized Gain per Statement of Financial Condition 36,781,965 Partnership Net Assets at December 31, 2002: $295,377,799 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 16,008,784 5.42 * (5,655,235 ) (1.91 ) 10,353,549 11,828,382,656 Interest rate 9,770,731 3.31 (48,039 ) (0.02 ) 9,722,692 14,820 Commodity (1,443,818 ) (0.49 ) 371,055 0.13 (1,072,763 ) 5,211 Equity (194,728 ) (0.07 ) 829,442 0.28 634,714 1,202 Grand Total: 24,140,969 8.17 (4,502,777 ) (1.52 ) 19,638,192 Unrealized Currency Loss (1,740,174 ) Total Net Unrealized Gain per Statement of Financial Condition 17,898,018 Morgan Stanley Spectrum Technical L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $538,184,278 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 22,436,449 4.17 (1,729,369 ) (0.32 ) 20,707,080 15,752,105,748 Interest rate 53,129 0.01 (5,502,664 ) (1.02 ) (5,449,535 ) 18,105 Commodity 23,626,420 4.39 (2,094,377 ) (0.39 ) 21,532,043 15,966 Equity 10,843,962 2.01 (2,020,472 ) (0.37 ) 8,823,490 7,658 Grand Total: 56,959,960 10.58 (11,346,882 ) (2.10 ) 45,613,078 Unrealized Currency Gain 821,132 Total Net Unrealized Gain per Statement of Financial Condition 46,434,210 Partnership Net Assets at December 31, 2002: $335,821,626 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 21,362,440 6.36 1,833,683 0.55 23,196,123 Unrealized Currency Gain 907,090 Total Net Unrealized Gain per Statement of Financial Condition 24,103,213 Morgan Stanley Spectrum Strategic L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $121,270,439 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 1,149,874 0.95 13,175 0.01 1,163,049 2,274,600,195 Commodity 6,059,248 5.00 * (1,198,617 ) (0.99 ) 4,860,631 9,826 Interest rate 207,192 0.17 8,576 0.01 215,768 1,476 Equity 1,807,241 1.49 1,807,241 1,160 Grand Total: 9,223,555 7.61 (1,176,866 ) 0.97 8,046,689 Unrealized Currency Loss (124,904 ) Total Net Unrealized Gain per Statement of Financial Condition 7,921,785 Partnership Net Assets at December 31, 2002: $75,369,072 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 6,968,255 9.24 139,669 0.19 7,107,924 Unrealized Currency Loss (176,780 ) Total Net Unrealized Gain per Statement of Financial Condition 6,931,144 Morgan Stanley Spectrum Global Balanced L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $52,639,493 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 2,470,465 4.69 103,550 0.20 2,574,015 Unrealized Currency Loss (26,975 ) Total Net Unrealized Gain per Statement of Financial Condition 2,547,040 Partnership Net Assets at December 31, 2002: $50,405,432 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 755,900 1.50 162,545 0.33 918,445 Unrealized Currency Loss (172,512 ) Total Net Unrealized Gain per Statement of Financial Condition 745,933 Morgan Stanley Spectrum Currency L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $190,055,920 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 10,021,102,895 Grand Total: 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition 4,878,640 Partnership Net Assets at December 31, 2002: $96,159,452 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency Other 4,758,215 4.95 (4,013,755 ) (4.18 ) 744,460 9,742,575,176 Euro/US dollar Mar. 03 4,860,786 5.05 4,860,786 143,425,000 Grand Total: 9,619,001 10.00 (4,013,755 ) (4.18 ) 5,605,246 Unrealized Currency Gain 46,303 Total Net Unrealized Gain per Statement of Financial Condition 5,651,549 4. FINANCIAL INSTRUMENTS The Partnerships trade futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. The market value of contracts is based on closing prices quoted by the exchange, bank or clearing firm through which the contracts are traded. The Partnerships' contracts are accounted for on a trade-date basis and marked-to-market on a daily basis. The Partnerships account for derivative investments in accordance with the provisions of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: (1)One or more underlying notional amounts or payment provisions; (2)Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; (3)Terms require or permit net settlement. Generally derivatives include futures, forward, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains (losses) on open contracts at December 31, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition, and their longest contract maturities were as follows: Spectrum Select Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 31,690,225 5,091,740 36,781,965 Mar. 2005 March 2004 2002 12,359,670 5,538,348 17,898,018 Dec. 2003 March 2003 Spectrum Technical Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded Spectrum Strategic Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 6,905,992 1,015,793 7,921,785 July 2005 March 2004 2002 6,387,996 543,148 6,931,144 July 2004 March 2003 Spectrum Global Balanced Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 2,472,718 74,322 2,547,040 April 2004 March 2004 2002 717,293 28,640 745,933 March 2003 March 2003 Spectrum Currency Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded 5. FINANCIAL HIGHLIGHTS Spectrum Select PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 27.65 NET OPERATING RESULTS: Realized Profit 4.12 Unrealized Profit 1.51 Interest Income 0.23 Expenses (3.20 ) Net Income 2.66 NET ASSET VALUE, DECEMBER 31, 2003: $ 30.31 Expense Ratio 10.9 % Net Income Ratio 9.3 % TOTAL RETURN 2003 9.6 % INCEPTION-TO-DATE RETURN 203.1 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Technical PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 18.41 NET OPERATING RESULTS: Realized Profit 5.61 Unrealized Profit 1.07 Interest Income 0.16 Expenses (2.61 ) Net Income 4.23 NET ASSET VALUE, DECEMBER 31, 2003: $ 22.64 Expense Ratio 12.5 % Net Income Ratio 20.2 % TOTAL RETURN 2003 23.0 % INCEPTION-TO-DATE RETURN 126.4 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Strategic PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 11.54 NET OPERATING RESULTS: Realized Profit 4.10 Unrealized Profit 0.14 Interest Income 0.10 Expenses (1.57 ) Net Income 2.77 NET ASSET VALUE, DECEMBER 31, 2003: $ 14.31 Spectrum Global Balanced PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 14.57 NET OPERATING RESULTS: Realized Profit 1.08 Unrealized Profit 0.54 Interest Income 0.16 Expenses (0.88 ) Net Income 0.90 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.47 Expense Ratio 5.8 % Net Income Ratio 6.1 % TOTAL RETURN 2003 6.2 % INCEPTION-TO-DATE RETURN 54.7 % COMPOUND ANNUALIZED RETURN 4.9 % Spectrum Currency PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 13.93 NET OPERATING RESULTS: Realized Profit 2.92 Unrealized Loss (0.08 ) Interest Income 0.11 Expenses (1.22 ) Net Income 1.73 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.66 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 November 30, Total Assets 28,645,415 28,863,962 LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Payable to Parent 18,547,853 20,444,379 Accrued expenses 13,206 18,000 Total Liabilities 18,561,059 20,462,379 STOCKHOLDER'S EQUITY: Common stock, no par value: Authorized 1,000 shares; outstanding 100 shares at stated value of $500 per share 50,000 50,000 Additional paid-in capital 195,100,000 123,170,000 Retained earnings 9,934,356 8,251,583 205,084,356 131,471,583 Less: Notes receivable from Parent (195,000,000 ) (123,070,000 ) Total Stockholder's Equity 10,084,356 8,401,583 Total Liabilities and Stockholder's Equity 28,645,415 28,863,962 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. NOTES TO STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 1. INTRODUCTION AND BASIS OF PRESENTATION Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of Morgan Stanley ("Parent") Effective June 20, 2002, Morgan Stanley Dean Witter & Co. changed its name to Morgan Stanley. Demeter manages the following commodity pools as sole general partner: Dean Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter Cornerstone Fund IV, Dean Witter Diversified Futures Fund Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley/Chesapeake L.P., Morgan Stanley/JWH Futures Fund L.P., Morgan Stanley Charter MSFCM L.P., Morgan Stanley Charter Graham L.P., Morgan Stanley Charter Millburn L.P., Morgan Stanley Charter Campbell L.P. ("Charter Campbell"), Morgan Stanley Strategic Alternatives Fund L.P,. and Morgan Stanley/Mark J. Walsh & Company L.P. Each of the commodity pools is a limited partnership organized to engage in the speculative trading of commodity futures contracts, forward contracts on foreign currencies and other commodity interests. The statements of financial condition are prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. On December 31, 2002, Columbia Futures Fund, Morgan Stanley Charter Welton L.P. and Morgan Stanley Spectrum Commodity L.P. each terminated trading in accordance with their limited partnership agreements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes Income tax expense is provided for using the asset and liability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the financial statement and the income tax basis of assets and liabilities, using enacted tax rates and laws that will be in effect when such differences are expected to reverse. 3. INVESTMENTS IN AFFILIATED PARTNERSHIPS The limited partnership agreement of each commodity pool requires Demeter to maintain a general partnership interest in each partnership, generally in an amount equal to, but not less than, 1 percent of the aggregate capital contributed to the partnership by all partners. The total assets, liabilities and partners' capital of all the funds managed by Demeter at November 30, 2003 and 2002 were as follows: November 30, $ $ Total assets 2,403,993,109 1,645,639,679 Total liabilities 35,113,850 28,967,603 Total partners' capital 2,368,879,259 1,616,672,076 EXHIBIT A TABLE OF CONTENTS TO FORM OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENTS Page that Units owned by the General Partner and any Affiliate thereof shall not be voted on the matters described in clauses (iii) and (v) above. Any action which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. (d) Action Without Meeting. Notwithstanding contrary provisions of this Section 15 covering notices to, meetings of, and voting by Limited Partners, any action required or permitted to be taken by Limited Partners at a meeting or otherwise may be taken by Limited Partners without a meeting, without prior notice, and without a vote if a consent in writing setting forth the action so taken shall be signed by Limited Partners owning Units having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting of Limited Partners at which all outstanding Units shall have been present and voted. Notice of the taking of action by Limited Partners without a meeting by less than unanimous written consent of the Limited Partners shall be given to those Limited Partners who shall not have consented in writing within seven business days after the occurrence thereof. (e) Amendments to Certificate of Limited Partnership. If an amendment to this Agreement shall be made pursuant to this Section 15, the General Partner shall be authorized to execute, acknowledge, swear to, deliver, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to the Certificate of Limited Partnership as shall be necessary or desirable to reflect such amendment. 16. Index of Defined Terms. Defined Term Section 17. Governing Law. The validity and construction of this Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, including, specifically, the Act (without regard to its choice of law principles); provided, however, that causes of action for violations of federal or state securities laws shall not be governed by this Section 17. 18. Miscellaneous. (a) Priority among Limited Partners. Except as otherwise specifically set forth in this Agreement, no Limited Partner shall be entitled to any priority or preference over any other Limited Partner in regard to the affairs of the Partnership. (b) Notices. All notices and requests to the General Partner under this Agreement (other than Subscriptions, Requests for Redemption, and notices of assignment or transfer, of Units) shall be in writing and shall be effective upon personal delivery or, if sent by registered or certified mail, postage prepaid, addressed to the General Partner at 825 Third Avenue, 9th Floor, New York, New York 10022 (or such other address as the General Partner shall have notified the Limited Partners), upon the deposit of such notice in the United States mail. Requests for Redemption, and notices of assignment or transfer of Units shall be effective upon timely receipt by the General Partner. Except as otherwise provided herein, all reports and notices hereunder shall be in writing and shall be sent by first-class mail to the last known address of the Limited Partner. (c) Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, all of the parties, their successors, assigns as permitted herein, custodians, estates, heirs, and personal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the Partnership and the General Partner may rely upon the Partnership's records as to who are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and that they shall be bound thereby, including all rights which they may have under Section 15. (d) Captions. Captions in no way define, limit, extend, or describe the scope of this Agreement nor the effect of any of its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Additional Limited Partners: General Partner: By: Demeter Management Corporation, General Partner, as Authorized Agent and Attorney-in-Fact Demeter Management Corporation By: Name: Title: By: Annex A to Limited Partnership Agreement REQUEST FOR REDEMPTION: MORGAN STANLEY MANAGED FUTURES FUNDS THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED PARTNER'S LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, (ATTN: MANAGED FUTURES, HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DAY OF THE MONTH IN WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED. , 20 - [date] [print or type Morgan Stanley DW account number] I hereby request redemption (effective as of the next applicable date as of which redemption is permitted as set forth in the Limited Partnership Agreement of the Partnership for which redemption is requested, subject to all terms and conditions set forth therein) of my capital account in an amount equal to the respective Net Asset Value, as defined in the Limited Partnership Agreement, of the following Unit(s) of Limited Partnership Interest ("Units"), less any amounts specified in the Limited Partnership Agreement. COMPLETE ONLY ONE SECTION A, B, C, OR D PER FORM Section A Spectrum Series shall only redeem Units in a minimum amount of 50 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [DWSB] Spectrum Global Balanced Entire Interest Units [DWSF] Spectrum Select Entire Interest Units [DWSS] Spectrum Strategic Entire Interest Units [DWST] Spectrum Technical Entire Interest Units [DWSX] Spectrum Currency Entire Interest Units Section B Cornerstone Funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [CFCFB] Cornerstone Fund II Entire Interest Units $ ,000 [CFCFC] Cornerstone Fund III Entire Interest Units $ ,000 [CFCFD] Cornerstone Fund IV Entire Interest Units $ ,000 Section C Charter Series shall only redeem Units in a minimum amount of 100 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [MSCC] Charter Campbell Entire Interest Units [MSCD] Charter MSFCM Entire Interest Units [MSCG] Charter Graham Entire Interest Units [MSCM] Charter Millburn Entire Interest Units Section D Other managed futures funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. MARK ONE FUND ONLY (Use One Form Per Fund): Entire Interest [DFF] Diversified Futures Fund [PGF] Multi-Market Portfolio [DFF2] Diversified Futures Fund II [PPF] Principal Plus Fund Units [DFF3] Diversified Futures Fund III [PSF] Portfolio Strategy Fund [GPP] Global Perspective Portfolio [WCF] World Currency Fund $ ACCOUNT INFORMATION AND SIGNATURES I understand that I may only redeem Units at such times as are specified in the Limited Partnership Agreement and that, under certain circumstances described therein, I may be subject to a redemption charge. I (either in my individual capacity or as an authorized representative of an entity, if applicable) hereby represent and warrant that I am the true, lawful and beneficial owner of Units (or fractions thereof) to which this Request for Redemption relates, with full power and authority to request redemption. The Units (or fractions thereof) which are the subject of this request are not subject to any pledge or otherwise encumbered in any fashion. My signature has been represented by a member of a registered national securities exchange. Signatures Must Be Identical to Name(s) in Which Units are Registered Type or Print all Information Below 1. Account Information (Name of Limited Partner) (Morgan Stanley DW Account Number) Address: (Street) (City) (State Province) (Zip Code or Postal Code) 2.a. Signature(s) of Individual Partner(s) or Assignee(s) including IRAs (Signature) (Signature) (Date) 2.b. Signature of Entity Partner or Assignee (Name of Entity) By: X (Authorized officer, partner, trustee, or custodian. If a corporation, include certified copy of authorized resolution.) 3. Branch Manager and Financial Advisor Use Only (Financial Advisor MUST sign) (Branch Manager MUST sign) MORGAN STANLEY SPECTRUM SERIES SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY If you are subscribing for units of limited partnership interest in the Morgan Stanley Spectrum Series, consisting of five commodity pool limited partnerships, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P., you should carefully read and review the Prospectus. For Cash Subscribers: By executing the Cash Subscription Signature Page of this Subscription and Exchange Agreement and Power of Attorney, you will irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. For Exchange Subscribers: By executing the Exchange Subscription Signature Page of this Agreement, you will irrevocably redeem the units of limited partnership interest of each limited partnership indicated on the signature page of this Agreement and, with the proceeds of that redemption, irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. Notwithstanding the foregoing, you may revoke this Agreement, and receive a full refund of the subscription amount you paid, plus any accrued interest thereon (or revoke the redemption of units in the other limited partnership in the case of an exchange), within five business days after execution of this Agreement or no later than 3:00 p.m., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. If this Agreement is accepted, you agree to: (i) contribute your subscription to each partnership designated on the Signature Page of this Agreement; and (ii) be bound by the terms of each such partnership's Amended and Restated Limited Partnership Agreement, included as Exhibit A to the Prospectus (the "Limited Partnership Agreement"). By executing the Signature Page of this Agreement, you shall be deemed to have executed this Agreement and the Limited Partnership Agreement (including the Powers of Attorney in both Agreements). PAYMENT INSTRUCTIONS For Cash Subscribers: You must pay your subscription amount by charging your customer account with Morgan Stanley DW (the "Customer Account"). In the event that you do not have a Customer Account or do not have sufficient funds in your existing Customer Account, you must make appropriate arrangements with your Morgan Stanley financial advisor. If you don't have a financial advisor, contact your local Morgan Stanley branch office. Payment must NOT be mailed to the general partner at its offices in New York City. Any such payment will not be accepted by the general partner and will be returned to you for proper placement with the Morgan Stanley branch office where your Customer Account is maintained. By executing the Signature Page of this Agreement, you authorize and direct the general partner and Morgan Stanley DW to transfer the appropriate amount from your Customer Account to the escrow account. For Exchange Subscribers: You must pay your subscription amount by applying the proceeds from the redemption of your limited partnership units in one of the partnerships or another commodity pool which Demeter Management Corporation serves as the general partner and commodity pool operator. You may only redeem units at such times as are specified in the limited partnership agreement for that commodity pool, and under certain circumstances described in that agreement you may be subject to a redemption charge. REPRESENTATIONS AND WARRANTIES STATE SUITABILITY REQUIREMENTS ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS You agree that as of the date that your name is entered on the books of a partnership, you shall become a limited partner of that partnership. You also agree to each and every term of the Limited Partnership Agreement of that partnership as if you signed that agreement. You further agree that you will not be issued a certificate evidencing the units that you are purchasing, but that you will receive a confirmation of purchase in Morgan Stanley DW's customary form. POWER OF ATTORNEY AND GOVERNING LAW You hereby irrevocably constitute and appoint Demeter Management Corporation, the general partner of each partnership, as your true and lawful Attorney-in-Fact, with full power of substitution, in your name, place, and stead: (1) to do all things necessary to admit you as a limited partner of each Partnership requested below, and such other partnership(s) of the Morgan Stanley Spectrum Series as you may request from time to time; (2) to admit others as additional or substituted limited partners to such partnership(s) so long as such admission is in accordance with the terms of the applicable Limited Partnership Agreement or any amendment thereto; (3) to file, prosecute, defend, settle, or compromise any and all actions at law or suits in equity for or on behalf of each partnership in connection with any claim, demand, or liability asserted or threatened by or against any partnership; and (4) to execute, acknowledge, swear to, deliver, file, and record on your behalf and as necessary in the appropriate public offices, and publish: (a) each Limited Partnership Agreement and each Certificate of Limited Partnership and all amendments thereto permitted by the terms thereof; (b) all instruments that the general partner deems necessary or appropriate to reflect any amendment, change, or modification of any Limited Partnership Agreement or any Certificate of Limited Partnership made in accordance with the terms of such Limited Partnership Agreement; (c) certificates of assumed name; and (d) all instruments that the general partner deems necessary or appropriate to qualify or maintain the qualification of each partnership to do business as a foreign limited partnership in other jurisdictions. You agree to be bound by any representation made by the general partner or any successor thereto acting in good faith pursuant to this Power of Attorney. The Power of Attorney granted hereby shall be deemed to be coupled with an interest and shall be irrevocable and survive your death, incapacity, dissolution, liquidation, or termination. This Subscription and Exchange Agreement and Power of Attorney shall be governed by and interpreted in accordance with the laws of the State of New York, provided, however, that this provision shall not be deemed a waiver of any rights of action you may have under applicable federal or state securities law. RECEIPT OF DOCUMENTATION A Morgan Stanley Spectrum Series Units of Limited Partnership Interest Cash Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-7 AND B-8, THE CASH SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Cash Subscription Signature Page and by payment of the purchase price for units of limited partnership interest of one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. CASH SUBSCRIPTION SIGNATURE PAGE BUY Item 1 SUBSCRIBER Spectrum Fund Symbol Amount of Subscription - Morgan Stanley DW Account No. D W S B Morgan Stanley Spectrum Global Balanced L.P. $ D W S F Morgan Stanley Spectrum Select L.P. $ D W S S Morgan Stanley Spectrum Strategic L.P. $ D W S T Morgan Stanley Spectrum Technical L.P. $ D W S X Morgan Stanley Spectrum Currency L.P. $ Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. *If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. *In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account _____________________________________________________________________________________________ Your Full Name or Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription and Exchange Agreement and Power of Attorney on their behalf and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each partnership specified is authorized under applicable law and the governing documents of the entity, has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Branch Manager and Financial Advisor Use Only (Complete in Full and in Ink) B Morgan Stanley Spectrum Series Units of Limited Partnership Interest Exchange Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-9 AND B-10, THE EXCHANGE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Exchange Subscription Signature Page, you hereby redeem the units of limited partnership interest of the limited partnership(s) named in Item 1 below and, by application of the proceeds of such redemption to the payment of the purchase price for units of limited partnership interest in one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. Redemption of units of any partnership for an exchange must be in whole units, unless you are redeeming your entire interest in such partnership. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS, DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. Item 1 SUBSCRIBER - Morgan Stanley DW Account No. Symbol(s) for Fund(s) from which Units are to be redeemed Specify quantity of Units to be redeemed (check box if Entire Interest; insert number if Whole Units) Spectrum Series Fund Symbol Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / You hereby authorize Demeter Management Corporation to redeem the quantity of units of limited partnership interest set forth opposite the symbol for each partnership identified on the left above at the "Net Asset Value" thereof, as defined in the limited partnership agreement of each such partnership, less any redemption charges, and to utilize the net proceeds of that redemption to purchase units in the applicable Morgan Stanley Spectrum Series partnership as indicated on the right above. Redemptions for an exchange must meet the applicable minimum investment requirements described under "Subscription Procedure" in the prospectus. Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. * If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. * In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account: _____________________________________________________________________________________________ Your Full Name or Full Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager, or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription Agreement and Power of Attorney on their behalf; and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each Partnership specified is authorized under applicable law and the governing documents of the entity, and has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Financial Advisor and Branch Manager Use Only (Complete in Full and in Ink) EXHIBIT C Morgan Stanley Spectrum Series Units of Limited Partnership Interest Additional Subscription Agreement Update Form , 2004 C Please print or type (except signatures). Use ink only. Morgan Stanley DW Account No. - I am an investor in one or more of the Morgan Stanley Spectrum Series partnership(s) I acknowledge receipt of the Morgan Stanley Spectrum Series Prospectus dated April 28, 2003 (the "Prospectus"). I have signed this form, which updates each Subscription and Exchange Agreement and Power of Attorney I signed when I purchased units in one or more of the Morgan Stanley Spectrum Series partnership(s), so that I may purchase additional units of such partnership(s) without the need to execute a new Subscription Agreement. I understand that if I wish to purchase additional units by way of an exchange, or if I wish to purchase units of any Morgan Stanley Spectrum Series partnership in which I am not currently an investor, I must first execute a new Subscription Agreement in the form annexed to the applicable Prospectus as Exhibit B. I hereby confirm that the representations, warranties and other information regarding the Subscriber in the Subscription Agreement(s) I previously executed are still accurate, and that any purchase of additional Units following the date of this Subscription Agreement Update Form shall be deemed confirmation that such representations, warranties and other information are still accurate at the time of that additional purchase. I will notify my Morgan Stanley Financial Advisor prior to the purchase of additional Units if there is any material change in the Subscriber's representations, warranties, or other information contained in the previously executed Subscription Agreement(s). I understand that I will need to execute a new Subscription Agreement Update Form when a new Prospectus or Prospectus Supplement is issued. INDIVIDUAL SUBSCRIBERS IF SUBSCRIBER IS AN ENTITY X Signature of Subscriber Print Full Name of Entity X Print Full Name of Subscriber Signature of Person Signing for Entity By: X Signature of Co-Subscriber Print Full Name of Person Signing for Entity Print Full Name of Co-Subscriber Title Date: Date: Branch Manager and Financial Advisor Use Only No person is authorized to give any information or to make any representation not contained in this prospectus in connection with the matters described herein, and, if given or made, such information or representation must not be relied upon as having been authorized. This prospectus does not constitute an offer by any person within any jurisdiction in which such offer is not authorized, or in which the person making such offer is not qualified to do so, or to any person to whom such offer would be unlawful. The delivery of this prospectus at any time does not imply that information contained herein is correct as of any time subsequent to the date of its issue. Until 40 days from the date of this prospectus, all dealers that effect transactions in these securities, or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. $ Total 250,730 *Represents an estimate of the registrant's portion of the fees and expenses that are common to this Registration Statement, Registration Statements on Form S-1 for each of Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Currency L.P. and Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 for Morgan Stanley Spectrum Global Balanced L.P., which are being filed concurrently with this Registration Statement. Item 14. Indemnification of Directors and Officers. Section 14 of the Amended and Restated Limited Partnership Agreement (a form of which is annexed to the Prospectus as Exhibit A) provides for indemnification of the General Partner and its affiliates (as such term is defined therein) by the Partnership for any loss, liability, damage, cost or expense arising from any act, omission, activity or conduct undertaken by or on behalf of the Partnership that is determined by the General Partner in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 11 of the Amended and Restated Selling Agreement provides for indemnification of the General Partner and its affiliates and its successors and assigns by Morgan Stanley DW Inc. ("MSDW") for any loss, claim, damage, liability, cost and expense incurred for a breach by MSDW of a representation or agreement in the Selling Agreement, or for misleading statements and material omissions regarding MSDW in the Registration Statement or Prospectus. Such Section also provides for the indemnification by the Partnership of MSDW, the General Partner and their affiliates for any act, omission, conduct, or activity undertaken by or on behalf of a Partnership that is determined by MSDW or the General Partner, as applicable, in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 8 of the Customer Agreement, between the Partnership and MSDW, provides for indemnification of MSDW and its affiliates for liabilities, losses, damages, costs, or expenses for activities taken by or on behalf of the Partnership which MSDW has determined in good faith are in the best interests of the Partnership and are not the result of misconduct or negligence. Section 8 of each Management Agreement provides for indemnification of the General Partner and its affiliates by the Trading Advisor for losses, claims, damages, liabilities, costs and expenses incurred as a result of actions or omissions by the Trading Advisor involving the Partnership's trading which are the result of a breach of agreement, representation or warranty or the result of bad faith, misconduct or negligence. Item 15. Recent Sales of Unregistered Securities. None. II-1 Item 16. Exhibits and Financial Statements. (a) Exhibits Exhibit Number Description of Document 1.01(8) Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Demeter Management Corporation, and Morgan Stanley DW Inc. 1.01(a)(11) Amendment No. 1 to the Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Global Balanced L.P., Morgan Stanley Spectrum Currency L.P. and Morgan Stanley Spectrum Commodity L.P. 1.01(b) Form of Amendment No. 2 to the Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Global Balanced L.P., and Morgan Stanley Currency L.P. 1.03(5) Form of Additional Seller Agreement between Morgan Stanley DW Inc. and additional selling agents. 3.01(9) Form of Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the prospectus). 3.02(1) Certificate of Limited Partnership of the Registrant. 3.03(3) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Dean Witter Spectrum Select L.P.). 3.04(7) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Morgan Stanley Dean Witter Spectrum Select L.P.). 5.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.03(5) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.04(9) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.05(10) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding the legality of Units (including consent). 5.06 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding the legality of Units (including consent). 8.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.03(5) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.04(9) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.05(10) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 8.06 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 10.01(4) Amended and Restated Management Agreement among the Registrant, Demeter Management Corporation, and Rabar Market Research, Inc. 10.02(4) Amended and Restated Management Agreement among the Registrant, Demeter Management Corporation, and EMC Capital Management, Inc. 10.03(4) Amended and Restated Management Agreement among the Registrant, Demeter Management Corporation, and Sunrise Capital Management, Inc. 10.07(9) Form of Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of units (included as Exhibit B to the prospectus). 10.10(8) Amended and Restated Escrow Agreement among the Registrant, Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Morgan Stanley DW Inc., and The Chase Manhattan Bank, the escrow agent. 10.11(9) Form of Subscription Agreement Update Form to be executed by purchasers of units (included as Exhibit C to the prospectus). 10.12(7) Amended and Restated Customer Agreement between the Registrant and Morgan Stanley DW Inc. 10.13(7) Customer Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc. 10.14(7) Customer Agreement among the Registrant and Morgan Stanley & Co. International Limited. 10.15(7) Foreign Exchange and Options Master Agreement between the Registrant and Morgan Stanley & Co. Incorporated. 10.16(6) Management Agreement among the Registrant, Demeter Management Corporation, and Northfield Trading L.P. 10.17(7) Securities Account Control Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc. 23.01 Consent of Independent Auditors. (1)Incorporated by reference to the Registrant's Registration Statement No. 333-47829 filed with the SEC on March 12, 1998. (2)Incorporated by reference to the Registrant's Registration Statement No. 333-68773 filed with the SEC on December 11, 1998. (3)Incorporated by reference to the Registrant's Registration Statement No. 333-68773 filed with the SEC on April 12, 1999. (4)Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for fiscal year ended December 31, 1998 filed with the SEC on March 31, 1999 (File No. 0-19511). (5)Incorporated by reference to the Registrant's Registration Statement No. 333-90467 filed with the SEC on November 5, 1999. (6)Incorporated by reference to Registrant's Form 8-K filed with the SEC on April 25, 2001 (File No. 0-19511). (7)Incorporated by reference to Registrant's Form 8-K filed with the SEC on November 1, 2001 (File No. 0-19511). (8)Incorporated by reference to the Registrant's Registration Statement No. 333-90467 filed with the SEC on November 2, 2001. (9)Incorporated by reference to the Registrant's Registration Statement No. 333-84656 filed with the SEC on March 20, 2002. II-2 (10)Incorporated by reference to the Registrant's Registration Statement No. 333-104005 filed with the SEC on March 25, 2003. (11)Incorporated by reference to the Post-Effective No. 1 to the Registrant's Registration Statement No. 333-104005 filed with the SEC on December 3, 2003. (b)Financial Statements. Included in the Prospectus: Morgan Stanley Spectrum Select L.P. Independent Auditors' Report Statement of Financial Condition Statement of Operations Statement of Changes in Partners' Capital Statement of Cash Flows Notes to Financial Statements Demeter Management Corporation Independent Auditors' Report Statements of Financial Condition Notes to Statements of Financial Condition Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York and State of New York, on the 8th day of March, 2004. MORGAN STANLEY SPECTRUM SELECT L.P. By: DEMETER MANAGEMENT CORPORATION, General Partner By: /s/ JEFFREY A. ROTHMAN Jeffrey A. Rothman, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date DEMETER MANAGEMENT CORPORATION General Partner /s/ JEFFERY A. ROTHMAN Jeffrey A. Rothman President and Chairman of the Board of the General Partner March 8, 2004 /s/ DOUGLAS J. KETTERER Douglas J. Ketterer Director of the General Partner March 8, 2004 /s/ JEFFREY S. SWARTZ Jeffrey S. Swartz Director of the General Partner March 8, 2004 /s/ RICHARD A. BEECH Richard A. Beech Director of the General Partner March 8, 2004 /s/ RAYMOND A. HARRIS Raymond A. Harris Director of the General Partner March 8, 2004 /s/ FRANK ZAFRAN Frank Zafran Director of the General Partner March 8, 2004 /s/ JEFFREY D. HAHN Jeffrey D. Hahn Chief Financial Officer and Director of the General Partner March 8, 2004 II-4 QuickLinks COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT Table of Contents PART ONE DISCLOSURE DOCUMENT SUMMARY
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+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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+PROSPECTUS SUMMARY 1
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this Prospectus. It does not contain all of the information that is important to you. We encourage you to read this Prospectus in its entirety. ABOUT THE COMPANY Wheeling-Pittsburgh Corporation, or WPC, is a Delaware holding company that, together with its several subsidiaries and joint ventures, constitutes the seventh largest integrated producer of steel and steel products in the United States. Our principal operating subsidiary is Wheeling-Pittsburgh Steel Corporation, or WPSC, a Delaware corporation whose headquarters are located in Wheeling, West Virginia. WPC was organized as a Delaware corporation on June 27, 1920 under the name Wheeling Steel Corporation. We produce flat rolled steel products for the construction industry, steel service centers, converters, processors, and the container, automotive and appliance industries. Our product offerings are focused predominately on higher value-added finished steel products such as cold-rolled products, tin and zinc coated products and fabricated products. In addition, we produce semi-finished steel products and hot-rolled steel products, which represent the least processed of our finished goods. An operating division of WPSC, Wheeling Corrugating Company, also referred to as WCC, manufactures our fabricated steel products for the construction, agricultural and highway industries. WPSC also holds a percentage ownership interest in two joint ventures that, together with WCC, account for nearly half of our sales. These joint ventures, Wheeling-Nisshin, Inc. and Ohio Coatings Company, also referred to as OCC, produce value-added steel products from materials and products supplied by us. SUMMARY OF THE OFFERING Issuer........................ Wheeling-Pittsburgh Corporation Wheeling-Pittsburgh Steel Corporation Selling Security Holders...... Stonehill Offshore Partners Limited Stonehill Institutional Partners, L.P. Use of Proceeds............... We will not receive any proceeds from the sale of the shares of common stock or the notes offered by this Prospectus Securities Offered............ 1,222,102 shares of common stock of WPC $7,137,197 aggregate principal amount due at maturity of Senior Secured Notes due 2010 of WPSC (Series B Notes) Common Stock.................. WPC is authorized to issue 80 million shares of common stock, $0.01 par value per share, and 20 million shares of undesignated preferred stock, $0.001 par value per share. As of December 31, 2003, there were 10,000,000 shares of common stock issued and outstanding. The shares of common stock trade on the Nasdaq National Market under the symbol "WPSC." Terms of Notes Maturity Date............... Series B Notes: 2010 Interest.................... Series B Notes: 6% per annum Security.................... The Series B Notes are secured by a fifth lien on our tangible and intangible assets, our equity interests in our joint ventures, and our accounts receivable and inventory. The notes are guaranteed by WPC and WP Steel Venture Corporation, a wholly-owned subsidiary of WPC. Senior Debt................. We have entered into a $250 million senior secured term loan facility with a bank group led by Royal Bank of Canada, as administrative agent. The term loan is arranged in three tranches with varying degrees of risk and interest rates. Term loan interest rates range from Libor plus 2.5% to Libor plus 8.0% and prime plus 1.50% to prime plus 7.0%. The blended rate of interest is approximately 4% at current Libor rates. The term loan is secured by a first lien on all of our tangible and intangible assets (other than accounts receivable and inventory) and our equity interests in our joint ventures, and a second lien on our accounts receivable and inventory. We also have entered into a $225 million senior secured revolving credit facility with a bank group arranged by Royal Bank of Canada and GECC Capital Markets Group. Interest rates on borrowings under the revolving credit facility are initially at prime plus 2.5% and Libor plus 3.5%, and thereafter range from prime plus 2.25% to prime plus 3.0% and Libor plus 3.25% to Libor plus 4.0%, depending on availability. The revolving credit facility is secured by a first lien on our accounts receivable and inventory and a third lien on our other tangible and intangible assets and our equity interest in our joint ventures. As of December 31, 2003, we have borrowed approximately $79.3 under the revolving credit facility. For a description of other debt obligations of the Company, refer to the discussion below under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources." Events of Default........... The occurrence of any of the following conditions constitutes an "Event of Default" pursuant to the terms of the indenture under which the Series B Notes were issued: - WPSC defaults in the payment, when due, of interest on the notes and such default continues for a period of 30 days; - WPSC defaults in the payment, when due, of principal of the notes when the principal becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; - WPSC fails to comply with certain of its covenants in the indenture restricting WPSC's ability to incur indebtedness or transfer, encumber, or alter the form of its assets; - WPSC fails to observe or perform any other covenant, representation warranty or other agreement in the indenture or the notes for 30 days after notice to WPSC by the trustee or to WPSC and the trustee by the holders of at least 25% in principal amount of the notes then outstanding of such failure; - a default occurs under any instrument(s) evidencing aggregate indebtedness of at least $10.0 million for money borrowed by, or guaranteed by, WPSC or any of its subsidiaries caused by a failure to pay principal at maturity prior to the expiration of any grace period or resulting in the acceleration of such indebtedness prior to its express maturity; - final judgment(s) for the payment of more than $10.0 million entered by court(s) of competent jurisdiction against WPSC or any of its subsidiaries are not paid or discharged for a period of 60 days (not including stays of execution); - any guarantor of the notes fails to perform or repudiates any covenant set forth in its guarantee or the guarantee is unenforceable against a guarantor for any reason, unless such guarantor and its subsidiaries have no indebtedness outstanding; - WPSC or any of its significant subsidiaries pursuant to or within the meaning of bankruptcy law commences a voluntary case, consents to the entry of an order for relief against it in an involuntary case, consents to the appointment of a custodian of it or for all or substantially all of its property, makes a general assignment for the benefit of its creditors, or generally is not paying its debts as they become due; - a court of competent jurisdiction enters an order or decree under any bankruptcy law for relief against WPSC or any of its "Significant Subsidiaries" (as defined in the indenture) in an involuntary case, appoints a custodian of WPSC or any of its Significant Subsidiaries or for all or substantially all of the property of WPSC or any of its Significant Subsidiaries, or orders the liquidation of WPSC or any of its Significant Subsidiaries, and the order or decree remains unstayed and in effect for 60 consecutive days; provided, however, that such event of default shall be deemed to have been cured if the entry of such order or decree is dismissed on appeal; - the guarantees provided by a Significant Subsidiary cease to be in full force and effect (other than in accordance with their terms) or Significant Subsidiaries deny or disaffirm their obligations under their guarantees; or - (i) any material liens created by the Security Documents (as defined in the indenture) cease to constitute valid and perfected liens on, and security interests in, the material collateral (other than in accordance with the terms of the Security Documents and the indenture) in favor of the collateral trustee holding a security interest in the collateral, for the benefit of the holders of the notes, free and clear of all other liens (other than Permitted Liens (as defined in the indenture)), or (ii) any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect in all material respects (other than in accordance with their terms and the terms of the indenture), if, in either case, such default continues for 30 days after notice, or the enforceability thereof shall be contested by WPSC. Trading and Transfer........ The notes are not currently listed and we do not intend to list the notes on any national securities exchange. The notes were issued in book entry form and are represented, in the aggregate, by a global certificate deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company in New York, New York. Ownership of the notes may be evidenced in certificated form or may be shown on records maintained by The Depository Trust Company as beneficial interests in the applicable global certificate. Transfers of certificated notes will be effected only through the Company's registrar. Transfers of uncertificated beneficial interests in a global certificate will be effected only through The Depository Trust Company and its direct and indirect participants. Such beneficial interests in a global certificate may also be exchanged for certificated securities. Trustee..................... The trustee under the indenture for the notes is Bank One, N.A.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000892986_warren_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000892986_warren_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000895380_allegro_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000895380_allegro_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. However, it may not contain all of the information that is important to you. You should carefully read the entire prospectus, especially the risks of investing in our common stock discussed under Risk Factors . On September 29, 2003, as further described under Management s Discussion and Analysis of Financial Condition and Results of Operations and Business in this prospectus, we completed the sale of our intermittent testing business to International Technidyne Corporation ( ITC ). The description of our business relates primarily to our continuous monitoring business and includes only limited references to the intermittent testing business sold to ITC as necessary to fully understand our business, operating results and financial position. Our Company We develop, manufacture and distribute blood and tissue monitoring systems that provide continuous diagnostic information at the point-of patient care. Blood and tissue analysis is an integral part of patient diagnosis and treatment and timely access to certain measurements is critical to effective patient care. We believe that use of our systems will result in more timely decisions by providing accurate and continuous test results at the patient s bedside, thereby reducing the time spent in critical care settings. Our monitoring systems have recently been used in several biotech applications to provide continuous measurement of environments surrounding cell research and growth. To date, most of these utilizations have been on a trial basis, although others have generated revenue from systems and sensor sales. The use of our existing technology in these expanded applications provides another growth opportunity for our company. Our continuous monitoring systems are based on fiber optic sensor technology which measures color changes optically via light transmitted through plastic fibers embedded with fluorescent dyes sensitive to chemicals in blood and tissue. Products include the TrendCare Continuous Blood Gas Monitoring Systems and the Neurotrend Cerebral Tissue Monitoring System. The TrendCare systems provide immediate and continuous information on blood gases and temperature in adult, pediatric and neonatal patients via a fiber optic sensor placed through an arterial catheter. Neurotrend continuously monitors oxygen, carbon dioxide, acidity and temperature through sensors placed directly in brain tissue, providing critical information regarding blood supply and oxygen levels in the brain that can guide clinicians and surgeons in treating patients with head trauma or those requiring surgery in the brain. We market and distribute our products through a direct sales force in the United States, the United Kingdom and Germany, and through nonexclusive third-party distributors in various other countries. The Neurotrend Cerebral Tissue Monitoring System is distributed exclusively through Codman & Shurtleff, Inc., a Johnson & Johnson company. The exclusive agreement with Codman expires in October 2004 and is renewable for two years. The agreement provides for annual minimum purchase levels based on a percentage of the prior year s purchases, or payment of 50% of any shortfall from those minimum levels. Purchases and payments in lieu of purchases by Codman were less than 5% of total revenue for the three months ended March 31, 2004 and 12% of total revenue from continuing operations for the year ended December 31, 2003, less than 5% in 2002 and 10% in 2001. Recent Developments On January 16, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series F convertible preferred stock ( Series F Shares ) at $100 per share. The preferred stock is convertible at any time into common stock at 75% of the volume weighted average trading price of the lowest three inter-day trading prices of the common stock for the five consecutive trading days preceding the conversion date, but at an exercise price of no more than $.25 per share and no less than $.20 per share. However, if our six-month cash flow for June 30, 2004 is 20% less than projected, the floor conversion price will decrease to $.15 per share. Five year warrants were also issued to purchase an aggregate of 6,000,000 shares of our common stock at the lower of (i) the average of the lowest ten inter-day closing prices of the common stock on the Over-the-Counter Bulletin Board during the 10 trading days immediately preceding the exercise date or (ii) $.35 per share. In conjunction with the sale of Series F convertible preferred stock in January 2004, holders of our 7% convertible senior secured fixed rate notes agreed to defer payment of accrued interest originally due December 31, 2003 and March 31, 2004 until June 30, 2004. In exchange for that deferral, the exercise price of the related warrants was reduced to $.34 per share and the exercise dates for those warrants were accelerated to December 31, 2003, March 31, 2004 and June 30, 2004, with 33 1/3% vesting on each of those dates. On May 28, 2004, we completed a $1.5 million financing through the sale of 15,000 shares of Series G convertible preferred stock at $100 per share. Each share of the Series G preferred stock is convertible at any time into common stock at 75% of the volume weighted average trading price of the lowest three inter-day trading prices of the common stock during the five consecutive trading days preceding the conversion date, with a maximum exercise price of $.14 per share and a minimum price of $.06 per share. We expect to call a special meeting of our shareholders to request an increase in our authorized common stock from 100 million shares to 200 million shares. If our shareholders approve that increase, the minimum exercise price for Series G Shares will be decreased to $.03 per share. As part of this financing, we issued three-year warrants to the purchasers of the Series G Shares. Those warrants entitle the holders to purchase an aggregate of 1,250,000 shares of our common stock at the lower of $.11 per share or the average of the lowest ten inter-day closing prices of our common stock during the ten trading days preceding the exercise date. We also issued three-year warrants to the Mercator Advisory Group and its related funds to purchase an aggregate of 12,241,608 shares of our common stock at $.05 per share. DIAMETRICS MEDICAL, INC. (Exact name of registrant as specified in its charter) Minnesota 3845 41-1663185 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.) 3050 Centre Pointe Drive, Suite 150 St. Paul, Minnesota 55113 (651) 639-8035 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Copy to: David B. Kaysen President and Chief Executive Officer 3050 Centre Pointe Drive, Suite 150 St. Paul, Minnesota 55113 (651) 639-8035 Fax: (651) 639-8549 Kenneth L. Cutler, Esq. Dorsey & Whitney, LLP 50 South Sixth Street, Suite 1500 Minneapolis, Minnesota 55402-1498 (612) 340-2600 Fax: (612) 340-7800 (Name, address, including zip code, and telephone number, including area code, of agent for service) Our principal executive office is located at 3050 Centre Pointe Drive, Suite 150, Roseville, Minnesota 55113, and our telephone number is (651) 639-8035. Our website is located at www.diametrics.com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any other amendments to those reports are made available to the public free of charge through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The accompanying notes are an integral part of these consolidated financial statements. Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE 1. Consists of up to 25,000,000 shares of common stock issuable upon the conversion of Series G Shares, and 13,491,608 shares of common stock to be issued upon exercise of common stock warrants. 2. Based on the number of shares actually outstanding on May 28, 2004, excluding 6,528,601 shares reserved for issuance under our 1990 Stock Option Plan, as amended and restated and our 1995 Employee Stock Purchase Plan, as revised and restated, of which options to purchase 3,406,206 shares at an average option price of approximately $4.05 per share have been issued and are outstanding.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000898018_mountain_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000898018_mountain_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary explains the significant aspects of our stock offering. The summary is qualified by the more detailed information and the financial statements appearing elsewhere in this prospectus. The Offering Common Stock Offered 60,000 Shares Common Stock to be Outstanding After the Offering 2,236,677 Shares (assuming all Shares offered are sold and no outstanding stock options are exercised). Minimum Subscription There is no minimum purchase for existing shareholders, and new shareholders must subscribe for a minimum of 100 Shares. Maximum Subscription 1,000 Shares, during Phase 1, subject to the discretion of the board of directors. If Shares remain available for sale during Phase 2, there will be no maximum subscription limit (subject to the availability of Shares). Price $15.00 per Share. Use of Proceeds To support our growth, including branch expansion. See USE OF PROCEEDS.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000906471_davco_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000906471_davco_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..3600b752e15a3b45247a7c30cf9926b31ed9ca96
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+S-1/A ENHANCED INCOME SECURITIES TRADEMARK Enhanced Income Securities (EISs) is a trademark used by us under license from RBC Capital Markets Corporation. SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Prior to the closing of this offering, we will amend our certificate of incorporation to change the name of our company from Davco Acquisition Holding Inc. to DavCo Restaurants Inc. and, prior thereto, we will cause our wholly-owned subsidiary, DavCo Restaurants, Inc., to change its name to DavCo Operations Inc. All references in this prospectus (other than in our Consolidated Financial Statements) give effect to these name changes. Throughout this prospectus, "we," "our," "us," or "our company" refers to DavCo Restaurants and its consolidated operations, and "Wendy's" or "Wendy's International" refers to Wendy's International, Inc., a franchisor to our company. For further information on defined terms, see "General Information About This Prospectus." Our Company Overview We are one of the largest franchisees of Wendy's Old Fashioned Hamburgers restaurants and the fifth largest hamburger quick service restaurant franchisee in the United States. In the last 10 years, the number of Wendy's restaurants we have owned and operated in our franchise territory has grown from 110 to 153, and we serve approximately 50.2 million customers annually through our operation of Wendy's restaurants. Our exclusive franchise territory comprises Baltimore and the Eastern Shore of Maryland, Washington, D.C. and portions of Northern Virginia. As one of the earliest franchisees of Wendy's International, we have been operating Wendy's restaurants since 1976. As of June 27, 2004 (the end of our fiscal 2004 third quarter), our company employed approximately 680 full-time employees and approximately 5,200 part-time employees. Our restaurants generated approximately $204.4 million and $155.8 million of sales, $20.0 million and $16.1 million of Adjusted EBITDA and $12.5 million and $8.1 million of cash flow from operating activities for our fiscal year ended September 28, 2003 and the nine months ended June 27, 2004, respectively. Adjusted EBITDA is defined in our new credit facility and the indenture governing our senior subordinated notes and results from certain specified adjustments to EBITDA (which is earnings before interest, taxes, depreciation and amortization). See "Summary Financial Information" for a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Wendy's International Wendy's International is one of the world's largest restaurant operating and franchising companies, with approximately 9,300 total restaurants and several quality brands, including Wendy's Old Fashioned Hamburgers. For the fiscal year ended December 31, 2003, Wendy's International reported approximately $3.1 billion in consolidated total revenues and $236.0 million in net income and $2.2 billion in total revenues for its Wendy's restaurants. We believe that the Wendy's brand name is widely recognized in the restaurant industry as being a symbol for fresh, high quality food and menu variety. The "Wendy's" name, design, logo and the designated Wendy's marks are registered trademarks of Oldemark, LLC and are licensed to Wendy's International, which sublicenses these trademarks to independently owned and operated franchisees like us. Dave Thomas created the first Wendy's Old Fashioned Hamburgers restaurant in Columbus, Ohio in November 1969. In 1972, Mr. Thomas sold his first franchise in Indianapolis, Indiana. At December 31, 2003, Wendy's International and its franchise owners operated over 6,480 Wendy's restaurants in 50 states, the District of Columbia, and 21 other countries and territories. Of these restaurants, approximately 1,465 were operated by Wendy's International and approximately 5,015 by its franchisees. Our Strengths We believe we maintain the following competitive advantages within the restaurant industry and the hamburger segment of the quick service restaurant market: Strength of Wendy's brand name. We believe that the Wendy's brand name is widely recognized in the restaurant industry as a brand associated with fresh, high quality food and menu variety. Wendy's focus on fresh food and menu innovation. Wendy's International's focus on customer research and innovation with new food items enables its restaurants to offer a varied menu which we believe is distinctive among hamburger quick service restaurant chains. Well-positioned in a market with strong fundamentals. The hamburger segment of the United States quick service restaurant market is estimated to have generated sales of approximately $50.7 billion in 2003. From 1999 to 2003, Wendy's share of the hamburger segment, the largest segment of the U.S. quick service restaurant market, expanded from approximately 13.4% to 14.5%. One of the largest Wendy's franchisees. We are one of the largest Wendy's franchisees with 154 restaurants. Our relatively large number of restaurants in a geographically contiguous area enables us to control costs, take advantage of purchasing and distribution efficiencies, and negotiate favorable terms with suppliers and service providers. Territorial exclusivity. We have the exclusive right to develop new Wendy's restaurants in our franchise territory until December 31, 2015 and, from January 1, 2016 to December 31, 2025, a right of first refusal with respect to the development of any new Wendy's restaurant in our franchise territory. Expertise in restaurant development and management. Our senior management team has over 20 years of experience in developing, acquiring and operating Wendy's restaurants. Our Business Strategy and Growth Opportunities We intend to grow our business by implementing the following business strategies: Open new Wendy's restaurants. We believe that there are significant expansion opportunities in our exclusive franchise territory and have identified a number of undeveloped sites that satisfy our new restaurant site selection criteria. Increase same store sales. We intend to increase same store sales through a combination of extending store hours, introducing new or promotional menu items, and our recently introduced electronic payment ("e-pay") option, which facilitates faster customer service and increases average check size. Achieve operating efficiencies. Our centralized management and relatively large number of restaurants in a geographically contiguous area enable us to control costs and capture economies of scale by spreading our existing corporate expenditures over our 154 restaurants and through purchasing and distribution efficiencies. Introduce new products. We intend to continue to introduce new products developed and launched by Wendy's International that are responsive to what Wendy's believes are emerging lifestyle trends. Our Industry The restaurant industry in the United States is comprised of five major segments: quick service restaurants, quick casual restaurants, family/mid-scale restaurants, casual dining restaurants and fine dining restaurants. The quick service restaurant market is the largest segment of the United States restaurant industry with sales of approximately $144.1 billion in 2003. We operate in the hamburger segment of the quick service restaurant market. The hamburger segment of the U.S. quick service restaurant market generated sales of approximately $50.7 billion in 2003 representing approximately 35.1% of the total sales of quick service restaurants in this period. Sales in this segment grew at a SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 compound annual growth rate of 4.2% between 1998 and 2003, and are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. See "Industry." Relationship with Wendy's International Information concerning Wendy's International contained in this prospectus has been derived from publicly available information filed by Wendy's International with the Securities and Exchange Commission, is historic and was not prepared for purposes of this prospectus. This prospectus has been prepared by us and we are responsible for this offering. Wendy's International is not selling, offering for sale or underwriting any part of this offering and is not receiving any proceeds from this offering. We and our subsidiary guarantors are the sole obligors under or guarantors of the senior subordinated notes which are part of this offering. Wendy's International has not made any recommendation with respect to the merits of this offering and neither this offering nor the contents of this prospectus (including any financial data or any analysis of tax consequences contained herein) have been approved or endorsed by Wendy's International. Wendy's International has assumed no obligations in connection with this offering or with respect to the accuracy, adequacy or completeness of this prospectus. Our relationship with Wendy's International is governed by the following material agreements: an amended and restated consent, which, among other things, contains the required Wendy's International consent to this offering and sets forth the related terms and conditions of that consent; a development letter, which, among other things, grants us our exclusive franchise territory and sets forth a schedule of required new restaurant openings; and separate unit franchise agreements, as amended, which govern the operation of each of our restaurants. In order to maintain our exclusive franchise territory, our development letter with Wendy's International requires us, net of any closures, to open or commence construction of a minimum of four restaurants in each of 2004 and 2005, a minimum of eight restaurants in each year from 2006 through 2012, and a minimum of seven restaurants in each of 2013 through 2015. The development letter requires us to operate a total of 240 restaurants in our franchise territory by December 31, 2015. We have opened two new restaurants in 2004, and currently have two new restaurant locations under development, seven new restaurant locations subject to signed leases and five new restaurant locations subject to letters of intent. For further information on our agreements with Wendy's see "Business Relationship with Wendy's International." Wendy's International has an option to purchase all of our equity interests in DavCo Operations and all of our assets and all of the assets of DavCo Operations, at fair market value, in the event that, among other things, any direct or indirect interest in our company or DavCo Operations is transferred in violation of our franchise agreements with Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Purchase option." Use of Proceeds We will sell 7,999,168 EISs and an additional $7.5 million aggregate principal amount of senior subordinated notes (not in the form of EISs) in this offering. Assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive aggregate net proceeds of approximately $114.5 million from this offering of EISs and additional senior subordinated notes, after deducting underwriting discounts and commissions and other estimated transaction fees and expenses. Assuming the transactions described in this prospectus had occured on June 27, 2004, we would have used the aggregate net proceeds of this offering of approximately $114.5 million and cash on hand AMENDMENT NO. 4 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and assumed borrowings under credit facilities (of approximately $11.4 million in the aggregate) as follows: approximately $103.3 million to repay certain outstanding indebtedness under term loans, net of prepayment discount and restricted cash balances; $3.0 million to fund a portion of the capital expenditures for renovations and upgrades to our restaurants required by Wendy's International; approximately $13.0 million to repurchase 1,701,863 shares of our Class B common stock from Citicorp Venture Capital (as defined below under "Our Existing Equity Investors") at a purchase price of $7.65 per share; and approximately $4.7 million to pay a make-whole premium in connection with the prepayment of indebtedness under Term Loan 1 and approximately $1.8 million to pay bonuses to certain of our senior officers in connection with the termination of our annual cash bonus plan which will be replaced by the long term incentive plan and dividend reinvestment plan. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the net proceeds we receive from the sale of additional EISs under the over-allotment option to repurchase 2,352,696 additional shares of our Class B common stock held by Citicorp Venture Capital. In such event, Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock. No existing equity investor, other than Citicorp Venture Capital, will receive any of the proceeds of this offering. See "Use of Proceeds." Our New Credit Facility Concurrently with the closing of this offering, DavCo Operations will enter into a new senior secured credit facility with SunTrust Bank ("SunTrust"). We refer to this credit facility as the "new credit facility." The new credit facility will provide our company with a three-year $20.0 million revolving credit line with a floating interest rate of LIBOR plus 1.5%. The purpose of the new credit facility will be to provide for letters of credit, new ground lease construction financing, new equipment financing and other restaurant capital expenditures, and working capital needs. The new credit facility will be guaranteed by us and by each subsidiary of DavCo Operations and will be secured by a first priority security interest in certain of our assets. The new credit facility will contain a number of financial and other covenants, including restrictions on our ability to pay interest on our senior subordinated notes and to pay dividends on our common stock. The closing of this offering is conditioned upon the closing of the new credit facility. At the closing of this offering, we expect that approximately $6.0 million of letters of credit will be outstanding under the new credit facility and that there will not be any borrowings outstanding thereunder. See "Description of Certain Indebtedness New Credit Facility." Our Existing Equity Investors Certain officers of our company, namely Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III, Richard H. Borchers, Charles C. MacGuire, III, Elizabeth Brown, Thomas A. Hughes, Sandra L. Hughes and Stacey E.Y. Jackson, and Citicorp Venture Capital and certain of its affiliates and employees, namely Byron L. Knief, Charles Schweitzer, 63 BR Partnership, David F. Thomas, Charles Corpening and James A. Urry (collectively, "Citigroup Venture Capital"), are the beneficial owners of all our shares of outstanding common stock prior to this offering. In this prospectus, we refer to all of these owners as the "existing equity investors." Pursuant to a recapitalization to be effected concurrent with this offering, all outstanding shares of our existing common stock held by the existing equity investors will be recapitalized into shares of our Class B common stock. The recapitalization is a condition to our sale of EISs and the senior subordinated notes hereunder and completion of the sale of the EISs and the senior subordinated Davco Acquisition Holding Inc. (Exact name of registrant as specified in its charter) Delaware (Jurisdiction of incorporation or organization) 5812 (Primary Standard Industrial Classification Code Number) 52-2069955 (I.R.S. Employer Identification Number) 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Address, including zip code, and telephone number, including area code, of Co-Registrants' principal executive offices) notes is a condition to the recapitalization. The shares of our Class B common stock will have identical rights and privileges in all respects to the shares of our Class A common stock, other than dividend rights and certain exchange rights provided in the stockholders agreement. Our amended and restated certificate of incorporation will provide that the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. For a full description of the dividend rights applicable to our Class A common stock and Class B common stock and the exchange right provided in the stockholders agreement in respect of our Class B common stock, see "Dividend Policy and Restrictions", "Description of Capital Stock" and "Related Party Transactions Amendment and Restatement of Stockholders Agreement." Upon the completion of the recapitalization to be effected concurrent with this offering, but prior to the closing, Citicorp Venture Capital will own 4,862,466 shares of our outstanding Class B common stock, representing approximately 78.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of our outstanding Class B common stock, representing 21.7% of our outstanding capital stock. Upon the closing of this offering and after a portion of the proceeds of this offering have been used to repurchase 1,701,863 shares of our Class B common stock owned by Citicorp Venture Capital, Citicorp Venture Capital will own 3,160,603 shares of our outstanding Class B common stock, representing approximately 25.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of Class B common stock, representing 10.8% of our outstanding capital stock. If the underwriters' over-allotment option with respect to the EISs is exercised in full, we will purchase 4,054,559 shares of our Class B common stock from Citicorp Venture Capital and Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock and our management investors will own 1,348,827 shares of our Class B common stock, representing 11.9% of our outstanding capital stock. See "Use of Proceeds." Exchange Rights of Holders of Class B Common Stock Beginning on the 366th day after the consummation of this offering, the holders of shares of our Class B common stock will have certain rights to exchange or cause the exchange of their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of our Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). In connection with this exchange, no fractional EISs will be issued. Instead, any fractional interest that would otherwise be issuable will be paid for in cash at the then fair market value of our EISs. Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors, consisting of Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III and Richard H. Borchers, from exercising this exchange right with respect to all of their shares of our Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if, following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). In addition, any exchange of shares of our Class B common stock for EISs is subject to compliance with, among others, the following conditions: any issuance of EISs upon exchange must occur pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); and at the time of the exchange, no default may exist under the terms of our new credit facility, the indenture governing our senior subordinated notes (including the non-payment of interest on such notes, when due) or our franchise agreements with Wendy's. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." Our Corporate Information Our principal executive office is located at 1657 Crofton Boulevard, Crofton, Maryland 21114, and our telephone number is (410) 721-3770. See Table of Additional Registrants on Next Page The Offering Summary of our EISs and Senior Subordinated Notes We are offering 7,999,168 EISs at an assumed initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $7.5 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 13.25% of the aggregate principal amount of senior subordinated notes, whether held separately or as a component of an EIS. We intend to make interest payments and, if declared, dividend payments on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively. The terms of our new credit facility will prevent us from paying principal and interest on our senior subordinated notes during the existence of a payment default thereunder, and for 179 days following a default thereunder, other than a payment default. You may also receive quarterly dividend payments on the shares of our Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Each of these agreements will contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock of which the material restrictions are as follows. We may not pay dividends on our Class A and Class B common stock: under the terms of our new credit facility, if an event of default exits thereunder or if certain financial ratios and tests set forth therein are not met. See "Description of Certain Indebtedness New Credit Facility"; under the indenture governing our senior subordinated notes, if an event of default exists thereunder or if our fixed charge coverage ratio for the most recent four fiscal quarter period is less than 1.6 to 1.0. See "Description of Senior Subordinated Notes Certain Covenants Restricted Payments"; and under our franchise agreements with Wendy's, if at the time of payment of the dividends we are not current in our royalty fee, advertising contribution and other payment obligations to Wendy's, or our capital expenditure obligations, or if such dividend payment would prevent us from making our required payments to Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Dividend Restrictions." David J. Norman, Esq. General Counsel 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A common stock and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the level set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Copies to: Bradley P. Cost, Esq. Torys LLP 237 Park Avenue New York, NY 10017 (212) 880-6000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Will my rights as a holder of EISs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of EISs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your EISs. As such, through your broker or other financial institution and the Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of EISs? Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing equity investors, through their ownership of shares of Class B common stock, will own approximately 36.1% of the voting power of our common stock immediately following the offering of the EISs (or approximately 19.0% if the over-allotment option with respect to the EISs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Can I separate my EISs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form EISs? Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control, through their broker or other financial institution, separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of Class A common stock and senior subordinated notes, whether represented by EISs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, the custodian or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Any such separation or recombination will be effective as of the close of business on the trading day that DTC receives such instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day. Any instructions received after 3:00 p.m., New York time, will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of EISs may involve transaction fees charged by your broker, the custodian and/or your financial intermediary. See "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance Separation and recombination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Will the EISs be listed on an exchange? Yes. We will apply to list the EIS on the American Stock Exchange under the trading symbol "DVC." Will the shares of our common stock and senior subordinated notes be separately listed on an exchange? The senior subordinated notes represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will not be listed on any exchange. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when the shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class A common stock and our senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares of our Class B common stock will not be listed on any exchange. Will the additional senior subordinated notes sold separately (not in the form of EISs) be the same as the senior subordinated notes issued as a component of the EISs? Yes. The additional senior subordinated notes to be sold separately (not in the form of EISs) will be the same as the senior subordinated notes represented by EISs and will be part of the same series of senior subordinated notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of EISs) and holders of senior subordinated notes represented by EISs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing our senior subordinated notes. If you purchase separate senior subordinated notes in this offering, you will be required to deliver to us a letter containing certain representations, including that you are not a holder of our equity, that you are not purchasing EISs in this offering and that you have no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. We believe that these representation letters will help us to demonstrate that a market exists for the separate senior subordinated notes independent of the market for EISs. See "Underwriting." In what form will EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately be issued? The EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will be initially issued in book-entry form only. This means that you will not be a registered holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs), and you will not receive a certificate for your EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). Following the separation, if any, of your EISs into the component parts of the Class A common stock and senior subordinated notes, these securities will be held in book-entry form or, if requested by you, the Class A common stock may be held in registered form. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. A registered holder of shares of our Class A common stock, including a holder of EISs that requests that the EISs be separated, has the right to obtain a certificate representing such shares. If a holder of EISs requests certificated shares of Class A common stock, such holder's EISs must be split into the component parts of the Class A common stock and senior subordinated notes, and for so long as the shares of Class A common stock are held in separately certificated form, the shares of Class A common stock may no longer be eligible for inclusion in DTC's book-entry settlement and clearance system described under the heading "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance." However, if a holder of separately certificated shares of Class A common stock is subsequently willing to forgo being a registered holder of shares and deposits the shares in an eligible institution, those shares of Class A common stock may again become DTC eligible. EISs and, subject to certain exceptions described under "Description of Senior Subordinated Notes Exchange of Global Notes for Certificated Notes," the senior subordinated notes may only be held in book-entry form. Will my EISs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the EISs will occur automatically upon redemption of all or a portion of the senior subordinated notes, upon maturity of the senior subordinated notes or upon certain bankruptcy events. See "Description of Enhanced Income Securities (EISs) Automatic Separation." What will happen if we issue additional EISs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional EISs or senior subordinated notes of the same series. We will only issue EISs or senior subordinated notes of the same series in the future pursuant to a registration statement that has been declared effective by the SEC. Additional EISs will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will also represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of exchange rights by our existing equity investors. Although the senior subordinated notes that may be issued in the future (whether or not represented by EISs) will have terms that are substantially identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such senior subordinated notes are issued with OID, or any senior subordinated notes are issued thereafter, all holders of EISs of the same series (including the EISs being offered hereby), and all holders of outstanding senior subordinated notes not held in EISs, will automatically exchange a ratable portion of their outstanding senior subordinated notes, whether held separately or in the form of EISs, for a portion of the new senior subordinated notes, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new EIS (consisting of such senior subordinated note unit and common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy prior to the maturity of the senior subordinated notes. We will immediately file with the Securities and Exchange Commission (the "SEC" or "Commission") a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in the EISs? The U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our common stock and senior subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $7.65 and the initial fair market value of each $7.35 aggregate principal amount of our senior subordinated notes as $7.35, assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus. By purchasing EISs, under the terms of the indenture governing our senior subordinated notes, you will be deemed to have agreed to and be bound by such allocation. If this allocation is not respected by the Internal Revenue Service ("IRS"), it is possible that the senior subordinated notes will be treated as having been issued with OID (if the allocation to the senior subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the senior subordinated notes were determined to be too low). For additional information on the U.S. federal income tax consequences if this allocation is not respected, see "Risk Factors The allocation of the purchase price of the EISs may not be respected which may adversely affect your tax position" and "Material U.S. Federal Income Tax Consequences." We believe that the senior subordinated notes should be treated as debt for U.S. federal income tax purposes. We are receiving an opinion from our counsel, Torys LLP, that the senior subordinated notes should be treated as debt for such purposes; however, as there is an absence of direct authority, this position may not be sustained if challenged by the IRS. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend (and would likely not qualify for the special dividend rate described below), and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and senior subordinated notes. In addition, if any payments were treated as dividends, such payments to holders of our EISs or senior subordinated notes (not in the form of EISs) who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you (if you are an individual) at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to you at ordinary income rates. What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) pursuant to an offering by us of EISs or senior subordinated notes of the same series or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the senior subordinated notes and the agreements with DTC will provide that in the event there is a subsequent Balance at June 27, 2004 (unaudited) $ issuance by us of senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (or any issuance of senior subordinated notes thereafter), each holder of senior subordinated notes or EISs (as the case may be) agrees that a portion of such holder's senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes and the records of any record holders of the senior subordinated notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of senior subordinated notes or EISs (as the case may be) will own an inseparable unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of senior subordinated notes will be included in such holder's EISs). However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Due to the lack of applicable authority, it is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is not able to opine on this issue; consequently, it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Regardless of whether the exchange is treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of EISs or directly, the recombination of senior subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment. See "Material U.S. Federal Income Tax Consequences." Following any subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of EISs and senior subordinated notes, and each holder of EISs or senior subordinated notes will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Under the terms of the indenture governing our senior subordinated notes, by purchasing the senior subordinated notes, you will be deemed to have agreed to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and senior subordinated notes and could adversely affect the market for EISs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences." TABLE OF ADDITIONAL REGISTRANTS Name Summary of the Common Stock Issuer DavCo Restaurants Inc. Shares of Class A common stock to be outstanding following the offering 7,999,168 shares (or 9,199,043 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class B common stock to be outstanding following the offering 4,509,430 shares (or 2,156,734 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class C common stock to be outstanding following the offering No shares of Class C common stock will be outstanding upon the closing of this offering. Total shares of common stock to be outstanding following the offering 12,508,598 shares (or 11,355,777 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. So long as the existing equity investors hold at least 8% or more of the total economic value of the total outstanding equity interests in our company and 8% or more of the total outstanding voting interests in our company, they will be entitled to nominate two individuals for election to our board of directors. Listing Shares of our Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as this term is defined in Rule 144 under the Securities Act. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list shares of Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class B common stock will not be listed for separate trading. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Jurisdiction of Incorporation or Organization Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the levels set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Primary Standard Industrial Classification Number Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Dividend payment dates We intend to pay dividends quarterly on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively, commencing January 30, 2005. Rights to exchange shares of Class B common stock for EISs Beginning on the 366th day after the consummation of this offering, holders of shares of our Class B common stock will have certain rights to exchange their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors from exercising this exchange right with respect to all of their shares of Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). If any holder of Class B common stock has not exercised its exchange right in full, then following the maturity date of the senior subordinated notes, and at any other time that there are no senior subordinated notes and EISs outstanding, any remaining shares of Class B common stock will be exchangeable (at the option of the holder) into shares of Class A common stock on a one-for-one basis. Any exchange is subject to compliance with the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. In addition, any issuance of EISs upon exchange of shares of our Class B common stock must occur pursuant to an effective registration statement under the Securities Act. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." I.R.S. Employer Identification Number 20% ownership limitations Pursuant to our amended and restated certificate of incorporation, no person or group acting together (other than the management investors) may be the beneficial owner of more than 20% of the total economic value of the total outstanding equity interests in our company or more than 20% of the total outstanding voting interests in our company. In the event that either of the foregoing limitations is or may be contravened, we may take such actions with respect to such ownership level over the 20% ownership level as we deem advisable, including refusing to give effect thereto on the stock transfer books, instituting proceedings, redeeming such interest or requiring the sale of such interest in order to reduce the ownership level to below or a 20% ownership level. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International 20% ownership limitations" and "Description of Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws 20% ownership limitations." (Unaudited) Tax (benefit) expense at U.S. statutory rate $ (6,172 ) $ 609 $ 1,034 $ 348 $ (1,080 ) State income taxes, net of federal tax benefit (861 ) 125 152 51 (202 ) Permanent differences 624 178 21 16 13 Change in valuation allowance for deferred tax assets 6,409 (4,179 ) (916 ) (108 ) 1,383 Other DavCo Restaurants, Inc. Delaware 5812 52-1633813 FriendCo Restaurants, Inc. Maryland 5812 52-2037752 Heron Realty Corporation Maryland 6500 52-2020474 MDF, Inc. Delaware 5812 52-1712539 The address, including zip code, telephone number and area code, of the principal executive offices of each of the additional registrants listed above is: 1657 Crofton Boulevard, Crofton, Maryland 21114; the telephone number at that address is (410) 721-3770. Summary of the Senior Subordinated Notes Issuer DavCo Restaurants Inc. Senior subordinated notes to be outstanding following the offering $58.8 million aggregate principal amount (or $67.6 million aggregate principal amount if the underwriters' over-allotment option with respect to the EISs is exercised in full); and $7.5 million aggregate principal amount sold separately (not in the form of EISs.) Interest rate % per annum. Interest payment dates Interest on the senior subordinated notes will be payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year commencing January 30, 2005. Maturity date The senior subordinated notes will mature on , 2016 unless earlier redeemed at our option as described under "Description of Senior Subordinated Notes Optional Redemption." Optional redemption We may not redeem the notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days' notice to the owners of senior subordinated notes, at redemption prices described under "Description of Senior Subordinated Notes Optional Redemption." If we redeem any senior subordinated notes (under any circumstances), the senior subordinated notes and Class A common stock represented by each EIS will be automatically separated. Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Repurchase at the Option of Holders Change of Control," unless we have exercised our right to redeem all senior subordinated notes as described above, each holder of the senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the senior subordinated notes and Class A common stock represented by such holder's EISs. Ranking The senior subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under the new credit facility. The senior subordinated notes will rank equally in right of payment with all of our senior subordinated indebtedness. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, we would have had approximately $28.0 million of senior indebtedness outstanding. The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS Subject to completion, dated September 22, 2004 DavCo Restaurants Inc. 7,999,168 Enhanced Income Securities (EISs) representing 7,999,168 Shares of Class A Common Stock $58.8 million % Senior Subordinated Notes due 2016 and $7.5 million % Senior Subordinated Notes due 2016 Note guarantees The senior subordinated notes will be fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The senior subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under the terms of our new credit facility. Any future foreign or partially owned domestic subsidiaries will not be guarantors of our senior subordinated notes. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, the guarantors would have had, in the aggregate, approximately $28.0 million of senior indebtedness outstanding. Acceleration forbearance Except in the event of bankruptcy or insolvency, the maturity of the principal amount of the senior subordinated notes may not be accelerated and the principal amount will not become due and payable, prior to the scheduled maturity date, for a period beginning on the date notice is provided to Wendy's International by the trustee with respect to the occurrence of certain events of default and ending 45 days after such date, as described in "Description of Senior Subordinated Notes Acceleration Forbearance Periods." Restrictive covenants The indenture governing our senior subordinated notes will contain covenants with respect to us and will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends or distributions on, and purchase or redemption of, capital stock; a number of other restricted payments, including the making of certain investments; specified creation of liens, sale-leaseback transactions and sales of assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Expenditures for additions to long-lived assets: Wendy's $ 4,686 $ 2,352 $ 5,936 $ 5,168 $ 2,325 Friendly's 40 We are selling 7,999,168 Enhanced Income Securities, or EISs, representing 7,999,168 shares of our Class A common stock and $58.8 million aggregate principal amount of our % senior subordinated notes due 2016. Each EIS represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. We are also selling separately (not in the form of EISs) an additional $7.5 million aggregate principal amount of our % senior subordinated notes due 2016. The completion of the offering of separate senior subordinated notes is a condition to our sale of EISs. The senior subordinated notes (whether or not in the form of EISs) will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of our domestic subsidiaries which, on the date hereof, consist of DavCo Operations Inc., FriendCo Restaurants, Inc., Heron Realty Corporation and MDF, Inc. Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. This is the initial public offering of our EISs and senior subordinated notes. We anticipate that the public offering price will be between $14.50 and $15.50 per EIS. We will apply to list the EISs on the American Stock Exchange under the trading symbol "DVC." Neither our Class A common stock nor our senior subordinated notes will be listed for trading on any exchange. Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the senior subordinated notes or upon maturity of the senior subordinated notes. Upon a subsequent issuance by us of EISs or senior subordinated notes of the same series (not in the form of EISs), a portion of your senior subordinated notes will be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance and, in that event, your EISs or senior subordinated notes will be replaced with new EISs or senior subordinated notes, as the case may be. In addition to the EISs and senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new EISs to be issued to you upon any such subsequent issuance. For more information regarding these automatic exchanges and the adverse effect they may have on your investment, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize original issue discount and have other adverse consequences," "Risk Factors Subsequent issuances of senior subordinated notes may adversely affect your treatment in a bankruptcy," "Description of Senior Subordinated Notes Covenants Relating to EISs Procedures Relating to Subsequent Issuances" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Procedures relating to subsequent issuances The indenture governing our senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs or senior subordinated notes sold separately, or any senior subordinated notes are issued thereafter, each EIS or separately held senior subordinated note will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held senior subordinated notes, as the case may be, will own an indivisible unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing our senior subordinated notes will permit issuances of additional senior subordinated notes upon exchange of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder in this offering. However, any subsequent issuance of senior subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Listing The senior subordinated notes will not be separately listed on any exchange. Representation letter Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. See "Underwriting." Investing in EISs, shares of our Class A common stock and/or senior subordinated notes involves risks. See "Risk Factors" section beginning on page 27 of this prospectus. Per EIS
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+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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+PROSPECTUS SUMMARY The following is only a summary of the information, financial statements and the notes included in this prospectus. You should read the entire prospectus carefully, including "Risk Factors" and our Financial Statements and the notes to the Financial Statements before making any investment decision. Our Company The Company operates in a single segment through its Atlas Technologies, Inc. and Westland Control Systems, Inc. subsidiaries. Atlas is a leading innovator and supplier of quick die change, flexible transfer, and stacking/destacking equipment used to automate metal stamping operations. Atlas operates two manufacturing plants in Fenton, Michigan and has sales and engineering offices in Michigan, Europe and China. Atlas also established locations in late 2004 in Brazil and Germany. Westland designs, manufactures and field installs custom electrical control panels primarily for use in production machinery and machine tools utilized in automotive, adhesive and sealants, food processing and other industrial applications. Westland operates one manufacturing plant in Westland, Michigan, which is located less than one hour from Atlas' plants in Fenton, Michigan. Sales of Atlas products have principally been to automobile and automotive parts manufacturers and appliance manufacturers. Other customers include steel service centers and manufacturers of lawn and garden equipment, office furniture, heating, ventilation and air conditioning equipment, and large construction equipment. Sales to automotive related customer's account for the majority of sales. Westland's customers participate in the automotive, food processing, adhesive and sealants, engine part machining and other industries. The Company was incorporated in June 1993 under the name Production Systems Acquisition Corporation with the objective of acquiring an operating business engaged in the production systems industry. The Company completed an initial public offering of common stock in July 1994 and raised net proceeds of approximately $9.0 million. In May 1996, the Company changed its name to Productivity Technologies Corp. and acquired, through a merger, as a wholly owned subsidiary. On February 23, 2000, the Company purchased, through a wholly-owned subsidiary formed for this purpose, substantially all of the assets of Westland. The Company has no other subsidiaries or operations. The Company, which produces industrial machinery, operates in a single segment through its Atlas and Westland subsidiaries. About Us Our principal executive offices are located at 3100 Cooper Avenue, Fenton, Michigan 48430. Our telephone number is (810) 714-0200. The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to buy these securities in any state where the offer or sale is not permitted. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is __________ __, 2004.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000913586_mk_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000913586_mk_prospectus_summary.txt
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+Prospectus Summary The following is a summary of the principal features of this distribution and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. The estimates of our proven and probable reserves included in this prospectus are as reported in the technical report prepared for us by Pincock, Allen & Holt, or PAH, an independent engineering company. Many of the terms used in our industry are technical in nature. We have included a glossary that explains technical terms we use in this prospectus. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors, before making an investment decision. In this prospectus, unless otherwise noted, the terms we, our and us refer to MK Resources Company and its subsidiaries. References in this prospectus to $ are to U.S. dollars, and references to are to euros. Various amounts in this prospectus are quoted in euros and converted into U.S. dollars. All U.S. dollar/euro conversion amounts were converted using the currency exchange rate in effect on October 12, 2004, which was approximately 0.8117 per U.S. dollar, except for amounts included in our consolidated financial statements and the related notes that are included in this prospectus that were converted in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our Company Overview We are in the business of exploring for, acquiring, developing and mining mineral properties. Our principal asset is the Las Cruces project, a high-grade copper deposit located in Spain that is currently undergoing the final stages of pre-production permitting, surface land acquisition, financing and initial project development. Las Cruces is to be an open pit mine with a hydrometallurgical process plant allowing for on-site cathode copper production. Based on the PAH technical report that reviewed and confirmed the independent feasibility study completed by DMT-Montan Consulting GmbH and Outokumpu Technology Group in 2003, we expect the Las Cruces project to produce approximately 66,000 tonnes of cathode copper per year at a cash operating cost of 0.33, or approximately $0.41, per pound of copper for 15 years, placing the project among the world s lowest cost copper producers. In addition, we are involved in exploration programs in Spain and Nevada. We also have interests in two former producing gold mines in California that have exhausted their reserves and closed. As our current focus is on the development of the Las Cruces project and exploration of other properties, we will not have positive cash flow from operations before production of refined copper begins at the Las Cruces project. Our senior management team has significant mining industry experience. Prior to their employment with us, they held management positions with major mining companies, including Kennecott Corporation, now known as Kennecott Utah Copper Corporation, a subsidiary of the Rio Tinto Group, Noranda Inc., Homestake Mining Co., ASARCO Incorporated, Cyprus Minerals Company, AMAX Inc. and Placer Dome Inc. This experience includes design, construction and modernization experience with large copper mines, such as the Bingham Canyon, Chino, Gibraltar, Cyprus Pima and Cyprus Bagdad copper mines. We were incorporated in 1990 as MK Gold Company. We changed our name in June 2004 to MK Resources Company. Our principal executive office is located at 60 East South Temple, Suite 1225, Salt Lake City, Utah 84111 and our telephone number is (801) 297-6900. Leucadia National Corporation owns approximately 72.5% of our common stock and will own approximately 37.0% after the consummation of this offering and the conversion of approximately $40.3 million of the debt outstanding under our existing credit facility with Leucadia into 14,647,317 shares of our common stock, based on the assumed public offering price of $2.75 per share. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (1) Diluted Mineable Ore reserves calculated at $0.76 per pound of copper and a 1.0% copper cutoff. The ore reserves were estimated in accordance with the JORC Code (the 1999 Australasian Code for Reporting of Mineral Resources and Ore Reserves (prepared by the Joint Ore Reserves Committee of the Australian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Mineral Council of Australia)) and are identical in the case of the Las Cruces project to reserve estimates under Industry Guide 7 of the Securities Act of 1933, or the Securities Act. Project Feasibility Based on the independent review by PAH of the DMT-Outokumpu feasibility study, we expect the Las Cruces project to produce approximately 66,000 tonnes of cathode copper per year at a cash operating cost of 0.33, or approximately $0.41, per pound of copper, for an anticipated mine life of 15 years at an estimated initial capital expenditure of approximately 280 million, or approximately $345 million. The tables below, which are derived from the technical report prepared by PAH, indicate the net present value, or NPV, of the Las Cruces project at various copper prices, discount rates and U.S. dollars and euro exchange rates to highlight the NPV sensitivity of the Las Cruces project to each using reserve estimates included in this prospectus. The NPV is reduced by an estimate of taxes that will be payable in Spain and includes the discounted sums of the positive cash flows from production at the Las Cruces project and the negative cash flows associated Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (in millions of U.S. dollars) 6% $ 223.9 $ 291.1 $ 344.3 $ 387.1 $ 422.7 8% 154.2 216.9 266.5 306.3 339.4 10% 98.3 157.1 203.5 240.7 271.7 12% 53.1 108.4 152.1 187.1 216.3 14% 16.3 68.7 110.0 143.1 170.7 MK RESOURCES COMPANY (Exact Name of Registrant as Specified in Its Charter) 1.20 23 % 27 % 29 % 30 % 34 % 37 % 41 % 1.10 20 % 24 % 25 % 27 % 31 % 34 % 37 % 1.00 17 % 20 % 22 % 24 % 27 % 30 % 33 % 0.90 13 % 17 % 19 % 20 % 24 % 27 % 29 % 0.80 10 % 13 % 15 % 17 % 20 % 23 % 25 % Based on the positive results of the DMT-Outokumpu feasibility study, our board of directors decided to proceed with the development of the Las Cruces project and to obtain the necessary financing. We intend to finance the project through a combination of project debt financing, the proceeds from this offering and government subsidies. Capital expenditures: Gold sales $ 59 $ $ Mining services 19 Copper project 7,447 3,487 4,754 Corporate and eliminations 10 18 Currently payable: $ $ $ U.S. federal 4 3 State 4 3 Delaware 1000 82-0487047 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 60 East South Temple, Suite 1225 Salt Lake City, Utah 84111 (801) 297-6900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) John C. Farmer Chief Financial Officer and Secretary MK RESOURCES COMPANY 60 East South Temple, Suite 1225 Salt Lake City, Utah 84111 (801) 297-6900 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Table of Contents The Offering Common stock offered 61,000,000 shares Common stock to be outstanding after this offering 113,172,966 shares (includes 14,647,317 shares to be issued simultaneously with the consummation of this offering upon conversion of a portion of our debt to Leucadia as described below). Use of proceeds We estimate that our net proceeds from this offering will be approximately $155,523,750 after deducting estimated underwriting discounts and expenses ($179,302,312 if the underwriters exercise their over-allotment option in full). We expect to use the net proceeds from this offering to finance a portion of the development costs of the Las Cruces project. See Use of Proceeds. Leucadia is not selling any shares in this offering and, accordingly, will not receive any of the proceeds therefrom. We may use a portion of the proceeds, however, to make interest payments to Leucadia in connection with our existing credit facility with Leucadia. Additional financing Following the completion of this offering, we intend to enter into a new credit facility with a consortium of international banks experienced in mining project financing. We have retained Cutfield Freeman & Co. Ltd., a consulting firm specializing in mining finance, to assist us, and they are currently in preliminary discussions with a number of such banks. To the extent any amounts remain outstanding under the existing credit facility with Leucadia at the time we enter into the anticipated credit facility, we expect that we will be required by such banks to amend the existing credit facility with Leucadia to provide that it will be subordinated to the anticipated facility and that any repayment of the Leucadia facility will be restricted to available cash provided by operations. See Use of Proceeds. Conversion of existing debt into common stock Leucadia has agreed, pursuant to an amendment to our existing credit facility, to convert all of our outstanding debt under our existing credit facility with Leucadia into shares of our common stock, simultaneously with the consummation of this offering at the price at which we are offering shares pursuant to this prospectus. However, at the assumed public offering price of $2.75 per share, we do not have sufficient authorized shares to convert all of the approximately $54 million of our outstanding debt under that facility into equity upon consummation of this offering. Accordingly, we have agreed with Leucadia as follows: (1) Simultaneously with the consummation of this offering, we will convert approximately $40.3 million of the debt outstanding under the existing credit facility into 14,647,317 shares of our common stock, based on the assumed public offering price of $2.75 per share. Please address a copy of all communications to: Andrea A. Bernstein, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 (212) 310-8000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 (212) 735-3000 Table of Contents (2) If the underwriters do not exercise their over-allotment option in full, upon expiration of the over-allotment option, we will convert additional debt outstanding under the existing credit facility into shares of our common stock at the price at which we are offering shares pursuant to this prospectus, to the extent we have shares available for issuance at that time. (3) If the conversions contemplated by (1) and (2) above are insufficient to convert the entire balance of our debt outstanding under the existing credit facility, we will, at the next meeting of our stockholders, seek stockholder approval to amend our certificate of incorporation to increase the number of our authorized shares of common stock to permit us to convert our remaining outstanding debt to Leucadia. Leucadia has agreed to vote all of its shares of our common stock in favor of any such proposal. Upon effectiveness of such an amendment, we will convert the remaining debt into our common stock at the price at which we are offering shares pursuant to this prospectus. Upon conversion of all outstanding debt under the existing credit facility with Leucadia and the payment by us of any interest and/or commitment fees owed to Leucadia, we and Leucadia have agreed to terminate the facility. OTC Bulletin Board symbol MKRR American Stock Exchange and Toronto Stock Exchange Symbol MKA Unless we indicate otherwise, all information in this prospectus assumes: an offering price of $2.75 per share (the last reported sale price for our common stock on the OTC Bulletin Board as of October 13, 2004); no exercise by the underwriters of their option to purchase up to 9,150,000 additional shares of common stock from us to cover over-allotments, if any; and the conversion of approximately $40.3 million of our outstanding debt under our existing credit facility with Leucadia into 14,647,317 shares of our common stock, based on the assumed public offering price of $2.75 per share. The number of shares of common stock to be outstanding after this offering is based on the number of shares of common stock outstanding as of October 13, 2004, and excludes: 2,090,000 shares issuable upon exercise of stock options outstanding as of that date under our Stock Incentive Plan and the MK Gold Company Stock Incentive Plan for Non-Employee Directors, which, collectively, we refer to as our Option Plans, with a weighted average exercise price of $1.65 per share; 587,034 shares available as of that date for future grant or issuance pursuant to our Option Plans, as applicable; and EFFECT OF EXCHANGE RATES ON CASH Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents additional shares issuable to Leucadia upon conversion of the debt remaining outstanding under our existing credit facility with Leucadia following the conversion of a portion of that debt simultaneously with the consummation of this offering into shares of our common stock at the price at which we are offering shares pursuant to this prospectus, as described above.
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+SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus and its exhibits carefully before you decide to invest. MORGAN STANLEY CHARTER SERIES The Morgan Stanley Charter Series consists of four continuously offered limited partnerships, each organized in the State of Delaware: <Table> <Caption> DATE ORGANIZED ------------------ <S> <C> Morgan Stanley Charter Graham L.P. July 15, 1998 Morgan Stanley Charter Millburn L.P. July 15, 1998 Morgan Stanley Charter MSFCM L.P. October 22, 1993 Morgan Stanley Charter Campbell L.P. March 26, 2002 </Table> The offices of each partnership are located at 825 Third Avenue, 9th Floor, New York, NY 10022, (212) 310-6444. Each partnership provides the opportunity to invest in futures, forwards, and options contracts managed by an experienced, professional trading advisor. Since each partnership's assets are traded by a different trading advisor, each employing a different trading program, you should review the specific information relating to each partnership and its trading advisor to better understand how a partnership may fit into your overall investment plan. If you decide to invest in more than one partnership, you may allocate your investment among any one or more of the partnerships and, after an initial six-month holding period, you may shift your investment among one or more of the other Charter Series partnerships. A futures contract is an agreement to buy or sell a fixed amount of a commodity or other underlying product, instrument, or index at a predetermined price at a specified time in the future. In order to secure its obligation to make or take delivery under a futures contract, the trader must deposit funds, referred to as margin, with the commodity broker through which it trades. An option on a futures contract gives the buyer of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract at the specified price within the specified period of time. Futures contracts and options on futures contracts are traded on U.S. and foreign exchanges. A forward contract is an agreement directly between two parties to buy or sell a fixed amount of an underlying product at an agreed price at an agreed date in the future. Forward contracts are not traded on exchanges, but rather are traded in the dealer markets. A partnership may take long positions in futures, forwards, and options contracts in which the partnership is obligated to take delivery of the underlying commodity, product, instrument, or index. A partnership also may take short positions in those contracts in which the partnership has an obligation to deliver the underlying commodity, product, instrument, or index. Futures, forwards, and options contracts are traded in a number of commodities, products, instruments, and indices, including foreign currencies, financial instruments, precious and industrial metals, energy products, agricultural commodities, stock indices, and "soft" commodities like cotton and cocoa. For additional information on the futures, options, and forwards markets, see "Statement of Additional Information" beginning on page * . The investment objective of each partnership is to achieve capital appreciation and to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While the partnerships have the same overall investment objective, and the trading advisors may trade in the same futures, forwards, and options contracts, each trading advisor and its trading programs trades differently. Each partnership has a different trading advisor and trading program. You should review and compare the specifics of each partnership, its terms, and its trading advisor before selecting one or more partnerships in which to invest. MORGAN STANLEY CHARTER GRAHAM L.P. This partnership's assets are traded by Graham Capital Management, L.P. pursuant to its Global Diversified Program at 1.5 times the leverage it normally applies for the program and its K4 Program at 1.5 times the leverage it normally applies for the program. The Global Diversified Program utilizes computerized trading models to participate in the potential profit opportunities in approximately 80 markets. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates, 25% in currencies, 17% in stock index futures, 15% in softs and agricultural futures, 8% in metal futures, and 9% in energy futures. The K4 Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur, and will normally enter or exit a position only when a significant price and volatility spike takes place. The program trades in approximately 65 markets and will normally have weightings of approximately 27% in futures contracts based on short-term and long-term global interest rates, 31% in currencies, 14% in stock index futures, 11% in softs and agricultural futures, 9% in metal futures, and 8% in energy futures. The average leverage employed by the partnership from February 2003 through January 2004 was 9.0 times net assets. The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MILLBURN L.P. This partnership's assets are traded by Millburn Ridgefield Corporation pursuant to its Diversified Portfolio at standard leverage. The objective of Millburn's trading method is to participate in major sustained price moves in the markets traded. Millburn will make trading decisions pursuant to its trading method, which includes technical trend analysis and certain non-trend-following technical systems, as well as the application of money management principles. The Diversified Portfolio trades in approximately 30 to 50 markets and will normally have weightings of approximately 42% in currencies, 23% in interest rates, 7% in softs and agricultural futures, 10% in stock index futures, 12% in energy futures, and 6% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.9 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MSFCM L.P. This partnership's assets are traded by Morgan Stanley Futures & Currency Management Inc. pursuant to its Global Portfolio at standard leverage. The Global Portfolio employs a technical trading strategy that concentrates participation in futures contracts traded on futures exchanges worldwide and select foreign currencies traded in the forward markets. The Global Portfolio trades global interest rates and stock index futures, currencies, energy futures, and precious and industrial metals. The Global Portfolio trades approximately 20 markets and will normally have weightings of approximately 30% in global interest rate futures, 6% in stock index futures, 30% in currencies, 20% in energy futures, and 14% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.0 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER CAMPBELL L.P. This partnership's assets are traded by Campbell & Company, Inc. pursuant to its Financial, Metal & Energy Large Portfolio. Campbell's trading models are designed to detect and exploit medium- to long-term price changes, while also applying proven risk management and portfolio management principles. Trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. The Financial, Metal & Energy Large Portfolio trades more than 50 markets and will normally have weightings of approximately 12% in global interest rate futures, 17% in stock index futures, 55% in currencies, 14% in energy futures, and 2% in metal futures. The average leverage employed by the partnership from January 2003 through February 2004 was 6.6 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. WHO MAY SUBSCRIBE INVESTMENT CONSIDERATIONS You must have a brokerage account with Morgan Stanley DW in order to purchase units in a partnership. You should purchase units in a partnership only if you understand the risks involved in the investment and only if your financial condition permits you to bear those risks, including the risk of losing all or substantially all of your investment in the partnership. You should invest in the units only with the risk capital portion of your investment portfolio. MINIMUM INVESTMENT If you are a new investor in the Charter Series of partnerships, you must invest at least $20,000. You may allocate your investment among any one or more of the partnerships in the Charter Series, but you must invest at least $5,000 in a partnership. Once you become an investor in any Charter Series partnership, you may increase that investment with an additional contribution of at least $1,000. If you are an investor in another limited partnership for which Demeter Management Corporation serves as the general partner, you may redeem your interest in that other partnership and use the proceeds to invest in any one or more of the Charter Series of partnerships. The $20,000 minimum subscription will be satisfied if the proceeds from the redemption would have equaled at least $20,000 as of the last day of the month immediately preceding the monthly closing at which the units are purchased, irrespective of whether the actual proceeds from the redemption are less than $20,000 when the units are redeemed. The general partner may, in its sole discretion, reject any subscription in whole or in part. FINANCIAL SUITABILITY Unless otherwise specified in the subscription agreement under "State Suitability Requirements," you must have either: a net worth of at least $150,000, exclusive of home, furnishings, and automobiles; or both a net worth of at least $45,000, exclusive of home, furnishings, and automobiles, and an annual income of at least $45,000. You should be aware, however, that certain states impose more restrictive suitability and/or higher minimum investment requirements. Before you invest you will be required to represent and warrant that you meet the applicable state minimum financial suitability standard set forth in the subscription agreement, which may also require a greater minimum investment. LIMITED REVOCATION RIGHT After you subscribe for units in any Charter Series partnership, you will have limited rights to revoke your subscription. You may only revoke a subscription and receive a full refund of the subscription amount, plus any accrued interest, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. THE OFFERING OF UNITS THE CHARTER SERIES CONTINUOUS OFFERING Each partnership is continuously offering units of limited partnership interest for sale at monthly closings held as of the last day of each month. Since you must subscribe for units prior to the month-end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The purchase price of each unit in a partnership will be equal to 100% of the partnership's net asset value per unit as of the month-end closing date. The general partner calculates each partnership's net asset value per unit on a monthly basis by dividing the partnership's month-end net assets by the number of its month-end outstanding units. A partnership's net assets is its assets minus its liabilities. ESCROW TERMS During each partnership's continuous offering, your subscription will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. Subscription funds held in escrow will be invested in the escrow agent's money market account and will earn interest at the rate then paid by the bank on that money market account. If the general partner accepts your subscription, the escrow agent will pay the subscription amount to the appropriate partnerships and pay any interest earned on those funds to Morgan Stanley DW Inc., the non-clearing commodity broker for each partnership. In turn, the non-clearing commodity broker will credit your customer account with the interest. If the general partner rejects a subscription, your account will be credited in an amount equal to the rejected subscription amount, together with any interest earned on those funds while held in escrow. SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER * These are speculative securities. * You could lose all or substantially all of your investment in the partnerships. * Past performance is not necessarily indicative of future results. * Each partnership's futures, forwards, and options trading is speculative and trading performance has been, and is expected to be, volatile. * Each partnership's trading is highly leveraged, which accentuates the trading profit or loss on a trade. * Charter Campbell has a limited operating history. * You may not redeem your units until you have been an investor for at least six months. * If you redeem units within 24 months after they are purchased, you will pay a redemption charge, except in defined circumstances. * Units will not be listed on an exchange and no other secondary market will exist for the units. * Each partnership pays substantial charges and fees and must earn substantial trading profits in order to pay these expenses. * Profits earned by a partnership will be taxable to an investor even though the general partner does not intend to make any distributions. MAJOR CONFLICTS OF INTEREST * Because the general partner, the commodity brokers, and the trading advisor for Charter MSFCM are affiliates, the fees and other compensation received by those parties and the other terms relating to the operation of the partnerships and the sale of units were not negotiated by an independent party. * Because your Morgan Stanley financial advisor receives a portion of the brokerage fees paid by the partnerships, your financial advisor has a conflict of interest in advising you in the purchase or redemption of units. * The trading advisors, commodity brokers, and general partner may trade futures, forwards, and options for their own accounts and, thus, they may compete with a partnership for positions. Also, the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. THE GENERAL PARTNER The general partner for each partnership is Demeter Management Corporation, a Delaware corporation. The general partner is or has been the general partner of 34 other commodity pools and currently operates 22 other commodity pools. As of January 31, 2004, the general partner managed $2.8 billion of client assets. The general partner's address is 825 Third Avenue, 9th Floor, New York, NY 10022, telephone (212) 310-6444. THE COMMODITY BROKERS The commodity brokers for the partnerships are responsible for holding the partnerships' funds deposited with them as margin for trades. If the commodity broker is also a clearing broker, it will also be responsible for assuring that the partnerships' trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. Morgan Stanley DW Inc., an affiliate of the general partner, is the non-clearing commodity broker for each partnership. As non-clearing commodity broker, Morgan Stanley DW Inc. holds each partnership's funds and provides margin funds to the clearing commodity brokers for the partnership's futures, forwards, and options positions. Morgan Stanley & Co. Incorporated, an affiliate of the general partner, serves as the clearing commodity broker for each partnership, with the exception of trades on the London Metal Exchange, which are cleared by Morgan Stanley & Co. International Limited, also an affiliate of the general partner. In addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of the foreign currency forward trades for the partnerships. ORGANIZATIONAL CHART Following is an organizational chart, which shows the relationships among the various parties involved with this offering. All of the parties are affiliates of Morgan Stanley except for the trading advisors for Charter Graham, Charter Millburn, and Charter Campbell. [chart] ------------------ * Demeter presently serves as general partner for 22 other commodity pools. Morgan Stanley DW acts as the non-clearing commodity broker for all of the commodity pools. Morgan Stanley & Co. acts as clearing commodity broker for all but one of the other commodity pools, and Morgan Stanley International serves as the clearing commodity broker for trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW also serves as selling agent for all of the commodity pools managed by the general partner. All of the commodity pools, including the partnerships, are managed and traded independently of one another. FEES TO BE PAID BY THE PARTNERSHIPS The partnerships pay the following fees on a monthly basis, except that Charter MSFCM pays a quarterly incentive fee: <Table> <Caption> MANAGEMENT FEE BROKERAGE FEE (ANNUAL RATE) INCENTIVE FEE (ANNUAL RATE) -------------- -------------- ------------- % % % <S> <C> <C> <C> Charter Graham.................. 2 20 6.25 Charter Millburn................ 2 20 6.25 Charter MSFCM................... 2 20 6.25 Charter Campbell................ 2.65 20 6.25 </Table> The management fee payable to each trading advisor and the brokerage fee payable to the non-clearing commodity broker are based on a percentage of net assets and will be paid monthly regardless of a partnership's performance. Each partnership pays its trading advisor an incentive fee only if trading profits are earned on the net assets managed by the trading advisor. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses, after brokerage, management, and incentive fees have been paid. Neither you nor the partnerships will pay any selling commissions or organizational, initial, or continuing offering expenses in connection with the offering of units by the partnerships. The non-clearing commodity broker will pay all costs incurred in connection with the continuing offering of units of each partnership and will pay the ordinary administrative expenses of each partnership. Each partnership will pay any extraordinary expenses it may incur. BREAK EVEN ANALYSIS Following is a table that sets forth the fees and expenses that you would incur on an initial investment of $20,000 in a partnership and the amount that your investment must earn, after taking into account estimated interest income, in order to break even after one year and after more than two years. The fees and expenses applicable to each partnership are described above. <Table> <Caption> $20,000 INVESTMENT -------------------------------------- CHARTER SERIES PARTNERSHIPS (EXCLUDING CHARTER CAMPBELL) CHARTER CAMPBELL ------------------ ---------------- <S> <C> <C> Management Fee.................................... 400 530 Brokerage Fee..................................... 1,250 1,250 Less: Interest Income (1)......................... 190 190 Incentive Fee (2)................................. -- -- Redemption Charge (3)............................. 408 408 Amount of trading profits a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge............................................ 1,868 1,998 Trading profits as a percentage of net assets that a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge........................ 9.34% 9.99% Amount of trading profits a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge............................................ 1,460 1,590 Trading profits as a percentage of net assets that a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge......................... 7.30% 7.95% </Table> (1) The partnerships receive interest at the rate earned by the non-clearing commodity broker on its U.S. Treasury bill investments with customer segregated funds as if 100% of each partnership's average net assets deposited with the non-clearing commodity broker for the month were invested at that rate. In addition, the non-clearing commodity broker will credit each partnership with 100% of the interest income the non-clearing commodity broker receives from the clearing commodity brokers with respect to such partnership's assets deposited as margin with the clearing commodity brokers. For purposes of the break even calculation, it was estimated that approximately 80% of a partnership's average daily funds maintained in trading accounts will be on deposit with the non-clearing commodity broker and earn interest income at a rate of approximately 1.00%, and that approximately 20% of a partnership's average daily funds maintained in trading accounts will be on deposit with the clearing commodity broker and generate interest income at a rate of approximately 0.75%. An interest rate of 1.00% was derived by using an average of the blended rate for the five recent weekly auction rates for three-month U.S. Treasury bills and adjusting for the historical rate that the non-clearing commodity broker earned in excess of such amount. The combined rate used for this break even analysis is estimated to be approximately 0.95%. Investors should be aware that the break even analysis will fluctuate as interest rates fluctuate, with the break even percentage declining as interest rates increase or increasing as interest rates decline. (2) Incentive fees are paid to a trading advisor only on trading profits earned. Trading profits are determined after deducting all partnership expenses, other than any extraordinary expenses, and do not include interest income. Therefore, incentive fees will be zero at the partnership's break even point. (3) Units redeemed at the end of 12 months from the date of purchase are generally subject to a 2% redemption charge; after 24 months there are no redemption charges. REDEMPTION CHARGES INCURRED BY YOU You will pay a redemption charge equal to 2% of the net asset value of the units redeemed if you redeem within the first 12 months after the units were purchased, and 1% if you redeem units within the 13th through the 24th month after the units were purchased. Units are not subject to a redemption charge after you have owned them for more than 24 months. You will not incur a redemption charge if you redeem units during the first 24 months after they were issued in the following circumstances: * If you redeem units immediately following notice of an increase in brokerage, management or incentive fees. * If you redeem units in connection with an exchange for units in another Charter Series partnership. * If you acquire units with the proceeds from the redemption of interests in a non-Charter Series partnership for which Demeter serves as the general partner, you will not be subject to a redemption charge on those units when they are redeemed. * If you previously redeemed units and paid a redemption charge or held those units for at least 24 months, you will not have to pay a redemption charge on subsequently purchased units, provided they are purchased within 12 months of the redemption of the old units and the purchase price of the new units does not exceed the net proceeds received from the prior redemption. REDEMPTIONS Once you have been an investor in any Charter Series partnership for more than six months, you are permitted to redeem any part of your investment, even if subsequent purchases have been held for less than six months. However, you will pay a redemption charge of 2% of the net asset value redeemed if your redeemed units were purchased within 12 months of the date of redemption, and 1% if purchased within 13 to 24 months of the date of redemption. You will not be subject to a redemption charge after you have owned your units for more than 24 months. Unless you are redeeming your entire interest in a partnership, redemptions may only be made in whole units, with a minimum of 100 units required for each redemption. EXCHANGE RIGHT You may redeem units in any partnership after you have been an investor for six months and use the proceeds to purchase units in one or more of the other partnerships in the Charter Series at a price equal to 100% of the net asset value per unit, without incurring any redemption or other charge on the transaction. DISTRIBUTIONS The general partner currently does not intend to make any distribution of partnership profits. TAX CONSIDERATIONS Even though the general partner currently does not intend to make distributions, your allocable share of the trading profits and other income of the partnerships in which you invest will be taxable to you. The trading activities of each partnership, in general, generate capital gains and losses and ordinary income. 40% of any trading profits on U.S. exchange-traded contracts are taxed as short-term capital gains at your ordinary income tax rate, while 60% of such gains are taxed at your long-term capital gains tax rate. We expect that each partnership's trading gains from other contracts will be primarily short-term capital gains. This tax treatment applies regardless of how long you hold your units. You may deduct losses on units against capital gains income. You may deduct losses in excess of capital gains against ordinary income only to the extent of $3,000 per year. You may also have to pay tax on a partnership's interest income even though you have lost money on your units.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000919463_berry_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000919463_berry_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights material information contained elsewhere in this prospectus. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk factors" section and our and Landis' consolidated financial statements and related notes included elsewhere in this prospectus. BERRY PLASTICS CORPORATION We are one of the world's leading manufacturers and suppliers of a diverse mix of rigid plastics packaging products focusing on the open-top container, closure, aerosol overcap, drink cup and housewares markets. We sell a broad product line to over 12,000 customers. We concentrate on manufacturing higher quality, value-added products sold to image-conscious marketers of institutional and consumer products. We believe that our large operating scale, low-cost manufacturing capabilities, purchasing leverage, proprietary thermoforming technology and extensive collection of over 1,000 active proprietary molds provide us with a competitive advantage in the marketplace. We have been able to leverage our broad product offering, value-added manufacturing capabilities and long-standing customer relationships into leading positions across a number of products. Our top 10 customers represented approximately 18% of our fiscal 2003 net sales with no customer accounting for more than 4% of our fiscal 2003 net sales. On a pro forma basis giving effect to the acquisition of Landis as if it occurred at the beginning of fiscal 2003, our top 10 customers would have represented approximately 32% of our pro forma fiscal 2003 net sales with no customer accounting for more than 8% of our pro forma fiscal 2003 net sales. The average length of our relationship with these customers was over 19 years. Our products are primarily sold to customers in industries that exhibit relatively stable demand characteristics and are considered less sensitive to overall economic conditions, such as pharmaceuticals, food, dairy and health and beauty. Additionally, we operate 16 high-volume manufacturing facilities and have extensive distribution capabilities. We organize our product categories into three operating divisions: containers, closures, and consumer products. The following table displays our net sales by division for each of the past five fiscal years. <Table> <Caption> -------------------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) 1999 2000 2001 2002 2003 -------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Containers...................................... $188.7 $231.2 $234.5 $250.4 $288.5 Closures........................................ 81.0 112.2 132.4 133.9 147.3 Consumer products............................... 59.1 64.7 94.8 110.0 116.1 ------------------------------------------ Total net sales............................ $328.8 $408.1 $461.7 $494.3 $551.9 -------------------------------------------------------------------------------------------- </Table> --------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. COMPETITIVE STRENGTHS We believe that our consistent financial performance is the direct result of the following competitive strengths: - Leading positions across a broad product offering. - Significant scale resulting in low-cost position and strong cash flow. - Ability to pass through changes in the cost of resin. - Large, diverse and stable customer base. - Proven ability to integrate strategic acquisitions. - Unique, proprietary thermoforming drink cup manufacturing process. - Proven and motivated management team. BUSINESS STRATEGY Our goal is to leverage our core strengths to increase profitability. Our strategy to achieve this goal includes the following elements: - Increase sales to existing customers. - Aggressively pursue new customers. - Continue to effectively manage costs. - Selectively pursue strategic acquisitions in our core businesses. RECENT DEVELOPMENTS THE LANDIS ACQUISITION On November 20, 2003, we acquired Landis Plastics, Inc. for aggregate consideration of approximately $229.7 million, pursuant to which our wholly-owned subsidiary, Berry Plastics Acquisition Corporation IV, merged with and into Landis, and Landis became our wholly-owned subsidiary. The Landis Acquisition was funded through (1) the issuance of $85 million aggregate principal amount of the notes, which resulted in gross proceeds of $95.2 million, (2) aggregate net borrowings of $54.1 million under our amended and restated senior secured credit facility from our new term loans, after giving effect to the refinancing of our prior term loan, (3) an aggregate common equity contribution of $62 million, consisting of contributions of $35.4 million by GS Capital Partners 2000, L.P. and its affiliates, $16.1 million by J.P. Morgan Partners Global Investors, L.P. and its affiliates, and an aggregate of $10.5 million from existing Landis shareholders and (4) cash on hand. We also agreed to acquire, for $32 million, four facilities that Landis leased from certain of its affiliates. Prior to the closing of the Landis Acquisition, we assigned our rights and obligations to purchase the four facilities owned by affiliates of Landis to an affiliate of W.P. Carey & Co., L.L.C. and then leased those four facilities from them. The Landis Acquisition, the amendment and restatement of our senior secured credit facility, the borrowings under our revolving credit facility and our new term loans and the common equity contributions described above are collectively referred to in this prospectus as the Transactions. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such statements include, in particular, statements about the benefits of the Landis Acquisition, and our plans, strategies and prospects under the headings "Summary," "Management's discussion and analysis of financial condition and results of operations" and "Business." You can identify certain forward-looking statements by our use of forward-looking terminology such as, but not limited to, "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices; - catastrophic loss of our key manufacturing facility; - risks related to our acquisition strategy and integration of acquired businesses; - risks associated with our substantial indebtedness and debt service; - performance of our business and future operating results; - risks of competition in our existing and future markets; - general business and economic conditions, particularly an economic downturn; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and - the other risks described under the heading "Risk Factors" beginning on page 6. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. THE NOTES The following is a brief summary of the terms of the notes. For a more complete description of the terms of the notes, see "Description of notes" in this prospectus. ISSUER..................Berry Plastics Corporation, a Delaware corporation. SECURITIES OFFERED......$335,000,000 in aggregate principal amount of 10 3/4% senior subordinated notes due 2012. MATURITY DATE...........July 15, 2012. INTEREST PAYMENT DATES...................January 15 and July 15. GUARANTORS..............The notes are fully and unconditionally guaranteed by BPC Holding Corporation, our parent company, and each of our current and future domestic subsidiaries. These guarantees can be released upon the circumstances described under "Description of notes--Certain covenants--Future note guarantors and release of note guarantees." If we cannot make payments on the notes when they are due, the note guarantors are obligated to make them instead. RANKING.................The notes are unsecured and: - are subordinated in right of payment to all existing and future senior debt; - rank equally in right of payment with any existing and future senior subordinated debt; - rank senior in right of payment to all future subordinated debt; - are effectively subordinated to our secured debt to the extent of the value of the assets securing such debt; - are effectively subordinated to all liabilities and preferred stock of our subsidiaries that do not guarantee the notes; and - any debt that could be incurred under the indenture may be deemed senior debt. Similarly, the guarantees of the notes by BPC Holding and our guarantor subsidiaries are unsecured and: - are subordinated in right of payment to all of the applicable note guarantor's existing and future senior debt; - rank equally in right of payment with any of the applicable note guarantors' existing and future senior subordinated debt; - rank senior in right of payment to all of the applicable note guarantors' future subordinated debt; - are effectively subordinated to all secured debt of such note guarantor to the extent of the value of the assets securing such debt; and MARKET DATA The data included in this prospectus regarding markets, product categories and ranking, including, but not limited to, the size of certain markets and product categories and our position and the positions of our competitors within these markets and product categories, are based on our estimates and definitions, which have been derived from management's knowledge and experience in the areas in which the relevant businesses operate, and information obtained from customers, distributors, suppliers, trade and business organizations and other contacts in the areas in which the relevant businesses operate. We have also cited information compiled by Plastics News, an industry publication. Unless otherwise specified, market share and product category data relate to the injection-molding segment of the plastics packaging industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of this data. In addition, data within our industry are intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a product segment or product category refer to our having a leading position based on sales in 2002 of injected-molded plastic products in such segment or product category, unless the context otherwise requires. The plastics packaging industry consists of rigid and non-rigid plastic products. There are three primary manufacturing processes used in the rigid plastics packaging segment of the plastics packaging industry: injection-molding and thermoforming, which we use, and blow molding, which we currently do not use. Each of these processes may be interchangeable depending on the product and the cost. Blow molding is used to produce most plastic drinking bottles, which constitutes approximately three-fourths of the United States plastic container demand by weight. - are effectively subordinated to the obligations of any subsidiary of a note guarantor if that subsidiary is not a note guarantor. As of December 27, 2003: - we had total indebtedness of approximately $751.6 million, excluding $7.4 million in letters of credit under our revolving credit facility and, subject to certain conditions to borrowing, $92.6 million available for future borrowings under our revolving credit facility; however the covenants under our amended and restated senior secured credit facility may limit our ability to make such borrowings; - we did not have any senior subordinated debt (other than the notes and the existing notes); - we did not have any subordinated debt; and - our subsidiaries that are not guarantors of the notes had $13.2 million of liabilities including trade payables, but excluding liabilities owed to us. As of April 28, 2004, we could incur approximately $92.0 million in additional senior debt under our amended and restated senior secured credit facility, subject to conditions to borrowing; however, the covenants under our amended and restated senior secured credit facility may limit our ability to make such borrowings. OPTIONAL REDEMPTION.....We may redeem the notes, in whole or in part, at any time beginning on July 15, 2007 at the redemption prices listed under "Description of notes--Optional redemption." In addition, before July 15, 2005, we may redeem up to 35% of the notes with the net cash proceeds from certain equity offerings at the price listed under "Description of notes--Optional redemption." CHANGE OF CONTROL.......Upon the occurrence of a change of control, unless we have exercised our right to redeem all of the notes as described above, you will have the right to require us to purchase all or a portion of your notes at a purchase price in cash equal to 101% of the principal amount plus accrued and unpaid interest to the date of purchase. The occurrence of a change of control will also result in an event of default under our amended and restated senior secured credit facility, which would allow the lenders under that facility to accelerate their debt. Such acceleration will be considered an event of default under the notes. See "Description of notes--Change of control."
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000922237_enova_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000922237_enova_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before buying shares in this offering. You should read the entire prospectus carefully, including the risk factors and consolidated financial statements and related notes appearing elsewhere in this prospectus. The prospectus contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described under "Risk Factors" and elsewhere in this prospectus. See "Cautionary Note on Forward-Looking Statements." Our Company We develop and produce advanced software, firmware and hardware for applications in the growing alternative power industry. Our focus is digital power conversion, power management, and system integration, for two broad market applications - vehicle power generation and stationary power generation. Our products and systems are the enabling technologies for power systems. Without them, power cannot be converted into the appropriate form required by the vehicle or device; and without them, power is not properly managed to protect the battery, vehicle or device, and user. Specifically, we develop, design and produce drive systems and related components for electric, hybrid-electric, fuel cell and microturbine-powered vehicles. We also develop, design and produce power management and power conversion components for stationary power generation - both on-site distributed power and on-site telecommunications back-up power applications. These stationary applications also employ fuel cells, microturbines and advanced batteries for power storage and generation. Additionally, we perform significant research and development to augment and support others' and our internal related product development efforts. We were incorporated in California on July 30, 1976 under the name Clover Solar Corporation, Inc. which was changed to Solar Electric Engineering, Inc. in June 1979. In January 1994 our name was changed to U.S. Electricar, Inc. In July 2000, we changed our name to Enova Systems, Inc. The Company's principal executive office is located at 19850 South Magellan Drive, Torrance California 90502 and our telephone number is (310) 527-2800 The Offering Common stock offered by the selling shareholders: 16,250,001 shares Securities to be outstanding after this offering (1): 401,853,232 shares of common stock 2,790,000 shares of Series A Convertible Preferred Stock (convertible into an aggregate of 2,790,000 shares of Common Stock) ("Series A Stock") 1,217,196 shares of Series B Convertible Preferred Stock (convertible into an aggregate of 2,434,392 shares of Common Stock) ("Series B Stock") Voting Rights: Common Stock: 401,895,856 votes Series A Stock: 2,74790,000 votes Series B Stock: 2,434,392 votes Use of proceeds from this offering: We will not receive any of the proceeds from the shares of common stock sold by the selling shareholders. See "Selling Shareholder". OTC Bulletin Board symbol: "ENVA" ----------------- (1) Securities outstanding on June 22, 2004 shares reserved for issuance under our stock option plans, (B) approximately 10,000,000 shares of Common Stock issuable under a contractual commitment with Hyundai Heavy Industries, and (C) 2,500,000 shares issuable upon exercise of outstanding warrants. Summary Financial Data <TABLE> <CAPTION> Three Five Months Months Fiscal Year Ended As of and for the year ended December 31 Ended Ended Mar. 31, (in thousands, except per share data), Dec. 31, July 31, 2004 2003 2002 2001 2000 1999 1999 --------- --------- --------- --------- --------- --------- --------- unaudited --------- --------- --------- --------- --------- --------- --------- <S> <C> <C> <C> <C> <C> <C> <C> NET SALES $ 1,108 $ 4,310 $ 4,455 $ 3,780 $ 2,883 $ 629 $ 2,774 --------- --------- --------- --------- --------- --------- --------- COST OF SALES 658 3,304 3,784 2,783 2,013 377 1,460 --------- --------- --------- --------- --------- --------- --------- GROSS MARGIN 450 1,006 671 997 870 252 1,314 --------- --------- --------- --------- --------- --------- --------- OTHER COSTS AND EXPENSES Research and Development 128 799 1,152 879 626 262 499 Selling, general and administrative 394 2,919 2,837 2,894 1,999 796 1,141 Interest and financing fees 64 234 199 113 174 244 724 Other expenses (income) (19) 200 -- (7) 6 -- (41) Gain on Warranty Reevaluations -- -- -- -- -- -- (474) Equity in losses 44 40 -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Legal Settlements -- -- 81 900 75 125 -- --------- --------- --------- --------- --------- --------- --------- Total other costs and expenses 611 4,192 4,269 4,779 2,880 1,427 1,849 --------- --------- --------- --------- --------- --------- --------- LOSS FROM CONTINUING OPERATIONS (161) (3,186) (3,598) (3,782) (2,010) (1,175) (535) GAIN ON DEBT RESTRUCTURING -- -- -- 354 1,551 214 140 --------- --------- --------- --------- --------- --------- --------- NET LOSS (161) (3,186) (3,598) (3,428) (459) (961) (395) PER COMMON SHARE: Loss from continuing operations (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) Gain on debt restructuring -- -- -- -- 0.01 -- -- --------- --------- --------- --------- --------- --------- --------- Net loss per common share (0.01) (0.01) (0.01) (0.01) -- (0.01) (0.01) ========= ========= ========= ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER COMMON SHARES OUTSTANDING 374,644 334,840 326,390 275,189 235,199 251,994 152,077 ========= ========= ========= ========= ========= ========= ========= Total Assets 4,864 4,870 6,224 4,340 3,094 2,697 3,940 ========= ========= ========= ========= ========= ========= ========= Long-term debt 3,355 3,347 3,332 3,332 3,332 3,332 3,332 ========= ========= ========= ========= ========= ========= ========= Shareholder's equity (deficit) (821) (864) 287 (232) (1,648) (5,015) (7,316) ========= ========= ========= ========= ========= ========= ========= </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000925306_morgan_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000925306_morgan_prospectus_summary.txt
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+Form of Compensation by the mechanical systems would be difficult or unusually risky. There may occur the rare instance in which Sunrise Capital Management will override the system to decrease market exposure. Any modification of trading instructions could adversely affect the profitability of an account. Among the possible consequences of such a modification would be (1) the entrance of a trade at a price significantly worse than a system's signal price, (2) the complete negation of a signal which subsequently would have produced a profitable trade, or (3) the premature termination of an existing trade. Sunrise Capital Management is not under any obligation to notify clients, the general partner, or you of this type of deviation from its mechanical systems, since it is an integral part of its overall trading method. A technical trading system consists of a series of fixed rules applied systematically. However, the system still requires Sunrise Capital Management to make subjective judgments. For example, the trading advisor must select the markets it will follow and futures interests it will actively trade, along with the contract months in which it will maintain positions. Sunrise Capital Management must also subjectively determine when to liquidate positions in a contract month which is about to expire and initiate a position in a more distant contract month. Sunrise Capital Management engages in ongoing research that may lead to significant modifications from time to time. Sunrise Capital Management will notify the general partner if modifications to its trading systems or portfolio structure are material. Sunrise Capital Management believes that the development of a commodity trading strategy is a continual process. As a result of further analysis and research into the performance of Sunrise Capital Management's methods, changes have been made from time to time in the specific manner in which these trading methods evaluate price movements in various futures interests, and it is likely that similar revisions will be made in the future. As a result of such modifications, the trading methods that may be used by Sunrise Capital Management in the future might differ from those presently being used. Sunrise Capital Management has discretionary authority to make all trading decisions, including upgrading or downgrading the trading size of the net assets of Spectrum Select it manages to reflect additions, withdrawals, trading profits, and/or trading losses, without prior consultation or notice. In addition, Sunrise Capital Management may from time to time adjust the leverage applicable to the assets allocated to it; provided, however, any such adjustments will be consistent with the leverage parameters described herein and in the overall investment objectives and trading policies of the account it manages for Spectrum Select. Such adjustments may be in respect of certain markets or in respect of the overall CIMCO investment portfolio. Factors which may affect the decision to adjust leverage include: inflows and outflows of capital, ongoing research, volatility of individual markets, risk considerations, and Sunrise Capital Management's subjective judgement and evaluation of general market conditions. Adjustments to leverage may result in greater profits or losses. No assurance can be given that any leverage adjustment will be to your financial advantage. 5. Graham Capital Management, L.P. Graham is a Delaware limited partnership which was organized in May 1994. Graham's main business address is Rock Ledge Financial Center, Rowayton, Connecticut 06853. Graham has been registered with the CFTC as a commodity pool operator and commodity trading advisor since July 1994 and is a member of the National Futures Association in such capacities. Principals Kenneth G. Tropin is the Chairman, the founder and a principal of Graham. Mr. Tropin has developed the majority of Graham's core trading programs and he is additionally responsible for the overall management of the organization, including the investment of its proprietary trading capital. Prior to founding Graham in 1994, Mr. Tropin served as President, Chief Executive Officer, and a Director of John W. Henry & Company, Inc., during which the assets under management grew from approximately $200 million to approximately $1.2 billion. Previously, Mr. Tropin was Senior Vice President at Dean Witter Reynolds, where he served as Director of Managed Futures and as President of Demeter Management Corporation and Dean Witter Futures and Currency Management Inc. Mr. Tropin has also served as Chairman of the Managed Funds Association and its predecessor organization, which he was instrumental in founding during the 1980's. Amount of Compensation Paul Sedlack is Chief Executive Officer, the General Counsel and a principal of Graham. He oversees the operation of the finance and administration departments and is also responsible for all legal and compliance matters. Mr. Sedlack began his career at the law firm of Coudert Brothers in New York in 1986 and was resident in Coudert's Singapore office from 1988 to 1989. Prior to joining Graham in June 1998, Mr. Sedlack was a Partner at the law firm of McDermott, Will & Emery in New York, focusing on securities and commodities laws pertaining to the investment management and related industries. Mr. Sedlack received a J.D. from Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and B.S. in Engineering in 1982 from State University of New York at Buffalo. Michael S. Rulle Jr. is the President and a principal of Graham. As President of Graham, Mr. Rulle is responsible for the management of Graham in its day-to-day course of business. Prior to joining Graham in February 2002, Mr. Rulle was President of Hamilton Partners Limited, a private investment company that deployed its capital in a variety of internally managed equity and fixed income alternative investment strategies on behalf of its sole shareholder, Stockton Reinsurance Limited, a Bermuda based insurance company. From 1994 to 1999, Mr. Rulle was Chairman and CEO of CIBC World Markets Corp., the US broker-dealer formerly known as CIBC Oppenheimer Corp. Mr. Rulle served as a member of its Management Committee, Executive Board and Credit Committee and was Co-Chair of its Risk Committee. Business responsibilities included Global Financial Products, Asset Management, Structured Credit and Loan Portfolio Management. Prior to joining CIBC World Markets Corp., Mr. Rulle was a Managing Director of Lehman Brothers and a member of its Executive Committee and held positions of increasing responsibility since 1979. At Lehman, Mr. Rulle founded and headed the firm's Derivative Division, which grew to a $600 million enterprise by 1994. Mr. Rulle received his M.B.A. from Columbia University in 1979, where he graduated first in his class, and he received his bachelor's degree from Hobart College in 1972 with a concentration in political science. Robert E. Murray is the Chief Operating Officer and a principal at Graham and is responsible for the management and oversight of our client services, systematic trading, and technology efforts. Prior to joining Graham, from 1984 until June, 2003, Mr. Murray held positions of increasing responsibility at various Morgan Stanley entities (and predecessors), including Managing Director of the Strategic Products Group, Chairman of Demeter Management Corporation (a commodity pool operator that grew to $2.3 billion in assets under management during Mr. Murray's tenure) and Chairman of Morgan Stanley Futures & Currency Management Inc. (a commodity trading advisor). Mr. Murray is currently a member of the Board of Directors of the National Futures Association and serves on its Membership and Finance Committees. Mr. Murray has served as Vice Chairman and a Director of the Board of the Managed Funds Association. Mr. Murray received a Bachelor's Degree in Finance from Geneseo State University in 1983. Thomas P. Schneider is an Executive Vice President, the Chief Trader and a principal of Graham. He is responsible for managing Graham's systematic futures trading operations, including order execution, formulating policies and procedures, and developing and maintaining relationships with independent executing brokers and futures commission merchants ("FCMs"). Mr. Schneider has also been an NFA arbitrator since 1989 and has served on the MFA's Trading and Markets Committee. Mr. Schneider graduated from the University of Notre Dame in 1983 with a B.B.A. in Finance and received his Executive M.B.A. from the University of Texas at Austin in 1994. From June 1985 through September 1993, Mr. Schneider held positions of increasing responsibility at ELM Financial, Inc., a commodity trading advisor in Dallas, Texas, where he was ultimately Chief Trader, Vice President and Principal responsible for 24-hour trading execution, compliance and accounting. In January 1994, Mr. Schneider began working as Chief Trader for Chang Crowell Management Corporation, a commodity trading advisor in Norwalk, Connecticut, where he was responsible for streamlining operations for more efficient order execution, and for maintaining and developing relationships with over 15 FCMs on a global basis. Robert G. Griffith is an Executive Vice President, the Director of Research and a principal of Graham and focuses primarily on Graham's trend-following trading systems, including portfolio management, asset allocation and trading system development. Mr. Griffith is also in charge of the day-to-day administration of Graham's trend-following trading systems. Prior to joining Graham, Mr. Griffith's company, Veridical Methods, Inc., provided computer programming and consulting services to such firms as GE Capital, Lehman Brothers and Morgan Guaranty Trust. He received his B.B.A. in Management Information systems from the University of Iowa in 1979. Fred J. Levin is the Chief Economist, a Senior Discretionary Trader and a principal of Graham specializing in fixed income markets with particular emphasis on short-term interest rates. Prior to joining Graham in March 1999, Mr. Levin was employed as director of research at Aubrey G. Lanston & Co. Inc. From 1991 to 1998, Mr. Levin was the chief economist and a trader at Eastbridge Capital. From 1988 to 1991, Mr. Levin was the chief economist and a trader at Transworld Oil. From 1982 to 1988, Mr. Levin was the chief economist, North American Investment Bank at Citibank. From 1970 to 1982, Mr. Levin headed the domestic research department and helped manage the open market desk at the Federal Reserve Bank of New York. Mr. Levin received an M.A. in economics from the University of Chicago in 1968 and a B.S. from the University of Pennsylvania, Wharton School in 1964. Savvas Savvinidis, C.P.A., joined Graham in April 2003 as Chief Financial Officer and a principal. He was Chief Operating Officer of Agnos Group, L.L.C. from January 2001-February 2003 and had previously served as Director of Operations of Moore Capital Management, Inc., from October 1994 to June 2000, and of Argonaut Capital Management, Inc., from July 1993 to September 1994. From May 1988 to June 1993, he worked at Lehman Brothers and from July 1986 to April 1988, at the North American Investment Bank of Citibank. Upon graduating from St. John's University with a B.S. in Accounting, Mr. Savvinidis started his career with Grant Thornton in 1984, where he received his CPA designation in 1986. He is a member of the New York Society of C.P.A.'s. Robert C. Hill is a discretionary trader of Graham specializing in the energy commodity markets and a principal of Graham. Prior to joining Graham in April 2003, Mr. Hill worked as a consultant at Gerson Lehrman Group. From November 1999 to October 2002, he was employed as Director of Trading at Duke Energy. From March 1997 to October 1999, Mr. Hill was an energy trader at Louis Dreyfus Energy Corp. and from May 1994 to March 1997, he worked for Enterprise Products Company as a distribution coordinator for energy products. Mr. Hill received an M.B.A. in 1997 from the University of St. Thomas in Houston, TX and a B.A. in 1992 from Stephen F. Austin State University. Jason C. Shapiro is a discretionary trader and a principal of Graham. From January 2002 to October 2003, when he joined Graham, Mr. Shapiro was President of Applied Systematic Trading, where he developed its trading program. Mr. Shapiro worked as a portfolio manager for Chelsey Capital from July 2001 to December 2001 and as a proprietary trader for The Gelber Group from September 2000 to April 2001. He served both as a portfolio manager for HCM Capital Management, Inc. and as a principal in Kilgore Capital from the period May 1997 to January 2000. From July 1996 to April 1997, he was engaged in the development of trading programs. He completed the coursework for a Masters of Finance at the London Business School over the 1995-1996 academic year. He worked at the Development Bank of Singapore in Hong Kong (from March 1994 to August 1995), Overseas Chinese Banking Corporation from (from October 1992 to February 1994) and the Hongkong and Shanghai Banking Corporation (from February 1991 to August 1992) in sales and trading positions. Mr. Shapiro received a B.S. in Finance with honors from The University of South Florida in 1989. Steven T. Aibel is a discretionary trader and a Principal of Graham, specializing in global macro markets with a primary focus on foreign exchange. Prior to joining Graham in July 2003, Mr. Aibel worked as a proprietary trader at J.P. Morgan Chase from April 2002 to March 2003 trading foreign exchange. He began his career at Goldman Sachs and Co. in the precious metals area in 1988 until 1993, moving over to the foreign exchange area of Goldman Sachs and Co. until November 1994. Following work in the foreign exchange area of Lehman Brothers from then until June 1995, Mr. Aibel worked at Credit Suisse First Boston as a Deutsche Mark market maker from July 1995 until July 1997 and a proprietary foreign exchange trader from July 1997 until April 2000. Mr. Aibel received an MBA in 1988 with a double major in Finance and International Business and a B.A. in 1987 in Finance, all from George Washington University. Xin-yun Zhang is a discretionary trader and a principal of Graham, specializing in fixed income. Prior to joining Graham in September, 2003, Mr. Zhang worked at Tudor Investment Corp. from January 2000 to August 2003, where his trading focused on US and Japanese government bonds. From October 1995 to January 2000, he was a fixed-income trader for Greenwich Capital. He worked in fixed-income research for Long-Term Capital Management from October 1993 to October 1995. He received a B.S. from Beijing University in 1983 and a Ph.D. in theoretical physics from University of California, San Diego in 1989, and was a post-doctoral research fellow at Rutgers University from 1989-1993. Certain Other Personnel Anthony Bryla, C.P.A., is the Controller of Graham, in charge of the daily and monthly performance reporting and company accounting. Prior to joining GRAHAM in September 1995, Mr. Bryla was an Assistant Accounting Manager at OMR Systems Corp. where he provided back-office and accounting services for such clients as Merrill Lynch and Chase Manhattan Bank, and held positions of increasing responsibility since February 1989. Mr. Bryla is a member of the New Jersey Society of C.P.A.s and graduated from Rutgers University with a B.A. in Business Administration in 1982. Brian Aldershof, Ph.D., CFA, is the Risk Manager, a Vice President and a quantitative research analyst of Graham with significant expertise in mathematics and statistics. Prior to joining Graham, Dr. Aldershof was a professor of mathematics at Lafayette College in Easton, PA. His research interests center on non-linear stochastic systems, especially genetic algorithms. Dr. Aldershof received his A.B. (1985) from Middlebury College, where he completed a double major in Mathematics and Psychology, and his M.S. (1990) and Ph.D. (1991) in Statistics from the University of North Carolina at Chapel Hill where he was a Pogue Fellow. His research in graduate school concerned estimating functionals of probability density functions. During this time, he consulted to the RAND Corporation, the Center for Naval Analyses, and the Environmental Protection Agency. He is a CFA charterholder and a member of the Association for Investment Management and Research. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Graham or its principals. Graham and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Graham trading programs described below. Although Graham maintains records of these trades, clients of Graham are not entitled to inspect these records except in certain limited circumstances. Graham may place block orders with a brokerage firm on behalf of multiple accounts, including accounts in which Graham or its principals have an interest. If Graham or its principals place the same trade orders for their accounts as they do for their clients in a single block order with a brokerage firm, the brokerage firm allocates the trade fill prices assigned to each account in a manner consistent with that firm's policy. Unless an average price of split fills is allocated, split fills generally are allocated to accounts on a "high to low" basis accounts are ranked based on commencement of trading, and the highest split fill prices are allocated to the highest-ranked accounts. Therefore, any advantage a high-ranked account enjoys on a sell order generally is offset by its disadvantage on the buy order. Graham maintains a written policy of prohibiting employees from trading futures, forwards, or options contracts for their personal accounts without the written approval of a Graham compliance officer. Graham also requires its employees with access to certain sensitive information to deliver to Graham copies of their federal income tax returns, which are then reviewed by Graham's compliance committee for compliance with the above-described and other of Graham's internal policies. Systematic Trading Graham's trading systems rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's systems are based on the expectation that they can over time successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. Graham's core trading systems are primarily very long term in nature and are designed to participate selectively in potential profit opportunities that can occur during periods of sustained price trends in a diverse number of U.S. and international markets. The primary objective of the core trading systems is to establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring. The systems are designed to analyze mathematically the recent trading characteristics of each market and statistically compare such characteristics to the long-term historical trading pattern of the particular market. As a result of this analysis, the systems will utilize proprietary risk management and trade filter strategies that are intended to benefit from sustained price trends while reducing risk and volatility exposure. Graham utilizes discretion in connection with its systematic trading programs in determining which markets warrant participation in the programs, market weighting, leverage and timing of trades for new accounts. Graham also may utilize discretion in establishing positions or liquidating positions in unusual market conditions where, in its sole discretion, Graham believes that the risk-reward characteristics have become unfavorable. Discretionary Trading The Discretionary Trading Group was established at Graham in February 1998. Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, the Discretionary Trading Group determines its trades subjectively on the basis of personal assessment of trading data and trading experience. Graham believes that the Discretionary Trading Group's performance results generally are not highly correlated to the results of other discretionary traders or Graham's systematic trading programs. Graham believes the Discretionary Trading Group can generate successful performance results in trading range type markets where there are few long-term trends. The Graham Trading Programs Effective January 1, 2004 the general partner allocated approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Global Diversified Program at 150% Leverage, as described below, and approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Graham Selective Trading Program, as described below, at 150% the standard leverage it applies for such program. Margin requirements over time at standard leverage are expected to average about 15% to 20% of equity for accounts traded by Graham; thus, Graham expects the margin requirements for Spectrum Select over time to average about 20% to 30% of Spectrum Select's net assets. Increased leverage will alter risk exposure and may lead to greater profits and losses and trading volatility and See "Risk Factors Trading Advisor Risks Graham's use of an increased rate of leverage could affect future performance" on page . Subject to the prior approval of the general partner, Graham may, at any time, trade a portion of the partnership's assets pursuant to one or more of Graham's other systematic programs and/or the Discretionary Trading Group discretionary program, and at an increased or reduced rate of leverage. As of December 31, 2003, Graham was managing approximately $624 million of funds in the Global Diversified Program at Standard Leverage, approximately $429 million of funds in the Global Diversified Program at 150% Leverage, approximately $344 million of funds in the Graham Selective Trading Program at Standard Leverage and approximately $4.9 billion of assets in all of its trading programs. The various futures, forwards, and options markets which are traded pursuant to each Graham systematic trading program are identified below under the description of that program. Each Graham systematic trading program generally entails a consistent approach to all futures, forwards, and options markets traded by that program. Graham conducts ongoing research regarding expanding the number of futures, forwards, and options markets each program trades to further the objective of portfolio diversification. Particular futures, forwards, and options markets may be added to, or deleted from, a program at any time without notice. Portfolios may be rebalanced with respect to the weighting of existing markets at any time without notice. Additions, deletions and rebalancing decisions with respect to each program are made based on a variety of factors, including performance, risk, volatility, correlation, liquidity and price action, each of which factors may change at any time. In trading the various futures, forwards, and options markets pursuant to its systematic trading programs, Graham generally applies the systematic trading approach described above under " Systematic Trading." Global Diversified Program The Global Diversified Program was developed in 1995 and utilizes multiple computerized trading models, which are designed to participate in the potential profit opportunities during sustained price trends in approximately 80 global markets. This program features broad diversification in both financial and non-financial markets. The strategies which are utilized are primarily long term in nature and are intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The Global Diversified Program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates (including U.S. and foreign bonds, notes and Eurodollars), 25% in currency forwards (including major and minor currencies), 17% in stock index futures (including all major indices), 15% in softs and agricultural futures (including grains, meats and softs), 8% in metal futures (including gold, aluminum and copper), and 9% in energy futures (including crude oil and natural gas). The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. Graham rebalances the weighting of each market in the portfolio on a monthly basis so as to maintain, on a volatility and risk adjusted basis, consistent exposure to each market over time. Graham Selective Trading Program The Graham Selective Trading Program was developed in 1997 and utilizes an appreciably different trading system than other Graham programs. The Graham Selective Trading Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur. Although the system does not trade against the market trend, it is not a true trend-following system inasmuch as it will only participate in specific types of market moves that meet the restrictive criteria of the model. In general, the Graham Selective Trading Program will participate only in significant market moves that are characterized by a substantial increase in volatility. As a result, it frequently will not participate in market trends in which virtually all trend-following systems would have a position. Due to the extremely selective criteria of the Graham Selective Trading model, the program will normally maintain a neutral position in approximately 50% to 60% of the markets in the portfolio. Discretionary Trading Group Program Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, Graham's Discretionary Trading Group determines trades for the Discretionary Trading Group Program subjectively on the basis of personal judgement and trading experience. The Discretionary Trading Group Program generally utilizes fundamental information as well as certain technical data as the basis for its trading strategies. Fundamental considerations relate to the underlying economic and political forces that ultimately determine the true value of a particular financial instrument or commodity. Fundamental analysis of the Discretionary Trading Group may involve a short- or long-term time horizon. Technical data considered by the Discretionary Trading Group include price patterns, volatility, trading volumes and level of open interest. The Discretionary Trading Group Program trades worldwide in fixed income, equity, foreign exchange and commodity markets. The Discretionary Trading Group Program may take long or short positions in securities, futures, forwards, warrants, options and other financial instruments. Past Performance of Graham Set forth below in Capsule A is the past performance history of the Global Diversified Program at 150% Leverage, one of the programs that will be traded by Graham for Spectrum Select. Capsule B is the past performance for the Graham Selective Trading Program, another program that will be traded by Graham for Spectrum Select. The Graham Select Trading Program Capsule shows performance at standard leverage; however, Graham will trade the portion of the net assets of Spectrum Select allocated to the Graham Selective Trading Program at 150% the standard leverage employed by that program, which will significantly increase volatility as well as profits and losses. The footnotes following Capsule B are an integral part of each Capsule. You are cautioned that the information set forth in the following Capsule performance summaries is not necessarily indicative of, and may have no bearing on, any trading results which may be attained by Graham or Spectrum Select in the future, since past results are not a guarantee of future results. There can be no assurance that Graham or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. At each monthly closing, the trading advisors for each partnership are currently allocated the net proceeds from additional investments received by that partnership, and redemptions from that partnership are allocated to them, in the following proportions: Spectrum Select CAPSULE A Graham Capital Management, L.P. Global Diversified Program at 150% Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Global Diversified Program at 150% Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: May 1997 Number of open accounts: 15 Aggregate assets overall: $4.87 billion Aggregate assets in program: $428.7 million Worst monthly drawdown: (15.77)% - (November 2001) Worst peak-to-valley drawdown: (24.27)% - (November 2001-April 2002) 2003 annual return: 17.82% 2002 annual return: 32.25% 2001 annual return: 12.16% 2000 annual return: 24.33% 1999 annual return: 6.17% CAPSULE B Graham Capital Management, L.P. Graham Selective Trading Program at Standard Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Graham Selective Trading Program at Standard Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: January 1998 Number of open accounts: 7 Aggregate assets overall: $4.87 billion Aggregate assets in program: $343.7 million Largest monthly drawdown: (15.60)% - (November 2001) Worst peak-to-valley drawdown: (21.41)% - (November 2001-April 2002) 2003 annual return: 21.82% 2002 annual return: 30.11% 2001 annual return: 0.55% 2000 annual return: 7.07% 1999 annual return: 0.91% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Additions Footnotes to Graham's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Graham began trading client accounts. "Inception of trading in program" is the date on which Graham began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Graham pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Graham as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the trading program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated by dividing the net income for the month by the net asset value as of the beginning of the month (including contributions made at the start of the month). In months where asset changes are made mid-month, rates of return are calculated for each segment of the month and compounded. For this purpose, "net income" represents the gross income for the month in question, net of all expenses and performance allocations. The Rate of Return percentage for each year is determined by calculating the percentage return on an investment made as of the beginning of each year. Specifically, a running index is calculated monthly, compounded by the rate of return, the annual percentage being the change in this index for the year divided by the year's initial index. Redemptions Morgan Stanley Spectrum Technical L.P. 1. Campbell & Company, Inc. Campbell is a Maryland corporation organized in April 1978 as a successor to a partnership originally organized in January 1974. Campbell has been registered with the CFTC as a commodity trading advisor since May 1978 and is a member of the National Futures Association in such capacity. Campbell's principal place of business is located at 210 W. Pennsylvania Ave., Suite 770, Towson, MD 21204. Principals Theresa D. Becks, born in 1963, joined Campbell in June 1991 and has served as the Chief Financial Officer and Treasurer since 1992, and Secretary and a Director since 1994. In addition to her role as Chief Financial Officer, Ms. Becks also oversees administration, compliance and trade operations. Ms. Becks is currently a member of the Board of Directors of the Managed Funds Association. From 1987 to 1991, she was employed by Bank Maryland Corp, a publicly held company, as a Vice President and Chief Financial Officer. Prior to that time, she worked with Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the University of Delaware. Ms. Becks is an associated person of Campbell. D. Keith Campbell, born in 1942, has served as the Chairman of the Board of Directors of Campbell since it began operations, was President until 1994, and was Chief Executive Officer until 1997. Mr. Campbell is the majority voting stockholder of Campbell. From 1971 to 1978, he was a registered representative of a futures commission merchant. Mr. Campbell has acted as a commodity trading advisor since 1972 when, as general partner of the Campbell Fund, a limited partnership engaged in commodity futures trading, he assumed sole responsibility for trading decisions made on behalf of the Fund. Since then, he has applied various technical trading models to numerous discretionary futures trading accounts. Mr. Campbell is registered with the CFTC and NFA as a commodity pool operator. Mr. Campbell is an associated person of Campbell. William C. Clarke, III, born in 1951, joined Campbell in June 1977 and has served as an Executive Vice President since 1991 and a Director since 1984. Mr. Clarke holds a B.S. in Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently oversees all aspects of research, which involves the development of proprietary trading models and portfolio management methods. Mr. Clarke is an associated person of Campbell. Bruce L. Cleland, born in 1947, joined Campbell in January 1993 and has served as President and a Director since 1994, and Chief Executive Officer since 1997. Mr. Cleland has worked in the international derivatives industry since 1973, and has owned and managed firms engaged in global clearing, floor brokerage, trading and portfolio management. Mr. Cleland is currently a member of the Board of Directors of the National Futures Association, and previously served as a member of the Board of Directors of the Managed Funds Association and as a member of the Board of Governors of the COMEX, in New York. Mr. Cleland is a graduate of Victoria University in Wellington, New Zealand where he earned a Bachelor of Commerce and Administration degree. Mr Cleland is an associated person of Campbell. Kevin M. Heerdt, born in 1958, joined Campbell in March 2003 as Executive Vice President Research and was appointed Executive Vice President Research and Information Technology in November 2003. His duties include risk management, research, and the development of quantitatively based hedge fund and options strategies, as well as providing managerial oversight of the information technology team. From February 2002 to March 2003, he was self-employed through Integrity Consulting. Previously, Mr. Heerdt worked for twelve years at Moore Capital Management, Inc., where he was a Director until 1999, and a Managing Director from 2000 to 2002. Mr. Heerdt holds a B.A. in Economics and in International Relations from the University of Southern California. Mr. Heerdt is an associated person of Campbell. James M. Little, born in 1946, joined Campbell in April 1990 and has served as Executive Vice President Business Development and a Director since 1992. Mr. Little holds a B.S. in Economics and Psychology from Purdue University. From 1989 to 1990, Mr. Little was a registered representative of A.G. Edwards & Sons, Inc. From 1984 to 1989, he was the Chief Executive Officer of James Percentage of net assets allocated to each trading advisor as of January 1, 2003 Little & Associates, Inc., a commodity pool operator and broker-dealer. Mr. Little is the co-author of The Handbook of Financial Futures, and is a frequent contributor to investment industry publications. Mr. Little is an associated person of Campbell. Craig A. Weynand, born in 1969, joined Campbell in October 2003 as Vice President and has served as General Counsel since November 2003. In this capacity, he is involved in all aspects of legal affairs and regulatory oversight, as well as managerial oversight of trade operations. From May 1990 to September 2003, Mr. Weynand was employed by Morgan Stanley, serving as Senior Trader for Morgan Stanley Futures and Currency Management Inc., a commodity trading advisor, until 1998 and as Vice President Director of Product Origination & Analysis for the Morgan Stanley Managed Futures Department until his departure. Mr. Weynand holds a B.S. in International Business and Marketing and an M.B.A. in Economics from New York University, and a J.D. from the Fordham University School of Law. Mr. Weynand is a member of the New York State Bar and serves on the Government Relations Committee of the Managed Funds Association. Mr. Weynand is an associated person of Campbell. C. Douglas York, born in 1958, has been employed by Campbell since November 1992, was appointed a Senior Vice President Trading in 1997, and has served as Executive Vice President Trading since 2003. His duties include managing daily trade execution for the assets under Campbell's management. From 1991 to 1992, Mr. York was the Global Foreign Exchange Manager for Black & Decker. He holds a B.A. in Government from Franklin and Marshall College. Mr. York is an associated person of Campbell. Any principal of Campbell may trade futures and related contracts for his or her own accounts. In addition, Campbell manages proprietary accounts for its deferred compensation plan and for certain principals. Campbell has written procedures that govern proprietary trading by principals. Trading records for proprietary trading accounts are available for review by clients upon reasonable notice. Such trades may or may not be in accordance with the Campbell trading program described below. The Campbell Trading Program Campbell trades the assets allocated to it by the partnership pursuant to its Financial, Metal & Energy Large Portfolio, which trades exclusively in futures and forward contracts, including foreign currencies, precious and base metals, energy products, stock market indices and interest rate futures. As of December 31, 2003, Campbell was managing approximately $5.4 billion of client assets pursuant to the Financial, Metal & Energy Large Portfolio and approximately $6.4 billion in all of its programs. Campbell makes trading decisions using proprietary technical trading models, which analyze market statistics. There can be no assurance that the trading models currently being used will produce results similar to those produced in the past. Campbell's trading models are designed to detect and exploit medium-term to long-term price changes, while also applying proven risk management and portfolio management principles. Campbell believes that utilizing multiple trading models provides an important level of diversification, and is most beneficial when multiple contracts in each market are traded. Every trading model may not trade every market. It is possible that one trading model may signal a long position while another trading model signals a short position in the same market. It is Campbell's intention to offset those signals to reduce unnecessary trading, but if the signals are not simultaneous, both trades will be taken and since it is unlikely that both positions would prove profitable, in retrospect, one or both trades will appear to have been unnecessary. It is Campbell's policy to follow trades signaled by each trading model independently of the other models. Over the course of a medium-term to long-term trend, there are times when the risk of the market does not appear to be justified by the potential reward. In such circumstances, some of Campbell's trading models may exit a winning position prior to the end of a price trend. While there is some risk to this method (for example, being out of the market during a significant portion of a price trend), Campbell's research indicates that this is well compensated for by the decreased volatility of performance that may result. Campbell's trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. Campbell expects to develop % % % EMC Capital Management, Inc. 0 0 10.94 Northfield Trading L.P. 0 0 9.07 Rabar Market Research, Inc. 331/3 331/3 37.60 Sunrise Capital Management, Inc. 331/3 331/3 31.07 Graham Capital Management, Inc. Selective Trading Program 162/3 162/3 5.66 Global Diversified Program 162/3 162/3 5.66 Spectrum Technical additional trading models and to modify models currently in use and may or may not employ all such models for all clients' accounts. The trading models currently used by Campbell may be eliminated from use if Campbell ever believes such action is warranted. While Campbell normally follows a disciplined systematic approach to trading, on occasion it may override the signals generated by the trading models, such as when market conditions dictate otherwise. While such action may be taken for any reason at any time at Campbell & Company's discretion, it will normally only be taken to reduce risk in the portfolio, and may or may not enhance the results that would otherwise be achieved. Campbell applies risk management and portfolio management strategies to measure and manage overall portfolio risk. These strategies include portfolio structure, risk balance, capital allocation and risk limitation. One objective of risk and portfolio management is to determine periods of relatively high and low portfolio risk, and when such points are reached, Campbell may reduce or increase position size accordingly. It is possible, however, that this reduction or increase in position size may not enhance the results achieved over time. From time to time, Campbell may increase or decrease the total number of contracts held based on increases or decreases in an account's assets, changes in market conditions, perceived changes in portfolio-wide risk factors, or other factors which may be deemed relevant. Campbell estimates that, based on the amount of margin required to maintain positions in the markets currently traded, aggregate margin for all positions held in a client's account will range between 5% and 30% of the account's net assets. From time to time, margin commitments may be above or below this ranges. The number of contracts that Campbell believes can be bought or sold in a particular market without unduly influencing price adversely may at times be limited. In such cases, a client's portfolio would be influenced by liquidity factors because the positions in such markets might be substantially smaller than the positions that would otherwise be taken. 2. Chesapeake Capital Corporation Chesapeake was incorporated under the laws of the Commonwealth of Virginia in February 1988 for the purpose of offering advisory and investment portfolio management services to both retail and institutional investors in trading commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets. On August 19, 1991, Chesapeake was merged into Chesapeake Capital Corporation, an Illinois corporation formed on August 13, 1991. References herein to "Chesapeake" refer to the Virginia corporation prior to August 19, 1991 and the Illinois corporation on and after August 19, 1991. Chesapeake Holding Company is a Virginia corporation that owns all of the issued and outstanding shares of stock of Chesapeake Capital Corporation. Chesapeake has been registered with the CFTC as a commodity trading advisor and as a commodity pool operator since June 20, 1988 and May 8, 1991, respectively, and has also been a member of the National Futures Association since June 20, 1988. Chesapeake's principal place of business is located at 500 Forest Avenue, Richmond, Virginia 23229. All business records will be kept at Chesapeake's principal place of business. Principals R. Jerry Parker, Jr. is the Chairman of the Board of Directors and the Chief Executive Officer of Chesapeake. Mr. Parker has overseen Chesapeake's operations and its trading since its inception. Mr. Parker received a Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in January 1980. Mr. Parker worked in the accounting field for four years after graduating from college and became a licensed Certified Public Accountant in Virginia in 1982. From November 1983 until January 1987, Mr. Parker was employed as an exempt commodity trading advisor by Mr. Richard J. Dennis, a principal and shareholder of Richard J. Dennis & Company, a Chicago-based commodity trading advisor and a commodity pool operator registered with the CFTC, in his "Turtle" training program. From January 1987 until February 1988, Mr. Parker traded for Mr. Thomas Dennis as an exempt commodity trading advisor. From November 1983 through February 1988, Mr. Parker had complete discretionary trading authority over a futures portfolio of U.S. $1 million to U.S. $1.5 million. In February 1988, Mr. Parker ceased trading for Mr. Thomas Dennis and formed Chesapeake, which, as of January 31, 2003, managed approximately U.S. $1.0 billion (notional funds excluded) of client funds. John M. Hoade is the President and the Secretary of Chesapeake. Mr. Hoade received a Bachelor of Science degree in Business Administration from Lynchburg College in 1978. From September 1976 through December 1990, Mr. Hoade was employed by Thurston Metals, Inc., located in Lynchburg, Virginia, in sales, marketing, and general management. Mr. Hoade joined Chesapeake in December 1990 to direct its operations and marketing efforts. Robert S. Parker, Jr. is the Chief Legal Counsel of Chesapeake. Mr. Parker received his Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in 1965. Mr. Parker worked in the accounting field for two years and became a Certified Public Accountant in Virginia. He then attended law school at the College of William and Mary where he received a Juris Doctor degree in 1970. Mr. Parker has been engaged in the practice of law since then, with an emphasis in tax and business matters, including 13 years with Hunton & Williams, where Mr. Parker was a partner. Mr. Parker has been Chief Legal Counsel of Chesapeake since February 1996. Warren K. Coleman is the Chief Financial Officer and a Managing Director of Chesapeake. Mr. Coleman received a Master of Business Administration in 1981 and Bachelor of Business Administration in 1979 from James Madison University. Mr. Coleman became a Certified Public Accountant in 1982 while working for the public accounting firm of Ernst & Young. From February 1982 until March 1998, Mr. Coleman was employed by Philip Morris U.S.A. His job duties at Philip Morris included Plant Controller, Senior Manager responsible for Capital Evaluation and Financial Analysis and Senior Manager responsible for financial software integration. Mr. Coleman joined Chesapeake in March 1998 to direct its financial operations as Chief Financial Officer. Chesapeake and its principals may, from time to time, trade futures, forwards, and options contracts and securities for their own proprietary accounts. Such trades may or may not be in accordance with the Chesapeake trading program described below. Records for these accounts will not be made available to Spectrum Technical. The Chesapeake trading programs Prior to June 1, 1998, the assets allocated to Chesapeake by Spectrum Technical were traded pursuant to its Diversified Program and its Financial and Metals Program. Since June 1, 1998, the assets of Spectrum Technical allocated to Chesapeake have been traded pursuant to its Diversified 2XL Program. The Diversified 2XL Program emphasizes a wide range of diversification with a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. Chesapeake will not trade cash commodities or swap contracts for the partnership without the general partner's consent. Chesapeake may trade on U.S. and non-U.S. exchanges and markets. The decision to add or subtract markets from this program periodically shall be at the sole discretion of Chesapeake. Chesapeake utilizes a variety of trading strategies and programs for its clients' private accounts and for Chesapeake-sponsored investment funds. The programs offered generally by Chesapeake to its clients to trade commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts for their private accounts (i.e., to those clients other than Chesapeake-sponsored investment funds) are the Diversified Program and the Diversified 2XL Program (the "Diversified Trading Programs"). The Diversified Program commenced trading in February 1988. The Diversified Program emphasizes a wide range of diversification by utilizing a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. These futures interest contracts are traded on a highly leveraged basis. The Diversified 2XL Program, which Chesapeake trades for Spectrum Technical, began trading in April 1994. The Diversified 2XL Program employs the same trading system as the Diversified Program, except that the Diversified 2XL Program is generally traded on an increased exposure basis generally equal to approximately two times the exposure or trading level typically applied to a fully-funded Diversified Program account (although at times a different level may be used and the partnership's returns may vary significantly from a 2:1 ratio with the gross returns of private accounts trading the Diversified Program). Ultimately, the appropriate exposure or trading level to be employed by the partnership in its trading, as determined at the sole discretion of Chesapeake, will be determined by the performance factors associated with the partnership and the partnership only, regardless of the intended performance relationship of the partnership to other accounts trading in other programs that may utilize more or less exposure. Since Chesapeake's trading strategies and programs are proprietary and confidential, the discussion below is of a general nature and it is not intended to be exhaustive. As of December 31, 2003, Chesapeake was managing approximately $263.2 million of customer funds in the Diversified 2XL Program (notional funds excluded) and approximately $1.4 billion of client assets in all of its programs (notional funds excluded). In general, Chesapeake analyzes markets, including price action, market volatility, open interest, and volume as a means of predicting market opportunity and discovering any repeating patterns in past historical prices. Chesapeake generally employs a computerized analysis of a large number of interrelated statistical and mathematical formulas and techniques based on an extensive proprietary and confidential database of prices, volume, open interest, and various other market statistics to search for patterns in data and to develop, use, and monitor trading strategies. Chesapeake places primary emphasis on technical analysis in assessing market opportunities. Chesapeake's trading decisions are based on a combination of its systems, its market timing techniques, its trading discretion, judgment, and experience, and on market opportunities. Chesapeake's trading methodology is both systematic and strategic. Trading decisions require the exercise of strategic judgment by Chesapeake in evaluating its technical trading methods, in their possible modification from time to time, and in their implementation. Chesapeake is free to use its discretion whether to follow any trading signals or parameters generated by its technical trading strategies and its Diversified Trading Programs. The decision not to trade certain markets or not to make certain trades indicated by Chesapeake's systems can materially affect performance. Under no circumstances is Chesapeake compelled to follow any of the trading indications generated by the Diversified Trading Programs. Chesapeake has the right to employ any form or method of technical analysis that it deems appropriate in trading its Diversified Trading Programs. By way of example, the technical trading strategies and programs utilized by Chesapeake may be significantly revised from time to time by Chesapeake as a result of ongoing research and development, which seeks to devise new trading strategies and programs, as well as test its current technical strategies and programs. Chesapeake will not notify clients, such as the partnership, of such revisions or changes to its Diversified Trading Programs as they may occur. Exchanges on which transactions may take place will include, but are not limited to, all exchanges in the United States, as well as non-U.S. exchanges which include, but are not limited to, the Belgian Futures and Options Exchange, the London International Financial Futures and Options Exchange Ltd., the International Petroleum Exchange of London Ltd., the London Metal Exchange, the London Commodity Exchange, the Italian Derivatives Market, the March Terme International de France, the Mercado Espa ol de Futuros Financieros, the Eurex Deutschland, the Hong Kong Futures Exchange Ltd., the Montreal Exchange, the Tokyo Commodity Exchange, the Tokyo International Financial Futures Exchange, the Tokyo Stock Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange. In addition, Chesapeake continually monitors numerous markets, both U.S. and non-U.S., and initiates trades at any point it determines that a market is sufficiently liquid and tradable using the methods employed by Chesapeake. Chesapeake renders advice regarding transactions in physical commodities, including exchange of futures for physical transactions. An exchange of futures for physical transaction is a transaction permitted under the rules of many futures exchanges in which two parties exchange a cash market position for a futures market position (or vice versa) without making an open, competitive trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Chesapeake does not currently, but may in the future, utilize swaps on behalf of the partnership with the general partner's consent. A swap transaction is an individually negotiated, non-standardized agreement between two parties to exchange cash flows (and sometimes principal amounts) measured by different interest rates, exchange rates, indices, or prices, with payments generally calculated by reference to a principal amount or quantity. Chesapeake may enter into swap transactions involving or relating to interest rates, currencies, commodities, or indices. Swaps may be utilized for a number of reasons, including to achieve greater exposure to markets in which Chesapeake is constrained by speculative position limits from taking additional positions in exchange-traded contracts, to access markets not accessible through exchange-traded instruments, and to allow customization of positions. Chesapeake may also trade other types of over-the-counter derivative contracts. Chesapeake generally uses between 10% and 30% of the equity in a fully funded account as original margin for trading in the Diversified Program, but at times the margin-to-equity ratio can be higher. The low margin normally required in futures trading permits an extremely high degree of leverage; margin requirements for futures trading being in some cases as little as 2% of the face value (or "exposure") of the contracts traded. Therefore, the gross value of positions held in an account may be several times the value of such account. Consequently, even a slight movement in the prices of open positions in an account could result in immediate and substantial losses to the investor. The Diversified 2XL Program generally trades at approximately double the Diversified Program exposure requiring the use of double of the portion of equity Chesapeake generally uses as margin, which results in approximately double the ratio of the gross value of positions in relation to the value of an account. The risk assumed and, consequently, the potential for profit experienced by a particular account at different times, and by different accounts at the same time, vary significantly according to the program(s) traded, the market conditions, the percentage gained or lost in such account, the size of such account, the brokerage commissions, the management fees and the incentive fees charged to such account, the contracts, if any, excluded from such account by the client, and when such account commenced trading. Accordingly, no investor should expect to achieve the same performance as that of any other account traded previously, simultaneously, or subsequently by Chesapeake. Programs that exclude or emphasize certain markets often perform differently than programs utilizing different markets. On programs that differ in terms of leverage or exposure only (e.g., the Diversified Trading Programs), Chesapeake generally attempts to manage accounts in such programs such that the gross returns (before fees), positive or negative, are a multiple of each other based on the leverage differential (e.g., the Diversified 2XL Program gross returns, positive or negative, are generally intended to be approximately double those of the Diversified Program on an annual or year to date basis). However, many factors can, sometimes significantly, impact account performance and these performance relationships, including, but not limited to, differences in the timing of additions and withdrawals and the resulting adjustment trades, varying fills, changes in position size to reduce risk during losing periods by Chesapeake that impact an account in one program but not other account(s) in other programs that use proportionately higher or lower exposure, differences in brokerage commissions, and other factors. Accordingly, every program will underperform or overperform the anticipated multiple or fraction of a differently leveraged program. Additions and Redemptions in Pool Account Investors in investment fund accounts generally make additions or redeem units at net asset value per unit as of the opening of business on the first business day of each month. In order to provide the appropriate market exposure commensurate with a fund's equity after giving effect to net additions/redemptions, Chesapeake's general practice is to adjust positions as soon as possible after the close of business on the last trading date of the month. Market conditions may dictate the time period over which these trades can be effected. The performance of a fund account relative to the performance of other accounts trading in the same program or to accounts trading within programs that should perform at a level proportionately higher or lower than such account may be significantly different as a result of these adjustment trades. Furthermore, there may be changes in net asset value per unit as a result of such adjustment trades. Based on the level of net additions/redemptions and Chesapeake's determination of liquidity or other market conditions, Chesapeake may also decide to make adjusting trades before the close of business on the last business day of the month. No assurance is given that Chesapeake will be able to avoid the performance discrepancies and the changes described above in connection with pool equity level changes. The use of discretion by Chesapeake in the application of this procedure may affect performance positively or negatively. Further, effecting trades prior to the close of business on the last business day of the month may cause brokerage commissions to be incurred and allocated in the month prior to the month in which the investors making additions participate in pool profits and losses. 3. John W. Henry & Company, Inc. (JWH ) John W. Henry & Company began managing assets in 1981 as a sole proprietorship and was later incorporated in the state of California as John W. Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997, JWH reincorporated in the state of Florida. JWH's offices are at 301 Yamato Road, Suite 2200, Boca Raton, Florida. JWH's registration as a commodity trading advisor became effective in November 1980. JWH is a member of the National Futures Association in this capacity. "JWH" is the registered trademark of John W. Henry & Company, Inc. The John W. Henry Trust, dated July 27, 1990, is the sole shareholder of JWH. Principals Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also a member of the JWH Investment Policy Committee. In addition, he is a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. Mr. Henry oversees trading program design and composition, reviews and approves research and system development proposals prior to implementation in trading, reviews and approves of decisions involving the strategic direction of the firm, and discusses trading activities with trading supervisors. JWH's corporate officers, rather than Mr. Henry, manage JWH's day-to-day operations. Mr. Henry is the exclusive owner of trading systems licensed to Elysian Licensing Corporation, a corporation wholly owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to JWH and utilized by JWH in managing investor accounts. Mr. Henry conducts his business responsibilities for JWH from Boca Raton, Florida, and Boston, Massachusetts. Mr. Henry has served on the Board of Directors of the Futures Industry Association, the National Association of Futures Trading Advisors, and the Managed Futures Trade Association, and has served on the Nominating Committee of the National Futures Association. He has also served on a panel created by the Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative efforts related to electronic trading, common clearing, and issues regarding a potential merger. Since the beginning of 1987, he has devoted, and will continue to devote, considerable time to activities in businesses other than JWH and its affiliates. From January 1999 until February 2002, Mr. Henry was chairman of the Florida Marlins Baseball Club LLC. Effective February 2002, Mr. Henry is Principal Owner of New England Sports Ventures LLC, which owns the Boston Red Sox baseball team, New England Sports Network, and certain real estate, including Fenway Park. He holds comparable positions with the individual business entities engaged in these activities. Mr. Henry is regularly involved in the business of New England Sports Ventures with professional management of the Red Sox (including its president and chief executive officer) and of the other entities owned by New England Sports Ventures. Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of the JWH Board of Directors. His duties include the coordination and allocation of responsibilities among JWH and its affiliates. Prior to joining JWH in January 1994, he was a partner at Chapman and Cutler in Chicago, where he headed the law firm's futures law practice from 1983 to 1993. He also served as general counsel of the MFA and general counsel of the National Association of Futures Trading Advisors. Mr. Mitchell is currently a director of the MFA and a member of the National Futures Association Commodity Pool Operator/Commodity Trading Advisory Committee. In addition, he has served as a member of the National Futures Association Special Committee for the Review of a Multi-tiered Regulatory Approach to National Futures Association Rules, the MFA Government Relations Committee, state or any political subdivision thereof, general obligations issued by any agency sponsored by the U.S., certificates of deposit issued by a bank as defined in the Exchange Act or a domestic branch of a foreign bank insured by the FDIC, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds, subject to conditions and restrictions regarding marketability, investment quality, and investment concentration. In addition, such investments may be bought and sold pursuant to designated repurchase and reverse repurchase agreements. To the extent the partnerships' funds are held by the commodity brokers in secured accounts relating to trading in futures or options contracts on non-U.S. exchanges or in forward contracts, such funds may be invested by the commodity brokers, under applicable CFTC regulations, in the instruments described above for customer segregated funds, in equity and debt securities traded on established securities markets in the U.S., and in commercial paper and other debt instruments that are rated in one of the top two rating categories by Moody's Investor Service, Inc. or Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. A significant portion of the partnerships' funds held by the non-clearing commodity broker will be held in secured accounts and will be invested in short-term or medium-term commercial paper rated AAA or the equivalent or in other permitted debt instruments rated AAA or the equivalent. To the extent that the partnerships' funds are held in non-interest-bearing bank accounts, the non-clearing commodity broker or its affiliates will benefit from compensating balance treatment in connection with the non-clearing commodity broker's designation of a bank or banks in which the partnership's assets are deposited, meaning that the non-clearing commodity broker or its affiliates will receive favorable loan rates from such bank or banks by reason of such deposits. To the extent that any excess interest and compensating balance benefits to the non-clearing commodity broker or its affiliates exceed the interest the non-clearing commodity broker is obligated to credit to the partnerships, they will not be shared with the partnerships. THE SPECTRUM SERIES General The Spectrum Series presently consists of five limited partnerships each formed under the laws of Delaware: Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum Global Balanced and Spectrum Currency. Date Partnership Was Formed and the Executive Committee of the Futures Industry Association Law and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian Award for Outstanding Contributions to the Field of Commodity Money Management. He received an A.B. with honors from Dartmouth College and a J.D. from the University of California at Los Angeles, where he was named to the Order of the Coif, the national legal honorary society. Dr. Mark S. Rzepczynski is the president and chief investment officer, and a member of the JWH Investment Policy Committee. He is responsible for day-to-day management of the firm. Dr. Rzepczynski is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. He was Senior Vice President, Research & Trading at JWH from May 1998 through December 2001. Prior to joining JWH in May 1998, he was vice president and director of taxable credit and quantitative research in the fixed income division of Fidelity Management and Research from May 1995 to April 1998, where he oversaw credit and quantitative research recommendations for all Fidelity taxable fixed income funds. From April 1993 to April 1995, he was a portfolio manager and director of research for CSI Asset Management, Inc., a fixed-income money management subsidiary of Prudential Insurance. Dr. Rzepczynski is a board member of the Futures Industry Association. Dr. Rzepczynski has a B.A. cum laude, Honors in Economics from Loyola University of Chicago, and an A.M. and Ph.D. in Economics from Brown University. Mr. Matthew J. Driscoll is a senior vice president, trading, and chief trader and a member of the JWH Investment Policy Committee. He is responsible for the supervision and administration of all aspects of order execution strategies and implementation of trading policies and procedures. Mr. Driscoll joined JWH in March 1991 as a member of the trading department. Since joining the firm, he has held positions of increasing responsibility as they relate to the development and implementation of JWH's trading strategies and procedures; he has played a major role in the development of JWH's 24-hour trading operation. He attended Pace University. Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a member of the JWH Investment Policy Committee. He is responsible for the implementation and oversight of the firm's proprietary strategies and investments. Mr. Koshi joined JWH in August 1988 as a professional in the finance department, and since 1990 has held positions of increasing responsibility in the trading department. He received a B.S. in Finance from California State University at Long Beach. Mr. David M. Kozak is a senior vice president, general counsel, and secretary to the corporation. He is also a principal of JWH Investment Management, Inc. and Westport Capital Management Corporation. Prior to joining JWH in September 1995, he had been a partner at the law firm of Chapman and Cutler, where he concentrated in commodity futures law with an emphasis on commodity money management. Mr. Kozak is Chairman of the MFA's Government Relations Committee. He is also a member of the NFA's Membership Committee, as well as, the NFA's Special Committee on CPO/CTA Disclosure Issues, and the Special Committee for the Review of Multi-tiered Regulatory Approach to NFA Rules. He is currently chairman of the subcommittee on commodity trading advisor and commodity pool operator issues of the Futures Regulation Committee of the Association of the Bar of the City of New York. Mr. Kozak formerly served as the secretary and a director of the MFA, as well as having been a member of the MFA's Executive Committee. He received a B.A. from Lake Forest College, an M.A. from The University of Chicago, and a J.D. from Loyola University of Chicago. Mr. Kenneth S. Webster, CPA is a senior vice president and chief operating officer. He is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, JWH Investment Management, Inc., and JWH Securities, Inc. He is responsible for firm wide operations including management of the investment support, finance, information technology and administration departments. Since joining JWH in January 1995, Mr. Webster has held positions of increasing responsibility. Prior to his employment at JWH, Mr. Webster was the Controller of Chang Crowell Management, a registered CTA, from December 1991 to December 1994. From June 1987 to December 1991, Mr. Webster was employed by Coopers & Lybrand in their financial services audit practice. Mr. Webster received a BBA in Accounting from Pace University. Date Partnership Began Operations Mr. Julius A. Staniewicz is vice president, senior strategist and research manager, and a member of the JWH Investment Policy Committee. Since joining JWH in March of 1992, Mr. Staniewicz has held positions of increasing responsibility at the firm. These include long-term strategic planning in the areas of trading and investment strategies, and business development. Mr. Staniewicz received a B.A. in Economics from Cornell University. Mr. Edwin B. Twist is a member of the JWH Board of Directors. He is also a principal of JWH Investment Management, Inc. Mr. Twist joined JWH as internal projects manager in 1991 and has been a director since 1993. His responsibilities include assisting with internal projects. The following is a list of additional principals of JWH: Mr. Andrew D. Willard, vice president, information technology; Mr. Ted A. Parkhill, vice president, marketing; and Mr. William S. Dinon, vice president, director of natural sales. The JWH Investment Programs JWH specializes in managing institutional and individual capital in the global futures, swaps, and forwards markets. JWH currently operates 11 investment programs. JWH utilizes the Original Investment Program and the Financial and Metals Portfolio for Spectrum Technical. The Original Investment Program. The Original Investment Program began trading client capital in October 1982 and was the first program offered by JWH. The Original Investment Program seeks to capitalize on long-term trends in a broad spectrum of worldwide financial and non-financial futures markets including interest rates, global stock indices, currencies, metals, energies, and agricultural markets. This program always maintains a position long or short in every market traded. In 1992, a broad research effort was initiated to enhance the risk/reward ratios of the Original Investment Program without changing its trading philosophy. Global markets were added; sector allocations were shifted, with increased weighting given to financial markets; and some contracts were removed from the program. The quantitative model underlying the program was not changed. Beginning in October 1995, the position size in relation to account equity in this program was reduced approximately 25%. Today, the Original Investment Program is one of JWH's largest and historically best-performing programs, manifesting lower volatility since the above changes were implemented in 1992. The Financial and Metals Portfolio. The Financial and Metals Portfolio, which began trading client capital in October 1984, is JWH's second longest running program. The program seeks to identify and capitalize on intermediate-term price movements in four worldwide market sectors: interest rates, currencies, non-U.S. stock indices, and metals. This program takes a position when trends are identified, but may take a neutral stance or liquidate open positions in nontrending markets. Beginning in August 1992, the position size in relation to account equity in this program was reduced approximately 50%. The quantitative model underlying the program was not changed. Since the changes were implemented in 1992, the Financial and Metals Portfolio has experienced lower volatility. As of December 31, 2003, JWH was managing approximately $69 million of client assets pursuant to its Original Investment Program, approximately $357 million of client assets pursuant to its Financial and Metals Portfolio and approximately $2.1 billion in all of its programs. Investment Philosophy and Methodology. Investment Philosophy. The JWH investment philosophy has been based, since the inception of the firm, on the premise that market prices, rather than market fundamentals, are the key aggregator of information necessary to make investment decisions and that market prices, which may at first seem random, are actually related through time in complex, but discernible ways. This philosophy is based on analysis of historical data that revealed that market adjustments sometimes form price trends that can be exploited for profit. JWH believes there is an inherent return opportunity in participating in price movement trends that its systematic and analytic models have identified. JWH trading programs may participate in either rising or falling trends; they do not have a directional bias nor do they try to forecast Spectrum Select March 21, 1991 August 1, 1991 Spectrum Technical April 29, 1994 November 2, 1994 Spectrum Strategic April 29, 1994 November 2, 1994 Spectrum Global Balanced April 29, 1994 November 2, 1994 Spectrum Currency October 20, 1999 July 3, 2000 Each partnership calculates its net asset value per unit independently of the other partnerships. Each partnership's performance depends solely on the performance of its trading advisor(s). Each partnership is continuously offering its units for sale at monthly closings held as of the last day of each month. The purchase price per unit is equal to 100% of the net asset value of a unit as of the date of the monthly closing at which the general partner accepts a subscription. Following is a summary of information relating to the sale of units of each partnership through December 31, 2003: Units Sold or predict market turning points. Once a program has established a position in a market that has been identified as trending, no pre-set price target for profits is established given the highly variable nature of market trends. JWH's understanding of the nature of markets is based on the hypothesis that investors' expectations adjust at different times and manifest themselves in long-term price trends. Markets do not adjust immediately to new information. JWH's investment decision process has been designed to analyze and exploit these trends. JWH maintains that changes in market prices initially react to new or emerging information or events, but the aggregate impact on price may be a lengthy process. While prices may at first represent an over or under reaction to new information, prices eventually will reflect all relevant information. In other words, anything that could possibly affect the market price of a commodity or financial instrument including fundamental, political, or psychological factors eventually will be reflected in the price of that commodity or instrument. The foundation for JWH's analysis is, therefore, a study of market price, rather than market fundamentals or the prediction of trends. JWH believes that the price adjustments process takes time, since reactions of market participants to changing market dynamics initially may be inefficient; that is, investors may not react immediately to information because of differing evaluation processes, differing levels of risk tolerance, or uncertainty. Gradual price adjustments manifest themselves in long-term trends, which themselves can influence the course of events and from which profit opportunities can arise. JWH believes that such market inefficiencies can be exploited through a combination of trend detection and risk management. Trend Detection. JWH's research is based on the belief that prices move in trends that are often highly complex and difficult to identify and that trends often last longer than most market participants foresee. JWH believes there is strong economic and statistical evidence to suggest that trends do exist in most markets although they may be difficult to detect. Yet these trend signals can be found through the use of systematic extraction methods. Since the firm's founding, JWH has consistently employed its analytical methods to identify short-term to long-term trends. Comprehensive research undertaken by the firm's founder, John W. Henry, led to the initial development of disciplined systematic quantitative models. JWH's computer models examine market data for systematic price behavior or price relationships that will characterize a trend. When price trends are identified, the JWH trading system generates buy and sell signals for implementing trades. The strict application of these signals is one of the most important aspects of JWH's investment process. JWH considers that price is the combination of the signal plus "noise," where the signal is the trend information and the "noise" is market volatility. Prices are an aggregate of market information, but "noisy" price signals have to be filtered to discover an underlying price trend. The JWH systems examine market data for relationships among movements in prices, detecting frequencies or repetitive behavior hidden within thousands of pieces of raw price data. JWH's trading models seek to identify signals by separating short-term market noise from relevant information and locating a directional opportunity that has favorable risk characteristics. JWH systems may dictate that positions be closed with a loss in order to provide downside protection, but the systems may also provide discipline to stay in markets that are quiescent for long periods of time in order to achieve possible long-term gain for investors. In either case, JWH investment decisions reflect the JWH trading models' assessment of the market itself, not an emotional response to recent economic or political data. JWH models do not follow singular movements in price, characteristic of short-term volatility. Instead, the models seek to identify changes in systematic price behavior over a long period of time, which will characterize a directional opportunity. JWH trading is conducted with a money management perspective. Risk Management. Given the noisy nature of price data, all market signals may not lead to profitable trades. Hence, significant emphasis is placed on risk management techniques to minimize the losses on any particular trade on the portfolio as a whole. Stop-losses are used and managed in a proprietary manner to balance the potential loss in any trade versus the opportunity for maximum profit. Depending on the model used, risk may be managed through variable position size or risk levels for any market. Additionally, modern portfolio techniques are used to construct the overall portfolio for a given program. Units Available For Sale These techniques will account for the volatility and correlation for markets as well as behavior during specific market extremes. Portfolio adjustments will be made to account for systematic changes in the relationships across markets. Portfolios are managed to meet longer-term risk and volatility tolerances. Potential Capital Preservation. JWH's overall objective is to provide absolute returns. JWH is an absolute return manager, insofar as it does not manage against a natural benchmark. Relative return managers, such as most traditional equity or fixed income managers, are measured on how they perform relative to some pre-determined benchmark. For these managers, this is a natural course of events, as the benchmark is a readily available alternative to the active management provided. JWH has no such investment benchmark, so its aim is to achieve returns in all market conditions, and is thus considered an absolute return manager. In markets with short-term volatility or where no trends exist conditions which can result in flat or negative performance JWH strives to preserve capital. Some of the JWH programs may take a neutral position (exit a market) rather than risk trading capital. While there can be no guarantee against losses, the JWH trading discipline is designed to preserve capital while waiting for opportunities where programs can generate profits over longer periods of time. Risk management on a market basis accounts for volatility and the fact that markets may turn against the prevailing trend. While JWH is looking for longer-term trends, the preservation of capital is paramount. If a predetermined amount of capital is lost, positions will be closed regardless of fundamental market conditions. Disciplined Investment Process. JWH believes that an investment strategy can only be as successful as the discipline of the manager to adhere to its requirements in the face of market adversity. Unlike discretionary traders, whose decisions may be subject to behavioral biases, JWH practices a disciplined investment process. By quantifying the circumstances under which key investment decisions are made, the JWH methodology offers investors a consistent approach to markets, unswayed by judgmental bias. Disciplined Adaptation to Changing Market Conditions. JWH maintains an absolute commitment to consistent portfolio construction and program integrity. JWH has not been persuaded to change the fundamental elements of the portfolios by short-term performance, although adjustments may be made over time. Nor, over the years, has JWH changed the basic methodologies that identify signals in the markets. JWH believes that its long-term track record has benefited substantially from its adherence to its models during and after periods of negative returns. The dynamic elements of the JWH investment process involve periodic adaptation to changing market conditions and subjective discretionary decisions on such matters as portfolio weightings, leverage, position size, effective trade execution, capacity and entry into new markets all of which depend on professional experience and market knowledge. These changes are made as warranted by JWH's research findings and in the context of JWH's underlying principles. Research. Working in a collaborative effort with JWH's traders and the Investment Policy Committee, the firm's Research Department looks to improve the overall performance of investment models through analysis of the dynamic elements of the investment process. Research also refines risk management techniques and monitors capacity. It examines profit opportunities in markets not currently traded by JWH programs, and in new instruments as they become available. Trade Placement. JWH's experienced traders work on a 24-hour rotation schedule, executing trades worldwide in markets that are the most liquid for the specific trade that is being made. Trades are executed by teams, with each member of the team fully responsible for the trade's fulfillment, and are recorded and reviewed for strict adherence to procedures. Once trade signals are received, traders focus on the manner and speed with which the trade will be executed in an effort to minimize market disturbance at the best price. Depending on market conditions, order size and other factors, traders will decide to execute a trade using a particular order type, which may include "market price," "market-at-discretion" or "market limit." Whether entering or exiting the markets, JWH Trading follows specific procedures designed to help minimize the impact of any immediate adverse price developments. JWH trades electronically on behalf of its client accounts. JWH, in its discretion, may also continue to place orders by traditional means, including telephone and telecopy. JWH believes that electronic trading provides a faster method of accessing the variety of markets that it trades than the traditional method of Total Proceeds Received placing trade orders over the telephone. Electronic trading provides for greater order execution risk controls to be incorporated into electronic order placement which should reduce the potential for errors during the order placement process. Electronic trading also increases the overall level of confidentiality for JWH with respect to the marketplace and it will also prevent miscommunication of instructions between JWH and the executing brokers. Trade processing efficiency is another key benefit to electronic trading. Investment Programs. JWH investment programs have different combinations of style, timing, and market characteristics. Investment style differences are primarily based on the number of directional phases that investment programs use for markets long, short or neutral and how position sizes are determined, whether static or dynamic. Timing whether trends are recognized over a short to very long term period is a distinguishing characteristic of JWH investment programs. JWH investment programs can also be distinguished by the markets they trade. While some characteristics may overlap, each investment program has a distinctive combination of style, timing, and markets. This does not mean that one program will have higher returns than another will or that a certain set of characteristics is preferable for one type of market. At times, an investment program may, for certain markets, use a style different from its primary style. Duration of Positions Held. JWH's historical performance demonstrates that, because trends often last longer than most market participants expect, significant returns can be generated from positions held over a long period of time. Therefore, market exposure to profitable positions is not changed based on the time horizon of the trade; positions held for two to four months are not unusual, and positions have been held for more than one year. Losing positions are generally reversed or eliminated relatively quickly, with most closing within a few days or weeks. However, if the JWH system detects a profitable underlying trend, a position trading at a loss may be retained in order to capture the potential benefits of participating in that trend. Throughout the investment process, risk controls designed to reduce the possibility of an extraordinary loss in any one market are maintained. Discretionary Aspects. JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. This could occur, for example, when JWH determines that markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. Subjective aspects in JWH's application of its quantitative models also include the determination of position size in relation to account equity, timing of commencement of trading an account, the investment of assets associated with additions, redemptions, and reallocations, futures contracts used and contract months traded, and effective trade execution. Program Modifications. Proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. While the basic philosophy underlying the firm's investment methodology has remained intact throughout its history, the potential benefits of employing more than one investment methodology, or in varying combinations, is a subject of continual testing, review, and evaluation. Extensive research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a different methodology has indicated that its use might have resulted in improved historical performance. In addition, risk management research and investment program analysis may suggest modifications regarding the relative weighting among various contracts, modifying the style and/or timing used by an investment program to trade a particular contract, the addition or deletion of a contract traded by an investment program, or a change in position size in relation to account equity. However, most investment programs maintain a consistent portfolio composition to allow opportunities in as many major market trends as possible. All cash in a JWH investment program is available for trading, although the amounts committed to margin will vary from time to time. As capital in each JWH investment program increases, additional emphasis and weighting may be placed on certain markets that have historically demonstrated the greatest SSARIS Advisors, LLC 100 100 General Partner Contributions liquidity and profitability. Furthermore, the weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations, and other factors warrant. Spectrum Technical and Spectrum Currency will generally not be informed of such changes. Oversight of Trading Policies. The JWH Investment Policy Committee is a senior-level advisory group, broadly responsible for evaluating and overseeing trading policies. The Investment Policy Committee provides a forum for shared responsibility, meeting periodically to discuss issues relating to implementation of JWH's investment process and its application to markets, including research on new markets and strategies in relation to JWH trading models. Typical issues analyzed by the Investment Policy Committee include liquidity, position size, capacity, performance cycles, and new product and market strategies. The Investment Policy Committee also makes the discretionary decisions concerning investment program selection, asset allocation, and position size in relation to account equity for the Strategic Allocation Program and the Currency Strategic Allocation Program. Composition of the Investment Policy Committee, and participation in its discussions and decisions by non-members, may vary over time. The Chairman participates in all Investment Policy Committee meetings and decisions. The Investment Policy Committee does not make day-to-day trading decisions. Position Size. Adjustments in position size in relation to account equity have been and continue to be an integral part of JWH's investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in the account that is taken in certain markets or entire investment programs. Such adjustments may be made at certain times for some investment programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, current market volatility, risk exposure, subjective judgment, and evaluation of these and other general market conditions. Such decisions to change the size of a position may positively or negatively affect performance and will alter risk exposure for an account. Adjustments in position size relative to account equity may lead to greater profits or losses, more frequent and larger margin calls, and greater brokerage expense. No assurance is or can be given that such adjustments will result in profits for client accounts. JWH reserves the right to alter, at its sole discretion and without notification to Spectrum Technical and Spectrum Currency, its policy regarding adjustments in position size relative to account equity. Addition, Redemption, and Reallocation of Capital for Commodity Pool or Fund Accounts. Investors purchase or redeem units at net asset value on the close of business on the last business day of the month. In order to provide market exposure commensurate with the funds' equity on the date of these transactions, JWH may, in its sole discretion, adjust its investment of assets associated with additions and redemptions as near as possible to the close of business on the last trading date of the month. The intention is to provide for additions, redemptions, and reallocations at a net asset value that will be the same for each of these transactions, and to eliminate possible variations in net asset values that could occur as a result of inter-day price changes if, for example, additions were calculated on the first day of the subsequent month. Therefore, JWH may, at its sole discretion, adjust its investment of the assets associated with the addition, redemption, or reallocation as near as possible to the close of business on the last business day of the month to reflect the amount then available for trading. Based on JWH's determination of liquidity or other market conditions, JWH may decide to commence trading earlier in the day on, or before, the last business day of the month, or at its sole discretion, delay adjustments to trading for an account to a date or time after the close of business on the last day of the month. No assurance is given that JWH will be able to achieve the objectives described above in connection with fund equity level changes. The use of discretion by JWH in the application of this procedure may affect performance positively or negatively. Physical and Cash Commodities. JWH may trade in physical or cash commodities for immediate or deferred delivery, including specifically gold bullion, as well as futures, options, swaps, and forward contracts when it believes that cash markets offer comparable or superior market liquidity or ability to execute transactions at a single Number of Limited Partners price. In addition, the CFTC does not comprehensively regulate cash transactions, which are subject to the risk of counterparty failure, inability, or refusal to perform with respect to such contracts. JWH will not trade physical or cash commodities for the Spectrum Series, other than in connection with exchange of futures for physical transactions, without the general partner's consent. Equity Drawdowns. Historically, only thirty to forty percent of all trades made pursuant to JWH's programs have been profitable. Large profits on a few trades in positions that typically exist for several months have produced favorable results overall. The greatest cumulative percentage decline in daily net asset value that JWH has experienced since inception in any single program on a composite basis was nearly sixty percent. You should understand that similar or greater drawdowns are possible in the future. Legal Concerns. There neither now exists nor has there previously ever been any material administrative, civil, or criminal action against JWH or its principals. Principals of JWH serve on the boards of directors and committees of various organizations, both in and outside of the managed futures industry. In such capacities, these individuals have a fiduciary duty to the other organizations they serve, and they are required to act in the best interests of those organizations, even if those actions were to be adverse to the interests of JWH and its clients. Mr. Henry devotes a substantial portion of his business time to ventures unrelated to JWH and futures trading, and from time to time certain JWH staff members may provide support services for those other business ventures. Those principals and others who supervise and manage JWH staff supporting other business ventures have a conflict of interest in allocating their time, and the time of certain staff members, between their duties to JWH and duties or commitments involving such other business ventures. JWH and Mr. Henry may engage in discretionary trading for their own accounts, as long as such trading does not amount to a breach of fiduciary duty. Such trading will be for the purposes of testing new investment programs and concepts, as well as for proprietary profit. Proprietary trading may involve contract markets that are not traded for client accounts. The reasons for not trading a contract market for clients may include: the contract market does not trade reasonable volume and is not expected to grow such that JWH could trade significant size with appropriate liquidity; the contract markets are liquid but are highly correlated or redundant to existing markets or sectors traded for clients; or the contract markets have excessively high volatility associated with low liquidity and no historical trends. In the course of trading for their own accounts, JWH and Mr. Henry may take positions that are the same or opposite from Spectrum Technical's and Spectrum Currency's positions, due to testing a new quantitative model or investment program, an allocation system, and/or trading pursuant to individual discretionary methods. Trades for the accounts of JWH and Mr. Henry may on occasion receive better fills than Spectrum Technical's and Spectrum Currency's accounts. Records for these accounts will not be made available to you. Employees and principals of JWH (other than Mr. Henry) are not permitted to trade in futures, options on futures, or forward contracts. However, such principals and employees may invest in investment vehicles that trade futures, options on futures, or forward contracts, when an independent trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for which JWH is the trading advisor. Records for these accounts will not be made available to Spectrum Technical or Spectrum Currency. Other Investment Programs Operated by JWH. In addition to the Original Investment Program and the Financial and Metals Portfolio, JWH currently operates 9 other investment programs in four categories for U.S. and non-U.S. investors, none of which are used by JWH for Spectrum Technical. Broadly Diversified programs invest in a broad spectrum of worldwide financial and nonfinancial futures and forward markets including currencies, interest rates, global stock indices, metals, energies, and agricultural commodities. Investment choices include a program that always maintains a position long or short in a market (two-phase investment style), a program that takes a position Net Asset Value Per Unit when trends are identified but may take a neutral stance or liquidate open positions in nontrending markets (three-phase investment style), and a program that uses a combination of the two-phase and three-phase investment styles (five-phase investment style) to invest in both long- and short-term price trends. Financial programs invest in worldwide financial futures and forward markets, including currencies, interest rates, and stock indices, in addition to the metals and energies markets. The range of investment choices includes diversified financial programs, sector-focused programs. Some programs use a two-phase investment style while others use a three-phase investment style. Foreign Exchange programs invest in a wide range of world currencies primarily traded on the interbank market. Investment choices include a program that trades a range of major and minor currencies, a program focused on major currencies only, and a program that trades major currencies against the U.S. dollar. Programs use either the three-phase investment style or a slight variation called three-phase forex which incorporates specialized intra-day volatility filters. Multiple Style programs involve the selection and allocation of assets among the other types of JWH investment programs on a discretionary basis. The Strategic Allocation Program and the Currency Strategic Allocation Program are the only programs offered in this category. The Global Diversified Portfolio. The Global Diversified Portfolio, which began trading client capital in June 1988, seeks to capitalize on intermediate-term price movements in a broad spectrum of worldwide financial and non-financial markets including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses the three-phase investment style. JWH GlobalAnalytics Family of Programs. Introduced in June 1997 as the firm's most broadly diversified investment program, JWH GlobalAnalytics Family of Programs is the result of extensive research and testing by the firm. Unlike other JWH programs, which invest in intermediate- or long-term price movements, JWH GlobalAnalytics invests in both long- and short-term price movements. The program invests in a broad spectrum of worldwide financial and non-financial markets, including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses a five-phase investment style. The Global Financial and Energy Portfolio. The Global Financial and Energy Portfolio, which began trading client capital in June 1994, seeks to identify and capitalize on long-term price movements in five worldwide market sectors: interest rates, global stock indices, currencies, metals, and energies. This program uses the two-phase investment style. Beginning in April 1995, the position size in relation to account equity in this program was reduced approximately 50%. Since the change was implemented, the Global Financial and Energy Portfolio has experienced lower volatility. In 1997, the sector allocation for the program was expanded to include metals. The quantitative model underlying the program was not changed. Effective April 1, 2002, the name of the program was changed to the Global Financial and Energy Portfolio from the Global Financial Portfolio to reflect more accurately its trading. The International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. The Worldwide Bond Program. The Worldwide Bond Program, which began trading client capital in July 1996, seeks to capitalize on intermediate-term trends by investing in the long-term portion of the worldwide interest rate markets. Although the Worldwide Bond Program concentrates in one sector, diversification is achieved by trading the interest rate markets of major industrialized countries. This program uses the three-phase investment style. Due to the limited number of markets traded, the Worldwide Bond Program may be less diversified than other JWH financial programs. Beginning in March 2000, the position size in relation to account equity was increased approximately 25% and was increased an additional 20% in June 2000. These two changes represent an over all position size increase of 50% since March 2000. The quantitative model underlying the program was not changed. The G-7 Currency Portfolio. The G-7 Currency Portfolio, which began trading client capital in February 1991, seeks to identify and capitalize on intermediate-term price movements in the highly liquid $ $ $ Spectrum Select* 28,529,412.378 5,084,554.722 554,768,114 3,150,000 37,216 30.31 Spectrum Technical 38,348,176.678 5,651,823.322 585,879,790 3,931,984 42,471 22.64 Spectrum Strategic 15,977,268.178 9,522,731.822 181,882,529 1,011,000 13,823 14.31 Spectrum Global Balanced 7,050,928.248 9,449,071.752 99,259,599 533,234 7,481 15.47 Spectrum Currency 13,995,530.483 13,004,469.517 182,537,858 3,031,645 19,229 15.66 currencies of major industrialized nations. These currencies allow for trading outrights against the U.S. dollar or non-dollar cross rates. With the advent of the European Union single currency of 11 countries, the currency exposures formerly traded for Germany, France, and Italy are now executed in the euro. This program uses the three-phase forex investment style. Beginning in May 1998 the position size in relation to account equity in this program was increased approximately 50%. The quantitative model underlying the program was not changed. The Dollar Program. The Dollar Program, which began trading client capital in July 1996, seeks to identify and capitalize on intermediate-term price movements in the currency markets, trading major currencies against the U.S. dollar. This program uses the three-phase investment style. Due to the limited number of markets traded in the Dollar Program, the program may be less diversified than other JWH foreign exchange programs. Beginning in July, 2001, the position size in relation to account equity was increased approximately 25%. The Strategic Allocation Program. The Strategic Allocation Program is JWH's largest program. Its objective is capital appreciation with the reduction of the volatility and risk of loss that typically would be associated with an investment in any one JWH investment program. JWH currently operates 10 other investment programs; any and all of them may be included in the Strategic Allocation Program. JWH, through its Investment Policy Committee, allocates assets among different combinations of its investment programs which each have distinctive style, timing, and market characteristics. The allocation of the Strategic Allocation Program's assets among the investment programs, as well as the selection of the programs used for the Strategic Allocation Program, is dynamic, changing at the discretion of the Investment Policy Committee. While JWH's individual investment programs are technical, trend-following programs, the selection of programs as well as the allocation of assets among the programs in the Strategic Allocation Program are entirely discretionary. JWH is under no obligation to include any particular investment program in the Strategic Allocation Program. Generally, the maximum allocation to an individual program will not exceed 25% of an account's assets. The Investment Policy Committee also monitors and adjusts on an ongoing basis the position size in relation to account equity at which the Strategic Allocation Program trades. Factors which may affect the decision to adjust position size include: ongoing program and portfolio research, portfolio volatility, recent market volatility, perceived risk exposure, and subjective evaluation of general market conditions. Position size can range from 50% to 150% of standard trading levels. The Currency Strategic Allocation Program. The Currency Strategic Allocation Program, which began trading client capital in November 2002, accesses JWH's currency programs as well as the models for individual foreign exchange markets within JWH's non-currency programs to trade a broadly diversified portfolio of world currencies. Its objective is capital appreciation with the reduction of the volatility and risk of loss typically associated with investment in one JWH currency only investment program. JWH currently operates three currency only investment programs and trades currencies in six other investment programs; any and all of the programs or trading models may be included in the Currency Strategic Allocation Program. Allocations among programs and the selection of models are made at the discretion of the Investment Policy Committee in a manner generally similar to that applied to the Strategic Allocation Program. However, the timing and methods used for allocations in this program may not correspond to allocation changes in the Strategic Allocation Program. Maximum exposure to any one currency market will be 30%; discretionary adjustments to position size in relation to account equity can range from 50% to 200% of standard trading levels set annually by the Investment Policy Committee. 4. Winton Capital Management Limited Winton Capital Management Limited organized in 1997, and is a United Kingdom company. Winton became registered with the CFTC as a commodity trading advisor in January 1998 and is a member of the National Futures Association. Winton has its principal office at 1a St. Mary Abbot's Place, London W8 6LS, United Kingdom. Principals David Winton Harding is a director and a principal of Winton. Mr. Harding founded Winton in February 1997. Having graduated from Cambridge University with a First Class Honors Degree, he began his career in the financial industry in 1982. Between September 1982 and December 1984, he held various positions as a UK Gilt trader and salesman at two UK stockbrokers: Wood MacKenzie and Johnson Matthey & Wallace. He then joined Sabre Fund Management Ltd., a CFTC-registered CTA located in London, as an assistant technical trader and researcher, and was later promoted to Director of Research. In December 1986, he moved to Brockham Securities Ltd, a privately owned sugar trading and managed futures company, to assist in the development and marketing of the firm's futures fund management services. In February 1987, he left Brockham Securities Ltd and, together with colleagues Michael Adam and Martin Lueck, founded Adam, Harding and Lueck Ltd., a computer-driven, research based CTA. Adam, Harding and Lueck Ltd. became registered with the CFTC in February 1987. By 1989, this firm had grown into the UK's largest CTA, with more than $50 million under management. At that time, the principals sold a 51% stake to E D & F Man Group Ltd., one of the largest distributors of futures funds internationally. Between 1989 and 1993, when assets under management rose from $50 million to $300 million, Mr. Harding headed up Adam, Harding and Lueck Ltd.'s quantitative research team, supervising about 15 full-time research staff, supported by a software team of around a dozen programmers. This team developed a multiplicity of quantitative trading strategies in addition to Adam, Harding and Lueck Ltd.'s successful trend-following trading approach. During this time, he was also involved in the company's international institutional marketing efforts, in particular in Europe, the Middle East, South East Asia, Japan and the U.S. In 1993, Mr. Harding was invited to present a paper to a special symposium of London's prestigious Royal Society, on the subject "Making Money From Mathematical Models." This paper was subsequently incorporated into two books on the subject. In September 1994, E D & F Man Group Ltd. bought out the minority shares owned by Mr. Harding and the original partners, and Adam, Harding and Lueck Ltd. was consolidated into E D & F Man Group Ltd.'s fund management division. Mr. Harding then formed and headed up a new division of E D & F Man Group Ltd., called E D & F Man Group Ltd. Quantitative Research, leading a research team that developed quantitative trading models primarily for use by E D & F Man Group Ltd.'s fund management companies. Mr. Harding left E D & F Man Group Ltd. in August 1996 to begin preparations for the launch of Winton, which he formed in February 1997. Osman Murgian is a founding director and a principal of Winton. Educated in Brighton College in England, Mr. Murgian was also one of the original shareholders and directors of Adam, Harding and Lueck Ltd. Mr. Murgian lives in Nairobi, Kenya, and is the owner of or an investor in a number of international businesses ranging from real estate to transportation. Mr. Murgian has a beneficial interest of more than 10% of Winton's share capital. This interest is held by Festuca Investments Ltd, an Isle of Man investment holding company. Martin John Hunt is a director and a principal of Winton. Mr. Hunt began his career in the UK managed futures industry in October 1983, at which time he was employed as a trainee trader for a trading advisor, Futures Fund Management Ltd. In January 1986, he was appointed manager of the trading operations for Sabre Fund Management, also a trading advisor. In February 1988, he joined Adam, Harding and Lueck Ltd., then a newly established trading advisor, where he was responsible for the company's trading operations. These trading operations were complex, and Mr. Hunt's role was to ensure the efficient execution of the firm's computer-generated futures and interbank orders on over $120 million of assets under management. These orders spanned more than 60 markets, 5 time zones and 15 exchanges worldwide. In August 1991, Mr. Hunt assumed responsibility for marketing and operations at Royston Investments, Ltd, which at the time was a CFTC-registered CTA. In March 1994, he established himself as an independent marketing and compliance consultant to firms in the UK managed futures industry. These consultancy activities continued until February 1997, when he was recruited by David Harding to handle the formation, structuring and subsequent day-to-day running of Winton. At Winton, Mr. Hunt supervises the trading operations, as well as being directly involved in the marketing of Winton's investment management approach worldwide. Mr. Hunt also has responsibility for the firm's regulatory compliance. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Winton or its principals. Winton and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Winton trading programs described below. Although Winton maintains records of these trades, clients of Winton are not entitled to inspect these records except in certain limited circumstances. Description of the Diversified Trading Program Effective January 1, 2004 the general partner allocated 10-15% of Spectrum Technical's assets to Winton's Diversified Trading Program which has been trading since 1997. The Winton Diversified Trading Program uses a statistically-derived systematic model to trade a diversified portfolio of approximately 95 futures contracts. The contracts traded cover a global range and are widely diversified across the financial and commodity sectors. Winton expects the margin requirements for the portion of Spectrum Technical's assets traded pursuant to Winton's Diversified Trading Program to average about 20% of those assets. As of December 31, 2003 Winton Capital Management Limited was managing approximately $321 million pursuant to its Diversified Trading Program and approximately $326 million of client assets in all its programs (notional funds included). Description of Trading Methods and Strategies Winton's investment technique consists of trading a portfolio of around 95 futures contracts on major commodity exchanges and forward markets worldwide, employing a computerized, technical, trend-following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. If rising prices are anticipated, a long position will be established; a short position will be established if prices are expected to fall. The trading methods applied by Winton are proprietary, complex and confidential. As a result, the following discussion is of necessity general in nature and not intended to be exhaustive. Winton plans to continue the testing and reworking of its trading methodology and, therefore, retains the right to revise any methods or strategy, including the technical trading factors used, the markets traded and/or the money management principles applied. A Technical Trend-Following System. Technical analysis refers to analysis based on data intrinsic to a market, such as price and volume. This is to be contrasted with fundamental analysis which relies on factors external to a market, such as supply and demand. The Diversified Trading Program uses no fundamental factors. A trend-following system is one that attempts to take advantage of the observable tendency of the markets to trend, and to tend to make exaggerated movements in both upward and downward directions as a result of such trends. These exaggerated movements are largely explained as a result of the influence of crowd psychology or the herd instinct, amongst market participants. A trend-following system does not anticipate a trend, but seeks to capture it at an appropriate point in time. In fact, trend-following systems are frequently unprofitable for long periods of time in particular markets or market groups, and occasionally they are unprofitable for spells of more than a year, even in large portfolios. However, over a span of years, Winton believes such an approach, applied to a sufficiently diversified portfolio of markets, has proven to be consistently profitable. The Winton trading system works by capturing the probability of the size and direction of future price movements using sophisticated statistical indicators, or oscillators, derived from past price movements which characterize the degree of trending of each market at any time. Winton believes its application of advanced classical statistics to the understanding of market behavior provides it with an edge over other trend following systems. Winton believes this enables its system to suffer smaller losses during the inevitable whipsaw periods of market behavior and thus take better advantage of the significant trends when they occur, by focusing more resources on them. The system is developed using historical market prices in each contract ("in sample data"), and then tested on an independent period of market data ("out of sample data") to ensure that the observations have robust predictive power. This procedure seeks to avoid the risk of over optimising, which occurs when a system is allowed to fit itself to a historically-specific set of market conditions. A Non Discretionary System. Trade selection is not subject to intervention by Winton's principals or traders and therefore is not subject to the influences of individual judgement. As a systemic trading system, the Winton model utilizes expert knowledge to analyze market data and direct trades, thus eliminating the risk of basing a trading program on one indispensable person. Equally important is the fact that non-discretionary systems can be tested in simulation for long periods of time and the model's empirical characteristics can be measured. The system's output is rigorously adhered to in trading the portfolio and intentionally no importance is given to any external or fundamental factors. While it may be seen as unwise to ignore information of obvious value, such as that pertaining to political or economic developments, Winton believes the disadvantage of this approach is far outweighed by the advantage of the discipline that rigorous adherence to such a system instills. Significant profits are often made by the Winton system, by holding on to positions for much longer than conventional wisdom would dictate. An individual taking trading decisions, and paying attention to day-to-day events, could easily be deflected from the chance of fully capitalizing on such trends, when not adhering to such a system. Markets Traded. The Winton system trades in all the easily accessible and liquid U.S. and non-U.S. futures and forward contracts that it practically can. Forward markets include major currencies and precious and base metals, the latter two categories being traded on the London Metal Exchange. Winton is constantly looking for new opportunities to add additional markets to the portfolio, thus further increasing the portfolio's diversification. Diversification of Markets. Taking positions in a variety of unrelated markets has been shown, over time, to decrease system volatility. By employing a sophisticated and systematic schema for placing orders in a wide array of markets, Winton believes it can be demonstrated that there is a high expectation of an overall profit being realized after a sufficient period of time. The trading strategy and account management principles described here are factors upon which Winton will base its trading decisions. Such principles may be revised from time to time by Winton as it deems advisable or necessary. Accordingly, no assurance is given that all of these factors will be considered with respect to every trade or recommendation made or that consideration of any of these factors in a particular situation will lessen risk of loss or increase the potential for profits. Execution of Orders and Order Allocation Winton will select the type of order to be used in executing trades and may use any type of order permitted by the exchange on which the order is placed. Winton may place individual orders for each account or a block order for all accounts in which the same commodity interest is being cleared through the same futures commission merchant. In the latter instance, Winton employs an objective price allocation procedure in which all accounts are listed by account number and then trades are assigned, with the highest number on the list receiving the highest buy and the highest sell and the lowest number on the list receiving the lowest buy and the lowest sell. On occasion, it may direct the futures commission merchant for the accounts to employ the neutral allocation system generally used by the futures commission merchant to assign trades or it may use an average price system in which each client in the block order will receive the average price which is computed by multiplying the price by the quantity executed at each price divided by the total quantity executed. Partial fills will be allocated in proportion to account size. Past Performance of Winton Set forth below in Capsule A is the past performance history of Winton's Diversified Trading Program. The footnotes following Capsule A are an integral part of the Capsule. You are cautioned that the information set forth in the following Capsule performance summary is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by Winton or Spectrum Technical in the future, since past results are not a guarantee of future results. There can be no assurance that Winton or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. CAPSULE A Winton Capital Management Limited Winton Diversified Trading Program Name of commodity trading advisor: Winton Capital Management Limited Name of program: Winton Diversified Trading Program Inception of trading by commodity trading advisor: October 1997 Inception of trading in program: October 1997 Number of open accounts: 33 Aggregate assets overall: 257.8 million Aggregate assets in program: 252.3 million Worst monthly drawdown (12.97)% - (October 1997) Worst peak-to-valley drawdown: (31.09)% - (November 2001-May 2002) 2003 annual return: 25.52% 2002 annual return: 12.86% 2001 annual return: 5.56% 2000 annual return: 9.72% 1999 annual return: 13.24% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance Records A summary of performance information for each partnership from its commencement of operations through December 31, 2003 is set forth in Capsules I through V below. All performance information has been calculated on an accrual basis in accordance with accounting principles generally accepted in the United States of America and is "net" of all fees and charges. You should read the footnotes on page , which are an integral part of the following capsules. You are cautioned that the information set forth in each capsule is not indicative of, and has no bearing on, any trading results that may be attained by any partnership in the future. Past performance is not necessarily indicative of future results. We cannot assure you that a partnership will be profitable or will avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a partnership's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. Capsule I Performance of Spectrum Select Type of pool: publicly-offered fund Inception of trading: August 1991 Aggregate subscriptions: $557,918,114 Current capitalization: $441,522,484 Current net asset value per unit: $30.31 Worst monthly % drawdown past five years: (13.12)% (November 2001) Worst monthly % drawdown since inception: (13.72)% (January 1992) Worst month-end peak-to-valley drawdown past five years: (23.63)% (22 months, October 1998-July 2000) Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months, June 1995-August 1996) Cumulative return since inception: 203.10% Monthly Performance Footnotes to Winton's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Winton began trading client accounts. "Inception of trading in program" is the date on which Winton began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Winton pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Winton as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated based on the "Fully-Funded Subset" method as prescribed by the CFTC. The rate of return is calculated by dividing the sum of net performance of the qualifying Fully-Funded Subset by the beginning net assets of the qualifying Fully-Funded Subset, except in periods of significant additions or withdrawals to the accounts in the qualifying Fully-Funded Subset. In such instances, the Fully-Funded Subset is adjusted to exclude accounts with significant additions or withdrawals that would materially distort the rate of return pursuant to the Fully-Funded Subset method. Returns are then compounded to arrive at the year-to-date rate of return. Morgan Stanley Spectrum Strategic L.P. 1. Allied Irish Capital Management, Ltd. Allied Irish is an Irish corporation registered with the CFTC as a commodity trading advisor since January 1994 and is a member of the National Futures Association in that capacity. Allied Irish's business office is located at 85 Pembroke Road, Ballsbridge, Dublin 4. Allied Irish's ultimate parent company is Allied Irish Banks plc, Ireland's largest banking and financial services group. Allied Irish has been authorized by the Irish Financial Services Regulatory Authority (formerly known as Central Bank of Ireland) under the Investment Intermediaries Act, 1995. As a commodity trading advisor, Allied Irish specializes in trading interest rate, currency, and equity index futures contracts, as well as foreign exchange on the interbank cash market. The primary focus of Allied Irish's futures trading is on the U.S. and European, futures exchanges with some participation in other markets. Foreign exchange trading covers the major currencies. Allied Irish began trading for Spectrum Strategic in May 1999. Month Principals Gerry Grimes is Managing Director of Allied Irish, an associated person of Allied Irish and a member of the Institute of Bankers. He became registered as an associated person of Allied Irish in January 1994. For 10 years up to March 1988, Mr. Grimes was employed by the Central Bank of Ireland in the following investment management positions: Chief Dealer, Money Market Division; Chief Dealer, Management of Official External Reserves; and Chief Forex Dealer. He represented Ireland on sub-committees of the European Central Bank Governors Committee in Basle. He has experience in liquidity and interest rate management, investment of external reserves ($5 billion) and their currency allocation and the management of the Irish pound in the European Exchange Rate Mechanism. Mr. Grimes joined Gandon Securities as a trader in March 1988 where he traded a range of interest rate contracts, and was appointed a Director in October 1990. He was an associated person with Gandon Fund Management from July 1991 to September 1993. From mid 1991, he was responsible for the development of Gandon Fund Management's activities including the marketing and development of managed futures programs. He left Gandon Securities and Gandon Fund Management in September 1993 and joined Allied Irish that month. Mr. Grimes was a founding member of Allied Irish and is responsible for the overall management, development, and control of Allied Irish's activities. Between January and September 2002, Mr. Grimes was also responsible for trading a portion of the Worldwide Financial Futures Program. Ian Kelly became Company Secretary of Allied Irish in August 1997. He is a member of the Institute of Chartered Accountants of Ireland. He is Chief Operating Officer of Allied Irish and is responsible for financial control, compliance, and the back-office and I.T. operations of the company. He joined Allied Irish in August 1997. Prior to joining Allied Irish, he worked from July 1994 to August 1997 in AIB Capital Markets Plc., an investment bank, and before that he worked with Coopers & Lybrand, an accountancy firm, from 1987 to June 1994. John O'Donnell became a non-executive Director of Allied Irish in March 2001. He is Head of Investment Banking in the Capital Markets Division of the AIB Group, a position he was appointed to in March 2001. Prior to this appointment he was Managing Director of AIB International Financial Services Limited, a subsidiary of the AIB Group, from January 1994 to December 1996 and was Managing Director of AIB Corporate Finance Limited, another subsidiary of the AIB Group, from December 1996 to March 2001. Mr. O'Donnell is a Fellow of both the Chartered Institute of Management Accountants and the Chartered Association of Certified Accountants. John Parsons became a Director of Allied Irish in January 1995. He graduated from Queen's University, Belfast with a B.Sc. in Computer Science and Statistics in 1986, and went on to obtain a Master of Business Administration degree from Cardiff University, in 1987. Before joining Allied Irish, Mr. Parsons worked for SBC Warburg in London as a proprietary trader in the Fixed Interest & Treasury Division. Prior to that, he worked with the Bank of Ireland Group from January 1989 to March 1993, initially as a Portfolio Manager with the Bank's fund management group and ultimately as Head of European Government Bonds with the Bank's Treasury operation. Mr. Parsons trades a portion of the Worldwide Financial Futures Program and he is the sole trader of the Equity Program offered by Allied Irish. David Thompson became a Director of Allied Irish in September 2002. He has a Certificate in Actuarial Practices and a Certificate in Investment Management from the Institute of Actuaries in London. Prior to joining Allied Irish, Mr. Thompson worked for Bank of Ireland Group as Head of Proprietary Trading (non-customer flow) between January 2001 and August 2002. Before that he was Head of their Euro Fixed Interest Trading Desk between June 1998 and January 2001 and prior to that worked as a proprietary trader on their fixed interest trading desk in Dublin (July 1995 to June 1998) and as a bond trader in their London office (March 1994 to July 1995). From 1987 to 1994 he worked for Eagle Star Insurance, initially as an actuarial programmer and ultimately as a foreign exchange and bond trader. Mr. Thompson trades a portion of the Worldwide Financial Futures Program. Mr. Treble became a non-executive director of Allied Irish in October 2003 and currently has a pending registration as principal with the NFA. He is Managing Director of AIB Global Treasury, a position he has held since February 2002. Prior to this appointment, he was Managing Director of AIB Treasury and International, from February 2001 to February 2002, and he held the position of General Manager, AIB Capital Markets Britain (Treasury & Corporate Banking) from August 1997 to February 2001. He has worked in AIB since 1982 and has an MBA in Financial Services. Allied Irish and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. Allied Irish's Trading Strategies Allied Irish offers three trading programs, but will only trade the Worldwide Financial Futures Program for Spectrum Strategic. Trading for Spectrum Strategic will be at four times the leverage Allied Irish normally applies for the Worldwide Financial Futures Program. The two other trading programs offered by Allied Irish are the Foreign Exchange Program and the Equity Index Program. Worldwide Financial Futures Program The Worldwide Financial Futures Program is designed to provide returns using a multi-trader trading approach on a broad range of financial instruments. The capital is sub-allocated to a range of trading styles, including a portion traded by two individual traders, Mr. Parsons and Mr. Thompson. The allocation of capital to the individual traders and to the trading styles may be altered at the discretion of Allied Irish. A portion is traded using a systematic approach. Diversification is enhanced because no overall house view is imposed on the traders in the program, and this independence of operation is viewed as a key strength. There are the three elements to the current trading approvals. Mr. Thompson's trading style is based on an understanding of the medium to longer term economic, political and demographic trends in the world. An analysis of value is conducted for all major asset classes and fitted to this fundamental framework to determine the likely direction and magnitude of trends in the major financial markets. The timing and size of trades is determined through a combination of technical analysis and assessment of market psychology and positioning. The aim of Mr. Thompson's approach is to enter trends early, building up the size of the position as the trade becomes profitable. Exit of the trades occurs when market sentiment in favour of the trade reaches an extreme, but price movements cease to justify the euphoria. Profitable trades can be run for months at a time, but may be held for shorter periods, depending on the strength of the trends involved. Mr. Parsons' approach to trading markets is based on a fundamental analysis of economic, fiscal, and monetary developments in the world's major economies. Having compiled a set of expectations for the major interest rate, equity, and foreign exchange markets, Mr. Parsons then looks for significant levels of divergence relative to the market's expectations as a signal to enter a particular position. He uses technical analysis to help identify trends and trend changes as well as to seek to improve entry and exit levels. A portion of the Worldwide Financial Futures Program is traded using a technical trading system. The system has been developed to be consistent with Allied Irish's investment approach to financial markets. The system differs from most trend following trading systems in that a profit objective is built into the trade from inception. The system utilizes a break-out oriented approach that attempts to initiate trading at low risk entry points where the market has a higher probability than average of participating in a medium-to long-term trend. The futures contracts currently traded in the Worldwide Financial Futures Program include U.S., European, and Asian interest rate, currency, and stock index contracts. For most contracts, options may also be used from time to time. Options may be either bought or sold in this program. It should be noted that in relation to currency futures on both the Chicago Mercantile Exchange and the financial derivatives division of the New York Cotton Exchange, Allied Irish may convert spot transactions to futures contracts using the exchange for physicals mechanism. As of December 31, 2003, Allied Irish was managing approximately $336 million (notional funds included) of client assets pursuant to the Worldwide Financial Futures Program and approximately $637 million of client assets in all of its programs (notional funds included). Foreign Exchange Program The Foreign Exchange Program specializes in trading the inter-bank foreign exchange market. A fundamental assessment of market information is the main factor underlying the trading approach. To this end an assessment of the fundamental economic policy forces at work in different countries is first made. This is related to socio-political factors in play. A judgment is then made on how much of the economic and political influences are priced in following a review of international capital flows. In this regard consultation is made with a network of experts in the world's currency markets. Finally the price levels are examined in detail to determine appropriate trade parameters. Equity Index Program The program's objective is designed to minimize correlations with major global equity returns. The underlying investment approach is broadly similar to that taken in Allied Irish's other two programs in that the main inputs are an analysis of macroeconomic and global political trends. This program is traded by John Parsons and trades the major stock index futures. Risk Management The management of risk positions takes place at two levels within the programs at the overall program level by the trading controller and at the position taking level where each trader uses his individual money management skills. Given that the programs involve a multi-trader approach, a program controller role is adopted. Mr. Grimes is the trading controller for all three programs. This role involves the following: assessing the performance and risk of the programs from an overall level as distinct from a trader level; monitoring the traders' adherence to the risk parameters for each program as set out below; ensuring that the programs' overall objectives and those of individual traders are compatible; controlling the operations of the order desk and ensuring the positions are agreed between traders, order desk, back office, and counterparty. Mr. Grimes is also responsible for liaising with clients and conveying their views, wishes, and concerns to the trading team. To control the levels of exposure a daily end-of-day position report including contract open positions, margin utilized by contract, and margin utilized by trader is produced for the Worldwide Financial Futures and Equity Index Programs. The report for the Foreign Exchange Program looks at positions in equivalent U.S. dollar amount versus underlying U.S. dollar equity invested. For the Worldwide Financial Futures and Equity Index Programs, margin to equity is used to control position size while in the Foreign Exchange Program a gearing of equity is used to limit position size. Given the nature of the programs offered and the experience of the trading team, a limit of 6% margin to equity (including notional funds) is normally applied for the Worldwide Financial Futures and Equity Index Programs and a gearing of 3 times equity (including notional funds) for the Foreign Exchange Program. 2. Blenheim Capital Management, L.L.C. Blenheim Capital Management, L.L.C. is a Delaware limited liability company which was formed to provide commodity trading advisory services to clients. Through a corporate reorganization in July 2001, Blenheim was merged with Blenheim Investments, Inc., a New Jersey corporation. The ownership and capitalization of Blenheim are materially the same as those which existed in Blenheim Investments, Inc. Additionally, Blenheim succeeds to all the assets and obligations of its predecessor. Blenheim is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator, effective March 2, 1989, and is a member of the National Futures Association. Blenheim's address and telephone number are: Post Office Box 7242, Two Worlds Fair Drive, Somerset, New Jersey 08875-7242; (732) 302-0238. Principals Mr. Willem Kooyker is the Managing Member, Chairman and majority owner of Blenheim. He is registered with the CFTC as an associated person of Blenheim and a member of the National Futures Association in that capacity. He is a former member of the Board of Directors of the NY Coffee, Sugar and Cocoa Exchange, a former president of the NY Cocoa Clearing Association, and a former member of the NY Mercantile Exchange. He received a BA cum laude in Economics from Baruch College in New York and an MBA in International Finance and Economics from New York University. Mr. Kooyker began his trading career in the international commodities business in 1964 with Internatio-Muller in Rotterdam, The Netherlands, where eventually he became managing director of the International Trading Group. He stayed in this position until 1981, when he joined Commodities Corporation, Princeton, New Jersey, where he became President. At the time, Commodities Corporation was an active fund management company, operating predominantly in the futures markets. In October 1984, Mr. Kooyker started a new company, Tricon Holding Company, Ltd., a joint venture between Commodities Corporation and a group of Middle Eastern investors, which was a trading and consulting company in the futures as well as the physicals markets predominantly directed towards energy and industrial commodities. Tricon currently remains only active in the forest products industry, where it operates two sawmills in the western states of the United States. In January 1989, Mr. Kooyker started Blenheim, an independent fund management company and an advisor to several investment funds. Concurrent, but separate from Blenheim, Mr. Kooyker is the largest beneficial owner, but not an officer, of Derivatives Portfolio Management, L.L.C., a Delaware limited liability company formed in 1993 to provide administrative, risk management, and consulting services to institutions, commodity pool operators, and individual fund managers engaged in the financial instruments, securities, and futures markets as well as the cash trading business. DPM is registered with the CFTC as a commodity pool operator, effective January 26, 1994, and is a member of the National Futures Association in that capacity. DPM has a wholly-owned subsidiary named DPM Brokerage, LLC, a Delaware limited liability company formed in 1999 to provide introduction and execution services to individual clients and private investors. DPM Brokerage is registered with the CFTC as an introducing broker, effective August 16, 1999 and is a member of the National Futures Association in that capacity. In 1996, Mr. Kooyker became a 50% shareholder in The Thornton Group, L.L.C., a consulting company to entrepreneurial startup enterprises. Mr. Kooyker is registered with the CFTC as a principal and an associated person of Blenheim. He is also registered as a principal of DPM and DPM Brokerage. Thomas M. Kopczynski is a Vice President of Blenheim. He is registered with the CFTC as a principal and an associated person and is a member of the NFA in that capacity. Mr. Kopczynski has been with Blenheim for ten years. He is an integral part of Blenheim's trading staff. His broad knowledge of the market sectors in which Blenheim trades, retained by extensive analysis and consultation with key industry contacts, facilitates continuous investment opportunities and diversification. Mr. Kopczynski holds a B.S. in Economics with a concentration in Statistics from the Wharton School of the University of Pennsylvania. Guy J. Castranova, is the Secretary of Blenheim and has held this position since its inception. He is the President and Chief Operating Officer of DPM and DPM Brokerage, as well as a Vice President and Controller of Tricon. Mr. Castranova has been with Tricon since October 1986 and is responsible for the risk management of all physicals trading as well as the administration of all general and consolidation accounting. Prior to joining Tricon, Mr. Castranova was an accountant with two energy firms. In 1980 Mr. Castranova graduated from Saint Joseph's University with a BS degree in Accounting. He is registered as an associated person and principal of Blenheim, DPM, and DPM Brokerage, and is a member of the National Futures Association in those capacities. Blenheim and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. If either Blenheim or its principals engage in such trading, you will not be able to inspect such records. Such trades may or may not be in accordance with the Blenheim trading program described below. As of December 31, 2003, Blenheim was managing approximately $68.1 million of client assets pursuant to its trading program. The Blenheim Global Markets Strategy The Global Markets Strategy designed and developed by the management team of Blenheim. The objective of the Global Markets Strategy is to capture substantial profits through the establishment of risk-controlled, strategic investment positions in markets where Blenheim has identified an unsustainable level of market disequilibrium that has not been reflected in the current market price. The essence of Blenheim's trading approach is its ability to use discretion in formulating the most effective mix of trading methodologies, investment vehicles, and markets to maintain performance objectives. As trading opportunities are identified, Blenheim analyzes potential trading applications in order to achieve maximum capital appreciation with prudent risk management procedures. Markets Traded Blenheim's portfolio is highly diversified and draws upon a potential of 35 markets, depending on the opportunities presented at any given time. The major markets traded by Blenheim include energy, industrials, precious metals, softs, grains, global fixed income, currencies and stock indices. Blenheim concentrates in those markets that, in its judgment and discretion, have a high degree of liquidity and a wide spectrum of historical price movement relative to other markets. Instruments Utilized Positions established are typically in derivative instruments such as futures options and OTC transactions. Blenheim may, however, trade to a limited extent in illiquid instruments for which market quotations are not readily available. In addition, Blenheim may trade in securities that are related to the financial and commodities markets currently traded by the fund. However, Blenheim will not be trading securities for Spectrum Strategic. Blenheim's Trading Style Blenheim uses a global macro approach to investing, which utilizes fundamental, geopolitical and technical research and analysis in its evaluation of the markets. Fundamental analysis attempts to examine factors external to the trading market which affect the supply and demand for a particular investment instrument in order to predict future prices. The geopolitial considerations include governmental interference and potential political conflicts which may alter the normal flow of capital and goods. Technical factors assume that market price patterns and price momentum, rather than external influences, indicate the supply and demand factors which are indicative of future price movements. Blenheim considers technical factors such as an instrument's recent price history, current prices of such instrument relative to price of other markets and their historical price relationships. Blenheim studies price charts to assess changes in market sentiment and examines volume and open interest to evaluate market liquidity. The Blenheim traders regularly monitor worldwide economic and political trends in order to identify and evaluate possible market and price imbalances. Operating within a global framework, long-term macroeconomic indicators are assessed on a multinational, country-by-country and market specific basis. Factors such as fiscal/monetary policies and cross-border capital flows are evaluated for their potential impact on the equity, fixed income, currency and commodity markets. Additionally, Blenheim's trading group utilizes econometric signals, as well as numerous other market sentiment indicators, to take advantage of short-term trading opportunities. Portfolio Management and Diversification Various techniques are employed in managing the portfolio and position volatility. In its discretionary trading, Blenheim generally initiates medium-sized positions at a market entry level. This initial position, generally considered the core strategic position, is typically initiated upon Blenheim's determination of an unsustainable level of market disequilibrium that has not been reflected in the current market price. Once market action begins to conform to Blenheim's initial assessment of price behavior, Blenheim will add to the original strategic position. In addition to managing the individual positions, Blenheim will also evaluate the positions within the context of an account's portfolio. Separate strategic positions are evaluated for direct and indirect correlation characteristics in order to further anticipate and manage portfolio volatility. Despite these precautions, Blenheim's trading program may be volatile at times. Diversification in an account's portfolio is a major consideration in its trading approach. While many of its trades are made on a short-term basis, Blenheim's basic strategy is to attempt to participate in long-term, major price movements. Evolution of the Trading Approach The trading strategy of Blenheim has evolved and will continue to do so based on ongoing research, testing of data and trading experience. Prior to 1991, Blenheim traded almost exclusively in commodity markets, with a particular emphasis on energy products. Since then, Blenheim has become active in the global fixed-income, stock indices and currency markets as well. In the past, Blenheim had included non-discretionary systematic computerized analysis in its trading practices. This strategy was driven by a series of trading systems that produced a result that was an amalgam of numerous systemic processes. It was then traded in conjunction with the discretionary approach. Under separate funds, Blenheim also managed a purely financial strategy and a long-only commodity trading strategy incorporating physical commodities. In this regard, Blenheim reserves the right to modify its trading approach to include any one or combination of trading methodologies it finds beneficial to its overall goals. These processes may include discretionary, systematic, or arbitage trading. Blenheim may use derivative instruments including futures, options, and forwards to reach its performance objectives. On rare occasions, Blenheim may withdraw from all markets. Blenheim's diversified portfolio is actively traded on domestic and foreign markets. In the early 1990s, approximately thirty-five percent (35%) to forty-five percent (45%) of equity, including notional funds, was generally committed to margin on commodities positions. Recently the percentage has been between twenty-five percent (25%) and thirty-five percent (35%). In the future the percentage committed may, from time to time, be substantially higher or lower. Variances in Leverage If particular opportunities present themselves based upon fundamental factors, Blenheim may increase the number of positions held. This will result in more capital needed to provide risk margin. Accordingly, within the overall parameters of Blenheim's money management rules, Blenheim employs no hard and fast formula as to the levels of capital committed to discretionary trading or any other trading strategy at any given time. The level of risk margin relative to equity committed to trading positions is expected to vary from period to period. The Blenheim traders will constantly monitor leverage in an effort to try to maximize its positive effects while trying to avoid overexposure to its potential negative characteristics. While there is no guaranty that this approach will be successful, Blenheim has used a consistent risk monitoring system for a number of years, one of the key components thereof involves monitoring the levels of risk margin to equity. Blenheim may leverage the account of Spectrum Strategic differently than the standard account using the Global Market Strategy, but will not leverage the account at more than 50% above the leverage of a standard account. 3. Eclipse Capital Management, Inc. Eclipse is a Delaware corporation organized in July 1983. Eclipse's main business address is 7700 Bonhomme, Suite 500, St. Louis, Missouri 63105. Eclipse has been registered with the CFTC as a commodity trading advisor since August 1986 and is a member of the National Futures Association in such capacity. Eclipse began trading for Spectrum Strategic in June 2000. Principals Thomas W. Moller, the sole shareholder of Eclipse, has served as its President, CEO, and sole director since founding the firm. Mr. Moller received an undergraduate degree in Business and Economics from Vanderbilt University and a graduate degree in Accounting from the University of Kentucky. He was a Certified Public Accountant and has a background in financial planning and investment management. In 1980, as chief financial officer of a privately held company, he designed and implemented one of the first variable rate loan hedge programs using interest rate futures contracts. In 1982, he formed Interest Rate Management, Inc., another commodity trading advisor which provided interest-rate-hedging advisory and management services. Since 1986, Mr. Moller has devoted his time exclusively to Eclipse and is primarily involved in the areas of trading, research, and product development. James R. Klingler, JD is Senior Vice President, Corporate Secretary, and General Counsel. Mr. Klingler has a BA in Economics from Vanderbilt University and a JD from Vanderbilt University School of Law. He previously worked as an associate with the St. Louis law firm of Thompson Coburn (formerly Coburn & Croft) and as a staff attorney with Mercantile Bancorporation, also in St. Louis. From January 1991 to December 1997, he was Compliance Counsel and, subsequently, Associate Vice President with A.G. Edwards & Sons, Inc. Mr. Klingler joined Eclipse in January 1998. Ronald R. Breitigam is Vice President Trading with primary responsibility for the implementation of the firm's trading strategies. After graduating from Pacific Union College in 1982, Mr. Breitigam became an independent floor trader at the Mid-America Commodity Exchange. He served as an institutional broker with Thomson McKinnon (1984-1985) and PaineWebber (1986) and, in 1986, formed his own trading company to work full time implementing various proprietary futures and options trading strategies. Mr. Breitigam joined Eclipse in May 1989. James W. Dille, PhD is Vice President Research and Technology with responsibility for computer-based research, development, and operations. Dr. Dille has undergraduate and graduate engineering degrees from the University of Virginia. He also received a master's and doctorate from Harvard University in Applied Sciences, specializing in the areas of Decision and Control Theory and Computer Science. From 1987 through 1993, he worked for the Boeing Company (formerly, McDonnell Douglas) in the Training Systems and Flight Simulation divisions, where he was responsible for research in the areas of computer architectures and networking. He is an affiliate professor at Washington University in St. Louis, teaching courses in numerical analysis and the simulation and analysis of complex systems. Dr. Dille joined Eclipse in January 1994. At this time, neither Eclipse nor its principals trade for their own account, but each reserves the right to do so in the future. If either Eclipse or its principals engage in such trading, you will not be able to inspect such records. Trading Programs Eclipse currently offers one trading program, the Global Monetary Program. The program is designed primarily for institutions, commodity pools, and certain other qualified investors. The Global Monetary Program employs a systematic trading approach, using multiple trend-following and macroeconomically driven models. Global Monetary Program: This "financial, metals and energy" program requires a minimum investment of $5 million and trades a global portfolio of futures and options on futures on interest rate instruments, currencies, stock indices, precious and base metals, and energy products, as well as interbank spot and forward currency markets. A key characteristic of this program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. As of December 31, 2003, Eclipse was managing approximately $379 million of client assets pursuant to its trading program (notional funds included). Trading Approach The trading program of Eclipse is systematic and its strategies are either macroeconomic or trend-following in nature, with the objective of capitalizing on intermediate- and long-term price trends. Eclipse makes all trading decisions pursuant to its proprietary trading, capital allocation, and risk management models. The Eclipse program makes use of multiple models to accentuate overall diversification. Macro-driven models generate trading signals through the quantitative analysis of environmental, macroeconomic, and intermarket data. Trend identification models use various technical and statistical analysis techniques to identify and evaluate price trends. Capital allocation models determine the percentage of trading capital allocated to various markets and trading models. Eclipse's risk management models were developed with the objective of limiting losses, capturing profits, and conserving capital in choppy, sideways markets. The risk management principles which Eclipse employs include: using stop orders to exit trades when markets are moving against an established position (although, depending on market circumstances, such "stop-loss" orders may be difficult or impossible to execute); diversifying positions among several different markets, futures, and/or futures groups to limit exposure in any one area; using multiple entry and exit points; limiting the assets committed as margin, generally within a range of 5% to 20% of assets managed, at minimum exchange margin requirements, but possibly above or below that range at certain times; and prohibiting the use of unrealized profits in a particular futures contract as margin for additional contracts in the same or a related futures contract. Decisions whether to trade a particular futures contract are based upon various factors, including liquidity, significance in terms of desired degrees of concentration, diversification, and profit potential, both historical and at a given time. These decisions are based upon output generated by a proprietary risk management program, but require the exercise of judgment by principals of Eclipse. The decision not to trade specific contracts for certain periods or to reduce the number of contracts traded may result at times in missing significant profit opportunities which otherwise would be captured by technical strategies. The specific contracts traded in each portfolio have been selected based on liquidity, historical volatility, and the degree of past directional movement. The actual number of contracts held at any particular point in time depends on a number of factors, including evaluation of market volatility and potential risk versus return. There are occasions when a trading model may indicate that no position is appropriate in a particular contract or contract group. In addition to technical trading in futures contracts, Eclipse may also employ trading techniques such as spreads and straddles and may buy or sell futures options. Eclipse may alter its trading programs, including, without limitation, its trading strategies, commodity interests, and markets traded and trading principles if Eclipse determines that such change is in the best interest of the accounts which it manages. Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC SSARIS, a Delaware Limited Liability Company, was organized in May 2001. SSARIS's address is Financial Centre, 695 East Main Street, Suite 102, Stamford, Connecticut 06901. SSARIS has been registered as a commodity trading advisor since August 2001 and as a commodity pool operator since August 2001, and is a member of the National Futures Association in such capacities. SSARIS is a joint venture between State Street Global Alliance LLC, a limited liability company which is majority owned by State Street Global Advisors, Inc., and RTH Partners LLC, a limited liability company owned by the principals of The RXR Group, Inc. State Street Global Advisors, Inc. is a wholly-owned subsidiary of State Street Corporation. SSARIS is affiliated with State Street Global Advisors, the investment management division of State Street Bank and Trust Company, a wholly owned subsidiary of State Street Corporation. Principals Mr. Mark Rosenberg has served as the Chairman, a Director and the Chief Investment Officer of SSARIS since its formation in May 2001 and, as such, is the head of SSARIS's Investment Committee. Mr. Rosenberg is also the Chairman of SSARIS Management LLC. Mr. Rosenberg was the Chairman and Chief Investment Officer of RXR. Mr. Rosenberg has over thirty (30) years experience in the investment management industry. From August 1984 to July 1986, Mr. Rosenberg was employed by Prudential-Bache Securities, Inc., where he headed a group that specialized in institutional hedging and managed futures trading services. From December 1976 to July 1984, Mr. Rosenberg was employed by Merrill Lynch & Co. where he organized a group that was responsible for managing hedging and alternative investment strategies for Merrill's institutional clients. This entity became the Financial Futures and Options Group. Mr. Rosenberg's first job was on the floor of the New York Stock Exchange and subsequently the New York Mercantile Exchange, where he managed proprietary capital using a variety of quantitative techniques for Weis, Voisen & Cannon, a private investment boutique. Mr. Rosenberg is a fourth term Director of the Board of the Futures Industry Association, and arbiter for the NFA and is a member of the Financial Advisory Boards of both the Chicago Mercantile Exchange and the COMEX Division of NYMEX. Mr. Rosenberg is also a Director of the Foundation of Finance and Banking Research. Mr. Rosenberg also is involved in several community activities. He has donated time to Domus House, a refuge for abandoned children, and various entrepreneurial projects targeting low-income families. Mr. Peter A. Hinrichs has served as the Chief Financial Officer of SSARIS since its formation in May 2001 and is a member of SSARIS's Investment Committee. Mr. Hinrichs also is Chief Financial Officer of SSARIS Management LLC. Mr. Hinrichs was with RXR since its founding in 1983, where he was responsible for RXR's financial, administrative and operational functions. Mr. Hinrichs also was a member of RXR's Investment Committee. From September 1981 to July 1984, Mr. Hinrichs was employed by Merrill Lynch Futures Inc. in trading and administration and held a similar position at Prudential from July 1984 to August 1986. Mr. Hinrichs graduated from Curry College in 1981 with a Bachelor of Science degree in Business Management. He is active in his community as a Board member of Fountain House Inc., a non-profit rehabilitation center for the mentally ill, where he serves as an Investment Committee member. He also is active with a number of other charitable organizations. Mr. James F. Tomeo has served as the Chief Operating Officer, a Senior Portfolio Manager and a Director of SSARIS since its formation in May 2001. Mr. Tomeo also is a member of SSARIS's Investment Committee and is responsible for portfolio management, strategic planning and product development. Mr. Tomeo served as Chief Operating Officer and a Senior Portfolio Manager of RXR and was a member of the firm's Investment Committee. Before joining RXR in 1986, Mr. Tomeo worked for Donaldson, Lufkin and Jenrette as an alternative investment consultant, and the LTV Corporation in New York. Mr. Tomeo was formerly an advisor to Institutional Investor on matters related to Japanese pension fund reform, is the former Chairman of the International Committee of the Managed Funds Association and is the US representative to the Education and Research Committee of the Alternative Investment Management Association. Mr. Tomeo graduated from Bucknell University in May 1980 with a Bachelor of Science degree in Business Administration, the University of Hartford in 1987 with an MBA degree, and the Institute of International Studies and Training (Japanese business study program) in November 1988. He studied International Finance and Capital Markets at New York University. Alan J. Brown has been a Director of SSARIS since July 2003. Mr. Brown is a principal of State Street Global Advisors, Group Chief Investment Officer of State Street Global Advisors Worldwide, Chairman of State Street Global Advisors UK, and Executive Vice President of State Street. He is also a member of State Street Global Advisor's Executive Management Group. Mr. Brown is a director of Advanced Investment Partners, European Direct Capital Management, Rexiter Capital Management, Boston Capital Management and Global Alliance, LLC. Mr. Brown is also a member of State Street Global Advisor's Executive Management Group. Prior to joining State Street Global Advisors UK in 1995, Mr. Brown was Managing Director and Chief Investment Officer of PanAgora Asset Management Limited, and prior to that, Managing Director of Posthorn Global Asset Management in London. Mr. Brown began his career in the investment management business in 1974 at Morgan Grenfell, where he spent ten years. Mr. Brown holds a Masters degree in Physics from Cambridge University. Mr. Brown is on the board of the U.S. foundation for The Center for Economic Research and Graduate Education-Economic Institute attached to the Charles University in Prague. Jay Cromarty has been a Director of SSARIS since March 2003. Mr. Cromarty is the President of Global Alliance and a Senior Principal of State Street Global Advisors. Among other duties, Mr. Cromarty provides strategic management and marketing support to all of the Global Alliance investment management businesses. Mr. Cromarty is a director of Advanced Investment Partners, Boston Capital Management and Residential Capital Management. Before joining Global Alliance in May 1998, Mr. Cromarty served as the Managing Director of Sales and Marketing for State Street Global Advisors' Private Asset Management group. Prior to joining State Street Global Advisors in 1996, Mr. Cromarty was Vice President of The Boston Company, Inc., Director of Marketing and Client Service at PanAgora Asset Management and Senior Vice President of NatWest Investment Management. Mr. Cromarty holds a Bachelor of Science degree in Economics from the University of Maine and a Masters of Business Administration degree in Finance and Marketing from Babson College. Christopher M. Pope has been a Director of SSARIS Global Advisors and Director of Institutional Sales, Client Service, and Consultant Relations. Prior to joining State Street Global Advisors in 1988, Mr. Pope was responsible for marketing and client service at Travelers Investment Management Company and Travelers Keystone Fixed Income Advisors. Mr. Pope holds a Bachelor of Science degree from the University of Pennsylvania. Mr. Pope is a charter member of the Certified Employee Benefit Specialist program. Principals and employees of SSARIS are not permitted to trade futures, options on futures, or forward contracts for their own accounts. Principals and employees are, however, permitted to invest in funds traded by SSARIS. SSARIS's Investment Philosophy SSARIS trades its allocation from Spectrum Global Balanced pursuant to a variation of its Balanced Portfolio known as the Global Multi-Strategy program. The development of the trading program utilized for Spectrum Global Balanced stems from RXR's work over the years with institutional clients. In 1986, RXR began managing a portfolio called the Institutional Balanced Portfolio program (now known as the Balanced Portfolio), which was composed of U.S. stock, bond and non-U.S. financial and commodity interests. Its objective was capital appreciation with controlled volatility, a concept pioneered by Professor John Lintner of Harvard University, who conducted research on the addition of managed futures to portfolios of U.S. stocks and bonds. The philosophy for the investment program has its roots in Modern Portfolio Theory and the design of efficiently allocated portfolios. Effective June 1, 1998, RXR broadened the hedged equity and fixed income components to include participation in the world's major developed capital markets and increased the program's leverage to 1.4 times the original Balanced Portfolio Program. The resulting program is now known as the Global Multi-Strategy. SSARIS's Global Multi-Strategy program allocates to hedged equity, hedged fixed income, and long/short global assets. It is diversified by both style (divergence and convergence strategies) and asset class (global stocks, bonds, currencies and real assets). The hedged equity component may be composed of positions in FTSE 100, DAX, Nikkei 225, and S&P 500 futures indices. The hedged fixed income exposure may include British Gilt, German Bund, Japanese & US Treasury futures. Real asset exposure is diversified across energy, precious metal, base metal, and agricultural markets. The investment program uses a multi-determinant model to rebalance the independent strategies. The global stock and bond exposure is managed using models which interpret macroeconomic, relative value, inflation, interest rate, and price-related data. Exposure within the long/short global asset sector is regulated by combining individual market expected return analysis with a system that asset weights each market according to relative volatility and correlation. In the foreign exchange and commodity components, SSARIS analyzes price data to determine profit and risk potential. A proprietary asset allocation model is used to adjust exposure among approximately 40 markets so that no one market or sector can dominate performance. The investment program was designed to provide investors with a global investment alternative. Through the controlled use of futures and forward contracts, SSARIS manages both U.S. and non-U.S. capital markets, currency and commodity exposure in a single, integrated portfolio. As of December 31, 2003, SSARIS was managing approximately $53 million of client assets pursuant to the program utilized for Spectrum Global Balanced and approximately $612 million in all of their programs. Research and Development Research and development calls on the talents of personnel from several areas within the company. SSARIS has developed macro-economic and technical models that can detect price movements resulting from daily market activity and major changes in global business cycles. Using this information, portfolio managers construct investment portfolios that address the specific actuarial assumptions of their clients. No representation is made and no guarantee is given that Spectrum Global Balanced's objective will be realized or that SSARIS will achieve any particular level of performance or amount of profits in its trading for Spectrum Global Balanced's account. Losses incurred in the global and tangible assets component could cause Spectrum Global Balanced's account to substantially underperform accounts managed by asset allocation systems that do not include a managed futures component. Prospective investors must recognize not only that the foregoing discussion attempts to present only the most basic framework describing the trading program employed for Spectrum Global Balanced, but also, due to the proprietary and confidential nature of all trading approaches, any description will inevitably be general in nature. Furthermore, SSARIS's trading methods are continually evolving, as are the markets themselves. Morgan Stanley Spectrum Currency L.P. 1. John W. Henry & Company, Inc. (JWH ) JWH makes trading decisions for Spectrum Currency pursuant to the International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. For a detailed description of JWH, its principals, and trading systems, including the International Foreign Currency Program, see "The Trading Advisors Morgan Stanley Spectrum Technical 3. John W. Henry & Company, Inc." beginning on page . 2. Sunrise Capital Partners, LLC The principals and senior officers of Sunrise Capital Partners are as follows: Martin P. Klitzner Principal, Managing Director Richard C. Slaughter Principal, Managing Director Dr. Gary B. Davis Principal Dr. John V. Forrest Principal Martin M. Ehrlich Principal, Vice President Marie Laufik Principal, Vice President Elissa Davis Principal The principals of Sunrise Capital Partners will make trading decisions for Spectrum Currency pursuant to the Currency Program. For a detailed description of Sunrise Capital Partners, its principals and trading systems, other than the Currency Program, which is discussed below, see "The Trading Advisors Morgan Stanley Spectrum Select 4. Sunrise Capital Management, Inc." beginning on page . The Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, euro currency, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. The Currency Program trades currency futures contracts on the International Monetary Market Division of the Chicago Mercantile Exchange and forward currency contracts in the interbank markets. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as crossrates selectively against each other and/or as outrights against the U.S. dollar. As of December 31, 2003 Sunrise Capital Partners was managing approximately $146 million of client assets pursuant to the Currency Program and approximately $1.7 billion of client assets in all of its programs (notional funds excluded). EXCHANGE RIGHT If the conditions described below are satisfied, you may redeem your units in any partnership as of the last day of any calendar month and use the proceeds to purchase units of any of the other Spectrum Series partnerships. However, a Spectrum Series exchange will only be permitted as of the sixth month-end after you first became an investor in any Spectrum Series partnership, and as of the last day of each month thereafter. Each unit you purchase in a Spectrum Series exchange will be issued and sold at a price per unit equal to 100% of the net asset value of a unit as of the close of business on the exchange date. Any units you redeem in a Spectrum Series exchange will not be subject to a redemption charge. Units you acquire in a Spectrum Series exchange will be subject to redemption charges, but will be deemed to have the same purchase date as the units you exchanged for purposes of determining the applicability of any redemption charges. Thus, for example, if you hold units of Spectrum Strategic for 12 months, exchange those units for units of Spectrum Technical, then redeem any of those units 15 months later, you will not have to pay a redemption charge, because those units will be deemed to have been held for 27 months. When you request a Spectrum Series exchange, additional conditions must be satisfied. First, the partnership from which you are redeeming must have assets sufficient to discharge its liabilities and redeem units. In order to effect a Spectrum Series exchange, you must send a subscription agreement to a Morgan Stanley branch office, and that agreement must be received by the general partner at least five business days prior to the applicable exchange date. In that agreement, you must acknowledge that you are still eligible to purchase units on the exchange date. You must exchange a minimum of 50 units in a Spectrum Series exchange, unless you are liquidating your entire interest in a partnership. A form of subscription agreement is annexed to this prospectus as Exhibit B, and additional copies of the subscription agreement may be obtained by written request to the general partner or from a local Morgan Stanley branch office. In order to effect a Spectrum Series exchange, each partnership must have a sufficient number of units registered and qualified for sale under federal and applicable state securities laws pursuant to a current prospectus. While the general partner intends to maintain a sufficient number of registered units to effect series exchanges, it is under no obligation to do so. Therefore, the general partner cannot assure you that any units will be available for sale on an exchange date. Furthermore, states may impose significant burdens on, or alter the requirements for, qualifying units for sale. In that event, the general partner may not continue qualifying units for sale in those states, and residents of those states would not be eligible for a Spectrum Series exchange. In addition, states may impose more restrictive suitability and/or investment requirements than those set forth in the form of subscription agreement. Any such restrictions may limit the ability of residents of those states to effect a Spectrum Series exchange. In the event that not all subscription agreements can be processed because an insufficient number of units is available for sale on an exchange date, the general partner will allocate units in the manner it determines in its sole discretion. The general partner has not yet determined how it will allocate units in the event there are an insufficient number of units available on an exchange date. Units of any new partnership in the Spectrum Series may be offered to investors pursuant to exercise of the Spectrum Series exchange right. Before purchasing units of a new partnership, you will be required to receive a copy of a prospectus and any supplement to this prospectus describing the new partnership and its units, and you will be required to execute a new subscription agreement to purchase units of that partnership. Since a Spectrum Series exchange is equivalent to a redemption and an immediate reinvestment of the proceeds of the redemption, you should carefully review the portions of this prospectus describing redemptions and the tax consequences before effecting a Spectrum Series exchange. REDEMPTIONS Once you are an investor in a Spectrum Series partnership for at least six months, you may redeem all or part of your units, regardless of when such units were purchased. Redemptions may only be made in whole units, with a minimum of 50 units required for each redemption, unless you are redeeming your entire interest in a partnership. The general partner will redeem your units in the order in which they were purchased. Redemptions will only be effective as of the last day of the month in which a request for redemption in proper form has been timely received by the general partner. A "request for redemption" is a letter in the form specified by the general partner that must be sent by you to a local Morgan Stanley branch office and received by the general partner at least 5 business days prior to the redemption date. A form of request for redemption is annexed to the limited partnership agreement, which agreement is annexed to this prospectus as Exhibit A. Additional copies of the request for redemption may be obtained by written request to the general partner or a local Morgan Stanley branch office. If you redeem units, you will receive 100% of the net asset value of each unit redeemed as of the redemption date, less any applicable redemption charges. Since the general partner must receive your request for redemption at least five business days prior to the redemption date, you will not know the actual amount you are to receive prior to the redemption date. The "net asset value" of a unit is an amount equal to the partnership's net assets allocated to capital accounts represented by units, divided by the number of units outstanding. "Net assets" means the total assets of a partnership, including all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open futures, forwards, and options positions and other assets of the partnership, less the total liabilities of the partnership, including, but not limited to, all brokerage, incentive and management fees, and extraordinary expenses, as determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a futures contract traded on a U.S. exchange means the settlement price on the exchange on which that futures contract is traded on the day net assets are being determined. However, if a futures contract could not have been liquidated on that day because of the operation of daily limits or other rules of the exchange or otherwise, the settlement price on the first subsequent day on which the futures contract could be liquidated will be the market value of that futures contract for that day. The market value of a forward or futures contract traded on a foreign exchange or market means its market value as determined by the general partner on a basis consistently applied for each different variety of forward contract or futures interest. If you redeem units on or prior to the last day of the twelfth month from the date of their purchase, those units will be subject to a redemption charge equal to 2% of their net asset value on the redemption date. If you redeem units after the last day of the twelfth month and on or prior to the last day of the twenty- fourth month from the date of their purchase, those units will be subject to a redemption charge equal to 1% of their net asset value on the redemption date. If you redeem units after the last day of the twenty-fourth month from the date of their purchase, those units will not be subject to a redemption charge. All redemption charges will be paid to Morgan Stanley DW and will not be shared with the financial advisor or additional selling agent who sold the units. Your units will be exempt from redemption charges under the following circumstances: If you redeem units at the first redemption date following notice of an increase in brokerage, management, or incentive fees, those units will not be subject to redemption charges. If you redeem units in a Spectrum Series exchange, the units you redeem will not be subject to redemption charges and, for purposes of determining the applicability of future redemption charges, the units you acquire will be deemed to have the same purchase date as the units you exchanged. If you redeem units of any other partnership for which Demeter serves as the general partner, the units you redeem from the other limited partnership will be subject to any applicable redemption charges, but the Spectrum Series units you purchase will not be subject to redemption charges. If you redeem units and have either paid a redemption charge with respect to the units or held the units for at least 24 months, you will not be subject to redemption charges with respect to any newly purchased units, provided the new units are purchased within twelve months of and in an amount no greater than the net proceeds of the prior redemption, and the units are held for at least six months from the date of purchase. In that event, you will still be subject to the minimum purchase and suitability requirements. The general partner will endeavor to pay redemptions within ten business days after the redemption date. A partnership may be forced to liquidate open futures, forward, and option positions to satisfy redemptions in the event it does not have sufficient cash on hand that is not required as margin on open positions, and may delay payment to limited partners requesting redemption of units of the proportionate part of the net asset value of the unit represented by the sums for which sufficient cash is not available. See "Risk Factors Partnership and Offering Risks Restricted investment liquidity in the units" on page . When you redeem units, payment will be made by credit to your customer account with Morgan Stanley DW, or by check mailed to you if your account is closed. Your right to redeem units is contingent upon the redeeming partnership having assets sufficient to discharge its liabilities on the redemption date, and timely receipt by the general partner of your request for redemption as described above. The terms and conditions applicable to redemptions in general, other than those prohibiting redemptions before the sixth month-end following the closing at which you first became an investor in a Spectrum Series partnership, and providing that redemptions may only be made as of the end of a calendar month, will also apply to redemptions effected on "special redemption dates." See "The Limited Partnership Agreements Books and Records; Reports to Limited Partners" on page . THE COMMODITY BROKERS Morgan Stanley DW Inc., Morgan Stanley & Co. Incorporated, and Morgan Stanley & Co. International Limited Morgan Stanley DW Inc., a Delaware corporation, acts as the partnerships' non-clearing commodity broker. Morgan Stanley DW, as the non-clearing commodity broker, holds each partnership's funds in customer segregated or secured accounts, and provides all required margin funds to the clearing commodity brokers. Morgan Stanley & Co. Incorporated, a Delaware corporation, acts as the partnerships' clearing commodity broker and foreign currency forward counterparty, and Morgan Stanley & Co. International Limited serves as the clearing commodity broker for trades that take place on the London Metal Exchange. Morgan Stanley DW monitors each partnership's futures positions that the clearing commodity brokers report they are carrying for any errors in trade prices or trade fill. Morgan Stanley DW also serves as the non-clearing commodity broker for all, and Morgan Stanley & Co. serves as the clearing commodity broker and foreign exchange counterparty for all but one, of the other commodity pools for which Demeter serves as general partner and commodity pool operator. Morgan Stanley International serves as the clearing commodity broker for the trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW is a financial services company which provides to its individual, corporate, and institutional clients services as a broker in securities, futures, and options, a dealer in corporate, municipal and government securities, an investment adviser, and an agent in the sale of life insurance and various other products and services. Morgan Stanley DW has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley DW is a member firm of the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange, and other major securities exchanges. Morgan Stanley DW is registered with the CFTC as a futures commission merchant and is a member of the National Futures Association in such capacity. Morgan Stanley DW is also registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley DW and its affiliates currently service clients through a network of approximately 700 offices with approximately 12,000 financial advisors servicing individual and institutional client accounts. Morgan Stanley & Co. Incorporated is the clearing commodity broker for all trades for the partnerships, other than for those trades on the London Metal Exchange. Morgan Stanley & Co. has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley & Co. is registered as a futures commission merchant, is a member of the National Futures Association, and is a member of most major U.S. and foreign commodity exchanges. Morgan Stanley & Co. is registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley & Co. International Limited, a United Kingdom corporation, acts as the partnerships' clearing commodity broker solely with regard to any trading on the London Metal Exchange. Morgan Stanley International has its main business office at 25 Cabot Square, Canary Wharf, London E14 4QA, England, is regulated by the United Kingdom Securities and Futures Authority as a member firm, and is a member of the London Metal Exchange and other securities and commodities exchanges worldwide. Morgan Stanley, the parent company of Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International, is a worldwide financial services firm, employing, directly and through its subsidiaries, more than 51,000 people worldwide in offices throughout the United States and 28 foreign countries. Morgan Stanley is a publicly-traded company listed on the New York Stock Exchange; its common stock had a market value of approximately $60 billion at November 30, 2003. At that date, Morgan Stanley had leading market positions in its three primary businesses (securities, asset management and credit services), and it ranked among the top asset managers globally, with over $462 billion in assets under management. Brokerage Arrangements The partnerships' brokerage arrangements with Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International are discussed in "Conflicts of Interest The brokerage arrangements with affiliates of the general partner were not negotiated at arm's-length or reviewed by any independent party for fairness" on page , " Customer agreements with the commodity brokers permit actions which could result in losses or lost profit opportunity" on page , and "Description of Charges Commodity Brokers" beginning on page . The general partner will review at least annually the brokerage arrangements of each partnership to ensure that those arrangements are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: the size of the partnership; the futures, forwards, and options trading activity; the services provided by the commodity brokers or any affiliate thereof to the partnership; the cost incurred by the commodity brokers or any affiliate thereof in organizing and operating the partnership and offering units; the overall costs to the partnership; any excess interest and compensating balance benefits to the commodity brokers from assets held thereby; and if the general partner does not receive any direct compensation from the partnership for its services as general partner, the risks incurred by the general partner as general partner of the partnership; Each customer agreement sets forth a standard of liability for the commodity broker and provides for indemnities of the commodity broker. See "Fiduciary Responsibility and Liability" beginning on page 17. LITIGATION At any given time, the commodity brokers are involved in numerous legal actions, some of which seek significant damages. On January 11, 1999 the SEC brought an action against 28 NASDAQ market makers, including Morgan Stanley & Co., and 51 individuals, including one current and one former trader employed by Morgan Stanley & Co., for certain conduct during 1994. The core of the charges against Morgan Stanley & Co. concerns improper or undisclosed coordination of price quotes with other broker-dealers and related reporting, recordkeeping, and supervisory deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and (2) and 17(a) of the Securities Exchange Act and Rules 15c1-2, 15c2-7 and 17a-3 promulgated thereunder. Without admitting or denying the charges, Morgan Stanley & Co., consented to the entry of a cease and desist order and to the payment of a civil penalty of $350,000, disgorgement of $4,170, and to submit certain of its procedures to an independent consultant for review. In addition, one current and one former trader employed by Morgan Stanley & Co. accepted suspensions of less than two months each and were fined $25,000 and $30,000, respectively. On April 6, 2000, Morgan Stanley & Co., along with 16 other firms, entered into an industry-wide settlement with the SEC, IRS and the Department of Justice (intervening on behalf of a qui tam plaintiff) to resolve litigation and investigations relating to "yield burning" allegations. At the core of the "yield burning" litigation and investigations were allegations that, from 1990 to 1994, escrow providers excessively marked up securities sold to escrow accounts in connection with advance refunding transactions on behalf of municipal bond issuers. The practice was alleged to benefit the escrow provider Capsule II Performance of Spectrum Technical Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $589,811,774 Current capitalization: $538,184,278 Current net asset value per unit: $22.64 Worst monthly % drawdown past five years: (15.59)% (November 2001) Worst monthly % drawdown since inception: (15.59)% (November 2001) Worst month-end peak-to-valley drawdown past five years: (26.57)% (13 months, April 2001-April 2002) Worst month-end peak-to-valley drawdown since inception: (26.57)% (13 months, April 2001-April 2002) Cumulative return since inception: 126.40% Monthly Performance to the detriment of either the United States Treasury or the municipal issuer. The industry-wide settlement required 17 firms to pay a total of over $139 million (over $120 million to the United States Treasury and over $18 million directly to municipal issuers). Without admitting or denying any wrongdoing, Morgan Stanley & Co. consented to the entry of an order directing that it cease and desist from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and requiring it to pay $2.45 million to the United States Treasury. No payment to municipal issuers was required. On July 14, 2003, the Massachusetts Securities Division filed an administrative complaint alleging that Morgan Stanley DW Inc. filed false information in response to an inquiry from the Massachusetts Securities Division pertaining to mutual fund sales practices. On August 11, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that Morgan Stanley DW Inc. failed to make disclosures of incentive compensation for proprietary and partnered mutual fund transactions. On November 25, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that a former branch manager engaged in securities fraud and dishonest conduct in promoting the sales of proprietary mutual funds. Morgan Stanley DW Inc. answered the first two complaints on August 4 and September 16, 2003, respectively. Hearings on all of these matters are scheduled to commence on May 17, 2004. On September 15, 2003, Morgan Stanley DW Inc. and one of its officers entered into a settlement with the NASD pursuant to a Letter of Acceptance, Waiver and Consent. The Letter of Acceptance, Waiver and Consent alleges violations of applicable NASD rules in connection with various sales contests conducted from October 1999 to December 2002. Under the terms of the settlement, Morgan Stanley DW Inc. and its officer neither admitted nor denied the allegations of the Letter of Acceptance, Waiver and Consent and accepted a censure and the imposition of monetary fines in the amounts of $2 million and $250,000, respectively. On November 17, 2003, Morgan Stanley DW Inc. consented, without admitting or denying the findings, to the entry of an order by the Securities and Exchange Commission that resolved the Securities and Exchange Commission's investigations into certain practices relating to Morgan Stanley DW Inc.'s offer and sale of shares of certain registered investment companies from January 1, 2000 to the date of the order. Pursuant to the order, Morgan Stanley DW Inc. will: (a) distribute for the benefit of certain customers who purchased shares of mutual funds through Morgan Stanley DW Inc. pursuant to the marketing arrangements between Morgan Stanley DW Inc. and certain mutual fund complexes the amount of $50 million; (b) place on its website disclosures relating to certain marketing programs pursuant to which it offered and sold certain mutual funds; (c) prepare a Mutual Fund Bill of Rights that discloses, among other things, the differences in fees and expenses associated with the purchase of different classes or proprietary mutual fund shares; (d) prepare a plan by which certain customers' proprietary Class B shares can be converted to Class A shares; (e) retain an independent consultant to review, among other things, the adequacy of Morgan Stanley DW Inc.'s disclosures with respect to such marketing programs and other matters in connection with Morgan Stanley DW Inc.'s offer and sale of shares of mutual funds and compliance with the order; and (f) adopt the recommendations of the independent consultant. The number of purchase transactions of Class B shares that will be eligible to convert shares is approximately 8,000. The ultimate financial impact on Morgan Stanley DW Inc. of these conversions will depend on many variables, including the number of eligible purchasers who elect to convert to Class A shares (which carry different fees) and the terms of the conversion (which must be acceptable to the independent consultant). During the five years preceding the date of this prospectus, other than as described above, there have been no material criminal, civil, or administrative actions pending, on appeal, or concluded against the commodity brokers, the general partner, or any of their principals, which the general partner believes would be material to an investor's decision to invest in the partnerships. THE LIMITED PARTNERSHIP AGREEMENTS This section of the prospectus summarizes all material provisions of the limited partnership agreement of each partnership that are not discussed elsewhere in the prospectus. A form of the limited partnership agreements is annexed to the prospectus as Exhibit A. Each limited partnership agreement is identical, except as noted otherwise below or in Exhibit A. Month Nature of the Partnerships Spectrum Select was formed on March 21, 1991; Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced were each formed on April 29, 1994; and Spectrum Currency was formed on October 20, 1999. Each partnership was formed under Delaware law. The fiscal year of each partnership begins on January 1 of each year and ends on the following December 31. The units that you purchase and pay for in this offering will be fully paid and nonassessable. You may be liable to a partnership for liabilities that arose before the date of a redemption or Spectrum Series exchange. Your liability, however, will not exceed the sum of your unredeemed capital contribution, undistributed profits, if any, any distributions and amounts received upon a redemption or deemed received on a Spectrum Series exchange, together with interest on any such amount. However, a partnership will not make a claim against you for any amounts received in connection with a redemption of units or a Spectrum Series exchange unless the net assets of the partnership are insufficient to discharge the liabilities of the partnership that arose before any distributions were made to you. The general partner will be liable for all obligations of a partnership to the extent that the assets of the partnership are insufficient to pay those obligations. Management of Partnership Affairs You will not participate in the management or operations of a partnership. Under each limited partnership agreement, the general partner is solely responsible for managing the partnership. The general partner may use a partnership's funds only to operate the business of that partnership. The general partner may hire an affiliate to perform services for the partnership if the general partner determines that the affiliate is qualified to perform the services, and can perform those services under competitive terms that are fair and reasonable. Any agreement with an affiliate must be for a term not in excess of one year and be terminable by the partnership without penalty upon 60 days' prior written notice. Other responsibilities of the general partner include: determining whether a partnership will make a distribution; administering redemptions and series exchanges; preparing monthly and annual reports; preparing and filing tax returns for each partnership; signing documents on behalf of each partnership and its limited partners pursuant to powers of attorney; and supervising the liquidation of a partnership, if necessary. Sharing of Profits and Losses You will have a capital account in each partnership in which you invest, with an initial balance equal to the amount you paid for units of the partnership. The general partner also has a capital account. Each partnership's net assets will be calculated monthly, and your capital account will be adjusted as necessary to reflect any increases or decreases that may have occurred since the preceding month. Profits and losses will be shared by the general partner and limited partners in proportion to the size of their respective capital accounts. For a description of the federal tax allocations, see "Material Federal Income Tax Considerations Partnership Taxation Allocation of Partnership Profits and Losses" on page 129. Restrictions on Transfers or Assignments While you may transfer or assign your units, the transferee or assignee may not become a limited partner without the written consent of the general partner. You may only withdraw capital or profits from a partnership by redeeming units. The general partner may withdraw any portion of its interest in a partnership that exceeds the amount required under the limited partnership agreement without prior notice to or consent of the limited partners. In addition, the general partner may withdraw or assign its entire interest in a partnership if it gives 120 days' prior written notice to the limited partners. If a majority of the limited partners elect a new general partner or partners to continue the business of the partnership, the withdrawing general partner must pay all reasonable expenses incurred by the partnership in connection with its withdrawal. Any transfer or assignment of units by you will take effect at the end of the month in which the transfer or assignment is made, subject to the following conditions. A partnership is not required to recognize a transfer or assignment until it has received at least 30 days' prior written notice from the limited partner. The notice must be signed by the limited partner and include the address and social security or taxpayer identification number of the transferee or assignee and the number of units transferred or assigned. A transfer or assignment of less than all units held by you cannot occur if as a result either party to the transfer or assignment would own fewer than the minimum number of units required for an investment in the partnership (subject to certain exceptions relating to gifts, death, divorce, or transfers to family members or affiliates). The general partner will not permit a transfer or assignment of units unless it is satisfied that the transfer or assignment would not be in violation of Delaware law or applicable federal, state, or foreign securities laws; and notwithstanding the transfer or assignment, the partnership will continue to be classified as a partnership rather than as an association taxable as a corporation under the Internal Revenue Code of 1986, as amended. No transfer or assignment of units will be effective or recognized by a partnership if the transfer or assignment would result in the termination of that partnership for federal income tax purposes, and any attempt to transfer or assign units in violation of the limited partnership agreement will be ineffective. The limited partner must pay all costs, including any attorneys' and accountants' fees, related to a transfer or assignment. Amendments; Meetings Each limited partnership agreement may be amended by the general partner and by limited partners owning more than 50% of the units of that partnership. In addition, the general partner may make certain amendments to a limited partnership agreement without the consent of the limited partners, including any amendment that is not adverse to the limited partners or is required by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or to comply with applicable law. However, no amendment may be made to a limited partnership agreement without the consent of all partners affected if that amendment would reduce the capital account of any partner, modify the percentage of profits, losses, or distributions to which any partner is entitled, or change or alter the provisions of the limited partnership agreement relating to amendments requiring the consent of all partners. Upon written request to the general partner delivered either in person or by certified mail, you or your authorized attorney or agent may obtain a list of the names and addresses of, and units owned by, all limited partners in your partnership, provided that you pay reasonable duplicating and postage costs. Limited partners owning at least 10% of the units of a partnership may request a meeting to consider any matter upon which limited partners may vote. Upon receipt of such a request, the general partner must call a meeting of that partnership, by written notice sent by certified mail or delivered in person within 15 days of such request. The meeting must be held at least 30 but not more than 60 days after the mailing by the general partner of notice of the meeting. The notice must specify the date, a reasonable place and time, and the purpose of the meeting. At any meeting of the limited partners, the following actions may be taken upon the affirmative vote of limited partners owning more than 50% of the units: amend the limited partnership agreement; dissolve the partnership; remove and replace the general partner; elect a new general partner or general partners if the general partner terminates or liquidates or elects to withdraw from the partnership, or becomes insolvent, bankrupt, or is dissolved; terminate any contract with the general partner or any of its affiliates on 60 days' prior written notice; and approve the sale of all or substantially all of the assets of the partnership. Any of the foregoing actions may also be taken by limited partners without a meeting, without prior notice, and without a vote, by means of written consents signed by limited partners owning the required number of units. Notice of any actions taken by written consent must be given to non-consenting limited partners within seven business days. Books and Records; Reports to Limited Partners The books and records of each partnership are maintained at its principal office for at least five years. You or your authorized attorney or agent will have the right during normal business hours to inspect and copy the books and records of each partnership of which you are a limited partner. Alternatively, you may request that copies of the books and records be sent to you, provided that you pay all reasonable reproduction and distribution costs. The partnership will retain copies of subscription documentation in connection with purchases and exchanges of units for at least six years. Within 30 days after the close of each calendar month, the general partner will provide such financial and other information with respect to each partnership as the CFTC and National Futures Association, from time to time, may require, together with information concerning any material change in the brokerage commissions or fees payable by the partnerships to any commodity broker. You will also receive within 90 days after the close of each fiscal year an annual report containing audited financial statements for the partnerships. Annual reports will provide a detailed statement of any transactions with the general partner or its affiliates and of fees, commissions, and any compensation paid or accrued to the general partner or its affiliates. By March 15 of each year, the partnership will provide you with the tax information necessary for you to prepare your federal income tax return. The net asset value of each partnership's units, which is estimated daily by the general partner, will be promptly supplied to you upon written request. A written notice, including a description of limited partners' redemption and voting rights, will be mailed to the limited partners of a partnership within seven business days if any of the following events occur: the net asset value of a unit decreases by at least 50% from the net asset value of that unit as of the end of the immediately preceding month; the limited partnership agreement is materially amended; there is any change in trading advisors or any material change in a management agreement; there is any change in commodity brokers or any material change in the compensation arrangements with a commodity broker; there is any change in general partners or any material change in the compensation arrangements with a general partner; there is any change in the partnership's fiscal year; there is any material change in the partnership's trading policies as specified in the limited partnership agreement; or the partnership ceases to trade futures, forwards, and options. If you receive a notice as to a 50% decrease in net asset value per unit, that notice will also advise you that a "special redemption date" will take place when limited partners may redeem their units in the same manner as described under "Redemptions" beginning on page 117 for regular redemption dates. Further, following the close of business on the date of the 50% decrease giving rise to that notice, the partnership will liquidate all existing positions as promptly as reasonably practicable, and will suspend all futures, forwards, and options trading through the special redemption date. The general partner will then determine whether to reinstitute futures, forwards, and options trading or to terminate the partnership. In addition, subject to limits imposed under state guidelines incorporated in the limited partnership agreements, no increase in any of the management, incentive, or brokerage fees payable by the partnerships, or any of the caps on fees, may take effect until the first business day following a redemption date. In the event of such an increase: notice of the increase will be mailed to limited partners at least five business days prior to the last date on which a "request for redemption" must be received by the general partner with respect to the applicable redemption date; the notice will describe the redemption and voting rights of limited partners; and units redeemed at the first redemption date following the notice will not be subject to any redemption charges. Each limited partner expressly agrees that in the event of his death, he waives on behalf of himself and his estate the furnishing of any inventory, accounting, or appraisal of the assets of the partnership and any right to an audit or examination of the books of the partnership. PLAN OF DISTRIBUTION General Morgan Stanley DW is offering units pursuant to a selling agreement with the partnerships and the general partner. This offering is being conducted in accordance with the provisions of Rule 2810 of the Conduct Rules of the NASD. With the approval of the general partner, Morgan Stanley DW may appoint additional selling agents to make offers and sales of the units. These additional selling agents may include any securities broker which is a member in good standing of the NASD, as well as any foreign bank, dealer, institution, or person ineligible for membership in the NASD that agrees not to make any offers or sales of units within the U.S. or its territories, possessions, or areas subject to its jurisdiction, or to U.S. citizens or residents. Any such non-NASD member must also agree to comply with applicable provisions of the Conduct Rules of the NASD in making offers and sales of units. Morgan Stanley DW is offering the units on a "best efforts" basis without any agreement by Morgan Stanley DW to purchase units. The general partner may in the future register additional units of any partnership with the SEC. There is no maximum amount of funds which may be contributed to a partnership. The general partner may in the future subdivide or combine outstanding units of any partnership, in its discretion, provided that any subdivision or combination will not affect the net asset value of any limited partner's interest in the partnership. Each partnership has agreed to indemnify its trading advisors in connection with the offer and sale of units with respect to any misleading or untrue statement or alleged misleading or untrue statement of a material fact or material omission or alleged omission unrelated to its trading advisor(s). Each partnership has also agreed to indemnify Morgan Stanley DW, the general partner and any additional sellers in connection with the offer and sale of units. See "Fiduciary Responsibility and Liability" beginning on page . Continuing Offering Units of each partnership are being offered for sale at monthly closings held on the last day of each month. Units will be offered and sold at the net asset value of a unit of the partnership on the date of the monthly closing. Since you must subscribe for units prior to the month end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The sale amount will be delivered to the partnership that sold the unit. Escrow Arrangements During the continuing offering, if your subscription is not immediately rejected by the general partner, your subscription funds will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. These subscription funds held in escrow will be invested in the escrow agent's interest-bearing money market account, and will earn the interest rate then paid by the bank on that account. If the general partner accepts your subscription, at the applicable month-end closing the escrow agent will pay your subscription funds to the appropriate partnership(s) and pay any interest earned on those funds to Morgan Stanley DW. Morgan Stanley DW in turn will credit your Morgan Stanley DW customer account with the interest. If the general partner rejects a subscription, the escrow agent will promptly pay the rejected subscription funds and any interest earned to Morgan Stanley DW, and Morgan Stanley DW will then credit your Morgan Stanley DW customer account with those amounts, and the funds will be immediately available for investment or withdrawal. If you closed your Morgan Stanley DW customer account, any subscription returned and interest earned will be paid by check. Interest will be earned on subscription funds from the day of deposit with the escrow agent to the day that funds are either paid to the appropriate partnership(s) in the case of accepted subscriptions or paid to Morgan Stanley DW in the case of rejected subscriptions. At all times during the continuing offering, and prior to each closing, subscription funds will be in the possession of the escrow agent, and at no time will the general partner hold or take possession of the funds. Compensation to Morgan Stanley DW Employees and Additional Selling Agents Except as described below, qualified employees of Morgan Stanley DW will receive from Morgan Stanley DW (payable solely from its own funds) a gross sales credit equal to 3% of the net asset value per unit as of the closing for each unit sold by them and issued at the closing. In addition, Morgan Stanley DW will continue to compensate such employees who continue to render services to limited partners with a gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from a partnership each month that are attributable to outstanding units sold by them. This compensation will begin: in the case of Spectrum Select, Spectrum Technical, and Spectrum Strategic, with the seventh month following the closing at which a unit was issued; in the case of Spectrum Global Balanced and Spectrum Currency, with the tenth month following the closing at which a unit was issued; the first month after a unit is issued pursuant to a non-series exchange; or the month as of which such continuous compensation is first payable with respect to units purchased in a Spectrum Series exchange, but with the seventh or tenth month measured from the date the subscriber first became a limited partner in a Spectrum Series partnership. In all cases, qualified Morgan Stanley DW employees will receive continuing compensation until the applicable partnership terminates or the unit is redeemed, whichever comes first. No part of this compensation will be paid by the partnership and, accordingly, net assets will not be reduced as a result of such compensation. Each person receiving continuing compensation must be a Morgan Stanley DW employee at the time of receipt of payment and must be registered as an associated person with the CFTC and be a member of the National Futures Association in such capacity only after either having passed the Series 3 or Series 31 examination or having been "grandfathered" as an associated person qualified to do commodity brokerage under the Commodity Exchange Act and the CFTC's regulations. These employees must also perform additional services, including: (a)inquiring of the general partner from time to time, at the request of limited partners, as to the net asset value of each partnership's units; (b)inquiring of the general partner, at the request of limited partners, regarding the futures, forwards, and options markets and the activities of the partnerships; (c)responding to questions of limited partners with respect to the monthly account statements, annual reports, financial statements, and annual tax information furnished periodically to limited partners; (d)providing advice to limited partners as to when and whether to make additional investments or to redeem or exchange units; (e)assisting limited partners in the redemption or exchange of units; and (f)providing such other services as limited partners from time to time may reasonably request. The additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. In addition, certain officers and directors of the general partner may receive compensation as employees of Morgan Stanley DW based, in part, on the amount of brokerage fees paid by the partnerships to Morgan Stanley DW. The selling agreement among Morgan Stanley DW, the general partner, and the partnerships provides that this compensation may only be paid by Morgan Stanley DW as long as continuing services are provided. Any limited partner may telephone, write, or visit a financial advisor at a Morgan Stanley branch office to avail himself of such services. Morgan Stanley DW will not pay its employees the 3% initial gross sales credit described above with respect to units purchased pursuant to a Spectrum Series exchange or non-Spectrum Series exchange. Such employees will, however, receive continuing gross sales credits with respect to brokerage fees received by Morgan Stanley DW from a partnership at the applicable rate. In the case of an investor who previously redeemed units in a Spectrum Series or non-Spectrum Series partnership and paid a redemption charge or held those units for at least 24 months, and invests in the Spectrum Series within 12 months of the redemption of the old units, the Morgan Stanley DW employee will not receive the initial gross sales credit of 3% but will receive a monthly gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from the partnership each month that are attributable to such units commencing the first month after the units are issued. Morgan Stanley DW may at any time implement cash sales incentive and/or promotional programs for its employees who sell units. These programs will provide for Morgan Stanley DW, and not any partnership or the general partner, to pay Morgan Stanley DW's employees bonus compensation based on sales of units. Any sales or promotional program will be approved by the NASD prior to its start. The aggregate of all compensation paid to employees of Morgan Stanley DW from the initial 3% gross sales credit, the redemption charges received by Morgan Stanley DW, and any sales incentives will not exceed 10% of the proceeds of the sale of units. Morgan Stanley DW may compensate any qualified additional selling agents for each unit sold by it by paying a selling commission, from Morgan Stanley DW's own funds, as determined by Morgan Stanley DW and the additional selling agents, but not to exceed 3% of the net asset value of the unit sold. Additional selling agents who are properly registered as futures commission merchants or introducing brokers with the CFTC and are members of the National Futures Association in such capacity may also receive from Morgan Stanley DW, payable from Morgan Stanley DW's own funds, continuing compensation for providing to limited partners the continuing services described above. This additional compensation paid by Morgan Stanley DW may be up to 42% of the brokerage fees generated by outstanding units sold by additional selling agents and received by Morgan Stanley DW as commodity broker for each partnership (except for employees of affiliates of Morgan Stanley DW, who will be compensated at the same rate as employees of Morgan Stanley DW). Additional selling agents may pay all or a portion of such additional compensation to their employees who have sold units and provide continuing services to limited partners if those employees are properly registered with the CFTC and are members of the National Futures Association. Additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. SUBSCRIPTION PROCEDURE The minimum subscription for most subscribers is $5,000, except that the minimum subscription is: $2,000 in the case of an IRA; or for eligible subscribers purchasing units pursuant to a non-Spectrum Series exchange, the lesser of $5,000, the proceeds from the redemption of 5 units, or 2 units in the case of an IRA, from commodity pools other than any of the Morgan Stanley Charter Series of partnerships, the proceeds from the redemption of 500 units, or 200 units in the case of an IRA, from any Charter Series partnership, or the proceeds from the redemption of such subscriber's entire interest in any other commodity pool for which the general partner serves as general partner and commodity pool operator. A subscription may be for units of one partnership, or may be divided among two or more partnerships, provided that: in the case of a new subscription, the minimum subscription for any one partnership is $1,000; and in the case of a non-Spectrum Series exchange, the minimum subscription for any one partnership is the proceeds of the redemption of 1 unit of the other commodity pool, or 100 units in the case of any Morgan Stanley Charter Series partnership. If you already own units in a partnership and you wish to make an additional investment in the same partnership, you may subscribe for units at a monthly closing with a minimum investment in that partnership of $500. In order to make your first purchase of units of a partnership, other than by means of an exchange, you must complete, sign, and deliver to Morgan Stanley DW a subscription agreement which will authorize the general partner and Morgan Stanley DW to transfer the full subscription amount from your Morgan Stanley DW customer account to the partnership's Escrow Account. If your subscription agreement is received by Morgan Stanley DW and not immediately rejected, you must have the appropriate amount in your Morgan Stanley DW customer account on the first business day following the date that your subscription agreement is received by Morgan Stanley DW. Morgan Stanley DW will deduct the subscription amount from your customer account and transfer funds into escrow with the escrow agent on that date. If you do not have a Morgan Stanley DW customer account or an account with an affiliate of Morgan Stanley DW, or do not have sufficient funds in your existing Morgan Stanley DW customer account, you should make appropriate arrangements with your Morgan Stanley financial advisor, or contact your local Morgan Stanley branch office. Do not mail any payment to the general partner, as it will be returned to you for proper placement with the Morgan Stanley branch office where your account is maintained. In the case of a Spectrum Series exchange or a non-Spectrum Series exchange, you must complete, sign, and deliver to your Morgan Stanley financial advisor a subscription agreement, which will authorize the general partner to redeem all or a portion of your interest in a partnership or another commodity pool for which the general partner serves as general partner and commodity pool operator, subject to terms of the applicable limited partnership agreement, and to use the proceeds, after deducting any applicable redemption charges, to purchase units in one or more of the partnerships. In accordance with an NASD rule, Morgan Stanley DW will not subscribe for units on your behalf if it has discretionary authority over your customer account, unless it gets prior written approval from you. If you subscribe by check, units will be issued subject to the collection of the funds represented by the check. If your check is returned unpaid, Morgan Stanley DW will notify the general partner, and the relevant partnership will cancel the units issued to you represented by the check. Any losses or profits sustained by the partnership allocable to the cancelled units will be allocated among the remaining partners. In the limited partnership agreements, each limited partner agrees to reimburse a partnership for any expense or loss (including any trading loss) incurred in connection with the issuance and cancellation of any units issued to the limited partner. Subscriptions for units are generally irrevocable by subscribers. However, you may revoke your subscription agreement and receive a full refund of the subscription amount and any accrued interest, or revoke the redemption of units in the other commodity pool in the case of an exchange, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. There may be other rescission rights under applicable federal and state securities laws. The general partner may reject any subscription, in whole or in part, in its sole discretion. A sample form of the subscription agreement is annexed to this prospectus as Exhibit B. A separate copy of the subscription agreement accompanies this prospectus or you may obtain one, after delivery of this prospectus, from a local Morgan Stanley branch office. You will not receive any certificate evidencing units, but you will be sent confirmations of purchases in Morgan Stanley DW's customary form. Once you are an investor in a partnership, you may make additional cash purchases of units of that partnership without executing a new subscription agreement, by completing a subscription agreement update form, a sample of which is annexed to this prospectus as Exhibit C, and by contacting your Morgan Stanley financial advisor and authorizing your financial advisor to deduct the additional amount you want to invest from your Morgan Stanley DW customer account. Those amounts will be held in escrow, and applied towards the purchase of units, in the same manner as initial purchases described above. However, if a new prospectus has been issued since the date of your immediately prior subscription agreement, you will be required to complete a new subscription agreement update form. Further, your Morgan Stanley financial advisor will be required to confirm to the general partner that the information you provided, and the representations and warranties you made, in your original subscription agreement, including, in particular, that you satisfy applicable minimum financial suitability requirements, are still true and correct. You may not use the subscription procedure described in this paragraph to purchase additional units in a partnership by way of an exchange, or to purchase units of a partnership in which you are not currently an investor; in either of those cases, you must execute a new subscription agreement. PURCHASES BY EMPLOYEE BENEFIT PLANS ERISA CONSIDERATIONS Units might or might not be a suitable investment for an employee benefit plan. If you are a person with investment discretion on behalf of an employee benefit plan, before proceeding with a purchase of units, you should determine whether the purchase of units is permitted under the governing instruments of the plan, and is appropriate for that particular plan in view of its overall investment policy, the composition and diversification of its portfolio, and the other considerations discussed below. As used in this section, the term "employee benefit plans" refers to plans and accounts of various types, including their related trusts, which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, typically free from federal income tax until such time as funds are distributed from the plan. These plans include corporate pension and profit-sharing plans, such as so-called "401( k)" plans, "simplified employee pension plans," so-called "Keogh" plans for self-employed individuals (including partners), and, for purposes of this discussion, individual retirement accounts, as described in Section 408 of the Internal Revenue Code of 1986, as amended. Notwithstanding the general requirement that investors in one or more partnerships must invest a minimum of $5,000, a minimum purchase requirement of $2,000 has been set for IRAs. The minimum subscription for any one of the partnerships must be at least $1,000. Greater minimum purchases may be mandated by the securities laws and regulations of certain states, and each investor should consult the subscription agreement to determine the applicable investment requirements. If the assets of an investing employee benefit plan were to be treated, for purposes of the reporting and disclosure provisions and certain other of the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as including an undivided interest in each of the underlying assets of a partnership, an investment in units would in general be an inappropriate investment for the plan. A U.S. Department of Labor regulation defines "plan assets" in situations where employee benefit plans purchase equity securities in investment entities such as a partnership. The regulation provides that the assets of an entity will not be deemed to be "plan assets" of an employee benefit plan which purchases an equity security of the entity if the equity security is a "publicly-offered security." A "publicly-offered security" is one which is: freely transferable; held by more than 100 investors independent of the issuer and of each other; and either registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, or sold to the plan as part of a public offering of such securities pursuant to an effective registration statement under the Securities Act of 1933, where the security is then timely registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934. The units currently meet, and it is expected that the units will continue to meet, the criteria of the Regulation. The general partner believes, based upon the advice of its legal counsel, that income earned by the partnerships will not constitute "unrelated business taxable income" under Section 512 of the Internal Revenue Code of 1986 to employee benefit plans and other tax-exempt entities. Although the Internal Revenue Service has issued favorable private letter rulings to taxpayers in somewhat similar circumstances, other taxpayers may not use or cite such rulings as precedent. If you have investment discretion on behalf of an employee benefit plan, you should consult a professional tax adviser regarding the application of the foregoing matters to the purchase of units. Units may not be purchased with the assets of an employee benefit plan if the general partner, Morgan Stanley DW, any additional selling agents, any trading advisor, or any of their respective affiliates either: has investment discretion with respect to the investment of such plan assets; has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the plan assets and that such advice will be based on the particular investment needs of the plan; or is an employer maintaining or contributing to such plan. Subscribing for units does not create an IRA or other employee benefit plan. If you are considering the purchase of units on behalf of an IRA or other employee benefit plan, you must first ensure that the plan has been properly established in accordance with the Internal Revenue Code of 1986 and ERISA and the regulations and administrative rulings thereunder, and that the plan has been adequately funded. Then, after all of the considerations discussed above have been taken into account, the trustee or custodian of a plan who decides to or who is instructed to do so may subscribe for units in one or more of the partnerships, subject to the applicable minimum subscription requirement per partnership. Acceptance of subscriptions on behalf of IRAs or other employee benefit plans is in no respect a representation by the general partner, Morgan Stanley DW, any additional selling agents, any partnership, or any trading advisor that the investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that the investment is appropriate for plans generally or any particular plan. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS Introduction The general partner has been advised by counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion, the following summary correctly describes the material federal income tax consequences to a U.S. taxpayer who invests in a partnership. The opinions appearing in this section are the opinions of Cadwalader, Wickersham & Taft LLP, except as otherwise specifically noted. The following summary is based upon the Internal Revenue Code of 1986, rulings thereon, regulations promulgated thereunder, and existing interpretations thereof, any of which could be changed at any time and which changes could be retroactive. The federal income tax summary and the state and local income tax summary that follow, in general, relate only to the tax implications of an investment in the partnerships by individuals who are citizens or residents of the U.S. Except as indicated below or under "Purchases by Employee Benefit Plans-ERISA Considerations," the summaries do not address the tax implications of an investment in the partnerships by corporations, partnerships, trusts, and other non-individuals. Moreover, the summaries are not intended as a substitute for careful tax planning, particularly since certain of the tax consequences of owning an interest in the partnerships may not be the same for all taxpayers, such as non-individuals or foreign persons, or in light of an investor's personal investment circumstances. A complete discussion of all federal, state, and local tax aspects of an investment in each partnership is beyond the scope of the following summary, and prospective investors are urged to consult their own tax advisors on these matters. Partnership Status The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion under current federal income tax law, each partnership will be classified as a partnership and not as an association (or a publicly traded partnership) taxable as a corporation. This opinion is based upon the facts set forth in this prospectus, including that a principal activity of each partnership consists of buying and selling futures, options, and forward contracts, and at least 90% of the partnership's gross income during each year consists of gains from such trading and interest income. No ruling has been requested from the Internal Revenue Service with respect to classification of each partnership and the general partner does not intend to request such a ruling. If a partnership were treated as an association (or a publicly traded partnership) taxable as a corporation, income or loss of the partnership would not be passed through to its partners, and the partnership would be subject to tax on its income at the rates applicable to corporations without deduction for any distributions to its partners. In addition, all or a portion of any distributions by the partnership to its partners could be taxable to the partners as dividends or capital gains. The discussion that follows assumes that each partnership will be treated as a partnership for federal income tax purposes. Partnership Taxation Partners, rather than a Partnership, are Subject to Federal Income Tax. None of the partnerships will pay federal income tax. Except as provided below with respect to certain nonresident aliens, each limited partner will report his distributive share of all items of partnership income, gain, loss, deduction, and credit for the partnership's taxable year ending within or with the partner's taxable year. A limited partner must report and pay tax on his share of partnership income for a particular year whether or not he has received any distributions from the partnership in that year. The characterization of an item of profit or loss will usually be determined at the partnership level. Syndication Expenses. None of the partnerships nor any partner thereof will be entitled to any deduction for syndication expenses (i.e., those amounts paid or incurred in connection with issuing and marketing units). There is a risk that some of the brokerage fees paid to Morgan Stanley DW could be treated as a nondeductible payment by the partnerships of syndication expenses. Allocation of Partnership Profits and Losses. In general, each limited partnership agreement allocates items of ordinary income and expense pro rata among the partners based upon their respective capital accounts as of the end of the month in which such items are accrued. Net recognized capital gain or loss is generally allocated among all partners based upon their respective capital accounts. However, net recognized capital gain or loss is allocated first to partners who have redeemed units in the partnership during a taxable year to the extent of the difference between the amount received on the redemption and the allocation account as of the date of redemption attributable to the redeemed units. Any remaining net recognized capital gain or loss is next allocated among all those partners whose capital accounts differ from their allocation accounts based on the respective differences for each partner. The special allocation of each partnership's net gain or loss upon a redemption of units, which retains the same character as in the hands of the partnership, may alter the character of a redeeming limited partner's income (by reducing the amount of long-term capital gain recognized upon receipt of redemption proceeds) and may accelerate the recognition of income by the limited partner. These allocation provisions are designed to reconcile tax allocations to economic allocations. However, the general partner cannot assure you that the Internal Revenue Service will not challenge the allocations, including each partnership's tax allocations in respect of redeemed units. If the allocation provided by each limited partnership agreement is not respected by the Internal Revenue Service for federal income tax purposes, the amount of income or loss allocated to the partners for federal income tax purposes may be increased or reduced or the character of the income or loss may be modified. Cash Distributions and Redemptions Because of the special allocation of partnership gain or loss upon a redemption of units, the amounts received upon the partial or complete redemption of a limited partner's units normally will not result in additional taxable income or loss to the limited partner. However, distributions by a partnership and amounts received upon the partial or complete redemption of a limited partner's units will be taxable to the limited partners to the extent cash distributions by a partnership or amounts received upon redemption by a limited partner exceed the partner's adjusted tax basis in his units. Such excess will be taxable to him as though it were a gain from a sale of the units. A loss will be recognized upon a redemption of units only if, following the redemption of all of a limited partner's units, the partner has any tax basis in his units remaining. In such case, the limited partner will recognize loss to the extent of the remaining basis. See "Redemptions." Generally, if a limited partner is not a "dealer" with respect to his interest in the partnership and he has held his interest in the partnership for more than one year, the gain or loss would be long-term capital gain or loss. Gain or Loss on Trading Activity Nature of Partnership Income. Each partnership does not expect to hold its futures, forwards, or options for sale to customers. For federal income tax purposes substantially all of the profit and loss generated by each partnership from its trading activities is expected to be capital gain and loss, which in turn may be either short-term, long-term, or a combination thereof. Nevertheless, certain foreign currency transactions could result in ordinary gain or loss, as discussed below. Further, interest paid to a partnership will be taxable currently to the limited partners as ordinary income. Thus, during taxable years in which little or no profit is generated from trading activities, a limited partner may still have interest income. Mark-to-Market. Section 1256 contracts held at the end of a partnership's taxable year will be treated as having been sold for the fair market value on the last day of the taxable year, and gain or loss will be taken into account for the year. Gain or loss with respect to a Section 1256 contract is generally treated as short-term capital gain or loss to the extent of 40% of the gain or loss, and long-term capital gain or loss to the extent of 60% of the gain or loss. Section 1256 contracts include regulated futures contracts which are futures contracts traded on regulated U.S. and certain foreign exchanges; foreign currency contracts that are traded in the interbank market and relate to currencies for which positions are also traded through regulated futures contracts; and U.S. and certain foreign exchange-traded options on commodities, including options on regulated futures contracts, debt securities, and stock indices. While the partnerships expect that a majority of their trading activities will be conducted in Section 1256 contracts, the partnerships also expect that a portion of their trading activities will be conducted in contracts that do not presently qualify as Section 1256 contracts, such as positions in futures contracts on most foreign exchanges and foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts. Section 988. Currency gain or loss with respect to foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts and futures contracts traded on most foreign exchanges may be treated as ordinary income or loss under Internal Revenue Code of 1986 Section 988. Each partnership has elected to treat these contracts as Section 1256 contracts (i.e., marked-to-market at year end). Pursuant to this election, gain or loss with respect to these contracts is treated as entirely short-term capital gain or loss. Subject to certain limitations, a limited partner, other than a corporation, estate, or trust, may elect to carry back net Section 1256 contract losses to each of the three preceding years. Net Section 1256 contract losses carried back to prior years may only be used to offset net Section 1256 contract gains. Generally, such losses are carried back as 40% short-term capital losses and 60% long-term capital losses. Capital assets not marked to market under Section 1256, such as any non-currency forward contracts, are not subject to the 60/40 tax regime for Section 1256 contracts, and gain or loss on sale generally will be long-term only if such property has been held for more than one year. % % % % % % % % % % January 12.76 (1.88 ) (0.81 ) 1.21 (4.96 ) (1.16 ) 3.67 4.78 (1.84 ) February 6.60 (3.41 ) 1.94 (1.19 ) 2.48 0.41 1.13 (6.39 ) 5.10 March (9.17 ) (2.90 ) 11.38 (1.54 ) (2.48 ) 1.31 (1.82 ) 1.24 10.21 April 1.44 (3.20 ) (11.10 ) (4.02 ) 7.18 (4.62 ) (2.93 ) 4.82 3.60 May 6.38 5.64 (0.37 ) (0.43 ) (5.00 ) 3.28 (3.75 ) (3.84 ) 0.69 June (7.42 ) 15.02 (3.62 ) (2.78 ) 5.13 (1.10 ) 0.69 3.21 (1.12 ) July (3.04 ) 9.65 (3.36 ) (3.96 ) (3.90 ) (0.98 ) 9.33 (4.80 ) (2.44 ) August 3.39 4.40 1.34 3.74 0.95 10.29 (5.97 ) (0.35 ) (0.63 ) September (5.41 ) 6.43 8.19 (8.61 ) (1.51 ) 4.35 1.85 5.50 (3.33 ) October 9.14 (6.75 ) 5.37 2.90 (9.96 ) (0.73 ) 0.36 9.92 (0.09 ) November 1.20 (4.68 ) (15.59 ) 12.28 1.84 (6.17 ) 1.01 8.34 0.93 (0.90 ) December 7.66 5.20 2.47 12.06 3.83 5.98 4.57 (3.88 ) 6.09 (1.31 ) Compound Annual/ Period Rate of Return 22.98 23.31 (7.15 ) 7.85 (7.51 ) 10.18 7.49 18.35 17.59 (2.20 ) (2 months) Capsule III Performance of Spectrum Strategic Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $182,893,529 Current capitalization: $121,270,439 Current net asset value per unit: $14.31 Worst monthly % drawdown past five years: (18.47)% (February 2000) Worst monthly % drawdown since inception: (18.47)% (February 2000) Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months, January 2000-October 2000) Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months, January 2000-October 2000) Cumulative return since inception: 43.10% Monthly Performance Straddles. If a partnership incurs a loss upon the disposition of any position which is part of a "straddle" (i.e., two or more offsetting positions), recognition of that loss for tax purposes will be deferred until the partnership recognizes the gain in the offsetting position of the straddle (or successor position, or offsetting position to the successor position). Interest and other carrying charges allocable to positions which are part of a straddle must be capitalized, rather than deducted currently. Certain modified "short sale" rules may apply to positions held by a partnership so that what might otherwise be characterized as long-term capital gain would be characterized as short-term capital gain or potential short-term capital loss as long-term capital loss. For purposes of applying the above rules restricting the deductibility of losses with respect to offsetting positions, if a limited partner takes into account gain or loss with respect to a position held by the partnership, the limited partner will be treated as holding the partnership's position, except to the extent otherwise provided in regulations. Accordingly, positions held by a partnership may limit the deductibility of realized losses sustained by a limited partner with respect to positions held for his own account, and positions held by a limited partner for his own account may limit his ability to deduct realized losses sustained by a partnership. Thus, straddles may not be used to defer gain from one taxable year to the next. Reporting requirements generally require taxpayers to disclose all unrecognized gains with respect to positions held at the end of the taxable year. The above principle, whereby a limited partner may be treated as holding partnership positions, may also apply to require a limited partner to capitalize (rather than deduct) interest and carrying charges allocable to property held by him. Where the positions of a straddle are comprised of both Section 1256 and non-Section 1256 contracts, a partnership will be subject to the mixed straddle rules of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. The appropriate tax treatment of any gains and losses from trading in mixed straddles will depend on what elections a partnership makes. Each partnership has elected to place all of its positions in a "mixed straddle" account which is marked-to-market daily. Under a special account cap, not more than 50% of net capital gain may be long-term capital gain, and not more than 40% of net capital loss may be short-term capital loss. Taxation of Limited Partners Limitations on Deductibility of Partnership Losses. The amount of partnership loss, including capital loss, which a limited partner will be entitled to take into account for federal income tax purposes is limited to the tax basis of his units, except in the case of certain limited partners including individuals and closely-held C corporations, for which he is "at risk" with respect to the units as of the end of the partnership's taxable year in which such loss occurred. Generally, a limited partner's initial tax basis will be the amount paid for each unit. A limited partner's adjusted tax basis will be his initial tax basis reduced by the limited partner's share of partnership distributions, losses, and expenses and increased by his share of partnership income and gains. The amount for which a limited partner is "at risk" with respect to his units in a partnership is generally equal to his tax basis for the units, less: any amounts borrowed in connection with his acquisition of the units for which he is not personally liable and for which he has pledged no property other than his units; any amounts borrowed from persons who have a proprietary interest in the partnership; and any amounts borrowed for which the limited partner is protected against loss through guarantees or similar arrangements. Because of the limitations imposed upon the deductibility of capital losses referred to below, a limited partner's share of a partnership's net capital losses, if any, will not materially reduce his federal income tax on his ordinary income. In addition, certain expenses of a partnership might be deductible by a limited partner only as itemized deductions and, therefore, will not reduce the federal taxable income of a limited partner who does not itemize his deductions. Furthermore, an individual who is subject to the alternative minimum tax for a taxable year may not realize any tax benefit from such itemized deductions. Limitations on Deductibility of Passive Losses. The partnerships' income will not be treated as a "passive activity" for purposes of the limitation on the deduction of passive activity losses. Limited Deduction of Certain Expenses. Certain miscellaneous itemized deductions, such as expenses incurred to maintain property held for investment, are deductible only to the extent that they exceed 2% of the adjusted gross income of an individual, trust, or estate. The amount of certain itemized deductions allowable to individuals is further reduced by an amount equal to the lesser of (i) 3% of the Month individual's adjusted gross income in excess of a certain threshold amount and (ii) 80% of such itemized deductions. Moreover, such investment expenses are miscellaneous itemized deductions that are not deductible by a non-corporate taxpayer in calculating its alternative minimum tax liability. Based upon the current and contemplated activities of the partnerships, the general partner has been advised by its legal counsel that, in such counsel's opinion, the expenses incurred by the partnerships in their futures, forwards, and options trading businesses should not be subject to the 2% "floor" or the 3% phaseout, except to the extent that the Internal Revenue Service promulgates regulations that so provide. However, that advice is not binding on a court or the Internal Revenue Service, and the Internal Revenue Service could assert, and a court could agree, that such expenses of the partnerships (including incentive fees) are investment expenses which are subject to these limitations. Tax Liability Will Exceed Distributions. Under federal tax laws, a limited partner must report and pay tax on his share of any partnership income each year, even though the general partner does not intend to make any distributions from the partnerships. Tax on Capital Gains and Losses. In general, for individuals, trusts, and estates, "long-term capital gains" are currently taxed at a maximum marginal tax rate of 20% and "short-term capital gains" and other income are currently taxed at a maximum marginal tax rate of 38.6%. Corporate taxpayers are currently subject to a maximum marginal tax rate of 35% on all capital gains and income. The excess of capital losses over capital gains is deductible by an individual against ordinary income on a one-for-one basis, subject to an annual limitation of $3,000 ($1,500 in the case of married individuals filing a separate return). Excess capital losses may be carried forward. Net losses from Section 1256 contracts are treated as 60% long-term capital loss and 40% short-term capital loss. Such losses may, at the individual taxpayer's election, be carried back to each of the preceding three years and applied against gains from Section 1256 contracts. Alternative Minimum Tax. The alternative minimum tax for individuals is imposed on "alternative minimum taxable income" in excess of certain exemption amounts. Alternative minimum taxable income consists of taxable income determined with certain adjustments and increased by the amount of items of tax preference. Alternative minimum taxable income may not be offset by certain interest deductions, including (in certain circumstances) interest incurred to purchase or carry units in the partnerships. Corporations are also subject to an alternative minimum tax. The extent to which the alternative minimum tax will be imposed will depend on the overall tax situation of each limited partner at the end of such taxable year. Limitation on Deductibility of Interest on Investment Indebtedness. Interest paid or accrued on indebtedness properly allocable to property held for investment is investment interest. Such interest is generally deductible by non-corporate taxpayers only to the extent it does not exceed net investment income. A limited partner's distributive share of net partnership income and any gain from the disposition of units will be treated as investment income, except that a limited partner's net capital gain from the disposition of units is not investment income unless the limited partner waives the benefit of the preferential tax rate on the gain. It is not clear whether a limited partner's distributive share of partnership net capital gain constitutes investment income where such gain is taxed at the maximum rate for capital gains. Interest expense incurred by a limited partner to acquire his units generally will be investment interest. Any investment interest disallowed as a deduction in a taxable year solely by reason of the limitation above is treated as investment interest paid or accrued in the succeeding taxable year. Taxation of Foreign Limited Partners. A nonresident alien individual, foreign corporation, or foreign partnership (a "foreign limited partner") generally should not be deemed to be engaged in a U.S. trade or business solely by virtue of an investment in the partnerships; provided that such foreign limited partner is not a "dealer" in commodities and, in the case of an individual, does not have certain present or former connections with the U.S. (e.g., is not present in the U.S. more than 182 days during his or her taxable year, or, in certain limited circumstances, a prior taxable year) and provided further, that such foreign limited partner is not engaged in a trade or business within the U.S. during the taxable year or, in certain limited circumstances, a prior taxable year to which income, gain, or loss from the partnerships is treated as "effectively connected." Capital gains earned by the partnerships and allocated to such a foreign limited partner will, as a general rule, not be subject to U.S. federal income taxation or withholding, but may be subject to taxation by the jurisdiction in which the foreign limited partner is resident, organized or operating. In the event that a partnership were found to be engaged in a U.S. trade or business, a foreign limited partner would be required to file a U.S. federal income tax return for such year and pay tax at full U.S. rates. In the case of a foreign limited partner which is a foreign corporation, an additional 30% "branch profits" tax might be imposed. Furthermore, in such event the partnerships would be required to withhold taxes from the income or gain allocable to such a foreign limited partner under Section 1446 of the Code. A foreign limited partner is not subject to U.S. tax on certain interest income, including income attributable to (i) original issue discount on Treasury bills that have a maturity of 183 days or less or (ii) commercial bank deposits, provided, in either case, that such foreign limited partner is not engaged in a trade or business within the U.S. during a taxable year. Additionally, a foreign limited partner not engaged in a trade or business within the U.S. is not subject to U.S. tax on interest income (other than certain so-called "contingent interest") attributable to obligations issued after July 18, 1984 that are in registered form if the foreign limited partner timely provides the relevant partnership with an IRS Form W-8BEN. Prospective foreign limited partners who are engaged in a U.S. trade or business or who act as dealers in commodities may be subject to U.S. income tax and should consult their tax advisors before investing in a partnership. The estate of a deceased foreign limited partner may be liable for U.S. estate tax and may be required to obtain an estate tax release from the Internal Revenue Service in order to transfer the units of such foreign limited partner. Foreign persons should consult their own tax advisers before deciding whether to invest in the partnerships. Tax Elections. The Internal Revenue Code of 1986 provides for optional adjustments to the basis of partnership property upon distributions of partnership property to a partner (Section 734) and transfers of units, including transfers by reason of death (Section 743), provided that a partnership election has been made pursuant to Section 754. As a result of the complexities and added expense of the tax accounting required to implement such an election, the general partner does not presently intend to make such an election for any of the partnerships. Therefore, any benefits which might be available to the partners by reason of such an election will be foreclosed. Tax Returns and Information. The partnerships will file their information returns using the accrual method of accounting. Within 75 days after the close of each partnership's taxable year, the partnership will furnish each limited partner, and any assignee of the units of a limited partner, copies of the partnership's Schedule K-1 indicating the limited partner's distributive share of tax items and any additional information as is reasonably necessary to permit the limited partners to prepare their own federal and state tax returns. Partnership's Taxable Year. Each partnership has the calendar year as its taxable year. Unrelated Business Taxable Income of Employee Benefit Plan Limited Partners and Other Tax-Exempt Investors. Income allocated to a limited partner which is an employee benefit plan or other tax-exempt entity should not be subject to tax under Section 511 of the Internal Revenue Code of 1986, provided that the units purchased by such plans and entities are not "debt-financed." However, if a partnership were to purchase physical commodities with borrowed funds (whether upon delivery under a futures or forward contract or otherwise) and to sell those commodities at a gain, the gain would likely constitute unrelated business income. The partnerships are entitled to engage in such leveraged purchases of physical commodities. Tax exempt investors should see "Purchases by Employee Benefit Plans ERISA Considerations" above. Tax Audits All partners are required under the Internal Revenue Code of 1986 to report all the partnership items on their own returns consistently with the treatment by the partnership, unless they file a statement with the Internal Revenue Service disclosing the inconsistencies. Adjustments in tax liability with respect to partnership items will be made at the partnership level. The general partner will represent each partnership All of the foregoing statements are based upon the existing provisions of the Internal Revenue Code of 1986 and the regulations promulgated thereunder and the existing administrative and judicial interpretations thereof. The general partner cannot assure you that legislative, administrative, or judicial changes will not occur which will modify such statements. The foregoing statements are not intended as a substitute for careful tax planning, particularly since certain of the federal income tax consequences of purchasing units may not be the same for all taxpayers. The partnerships' tax returns could be audited by the Internal Revenue Service and adjustments to the returns could be made as a result of such audits. If an audit results in adjustment, limited partners may be required to file amended returns and their returns may be audited. Accordingly, prospective purchasers of units are urged to consult their tax advisers with specific reference to their own tax situation under federal law and the provisions of applicable state, local, and foreign laws before subscribing for units. STATE AND LOCAL INCOME TAX ASPECTS In addition to the federal income tax consequences for individuals described under "Material Federal Income Tax Considerations" above, the partnerships and their limited partners may be subject to various state and local taxes. Certain of these taxes could, if applicable, have a significant effect on the amount of tax payable in respect of an investment in the partnerships. A limited partner's distributive share of the realized profits of a partnership may be required to be included in determining his reportable income for state or local tax purposes. Furthermore, state and local tax laws may not reflect recent changes made to the federal income tax law and, therefore, may be inconsistent with the federal income treatment of gains and losses arising from the partnerships' transactions in Section 1256 contracts. Accordingly, prospective limited partners should consult with their own tax advisers concerning the applicability of state and local taxes to an investment in the partnerships. The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in such counsel's opinion, the partnerships should not be liable for New York City unincorporated business tax. Limited partners who are nonresidents of New York State will not be liable for New York State personal income tax on such partners' income from the partnerships, but may be liable for such tax to the extent such limited partners' allocable share of income attributable to the partnerships' transactions involves tangible personal property. Likewise, limited partners who are nonresidents of New York City will not be liable for New York City earnings tax on the partners' income from the partnerships. New York City residents may be subject to New York City personal income tax on the partners' income from the partnerships. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters. LEGAL MATTERS Legal matters in connection with the units being offered hereby, including the discussion of the material federal income tax considerations relating to the acquisition, ownership, and disposition of units, have been passed upon for each partnership and the general partner by Cadwalader, Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038. Cadwalader, Wickersham & Taft LLP also has acted as counsel for Morgan Stanley DW in connection with the offering of units. Cadwalader, Wickersham & Taft LLP may advise the general partner with respect to its responsibilities as general partner of, and with respect to matters relating to, the partnerships. EXPERTS The statements of financial condition of Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., and Morgan Stanley Spectrum Currency L.P., including the schedules of investments, as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003, as well as the statements of financial condition of Demeter Management Corporation as of November 30, 2003 and 2002 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and is included in reliance upon such report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP also acts as independent auditors for Morgan Stanley. WHERE YOU CAN FIND MORE INFORMATION The partnerships filed registration statements relating to the units registered with SEC. This prospectus is part of the registration statements, but the registration statements include additional information. You may read any of the registration statements, or obtain copies by paying prescribed charges, at the SEC's public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 233 Broadway, New York, New York 10279; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. For further information on the public reference rooms, please call the SEC at 1-800-SEC-0330. The registration statements are also available to the public from the SEC's Web site at "http://www.sec.gov." * Data as of November 30, 2003. ** Activity reported with regard to Currencies does not include trading activity which takes place on the Interbank forward currency market. A market participant can make a futures contract to buy or sell a commodity. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of the commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. For example, if we sell one contract of December 2004 wheat on a commodity exchange, we may fulfill the contract at any time prior to the December 2004 delivery date by purchasing one contract of December 2004 wheat on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical commodity. Options on Futures An option on a futures contract or on a physical commodity gives the buyer of the option the right to take a position of a specified amount at a specified price of a specific commodity (the "striking," "strike," or "exercise" price) in the underlying futures contract or commodity. The buyer of a "call" option acquires the right to take a long position (i.e., the obligation to take delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The buyer of a "put" option acquires the right to take a short position (i.e., the obligation to make delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The purchase price of an option is referred to as its "premium." The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Thus, the seller of a call option must stand ready to sell (take a short position in the underlying futures contract) at the striking price if the buyer should exercise the option. The seller of a put option, on the other hand, must stand ready to buy (take a long position in the underlying futures contract) at the striking price. A call option on a futures contract is said to be "in-the-money" if the striking price is below current market levels, and "out-of-the-money" if the striking price is above current market levels. Conversely, a put option on a futures contract is said to be "in-the-money" if the striking price is above current market levels, and "out-of-the-money" if the striking price is below current market levels. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract. An option that is out-of-the-money and not offset by the time it expires becomes worthless. Options usually trade at a premium above their intrinsic value (i.e., the difference between the market price for the underlying futures contract and the striking price), because the option trader is speculating on (or hedging against) future movements in the price of the underlying contract. As an option nears its expiration date, the market and intrinsic value typically move into parity. The difference between an option's intrinsic and market values is referred to as the "time value" of the option. See "Risk Factors Trading and Performance Risks Options trading can be more volatile than futures trading" beginning on page . Forward Contracts Contracts for the future delivery of certain commodities may also be made through banks or dealers pursuant to what are commonly referred to as "forward contracts." A forward contract is a contractual right to purchase or sell a specified quantity of a commodity at or before a specified date in the future at a specified price and, therefore, it is similar to a futures contract. In forward contract trading, a bank or dealer generally acts as principal in the transaction and includes its anticipated profit (the "spread" between the "bid" and the "asked" prices), and in some instances a mark-up, in the prices it quotes for forward contracts. Unlike futures contracts, forward contracts are not standardized contracts; rather, they are the subject of individual negotiation between the parties involved. Because there is no clearinghouse system applicable to forward contracts, forward contracts are not fungible, and there is no direct means of "offsetting" a forward contract by purchase of an offsetting position on the same exchange as one can a futures contract. In recent years, the terms of forward contracts have become more standardized and in some instances such contracts now provide a right of offset or cash settlement as an alternative to making delivery on the contract. See "Risk Factors Trading and Performance Risks The unregulated nature of the forwards markets creates counterparty risks that do not exist in futures trading on exchanges" on page . Hedgers and Speculators The two broad classes of persons who trade futures, forwards, and options contracts are "hedgers" and "speculators." Commercial interests, including farmers, that market or process commodities, and financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign currencies, and stocks, which are exposed to currency, interest rate, and stock market risks, may use the futures markets for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures, forwards, and options contracts. Speculators rarely take delivery of commodities, but rather close out their positions by entering into offsetting purchases or sales of futures, forwards, and options contracts. Since the speculator may take either a long or short position in the futures, forwards, and options markets, it is possible for him to make profits or incur losses regardless of whether prices go up or down. The partnerships will trade for speculative rather than for hedging purposes. Speculator or Hedger? A Tale of Two Investors A kite manufacturer from Iowa received an order for 30 million kites from a distributor in Tokyo. Delivery was to be made in 18 months and the manufacturer would be paid in yen. Since he couldn't possibly know what the dollar/yen exchange rate would be in 18 months, the kite manufacturer used futures contracts to hedge his currency risk and lock in an exchange rate. In that way, he guaranteed his price. There would be no surprises upon delivery. In selling away his risk, he acted as a hedger. At the same time, a managed futures fund trading advisor used a highly sophisticated trading program that indicated a favorable trend for the dollar vs. the yen. The advisor purchased a futures contract. If the advisor's program were reading the market trends accurately and the trend developed, he would sell the contract and earn a profit. In buying a contract for potential profit, he acted as a speculator. The moral of the story? Some use the futures markets to manage business risk and others to profit. Both are vital in this dynamic marketplace. Futures Exchanges Futures exchanges provide centralized market facilities for trading futures contracts and options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the New York Board of Trade. Each futures exchange in the United States has an associated "clearinghouse." Once trades between members of an exchange have been confirmed, the clearinghouse becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each trader's open position in the market. Thereafter, each party to a trade looks only to the clearinghouse for performance. The clearinghouse generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer that enables the clearinghouse to meet its obligations with regard to the "other side" of an insolvent clearing member's contracts. Clearinghouses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearinghouses is to ensure the integrity of trades, and members effecting futures transactions on an organized exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their commodity broker and the clearinghouse. Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast to United States exchanges, certain foreign exchanges are "principals' markets," where trades remain the liability of the traders involved, and the exchange does not become substituted for any party. See "Regulations" below and "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Speculative Position Limits The CFTC and U.S. futures exchanges have established limits, referred to as "speculative position limits" or "position limits," on the maximum net long or net short speculative position that any person or group of persons (other than a hedger, which the partnerships are not) may hold, own, or control in certain futures or options contracts. Among the purposes of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. The CFTC has jurisdiction to establish position limits with respect to all commodities and has established position limits for all agricultural commodities. In addition, the CFTC requires each United States exchange to submit position limits for all commodities traded on such exchange for approval by the CFTC. However, position limits do not apply to many currency futures contracts. Position limits do not apply to forward contract trading or generally to trading on foreign exchanges. See "Risk Factors Trading and Performance Risks The partnerships are subject to speculative position limits" on page . Daily Limits Most United States futures exchanges (but generally not foreign exchanges or banks or dealers in the case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as "daily price fluctuation limits" or more commonly "daily limits." The daily limits establish the maximum amount that the price of a futures or options contract may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular futures or options market, no trades may be made at a price beyond the limit. See "Risk Factors Trading and Performance Risks Market illiquidity may cause less favorable trade prices" on page . Regulations Futures exchanges in the United States are subject to regulation under the Commodity Exchange Act by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. The CFTC also regulates the activities of "commodity trading advisors" and "commodity pool operators" and has adopted regulations with respect to certain of such persons' activities. The CFTC requires a commodity pool operator (such as the general partner) to keep accurate, current, and orderly records with respect to each pool it operates. The CFTC may suspend the registration of a commodity pool operator if the CFTC finds that the operator has violated the Commodity Exchange Act or regulations thereunder and in certain other circumstances. Suspension, restriction, or termination of the general partner's registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the partnerships. The Commodity Exchange Act gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the trading advisors. If the registration of a trading advisor as a commodity trading advisor were to be terminated, restricted, or suspended, the trading advisor would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the relevant partnership. The partnerships themselves are not registered with the CFTC in any capacity. The Commodity Exchange Act requires all "futures commission merchants," such as Morgan Stanley DW and Morgan Stanley & Co., to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers' funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. The partnerships have no present intention of using any introducing brokers in their trading. The Commodity Exchange Act also gives the states certain powers to enforce its provisions and the regulations of the CFTC. You are afforded certain rights for reparations under the Commodity Exchange Act. You may also be able to maintain a private right of action for certain violations of the Commodity Exchange Act. The CFTC has adopted rules implementing the reparation provisions of the Commodity Exchange Act which provide that any person may file a complaint for a reparations award with the CFTC for violation of the Commodity Exchange Act against a floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons. Pursuant to authority in the Commodity Exchange Act, the National Futures Association has been formed and registered with the CFTC as a "registered futures association." At the present time, the National Futures Association is the only non-exchange self-regulatory organization for commodities professionals. National Futures Association members are subject to National Futures Association standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the National Futures Association promulgates rules governing the conduct of commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the National Futures Association responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers, and their respective associated persons and floor brokers. Morgan Stanley DW, the general partner, Morgan Stanley & Co., and the trading advisors are all members of the National Futures Association (the partnerships themselves are not required to become members of the National Futures Association). The CFTC has no authority to regulate trading on foreign commodity exchanges and markets. See "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Margins "Initial" or "original" margin is the minimum amount of funds that a futures trader must deposit with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. "Maintenance" margin is the amount (generally less than initial margin) to which a trader's account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps assure the futures trader's performance of the futures contracts he purchases or sells. Futures contracts are customarily bought and sold on margins that represent a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded, and may be modified from time to time by the exchange during the term of the contract. See "Risk Factors Trading and Performance Risks The partnerships' trading is highly leveraged" on page . Brokerage firms, such as Morgan Stanley DW, Morgan Stanley & Co., and Morgan Stanley International, carrying accounts for traders in futures contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves. The commodity brokers presently intend to require each partnership to make margin deposits equal to the exchange minimum levels for all futures contracts. Trading in the currency forward contract market does not require margin, but generally does require the extension of credit by a bank or dealer to those with whom the bank or dealer trades. Since each partnership's trading will be conducted through a commodity broker, each partnership will be able to take advantage of the commodity brokers' credit lines with several participants in the interbank market. The commodity brokers will require margin with respect to a partnership's trading of currency forward contracts. Margin requirements are computed each day by a trader's commodity broker. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the trader's position. With respect to a partnership's trading, that partnership, and not its limited partners personally or any other partnership, will be subject to margin calls. POTENTIAL ADVANTAGES Developing a comprehensive financial plan entails evaluating options and acting upon those options. In this fast-paced and ever-changing financial environment, selecting from the broad array of investments available can be difficult and time-consuming. Astute investors often turn to professional money managers for the expertise and guidance needed to map out a successful investment strategy. Morgan Stanley, a global leader in financial management, has developed the Spectrum Series of partnerships to provide professional money management in the futures, forwards, and options markets. An investment in a partnership is speculative and involves a high degree of risk. The general partner and Morgan Stanley DW believe that managed futures investments (such as the partnerships) can provide you with the potential for long-term capital appreciation (with commensurate risk), but are appropriate only for the aggressive growth portion of your comprehensive financial plan. See "Risk Factors" beginning on page . Taking the risks into consideration, this investment does offer the following potential advantages. Investment Diversification If you are not prepared to make a significant investment or spend substantial time trading various futures, forwards, and options, you may still participate in these markets through an investment in a Spectrum Series partnership, obtaining diversification from more traditional investments in stocks, bonds, and real estate. The general partner believes, on the basis of the past experience of the partnerships, that the profit potential of a partnership does not depend upon favorable general economic conditions, and that a partnership is as likely to be profitable during periods of declining stock, bond, and real estate markets as at any other time; conversely, a partnership may be unprofitable during periods of generally favorable economic conditions. Managed futures investments can serve to diversify your portfolio and smooth overall portfolio volatility. Modern Portfolio Theory is the academic affirmation of the value of diversification. Modern Portfolio Theory was developed in the 1950s by Nobel Laureates William Sharpe and Harold Markowitz. These two pioneers developed a framework for efficiently diversifying assets within a portfolio. They suggested that investing in any asset class with positive returns and low correlation to other assets improves the overall risk/reward characteristics of the entire portfolio. In 1983, Dr. John H. Lintner of Harvard University focused on the concepts of Modern Portfolio Theory in a study about portfolio diversification. Specifically, Modern Portfolio Theory was utilized to evaluate the addition of a managed futures component to a diversified portfolio comprised of 60% stocks and 40% bonds. The results of Lintner's work demonstrated that by including a variety of assets, such as commodities, in a hypothetical portfolio, an investor may lower the portfolio's overall volatility or risk. Lintner's findings were further supported by the works of Dr. Thomas Schneeweis of the University of Massachusetts, Amherst, in his 1999 study, "The Benefits of Managed Futures." Dr. Schneeweis concluded that "while ... the correlation between managed futures and most traditional investments is approximately zero, when asset returns are segmented according to whether the traditional asset rose or fell, managed futures are often negatively correlated in months when traditional asset returns are negative while being positively correlated when traditional asset returns are positive." The partnerships' combined benefits of growth potential (with commensurate risk) and diversification can potentially reduce the overall volatility of your portfolio, while increasing profits. Whether you are able to lower the overall volatility of your portfolio with managed futures investments will depend in part on the characteristics of your portfolio. Depending on these characteristics, the addition of a managed futures investment could increase or decrease the overall volatility and risk of your portfolio. By combining asset classes, you may create a portfolio mix that provides the potential to offer the greatest possible return within acceptable levels of volatility. While past performance is no guarantee of future results, managed futures investments, such as the partnerships, may profit (with commensurate risk) from futures, forwards, and options market moves, with the potential to enhance your overall portfolio. The trading advisors' speculative trading techniques will be the primary factor in the partnerships' success or failure. You should note that there are always two parties to a futures, forward, or option contract; consequently, for any gain achieved by one party on a contract, a corresponding loss is suffered. Therefore, due to the nature of futures, forwards, and options trading, only 50% of contract interests held by all market participants can experience gain at any one time. Brokerage commissions and other costs of trading may reduce or eliminate any gain that would otherwise be achieved. Few stock and bond investors sell short, so most benefit only when prices are rising. However, managed futures investors profit when they accurately identify sustainable trends, up or down. Thus, whether the futures and forwards markets are rising or declining, managed futures may generate attractive returns. They can, in turn, lose money in either direction as well. The first step toward a sound financial future is to establish your investment objectives. Based on your financial goals, requirements, and investment preferences, your Morgan Stanley financial advisor can help you determine the combination of asset classes as well as the type of trading advisor(s) that most suits your investment profile. Asset allocation is the next critical step to help you achieve your investment objectives. Asset allocation refers to the division of investment dollars over a variety of asset classes in order to reduce overall volatility through portfolio diversification, while increasing the long-term performance potential of an investment portfolio. A fully diversified portfolio should contain cash, income, growth, and aggressive growth investments. % % % % % % % 1980 32.5 (2.8 ) (0.3 ) 24.4 27.7 63.7 N/A 1981 (4.9 ) 1.1 2.7 (1.0 ) (3.3 ) 23.9 N/A 1982 21.5 41.1 37.2 (0.9 ) 11.3 16.7 N/A 1983 22.6 1.8 8.9 24.6 23.3 23.8 N/A 1984 6.3 14.7 16.1 7.9 5.8 8.7 1.4 1985 31.7 32.0 25.0 56.7 41.8 25.5 21.9 1986 18.7 24.1 17.0 69.9 42.8 3.8 (14.4 ) 1987 5.3 (2.7 ) 2.1 24.9 16.8 57.3 43.1 1988 16.6 9.2 9.5 28.6 23.9 21.8 7.3 1989 31.7 18.9 14.0 10.8 17.2 1.8 4.7 1990 (3.1 ) 4.6 7.3 (23.2 ) (16.5 ) 21.0 14.2 1991 30.5 17.9 18.5 12.5 19.0 3.7 10.0 1992 7.6 7.8 8.9 (11.8 ) (4.7 ) (0.9 ) (1.4 ) 1993 10.1 16.4 12.1 32.9 23.1 10.4 10.7 1994 1.3 (6.9 ) (3.5 ) 8.1 5.6 (0.7 ) (7.7 ) 1995 37.6 30.7 21.7 11.6 21.3 13.7 13.9 1996 23.0 (0.4 ) 3.3 6.4 14.0 9.1 9.8 1997 33.4 14.9 10.2 2.1 16.2 10.9 7.6 1998 28.6 13.5 8.6 20.3 24.8 7.0 7.9 1999 21.0 (8.7 ) (1.6 ) 27.3 25.3 (1.2 ) (1.4 ) 2000 (9.1 ) 20.1 9.3 (14.0 ) (12.9 ) 7.9 4.7 2001 (11.9 ) 4.6 10.9 (21.2 ) (16.5 ) 0.8 (0.1 ) 2002 (22.1 ) 17.2 9.4 (15.7 ) (19.6 ) 12.4 14.3 2003 28.7 2.1 8.7 39.2 33.8 8.6 11.6 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Annual Returns of Various Asset Classes Over Time" Table: For the analyses used in this table, the performance of independent indices has been used to represent seven asset classes: U.S. stocks, U.S. Treasury bonds, U.S. corporate bonds, international stocks, global stocks, managed futures, and public managed futures funds. The respective indices used are the Standard and Poor's 500 Stock Index, the Lehman Brothers Treasury Bond Index, the Citigroup Corporate Bond Index, the Morgan Stanley Capital International ("MSCI") EAFE Index, the MSCI World Index, the Barclay CTA Index, and the CISDM Public Fund Index. The S&P 500 Index and the Citigroup Corporate Bond Index are compiled assuming dividends and interest are re-invested. The S&P 500 Index is based on a portfolio of 500 stocks (consisting of 23 energy, 34 materials, 66 industrials, 89 consumer discretionary, 34 consumer staples, 48 health care, 82 financials, 75 information technology, 12 telecom services, and 37 utilities). The weights of the stocks in the portfolio at a given time reflect the stocks' total market capitalization. The S&P 500 Index accounts for approximately 80% of the market capitalization of all stocks listed on the New York Stock Exchange. The Lehman Brothers Treasury Bond Index consists of all existing U.S. Treasury bond issues. The Citigroup Corporate Bond Index is a benchmark of investment grade fixed rate corporate issues with maturities of at least one year and in minimum outstanding amounts of $100 million. The corporate issues encompass such industry sectors as Manufacturing, Service, Energy, Consumer, Transportation, Industrial-Other, Utility, and Finance. The MSCI EAFE Index is comprised of approximately 1,000 companies, representing a market structure of 21 European and Pacific based countries covering 59 industries. The index is used to represent international equities. The MSCI World Index is comprised of more than 1,500 companies, representing a market structure of 23 countries around the world. The index is used to represent global equities, including U.S. and Canadian markets. The Barclay CTA Index provides a benchmark of performance of commodity trading advisors. In order to qualify for inclusion in the Barclay CTA Index, a commodity trading advisor must meet the following criteria: (1) the commodity trading advisor must have four years of prior performance history; and (2) in cases where a commodity trading advisor who is in the Barclay CTA Index introduces an additional program, this additional program is added to the Index only after its second year of trading. In 2003, there were 386 commodity trading advisor programs which were included in the calculation of the Barclay CTA Index. The CISDM Public Fund Index averages managed futures fund performance for public funds. CISDM indices are dollar or equity weighted to reflect performance. To qualify for inclusion in CISDM's fund indices, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restriction on the funds and/or pools that it tracks. As of December 31, 2003, there were 55 public funds included in the calculation of the CISDM Public Fund Index. The S&P 500 Index, Citigroup Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The MSCI World Index performance data for global stocks are provided by Morgan Stanley Capital International Inc., New York, NY. The Lehman Brothers Treasury Bond Index and the Barclay CTA Index performance data for U.S. Treasury bonds and managed futures, respectively, are provided by the Barclay Trading Group Ltd., Fairfield, IA. The CISDM Public Fund Index performance data for public managed futures funds was provided by Managed Account Reports, LLC, New York, NY. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index and the CISDM Public Fund Index reflect results net of actual fees and expenses, the Barclay CTA Index includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as Capsule IV Performance of Spectrum Global Balanced Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $99,792,833 Current capitalization: $52,639,493 Current net asset value per unit: $15.47 Worst monthly % drawdown past five years: (4.99)% (May 1999) Worst monthly % drawdown since inception: (7.92)% (February 1996) Worst month-end peak-to-valley drawdown past five years: (12.44)% (44 months, May 1999-December 2002) Worst month-end peak-to-valley drawdown since inception: (12.44)% (44 months, May 1999-December 2002) Cumulative return since inception: 54.70% Monthly Performance the partnerships), and the CISDM Public Fund Index includes funds with trading advisors and fee structures that differ from the partnerships. Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index and the public managed futures funds included in the CISDM Public Fund Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, and the CISDM Public Fund Index is believed to be representative of public managed futures funds in general, the performance of the partnerships may differ from the performance reflected in such indices. Correlation to Traditional Investments Managed futures have historically demonstrated the ability to perform independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation, or the potential for managed futures to perform when traditional markets such as stocks and bonds may experience difficulty performing. Of course, managed futures funds will not automatically be profitable during unfavorable periods for these traditional investments, and vice versa. The degree of non-correlation of any given managed futures fund will vary, particularly as a result of market conditions, and some funds will have a significantly lesser degree of non-correlation (i.e., greater correlation) with stocks and bonds than others. To the extent the performance of managed futures and the performance of traditional markets are non-correlated, managed futures may or may not perform as well when traditional markets are performing well. Spectrum Global Balanced, a fund whose trading strategy is to offer a balanced portfolio through exposure to the stock and bond markets in addition to the futures markets, should be distinguished from other managed futures funds. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley DW offers. The factors that influence the stock and bond markets can affect the futures markets in different ways and to varying degrees. In this connection, an article in the June 8, 1998 issue of Business Week, "Commodities are Cheap Time to Leap?" discusses the risks and potential rewards of investing in managed futures funds, noting the low correlation of their performance to stocks and bonds. The following charts were prepared by the general partner to illustrate the correlation of the performance results of each partnership to that of the S&P 500 Index and the Citigroup Corporate Bond Index. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Correlation measures how closely related two data series are, in this case, returns on asset classes. More specifically, the correlation coefficient measures the direction and extent of the linear relationship between two data series. Correlation coefficient values range from 1 to -1. A value greater than 0 implies a positive linear relationship (positive correlation). A value less than 0 implies an inverse linear relationship (negative correlation). A value of 0 implies no linear relationship (no correlation). The following tables and charts were prepared by the general partner to illustrate the correlation coefficient of each partnership's performance results to those of the S&P 500 Index and the Citigroup Corporate Bond Index for the periods specified. The charts also show the number of months the monthly returns of the partnerships were positive or negative with, or different from, the monthly returns of these two indices. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Month Data: 149 months of trading from August 1991 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following chart was prepared by the general partner to illustrate the performance of managed futures against that of stocks from January 1980 through December 31, 2003, using the recognized market indices of each asset. Each bar shows index returns during successive 12-month holding periods. The Notes on the next page are an integral part of the following chart. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Managed Futures vs. Stocks" Table: Stocks are represented by the S&P 500 Index, provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by Barclay Trading Group Ltd., Fairfield, IA. Each bar represents the asset class performance derived from successive 12-month hypothetical holding periods or windows. (A 12-month holding period is defined as a period of 12 consecutive months, e.g., from January 1989 to December 1989; the next would be from February 1989 to January 1990, etc.) Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. By overlaying returns, investors can see the potential benefits of a diversified portfolio that includes both traditional and alternative investments. There are many times when both the managed futures and stock indices showed positive performance. Obviously, though, there is no investment that only appreciates. There are 35 periods when managed futures showed negative returns, while stocks experienced 58 periods of negative returns during the studied time frame. While not a guarantee of future results, this chart provides a clear indication of the non-correlated aspect of managed futures. This non-correlation enables investors with managed futures to potentially lower the overall volatility of their portfolios. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. The diversification story supporting managed futures is compelling, as the chart below shows. Since 1980, in every instance where stocks or bonds have declined more than 10%, the managed futures index has risen. Managed Futures vs. Stocks All instances since 1980 where the S&P 500 Index declined more than 10% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Managed Futures vs. Bonds All instances since 1980 where the Citigroup Corporate Bond Index declined more than 10% Data: January 1980 - December 2003. Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index provided by Strategic Financial Solutions, LLC (Memphis, TN) and monthly returns for the Barclay CTA Index provided by Barclay Trading Group Ltd. (Fairfield, IA). Managed futures investments do not replace equities or bonds but rather act as a complement to help smooth overall portfolio returns. Managed Futures data reflects the fee structure of commodity trading advisors managing individual accounts and does not reflect fee structures of commodity pools, which are typically higher. The following chart was prepared by the general partner to illustrate the risk/return characteristics of a portfolio consisting of different combinations of domestic stocks, corporate bonds, international equities, and/or managed futures, based on the performance of recognized market indices of each asset over the period January 1980 December 2003. The Notes on the next page are an integral part of the following chart. Improved Portfolio Efficiency January 1980 through December 2003 U.S. Stocks/Bonds/International Equities/Managed Futures Notes to "Improved Portfolio Efficiency" Table on prior page: Stocks are represented by the S&P 500 Index, corporate bonds are represented by the Citigroup Corporate Bond Index, and international equities are represented by the MSCI EAFE Index, each provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by the Barclay Trading Group Ltd., Fairfield, IA. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Professional Management Professional money management is one of the most significant benefits a managed futures investment can offer. A professional trading advisor has several advantages over an individual investor. Capitalization The trading advisors and funds are well capitalized, enabling the advisors to effectively manage assets in the face of market volatility. Disciplined Trading Strategy Each advisor has its own researched trading strategy, with strict money management policies Planned Strategy Trading advisors research and design trading strategies that seek to provide long-term profit potential. Risk Control Trading advisors apply risk management strategies based on years of research and experience. Research and Development The advisors are committed to ongoing research and development, in an effort to continuously improve upon existing systems and technology in order to keep pace with industry developments and potentially capitalize on market opportunities as they occur. In considering the advantages of utilizing a professional trading advisor, you also should consider the fees a trading advisor will be paid to manage a partnership's account. Depending on the partnership, the annual management fees range from 1.25% to 3.0% of the average month-end net assets of a partnership managed by the trading advisor, and incentive fees range from 15.0% to 20.0% of trading profits. The Trading Advisor Selection Process The general partner has carefully selected the advisors responsible for managing the Spectrum Series utilizing a quantitative and qualitative due diligence process. In addition, the general partner examines trading activity and performance reports daily and conducts on-site due diligence visits and ongoing research and development. Each of the trading advisors for the partnerships was chosen by the general partner based upon a strict selection process, including such criteria as performance history, experience, personnel, and due diligence. The performance history and trading experience of the trading advisors chosen for the partnerships span a range of 5 to 25 years, and each trading advisor employs experienced personnel. Additionally, the general partner monitors daily each trading advisor's activities on behalf of a partnership and periodically conducts on-site due diligence visits to remain abreast of each trading advisor's continuing efforts toward research and development. This selection process is described below. In order for a trading advisor to be selected by the general partner, a qualitative and quantitative due diligence process is undertaken, considering the factors described below. The general partner's primary objective in the selection process is to allocate assets to trading advisors with well-established performance histories and whom it believes have the potential to continue to be successful in the future. Monitoring is an important second phase in the due diligence process. The general partner has invested significant resources into its proprietary Fund Management System, a comprehensive computerized management system. This sophisticated system produces daily control reports generated from actual trading data and enables the general partner to closely monitor the activity and performance of trading advisors relative to their historical profile. Monitoring also occurs on a periodic basis by discussing with the trading advisors their performance relative to profile and peer trading advisors, recent market conditions, and trading opportunities. Ongoing research and development and continued on-site due diligence visits are conducted. While the due diligence process cannot guarantee future success, the general partner believes the process can provide the basis for sound decision-making and can increase the potential for future success. Trading Advisor Evaluation and Selection Screening Trading advisors are screened from a pool of approximately 400. Evaluation Trading advisors are categorized and evaluated based on quantitative and qualitative factors. Selection Trading advisors are selected based on quantitative and qualitative analysis. Monitoring Daily and periodic monitoring and reporting takes place on an ongoing basis. Ruble Hang Seng Index Government Bonds Nikkei 225 Yen 3-year & 10-year bonds All Ordinaries Index Dollar Cocoa Coffee Corn Cotton Feeder cattle Lean hogs Live cattle Lumber Oats Orange juice Pork bellies Rubber Soybean meal Soybean oil Soybeans Sugar Wheat Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Hong Kong dollar Japanese yen Korean won Mexican peso New Zealand dollar Norwegian krone Philippine peso Singapore dollar South African rand Swedish krona Swiss franc U.S. dollar All Ordinaries CAC 40 DAX Dow Jones Industrial FTSE 100 Hang Seng IBEX-35 Plus MIB 30 NASDAQ 100 Nikkei 225 NYSE Composite Russell 2000 S&P Canada 60 S&P 500 Taiwan Stock Index Topix Stock Index INTEREST RATES Australian Bank Bill Australian T-Bond British Long Gilt British Short Sterling Canadian Bankers Acceptances Canadian Government Bond Euro Bond Eurodollar Euribor Euroyen Japanese Government Bond Muni Bond Index New Zealand Bill Spanish Government Bond Swiss Government Bond U.S. T-Bond U.S. T-Note METALS Aluminum Copper Gold Lead Nickel Palladium Platinum Silver Tin Zinc ENERGIES Brent crude oil Crude oil Gas oil Heating oil Natural gas Unleaded gas Each partnership normally trades a portfolio of diverse futures, forwards, and options, but may trade a greater or lesser number of futures, forwards, and options from time to time. Each limited partner will obtain greater diversification in futures, forwards, and options traded than would be possible trading individually, unless substantially more than the minimum investment described herein were committed to the futures, forwards, and options markets. Exchange Right At the sixth month-end after a person first becomes a limited partner in any of the Spectrum Series partnerships, and each calendar month thereafter, a limited partner may shift his investment among the partnerships. This permits a limited partner to select one or more partnerships which best suit his investment needs and objectives, which may change from time to time. A limited partner is not required to pay any redemption charges in connection with a Spectrum Series exchange. Diversified Professional Trading Management Trading decisions for each partnership will be made by trading advisors retained by the general partner. The trading approaches employed on behalf of each partnership by its trading advisors are not available for investments as small as the required minimum investment in each partnership. A limited partner's investment in each partnership is allocated among the trading advisors for such partnership. This permits a limited partner to receive the benefits from different trading systems being employed by such partnership. A limited partner can further diversify his professional trading management by dividing his investment among one or more of the partnerships. For example, an investor owning units of all five partnerships in the Spectrum Series would have the benefit of having his investment managed by eleven trading advisors. Limited Liability Unlike an individual who invests directly in futures, forwards, and options, an investor in a partnership cannot be individually subject to margin calls and cannot lose more than the amount of his/her unredeemed capital contribution, his/her share of undistributed profits, if any, and, under certain circumstances, any distributions and amounts received upon redemption, or deemed received on an exchange of units, and interest thereon. Interest Income Many commodity brokers permit accounts above a certain size to deposit margin for futures, forwards, and options in the form of interest-bearing obligations, such as U.S. Treasury bills, rather than cash, thus enabling the account to earn interest on funds being used for futures trading, or such brokers pay interest at U.S. Treasury bill rates on a portion of the cash deposited in the account. Each partnership deposits its assets in separate commodity trading accounts with the commodity brokers. Morgan Stanley DW credits each partnership at each month-end with interest income as if 80% (100%, in the case of Spectrum Global Balanced) of each partnership's average daily net assets for the month were invested at a prevailing rate on U.S. Treasury bills. Generally, an individual trader would not receive any interest on the funds in his commodity account unless he committed substantially more than the minimum investment required for the partnerships. While the partnerships are credited with interest by Morgan Stanley DW on the respective percentage of their assets deposited as margin as described above, the form of margin posted, whether cash or interest-bearing obligations (such as U.S. Treasury bills), does not reduce the risks inherent in the trading of futures, forwards, and options. Administrative Convenience The partnerships are structured so as to provide limited partners with numerous services designed to alleviate the administrative details involved in engaging directly in futures, forwards, and options trading, including monthly and annual financial reports (showing, among other things, the net asset value of a unit, trading profits or losses, and expenses), and all tax information relating to the partnerships necessary for limited partners to complete their federal income tax returns. SUPPLEMENTAL PERFORMANCE INFORMATION The tables on the following pages contain summary performance information and certain other data for each partnership, supplementing the information in Part I of this prospectus. % % % % % % % % % % January 0.34 (1.23 ) 0.55 (0.93 ) (0.06 ) 2.25 3.35 0.41 1.32 February 2.67 (1.69 ) (3.36 ) 0.94 (0.06 ) 1.49 3.16 (7.92 ) 4.62 March (2.60 ) 0.25 2.91 3.10 0.00 2.24 (2.50 ) (1.08 ) 2.88 April 2.19 (2.09 ) (0.31 ) (4.57 ) 4.13 (1.78 ) (1.65 ) 1.27 2.15 May 4.89 (0.19 ) 0.25 (1.32 ) (4.99 ) (0.35 ) 1.68 (3.13 ) 4.38 June (0.19 ) 1.30 (3.08 ) (0.26 ) 2.28 0.00 3.64 0.46 0.79 July (1.09 ) (0.83 ) 0.00 (2.18 ) (1.67 ) (1.19 ) 11.89 0.83 (1.39 ) August 0.00 0.97 0.51 3.01 (0.19 ) 2.55 (5.92 ) (0.82 ) (1.41 ) September (1.16 ) (4.16 ) (1.20 ) (3.94 ) (0.50 ) 5.11 3.26 2.30 1.61 October (0.92 ) (0.80 ) 2.75 2.25 (1.77 ) 1.18 (1.69 ) 3.77 0.26 November (1.32 ) 2.08 (0.06 ) (0.52 ) 1.93 2.66 (0.37 ) 4.76 2.72 (0.50 ) December 3.48 (4.02 ) 0.93 5.79 1.96 1.27 3.07 (3.88 ) 2.99 (1.21 ) Compound Annual/ Period Rate of Return 6.18 (10.12 ) (0.31 ) 0.87 0.75 16.36 18.23 (3.65 ) 22.79 (1.70 ) (2 months) Capsule V Performance of Spectrum Currency Type of pool: publicly-offered fund Inception of trading: July 2000 Aggregate subscriptions: $185,569,503 Current capitalization: $190,055,920 Current net asset value per unit: $15.66 Worst monthly % drawdown: (5.91)% (July 2001) Worst month-end peak-to-valley drawdown: (11.13)% (5 months, July 2002-November 2002) Cumulative return since inception: 56.60% Monthly Performance MORGAN STANLEY SPECTRUM SELECT L.P. All of the performance data below is through December 31, 2003. SPECTRUM SELECT STATISTICS Trading Advisors: EMC Capital Management, Inc. Graham Capital Management, L.P. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Began Trading: August 1, 1991 Total Assets in Fund: $441.5 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets of Graham, 1/12 of 3.00% of Beg. Net Assets of EMC, Northfield, Rabar, and Sunrise Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits to EMC, Northfield, Rabar, and Sunrise, and 20% to Graham Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.34% Standard Deviation of Monthly Returns: 6.85% Annualized Standard Deviation: 23.74% Sharpe Ratio: 0.22 Sortino Ratio: 0.49 Largest Decline Period (6/95 - 8/96): -26.77% Average Recovery (No. of months): 5.75 Average Monthly Loss: -4.18% Standard Deviation of Monthly Loss: 3.14% % of Losing Months: 47.33% Average Monthly Gain: 5.58% Standard Deviation of Monthly Gain: 5.89% % of Winning Months: 52.67% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Select uses the technically-based, aggressive, trend-following trading systems of EMC Capital Management, Inc., Graham Capital Management, L.P., Northfield Trading L.P., Rabar Market Research, Inc., and Sunrise Capital Management, Inc., to participate in a diversified portfolio of futures and currency markets. EMC uses an aggressive systematic trading approach that blends several independent methodologies designed to identify emerging trends and follow existing trends. This program seeks significant returns in favorable market periods, while accepting a commensurate decline in unfavorable market cycles. Northfield uses a purely technical approach utilizing price action itself as analyzed by clients, numerical indicators, pattern recognition, or other techniques designed to provide information about market direction. Rabar uses a systematic approach with discretion, limiting the equity committed to each trade, market and sector. Rabar's trading program uses constant research and analysis of market behavior. Sunrise's investment approach attempts to detect a trend, or lack of a trend, with respect to a particular market by analyzing price movement and volatility over time. Sunrise's trading system consists of multiple, independent and parallel systems, each designed to seek out and extract different market inefficiencies over different time horizons. Graham's trading programs rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's programs are based on the expectation that they can, over time, successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Soybeans Soybean meal Soybean oil Wheat STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index U.S. Dollar Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Japanese yen Mexican peso New Zealand dollar South African rand Singapore dollar Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc ENERGIES Crude oil Heating oil Natural gas Unleaded gas SOFTS Cocoa Coffee Cotton Orange Juice Sugar INTEREST RATES Australian bonds British bonds Canadian bonds Eurodollar German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Month Spectrum Select 1.00 0.89 -0.07 0.28 -0.01 CISDM Public Fund Index 1.00 -0.10 0.33 -0.05 S & P 500 Index 1.00 0.20 0.69 Citigroup Corporate Bond Index 1.00 0.10 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM TECHNICAL L.P. All of the performance data below is through December 31, 2003. SPECTRUM TECHNICAL STATISTICS Trading Advisors: Campbell & Company, Inc. Chesapeake Capital Corporation John W. Henry & Company, Inc. Winton Capital Management Limited Began Trading: November 1, 1994 Total Assets in Fund: $538.2 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets to JWH and Winton, 1/12 of 3.00% to Campbell and Chesapeake Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits to Campbell, JWH and Winton, 19.00% to Chesapeake Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.33% Standard Deviation of Monthly Returns: 5.55% Annualized Standard Deviation: 19.22% Sharpe Ratio: 0.28 Sortino Ratio: 0.50 Largest Decline Period (4/01 - 4/02): -26.56% Average Recovery (No. of months): 2.93 Average Monthly Loss: -3.72% Standard Deviation of Monthly Loss: 3.09% % of Losing Months: 47.27% Average Monthly Gain: 5.03% Standard Deviation of Monthly Gain: 3.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Technical is managed by Campbell & Company, Inc., Chesapeake Capital Corporation, John W. Henry & Company, Inc. and Winton Capital Management Limited. These four Trading Advisors employ a combination of investment approaches. Campbell uses a highly disciplined systematic investment approach designed to detect and react to price movements in the futures and forward markets. Campbell's core systematic approach has been used successfully for over twenty years. The trading methodology employed by Chesapeake is based on the analysis of interrelated mathematical and statistical formulas, including the technical analysis of historical data, used to determine optimal price support and resistance levels and market entry and exit points. This trading system was designed in the 1980's and is continually updated based on research. JWH's trading programs use historical data and proprietary systems to detect emerging price trends. Positions are established under strict guidelines and are retained in markets where price movements have exceeded the expectations of most fundamental investors. Winton employs a computerized, technical, trend following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Feeder cattle Lean hogs Live cattle Pork bellies Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Cotton Orange juice Sugar ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Indonesian rupiah Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index Swedish Index Taiwan Index Toronto Index INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar German bonds Japanese bonds Spanish bonds Swiss bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Technical 1.00 0.95 -0.19 0.25 -0.14 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM STRATEGIC L.P. All of the performance data below is through December 31, 2003. SPECTRUM STRATEGIC STATISTICS Trading Advisors: Allied Irish Capital Management, Ltd. Blenheim Capital Management, LLC Eclipse Capital Management, Inc. Began Trading: November 1, 1994 Total Assets in Fund: $121.3 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Fundamental RISK ANALYSIS Compounded Annual Rate of Return: 3.99% Standard Deviation of Monthly Returns: 6.46% Annualized Standard Deviation: 22.38% Sharpe Ratio: 0.00 Sortino Ratio: 0.00 Largest Decline Period (1/00 - 10/00): -43.28% Average Recovery (No. of months): 13.13 Average Monthly Loss: -4.54% Standard Deviation of Monthly Loss: 3.87% % of Losing Months: 47.27% Average Monthly Gain: 5.08% Standard Deviation of Monthly Gain: 4.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Strategic is managed by Allied Irish Capital Management, Ltd., Blenheim Capital Management, LLC and Eclipse Capital Management, Inc. All three trading advisors employ a fundamental investment approach that evaluates key economic indicators such as supply and demand levels and geopolitical conditions, as well as certain technical factors. Allied Irish employs multiple investment professionals using a discretionary trading approach. Several strategies are applied to investments in a broad range of financial instruments. Blenheim's program has a strong global concentration using a discretionary trading approach. Investments are made in markets in which the trading advisor has a clear understanding of fundamental factors and geopolitical forces that influence price behavior. Eclipse employs a systematic trading approach using multiple trend-following and macroeconomic-driven models. A key characteristic of the Eclipse trading program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Lumber Sugar FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Swiss franc METALS Aluminum Copper Gold Nickel Silver Zinc ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas STOCK INDICES CAC 40 Index DAX Index FTSE Index NASDAQ 100 Index Nikkei Index S&P 500 Index INTEREST RATES British bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic 1.00 0.56 -0.03 0.06 0.05 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. All of the performance data below is through December 31, 2003. SPECTRUM GLOBAL BALANCED STATISTICS Trading Advisor: SSARIS Advisors, LLC Began Trading: November 1, 1994 Total Assets in Fund: $52.6 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 1.25% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 4.88% Standard Deviation of Monthly Returns: 2.73% Annualized Standard Deviation: 9.46% Sharpe Ratio: 0.09 Sortino Ratio: 0.15 Largest Decline Period (5/99 - 12/02): -12.44% Average Recovery (No. of months): 6.67 Average Monthly Loss: -1.80% Standard Deviation of Monthly Loss: 1.68% % of Losing Months: 45.45% Average Monthly Gain: 2.30% Standard Deviation of Monthly Gain: 1.92% % of Winning Months: 54.55% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Global Balanced follows the tenets of Modern Portfolio Theory and offers a balanced portfolio that participates in global stocks, global bonds, and alternative investments within managed futures. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley offers. Within global stock and global bond components of the fund, SSARIS Advisors, LLC analyzes various fundamental information, such as growth data, labor wage rates, central bank interest rate policies and inflation, to determine its approaches to these markets. Within the global currency and commodity components of the Fund, SSARIS employs a technical trend-following trading system to analyze price data, determine profit and risk potential and initiate trades overall. SSARIS uses a computer-based model to reallocate assets among various market sectors within each of the independent strategies. The returns achieved by Spectrum Global Balanced will tend to be more highly correlated to the performance of global stock and global bond markets than will be the returns derived within other funds in the Spectrum Series. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybean oil Wheat SOFTS Cotton Sugar ENERGIES Crude oil Gas oil Natural gas METALS Copper Nickel Zinc STOCK INDICES DAX Index FTSE Index Nikkei 225 Index S&P 500 Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Mexican peso New Zealand dollar Singapore dollar Swiss franc INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SEC registration fee 123,102 NASD filing fee 30,500 Printing and engraving 58,333 * Legal fees and expenses, excluding Blue Sky legal fees 30,000 * Accounting fees and expenses 13,333 * Annual Escrow Agent fees Spectrum Global Balanced 1.00 0.56 0.47 0.47 0.37 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index (EAFE) 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SELECTED FINANCIAL DATA AND SELECTED QUARTERLY FINANCIAL DATA The following are the results of operations and selected quarterly financial data for each partnership for the periods indicated. Per unit results for Spectrum Select have been adjusted to reflect a 100-for-1 unit conversion that became effective on June 1, 1998. Spectrum Select Selected Financial Data For the Years Ended December 31, Markets traded may include, but are not limited to, the following: FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Greek drachma Hong Kong dollar Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc Thai baht PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency 1.00 0.45 -0.11 0.14 0.01 CISDM Public Fund Index 1.00 -0.40 0.29 -0.28 S & P 500 Index 1.00 -0.12 0.86 Citigroup Corporate Bond Index 1.00 -0.03 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the change in fund assets from the inception of trading in each partnership through December 31, 2003, to reflect each partnership's performance and net additions of capital. Spectrum Select Fund Asset History Net Asset Value (in millions) * Spectrum Select had multiple closings during initial offering ** Re-opening of fund in September 1993 and November 1996 *** Effective May 1998, Spectrum Select became part of the Spectrum Series. Spectrum Technical Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic Fund Asset History Net Asset Value (in millions) Spectrum Global Balanced Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ % $ % $ Foreign currency 2,362,577 3.13 3,680 0.01 2,366,257 1,471,600,565 Commodity 3,548,205 4.71 4,379 0.01 3,552,584 12,920 Interest rate 1,057,473 1.40 1,057,473 3,130 Equity 131,610 0.17 131,610 $ % $ % $ Foreign currency 627,263 1.19 109,420 0.21 736,683 15,130,291 Interest Rate 216,798 0.41 216,798 1,053 Equity 936,933 1.78 936,933 291 Commodity 689,471 1.31 (5,870 ) (0.01 ) 683,601 Spectrum Currency Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the monthly performance, on a net asset value basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. The CISDM Public Fund Index represents the dollar-weighted average performance of public managed futures funds. To qualify for inclusion in the CISDM Public Fund Index, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restrictions on the public managed futures funds that it tracks. As of December 31, 2003, there were 55 public managed futures funds included in the calculation of the CISDM Public Fund Index. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison Data: August 1991 through December 2003 Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ $ $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 6,845,291 (1,351,849 ) Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) 18,665,233 (1,547,990 ) Proceeds from litigation settlement 4,636,156 Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison Data: July 2000 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the performance, on a rate of return basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: August 1991 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: July 2000 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total Trading Results 71,369,430 64,137,291 23,265,163 25,510,524 (2,899,839 ) Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 9,573,095 7,678,789 % $ % % % % Beginning NAV Per Unit 10.00 Aug-91 (6.20) 9.38 Sep-91 6.32 9.97 Oct-91 (2.28) 9.75 Nov-91 (2.93) 9.46 Dec-91 38.67 13.12 31.54 31.19 Jan-92 (13.72) 11.32 Feb-92 (6.09) 10.63 Mar-92 (3.91) 10.21 (22.14) Apr-92 (1.86) 10.02 May-92 (1.42) 9.88 Jun-92 7.19 10.59 3.71 Jul-92 10.72 11.73 17.29 Aug-92 6.69 12.51 33.40 Sep-92 (5.24) 11.86 11.94 18.89 Oct-92 (3.17) 11.48 17.81 Nov-92 1.39 11.64 23.04 Dec-92 (3.58) 11.22 (5.34) (14.45) (14.45) Jan-93 0.31 11.26 (0.54) Feb-93 14.85 12.93 21.64 Mar-93 (0.60) 12.85 14.52 25.83 Apr-93 10.35 14.18 41.48 May-93 1.95 14.46 46.32 Jun-93 0.21 14.49 12.74 36.79 Jul-93 13.90 16.50 40.71 65.04 Aug-93 (0.95) 16.35 30.64 74.28 Sep-93 (4.13) 15.67 8.16 32.17 57.15 Oct-93 (4.97) 14.89 29.72 52.81 Nov-93 (1.30) 14.70 26.28 55.37 Dec-93 8.13 15.90 1.42 41.62 41.62 21.16 Jan-94 (11.67) 14.04 24.70 24.03 Feb-94 (6.79) 13.09 1.21 23.11 Mar-94 12.57 14.73 (7.33) 14.61 44.21 Apr-94 (0.95) 14.59 2.88 45.55 May-94 6.84 15.59 7.81 57.75 Jun-94 10.30 17.19 16.73 18.66 62.32 Jul-94 (4.91) 16.35 (0.93) 39.41 Aug-94 (6.95) 15.22 (6.93) 21.59 Sep-94 1.25 15.41 (10.41) (1.70) 29.92 Oct-94 (4.78) 14.67 (1.50) 27.77 Nov-94 5.68 15.50 5.47 33.18 Dec-94 (2.72) 15.08 (2.11) (5.12) (5.12) 34.36 Jan-95 (8.13) 13.85 (1.32) 23.05 Feb-95 9.61 15.19 16.04 17.44 Mar-95 20.58 18.31 21.42 24.30 42.46 Apr-95 9.06 19.97 36.86 40.79 May-95 11.08 22.18 42.28 53.40 Jun-95 (1.70) 21.80 19.08 26.81 50.47 Jul-95 (10.61) 19.49 19.20 18.09 Aug-95 (4.81) 18.55 21.93 13.48 Sep-95 (7.76) 17.11 (21.52) 11.08 9.19 Oct-95 (3.35) 16.54 12.75 11.05 Nov-95 1.37 16.77 8.15 14.06 Dec-95 11.19 18.64 8.94 23.62 23.62 17.28 Jan-96 (0.38) 18.57 34.05 32.28 Feb-96 (12.11) 16.32 7.49 24.73 Mar-96 (0.22) 16.29 (12.63) (11.05) 10.57 Apr-96 4.07 16.95 (15.11) 16.17 May-96 (3.65) 16.33 (26.37) 4.76 Jun-96 1.37 16.56 1.65 (24.07) (3.71) Jul-96 (1.44) 16.32 (16.27) (0.20) Aug-96 (0.46) 16.24 (12.44) 6.76 Sep-96 3.34 16.79 1.39 (1.90) 8.97 Oct-96 13.30 19.02 15.00 29.65 Nov-96 6.76 20.31 21.11 30.98 Dec-96 (3.36) 19.62 16.90 5.27 5.27 30.13 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Jan-97 3.93 20.40 9.82 47.21 Feb-97 4.75 21.36 30.88 40.68 Mar-97 0.31 21.43 9.21 31.58 17.04 Apr-97 (5.46) 20.26 19.53 1.46 May-97 (1.18) 20.02 22.60 (9.73) Jun-97 0.16 20.05 (6.42) 21.13 (8.02) Jul-97 9.74 22.01 34.86 12.92 Aug-97 (6.22) 20.64 27.06 11.25 Sep-97 0.93 20.83 3.87 24.09 21.73 Oct-97 (3.77) 20.05 5.40 21.20 Nov-97 0.62 20.17 (0.66) 20.31 Dec-97 3.35 20.85 0.07 6.22 6.22 11.82 Jan-98 0.87 21.03 3.10 13.22 Feb-98 2.16 21.48 0.55 31.60 Mar-98 0.23 21.53 3.28 0.46 32.19 Apr-98 (6.72) 20.08 (0.88) 18.47 May-98 1.78 20.44 2.08 25.15 Jun-98 0.93 20.63 (4.18) 2.87 24.60 Jul-98 (0.97) 20.43 (7.17) 25.19 Aug-98 19.19 24.35 17.98 49.90 Sep-98 6.24 25.87 25.40 24.19 54.11 Oct-98 (5.14) 24.54 22.42 29.03 Nov-98 (4.16) 23.52 16.61 15.83 Dec-98 1.19 23.80 (8.00) 14.17 14.17 21.28 Jan-99 (2.90) 23.11 9.91 13.31 Feb-99 5.45 24.37 13.45 14.07 Mar-99 (2.50) 23.76 (0.17) 10.36 10.87 Apr-99 3.70 24.64 22.70 21.61 May-99 (4.38) 23.56 15.26 17.67 Jun-99 0.34 23.64 (0.51) 14.59 17.88 Jul-99 (4.40) 22.60 10.62 2.69 Aug-99 (0.44) 22.50 (7.60) 9.02 Sep-99 1.69 22.88 (3.21) (11.56) 9.83 Oct-99 (8.39) 20.96 (14.59) 4.56 Nov-99 3.29 21.65 (7.95) 7.34 Dec-99 1.62 22.00 (3.85) (7.56) (7.56) 5.54 Jan-00 2.86 22.63 (2.08) 7.62 Feb-00 (2.17) 22.14 (9.15) 3.07 Mar-00 (2.08) 21.68 (1.45) (8.75) 0.70 Apr-00 (3.78) 20.86 (15.34) 3.87 May-00 1.58 21.19 (10.06) 3.67 Jun-00 (4.44) 20.25 (6.60) (14.34) (1.84) Jul-00 (2.42) 19.76 (12.57) (3.28) Aug-00 4.71 20.69 (8.04) (15.03) Sep-00 (1.84) 20.31 0.30 (11.23) (21.49) Oct-00 0.44 20.40 (2.67) (16.87) Nov-00 6.47 21.72 0.32 (7.65) Dec-00 8.52 23.57 16.05 7.14 7.14 (0.97) Jan-01 1.36 23.89 5.57 3.38 Feb-01 1.93 24.35 9.98 (0.08) Mar-01 7.27 26.12 10.82 20.48 9.93 Apr-01 (6.93) 24.31 16.54 (1.34) May-01 (0.53) 24.18 14.11 2.63 Jun-01 (1.78) 23.75 (9.07) 17.28 0.47 Jul-01 (0.13) 23.72 20.04 4.96 Aug-01 2.53 24.32 17.54 8.09 Sep-01 6.70 25.95 9.26 27.77 13.42 Oct-01 6.01 27.51 34.85 31.25 Nov-01 (13.12) 23.90 10.04 10.39 Dec-01 0.25 23.96 (7.67) 1.65 1.65 8.91 Jan-02 (1.25) 23.66 (0.96) 4.55 Feb-02 (6.89) 22.03 (9.53) (0.50) Mar-02 3.77 22.86 (4.59) (12.48) 5.44 Apr-02 (3.11) 22.15 (8.89) 6.18 May-02 3.48 22.92 (5.21) 8.16 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Jun-02 12.00 25.67 12.29 8.08 26.77 Jul-02 4.67 26.87 13.28 35.98 Aug-02 3.42 27.79 14.27 34.32 Sep-02 5.18 29.23 13.87 12.64 43.92 Oct-02 (6.12) 27.44 (0.25) 34.51 Nov-02 (4.56) 26.19 9.58 20.58 Dec-02 5.57 27.65 (5.41) 15.40 15.40 17.31 Jan-03 4.70 28.95 22.36 21.18 Feb-03 4.11 30.14 36.81 23.78 Mar-03 (8.99 ) 27.43 (0.80 ) 19.99 5.02 Apr-03 1.02 27.71 25.10 13.99 May-03 8.99 30.20 31.76 24.90 Jun-03 (2.91 ) 29.32 6.89 14.22 23.45 Jul-03 (1.98 ) 28.74 6.96 21.16 Aug-03 0.31 28.83 3.74 18.54 Sep-03 (2.77 ) 28.03 (4.40 ) (4.11 ) 8.02 Oct-03 2.78 28.81 4.99 4.73 Nov-03 (3.02 ) 27.94 6.68 16.90 Dec-03 8.48 30.31 8.13 9.62 9.62 26.50 Compounded annual ROR: 9.34 Standard deviation of monthly returns: 6.85 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.90 ) 9.91 Dec-94 (1.31 ) 9.78 (2.20 ) (2.20 ) Jan-95 (1.84 ) 9.60 Feb-95 5.10 10.09 Mar-95 10.21 11.12 13.70 Apr-95 3.60 11.52 May-95 0.69 11.60 Jun-95 (1.12 ) 11.47 3.15 Jul-95 (2.44 ) 11.19 Aug-95 (0.63 ) 11.12 Sep-95 (3.33 ) 10.75 (6.28 ) Oct-95 (0.09 ) 10.74 7.40 Nov-95 0.93 10.84 9.38 Dec-95 6.09 11.50 6.98 17.59 17.59 Jan-96 4.78 12.05 25.52 Feb-96 (6.39 ) 11.28 11.79 Mar-96 1.24 11.42 (0.70 ) 2.70 Apr-96 4.82 11.97 3.91 May-96 (3.84 ) 11.51 (0.78 ) Jun-96 3.21 11.88 4.03 3.57 Jul-96 (4.80 ) 11.31 1.07 Aug-96 (0.35 ) 11.27 1.35 Sep-96 5.50 11.89 0.08 10.60 Oct-96 9.92 13.07 21.69 30.70 Nov-96 8.34 14.16 30.63 42.89 Dec-96 (3.88 ) 13.61 14.47 18.35 18.35 39.16 Jan-97 3.67 14.11 17.10 46.98 Feb-97 1.13 14.27 26.51 41.43 Mar-97 (1.82 ) 14.01 2.94 22.68 25.99 Apr-97 (2.93 ) 13.60 13.62 18.06 May-97 (3.75 ) 13.09 13.73 12.84 Jun-97 0.69 13.18 (5.92 ) 10.94 14.91 Jul-97 9.33 14.41 27.41 28.78 Aug-97 (5.97 ) 13.55 20.23 21.85 Sep-97 1.85 13.80 4.70 16.06 28.37 Oct-97 0.36 13.85 5.97 28.96 Nov-97 1.01 13.99 (1.20 ) 29.06 Dec-97 4.57 14.63 6.01 7.49 7.49 27.22 Jan-98 (1.16 ) 14.46 2.48 20.00 Feb-98 0.41 14.52 1.75 28.72 Mar-98 1.31 14.71 0.55 5.00 28.81 Apr-98 (4.62 ) 14.03 3.16 17.21 May-98 3.28 14.49 10.70 25.89 Jun-98 (1.10 ) 14.33 (2.58 ) 8.73 20.62 Jul-98 (0.98 ) 14.19 (1.53 ) 25.46 Aug-98 10.29 15.65 15.50 38.86 Sep-98 4.35 16.33 13.96 18.33 37.34 Oct-98 (0.73 ) 16.21 17.04 24.02 Nov-98 (6.17 ) 15.21 8.72 7.42 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Dec-98 5.98 16.12 (1.29 ) 10.18 10.18 18.44 Jan-99 (4.96 ) 15.32 5.95 8.58 Feb-99 2.48 15.70 8.13 10.02 Mar-99 (2.48 ) 15.31 (5.02 ) 4.08 9.28 Apr-99 7.18 16.41 16.96 20.66 May-99 (5.00 ) 15.59 7.59 19.10 Jun-99 5.13 16.39 7.05 14.38 24.36 Jul-99 (3.90 ) 15.75 10.99 9.30 Aug-99 0.95 15.90 1.60 17.34 Sep-99 (1.51 ) 15.66 (4.45 ) (4.10 ) 13.48 Oct-99 (9.96 ) 14.10 (13.02 ) 1.81 Nov-99 1.84 14.36 (5.59 ) 2.64 Dec-99 3.83 14.91 (4.79 ) (7.51 ) (7.51 ) 1.91 Jan-00 1.21 15.09 (1.50 ) 4.36 Feb-00 (1.19 ) 14.91 (5.03 ) 2.69 Mar-00 (1.54 ) 14.68 (1.54 ) (4.11 ) (0.20 ) Apr-00 (4.02 ) 14.09 (14.14 ) 0.43 May-00 (0.43 ) 14.03 (10.01 ) (3.17 ) Jun-00 (2.78 ) 13.64 (7.08 ) (16.78 ) (4.82 ) Jul-00 (3.96 ) 13.10 (16.83 ) (7.68 ) Aug-00 3.74 13.59 (14.53 ) (13.16 ) Sep-00 (8.61 ) 12.42 (8.94 ) (20.69 ) (23.94 ) Oct-00 2.90 12.78 (9.36 ) (21.16 ) Nov-00 12.28 14.35 (0.07 ) (5.65 ) Dec-00 12.06 16.08 29.47 7.85 7.85 (0.25 ) Jan-01 (0.81 ) 15.95 5.70 4.11 Feb-01 1.94 16.26 9.05 3.57 Mar-01 11.38 18.11 12.62 23.37 18.29 Apr-01 (11.10 ) 16.10 14.27 (1.89 ) May-01 (0.37 ) 16.04 14.33 2.89 Jun-01 (3.62 ) 15.46 (14.63 ) 13.34 (5.67 ) Jul-01 (3.36 ) 14.94 14.05 (5.14 ) Aug-01 1.34 15.14 11.41 (4.78 ) Sep-01 8.19 16.38 5.95 31.88 4.60 Oct-01 5.37 17.26 35.05 22.41 Nov-01 (15.59 ) 14.57 1.53 1.46 Dec-01 2.47 14.93 (8.85 ) (7.15 ) (7.15 ) 0.13 Jan-02 (1.88 ) 14.65 (8.15 ) (2.92 ) Feb-02 (3.41 ) 14.15 (12.98 ) (5.10 ) Mar-02 (2.90 ) 13.74 (7.97 ) (24.13 ) (6.40 ) Apr-02 (3.20 ) 13.30 (17.39 ) (5.61 ) May-02 5.64 14.05 (12.41 ) 0.14 Jun-02 15.02 16.16 17.61 4.53 18.48 Jul-02 9.65 17.72 18.61 35.27 Aug-02 4.40 18.50 22.19 36.13 Sep-02 6.43 19.69 21.84 20.21 58.53 Oct-02 (6.75 ) 18.36 6.37 43.66 Nov-02 (4.68 ) 17.50 20.11 21.95 Dec-02 5.20 18.41 (6.50 ) 23.31 23.31 14.49 Jan-03 12.76 20.76 41.71 30.16 Feb-03 6.60 22.13 56.40 36.10 Mar-03 (9.17 ) 20.10 9.18 46.29 10.99 Apr-03 1.44 20.39 53.31 26.65 May-03 6.38 21.69 54.38 35.22 Jun-03 (7.42 ) 20.08 (0.10 ) 24.26 29.88 Jul-03 (3.04 ) 19.47 9.88 30.32 Aug-03 3.39 20.13 8.81 32.96 Sep-03 (5.41 ) 19.04 (5.18 ) (3.30 ) 16.24 Oct-03 9.14 20.78 13.18 20.39 Nov-03 1.20 21.03 20.17 44.34 Dec-03 7.66 22.64 18.91 22.98 22.98 51.64 Compounded annual ROR: 9.33 Standard deviation of monthly returns: 5.55 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total 74,213,042 67,605,728 30,468,895 35,083,619 4,778,950 % $ % % % % Beginning NAV per unit 10.00 Nov-94 0.10 10.01 Dec-94 0.00 10.01 0.10 0.10 Jan-95 (3.50 ) 9.66 Feb-95 1.45 9.80 Mar-95 7.86 10.57 5.59 Apr-95 0.00 10.57 May-95 (0.66 ) 10.50 Jun-95 (6.38 ) 9.83 (7.00 ) Jul-95 (0.81 ) 9.75 Aug-95 4.00 10.14 Sep-95 (0.39 ) 10.10 2.75 Oct-95 0.30 10.13 1.30 Nov-95 2.76 10.41 4.00 Dec-95 6.24 11.06 9.50 10.49 10.49 Jan-96 3.71 11.47 18.74 Feb-96 (10.29 ) 10.29 5.00 Mar-96 (0.97 ) 10.19 (7.87 ) (3.60 ) Apr-96 6.08 10.81 2.27 May-96 (3.05 ) 10.48 (0.19 ) Jun-96 (2.86 ) 10.18 (0.10 ) 3.56 Jul-96 (4.91 ) 9.68 (0.72 ) Aug-96 1.14 9.79 (3.45 ) Sep-96 5.11 10.29 1.08 1.88 Oct-96 2.92 10.59 4.54 5.90 Nov-96 3.49 10.96 5.28 9.49 Dec-96 (2.65 ) 10.67 3.69 (3.53 ) (3.53 ) 6.59 Jan-97 (0.66 ) 10.60 (7.59 ) 9.73 Feb-97 10.09 11.67 13.41 19.08 Mar-97 6.77 12.46 16.78 22.28 17.88 Apr-97 (6.90 ) 11.60 7.31 9.74 May-97 0.78 11.69 11.55 11.33 Jun-97 (1.63 ) 11.50 (7.70 ) 12.97 16.99 Jul-97 7.65 12.38 27.89 26.97 Aug-97 (4.93 ) 11.77 20.22 16.07 Sep-97 (6.03 ) 11.06 (3.83 ) 7.48 9.50 Oct-97 (6.24 ) 10.37 (2.08 ) 2.37 Nov-97 (2.22 ) 10.14 (7.48 ) (2.59 ) Dec-97 5.62 10.71 (3.16 ) 0.37 0.37 (3.16 ) Jan-98 5.32 11.28 6.42 (1.66 ) Feb-98 (3.37 ) 10.90 (6.60 ) 5.93 Mar-98 0.37 10.94 2.15 (12.20 ) 7.36 Apr-98 (11.06 ) 9.73 (16.12 ) (9.99 ) May-98 (7.40 ) 9.01 (22.93 ) (14.03 ) Jun-98 (0.89 ) 8.93 (18.37 ) (22.35 ) (12.28 ) Jul-98 (5.26 ) 8.46 (31.66 ) (12.60 ) Aug-98 11.82 9.46 (19.63 ) (3.37 ) Sep-98 19.03 11.26 26.09 1.81 9.43 Oct-98 8.44 12.21 17.74 15.30 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Nov-98 (7.94) 11.24 10.85 2.55 Dec-98 2.76 11.55 2.58 7.84 7.84 8.25 Jan-99 (3.55) 11.14 (1.24) 5.09 Feb-99 11.76 12.45 14.22 6.68 Mar-99 (3.45) 12.02 4.07 9.87 (3.53) Apr-99 2.00 12.26 26.00 5.69 May-99 (13.38) 10.62 17.87 (9.15) Jun-99 21.85 12.94 7.65 44.90 12.52 Jul-99 (1.00) 12.81 51.42 3.47 Aug-99 5.31 13.49 42.60 14.61 Sep-99 13.27 15.28 18.08 35.70 38.16 Oct-99 (9.55) 13.82 13.19 33.27 Nov-99 4.85 14.49 28.91 42.90 Dec-99 9.39 15.85 3.73 37.23 37.23 47.99 Jan-00 (1.96) 15.54 39.50 37.77 Feb-00 (18.47) 12.67 1.77 16.24 Mar-00 (2.05) 12.41 (21.70) 3.24 13.44 Apr-00 (10.15) 11.15 (9.05) 14.59 May-00 10.13 12.28 15.63 36.29 Jun-00 (7.82) 11.32 (8.78) (12.52) 26.76 Jul-00 3.71 11.74 (8.35) 38.77 Aug-00 (8.26) 10.77 (20.16) 13.85 Sep-00 (10.40) 9.65 (14.75) (36.85) (14.30) Oct-00 (6.84) 8.99 (34.95) (26.37) Nov-00 6.56 9.58 (33.89) (14.77) Dec-00 10.75 10.61 9.95 (33.06) (33.06) (8.14) Jan-01 (0.94) 10.51 (32.37) (5.66) Feb-01 0.48 10.56 (16.65) (15.18) Mar-01 1.04 10.67 0.57 (14.02) (11.23) Apr-01 (1.69) 10.49 (5.92) (14.44) May-01 (0.10) 10.48 (14.66) (1.32) Jun-01 (3.34) 10.13 (5.06) (10.51) (21.72) Jul-01 (1.38) 9.99 (14.91) (22.01) Aug-01 (0.60) 9.93 (7.80) (26.39) Sep-01 3.83 10.31 1.78 6.84 (32.53) Oct-01 1.07 10.42 15.91 (24.60) Nov-01 1.15 10.54 10.02 (27.26) Dec-01 0.09 10.55 2.33 (0.57) (0.57) (33.44) Jan-02 2.09 10.77 2.47 (30.69) Feb-02 2.51 11.04 4.55 (12.87) Mar-02 4.62 11.55 9.48 8.25 (6.93) Apr-02 (4.94) 10.98 4.67 (1.52) May-02 1.37 11.13 6.20 (9.36) Jun-02 8.00 12.02 4.07 18.66 6.18 Jul-02 (0.42) 11.97 19.82 1.96 Aug-02 2.26 12.24 23.26 13.65 Sep-02 3.10 12.62 4.99 22.41 30.78 Oct-02 (7.13) 11.72 12.48 30.37 Nov-02 (5.97) 11.02 4.55 15.03 Dec-02 4.72 11.54 (8.56) 9.38 9.38 8.77 Jan-03 13.78 13.13 21.91 24.93 Feb-03 (2.21) 12.84 16.30 21.59 Mar-03 (4.28) 12.29 6.50 6.41 15.18 Apr-03 1.87 12.52 14.03 19.35 May-03 0.00 12.52 12.49 19.47 Jun-03 (1.28) 12.36 0.57 2.83 22.01 Jul-03 (1.86) 12.13 1.34 21.42 Aug-03 4.29 12.65 3.35 27.39 Sep-03 3.00 13.03 5.42 3.25 26.38 Oct-03 3.45 13.48 15.02 29.37 Nov-03 (2.23) 13.18 19.60 25.05 Dec-03 8.57 14.31 9.82 24.00 24.00 35.64 Compounded annual ROR: 3.99 Standard deviation of monthly returns: 6.46 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.50 ) 9.95 Dec-94 (1.21 ) 9.83 (1.70 ) (1.70 ) Jan-95 1.32 9.96 Feb-95 4.62 10.42 Mar-95 2.88 10.72 9.05 Apr-95 2.15 10.95 May-95 4.38 11.43 Jun-95 0.79 11.52 7.46 Jul-95 (1.39 ) 11.36 Aug-95 (1.41 ) 11.20 Sep-95 1.61 11.38 (1.22 ) Oct-95 0.26 11.41 14.10 Nov-95 2.72 11.72 17.79 Dec-95 2.99 12.07 6.06 22.79 22.79 Jan-96 0.41 12.12 21.69 Feb-96 (7.92 ) 11.16 7.10 Mar-96 (1.08 ) 11.04 (8.53 ) 2.99 Apr-96 1.27 11.18 2.10 May-96 (3.13 ) 10.83 (5.25 ) Jun-96 0.46 10.88 (1.45 ) (5.56 ) Jul-96 0.83 10.97 (3.43 ) Aug-96 (0.82 ) 10.88 (2.86 ) Sep-96 2.30 11.13 2.30 (2.20 ) Oct-96 3.77 11.55 1.23 15.50 Nov-96 4.76 12.10 3.24 21.61 Dec-96 (3.88 ) 11.63 4.49 (3.65 ) (3.65 ) 18.31 Jan-97 3.35 12.02 (0.83 ) 20.68 Feb-97 3.16 12.40 11.11 19.00 Mar-97 (2.50 ) 12.09 3.96 9.51 12.78 Apr-97 (1.65 ) 11.89 6.35 8.58 May-97 1.68 12.09 11.63 5.77 Jun-97 3.64 12.53 3.64 15.17 8.77 Jul-97 11.89 14.02 27.80 23.42 Aug-97 (5.92 ) 13.19 21.23 17.77 Sep-97 3.26 13.62 8.70 22.37 19.68 Oct-97 (1.69 ) 13.39 15.93 17.35 Nov-97 (0.37 ) 13.34 10.25 13.82 Dec-97 3.07 13.75 0.95 18.23 18.23 13.92 Jan-98 2.25 14.06 16.97 16.01 Feb-98 1.49 14.27 15.08 27.87 Mar-98 2.24 14.59 6.11 20.68 32.16 Apr-98 (1.78 ) 14.33 20.52 28.18 May-98 (0.35 ) 14.28 18.11 31.86 Jun-98 0.00 14.28 (2.12 ) 13.97 31.25 Jul-98 (1.19 ) 14.11 0.64 28.62 Aug-98 2.55 14.47 9.70 33.00 Sep-98 5.11 15.21 6.51 11.67 36.66 Oct-98 1.18 15.39 14.94 33.25 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Nov-98 2.66 15.80 18.44 30.58 Dec-98 1.27 16.00 5.19 16.36 16.36 37.58 Jan-99 (0.06 ) 15.99 13.73 33.03 Feb-99 (0.06 ) 15.98 11.98 28.87 Mar-99 0.00 15.98 (0.12 ) 9.53 32.18 Apr-99 4.13 16.64 16.12 39.95 May-99 (4.99 ) 15.81 10.71 30.77 Jun-99 2.28 16.17 1.19 13.24 29.05 Jul-99 (1.67 ) 15.90 12.69 13.41 Aug-99 (0.19 ) 15.87 9.68 20.32 Sep-99 (0.50 ) 15.79 (2.35 ) 3.81 15.93 Oct-99 (1.77 ) 15.51 0.78 15.83 Nov-99 1.93 15.81 0.06 18.52 Dec-99 1.96 16.12 2.09 0.75 0.75 17.24 Jan-00 (0.93 ) 15.97 (0.13 ) 13.58 Feb-00 0.94 16.12 0.88 12.96 Mar-00 3.10 16.62 3.10 4.01 13.91 Apr-00 (4.57 ) 15.86 (4.69 ) 10.68 May-00 (1.32 ) 15.65 (1.01 ) 9.59 Jun-00 (0.26 ) 15.61 (6.08 ) (3.46 ) 9.31 Jul-00 (2.18 ) 15.27 (3.96 ) 8.22 Aug-00 3.01 15.73 (0.88 ) 8.71 Sep-00 (3.94 ) 15.11 (3.20 ) (4.31 ) (0.66 ) Oct-00 2.25 15.45 (0.39 ) 0.39 Nov-00 (0.52 ) 15.37 (2.78 ) (2.72 ) Dec-00 5.79 16.26 7.61 0.87 0.87 1.63 Jan-01 0.55 16.35 2.38 2.25 Feb-01 (3.36 ) 15.80 (1.99 ) (1.13 ) Mar-01 2.91 16.26 0.00 (2.17 ) 1.75 Apr-01 (0.31 ) 16.21 2.21 (2.58 ) May-01 0.25 16.25 3.83 2.78 Jun-01 (3.08 ) 15.75 (3.14 ) 0.90 (2.60 ) Jul-01 0.00 15.75 3.14 (0.94 ) Aug-01 0.51 15.83 0.64 (0.25 ) Sep-01 (1.20 ) 15.64 (0.70 ) 3.51 (0.95 ) Oct-01 2.75 16.07 4.01 3.61 Nov-01 (0.06 ) 16.06 4.49 1.58 Dec-01 0.93 16.21 3.64 (0.31 ) (0.31 ) 0.56 Jan-02 (1.23 ) 16.01 (2.08 ) 0.25 Feb-02 (1.69 ) 15.74 (0.38 ) (2.36 ) Mar-02 0.25 15.78 (2.65 ) (2.95 ) (5.05 ) Apr-02 (2.09 ) 15.45 (4.69 ) (2.59 ) May-02 (0.19 ) 15.42 (5.11 ) (1.47 ) Jun-02 1.30 15.62 (1.01 ) (0.83 ) 0.06 Jul-02 (0.83 ) 15.49 (1.65 ) 1.44 Aug-02 0.97 15.64 (1.20 ) (0.57 ) Sep-02 (4.16 ) 14.99 (4.03 ) (4.16 ) (0.79 ) Oct-02 (0.80 ) 14.87 (7.47 ) (3.75 ) Nov-02 2.08 15.18 (5.48 ) (1.24 ) Dec-02 (4.02 ) 14.57 (2.80 ) (10.12 ) (10.12 ) (10.39 ) Jan-03 0.34 14.62 (8.68 ) (10.58 ) Feb-03 2.67 15.01 (4.64 ) (5.00 ) Mar-03 (2.60 ) 14.62 0.34 (7.35 ) (10.09 ) Apr-03 2.19 14.94 (3.30 ) (7.83 ) May-03 4.89 15.67 1.62 (3.57 ) Jun-03 (0.19 ) 15.64 6.98 0.13 (0.70 ) Jul-03 (1.09 ) 15.47 (0.13 ) (1.78 ) Aug-03 0.00 15.47 (1.09 ) (2.27 ) Sep-03 (1.16 ) 15.29 (2.24 ) 2.00 (2.24 ) Oct-03 (0.92 ) 15.15 1.88 (5.72 ) Nov-03 (1.32 ) 14.95 (1.52 ) (6.91 ) Dec-03 3.48 15.47 1.18 6.18 6.18 (4.57 ) Compounded annual ROR: 4.88 Standard deviation of monthly returns: 2.73 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Jul-00 0.60 10.06 Aug-00 0.40 10.10 Sep-00 1.39 10.24 2.40 Oct-00 7.32 10.99 Nov-00 (1.64 ) 10.81 Dec-00 3.33 11.17 9.08 11.70 Jan-01 (1.07 ) 11.05 Feb-01 (1.36 ) 10.90 Mar-01 8.44 11.82 5.82 Apr-01 (2.88 ) 11.48 May-01 1.92 11.70 Jun-01 (1.71 ) 11.50 (2.71 ) 15.00 Jul-01 (5.91 ) 10.82 7.55 Aug-01 2.40 11.08 9.70 Sep-01 0.90 11.18 (2.78 ) 9.18 Oct-01 (0.81 ) 11.09 0.91 Nov-01 (0.36 ) 11.05 2.22 Dec-01 12.31 12.41 11.00 11.10 11.10 Jan-02 (3.46 ) 11.98 8.42 Feb-02 (1.75 ) 11.77 7.98 Mar-02 (4.50 ) 11.24 (9.43 ) (4.91 ) Apr-02 2.40 11.51 0.26 May-02 10.34 12.70 8.55 Jun-02 8.98 13.84 23.13 20.35 38.40 Jul-02 (4.41 ) 13.23 22.27 31.51 Aug-02 (4.69 ) 12.61 13.81 24.85 Sep-02 (1.98 ) 12.36 (10.69 ) 10.55 20.70 Oct-02 0.57 12.43 12.08 13.10 Nov-02 (1.05 ) 12.30 11.31 13.78 Dec-02 13.25 13.93 12.70 12.25 12.25 24.71 Jan-03 5.03 14.63 22.12 32.40 Feb-03 0.96 14.77 25.49 35.50 Mar-03 (1.96 ) 14.48 3.95 28.83 22.50 Apr-03 4.07 15.07 30.93 31.27 May-03 3.19 15.55 22.44 32.91 Jun-03 (3.99 ) 14.93 3.11 7.88 29.83 Jul-03 (4.49 ) 14.26 7.79 31.79 Aug-03 (1.26 ) 14.08 11.66 27.08 Sep-03 0.43 14.14 (5.29 ) 14.40 26.48 Oct-03 0.64 14.23 14.48 28.31 Nov-03 4.08 14.81 20.41 34.03 Dec-03 5.74 15.66 10.75 12.42 12.42 26.19 Compounded annual ROR: 13.67 Standard deviation of monthly returns: 4.66 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 14,706,945 15,188,479 Management fees 10,617,352 7,838,786 7,110,346 6,085,629 6,284,885 Incentive fees 3,750,169 3,009,853 GLOSSARY OF TERMS The following glossary may assist prospective investors in understanding certain terms used in this prospectus: Clearing broker. The entity responsible for assuring that futures and options trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trades took place. Commodity broker. The entity responsible for holding the client's funds deposited with it as margin for trades and, if the commodity broker is also a clearing commodity broker, for assuring that futures and options trades for a client are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. In the U.S., commodity brokers are registered under the Commodity Exchange Act as futures commission merchants. Commodity pool. A partnership, trust or similar form of collective investment vehicle which consolidates funds from investors for the purpose of trading in commodity futures, forward, and options contracts. Commodity pool operator. Any person or entity that solicits funds in connection with the sale of interests in a commodity pool or that manages the operations of a commodity pool. A commodity pool operator must register under the Commodity Exchange Act. Counter-trend liquidations. Closing out a position after a significant price move on the assumption that the market is due for a correction. Cross rate. The trading of one foreign currency against another foreign currency. Daily price fluctuation limit. The maximum permitted fluctuation imposed by commodity exchanges in the price of a commodity futures contract for a given commodity that can occur on an exchange on a given day in relation to the previous day's settlement price, which maximum permitted fluctuation is subject to change from time to time by the exchange. These limits generally are not imposed on option contracts or outside the U.S. Delivery. The process of satisfying a futures contract or a forward contract by transferring ownership of a specified quantity and grade of a commodity, product or instrument to the purchaser of the contract. Exchange for physical. A transaction permitted under the rules of futures exchanges in which two parties exchange a cash market (physical) commodity position for a futures contract (or vice versa) without making a trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Forward contract. A cash market transaction in which the buyer and seller agree to the purchase and sale of a specific quantity of a commodity, product, instrument or currency for delivery at some future time under such terms and conditions as the two may agree upon. Fundamental analysis. The analysis of fundamental market information such as supply and demand levels, weather, economic indicators, and geopolitical events. Futures contract. A contract providing for the delivery or receipt at a future date of a specified amount and grade of a traded commodity, product, instrument, or index at a specified price and delivery point, or for cash settlement. A market participant can make a futures contract to buy or sell the underlying commodity, product, instrument or index. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of the commodity, product, instrument, or index or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. Long contract or long position. A contract to accept delivery (i.e., to buy) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Margin. A good faith deposit with a broker to assure fulfillment of a purchase or sale of a futures, forward or options contract. Margins on these contracts do not usually involve the payment of interest. Margin call. A demand for additional funds after the initial good faith deposit required to maintain a customer's account in compliance with the requirements of a particular commodity exchange or of a commodity broker. Non-Spectrum Series exchange. The use of proceeds from the redemption of interests from another commodity pool for which Demeter acts as general partner and commodity pool operator to acquire units in one or more of the Spectrum Series partnerships. Notional funds. The amount by which the nominal account size exceeds the amount of actual funds in the account. Open position. A contractual commitment arising under a long contract or a short contract that has not been extinguished by an offsetting trade or by delivery. Option on a futures contract. A contract that gives the purchaser of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract, if the option is exercised, at the specified price within the specified period of time. Outrights. The trading of one foreign currency against the U.S. dollar as compared to a cross rate trade between two non-U.S. currencies. Parameters. A value that can be freely assigned in a trading system in order to vary the timing of signals. Pattern recognition. The ability to identify patterns that appeared to act as precursors of price advances or declines in the past. Resistance. A previous high. A price level above the market where selling pressure overcomes buying pressure and a price advance is turned back. Secular trend. Intermediate upswings and downswings in price that over a long period of time constitutes a big move. Short contract or short position. A contract to make delivery of (sell) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Spectrum Series exchange. A redemption of units in a Spectrum Series Partnership with the proceeds used to purchase units of one or more of the other partnerships in the Spectrum Series. Speculative position limit. The maximum number of speculative futures or option contracts in any one commodity (on one exchange), imposed by the CFTC or a U.S. commodity exchange, that can be held or controlled at one time by one person or a group of persons acting together. These limits generally are not imposed for trading on markets or exchanges outside the U.S. Stop-loss order. An order to buy or sell at the market when a definite price is reached, either above or below the price of the instrument that prevailed when the order was given. Support. A previous low. A price level below the market where buying interest is sufficiently strong to overcome selling pressure. Systematic technical charting systems. A system that is technical in nature and based on chart patterns as opposed to pure mathematical calculations. Technical analysis. The analysis of technical market information by a trading advisor, such as analyzing actual daily, weekly, and monthly price fluctuations, trading volume variations, and changes in numbers of open positions in various futures and options contracts. Trading advisor. Any person or entity that provides advice as to the purchase or sale of futures, forwards, or options contracts. A commodity trading advisor must register under the Commodity Exchange Act. Total 40,026,137 26,782,529 27,303,546 20,792,574 21,473,364 NET INCOME (LOSS) 34,186,905 40,823,199 3,165,349 14,291,045 (16,694,414 ) Net Income (Loss) Allocation: Limited Partners 33,822,853 40,391,145 3,123,455 14,165,099 (16,455,697 ) General Partner 364,052 432,054 41,894 125,946 (238,717 ) Net Income (Loss) per Unit: Limited Partners 2.66 3.69 0.39 1.57 (1.80 ) General Partner 2.66 3.69 0.39 1.57 (1.80 ) TOTAL ASSETS AT END OF PERIOD 449,549,242 299,604,379 246,043,382 224,581,554 219,366,812 TOTAL NET ASSETS AT END OF PERIOD 441,522,484 295,377,799 241,411,585 220,729,969 213,805,674 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 30.31 27.65 23.96 23.57 22.00 General Partner 30.31 27.65 23.96 23.57 22.00 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 5,648,636 (3,435,893 ) (0.22 ) June 30 30,802,630 21,952,801 1.89 September 30 (7,076,850 ) (16,582,417 ) (1.29 ) December 31 44,838,626 32,252,414 2.28 Total 74,213,042 34,186,905 2.66 2002 March 31 (4,965,948 ) (11,031,500 ) (1.10 ) June 30 35,775,689 29,684,989 2.81 September 30 45,366,560 38,074,946 3.56 December 31 (8,570,573 ) (15,905,236 ) (1.58 ) Total 67,605,728 40,823,199 3.69 2001 March 31 30,525,016 24,046,834 2.55 June 30 (16,536,822 ) (22,611,942 ) (2.37 ) September 30 28,022,232 21,354,388 2.20 December 31 (11,541,531 ) (19,623,931 ) (1.99 ) Total 30,468,895 3,165,349 0.39 Spectrum Technical Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 12,255,064 726,179 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) 22,006,013 (872,972 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 34,261,077 (146,793 ) Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 11,613,896 9,593,178 Total 142,093,478 92,648,909 9,867,449 45,874,973 9,446,385 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 17,835,223 19,176,380 Incentive fees 13,042,559 4,024,921 2,093,709 166,085 430,097 Management fees 10,835,994 7,377,756 7,501,053 9,595,464 10,580,071 Total 54,151,590 31,873,474 29,150,818 27,596,772 30,186,548 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) 18,278,201 (20,740,163 ) Net Income (Loss) Allocation: Limited Partners 86,960,795 60,110,064 (19,062,561 ) 18,053,408 (20,531,494 ) General Partner 981,093 665,371 (220,808 ) 224,793 (208,669 ) Net Income (Loss) per Unit: Limited Partners 4.23 3.48 (1.15 ) 1.17 (1.21 ) General Partner 4.23 3.48 (1.15 ) 1.17 (1.21 ) TOTAL ASSETS AT END OF PERIOD 550,066,920 341,596,812 262,442,204 273,695,028 274,233,195 TOTAL NET ASSETS AT END OF PERIOD 538,184,278 335,821,626 257,974,122 268,133,092 268,755,718 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 22.64 18.41 14.93 16.08 14.91 General Partner 22.64 18.41 14.93 16.08 14.91 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 45,385,367 29,742,112 1.69 June 30 9,441,031 (1,046,326 ) (0.02 ) September 30 (11,784,806 ) (22,120,621 ) (1.04 ) December 31 99,051,886 81,366,723 3.60 Total 142,093,478 87,941,888 4.23 2002 March 31 (14,298,661 ) (20,650,030 ) (1.19 ) June 30 48,100,199 42,172,229 2.42 September 30 73,338,452 61,849,516 3.53 December 31 (14,491,081 ) (22,596,280 ) (1.28 ) Total 92,648,909 60,775,435 3.48 2001 March 31 42,238,835 33,867,655 2.03 June 30 (37,165,746 ) (44,181,065 ) (2.65 ) September 30 22,112,517 15,675,530 0.92 December 31 (17,318,157 ) (24,645,489 ) (1.45 ) Total 9,867,449 (19,283,369 ) (1.15 ) Spectrum Strategic Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 30,251,636 10,648,811 2,132,212 (23,193,914 ) 32,274,037 Net change in unrealized 990,641 2,439,378 2,505,634 (7,577,681 ) 4,264,478 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 (30,771,595 ) 36,538,515 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 3,832,634 3,017,103 Total 31,984,167 14,078,687 6,855,809 (26,938,961 ) 39,555,618 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 5,798,093 5,837,887 Management fees 2,735,685 2,194,958 2,183,596 2,880,999 3,137,509 Incentive fees 2,123,832 264,827 1,269,237 2,451,152 Total 11,470,755 7,764,271 7,336,352 9,948,329 11,426,548 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) (36,887,290 ) 28,129,070 Net Income (Loss) Allocation: Limited Partners 20,281,103 6,238,448 (475,383 ) (36,503,461 ) 27,829,050 General Partner 232,309 75,968 (5,160 ) (383,829 ) 300,020 Net Income (Loss) per Unit: Limited Partners 2.77 0.99 (0.06 ) (5.24 ) 4.30 General Partner 2.77 0.99 (0.06 ) (5.24 ) 4.30 TOTAL ASSETS AT END OF PERIOD 123,656,595 77,094,809 71,489,275 76,427,098 109,444,028 TOTAL NET ASSETS AT END OF PERIOD 121,270,439 75,369,072 68,817,386 74,234,449 107,692,521 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 14.31 11.54 10.55 10.61 15.85 General Partner 14.31 11.54 10.55 10.61 15.85 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 7,634,556 4,781,178 0.75 June 30 2,970,073 442,228 0.07 September 30 7,306,514 4,972,399 0.67 December 31 14,073,024 10,317,607 1.28 Total 31,984,167 20,513,412 2.77 2002 March 31 8,275,813 6,492,203 1.00 June 30 4,753,904 2,944,241 0.47 September 30 6,023,092 3,800,561 0.60 December 31 (4,974,122 ) (6,922,589 ) (1.08 ) Total 14,078,687 6,314,416 0.99 2001 March 31 2,340,103 404,464 0.06 June 30 (1,824,625 ) (3,672,569 ) (0.54 ) September 30 2,975,539 1,217,762 0.18 December 31 3,364,792 1,569,800 0.24 Total 6,855,809 (480,543 ) (0.06 ) Spectrum Global Balanced Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 (2,091,009 ) 2,425,585 Net change in unrealized 1,801,107 56,725 (2,628,436 ) 2,507,530 (1,157,073 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 416,521 1,268,512 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 3,275,958 2,385,751 Total 6,038,905 (2,566,396 ) 3,150,268 3,692,479 3,654,263 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 2,558,008 2,387,515 Management fees 632,782 688,151 705,746 695,117 648,787 Incentive fees 215,651 Total 2,961,397 3,220,522 3,302,867 3,253,125 3,251,953 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) 439,354 402,310 Net Income (Loss) Allocation: Limited Partners 3,043,649 (5,720,328 ) (150,650 ) 433,786 397,258 General Partner 33,859 (66,590 ) (1,949 ) 5,568 5,052 Net Income (Loss) per Unit: Limited Partners 0.90 (1.64 ) (0.05 ) 0.14 0.12 General Partner 0.90 (1.64 ) (0.05 ) 0.14 0.12 TOTAL ASSETS AT END OF PERIOD 53,920,384 51,559,238 58,790,758 56,740,136 58,807,588 TOTAL NET ASSETS AT END OF PERIOD 52,639,493 50,405,432 57,785,760 55,879,750 57,864,012 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.47 14.57 16.21 16.26 16.12 General Partner 15.47 14.57 16.21 16.26 16.12 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 946,959 210,736 0.05 June 30 4,100,730 3,372,448 1.02 September 30 (386,145 ) (1,135,694 ) (0.35 ) December 31 1,377,361 630,018 0.18 Total 6,038,905 3,077,508 0.90 2002 March 31 (690,502 ) (1,526,664 ) (0.43 ) June 30 247,747 (562,004 ) (0.16 ) September 30 (1,414,555 ) (2,219,748 ) (0.63 ) December 31 (709,086 ) (1,478,502 ) (0.42 ) Total (2,566,396 ) (5,786,918 ) (1.64 ) 2001 March 31 815,020 322 June 30 (965,508 ) (1,799,958 ) (0.51 ) September 30 434,123 (386,194 ) (0.11 ) December 31 2,866,633 2,033,231 0.57 Total 3,150,268 (152,599 ) (0.05 ) Spectrum Currency Selected Financial Data For the Years Ended December 31, For the Period from July 3, 2000 (commencement of operations) to December 31, 2000 $ $ $ $ REVENUES Trading profit: Realized 27,952,154 12,877,202 3,998,924 1,126,201 Net change in unrealized (772,909 ) 2,473,166 2,622,814 555,569 Total Trading Results 27,179,245 15,350,368 6,621,738 1,681,770 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 236,461 Total 28,185,655 16,183,891 7,353,454 1,918,231 EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 249,571 Management fees 2,656,229 1,337,848 564,216 171,693 Incentive fees 2,623,290 1,485,875 1,155,201 188,423 $ % $ % $ Foreign currency 641,746 1.27 137,676 0.28 779,422 6,800,258 Interest Rate 806,083 1.60 (1,737 ) 804,346 1,479 Equity (812,665 ) (1.61 ) (812,665 ) 477 Commodity 120,736 0.24 26,606 0.05 147,342 Total 11,388,846 5,900,771 3,017,115 609,687 NET INCOME 16,796,809 10,283,120 4,336,339 1,308,544 Net Income Allocation: Limited Partners 16,514,538 10,038,409 4,119,027 1,134,371 General Partner 282,271 244,711 217,312 174,173 Net Income per Unit: Limited Partners 1.73 1.52 1.24 1.17 General Partner 1.73 1.52 1.24 1.17 TOTAL ASSETS AT END OF PERIOD 192,464,641 98,379,320 49,112,223 18,056,724 TOTAL NET ASSETS AT END OF PERIOD 190,055,920 96,159,452 47,811,741 15,707,232 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.66 13.93 12.41 11.17 General Partner 15.66 13.93 12.41 11.17 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 6,321,965 3,660,402 0.55 June 30 6,641,296 3,268,861 0.45 September 30 (5,055,352 ) (7,367,330 ) (0.79 ) December 31 20,277,746 17,234,876 1.52 Total 28,185,655 16,796,809 1.73 2002 March 31 (4,108,907 ) (4,944,552 ) (1.17 ) June 30 15,457,288 13,231,295 2.60 September 30 (7,254,255 ) (8,531,364 ) (1.48 ) December 31 12,089,765 10,527,741 1.57 Total 16,183,891 10,283,120 1.52 2001 March 31 1,783,392 1,250,137 0.65 June 30 (269,233 ) (687,632 ) (0.32 ) September 30 (230,606 ) (755,594 ) (0.32 ) December 31 6,069,901 4,529,428 1.23 Total 7,353,454 4,336,339 1.24 The partnership's VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. They are also not based on exchange and/or dealer-based maintenance margin requirements. VaR models, including the partnerships', are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the general partner or the trading advisors in their daily risk management activities. Please further note that VaR, as described above, may not be comparable to similarly titled measures used by other entities. Each Partnership's Value at Risk in Different Market Sectors The following tables indicate the VaR associated with each partnership's open positions, as a percentage of total net assets, by primary market risk category as of December 31, 2003 and 2002. Spectrum Select: At December 31, 2003 and 2002, Spectrum Select's total capitalization was approximately $442 million and $295 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.75 ) (0.44 ) Currency (1.19 ) (2.17 ) Interest Rate (0.48 ) (1.25 ) Commodity (1.40 ) (1.22 ) Aggregate Value at Risk (2.64 ) (2.84 ) Spectrum Technical: At December 31, 2003 and 2002, Spectrum Technical's total capitalization was approximately $538 million and $336 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.48 ) (2.14 ) Equity (1.66 ) (0.24 ) Interest Rate (1.16 ) (1.24 ) Commodity (1.45 ) (1.46 ) Aggregate Value at Risk (3.47 ) (2.76 ) Spectrum Strategic: At December 31, 2003 and 2002, Spectrum Strategic's total capitalization was approximately $121 million and $75 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR Spectrum Global Balanced: At December 31, 2003 and 2002, Spectrum Global Balanced's total capitalization was approximately $53 million and $50 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.43 ) (0.79 ) Interest Rate (0.72 ) (0.91 ) Currency (0.70 ) (0.66 ) Commodity (0.19 ) (0.34 ) Aggregate Value at Risk (1.46 ) (1.37 ) Spectrum Currency: At December 31, 2003 and 2002, Spectrum Currency's total capitalization was approximately $190 million and $96 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.60 ) (3.91 ) The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk, listed above for each partnership, represents the VaR of a partnership's open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes. Because the business of each partnership is the speculative trading of futures, forwards, and options, the composition of a partnership's trading portfolio can change significantly over any given time period, or even within a single trading day, which could positively or negatively materially impact market risk as measured by VaR. The tables below supplement the December 31, 2003 VaR (set forth above) by presenting each partnership's high, low, and average VaR, as a percentage of total net assets, for the four quarter-end reporting periods from January 1, 2003 through December 31, 2003. Spectrum Select Market Category High Low Average % % % Equity 1.75 0.42 0.86 Currency 1.32 0.44 1.00 Interest Rate 0.58 0.35 0.47 Commodity 1.40 0.16 0.80 Aggregate Value at Risk 2.64 0.82 1.72 Spectrum Technical Market Category High Low Average Spectrum Strategic Market Category High Low Average % % % Equity (1.69 ) (0.12 ) (0.63 ) Currency (0.93 ) (0.20 ) (0.60 ) Interest Rate (0.24 ) (0.09 ) (0.16 ) Commodity (1.67 ) (1.04 ) (1.22 ) Aggregate Value at Risk (2.61 ) (1.19 ) (1.60 ) Spectrum Global Balanced Market Category High Low Average % % % Equity (1.43 ) (0.59 ) (0.87 ) Interest Rate (0.84 ) (0.37 ) (0.66 ) Currency (0.70 ) (0.19 ) (0.39 ) Commodity (0.31 ) (0.10 ) (0.19 ) Aggregate Value at Risk (1.46 ) (0.76 ) (1.03 ) Spectrum Currency Market Category High Low Average 2003, the partnership's major exposures were to the euro Canadian dollar, Australian dollar, Swiss franc and Japanese yen currency crosses, as well as outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based partnership in expressing VaR in a functional currency other than U.S. dollars. Commodity Energy. At December 31, 2003, the partnership's energy exposure was primarily to futures contracts in crude oil. Price movements in these energy markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future. Metals. The partnership's metals exposure at December 31, 2003 was to fluctuations in the price of base metals such as copper and nickel. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movements in these markets. The Trading Advisor, from time to time, takes positions when market opportunities develop, and the general partner anticipates that the Partnership will continue to do so. Soft Commodities and Agriculturals. At December 31, 2003, the partnership had exposure to the markets that comprise these sectors. Most of the exposure was to the cotton and corn markets. Supply and demand inequalities, severe weather disruptions and market expectations affect price movements in these markets. Morgan Stanley Spectrum Currency L.P. The following was the only trading risk exposure of Spectrum Currency as of December 31, 2003. It may be anticipated, however, that market exposure will vary materially over time. Currency. The partnership's currency exposure at December 31, 2003 was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. At December 31, 2003, the partnership's exposure was to outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based Partnership in expressing VaR in a functional currency other than U.S. dollars. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of each partnership at December 31, 2003: Foreign Currency Balances. Each partnership's primary foreign currency balances were in: Spectrum Select Spectrum Technical Spectrum Strategic Euros Euros British pounds Hong Kong dollars Hong Kong dollars Euros Japanese yen South African rand Hong Kong dollars Spectrum Global Balanced Spectrum Currency Each partnership controls the non-trading risk of these balances by regularly converting them back into U.S. dollars upon liquidation of the respective position. Qualitative Disclosures Regarding Means of Managing Risk Exposure Each partnership and the trading advisors, separately, attempt to manage the risk of a partnership's open positions in essentially the same manner in all market categories traded. The general partner attempts to manage each partnership's market exposure by seeking to have each partnership diversify its assets among different trading advisors in a multi-advisor partnership, each of whose strategies focus on different market sectors and trading approaches, and monitoring the performance of the trading advisors daily. In addition, the trading advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market sensitive instrument. The general partner monitors and controls the risk of each partnership's non-trading instrument, cash. Cash is the only partnership investment directed by the general partner, rather than the trading advisors. THE GENERAL PARTNER The general partner and commodity pool operator of each partnership is Demeter Management Corporation, a Delaware corporation formed on August 18, 1977 to act as a commodity pool operator. Effective in 1977, the general partner became registered with the CFTC as a commodity pool operator and is currently a member of the National Futures Association in such capacity. The general partner's main business office is located at 825 Third Avenue, 9th Floor, New York, New York 10022, telephone (212) 310-6444. The general partner is an affiliate of Morgan Stanley DW in that they are both wholly-owned subsidiaries of Morgan Stanley, which is a publicly-owned company subject to the reporting requirements of the Securities Exchange Act of 1934. Morgan Stanley's SEC file number is 1-11758. The general partner is or has been the general partner and commodity pool operator for 39 commodity pools, including 7 commodity pools that are exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of December 31, 2003, the general partner had approximately $2.7 billion in aggregate net assets under management, making it one of the largest operators of commodity pools in the U.S. As of December 31, 2003, there were approximately 80,500 investors in the commodity pools managed by Demeter. The general partner is required to maintain its net worth at an amount equal to at least 10% of the total contributions to each limited partnership for which it acts as a general partner. Morgan Stanley has contributed to the general partner the capital necessary to permit the general partner to meet its net worth obligations as general partner of each partnership and intends to continue to do so. The general partner's minimum net worth requirements may be modified by the general partner at its option without notice to or the consent of the limited partners, provided the modification does not adversely affect the partnership or the limited partners. The general partner and its principals are not obligated to purchase units but may do so. Pursuant to each limited partnership agreement, the genral partner is required to contribute to each partnership, in $1,000 increments, the greater of 1% of the aggregate capital contributions by all partners and $25,000. As of December 31, 2003, the general partner's capital account in each partnership was equal to: Capital Account $ Demeter Management Corporation Capsule Summary of Performance Information Regarding Commodity Pools Operated (except as otherwise indicated, beginning January 1, 1999 through December 31, 2003) Compound Annual Rates of Return Current Total Net Asset Value(5) Current Net Asset Value per Unit(6) Cumulative Return Since Inception(7) Fund Type/Fund(1) Start Date(2) Close Date(3) Aggregate Subscriptions(4) Worst Monthly % Drawdown(8) Worst Peak- to-Valley % Drawdown(9) $ $ ASSETS Investments in affiliated partnerships 26,396,481 27,173,907 Deferred income taxes 2,248,934 Income taxes receivable 1,689,480 Receivable from affiliated partnerships during any audit and in any dispute with the Internal Revenue Service. Each limited partner will be informed by the general partner of the commencement of an audit of a partnership. In general, the general partner may enter into a settlement agreement with the Internal Revenue Service on behalf of, and binding upon, limited partners owning less than a 1% profits interest if the partnership has more than 100 partners. However, prior to settlement, such a limited partner may file a statement with the Internal Revenue Service stating that the general partner does not have the authority to settle on behalf of the limited partner. The period for assessing a deficiency against a partner in a partnership with respect to a partnership item is the later of three years after the partnership files its return or, if the name and address of the partner does not appear on the partnership return, one year after the Internal Revenue Service is furnished with the name and address of the partner. In addition, the general partner may consent on behalf of each partnership to the extension of the period for assessing a deficiency with respect to a partnership item. As a result, a limited partner's federal income tax return may be subject to examination and adjustment by the Internal Revenue Service for a partnership item more than three years after it has been filed. 2003* Managed futures investments are designed to fit into a total financial plan as aggressive growth vehicles with the potential for long-term capital appreciation (with commensurate risk). Because their performance does not correlate directly with traditional investments, managed futures can truly enhance diversification in a well-balanced portfolio. The table below is an empirical example of how different assets can react to business cycles. In each case, the asset class is represented by a recognized industry index for that asset. ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME U.S. Stocks (S&P 500 Index) U.S. Treasury Bonds (Lehman Brothers Treasury Bond Index) U.S. Corporate Bonds (Citigroup Corporate Bond Index) Non-U.S. Stocks (MSCI EAFE Index) Global Stocks (MSCI World Index) Managed Futures (Barclay CTA Index) Public Managed Futures Funds (CISDM Public Fund Index) Data: 42 months of trading from July 2000 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Trading advisors are analyzed by a combination of quantitative measures and qualitative factors, including: Quantitative Measures Review of historic performance returns Review of performance versus managed futures industry Review of risk, including standard deviation of monthly returns and worst decline periods Scrutiny of performance in key periods Leverage policies of trading advisors Correlation analysis of trading advisor returns versus managed futures industry indices and other asset class indices Qualitative Factors Experience of staff responsible for development and management of trading approach Development of trading advisor's profile Consistency of trading approach On-site office visit to trading advisor headquarters Ongoing commitment to research and development Flexibility to expand in order to meet demands of growth in assets Futures, Forwards, and Options Traded Adding managed futures investments to a traditional portfolio of stocks and bonds can provide qualified investors with access to major world economic markets. At any given time, managed futures investments can participate in a broad array of markets, selected from among approximately 75 global futures and forward markets on approximately 20 exchanges worldwide. PARTICIPATION IN APPROXIMATELY 75 MARKETS WORLDWIDE plus Energies, Agriculturals, and Metals UNITED STATES UNITED KINGDOM FRANCE GERMANY Bonds, Bills, & Notes Dollar S&P 500 FTSE 100 Long Gilt Pound Short Sterling CAC 40 Notional Bond Pibor Bund DAX RUSSIA CHINA JAPAN AUSTRALIA MAJOR FUTURES MARKETS TRADED Managed futures give investors access to a wide range of complex and sophisticated investments from around the world. Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN EXCHANGE STOCK INDICES SPECTRUM SELECT PERFORMANCE 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 31.19% -14.45% 41.62% -5.12% 23.62% 5.27% 6.22% 14.17% -7.56% 7.14% 1.65% 15.40% 9.62% (5 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (7/31/91 = $10) CORRELATION ANALYSIS (8/91 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Select CISDM S&P CITI EAFE SPECTRUM TECHNICAL PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -2.20% 17.59% 18.35% 7.49% 10.18% -7.51% 7.85% -7.15% 23.31% 22.98% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 -12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Technical CISDM S&P CITI EAFE SPECTRUM STRATEGIC PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 0.10% 10.49% -3.53% 0.37% 7.84% 37.23% -33.06% -0.57% 9.38% 24.00% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Strategic CISDM S&P CITI EAFE SPECTRUM GLOBAL BALANCED PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -1.70% 22.79% -3.65% 18.23% 16.36% 0.75% 0.87% -0.31% -10.12% 6.18% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Global Balanced CISDM S&P CITI EAFE MORGAN STANLEY SPECTRUM CURRENCY L.P. All of the performance data below is through December 31, 2003. SPECTRUM CURRENCY STATISTICS Trading Advisors: John W. Henry & Company, Inc. Sunrise Capital Partners, LLC Began Trading: July 3, 2000 Total Assets in Fund: $190.1 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 13.67% Standard Deviation of Monthly Returns: 4.61% Annualized Standard Deviation: 15.96% Sharpe Ratio: 0.61 Sortino Ratio: 1.71 Largest Decline Period (2/89 - 9/89): -11.13% Average Recovery (No. of months): 2.14 Average Monthly Loss: -2.59% Standard Deviation of Monthly Loss: 1.63% % of Losing Months: 44.19% Average Monthly Gain: 4.11% Standard Deviation of Monthly Gain: 3.99% % of Winning Months: 55.81% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC, is structured to exclusively trade a portfolio of diverse world currencies. Each trading advisor implements a technical, trend-following program to participate in international currencies, primarily in the forward dealer markets, futures contracts, and may also trade in spot (cash) currency markets. JWH employs the International Foreign Exchange Program, which seeks to identify and capitalize on intermediate-term price movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. Sunrise's Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as cross-rates selectively against each other and/or as outrights against the U.S. dollar. FUTURES MARKETS TRADED SPECTRUM CURRENCY PERFORMANCE 2000 2001 2002 2003 11.70% 11.10% 12.25% 12.42% (6 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (4/30/87 = $10) CORRELATION ANALYSIS (6/00 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Pro Forma Spectrum Currency CISDM S&P CITI EAFE The following charts were prepared by the general partner to illustrate certain period performance and statistical information relating to the partnerships, from their inception of trading through December 2003. Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Currency Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period FINANCIAL STATEMENTS INDEX Page MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 398,595,952 274,780,334 Net unrealized gain on open contracts (Morgan Stanley & Co.) 25,504,948 20,865,525 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 11,277,017 (2,967,507 ) Total net unrealized gain on open contracts 36,781,965 17,898,018 Net option premiums 1,232,488 Total Trading Equity 436,610,405 292,678,352 Subscriptions receivable 12,688,217 6,690,744 Interest receivable (Morgan Stanley DW) 250,620 235,283 Total Assets 449,549,242 299,604,379 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,405,123 1,876,403 Accrued brokerage fees (Morgan Stanley DW) 2,401,080 1,662,321 Accrued incentive fee 2,227,005 Accrued management fees 993,550 687,856 Total Liabilities 8,026,758 4,226,580 PARTNERS' CAPITAL Limited Partners (14,405,312.114 and 10,567,690.403 Units, respectively) 436,666,633 292,226,000 General Partner (160,190.965 and 113,977.644 Units, respectively) 4,855,851 3,151,799 Total Partners' Capital 441,522,484 295,377,799 Total Liabilities and Partners' Capital 449,549,242 299,604,379 NET ASSET VALUE PER UNIT 30.31 27.65 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 483,512,056 310,115,973 Net unrealized gain on open contracts (Morgan Stanley & Co.) 27,948,353 27,172,226 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 18,485,857 (3,069,013 ) Total net unrealized gain on open contracts 46,434,210 24,103,213 Net option premiums 3,973,725 Total Trading Equity 533,919,991 334,219,186 Subscriptions receivable 15,855,119 7,108,790 Interest receivable (Morgan Stanley DW) 291,810 268,836 Total Assets 550,066,920 341,596,812 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 4,924,640 Accrued brokerage fees (Morgan Stanley DW) 2,947,775 1,906,305 Redemptions payable 2,925,703 3,195,919 Accrued management fees 1,084,524 672,962 Total Liabilities 11,882,642 5,775,186 PARTNERS' CAPITAL Limited Partners (23,512,770.158 and 18,038,726.045 Units, respectively) 532,266,109 332,124,550 General Partner (261,434.166 and 200,799.812 Units, respectively) 5,918,169 3,697,076 Total Partners' Capital 538,184,278 335,821,626 Total Liabilities and Partners' Capital 550,066,920 341,596,812 NET ASSET VALUE PER UNIT 22.64 18.41 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 109,846,761 68,224,648 Net unrealized gain on open contracts (Morgan Stanley & Co.) 5,847,799 7,430,755 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 2,073,986 (499,611 ) Total net unrealized gain on open contracts 7,921,785 6,931,144 Net option premiums 678,280 222,768 Total Trading Equity 118,446,826 75,378,560 Subscriptions receivable 5,143,178 1,654,471 Interest receivable (Morgan Stanley DW) 66,591 61,778 Total Assets 123,656,595 77,094,809 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 811,250 Redemptions payable 655,871 1,115,549 Accrued brokerage fees (Morgan Stanley DW) 650,049 431,596 Accrued management fees 268,986 178,592 Total Liabilities 2,386,156 1,725,737 PARTNERS' CAPITAL Limited Partners (8,385,489.652 and 6,454,424.204 Units, respectively) 119,976,992 74,487,934 General Partner (90,402.219 and 76,351.101 Units, respectively) 1,293,447 881,138 Total Partners' Capital 121,270,439 75,369,072 Total Liabilities and Partners' Capital 123,656,595 77,094,809 NET ASSET VALUE PER UNIT 14.31 11.54 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 50,336,417 49,330,482 Net unrealized gain on open contracts (Morgan Stanley & Co.) 1,845,313 758,782 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 701,727 (12,849 ) Total net unrealized gain on open contracts 2,547,040 745,933 Net option premiums (39,600 ) 712,573 Total Trading Equity 52,843,857 50,788,988 Subscriptions receivable 1,036,417 716,792 Interest receivable (Morgan Stanley DW) 40,110 53,458 Total Assets 53,920,384 51,559,238 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,033,040 896,775 Accrued brokerage fees (Morgan Stanley DW) 194,891 202,109 Accrued management fees 52,960 54,922 Total Liabilities 1,280,891 1,153,806 PARTNERS' CAPITAL Limited Partners (3,364,748.115 and 3,419,596.378 Units, respectively) 52,064,431 49,814,229 General Partner (37,164.331 and 40,584.304 Units, respectively) 575,062 591,203 Total Partners' Capital 52,639,493 50,405,432 Total Liabilities and Partners' Capital 53,920,384 51,559,238 NET ASSET VALUE PER UNIT 15.47 14.57 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ % $ % $ Foreign currency 10,097,643 3.01 967,843 0.29 11,065,486 3,317,707,667 Commodity 2,703,202 0.80 1,100,261 0.33 3,803,463 11,280 Interest rate 9,047,725 2.69 (683,890 ) (0.20 ) 8,363,835 10,261 Equity (486,130 ) (0.14 ) 449,469 0.13 (36,661 ) $ $ ASSETS Equity in futures interests trading accounts: Cash 178,774,244 88,478,803 Net unrealized gain on open contracts (Morgan Stanley & Co.) 4,878,640 5,651,549 Total Trading Equity 183,652,884 94,130,352 Subscriptions receivable 8,709,868 4,178,758 Interest receivable (Morgan Stanley DW) 101,889 70,210 Total Assets 192,464,641 98,379,320 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fees 399,035 239,482 Redemptions payable 1,060,483 1,526,335 Accrued brokerage fees (Morgan Stanley DW) 661,566 316,460 Accrued management fees 287,637 137,591 Total Liabilities 2,408,721 2,219,868 PARTNERS' CAPITAL Limited Partners (12,010,816.426 and 6,739,826.121 Units, respectively) 188,042,673 93,891,619 General Partner (128,591.799 and 162,791.986 Units, respectively) 2,013,247 2,267,833 Total Partners' Capital 190,055,920 96,159,452 Total Liabilities and Partners' Capital 192,464,641 98,379,320 NET ASSET VALUE PER UNIT 15.66 13.93 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) Proceeds from litigation settlement 4,636,156 Total Trading Results 71,369,430 64,137,291 23,265,163 Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 Total 74,213,042 67,605,728 30,468,895 EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 Management fees 10,617,352 7,838,786 7,110,346 Incentive fees 3,750,169 3,009,853 Total 40,026,137 26,782,529 27,303,546 NET INCOME 34,186,905 40,823,199 3,165,349 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 Total 142,093,478 92,648,909 9,867,449 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 Incentive fees 13,042,559 4,024,921 2,093,709 Management fees 10,835,994 7,377,756 7,501,053 Total 54,151,590 31,873,474 29,150,818 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit: Realized 30,251,636 10,648,811 2,132,212 Net change in unrealized 990,641 2,439,378 2,505,634 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 Total 31,984,167 14,078,687 6,855,809 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 Management fees 2,735,685 2,194,958 2,183,596 Incentive fees 2,123,832 264,827 Total 11,470,755 7,764,271 7,336,352 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 Net change in unrealized 1,801,107 56,725 (2,628,436 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 Total 6,038,905 (2,566,396 ) 3,150,268 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 Management fees 632,782 688,151 705,746 Total 2,961,397 3,220,522 3,302,867 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 27,952,154 12,877,202 3,998,924 Net change in unrealized (772,909 ) 2,473,166 2,622,814 Total Trading Results 27,179,245 15,350,368 6,621,738 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 1. Formation; Name A-2 2. Office A-3 3. Business A-3 4. Term; Dissolution; Fiscal Year A-3 Spectrum Select only: A-3 (a) Term A-3 Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: A-3 (a) Term A-3 Spectrum Currency only: A-4 (a) Term A-4 (b) Dissolution A-4 (c) Fiscal Year A-4 5. Net Worth of General Partner A-4 6. Capital Contributions and Offering of Units of Limited Partnership Interest A-5 7. Allocation of Profits and Losses; Accounting; Other Matters A-7 (a) Capital Accounts A-7 (b) Monthly Allocations A-7 (c) Allocation of Profit and Loss for Federal Income Tax Purposes A-7 (d) Definitions; Accounting A-9 (e) Expenses and Limitations Thereof A-9 (f) Limited Liability of Limited Partners A-10 (g) Return of Limited Partner's Capital Contribution A-10 (h) Distributions A-10 (i) Interest on Assets A-10 8. Management and Trading Policies A-10 (a) Management of the Partnership A-10 (b) The General Partner A-11 (c) General Trading Policies A-12 Trading Policies for All Partnerships: A-12 Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency A-12 Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: A-12 Trading Policy for Spectrum Select only: A-13 Trading Policies for Spectrum Global Balanced only: A-13 (d) Changes to Trading Policies A-13 (e) Miscellaneous A-13 9. Audits; Reports to Limited Partners A-14 10. Transfer; Redemption of Units; Exchange Privilege A-15 (a) Transfer A-15 (b) Redemption A-16 (c) Exchange Privilege A-17 11. Special Power of Attorney A-18 12. Withdrawal of Partners A-19 13. No Personal Liability for Return of Capital A-19 14. Standard of Liability; Indemnification A-19 (a) Standard of Liability A-19 (b) Indemnification by the Partnership A-19 (c) Affiliate A-20 (d) Indemnification by Partners A-20 15. Amendments; Meetings A-20 (a) Amendments with Consent of the General Partner A-20 (b) Meetings A-21 (c) Amendments and Actions without Consent of the General Partner A-21 (d) Action Without Meeting A-22 (e) Amendments to Certificate of Limited Partnership A-22 16. Index of Defined Terms A-22 17. Governing Law A-23 18. Miscellaneous A-23 (a) Priority among Limited Partners A-23 (b) Notices A-23 (c) Binding Effect A-23 (d) Captions A-23 Annex A Request for Redemption A-24 Total 28,185,655 16,183,891 7,353,454 Form of Amended and Restated Limited Partnership Agreement for each of the Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P. Boldfaced captions and bracketed text reflect differences in Limited Partnership Agreements. Spectrum Select only: This Agreement of Limited Partnership, made as of March 21, 1991, as amended and restated as of August 31, 1993, as further amended and restated as of October 17, 1996, as further amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: This Agreement of Limited Partnership, made as of May 27, 1994, as amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and between Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Currency only: This Agreement of Limited Partnership, made as of March 6, 2000 (this "Agreement"), by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively, "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership for the purpose of engaging in the speculative trading of future interests. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Formation; Name. The parties hereto do hereby form a limited partnership under the Delaware Revised Uniform Limited Partnership Act, as amended and in effect on the date hereof (the "Act"). The name of the limited partnership is Morgan Stanley Spectrum [Select][Technical][Strategic][Global Balanced][Currency] L.P. (the "Partnership"). The General Partner shall execute and file a Certificate of Limited Partnership of the Partnership (the "Certificate of Limited Partnership") in accordance with the Act, and shall execute, file, record, and publish as appropriate such amendments, assumed name certificates, and other documents as are or become necessary or advisable in connection with the operation of the Partnership, as determined by the General Partner, and shall take all steps which the General Partner may deem necessary or advisable to allow the Partnership to conduct business as a limited partnership where the Partnership conducts business in any jurisdiction, and to otherwise provide that Limited Partners will have limited liability with respect to the activities of the Partnership in all such jurisdictions, and to comply with the law of any jurisdiction. Each Limited Partner hereby undertakes to furnish to the General Partner a power of attorney and such additional information as the General Partner may request to complete such documents and to execute and cooperate in the filing, recording, or publishing of such documents as the General Partner determines appropriate. 2. Office. The principal office of the Partnership shall be 825 Third Avenue, 9th Floor, New York, New York 10022, or such other place as the General Partner may designate from time to time. The address of the principal office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other agent as the General Partner shall designate from time to time. 3. Business. The Partnership's business and general purpose is to trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now, or may hereafter be, the subject of futures contract trading), domestic and foreign commodity futures contracts, commodity forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, and any rights pertaining thereto (hereinafter referred to collectively as "Futures Interests") and securities (such as United States Treasury securities) approved by the Commodity Futures Trading Commission (the "CFTC") for investment of customer funds and other securities on a limited basis, and to engage in all activities incident thereto. The objective of the Partnership's business is appreciation of its assets through speculative trading. The Partnership may pursue this objective in any lawful manner consistent with the Partnership's trading policies. The Partnership may engage in the foregoing activities either directly or through any lawful transaction or any lawful activity into which a limited partnership may enter or in which a limited partnership may engage under the laws of the State of Delaware; provided that such transactions or activities do not subject the Limited Partners to any liability in excess of the limited liability provided for herein and contemplated by the Act. 4. Term; Dissolution; Fiscal Year. Spectrum Select only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: ( i) December 31, 2025; ( ii) withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; ( iii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; ( iv) a decline in the Net Asset Value (as defined in Section 7( d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; ( v) a decline in the Partnership's Net Assets (as defined in Section 7( d)(1)) as of the close of business (as determined by the General Partner) on any day to or less than $250,000; ( vi) a determination by the General Partner that the Partnership's Net Assets in relation to the operating expenses of the Partnership make it unreasonable or imprudent to continue the business of the Partnership; ( vii) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; or ( viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Currency only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. (b) Dissolution. Upon the occurrence of an event causing the termination of the Partnership, the Partnership shall terminate and be dissolved. Dissolution, payment of creditors, and distribution of the Partnership's Net Assets shall be effected as soon as practicable in accordance with the Act, except that the General Partner and each Limited Partner (and any assignee) shall share in the Net Assets of the Partnership pro rata in accordance with such Partner's respective capital account, less any amount owing by such Partner (or assignee) to the Partnership. The General Partner shall, at its option, be entitled to supervise the liquidation of the Partnership. Nothing contained in this Agreement shall impair, restrict, or limit the rights and powers of the Partners under the law of the State of Delaware and any other jurisdiction in which the Partnership shall be conducting business to reform and reconstitute themselves as a limited partnership following dissolution of the Partnership, either under provisions identical to those set forth herein or any others which they shall deem appropriate. (c) Fiscal Year. The fiscal year of the Partnership shall begin on January 1 of each year and end on the following December 31. 5. Net Worth of General Partner. The General Partner agrees that at all times, as long as it remains General Partner of the Partnership, it shall maintain its net worth at an amount not less than 10% of the total contributions to the Partnership by all Partners and to any other limited partnership for which it acts as a general partner by all partners; provided, however, that if the total contributions to the Partnership by all such partnership's partners, or to any limited partnership for which it acts as a general partner by all partners, are less than $2,500,000, then with respect to the Partnership and any such limited partnership, the General Partner shall maintain its net worth at an amount of at least 15% of the total contributions to the Partnership by all Partners and of the total contributions to any such limited partnership for which it acts as a general partner by all such partnership's partners or $250,000, whichever is the lesser; and, provided, further, that in no event shall the General Partner's net worth be less than $50,000. For the purposes of this Section 5, "net worth" shall EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 Management fees 2,656,229 1,337,848 564,216 Incentive fees 2,623,290 1,485,875 1,155,201 be calculated in accordance with generally accepted accounting principles, except as otherwise specified in this Section 5, with all current assets based on their then current market values. The interests owned by the General Partner in the Partnership and any other partnerships for which it acts as a general partner and any notes and accounts receivable from and payable to any limited partnership in which it has an interest shall not be included as an asset in calculating its net worth, but any notes receivable from an affiliate (as such term is defined in Regulation S-X of the rules and regulations of the Securities and Exchange Commission (the "SEC")) of the General Partner or letters of credit may be included. The General Partner agrees that it shall not be a general partner of any limited partnership other than the Partnership unless, at all times when it is a general partner of any such additional limited partnership, its net worth is at least equal to the net worth required by the preceding paragraph of this Section 5. The requirements of the preceding two paragraphs of this Section 5 may be modified by the General Partner at its option, without notice to or the consent of the Limited Partners, provided that: (a) such modification does not adversely affect the interests of the Limited Partners, and (b) the General Partner obtains a written opinion of counsel for the Partnership that such proposed modification: (i) will not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, (ii) will not adversely affect the status of the Limited Partners as limited partners under the Act, and (iii) will not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder; provided, however, that the General Partner's net worth may not be reduced below the lesser of (A) the net worth required by Section II.B of the Guidelines for Registration of Commodity Pool Programs, as adopted in revised form by the North American Securities Administrators Association, Inc. in September, 1993 (the "NASAA Guidelines"), and (B) the net worth required by such Guidelines as in effect on the date of such proposed modification. 6. Capital Contributions and Offering of Units of Limited Partnership Interest. The General Partner shall contribute to the Partnership, in $1,000 increments, such amount in cash as is necessary to make the General Partner's capital contribution at least equal to the greater of: (a) 1% of aggregate capital contributions to the Partnership by all Partners (including the General Partner's contribution) and (b) $25,000. Such contribution by the General Partner need not exceed the amount described above and shall be evidenced by Units of General Partnership Interest ("Unit(s) of General Partnership Interest"). The General Partner shall maintain its interest in the capital of the Partnership at no less than the amount stated above. The General Partner, without notice to or consent of the Limited Partners, may withdraw any portion of its interest in the Partnership that is in excess of its required interest described above. Interests in the Partnership, other than the General Partnership Interest of the General Partner, shall be Units of Limited Partnership Interest ("Units" or, individually, a "Unit"). The net asset value of a Unit of General Partnership Interest shall at all times be equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. The General Partner, for and on behalf of the Partnership, shall issue and sell Units to persons desiring to become Limited Partners, provided that such persons shall be determined by the General Partner to be qualified investors and their subscriptions for Units shall be accepted by the General Partner, which acceptance the General Partner may withhold in whole or in part in its sole discretion. The minimum subscription for Units per subscriber shall be such amount as the General Partner shall determine from time to time in its sole discretion. The Partnership, directly and/or through Morgan Stanley DW Inc. ("Morgan Stanley DW"), Morgan Stanley & Co. Incorporated ("MS&Co.") or such other selling agent or agents (each, a "Selling Agent") as may be approved by the General Partner, may at any time and from time to time in the sole discretion of the General Partner offer for sale Units and fractions of Units (to the third decimal place) in public and/or private offerings, at prices per Unit, in such minimum amounts, for such periods of time, and on such terms and conditions as the General Partner shall determine in its sole discretion. Units offered during any offering shall be issued and sold by the Partnership as of the close of business (as determined by the General Partner) on the last business day of a fiscal quarter or month and a closing for subscriptions received during such offering shall be held as of such date; provided, however, that the General Partner may hold closings at such other times and for such other periods as it shall determine in its sole discretion to effectuate such offerings. At each such closing, the Partnership shall issue and sell Units to each subscriber whose subscription shall be accepted by the General Partner at a price per Unit to be determined by the General Partner in its sole discretion; provided, however, that the offering price per Unit during any offering of Units shall not at any time be less than the Net Asset Value of a Unit as of the close of business on the date of the applicable closing at which such Unit shall be issued and sold, unless the newly offered Units' participation in the Partnership's profits and losses is proportionately reduced. During any offering, Units may be subscribed for by the General Partner, Morgan Stanley DW, MS&Co., any trading advisor to the Partnership (each, a "Trading Advisor"), any commodity broker for the Partnership (each, a "Commodity Broker"), and such persons' respective shareholders, directors, officers, partners, employees, principals, and Affiliates. Subscriptions for Units by such persons shall not preclude them from receiving compensation from the Partnership for services rendered by them in their respective capacities as other than Limited Partners. No subscriber for Units during any offering of Units shall become a Limited partner until the General Partner shall: (a) accept such subscriber's subscription at a closing relating to such offering; (b) execute this Agreement on behalf of such subscriber pursuant to the power of attorney in the subscription agreement executed by the subscriber in connection with such offering; and (c) make an entry on the books and records of the Partnership reflecting that such subscriber has been admitted as a Limited Partner. Accepted subscribers shall be deemed Limited Partners at such time as their admission shall be reflected on the books and records of the Partnership. The aggregate of all capital contributions to the Partnership shall be available to the Partnership to carry on its business and no interest shall be paid by the Partnership on any such contribution. In connection with any offering of Units by the Partnership, the General Partner, on behalf of the Partnership, shall: (a) cause to be filed one or more Disclosure Documents and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law with the CFTC and the National Futures Association ("NFA"), Forms D or other applications, notices or forms with the SEC and state securities and Blue Sky administrators, and Registration Statements, Prospectuses (as used hereinafter, the term "Prospectus" shall mean the most recent version of the Prospectus issued by the Partnership, or the most recent version of the Disclosure Document or other offering memorandum prepared, in connection with the particular offering of Units), and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law, with the CFTC, the NFA, the SEC, and the National Association of Securities Dealers, Inc.; (b) qualify by registration or exemption from registration the Units for sale under the Blue Sky and securities laws of such states of the United States and such other jurisdictions as the General Partner in its sole discretion shall deem advisable or as may be required by applicable law; (c) make such arrangements for the sale of Units as it shall deem advisable, including engaging Morgan Stanley DW or any other firm as Selling Agent and entering into a selling agreement with Morgan Stanley DW or such other Selling Agent; and (d) take such action with respect to and in order to effectuate the matters described in clauses (a) through (c) as it shall deem advisable or necessary. The Partnership shall not pay the costs of any offering or any selling commissions relating thereto. No Limited Partner shall have any preemptive, preferential or other rights with respect to the issuance or sale of any additional Units, except as described in the applicable Prospectus. No Limited Partner shall have the right to consent to the admission of any additional Limited Partner. There is no maximum aggregate amount of contributions which may be received by the Partnership. All Units subscribed for shall be issued subject to the collection of good funds. If, at any time, good funds representing payment for Units are not made available to the Partnership because a subscriber has provided bad funds in the form of a bad check or draft or otherwise to Morgan Stanley DW or another Selling Agent which, in turn, has deposited the subscription amount with the escrow agent, the Partnership shall cancel the Units issued to such subscriber represented by such bad funds, and the subscriber's name shall be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership as a result thereof in connection with its Futures Interests trading allocable to such cancelled Units shall be deemed a decrease or increase in Net Assets and allocated among the remaining Partners as described in Section 7. Each Limited Partner agrees to reimburse the Partnership for any expense or loss incurred in connection with the issuance and cancellation of any such Units issued to such Limited Partner. 7. Allocation of Profits and Losses; Accounting; Other Matters. (a) Capital Accounts. A capital account shall be established for each Partner. The initial balance of each Partner's capital account shall be the amount of a Partner's initial capital contribution to the Partnership. (b) Monthly Allocations. As of the close of business (as determined by the General Partner) on the last day of each calendar month ("Determination Date") during each fiscal year of the Partnership, the following determinations and allocations shall be made: (1) The Net Assets of the Partnership (as defined in Section 7(d)(1)), before accrual of the monthly management fees and incentive fees payable to any Trading Advisor, shall be determined. (2) The accrued monthly management fees shall then be charged against Net Assets. (3) The accrued monthly incentive fees, if any, shall then be charged against Net Assets. (4) Any increase or decrease in Net Assets (after the adjustments in subparagraphs (2) and (3) above), over those of the immediately preceding Determination Date (or, in the case of the first Determination Date, the first closing of the sale of Units to the public), shall then be credited or charged to the capital account of each Partner in the ratio that the balance of each account bears to the balance of all accounts. (5) The amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, any amount deemed received by a Partner on a Series Exchange of Units pursuant to Section 10(c) hereof, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership shall be charged to that Partner's capital account. (c) Allocation of Profit and Loss for Federal Income Tax Purposes. As of the end of each fiscal year of the Partnership, the Partnership's realized profit or loss shall be allocated among the Partners pursuant to the following subparagraphs for federal income tax purposes. Such allocations of profit and loss will be pro rata from net capital gain or loss and net operating income or loss realized by the Partnership. For United States federal income tax purposes, a distinction will be made between net short-term gain or loss and net long-term gain or loss. (1) Items of ordinary income (such as interest or credits in lieu of interest) and expense (such as the management fees, incentive fees, brokerage fees and extraordinary expenses) shall be allocated pro rata among the Partners based on their respective capital accounts (exclusive of these items of ordinary income or expense) as of the end of each month in which the items of ordinary income or expense accrued. (2) Net realized capital gain or loss from the Partnership's trading activities shall be allocated as follows: (aa) For the purpose of allocating the Partnership's net realized capital gain or loss among the Partners, there shall be established an allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid by the Partner to the Partnership for the Unit. Allocation accounts shall be adjusted as of the end of each fiscal year and as of the date a Partner completely redeems his Units as follows: (i) Each allocation account shall be increased by the amount of income allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(cc) below. (ii) Each allocation account shall be decreased by the amount of expense or loss allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by the amount of any distribution the holder of the Unit has received with respect to the Unit (other than on redemption of the Unit). (iii) When a Unit is redeemed or exchanged in a Series Exchange, the allocation account with respect to such Unit shall be eliminated. (bb) Net realized capital gain shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal Total 11,388,846 5,900,771 3,017,115 year up to the excess, if any, of the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units over the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange. (cc) Net realized capital gain remaining after the allocation thereof pursuant to subparagraph (c)(2)(bb) above shall be allocated next among all Partners whose capital accounts are in excess of their Units' allocation accounts (after the adjustments in subparagraph (c)(2)(bb) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that gain to be allocated pursuant to this subparagraph (c)(2)(cc) is greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (dd) Net realized capital loss shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange over the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units. (ee) Net realized capital loss remaining after the allocation thereof pursuant to subparagraph (c)(2)(dd) above shall be allocated next among all Partners whose Units' allocation accounts are in excess of their capital accounts (after the adjustments in subparagraph (c)(2)(dd) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that loss to be allocated pursuant to this subparagraph (c)(2)(ee) is greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (3) The tax allocations prescribed by this Section 7(c) shall be made to each holder of a Unit whether or not the holder is a substituted Limited Partner. In the event that a Unit has been transferred or assigned pursuant to Section 10(a), the allocations prescribed by this Section 7(c) shall be made with respect to such Unit without regard to the transfer or assignment, except that in the year of transfer or assignment the allocations prescribed by this Section 7(c) shall be divided between the transferor or assignor and the transferee or assignee based on the number of months each held the transferred or assigned Unit. For purposes of this Section 7(c), tax allocations shall be made to the General Partner's Units of General Partnership Interest on a Unit-equivalent basis. (4) The allocation of profit and loss for federal income tax purposes set forth herein is intended to allocate taxable profits and loss among Partners generally in the ratio and to the extent that net profit and net loss are allocated to such Partners under Section 7(b) hereof so as to eliminate, to the extent possible, any disparity between a Partner's capital account and his allocation account with respect to each Unit then outstanding, consistent with the principles set forth in Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). (d) Definitions; Accounting. (1) Net Assets. The Partnership's "Net Assets" shall mean the total assets of the Partnership (including, but not limited to, all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open Futures Interests positions and other assets of the Partnership) less the total liabilities of the Partnership (including, but not limited to, all brokerage, management and incentive fees, and extraordinary expenses) determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. Unless generally accepted accounting principles require otherwise, the market value of a Futures Interest traded on a United States exchange shall mean the settlement price on the exchange on which the particular Futures Interest was traded by the Partnership on the day with respect to which Net Assets are being determined; provided, however, that if a Futures Interest could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange upon which that Futures Interest shall be traded or otherwise, the settlement price on the first subsequent day on which the Futures Interest could be liquidated shall be the market value of such Futures Interest for such day. The market value of a forward contract or a Futures Interest traded on a foreign exchange or market shall mean its market value as determined by the General Partner on a basis consistently applied for each different variety of forward contract or Futures Interest. (2) Net Asset Value. The "Net Asset Value" of a Unit shall mean the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the aggregate number of Units of Limited Partnership Interest. (e) Expenses and Limitations Thereof. Morgan Stanley DW shall pay all of the organizational, initial and continuing offering expenses of the Partnership (including, but not limited to, legal, accounting, and auditing fees, printing costs, filing fees, escrow fees, marketing costs and expenses, and other related expenses), and shall not be reimbursed therefor. Subject to the limits set forth below, and except to the extent that Morgan Stanley DW or an affiliate has agreed to pay any such fees, costs or expenses as provided in the Prospectus, the Partnership shall pay its operational expenses. The General Partner shall not be reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for Partnership operations and administration of redemptions and Series Exchanges of Units. The Partnership will be obligated to pay any extraordinary expenses (determined in accordance with generally accepted accounting principles) it may incur. The Partnership's assets held by any Commodity Broker, as provided in Section 7(i), may be used as margin solely for the Partnership's trading. The Partnership shall bear all commodity brokerage fees and commissions and, except as otherwise set forth herein or described in the Prospectus, shall be obligated to pay all liabilities incurred by it, including, without limitation, all fees and expenses incurred in connection with its trading activities (including, but not limited to, floor brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or transfer fees, costs associated with the taking of delivery of Futures Interests, fees for the execution of forward contract transactions, fees for the execution of cash transactions relating to the exchange of futures for physical transactions, and the use of any Commodity Broker's institutional and overnight execution facilities (collectively, "Transaction Fees and Costs")), and management and incentive fees payable to any Trading Advisor. Appropriate reserves may be created, accrued, and charged against Net Assets for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner. Such reserves shall reduce the Net Asset Value of interests in the Partnership for all purposes, including redemptions and Series Exchanges. The following special limits shall apply to the Partnership's fees and expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the aggregate of (i) the management fees payable by the Partnership to the Trading Advisor(s), and (ii) the Partnership's customary and routine administrative expenses (other than commodity brokerage commissions or fees, Transaction Fees and Costs, incentive fees, legal and auditing fees and expenses, and extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net Assets per month, or 6% of the Partnership's Net Assets annually; (b) the monthly incentive fees payable by the Partnership shall not exceed 15% of the Partnership's "Trading Profits" (as defined in the Prospectus) attributable to such Trading Advisor for the applicable calculation period, provided that such incentive fees may be increased by 2% for each 1% by which the aggregate fees and expenses described in clause (a) of this sentence are below the 6% of Net Assets annual limit thereon (i.e., if such fees and expenses are 4% of Net Assets, the maximum incentive fee payable may be increased to 19%); (c) any "roundturn" brokerage commissions (excluding Transaction Fees and Costs) payable by the Partnership to any Commodity Broker shall not exceed 80% of such Commodity Broker's published non-member rates for speculative accounts; and (d) the aggregate of (i) the brokerage commissions or fees payable by the Partnership to any Commodity Broker, (ii) any Transaction Fees and Costs separately payable by the Partnership, and (iii) any net excess interest and compensating balance benefits to any Commodity Broker (after crediting the Partnership with interest), shall not exceed 14% annually of the Partnership's average monthly Net Assets as at the last day of each month during each calendar year. The General Partner or an Affiliate thereof shall pay and shall not be reimbursed for any fees and expenses in excess of any such limits. (f) Limited Liability of Limited Partners. Each Unit, when purchased by a Limited Partner in accordance with the terms of this Agreement, shall be fully paid and nonassessable. No Limited Partner shall be liable for the Partnership's obligations in excess of such Partner's unredeemed capital contribution, undistributed profits, if any, and any distributions and amounts received upon redemption of Units or deemed received on a Series Exchange of Units, together with interest thereon. The Partnership shall not make a claim against a Limited Partner with respect to amounts distributed to such Partner or amounts received by such Partner upon redemption of Units or deemed received upon a Series Exchange of Units unless the Net Assets of the Partnership (which shall not include any right of contribution from the General Partner except to the extent previously made by it pursuant to this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. (g) Return of Limited Partner's Capital Contribution. Except to the extent that a Limited Partner shall have the right to withdraw capital through redemption or Series Exchange of Units in accordance with Section 10(b) or (c), no Limited Partner shall have any right to demand the return of his capital contribution or any profits added thereto, except upon termination and dissolution of the Partnership. In no event shall a Limited Partner be entitled to demand or receive from the Partnership property other than cash. (h) Distributions. The General Partner shall have sole discretion in determining what distributions (other than on redemption or Series Exchange of Units), if any, the Partnership shall make to its Partners. If made, all distributions shall be pro rata in accordance with the respective capital accounts of the Partners and may be made by credit to a Limited Partner's account with Morgan Stanley DW or by check if such account is closed. (i) Interest on Assets. The Partnership shall deposit all of its assets with such Commodity Broker(s) as the Partnership shall utilize from time to time, and such assets shall be used by the Partnership to engage in Futures Interests trading. Unless provided otherwise in the Prospectus, such assets will be invested in securities approved by the CFTC for investment of customer funds or held in non-interest-bearing accounts, and such Commodity Broker(s) will credit the Partnership at month-end with interest income as set forth in the Prospectus or as otherwise set forth in a notice to Limited Partners. 8. Management and Trading Policies. (a) Management of the Partnership. Except as may be otherwise specifically provided herein, the General Partner, to the exclusion of all Limited Partners, shall conduct and manage the business of the Partnership, including, without limitation, the investment of the funds of the Partnership. No Limited Partner shall have the power to represent, act for, sign for, or bind the General Partner or the Partnership. Except as provided herein, no Partner shall be entitled to any salary, draw, or other compensation from the Partnership. Each Limited Partner hereby undertakes to furnish to the General Partner such additional information as may be determined by the General Partner to be required or appropriate for the Partnership to open and maintain an account or accounts with the Partnership's Commodity Broker(s) for the purpose of trading in Futures Interests. The General Partner shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership. The Limited Partners will under no circumstances be permitted to contract away, or be deemed to have contracted away, the fiduciary obligations owed them by the General Partner under statutory or common law. The General Partner shall have fiduciary responsibility for the NET INCOME 16,796,809 10,283,120 4,336,339 safekeeping of all of the funds and assets of the Partnership, whether or not in its immediate possession or control, and the General Partner shall not employ, or permit another to employ, such funds or assets in any manner except for the benefit of the Partnership. (b) The General Partner. The General Partner, on behalf of the Partnership, shall retain one or more Trading Advisors to make all trading decisions for the Partnership, and shall delegate complete trading discretion to such Trading Advisors; provided, however, that the General Partner may override any trading instructions: (i) which the General Partner, in its sole discretion, determines to be in violation of any trading policy of the Partnership, as set forth in subsection (c) below; (ii) to the extent the General Partner believes doing so is necessary for the protection of the Partnership; (iii) to terminate the Futures Interests trading of the Partnership; (iv) to comply with applicable laws or regulations; or (v) as and to the extent necessary, upon the failure of a Trading Advisor to comply with a request to make the necessary amount of funds available to the Partnership, to fund distributions, redemptions, or reapportionments among Trading Advisors or to pay the expenses of the Partnership; and provided, further, that the General Partner may make trading decisions at any time at which a Trading Advisor shall become incapacitated or some other emergency shall arise as a result of which such Trading Advisor shall be unable or unwilling to act and a successor Trading Advisor has not yet been retained. The Partnership shall not enter into any agreement with the General Partner, Morgan Stanley, or their respective Affiliates (other than a selling agreement as contemplated by Section 6) which has a term of more than one year and which does not provide that it shall be terminable by the Partnership without penalty upon 60 days' prior written notice by the General Partner; provided, however, that any such agreement may provide for automatic renewal for additional one-year terms unless either the Partnership or the other party to such agreement, upon written notice given not less than 60 days prior to the original termination date or any extended termination date, notifies the other party of its intention not to renew. Subject to the foregoing paragraph, the General Partner is hereby authorized, on behalf of the Partnership, to enter into the form of management agreement described in the Prospectus (each, a "Management Agreement") with each Trading Advisor described in the Prospectus, and to cause the Partnership to pay to each such Trading Advisor the management and incentive fees provided for in the applicable Management Agreement, as described in the Prospectus. The General Partner is further authorized: (a) to modify (including changing the form and amount of compensation and other arrangements and terms) or terminate any Management Agreement in its sole discretion in accordance with the terms of such Management Agreement and to employ from time to time other Trading Advisors pursuant to management agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, which terms may include provision for the payment of an incentive fee to a new or replacement Trading Advisor or Advisors which shall be based on any trading profits which shall be earned by such Trading Advisor(s), irrespective of whether such profits shall exceed trading losses incurred by any previous or existing Trading Advisor or Advisors or by the Partnership as a whole; (b) to enter into the Customer Agreements described in the Prospectus (each, a "Customer Agreement") with the Commodity Brokers described in the Prospectus, and to cause the Partnership to pay to such Commodity Brokers brokerage fees or commissions and Transaction Fees and Costs at the rates provided for in the Customer Agreements and as described in the Prospectus; and (c) to modify (including changing the form and amount of compensation and other arrangements and terms) and terminate the Customer Agreements in its sole discretion in accordance with the terms of such Agreements and to employ from time to time other Commodity Brokers pursuant to customer agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, provided, however, that the General Partner shall review at least annually the brokerage arrangements with the Partnership to ensure that the brokerage fees or commissions paid to any Commodity Broker are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: (i) the size of the Partnership; (ii) the Futures Interests trading activity; (iii) the services provided by the Commodity Broker, the General Partner or any Affiliate thereof to the Partnership; (iv) the cost incurred by the Commodity Broker, the General Partner or any Affiliate thereof in organizing and operating the Partnership and offering Units; (v) the overall costs to the Partnership; (vi) any excess interest and compensating balance benefits to the Commodity Broker from assets held thereby; and (vii) if the General Partner does not receive any direct compensation from the Partnership for its services as General Partner, the risks incurred by the General Partner as such. The General Partner may subdivide or combine Units in its discretion, provided that no such subdivision or combination shall affect the Net Asset Value of any Limited Partner's interest in the Partnership. (c) General Trading Policies. The General Partner shall require any Trading Advisor retained by the Partnership to follow the trading policies set forth below. The following trading policies are applicable to the Partnership as a whole and do not apply to the trading of any individual Trading Advisor. Trading Policies for All Partnerships: The Partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given Futures Interest due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related Futures Interest. Taking into account the Partnership's open trade equity on existing positions in determining generally whether to acquire additional Futures Interest positions on behalf of the Partnership will not be considered to constitute "pyramiding." The Partnership will not under any circumstances lend money to affiliated entities or otherwise. The Partnership will not utilize borrowings except if the Partnership purchases or takes delivery of commodities. If the Partnership borrows money from the General Partner or any Affiliate thereof, the lending entity in such case (the "Lender") may not receive interest in excess of its interest costs, nor may the Lender receive interest in excess of the amounts which would be charged the Partnership (without reference to the General Partner's financial abilities or guarantees) by unrelated banks on comparable loans for the same purpose, nor may the Lender or any Affiliate thereof receive any points or other financing charges or fees regardless of the amount. Use of lines of credit in connection with its forward trading does not, however, constitute borrowing for purposes of this trading limitation. The Partnership will not permit "churning" of the Partnership's assets. Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: The Trading Advisors will trade only in those Futures Interests that have been approved by the General Partner. The Partnership normally will not establish new positions in a Futures Interest for any one contract month or option if such additional positions would result in a net long or short position for that Futures Interest requiring as margin or premium more than 15% of the Partnership's Net Assets. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Partnership will not acquire additional positions in any Futures Interest if such additional positions would result in the aggregate net long or short positions for all Futures Interests requiring as margin or premium for all outstanding positions more than 662/3% of the Partnership's Net Assets. Under certain market conditions, such as an abrupt increase in margins required by a commodity exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, or both, the Partnership may be required to commit as margin amounts in excess of the foregoing limit. In such event, the Trading Advisors will reduce their open positions to comply with the foregoing limit before initiating new positions. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. Trading Policy for Spectrum Select only: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Global Balanced only: The Trading Advisor will trade only in those Futures Interests that have been approved by the General Partner. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. The Partnership may, with the General Partner's prior approval, purchase "cash" stocks and bonds, or options on stock or bond indices, on a temporary basis under unusual circumstances in which it is not practicable or economically feasible to establish the Partnership's stock index or bond portfolios in the futures markets, and may acquire "cash" instruments in its short-term interest rate futures component. (d) Changes to Trading Policies. The General Partner shall not make any material change in the trading policies in Section 8(c) without obtaining the prior written approval of Limited Partners owning more than 50% of the Units then outstanding. The General Partner will notify the Limited Partners within seven business days after any material change in the Partnership's Trading Policies so approved by the Limited Partners. (e) Miscellaneous. The General Partner may take such other actions as it deems necessary or desirable to manage the business of the Partnership, including, but not limited to, the following: opening bank accounts and paying or authorizing the payment of distributions to the Partners and the expenses of the Partnership, such as brokerage fees and commissions, management and incentive fees, ordinary and extraordinary expenses, and Transaction Fees and Costs. The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) any federal, state, or local tax returns which shall be required to be filed by the Partnership. The General Partner shall cause the Partnership to pay any taxes payable by the Partnership; provided, however, that the General Partner shall not be required to cause the Partnership to pay any tax so long as the General Partner or the Partnership shall be in good faith and by appropriate legal proceedings contesting the validity, applicability, or amount thereof and such contest shall not materially endanger any right or interest of the Partnership. The General Partner shall be authorized to perform all duties imposed by Sections 6221 through 6233 of the Code on the General Partner as "tax matters partner" of the Partnership, including, but not limited to, the following: (a) the power to conduct all audits and other administrative proceedings with respect to Partnership tax items; (b) the power to extend the statute of limitations for all Limited Partners with respect to Partnership tax items; (c) the power to file a petition with an appropriate federal court for review of a final Partnership administrative adjustment; and (d) the power to enter into a settlement with the Internal Revenue Service on behalf of, and binding upon, those Limited Partners having less than a 1% interest in the Partnership, unless a Limited Partner shall have notified the Internal Revenue Service and the General Partner that the General Partner may not act on such Partner's behalf. If the Partnership is required to withhold United States taxes on income with respect to Units held by Limited Partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, or foreign estates, the General Partner may pay such tax out of its own funds and then be reimbursed out of the proceeds of any distribution or redemption with respect to such Units. The General Partner shall keep at the principal office of the Partnership such books and records relating to the business of the Partnership as it deems necessary or advisable, as are required by the Commodity Exchange Act, as amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as shall be required by other regulatory bodies, exchanges, boards, and authorities having jurisdiction. Such books and records shall be retained by the Partnership for not less than five years. The Partnership's books and records shall be available to Limited Partners or their authorized attorneys or agents for inspection and copying during normal business hours of the Partnership and, upon request, the General Partner shall send copies of same to any Limited Partner upon payment by him of reasonable reproduction and distribution costs. Any subscription documentation executed by a Limited Partner in connection with his purchase of Units, Series Exchange or Non-Series Exchange, as applicable, shall be retained by the Partnership for not less than six years. Except as described herein or in the Prospectus, no person may receive, directly or indirectly, any advisory, management, or incentive fee for investment advice who shares or participates in per trade commodity brokerage commissions paid by the Partnership. No Commodity Broker for the Partnership may pay, directly or indirectly, rebates or "give-ups" to the General Partner or any Trading Advisor, and such prohibitions may not be circumvented by any reciprocal business arrangements. Assets of the Partnership shall not be commingled with assets of any other person. Margin deposits and deposits of assets with a Commodity Broker shall not constitute commingling. The General Partner shall devote such time and resources to the Partnership's business and affairs as it, in its sole discretion, shall deem necessary or advisable to effectively manage the Partnership. Subject to Section 5, the General Partner may engage in other business activities and shall not be required to refrain from any other activity or disgorge any profits from any such activity, whether as general partner of additional partnerships formed for investment in Futures Interests or otherwise. The General Partner may engage and compensate, on behalf and from funds of the Partnership, such persons, firms, or corporations, including any Affiliate of the General Partner, as the General Partner in its sole judgment shall deem advisable for the conduct and operation of the business of the Partnership; provided, however, that, except as described herein and in the Prospectus, the General Partner shall not engage any such Affiliate to perform services for the Partnership without having made a good faith determination that: (i) the Affiliate which it proposes to engage to perform such services is qualified to do so (considering the prior experience of the Affiliate or the individuals employed thereby); (ii) the terms and conditions of the agreement pursuant to which such Affiliate is to perform services for the Partnership are no less favorable to the Partnership than could be obtained from equally-qualified unaffiliated third parties, or are otherwise determined by the General Partner to be fair and reasonable to the Partnership and the Limited Partners; and (iii) the maximum period covered by the agreement pursuant to which such Affiliate is to perform services for the Partnership shall not exceed one year, and such agreement shall be terminable without penalty upon 60 days' prior written notice by the Partnership. Nothing contained in the preceding sentence shall prohibit the General Partner from receiving reimbursement from the Partnership for expenses advanced on behalf of the Partnership (other than organizational and offering expenses). No person dealing with the General Partner shall be required to determine its authority to make any undertaking on behalf of the Partnership or to determine any fact or circumstance bearing upon the existence of its authority. 9. Audits; Reports to Limited Partners. The Partnership's books shall be audited annually by an independent certified public accounting firm selected by the General Partner in its sole discretion. The Partnership shall use its best efforts to cause each Partner to receive: (a) within 90 days after the close of each fiscal year an annual report containing audited financial statements (including a statement of income and a statement of financial condition) of the Partnership for the fiscal year then ended, prepared in accordance with generally accepted accounting MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest principles and accompanied by a report of the accounting firm which audited such statements, and such other information as the CFTC and NFA may from time to time require (such annual reports will provide a detailed statement of any transactions with the General Partner or its Affiliates and of fees, commissions and any compensation paid or accrued to the General Partner or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed); (b) within 75 days after the close of each fiscal year (but in no event later than March 15 of each year) such tax information relating to the Partnership as is necessary for such Partner to complete his federal income tax return; (c) within 30 days after the close of each calendar month, such financial and other information with respect to the Partnership as the CFTC and NFA from time to time shall require in monthly reports, together with information concerning any material change in the brokerage commissions and fees payable by the Partnership to any Commodity Broker; and (d) at such times as shall be necessary or advisable in the General Partner's sole discretion, such other information as the CFTC and NFA from time to time shall require under the CEAct to be given to participants in commodity pools. In addition, if any of the following events occurs, notice of such event, including a description of the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner within seven business days after the occurrence of such event: (a) a decrease in the Net Asset Value of a Unit as of the close of business on any business day to 50% or less of the Net Asset Value for such Unit as of the end of the immediately preceding month; (b) any material amendment to this Agreement; (c) any change in Trading Advisors or any material change in the Management Agreement with a Trading Advisor; (d) any change in Commodity Brokers or any material change in the compensation arrangements with a Commodity Broker; (e) any change in general partners or any material change in the compensation arrangements with a general partner; (f) any change in the Partnership's fiscal year; (g) any material change in the Partnership's trading policies; or (h) cessation of Futures Interests trading by the Partnership. In the case of a notice given in accordance with clause (a) of the immediately preceding sentence: (i) such notice shall also advise Limited Partners that a "Special Redemption Date," on a date specified in such notice (but in no event earlier than 15, nor later than 45, days after the mailing of such notice), will take place as of which Limited Partners may redeem their Units in the same manner as provided in Section 10(b) for regular Redemption Dates (a Special Redemption Date may take place on a regular Redemption Date); and (ii) following the close of business on the date of the 50% decrease giving rise to such notice, the Partnership shall liquidate all existing positions as promptly as reasonably practicable and shall suspend all Futures Interests trading through the Special Redemption Date. Thereafter, the General Partner shall determine whether to reinstitute Futures Interests trading or to terminate the Partnership. As used herein, "material change in the Partnership's trading policies" shall mean any material change in those trading policies specified in Section 8(c). The Net Asset Value of a Unit shall be determined daily by the General Partner, and the most recent Net Asset Value calculation shall be promptly supplied by the General Partner in writing to any Limited Partner after the General Partner shall have received a written request from such Partner. In addition, no increase (subject to the limits in the fourth paragraph of Section 7(e)) in any of the management, incentive, or brokerage fees payable by the Partnership, or any caps (other than those described in the fourth paragraph of Section 7(e)) on management fees, incentive fees, brokerage commissions or fees, Transaction Fees and Costs, ordinary administrative expenses, or net excess interest or compensating balance benefits, all as described in the Prospectus, may take effect until the first business day following a Redemption Date, provided that: (i) notice of such increase is mailed to each Limited Partner at least five business days prior to the last date on which a Request for Redemption must be received by the General Partner with respect to the applicable Redemption Date; (ii) such notice shall describe the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15; and (iii) Limited Partners redeeming Units at the first Redemption Date following such notice shall not be subject to the redemption charges described in Section 10(b). 10. Transfer; Redemption of Units; Exchange Privilege. (a) Transfer. A Limited Partner may transfer or assign his Units only as provided in this Section 10(a). No transferee or assignee shall become a substituted Limited Partner unless the General Partner first consents to such transfer or assignment in writing, which consent may be withheld in its sole discretion. Any transfer or assignment of Units which is permitted hereunder shall be effective as of the Limited Partners end of the month in which such transfer or assignment is made; provided, however, that the Partnership need not recognize any transfer or assignment until it has received at least 30 days' prior written notice thereof from the Limited Partner, which notice shall set forth the address and social security or taxpayer identification number of the transferee or assignee and the number of Units to be transferred or assigned, and which notice shall be signed by the Limited Partner. No transfer or assignment of Units will be effective or recognized by the Partnership if the transferee or assignee, or the transferor or assignor (if fewer than all Units held by the transferor or assignor are being transferred or assigned), would, by reason of such transfer or assignment, acquire Units which do not meet the minimum initial subscription requirements, as described in the Prospectus; provided, however, that the foregoing restriction shall not apply to transfers or assignment of Units (i) by the way of gift or inheritance, (ii) to any members of the Limited Partner's family, (iii) resulting from divorce, annulment, separation or similar proceedings, or (iv) to any person who would be deemed an Affiliate of the Limited Partner (for purposes of this clause (iv), the term "Affiliate" also includes any partnership, corporation, association, or other legal entity for which such Limited Partner acts as an officer, director or partner). No transfer or assignment shall be permitted unless the General Partner is satisfied that (i) such transfer or assignment would not be in violation of the Act or applicable federal, state, or foreign securities laws, and (ii) notwithstanding such transfer or assignment, the Partnership shall continue to be classified as a partnership rather than as an association taxable as a corporation under the Code. No transfer or assignment of Units shall be effective or recognized by the Partnership if such transfer or assignment would result in the termination of the Partnership for federal income tax purposes, and any attempted transfer or assignment in violation hereof shall be ineffective to transfer or assign any such Units. Any transferee or assignee of Units who has not been admitted to the Partnership as a substituted Limited Partner shall not have any of the rights of a Limited Partner, except that such person shall receive that share of capital and profits and shall have that right of redemption to which his transferor or assignor would otherwise have been entitled and shall remain subject to the other terms of this Agreement binding upon Limited Partners. No Limited Partner shall have any right to approve of any person becoming a substituted Limited Partner. The Limited Partner shall bear all costs (including any attorneys' and accountants' fees) related to such transfer or assignment of his Units. In the event that the General Partner consents to the admission of a substituted Limited Partner pursuant to this Section 10(a), the General Partner is hereby authorized to take such actions as may be necessary to reflect such substitution of a Limited Partner. (b) Redemption. Except as set forth below and in accordance with the terms hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of his unredeemed capital contribution and undistributed profits, if any, by requiring the Partnership to redeem all or part of his Units at the Net Asset Value thereof, reduced as hereinafter described (any such withdrawal being herein referred to as a "Redemption"). The minimum amount of any redemption is 50 Units, unless a Limited Partner is redeeming his entire interest in the Partnership. Units may be redeemed at the option of a Limited Partner as of, but not before, the sixth month-end following the closing at which the Limited Partner first becomes a Limited Partner of the Partnership or a limited partner of any other partnership offering Units pursuant to the Prospectus (all such partnerships shall be defined collectively as the "Spectrum Series Partnerships" or individually as a "Spectrum Series Partnership"). Thereafter, Units may be redeemed as of the end of any month. However, any Unit redeemed at or prior to the end of the twelfth or twenty-fourth full month following the closing at which such Unit was issued will be assessed a redemption charge equal to 2% or 1%, respectively, of the Net Asset Value of a Unit on the date of such redemption. The foregoing charges will be paid to Morgan Stanley DW. A Limited Partner who purchased Units pursuant to a Non-Series Exchange (as defined in the Prospectus) will not be subject to the foregoing redemption charges with respect to such Units. The number of Units (determined on a per closing basis), expressed as a percentage of Units purchased, which is not subject to a redemption charge is determined by dividing (a) the dollar amount used in a Non-Series Exchange to purchase Units by (b) the total investment in the Partnership. Limited Partners who redeem units of limited partnership interest in a Spectrum Series Partnership and have either paid a redemption charge with respect to such units of limited partnership, or have held such units of limited partnership for at least two years and subsequently purchase Units, will not be subject to redemption charges on the new Units under the following conditions: (a) the subscriber must subscribe for new Units prior to the one-year anniversary of the effective date of the redemption of the units of limited General Partner partnership, (b) the subscriber will not be subject to redemption charges with respect to the amount of the subscription for the new Units up to the amount of the proceeds of the redemption (net of any redemption charges), and (c) the subscriber must hold the newly acquired Units for six months from the date of purchase before such Units may be redeemed or exchanged pursuant to a Series Exchange. Such subscribers remain subject to the minimum purchase and suitability requirements. In addition, redemption charges may not be imposed for certain large purchasers of units of limited partnership interest in the Spectrum Series Partnerships, as provided in the Prospectus. A Limited Partner who redeems Units pursuant to a Series Exchange will not be subject to redemption charges with respect to the redeemed Units. Units acquired pursuant to a Series Exchange will be deemed as having the same purchase date as the Units exchanged for purposes of determining the applicability of any redemption charges. Furthermore, a Limited Partner redeeming Units at the first Redemption Date following notice of an increase in certain fees in accordance with the fourth paragraph of Section 9 will not be subject to the foregoing redemption charges. Redemptions of Units will be deemed to be in the order in which they are purchased (assuming purchases at more than one closing), with the Units not subject to a redemption charge being deemed to be the first Units purchased at a closing. Redemption of a Limited Partner's Units shall be effective as of the last day of the first month ending after an irrevocable Request for Redemption in proper form shall have been received by the General Partner ("Redemption Date"); provided, that all liabilities, contingent or otherwise, of the Partnership (except any liability to Partners on account of their capital contributions) shall have been paid or there shall remain property of the Partnership sufficient to pay them. As used herein, "Request for Redemption" shall mean a letter in the form specified by the General Partner and received by the General Partner by 5:00 p.m. (New York City time) at least five business days prior to the date on which such Redemption is to be effective. A form of Request for Redemption is annexed to this Agreement. Additional forms of Request for Redemption may be obtained by written request to the General Partner. Upon Redemption, a Limited Partner (or any assignee thereof) shall receive from the Partnership for each Unit redeemed an amount equal to the Net Asset Value thereof as of the Redemption Date, less any redemption charges and any amount owing by such Partner (and his assignee, if any) to the Partnership pursuant to Section 14(d). If a Redemption is requested by an assignee, all amounts owed to the Partnership under Section 14(d) by the Partner to whom such Unit was sold, as well as all amounts owed by all assignees of such Unit, shall be deducted from the Net Asset Value of such Unit upon Redemption. The General Partner shall endeavor to pay Redemptions within 10 business days after the Redemption Date, except that under special circumstances (including, but not limited to, the inability on the part of the Partnership to liquidate Futures Interests positions or the default or delay in payments which shall be due the Partnership from commodity brokers, banks, or other persons), the Partnership may delay payment to Partners requesting Redemption of Units of the proportionate part of the Net Asset Value of the Units represented by the sums which are the subject of such default or delay. Redemptions will be made by credit to the Limited Partner's customer account with Morgan Stanley or by check mailed to the Limited Partner if such account is closed. The General Partner may, in its absolute discretion, waive any restrictions or charges applicable to redemptions. The foregoing terms and conditions in this Section 10(b), other than those in the second paragraph hereof prohibiting redemptions before the sixth month-end following the closing at which a person first becomes a Limited Partner, shall also apply to redemptions effected on "Special Redemption Dates" held in accordance with Section 9. The General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and such other documents as shall be necessary or desirable to reflect any Redemption pursuant to this Section 10(b). (c) Exchange Privilege. Except as set forth below, a Limited Partner (or any assignee thereof) may redeem his Units effective as of the last business day of any month and authorize the General Partner to use the net proceeds of such redemption to purchase units of limited partnership interest of another Spectrum Series Partnership (such a transfer between Spectrum Series Partnerships being herein referred to as a "Series Exchange"). Series Exchanges shall only be permitted by a Limited Partner as of, but not Total before the sixth month-end following the closing at which a Limited Partner first became a limited partner of a Spectrum Series Partnership. The minimum amount of any Series Exchange is 50 Units, unless a Limited Partner is liquidating his entire interest in the Partnership. A Series Exchange shall be effective as of the last business day of the month ending after an Exchange Agreement and Power of Attorney in proper form has been received by the General Partner ("Exchange Date"), provided, that the Partnership has assets sufficient to discharge its liabilities and to redeem Units on the Exchange Date. As used herein, "Exchange Agreement and Power of Attorney" shall mean the form annexed to the Prospectus as Exhibit B, sent by a Limited Partner (or any assignee thereof) to a Morgan Stanley branch office and received by the General Partner at least 5 business days prior to the Exchange Date. Additional forms of the Exchange Agreement and Power of Attorney may be obtained by written request to the General Partner or from a local Morgan Stanley branch office. Upon requesting a Series Exchange, a Limited Partner shall have authorized the General Partner to redeem the number of Units specified therein and to utilize the net proceeds of such redemption to purchase an amount of units of limited partnership interest of one or more other Spectrum Series Partnerships as specified in the Exchange Agreement and Power of Attorney. The General Partner shall cause the net proceeds of the redemption to be delivered to the Spectrum Series Partnership(s) issuing and selling units of limited partnership interest to the redeeming Limited Partner, and shall cause to be mailed to such Limited Partner, within 20 business days after such Exchange Date, a written confirmation thereof. At the next closing on the sale of Units following each Exchange Date, the Partnership shall issue and sell Units with a total Net Asset Value equal to the net proceeds of redemptions from limited partners of other Spectrum Series Partnerships requesting Units on a Series Exchange, provided, that the General Partner, in its capacity as the general partner of each of the Spectrum Series Partnerships, has (i) timely received a properly executed Exchange Agreement and Power of Attorney verifying that such units of limited partnership interest subject to such Series Exchange are owned by the person requesting such Series Exchange and acknowledging that the limited partner remains eligible to purchase Units, and (ii) caused the net proceeds from units of limited partnership interest being redeemed to be transferred to the Partnership in payment of such Units. Each Unit to be purchased with the net proceeds of a redemption of Units of limited partnership interest from a Spectrum Series Partnership shall be issued and sold by the Partnership at a price per Unit equal to 100% of the Net Asset Value of a Unit as of the close of business on the relevant Exchange Date. Each Limited Partner understands that its ability to effect a Series Exchange is conditioned upon units of limited partnership interest of Spectrum Series Partnerships being registered and qualified for sale pursuant to a current Prospectus immediately prior to each Exchange Date. The General Partner shall not have any obligation to have units of limited partnership interest registered. There can be no assurance that any or a sufficient number of units of limited partnership interest will be available for sale on the Exchange Date. If units of limited partnership interest are not registered or qualified for sale under either federal or applicable state securities laws, the General Partner will not be able to effect a Series Exchange for the Limited Partner. Furthermore, certain states may impose significant burdens on, or alter the requirements for, qualifying units of limited partnership interest for sale and in such cases, the General Partner may elect not to continue to qualify units of limited partnership interest for sale in such state or states, and a resident thereof would not be eligible for a Series Exchange. In the event that not all Exchange Agreements and Powers of Attorney can be processed because an insufficient number of units of limited partnership interest are available for sale on an Exchange Date, the General Partner is hereby authorized to allocate units of limited partnership interest in any manner which it deems is reasonable under the circumstances and may allocate a substantial portion of such units of limited partnership interest to new subscribers for Units. The General Partner, on behalf of the Partnership and each Partner, is authorized to execute, file, record, and publish such amendments to this Agreement and such other documents as shall be necessary to reflect any Series Exchange pursuant to this Section 10(c). 11. Special Power of Attorney. Each Limited Partner, by the execution of this Agreement, does irrevocably constitute and appoint the General Partner, with full power of substitution, as his true and lawful agent and attorney-in-fact, in his name, place, and stead, (a) to execute, acknowledge, swear to, deliver, file, and record in his behalf in the $ $ $ Morgan Stanley Spectrum Select L.P. Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 Offering of Units 1,676,778.529 41,261,535 41,261,535 Net income 3,123,455 41,894 3,165,349 Redemptions (965,150.030 ) (23,745,268 ) (23,745,268 ) appropriate public offices and publish: (i) this Agreement and the Certificate of Limited Partnership and amendments thereto; (ii) all instruments that the General Partner deems necessary or appropriate to reflect any amendment, change, or modification of this Agreement or the Certificate of Limited Partnership made in accordance with the terms of this Agreement; (iii) certificates of assumed name; and (iv) all instruments that the General Partner deems necessary or appropriate to qualify or maintain the qualification of the Partnership to do business as a foreign limited partnership in other jurisdictions; and (b) to admit additional Limited Partners and, to the extent that it is necessary under the laws of any jurisdiction, to execute, deliver, and file amended certificates or agreements of limited partnership or other instruments to reflect such admission. The Power of Attorney granted herein shall be irrevocable and deemed to be a power coupled with an interest and shall survive the incapacity, death, dissolution, liquidation, or termination of a Limited Partner. Each Limited Partner hereby agrees to be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to execute a special Power of Attorney on a document separate from this Agreement. In the event of any conflict between this Agreement and any instruments filed by such attorney-in-fact pursuant to the Power of Attorney granted in this Section 11, this Agreement shall control. 12. Withdrawal of Partners. The Partnership shall terminate and be dissolved upon the withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner (unless a new general partner(s) is elected pursuant to Section 15(c) and such remaining general partner(s) shall have elected to continue the business of the Partnership, which any remaining general partner(s) shall have the right to do). The General Partner shall not withdraw or assign all of its interest at any time without giving the Limited Partners 120 days' prior written notice of its intention to withdraw or assign, and, if the Limited Partners thereupon elect a new general partner or partners pursuant to Section 15(c) which elect to continue the business of the Partnership, the withdrawing General Partner shall pay all reasonable expenses incurred by the Partnership in connection with such withdrawal. The General Partner shall be paid the Net Asset Value of its interests in the Partnership as of the date of such withdrawal. The death, incompetency, withdrawal, insolvency, bankruptcy, termination, liquidation, or dissolution of a Limited Partner shall not terminate or dissolve the Partnership, and such Limited Partner, his estate, custodian, or personal representative shall have no right to withdraw or value such Limited Partner's interest in the Partnership except as provided in Section 10. Each Limited Partner (and any assignee of such Partner's interest) expressly agrees that in the event of his death, he waives on behalf of himself and his estate and he directs the legal representative of his estate and any person interested therein to waive the furnishing of any inventory, accounting, or appraisal of the assets of the Partnership and any right to an audit or examination of the books of the Partnership (except to the extent permissible under the sixth paragraph of Section 8(e)). 13. No Personal Liability for Return of Capital. Subject to Section 14, neither the General Partner, Morgan Stanley, nor any Affiliate thereof shall be personally liable for the return or repayment of all or any portion of the capital or profits of any Partner (or assignee), it being expressly agreed that any such return of capital or profits made pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from the General Partner) of the Partnership. 14. Standard of Liability; Indemnification. (a) Standard of Liability. The General Partner and its Affiliates shall not be liable to the Partnership, the Limited Partners, or its or their successors or assigns, for any act, omission, conduct or activity undertaken by or on behalf of the Partnership which the General Partner determines, in good faith, to be in the best interests of the Partnership, unless such act, omission, conduct, or activity constituted misconduct or negligence. (b) Indemnification by the Partnership. The Partnership shall indemnify, defend, and hold harmless the General Partner and its Affiliates from and against any loss, liability, damage, cost, or expense (including attorneys' and accountants' fees and expenses incurred in defense of any demands, claims, or lawsuits) actually and reasonably incurred arising from any act, omission, activity, or conduct undertaken by or on behalf of the Partnership, including, without limitation, any demands, claims, or lawsuits initiated by a Limited Partner (or assignee thereof), provided that (1) the General Partner has determined, in good faith, that the act, omission, activity, or conduct giving rise to the claim for indemnification was in the best interests of the Partnership, and (2) the act, omission, activity, or conduct that was the basis for such loss, liability, damage, cost, or expense was not the result of misconduct or negligence. Notwithstanding anything to the contrary contained in the foregoing, neither the General Partner nor any of its Affiliates nor any person acting as a broker-dealer shall be indemnified by the Partnership for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (3) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, provided, with regard to such court approval, the indemnitee must apprise the court of the position of the SEC, and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee, and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a Limited Partner in the right of the Partnership to which the General Partner or any Affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Act and this Section 14(b). The Partnership shall make advances to the General Partner or its Affiliates hereunder only if: (1) the demand, claim, lawsuit, or legal action relates to the performance of duties or services by such persons to the Partnership; (2) such demand, claim, lawsuit, or legal action is not initiated by a Limited Partner; and (3) such advances are repaid, with interest at the legal rate under Delaware law, if the person receiving such advance is ultimately found not to be entitled to indemnification hereunder. Nothing contained in this Section 14(b) shall increase the liability of any Limited Partner to the Partnership beyond the amount of his unredeemed capital contribution, undistributed profits, if any, and any amounts received on distributions and redemptions and deemed received on Series Exchanges, together with interest thereon. All rights to indemnification and payment of attorneys' and accountants' fees and expenses shall not be affected by the termination of the Partnership or the withdrawal, insolvency, or dissolution of the General Partner. The Partnership shall not incur the cost of that portion of liability insurance which insures the General Partner and its Affiliates for any liability as to which the General Partner and its Affiliates are prohibited from being indemnified. (c) Affiliate. As used in this Agreement, the term "Affiliate" of a person shall mean: (i) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such person; (ii) any partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such person; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, such person; or (iv) any officer, director or partner of such person. Notwithstanding the foregoing, solely for purposes of determining eligibility for indemnification under Section 14(b), the term "Affiliate" shall include only those persons performing services for the Partnership. (d) Indemnification by Partners. In the event that the Partnership is made a party to any claim, demand, dispute, or litigation or otherwise incurs any loss, liability, damage, cost, or expense as a result of, or in connection with, any Partner's (or assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) shall indemnify, defend, hold harmless and reimburse the Partnership for such loss, liability, damage, cost and expense to which the Partnership shall become subject (including attorneys' and accountants' fees and expenses). 15. Amendments; Meetings. (a) Amendments with Consent of the General Partner. If, at any time during the term of the Partnership, the General Partner shall deem it necessary or desirable to amend this Agreement, such amendment shall be effective only if embodied in an instrument approved by the General Partner and by Limited Partners owning more than 50% of the Units then outstanding, and if made in accordance with, and to the extent permissible under, the Act. Any amendment to this Agreement or actions taken pursuant to this Section 15 that shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. Notwithstanding the foregoing, the General Partner shall be authorized to amend this Agreement without the consent of any Limited Partner in order to: (i) change the name of the Partnership or cause the Partnership to transact business under another name; (ii) clarify any inaccuracy or any ambiguity, or reconcile any inconsistent provisions herein; (iii) make any amendment to this Agreement that is not adverse to the Limited Partners; (iv) effect the intent of the allocations proposed herein to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (v) attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes; (vi) qualify or maintain the qualification of the Partnership as a limited partnership in any jurisdiction; (vii) delete or add any provision of or to this Agreement required to be deleted or added by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or in order to opt to be governed by any amendment or successor to the Act, or to comply with applicable law; (viii) make any modification to this Agreement to reflect the admission of additional or substitute general partners and to reflect any modification to the Net Worth requirements applicable to the General Partner and any other general partner, as contemplated by Section 5 hereof; (ix) make any amendment that is appropriate or necessary, in the opinion of the General Partner, to prevent the Partnership or the General Partner or its directors, officers or controlling persons from in any manner being subject to the provisions of the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940, as amended (the "Advisers Act"), or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended; and (x) to make any amendment that is appropriate or necessary, in the opinion of the General Partner, to qualify the Partnership under the 1940 Act, and any persons under the 1940 Act and the Advisers Act, if the General Partner reasonably believes that doing so is necessary. Any such supplemental or amendatory agreement shall be adhered to and have the same force and effect from and after its effective date as if the same had originally been embodied in, and formed a part of, this Agreement; provided, however, that no such supplemental or amendatory agreement shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses or distributions to which any Partner is entitled. (b) Meetings. Any Limited Partner or his authorized attorney or agent, upon written request to the General Partner, delivered either in person or by certified mail, and upon payment of reasonable duplicating and postage costs, shall be entitled to obtain from the General Partner by mail a list of the names and addresses of record of all Limited Partners and the number of Units owned by each. Upon receipt of a written request, signed by Limited Partners owning at least 10% of the Units then owned by Limited Partners, that a meeting of the Partnership be called to vote upon any matter upon which all Limited Partners may vote pursuant to this Agreement, the General Partner, by written notice to each Limited Partner of record sent by certified mail or delivered in person within 15 days after such receipt, shall call a meeting of the Partnership. Such meeting shall be held at least 30 but not more than 60 days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time, and the purpose of such meeting. (c) Amendments and Actions without Consent of the General Partner. At any meeting of the Limited Partners, upon the affirmative vote (which may be in person or by proxy) of Limited Partners owning more than 50% of the Units then owned by Limited Partners, the following actions may be taken without the consent of the General Partner: (i) this Agreement may be amended in accordance with, and only to the extent permissible under, the Act; provided, however, that no such amendment shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new general partner or general partners may be elected if the General Partner terminates or liquidates or elects to withdraw from the Partnership pursuant to Section 12, or becomes insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner or any of its Affiliates may be terminated without penalty on not less than 60 days' prior written notice; and (vi) the sale of all or substantially all of the assets of the Partnership may be approved; provided, however, that no such action shall adversely affect the status of the Limited Partners as limited partners under the Act or the classification of the Partnership as a partnership under the federal income tax laws; and provided further, 1940 Act 15(a) Act 1 Advisers Act 15(a) Affiliate 14(c) Agreement Preamble CEAct 8(e) Certificate of Limited Partnership 1 CFTC 3 Code 7(c)(4) Commodity Broker 6 Customer Agreement 8(b) Determination Date 7(b) Exchange Agreement and Power of Attorney 10(c) Exchange Date 10(c) Futures Interests 3 General Partner Preamble Limited Partners Preamble Management Agreement 8(b) Morgan Stanley DW 6 MS & Co. 6 NASAA Guidelines 5 Net Asset Value 7(d)(2) Net Assets 7(d)(1) NFA 6 Non-Series Exchange 10(b) Partners Preamble Partnership 1 Prospectus 6 Pyramiding 8(c)(5) Redemption 10(b) Redemption Date 10(b) Request for Redemption 10(b) SEC 5 Selling Agent 6 Series Exchange 10(c) Special Redemption Date 9 Spectrum Series Partnership(s) 10(b) Trading Advisor 6 Trading Profits 7(e) Transaction Fees and Costs 7(e) Unit(s) of General Partnership Interest 6 Unit(s) 6 Partners' Capital, December 31, 2001 10,074,715.726 238,821,840 2,589,745 241,411,585 Offering of Units 2,459,750.992 62,682,840 130,000 62,812,840 Net income 40,391,145 432,054 40,823,199 Redemptions (1,852,798.671 ) (49,669,825 ) (49,669,825 ) Name: Title: ,000 (Branch Telephone Number) Please enter a SELL order upon receipt of a completed Request for Redemption. Partners' Capital, December 31, 2002 10,681,668.047 292,226,000 3,151,799 295,377,799 Offering of Units 4,942,610.490 141,160,704 1,340,000 142,500,704 Net income 33,822,853 364,052 34,186,905 Redemptions (1,058,775.458 ) (30,542,924 ) (30,542,924 ) Partners' Capital, December 31, 2003 14,565,503.079 436,666,633 4,855,851 441,522,484 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Technical L.P. Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092 Offering of Units 2,591,525.213 40,832,142 40,832,142 Net loss (19,062,561 ) (220,808 ) (19,283,369 ) Redemptions (1,981,247.508 ) (31,707,743 ) (31,707,743 ) Partners' Capital, December 31, 2001 17,280,496.201 255,122,417 2,851,705 257,974,122 Offering of Units 3,538,032.569 58,538,660 180,000 58,718,660 Net income 60,110,064 665,371 60,775,435 Redemptions (2,579,002.913 ) (41,646,591 ) (41,646,591 ) Partners' Capital, December 31, 2002 18,239,525.857 332,124,550 3,697,076 335,821,626 Offering of Units 7,617,427.705 156,115,402 1,240,00 157,355,402 Net income 86,960,795 981,093 87,941,888 Redemptions (2,082,749.238 ) (42,934,638 ) (42,934,638 ) Partners' Capital, December 31, 2003 23,774,204.324 532,266,109 5,918,169 538,184,278 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Strategic L.P. Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449 Offering Units 892,802.518 9,240,482 9,000 9,249,482 Net loss (475,383 ) (5,160 ) (480,543 ) Redemptions (1,362,078.833 ) (14,186,002 ) (14,186,002 ) Partners' Capital, December 31, 2001 6,525,677.114 68,012,216 805,170 68,817,386 Offering of Units 1,160,993.682 13,475,899 13,475,899 Net income 6,238,448 75,968 6,314,416 Redemptions (1,155,895.491 ) (13,238,629 ) (13,238,629 ) Partners' Capital, December 31, 2002 6,530,775.305 74,487,934 881,138 75,369,072 Offering of Units 2,823,095.529 36,375,972 180,000 36,555,972 Net income 20,281,103 232,309 20,513,412 Redemptions (877,978.963 ) (11,168,017 ) (11,168,017 ) Partners' Capital, December 31, 2003 8,475,891.871 119,976,992 1,293,447 121,270,439 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Global Balanced L.P. Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750 Offering of Units 640,074.598 10,254,342 10,254,342 Net loss (150,650 ) (1,949 ) (152,599 ) Redemptions (512,291.775 ) (8,195,733 ) (8,195,733 ) Partners' Capital, December 31, 2001 3,565,247.829 57,127,967 657,793 57,785,760 Offering of Units 572,583.510 8,829,394 8,829,394 Net loss (5,720,328 ) (66,590 ) (5,786,918 ) Redemptions (677,650.657 ) (10,422,804 ) (10,422,804 ) Partners' Capital, December 31, 2002 3,460,180.682 49,814,229 591,203 50,405,432 Offering of Units 690,016.887 10,491,897 10,491,897 Net income 3,043,649 33,859 3,077,508 Redemptions (748,285.123 ) (11,285,344 ) (50,000 ) (11,335,344 ) Partners' Capital, December 31, 2003 3,401,912.446 52,064,431 575,062 52,639,493 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Currency L.P. Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232 Offering of Units 2,572,156.095 28,921,302 277,000 29,198,302 Net income 4,119,027 217,312 4,336,339 Redemptions (125,958.895 ) (1,430,132 ) (1,430,132 ) Partners' Capital, December 31, 2001 3,852,648.433 45,598,611 2,213,130 47,811,741 Offering of Units 3,918,276.910 48,564,478 420,000 48,984,478 Net income 10,038,409 244,711 10,283,120 Redemptions (868,307.236 ) (10,309,879 ) (610,008 ) (10,919,887 ) Partners' Capital, December 31, 2002 6,902,618.107 93,891,619 2,267,833 96,159,452 Offering of Units 6,157,215.998 89,883,376 790,000 90,673,376 Net income 16,514,538 282,271 16,796,809 Redemptions (920,425.880 ) (12,246,860 ) (1,326,857 ) (13,573,717 ) Partners' Capital, December 31, 2003 12,139,408.225 188,042,673 2,013,247 190,055,920 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 34,186,905 40,823,199 3,165,349 Noncash item included in net income: Net change in unrealized (18,883,947 ) (12,501,282 ) 20,155,561 (Increase) decrease in operating assets: Net option premiums (1,232,488 ) 167,063 (167,063 ) Interest receivable (Morgan Stanley DW) (15,337 ) 70,073 584,598 Increase in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 738,759 221,961 208,881 Accrued incentive fee 2,227,005 Accrued management fees 305,694 91,845 86,434 Net cash provided by operating activities 17,326,591 28,872,859 24,033,760 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 142,500,704 62,812,840 41,261,535 Increase in subscriptions receivable (5,997,473 ) (1,699,578 ) (3,407,225 ) Increase (decrease) in redemptions payable 528,720 (719,023 ) 484,897 Redemptions of Units (30,542,924 ) (49,669,825 ) (23,745,268 ) Net cash provided by financing activities 106,489,027 10,724,414 14,593,939 Net increase in cash 123,815,618 39,597,273 38,627,699 Balance at beginning of period 274,780,334 235,183,061 196,555,362 Balance at end of period 398,595,952 274,780,334 235,183,061 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 87,941,888 60,775,435 (19,283,369 ) Noncash item included in net income (loss): Net change in unrealized (22,330,997 ) (12,597,598 ) 28,536,694 (Increase) decrease in operating assets: Net option premiums (3,973,725 ) Interest receivable (Morgan Stanley DW) (22,974 ) 49,837 744,371 Increase (decrease) in operating liabilities: Accrued incentive fees 4,924,640 (111,599 ) Accrued brokerage fees (Morgan Stanley DW) 1,041,470 397,100 51,079 Accrued management fees 411,562 91,431 21,704 Net cash provided by operating activities 67,991,864 48,716,205 9,958,880 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 157,355,402 58,718,660 40,832,142 Increase in subscriptions receivable (8,746,329 ) (2,663,228 ) (3,357,977 ) Increase (decrease) in redemptions payable (270,216 ) 818,573 (1,055,038 ) Redemptions of Units (42,934,638 ) (41,646,591 ) (31,707,743 ) Net cash provided by financing activities 105,404,219 15,227,414 4,711,384 Net increase in cash 173,396,083 63,943,619 14,670,264 Balance at beginning of period 310,115,973 246,172,354 231,502,090 Balance at end of period 483,512,056 310,115,973 246,172,354 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 20,513,412 6,314,416 (480,543 ) Noncash item included in net income (loss): Net change in unrealized (990,641 ) (2,439,378 ) (2,505,634 ) (Increase) decrease in operating assets: Net option premiums (455,512 ) 65,784 (62,352 ) Interest receivable (Morgan Stanley DW) (4,813 ) 27,581 217,520 Increase (decrease) in operating liabilities: Accrued incentive fees 811,250 (289,687 ) Accrued brokerage fees (Morgan Stanley DW) 218,453 7,354 14,950 Accrued management fees 90,394 3,043 (11,028 ) Net cash provided by (used for) operating activities 20,182,543 3,978,800 (3,116,774 ) CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 36,555,972 13,475,899 9,249,482 Increase in subscriptions receivable (3,488,707 ) (1,002,535 ) (189,876 ) Increase (decrease) in redemptions payable (459,678 ) (956,549 ) 765,005 Redemptions of Units (11,168,017 ) (13,238,629 ) (14,186,002 ) Net cash provided by (used for) financing activities 21,439,570 (1,721,814 ) (4,361,391 ) Net increase (decrease) in cash 41,622,113 2,256,986 (7,478,165 ) Balance at beginning of period 68,224,648 65,967,662 73,445,827 Balance at end of period 109,846,761 68,224,648 65,967,662 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,077,508 (5,786,918 ) (152,599 ) Noncash item included in net income (loss): Net change in unrealized (1,801,107 ) (56,725 ) 2,628,436 (Increase) decrease in operating assets: Net option premiums 752,173 (712,573 ) 192,500 Interest receivable (Morgan Stanley DW) 13,348 40,360 191,236 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) (7,218 ) (17,837 ) 17,157 Accrued management fees (1,962 ) (4,846 ) 4,661 Net cash provided by (used for) operating activities 2,032,742 (6,538,539 ) 2,881,391 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 10,491,897 8,829,394 10,254,342 Increase in subscriptions receivable (319,625 ) (105,151 ) (81,007 ) Increase in redemptions payable 136,265 171,491 122,794 Redemptions of Units (11,335,344 ) (10,422,804 ) (8,195,733 ) Net cash provided by (used for) financing activities (1,026,807 ) (1,527,070 ) 2,100,396 Net increase (decrease) in cash 1,005,935 (8,065,609 ) 4,981,787 Balance at beginning of period 49,330,482 57,396,091 52,414,304 Balance at end of period 50,336,417 49,330,482 57,396,091 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 16,796,809 10,283,120 4,336,339 Noncash item included in net income: Net change in unrealized 772,909 (2,473,166 ) (2,622,814 ) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) (31,679 ) (19,622 ) 4,876 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 345,106 161,731 99,484 Accrued incentive fees 159,553 (673,773 ) 880,379 Accrued management fees 150,046 70,317 43,254 Net cash provided by operating activities 18,192,744 7,348,607 2,741,518 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 90,673,376 48,984,478 29,198,302 (Increase) decrease in subscriptions receivable (4,531,110 ) (1,536,641 ) 412,033 Increase (decrease) in redemptions payable (465,852 ) 1,361,111 (2,072,127 ) Redemptions of Units (13,573,717 ) (10,919,887 ) (1,430,132 ) Net cash provided by financing activities 72,102,697 37,889,061 26,108,076 Net increase in cash 90,295,441 45,237,668 28,849,594 Balance at beginning of period 88,478,803 43,241,135 14,391,541 Balance at end of period 178,774,244 88,478,803 43,241,135 Morgan Stanley Spectrum Select L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $441,522,484 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 11,095,838 2.51 691,093 0.16 11,786,931 14,607,137,889,667 Commodity 20,983,272 4.75 (175,989 ) (0.04 ) 20,807,283 11,866 Interest rate 1,338,070 0.31 (87,559 ) (0.02 ) 1,250,511 11,094 Equity 5,391,145 1.22 5,391,145 3,874 Grand Total: 38,808,325 8.79 427,545 0.10 39,235,870 Unrealized Currency Loss (2,453,905 ) Total Net Unrealized Gain per Statement of Financial Condition 36,781,965 Partnership Net Assets at December 31, 2002: $295,377,799 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 16,008,784 5.42 * (5,655,235 ) (1.91 ) 10,353,549 11,828,382,656 Interest rate 9,770,731 3.31 (48,039 ) (0.02 ) 9,722,692 14,820 Commodity (1,443,818 ) (0.49 ) 371,055 0.13 (1,072,763 ) 5,211 Equity (194,728 ) (0.07 ) 829,442 0.28 634,714 1,202 Grand Total: 24,140,969 8.17 (4,502,777 ) (1.52 ) 19,638,192 Unrealized Currency Loss (1,740,174 ) Total Net Unrealized Gain per Statement of Financial Condition 17,898,018 Morgan Stanley Spectrum Technical L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $538,184,278 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 22,436,449 4.17 (1,729,369 ) (0.32 ) 20,707,080 15,752,105,748 Interest rate 53,129 0.01 (5,502,664 ) (1.02 ) (5,449,535 ) 18,105 Commodity 23,626,420 4.39 (2,094,377 ) (0.39 ) 21,532,043 15,966 Equity 10,843,962 2.01 (2,020,472 ) (0.37 ) 8,823,490 7,658 Grand Total: 56,959,960 10.58 (11,346,882 ) (2.10 ) 45,613,078 Unrealized Currency Gain 821,132 Total Net Unrealized Gain per Statement of Financial Condition 46,434,210 Partnership Net Assets at December 31, 2002: $335,821,626 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 21,362,440 6.36 1,833,683 0.55 23,196,123 Unrealized Currency Gain 907,090 Total Net Unrealized Gain per Statement of Financial Condition 24,103,213 Morgan Stanley Spectrum Strategic L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $121,270,439 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 1,149,874 0.95 13,175 0.01 1,163,049 2,274,600,195 Commodity 6,059,248 5.00 * (1,198,617 ) (0.99 ) 4,860,631 9,826 Interest rate 207,192 0.17 8,576 0.01 215,768 1,476 Equity 1,807,241 1.49 1,807,241 1,160 Grand Total: 9,223,555 7.61 (1,176,866 ) 0.97 8,046,689 Unrealized Currency Loss (124,904 ) Total Net Unrealized Gain per Statement of Financial Condition 7,921,785 Partnership Net Assets at December 31, 2002: $75,369,072 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 6,968,255 9.24 139,669 0.19 7,107,924 Unrealized Currency Loss (176,780 ) Total Net Unrealized Gain per Statement of Financial Condition 6,931,144 Morgan Stanley Spectrum Global Balanced L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $52,639,493 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 2,470,465 4.69 103,550 0.20 2,574,015 Unrealized Currency Loss (26,975 ) Total Net Unrealized Gain per Statement of Financial Condition 2,547,040 Partnership Net Assets at December 31, 2002: $50,405,432 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 755,900 1.50 162,545 0.33 918,445 Unrealized Currency Loss (172,512 ) Total Net Unrealized Gain per Statement of Financial Condition 745,933 Morgan Stanley Spectrum Currency L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $190,055,920 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 10,021,102,895 Grand Total: 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition 4,878,640 Partnership Net Assets at December 31, 2002: $96,159,452 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency Other 4,758,215 4.95 (4,013,755 ) (4.18 ) 744,460 9,742,575,176 Euro/US dollar Mar. 03 4,860,786 5.05 4,860,786 143,425,000 Grand Total: 9,619,001 10.00 (4,013,755 ) (4.18 ) 5,605,246 Unrealized Currency Gain 46,303 Total Net Unrealized Gain per Statement of Financial Condition 5,651,549 4. FINANCIAL INSTRUMENTS The Partnerships trade futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. The market value of contracts is based on closing prices quoted by the exchange, bank or clearing firm through which the contracts are traded. The Partnerships' contracts are accounted for on a trade-date basis and marked-to-market on a daily basis. The Partnerships account for derivative investments in accordance with the provisions of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: (1)One or more underlying notional amounts or payment provisions; (2)Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; (3)Terms require or permit net settlement. Generally derivatives include futures, forward, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains (losses) on open contracts at December 31, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition, and their longest contract maturities were as follows: Spectrum Select Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 31,690,225 5,091,740 36,781,965 Mar. 2005 March 2004 2002 12,359,670 5,538,348 17,898,018 Dec. 2003 March 2003 Spectrum Technical Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded Spectrum Strategic Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 6,905,992 1,015,793 7,921,785 July 2005 March 2004 2002 6,387,996 543,148 6,931,144 July 2004 March 2003 Spectrum Global Balanced Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 2,472,718 74,322 2,547,040 April 2004 March 2004 2002 717,293 28,640 745,933 March 2003 March 2003 Spectrum Currency Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded 5. FINANCIAL HIGHLIGHTS Spectrum Select PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 27.65 NET OPERATING RESULTS: Realized Profit 4.12 Unrealized Profit 1.51 Interest Income 0.23 Expenses (3.20 ) Net Income 2.66 NET ASSET VALUE, DECEMBER 31, 2003: $ 30.31 Expense Ratio 10.9 % Net Income Ratio 9.3 % TOTAL RETURN 2003 9.6 % INCEPTION-TO-DATE RETURN 203.1 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Technical PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 18.41 NET OPERATING RESULTS: Realized Profit 5.61 Unrealized Profit 1.07 Interest Income 0.16 Expenses (2.61 ) Net Income 4.23 NET ASSET VALUE, DECEMBER 31, 2003: $ 22.64 Expense Ratio 12.5 % Net Income Ratio 20.2 % TOTAL RETURN 2003 23.0 % INCEPTION-TO-DATE RETURN 126.4 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Strategic PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 11.54 NET OPERATING RESULTS: Realized Profit 4.10 Unrealized Profit 0.14 Interest Income 0.10 Expenses (1.57 ) Net Income 2.77 NET ASSET VALUE, DECEMBER 31, 2003: $ 14.31 Spectrum Global Balanced PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 14.57 NET OPERATING RESULTS: Realized Profit 1.08 Unrealized Profit 0.54 Interest Income 0.16 Expenses (0.88 ) Net Income 0.90 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.47 Expense Ratio 5.8 % Net Income Ratio 6.1 % TOTAL RETURN 2003 6.2 % INCEPTION-TO-DATE RETURN 54.7 % COMPOUND ANNUALIZED RETURN 4.9 % Spectrum Currency PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 13.93 NET OPERATING RESULTS: Realized Profit 2.92 Unrealized Loss (0.08 ) Interest Income 0.11 Expenses (1.22 ) Net Income 1.73 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.66 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 November 30, Total Assets 28,645,415 28,863,962 LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Payable to Parent 18,547,853 20,444,379 Accrued expenses 13,206 18,000 Total Liabilities 18,561,059 20,462,379 STOCKHOLDER'S EQUITY: Common stock, no par value: Authorized 1,000 shares; outstanding 100 shares at stated value of $500 per share 50,000 50,000 Additional paid-in capital 195,100,000 123,170,000 Retained earnings 9,934,356 8,251,583 205,084,356 131,471,583 Less: Notes receivable from Parent (195,000,000 ) (123,070,000 ) Total Stockholder's Equity 10,084,356 8,401,583 Total Liabilities and Stockholder's Equity 28,645,415 28,863,962 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. NOTES TO STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 1. INTRODUCTION AND BASIS OF PRESENTATION Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of Morgan Stanley ("Parent") Effective June 20, 2002, Morgan Stanley Dean Witter & Co. changed its name to Morgan Stanley. Demeter manages the following commodity pools as sole general partner: Dean Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter Cornerstone Fund IV, Dean Witter Diversified Futures Fund Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley/Chesapeake L.P., Morgan Stanley/JWH Futures Fund L.P., Morgan Stanley Charter MSFCM L.P., Morgan Stanley Charter Graham L.P., Morgan Stanley Charter Millburn L.P., Morgan Stanley Charter Campbell L.P. ("Charter Campbell"), Morgan Stanley Strategic Alternatives Fund L.P,. and Morgan Stanley/Mark J. Walsh & Company L.P. Each of the commodity pools is a limited partnership organized to engage in the speculative trading of commodity futures contracts, forward contracts on foreign currencies and other commodity interests. The statements of financial condition are prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. On December 31, 2002, Columbia Futures Fund, Morgan Stanley Charter Welton L.P. and Morgan Stanley Spectrum Commodity L.P. each terminated trading in accordance with their limited partnership agreements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes Income tax expense is provided for using the asset and liability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the financial statement and the income tax basis of assets and liabilities, using enacted tax rates and laws that will be in effect when such differences are expected to reverse. 3. INVESTMENTS IN AFFILIATED PARTNERSHIPS The limited partnership agreement of each commodity pool requires Demeter to maintain a general partnership interest in each partnership, generally in an amount equal to, but not less than, 1 percent of the aggregate capital contributed to the partnership by all partners. The total assets, liabilities and partners' capital of all the funds managed by Demeter at November 30, 2003 and 2002 were as follows: November 30, $ $ Total assets 2,403,993,109 1,645,639,679 Total liabilities 35,113,850 28,967,603 Total partners' capital 2,368,879,259 1,616,672,076 EXHIBIT A TABLE OF CONTENTS TO FORM OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENTS Page that Units owned by the General Partner and any Affiliate thereof shall not be voted on the matters described in clauses (iii) and (v) above. Any action which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. (d) Action Without Meeting. Notwithstanding contrary provisions of this Section 15 covering notices to, meetings of, and voting by Limited Partners, any action required or permitted to be taken by Limited Partners at a meeting or otherwise may be taken by Limited Partners without a meeting, without prior notice, and without a vote if a consent in writing setting forth the action so taken shall be signed by Limited Partners owning Units having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting of Limited Partners at which all outstanding Units shall have been present and voted. Notice of the taking of action by Limited Partners without a meeting by less than unanimous written consent of the Limited Partners shall be given to those Limited Partners who shall not have consented in writing within seven business days after the occurrence thereof. (e) Amendments to Certificate of Limited Partnership. If an amendment to this Agreement shall be made pursuant to this Section 15, the General Partner shall be authorized to execute, acknowledge, swear to, deliver, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to the Certificate of Limited Partnership as shall be necessary or desirable to reflect such amendment. 16. Index of Defined Terms. Defined Term Section 17. Governing Law. The validity and construction of this Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, including, specifically, the Act (without regard to its choice of law principles); provided, however, that causes of action for violations of federal or state securities laws shall not be governed by this Section 17. 18. Miscellaneous. (a) Priority among Limited Partners. Except as otherwise specifically set forth in this Agreement, no Limited Partner shall be entitled to any priority or preference over any other Limited Partner in regard to the affairs of the Partnership. (b) Notices. All notices and requests to the General Partner under this Agreement (other than Subscriptions, Requests for Redemption, and notices of assignment or transfer, of Units) shall be in writing and shall be effective upon personal delivery or, if sent by registered or certified mail, postage prepaid, addressed to the General Partner at 825 Third Avenue, 9th Floor, New York, New York 10022 (or such other address as the General Partner shall have notified the Limited Partners), upon the deposit of such notice in the United States mail. Requests for Redemption, and notices of assignment or transfer of Units shall be effective upon timely receipt by the General Partner. Except as otherwise provided herein, all reports and notices hereunder shall be in writing and shall be sent by first-class mail to the last known address of the Limited Partner. (c) Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, all of the parties, their successors, assigns as permitted herein, custodians, estates, heirs, and personal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the Partnership and the General Partner may rely upon the Partnership's records as to who are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and that they shall be bound thereby, including all rights which they may have under Section 15. (d) Captions. Captions in no way define, limit, extend, or describe the scope of this Agreement nor the effect of any of its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Additional Limited Partners: General Partner: By: Demeter Management Corporation, General Partner, as Authorized Agent and Attorney-in-Fact Demeter Management Corporation By: Name: Title: By: Annex A to Limited Partnership Agreement REQUEST FOR REDEMPTION: MORGAN STANLEY MANAGED FUTURES FUNDS THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED PARTNER'S LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, (ATTN: MANAGED FUTURES, HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DAY OF THE MONTH IN WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED. , 20 - [date] [print or type Morgan Stanley DW account number] I hereby request redemption (effective as of the next applicable date as of which redemption is permitted as set forth in the Limited Partnership Agreement of the Partnership for which redemption is requested, subject to all terms and conditions set forth therein) of my capital account in an amount equal to the respective Net Asset Value, as defined in the Limited Partnership Agreement, of the following Unit(s) of Limited Partnership Interest ("Units"), less any amounts specified in the Limited Partnership Agreement. COMPLETE ONLY ONE SECTION A, B, C, OR D PER FORM Section A Spectrum Series shall only redeem Units in a minimum amount of 50 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [DWSB] Spectrum Global Balanced Entire Interest Units [DWSF] Spectrum Select Entire Interest Units [DWSS] Spectrum Strategic Entire Interest Units [DWST] Spectrum Technical Entire Interest Units [DWSX] Spectrum Currency Entire Interest Units Section B Cornerstone Funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [CFCFB] Cornerstone Fund II Entire Interest Units $ ,000 [CFCFC] Cornerstone Fund III Entire Interest Units $ ,000 [CFCFD] Cornerstone Fund IV Entire Interest Units $ ,000 Section C Charter Series shall only redeem Units in a minimum amount of 100 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [MSCC] Charter Campbell Entire Interest Units [MSCD] Charter MSFCM Entire Interest Units [MSCG] Charter Graham Entire Interest Units [MSCM] Charter Millburn Entire Interest Units Section D Other managed futures funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. MARK ONE FUND ONLY (Use One Form Per Fund): Entire Interest [DFF] Diversified Futures Fund [PGF] Multi-Market Portfolio [DFF2] Diversified Futures Fund II [PPF] Principal Plus Fund Units [DFF3] Diversified Futures Fund III [PSF] Portfolio Strategy Fund [GPP] Global Perspective Portfolio [WCF] World Currency Fund $ ACCOUNT INFORMATION AND SIGNATURES I understand that I may only redeem Units at such times as are specified in the Limited Partnership Agreement and that, under certain circumstances described therein, I may be subject to a redemption charge. I (either in my individual capacity or as an authorized representative of an entity, if applicable) hereby represent and warrant that I am the true, lawful and beneficial owner of Units (or fractions thereof) to which this Request for Redemption relates, with full power and authority to request redemption. The Units (or fractions thereof) which are the subject of this request are not subject to any pledge or otherwise encumbered in any fashion. My signature has been represented by a member of a registered national securities exchange. Signatures Must Be Identical to Name(s) in Which Units are Registered Type or Print all Information Below 1. Account Information (Name of Limited Partner) (Morgan Stanley DW Account Number) Address: (Street) (City) (State Province) (Zip Code or Postal Code) 2.a. Signature(s) of Individual Partner(s) or Assignee(s) including IRAs (Signature) (Signature) (Date) 2.b. Signature of Entity Partner or Assignee (Name of Entity) By: X (Authorized officer, partner, trustee, or custodian. If a corporation, include certified copy of authorized resolution.) 3. Branch Manager and Financial Advisor Use Only (Financial Advisor MUST sign) (Branch Manager MUST sign) MORGAN STANLEY SPECTRUM SERIES SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY If you are subscribing for units of limited partnership interest in the Morgan Stanley Spectrum Series, consisting of five commodity pool limited partnerships, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P., you should carefully read and review the Prospectus. For Cash Subscribers: By executing the Cash Subscription Signature Page of this Subscription and Exchange Agreement and Power of Attorney, you will irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. For Exchange Subscribers: By executing the Exchange Subscription Signature Page of this Agreement, you will irrevocably redeem the units of limited partnership interest of each limited partnership indicated on the signature page of this Agreement and, with the proceeds of that redemption, irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. Notwithstanding the foregoing, you may revoke this Agreement, and receive a full refund of the subscription amount you paid, plus any accrued interest thereon (or revoke the redemption of units in the other limited partnership in the case of an exchange), within five business days after execution of this Agreement or no later than 3:00 p.m., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. If this Agreement is accepted, you agree to: (i) contribute your subscription to each partnership designated on the Signature Page of this Agreement; and (ii) be bound by the terms of each such partnership's Amended and Restated Limited Partnership Agreement, included as Exhibit A to the Prospectus (the "Limited Partnership Agreement"). By executing the Signature Page of this Agreement, you shall be deemed to have executed this Agreement and the Limited Partnership Agreement (including the Powers of Attorney in both Agreements). PAYMENT INSTRUCTIONS For Cash Subscribers: You must pay your subscription amount by charging your customer account with Morgan Stanley DW (the "Customer Account"). In the event that you do not have a Customer Account or do not have sufficient funds in your existing Customer Account, you must make appropriate arrangements with your Morgan Stanley financial advisor. If you don't have a financial advisor, contact your local Morgan Stanley branch office. Payment must NOT be mailed to the general partner at its offices in New York City. Any such payment will not be accepted by the general partner and will be returned to you for proper placement with the Morgan Stanley branch office where your Customer Account is maintained. By executing the Signature Page of this Agreement, you authorize and direct the general partner and Morgan Stanley DW to transfer the appropriate amount from your Customer Account to the escrow account. For Exchange Subscribers: You must pay your subscription amount by applying the proceeds from the redemption of your limited partnership units in one of the partnerships or another commodity pool which Demeter Management Corporation serves as the general partner and commodity pool operator. You may only redeem units at such times as are specified in the limited partnership agreement for that commodity pool, and under certain circumstances described in that agreement you may be subject to a redemption charge. REPRESENTATIONS AND WARRANTIES STATE SUITABILITY REQUIREMENTS ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS You agree that as of the date that your name is entered on the books of a partnership, you shall become a limited partner of that partnership. You also agree to each and every term of the Limited Partnership Agreement of that partnership as if you signed that agreement. You further agree that you will not be issued a certificate evidencing the units that you are purchasing, but that you will receive a confirmation of purchase in Morgan Stanley DW's customary form. POWER OF ATTORNEY AND GOVERNING LAW You hereby irrevocably constitute and appoint Demeter Management Corporation, the general partner of each partnership, as your true and lawful Attorney-in-Fact, with full power of substitution, in your name, place, and stead: (1) to do all things necessary to admit you as a limited partner of each Partnership requested below, and such other partnership(s) of the Morgan Stanley Spectrum Series as you may request from time to time; (2) to admit others as additional or substituted limited partners to such partnership(s) so long as such admission is in accordance with the terms of the applicable Limited Partnership Agreement or any amendment thereto; (3) to file, prosecute, defend, settle, or compromise any and all actions at law or suits in equity for or on behalf of each partnership in connection with any claim, demand, or liability asserted or threatened by or against any partnership; and (4) to execute, acknowledge, swear to, deliver, file, and record on your behalf and as necessary in the appropriate public offices, and publish: (a) each Limited Partnership Agreement and each Certificate of Limited Partnership and all amendments thereto permitted by the terms thereof; (b) all instruments that the general partner deems necessary or appropriate to reflect any amendment, change, or modification of any Limited Partnership Agreement or any Certificate of Limited Partnership made in accordance with the terms of such Limited Partnership Agreement; (c) certificates of assumed name; and (d) all instruments that the general partner deems necessary or appropriate to qualify or maintain the qualification of each partnership to do business as a foreign limited partnership in other jurisdictions. You agree to be bound by any representation made by the general partner or any successor thereto acting in good faith pursuant to this Power of Attorney. The Power of Attorney granted hereby shall be deemed to be coupled with an interest and shall be irrevocable and survive your death, incapacity, dissolution, liquidation, or termination. This Subscription and Exchange Agreement and Power of Attorney shall be governed by and interpreted in accordance with the laws of the State of New York, provided, however, that this provision shall not be deemed a waiver of any rights of action you may have under applicable federal or state securities law. RECEIPT OF DOCUMENTATION A Morgan Stanley Spectrum Series Units of Limited Partnership Interest Cash Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-7 AND B-8, THE CASH SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Cash Subscription Signature Page and by payment of the purchase price for units of limited partnership interest of one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. CASH SUBSCRIPTION SIGNATURE PAGE BUY Item 1 SUBSCRIBER Spectrum Fund Symbol Amount of Subscription - Morgan Stanley DW Account No. D W S B Morgan Stanley Spectrum Global Balanced L.P. $ D W S F Morgan Stanley Spectrum Select L.P. $ D W S S Morgan Stanley Spectrum Strategic L.P. $ D W S T Morgan Stanley Spectrum Technical L.P. $ D W S X Morgan Stanley Spectrum Currency L.P. $ Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. *If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. *In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account _____________________________________________________________________________________________ Your Full Name or Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription and Exchange Agreement and Power of Attorney on their behalf and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each partnership specified is authorized under applicable law and the governing documents of the entity, has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Branch Manager and Financial Advisor Use Only (Complete in Full and in Ink) B Morgan Stanley Spectrum Series Units of Limited Partnership Interest Exchange Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-9 AND B-10, THE EXCHANGE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Exchange Subscription Signature Page, you hereby redeem the units of limited partnership interest of the limited partnership(s) named in Item 1 below and, by application of the proceeds of such redemption to the payment of the purchase price for units of limited partnership interest in one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. Redemption of units of any partnership for an exchange must be in whole units, unless you are redeeming your entire interest in such partnership. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS, DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. Item 1 SUBSCRIBER - Morgan Stanley DW Account No. Symbol(s) for Fund(s) from which Units are to be redeemed Specify quantity of Units to be redeemed (check box if Entire Interest; insert number if Whole Units) Spectrum Series Fund Symbol Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / You hereby authorize Demeter Management Corporation to redeem the quantity of units of limited partnership interest set forth opposite the symbol for each partnership identified on the left above at the "Net Asset Value" thereof, as defined in the limited partnership agreement of each such partnership, less any redemption charges, and to utilize the net proceeds of that redemption to purchase units in the applicable Morgan Stanley Spectrum Series partnership as indicated on the right above. Redemptions for an exchange must meet the applicable minimum investment requirements described under "Subscription Procedure" in the prospectus. Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. * If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. * In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account: _____________________________________________________________________________________________ Your Full Name or Full Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager, or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription Agreement and Power of Attorney on their behalf; and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each Partnership specified is authorized under applicable law and the governing documents of the entity, and has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Financial Advisor and Branch Manager Use Only (Complete in Full and in Ink) EXHIBIT C Morgan Stanley Spectrum Series Units of Limited Partnership Interest Additional Subscription Agreement Update Form , 2004 C Please print or type (except signatures). Use ink only. Morgan Stanley DW Account No. - I am an investor in one or more of the Morgan Stanley Spectrum Series partnership(s) I acknowledge receipt of the Morgan Stanley Spectrum Series Prospectus dated April 28, 2003 (the "Prospectus"). I have signed this form, which updates each Subscription and Exchange Agreement and Power of Attorney I signed when I purchased units in one or more of the Morgan Stanley Spectrum Series partnership(s), so that I may purchase additional units of such partnership(s) without the need to execute a new Subscription Agreement. I understand that if I wish to purchase additional units by way of an exchange, or if I wish to purchase units of any Morgan Stanley Spectrum Series partnership in which I am not currently an investor, I must first execute a new Subscription Agreement in the form annexed to the applicable Prospectus as Exhibit B. I hereby confirm that the representations, warranties and other information regarding the Subscriber in the Subscription Agreement(s) I previously executed are still accurate, and that any purchase of additional Units following the date of this Subscription Agreement Update Form shall be deemed confirmation that such representations, warranties and other information are still accurate at the time of that additional purchase. I will notify my Morgan Stanley Financial Advisor prior to the purchase of additional Units if there is any material change in the Subscriber's representations, warranties, or other information contained in the previously executed Subscription Agreement(s). I understand that I will need to execute a new Subscription Agreement Update Form when a new Prospectus or Prospectus Supplement is issued. INDIVIDUAL SUBSCRIBERS IF SUBSCRIBER IS AN ENTITY X Signature of Subscriber Print Full Name of Entity X Print Full Name of Subscriber Signature of Person Signing for Entity By: X Signature of Co-Subscriber Print Full Name of Person Signing for Entity Print Full Name of Co-Subscriber Title Date: Date: Branch Manager and Financial Advisor Use Only No person is authorized to give any information or to make any representation not contained in this prospectus in connection with the matters described herein, and, if given or made, such information or representation must not be relied upon as having been authorized. This prospectus does not constitute an offer by any person within any jurisdiction in which such offer is not authorized, or in which the person making such offer is not qualified to do so, or to any person to whom such offer would be unlawful. The delivery of this prospectus at any time does not imply that information contained herein is correct as of any time subsequent to the date of its issue. Until 40 days from the date of this prospectus, all dealers that effect transactions in these securities, or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. $ Total 280,435 *Represents an estimate of the registrant's portion of the fees and expenses that are common to this Registration Statement and the Registration Statements on Form S-1 for each of Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Currency L.P. and the Post-Effective Amendment No. 2 to Registration Statement on Form S-1 for Morgan Stanley Global Balanced L.P., which are being filed concurrently with this Registration Statement. Item 14. Indemnification of Directors and Officers. Section 14 of the Amended and Restated Limited Partnership Agreement (a form of which is annexed to the Prospectus as Exhibit A) provides for indemnification of the General Partner and its affiliates (as such term is defined therein) by the Partnership for any loss, liability, damage, cost or expense arising from any act, omission, activity or conduct undertaken by or on behalf of the Partnership that is determined by the General Partner in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 11 of the Amended and Restated Selling Agreement provides for indemnification of the General Partner and its affiliates and its successors and assigns by Morgan Stanley DW Inc. ("MSDW") for any loss, claim, damage, liability, cost and expense incurred for a breach by MSDW of a representation or agreement in the Selling Agreement, or for misleading statements and material omissions regarding MSDW in the Registration Statement or Prospectus. Such Section also provides for the indemnification by the Partnership of MSDW, the General Partner and their affiliates for any act, omission, conduct, or activity undertaken by or on behalf of a Partnership that is determined by MSDW or the General Partner, as applicable, in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 8 of the Customer Agreement, between the Partnership and MSDW, provides for indemnification of MSDW and its affiliates for liabilities, losses, damages, costs, or expenses for activities taken by or on behalf of the Partnership which MSDW has determined in good faith are in the best interests of the Partnership and are not the result of misconduct or negligence. Section 8 of each Management Agreement provides for indemnification of the General Partner and its affiliates by the Trading Advisor for losses, claims, damages, liabilities, costs and expenses incurred as a result of actions or omissions by the Trading Advisor involving the Partnership's trading which are the result of a breach of agreement, representation or warranty or the result of bad faith, misconduct or negligence. Item 15. Recent Sales of Unregistered Securities. None. II-1 Item 16. Exhibits and Financial Statements. (a) Exhibits Exhibit Number Description of Document 1.01(11) Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Demeter Management Corporation, and Morgan Stanley DW Inc. 1.01(a)(14) Amendment No. 1 to the Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Currency L.P., and Morgan Stanley Spectrum Commodity L.P. 1.01(b) Form of Amendment No. 2 to the Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P. 1.03(7) Form of Additional Seller Agreement between Morgan Stanley DW Inc. and additional selling agents. 3.01(12) Form of Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the prospectus). 3.02(1) Certificate of Limited Partnership of the Registrant. 3.03(6) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Dean Witter Spectrum Technical L.P.). 3.04(10) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Morgan Stanley Dean Witter Spectrum Technical L.P.). 5.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.03(3) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.04(4) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.05(5) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.06(12) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.07(13) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 5.08 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 8.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.02(2) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.03(3) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.04(4) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.05(5) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). II-2 8.06(12) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.07(13) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 8.08 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 10.01(8) Management Agreement, dated as of November 1, 1994, among the Registrant, Demeter Management Corporation, and Campbell & Company, Inc. 10.01(a)(9) Amendment to Management Agreement, dated as of November 30, 2000, among the Registrant, Demeter Management Corporation, and Campbell & Company, Inc. 10.02(8) Management Agreement, dated as of November 1, 1994, among the Registrant, Demeter Management Corporation, and Chesapeake Capital Corporation. 10.03(8) Management Agreement, dated as of November 1, 1994, among the Registrant, Demeter Management Corporation, and John W. Henry & Co. 10.03(a)(9) Amendment to Management Agreement, dated as of November 30, 2000, among the Registrant, Demeter Management Corporation, and John W. Henry & Company, Inc. 10.07(12) Form of Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of Units (included as Exhibit B to the prospectus). 10.08(11) Amended and Restated Escrow Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Commodity L.P., Morgan Stanley DW Inc., and The Chase Manhattan Bank, the escrow agent. 10.09(12) Form of Subscription Agreement Update Form to be executed by purchasers of units (included as Exhibit C to the prospectus). 10.10(10) Amended and Restated Customer Agreement between the Registrant and Morgan Stanley DW Inc. 10.11(10) Customer Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc. 10.12(10) Customer Agreement among the Registrant and Morgan Stanley & Co. International Limited. 10.13(10) Foreign Exchange and Options Master Agreement between the Registrant and Morgan Stanley & Co. Incorporated. 10.14(10) Securities Account Control Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc. 23.01 Consent of Independent Auditors. (1)Incorporated by reference to the Registrant's Registration Statement No. 33-80146 filed with the SEC on June 10, 1994. (2)Incorporated by reference to the Registrant's Registration Statement No. 333-494 filed with the SEC on January 19, 1996. (3)Incorporated by reference to the Registrant's Registration Statement No. 333-3222 filed with the SEC on April 4, 1996. (4)Incorporated by reference to the Registrant's Registration Statement No. 333-47831 filed with the SEC on March 12, 1998. (5)Incorporated by reference to the Registrant's Registration Statement No. 333-68779 filed with the SEC on December 11, 1998. (6)Incorporated by reference to the Registrant's Registration Statement No. 333-68779 filed with the SEC on April 12, 1999. (7)Incorporated by reference to the Registrant's Registration Statement No. 333-68779 filed with the SEC on November 5, 1999. (8)Incorporated by reference to the exhibits filed with the Registrant's Form 10-K for fiscal year ended December 31, 1998 on March 31, 1999 (File No. 0-26338). II-3 (9)Incorporated by reference to the Registrant's Form 8-K filed with the SEC on January 3, 2001 (File No. 0-26338). (10)Incorporated by reference to the Registrant's Form 8-K filed with the SEC on November 1, 2001 (File No. 0-26338). (11)Incorporated by reference to the Registrant's Registration Statement No. 333-68779 filed with the SEC on November 2, 2001. (12)Incorporated by reference to the Registrant's Registration Statement No. 333-84652 filed with the SEC on March 20, 2002. (13)Incorporated by reference to the Registrant's Registration Statement No. 333-104001 filed with the SEC on March 25, 2003. (14)Incorporated by reference to the Post-Effective Amendment No. 1 to the Registrant's Registration Statement No. 333-104001 filed with the SEC on December 3, 2003. (b)Financial Statements. Included in the Prospectus: Morgan Stanley Spectrum Technical L.P. Independent Auditors' Report Statements of Financial Condition Statements of Operations Statements of Changes in Partners' Capital Statements of Cash Flows Notes to Financial Statements Demeter Management Corporation Independent Auditors' Report Statements of Financial Condition Notes to Statements of Financial Condition Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York and State of New York, on the 8th day of March, 2004. MORGAN STANLEY SPECTRUM TECHNICAL L.P. By: DEMETER MANAGEMENT CORPORATION, General Partner By: /S/ JEFFREY A. ROTHMAN Jeffrey A. Rothman, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date DEMETER MANAGEMENT CORPORATION General Partner /s/ JEFFREY A. ROTHMAN Jeffrey A. Rothman President and Chairman of the Board of the General Partner March 8, 2004 /s/ DOUGLAS J. KETTERER Douglas J. Ketterer Director of the General Partner March 8, 2004 /s/ JEFFREY S. SWARTZ Jeffrey S. Swartz Director of the General Partner March 8, 2004 /s/ RICHARD A. BEECH Richard A. Beech Director of the General Partner March 8, 2004 /s/ RAYMOND A. HARRIS Raymond A. Harris Director of the General Partner March 8, 2004 /s/ FRANK ZAFRAN Frank Zafran Director of the General Partner March 8, 2004 /s/ JEFFREY D. HAHN Jeffrey D. Hahn Chief Financial Officer and Director of the General Partner March 8, 2004 II-5 QuickLinks MORGAN STANLEY SPECTRUM TECHNICAL L.P. CROSS REFERENCE SHEET EXPLANATORY STATEMENT COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT Table of Contents PART ONE DISCLOSURE DOCUMENT SUMMARY
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+Prospectus summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000935493_azzurra_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000935493_azzurra_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus, and it may not contain all of the information that is important to you. You should read the entire prospectus carefully, including the section entitled "Risk Factors," the consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. P-COM'S BUSINESS P-Com develops, manufactures and markets microwave radios for point-to-point, spread spectrum and point-to-multipoint applications for telecommunications networks worldwide. Cellular and personal communications service providers employ P-Com's point-to-point systems to transmit data between remote tower sites and switching centers. Network service providers and Internet service providers are able, through the deployment of P-Com's equipment and systems, to respond to the demands for high-speed wireless access services, such as Internet access associated with business-to-business and e-commerce business processes. Through deployment of P-Com's systems, network providers can quickly and efficiently establish integrated Internet, data, voice and video communications for their customers, then expand and grow those services as demand increases. On December 10, 2003, P-Com acquired the Wave Wireless Networking division of SPEEDCOM Wireless Corporation ("SPEEDCOM") and related assets, in consideration for the issuance to SPEEDCOM of 63,500,000 shares of P-Com's common stock, and the assumption of certain of its liabilities. Wave Wireless Networking ("Wave Wireless") specializes in manufacturing, configuring and delivering custom broadband wireless access networking equipment, including the SPEEDLAN family of wireless Ethernet bridges and routers, for business and residential customers internationally. The acquisition provides P-Com with complimentary unlicensed point-to-point and spread spectrum wireless access systems. P-Com's executive offices are located at 3175 S. Winchester Boulevard, Campbell, California 95008, and P-Com's telephone number is (408) 866-3666. THE OFFERING This prospectus relates to the registration for resale of up to 608,532,358 shares of P-Com's common stock that were issued or are issuable in connection with the following transactions: o In September 2002, P-Com issued a warrant to purchase up to 300,000 shares of common stock to Silicon Valley Bank in connection with the opening of a credit facility. The exercise price for the common stock underlying the warrant is $0.10 per share. o In April 2003, P-Com issued 1,500,000 shares of common stock to Liviakis Financial Communications, Inc. in consideration for certain financial, public and investor relations services provided to P-Com. o In April 2003, P-Com issued 3,000,000 shares of common stock to Cagan McAfee Capital Partners, LLC in consideration for certain investment banking and other services provided to P-Com. o In May 2003, P-Com issued 2,400,000 shares of common stock to one of its vendors, HeliOss Communications, in consideration for the release of some of P-Com's obligations to the vendor. o In March, May and July 2003, P-Com issued Series A Warrants to purchase 3,668,000 shares of common stock at an initial exercise price of $0.12 per share and Series B Warrants to purchase 5,132,000 shares of common stock at an initial exercise price of $0.20 per share. However, no holder of Series A Warrants or Series B Warrants may exercise any of these warrants if the exercise would cause the holder or any of its affiliates, individually or in the aggregate, to beneficially own more than 4.999% of P-Com's outstanding common stock. As of January 20, 2004, none of the outstanding Series A Warrants or Series B Warrants had been exercised. The number of shares of common stock <TABLE> <CAPTION> <S> <C> Years Ended 2002, 2001 and 2000.........................................................................37 Nine Months Ended September 30, 2003 and 2002...........................................................41 Liquidity and Capital Resources.........................................................................43 Recent Accounting Pronouncements........................................................................48 MANAGEMENT.......................................................................................................48 Directors and Officers..................................................................................48 Background..............................................................................................49 Board Committees and Meetings...........................................................................51 Compensation Committee Interlocks and Insider Participation.............................................51 Director Compensation...................................................................................51 Executive Compensation..................................................................................51 Employment Contracts, Termination of Employment Arrangements and Change of Control Agreements...........54 Limitation of Liability and Indemnification of Directors and Officers...................................57 Certain Relationships and Related Transactions..........................................................57 PRINCIPAL STOCKHOLDERS...........................................................................................57 SELLING STOCKHOLDERS.............................................................................................59 PLAN OF DISTRIBUTION.............................................................................................65 DESCRIPTION OF CAPITAL STOCK.....................................................................................67 VALIDITY OF THE SHARES...........................................................................................72 EXPERTS .........................................................................................................73 CHANGE IN INDEPENDENT ACCOUNTANTS................................................................................73 WHERE YOU CAN FIND MORE INFORMATION..............................................................................73 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......................................................................F-1 </TABLE> issuable upon exercise of these warrants is subject to adjustment for stock splits, stock dividends and similar transactions and for certain dilutive issuances. o In August 2003, P-Com issued 1,000,000 shares of its common stock to one of its landlords, Bryan Family Partnership II in consideration for the release of some of P-Com's obligations to the landlord. o In August 2003, P-Com issued approximately 1,000,000 shares of Series B Convertible Preferred Stock, with a stated value of $21.138 per share, upon the conversion of approximately $21 million of its 7% Convertible Subordinated Notes due 2005. Each share of Series B Convertible Preferred Stock is convertible into a number of shares of common stock equal to the stated value divided by a conversion price of $0.20. The holders of the Series B Convertible Preferred Stock are obligated to convert their shares into shares of common stock as soon as reasonably practicable. However, no holder of Series B Convertible Preferred Stock may convert its shares into shares of common stock if the conversion would cause the holder or any of its affiliates, individually or in the aggregate, to beneficially own more than 9.999% of P-Com's outstanding common stock. As of January 20, 2004, approximately 891,594 shares of Series B Convertible Preferred Stock had been converted into approximately 94,232,454 shares of common stock and approximately 108,406 shares of Series B Convertible Preferred remained outstanding. The shares of Series B Convertible Preferred Stock that remain outstanding are convertible into approximately 11,457,487 shares of common stock, subject to the limitation on conversion described above. The number of shares of common stock issuable upon conversion of the Series B Convertible Preferred Stock is subject to adjustment for stock splits, stock dividends and similar transactions. o In October and December 2003, P-Com issued and sold approximately 9,942 shares of Series C Convertible Preferred Stock, with a stated value of $1,750 per share. Together with the Series C Convertible Preferred Stock, P-Com also issued Series C Warrants to purchase 139,194,124 shares of common stock, in the aggregate. Each share of Series C Convertible Preferred Stock is convertible into a number of shares of common stock equal to the stated value plus accrued and unpaid dividends, if any, divided by an initial conversion price of $0.10. Based on this conversion price, the outstanding shares of Series C Convertible Preferred Stock are convertible into approximately 173,992,605 shares of P-Com's common stock. However, no holder of Series C Convertible Preferred Stock or any Series C Warrants may convert or exercise any of these securities into shares of common stock if the conversion or exercise would cause the holder or any of its affiliates, individually or in the aggregate, to beneficially own more than 9.999% of P-Com's outstanding common stock. As of January 20, 2004, approximately 513 shares of Series C Convertible Preferred Stock had been converted into approximately 8,986,983 shares of common stock and approximately 9,429 shares of Series C Convertible Preferred Stock remained outstanding and none of the Series C Warrants had been exercised. The shares of Series C Convertible Preferred Stock that remain outstanding are convertible into approximately 165,055,622 shares of common stock, subject to the limitation on conversion described above. The number of shares of common stock issuable upon conversion or exercise of these securities is subject to adjustment for stock splits, stock dividends and similar transactions and for certain dilutive issuances. o In December 2003, P-Com issued 2,000 shares of its Series D Convertible Preferred Stock, with a stated value of $1,000 per share, in partial consideration for the extinguishment of its obligations under three promissory notes in the aggregate original principal amount of $2,000,000. Each share of Series D Convertible Preferred Stock is convertible into a number of shares of common stock equal to the stated value, divided by an initial conversion price of $0.15. Based on this conversion price, the outstanding shares of Series D Convertible Preferred Stock are convertible into approximately 13,333,333 shares of P-Com's common stock. However, no holder of Series D Convertible Preferred Stock may convert its shares into shares of common stock if the conversion would cause the holder or any of its affiliates, individually or in the aggregate, to beneficially own more than 9.999% of P-Com's outstanding common stock. As of January 20, 2004, none of the outstanding shares of Series D Convertible Preferred Stock had been converted into shares of common stock. The number of shares of common stock issuable upon conversion of the Series D Convertible Preferred Stock is subject to adjustment for stock splits, stock dividends and similar transactions. o In December 2003, P-Com consummated its acquisition of substantially all of the assets of SPEEDCOM Wireless Corporation, and in consideration for those assets, P-Com issued 63,500,000 shares of its common stock to SPEEDCOM Wireless Corporation. o In December 2003, P-Com issued 1,363,636 shares of its common stock to United Manufacturing Assembly, Inc. ("UMAI"), in consideration for the reduction of $150,000 in accounts payable to UMAI. o In December 2003, P-Com issued warrants to purchase 350,000, 2,600,000, and 3,600,000 shares of its common stock to Carlos Belfiore, Samuel Smookler and Cagan McAfee Capital Partners, LLC ("CMCP"), respectively, in consideration for a reduction in the number of options granted to Messrs. Belfiore and Smookler and CMCP. This reduction in the number of options was due to a limitation in the maximum number of shares issuable to any single person or entity under P-Com's 1995 Stock Option/Stock Issuance Plan. As part of each transaction described above, P-Com agreed to register the resale of the shares of common stock issued and any shares of common stock that are issuable upon the conversion or exercise of the convertible securities issued in those transactions. P-Com is registering these shares of common stock for resale by the selling stockholders named in this prospectus. The prices at which the stockholders may sell their shares will be determined by the prevailing market for the shares or in negotiated transactions. See the section entitled "Selling Stockholders" on page 59 and the section entitled "Plan of Distribution" on page 65.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0000941738_wheeling_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0000941738_wheeling_prospectus_summary.txt
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+Prospectus summary This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the risk factors, our audited and unaudited financial statements and related notes and other financial and operating data to understand this offering fully. OUR COMPANY OVERVIEW Wheeling-Pittsburgh Corporation, or WPC, together with its subsidiaries, is the sixth largest integrated producer of steel and steel products in the US based on shipments of 2.2 million tons in 2003. We were established in 1920 and today produce and sell a wide range of flat rolled steel and steel products for a diverse range of end markets. In 2003, we produced approximately 2.4 million tons of steel slabs which were further processed in our manufacturing facilities located in Ohio, Pennsylvania and West Virginia. We produce substantially all of our own coke and operate four coke oven batteries. In 2003, we produced approximately 1.0 million tons of coke. We have long-term agreements to purchase most of our raw material and energy inputs, including iron ore, metallurgical coal and electricity, which we believe are on favorable terms to us based on current market conditions. Additionally, we are in the process of constructing an electric arc furnace, or EAF, that, along with the idling of one of our two blast furnaces, will transform our operations from an integrated producer to a hybrid producer of steel with the characteristics of both an integrated producer and a mini-mill. This transformation will provide flexibility in our steel making process by enabling us to use the EAF on its own or in conjunction with our remaining blast furnace and basic oxygen furnace, or BOF. We believe that the EAF will have an annual production capacity of up to 2.5 million tons of liquid steel, depending on the mix of hot metal and scrap inputs. Construction and installation of the new EAF is projected to be completed in the fourth quarter of 2004, and the EAF is expected to be operating at 75% capacity by May 2005 and at full capacity by the fourth quarter of 2005. Substantially all capital expenditures for construction of the EAF are pre-funded through cash in our restricted cash account. Our product offerings are focused predominantly on higher value-added finished steel products such as cold rolled products, tin and zinc coated products and fabricated products. Higher value-added products comprised more than 70% of our shipments in 2003. In addition, we produce semi-finished steel products and hot rolled steel products. We market a mix of products to a wide range of customers and end markets including the construction, container, and appliance industries, and to steel service centers, converters and processors. Our principal operating subsidiary is Wheeling-Pittsburgh Steel Corporation, or WPSC. Wheeling Corrugating Company, or WCC, an operating division of WPSC, manufactures our fabricated steel products including construction and bridge decking, corrugated roofing and siding and painted coil for the construction, agricultural and highway industries. WCC products represented 22% of our steel tonnage shipped in 2003. WPSC also has ownership interests in two joint ventures, Wheeling-Nisshin, Inc. and Ohio Coatings Company, or OCC, that together consumed more than 30% of our steel tonnage shipped in 2003, representing 27.5% of our 2003 net sales. These joint ventures produce value-added steel products including aluminized and galvanized sheet, and tin coated products for the container, construction and service center markets. For the twelve months ended December 31, 2003, our shipments and net sales totaled 2.2 million tons and $967.3 million, respectively. For the six months ended June 30, 2004, our shipments and net sales totaled 1.1 million tons and $630.3 million, respectively. OUR COMPETITIVE STRENGTHS COMPETITIVE COST STRUCTURE We believe that we are competitive with other restructured integrated US steel producers based on our labor costs, reduced legacy liabilities and expenses, strategically located manufacturing facilities and raw materials and energy inputs position. Reduced Labor Costs. We have significantly reduced our labor costs by reducing total headcount and increasing workplace efficiencies. Reduced Legacy Liabilities. We have lowered our post-employment benefits, or OPEB, liabilities and reduced our combined expense for pension and OPEB liabilities from historical levels. Strategically Located Manufacturing Facilities. The location of our manufacturing facilities in the Ohio River Valley improves our cost competitiveness. The proximity of our facilities to raw material suppliers and to our customers lowers our costs. RAW MATERIALS AND ENERGY INPUTS POSITION We believe that our long-term raw material supply agreements and our ability to produce coke enhance our competitive cost position and our reputation with customers as a reliable supplier of steel products. FLEXIBLE OPERATING STRATEGY We expect that the construction of the EAF will provide us with a flexible operating model that can capitalize on the economic and operating advantages of both integrated and mini-mill production relating to raw materials inputs and the ability to adapt to changes in market conditions. SIGNIFICANT SALES TO CAPTIVE DOWNSTREAM CUSTOMERS AND LONG-TERM CUSTOMER RELATIONSHIPS We believe that our large captive customer base increases our stability, especially in adverse market conditions. In addition, we have maintained long standing relationships with our customers and have been a supplier for at least 10 years to eight of our top 10 customers. FOCUS ON FABRICATED PRODUCTS AND DIVERSE VALUE-ADDED PRODUCT OFFERINGS We manufacture a diverse mix of value-added products including cold rolled, coated, tin mill and fabricated products. We are among the leading providers of certain fabricated products, such as steel construction products, bridge deck forms and building products. EXPERIENCED MANAGEMENT TEAM Members of our senior management team have 241 cumulative years of experience in the steel industry, with an average of 27 years of experience. Our senior management is experienced in all aspects of steel production, including integrated and EAF production. OUR STRATEGY Our business strategy is focused on making our cost structure more variable, reducing our ongoing maintenance and capital expenditure requirements, providing flexibility to react to changing economic conditions, and expanding our participation in markets for higher value-added products. TRANSITIONING TO ELECTRIC ARC FURNACE PRODUCTION Our strategy to construct an EAF will transform our operations from conventional integrated steel production to those of a hybrid steel producer. Our EAF will be differentiated from most mini-mills by its ability to use both a continuous scrap feed and liquid iron as an alternative metallic input. We believe that the EAF will have an annual capacity of up to 2.5 million tons of liquid steel and, in conjunction with our BOF, will enable us to produce 2.8 million tons of steel slab annually, which is the practical steel making limit under our current environmental permits. After completion of the EAF, we currently expect to idle one of our two blast furnace operations that is otherwise expected to require a major rebuild at an estimated cost of $140 million. Compared to integrated steel production, the EAF has several advantages including lower capital expenditures for construction of facilities, a more variable cost structure, lower energy requirements, and limited ongoing maintenance and capital expenditure requirements to sustain operations. We believe that the more variable cost structure of the EAF and flexibility in raw material input utilization will enable our costs to more closely track market conditions and will support our margins in market downturns. STRATEGIC CAPITAL PROJECTS TO IMPROVE PRODUCTIVITY AND COST POSITION We are planning a number of strategic capital projects over the next three years that are intended to upgrade and eliminate bottlenecks in our rolling and finishing facilities and to increase our productivity and improve our cost position. CAPITALIZE ON OUR ANTICIPATED EXCESS COKE CAPACITY We expect to have excess coke capacity following the construction of our EAF and idling of one of our two blast furnaces. We expect to have excess coke production capacity of approximately 0.3 million tons in 2005 after the closing of one of our two blast furnaces and excess capacity of approximately 0.5 to 0.6 million tons of coke in 2007 after the rebuild of our No. 8 coke battery. Excess capacity amounts assume our remaining three coke batteries continue operations. We are exploring various alternatives to monetize our anticipated excess coke capacity. ACHIEVE BALANCED EXPOSURE TO SPOT AND CONTRACT BUSINESS We aim to achieve a balanced mix between spot and contract business. Currently, our relatively high exposure to the spot market, comprising 75% of our sales, is enabling us to benefit from increased steel prices. OPTIMIZE THE SALE OF DOWNSTREAM VALUE-ADDED PRODUCTS We continue to seek a product mix that offers high returns and increases our stability. Our long-term strategy focuses on higher value-added products with higher engineering content. INCREASE FINANCIAL FLEXIBILITY We expect to reduce leverage and strengthen our balance sheet through this offering and by following a disciplined financial strategy. REORGANIZATION On November 16, 2000, WPC and eight of our then-existing wholly-owned subsidiaries, which represented substantially all of our business, filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code. Pursuant to the Third Amended Plan of Reorganization, we emerged from bankruptcy effective on August 1, 2003. Our reorganization plan allowed us to shed a large portion of legacy liabilities as well as to cancel a significant amount of debt. In addition, we entered into an agreement with our unionized employees represented by the United Steel Workers of America, or USWA, which modified our existing labor agreement to provide for, among other things, pension arrangements with the USWA, reductions in our employee related costs and a reduction of our headcount by 650. Since emerging from bankruptcy, for the six months ended June 30, 2004 and for the five months ended December 31, 2003, we reported net income of $20.4 million and a net loss of $38.9 million, respectively. RISK FACTORS Investing in our common stock involves a degree of risk. Before you invest in our common stock, you should carefully consider the matters discussed under the heading "Risk factors" and "Special note regarding forward-looking statements" and all other information contained in this prospectus. PRINCIPAL EXECUTIVE OFFICES Our principal executive offices are located at 1134 Market Street, Wheeling, West Virginia 26003. Our telephone number is (304) 234-2400. We were incorporated in June 1920 under Delaware law. The offering Common stock offered by us.......... 3,172,398 shares Common stock offered by the selling stockholders...................... 477,602 shares Common stock to be outstanding after this offering....................... 13,506,408 shares Nasdaq National Market symbol....... WPSC Use of Proceeds..................... We estimate that the net proceeds to us from this offering will be approximately $80.1 million, assuming an offering price of $27.15 per share. We will not receive any proceeds from the sale of shares by the selling stockholders. We intend to use the net proceeds of this offering to repay indebtedness and for ongoing capital expenditures to maintain our operations. See "Use of proceeds." Over-allotment option............... We have granted the underwriters a 30 day option to purchase up to 547,500 additional shares of our common stock to cover over-allotments. The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of the date of this prospectus and does not include: - options to acquire an aggregate of 33,984 shares outstanding as of September 1, 2004; and - 547,500 shares that may be purchased by the underwriters to cover over-allotments, if any. Unless we indicate otherwise, the share information in this prospectus assumes the underwriters' over-allotment option is not exercised. See "Underwriting."
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+BUSINESS This discussion contains forward-looking statements. See Forward-Looking Statements for a discussion of uncertainties, risks and assumptions associated with these statements. Background We are a holding company and our principal subsidiary is Midwest Airlines, formerly known as Midwest Express Airlines, Inc. Midwest currently operates a passenger jet airline that serves major destinations throughout the United States from Milwaukee, Wisconsin, and Kansas City, Missouri. We were reincorporated under the laws of the State of Wisconsin in 1996. Midwest Airlines evolved out of Kimberly-Clark Corporation s desire to provide a convenient and cost-effective way to meet its internal transportation needs. Kimberly-Clark began daily, nonstop aircraft shuttle service in October 1982 for its employees traveling between offices in two cities. Key management personnel from Kimberly-Clark who successfully operated the shuttle service became the senior management of Midwest Airlines. Midwest Airlines began commercial operations in June 1984 with two DC-9-10 aircraft, serving three destinations from Milwaukee s General Mitchell International Airport. Milwaukee, as Midwest Airlines original base of operations, has been the main focus of its route structure. Midwest Airlines established Kansas City as an additional base of operations in September 2000. Skyway Airlines, formerly known as Astral Aviation, Inc., a wholly owned subsidiary of Midwest Airlines, serves as the regional airline for the company. Skyway Airlines does business as Midwest Connect. Midwest Connect began operations in early 1994 by taking over routes that Mesa Airlines, Inc. ( Mesa ) had operated as a commuter feed system under a marketing agreement between Mesa and Midwest Airlines. Under this agreement, Mesa operated the system from 1989 to 1994 as Skyway Airlines, using Midwest Airlines airline code. On September 27, 1995, the stock of Midwest Airlines was transferred to the company in connection with the initial public offering ( Offering ) by Kimberly-Clark of shares of common stock of the company. Following the Offering, Kimberly-Clark retained 20% of the shares of outstanding common stock of the company, which it subsequently sold in a secondary public offering consummated on May 23, 1996. Midwest Airlines and Midwest Connect constitute the company s reportable segments. Our reportable segments are strategic units that are managed independently because they provide different services, with different cost structures and marketing strategies. Additional detail on segment reporting is included in Note 14 to the Notes to Consolidated Financial Statements as of December 31, 2002 contained in this prospectus. The company currently has three principal product offerings. Midwest Airlines Signature Service, which is Midwest Airlines traditional product, a single-class, premium service passenger jet airline that caters to business travelers and as of September 30, 2003 serves 15 major destinations in the United States from bases of operations in Milwaukee, Wisconsin, and Kansas City, Missouri. In August 2003, the company introduced new low-fare Midwest Airlines Saver Service to high-volume, leisure-oriented destinations out of Milwaukee. Saver Service currently operates to eight destinations. Midwest Connect builds feeder traffic and provides regional scheduled passenger service to cities primarily in the Midwest. The company s operating subsidiaries also provide aircraft charter services, transport air freight and mail, and provide other airline services. Corporate Structure The company and Midwest Airlines have their principal executive offices in Oak Creek, Wisconsin. Both entities are Wisconsin corporations. As described above, Midwest Airlines has one operating airline subsidiary, Midwest Connect, a Delaware corporation. In addition to Midwest Connect, Midwest Airlines has the following subsidiaries: Midwest Express Services Omaha, Inc., a Nebraska corporation, was established as a profit center to better track revenues and costs generated at Midwest Airlines Omaha station. Revenue is generated from aircraft turn costs charged to Midwest Airlines and Midwest Connect, and from aircraft ground handling and freight handling contracts for other airlines in Omaha. YX Properties, LLC, is a wholly owned subsidiary of Midwest Express Services Omaha, Inc. This Nebraska limited liability company owns all of the intellectual and intangible property of Midwest Airlines and Midwest Connect, such as airport slots, trademarks and certain proprietary training material and copyrights. YX Properties licenses this intellectual and intangible property to Midwest Airlines and Midwest Connect. These airport slots, trademarks, copyrights and other intellectual property rights are important to the business, but no single airport slot, trademark, copyright or other intellectual property right is material to the business as a whole. Midwest Express Services Kansas City, Inc., a Missouri corporation, was established as a profit center to better track revenues and costs generated at the Kansas City station. Revenue is generated from aircraft turn costs charged to Midwest Airlines and Midwest Connect, and from airport ground handling contracts for other airlines in Kansas City. Route Structure and Scheduling Midwest Airlines Operations Midwest Airlines currently has two bases of operations Milwaukee and Kansas City. As of September 30, 2003, Midwest Airlines served 23 cities. In Milwaukee, Midwest Airlines is currently the largest carrier and provides nonstop service to most of its destinations from Milwaukee. Ten other jet airlines serve Milwaukee s airport. From Kansas City, as of September 30, 2003, Midwest Airlines provided nonstop service to Milwaukee, Des Moines, New York La Guardia, Orange County, San Antonio, Washington National and San Francisco (seasonally). Passengers in Kansas City can travel to most other cities throughout the route systems of Midwest Airlines and Midwest Connect via Milwaukee. Ten other jet airlines serve Kansas City s airport. Midwest Connect Operations Although Midwest Connect s operation is independent from Midwest Airlines including separate pilot, flight attendant, aircraft maintenance and customer service personnel Midwest Airlines coordinates Midwest Connect s routes and schedules to complement Midwest Airlines service by providing passengers on short-haul, low-density routes the ability to connect to Midwest Airlines flights in Milwaukee without switching carrier systems. To enhance aircraft utilization and profitability, Midwest Connect also seeks to identify short-haul, low-density, point-to-point routes where there is likely to be consistent demand for air service even though there is no Milwaukee connection. As of September 30, 2003, Midwest Connect offered flights in 30 markets. Codesharing Agreements In 2003, Midwest Airlines continued a one-year renewable codeshare agreement with American Eagle that was originally established in 1998. Under the agreement, Midwest Airlines provides passengers with jet service to Boston, Dallas/Ft. Worth and Los Angeles, and American Eagle provides passengers with connecting service from those cities to selected destinations throughout its system. In September 2003, the company announced that the codeshare agreement with American Eagle will be terminated effective February 24, 2004. The company does not expect the termination of this agreement to have a material impact on the company s results of operations. Operating (loss) income (54,258 ) (38,044 ) 6,878 60,752 55,655 (28,610 ) (44,110 ) Other income (expense), net (2) 39,741 16,304 (113 ) 68 (75 ) 11,427 39,744 (Loss) income before cumulative effect of accounting changes (10,552 ) (14,918 ) 5,227 38,791 35,869 (11,711 ) (3,805 ) Cumulative effect of accounting changes, net of applicable income taxes -- -- (4,713 ) -- -- -- -- Net (loss) income (10,552 ) (14,918 ) 514 38,791 35,869 (11,711 ) (3,805 ) (Loss) income per common share - basic: (Loss) income before cumulative effect of accounting changes (0.72 ) (1.08 ) 0.37 2.75 2.54 (0.75 ) (0.26 ) Cumulative effect of accounting changes, net of applicable income taxes -- -- (0.33 ) -- -- -- -- In 2003, Midwest Airlines continued a five-year codeshare agreement established March 2001 with Air Midwest, Inc., a wholly owned subsidiary of Mesa Air Group, to provide passengers connecting service between Kansas City and select Midwestern cities. As of September 30, 2003, Midwest Airlines provided passengers with jet service to Kansas City, and Air Midwest provided passengers with connecting service from Kansas City to eight Midwestern cities. Both the Midwest Airlines and Air Midwest segments are designated in the computer reservation systems with Midwest Airlines code. Business Environment General The airline industry has undergone significant change in the last three years. The stagnant economy and the events of September 11, 2001 began a decline in travel demand, primarily by business travelers who traditionally have paid higher airline fares, and severely impacted the industry. Since then, the continued slowdown in the economy, the threat of war with Iraq that resulted in record-high fuel prices in the first quarter 2003, and the actual war with Iraq and the SARS epidemic have continued to depress demand and significantly decrease fares. Combined with excess capacity in the industry and significantly increased competition from legacy and low-fare carriers, these factors have resulted in substantial declines in passenger revenue, higher costs and substantial losses at many airlines, including the company. Although the company was profitable for 14 consecutive years through 2000, the fundamental changes in the industry caused significant financial losses in 2001, 2002 and the first nine months of 2003 and have required the company to implement broad changes to its operations. These changes are aimed at returning the company to profitability by improving revenue and aggressively reducing costs. These changes are intended to improve profitability and reduce costs, relative to what the company would have experienced if it had not effected these changes, by approximately $70 million annually. The objectives of the restructuring plan include: Reducing the company s cost structure to be competitive and profitable in the current revenue environment, while maintaining the traditional brand (Signature Service) and developing a secondary low-fare product (Saver Service). Providing necessary short-term and long-term liquidity to better manage the business and increase the confidence of customers, creditors, employees and investors in the company s business. Details of the company s restructuring plan, much of which has already been accomplished, include: Reducing flight schedules at Midwest Airlines by approximately 12% by eliminating flight segments or markets that were not covering variable costs. Implementing changes to Midwest Connect flight schedules (completed in September 2003) that result in shorter flight lengths and more flight segments per day. Aggressively reducing the cost structure to better align with the current revenue environment, in part by negotiating new five-year agreements with the company s three labor unions. The members of each of these unions ratified the new agreements in August 2003. Developing process and productivity improvements for non-represented employees, which are expected to be implemented by the end of 2003. Restructuring compensation for certain non-represented work groups to become more performance-based, which the company expects to begin implementing in the third quarter of 2004. Restructuring aircraft lease and lender arrangements that reduced the present value of the previous agreements by $60-$70 million, reduced cash requirements by about $1.1 million per month and converted $24.0 million of short-term debt into long-term obligations exceeding 10 years at low interest rates. These agreements were finalized in August 2003. Changing aircraft delivery schedules with Boeing and Embraer to better manage future growth. Midwest Airlines will continue to accept Boeing 717s at the current rate of one each month through March 2004, when deliveries will change to approximately one per quarter until concluding in October 2006. Midwest Connect will defer its acquisition of 20 Embraer regional jets from January 2004 to July 2006. Introducing the company s new product, Saver Service, in August 2003 with flights from Milwaukee to high-volume, leisure-oriented markets, which are expected to enhance the company s competitive position by allowing the company to serve a segment of the market that is growing more rapidly than the business travel market, expand to destinations that have not been economically viable to serve with the premium product and serve some existing destinations more profitably. Details of the company s liquidity plan include: Completion of a sale/leaseback transaction on the company s headquarters facility. This transaction closed on November 12, 2003. Proceeds from the transaction were approximately $10.0 million, after payment of the existing mortgage and closing costs. Completion of a transaction in October 2003 with Milwaukee County, Racine County and the State of Wisconsin, which resulted in the removal of approximately $14.0 million of letters of credit that the banks previously provided. This transaction is expected to result in the termination of a senior secured bank credit facility, after payment of the remaining balance, which consists of approximately $1.1 million of other letters of credit. The termination is expected to be completed by December 2003. Effecting transactions to raise capital. The company has entered into agreements under which it raised financing of approximately $33.0 million (net proceeds of approximately $30.5 million, after commissions and expenses). The first component involved the sale of $25.0 million in convertible senior secured notes. The second component consisted of the sale of common stock for $8.0 million. Each component involved a private placement to qualified institution buyers and accredited investors. Customer Service Overall Midwest Airlines has consistently been recognized as the best U.S. airline by travel publications and frequent flyer surveys, including Cond Nast Traveler, Travel+Leisure, OAG and the Zagat Airline Survey. Midwest Airlines caters primarily to business travelers and discerning leisure travelers by providing a travel experience that includes tangible amenities and a higher level of customer service at competitive fares. Tangible amenities include a passenger-friendly cabin and baked-onboard chocolate chip cookies on many flights, while passenger-pleasing service is provided by Midwest Airlines employees at each phase of the travel experience. Saver Service and Signature Service Midwest Airlines offers two products to meet the varying needs of its customers: Midwest Airlines Saver Service provides nonstop, low-fare flights to high-demand leisure destinations. As of September 30, 2003, Saver flights fly between Milwaukee and Denver, Las Vegas, Los Angeles, Orlando and Phoenix, with flights between Milwaukee and Ft. Myers, Ft. Lauderdale and Tampa to be added in the fourth quarter. Midwest Airlines Signature Service is featured on all other Midwest routes. Seating on Signature flights is altered from the standard 2-by-3 coach seating to a roomier 2-by-2 configuration, with wide leather seats for additional passenger comfort. The Boeing 717 aircraft also offer adjustable footrests and head cushions. Both Saver and Signature flights provide passengers with extra legroom for added comfort. Pitch (the distance between seats) averages 33-34", depending on aircraft type more than the 30 many airlines offer in coach class. The interior width of seat cushions on Midwest Airlines aircraft is 18 on Saver flights and 21 on Signature flights, compared with coach seating that is 17-18 wide on many airlines. Fare Pricing and Revenue Management Airlines generally offer a range of fares that are distinguished by restrictions on use, such as time of day and day of the week, length of stay, and minimum advance booking period. Midwest Airlines and Midwest Connect generally offer the same range of fares their competitors offer, although there are exceptions in particular markets, where Midwest Airlines will discount certain categories of fares or charge a premium compared to its competitors. The number of seats an airline offers in each fare category is also an important factor in pricing. Midwest Airlines monitors the inventory and pricing of available seats with a computer-assisted revenue management system. The system enables Midwest Airlines revenue management analysts to examine Midwest Airlines and Midwest Connect s historical demand and increases the analysts opportunity to establish the optimal allocation of the number of seats made available for sale at various fares. The analysts then monitor each flight to adjust seat allocations and actual booking levels, with the objective of maximizing revenues by optimizing the number of passengers and the fares paid on future flights. Effective December 2002, the company revised its service fee structure to lower costs and boost revenues. The company began charging a service fee for paper tickets when electronic tickets are available, increased lost ticket fees, began charging for unaccompanied minors, and standardized excess and overweight baggage fees. This structure provides choices and options for customers, and charges an appropriate amount for specialized services. These fees are either consistent with or less than those charged by most U.S. carriers. Marketing Travel Agency Relationships and Ticket Sales In 2003, through September 30, Midwest Airlines sold approximately 50% of its tickets through travel agents, compared with 54% in 2002. This decrease in mix represents more ticket sales in 2003 than in 2002 from direct sales via the company s reservation centers, web site and ticket counters. Beginning February 2003, the company eliminated standard commissions on tickets sold through travel agents, which includes online travel agencies. The company maintains its own reservations call center at its headquarters in Milwaukee. Like many travel agencies, the company s reservation center provides airline information, makes reservations, and sells tickets for Midwest Airlines and Midwest Connect flights using a computer reservation system. The company currently has an agreement to use SABRE s computer reservation system. This agreement is effective through 2009. Current credit: Federal $ (7,323 ) $ (10,063 ) $ (2,506 ) State 0 104 Frequent Flyer Program The company operates a frequent flyer program, called Midwest Miles (the frequent flyer program ), under which mileage credits are earned by flying on Midwest Airlines, Midwest Connect or other participating airlines (Frontier Airlines, Air Jamaica and American Airlines) and by using the services of participating hotels (Baymont, Hilton, Hyatt, Loews, Radisson, Raffles, Swiss tel, Wyndham and others), car rental firms (Avis, Hertz and National), Sprint telecommunications, Midwest Airlines MasterCard, Midwest Airlines Vacations, and other program partners. Members can redeem frequent flyer program miles for travel on Midwest Airlines or Midwest Connect, or other participating airlines. In addition to free travel, miles can be redeemed at participating hotels, car rental firms and other program partners. The program is designed to enhance customer loyalty, and thereby retain and increase the business of frequent travelers, by offering incentives for their continued patronage. The frequent flyer program also includes a premier level, Midwest Miles Executive, for members who fly 25 one-way trips or 20,000 miles annually. Midwest Miles Executive offers additional benefits to its members, including mileage bonuses and partner benefits. The company provides two levels of award tickets for domestic travel on Midwest Airlines or Midwest Connect. The standard travel award for a roundtrip ticket is 25,000 frequent flyer miles, while a companion travel award requires 20,000 miles. Choice awards eliminate capacity controls for award tickets, allowing customers to redeem an additional 25,000 miles for any available seat on Midwest Airlines or Midwest Connect flights on which the standard frequent flyer award seats have already been filled, up to the maximum seating capacity of the aircraft. Standard awards remain subject to capacity controls, which limit seat availability during peak travel times. A marketing agreement between Midwest Airlines and Northwest Airlines, which allowed members of the airlines respective frequent flyer programs to redeem miles for award travel on the other airline, was terminated on May 28, 2003. This program was replaced with a new marketing agreement with American Airlines, which allows the company s frequent flyer program members to earn Midwest Miles on American, American Eagle and American Connection flights, as well as redeem Midwest Miles for award travel on these flights. The new program became effective on June 1, 2003. The agreement provides for economic compensation to American for all awards issued on American, American Eagle and American Connection flights and to Midwest Airlines for all Midwest Miles earned on American, American Eagle and American Connection flights. The company also offers the Midwest Airlines MasterCard program. The program allows Midwest Airlines to offer a co-branded credit card to enhance loyalty to the airline and to increase frequent flyer membership. The company generates income by selling frequent flyer program miles to Juniper Bank, which in turn awards the miles to cardholders for purchases made with their credit cards. As of September 30, 2003, the company had approximately 1,631,000 members enrolled in its frequent flyer program (compared with 1,553,000 at year end 2002). The company estimates that as of September 30, 2003, the total available awards under the frequent flyer program were 147,000 (compared with 140,000 at year end 2002), after eliminating those accounts below the minimum award level. Travel awards redeemed were approximately 50,000 through September 30, 2003 and 87,000 during 2002, respectively. Free travel awards accounted for approximately 5% of the company s total revenue passenger miles through the first nine months of 2003. Since Midwest Airlines controls the number of seats available for free travel on each flight (other than with respect to its choice awards), it does not believe that the use of frequent flyer program awards results in a significant displacement of revenue passengers. In addition, the company does not believe that the use of the choice awards significantly displaces revenue passengers. Miles accrued in a member s account expire unless there is qualifying activity in the frequent flyer program account within a 36-month period. Qualifying activity includes flights on Midwest Airlines and/or Midwest Connect, or accrued mileage from any program partner activity during the previous 36-month period. If the account does not remain active, the mileage expires and the account is considered inactive. The company accounts for its frequent flyer program obligations for travel miles on the accrual basis using the incremental cost method. This method requires accrual of the average incremental cost to provide roundtrip transportation to one additional passenger. The incremental cost includes the cost of fuel, commissary, reservations and insurance. The incremental cost does not include a contribution to overhead, aircraft cost or profit. The accrual is based on estimated redemption percentages applied to actual mileage recorded in members accounts. For purposes of calculating the frequent flyer program accrual, the company anticipates that approximately 76% of outstanding awards will be redeemed. A portion of the revenue from the sale of frequent flyer miles is deferred and recognized straight line over 32 months. Related Business The company also offers ancillary airline services directly to customers, including cargo services and aircraft charters. The cargo business consists of transporting freight, United States mail and counter-to-counter packages on regular passenger flights. As of September 30, 2003, Midwest Airlines operates one DC-9-30 and one MD-80 series jet aircraft configured specifically for the purpose of providing charter services; in addition, a second MD-80 series aircraft will be reconfigured for charter use by the end of 2003. The primary customers of aircraft charter services are athletic teams, business groups and tour operators. The company also generates revenue from inflight liquor sales, from providing aircraft ground handling and aircraft maintenance services for other airlines, and from miscellaneous other services. Competition The company competes with other air carriers on all routes it serves. Many of the company s competitors have elaborate route structures that transport passengers to their hub airports for transfer to many destinations, including those served by Midwest Airlines and Midwest Connect. Some competitors offer flights from cities served by Midwest Airlines to more than one of their hub airports, permitting them to compete in the company s markets by offering multiple routings. In some markets, Midwest Airlines and Midwest Connect also compete against ground transportation. On July 1, 2003, Northwest Airlines added one nonstop roundtrip flight in each of the following six markets: from Milwaukee to New York City, Washington, D.C., Orlando, Boston, Los Angeles and Las Vegas. Northwest Airlines will also add seasonal service to Phoenix in February 2004. In addition, Frontier Airlines and AirTran Airlines have added new nonstop service in the Milwaukee market. As noted above, the company competes with other carriers in all markets it serves. However, this new competition is unique because it constitutes the addition of other carriers with nonstop service in Midwest Airlines Milwaukee base of operations. The company has successfully competed with legacy and low-cost carriers in the past and has maintained market share in these markets. However, there can be no assurance that the company will be able to successfully compete with competitors in the future. The company competes in its core businesses by offering what it believes are superior airline services at competitive fares. The company accomplishes this by 1) carefully selecting markets, 2) seeking to generate premium yields through its service-oriented philosophy and rigorous yield management, and 3) operating in a cost-efficient manner with superior customer service. The company believes its efforts to identify favorable markets and provide nonstop service enable it to generate a high degree of loyalty among its passengers and attract a larger percentage of business travelers on its flights than higher volume carriers. In August 2003, the company launched its low-fare product offering, called Saver Service, to better serve markets where value-conscious leisure travelers are predominant. The company makes extensive use of part-time employees to increase operational flexibility. Given the size of Midwest Airlines and Midwest Connect s fleet and flight schedules, the company does not have continuous operations at many locations. The use of part-time employees enables the company to schedule employees when they are needed. Part-time employees are eligible for most benefit programs, subject to certain restrictions and co-pay requirements, because doing so enables the company to attract quality employees and reinforces the value the company places on part-time employees. Labor Relations Midwest Airlines and Midwest Connect pilots are represented by the Air Line Pilots Association, a labor union, for representation in collective bargaining. Midwest Airlines flight attendants are represented by the Association of Flight Attendants, AFL-CIO, a labor union, for representation in collective bargaining. In August 2003, all three unions ratified amendments to their collective bargaining agreements; the duration of these agreements is five years. Regulation General The Department of Transportation, or DOT, has the authority to regulate economic issues affecting air service including, among other things, air carrier certification and fitness, insurance, deceptive and unfair competitive practices, advertising, computer reservation systems, and other consumer protection matters such as on-time performance, denied boarding and baggage liability. It is also authorized to require reports from air carriers and to inspect a carrier s books, records and property. The DOT has authority to investigate and institute proceedings to enforce its economic regulations, and may, in certain circumstances, assess civil penalties, revoke operating authority and seek criminal sanctions. In response to the terrorist attacks of September 11, 2001, Congress enacted the Aviation and Transportation Security Act ( ATSA ) of November 2001. ATSA created the Transportation Security Administration, an agency within the DOT, to oversee, among other things, aviation and airport security. In 2003, the TSA was transferred from the DOT to the Department of Homeland Security; however, the basic mission and authority of the TSA remain unchanged. ATSA provided for the federalization of airport passenger, baggage, cargo, mail, and employee and vendor screening processes. ATSA also enhanced background checks, provided federal air marshals aboard flights, improved flight deck security, enhanced airline crew security training, improved training of security screening personnel, and enhanced airport perimeter access, among other security measures. ATSA also required that all checked baggage be screened by explosive detection systems beginning December 31, 2002. The company is actively involved in the industry s efforts to work with the TSA to ensure compliance with ATSA. ATSA has resulted in increased costs and may result in delays and service disruption. ATSA also imposed a $2.50 per enplanement security fee (subject to a $5.00 per one-way trip cap). This fee is collected by air carriers and remitted to the government for payment for enhanced security. The Federal Aviation Administration, or FAA, regulates the company s aircraft maintenance and operations, including flight operations, flight equipment, aircraft noise, ground facilities, dispatch, communications, training, security, weather observation, flight and duty time, crew qualifications, aircraft registration, and other matters affecting air safety. The FAA has the authority to temporarily suspend or permanently revoke the authority of the company or its licensed personnel for failure to comply with regulations promulgated by the FAA, and to assess civil penalties for such failures. The company also is subject to regulation and/or oversight by federal agencies other than the DOT, TSA and FAA. Antitrust laws are enforced by the U.S. Department of Justice; labor relations are generally regulated by the Railway Labor Act, which vests certain regulatory powers in the National Mediation Board with respect to airlines and labor unions arising under collective bargaining agreements; the use of radio facilities is regulated by the Federal Communications Commission. Also, the company is generally regulated by federal, state and local laws relating to the protection of the environment and to the discharge of materials into the environment. In addition, the Immigration and Naturalization Service, the U.S. Customs Service, and the Animal and Plant Health Inspection Service of the Department of Agriculture have jurisdiction over inspection of the company s aircraft, passengers and cargo to ensure compliance with U.S. immigration, customs and import laws. Maintenance In compliance with FAA regulations, the company s aircraft are subject to many levels of maintenance or checks, and periodically go through complete overhauls. The FAA typically monitors maintenance efforts with FAA representatives on site. Slots FAA regulations currently permit the buying, selling, trading and leasing of certain airline slots at New York s La Guardia and Kennedy International, and Washington National airports. A slot is an authorization to schedule a takeoff or landing at the designated airport within a specified time window. The FAA must be advised of all slot transfers and can disallow any such transfer. Net (loss) income (0.72 ) (1.08 ) 0.04 2.75 2.54 (0.75 ) (0.26 ) (Loss) Income per common share - diluted: (Loss) Income before cumulative effect of accounting changes (0.72 ) (1.08 ) 0.37 2.71 2.51 (0.75 ) (0.26 ) Cumulative effect of accounting changes, net of applicable income taxes -- -- (0.33 ) -- -- -- -- The FAA s slot regulations require the use of each slot at least 80% of the time, measured on a bimonthly basis. Failure to comply with these regulations without a waiver from the FAA (which is granted only in exceptional cases) subjects the slot to recall by the FAA. In addition, slot regulations provide that the FAA may withdraw slots at any time and without compensation to meet the DOT s operational needs (such as providing slots for international or essential air transportation). The company s ability to increase its level of operations at these airports is affected by the number of slots available for takeoffs and landings. These slots have been pledged as security to note holders of the company s convertible senior secured notes. Essential Air Service Program The Essential Air Service program ( EAS ) was created following the airline deregulation action in 1978. The EAS administered by the DOT subsidizes and guarantees a minimum level of air service to small communities that might not otherwise have service. In January 2003, Midwest Connect commenced service to three such cities: Ironwood, Manistee and Iron Mountain, Michigan. There is no guarantee the company will continue to receive subsidies for serving these cities. If funding were terminated, the company would not continue to fly in these markets and would find alternate routes for its aircraft. Aircraft Fuel Because fuel costs constitute a significant portion of the company s operating costs (approximately 19% as of September 30, 2003 and 16% as of December 31, 2002), significant changes in fuel costs can materially affect the company s operating results. Fuel prices continue to be susceptible to political events and other factors that affect the supply of fuel, and the company cannot predict the effect of changes in near- or long-term fuel prices. In the event of a fuel supply shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or curtailment of scheduled service could result. Changes in fuel prices may have a marginally greater impact on the company than on many of its competitors because of the current composition of its fleet. The company has periodically entered into short-term option cap agreements in an attempt to reduce its exposure to jet fuel price fluctuations. As of September 30, 2003, no options had been placed for the fourth quarter of 2003 or later periods. Insurance The company carries types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, product liability, aircraft loss or damage, baggage and cargo liability, and workers compensation. As a result of the terrorist attacks on September 11, 2001, aviation insurers have significantly reduced the amount of insurance coverage available to commercial air carriers for war-risk coverages (which include terrorism and hijacking). In addition, insurance companies have significantly increased the cost of this coverage, as well as aviation insurance in general. Under the Air Transportation Safety and System Stabilization Act, U.S. air carriers may purchase certain war risk liability insurance from the United States government on an interim basis at rates that are more favorable than those available from private aviation insurance carriers. The company received an extension of this war-risk liability insurance through December 10, 2003. As a result of the Emergency Wartime Supplemental Appropriations Act of 2003, the company expects to receive extensions of this coverage through August 31, 2004. Commercial air carriers are required by the DOT to obtain appropriate aviation insurance coverage. The effects of September 11 insurance losses, additional terrorist attacks or other unanticipated events could result in aviation insurers further increasing their premiums or a future shortage of available aviation insurance. Significant increases in insurance premiums or a shortage of available insurance could result in the curtailment or discontinuation of scheduled service. Midwest Connect acquired 15 new Beech 1900D tuboprop aircraft between January 11, 1994 and May 18, 1995. Each of these aircraft has 19 passenger seats. During 1996, Midwest Connect sold and leased back these aircraft from a group of six financial institutions, with lease terms of five to 12 years, and expiration dates ranging from 2001 through 2008. In 1999, Midwest Connect acquired five 32-passenger Fairchild 328JET aircraft. The five aircraft were financed by operating leases from one financial institution, with expiration dates all occurring in 2016. Four aircraft were place in service in late 1999; the fifth was placed in service in 2000. Five additional 328JET aircraft were acquired and placed in service during January, April and June 2001 and January and February 2002. These aircraft are currently owned, three of which are financed with debt. Facilities The company has secured long-term use of gates and maintenance facilities at General Mitchell International Airport in Milwaukee. The company is a signatory to the airport master lease, which expires in 2010, for 19 gates at the Milwaukee airport, including ticket counters, baggage handling and operations space. In 1988, the company completed construction of its maintenance facility at the Milwaukee airport with a lease of land from the airport for an initial term of five years ending March 31, 1993, with an option for the company to extend the lease for 11 successive renewal terms of five years each. In October 1998, Midwest Airlines completed construction of a 97,000-square-foot maintenance facility that is owned by Milwaukee County and located at General Mitchell International Airport adjacent to its other maintenance facility. The City of Milwaukee issued variable-rate demand industrial development revenue bonds to finance the cost of the $7.9 million project. The company s variable rent payments are based on the current interest rate of the City of Milwaukee s outstanding tax-exempt bonds over the 32-year lease term. In August 1997, the company purchased its Oak Creek, Wisconsin headquarters building, which it had previously leased. As part of the transaction, the company assumed a $3.5 million mortgage. In July 2000, the company opened a new 55,000-square-foot training facility as an addition to its headquarters. The company funded this $6.9 million project with cash flow from operations in 2000. On November 12, 2003, the company completed a sale/leaseback transaction on the company s headquarters facility. The initial term of the lease is 15 years. Proceeds from the transaction were approximately $10.0 million, after payment of the existing mortgage and closing costs. Midwest Airlines leases airport facilities (gates, operations space, ticket counter) at each location it operates. In 10 of the 23 cities Midwest Airlines served as of September 30, 2003, gates at the airport were leased directly from the airport authority. In 13 cities, Midwest Airlines subleased gates from other carriers. Midwest Connect has secured long-term leases of facilities at General Mitchell International Airport. Midwest Connect currently operates five gates at General Mitchell International Airport in Milwaukee; all gates are leased directly from Milwaukee County. Midwest Connect owns its 10,000 square-foot headquarters building, which is located off airport grounds. Midwest Connect also leases airport facilities at each location it operates unless the airport also has Midwest service. Leases are for various terms and contain other provisions that are customary in the industry. On April 23, 2001, the company completed a $6.3 million financing of a new maintenance facility for Midwest Connect, located at General Mitchell International Airport. Occupancy of the new facility began February 1, 2002. The facility is financed by 32-year tax-exempt, variable-rate demand industrial development revenue bonds issued by the City of Milwaukee. To ensure the tax-exempt status, Milwaukee County is the owner of the facility. Credit support for the bonds was provided by letters of credit issued under the company s bank credit facility until the company completed a transaction that resulted in Milwaukee County becoming the guarantor of principal and interest payments on these bonds on October 21, 2003. As noted above, on October 21, 2003, the company completed a transaction that resulted in Milwaukee County becoming the guarantor of principal and interest payments on approximately $14.2 million of industrial development revenue bonds issued in 1998 and 2001 by the City of Milwaukee to finance the construction of two airport-based maintenance facilities. Credit support for the bonds was previously provided by letters of credit issued under the company s bank credit facility. The guarantee provided by Milwaukee County enabled the company to reduce its bank credit facility exposure from $15.5 million to approximately $1.1 million. The company cash collateralized the remaining $1.1 million of letters of credit with the credit facility banks, enabling the banks to release all other collateral previously provided as security. Most of these assets were then pledged as security to the holders of the company s convertible senior secured notes. In addition, many of the company s assets are pledged as security under the agreement with Milwaukee County. Material Legal Proceedings The company is a party to routine litigation incidental to its business. Management believes that none of this litigation is likely to have a material adverse effect on the company s consolidated financial position and results of operations. Samuel K. Skinner 64 Chairman, President and Chief Executive Officer of USFreightways Corp. (transport) since June 2000; Co-Chairman of the law firm Hopkins & Sutter from 1998 to June 2000; President of Unicom Corporation and Commonwealth Edison Company from 1993 to 1998. Director of Navigant Consulting, Inc. and USFreightways Corp. 1998 Elizabeth T. Solberg 63 Regional President and Senior Partner of Fleishman-Hillard Inc. (public relations) since 1998. Director of Generations Bank, Kansas City Life Insurance Company and Ferrellgas, Inc., which is the general partner of Ferrellgas Partners, L.P. 2001 Richard H. Sonnentag 62 Managing partner of Cobham Group LP (investment partnership) since 1994. Private investor since 1990. Served as a director of Midwest Airlines from 1983 to 1990. 1997 Directors with Terms Expiring at 2005 Annual Meeting Timothy E. Hoeksema 56 Chairman of the Board, President and our Chief Executive Officer since 1983. Director of The Marcus Corporation. 1983 James G. Grosklaus 67 Retired; Executive Vice President and Director of Kimberly-Clark Corporation (consumer products) from 1986 to 1996. 1988 Ulice Payne, Jr. 47 President and Chief Executive Officer of Milwaukee Brewers Baseball Club (served in this capacity from 2002 to November 2003); Partner with the law firm of Foley & Lardner from 1998 to 2002. We retained Foley & Lardner to provide various legal services to us during 2000, 2001 and 2002. Director of State Financial Services Corporation, Badger Meter, Inc. and Wisconsin Energy Corporation. 1998 David H. Treitel 48 Chairman and Chief Executive Officer of SH&E, Inc. (aviation consulting) since 1996; President of SH&E, Inc. from 1993 to 1999. Equity Trustee of Lease Investment Flight Trust since 2001. Independent Trustee of Aircraft Finance Trust since 1999. 1984 Timothy E. Hoeksema Robert S. Bahlman David C. Reeve Carol N. Skornicka Christopher I. Stone Thomas J. Vick Dennis J. O'Reilly 56 44 58 61 52 40 47 Chairman of the Board, President, Chief Executive Officer and Director Senior Vice President and Chief Financial Officer Senior Vice President-Operations Senior Vice President-Corporate Affairs, General Counsel and Secretary Senior Vice President-Human Resources Senior Vice President and Chief Marketing Officer Treasurer and Director of Investor Relations Timothy E. Hoeksema 621,374 (1)(2) 3.5 % Thomas J. Vick 18,900 (2) * Robert S. Bahlman 107,709 (1)(2) * Carol N. Skornicka 127,700 (1)(2) * David C. Reeve 104,765 (1)(2) * John F. Bergstrom 29,845 (3)(4) * James G. Grosklaus 12,315 (5) * Ulice Payne, Jr 1,347 * Samuel K. Skinner 8,403 (4) * Elizabeth T. Solberg 2,225 (4) * Richard H. Sonnentag 21,163 (6) * Frederick P. Stratton, Jr 50,278 (4) * David H. Treitel 11,076 (4) * John W. Weekly 10,773 * All directors and executive officers as a group (17 persons) 1,224,546 (1)(2)(4) 6.7 % * Less than one percent. (1) Includes shares of common stock in which the person or persons noted had an interest under the Midwest Airlines Savings & Investment Plan as of December 1, 2003. Such plan s common stock fund is a unitized account that is invested in common stock and in liquid funds. As of a given date, each participant with an investment in the stock fund has a number of share units, and the participant s interest in common stock depends upon the aggregate number of shares of common stock held in the stock fund as of that date. Thus, each participant has voting rights with respect to share units based upon the aggregate number of shares held in the stock fund as of the record date for a shareholders meeting. Each participant has the ability to divest share units through intraplan transfers. (2) Includes shares of common stock that may be purchased under stock options that are currently exercisable or that are exercisable within 60 days of November 28, 2003 (all of which have exercise prices in excess of the fair market value of the common stock on November 28, 2003), as follows: Mr. Hoeksema, 482,800 shares; Mr. Bahlman, 104,700 shares; Ms. Skornicka, 127,200 shares; Mr. Reeve, 104,700 shares; Mr. Vick, 18,900 shares; and all directors and executive officers as a group, 932,920 shares. (3) Mr. Bergstrom shares voting and investment control over 1,745 shares that are held in trust for the benefit of Mr. Bergstrom s children. (4) Includes shares of common stock the receipt of which has been deferred by certain Non-employee Directors pursuant to the Midwest Express Holdings, Inc. 1995 Stock Plan for Outside Directors (the Director Plan ), as follows: Mr. Bergstrom, 5,600 shares; Mr. Skinner, 7,251 shares; Ms. Solberg, 2,225 shares; Mr. Stratton, 10,278 shares; and Mr. Treitel, 9,951 shares. (5) Includes 5,024 shares held by Mr. Grosklaus wife. (6) Includes 2,475 shares of common stock held by the Cobham Group LP, a limited partnership for which Mr. Sonnentag serves as the general partner and a limited partner. Five-Year Financial and Operating Data (Continued) Years Ended (7) As reported to the Securities and Exchange Commission on Schedule 13G, FMR Corp. has sole voting power over 20,900 shares and sole dispositive power over 1,700,350 shares, as of July 31, 2003. (8) As reported to the Securities and Exchange Commission on Schedule 13G, PRIMECAP Management has sole voting power over 454,540 shares and sole dispositive power over 1,548,540 shares, as of July 31, 2003. (9) As reported to the Securities and Exchange Commission on Schedule 13G, T. Rowe Price Associates has sole voting power over 382,000 shares and sole dispositive power over 1,368,100 shares, as of December 31, 2002. (10) As reported to the Securities and Exchange Commission on Schedule 13G, Vanguard Horizon Funds and Vanguard Capital Opportunity Fund have sole voting power over 1,073,000 shares and shared dispositive power over 1,073,000 shares, as of December 31, 2002. (11) As reported to the Securities and Exchange Commission on Schedule 13G, Marshall & Ilsley has sole voting power over 1,887 shares and sole dispositive power over 1,187 shares, as of December 31, 2002. Marshall & Ilsley also reported shared voting and dispositive power over 996,578 shares, of which it disclaimed beneficial ownership over 994,328 shares, as of December 31, 2002. Nine Months Ended September 30, (1) Represents options granted under the Midwest Express Holdings, Inc. 1995 Stock Option Plan. (2) The amounts shown for 2002 consist of the company s contributions under: (i) the Midwest Express Airlines, Inc. Retirement Account Plan (Mr. Hoeksema $15,787, Mr. Vick $8,567, Mr. Bahlman $7,788, Ms. Skornicka $12,646 and Mr. Reeve $12,398); (ii) other supplemental retirement arrangements (Mr. Hoeksema $12,522, Mr. Vick $589, Mr. Bahlman $1,857, Ms. Skornicka $130 and Mr. Reeve $2,874); (iii) relocation related expenses of $3,994 Mr. Vick; (iv) unused vacation payout (Mr. Hoeksema $7,754 and Mr. Bahlman $3,992); and (v) professional services paid (Mr. Hoeksema $6,000, Mr. Vick $490, and Mr. Bahlman $1,767). (3) The control measures and our failure to meet the minimum shareholder value added threshold in 2002 resulted in no bonus awards being payable with respect to 2002 performance. The 2002 bonus payout represents payment from the award bank generated by 1998 performance. (1) This presentation is intended to disclose the potential value that would accrue to the optionee if the options were exercised the day before they would expire and if the per share value had appreciated at the compounded annual rate indicated in each column. The assumed rates of appreciation of 5% and 10% are prescribed by the rules of the Securities and Exchange Commission regarding disclosure of executive compensation. The assumed annual rates of appreciation are not intended to forecast possible future appreciation, if any, with respect to the price of the common stock. (2) The options to purchase common stock reflected in the table (which are nonstatutory stock options for purposes of the Internal Revenue Code of 1986, as amended (the Code )) were granted effective February 20, 2002 and vest 30% on the first anniversary of the date of grant, another 30% on the second anniversary of the date of grant, and the final 40% on the third anniversary of the date of grant. The options are subject to early vesting in the case of the optionee s death, disability or retirement, or a change of control (as defined in the Option Plan) of the company. (1) The dollar values are calculated by determining the difference between the fair market value of the underlying stock as of December 31, 2002, which was $5.35, and the exercise price of the options. Agreements with Named Executive Officers We have agreements with Mr. Hoeksema, Mr. Vick, Mr. Bahlman, Ms. Skornicka and Mr. Reeve that provide that each such officer is entitled to benefits if, after a change in control (as defined in the agreements) of the company, such officer s employment is ended through (i) termination by us, other than by reason of death or disability or for cause (as defined in the agreements), or (ii) termination by the officer following the first anniversary of the change in control or due to a breach of the agreement by us or a significant adverse change in the officer s responsibilities. In general, the benefits provided are: (a) a cash termination payment one to three times the sum of the executive officer s annual salary and highest annual bonus during the three years before the termination, (b) continuation of equivalent hospital, medical, dental, accident, disability and life insurance coverage as in effect at the time of termination, (c) supplemental pension benefits and (d) outplacement services. Each agreement provides that, if any portion of the benefits, under the agreement or under any other agreement would constitute an excess parachute payment for purposes of the Code, benefits are reduced so that the executive officer is entitled to receive $1 less than the maximum amount that such officer can receive without becoming subject to the 20% excise tax imposed by the Code, or which we may pay without loss of deduction under the Code. * 0% (1) The number of shares of common stock for which a warrant is exercisable varies from warrant to warrant. The amounts in these columns reflect the aggregate number of shares for which all of the warrants that the selling securityholder holds are exercisable as of December 29, 2003. (2) Assumes that the securityholder disposes of all of the warrants covered by this prospectus and does not acquire or dispose of any additional warrants. However, the selling securityholders are not representing that any of the warrants covered by this prospectus will be offered for sale, and the selling securityholders reserve the right to accept or reject, in whole or in part, any proposed sale of warrants. (3) Assumes that all of the warrants are disposed of in the offering and that none remain outstanding. (4) The selling securityholder is the lessor of five aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc. (5) The selling securityholder is the lessor of five aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. Bank One, NA, an affiliate of the selling securityholder, is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. (6) The selling securityholder is an affiliate of The Provident Bank. The selling securityholder is an owner of two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. The selling securityholder has an agreement in principal to sell each such aircraft (subject to the applicable lease), which agreement is subject to customary conditions precedent. The warrants will not be sold in connection with such transaction. (7) The selling securityholder is the guarantor with respect to three aircraft leased to Midwest Airlines, Inc. John F. Bergstrom is a director of the company and of Kimberly-Clark Corporation. (8) The selling securityholder is the lender with respect to three aircraft owned by Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company, and a loan participant in a leveraged lease financing of five aircraft to Skyway Airlines, Inc. The selling securityholder is also the lender under a revolving credit facility to Midwest Airlines, Inc. that expires in 2005, subject to certain extension provisions. (9) The selling securityholder is the lessor of five aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company. The leases for three of these aircraft were terminated early and the aircraft were returned to the the selling securityholder. Midwest Airlines, Inc. Has agreed to pay to the selling securityholder various lease termination fees in respect of the terminated leases. Timothy E. Hoeksema served as a director of Marshall & Ilsley Corporation, an affiliate of the selling securityholder, until March 2003. The company has entered into customary banking relationships with Marshall & Ilsley Bank, an affiliate of the selling securityholder. Marshall & Ilsley Bank is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. (10) The selling securityholder converted its financing from a mortgage financing to a single-investor lease financing as part of the company s restructuring plan and is currently a beneficial owner of one aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company. (11) The selling securityholder is the lessor of one aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and an owner participant in a leveraged lease financing of one aircraft to Midwest Airlines, Inc. In connection with the leveraged lease transaction, Commerce Bank, N.A. has a security interest in a warrant representing the right to purchase 136,874.73 shares of common stock of the company, which security interest provides Commerce Bank, N.A. with the right to direct the disposition of such warrant and the underlying shares. (12) The selling securityholder was an owner participant of the owner trust that was leasing one aircraft to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. The owner trust subsequently sold the lease to General Aviation Services, LLC on November 26, 2003. The selling securityholder has retained the warrant. (13) The selling securityholder is the lessor of two aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc. U.S. Bank, N.A., an affiliate of the selling securityholder, is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. U.S. Bancorp Asset Management, an affiliate of the selling securityholder, participated on behalf of its clients in the company s private placement of 1,882,353 shares of the company s common stock for an aggregate purchase price of approximately $8 million, on November 25, 2003. U.S. Bancorp Asset Management has sole discretionary voting and investment authority over the accounts of its clients, and is therefore deemed to be the beneficial owner of 705,882 shares of the company's common stock. These shares are not included in the table above. (14) The selling securityholder is the lessor of three aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. * 0% (1) Assumes that prior to this offering the selling securityholder exercises all of the warrants held by such securityholder as of December 29, 2003 in full, at an exercise price per share of $4.72, and offers all of the shares of common stock pursuant to this offering. This prospectus also covers any additional shares of common stock that become issuable upon any anti-dilution adjustment pursuant to the terms of the warrants and any additional shares of common stock that become issuable in connection with the shares being registered by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration that results in an increase in the number of outstanding shares of our common stock. (2) Assumes that the securityholder disposes of all of the shares of common stock covered by this prospectus and does not acquire or dispose of any additional shares of common stock. However, the selling securityholders are not representing that any of the shares covered by this prospectus will be offered for sale, and the selling securityholders reserve the right to accept or reject, in whole or in part, any proposed sale of shares. (3) The percentage of common stock beneficially owned is based on the shares of common stock outstanding on November 28, 2003. (4) The selling securityholder is the lessor of five aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc. (5) The selling securityholder is the lessor of five aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. Bank One, NA, an affiliate of the selling securityholder, is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. (6) The selling securityholder is an affiliate of The Provident Bank. The selling securityholder is an owner of two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. The selling securityholder has an agreement in principal to sell each such aircraft (subject to the applicable lease), which agreement is subject to customary conditions precedent. The warrants will not be sold in connection with such transaction. (7) The selling securityholder is the guarantor with respect to three aircraft leased to Midwest Airlines, Inc. John F. Bergstrom is a director of the company and of Kimberly-Clark Corporation. (8) The selling securityholder is the lender with respect to three aircraft owned by Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company, and a loan participant in a leveraged lease financing of five aircraft to Skyway Airlines, Inc. The selling securityholder is also the lender under a revolving credit facility to Midwest Airlines, Inc. that expires in 2005, subject to certain extension provisions. (9) The selling securityholder is the lessor of five aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company. The leases for three of these aircraft were terminated early and the aircraft were returned to the the selling securityholder. Midwest Airlines, Inc. Has agreed to pay to the selling securityholder various lease termination fees in respect of the terminated leases. Timothy E. Hoeksema served as a director of Marshall & Ilsley Corporation, an affiliate of the selling securityholder, until March 2003. The company has entered into customary banking relationships with Marshall & Ilsley Bank, an affiliate of the selling securityholder. Marshall & Ilsley Bank is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. (10) The selling securityholder converted its financing from a mortgage financing to a single-investor lease financing as part of the company s restructuring plan and is currently a beneficial owner of one aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company. (11) The selling securityholder is the lessor of one aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and an owner participant in a leveraged lease financing of one aircraft to Midwest Airlines, Inc. In connection with the leveraged lease transaction, Commerce Bank, N.A. has a security interest in a warrant representing the right to purchase 136,874.73 shares of common stock of the company, which security interest provides Commerce Bank, N.A. with the right to direct the disposition of such warrant and the underlying shares. (12) The selling securityholder was an owner participant of the owner trust that was leasing one aircraft to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. The owner trust subsequently sold the lease to General Aviation Services, LLC on November 26, 2003. The selling securityholder has retained the warrant. (13) The selling securityholder is the lessor of two aircraft leased to Midwest Airlines, Inc., a wholly-owned subsidiary of the company, and two aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc. U.S. Bank, N.A., an affiliate of the selling securityholder, is a party to the company s Senior Secured Revolving Credit Agreement, dated August 31, 2001, as amended. U.S. Bancorp Asset Management, an affiliate of the selling securityholder, participated on behalf of its clients in the company s private placement of 1,882,353 shares of the company s common stock for an aggregate purchase price of approximately $8 million, on November 25, 2003. U.S. Bancorp Asset Management has sole discretionary voting and investment authority over the accounts of its clients, and is therefore deemed to be the beneficial owner of 705,882 shares of the company's common stock. These shares are not included in the table above. (14) The selling securityholder is the lessor of three aircraft leased to Skyway Airlines, Inc., a wholly-owned subsidiary of Midwest Airlines, Inc., which is a wholly-owned subsidiary of the company. DESCRIPTION OF CAPITAL STOCK The following is a description of our capital stock and our restated articles of incorporation and by-laws. We refer you to copies of our articles of incorporation and bylaws which have been filed with the Securities and Exchange Commission. General Discussion Our authorized share capital consists of 50,000,000 shares of common stock, par value $.01 per share, and 5,000,000 shares of preferred stock, without par value (the Preferred Stock ), of which 17,399,764 shares of common stock were outstanding as of November 28, 2003 and no shares of Preferred Stock are outstanding. All such outstanding shares are fully paid and nonassessable, except as provided by Section 180.0622(2)(b) of the Wisconsin Business Corporation Law ( WBCL ). Rights of Common Stock Holders of common stock are entitled to one vote per share on all matters which, pursuant to the WBCL, require the approval of our shareholders, other than matters relating solely to another class of stock. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to participate ratably in all distributions to the holders of common stock after payment of liabilities and satisfaction of any preferential rights of holders of Preferred Stock. Holders of common stock are not entitled to any preemptive rights. Subject to any preferences that may be applicable to any outstanding shares of Preferred Stock, holders of common stock are entitled to receive cash dividends ratably on a per share basis if and when such dividends are declared by our Board of Directors from funds legally available therefor. The rights, preferences and privileges of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of Preferred Stock which we may designate and issue in the future. Furthermore, the holders of the convertible senior secured notes have rights senior to holders of our common stock. Rights of Preferred Stock Our Board of Directors is authorized to provide for the issuance of Preferred Stock in one or more series and to fix the rights, preferences, privileges, qualifications, limitations and restrictions thereof, including, without limitation, dividend rights, dividend rates, conversion rights, voting rights, terms of redemption or repurchase, redemption or repurchase prices, limitations or restrictions thereof, liquidation preferences and the number of shares constituting any series or the designation of such series, without any further vote or action by our shareholders. In connection with the outstanding Preferred Stock Purchase Rights ( Rights ) described below, our Board of Directors has authorized a Series A Junior Participating Preferred Stock. Shares of Series A Junior Participating Preferred Stock (each, a Series A Share ) purchasable upon the exercise of Rights will not be redeemable. Each Series A Share will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per share of common stock. In the event of liquidation, the holders of the Series A Shares will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each Series A Share will have 100 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which common stock are exchanged, each Series A Share will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary anti-dilution provisions. There are no Series A Shares currently outstanding. The issuance of any series of Preferred Stock, including Series A Shares, may have an adverse effect on the rights of holders of common stock, and could decrease the amount of earnings and assets available for distribution to holders of common stock. In addition, any issuance of Preferred Stock could have the effect of delaying, deferring or preventing a change in control of the company. We have no present plans to issue any Series A Shares or any shares of any other series of Preferred Stock. Anti-Takeover Effects of Our Rights Agreement The Rights Agreement between us and American Stock Transfer & Trust Company, dated as of February 14, 1996, as amended (the Rights Agreement ), and the WBCL contain provisions that may have the effect of discouraging persons from acquiring large blocks of our stock or delaying or preventing a change in control of the company. Pursuant to the Rights Agreement, each outstanding share of common stock has attached thereto one Right, and each share subsequently issued by the us prior to the expiration of the Rights Agreement will have attached thereto one Right. Under certain circumstances described below, the Rights will entitle the holder to purchase Series A Shares and/or shares of common stock. Currently, the Rights are not exercisable and trade with the common stock. Each Right, when exercisable, entitles the holder to purchase 1/100th of a Series A Share at a purchase price of $100. The Rights will become exercisable only if a person or entity acquires 15% or more of the outstanding common stock or announces a tender offer for 15% or more of the outstanding common stock. If any person or entity becomes a 15% or greater shareholder of the company, then each Right will entitle its holder to purchase, at the Right s then-current exercise price, common stock valued at twice the exercise price. Our Board of Directors is also authorized to reduce the 15% thresholds referred to above to not less than 10%. The Rights will expire on February 13, 2006. Anti-Takeover Effects of Our Restated Articles of Incorporation and By-laws Our restated articles of incorporation provide that the number of directors of the company shall consist of not less than six and not more than 15, with the exact number to be determined by a vote of a majority of the Board. Pursuant to our restated articles of incorporation, the Board of Directors has determined that we will have 10 directors, three in the class whose term will expire in 2006, four in the class whose term will expire in 2005 and three in the class whose term will expire in 2004. Any vacancies on the Board may be filled for the unexpired portion of the term only by a majority vote of the remaining directors. Any director may be removed from office, but only for cause and only by the affirmative vote of the holders of outstanding shares representing at least 80% of the voting power of all shares of capital stock of the company then entitled to vote generally in the election of directors. In addition, any director may be removed from office by the affirmative vote of a majority of the entire Board of Directors, but only for cause. Our By-laws provide that meetings of our shareholders may be called only by the Chairman of the Board, the President or the Board of Directors. The restated articles of incorporation further provide that nominations for the election of directors and advance notice of other action to be taken at meetings of our shareholders must be given in the manner provided in our By-laws, and the By-laws contain detailed notice requirements relating to nominations and other action. The restated articles of incorporation prohibit us from entering into certain business combinations with a shareholder owning 5% or more of the voting power of the company unless such transaction (i) is approved by at least 80% of the voting power of all of our capital stock; (ii) is approved by a majority of Continuing Directors (as defined in the restated articles of incorporation); or (iii) the transaction meets certain fair price requirements set forth in the restated articles of incorporation. The restated articles of incorporation further require approval of amendments to the By-laws either by the Board of Directors or by at least 80% of the voting power of all of our capital stock. The foregoing provisions could have the effect of delaying, deferring or preventing a change in control or the removal of our existing management. Operating revenues $ 77,587 $ 18,633 $ (1,315 ) $ 94,905 Operating (loss) income (5,232 ) 100 -- (5,132 ) Depreciation and amortization expense 4,076 1,048 -- 5,124 Interest income 254 -- (39 ) 215 Interest expense (504 ) (77 ) 39 (542 ) (Loss) Income before income tax (credit) provision (5,486 ) 23 -- (5,463 ) Income tax (credit) provision (1,920 ) 8 -- (1,912 ) Net (loss) income (3,566 ) 15 -- (3,551 ) Total assets 348,128 66,499 (23,984 ) 390,643 Capital expenditures 2,783 Anti-Takeover Effects of Various Provisions of Wisconsin Law Sections 180.1140 to 180.1144 of the WBCL restrict a broad range of business combinations between a Wisconsin corporation and an interested stockholder for a period of three years unless specified conditions are met. The WBCL defines a business combination as including certain mergers or share exchanges, sales of assets, issuances of stock or rights to purchase stock and other related party transactions. An interested stockholder is a person who beneficially owns, directly or indirectly, 10% of the outstanding voting stock of a corporation or who is an affiliate or associate of the corporation and beneficially owned 10% of the voting stock within the last three years. During the initial three-year period after a person becomes an interested stockholder in a Wisconsin corporation, with some exceptions, the WBCL prohibits a business combination with the interested stockholder unless the corporation s board of directors approved the business combination or the acquisition of the stock by the interested stockholder prior to the acquisition date. Following this three-year period, the WBCL also prohibits a business combination with an interested stockholder unless: the board of directors approved the acquisition of the stock prior to the acquisition date; the business combination is approved by a majority of the outstanding voting stock not owned by the interested stockholder; the consideration to be received by shareholders meets certain requirements of the statute with respect to form and amount; or the business combination is of a type specifically excluded from the coverage of the statute. Sections 180.1130 to 180.1133 of the WBCL govern certain mergers or share exchanges between public Wisconsin corporations and significant shareholders and sales of all or substantially all of the assets of public Wisconsin corporations to significant shareholders. These transactions must be approved by 80% of all shareholders and two-thirds of shareholders other than the significant shareholder, unless the shareholders receive a statutory fair price. In general, these adequacy-of-price standards provide that the above-referenced vote does not apply if (1) the aggregate amount of the cash and the market value as of the valuation date of consideration other than cash to be received per share by shareholders of the resident domestic corporation in the business combination is at least equal to the highest of (a) the highest per share price received by any person selling common shares of the same class or series from the significant shareholder whether in the transaction in which the person became a significant shareholder or within the two years before the date of the business combination, (b) the market value per share of the same class or series on the date of the commencement of a tender offer initiated by the significant shareholder, on the date on which the person became a significant shareholder or on the date of the first public announcement of the proposed business combination, whichever is higher, or (c) the highest preferential amount per share to which the holder of shares of the class or series of shares is entitled in a voluntary or involuntary liquidation or dissolution of the resident domestic corporation and (2) the consideration to be received by holders of a class or series of outstanding shares is to be in cash or in the same form as the significant shareholder has previously paid for shares of the same class or series. Section 180.1130 of the WBCL generally defines a significant shareholder as the beneficial owner of 10% or more of the voting power of the outstanding voting shares, or an affiliate of the corporation who beneficially owned 10% or more of the voting power of the then outstanding shares within the last two years. Section 180.1150 of the WBCL provides that in particular circumstances the voting power of shares of a public Wisconsin corporation held by any person in excess of 20% of the voting power is limited to 10% of the voting power these excess shares would otherwise have. Full voting power may be restored if a majority of the voting power of shares represented at a meeting, including those held by the party seeking restoration, are voted in favor of the restoration. This voting restriction does not apply to shares acquired directly from the corporation. Section 180.1134 of the WBCL requires shareholder approval for some transactions in the context of a tender offer or similar action for more than 5% of any class of a Wisconsin corporation s stock. Shareholder approval is required for the acquisition of more than 5% of the corporation s stock at a price above market value from any person who holds more than 3% of the voting shares and has held the shares for less than two years, unless the corporation makes an equal offer to acquire all shares. Shareholder approval is also required for the sale or option of assets that amount to at least 10% of the market value of the corporation, but this requirement does not apply if the corporation has at least three independent directors and a majority of the independent directors vote not to have this provision apply to the corporation. Foreign Ownership of Common Stock The Federal Aviation Act of 1958, as amended, prohibits non-U.S. citizens from owning more than 25% of the voting interest of a company such as ours that owns a U.S. air carrier. Our restated articles of incorporation provide that no shares of common stock may be voted by or at the direction of persons who are not U.S. citizens unless such shares are registered on a separate stock record to be maintained by us for non-U.S. holders (the Foreign Stock Record ). Our By-laws provide that no shares of common stock held by non-U.S. citizens will be registered on the Foreign Stock Record if the amount so registered would exceed foreign ownership restrictions currently 25% of our voting stock as noted above. The restated articles of incorporation provide that, to the extent the voting interest in us owned or controlled by non-U.S. citizens in the aggregate exceeds 25% of the voting interest in us or such other percentage that would exceed federal foreign ownership restrictions, we have the right to redeem or exchange such shares through the payment of cash, our securities having equivalent value or a combination thereof. Transfer Agent and Registrar The Transfer Agent and Registrar for the common stock is American Stock Transfer & Trust Company, New York, New York. Selected Quarterly Financial Data (In thousands, except per share data) Quarter Ended DESCRIPTION OF WARRANTS The following is a description of the warrants. We refer you to a copy of the form of warrant, which has been filed with the Securities and Exchange Commission. General Discussion On August 19, 2003, we reached final agreements on renegotiating our finance agreements with 11 aircraft lessors and lenders to reflect current market conditions. The renegotiated aircraft finance agreements provided for the reduction of the present value of the old agreements by $60-70 million, reduced cash requirements by about $1.1 million per month and converted $24 million of short-term debt into long-term obligations exceeding 10 years at low interest rates. The lessors and lenders, in return for making the agreed to amendments to these finance agreements, received warrants to purchase, in the aggregate, 1,571,467 shares of our common stock at an exercise price of $4.72 (subject to adjustment pursuant to anti-dilution provisions), with certain protection from dilutive issuances of common stock. All of the lessors and lenders to whom warrants were issued were accredited investors (other than one lessor who qualified as a sophisticated investor due to its knowledge and experience in financial, business and investment matters, including the airline industry and businesses and operations of companies that operate in lines of business similar to ours) in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended. We issued warrants to acquire 1,571,467 shares of common stock in the aggregate, all of which are outstanding as of the date of this prospectus. The warrant holders are not entitled to any voting rights or other rights as a shareholder of the company. A warrant may only be amended with the consent of the company. Exercise of Warrants All of the warrants are currently exercisable, but warrant holders may exercise their warrants only if there is an effective registration statement filed under the Securities Act of 1933 and the issuance of the common stock is made in accordance with said registration statement or the exercise of the warrants is exempt from the registration requirements of the Securities Act and any applicable state securities laws. Unless exercised earlier, the warrants will expire on August 19, 2013. The warrant holders may exercise the warrants in whole or in part, Generally, partial exercises of the warrants must be for a whole number of shares of common stock (in any event, fractional shares will not be issued, but will be paid out in cash). To exercise the warrants, the warrant holders must deliver a notice of exercise and the warrants to us and pay the exercise price. We must issue a stock certificate(s) to a warrant holder within three trading days of our receipt of the warrant(s) and duly executed notice of exercise and payment of the exercise price. Generally, the warrant holders must pay the exercise price in cash. However, the warrant holders may elect to pay the exercise price by canceling our obligations to the warrant holders under the Basic Moratorium Notes (as defined below). Further, if the registration statement of which this prospectus is a part is not effective by January 20, 2004, then from January 20, 2004 until the date the registration statement is declared effective, the warrant holders may effect a net exercise of the warrants by using some of the shares issuable upon exercise of the Warrants to pay the exercise price and taking receipt only of the remaining shares. In connection with the final restructuring agreements with the aircraft lessors and lenders, our subsidiaries delivered promissory notes (the Basic Moratorium Notes ) to the lessors and lenders. Each of the Basic Moratorium Notes was delivered pursuant to an agreement to amend the existing lease or financing agreements, as applicable (each, an Agreement to Amend ), between (1) us and Midwest Airlines or Skyway Airlines, as the case may be; and (2) the lessor(s) or lender(s) party to the existing lease or financing agreements in question. Each of the Basic Moratorium Notes constitutes payment in full for any basic rent, principal and interest payments and any other regularly scheduled amounts due under such lease and financing agreements, as amended by the respective Agreement to Amend (collectively, the Regularly Scheduled Payments ), that Midwest Airlines or Skyway Airlines, as the case may be, failed to pay to the lessor(s) or lender(s) during our payment moratorium from and including February 28, 2003 through and including August 30, 2003. The aggregate principal amount of the Basic Moratorium Notes is $7,533,000. Principal and interest on the Basic Moratorium Notes are payable, in arrears, in 36 monthly installments commencing on June 30, 2004. The Basic Moratorium Notes bear interest at 10% per annum. We will not issue fractional shares upon exercise of the warrants. As to any fractional shares that the warrant holder would otherwise be entitled to purchase from us upon such exercise, we will pay the warrant holder a cash adjustment for such fraction based on the market price of a share of common stock as of the date of the notice of exercise. Transfer of Warrants The warrants are issued in registered form. We keep at our principal executive office a register in which we provide for the registration and transfer of the warrants. We register the name and address of the warrant holders in this register. Whenever the warrants are surrendered for transfer or exchange, in accordance with the terms of the warrants, at our expense, we will as promptly as practicable, and in any event within three trading days thereafter, execute and deliver in exchange therefor new warrants (registered in such name or names as may be requested by the holders of the surrendered warrants), exercisable for the same aggregate number of shares of common stock as that of the warrants so surrendered. We may treat the persons in whose names the warrants are registered as the owners of the warrants. To transfer the warrants, the warrant holders must deliver to us a notice of assignment, duly executed by the warrant holder (or its attorney) specifying that the warrants are being transferred in compliance with the transfer restrictions contained in the warrants. These restrictions allow a warrant holder to transfer warrants only if there is an effective registration statement filed under the Securities Act of 1933 and the transfer of the warrants is made in accordance with said registration statement or the transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws. Further, a warrant holder may transfer a warrant in part only if the transferee will receive a warrant that is immediately exercisable to acquire at least 10,000 shares of our common stock and the warrant holder retains rights under the applicable warrant to acquire at least 10,000 shares of our common stock. Anti-Dilution Adjustments Upon the occurrence of one of the dilutive events specified below, the terms of the warrants require us to make an adjustment to the exercise price of the warrants and, in the case of Item 1 and Item 2 only, an adjustment to the total number of shares of common stock issuable upon exercise of the warrants and the aggregate number of shares issuable under warrants. For each warrant, the adjustment to the number of shares of common stock issuable is calculated by multiplying the unadjusted exercise price by the number of shares of common stock then issuable under the warrant and dividing the product by the adjusted exercise price so that the adjustment to the number of shares is proportionate to the adjustment in the exercise price. 1. The exercise price and the number of shares issuable upon exercise of the warrant will be adjusted when we (1) declare a dividend or make a distribution payable in common stock, convertible securities or stock purchase rights; (2) split or combine our common stock; or (3) declare a dividend or make a distribution payable in cash, evidences of indebtedness or assets; 2. The exercise price will be adjusted downward and the number of shares issuable upon exercise of the warrant increased when we issue or sell common stock at a price per share less than the then current exercise price or issue or sell convertible securities or stock purchase rights to acquire shares of common stock at a price per share less than the then current exercise price. This adjustment provision expires upon August 19, 2005. After August 19, 2005, we must insure that the warrant holders have any anti-dilution rights given by us to another person that are more favorable than the anti-dilution rights in the warrants.; or March 31 3. The exercise price will be adjusted downward when we consummate a tender or exchange offer to acquire common stock at a price per share in excess of the market price of a share of common stock on the day immediately following the day on which such tender or exchange offer expires. Pursuant to the terms of the warrants, we also will make an adjustment to the exercise price and the securities issuable upon exercise of the warrants if we effect (A) any reorganization or reclassification or recapitalization, (B) any consolidation or merger, (C) any share exchange or (D) the sale, transfer or other disposition of all or substantially all of our assets as a result of which holders of common stock become entitled to receive any securities and/or other assets of the company, any of its subsidiaries or any other person with respect to or in exchange for common stock. June 30 PLAN OF DISTRIBUTION We are registering the warrants and the shares of common stock issuable upon exercise of the warrants to permit the resale of the warrants and the common stock by the selling securityholders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by any selling securityholder of the warrants or the shares of common stock. We will bear all fees and expenses incident to our obligation to register the warrants and the shares of common stock, except that a selling securityholder will pay all applicable underwriting discounts and selling commissions, if any. Any selling securityholder may sell all or a portion of the warrants or the common stock beneficially owned by it and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the warrants or common stock are sold through underwriters or broker-dealers, then the selling securityholder will be responsible for underwriting discounts or commissions or agent s commissions. The warrants and the common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions, (1) on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale, (2) in the over-the-counter market, (3) in transactions otherwise than on these exchanges or systems or in the over-the-counter market, (4) through the writing of options, whether the options are listed on an options exchange or otherwise, (5) through the settlement of short sales; (6) through a combination of such methods of sale; or (7) through any other method permitted pursuant to applicable law. If a selling securityholder effects such transactions by selling warrants or shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling securityholder or commissions from purchasers of the warrants or shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the common stock or otherwise, a selling securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares in the course of hedging in positions they assume. A selling securityholder may also sell the shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions. Each selling securityholder may also loan or pledge warrants or shares of common stock to broker-dealers that in turn may sell such securities. Each selling securityholder may pledge or grant a security interest in some or all of the warrants or shares of common stock owned by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the warrants or shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling securityholders to include the pledgee, transferee or other successors-in-interest as selling securityholders under this prospectus. Each selling securityholder also may transfer and donate the warrants and shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. September 30 Each selling securityholder and any broker-dealer participating in the distribution of warrants or the shares of common stock may be deemed to be underwriters within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed, to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the warrants or shares of common stock is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of the warrants and shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from each selling securityholder and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers. Under the securities laws of some states, the warrants and shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the warrants and shares of common stock may not be sold unless the shares have been registered or qualified for sale in the state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any selling securityholder will sell any or all of the warrants or shares of common stock registered pursuant to the shelf registration statement of which this prospectus forms a part. Each selling securityholder and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the warrants or shares of common stock by the selling securityholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of warrants or the shares of common stock to engage in market-making activities with respect to the warrants or shares of common stock. All of the foregoing may affect the marketability of the warrants and shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the warrants and shares of common stock. We have agreed to pay all expenses in connection with this offering, but not including underwriting discounts, concessions, commissions or fees of the selling securityholders. We will indemnify the selling securityholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreement, or the selling securityholders will be entitled to contribution. We may be indemnified by a selling securityholder against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling securityholder specifically for use in this prospectus, in accordance with the registration rights agreement, or we may be entitled to contribution. Once sold under the shelf registration statement, of which this prospectus forms a part, the warrants and shares of common stock will be freely tradable in the hands of persons other than our affiliates. Operating revenues $ 94,058 $ 96,898 $ 94,905 Operating expenses (1) 111,980 102,453 100,037 Other income (expense), net (2) (1 ) 11,432 (4 ) Operating (loss) income (17,922 ) (5,555 ) (5,132 ) Income (loss) before income taxes (18,107 ) 5,554 (5,463 ) Provision (credit) for income taxes (6,337 ) 1,944 (1,912 ) Net income (loss) (11,770 ) 3,610 (3,551 ) Income (loss) per share - basic: Net income (loss) (0.76 ) 0.23 (0.23 ) Income (loss) per share - diluted: Net income (loss) (0.76 ) 0.23 (0.23 ) Quarter Ended EXPERTS The consolidated financial statements of Midwest Express Holdings, Inc. (known as Midwest Air Group, Inc., as of January 1, 2004) at December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes explanatory paragraphs referring to (1) the change in the methods of accounting for major airframe maintenance as well as frequent flyer revenue in 2000 and (2) the ability of the company to continue as a going concern), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended. In accordance with the Exchange Act, we file reports, proxy statements and other information with the Securities and Exchange Commission. You can inspect and copy these reports, proxy statements and other information at the Public Reference Room of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0102, at prescribed rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our Securities and Exchange Commission filings are also available on the Securities and Exchange Commission s web site. The address of this site is http://www.sec.gov. We have filed with the Securities and Exchange Commission a registration statement (which term includes all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares offered by this prospectus. This prospectus is part of that registration statement and, as allowed by Securities and Exchange Commissions rules, does not contain all the information set forth in the registration statement and the exhibits to the registration statement. The registration statement may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-0102 and is available to you on the Securities and Exchange Commission s web site. March 31 Total comprehensive loss -- -- -- -- -- (10,163 ) Issuance of 1,675,000 shares of common stock for private equity placement 17 20,453 -- -- -- 20,470 Other -- 22 62 -- -- June 30 September 30 December 31 Operating revenues $ 104,022 $ 115,975 $ 103,899 $ 103,078 Operating expenses (3) 136,689 114,053 117,264 113,226 Other income (expense), net (4) 39,490 92 162 (3 ) Operating (loss) income (32,667 ) 1,922 (13,365 ) (10,148 ) Income (loss) before income taxes 6,112 1,483 (13,633 ) (10,197 ) Provision (credit) for income taxes 2,263 548 (5,044 ) (3,450 ) Net income (loss) 3,849 935 (8,589 ) (6,747 ) Income (loss) per share - basic: Net income (loss) 0.28 0.07 (0.55 ) (0.44 ) Income (loss) per share - diluted: Net income (loss) 0.28 0.07 (0.55 ) (0.44 ) Quarter Ended March 31 June 30 September 30 December 31 In connection with the restructuring efforts, the company issued the warrants to the lessors and lenders, with an initial exercise price per share of $4.78. These warrants are being registered under the registration statement of which this prospectus is a part. The warrants expire on August 19, 2013 and have a current exercise price of $4.72 per share. None of the warrants had been exercised as of November 30, 2003. Also, in connection with the restructuring efforts, the company agreed to grant options to its employees (represented and non-represented) to purchase 1,551,741 shares of the company s common stock. The terms of the warrants and options provide certain protection from dilutive issuances of common stock. The shares issuable upon the exercise of the warrants, our convertible senior secured notes and options the company has agreed to issue to its employees, as well as any additional shares that have been or may be issued as part of any additional financing, will dilute the ownership interests of existing shareholders. Further, any sales in the public market of the common stock issuable upon such exercises and conversion could adversely affect prevailing market prices of the company s common stock. In addition, the existence of warrants, options and other securities may encourage short selling by market participants. A summary of revenue improvement/cost reduction measures implemented as of September 30, 2003 is as follows: Revenue Improvement/Cost Reduction Measure Estimated Annual Improvement Total of Revenue Improvement/Cost Reduction Measures $ 47 Restructuring Measure Estimated Annual Improvement ($ in millions) Aircraft Lessor Concessions $ 12 Represented Employees' Concessions $ 7 Non-represented Employees' Concessions $ 4 Total of Restructuring Measures $ 23 Total of Revenue Improvement/Cost Reduction Measures and Restructuring Measures $ 70 The following table provides operating revenues and expenses for the company expressed as cents per total available seat miles, including charter operations, and as a percentage of total operating revenues for the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, Investing activities: Capital expenditures (14,008 ) (4,871 ) Aircraft purchase deposits and pre-delivery progress payments (21,528 ) (38,890 ) Aircraft purchase deposits returned 26,335 -- Proceeds from sale of property and equipment 1,866 351 Other, net (1,447 ) The following table provides operating revenues and expenses for the company expressed as cents per total available seat miles, including charter operations, and as a percentage of total operating revenues for the periods indicated. Three Months Ended September 30, Nine Months Ended September 30, Per Total ASM % of Revenue Per Total ASM % of Revenue Per Total ASM % of Revenue Per Total ASM % of Revenue Per Total ASM % Per Total ASM % Per Total ASM % Operating Revenues: Passenger service 10.35 88.6 % 11.56 90.5 % 12.76 91.5 % Cargo 0.16 1.3 % 0.25 2.0 % 0.32 2.3 % Other 1.18 10.1 % 0.96 7.5 % 0.86 6.2 % Total operating revenues 11.69 100.0 % 12.77 100.0 % 13.94 100.0 % Operating expenses: Salaries, wages and benefits 4.29 36.7 % 4.67 36.6 % 4.41 31.6 % Aircraft fuel and oil 2.15 18.4 % 2.43 19.0 % 2.72 19.5 % Commissions 0.51 4.3 % 0.66 5.2 % 0.74 5.3 % Dining services 0.54 4.6 % 0.72 5.7 % 0.73 5.2 % Station rental/landing/other 1.03 8.8 % 1.02 8.0 % 1.01 7.3 % Aircraft maintenance 1.12 9.6 % 1.40 10.9 % 1.58 11.3 % Depreciation and amortization 0.58 5.0 % 0.58 4.6 % 0.49 3.6 % Aircraft rentals 0.69 5.9 % 0.69 5.4 % 0.71 5.1 % Impairment loss 0.82 7.0 % 0.25 1.9 % -- -- Other 1.45 12.4 % 1.41 11.0 % 1.35 9.7 % Total operating expenses 13.18 112.7 % 13.83 108.3 % 13.74 98.6 % Other (expense) income: Interest income 215 344 696 911 Interest expense (542 ) (774 ) (1,529 ) (2,583 ) Other, net (4 ) Balances at December 31, 2000 145 11,609 (15,991 ) 133,513 -- 129,276 Net loss -- -- -- (14,918 ) -- (14,918 ) Issuance of common stock upon exercise of stock options and related tax benefits -- 23 182 -- -- 205 Other -- 70 103 -- -- As discussed above, the company s subsidiaries delivered subordinated promissory notes (the Basic Moratorium Notes ) to the lessors and lenders as part of the restructuring agreements. The aggregate principal amount of these notes is $7,533,000. Each of the Basic Moratorium Notes was delivered pursuant to an Agreement to Amend. Each of the Basic Moratorium Notes constitutes payment in full for any Regularly Scheduled Payments that Midwest Airlines or Skyway Airlines, as the case may be, failed to pay to the lessor(s) or lender(s) during the company s payment moratorium from and including February 28, 2003 through and including August 30, 2003. Principal and interest on the Basic Moratorium Notes are payable, in arrears, in 36 monthly installments commencing on the later of (1) June 30, 2004 and (2) the earlier of (a) the date on which the company attains Financial Health and (b) January 1, 2005. The Basic Moratorium Notes bear interest at 10% per annum beginning June 30, 2004. Financial Health for purposes of the Basic Moratorium Notes means when the Company has either (i) unrestricted cash of $70 million or (ii) achieved financial closing with respect to new financing in the amount of at least $30 million. The Basic Moratorium Notes bear interest at 10% per annum beginning June 30, 2004. As a result of the restructuring of lease and debt agreements described above, the company has significantly lowered its obligations compared with the obligations under the previous lease and debt agreements. Included in the restructured agreements are clauses that would make the company s obligations, under certain default situations, increase to the amounts under the previous agreements. The amount of such contingent obligation of the company is approximately $7.9 million as of September 30, 2003. Contractual Obligations and Commitments As of December 31, 2002, our contractual obligations and related cash outflows are summarized below: Related Cash Outflows Contractual Obligations Total Thereafter Total $ 1,827,327 $ 60,726 $ 76,639 $ 90,332 $ 97,478 $ 103,293 $ 1,398,859 Funded status at end of year $ (11,985 ) $ (6,233 ) $ (897 ) $ (900 ) Unrecognized net actuarial loss (gain) 6,543 1,133 12 (17 ) Unrecognized prior service cost 3,383 3,598 108 The company has the largest market share of passengers in Milwaukee. During September 2003, Midwest Airlines and Midwest Connect collectively carried 36.5% of the passengers boarded in Milwaukee, while Northwest Airlines, which has the second-largest share, carried 20.5%. During September 2003, Midwest Airlines carried 4.2% of the passengers boarded in Kansas City, compared with 30.9% carried by Southwest Airlines and 16.4% by American the carriers with the two largest market shares in Kansas City. In addition to traditional competition among domestic carriers, the industry may be subject to new forms of competition in the future. The development of video teleconferencing and other methods of electronic communication may add a new dimension of competition to the industry as businesses look for lower-cost alternatives to air travel. General economic conditions and the effects of the September 11 attacks may also increase competition from these sources. Employees As of September 30, 2003, Midwest Airlines had 2,183 employees (426 of whom were part-time and 38 of whom were intermittents) and Midwest Connect had 726 employees (244 of whom were part-time). The categories of employees were as indicated in the following table: Employees as of September 30, 2003 Employee Categories Midwest Airlines Midwest Connect Balances at December 31, 1999 $ 145 $ 11,147 $ (10,752 ) $ 132,999 $ -- $ 133,539 Net income -- -- -- 514 -- 514 Purchase of 276,290 shares of treasury stock -- -- (5,982 ) -- -- (5,982 ) Issuance of common stock upon exercise of stock options and related tax benefits -- 324 667 -- -- 991 Other -- 138 76 -- -- Seasonality The company s results of operations are impacted by the seasonality associated with the airline industry. Any interim period is not necessarily representative of results for the entire fiscal year. Generally, quarterly operating income and, to a lesser extent, revenues tend to be lower in the first and fourth quarters. Aircraft Equipment As of September 30, 2003, Midwest Airlines had eight Boeing 717 and 21 McDonnell Douglas jet aircraft in service, including one DC-9-10, seven DC-9-30, two MD-88, eight MD-81 and three MD-82 aircraft. All owned, otherwise unencumbered aircraft have been pledged as security to holders of the company s convertible senior secured notes. MIDWEST AIRLINES AIRCRAFT IN SERVICE Type Seats Owned Leased Total * One aircraft is configured to 60 seats and used primarily for charter flights. ** A portion of the MD-80 series fleet has been reconfigured for the Saver Service product. As of September 30, 2003, four of the MD-80 series aircraft had been reconfigured with 147 seats, and two of the aircraft had been reconfigured with 143 seats. In addition, one of the MD-81 aircraft has been reconfigured to 74 seats and is used primarily for charter flights, with a second MD-81 to be completed by December 2003. As part of the company s restructuring, the company renegotiated its agreements with aircraft lessors and lenders. The information in this section reflects the amended agreements. Two MD-81/82 aircraft leases and the two MD-88 aircraft leases expire in 2011 and the remaining MD-81 lease expires in 2013. The eight DC-9 aircraft will be periodically removed from service through April 2004 and sold or returned to lessors. The Boeing 717 aircraft leases all have 20-year terms. As of September 30, 2003, Midwest Connect s fleet consisted of 25 aircraft: 15 Beech 1900D turboprop aircraft and 10 Fairchild 328JET aircraft. MIDWEST CONNECT AIRCRAFT IN SERVICE Type Seats Owned Leased Total Investing activities: Capital expenditures (6,744 ) (58,171 ) (56,209 ) Aircraft purchase deposits and pre-delivery progress payments (47,997 ) (1,600 ) 100 Proceeds from sale of property and equipment 1,626 1,745 MANAGEMENT Directors Listed below are the names of each of our directors, together with certain additional information concerning each such director as of March 7, 2003 unless otherwise noted. Directors with Terms Expiring at 2006 Annual Meeting Name Age Business Experience During Last Five Years Director Since Directors with Terms Expiring at 2004 Annual Meeting John F. Bergstrom 56 Chairman and Chief Executive Officer of Bergstrom Corporation (automobile sales and leasing) since 1974. Director of Wisconsin Energy Corporation, Kimberly-Clark Corporation, Sensient Technologies Corporation and Banta Corporation. 1993 Frederick P. Stratton, Jr. 63 Chairman Emeritus of Briggs & Stratton Corporation (engine manufacturing). Chairman of the Board of Directors of Briggs & Stratton Corporation from 2001 to January 2003. Chairman and Chief Executive Officer of Briggs & Stratton Corporation from 1986 to 2001 (retired as Chief Executive Officer 2001). Director of Bank One Corporation, Weyco Group, Inc. and Wisconsin Energy Corporation. 1988 John W. Weekly 71 Chairman and Chief Executive Officer of Mutual of Omaha Insurance Company and United of Omaha Life Insurance Company (insurance companies) since 1998; and Vice Chairman and Chief Executive Officer since 1997. Chairman of Companion Life Insurance Company, Mutual of Omaha Investor Services, Inc. and United World Life Insurance Company. 1995 Director Compensation Non-employee directors are paid an annual retainer and receive a fee of $1,500 for each Board of Directors meeting and $500 for each committee meeting that they attend. Pursuant to the Midwest Express Holdings, Inc. 1995 Stock Plan for Outside Directors (the Director Plan ), the annual retainer is payable in 775 shares of common stock, and at the election of a director, a portion or all of the meeting and committee fees is also payable in shares of common stock. The Director Plan also allows each non-employee director to defer the receipt of fees for purposes of deferring recognition of income for tax purposes. Such deferral may be made to a share account for common stock granted under the Director Plan or to a cash account for those fees payable, at the director s election, in cash. Such deferred fees (a) will be treated as invested in common stock, and ultimately will be paid in common stock, to the extent such fees would have been paid in common stock, or (b) will otherwise earn a return at market rates. The directors are reimbursed for expenses incurred in connection with attendance at Board and committee meetings. To encourage directors to stay well informed about our operations and service levels, the Board adopted a Director Travel Policy. Pursuant to the Director Travel Policy, each outside director and his or her spouse and dependent children are (a) eligible to purchase airline tickets at a price equal to the lowest fare structure for a specified flight and (b) entitled to one free roundtrip ticket per six-month period, in each case, subject to seat availability at the time of reservation. Executive Officers The executive officers of the company as of September 30, 2003, together with their ages, positions and business experience are: NAME AGE POSITION Timothy E. Hoeksema has been a Director, Chairman of the Board, President and Chief Executive Officer of the company since 1983. Robert S. Bahlman has served as the Senior Vice President and Chief Financial Officer since December 2002. Mr. Bahlman served as Senior Vice President, Chief Financial Officer and Controller from 1999 to 2002; as Senior Vice President, Chief Financial Officer, Treasurer and Controller from 1998 to 1999; as Vice President, Chief Financial Officer, Treasurer and Controller from 1996 to 1998; and as Controller from 1995 to 1996. Mr. Bahlman has advised the company that he plans to leave the company in mid-February 2004. The company has begun a search for Mr. Bahlman's replacement. David C. Reeve has served as Senior Vice President of Operations of Midwest since 1998. He served as President of Midwest Connect from 1997 to 2000, and has served as Chairman of the Board of Midwest Connect since 1999. Before joining the company, Mr. Reeve was Director of Flight Operations for DHL Airways from 1991 to 1997. Carol N. Skornicka has served as Senior Vice President of Corporate Affairs, Secretary and General Counsel since 1998. Ms. Skornicka served as Vice President, General Counsel and Secretary from 1996 to 1998. Christopher I. Stone was appointed Senior Vice President of Human Resources in 2000. Before joining the company, he served Hewitt Associates as Senior Consultant from 1994 to 2000. Thomas J. Vick was appointed Senior Vice President and Chief Marketing Officer in April 2001. Before joining the company, he served as Senior Vice President of Account Strategy and Planning for Bierley & Partners from 1997 to April 2001, and Vice President of the Lacek Group from 1995 to 1997. Dennis J. O Reilly has served as Treasurer and Director of Investor Relations since 1999. Mr. O Reilly served as Assistant Treasurer from 1996 to 1999. Stock Ownership of Management and Others The following table sets forth, as of November 28, 2003 (unless otherwise indicated), the number of shares of common stock beneficially owned by (i) each of our directors, (ii) each of the named executive officers (as defined in Executive Compensation ), (iii) all of our directors and executive officers as a group, and (iv) each person known to us to be the beneficial owner of more than 5% of the common stock. Except as otherwise indicated, persons listed have sole voting and investment power over shares beneficially owned. Name of Beneficial Owner Shares Percent of Class Name of Beneficial Owner Shares Percent of Class FMR Corp. 1,700,350 (7) 9.8 % 82 Devonshine Street Boston, MA 02109 PRIMECAP Management Company 1,548,540 (8) 8.9 % 225 South Lake Avenue #400 Pasadena, CA 91101 T. Rowe Price Associates, Inc. 1,368,100 (9) 7.9 % 100 East Pratt Street Baltimore, MD 21202 Vanguard Horizon Funds and Vanguard 1,073,000 (10) 6.1 % Capital Opportunity Fund 100 Vanguard Blvd Malvern, PA 19355 Marshall & Ilsley Corporation 998,465 (11) 5.7 % 770 North Water Street Milwaukee, WI 53202 Summary Compensation Table The following table sets forth certain information regarding compensation paid by us for each of our last three years to our Chief Executive Officer and each of our four other most highly compensated executive officers during 2002 (collectively, the named executive officers ) for services rendered in all capacities to us at any time during such periods. Annual Compensation Long-Term Compensation Awards Name and Principal Position Fiscal Year Salary ($) Bonus ($)(3) Other Annual Compensation ($) Securities Underlying Options (#)(1) All Other Compensation ($)(2) Option Grants in 2002 The following table presents certain information as to grants of options to purchase common stock made to each of the named executive officers during 2002 pursuant to the Midwest Express Holdings, Inc. 1995 Stock Option Plan (the Option Plan ). Option Grants in 2002 Individual Grants Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Grant Term (1) Name Number of Securities Underlying Options Granted Percentage of Total Options Granted to Employees in Fiscal Year Exercise or Base Price ($/share) Expiration Date At 5% Annual Growth Rate At 10% Annual Growth Rate Common Stock (2) Timothy E. Hoeksema 72,000 18.5 % $ 18.52 2/20/12 $ 838,593 $ 2,125,160 Thomas J. Vick 23,000 5.9 18.52 2/20/12 267,884 678,871 Robert S. Bahlman 23,000 5.9 18.52 2/20/12 267,884 678,871 Carol N. Skornicka 23,000 5.9 18.52 2/20/12 267,884 678,871 David C. Reeve 23,000 5.9 18.52 2/20/12 267,884 678,871 Aggregated Option Exercises in 2002 and Year-End Option Values None of the named executive officers exercised options to acquire common stock during 2002. The following table sets forth information regarding the year-end value of unexercised options held by such officers under the Option Plan. Option Values as of December 31, 2002 Number of Securities Underlying Unexercised Options at December 31, 2002 (#) Value of Unexercised in-the-Money Options at December 31, 2002 ($)(1) Name Exercisable/ Unexercisable Exercisable/ Unexercisable Timothy E. Hoeksema 410,800/151,200 $ 0/0 Thomas J. Vick 6,000/37,000 0/0 Robert S. Bahlman 83,800/45,000 0/0 Carol N. Skornicka 106,300/45,000 0/0 David C. Reeve 83,800/45,000 0/0 SELLING SECURITYHOLDERS We offered and sold the warrants to the selling securityholders or their predecessors in a private placement transaction that was exempt from the registration requirements of the Securities Act of 1933, as amended. We are registering, pursuant to the registration statement of which this prospectus is a part, the warrants and all 1,571,467 shares of our common stock issuable upon exercise of the warrants on behalf of the selling securityholders named in the table below (including their donees, pledgees, transferees or other successors-in-interest who receive any of the shares covered by this prospectus). We are registering the warrants and the shares of common stock to permit the selling securityholders to offer these securities for resale from time to time. The selling securityholders may sell all, some or none of the warrants or shares of common stock covered by this prospectus. All information with respect to beneficial ownership has been furnished to us by the respective selling securityholders. For more information, see Plan of Distribution. Information respecting material relationships that a selling securityholder has had with us within the three years prior to December 29, 2003 is set forth in the tables below, including the footnotes to the tables. Information concerning the selling securityholders may change from time to time, and we may in our discretion supplement or amend this prospectus to reflect these changes, in accordance with applicable law. When a selling securityholder transfers securities to a donee, pledgee, successor or other person to whom the selling securityholder transfers securities other than for value, and such transfer is not pursuant to this prospectus, we may in our discretion supplement or amend this prospectus to include such transferee as an additional named selling securityholder, in accordance with applicable law. To the extent permitted by applicable law, this prospectus will cover sales by such transferees. The table below lists the selling securityholders and information regarding their ownership of warrants as of December 29, 2003: SELLING SECURITYHOLDER NUMBER OF SHARES OF COMMON STOCK FOR WHICH WARRANTS BENEFICIALLY OWNED PRIOR TO THIS OFFERING ARE EXERCISABLE (1) NUMBER OF SHARES OF COMMON STOCK FOR WHICH WARRANTS BEING OFFERED HEREBY ARE EXERCISABLE (1) WARRANTS BENEFICIALLY OWNED AFTER OFFERING(2) NUMBER PERCENTAGE(3) The table below lists the selling securityholders and information regarding their ownership of common stock as of December 29, 2003: SELLING SECURITYHOLDER NUMBER OF SHARES BENEFICIALLY OWNED PRIOR TO THIS OFFERING(1) NUMBER OF SHARES BEING OFFERED HEREBY(1) SHARES BENEFICIALLY OWNED AFTER OFFERING(2) NUMBER PERCENTAGE(3) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Number MIDWEST EXPRESS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, Change in Benefit Obligation Net benefit obligation at beginning of year $ 5,889 $ 4,604 Service cost 662 573 Interest cost 497 389 Plan amendments (521 ) -- Actuarial loss 1,877 Total operating revenues 94,905 103,899 285,860 323,896 Operating expenses: Salaries, wages and benefits 33,875 40,001 107,600 117,590 Aircraft fuel and oil 17,909 21,190 60,899 56,730 Commissions 2,637 4,321 8,839 14,070 Dining services 1,630 5,152 6,342 15,358 Station rental, landing and other fees 7,822 9,192 27,356 27,906 Aircraft maintenance materials and repairs 8,186 11,974 23,421 31,298 Depreciation and amortization 5,124 5,157 15,968 15,877 Aircraft rentals 6,230 6,334 24,939 18,957 Impairment loss -- -- -- 29,911 Other 16,624 13,943 39,106 40,309 Total operating expenses 100,037 117,264 314,470 368,006 Operating loss (5,132 ) (13,365 ) (28,610 ) (44,110 ) Operating revenues $ 237,049 $ 52,841 $ (4,030 ) $ 285,860 Operating loss (21,912 ) (6,698 ) -- (28,610 ) Depreciation and amortization expense 12,937 3,031 -- 15,968 Interest income 809 -- (113 ) 696 Interest expense (1,491 ) (151 ) 113 (1,529 ) Loss before income tax credit (11,623 ) (6,393 ) -- (18,016 ) Income tax credit (4,067 ) (2,238 ) -- (6,305 ) Net loss (7,556 ) (4,155 ) -- (11,711 ) Total assets 348,128 66,499 (23,984 ) 390,643 Capital expenditures 13,662 Total other (expense) income (331 ) (268 ) 10,594 38,072 Loss before income tax credit (5,463 ) (13,633 ) (18,016 ) (6,038 ) Income tax credit (1,912 ) (5,044 ) (6,305 ) (2,233 ) Net Loss $ (3,551 ) $ (8,589 ) $ (11,711 ) $ (3,805 ) Loss per common share - basic $ (0.23 ) $ (0.55 ) $ (0.75 ) $ (0.26 ) Loss per common share - diluted $ (0.23 ) $ (0.55 ) $ (0.75 ) $ (0.26 ) MIDWEST EXPRESS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) ASSETS September 30, 2003 December 31, 2002 Total prepaid expenses 11,487 7,340 Restricted cash 48,544 15,067 Deferred income taxes 9,248 10,013 Total current assets 113,057 91,545 Property and equipment, at cost 324,875 360,993 Less accumulated depreciation and amortization 119,203 136,429 Net property and equipment 205,672 224,564 Landing slots and leasehold rights, less accumulated amortization of $3,928 and $3,642 at September 30, 2003 and December 31, 2002, respectively 2,822 3,108 Aircraft purchase deposits and pre-delivery progress payments 47,877 52,362 Other assets 21,215 5,027 Total assets $ 390,643 $ 376,606 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,401 $ 6,702 Income taxes payable 985 -- Notes payable -- 5,500 Current maturities of long-term debt 877 18,194 Air traffic liability 47,852 38,700 Unearned revenue 12,454 23,870 Accrued liabilities: Vacation pay 6,211 6,676 Scheduled maintenance expense 1,492 5,932 Frequent flyer awards 1,939 1,985 Other 27,481 29,175 Total liabilities 272,829 251,479 Commitments and contingencies (note 5) Shareholders' equity: Preferred stock, without par value; 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.01 par value; 25,000,000 shares authorized, 16,224,531 shares issued 162 162 Additional paid-in capital 36,898 32,177 Treasury stock, at cost (15,578 ) (15,644 ) Retained earnings 96,332 108,043 Cumulative other comprehensive income -- Commitments and contingencies (Notes 2, 5 and 10) Shareholders' equity: Preferred stock, without par value; 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, $.01 par value; 25,000,000 shares authorized, 16,224,531 shares issued in 2002 and 14,549,531 shares issued in 2001 162 145 Additional paid-in capital 32,177 11,702 Treasury stock, at cost; 712,682 shares in 2002 and 718,056 shares in 2001 (15,644 ) (15,706 ) Retained earnings 108,043 118,595 Cumulative other comprehensive income Balances at December 31, 2001 145 11,702 (15,706 ) 118,595 -- 114,736 Comprehensive loss: Net loss -- -- -- (10,552 ) -- (10,552 ) Other comprehensive income (net of taxes of $299) -- -- -- -- 389 Total current liabilities 104,692 136,734 Long-term debt 46,843 16,903 Long-term debt on pre-delivery progress payments 35,690 37,516 Deferred income taxes 20,647 25,193 Noncurrent scheduled maintenance expense 2,141 6,186 Accrued pension and other postretirement benefits 14,874 12,724 Deferred frequent flyer partner revenue 7,160 8,085 Deferred revenue 33,399 5,091 Other noncurrent liabilities 7,383 3,047 Total shareholders' equity 117,814 125,127 Total liabilities and shareholders' equity $ 390,643 $ 376,606 MIDWEST EXPRESS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine Months Ended September 30, Net cash (used in) provided by operating activities (15,489 ) 15,951 Net cash used in investing activities (8,782 ) (43,293 ) Financing activities: Proceeds from convertible debt issuance 14,871 -- Funding of pre-delivery progress payments 19,816 28,554 Funds received from private equity placement -- 20,527 Return of pre-delivery progress payments (21,874 ) -- Payment on note payable (5,500 ) (30,000 ) Other, net 4,538 (1,772 ) Net cash provided by financing activities 11,851 17,309 Net decrease in cash and cash equivalents (12,420 ) (10,033 ) Cash and cash equivalents, beginning of period 41,498 46,923 Cash and cash equivalents, end of period $ 29,078 $ 36,890 SEGMENT REPORTING Three Months Ended September 30, 2003 Midwest Operating revenues $ 86,660 $ 18,636 $ (1,397 ) $ 103,899 Operating loss (11,111 ) (2,254 ) -- (13,365 ) Depreciation and amortization expense 4,208 949 -- 5,157 Interest income 371 1 (28 ) 344 Interest expense (774 ) (28 ) 28 (774 ) Loss before income tax credit (11,383 ) (2,250 ) -- (13,633 ) Income tax credit (4,212 ) (832 ) -- (5,044 ) Net loss (7,171 ) (1,418 ) -- (8,589 ) Total assets 317,852 66,202 (13,245 ) 370,809 Capital expenditures 1,820 Midwest Connect Elimination Consolidated Midwest Connect Elimination Consolidated Midwest Connect Elimination Consolidated Midwest Connect Elimination Consolidated Three Months Ended September 30, Nine Months Ended September 30, Net loss: As reported $ (3,551 ) $ (8,589 ) $ (11,711 ) $ (3,805 ) Deduct: Total stock-based employee compensation expense determined under fair value based methods, net of related tax effect (334 ) (537 ) (988 ) (1,613 ) Pro forma $ (3,885 ) $ (9,126 ) $ (12,699 ) $ (5,418 ) Net loss per share - basic: As reported $ (0.23 ) $ (0.55 ) $ (0.75 ) $ (0.26 ) Pro forma $ (0.25 ) $ (0.59 ) $ (0.82 ) $ (0.37 ) Net loss per share - diluted: As reported $ (0.23 ) $ (0.55 ) $ (0.75 ) $ (0.26 ) Pro forma $ (0.25 ) $ (0.59 ) $ (0.82 ) $ (0.37 ) The following table is a reconciliation of the weighted average shares outstanding for the three- and nine-month periods ended September 30, 2003 and 2002 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Operating revenues: Passenger service $ 378,044 $ 414,155 $ 439,376 Cargo 5,663 8,844 11,092 Other 43,267 34,443 29,553 Total operating revenues 426,974 457,442 480,021 Operating expenses: Salaries, wages and benefits 156,656 167,300 151,667 Aircraft fuel and oil 78,681 86,957 93,709 Commissions 18,465 23,582 25,406 Dining services 19,635 25,929 25,076 Station rental, landing and other fees 37,653 36,426 34,897 Aircraft maintenance materials and repairs 40,963 50,069 54,283 Depreciation and amortization 21,165 20,945 17,006 Aircraft rentals 25,273 24,780 24,508 Impairment loss 29,911 8,839 -- Other 52,830 50,659 46,591 Total operating expenses 481,232 495,486 473,143 Operating (loss) income (54,258 ) (38,044 ) 6,878 Other income (expense): Interest income 1,233 1,044 1,863 Interest expense (2,951 ) (2,984 ) (339 ) Other, net 39,741 16,304 (113 ) Total other income 38,023 14,364 1,411 (Loss) Income before income tax (credit) provision and cumulative effect of accounting changes (16,235 ) (23,680 ) 8,289 (Credit) Provision for income taxes (5,683 ) (8,762 ) 3,062 (Loss) Income before cumulative effect of accounting changes (10,552 ) (14,918 ) 5,227 Cumulative effect of accounting changes, net of applicable income taxes of $2,768 -- -- (4,713 ) Net (Loss) Income $ (10,552 ) $ (14,918 ) $ 514 (Loss) Income per common share - basic: (Loss) Income before cumulative effect of accounting changes $ (0.72 ) $ (1.08 ) $ 0.37 Cumulative effect of accounting changes, net of applicable income taxes -- -- (0.33 ) Net (Loss) Income $ (0.72 ) $ (1.08 ) $ 0.04 (Loss) Income per common share - diluted: (Loss) Income before cumulative effect of accounting changes $ (0.72 ) $ (1.08 ) $ 0.37 Cumulative effect of accounting changes, net of applicable income taxes -- -- (0.33 ) Net (Loss) Income $ (0.72 ) $ (1.08 ) $ 0.04 Current assets: Cash and cash equivalents: Unrestricted $ 41,498 $ 46,923 Restricted 15,067 -- Total cash and cash equivalents 56,565 46,923 Accounts receivable, less allowance for doubtful accounts of $133 in 2002 and $149 in 2001 10,377 21,783 Inventories 7,250 7,568 Prepaid expenses: Commissions 1,691 2,128 Other 5,649 2,699 Total prepaid expenses 7,340 4,827 Deferred income taxes 10,013 9,392 Total current assets 91,545 90,493 Property and equipment, net 224,564 256,506 Landing slots and leasehold rights, less accumulated amortization of $3,642 in 2002 and $3,260 in 2001 3,108 3,490 Aircraft purchase deposits and pre-delivery progress payments 52,362 3,500 Other assets, net 5,027 3,382 Total assets $ 376,606 $ 357,371 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,702 $ 15,864 Notes payable 5,500 38,000 Current maturities of long-term debt 18,194 2,013 Air traffic liability 38,700 43,209 Unearned revenue 23,870 12,603 Accrued liabilities: Vacation pay 6,676 6,021 Scheduled maintenance expense 5,932 4,980 Frequent flyer awards 1,985 2,570 Other 29,175 26,612 Total current liabilities 136,734 151,872 Long-term debt 16,903 35,097 Long-term debt on pre-delivery progress payments 37,516 -- Deferred income taxes 25,193 22,932 Noncurrent scheduled maintenance expense 6,186 6,521 Accrued pension and other postretirement benefits 12,724 10,368 Deferred Frequent flyer partner revenue 8,085 8,215 Other noncurrent liabilities 8,138 7,630 Total liabilities 251,479 242,635 Total shareholders' equity 125,127 114,736 Deferred provision: Federal 1,640 1,079 2,204 State 0 118 Change in Plan Assets Fair value of assets at beginning of year $ 545 $ -- Actual return on plan assets (29 ) 2 Employer contributions 1,180 Total liabilities and shareholders' equity $ 376,606 $ 357,371 Operating activities: Net (loss) income $ (10,552 ) $ (14,918 ) $ 514 Items not involving the use of cash: Impairment loss 29,911 8,839 -- Depreciation and amortization 21,165 20,945 17,006 Deferred income taxes 1,640 1,197 2,747 Cumulative effect of accounting changes, net -- -- 4,713 Other, net (9,789 ) 4,059 5,674 Changes in operating assets and liabilities: Accounts receivable 9,906 (3,777 ) (2,845 ) Inventories 318 420 (718 ) Prepaid expenses (2,124 ) 270 (452 ) Accounts payable (10,462 ) 9,648 1,420 Deferred frequent flyer partner revenue (130 ) 698 1,151 Accrued liabilities 2,439 (5,942 ) 3,811 Unearned revenue 11,267 1,800 10,234 Air traffic liability (4,509 ) (428 ) (337 ) Net cash provided by operating activities 39,080 22,811 42,918 Current assets: Cash and cash equivalents $ 29,078 $ 41,498 Accounts receivable: Traffic, less allowance for doubtful accounts of $95 and $133 at September 30, 2003 and December 31, 2002, respectively 7,018 4,575 Income tax refund -- 5,247 Other receivables 325 Net cash used in investing activities (55,281 ) (58,575 ) (56,276 ) Net cash provided by financing activities 25,843 66,984 13,012 Net increase (decrease) in cash and cash equivalents 9,642 31,220 (346 ) Cash and cash equivalents, beginning of period 46,923 15,703 16,049 Cash and cash equivalents, end of period $ 56,565 $ 46,923 $ 15,703 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY MIDWEST EXPRESS HOLDINGS, INC. YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS) Common Stock, $.01 par value Additional Paid-In Capital Treasury Stock Retained Earnings Cumulative Other Comprehensive Income Total Shareholders' Equity Balances at December 31, 2002 $ 162 $ 32,177 $ (15,644 ) $ 108,043 $ 389 $ 125,127 Because revenue will remain depressed for an unknown length of time, the Company has taken a number of initiatives to reduce costs. These initiatives are discussed in detail in Note 18. NOTE 3. ACCOUNTING POLICIES The accounting policies of the Company conform to accounting principles generally accepted in the United States of America. Significant policies followed are described below. Cash and Cash Equivalents The Company considers all highly liquid investments with purchased maturities of three months or less to be cash equivalents. They are carried at cost, which approximates market. Restricted cash pertains to cash that is due the Company for advance credit card ticket purchases, which under the terms of the agreement with the credit card processor is held by the credit card processor until travel takes place. Inventories Inventories consist primarily of aircraft maintenance parts, maintenance supplies and fuel stated at the lower of cost on the first-in, first-out (FIFO) method (for Midwest), average cost (for Midwest Connect) or market, and are expensed when used in operations. Property and Equipment Property and equipment are stated at cost and are depreciated on the straight-line method applied to each unit of property for financial reporting purposes and by use of accelerated methods for income tax purposes. Aircraft are depreciated to estimated residual values, and any gain or loss on disposal is reflected in income. The depreciable lives for the principal asset categories are as follows: Asset Category Depreciable Life Flight equipment $ 284,027 $ 306,241 Other equipment 15,381 15,446 Buildings and improvements 25,534 25,473 Office furniture and equipment 18,971 18,587 Construction in progress 17,080 16,062 360,993 381,809 Less accumulated depreciation (136,429 ) (125,303 ) Property and equipment, net $ 224,564 $ 256,506 Net (Loss) Income Per Share - Basic: (Loss) income before cumulative effect of accounting changes $ (10,552 ) $ (14,918 ) $ 5,227 Cumulative effect of accounting changes, net -- -- (4,713 ) Net (loss) income (numerator) $ (10,552 ) $ (14,918 ) $ 514 Weighted average shares outstanding (denominator) 14,734 13,829 13,947 Net (loss) income per share - basic $ (0.72 ) $ (1.08 ) $ 0.04 Net (Loss) Income Per Share - Diluted: (Loss) income before cumulative effect of accounting changes $ (10,552 ) $ (14,918 ) $ 5,227 Cumulative effect of accounting changes, net -- -- (4,713 ) Net (loss) income (numerator) $ (10,552 ) $ (14,918 ) $ 514 Weighted average shares outstanding assuming dilution (denominator) 14,734 13,829 14,067 Net (loss) income per share - diluted $ (0.72 ) $ (1.08 ) $ 0.04 NOTE 8. SHAREHOLDERS EQUITY In 1996, the Board of Directors adopted a shareholder rights plan and made a dividend distribution of one Preferred Share Purchase Right ( Right ) on each outstanding share of the Company s common stock. As a result of the 3-for-2 stock splits effected in May 1997 and 1998, four-ninths of a Right is now associated with each share of common stock. The Rights are exercisable only if a person or entity acquires 15% or more of the common stock of the Company or announces a tender offer for 15% or more of the common stock. Each Right initially entitles its holder to purchase one one-hundredth share of the Company s Series A Preferred Stock at an exercise price of $100, subject to adjustment. If a person or entity acquires 15% or more of the Company s common stock, then each Right will entitle the holder to purchase, at the Right s then-current exercise price, Company common stock valued at twice the exercise price. The Board of Directors is also authorized to reduce the 15% threshold referred to above to not less than 10%. The Rights expire in 2006. Under the Company s 1995 Stock Option Plan, the Compensation Committee of the Board of Directors may grant options, at its discretion, to certain employees to purchase shares of common stock. An aggregate of 2,548,900 shares of common stock is reserved for issuance under the Plan, of which 621,244 shares are available for future grants at December 31, 2002. Under the Plan, options granted have an exercise price equal to 100% of the fair market value of the underlying stock at the date of grant. Granted options become exercisable at the rate of 30% after the first year, 30% after the second year and the remaining 40% after the third year, unless otherwise determined, and have a maximum term of 10 years. Transactions with respect to the Plan have been adjusted to reflect the effect of the two stock splits and are summarized as follows: Shares Weighted Average Price Options outstanding at December 31, 1999 921,225 22.02 Granted 286,100 23.83 Exercised (61,850 ) 11.69 Forfeited (80,510 ) 28.30 Options outstanding at December 31, 2000 1,064,965 22.63 Granted 353,075 18.21 Exercised (15,750 ) 10.32 Forfeited (6,490 ) 25.93 Options outstanding at December 31, 2001 1,395,800 21.63 Granted 388,554 18.24 Exercised -- -- Forfeited (47,323 ) 24.24 Options outstanding at December 31, 2002 1,737,031 20.80 Options exercisable with their weighted average exercise price as of December 31, 2002, 2001 and 2000 were: 1,025,027 options at $22.08, 769,055 options at $21.71 and 548,710 options at $18.83, respectively. Options exercisable at December 31, 2002 consisted of: Exercise Price Number of Options $ 8.00 134,000 12.18 1,800 14.00 22,500 14.84 8,160 15.14 22,500 15.43 8,100 15.65 6,000 15.82 562 15.98 2,160 16.11 157,325 17.19 1,080 17.28 12,000 18.28 3,600 19.28 75,360 19.51 510 21.84 2,580 23.66 1,080 24.25 2,160 24.50 127,440 25.00 2,160 25.94 8,150 26.78 8,150 29.22 213,100 30.28 4,500 30.52 195,750 31.00 4,300 The following table summarizes information concerning options outstanding at December 31, 2002: Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price $5.00-$9.99 143,000 3.2 years $ 7.91 $10.00-$14.99 55,700 6.2 years 14.21 $15.00-$19.99 881,081 7.8 years 18.00 $20.00-$24.99 219,700 7.1 years 24.44 $25.00-$29.99 233,000 6.2 years 28.95 $30.00-$34.99 204,550 5.2 years 30.52 Options outstanding at December 31, 2002 1,737,031 6.7 years $ 20.80 (7,323 ) (9,959 ) (2,453 ) 1,640 1,197 2,747 (Credit) provision for income taxes $ (5,683 ) $ (8,762 ) $ 294 (Credit) tax at statutory U.S. tax rates (35.0 )% (35.0 )% 35.0 % State income taxes, net of federal benefit (2.0 ) (3.8 ) 3.8 Valuation allowance 2.0 4.6 -- Other, net -- (2.8 ) (2.4 ) (Credit) provision for income taxes (35.0 )% (37.0 )% 36.4 % Net current deferred tax assets $ 10,013 $ 9,392 Noncurrent deferred income tax (liabilities) assets attributable to: Excess of tax over book depreciation $ (46,222 ) $ (38,343 ) Maintenance expense liability 2,289 2,413 Frequent flyer 2,992 3,039 Pension liability 3,101 2,766 Net operating loss carryforwards 5,475 4,393 AMT carryforwards 5,000 -- Valuation allowance (2,675 ) (2,000 ) Other 4,847 4,800 Net noncurrent deferred tax liabilities $ (25,193 ) $ (22,932 ) NOTE 13. RETIREMENT AND BENEFIT PLANS Qualified Defined Benefit Plans In 2002 and 2001, Midwest had one qualified defined benefit plan: the Pilot s Supplemental Pension Plan. This plan provides retirement benefits to Midwest pilots represented by their collective bargaining agreement. In 2000, there was an additional qualified defined benefit retirement plan ( Midwest Pension Plan ) that provided benefits to substantially all employees. This plan was terminated on March 31, 2000 and replaced by a money purchase plan, a qualified defined contribution retirement plan that is currently providing retirement benefits to substantially all employees. The money purchase plan ( Retirement Account Plan ) was adopted effective April 1, 2000. The benefits under the Midwest Pension Plan prior to March 31, 2000 were paid to employees in December 2000. Employees had the option to have the lump sum of the Midwest Pension Plan benefit transferred to the new Retirement Account Plan or to receive annuity payments. Nonqualified Defined Benefit Plans Nonqualified defined benefit plans consist of an Executive Supplemental Plan and a Pilots Nonqualified Supplemental Pension Plan. The Executive Supplemental Plan provides annuity benefits for salary in excess of IRS salary limits that could not be applied in the qualified Salaried Employees Retirement Plan. The Executive Supplemental Plan was terminated as of March 31, 2000; however, benefits remain frozen in this account while the Company evaluates alternatives. The other Midwest nonqualified defined benefit plan is the Pilots Nonqualified Supplemental Pension Plan. This plan provides Midwest pilots with annuity benefits for salary in excess of Internal Revenue Service (IRS) salary limits that cannot be covered by the qualified Pilots Supplemental Pension Plan. The following table sets forth the funded status of the plans as of December 31 (in thousands): Midwest Qualified Defined Benefit Plans Midwest Nonqualified Defined Benefit Plans Total 2,183 Net benefit obligation at end of year $ 13,665 $ 6,778 $ 897 $ 900 Midwest Qualified Defined Benefit Plans Midwest Nonqualified Defined Benefit Plans Fair value of plan assets at end of year $ 1,680 $ 545 Accrued benefit liability $ (2,059 ) $ (1,502 ) $ (777 ) $ (720 ) Weighted-average assumptions Discount rate 6.75 % 7.25 % 6.75 % 7.25 % Expected return on plan assets 9.00 % 9.00 % Rate of compensation increase 5.44 % 5.44 % 5.44 % 4.50 % Operating activities: Net loss $ (11,711 ) $ (3,805 ) Items not involving the use of cash: Impairment loss -- 29,911 Depreciation and amortization 15,968 15,877 Deferred income taxes (3,781 ) 1,966 Cumulative effect of accounting changes, net -- -- Other, net 21,111 (10,778 ) Changes in operating assets and liabilities: Accounts receivable 3,034 8,078 Inventories (107 ) (585 ) Prepaid expenses (1,378 ) (373 ) Restricted cash (33,477 ) (20,970 ) Accounts payable (1,301 ) (11,185 ) Air traffic liability 9,152 3,479 Unearned revenue (10,778 ) (582 ) Accrued liabilities (2,808 ) 2,727 Accrued pension 2,150 1,433 Deferred frequent flyer partner revenue (1,563 ) The net periodic benefit cost of benefit pension plans for the years ending December 31, 2002, 2001 and 2000, respectively, includes the following (in thousands): Midwest Qualified Defined Benefit Plans Midwest Nonqualified Defined Benefit Plans Total net periodic benefit cost $ 1,738 $ 1,252 $ 1,535 $ 57 $ 76 $ 181 FAS 88 charges Curtailment (credit) -- -- (8,232 ) -- -- (342 ) Settlement charge -- -- 8,237 -- -- -- Total net periodic benefit cost $ 1,738 $ 1,252 $ 1,540 $ 57 $ 76 $ (161 ) Net benefit obligation at end of year $ 8,381 $ 5,889 Fair value of plan assets at end of year $ -- $ -- Total accounts receivable 7,343 10,377 Inventories 7,357 7,250 Prepaid expenses: Commissions 1,170 1,691 Stock warrants Funded status at end of year $ (8,381 ) $ (5,889 ) Unrecognized net actuarial loss 2,908 1,101 Unrecognized prior service cost (credit) (491 ) -- Accrued benefit liability $ (5,964 ) $ (4,788 ) Total net periodic benefit cost $ 1,199 $ 972 $ 760 Midwest Midwest Connect Elimination Consolidated Midwest Midwest Connect Elimination Consolidated Midwest Midwest Connect Elimination Consolidated Effective January 1, 2000, the Company also changed its accounting policy associated with major maintenance on airframes in conjunction with the Company s efforts to divide major maintenance events into smaller, more frequent events; as a result, the Company expenses airframe maintenance costs as they are incurred. The cumulative effect of the change in accounting policy was $3.1 million (net of taxes of $1.8 million). In the past, major airframe costs were either 1.) accrued to expense on the basis of estimated future costs and estimated flight hours between major maintenance events, or 2.) capitalized when incurred and amortized on the basis of estimated flight hours until the next major maintenance event. Costs associated with major maintenance on aircraft engines will continue to use the deferral or accrual method. NOTE 16. VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Year Additions Charged to Expense Deductions from Reserve Balance at End of Year NOTE 17. QUARTERLY FINANCIAL SUMMARY (Unaudited) (In Thousands, Except Per Share Data) Three Months Ended Operating revenues: Passenger service $ 81,810 $ 92,600 $ 244,885 $ 288,246 Cargo March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. Securities and Exchange Commission filing fee $ 600 New York Stock Exchange listing fee $ 2,500 Accounting fees and expenses $ 15,000 Legal fees and expenses $ 20,000 Miscellaneous $ 2,000 Total expenses $ 40,100 All of the above fees and expenses will be paid by the Registrant. Other than the Securities and Exchange Commission filing fee and New York Stock Exchange listing fee, all fees and expenses are estimated. Item 14. Indemnification of Directors and Officers. Pursuant to the Wisconsin Business Corporation Law and our By-Laws, our directors and officers are entitled to mandatory indemnification from us against certain liabilities and expenses (i) to the extent such officers or directors are successful in the defense of a proceeding and (ii) in proceedings in which the director or officer is not successful in defense thereof, unless (in the latter case only) it is determined that the director or officer breached or failed to perform his duties to us and such breach or failure constituted: (a) a willful failure to deal fairly with us or our shareholders in connection with a matter in which the director or officer had a material conflict of interest; (b) a violation of the criminal law unless the director or officer had reasonably cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful; (c) a transaction from which the director or officer derived an improper personal profit; or (d) willful misconduct. The Wisconsin Business Corporation Law specifically states that it is the public policy of Wisconsin to require or permit indemnification, allowance or expenses and insurance in connection with a proceeding involving securities regulation, as described therein, to the extent required or permitted as described above. Additionally, under the Wisconsin Business Corporation Law, our directors are not subject to personal liability to us, our shareholders or any person asserting rights on behalf thereof for certain breaches or failures to perform any duty resulting solely from their status as directors, except in circumstances paralleling those in subparagraphs (a) through (d) outlined above. Under certain circumstances, we are required to advance expenses for the defense of any action for which indemnification may be available. We also maintain director and officer liability insurance against certain claims and liabilities which may be made against our former, current or future directors or officers. The indemnification provided by the Wisconsin Business Corporation Law and our By-Laws is not exclusive of any other rights to which a director or officer may be entitled. The general effect of the foregoing provisions may be to reduce the circumstances under which an officer or director may be required to bear the economic burden of the foregoing liabilities and expenses. II-1 Item 15. Recent Sales of Unregistered Securities. Lease Restructuring On August 19, 2003, the Registrant reached final agreements on renegotiating its finance agreements with 11 aircraft lessors and lenders to reflect current market conditions. The renegotiated aircraft finance agreements provided for the reduction of the present value of the old agreements by $60-70 million, reduced cash requirements by about $1.1 million per month and converted $24 million of short-term debt into long-term obligations exceeding 10 years at low interest rates. The lessors and lenders, in return for making the agreed to amendments to these finance agreements, received warrants to purchase, in the aggregate, approximately 1,571,467 shares of the Registrant s common stock at an exercise price of $4.72, with certain protection from dilutive issuances of common stock. All of the lessors and lenders to whom warrants were issued were accredited investors (other than one lessor who qualified as a sophisticated investor due to its knowledge and experience in financial, business and investment matters, including the airline industry and businesses and operations of companies that operate in lines of business similar to the Registrant s) in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended. 2003 Private Placements On September 30, 2003, the Registrant entered into agreements under which it raised financing of approximately $33 million (net proceeds of approximately $30.5 million, after commissions and expenses). The financing included two components: the sale of $25 million in convertible senior secured notes and the sale of shares of the Registrant s common stock for approximately $8 million. The Registrant sold the convertible senior secured notes and the common stock in a private placement to certain qualified institutional investors and accredited investors in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933 and Rule 506 under Regulation D as promulgated by the United States Securities and Exchange Commission under the Securities Act of 1933. Debt Transaction On September 29, 2003, pursuant to a Securities Purchase Agreement, the Registrant sold convertible senior secured notes (the Notes ), with certain subsidiaries of the Registrant as co-borrowers (the Co-Borrowers ), to certain qualified institutional investors and accredited investors (each a Debt Investor , and, collectively, the Debt Investors ) in an aggregate principal amount of $15,000,000 (the First Closing ). On November 25, 2003, the Registrant sold additional Notes to the Debt Investors in an aggregate principal amount of $10,000,000 (the Second Closing , together with the First Closing, the Debt Transaction ). In connection with the Debt Transaction, the Registrant entered into a Registration Rights Agreement, dated as of September 29, 2003, with the Debt Investors, pursuant to which the Registrant agreed to file with the Securities and Exchange Commission a registration statement covering the resale of the shares of common stock issuable upon conversion of the Notes. Because the Registrant and the Co-Borrowers were not in a position to deliver security for the Notes on September 29, 2003, the parties made First Closing deliveries, including the $15,000,000 gross proceeds, under an Escrow Agreement. In accordance with the terms of the Escrow Agreement, on October 21, 2003, the Registrant delivered the necessary security resulting in the Registrant receiving the $15.0 million from the sale of convertible senior secured notes in the First Closing. II-2 (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions set forth or described in Item 15 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, State of Wisconsin, on December 31, 2003. MIDWEST EXPRESS HOLDINGS, INC. By: /s/ Timothy E. Hoeksema Timothy E. Hoeksema Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Timothy E. Hoeksema Timothy E. Hoeksema Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) December 31, 2003 /s/ Robert S. Bahlman Robert S. Bahlman Senior Vice President and Chief Financial Officer and Controller (Principal Accounting and Financial Officer) December 31, 2003 /s/ John F. Bergstrom John F. Bergstrom* Director December 31, 2003 /s/ James G. Grosklaus James G. Grosklaus* Director December 31, 2003 /s/ Ulice Payne, Jr. Ulice Payne, Jr.* Director December 31, 2003 /s/ Samuel K. Skinner Samuel K. Skinner* Director December 31, 2003 /s/ Elizabeth T. Solberg Elizabeth T. Solberg* Director December 31, 2003 /s/ Richard H. Sonnentag Signature Title Date /s/ Frederick P. Stratton, Jr. Frederick P. Stratton, Jr.* Director December 31, 2003 /s/ David H. Treitel David H. Treitel* Director December 31, 2003 /s/ John W. Weekly John W. Weekly* Director December 31, 2003 *By: /s/ Robert S. Bahlman Exhibit Number Document Description (10.38) Sixth Amendment to Senior Secured Revolving Credit Agreement and Limited Waiver, dated as of February 18, 2003, by and among Midwest Express Holdings, Inc., the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.39 to the company s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 1-13934)). (10.39) Seventh Amendment to Senior Secured Revolving Credit Agreement and Limited Waiver, dated as of August 29, 2003, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10 to the company s Current Report on Form 8-K filed September 5, 2003 (File No. 1-13934)). (10.40) Partial Termination, Consent and Cash Collateral Agreement, dated as of October 21, 2003, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.40 to the company's Registration Statement on Form S-1 (File No. 333-110639)). (10.41) Securities Purchase Agreement, dated as of September 29, 2003, by and among the company and the investors named on the signature pages thereto (incorporated by reference to Exhibit 4.1 to the company s Current Report on Form 8-K filed October 1, 2003 (File No. 1-13934)). (10.42) Form of Basic Moratorium Note (incorporated by reference to Exhibit 4.1 to the company s Current Report on Form 8-K filed September 5, 2003 (File No. 1-13934)). (10.43) Securities Purchase Agreement, dated as of September 29, 2003, by and among the company and the investors named on the signature pages thereto (incorporated by reference to Exhibit 4.7 to the company s Current Report on Form 8-K filed October 1, 2003 (File No. 1-13934)). (21) List of the company s subsidiaries (incorporated by reference to Exhibit 21 to the company s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-139344)). (23.1) Consent of Deloitte & Touche LLP, Independent Auditors. (23.2) Consent of Foley & Lardner (filed as part of Exhibit (5)).* (24) Power of Attorney relating to subsequent amendments.* * Previously filed. + Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The redacted material was filed separately with the Securities and Exchange Commission. Financing activities: Funding of pre-delivery progress payments 36,938 -- -- Funds received from private equity placement 20,470 -- -- Proceeds from aircraft financing -- 35,080 -- Proceeds from debt issuance -- 18,000 20,000 Proceeds from sale and leaseback transactions -- 10,500 -- Purchase of treasury stock -- -- (5,982 ) Payment on note payable (32,500 ) -- -- Other, net Operating revenues $ 359,374 $ 73,079 $ (5,479 ) $ 426,974 Operating loss (47,529 ) (6,729 ) -- (54,258 ) Depreciation and amortization expense 17,312 3,853 -- 21,165 Interest income 1,346 1 (114 ) 1,233 Interest expense 2,951 114 (114 ) 2,951 (Loss) income before income tax (credit) provision (48,924 ) 32,689 -- (16,235 ) Income tax (credit) provision (17,124 ) 11,441 -- (5,683 ) Total assets 324,121 68,470 (15,985 ) 376,606 Capital expenditures (including purchase deposits on flight equipment) 53,614 1,127 -- 54,741 Operating revenues $ 395,335 $ 67,304 $ (5,197 ) $ 457,442 Operating loss (32,820 ) (5,224 ) -- (38,044 ) Depreciation and amortization expense 18,221 2,724 -- 20,945 Interest income 1,793 -- (749 ) 1,044 Interest expense 2,984 749 (749 ) 2,984 Loss before income tax credit (19,227 ) (4,453 ) -- (23,680 ) Income tax credit (7,114 ) (1,648 ) -- (8,762 ) Total assets 338,322 52,747 (33,698 ) 357,371 Capital expenditures (including purchase deposits on flight equipment) 37,649 22,122 -- 59,771 Operating revenues $ 104,022 $ 115,975 $ 103,899 $ 103,078 Operating expenses (1) 136,689 114,053 117,264 113,226 Other income (expense), net (2) 39,490 92 162 (3 ) Operating (loss) income (32,667 ) 1,922 (13,365 ) (10,148 ) Income (loss) before income taxes 6,112 1,483 (13,633 ) (10,197 ) Provision (credit) for income taxes 2,263 548 (5,044 ) (3,450 ) Net income (loss) 3,849 935 (8,589 ) (6,747 ) Income (loss) per share - basic: Net income (loss) 0.28 0.07 (0.55 ) (0.44 ) Income (loss) per share - diluted: Net income (loss) 0.28 0.07 (0.55 ) (0.44 ) The following table provides operating revenues and expenses for the company expressed as cents per total available seat miles, including charter operations, and as a percentage of total operating revenues for 2002, 2001 and 2000. CONSOLIDATED STATEMENTS OF OPERATIONS MIDWEST EXPRESS HOLDINGS, INC. YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED BALANCE SHEETS MIDWEST EXPRESS HOLDINGS, INC. AS OF DECEMBER 31, 2002 AND 2001 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS CONSOLIDATED STATEMENTS OF CASH FLOWS MIDWEST EXPRESS HOLDINGS, INC. YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS) In November 2002, the FASB issued Interpretation No. ( FIN ) 45, Guarantor s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others , which elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time a guarantee is issued, the Company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial statements. FIN 45 does not apply to certain guarantee contracts, such as those issued by insurance companies or for a lessee s residual value guarantee embedded in a capital lease. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor s obligations would not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor s fiscal year-end. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company does not expect FIN 45 to have a material impact on future financial statements or results of operations. NOTE 4. PROPERTY AND EQUIPMENT As of December 31, 2002 and 2001, property and equipment consisted of the following (in thousands): Year ended December 31, 2003 2004 2005 2006 2007 2008 and thereafter $ 233 253 274 298 323 1,291 Substantially all of the Company s property and equipment are pledged as collateral for the above financing arrangements. In the second quarter 2002, the Company entered into a loan agreement to fund pre-delivery progress payments to The Boeing Company for new Boeing 717 aircraft. The Company obtained the loan from Kreditanstalt fur Wiederaufbau Bank ( KfW ) with the assistance of Rolls-Royce Deutschland Ltd. & Co. KG ( Rolls-Royce ). Rolls-Royce agreed to guarantee this loan agreement on behalf of the Company. The loan agreement provides up to $45.0 million in pre-delivery progress payment financing, against which the Company has borrowed $37.5 million as of December 31, 2002. Under a financing commitment between the Company and Boeing Capital Corporation ( BCC ), at each delivery date BCC will acquire and pay for the aircraft delivered, including interest accrued on the debt owed KfW, and then lease the aircraft to the Company. At that time, BCC will reimburse the Company in full for the pre-delivery progress payments the Company has made. To the extent the Company originally funded such payments through KfW, the Company will use the amounts reimbursed to repay the related debt to KfW. Interest will accrue from the date of borrowing to the aircraft delivery date, and be included in the final purchase price. The interest on borrowings under the agreement is LIBOR plus 200 basis points or 3.65% at December 31, 2002. This debt has been classified as long-term in the accompanying consolidated balance sheet. NOTE 7. NET (LOSS) INCOME PER SHARE Reconciliations of the numerator and denominator of the basic and diluted net (loss) income per share computations are summarized as follows (in thousands, except per share amounts): The Company has adopted the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation ( SFAS 123 ) as amended by SFAS No. 148. The Company has elected to continue to follow the provisions of Accounting Principles Board No. 25, Accounting for Stock Issued to Employees and its related interpretations; accordingly, no compensation cost has been reflected for the stock option plan in the consolidated financial statements. Had compensation costs for the Company s stock option plan been determined based on their fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company s net (loss) income and net (loss) income per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts): Net (loss) income: As reported $ (10,552 ) $ (14,918 ) $ 514 Deduct: Total stock-based employee compensation expense determined under fair value based methods, net of related tax effect (2,150 ) (1,968 ) (1,896 ) Pro forma $ (12,702 ) $ (16,886 ) $ (1,382 ) Net (loss) income per share - basic: As reported $ (0.72 ) $ (1.08 ) $ 0.04 Pro forma $ (0.86 ) $ (1.22 ) $ (0.10 ) Net (loss) income per share - diluted: As reported $ (0.72 ) $ (1.08 ) $ 0.04 Pro forma $ (0.86 ) $ (1.22 ) $ (0.10 ) For purposes of these disclosures, the fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: Expected volatility 40.0 % 37.4 % 32.2 % Risk-free interest rate 3.4 % 4.3 % 5.0 % Forfeiture rate 1.4 % 1.5 % 2.0 % Dividend rate 0.0 % 0.0 % 0.0 % Expected life in years 8.2 7.9 7.2 Based on these assumptions, the weighted average fair value of options granted in each of the last three years are: $9.32 in 2002, $9.14 in 2001 and $10.89 in 2000. NOTE 9. INCOME TAXES The (credit) provision for income taxes for the years ended December 31, 2002, 2001 and 2000 consisted of the following (in thousands): A reconciliation of income taxes at the U.S. federal statutory tax rate to the effective tax rate follows: Deferred tax assets and liabilities resulting from temporary differences comprise the following (in thousands): The following table sets forth the status of the plans as of December 31, 2002 and 2001 respectively (in thousands): Weighted-average assumptions Discount rate 6.75 % 7.25 % Rate of compensation increase 4.38 % 4.38 % The net periodic benefit cost of postretirement health care and life insurance benefits for the years ending December 31, 2002, 2001 and 2000, respectively includes the following (in thousands): EXHIBIT INDEX Exhibit Number Document Description (3.1) Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the company s Registration Statement on Form 8-B filed May 2, 1996 (File No. 1-13934)). (3.2) By-laws of the company as amended through April 29, 1999 (incorporated by reference to Exhibit 3 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-13934)). (3.3) Articles of Amendment relating to Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.3 to the company s Registration Statement on Form 8-B filed May 2, 1996 (File No. 1-13934)). (4.1) Rights Agreement, dated February 14, 1996, between the company and U.S. Bank National Association as successor in interest to Firstar Trust Company (incorporated by reference to Exhibit 4.1 to the company s Registration Statement on Form 8-A filed February 15, 1996 (File No. 1-13934)). (4.2) Amendment to the Rights Agreement, dated April 19, 1996, between the company and U.S. Bank National Association as successor in interest to Firstar Trust Company (incorporated by reference to Exhibit 4.1 to the company s Registration Statement on Form 8-B filed May 2, 1996 (File No. 1-13934)). (4.3) Amendment to Rights Agreement, effective as of September 30, 2002, by and among U.S. Bank, National Association, the company and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.3 to the company s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 1-13934)). (4.4) Registration Rights Agreement, dated as of September 29, 2003, by and among the company and the investors named on the signature pages thereto (incorporated by reference to Exhibit 4.2 to the company s Current Report on Form 8-K filed October 1, 2003 (File No. 1-13934)). (4.5) Registration Rights Agreement, dated as of September 29, 2003, by and among the company and the investors named on the signature pages thereto (incorporated by reference to Exhibit 4.8 to the company s Current Report on Form 8-K filed October 1, 2003 (File No. 1-13934)). (4.6) Registration Rights Agreement, dated as of August 19, 2003, by and among the company and the parties named on the signature pages thereto (incorporated by reference to Exhibit 4.3 to the company s Current Report on Form 8-K filed September 5, 2003 (File No. 1-13934)). (4.7) Form of Common Stock Purchase Warrant, dated as of August 19, 2003, issued to the parties named on the signature pages to the related Registration Rights Agreement (incorporated by reference to Exhibit 4.2 to the company s Current Report on Form 8-K filed September 5, 2003 (File No. 1-13934)). (4.8) Form of Convertible Senior Secured Note (incorporated by reference to Exhibit 4.3 to the company s Current Report on Form 8-K filed October 1, 2003 (File No. 1-13934)). (5) Opinion of Foley & Lardner (including consent of counsel).* (10.1) Lease Agreement between Milwaukee County and Midwest Airlines, dated May 12, 1988 (incorporated by reference to Exhibit 10.4 to the company s Registration Statement on Form S-1 (File No. 33-95212) (the S-1 )). (10.2) Airline Lease, as amended, between Milwaukee County and Midwest Airlines, dated October 1, 1984 (incorporated by reference to Exhibit 10.5 to the S-1). (10.3) Omaha Airport Authority Agreement and Lease at Eppley Airfield with Midwest Airlines between the Airport Authority of the City of Omaha and Midwest Airlines (incorporated by reference to Exhibit 10.6 to the S-1). (10.4) Airline Lease, as amended, between Milwaukee County and Midwest Connect, dated November 23, 1994 (incorporated by reference to Exhibit 10.7 to the S-1). Exhibit Number Document Description (10.5) Lease Agreement between Milwaukee County and Phillip Morris Incorporated, dated October 7, 1982, to which Midwest Connect has succeeded as lessee (incorporated by reference to Exhibit 10.8 to the S-1). (10.6) Tax Allocation and Separation Agreement among Kimberly-Clark Corporation, K-C Nevada, Inc., the company, Midwest Airlines and Midwest Connect dated September 27, 1995 (incorporated by reference to Exhibit 10.1 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-13934)). (10.7) Guarantee Fee Agreement between Kimberly-Clark Corporation and the company dated September 27, 1995 (incorporated by reference to Exhibit 10.3 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-13934)). (10.8) Employee Matters Agreement between Kimberly-Clark Corporation and the company dated September 27, 1995 (incorporated by reference to Exhibit 10.4 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-13934)). (10.9) Tenth Amendment to Airline Lease between Milwaukee County and Midwest Airlines, dated August 18, 1997 (incorporated by reference to Exhibit 10.9 to the company s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-13934)). (10.10) Eleventh Amendment to Airline Lease between Milwaukee County and Midwest Airlines, dated December 17, 1997 (incorporated by reference to Exhibit 10.10 to the company s Annual Report of Form 10-K for the year ended December 31, 1997 (File No. 1-13934)). (10.11) Twelfth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated April 21, 1998 (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 (File No. 1-13934)). (10.12)+ Assignment of Rights Agreement between Dolphin Trade & Finance, LTD and Midwest Airlines, dated November 14, 1997 (incorporated by reference to Exhibit 10.11 to the company s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-13934)). (10.13) Midwest Express Holdings, Inc. 1995 Stock Option Plan, as amended through February 13, 1997 (incorporated by reference to Exhibit 4.2 to the company s Registration Statement on Form S-8 (File No. 333-44253)). (Further amendment effected on April 25, 2001. See Exhibit (10.24) below). (10.14) Midwest Express Holdings, Inc. 1995 Stock Plan for Outside Directors, as amended through February 20, 2002 (incorporated by reference to Exhibit 10.14 to the company s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-13934)). (10.15) Annual Incentive Compensation Plan, amended through February 11, 1998 (incorporated by reference to Exhibit 10.14 to the company s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-13934)). (10.16) Supplemental Benefits Plan (incorporated by reference to Exhibit 10.19 to the company s Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-13934)). (10.17) Form of Key Executive Employment and Severance Agreement between the company and each of Timothy E. Hoeksema, Carol N. Skornicka, Robert S. Bahlman, David C. Reeve, Christopher I. Stone and Thomas J. Vick (incorporated by reference to Exhibit 10.17 to the company s Registration Statement on Form S-1 (File No. 333-110639)). (10.18) Form of Key Executive Employment and Severance Agreement between the company and Dennis J. O Reilly and certain other officers (incorporated by reference to Exhibit 10.17 to the company s Registration Statement on Form S-1 (File No. 333-110639)). (10.19) Thirteenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated April 5, 1999 (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-13934)). Exhibit Number Document Description (10.20) Fourteenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated June 15, 1999 (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-13934)). (10.21) Fifteenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated February 16, 2000 (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-13934)). (10.22) Seventeenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated June 29, 2000 (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File no. 1-13934)). (10.23) Sixteenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated January 1, 2001 (incorporated by reference to Exhibit 10.23 to the company s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-139394)). (10.24) Amendment to Midwest Express Holdings, Inc. 1995 Stock Option Plan, as approved by the company s shareholders on April 25, 2001 (incorporated by reference to Appendix B to the Notice of Annual Meeting and Proxy Statement of Midwest Express Holdings, Inc. for the Annual Meeting of the Shareholders on April 25, 2002 (File No. 1-3934)). (10.25) Senior Secured Revolving Credit Agreement dated as of August 31, 2001, among Midwest Express Holdings, the several lenders from time to time parties thereto and U.S. Bank National Association. (incorporated by reference to Exhibit 10 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-13934)). (10.26) First Amendment to Senior Secured Revolving Credit Agreement, dated as of January 9, 2002, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.26 to the company s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-13934)). (10.27) Eighteenth Amendment to Airline Lease, as amended between Milwaukee County and Midwest Airlines, dated July 27, 2001 (incorporated by reference to Exhibit 10.27 to the company s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-13934)). (10.28) Second Amendment to Senior Secured Revolving Credit Agreement, dated as of June 28, 2002, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.1 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 1-13934)). (10.29) Third Amendment to Senior Secured Revolving Credit Agreement, dated as of August 29, 2002, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.2 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 1-13934)). (10.30) Fourth Amendment to Senior Secured Revolving Credit Agreement, dated as of September 30, 2002, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.3 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 1-13934)). (10.31) Fifth Amendment to Senior Secured Revolving Credit Agreement, dated as of October 7, 2002, by and among Midwest Express Holdings, the lenders party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 10.4 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 1-13934)). Exhibit Number Document Description (10.32) Intercreditor Agreement, dated as of October 7, 2002, by and among U.S. Bank National Association; Bank One, NA; M&I Marshall & Ilsley Bank; Thrivent Financial for Lutherans; and Midwest Express Holdings (incorporated by reference to Exhibit 10.5 to the company s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 (File No. 1-13934)). (10.33)+ General Terms Agreement, dated August 13, 2001 (the August Terms Agreement ), between Rolls-Royce Corporation and Astral Aviation, Inc. ( Astral ) and Side Letter Number One to the August Terms Agreement, dated August 13, 2001, between Rolls-Royce Corporation and Astral (incorporated by reference to Exhibit 10.1 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)). (10.34)+ Purchase Agreement DCT-043/01, dated August 13, 2001 ( Embraer Purchase Agreement ), between Embraer Empresa Brasileira de Aeronautica S.A. ( Embraer ) and Astral; Letter Agreement DCT-044/01, dated August 13, 2001 ( Embraer Letter Agreement ), between Embraer and Astral relating to Embraer Purchase Agreement, including Amendment No. 01 to Embraer Letter Agreement, dated September 27, 2001, between Embraer and Astral; Amendment No. 01 to Embraer Purchase Agreement, dated September 27, 2001, between Embraer and Astral; Amendment No. 02 to Embraer Purchase Agreement, dated October 19, 2001, between Embraer and Astral; and Amendment No. 03 to Embraer Purchase Agreement, dated March 6, 2002, between Embraer and Astral (incorporated by reference to Exhibit 10.2 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)). (10.35)+ General Terms Agreement, dated April 11, 2002 (the April Terms Agreement ), between Rolls-Royce Deutschland Ltd & Co KG ( Rolls-Royce ) and Midwest Airlines and Side Letter Agreement Number One to the April Terms Agreement, dated April 12, 2002, between Rolls-Royce and Midwest Airlines (incorporated by reference to Exhibit 10.3 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)). (10.36)+ Aircraft General Terms Agreement Number AGTA-MWE, dated September 28, 2001 (the AGTA-MWE Terms Agreement ), among The Boeing Company, and its wholly-owned subsidiary McDonnell Douglas Corporation ( McDonnell ), and Midwest Airlines; Letter Agreement (6-1162-RCN-1483) to the AGTA-MWE Terms Agreement and 717 Purchase Agreement (defined below), dated September 28, 2001 ( Letter Agreement No. 1 to AGTA-MWE ), between McDonnell and Midwest Airlines; and Letter Agreement (6-1162-RCN-1484) to the AGTA-MWE Terms Agreement and 717 Purchase Agreement, dated September 28, 2001 ( Letter Agreement No. 2 to AGTA-MWE ), between McDonnell and Midwest Airlines (incorporated by reference to Exhibit 10.4 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)). (10.37)+ Purchase Agreement Number 2371, dated September 28, 2001 ( 717 Purchase Agreement ), between McDonnell and Midwest Airlines; Supplemental Agreement No. 1 to 717 Purchase Agreement, dated April 12, 2002, between McDonnell and Midwest Airlines; Letter Agreement No. 1 to AGTA-MWE (see above); Letter Agreement No. 2 to AGTA-MWE (see above); Letter Agreement (6-1162-RCN-1497) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1503) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1593) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1476) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1481R1) to 717 Purchase Agreement, dated April 12, 2002, between McDonnell and Midwest Airlines; Letter Agreement (6-1162-RCN-1482) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines; and Letter Agreement (6-1162-MJB-002) to 717 Purchase Agreement, dated September 28, 2001, between McDonnell and Midwest Airlines (incorporated by reference to Exhibit 10.5 to the company s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (File No. 1-13934)). Prospectus Summary 1 Business 49
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information and our consolidated financial statements and the notes to these statements appearing elsewhere in this prospectus. In this prospectus, "we," "us," "our company" and "our" refer to Globix Corporation and its consolidated subsidiaries, unless the context otherwise requires. Our Company We are a provider of Internet services to businesses. Our services include: o Hosting and co-location in our secure and fault-tolerant Internet data centers; o Network services and connectivity to the Internet through our Domestic and International Internet Protocol (IP) fiber based network; o Internet based managed services focusing on application management and operating system management, security services and storage services; and o Media services including: streaming media, webcasting and digital asset management solutions. Our target market for our services is small to large size businesses in a broad range of industries, including media, publishing, financial services, retail, healthcare, governmental agencies, manufacturing, technology and non-profit organizations. No single customer comprised more than 10% of our revenues in the fiscal years ended September 30, 2003 or 2002. We sell our services to businesses primarily through our direct sales force. Our customers use our services to operate and maintain computer equipment in a secure, fault-tolerant environment with connectivity to a high-speed, high-capacity, direct link to the Internet, through our own network, and to support Internet applications. Our employees are located in New York City, New York; Atlanta, Georgia; Santa Clara, California; Fairfield New Jersey; and London, England. Our principal executive offices are located at 139 Centre Street, New York, New York 10013, and our telephone number at that location is (212) 334-8500. Although we maintain a website at www.globix.com, we do not intend that the information available through our website be incorporated into this registration statement. Our SEC filings will be available on our website. Globix was founded in 1989 and in 1998 undertook a major expansion plan in order to pursue opportunities resulting from the growth of the Internet. On March 1, 2002, Globix filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, together with a prepackaged plan of reorganization, which we refer to as the "Plan," with the United States Bankruptcy Court for the District of Delaware. We continued to operate in Chapter 11 in the ordinary course of business and received permission from the bankruptcy court to pay our employees, trade, and certain other creditors in full and on time, regardless of whether these claims arose prior to or after the Chapter 11 filing. On April 8, 2002, the bankruptcy court confirmed the Plan. Effective April 25, 2002, which we refer to as the "Effective Date of the Plan," all conditions necessary for the Plan to become effective were satisfied or waived and we emerged from Chapter 11 bankruptcy protection. For additional information see "Our Chapter 11 Bankruptcy Reorganization" which begins on page 39, for a discussion of our reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. <TABLE> <CAPTION> <S> <C> The Offerings Use of proceeds........................ We will not receive any of the proceeds from the sale of the shares of our common stock and the notes offered by the selling holders. Common Stock Common stock offered by the selling holders ............................... Up to 4,797,442 shares 11% Senior Notes Notes offered by the selling holders... Up to $19,146,306 aggregate principal amount of notes. Maturity Date.......................... May 1, 2008. Interest............................... Payable annually in arrears on May 1, commencing on May 1, 2003: o in additional notes through May 1, 2004; o in cash or, at the election of our board of directors, in additional notes (or any combination of additional notes and cash) on May 1, 2005 and May 1, 2006; and o in cash thereafter until the maturity date of the notes. Guaranties............................. Our wholly owned direct and indirect subsidiaries, 415 Greenwich GC, LLC, 415 Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC have fully and unconditionally and jointly and severally guaranteed all amounts payable under the notes, including principal and interest. These subsidiaries currently have no assets and Globix intends to dissolve them. Ranking................................ The notes are our senior secured obligations and rank on parity with, or senior to, all of our existing and future debt and liabilities. The notes are secured by our assets and the assets of the subsidiary guarantors so that claims of the holders of the notes will rank ahead of unsecured claims of our creditors to the extent of the value, priority and validity of the liens securing the notes and the subsidiary guarantees. However, since we and our subsidiary guarantors may incur up to $20 million of debt in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes and the subsidiary guaranties, this debt will effectively rank ahead of the notes and subsidiary guaranties. The subsidiary guaranties are senior secured obligations of the subsidiary guarantors and rank on parity with, or senior to, all existing and future debt and liabilities of the subsidiary guarantors. However, our company and the subsidiary guarantors may collectively incur up to $20 million of indebtedness in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes, and the subsidiary guaranties will in effect be subordinated to this indebtedness. Security............................... Our obligations under the notes are secured by a first priority security interest in all of the otherwise unencumbered tangible and intangible assets of our company and of each subsidiary guarantor, subject to agreed upon permitted liens. The liens securing the notes may also be released or subordinated in priority to liens securing up to $20 million of debt under credit facilities, so long as the fair market value of the assets subject to these liens does not exceed to any material extent 1.5 times the amount of the debt secured by these liens. Change of control...................... In the event of a "Change of Control" (as defined on page 58) of our company, each holder of notes may require us to repurchase, in whole or in part, all of that holder's notes for a cash payment equal to 101% of the aggregate principal amount of that holder's notes, plus accrued and unpaid interest, if any, to the redemption date. </TABLE> <TABLE> <CAPTION> <S> <C> Optional redemption.................... We may redeem the notes at our option, in whole or in part, at any time and from time to time, upon notice mailed not less than 15 days but not more than 60 days prior to the date of redemption, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. However, in the event that a Change of Control of our company has occurred and we have not offered to purchase all of the notes in connection with the Change of Control, the redemption price will be equal to 101% of the aggregate principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. Certain covenants...................... The indenture governing the notes among other things, restricts, with certain exceptions, the ability of our company and our subsidiaries to: o sell assets unless the proceeds are applied to the acquisition of property or assets to be used in the Internet service business, or to repay certain debt; o incur indebtedness unless our consolidated debt to EBITDA ratio would be greater than zero and less than 6:1, except that we may incur up to $20 million of senior debt and certain other indebtedness as permitted under the indenture; o incur liens other than certain permitted liens; o declare or pay any dividend (other than stock, options, warrants or other rights to acquire stock); o make certain investments, except in a company that is or as a result of an investment becomes a subsidiary of our company and except as otherwise permitted by the indenture; o purchase, redeem, retire or otherwise acquire for value any shares of stock of our company, except as specifically permitted under the indenture; and o enter into any transaction (or series of related transactions) not in the ordinary course of business with an affiliate or related person of our company involving aggregate consideration in excess of $2 million unless such transaction is on terms no less favorable to us than those that could be obtained in a comparable arm's-length transaction with an entity that is not an affiliate or related person and is in the best interests of our company. Governing law.......................... New York </TABLE> As of the date of this prospectus, we had 16,460,000 shares of common stock outstanding. -------------------- Risk Factors You should carefully consider all of the information contained in this prospectus before making an investment in our common stock or the notes. In particular, you should consider the risk factors described under "Risk Factors" beginning on page 9. SUMMARY CONSOLIDATED FINANCIAL DATA The following summary historical consolidated financial data as of and for the year ended September 30, 2003 (Successor Company), five months ended September 30, 2002 (Successor Company), the seven months ended April 30, 2002 (Predecessor Company), as of and for the fiscal years ended September 30, 2001, 2000 and 1999 (Predecessor Company) have been derived from our audited consolidated financial statements and related notes. The selected historical financial data as of and for the three months ended December 31, 2003 and 2002 (Successor Company) is derived from our unaudited consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, which, in our opinion, are necessary for a fair presentation of the financial position and results of operations for these periods. This information should be read together with, and is qualified in its entirety by reference to, our consolidated financial statements included elsewhere in this prospectus, and the notes thereto and the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21. As a result of the application of fresh start accounting under SOP No. 90-7 as of May 1, 2002 our financial results for the fiscal year ended September 30, 2002 include two different bases of accounting and, accordingly, the operating results and cash flows of the Successor Company and the Predecessor Company have been separately disclosed. For the purposes of this prospectus and the financial statements and related notes contained in this prospectus, references to the "Predecessor Company" are references to our company for periods prior to April 30, 2002 (the last day of the calendar month in which we emerged from bankruptcy) and references to the "Successor Company" are references to our company for periods subsequent to April 30, 2002. The Successor Company's financial statements are not comparable to the Predecessor Company's financial statements. (In thousands of United States dollars, except share and per share data) <TABLE> <CAPTION> Successor Company Predecessor Company -------------------------------- --------------- -------------------------------------------- Year Ended Five Months Seven Months Year Ended Year Ended Year Ended eptember 30 Ended Ended September 30, September 30, September 30, 2003 September 30, April 30, 2001 2000 1999 Consolidated Statement of ------------- --------------- --------------- -------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Operations Data: Revenue $ 60,177 $ 30,723 $ 51,273 $ 104,210 $ 81,287 $ 33,817 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, payroll and occupancy shown below) 19,990 10,458 22,123 40,609 42,513 22,184 Selling, general and administrative 44,430 29,313 57,206 124,821 98,113 36,495 Loss (gain) on impairment of assets - - 2,578 3,500 - - Restructuring and other charges (credits) (1,020) - 24,834 56,109 - - Depreciation and amortization 15,523 6,060 28,115 36,657 18,228 6,329 ------------ ------------ ------------ ------------ ------------ ------------ Total operating costs and expenses 78,923 45,831 134,856 261,696 158,854 65,008 Other operating income 345 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Loss from operations (18,401) (15,108) (83,583) (157,486) (77,567) (31,191) Interest and financing expense, net (13,962) (5,866) (32,487) (51,846) (33,082) (18,386) Other income (expense) 1,232 (157) (509) (1,379) 1,779 6,192 Gain (loss) on debt discharge 6,023 - 427,066 - (17,577) - Reorganization items - - (7,762) - - - Fresh start accounting adjustments - - (148,569) - - - Minority interest in subsidiary - - 5,778 - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (25,108) (21,131) 159,934 (210,711) (126,447) (43,385) Income tax expense 167 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (25,275) (21,131) 159,934 (210,711) (126,447) (43,385) Cumulative effect of a change in accounting principle - - - (2,332) - - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) (25,275) (21,131) 159,934 (213,043) (126,447) (43,385) Dividends and accretion on preferred stock - - (3,178) (7,104) (5,768) - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) attributable to common stockholders $ (25,275) $ (21,131) $ 156,756 $ (220,147) $ (132,215) $ (43,385) ============ ============ ============ ============ ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.96 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle - - - (0.06) - - ------------ ------------ ------------ ------------ ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.96 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 39,618,856 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ </TABLE> <TABLE> <S> <C> <C> <C> <C> <C> <C> Diluted: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.30 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle -- -- -- (0.06) -- -- ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.30 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 48,507,456 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (12,188) $ 3,679 $ (59,684) $ (140,543) $ (94,318) $ (36,897) Net cash provided by (used in) investing activities $ (858) $ (6,461) $ 5,842 $ (113,271) $ (149,939) $ (58,774) Net cash provided by (used in) financing activities $ (10,539) $ (2,279) $ (4,946) $ 387 $ 509,395 $ 135,589 Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 33,260 $ 54,281 $ 113,112 $ 378,510 $ 111,412 Restricted cash and investments $ 6,928 $ 9,097 $ 33,870 $ 43,178 $ 45,039 Working capital $ 28,449 $ 42,421 $ 78,340 $ 366,139 $ 101,216 Total assets $ 222,282 $ 262,720 $ 552,988 $ 729,591 $ 302,518 Current portion of long-term debt $ 1,510 $ 1,520 $ 6,687 $ 2,173 $ 2,088 Long-term debt, less current portion $ 140,389 $ 151,274 $ 630,750 $ 621,809 $ 161,005 Mandatory redeemable convertible preferred stock $ -- $ -- $ 83,230 $ 76,042 $ -- Stockholders' equity (deficit) $ 53,351 $ 72,547 $ (237,325) $ (18,030) $ 106,405 </TABLE> Successor Company --------------------------------- Consolidated Statement of Three Months Three Months Ended Ended December 31, December 31, Operations Data: 2003 2002 --------------------------------- (Unaudited) (Unaudited) ------------- --------------- Revenue $ 14,385 $ 16,480 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, and certain payroll and occupancy shown below) 4,876 5,624 Selling, general and administrative 10,944 11,891 Loss on impairment of assets 17,313 - Restructuring and other charges (credits) - - Depreciation and amortization 3,371 3,727 ------------ ------------ Total operating costs and expenses 36,504 21,242 Other operating income - - ------------ ------------ Loss from operations (22,119) (4,762) Interest and financing expense, net (3,274) (3,516) Other income (expense) 297 182 Gain (loss) on debt discharge 1,747 2,727 Reorganization items - - Fresh start accounting adjustments - - Minority interest in subsidiary - 108 ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (23,349) (5,261) Income tax expense - - ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (23,349) (5,261) Cumulative effect of a change in accounting principle - - ------------ ------------ Net income (loss) (23,349) (5,261) Dividends and accretion on preferred stock - - ------------ ------------ Net income (loss) attributable to common stockholders $ (23,349) $ (5,261) ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle - - ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 ============ ============ Diluted: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle -- -- ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (2,960) $ (915) Net cash provided by (used in) investing activities $ (6,278) $ (3,483) Net cash provided by (used in) financing activities $ (6,275) $ (2,955) Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 21,226 $ 48,704 Restricted cash and investments $ 6,938 $ 8,856 Working capital $ 67,929 $ 37,831 Total assets $ 196,153 $ 252,716 Current portion of long-term debt $ 742 $ 1,668 Long-term debt, less current portion $ 135,846 $ 144,369 Mandatory redeemable convertible preferred stock $ -- $ -- Stockholders' equity (deficit) $ 31,857 $ 68,241
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+PROSPECTUS SUMMARY This summary contains what we believe is the most important information about us and the offering. You should read the entire document for a complete understanding of our business and the transactions in which we are involved. The purchase of the securities offered by this prospectus involves a high degree of risk. Risk factors include the lack of revenues and history of loss, and the need for additional capital. See the Risk Factors section of this
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001011570_knoll-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001011570_knoll-inc_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding us, the sale of our common stock in this offering, our financial statements and notes to those financial statements that appear elsewhere in this prospectus. Knoll, Inc. Business Overview We are a leading designer and manufacturer of branded office furniture products and textiles. Our commitment to innovation and modern design has yielded a comprehensive portfolio of products designed to provide enduring value and help clients shape their workplaces with imagination and vision. Our products are recognized for high quality and a sophisticated image and are targeted at the middle to upper end of the market. We sell our products primarily in North America through a direct sales force of 314 professionals and a broad network of 225 independent dealers. Our distinctive operating approach has driven industry leading operating income margins among our primary publicly-held competitors. Our net revenues, operating income and net income for the twelve months ended September 30, 2004 were $692.6 million, $72.8 million and $29.3 million, respectively. Since our founding in 1938, we have been recognized worldwide as a design leader within our industry. Our products are exhibited in major art museums worldwide, including more than 30 pieces in the permanent Design Collection of The Museum of Modern Art in New York. This design legacy continues to flourish today and is embodied in recently introduced, award winning products, including the innovative LIFE chair and AutoStrada office furniture system. Our design excellence is complemented by a management philosophy that fosters a strong collaborative culture, client-driven processes and a lean, agile operating structure. Our employees are performance-driven and motivated by a variable incentive compensation system and broad-based equity ownership in the company. Together, these core attributes have enabled us to achieve superior financial performance and have positioned us for profitable growth. We offer a comprehensive and expanding portfolio of high quality office furniture and textiles across five product categories. Historically, we have derived most of our revenues from office systems, which are modular workspaces with integrated panels, work surfaces, storage and lighting, and from specialty products, including our KnollStudio collection of signature design classics furnishings, KnollTextiles , Spinneybeck leather and KnollExtra accessories. However, in recent years, we have significantly expanded our product offerings in seating, files and storage, desks and casegoods and tables. Our products and knowledgeable sales force have generated strong brand recognition and loyalty among architects, designers and corporate facility managers, all of whom are key decision makers in the office furnishings purchasing process. Our clients are typically Fortune 1000 companies, governmental agencies and other medium to large sized organizations in a variety of industries. We have an over $6 billion installed base of office systems, which provides a strong platform for recurring and add-on sales of products across all our categories. Industry Overview Overview. According to BIFMA, the U.S. office furniture market had $8.5 billion in shipments in 2003. Office systems and seating are the largest product categories, accounting for $2.6 billion (31%) and $2.3 billion (27%) of industry-wide shipments, respectively, in 2003. Industry demand is largely driven by macroeconomic SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents factors, including corporate profitability, business confidence and service-sector employment. Together, these factors impact commercial construction, business expansion, absorption of vacant office space and, ultimately, demand for our products. In addition to these macroeconomic factors, the demand for office furniture is influenced by workplace trends, including changes in work processes such as increases in the use of technology and the number of knowledge workers. Customers in the middle to upper end of the market are focused on improving productivity and efficiency, worker health and safety, ergonomics and environmental standards for the workplace. In addition, clients in these market segments demand highly customized solutions and premium service levels, including short lead times of generally three to five weeks, and strong after-market support. These trends have heightened the importance of providing office furnishings of superior quality, design and function. Historical Industry Environment The U.S. office furniture industry experienced positive growth in 23 of the 25 years preceding 2001. Moreover, in the four years from 1997 to 2000, the industry grew at an above-average compounded annual rate of 7.3%, driven by strong corporate profitability, business expansion and investment in infrastructure during the Y2K and dot-com booms. However, in 2001 through 2003, the economy suffered significant reductions in corporate profitability, business confidence, service-sector employment and commercial real estate occupancy rates. As a result, our industry experienced a sales decline of more than 36% during that period. This steep decline had a particularly pronounced effect on office systems due to the deferral of infrastructure investments by our clients and a saturation of the market by just new used office systems created by the increase in vacated office space. As a consequence, industry-wide shipments in the office systems category declined by 45%, more than in any other category in the three years from 2001 through 2003. Industry Recovery. During the first nine months of 2004, higher levels of corporate profitability, improving business confidence, increasing service-sector employment and increasing absorption of vacant office space all contributed to improving demand for office furniture products. During that period, the U.S. office furniture market experienced positive period-over-period growth in orders and shipments of 6.0% and 5.0%, respectively. According to BIFMA, U.S. office furniture shipments are forecasted to grow 4.8% in 2004 and 8.1% in 2005. The early stages of a recovery have been most evident in the seating, files and storage and casegoods categories, which are generally lower ticket purchases. We expect that a rebound in office systems will occur later in this recovery due to the typically larger commitment that the purchase of these products represents. We also believe that demand for office systems in North America will benefit from a general economic recovery, as companies expand, relocate to take advantage of lower rents, hire additional knowledge workers and reorganize to improve efficiency and productivity. Long-Term Prospects for Industry Growth. Over the longer term, we believe demand for office furnishings in the middle to upper end of the market will increase due to a number of factors. These factors include the trend toward an information-based economy, higher levels of service-sector employment, and a flattening of organizational structures, all of which drive demand for office systems products. In addition, we expect demand will be supplemented by ongoing trends in work processes, concerns surrounding worker health and safety, ergonomics and an increased awareness of, and interest in, meeting environmental standards for the workplace. Our Competitive Strengths Legacy of innovative modern design. One of our greatest strengths is our 66-year history of creating modern furniture with enduring design, quality and innovation. This design heritage, pioneered by Hans and Florence Knoll, has been fostered over time and has enabled us to build strong associations and relationships with some of the world s preeminent designers and architects, including Ludwig Mies van der Rohe, Eero Saarinen, Frank O. Gehry and Don Chadwick. By combining their creative vision with our commitment to developing modern, high quality products that address changing business needs, we are able to generate strong demand for our new product offerings and cultivate brand loyalty among our target clients. Purchase of common stock (23,600 shares) (403 ) (403 ) Earned stock grant compensation 2 AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Premier brand identity in office furniture and specialty products. Our brand identity provides credibility and prestige and is a key factor in our clients purchasing decisions as they seek to create workplaces that will help project a desired image, enhance facility performance and attract and retain employees. We believe our products represent a modern, high-quality collection of office furnishings with a sophisticated image. We target our products toward the middle to upper end of the market, where clients typically value the image and performance of their work environment. Our KnollStudio and KnollTextiles collections also showcase our design strength outside of the traditional office environment, and in many cases have become collectibles, which has further elevated our brand. Strong margins and cash flow generation throughout the business cycle. Our distinctive operating approach has driven our industry leading operating income margins among our primary publicly-held competitors. Our lean organization, highly variable cost structure, motivated associates and disciplined approach to business and capital management have enabled us to remain profitable throughout the business cycle. For example, despite industry-wide revenue declines from the beginning of 2001 through 2003, we generated positive operating income and net income in each quarter during this period and reduced our debt by $265.9 million, from $646.8 million on January 5, 2001 to $380.9 million on December 31, 2003. As a result, we were able to maintain our focus on enhancing the client experience, introducing new products, developing our sales and marketing organizations and strengthening our competitive position, rather than devoting material resources to costly restructuring initiatives. During the first nine months of 2004, we continued to have positive net cash flows from operating activities of $36.2 million, which enabled us to fund a cash dividend of $70.6 million on September 30, 2004 while having a net increase in our indebtedness of only $45.0 million during this period. Performance-driven culture and experienced management team. Our corporate culture is highly collaborative and encourages employees at all levels to communicate ideas and explore ways to improve our performance. Our associates are dedicated to producing quality products and take great pride in their work and in our reputation. Our senior management team has over 130 years of cumulative industry experience and a proven track record of achieving profitability throughout the business cycle. Moreover, managers throughout our organization are held accountable for achieving sales and cost targets and are motivated by and rewarded with performance-based compensation and equity ownership. Reputation for superior products and client service. Our reputation for product and service excellence serves as an important factor when marketing to the architecture and design community and to new and existing clients. Our products are constructed with high quality materials and exhibit what we believe to be market leading workmanship, aesthetics and durability, as evidenced by the lifetime warranty we offer on many of our products. We work with clients to customize our products for their individual needs, and through our broad dealer network we provide installation and support services that enhance our clients purchasing experience. In addition, our client service organization, investments in management information systems and electronically linked dealer network allow us to provide clients who have many facilities with an integrated and reliable single point of contact for all their office furniture purchases. Significant market position in office systems and an over $6 billion installed base. We enjoyed an estimated 16% category share in 2003 in the $2.6 billion U.S. office systems category. Office systems is the largest category in the U.S. office furniture industry and typically represents the largest portion of a client s furniture expenditure. Office systems are long-lasting, are often the first furniture element a client specifies and are, therefore, key to securing long-term relationships. We believe our position provides us a strong base for recurring and add-on sales of products across all our categories. We estimate that more than half of our revenues are derived from our installed client base. Strong direct selling organization and dealer network. Our experienced 314 person direct sales force and our network of 225 independent dealers in North America have close relationships with architects, designers, KNOLL, INC. (Exact name of registrant as specified in its charter) Office systems 30.5% 65.3% Seating 26.6% 8.6% Files and storage 21.5% 5.5% Desks and casegoods 11.0% 3.0% We have begun to realize the benefits of these expanded market opportunities. For example, our seating sales grew over 25% in the first nine months of 2004 versus the same period in 2003, substantially outpacing industry-wide growth in this category. In 2005, we plan to introduce new seating lines, including the next chair by the renowned seating designer Don Chadwick, which will further broaden the price range and performance breadth of our offerings in this category. Capture a greater share of our dealer network s sales. While our dealer network does not offer any products of our principal direct competitors, we estimate that a significant portion of our dealers non-systems sales consist of seating, files and storage and casegoods products of other manufacturers. We introduced the Knoll Essentials collection of easy-to-order, best-selling products from our broad range of office furnishings in January 2004 to target this opportunity. With a standard delivery lead-time of four weeks and special dealer incentives, we have made it easy and profitable for our dealers salespeople to sell these products. As we introduce new seating, storage and accessories products, our dealers are agreeing to refrain from selling other manufacturers comparable products. Grow the Knoll high margin specialty businesses through expanded distribution and new product introductions. Our specialty businesses enhance our reputation for design and quality and represent our highest DELAWARE 2522 13-3873847 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 1235 Water Street East Greenville, Pennsylvania 18041 (215) 679-7991 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents margin businesses. During the second half of 2004, we have begun expanding our KnollStudio distribution network to include residential furniture dealers and take advantage of growing consumer interest in modern and mid-century design for the home. We intend to double the pace of our KnollTextiles new product introductions in 2005 to help gain share in this very fragmented market. Improve margins through our continuous improvement program and global sourcing initiative. During the past five years, we have implemented a culture of continuous improvement throughout our product development, manufacturing, client service and logistics operations. In addition to rationalizing capacity during the industry downturn, we improved processes, reduced lead-times, outsourced our logistics operations, improved working capital efficiency and enhanced client service performance. In addition, we recently launched a global sourcing initiative to capitalize on significant near-term opportunities to cost-effectively source selected components and raw materials globally. Risks Related to Our Business and Strategy Although we believe that our competitive strengths and our business strategy as set forth above will provide us with opportunities to reach our goals, there are a number of risks and uncertainties that may affect our financial and operating performance, including that: our product sales are tied to corporate spending and service-sector employment, which are outside of our control. Our sales and/or growth in sales would be adversely affected by a recessionary economy characterized by decreased corporate spending and service-sector employment. For example, in the last recessionary economy, our sales declined by 29% in the three years from 2001 to 2003; we may have difficulty increasing or maintaining our prices as a result of price competition, which could lower our profit margins, and our competitors may develop new product designs that give them an advantage over us in making future sales; our efforts to introduce new products that meet customer and workplace requirements may not be successful, which could limit our sales growth or cause our sales to decline; we are dependent on the pricing and availability of raw materials and components, and price increases and unavailability of raw materials and components could lower sales, increase our cost of goods sold and reduce our profits and margins; we rely upon independent furniture dealers, and a loss of a significant number of dealers could affect our ability to market and distribute our products; one of our largest clients, the U.S. government, is subject to uncertain future funding levels and federal procurement laws and requires restrictive contract terms; we may be vulnerable to the effects of currency exchange rate fluctuations because we pay some of our expenses in currencies other than the U.S. dollar and procure certain raw materials globally; an inability to protect our intellectual property, or third party claims that we infringe upon their intellectual property rights, could have a significant impact on our business; and potential labor disruptions or other interruptions of manufacturing operations may adversely affect our reputation, our vendor relations and our dealership network. In addition to the preceding risks, you should also consider the risks discussed under Risk Factors and elsewhere in this prospectus. Patrick A. Milberger, Esq. Senior Vice President, General Counsel and Secretary Knoll, Inc. 1235 Water Street East Greenville, Pennsylvania 18041 (215) 679-7991 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Michael A. Schwartz, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 (212) 728-8000 Kirk A. Davenport II, Esq. Latham & Watkins LLP 885 Third Avenue Suite 1000 New York, New York 10022 (212) 906-1200 Our principal executive offices are located at 1235 Water Street, East Greenville, Pennsylvania 18041. Our telephone number is (215) 679-7991. We were incorporated in 1995 under Delaware law. Our website is located at http://www.knoll.com. The information on our website is not a part of this prospectus. All trademarks or trade names referred to in this prospectus are the property of their respective owners. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Except as otherwise noted, all information in this prospectus assumes: an initial public offering price of $15.00 per share, the midpoint of the estimated initial public offering price range; no exercise by the underwriters of their right to purchase up to an additional 1,656,802 shares to cover over-allotments; and a two-for-one stock split of our common stock that will occur prior to the closing of this offering. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine. (unaudited) (in thousands) Consolidated Balance Sheet Data: Working capital $ 56,100 Total assets 569,231 Total long-term debt, including current portion 425,781 Total liabilities 625,880 Stockholders deficit (56,649 ) Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement that is filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion. Dated November 24, 2004. PRELIMINARY PROSPECTUS 11,045,348 Shares Knoll, Inc. Common Stock Per Share Data: Earnings per share: Basic $ .14 $ .20 $ .25 $ .20 $ .11 $ .19 $ .13 Diluted $ .13 $ .19 $ .24 $ .19 $ .11 $ .18 $ .12 Weighted average shares outstanding: Basic 46,340,306 46,319,020 46,312,786 46,307,976 46,314,236 46,300,508 46,297,630 Diluted 48,454,494 48,428,090 48,398,452 48,386,426 47,977,344 47,966,190 47,960,812 Statistical and Other Data: Sales growth (decline) from comparable period during prior year (16.8 )% (12.7 )% (5.9 )% (3.3 )% (6.9 )% 1.0 % 2.8 % Gross profit margin 33.9 % 33.5 % 33.9 % 34.3 % 30.7 % 34.8 % 34.7 % The selling stockholders of Knoll, Inc. are offering 11,045,348 shares of common stock. Knoll will not receive any of the proceeds from the sale of shares of common stock being sold by the selling stockholders. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $14.00 and $16.00 per share. We have been approved to list our common stock on the New York Stock Exchange under the symbol KNL. Before buying any shares, you should carefully consider the risk factors described in
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+S-1/A TABLE OF CONTENTS SUMMARY 1
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+PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should read the entire prospectus before deciding whether to invest in our class A restricted voting shares and class B non-voting shares, especially the risks described under Risk Factors. Overview Microcell Telecommunications Inc. was incorporated in Canada pursuant to the Canada Business Corporations Act on April 28, 2003 under the name 4130910 Canada Inc. We changed our name on May 1, 2003 to Microcell Telecommunications Inc./Microcell T l communications Inc. We are the successor corporation of another corporation, which we refer to in this prospectus as Old Microcell when we need to differentiate it from the current Microcell. Old Microcell was incorporated pursuant to the CBCA on October 16, 1992 and liquidated into Microcell as of December 31, 2003. We were formed as a holding company for Old Microcell pursuant to a Plan of Reorganization and of Compromise and Arrangement under the Companies Creditors Arrangement Act (Canada) and the CBCA. The Companies Creditors Arrangement Act (Canada) is a Canadian law that permits companies to obtain court protection in order to implement a recapitalization plan. This court procedure is similar to Chapter 11 of the U.S. Bankruptcy Code, although the Companies Creditors Arrangement Act (Canada) is not a bankruptcy law. As at December 31, 2003, we had 1,245,146 customers, an increase of 7% compared with 2002, shareholders equity of $343.9 million and deficit of $12.1 million. For full-year 2003, we also had total revenues of $570.8 million, operating loss of $19.6 million and net income of $50.5 million. As at June 30, 2004, we had 1,199,321 customers, shareholders equity of $469.7 million and deficit of $44.6 million. Total revenues for the three months ended June 30, 2004 were $161.4 million, our operating income was $6.9 million and our net loss was $11.2 million. Total revenues for the six months ended June 30, 2004 were $306.7 million, our operating income was $5.3 million and our net loss was $25.9 million Our principal place of business is located at 800 de La Gaucheti re Street West, Suite 4000, Montreal, Quebec, Canada H5A 1K3 and our registered office is located at 1250 Ren -L vesque Blvd. West, 38th floor, Montreal, Quebec, Canada H3B 4W8. Our telephone number is (514) 937-2121. CT Corporation System, located at 111 Eighth Avenue, New York, NY 10011, (212) 894-8940, acts as our agent for service of process in the United States. The Business of Microcell From our inception, we have been involved in the design and deployment of wireless communications services. In September 1994, we were issued an experimental license from the Canadian Minister for the Department of Industry, known as Industry Canada, to test personal communication services technologies operating in the 1900 MHz frequency range. The experimental license was used to deploy a pilot network in Montreal. At the end of 1995, we were awarded our personal communication services license and began commercial deployment of our personal communication services network across Canada in 1996. In 2001, our personal communication services license was renewed for a second five-year term. In December of 2003, this second license term was expended to 2011. To finance the deployment of a state-of-the-art digital voice and data-capable network and to establish the Fido brand for our retail wireless services, we raised approximately $2.4 billion of capital between 1996 and 2002, of which we borrowed $1.3 billion through the issuance of notes in the high yield market and through bank borrowings. By the end of 2002, our liability with respect to the notes and our bank credit facilities amounted to approximately $2.0 billion and there was significant uncertainty regarding our ability to continue as a going concern. Consequently, we undertook a process to restructure our operations in August 2002. This process was completed on May 1, 2003. The plan of reorganization eliminated approximately $1.6 billion of long-term debt and $140 million to $180 million of annual interest expense. Table of Contents Since May 1, 2003, we have carried on our operations through two principal wholly owned subsidiaries: Microcell Solutions Inc., which we refer to as Solutions, and which owns our personal communication services network and retails personal communication services under the Fido brand name; Inukshuk Internet Inc., a company selected to be awarded multipoint communications systems licenses by Industry Canada in the spring of 2000 that cover some 30 million people in Canada. On November 19, 2003, Inukshuk announced arrangements with third parties to advance the multipoint communications systems project. We have positioned our company as the preferred access network for the mass market. We were the first wireless operator in Canada to deploy an all-digital data network based on next generation infrastructure. In addition, we are the only wireless competitive local exchange carrier in Canada, which provides us with the ability to port landline numbers to wireless phones. This enables us to differentiate ourselves in the Canadian wireless industry by allowing us to actively pursue a local wireline substitution strategy. In keeping with our business strategy of market differentiation and our objective to continue raising the profile of wireless telephony in Canada through product evolution and innovative service design, we commercially introduced the industry s first home and mobile service in the Greater Vancouver area, branded under the City FidoTM name in October 2003 and in the Greater Toronto area in May 2004. This service uniquely embraces the concept of person-to-person communication by integrating the features of traditional wireline service with the benefits of wireless mobility. We expect to rollout City Fido progressively over the next three years to additional Canadian cities. On May 17, 2004, TELUS Corporation launched unsolicited offers to purchase our class A restricted voting shares for $29.00 per share, class B non-voting shares for $29.00 per share, Warrants 2005 for $9.67 per warrant and Warrants 2008 for $8.89 per warrant. On May 20, 2004, we announced that, after careful review and analysis of the TELUS offers performed with the assistance of our legal and financial advisors, our board of directors recommended that holders of these securities not tender into the TELUS offers. We have sent to all holders of the securities our directors circular, dated May 28, 2004, which contains a description of the TELUS offers, including the conditions to closing of the offers. Further to the TELUS offers, our board of directors initiated a full strategic review in order to determine the best way to maximize value for all holders of securities and use the time provided by the rights plan to actively pursue all its alternatives. The special committee directed the financial advisors and our management to contact TELUS and a number of other parties, in order to evaluate all strategic and financial alternatives available to Microcell. Among the parties so contacted was Rogers Communications Inc., or RCI, the majority shareholder of Rogers Wireless Communications Inc., or RWCI, and Rogers Wireless Inc., or Rogers. On June 22, 2004, TELUS announced that it would extend the TELUS offers until July 22, 2004. On June 29, 2004, we issued a press release confirming the recommendation in our Directors Circular. The TELUS offers were further extended on July 22, 2004, on August 20, 2004 and, after the announcement of the Rogers offers (described below) on September 20, 2004. On October 12, 2004, TELUS announced that it would not extend its offer to purchase all of the issued and outstanding publicly traded shares and warrants of Microcell and, as a result, the TELUS offers expired on that day. As part of the strategic review process initiated by our board of directors, we, along with our legal advisors and our financial advisors engaged in discussions, and we entered into confidentiality agreements, with interested parties. On July 14, 2004, we entered into a confidentiality and standstill agreement with RCI and RWCI. On September 19, 2004, the special committee of our board met to review the terms of the offers submitted by Rogers to purchase all our class A restricted voting shares for $35.00 per share, class B non-voting shares for $35.00 per share, Warrants 2005 for $15.79 per warrant and Warrants 2008 for $15.01 per warrant, and the terms of a proposed support agreement. Following our special committee s review of the relevant considerations and based upon the advice received from our legal and financial advisors and the opinions of our financial advisors to our board of directors to the effect that, as at such date and subject to the matters stated in such opinions, the consideration to be received by holders of shares under the share offers SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents was fair, from a financial point of view, to such holders, our special committee unanimously concluded that the share offers were fair to the holders of shares and in the best interests of Microcell and determined to unanimously make a favorable recommendation to our board of directors to recommend that holders of shares accept the share offers and tender their shares into the Rogers offers. On September 19, 2004, our board of directors met immediately following the meeting of our special committee. At such meeting, our board of directors received the report and recommendation of our special committee and the opinions of our financial advisors. After discussion and consideration of the terms of the proposed support agreement and of the Rogers offers, our board of directors concluded that the share offers are fair to the holders of shares and in the best interests of Microcell and approved the entering into of a support agreement in connection therewith. We entered into a support agreement late on September 19, 2004 in respect of the Rogers offers. In accordance with the support agreement, our board of directors also resolved on such date to waive the application of certain provisions of the shareholder rights plan to allow RWCI to proceed with the Rogers offers without any dilutive effects. On September 20, 2004, Microcell, RWCI and RCI jointly announced the execution of the support agreement with respect to the Rogers offers. The terms of the support agreement do not prohibit the board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or recommendation of Rogers offers for our class A shares and class B shares or accept, approve, recommend or enter into any agreement in respect of an acquisition proposal on the basis that such an acquisition proposal would constitute a superior proposal. In such circumstances, among others, Microcell has agreed to pay to Rogers a termination fee of $45 million. Amendment No. 3 to Form F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents THE OFFERING Common shares offered by this prospectus Upon Exercise of Warrants 2005 4,078,268 common shares issuable as class A restricted voting shares or class B non-voting shares. Each whole Warrant 2005 entitles its holder to purchase either 1.02 class A restricted voting share or 1.02 class B non- voting share at a price of Cdn.$19.91, subject to adjustment, until May 1, 2005. Upon Exercise of Warrants 2008 6,797,221 common shares issuable as class A restricted voting shares or class B non-voting shares. Each whole Warrant 2008 entitles its holder to purchase either 1.02 class A restricted voting share or 1.02 class B non- voting share at a price of Cdn.$20.69, subject to adjustment, until May 1, 2008. Estimated common shares outstanding after this offering 40,190,803 common shares issuable as class A restricted voting shares or class B non-voting shares. Voting rights The class A restricted voting shares carry one vote per share. The class B non-voting shares do not carry any vote, except in special circumstances. Use of proceeds We will use the proceeds from the exercise of the Warrants 2005 and Warrants 2008 in accordance with the mandatory prepayments provisions set forth in our credit agreements with our secured lenders, if applicable, and for working capital and general corporate purposes. We will not receive any proceeds from the sale of the underlying shares by the selling shareholders. Listing Our class A restricted voting shares are listed on the TSX, under the symbol MT.A. Our class B non-voting shares are listed on the TSX under the symbol MT.B. The Warrants are also listed on the TSX, with the Warrants 2005 listed under the symbol MT.WT.A and the Warrants 2008 listed under the symbol MT.WT.B. 2 Plan of Reorganization and of Compromise and Arrangement (Incorporated by reference to the Registrant s Report on Form 6-K, as furnished to the Commission on February 20, 2003). 3 .1* Restated Certificate of Incorporation of Microcell Telecommunications Inc. 3 .2 General By-laws of Microcell Telecommunications Inc. (Incorporated by reference to Exhibit 1.2 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .1 First Unit Indenture made as of May 30, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada as trustee (Incorporated by reference to Exhibit 2.1 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .2 Second Unit Indenture made as of May 30, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada as trustee (Incorporated by reference to Exhibit 2.2 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). Microcell Telecommunications Inc. (Exact name of Registrant as specified in its charter) Canada 4812 Not Applicable (State or other jurisdiction of incorporation or organization) (Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 800 de La Gaucheti re Street West, Suite 4000 Montreal, Quebec, Canada H5A 1K3 (514) 937-2121 (Address and telephone number of Registrant s principal executive offices) CT Corporation System 111 Eighth Avenue New York, New York 10011 (212) 894-8940 (Name, address, and telephone number of agent for service) (in thousands of dollars, except for the data relating to shares) Statement of Income (Loss) Data: Revenues 306,690 95,491 393,093 177,694 591,062 541,490 405,986 260,466 Operating income (loss) 5,299 12,331 1,250 (20,832 ) (382,297 ) (193,019 ) (243,636 ) (270,426 ) Net income (loss) (25,945 ) 14,957 4,959 45,517 (570,501 ) (498,485 ) (268,427 ) (393,637 ) Net loss applicable to Class A and Class B non-voting shares (31,129 ) 10,689 (12,146 ) n.a. n.a. n.a. n.a. n.a. Basic earnings (loss) per share $ (2.14 ) $ 2.92 $ (3.22 ) $ 0.19 $ (2.37 ) $ (4.56 ) $ (2.79 ) $ (4.78 ) Diluted earnings (loss) per share $ (2.14 ) $ 0.66 $ (3.22 ) $ 0.19 $ (2.37 ) $ (4.56 ) $ (2.79 ) $ (4.78 ) Revenues (U.S. GAAP) 306,690 95,491 393,093 177,694 591,062 541,490 405,986 260,466 Operating income (loss) (U.S. GAAP) 5,299 12,331 1,250 (20,832 ) (401,482 ) (196,999 ) (246,242 ) (270,426 ) Net income (loss) (U.S. GAAP) (25,945 ) 14,957 4,959 1,298,677 (584,914 ) (498,167 ) (250,116 ) (396,166 ) Comprehensive income (loss) (U.S. GAAP) (25,945 ) 14,957 4,959 1,298,532 (586,766 ) (495,270 ) (251,016 ) (396,166 ) Net income (loss) applicable to Class A and Class B non-voting shares (U.S. GAAP) (31,129 ) 10,689 (12,146 ) n.a. n.a. n.a. n.a. n.a. Basic earnings (loss) per share (U.S. GAAP) $ (2.14 ) $ 2.92 $ (3.22 ) $ 5.40 $ (2.43 ) $ (4.56 ) $ (2.60 ) $ (4.81 ) Diluted earnings (loss) per share (U.S. GAAP) $ (2.14 ) $ 0.66 $ (3.22 ) $ 5.40 $ (2.43 ) $ (4.56 ) $ (2.60 ) $ (4.81 ) $ $ $ $ $ $ $ Balance as at December 31, 2003 4,014 181,617 235 111,046 300 40,942 338,154 Issued 137,032 137,032 Redeemed (24 ) (667 ) (542 ) (1,233 ) Converted (4,071 ) (184,235 ) (240 ) (112,317 ) 2,529 298,334 Accretion on redemption price 81 3,285 Copies to: Jocelyn C t , Esq. Microcell Telecommunications Inc. 800 de La Gaucheti re Street West, Suite 4000 Montreal, Quebec H5A 1K3 (514) 937-2121 David P. Falck, Esq. Pillsbury Winthrop LLP One Battery Park Plaza New York, New York 10004-1490 (212) 858-1000 (in thousands of dollars, except for the data relating to shares) Balance Sheet Data: Total assets 1,058,652 792,654 808,706 788,208 912,854 1,395,259 1,209,226 817,850 Long-term debt (including current portion) 396,940 334,102 324,462 350,000 2,040,178 1,903,571 1,680,699 1,499,456 Shareholders equity (deficiency) 469,656 353,932 343,934 338,975 (1,297,226 ) (726,725 ) (667,561 ) (796,037 ) Share capital 479,137 325,317 338,154 321,049 1,167,678 1,167,371 728,050 327,599 Warrants 29,202 17,926 17,926 17,926 1,770 2,077 2,077 5,625 Contributed surplus 5,919 Retained earnings (deficit) (44,602 ) 10,689 (12,146 ) (2,466,674 ) (1,896,173 ) (1,397,688 ) (1,129,261 ) Total assets (U.S. GAAP) 1,058,652 792,654 808,706 788,208 911,548 1,410,696 1,220,970 812,183 Long-term debt (U.S. GAAP) 396,940 334,102 324,462 350,000 2,040,178 1,903,571 1,680,699 1,499,456 Preferred shares (U.S. GAAP) 286,695 296,912 284,506 Shareholders equity (deficiency) (U.S. GAAP) 469,656 67,237 47,022 54,469 (1,298,677 ) (713,763 ) (654,917 ) (801,704 ) Share capital (U.S. GAAP) 461,807 38,622 29,096 36,543 1,228,401 1,228,094 788,773 388,322 Warrants (U.S. GAAP) 29,202 17,926 17,926 17,926 1,770 2,077 2,077 5,625 Contributed surplus (U.S. GAAP) 4,592 Retained earnings (deficit) (U.S. GAAP) (25,945 ) 10,689 (2,528,848 ) (1,943,934 ) (1,445,767 ) (1,195,651 ) Accumulated other comprehensive income (loss), end of period (U.S. GAAP) 145 1,997 (900 ) Other Data: Class A restricted voting shares 183,340 35,665 30,038 30,000 Class B non-voting shares 29,131,974 3,734,109 3,906,336 3,601,145 First preferred voting shares 476,627 252,296 544,828 First preferred non-voting shares 11,242,673 11,415,204 11,221,839 Second preferred voting shares 92,282 14,782 106,400 Second preferred non-voting shares 7,016,828 6,979,528 7,093,972 Common Shares 27,631,537 27,631,537 31,665,275 32,780,071 Class A Non-Voting Shares 9,590,000 9,590,000 9,590,000 Class B Non-Voting Shares 202,994,911 202,951,539 24,160,642 22,141,195 Number of shares outstanding at the end of the period 29,315,314 22,598,184 22,598,184 22,598,184 240,216,448 240,173,076 65,415,917 54,921,266 Approximate date of commencement of proposed sale to the public: At such time or from time to time after the effective date of this registration statement as the selling shareholders shall determine. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. Table of Contents RISK FACTORS An investment in the class A restricted voting shares and class B non-voting shares offered by this prospectus is speculative and involves a high degree of risk. In addition to the other information contained in this prospectus, you should carefully consider the following factors in evaluating us and our business before making an investment in the class A restricted voting shares and class B non-voting shares. Note: All dollar amounts set forth in this prospectus are expressed in Canadian dollars, and all references to $ refer to Canadian dollars, except where otherwise indicated. On October 21, 2004, the inverse of the noon buying rate as reported by the Federal Reserve Bank of New York equaled U.S.$0.8048 per Cdn.$1.00. Although there are outstanding tender offers for our shares and warrants, this may not result in a sale of Microcell. As part of the strategic review process initiated by our board of directors following the TELUS offers, we, along with our legal advisors and financial advisors engaged in discussions, and we entered into confidentiality agreements, with interested parties, including RCI and Rogers. On July 14, 2004, we entered into a confidentiality and standstill agreement with RCI and RWCI. After consideration by a special committee of our board of directors established as part of the strategic review process, and receipt of a fairness opinion from our financial advisors, our board of directors concluded that the Rogers offers are fair to the holders of our class A shares and class B shares and in the best interests of our company and approved the entering into of a support agreement in connection with the Rogers offers. We entered into a support agreement with Rogers late on September 19, 2004 in respect of the Rogers offers, and announced the support agreement on September 20, 2004 jointly with RWCI and RCI. The terms of the support agreement do not prohibit the board of directors from fulfilling its fiduciary duties to consider and, in certain circumstances, to approve or recommend a superior proposal. The board of directors may, under certain circumstances, withdraw or modify in a manner adverse to Rogers its approval or recommendation of Rogers offers for our class A shares and class B shares or accept, approve, recommend or enter into any agreement in respect of an acquisition proposal on the basis that such an acquisition proposal would constitute a superior proposal. In such circumstances, among others, Microcell has agreed to pay to Rogers a termination fee of $45 million. Despite the support agreement with Rogers, there can be no assurance that the process we have initiated, or the Rogers offers themselves, will lead to any transaction. This process is subject to numerous uncertainties, including: Rogers may choose to withdraw its offers or change them; the conditions to closing the Rogers offers may not be satisfied; and the sale or investment may be delayed or prevented by the need to obtain approvals from regulatory authorities, including the Canadian Competition Bureau. Therefore, although the Rogers offers were made at a premium to the trading prices of our equity securities immediately before the offers were announced, you should not assume that you will receive this premium or that any transaction involving us will occur with a third party. If a transaction does not occur, the trading prices of our equity securities may decline, and we may continue to be subject to any or all of the risks described elsewhere in this section, including the competitiveness of our markets, the availability of future funding, the effects of technological change, the restrictions on our business activities as a result of covenants contained in our credit agreements and our ability to attract and retain key personnel and adequately staff our operations. Although we have completed our restructuring plan, our business still faces challenges going forward. On May 1, 2003, we completed a plan of reorganization that eliminated approximately $1.6 billion of long-term debt and $140 million to $180 million of annual interest expense from our balance sheet. While this significantly reduced the approximately $2.0 billion we owed with respect to our high yield notes and our bank credit facilities at the end of 2002, we still face a challenging business climate going forward. Our restructuring plan did not eliminate the risks inherent in our business, including those described elsewhere in this section. Table of Contents These include, among others, the competitiveness of our markets, the availability of future funding, the effects of technological change and restrictions on our business activities as a result of covenants contained in our credit agreements. These factors contributed to our need to pursue a restructuring plan, and any combination of them may affect our results of operations in the future. While there can be no assurance that any particular factor will affect us, you should understand that our restructuring plan has not eliminated all of the risks that our business faces, and that if we are not able to overcome these potential obstacles, we may face economic problems in the future similar to those that contributed to the necessity for us to restructure our operations. If we need to obtain additional financing, that could increase our operating risk due to increased leverage. In the event that our actual results vary from our projections or if the assumptions underlying our projections were to change, we may need additional funds. Sources of funding for our further financing requirements may include additional bank financing, vendor financing, public offerings or private placements of equity or debt securities, capital contributions from shareholders and disposition of assets. There can be no assurance that additional financing will be available to us or, if available, that we will be able to obtain it on a timely basis and on terms acceptable to us and within the limitations contained in our credit facilities. Failure to do so could result in the delay or modification of our network level of services or in the delay or failure to meet license conditions, which could result in a loss of the Personal Communication Services, or PCS, license and/or the Multipoint Communications Systems, or MCS, licenses. Any of these events could impair our ability to meet our debt service requirements and could have a material effect on our business, including our ability to continue as a going concern. Failure to comply with our bank covenants could affect our financial flexibility or could result in default under our credit agreements. Our credit facilities contain restrictive covenants which affect, and in some cases significantly limit or prohibit, among other things, our ability to: incur indebtedness; make prepayments of certain indebtedness; create liens; sell assets; make capital expenditures; and engage in acquisitions, mergers, amalgamations and consolidations. In addition, our credit facilities require us to maintain certain financial ratios, which include levels of operating income excluding certain specified items, average revenue per subscriber, or ARPU, liquidity levels, subscribers and maximum levels of capital expenditures. If we fail to comply with the various covenants of our indebtedness, we will be in default under the terms of that indebtedness, which would permit holders of the indebtedness to accelerate the maturity of that indebtedness and could cause defaults under other indebtedness or agreements. In these circumstances, the lenders under our credit facilities could foreclose upon all or substantially all of our assets and those of our subsidiaries, excluding Inukshuk. Our current debt level may limit our financial flexibility and make us vulnerable to economic downturns. As of June 30, 2004, our indebtedness totaled $396.9 million, including a current portion of $12 million. The level of our indebtedness could have consequences, such as: (1) our ability to obtain additional financing in the future for capital expenditures, working capital, operating losses, debt service requirements or other purposes; (2) our flexibility in planning for, or reacting to, changes to our business and market conditions; (3) our ability to compete; and (4) our vulnerability in the event of a downturn in our business. Title of Each Class Proposed Maximum Proposed Maximum Amount of of Securities to be Amount to be Aggregate Price Aggregate Registration Registered Registered Per Share Offering Price Fee(1) Table of Contents We may not be able to maintain our operations if the sources of funding on which we are relying become unavailable. Our ability to meet our near term funding requirements is dependent upon a number of factors, including the revenue generated by Solutions, our existing cash balances, the continued availability of, and our ability to obtain and to draw upon our credit facilities or any alternative financing. The construction of an MCS network requires significant capital investment. The capital market conditions for telecommunications companies in a start-up mode with nominal capital resources are challenging. This has made fund-raising difficult, and as a result Inukshuk has suspended building the MCS network on its own. Our credit facilities limit the amount that we can invest in Inukshuk, and Inukshuk s cash requirements may exceed such limits. There is no assurance that Inukshuk will be able to obtain the financing necessary to build an MCS network and/or fund its operations. If Inukshuk is not successful, we may lose our entire investment in Inukshuk. Although Inukshuk announced arrangements with third parties for the build-out of an MCS network on November 19, 2003, there can be no certainty any such arrangements will be successfully concluded. We may incur operating losses in the future, which may limit our ability to service our debt. We may experience growth-related capital requirements arising from the funding of network capacity and maintenance and the cost of acquiring new PCS customers. The ability to generate positive net income and cash flow from operations in the future will be dependent upon various factors, including the level of market acceptance of our services, the degree of competition we encounter, the cost of acquiring new customers, technology risks and general economic conditions and regulatory requirements. There can be no assurance that we will achieve or sustain operating profitability or positive cash flow from operating activities. If we cannot achieve operating profitability or positive cash flow from operating activities, we may not be able to meet our debt service or working capital requirements or obtain additional capital required to meet all of our cash requirements. In addition, we are required to make interest and principal payments under our credit facilities. Our future performance will depend on our ability to succeed in intensely competitive markets. Competition in the Canadian wireless communications industry is intense. The success of our PCS business depends upon our ability to compete with other wireless telecommunications service providers in Canada with respect to new products and services, features and devices offered, the technical quality of the wireless system, customer service, system coverage, capacity and price. Microcell competes with other cellular, enhanced specialized mobile radio and PCS providers, such as Rogers and its affiliated entities, TELUS Corporation and its affiliated entities, known as TELUS, and Bell Mobility Inc. and its former Mobility Canada Partners (excluding TELUS), known as Bell Mobility or the Bell Mobility Partners. These competitors currently have greater financial resources than we do. In addition, the number of competitors could increase through the licensing to new competitors of additional spectrum, through reselling or wholesaling of services and products, such as what we offer, or through a relaxation on the restrictions to foreign participation in the Canadian telecommunications sector. There can be no assurance that we will be able to compete successfully in this environment, or that our new products and services, which we expect will differentiate us in the marketplace, will be widely accepted by consumers, or that other technologies and products that are more commercially effective than our technologies and products will not be developed. Our financial information will not be comparable to the historical financial information of Old Microcell. As a result of the consummation of the plan of reorganization, we operate under a new capital structure and have adopted fresh start accounting rules. In accordance with fresh start accounting rules, all our assets and liabilities were revalued at estimated fair values and our deficit was eliminated. In addition, due to the decrease of our debt as a result of the consumption of our plan of reorganization, our interest expense has also significantly decreased. We determined that our enterprise value was $689 million as at May 1, 2003, of which $350 million has been allocated to our long-term debt and $339 million to equity. A comprehensive revaluation of our assets and liabilities has been done based on this enterprise value. Accordingly, our financial condition and results of operations after May 1, 2003 will not be comparable to our financial condition or results of operations reflected in our historical financial statements, including those included elsewhere in this Common Shares consisting of Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon exercise of Warrants 2005 4,078,268 shares Cdn.$19.5196(2) Cdn.$79,606,193 U.S.$4,903.00 (U.S.$60,604,195) Table of Contents prospectus. More specifically, our depreciation and amortization expense and our interest expense have significantly decreased as a result of fresh start accounting . Our future results may be not be comparable to our results during our capital restructuring period. During our capital restructuring, we focused on cash preservation and careful management of our costs, resulting in a reduction of some variable and discretionary costs such as cost of acquisition. For example, our costs and operating expenses, excluding restructuring charges, depreciation and amortization, decreased by $51.2 million in 2002 when compared to 2001, and decreased a further $15.8 million in 2003 when compared to 2002. Since resuming subscriber growth, our cost of operations has begun to increase and will therefore not be completely comparable with costs incurred during our capital restructuring period. Our broadband access subsidiary may not be able to compete successfully against larger competitors. Competition in the broadband access sector in Canada is also intense. The incumbent local exchange carriers and licensed cable operators are currently the dominant players in the provision of broadband access to the Internet in Canada. There can be no assurance that Inukshuk, working alone or with its partners, with its current and planned MCS services, will be able to compete successfully in this environment or that other technologies and products that are more commercially effective than MCS technologies and products will not be developed. The choice of technology for our MCS network presents certain technological and market risks. Industry Canada has not mandated any technology protocols for MCS operators, leaving each licensee free to select among several competing technologies. The MCS technology and equipment suppliers have been selected for Inukshuk s MCS network deployment. However, MCS technologies are still in an early stage of development, which poses certain technological and market risks with respect to MCS deployment, performance and ongoing availability. Rapid technology changes in our business could make our networks or equipment obsolete or less profitable. The wireless telecommunications industry is experiencing significant technological change. There are evolving industry standards, improvements in digital technology, shorter development cycles for new products and changes in end-user preferences. These changes make it difficult to predict the extent of future competition with cellular, PCS, broadband wireless, paging and other services. As a result, there can be no assurance that existing, proposed or as yet undeveloped technologies will not become dominant in the future and render PCS or MCS less profitable or even obsolete. We may be required to make more capital expenditures than currently expected if suppliers fail to meet anticipated schedules, if a technology performance falls short of expectations, or if commercial success is not achieved. Actual or perceived health risks of wireless technology could have a material adverse effect on our business. Reports have suggested that certain radio frequency emissions from wireless transmitters, customer equipment and handsets may be linked to certain medical conditions, including cancer. Scientific research continues to review whether radio emissions from equipment used in connection with wireless technologies pose health concerns. There can be no assurance that the findings from such studies will not have a material adverse effect on our business or will not lead to changes in government regulation. The actual or perceived health risks of wireless communications devices could adversely affect wireless communications service providers, including us, through reduced subscriber growth, reduced network usage per subscriber, product liability lawsuits or reduced availability of financing to the wireless communications industry. 4 .4* First Amending Agreement to the Warrant Indenture for the Warrants 2005 dated as of November 20, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee. 4 .5 Warrant Indenture for the Warrants 2008 dated as of May 1, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee (Incorporated by reference to Exhibit 2.4 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .6* First Amending Agreement to the Warrant Indenture for the Warrants 2008 dated as of November 20, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee. 4 .7 Shareholder Rights Plan Agreement dated as of May 1, 2003 between Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Rights Agent (Incorporated by reference to Exhibit 2.5 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 5 * Opinion of Stikeman Elliott LLP re legality. 8 .1* Opinion of Stikeman Elliott LLP re tax matters (included in Exhibit 5). 8 .2* Opinion of Pillsbury Winthrop LLP re tax matters. 10 .1* Amended and Restated Tranche A Exit Facility Agreement dated as of March 17, 2004 entered into among Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as borrower, the financial institutions from time to time parties hereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent, Collateral Agent and Issuing Bank. 10 .2* Tranche B-Term Loan A Credit Agreement dated as of March 17, 2004 entered into among Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as borrower, the financial institutions from time to time parties hereto, as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and Collateral Agent. 10 .3* Tranche B-Term Loan B Credit Agreement dated as of March 17, 2004 entered into among Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as borrower, the financial institutions from time to time parties hereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and Collateral Agent. 10 .4* Amended and Restated Intercreditor And Collateral Agency Agreement, dated as of March 17, 2004, made among Microcell Solutions Inc., as borrower, Microcell Telecommunications Inc., as guarantor, each of the persons listed on the execution pages thereto under the Tranche A Lenders heading, each of the persons listed on the execution pages thereto under the Tranche B-Term Loan A Lenders heading, each of the persons listed on the execution pages thereto under the Tranche B-Term Loan B Lenders heading, JP Morgan Chase Bank, Toronto Branch, as administrative agent under the Amended and Restated Tranche A Exit Facility Agreement, the Tranche B-Term Loan A Credit Agreement and the Tranche B -Term Loan BCredit Agreement, JP Morgan Chase Bank, Toronto Branch, as collateral agent for each of the Tranche A Lenders, the Tranche B-Term Loan A Lenders and the Tranche B-Term Loan B Lenders and as fond de pouvoir pursuant to the terms of the Amended and Restated Tranche A Exit Facility Agreement, the Tranche B-Term Loan A Credit Agreement and the Tranche B-Term Loan B Credit Agreement, Computershare Trust Company Of Canada, as Trustee for the holders of the First Units, and Computershare Trust Company Of Canada, as Trustee for the holders of the Second Units. 10 .5* Stock Option Plan of Microcell Telecommunications Inc. dated May 1, 2003, as amended November 20, 2003. 10 .6 Stock Purchase Plan of Microcell Telecommunications Inc. dated May 1, 2003 (Incorporated by reference to Exhibit 4.6 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 2 Plan of Reorganization and of Compromise and Arrangement (Incorporated by reference to the Registrant s Report on Form 6-K, as furnished to the Commission on February 20, 2003). 3 .1* Restated Certificate of Incorporation of Microcell Telecommunications Inc. 3 .2 General By-laws of Microcell Telecommunications Inc. (Incorporated by reference to Exhibit 1.2 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .1 First Unit Indenture made as of May 30, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada as trustee (Incorporated by reference to Exhibit 2.1 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .2 Second Unit Indenture made as of May 30, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada as trustee (Incorporated by reference to Exhibit 2.2 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .3 Warrant Indenture for the Warrants 2005 dated as of May 1, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee (Incorporated by reference to Exhibit 2.3 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .4* First Amending Agreement to the Warrant Indenture for the Warrants 2005 dated as of November 20, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee. 4 .5 Warrant Indenture for the Warrants 2008 dated as of May 1, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee (Incorporated by reference to Exhibit 2.4 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 4 .6* First Amending Agreement to the Warrant Indenture for the Warrants 2008 dated as of November 20, 2003 among Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Trustee. 4 .7 Shareholder Rights Plan Agreement dated as of May 1, 2003 between Microcell Telecommunications Inc. and Computershare Trust Company of Canada, as Rights Agent (Incorporated by reference to Exhibit 2.5 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 5 * Opinion of Stikeman Elliott LLP re legality. 8 .1* Opinion of Stikeman Elliott LLP re tax matters (included in Exhibit 5). 8 .2* Opinion of Pillsbury Winthrop LLP re tax matters. 10 .1* Amended and Restated Tranche A Exit Facility Agreement dated as of March 17, 2004 entered into among Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as borrower, the financial institutions from time to time parties hereto as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent, Collateral Agent and Issuing Bank. 10 .2* Tranche B-Term Loan A Credit Agreement dated as of March 17, 2004 entered into among Microcell Telecommunications Inc., as parent, Microcell Solutions Inc., as borrower, the financial institutions from time to time parties hereto, as lenders, and JP Morgan Chase Bank, Toronto Branch, as administrative agent and Collateral Agent. Common Shares consisting of Class A Restricted Voting Shares or Class B Non-Voting Shares issuable upon exercise of Warrants 2008 6,797,221 shares Cdn.$20.2843(2) Cdn.$137,876,981 U.S.$8,492.00 (U.S.$104,965,746) Table of Contents We are subject to government regulation, and this can increase our operating costs and affect our ownership structure. The assignment and use of radio spectrum is regulated by Industry Canada pursuant to the Radiocommunication Act (Canada). Radio and spectrum licenses are issued for a term. They are renewed at Industry Canada s discretion. Licenses may be suspended or revoked for cause, including failure to comply with the conditions of license. License revocation is rare, and there is a high expectation of license renewal at the end of a license term. Industry Canada regulation and license fees can materially affect our costs and operations. As a PCS network operator, Solutions is a Canadian carrier under the Telecommunications Act (Canada), and subject to regulation by the Canadian Radio-television and Telecommunications Commission, which is also known as the CRTC. Where Inukshuk, either alone or with its partners, is an MCS network operator, it is also a Canadian carrier. CRTC regulation can materially affect our services and activities. Solutions and Inukshuk are required to comply with Canadian ownership and control rules set out in the Telecommunications Act and the Radiocommunication Act. Microcell, as the parent corporation of Solutions and Inukshuk, must also comply with the Canadian ownership and control provisions, and failure to do so may affect the ability of Solutions and Inukshuk to operate as Canadian carriers and to hold and renew the PCS license and the MCS licenses. The Canadian government is currently reviewing the Canadian ownership and control provisions. Although there are yet no conclusions from the review, if greater foreign participation is allowed in the Canadian telecommunications sector, this could lead to the opportunity for further foreign investment in us, as well as more and stronger competitors entering the market with us. Future decisions and policies of the CRTC, Industry Canada and other governmental departments and agencies may have an influence on our strategies, and may have a material impact on us, including on our costs of operations and our capital structure. Our PCS license may be modified or revoked if we do not pay license fees and comply with conditions of operation. The PCS license may not be renewed at the end of its term. Our PCS license term runs to March 31, 2011. At the end of this term, our PCS license conditions provide that we have a ...high expectation of renewal for a ten-year term unless a breach of license condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises but our PCS license does not renew automatically. Industry Canada has the authority to modify the terms and conditions of a license, but such power is to be exercised on an exceptional basis and only after full consultation. Industry Canada also has the authority to suspend or revoke a license if the license holder has contravened the Radiocommunication Act or terms and conditions of its license, but only after giving the holder of the license a reasonable opportunity to make representations. A public consultation regarding the renewal of a PCS license is to occur no later than two years prior to the end of a PCS license term if Industry Canada foresees the possibility of not renewing the license. In order to operate our PCS network we have to maintain our PCS license, and any failure by us to pay our license fees or to comply with its conditions could result in the revocation of our PCS license or in its non-renewal at the end of its term. If Inukshuk does not meet the conditions of the MCS licenses, there could be penalties, including the modification or revocation of the MCS licenses. The Inukshuk MCS licenses have terms that run to March 31, 2011 for each of the twelve MCS license service areas. At the end of this term, Industry Canada s MCS Policy provides that the MCS licenses are to have a high expectancy of renewal for a subsequent ten-year term unless: a breach of license conditions has occurred, a fundamental reallocation of spectrum to a new service is required, Total 10,875,489 shares N/A Cdn.$217,483,174 U.S.$13,395.00 (U.S.$165,569,940.37) Table of Contents or an overriding policy need arises. Inukshuk must obtain prior approval from Industry Canada for any application to transfer or assign the MCS licenses that would have a material effect on the ownership or control in fact of the licensee. The transactions described in the plan of reorganization, which have led to a change of control of Inukshuk, received interim approval by Industry Canada on April 7, 2003. Industry Canada s final approval is subject to completion of a review demonstrating compliance with the Canadian ownership and control provisions. We believe Inukshuk is in compliance with the Canadian ownership and control provisions. Industry Canada has the authority to suspend or revoke a license if the license holder has contravened the Radiocommunication Act or the terms and conditions of its license, after giving the licensee a reasonable opportunity to make representations. The buildout of Inukshuk s network will require significant capital, and we could lose our entire investment in Inukshuk. Inukshuk has commenced the deployment of an MCS network across Canada with its partners in northern and southern Canada. The building of this network will require significant capital investment. Inukshuk is a start-up operation with nominal capital resources. The credit facilities limit the amount that Microcell can invest in Inukshuk. The cash requirements of Inukshuk may exceed such limits. In such an event, Inukshuk may not be able to raise sufficient capital to fund its operations. There can be no assurance that Inukshuk will be successful in building the data network or that Inukshuk will be profitable. If Inukshuk is not successful, we may lose our entire investment in Inukshuk. We may not be able to retain a significant portion of our existing customer base, which could impair our future performance. Our future success will depend, in large part, on our ability to retain a significant portion of our existing customer base, expand the business relationships with these customers, and attract and retain new customers. During our capital restructuring, we focused on cash preservation and careful management of our costs, which resulted, among other things, in a loss of subscribers. There can be no assurance that we will be able to maintain a significant portion of the current customer base, increase the amount of business done with some or all these customers, or grow the existing customer base. Our failure to maintain a significant portion of our existing customer base and to grow that base would have a material adverse effect on our business given that these elements are the main drivers of a wireless operator in Canada. If we cannot limit customer churn, we would be forced to incur additional expenses to recruit new customers. We have experienced rapid growth and development in a relatively short period. One of our biggest challenges, as we have grown and more recently, has been to limit customer churn. The results of operations of telecommunications service providers can be significantly affected by subscriber cancellations. The sales and marketing costs associated with attracting new subscribers are substantial relative to the costs of providing service to existing customers. Because the telecommunications business is characterized by high fixed costs, disconnections directly and adversely affect operating income. An increase in the subscriber cancellation rate could have a material adverse effect on us. Factors contributing to the increase in customer churn experienced during 2002 and 2003 included the negative publicity surrounding us and our financial condition, the decision to disconnect some of our delinquent customers and our limited advertising in order to preserve cash during the restructuring process. The successful implementation of our business plan depends, among other things, upon a reduction in our rate of customer churn. There can be no assurance, however, that we will successfully accomplish this or that churn will not increase. Churn has a direct impact on our revenues and earnings. Therefore, if we are not able to limit the increase of the churn, this could have a material adverse effect on our revenues and earnings. Table of Contents We are subject to currency exchange risks, which may negatively impact our financial results and may increase our costs to repay our debts. As most of our revenues are expected to be received in Canadian dollars, we are exposed to foreign exchange risk on payments of interest and repayment of principal under any U.S. dollar denominated portion of our indebtedness. Although we may enter into transactions to hedge, up to a certain limit, the exchange rate risk with respect to our other U.S. dollar-denominated debt and transactions, there can be no assurance that we will engage in such transactions or, if we decide to engage in any such transaction, that we will be successful and that changes in exchange rates will not have a material adverse effect on our ability to make payments in respect of its U.S. dollar-denominated debt. Such transactions may require that we provide cash or other collateral to secure our obligations. For the purposes of financial reporting, any change in the value of the Canadian dollar against the U.S. dollar during a given financial reporting period would result in a foreign exchange loss or gain on the translation of any U.S. cash and cash equivalents or U.S. dollar-denominated debt into Canadian currency. Such foreign exchange gain or loss on the translation of U.S. dollar-denominated long-term debt is included in income as it arises. Consequently, our reported earnings could fluctuate materially as a result of foreign exchange translation gains or losses. Changes in the exchange rate may have a material adverse effect on us or on our ability to make payments in respect of our U.S. dollar-denominated debt. Our holding company structure may make it difficult to access cash flow from the operating companies and subordinates our shareholders rights to our assets to the claims of our subsidiaries creditors. We are a holding company with no material external sources of income. Substantially all of our operations are conducted through Solutions. Our cash flow and, consequently, our ability to meet our dividend payment obligations or interest payment obligations, as the case may be, are dependent upon the cash flow of Solutions and the payment of funds by Solutions to us in the form of payment of management fees, reimbursement of loans, interest, dividends, advances or otherwise. Our subsidiaries, including Solutions, are separate and distinct legal entities and have no obligation, contingent or otherwise, to make any funds available to us, whether in the form of loans, dividends or otherwise except for their obligation to pay for the services we render, and to reimburse the loans made to them by us, if any, and the interest thereon. Any right we may have to receive assets of our subsidiaries upon their liquidation or reorganization will be structurally subordinated to the claims of such subsidiaries creditors (including tax authorities, trade creditors and lenders). We may not be able to attract and retain key personnel and adequately staff our operations, which could impair the execution of our business plan. The successful execution of our business plan is dependent in part on our ability to retain and motivate our executive officers and key personnel. We may not be able to retain or employ qualified management and technical personnel. Although we have entered into employment agreements with certain members of our senior management, should any of these persons be unable or unwilling to continue their employment with us, aspects of our business could be materially and adversely affected by the lack of human resources to implement our business plan and manage our business. Any development or growth on our part could increase our indebtedness and our expenses. We expect to experience growth and development under the new business strategy described under the heading PCS Business Strategy elsewhere in this prospectus. Any future growth of our business would require, among other things the development and introduction of new products, control of expenses related to the expansion of our telecommunication network and customer base, and (1) This entire amount has been previously paid. (2) Calculated on the basis of each Warrant 2005 and Warrant 2008 being exercisable for 1.02 Common Shares, rather than 1 Common Share, pursuant to the terms of the relevant warrant indentures as a result of the Registrant s rights offering, which closed in May 2004. Each Warrant 2005 retains an exercise price of Cdn$19.91, and each Warrant 2008 retains an exercise price of Cdn$20.69, so while the number of Common Shares to be issued has increased, the proposed maximum aggregate offering price remains unchanged. Table of Contents the management of additional demands on our customer support, sales and marketing, administrative resources and network infrastructure. If we are unable to satisfy these requirements, or if we are otherwise unable to manage growth effectively, our revenues and operating results could be materially and adversely affected and as a result we may need to obtain additional financing and there is no assurance that such additional financing will be available. If the companies in which we hold a minority interest require additional financing, the value of our investment in these companies could be reduced or our ownership interest could be diluted. We have minority or non-controlling investments in certain entities. Some of these investee companies may require substantial amounts of additional capital, and their ability to obtain that financing will depend, in part, on their ability to access the capital or lending markets, which will be subject not only to the performance of their business and prospects, but to conditions in the capital markets generally. If such capital is not available or is not forthcoming on acceptable terms, the value of our investments in those companies could decrease. Further, if such companies were to issue additional equity securities, it is likely that we will not be able to participate in such issuance, which could lead to substantial dilution of the value of our investments. We are subject to change of control provisions which could limit our ability to enter into transactions which could benefit our shareholders. Certain provisions of our credit facilities, that require repayment or give the lenders or holders thereunder the option to require repayment upon certain change of control transactions, could have the effect of delaying or preventing transactions involving a change of control of our company and our subsidiaries, including transactions in which shareholders might otherwise receive a substantial premium for their shares over the then current market prices, and may limit the ability of our shareholders to approve transactions that they may deem to be in their best interest. Our articles of incorporation contain provisions to reflect restrictions which may have the effect of preventing or making transactions involving a change of control of our company more difficult. Our articles of incorporation also contain provisions to reflect the powers of our company to ensure that we and our subsidiaries remain compliant with the Canadian ownership and control provisions. Our shareholder rights plan implemented pursuant to the plan may have a significant anti-takeover effect. The shareholder rights plan has the potential to significantly dilute the ownership interests of an acquiror of our shares, and therefore may have the effect of delaying, deterring or preventing a change in control of our company. The class A restricted voting shares and class B non-voting shares may be diluted by further issuances. The issuance of additional shares of class A restricted voting shares and class B non-voting shares upon exercise of the Warrants will dilute the holders of our current outstanding class A restricted voting shares and class B non-voting shares as well as holders of our equity as a whole. In addition, issuance of class A restricted voting shares or class B non-voting shares to our management and employees and those of our subsidiaries pursuant to the stock option plan and equity issuances under the employee stock purchase plan will result in further dilution to holders of our equity. USE OF PROCEEDS We will use the proceeds from the exercise of the Warrants 2005 and Warrants 2008 in accordance with the mandatory payments provisions, set forth in our credit agreements with our secured lenders, if applicable, and for working capital and general corporate purposes. We will not receive any proceeds from the sale of the underlying shares by the selling shareholders. November 2002 0.17 0.10 34,770 0.12 0.06 1,300 December 2002 0.125 0.08 26,240 0.075 0.053 1,320 January 2003 0.185 0.125 66,170 0.11 0.075 1,930 February 2003 0.185 0.12 22,050 0.115 0.08 911 March 2003 0.15 0.085 35,960 0.10 0.054 2,610 April 2003 0.14 0.085 26,930 0.09 0.056 2,600 Table of Contents Microcell New Shares Warrants The new shares and Warrants issued by us upon the effective implementation of our plan of reorganization on May 1, 2003 consisted of: first preferred voting shares (represented by the CUSIP number 59501T502), first preferred non-voting shares (represented by the CUSIP number 59501T601), second preferred voting shares (represented by the CUSIP number 59501T700), second preferred non-voting shares (represented by the CUSIP number 59501T809), Class A restricted voting shares (represented by the CUSIP number 59501T882), and class B non-voting shares (represented by the CUSIP number 59501T874), as well as the Warrants 2005 (represented by CUSIP number 59501T163) and the Warrants 2008 (represented by CUSIP number 59501T171). The issue price of all the new shares was Cdn.$15 per share. Shareholders, at the close of business on April 30, 2003, received, on May 1, 2003, one new Microcell class B non-voting share in exchange for every 10,630 Old Microcell shares, as well as one Warrant 2005 in exchange for every 90 Old Microcell shares and one Warrant 2008 in exchange for every 54 Old Microcell shares. Fractional securities were not issued, nor any compensation paid for any such fraction. Where the exchange resulted in less than one new security being otherwise issuable, no new security was issued. In addition, pursuant to a final prospectus dated March 24, 2004, we distributed to the holders of our class A restricted voting shares, class B non-voting shares, first preferred voting shares, first preferred non-voting shares, second preferred voting shares and second preferred non-voting shares, rights to subscribe for an aggregate of 4,519,636 class B non-voting shares. Each five rights entitled the holder thereof to purchase one class B non-voting share at a subscription price of $22 per share. In connection with the rights offering we entered into a standby purchase agreement with COM Canada, LLC pursuant to which it agreed to purchase, at the rights subscription price, all class B non-voting shares not otherwise purchased pursuant to the rights offering. The closing of the rights offering occurred on April 30, 2004. The rights offering resulted in the issuance of 4,519,636 class B non-voting shares. COM purchased concurrently, at a price of $22.00 per share, 2,272,727 class B non-voting shares. Furthermore, we granted COM 3,977,272 warrants to acquire, at a price of $22.00 per share, additional class B non-voting shares for exercise at a later date. Each whole Warrant 2005 entitles its holder to purchase either one class A restricted voting share or one class B non-voting share at a price of Cdn.$19.91, subject to adjustment, until May 1, 2005. Similarly, each whole Warrant 2008 entitles its holder to purchase either one class A restricted voting share or one class B non-voting share at a price of Cdn.$20.69, subject to adjustment, until May 1, 2008. In accordance with the warrant indentures governing the Warrants 2005 and the Warrants 2008, as a result of our rights offering described above, the number of shares issuable upon the exercise of the Warrants 2005 and the Warrants 2008 have been adjusted from 1.0 to 1.02 class A restricted voting shares or class B non-voting shares, as the case may be, for each warrant. Non-voting shares are exchangeable, at the option of the holder, at any time, into voting shares of the same class upon provision by the holder of a residency declaration in prescribed form to our transfer agent, Computershare Trust Company of Canada, certifying that the holder is Canadian. The new shares of Microcell and the Warrants have been listed for trading on the TSX since May 1, 2003. There is no comparable listing on any recognized U.S.-based exchange. The following table indicates the trading symbol for each of the new equity-based securities, as well as the total number of shares or Warrants issued and outstanding as of June 30, 2004, as well as the closing price for the class A restricted Table of Contents The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED OCTOBER 22, 2004 PROSPECTUS 10,875,489 Common Shares Issuable as Class A Restricted Voting Shares or Class B Non-Voting Shares Microcell Telecommunications Inc. This prospectus relates to the offer and resale by the selling shareholders identified in this prospectus, or their permitted successors or assigns, of up to 10,875,489 class A restricted voting shares or class B non-voting shares of Microcell Telecommunications Inc., which they may acquire by exercising our outstanding Warrants 2005 and Warrants 2008. The price at which the selling shareholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions. Our class A restricted voting shares are listed on the Toronto Stock Exchange, or TSX, under the symbol MT.A and our class B non-voting shares are listed on the TSX under the symbol MT.B. On October , 2004, the last sale price of our class A restricted voting shares on the TSX was Cdn.$ per share and the last sale price of our class B non-voting shares was Cdn.$ per share. At the noon buying rate as reported by the Federal Reserve Bank of New York on that date, those prices were equivalent to U.S.$ and U.S.$ . Investing in our class A restricted voting shares and class B non-voting shares involves risks that are described in the Risk Factors section beginning on page 7 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. The date of this prospectus is October , 2004. Class A restricted voting shares 32.75 32.03 44 Class B non-voting shares 32.90 31.80 3,441 Warrants 2005 13.42 12.41 409 Warrants 2008 12.70 11.85 1,612 TABLE OF CONTENTS Page 2006 Notes 3.9710 0.0331 3.9473 1.4662 2.4437 2007 Notes 2.5677 0.0214 2.5524 0.9481 1.5802 2009 Notes 3.1026 0.0259 3.0841 1.1456 1.9093 $ $ $ Trade receivables 79,901 73,553 73,024 Allowance for doubtful accounts (6,627 ) (11,844 ) (14,885 ) Receivable from related companies 866 Taxes receivable 3,164 2,830 2,866 Interest receivable 358 13 Table of Contents DIVIDEND POLICY We have never declared or paid any cash dividends on our shares and do not expect to do so in the foreseeable future. We currently intend to retain any earnings to make payments in accordance with the mandatory payments provisions set forth in our credit agreements with our secured lenders, if applicable, and to finance the expansion and development of our business. In addition, certain covenants under the terms of our credit agreements limit our ability to declare or pay dividends. Table of Contents CONSOLIDATED CAPITALIZATION Amendment and Restatement to our Credit Facilities On January 22, 2004, we announced that we would begin holding lenders meetings with a view to voluntarily refinancing, on more favorable terms, our senior credit facilities for an aggregate amount of up to $450 million of secured debt. We announced on March 17, 2004 the successful closing of amended and restated senior secured credit facilities in an aggregate principal amount equivalent to $450 million for our wholly-owned subsidiary, Solutions, with a syndicate of lenders. The proceeds have been used mainly to refinance our previous senior secured credit facilities in an aggregate amount of approximately $334 million. Our amended and restated credit facilities provide us with greater financial flexibility by adding approximately $80 million of incremental cash availability, which will be used to fund capital expenditures as well as for general corporate purposes. Our facilities consist of an undrawn six-year $50 million first lien revolving credit facility, of a seven-year first lien term loan, and of a seven-and-a-half-year second lien term loan, each in an amount equivalent to $200 million. The revolving credit facility is denominated in Canadian dollars and both term loans are denominated in U.S. dollars. We have the ability, subject to certain conditions, to increase, at a later date, our first lien term loan facility or revolving credit facility by an aggregate additional $25 million, and our second lien term loan facility by an aggregate additional $50 million. Loan pricing is LIBOR plus 4% for the revolving credit facility and the first lien term loan and LIBOR plus 7% for the second lien term loan. The loan pricing for the second lien term loan includes a LIBOR floor of 2%. The credit facilities are guaranteed by Microcell, and are secured by a pledge on substantially all of our assets. Rights Offering On February 27, 2004, we announced that we filed a preliminary prospectus with the securities authorities in each province of Canada for a rights offering to holders of our class A restricted voting shares, class B non-voting shares, first preferred voting and non-voting shares, and second preferred voting and non-voting shares for minimum gross proceeds to Microcell of approximately $100 million. In addition, we were entitled to receive up to an additional $50 million from COM, a private holding company of Craig O. McCaw, which acted as standby purchaser for the rights offering. On March 24, 2004 we filed a final prospectus in connection with the rights offering with the securities authorities in each province of Canada. Shareholders received one right for every share held on April 2, 2004. Every five rights entitled the holder to purchase one class B non-voting share at a price of $22.00 per share prior to April 28, 2004. The rights offering was fully subscribed and generated approximately $97 million in net proceeds. We received a further $50 million from the purchase of class B non-voting shares under a standby agreement with COM. As a result of these transactions, we issued 6,792,363 additional class B non-voting shares. Furthermore, pursuant to the standby purchase agreement, we issued 3,977,272 warrants to COM to acquire, at a price of $22.00 per share, additional class B non-voting shares for exercise at a later date. Approximately $1.2 million of the net proceeds from the rights offering and private placement to COM has been used to redeem our preferred shares (as described below), and the balance will be used to fund capital expenditures, including the expansion of our City Fido product in the Toronto area and other Canadian market thereafter, and for general corporate purposes. Redemption of Preferred Shares On April 7, 2004, we gave a notice of redemption pursuant to which we stated that we would redeem, as of May 1, 2004, all our outstanding preferred shares as at 5:00 p.m. (Montreal time) on April 30, 2004, in accordance with the provisions of our restated articles of incorporation. Such redemption was subject to the right of the holders of preferred shares to convert such shares into class A restricted voting shares or class B non-voting shares prior to their redemption. The redemption price of each preferred share was $16.39 per share, representing the first preferred share redemption price, or FPS Redemption Price, and second preferred share redemption price, or SPS Redemption Price, as the case may be, as computed pursuant to our restated (1) The other debt is composed of two swap transactions we entered into to manage our exposure to foreign exchange rate fluctuations on the U.S.-dollar-denominated Term Loan A and Term Loan B. The Company swapped, in March 2004, the total principal of Term Loan A and Term Loan B in the amount of $400 million [US$299.9 million] at a rate of 1.3340. The Company also swapped the floating interest rate of Libor plus 4% on Term Loan A, payable in US dollars, to a floating interest rate of Libor plus 5.085%, payable in Canadian dollars. The Company also swapped the floating interest rate of Libor plus 7% on Term Loan B, payable in US dollars, to a floating interest rate of Libor plus 8.485%, payable in Canadian dollars. The maturity of the swap transactions corresponds to the maturity of both term loans. These swap transactions are presented at their fair value as derivative instruments on the balance sheet and changes in fair value are recognized in income as foreign exchange gains or losses. (2) Does not include 1,391,181 class B non-voting shares issuable as at August 31, 2004 to officers and employees of Microcell pursuant to options granted under Microcell s stock option plan. (3) The preferred shares contain conversion features which result in the Company s obligation to redeem such shares being conditional. Therefore, under US GAAP, these shares are outside the scope of SFAS 150. In such a case, redeemable preferred shares subject to mandatory redemption requirements that are outside the control of the issuer are excluded from shareholders equity (deficiency) and presented separately in the issuer s balance sheet between liabilities and shareholders equity Table of Contents (deficiency). The related accretions are presented as a charge to retained earnings or, in the absence of retained earnings, by charges against share capital. As a result, as at June 30, 2004, the share capital and the deficit would be lower by $17.3 million under U.S. GAAP. (4) Effective January 1, 2004, we adopted the standard set forth in Section 3870 of the CICA Handbook, as described in Note 2 to the unaudited interim consolidated financial statements as at and for the three and six months ended June 30, 2004 included elsewhere in this document. Under U.S. GAAP, since we have selected the modified prospective method as permitted by SFAS 148, the adjustment to opening deficit in the amount of $1.3 million would not be recorded. (in thousands of dollars, except for the data relating to shares) Statement of Income (Loss) Data: Revenues 306,690 95,491 393,093 177,694 591,062 541,490 405,986 260,466 Operating income (loss) 5,299 12,331 1,250 (20,832 ) (382,297 ) (193,019 ) (243,636 ) (270,426 ) Net income (loss) (25,945 ) 14,957 4,959 45,517 (570,501 ) (498,485 ) (268,427 ) (393,637 ) Net income (loss) applicable to Class A and Class B non-voting shares (31,129 ) 10,689 (12,146 ) n.a. n.a. n.a. n.a. n.a. Basic earnings (loss) per share $ (2.14 ) $ 2.92 $ (3.22 ) $ 0.19 $ (2.37 ) $ (4.56 ) $ (2.79 ) $ (4.78 ) Diluted earnings (loss) per share $ (2.14 ) $ 0.66 $ (3.22 ) $ 0.19 $ (2.37 ) $ (4.56 ) $ (2.79 ) $ (4.78 ) Revenues (U.S. GAAP) 306,690 95,491 393,093 177,694 591,062 541,490 405,986 260,466 Operating income (loss) (U.S. GAAP) 5,299 12,331 1,250 (20,832 ) (401,482 ) (196,999 ) (246,242 ) (270,426 ) Net income (loss) (U.S. GAAP) (25,945 ) 14,957 4,959 1,298,677 (584,914 ) (498,167 ) (250,116 ) (396,166 ) Comprehensive income (loss) (U.S. GAAP) (25,945 ) 14,957 4,959 1,298,532 (586,766 ) (495,270 ) (251,016 ) (396,166 ) Net income (loss) applicable to Class A and Class B non-voting shares (U.S. GAAP) (31,129 ) 10,689 (12,146 ) n.a. n.a. n.a. n.a. n.a. Basic earnings (loss) per share (U.S. GAAP) $ (2.14 ) $ 2.92 $ (3.22 ) $ 5.40 $ (2.43 ) $ (4.56 ) $ (2.60 ) $ (4.81 ) Diluted earnings (loss) per share (U.S. GAAP) $ (2.14 ) $ 0.66 $ (3.22 ) $ 5.40 $ (2.43 ) $ (4.56 ) $ (2.60 ) $ (4.81 ) 10 .8 Lease dated as of August 1, 1998 between Microcell Telecommunications Inc. and WPBI Property Management Inc., as amended (Incorporated by reference to Exhibit 4.8 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 10 .9* Purchase and Licence Agreement dated December 20, 2001 between Nortel Networks Corporation and Microcell Solutions Inc. 10 .10* GSM and IN Supplement to the Purchase and License Agreement (Revision 2) dated as of January 16, 2004 between Nortel Networks Corporation and Microcell Solutions Inc. 10 .11* Warrant Agreement effective May 3, 2004 between Microcell Telecommunications Inc. and COM Canada, LLC. 10 .12 Support Agreement between the Registrant and Rogers Wireless Communications Inc. dated September 19, 2004 (Incorporated by reference to the Registrant s report on Form 6-k, as furnished to the Commission on September 23, 2004) 21* List of Subsidiaries 23 .1 Consent of Ernst Young LLP. 23 .2* Consent of Stikeman Elliott LLP (included in Exhibit 5). 10 .4* Amended and Restated Intercreditor And Collateral Agency Agreement, dated as of March 17, 2004, made among Microcell Solutions Inc., as borrower, Microcell Telecommunications Inc., as guarantor, each of the persons listed on the execution pages thereto under the Tranche A Lenders heading, each of the persons listed on the execution pages thereto under the Tranche B-Term Loan A Lenders heading, each of the persons listed on the execution pages thereto under the Tranche B-Term Loan B Lenders heading, JP Morgan Chase Bank, Toronto Branch, as administrative agent under the Amended and Restated Tranche A Exit Facility Agreement, the Tranche B-Term Loan A Credit Agreement and the Tranche B-Term Loan B Credit Agreement, JP Morgan Chase Bank, Toronto Branch, as collateral agent for each of the Tranche A Lenders, the Tranche B-Term Loan A Lenders and the Tranche B-Term Loan B Lenders and as fond de pouvoir pursuant to the terms of the Amended and Restated Tranche A Exit Facility Agreement, the Tranche B-Term Loan A Credit Agreement and the Tranche B-Term Loan B Credit Agreement, Computershare Trust Company Of Canada, as Trustee for the holders of the First Units, and Computershare Trust Company Of Canada, as Trustee for the holders of the Second Units. 10 .5* Stock Option Plan of Microcell Telecommunications Inc. dated May 1, 2003, as amended November 20, 2003. 10 .6 Stock Purchase Plan of Microcell Telecommunications Inc. dated May 1, 2003 (Incorporated by reference to Exhibit 4.6 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 10 .7 PCS license Conditions issued by Industry Canada (Incorporated by reference to Exhibit 4.7 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 10 .8 Lease dated as of August 1, 1998 between Microcell Telecommunications Inc. and WPBI Property Management Inc., as amended (Incorporated by reference to Exhibit 4.8 to the Registrant s Annual Report on Form 20-F, as filed with the Commission on June 27, 2003). 10 .9* Purchase and Licence Agreement dated December 20, 2001 between Nortel Networks Corporation and Microcell Solutions Inc. 10 .10* GSM and IN Supplement to the Purchase and License Agreement (Revision 2) dated as of January 16, 2004 between Nortel Networks Corporation and Microcell Solutions Inc. 10 .11* Warrant Agreement effective May 3, 2004 between Microcell Telecommunications Inc. and COM Canada, LLC. 10 .12 Support Agreement between the Registrant and Rogers Wireless Communications Inc. dated September 19, 2004 (Incorporated by reference to the Registrant s report on Form 6-K, as furnished to the Commission on September 23, 2004) 21* List of Subsidiaries 23 .1 Consent of Ernst Young LLP. 23 .2* Consent of Stikeman Elliott LLP (included in Exhibit 5). Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001018833_quadramed_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001018833_quadramed_prospectus_summary.txt
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+PROSPECTUS SUMMARY Our Company We provide healthcare information technology products and services that help healthcare providers to improve the quality of the care they deliver and the efficiency with which it is delivered. We accomplish our mission by developing and implementing sophisticated, user-friendly software applications designed and developed by the healthcare professionals and software specialists we employ. Our products are designed to eliminate paper, improve processes, and decrease error through the efficient management of patient clinical and financial records. They are suitable for acute care hospitals, specialty hospitals, Veterans Health Administration facilities and associated/affiliated businesses such as outpatient clinics, long-term care facilities, and rehabilitation hospitals and are used by healthcare organizations of varying size from small single entity hospitals to large multi-facility care delivery organizations. Our products are sold as standalone, bundled, or fully integrated software packages. We also provide services to support the hospital s collection of receivables and its administration of contractual reimbursements from managed care companies. Approximately 2,000 healthcare provider facilities are utilizing at least one QuadraMed product. Our headquarters office is located at 12110 Sunset Hills Road, Reston, Virginia in the Washington, D.C. metropolitan area. The company was founded in 1993 and reincorporated in Delaware in 1996. Our telephone number is (703) 709-2300. Our website can be found at www.quadramed.com where all of our current SEC filings can be accessed free of charge as soon as reasonably practicable after they are filed with the SEC. 1.1 Purchase Agreement, dated as of April 27, 1998, by and among QuadraMed Corporation and the Initial Purchasers named therein. (Exhibit 1.1 to our Registration Statement on Form S-3, No. 333-55775, as filed with the SEC on June 2, 1998, as amended by Amendment No. 1 thereto, as filed with the SEC on June 17, 1998.) 2.1 Asset Purchase Agreement, by and among, QuadraMed Corporation, QuadraMed Operating Corporation, OAO Technology Solutions, Inc., and OAO Transaction, LLP, dated as of August 16, 2001. (Exhibit 2.3 to our Current Report on Form 8-K, as filed with the SEC on August 21, 2001.) 2.2 Agreement and Plan of Merger, dated as of June 30, 2004, by and among QuadraMed Corporation, Sawgrass, LLC, Tempus Software, Inc. and each of the shareholders of Tempus Software, Inc. (Exhibit 2.1 to our Current Report on Form 8-K as filed with the SEC on July 15, 2004.) 3.1 Amended and Restated Bylaws of QuadraMed. (Exhibit 3.1 to our Current Report on Form 8-K as filed with the SEC on November 1, 2004.) 3.2 Third Amended and Restated Certificate of Incorporation of QuadraMed. (Exhibit 3.5 to our Annual Report Amended on Form 10-K/A, as filed with the SEC on August 24, 1998.) 3.3 Amendment to the Third Amended and Restated Certificate of Incorporation of QuadraMed. (Exhibit 3.1 to our Registration Statement on Form S-1, No.333-112040, as filed with the SEC on January 21, 2004.) 3.4 Certificate of Designation, Powers, Preferences and Rights of the Series A Cumulative Mandatory Convertible Preferred Shares. (Exhibit 3.1 to our Current Report on Form 8-K as filed with the SEC on June 17, 2004) 4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3. 4.2 Form of Common Stock certificate. (Exhibit 4.2 to our Registration Statement on Form SB-2, No. 333-5l80-LA, as filed with the SEC on June 28, 1996, as amended by Amendment No. l, Amendment No. 2 and Amendment No. 3 thereto, as filed with the SEC on July 26, 1996, September 9, 1996, and October 2, 1996, respectively.) 4.3 Securities Purchase Agreement, dated as of April 17, 2003, among QuadraMed Corporation and certain investors listed on the signature pages attached thereto. (Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.4 Form of Note. (Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.5 Warrant Agreement dated as of April 17, 2003, by and between QuadraMed Corporation and The Bank of New York, as warrant agent. (Exhibit 4.3 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.6 Indenture, dated as of April 17, 2003, between QuadraMed Corporation and the Bank of New York, as trustee. (Exhibit 4.4 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.7 Registration Rights Agreement, dated as of April 17, 2003, among QuadraMed, the investors listed on the signature pages thereto, and Philadelphia Brokerage Corporation. (Exhibit 4.5 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.8 Security Agreement, dated as of April 17, 2003, made by QuadraMed Corporation in favor of The Bank of New York, as collateral agent. (Exhibit 4.6 to our Current Report on Form 8-K filed with the SEC on April 30, 2003.) 4.9 Form of Warrant to Purchase Common Stock. (Exhibit 4.11 to our Registration Statement on Form SB-2, No. 333-5l80-LA, as filed with the SEC on June 28, 1996, as amended by Amendment No. l, Amendment No. 2 and Amendment No. 3 thereto, as filed with the SEC on July 26, 1996, September 9, 1996, and October 2, 1996, respectively.) 4.10 Subordinated Indenture, dated as of May 1, 1998, between QuadraMed and The Bank of New York. (Exhibit 4.6 to our Registration Statement on Form S-3, No. 333-55775, as filed with the SEC on June 2, 1998, as amended by Amendment No. 1 thereto, as filed with the SEC on June 17, 1998.) 4.11 Officers Certificate delivered pursuant to Sections 2.3 and 11.5 of the Subordinated Indenture. (Exhibit 4.7 to our Registration Statement on Form S-3, No. 333-55775, as filed with the SEC on June 2, 1998, as amended by Amendment No. 1 thereto, as filed with the SEC on June 17, 1998.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents We have obtained trademark registrations in the United States for most of our corporate and product trademarks, including QuadraMed , Affinity , and Quantim among others. This prospectus also contains other product names, trade names and trademarks of ours, as well as those of other organizations. All other brand names, trade names and trademarks appearing in this prospectus are the property of their respective holders. Table of Contents The Offering Use of proceeds We will not receive any of the proceeds from the sale of the shares of our common stock offered by the selling holders.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001021949_mellon_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001021949_mellon_prospectus_summary.txt
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+PROSPECTUS SUMMARY This prospectus summary highlights selected information from this prospectus to aid your understanding and does not contain all of the information that you need to consider in making your investment decision. It is qualified by the full description of the information contained in this prospectus. To understand all of the terms of the offering of the notes, you should read carefully this entire prospectus. You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption Index of Terms beginning on page 110 of this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001023031_direct_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001023031_direct_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..370c43a34f165eb385e5a8646c2d5f7de40697d8
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+PROSPECTUS SUMMARY This summary highlights information about Direct General Corporation and its subsidiaries and the common stock offering contained elsewhere in this prospectus. Because this is a summary, it may not contain all the information you should consider before investing in our common stock. To understand this offering fully, you should read this entire
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001028358_genitope_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001028358_genitope_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001033660_animas_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001033660_animas_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..24ee7522dccd73c168f94051d344566156882d92
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+S-1/A SUMMARY The items in the following summary are described in more detail later in this prospectus. You should carefully read the more detailed information set out in this prospectus, the financial statements, and the related notes included elsewhere in this prospectus before investing in our common stock. In this prospectus, Animas, we, our, and us refer to Animas Corporation and its subsidiaries, unless the context requires otherwise. Our Business We design, develop, manufacture, and sell external insulin pumps for people with diabetes. We believe that we are the second largest supplier of pumps in the United States in terms of new pump placements. We introduced our first generation pump, the R1000, in July 2000. We began shipping our third generation pump, the IR 1200, in April 2004. We believe that the IR 1200 is the smallest full-featured insulin pump on the market. The IR 1200 has a large display, long battery life, precise insulin delivery, and enhanced waterproof integrity. We also provide ancillary supplies on an ongoing basis for patients using our pumps, including insulin cartridges, infusion sets, batteries, and various accessories. We provide extensive education programs and services to people with diabetes. From the introduction of the R1000, in July 2000, through March 31, 2004, we shipped over 14,500 pumps, 1.7 million insulin cartridges, and 1.7 million infusion sets. For the year ended December 31, 2003, our net revenues were $34.1 million, an increase of 44.6% compared to the prior year. For the three months ended March 31, 2004, our net revenues were $4.8 million, a decrease of $2.5 million, or 34%, from the comparable period in the prior year. This decrease was due to the deferral of net revenues of $4.5 million resulting from a pump upgrade program started in November 2003 and ended in March 2004. The net loss for the three months ended March 31, 2004 was $8.1 million, an increase of 80.9% from the comparable period in the prior year. We currently employ approximately 300 people, with approximately 130 of those employees directly engaged in clinical or sales activities. Our Market Diabetes is a chronic, life-threatening disease characterized by the body s inability to regulate blood glucose levels. More than 160 million people worldwide, approximately 3% of the population, have diabetes. For many people with diabetes, the administration of insulin, generally through injection, becomes essential to their survival. We estimate that 1% of the world s population has insulin-requiring diabetes. For these people, diabetes is difficult to manage and can be significantly debilitating. We estimate that the size of the insulin pump and pump supplies market was over $450 million in the United States and over $650 million worldwide in 2003 and that the United States market has grown at a compound annual rate of over 20% during the past four years. We believe that approximately 200,000 people in the United States are using insulin pumps and that there is an estimated domestic market potential of over 1 million users. Given the increasing focus on intensive diabetes management and the opportunity to continue penetrating the potential user base, we believe that the insulin pump market is positioned for sustained growth. Our Solution We differentiate ourselves through superior technology and excellent service. Our products enable people with diabetes to better manage their blood glucose levels while maintaining a more flexible lifestyle. We believe the IR 1200 is the most technologically advanced pump on the market. Our emphasis on customer service facilitates the adoption of pump therapy by patients and enhances their likelihood of success with the therapy. Our clinical personnel supplement healthcare providers resources and participate in community diabetes education programs in order to facilitate migration to pump therapy. IR 1200: Superior Technology Thin profile and small size, with a footprint smaller than a business card. Large screen and intuitive user interface. Sturdy construction and enhanced waterproof integrity. Long battery life. Precise insulin delivery. Excellent Service High level of educational, clinical, and customer support. Custom patient education and clinical support to complement the healthcare provider s efforts to successfully train and manage each patient. 24/7 customer support staffed with healthcare professionals providing solutions to patients and relieving the burden on healthcare providers. We have limited market experience with our newest product, the IR 1200, as we only started shipping it in April 2004. It is possible that there could be technical or other issues of which we are not yet aware that could impact the acceptance of this product, as well as reduce the net revenues generated by this product in a particular quarter or year. Our Strategy Our strategic objective is to be a leading provider of innovative insulin pumps and related products to allow better and easier management of diabetes. By leveraging superior technology and excellent service, we believe we can grow our patient base and increase our recurring net revenues from pumps and ancillary supplies. To achieve this objective, we are pursuing the following business strategies: introduce at frequent intervals new and innovative products. Our research and development efforts are focused on next generation pump technology, improved ancillary supplies, and ongoing development of our continuous glucose sensor; expand the market for pump therapy and increase our market share. Our focus on education, training, and support aims to make pump therapy easier for both providers and patients; capture sales of ancillary supplies through high patient retention. Ancillary supplies represented a significant portion of our net revenues in 2003 and during the three months ended March 31, 2004. We anticipate that ancillary supplies will remain a significant source of our net revenues in the future; increase our international presence through expanded local distributor relationships and products with multilingual capabilities; and SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 enhance future profitability through gross margin improvement and organizational efficiencies. The Offering Common stock offered by us 4,000,000 shares Common stock to be outstanding after this offering 18,209,900 shares Estimated initial public offering price per share $13.00 to $15.00 Use of proceeds We intend to use the net proceeds from this offering for additional sales and marketing efforts, research and development, expansion into international markets, repayment of outstanding bank lines of credit, and working capital and general corporate purposes. See Use of Proceeds. Proposed NASDAQ National Market symbol PUMP The number of shares of our common stock to be outstanding after this offering is based on 14,209,900 shares outstanding as of April 30, 2004 and excludes: 159,693 shares issuable upon exercise of outstanding warrants to purchase our common stock at a weighted average exercise price of $6.94 per share; and 7,000,000 shares reserved for future issuance under our 2004 Equity Incentive Plan, 1998 Equity Compensation Plan, 1996 Incentive Stock Plan, and 2004 Employee Stock Purchase Plan (includes 2,580,208 shares issuable upon exercise of outstanding options at a weighted average exercise price of $6.93 per share) (assuming an initial public offering price of $14.00 per share, which is the midpoint of the range on the front cover of this prospectus). All information in this prospectus assumes no exercise of the underwriters over-allotment option to purchase up to 600,000 shares of our common stock from us. Pre-offering Transactions Unless the context requires, all information in this prospectus reflects the following transactions, which will occur on or before the closing of this offering (Pre-offering Transactions): a four-for-three split of our common stock; the issuance of 398,740 shares of our Series C Preferred Stock assuming an initial public offering price of $14.00 per share (the midpoint of the range on the front cover of this prospectus) pursuant to the automatic cashless exercise of warrants, in accordance with their terms, to purchase 1,206,998 shares of our Series C Preferred Stock at an exercise price of $12.50 per share; the conversion, in accordance with our certificate of incorporation, of all of our shares of outstanding preferred stock (including the shares of Series C Preferred Stock issued upon the cashless exercise of the warrants discussed above) into 10,010,881 shares of our common stock assuming an initial public offering price of $14.00 per share (the midpoint of the range on the front cover of this prospectus); Amendment No. 3 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 the exercise of warrants, which otherwise expire in accordance with their terms upon the closing of this offering, to purchase 116,478 shares of our common stock at a weighted average exercise price of $4.72 per share; and the conversion of warrants to purchase 5,000 shares of our Series C Preferred Stock into warrants to purchase 6,666 shares of our common stock. Corporate Information We were incorporated in Delaware in July 1996 and commenced commercial operations in July 2000. We have two wholly-owned subsidiaries, Animas Diabetes Care, LLC and Animas Holdings, Inc. Animas Diabetes Care, LLC contracts with third party payors. Animas Holdings, Inc. is a Delaware holding company, which was formed in March 2004 to better manage our investments and our intellectual property. Our principal executive offices are located at 200 Lawrence Drive, West Chester, PA 19380, and our telephone number is (610) 644-8990. Our Internet address is www.animascorp.com. The information contained on our website is not part of this prospectus. As of April 30, 2004, we had registered the trademarks ANIMAS and EZ MANAGER with the United States Patent and Trademark Office on the Principal Register. We have applied with the United States Patent and Trademark Office to register the trademarks EZ SET, ezBolus, and CHAMPION, and the first two of these applications have been published for opposition. We use the trademarks Carb SmartTM, ezWrapTM, ezBGTM, ezFlex ProgrammingTM, ezFlipTM, PrimeSmartTM, Carb Smart PlusTM, and ezViewTM in connection with our business. All other trademarks or service marks appearing in this prospectus are the property of their respective companies. Animas Corporation (Exact Name of Registrant as Specified in Charter) Delaware 3842 23-2860912 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 200 Lawrence Drive West Chester, Pennsylvania 19380 (610) 644-8990 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Katherine D. Crothall President and Chief Executive Officer 200 Lawrence Drive West Chester, Pennsylvania 19380 (610) 644-8990 (Name, Address Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies to: Barry M. Abelson, Esq. Pepper Hamilton LLP 3000 Two Logan Square 18th and Arch Streets Philadelphia, PA 19103-2799 (215) 981-4000 Richard P. Jaffe, Esq. Ballard Spahr Andrews Ingersoll, LLP 51st Floor, 1735 Market Street Philadelphia, PA 19103 (215) 665-8500 (1)See Note 2 to our consolidated financial statements regarding deferred revenue. (2)In connection with the issuances of preferred stock in 2003, we recorded a non-cash charge that represented the deemed dividend relating to the intrinsic value of the beneficial conversion feature of the preferred stock. See Note 7 to our consolidated financial statements. (3)Upon closing of this offering, all outstanding shares of our preferred stock will automatically convert into shares of our common stock at a conversion rate of 1.333. The unaudited pro forma basic and diluted net loss attributable to common stockholders per share gives effect to this conversion (using the as converted method). See Note 13 to our consolidated financial statements. Approximate Date of Commencement of Proposed Sale to Public: As soon as practicable after this Registration Statement becomes effective.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001040597_neenah_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001040597_neenah_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
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+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001040599_neenah_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001040599_neenah_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001040666_vnus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001040666_vnus_prospectus_summary.txt
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+information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001044391_stratus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001044391_stratus_prospectus_summary.txt
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+PROSPECTUS SUMMARY Unless otherwise indicated, all information contained in this prospectus, including per share data and information relating to the number of shares authorized and outstanding, has been adjusted to reflect a proposed one-for-four reverse split of our common stock. The Company We are a national business services company engaged in providing outsourced labor and operational resources on a long-term basis and short-term temporary staffing services. We were incorporated in Delaware in March 1997 and began operations in August 1997 with the purchase of certain assets of Royalpar Industries, Inc. and its subsidiaries. This purchase provided us with a foundation to become a national provider of comprehensive staffing services. We believe that as businesses increasingly outsource a wider range of human resource functions in order to focus on their core operations, they will require more sophisticated and diverse services from their staffing providers. We offer different groups of staffing services comprised of Staffing Services, SMARTSolutions and Information Technology Services to a wide variety of businesses. Our Staffing Services provide temporary workers for short-term needs, extended-term temporary employees, temporary-to-permanent placements, recruiting, permanent placements, payroll processing, on-site supervising and human resource consulting. These temporary workers perform a variety of tasks, including, among others, light industrial and clerical work and call center support. Our SMARTSolutions technology, available through our Staffing Services branch offices, provides a comprehensive, customized staffing program designed to reduce labor and management costs and increase workforce efficiency. Our 50% owned joint venture, Stratus Technology Services, provides information technology staffing solutions to Fortune 1000, middle market and emerging companies. Stratus Technology Services offers expertise in a wide variety of technology practices and disciplines ranging from networking professionals to internet development specialists and application programmers. All service groups seek to act as a business partner to our clients rather than merely a vendor. In doing so, they seek to systematically enhance client productivity and positively impact our and our clients' financial results. We are headquartered at 500 Craig Road, Suite 201, Manalapan, New Jersey 07726 and our telephone number is (800) 777-1557. Between September 1997 and January 2003, we completed ten acquisitions of staffing businesses, representing thirty offices in seven states. As of May 1, 2004, we were providing services from twenty-seven locations in seven states. In March 2002, we sold our Engineering Division and in fiscal 2003 we sold the assets of eight of our offices located in Nevada, New Jersey, Florida and Colorado. We also maintain a presence on the Internet with our website at www.stratusservices.com, an informational site designed to give prospective customers and employees additional information regarding our operations. Recent Developments Potential Management Change In April 2004, we entered into a non-binding letter of intent with Michael O'Donnell which contemplates that we will hire Mr. O'Donnell as our Chief Executive Officer. Our hiring of Mr. O'Donnell is subject to the execution of a mutually satisfactory employment agreement with Mr. O'Donnell, the completion of a due diligence investigation satisfactory to Mr. O'Donnell and the approval of our Board of Directors. The letter of intent provides that we will grant options, or other equity in a form to be agreed upon, to Mr. O'Donnell with respect to approximately six percent (6%) of our outstanding equity on a fully diluted basis after giving effect to this offering. Mr. O'Donnell is the founder and Chief Executive Officer of ALS, LLC, which provides light industrial performance based staffing services. A son of our Chief Executive Officer, Joseph J. Raymond, Jr., holds a 50% interest in ALS, LLC, which acquired substantially all of the assets of our Miami Springs, Florida office in August 2003. ALS is the holding company for Advantage Services Group, LLC which has provides payrolling services to certain of our clients. In 2001, Mr. O'Donnell formed MOD Ventures, LLC, which provides specialized underwriting and capitalization services for new or high growth ventures, and which provided consulting services to us in February and March 2003. In addition, Mr. O'Donnell recently formed Summerlin Capital Partners, which engages in leasing/asset-based financial services consulting. Formerly, Mr. O'Donnell was managing Director of the Global Technology Services division of GATX Capital. We can give no assurance that we will be able to finalize the proposed employment relationship with Mr. O'Donnell. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 The Offering Securities Offered 10,000,000 units consisting of one share of our common stock and one three-year common stock purchase warrant. The common stock and the warrants included in our units will trade separately immediately after the initial closing of this offering. Warrants Our warrants included in the units will be exercisable commencing one year after the initial closing of this offering. The exercise price of each warrant is $.95 or 5% below the offering price of the units. You may exercise your warrants at any time during the period commencing one year after the initial closing of this offering and ending 30 months after the initial closing, unless we have redeemed them. We may redeem some or all of our outstanding warrants, at a redemption price of $.10 per warrant, beginning one year after the final closing of this offering once the closing bid price of our common stock has been at least $1.66 for 20 consecutive trading days. Offering Price $1.00 per unit. Shares to be Outstanding After this Offering 6,912,121 shares if the minimum number of units is sold and 15,912,121 shares if the maximum number of units is sold. These numbers exclude: up to 10,000,000 shares of common stock which may be issued upon the exercise of the warrants being offered pursuant to this prospectus; 1,652,341 shares of common stock which may be issued upon the exercise of options and warrants to acquire our common stock that were outstanding as of the date of this prospectus; 364,733 shares issuable upon the conversion of the shares of our Series A Preferred Stock outstanding as of the date of this prospectus; 1,500,000 shares of common stock issuable upon the conversion of the shares of our Series F Preferred Stock outstanding as of the date of this prospectus; up to approximately 4,997,879 shares which may be issued pursuant to the exchange offer we are making to the holders of our Series E Preferred Stock; an indeterminate number of shares issuable upon the conversion of or as dividends on our Series E Preferred Stock, which number fluctuates based upon changes in the market price of our common stock; an indeterminate number of shares which may become issuable under certain circumstances upon conversion of the Series I Preferred Stock which we are offering to holders of our Series E Preferred Stock in connection with our exchange offer, or as a result of our extension of the redemption date of the Series I Preferred Stock; AMENDMENT NO. 5 TO FORM S-1/A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 at least 1,750,000 shares of common stock which we may be required to issue in connection with the redemption of our Series A Preferred Stock after the initial closing of this offering. Any securities which may become issuable in connection with the non-binding letter of intent that we have entered into with Michael O'Donnell which contemplates that we will issue options or other equity representing 6% of our outstanding common stock on a fully diluted basis after giving effect to this offering to Mr. O'Donnell if we hire him as our Chief Executive Officer. Warrants to be Outstanding After this Offering 2,798,334 warrants, including 1,000,000 of the warrants offered by this prospectus if the minimum number of units is sold in this offering, and 10,773,334 warrants, including 10,000,000 of the warrants offered by this prospectus if the maximum number of units is sold in this offering. Each of such warrants entitles the holder to purchase one share of our common stock. This information excludes up to approximately 9,995,758 warrants issuable pursuant to an exchange offer we are making to the holders of our Series E Preferred Stock. Use of Proceeds The proceeds from this offering will be used to reduce trade payables, delinquent payroll taxes and a cash overdraft, repay certain debt, repurchase common stock in connection with the exercise of a put option, redeem all of the outstanding shares of our Series A Preferred Stock and for working capital, including possible acquisitions of complimentary businesses, and general corporate purposes. Plan of Distribution We are offering units on a "best efforts" minimum/maximum basis through our underwriter. Subscriptions for our units will be deposited into escrow with JPMorgan Chase Bank, until a minimum of $1,000,000 of subscriptions have been received. In the event that we do not receive a minimum of $1,000,000 of subscriptions by July 30, 2004, or August 30, 2004 if the offering period is extended by us and our underwriter, escrowed funds will be promptly returned to subscribers without interest or deduction. In the event that a minimum of $1,000,000 in subscriptions is received by JPMorgan Chase Bank by July 30, 2004, or August 30, 2004 if the offering period is extended by us and our underwriter, we will close on those funds and promptly issue the units in one or more closings. OTC Bulletin Board Symbol SERV.OB STRATUS SERVICES GROUP, INC. (Exact Name of Registrant as Specified in its charter) Delaware 561320 223499261 (State or jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification) 500 Craig Road Manalapan, New Jersey 07726 (732) 866-0300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Joseph J. Raymond Chairman and Chief Executive Officer Stratus Services Group, Inc. 500 Craig Road Manalapan, New Jersey 07726 (732) 866-0300 (Name, address, including zip code, and telephone number, including area code, of agent for service) We intend to arrange for the inclusion of the warrants offered hereby on the OTC Bulletin Board under the symbol SERVws.OB concurrently with the initial closing of this offering. Exchange Offer At the same time as we are conducting this offering, we are asking the holders of our Series E Preferred Stock to exchange the shares of Series E Preferred Stock that they hold for, at their election, either 100 shares of our common stock and 200 warrants having terms identical to those described in this prospectus for each $100 of stated value and accrued dividends represented by the Series E Preferred Stock, or one share of our Series I Preferred Stock and 100 warrants for each $100 of stated value and accrued dividends represented by the Series E Preferred Stock. The completion of the exchange offer is contingent upon the sale of at least $1,000,000 units in this offering. As of May 1, 2004, there were 47,728 shares of Series E Preferred Stock outstanding, each with a stated value of $100 per share. As of the date of this prospectus, holders of approximately 21,712 shares of the Series E Preferred Stock had tendered their shares for shares of common and warrants, and holders of approximately 25,262 shares of Series E Preferred Stock had tendered their shares for shares of Series I Preferred Stock and warrants; however, since such time we have modified the proposed terms of the Series I Preferred Stock and revised the terms of the Exchange Offer. All of such holders have the right to revoke their tenders before the expiration date of the exchange offer. We can give no assurance that the tendering holders of Series E Preferred Stock will not revoke their participation in the exchange offer or change the election that they made in connection with the exchange offer. Holders of Series I Preferred Stock will be entitled to dividends at a rate of 12% per annum, subject to possible adjustment as described below. To the extent permitted by law, we will be required to redeem the Series I Preferred Stock at a price of $100 per share plus all accrued and unpaid dividends on the one year anniversary date of its issuance; provided, however, that we will have the right to extend the required redemption date for an additional one year, in which case we will be required to pay all dividends accrued through the first year of issuance in cash and issue to each holder of Series I Preferred Stock a number of shares of our common stock which then have a value equal to 10% of the stated value of the Series I Preferred Stock held. In addition, if we extend the redemption date, we will be required to pay dividends quarterly and pay an advisory fee to an advisor designated by the holders of the Series I Preferred Stock in an amount equal to ten percent (10%) of the aggregate stated value of the outstanding shares of Series I Preferred Stock, eight percent (8%) of which will be payable in cash and two percent (2%) of which will be paid in shares of our common stock, valued at the then current market value. If we do not redeem the Series I Preferred Stock by the original one year redemption date and fail to extend the original redemption date, or if we fail to redeem the Series I Preferred Stock by the extended redemption date, the dividend rate of the Series I Preferred Stock will increase to 24% per annum and, the Series I Preferred Stock will be convertible, at the option of the holder, into either common stock at a conversion price equal to 80% of the average closing bid price of the common stock during the five trading days preceding the conversion or common stock and warrants at a rate of 100 shares of common stock and 200 warrants for each $100 of stated value and accrued and unpaid dividends represented by the Series I Preferred Stock. We can give no assurance that we will be able to redeem the Series I Preferred Stock as required. We will have the right, at any time during the 12 month period following the closing of the exchange offer, to cause all of outstanding shares of the Series I Preferred Stock to be converted into, at the election of the holder, either common stock at a conversion price equal to 80% of the average closing bid price of the common stock during the five trading days preceding the conversion, or common stock and warrants at a rate of 100 shares of common stock and 200 warrants for each $100 of stated value and accrued and unpaid dividends represented by the Series I Preferred Stock. The discount associated with the conversion feature of the Series I Preferred Stock could result in changes to our earnings in future periods. Holders of Series I Preferred Stock will have no voting rights, except as provided by law and with respect to certain limited matters. Copies of all communications to: Philip D. Forlenza, Esq. Giordano, Halleran & Ciesla, P.C. 125 Half Mile Road P.O. Box 190 Middletown, New Jersey 07748 (732) 741-3900 Hank Gracin, Esq. Lehman & Eilen LLP 50 Charles Lindbergh Boulevard Suite 505 Uniondale, New York 11553 (516) 222-0888
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001048611_color_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001048611_color_prospectus_summary.txt
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+Prospectus Summary This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully. The terms we, our, us and Color Kinetics mean Color Kinetics Incorporated and its consolidated subsidiaries. Unless otherwise stated, all information contained in this prospectus assumes the conversion to common stock of all our outstanding preferred stock, the effectiveness of a one-for-two reverse stock split with respect to our common stock, and no exercise of the over-allotment option granted to the underwriters. Our Business Color Kinetics is a pioneer in the design, marketing and licensing of intelligent solid-state lighting systems. Our systems use solid-state devices known as light emitting diodes, or LEDs, as the light source. Solid-state devices, such as transistors and diodes, rely on electrical interaction between adjacent layers of solid semiconductor materials, rather than mechanical operation, to perform a desired function. LEDs are solid-state devices that emit light when voltage is applied to them. The performance, efficiency and cost of LEDs have been improving rapidly, enabling them to displace traditional light sources such as incandescent bulbs in many applications. Our systems combine the increasing advantages of LEDs as a light source with our patented digital control technology, to create a new category of lighting technology, which we refer to as intelligent solid-state lighting systems. Since our founding in 1997, we have invested substantially in research and development in a number of disciplines related to solid-state lighting. As a result of this process of continuous innovation, we have developed a range of products, services and technologies and have a patent portfolio with 28 issued patents and over 115 patent applications pending. We also have an extensive pipeline of new technologies under development. Our patents and patent applications apply to many aspects of solid-state lighting technology that we consider fundamental to our business, ranging from methods for digital control of lighting to production techniques, and also relate to the application of those innovations in many specific markets. We operate in two principal lines of business: Lighting systems: we offer intelligent solid-state lighting systems under the Color Kinetics brand for installation in lighting projects where their use has been specified. In a typical lighting system sale, our sales force works with a lighting designer, architect or other specifier to have our system designed in to a particular lighting project. When construction on the project reaches the appropriate stage, our product is shipped, typically to an electrical or lighting equipment distributor, which purchases the system from us and, in turn, sells it to the project owner or its electrical contractor for installation by them. OEM and licensing: we offer a standard line of intelligent solid-state lighting modules that can readily be incorporated by manufacturers in products sold under their own brands. We also license our technology on a royalty-bearing basis. To date, we have targeted our sales and marketing primarily in high performance lighting markets, such as architectural, retail and entertainment lighting. In these markets, the ability of our systems to provide dynamic, color-changing lighting effects under digital control provides unique advantages. Our intelligent solid-state lighting systems have been used to light the exteriors of signature office buildings, to add visual impact to the interiors of retail stores and residences, to provide entertaining lighting effects that help attract patrons to hospitality venues and to supply versatile, high performance lighting for television and stage sets. Our systems have been installed in thousands of user sites around the world. As the performance and cost-effectiveness of LEDs, particularly white light LEDs, continue to improve, we believe that solid-state lighting will increasingly displace traditional lighting technology in broader applications beyond the high performance lighting markets we currently serve, providing us with new opportunities to exploit our technology. Table of Contents Solid-State Lighting Market Opportunity Since the invention of the transistor in the mid-twentieth century, solid-state semiconductor devices have revolutionized many industries such as radio, television, telecommunications and computing. As digital technology has replaced mechanical controls, vacuum tubes and analog signal processing, existing devices have been made cheaper and more useful. We believe that the lighting industry, which has not substantially changed its basic technology since electric light bulbs replaced gas lamps more than a century ago, is embarking upon a similar digital solid-state revolution. We believe that solid-state lighting, in which semiconductors replace incandescent or fluorescent lamps as the light source, is a disruptive technology that is transforming the lighting industry. The resulting wave of product innovation is displacing traditional lighting technologies in existing applications and creating entirely new market segments and applications. The adoption of solid-state lighting is being driven by its significant advantages in comparison with traditional lighting technology. These advantages include greater efficiency and lower power consumption, greater reliability and longer life, better color characteristics and capability of digital control. Attributes of solid-state lighting that have made it attractive to customers in the high performance color lighting markets that we currently serve are also potentially valuable in general lighting applications. In general lighting applications, white light is used for utility, i.e., for illumination of areas and tasks rather than for visual impact. Further improvements in the initial cost and performance of white light LEDs will be necessary before solid-state lighting can be widely adopted as a source of white light for general illumination purposes. We believe that competition among LED manufacturers will overcome many of these technical obstacles, and that just as solid-state lighting has rapidly penetrated other markets, advancing white light LED technology and customer demand for new uses of light will create opportunities for application of our intelligent solid-state lighting technology in segments of the general lighting market. Strategies Unlimited, a market research firm, forecasts that the market for high brightness LEDs in illumination applications will increase at a compound annual growth rate of approximately 44% from 2002 to 2007. According to a 2003 report by The Freedonia Group, Inc., a market research firm, the worldwide market for electric lamps and lighting fixtures was approximately $79 billion in 2001. We cannot predict the rate of adoption of solid-state lighting technology in applications requiring white light for general illumination, and it is unlikely that in the near term products designed for the general lighting market will account for a substantial portion of our revenues. However, we believe that, with our proprietary technology, industry expertise and proven products and track record, we are well positioned to take advantage of emerging opportunities to penetrate segments of this large general lighting market with our intelligent solid-state lighting technology. Our Solution We believe that we offer our customers a number of key benefits: Breadth of Our Intelligent Solid-State Lighting Solutions. The patented digital control technology embedded in our products enables them to display millions of colors in dynamic, changing effects. We know of no other vendor that offers a line of solid-state lighting products and services as broad as ours. Similarly, we believe no other vendor can match our ability to deliver, from a single source, lighting systems that integrate all the components necessary to design, install and operate sophisticated solid-state lighting for a wide range of applications. Reliability and Ease of Use. Our intelligent solid-state lighting systems are designed to be easy for customers to specify, install and use. Our systems have been installed in thousands of user sites around the world. Due to their mature design, our rigorous quality control processes, and our experience from thousands of installations, our systems are reliable and field proven. Ability to Rapidly Commercialize New Technologies. We rapidly bring to market innovative products that meet the specific needs of UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 6 to Form S-1 Table of Contents our customers. During 2003, we introduced more than 15 new products and major product enhancements, and expect to announce more than 30 new products and major product enhancements in 2004. Depth of Technical and Industry Expertise. We have developed extensive know-how in electrical, optical, mechanical and thermal engineering and deep knowledge of the specialized requirements of customers in specific vertical markets, such as the entertainment, theatrical lighting and hospitality industries. Our relationships with prominent lighting designers, lighting equipment manufacturers and other industry participants give us insight into industry trends and assist us in developing and bringing to market products that respond to the evolving needs of the marketplace. We purchase LEDs and other critical components that are used in our systems from major semiconductor manufacturers, and we outsource the manufacture of our products to contract manufacturers, primarily in Asia. We also have substantial expertise and intellectual property relating to supply chain management and the manufacture of our products, including proprietary processes that we license to our suppliers. Our Strategy We seek to be the leading provider of intelligent solid-state lighting systems. Key elements of our strategy include: Extend Technology Leadership and Intellectual Property Position. We will seek to use superior digital control technology and our intellectual property portfolio both to extend our competitive advantage in the markets we presently serve and to enter new markets. Our objective is to have our digital control technology become the de facto standard for solid-state lighting. We will continue to innovate by developing new advanced digital control techniques, capitalizing on the capabilities of new generations of LEDs and refining our product engineering and manufacturing capabilities. Leverage Core Technologies to Expand Product Offering. We intend to continue to expand our product line by adding new categories of lighting devices, enhanced digital control and authoring capabilities and new value-added services, with the goal of providing our customers with the most complete solution to their solid-state lighting requirements, whether simple or complex. Expand OEM and Licensing Businesses. We seek to develop additional OEM and licensing relationships with leading companies inside and outside the lighting industry, to expand our market reach into segments beyond those we directly target, increase our total revenues and improve our profit margins. Another key component of our OEM and licensing strategy is to strengthen awareness of our brands. For example, our agreements with OEM customers and licensees generally require that OEM products containing our solid-state lighting modules be labeled with our Chromacore mark, and that products using technology licensed from us be identified as licensed by Color Kinetics. Broaden Our Sales and Distribution Channels. We intend to broaden our distribution channels and to increase the scale and geographic coverage of our direct sales organization, particularly in international markets. Enter the White Light Market. To date, we have concentrated on the high performance color-changing lighting market. However, we believe that many of our patents and patent applications are applicable to the white light market. We believe our proprietary technology will enable us to move beyond high performance color lighting to more widespread application in the broader lighting market in which white light is used for purposes of illumination. We plan to introduce during the second half of 2004 at least four new intelligent solid-state lighting products for white light applications, including dimmable accent lights, linear high output lights using our new digital power processing technology, wall washers, and linear strip lights. Of these, two products (the high output linear light and the dimmable accent light) have already been demonstrated at lighting industry trade shows in Las Vegas and Frankfurt. REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Our Intellectual Property Strategy We have a market-driven intellectual property strategy, intended to establish a strong patent position in each of three areas: the color architectural lighting market; other high performance markets for color lighting applications; and the general white light market. We also have a technology-driven intellectual property strategy, focused on obtaining patents that cover our innovations at all levels, ranging from core technology and products to high-level control systems, complete lighting systems, applications and methods of use. Since our inception, we have sought to build a patent portfolio that would protect our core business and provide high-value licensing potential. In our licensing efforts we seek to negotiate royalty rates that reflect the value of our technology and know-how and our patent position. We believe that our patents in color LED lighting systems and the applicability of many of those innovations in the white light market provide us with an opportunity to take a leadership position in intellectual property for the white light market. Other Information We were incorporated in Delaware in 1997. Our principal executive offices are located at 10 Milk Street, Suite 1100, Boston, Massachusetts 02108, and our telephone number is (617) 423-9999. Our website is located at www.colorkinetics.com. Information on our website should not be considered part of this prospectus. Color Kinetics Incorporated (Exact name of registrant as specified in its charter) Delaware 3646 04-339-1805 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 10 Milk Street, Suite 1100 Boston, Massachusetts 02108 (617) 423-9999 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents The Offering Common stock offered by Color Kinetics 4,000,000 shares Common stock to be outstanding after this offering 17,880,306 Use of proceeds To fund working capital and other general corporate purposes, including possible acquisitions. See Use of Proceeds. Proposed Nasdaq National Market symbol CLRK The number of shares of common stock to be outstanding after this offering is based on 13,880,306 shares outstanding as of June 10, 2004. This number includes shares that we will issue upon the automatic conversion to common stock of our outstanding preferred stock upon completion of this offering, and also reflects a one-for-two reverse stock split with respect to our common stock, which took effect on May 28, 2004. It excludes, as of June 10, 2004: 1,924,089 shares issuable upon exercise of options outstanding, which have a weighted average exercise price of $4.67 per share; up to 2,178,601 additional shares reserved for future issuance under our stock-based compensation plans; and 559,338 shares issuable upon exercise of warrants outstanding, which have a weighted average exercise price of $2.54 per share. George G. Mueller Chief Executive Officer COLOR KINETICS INCORPORATED 10 Milk Street, Suite 1100 Boston, Massachusetts 02108 (617) 423-9999 (Name, address, including zip code, and telephone number, including area code, of agent for service) (in thousands, except per share data) Statement of Operations Data: Revenues $ 16,566 $ 20,166 $ 28,849 $ 6,080 $ 8,217 Gross profit 4,996 7,494 14,073 2,879 4,169 Net income (loss) (14,682 ) (7,464 ) (727 ) (868 ) 330 Earnings (loss) per share: Basic $ (5.49 ) $ (2.71 ) $ (0.26 ) $ (0.31 ) $ 0.12 Diluted $ (5.49 ) $ (2.71 ) $ (0.26 ) $ (0.31 ) $ 0.06 Weighted average shares outstanding: Basic 2,675 2,757 2,790 2,782 2,804 Diluted 2,675 2,757 2,790 2,782 5,191 Pro forma earnings (loss) per share: Basic $ (0.06 ) $ 0.02 Diluted $ (0.06 ) $ 0.02 Pro forma weighted average shares outstanding: Basic 12,117 13,271 Diluted 12,117 14,092 (in thousands) Lighting systems (excluding branded consumer products) $ 3,426 $ 2,934 $ 4,891 $ 4,169 $ 5,320 $ 6,689 $ 6,744 $ 6,407 $ 6,752 Branded consumer products 416 353 1,271 577 404 22 332 279 A reconciliation of the federal statutory rate to the effective rate is as follows, for all periods presented: Federal 34 % State, net of federal benefit Copies to: John D. Patterson, Jr., Esq. Robert W. Sweet, Jr., Esq. Foley Hoag LLP 155 Seaport Boulevard Boston, Massachusetts 02210 Telephone: (617) 832-1000 Telecopy: (617) 832-7000 John R. Utzschneider, Esq. Bingham McCutchen LLP 150 Federal Street Boston, Massachusetts 02110 Telephone: (617) 951-8000 Telecopy: (617) 951-8736 Unless otherwise stated, all information contained in this prospectus: gives effect to the automatic conversion into common stock of our outstanding preferred stock upon completion of this offering; gives effect to amendments to our certificate of incorporation and by-laws that will become effective upon completion of this offering; assumes no exercise of the over-allotment option granted to the underwriters; and reflects a one-for-two reverse stock split with respect to our common stock, which took effect on May 28, 2004. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Table of Contents
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information concerning our company, the common stock being sold in this offering and our financial statements appearing in this prospectus. Because this is only a summary, you should read the rest of this prospectus before you invest in our common stock. Read this entire prospectus carefully, especially the risks described under Risk Factors. Phase Forward Incorporated Phase Forward is a provider of integrated enterprise-level software products, services and hosted solutions for use in the clinical trial component of our customers global research and development initiatives. Our customers include pharmaceutical, biotechnology and medical device companies, as well as academic institutions, clinical research organizations and other entities engaged in clinical trials. By automating essential elements of the clinical trial process, we believe our products allow our customers to accelerate the market introduction of new medical therapies and corresponding revenue, reduce overall research and development expenditures, enhance existing data quality control efforts and reduce clinical and economic risk. We believe our enterprise software and hosted solutions are the most widely-adopted commercial electronic data capture, data management and adverse event reporting solutions in the clinical trial marketplace, having been utilized in over 10,000 clinical trials involving more than 1,000,000 clinical trial study participants and 300 therapeutic compounds and medical devices. Our customer base includes over 220 companies, such as AstraZeneca Pharmaceuticals LP, Aventis S.A., Biogen Idec Inc., Eli Lilly and Company, GlaxoSmithKline plc, Guidant Corporation, Institut de Recherches Internationales Servier, Pfizer Canada, The Procter Gamble Company, Sanofi-Synth labo, Schering-Plough Research Institute and Serono S.A. Industry Overview The pharmaceutical industry is primarily comprised of branded pharmaceutical firms, biotechnology companies and generic drug manufacturers. These entities are responsible for the development and marketing of drug therapies which generated approximately $430 billion in global pharmaceutical sales in 2002, representing a compound annual growth rate of 8.5% since 1999, according to IMS Health. These companies are highly research intensive, with research and development expenditures estimated to have exceeded $68 billion in 2002. The clinical development of new drugs and therapies is centered on clinical trials designed to test human safety and efficacy prior to product commercialization and has historically comprised the largest component of these companies research and development expenditures. Clinical development has historically been a complex, paper-based process taking up to 15 years to complete at an estimated average total out-of-pocket research and development cost per approved new product, including the cost of non-approved products, in excess of $400 million. Our Solution Our products are designed to offer our customers enterprise-level automation of time-consuming, paper-based clinical trial processes and to scale securely, reliably and cost-effectively for clinical trials involving substantial numbers of clinical sites and patients worldwide. Our products are supported by comprehensive consulting and training services and robust application hosting and support capabilities on a global scale. Our product line is comprised of three software solutions, including: InForm, our Internet-based electronic data capture solution for collection and transmission of patient information in clinical trials; Clintrial, our clinical data management solution; and Clintrace, our solution for monitoring drug safety and reporting adverse events that occur during the clinical trial process. We principally offer our software products under multi-year term licenses and additionally, in the case of our InForm product, as a hosted-application solution delivered through a standard web-browser. Key benefits of our software products, services and hosted solutions include: Reduced time to market. Our software solutions user-friendly interfaces and web-based architecture allow users to input data during or soon after a patient visit and accelerate enterprise data visibility and analysis, thereby reducing the clinical trial timeline. Sales and marketing $ 3,173 21 % $ 3,305 19 % $ 132 4 % Research and development 2,583 17 2,936 17 353 14 % General and administrative 2,618 18 2,643 16 25 Other income (expense) Interest income $ 307 1 % $ 111 0 % $ (196 ) (64 )% Interest expense (418 ) (1 ) (364 ) (1 ) 54 13 % Other income 729 1 721 (in thousands) Provision for income taxes $ 435 1 % $ 434 Table of Contents Improved data integrity, process control and enterprise-level visibility. Our software solutions provide real-time edit-checking, data queries, reports and analysis, allowing entities engaged in clinical trials to enhance the quality and completeness of the data, as well as monitor the overall progress of the clinical trial program and site or investigator performance. Accelerated critical decision-making for research and development activities. Our software solutions can reduce the time it takes to collect and analyze a volume of data sufficient to assess the likelihood of a successful clinical trial. This makes early intervention or clinical trial or program cancellation more feasible and the process less costly. Enhanced patient safety and reduced potential liability. Utilizing our products, data from adverse events can be quickly identified, reported to the clinical trial sponsor and electronically communicated to regulatory authorities, supporting improved compliance and patient safety. Improved cost containment. The modular nature of our software solutions and the graphical authoring environment that we employ help streamline the clinical trial process by reducing labor and travel-related expenses associated with entering, cleaning and analyzing data. Our Strategy Our objective is to become the standard in technology solutions for clinical trial data capture, data management and adverse event reporting. To achieve this objective we intend to: Expand the customer base for our software products, services and hosted solutions. We intend to secure new customers by leveraging our industry position and domain expertise. Increase penetration within our existing customer base. We believe that a large percentage of our current customers would benefit from an integrated, enterprise-wide adoption of our clinical trial data solutions and we intend to aggressively pursue these cross-selling opportunities. Continue to capitalize on our technology position and expand our product offerings. We intend to develop new software products, services and hosted solutions through internal development, possible acquisitions and relationships with third-party technology providers. Continue to provide a superior level of global customer service and support. The delivery of a high level of multinational customer service and support with deep regulatory expertise is essential and we believe a significant differentiating characteristic of our business strategy. Our Business Model Our software solutions are principally provided to our customers for enterprise adoption through multi-year term licenses with periodic fees. This pricing model, in conjunction with the contractual nature of our services and support solutions, enables us to recognize revenue ratably over the life of a contract, which is typically three to five years. This allows us to maintain a backlog that provides multi-year visibility in revenues. We believe this visibility significantly differentiates us from our competitors, as our current and potential customers frequently look to long-term financial stability as a key criterion in evaluating a vendor to utilize in the clinical development process. As of March 31, 2004, our total backlog represented $143.3 million in commitments, of which the software license portion represented $74.6 million. Of our March 31, 2004 backlog, approximately $43.9 million is currently expected to be recognized during the remaining three quarters of 2004. Corporate Information We incorporated in the State of Delaware in 1997. Our executive offices are located at 880 Winter Street, Waltham, Massachusetts 02451, and our telephone number is (888) 703-1122. Our website address is www.phaseforward.com. The information on, or that can be accessed through, our website is not part of this prospectus. Total $ 60,572 100 % $ 62,025 100 % $ 1,453 Total $ 60,572 100 % $ 62,025 100 % $ 1,453 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents THE OFFERING Common stock offered 8,330,000 shares Common stock to be outstanding after this offering 34,786,936 shares Over-allotment option 1,249,500 shares Use of proceeds We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including sales and marketing and research and development expenditures, the repayment of certain indebtedness and possible strategic acquisitions. See Use of Proceeds for more information. Proposed Nasdaq National Market symbol PFWD The above information is based upon 26,456,936 shares outstanding as of March 31, 2004. Unless otherwise indicated, the information contained in this prospectus, including the information above: excludes 34,330 shares of common stock issuable upon exercise of a preferred stock warrant outstanding as of March 31, 2004, at an exercise price of $5.68 per share; excludes 4,588,751 shares of common stock issuable upon exercise of all options outstanding under our stock option plans as of March 31, 2004, with a weighted average exercise price of $2.98 per share; excludes an aggregate of 874,327 shares of common stock reserved for future issuance under our stock option plans as of March 31, 2004; assumes the automatic conversion of all outstanding shares of our preferred stock into 22,841,157 shares of common stock, upon the closing of the offering; and assumes no exercise of the underwriters over-allotment option. Robert K. Weiler Paul A. Bleicher John J. Schickling John F. Hamilton Stephen J. Powell 25,000 4% $ Net cash used in investing activities (447 ) Financing activities Exercise of stock options AMENDMENT NO. 7 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Unaudited Consolidated Balance Sheet Data: Cash, cash equivalents and restricted cash $ 24,041 $ 91,919 Working capital, net of deferred revenue 29,273 92,451 Total assets 79,479 147,201 Total deferred revenue 36,944 36,944 Total redeemable convertible preferred stock and warrant 126,038 Total stockholders equity (deficit) (103,060 ) 86,000 Table of Contents
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+Prospectus Summary 1
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+PROSPECTUS SUMMARY This summary highlights selected information contained in greater detail elsewhere in this prospectus and may not contain all of the information that you should consider before investing in our common stock. You should carefully read the following summary together with the more detailed information regarding us and our common stock being sold in this offering, including Risk Factors and the consolidated financial statements and the related notes appearing elsewhere in this prospectus, before making an investment decision. References in this prospectus to we , us and our are references to Radiation Therapy Services, Inc. and our subsidiaries, consolidated professional corporations and associations and unconsolidated affiliates, including joint ventures, unless the context requires otherwise. References in this prospectus to our treatment centers refer to owned, managed and hospital-based treatment centers. Additionally, references in this prospectus to our radiation oncologists refer to both those professionals employed by us and those employed by professional corporations in those treatment centers we manage, unless the context requires otherwise. RADIATION THERAPY SERVICES, INC. We are a provider of radiation therapy services to cancer patients. We own, operate and manage treatment centers focused exclusively on providing radiation treatment alternatives ranging from conventional external beam radiation to newer, technologically-advanced options. We believe we are the largest company in the United States focused exclusively on providing radiation therapy. We opened our first radiation treatment center in 1983 and currently provide radiation therapy services in 41 free-standing and 11 hospital-based treatment centers. Our treatment centers are clustered into 17 regional networks in eight states, including Alabama, Delaware, Florida, Kentucky, Maryland, Nevada, New York and North Carolina. In our 21 years of operation, we have developed a standardized operating model that enables our treatment centers to deliver high-quality, cost-effective patient care. We have a highly experienced management team and a number of our senior radiation oncologists are nationally recognized by the American College of Radiation Oncology for excellence and leadership in the field of radiation oncology. For the year ended December 31, 2003, our total revenues and pro forma net income grew by 25% and 28%, respectively, over the prior year. For the year ended December 31, 2003 and the three months ended March 31, 2004, respectively, we had total revenues of $138.7 million and $42.9 million and pro forma net income of $14.3 million and $6.2 million. Pro forma net income gives effect to taxes as if we had been taxed as a C corporation. Cancer is the second leading cause of death in the United States, exceeded only by heart disease. In 2004, the American Cancer Society estimates that an additional 1.4 million new cancer cases will be diagnosed in the United States and that cancer will account for one in every four deaths. According to the American Society for Therapeutic Radiology and Oncology, approximately 50% to 60% of patients diagnosed with cancer receive radiation therapy. Radiation therapy can be used as a stand-alone treatment option and as an adjunct treatment to surgery, chemotherapy and biological therapy. Radiation therapy can be used to cure cancer by destroying cancer cells and, when curing cancer is not possible, to shrink tumors and reduce pressure, pain and relieve other symptoms to enhance a patient s quality of life. We expect future growth in the radiation therapy market to be driven by: aging of the population in the United States, as 77% of all cancers are diagnosed in people over age 55; earlier detection and diagnosis of cancer; increased knowledge of and demand for advanced treatments by patients; growing utilization of advanced treatment technologies; and discovery of new and innovative means of delivering radiation therapy for the treatment of cancer. Table of Contents (This page intentionally left blank) Table of Contents Our Operating Strategy Our goal is to provide cancer patients with radiation therapy treatments to maximize clinical outcomes. We focus exclusively on providing a broad spectrum of radiation therapy in both a patient-friendly environment and cost-effective manner. In 28 of our radiation treatment centers we employ the physicians, and in 24 we operate pursuant to administrative services agreements. The key elements of our operating strategy are to: Emphasize Patient Service We focus on providing superior patient service in an effort to minimize the stress and uncertainty typically faced by cancer patients. Our services emphasize ease of access to our treatment centers, flexible scheduling and patient privacy. Provide Advanced Radiation Treatment Alternatives We provide cancer patients with access to the most advanced radiation treatment technologies, such as intensity modulated radiation therapy (IMRT), which are designed to deliver more effective doses of radiation while minimizing harm to surrounding tissues. We have directly benefited from the increasing awareness of cancer patients to these advanced radiation treatment alternatives. Establish and Maintain Strong Clinical Relationships with Referring Physicians Our team of radiation oncologists is focused on establishing a presence in the medical community and involving referring physicians in the care of the patient. We believe that strong clinical relationships with referring physicians result in the best possible patient care. Recruit and Retain Leading Radiation Oncologists We recruit radiation oncologists with excellent academic and clinical backgrounds who we believe have potential for professional growth. We offer our radiation oncologists the opportunity to practice with a team of leaders in the field, providing them with access to advanced technologies and the ability to earn compensation above the national average. We have a successful track record of retaining radiation oncologists on our staff. Over the last five years, retention rates for our radiation oncologists have exceeded 93%. Cluster our Treatment Centers into Regional Networks We cluster our treatment centers into regional networks in order to leverage our investment in advanced treatment technologies and our clinical and operational expertise over a larger patient population, and more effectively negotiate contracts with managed care payors. Continually Enhance Operational Efficiencies During our 21 years of operation, we have developed a standardized operating model that enables our treatment centers to cost-effectively deliver high-quality patient care. We continue to enhance our operating performance through the use of established protocols and procedures in our clinical operations and a centralized approach to administrative functions. Our Growth Strategy Our growth strategy is to further increase our market share within our established regional networks and selectively expand into new regions. The key elements of our growth strategy are to: Increase Revenue and Profitability of Our Existing Treatment Centers We are focused on increasing the revenue and profitability of our existing treatment centers through increasing clinical referrals, expanding our offering of advanced treatment options, standardizing treatment protocols, adding additional radiation oncologists and entering into additional payor relationships. Develop New Treatment Centers Within Our Existing Regional Networks Our management team has significant experience in the design and construction of radiation treatment centers, having developed 19 treatment centers since 1983. Our newly-developed treatment centers typically achieve positive cash flows within six to twelve months after opening. We currently have two new SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents treatment centers under development within our existing regional networks with one expected to replace an existing treatment center. Selectively Enter New Regions We have entered seven new regions within the last five years and plan to selectively expand into additional regions through the acquisition of established treatment centers, new treatment center development and strategic alliances and joint ventures. We currently plan to develop new treatment centers in two new regions. We carefully analyze and select potential new regions based on demographic characteristics, any pre-existing relationships with physicians or hospitals, the current competitive landscape, the payor environment and the region s regulatory environment. Our Risks Our business and our ability to implement our operating and growth strategies are subject to numerous risks which you should consider before investing in our common stock. In particular, the risks we face include risks related to: Dependence on Payments from Medicare and Medicaid Since a high proportion of cancer patients are over the age of 65 we depend on payments from government Medicare and Medicaid programs for a significant amount of revenue. In 2003 we estimate that approximately 55% of our net patient service revenue consisted of payments from Medicare and Medicaid. Our business could be materially harmed if by any changes that limit or reduce the amounts paid to us for our services under these government programs. Dependence on Payments from Managed Care Organizations We estimate that approximately 43% of our net patient revenue in 2003 was derived from commercial payors such as managed care organizations. Since commercial payor rates are generally higher than government program rates, our revenue and profitability will decline if commercial payors reduce their rates and our operating margins will be reduced. Potential Conflicts of Interest We have potential conflicts of interest relating to existing agreements with certain related parties. In 2003 we paid an aggregate of $6.6 million and received $21.8 million. If a dispute arises in connection with any of these related party agreements which we are unable to satisfactorily resolve, it could harm our business. Our Administrative Services Agreements Could be Terminated We have administrative services agreements in certain states. We are prohibited under corporate practice of medicine regulations from employing physicians. These administrative services agreements accounted for $34.6 million of our net patient service revenue in 2003. If our administrative services agreements are terminated, we could be materially harmed. Dependence on Recruiting and Retaining Radiation Oncologists Our success is dependent on our continuing ability to successfully recruit, train and retain or affiliate with radiation oncologists, physicists, dosimetrists, radiation therapists, and medical technicians. Although we have not experienced recruiting or retention problems in the past, there is currently a national shortage of these health care professionals which could adversely impact us in the future. Concentration of Florida Centers Our Florida treatment centers accounted for approximately 68% of our total revenues in 2003. Since a significant number of our centers are concentrated in Florida, our business is particularly sensitive to regulatory, economic and other conditions in that state. Extensive Governmental Regulation We are subject to extensive governmental regulation. Any violation of governmental laws or limitations and prohibitions placed on us could harm our business. Treatment centers at beginning of period 26 28 40 Internally developed 3 2 Acquired 2 6 6 Hospital-based 3 AMENDMENT NO. 3 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Significant Indebtedness We currently have outstanding debt under our senior secured credit facility of approximately $90.1 million. Although we plan to repay part of this indebtedness from the proceeds of this offering, our remaining indebtedness of approximately $49.7 million could have adverse consequences and hurt our business. We might not be able to successfully manage our risks and these risks could harm our business. The risks we face are described more fully in the Risk Factors section which follows this prospectus summary. Our Address Our principal executive office is located at 2234 Colonial Boulevard, Fort Myers, Florida 33907, and our telephone number is (239) 931-7275. We conduct much of our business under the name of our wholly-owned subsidiary, 21st Century Oncology, Inc. Our corporate website is www.rtsx.com. We also maintain a website for patients at www.21stcenturyoncology.com. Information contained on our websites is not part of this prospectus. Radiation Therapy Services, Inc. (Exact name of registrant as specified in our charter) Florida 8011 65-0768951 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification No.) Radiation Therapy Services, Inc. 2234 Colonial Boulevard Fort Myers, Florida 33907 (239) 931-7275 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents THE OFFERING Common stock offered by us 4,000,000 shares Common stock offered by selling shareholders 1,500,000 shares Common stock to be outstanding after this offering 22,274,124 shares Use of proceeds We plan to use the net proceeds of this offering to: repay approximately $47.8 million of outstanding indebtedness under our senior credit facility; repay approximately $2.7 million of outstanding indebtedness to certain of our directors, officers and related parties. We will not receive any proceeds from sale of shares of common stock by selling shareholders or the exercise by the underwriters of the over-allotment option granted by the selling shareholders. See Use of Proceeds and Certain Relationships and Related Party Transactions .
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001057538_financial_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001057538_financial_prospectus_summary.txt
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+PROSPECTUS SUMMARY The information in the following summary is described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider. Accordingly, you should also read the more detailed information set out in this prospectus, including the risk factors and the consolidated financial statements and related notes. Financial Pacific Company General We are a specialized commercial finance company that leases business-essential equipment to small businesses. We provide lease financing nationwide primarily through a growing network of over 450 independent lease brokers and equipment lessors. Our leases generally are noncancelable, full payout direct financing leases, by which we mean they transfer substantially all of the benefits and risks of ownership of the equipment to the lessee. Our business covers a wide range of equipment categories in numerous industries, including general construction and specialty trades, automotive repair and services, and restaurants and bars. The original equipment cost of leases in our portfolio generally ranges from $5,000 to $50,000 and does not exceed $125,000 for any individual lease. At March 31, 2004, the average original equipment cost of leases in our portfolio was approximately $19,000, with an average lease term at origination of approximately 48 months. During the first quarter of 2004, we originated 1,324 leases, representing $24.8 million in total original equipment cost, and in 2003, we originated 5,303 leases, representing $98.4 million in total original equipment cost. For the quarter ended March 31, 2004 and the year ended December 31, 2003, our average net investment in direct financing leases was $201.4 million and $194.1 million, respectively, and we generated revenues of $11.6 million and $44.2 million and net income of $1.9 million and $5.8 million, respectively. Our Market We operate in the small-ticket leasing market and, within this market, we target small, higher-risk businesses generally having limited operating or business credit history, or limited or poor credit history at the owner level. Using the latest estimates published by the Equipment Leasing Association, we estimate the small-ticket leasing market accounted for approximately $62.4 billion of the total new leasing volume originated in the United States in 2003. While we believe our segment constitutes a significant portion of the small-ticket leasing market, the needs of this segment have been underserved by banks, thrifts and large commercial finance companies due to the fact that these small businesses typically do not meet the underwriting criteria of these sources. We believe that our experience gained over 15 years in this segment of the small-ticket leasing market and our customized practices and systems developed specifically for this segment position us to continue to capitalize on this market opportunity. Our Business We were founded in 1975 to fund and service equipment leases primarily in the state of Washington. Beginning in the late 1980s, we developed a lease referral network of brokers and lessors which now spans the United States. We believe that the following components of our scalable, integrated infrastructure allow us to efficiently originate, underwrite and collect on the types of small-ticket leases we target, and provide us with the capability to serve a growing number of lease transactions: Lease Origination. We originate small-ticket leases mainly through a nationwide network of independent brokers and lessors who can submit lease applications and access up-to-date lessee information through our customized, secure website. ($ in thousands) Operating leases(2) $ 4,034 $ 829 $ 1,465 $ 1,465 $ 275 Long-term debt(3) 139,671 60,757 66,070 12,843 1 Subordinated debt(4) 10,000 500 9,500 Shares subject to mandatory redemption(5) 8,888 8,888 Security deposit refunds(6) 946 401 445 99 Table of Contents Credit Underwriting. We evaluate credit risk and maintain strict underwriting guidelines for our customer base using our proprietary credit scorecard. Our credit scorecard automatically scores each lease application, which is then promptly reviewed by our experienced underwriting personnel. Collections. Our collections department is staffed with seasoned employees having generally five to 20 years of relevant experience, including three to five years with our company, and is designed to systematically handle delinquent accounts, allocating appropriate collections resources and expertise at different points in the collections process. Our Competitive Strengths We believe our following strengths allow us to compete effectively in our segment of the small-ticket leasing market: a proprietary, periodically refined credit scorecard designed in consultation with Fair Isaac Corporation to evaluate credit risk within our targeted market niche; a seasoned underwriting staff, with an average of 22 years of relevant experience, that performs thorough reviews of our lease applications; an expanding national origination platform consisting of established relationships with over 450 independent brokers and lessors covering 48 states; a scalable business model capable of handling greater volumes of our current business and supporting potential expansion into other segments of the small-ticket leasing market; a portfolio diversified by geography, equipment category, industry, number of lessees and origination sources; an experienced collections department, structured to systematically handle delinquent accounts in an efficient manner; access to multiple funding sources and the ability to access funding at competitive rates through various economic cycles; integrated information technology systems that optimize our lease origination, credit, collection and account servicing functions; and an experienced management team, with an average of 23 years of relevant experience, that is largely responsible for the successful implementation of our current credit underwriting, scoring and collections systems. See Business Our Competitive Strengths below for a more in-depth discussion of what we consider to be our competitive strengths. Our Business Strategy To continue our disciplined growth in the small-ticket leasing market, we intend to: expand our broker and lessor network and achieve deeper penetration within our existing broker and lessor base; increase our penetration in geographic markets on which we have not focused substantial efforts to date; periodically refine our credit scorecard and improve our credit underwriting policies to give our credit underwriting staff better tools to approve lease applications that will generate attractive returns; and regularly explore the potential development of new products and programs aimed at our segment and other segments of the small-ticket leasing market in order to increase our overall lease originations. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents See Business Our Business Strategy below for a more in-depth discussion of our strategy and plans for accomplishing strategic goals. Risks and Uncertainties Our business is subject to a number of risks and uncertainties, including: our dependence on obtaining external financing to operate our business; whether we will be able to effectively underwrite leases for small, higher-risk businesses; our failure to meet the requirements of our financing arrangements which could cause acceleration of debt payments due under or termination of our financing arrangements; the possibility that our actual credit losses may exceed our expectations of credit losses leading to reduction or elimination of our operating income; whether we will be able to maintain existing effective relationships with brokers and lessors, which collectively generate a substantial portion of our business or establish new relationships; and the possibility of future interest rate increases, which may negatively impact our operating results. See Risk Factors below for a more in-depth discussion of the risks and uncertainties that may affect our business or your investment in our common stock. Recapitalization In January 1998, affiliates of Windward Capital Partners, L.P., a private equity investment firm, acquired a majority interest in Financial Pacific and restructured it as a Washington holding company with multiple classes of common stock. On or prior to the completion of this offering, we will recapitalize Financial Pacific, resulting in a single class of common stock. Corporate Information Our principal executive office is located at 3455 South 344th Way, Federal Way, Washington 98001, and our telephone number is (253) 568-6000. Our website address is www.finpac.com. The information found on our website is not, however, a part of this prospectus and any reference to our website is intended to be an inactive textual reference only and is not intended to create any hypertext link. Financial Pacific Company is a holding company that owns our operating subsidiary, Financial Pacific Leasing, LLC, that in turn owns three special purpose subsidiaries used for financing purposes: Financial Pacific Funding, LLC, Financial Pacific Funding II, LLC and Financial Pacific Funding III, LLC. We have pending trademarks for Financial Pacific, Financial Pacific Leasing, FinPac, and FP and its design. This prospectus also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties. (unaudited) (dollars in thousands) Income tax provision at statutory rate $ 1,554 34.0 % $ 1,794 34.0 % $ 3,385 34.0 % $ 851 34.0 % $ 1,127 34.0 % State income tax, net of federal tax benefit 171 3.7 205 3.9 493 4.9 124 5.0 163 4.9 Interest expense on shares subject to redemption 222 2.2 117 3.5 Other 21 0.4 5 0.1 5 0.1 1 0.0 Amendment No. 1 To Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering Common stock offered: By Financial Pacific Company 2,700,000 shares By selling shareholders 2,700,000 shares Total 5,400,000 shares Common stock outstanding after this offering 7,729,904 shares Offering price $ per share Use of proceeds We intend to use the net proceeds from this offering: to redeem $6.0 million of our outstanding preferred stock, plus accrued dividends, which amounted to $2.9 million at March 31, 2004; and to repay our outstanding subordinated debt totaling $10.0 million, plus accrued interest, which amounted to approximately $103,000 at March 31, 2004, and prepayment fees of approximately $400,000. With any remaining net proceeds, we intend to pay down outstanding debt under our syndicated warehouse credit facility. We will not receive any of the proceeds from the sale of shares of our common stock offered by the selling shareholders. Proposed Nasdaq National Market symbol FNPC The number of shares of our common stock outstanding after this offering is based on the number of shares outstanding as of March 31, 2004 (assuming the exercise of all outstanding warrants on a net issuance basis) and excludes shares of our common stock reserved for issuance under our stock option plans, of which 139,073 shares are currently issuable upon exercise of vested options outstanding at March 31, 2004 at a weighted average exercise price of $2.14 per share. This prospectus describes Financial Pacific after giving effect to our recapitalization, which will be completed on or prior to the completion of this offering. See Recapitalization. Except as otherwise indicated, all information in this prospectus assumes: no exercise of the underwriters over-allotment option; the reclassification of all outstanding shares of our existing classes of common stock into a single class of new common stock and a 0.75 for 1 reverse stock split of our common stock; the exercise of all outstanding warrants for 4,554,272 shares of common stock (assuming the exercise of all outstanding warrants on a net issuance basis); and no exercise of outstanding options since March 31, 2004. Financial Pacific Company (Exact name of registrant as specified in its charter) Washington 6172 91-1079276 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 3455 South 344th Way, Suite 300 Federal Way, Washington 98001 (253) 568-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) (1) Financing related costs are adjustments to mark our derivative financial instruments to their market values, which we have done since adopting SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, effective January 1, 2001. (2) Interest expense on shares subject to mandatory redemption is comprised of accrued dividends and accretion of the discount on these shares, which we have recognized as an expense subsequent to adoption of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, on July 1, 2003. Dale A. Winter President and Chief Executive Officer 3455 South 344th Way, Suite 300 Federal Way, Washington 98001 (253) 568-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ($ in thousands) Operating Data: Total new leases originated(1) 6,983 5,003 4,135 4,581 5,303 1,263 1,324 Total lease originations(2) $ 117,242 $ 102,933 $ 77,608 $ 85,176 $ 98,380 $ 23,830 $ 24,757 Average net investment in direct financing leases(3) 142,765 184,007 186,549 186,596 194,056 190,113 201,393 Weighted average interest rate (implicit) on new leases originated 22.63 % 20.08 % 21.68 % 22.05 % 22.57 % 22.25 % 22.32 % Interest income as a percent of average net investment in direct financing leases(4) 21.69 % 20.11 % 19.95 % 19.76 % 20.16 % 20.04 % 20.39 % Interest expense as a percent of average revolving and term debt(5)(6) 7.34 % 8.59 % 6.60 % 5.10 % 4.93 % 5.28 % 4.29 % Portfolio Asset Quality Data (end of period): Minimum lease payments receivable $ 246,106 $ 241,270 $ 235,638 $ 239,552 $ 257,211 $ 243,822 $ 260,769 Delinquencies past due greater than 60 days(7) NM NM NM 2.89 % 2.35 % 2.38 % 2.61 % Allowance for credit losses $ 9,006 $ 20,127 $ 18,853 $ 21,396 $ 22,793 $ 21,027 $ 23,498 Allowance for credit losses to delinquencies past due greater than 60 days NM NM NM 310.72 % 378.75 % 360.48 % 343.27 % Allowance for credit losses to net investment in direct financing leases 4.88 % 10.85 % 10.20 % 11.36 % 11.39 % 11.00 % 11.59 % Charge-offs, net (for the period) $ 8,080 $ 15,564 $ 15,273 $ 12,278 $ 11,632 $ 3,417 $ 2,410 Ratio of charge-offs, net, to average net investment in direct financing leases (for the period) 5.66 % 8.46 % 8.19 % 6.58 % 5.99 % 7.19 % 4.79 % Operating Ratios: Return on average total assets(8) 1.39 % (3.80 )% 0.83 % 1.22 % 2.81 % 2.74 % 3.89 % Return on average shareholders equity(9) 31.95 % (99.74 )% 21.51 % 24.85 % 41.97 % 47.50 % 47.04 % ($ in thousands) Provision for credit losses $ 13,999 $ 14,821 $ 822 5.9 % Total lease originations(1) $ 77,608 $ 85,176 $ 7,568 9.8 % Initial direct costs, capitalized 8,942 8,948 Copies to: Stewart M. Landefeld Eric A. DeJong Perkins Coie LLP 1201 Third Avenue, Suite 4800 Seattle, Washington 98101-3099 (206) 359-8000 Stanley F. Farrar Patrick S. Brown Sullivan Cromwell LLP 1888 Century Park East, 21st Floor Los Angeles, California 90067-1725 (310) 712-6600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. (1) Includes 479, 807 and 26 of new leases in 1999, 2000 and 2001, respectively, of a product line discontinued in 2001. (2) Represents cost of equipment purchased for lease contracts, which we also refer to as original equipment cost. Includes original equipment cost of $18.3 million, $31.1 million and $1.1 million in 1999, 2000 and 2001, respectively, of a product line discontinued in 2001. (3) The average net investment in direct financing leases is calculated using the month-end balances from the end of the preceding period through the end of the calculation period. This includes securitized assets and initial direct costs capitalized. (4) For purposes of periodic comparisons, interest income for each of the three-month periods ended March 31, 2003 and 2004 has been annualized by multiplying the respective interest income for the three-month period by four. (5) For purposes of periodic comparisons, interest expense for each of the three-month periods ended March 31, 2003 and 2004 has been annualized by multiplying the respective interest expense for the three-month period by four. (6) Based on interest expense incurred under our revolving and term debt. (7) Represents the total minimum lease payments receivable, or MLP, on delinquent leases divided by the MLP for all leases in our portfolio at a particular date. Prior to 2002, we measured MLP on leases delinquent between 60 and 90 days, but did not measure MLP for leases delinquent greater than 90 days. Instead, we measured the net investment in direct financing leases remaining in leases delinquent greater than 90 days. Consequently, delinquency data for years prior to 2002 are not meaningful. (8) Represents net income attributable to common shareholders as a percentage of the average of the period end total assets of the current period and the preceding period. For purposes of periodic comparisons, for each of the three-month periods ended March 31, 2003 and 2004, net income attributable to common shareholders has been annualized by multiplying the respective net income attributable to common shareholders for the three-month period by four. (9) Represents net income attributable to common shareholders as a percentage of the average of the period end shareholders equity of the current period and the preceding period. For purposes of periodic comparisons, for each of the three-month periods ended March 31, 2003 and 2004, net income attributable to common shareholders has been annualized by multiplying the respective net income attributable to common shareholders for the three-month period by four. Scheduled minimum lease payments at December 31, 2003, are as follows (dollars in thousands): 2004 $ 106,129 2005 77,535 2006 45,612 2007 21,637 2008 6,291 Thereafter CALCULATION OF REGISTRATION FEE Table of Contents
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+S-1/A Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Alliance Laundry Holdings, Inc., a Delaware corporation, as Alliance Holdings, and, together with its consolidated operations, as the Company, Alliance, we, our and us, unless otherwise indicated. Any reference to Alliance Laundry refers to our wholly-owned subsidiary, Alliance Laundry Systems LLC, a Delaware limited liability company, and its consolidated operations, unless otherwise indicated. Alliance Holdings is a holding company and has no direct operations. Alliance Holdings principal assets are the direct and indirect equity interests of Alliance Laundry. Our Company Overview We are the leading designer, manufacturer and marketer in North America of commercial laundry equipment used in laundromats, multi-housing laundries and on-premise laundries. Under the well-known brand names of Speed Queen , UniMac and Huebsch , we produce a full line of commercial washing machines and dryers with load capacities from 16 to 250 pounds. We believe we have been the market share leader in the North American stand alone commercial laundry equipment industry for more than ten years. With a market share of approximately 39% in 2003, we believe our sales are more than twice as large as those of the next largest competitor. We serve three distinct end-customer groups: (i) laundromats; (ii) multi-housing laundries, consisting primarily of common laundry facilities in apartment buildings, universities and military installations; and (iii) on-premise laundries, consisting primarily of in-house laundry facilities in hotels, hospitals, nursing homes and prisons. The primary means of serving these end-customers is through distributors and route operators. We believe that we have the most extensive distribution network in North America which gives us a significant competitive advantage. We reach laundromat and on-premise laundry end-customers through a network of over 200 North American distributors and over 100 international distributors, serving over 90 different countries. Our distributors purchase equipment from us, then re-sell and install it for laundromat and on-premise end-customers. We serve multi-housing end-customers through a network of over 80 route operators. Route operators purchase equipment from us, and then obtain leases from multi-housing property managers to place it into common laundry rooms. We estimate that our distributors and route operators have either the number one or number two market position in over 80% of North American markets. We believe that the superior quality and loyalty of our distribution network has been a significant factor in achieving the number one market share in North America in each of our three end-customer groups. We estimate that the North American stand alone commercial laundry equipment industry generated approximately $472.0 million in revenue in 2003. The industry s revenues are primarily driven by population growth and the replacement cycle of laundry equipment. North American consumers view clean clothes as a necessity, with economic conditions having limited effect on the frequency of use, and therefore the useful life, of laundry equipment. As a result, the industry s revenues have been relatively stable over time and through economic downturns. Company Strengths We believe that we have the following competitive strengths: Market Leader with Significant Installed Base. We are the market share leader in the overall North American stand alone commercial laundry equipment industry, and we believe that our sales are Asset Category: Equity securities 68 % 61 % Debt securities 31 % 38 % Other 1 % (1) Management estimates. As a result of our market leadership for more than ten years, we believe that we have the largest installed base of equipment in North America comprised of over two million machines. A significant majority of our revenue is attributable to replacement sales driven by our large installed base combined with an average ten year estimated life per machine. Stable Revenues and Increasing Cash Flow. We have experienced stable revenues even during economic slowdowns, driven by the underlying stability of the industry and the recurring sales of replacement equipment and service parts which together comprise the majority of our revenues. In addition, since 1995, we have progressively reduced our manufacturing costs through improvements in raw material usage and labor efficiency, as well as through plant consolidation, resulting in improving cash from operations as demonstrated by our historical financial performance. Our net cash from operating activities was approximately $11.7 million, $15.3 million, $21.3 million, $22.8 million and $30.4 million for 1999, 2000, 2001, 2002 and 2003, respectively. Limited Working Capital and Consistent Capital Expenditure Requirements. We aggressively manage our working capital requirements, having reduced net working capital as a percent of revenue from 8.2% in 2000 to 6.7% in 2003. From December of 2000 to December of 2003, inventory has been reduced from $37.5 million to $26.2 million, an improvement of 30.0%. We also have consistent capital expenditure requirements, with maintenance capital expenditures of $3.6 million, $2.6 million, $3.6 million, $2.7 million and $3.6 million, for 1999, 2000, 2001, 2002 and 2003, respectively. We believe that we currently have excess manufacturing capacity and can increase production without incurring significant additional capital expenditures. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Extensive and Loyal Distribution Network. We believe we have developed the most extensive distribution network in the North American industry, with over 200 distributors and 80 route operators. We estimate that our laundromat and on-premise laundry distributors and multi-housing route operators have either the number one or number two market position in over 80% of North American markets. These leading distributors and route operators are attracted by our industry-leading brand equity, broad product array, significant installed base and our comprehensive value-added support, which includes training, extensive electronic support of installation and service and joint promotion efforts. These factors lead to high costs for distributors and route operators to switch manufacturers, especially when combined with their substantial investments in service parts inventories and in training their sales and installation personnel with respect to our highly engineered products. Our customers place great value on the proven reliability of our products, backed by years of demonstrated experience in the field, as this significantly impacts their long term repair and maintenance expenses. We have not experienced any significant turnover of our distributors and route operators, of which a significant number have been customers for over ten years. High Barriers to Entry. We believe that significant time and substantial capital investment would be required for a new entrant to compete effectively in this market. Many years of engineering and field testing, plus substantial investment in plant and equipment, are required before the process of attempting to earn market share can take place. In addition, a new entrant would have to break the strong, established relationships that existing manufacturers have developed with distributors. There are significant costs for distributors and route operators to break these long-term relationships, including extensive retraining of distributors and route operators sales, installation and service personnel and duplication of service parts inventories which must be stocked for years. Comprehensive and Innovative Product Offering. We believe our product lines lead the industry in reliability, breadth of offerings, functionality and advanced features. In addition, we believe we are the only manufacturer in North America to produce a full product line (including topload washers, dryers, frontload washers, washer- extractors and tumbler dryers for all commercial customer groups), thereby providing customers with a single source solution for all their stand alone commercial laundry equipment needs. Our development team of more than 80 engineers and technical personnel, along with our marketing and sales personnel, work together with our major customers to redesign and enhance our products to better meet customer needs. For example, new products such as our NetMasterTM system emphasize efficiency and feature new electronic controls, facilitating ease of use as well as improving performance and reliability. Leading North American Brands. We market and sell our products under the widely recognized brand names Speed Queen , UniMac , Huebsch and Ajax . We believe that we have industry-leading brand equity and brand recognition, based upon historical customer survey results and the substantial market share growth achieved since 1993. Strong and Experienced Management Team. Led by chief executive officer and president Thomas L Esperance, we have assembled a strong and experienced management team. Our seven executive officers have an average of over 16 years of experience in the commercial laundry equipment and appliance industries. This management team has executed numerous strategic initiatives, including: (i) developing strategic alliances with key customers; (ii) acquiring and successfully integrating the commercial washer-extractor business of UniMac and the press and finishing equipment business of Ajax ; (iii) implementing manufacturing cost reduction and quality improvement programs; and (iv) ongoing refinements to our product offerings. Management s economic interests will align with those of securityholders through management s participation in our long-term incentive plan. Business Strategy We strive to continue our strong financial performance and selectively pursue growth opportunities by offering to our customers a full line of the most reliable and functional stand alone commercial laundry equipment, AMENDMENT NO. 3 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents together with industry-leading, comprehensive value-added services. The key elements of our strategy are as follows: Develop and Strengthen Relationships with Key Customers. We have developed and will continue to pursue long-term relationships with key customers and will pursue additional supply agreements with such customers. The relationships that we establish with our customers are comprehensive and include training, extensive technical support and promotion activities. In addition, we model our product development efforts to meet evolving customer preferences by working with key customers to develop new products, features and value-added services. We have not experienced any significant customer turnover. Our top ten customers, other than a significant new account that was added in 2003, have been our customers for at least ten years. For example, we currently sell our products to Coinmach Corporation, our largest customer, under a multi-year supply agreement. Coinmach, which is the largest operator of multi-housing laundries in North America, has been a significant customer of ours for over two decades. Continue to Improve Manufacturing Operations. We seek to continuously enhance our product quality and reduce costs through ongoing refinements to our manufacturing processes. We achieve such improvements, and intend to continue doing so, through collaboration among key customers, suppliers and our engineering and marketing personnel. Since 1996, we have progressively reduced our manufacturing costs through improvements in raw material usage and labor efficiency, as well as plant consolidation. Since 2000, we have been implementing a demand flow production system on our higher volume product lines. These process changes have resulted in significant improvements in assembly efficiency, inventory levels, customer order lead times and production quality. For example, labor productivity improved by 4.5% from 2002 to 2003, and over the same period, we improved our first year warranty incident rate to 0.3% of sales. Expand into the U.S. Home Laundry Market. We are planning to re-enter the U.S. home laundry market in October 2004, after the expiration of a non-compete agreement. This non-compete agreement was a result of the divestiture of a sister division in 1997. Our strategy in the home laundry market will be dual-pronged. First, we plan to re-enter the mid to high-end home laundry market with existing products that we currently sell internationally and into other markets. These existing products are designed to have useful lives approximately twice that of typical home laundry equipment. Before exiting the home laundry market in 1999 pursuant to the non-compete agreement, we produced annual home laundry units of about 500,000 for a 5% market share of annual home laundry units, which generated approximately $150 million in annual sales. We plan to leverage the strong brand equity of our Speed Queen name in order to recapture our historic market share. Second, we have signed a letter-of-intent with an ultra-premium home appliance company to produce professional-quality home laundry equipment to be sold under their brand name. This equipment is based completely on our current commercial equipment technology and production methods. These plans to enter both the mid to high-end and the ultra-premium home laundry markets should allow us to expand our sales and continue to diversify our customer base. These products will be produced in our current facilities with minimal incremental capital expenditures. New Credit Facility Concurrently with the closing of this offering, we will enter into a $185.0 million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp., General Electric Capital Corporation, LaSalle Bank NA and Lehman Commercial Paper Inc. Throughout this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility in a total principal amount of up to $50.0 million (less amounts reserved for letters of credit), which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $135.0 million, which we refer to as the Alliance Laundry Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 5080 (Primary Standard Industrial Classification Code Number) 20-0908915 (I.R.S. Employer Identification No.) P.O. Box 990 Ripon, Wisconsin 54971-0990 (920) 748-3121 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents new term loan. We expect that the new revolving credit facility and the new term loan will each have a 4.75-year maturity. We may use borrowings under the new credit facility to pay interest on the senior subordinated notes or dividends on our capital stock if we meet certain specified conditions. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. Tender Offer and Consent Solicitation Prior to this offering, we will commence a tender offer and consent solicitation with respect to all of our outstanding $110.0 million aggregate principal amount of 9 5/8% senior subordinated notes due 2008, for an expected aggregate consideration of $113.5 million plus accrued interest. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Holders of our existing senior subordinated notes that provide consents will be obligated to tender their notes in the offer, and holders of our existing senior subordinated notes that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we and the trustee of the existing senior subordinated notes will enter into a supplemental indenture that will delete all of the material restrictive covenants contained in the indenture governing the existing senior subordinated notes. The tender offer and consent solicitation will be consummated on the terms described above. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for our existing senior subordinated notes accepted for purchase in the tender offer and consent solicitation. Use of Proceeds We estimate that we will receive net proceeds from this offering of approximately $297.0 million after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. We will use these net proceeds, together with cash on hand and borrowings under our new credit facility, to repay our existing indebtedness, to repurchase a portion of our existing equity investors interest in our predecessor, and for working capital and general corporate purposes. We will not receive any of the proceeds from the underwriters exercise of their over-allotment option. Reorganization of Alliance Laundry Holdings LLC Bain Capital Fund V, L.P. and its co-investors, Bruckmann, Rosser, Sherrill Co., L.P. and its co-investors, and certain other persons listed in Principal and Selling Stockholders are the owners of our predecessor s equity interests prior to this offering. In this prospectus, we refer to these owners as the existing equity investors. Concurrently with the closing of the offering, our existing equity investors will contribute all of these equity interests to us in exchange for 3,353,841 IDSs (of which 2,062,754 will be subject to the underwriters over-allotment option), 1,803,045 shares of Class B common stock, and approximately $116.6 million in cash in the aggregate. We will own 100% of the equity interests in Alliance Laundry after the reorganization and the existing equity investors will own 20% of the voting power of our capital stock. We refer to this contribution as the reorganization. The reorganization itself will not immediately change the percentage ownership interests of any existing equity investors in Alliance Laundry. Following our reorganization, our executive management will collectively hold an aggregate of 564,697 IDSs and 218,396 shares of Class B common stock. Thomas F. L Esperance Chief Executive Officer and President Alliance Laundry Holdings, Inc. P.O. Box 990 Ripon, Wisconsin 54971-0990 (920) 748-3121 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at Shepard Street, Ripon, Wisconsin 54971-0990, and our telephone number is (920) 748-3121. Our internet address is www.comlaundry.com. www.comlaundry.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Copies to: Joshua N. Korff, Esq. Kirkland Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022 (212) 446-4800 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. Table of Contents The Offering We are offering 20,627,540 IDSs at an assumed initial public offering price of $15.00 per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $13.9 million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any affiliate of such purchaser, is entitled to purchase both IDSs and separate senior subordinated notes in the offering. As part of our reorganization described elsewhere in this prospectus, we also intend to issue 3,353,841 IDSs to our existing equity investors in exchange for the interests they hold in our predecessor (of which 2,062,754 will be subject to the underwriters over-allotment option). None of the senior subordinated notes sold separately (not represented by IDSs) in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our reorganization. Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $4.85 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. In addition, we currently intend to pay an initial dividend on December 30, 2004 in an amount of $ and $ per share of our Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at a quarterly rate of $0.2455 and $0.4001 per share of our Class A common stock and Class B common stock, respectively, for the remainder of the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes and our new credit facility will contain restrictions on our ability to declare and pay dividends on our common stock. See Dividend Policies and Restrictions. We expect to make interest and dividend payments, if any, on the 30th day of March, June, September and December of each year to holders of record on the 20th day of each such month, or, if such day is not a business day, the business day immediately preceding such 20th day. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the new credit facility. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol ALH. Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. However, a holder of our Class A common stock has a legal right under Delaware law to request that we issue a certificate for such common stock. Any holder of IDSs that wants to exercise such right, must first separate his IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Table of Contents Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering, in a subsequent offering of IDSs of the same series or in the open market, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Any voluntary separation or recombination of IDSs can occur on the same day as the request for separation or recombination as long as instructions are received by 3:00 p.m., Eastern Standard Time on that trading day. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Equity Investors Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange will not impair any rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by you; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. (In thousands) Cash flows from operating activities $ 11,662 $ 15,290 $ 21,338 $ 22,775 $ 30,393 $ 4,818 $ 16,751 Interest expense, net of non-cash interest 27,023 31,134 27,155 20,959 20,951 10,772 9,613 Net change in operating assets and liabilities 14,753 (393 ) 2,148 (1,301 ) 1,735 9,574 1,306 Income tax provision 29 20 34 56 55 43 54 Loss from early extinguishment of debt (2,004 ) Other(A) (2,470 ) (48 ) (67 ) 33 (33 ) (In thousands) Cash flows from operating activities $ 11,662 $ 15,290 $ 21,338 $ 22,775 $ 30,393 $ 4,818 $ 16,751 Interest expense, net of non-cash interest 27,023 31,134 27,155 20,959 20,951 10,772 9,613 Net change in operating assets and liabilities 14,753 (393 ) 2,148 (1,301 ) 1,735 9,574 1,306 Income tax provision 29 20 34 56 55 43 54 Loss from early extinguishment of debt (2,004 ) Other(A) (2,470 ) (48 ) (67 ) 33 (33 ) Service cost $ 406 $ 361 $ 23 $ 15 Interest cost 671 643 27 23 Expected return on assets (826 ) (705 ) Amortization of net obligation 12 12 Amortization of prior service cost 17 17 Amortization of loss 18 129 15 Title of Each Class of Securities Proposed Maximum to be Registered Aggregate Offering Price(1) Amount of Registration Fee(1) Table of Contents What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. Our counsel, Kirkland Ellis LLP, is of the opinion that the purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the terms of the IDSs (that is, securities structured as a unit consisting of senior subordinated notes and common stock). In light of this absence of direct authority, neither we nor our counsel can conclude with certainty that the IDSs should be so treated. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $10.15 and the initial fair market value of each $4.85 principal amount of senior subordinated notes as $4.85, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel, Kirkland Ellis LLP, is of the opinion that the senior subordinated notes should be treated as debt for United States federal income tax purposes, and we intend to deduct interest on such senior subordinated notes for tax purposes. However, there is no authority that directly addresses the tax treatment of instruments with terms substantially similar to the senior subordinated notes or offered under circumstances such as this offering (that is, senior subordinated notes offered as a unit with common stock). In light of this absence of direct authority, neither we nor our counsel can conclude with certainty that the senior subordinated notes will be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs, and in the event of any such ruling we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes with OID, and in connection with each issuance of senior subordinated notes thereafter, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of Table of Contents Item 15. Recent Sales of Unregistered Securities The registrant was formed in March 2004 and has not issued any securities. Simultaneously with the consummation of the offering of the securities being registered hereby, the registrant will issue an aggregate of 1,803,045 shares of the registrant s Class B common stock in connection with its reorganization. This issuance will be made in reliance upon Section 4(2) of the Securities Act of 1933, as amended and will not involve any underwriters, underwriting discounts or commissions, or any public offering. The persons and entities who will receive such securities have represented that each of them is an accredited investor (as such term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended) to acquire these securities for investment only and not with a view for sale or in connection with any distribution thereof, and appropriate legends will be affixed to any share certificates issued. All recipients have adequate access through their relationship with the registrant to information about the registrant. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits. The following exhibits are filed as part of this Registration Statement. 1 .1 Form of Underwriting Agreement.* 3 .1 Form of Amended and Restated Certificate of Incorporation of Alliance Laundry Holdings, Inc.* 3 .2 Certificate of Formation of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .3 Form of By-laws of Alliance Laundry Holdings, Inc. 3 .4 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .5 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.4 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857). 4 .1 Form of Indenture, among Alliance Laundry Holdings, Inc., the guarantors thereto and , as Trustee.* 4 .2 Form of Senior Subordinated Note (included in Exhibit 4.1).* 4 .3 Form of Investor Rights Agreement. 4 .4 Form of stock certificate for common stock.* 4 .5 Form of global IDS.* 4 .6 Form of guarantee related to the % Senior Subordinated Notes due 2019 (included in Exhibit 4.1).* 5 .1 Form of Opinion of Kirkland Ellis LLP. 8 .1 Form of Opinion of Kirkland Ellis LLP.** 10 .1 Purchase Agreement, dated as of April 29, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation and the Initial Purchasers (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .2 Registration Rights Agreement, dated as of May 5, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse First Boston Corporation (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as of May 5, 1998, between Alliance Laundry Holdings LLC and the Securityholders (Incorporated by reference to Exhibit 10.6 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .7 Alliance Laundry Holdings LLC, Registration Rights Agreement, made as of May 5, 1998, by and among Alliance Laundry Holdings LLC, Raytheon Company, Bain/RCL and the Securityholders (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .8 Employment Agreement, made as of May 5, 1998, by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .9 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, Thomas F. L Esperance and Stifel, Nicolaus Custodian for Thomas F. L Esperance IRA and Stifel, Nicolaus Custodian for Paula K. L Esperance IRA (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. Baird Co. Inc. TTEE for R. Scott Gaster IRA (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. Brothers, IRA (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, Nicolaus Custodian for Bruce P. Rounds IRA (Incorporated by reference to Exhibit 10.13 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Scott L. Spiller and Stifel, Nicolaus Custodian for Scott Spiller IRA (Incorporated by reference to Exhibit 10.14 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .16 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Thomas F. L Esperance, Raytheon Company, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.16 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .17 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.17 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .18 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.18 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .20 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.20 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.35 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.36 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.38 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Laundry Systems LLC, and Bain Capital, Inc. (Incorporated by reference to Exhibit 10.40 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Alliance Laundry Holdings LLC to Raytheon Company (Incorporated by reference to Exhibit 10.42 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .47 Letter Agreement, dated as of April 29, 1998, by and among Bain/RCL, L.L.C. and RCL Acquisitions, L.L.C., Raytheon Company and Raytheon Commercial Laundry L.L.C. (Incorporated by reference to Exhibit 10.47 to Alliance Laundry Systems LLC s Form S-4, Amendment #5, dated March 3, 1999 (file no. 333-56857)). 10 .49 Indenture Agreement, dated as of November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.49 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .50 Purchase Agreement, dated as of November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, in its own capacity and as servicer (Incorporated by reference to Exhibit 10.50 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .51 Pooling and Servicing Agreement, dated November 28, 2000, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Equipment Receivables Trust 2000-A (Incorporated by reference to Exhibit 10.51 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .52 Trust Agreement, dated November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.52 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .53 Administration Agreement, dated November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and Alliance Laundry Systems LLC as administrator, and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.53 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .54 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables LLC, dated as of November 28, 2000 (Incorporated by reference to Exhibit 10.54 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .55 Insurance and Indemnity Agreement, dated as of November 28, 2000, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.55 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .59 Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of February 27, 2002 (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). Table of Contents 10 .61 Second amendment, Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of August 19, 2002 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .62 Amended and Restated Credit Agreement, dated as of August 2, 2002, among Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC, the several banks or other financial institutions or entities from time to time parties to this Agreement, Lehman Commercial Paper Inc. as syndication agent, Fleet National Bank and LaSalle Bank National Association as documentation agents and General Electric Capital Corporation as administrative agent (Incorporated by reference to Exhibit 10.62 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .63 Intercreditor Agreement, dated as of November 26, 2002, by and between General Electric Capital Corporation as administrative agent and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.63 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .64 Supply Agreement, effective January 1, 2003, by and among Coinmach Corporation, Super Laundry Equipment Corporation and Alliance Laundry Systems LLC (certain portions of this exhibit were omitted subject to a pending request for confidential treatment) (Incorporated by reference to Exhibit 10.64 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .65 Indenture, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A and The Bank of New York as indenture trustee (incorporated by reference to Exhibit 4.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .66 Purchase Agreement, dated as of November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as buyer and Alliance Laundry Systems LLC as seller (Incorporated by reference to Exhibit 10.66 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .67 Pooling and Servicing Agreement, dated November 26, 2002, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables 2002 LLC as transferor and Alliance Laundry Equipment Receivables Trust 2002-A as issuer (Incorporated by reference to Exhibit 10.67 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .68 Trust Agreement, dated November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as transferor and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.68 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .69 Administration Agreement, dated November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A, as insurer, and Alliance Laundry Systems LLC, as administrator, and The Bank of New York, as indenture trustee (Incorporated by reference to Exhibit 10.69 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .70 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables 2002 LLC, dated as of November 26, 2002 (Incorporated by reference to Exhibit 10.70 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). Table of Contents 10 .72 Note Purchase Agreement, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A as issuer, The Bank of New York as indenture trustee, Alliance Laundry Systems LLC as the servicer, Alliance Laundry Equipment Receivables 2002 LLC as the transferor, the Note Purchasers party hereto, Bear Stearns Co. Inc. as co-administrative agent, and Canadian Imperial Bank of Commerce as co-administrative agent and agent (Incorporated by reference to Exhibit 10.72 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .73 Amendment No. 1 to Alliance Laundry Systems LLC Employment Agreement, dated as of July 23, 2003 by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .74 Amendment No. 1 to Alliance Laundry Holdings LLC Securityholders Agreement and Registration Rights Agreement, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.2 of Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .75 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .76 Amendment No. 2 to Securityholders Agreement and Registration Rights Agreement by and among Alliance Laundry Holdings LLC and Bain/RCL, L.L.C., dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .77 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.5 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .78 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William J. Przybysz (Incorporated by reference to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .79 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and R. Scott Gaster (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .80 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey J. Brothers (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .81 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Bruce P. Rounds (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .82 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .83 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Baudhuin.** 10 .84 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Bittner.** 10 .85 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Charles Eaves.** 10 .86 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Kaull.** Table of Contents 10 .88 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Gary Luckow.** 10 .89 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Richard Pyle.** 10 .90 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Rice.** 10 .91 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Quandt.** 10 .92 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .93 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Timothy Studt.** 10 .94 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey Thoms.** 10 .95 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Peter Toonen.** 10 .96 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Daniel Agnello.** 10 .97 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Richard Casey.** 10 .98 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Lee Wilson.** 10 .99 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Patti Andresen-Shew.** 10 .100 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Scott Gaster.** 10 .101 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Thomas F. L Esperance.** 10 .102 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Jay McDonald.** 10 .103 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Albert Rios.** 10 .104 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Bruce Rounds.** 10 .105 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Kim Shady.** 10 .106 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .107 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .108 Amendment No. 2 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). Table of Contents Exhibit Index 1 .1 Form of Underwriting Agreement.* 3 .1 Form of Amended and Restated Certificate of Incorporation of Alliance Laundry Holdings, Inc.* 3 .2 Certificate of Formation of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .3 Form of By-laws of Alliance Laundry Holdings, Inc. 3 .4 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .5 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.4 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857). 4 .1 Form of Indenture, among Alliance Laundry Holdings, Inc., the guarantors thereto and , as Trustee.* 4 .2 Form of Senior Subordinated Note (included in Exhibit 4.1).* 4 .3 Form of Investor Rights Agreement. 4 .4 Form of stock certificate for common stock.* 4 .5 Form of global IDS.* 5 .1 Form of Opinion of Kirkland Ellis LLP. 8 .1 Form of Opinion of Kirkland Ellis LLP.** 10 .1 Purchase Agreement, dated as of April 29, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation and the Initial Purchasers (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .2 Registration Rights Agreement, dated as of May 5, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse First Boston Corporation (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .5 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Holdings LLC, dated as of May 5, 1998 (Incorporated by reference to Exhibit 10.5 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as of May 5, 1998, between Alliance Laundry Holdings LLC and the Securityholders (Incorporated by reference to Exhibit 10.6 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .7 Alliance Laundry Holdings LLC, Registration Rights Agreement, made as of May 5, 1998, by and among Alliance Laundry Holdings LLC, Raytheon Company, Bain/RCL and the Securityholders (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .8 Employment Agreement, made as of May 5, 1998, by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. Baird Co. Inc. TTEE for R. Scott Gaster IRA (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. Brothers, IRA (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, Nicolaus Custodian for Bruce P. Rounds IRA (Incorporated by reference to Exhibit 10.13 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Scott L. Spiller and Stifel, Nicolaus Custodian for Scott Spiller IRA (Incorporated by reference to Exhibit 10.14 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .16 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Thomas F. L Esperance, Raytheon Company, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.16 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .17 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.17 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .18 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.18 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .20 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.20 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .34 Promissory Note, dated as of May 5, 1998, from Thomas F. L Esperance to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.34 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.35 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.36 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.38 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Laundry Systems LLC, and Bain Capital, Inc. (Incorporated by reference to Exhibit 10.40 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Alliance Laundry Holdings LLC to Raytheon Company (Incorporated by reference to Exhibit 10.42 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .49 Indenture Agreement, dated as of November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.49 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .50 Purchase Agreement, dated as of November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, in its own capacity and as servicer (Incorporated by reference to Exhibit 10.50 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .51 Pooling and Servicing Agreement, dated November 28, 2000, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Equipment Receivables Trust 2000-A (Incorporated by reference to Exhibit 10.51 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .52 Trust Agreement, dated November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.52 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .53 Administration Agreement, dated November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and Alliance Laundry Systems LLC as administrator, and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.53 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .54 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables LLC, dated as of November 28, 2000 (Incorporated by reference to Exhibit 10.54 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .55 Insurance and Indemnity Agreement, dated as of November 28, 2000, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.55 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .59 Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of February 27, 2002 (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .60 First amendment to the Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of June 21, 2002 (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .61 Second amendment, Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of August 19, 2002 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .62 Amended and Restated Credit Agreement, dated as of August 2, 2002, among Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC, the several banks or other financial institutions or entities from time to time parties to this Agreement, Lehman Commercial Paper Inc. as syndication agent, Fleet National Bank and LaSalle Bank National Association as documentation agents and General Electric Capital Corporation as administrative agent (Incorporated by reference to Exhibit 10.62 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .63 Intercreditor Agreement, dated as of November 26, 2002, by and between General Electric Capital Corporation as administrative agent and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.63 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). Table of Contents 10 .65 Indenture, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A and The Bank of New York as indenture trustee (incorporated by reference to Exhibit 4.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .66 Purchase Agreement, dated as of November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as buyer and Alliance Laundry Systems LLC as seller (Incorporated by reference to Exhibit 10.66 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .67 Pooling and Servicing Agreement, dated November 26, 2002, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables 2002 LLC as transferor and Alliance Laundry Equipment Receivables Trust 2002-A as issuer (Incorporated by reference to Exhibit 10.67 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .68 Trust Agreement, dated November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as transferor and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.68 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .69 Administration Agreement, dated November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A, as insurer, and Alliance Laundry Systems LLC, as administrator, and The Bank of New York, as indenture trustee (Incorporated by reference to Exhibit 10.69 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .70 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables 2002 LLC, dated as of November 26, 2002 (Incorporated by reference to Exhibit 10.70 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .71 Insurance and Indemnity Agreement, dated as of November 26, 2002, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2002-A as issuer, Alliance Laundry Equipment Receivables 2002 LLC as seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.71 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .72 Note Purchase Agreement, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A as issuer, The Bank of New York as indenture trustee, Alliance Laundry Systems LLC as the servicer, Alliance Laundry Equipment Receivables 2002 LLC as the transferor, the Note Purchasers party hereto, Bear Stearns Co. Inc. as co-administrative agent, and Canadian Imperial Bank of Commerce as co-administrative agent and agent (Incorporated by reference to Exhibit 10.72 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .73 Amendment No. 1 to Alliance Laundry Systems LLC Employment Agreement, dated as of July 23, 2003 by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .74 Amendment No. 1 to Alliance Laundry Holdings LLC Securityholders Agreement and Registration Rights Agreement, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.2 of Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .75 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .76 Amendment No. 2 to Securityholders Agreement and Registration Rights Agreement by and among Alliance Laundry Holdings LLC and Bain/RCL, L.L.C., dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). Table of Contents 10 .78 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William J. Przybysz (Incorporated by reference to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .79 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and R. Scott Gaster (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .80 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey J. Brothers (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .81 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Bruce P. Rounds (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .82 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .83 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Baudhuin.** 10 .84 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Bittner.** 10 .85 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Charles Eaves.** 10 .86 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Kaull.** 10 .87 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Paul Larkin.** 10 .88 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Gary Luckow.** 10 .89 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Richard Pyle.** 10 .90 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Rice.** 10 .91 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Quandt.** 10 .92 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .93 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Timothy Studt.** 10 .94 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey Thoms.** 10 .95 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Peter Toonen.** 10 .96 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Daniel Agnello.** 10 .97 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Richard Casey.** 10 .98 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Lee Wilson.** Income Deposit Securities (IDSs)(2) Table of Contents existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and due to the lack of authoritative guidance, statutes, regulations or rulings governing this situation, our counsel is unable to opine on the issue of whether such an exchange of senior subordinated notes would be a taxable exchange. It is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor in light of your particular circumstances concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies (Income Taxes and IDSs and Class B common stock). Class A Common Stock, par value $0.01 per share(3) Table of Contents Summary of the Capital Stock Issuer Alliance Laundry Holdings, Inc. Common stock We have 75,000,000 shares of authorized Class A common stock, par value $0.01 per share, 10,000,000 shares of authorized Class B common stock, par value $0.01 per share and 25,000,000 shares of authorized Class C common stock, par value $0.01 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by-laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Upon the closing of this offering, we will enter into an exchange agreement with our existing equity investors. This agreement will provide that following the second anniversary of this offering, at the option of holders of shares of our Class B common stock, in connection with a sale of such shares, we will exchange with the purchasers each share of Class B common stock into one IDS, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by Alliance Holdings 20,627,540 shares. by our existing equity investors 2,062,754 shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors 3,353,841 shares. Shares of common stock to be outstanding following the offering 23,981,381 shares of Class A common stock, all of which will be represented by IDSs and 1,803,045 shares of Class B common stock. No % Senior Subordinated Notes due 2019(4) Table of Contents shares of Class C common stock or preferred stock will be outstanding following the consummation of this offering. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends Dividends on the shares of our Class A, Class B and Class C common stock will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. We currently intend to pay an initial dividend on December 30, 2004 in an amount of $ and $ per share of our Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at a quarterly rate of $0.2455 and $0.4001 per share of our Class A common stock and Class B common stock, respectively, for the remainder of the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes and our new credit facility will contain restrictions on our ability to declare and pay dividends on our common stock. See Dividend Policies and Restrictions. No dividends can be declared or paid to holders of Class A common stock in any fiscal quarter unless we declare and pay, in such fiscal quarter, dividends on our Class B common stock at a rate per share equal to $ plus the rate per share of dividends paid on our Class A common stock; provided, that dividends on our Class B common stock will not exceed $ per share above the dividends rate paid on our Class A common stock with respect to any fiscal quarter. No shares of Class C common stock will be outstanding and we do not anticipate that we will issue any shares of Class C common stock or declare dividends thereon in the near future. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as Adjusted EBITDA reduced by cash interest expense, deferred interest, cash income tax expense, capital expenditures, any cash non-recurring fees, expenses or charges that were excluded in arriving at Adjusted EBITDA and repayments of our indebtedness. See Description of Senior Subordinated Notes Certain Definitions. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility. In addition, both the indenture and the new credit facility contain dividend suspension provisions under which we would be prohibited from paying dividends during any interest deferral period, while any deferred interest remains unpaid or if our interest coverage level fell below specified levels. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 30th day of March, June, September and December of each year to holders of record on the 20th Subsidiary Guarantee of % Senior Subordinated Notes(5) Table of Contents day, or, if such day is not a business day, the business day immediately preceding such 20th day, of such month. Listing We have applied to list the IDSs on the American Stock Exchange under the trading symbol ALH. We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Total $397,597,037 $50,375.54(6) Table of Contents Summary of Senior Subordinated Notes Issuer Alliance Laundry Holdings, Inc. Senior subordinated notes represented by IDSs being offered to the public: by Alliance Holdings $100.0 million aggregate principal amount of % senior subordinated notes. by our existing investors $10.0 million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $13.9 million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $16.3 million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $130.2 million aggregate principal amount of % senior subordinated notes (or $138.9 million assuming exchange of all of our Class B common stock for IDSs). Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 30th day of March, June, September and December of each year, commencing December 30, 2004 to holders of record on the 20th day of each such month, or, if such day is not a business day, the business day immediately preceding such 20th day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be Table of Contents permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date if we receive an opinion of counsel that the interest on the notes is not deductible for federal income tax purposes. Except as described above, we may not redeem the senior subordinated notes prior to , 2011. As described under Description of Senior Subordinated Notes Optional Redemption, we may, at our option, redeem all, but not less than all, of the senior subordinated notes at any time within 90 days following the occurrence of certain tax events, upon not less than 30 or more than 60 days notice at a redemption price equal to 100% of the principal amount of the senior subordinated notes, plus accrued and unpaid interest, if any, through but not limited to the redemption date. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries that guarantees any indebtedness under any senior credit document and is existing on the closing of this offering other than our securitization entities and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. (2) The IDSs represent 23,981,381 shares of the Class A common stock and $116,309,698 aggregate principal amount of % senior subordinated notes of Alliance Laundry Holdings, Inc. ( Alliance Holdings ). Includes 3,353,841 IDSs issued to existing investors in this offering at an assumed price equal to the price per IDSs to the public of which 2,062,754 are subject to the underwriters over-allotment option. Also includes an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents 23,981,381 shares of Alliance Holdings Class A common stock represented by the IDSs described above. (4) Includes $116,309,698 aggregate principal amount of Alliance Holdings % senior subordinated notes represented by the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $13,894,940 principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantor listed in the Table of Additional Registrant Guarantor on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6) $49,190.97 was previously paid and $1,184.57 additional registration fee is being paid in connection with this filing. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes with OID, and in connection with each issuance of senior subordinated notes thereafter, including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences United States Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees Alliance Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables, except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit Alliance Holdings and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: Alliance Holdings would have had no senior or pari passu indebtedness outstanding except for its guarantee under the new credit facility, as described below; and Alliance Holdings would have had $135.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility plus approximately $26.9 million of letters of Table of Contents credit, which would have been guaranteed on a senior secured basis by Alliance Holdings and the subsidiary guarantors. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Table of Contents Alliance Laundry Holdings LLC Notes to Financial Statements (Continued) Distributions Subject to any restrictions contained in any financing agreements to which we or any of our affiliates (as defined in the LLC Agreement) is a party, the Board of Managers (the Board ) may make distributions, whether in cash, property, or securities of the Company, at any time in the following order of priority: First, to the holders of Preferred Units, an amount determined by the aggregate unreturned capital. Second, to the holders of Class L Units, an amount equal to the aggregate unreturned capital of $45.6 million. Third, to the holders of Class L Units, the unpaid yield accrued on such Class L Units in an amount up to $900 per Class L Unit ($5.1 million). Fourth, ratably to the holders of Class L Units and Class M Units, any remaining unpaid yield accrued on the Class L Units ($38.3 million at December 31, 2003). Fifth, ratably to the holders of Common Units, an amount equal to the amount of such distribution that has not been distributed pursuant to the clauses described above, including achievement of the Class B and C Unit target multiples. We may distribute to each holder of units within 75 days after the close of each fiscal year such amounts as determined by the Board to be appropriate to enable each holder of units to pay estimated income tax liabilities. There were no distributions to holders of units during 2003, 2002 or 2001. Allocations Profits and losses of our Company are allocated among the various classes of units in order to adjust the capital accounts of such holders to the amount to be distributed upon liquidation of the Company. Restrictions on Transfer of Securities No holder of securities may sell, assign, pledge or otherwise dispose of any interest in the holder s securities except that (i) Bain LLC may transfer its securities to other security holders in the same class, (ii) holders may transfer their securities through applicable laws of descent and distribution, (iii) transfers of securities may be made to an affiliate, and (iv) the Preferred Units may be transferred with the consent of the Board. Note 11 Commitments and Contingencies: At December 31, 2003, we had commitments under long-term operating leases requiring approximate annual rentals in subsequent years as follows: 2004 $ 507 2005 389 2006 210 2007 33 2008 33 Thereafter Table of Contents
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+S-1/A Summary 1
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+PROSPECTUS SUMMARY The following summary may not contain all of the information that may be important to you. All share and per share information set forth in this prospectus has been adjusted to reflect a 1-for-3 reverse stock split that became effective on April 30, 2004. Unless otherwise indicated, the information in this prospectus assumes that the underwriters overallotment option is not exercised and that a $370 million refinancing of a substantial portion of our outstanding mortgage indebtedness will be funded on the closing date of this offering under definitive agreements that are held in escrow, subject to certain conditions, until the closing date. You should read all of the information contained in this prospectus, including our consolidated financial statements and related notes and the risks of investing in our common stock discussed under Risk Factors, before making a decision to invest in our common stock. Our Company Lodgian, Inc. is one of the largest independent owners and operators of full-service hotels in the United States in terms of our number of guest rooms and gross annual revenues, as reported by Hotel Motel Management Magazine in September 2003. We are considered an independent owner and operator because we do not operate our hotels under our own name. We operate substantially all of our hotels under nationally recognized brands, such as Crowne Plaza, Holiday Inn and Marriott. We currently operate 88 hotels, with an aggregate of 16,627 rooms, located in 30 states and Canada. Of the 88 hotels, 78 hotels, with an aggregate of 14,348 rooms, are part of our continuing operations, while ten hotels, with an aggregate of 2,279 rooms, are held for sale. Our portfolio of 88 hotels consists of 83 hotels that we wholly own and operate through subsidiaries, four hotels that we operate in joint ventures in which we have a 50% or greater voting equity interest and exercise control, and one hotel that we operate in a joint venture in which we have a 30% non-controlling equity interest. Our hotels are primarily full-service properties that offer food and beverage services, meeting space and banquet facilities and compete in the midscale and upscale market segments of the lodging industry. We operate all but three of our hotels under franchises obtained from nationally recognized hospitality franchisors. We operate 60 of our hotels under franchises obtained from InterContinental Hotels Group as franchisor of the Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express brands. We operate 15 of our hotels under franchises obtained from Marriott International as franchisor of the Marriott, Courtyard by Marriott, Fairfield Inn by Marriott and Residence Inn by Marriott brands. We operate another ten hotels under other nationally recognized brands. We believe that these strong national brands afford us many benefits, such as guest loyalty and market share premiums. Our corporate office is located in Atlanta, Georgia. Lodging Industry Outlook We believe that we have passed the bottom of the U.S. economic and lodging industry cycle, based on industry forecasts, general economic forecasts and historical data. Smith Travel Research forecasted that revenue per available room, or RevPAR, for the U.S. lodging industry will experience annual growth of 5.2% for 2004, driven by an expected improvement in supply and demand fundamentals. Specifically, Smith Travel Research forecasted an annual increase in demand, as measured by average daily rooms sold, of 4.0% for 2004, which it forecasted will outpace the annual net increase in supply of 1.2% in 2004. Other lodging industry analysts also have forecasted RevPAR growth in 2004 and 2005. Although these are only industry forecasts, and do not apply specifically to our portfolio of hotels, based on forecasted industry fundamentals, we believe that it is an opportune time in the business cycle to own, acquire and reinvest in hotels. Merrill Lynch Mortgage Lending, Inc. Total 56 $ 401,793 299,333 Computershare Trust Company of Canada 1 14,106 7,521 7.88% Lehman Financing Lehman Brothers Holdings, Inc. 17 69,539 76,449 Higher of 7.25% or LIBOR plus 5.25% Other Financings Column Financial, Inc. 9 61,681 27,300 10.59% Lehman Brothers Holdings, Inc. 5 38,125 23,409 $16,496 at 9.40%; $6,913 at 8.90% JP Morgan Chase Bank, Trustee 2 8,913 10,644 7.25% DDL Kinser 1 3,188 2,385 8.25% First Union Bank 1 4,297 3,359 9.38% Column Financial, Inc. 1 6,491 8,943 9.45% Column Financial, Inc. 1 6,120 3,206 10.74% Robb Evans, Trustee Merrill Lynch Mortgage Lending, Inc. Total 64 442,339 370,000 Computershare Trust Company of Canada(4) 1 13,874 7,391 7.88% Other financings(4) Column Financial, Inc. 9 61,505 26,761 10.59% Lehman Brothers Holdings, Inc. 5 37,976 23,292 $16,414 at 9.40%; $6,878 at 8.90% JP Morgan Chase Bank, Trustee 2 8,806 10,516 7.25% DDL Kinser 1 3,166 2,360 8.25% Column Financial, Inc. 1 7,762 8,847 9.45% Column Financial, Inc. Operated at January 1, 2001 112 3 Operated at December 31, 2001 106 3 (Unaudited in thousands) Lehman Financing Lehman Brothers Holdings, Inc. 15 65,141 71,071 Other financing Column Financial, Inc. 9 61,505 26,761 Lehman Brothers Holdings, Inc. 5 37,976 23,292 JP Morgan Chase Bank 2 8,806 10,516 DDL Kinser 1 3,166 2,360 First Union Bank 1 4,353 3,345 Column Financial, Inc. 1 7,762 8,847 Column Financial, Inc. 1 6,082 3,173 Robb Evans, Trustee Merrill Lynch Mortgage Lending, Inc. Total 56 401,793 299,333 Computershare Trust Company of Canada 1 14,106 7,521 7.88% Lehman Financing Lehman Brothers Holdings, Inc. 17 69,539 76,449 Higher of LIBOR plus 5.25% or 7.25% Other Financings Column Financial, Inc. 9 61,681 27,300 10.59% Lehman Brothers Holdings, Inc. 5 38,125 23,409 $16,496 at 9.40%; $6,913 at 8.90% JP Morgan Chase Bank 2 8,913 10,644 7.25% DDL Kinser 1 3,188 2,385 8.25% First Union Bank 1 4,297 3,359 9.38% Column Financial, Inc. 1 6,491 8,943 9.45% Column Financial, Inc. 1 6,120 3,206 10.74% Robb Evans, Trustee (1) (1) (Unaudited in thousands) Column Financial, Inc. 1 6,082 3,173 10.74% Robb Evans, Trustee Table of Contents FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements include statements relating to our plans, strategies, objectives, expectations, intentions, industry and adequacy of resources, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words believes, anticipates, expects, intends, plans, estimates, and projects and similar expressions are intended to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and the impact of those events on our business, financial condition, results of operations, cash flow, liquidity and prospects and are subject to many risks and uncertainties, including, among other things:
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+SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus and its exhibits carefully before you decide to invest. MORGAN STANLEY CHARTER SERIES The Morgan Stanley Charter Series consists of four continuously offered limited partnerships, each organized in the State of Delaware: <Table> <Caption> DATE ORGANIZED ------------------ <S> <C> Morgan Stanley Charter Graham L.P. July 15, 1998 Morgan Stanley Charter Millburn L.P. July 15, 1998 Morgan Stanley Charter MSFCM L.P. October 22, 1993 Morgan Stanley Charter Campbell L.P. March 26, 2002 </Table> The offices of each partnership are located at 825 Third Avenue, 9th Floor, New York, NY 10022, (212) 310-6444. Each partnership provides the opportunity to invest in futures, forwards, and options contracts managed by an experienced, professional trading advisor. Since each partnership's assets are traded by a different trading advisor, each employing a different trading program, you should review the specific information relating to each partnership and its trading advisor to better understand how a partnership may fit into your overall investment plan. If you decide to invest in more than one partnership, you may allocate your investment among any one or more of the partnerships and, after an initial six-month holding period, you may shift your investment among one or more of the other Charter Series partnerships. A futures contract is an agreement to buy or sell a fixed amount of a commodity or other underlying product, instrument, or index at a predetermined price at a specified time in the future. In order to secure its obligation to make or take delivery under a futures contract, the trader must deposit funds, referred to as margin, with the commodity broker through which it trades. An option on a futures contract gives the buyer of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract at the specified price within the specified period of time. Futures contracts and options on futures contracts are traded on U.S. and foreign exchanges. A forward contract is an agreement directly between two parties to buy or sell a fixed amount of an underlying product at an agreed price at an agreed date in the future. Forward contracts are not traded on exchanges, but rather are traded in the dealer markets. A partnership may take long positions in futures, forwards, and options contracts in which the partnership is obligated to take delivery of the underlying commodity, product, instrument, or index. A partnership also may take short positions in those contracts in which the partnership has an obligation to deliver the underlying commodity, product, instrument, or index. Futures, forwards, and options contracts are traded in a number of commodities, products, instruments, and indices, including foreign currencies, financial instruments, precious and industrial metals, energy products, agricultural commodities, stock indices, and "soft" commodities like cotton and cocoa. For additional information on the futures, options, and forwards markets, see "Statement of Additional Information" beginning on page * . The investment objective of each partnership is to achieve capital appreciation and to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While the partnerships have the same overall investment objective, and the trading advisors may trade in the same futures, forwards, and options contracts, each trading advisor and its trading programs trades differently. Each partnership has a different trading advisor and trading program. You should review and compare the specifics of each partnership, its terms, and its trading advisor before selecting one or more partnerships in which to invest. MORGAN STANLEY CHARTER GRAHAM L.P. This partnership's assets are traded by Graham Capital Management, L.P. pursuant to its Global Diversified Program at 1.5 times the leverage it normally applies for the program and its K4 Program at 1.5 times the leverage it normally applies for the program. The Global Diversified Program utilizes computerized trading models to participate in the potential profit opportunities in approximately 80 markets. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates, 25% in currencies, 17% in stock index futures, 15% in softs and agricultural futures, 8% in metal futures, and 9% in energy futures. The K4 Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur, and will normally enter or exit a position only when a significant price and volatility spike takes place. The program trades in approximately 65 markets and will normally have weightings of approximately 27% in futures contracts based on short-term and long-term global interest rates, 31% in currencies, 14% in stock index futures, 11% in softs and agricultural futures, 9% in metal futures, and 8% in energy futures. The average leverage employed by the partnership from February 2003 through January 2004 was 9.0 times net assets. The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MILLBURN L.P. This partnership's assets are traded by Millburn Ridgefield Corporation pursuant to its Diversified Portfolio at standard leverage. The objective of Millburn's trading method is to participate in major sustained price moves in the markets traded. Millburn will make trading decisions pursuant to its trading method, which includes technical trend analysis and certain non-trend-following technical systems, as well as the application of money management principles. The Diversified Portfolio trades in approximately 30 to 50 markets and will normally have weightings of approximately 42% in currencies, 23% in interest rates, 7% in softs and agricultural futures, 10% in stock index futures, 12% in energy futures, and 6% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.9 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MSFCM L.P. This partnership's assets are traded by Morgan Stanley Futures & Currency Management Inc. pursuant to its Global Portfolio at standard leverage. The Global Portfolio employs a technical trading strategy that concentrates participation in futures contracts traded on futures exchanges worldwide and select foreign currencies traded in the forward markets. The Global Portfolio trades global interest rates and stock index futures, currencies, energy futures, and precious and industrial metals. The Global Portfolio trades approximately 20 markets and will normally have weightings of approximately 30% in global interest rate futures, 6% in stock index futures, 30% in currencies, 20% in energy futures, and 14% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.0 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER CAMPBELL L.P. This partnership's assets are traded by Campbell & Company, Inc. pursuant to its Financial, Metal & Energy Large Portfolio. Campbell's trading models are designed to detect and exploit medium- to long-term price changes, while also applying proven risk management and portfolio management principles. Trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. The Financial, Metal & Energy Large Portfolio trades more than 50 markets and will normally have weightings of approximately 12% in global interest rate futures, 17% in stock index futures, 55% in currencies, 14% in energy futures, and 2% in metal futures. The average leverage employed by the partnership from January 2003 through February 2004 was 6.6 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. WHO MAY SUBSCRIBE INVESTMENT CONSIDERATIONS You must have a brokerage account with Morgan Stanley DW in order to purchase units in a partnership. You should purchase units in a partnership only if you understand the risks involved in the investment and only if your financial condition permits you to bear those risks, including the risk of losing all or substantially all of your investment in the partnership. You should invest in the units only with the risk capital portion of your investment portfolio. MINIMUM INVESTMENT If you are a new investor in the Charter Series of partnerships, you must invest at least $20,000. You may allocate your investment among any one or more of the partnerships in the Charter Series, but you must invest at least $5,000 in a partnership. Once you become an investor in any Charter Series partnership, you may increase that investment with an additional contribution of at least $1,000. If you are an investor in another limited partnership for which Demeter Management Corporation serves as the general partner, you may redeem your interest in that other partnership and use the proceeds to invest in any one or more of the Charter Series of partnerships. The $20,000 minimum subscription will be satisfied if the proceeds from the redemption would have equaled at least $20,000 as of the last day of the month immediately preceding the monthly closing at which the units are purchased, irrespective of whether the actual proceeds from the redemption are less than $20,000 when the units are redeemed. The general partner may, in its sole discretion, reject any subscription in whole or in part. FINANCIAL SUITABILITY Unless otherwise specified in the subscription agreement under "State Suitability Requirements," you must have either: a net worth of at least $150,000, exclusive of home, furnishings, and automobiles; or both a net worth of at least $45,000, exclusive of home, furnishings, and automobiles, and an annual income of at least $45,000. You should be aware, however, that certain states impose more restrictive suitability and/or higher minimum investment requirements. Before you invest you will be required to represent and warrant that you meet the applicable state minimum financial suitability standard set forth in the subscription agreement, which may also require a greater minimum investment. LIMITED REVOCATION RIGHT After you subscribe for units in any Charter Series partnership, you will have limited rights to revoke your subscription. You may only revoke a subscription and receive a full refund of the subscription amount, plus any accrued interest, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. THE OFFERING OF UNITS THE CHARTER SERIES CONTINUOUS OFFERING Each partnership is continuously offering units of limited partnership interest for sale at monthly closings held as of the last day of each month. Since you must subscribe for units prior to the month-end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The purchase price of each unit in a partnership will be equal to 100% of the partnership's net asset value per unit as of the month-end closing date. The general partner calculates each partnership's net asset value per unit on a monthly basis by dividing the partnership's month-end net assets by the number of its month-end outstanding units. A partnership's net assets is its assets minus its liabilities. ESCROW TERMS During each partnership's continuous offering, your subscription will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. Subscription funds held in escrow will be invested in the escrow agent's money market account and will earn interest at the rate then paid by the bank on that money market account. If the general partner accepts your subscription, the escrow agent will pay the subscription amount to the appropriate partnerships and pay any interest earned on those funds to Morgan Stanley DW Inc., the non-clearing commodity broker for each partnership. In turn, the non-clearing commodity broker will credit your customer account with the interest. If the general partner rejects a subscription, your account will be credited in an amount equal to the rejected subscription amount, together with any interest earned on those funds while held in escrow. SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER * These are speculative securities. * You could lose all or substantially all of your investment in the partnerships. * Past performance is not necessarily indicative of future results. * Each partnership's futures, forwards, and options trading is speculative and trading performance has been, and is expected to be, volatile. * Each partnership's trading is highly leveraged, which accentuates the trading profit or loss on a trade. * Charter Campbell has a limited operating history. * You may not redeem your units until you have been an investor for at least six months. * If you redeem units within 24 months after they are purchased, you will pay a redemption charge, except in defined circumstances. * Units will not be listed on an exchange and no other secondary market will exist for the units. * Each partnership pays substantial charges and fees and must earn substantial trading profits in order to pay these expenses. * Profits earned by a partnership will be taxable to an investor even though the general partner does not intend to make any distributions. MAJOR CONFLICTS OF INTEREST * Because the general partner, the commodity brokers, and the trading advisor for Charter MSFCM are affiliates, the fees and other compensation received by those parties and the other terms relating to the operation of the partnerships and the sale of units were not negotiated by an independent party. * Because your Morgan Stanley financial advisor receives a portion of the brokerage fees paid by the partnerships, your financial advisor has a conflict of interest in advising you in the purchase or redemption of units. * The trading advisors, commodity brokers, and general partner may trade futures, forwards, and options for their own accounts and, thus, they may compete with a partnership for positions. Also, the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. THE GENERAL PARTNER The general partner for each partnership is Demeter Management Corporation, a Delaware corporation. The general partner is or has been the general partner of 34 other commodity pools and currently operates 22 other commodity pools. As of January 31, 2004, the general partner managed $2.8 billion of client assets. The general partner's address is 825 Third Avenue, 9th Floor, New York, NY 10022, telephone (212) 310-6444. THE COMMODITY BROKERS The commodity brokers for the partnerships are responsible for holding the partnerships' funds deposited with them as margin for trades. If the commodity broker is also a clearing broker, it will also be responsible for assuring that the partnerships' trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. Morgan Stanley DW Inc., an affiliate of the general partner, is the non-clearing commodity broker for each partnership. As non-clearing commodity broker, Morgan Stanley DW Inc. holds each partnership's funds and provides margin funds to the clearing commodity brokers for the partnership's futures, forwards, and options positions. Morgan Stanley & Co. Incorporated, an affiliate of the general partner, serves as the clearing commodity broker for each partnership, with the exception of trades on the London Metal Exchange, which are cleared by Morgan Stanley & Co. International Limited, also an affiliate of the general partner. In addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of the foreign currency forward trades for the partnerships. ORGANIZATIONAL CHART Following is an organizational chart, which shows the relationships among the various parties involved with this offering. All of the parties are affiliates of Morgan Stanley except for the trading advisors for Charter Graham, Charter Millburn, and Charter Campbell. [chart] ------------------ * Demeter presently serves as general partner for 22 other commodity pools. Morgan Stanley DW acts as the non-clearing commodity broker for all of the commodity pools. Morgan Stanley & Co. acts as clearing commodity broker for all but one of the other commodity pools, and Morgan Stanley International serves as the clearing commodity broker for trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW also serves as selling agent for all of the commodity pools managed by the general partner. All of the commodity pools, including the partnerships, are managed and traded independently of one another. FEES TO BE PAID BY THE PARTNERSHIPS The partnerships pay the following fees on a monthly basis, except that Charter MSFCM pays a quarterly incentive fee: <Table> <Caption> MANAGEMENT FEE BROKERAGE FEE (ANNUAL RATE) INCENTIVE FEE (ANNUAL RATE) -------------- -------------- ------------- % % % <S> <C> <C> <C> Charter Graham.................. 2 20 6.25 Charter Millburn................ 2 20 6.25 Charter MSFCM................... 2 20 6.25 Charter Campbell................ 2.65 20 6.25 </Table> The management fee payable to each trading advisor and the brokerage fee payable to the non-clearing commodity broker are based on a percentage of net assets and will be paid monthly regardless of a partnership's performance. Each partnership pays its trading advisor an incentive fee only if trading profits are earned on the net assets managed by the trading advisor. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses, after brokerage, management, and incentive fees have been paid. Neither you nor the partnerships will pay any selling commissions or organizational, initial, or continuing offering expenses in connection with the offering of units by the partnerships. The non-clearing commodity broker will pay all costs incurred in connection with the continuing offering of units of each partnership and will pay the ordinary administrative expenses of each partnership. Each partnership will pay any extraordinary expenses it may incur. BREAK EVEN ANALYSIS Following is a table that sets forth the fees and expenses that you would incur on an initial investment of $20,000 in a partnership and the amount that your investment must earn, after taking into account estimated interest income, in order to break even after one year and after more than two years. The fees and expenses applicable to each partnership are described above. <Table> <Caption> $20,000 INVESTMENT -------------------------------------- CHARTER SERIES PARTNERSHIPS (EXCLUDING CHARTER CAMPBELL) CHARTER CAMPBELL ------------------ ---------------- <S> <C> <C> Management Fee.................................... 400 530 Brokerage Fee..................................... 1,250 1,250 Less: Interest Income (1)......................... 190 190 Incentive Fee (2)................................. -- -- Redemption Charge (3)............................. 408 408 Amount of trading profits a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge............................................ 1,868 1,998 Trading profits as a percentage of net assets that a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge........................ 9.34% 9.99% Amount of trading profits a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge............................................ 1,460 1,590 Trading profits as a percentage of net assets that a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge......................... 7.30% 7.95% </Table> (1) The partnerships receive interest at the rate earned by the non-clearing commodity broker on its U.S. Treasury bill investments with customer segregated funds as if 100% of each partnership's average net assets deposited with the non-clearing commodity broker for the month were invested at that rate. In addition, the non-clearing commodity broker will credit each partnership with 100% of the interest income the non-clearing commodity broker receives from the clearing commodity brokers with respect to such partnership's assets deposited as margin with the clearing commodity brokers. For purposes of the break even calculation, it was estimated that approximately 80% of a partnership's average daily funds maintained in trading accounts will be on deposit with the non-clearing commodity broker and earn interest income at a rate of approximately 1.00%, and that approximately 20% of a partnership's average daily funds maintained in trading accounts will be on deposit with the clearing commodity broker and generate interest income at a rate of approximately 0.75%. An interest rate of 1.00% was derived by using an average of the blended rate for the five recent weekly auction rates for three-month U.S. Treasury bills and adjusting for the historical rate that the non-clearing commodity broker earned in excess of such amount. The combined rate used for this break even analysis is estimated to be approximately 0.95%. Investors should be aware that the break even analysis will fluctuate as interest rates fluctuate, with the break even percentage declining as interest rates increase or increasing as interest rates decline. (2) Incentive fees are paid to a trading advisor only on trading profits earned. Trading profits are determined after deducting all partnership expenses, other than any extraordinary expenses, and do not include interest income. Therefore, incentive fees will be zero at the partnership's break even point. (3) Units redeemed at the end of 12 months from the date of purchase are generally subject to a 2% redemption charge; after 24 months there are no redemption charges. REDEMPTION CHARGES INCURRED BY YOU You will pay a redemption charge equal to 2% of the net asset value of the units redeemed if you redeem within the first 12 months after the units were purchased, and 1% if you redeem units within the 13th through the 24th month after the units were purchased. Units are not subject to a redemption charge after you have owned them for more than 24 months. You will not incur a redemption charge if you redeem units during the first 24 months after they were issued in the following circumstances: * If you redeem units immediately following notice of an increase in brokerage, management or incentive fees. * If you redeem units in connection with an exchange for units in another Charter Series partnership. * If you acquire units with the proceeds from the redemption of interests in a non-Charter Series partnership for which Demeter serves as the general partner, you will not be subject to a redemption charge on those units when they are redeemed. * If you previously redeemed units and paid a redemption charge or held those units for at least 24 months, you will not have to pay a redemption charge on subsequently purchased units, provided they are purchased within 12 months of the redemption of the old units and the purchase price of the new units does not exceed the net proceeds received from the prior redemption. REDEMPTIONS Once you have been an investor in any Charter Series partnership for more than six months, you are permitted to redeem any part of your investment, even if subsequent purchases have been held for less than six months. However, you will pay a redemption charge of 2% of the net asset value redeemed if your redeemed units were purchased within 12 months of the date of redemption, and 1% if purchased within 13 to 24 months of the date of redemption. You will not be subject to a redemption charge after you have owned your units for more than 24 months. Unless you are redeeming your entire interest in a partnership, redemptions may only be made in whole units, with a minimum of 100 units required for each redemption. EXCHANGE RIGHT You may redeem units in any partnership after you have been an investor for six months and use the proceeds to purchase units in one or more of the other partnerships in the Charter Series at a price equal to 100% of the net asset value per unit, without incurring any redemption or other charge on the transaction. DISTRIBUTIONS The general partner currently does not intend to make any distribution of partnership profits. TAX CONSIDERATIONS Even though the general partner currently does not intend to make distributions, your allocable share of the trading profits and other income of the partnerships in which you invest will be taxable to you. The trading activities of each partnership, in general, generate capital gains and losses and ordinary income. 40% of any trading profits on U.S. exchange-traded contracts are taxed as short-term capital gains at your ordinary income tax rate, while 60% of such gains are taxed at your long-term capital gains tax rate. We expect that each partnership's trading gains from other contracts will be primarily short-term capital gains. This tax treatment applies regardless of how long you hold your units. You may deduct losses on units against capital gains income. You may deduct losses in excess of capital gains against ordinary income only to the extent of $3,000 per year. You may also have to pay tax on a partnership's interest income even though you have lost money on your units.
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+SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus and its exhibits carefully before you decide to invest. MORGAN STANLEY CHARTER SERIES The Morgan Stanley Charter Series consists of four continuously offered limited partnerships, each organized in the State of Delaware: <Table> <Caption> DATE ORGANIZED ------------------ <S> <C> Morgan Stanley Charter Graham L.P. July 15, 1998 Morgan Stanley Charter Millburn L.P. July 15, 1998 Morgan Stanley Charter MSFCM L.P. October 22, 1993 Morgan Stanley Charter Campbell L.P. March 26, 2002 </Table> The offices of each partnership are located at 825 Third Avenue, 9th Floor, New York, NY 10022, (212) 310-6444. Each partnership provides the opportunity to invest in futures, forwards, and options contracts managed by an experienced, professional trading advisor. Since each partnership's assets are traded by a different trading advisor, each employing a different trading program, you should review the specific information relating to each partnership and its trading advisor to better understand how a partnership may fit into your overall investment plan. If you decide to invest in more than one partnership, you may allocate your investment among any one or more of the partnerships and, after an initial six-month holding period, you may shift your investment among one or more of the other Charter Series partnerships. A futures contract is an agreement to buy or sell a fixed amount of a commodity or other underlying product, instrument, or index at a predetermined price at a specified time in the future. In order to secure its obligation to make or take delivery under a futures contract, the trader must deposit funds, referred to as margin, with the commodity broker through which it trades. An option on a futures contract gives the buyer of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract at the specified price within the specified period of time. Futures contracts and options on futures contracts are traded on U.S. and foreign exchanges. A forward contract is an agreement directly between two parties to buy or sell a fixed amount of an underlying product at an agreed price at an agreed date in the future. Forward contracts are not traded on exchanges, but rather are traded in the dealer markets. A partnership may take long positions in futures, forwards, and options contracts in which the partnership is obligated to take delivery of the underlying commodity, product, instrument, or index. A partnership also may take short positions in those contracts in which the partnership has an obligation to deliver the underlying commodity, product, instrument, or index. Futures, forwards, and options contracts are traded in a number of commodities, products, instruments, and indices, including foreign currencies, financial instruments, precious and industrial metals, energy products, agricultural commodities, stock indices, and "soft" commodities like cotton and cocoa. For additional information on the futures, options, and forwards markets, see "Statement of Additional Information" beginning on page * . The investment objective of each partnership is to achieve capital appreciation and to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While the partnerships have the same overall investment objective, and the trading advisors may trade in the same futures, forwards, and options contracts, each trading advisor and its trading programs trades differently. Each partnership has a different trading advisor and trading program. You should review and compare the specifics of each partnership, its terms, and its trading advisor before selecting one or more partnerships in which to invest. MORGAN STANLEY CHARTER GRAHAM L.P. This partnership's assets are traded by Graham Capital Management, L.P. pursuant to its Global Diversified Program at 1.5 times the leverage it normally applies for the program and its K4 Program at 1.5 times the leverage it normally applies for the program. The Global Diversified Program utilizes computerized trading models to participate in the potential profit opportunities in approximately 80 markets. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates, 25% in currencies, 17% in stock index futures, 15% in softs and agricultural futures, 8% in metal futures, and 9% in energy futures. The K4 Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur, and will normally enter or exit a position only when a significant price and volatility spike takes place. The program trades in approximately 65 markets and will normally have weightings of approximately 27% in futures contracts based on short-term and long-term global interest rates, 31% in currencies, 14% in stock index futures, 11% in softs and agricultural futures, 9% in metal futures, and 8% in energy futures. The average leverage employed by the partnership from February 2003 through January 2004 was 9.0 times net assets. The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MILLBURN L.P. This partnership's assets are traded by Millburn Ridgefield Corporation pursuant to its Diversified Portfolio at standard leverage. The objective of Millburn's trading method is to participate in major sustained price moves in the markets traded. Millburn will make trading decisions pursuant to its trading method, which includes technical trend analysis and certain non-trend-following technical systems, as well as the application of money management principles. The Diversified Portfolio trades in approximately 30 to 50 markets and will normally have weightings of approximately 42% in currencies, 23% in interest rates, 7% in softs and agricultural futures, 10% in stock index futures, 12% in energy futures, and 6% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.9 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MSFCM L.P. This partnership's assets are traded by Morgan Stanley Futures & Currency Management Inc. pursuant to its Global Portfolio at standard leverage. The Global Portfolio employs a technical trading strategy that concentrates participation in futures contracts traded on futures exchanges worldwide and select foreign currencies traded in the forward markets. The Global Portfolio trades global interest rates and stock index futures, currencies, energy futures, and precious and industrial metals. The Global Portfolio trades approximately 20 markets and will normally have weightings of approximately 30% in global interest rate futures, 6% in stock index futures, 30% in currencies, 20% in energy futures, and 14% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.0 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER CAMPBELL L.P. This partnership's assets are traded by Campbell & Company, Inc. pursuant to its Financial, Metal & Energy Large Portfolio. Campbell's trading models are designed to detect and exploit medium- to long-term price changes, while also applying proven risk management and portfolio management principles. Trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. The Financial, Metal & Energy Large Portfolio trades more than 50 markets and will normally have weightings of approximately 12% in global interest rate futures, 17% in stock index futures, 55% in currencies, 14% in energy futures, and 2% in metal futures. The average leverage employed by the partnership from January 2003 through February 2004 was 6.6 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. WHO MAY SUBSCRIBE INVESTMENT CONSIDERATIONS You must have a brokerage account with Morgan Stanley DW in order to purchase units in a partnership. You should purchase units in a partnership only if you understand the risks involved in the investment and only if your financial condition permits you to bear those risks, including the risk of losing all or substantially all of your investment in the partnership. You should invest in the units only with the risk capital portion of your investment portfolio. MINIMUM INVESTMENT If you are a new investor in the Charter Series of partnerships, you must invest at least $20,000. You may allocate your investment among any one or more of the partnerships in the Charter Series, but you must invest at least $5,000 in a partnership. Once you become an investor in any Charter Series partnership, you may increase that investment with an additional contribution of at least $1,000. If you are an investor in another limited partnership for which Demeter Management Corporation serves as the general partner, you may redeem your interest in that other partnership and use the proceeds to invest in any one or more of the Charter Series of partnerships. The $20,000 minimum subscription will be satisfied if the proceeds from the redemption would have equaled at least $20,000 as of the last day of the month immediately preceding the monthly closing at which the units are purchased, irrespective of whether the actual proceeds from the redemption are less than $20,000 when the units are redeemed. The general partner may, in its sole discretion, reject any subscription in whole or in part. FINANCIAL SUITABILITY Unless otherwise specified in the subscription agreement under "State Suitability Requirements," you must have either: a net worth of at least $150,000, exclusive of home, furnishings, and automobiles; or both a net worth of at least $45,000, exclusive of home, furnishings, and automobiles, and an annual income of at least $45,000. You should be aware, however, that certain states impose more restrictive suitability and/or higher minimum investment requirements. Before you invest you will be required to represent and warrant that you meet the applicable state minimum financial suitability standard set forth in the subscription agreement, which may also require a greater minimum investment. LIMITED REVOCATION RIGHT After you subscribe for units in any Charter Series partnership, you will have limited rights to revoke your subscription. You may only revoke a subscription and receive a full refund of the subscription amount, plus any accrued interest, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. THE OFFERING OF UNITS THE CHARTER SERIES CONTINUOUS OFFERING Each partnership is continuously offering units of limited partnership interest for sale at monthly closings held as of the last day of each month. Since you must subscribe for units prior to the month-end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The purchase price of each unit in a partnership will be equal to 100% of the partnership's net asset value per unit as of the month-end closing date. The general partner calculates each partnership's net asset value per unit on a monthly basis by dividing the partnership's month-end net assets by the number of its month-end outstanding units. A partnership's net assets is its assets minus its liabilities. ESCROW TERMS During each partnership's continuous offering, your subscription will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. Subscription funds held in escrow will be invested in the escrow agent's money market account and will earn interest at the rate then paid by the bank on that money market account. If the general partner accepts your subscription, the escrow agent will pay the subscription amount to the appropriate partnerships and pay any interest earned on those funds to Morgan Stanley DW Inc., the non-clearing commodity broker for each partnership. In turn, the non-clearing commodity broker will credit your customer account with the interest. If the general partner rejects a subscription, your account will be credited in an amount equal to the rejected subscription amount, together with any interest earned on those funds while held in escrow. SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER * These are speculative securities. * You could lose all or substantially all of your investment in the partnerships. * Past performance is not necessarily indicative of future results. * Each partnership's futures, forwards, and options trading is speculative and trading performance has been, and is expected to be, volatile. * Each partnership's trading is highly leveraged, which accentuates the trading profit or loss on a trade. * Charter Campbell has a limited operating history. * You may not redeem your units until you have been an investor for at least six months. * If you redeem units within 24 months after they are purchased, you will pay a redemption charge, except in defined circumstances. * Units will not be listed on an exchange and no other secondary market will exist for the units. * Each partnership pays substantial charges and fees and must earn substantial trading profits in order to pay these expenses. * Profits earned by a partnership will be taxable to an investor even though the general partner does not intend to make any distributions. MAJOR CONFLICTS OF INTEREST * Because the general partner, the commodity brokers, and the trading advisor for Charter MSFCM are affiliates, the fees and other compensation received by those parties and the other terms relating to the operation of the partnerships and the sale of units were not negotiated by an independent party. * Because your Morgan Stanley financial advisor receives a portion of the brokerage fees paid by the partnerships, your financial advisor has a conflict of interest in advising you in the purchase or redemption of units. * The trading advisors, commodity brokers, and general partner may trade futures, forwards, and options for their own accounts and, thus, they may compete with a partnership for positions. Also, the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. THE GENERAL PARTNER The general partner for each partnership is Demeter Management Corporation, a Delaware corporation. The general partner is or has been the general partner of 34 other commodity pools and currently operates 22 other commodity pools. As of January 31, 2004, the general partner managed $2.8 billion of client assets. The general partner's address is 825 Third Avenue, 9th Floor, New York, NY 10022, telephone (212) 310-6444. THE COMMODITY BROKERS The commodity brokers for the partnerships are responsible for holding the partnerships' funds deposited with them as margin for trades. If the commodity broker is also a clearing broker, it will also be responsible for assuring that the partnerships' trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. Morgan Stanley DW Inc., an affiliate of the general partner, is the non-clearing commodity broker for each partnership. As non-clearing commodity broker, Morgan Stanley DW Inc. holds each partnership's funds and provides margin funds to the clearing commodity brokers for the partnership's futures, forwards, and options positions. Morgan Stanley & Co. Incorporated, an affiliate of the general partner, serves as the clearing commodity broker for each partnership, with the exception of trades on the London Metal Exchange, which are cleared by Morgan Stanley & Co. International Limited, also an affiliate of the general partner. In addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of the foreign currency forward trades for the partnerships. ORGANIZATIONAL CHART Following is an organizational chart, which shows the relationships among the various parties involved with this offering. All of the parties are affiliates of Morgan Stanley except for the trading advisors for Charter Graham, Charter Millburn, and Charter Campbell. [chart] ------------------ * Demeter presently serves as general partner for 22 other commodity pools. Morgan Stanley DW acts as the non-clearing commodity broker for all of the commodity pools. Morgan Stanley & Co. acts as clearing commodity broker for all but one of the other commodity pools, and Morgan Stanley International serves as the clearing commodity broker for trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW also serves as selling agent for all of the commodity pools managed by the general partner. All of the commodity pools, including the partnerships, are managed and traded independently of one another. FEES TO BE PAID BY THE PARTNERSHIPS The partnerships pay the following fees on a monthly basis, except that Charter MSFCM pays a quarterly incentive fee: <Table> <Caption> MANAGEMENT FEE BROKERAGE FEE (ANNUAL RATE) INCENTIVE FEE (ANNUAL RATE) -------------- -------------- ------------- % % % <S> <C> <C> <C> Charter Graham.................. 2 20 6.25 Charter Millburn................ 2 20 6.25 Charter MSFCM................... 2 20 6.25 Charter Campbell................ 2.65 20 6.25 </Table> The management fee payable to each trading advisor and the brokerage fee payable to the non-clearing commodity broker are based on a percentage of net assets and will be paid monthly regardless of a partnership's performance. Each partnership pays its trading advisor an incentive fee only if trading profits are earned on the net assets managed by the trading advisor. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses, after brokerage, management, and incentive fees have been paid. Neither you nor the partnerships will pay any selling commissions or organizational, initial, or continuing offering expenses in connection with the offering of units by the partnerships. The non-clearing commodity broker will pay all costs incurred in connection with the continuing offering of units of each partnership and will pay the ordinary administrative expenses of each partnership. Each partnership will pay any extraordinary expenses it may incur. BREAK EVEN ANALYSIS Following is a table that sets forth the fees and expenses that you would incur on an initial investment of $20,000 in a partnership and the amount that your investment must earn, after taking into account estimated interest income, in order to break even after one year and after more than two years. The fees and expenses applicable to each partnership are described above. <Table> <Caption> $20,000 INVESTMENT -------------------------------------- CHARTER SERIES PARTNERSHIPS (EXCLUDING CHARTER CAMPBELL) CHARTER CAMPBELL ------------------ ---------------- <S> <C> <C> Management Fee.................................... 400 530 Brokerage Fee..................................... 1,250 1,250 Less: Interest Income (1)......................... 190 190 Incentive Fee (2)................................. -- -- Redemption Charge (3)............................. 408 408 Amount of trading profits a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge............................................ 1,868 1,998 Trading profits as a percentage of net assets that a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge........................ 9.34% 9.99% Amount of trading profits a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge............................................ 1,460 1,590 Trading profits as a percentage of net assets that a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge......................... 7.30% 7.95% </Table> (1) The partnerships receive interest at the rate earned by the non-clearing commodity broker on its U.S. Treasury bill investments with customer segregated funds as if 100% of each partnership's average net assets deposited with the non-clearing commodity broker for the month were invested at that rate. In addition, the non-clearing commodity broker will credit each partnership with 100% of the interest income the non-clearing commodity broker receives from the clearing commodity brokers with respect to such partnership's assets deposited as margin with the clearing commodity brokers. For purposes of the break even calculation, it was estimated that approximately 80% of a partnership's average daily funds maintained in trading accounts will be on deposit with the non-clearing commodity broker and earn interest income at a rate of approximately 1.00%, and that approximately 20% of a partnership's average daily funds maintained in trading accounts will be on deposit with the clearing commodity broker and generate interest income at a rate of approximately 0.75%. An interest rate of 1.00% was derived by using an average of the blended rate for the five recent weekly auction rates for three-month U.S. Treasury bills and adjusting for the historical rate that the non-clearing commodity broker earned in excess of such amount. The combined rate used for this break even analysis is estimated to be approximately 0.95%. Investors should be aware that the break even analysis will fluctuate as interest rates fluctuate, with the break even percentage declining as interest rates increase or increasing as interest rates decline. (2) Incentive fees are paid to a trading advisor only on trading profits earned. Trading profits are determined after deducting all partnership expenses, other than any extraordinary expenses, and do not include interest income. Therefore, incentive fees will be zero at the partnership's break even point. (3) Units redeemed at the end of 12 months from the date of purchase are generally subject to a 2% redemption charge; after 24 months there are no redemption charges. REDEMPTION CHARGES INCURRED BY YOU You will pay a redemption charge equal to 2% of the net asset value of the units redeemed if you redeem within the first 12 months after the units were purchased, and 1% if you redeem units within the 13th through the 24th month after the units were purchased. Units are not subject to a redemption charge after you have owned them for more than 24 months. You will not incur a redemption charge if you redeem units during the first 24 months after they were issued in the following circumstances: * If you redeem units immediately following notice of an increase in brokerage, management or incentive fees. * If you redeem units in connection with an exchange for units in another Charter Series partnership. * If you acquire units with the proceeds from the redemption of interests in a non-Charter Series partnership for which Demeter serves as the general partner, you will not be subject to a redemption charge on those units when they are redeemed. * If you previously redeemed units and paid a redemption charge or held those units for at least 24 months, you will not have to pay a redemption charge on subsequently purchased units, provided they are purchased within 12 months of the redemption of the old units and the purchase price of the new units does not exceed the net proceeds received from the prior redemption. REDEMPTIONS Once you have been an investor in any Charter Series partnership for more than six months, you are permitted to redeem any part of your investment, even if subsequent purchases have been held for less than six months. However, you will pay a redemption charge of 2% of the net asset value redeemed if your redeemed units were purchased within 12 months of the date of redemption, and 1% if purchased within 13 to 24 months of the date of redemption. You will not be subject to a redemption charge after you have owned your units for more than 24 months. Unless you are redeeming your entire interest in a partnership, redemptions may only be made in whole units, with a minimum of 100 units required for each redemption. EXCHANGE RIGHT You may redeem units in any partnership after you have been an investor for six months and use the proceeds to purchase units in one or more of the other partnerships in the Charter Series at a price equal to 100% of the net asset value per unit, without incurring any redemption or other charge on the transaction. DISTRIBUTIONS The general partner currently does not intend to make any distribution of partnership profits. TAX CONSIDERATIONS Even though the general partner currently does not intend to make distributions, your allocable share of the trading profits and other income of the partnerships in which you invest will be taxable to you. The trading activities of each partnership, in general, generate capital gains and losses and ordinary income. 40% of any trading profits on U.S. exchange-traded contracts are taxed as short-term capital gains at your ordinary income tax rate, while 60% of such gains are taxed at your long-term capital gains tax rate. We expect that each partnership's trading gains from other contracts will be primarily short-term capital gains. This tax treatment applies regardless of how long you hold your units. You may deduct losses on units against capital gains income. You may deduct losses in excess of capital gains against ordinary income only to the extent of $3,000 per year. You may also have to pay tax on a partnership's interest income even though you have lost money on your units.
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+PROSPECTUS SUMMARY" --> PROSPECTUS SUMMARY You should read this entire prospectus carefully, especially the Risk Factors section and the consolidated financial statements. SpectraSite Overview We are one of the largest, in terms of number of towers, and fastest growing, in terms of revenue growth, wireless tower operators in the United States. Our business is owning, leasing and licensing antenna sites on wireless and broadcast towers, owning and licensing in-building shared infrastructure systems and managing access to rooftop telecommunications on commercial real estate. For the nine months ended September 30, 2003, 100% of our revenues came from our leasing and licensing operations. We have a portfolio of over 7,500 towers, primarily located in the top 100 basic trading area, or BTA, markets in the United States. We believe that the growing use of wireless communications services together with capacity constraints in the top 100 BTA markets will continue to increase the demand for tower assets located in these markets and drive the growth of our business. We emerged from bankruptcy on February 10, 2003. Under our plan of reorganization, we extinguished $1.76 billion of indebtedness. Our reorganization is discussed in greater detail in other sections of this prospectus. Our business is characterized by stable and recurring revenues, predictable operating costs and a low level of capital expenditures. We expect to continue to increase our revenues by adding new customers to our towers and by providing additional space to our existing customers. Revenues from our existing customers are expected to grow because of contractual provisions that increase our customers payments to us on an annual basis. We also experience minimal customer turnover due to long-term customer contracts, the quality of our assets and the significant relocation costs for our existing customers. Approximately 83% of our revenues from our site leasing and licensing operations are derived from the six largest wireless service providers and their affiliates. For the nine months ended September 30, 2003, two of these wireless service providers and their affiliates were responsible for 51% of our revenues from our site leasing and licensing operations. In addition, we currently operate with the lowest levels of debt and leverage among publicly traded tower companies. We incurred a net loss of approximately $6.1 million in the eight months ended September 30, 2003 and generated net income of $345.0 million in the one month ended January 31, 2003. Our net income for the one month ended January 31, 2003 includes non-recurring amounts related to our reorganization, including a gain on debt discharge of approximately $1.03 billion and reorganization expense items of $668.6 million. We incurred net losses of approximately $775.0 million in 2002, $654.8 million in 2001 and $157.6 million in 2000. As of December 31, 2002, prior to our emergence from bankruptcy, we had an accumulated deficit of $1.7 billion and a stockholders deficit of $75.1 million. Our Business Our business consists of site leasing and licensing operations. As of September 30, 2003, we owned or operated 7,437 wireless towers and in-building systems and 72 broadcast towers. We have major metropolitan market clusters in Los Angeles, Chicago, San Francisco, Philadelphia, Detroit and Dallas. Our principal business is the leasing of space on our antenna sites to wireless carriers, which represents more than 93% of our monthly revenues. Additionally, we have the exclusive rights to provide in-building systems to wireless carriers in over 300 retail shopping malls, casino/hotel resorts and office buildings. We are also the exclusive site manager for over 10,000 rooftop real estate properties in the United States. Because the costs of operating a tower are largely fixed, we believe that our highest returns will be achieved by leasing and licensing additional space on our existing sites. Recent Developments Unaudited Fourth Quarter 2003 Results. On February 2, 2004, we reported unaudited results for the fourth quarter ended December 31, 2003. As a result of the implementation of fresh start accounting as of January 31, 2003, our financial statements after that date are not comparable to our financial statements for prior periods because of the differences in the bases of accounting and the capital structure for the predecessor company and the reorganized company. Total revenues for the fourth quarter of 2003 were $81.6 million, compared to $74.9 million for the fourth quarter of 2002, representing an increase of 8.9%. Net of the revenues contributed by the 545 SBC towers that we sold in February, 2003, revenues increased 16.6% from the fourth quarter of 2002 to the fourth quarter of 2003. Operating income for the fourth quarter of 2003 was $16.6 million, an increase from an operating loss of $11.8 million for the same period in 2002. Other expense during the fourth quarter of 2003 was $0.8 million as compared to $1.7 million during the fourth quarter of 2002. Other expense items during the fourth quarter of 2003 primarily related to losses incurred on disposal of property, plant and equipment. Our net loss was $13.6 million for the fourth quarter of 2003 versus a net loss of $60.3 million during the fourth quarter of 2002. Basic net loss per share was $0.29 during the fourth quarter of 2003 as compared to a basic net loss of $0.39 per share during the fourth quarter of 2002. Adjusted EBITDA increased 29.6% to $41.5 million during the fourth quarter of 2003 from $32.0 million during the same period in the prior year. Net of the contribution from 545 SBC towers sold by us in February 2003, Adjusted EBITDA increased 45.2% from the fourth quarter of 2002 to the fourth quarter of 2003. Other expense items in the amount of $0.8 million during the fourth quarter of 2003 and $1.7 million during the fourth quarter of 2002 are included in the Adjusted EBITDA calculations. Net cash provided by operating activities decreased to $29.5 million during the fourth quarter of 2003 as compared to net cash provided by operating activities of $34.8 million during the fourth quarter of 2002, primarily due to normal fluctuations in working capital. Purchases of property and equipment during the fourth quarter of 2003 were $11.6 million, an increase from $8.8 million for the same period in 2002. Free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, during the fourth quarter of 2003 was $18.0 million as compared to free cash flow of $26.0 during the prior year s period. At December 31, 2003, we had $60.4 million of cash on hand and $639.6 million of long term debt. During the fourth quarter of 2003, we leased or subleased 56 SBC towers, for which we paid approximately $15.6 million in cash. Adjusted EBITDA for periods after January 31, 2003 consists of net income (loss) before depreciation, amortization and accretion, interest, income tax expense (benefit) and, if applicable, before discontinued operations and cumulative effect of change in accounting principle. For periods prior to January 31, 2003, Adjusted EBITDA also excludes gain on debt discharge, reorganization items, and write-offs of investments in and loans to affiliates. We use a different definition of Adjusted EBITDA for the fiscal periods prior to our reorganization to enable investors to view our operating performance on a consistent basis before the impact of the items discussed above on the predecessor company. Each of these historical items was incurred prior SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendments to Credit Facility. Effective October 24, 2003, we completed an amendment to our credit facility to replace the existing term loan with a new term loan that is substantially the same as the existing term loan, except that the interest rate was reduced from, at our option, Canadian Imperial Bank of Commerce s base rate plus 2.75% per annum or the Eurodollar rate plus 4.00% per annum to Canadian Imperial Bank of Commerce s base rate plus 1.75% per annum or the Eurodollar rate plus 3.00% per annum. We have asked our lenders to approve an amendment to our credit facility which, if completed, would replace the term loan portion of our credit facility with a new term loan that is substantially the same as the existing term loan, except that the interest rate will be reduced from, at our option, Canadian Imperial Bank of Commerce s base rate plus 1.75% per annum or the Eurodollar rate plus 3.00% per annum to Canadian Imperial Bank of Commerce s base rate 1 .1* Form of Underwriting Agreement 2 .1 Agreement to Sublease, dated as of February 16, 2000, by and between AirTouch Communications, Inc. and the other parties named therein as Sublessors, California Tower, Inc. and the Registrant. Incorporated by reference to exhibit no. 2.9 to the Registrant s Form 10-K for the year ended December 31, 1999. 2 .2 Amendment to the AirTouch Agreement, dated as of March 8, 2001. Incorporated by reference to exhibit no. 2.4 to the Registrant s Form 10-Q for the quarterly period ended March 31, 2001. 2 .3 Agreement to Sublease, dated as of August 25, 2000, by and among SBC Wireless, Inc. and certain of its affiliates, the Registrant, and Southern Towers, Inc. (the SBC Agreement ). Incorporated by reference to exhibit no. 10.1 to the Registrant s Form 8-K dated August 25, 2000 and filed August 31, 2000. 2 .4 Amendment No. 1 to the SBC Agreement, dated December 14, 2000. Incorporated by reference to exhibit no. 2.8 to the registration statement on Form S-3 of the Registrant, file no. 333-45728. 2 .5 Amendment No. 2 to the SBC Agreement, dated November 14, 2001. Incorporated by reference to exhibit no. 2.5 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .6 Amendment No. 3 to the SBC Agreement, dated January 31, 2002. Incorporated by reference to exhibit no. 2.6 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .7 Amendment No. 4 to the SBC Agreement, dated February 25, 2002. Incorporated by reference to exhibit no. 2.7 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .8 SpectraSite Newco Purchase Agreement, dated as of May 15, 2002, by and among Cingular Wireless LLC ( Cingular ), the Registrant, Southern Towers, Inc., SpectraSite Communications, Inc. and CA/NV Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.6 to the Registrant s Form 8-K dated May 22, 2002. 2 .9 November Agreement, dated as of November 14, 2002, by and among Cingular Wireless LLC ( Cingular ), the Registrant, Southern Towers, Inc. and CA/NV Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.1 to the Registrant s Form 8-K dated November 19, 2002. 2 .10 Amended and Restated Consent and Modification, dated as of November 14, 2002, by and among Southern Towers, Inc., CA/NV Tower Holdings, LLC, SBC Tower Holdings LLC, the Registrant and SBC Wireless LLC. Incorporated by reference to exhibit no. 10.2 to the Registrant s Form 8-K dated November 19, 2002. 2 .11 Amended and Restated Unwind Side Letter, dated as of November 14, 2002, by and among Cingular, SBC Wireless LLC, SBC Tower Holdings LLC, the Registrant, Southern Towers, Inc. and SpectraSite Communications, Inc. Incorporated by reference to exhibit no. 10.3 to the Registrant s Form 8-K dated November 19, 2002. 2 .12 Proposed Plan of Reorganization of the Registrant under chapter 11 of the Bankruptcy Code. Incorporated by reference to exhibit no. 2.1 to the Registrant s Form 8-K dated November 19, 2002. Amendment No. 1 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 plus 1% per annum or the Eurodollar rate plus 2.25% per annum. The proposed amendment would also provide that the interest rate margins would automatically be further reduced if our credit ratings improve. There can be no assurance that the lenders will agree to complete the amendment. Secondary Offering and NYSE Listing. On October 8, 2003, we completed an underwritten public offering of our common stock, whereby 10.35 million shares of common stock were sold by four of our existing stockholders, including an over-allotment option exercised by the underwriters. The selling stockholders received net proceeds of $292.0 million from the offering. In connection with this offering, we incurred costs of approximately $1.2 million in the three months ended September 30, 2003, which are included in Other income (expense). In connection with the offering, on October 3, 2003, our common stock began trading on the New York Stock Exchange under the symbol SSI . Discontinuation of Broadcast Services Division. On December 16, 2003, we decided to discontinue our broadcast services division, after evaluating the broadcast services sector and the continuing trend of declining sales and profitability. The assets and liabilities associated with this division have been classified as held for sale. The results of broadcast services operations have been reported separately as discontinued operations in the balance sheets and statements of operations. Prior period financial statements have been restated to present the operations of the division as a discontinued operation. Reorganization. The financial difficulties experienced by the telecommunications and broadcast industries in recent years have severely impacted capital availability within the wireless telecommunications and broadcast sectors. Many of our customers were forced to reduce scheduled capital expenditures, which in turn impeded our revenue and earnings growth and, therefore, our ability to service our long-term debt. In November 2002, after a review of our business and our prospects, we concluded that recoveries to creditors and equity holders would be maximized by a consensual restructuring implemented under chapter 11 of the Bankruptcy Code. In connection with this restructuring, we extinguished $1.76 billion of indebtedness in return for issuing approximately 47.5 million shares of our common stock. Also, in connection with this restructuring, all of our common stock outstanding prior to our bankruptcy was cancelled in exchange for warrants to purchase an aggregate of approximately 2.5 million shares of our common stock. Our operating subsidiaries, including SpectraSite Communications, Inc., or Communications, were not part of the bankruptcy reorganization. Our senior management team remained with us through the reorganization. After our emergence from bankruptcy, our largest stockholders are affiliates of Apollo Management V, L.P. and certain funds managed by Oaktree Capital Management, LLC. 1 .1* Form of Underwriting Agreement 2 .1 Agreement to Sublease, dated as of February 16, 2000, by and between AirTouch Communications, Inc. and the other parties named therein as Sublessors, California Tower, Inc. and the Registrant. Incorporated by reference to exhibit no. 2.9 to the Registrant s Form 10-K for the year ended December 31, 1999. 2 .2 Amendment to the AirTouch Agreement, dated as of March 8, 2001. Incorporated by reference to exhibit no. 2.4 to the Registrant s Form 10-Q for the quarterly period ended March 31, 2001. 2 .3 Agreement to Sublease, dated as of August 25, 2000, by and among SBC Wireless, Inc. and certain of its affiliates, the Registrant, and Southern Towers, Inc. (the SBC Agreement ). Incorporated by reference to exhibit no. 10.1 to the Registrant s Form 8-K dated August 25, 2000 and filed August 31, 2000. 2 .4 Amendment No. 1 to the SBC Agreement, dated December 14, 2000. Incorporated by reference to exhibit no. 2.8 to the registration statement on Form S-3 of the Registrant, file no. 333-45728. 2 .5 Amendment No. 2 to the SBC Agreement, dated November 14, 2001. Incorporated by reference to exhibit no. 2.5 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .6 Amendment No. 3 to the SBC Agreement, dated January 31, 2002. Incorporated by reference to exhibit no. 2.6 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .7 Amendment No. 4 to the SBC Agreement, dated February 25, 2002. Incorporated by reference to exhibit no. 2.7 to the Registrant s Form 10-K for the year ended December 31, 2001. 2 .8 SpectraSite Newco Purchase Agreement, dated as of May 15, 2002, by and among Cingular Wireless LLC ( Cingular ), the Registrant, Southern Towers, Inc., SpectraSite Communications, Inc. and CA/NV Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.6 to the Registrant s Form 8-K dated May 22, 2002. 2 .9 November Agreement, dated as of November 14, 2002, by and among Cingular Wireless LLC ( Cingular ), the Registrant, Southern Towers, Inc. and CA/NV Tower Holdings, LLC. Incorporated by reference to exhibit no. 10.1 to the Registrant s Form 8-K dated November 19, 2002. 2 .10 Amended and Restated Consent and Modification, dated as of November 14, 2002, by and among Southern Towers, Inc., CA/NV Tower Holdings, LLC, SBC Tower Holdings LLC, the Registrant and SBC Wireless LLC. Incorporated by reference to exhibit no. 10.2 to the Registrant s Form 8-K dated November 19, 2002. 2 .11 Amended and Restated Unwind Side Letter, dated as of November 14, 2002, by and among Cingular, SBC Wireless LLC, SBC Tower Holdings LLC, the Registrant, Southern Towers, Inc. and SpectraSite Communications, Inc. Incorporated by reference to exhibit no. 10.3 to the Registrant s Form 8-K dated November 19, 2002. 2 .12 Proposed Plan of Reorganization of the Registrant under chapter 11 of the Bankruptcy Code. Incorporated by reference to exhibit no. 2.1 to the Registrant s Form 8-K dated November 19, 2002. 3 .1 Third Amended and Restated Certificate of Incorporation of the Registrant. Incorporated by reference to exhibit no. 2.1 to the Registrant s Form 8-K dated February 11, 2003. 3 .2 Second Amended and Restated By-laws of the Registrant. Incorporated by reference to exhibit no. 2.2 to the Registrant s Form 8-K dated February 11, 2003. The Offering Common stock offered by the selling stockholders 8,000,000 shares Common stock outstanding before and after this offering 47,750,453 shares Dividend policy We have not paid any cash dividends on our common stock in the past and currently do not expect to pay dividends or make any other distributions on our common stock in the immediate future. Use of proceeds We will not receive any proceeds from the sale of shares by the selling stockholders. New York Stock Exchange symbol SSI All of the shares of common stock in this offering are being sold by the selling stockholders. The number of shares of common stock outstanding before and after this offering excludes 5,222,799 shares of common stock issuable upon exercise of outstanding stock options, an additional 393,978 shares of common stock available for future awards under our equity incentive plan, 2,496,854 shares of common stock issuable upon exercise of outstanding warrants and 135,866 shares of common stock issuable in connection with further distributions pursuant to our plan of reorganization. Except as otherwise indicated, information regarding the number of shares of our common stock reflects amounts outstanding as of December 31, 2003 and gives effect to our two-for-one stock split that was effected on August 21, 2003. As of December 31, 2003, the selling stockholders held approximately 47.0% of our outstanding common stock. After giving effect to this offering and assuming the full exercise of the underwriters option to purchase 1,200,000 additional shares, the selling stockholders will own approximately 27.7% of our outstanding common stock. Unless otherwise indicated, the information in this prospectus assumes that the underwriters will not exercise the over-allotment option granted to them by the selling stockholders.
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+elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. You should read the entire prospectus carefully, especially Risk factors beginning on page 10 and our consolidated financial statements and related notes, before deciding to invest in our common stock. Except as otherwise noted, all information in this prospectus assumes no exercise of the underwriters option to purchase additional shares of our common stock, assumes an initial public offering price of $ per share, which is the mid-point of the range set forth on the front cover of this prospectus, and reflects (i) a two-for-three reverse stock split of our existing common stock, (ii) our reincorporation in Delaware, (iii) an amendment to our Delaware certificate of incorporation and (iv) the reclassification of all of our classes of common stock into one new class of common stock, all of which have occurred in connection with this offering. Domino s Pizza, Inc. We are the number one pizza delivery company in the United States with a leading presence internationally. We pioneered the pizza delivery channel and have built the Domino s Pizza brand into one of the most widely-recognized consumer brands in the world. We operate through a network of more than 7,400 company-owned and franchise stores, located in all 50 states and in more than 50 countries. In addition, we operate 18 regional dough manufacturing and distribution centers in the contiguous United States and eight dough manufacturing and distribution centers outside the contiguous United States. The foundation of our system-wide success and leading market position is our strong relationship with our franchisees, comprised of nearly 2,000 owner-operators dedicated to the success of our company and the Domino s Pizza brand. Over our 44-year history, we have developed a simple, high-return business model focused on our core strength of delivering high-quality pizza in a timely manner. This business model includes a delivery-oriented store design with low capital requirements, a focused menu of high-quality, affordable pizza and complementary side items, highly-committed owner-operator franchisees and a vertically-integrated distribution system. Our earnings are driven largely from retail sales at our franchise stores, which generate royalty payments and distribution revenues to us. We also generate earnings through retail sales at our company-owned stores. In 2003, our franchise stores generated retail sales of approximately $3.8 billion, of which approximately $1.2 billion were international retail sales, while our company-owned stores generated retail sales of $381.4 million. In 2003, our domestic same store sales increased 1.3%, marking the third straight year that we outperformed our two national competitors in this key metric. Same store sales at our international stores increased 4.0% in 2003, marking the 10th consecutive year of same store sales growth. We believe that strong sales volume, combined with our efficient store and business models, generates superior store-level economics and company-level returns. We operate our business in three segments: domestic stores, domestic distribution and international. Domestic stores. The domestic stores segment, comprised of 4,327 franchise stores and 577 company-owned stores, generated revenues of $519.9 million and income from operations of $127.1 million during fiscal 2003. Store count at December 29, 2002 577 4,271 4,848 2,382 7,230 Openings 5 127 132 224 356 Closings (4 ) (72 ) (76 ) (83 ) (159 ) Transfers (1 ) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents In this prospectus, we use the terms Domino s Pizza, Domino s, we, us and our to refer to TISM, Inc. and its subsidiaries prior to TISM, Inc. s reincorporation by way of merger into its wholly-owned subsidiary, Domino s Pizza, Inc., and we also use such references to mean Domino s Pizza, Inc. and its subsidiaries after the merger. Our wholly-owned subsidiary, Domino s, Inc., files reports and other information with the Securities and Exchange Commission, but our common stock is not publicly traded. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from the information contained in this prospectus. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate as of the date on the front cover of this prospectus. Our business, financial condition, results of operations or prospects may have changed since the date of this prospectus, which could cause the information in this prospectus to be inaccurate as of such future date, and this prospectus will not be updated to reflect such change. The Domino s and Domino s Pizza names and logos are trademarks that are federally registered in the United States. The titles and logos associated with our products appearing in this prospectus, including Domino s HeatWave , Cinna Stix , Buffalo Chicken Kickers and Domino s PULSETM, are either federally registered trademarks or are subject to pending applications for registration. Our trademarks may also be registered in other jurisdictions. All other trademarks or trade names appearing elsewhere in this prospectus are the property of their respective owners. In this prospectus, we rely on and refer to information regarding the U.S. quick service restaurant, or QSR, sector, the U.S. QSR pizza category and its channels and competitors (including us) from the CREST report prepared by NPD Foodworld , a division of the NPD Group, or Crest, as well as market research reports, analyst reports and other publicly-available information. Although we believe this information to be reliable, we have not independently verified it. Domestic sales information relating to the U.S. QSR sector, the U.S. QSR pizza category and the U.S. pizza delivery and carry-out channels represent reported consumer spending by Crest. Presentation of financial and other data Our fiscal year is a 52- or 53-week year ending on the Sunday on or nearest to December 31. Our fiscal years 1999, 2000, 2001, 2002 and 2003 ended on January 2, 2000, December 31, 2000, December 30, 2001, December 29, 2002 and December 28, 2003, respectively. Fiscal years are identified in this prospectus according to the calendar year that they most accurately represent. For example, the fiscal year ended January 2, 2000 is referred to herein as fiscal 1999 or 1999. Our convention with respect to reporting periodic financial data is such that each of our first three fiscal quarters consist of twelve weeks while our last fiscal quarter consists of sixteen or seventeen weeks. Throughout this prospectus: unless otherwise indicated or the context otherwise requires, we refer to our common stock and non-voting common stock following the reclassification described under The reclassification collectively as our common stock; Table of Contents Domestic distribution. Our domestic distribution segment, which distributes food, equipment and supplies to all of our domestic company-owned stores and approximately 98% of our domestic franchise stores, generated revenues of $717.1 million and income from operations of $45.9 million during fiscal 2003. International. Our international segment, which oversees 2,506 franchise stores and operates 17 company-owned stores outside the contiguous United States and also distributes food and supplies in a limited number of these markets, generated revenues of $96.4 million and income from operations of $28.1 million during fiscal 2003. On a consolidated basis, we generated revenues of more than $1.3 billion and income from operations, after deducting $41.7 million of unallocated corporate and other expenses, of $159.5 million in fiscal 2003, which was more than double our income from operations in fiscal 1999, our first full fiscal year following our recapitalization led by investment funds affiliated with Bain Capital, LLC. We have been able to grow our earnings through strong domestic and international same store sales growth over the past five years, the addition of more than 1,200 stores worldwide over that time and strong performance by our distribution business. This growth was achieved with limited capital expenditures by us, since a significant portion of our earnings is derived from retail sales by our franchisees. Industry overview The U.S. QSR pizza category is large, growing and highly fragmented. With sales of $32.3 billion in the twelve months ended November 2003, the U.S. QSR pizza category is the second largest category within the $180.2 billion QSR sector. We operate primarily within the $11.7 billion U.S. pizza delivery channel, which accounted for 36% of total U.S. QSR pizza category sales in the twelve months ended November 2003. The U.S. pizza delivery channel grew at a compound annual rate of 1.1% from 2000 through 2003. We believe that this growth is the result of well-established demographic and lifestyle trends driving increased consumer emphasis on convenience. We and our top two competitors account for approximately 47% of the U.S. pizza delivery channel, with the remaining 53% of the channel held predominantly by small regional chains and individual establishments. We also compete in the U.S. carry-out pizza channel, which together with the U.S. pizza delivery channel are the largest and fastest-growing channels in the U.S. QSR pizza category. The $12.4 billion U.S. carry-out pizza channel grew at a compound annual rate of 2.9% from 2000 through 2003. While our primary focus is on the pizza delivery channel, we are also favorably positioned to compete in the carry-out channel given our strong brand, convenient store locations and high-quality, affordable menu offerings. Like the U.S. pizza delivery channel, we believe the international pizza delivery channel is large, growing and fragmented. By contrast, this channel is relatively underdeveloped, with only Domino s and one other competitor having a significant multinational presence. We believe that international growth will continue, driven by the growing demand for delivered pizza and by international consumers increasing emphasis on convenience. Federal income tax provision based on the statutory rate $ 21,097 $ 33,661 $ 21,852 State and local income taxes, net of related Federal income taxes 1,588 1,904 1,215 Non-resident withholding and foreign income taxes 3,726 3,829 4,163 Foreign tax and other tax credits (4,158 ) (4,506 ) (4,962 ) Losses attributable to foreign subsidiaries 281 325 593 Non-deductible expenses 498 471 551 Other 474 FORM S-1 REGISTRATION STATEMENT Under Securities Act of 1933 Table of Contents unless otherwise indicated, store counts are as of December 28, 2003; and all share data assumes a per share Class L preference amount of $ , which is the per share Class L preference amount that we used to estimate the number of shares of common stock issuable upon the conversion of our Class L common stock into our common stock as described under The reclassification. Until , 2004 (25 days after the date of this prospectus), all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to a dealer s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. Table of Contents Our competitive strengths We believe that our competitive strengths include the following: Strong and proven growth and earnings model. Over our 44-year history, we have developed a successful and focused growth and earnings model. This model is anchored by high-return, store-level economics, which provide an entrepreneurial incentive for our franchisees, generate demand for new franchises and are the foundation for the strength of our system. Our franchisees, in turn, have produced strong and consistent earnings for us through royalty payments and distribution revenues, with minimal associated capital expenditures by us. This enables us to both invest in the Domino s Pizza brand and deliver strong returns to our stockholders. #1 pizza delivery company in the United States with a leading international presence. We are the number one pizza delivery company in the United States with a 19.8% share of the large, growing and highly-fragmented U.S. pizza delivery channel. We believe that our share position and scale allow us to leverage our purchasing power, distribution strength and advertising investment across our store base while effectively serving our customers demands for convenience and timely delivery. Internationally, we believe we have a leading presence in the key markets in which we compete. Strong brand awareness. We believe our Domino s Pizza brand, routinely named a MegaBrand by Advertising Age, is one of the most widely-recognized consumer brands in the world. We, along with our franchisees, have supported the brand with an estimated $1.2 billion of domestic advertising investment over the past five years. We enhance the strength of our brand through marketing affiliations with other strong brands such as Coca-Cola and NASCAR . We believe that consumers associate our brand name with high-quality pizza delivered in a timely manner, which has contributed to our success. Our internal distribution system. Our vertically-integrated distribution system generates significant revenues and earnings for us. We believe this system also enhances the quality and consistency of our products, enhances our relationships with franchisees, leverages economies of scale to offer lower costs to our stores and allows our store managers to better focus on store operations and customer service. We believe that the advantages and efficiencies that this system affords are evidenced by approximately 98% of our domestic franchise stores purchasing all of their food and supplies from us. Strong leadership team with significant ownership. We have a strong, knowledgeable leadership team with significant industry expertise. In addition, the members of our leadership team have meaningful equity ownership in our company, which effectively aligns their interests with those of our stockholders. This alignment of interests extends beyond the leadership team to the more than 185 additional team members who currently own our stock or hold options to purchase our stock. DOMINO S PIZZA, INC.(1) TISM, INC. (Exact name of registrant as specified in its charter) Delaware 5812 38-2511577 Michigan 5812 38-2511577 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 30 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106 (734) 930-3030 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Our business strategy We intend to achieve further growth and strengthen our competitive position through the continued implementation of our business strategy, which includes the following key elements: Continue to execute on our mission statement. Our mission statement is Exceptional people on a mission to be the best pizza delivery company in the world. We undertake this mission by focusing on four strategic initiatives: PeopleFirst, Build the Brand, Maintain High Standards and Flawless Execution. We intend to adhere to our guiding principles by focusing on operational excellence, brand recognition, the timely delivery of high-quality food products and our continuing initiative to attract and retain exceptional people throughout our system. Grow our leading position in an attractive industry. The highly-fragmented U.S. pizza delivery and carry-out channels are the largest and fastest-growing channels in the U.S. QSR pizza category. As the clear leader in the U.S. pizza delivery channel, we believe that our convenient store locations, simple operating model, widely-recognized brand and efficient distribution system are competitive advantages that position us to capitalize on future growth. Leverage our strong brand awareness. We believe that the strength of our Domino s Pizza brand makes us one of the first choices of consumers seeking a convenient, high-quality and affordable meal. We intend to continue to promote our brand name and enhance our reputation as the clear leader in pizza delivery. We also believe that our strong brand offers significant opportunities to drive incremental sales of innovative, consumer-tested and profitable new pizza varieties and complementary side items. We believe these opportunities, when coupled with our scale and industry leadership, will allow us to increase our market share in the highly-fragmented U.S. pizza delivery channel. Expand and optimize our domestic store base. We plan to continue expanding our base of domestic stores to take advantage of the attractive growth opportunities in the highly-fragmented U.S. pizza delivery channel. Our franchise-oriented business model allows us to expand our store base with limited capital expenditures and working capital requirements. While we plan to expand our traditional domestic store base primarily through opening new franchise stores, we will also continually evaluate our mix of company-owned and franchise stores and strategically acquire franchise stores and refranchise company-owned stores. Continue to grow our international business. We believe that pizza has global appeal and that there is strong and growing international demand for delivered pizza. We have successfully built a leading international platform, almost exclusively through our master franchise model, as evidenced by our more than 2,500 international stores in more than 50 countries. We believe we will achieve continued growth internationally due to the strong unit economics of our business model and strong global recognition of the Domino s Pizza brand. David A. Brandon Chairman and Chief Executive Officer 30 Frank Lloyd Wright Drive Ann Arbor, Michigan 48106 (734) 930-3030 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The offering Common stock offered: By us shares By the selling stockholders shares Total offered hereby shares Common stock to be outstanding immediately after this offering shares The common stock to be outstanding after this offering is based on the number of shares outstanding after our reclassification and excludes: shares of our non-voting common stock issuable upon the exercise of outstanding options granted under our stock option plan at a weighted average exercise price equal to $ per share, of which options to purchase shares were exercisable as of December 28, 2003; and additional shares of our common stock that will be reserved for future grants, awards or sale under our new equity incentive plans. Use of proceeds We intend to use the approximately $ million of net proceeds to us from this offering to redeem, at 108.25% of the principal amount thereof plus accrued and unpaid interest, $ aggregate principal amount of our outstanding 8 % senior subordinated notes. We will not receive any of the net proceeds from the sale of shares of common stock by the selling stockholders. Proposed New York Stock Exchange symbol: DPZ Dividend policy Our board of directors currently intends to authorize the payment of a quarterly cash dividend on our common stock, beginning in the quarter of 2004. However, any determination to pay dividends will be at the discretion of our board of directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends, including the restrictions contained in the agreements governing our outstanding indebtedness, and any other factors our board of directors deems relevant.
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077229_deeter_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077229_deeter_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077229_deeter_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077230_mercer_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077230_mercer_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077230_mercer_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077231_a-m_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077231_a-m_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077231_a-m_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077232_advanced_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077232_advanced_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077232_advanced_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077233_belcher_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077233_belcher_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077233_belcher_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077234_peerless_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077234_peerless_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077234_peerless_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077235_dalton_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077235_dalton_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077235_dalton_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077236_dalton_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077236_dalton_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077237_dalton_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077237_dalton_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077239_dalton_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077239_dalton_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
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+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001077552_gentek-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001077552_gentek-inc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6a9dfefa35a184268c4171d31625b08497acb4bc
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001077552_gentek-inc_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information about us which is contained elsewhere in this prospectus. This summary may not contain all the information that is important to you. You should read the entire prospectus, including the section entitled "Risk Factors" and the financial statements and related notes, carefully before making an investment decision. Various statements in this prospectus are forward-looking statements. Please refer to the section of this prospectus entitled "Special Note Regarding Forward-Looking Statements." The terms "GenTek," the "Company," "we," "our" and "us" refer to GenTek Inc. and its consolidated subsidiaries unless the context suggests otherwise. The term "you" refers to a prospective purchaser of our common stock. About GenTek Overview We are a manufacturer of communications products, industrial components and performance chemicals. We operate through three primary business segments: communications, manufacturing and performance products. The communications segment is a global provider of products, systems and services to the global markets for telecommunications and data networking equipment and services, and in particular, the public telecom and private enterprise network markets. The manufacturing segment provides a broad range of engineered components and services to three principal markets: automotive, appliance and electronic and industrial. The performance products segment provides a broad range of value-added products and services to four principal markets: environmental services, pharmaceutical and personal care, technology and chemical processing. Our products are frequently highly engineered and are important components of, or provide critical attributes to, our customers' end products or operations. We operate over 80 manufacturing and production facilities located primarily in the U.S. and Canada, with additional facilities in Australia, China, Germany, Great Britain, India, and Mexico. Our principal executive offices are located at Liberty Lane, Hampton, New Hampshire 03842, and our telephone number is (603) 929-2264. The address of our website is www.gentek-global.com. This website is an interactive textual reference only, meaning that the information contained in the website is not part of this prospectus by reference or otherwise. GekTek's Completed Reorganization On October 11, 2002, we and 31 of our direct and indirect subsidiaries, including our Noma Company subsidiary (collectively referred to herein as the Debtors), filed voluntary petitions for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (referred to herein as the Bankruptcy Court). We and the other Debtors filed for relief under Chapter 11 as a result of our inability to obtain an amendment to our senior credit facility. The protection afforded by Chapter 11 allowed us and the other Debtors to continue to serve our customers and preserve the value of our businesses, while we reorganized and worked to develop and implement a strategic plan to deleverage our balance sheet and create an improved long-term capital structure. The joint plan of reorganization of the Debtors, dated August 28, 2003, as modified on October 3, 2003 (referred to in this prospectus as the Plan) was confirmed by the Bankruptcy Court on October 7, 2003. The Plan became effective in accordance with its terms on November 10, 2003 (referred to herein as the Effective Date). Pursuant to the Plan, among other things, all then-outstanding shares of our two classes of common stock were cancelled and our indebtedness was recapitalized. We paid cash, issued and reserved for issuance new shares of common stock, issued and reserved for issuance new Tranche A, B and C warrants to purchase shares of our common stock and issued $250 million in new senior term debt to various former creditors. The precise mix of new securities distributed or reserved for issuance to the different types of claimants is set forth in the Plan. In addition, pursuant to the Plan, we may issue additional shares of new common stock and new Tranche A, B and C warrants in the future depending upon the resolution of certain claims. -------------------------------------------------------------------------------- SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements, other than statements of historical facts, included in this prospectus may constitute forward-looking statements. Forward-looking statements are generally identifiable by use of forward-looking terminology such as "may," "will," "should," "potential," "intend," "expect," "endeavor," "seek," "anticipate," "estimate," "overestimate," "underestimate," "believe," "could," "project," "predict," "continue" or other similar words or expressions. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, there can be no assurances that these assumptions and expectations will prove to have been correct. Important factors that could cause actual results to differ from these expectations are disclosed in this prospectus and include various risks, uncertainties and assumptions. Such factors include, among others, those set forth in the section of this prospectus captioned "Risk Factors" beginning on page 5, as well as: the impact of our reorganization under Chapter 11; our ability to fund and execute our business plan; potential adverse developments with respect to our liquidity or results of operations; our outstanding indebtedness and leverage; the impact of the restrictions imposed by our indebtedness; the high degree of competition in certain of the our businesses, and the potential for new competitors to enter into those businesses; continued or increased price pressure in our markets; customers and suppliers seeking contractual and credit terms less favorable to us; our ability to maintain customers and suppliers that are important to our operations; our ability to attract and retain new customers; the impact of possible substantial future cash funding requirements for our pension plans, particularly if investment returns on pension assets are lower than assumed; the extent to which we undertake dispositions and new acquisitions or enter into strategic joint ventures or partnerships and their implementation; the impact of any possible failure to achieve targeted cost reductions; increases in the cost of raw materials, including energy and other inputs used to make our products; our ability to attract, retain and compensate key executives and employees; future modifications to existing laws and regulations affecting the environment, health and safety; discovery of unknown contingent liabilities, including environmental contamination at our facilities; suppliers' delays or inability to deliver key raw materials; breakdowns or closures of our or certain of our customers' plants or facilities; inability to obtain sufficient insurance coverage or the terms thereof; domestic and international economic conditions, fluctuations in interest rates and in foreign currency exchange rates; the cyclical nature of certain of our businesses and markets; the potential that actual results may differ from the estimates and assumptions used by management in the preparation of the consolidated financial statements; the impact of "fresh start" accounting on our financial statements; and future technological advances which may affect our existing product lines. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. -------------------------------------------------------------------------------- The Plan provides for, among other things, the amendment of our charter and by-laws, the replacement of our board of directors, the implementation of a new equity incentive plan for our directors, officers and employees, the establishment of a preference litigation trust to pursue preference claims on behalf of certain creditors, the disposition of certain executory contracts and unexpired leases, and certain release, exculpation and indemnification protections for certain parties in interest. Additionally, on the Effective Date and pursuant to the Plan, we and substantially all of our domestic subsidiaries, and our Canadian subsidiary Noma Company (collectively, the "Borrowers") entered into a $125 million revolving credit facility which matures on November 10, 2008 (referred to in this prospectus as the Revolving Credit Facility). The Revolving Credit Facility includes a letter of credit sub-limit of $60 million. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- <TABLE> <CAPTION> OFFERING SUMMARY ---------------- <S> <C> Issuer....................... GenTek Inc. Securities Offered by the Selling Stockholders......... Up to 4,256,982 shares of common stock, no par value per share. Common stock outstanding..... 10,000,000 shares as of February 5, 2004. Voting Rights ............... Holders of our common stock have one vote per share. Use of Proceeds.............. We will not receive any proceeds from the sale of common stock sold pursuant to this prospectus. The selling stockholders will receive all the proceeds from the sale of common stock sold pursuant to this prospectus. OTCBB Symbol................. Our common stock currently trades under the symbol "GETI" on the Over the Counter Bulletin Board. Risk Factors................. Please refer to the section of this prospectus entitled "Risk Factors" beginning on page 5 for a discussion of risks that you should consider carefully before deciding to invest in shares of our common stock. </TABLE> --------------------------------------------------------------------------------
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001081235_healthesse_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001081235_healthesse_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..38b920402a8828a66df9cbcf1f252578a3694a16
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+PROSPECTUS SUMMARY The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the Risk Factors beginning on page 9 and the financial statements and the related notes before investing in our common stock. Unless the context requires otherwise, the words HealthEssentials, we, company, us and our used in this prospectus refer to HealthEssentials Solutions, Inc. and its subsidiaries. Our Business We are a leading provider of residential healthcare services that meet the specialized needs of the growing geriatric population in the United States. Our physicians and non-physician practitioners, or NPPs, strive to replicate a physician office visit by providing primary medical care to our patients in non-acute, residential settings such as nursing facilities, assisted living facilities and retirement communities and in their homes. We rely primarily on NPPs to improve access to high quality, cost effective care before a patient s health condition deteriorates to the point of requiring more complex or expensive care. In both our nursing facility-based and housecall programs, our NPPs perform medical exams to evaluate and diagnose patients, establish treatment plans, prescribe medications and monitor the health of our patients. To offer our patients a broader continuum of medical care, we provide complementary services, including clinical laboratory testing, mobile diagnostic exams, home health nursing and, recently, hospice care. Our programs and services emphasize proprietary evidence-based treatment protocols and standardized medical management, and fill what we believe is a critical gap in access to appropriate primary medical care for elderly individuals. We offer benefits to patients, long-term care facility operators, physicians and third-party payors. Patients benefit from timely, specialized treatment of complex or chronic conditions. Long-term care facility operators are able to reduce lost bed days due to emergency room visits and subsequent hospitalizations. Physicians improve overall levels of care for their geriatric patients and increase office productivity, and third-party payors benefit from a high-quality, lower cost alternative to physician office and hospital services. We have grown rapidly since our inception in 1998 primarily by increasing the number of facilities and patients we serve with our facility-based and housecall programs, as well as expanding our referral network. We have augmented our organic growth with several small acquisitions and joint ventures. As of June 30, 2004, we employed approximately 290 full-time equivalent health professionals and provided services in 15 states and the District of Columbia. As of June 30, 2004, we had an active patient census of approximately 70,000 patients in our provider services facility-based and housecall programs. During the six months ended June 30, 2004, we completed approximately 368,000 patient visits, which represents a 28% increase over our patient visits during the six months ended June 30, 2003. Our home health and hospice services segment provided approximately 145,000 patient days of care in the six months ended June 30, 2004, which represents a 27% increase over our home health patient days for the six months ended June 30, 2003. Our net revenues have increased from $15.6 million in 2001 to $53.1 million in 2003. Our net revenues of $32.8 million for the six months ended June 30, 2004 represent a 29% increase over our net revenues of $25.4 million for the six months ended June 30, 2003. Our Market Opportunity The geriatric population drives significant demand for healthcare services in the United States. In 2002, Medicare spent over $15 billion for the services that our NPPs and physicians commonly provide to patients. Many geriatric patients suffer from uncoordinated treatment of chronic conditions, which can be accompanied by multiple co-morbidities, and do not have access to appropriate primary care. Nursing facility residents and non-ambulatory patients living at home continue to depend on physicians who are generally unable or unwilling to Balance, June 30, 2004 107,020 $ 9,726,651 43,520 $ 3,917,731 $ 13,644,382 119,050,485 $ (unaudited) Medicare 80 % 76 % 73 % Medicaid 15 14 14 Other third-party payors 4 9 12 Patients 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents disrupt their practices to attend to out-of-office patients on a timely basis due to their focus on office-based productivity. These conditions have led to a gap in access to residential primary medical care for the geriatric population. Our NPPs effectively fill this gap. We believe that a number of current trends will drive demand for residential geriatric health services, including: Aging population in the United States. According to the Centers for Medicare & Medicaid Services, or CMS, enrollment in the Medicare program, comprised primarily of individuals age 65 and older, is expected to increase from 34.9 million elderly beneficiaries, or 12.0% of the U.S. population, in 2003, to 52.2 million elderly beneficiaries, or 15.5% of the U.S. population, in 2020. The aging U.S. population will place continued stress on the nation s healthcare delivery system and increase the importance of access to appropriate geriatric medical care. Increasing need for geriatric focused care. The geriatric patient population can suffer from complex and chronic medical conditions that require specialized care to treat and monitor effectively. CMS is currently evaluating standardized medical management programs targeting the most common disease states affecting Medicare beneficiaries in an effort to improve patient outcomes and reduce the long-term costs of treating these diseases. While there is a growing emphasis on developing standardized geriatric treatment protocols, at the same time there is a severe shortage of healthcare professionals principally focused on geriatric care. Increasing need for residential primary care. As the Medicare population grows and the average age of beneficiaries increases, nursing homes and home health agencies may not have sufficient capacity to address the primary care needs of elderly individuals living in the community. Physician visits to nursing homes are decreasing, while emergency room visits are increasing rapidly. At the same time, home health agencies service only 7% of Medicare beneficiaries, while CMS estimates that more than 33% of the Medicare population already needs assistance with at least one activity of daily living. Without regular access to appropriate residential healthcare services, we believe these beneficiaries will place an increasing strain on local primary medical care resources. Government focus on cost-efficient healthcare delivery. Medicare expenditures for physician services comprise approximately 24.6% of total expenditures for physician services in the United States. In an effort to control rising healthcare expenditures, each year CMS establishes targeted levels of spending on physician services and adjusts reimbursement rates in an effort to manage actual spending in line with the target. We believe that cost savings related to using NPPs rather than physicians, eliminating preventable emergency room visits, ambulance use and hospital admissions, and utilizing standardized geriatric medical and medication management, is consistent with government cost containment strategies and enhances the potential growth of our residential geriatric health services model. Our Strengths We have grown rapidly, achieved profitability and developed leading market share as a result of our strengths, including: We are one of the largest providers of residential geriatric health services. We are one of the nation s largest organized providers of residential geriatric primary care based on our geographic scope and breadth of services. As a result, we have an advantage in building strong referral relationships with national and regional long-term care facility operators and home healthcare companies. Our market presence and reputation also provide an advantage in building referral relationships with local attending physicians. FORM S 1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents We focus on geriatric primary care. Our healthcare providers focus exclusively on geriatric patients and utilize our Applied Geriatrics Protocols, or AGP. AGP is a series of standardized, evidence-based disease state management protocols specifically designed to address the needs of geriatric patients. We believe that our expertise in geriatric medicine differentiates us from local general practitioners and can improve patient outcomes. We have experience in managing a complex delivery model. The operational infrastructure required to adequately manage and support a growing, geographically diverse network of healthcare providers is highly complex and requires specialized knowledge. Our management tools and experience assist us in tracking the performance of each of our programs and maximizing our operational efficiency. We provide a wide range of complementary services. Our broad continuum of care can improve patient satisfaction and communication with families, and ensure patients are receiving the right care, in the right setting, at the right times. We believe physicians prefer to send patients to a single-source provider for multiple services, because it requires less administrative commitment, requires managing fewer referral relationships and improves communication and record-keeping. We have an efficient and scalable operating model. Our providers apply standardized protocols and our local program managers utilize standardized management tools, allowing us to replicate programs in new markets and train new personnel relatively quickly. Our organizational structure is highly scalable and allows us to react quickly to additional opportunities to provide our services. We have an experienced management team. We have assembled a management team with the operating, regulatory and financial experience to grow our company. Our executive officers, in the aggregate, have more than 75 years of experience in managing a variety of healthcare organizations, including long-term care, home health and hospice companies. Our Strategy Our strategy is to expand our market leadership in providing high-quality, cost-effective medical care to geriatric patients in residential settings. The key elements of our strategy include: Increase active patient census. Our facility-based program provides services to approximately 60,000 patients, or approximately 8%, of the patients in facilities in the 20 regions we serve. We provide our housecall services to approximately 10,000 patients, which we believe to be only a very small portion of the potential housecall opportunity in our markets. We intend to increase our patient census by expanding our sales and marketing efforts and enhancing our referral networks. Enter carefully selected new markets. We plan to enter carefully selected new markets to diversify our operations geographically and grow our patient census. We focus on markets that offer attractive demographic characteristics, pre-existing relationships with physicians or long-term care facility operators, proximity to our existing markets, a sufficient pool of qualified physicians and NPPs from which we can recruit and a favorable regulatory environment. Offer new complementary services. We intend to expand our complementary service offerings to increase our revenues per patient, drive expansion of our referral network and strengthen our local market position with third-party payors. We focus our expansion efforts in areas that leverage our management expertise, our referral network and our providers, and enable us to provide better service to our patients. Additional services also serve to diversify Table of Contents our payor mix and minimize our exposure to changes in the reimbursement rates for any one program or type of service we provide. Improve operational efficiencies and information technology capabilities. We plan to continually enhance our operations by investing in information technology and business process improvements that will allow our employees to perform their jobs more efficiently, improve our collections cycle and decrease our administrative cost per patient visit. For example, we are currently developing electronic medical record systems that are expected to improve clinical documentation and automate portions of our billing process. Pursue selected acquisitions and other strategic transactions. We expect to continue to identify and evaluate opportunities for acquisitions, joint ventures and other strategic relationships in new and existing markets that will enhance our market position, expand our referral base and increase the number of complementary services we offer. Corporate Information We commenced operations as HealthEssentials, Inc., a Kentucky corporation, in May 1998. In February 1999, HealthEssentials, Inc. was merged with and into HealthEssentials Solutions, Inc., a Delaware corporation, as the surviving corporation. Our principal offices are located at 9510 Ormsby Station Road, Suite 101, Louisville, Kentucky 40223. Our telephone number at this location is (502) 429-7778. Our website is located at www.healthessentials.com. The information contained on our website is not a part of this prospectus. Income (loss) from continuing operations before income taxes 991 Income (loss) from continuing operations $ 991 Table of Contents The Offering Common stock offered by us shares Common stock outstanding after the offering shares Estimated initial offering price $ per share Use of proceeds We intend to use the net proceeds from this offering to redeem all our Series A and Series B preferred stock and accrued and unpaid dividends for approximately $ million, to repay approximately $ million of our senior credit facility and to repay all of our convertible subordinated notes and accrued interest for approximately $ million. We expect to use the remaining net proceeds for general corporate purposes, including working capital, systems and support, sales and marketing and potential acquisitions. Proposed Nasdaq National Market symbol CARE The number of shares of our common stock to be outstanding after this offering is based on 119,050,485 shares outstanding as of June 30, 2004 and: excludes 10,238,943 shares issuable upon exercise of outstanding options as of June 30, 2004 at a weighted average exercise price of $0.28 per share; excludes 24,161,214 shares issuable upon exercise of outstanding warrants as of June 30, 2004 at a weighted average exercise price of $0.00027 per share; and excludes 659,709 additional shares of common stock reserved for future issuance under our Amended and Restated 1999 Employee Stock Option Plan as of June 30, 2004. Unless otherwise noted, all information in this prospectus: assumes the underwriters have not exercised their over-allotment option to purchase up to shares of common stock from us; and has been adjusted to reflect a one-for- reverse split of our common stock effective as of the date of this prospectus. Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or when aggregated, may not be the arithmetic aggregation of the percentages that precede them. John E. Clontz, Esq. Senior Vice President, General Counsel and Secretary 9510 Ormsby Station Road, Suite 101 Louisville, Kentucky 40223 (502) 429-7778 (Name, Address Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Other Financial Data: Adjusted EBITDA(2) $ (4,323 ) $ 2,168 $ 4,433 $ 2,041 $ 3,022 Segment Data: Residential Provider Services: Net revenues (in thousands) $ 15,590 $ 29,735 $ 39,058 $ 18,443 $ 24,716 Provider full-time equivalents 142 205 269 238 292 Patient visits (in thousands) 287 485 621 287 368 Average revenue per visit $ 54.23 $ 61.29 $ 62.86 $ 64.33 $ 67.15 Home Health and Hospice Services: Net revenues (in thousands) $ $ 5,303 $ 14,044 $ 6,912 $ 8,066 Home health offices 4 6 5 7 Patient days (in thousands) 91 242 114 145 Average revenue per patient day $ $ 57.97 $ 58.03 $ 60.58 $ 55.75 Medicare Part B 87 % 77 % 69 % 68 % 71 % Medicare Part A 12 20 22 19 Medicaid and other government 5 5 5 4 4 Commercial insurance and other 8 6 6 6 Medicare Part B 87 % 77 % 69 % 68 % 71 % Medicare Part A 0 12 20 22 19 Medicaid and other government 5 5 5 4 4 Commercial insurance and other 8 6 6 6 (unaudited) Medicare 87 % 89 % 89 % 90 % Medicaid 5 5 5 4 Commercial and Other 8 6 6 With copies to: James A. Lebovitz, Esq. Brian D. Short, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Paul A. Quiros, Esq. Jeffrey M. Stein, Esq. King & Spalding LLP 191 Peachtree Street Atlanta, Georgia 30303 (404) 572-4600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents (a) At December 31, 2001, the remaining amount of goodwill recorded related to the 1999 acquisition of NPPA of America, Inc. was determined to be impaired and was written off. (b) During 2002, the company incurred significant costs in pursuit of various business acquisitions that were ultimately not completed. Those costs would have been capitalized had the acquisitions been completed. As a result, these costs were expensed in the consolidated statement of operations. (c) Net revenues for the fourth quarter of 2003 reflect a change in estimate for contractual allowances of $3.0 million related to prior year accounts receivable that were deemed to be uncollectible ($2.6 million for the residential provider services segment and $0.4 million for the home health and hospice services segment). (d) Net revenues for the second quarter 2004 reflect a change in estimate for contractual allowances of $1.5 million related to prior year accounts receivable that were deemed to be uncollectible ($1.2 million for the residential provider services segment and $0.3 million for the home health and hospice services segment). (3) In the Adjusted column, we have adjusted the consolidated balance sheet data as of June 30, 2004 to give effect to our receipt of the estimated net proceeds of $ million from the sale of shares of common stock at a public offering price of $ per share, after deducting the underwriting discounts and estimated offering costs payable by us. See Use of Proceeds and Capitalization. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1)(2) Amount of Registration Fee(2) Common stock, par value $0.00001 per share $ 57,500,000 $ 7,300 Table of Contents
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+S-1/A (in thousands) Lines of credit $ 8,147 $ 3,817 $ 4,113 $ 217 $ Operating leases 5,067 714 1,482 1,507 1,364 Capital lease obligations 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 7 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 IMMUNICON CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 3826 (Primary Standard Industrial Classification Code No.) 23-2269490 (I.R.S. Employer Identification No.) 3401 Masons Mill Road, Suite 100 Huntingdon Valley, Pennsylvania 19006 (215) 830-0777 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Edward L. Erickson Chairman, President and Chief Executive Officer Immunicon Corporation 3401 Masons Mill Road, Suite 100 Huntingdon Valley, Pennsylvania 19006 (215) 830-0777 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Stephen A. Jannetta, Esq. James W. McKenzie, Jr., Esq. Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, Pennsylvania 19103 (215) 963-5000 James L. Wilcox, Esq. Chief Counsel Immunicon Corporation 3401 Masons Mill Road, Suite 100 Huntingdon Valley, Pennsylvania 19006 (215) 830-0777 Donald J. Murray, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 (212) 259-8000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. PRELIMINARY PROSPECTUS Subject to Completion April 15, 2004 The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. 6,000,000 Shares Common Stock This is the initial public offering of our common stock. No public market currently exists for our common stock. We are offering all of the 6,000,000 shares of common stock offered by this prospectus. We expect the public offering price to be $8.00 per share. Our common stock has been approved for quotation on The Nasdaq National Market, subject to official notice of issuance, under the symbol "IMMC." Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in "Risk factors" beginning on page 8 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Share Total Public offering price $ $ Underwriting discounts and commissions $ $ Proceeds, before expenses, to us $ $ The underwriters may also purchase up to an additional 900,000 shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ and our total proceeds, before expenses, will be $ . The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares will be made on or about , 2004. UBS Investment Bank SG Cowen Legg Mason Wood Walker Incorporated Adams, Harkness & Hill, Inc. You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock. TABLE OF CONTENTS Immunicon is a registered trademark of Immunicon Corporation. The Immunicon logo is a registered stylized trademark of Immunicon Corporation. CellTracks EasyCount, EasyCount, CellTracks MagNest, CellPrep, CellSave, CellSpotter, CellTracks, AutoPrep and IMMC are trademarks of Immunivest Corporation, a wholly owned subsidiary of Immunicon Corporation. The CellTracks Analyzer logo, CellTracks AutoPrep logo, CellTracks MagNest logo, CellSave Preservative Tube logo, CellSave Tube Cap logo, and CellSpotter Analyzer logo are stylized trademarks of Immunivest Corporation. CellSearch is a registered trademark of Johnson & Johnson. All other trademarks appearing in this prospectus are the property of their respective holders. Prospectus summary This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, especially the risks of investing in our common stock, which we discuss under "Risk factors", and our financial statements and related notes beginning on page F-1. Unless the context requires otherwise, the words "Immunicon," "we," "Company," "us" and "our" refer to Immunicon Corporation and its subsidiaries. OUR BUSINESS We are developing and commercializing proprietary cell-based research and diagnostic products with an initial focus on cancer. We believe that our products can provide significant clinical benefits by giving physicians better information to understand, diagnose, treat and monitor cancer. Our technologies, which we brand as CellTracks, can identify, count and characterize a small number of tumor cells present in a blood sample from a patient. Our collaborator, Veridex, LLC, or Veridex, a Johnson & Johnson company, received 510(k) clearance from the US Food and Drug Administration, or FDA, in January 2004 for use of the CellSearch Epithelial Cell Kit, which incorporates our technologies, in the management of metastatic breast cancer (breast cancer that has spread beyond the primary tumor). We expect that the CellSearch Epithelial Cell Kit, which is currently available for sale for research purposes only, will be the initial diagnostic product launched by Veridex based on our technologies. We believe that our products and underlying technology platforms have other applications in cancer diagnostics, in the clinical development of cancer drugs and in cancer research, which we would commercialize under the terms of our agreement with Veridex. In addition, we believe that our proprietary technologies may have applications in other fields of medicine, such as cardiovascular and infectious diseases, which we could pursue on our own or with a commercial partner. Our products are intended for use as an integrated system, consisting of kits containing reagents (chemically active substances) for use with our instruments and other system components that enable scientists, physicians and laboratories to collect, isolate, label, count and analyze tumor cells in the blood, known as circulating tumor cells, or CTCs. CTCs can appear in extremely low number, sometimes as few as one or two CTCs in a test tube of blood that contains billions of cells of various types. Our clinical trials results suggest that the presence of even a few CTCs in a blood sample is biologically and clinically important, as it predicts whether a therapy is likely to offer benefit to the patient. Based on findings from our pivotal clinical trial and research studies, we believe that our products can enable physicians to predict the likely time to disease progression and survival in cancer patients more accurately and earlier than existing methods. As a result, the physician may be able to: >more effectively select an appropriate cancer therapy; >better monitor the effectiveness of ongoing treatment; >change from ineffective cancer therapies sooner; and >reduce overall treatment costs. 1 Moreover, we believe that our products address many of the limitations of currently available cancer diagnostic and research methods and provide physicians and patients with the following benefits: >a minimally invasive sample collection procedure based on a standard blood draw; >ease of administration relative to imaging techniques such as CT and MRI scans; and >potentially improved patient outcomes, including quality of life, time to disease progression and survival. Our research studies suggest that our technologies can detect CTCs in certain solid tumor cancers in addition to breast cancer, specifically prostate, colorectal, lung and ovarian cancers. Based on these results, we are conducting or planning additional research studies and clinical trials designed to verify prior studies and support additional regulatory submissions. Based on the results from our internal research, we are also now in the early stages of developing a product based on our existing platforms that is designed to detect and analyze endothelial cells in blood. Endothelial cells, which are types of cells that make up the inner lining of blood vessels, are believed to play an important role and have diagnostic utility not only in cancer, but also in autoimmune disorders (diseases caused by the body's own immune system) and cardiovascular diseases. We are also exploring the potential of our technologies to develop products that can detect pathogens in the blood, such as fungi, that may be useful in the diagnosis of certain infectious diseases. OUR COMMERCIALIZATION PLANS To support commercialization of our products, we entered into a development, license and supply agreement with Veridex, under which Veridex has exclusive worldwide rights in the field of cancer to make and commercialize any cellular analysis products based on our technologies. Under the agreement with Veridex, Veridex is obligated to pay us approximately 30% of their net sales from the sale of reagents, test kits and certain other consumable and disposable items incorporating our technologies. Unless earlier terminated, this agreement has an initial term of 20 years and will be automatically renewed for three-year terms. There are various conditions that allow either party to terminate the agreement, including a material breach by either party or by mutual agreement. Veridex may terminate this agreement with or without reason at any time with 24 months' prior written notice. In addition, prior to shipment for commercial sale of the first diagnostic product resulting from this agreement, Veridex may terminate this agreement by providing us with 180 days' prior written notice. If a major competitor in the in vitro diagnostic, or IVD, field acquires us, Veridex also may terminate this agreement. We and Veridex are currently marketing the following products, initially for research use only, or RUO, as a system and not as stand-alone products: >CellSearch Epithelial Cell Kit, consisting of reagents and other supplies for isolating and labeling of CTCs; >CellTracks AutoPrep System, an automated instrument to process blood samples prior to analysis; >CellSpotter Analyzer, a semi-automated fluorescence microscope used to count and characterize cells; and >CellSave Preservative Tube, a blood sample collection tube with preservative to collect and preserve blood samples for analysis. All of these products have received FDA clearance for IVD use. 2 We and Veridex plan to launch these products for IVD use in the third quarter of 2004. This launch is subject to the clearance of a 510(k) for the CellSearch Epithelial Cell Control, which consists of two levels of controls required to be run daily to ensure our integrated system is operating properly. Veridex submitted the 510(k) for these controls in April 2004. In addition, we expect that the CellSearch Profile Kit, consisting of reagents and supplies for isolating epithelial cells (cells that cover external and internal body surfaces and give rise to the majority of solid tumors) for molecular analysis, will be available for RUO in the second quarter of 2004. We also expect that the CellTracks Large Volume Sample Preparation System, or LVSP System, for pre-processing large blood samples, consisting of an instrument, reagents, and proprietary disposables, will be available for sale in the second half of 2004. We believe that this system is necessary to develop certain clinical indications for our products in early stages of cancer, detection of cancer recurrence, cancer risk assessment and screening applications. In connection with the 510(k) clearance for the CellSearch Epithelial Cell Kit using our CellSpotter Analyzer, the FDA established a new classification of medical devices under its "de novo", or new, device review process. We anticipate that most of our initial products will be covered under this classification, which will be incorporated into the Code of Federal Regulations. This classification includes systems for selecting and counting CTCs, which are intended for use in conjunction with other diagnostic methods for monitoring or predicting cancer disease progression, response to therapy and the detection of recurrent disease. We believe this classification will cover most of our anticipated future cancer products, with the exception of products for cancer screening. Any future products covered by this new classification would be designated as Class II versus Class III devices by the FDA, and therefore, may be reviewed through the 510(k) submission process, as opposed to the more expensive and lengthy pre-market approval, or PMA, process for Class III devices. OUR SOLUTION We believe that the ability to predict survival in metastatic breast cancer with our technologies represents a potential breakthrough in cancer disease management. We believe that our products will help to address the following clinical needs: >early diagnosis of cancer; >effective tools for more complete diagnosis, staging and selection of primary therapy; >effective monitoring of post-surgical and metastatic disease therapies; and >early detection of recurrence and selection of appropriate therapies following recurrence. Additionally, we believe that our products will provide pharmaceutical and biotechnology companies working on new cancer drugs with timely information on the performance of these drugs, which may shorten the drug development process. For instance, in early drug trials, we believe that the analysis of CTCs will help drug companies to select the right patient population in which to test a new drug and provide early and reliable information on the efficacy of this drug. The FDA evaluates efficacy of new drugs or drug combinations based on patient survival and/or certain accepted surrogate endpoints, such as a significant decrease in tumor burden (the total amount of tumor mass in the patients body) as assessed by imaging studies. Although we believe additional clinical data will be required to validate CTCs as a surrogate endpoint to the satisfaction of the FDA, we believe that CTCs may serve as an alternative to survival or costly imaging studies as a drug trial endpoint. Such a surrogate endpoint may permit shorter and less costly late-stage drug trials, and potentially bring new cancer therapies to the market sooner. 3 OUR STRATEGY Our goal is to be a leader in the development and commercialization of proprietary cell analysis products that deliver high impact clinical and scientific information for use in human diagnostics, life science research and pharmaceutical development. The key elements of our strategy are to optimize the value of our proprietary technologies and maximize long-term profitability by: >developing and commercializing cancer research and diagnostic products; >developing multiple indications for each of our cancer diagnostic products; >expanding the applications of our technologies to other fields of medicine in addition to cancer; >seeking commercialization partners for our non-cancer product candidates; and >continuously improving our products and technologies to remain competitive. RISKS ASSOCIATED WITH OUR BUSINESS We are a development-stage company. Accordingly, our business plan is subject to numerous risks and obstacles, including those that we highlight under "Risk factors." In particular, we have a limited operating history and have incurred substantial losses since inception. We incurred net losses of approximately $17.6 million for the year ended December 31, 2003, and our total deficit incurred from our inception in 1983 through December 31, 2003 was approximately $63.6 million. Our revenue to date has been derived principally from license revenue rather than from product sales or other revenue sources. From the inception of our agreement with Veridex in August 2000 through December 31, 2003, we recognized license revenue of $4.0 million in milestone receipts from Veridex. For the years ended December 31, 2002 and 2003, we recognized $311,000 and $338,000, respectively, as other revenue from certain government-sponsored research grants and from the sale of miscellaneous products to research and other organizations. We have very limited sales of commercial products, and we anticipate that we will incur substantial losses in the future and we may never achieve and maintain profitability. Moreover, we are dependent on the efforts of Veridex, which we do not control, for marketing of the cancer products based on our technologies. We do not know whether Veridex will market these products effectively, whether adequate levels of third-party reimbursement will be available for these products, or whether these products will sell well in the marketplace. OUR CORPORATE INFORMATION We incorporated in the Commonwealth of Pennsylvania as Immunicon Corporation in August 1983. In December 2000, we merged with and into Immunicon Corporation, a Delaware corporation. Our principal executive offices are located at 3401 Masons Mill Road, Suite 100, Huntingdon Valley, Pennsylvania 19006, and our telephone number is (215) 830-0777. Our web site address is www.immunicon.com. We do not intend for the information contained on our website to be incorporated by reference into, or to form any part of, this prospectus. 4 The offering Common stock we are offering 6,000,000 shares Common stock to be outstanding after this offering 21,933,633 shares Use of proceeds after expenses We estimate that the net proceeds from this offering will be approximately $42.9 million, or approximately $49.6 million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $8.00 per share. We expect to use the net proceeds from this offering for commercialization of our research and diagnostic products, including manufacturing, clinical trials, other research and development activities, capital expenditures, and working capital and other general corporate purposes. Nasdaq National Market Symbol IMMC The number of shares of our common stock outstanding immediately after the closing of this offering is based on 15,933,633 shares of our common stock outstanding as of December 31, 2003 after giving effect to the conversion of all 51,390,552 shares of preferred stock outstanding as of December 31, 2003 into 15,447,813 shares of our common stock, which will become effective at the closing of this offering. The number of shares of our common stock outstanding immediately after this offering excludes: >2,565,295 shares of our common stock issuable upon the exercise of stock options outstanding as of December 31, 2003 under our equity compensation plan at a weighted average exercise price of $2.35 per share; >1,167,547 shares of our common stock available for future issuance under our equity compensation plan at the closing of this offering (based on options outstanding as of December 31, 2003) and 200,000 shares of our common stock that will be available for future issuance under our employee stock purchase plan; and >210,687 shares of our common stock issuable upon the exercise of warrants outstanding as of December 31, 2003 at a weighted average exercise price of $4.32 per share. Unless otherwise indicated, all information in this prospectus: >assumes that the underwriters do not exercise their option to purchase up to 900,000 additional shares of our common stock to cover over-allotments, if any; >gives effect to the two-for-three reverse stock split of our common stock completed in March 2004; >gives effect to the amendment and restatement of our certificate of incorporation and bylaws, which will become effective at the closing of this offering; and >gives effect to the amendment and restatement of our equity compensation plan and the establishment of our employee stock purchase plan, which will become effective upon the effectiveness of the registration statement for this offering. Methods of Use 9 7 2 14 Material Production-Method 5 6 5 33 Magnetic Separators 6 2 6 5 Platforms/Other Devices 10 * 10 * 7 * 5 Summary consolidated financial data The following summary financial data for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 have been derived from our audited consolidated financial statements. The summary consolidated financial data set forth below should be read together with the financial statements and the related notes to those statements, as well as "Management's discussion and analysis of financial condition and results of operations," appearing elsewhere in this prospectus. Years Ended December 31, Amount representing interest Total revenue 183 575 932 2,974 Expenses: Research and development 3,014 5,109 10,493 15,797 16,032 General and administrative 1,594 2,526 2,662 3,563 4,512 Total operating expenses 4,608 7,635 13,155 19,360 20,544 Operating loss (4,608 ) (7,452 ) (12,580 ) (18,428 ) (17,570 ) Net loss attributable to common stockholders $ (4,404 ) $ (6,954 ) $ (12,042 ) $ (18,321 ) $ (17,643 ) $ 642 $ Net loss per common share - basic and diluted $ (11.34 ) $ (17.45 ) $ (28.44 ) $ (42.31 ) $ (37.90 ) Weighted average common shares outstanding - basic and diluted 388,422 398,412 423,340 433,014 465,527 Pro forma net loss per common share - basic and diluted (unaudited)(1) $ (1.28 ) Pro forma weighted average common shares outstanding - basic and diluted (unaudited)(1) 13,824,340 (1)The pro forma basic and diluted net loss per share reflects the weighted effect of the assumed conversion of convertible preferred stock. See note 2 to our consolidated financial statements for information regarding computation of basic and diluted net loss per share and pro forma basic and diluted net loss per share. 6 The following table contains a summary of our consolidated balance sheet as of December 31, 2003: >on an actual basis; >on a pro forma basis to give effect to the conversion of all 51,390,552 shares of our preferred stock outstanding as of December 31, 2003 into 15,447,813 shares of our common stock, which will become effective at the closing of this offering; and >on a pro forma as adjusted basis to give further effect to the sale of the shares of our common stock we are offering at an assumed initial public offering price of $8.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses to be paid by us. As of December 31, 2003 Balance sheet data: Actual Pro forma Pro forma as adjusted (in thousands) Cash and cash equivalents $ 30,601 $ 30,601 $ 73,541 Working capital 23,836 23,836 66,776 Total assets 35,734 35,734 78,674 Long-term obligations, less current portion 3,792 3,792 3,792 Convertible preferred stock 85,115 Total stockholders' equity 24,665 24,665 67,605
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+PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus. It does not contain all of the information you should consider. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the risk factors and the consolidated financial statements and related notes included in this prospectus. OUR COMPANY We are a leading provider of local online advertising products, enabled by our innovative, consumer-oriented online yellow and white pages directory technology. We generate revenue primarily from merchant and national advertisers that pay to advertise in the Switchboard-powered directories of our licensees and/or in our directory. Consumers access our directory through one of the Internet brands of our licensees or through our website, www.switchboard.com, to locate business and residential information locally and nationally. Licensees of our directory technology include Internet portals, traditional yellow pages publishers and newspaper publishers. Through our website and our licensee network of Switchboard-powered yellow pages directory websites, we provide merchant and national advertisers an innovative and effective way to connect with online consumers performing local business searches, thus helping these businesses establish and grow their online presence. As with the traditional paper-based yellow pages, merchants that advertise directly with us or through one of our licensees are able to get their message in front of consumers at the time they are looking for that merchant's products or services on the Internet. For decades, yellow pages directories have been a primary source of local merchant information for consumers. According to The Kelsey Group, the yellow pages industry generates an estimated $14 billion in annual advertising sales in the United States, and is experiencing a migration from paper-based consumer searches to interactive search. The Kelsey Group reported an increase in interactive searches to approximately 30% of total local business searches in both print and online media in 2002 as compared to 15% in 2001 and 9% in 2000, and projects that interactive searches will account for 45% of usage by 2006. As the volume of directory references made online continues to grow, we believe merchants will continue to shift marketing expenditures away from print yellow pages providers to online yellow pages providers. We also participate in the paid search Internet market. According to the Interactive Advertising Bureau, paid search accounted for approximately $900 million, or 15% of online advertising spending in 2002. OUR ADVERTISING PRODUCTS We offer a variety of advertising products tailored to the needs of small local businesses, large national businesses, online retailers and other businesses seeking increased online exposure. These advertising products are an integral part of our directory and are enhanced by our strong technology and substantial merchant information database. Our online advertising products are sold by the sales forces of our directory technology licensees, our own direct sales force, and third party sales channels. Our advertising products include: Subscriptions for Prominent Placement -- Advertisers pay for prominent placement in the Switchboard-powered directories of our licensees and/or in our directory. Local Performance Based Advertising (LocalClicks) -- Advertisers pay for links contained within local business listings. Our recently released LocalClicks products permit consumers to link directly from yellow pages listings to extended business information, business services and products available for online purchase. Content-Targeted Advertising -- Advertisers pay for clicks to their websites from links that are delivered in conjunction with a consumer's search query. The consumer's search query contains terms that indicate what the consumer appears to be searching for, including the type of product or services and location. We call this contextual relevance. In addition to delivering the online yellow pages listings that the consumer is searching for, we offer advertisers the ability to insert links to their websites that appear based on the contextual relevance of the consumer's search query. National Banner and Site Sponsorship Advertising -- National advertisers pay for traditional site-wide and category-specific banner advertising. OUR TECHNOLOGY AND CONTENT Our directory technology is made up of a suite of proprietary software components that enable us, and our licensees, to develop and manage an online directory business. We use and license directory technology which includes a specialized local business search engine; a combination of proprietary and licensed merchant information; a proprietary, highly scalable, high performance database; and a comprehensive suite of advertising and merchant management tools. Our sophisticated business search technology permits merchants to be found using searchable "copy points" (proprietary enhanced data about a merchant's products and services that we gather ourselves) and geographic targeting. Our high performance database and data management systems allow for regular updates of local merchant information, and the rapid set-up and tracking of paid links embedded into thousands of local merchant listings. OUR STRATEGY We intend to grow our business by focusing on the following key strategies: - Promoting the development of local online advertising and the online yellow pages market by licensing our directory technology to major media and local advertising companies; - Increasing the number of paying merchants in our directory and those of our licensees; - Expanding the audience for our advertising products; and - Continuing to innovate new product and service offerings to deliver a superior consumer experience and enhanced value to merchants that advertise with us and with our licensees. RECENT DEVELOPMENTS For fiscal year 2003, net revenue increased to $15.2 million from $11.7 million for fiscal year 2002. The increase in net revenue for fiscal year 2002 was attributable to increases in merchant network revenue and national advertising and site sponsorship revenue. Net revenue for fiscal year 2002 included amortization of consideration given to AOL of $2.0 million, which is recorded as a reduction of revenue in the period. There was no corresponding amortization of consideration given to AOL during fiscal year 2003. For fiscal year 2003, net income increased to $2.1 million, or $0.10 per share, from a net loss of $4.0 million, or $0.21 per share for fiscal year 2002. The increase in net income for fiscal year 2003 was primarily due to increased revenue, as well as a decrease in operating expenses. A table summarizing financial results follows (in thousands except per share data): <Table> <Caption> YEAR ENDED DECEMBER 31, ----------------- 2002 2003 ------- ------- <S> <C> <C> Revenue..................................................... $13,747 $15,192 Consideration given to a customer........................... (2,000) -- ------- ------- Net revenue............................................... $11,747 $15,192 ======= ======= Operating (loss) income..................................... $(5,921) $ 1,440 ======= ======= Net (loss) income........................................... $(3,959) $ 2,074 ======= ======= Net (loss) income per share: Basic..................................................... $ (0.21) $ 0.11 ======= ======= Diluted................................................... $ (0.21) $ 0.10 ======= ======= Weighted average shares outstanding: Basic..................................................... 18,515 18,803 Diluted................................................... 18,515 19,882 </Table> CORPORATE INFORMATION We are a Delaware corporation that commenced operations in February 1996. From our inception in February 1996 until our initial public offering in March 2000, we were a unit and later a subsidiary of ePresence, Inc. (formerly Banyan Worldwide) ("ePresence"), the principal selling stockholder in this offering. ePresence currently owns approximately 51.1% of our common stock and will hold 5.6% of our common stock following this offering, or none if the over-allotment option is exercised in full. Our offices are located at 120 Flanders Road, Westborough, Massachusetts, 01581, and our phone number is (508) 898-8000. Our website address is www.switchboard.com. Information on our website is not included or incorporated into, and does not otherwise form a part of this prospectus. THE OFFERING Common stock offered by us.... 100,000 shares Common stock offered by the selling stockholders.......... 8,715,171 shares Total......................... 8,815,171 shares Common stock to be outstanding after this offering........... 19,286,653 shares Shares of common stock to be owned by the selling stockholders at the close of this offering................. 1,228,666 shares Purpose of this offering...... This offering was initiated by our largest shareholder, ePresence, Inc., in order to facilitate an orderly disposition of its Switchboard holdings in conjunction with its plan of liquidation announced in October 2003. The sale of Switchboard shares in this offering by ePresence is subject to the approval of ePresence's shareholders. If ePresence is unable to obtain the approval of its shareholders to sell the shares offered by it, ePresence will not be able to sell all of the shares offered by this prospectus. In the event that shareholder approval is not obtained, or if ePresence desires to sell certain of its shares prior to obtaining shareholder approval, the offering contemplated hereby would be modified to offer a smaller number of shares to be sold by ePresence. Use of proceeds............... We intend to use our proceeds from this offering primarily to pay for the expenses of this offering and for general corporate purposes. We will not receive any proceeds from the sale of common stock offered by the selling stockholders. Nasdaq National Market symbol........................ SWBD Unless otherwise noted, the information in this prospectus, including the information above: - assumes 19,186,653 shares of common stock outstanding as of February 6, 2004; - excludes 3,253,384 shares of common stock issuable upon the exercise of outstanding stock options as of February 6, 2004 at a weighted average exercise price of $4.88 per share; - excludes 5,116,828 shares of common stock reserved for future issuance under our stock option plans as of February 6, 2004; and - assumes no exercise of the underwriter's over-allotment option to purchase up to 1,322,250 shares of common stock to cover over-allotments. SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS EXCEPT PER SHARE DATA) The following table summarizes our consolidated financial data and operating data for the periods presented. You should read this data along with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and our consolidated financial statements and related notes included elsewhere in this prospectus. <Table> <Caption> NINE MONTHS ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30, ----------------------------- ----------------- 2000 2001 2002 2002 2003 -------- -------- ------- ------- ------- <S> <C> <C> <C> <C> <C> OPERATING RESULTS Gross revenue............................................... $ 20,310 $ 13,326 $13,747 $10,362 $11,423 Consideration given to a customer........................... (412) (4,048) (2,000) (2,000) -- -------- -------- ------- ------- ------- Net revenue................................................. 19,898 9,278 11,747 8,362 11,423 Cost of Revenue............................................. 3,490 3,518 3,744 2,981 2,183 -------- -------- ------- ------- ------- Gross profit................................................ 16,408 5,760 8,003 5,381 9,240 Operating Expenses Sales and marketing......................................... 29,183 24,606 4,683 3,699 2,440 Research and development.................................... 3,474 6,702 5,446 4,200 3,416 General and administrative.................................. 3,303 4,181 4,057 3,036 2,569 Amortization of goodwill and intangibles.................... 1,156 719 -- -- -- Loss on Viacom transaction.................................. -- 22,203 -- -- -- Special (credit) charges.................................... -- 17,324 (262) -- (35) -------- -------- ------- ------- ------- Total operating expenses.................................. 37,116 75,735 13,924 10,935 8,390 -------- -------- ------- ------- ------- Income (loss) from operations............................... $(20,708) $(69,975) $(5,921) $(5,554) $ 850 ======== ======== ======= ======= ======= Net income (loss) attributable to common stockholders....... $(17,288) $(66,754) $(3,959) $(3,779) $ 1,345 ======== ======== ======= ======= ======= EARNINGS PER SHARE Basic earnings (loss) per share............................. $ (0.75) $ (2.83) $ (0.21) $ (0.20) $ 0.07 ======== ======== ======= ======= ======= Diluted earnings (loss) per share........................... $ (0.75) $ (2.83) $ (0.21) $ (0.20) $ 0.07 ======== ======== ======= ======= ======= Weighted average shares outstanding Basic....................................................... 22,974 23,590 18,515 18,506 18,692 Diluted..................................................... 22,974 23,590 18,515 18,506 19,654 </Table> ------------------------------ The following table summarizes our balance sheet data as of September 30, 2003. This balance sheet data is presented on an actual basis and as adjusted to give effect to the sale of the shares of common stock in this offering by us at the assumed public offering price of $6.00 per share, after deducting the underwriting discount and estimated offering expenses payable by us. <Table> <Caption> SEPTEMBER 30, 2003 --------------------- ACTUAL AS ADJUSTED ------- ----------- <S> <C> <C> BALANCE SHEET DATA Cash, cash equivalents and marketable securities............ $52,922 $52,282 Working capital............................................. $50,965 $50,865 Total assets................................................ $57,247 $57,147 Total long-term debt........................................ $ -- $ -- Stockholders' equity........................................ $54,067 $53,967 </Table>
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus, but does not contain all information that may be important to you. This prospectus includes specific terms of this offering, information about our business and financial data. We encourage you to read this prospectus in its entirety before making an investment decision. We have provided definitions for some of the natural gas and oil industry terms used in this prospectus in the "Glossary of Natural Gas and Oil Terms" on page 61 of this prospectus. Our Business We are a natural gas and petroleum exploitation and development company engaged in locating and developing hydrocarbon prospects primarily in the Rocky Mountain region. Our strategy is to enhance stockholder value by using new technologies to generate and develop high-potential exploitation prospects in this area. Our principal business is the acquisition of leasehold interests in petroleum and natural gas rights, either directly or indirectly, and the exploitation and development of the properties subject to these leases. We focus our exploitation activities on locating natural gas and crude petroleum. The principal markets for these commodities are natural gas transmission pipeline companies, utilities, refining companies and private industry end-users. During the year ended December 31, 2001 we spent $7,395,867 identifying and acquiring petroleum and natural gas leases and prospect rights, and during the year ended December 31, 2002, we spent an additional $32,962,855, including the issuance of 9,500,000 shares of common stock valued at $18,525,000, in the acquisition of additional leases and in the development and exploitation of the properties subject to these leases. During the nine months ended September 30, 2003, we spent $3,094,652 in development and exploration activities. As of September 30, 2003, we held working interests in 234,084 gross acres (120,772 net acres) located in Utah, Wyoming and California. As of September 30, 2003, we held an interest in 14 gross (5.9 net) producing gas wells and 4 gross (4.0 net) shut-in gas wells located on these properties. We currently operate 11 wells, of which 7 are currently producing. Significant Properties A summary of each of our most significant properties is set forth below. Please also read "Business and Properties--Significant Properties" for a more detailed discussion of these properties. o Riverbend Project. The Riverbend Project comprises approximately 119,419 gross acres in the Uinta Basin of northeastern Utah, of which we hold interests in approximately 46,771 net acres as of September 30, 2003. We can also earn interests in approximately 19,324 gross acres in this area under farm-out and other agreements. Our engineering and geologic focus is concentrated on three tight-sand formations in the Uinta basin: the Wasatch, Mesaverde and Blackhawk formations. We are party to an amended Area of Mutual Interest ("AMI") agreement with ConocoPhillips Company to conduct drilling operations on approximately 30,000 acres of our Riverbend Project. The AMI agreement affords ConocoPhillips the right to acquire an 80% interest in all of our leases and farm-out agreements within the AMI in exchange for the assignment by ConocoPhillips of two leases in which we previously had no ownership. As of December 31, 2002, these assignments of interest were completed and are reflected in our total acreage position. In January 2002, we entered into an agreement with Halliburton Energy Services under which Halliburton has the option to earn a participation interest proportionate to its investment by funding the completion of wells in the Wasatch and Mesaverde formations. Halliburton elected to participate in two of the wells and declined to participate in the remaining three wells in this area. The agreement was terminated during October 2003. o Greater Green River Basin Project. We have entered into an AMI agreement with Burlington Resources in Sublette County, Wyoming within the Greater Green River Basin that covers approximately 330,000 acres. As of September 30, 2003, we had interests in approximately 110,797 gross acres and 71,274 net acres in this area. During 2002, we participated in the drilling of two wells in this AMI. We have a 31.5% interest in each of these wells, which are currently producing and are operated by Burlington. During June 2003, we announced our plans to dispose of certain of our Wyoming properties in the Greater Green River Basin covering approximately 72,000 acres, net to our interest. We are also considering additional options for this area such as the farm-out of some of our acreage and other similar type transactions. o Southern California Project. As of September 30, 2003 we leased approximately 2,727 net acres in Kern and San Luis Obispo counties in southern California. We have no drilling or development plans for this area during 2003. We may consider selling these positions in the future. Recent Developments During January 2003, we entered into a contract with the system operator to put a new compressor into place in our Riverbend Project. The installation of this compressor was completed during February 2003. The additional compression capacity has allowed us to begin producing from wells that were shut-in or flowing though constricted orifices and should meet our projected compression needs in this project through the first half of 2004. Production from these wells was curtailed during the fall of 2002 due to inadequate pipeline compressor capacity on the system, which is owned by another independent operator. The wells placed on line as a result of the compressor installation are the Federal 23-29, which we operate and in which we have an approximate 25% working interest, the Federal 42-29, which we operate and in which we have an approximate 30% working interest, and the Federal 23-21, which we operate and in which we have an approximate 30% working interest. The Lytham Federal 22-22 in which we have an approximate 70% working interest, and the Federal 32-31 in which we have an approximate 80% interest, were successfully completed during December 2003. We operate both of these wells that began selling production during December 2003. During February and April 2003, we sold through a private placement, 11,052 shares of convertible preferred stock to a group of accredited investors, including members of our management, resulting in net proceeds of approximately $4,800,000. During February 2003, $1,400,000 of the proceeds from this sale were used to repay all of our outstanding obligations under a short term promissory note. We planned to use the remaining proceeds from this sale for the development and exploitation of our Riverbend Project and for general corporate purposes. On June 9, 2003, Pannonian was named as a defendant in a lawsuit filed in the United States District Court of Midland County, Texas. On July 15, 2003, Gasco was also named as defendant in the same lawsuit. The plaintiffs, Burlington Resources Oil & Gas Company LP by BROG GP Inc. its sole General Partner, claim that Pannonian and Gasco owe them $1,007,894.14 in unpaid invoices. We have accrued these amounts owed within the accompanying financial statements and fully intend to pay these amounts owed to Burlington Resources. On August 12, 2003, the Company's Board of Directors approved the issuance of 425,000 shares of common stock, under the Gasco Energy, Inc. 2003 Restricted Stock Plan, to certain of the Company's officers and directors. The restricted shares vest 20% on the first anniversary, 20% on the second anniversary and 60% on the third anniversary of the awards. The shares fully vest upon certain events, such as a change in control of the Company, expiration of the individual's employment agreement and termination by the Company of the individual's employment without cause. Any unvested shares are forfeited upon termination of employment for any other reason. The compensation expense related to the restricted stock was measured on September 18, 2003, the date the Restricted Stock Plan was approved by the Company's stockholders and is amortized over the three year vesting period. The shares of restricted stock are considered issued and outstanding at the date of grant and are included in shares outstanding for the purposes of computing diluted earnings per share. The Company had 425,000 unvested shares of restricted stock outstanding as of September 30, 2003 and the compensation expense related to these shares during the nine months ended September 30, 2003 was $13,828. There were no outstanding shares of restricted stock during 2002. On October 15, 2003 we closed the sale of $2,500,000 of 8% Convertible Debentures in a private placement, for a net aggregate purchase price of $2,390,000. The Debentures bear interest at 8% per annum, which is payable monthly, and are convertible into 4,166,667 shares of our common stock, at the holder's option, at a conversion price of $0.60 per common share. Monthly principal payments of $37,500 begin in the fourth quarter of 2006 and the maturity date of the Debentures is October 15, 2008. The Debentures are secured by the producing wellbores that we develop using this financing. Additionally, the Debenture holders exercised their right to designate a single nominee to our Board of Directors during October 2003. The Debenture conversion price of $0.60 per common share was lower than the trading value of our common stock on the date the Debentures were issued. This resulted in a beneficial conversion feature of approximately $167,000, which will be amortized over the life of the Debentures. On October 23, 2003, we completed the sale through a private placement of 4,788,436 shares of our common stock to a group of accredited previous investors. The selling price of $0.58 per common share was determined by taking 97 percent of the 20-day average closing price of our common stock for the period ending October 17, 2003, and resulted in total proceeds of approximately $2,780,000. The expenses associated with this transaction are approximately $15,000. During October 2003, we completed a transaction whereby we settled an outstanding account payable owed of $1,606,982 to an oilservice provider arising from drilling and completion expenditures of five of our operated wells, by paying the provider $400,000 in cash and conveying to the provider a portion of our interests in two Riverbend wells. Subsequent to this transaction, we retained a 30% working interest in the two subject wells and our ownership in the third well remained unchanged. In connection with the offerings above, we agreed to maintain an effective registration statement covering the shares of common stock issued, as well as those underlying the shares of preferred stock and the Debentures issued in the offerings described above. We have included such shares and have named the holders of such shares in this registration statement under "Selling Stockholders." Risks Related to Our Strategy Our natural gas and petroleum exploration activities take place in a highly competitive and speculative business atmosphere. In seeking suitable natural gas and petroleum properties for acquisition, we compete with a number of other companies operating in our areas of interest, including large oil and gas companies and other independent operators with greater financial resources. We do not believe that our competitive position in the petroleum and natural gas industry will be significant. We anticipate a competitive market for obtaining drilling rigs and services, and the manpower to run them. The current high level of drilling activity in our areas of exploration may have a significant adverse impact on the timing and profitability of our operations. In addition, as discussed under Risk Factors, we will be required to obtain drilling permits for our wells, and there is no assurance that such permits will be available timely or at all. Prospective investors should carefully consider the matters set forth under the caption "Risk Factors," as well as the other information set forth in this prospectus. One or more of these matters could negatively affect our ability to successfully implement our business strategy. Our Executive Offices Our principal executive offices are located at 14 Inverness Drive East, Building H, Suite 236, Englewood, Colorado 80112, and our telephone number is (303) 483-0044. Our website is located at www.gascoenergy.com. Information contained in our website is not part of this prospectus. Summary Consolidated Financial Data The following table presents a summary of our historical consolidated financial data derived from our audited consolidated financial statements. The summary consolidated financial data presented below for the nine month periods ended September 30, 2003 and 2002 is derived from our unaudited consolidated financial statements and includes, in the opinion of management, all normal and recurring adjustments necessary to present fairly the data for such periods. The results of operations for the nine months ended September 30, 2003 and 2002 should not be regarded as indicative of results for the full year. You should read the following data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes includedelsewhere in this prospectus. Nine Months Ended <TABLE> <CAPTION> Nine Months Ended Years Ended December 31, September 30, ------------------------------------------ ---------------------- 2000 2001 2002 2002 2003 ---- ---- ---- ---- ---- Statement of Operations Data: Revenues: <S> <C> <C> <C> <C> <C> Oil and gas................................. $ - $ 36,850 $ 164,508 $ 95,543 $ 935,478 Gain on sale of permit...................... 200,000 - - - - Interest.................................... - 193,352 76,140 62,362 9,128 ------------ -------- -------- -------- --------- Total revenues............................ 200,000 230,202 240,648 157,905 944,606 ----------- -------- -------- -------- -------- Operating expenses: General and administrative.................. 951,734 4,326,065 5,080,287 3,936,479 2,120,856 Lease operating............................. - 12,679 119,809 76,057 280,968 Depletion, depreciation and amortization.... - 5,760 149,109 195,795 398,588 Impairment.................................. - - 541,125 541,125 - Interest.................................... 61,776 67,363 - - 24,673 ---------- --------- ---------- --------- ---------- Total operating expenses.................. 1,013,510 4,411,867 5,890,330 4,749,456 2,825,085 ---------- ----------- ---------- --------- ----------- Net loss from operations.................. (813,510) (4,181,665) (5,649,682) (4,591,551) (1,880,479) ----------- ------------ ----------- ------------ ----------- Other income (expense)......................... (29,751) 52,206 - - - ---------- ----------- ---------- ---------- ----------- Loss before cumulative effect of change in accounting principle........................... (843,261) (4,129,459) (5,649,682) (4,591,551) (1,880,479) ----------- ------------ ----------- ------------ ----------- Cumulative effect of change in accounting Principle - - - - (9,687) --------- ------------ ----------- ------------ ----------- Net loss (843,261) (4,129,459) (5,649,682) (4,591,551) (1,890,166) Preferred stock dividends - - - - (216,145) Series A Convertible Redeemable Preferred Stock deemed distribution....................... - (11,400,000) - - - -------- ------------ ----------- ----------- --------- Net loss attributable to common stockholders... $ (843,261) $(15,529,459) $(5,649,682) $(4,591,551) $ (2,106,311) ========= ============= =========== ============ ============= Per common share data - basic and diluted Loss before cumulative effect of change in accounting principle $ (0.06) $ (0.63) $ (0.16) $ (0.13) $ (0.05) Cumulative effect of change in accounting principle - - - - - ----------- ----------- ----------- --------- --------- Net loss per common share - basic and diluted (0.06) $ (0.63) $ (0.16) $ (0.13) $ (0.05) ========== =========== ========== ========= ======== Weighted average number of common shares outstanding:Basic and Diluted.................. 13,800,595 24,835,144 36,439,074 35,389,349 40,347,042 ========== ========== ========== ========== ========== </TABLE> <TABLE> <CAPTION> At December 31, At September 30, --------------------------------- ----------------- 2001 2002 2003 ---- ---- ---- Balance Sheet Data: <S> <C> <C> Cash and cash equivalents.................... $ 12,296,58$ 2,089,062 $ 478,692 Working capital (deficit).................... 11,860,584 (2,857,539) (2,498,611) Oil and gas properties, at cost, accounted for using the full cost method of accounting. 9,152,740 25,406,595 28,634,422 Total assets................................. 21,658,525 27,505,501 28,826,115 Total liabilities............................ 593,100 5,491,236 3,763,281 Stockholders' equity......................... 21,065,425 22,014,265 25,062,834 ------------------- </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001087277_aptimus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001087277_aptimus_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus. Aptimus, Inc. ( We ) is a results-based advertising network that distributes advertisements for direct marketing advertisers across a network of third-party web sites and company-owned and licensed email lists. Advertisers pay us based on the occurrence of a pre-specified action. In addition, we pay a portion of the amounts we bill our advertiser clients to the third-party website owners and email list owners on whose web properties and email lists we distribute the advertisements. Occasionally we also pay web site owners either a fixed fee for each completed user transaction or a fee for each impression of an advertisement served on the website. For web site publishers and email list owners, we believe that our network provides the potential for such clients to generate high revenues through promoting offers from recognized brand advertisers in graphical formats that complement the publishers sites and add value for their customers. At the core of our network is a database configuration and software platform supporting a direct marketing approach for which we have filed a non-provisional business method patent application called Dynamic Revenue Optimization , which determines through computer-based logic on a real-time basis the advertisements in our system, in terms of response and value, for promotion on each individual web site and in each email sent that over time the system projects will most likely generate the greatest user response and revenue potential for that specific web site or email placement. We first applied our Dynamic Revenue Optimization approach to our marketing services in June 2002. We have a history of significant losses, with losses of $17.9 million, $5.5 million and $1.5 million in 2001, 2002 and 2003, respectively. As of June 30, 2004, we had an accumulated deficit of $62.8 million. In 2003, our ten largest advertiser clients accounted for 61.7% of our revenue, with the two largest advertiser-clients in that group respectively accounting for 13.6% and 10.1% of our revenues. In addition, for the six months ended June 30, 2004, our ten largest advertiser-clients accounted for 65.2% of our revenue, with the largest two advertiser-clients accounting for 23.2% and 7.1%, respectively. For the year ended December 31, 2003 and the six months ended June 30, 2004, user leads (in other words, a revenue producing transaction consisting of a click on an advertisement, submission of information by a consumer in response to an advertisement, an order in connection with an advertisement or some combination thereof) from our top five website publishers accounted for 41.0% and 53.4% of our total revenues, respectively. Our two largest website publishers for the six months ended June 30, 2004, accounted for 30.4% and 11.8% of our revenue, respectively. In addition to the foregoing, our common stock was delisted from the Nasdaq SmallCap Market in March 2003, due to our non-compliance with the minimum bid and market capitalization requirements for continued listing on the SmallCap Market. Our common stock is currently quoted on the Over-the-Counter Bulletin Board. Our principal executive offices are at 100 Spear Street, Suite 1115, San Francisco, CA 94105 and our telephone number is (415) 896-2123. We were incorporated under the laws of the State of Washington in 1997. Our web site address is www.aptimus.com. The information contained on our web site is not part of this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001088120_isecuretra_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001088120_isecuretra_prospectus_summary.txt
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+PROSPECTUS SUMMARY This following summary highlights selected information from this prospectus and may not contain all of the information important to you. To understand our business and this offering fully, you should read the entire prospectus carefully, including the financial statements and the related notes beginning on page F-1. When we refer in this prospectus to the "Company," "we," "us," and "our," we mean iSECUREtrac Corp., a Delaware corporation, together with our subsidiaries, ABS Nebraska, Inc. and iST Services, Inc. This prospectus contains forward looking statements and information relating to iSECUREtrac Corp. See Cautionary Note Regarding Forward Looking Statements on page 8. OUR COMPANY We are iSECUREtrac Corp., a Delaware corporation. Our principal executive offices are located at 5022 South 114th Street, Suite 103, Omaha, Nebraska 68137. Our telephone number is 402-537-0022. The address of our website is www.isecuretrac.com. Information on our website is not part of this prospectus. We are in the business of developing and selling and or leasing global positioning system ("GPS") based tracking solutions for the criminal justice industry since 1997. Our company, then named Sage Analytics International, Inc., entered into a share exchange with a Nebraska corporation, Advanced Business Sciences, Inc., which had been founded in 1994 specifically to commercialize a patent application for the continuous electronic monitoring and tracking of individuals. Prior to that time, we were engaged in developing and licensing decision support software. Our tracking device, known as a Personal Tracking Unit ("PTU") is capable of constantly obtaining a geographical location fix (i.e. a point of latitude and longitude in degrees, minutes and fractions of minutes within 10 meters of the actual physical location of the PTU) and transmitting this data to our computers via a communications network. Named tracNET24(TM), our software system allows the end-user to continuously track and monitor an individual wearing a PTU, via a secure web hosted application. We changed our name to iSECUREtrac Corp. in June of 2001. The name change was done to better reflect our current and future business activities of providing advanced tracking solutions for the monitoring of individuals and assets via a secure web hosted application. THE OFFERING This prospectus relates to the public offering of 33,007,227 shares of common stock of iSECUREtrac Corp., which includes 16,566,030 shares issuable upon the exercise of warrants held by certain stockholders. USE OF PROCEEDS This prospectus relates to shares of our common stock that may be offered and sold from time to time by selling stockholders. This prospectus also relates to common stock issuable upon the exercise of warrants held by certain stockholders. We will receive no proceeds from the sale of shares of common stock in this offering. We will, however, receive proceeds from the exercise of the warrants. The proceeds from the exercise of warrants will be used for capital expenditures and operations. ISECURETRAC CORP AND SUBSIDIARIES PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses payable by us in connection with the sale of the shares offered hereby. All amounts shown are estimates, except for the SEC filing fees. SEC registration fee............................... $ 1,212.79 Legal fees and expenses............................ 10,000.00 Accounting fees and expenses....................... 12,000.00 Transfer Agent and Registrar fees.................. 1,000.00 Miscellaneous fees and expenses.................... 500.00 ------------ Total................................... $ 24,712.79 ============ Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended. Article 12 of our Restated Certificate of Incorporation, exhibit 3.01 hereto, and article 8 of our Restated Bylaws, exhibit 3.02 hereto, provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted by Delaware law. Item 15. Recent Sales of Unregistered Securities The following sets forth certain information regarding the sale of equity securities of our company within the last three years that were not registered under the Securities Act of 1933, as amended (the Securities Act). (A) WARRANTS. The following table and notes list warrants to purchase shares of our common stock that have been issued since within the past three years without registration under the Securities Act of 1933, as amended (the Securities Act). SUMMARY FINANCIAL DATA The following financial information summarizes the more complete historical financial information at the end of this prospectus. Our independent public auditors, McGladrey & Pullen, LLP, have audited the fiscal periods of 2003 and 2002, and their reports express an unqualified opinion and include an explanatory paragraph referring to our ability to continue as a going concern. You should read the information below along with all other financial information and analysis in this prospectus. Please do not assume that the results below indicate results we'll achieve in the future. <TABLE> <CAPTION> iSECUREtrac CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 2003 ------------------------------------------------------------------------------------------------------- ASSETS Current Assets <S> <C> Cash $ 125,399 Account receivables, net of $12,000 allowance for doubtful accounts 602,367 Inventories 144,151 Prepaid expenses and other 95,032 ------------------------------------------------------------------------------------------------------- Total current assets 966,949 ------------------------------------------------------------------------------------------------------- Leasehold Improvements and Equipment, net 359,453 Monitoring Equipment, net of accumulated depreciation of $470,331 4,078,419 Product Development Costs, net of accumulated amortization of $577,246 367,338 Intangibles, subject to amortization 822,856 Goodwill 2,302,179 Other Assets 32,488 ------------------------------------------------------------------------------------------------------- Total assets $ 8,929,682 ======================================================================================================= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes payable $ 2,994,476 Current maturities of long-term debt 1,645,494 Accounts payable and accrued expenses 1,319,884 Deferred gain on sale-leaseback transaction 677,125 Accrued interest payable 195,587 Preferred dividends payable 218,513 ------------------------------------------------------------------------------------------------------- Total current liabilities 7,051,079 ------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 4,839,547 ------------------------------------------------------------------------------------------------------- Commitments and contingencies - ------------------------------------------------------------------------------------------------------- Stockholders' Deficit Series A Convertible Preferred stock, 10,000 shares designated at $.01 par value; 9,126 issued and outstanding, stated value $1,000 per share 9,125,470 Series B Convertible Preferred stock, 3,500 shares designated at $.01 par value; 300 issued and outstanding, stated value $1,000 per share 295,000 Common stock, 100,000,000 shares authorized at $.001 par value; 48,904,299 issued and outstanding 48,904 Additional paid-in capital 28,524,733 Unearned consulting expense (357,000) Accumulated deficit (40,598,051) ------------------------------------------------------------------------------------------------------- Total stockholders' deficit (2,960,944) ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' deficit $ 8,929,682 ======================================================================================================= </TABLE> iSECUREtrac CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2003 and 2002 <TABLE> <CAPTION> 2003 2002 Change ----------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues: Equipment $ 171,759 $ 358,305 $ (186,546) Leasing 402,972 -- 402,972 Hosting 757,106 2,009 755,097 Gain on sale-leaseback transactions 123,083 -- 123,083 Service 38,187 142,688 (104,501) ----------------------------------------------------------------------------------------------------- Total revenues 1,493,107 503,002 990,105 ----------------------------------------------------------------------------------------------------- Costs and expenses: Cost of revenues 1,141,334 612,803 528,531 Research and development 750,443 773,248 (22,805) Sales, general and administrative 5,557,414 4,172,160 1,385,254 ----------------------------------------------------------------------------------------------------- Total costs and expenses 7,449,191 5,558,211 1,890,980 ----------------------------------------------------------------------------------------------------- Operating loss (5,956,084) (5,055,209) (900,873) ----------------------------------------------------------------------------------------------------- Other income (expense): Interest income 523 1,742 (1,219) Interest expense (444,886) (203,419) (241,467) Loan acquisition expense, stockholders (638,603) (536,734) (101,869) ----------------------------------------------------------------------------------------------------- Total other income (expense) (1,082,966) (738,411) (344,555) ----------------------------------------------------------------------------------------------------- Loss before provision for income taxes (7,039,050) (5,793,620) (1,245,428) ----------------------------------------------------------------------------------------------------- Provision for income taxes -- -- -- ----------------------------------------------------------------------------------------------------- Net loss (7,039,050) (5,793,620) (1,245,428) Preferred dividends (848,200) (807,832) (40,368) ----------------------------------------------------------------------------------------------------- Net loss available to common stockholders $ (7,887,250) $ (6,601,452) $ (1,285,796) ===================================================================================================== Basic and diluted loss per common share $ (0.19) $ (0.23) $ (0.23) ===================================================================================================== Weighted average shares of common stock outstanding 41,561,430 29,248,828 29,248,828 ===================================================================================================== </TABLE> ISECURETRAC CORP CONDENSED BALANCE SHEET MARCH 31, 2004 ------------------------------------------------------------------------------- Cash 110,133 Other current assets 869,738 Other assets 5,961,559 ----------- Total assets 6,941,430 =============================================================================== Total current liabilities 6,702,622 Long-term debt, less current maturities 4,728,813 ------------------------------------------------------------------------------- Total liabilities 11,431,435 ------------------------------------------------------------------------------- Series A Preferred stock 9,125,470 Series B Preferred stock 295,000 Common stock 55,191 Additional paid-in capital 32,366,028 Unearned consulting expense -- Accumulated deficit (46,331,693) ------------------------------------------------------------------------------- Total stockholders' deficit (4,490,004) ------------------------------------------------------------------------------- Total liabilities and stockholders' deficit 6,941,430 =============================================================================== TRACKING SYSTEMS CORPORATION BALANCE SHEETS DECEMBER 31, 2001 AND 2000 ASSETS 2001 2000 ---------- ---------- (Restated) Current assets Cash $1,226,442 $ 34,534 Accounts receivable, net of allowance for doubtful accounts of $40,184 and $25,692 727,974 1,321,690 Inventories 58,579 61,941 Prepaid expenses and other current assets 230,078 40,188 ---------- ---------- Total current assets 2,243,073 1,458,353 ---------- ---------- Property and equipment, net 1,717,811 2,370,935 ---------- ---------- Other assets Deferred financing costs 215,493 8,204 Intangible assets, net 465,636 574,481 Deposits 7,495 7,000 ---------- ---------- Total other assets 688,624 589,685 ---------- ---------- Total assets $4,649,508 $4,418,973 ========== ========== The accompanying notes are an integral part of these financial statements. TRACKING SYSTEMS CORPORATION BALANCE SHEETS DECEMBER 31, 2002 AND 2001 ASSETS 2002 2001 ---------- ---------- Current assets Cash $ 633,543 $1,226,442 Accounts receivable, net of allowance for doubtful accounts of $0 and $40,184 745,633 727,974 Inventories 65,480 58,579 Prepaid expenses and other current assets 142,336 230,078 ---------- ---------- Total current assets 1,586,992 2,243,073 ---------- ---------- Property and equipment, net 1,506,788 1,717,811 ---------- ---------- Other assets Deferred financing costs 160,141 215,493 Intangible assets, net 330,933 465,636 Deposits 15,168 7,495 ---------- ---------- Total other assets 506,242 688,624 ---------- ---------- Total assets $ 3,600,022 $4,649,508 ========== ========== The accompanying notes are an integral part of these financial statements. <TABLE> <CAPTION> NUMBER OF TYPE OF AMOUNT OF EXERCISE LAST NAME FIRST NAME ISSUE DATE WARRANTS CONSIDERATION DIRECT LOAN PRICE ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> (1) Kanne Roger 06/29/01 221,729 Direct loan $ 200,000 0.902 (1) Kanne Roger 07/16/01 101,626 Direct loan $ 100,000 0.984 (1) Kanne Roger 08/10/01 71,023 Direct loan $ 75,000 1.056 (2) Anderson Dennis 08/27/01 261,506 Wells Fargo Bank N/A 0.956 (2) Halbur Martin 08/27/01 261,506 Wells Fargo Bank N/A 0.956 (2) Kanne Roger 08/27/01 261,506 Wells Fargo Bank N/A 0.956 (2) Macke Partners 08/27/01 261,506 Wells Fargo Bank N/A 0.956 (1) Kanne Roger 11/02/01 77,963 Direct loan $ 75,000 0.962 (1) Halbur Martin 11/02/01 77,963 Direct loan $ 75,000 0.962 (1) Kanne Roger 11/20/01 50,100 Direct loan $ 50,000 0.998 (1) Kanne Roger 11/30/01 151,899 Direct loan $ 150,000 0.9875 (1) Kanne Roger 01/03/02 77,429 Direct loan $ 50,000 0.64575 (1) Kanne Roger 01/04/02 77,429 Direct loan $ 50,000 0.64575 (1) Kanne Roger 01/07/02 77,851 Direct loan $ 50,000 0.64225 (1) Macke Partners 01/11/02 155,703 Direct loan $ 100,000 0.64225 (1) Kanne Roger 01/16/02 40,492 Direct loan $ 25,000 0.6174 (1) Kanne Roger 01/27/02 40,038 Direct loan $ 25,000 0.6244 (1) Macke Partners 02/04/02 236,518 Direct loan $ 150,000 0.6342 (1) Kanne Roger 02/22/02 401,284 Direct loan $ 250,000 0.623 (3) GUNDYCO 06/27/02 62,500 Consulting N/A 1.65 (1) Buckshot Capital 08/07/03 200,000 Direct loan $ 400,000 0.510 (4) Herrig 08/18/03 20,000 Capital Lease N/A 0.425 (4) AHK Leasing, LLC 09/01/03 355,114 Capital Lease N/A 0.352 (4) AHK Leasing, LLC 09/01/03 217,014 Capital Lease N/A 0.288 (4) AHK Leasing, LLC 09/01/03 139,509 Capital Lease N/A 0.448 (4) AHK Leasing, LLC 09/01/03 97,656 Capital Lease N/A 0.64 (4) AHK Leasing, LLC 09/01/03 105,574 Capital Lease N/A 0.592 (4) AHK Leasing, LLC 09/01/03 111,607 Capital Lease N/A 0.56 (4) AHK Leasing, LLC 09/01/03 375,000 Capital Lease N/A 0.48 (5) Altron, Inc. 09/09/03 10,000 Consulting N/A 1.00 (6) Smith Daniel 10/14/03 432,000 Equity Financing N/A 0.60 (1) Kanne Roger 11/21/03 255,102 Direct loan $ 100,000 0.392 (7) Bucks Corp 12/17/03 425,000 Equity Financing N/A 0.48 (7) Walker Curt D 12/17/03 158,500 Equity Financing N/A 0.48 (7) John & Helen Backlund 12/17/03 41,500 Equity Financing N/A 0.48 (7) Gray Charles 01/05/04 25,000 Equity Financing N/A 0.48 (7) Genack & Wixon Ab & Kathy 01/05/04 38,500 Equity Financing N/A 0.48 (7) The Harner Living Trust 01/05/04 362,500 Equity Financing N/A 0.48 (7) Gerber 111 IRA Joseph 01/05/04 87,500 Equity Financing N/A 0.48 (7) Dewitt Montgomery 111 IRA 01/05/04 11,500 Equity Financing N/A 0.48 (7) Mitchell Terry 01/05/04 50,000 Equity Financing N/A 0.48 (7) Nancy Nita Macy Rev Trust 01/05/04 50,000 Equity Financing N/A 0.48 (7) Walker Curt D 01/15/04 318,500 Equity Financing N/A 0.48 (7) Metolius Fund 01/15/04 300,000 Equity Financing N/A 0.48 (7) Webb Laura 01/15/04 6,500 Equity Financing N/A 0.48 (7) Victor Hackenschmidt IRA 01/28/04 21,000 Equity Financing N/A 0.48 (7) Flaxel John 01/28/04 27,500 Equity Financing N/A 0.48 (7) Manning Ronald 01/28/04 80,000 Equity Financing N/A 0.48 (7) Roosevelt Christopher 01/28/04 25,000 Equity Financing N/A 0.48 </TABLE> ISECURETRAC CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 <TABLE> <CAPTION> 2004 2003 ------------------------------------------------------------------------------------ REVENUES: <S> <C> <C> Equipment $ 16,506 $ 29,268 Leasing 277,456 15,039 Hosting 505,003 21,355 Gain on sale-leaseback transactions 106,328 -- Service 18,731 2,057 ------------------------------------------------------------------------------------ Total revenues 924,024 67,718 ------------------------------------------------------------------------------------ OPERATING EXPENSES: Cost of revenues 1,954,530 126,556 Research and development 174,964 180,487 Sales, general and administrative 2,384,680 1,034,139 ------------------------------------------------------------------------------------ Total operating expenses 4,514,174 1,341,181 ------------------------------------------------------------------------------------ Operating loss (3,590,150) (1,273,463) ------------------------------------------------------------------------------------ OTHER INCOME (EXPENSE): Interest income 8 109 Interest expense (199,497) (65,265) Financing fees (1,722,691) -- ------------------------------------------------------------------------------------ Total other income (expense) (1,922,179) (65,156) ------------------------------------------------------------------------------------ Loss before provision for income taxes (5,512,329) (1,338,619) ------------------------------------------------------------------------------------ Provision for income taxes -- -- ------------------------------------------------------------------------------------ NET LOSS (5,512,329) (1,338,619) PREFERRED DIVIDENDS (221,313) (203,463) ------------------------------------------------------------------------------------ NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (5,733,642) $ (1,542,082) ==================================================================================== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.11) $ (0.04) ==================================================================================== Weighted average shares of common stock outstanding 52,685,898 35,973,163 </TABLE> LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> 2001 2000 ------------ ------------ (Restated) <S> <C> <C> Current liabilities Current portion of long-term debt and line of credit $ 306,978 $ 39,995 Accounts payable 373,935 779,472 Accrued liabilities 508,345 371,090 ------------ ------------ Total current liabilities 1,189,258 1,190,557 Long-term debt and line of credit, net of current portion 4,632,846 3,668,980 ------------ ------------ Total liabilities 5,822,104 4,859,537 ------------ ------------ Stockholders' equity Preferred stock, Class B cumulative, convertible, par value $10.38, authorized 390,000 shares, issued and outstanding 300,864 shares (Aggregate liquidation preference $6,785,743) 6,785,743 5,983,947 Preferred stock, Class C cumulative, convertible, par value $8.40, authorized 170,000 shares, issued and outstanding 160,145 shares (Aggregate liquidation preference $3,107,488) 3,107,488 2,776,938 Preferred stock, Class A cumulative, convertible, par value $25, authorized 100,000 shares, issued and outstanding 29,480 shares (Aggregate liquidation preference $1,295,860) 1,165,739 1,016,717 Common stock, par value $1, authorized 1,000,000 shares, issued and outstanding 239,232 and 239,232 230,833 230,833 shares Accumulated deficit (12,470,798) (10,448,999) ------------ ------------ Total stockholders' equity (1,172,596) (440,564) ------------ ------------ Total liabilities and stockholders' equity $ 4,649,508 $ 4,418,973 ============ ============ </TABLE> LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> 2002 2001 ------------ ------------ <S> <C> <C> Current liabilities Current portion of long-term debt and line of credit $ 629,185 $ 306,978 Accounts payable 217,980 373,935 Accrued liabilities 539,618 508,345 ------------ ------------ Total current liabilities 1,386,783 1,189,258 Long-term debt and line of credit, net of current portion 3,945,447 4,632,846 ------------ ------------ Total liabilities 5,332,230 5,822,104 ------------ ------------ Stockholders' equity Preferred stock, Class B cumulative, convertible, par value $10.38, authorized 390,000 shares, issued and outstanding 300,864 shares (Aggregate liquidation preference $7,638,355) 7,638,355 6,785,743 Preferred stock, Class C cumulative, convertible, par value $8.40, authorized 170,000 shares, issued and outstanding 160,145 shares (Aggregate liquidation preference $3,463,974) 3,463,974 3,107,488 Preferred stock, Class A cumulative, convertible, par value $25, authorized 100,000 shares, issued and outstanding 29,480 shares (Aggregate liquidation preference $1,354,820) 1,353,824 1,165,739 Common stock, par value $1, authorized 1,000,000 shares, issued and outstanding 239,232 and 239,232 239,232 239,232 shares Accumulated deficit (14,427,593) (12,470,798) ------------ ------------ Total stockholders' equity (1,732,208) (1,172,596) ------------ ------------ Total liabilities and stockholders' equity $ 3,600,022 $ 4,649,508 ============ ============ </TABLE> <TABLE> <CAPTION> NUMBER OF TYPE OF AMOUNT OF EXERCISE LAST NAME FIRST NAME ISSUE DATE WARRANTS CONSIDERATION DIRECT LOAN PRICE ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> (7) Webb Laura 01/28/04 447,500 Equity Financing N/A 0.48 (7) Montgomery Dewitt JR 01/28/04 24,000 Equity Financing N/A 0.48 (7) Webb Laura 02/17/04 2,500,000 Equity Financing N/A 0.48 (7) Walker Curt D 03/17/04 694,445 Equity Financing N/A 0.432 (7) Walker Curt D 03/22/04 125,000 Equity Financing N/A 0.432 (8) Webb Laura 05/13/04 300,000 Equity Financing N/A 0.35 (8) Webb Laura 05/19/04 150,000 Equity Financing N/A 0.35 (8) Wright Keith M 05/19/04 300,000 Equity Financing N/A 0.35 (9) Chicoine Brad 05/27/04 525,937 Equity Financing N/A 0.37852 (9) Herrig Speed & Judy 05/27/04 172,403 Equity Financing N/A 0.37852 (10) Corpfin 05/28/04 521,739 Equity Financing N/A 0.23 (10) Alpha Capital Aktiengesellschaft 05/28/04 1,086,957 Equity Financing N/A 0.378519 (10) Bristol Investment Fund, Ltd. 05/28/04 652,173 Equity Financing N/A 0.378519 (10) JM Investors 05/28/04 434,783 Equity Financing N/A 0.378519 (10) Enable Growth Partners L.P. 05/28/04 217,391 Equity Financing N/A 0.378519 (10) SRG Capital LLC 05/28/04 217,391 Equity Financing N/A 0.378519 (10) Alpha Capital Aktiengesellschaft 05/28/04 1,086,957 Equity Financing N/A 0.23 (10) Bristol Investment Fund, Ltd. 05/28/04 652,173 Equity Financing N/A 0.23 (10) JM Investors 05/28/04 434,783 Equity Financing N/A 0.23 (10) Enable Growth Partners L.P. 05/28/04 217,391 Equity Financing N/A 0.23 (10) SRG Capital LLC 05/28/04 217,391 Equity Financing N/A 0.23 (11) Merriman Curhan Ford & Co 06/15/04 25,000 Consulting N/A 0.64 </TABLE> (1) Represents warrants to purchase shares of our common stock issued in exchange for direct loans made to the Company. When the individuals or entities identified on the table made a loan to us, they received a promissory note payable four months to one year from the date of the loan in the principal amount of loan and with interest accruing at a rate of 10% per annum and warrants to purchase shares of our common stock. We believe that these transactions were conducted in compliance with the Securities Act under Rule 506 and Section 4(2) of the Securities Act because each of the individuals to whom the warrants were issued was an accredited investor. (2) Represents warrants to purchase shares of our common stock issued to Dennis L. Anderson, Martin J. Halbur, Roger J. Kanne and Macke Partners in exchange for their execution of agreements to personally guaranty the payment of the principal and interest of an additional promissory note with Wells Fargo in the principle amount of $1,000,000 with interest accruing at a rate equal to the prime rate in effect from time to time. We believe that these transactions were conducted in compliance with the Securities Act under Rule 506 and Section 4(2) of the Securities Act because each of the individuals to whom the warrants were issued was an accredited investor. (3) Represents warrants issued to GUNDYCO, for consulting services in regards to placement of Company registered shares. The issuance of the warrants in this instance was limited only to GUNDYCO, and accordingly we believe that the issuance was exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(2). (4) Represents warrants to purchase shares of our common stock issued to Duane Herrig and AHK Leasing in exchange for their execution of lease agreements for funding provided by them to the Company. We believe that these transactions were conducted in compliance with the Securities Act under Rule 506 and Section 4(2) of the Securities Act.
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089512_acs-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089512_acs-of_prospectus_summary.txt
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089513_acs-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089513_acs-of_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001089513_acs-of_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089514_acs-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089514_acs-of_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089517_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089517_acs_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089518_acs-long_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089518_acs-long_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001089518_acs-long_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001089524_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001089524_acs_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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+PROSPECTUS SUMMARY This summary highlights key aspects of our business and this offering that are described more fully elsewhere in this prospectus. We urge you to read this entire prospectus carefully, including our consolidated financial statements and related notes and the "Risk Factors" section, before making an investment decision. All references in this prospectus to "Cherokee," "we," "us," "our company" or "our" refer to Cherokee International Corporation and its consolidated subsidiaries, except where it is clear that such terms mean only Cherokee International Corporation. All share and per share amounts in this prospectus reflect a 1 for 3.9 reverse stock split of our outstanding common stock to occur prior to the consummation of this offering. Cherokee International Corporation We are a designer and manufacturer of power supplies for original equipment manufacturers, or OEMs. Our advanced power supply products are typically custom designed into mid- to high-end commercial applications in the computing and storage, wireless infrastructure, enterprise networking, medical and industrial markets. Our power supply products are differentiated from those used in lower-end electronics, such as personal computers and mobile phones, by their high level of engineering and reliability. We are often the sole source provider of power supplies for OEM products into which our power supplies have been designed. We strive to distinguish ourselves from our competitors with sophisticated engineering, design flexibility, innovative solutions, rapid prototype development, and efficient, low-cost manufacturing. Our Industry Power supplies are an essential element in the supply, regulation and distribution of electrical power in electronic equipment. Generally, power supplies convert alternating current, or AC, from a primary power source, such as a utility company, into a precisely controlled direct current, or DC. Virtually every electronic device that plugs into an AC wall socket requires some type of AC/DC power supply. DC/DC converters modify one DC voltage level to other DC levels to meet the distinctive power needs of various electronic subsystems and components. Modern commercial electronic systems, especially computing and storage and wireless infrastructure equipment, require a precise and constant supply of electrical power that is significantly more refined than the power provided by the electric utility grid. Therefore, OEMs utilize advanced power supplies designed and manufactured by power supply vendors on a custom, modified standard or standard basis, depending on the needs of the specific customer. Custom power supplies necessitate a working relationship between the OEM and the power supply vendor to provide maximum design flexibility to meet the exact form, fit and function required for a specific application. Modified standard power supplies require less customization, and standard power supplies are provided "off-the-shelf." Current Industry Characteristics Large, Growing AC/DC Market. According to Venture Development Corporation, or VDC, the global market for third-party AC/DC power supply products was expected to be $4.1 billion in 2003. We believe the principal factors contributing to growth in this market will include: Increasing demand from OEMs due to improving end markets; Increasing spending for information technology and communications equipment (especially wireless); Increasing demand for electronic equipment and systems in Asia and emerging markets; Increasing quality and reliability requirements of power supplies in OEMs' end products; and New product development by OEMs. Growing, Complementary DC/DC Market. According to VDC, the global market for third-party DC/DC converters was expected to be $2.0 billion in 2003. The DC/DC market is expected to experience growth principally due to the proliferation of electronic devices that require lower DC voltages at higher currents. Reduction of Approved Vendors Benefits Quality Power Supply Companies. To improve operating efficiencies and shorten the cycle time required to introduce new products, OEMs are relying on a smaller number of approved vendors, including power supply vendors. Competitive Strengths Focused Provider of Custom Solutions. We specialize in providing AC/DC custom power supply solutions and derived approximately 85% of our net sales in 2003 from AC/DC custom products. We believe our engineering expertise and our database of custom designs provide us with a competitive advantage in building high-quality, reliable custom power supply solutions that meet the demanding requirements of our customers' products. Distinctive Combination of Local Engineering with Low-Cost Manufacturing. We provide our customers with the benefits of local design and engineering coupled with competitive pricing as a result of our efficient international manufacturing capabilities. Efficient Operations Generate High Margins. We believe our efficient operations have enabled us to generate strong operating margins. Strong Partnerships with Blue Chip OEM Customers. We provide products to leading OEMs in the computing and storage, wireless infrastructure, enterprise networking, medical, industrial and other mid- to high-end electronic equipment industries, including Alcatel, Brocade Communications Systems, Hewlett-Packard, Honeywell International, Juniper Networks, Motorola, Inc. and Nortel Networks. Sole Provider for Programs Comprising a Majority of Our Sales. We believe we are the sole source provider on programs that comprised approximately 92% of our net sales in 2003. Reputation for Quality and Service in an Increasingly Demanding Environment. We use advanced quality controlled testing methods to monitor our sophisticated design and manufacturing process, and we test 100% of our finished products using automated equipment and customer-approved tests. Experienced Management Team. Our senior management team averages approximately 25 years of power supply and electronics industry experience and approximately 15 years of service with Cherokee. Business Strategy Our objective is to grow our business profitably by being the power supply partner of choice for select industry-leading OEMs who require sophisticated power solutions. Key elements of our strategy include: Increase sales to our existing customers; Expand our customer base through increased sales and marketing efforts; Increase sales from complementary DC/DC product offerings; BALANCE, December 31, 2002 2,073,077 BALANCE, December 31, 2003 $ $ 2,213,754 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Expand and cross-sell product offerings; Expand our international manufacturing presence; Leverage infrastructure to improve margins; and Pursue selected acquisitions when we believe they will complement our existing business. Competitive and Business Challenges We believe the following to be our competitive and business challenges: Relatively Lower Net Sales. Cancellations, reductions or delays in customer orders or commitments or an increase in warranty product returns could have a greater effect on us than some of our competitors because of our lower level of net sales. Dependence on Small Group of Customers. Our top ten customers accounted for approximately 60% of our net sales during 2002 and approximately 61% of our net sales during 2003. Fixed Operating Costs. Operating costs of our existing manufacturing facilities and related administrative expenses are relatively fixed and therefore cannot be easily reduced if our sales decline. Unpredictable End Markets. As a provider of power supplies to OEMs in the electronic equipment industries, our sales are dependent upon the success of these unpredictable end markets and the underlying products of which our power supplies are a component. International Operations. Our significant international operations subject us to risks that we would not otherwise face, such as political and economic instability, terrorism and civil unrest, and difficulties in staffing and managing these operations. Concentration of Ownership. Our existing stockholders will continue to have significant control over our management and policies after the offering. Restructuring Transactions In November 2002, we completed a restructuring of our debt and reorganized from a California limited liability company into a Delaware corporation. In connection with this offering, the convertible debt that we issued at the time of the restructuring will automatically convert into 6,283,796 shares of our common stock, and we will repay a substantial portion of the remaining debt incurred in connection with the restructuring with the proceeds from this offering. As part of the restructuring, we amended our then-existing credit facility and entered into new senior credit facilities providing, in the aggregate, for $15.0 million of term loans and a revolving credit facility of up to $7.6 million, in each case maturing November 30, 2005. As of December 31, 2003, two of the term loans, in an aggregate principal amount of $9.7 million, bore interest at an annual rate of 5.49% and the remaining two term loans, in an aggregate principal amount of $2.8 million, bore interest at an annual rate of 5.91%. Borrowings under the revolving credit facility were approximately $6.1 million and bore interest at an annual rate of 6.75% as of such date. We also issued approximately $41.0 million original principal amount of 141/2% second lien pay-in-kind notes, together with warrants to purchase 2,447,813 shares of our common stock at an exercise price of $0.039 per share. Interest on the second lien notes has been paid in kind since issuance. We also exchanged our $100.0 million of senior subordinated notes for $46.6 million of 51/4% senior notes, together with warrants to purchase 1,633,714 shares of our common stock at an exercise price of $0.039 per share, and $53.4 million of our 12% senior convertible notes due 2008 which are convertible into 6,283,796 shares of our common stock at a conversion price of approximately $8.49 per share. Since issuance, interest due on the senior notes has been paid in cash, and interest due on the senior convertible notes has been added to the Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 principal amount. This amount added in respect of interest payments is not convertible into shares of our common stock. Upon consummation of this offering, we plan to use a portion of the net proceeds to us from this offering to repay the senior credit facilities, to redeem the second lien notes and to pay the amounts added to the principal of the senior convertible notes in respect of interest payments thereon. The $46.6 million of 51/4% senior notes will remain outstanding, and we expect to amend the existing $7.6 million revolving credit facility to provide for up to $20.0 million of borrowings. We expect that all warrants issued in the restructuring will be exercised in connection with this offering in accordance with their terms. Affiliates of Oaktree Capital Management, LLC, GFI Energy Ventures LLC and GSCP (N.J.), Inc., which are also affiliates of ours, participated in the restructuring transactions and currently hold a portion of the indebtedness described above. In this prospectus, we refer to Oaktree Capital Management, LLC as "Oaktree," GFI Energy Ventures LLC as "GFI" and GSCP (N.J.), Inc. as "GSC." As a result, these affiliates of ours will receive approximately $50.9 million of the net proceeds from this offering as repayment of indebtedness. In addition, they will receive approximately 8,125,263 shares of common stock in the aggregate as a result of the conversion of the senior convertible notes held by them and the exercise of warrants held by them. Based on an initial public offering price of $13.00 per share, the mid-point of the range set forth on the cover page of this prospectus, the shares of common stock to be received by these affiliates upon the conversion of such convertible notes and the exercise of such warrants have an aggregate value of $62.6 million in excess of the aggregate exercise and conversion prices. The affiliates of GSCP (N.J.), Inc. were not affiliates of ours prior to the restructuring transactions. Please refer to "Certain Relationships and Related Transactions The Restructuring Transactions; The Offering" for more information. In this prospectus, we refer to the restructuring and related transactions as the "Restructuring Transactions." Amended Senior Revolving Credit Facility In connection with this offering, we have entered into a commitment letter with General Electric Capital Corporation to amend our existing senior revolving credit facility to provide for borrowings of up to $20.0 million that will be subject to a borrowing base comprised of eligible accounts receivable and inventory. The closing under the amended facility is contingent on the consummation of this offering and satisfaction of customary conditions. The amended senior revolving credit facility will be secured by substantially all of our assets. We anticipate this amended facility will have covenants and restrictions similar to those contained in our existing senior revolving credit facility, except that certain financial ratio covenants will be eliminated or loosened. We plan to use funds available under the amended senior revolving credit facility to finance our working capital needs. Principal Offices Our principal offices are located at 2841 Dow Avenue, Tustin, California 92780, and our telephone number is (714) 544-6665. We also maintain a website at www.cherokeepwr.com. The information on our website is not part of this prospectus. The Offering Common stock offered by us 6,600,000 shares Common stock to be outstanding after this offering 19,179,077 shares Use of proceeds and related party transactions We estimate that the net proceeds to us from this offering will be approximately $77.8 million, after payment by us of approximately $8.0 million in underwriting discounts and commissions and offering expenses. We intend to use the net proceeds to us from this offering to repay approximately $74.2 million of indebtedness and accrued interest and approximately $3.6 million for general corporate purposes. Approximately $50.9 million, or 65.5%, of the net proceeds to us from this offering, will be used to repay indebtedness owed to affiliates of Oaktree, GFI and GSC that are also affiliates of ours. Please refer to "Use of Proceeds" for more information. Prior to this offering, these affiliates beneficially owned approximately 76.5% of our outstanding common stock in the aggregate, including 5,056,415 shares of our common stock to be received by them upon the automatic conversion of the senior convertible notes held by them at a conversion price of approximately $8.49 per share, and 3,068,848 shares of our common stock upon the exercise of warrants held by them at an exercise price of $0.039 per share. After giving effect to this offering, these shares to be received upon conversion and exercise of these securities will constitute approximately 42.4% of our outstanding common stock and these affiliates will beneficially own approximately 50.1% of our outstanding common stock in the aggregate, assuming no exercise of the over-allotment option. Based on an initial public offering price of $13.00 per share, the mid-point of the range set forth on the cover page of this prospectus, the shares of common stock to be received by these affiliates upon the conversion of such convertible notes and the exercise of such warrants have an aggregate value of $62.6 million in excess of the aggregate exercise and conversion prices. Please refer to "Certain Relationships and Related Transactions The Restructuring Transactions; The Offering" for more information. We will use approximately $0.2 million of the net proceeds to repay the second lien notes held by an affiliate of Credit Suisse First Boston LLC. NASDAQ National Market Symbol CHRK 2841 Dow Avenue Tustin, California 92780 (714) 544-6665 (Address, Including Zip Code, and Telephone Number Including Area Code, of Registrant's Principal Executive Offices)
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+PROSPECTUS SUMMARY This summary does not contain all the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, especially Risk Factors and the consolidated financial statements and the related notes, before deciding to invest in shares of our common stock. WebSideStory Our Business We are a leading provider of on-demand web analytics services. Web analytics refers to the collection, analysis and reporting of information about Internet user activity. Our services collect data from web browsers, process that data and deliver reports of online behavior to our customers on demand. Customers subscribe to our services, including our primary service, HBX, to understand how Internet users respond to website design and content, online marketing campaigns and e-commerce offerings. As a result, our customers can make more effective marketing decisions and improve the merchandising, sales, support and design of their websites, improving their return on investment on marketing dollars spent. We deliver our services over the Internet using a secure, proprietary, scalable application and system architecture, which allows us to concurrently serve a large number of customers and to efficiently distribute the workload across our network of servers. Our technology is easy to implement and allows our customers to avoid expensive, up-front hardware expenses and software license fees, and to realize lower administration costs compared to traditional software licensing alternatives. Our direct sales force sells our services to a wide range of organizations in many industries including sports and entertainment, news, retail, finance, travel, technology, manufacturing, telecommunications and education. Our services are offered by subscription agreements, typically with terms of one to three years. As of June 30, 2004, we had more than 550 HBX customers, an increase from approximately 180 customers as of June 30, 2001. Our top ten customers by revenue for the year ended December 31, 2003 were the Walt Disney Internet Group, Best Buy, Nokia, Delta Tre Informatica, British Sky Broadcasting, Cisco Systems, Sony, AT T Worldnet, Daimler Chrysler and FedEx Corporate Services. Market Opportunity The use of the Internet by businesses has evolved from providing basic product information on websites to incorporating critical business processes such as sales, marketing, advertising and customer service and support. As organizations continue to adopt the Internet for an increasing number of business processes, they face many challenges and, as a result, need better web analytics. For example, it is often difficult for businesses to measure the direct impact of their marketing initiatives and branding campaigns and to improve the conversion rate, which is the percentage of online visitors who become online customers. In addition, businesses want to reduce the number of costly customer support calls that are caused by problem areas of their websites or faulty online self-help processes. In order to solve these problems, businesses need tools that can track web visitor navigation and measure responses to changes in content and product offerings. These tools should provide actionable information and analysis to decision makers in an easy-to-use format. With web analytics, organizations now have the ability to quickly measure and quantify the effect of various online marketing campaigns on site traffic, conversion rates, online sales and other applicable metrics. Users of web analytics can better allocate marketing budgets, improve site design, prioritize site content, characterize advertising inventory and quantify sales. Web analytics services are even being used to measure online responses to off-line marketing such as direct mail and radio advertising. Market and technology research firms, such as IDC, Forrester Research and Jupiter Research, independently gather and analyze data to predict market trends, sizes and growth rates. Many marketing and technology trends, including the future growth of banner advertisements, affiliate networks, email marketing and search engine marketing, all of which we refer to as digital marketing services, as well as web analytics services, (unaudited) Revenues: Subscription 77 % 89 % 96 % 97 % 99 % Advertising 23 11 4 3 Table of Contents are analyzed by such firms. According to an IDC report dated October 2003, the web analytics market is expected to increase from $257 million in 2003 to $418 million in 2007. As web analytics technology advances, it is becoming more functionally integrated with other digital marketing services. In a report dated October 2003, Forrester Research estimates that the aggregate market for digital marketing services will increase from $7.0 billion in 2003 to $15.6 billion in 2008. Our Services We offer web analytics services that collect data from web browsers, process that data and deliver analytic reports of online behavior over the Internet. We believe our services: Facilitate decisions on how to improve online and off-line initiatives; Improve marketing return on investment; Provide valuable information and analysis on demand; Deliver intuitive, easy-to-use reports for business users; Are secure and scalable; and Offer a lower total cost of ownership compared to traditional web analytics software. Our Strategy Our goal is to be the global market-share leader in web analytics and to enter into related markets for online, on-demand services such as automated management of promotional campaigns on search engines, or search optimization; marketing surveys; promotional email communications with customers, or email marketing; website search tools; systems to automate the exchange of, and accounting for, online customer referrals, or affiliate marketing networks; the analysis of customer interactions by telephone, or call center analytics; and content management. Risks Affecting Us We are subject to a number of risks, which you should be aware of before you decide to buy our common stock. For example, we have limited experience in an emerging market and did not start selling our services for a fee until 1999. In addition, we rely on a relatively new management team. Moreover, our business and technology models are unproven. We have incurred significant net losses during the past three fiscal years. As of June 30, 2004, we had an accumulated deficit of $55.6 million. Although we have generated net income in recent quarters, we may not be profitable in future periods, either on a short or long-term basis. In addition, $16.75 million, or 49.7%, of the net proceeds from this offering, will be used to redeem all of the outstanding shares of our redeemable preferred stock, currently held by entities affiliated with TA Associates, Inc. and Summit Partners. Two of our directors, Kurt R. Jaggers and Charles J. Fitzgerald, Jr., are affiliated with TA Associates, Inc. and Summit Partners, respectively. Our executive officers and directors and entities affiliated with them will beneficially own, in the aggregate, approximately 58.1% of our common stock following this offering. As a group they will be able to control our business. These stockholders will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership could have the effect of delaying, deferring or preventing a change of control or impeding a merger or consolidation, takeover or other business combination. These and other risks are discussed more
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001091171_blue-nile_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001091171_blue-nile_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including Risk Factors, our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this prospectus before you decide to invest in our common stock. Unless otherwise indicated, references to Blue Nile, the Company, we, us and our refer to Blue Nile, Inc. and our consolidated subsidiary, Blue Nile, LLC. Blue Nile We are a leading online retailer of high quality diamonds and fine jewelry. We have built a well respected consumer brand by employing an informative sales process that empowers our customers while offering a broad selection of high quality jewelry at competitive prices. Our web site at www.bluenile.com showcases over 30,000 independently certified diamonds and more than 1,000 styles of fine jewelry, including rings, wedding bands, earrings, necklaces, pendants, bracelets and watches. We have developed an efficient online cost structure and a supply solution that eliminates traditional layers of diamond wholesalers and brokers, which allows us to purchase most of our product offerings at lower prices by avoiding mark-ups imposed by those intermediaries. Our supply solution also enables us to purchase only those diamonds that our customers have ordered. As a result, we are able to minimize the costs associated with carrying diamond inventory and limit our risk of potential mark-downs. We believe our suppliers benefit from improved capital efficiency, lower management costs, and access to real-time market intelligence. Consumers frequently view the purchase of diamonds or fine jewelry as a significant event, and often require substantial information and guidance before completing a purchase. Our web site and extensively trained customer service representatives improve the traditional purchasing experience by providing education and detailed product information that enable our customers to objectively compare diamonds and fine jewelry products and make informed decisions. Our web site features interactive search functionality that allows our customers to quickly find the products that meet their exact needs from our broad selection of diamonds and fine jewelry. In addition, we believe our customers benefit from the ability to customize their diamond jewelry, lower pricing, free shipping and our 30-day return guarantee. Our business has grown considerably since its launch in 1999. For the year ended December 31, 2003, we reported net sales of $128.9 million, an increase of 79% from the prior year, and income before income taxes of $11.3 million as compared to $1.6 million in the prior year. For the quarter ended April 4, 2004, we reported net sales of $35.8 million, an increase of 45% from the quarter ended March 31, 2003, and income before income taxes of $3.0 million as compared to $1.7 million in the quarter ended March 31, 2003. Our business is subject to numerous risks, which
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001091238_advertisin_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001091238_advertisin_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following is a brief summary of selected contents of this prospectus. It does not contain all the information that may be important to you. You should read the entire prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed under the caption Risk Factors before making an investment decision. Unless otherwise indicated, the terms Advertising.com, the company, we, us, and our refer to Advertising.com and its subsidiaries. Our Company Advertising.com is a leading provider of online marketing services. We deliver Internet advertising campaigns for advertisers who pay us only if we provide the results they specify, such as customer purchases or leads. We deliver these campaigns through advertising space, such as banner ads, that we purchase from websites and other online publishers. Using our proprietary AdLearn yield management and optimization technology, we automatically match advertisements to our inventory of advertising space in a manner designed to maximize the revenues produced by this inventory. Our advertiser clients are companies marketing goods or services over the Internet. The publishers from whom we buy advertising space are websites, search engines and email companies, such as Excite, Dictionary.com and Overture. Our Strengths Since our founding, our mission has been to deliver measurable results to Internet advertisers. In 2003 alone, the advertisements we delivered generated over 60 million consumer responses for our advertiser clients, primarily purchases, registrations and requests for information. We believe our ability to deliver measurable results to our advertiser clients is based on the following strengths: Results-based pricing. We provide advertisers with a measurable return on their marketing investment by allowing them to pay us only if we deliver the results they specify, such as a hotel room booking or the generation of a lead for a financial services company. We believe this approach differs from, and improves upon, traditional pricing models under which the fee is based solely on the number of advertisements delivered without regard to their effectiveness. Network reach. We continually purchase advertising space from online publishers. We refer to the compilation of this advertising space as our network. The size and diversity of our network of advertising space enhance our ability to reach the audience segments that are most likely to respond to specific advertisements. As estimated by comScore Media Metrix, advertisements we delivered through our network reached a monthly average of 70% of all U.S. web users during the 12-month period ended April 2004. In each of those months, our network was estimated to be the largest third-party Internet advertising network in the United States, as tracked and defined by comScore Media Metrix. As the volume of advertising space on our network grows, we believe that our ability to reach specific audiences with targeted messages improves. AdLearn technology. We have developed a proprietary technology that uses the results of prior advertising campaigns to select and schedule the optimal advertisements for our inventory of advertising space. As the number of advertising campaigns executed increases and our network of advertising space grows, AdLearn s ability to predict the most effective advertising placements improves. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Table of Contents Online marketing experience. By delivering advertising campaigns over the past five years, we have acquired data and expertise that enhance our ability to plan, price, execute and evaluate online marketing programs that meet our advertisers specific objectives. Publisher relationships. We are able to secure the volume and quality of advertising inventory necessary to support our marketing services by offering online publishers primarily fixed-rate pricing. We believe this provides them with greater predictability than arrangements that subject their return to advertising performance risk. Our Strategy Our objective is to be the leading provider of online marketing services for advertisers and publishers. Specific elements of our strategy include: Aggressively pursue new advertiser clients. We intend to expand our client base by aggressively pursuing advertisers seeking to obtain measurable results from their marketing efforts. Increase revenues from existing advertiser clients. We will seek to increase revenues from our advertiser clients by selling them additional products and services designed to further increase the return from their online marketing investment. Add new advertising inventory to our network. We intend to expand our network of advertising space by adding new advertising inventory from our existing publishers as well as from new publishers. Develop new products and services. We plan to increase our research and development efforts in order to add new products and services that respond to emerging market opportunities and changing advertiser demands. Continue to develop new technologies. We plan to continue to develop technologies that will enable us to plan and execute more effective online advertising programs for our clients. Expand our international presence. We intend to continue to invest in markets based outside of the United States and to expand our service offering for our domestic clients to include advertising on websites directed at international audiences. Recent Financial Information We commenced operations in 1998 and, as a result, have only a limited operating history. We reported revenues of $132.3 million and $46.1 million for the year ended December 31, 2003 and the three months ended March 31, 2004, respectively. We also reported income from operations of $12.1 million and $5.6 million for the year ended December 31, 2003 and for the three months ended March 31, 2004, respectively. However, prior to 2003, we incurred losses from operations of $470,000, $19.0 million, $16.5 million and $1.8 million for the years ended December 31, 1999, 2000, 2001 and 2002, respectively. As of March 31, 2004, our accumulated deficit was $100.4 million. Competition and Regulation The market for Internet advertising and related services is highly competitive. We expect competition to continue to increase due, in large part, to the lack of significant barriers to entry. In addition, new laws and regulations may be adopted that could restrict various Internet activities, and existing laws and regulations may be applied to Internet activities, either of which could increase our costs of doing business over the Internet and adversely affect the demand for our services. Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents For a further discussion of factors you should consider before buying shares of our common stock, see Risk Factors on page 7. Company Information We were incorporated in Maryland in August 1998. The address of our principal executive office is 1020 Hull Street, Ivory Building, Baltimore, Maryland 21230 and our telephone number is (410) 244-1370. We maintain a website at www.advertising.com on which we will post all reports we file with the Securities and Exchange Commission under Section 13(a) of the Securities Exchange Act of 1934 after the closing of this offering. We also will post on this website our key corporate governance documents, including our board committee charters, our ethics policy and our principles of corporate governance. Information on our website is not, however, a part of this prospectus. ADVERTISING.COM, INC. (Exact name of Registrant as specified in its charter) Table of Contents The Offering Common stock offered by us shares Common stock to be outstanding after this offering shares Use of proceeds Our net proceeds from this offering will be approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated expenses of this offering. We will use these net proceeds for working capital, general corporate purposes and possible future acquisitions. As of the date hereof, we have not entered into any acquisition agreement or letter of intent relating to any potential acquisition. Proposed Nasdaq National Market symbol ADCM The share information in the table above is based on 4,662,995 shares outstanding as of March 31, 2004 and excludes: 2,852,889 shares issuable upon the exercise of outstanding stock options and warrants at a weighted average exercise price of $7.39 per share; and 891,281 shares available for future issuance under our equity incentive plans. Except as otherwise noted, all information in this prospectus: assumes that our shares of common stock will be sold at $ per share, which is the mid-point of the price range set forth on the cover page of this prospectus; assumes the underwriters do not exercise their over-allotment option; gives effect to the conversion of our outstanding shares of convertible preferred stock into 4,893,898 shares of common stock, which will occur automatically upon the closing of this offering; and does not give effect to a for one stock split, which will occur prior to the closing of this offering. Maryland 7319 52-2121493 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 1020 Hull Street Ivory Building Baltimore, MD 21230 (410) 244-1370 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive office) Net income available (loss attributable) to common stockholders per share: Basic $ (3.50 ) $ (0.38 ) $ (5.95 ) $ 0.45 $ (10.19 ) Diluted $ (3.50 ) $ (0.38 ) $ (5.95 ) $ 0.41 $ (10.19 ) Weighted average common shares outstanding: Basic 4,186,497 4,194,588 4,341,247 4,195,028 4,638,931 Diluted 4,186,497 4,194,588 4,341,247 4,621,986 4,638,931 Pro forma net income available to common stockholders $ 18,712 $ 1,529 $ 3,526 Pro forma net income available to common stockholders per share (1): Basic $ 2.03 $ 0.17 $ 0.37 Diluted $ 1.82 $ 0.16 $ 0.31 Pro forma weighted average common shares outstanding (1): Basic 9,235,145 9,088,926 9,532,829 Diluted 10,307,126 9,515,884 11,353,514 (in thousands) Loans payable and financing arrangements $ 536 $ 368 $ 168 $ $ Operating leases 6,697 2,238 3,287 1,172 Non-cancelable consulting agreements 238 114 124 Capital leases 9 4 Scott A. Ferber Chief Executive Officer Advertising.com, Inc. 1020 Hull Street Ivory Building Baltimore, MD 21230 (410) 244-1370 (Name, address, including zip code, and telephone number, including area code, of agent for service) Balance Sheet Data: Cash, cash equivalents and investments in marketable securities $ 48,491 $ 48,491 $ Working capital 53,572 53,572 Total assets 88,184 88,184 Total long-term debt and capital lease obligations 544 544 Redeemable convertible preferred stock 165,784 Total stockholders equity (deficit) (104,589 ) 61,195 (1) The pro forma basic and diluted net income available to common stockholders per share is computed using the pro forma basic and diluted weighted average number of shares of common stock outstanding during the period. The pro forma basic and diluted weighted average number of shares of common stock was calculated assuming the conversion of preferred stock into common stock, which automatically will occur upon the closing of the offering, as of January 1, 2003. Income (loss) from operations (16,537 ) (1,800 ) 12,140 1,426 5,627 Interest income 1,583 636 492 127 158 Interest expense 315 143 48 24 Supplemental disclosures of cash flow information Cash paid for interest $ 249 $ 143 $ 39 $ 21 $ Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001091756_ibasis-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001091756_ibasis-inc_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in shares of our common stock. You should read this entire prospectus carefully, including "Risk Factors" beginning on page 6 and our financial statements and the notes to those financial statements beginning on page F-1 before making an investment decision. ABOUT iBASIS COMPANY OVERVIEW We are a leading wholesale carrier of international long distance telephone calls and a provider of retail prepaid calling services. Our continuing operations consist of our Voice-Over-Internet-Protocol, or VoIP, business. We offer wholesale services through our worldwide network to carriers, telephony resellers and others around the world by operating through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia. During the third quarter of 2003, we introduced our retail prepaid calling card services and have marketed such services primarily to ethnic communities within major domestic markets through distributors. Our entry into the retail prepaid calling card business is based on our strategy to leverage our existing international VoIP network with additional enhanced services that have the potential to deliver higher margins than our wholesale international VoIP services. In addition, the retail prepaid calling card business typically has a faster cash collection cycle than wholesale international VoIP services. Beginning in the second quarter of 2004, our recently created operating segment, retail prepaid calling card services and other enhanced services ("Retail") became a reportable business segment, in addition to our international wholesale VoIP services. Since we introduced our retail prepaid calling card services, revenue from our Retail business had been less than 10% of total revenue. Beginning in the second quarter of 2004, revenue from our Retail business has exceeded 10% of total net revenue. In September 2004, we launched a prepaid calling service as part of our Retail business segment, Pingo, offered directly to consumers through an eCommerce web interface. Revenue from Pingo in the third quarter of 2004 was insignificant. We have a history of operating losses and, as of September 30, 2004, our accumulated deficit was $428.5 million and our stockholders' deficit was $24.6 million. We used $1.8 million and $3.2 million in cash from operations in the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. These results are primarily attributable to the expenditures necessary to build our network and develop and expand our market. In June 2004, we completed a refinancing of our outstanding debt obligations. As part of the refinancing, we completed an exchange offer (the "Exchange Offer"), pursuant to which $37.3 million of our outstanding 5 3/4% Convertible Subordinated Notes due in March 2005 ("Existing Notes"), representing approximately 98% of the total amount of Existing Notes outstanding, were tendered for the same principal amount of new 6 3/4% Convertible Subordinated Notes due in June 2009 ("New Subordinated Notes"). Approximately $0.9 million of the Existing Notes remain outstanding after the Exchange Offer. Simultaneously with the Exchange Offer, we prepaid all $25.2 million of our 11 1/2% Senior Secured Notes due in January 2005 ("Existing Senior Notes") for cash equal to the principal amount plus accrued but unpaid interest and the issuance of warrants exercisable for an aggregate of 5,176,065 shares of our common stock, $0.001 par value per share ("common stock"), at $1.85 per share (the "Warrants"). We issued $29.0 million of new 8% Secured Convertible Notes due in June 2007, of which $25.2 million was used to prepay the Existing Senior Notes. The New Subordinated Notes and the New Secured Notes are convertible into shares of common stock at $1.85 per share. In September 2004, we completed a private equity placement of 15,000,000 shares of our common stock at $2.10 per share, for total gross proceeds of $31.5 million, to a group of institutional and accredited investors. Investment banking fees and other costs of the transaction were approximately $1.5 million, resulting in net proceeds to us from the private equity placement of approximately $30.0 million. The net proceeds from the private equity placement will be used for working capital requirements, capital asset purchases and general corporate purposes. We were incorporated as a Delaware corporation in 1996. Our principal executive offices are located at 20 Second Avenue, in Burlington, Massachusetts 01803 and our telephone number is (781) 505-7500. SUMMARY OF THE OFFERING On September 24, 2004, we completed a private placement of a total of 15,000,000 shares of our common stock to certain purchasers at a per share price of $2.10. The aggregate purchase price for the shares of common stock sold in the private placement was $31.5 million, before deducting expenses and placement agent fees. In connection with the private placement, we also issued to Tejas Securities Group, Inc., as placement agent for the transaction, a warrant (the "Placement Agent Warrant") to purchase up to an aggregate of 1,732,500 shares of common stock at an exercise price of $2.10 per share as partial compensation for services provided to us in connection with the private placement. The Placement Agent Warrant is exercisable immediately and will expire on the tenth anniversary of the issue date. We are registering the 15,000,000 shares of common stock issued in the private placement in accordance with a registration rights agreement we entered into with the purchasers in the private placement. We are also registering the 1,732,500 shares of common stock underlying the Placement Agent Warrant. Our registration of these shares does not necessarily mean that the selling stockholders will exercise the Placement Agent Warrant or sell any or all of the underlying securities we have registered. Although we may receive cash upon the exercise of the Placement Agent Warrant, we will not receive any of the proceeds from the sale of the common stock issuable upon exercise of the Placement Agent Warrant. We were incorporated as a Delaware corporation in 1996. Our principal executive offices are located at 20 Second Avenue, in Burlington, Massachusetts 01803 and our telephone number is (781) 505-7500. SUMMARY OF COMMON STOCK <Table> <S> <C> Common stock offered by iBasis None. Common stock offered by the selling stockholders 16,732,500 shares Common stock outstanding prior to this offering 62,470,856 shares Use of proceeds All of the net proceeds from the sale of the common stock covered by this prospectus will go to the selling stockholders who offer and sell shares of the common stock. Although we may receive cash upon the exercise of the Placement Agent Warrant, we will not receive any of the proceeds from the sale by the selling stockholders of the common stock issuable upon the exercise of the Placement Agent Warrant. Risk factors An investment in our securities is highly speculative and involves a high degree of risk. You should carefully read the "Risk Factors" section and all other information provided to you in this document in deciding whether to invest in our securities. OTC Bulletin Board Symbol "IBAS" </Table>
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. It is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the Risk Factors section, our consolidated financial statements and the related notes before investing in our common stock. Our Business Newtek Business Services, Inc. is a holding company for several wholly and majority-owned operating subsidiaries and certified capital companies, or capcos. Our major focus is to provide high value and cost efficient services to small and medium-sized businesses. We currently operate in three principal lines of business and expect to add a fourth upon the conclusion of this offering. These four lines of business are as follows: Certified capital companies. A capco is a company we form pursuant to a state-sponsored program which is designed to encourage investment in small and new businesses and to create economic activity and jobs in the sponsoring state. To induce investors to participate in capco programs, the state provides a capco with tax credits to issue to its investors, all of which must be insurance companies. After it is capitalized, the capco is obligated to invest its funds in small and new businesses within the state in accordance with statutory requirements relating to such matters as the size of the business, location and number of employees. We have used our capcos to finance our SBA, payment processing and financial reporting businesses. To date, our primary source of cash has been the statutorily fixed annual management fees of 2.5% of each capco s initial capital. Small business loans. Through our majority-owned subsidiary, Newtek Small Business Finance, Inc., or NSBF, we make small business loans guaranteed by the U.S. Small Business Administration, or SBA, under the section 7(a) loan program and related section 504 business real estate loan program. NSBF is one of 14 companies licensed to provide SBA loans nationwide under the section 7(a) loan program and the related section 504 real estate loan program. The SBA definition of eligible small businesses is based on standard industry codes and generally includes businesses with less than $25,000,000 in revenues and no more than 1,500 employees. Payment processing. Newtek Merchant Solutions, or NMS, offers credit card, debit card and gift card processing services and check approval services to approximately 6,000 small and medium-sized businesses as of March 31, 2004 through its four payment processing companies and its full-service processing center in Milwaukee, Wisconsin. NMS also provides these services to local and regional banks and credit unions that do not offer their own payment processing services so that these banks may offer these services to their merchant clients through us. Website hosting. On April 28, 2004, we signed a definitive agreement to acquire CrystalTech Web Hosting, Inc., or CrystalTech. Netcraft, an independent consultant, has cited CrystalTech as the world s third largest website hosting enterprise utilizing exclusively Microsoft Hosting 2003 . As of April 2004, CrystalTech had approximately 26,000 active accounts in approximately 80 countries, approximately 80% of which are located in the United States. Completion of the acquisition is contingent upon our arrangement for financing through this offering or otherwise, obtaining certain consents and approvals, and other customary conditions. If we do not acquire CrystalTech, we will have full discretion to utilize the proceeds of this offering which would have been used to acquire CrystalTech to pursue our general growth strategy. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Our Strategy Through our business relationships, we continually assess new product offerings and services for our small and medium-sized business customers. As we seek to enhance our position as a leading provider of business services to our marketplace, we have implemented the following strategies: Aggressively focus our business model to provide products and services to the small and medium-sized business market. Over the last three years, we have refined our business model to focus on developing and marketing products and services aimed at small and medium-sized businesses like those we fund through our capco programs. As our product and service offerings grow and diversify, we intend to continue to reduce our dependence on the capco programs as a source of funding and revenue. Further develop national recognition of the Newtek brand through marketing alliances. We have formed key marketing alliances with national business organizations such as Merrill Lynch and Cendant Corporation, business and trade organizations such as the Credit Union National Association and the Community Bankers of Wisconsin, and affinity organizations such as Revelation Corporation of America, Navy Federal Credit Union and the semi-public Veterans Corporation of America. These strategic partners, through their customers, members and participants, generate small business lending and payment processing business for us and build awareness of our brand name. We intend to develop further our Newtek brand by seeking out and entering into new marketing alliances. Cross-sell additional products and services to small and medium-sized businesses. Our web-based, proprietary referral system is a custom designed customer relationship management tool which allows us to utilize our marketing alliance partners client base efficiently and cost effectively and assures our alliance partners full transaction transparency with the highest level of customer service. We intend to expand the use of this tool to cross-sell our products and services to our customer base, the customers we acquire through acquisitions, including those of CrystalTech and our alliance partners. Opportunistically acquire companies or assets to provide complementary products and services to small and medium-sized businesses. By strategically acquiring companies or assets in our primary product and service markets, we can expand our customer base and create cross-selling opportunities for our growing suite of complementary goods and services. We believe that the acquisition of CrystalTech furthers this objective. Focus our cross marketing and acquisition strategies on the addition of small and medium-sized business customers. We plan to grow the marketing programs of our current businesses and acquire other complementary businesses to build a large unified base of small and medium-sized business customers. Continue to develop our technology to process new business and financial transactions. Our applications processing technology allows us to process new business received by our small and medium-sized business customers utilizing a web-based system and a centralized processing point. Our trained representatives use these web-based applications as a tool to acquire and process data, eliminating the need for our customers to complete multiple paper forms in face-to-face meetings. We will continue to develop this system because we believe it is customer friendly, allows us to process applications efficiently and allows us to store client information for further processing and future cross-selling efforts. Continue to access the capco market as capco opportunities arise. We believe there is continued opportunity to use the capco programs as a funding source to facilitate the growth of our businesses. AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Pending Acquisition of CrystalTech On April 28, 2004 we signed a definitive agreement to acquire the business of CrystalTech, a Phoenix-based company engaged in the business of providing website hosting services to over 26,000 customers. The aggregate purchase price for CrystalTech consists of $10,000,000 in cash and $250,000 in our common stock and additional payments of up to a total of $1,250,000 in cash and $1,750,000 in our common stock would be made if the business meets certain profitability benchmarks. One condition of the closing of this acquisition is the completion of this offering or the completion of an alternative financing resulting in minimum net proceeds to us of $12,000,000, of which $10,000,000 is the cash portion of the purchase price. As part of our agreement with the underwriters of this offering, we have agreed to use our commercially reasonable best efforts to consummate this transaction within eight days of the closing of the offering. About Us We were incorporated in 1999 in New York and changed our name from Newtek Capital, Inc. to Newtek Business Services, Inc. in November 2002. Our principal executive offices are located at 100 Quentin Roosevelt Boulevard, Suite 408, Garden City, New York 11530, and our telephone number is (516) 794-0100. Our website address is www.NewtekBusinessServices.com. Information contained on our website or any other website is not a part of this prospectus. [remainder of page intentionally left blank] NEWTEK BUSINESS SERVICES, INC. (Exact name of registrant as specified in its charter) The number of shares to be outstanding after this offering is based on 26,846,433 shares outstanding as of June 24, 2004. The number of shares to be outstanding after the offering excludes 3,612,621 shares (of which 419,458 shares relates to restricted share grants) reserved for issuance under our 2000 Stock Incentive and Deferred Compensation Plan and our 2003 Stock Incentive Plan, of which options to purchase 1,637,379 shares at a weighted average exercise price of $4.51 per share were outstanding as of June 24, 2004. The number of shares to be outstanding after this offering also excludes up to 450,000 shares that may be sold pursuant to the over-allotment option to the underwriters, but includes up to 400,000 shares to be issued as a part of the consideration for CrystalTech (assuming that all potential contingent share consideration is ultimately earned and issued). Our 2003 Stock Incentive Plan is subject to shareholder approval at our upcoming annual meeting. NEW YORK 6199 11-3504638 (State or other jurisdiction of incorporation or organization) (Primary SIC Code Number) (I.R.S. Employer Identification No.) 100 QUENTIN ROOSEVELT BLVD, SUITE 408 GARDEN CITY, NEW YORK 11530 (516) 390-2260 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) (in thousands except per share data) Weighted average common shares outstanding: Basic 18,250 19,310 21,890 24,184 25,777 25,410 26,471 Diluted 18,250 19,310 21,910 24,294 26,177 25,661 26,471 Income (loss) per share after extraordinary gain: Basic $ .30 $ (.18 ) $ .04 $ .34 $ .37 $ .07 $ (.06 ) Diluted $ .30 $ (.18 ) $ .04 $ .34 $ .37 $ .07 $ (.06 ) Income (loss) per share before extraordinary gain: Basic $ .25 $ (.20 ) $ .04 $ .19 $ .36 $ .07 $ (.06 ) Diluted $ .25 $ (.20 ) $ .04 $ .19 $ .36 $ .07 $ (.06 ) BARRY SLOANE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER NEWTEK BUSINESS SERVICES, INC. 462 SEVENTH AVENUE, 14TH FLOOR NEW YORK, NEW YORK 10018 (212) 356-9500 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) (1) As adjusted to reflect the sale of 6,000,000 shares of common stock offered hereby at an assumed public offering price of $5.00 per share, after deducting the underwriters discount and the underwriters expenses but excluding all other offering-related and acquisition expenses. Does not include shares issuable by us pursuant to the over-allotment option. (2) Pro forma as adjusted to reflect: (i) the sale of 6,000,000 shares of common stock offered hereby at an assumed public offering price of $5.00 per share, (ii) the application of the estimated net proceeds as set forth in Use of Proceeds, after deducting the underwriters discount, the underwriters expenses and all other offering-related and acquisition expenses and (iii) the issuance of 50,000 shares in connection with the CrystalTech acquisition (but does not include 350,000 shares which may be earned as contingent consideration). Does not include shares issuable by us pursuant to the underwriters over-allotment option. [remainder of page intentionally left blank] Copies To: MATTHEW G. ASH, ESQ. DOUGLAS S. ELLENOFF, ESQ. EDWARD B. CROSLAND, ESQ. ELLENOFF GROSSMAN & SCHOLE LLP COZEN O CONNOR 370 LEXINGTON AVENUE, 19th FLOOR 1667 K STREET, N.W., SUITE 500 NEW YORK NEW YORK 10017 WASHINGTON, DC 20006 (212) 370-1300 (PHONE) (202) 912-4800 (PHONE) (212) 370-7889 (FAX) (202) 912-4830 (FAX) Table of Contents
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully before making an investment in our common stock. Business Overview Intersections provides identity theft protection and credit management services on a subscription basis to its subscribers. Our services are principally marketed to customers of our clients and branded and tailored to meet our clients specifications. Our clients are principally credit and charge card issuing financial institutions. Our subscribers purchase our services either directly from us or through arrangements with our clients. Our services include daily, monthly or quarterly monitoring of our subscribers credit files at one or all three of the major credit reporting agencies, Equifax, Experian and TransUnion. We deliver our services online or by mail to our subscribers in a user-friendly format. We also offer credit score analysis tools, credit education, a consumer fraud resource center and identity theft cost coverage. Our services enable our subscribers to: Guard against identity theft and its detrimental effects by periodically monitoring their credit files at one or all three major credit reporting agencies for changes that may indicate identity theft. Based on such information, subscribers may take actions to prevent or mitigate identity theft and speak to our identity theft customer service specialists. Through a master policy issued by a third-party insurer, some of our subscribers receive coverage for the out-of-pocket costs of correcting a stolen identity. Review their credit profiles in an easy to understand format, analyze their credit records and credit scores and keep informed of changes to their credit records on a daily, monthly or quarterly basis. Using our services, subscribers may verify the accuracy of and monitor changes to their credit records at the credit reporting agencies. Our services also help subscribers learn how their credit scores change with varying events and how to correct errors on their credit reports. We provide our services to subscribers principally under the private label brands of our clients, including fifteen large financial institutions. Among those clients are financial institutions that constituted approximately 72% of the credit card market in the United States as of December 31, 2002, based on information from Card Source One. At December 31, 2003, we had 25 clients, and an additional 39 financial and other companies were offering our services through arrangements with our clients. We customize our services, branding and pricing to our clients specifications. We believe that our services enable our clients to increase customer loyalty, generate a recurring stream of commission and fee income and enhance other client offerings. Our subscriber base grew from approximately 57,000 at the end of 1997 to approximately 2.3 million subscribers as of December 31, 2003. Our revenue grew from $1.0 million in 1997 to $147.3 million in 2003. We became profitable in the second quarter of 2002 and have been profitable in every subsequent quarter. We generated pre-tax income for 2003 of $14.6 million. We believe that one of the keys to growth in our company and industry is the increased awareness by consumers of the importance of monitoring and understanding their credit records to prevent and mitigate the effects of identity theft. Identity theft, as defined in the Identity Theft Survey Report (September 2003) sponsored by the Federal Trade Commission, means misuse of a person s name or personal information, which includes opening new fraudulent credit card accounts or loans. This kind of identity theft often results in monetary loss borne by the victim, damage to the victim s credit record and other detrimental effects. Our services are designed to prevent or mitigate this type of identity theft. Identity theft also means the misuse of existing accounts, such as fraudulent charges on a consumer s credit card. The monetary losses associated with this type of fraud are typically borne by financial institutions. The Federal Trade Commission s Identity Theft Survey Report, based on a survey conducted in the Spring of 2002, found that identity theft struck almost 10 million individuals in the United States in the 12 months prior to the survey. More than three million of those individuals were victimized by the opening of new accounts and, as a result, suffered an average loss of $1,180 and spent an average of 60 hours to address the problem. According to the Identity Theft Survey Report, almost 40% of new account identity theft victims discovered the problem by monitoring their accounts. Our services include daily monitoring and notification of credit file changes that may indicate identity theft, including the opening of new accounts, changes of address and account inquiries. We believe that another source of growth is the increased awareness by consumers of the importance of their credit files and credit scores. According to data released by the Federal Reserve Bank, consumer debt in the United States grew from $3.6 trillion in 1990 to $8.7 trillion in the first quarter of 2003. This growth together with changes in the federal Fair Credit Reporting Act and state laws and increasing coverage by the media have made consumers aware of how their credit files and credit scores impact the availability of credit. We believe these concerns are creating a growing market for our services. According to an Online Banking Report (June 28, 2002), the market for consumer-direct credit reporting is estimated to range from $350 million to $2 billion by 2007, with a mid-range projection of $1 billion. Our Services We provide a flexible and diversified suite of identity theft protection and credit management services that are branded and tailored to meet the specifications of our clients. These services are marketed and delivered to customers of our clients on a subscription basis. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Credit profile An easy-to-read initial presentation of the subscriber s credit files at one or all three of the major credit reporting agencies. Daily credit monitoring and notification Daily monitoring and notification of significant potential identity theft indicators in the subscriber s credit files at one or all three major credit reporting agencies. Periodic updates Complete update of changes to the subscriber s credit files at one or all three major credit reporting agencies. Credit score and analysis tools A periodic credit score comparable to scores used by many consumer lenders based on the data from one or all three major credit reporting agencies, tracking of that score against previously reported scores, and an online credit score simulation tool that allows the subscriber to test different credit management scenarios. Credit education Printed or online information, together with live access to our trained credit education specialists, to assist subscribers in understanding their credit profiles, credit scores and changes to their reported credit information. Fraud resource center Access to our specialists for assistance in the event of identity theft or fraud. In addition, the fraud resource center is available to any financial institution on a fee basis for use by its customers, whether or not the customers are subscribers. Identity theft cost coverage Coverage through our insurer for certain costs incurred by the subscriber to correct an identity theft incident. Fraud alert reporting service In the event of a lost or stolen card incident, we provide the subscriber with automatic enrollment in our credit monitoring service, notification of the subscriber s designated card issuers and assistance in obtaining an optional cash advance from the subscriber s card issuer. Growth Strategy Our growth has been the result of our success in expanding our subscriber base and in attracting and retaining clients who market our services to their customers. We have supported our growth by enhancing our services and maintaining profitable prices. We expect to generate continued growth from: Increasing subscribers from our existing clients customer bases: Based on the marketing plans we have developed with our clients, we believe that our clients customers represent significant opportunities for further subscriber growth and the replacement of subscribers lost in the ordinary course of business. Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Diversifying and expanding our client base: We added several new large financial institutions as clients in 2003, and plan to continue to increase the number of financial institutions utilizing our services. We have diversified from our historical credit and charge card issuer client base into other financial services markets, such as the mortgage, consumer banking and insurance industries. In addition, we intend to add such channels as direct-to-consumer financial service sales organizations and selected membership groups and associations. Expanding into the Canadian and U.S. Hispanic markets: Our Canadian initiative, launched in April 2003, is our first non-U.S. marketing initiative. Through our U.S. Hispanic initiative, we will market our identity theft protection and credit management services within the U.S. Hispanic community, which currently comprises approximately 38.8 million people. Developing new service offerings: We continue to develop and enhance our identity theft protection and credit management services. For example, in December 2003 we introduced what we believe is the first service to provide ongoing daily monitoring of credit files at all three major credit reporting agencies. We also are developing new fraud detection and prevention services using non-credit reporting agency data and advanced proprietary technology. We plan to begin marketing these services to financial institutions in 2004. Distributing certain of our services as enhancements to our clients product and service offerings: Our clients offer certain of our services as enhancements to their own products and services. Building our small business services: Based on the U.S. Department of Commerce, Bureau of Census and data from the Small Business Administration, there were 22 million small businesses (businesses with fewer than 100 employees) in the United States as of the end of 2002. We plan to address this market with an expanded version of our small business service. This service will include credit profiles of and credit information monitoring for business owners and their businesses. In addition, we will provide these small businesses with access to credit analysis and ongoing monitoring of business credit information about their customers and suppliers. This service will be marketed to our clients small business customers on a client-branded basis. Evaluating selected strategic opportunities: We will evaluate and may engage in strategic acquisitions and partnership opportunities that capitalize on our knowledge and capabilities in identity theft protection, credit management and branded delivery of services for financial institutions and other clients. Our Relationship with Equifax In November 2001, we issued a $20.0 million senior secured convertible note to CD Holdings, Inc., a subsidiary of Equifax, Inc. Upon the closing of this offering, the senior secured convertible note will be converted automatically into 3,755,792 shares of our common stock, or approximately 26.9% of our outstanding common stock before this offering, and any covenants or other restrictions on us under the note documents will terminate. After this offering, CD Holdings will beneficially own 3.0% of our outstanding common stock, but will not beneficially own any shares of our common stock if the underwriters exercise their over-allotment option in full. We purchase credit data under an agreement with a subsidiary of Equifax, Equifax Information Services, LLC. The agreement continues until November 26, 2006 and automatically renews for two-year terms unless either party terminates upon twelve months notice. We have a separate master agreement with Equifax Consumer Services, Inc. Under the master agreement, we provide our identity theft protection and credit management services to customers of Capital One, which markets those services under an agreement between Capital One and Equifax. The service materials identify us to the subscribers as the provider of those services, using Equifax data. Pursuant to our master agreement with Equifax Consumer Services, Equifax Consumer Services may not modify its agreement with Capital One, waive any right applicable to us or take any discretionary action under that agreement, without our approval. Total revenue earned during 2003 under the master agreement was $44.6 million, or approximately 30% of our revenue, of which approximately $29.4 million, or approximately 66%, was earned for services provided to customers of Capital One. Also under the master agreement, we were providing to customers of Equifax a one-time, non-subscription report with data from Equifax, Experian and TransUnion for delivery online. Equifax Consumer Services terminated our provision of that service effective October 16, 2003, when it began to provide those services directly to consumers. The revenue for this report was one-time transactional revenue. As a result, in 2004 we will not have revenue from sales of that report, which was $15.2 million, or 10% of our revenue, in 2003. The contribution to our operating income from these sales was significantly lower as a percentage of revenue than that of our subscription business. We continue to provide Equifax customers with credit monitoring services delivered offline. The revenue for such services constituted less than 1% of our revenue in 2003, and is not expected to constitute a higher percentage of our revenue in 2004. We also are in discussions with Equifax about providing online credit monitoring services to Equifax customers in Canada. At the same time, we expect to continue to compete with Equifax and its subsidiaries in the marketing of identity theft protection and credit management services to consumers. * * * * * * We were incorporated in Delaware in 1999. We conduct certain of our operations through our wholly-owned subsidiary, CreditComm Services LLC, a Delaware limited liability company, which was originally formed in May 1996. Our principal executive offices are located at 14901 Bogle Drive, Chantilly, Virginia 20151 and our telephone number is (703) 488-6100. Our website address is www.intersections.com. Information contained on our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus. Our website address is included here only as an inactive technical reference. 14901 Bogle Drive Chantilly, Virginia 20151 (703) 488-6100 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Except as otherwise noted, we have presented the information in this prospectus based on the following assumptions: giving effect to the conversion of all outstanding shares of our preferred stock and the senior secured convertible note held by a subsidiary of Equifax into an aggregate of 8,988,895 shares of common stock, which will occur immediately prior to the closing of this offering; giving effect to an assumed 554.9338-for-one stock split of our common stock, which will occur immediately prior to the closing of this offering; and no exercise by the underwriters of their option to purchase additional shares of common stock from the selling stockholders in this offering. Michael R. Stanfield Chief Executive Officer Intersections Inc. 14901 Bogle Drive Chantilly, Virginia 20151 (703) 488-6100 (Name, address, including zip code, and telephone number, including area code, of agent for service) Statement of Cash Flow Data: Cash flow from: Operating activities $ (17,147 ) $ (14,435 ) $ (7,518 ) $ (1,353 ) $ 11,162 Investing activities (790 ) (1,076 ) (355 ) (1,097 ) (5,265 ) Financing activities 17,436 17,061 20,627 (2,400 ) (944 ) Copies to: Martin H. Neidell, Esq. Stroock Stroock Lavan LLP 180 Maiden Lane New York, New York 10038-4982 (212) 806-5836 Facsimile: (212) 806-7836 Thomas R. Brome, Esq. Cravath, Swaine Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019-7475 (212) 474-1000 Facsimile: (212) 474-3700 (1) In August 1999, we reorganized as a corporation under the name Intersections Inc. Prior to the reorganization, we operated under the name CreditComm Services LLC. The statement of operations data provided in the table through August 1999 is data reported for CreditComm Services LLC. (2) General and administrative costs in 2001 include a $2.8 million fee we incurred for restructuring a contract for credit data processing costs to reduce the term and the cost. (3) For periods prior to the third quarter of 2003, we did not record a tax benefit from net operating losses but instead recorded an off-setting valuation allowance. The valuation allowance was required because it was more likely than not that some or all of the net deferred tax assets would not be realized. Based on recent positive and anticipated projected income it was determined that the valuation allowance was no longer necessary and we recognized a $6.5 million tax benefit in the third quarter of 2003. Subscribers billed monthly 72 % 88 % 92 % Subscribers billed annually 28 % 12 % Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.
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+Form of Compensation by the mechanical systems would be difficult or unusually risky. There may occur the rare instance in which Sunrise Capital Management will override the system to decrease market exposure. Any modification of trading instructions could adversely affect the profitability of an account. Among the possible consequences of such a modification would be (1) the entrance of a trade at a price significantly worse than a system's signal price, (2) the complete negation of a signal which subsequently would have produced a profitable trade, or (3) the premature termination of an existing trade. Sunrise Capital Management is not under any obligation to notify clients, the general partner, or you of this type of deviation from its mechanical systems, since it is an integral part of its overall trading method. A technical trading system consists of a series of fixed rules applied systematically. However, the system still requires Sunrise Capital Management to make subjective judgments. For example, the trading advisor must select the markets it will follow and futures interests it will actively trade, along with the contract months in which it will maintain positions. Sunrise Capital Management must also subjectively determine when to liquidate positions in a contract month which is about to expire and initiate a position in a more distant contract month. Sunrise Capital Management engages in ongoing research that may lead to significant modifications from time to time. Sunrise Capital Management will notify the general partner if modifications to its trading systems or portfolio structure are material. Sunrise Capital Management believes that the development of a commodity trading strategy is a continual process. As a result of further analysis and research into the performance of Sunrise Capital Management's methods, changes have been made from time to time in the specific manner in which these trading methods evaluate price movements in various futures interests, and it is likely that similar revisions will be made in the future. As a result of such modifications, the trading methods that may be used by Sunrise Capital Management in the future might differ from those presently being used. Sunrise Capital Management has discretionary authority to make all trading decisions, including upgrading or downgrading the trading size of the net assets of Spectrum Select it manages to reflect additions, withdrawals, trading profits, and/or trading losses, without prior consultation or notice. In addition, Sunrise Capital Management may from time to time adjust the leverage applicable to the assets allocated to it; provided, however, any such adjustments will be consistent with the leverage parameters described herein and in the overall investment objectives and trading policies of the account it manages for Spectrum Select. Such adjustments may be in respect of certain markets or in respect of the overall CIMCO investment portfolio. Factors which may affect the decision to adjust leverage include: inflows and outflows of capital, ongoing research, volatility of individual markets, risk considerations, and Sunrise Capital Management's subjective judgement and evaluation of general market conditions. Adjustments to leverage may result in greater profits or losses. No assurance can be given that any leverage adjustment will be to your financial advantage. 5. Graham Capital Management, L.P. Graham is a Delaware limited partnership which was organized in May 1994. Graham's main business address is Rock Ledge Financial Center, Rowayton, Connecticut 06853. Graham has been registered with the CFTC as a commodity pool operator and commodity trading advisor since July 1994 and is a member of the National Futures Association in such capacities. Principals Kenneth G. Tropin is the Chairman, the founder and a principal of Graham. Mr. Tropin has developed the majority of Graham's core trading programs and he is additionally responsible for the overall management of the organization, including the investment of its proprietary trading capital. Prior to founding Graham in 1994, Mr. Tropin served as President, Chief Executive Officer, and a Director of John W. Henry & Company, Inc., during which the assets under management grew from approximately $200 million to approximately $1.2 billion. Previously, Mr. Tropin was Senior Vice President at Dean Witter Reynolds, where he served as Director of Managed Futures and as President of Demeter Management Corporation and Dean Witter Futures and Currency Management Inc. Mr. Tropin has also served as Chairman of the Managed Funds Association and its predecessor organization, which he was instrumental in founding during the 1980's. Amount of Compensation Paul Sedlack is Chief Executive Officer, the General Counsel and a principal of Graham. He oversees the operation of the finance and administration departments and is also responsible for all legal and compliance matters. Mr. Sedlack began his career at the law firm of Coudert Brothers in New York in 1986 and was resident in Coudert's Singapore office from 1988 to 1989. Prior to joining Graham in June 1998, Mr. Sedlack was a Partner at the law firm of McDermott, Will & Emery in New York, focusing on securities and commodities laws pertaining to the investment management and related industries. Mr. Sedlack received a J.D. from Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and B.S. in Engineering in 1982 from State University of New York at Buffalo. Michael S. Rulle Jr. is the President and a principal of Graham. As President of Graham, Mr. Rulle is responsible for the management of Graham in its day-to-day course of business. Prior to joining Graham in February 2002, Mr. Rulle was President of Hamilton Partners Limited, a private investment company that deployed its capital in a variety of internally managed equity and fixed income alternative investment strategies on behalf of its sole shareholder, Stockton Reinsurance Limited, a Bermuda based insurance company. From 1994 to 1999, Mr. Rulle was Chairman and CEO of CIBC World Markets Corp., the US broker-dealer formerly known as CIBC Oppenheimer Corp. Mr. Rulle served as a member of its Management Committee, Executive Board and Credit Committee and was Co-Chair of its Risk Committee. Business responsibilities included Global Financial Products, Asset Management, Structured Credit and Loan Portfolio Management. Prior to joining CIBC World Markets Corp., Mr. Rulle was a Managing Director of Lehman Brothers and a member of its Executive Committee and held positions of increasing responsibility since 1979. At Lehman, Mr. Rulle founded and headed the firm's Derivative Division, which grew to a $600 million enterprise by 1994. Mr. Rulle received his M.B.A. from Columbia University in 1979, where he graduated first in his class, and he received his bachelor's degree from Hobart College in 1972 with a concentration in political science. Robert E. Murray is the Chief Operating Officer and a principal at Graham and is responsible for the management and oversight of our client services, systematic trading, and technology efforts. Prior to joining Graham, from 1984 until June, 2003, Mr. Murray held positions of increasing responsibility at various Morgan Stanley entities (and predecessors), including Managing Director of the Strategic Products Group, Chairman of Demeter Management Corporation (a commodity pool operator that grew to $2.3 billion in assets under management during Mr. Murray's tenure) and Chairman of Morgan Stanley Futures & Currency Management Inc. (a commodity trading advisor). Mr. Murray is currently a member of the Board of Directors of the National Futures Association and serves on its Membership and Finance Committees. Mr. Murray has served as Vice Chairman and a Director of the Board of the Managed Funds Association. Mr. Murray received a Bachelor's Degree in Finance from Geneseo State University in 1983. Thomas P. Schneider is an Executive Vice President, the Chief Trader and a principal of Graham. He is responsible for managing Graham's systematic futures trading operations, including order execution, formulating policies and procedures, and developing and maintaining relationships with independent executing brokers and futures commission merchants ("FCMs"). Mr. Schneider has also been an NFA arbitrator since 1989 and has served on the MFA's Trading and Markets Committee. Mr. Schneider graduated from the University of Notre Dame in 1983 with a B.B.A. in Finance and received his Executive M.B.A. from the University of Texas at Austin in 1994. From June 1985 through September 1993, Mr. Schneider held positions of increasing responsibility at ELM Financial, Inc., a commodity trading advisor in Dallas, Texas, where he was ultimately Chief Trader, Vice President and Principal responsible for 24-hour trading execution, compliance and accounting. In January 1994, Mr. Schneider began working as Chief Trader for Chang Crowell Management Corporation, a commodity trading advisor in Norwalk, Connecticut, where he was responsible for streamlining operations for more efficient order execution, and for maintaining and developing relationships with over 15 FCMs on a global basis. Robert G. Griffith is an Executive Vice President, the Director of Research and a principal of Graham and focuses primarily on Graham's trend-following trading systems, including portfolio management, asset allocation and trading system development. Mr. Griffith is also in charge of the day-to-day administration of Graham's trend-following trading systems. Prior to joining Graham, Mr. Griffith's company, Veridical Methods, Inc., provided computer programming and consulting services to such firms as GE Capital, Lehman Brothers and Morgan Guaranty Trust. He received his B.B.A. in Management Information systems from the University of Iowa in 1979. Fred J. Levin is the Chief Economist, a Senior Discretionary Trader and a principal of Graham specializing in fixed income markets with particular emphasis on short-term interest rates. Prior to joining Graham in March 1999, Mr. Levin was employed as director of research at Aubrey G. Lanston & Co. Inc. From 1991 to 1998, Mr. Levin was the chief economist and a trader at Eastbridge Capital. From 1988 to 1991, Mr. Levin was the chief economist and a trader at Transworld Oil. From 1982 to 1988, Mr. Levin was the chief economist, North American Investment Bank at Citibank. From 1970 to 1982, Mr. Levin headed the domestic research department and helped manage the open market desk at the Federal Reserve Bank of New York. Mr. Levin received an M.A. in economics from the University of Chicago in 1968 and a B.S. from the University of Pennsylvania, Wharton School in 1964. Savvas Savvinidis, C.P.A., joined Graham in April 2003 as Chief Financial Officer and a principal. He was Chief Operating Officer of Agnos Group, L.L.C. from January 2001-February 2003 and had previously served as Director of Operations of Moore Capital Management, Inc., from October 1994 to June 2000, and of Argonaut Capital Management, Inc., from July 1993 to September 1994. From May 1988 to June 1993, he worked at Lehman Brothers and from July 1986 to April 1988, at the North American Investment Bank of Citibank. Upon graduating from St. John's University with a B.S. in Accounting, Mr. Savvinidis started his career with Grant Thornton in 1984, where he received his CPA designation in 1986. He is a member of the New York Society of C.P.A.'s. Robert C. Hill is a discretionary trader of Graham specializing in the energy commodity markets and a principal of Graham. Prior to joining Graham in April 2003, Mr. Hill worked as a consultant at Gerson Lehrman Group. From November 1999 to October 2002, he was employed as Director of Trading at Duke Energy. From March 1997 to October 1999, Mr. Hill was an energy trader at Louis Dreyfus Energy Corp. and from May 1994 to March 1997, he worked for Enterprise Products Company as a distribution coordinator for energy products. Mr. Hill received an M.B.A. in 1997 from the University of St. Thomas in Houston, TX and a B.A. in 1992 from Stephen F. Austin State University. Jason C. Shapiro is a discretionary trader and a principal of Graham. From January 2002 to October 2003, when he joined Graham, Mr. Shapiro was President of Applied Systematic Trading, where he developed its trading program. Mr. Shapiro worked as a portfolio manager for Chelsey Capital from July 2001 to December 2001 and as a proprietary trader for The Gelber Group from September 2000 to April 2001. He served both as a portfolio manager for HCM Capital Management, Inc. and as a principal in Kilgore Capital from the period May 1997 to January 2000. From July 1996 to April 1997, he was engaged in the development of trading programs. He completed the coursework for a Masters of Finance at the London Business School over the 1995-1996 academic year. He worked at the Development Bank of Singapore in Hong Kong (from March 1994 to August 1995), Overseas Chinese Banking Corporation from (from October 1992 to February 1994) and the Hongkong and Shanghai Banking Corporation (from February 1991 to August 1992) in sales and trading positions. Mr. Shapiro received a B.S. in Finance with honors from The University of South Florida in 1989. Steven T. Aibel is a discretionary trader and a Principal of Graham, specializing in global macro markets with a primary focus on foreign exchange. Prior to joining Graham in July 2003, Mr. Aibel worked as a proprietary trader at J.P. Morgan Chase from April 2002 to March 2003 trading foreign exchange. He began his career at Goldman Sachs and Co. in the precious metals area in 1988 until 1993, moving over to the foreign exchange area of Goldman Sachs and Co. until November 1994. Following work in the foreign exchange area of Lehman Brothers from then until June 1995, Mr. Aibel worked at Credit Suisse First Boston as a Deutsche Mark market maker from July 1995 until July 1997 and a proprietary foreign exchange trader from July 1997 until April 2000. Mr. Aibel received an MBA in 1988 with a double major in Finance and International Business and a B.A. in 1987 in Finance, all from George Washington University. Xin-yun Zhang is a discretionary trader and a principal of Graham, specializing in fixed income. Prior to joining Graham in September, 2003, Mr. Zhang worked at Tudor Investment Corp. from January 2000 to August 2003, where his trading focused on US and Japanese government bonds. From October 1995 to January 2000, he was a fixed-income trader for Greenwich Capital. He worked in fixed-income research for Long-Term Capital Management from October 1993 to October 1995. He received a B.S. from Beijing University in 1983 and a Ph.D. in theoretical physics from University of California, San Diego in 1989, and was a post-doctoral research fellow at Rutgers University from 1989-1993. Certain Other Personnel Anthony Bryla, C.P.A., is the Controller of Graham, in charge of the daily and monthly performance reporting and company accounting. Prior to joining GRAHAM in September 1995, Mr. Bryla was an Assistant Accounting Manager at OMR Systems Corp. where he provided back-office and accounting services for such clients as Merrill Lynch and Chase Manhattan Bank, and held positions of increasing responsibility since February 1989. Mr. Bryla is a member of the New Jersey Society of C.P.A.s and graduated from Rutgers University with a B.A. in Business Administration in 1982. Brian Aldershof, Ph.D., CFA, is the Risk Manager, a Vice President and a quantitative research analyst of Graham with significant expertise in mathematics and statistics. Prior to joining Graham, Dr. Aldershof was a professor of mathematics at Lafayette College in Easton, PA. His research interests center on non-linear stochastic systems, especially genetic algorithms. Dr. Aldershof received his A.B. (1985) from Middlebury College, where he completed a double major in Mathematics and Psychology, and his M.S. (1990) and Ph.D. (1991) in Statistics from the University of North Carolina at Chapel Hill where he was a Pogue Fellow. His research in graduate school concerned estimating functionals of probability density functions. During this time, he consulted to the RAND Corporation, the Center for Naval Analyses, and the Environmental Protection Agency. He is a CFA charterholder and a member of the Association for Investment Management and Research. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Graham or its principals. Graham and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Graham trading programs described below. Although Graham maintains records of these trades, clients of Graham are not entitled to inspect these records except in certain limited circumstances. Graham may place block orders with a brokerage firm on behalf of multiple accounts, including accounts in which Graham or its principals have an interest. If Graham or its principals place the same trade orders for their accounts as they do for their clients in a single block order with a brokerage firm, the brokerage firm allocates the trade fill prices assigned to each account in a manner consistent with that firm's policy. Unless an average price of split fills is allocated, split fills generally are allocated to accounts on a "high to low" basis accounts are ranked based on commencement of trading, and the highest split fill prices are allocated to the highest-ranked accounts. Therefore, any advantage a high-ranked account enjoys on a sell order generally is offset by its disadvantage on the buy order. Graham maintains a written policy of prohibiting employees from trading futures, forwards, or options contracts for their personal accounts without the written approval of a Graham compliance officer. Graham also requires its employees with access to certain sensitive information to deliver to Graham copies of their federal income tax returns, which are then reviewed by Graham's compliance committee for compliance with the above-described and other of Graham's internal policies. Systematic Trading Graham's trading systems rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's systems are based on the expectation that they can over time successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. Graham's core trading systems are primarily very long term in nature and are designed to participate selectively in potential profit opportunities that can occur during periods of sustained price trends in a diverse number of U.S. and international markets. The primary objective of the core trading systems is to establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring. The systems are designed to analyze mathematically the recent trading characteristics of each market and statistically compare such characteristics to the long-term historical trading pattern of the particular market. As a result of this analysis, the systems will utilize proprietary risk management and trade filter strategies that are intended to benefit from sustained price trends while reducing risk and volatility exposure. Graham utilizes discretion in connection with its systematic trading programs in determining which markets warrant participation in the programs, market weighting, leverage and timing of trades for new accounts. Graham also may utilize discretion in establishing positions or liquidating positions in unusual market conditions where, in its sole discretion, Graham believes that the risk-reward characteristics have become unfavorable. Discretionary Trading The Discretionary Trading Group was established at Graham in February 1998. Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, the Discretionary Trading Group determines its trades subjectively on the basis of personal assessment of trading data and trading experience. Graham believes that the Discretionary Trading Group's performance results generally are not highly correlated to the results of other discretionary traders or Graham's systematic trading programs. Graham believes the Discretionary Trading Group can generate successful performance results in trading range type markets where there are few long-term trends. The Graham Trading Programs Effective January 1, 2004 the general partner allocated approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Global Diversified Program at 150% Leverage, as described below, and approximately 5.0-7.5% of Spectrum Select's assets pursuant to Graham's Graham Selective Trading Program, as described below, at 150% the standard leverage it applies for such program. Margin requirements over time at standard leverage are expected to average about 15% to 20% of equity for accounts traded by Graham; thus, Graham expects the margin requirements for Spectrum Select over time to average about 20% to 30% of Spectrum Select's net assets. Increased leverage will alter risk exposure and may lead to greater profits and losses and trading volatility and See "Risk Factors Trading Advisor Risks Graham's use of an increased rate of leverage could affect future performance" on page . Subject to the prior approval of the general partner, Graham may, at any time, trade a portion of the partnership's assets pursuant to one or more of Graham's other systematic programs and/or the Discretionary Trading Group discretionary program, and at an increased or reduced rate of leverage. As of December 31, 2003, Graham was managing approximately $624 million of funds in the Global Diversified Program at Standard Leverage, approximately $429 million of funds in the Global Diversified Program at 150% Leverage, approximately $344 million of funds in the Graham Selective Trading Program at Standard Leverage and approximately $4.9 billion of assets in all of its trading programs. The various futures, forwards, and options markets which are traded pursuant to each Graham systematic trading program are identified below under the description of that program. Each Graham systematic trading program generally entails a consistent approach to all futures, forwards, and options markets traded by that program. Graham conducts ongoing research regarding expanding the number of futures, forwards, and options markets each program trades to further the objective of portfolio diversification. Particular futures, forwards, and options markets may be added to, or deleted from, a program at any time without notice. Portfolios may be rebalanced with respect to the weighting of existing markets at any time without notice. Additions, deletions and rebalancing decisions with respect to each program are made based on a variety of factors, including performance, risk, volatility, correlation, liquidity and price action, each of which factors may change at any time. In trading the various futures, forwards, and options markets pursuant to its systematic trading programs, Graham generally applies the systematic trading approach described above under " Systematic Trading." Global Diversified Program The Global Diversified Program was developed in 1995 and utilizes multiple computerized trading models, which are designed to participate in the potential profit opportunities during sustained price trends in approximately 80 global markets. This program features broad diversification in both financial and non-financial markets. The strategies which are utilized are primarily long term in nature and are intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The Global Diversified Program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates (including U.S. and foreign bonds, notes and Eurodollars), 25% in currency forwards (including major and minor currencies), 17% in stock index futures (including all major indices), 15% in softs and agricultural futures (including grains, meats and softs), 8% in metal futures (including gold, aluminum and copper), and 9% in energy futures (including crude oil and natural gas). The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. Graham rebalances the weighting of each market in the portfolio on a monthly basis so as to maintain, on a volatility and risk adjusted basis, consistent exposure to each market over time. Graham Selective Trading Program The Graham Selective Trading Program was developed in 1997 and utilizes an appreciably different trading system than other Graham programs. The Graham Selective Trading Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur. Although the system does not trade against the market trend, it is not a true trend-following system inasmuch as it will only participate in specific types of market moves that meet the restrictive criteria of the model. In general, the Graham Selective Trading Program will participate only in significant market moves that are characterized by a substantial increase in volatility. As a result, it frequently will not participate in market trends in which virtually all trend-following systems would have a position. Due to the extremely selective criteria of the Graham Selective Trading model, the program will normally maintain a neutral position in approximately 50% to 60% of the markets in the portfolio. Discretionary Trading Group Program Unlike Graham's systematic trading programs, which are based almost entirely on computerized mathematical models, Graham's Discretionary Trading Group determines trades for the Discretionary Trading Group Program subjectively on the basis of personal judgement and trading experience. The Discretionary Trading Group Program generally utilizes fundamental information as well as certain technical data as the basis for its trading strategies. Fundamental considerations relate to the underlying economic and political forces that ultimately determine the true value of a particular financial instrument or commodity. Fundamental analysis of the Discretionary Trading Group may involve a short- or long-term time horizon. Technical data considered by the Discretionary Trading Group include price patterns, volatility, trading volumes and level of open interest. The Discretionary Trading Group Program trades worldwide in fixed income, equity, foreign exchange and commodity markets. The Discretionary Trading Group Program may take long or short positions in securities, futures, forwards, warrants, options and other financial instruments. Past Performance of Graham Set forth below in Capsule A is the past performance history of the Global Diversified Program at 150% Leverage, one of the programs that will be traded by Graham for Spectrum Select. Capsule B is the past performance for the Graham Selective Trading Program, another program that will be traded by Graham for Spectrum Select. The Graham Select Trading Program Capsule shows performance at standard leverage; however, Graham will trade the portion of the net assets of Spectrum Select allocated to the Graham Selective Trading Program at 150% the standard leverage employed by that program, which will significantly increase volatility as well as profits and losses. The footnotes following Capsule B are an integral part of each Capsule. You are cautioned that the information set forth in the following Capsule performance summaries is not necessarily indicative of, and may have no bearing on, any trading results which may be attained by Graham or Spectrum Select in the future, since past results are not a guarantee of future results. There can be no assurance that Graham or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. At each monthly closing, the trading advisors for each partnership are currently allocated the net proceeds from additional investments received by that partnership, and redemptions from that partnership are allocated to them, in the following proportions: Spectrum Select CAPSULE A Graham Capital Management, L.P. Global Diversified Program at 150% Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Global Diversified Program at 150% Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: May 1997 Number of open accounts: 15 Aggregate assets overall: $4.87 billion Aggregate assets in program: $428.7 million Worst monthly drawdown: (15.77)% - (November 2001) Worst peak-to-valley drawdown: (24.27)% - (November 2001-April 2002) 2003 annual return: 17.82% 2002 annual return: 32.25% 2001 annual return: 12.16% 2000 annual return: 24.33% 1999 annual return: 6.17% CAPSULE B Graham Capital Management, L.P. Graham Selective Trading Program at Standard Leverage Name of commodity trading advisor: Graham Capital Management, L.P. Name of program: Graham Selective Trading Program at Standard Leverage Inception of trading by commodity trading advisor: February 1995 Inception of trading in program: January 1998 Number of open accounts: 7 Aggregate assets overall: $4.87 billion Aggregate assets in program: $343.7 million Largest monthly drawdown: (15.60)% - (November 2001) Worst peak-to-valley drawdown: (21.41)% - (November 2001-April 2002) 2003 annual return: 21.82% 2002 annual return: 30.11% 2001 annual return: 0.55% 2000 annual return: 7.07% 1999 annual return: 0.91% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Additions Footnotes to Graham's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Graham began trading client accounts. "Inception of trading in program" is the date on which Graham began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Graham pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Graham as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the trading program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated by dividing the net income for the month by the net asset value as of the beginning of the month (including contributions made at the start of the month). In months where asset changes are made mid-month, rates of return are calculated for each segment of the month and compounded. For this purpose, "net income" represents the gross income for the month in question, net of all expenses and performance allocations. The Rate of Return percentage for each year is determined by calculating the percentage return on an investment made as of the beginning of each year. Specifically, a running index is calculated monthly, compounded by the rate of return, the annual percentage being the change in this index for the year divided by the year's initial index. Redemptions Morgan Stanley Spectrum Technical L.P. 1. Campbell & Company, Inc. Campbell is a Maryland corporation organized in April 1978 as a successor to a partnership originally organized in January 1974. Campbell has been registered with the CFTC as a commodity trading advisor since May 1978 and is a member of the National Futures Association in such capacity. Campbell's principal place of business is located at 210 W. Pennsylvania Ave., Suite 770, Towson, MD 21204. Principals Theresa D. Becks, born in 1963, joined Campbell in June 1991 and has served as the Chief Financial Officer and Treasurer since 1992, and Secretary and a Director since 1994. In addition to her role as Chief Financial Officer, Ms. Becks also oversees administration, compliance and trade operations. Ms. Becks is currently a member of the Board of Directors of the Managed Funds Association. From 1987 to 1991, she was employed by Bank Maryland Corp, a publicly held company, as a Vice President and Chief Financial Officer. Prior to that time, she worked with Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the University of Delaware. Ms. Becks is an associated person of Campbell. D. Keith Campbell, born in 1942, has served as the Chairman of the Board of Directors of Campbell since it began operations, was President until 1994, and was Chief Executive Officer until 1997. Mr. Campbell is the majority voting stockholder of Campbell. From 1971 to 1978, he was a registered representative of a futures commission merchant. Mr. Campbell has acted as a commodity trading advisor since 1972 when, as general partner of the Campbell Fund, a limited partnership engaged in commodity futures trading, he assumed sole responsibility for trading decisions made on behalf of the Fund. Since then, he has applied various technical trading models to numerous discretionary futures trading accounts. Mr. Campbell is registered with the CFTC and NFA as a commodity pool operator. Mr. Campbell is an associated person of Campbell. William C. Clarke, III, born in 1951, joined Campbell in June 1977 and has served as an Executive Vice President since 1991 and a Director since 1984. Mr. Clarke holds a B.S. in Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently oversees all aspects of research, which involves the development of proprietary trading models and portfolio management methods. Mr. Clarke is an associated person of Campbell. Bruce L. Cleland, born in 1947, joined Campbell in January 1993 and has served as President and a Director since 1994, and Chief Executive Officer since 1997. Mr. Cleland has worked in the international derivatives industry since 1973, and has owned and managed firms engaged in global clearing, floor brokerage, trading and portfolio management. Mr. Cleland is currently a member of the Board of Directors of the National Futures Association, and previously served as a member of the Board of Directors of the Managed Funds Association and as a member of the Board of Governors of the COMEX, in New York. Mr. Cleland is a graduate of Victoria University in Wellington, New Zealand where he earned a Bachelor of Commerce and Administration degree. Mr Cleland is an associated person of Campbell. Kevin M. Heerdt, born in 1958, joined Campbell in March 2003 as Executive Vice President Research and was appointed Executive Vice President Research and Information Technology in November 2003. His duties include risk management, research, and the development of quantitatively based hedge fund and options strategies, as well as providing managerial oversight of the information technology team. From February 2002 to March 2003, he was self-employed through Integrity Consulting. Previously, Mr. Heerdt worked for twelve years at Moore Capital Management, Inc., where he was a Director until 1999, and a Managing Director from 2000 to 2002. Mr. Heerdt holds a B.A. in Economics and in International Relations from the University of Southern California. Mr. Heerdt is an associated person of Campbell. James M. Little, born in 1946, joined Campbell in April 1990 and has served as Executive Vice President Business Development and a Director since 1992. Mr. Little holds a B.S. in Economics and Psychology from Purdue University. From 1989 to 1990, Mr. Little was a registered representative of A.G. Edwards & Sons, Inc. From 1984 to 1989, he was the Chief Executive Officer of James Percentage of net assets allocated to each trading advisor as of January 1, 2003 Little & Associates, Inc., a commodity pool operator and broker-dealer. Mr. Little is the co-author of The Handbook of Financial Futures, and is a frequent contributor to investment industry publications. Mr. Little is an associated person of Campbell. Craig A. Weynand, born in 1969, joined Campbell in October 2003 as Vice President and has served as General Counsel since November 2003. In this capacity, he is involved in all aspects of legal affairs and regulatory oversight, as well as managerial oversight of trade operations. From May 1990 to September 2003, Mr. Weynand was employed by Morgan Stanley, serving as Senior Trader for Morgan Stanley Futures and Currency Management Inc., a commodity trading advisor, until 1998 and as Vice President Director of Product Origination & Analysis for the Morgan Stanley Managed Futures Department until his departure. Mr. Weynand holds a B.S. in International Business and Marketing and an M.B.A. in Economics from New York University, and a J.D. from the Fordham University School of Law. Mr. Weynand is a member of the New York State Bar and serves on the Government Relations Committee of the Managed Funds Association. Mr. Weynand is an associated person of Campbell. C. Douglas York, born in 1958, has been employed by Campbell since November 1992, was appointed a Senior Vice President Trading in 1997, and has served as Executive Vice President Trading since 2003. His duties include managing daily trade execution for the assets under Campbell's management. From 1991 to 1992, Mr. York was the Global Foreign Exchange Manager for Black & Decker. He holds a B.A. in Government from Franklin and Marshall College. Mr. York is an associated person of Campbell. Any principal of Campbell may trade futures and related contracts for his or her own accounts. In addition, Campbell manages proprietary accounts for its deferred compensation plan and for certain principals. Campbell has written procedures that govern proprietary trading by principals. Trading records for proprietary trading accounts are available for review by clients upon reasonable notice. Such trades may or may not be in accordance with the Campbell trading program described below. The Campbell Trading Program Campbell trades the assets allocated to it by the partnership pursuant to its Financial, Metal & Energy Large Portfolio, which trades exclusively in futures and forward contracts, including foreign currencies, precious and base metals, energy products, stock market indices and interest rate futures. As of December 31, 2003, Campbell was managing approximately $5.4 billion of client assets pursuant to the Financial, Metal & Energy Large Portfolio and approximately $6.4 billion in all of its programs. Campbell makes trading decisions using proprietary technical trading models, which analyze market statistics. There can be no assurance that the trading models currently being used will produce results similar to those produced in the past. Campbell's trading models are designed to detect and exploit medium-term to long-term price changes, while also applying proven risk management and portfolio management principles. Campbell believes that utilizing multiple trading models provides an important level of diversification, and is most beneficial when multiple contracts in each market are traded. Every trading model may not trade every market. It is possible that one trading model may signal a long position while another trading model signals a short position in the same market. It is Campbell's intention to offset those signals to reduce unnecessary trading, but if the signals are not simultaneous, both trades will be taken and since it is unlikely that both positions would prove profitable, in retrospect, one or both trades will appear to have been unnecessary. It is Campbell's policy to follow trades signaled by each trading model independently of the other models. Over the course of a medium-term to long-term trend, there are times when the risk of the market does not appear to be justified by the potential reward. In such circumstances, some of Campbell's trading models may exit a winning position prior to the end of a price trend. While there is some risk to this method (for example, being out of the market during a significant portion of a price trend), Campbell's research indicates that this is well compensated for by the decreased volatility of performance that may result. Campbell's trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. Campbell expects to develop % % % EMC Capital Management, Inc. 0 0 10.94 Northfield Trading L.P. 0 0 9.07 Rabar Market Research, Inc. 331/3 331/3 37.60 Sunrise Capital Management, Inc. 331/3 331/3 31.07 Graham Capital Management, Inc. Selective Trading Program 162/3 162/3 5.66 Global Diversified Program 162/3 162/3 5.66 Spectrum Technical additional trading models and to modify models currently in use and may or may not employ all such models for all clients' accounts. The trading models currently used by Campbell may be eliminated from use if Campbell ever believes such action is warranted. While Campbell normally follows a disciplined systematic approach to trading, on occasion it may override the signals generated by the trading models, such as when market conditions dictate otherwise. While such action may be taken for any reason at any time at Campbell & Company's discretion, it will normally only be taken to reduce risk in the portfolio, and may or may not enhance the results that would otherwise be achieved. Campbell applies risk management and portfolio management strategies to measure and manage overall portfolio risk. These strategies include portfolio structure, risk balance, capital allocation and risk limitation. One objective of risk and portfolio management is to determine periods of relatively high and low portfolio risk, and when such points are reached, Campbell may reduce or increase position size accordingly. It is possible, however, that this reduction or increase in position size may not enhance the results achieved over time. From time to time, Campbell may increase or decrease the total number of contracts held based on increases or decreases in an account's assets, changes in market conditions, perceived changes in portfolio-wide risk factors, or other factors which may be deemed relevant. Campbell estimates that, based on the amount of margin required to maintain positions in the markets currently traded, aggregate margin for all positions held in a client's account will range between 5% and 30% of the account's net assets. From time to time, margin commitments may be above or below this ranges. The number of contracts that Campbell believes can be bought or sold in a particular market without unduly influencing price adversely may at times be limited. In such cases, a client's portfolio would be influenced by liquidity factors because the positions in such markets might be substantially smaller than the positions that would otherwise be taken. 2. Chesapeake Capital Corporation Chesapeake was incorporated under the laws of the Commonwealth of Virginia in February 1988 for the purpose of offering advisory and investment portfolio management services to both retail and institutional investors in trading commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets. On August 19, 1991, Chesapeake was merged into Chesapeake Capital Corporation, an Illinois corporation formed on August 13, 1991. References herein to "Chesapeake" refer to the Virginia corporation prior to August 19, 1991 and the Illinois corporation on and after August 19, 1991. Chesapeake Holding Company is a Virginia corporation that owns all of the issued and outstanding shares of stock of Chesapeake Capital Corporation. Chesapeake has been registered with the CFTC as a commodity trading advisor and as a commodity pool operator since June 20, 1988 and May 8, 1991, respectively, and has also been a member of the National Futures Association since June 20, 1988. Chesapeake's principal place of business is located at 500 Forest Avenue, Richmond, Virginia 23229. All business records will be kept at Chesapeake's principal place of business. Principals R. Jerry Parker, Jr. is the Chairman of the Board of Directors and the Chief Executive Officer of Chesapeake. Mr. Parker has overseen Chesapeake's operations and its trading since its inception. Mr. Parker received a Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in January 1980. Mr. Parker worked in the accounting field for four years after graduating from college and became a licensed Certified Public Accountant in Virginia in 1982. From November 1983 until January 1987, Mr. Parker was employed as an exempt commodity trading advisor by Mr. Richard J. Dennis, a principal and shareholder of Richard J. Dennis & Company, a Chicago-based commodity trading advisor and a commodity pool operator registered with the CFTC, in his "Turtle" training program. From January 1987 until February 1988, Mr. Parker traded for Mr. Thomas Dennis as an exempt commodity trading advisor. From November 1983 through February 1988, Mr. Parker had complete discretionary trading authority over a futures portfolio of U.S. $1 million to U.S. $1.5 million. In February 1988, Mr. Parker ceased trading for Mr. Thomas Dennis and formed Chesapeake, which, as of January 31, 2003, managed approximately U.S. $1.0 billion (notional funds excluded) of client funds. John M. Hoade is the President and the Secretary of Chesapeake. Mr. Hoade received a Bachelor of Science degree in Business Administration from Lynchburg College in 1978. From September 1976 through December 1990, Mr. Hoade was employed by Thurston Metals, Inc., located in Lynchburg, Virginia, in sales, marketing, and general management. Mr. Hoade joined Chesapeake in December 1990 to direct its operations and marketing efforts. Robert S. Parker, Jr. is the Chief Legal Counsel of Chesapeake. Mr. Parker received his Bachelor of Science degree in Commerce, with an emphasis in Accounting, from the University of Virginia in 1965. Mr. Parker worked in the accounting field for two years and became a Certified Public Accountant in Virginia. He then attended law school at the College of William and Mary where he received a Juris Doctor degree in 1970. Mr. Parker has been engaged in the practice of law since then, with an emphasis in tax and business matters, including 13 years with Hunton & Williams, where Mr. Parker was a partner. Mr. Parker has been Chief Legal Counsel of Chesapeake since February 1996. Warren K. Coleman is the Chief Financial Officer and a Managing Director of Chesapeake. Mr. Coleman received a Master of Business Administration in 1981 and Bachelor of Business Administration in 1979 from James Madison University. Mr. Coleman became a Certified Public Accountant in 1982 while working for the public accounting firm of Ernst & Young. From February 1982 until March 1998, Mr. Coleman was employed by Philip Morris U.S.A. His job duties at Philip Morris included Plant Controller, Senior Manager responsible for Capital Evaluation and Financial Analysis and Senior Manager responsible for financial software integration. Mr. Coleman joined Chesapeake in March 1998 to direct its financial operations as Chief Financial Officer. Chesapeake and its principals may, from time to time, trade futures, forwards, and options contracts and securities for their own proprietary accounts. Such trades may or may not be in accordance with the Chesapeake trading program described below. Records for these accounts will not be made available to Spectrum Technical. The Chesapeake trading programs Prior to June 1, 1998, the assets allocated to Chesapeake by Spectrum Technical were traded pursuant to its Diversified Program and its Financial and Metals Program. Since June 1, 1998, the assets of Spectrum Technical allocated to Chesapeake have been traded pursuant to its Diversified 2XL Program. The Diversified 2XL Program emphasizes a wide range of diversification with a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. Chesapeake will not trade cash commodities or swap contracts for the partnership without the general partner's consent. Chesapeake may trade on U.S. and non-U.S. exchanges and markets. The decision to add or subtract markets from this program periodically shall be at the sole discretion of Chesapeake. Chesapeake utilizes a variety of trading strategies and programs for its clients' private accounts and for Chesapeake-sponsored investment funds. The programs offered generally by Chesapeake to its clients to trade commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts for their private accounts (i.e., to those clients other than Chesapeake-sponsored investment funds) are the Diversified Program and the Diversified 2XL Program (the "Diversified Trading Programs"). The Diversified Program commenced trading in February 1988. The Diversified Program emphasizes a wide range of diversification by utilizing a global portfolio of commodity futures contracts, options on futures contracts and commodities, spot and forward currency contracts, and swap and other derivative contracts, traded in U.S. and non-U.S. markets, including, but not limited to, agricultural products, precious and industrial metals, currencies, financial instruments, and stock, financial, and economic indices. These futures interest contracts are traded on a highly leveraged basis. The Diversified 2XL Program, which Chesapeake trades for Spectrum Technical, began trading in April 1994. The Diversified 2XL Program employs the same trading system as the Diversified Program, except that the Diversified 2XL Program is generally traded on an increased exposure basis generally equal to approximately two times the exposure or trading level typically applied to a fully-funded Diversified Program account (although at times a different level may be used and the partnership's returns may vary significantly from a 2:1 ratio with the gross returns of private accounts trading the Diversified Program). Ultimately, the appropriate exposure or trading level to be employed by the partnership in its trading, as determined at the sole discretion of Chesapeake, will be determined by the performance factors associated with the partnership and the partnership only, regardless of the intended performance relationship of the partnership to other accounts trading in other programs that may utilize more or less exposure. Since Chesapeake's trading strategies and programs are proprietary and confidential, the discussion below is of a general nature and it is not intended to be exhaustive. As of December 31, 2003, Chesapeake was managing approximately $263.2 million of customer funds in the Diversified 2XL Program (notional funds excluded) and approximately $1.4 billion of client assets in all of its programs (notional funds excluded). In general, Chesapeake analyzes markets, including price action, market volatility, open interest, and volume as a means of predicting market opportunity and discovering any repeating patterns in past historical prices. Chesapeake generally employs a computerized analysis of a large number of interrelated statistical and mathematical formulas and techniques based on an extensive proprietary and confidential database of prices, volume, open interest, and various other market statistics to search for patterns in data and to develop, use, and monitor trading strategies. Chesapeake places primary emphasis on technical analysis in assessing market opportunities. Chesapeake's trading decisions are based on a combination of its systems, its market timing techniques, its trading discretion, judgment, and experience, and on market opportunities. Chesapeake's trading methodology is both systematic and strategic. Trading decisions require the exercise of strategic judgment by Chesapeake in evaluating its technical trading methods, in their possible modification from time to time, and in their implementation. Chesapeake is free to use its discretion whether to follow any trading signals or parameters generated by its technical trading strategies and its Diversified Trading Programs. The decision not to trade certain markets or not to make certain trades indicated by Chesapeake's systems can materially affect performance. Under no circumstances is Chesapeake compelled to follow any of the trading indications generated by the Diversified Trading Programs. Chesapeake has the right to employ any form or method of technical analysis that it deems appropriate in trading its Diversified Trading Programs. By way of example, the technical trading strategies and programs utilized by Chesapeake may be significantly revised from time to time by Chesapeake as a result of ongoing research and development, which seeks to devise new trading strategies and programs, as well as test its current technical strategies and programs. Chesapeake will not notify clients, such as the partnership, of such revisions or changes to its Diversified Trading Programs as they may occur. Exchanges on which transactions may take place will include, but are not limited to, all exchanges in the United States, as well as non-U.S. exchanges which include, but are not limited to, the Belgian Futures and Options Exchange, the London International Financial Futures and Options Exchange Ltd., the International Petroleum Exchange of London Ltd., the London Metal Exchange, the London Commodity Exchange, the Italian Derivatives Market, the March Terme International de France, the Mercado Espa ol de Futuros Financieros, the Eurex Deutschland, the Hong Kong Futures Exchange Ltd., the Montreal Exchange, the Tokyo Commodity Exchange, the Tokyo International Financial Futures Exchange, the Tokyo Stock Exchange, the Singapore International Monetary Exchange, the Sydney Futures Exchange Ltd., and the Winnipeg Commodity Exchange. In addition, Chesapeake continually monitors numerous markets, both U.S. and non-U.S., and initiates trades at any point it determines that a market is sufficiently liquid and tradable using the methods employed by Chesapeake. Chesapeake renders advice regarding transactions in physical commodities, including exchange of futures for physical transactions. An exchange of futures for physical transaction is a transaction permitted under the rules of many futures exchanges in which two parties exchange a cash market position for a futures market position (or vice versa) without making an open, competitive trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Chesapeake does not currently, but may in the future, utilize swaps on behalf of the partnership with the general partner's consent. A swap transaction is an individually negotiated, non-standardized agreement between two parties to exchange cash flows (and sometimes principal amounts) measured by different interest rates, exchange rates, indices, or prices, with payments generally calculated by reference to a principal amount or quantity. Chesapeake may enter into swap transactions involving or relating to interest rates, currencies, commodities, or indices. Swaps may be utilized for a number of reasons, including to achieve greater exposure to markets in which Chesapeake is constrained by speculative position limits from taking additional positions in exchange-traded contracts, to access markets not accessible through exchange-traded instruments, and to allow customization of positions. Chesapeake may also trade other types of over-the-counter derivative contracts. Chesapeake generally uses between 10% and 30% of the equity in a fully funded account as original margin for trading in the Diversified Program, but at times the margin-to-equity ratio can be higher. The low margin normally required in futures trading permits an extremely high degree of leverage; margin requirements for futures trading being in some cases as little as 2% of the face value (or "exposure") of the contracts traded. Therefore, the gross value of positions held in an account may be several times the value of such account. Consequently, even a slight movement in the prices of open positions in an account could result in immediate and substantial losses to the investor. The Diversified 2XL Program generally trades at approximately double the Diversified Program exposure requiring the use of double of the portion of equity Chesapeake generally uses as margin, which results in approximately double the ratio of the gross value of positions in relation to the value of an account. The risk assumed and, consequently, the potential for profit experienced by a particular account at different times, and by different accounts at the same time, vary significantly according to the program(s) traded, the market conditions, the percentage gained or lost in such account, the size of such account, the brokerage commissions, the management fees and the incentive fees charged to such account, the contracts, if any, excluded from such account by the client, and when such account commenced trading. Accordingly, no investor should expect to achieve the same performance as that of any other account traded previously, simultaneously, or subsequently by Chesapeake. Programs that exclude or emphasize certain markets often perform differently than programs utilizing different markets. On programs that differ in terms of leverage or exposure only (e.g., the Diversified Trading Programs), Chesapeake generally attempts to manage accounts in such programs such that the gross returns (before fees), positive or negative, are a multiple of each other based on the leverage differential (e.g., the Diversified 2XL Program gross returns, positive or negative, are generally intended to be approximately double those of the Diversified Program on an annual or year to date basis). However, many factors can, sometimes significantly, impact account performance and these performance relationships, including, but not limited to, differences in the timing of additions and withdrawals and the resulting adjustment trades, varying fills, changes in position size to reduce risk during losing periods by Chesapeake that impact an account in one program but not other account(s) in other programs that use proportionately higher or lower exposure, differences in brokerage commissions, and other factors. Accordingly, every program will underperform or overperform the anticipated multiple or fraction of a differently leveraged program. Additions and Redemptions in Pool Account Investors in investment fund accounts generally make additions or redeem units at net asset value per unit as of the opening of business on the first business day of each month. In order to provide the appropriate market exposure commensurate with a fund's equity after giving effect to net additions/redemptions, Chesapeake's general practice is to adjust positions as soon as possible after the close of business on the last trading date of the month. Market conditions may dictate the time period over which these trades can be effected. The performance of a fund account relative to the performance of other accounts trading in the same program or to accounts trading within programs that should perform at a level proportionately higher or lower than such account may be significantly different as a result of these adjustment trades. Furthermore, there may be changes in net asset value per unit as a result of such adjustment trades. Based on the level of net additions/redemptions and Chesapeake's determination of liquidity or other market conditions, Chesapeake may also decide to make adjusting trades before the close of business on the last business day of the month. No assurance is given that Chesapeake will be able to avoid the performance discrepancies and the changes described above in connection with pool equity level changes. The use of discretion by Chesapeake in the application of this procedure may affect performance positively or negatively. Further, effecting trades prior to the close of business on the last business day of the month may cause brokerage commissions to be incurred and allocated in the month prior to the month in which the investors making additions participate in pool profits and losses. 3. John W. Henry & Company, Inc. (JWH ) John W. Henry & Company began managing assets in 1981 as a sole proprietorship and was later incorporated in the state of California as John W. Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997, JWH reincorporated in the state of Florida. JWH's offices are at 301 Yamato Road, Suite 2200, Boca Raton, Florida. JWH's registration as a commodity trading advisor became effective in November 1980. JWH is a member of the National Futures Association in this capacity. "JWH" is the registered trademark of John W. Henry & Company, Inc. The John W. Henry Trust, dated July 27, 1990, is the sole shareholder of JWH. Principals Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also a member of the JWH Investment Policy Committee. In addition, he is a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. Mr. Henry oversees trading program design and composition, reviews and approves research and system development proposals prior to implementation in trading, reviews and approves of decisions involving the strategic direction of the firm, and discusses trading activities with trading supervisors. JWH's corporate officers, rather than Mr. Henry, manage JWH's day-to-day operations. Mr. Henry is the exclusive owner of trading systems licensed to Elysian Licensing Corporation, a corporation wholly owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to JWH and utilized by JWH in managing investor accounts. Mr. Henry conducts his business responsibilities for JWH from Boca Raton, Florida, and Boston, Massachusetts. Mr. Henry has served on the Board of Directors of the Futures Industry Association, the National Association of Futures Trading Advisors, and the Managed Futures Trade Association, and has served on the Nominating Committee of the National Futures Association. He has also served on a panel created by the Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative efforts related to electronic trading, common clearing, and issues regarding a potential merger. Since the beginning of 1987, he has devoted, and will continue to devote, considerable time to activities in businesses other than JWH and its affiliates. From January 1999 until February 2002, Mr. Henry was chairman of the Florida Marlins Baseball Club LLC. Effective February 2002, Mr. Henry is Principal Owner of New England Sports Ventures LLC, which owns the Boston Red Sox baseball team, New England Sports Network, and certain real estate, including Fenway Park. He holds comparable positions with the individual business entities engaged in these activities. Mr. Henry is regularly involved in the business of New England Sports Ventures with professional management of the Red Sox (including its president and chief executive officer) and of the other entities owned by New England Sports Ventures. Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of the JWH Board of Directors. His duties include the coordination and allocation of responsibilities among JWH and its affiliates. Prior to joining JWH in January 1994, he was a partner at Chapman and Cutler in Chicago, where he headed the law firm's futures law practice from 1983 to 1993. He also served as general counsel of the MFA and general counsel of the National Association of Futures Trading Advisors. Mr. Mitchell is currently a director of the MFA and a member of the National Futures Association Commodity Pool Operator/Commodity Trading Advisory Committee. In addition, he has served as a member of the National Futures Association Special Committee for the Review of a Multi-tiered Regulatory Approach to National Futures Association Rules, the MFA Government Relations Committee, state or any political subdivision thereof, general obligations issued by any agency sponsored by the U.S., certificates of deposit issued by a bank as defined in the Exchange Act or a domestic branch of a foreign bank insured by the FDIC, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds, subject to conditions and restrictions regarding marketability, investment quality, and investment concentration. In addition, such investments may be bought and sold pursuant to designated repurchase and reverse repurchase agreements. To the extent the partnerships' funds are held by the commodity brokers in secured accounts relating to trading in futures or options contracts on non-U.S. exchanges or in forward contracts, such funds may be invested by the commodity brokers, under applicable CFTC regulations, in the instruments described above for customer segregated funds, in equity and debt securities traded on established securities markets in the U.S., and in commercial paper and other debt instruments that are rated in one of the top two rating categories by Moody's Investor Service, Inc. or Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. A significant portion of the partnerships' funds held by the non-clearing commodity broker will be held in secured accounts and will be invested in short-term or medium-term commercial paper rated AAA or the equivalent or in other permitted debt instruments rated AAA or the equivalent. To the extent that the partnerships' funds are held in non-interest-bearing bank accounts, the non-clearing commodity broker or its affiliates will benefit from compensating balance treatment in connection with the non-clearing commodity broker's designation of a bank or banks in which the partnership's assets are deposited, meaning that the non-clearing commodity broker or its affiliates will receive favorable loan rates from such bank or banks by reason of such deposits. To the extent that any excess interest and compensating balance benefits to the non-clearing commodity broker or its affiliates exceed the interest the non-clearing commodity broker is obligated to credit to the partnerships, they will not be shared with the partnerships. THE SPECTRUM SERIES General The Spectrum Series presently consists of five limited partnerships each formed under the laws of Delaware: Spectrum Select, Spectrum Technical, Spectrum Strategic, Spectrum Global Balanced and Spectrum Currency. Date Partnership Was Formed and the Executive Committee of the Futures Industry Association Law and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian Award for Outstanding Contributions to the Field of Commodity Money Management. He received an A.B. with honors from Dartmouth College and a J.D. from the University of California at Los Angeles, where he was named to the Order of the Coif, the national legal honorary society. Dr. Mark S. Rzepczynski is the president and chief investment officer, and a member of the JWH Investment Policy Committee. He is responsible for day-to-day management of the firm. Dr. Rzepczynski is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, and JWH Investment Management, Inc., all affiliates of JWH. He was Senior Vice President, Research & Trading at JWH from May 1998 through December 2001. Prior to joining JWH in May 1998, he was vice president and director of taxable credit and quantitative research in the fixed income division of Fidelity Management and Research from May 1995 to April 1998, where he oversaw credit and quantitative research recommendations for all Fidelity taxable fixed income funds. From April 1993 to April 1995, he was a portfolio manager and director of research for CSI Asset Management, Inc., a fixed-income money management subsidiary of Prudential Insurance. Dr. Rzepczynski is a board member of the Futures Industry Association. Dr. Rzepczynski has a B.A. cum laude, Honors in Economics from Loyola University of Chicago, and an A.M. and Ph.D. in Economics from Brown University. Mr. Matthew J. Driscoll is a senior vice president, trading, and chief trader and a member of the JWH Investment Policy Committee. He is responsible for the supervision and administration of all aspects of order execution strategies and implementation of trading policies and procedures. Mr. Driscoll joined JWH in March 1991 as a member of the trading department. Since joining the firm, he has held positions of increasing responsibility as they relate to the development and implementation of JWH's trading strategies and procedures; he has played a major role in the development of JWH's 24-hour trading operation. He attended Pace University. Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a member of the JWH Investment Policy Committee. He is responsible for the implementation and oversight of the firm's proprietary strategies and investments. Mr. Koshi joined JWH in August 1988 as a professional in the finance department, and since 1990 has held positions of increasing responsibility in the trading department. He received a B.S. in Finance from California State University at Long Beach. Mr. David M. Kozak is a senior vice president, general counsel, and secretary to the corporation. He is also a principal of JWH Investment Management, Inc. and Westport Capital Management Corporation. Prior to joining JWH in September 1995, he had been a partner at the law firm of Chapman and Cutler, where he concentrated in commodity futures law with an emphasis on commodity money management. Mr. Kozak is Chairman of the MFA's Government Relations Committee. He is also a member of the NFA's Membership Committee, as well as, the NFA's Special Committee on CPO/CTA Disclosure Issues, and the Special Committee for the Review of Multi-tiered Regulatory Approach to NFA Rules. He is currently chairman of the subcommittee on commodity trading advisor and commodity pool operator issues of the Futures Regulation Committee of the Association of the Bar of the City of New York. Mr. Kozak formerly served as the secretary and a director of the MFA, as well as having been a member of the MFA's Executive Committee. He received a B.A. from Lake Forest College, an M.A. from The University of Chicago, and a J.D. from Loyola University of Chicago. Mr. Kenneth S. Webster, CPA is a senior vice president and chief operating officer. He is also a principal of Westport Capital Management Corporation, Global Capital Management Limited, JWH Investment Management, Inc., and JWH Securities, Inc. He is responsible for firm wide operations including management of the investment support, finance, information technology and administration departments. Since joining JWH in January 1995, Mr. Webster has held positions of increasing responsibility. Prior to his employment at JWH, Mr. Webster was the Controller of Chang Crowell Management, a registered CTA, from December 1991 to December 1994. From June 1987 to December 1991, Mr. Webster was employed by Coopers & Lybrand in their financial services audit practice. Mr. Webster received a BBA in Accounting from Pace University. Date Partnership Began Operations Mr. Julius A. Staniewicz is vice president, senior strategist and research manager, and a member of the JWH Investment Policy Committee. Since joining JWH in March of 1992, Mr. Staniewicz has held positions of increasing responsibility at the firm. These include long-term strategic planning in the areas of trading and investment strategies, and business development. Mr. Staniewicz received a B.A. in Economics from Cornell University. Mr. Edwin B. Twist is a member of the JWH Board of Directors. He is also a principal of JWH Investment Management, Inc. Mr. Twist joined JWH as internal projects manager in 1991 and has been a director since 1993. His responsibilities include assisting with internal projects. The following is a list of additional principals of JWH: Mr. Andrew D. Willard, vice president, information technology; Mr. Ted A. Parkhill, vice president, marketing; and Mr. William S. Dinon, vice president, director of natural sales. The JWH Investment Programs JWH specializes in managing institutional and individual capital in the global futures, swaps, and forwards markets. JWH currently operates 11 investment programs. JWH utilizes the Original Investment Program and the Financial and Metals Portfolio for Spectrum Technical. The Original Investment Program. The Original Investment Program began trading client capital in October 1982 and was the first program offered by JWH. The Original Investment Program seeks to capitalize on long-term trends in a broad spectrum of worldwide financial and non-financial futures markets including interest rates, global stock indices, currencies, metals, energies, and agricultural markets. This program always maintains a position long or short in every market traded. In 1992, a broad research effort was initiated to enhance the risk/reward ratios of the Original Investment Program without changing its trading philosophy. Global markets were added; sector allocations were shifted, with increased weighting given to financial markets; and some contracts were removed from the program. The quantitative model underlying the program was not changed. Beginning in October 1995, the position size in relation to account equity in this program was reduced approximately 25%. Today, the Original Investment Program is one of JWH's largest and historically best-performing programs, manifesting lower volatility since the above changes were implemented in 1992. The Financial and Metals Portfolio. The Financial and Metals Portfolio, which began trading client capital in October 1984, is JWH's second longest running program. The program seeks to identify and capitalize on intermediate-term price movements in four worldwide market sectors: interest rates, currencies, non-U.S. stock indices, and metals. This program takes a position when trends are identified, but may take a neutral stance or liquidate open positions in nontrending markets. Beginning in August 1992, the position size in relation to account equity in this program was reduced approximately 50%. The quantitative model underlying the program was not changed. Since the changes were implemented in 1992, the Financial and Metals Portfolio has experienced lower volatility. As of December 31, 2003, JWH was managing approximately $69 million of client assets pursuant to its Original Investment Program, approximately $357 million of client assets pursuant to its Financial and Metals Portfolio and approximately $2.1 billion in all of its programs. Investment Philosophy and Methodology. Investment Philosophy. The JWH investment philosophy has been based, since the inception of the firm, on the premise that market prices, rather than market fundamentals, are the key aggregator of information necessary to make investment decisions and that market prices, which may at first seem random, are actually related through time in complex, but discernible ways. This philosophy is based on analysis of historical data that revealed that market adjustments sometimes form price trends that can be exploited for profit. JWH believes there is an inherent return opportunity in participating in price movement trends that its systematic and analytic models have identified. JWH trading programs may participate in either rising or falling trends; they do not have a directional bias nor do they try to forecast Spectrum Select March 21, 1991 August 1, 1991 Spectrum Technical April 29, 1994 November 2, 1994 Spectrum Strategic April 29, 1994 November 2, 1994 Spectrum Global Balanced April 29, 1994 November 2, 1994 Spectrum Currency October 20, 1999 July 3, 2000 Each partnership calculates its net asset value per unit independently of the other partnerships. Each partnership's performance depends solely on the performance of its trading advisor(s). Each partnership is continuously offering its units for sale at monthly closings held as of the last day of each month. The purchase price per unit is equal to 100% of the net asset value of a unit as of the date of the monthly closing at which the general partner accepts a subscription. Following is a summary of information relating to the sale of units of each partnership through December 31, 2003: Units Sold or predict market turning points. Once a program has established a position in a market that has been identified as trending, no pre-set price target for profits is established given the highly variable nature of market trends. JWH's understanding of the nature of markets is based on the hypothesis that investors' expectations adjust at different times and manifest themselves in long-term price trends. Markets do not adjust immediately to new information. JWH's investment decision process has been designed to analyze and exploit these trends. JWH maintains that changes in market prices initially react to new or emerging information or events, but the aggregate impact on price may be a lengthy process. While prices may at first represent an over or under reaction to new information, prices eventually will reflect all relevant information. In other words, anything that could possibly affect the market price of a commodity or financial instrument including fundamental, political, or psychological factors eventually will be reflected in the price of that commodity or instrument. The foundation for JWH's analysis is, therefore, a study of market price, rather than market fundamentals or the prediction of trends. JWH believes that the price adjustments process takes time, since reactions of market participants to changing market dynamics initially may be inefficient; that is, investors may not react immediately to information because of differing evaluation processes, differing levels of risk tolerance, or uncertainty. Gradual price adjustments manifest themselves in long-term trends, which themselves can influence the course of events and from which profit opportunities can arise. JWH believes that such market inefficiencies can be exploited through a combination of trend detection and risk management. Trend Detection. JWH's research is based on the belief that prices move in trends that are often highly complex and difficult to identify and that trends often last longer than most market participants foresee. JWH believes there is strong economic and statistical evidence to suggest that trends do exist in most markets although they may be difficult to detect. Yet these trend signals can be found through the use of systematic extraction methods. Since the firm's founding, JWH has consistently employed its analytical methods to identify short-term to long-term trends. Comprehensive research undertaken by the firm's founder, John W. Henry, led to the initial development of disciplined systematic quantitative models. JWH's computer models examine market data for systematic price behavior or price relationships that will characterize a trend. When price trends are identified, the JWH trading system generates buy and sell signals for implementing trades. The strict application of these signals is one of the most important aspects of JWH's investment process. JWH considers that price is the combination of the signal plus "noise," where the signal is the trend information and the "noise" is market volatility. Prices are an aggregate of market information, but "noisy" price signals have to be filtered to discover an underlying price trend. The JWH systems examine market data for relationships among movements in prices, detecting frequencies or repetitive behavior hidden within thousands of pieces of raw price data. JWH's trading models seek to identify signals by separating short-term market noise from relevant information and locating a directional opportunity that has favorable risk characteristics. JWH systems may dictate that positions be closed with a loss in order to provide downside protection, but the systems may also provide discipline to stay in markets that are quiescent for long periods of time in order to achieve possible long-term gain for investors. In either case, JWH investment decisions reflect the JWH trading models' assessment of the market itself, not an emotional response to recent economic or political data. JWH models do not follow singular movements in price, characteristic of short-term volatility. Instead, the models seek to identify changes in systematic price behavior over a long period of time, which will characterize a directional opportunity. JWH trading is conducted with a money management perspective. Risk Management. Given the noisy nature of price data, all market signals may not lead to profitable trades. Hence, significant emphasis is placed on risk management techniques to minimize the losses on any particular trade on the portfolio as a whole. Stop-losses are used and managed in a proprietary manner to balance the potential loss in any trade versus the opportunity for maximum profit. Depending on the model used, risk may be managed through variable position size or risk levels for any market. Additionally, modern portfolio techniques are used to construct the overall portfolio for a given program. Units Available For Sale These techniques will account for the volatility and correlation for markets as well as behavior during specific market extremes. Portfolio adjustments will be made to account for systematic changes in the relationships across markets. Portfolios are managed to meet longer-term risk and volatility tolerances. Potential Capital Preservation. JWH's overall objective is to provide absolute returns. JWH is an absolute return manager, insofar as it does not manage against a natural benchmark. Relative return managers, such as most traditional equity or fixed income managers, are measured on how they perform relative to some pre-determined benchmark. For these managers, this is a natural course of events, as the benchmark is a readily available alternative to the active management provided. JWH has no such investment benchmark, so its aim is to achieve returns in all market conditions, and is thus considered an absolute return manager. In markets with short-term volatility or where no trends exist conditions which can result in flat or negative performance JWH strives to preserve capital. Some of the JWH programs may take a neutral position (exit a market) rather than risk trading capital. While there can be no guarantee against losses, the JWH trading discipline is designed to preserve capital while waiting for opportunities where programs can generate profits over longer periods of time. Risk management on a market basis accounts for volatility and the fact that markets may turn against the prevailing trend. While JWH is looking for longer-term trends, the preservation of capital is paramount. If a predetermined amount of capital is lost, positions will be closed regardless of fundamental market conditions. Disciplined Investment Process. JWH believes that an investment strategy can only be as successful as the discipline of the manager to adhere to its requirements in the face of market adversity. Unlike discretionary traders, whose decisions may be subject to behavioral biases, JWH practices a disciplined investment process. By quantifying the circumstances under which key investment decisions are made, the JWH methodology offers investors a consistent approach to markets, unswayed by judgmental bias. Disciplined Adaptation to Changing Market Conditions. JWH maintains an absolute commitment to consistent portfolio construction and program integrity. JWH has not been persuaded to change the fundamental elements of the portfolios by short-term performance, although adjustments may be made over time. Nor, over the years, has JWH changed the basic methodologies that identify signals in the markets. JWH believes that its long-term track record has benefited substantially from its adherence to its models during and after periods of negative returns. The dynamic elements of the JWH investment process involve periodic adaptation to changing market conditions and subjective discretionary decisions on such matters as portfolio weightings, leverage, position size, effective trade execution, capacity and entry into new markets all of which depend on professional experience and market knowledge. These changes are made as warranted by JWH's research findings and in the context of JWH's underlying principles. Research. Working in a collaborative effort with JWH's traders and the Investment Policy Committee, the firm's Research Department looks to improve the overall performance of investment models through analysis of the dynamic elements of the investment process. Research also refines risk management techniques and monitors capacity. It examines profit opportunities in markets not currently traded by JWH programs, and in new instruments as they become available. Trade Placement. JWH's experienced traders work on a 24-hour rotation schedule, executing trades worldwide in markets that are the most liquid for the specific trade that is being made. Trades are executed by teams, with each member of the team fully responsible for the trade's fulfillment, and are recorded and reviewed for strict adherence to procedures. Once trade signals are received, traders focus on the manner and speed with which the trade will be executed in an effort to minimize market disturbance at the best price. Depending on market conditions, order size and other factors, traders will decide to execute a trade using a particular order type, which may include "market price," "market-at-discretion" or "market limit." Whether entering or exiting the markets, JWH Trading follows specific procedures designed to help minimize the impact of any immediate adverse price developments. JWH trades electronically on behalf of its client accounts. JWH, in its discretion, may also continue to place orders by traditional means, including telephone and telecopy. JWH believes that electronic trading provides a faster method of accessing the variety of markets that it trades than the traditional method of Total Proceeds Received placing trade orders over the telephone. Electronic trading provides for greater order execution risk controls to be incorporated into electronic order placement which should reduce the potential for errors during the order placement process. Electronic trading also increases the overall level of confidentiality for JWH with respect to the marketplace and it will also prevent miscommunication of instructions between JWH and the executing brokers. Trade processing efficiency is another key benefit to electronic trading. Investment Programs. JWH investment programs have different combinations of style, timing, and market characteristics. Investment style differences are primarily based on the number of directional phases that investment programs use for markets long, short or neutral and how position sizes are determined, whether static or dynamic. Timing whether trends are recognized over a short to very long term period is a distinguishing characteristic of JWH investment programs. JWH investment programs can also be distinguished by the markets they trade. While some characteristics may overlap, each investment program has a distinctive combination of style, timing, and markets. This does not mean that one program will have higher returns than another will or that a certain set of characteristics is preferable for one type of market. At times, an investment program may, for certain markets, use a style different from its primary style. Duration of Positions Held. JWH's historical performance demonstrates that, because trends often last longer than most market participants expect, significant returns can be generated from positions held over a long period of time. Therefore, market exposure to profitable positions is not changed based on the time horizon of the trade; positions held for two to four months are not unusual, and positions have been held for more than one year. Losing positions are generally reversed or eliminated relatively quickly, with most closing within a few days or weeks. However, if the JWH system detects a profitable underlying trend, a position trading at a loss may be retained in order to capture the potential benefits of participating in that trend. Throughout the investment process, risk controls designed to reduce the possibility of an extraordinary loss in any one market are maintained. Discretionary Aspects. JWH at its sole discretion may override computer-generated signals and may at times use discretion in the application of its quantitative models, which may affect performance positively or negatively. This could occur, for example, when JWH determines that markets are illiquid or erratic, such as may occur cyclically during holiday seasons, or on the basis of irregularly occurring market events. Subjective aspects in JWH's application of its quantitative models also include the determination of position size in relation to account equity, timing of commencement of trading an account, the investment of assets associated with additions, redemptions, and reallocations, futures contracts used and contract months traded, and effective trade execution. Program Modifications. Proprietary research is conducted on an ongoing basis to refine the JWH investment strategies. While the basic philosophy underlying the firm's investment methodology has remained intact throughout its history, the potential benefits of employing more than one investment methodology, or in varying combinations, is a subject of continual testing, review, and evaluation. Extensive research may suggest substitution of alternative investment methodologies with respect to particular contracts; this may occur, for example, when the testing of a different methodology has indicated that its use might have resulted in improved historical performance. In addition, risk management research and investment program analysis may suggest modifications regarding the relative weighting among various contracts, modifying the style and/or timing used by an investment program to trade a particular contract, the addition or deletion of a contract traded by an investment program, or a change in position size in relation to account equity. However, most investment programs maintain a consistent portfolio composition to allow opportunities in as many major market trends as possible. All cash in a JWH investment program is available for trading, although the amounts committed to margin will vary from time to time. As capital in each JWH investment program increases, additional emphasis and weighting may be placed on certain markets that have historically demonstrated the greatest SSARIS Advisors, LLC 100 100 General Partner Contributions liquidity and profitability. Furthermore, the weighting of capital committed to various markets in the investment programs is dynamic, and JWH may vary the weighting at its discretion as market conditions, liquidity, position limit considerations, and other factors warrant. Spectrum Technical and Spectrum Currency will generally not be informed of such changes. Oversight of Trading Policies. The JWH Investment Policy Committee is a senior-level advisory group, broadly responsible for evaluating and overseeing trading policies. The Investment Policy Committee provides a forum for shared responsibility, meeting periodically to discuss issues relating to implementation of JWH's investment process and its application to markets, including research on new markets and strategies in relation to JWH trading models. Typical issues analyzed by the Investment Policy Committee include liquidity, position size, capacity, performance cycles, and new product and market strategies. The Investment Policy Committee also makes the discretionary decisions concerning investment program selection, asset allocation, and position size in relation to account equity for the Strategic Allocation Program and the Currency Strategic Allocation Program. Composition of the Investment Policy Committee, and participation in its discussions and decisions by non-members, may vary over time. The Chairman participates in all Investment Policy Committee meetings and decisions. The Investment Policy Committee does not make day-to-day trading decisions. Position Size. Adjustments in position size in relation to account equity have been and continue to be an integral part of JWH's investment strategy. At its discretion, JWH may adjust the size of a position in relation to equity in the account that is taken in certain markets or entire investment programs. Such adjustments may be made at certain times for some investment programs but not for others. Factors which may affect the decision to adjust the size of a position in relation to account equity include ongoing research, program volatility, current market volatility, risk exposure, subjective judgment, and evaluation of these and other general market conditions. Such decisions to change the size of a position may positively or negatively affect performance and will alter risk exposure for an account. Adjustments in position size relative to account equity may lead to greater profits or losses, more frequent and larger margin calls, and greater brokerage expense. No assurance is or can be given that such adjustments will result in profits for client accounts. JWH reserves the right to alter, at its sole discretion and without notification to Spectrum Technical and Spectrum Currency, its policy regarding adjustments in position size relative to account equity. Addition, Redemption, and Reallocation of Capital for Commodity Pool or Fund Accounts. Investors purchase or redeem units at net asset value on the close of business on the last business day of the month. In order to provide market exposure commensurate with the funds' equity on the date of these transactions, JWH may, in its sole discretion, adjust its investment of assets associated with additions and redemptions as near as possible to the close of business on the last trading date of the month. The intention is to provide for additions, redemptions, and reallocations at a net asset value that will be the same for each of these transactions, and to eliminate possible variations in net asset values that could occur as a result of inter-day price changes if, for example, additions were calculated on the first day of the subsequent month. Therefore, JWH may, at its sole discretion, adjust its investment of the assets associated with the addition, redemption, or reallocation as near as possible to the close of business on the last business day of the month to reflect the amount then available for trading. Based on JWH's determination of liquidity or other market conditions, JWH may decide to commence trading earlier in the day on, or before, the last business day of the month, or at its sole discretion, delay adjustments to trading for an account to a date or time after the close of business on the last day of the month. No assurance is given that JWH will be able to achieve the objectives described above in connection with fund equity level changes. The use of discretion by JWH in the application of this procedure may affect performance positively or negatively. Physical and Cash Commodities. JWH may trade in physical or cash commodities for immediate or deferred delivery, including specifically gold bullion, as well as futures, options, swaps, and forward contracts when it believes that cash markets offer comparable or superior market liquidity or ability to execute transactions at a single Number of Limited Partners price. In addition, the CFTC does not comprehensively regulate cash transactions, which are subject to the risk of counterparty failure, inability, or refusal to perform with respect to such contracts. JWH will not trade physical or cash commodities for the Spectrum Series, other than in connection with exchange of futures for physical transactions, without the general partner's consent. Equity Drawdowns. Historically, only thirty to forty percent of all trades made pursuant to JWH's programs have been profitable. Large profits on a few trades in positions that typically exist for several months have produced favorable results overall. The greatest cumulative percentage decline in daily net asset value that JWH has experienced since inception in any single program on a composite basis was nearly sixty percent. You should understand that similar or greater drawdowns are possible in the future. Legal Concerns. There neither now exists nor has there previously ever been any material administrative, civil, or criminal action against JWH or its principals. Principals of JWH serve on the boards of directors and committees of various organizations, both in and outside of the managed futures industry. In such capacities, these individuals have a fiduciary duty to the other organizations they serve, and they are required to act in the best interests of those organizations, even if those actions were to be adverse to the interests of JWH and its clients. Mr. Henry devotes a substantial portion of his business time to ventures unrelated to JWH and futures trading, and from time to time certain JWH staff members may provide support services for those other business ventures. Those principals and others who supervise and manage JWH staff supporting other business ventures have a conflict of interest in allocating their time, and the time of certain staff members, between their duties to JWH and duties or commitments involving such other business ventures. JWH and Mr. Henry may engage in discretionary trading for their own accounts, as long as such trading does not amount to a breach of fiduciary duty. Such trading will be for the purposes of testing new investment programs and concepts, as well as for proprietary profit. Proprietary trading may involve contract markets that are not traded for client accounts. The reasons for not trading a contract market for clients may include: the contract market does not trade reasonable volume and is not expected to grow such that JWH could trade significant size with appropriate liquidity; the contract markets are liquid but are highly correlated or redundant to existing markets or sectors traded for clients; or the contract markets have excessively high volatility associated with low liquidity and no historical trends. In the course of trading for their own accounts, JWH and Mr. Henry may take positions that are the same or opposite from Spectrum Technical's and Spectrum Currency's positions, due to testing a new quantitative model or investment program, an allocation system, and/or trading pursuant to individual discretionary methods. Trades for the accounts of JWH and Mr. Henry may on occasion receive better fills than Spectrum Technical's and Spectrum Currency's accounts. Records for these accounts will not be made available to you. Employees and principals of JWH (other than Mr. Henry) are not permitted to trade in futures, options on futures, or forward contracts. However, such principals and employees may invest in investment vehicles that trade futures, options on futures, or forward contracts, when an independent trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for which JWH is the trading advisor. Records for these accounts will not be made available to Spectrum Technical or Spectrum Currency. Other Investment Programs Operated by JWH. In addition to the Original Investment Program and the Financial and Metals Portfolio, JWH currently operates 9 other investment programs in four categories for U.S. and non-U.S. investors, none of which are used by JWH for Spectrum Technical. Broadly Diversified programs invest in a broad spectrum of worldwide financial and nonfinancial futures and forward markets including currencies, interest rates, global stock indices, metals, energies, and agricultural commodities. Investment choices include a program that always maintains a position long or short in a market (two-phase investment style), a program that takes a position Net Asset Value Per Unit when trends are identified but may take a neutral stance or liquidate open positions in nontrending markets (three-phase investment style), and a program that uses a combination of the two-phase and three-phase investment styles (five-phase investment style) to invest in both long- and short-term price trends. Financial programs invest in worldwide financial futures and forward markets, including currencies, interest rates, and stock indices, in addition to the metals and energies markets. The range of investment choices includes diversified financial programs, sector-focused programs. Some programs use a two-phase investment style while others use a three-phase investment style. Foreign Exchange programs invest in a wide range of world currencies primarily traded on the interbank market. Investment choices include a program that trades a range of major and minor currencies, a program focused on major currencies only, and a program that trades major currencies against the U.S. dollar. Programs use either the three-phase investment style or a slight variation called three-phase forex which incorporates specialized intra-day volatility filters. Multiple Style programs involve the selection and allocation of assets among the other types of JWH investment programs on a discretionary basis. The Strategic Allocation Program and the Currency Strategic Allocation Program are the only programs offered in this category. The Global Diversified Portfolio. The Global Diversified Portfolio, which began trading client capital in June 1988, seeks to capitalize on intermediate-term price movements in a broad spectrum of worldwide financial and non-financial markets including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses the three-phase investment style. JWH GlobalAnalytics Family of Programs. Introduced in June 1997 as the firm's most broadly diversified investment program, JWH GlobalAnalytics Family of Programs is the result of extensive research and testing by the firm. Unlike other JWH programs, which invest in intermediate- or long-term price movements, JWH GlobalAnalytics invests in both long- and short-term price movements. The program invests in a broad spectrum of worldwide financial and non-financial markets, including interest rates, global stock indices, currencies, metals, energies, and agricultural commodity markets. This program uses a five-phase investment style. The Global Financial and Energy Portfolio. The Global Financial and Energy Portfolio, which began trading client capital in June 1994, seeks to identify and capitalize on long-term price movements in five worldwide market sectors: interest rates, global stock indices, currencies, metals, and energies. This program uses the two-phase investment style. Beginning in April 1995, the position size in relation to account equity in this program was reduced approximately 50%. Since the change was implemented, the Global Financial and Energy Portfolio has experienced lower volatility. In 1997, the sector allocation for the program was expanded to include metals. The quantitative model underlying the program was not changed. Effective April 1, 2002, the name of the program was changed to the Global Financial and Energy Portfolio from the Global Financial Portfolio to reflect more accurately its trading. The International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. The Worldwide Bond Program. The Worldwide Bond Program, which began trading client capital in July 1996, seeks to capitalize on intermediate-term trends by investing in the long-term portion of the worldwide interest rate markets. Although the Worldwide Bond Program concentrates in one sector, diversification is achieved by trading the interest rate markets of major industrialized countries. This program uses the three-phase investment style. Due to the limited number of markets traded, the Worldwide Bond Program may be less diversified than other JWH financial programs. Beginning in March 2000, the position size in relation to account equity was increased approximately 25% and was increased an additional 20% in June 2000. These two changes represent an over all position size increase of 50% since March 2000. The quantitative model underlying the program was not changed. The G-7 Currency Portfolio. The G-7 Currency Portfolio, which began trading client capital in February 1991, seeks to identify and capitalize on intermediate-term price movements in the highly liquid $ $ $ Spectrum Select* 28,529,412.378 5,084,554.722 554,768,114 3,150,000 37,216 30.31 Spectrum Technical 38,348,176.678 5,651,823.322 585,879,790 3,931,984 42,471 22.64 Spectrum Strategic 15,977,268.178 9,522,731.822 181,882,529 1,011,000 13,823 14.31 Spectrum Global Balanced 7,050,928.248 9,449,071.752 99,259,599 533,234 7,481 15.47 Spectrum Currency 13,995,530.483 13,004,469.517 182,537,858 3,031,645 19,229 15.66 currencies of major industrialized nations. These currencies allow for trading outrights against the U.S. dollar or non-dollar cross rates. With the advent of the European Union single currency of 11 countries, the currency exposures formerly traded for Germany, France, and Italy are now executed in the euro. This program uses the three-phase forex investment style. Beginning in May 1998 the position size in relation to account equity in this program was increased approximately 50%. The quantitative model underlying the program was not changed. The Dollar Program. The Dollar Program, which began trading client capital in July 1996, seeks to identify and capitalize on intermediate-term price movements in the currency markets, trading major currencies against the U.S. dollar. This program uses the three-phase investment style. Due to the limited number of markets traded in the Dollar Program, the program may be less diversified than other JWH foreign exchange programs. Beginning in July, 2001, the position size in relation to account equity was increased approximately 25%. The Strategic Allocation Program. The Strategic Allocation Program is JWH's largest program. Its objective is capital appreciation with the reduction of the volatility and risk of loss that typically would be associated with an investment in any one JWH investment program. JWH currently operates 10 other investment programs; any and all of them may be included in the Strategic Allocation Program. JWH, through its Investment Policy Committee, allocates assets among different combinations of its investment programs which each have distinctive style, timing, and market characteristics. The allocation of the Strategic Allocation Program's assets among the investment programs, as well as the selection of the programs used for the Strategic Allocation Program, is dynamic, changing at the discretion of the Investment Policy Committee. While JWH's individual investment programs are technical, trend-following programs, the selection of programs as well as the allocation of assets among the programs in the Strategic Allocation Program are entirely discretionary. JWH is under no obligation to include any particular investment program in the Strategic Allocation Program. Generally, the maximum allocation to an individual program will not exceed 25% of an account's assets. The Investment Policy Committee also monitors and adjusts on an ongoing basis the position size in relation to account equity at which the Strategic Allocation Program trades. Factors which may affect the decision to adjust position size include: ongoing program and portfolio research, portfolio volatility, recent market volatility, perceived risk exposure, and subjective evaluation of general market conditions. Position size can range from 50% to 150% of standard trading levels. The Currency Strategic Allocation Program. The Currency Strategic Allocation Program, which began trading client capital in November 2002, accesses JWH's currency programs as well as the models for individual foreign exchange markets within JWH's non-currency programs to trade a broadly diversified portfolio of world currencies. Its objective is capital appreciation with the reduction of the volatility and risk of loss typically associated with investment in one JWH currency only investment program. JWH currently operates three currency only investment programs and trades currencies in six other investment programs; any and all of the programs or trading models may be included in the Currency Strategic Allocation Program. Allocations among programs and the selection of models are made at the discretion of the Investment Policy Committee in a manner generally similar to that applied to the Strategic Allocation Program. However, the timing and methods used for allocations in this program may not correspond to allocation changes in the Strategic Allocation Program. Maximum exposure to any one currency market will be 30%; discretionary adjustments to position size in relation to account equity can range from 50% to 200% of standard trading levels set annually by the Investment Policy Committee. 4. Winton Capital Management Limited Winton Capital Management Limited organized in 1997, and is a United Kingdom company. Winton became registered with the CFTC as a commodity trading advisor in January 1998 and is a member of the National Futures Association. Winton has its principal office at 1a St. Mary Abbot's Place, London W8 6LS, United Kingdom. Principals David Winton Harding is a director and a principal of Winton. Mr. Harding founded Winton in February 1997. Having graduated from Cambridge University with a First Class Honors Degree, he began his career in the financial industry in 1982. Between September 1982 and December 1984, he held various positions as a UK Gilt trader and salesman at two UK stockbrokers: Wood MacKenzie and Johnson Matthey & Wallace. He then joined Sabre Fund Management Ltd., a CFTC-registered CTA located in London, as an assistant technical trader and researcher, and was later promoted to Director of Research. In December 1986, he moved to Brockham Securities Ltd, a privately owned sugar trading and managed futures company, to assist in the development and marketing of the firm's futures fund management services. In February 1987, he left Brockham Securities Ltd and, together with colleagues Michael Adam and Martin Lueck, founded Adam, Harding and Lueck Ltd., a computer-driven, research based CTA. Adam, Harding and Lueck Ltd. became registered with the CFTC in February 1987. By 1989, this firm had grown into the UK's largest CTA, with more than $50 million under management. At that time, the principals sold a 51% stake to E D & F Man Group Ltd., one of the largest distributors of futures funds internationally. Between 1989 and 1993, when assets under management rose from $50 million to $300 million, Mr. Harding headed up Adam, Harding and Lueck Ltd.'s quantitative research team, supervising about 15 full-time research staff, supported by a software team of around a dozen programmers. This team developed a multiplicity of quantitative trading strategies in addition to Adam, Harding and Lueck Ltd.'s successful trend-following trading approach. During this time, he was also involved in the company's international institutional marketing efforts, in particular in Europe, the Middle East, South East Asia, Japan and the U.S. In 1993, Mr. Harding was invited to present a paper to a special symposium of London's prestigious Royal Society, on the subject "Making Money From Mathematical Models." This paper was subsequently incorporated into two books on the subject. In September 1994, E D & F Man Group Ltd. bought out the minority shares owned by Mr. Harding and the original partners, and Adam, Harding and Lueck Ltd. was consolidated into E D & F Man Group Ltd.'s fund management division. Mr. Harding then formed and headed up a new division of E D & F Man Group Ltd., called E D & F Man Group Ltd. Quantitative Research, leading a research team that developed quantitative trading models primarily for use by E D & F Man Group Ltd.'s fund management companies. Mr. Harding left E D & F Man Group Ltd. in August 1996 to begin preparations for the launch of Winton, which he formed in February 1997. Osman Murgian is a founding director and a principal of Winton. Educated in Brighton College in England, Mr. Murgian was also one of the original shareholders and directors of Adam, Harding and Lueck Ltd. Mr. Murgian lives in Nairobi, Kenya, and is the owner of or an investor in a number of international businesses ranging from real estate to transportation. Mr. Murgian has a beneficial interest of more than 10% of Winton's share capital. This interest is held by Festuca Investments Ltd, an Isle of Man investment holding company. Martin John Hunt is a director and a principal of Winton. Mr. Hunt began his career in the UK managed futures industry in October 1983, at which time he was employed as a trainee trader for a trading advisor, Futures Fund Management Ltd. In January 1986, he was appointed manager of the trading operations for Sabre Fund Management, also a trading advisor. In February 1988, he joined Adam, Harding and Lueck Ltd., then a newly established trading advisor, where he was responsible for the company's trading operations. These trading operations were complex, and Mr. Hunt's role was to ensure the efficient execution of the firm's computer-generated futures and interbank orders on over $120 million of assets under management. These orders spanned more than 60 markets, 5 time zones and 15 exchanges worldwide. In August 1991, Mr. Hunt assumed responsibility for marketing and operations at Royston Investments, Ltd, which at the time was a CFTC-registered CTA. In March 1994, he established himself as an independent marketing and compliance consultant to firms in the UK managed futures industry. These consultancy activities continued until February 1997, when he was recruited by David Harding to handle the formation, structuring and subsequent day-to-day running of Winton. At Winton, Mr. Hunt supervises the trading operations, as well as being directly involved in the marketing of Winton's investment management approach worldwide. Mr. Hunt also has responsibility for the firm's regulatory compliance. During the five years preceding the date of this Supplement, there have been no material administrative, civil or criminal actions, including actions pending, on appeal or concluded, against Winton or its principals. Winton and its principals may, from time to time, trade futures, forwards, or options contracts for their own proprietary accounts. These accounts may take positions that are opposite, or ahead of, positions advocated for clients. Such trades may or may not be in accordance with the Winton trading programs described below. Although Winton maintains records of these trades, clients of Winton are not entitled to inspect these records except in certain limited circumstances. Description of the Diversified Trading Program Effective January 1, 2004 the general partner allocated 10-15% of Spectrum Technical's assets to Winton's Diversified Trading Program which has been trading since 1997. The Winton Diversified Trading Program uses a statistically-derived systematic model to trade a diversified portfolio of approximately 95 futures contracts. The contracts traded cover a global range and are widely diversified across the financial and commodity sectors. Winton expects the margin requirements for the portion of Spectrum Technical's assets traded pursuant to Winton's Diversified Trading Program to average about 20% of those assets. As of December 31, 2003 Winton Capital Management Limited was managing approximately $321 million pursuant to its Diversified Trading Program and approximately $326 million of client assets in all its programs (notional funds included). Description of Trading Methods and Strategies Winton's investment technique consists of trading a portfolio of around 95 futures contracts on major commodity exchanges and forward markets worldwide, employing a computerized, technical, trend-following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. If rising prices are anticipated, a long position will be established; a short position will be established if prices are expected to fall. The trading methods applied by Winton are proprietary, complex and confidential. As a result, the following discussion is of necessity general in nature and not intended to be exhaustive. Winton plans to continue the testing and reworking of its trading methodology and, therefore, retains the right to revise any methods or strategy, including the technical trading factors used, the markets traded and/or the money management principles applied. A Technical Trend-Following System. Technical analysis refers to analysis based on data intrinsic to a market, such as price and volume. This is to be contrasted with fundamental analysis which relies on factors external to a market, such as supply and demand. The Diversified Trading Program uses no fundamental factors. A trend-following system is one that attempts to take advantage of the observable tendency of the markets to trend, and to tend to make exaggerated movements in both upward and downward directions as a result of such trends. These exaggerated movements are largely explained as a result of the influence of crowd psychology or the herd instinct, amongst market participants. A trend-following system does not anticipate a trend, but seeks to capture it at an appropriate point in time. In fact, trend-following systems are frequently unprofitable for long periods of time in particular markets or market groups, and occasionally they are unprofitable for spells of more than a year, even in large portfolios. However, over a span of years, Winton believes such an approach, applied to a sufficiently diversified portfolio of markets, has proven to be consistently profitable. The Winton trading system works by capturing the probability of the size and direction of future price movements using sophisticated statistical indicators, or oscillators, derived from past price movements which characterize the degree of trending of each market at any time. Winton believes its application of advanced classical statistics to the understanding of market behavior provides it with an edge over other trend following systems. Winton believes this enables its system to suffer smaller losses during the inevitable whipsaw periods of market behavior and thus take better advantage of the significant trends when they occur, by focusing more resources on them. The system is developed using historical market prices in each contract ("in sample data"), and then tested on an independent period of market data ("out of sample data") to ensure that the observations have robust predictive power. This procedure seeks to avoid the risk of over optimising, which occurs when a system is allowed to fit itself to a historically-specific set of market conditions. A Non Discretionary System. Trade selection is not subject to intervention by Winton's principals or traders and therefore is not subject to the influences of individual judgement. As a systemic trading system, the Winton model utilizes expert knowledge to analyze market data and direct trades, thus eliminating the risk of basing a trading program on one indispensable person. Equally important is the fact that non-discretionary systems can be tested in simulation for long periods of time and the model's empirical characteristics can be measured. The system's output is rigorously adhered to in trading the portfolio and intentionally no importance is given to any external or fundamental factors. While it may be seen as unwise to ignore information of obvious value, such as that pertaining to political or economic developments, Winton believes the disadvantage of this approach is far outweighed by the advantage of the discipline that rigorous adherence to such a system instills. Significant profits are often made by the Winton system, by holding on to positions for much longer than conventional wisdom would dictate. An individual taking trading decisions, and paying attention to day-to-day events, could easily be deflected from the chance of fully capitalizing on such trends, when not adhering to such a system. Markets Traded. The Winton system trades in all the easily accessible and liquid U.S. and non-U.S. futures and forward contracts that it practically can. Forward markets include major currencies and precious and base metals, the latter two categories being traded on the London Metal Exchange. Winton is constantly looking for new opportunities to add additional markets to the portfolio, thus further increasing the portfolio's diversification. Diversification of Markets. Taking positions in a variety of unrelated markets has been shown, over time, to decrease system volatility. By employing a sophisticated and systematic schema for placing orders in a wide array of markets, Winton believes it can be demonstrated that there is a high expectation of an overall profit being realized after a sufficient period of time. The trading strategy and account management principles described here are factors upon which Winton will base its trading decisions. Such principles may be revised from time to time by Winton as it deems advisable or necessary. Accordingly, no assurance is given that all of these factors will be considered with respect to every trade or recommendation made or that consideration of any of these factors in a particular situation will lessen risk of loss or increase the potential for profits. Execution of Orders and Order Allocation Winton will select the type of order to be used in executing trades and may use any type of order permitted by the exchange on which the order is placed. Winton may place individual orders for each account or a block order for all accounts in which the same commodity interest is being cleared through the same futures commission merchant. In the latter instance, Winton employs an objective price allocation procedure in which all accounts are listed by account number and then trades are assigned, with the highest number on the list receiving the highest buy and the highest sell and the lowest number on the list receiving the lowest buy and the lowest sell. On occasion, it may direct the futures commission merchant for the accounts to employ the neutral allocation system generally used by the futures commission merchant to assign trades or it may use an average price system in which each client in the block order will receive the average price which is computed by multiplying the price by the quantity executed at each price divided by the total quantity executed. Partial fills will be allocated in proportion to account size. Past Performance of Winton Set forth below in Capsule A is the past performance history of Winton's Diversified Trading Program. The footnotes following Capsule A are an integral part of the Capsule. You are cautioned that the information set forth in the following Capsule performance summary is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by Winton or Spectrum Technical in the future, since past results are not a guarantee of future results. There can be no assurance that Winton or the partnership will make any profits at all, or will be able to avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a commodity pool's total income and, in certain instances, may generate profits where there have been realized or unrealized losses from commodity trading. CAPSULE A Winton Capital Management Limited Winton Diversified Trading Program Name of commodity trading advisor: Winton Capital Management Limited Name of program: Winton Diversified Trading Program Inception of trading by commodity trading advisor: October 1997 Inception of trading in program: October 1997 Number of open accounts: 33 Aggregate assets overall: 257.8 million Aggregate assets in program: 252.3 million Worst monthly drawdown (12.97)% - (October 1997) Worst peak-to-valley drawdown: (31.09)% - (November 2001-May 2002) 2003 annual return: 25.52% 2002 annual return: 12.86% 2001 annual return: 5.56% 2000 annual return: 9.72% 1999 annual return: 13.24% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Performance Records A summary of performance information for each partnership from its commencement of operations through December 31, 2003 is set forth in Capsules I through V below. All performance information has been calculated on an accrual basis in accordance with accounting principles generally accepted in the United States of America and is "net" of all fees and charges. You should read the footnotes on page , which are an integral part of the following capsules. You are cautioned that the information set forth in each capsule is not indicative of, and has no bearing on, any trading results that may be attained by any partnership in the future. Past performance is not necessarily indicative of future results. We cannot assure you that a partnership will be profitable or will avoid incurring substantial losses. You should also note that interest income may constitute a significant portion of a partnership's total income and may generate profits where there have been realized or unrealized losses from futures, forwards, and options trading. Capsule I Performance of Spectrum Select Type of pool: publicly-offered fund Inception of trading: August 1991 Aggregate subscriptions: $557,918,114 Current capitalization: $441,522,484 Current net asset value per unit: $30.31 Worst monthly % drawdown past five years: (13.12)% (November 2001) Worst monthly % drawdown since inception: (13.72)% (January 1992) Worst month-end peak-to-valley drawdown past five years: (23.63)% (22 months, October 1998-July 2000) Worst month-end peak-to-valley drawdown since inception: (26.78)% (15 months, June 1995-August 1996) Cumulative return since inception: 203.10% Monthly Performance Footnotes to Winton's Capsule Performance Summaries "Inception of trading by commodity trading advisor" is the date on which Winton began trading client accounts. "Inception of trading in program" is the date on which Winton began trading client accounts pursuant to the program shown. "Number of open accounts" is the number of accounts directed by Winton pursuant to the program shown as of December 31, 2003. "Aggregate assets overall" is the aggregate amount of assets in non-proprietary accounts under the management of Winton as of December 31, 2003. "Aggregate assets in program" is the aggregate amount of assets in the program specified as of December 31, 2003. "Drawdown" means losses experienced by the trading program over a specified period. A small number of accounts in the portfolio composites have experienced monthly drawdowns and peak-to-valley drawdowns that are materially larger than the largest composite monthly drawdown and peak-to-valley drawdown. These variances result from factors such as small account size (i.e., accounts with net assets of less than the prescribed portfolio minimum, which therefore trade fewer contracts than the standard portfolio), intra-month account opening or closing, significant intra-month additions or withdrawals, and investment restrictions imposed by the client. "Largest monthly drawdown" means greatest percentage decline in net asset value due to losses sustained by the trading program from the beginning to the end of a calendar month during the most recent five calendar years. "Worst peak-to-valley drawdown" means greatest cumulative percentage decline in month-end net asset value of the trading program due to losses sustained during a period in which the initial month-end net asset value of the trading program is not equaled or exceeded by a subsequent month-end net asset value of the program during the most recent five calendar years. "Compound annual and year-to-date/period rate of return" presented in the composite performance capsules are calculated based on the "Fully-Funded Subset" method as prescribed by the CFTC. The rate of return is calculated by dividing the sum of net performance of the qualifying Fully-Funded Subset by the beginning net assets of the qualifying Fully-Funded Subset, except in periods of significant additions or withdrawals to the accounts in the qualifying Fully-Funded Subset. In such instances, the Fully-Funded Subset is adjusted to exclude accounts with significant additions or withdrawals that would materially distort the rate of return pursuant to the Fully-Funded Subset method. Returns are then compounded to arrive at the year-to-date rate of return. Morgan Stanley Spectrum Strategic L.P. 1. Allied Irish Capital Management, Ltd. Allied Irish is an Irish corporation registered with the CFTC as a commodity trading advisor since January 1994 and is a member of the National Futures Association in that capacity. Allied Irish's business office is located at 85 Pembroke Road, Ballsbridge, Dublin 4. Allied Irish's ultimate parent company is Allied Irish Banks plc, Ireland's largest banking and financial services group. Allied Irish has been authorized by the Irish Financial Services Regulatory Authority (formerly known as Central Bank of Ireland) under the Investment Intermediaries Act, 1995. As a commodity trading advisor, Allied Irish specializes in trading interest rate, currency, and equity index futures contracts, as well as foreign exchange on the interbank cash market. The primary focus of Allied Irish's futures trading is on the U.S. and European, futures exchanges with some participation in other markets. Foreign exchange trading covers the major currencies. Allied Irish began trading for Spectrum Strategic in May 1999. Month Principals Gerry Grimes is Managing Director of Allied Irish, an associated person of Allied Irish and a member of the Institute of Bankers. He became registered as an associated person of Allied Irish in January 1994. For 10 years up to March 1988, Mr. Grimes was employed by the Central Bank of Ireland in the following investment management positions: Chief Dealer, Money Market Division; Chief Dealer, Management of Official External Reserves; and Chief Forex Dealer. He represented Ireland on sub-committees of the European Central Bank Governors Committee in Basle. He has experience in liquidity and interest rate management, investment of external reserves ($5 billion) and their currency allocation and the management of the Irish pound in the European Exchange Rate Mechanism. Mr. Grimes joined Gandon Securities as a trader in March 1988 where he traded a range of interest rate contracts, and was appointed a Director in October 1990. He was an associated person with Gandon Fund Management from July 1991 to September 1993. From mid 1991, he was responsible for the development of Gandon Fund Management's activities including the marketing and development of managed futures programs. He left Gandon Securities and Gandon Fund Management in September 1993 and joined Allied Irish that month. Mr. Grimes was a founding member of Allied Irish and is responsible for the overall management, development, and control of Allied Irish's activities. Between January and September 2002, Mr. Grimes was also responsible for trading a portion of the Worldwide Financial Futures Program. Ian Kelly became Company Secretary of Allied Irish in August 1997. He is a member of the Institute of Chartered Accountants of Ireland. He is Chief Operating Officer of Allied Irish and is responsible for financial control, compliance, and the back-office and I.T. operations of the company. He joined Allied Irish in August 1997. Prior to joining Allied Irish, he worked from July 1994 to August 1997 in AIB Capital Markets Plc., an investment bank, and before that he worked with Coopers & Lybrand, an accountancy firm, from 1987 to June 1994. John O'Donnell became a non-executive Director of Allied Irish in March 2001. He is Head of Investment Banking in the Capital Markets Division of the AIB Group, a position he was appointed to in March 2001. Prior to this appointment he was Managing Director of AIB International Financial Services Limited, a subsidiary of the AIB Group, from January 1994 to December 1996 and was Managing Director of AIB Corporate Finance Limited, another subsidiary of the AIB Group, from December 1996 to March 2001. Mr. O'Donnell is a Fellow of both the Chartered Institute of Management Accountants and the Chartered Association of Certified Accountants. John Parsons became a Director of Allied Irish in January 1995. He graduated from Queen's University, Belfast with a B.Sc. in Computer Science and Statistics in 1986, and went on to obtain a Master of Business Administration degree from Cardiff University, in 1987. Before joining Allied Irish, Mr. Parsons worked for SBC Warburg in London as a proprietary trader in the Fixed Interest & Treasury Division. Prior to that, he worked with the Bank of Ireland Group from January 1989 to March 1993, initially as a Portfolio Manager with the Bank's fund management group and ultimately as Head of European Government Bonds with the Bank's Treasury operation. Mr. Parsons trades a portion of the Worldwide Financial Futures Program and he is the sole trader of the Equity Program offered by Allied Irish. David Thompson became a Director of Allied Irish in September 2002. He has a Certificate in Actuarial Practices and a Certificate in Investment Management from the Institute of Actuaries in London. Prior to joining Allied Irish, Mr. Thompson worked for Bank of Ireland Group as Head of Proprietary Trading (non-customer flow) between January 2001 and August 2002. Before that he was Head of their Euro Fixed Interest Trading Desk between June 1998 and January 2001 and prior to that worked as a proprietary trader on their fixed interest trading desk in Dublin (July 1995 to June 1998) and as a bond trader in their London office (March 1994 to July 1995). From 1987 to 1994 he worked for Eagle Star Insurance, initially as an actuarial programmer and ultimately as a foreign exchange and bond trader. Mr. Thompson trades a portion of the Worldwide Financial Futures Program. Mr. Treble became a non-executive director of Allied Irish in October 2003 and currently has a pending registration as principal with the NFA. He is Managing Director of AIB Global Treasury, a position he has held since February 2002. Prior to this appointment, he was Managing Director of AIB Treasury and International, from February 2001 to February 2002, and he held the position of General Manager, AIB Capital Markets Britain (Treasury & Corporate Banking) from August 1997 to February 2001. He has worked in AIB since 1982 and has an MBA in Financial Services. Allied Irish and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. Allied Irish's Trading Strategies Allied Irish offers three trading programs, but will only trade the Worldwide Financial Futures Program for Spectrum Strategic. Trading for Spectrum Strategic will be at four times the leverage Allied Irish normally applies for the Worldwide Financial Futures Program. The two other trading programs offered by Allied Irish are the Foreign Exchange Program and the Equity Index Program. Worldwide Financial Futures Program The Worldwide Financial Futures Program is designed to provide returns using a multi-trader trading approach on a broad range of financial instruments. The capital is sub-allocated to a range of trading styles, including a portion traded by two individual traders, Mr. Parsons and Mr. Thompson. The allocation of capital to the individual traders and to the trading styles may be altered at the discretion of Allied Irish. A portion is traded using a systematic approach. Diversification is enhanced because no overall house view is imposed on the traders in the program, and this independence of operation is viewed as a key strength. There are the three elements to the current trading approvals. Mr. Thompson's trading style is based on an understanding of the medium to longer term economic, political and demographic trends in the world. An analysis of value is conducted for all major asset classes and fitted to this fundamental framework to determine the likely direction and magnitude of trends in the major financial markets. The timing and size of trades is determined through a combination of technical analysis and assessment of market psychology and positioning. The aim of Mr. Thompson's approach is to enter trends early, building up the size of the position as the trade becomes profitable. Exit of the trades occurs when market sentiment in favour of the trade reaches an extreme, but price movements cease to justify the euphoria. Profitable trades can be run for months at a time, but may be held for shorter periods, depending on the strength of the trends involved. Mr. Parsons' approach to trading markets is based on a fundamental analysis of economic, fiscal, and monetary developments in the world's major economies. Having compiled a set of expectations for the major interest rate, equity, and foreign exchange markets, Mr. Parsons then looks for significant levels of divergence relative to the market's expectations as a signal to enter a particular position. He uses technical analysis to help identify trends and trend changes as well as to seek to improve entry and exit levels. A portion of the Worldwide Financial Futures Program is traded using a technical trading system. The system has been developed to be consistent with Allied Irish's investment approach to financial markets. The system differs from most trend following trading systems in that a profit objective is built into the trade from inception. The system utilizes a break-out oriented approach that attempts to initiate trading at low risk entry points where the market has a higher probability than average of participating in a medium-to long-term trend. The futures contracts currently traded in the Worldwide Financial Futures Program include U.S., European, and Asian interest rate, currency, and stock index contracts. For most contracts, options may also be used from time to time. Options may be either bought or sold in this program. It should be noted that in relation to currency futures on both the Chicago Mercantile Exchange and the financial derivatives division of the New York Cotton Exchange, Allied Irish may convert spot transactions to futures contracts using the exchange for physicals mechanism. As of December 31, 2003, Allied Irish was managing approximately $336 million (notional funds included) of client assets pursuant to the Worldwide Financial Futures Program and approximately $637 million of client assets in all of its programs (notional funds included). Foreign Exchange Program The Foreign Exchange Program specializes in trading the inter-bank foreign exchange market. A fundamental assessment of market information is the main factor underlying the trading approach. To this end an assessment of the fundamental economic policy forces at work in different countries is first made. This is related to socio-political factors in play. A judgment is then made on how much of the economic and political influences are priced in following a review of international capital flows. In this regard consultation is made with a network of experts in the world's currency markets. Finally the price levels are examined in detail to determine appropriate trade parameters. Equity Index Program The program's objective is designed to minimize correlations with major global equity returns. The underlying investment approach is broadly similar to that taken in Allied Irish's other two programs in that the main inputs are an analysis of macroeconomic and global political trends. This program is traded by John Parsons and trades the major stock index futures. Risk Management The management of risk positions takes place at two levels within the programs at the overall program level by the trading controller and at the position taking level where each trader uses his individual money management skills. Given that the programs involve a multi-trader approach, a program controller role is adopted. Mr. Grimes is the trading controller for all three programs. This role involves the following: assessing the performance and risk of the programs from an overall level as distinct from a trader level; monitoring the traders' adherence to the risk parameters for each program as set out below; ensuring that the programs' overall objectives and those of individual traders are compatible; controlling the operations of the order desk and ensuring the positions are agreed between traders, order desk, back office, and counterparty. Mr. Grimes is also responsible for liaising with clients and conveying their views, wishes, and concerns to the trading team. To control the levels of exposure a daily end-of-day position report including contract open positions, margin utilized by contract, and margin utilized by trader is produced for the Worldwide Financial Futures and Equity Index Programs. The report for the Foreign Exchange Program looks at positions in equivalent U.S. dollar amount versus underlying U.S. dollar equity invested. For the Worldwide Financial Futures and Equity Index Programs, margin to equity is used to control position size while in the Foreign Exchange Program a gearing of equity is used to limit position size. Given the nature of the programs offered and the experience of the trading team, a limit of 6% margin to equity (including notional funds) is normally applied for the Worldwide Financial Futures and Equity Index Programs and a gearing of 3 times equity (including notional funds) for the Foreign Exchange Program. 2. Blenheim Capital Management, L.L.C. Blenheim Capital Management, L.L.C. is a Delaware limited liability company which was formed to provide commodity trading advisory services to clients. Through a corporate reorganization in July 2001, Blenheim was merged with Blenheim Investments, Inc., a New Jersey corporation. The ownership and capitalization of Blenheim are materially the same as those which existed in Blenheim Investments, Inc. Additionally, Blenheim succeeds to all the assets and obligations of its predecessor. Blenheim is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator, effective March 2, 1989, and is a member of the National Futures Association. Blenheim's address and telephone number are: Post Office Box 7242, Two Worlds Fair Drive, Somerset, New Jersey 08875-7242; (732) 302-0238. Principals Mr. Willem Kooyker is the Managing Member, Chairman and majority owner of Blenheim. He is registered with the CFTC as an associated person of Blenheim and a member of the National Futures Association in that capacity. He is a former member of the Board of Directors of the NY Coffee, Sugar and Cocoa Exchange, a former president of the NY Cocoa Clearing Association, and a former member of the NY Mercantile Exchange. He received a BA cum laude in Economics from Baruch College in New York and an MBA in International Finance and Economics from New York University. Mr. Kooyker began his trading career in the international commodities business in 1964 with Internatio-Muller in Rotterdam, The Netherlands, where eventually he became managing director of the International Trading Group. He stayed in this position until 1981, when he joined Commodities Corporation, Princeton, New Jersey, where he became President. At the time, Commodities Corporation was an active fund management company, operating predominantly in the futures markets. In October 1984, Mr. Kooyker started a new company, Tricon Holding Company, Ltd., a joint venture between Commodities Corporation and a group of Middle Eastern investors, which was a trading and consulting company in the futures as well as the physicals markets predominantly directed towards energy and industrial commodities. Tricon currently remains only active in the forest products industry, where it operates two sawmills in the western states of the United States. In January 1989, Mr. Kooyker started Blenheim, an independent fund management company and an advisor to several investment funds. Concurrent, but separate from Blenheim, Mr. Kooyker is the largest beneficial owner, but not an officer, of Derivatives Portfolio Management, L.L.C., a Delaware limited liability company formed in 1993 to provide administrative, risk management, and consulting services to institutions, commodity pool operators, and individual fund managers engaged in the financial instruments, securities, and futures markets as well as the cash trading business. DPM is registered with the CFTC as a commodity pool operator, effective January 26, 1994, and is a member of the National Futures Association in that capacity. DPM has a wholly-owned subsidiary named DPM Brokerage, LLC, a Delaware limited liability company formed in 1999 to provide introduction and execution services to individual clients and private investors. DPM Brokerage is registered with the CFTC as an introducing broker, effective August 16, 1999 and is a member of the National Futures Association in that capacity. In 1996, Mr. Kooyker became a 50% shareholder in The Thornton Group, L.L.C., a consulting company to entrepreneurial startup enterprises. Mr. Kooyker is registered with the CFTC as a principal and an associated person of Blenheim. He is also registered as a principal of DPM and DPM Brokerage. Thomas M. Kopczynski is a Vice President of Blenheim. He is registered with the CFTC as a principal and an associated person and is a member of the NFA in that capacity. Mr. Kopczynski has been with Blenheim for ten years. He is an integral part of Blenheim's trading staff. His broad knowledge of the market sectors in which Blenheim trades, retained by extensive analysis and consultation with key industry contacts, facilitates continuous investment opportunities and diversification. Mr. Kopczynski holds a B.S. in Economics with a concentration in Statistics from the Wharton School of the University of Pennsylvania. Guy J. Castranova, is the Secretary of Blenheim and has held this position since its inception. He is the President and Chief Operating Officer of DPM and DPM Brokerage, as well as a Vice President and Controller of Tricon. Mr. Castranova has been with Tricon since October 1986 and is responsible for the risk management of all physicals trading as well as the administration of all general and consolidation accounting. Prior to joining Tricon, Mr. Castranova was an accountant with two energy firms. In 1980 Mr. Castranova graduated from Saint Joseph's University with a BS degree in Accounting. He is registered as an associated person and principal of Blenheim, DPM, and DPM Brokerage, and is a member of the National Futures Association in those capacities. Blenheim and its principals may, from time to time, trade futures, forwards, and options contracts for their own proprietary accounts. If either Blenheim or its principals engage in such trading, you will not be able to inspect such records. Such trades may or may not be in accordance with the Blenheim trading program described below. As of December 31, 2003, Blenheim was managing approximately $68.1 million of client assets pursuant to its trading program. The Blenheim Global Markets Strategy The Global Markets Strategy designed and developed by the management team of Blenheim. The objective of the Global Markets Strategy is to capture substantial profits through the establishment of risk-controlled, strategic investment positions in markets where Blenheim has identified an unsustainable level of market disequilibrium that has not been reflected in the current market price. The essence of Blenheim's trading approach is its ability to use discretion in formulating the most effective mix of trading methodologies, investment vehicles, and markets to maintain performance objectives. As trading opportunities are identified, Blenheim analyzes potential trading applications in order to achieve maximum capital appreciation with prudent risk management procedures. Markets Traded Blenheim's portfolio is highly diversified and draws upon a potential of 35 markets, depending on the opportunities presented at any given time. The major markets traded by Blenheim include energy, industrials, precious metals, softs, grains, global fixed income, currencies and stock indices. Blenheim concentrates in those markets that, in its judgment and discretion, have a high degree of liquidity and a wide spectrum of historical price movement relative to other markets. Instruments Utilized Positions established are typically in derivative instruments such as futures options and OTC transactions. Blenheim may, however, trade to a limited extent in illiquid instruments for which market quotations are not readily available. In addition, Blenheim may trade in securities that are related to the financial and commodities markets currently traded by the fund. However, Blenheim will not be trading securities for Spectrum Strategic. Blenheim's Trading Style Blenheim uses a global macro approach to investing, which utilizes fundamental, geopolitical and technical research and analysis in its evaluation of the markets. Fundamental analysis attempts to examine factors external to the trading market which affect the supply and demand for a particular investment instrument in order to predict future prices. The geopolitial considerations include governmental interference and potential political conflicts which may alter the normal flow of capital and goods. Technical factors assume that market price patterns and price momentum, rather than external influences, indicate the supply and demand factors which are indicative of future price movements. Blenheim considers technical factors such as an instrument's recent price history, current prices of such instrument relative to price of other markets and their historical price relationships. Blenheim studies price charts to assess changes in market sentiment and examines volume and open interest to evaluate market liquidity. The Blenheim traders regularly monitor worldwide economic and political trends in order to identify and evaluate possible market and price imbalances. Operating within a global framework, long-term macroeconomic indicators are assessed on a multinational, country-by-country and market specific basis. Factors such as fiscal/monetary policies and cross-border capital flows are evaluated for their potential impact on the equity, fixed income, currency and commodity markets. Additionally, Blenheim's trading group utilizes econometric signals, as well as numerous other market sentiment indicators, to take advantage of short-term trading opportunities. Portfolio Management and Diversification Various techniques are employed in managing the portfolio and position volatility. In its discretionary trading, Blenheim generally initiates medium-sized positions at a market entry level. This initial position, generally considered the core strategic position, is typically initiated upon Blenheim's determination of an unsustainable level of market disequilibrium that has not been reflected in the current market price. Once market action begins to conform to Blenheim's initial assessment of price behavior, Blenheim will add to the original strategic position. In addition to managing the individual positions, Blenheim will also evaluate the positions within the context of an account's portfolio. Separate strategic positions are evaluated for direct and indirect correlation characteristics in order to further anticipate and manage portfolio volatility. Despite these precautions, Blenheim's trading program may be volatile at times. Diversification in an account's portfolio is a major consideration in its trading approach. While many of its trades are made on a short-term basis, Blenheim's basic strategy is to attempt to participate in long-term, major price movements. Evolution of the Trading Approach The trading strategy of Blenheim has evolved and will continue to do so based on ongoing research, testing of data and trading experience. Prior to 1991, Blenheim traded almost exclusively in commodity markets, with a particular emphasis on energy products. Since then, Blenheim has become active in the global fixed-income, stock indices and currency markets as well. In the past, Blenheim had included non-discretionary systematic computerized analysis in its trading practices. This strategy was driven by a series of trading systems that produced a result that was an amalgam of numerous systemic processes. It was then traded in conjunction with the discretionary approach. Under separate funds, Blenheim also managed a purely financial strategy and a long-only commodity trading strategy incorporating physical commodities. In this regard, Blenheim reserves the right to modify its trading approach to include any one or combination of trading methodologies it finds beneficial to its overall goals. These processes may include discretionary, systematic, or arbitage trading. Blenheim may use derivative instruments including futures, options, and forwards to reach its performance objectives. On rare occasions, Blenheim may withdraw from all markets. Blenheim's diversified portfolio is actively traded on domestic and foreign markets. In the early 1990s, approximately thirty-five percent (35%) to forty-five percent (45%) of equity, including notional funds, was generally committed to margin on commodities positions. Recently the percentage has been between twenty-five percent (25%) and thirty-five percent (35%). In the future the percentage committed may, from time to time, be substantially higher or lower. Variances in Leverage If particular opportunities present themselves based upon fundamental factors, Blenheim may increase the number of positions held. This will result in more capital needed to provide risk margin. Accordingly, within the overall parameters of Blenheim's money management rules, Blenheim employs no hard and fast formula as to the levels of capital committed to discretionary trading or any other trading strategy at any given time. The level of risk margin relative to equity committed to trading positions is expected to vary from period to period. The Blenheim traders will constantly monitor leverage in an effort to try to maximize its positive effects while trying to avoid overexposure to its potential negative characteristics. While there is no guaranty that this approach will be successful, Blenheim has used a consistent risk monitoring system for a number of years, one of the key components thereof involves monitoring the levels of risk margin to equity. Blenheim may leverage the account of Spectrum Strategic differently than the standard account using the Global Market Strategy, but will not leverage the account at more than 50% above the leverage of a standard account. 3. Eclipse Capital Management, Inc. Eclipse is a Delaware corporation organized in July 1983. Eclipse's main business address is 7700 Bonhomme, Suite 500, St. Louis, Missouri 63105. Eclipse has been registered with the CFTC as a commodity trading advisor since August 1986 and is a member of the National Futures Association in such capacity. Eclipse began trading for Spectrum Strategic in June 2000. Principals Thomas W. Moller, the sole shareholder of Eclipse, has served as its President, CEO, and sole director since founding the firm. Mr. Moller received an undergraduate degree in Business and Economics from Vanderbilt University and a graduate degree in Accounting from the University of Kentucky. He was a Certified Public Accountant and has a background in financial planning and investment management. In 1980, as chief financial officer of a privately held company, he designed and implemented one of the first variable rate loan hedge programs using interest rate futures contracts. In 1982, he formed Interest Rate Management, Inc., another commodity trading advisor which provided interest-rate-hedging advisory and management services. Since 1986, Mr. Moller has devoted his time exclusively to Eclipse and is primarily involved in the areas of trading, research, and product development. James R. Klingler, JD is Senior Vice President, Corporate Secretary, and General Counsel. Mr. Klingler has a BA in Economics from Vanderbilt University and a JD from Vanderbilt University School of Law. He previously worked as an associate with the St. Louis law firm of Thompson Coburn (formerly Coburn & Croft) and as a staff attorney with Mercantile Bancorporation, also in St. Louis. From January 1991 to December 1997, he was Compliance Counsel and, subsequently, Associate Vice President with A.G. Edwards & Sons, Inc. Mr. Klingler joined Eclipse in January 1998. Ronald R. Breitigam is Vice President Trading with primary responsibility for the implementation of the firm's trading strategies. After graduating from Pacific Union College in 1982, Mr. Breitigam became an independent floor trader at the Mid-America Commodity Exchange. He served as an institutional broker with Thomson McKinnon (1984-1985) and PaineWebber (1986) and, in 1986, formed his own trading company to work full time implementing various proprietary futures and options trading strategies. Mr. Breitigam joined Eclipse in May 1989. James W. Dille, PhD is Vice President Research and Technology with responsibility for computer-based research, development, and operations. Dr. Dille has undergraduate and graduate engineering degrees from the University of Virginia. He also received a master's and doctorate from Harvard University in Applied Sciences, specializing in the areas of Decision and Control Theory and Computer Science. From 1987 through 1993, he worked for the Boeing Company (formerly, McDonnell Douglas) in the Training Systems and Flight Simulation divisions, where he was responsible for research in the areas of computer architectures and networking. He is an affiliate professor at Washington University in St. Louis, teaching courses in numerical analysis and the simulation and analysis of complex systems. Dr. Dille joined Eclipse in January 1994. At this time, neither Eclipse nor its principals trade for their own account, but each reserves the right to do so in the future. If either Eclipse or its principals engage in such trading, you will not be able to inspect such records. Trading Programs Eclipse currently offers one trading program, the Global Monetary Program. The program is designed primarily for institutions, commodity pools, and certain other qualified investors. The Global Monetary Program employs a systematic trading approach, using multiple trend-following and macroeconomically driven models. Global Monetary Program: This "financial, metals and energy" program requires a minimum investment of $5 million and trades a global portfolio of futures and options on futures on interest rate instruments, currencies, stock indices, precious and base metals, and energy products, as well as interbank spot and forward currency markets. A key characteristic of this program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. As of December 31, 2003, Eclipse was managing approximately $379 million of client assets pursuant to its trading program (notional funds included). Trading Approach The trading program of Eclipse is systematic and its strategies are either macroeconomic or trend-following in nature, with the objective of capitalizing on intermediate- and long-term price trends. Eclipse makes all trading decisions pursuant to its proprietary trading, capital allocation, and risk management models. The Eclipse program makes use of multiple models to accentuate overall diversification. Macro-driven models generate trading signals through the quantitative analysis of environmental, macroeconomic, and intermarket data. Trend identification models use various technical and statistical analysis techniques to identify and evaluate price trends. Capital allocation models determine the percentage of trading capital allocated to various markets and trading models. Eclipse's risk management models were developed with the objective of limiting losses, capturing profits, and conserving capital in choppy, sideways markets. The risk management principles which Eclipse employs include: using stop orders to exit trades when markets are moving against an established position (although, depending on market circumstances, such "stop-loss" orders may be difficult or impossible to execute); diversifying positions among several different markets, futures, and/or futures groups to limit exposure in any one area; using multiple entry and exit points; limiting the assets committed as margin, generally within a range of 5% to 20% of assets managed, at minimum exchange margin requirements, but possibly above or below that range at certain times; and prohibiting the use of unrealized profits in a particular futures contract as margin for additional contracts in the same or a related futures contract. Decisions whether to trade a particular futures contract are based upon various factors, including liquidity, significance in terms of desired degrees of concentration, diversification, and profit potential, both historical and at a given time. These decisions are based upon output generated by a proprietary risk management program, but require the exercise of judgment by principals of Eclipse. The decision not to trade specific contracts for certain periods or to reduce the number of contracts traded may result at times in missing significant profit opportunities which otherwise would be captured by technical strategies. The specific contracts traded in each portfolio have been selected based on liquidity, historical volatility, and the degree of past directional movement. The actual number of contracts held at any particular point in time depends on a number of factors, including evaluation of market volatility and potential risk versus return. There are occasions when a trading model may indicate that no position is appropriate in a particular contract or contract group. In addition to technical trading in futures contracts, Eclipse may also employ trading techniques such as spreads and straddles and may buy or sell futures options. Eclipse may alter its trading programs, including, without limitation, its trading strategies, commodity interests, and markets traded and trading principles if Eclipse determines that such change is in the best interest of the accounts which it manages. Morgan Stanley Spectrum Global Balanced L.P. SSARIS Advisors, LLC SSARIS, a Delaware Limited Liability Company, was organized in May 2001. SSARIS's address is Financial Centre, 695 East Main Street, Suite 102, Stamford, Connecticut 06901. SSARIS has been registered as a commodity trading advisor since August 2001 and as a commodity pool operator since August 2001, and is a member of the National Futures Association in such capacities. SSARIS is a joint venture between State Street Global Alliance LLC, a limited liability company which is majority owned by State Street Global Advisors, Inc., and RTH Partners LLC, a limited liability company owned by the principals of The RXR Group, Inc. State Street Global Advisors, Inc. is a wholly-owned subsidiary of State Street Corporation. SSARIS is affiliated with State Street Global Advisors, the investment management division of State Street Bank and Trust Company, a wholly owned subsidiary of State Street Corporation. Principals Mr. Mark Rosenberg has served as the Chairman, a Director and the Chief Investment Officer of SSARIS since its formation in May 2001 and, as such, is the head of SSARIS's Investment Committee. Mr. Rosenberg is also the Chairman of SSARIS Management LLC. Mr. Rosenberg was the Chairman and Chief Investment Officer of RXR. Mr. Rosenberg has over thirty (30) years experience in the investment management industry. From August 1984 to July 1986, Mr. Rosenberg was employed by Prudential-Bache Securities, Inc., where he headed a group that specialized in institutional hedging and managed futures trading services. From December 1976 to July 1984, Mr. Rosenberg was employed by Merrill Lynch & Co. where he organized a group that was responsible for managing hedging and alternative investment strategies for Merrill's institutional clients. This entity became the Financial Futures and Options Group. Mr. Rosenberg's first job was on the floor of the New York Stock Exchange and subsequently the New York Mercantile Exchange, where he managed proprietary capital using a variety of quantitative techniques for Weis, Voisen & Cannon, a private investment boutique. Mr. Rosenberg is a fourth term Director of the Board of the Futures Industry Association, and arbiter for the NFA and is a member of the Financial Advisory Boards of both the Chicago Mercantile Exchange and the COMEX Division of NYMEX. Mr. Rosenberg is also a Director of the Foundation of Finance and Banking Research. Mr. Rosenberg also is involved in several community activities. He has donated time to Domus House, a refuge for abandoned children, and various entrepreneurial projects targeting low-income families. Mr. Peter A. Hinrichs has served as the Chief Financial Officer of SSARIS since its formation in May 2001 and is a member of SSARIS's Investment Committee. Mr. Hinrichs also is Chief Financial Officer of SSARIS Management LLC. Mr. Hinrichs was with RXR since its founding in 1983, where he was responsible for RXR's financial, administrative and operational functions. Mr. Hinrichs also was a member of RXR's Investment Committee. From September 1981 to July 1984, Mr. Hinrichs was employed by Merrill Lynch Futures Inc. in trading and administration and held a similar position at Prudential from July 1984 to August 1986. Mr. Hinrichs graduated from Curry College in 1981 with a Bachelor of Science degree in Business Management. He is active in his community as a Board member of Fountain House Inc., a non-profit rehabilitation center for the mentally ill, where he serves as an Investment Committee member. He also is active with a number of other charitable organizations. Mr. James F. Tomeo has served as the Chief Operating Officer, a Senior Portfolio Manager and a Director of SSARIS since its formation in May 2001. Mr. Tomeo also is a member of SSARIS's Investment Committee and is responsible for portfolio management, strategic planning and product development. Mr. Tomeo served as Chief Operating Officer and a Senior Portfolio Manager of RXR and was a member of the firm's Investment Committee. Before joining RXR in 1986, Mr. Tomeo worked for Donaldson, Lufkin and Jenrette as an alternative investment consultant, and the LTV Corporation in New York. Mr. Tomeo was formerly an advisor to Institutional Investor on matters related to Japanese pension fund reform, is the former Chairman of the International Committee of the Managed Funds Association and is the US representative to the Education and Research Committee of the Alternative Investment Management Association. Mr. Tomeo graduated from Bucknell University in May 1980 with a Bachelor of Science degree in Business Administration, the University of Hartford in 1987 with an MBA degree, and the Institute of International Studies and Training (Japanese business study program) in November 1988. He studied International Finance and Capital Markets at New York University. Alan J. Brown has been a Director of SSARIS since July 2003. Mr. Brown is a principal of State Street Global Advisors, Group Chief Investment Officer of State Street Global Advisors Worldwide, Chairman of State Street Global Advisors UK, and Executive Vice President of State Street. He is also a member of State Street Global Advisor's Executive Management Group. Mr. Brown is a director of Advanced Investment Partners, European Direct Capital Management, Rexiter Capital Management, Boston Capital Management and Global Alliance, LLC. Mr. Brown is also a member of State Street Global Advisor's Executive Management Group. Prior to joining State Street Global Advisors UK in 1995, Mr. Brown was Managing Director and Chief Investment Officer of PanAgora Asset Management Limited, and prior to that, Managing Director of Posthorn Global Asset Management in London. Mr. Brown began his career in the investment management business in 1974 at Morgan Grenfell, where he spent ten years. Mr. Brown holds a Masters degree in Physics from Cambridge University. Mr. Brown is on the board of the U.S. foundation for The Center for Economic Research and Graduate Education-Economic Institute attached to the Charles University in Prague. Jay Cromarty has been a Director of SSARIS since March 2003. Mr. Cromarty is the President of Global Alliance and a Senior Principal of State Street Global Advisors. Among other duties, Mr. Cromarty provides strategic management and marketing support to all of the Global Alliance investment management businesses. Mr. Cromarty is a director of Advanced Investment Partners, Boston Capital Management and Residential Capital Management. Before joining Global Alliance in May 1998, Mr. Cromarty served as the Managing Director of Sales and Marketing for State Street Global Advisors' Private Asset Management group. Prior to joining State Street Global Advisors in 1996, Mr. Cromarty was Vice President of The Boston Company, Inc., Director of Marketing and Client Service at PanAgora Asset Management and Senior Vice President of NatWest Investment Management. Mr. Cromarty holds a Bachelor of Science degree in Economics from the University of Maine and a Masters of Business Administration degree in Finance and Marketing from Babson College. Christopher M. Pope has been a Director of SSARIS Global Advisors and Director of Institutional Sales, Client Service, and Consultant Relations. Prior to joining State Street Global Advisors in 1988, Mr. Pope was responsible for marketing and client service at Travelers Investment Management Company and Travelers Keystone Fixed Income Advisors. Mr. Pope holds a Bachelor of Science degree from the University of Pennsylvania. Mr. Pope is a charter member of the Certified Employee Benefit Specialist program. Principals and employees of SSARIS are not permitted to trade futures, options on futures, or forward contracts for their own accounts. Principals and employees are, however, permitted to invest in funds traded by SSARIS. SSARIS's Investment Philosophy SSARIS trades its allocation from Spectrum Global Balanced pursuant to a variation of its Balanced Portfolio known as the Global Multi-Strategy program. The development of the trading program utilized for Spectrum Global Balanced stems from RXR's work over the years with institutional clients. In 1986, RXR began managing a portfolio called the Institutional Balanced Portfolio program (now known as the Balanced Portfolio), which was composed of U.S. stock, bond and non-U.S. financial and commodity interests. Its objective was capital appreciation with controlled volatility, a concept pioneered by Professor John Lintner of Harvard University, who conducted research on the addition of managed futures to portfolios of U.S. stocks and bonds. The philosophy for the investment program has its roots in Modern Portfolio Theory and the design of efficiently allocated portfolios. Effective June 1, 1998, RXR broadened the hedged equity and fixed income components to include participation in the world's major developed capital markets and increased the program's leverage to 1.4 times the original Balanced Portfolio Program. The resulting program is now known as the Global Multi-Strategy. SSARIS's Global Multi-Strategy program allocates to hedged equity, hedged fixed income, and long/short global assets. It is diversified by both style (divergence and convergence strategies) and asset class (global stocks, bonds, currencies and real assets). The hedged equity component may be composed of positions in FTSE 100, DAX, Nikkei 225, and S&P 500 futures indices. The hedged fixed income exposure may include British Gilt, German Bund, Japanese & US Treasury futures. Real asset exposure is diversified across energy, precious metal, base metal, and agricultural markets. The investment program uses a multi-determinant model to rebalance the independent strategies. The global stock and bond exposure is managed using models which interpret macroeconomic, relative value, inflation, interest rate, and price-related data. Exposure within the long/short global asset sector is regulated by combining individual market expected return analysis with a system that asset weights each market according to relative volatility and correlation. In the foreign exchange and commodity components, SSARIS analyzes price data to determine profit and risk potential. A proprietary asset allocation model is used to adjust exposure among approximately 40 markets so that no one market or sector can dominate performance. The investment program was designed to provide investors with a global investment alternative. Through the controlled use of futures and forward contracts, SSARIS manages both U.S. and non-U.S. capital markets, currency and commodity exposure in a single, integrated portfolio. As of December 31, 2003, SSARIS was managing approximately $53 million of client assets pursuant to the program utilized for Spectrum Global Balanced and approximately $612 million in all of their programs. Research and Development Research and development calls on the talents of personnel from several areas within the company. SSARIS has developed macro-economic and technical models that can detect price movements resulting from daily market activity and major changes in global business cycles. Using this information, portfolio managers construct investment portfolios that address the specific actuarial assumptions of their clients. No representation is made and no guarantee is given that Spectrum Global Balanced's objective will be realized or that SSARIS will achieve any particular level of performance or amount of profits in its trading for Spectrum Global Balanced's account. Losses incurred in the global and tangible assets component could cause Spectrum Global Balanced's account to substantially underperform accounts managed by asset allocation systems that do not include a managed futures component. Prospective investors must recognize not only that the foregoing discussion attempts to present only the most basic framework describing the trading program employed for Spectrum Global Balanced, but also, due to the proprietary and confidential nature of all trading approaches, any description will inevitably be general in nature. Furthermore, SSARIS's trading methods are continually evolving, as are the markets themselves. Morgan Stanley Spectrum Currency L.P. 1. John W. Henry & Company, Inc. (JWH ) JWH makes trading decisions for Spectrum Currency pursuant to the International Foreign Exchange Program. The International Foreign Exchange Program, which began trading client capital in August 1986, seeks to identify and capitalize on intermediate-term movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. This program uses the three-phase forex investment style. For a detailed description of JWH, its principals, and trading systems, including the International Foreign Currency Program, see "The Trading Advisors Morgan Stanley Spectrum Technical 3. John W. Henry & Company, Inc." beginning on page . 2. Sunrise Capital Partners, LLC The principals and senior officers of Sunrise Capital Partners are as follows: Martin P. Klitzner Principal, Managing Director Richard C. Slaughter Principal, Managing Director Dr. Gary B. Davis Principal Dr. John V. Forrest Principal Martin M. Ehrlich Principal, Vice President Marie Laufik Principal, Vice President Elissa Davis Principal The principals of Sunrise Capital Partners will make trading decisions for Spectrum Currency pursuant to the Currency Program. For a detailed description of Sunrise Capital Partners, its principals and trading systems, other than the Currency Program, which is discussed below, see "The Trading Advisors Morgan Stanley Spectrum Select 4. Sunrise Capital Management, Inc." beginning on page . The Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, euro currency, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. The Currency Program trades currency futures contracts on the International Monetary Market Division of the Chicago Mercantile Exchange and forward currency contracts in the interbank markets. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as crossrates selectively against each other and/or as outrights against the U.S. dollar. As of December 31, 2003 Sunrise Capital Partners was managing approximately $146 million of client assets pursuant to the Currency Program and approximately $1.7 billion of client assets in all of its programs (notional funds excluded). EXCHANGE RIGHT If the conditions described below are satisfied, you may redeem your units in any partnership as of the last day of any calendar month and use the proceeds to purchase units of any of the other Spectrum Series partnerships. However, a Spectrum Series exchange will only be permitted as of the sixth month-end after you first became an investor in any Spectrum Series partnership, and as of the last day of each month thereafter. Each unit you purchase in a Spectrum Series exchange will be issued and sold at a price per unit equal to 100% of the net asset value of a unit as of the close of business on the exchange date. Any units you redeem in a Spectrum Series exchange will not be subject to a redemption charge. Units you acquire in a Spectrum Series exchange will be subject to redemption charges, but will be deemed to have the same purchase date as the units you exchanged for purposes of determining the applicability of any redemption charges. Thus, for example, if you hold units of Spectrum Strategic for 12 months, exchange those units for units of Spectrum Technical, then redeem any of those units 15 months later, you will not have to pay a redemption charge, because those units will be deemed to have been held for 27 months. When you request a Spectrum Series exchange, additional conditions must be satisfied. First, the partnership from which you are redeeming must have assets sufficient to discharge its liabilities and redeem units. In order to effect a Spectrum Series exchange, you must send a subscription agreement to a Morgan Stanley branch office, and that agreement must be received by the general partner at least five business days prior to the applicable exchange date. In that agreement, you must acknowledge that you are still eligible to purchase units on the exchange date. You must exchange a minimum of 50 units in a Spectrum Series exchange, unless you are liquidating your entire interest in a partnership. A form of subscription agreement is annexed to this prospectus as Exhibit B, and additional copies of the subscription agreement may be obtained by written request to the general partner or from a local Morgan Stanley branch office. In order to effect a Spectrum Series exchange, each partnership must have a sufficient number of units registered and qualified for sale under federal and applicable state securities laws pursuant to a current prospectus. While the general partner intends to maintain a sufficient number of registered units to effect series exchanges, it is under no obligation to do so. Therefore, the general partner cannot assure you that any units will be available for sale on an exchange date. Furthermore, states may impose significant burdens on, or alter the requirements for, qualifying units for sale. In that event, the general partner may not continue qualifying units for sale in those states, and residents of those states would not be eligible for a Spectrum Series exchange. In addition, states may impose more restrictive suitability and/or investment requirements than those set forth in the form of subscription agreement. Any such restrictions may limit the ability of residents of those states to effect a Spectrum Series exchange. In the event that not all subscription agreements can be processed because an insufficient number of units is available for sale on an exchange date, the general partner will allocate units in the manner it determines in its sole discretion. The general partner has not yet determined how it will allocate units in the event there are an insufficient number of units available on an exchange date. Units of any new partnership in the Spectrum Series may be offered to investors pursuant to exercise of the Spectrum Series exchange right. Before purchasing units of a new partnership, you will be required to receive a copy of a prospectus and any supplement to this prospectus describing the new partnership and its units, and you will be required to execute a new subscription agreement to purchase units of that partnership. Since a Spectrum Series exchange is equivalent to a redemption and an immediate reinvestment of the proceeds of the redemption, you should carefully review the portions of this prospectus describing redemptions and the tax consequences before effecting a Spectrum Series exchange. REDEMPTIONS Once you are an investor in a Spectrum Series partnership for at least six months, you may redeem all or part of your units, regardless of when such units were purchased. Redemptions may only be made in whole units, with a minimum of 50 units required for each redemption, unless you are redeeming your entire interest in a partnership. The general partner will redeem your units in the order in which they were purchased. Redemptions will only be effective as of the last day of the month in which a request for redemption in proper form has been timely received by the general partner. A "request for redemption" is a letter in the form specified by the general partner that must be sent by you to a local Morgan Stanley branch office and received by the general partner at least 5 business days prior to the redemption date. A form of request for redemption is annexed to the limited partnership agreement, which agreement is annexed to this prospectus as Exhibit A. Additional copies of the request for redemption may be obtained by written request to the general partner or a local Morgan Stanley branch office. If you redeem units, you will receive 100% of the net asset value of each unit redeemed as of the redemption date, less any applicable redemption charges. Since the general partner must receive your request for redemption at least five business days prior to the redemption date, you will not know the actual amount you are to receive prior to the redemption date. The "net asset value" of a unit is an amount equal to the partnership's net assets allocated to capital accounts represented by units, divided by the number of units outstanding. "Net assets" means the total assets of a partnership, including all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open futures, forwards, and options positions and other assets of the partnership, less the total liabilities of the partnership, including, but not limited to, all brokerage, incentive and management fees, and extraordinary expenses, as determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a futures contract traded on a U.S. exchange means the settlement price on the exchange on which that futures contract is traded on the day net assets are being determined. However, if a futures contract could not have been liquidated on that day because of the operation of daily limits or other rules of the exchange or otherwise, the settlement price on the first subsequent day on which the futures contract could be liquidated will be the market value of that futures contract for that day. The market value of a forward or futures contract traded on a foreign exchange or market means its market value as determined by the general partner on a basis consistently applied for each different variety of forward contract or futures interest. If you redeem units on or prior to the last day of the twelfth month from the date of their purchase, those units will be subject to a redemption charge equal to 2% of their net asset value on the redemption date. If you redeem units after the last day of the twelfth month and on or prior to the last day of the twenty- fourth month from the date of their purchase, those units will be subject to a redemption charge equal to 1% of their net asset value on the redemption date. If you redeem units after the last day of the twenty-fourth month from the date of their purchase, those units will not be subject to a redemption charge. All redemption charges will be paid to Morgan Stanley DW and will not be shared with the financial advisor or additional selling agent who sold the units. Your units will be exempt from redemption charges under the following circumstances: If you redeem units at the first redemption date following notice of an increase in brokerage, management, or incentive fees, those units will not be subject to redemption charges. If you redeem units in a Spectrum Series exchange, the units you redeem will not be subject to redemption charges and, for purposes of determining the applicability of future redemption charges, the units you acquire will be deemed to have the same purchase date as the units you exchanged. If you redeem units of any other partnership for which Demeter serves as the general partner, the units you redeem from the other limited partnership will be subject to any applicable redemption charges, but the Spectrum Series units you purchase will not be subject to redemption charges. If you redeem units and have either paid a redemption charge with respect to the units or held the units for at least 24 months, you will not be subject to redemption charges with respect to any newly purchased units, provided the new units are purchased within twelve months of and in an amount no greater than the net proceeds of the prior redemption, and the units are held for at least six months from the date of purchase. In that event, you will still be subject to the minimum purchase and suitability requirements. The general partner will endeavor to pay redemptions within ten business days after the redemption date. A partnership may be forced to liquidate open futures, forward, and option positions to satisfy redemptions in the event it does not have sufficient cash on hand that is not required as margin on open positions, and may delay payment to limited partners requesting redemption of units of the proportionate part of the net asset value of the unit represented by the sums for which sufficient cash is not available. See "Risk Factors Partnership and Offering Risks Restricted investment liquidity in the units" on page . When you redeem units, payment will be made by credit to your customer account with Morgan Stanley DW, or by check mailed to you if your account is closed. Your right to redeem units is contingent upon the redeeming partnership having assets sufficient to discharge its liabilities on the redemption date, and timely receipt by the general partner of your request for redemption as described above. The terms and conditions applicable to redemptions in general, other than those prohibiting redemptions before the sixth month-end following the closing at which you first became an investor in a Spectrum Series partnership, and providing that redemptions may only be made as of the end of a calendar month, will also apply to redemptions effected on "special redemption dates." See "The Limited Partnership Agreements Books and Records; Reports to Limited Partners" on page . THE COMMODITY BROKERS Morgan Stanley DW Inc., Morgan Stanley & Co. Incorporated, and Morgan Stanley & Co. International Limited Morgan Stanley DW Inc., a Delaware corporation, acts as the partnerships' non-clearing commodity broker. Morgan Stanley DW, as the non-clearing commodity broker, holds each partnership's funds in customer segregated or secured accounts, and provides all required margin funds to the clearing commodity brokers. Morgan Stanley & Co. Incorporated, a Delaware corporation, acts as the partnerships' clearing commodity broker and foreign currency forward counterparty, and Morgan Stanley & Co. International Limited serves as the clearing commodity broker for trades that take place on the London Metal Exchange. Morgan Stanley DW monitors each partnership's futures positions that the clearing commodity brokers report they are carrying for any errors in trade prices or trade fill. Morgan Stanley DW also serves as the non-clearing commodity broker for all, and Morgan Stanley & Co. serves as the clearing commodity broker and foreign exchange counterparty for all but one, of the other commodity pools for which Demeter serves as general partner and commodity pool operator. Morgan Stanley International serves as the clearing commodity broker for the trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW is a financial services company which provides to its individual, corporate, and institutional clients services as a broker in securities, futures, and options, a dealer in corporate, municipal and government securities, an investment adviser, and an agent in the sale of life insurance and various other products and services. Morgan Stanley DW has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley DW is a member firm of the New York Stock Exchange, the American Stock Exchange, the Chicago Board Options Exchange, and other major securities exchanges. Morgan Stanley DW is registered with the CFTC as a futures commission merchant and is a member of the National Futures Association in such capacity. Morgan Stanley DW is also registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley DW and its affiliates currently service clients through a network of approximately 700 offices with approximately 12,000 financial advisors servicing individual and institutional client accounts. Morgan Stanley & Co. Incorporated is the clearing commodity broker for all trades for the partnerships, other than for those trades on the London Metal Exchange. Morgan Stanley & Co. has its main business office at 1585 Broadway, New York, New York 10036. Morgan Stanley & Co. is registered as a futures commission merchant, is a member of the National Futures Association, and is a member of most major U.S. and foreign commodity exchanges. Morgan Stanley & Co. is registered with the SEC as a broker-dealer and is a member of the NASD. Morgan Stanley & Co. International Limited, a United Kingdom corporation, acts as the partnerships' clearing commodity broker solely with regard to any trading on the London Metal Exchange. Morgan Stanley International has its main business office at 25 Cabot Square, Canary Wharf, London E14 4QA, England, is regulated by the United Kingdom Securities and Futures Authority as a member firm, and is a member of the London Metal Exchange and other securities and commodities exchanges worldwide. Morgan Stanley, the parent company of Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International, is a worldwide financial services firm, employing, directly and through its subsidiaries, more than 51,000 people worldwide in offices throughout the United States and 28 foreign countries. Morgan Stanley is a publicly-traded company listed on the New York Stock Exchange; its common stock had a market value of approximately $60 billion at November 30, 2003. At that date, Morgan Stanley had leading market positions in its three primary businesses (securities, asset management and credit services), and it ranked among the top asset managers globally, with over $462 billion in assets under management. Brokerage Arrangements The partnerships' brokerage arrangements with Morgan Stanley DW, Morgan Stanley & Co. and Morgan Stanley International are discussed in "Conflicts of Interest The brokerage arrangements with affiliates of the general partner were not negotiated at arm's-length or reviewed by any independent party for fairness" on page , " Customer agreements with the commodity brokers permit actions which could result in losses or lost profit opportunity" on page , and "Description of Charges Commodity Brokers" beginning on page . The general partner will review at least annually the brokerage arrangements of each partnership to ensure that those arrangements are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: the size of the partnership; the futures, forwards, and options trading activity; the services provided by the commodity brokers or any affiliate thereof to the partnership; the cost incurred by the commodity brokers or any affiliate thereof in organizing and operating the partnership and offering units; the overall costs to the partnership; any excess interest and compensating balance benefits to the commodity brokers from assets held thereby; and if the general partner does not receive any direct compensation from the partnership for its services as general partner, the risks incurred by the general partner as general partner of the partnership; Each customer agreement sets forth a standard of liability for the commodity broker and provides for indemnities of the commodity broker. See "Fiduciary Responsibility and Liability" beginning on page 17. LITIGATION At any given time, the commodity brokers are involved in numerous legal actions, some of which seek significant damages. On January 11, 1999 the SEC brought an action against 28 NASDAQ market makers, including Morgan Stanley & Co., and 51 individuals, including one current and one former trader employed by Morgan Stanley & Co., for certain conduct during 1994. The core of the charges against Morgan Stanley & Co. concerns improper or undisclosed coordination of price quotes with other broker-dealers and related reporting, recordkeeping, and supervisory deficiencies in violation of Sections 15(b)(4)(E), 15(c)(1) and (2) and 17(a) of the Securities Exchange Act and Rules 15c1-2, 15c2-7 and 17a-3 promulgated thereunder. Without admitting or denying the charges, Morgan Stanley & Co., consented to the entry of a cease and desist order and to the payment of a civil penalty of $350,000, disgorgement of $4,170, and to submit certain of its procedures to an independent consultant for review. In addition, one current and one former trader employed by Morgan Stanley & Co. accepted suspensions of less than two months each and were fined $25,000 and $30,000, respectively. On April 6, 2000, Morgan Stanley & Co., along with 16 other firms, entered into an industry-wide settlement with the SEC, IRS and the Department of Justice (intervening on behalf of a qui tam plaintiff) to resolve litigation and investigations relating to "yield burning" allegations. At the core of the "yield burning" litigation and investigations were allegations that, from 1990 to 1994, escrow providers excessively marked up securities sold to escrow accounts in connection with advance refunding transactions on behalf of municipal bond issuers. The practice was alleged to benefit the escrow provider Capsule II Performance of Spectrum Technical Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $589,811,774 Current capitalization: $538,184,278 Current net asset value per unit: $22.64 Worst monthly % drawdown past five years: (15.59)% (November 2001) Worst monthly % drawdown since inception: (15.59)% (November 2001) Worst month-end peak-to-valley drawdown past five years: (26.57)% (13 months, April 2001-April 2002) Worst month-end peak-to-valley drawdown since inception: (26.57)% (13 months, April 2001-April 2002) Cumulative return since inception: 126.40% Monthly Performance to the detriment of either the United States Treasury or the municipal issuer. The industry-wide settlement required 17 firms to pay a total of over $139 million (over $120 million to the United States Treasury and over $18 million directly to municipal issuers). Without admitting or denying any wrongdoing, Morgan Stanley & Co. consented to the entry of an order directing that it cease and desist from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and requiring it to pay $2.45 million to the United States Treasury. No payment to municipal issuers was required. On July 14, 2003, the Massachusetts Securities Division filed an administrative complaint alleging that Morgan Stanley DW Inc. filed false information in response to an inquiry from the Massachusetts Securities Division pertaining to mutual fund sales practices. On August 11, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that Morgan Stanley DW Inc. failed to make disclosures of incentive compensation for proprietary and partnered mutual fund transactions. On November 25, 2003, the Massachusetts Securities Division filed an administrative complaint, alleging that a former branch manager engaged in securities fraud and dishonest conduct in promoting the sales of proprietary mutual funds. Morgan Stanley DW Inc. answered the first two complaints on August 4 and September 16, 2003, respectively. Hearings on all of these matters are scheduled to commence on May 17, 2004. On September 15, 2003, Morgan Stanley DW Inc. and one of its officers entered into a settlement with the NASD pursuant to a Letter of Acceptance, Waiver and Consent. The Letter of Acceptance, Waiver and Consent alleges violations of applicable NASD rules in connection with various sales contests conducted from October 1999 to December 2002. Under the terms of the settlement, Morgan Stanley DW Inc. and its officer neither admitted nor denied the allegations of the Letter of Acceptance, Waiver and Consent and accepted a censure and the imposition of monetary fines in the amounts of $2 million and $250,000, respectively. On November 17, 2003, Morgan Stanley DW Inc. consented, without admitting or denying the findings, to the entry of an order by the Securities and Exchange Commission that resolved the Securities and Exchange Commission's investigations into certain practices relating to Morgan Stanley DW Inc.'s offer and sale of shares of certain registered investment companies from January 1, 2000 to the date of the order. Pursuant to the order, Morgan Stanley DW Inc. will: (a) distribute for the benefit of certain customers who purchased shares of mutual funds through Morgan Stanley DW Inc. pursuant to the marketing arrangements between Morgan Stanley DW Inc. and certain mutual fund complexes the amount of $50 million; (b) place on its website disclosures relating to certain marketing programs pursuant to which it offered and sold certain mutual funds; (c) prepare a Mutual Fund Bill of Rights that discloses, among other things, the differences in fees and expenses associated with the purchase of different classes or proprietary mutual fund shares; (d) prepare a plan by which certain customers' proprietary Class B shares can be converted to Class A shares; (e) retain an independent consultant to review, among other things, the adequacy of Morgan Stanley DW Inc.'s disclosures with respect to such marketing programs and other matters in connection with Morgan Stanley DW Inc.'s offer and sale of shares of mutual funds and compliance with the order; and (f) adopt the recommendations of the independent consultant. The number of purchase transactions of Class B shares that will be eligible to convert shares is approximately 8,000. The ultimate financial impact on Morgan Stanley DW Inc. of these conversions will depend on many variables, including the number of eligible purchasers who elect to convert to Class A shares (which carry different fees) and the terms of the conversion (which must be acceptable to the independent consultant). During the five years preceding the date of this prospectus, other than as described above, there have been no material criminal, civil, or administrative actions pending, on appeal, or concluded against the commodity brokers, the general partner, or any of their principals, which the general partner believes would be material to an investor's decision to invest in the partnerships. THE LIMITED PARTNERSHIP AGREEMENTS This section of the prospectus summarizes all material provisions of the limited partnership agreement of each partnership that are not discussed elsewhere in the prospectus. A form of the limited partnership agreements is annexed to the prospectus as Exhibit A. Each limited partnership agreement is identical, except as noted otherwise below or in Exhibit A. Month Nature of the Partnerships Spectrum Select was formed on March 21, 1991; Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced were each formed on April 29, 1994; and Spectrum Currency was formed on October 20, 1999. Each partnership was formed under Delaware law. The fiscal year of each partnership begins on January 1 of each year and ends on the following December 31. The units that you purchase and pay for in this offering will be fully paid and nonassessable. You may be liable to a partnership for liabilities that arose before the date of a redemption or Spectrum Series exchange. Your liability, however, will not exceed the sum of your unredeemed capital contribution, undistributed profits, if any, any distributions and amounts received upon a redemption or deemed received on a Spectrum Series exchange, together with interest on any such amount. However, a partnership will not make a claim against you for any amounts received in connection with a redemption of units or a Spectrum Series exchange unless the net assets of the partnership are insufficient to discharge the liabilities of the partnership that arose before any distributions were made to you. The general partner will be liable for all obligations of a partnership to the extent that the assets of the partnership are insufficient to pay those obligations. Management of Partnership Affairs You will not participate in the management or operations of a partnership. Under each limited partnership agreement, the general partner is solely responsible for managing the partnership. The general partner may use a partnership's funds only to operate the business of that partnership. The general partner may hire an affiliate to perform services for the partnership if the general partner determines that the affiliate is qualified to perform the services, and can perform those services under competitive terms that are fair and reasonable. Any agreement with an affiliate must be for a term not in excess of one year and be terminable by the partnership without penalty upon 60 days' prior written notice. Other responsibilities of the general partner include: determining whether a partnership will make a distribution; administering redemptions and series exchanges; preparing monthly and annual reports; preparing and filing tax returns for each partnership; signing documents on behalf of each partnership and its limited partners pursuant to powers of attorney; and supervising the liquidation of a partnership, if necessary. Sharing of Profits and Losses You will have a capital account in each partnership in which you invest, with an initial balance equal to the amount you paid for units of the partnership. The general partner also has a capital account. Each partnership's net assets will be calculated monthly, and your capital account will be adjusted as necessary to reflect any increases or decreases that may have occurred since the preceding month. Profits and losses will be shared by the general partner and limited partners in proportion to the size of their respective capital accounts. For a description of the federal tax allocations, see "Material Federal Income Tax Considerations Partnership Taxation Allocation of Partnership Profits and Losses" on page 129. Restrictions on Transfers or Assignments While you may transfer or assign your units, the transferee or assignee may not become a limited partner without the written consent of the general partner. You may only withdraw capital or profits from a partnership by redeeming units. The general partner may withdraw any portion of its interest in a partnership that exceeds the amount required under the limited partnership agreement without prior notice to or consent of the limited partners. In addition, the general partner may withdraw or assign its entire interest in a partnership if it gives 120 days' prior written notice to the limited partners. If a majority of the limited partners elect a new general partner or partners to continue the business of the partnership, the withdrawing general partner must pay all reasonable expenses incurred by the partnership in connection with its withdrawal. Any transfer or assignment of units by you will take effect at the end of the month in which the transfer or assignment is made, subject to the following conditions. A partnership is not required to recognize a transfer or assignment until it has received at least 30 days' prior written notice from the limited partner. The notice must be signed by the limited partner and include the address and social security or taxpayer identification number of the transferee or assignee and the number of units transferred or assigned. A transfer or assignment of less than all units held by you cannot occur if as a result either party to the transfer or assignment would own fewer than the minimum number of units required for an investment in the partnership (subject to certain exceptions relating to gifts, death, divorce, or transfers to family members or affiliates). The general partner will not permit a transfer or assignment of units unless it is satisfied that the transfer or assignment would not be in violation of Delaware law or applicable federal, state, or foreign securities laws; and notwithstanding the transfer or assignment, the partnership will continue to be classified as a partnership rather than as an association taxable as a corporation under the Internal Revenue Code of 1986, as amended. No transfer or assignment of units will be effective or recognized by a partnership if the transfer or assignment would result in the termination of that partnership for federal income tax purposes, and any attempt to transfer or assign units in violation of the limited partnership agreement will be ineffective. The limited partner must pay all costs, including any attorneys' and accountants' fees, related to a transfer or assignment. Amendments; Meetings Each limited partnership agreement may be amended by the general partner and by limited partners owning more than 50% of the units of that partnership. In addition, the general partner may make certain amendments to a limited partnership agreement without the consent of the limited partners, including any amendment that is not adverse to the limited partners or is required by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or to comply with applicable law. However, no amendment may be made to a limited partnership agreement without the consent of all partners affected if that amendment would reduce the capital account of any partner, modify the percentage of profits, losses, or distributions to which any partner is entitled, or change or alter the provisions of the limited partnership agreement relating to amendments requiring the consent of all partners. Upon written request to the general partner delivered either in person or by certified mail, you or your authorized attorney or agent may obtain a list of the names and addresses of, and units owned by, all limited partners in your partnership, provided that you pay reasonable duplicating and postage costs. Limited partners owning at least 10% of the units of a partnership may request a meeting to consider any matter upon which limited partners may vote. Upon receipt of such a request, the general partner must call a meeting of that partnership, by written notice sent by certified mail or delivered in person within 15 days of such request. The meeting must be held at least 30 but not more than 60 days after the mailing by the general partner of notice of the meeting. The notice must specify the date, a reasonable place and time, and the purpose of the meeting. At any meeting of the limited partners, the following actions may be taken upon the affirmative vote of limited partners owning more than 50% of the units: amend the limited partnership agreement; dissolve the partnership; remove and replace the general partner; elect a new general partner or general partners if the general partner terminates or liquidates or elects to withdraw from the partnership, or becomes insolvent, bankrupt, or is dissolved; terminate any contract with the general partner or any of its affiliates on 60 days' prior written notice; and approve the sale of all or substantially all of the assets of the partnership. Any of the foregoing actions may also be taken by limited partners without a meeting, without prior notice, and without a vote, by means of written consents signed by limited partners owning the required number of units. Notice of any actions taken by written consent must be given to non-consenting limited partners within seven business days. Books and Records; Reports to Limited Partners The books and records of each partnership are maintained at its principal office for at least five years. You or your authorized attorney or agent will have the right during normal business hours to inspect and copy the books and records of each partnership of which you are a limited partner. Alternatively, you may request that copies of the books and records be sent to you, provided that you pay all reasonable reproduction and distribution costs. The partnership will retain copies of subscription documentation in connection with purchases and exchanges of units for at least six years. Within 30 days after the close of each calendar month, the general partner will provide such financial and other information with respect to each partnership as the CFTC and National Futures Association, from time to time, may require, together with information concerning any material change in the brokerage commissions or fees payable by the partnerships to any commodity broker. You will also receive within 90 days after the close of each fiscal year an annual report containing audited financial statements for the partnerships. Annual reports will provide a detailed statement of any transactions with the general partner or its affiliates and of fees, commissions, and any compensation paid or accrued to the general partner or its affiliates. By March 15 of each year, the partnership will provide you with the tax information necessary for you to prepare your federal income tax return. The net asset value of each partnership's units, which is estimated daily by the general partner, will be promptly supplied to you upon written request. A written notice, including a description of limited partners' redemption and voting rights, will be mailed to the limited partners of a partnership within seven business days if any of the following events occur: the net asset value of a unit decreases by at least 50% from the net asset value of that unit as of the end of the immediately preceding month; the limited partnership agreement is materially amended; there is any change in trading advisors or any material change in a management agreement; there is any change in commodity brokers or any material change in the compensation arrangements with a commodity broker; there is any change in general partners or any material change in the compensation arrangements with a general partner; there is any change in the partnership's fiscal year; there is any material change in the partnership's trading policies as specified in the limited partnership agreement; or the partnership ceases to trade futures, forwards, and options. If you receive a notice as to a 50% decrease in net asset value per unit, that notice will also advise you that a "special redemption date" will take place when limited partners may redeem their units in the same manner as described under "Redemptions" beginning on page 117 for regular redemption dates. Further, following the close of business on the date of the 50% decrease giving rise to that notice, the partnership will liquidate all existing positions as promptly as reasonably practicable, and will suspend all futures, forwards, and options trading through the special redemption date. The general partner will then determine whether to reinstitute futures, forwards, and options trading or to terminate the partnership. In addition, subject to limits imposed under state guidelines incorporated in the limited partnership agreements, no increase in any of the management, incentive, or brokerage fees payable by the partnerships, or any of the caps on fees, may take effect until the first business day following a redemption date. In the event of such an increase: notice of the increase will be mailed to limited partners at least five business days prior to the last date on which a "request for redemption" must be received by the general partner with respect to the applicable redemption date; the notice will describe the redemption and voting rights of limited partners; and units redeemed at the first redemption date following the notice will not be subject to any redemption charges. Each limited partner expressly agrees that in the event of his death, he waives on behalf of himself and his estate the furnishing of any inventory, accounting, or appraisal of the assets of the partnership and any right to an audit or examination of the books of the partnership. PLAN OF DISTRIBUTION General Morgan Stanley DW is offering units pursuant to a selling agreement with the partnerships and the general partner. This offering is being conducted in accordance with the provisions of Rule 2810 of the Conduct Rules of the NASD. With the approval of the general partner, Morgan Stanley DW may appoint additional selling agents to make offers and sales of the units. These additional selling agents may include any securities broker which is a member in good standing of the NASD, as well as any foreign bank, dealer, institution, or person ineligible for membership in the NASD that agrees not to make any offers or sales of units within the U.S. or its territories, possessions, or areas subject to its jurisdiction, or to U.S. citizens or residents. Any such non-NASD member must also agree to comply with applicable provisions of the Conduct Rules of the NASD in making offers and sales of units. Morgan Stanley DW is offering the units on a "best efforts" basis without any agreement by Morgan Stanley DW to purchase units. The general partner may in the future register additional units of any partnership with the SEC. There is no maximum amount of funds which may be contributed to a partnership. The general partner may in the future subdivide or combine outstanding units of any partnership, in its discretion, provided that any subdivision or combination will not affect the net asset value of any limited partner's interest in the partnership. Each partnership has agreed to indemnify its trading advisors in connection with the offer and sale of units with respect to any misleading or untrue statement or alleged misleading or untrue statement of a material fact or material omission or alleged omission unrelated to its trading advisor(s). Each partnership has also agreed to indemnify Morgan Stanley DW, the general partner and any additional sellers in connection with the offer and sale of units. See "Fiduciary Responsibility and Liability" beginning on page . Continuing Offering Units of each partnership are being offered for sale at monthly closings held on the last day of each month. Units will be offered and sold at the net asset value of a unit of the partnership on the date of the monthly closing. Since you must subscribe for units prior to the month end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The sale amount will be delivered to the partnership that sold the unit. Escrow Arrangements During the continuing offering, if your subscription is not immediately rejected by the general partner, your subscription funds will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. These subscription funds held in escrow will be invested in the escrow agent's interest-bearing money market account, and will earn the interest rate then paid by the bank on that account. If the general partner accepts your subscription, at the applicable month-end closing the escrow agent will pay your subscription funds to the appropriate partnership(s) and pay any interest earned on those funds to Morgan Stanley DW. Morgan Stanley DW in turn will credit your Morgan Stanley DW customer account with the interest. If the general partner rejects a subscription, the escrow agent will promptly pay the rejected subscription funds and any interest earned to Morgan Stanley DW, and Morgan Stanley DW will then credit your Morgan Stanley DW customer account with those amounts, and the funds will be immediately available for investment or withdrawal. If you closed your Morgan Stanley DW customer account, any subscription returned and interest earned will be paid by check. Interest will be earned on subscription funds from the day of deposit with the escrow agent to the day that funds are either paid to the appropriate partnership(s) in the case of accepted subscriptions or paid to Morgan Stanley DW in the case of rejected subscriptions. At all times during the continuing offering, and prior to each closing, subscription funds will be in the possession of the escrow agent, and at no time will the general partner hold or take possession of the funds. Compensation to Morgan Stanley DW Employees and Additional Selling Agents Except as described below, qualified employees of Morgan Stanley DW will receive from Morgan Stanley DW (payable solely from its own funds) a gross sales credit equal to 3% of the net asset value per unit as of the closing for each unit sold by them and issued at the closing. In addition, Morgan Stanley DW will continue to compensate such employees who continue to render services to limited partners with a gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from a partnership each month that are attributable to outstanding units sold by them. This compensation will begin: in the case of Spectrum Select, Spectrum Technical, and Spectrum Strategic, with the seventh month following the closing at which a unit was issued; in the case of Spectrum Global Balanced and Spectrum Currency, with the tenth month following the closing at which a unit was issued; the first month after a unit is issued pursuant to a non-series exchange; or the month as of which such continuous compensation is first payable with respect to units purchased in a Spectrum Series exchange, but with the seventh or tenth month measured from the date the subscriber first became a limited partner in a Spectrum Series partnership. In all cases, qualified Morgan Stanley DW employees will receive continuing compensation until the applicable partnership terminates or the unit is redeemed, whichever comes first. No part of this compensation will be paid by the partnership and, accordingly, net assets will not be reduced as a result of such compensation. Each person receiving continuing compensation must be a Morgan Stanley DW employee at the time of receipt of payment and must be registered as an associated person with the CFTC and be a member of the National Futures Association in such capacity only after either having passed the Series 3 or Series 31 examination or having been "grandfathered" as an associated person qualified to do commodity brokerage under the Commodity Exchange Act and the CFTC's regulations. These employees must also perform additional services, including: (a)inquiring of the general partner from time to time, at the request of limited partners, as to the net asset value of each partnership's units; (b)inquiring of the general partner, at the request of limited partners, regarding the futures, forwards, and options markets and the activities of the partnerships; (c)responding to questions of limited partners with respect to the monthly account statements, annual reports, financial statements, and annual tax information furnished periodically to limited partners; (d)providing advice to limited partners as to when and whether to make additional investments or to redeem or exchange units; (e)assisting limited partners in the redemption or exchange of units; and (f)providing such other services as limited partners from time to time may reasonably request. The additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. In addition, certain officers and directors of the general partner may receive compensation as employees of Morgan Stanley DW based, in part, on the amount of brokerage fees paid by the partnerships to Morgan Stanley DW. The selling agreement among Morgan Stanley DW, the general partner, and the partnerships provides that this compensation may only be paid by Morgan Stanley DW as long as continuing services are provided. Any limited partner may telephone, write, or visit a financial advisor at a Morgan Stanley branch office to avail himself of such services. Morgan Stanley DW will not pay its employees the 3% initial gross sales credit described above with respect to units purchased pursuant to a Spectrum Series exchange or non-Spectrum Series exchange. Such employees will, however, receive continuing gross sales credits with respect to brokerage fees received by Morgan Stanley DW from a partnership at the applicable rate. In the case of an investor who previously redeemed units in a Spectrum Series or non-Spectrum Series partnership and paid a redemption charge or held those units for at least 24 months, and invests in the Spectrum Series within 12 months of the redemption of the old units, the Morgan Stanley DW employee will not receive the initial gross sales credit of 3% but will receive a monthly gross sales credit of up to 86% of the brokerage fees received by Morgan Stanley DW from the partnership each month that are attributable to such units commencing the first month after the units are issued. Morgan Stanley DW may at any time implement cash sales incentive and/or promotional programs for its employees who sell units. These programs will provide for Morgan Stanley DW, and not any partnership or the general partner, to pay Morgan Stanley DW's employees bonus compensation based on sales of units. Any sales or promotional program will be approved by the NASD prior to its start. The aggregate of all compensation paid to employees of Morgan Stanley DW from the initial 3% gross sales credit, the redemption charges received by Morgan Stanley DW, and any sales incentives will not exceed 10% of the proceeds of the sale of units. Morgan Stanley DW may compensate any qualified additional selling agents for each unit sold by it by paying a selling commission, from Morgan Stanley DW's own funds, as determined by Morgan Stanley DW and the additional selling agents, but not to exceed 3% of the net asset value of the unit sold. Additional selling agents who are properly registered as futures commission merchants or introducing brokers with the CFTC and are members of the National Futures Association in such capacity may also receive from Morgan Stanley DW, payable from Morgan Stanley DW's own funds, continuing compensation for providing to limited partners the continuing services described above. This additional compensation paid by Morgan Stanley DW may be up to 42% of the brokerage fees generated by outstanding units sold by additional selling agents and received by Morgan Stanley DW as commodity broker for each partnership (except for employees of affiliates of Morgan Stanley DW, who will be compensated at the same rate as employees of Morgan Stanley DW). Additional selling agents may pay all or a portion of such additional compensation to their employees who have sold units and provide continuing services to limited partners if those employees are properly registered with the CFTC and are members of the National Futures Association. Additional compensation paid by Morgan Stanley DW may be deemed to be underwriting compensation. SUBSCRIPTION PROCEDURE The minimum subscription for most subscribers is $5,000, except that the minimum subscription is: $2,000 in the case of an IRA; or for eligible subscribers purchasing units pursuant to a non-Spectrum Series exchange, the lesser of $5,000, the proceeds from the redemption of 5 units, or 2 units in the case of an IRA, from commodity pools other than any of the Morgan Stanley Charter Series of partnerships, the proceeds from the redemption of 500 units, or 200 units in the case of an IRA, from any Charter Series partnership, or the proceeds from the redemption of such subscriber's entire interest in any other commodity pool for which the general partner serves as general partner and commodity pool operator. A subscription may be for units of one partnership, or may be divided among two or more partnerships, provided that: in the case of a new subscription, the minimum subscription for any one partnership is $1,000; and in the case of a non-Spectrum Series exchange, the minimum subscription for any one partnership is the proceeds of the redemption of 1 unit of the other commodity pool, or 100 units in the case of any Morgan Stanley Charter Series partnership. If you already own units in a partnership and you wish to make an additional investment in the same partnership, you may subscribe for units at a monthly closing with a minimum investment in that partnership of $500. In order to make your first purchase of units of a partnership, other than by means of an exchange, you must complete, sign, and deliver to Morgan Stanley DW a subscription agreement which will authorize the general partner and Morgan Stanley DW to transfer the full subscription amount from your Morgan Stanley DW customer account to the partnership's Escrow Account. If your subscription agreement is received by Morgan Stanley DW and not immediately rejected, you must have the appropriate amount in your Morgan Stanley DW customer account on the first business day following the date that your subscription agreement is received by Morgan Stanley DW. Morgan Stanley DW will deduct the subscription amount from your customer account and transfer funds into escrow with the escrow agent on that date. If you do not have a Morgan Stanley DW customer account or an account with an affiliate of Morgan Stanley DW, or do not have sufficient funds in your existing Morgan Stanley DW customer account, you should make appropriate arrangements with your Morgan Stanley financial advisor, or contact your local Morgan Stanley branch office. Do not mail any payment to the general partner, as it will be returned to you for proper placement with the Morgan Stanley branch office where your account is maintained. In the case of a Spectrum Series exchange or a non-Spectrum Series exchange, you must complete, sign, and deliver to your Morgan Stanley financial advisor a subscription agreement, which will authorize the general partner to redeem all or a portion of your interest in a partnership or another commodity pool for which the general partner serves as general partner and commodity pool operator, subject to terms of the applicable limited partnership agreement, and to use the proceeds, after deducting any applicable redemption charges, to purchase units in one or more of the partnerships. In accordance with an NASD rule, Morgan Stanley DW will not subscribe for units on your behalf if it has discretionary authority over your customer account, unless it gets prior written approval from you. If you subscribe by check, units will be issued subject to the collection of the funds represented by the check. If your check is returned unpaid, Morgan Stanley DW will notify the general partner, and the relevant partnership will cancel the units issued to you represented by the check. Any losses or profits sustained by the partnership allocable to the cancelled units will be allocated among the remaining partners. In the limited partnership agreements, each limited partner agrees to reimburse a partnership for any expense or loss (including any trading loss) incurred in connection with the issuance and cancellation of any units issued to the limited partner. Subscriptions for units are generally irrevocable by subscribers. However, you may revoke your subscription agreement and receive a full refund of the subscription amount and any accrued interest, or revoke the redemption of units in the other commodity pool in the case of an exchange, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. There may be other rescission rights under applicable federal and state securities laws. The general partner may reject any subscription, in whole or in part, in its sole discretion. A sample form of the subscription agreement is annexed to this prospectus as Exhibit B. A separate copy of the subscription agreement accompanies this prospectus or you may obtain one, after delivery of this prospectus, from a local Morgan Stanley branch office. You will not receive any certificate evidencing units, but you will be sent confirmations of purchases in Morgan Stanley DW's customary form. Once you are an investor in a partnership, you may make additional cash purchases of units of that partnership without executing a new subscription agreement, by completing a subscription agreement update form, a sample of which is annexed to this prospectus as Exhibit C, and by contacting your Morgan Stanley financial advisor and authorizing your financial advisor to deduct the additional amount you want to invest from your Morgan Stanley DW customer account. Those amounts will be held in escrow, and applied towards the purchase of units, in the same manner as initial purchases described above. However, if a new prospectus has been issued since the date of your immediately prior subscription agreement, you will be required to complete a new subscription agreement update form. Further, your Morgan Stanley financial advisor will be required to confirm to the general partner that the information you provided, and the representations and warranties you made, in your original subscription agreement, including, in particular, that you satisfy applicable minimum financial suitability requirements, are still true and correct. You may not use the subscription procedure described in this paragraph to purchase additional units in a partnership by way of an exchange, or to purchase units of a partnership in which you are not currently an investor; in either of those cases, you must execute a new subscription agreement. PURCHASES BY EMPLOYEE BENEFIT PLANS ERISA CONSIDERATIONS Units might or might not be a suitable investment for an employee benefit plan. If you are a person with investment discretion on behalf of an employee benefit plan, before proceeding with a purchase of units, you should determine whether the purchase of units is permitted under the governing instruments of the plan, and is appropriate for that particular plan in view of its overall investment policy, the composition and diversification of its portfolio, and the other considerations discussed below. As used in this section, the term "employee benefit plans" refers to plans and accounts of various types, including their related trusts, which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, typically free from federal income tax until such time as funds are distributed from the plan. These plans include corporate pension and profit-sharing plans, such as so-called "401( k)" plans, "simplified employee pension plans," so-called "Keogh" plans for self-employed individuals (including partners), and, for purposes of this discussion, individual retirement accounts, as described in Section 408 of the Internal Revenue Code of 1986, as amended. Notwithstanding the general requirement that investors in one or more partnerships must invest a minimum of $5,000, a minimum purchase requirement of $2,000 has been set for IRAs. The minimum subscription for any one of the partnerships must be at least $1,000. Greater minimum purchases may be mandated by the securities laws and regulations of certain states, and each investor should consult the subscription agreement to determine the applicable investment requirements. If the assets of an investing employee benefit plan were to be treated, for purposes of the reporting and disclosure provisions and certain other of the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code of 1986, as including an undivided interest in each of the underlying assets of a partnership, an investment in units would in general be an inappropriate investment for the plan. A U.S. Department of Labor regulation defines "plan assets" in situations where employee benefit plans purchase equity securities in investment entities such as a partnership. The regulation provides that the assets of an entity will not be deemed to be "plan assets" of an employee benefit plan which purchases an equity security of the entity if the equity security is a "publicly-offered security." A "publicly-offered security" is one which is: freely transferable; held by more than 100 investors independent of the issuer and of each other; and either registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, or sold to the plan as part of a public offering of such securities pursuant to an effective registration statement under the Securities Act of 1933, where the security is then timely registered under Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934. The units currently meet, and it is expected that the units will continue to meet, the criteria of the Regulation. The general partner believes, based upon the advice of its legal counsel, that income earned by the partnerships will not constitute "unrelated business taxable income" under Section 512 of the Internal Revenue Code of 1986 to employee benefit plans and other tax-exempt entities. Although the Internal Revenue Service has issued favorable private letter rulings to taxpayers in somewhat similar circumstances, other taxpayers may not use or cite such rulings as precedent. If you have investment discretion on behalf of an employee benefit plan, you should consult a professional tax adviser regarding the application of the foregoing matters to the purchase of units. Units may not be purchased with the assets of an employee benefit plan if the general partner, Morgan Stanley DW, any additional selling agents, any trading advisor, or any of their respective affiliates either: has investment discretion with respect to the investment of such plan assets; has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the plan assets and that such advice will be based on the particular investment needs of the plan; or is an employer maintaining or contributing to such plan. Subscribing for units does not create an IRA or other employee benefit plan. If you are considering the purchase of units on behalf of an IRA or other employee benefit plan, you must first ensure that the plan has been properly established in accordance with the Internal Revenue Code of 1986 and ERISA and the regulations and administrative rulings thereunder, and that the plan has been adequately funded. Then, after all of the considerations discussed above have been taken into account, the trustee or custodian of a plan who decides to or who is instructed to do so may subscribe for units in one or more of the partnerships, subject to the applicable minimum subscription requirement per partnership. Acceptance of subscriptions on behalf of IRAs or other employee benefit plans is in no respect a representation by the general partner, Morgan Stanley DW, any additional selling agents, any partnership, or any trading advisor that the investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that the investment is appropriate for plans generally or any particular plan. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS Introduction The general partner has been advised by counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion, the following summary correctly describes the material federal income tax consequences to a U.S. taxpayer who invests in a partnership. The opinions appearing in this section are the opinions of Cadwalader, Wickersham & Taft LLP, except as otherwise specifically noted. The following summary is based upon the Internal Revenue Code of 1986, rulings thereon, regulations promulgated thereunder, and existing interpretations thereof, any of which could be changed at any time and which changes could be retroactive. The federal income tax summary and the state and local income tax summary that follow, in general, relate only to the tax implications of an investment in the partnerships by individuals who are citizens or residents of the U.S. Except as indicated below or under "Purchases by Employee Benefit Plans-ERISA Considerations," the summaries do not address the tax implications of an investment in the partnerships by corporations, partnerships, trusts, and other non-individuals. Moreover, the summaries are not intended as a substitute for careful tax planning, particularly since certain of the tax consequences of owning an interest in the partnerships may not be the same for all taxpayers, such as non-individuals or foreign persons, or in light of an investor's personal investment circumstances. A complete discussion of all federal, state, and local tax aspects of an investment in each partnership is beyond the scope of the following summary, and prospective investors are urged to consult their own tax advisors on these matters. Partnership Status The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in its opinion under current federal income tax law, each partnership will be classified as a partnership and not as an association (or a publicly traded partnership) taxable as a corporation. This opinion is based upon the facts set forth in this prospectus, including that a principal activity of each partnership consists of buying and selling futures, options, and forward contracts, and at least 90% of the partnership's gross income during each year consists of gains from such trading and interest income. No ruling has been requested from the Internal Revenue Service with respect to classification of each partnership and the general partner does not intend to request such a ruling. If a partnership were treated as an association (or a publicly traded partnership) taxable as a corporation, income or loss of the partnership would not be passed through to its partners, and the partnership would be subject to tax on its income at the rates applicable to corporations without deduction for any distributions to its partners. In addition, all or a portion of any distributions by the partnership to its partners could be taxable to the partners as dividends or capital gains. The discussion that follows assumes that each partnership will be treated as a partnership for federal income tax purposes. Partnership Taxation Partners, rather than a Partnership, are Subject to Federal Income Tax. None of the partnerships will pay federal income tax. Except as provided below with respect to certain nonresident aliens, each limited partner will report his distributive share of all items of partnership income, gain, loss, deduction, and credit for the partnership's taxable year ending within or with the partner's taxable year. A limited partner must report and pay tax on his share of partnership income for a particular year whether or not he has received any distributions from the partnership in that year. The characterization of an item of profit or loss will usually be determined at the partnership level. Syndication Expenses. None of the partnerships nor any partner thereof will be entitled to any deduction for syndication expenses (i.e., those amounts paid or incurred in connection with issuing and marketing units). There is a risk that some of the brokerage fees paid to Morgan Stanley DW could be treated as a nondeductible payment by the partnerships of syndication expenses. Allocation of Partnership Profits and Losses. In general, each limited partnership agreement allocates items of ordinary income and expense pro rata among the partners based upon their respective capital accounts as of the end of the month in which such items are accrued. Net recognized capital gain or loss is generally allocated among all partners based upon their respective capital accounts. However, net recognized capital gain or loss is allocated first to partners who have redeemed units in the partnership during a taxable year to the extent of the difference between the amount received on the redemption and the allocation account as of the date of redemption attributable to the redeemed units. Any remaining net recognized capital gain or loss is next allocated among all those partners whose capital accounts differ from their allocation accounts based on the respective differences for each partner. The special allocation of each partnership's net gain or loss upon a redemption of units, which retains the same character as in the hands of the partnership, may alter the character of a redeeming limited partner's income (by reducing the amount of long-term capital gain recognized upon receipt of redemption proceeds) and may accelerate the recognition of income by the limited partner. These allocation provisions are designed to reconcile tax allocations to economic allocations. However, the general partner cannot assure you that the Internal Revenue Service will not challenge the allocations, including each partnership's tax allocations in respect of redeemed units. If the allocation provided by each limited partnership agreement is not respected by the Internal Revenue Service for federal income tax purposes, the amount of income or loss allocated to the partners for federal income tax purposes may be increased or reduced or the character of the income or loss may be modified. Cash Distributions and Redemptions Because of the special allocation of partnership gain or loss upon a redemption of units, the amounts received upon the partial or complete redemption of a limited partner's units normally will not result in additional taxable income or loss to the limited partner. However, distributions by a partnership and amounts received upon the partial or complete redemption of a limited partner's units will be taxable to the limited partners to the extent cash distributions by a partnership or amounts received upon redemption by a limited partner exceed the partner's adjusted tax basis in his units. Such excess will be taxable to him as though it were a gain from a sale of the units. A loss will be recognized upon a redemption of units only if, following the redemption of all of a limited partner's units, the partner has any tax basis in his units remaining. In such case, the limited partner will recognize loss to the extent of the remaining basis. See "Redemptions." Generally, if a limited partner is not a "dealer" with respect to his interest in the partnership and he has held his interest in the partnership for more than one year, the gain or loss would be long-term capital gain or loss. Gain or Loss on Trading Activity Nature of Partnership Income. Each partnership does not expect to hold its futures, forwards, or options for sale to customers. For federal income tax purposes substantially all of the profit and loss generated by each partnership from its trading activities is expected to be capital gain and loss, which in turn may be either short-term, long-term, or a combination thereof. Nevertheless, certain foreign currency transactions could result in ordinary gain or loss, as discussed below. Further, interest paid to a partnership will be taxable currently to the limited partners as ordinary income. Thus, during taxable years in which little or no profit is generated from trading activities, a limited partner may still have interest income. Mark-to-Market. Section 1256 contracts held at the end of a partnership's taxable year will be treated as having been sold for the fair market value on the last day of the taxable year, and gain or loss will be taken into account for the year. Gain or loss with respect to a Section 1256 contract is generally treated as short-term capital gain or loss to the extent of 40% of the gain or loss, and long-term capital gain or loss to the extent of 60% of the gain or loss. Section 1256 contracts include regulated futures contracts which are futures contracts traded on regulated U.S. and certain foreign exchanges; foreign currency contracts that are traded in the interbank market and relate to currencies for which positions are also traded through regulated futures contracts; and U.S. and certain foreign exchange-traded options on commodities, including options on regulated futures contracts, debt securities, and stock indices. While the partnerships expect that a majority of their trading activities will be conducted in Section 1256 contracts, the partnerships also expect that a portion of their trading activities will be conducted in contracts that do not presently qualify as Section 1256 contracts, such as positions in futures contracts on most foreign exchanges and foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts. Section 988. Currency gain or loss with respect to foreign currency forward contracts that do not relate to currencies for which positions are also traded through regulated futures contracts and futures contracts traded on most foreign exchanges may be treated as ordinary income or loss under Internal Revenue Code of 1986 Section 988. Each partnership has elected to treat these contracts as Section 1256 contracts (i.e., marked-to-market at year end). Pursuant to this election, gain or loss with respect to these contracts is treated as entirely short-term capital gain or loss. Subject to certain limitations, a limited partner, other than a corporation, estate, or trust, may elect to carry back net Section 1256 contract losses to each of the three preceding years. Net Section 1256 contract losses carried back to prior years may only be used to offset net Section 1256 contract gains. Generally, such losses are carried back as 40% short-term capital losses and 60% long-term capital losses. Capital assets not marked to market under Section 1256, such as any non-currency forward contracts, are not subject to the 60/40 tax regime for Section 1256 contracts, and gain or loss on sale generally will be long-term only if such property has been held for more than one year. % % % % % % % % % % January 12.76 (1.88 ) (0.81 ) 1.21 (4.96 ) (1.16 ) 3.67 4.78 (1.84 ) February 6.60 (3.41 ) 1.94 (1.19 ) 2.48 0.41 1.13 (6.39 ) 5.10 March (9.17 ) (2.90 ) 11.38 (1.54 ) (2.48 ) 1.31 (1.82 ) 1.24 10.21 April 1.44 (3.20 ) (11.10 ) (4.02 ) 7.18 (4.62 ) (2.93 ) 4.82 3.60 May 6.38 5.64 (0.37 ) (0.43 ) (5.00 ) 3.28 (3.75 ) (3.84 ) 0.69 June (7.42 ) 15.02 (3.62 ) (2.78 ) 5.13 (1.10 ) 0.69 3.21 (1.12 ) July (3.04 ) 9.65 (3.36 ) (3.96 ) (3.90 ) (0.98 ) 9.33 (4.80 ) (2.44 ) August 3.39 4.40 1.34 3.74 0.95 10.29 (5.97 ) (0.35 ) (0.63 ) September (5.41 ) 6.43 8.19 (8.61 ) (1.51 ) 4.35 1.85 5.50 (3.33 ) October 9.14 (6.75 ) 5.37 2.90 (9.96 ) (0.73 ) 0.36 9.92 (0.09 ) November 1.20 (4.68 ) (15.59 ) 12.28 1.84 (6.17 ) 1.01 8.34 0.93 (0.90 ) December 7.66 5.20 2.47 12.06 3.83 5.98 4.57 (3.88 ) 6.09 (1.31 ) Compound Annual/ Period Rate of Return 22.98 23.31 (7.15 ) 7.85 (7.51 ) 10.18 7.49 18.35 17.59 (2.20 ) (2 months) Capsule III Performance of Spectrum Strategic Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $182,893,529 Current capitalization: $121,270,439 Current net asset value per unit: $14.31 Worst monthly % drawdown past five years: (18.47)% (February 2000) Worst monthly % drawdown since inception: (18.47)% (February 2000) Worst month-end peak-to-valley drawdown past five years: (43.28)% (10 months, January 2000-October 2000) Worst month-end peak-to-valley drawdown since inception: (43.28)% (10 months, January 2000-October 2000) Cumulative return since inception: 43.10% Monthly Performance Straddles. If a partnership incurs a loss upon the disposition of any position which is part of a "straddle" (i.e., two or more offsetting positions), recognition of that loss for tax purposes will be deferred until the partnership recognizes the gain in the offsetting position of the straddle (or successor position, or offsetting position to the successor position). Interest and other carrying charges allocable to positions which are part of a straddle must be capitalized, rather than deducted currently. Certain modified "short sale" rules may apply to positions held by a partnership so that what might otherwise be characterized as long-term capital gain would be characterized as short-term capital gain or potential short-term capital loss as long-term capital loss. For purposes of applying the above rules restricting the deductibility of losses with respect to offsetting positions, if a limited partner takes into account gain or loss with respect to a position held by the partnership, the limited partner will be treated as holding the partnership's position, except to the extent otherwise provided in regulations. Accordingly, positions held by a partnership may limit the deductibility of realized losses sustained by a limited partner with respect to positions held for his own account, and positions held by a limited partner for his own account may limit his ability to deduct realized losses sustained by a partnership. Thus, straddles may not be used to defer gain from one taxable year to the next. Reporting requirements generally require taxpayers to disclose all unrecognized gains with respect to positions held at the end of the taxable year. The above principle, whereby a limited partner may be treated as holding partnership positions, may also apply to require a limited partner to capitalize (rather than deduct) interest and carrying charges allocable to property held by him. Where the positions of a straddle are comprised of both Section 1256 and non-Section 1256 contracts, a partnership will be subject to the mixed straddle rules of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. The appropriate tax treatment of any gains and losses from trading in mixed straddles will depend on what elections a partnership makes. Each partnership has elected to place all of its positions in a "mixed straddle" account which is marked-to-market daily. Under a special account cap, not more than 50% of net capital gain may be long-term capital gain, and not more than 40% of net capital loss may be short-term capital loss. Taxation of Limited Partners Limitations on Deductibility of Partnership Losses. The amount of partnership loss, including capital loss, which a limited partner will be entitled to take into account for federal income tax purposes is limited to the tax basis of his units, except in the case of certain limited partners including individuals and closely-held C corporations, for which he is "at risk" with respect to the units as of the end of the partnership's taxable year in which such loss occurred. Generally, a limited partner's initial tax basis will be the amount paid for each unit. A limited partner's adjusted tax basis will be his initial tax basis reduced by the limited partner's share of partnership distributions, losses, and expenses and increased by his share of partnership income and gains. The amount for which a limited partner is "at risk" with respect to his units in a partnership is generally equal to his tax basis for the units, less: any amounts borrowed in connection with his acquisition of the units for which he is not personally liable and for which he has pledged no property other than his units; any amounts borrowed from persons who have a proprietary interest in the partnership; and any amounts borrowed for which the limited partner is protected against loss through guarantees or similar arrangements. Because of the limitations imposed upon the deductibility of capital losses referred to below, a limited partner's share of a partnership's net capital losses, if any, will not materially reduce his federal income tax on his ordinary income. In addition, certain expenses of a partnership might be deductible by a limited partner only as itemized deductions and, therefore, will not reduce the federal taxable income of a limited partner who does not itemize his deductions. Furthermore, an individual who is subject to the alternative minimum tax for a taxable year may not realize any tax benefit from such itemized deductions. Limitations on Deductibility of Passive Losses. The partnerships' income will not be treated as a "passive activity" for purposes of the limitation on the deduction of passive activity losses. Limited Deduction of Certain Expenses. Certain miscellaneous itemized deductions, such as expenses incurred to maintain property held for investment, are deductible only to the extent that they exceed 2% of the adjusted gross income of an individual, trust, or estate. The amount of certain itemized deductions allowable to individuals is further reduced by an amount equal to the lesser of (i) 3% of the Month individual's adjusted gross income in excess of a certain threshold amount and (ii) 80% of such itemized deductions. Moreover, such investment expenses are miscellaneous itemized deductions that are not deductible by a non-corporate taxpayer in calculating its alternative minimum tax liability. Based upon the current and contemplated activities of the partnerships, the general partner has been advised by its legal counsel that, in such counsel's opinion, the expenses incurred by the partnerships in their futures, forwards, and options trading businesses should not be subject to the 2% "floor" or the 3% phaseout, except to the extent that the Internal Revenue Service promulgates regulations that so provide. However, that advice is not binding on a court or the Internal Revenue Service, and the Internal Revenue Service could assert, and a court could agree, that such expenses of the partnerships (including incentive fees) are investment expenses which are subject to these limitations. Tax Liability Will Exceed Distributions. Under federal tax laws, a limited partner must report and pay tax on his share of any partnership income each year, even though the general partner does not intend to make any distributions from the partnerships. Tax on Capital Gains and Losses. In general, for individuals, trusts, and estates, "long-term capital gains" are currently taxed at a maximum marginal tax rate of 20% and "short-term capital gains" and other income are currently taxed at a maximum marginal tax rate of 38.6%. Corporate taxpayers are currently subject to a maximum marginal tax rate of 35% on all capital gains and income. The excess of capital losses over capital gains is deductible by an individual against ordinary income on a one-for-one basis, subject to an annual limitation of $3,000 ($1,500 in the case of married individuals filing a separate return). Excess capital losses may be carried forward. Net losses from Section 1256 contracts are treated as 60% long-term capital loss and 40% short-term capital loss. Such losses may, at the individual taxpayer's election, be carried back to each of the preceding three years and applied against gains from Section 1256 contracts. Alternative Minimum Tax. The alternative minimum tax for individuals is imposed on "alternative minimum taxable income" in excess of certain exemption amounts. Alternative minimum taxable income consists of taxable income determined with certain adjustments and increased by the amount of items of tax preference. Alternative minimum taxable income may not be offset by certain interest deductions, including (in certain circumstances) interest incurred to purchase or carry units in the partnerships. Corporations are also subject to an alternative minimum tax. The extent to which the alternative minimum tax will be imposed will depend on the overall tax situation of each limited partner at the end of such taxable year. Limitation on Deductibility of Interest on Investment Indebtedness. Interest paid or accrued on indebtedness properly allocable to property held for investment is investment interest. Such interest is generally deductible by non-corporate taxpayers only to the extent it does not exceed net investment income. A limited partner's distributive share of net partnership income and any gain from the disposition of units will be treated as investment income, except that a limited partner's net capital gain from the disposition of units is not investment income unless the limited partner waives the benefit of the preferential tax rate on the gain. It is not clear whether a limited partner's distributive share of partnership net capital gain constitutes investment income where such gain is taxed at the maximum rate for capital gains. Interest expense incurred by a limited partner to acquire his units generally will be investment interest. Any investment interest disallowed as a deduction in a taxable year solely by reason of the limitation above is treated as investment interest paid or accrued in the succeeding taxable year. Taxation of Foreign Limited Partners. A nonresident alien individual, foreign corporation, or foreign partnership (a "foreign limited partner") generally should not be deemed to be engaged in a U.S. trade or business solely by virtue of an investment in the partnerships; provided that such foreign limited partner is not a "dealer" in commodities and, in the case of an individual, does not have certain present or former connections with the U.S. (e.g., is not present in the U.S. more than 182 days during his or her taxable year, or, in certain limited circumstances, a prior taxable year) and provided further, that such foreign limited partner is not engaged in a trade or business within the U.S. during the taxable year or, in certain limited circumstances, a prior taxable year to which income, gain, or loss from the partnerships is treated as "effectively connected." Capital gains earned by the partnerships and allocated to such a foreign limited partner will, as a general rule, not be subject to U.S. federal income taxation or withholding, but may be subject to taxation by the jurisdiction in which the foreign limited partner is resident, organized or operating. In the event that a partnership were found to be engaged in a U.S. trade or business, a foreign limited partner would be required to file a U.S. federal income tax return for such year and pay tax at full U.S. rates. In the case of a foreign limited partner which is a foreign corporation, an additional 30% "branch profits" tax might be imposed. Furthermore, in such event the partnerships would be required to withhold taxes from the income or gain allocable to such a foreign limited partner under Section 1446 of the Code. A foreign limited partner is not subject to U.S. tax on certain interest income, including income attributable to (i) original issue discount on Treasury bills that have a maturity of 183 days or less or (ii) commercial bank deposits, provided, in either case, that such foreign limited partner is not engaged in a trade or business within the U.S. during a taxable year. Additionally, a foreign limited partner not engaged in a trade or business within the U.S. is not subject to U.S. tax on interest income (other than certain so-called "contingent interest") attributable to obligations issued after July 18, 1984 that are in registered form if the foreign limited partner timely provides the relevant partnership with an IRS Form W-8BEN. Prospective foreign limited partners who are engaged in a U.S. trade or business or who act as dealers in commodities may be subject to U.S. income tax and should consult their tax advisors before investing in a partnership. The estate of a deceased foreign limited partner may be liable for U.S. estate tax and may be required to obtain an estate tax release from the Internal Revenue Service in order to transfer the units of such foreign limited partner. Foreign persons should consult their own tax advisers before deciding whether to invest in the partnerships. Tax Elections. The Internal Revenue Code of 1986 provides for optional adjustments to the basis of partnership property upon distributions of partnership property to a partner (Section 734) and transfers of units, including transfers by reason of death (Section 743), provided that a partnership election has been made pursuant to Section 754. As a result of the complexities and added expense of the tax accounting required to implement such an election, the general partner does not presently intend to make such an election for any of the partnerships. Therefore, any benefits which might be available to the partners by reason of such an election will be foreclosed. Tax Returns and Information. The partnerships will file their information returns using the accrual method of accounting. Within 75 days after the close of each partnership's taxable year, the partnership will furnish each limited partner, and any assignee of the units of a limited partner, copies of the partnership's Schedule K-1 indicating the limited partner's distributive share of tax items and any additional information as is reasonably necessary to permit the limited partners to prepare their own federal and state tax returns. Partnership's Taxable Year. Each partnership has the calendar year as its taxable year. Unrelated Business Taxable Income of Employee Benefit Plan Limited Partners and Other Tax-Exempt Investors. Income allocated to a limited partner which is an employee benefit plan or other tax-exempt entity should not be subject to tax under Section 511 of the Internal Revenue Code of 1986, provided that the units purchased by such plans and entities are not "debt-financed." However, if a partnership were to purchase physical commodities with borrowed funds (whether upon delivery under a futures or forward contract or otherwise) and to sell those commodities at a gain, the gain would likely constitute unrelated business income. The partnerships are entitled to engage in such leveraged purchases of physical commodities. Tax exempt investors should see "Purchases by Employee Benefit Plans ERISA Considerations" above. Tax Audits All partners are required under the Internal Revenue Code of 1986 to report all the partnership items on their own returns consistently with the treatment by the partnership, unless they file a statement with the Internal Revenue Service disclosing the inconsistencies. Adjustments in tax liability with respect to partnership items will be made at the partnership level. The general partner will represent each partnership All of the foregoing statements are based upon the existing provisions of the Internal Revenue Code of 1986 and the regulations promulgated thereunder and the existing administrative and judicial interpretations thereof. The general partner cannot assure you that legislative, administrative, or judicial changes will not occur which will modify such statements. The foregoing statements are not intended as a substitute for careful tax planning, particularly since certain of the federal income tax consequences of purchasing units may not be the same for all taxpayers. The partnerships' tax returns could be audited by the Internal Revenue Service and adjustments to the returns could be made as a result of such audits. If an audit results in adjustment, limited partners may be required to file amended returns and their returns may be audited. Accordingly, prospective purchasers of units are urged to consult their tax advisers with specific reference to their own tax situation under federal law and the provisions of applicable state, local, and foreign laws before subscribing for units. STATE AND LOCAL INCOME TAX ASPECTS In addition to the federal income tax consequences for individuals described under "Material Federal Income Tax Considerations" above, the partnerships and their limited partners may be subject to various state and local taxes. Certain of these taxes could, if applicable, have a significant effect on the amount of tax payable in respect of an investment in the partnerships. A limited partner's distributive share of the realized profits of a partnership may be required to be included in determining his reportable income for state or local tax purposes. Furthermore, state and local tax laws may not reflect recent changes made to the federal income tax law and, therefore, may be inconsistent with the federal income treatment of gains and losses arising from the partnerships' transactions in Section 1256 contracts. Accordingly, prospective limited partners should consult with their own tax advisers concerning the applicability of state and local taxes to an investment in the partnerships. The general partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft LLP, that in such counsel's opinion, the partnerships should not be liable for New York City unincorporated business tax. Limited partners who are nonresidents of New York State will not be liable for New York State personal income tax on such partners' income from the partnerships, but may be liable for such tax to the extent such limited partners' allocable share of income attributable to the partnerships' transactions involves tangible personal property. Likewise, limited partners who are nonresidents of New York City will not be liable for New York City earnings tax on the partners' income from the partnerships. New York City residents may be subject to New York City personal income tax on the partners' income from the partnerships. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters. LEGAL MATTERS Legal matters in connection with the units being offered hereby, including the discussion of the material federal income tax considerations relating to the acquisition, ownership, and disposition of units, have been passed upon for each partnership and the general partner by Cadwalader, Wickersham & Taft LLP, 100 Maiden Lane, New York, New York 10038. Cadwalader, Wickersham & Taft LLP also has acted as counsel for Morgan Stanley DW in connection with the offering of units. Cadwalader, Wickersham & Taft LLP may advise the general partner with respect to its responsibilities as general partner of, and with respect to matters relating to, the partnerships. EXPERTS The statements of financial condition of Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., and Morgan Stanley Spectrum Currency L.P., including the schedules of investments, as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2003, as well as the statements of financial condition of Demeter Management Corporation as of November 30, 2003 and 2002 included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein, and is included in reliance upon such report of such firm given upon their authority as experts in accounting and auditing. Deloitte & Touche LLP also acts as independent auditors for Morgan Stanley. WHERE YOU CAN FIND MORE INFORMATION The partnerships filed registration statements relating to the units registered with SEC. This prospectus is part of the registration statements, but the registration statements include additional information. You may read any of the registration statements, or obtain copies by paying prescribed charges, at the SEC's public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 233 Broadway, New York, New York 10279; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. For further information on the public reference rooms, please call the SEC at 1-800-SEC-0330. The registration statements are also available to the public from the SEC's Web site at "http://www.sec.gov." * Data as of November 30, 2003. ** Activity reported with regard to Currencies does not include trading activity which takes place on the Interbank forward currency market. A market participant can make a futures contract to buy or sell a commodity. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of the commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. For example, if we sell one contract of December 2004 wheat on a commodity exchange, we may fulfill the contract at any time prior to the December 2004 delivery date by purchasing one contract of December 2004 wheat on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as those for stock or other financial or economic indices approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical commodity. Options on Futures An option on a futures contract or on a physical commodity gives the buyer of the option the right to take a position of a specified amount at a specified price of a specific commodity (the "striking," "strike," or "exercise" price) in the underlying futures contract or commodity. The buyer of a "call" option acquires the right to take a long position (i.e., the obligation to take delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The buyer of a "put" option acquires the right to take a short position (i.e., the obligation to make delivery of a specified amount at a specified price of a specific commodity) in the underlying futures contract or commodity. The purchase price of an option is referred to as its "premium." The seller (or "writer") of an option is obligated to take a futures position at a specified price opposite to the option buyer if the option is exercised. Thus, the seller of a call option must stand ready to sell (take a short position in the underlying futures contract) at the striking price if the buyer should exercise the option. The seller of a put option, on the other hand, must stand ready to buy (take a long position in the underlying futures contract) at the striking price. A call option on a futures contract is said to be "in-the-money" if the striking price is below current market levels, and "out-of-the-money" if the striking price is above current market levels. Conversely, a put option on a futures contract is said to be "in-the-money" if the striking price is above current market levels, and "out-of-the-money" if the striking price is below current market levels. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract. An option that is out-of-the-money and not offset by the time it expires becomes worthless. Options usually trade at a premium above their intrinsic value (i.e., the difference between the market price for the underlying futures contract and the striking price), because the option trader is speculating on (or hedging against) future movements in the price of the underlying contract. As an option nears its expiration date, the market and intrinsic value typically move into parity. The difference between an option's intrinsic and market values is referred to as the "time value" of the option. See "Risk Factors Trading and Performance Risks Options trading can be more volatile than futures trading" beginning on page . Forward Contracts Contracts for the future delivery of certain commodities may also be made through banks or dealers pursuant to what are commonly referred to as "forward contracts." A forward contract is a contractual right to purchase or sell a specified quantity of a commodity at or before a specified date in the future at a specified price and, therefore, it is similar to a futures contract. In forward contract trading, a bank or dealer generally acts as principal in the transaction and includes its anticipated profit (the "spread" between the "bid" and the "asked" prices), and in some instances a mark-up, in the prices it quotes for forward contracts. Unlike futures contracts, forward contracts are not standardized contracts; rather, they are the subject of individual negotiation between the parties involved. Because there is no clearinghouse system applicable to forward contracts, forward contracts are not fungible, and there is no direct means of "offsetting" a forward contract by purchase of an offsetting position on the same exchange as one can a futures contract. In recent years, the terms of forward contracts have become more standardized and in some instances such contracts now provide a right of offset or cash settlement as an alternative to making delivery on the contract. See "Risk Factors Trading and Performance Risks The unregulated nature of the forwards markets creates counterparty risks that do not exist in futures trading on exchanges" on page . Hedgers and Speculators The two broad classes of persons who trade futures, forwards, and options contracts are "hedgers" and "speculators." Commercial interests, including farmers, that market or process commodities, and financial institutions that market or deal in commodities, including interest rate sensitive instruments, foreign currencies, and stocks, which are exposed to currency, interest rate, and stock market risks, may use the futures markets for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a processor makes a contract to buy or sell a raw or processed commodity at a certain price and the time he must perform the contract. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The speculator risks his capital with the hope of making profits from price fluctuations in futures, forwards, and options contracts. Speculators rarely take delivery of commodities, but rather close out their positions by entering into offsetting purchases or sales of futures, forwards, and options contracts. Since the speculator may take either a long or short position in the futures, forwards, and options markets, it is possible for him to make profits or incur losses regardless of whether prices go up or down. The partnerships will trade for speculative rather than for hedging purposes. Speculator or Hedger? A Tale of Two Investors A kite manufacturer from Iowa received an order for 30 million kites from a distributor in Tokyo. Delivery was to be made in 18 months and the manufacturer would be paid in yen. Since he couldn't possibly know what the dollar/yen exchange rate would be in 18 months, the kite manufacturer used futures contracts to hedge his currency risk and lock in an exchange rate. In that way, he guaranteed his price. There would be no surprises upon delivery. In selling away his risk, he acted as a hedger. At the same time, a managed futures fund trading advisor used a highly sophisticated trading program that indicated a favorable trend for the dollar vs. the yen. The advisor purchased a futures contract. If the advisor's program were reading the market trends accurately and the trend developed, he would sell the contract and earn a profit. In buying a contract for potential profit, he acted as a speculator. The moral of the story? Some use the futures markets to manage business risk and others to profit. Both are vital in this dynamic marketplace. Futures Exchanges Futures exchanges provide centralized market facilities for trading futures contracts and options (but not forward contracts). Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United States are the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and the New York Board of Trade. Each futures exchange in the United States has an associated "clearinghouse." Once trades between members of an exchange have been confirmed, the clearinghouse becomes substituted for each buyer and each seller of contracts traded on the exchange and, in effect, becomes the other party to each trader's open position in the market. Thereafter, each party to a trade looks only to the clearinghouse for performance. The clearinghouse generally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer that enables the clearinghouse to meet its obligations with regard to the "other side" of an insolvent clearing member's contracts. Clearinghouses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearinghouses is to ensure the integrity of trades, and members effecting futures transactions on an organized exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their commodity broker and the clearinghouse. Foreign futures exchanges differ in certain respects from their U.S. counterparts. In contrast to United States exchanges, certain foreign exchanges are "principals' markets," where trades remain the liability of the traders involved, and the exchange does not become substituted for any party. See "Regulations" below and "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Speculative Position Limits The CFTC and U.S. futures exchanges have established limits, referred to as "speculative position limits" or "position limits," on the maximum net long or net short speculative position that any person or group of persons (other than a hedger, which the partnerships are not) may hold, own, or control in certain futures or options contracts. Among the purposes of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. The CFTC has jurisdiction to establish position limits with respect to all commodities and has established position limits for all agricultural commodities. In addition, the CFTC requires each United States exchange to submit position limits for all commodities traded on such exchange for approval by the CFTC. However, position limits do not apply to many currency futures contracts. Position limits do not apply to forward contract trading or generally to trading on foreign exchanges. See "Risk Factors Trading and Performance Risks The partnerships are subject to speculative position limits" on page . Daily Limits Most United States futures exchanges (but generally not foreign exchanges or banks or dealers in the case of forward contracts) limit the amount of fluctuation in futures interests contract prices during a single trading day by regulation. These regulations specify what are referred to as "daily price fluctuation limits" or more commonly "daily limits." The daily limits establish the maximum amount that the price of a futures or options contract may vary either up or down from the previous day's settlement price. Once the daily limit has been reached in a particular futures or options market, no trades may be made at a price beyond the limit. See "Risk Factors Trading and Performance Risks Market illiquidity may cause less favorable trade prices" on page . Regulations Futures exchanges in the United States are subject to regulation under the Commodity Exchange Act by the CFTC, the governmental agency having responsibility for regulation of futures exchanges and trading on those exchanges. The CFTC also regulates the activities of "commodity trading advisors" and "commodity pool operators" and has adopted regulations with respect to certain of such persons' activities. The CFTC requires a commodity pool operator (such as the general partner) to keep accurate, current, and orderly records with respect to each pool it operates. The CFTC may suspend the registration of a commodity pool operator if the CFTC finds that the operator has violated the Commodity Exchange Act or regulations thereunder and in certain other circumstances. Suspension, restriction, or termination of the general partner's registration as a commodity pool operator would prevent it, until such time (if any) as such registration were to be reinstated, from managing, and might result in the termination of, the partnerships. The Commodity Exchange Act gives the CFTC similar authority with respect to the activities of commodity trading advisors, such as the trading advisors. If the registration of a trading advisor as a commodity trading advisor were to be terminated, restricted, or suspended, the trading advisor would be unable, until such time (if any) as such registration were to be reinstated, to render trading advice to the relevant partnership. The partnerships themselves are not registered with the CFTC in any capacity. The Commodity Exchange Act requires all "futures commission merchants," such as Morgan Stanley DW and Morgan Stanley & Co., to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds and account separately for all customers' funds and positions, and to maintain specified books and records open to inspection by the staff of the CFTC. The partnerships have no present intention of using any introducing brokers in their trading. The Commodity Exchange Act also gives the states certain powers to enforce its provisions and the regulations of the CFTC. You are afforded certain rights for reparations under the Commodity Exchange Act. You may also be able to maintain a private right of action for certain violations of the Commodity Exchange Act. The CFTC has adopted rules implementing the reparation provisions of the Commodity Exchange Act which provide that any person may file a complaint for a reparations award with the CFTC for violation of the Commodity Exchange Act against a floor broker, futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, and their respective associated persons. Pursuant to authority in the Commodity Exchange Act, the National Futures Association has been formed and registered with the CFTC as a "registered futures association." At the present time, the National Futures Association is the only non-exchange self-regulatory organization for commodities professionals. National Futures Association members are subject to National Futures Association standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the National Futures Association promulgates rules governing the conduct of commodity professionals and disciplines those professionals who do not comply with such standards. The CFTC has delegated to the National Futures Association responsibility for the registration of commodity trading advisors, commodity pool operators, futures commission merchants, introducing brokers, and their respective associated persons and floor brokers. Morgan Stanley DW, the general partner, Morgan Stanley & Co., and the trading advisors are all members of the National Futures Association (the partnerships themselves are not required to become members of the National Futures Association). The CFTC has no authority to regulate trading on foreign commodity exchanges and markets. See "Risk Factors Trading and Performance Risks Trading on foreign exchanges presents greater risks to each partnership than trading on U.S. exchanges" on page . Margins "Initial" or "original" margin is the minimum amount of funds that a futures trader must deposit with his commodity broker in order to initiate futures trading or to maintain an open position in futures contracts. "Maintenance" margin is the amount (generally less than initial margin) to which a trader's account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps assure the futures trader's performance of the futures contracts he purchases or sells. Futures contracts are customarily bought and sold on margins that represent a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying commodity being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures contract is set by the exchange on which such contract is traded, and may be modified from time to time by the exchange during the term of the contract. See "Risk Factors Trading and Performance Risks The partnerships' trading is highly leveraged" on page . Brokerage firms, such as Morgan Stanley DW, Morgan Stanley & Co., and Morgan Stanley International, carrying accounts for traders in futures contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves. The commodity brokers presently intend to require each partnership to make margin deposits equal to the exchange minimum levels for all futures contracts. Trading in the currency forward contract market does not require margin, but generally does require the extension of credit by a bank or dealer to those with whom the bank or dealer trades. Since each partnership's trading will be conducted through a commodity broker, each partnership will be able to take advantage of the commodity brokers' credit lines with several participants in the interbank market. The commodity brokers will require margin with respect to a partnership's trading of currency forward contracts. Margin requirements are computed each day by a trader's commodity broker. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call is made by the commodity broker. If the margin call is not met within a reasonable time, the broker may close out the trader's position. With respect to a partnership's trading, that partnership, and not its limited partners personally or any other partnership, will be subject to margin calls. POTENTIAL ADVANTAGES Developing a comprehensive financial plan entails evaluating options and acting upon those options. In this fast-paced and ever-changing financial environment, selecting from the broad array of investments available can be difficult and time-consuming. Astute investors often turn to professional money managers for the expertise and guidance needed to map out a successful investment strategy. Morgan Stanley, a global leader in financial management, has developed the Spectrum Series of partnerships to provide professional money management in the futures, forwards, and options markets. An investment in a partnership is speculative and involves a high degree of risk. The general partner and Morgan Stanley DW believe that managed futures investments (such as the partnerships) can provide you with the potential for long-term capital appreciation (with commensurate risk), but are appropriate only for the aggressive growth portion of your comprehensive financial plan. See "Risk Factors" beginning on page . Taking the risks into consideration, this investment does offer the following potential advantages. Investment Diversification If you are not prepared to make a significant investment or spend substantial time trading various futures, forwards, and options, you may still participate in these markets through an investment in a Spectrum Series partnership, obtaining diversification from more traditional investments in stocks, bonds, and real estate. The general partner believes, on the basis of the past experience of the partnerships, that the profit potential of a partnership does not depend upon favorable general economic conditions, and that a partnership is as likely to be profitable during periods of declining stock, bond, and real estate markets as at any other time; conversely, a partnership may be unprofitable during periods of generally favorable economic conditions. Managed futures investments can serve to diversify your portfolio and smooth overall portfolio volatility. Modern Portfolio Theory is the academic affirmation of the value of diversification. Modern Portfolio Theory was developed in the 1950s by Nobel Laureates William Sharpe and Harold Markowitz. These two pioneers developed a framework for efficiently diversifying assets within a portfolio. They suggested that investing in any asset class with positive returns and low correlation to other assets improves the overall risk/reward characteristics of the entire portfolio. In 1983, Dr. John H. Lintner of Harvard University focused on the concepts of Modern Portfolio Theory in a study about portfolio diversification. Specifically, Modern Portfolio Theory was utilized to evaluate the addition of a managed futures component to a diversified portfolio comprised of 60% stocks and 40% bonds. The results of Lintner's work demonstrated that by including a variety of assets, such as commodities, in a hypothetical portfolio, an investor may lower the portfolio's overall volatility or risk. Lintner's findings were further supported by the works of Dr. Thomas Schneeweis of the University of Massachusetts, Amherst, in his 1999 study, "The Benefits of Managed Futures." Dr. Schneeweis concluded that "while ... the correlation between managed futures and most traditional investments is approximately zero, when asset returns are segmented according to whether the traditional asset rose or fell, managed futures are often negatively correlated in months when traditional asset returns are negative while being positively correlated when traditional asset returns are positive." The partnerships' combined benefits of growth potential (with commensurate risk) and diversification can potentially reduce the overall volatility of your portfolio, while increasing profits. Whether you are able to lower the overall volatility of your portfolio with managed futures investments will depend in part on the characteristics of your portfolio. Depending on these characteristics, the addition of a managed futures investment could increase or decrease the overall volatility and risk of your portfolio. By combining asset classes, you may create a portfolio mix that provides the potential to offer the greatest possible return within acceptable levels of volatility. While past performance is no guarantee of future results, managed futures investments, such as the partnerships, may profit (with commensurate risk) from futures, forwards, and options market moves, with the potential to enhance your overall portfolio. The trading advisors' speculative trading techniques will be the primary factor in the partnerships' success or failure. You should note that there are always two parties to a futures, forward, or option contract; consequently, for any gain achieved by one party on a contract, a corresponding loss is suffered. Therefore, due to the nature of futures, forwards, and options trading, only 50% of contract interests held by all market participants can experience gain at any one time. Brokerage commissions and other costs of trading may reduce or eliminate any gain that would otherwise be achieved. Few stock and bond investors sell short, so most benefit only when prices are rising. However, managed futures investors profit when they accurately identify sustainable trends, up or down. Thus, whether the futures and forwards markets are rising or declining, managed futures may generate attractive returns. They can, in turn, lose money in either direction as well. The first step toward a sound financial future is to establish your investment objectives. Based on your financial goals, requirements, and investment preferences, your Morgan Stanley financial advisor can help you determine the combination of asset classes as well as the type of trading advisor(s) that most suits your investment profile. Asset allocation is the next critical step to help you achieve your investment objectives. Asset allocation refers to the division of investment dollars over a variety of asset classes in order to reduce overall volatility through portfolio diversification, while increasing the long-term performance potential of an investment portfolio. A fully diversified portfolio should contain cash, income, growth, and aggressive growth investments. % % % % % % % 1980 32.5 (2.8 ) (0.3 ) 24.4 27.7 63.7 N/A 1981 (4.9 ) 1.1 2.7 (1.0 ) (3.3 ) 23.9 N/A 1982 21.5 41.1 37.2 (0.9 ) 11.3 16.7 N/A 1983 22.6 1.8 8.9 24.6 23.3 23.8 N/A 1984 6.3 14.7 16.1 7.9 5.8 8.7 1.4 1985 31.7 32.0 25.0 56.7 41.8 25.5 21.9 1986 18.7 24.1 17.0 69.9 42.8 3.8 (14.4 ) 1987 5.3 (2.7 ) 2.1 24.9 16.8 57.3 43.1 1988 16.6 9.2 9.5 28.6 23.9 21.8 7.3 1989 31.7 18.9 14.0 10.8 17.2 1.8 4.7 1990 (3.1 ) 4.6 7.3 (23.2 ) (16.5 ) 21.0 14.2 1991 30.5 17.9 18.5 12.5 19.0 3.7 10.0 1992 7.6 7.8 8.9 (11.8 ) (4.7 ) (0.9 ) (1.4 ) 1993 10.1 16.4 12.1 32.9 23.1 10.4 10.7 1994 1.3 (6.9 ) (3.5 ) 8.1 5.6 (0.7 ) (7.7 ) 1995 37.6 30.7 21.7 11.6 21.3 13.7 13.9 1996 23.0 (0.4 ) 3.3 6.4 14.0 9.1 9.8 1997 33.4 14.9 10.2 2.1 16.2 10.9 7.6 1998 28.6 13.5 8.6 20.3 24.8 7.0 7.9 1999 21.0 (8.7 ) (1.6 ) 27.3 25.3 (1.2 ) (1.4 ) 2000 (9.1 ) 20.1 9.3 (14.0 ) (12.9 ) 7.9 4.7 2001 (11.9 ) 4.6 10.9 (21.2 ) (16.5 ) 0.8 (0.1 ) 2002 (22.1 ) 17.2 9.4 (15.7 ) (19.6 ) 12.4 14.3 2003 28.7 2.1 8.7 39.2 33.8 8.6 11.6 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Annual Returns of Various Asset Classes Over Time" Table: For the analyses used in this table, the performance of independent indices has been used to represent seven asset classes: U.S. stocks, U.S. Treasury bonds, U.S. corporate bonds, international stocks, global stocks, managed futures, and public managed futures funds. The respective indices used are the Standard and Poor's 500 Stock Index, the Lehman Brothers Treasury Bond Index, the Citigroup Corporate Bond Index, the Morgan Stanley Capital International ("MSCI") EAFE Index, the MSCI World Index, the Barclay CTA Index, and the CISDM Public Fund Index. The S&P 500 Index and the Citigroup Corporate Bond Index are compiled assuming dividends and interest are re-invested. The S&P 500 Index is based on a portfolio of 500 stocks (consisting of 23 energy, 34 materials, 66 industrials, 89 consumer discretionary, 34 consumer staples, 48 health care, 82 financials, 75 information technology, 12 telecom services, and 37 utilities). The weights of the stocks in the portfolio at a given time reflect the stocks' total market capitalization. The S&P 500 Index accounts for approximately 80% of the market capitalization of all stocks listed on the New York Stock Exchange. The Lehman Brothers Treasury Bond Index consists of all existing U.S. Treasury bond issues. The Citigroup Corporate Bond Index is a benchmark of investment grade fixed rate corporate issues with maturities of at least one year and in minimum outstanding amounts of $100 million. The corporate issues encompass such industry sectors as Manufacturing, Service, Energy, Consumer, Transportation, Industrial-Other, Utility, and Finance. The MSCI EAFE Index is comprised of approximately 1,000 companies, representing a market structure of 21 European and Pacific based countries covering 59 industries. The index is used to represent international equities. The MSCI World Index is comprised of more than 1,500 companies, representing a market structure of 23 countries around the world. The index is used to represent global equities, including U.S. and Canadian markets. The Barclay CTA Index provides a benchmark of performance of commodity trading advisors. In order to qualify for inclusion in the Barclay CTA Index, a commodity trading advisor must meet the following criteria: (1) the commodity trading advisor must have four years of prior performance history; and (2) in cases where a commodity trading advisor who is in the Barclay CTA Index introduces an additional program, this additional program is added to the Index only after its second year of trading. In 2003, there were 386 commodity trading advisor programs which were included in the calculation of the Barclay CTA Index. The CISDM Public Fund Index averages managed futures fund performance for public funds. CISDM indices are dollar or equity weighted to reflect performance. To qualify for inclusion in CISDM's fund indices, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restriction on the funds and/or pools that it tracks. As of December 31, 2003, there were 55 public funds included in the calculation of the CISDM Public Fund Index. The S&P 500 Index, Citigroup Corporate Bond Index, and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The MSCI World Index performance data for global stocks are provided by Morgan Stanley Capital International Inc., New York, NY. The Lehman Brothers Treasury Bond Index and the Barclay CTA Index performance data for U.S. Treasury bonds and managed futures, respectively, are provided by the Barclay Trading Group Ltd., Fairfield, IA. The CISDM Public Fund Index performance data for public managed futures funds was provided by Managed Account Reports, LLC, New York, NY. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index and the CISDM Public Fund Index reflect results net of actual fees and expenses, the Barclay CTA Index includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as Capsule IV Performance of Spectrum Global Balanced Type of pool: publicly-offered fund Inception of trading: November 1994 Aggregate subscriptions: $99,792,833 Current capitalization: $52,639,493 Current net asset value per unit: $15.47 Worst monthly % drawdown past five years: (4.99)% (May 1999) Worst monthly % drawdown since inception: (7.92)% (February 1996) Worst month-end peak-to-valley drawdown past five years: (12.44)% (44 months, May 1999-December 2002) Worst month-end peak-to-valley drawdown since inception: (12.44)% (44 months, May 1999-December 2002) Cumulative return since inception: 54.70% Monthly Performance the partnerships), and the CISDM Public Fund Index includes funds with trading advisors and fee structures that differ from the partnerships. Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index and the public managed futures funds included in the CISDM Public Fund Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, and the CISDM Public Fund Index is believed to be representative of public managed futures funds in general, the performance of the partnerships may differ from the performance reflected in such indices. Correlation to Traditional Investments Managed futures have historically demonstrated the ability to perform independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation, or the potential for managed futures to perform when traditional markets such as stocks and bonds may experience difficulty performing. Of course, managed futures funds will not automatically be profitable during unfavorable periods for these traditional investments, and vice versa. The degree of non-correlation of any given managed futures fund will vary, particularly as a result of market conditions, and some funds will have a significantly lesser degree of non-correlation (i.e., greater correlation) with stocks and bonds than others. To the extent the performance of managed futures and the performance of traditional markets are non-correlated, managed futures may or may not perform as well when traditional markets are performing well. Spectrum Global Balanced, a fund whose trading strategy is to offer a balanced portfolio through exposure to the stock and bond markets in addition to the futures markets, should be distinguished from other managed futures funds. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley DW offers. The factors that influence the stock and bond markets can affect the futures markets in different ways and to varying degrees. In this connection, an article in the June 8, 1998 issue of Business Week, "Commodities are Cheap Time to Leap?" discusses the risks and potential rewards of investing in managed futures funds, noting the low correlation of their performance to stocks and bonds. The following charts were prepared by the general partner to illustrate the correlation of the performance results of each partnership to that of the S&P 500 Index and the Citigroup Corporate Bond Index. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Correlation measures how closely related two data series are, in this case, returns on asset classes. More specifically, the correlation coefficient measures the direction and extent of the linear relationship between two data series. Correlation coefficient values range from 1 to -1. A value greater than 0 implies a positive linear relationship (positive correlation). A value less than 0 implies an inverse linear relationship (negative correlation). A value of 0 implies no linear relationship (no correlation). The following tables and charts were prepared by the general partner to illustrate the correlation coefficient of each partnership's performance results to those of the S&P 500 Index and the Citigroup Corporate Bond Index for the periods specified. The charts also show the number of months the monthly returns of the partnerships were positive or negative with, or different from, the monthly returns of these two indices. Investors are cautioned that the performance information set forth in the following charts is not necessarily indicative of, and may have no bearing on, any trading results that may be attained by a partnership in the future. Month Data: 149 months of trading from August 1991 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Data: 110 months of trading from November 1994 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following chart was prepared by the general partner to illustrate the performance of managed futures against that of stocks from January 1980 through December 31, 2003, using the recognized market indices of each asset. Each bar shows index returns during successive 12-month holding periods. The Notes on the next page are an integral part of the following chart. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to "Managed Futures vs. Stocks" Table: Stocks are represented by the S&P 500 Index, provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by Barclay Trading Group Ltd., Fairfield, IA. Each bar represents the asset class performance derived from successive 12-month hypothetical holding periods or windows. (A 12-month holding period is defined as a period of 12 consecutive months, e.g., from January 1989 to December 1989; the next would be from February 1989 to January 1990, etc.) Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. By overlaying returns, investors can see the potential benefits of a diversified portfolio that includes both traditional and alternative investments. There are many times when both the managed futures and stock indices showed positive performance. Obviously, though, there is no investment that only appreciates. There are 35 periods when managed futures showed negative returns, while stocks experienced 58 periods of negative returns during the studied time frame. While not a guarantee of future results, this chart provides a clear indication of the non-correlated aspect of managed futures. This non-correlation enables investors with managed futures to potentially lower the overall volatility of their portfolios. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. The diversification story supporting managed futures is compelling, as the chart below shows. Since 1980, in every instance where stocks or bonds have declined more than 10%, the managed futures index has risen. Managed Futures vs. Stocks All instances since 1980 where the S&P 500 Index declined more than 10% PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Managed Futures vs. Bonds All instances since 1980 where the Citigroup Corporate Bond Index declined more than 10% Data: January 1980 - December 2003. Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index provided by Strategic Financial Solutions, LLC (Memphis, TN) and monthly returns for the Barclay CTA Index provided by Barclay Trading Group Ltd. (Fairfield, IA). Managed futures investments do not replace equities or bonds but rather act as a complement to help smooth overall portfolio returns. Managed Futures data reflects the fee structure of commodity trading advisors managing individual accounts and does not reflect fee structures of commodity pools, which are typically higher. The following chart was prepared by the general partner to illustrate the risk/return characteristics of a portfolio consisting of different combinations of domestic stocks, corporate bonds, international equities, and/or managed futures, based on the performance of recognized market indices of each asset over the period January 1980 December 2003. The Notes on the next page are an integral part of the following chart. Improved Portfolio Efficiency January 1980 through December 2003 U.S. Stocks/Bonds/International Equities/Managed Futures Notes to "Improved Portfolio Efficiency" Table on prior page: Stocks are represented by the S&P 500 Index, corporate bonds are represented by the Citigroup Corporate Bond Index, and international equities are represented by the MSCI EAFE Index, each provided by Strategic Financial Solutions, LLC, Memphis, TN; managed futures are represented by the Barclay CTA Index, provided by the Barclay Trading Group Ltd., Fairfield, IA. Performance of any of these indices (which, by definition, are averages of many individual investments) may not be representative of any specific investment within that index's asset class. The performance information of the asset classes above does not reflect the effect of fees identical to those to be paid by the partnerships, including management, incentive, and brokerage fees. Past performance is no guarantee of future results. Note that while the Barclay CTA Index reflects results net of actual fees and expenses, it includes accounts with trading advisors and fee structures that differ from public managed futures funds (such as the partnerships). Also, the partnerships' trading strategies may be different from the trading strategies employed by the trading advisors included in the Barclay CTA Index. Accordingly, while the Barclay CTA Index is believed to be representative of managed futures in general, the performance of public managed futures funds as a subclass, or individually (in particular, the partnerships), may differ. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Professional Management Professional money management is one of the most significant benefits a managed futures investment can offer. A professional trading advisor has several advantages over an individual investor. Capitalization The trading advisors and funds are well capitalized, enabling the advisors to effectively manage assets in the face of market volatility. Disciplined Trading Strategy Each advisor has its own researched trading strategy, with strict money management policies Planned Strategy Trading advisors research and design trading strategies that seek to provide long-term profit potential. Risk Control Trading advisors apply risk management strategies based on years of research and experience. Research and Development The advisors are committed to ongoing research and development, in an effort to continuously improve upon existing systems and technology in order to keep pace with industry developments and potentially capitalize on market opportunities as they occur. In considering the advantages of utilizing a professional trading advisor, you also should consider the fees a trading advisor will be paid to manage a partnership's account. Depending on the partnership, the annual management fees range from 1.25% to 3.0% of the average month-end net assets of a partnership managed by the trading advisor, and incentive fees range from 15.0% to 20.0% of trading profits. The Trading Advisor Selection Process The general partner has carefully selected the advisors responsible for managing the Spectrum Series utilizing a quantitative and qualitative due diligence process. In addition, the general partner examines trading activity and performance reports daily and conducts on-site due diligence visits and ongoing research and development. Each of the trading advisors for the partnerships was chosen by the general partner based upon a strict selection process, including such criteria as performance history, experience, personnel, and due diligence. The performance history and trading experience of the trading advisors chosen for the partnerships span a range of 5 to 25 years, and each trading advisor employs experienced personnel. Additionally, the general partner monitors daily each trading advisor's activities on behalf of a partnership and periodically conducts on-site due diligence visits to remain abreast of each trading advisor's continuing efforts toward research and development. This selection process is described below. In order for a trading advisor to be selected by the general partner, a qualitative and quantitative due diligence process is undertaken, considering the factors described below. The general partner's primary objective in the selection process is to allocate assets to trading advisors with well-established performance histories and whom it believes have the potential to continue to be successful in the future. Monitoring is an important second phase in the due diligence process. The general partner has invested significant resources into its proprietary Fund Management System, a comprehensive computerized management system. This sophisticated system produces daily control reports generated from actual trading data and enables the general partner to closely monitor the activity and performance of trading advisors relative to their historical profile. Monitoring also occurs on a periodic basis by discussing with the trading advisors their performance relative to profile and peer trading advisors, recent market conditions, and trading opportunities. Ongoing research and development and continued on-site due diligence visits are conducted. While the due diligence process cannot guarantee future success, the general partner believes the process can provide the basis for sound decision-making and can increase the potential for future success. Trading Advisor Evaluation and Selection Screening Trading advisors are screened from a pool of approximately 400. Evaluation Trading advisors are categorized and evaluated based on quantitative and qualitative factors. Selection Trading advisors are selected based on quantitative and qualitative analysis. Monitoring Daily and periodic monitoring and reporting takes place on an ongoing basis. Ruble Hang Seng Index Government Bonds Nikkei 225 Yen 3-year & 10-year bonds All Ordinaries Index Dollar Cocoa Coffee Corn Cotton Feeder cattle Lean hogs Live cattle Lumber Oats Orange juice Pork bellies Rubber Soybean meal Soybean oil Soybeans Sugar Wheat Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Hong Kong dollar Japanese yen Korean won Mexican peso New Zealand dollar Norwegian krone Philippine peso Singapore dollar South African rand Swedish krona Swiss franc U.S. dollar All Ordinaries CAC 40 DAX Dow Jones Industrial FTSE 100 Hang Seng IBEX-35 Plus MIB 30 NASDAQ 100 Nikkei 225 NYSE Composite Russell 2000 S&P Canada 60 S&P 500 Taiwan Stock Index Topix Stock Index INTEREST RATES Australian Bank Bill Australian T-Bond British Long Gilt British Short Sterling Canadian Bankers Acceptances Canadian Government Bond Euro Bond Eurodollar Euribor Euroyen Japanese Government Bond Muni Bond Index New Zealand Bill Spanish Government Bond Swiss Government Bond U.S. T-Bond U.S. T-Note METALS Aluminum Copper Gold Lead Nickel Palladium Platinum Silver Tin Zinc ENERGIES Brent crude oil Crude oil Gas oil Heating oil Natural gas Unleaded gas Each partnership normally trades a portfolio of diverse futures, forwards, and options, but may trade a greater or lesser number of futures, forwards, and options from time to time. Each limited partner will obtain greater diversification in futures, forwards, and options traded than would be possible trading individually, unless substantially more than the minimum investment described herein were committed to the futures, forwards, and options markets. Exchange Right At the sixth month-end after a person first becomes a limited partner in any of the Spectrum Series partnerships, and each calendar month thereafter, a limited partner may shift his investment among the partnerships. This permits a limited partner to select one or more partnerships which best suit his investment needs and objectives, which may change from time to time. A limited partner is not required to pay any redemption charges in connection with a Spectrum Series exchange. Diversified Professional Trading Management Trading decisions for each partnership will be made by trading advisors retained by the general partner. The trading approaches employed on behalf of each partnership by its trading advisors are not available for investments as small as the required minimum investment in each partnership. A limited partner's investment in each partnership is allocated among the trading advisors for such partnership. This permits a limited partner to receive the benefits from different trading systems being employed by such partnership. A limited partner can further diversify his professional trading management by dividing his investment among one or more of the partnerships. For example, an investor owning units of all five partnerships in the Spectrum Series would have the benefit of having his investment managed by eleven trading advisors. Limited Liability Unlike an individual who invests directly in futures, forwards, and options, an investor in a partnership cannot be individually subject to margin calls and cannot lose more than the amount of his/her unredeemed capital contribution, his/her share of undistributed profits, if any, and, under certain circumstances, any distributions and amounts received upon redemption, or deemed received on an exchange of units, and interest thereon. Interest Income Many commodity brokers permit accounts above a certain size to deposit margin for futures, forwards, and options in the form of interest-bearing obligations, such as U.S. Treasury bills, rather than cash, thus enabling the account to earn interest on funds being used for futures trading, or such brokers pay interest at U.S. Treasury bill rates on a portion of the cash deposited in the account. Each partnership deposits its assets in separate commodity trading accounts with the commodity brokers. Morgan Stanley DW credits each partnership at each month-end with interest income as if 80% (100%, in the case of Spectrum Global Balanced) of each partnership's average daily net assets for the month were invested at a prevailing rate on U.S. Treasury bills. Generally, an individual trader would not receive any interest on the funds in his commodity account unless he committed substantially more than the minimum investment required for the partnerships. While the partnerships are credited with interest by Morgan Stanley DW on the respective percentage of their assets deposited as margin as described above, the form of margin posted, whether cash or interest-bearing obligations (such as U.S. Treasury bills), does not reduce the risks inherent in the trading of futures, forwards, and options. Administrative Convenience The partnerships are structured so as to provide limited partners with numerous services designed to alleviate the administrative details involved in engaging directly in futures, forwards, and options trading, including monthly and annual financial reports (showing, among other things, the net asset value of a unit, trading profits or losses, and expenses), and all tax information relating to the partnerships necessary for limited partners to complete their federal income tax returns. SUPPLEMENTAL PERFORMANCE INFORMATION The tables on the following pages contain summary performance information and certain other data for each partnership, supplementing the information in Part I of this prospectus. % % % % % % % % % % January 0.34 (1.23 ) 0.55 (0.93 ) (0.06 ) 2.25 3.35 0.41 1.32 February 2.67 (1.69 ) (3.36 ) 0.94 (0.06 ) 1.49 3.16 (7.92 ) 4.62 March (2.60 ) 0.25 2.91 3.10 0.00 2.24 (2.50 ) (1.08 ) 2.88 April 2.19 (2.09 ) (0.31 ) (4.57 ) 4.13 (1.78 ) (1.65 ) 1.27 2.15 May 4.89 (0.19 ) 0.25 (1.32 ) (4.99 ) (0.35 ) 1.68 (3.13 ) 4.38 June (0.19 ) 1.30 (3.08 ) (0.26 ) 2.28 0.00 3.64 0.46 0.79 July (1.09 ) (0.83 ) 0.00 (2.18 ) (1.67 ) (1.19 ) 11.89 0.83 (1.39 ) August 0.00 0.97 0.51 3.01 (0.19 ) 2.55 (5.92 ) (0.82 ) (1.41 ) September (1.16 ) (4.16 ) (1.20 ) (3.94 ) (0.50 ) 5.11 3.26 2.30 1.61 October (0.92 ) (0.80 ) 2.75 2.25 (1.77 ) 1.18 (1.69 ) 3.77 0.26 November (1.32 ) 2.08 (0.06 ) (0.52 ) 1.93 2.66 (0.37 ) 4.76 2.72 (0.50 ) December 3.48 (4.02 ) 0.93 5.79 1.96 1.27 3.07 (3.88 ) 2.99 (1.21 ) Compound Annual/ Period Rate of Return 6.18 (10.12 ) (0.31 ) 0.87 0.75 16.36 18.23 (3.65 ) 22.79 (1.70 ) (2 months) Capsule V Performance of Spectrum Currency Type of pool: publicly-offered fund Inception of trading: July 2000 Aggregate subscriptions: $185,569,503 Current capitalization: $190,055,920 Current net asset value per unit: $15.66 Worst monthly % drawdown: (5.91)% (July 2001) Worst month-end peak-to-valley drawdown: (11.13)% (5 months, July 2002-November 2002) Cumulative return since inception: 56.60% Monthly Performance MORGAN STANLEY SPECTRUM SELECT L.P. All of the performance data below is through December 31, 2003. SPECTRUM SELECT STATISTICS Trading Advisors: EMC Capital Management, Inc. Graham Capital Management, L.P. Northfield Trading L.P. Rabar Market Research, Inc. Sunrise Capital Management, Inc. Began Trading: August 1, 1991 Total Assets in Fund: $441.5 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets of Graham, 1/12 of 3.00% of Beg. Net Assets of EMC, Northfield, Rabar, and Sunrise Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits to EMC, Northfield, Rabar, and Sunrise, and 20% to Graham Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.34% Standard Deviation of Monthly Returns: 6.85% Annualized Standard Deviation: 23.74% Sharpe Ratio: 0.22 Sortino Ratio: 0.49 Largest Decline Period (6/95 - 8/96): -26.77% Average Recovery (No. of months): 5.75 Average Monthly Loss: -4.18% Standard Deviation of Monthly Loss: 3.14% % of Losing Months: 47.33% Average Monthly Gain: 5.58% Standard Deviation of Monthly Gain: 5.89% % of Winning Months: 52.67% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Select uses the technically-based, aggressive, trend-following trading systems of EMC Capital Management, Inc., Graham Capital Management, L.P., Northfield Trading L.P., Rabar Market Research, Inc., and Sunrise Capital Management, Inc., to participate in a diversified portfolio of futures and currency markets. EMC uses an aggressive systematic trading approach that blends several independent methodologies designed to identify emerging trends and follow existing trends. This program seeks significant returns in favorable market periods, while accepting a commensurate decline in unfavorable market cycles. Northfield uses a purely technical approach utilizing price action itself as analyzed by clients, numerical indicators, pattern recognition, or other techniques designed to provide information about market direction. Rabar uses a systematic approach with discretion, limiting the equity committed to each trade, market and sector. Rabar's trading program uses constant research and analysis of market behavior. Sunrise's investment approach attempts to detect a trend, or lack of a trend, with respect to a particular market by analyzing price movement and volatility over time. Sunrise's trading system consists of multiple, independent and parallel systems, each designed to seek out and extract different market inefficiencies over different time horizons. Graham's trading programs rely primarily on technical rather than fundamental information as the basis for their trading decisions. Graham's programs are based on the expectation that they can, over time, successfully anticipate market events using quantitative mathematical models to determine their trading activities, as opposed to attempting properly to forecast price trends using subjective analysis of supply and demand. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Soybeans Soybean meal Soybean oil Wheat STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index U.S. Dollar Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Japanese yen Mexican peso New Zealand dollar South African rand Singapore dollar Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc ENERGIES Crude oil Heating oil Natural gas Unleaded gas SOFTS Cocoa Coffee Cotton Orange Juice Sugar INTEREST RATES Australian bonds British bonds Canadian bonds Eurodollar German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Month Spectrum Select 1.00 0.89 -0.07 0.28 -0.01 CISDM Public Fund Index 1.00 -0.10 0.33 -0.05 S & P 500 Index 1.00 0.20 0.69 Citigroup Corporate Bond Index 1.00 0.10 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM TECHNICAL L.P. All of the performance data below is through December 31, 2003. SPECTRUM TECHNICAL STATISTICS Trading Advisors: Campbell & Company, Inc. Chesapeake Capital Corporation John W. Henry & Company, Inc. Winton Capital Management Limited Began Trading: November 1, 1994 Total Assets in Fund: $538.2 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets to JWH and Winton, 1/12 of 3.00% to Campbell and Chesapeake Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits to Campbell, JWH and Winton, 19.00% to Chesapeake Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 9.33% Standard Deviation of Monthly Returns: 5.55% Annualized Standard Deviation: 19.22% Sharpe Ratio: 0.28 Sortino Ratio: 0.50 Largest Decline Period (4/01 - 4/02): -26.56% Average Recovery (No. of months): 2.93 Average Monthly Loss: -3.72% Standard Deviation of Monthly Loss: 3.09% % of Losing Months: 47.27% Average Monthly Gain: 5.03% Standard Deviation of Monthly Gain: 3.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Technical is managed by Campbell & Company, Inc., Chesapeake Capital Corporation, John W. Henry & Company, Inc. and Winton Capital Management Limited. These four Trading Advisors employ a combination of investment approaches. Campbell uses a highly disciplined systematic investment approach designed to detect and react to price movements in the futures and forward markets. Campbell's core systematic approach has been used successfully for over twenty years. The trading methodology employed by Chesapeake is based on the analysis of interrelated mathematical and statistical formulas, including the technical analysis of historical data, used to determine optimal price support and resistance levels and market entry and exit points. This trading system was designed in the 1980's and is continually updated based on research. JWH's trading programs use historical data and proprietary systems to detect emerging price trends. Positions are established under strict guidelines and are retained in markets where price movements have exceeded the expectations of most fundamental investors. Winton employs a computerized, technical, trend following trading system developed by its principals. This system tracks the daily price movements from these markets around the world, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Feeder cattle Lean hogs Live cattle Pork bellies Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Cotton Orange juice Sugar ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Hong Kong dollar Indonesian rupiah Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc METALS Aluminum Copper Gold Lead Nickel Platinum Silver Tin Zinc STOCK INDICES ASE All Ordinaries CAC 40 Index DAX Index Dow Jones Industrial Index FTSE Index Hang Seng Index IBEX 35 Index NASDAQ 100 Index Nikkei Index S&P 500 Index Swedish Index Taiwan Index Toronto Index INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar German bonds Japanese bonds Spanish bonds Swiss bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Technical 1.00 0.95 -0.19 0.25 -0.14 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. MORGAN STANLEY SPECTRUM STRATEGIC L.P. All of the performance data below is through December 31, 2003. SPECTRUM STRATEGIC STATISTICS Trading Advisors: Allied Irish Capital Management, Ltd. Blenheim Capital Management, LLC Eclipse Capital Management, Inc. Began Trading: November 1, 1994 Total Assets in Fund: $121.3 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 3.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 7.25% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Fundamental RISK ANALYSIS Compounded Annual Rate of Return: 3.99% Standard Deviation of Monthly Returns: 6.46% Annualized Standard Deviation: 22.38% Sharpe Ratio: 0.00 Sortino Ratio: 0.00 Largest Decline Period (1/00 - 10/00): -43.28% Average Recovery (No. of months): 13.13 Average Monthly Loss: -4.54% Standard Deviation of Monthly Loss: 3.87% % of Losing Months: 47.27% Average Monthly Gain: 5.08% Standard Deviation of Monthly Gain: 4.68% % of Winning Months: 52.73% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Strategic is managed by Allied Irish Capital Management, Ltd., Blenheim Capital Management, LLC and Eclipse Capital Management, Inc. All three trading advisors employ a fundamental investment approach that evaluates key economic indicators such as supply and demand levels and geopolitical conditions, as well as certain technical factors. Allied Irish employs multiple investment professionals using a discretionary trading approach. Several strategies are applied to investments in a broad range of financial instruments. Blenheim's program has a strong global concentration using a discretionary trading approach. Investments are made in markets in which the trading advisor has a clear understanding of fundamental factors and geopolitical forces that influence price behavior. Eclipse employs a systematic trading approach using multiple trend-following and macroeconomic-driven models. A key characteristic of the Eclipse trading program is the extensive diversification achieved by applying multiple trading models to a wide variety of financial markets located throughout the world. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybeans Soybean meal Soybean oil Wheat SOFTS Cocoa Coffee Lumber Sugar FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Swiss franc METALS Aluminum Copper Gold Nickel Silver Zinc ENERGIES Crude oil Gas oil Heating oil Natural gas Unleaded gas STOCK INDICES CAC 40 Index DAX Index FTSE Index NASDAQ 100 Index Nikkei Index S&P 500 Index INTEREST RATES British bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic 1.00 0.56 -0.03 0.06 0.05 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SEC registration fee 48,308 NASD filing fee 30,500 Printing and engraving 58,333 * Legal fees and expenses, excluding Blue Sky legal fees 30,000 * Accounting fees and expenses 13,333 * Annual Escrow Agent fees MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. All of the performance data below is through December 31, 2003. SPECTRUM GLOBAL BALANCED STATISTICS Trading Advisor: SSARIS Advisors, LLC Began Trading: November 1, 1994 Total Assets in Fund: $52.6 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 1.25% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 15.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 4.88% Standard Deviation of Monthly Returns: 2.73% Annualized Standard Deviation: 9.46% Sharpe Ratio: 0.09 Sortino Ratio: 0.15 Largest Decline Period (5/99 - 12/02): -12.44% Average Recovery (No. of months): 6.67 Average Monthly Loss: -1.80% Standard Deviation of Monthly Loss: 1.68% % of Losing Months: 45.45% Average Monthly Gain: 2.30% Standard Deviation of Monthly Gain: 1.92% % of Winning Months: 54.55% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Global Balanced follows the tenets of Modern Portfolio Theory and offers a balanced portfolio that participates in global stocks, global bonds, and alternative investments within managed futures. Since the Spectrum Global Balanced trading strategy is in part to gain exposure to the stock and bond markets, it does not result in the same degree of non-correlation to the stock and bond indices and in that way differs from the other managed futures funds that Morgan Stanley offers. Within global stock and global bond components of the fund, SSARIS Advisors, LLC analyzes various fundamental information, such as growth data, labor wage rates, central bank interest rate policies and inflation, to determine its approaches to these markets. Within the global currency and commodity components of the Fund, SSARIS employs a technical trend-following trading system to analyze price data, determine profit and risk potential and initiate trades overall. SSARIS uses a computer-based model to reallocate assets among various market sectors within each of the independent strategies. The returns achieved by Spectrum Global Balanced will tend to be more highly correlated to the performance of global stock and global bond markets than will be the returns derived within other funds in the Spectrum Series. FUTURES MARKETS TRADED Markets traded may include, but are not limited to, the following: AGRICULTURALS Corn Lean hogs Live cattle Soybean oil Wheat SOFTS Cotton Sugar ENERGIES Crude oil Gas oil Natural gas METALS Copper Nickel Zinc STOCK INDICES DAX Index FTSE Index Nikkei 225 Index S&P 500 Index FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Euro Japanese yen Mexican peso New Zealand dollar Singapore dollar Swiss franc INTEREST RATES Australian bonds British bonds Canadian bonds Euro bonds Eurodollar French bonds German bonds Italian bonds Japanese bonds Spanish bonds U.S. Treasury bonds U.S. Treasury notes PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Global Balanced 1.00 0.56 0.47 0.47 0.37 CISDM Public Fund Index 1.00 -0.18 0.33 -0.13 S & P 500 Index 1.00 0.13 0.78 Citigroup Corporate Bond Index 1.00 0.01 MSCI EAFE Index (EAFE) 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. SELECTED FINANCIAL DATA AND SELECTED QUARTERLY FINANCIAL DATA The following are the results of operations and selected quarterly financial data for each partnership for the periods indicated. Per unit results for Spectrum Select have been adjusted to reflect a 100-for-1 unit conversion that became effective on June 1, 1998. Spectrum Select Selected Financial Data For the Years Ended December 31, Markets traded may include, but are not limited to, the following: FOREIGN EXCHANGE Australian dollar British pound Canadian dollar Czech koruna Danish kronor Euro Greek drachma Hong Kong dollar Japanese yen Mexican peso New Zealand dollar Norwegian krone Singapore dollar South African rand Swedish krona Swiss franc Thai baht PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency 1.00 0.45 -0.11 0.14 0.01 CISDM Public Fund Index 1.00 -0.40 0.29 -0.28 S & P 500 Index 1.00 -0.12 0.86 Citigroup Corporate Bond Index 1.00 -0.03 MSCI EAFE Index 1.00 The S&P 500 Index, Citigroup Corporate Bond Index and MSCI EAFE Index performance data for stocks, corporate bonds, and international stocks, respectively, are provided by Strategic Financial Solutions, LLC, Memphis, TN. The CISDM Public Fund Index performance data for managed futures is provided by Managed Account Reports LLC, New York, N.Y. Risk Considerations: Typically, managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable ony for the risk capital portion of an investor's portfolio. Before investing in any partnership and in order to make an informed decision, you should read the Spectrum Series prospectus carefully for complete information, including charges, expenses, and risks. Financial Advisors should also read the prospectus before discussing managed futures with clients. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the change in fund assets from the inception of trading in each partnership through December 31, 2003, to reflect each partnership's performance and net additions of capital. Spectrum Select Fund Asset History Net Asset Value (in millions) * Spectrum Select had multiple closings during initial offering ** Re-opening of fund in September 1993 and November 1996 *** Effective May 1998, Spectrum Select became part of the Spectrum Series. Spectrum Technical Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic Fund Asset History Net Asset Value (in millions) Spectrum Global Balanced Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ % $ % $ Foreign currency 2,362,577 3.13 3,680 0.01 2,366,257 1,471,600,565 Commodity 3,548,205 4.71 4,379 0.01 3,552,584 12,920 Interest rate 1,057,473 1.40 1,057,473 3,130 Equity 131,610 0.17 131,610 $ % $ % $ Foreign currency 627,263 1.19 109,420 0.21 736,683 15,130,291 Interest Rate 216,798 0.41 216,798 1,053 Equity 936,933 1.78 936,933 291 Commodity 689,471 1.31 (5,870 ) (0.01 ) 683,601 Spectrum Currency Fund Asset History Net Asset Value (in millions) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the monthly performance, on a net asset value basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. The CISDM Public Fund Index represents the dollar-weighted average performance of public managed futures funds. To qualify for inclusion in the CISDM Public Fund Index, an investment product must appear in CISDM's fund performance tables. CISDM imposes no minimum size restrictions on the public managed futures funds that it tracks. As of December 31, 2003, there were 55 public managed futures funds included in the calculation of the CISDM Public Fund Index. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison Data: August 1991 through December 2003 Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. $ $ $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 6,845,291 (1,351,849 ) Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) 18,665,233 (1,547,990 ) Proceeds from litigation settlement 4,636,156 Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison Data: November 1994 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison Data: July 2000 through December 2003 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following charts were prepared by the general partner to illustrate the performance, on a rate of return basis, of each partnership versus that of the CISDM Public Fund Index, from the inception of trading through December 31, 2003. Spectrum Select vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: August 1991 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Technical vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Strategic vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. Spectrum Global Balanced vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: November 1994 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Spectrum Currency vs. CISDM Public Fund Index Historical Performance Comparison (Rate of Return) Data: July 2000 through December 2003 All returns, with the exception of year-to-date returns and quarter-to-date returns, are annualized. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total Trading Results 71,369,430 64,137,291 23,265,163 25,510,524 (2,899,839 ) Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 9,573,095 7,678,789 % $ % % % % Beginning NAV Per Unit 10.00 Aug-91 (6.20) 9.38 Sep-91 6.32 9.97 Oct-91 (2.28) 9.75 Nov-91 (2.93) 9.46 Dec-91 38.67 13.12 31.54 31.19 Jan-92 (13.72) 11.32 Feb-92 (6.09) 10.63 Mar-92 (3.91) 10.21 (22.14) Apr-92 (1.86) 10.02 May-92 (1.42) 9.88 Jun-92 7.19 10.59 3.71 Jul-92 10.72 11.73 17.29 Aug-92 6.69 12.51 33.40 Sep-92 (5.24) 11.86 11.94 18.89 Oct-92 (3.17) 11.48 17.81 Nov-92 1.39 11.64 23.04 Dec-92 (3.58) 11.22 (5.34) (14.45) (14.45) Jan-93 0.31 11.26 (0.54) Feb-93 14.85 12.93 21.64 Mar-93 (0.60) 12.85 14.52 25.83 Apr-93 10.35 14.18 41.48 May-93 1.95 14.46 46.32 Jun-93 0.21 14.49 12.74 36.79 Jul-93 13.90 16.50 40.71 65.04 Aug-93 (0.95) 16.35 30.64 74.28 Sep-93 (4.13) 15.67 8.16 32.17 57.15 Oct-93 (4.97) 14.89 29.72 52.81 Nov-93 (1.30) 14.70 26.28 55.37 Dec-93 8.13 15.90 1.42 41.62 41.62 21.16 Jan-94 (11.67) 14.04 24.70 24.03 Feb-94 (6.79) 13.09 1.21 23.11 Mar-94 12.57 14.73 (7.33) 14.61 44.21 Apr-94 (0.95) 14.59 2.88 45.55 May-94 6.84 15.59 7.81 57.75 Jun-94 10.30 17.19 16.73 18.66 62.32 Jul-94 (4.91) 16.35 (0.93) 39.41 Aug-94 (6.95) 15.22 (6.93) 21.59 Sep-94 1.25 15.41 (10.41) (1.70) 29.92 Oct-94 (4.78) 14.67 (1.50) 27.77 Nov-94 5.68 15.50 5.47 33.18 Dec-94 (2.72) 15.08 (2.11) (5.12) (5.12) 34.36 Jan-95 (8.13) 13.85 (1.32) 23.05 Feb-95 9.61 15.19 16.04 17.44 Mar-95 20.58 18.31 21.42 24.30 42.46 Apr-95 9.06 19.97 36.86 40.79 May-95 11.08 22.18 42.28 53.40 Jun-95 (1.70) 21.80 19.08 26.81 50.47 Jul-95 (10.61) 19.49 19.20 18.09 Aug-95 (4.81) 18.55 21.93 13.48 Sep-95 (7.76) 17.11 (21.52) 11.08 9.19 Oct-95 (3.35) 16.54 12.75 11.05 Nov-95 1.37 16.77 8.15 14.06 Dec-95 11.19 18.64 8.94 23.62 23.62 17.28 Jan-96 (0.38) 18.57 34.05 32.28 Feb-96 (12.11) 16.32 7.49 24.73 Mar-96 (0.22) 16.29 (12.63) (11.05) 10.57 Apr-96 4.07 16.95 (15.11) 16.17 May-96 (3.65) 16.33 (26.37) 4.76 Jun-96 1.37 16.56 1.65 (24.07) (3.71) Jul-96 (1.44) 16.32 (16.27) (0.20) Aug-96 (0.46) 16.24 (12.44) 6.76 Sep-96 3.34 16.79 1.39 (1.90) 8.97 Oct-96 13.30 19.02 15.00 29.65 Nov-96 6.76 20.31 21.11 30.98 Dec-96 (3.36) 19.62 16.90 5.27 5.27 30.13 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Jan-97 3.93 20.40 9.82 47.21 Feb-97 4.75 21.36 30.88 40.68 Mar-97 0.31 21.43 9.21 31.58 17.04 Apr-97 (5.46) 20.26 19.53 1.46 May-97 (1.18) 20.02 22.60 (9.73) Jun-97 0.16 20.05 (6.42) 21.13 (8.02) Jul-97 9.74 22.01 34.86 12.92 Aug-97 (6.22) 20.64 27.06 11.25 Sep-97 0.93 20.83 3.87 24.09 21.73 Oct-97 (3.77) 20.05 5.40 21.20 Nov-97 0.62 20.17 (0.66) 20.31 Dec-97 3.35 20.85 0.07 6.22 6.22 11.82 Jan-98 0.87 21.03 3.10 13.22 Feb-98 2.16 21.48 0.55 31.60 Mar-98 0.23 21.53 3.28 0.46 32.19 Apr-98 (6.72) 20.08 (0.88) 18.47 May-98 1.78 20.44 2.08 25.15 Jun-98 0.93 20.63 (4.18) 2.87 24.60 Jul-98 (0.97) 20.43 (7.17) 25.19 Aug-98 19.19 24.35 17.98 49.90 Sep-98 6.24 25.87 25.40 24.19 54.11 Oct-98 (5.14) 24.54 22.42 29.03 Nov-98 (4.16) 23.52 16.61 15.83 Dec-98 1.19 23.80 (8.00) 14.17 14.17 21.28 Jan-99 (2.90) 23.11 9.91 13.31 Feb-99 5.45 24.37 13.45 14.07 Mar-99 (2.50) 23.76 (0.17) 10.36 10.87 Apr-99 3.70 24.64 22.70 21.61 May-99 (4.38) 23.56 15.26 17.67 Jun-99 0.34 23.64 (0.51) 14.59 17.88 Jul-99 (4.40) 22.60 10.62 2.69 Aug-99 (0.44) 22.50 (7.60) 9.02 Sep-99 1.69 22.88 (3.21) (11.56) 9.83 Oct-99 (8.39) 20.96 (14.59) 4.56 Nov-99 3.29 21.65 (7.95) 7.34 Dec-99 1.62 22.00 (3.85) (7.56) (7.56) 5.54 Jan-00 2.86 22.63 (2.08) 7.62 Feb-00 (2.17) 22.14 (9.15) 3.07 Mar-00 (2.08) 21.68 (1.45) (8.75) 0.70 Apr-00 (3.78) 20.86 (15.34) 3.87 May-00 1.58 21.19 (10.06) 3.67 Jun-00 (4.44) 20.25 (6.60) (14.34) (1.84) Jul-00 (2.42) 19.76 (12.57) (3.28) Aug-00 4.71 20.69 (8.04) (15.03) Sep-00 (1.84) 20.31 0.30 (11.23) (21.49) Oct-00 0.44 20.40 (2.67) (16.87) Nov-00 6.47 21.72 0.32 (7.65) Dec-00 8.52 23.57 16.05 7.14 7.14 (0.97) Jan-01 1.36 23.89 5.57 3.38 Feb-01 1.93 24.35 9.98 (0.08) Mar-01 7.27 26.12 10.82 20.48 9.93 Apr-01 (6.93) 24.31 16.54 (1.34) May-01 (0.53) 24.18 14.11 2.63 Jun-01 (1.78) 23.75 (9.07) 17.28 0.47 Jul-01 (0.13) 23.72 20.04 4.96 Aug-01 2.53 24.32 17.54 8.09 Sep-01 6.70 25.95 9.26 27.77 13.42 Oct-01 6.01 27.51 34.85 31.25 Nov-01 (13.12) 23.90 10.04 10.39 Dec-01 0.25 23.96 (7.67) 1.65 1.65 8.91 Jan-02 (1.25) 23.66 (0.96) 4.55 Feb-02 (6.89) 22.03 (9.53) (0.50) Mar-02 3.77 22.86 (4.59) (12.48) 5.44 Apr-02 (3.11) 22.15 (8.89) 6.18 May-02 3.48 22.92 (5.21) 8.16 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Jun-02 12.00 25.67 12.29 8.08 26.77 Jul-02 4.67 26.87 13.28 35.98 Aug-02 3.42 27.79 14.27 34.32 Sep-02 5.18 29.23 13.87 12.64 43.92 Oct-02 (6.12) 27.44 (0.25) 34.51 Nov-02 (4.56) 26.19 9.58 20.58 Dec-02 5.57 27.65 (5.41) 15.40 15.40 17.31 Jan-03 4.70 28.95 22.36 21.18 Feb-03 4.11 30.14 36.81 23.78 Mar-03 (8.99 ) 27.43 (0.80 ) 19.99 5.02 Apr-03 1.02 27.71 25.10 13.99 May-03 8.99 30.20 31.76 24.90 Jun-03 (2.91 ) 29.32 6.89 14.22 23.45 Jul-03 (1.98 ) 28.74 6.96 21.16 Aug-03 0.31 28.83 3.74 18.54 Sep-03 (2.77 ) 28.03 (4.40 ) (4.11 ) 8.02 Oct-03 2.78 28.81 4.99 4.73 Nov-03 (3.02 ) 27.94 6.68 16.90 Dec-03 8.48 30.31 8.13 9.62 9.62 26.50 Compounded annual ROR: 9.34 Standard deviation of monthly returns: 6.85 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.90 ) 9.91 Dec-94 (1.31 ) 9.78 (2.20 ) (2.20 ) Jan-95 (1.84 ) 9.60 Feb-95 5.10 10.09 Mar-95 10.21 11.12 13.70 Apr-95 3.60 11.52 May-95 0.69 11.60 Jun-95 (1.12 ) 11.47 3.15 Jul-95 (2.44 ) 11.19 Aug-95 (0.63 ) 11.12 Sep-95 (3.33 ) 10.75 (6.28 ) Oct-95 (0.09 ) 10.74 7.40 Nov-95 0.93 10.84 9.38 Dec-95 6.09 11.50 6.98 17.59 17.59 Jan-96 4.78 12.05 25.52 Feb-96 (6.39 ) 11.28 11.79 Mar-96 1.24 11.42 (0.70 ) 2.70 Apr-96 4.82 11.97 3.91 May-96 (3.84 ) 11.51 (0.78 ) Jun-96 3.21 11.88 4.03 3.57 Jul-96 (4.80 ) 11.31 1.07 Aug-96 (0.35 ) 11.27 1.35 Sep-96 5.50 11.89 0.08 10.60 Oct-96 9.92 13.07 21.69 30.70 Nov-96 8.34 14.16 30.63 42.89 Dec-96 (3.88 ) 13.61 14.47 18.35 18.35 39.16 Jan-97 3.67 14.11 17.10 46.98 Feb-97 1.13 14.27 26.51 41.43 Mar-97 (1.82 ) 14.01 2.94 22.68 25.99 Apr-97 (2.93 ) 13.60 13.62 18.06 May-97 (3.75 ) 13.09 13.73 12.84 Jun-97 0.69 13.18 (5.92 ) 10.94 14.91 Jul-97 9.33 14.41 27.41 28.78 Aug-97 (5.97 ) 13.55 20.23 21.85 Sep-97 1.85 13.80 4.70 16.06 28.37 Oct-97 0.36 13.85 5.97 28.96 Nov-97 1.01 13.99 (1.20 ) 29.06 Dec-97 4.57 14.63 6.01 7.49 7.49 27.22 Jan-98 (1.16 ) 14.46 2.48 20.00 Feb-98 0.41 14.52 1.75 28.72 Mar-98 1.31 14.71 0.55 5.00 28.81 Apr-98 (4.62 ) 14.03 3.16 17.21 May-98 3.28 14.49 10.70 25.89 Jun-98 (1.10 ) 14.33 (2.58 ) 8.73 20.62 Jul-98 (0.98 ) 14.19 (1.53 ) 25.46 Aug-98 10.29 15.65 15.50 38.86 Sep-98 4.35 16.33 13.96 18.33 37.34 Oct-98 (0.73 ) 16.21 17.04 24.02 Nov-98 (6.17 ) 15.21 8.72 7.42 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Dec-98 5.98 16.12 (1.29 ) 10.18 10.18 18.44 Jan-99 (4.96 ) 15.32 5.95 8.58 Feb-99 2.48 15.70 8.13 10.02 Mar-99 (2.48 ) 15.31 (5.02 ) 4.08 9.28 Apr-99 7.18 16.41 16.96 20.66 May-99 (5.00 ) 15.59 7.59 19.10 Jun-99 5.13 16.39 7.05 14.38 24.36 Jul-99 (3.90 ) 15.75 10.99 9.30 Aug-99 0.95 15.90 1.60 17.34 Sep-99 (1.51 ) 15.66 (4.45 ) (4.10 ) 13.48 Oct-99 (9.96 ) 14.10 (13.02 ) 1.81 Nov-99 1.84 14.36 (5.59 ) 2.64 Dec-99 3.83 14.91 (4.79 ) (7.51 ) (7.51 ) 1.91 Jan-00 1.21 15.09 (1.50 ) 4.36 Feb-00 (1.19 ) 14.91 (5.03 ) 2.69 Mar-00 (1.54 ) 14.68 (1.54 ) (4.11 ) (0.20 ) Apr-00 (4.02 ) 14.09 (14.14 ) 0.43 May-00 (0.43 ) 14.03 (10.01 ) (3.17 ) Jun-00 (2.78 ) 13.64 (7.08 ) (16.78 ) (4.82 ) Jul-00 (3.96 ) 13.10 (16.83 ) (7.68 ) Aug-00 3.74 13.59 (14.53 ) (13.16 ) Sep-00 (8.61 ) 12.42 (8.94 ) (20.69 ) (23.94 ) Oct-00 2.90 12.78 (9.36 ) (21.16 ) Nov-00 12.28 14.35 (0.07 ) (5.65 ) Dec-00 12.06 16.08 29.47 7.85 7.85 (0.25 ) Jan-01 (0.81 ) 15.95 5.70 4.11 Feb-01 1.94 16.26 9.05 3.57 Mar-01 11.38 18.11 12.62 23.37 18.29 Apr-01 (11.10 ) 16.10 14.27 (1.89 ) May-01 (0.37 ) 16.04 14.33 2.89 Jun-01 (3.62 ) 15.46 (14.63 ) 13.34 (5.67 ) Jul-01 (3.36 ) 14.94 14.05 (5.14 ) Aug-01 1.34 15.14 11.41 (4.78 ) Sep-01 8.19 16.38 5.95 31.88 4.60 Oct-01 5.37 17.26 35.05 22.41 Nov-01 (15.59 ) 14.57 1.53 1.46 Dec-01 2.47 14.93 (8.85 ) (7.15 ) (7.15 ) 0.13 Jan-02 (1.88 ) 14.65 (8.15 ) (2.92 ) Feb-02 (3.41 ) 14.15 (12.98 ) (5.10 ) Mar-02 (2.90 ) 13.74 (7.97 ) (24.13 ) (6.40 ) Apr-02 (3.20 ) 13.30 (17.39 ) (5.61 ) May-02 5.64 14.05 (12.41 ) 0.14 Jun-02 15.02 16.16 17.61 4.53 18.48 Jul-02 9.65 17.72 18.61 35.27 Aug-02 4.40 18.50 22.19 36.13 Sep-02 6.43 19.69 21.84 20.21 58.53 Oct-02 (6.75 ) 18.36 6.37 43.66 Nov-02 (4.68 ) 17.50 20.11 21.95 Dec-02 5.20 18.41 (6.50 ) 23.31 23.31 14.49 Jan-03 12.76 20.76 41.71 30.16 Feb-03 6.60 22.13 56.40 36.10 Mar-03 (9.17 ) 20.10 9.18 46.29 10.99 Apr-03 1.44 20.39 53.31 26.65 May-03 6.38 21.69 54.38 35.22 Jun-03 (7.42 ) 20.08 (0.10 ) 24.26 29.88 Jul-03 (3.04 ) 19.47 9.88 30.32 Aug-03 3.39 20.13 8.81 32.96 Sep-03 (5.41 ) 19.04 (5.18 ) (3.30 ) 16.24 Oct-03 9.14 20.78 13.18 20.39 Nov-03 1.20 21.03 20.17 44.34 Dec-03 7.66 22.64 18.91 22.98 22.98 51.64 Compounded annual ROR: 9.33 Standard deviation of monthly returns: 5.55 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Total 74,213,042 67,605,728 30,468,895 35,083,619 4,778,950 % $ % % % % Beginning NAV per unit 10.00 Nov-94 0.10 10.01 Dec-94 0.00 10.01 0.10 0.10 Jan-95 (3.50 ) 9.66 Feb-95 1.45 9.80 Mar-95 7.86 10.57 5.59 Apr-95 0.00 10.57 May-95 (0.66 ) 10.50 Jun-95 (6.38 ) 9.83 (7.00 ) Jul-95 (0.81 ) 9.75 Aug-95 4.00 10.14 Sep-95 (0.39 ) 10.10 2.75 Oct-95 0.30 10.13 1.30 Nov-95 2.76 10.41 4.00 Dec-95 6.24 11.06 9.50 10.49 10.49 Jan-96 3.71 11.47 18.74 Feb-96 (10.29 ) 10.29 5.00 Mar-96 (0.97 ) 10.19 (7.87 ) (3.60 ) Apr-96 6.08 10.81 2.27 May-96 (3.05 ) 10.48 (0.19 ) Jun-96 (2.86 ) 10.18 (0.10 ) 3.56 Jul-96 (4.91 ) 9.68 (0.72 ) Aug-96 1.14 9.79 (3.45 ) Sep-96 5.11 10.29 1.08 1.88 Oct-96 2.92 10.59 4.54 5.90 Nov-96 3.49 10.96 5.28 9.49 Dec-96 (2.65 ) 10.67 3.69 (3.53 ) (3.53 ) 6.59 Jan-97 (0.66 ) 10.60 (7.59 ) 9.73 Feb-97 10.09 11.67 13.41 19.08 Mar-97 6.77 12.46 16.78 22.28 17.88 Apr-97 (6.90 ) 11.60 7.31 9.74 May-97 0.78 11.69 11.55 11.33 Jun-97 (1.63 ) 11.50 (7.70 ) 12.97 16.99 Jul-97 7.65 12.38 27.89 26.97 Aug-97 (4.93 ) 11.77 20.22 16.07 Sep-97 (6.03 ) 11.06 (3.83 ) 7.48 9.50 Oct-97 (6.24 ) 10.37 (2.08 ) 2.37 Nov-97 (2.22 ) 10.14 (7.48 ) (2.59 ) Dec-97 5.62 10.71 (3.16 ) 0.37 0.37 (3.16 ) Jan-98 5.32 11.28 6.42 (1.66 ) Feb-98 (3.37 ) 10.90 (6.60 ) 5.93 Mar-98 0.37 10.94 2.15 (12.20 ) 7.36 Apr-98 (11.06 ) 9.73 (16.12 ) (9.99 ) May-98 (7.40 ) 9.01 (22.93 ) (14.03 ) Jun-98 (0.89 ) 8.93 (18.37 ) (22.35 ) (12.28 ) Jul-98 (5.26 ) 8.46 (31.66 ) (12.60 ) Aug-98 11.82 9.46 (19.63 ) (3.37 ) Sep-98 19.03 11.26 26.09 1.81 9.43 Oct-98 8.44 12.21 17.74 15.30 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Nov-98 (7.94) 11.24 10.85 2.55 Dec-98 2.76 11.55 2.58 7.84 7.84 8.25 Jan-99 (3.55) 11.14 (1.24) 5.09 Feb-99 11.76 12.45 14.22 6.68 Mar-99 (3.45) 12.02 4.07 9.87 (3.53) Apr-99 2.00 12.26 26.00 5.69 May-99 (13.38) 10.62 17.87 (9.15) Jun-99 21.85 12.94 7.65 44.90 12.52 Jul-99 (1.00) 12.81 51.42 3.47 Aug-99 5.31 13.49 42.60 14.61 Sep-99 13.27 15.28 18.08 35.70 38.16 Oct-99 (9.55) 13.82 13.19 33.27 Nov-99 4.85 14.49 28.91 42.90 Dec-99 9.39 15.85 3.73 37.23 37.23 47.99 Jan-00 (1.96) 15.54 39.50 37.77 Feb-00 (18.47) 12.67 1.77 16.24 Mar-00 (2.05) 12.41 (21.70) 3.24 13.44 Apr-00 (10.15) 11.15 (9.05) 14.59 May-00 10.13 12.28 15.63 36.29 Jun-00 (7.82) 11.32 (8.78) (12.52) 26.76 Jul-00 3.71 11.74 (8.35) 38.77 Aug-00 (8.26) 10.77 (20.16) 13.85 Sep-00 (10.40) 9.65 (14.75) (36.85) (14.30) Oct-00 (6.84) 8.99 (34.95) (26.37) Nov-00 6.56 9.58 (33.89) (14.77) Dec-00 10.75 10.61 9.95 (33.06) (33.06) (8.14) Jan-01 (0.94) 10.51 (32.37) (5.66) Feb-01 0.48 10.56 (16.65) (15.18) Mar-01 1.04 10.67 0.57 (14.02) (11.23) Apr-01 (1.69) 10.49 (5.92) (14.44) May-01 (0.10) 10.48 (14.66) (1.32) Jun-01 (3.34) 10.13 (5.06) (10.51) (21.72) Jul-01 (1.38) 9.99 (14.91) (22.01) Aug-01 (0.60) 9.93 (7.80) (26.39) Sep-01 3.83 10.31 1.78 6.84 (32.53) Oct-01 1.07 10.42 15.91 (24.60) Nov-01 1.15 10.54 10.02 (27.26) Dec-01 0.09 10.55 2.33 (0.57) (0.57) (33.44) Jan-02 2.09 10.77 2.47 (30.69) Feb-02 2.51 11.04 4.55 (12.87) Mar-02 4.62 11.55 9.48 8.25 (6.93) Apr-02 (4.94) 10.98 4.67 (1.52) May-02 1.37 11.13 6.20 (9.36) Jun-02 8.00 12.02 4.07 18.66 6.18 Jul-02 (0.42) 11.97 19.82 1.96 Aug-02 2.26 12.24 23.26 13.65 Sep-02 3.10 12.62 4.99 22.41 30.78 Oct-02 (7.13) 11.72 12.48 30.37 Nov-02 (5.97) 11.02 4.55 15.03 Dec-02 4.72 11.54 (8.56) 9.38 9.38 8.77 Jan-03 13.78 13.13 21.91 24.93 Feb-03 (2.21) 12.84 16.30 21.59 Mar-03 (4.28) 12.29 6.50 6.41 15.18 Apr-03 1.87 12.52 14.03 19.35 May-03 0.00 12.52 12.49 19.47 Jun-03 (1.28) 12.36 0.57 2.83 22.01 Jul-03 (1.86) 12.13 1.34 21.42 Aug-03 4.29 12.65 3.35 27.39 Sep-03 3.00 13.03 5.42 3.25 26.38 Oct-03 3.45 13.48 15.02 29.37 Nov-03 (2.23) 13.18 19.60 25.05 Dec-03 8.57 14.31 9.82 24.00 24.00 35.64 Compounded annual ROR: 3.99 Standard deviation of monthly returns: 6.46 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Nov-94 (0.50 ) 9.95 Dec-94 (1.21 ) 9.83 (1.70 ) (1.70 ) Jan-95 1.32 9.96 Feb-95 4.62 10.42 Mar-95 2.88 10.72 9.05 Apr-95 2.15 10.95 May-95 4.38 11.43 Jun-95 0.79 11.52 7.46 Jul-95 (1.39 ) 11.36 Aug-95 (1.41 ) 11.20 Sep-95 1.61 11.38 (1.22 ) Oct-95 0.26 11.41 14.10 Nov-95 2.72 11.72 17.79 Dec-95 2.99 12.07 6.06 22.79 22.79 Jan-96 0.41 12.12 21.69 Feb-96 (7.92 ) 11.16 7.10 Mar-96 (1.08 ) 11.04 (8.53 ) 2.99 Apr-96 1.27 11.18 2.10 May-96 (3.13 ) 10.83 (5.25 ) Jun-96 0.46 10.88 (1.45 ) (5.56 ) Jul-96 0.83 10.97 (3.43 ) Aug-96 (0.82 ) 10.88 (2.86 ) Sep-96 2.30 11.13 2.30 (2.20 ) Oct-96 3.77 11.55 1.23 15.50 Nov-96 4.76 12.10 3.24 21.61 Dec-96 (3.88 ) 11.63 4.49 (3.65 ) (3.65 ) 18.31 Jan-97 3.35 12.02 (0.83 ) 20.68 Feb-97 3.16 12.40 11.11 19.00 Mar-97 (2.50 ) 12.09 3.96 9.51 12.78 Apr-97 (1.65 ) 11.89 6.35 8.58 May-97 1.68 12.09 11.63 5.77 Jun-97 3.64 12.53 3.64 15.17 8.77 Jul-97 11.89 14.02 27.80 23.42 Aug-97 (5.92 ) 13.19 21.23 17.77 Sep-97 3.26 13.62 8.70 22.37 19.68 Oct-97 (1.69 ) 13.39 15.93 17.35 Nov-97 (0.37 ) 13.34 10.25 13.82 Dec-97 3.07 13.75 0.95 18.23 18.23 13.92 Jan-98 2.25 14.06 16.97 16.01 Feb-98 1.49 14.27 15.08 27.87 Mar-98 2.24 14.59 6.11 20.68 32.16 Apr-98 (1.78 ) 14.33 20.52 28.18 May-98 (0.35 ) 14.28 18.11 31.86 Jun-98 0.00 14.28 (2.12 ) 13.97 31.25 Jul-98 (1.19 ) 14.11 0.64 28.62 Aug-98 2.55 14.47 9.70 33.00 Sep-98 5.11 15.21 6.51 11.67 36.66 Oct-98 1.18 15.39 14.94 33.25 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Nov-98 2.66 15.80 18.44 30.58 Dec-98 1.27 16.00 5.19 16.36 16.36 37.58 Jan-99 (0.06 ) 15.99 13.73 33.03 Feb-99 (0.06 ) 15.98 11.98 28.87 Mar-99 0.00 15.98 (0.12 ) 9.53 32.18 Apr-99 4.13 16.64 16.12 39.95 May-99 (4.99 ) 15.81 10.71 30.77 Jun-99 2.28 16.17 1.19 13.24 29.05 Jul-99 (1.67 ) 15.90 12.69 13.41 Aug-99 (0.19 ) 15.87 9.68 20.32 Sep-99 (0.50 ) 15.79 (2.35 ) 3.81 15.93 Oct-99 (1.77 ) 15.51 0.78 15.83 Nov-99 1.93 15.81 0.06 18.52 Dec-99 1.96 16.12 2.09 0.75 0.75 17.24 Jan-00 (0.93 ) 15.97 (0.13 ) 13.58 Feb-00 0.94 16.12 0.88 12.96 Mar-00 3.10 16.62 3.10 4.01 13.91 Apr-00 (4.57 ) 15.86 (4.69 ) 10.68 May-00 (1.32 ) 15.65 (1.01 ) 9.59 Jun-00 (0.26 ) 15.61 (6.08 ) (3.46 ) 9.31 Jul-00 (2.18 ) 15.27 (3.96 ) 8.22 Aug-00 3.01 15.73 (0.88 ) 8.71 Sep-00 (3.94 ) 15.11 (3.20 ) (4.31 ) (0.66 ) Oct-00 2.25 15.45 (0.39 ) 0.39 Nov-00 (0.52 ) 15.37 (2.78 ) (2.72 ) Dec-00 5.79 16.26 7.61 0.87 0.87 1.63 Jan-01 0.55 16.35 2.38 2.25 Feb-01 (3.36 ) 15.80 (1.99 ) (1.13 ) Mar-01 2.91 16.26 0.00 (2.17 ) 1.75 Apr-01 (0.31 ) 16.21 2.21 (2.58 ) May-01 0.25 16.25 3.83 2.78 Jun-01 (3.08 ) 15.75 (3.14 ) 0.90 (2.60 ) Jul-01 0.00 15.75 3.14 (0.94 ) Aug-01 0.51 15.83 0.64 (0.25 ) Sep-01 (1.20 ) 15.64 (0.70 ) 3.51 (0.95 ) Oct-01 2.75 16.07 4.01 3.61 Nov-01 (0.06 ) 16.06 4.49 1.58 Dec-01 0.93 16.21 3.64 (0.31 ) (0.31 ) 0.56 Jan-02 (1.23 ) 16.01 (2.08 ) 0.25 Feb-02 (1.69 ) 15.74 (0.38 ) (2.36 ) Mar-02 0.25 15.78 (2.65 ) (2.95 ) (5.05 ) Apr-02 (2.09 ) 15.45 (4.69 ) (2.59 ) May-02 (0.19 ) 15.42 (5.11 ) (1.47 ) Jun-02 1.30 15.62 (1.01 ) (0.83 ) 0.06 Jul-02 (0.83 ) 15.49 (1.65 ) 1.44 Aug-02 0.97 15.64 (1.20 ) (0.57 ) Sep-02 (4.16 ) 14.99 (4.03 ) (4.16 ) (0.79 ) Oct-02 (0.80 ) 14.87 (7.47 ) (3.75 ) Nov-02 2.08 15.18 (5.48 ) (1.24 ) Dec-02 (4.02 ) 14.57 (2.80 ) (10.12 ) (10.12 ) (10.39 ) Jan-03 0.34 14.62 (8.68 ) (10.58 ) Feb-03 2.67 15.01 (4.64 ) (5.00 ) Mar-03 (2.60 ) 14.62 0.34 (7.35 ) (10.09 ) Apr-03 2.19 14.94 (3.30 ) (7.83 ) May-03 4.89 15.67 1.62 (3.57 ) Jun-03 (0.19 ) 15.64 6.98 0.13 (0.70 ) Jul-03 (1.09 ) 15.47 (0.13 ) (1.78 ) Aug-03 0.00 15.47 (1.09 ) (2.27 ) Sep-03 (1.16 ) 15.29 (2.24 ) 2.00 (2.24 ) Oct-03 (0.92 ) 15.15 1.88 (5.72 ) Nov-03 (1.32 ) 14.95 (1.52 ) (6.91 ) Dec-03 3.48 15.47 1.18 6.18 6.18 (4.57 ) Compounded annual ROR: 4.88 Standard deviation of monthly returns: 2.73 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. % $ % % % % Beginning NAV per unit 10.00 Jul-00 0.60 10.06 Aug-00 0.40 10.10 Sep-00 1.39 10.24 2.40 Oct-00 7.32 10.99 Nov-00 (1.64 ) 10.81 Dec-00 3.33 11.17 9.08 11.70 Jan-01 (1.07 ) 11.05 Feb-01 (1.36 ) 10.90 Mar-01 8.44 11.82 5.82 Apr-01 (2.88 ) 11.48 May-01 1.92 11.70 Jun-01 (1.71 ) 11.50 (2.71 ) 15.00 Jul-01 (5.91 ) 10.82 7.55 Aug-01 2.40 11.08 9.70 Sep-01 0.90 11.18 (2.78 ) 9.18 Oct-01 (0.81 ) 11.09 0.91 Nov-01 (0.36 ) 11.05 2.22 Dec-01 12.31 12.41 11.00 11.10 11.10 Jan-02 (3.46 ) 11.98 8.42 Feb-02 (1.75 ) 11.77 7.98 Mar-02 (4.50 ) 11.24 (9.43 ) (4.91 ) Apr-02 2.40 11.51 0.26 May-02 10.34 12.70 8.55 Jun-02 8.98 13.84 23.13 20.35 38.40 Jul-02 (4.41 ) 13.23 22.27 31.51 Aug-02 (4.69 ) 12.61 13.81 24.85 Sep-02 (1.98 ) 12.36 (10.69 ) 10.55 20.70 Oct-02 0.57 12.43 12.08 13.10 Nov-02 (1.05 ) 12.30 11.31 13.78 Dec-02 13.25 13.93 12.70 12.25 12.25 24.71 Jan-03 5.03 14.63 22.12 32.40 Feb-03 0.96 14.77 25.49 35.50 Mar-03 (1.96 ) 14.48 3.95 28.83 22.50 Apr-03 4.07 15.07 30.93 31.27 May-03 3.19 15.55 22.44 32.91 Jun-03 (3.99 ) 14.93 3.11 7.88 29.83 Jul-03 (4.49 ) 14.26 7.79 31.79 Aug-03 (1.26 ) 14.08 11.66 27.08 Sep-03 0.43 14.14 (5.29 ) 14.40 26.48 Oct-03 0.64 14.23 14.48 28.31 Nov-03 4.08 14.81 20.41 34.03 Dec-03 5.74 15.66 10.75 12.42 12.42 26.19 Compounded annual ROR: 13.67 Standard deviation of monthly returns: 4.66 PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 14,706,945 15,188,479 Management fees 10,617,352 7,838,786 7,110,346 6,085,629 6,284,885 Incentive fees 3,750,169 3,009,853 GLOSSARY OF TERMS The following glossary may assist prospective investors in understanding certain terms used in this prospectus: Clearing broker. The entity responsible for assuring that futures and options trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trades took place. Commodity broker. The entity responsible for holding the client's funds deposited with it as margin for trades and, if the commodity broker is also a clearing commodity broker, for assuring that futures and options trades for a client are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. In the U.S., commodity brokers are registered under the Commodity Exchange Act as futures commission merchants. Commodity pool. A partnership, trust or similar form of collective investment vehicle which consolidates funds from investors for the purpose of trading in commodity futures, forward, and options contracts. Commodity pool operator. Any person or entity that solicits funds in connection with the sale of interests in a commodity pool or that manages the operations of a commodity pool. A commodity pool operator must register under the Commodity Exchange Act. Counter-trend liquidations. Closing out a position after a significant price move on the assumption that the market is due for a correction. Cross rate. The trading of one foreign currency against another foreign currency. Daily price fluctuation limit. The maximum permitted fluctuation imposed by commodity exchanges in the price of a commodity futures contract for a given commodity that can occur on an exchange on a given day in relation to the previous day's settlement price, which maximum permitted fluctuation is subject to change from time to time by the exchange. These limits generally are not imposed on option contracts or outside the U.S. Delivery. The process of satisfying a futures contract or a forward contract by transferring ownership of a specified quantity and grade of a commodity, product or instrument to the purchaser of the contract. Exchange for physical. A transaction permitted under the rules of futures exchanges in which two parties exchange a cash market (physical) commodity position for a futures contract (or vice versa) without making a trade on the exchange. The prices at which such transactions are executed are negotiated between the parties. Forward contract. A cash market transaction in which the buyer and seller agree to the purchase and sale of a specific quantity of a commodity, product, instrument or currency for delivery at some future time under such terms and conditions as the two may agree upon. Fundamental analysis. The analysis of fundamental market information such as supply and demand levels, weather, economic indicators, and geopolitical events. Futures contract. A contract providing for the delivery or receipt at a future date of a specified amount and grade of a traded commodity, product, instrument, or index at a specified price and delivery point, or for cash settlement. A market participant can make a futures contract to buy or sell the underlying commodity, product, instrument or index. The contractual obligations may be satisfied either by taking or making, as the case may be, physical delivery of the commodity, product, instrument, or index or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same, or a mutually offsetting, exchange prior to the designated date of delivery. Long contract or long position. A contract to accept delivery (i.e., to buy) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Margin. A good faith deposit with a broker to assure fulfillment of a purchase or sale of a futures, forward or options contract. Margins on these contracts do not usually involve the payment of interest. Margin call. A demand for additional funds after the initial good faith deposit required to maintain a customer's account in compliance with the requirements of a particular commodity exchange or of a commodity broker. Non-Spectrum Series exchange. The use of proceeds from the redemption of interests from another commodity pool for which Demeter acts as general partner and commodity pool operator to acquire units in one or more of the Spectrum Series partnerships. Notional funds. The amount by which the nominal account size exceeds the amount of actual funds in the account. Open position. A contractual commitment arising under a long contract or a short contract that has not been extinguished by an offsetting trade or by delivery. Option on a futures contract. A contract that gives the purchaser of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract, if the option is exercised, at the specified price within the specified period of time. Outrights. The trading of one foreign currency against the U.S. dollar as compared to a cross rate trade between two non-U.S. currencies. Parameters. A value that can be freely assigned in a trading system in order to vary the timing of signals. Pattern recognition. The ability to identify patterns that appeared to act as precursors of price advances or declines in the past. Resistance. A previous high. A price level above the market where selling pressure overcomes buying pressure and a price advance is turned back. Secular trend. Intermediate upswings and downswings in price that over a long period of time constitutes a big move. Short contract or short position. A contract to make delivery of (sell) a specified amount of a commodity, product, instrument, or index at a future date at a specified price. Spectrum Series exchange. A redemption of units in a Spectrum Series Partnership with the proceeds used to purchase units of one or more of the other partnerships in the Spectrum Series. Speculative position limit. The maximum number of speculative futures or option contracts in any one commodity (on one exchange), imposed by the CFTC or a U.S. commodity exchange, that can be held or controlled at one time by one person or a group of persons acting together. These limits generally are not imposed for trading on markets or exchanges outside the U.S. Stop-loss order. An order to buy or sell at the market when a definite price is reached, either above or below the price of the instrument that prevailed when the order was given. Support. A previous low. A price level below the market where buying interest is sufficiently strong to overcome selling pressure. Systematic technical charting systems. A system that is technical in nature and based on chart patterns as opposed to pure mathematical calculations. Technical analysis. The analysis of technical market information by a trading advisor, such as analyzing actual daily, weekly, and monthly price fluctuations, trading volume variations, and changes in numbers of open positions in various futures and options contracts. Trading advisor. Any person or entity that provides advice as to the purchase or sale of futures, forwards, or options contracts. A commodity trading advisor must register under the Commodity Exchange Act. Total 40,026,137 26,782,529 27,303,546 20,792,574 21,473,364 NET INCOME (LOSS) 34,186,905 40,823,199 3,165,349 14,291,045 (16,694,414 ) Net Income (Loss) Allocation: Limited Partners 33,822,853 40,391,145 3,123,455 14,165,099 (16,455,697 ) General Partner 364,052 432,054 41,894 125,946 (238,717 ) Net Income (Loss) per Unit: Limited Partners 2.66 3.69 0.39 1.57 (1.80 ) General Partner 2.66 3.69 0.39 1.57 (1.80 ) TOTAL ASSETS AT END OF PERIOD 449,549,242 299,604,379 246,043,382 224,581,554 219,366,812 TOTAL NET ASSETS AT END OF PERIOD 441,522,484 295,377,799 241,411,585 220,729,969 213,805,674 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 30.31 27.65 23.96 23.57 22.00 General Partner 30.31 27.65 23.96 23.57 22.00 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 5,648,636 (3,435,893 ) (0.22 ) June 30 30,802,630 21,952,801 1.89 September 30 (7,076,850 ) (16,582,417 ) (1.29 ) December 31 44,838,626 32,252,414 2.28 Total 74,213,042 34,186,905 2.66 2002 March 31 (4,965,948 ) (11,031,500 ) (1.10 ) June 30 35,775,689 29,684,989 2.81 September 30 45,366,560 38,074,946 3.56 December 31 (8,570,573 ) (15,905,236 ) (1.58 ) Total 67,605,728 40,823,199 3.69 2001 March 31 30,525,016 24,046,834 2.55 June 30 (16,536,822 ) (22,611,942 ) (2.37 ) September 30 28,022,232 21,354,388 2.20 December 31 (11,541,531 ) (19,623,931 ) (1.99 ) Total 30,468,895 3,165,349 0.39 Spectrum Technical Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 12,255,064 726,179 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) 22,006,013 (872,972 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 34,261,077 (146,793 ) Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 11,613,896 9,593,178 Total 142,093,478 92,648,909 9,867,449 45,874,973 9,446,385 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 17,835,223 19,176,380 Incentive fees 13,042,559 4,024,921 2,093,709 166,085 430,097 Management fees 10,835,994 7,377,756 7,501,053 9,595,464 10,580,071 Total 54,151,590 31,873,474 29,150,818 27,596,772 30,186,548 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) 18,278,201 (20,740,163 ) Net Income (Loss) Allocation: Limited Partners 86,960,795 60,110,064 (19,062,561 ) 18,053,408 (20,531,494 ) General Partner 981,093 665,371 (220,808 ) 224,793 (208,669 ) Net Income (Loss) per Unit: Limited Partners 4.23 3.48 (1.15 ) 1.17 (1.21 ) General Partner 4.23 3.48 (1.15 ) 1.17 (1.21 ) TOTAL ASSETS AT END OF PERIOD 550,066,920 341,596,812 262,442,204 273,695,028 274,233,195 TOTAL NET ASSETS AT END OF PERIOD 538,184,278 335,821,626 257,974,122 268,133,092 268,755,718 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 22.64 18.41 14.93 16.08 14.91 General Partner 22.64 18.41 14.93 16.08 14.91 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 45,385,367 29,742,112 1.69 June 30 9,441,031 (1,046,326 ) (0.02 ) September 30 (11,784,806 ) (22,120,621 ) (1.04 ) December 31 99,051,886 81,366,723 3.60 Total 142,093,478 87,941,888 4.23 2002 March 31 (14,298,661 ) (20,650,030 ) (1.19 ) June 30 48,100,199 42,172,229 2.42 September 30 73,338,452 61,849,516 3.53 December 31 (14,491,081 ) (22,596,280 ) (1.28 ) Total 92,648,909 60,775,435 3.48 2001 March 31 42,238,835 33,867,655 2.03 June 30 (37,165,746 ) (44,181,065 ) (2.65 ) September 30 22,112,517 15,675,530 0.92 December 31 (17,318,157 ) (24,645,489 ) (1.45 ) Total 9,867,449 (19,283,369 ) (1.15 ) Spectrum Strategic Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 30,251,636 10,648,811 2,132,212 (23,193,914 ) 32,274,037 Net change in unrealized 990,641 2,439,378 2,505,634 (7,577,681 ) 4,264,478 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 (30,771,595 ) 36,538,515 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 3,832,634 3,017,103 Total 31,984,167 14,078,687 6,855,809 (26,938,961 ) 39,555,618 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 5,798,093 5,837,887 Management fees 2,735,685 2,194,958 2,183,596 2,880,999 3,137,509 Incentive fees 2,123,832 264,827 1,269,237 2,451,152 Total 11,470,755 7,764,271 7,336,352 9,948,329 11,426,548 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) (36,887,290 ) 28,129,070 Net Income (Loss) Allocation: Limited Partners 20,281,103 6,238,448 (475,383 ) (36,503,461 ) 27,829,050 General Partner 232,309 75,968 (5,160 ) (383,829 ) 300,020 Net Income (Loss) per Unit: Limited Partners 2.77 0.99 (0.06 ) (5.24 ) 4.30 General Partner 2.77 0.99 (0.06 ) (5.24 ) 4.30 TOTAL ASSETS AT END OF PERIOD 123,656,595 77,094,809 71,489,275 76,427,098 109,444,028 TOTAL NET ASSETS AT END OF PERIOD 121,270,439 75,369,072 68,817,386 74,234,449 107,692,521 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 14.31 11.54 10.55 10.61 15.85 General Partner 14.31 11.54 10.55 10.61 15.85 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 7,634,556 4,781,178 0.75 June 30 2,970,073 442,228 0.07 September 30 7,306,514 4,972,399 0.67 December 31 14,073,024 10,317,607 1.28 Total 31,984,167 20,513,412 2.77 2002 March 31 8,275,813 6,492,203 1.00 June 30 4,753,904 2,944,241 0.47 September 30 6,023,092 3,800,561 0.60 December 31 (4,974,122 ) (6,922,589 ) (1.08 ) Total 14,078,687 6,314,416 0.99 2001 March 31 2,340,103 404,464 0.06 June 30 (1,824,625 ) (3,672,569 ) (0.54 ) September 30 2,975,539 1,217,762 0.18 December 31 3,364,792 1,569,800 0.24 Total 6,855,809 (480,543 ) (0.06 ) Spectrum Global Balanced Selected Financial Data For the Years Ended December 31, $ $ $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 (2,091,009 ) 2,425,585 Net change in unrealized 1,801,107 56,725 (2,628,436 ) 2,507,530 (1,157,073 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 416,521 1,268,512 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 3,275,958 2,385,751 Total 6,038,905 (2,566,396 ) 3,150,268 3,692,479 3,654,263 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 2,558,008 2,387,515 Management fees 632,782 688,151 705,746 695,117 648,787 Incentive fees 215,651 Total 2,961,397 3,220,522 3,302,867 3,253,125 3,251,953 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) 439,354 402,310 Net Income (Loss) Allocation: Limited Partners 3,043,649 (5,720,328 ) (150,650 ) 433,786 397,258 General Partner 33,859 (66,590 ) (1,949 ) 5,568 5,052 Net Income (Loss) per Unit: Limited Partners 0.90 (1.64 ) (0.05 ) 0.14 0.12 General Partner 0.90 (1.64 ) (0.05 ) 0.14 0.12 TOTAL ASSETS AT END OF PERIOD 53,920,384 51,559,238 58,790,758 56,740,136 58,807,588 TOTAL NET ASSETS AT END OF PERIOD 52,639,493 50,405,432 57,785,760 55,879,750 57,864,012 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.47 14.57 16.21 16.26 16.12 General Partner 15.47 14.57 16.21 16.26 16.12 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 946,959 210,736 0.05 June 30 4,100,730 3,372,448 1.02 September 30 (386,145 ) (1,135,694 ) (0.35 ) December 31 1,377,361 630,018 0.18 Total 6,038,905 3,077,508 0.90 2002 March 31 (690,502 ) (1,526,664 ) (0.43 ) June 30 247,747 (562,004 ) (0.16 ) September 30 (1,414,555 ) (2,219,748 ) (0.63 ) December 31 (709,086 ) (1,478,502 ) (0.42 ) Total (2,566,396 ) (5,786,918 ) (1.64 ) 2001 March 31 815,020 322 June 30 (965,508 ) (1,799,958 ) (0.51 ) September 30 434,123 (386,194 ) (0.11 ) December 31 2,866,633 2,033,231 0.57 Total 3,150,268 (152,599 ) (0.05 ) Spectrum Currency Selected Financial Data For the Years Ended December 31, For the Period from July 3, 2000 (commencement of operations) to December 31, 2000 $ $ $ $ REVENUES Trading profit: Realized 27,952,154 12,877,202 3,998,924 1,126,201 Net change in unrealized (772,909 ) 2,473,166 2,622,814 555,569 Total Trading Results 27,179,245 15,350,368 6,621,738 1,681,770 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 236,461 Total 28,185,655 16,183,891 7,353,454 1,918,231 EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 249,571 Management fees 2,656,229 1,337,848 564,216 171,693 Incentive fees 2,623,290 1,485,875 1,155,201 188,423 $ % $ % $ Foreign currency 641,746 1.27 137,676 0.28 779,422 6,800,258 Interest Rate 806,083 1.60 (1,737 ) 804,346 1,479 Equity (812,665 ) (1.61 ) (812,665 ) 477 Commodity 120,736 0.24 26,606 0.05 147,342 Total 11,388,846 5,900,771 3,017,115 609,687 NET INCOME 16,796,809 10,283,120 4,336,339 1,308,544 Net Income Allocation: Limited Partners 16,514,538 10,038,409 4,119,027 1,134,371 General Partner 282,271 244,711 217,312 174,173 Net Income per Unit: Limited Partners 1.73 1.52 1.24 1.17 General Partner 1.73 1.52 1.24 1.17 TOTAL ASSETS AT END OF PERIOD 192,464,641 98,379,320 49,112,223 18,056,724 TOTAL NET ASSETS AT END OF PERIOD 190,055,920 96,159,452 47,811,741 15,707,232 NET ASSET VALUE PER UNIT AT END OF PERIOD Limited Partners 15.66 13.93 12.41 11.17 General Partner 15.66 13.93 12.41 11.17 Selected Quarterly Financial Data (Unaudited) Quarter ended Revenue (net trading losses) Net income (loss) Net income (loss) per unit of limited partnership interest $ $ $ 2003 March 31 6,321,965 3,660,402 0.55 June 30 6,641,296 3,268,861 0.45 September 30 (5,055,352 ) (7,367,330 ) (0.79 ) December 31 20,277,746 17,234,876 1.52 Total 28,185,655 16,796,809 1.73 2002 March 31 (4,108,907 ) (4,944,552 ) (1.17 ) June 30 15,457,288 13,231,295 2.60 September 30 (7,254,255 ) (8,531,364 ) (1.48 ) December 31 12,089,765 10,527,741 1.57 Total 16,183,891 10,283,120 1.52 2001 March 31 1,783,392 1,250,137 0.65 June 30 (269,233 ) (687,632 ) (0.32 ) September 30 (230,606 ) (755,594 ) (0.32 ) December 31 6,069,901 4,529,428 1.23 Total 7,353,454 4,336,339 1.24 The partnership's VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. They are also not based on exchange and/or dealer-based maintenance margin requirements. VaR models, including the partnerships', are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the general partner or the trading advisors in their daily risk management activities. Please further note that VaR, as described above, may not be comparable to similarly titled measures used by other entities. Each Partnership's Value at Risk in Different Market Sectors The following tables indicate the VaR associated with each partnership's open positions, as a percentage of total net assets, by primary market risk category as of December 31, 2003 and 2002. Spectrum Select: At December 31, 2003 and 2002, Spectrum Select's total capitalization was approximately $442 million and $295 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.75 ) (0.44 ) Currency (1.19 ) (2.17 ) Interest Rate (0.48 ) (1.25 ) Commodity (1.40 ) (1.22 ) Aggregate Value at Risk (2.64 ) (2.84 ) Spectrum Technical: At December 31, 2003 and 2002, Spectrum Technical's total capitalization was approximately $538 million and $336 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.48 ) (2.14 ) Equity (1.66 ) (0.24 ) Interest Rate (1.16 ) (1.24 ) Commodity (1.45 ) (1.46 ) Aggregate Value at Risk (3.47 ) (2.76 ) Spectrum Strategic: At December 31, 2003 and 2002, Spectrum Strategic's total capitalization was approximately $121 million and $75 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR Spectrum Global Balanced: At December 31, 2003 and 2002, Spectrum Global Balanced's total capitalization was approximately $53 million and $50 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Equity (1.43 ) (0.79 ) Interest Rate (0.72 ) (0.91 ) Currency (0.70 ) (0.66 ) Commodity (0.19 ) (0.34 ) Aggregate Value at Risk (1.46 ) (1.37 ) Spectrum Currency: At December 31, 2003 and 2002, Spectrum Currency's total capitalization was approximately $190 million and $96 million, respectively. Market Category December 31, 2003 VaR December 31, 2002 VaR % % Currency (2.60 ) (3.91 ) The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category. The Aggregate Value at Risk, listed above for each partnership, represents the VaR of a partnership's open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes. Because the business of each partnership is the speculative trading of futures, forwards, and options, the composition of a partnership's trading portfolio can change significantly over any given time period, or even within a single trading day, which could positively or negatively materially impact market risk as measured by VaR. The tables below supplement the December 31, 2003 VaR (set forth above) by presenting each partnership's high, low, and average VaR, as a percentage of total net assets, for the four quarter-end reporting periods from January 1, 2003 through December 31, 2003. Spectrum Select Market Category High Low Average % % % Equity 1.75 0.42 0.86 Currency 1.32 0.44 1.00 Interest Rate 0.58 0.35 0.47 Commodity 1.40 0.16 0.80 Aggregate Value at Risk 2.64 0.82 1.72 Spectrum Technical Market Category High Low Average Spectrum Strategic Market Category High Low Average % % % Equity (1.69 ) (0.12 ) (0.63 ) Currency (0.93 ) (0.20 ) (0.60 ) Interest Rate (0.24 ) (0.09 ) (0.16 ) Commodity (1.67 ) (1.04 ) (1.22 ) Aggregate Value at Risk (2.61 ) (1.19 ) (1.60 ) Spectrum Global Balanced Market Category High Low Average % % % Equity (1.43 ) (0.59 ) (0.87 ) Interest Rate (0.84 ) (0.37 ) (0.66 ) Currency (0.70 ) (0.19 ) (0.39 ) Commodity (0.31 ) (0.10 ) (0.19 ) Aggregate Value at Risk (1.46 ) (0.76 ) (1.03 ) Spectrum Currency Market Category High Low Average 2003, the partnership's major exposures were to the euro Canadian dollar, Australian dollar, Swiss franc and Japanese yen currency crosses, as well as outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based partnership in expressing VaR in a functional currency other than U.S. dollars. Commodity Energy. At December 31, 2003, the partnership's energy exposure was primarily to futures contracts in crude oil. Price movements in these energy markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals. Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future. Metals. The partnership's metals exposure at December 31, 2003 was to fluctuations in the price of base metals such as copper and nickel. Economic forces, supply and demand inequalities, geopolitical factors and market expectations influence price movements in these markets. The Trading Advisor, from time to time, takes positions when market opportunities develop, and the general partner anticipates that the Partnership will continue to do so. Soft Commodities and Agriculturals. At December 31, 2003, the partnership had exposure to the markets that comprise these sectors. Most of the exposure was to the cotton and corn markets. Supply and demand inequalities, severe weather disruptions and market expectations affect price movements in these markets. Morgan Stanley Spectrum Currency L.P. The following was the only trading risk exposure of Spectrum Currency as of December 31, 2003. It may be anticipated, however, that market exposure will vary materially over time. Currency. The partnership's currency exposure at December 31, 2003 was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. Interest rate changes as well as political and general economic conditions influence these fluctuations. At December 31, 2003, the partnership's exposure was to outright U.S. dollar positions. Outright positions consist of the U.S. dollar vs. other currencies. These other currencies include major and minor currencies. The general partner does not anticipate that the risk profile of the partnership's currency sector will change significantly in the future. The currency trading VaR figure includes foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the U.S.-based Partnership in expressing VaR in a functional currency other than U.S. dollars. Qualitative Disclosures Regarding Non-Trading Risk Exposure The following was the only non-trading risk exposure of each partnership at December 31, 2003: Foreign Currency Balances. Each partnership's primary foreign currency balances were in: Spectrum Select Spectrum Technical Spectrum Strategic Euros Euros British pounds Hong Kong dollars Hong Kong dollars Euros Japanese yen South African rand Hong Kong dollars Spectrum Global Balanced Spectrum Currency Each partnership controls the non-trading risk of these balances by regularly converting them back into U.S. dollars upon liquidation of the respective position. Qualitative Disclosures Regarding Means of Managing Risk Exposure Each partnership and the trading advisors, separately, attempt to manage the risk of a partnership's open positions in essentially the same manner in all market categories traded. The general partner attempts to manage each partnership's market exposure by seeking to have each partnership diversify its assets among different trading advisors in a multi-advisor partnership, each of whose strategies focus on different market sectors and trading approaches, and monitoring the performance of the trading advisors daily. In addition, the trading advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market sensitive instrument. The general partner monitors and controls the risk of each partnership's non-trading instrument, cash. Cash is the only partnership investment directed by the general partner, rather than the trading advisors. THE GENERAL PARTNER The general partner and commodity pool operator of each partnership is Demeter Management Corporation, a Delaware corporation formed on August 18, 1977 to act as a commodity pool operator. Effective in 1977, the general partner became registered with the CFTC as a commodity pool operator and is currently a member of the National Futures Association in such capacity. The general partner's main business office is located at 825 Third Avenue, 9th Floor, New York, New York 10022, telephone (212) 310-6444. The general partner is an affiliate of Morgan Stanley DW in that they are both wholly-owned subsidiaries of Morgan Stanley, which is a publicly-owned company subject to the reporting requirements of the Securities Exchange Act of 1934. Morgan Stanley's SEC file number is 1-11758. The general partner is or has been the general partner and commodity pool operator for 39 commodity pools, including 7 commodity pools that are exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of December 31, 2003, the general partner had approximately $2.7 billion in aggregate net assets under management, making it one of the largest operators of commodity pools in the U.S. As of December 31, 2003, there were approximately 80,500 investors in the commodity pools managed by Demeter. The general partner is required to maintain its net worth at an amount equal to at least 10% of the total contributions to each limited partnership for which it acts as a general partner. Morgan Stanley has contributed to the general partner the capital necessary to permit the general partner to meet its net worth obligations as general partner of each partnership and intends to continue to do so. The general partner's minimum net worth requirements may be modified by the general partner at its option without notice to or the consent of the limited partners, provided the modification does not adversely affect the partnership or the limited partners. The general partner and its principals are not obligated to purchase units but may do so. Pursuant to each limited partnership agreement, the genral partner is required to contribute to each partnership, in $1,000 increments, the greater of 1% of the aggregate capital contributions by all partners and $25,000. As of December 31, 2003, the general partner's capital account in each partnership was equal to: Capital Account $ Demeter Management Corporation Capsule Summary of Performance Information Regarding Commodity Pools Operated (except as otherwise indicated, beginning January 1, 1999 through December 31, 2003) Compound Annual Rates of Return Current Total Net Asset Value(5) Current Net Asset Value per Unit(6) Cumulative Return Since Inception(7) Fund Type/Fund(1) Start Date(2) Close Date(3) Aggregate Subscriptions(4) Worst Monthly % Drawdown(8) Worst Peak- to-Valley % Drawdown(9) $ $ ASSETS Investments in affiliated partnerships 26,396,481 27,173,907 Deferred income taxes 2,248,934 Income taxes receivable 1,689,480 Receivable from affiliated partnerships during any audit and in any dispute with the Internal Revenue Service. Each limited partner will be informed by the general partner of the commencement of an audit of a partnership. In general, the general partner may enter into a settlement agreement with the Internal Revenue Service on behalf of, and binding upon, limited partners owning less than a 1% profits interest if the partnership has more than 100 partners. However, prior to settlement, such a limited partner may file a statement with the Internal Revenue Service stating that the general partner does not have the authority to settle on behalf of the limited partner. The period for assessing a deficiency against a partner in a partnership with respect to a partnership item is the later of three years after the partnership files its return or, if the name and address of the partner does not appear on the partnership return, one year after the Internal Revenue Service is furnished with the name and address of the partner. In addition, the general partner may consent on behalf of each partnership to the extension of the period for assessing a deficiency with respect to a partnership item. As a result, a limited partner's federal income tax return may be subject to examination and adjustment by the Internal Revenue Service for a partnership item more than three years after it has been filed. 2003* Managed futures investments are designed to fit into a total financial plan as aggressive growth vehicles with the potential for long-term capital appreciation (with commensurate risk). Because their performance does not correlate directly with traditional investments, managed futures can truly enhance diversification in a well-balanced portfolio. The table below is an empirical example of how different assets can react to business cycles. In each case, the asset class is represented by a recognized industry index for that asset. ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME U.S. Stocks (S&P 500 Index) U.S. Treasury Bonds (Lehman Brothers Treasury Bond Index) U.S. Corporate Bonds (Citigroup Corporate Bond Index) Non-U.S. Stocks (MSCI EAFE Index) Global Stocks (MSCI World Index) Managed Futures (Barclay CTA Index) Public Managed Futures Funds (CISDM Public Fund Index) Data: 42 months of trading from July 2000 through December 2003 Monthly returns for the S&P 500 Index and the Citigroup Corporate Bond Index are provided by Strategic Financial Solutions, LLC (Memphis, TN). Trading advisors are analyzed by a combination of quantitative measures and qualitative factors, including: Quantitative Measures Review of historic performance returns Review of performance versus managed futures industry Review of risk, including standard deviation of monthly returns and worst decline periods Scrutiny of performance in key periods Leverage policies of trading advisors Correlation analysis of trading advisor returns versus managed futures industry indices and other asset class indices Qualitative Factors Experience of staff responsible for development and management of trading approach Development of trading advisor's profile Consistency of trading approach On-site office visit to trading advisor headquarters Ongoing commitment to research and development Flexibility to expand in order to meet demands of growth in assets Futures, Forwards, and Options Traded Adding managed futures investments to a traditional portfolio of stocks and bonds can provide qualified investors with access to major world economic markets. At any given time, managed futures investments can participate in a broad array of markets, selected from among approximately 75 global futures and forward markets on approximately 20 exchanges worldwide. PARTICIPATION IN APPROXIMATELY 75 MARKETS WORLDWIDE plus Energies, Agriculturals, and Metals UNITED STATES UNITED KINGDOM FRANCE GERMANY Bonds, Bills, & Notes Dollar S&P 500 FTSE 100 Long Gilt Pound Short Sterling CAC 40 Notional Bond Pibor Bund DAX RUSSIA CHINA JAPAN AUSTRALIA MAJOR FUTURES MARKETS TRADED Managed futures give investors access to a wide range of complex and sophisticated investments from around the world. Markets traded may include, but are not limited to, the following: AGRICULTURALS FOREIGN EXCHANGE STOCK INDICES SPECTRUM SELECT PERFORMANCE 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 31.19% -14.45% 41.62% -5.12% 23.62% 5.27% 6.22% 14.17% -7.56% 7.14% 1.65% 15.40% 9.62% (5 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (7/31/91 = $10) CORRELATION ANALYSIS (8/91 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Select CISDM S&P CITI EAFE SPECTRUM TECHNICAL PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -2.20% 17.59% 18.35% 7.49% 10.18% -7.51% 7.85% -7.15% 23.31% 22.98% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 -12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Technical CISDM S&P CITI EAFE SPECTRUM STRATEGIC PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 0.10% 10.49% -3.53% 0.37% 7.84% 37.23% -33.06% -0.57% 9.38% 24.00% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Strategic CISDM S&P CITI EAFE SPECTRUM GLOBAL BALANCED PERFORMANCE 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 -1.70% 22.79% -3.65% 18.23% 16.36% 0.75% 0.87% -0.31% -10.12% 6.18% (2 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (10/31/94 = $10) CORRELATION ANALYSIS (11/94 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Spectrum Global Balanced CISDM S&P CITI EAFE MORGAN STANLEY SPECTRUM CURRENCY L.P. All of the performance data below is through December 31, 2003. SPECTRUM CURRENCY STATISTICS Trading Advisors: John W. Henry & Company, Inc. Sunrise Capital Partners, LLC Began Trading: July 3, 2000 Total Assets in Fund: $190.1 Million Minimum Investment: $5,000 ($2,000/IRA) Monthly Management Fee: 1/12 of 2.00% of Beg. Net Assets Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets Monthly Incentive Fee: 20.00% of Monthly Trading Profits Investment Style: Technical RISK ANALYSIS Compounded Annual Rate of Return: 13.67% Standard Deviation of Monthly Returns: 4.61% Annualized Standard Deviation: 15.96% Sharpe Ratio: 0.61 Sortino Ratio: 1.71 Largest Decline Period (2/89 - 9/89): -11.13% Average Recovery (No. of months): 2.14 Average Monthly Loss: -2.59% Standard Deviation of Monthly Loss: 1.63% % of Losing Months: 44.19% Average Monthly Gain: 4.11% Standard Deviation of Monthly Gain: 3.99% % of Winning Months: 55.81% AVERAGE SECTOR PARTICIPATION TRADING STRATEGY Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC, is structured to exclusively trade a portfolio of diverse world currencies. Each trading advisor implements a technical, trend-following program to participate in international currencies, primarily in the forward dealer markets, futures contracts, and may also trade in spot (cash) currency markets. JWH employs the International Foreign Exchange Program, which seeks to identify and capitalize on intermediate-term price movements in a broad range of both major and minor currencies primarily trading on the interbank market. Positions are taken as outrights against the U.S. dollar, or non-dollar cross rates. Sunrise's Currency Program follows approximately ten different major and minor currency markets, which may include, but are not limited to, the Japanese yen, British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. In order to achieve adequate diversification for the Currency Program, major and minor currencies are traded as cross-rates selectively against each other and/or as outrights against the U.S. dollar. FUTURES MARKETS TRADED SPECTRUM CURRENCY PERFORMANCE 2000 2001 2002 2003 11.70% 11.10% 12.25% 12.42% (6 months) ROLLING 12-MONTH PERFORMANCE VS. CISDM PUBLIC FUND INDEX HISTORICAL PERFORMANCE COMPARISON (4/30/87 = $10) CORRELATION ANALYSIS (6/00 - 12/03) Note: The closer the value to zero, the lower the correlation to the indexes compared. Pro Forma Spectrum Currency CISDM S&P CITI EAFE The following charts were prepared by the general partner to illustrate certain period performance and statistical information relating to the partnerships, from their inception of trading through December 2003. Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Select Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Technical Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Strategic Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Global Balanced Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period Spectrum Currency Historical Performance Month Monthly Return NAV/ Unit Qrtly Return Annual Return 12 Mo. Holding Period 24 Mo. Holding Period FINANCIAL STATEMENTS INDEX Page MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 398,595,952 274,780,334 Net unrealized gain on open contracts (Morgan Stanley & Co.) 25,504,948 20,865,525 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 11,277,017 (2,967,507 ) Total net unrealized gain on open contracts 36,781,965 17,898,018 Net option premiums 1,232,488 Total Trading Equity 436,610,405 292,678,352 Subscriptions receivable 12,688,217 6,690,744 Interest receivable (Morgan Stanley DW) 250,620 235,283 Total Assets 449,549,242 299,604,379 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 2,405,123 1,876,403 Accrued brokerage fees (Morgan Stanley DW) 2,401,080 1,662,321 Accrued incentive fee 2,227,005 Accrued management fees 993,550 687,856 Total Liabilities 8,026,758 4,226,580 PARTNERS' CAPITAL Limited Partners (14,405,312.114 and 10,567,690.403 Units, respectively) 436,666,633 292,226,000 General Partner (160,190.965 and 113,977.644 Units, respectively) 4,855,851 3,151,799 Total Partners' Capital 441,522,484 295,377,799 Total Liabilities and Partners' Capital 449,549,242 299,604,379 NET ASSET VALUE PER UNIT 30.31 27.65 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 483,512,056 310,115,973 Net unrealized gain on open contracts (Morgan Stanley & Co.) 27,948,353 27,172,226 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 18,485,857 (3,069,013 ) Total net unrealized gain on open contracts 46,434,210 24,103,213 Net option premiums 3,973,725 Total Trading Equity 533,919,991 334,219,186 Subscriptions receivable 15,855,119 7,108,790 Interest receivable (Morgan Stanley DW) 291,810 268,836 Total Assets 550,066,920 341,596,812 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 4,924,640 Accrued brokerage fees (Morgan Stanley DW) 2,947,775 1,906,305 Redemptions payable 2,925,703 3,195,919 Accrued management fees 1,084,524 672,962 Total Liabilities 11,882,642 5,775,186 PARTNERS' CAPITAL Limited Partners (23,512,770.158 and 18,038,726.045 Units, respectively) 532,266,109 332,124,550 General Partner (261,434.166 and 200,799.812 Units, respectively) 5,918,169 3,697,076 Total Partners' Capital 538,184,278 335,821,626 Total Liabilities and Partners' Capital 550,066,920 341,596,812 NET ASSET VALUE PER UNIT 22.64 18.41 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 109,846,761 68,224,648 Net unrealized gain on open contracts (Morgan Stanley & Co.) 5,847,799 7,430,755 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 2,073,986 (499,611 ) Total net unrealized gain on open contracts 7,921,785 6,931,144 Net option premiums 678,280 222,768 Total Trading Equity 118,446,826 75,378,560 Subscriptions receivable 5,143,178 1,654,471 Interest receivable (Morgan Stanley DW) 66,591 61,778 Total Assets 123,656,595 77,094,809 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fee 811,250 Redemptions payable 655,871 1,115,549 Accrued brokerage fees (Morgan Stanley DW) 650,049 431,596 Accrued management fees 268,986 178,592 Total Liabilities 2,386,156 1,725,737 PARTNERS' CAPITAL Limited Partners (8,385,489.652 and 6,454,424.204 Units, respectively) 119,976,992 74,487,934 General Partner (90,402.219 and 76,351.101 Units, respectively) 1,293,447 881,138 Total Partners' Capital 121,270,439 75,369,072 Total Liabilities and Partners' Capital 123,656,595 77,094,809 NET ASSET VALUE PER UNIT 14.31 11.54 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ $ ASSETS Equity in futures interests trading accounts: Cash 50,336,417 49,330,482 Net unrealized gain on open contracts (Morgan Stanley & Co.) 1,845,313 758,782 Net unrealized gain (loss) on open contracts (Morgan Stanley International) 701,727 (12,849 ) Total net unrealized gain on open contracts 2,547,040 745,933 Net option premiums (39,600 ) 712,573 Total Trading Equity 52,843,857 50,788,988 Subscriptions receivable 1,036,417 716,792 Interest receivable (Morgan Stanley DW) 40,110 53,458 Total Assets 53,920,384 51,559,238 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 1,033,040 896,775 Accrued brokerage fees (Morgan Stanley DW) 194,891 202,109 Accrued management fees 52,960 54,922 Total Liabilities 1,280,891 1,153,806 PARTNERS' CAPITAL Limited Partners (3,364,748.115 and 3,419,596.378 Units, respectively) 52,064,431 49,814,229 General Partner (37,164.331 and 40,584.304 Units, respectively) 575,062 591,203 Total Partners' Capital 52,639,493 50,405,432 Total Liabilities and Partners' Capital 53,920,384 51,559,238 NET ASSET VALUE PER UNIT 15.47 14.57 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF FINANCIAL CONDITION December 31, $ % $ % $ Foreign currency 10,097,643 3.01 967,843 0.29 11,065,486 3,317,707,667 Commodity 2,703,202 0.80 1,100,261 0.33 3,803,463 11,280 Interest rate 9,047,725 2.69 (683,890 ) (0.20 ) 8,363,835 10,261 Equity (486,130 ) (0.14 ) 449,469 0.13 (36,661 ) $ $ ASSETS Equity in futures interests trading accounts: Cash 178,774,244 88,478,803 Net unrealized gain on open contracts (Morgan Stanley & Co.) 4,878,640 5,651,549 Total Trading Equity 183,652,884 94,130,352 Subscriptions receivable 8,709,868 4,178,758 Interest receivable (Morgan Stanley DW) 101,889 70,210 Total Assets 192,464,641 98,379,320 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Accrued incentive fees 399,035 239,482 Redemptions payable 1,060,483 1,526,335 Accrued brokerage fees (Morgan Stanley DW) 661,566 316,460 Accrued management fees 287,637 137,591 Total Liabilities 2,408,721 2,219,868 PARTNERS' CAPITAL Limited Partners (12,010,816.426 and 6,739,826.121 Units, respectively) 188,042,673 93,891,619 General Partner (128,591.799 and 162,791.986 Units, respectively) 2,013,247 2,267,833 Total Partners' Capital 190,055,920 96,159,452 Total Liabilities and Partners' Capital 192,464,641 98,379,320 NET ASSET VALUE PER UNIT 15.66 13.93 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 52,485,483 46,999,853 43,420,724 Net change in unrealized 18,883,947 12,501,282 (20,155,561 ) Proceeds from litigation settlement 4,636,156 Total Trading Results 71,369,430 64,137,291 23,265,163 Interest income (Morgan Stanley DW) 2,843,612 3,468,437 7,203,732 Total 74,213,042 67,605,728 30,468,895 EXPENSES Brokerage fees (Morgan Stanley DW) 25,658,616 18,943,743 17,183,347 Management fees 10,617,352 7,838,786 7,110,346 Incentive fees 3,750,169 3,009,853 Total 40,026,137 26,782,529 27,303,546 NET INCOME 34,186,905 40,823,199 3,165,349 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 116,446,374 76,058,451 30,115,483 Net change in unrealized 22,330,997 12,597,598 (28,536,694 ) Proceeds from litigation settlement 306,400 Total Trading Results 138,777,371 88,962,449 1,578,789 Interest income (Morgan Stanley DW) 3,316,107 3,686,460 8,288,660 Total 142,093,478 92,648,909 9,867,449 EXPENSES Brokerage fees (Morgan Stanley DW) 30,273,037 20,470,797 19,556,056 Incentive fees 13,042,559 4,024,921 2,093,709 Management fees 10,835,994 7,377,756 7,501,053 Total 54,151,590 31,873,474 29,150,818 NET INCOME (LOSS) 87,941,888 60,775,435 (19,283,369 ) MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit: Realized 30,251,636 10,648,811 2,132,212 Net change in unrealized 990,641 2,439,378 2,505,634 Proceeds from litigation settlement 17,556 Total Trading Results 31,242,277 13,105,745 4,637,846 Interest income (Morgan Stanley DW) 741,890 972,942 2,217,963 Total 31,984,167 14,078,687 6,855,809 EXPENSES Brokerage fees (Morgan Stanley DW) 6,611,238 5,304,486 5,152,756 Management fees 2,735,685 2,194,958 2,183,596 Incentive fees 2,123,832 264,827 Total 11,470,755 7,764,271 7,336,352 NET INCOME (LOSS) 20,513,412 6,314,416 (480,543 ) $ $ $ REVENUES Trading profit (loss): Realized 3,711,981 (3,772,374 ) 3,618,628 Net change in unrealized 1,801,107 56,725 (2,628,436 ) Proceeds from litigation settlement 233,074 Total Trading Results 5,513,088 (3,482,575 ) 990,192 Interest income (Morgan Stanley DW) 525,817 916,179 2,160,076 Total 6,038,905 (2,566,396 ) 3,150,268 EXPENSES Brokerage fees (Morgan Stanley DW) 2,328,615 2,532,371 2,597,121 Management fees 632,782 688,151 705,746 Total 2,961,397 3,220,522 3,302,867 NET INCOME (LOSS) 3,077,508 (5,786,918 ) (152,599 ) MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, $ $ $ REVENUES Trading profit (loss): Realized 27,952,154 12,877,202 3,998,924 Net change in unrealized (772,909 ) 2,473,166 2,622,814 Total Trading Results 27,179,245 15,350,368 6,621,738 Interest income (Morgan Stanley DW) 1,006,410 833,523 731,716 1. Formation; Name A-2 2. Office A-3 3. Business A-3 4. Term; Dissolution; Fiscal Year A-3 Spectrum Select only: A-3 (a) Term A-3 Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: A-3 (a) Term A-3 Spectrum Currency only: A-4 (a) Term A-4 (b) Dissolution A-4 (c) Fiscal Year A-4 5. Net Worth of General Partner A-4 6. Capital Contributions and Offering of Units of Limited Partnership Interest A-5 7. Allocation of Profits and Losses; Accounting; Other Matters A-7 (a) Capital Accounts A-7 (b) Monthly Allocations A-7 (c) Allocation of Profit and Loss for Federal Income Tax Purposes A-7 (d) Definitions; Accounting A-9 (e) Expenses and Limitations Thereof A-9 (f) Limited Liability of Limited Partners A-10 (g) Return of Limited Partner's Capital Contribution A-10 (h) Distributions A-10 (i) Interest on Assets A-10 8. Management and Trading Policies A-10 (a) Management of the Partnership A-10 (b) The General Partner A-11 (c) General Trading Policies A-12 Trading Policies for All Partnerships: A-12 Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency A-12 Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: A-12 Trading Policy for Spectrum Select only: A-13 Trading Policies for Spectrum Global Balanced only: A-13 (d) Changes to Trading Policies A-13 (e) Miscellaneous A-13 9. Audits; Reports to Limited Partners A-14 10. Transfer; Redemption of Units; Exchange Privilege A-15 (a) Transfer A-15 (b) Redemption A-16 (c) Exchange Privilege A-17 11. Special Power of Attorney A-18 12. Withdrawal of Partners A-19 13. No Personal Liability for Return of Capital A-19 14. Standard of Liability; Indemnification A-19 (a) Standard of Liability A-19 (b) Indemnification by the Partnership A-19 (c) Affiliate A-20 (d) Indemnification by Partners A-20 15. Amendments; Meetings A-20 (a) Amendments with Consent of the General Partner A-20 (b) Meetings A-21 (c) Amendments and Actions without Consent of the General Partner A-21 (d) Action Without Meeting A-22 (e) Amendments to Certificate of Limited Partnership A-22 16. Index of Defined Terms A-22 17. Governing Law A-23 18. Miscellaneous A-23 (a) Priority among Limited Partners A-23 (b) Notices A-23 (c) Binding Effect A-23 (d) Captions A-23 Annex A Request for Redemption A-24 Total 28,185,655 16,183,891 7,353,454 Form of Amended and Restated Limited Partnership Agreement for each of the Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P. Boldfaced captions and bracketed text reflect differences in Limited Partnership Agreements. Spectrum Select only: This Agreement of Limited Partnership, made as of March 21, 1991, as amended and restated as of August 31, 1993, as further amended and restated as of October 17, 1996, as further amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: This Agreement of Limited Partnership, made as of May 27, 1994, as amended and restated as of May 31, 1998, and as further amended and restated as of February 28, 2000, by and between Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. Spectrum Currency only: This Agreement of Limited Partnership, made as of March 6, 2000 (this "Agreement"), by and among Demeter Management Corporation, a Delaware corporation (the "General Partner"), and the other parties who shall execute this Agreement, whether in counterpart, by separate instrument, or otherwise, as limited partners (collectively, "Limited Partners"; the General Partner and Limited Partners may be collectively referred to herein as "Partners"). The definitions of capitalized terms used in this Agreement and not defined where used may be found by reference to the index of defined terms in Section 16. WITNESSETH: WHEREAS, the parties hereto desire to form a limited partnership for the purpose of engaging in the speculative trading of future interests. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Formation; Name. The parties hereto do hereby form a limited partnership under the Delaware Revised Uniform Limited Partnership Act, as amended and in effect on the date hereof (the "Act"). The name of the limited partnership is Morgan Stanley Spectrum [Select][Technical][Strategic][Global Balanced][Currency] L.P. (the "Partnership"). The General Partner shall execute and file a Certificate of Limited Partnership of the Partnership (the "Certificate of Limited Partnership") in accordance with the Act, and shall execute, file, record, and publish as appropriate such amendments, assumed name certificates, and other documents as are or become necessary or advisable in connection with the operation of the Partnership, as determined by the General Partner, and shall take all steps which the General Partner may deem necessary or advisable to allow the Partnership to conduct business as a limited partnership where the Partnership conducts business in any jurisdiction, and to otherwise provide that Limited Partners will have limited liability with respect to the activities of the Partnership in all such jurisdictions, and to comply with the law of any jurisdiction. Each Limited Partner hereby undertakes to furnish to the General Partner a power of attorney and such additional information as the General Partner may request to complete such documents and to execute and cooperate in the filing, recording, or publishing of such documents as the General Partner determines appropriate. 2. Office. The principal office of the Partnership shall be 825 Third Avenue, 9th Floor, New York, New York 10022, or such other place as the General Partner may designate from time to time. The address of the principal office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other agent as the General Partner shall designate from time to time. 3. Business. The Partnership's business and general purpose is to trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now, or may hereafter be, the subject of futures contract trading), domestic and foreign commodity futures contracts, commodity forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, and any rights pertaining thereto (hereinafter referred to collectively as "Futures Interests") and securities (such as United States Treasury securities) approved by the Commodity Futures Trading Commission (the "CFTC") for investment of customer funds and other securities on a limited basis, and to engage in all activities incident thereto. The objective of the Partnership's business is appreciation of its assets through speculative trading. The Partnership may pursue this objective in any lawful manner consistent with the Partnership's trading policies. The Partnership may engage in the foregoing activities either directly or through any lawful transaction or any lawful activity into which a limited partnership may enter or in which a limited partnership may engage under the laws of the State of Delaware; provided that such transactions or activities do not subject the Limited Partners to any liability in excess of the limited liability provided for herein and contemplated by the Act. 4. Term; Dissolution; Fiscal Year. Spectrum Select only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: ( i) December 31, 2025; ( ii) withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; ( iii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; ( iv) a decline in the Net Asset Value (as defined in Section 7( d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; ( v) a decline in the Partnership's Net Assets (as defined in Section 7( d)(1)) as of the close of business (as determined by the General Partner) on any day to or less than $250,000; ( vi) a determination by the General Partner that the Partnership's Net Assets in relation to the operating expenses of the Partnership make it unreasonable or imprudent to continue the business of the Partnership; ( vii) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; or ( viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. Spectrum Currency only: (a) Term. The term of the Partnership shall commence upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware and shall end upon the first to occur of the following: (i) December 31, 2035; (ii) receipt by the General Partner of a notice setting forth an election to terminate and dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units (as defined in Section 6 below), which notice shall be sent by registered mail to the General Partner not less than 90 days prior to the effective date of such termination and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or termination of the General Partner, unless the business of the Partnership shall be continued by any remaining or successor general partner(s) in accordance with the provisions hereof; (iv) the occurrence of any event which shall make it unlawful for the existence of the Partnership to be continued; (v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit as of the close of business (as determined by the General Partner) on any day to less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in Section 7(d)(1)) as of the close of business (as determined by the General Partner) on any day to or below $250,000; (vii) a determination by the General Partner upon 60 days notice to the Limited Partners to terminate the Partnership; or (viii) a determination by the General Partner to terminate the Partnership following a Special Redemption Date as described in Section 9. (b) Dissolution. Upon the occurrence of an event causing the termination of the Partnership, the Partnership shall terminate and be dissolved. Dissolution, payment of creditors, and distribution of the Partnership's Net Assets shall be effected as soon as practicable in accordance with the Act, except that the General Partner and each Limited Partner (and any assignee) shall share in the Net Assets of the Partnership pro rata in accordance with such Partner's respective capital account, less any amount owing by such Partner (or assignee) to the Partnership. The General Partner shall, at its option, be entitled to supervise the liquidation of the Partnership. Nothing contained in this Agreement shall impair, restrict, or limit the rights and powers of the Partners under the law of the State of Delaware and any other jurisdiction in which the Partnership shall be conducting business to reform and reconstitute themselves as a limited partnership following dissolution of the Partnership, either under provisions identical to those set forth herein or any others which they shall deem appropriate. (c) Fiscal Year. The fiscal year of the Partnership shall begin on January 1 of each year and end on the following December 31. 5. Net Worth of General Partner. The General Partner agrees that at all times, as long as it remains General Partner of the Partnership, it shall maintain its net worth at an amount not less than 10% of the total contributions to the Partnership by all Partners and to any other limited partnership for which it acts as a general partner by all partners; provided, however, that if the total contributions to the Partnership by all such partnership's partners, or to any limited partnership for which it acts as a general partner by all partners, are less than $2,500,000, then with respect to the Partnership and any such limited partnership, the General Partner shall maintain its net worth at an amount of at least 15% of the total contributions to the Partnership by all Partners and of the total contributions to any such limited partnership for which it acts as a general partner by all such partnership's partners or $250,000, whichever is the lesser; and, provided, further, that in no event shall the General Partner's net worth be less than $50,000. For the purposes of this Section 5, "net worth" shall EXPENSES Brokerage fees (Morgan Stanley DW) 6,109,327 3,077,048 1,297,698 Management fees 2,656,229 1,337,848 564,216 Incentive fees 2,623,290 1,485,875 1,155,201 be calculated in accordance with generally accepted accounting principles, except as otherwise specified in this Section 5, with all current assets based on their then current market values. The interests owned by the General Partner in the Partnership and any other partnerships for which it acts as a general partner and any notes and accounts receivable from and payable to any limited partnership in which it has an interest shall not be included as an asset in calculating its net worth, but any notes receivable from an affiliate (as such term is defined in Regulation S-X of the rules and regulations of the Securities and Exchange Commission (the "SEC")) of the General Partner or letters of credit may be included. The General Partner agrees that it shall not be a general partner of any limited partnership other than the Partnership unless, at all times when it is a general partner of any such additional limited partnership, its net worth is at least equal to the net worth required by the preceding paragraph of this Section 5. The requirements of the preceding two paragraphs of this Section 5 may be modified by the General Partner at its option, without notice to or the consent of the Limited Partners, provided that: (a) such modification does not adversely affect the interests of the Limited Partners, and (b) the General Partner obtains a written opinion of counsel for the Partnership that such proposed modification: (i) will not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, (ii) will not adversely affect the status of the Limited Partners as limited partners under the Act, and (iii) will not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder; provided, however, that the General Partner's net worth may not be reduced below the lesser of (A) the net worth required by Section II.B of the Guidelines for Registration of Commodity Pool Programs, as adopted in revised form by the North American Securities Administrators Association, Inc. in September, 1993 (the "NASAA Guidelines"), and (B) the net worth required by such Guidelines as in effect on the date of such proposed modification. 6. Capital Contributions and Offering of Units of Limited Partnership Interest. The General Partner shall contribute to the Partnership, in $1,000 increments, such amount in cash as is necessary to make the General Partner's capital contribution at least equal to the greater of: (a) 1% of aggregate capital contributions to the Partnership by all Partners (including the General Partner's contribution) and (b) $25,000. Such contribution by the General Partner need not exceed the amount described above and shall be evidenced by Units of General Partnership Interest ("Unit(s) of General Partnership Interest"). The General Partner shall maintain its interest in the capital of the Partnership at no less than the amount stated above. The General Partner, without notice to or consent of the Limited Partners, may withdraw any portion of its interest in the Partnership that is in excess of its required interest described above. Interests in the Partnership, other than the General Partnership Interest of the General Partner, shall be Units of Limited Partnership Interest ("Units" or, individually, a "Unit"). The net asset value of a Unit of General Partnership Interest shall at all times be equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. The General Partner, for and on behalf of the Partnership, shall issue and sell Units to persons desiring to become Limited Partners, provided that such persons shall be determined by the General Partner to be qualified investors and their subscriptions for Units shall be accepted by the General Partner, which acceptance the General Partner may withhold in whole or in part in its sole discretion. The minimum subscription for Units per subscriber shall be such amount as the General Partner shall determine from time to time in its sole discretion. The Partnership, directly and/or through Morgan Stanley DW Inc. ("Morgan Stanley DW"), Morgan Stanley & Co. Incorporated ("MS&Co.") or such other selling agent or agents (each, a "Selling Agent") as may be approved by the General Partner, may at any time and from time to time in the sole discretion of the General Partner offer for sale Units and fractions of Units (to the third decimal place) in public and/or private offerings, at prices per Unit, in such minimum amounts, for such periods of time, and on such terms and conditions as the General Partner shall determine in its sole discretion. Units offered during any offering shall be issued and sold by the Partnership as of the close of business (as determined by the General Partner) on the last business day of a fiscal quarter or month and a closing for subscriptions received during such offering shall be held as of such date; provided, however, that the General Partner may hold closings at such other times and for such other periods as it shall determine in its sole discretion to effectuate such offerings. At each such closing, the Partnership shall issue and sell Units to each subscriber whose subscription shall be accepted by the General Partner at a price per Unit to be determined by the General Partner in its sole discretion; provided, however, that the offering price per Unit during any offering of Units shall not at any time be less than the Net Asset Value of a Unit as of the close of business on the date of the applicable closing at which such Unit shall be issued and sold, unless the newly offered Units' participation in the Partnership's profits and losses is proportionately reduced. During any offering, Units may be subscribed for by the General Partner, Morgan Stanley DW, MS&Co., any trading advisor to the Partnership (each, a "Trading Advisor"), any commodity broker for the Partnership (each, a "Commodity Broker"), and such persons' respective shareholders, directors, officers, partners, employees, principals, and Affiliates. Subscriptions for Units by such persons shall not preclude them from receiving compensation from the Partnership for services rendered by them in their respective capacities as other than Limited Partners. No subscriber for Units during any offering of Units shall become a Limited partner until the General Partner shall: (a) accept such subscriber's subscription at a closing relating to such offering; (b) execute this Agreement on behalf of such subscriber pursuant to the power of attorney in the subscription agreement executed by the subscriber in connection with such offering; and (c) make an entry on the books and records of the Partnership reflecting that such subscriber has been admitted as a Limited Partner. Accepted subscribers shall be deemed Limited Partners at such time as their admission shall be reflected on the books and records of the Partnership. The aggregate of all capital contributions to the Partnership shall be available to the Partnership to carry on its business and no interest shall be paid by the Partnership on any such contribution. In connection with any offering of Units by the Partnership, the General Partner, on behalf of the Partnership, shall: (a) cause to be filed one or more Disclosure Documents and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law with the CFTC and the National Futures Association ("NFA"), Forms D or other applications, notices or forms with the SEC and state securities and Blue Sky administrators, and Registration Statements, Prospectuses (as used hereinafter, the term "Prospectus" shall mean the most recent version of the Prospectus issued by the Partnership, or the most recent version of the Disclosure Document or other offering memorandum prepared, in connection with the particular offering of Units), and such amendments and supplements thereto as the General Partner shall deem advisable or as may be required by applicable law, with the CFTC, the NFA, the SEC, and the National Association of Securities Dealers, Inc.; (b) qualify by registration or exemption from registration the Units for sale under the Blue Sky and securities laws of such states of the United States and such other jurisdictions as the General Partner in its sole discretion shall deem advisable or as may be required by applicable law; (c) make such arrangements for the sale of Units as it shall deem advisable, including engaging Morgan Stanley DW or any other firm as Selling Agent and entering into a selling agreement with Morgan Stanley DW or such other Selling Agent; and (d) take such action with respect to and in order to effectuate the matters described in clauses (a) through (c) as it shall deem advisable or necessary. The Partnership shall not pay the costs of any offering or any selling commissions relating thereto. No Limited Partner shall have any preemptive, preferential or other rights with respect to the issuance or sale of any additional Units, except as described in the applicable Prospectus. No Limited Partner shall have the right to consent to the admission of any additional Limited Partner. There is no maximum aggregate amount of contributions which may be received by the Partnership. All Units subscribed for shall be issued subject to the collection of good funds. If, at any time, good funds representing payment for Units are not made available to the Partnership because a subscriber has provided bad funds in the form of a bad check or draft or otherwise to Morgan Stanley DW or another Selling Agent which, in turn, has deposited the subscription amount with the escrow agent, the Partnership shall cancel the Units issued to such subscriber represented by such bad funds, and the subscriber's name shall be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership as a result thereof in connection with its Futures Interests trading allocable to such cancelled Units shall be deemed a decrease or increase in Net Assets and allocated among the remaining Partners as described in Section 7. Each Limited Partner agrees to reimburse the Partnership for any expense or loss incurred in connection with the issuance and cancellation of any such Units issued to such Limited Partner. 7. Allocation of Profits and Losses; Accounting; Other Matters. (a) Capital Accounts. A capital account shall be established for each Partner. The initial balance of each Partner's capital account shall be the amount of a Partner's initial capital contribution to the Partnership. (b) Monthly Allocations. As of the close of business (as determined by the General Partner) on the last day of each calendar month ("Determination Date") during each fiscal year of the Partnership, the following determinations and allocations shall be made: (1) The Net Assets of the Partnership (as defined in Section 7(d)(1)), before accrual of the monthly management fees and incentive fees payable to any Trading Advisor, shall be determined. (2) The accrued monthly management fees shall then be charged against Net Assets. (3) The accrued monthly incentive fees, if any, shall then be charged against Net Assets. (4) Any increase or decrease in Net Assets (after the adjustments in subparagraphs (2) and (3) above), over those of the immediately preceding Determination Date (or, in the case of the first Determination Date, the first closing of the sale of Units to the public), shall then be credited or charged to the capital account of each Partner in the ratio that the balance of each account bears to the balance of all accounts. (5) The amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, any amount deemed received by a Partner on a Series Exchange of Units pursuant to Section 10(c) hereof, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership shall be charged to that Partner's capital account. (c) Allocation of Profit and Loss for Federal Income Tax Purposes. As of the end of each fiscal year of the Partnership, the Partnership's realized profit or loss shall be allocated among the Partners pursuant to the following subparagraphs for federal income tax purposes. Such allocations of profit and loss will be pro rata from net capital gain or loss and net operating income or loss realized by the Partnership. For United States federal income tax purposes, a distinction will be made between net short-term gain or loss and net long-term gain or loss. (1) Items of ordinary income (such as interest or credits in lieu of interest) and expense (such as the management fees, incentive fees, brokerage fees and extraordinary expenses) shall be allocated pro rata among the Partners based on their respective capital accounts (exclusive of these items of ordinary income or expense) as of the end of each month in which the items of ordinary income or expense accrued. (2) Net realized capital gain or loss from the Partnership's trading activities shall be allocated as follows: (aa) For the purpose of allocating the Partnership's net realized capital gain or loss among the Partners, there shall be established an allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid by the Partner to the Partnership for the Unit. Allocation accounts shall be adjusted as of the end of each fiscal year and as of the date a Partner completely redeems his Units as follows: (i) Each allocation account shall be increased by the amount of income allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(cc) below. (ii) Each allocation account shall be decreased by the amount of expense or loss allocated to the holder of the Unit pursuant to subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by the amount of any distribution the holder of the Unit has received with respect to the Unit (other than on redemption of the Unit). (iii) When a Unit is redeemed or exchanged in a Series Exchange, the allocation account with respect to such Unit shall be eliminated. (bb) Net realized capital gain shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal Total 11,388,846 5,900,771 3,017,115 year up to the excess, if any, of the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units over the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange. (cc) Net realized capital gain remaining after the allocation thereof pursuant to subparagraph (c)(2)(bb) above shall be allocated next among all Partners whose capital accounts are in excess of their Units' allocation accounts (after the adjustments in subparagraph (c)(2)(bb) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that gain to be allocated pursuant to this subparagraph (c)(2)(cc) is greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (dd) Net realized capital loss shall be allocated first to each Partner who has partially redeemed his Units or exchanged less than all his Units in a Series Exchange during the fiscal year up to the excess, if any, of the allocation account attributable to the redeemed Units or the Units exchanged in the Series Exchange over the amount received upon redemption of the Units or the amount deemed received on the Series Exchange of the Units. (ee) Net realized capital loss remaining after the allocation thereof pursuant to subparagraph (c)(2)(dd) above shall be allocated next among all Partners whose Units' allocation accounts are in excess of their capital accounts (after the adjustments in subparagraph (c)(2)(dd) above) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that loss to be allocated pursuant to this subparagraph (c)(2)(ee) is greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (3) The tax allocations prescribed by this Section 7(c) shall be made to each holder of a Unit whether or not the holder is a substituted Limited Partner. In the event that a Unit has been transferred or assigned pursuant to Section 10(a), the allocations prescribed by this Section 7(c) shall be made with respect to such Unit without regard to the transfer or assignment, except that in the year of transfer or assignment the allocations prescribed by this Section 7(c) shall be divided between the transferor or assignor and the transferee or assignee based on the number of months each held the transferred or assigned Unit. For purposes of this Section 7(c), tax allocations shall be made to the General Partner's Units of General Partnership Interest on a Unit-equivalent basis. (4) The allocation of profit and loss for federal income tax purposes set forth herein is intended to allocate taxable profits and loss among Partners generally in the ratio and to the extent that net profit and net loss are allocated to such Partners under Section 7(b) hereof so as to eliminate, to the extent possible, any disparity between a Partner's capital account and his allocation account with respect to each Unit then outstanding, consistent with the principles set forth in Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). (d) Definitions; Accounting. (1) Net Assets. The Partnership's "Net Assets" shall mean the total assets of the Partnership (including, but not limited to, all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open Futures Interests positions and other assets of the Partnership) less the total liabilities of the Partnership (including, but not limited to, all brokerage, management and incentive fees, and extraordinary expenses) determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. Unless generally accepted accounting principles require otherwise, the market value of a Futures Interest traded on a United States exchange shall mean the settlement price on the exchange on which the particular Futures Interest was traded by the Partnership on the day with respect to which Net Assets are being determined; provided, however, that if a Futures Interest could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange upon which that Futures Interest shall be traded or otherwise, the settlement price on the first subsequent day on which the Futures Interest could be liquidated shall be the market value of such Futures Interest for such day. The market value of a forward contract or a Futures Interest traded on a foreign exchange or market shall mean its market value as determined by the General Partner on a basis consistently applied for each different variety of forward contract or Futures Interest. (2) Net Asset Value. The "Net Asset Value" of a Unit shall mean the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the aggregate number of Units of Limited Partnership Interest. (e) Expenses and Limitations Thereof. Morgan Stanley DW shall pay all of the organizational, initial and continuing offering expenses of the Partnership (including, but not limited to, legal, accounting, and auditing fees, printing costs, filing fees, escrow fees, marketing costs and expenses, and other related expenses), and shall not be reimbursed therefor. Subject to the limits set forth below, and except to the extent that Morgan Stanley DW or an affiliate has agreed to pay any such fees, costs or expenses as provided in the Prospectus, the Partnership shall pay its operational expenses. The General Partner shall not be reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for Partnership operations and administration of redemptions and Series Exchanges of Units. The Partnership will be obligated to pay any extraordinary expenses (determined in accordance with generally accepted accounting principles) it may incur. The Partnership's assets held by any Commodity Broker, as provided in Section 7(i), may be used as margin solely for the Partnership's trading. The Partnership shall bear all commodity brokerage fees and commissions and, except as otherwise set forth herein or described in the Prospectus, shall be obligated to pay all liabilities incurred by it, including, without limitation, all fees and expenses incurred in connection with its trading activities (including, but not limited to, floor brokerage fees, exchange fees, clearinghouse fees, NFA fees, "give up" or transfer fees, costs associated with the taking of delivery of Futures Interests, fees for the execution of forward contract transactions, fees for the execution of cash transactions relating to the exchange of futures for physical transactions, and the use of any Commodity Broker's institutional and overnight execution facilities (collectively, "Transaction Fees and Costs")), and management and incentive fees payable to any Trading Advisor. Appropriate reserves may be created, accrued, and charged against Net Assets for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner. Such reserves shall reduce the Net Asset Value of interests in the Partnership for all purposes, including redemptions and Series Exchanges. The following special limits shall apply to the Partnership's fees and expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the aggregate of (i) the management fees payable by the Partnership to the Trading Advisor(s), and (ii) the Partnership's customary and routine administrative expenses (other than commodity brokerage commissions or fees, Transaction Fees and Costs, incentive fees, legal and auditing fees and expenses, and extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net Assets per month, or 6% of the Partnership's Net Assets annually; (b) the monthly incentive fees payable by the Partnership shall not exceed 15% of the Partnership's "Trading Profits" (as defined in the Prospectus) attributable to such Trading Advisor for the applicable calculation period, provided that such incentive fees may be increased by 2% for each 1% by which the aggregate fees and expenses described in clause (a) of this sentence are below the 6% of Net Assets annual limit thereon (i.e., if such fees and expenses are 4% of Net Assets, the maximum incentive fee payable may be increased to 19%); (c) any "roundturn" brokerage commissions (excluding Transaction Fees and Costs) payable by the Partnership to any Commodity Broker shall not exceed 80% of such Commodity Broker's published non-member rates for speculative accounts; and (d) the aggregate of (i) the brokerage commissions or fees payable by the Partnership to any Commodity Broker, (ii) any Transaction Fees and Costs separately payable by the Partnership, and (iii) any net excess interest and compensating balance benefits to any Commodity Broker (after crediting the Partnership with interest), shall not exceed 14% annually of the Partnership's average monthly Net Assets as at the last day of each month during each calendar year. The General Partner or an Affiliate thereof shall pay and shall not be reimbursed for any fees and expenses in excess of any such limits. (f) Limited Liability of Limited Partners. Each Unit, when purchased by a Limited Partner in accordance with the terms of this Agreement, shall be fully paid and nonassessable. No Limited Partner shall be liable for the Partnership's obligations in excess of such Partner's unredeemed capital contribution, undistributed profits, if any, and any distributions and amounts received upon redemption of Units or deemed received on a Series Exchange of Units, together with interest thereon. The Partnership shall not make a claim against a Limited Partner with respect to amounts distributed to such Partner or amounts received by such Partner upon redemption of Units or deemed received upon a Series Exchange of Units unless the Net Assets of the Partnership (which shall not include any right of contribution from the General Partner except to the extent previously made by it pursuant to this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. (g) Return of Limited Partner's Capital Contribution. Except to the extent that a Limited Partner shall have the right to withdraw capital through redemption or Series Exchange of Units in accordance with Section 10(b) or (c), no Limited Partner shall have any right to demand the return of his capital contribution or any profits added thereto, except upon termination and dissolution of the Partnership. In no event shall a Limited Partner be entitled to demand or receive from the Partnership property other than cash. (h) Distributions. The General Partner shall have sole discretion in determining what distributions (other than on redemption or Series Exchange of Units), if any, the Partnership shall make to its Partners. If made, all distributions shall be pro rata in accordance with the respective capital accounts of the Partners and may be made by credit to a Limited Partner's account with Morgan Stanley DW or by check if such account is closed. (i) Interest on Assets. The Partnership shall deposit all of its assets with such Commodity Broker(s) as the Partnership shall utilize from time to time, and such assets shall be used by the Partnership to engage in Futures Interests trading. Unless provided otherwise in the Prospectus, such assets will be invested in securities approved by the CFTC for investment of customer funds or held in non-interest-bearing accounts, and such Commodity Broker(s) will credit the Partnership at month-end with interest income as set forth in the Prospectus or as otherwise set forth in a notice to Limited Partners. 8. Management and Trading Policies. (a) Management of the Partnership. Except as may be otherwise specifically provided herein, the General Partner, to the exclusion of all Limited Partners, shall conduct and manage the business of the Partnership, including, without limitation, the investment of the funds of the Partnership. No Limited Partner shall have the power to represent, act for, sign for, or bind the General Partner or the Partnership. Except as provided herein, no Partner shall be entitled to any salary, draw, or other compensation from the Partnership. Each Limited Partner hereby undertakes to furnish to the General Partner such additional information as may be determined by the General Partner to be required or appropriate for the Partnership to open and maintain an account or accounts with the Partnership's Commodity Broker(s) for the purpose of trading in Futures Interests. The General Partner shall be under a fiduciary duty to conduct the affairs of the Partnership in the best interests of the Partnership. The Limited Partners will under no circumstances be permitted to contract away, or be deemed to have contracted away, the fiduciary obligations owed them by the General Partner under statutory or common law. The General Partner shall have fiduciary responsibility for the NET INCOME 16,796,809 10,283,120 4,336,339 safekeeping of all of the funds and assets of the Partnership, whether or not in its immediate possession or control, and the General Partner shall not employ, or permit another to employ, such funds or assets in any manner except for the benefit of the Partnership. (b) The General Partner. The General Partner, on behalf of the Partnership, shall retain one or more Trading Advisors to make all trading decisions for the Partnership, and shall delegate complete trading discretion to such Trading Advisors; provided, however, that the General Partner may override any trading instructions: (i) which the General Partner, in its sole discretion, determines to be in violation of any trading policy of the Partnership, as set forth in subsection (c) below; (ii) to the extent the General Partner believes doing so is necessary for the protection of the Partnership; (iii) to terminate the Futures Interests trading of the Partnership; (iv) to comply with applicable laws or regulations; or (v) as and to the extent necessary, upon the failure of a Trading Advisor to comply with a request to make the necessary amount of funds available to the Partnership, to fund distributions, redemptions, or reapportionments among Trading Advisors or to pay the expenses of the Partnership; and provided, further, that the General Partner may make trading decisions at any time at which a Trading Advisor shall become incapacitated or some other emergency shall arise as a result of which such Trading Advisor shall be unable or unwilling to act and a successor Trading Advisor has not yet been retained. The Partnership shall not enter into any agreement with the General Partner, Morgan Stanley, or their respective Affiliates (other than a selling agreement as contemplated by Section 6) which has a term of more than one year and which does not provide that it shall be terminable by the Partnership without penalty upon 60 days' prior written notice by the General Partner; provided, however, that any such agreement may provide for automatic renewal for additional one-year terms unless either the Partnership or the other party to such agreement, upon written notice given not less than 60 days prior to the original termination date or any extended termination date, notifies the other party of its intention not to renew. Subject to the foregoing paragraph, the General Partner is hereby authorized, on behalf of the Partnership, to enter into the form of management agreement described in the Prospectus (each, a "Management Agreement") with each Trading Advisor described in the Prospectus, and to cause the Partnership to pay to each such Trading Advisor the management and incentive fees provided for in the applicable Management Agreement, as described in the Prospectus. The General Partner is further authorized: (a) to modify (including changing the form and amount of compensation and other arrangements and terms) or terminate any Management Agreement in its sole discretion in accordance with the terms of such Management Agreement and to employ from time to time other Trading Advisors pursuant to management agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, which terms may include provision for the payment of an incentive fee to a new or replacement Trading Advisor or Advisors which shall be based on any trading profits which shall be earned by such Trading Advisor(s), irrespective of whether such profits shall exceed trading losses incurred by any previous or existing Trading Advisor or Advisors or by the Partnership as a whole; (b) to enter into the Customer Agreements described in the Prospectus (each, a "Customer Agreement") with the Commodity Brokers described in the Prospectus, and to cause the Partnership to pay to such Commodity Brokers brokerage fees or commissions and Transaction Fees and Costs at the rates provided for in the Customer Agreements and as described in the Prospectus; and (c) to modify (including changing the form and amount of compensation and other arrangements and terms) and terminate the Customer Agreements in its sole discretion in accordance with the terms of such Agreements and to employ from time to time other Commodity Brokers pursuant to customer agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership, provided, however, that the General Partner shall review at least annually the brokerage arrangements with the Partnership to ensure that the brokerage fees or commissions paid to any Commodity Broker are fair, reasonable, and competitive, and represent the best price and services available, taking into consideration: (i) the size of the Partnership; (ii) the Futures Interests trading activity; (iii) the services provided by the Commodity Broker, the General Partner or any Affiliate thereof to the Partnership; (iv) the cost incurred by the Commodity Broker, the General Partner or any Affiliate thereof in organizing and operating the Partnership and offering Units; (v) the overall costs to the Partnership; (vi) any excess interest and compensating balance benefits to the Commodity Broker from assets held thereby; and (vii) if the General Partner does not receive any direct compensation from the Partnership for its services as General Partner, the risks incurred by the General Partner as such. The General Partner may subdivide or combine Units in its discretion, provided that no such subdivision or combination shall affect the Net Asset Value of any Limited Partner's interest in the Partnership. (c) General Trading Policies. The General Partner shall require any Trading Advisor retained by the Partnership to follow the trading policies set forth below. The following trading policies are applicable to the Partnership as a whole and do not apply to the trading of any individual Trading Advisor. Trading Policies for All Partnerships: The Partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given Futures Interest due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related Futures Interest. Taking into account the Partnership's open trade equity on existing positions in determining generally whether to acquire additional Futures Interest positions on behalf of the Partnership will not be considered to constitute "pyramiding." The Partnership will not under any circumstances lend money to affiliated entities or otherwise. The Partnership will not utilize borrowings except if the Partnership purchases or takes delivery of commodities. If the Partnership borrows money from the General Partner or any Affiliate thereof, the lending entity in such case (the "Lender") may not receive interest in excess of its interest costs, nor may the Lender receive interest in excess of the amounts which would be charged the Partnership (without reference to the General Partner's financial abilities or guarantees) by unrelated banks on comparable loans for the same purpose, nor may the Lender or any Affiliate thereof receive any points or other financing charges or fees regardless of the amount. Use of lines of credit in connection with its forward trading does not, however, constitute borrowing for purposes of this trading limitation. The Partnership will not permit "churning" of the Partnership's assets. Trading Policy for All Partnerships, Except Spectrum Global Balanced and Spectrum Currency: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Select, Spectrum Technical, and Spectrum Strategic only: The Trading Advisors will trade only in those Futures Interests that have been approved by the General Partner. The Partnership normally will not establish new positions in a Futures Interest for any one contract month or option if such additional positions would result in a net long or short position for that Futures Interest requiring as margin or premium more than 15% of the Partnership's Net Assets. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Partnership will not acquire additional positions in any Futures Interest if such additional positions would result in the aggregate net long or short positions for all Futures Interests requiring as margin or premium for all outstanding positions more than 662/3% of the Partnership's Net Assets. Under certain market conditions, such as an abrupt increase in margins required by a commodity exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, or both, the Partnership may be required to commit as margin amounts in excess of the foregoing limit. In such event, the Trading Advisors will reduce their open positions to comply with the foregoing limit before initiating new positions. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. Trading Policy for Spectrum Select only: The Partnership will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds). Trading Policies for Spectrum Global Balanced only: The Trading Advisor will trade only in those Futures Interests that have been approved by the General Partner. In addition, the Partnership will, except under extraordinary circumstances, maintain positions in Futures Interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial, and economic indexes)) at any one time. The Trading Advisors will not generally take a position after the first notice day in any Futures Interest during the delivery month of that Futures Interest, except to match trades to close out a position on the interbank foreign currency or other forward markets or liquidate trades in a limit market. The Partnership may, with the General Partner's prior approval, purchase "cash" stocks and bonds, or options on stock or bond indices, on a temporary basis under unusual circumstances in which it is not practicable or economically feasible to establish the Partnership's stock index or bond portfolios in the futures markets, and may acquire "cash" instruments in its short-term interest rate futures component. (d) Changes to Trading Policies. The General Partner shall not make any material change in the trading policies in Section 8(c) without obtaining the prior written approval of Limited Partners owning more than 50% of the Units then outstanding. The General Partner will notify the Limited Partners within seven business days after any material change in the Partnership's Trading Policies so approved by the Limited Partners. (e) Miscellaneous. The General Partner may take such other actions as it deems necessary or desirable to manage the business of the Partnership, including, but not limited to, the following: opening bank accounts and paying or authorizing the payment of distributions to the Partners and the expenses of the Partnership, such as brokerage fees and commissions, management and incentive fees, ordinary and extraordinary expenses, and Transaction Fees and Costs. The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) any federal, state, or local tax returns which shall be required to be filed by the Partnership. The General Partner shall cause the Partnership to pay any taxes payable by the Partnership; provided, however, that the General Partner shall not be required to cause the Partnership to pay any tax so long as the General Partner or the Partnership shall be in good faith and by appropriate legal proceedings contesting the validity, applicability, or amount thereof and such contest shall not materially endanger any right or interest of the Partnership. The General Partner shall be authorized to perform all duties imposed by Sections 6221 through 6233 of the Code on the General Partner as "tax matters partner" of the Partnership, including, but not limited to, the following: (a) the power to conduct all audits and other administrative proceedings with respect to Partnership tax items; (b) the power to extend the statute of limitations for all Limited Partners with respect to Partnership tax items; (c) the power to file a petition with an appropriate federal court for review of a final Partnership administrative adjustment; and (d) the power to enter into a settlement with the Internal Revenue Service on behalf of, and binding upon, those Limited Partners having less than a 1% interest in the Partnership, unless a Limited Partner shall have notified the Internal Revenue Service and the General Partner that the General Partner may not act on such Partner's behalf. If the Partnership is required to withhold United States taxes on income with respect to Units held by Limited Partners who are nonresident alien individuals, foreign corporations, foreign partnerships, foreign trusts, or foreign estates, the General Partner may pay such tax out of its own funds and then be reimbursed out of the proceeds of any distribution or redemption with respect to such Units. The General Partner shall keep at the principal office of the Partnership such books and records relating to the business of the Partnership as it deems necessary or advisable, as are required by the Commodity Exchange Act, as amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as shall be required by other regulatory bodies, exchanges, boards, and authorities having jurisdiction. Such books and records shall be retained by the Partnership for not less than five years. The Partnership's books and records shall be available to Limited Partners or their authorized attorneys or agents for inspection and copying during normal business hours of the Partnership and, upon request, the General Partner shall send copies of same to any Limited Partner upon payment by him of reasonable reproduction and distribution costs. Any subscription documentation executed by a Limited Partner in connection with his purchase of Units, Series Exchange or Non-Series Exchange, as applicable, shall be retained by the Partnership for not less than six years. Except as described herein or in the Prospectus, no person may receive, directly or indirectly, any advisory, management, or incentive fee for investment advice who shares or participates in per trade commodity brokerage commissions paid by the Partnership. No Commodity Broker for the Partnership may pay, directly or indirectly, rebates or "give-ups" to the General Partner or any Trading Advisor, and such prohibitions may not be circumvented by any reciprocal business arrangements. Assets of the Partnership shall not be commingled with assets of any other person. Margin deposits and deposits of assets with a Commodity Broker shall not constitute commingling. The General Partner shall devote such time and resources to the Partnership's business and affairs as it, in its sole discretion, shall deem necessary or advisable to effectively manage the Partnership. Subject to Section 5, the General Partner may engage in other business activities and shall not be required to refrain from any other activity or disgorge any profits from any such activity, whether as general partner of additional partnerships formed for investment in Futures Interests or otherwise. The General Partner may engage and compensate, on behalf and from funds of the Partnership, such persons, firms, or corporations, including any Affiliate of the General Partner, as the General Partner in its sole judgment shall deem advisable for the conduct and operation of the business of the Partnership; provided, however, that, except as described herein and in the Prospectus, the General Partner shall not engage any such Affiliate to perform services for the Partnership without having made a good faith determination that: (i) the Affiliate which it proposes to engage to perform such services is qualified to do so (considering the prior experience of the Affiliate or the individuals employed thereby); (ii) the terms and conditions of the agreement pursuant to which such Affiliate is to perform services for the Partnership are no less favorable to the Partnership than could be obtained from equally-qualified unaffiliated third parties, or are otherwise determined by the General Partner to be fair and reasonable to the Partnership and the Limited Partners; and (iii) the maximum period covered by the agreement pursuant to which such Affiliate is to perform services for the Partnership shall not exceed one year, and such agreement shall be terminable without penalty upon 60 days' prior written notice by the Partnership. Nothing contained in the preceding sentence shall prohibit the General Partner from receiving reimbursement from the Partnership for expenses advanced on behalf of the Partnership (other than organizational and offering expenses). No person dealing with the General Partner shall be required to determine its authority to make any undertaking on behalf of the Partnership or to determine any fact or circumstance bearing upon the existence of its authority. 9. Audits; Reports to Limited Partners. The Partnership's books shall be audited annually by an independent certified public accounting firm selected by the General Partner in its sole discretion. The Partnership shall use its best efforts to cause each Partner to receive: (a) within 90 days after the close of each fiscal year an annual report containing audited financial statements (including a statement of income and a statement of financial condition) of the Partnership for the fiscal year then ended, prepared in accordance with generally accepted accounting MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest principles and accompanied by a report of the accounting firm which audited such statements, and such other information as the CFTC and NFA may from time to time require (such annual reports will provide a detailed statement of any transactions with the General Partner or its Affiliates and of fees, commissions and any compensation paid or accrued to the General Partner or its Affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed); (b) within 75 days after the close of each fiscal year (but in no event later than March 15 of each year) such tax information relating to the Partnership as is necessary for such Partner to complete his federal income tax return; (c) within 30 days after the close of each calendar month, such financial and other information with respect to the Partnership as the CFTC and NFA from time to time shall require in monthly reports, together with information concerning any material change in the brokerage commissions and fees payable by the Partnership to any Commodity Broker; and (d) at such times as shall be necessary or advisable in the General Partner's sole discretion, such other information as the CFTC and NFA from time to time shall require under the CEAct to be given to participants in commodity pools. In addition, if any of the following events occurs, notice of such event, including a description of the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner within seven business days after the occurrence of such event: (a) a decrease in the Net Asset Value of a Unit as of the close of business on any business day to 50% or less of the Net Asset Value for such Unit as of the end of the immediately preceding month; (b) any material amendment to this Agreement; (c) any change in Trading Advisors or any material change in the Management Agreement with a Trading Advisor; (d) any change in Commodity Brokers or any material change in the compensation arrangements with a Commodity Broker; (e) any change in general partners or any material change in the compensation arrangements with a general partner; (f) any change in the Partnership's fiscal year; (g) any material change in the Partnership's trading policies; or (h) cessation of Futures Interests trading by the Partnership. In the case of a notice given in accordance with clause (a) of the immediately preceding sentence: (i) such notice shall also advise Limited Partners that a "Special Redemption Date," on a date specified in such notice (but in no event earlier than 15, nor later than 45, days after the mailing of such notice), will take place as of which Limited Partners may redeem their Units in the same manner as provided in Section 10(b) for regular Redemption Dates (a Special Redemption Date may take place on a regular Redemption Date); and (ii) following the close of business on the date of the 50% decrease giving rise to such notice, the Partnership shall liquidate all existing positions as promptly as reasonably practicable and shall suspend all Futures Interests trading through the Special Redemption Date. Thereafter, the General Partner shall determine whether to reinstitute Futures Interests trading or to terminate the Partnership. As used herein, "material change in the Partnership's trading policies" shall mean any material change in those trading policies specified in Section 8(c). The Net Asset Value of a Unit shall be determined daily by the General Partner, and the most recent Net Asset Value calculation shall be promptly supplied by the General Partner in writing to any Limited Partner after the General Partner shall have received a written request from such Partner. In addition, no increase (subject to the limits in the fourth paragraph of Section 7(e)) in any of the management, incentive, or brokerage fees payable by the Partnership, or any caps (other than those described in the fourth paragraph of Section 7(e)) on management fees, incentive fees, brokerage commissions or fees, Transaction Fees and Costs, ordinary administrative expenses, or net excess interest or compensating balance benefits, all as described in the Prospectus, may take effect until the first business day following a Redemption Date, provided that: (i) notice of such increase is mailed to each Limited Partner at least five business days prior to the last date on which a Request for Redemption must be received by the General Partner with respect to the applicable Redemption Date; (ii) such notice shall describe the redemption and voting rights of Limited Partners, as set forth in Sections 10(b) and 15; and (iii) Limited Partners redeeming Units at the first Redemption Date following such notice shall not be subject to the redemption charges described in Section 10(b). 10. Transfer; Redemption of Units; Exchange Privilege. (a) Transfer. A Limited Partner may transfer or assign his Units only as provided in this Section 10(a). No transferee or assignee shall become a substituted Limited Partner unless the General Partner first consents to such transfer or assignment in writing, which consent may be withheld in its sole discretion. Any transfer or assignment of Units which is permitted hereunder shall be effective as of the Limited Partners end of the month in which such transfer or assignment is made; provided, however, that the Partnership need not recognize any transfer or assignment until it has received at least 30 days' prior written notice thereof from the Limited Partner, which notice shall set forth the address and social security or taxpayer identification number of the transferee or assignee and the number of Units to be transferred or assigned, and which notice shall be signed by the Limited Partner. No transfer or assignment of Units will be effective or recognized by the Partnership if the transferee or assignee, or the transferor or assignor (if fewer than all Units held by the transferor or assignor are being transferred or assigned), would, by reason of such transfer or assignment, acquire Units which do not meet the minimum initial subscription requirements, as described in the Prospectus; provided, however, that the foregoing restriction shall not apply to transfers or assignment of Units (i) by the way of gift or inheritance, (ii) to any members of the Limited Partner's family, (iii) resulting from divorce, annulment, separation or similar proceedings, or (iv) to any person who would be deemed an Affiliate of the Limited Partner (for purposes of this clause (iv), the term "Affiliate" also includes any partnership, corporation, association, or other legal entity for which such Limited Partner acts as an officer, director or partner). No transfer or assignment shall be permitted unless the General Partner is satisfied that (i) such transfer or assignment would not be in violation of the Act or applicable federal, state, or foreign securities laws, and (ii) notwithstanding such transfer or assignment, the Partnership shall continue to be classified as a partnership rather than as an association taxable as a corporation under the Code. No transfer or assignment of Units shall be effective or recognized by the Partnership if such transfer or assignment would result in the termination of the Partnership for federal income tax purposes, and any attempted transfer or assignment in violation hereof shall be ineffective to transfer or assign any such Units. Any transferee or assignee of Units who has not been admitted to the Partnership as a substituted Limited Partner shall not have any of the rights of a Limited Partner, except that such person shall receive that share of capital and profits and shall have that right of redemption to which his transferor or assignor would otherwise have been entitled and shall remain subject to the other terms of this Agreement binding upon Limited Partners. No Limited Partner shall have any right to approve of any person becoming a substituted Limited Partner. The Limited Partner shall bear all costs (including any attorneys' and accountants' fees) related to such transfer or assignment of his Units. In the event that the General Partner consents to the admission of a substituted Limited Partner pursuant to this Section 10(a), the General Partner is hereby authorized to take such actions as may be necessary to reflect such substitution of a Limited Partner. (b) Redemption. Except as set forth below and in accordance with the terms hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of his unredeemed capital contribution and undistributed profits, if any, by requiring the Partnership to redeem all or part of his Units at the Net Asset Value thereof, reduced as hereinafter described (any such withdrawal being herein referred to as a "Redemption"). The minimum amount of any redemption is 50 Units, unless a Limited Partner is redeeming his entire interest in the Partnership. Units may be redeemed at the option of a Limited Partner as of, but not before, the sixth month-end following the closing at which the Limited Partner first becomes a Limited Partner of the Partnership or a limited partner of any other partnership offering Units pursuant to the Prospectus (all such partnerships shall be defined collectively as the "Spectrum Series Partnerships" or individually as a "Spectrum Series Partnership"). Thereafter, Units may be redeemed as of the end of any month. However, any Unit redeemed at or prior to the end of the twelfth or twenty-fourth full month following the closing at which such Unit was issued will be assessed a redemption charge equal to 2% or 1%, respectively, of the Net Asset Value of a Unit on the date of such redemption. The foregoing charges will be paid to Morgan Stanley DW. A Limited Partner who purchased Units pursuant to a Non-Series Exchange (as defined in the Prospectus) will not be subject to the foregoing redemption charges with respect to such Units. The number of Units (determined on a per closing basis), expressed as a percentage of Units purchased, which is not subject to a redemption charge is determined by dividing (a) the dollar amount used in a Non-Series Exchange to purchase Units by (b) the total investment in the Partnership. Limited Partners who redeem units of limited partnership interest in a Spectrum Series Partnership and have either paid a redemption charge with respect to such units of limited partnership, or have held such units of limited partnership for at least two years and subsequently purchase Units, will not be subject to redemption charges on the new Units under the following conditions: (a) the subscriber must subscribe for new Units prior to the one-year anniversary of the effective date of the redemption of the units of limited General Partner partnership, (b) the subscriber will not be subject to redemption charges with respect to the amount of the subscription for the new Units up to the amount of the proceeds of the redemption (net of any redemption charges), and (c) the subscriber must hold the newly acquired Units for six months from the date of purchase before such Units may be redeemed or exchanged pursuant to a Series Exchange. Such subscribers remain subject to the minimum purchase and suitability requirements. In addition, redemption charges may not be imposed for certain large purchasers of units of limited partnership interest in the Spectrum Series Partnerships, as provided in the Prospectus. A Limited Partner who redeems Units pursuant to a Series Exchange will not be subject to redemption charges with respect to the redeemed Units. Units acquired pursuant to a Series Exchange will be deemed as having the same purchase date as the Units exchanged for purposes of determining the applicability of any redemption charges. Furthermore, a Limited Partner redeeming Units at the first Redemption Date following notice of an increase in certain fees in accordance with the fourth paragraph of Section 9 will not be subject to the foregoing redemption charges. Redemptions of Units will be deemed to be in the order in which they are purchased (assuming purchases at more than one closing), with the Units not subject to a redemption charge being deemed to be the first Units purchased at a closing. Redemption of a Limited Partner's Units shall be effective as of the last day of the first month ending after an irrevocable Request for Redemption in proper form shall have been received by the General Partner ("Redemption Date"); provided, that all liabilities, contingent or otherwise, of the Partnership (except any liability to Partners on account of their capital contributions) shall have been paid or there shall remain property of the Partnership sufficient to pay them. As used herein, "Request for Redemption" shall mean a letter in the form specified by the General Partner and received by the General Partner by 5:00 p.m. (New York City time) at least five business days prior to the date on which such Redemption is to be effective. A form of Request for Redemption is annexed to this Agreement. Additional forms of Request for Redemption may be obtained by written request to the General Partner. Upon Redemption, a Limited Partner (or any assignee thereof) shall receive from the Partnership for each Unit redeemed an amount equal to the Net Asset Value thereof as of the Redemption Date, less any redemption charges and any amount owing by such Partner (and his assignee, if any) to the Partnership pursuant to Section 14(d). If a Redemption is requested by an assignee, all amounts owed to the Partnership under Section 14(d) by the Partner to whom such Unit was sold, as well as all amounts owed by all assignees of such Unit, shall be deducted from the Net Asset Value of such Unit upon Redemption. The General Partner shall endeavor to pay Redemptions within 10 business days after the Redemption Date, except that under special circumstances (including, but not limited to, the inability on the part of the Partnership to liquidate Futures Interests positions or the default or delay in payments which shall be due the Partnership from commodity brokers, banks, or other persons), the Partnership may delay payment to Partners requesting Redemption of Units of the proportionate part of the Net Asset Value of the Units represented by the sums which are the subject of such default or delay. Redemptions will be made by credit to the Limited Partner's customer account with Morgan Stanley or by check mailed to the Limited Partner if such account is closed. The General Partner may, in its absolute discretion, waive any restrictions or charges applicable to redemptions. The foregoing terms and conditions in this Section 10(b), other than those in the second paragraph hereof prohibiting redemptions before the sixth month-end following the closing at which a person first becomes a Limited Partner, shall also apply to redemptions effected on "Special Redemption Dates" held in accordance with Section 9. The General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and such other documents as shall be necessary or desirable to reflect any Redemption pursuant to this Section 10(b). (c) Exchange Privilege. Except as set forth below, a Limited Partner (or any assignee thereof) may redeem his Units effective as of the last business day of any month and authorize the General Partner to use the net proceeds of such redemption to purchase units of limited partnership interest of another Spectrum Series Partnership (such a transfer between Spectrum Series Partnerships being herein referred to as a "Series Exchange"). Series Exchanges shall only be permitted by a Limited Partner as of, but not Total before the sixth month-end following the closing at which a Limited Partner first became a limited partner of a Spectrum Series Partnership. The minimum amount of any Series Exchange is 50 Units, unless a Limited Partner is liquidating his entire interest in the Partnership. A Series Exchange shall be effective as of the last business day of the month ending after an Exchange Agreement and Power of Attorney in proper form has been received by the General Partner ("Exchange Date"), provided, that the Partnership has assets sufficient to discharge its liabilities and to redeem Units on the Exchange Date. As used herein, "Exchange Agreement and Power of Attorney" shall mean the form annexed to the Prospectus as Exhibit B, sent by a Limited Partner (or any assignee thereof) to a Morgan Stanley branch office and received by the General Partner at least 5 business days prior to the Exchange Date. Additional forms of the Exchange Agreement and Power of Attorney may be obtained by written request to the General Partner or from a local Morgan Stanley branch office. Upon requesting a Series Exchange, a Limited Partner shall have authorized the General Partner to redeem the number of Units specified therein and to utilize the net proceeds of such redemption to purchase an amount of units of limited partnership interest of one or more other Spectrum Series Partnerships as specified in the Exchange Agreement and Power of Attorney. The General Partner shall cause the net proceeds of the redemption to be delivered to the Spectrum Series Partnership(s) issuing and selling units of limited partnership interest to the redeeming Limited Partner, and shall cause to be mailed to such Limited Partner, within 20 business days after such Exchange Date, a written confirmation thereof. At the next closing on the sale of Units following each Exchange Date, the Partnership shall issue and sell Units with a total Net Asset Value equal to the net proceeds of redemptions from limited partners of other Spectrum Series Partnerships requesting Units on a Series Exchange, provided, that the General Partner, in its capacity as the general partner of each of the Spectrum Series Partnerships, has (i) timely received a properly executed Exchange Agreement and Power of Attorney verifying that such units of limited partnership interest subject to such Series Exchange are owned by the person requesting such Series Exchange and acknowledging that the limited partner remains eligible to purchase Units, and (ii) caused the net proceeds from units of limited partnership interest being redeemed to be transferred to the Partnership in payment of such Units. Each Unit to be purchased with the net proceeds of a redemption of Units of limited partnership interest from a Spectrum Series Partnership shall be issued and sold by the Partnership at a price per Unit equal to 100% of the Net Asset Value of a Unit as of the close of business on the relevant Exchange Date. Each Limited Partner understands that its ability to effect a Series Exchange is conditioned upon units of limited partnership interest of Spectrum Series Partnerships being registered and qualified for sale pursuant to a current Prospectus immediately prior to each Exchange Date. The General Partner shall not have any obligation to have units of limited partnership interest registered. There can be no assurance that any or a sufficient number of units of limited partnership interest will be available for sale on the Exchange Date. If units of limited partnership interest are not registered or qualified for sale under either federal or applicable state securities laws, the General Partner will not be able to effect a Series Exchange for the Limited Partner. Furthermore, certain states may impose significant burdens on, or alter the requirements for, qualifying units of limited partnership interest for sale and in such cases, the General Partner may elect not to continue to qualify units of limited partnership interest for sale in such state or states, and a resident thereof would not be eligible for a Series Exchange. In the event that not all Exchange Agreements and Powers of Attorney can be processed because an insufficient number of units of limited partnership interest are available for sale on an Exchange Date, the General Partner is hereby authorized to allocate units of limited partnership interest in any manner which it deems is reasonable under the circumstances and may allocate a substantial portion of such units of limited partnership interest to new subscribers for Units. The General Partner, on behalf of the Partnership and each Partner, is authorized to execute, file, record, and publish such amendments to this Agreement and such other documents as shall be necessary to reflect any Series Exchange pursuant to this Section 10(c). 11. Special Power of Attorney. Each Limited Partner, by the execution of this Agreement, does irrevocably constitute and appoint the General Partner, with full power of substitution, as his true and lawful agent and attorney-in-fact, in his name, place, and stead, (a) to execute, acknowledge, swear to, deliver, file, and record in his behalf in the $ $ $ Morgan Stanley Spectrum Select L.P. Partners' Capital, December 31, 2000 9,363,087.227 218,182,118 2,547,851 220,729,969 Offering of Units 1,676,778.529 41,261,535 41,261,535 Net income 3,123,455 41,894 3,165,349 Redemptions (965,150.030 ) (23,745,268 ) (23,745,268 ) appropriate public offices and publish: (i) this Agreement and the Certificate of Limited Partnership and amendments thereto; (ii) all instruments that the General Partner deems necessary or appropriate to reflect any amendment, change, or modification of this Agreement or the Certificate of Limited Partnership made in accordance with the terms of this Agreement; (iii) certificates of assumed name; and (iv) all instruments that the General Partner deems necessary or appropriate to qualify or maintain the qualification of the Partnership to do business as a foreign limited partnership in other jurisdictions; and (b) to admit additional Limited Partners and, to the extent that it is necessary under the laws of any jurisdiction, to execute, deliver, and file amended certificates or agreements of limited partnership or other instruments to reflect such admission. The Power of Attorney granted herein shall be irrevocable and deemed to be a power coupled with an interest and shall survive the incapacity, death, dissolution, liquidation, or termination of a Limited Partner. Each Limited Partner hereby agrees to be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to execute a special Power of Attorney on a document separate from this Agreement. In the event of any conflict between this Agreement and any instruments filed by such attorney-in-fact pursuant to the Power of Attorney granted in this Section 11, this Agreement shall control. 12. Withdrawal of Partners. The Partnership shall terminate and be dissolved upon the withdrawal, insolvency, bankruptcy, dissolution, liquidation, or termination of the General Partner (unless a new general partner(s) is elected pursuant to Section 15(c) and such remaining general partner(s) shall have elected to continue the business of the Partnership, which any remaining general partner(s) shall have the right to do). The General Partner shall not withdraw or assign all of its interest at any time without giving the Limited Partners 120 days' prior written notice of its intention to withdraw or assign, and, if the Limited Partners thereupon elect a new general partner or partners pursuant to Section 15(c) which elect to continue the business of the Partnership, the withdrawing General Partner shall pay all reasonable expenses incurred by the Partnership in connection with such withdrawal. The General Partner shall be paid the Net Asset Value of its interests in the Partnership as of the date of such withdrawal. The death, incompetency, withdrawal, insolvency, bankruptcy, termination, liquidation, or dissolution of a Limited Partner shall not terminate or dissolve the Partnership, and such Limited Partner, his estate, custodian, or personal representative shall have no right to withdraw or value such Limited Partner's interest in the Partnership except as provided in Section 10. Each Limited Partner (and any assignee of such Partner's interest) expressly agrees that in the event of his death, he waives on behalf of himself and his estate and he directs the legal representative of his estate and any person interested therein to waive the furnishing of any inventory, accounting, or appraisal of the assets of the Partnership and any right to an audit or examination of the books of the Partnership (except to the extent permissible under the sixth paragraph of Section 8(e)). 13. No Personal Liability for Return of Capital. Subject to Section 14, neither the General Partner, Morgan Stanley, nor any Affiliate thereof shall be personally liable for the return or repayment of all or any portion of the capital or profits of any Partner (or assignee), it being expressly agreed that any such return of capital or profits made pursuant to this Agreement shall be made solely from the assets (which shall not include any right of contribution from the General Partner) of the Partnership. 14. Standard of Liability; Indemnification. (a) Standard of Liability. The General Partner and its Affiliates shall not be liable to the Partnership, the Limited Partners, or its or their successors or assigns, for any act, omission, conduct or activity undertaken by or on behalf of the Partnership which the General Partner determines, in good faith, to be in the best interests of the Partnership, unless such act, omission, conduct, or activity constituted misconduct or negligence. (b) Indemnification by the Partnership. The Partnership shall indemnify, defend, and hold harmless the General Partner and its Affiliates from and against any loss, liability, damage, cost, or expense (including attorneys' and accountants' fees and expenses incurred in defense of any demands, claims, or lawsuits) actually and reasonably incurred arising from any act, omission, activity, or conduct undertaken by or on behalf of the Partnership, including, without limitation, any demands, claims, or lawsuits initiated by a Limited Partner (or assignee thereof), provided that (1) the General Partner has determined, in good faith, that the act, omission, activity, or conduct giving rise to the claim for indemnification was in the best interests of the Partnership, and (2) the act, omission, activity, or conduct that was the basis for such loss, liability, damage, cost, or expense was not the result of misconduct or negligence. Notwithstanding anything to the contrary contained in the foregoing, neither the General Partner nor any of its Affiliates nor any person acting as a broker-dealer shall be indemnified by the Partnership for any losses, liabilities, or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (2) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee, or (3) a court of competent jurisdiction approves a settlement of the claims against the particular indemnitee and finds that indemnification of the settlement and related costs should be made, provided, with regard to such court approval, the indemnitee must apprise the court of the position of the SEC, and the positions of the respective securities administrators of Massachusetts, Missouri, Tennessee, and/or those other states and jurisdictions in which the plaintiffs claim that they were offered or sold Units, with respect to indemnification for securities laws violations before seeking court approval for indemnification. Furthermore, in any action or proceeding brought by a Limited Partner in the right of the Partnership to which the General Partner or any Affiliate thereof is a party defendant, any such person shall be indemnified only to the extent and subject to the conditions specified in the Act and this Section 14(b). The Partnership shall make advances to the General Partner or its Affiliates hereunder only if: (1) the demand, claim, lawsuit, or legal action relates to the performance of duties or services by such persons to the Partnership; (2) such demand, claim, lawsuit, or legal action is not initiated by a Limited Partner; and (3) such advances are repaid, with interest at the legal rate under Delaware law, if the person receiving such advance is ultimately found not to be entitled to indemnification hereunder. Nothing contained in this Section 14(b) shall increase the liability of any Limited Partner to the Partnership beyond the amount of his unredeemed capital contribution, undistributed profits, if any, and any amounts received on distributions and redemptions and deemed received on Series Exchanges, together with interest thereon. All rights to indemnification and payment of attorneys' and accountants' fees and expenses shall not be affected by the termination of the Partnership or the withdrawal, insolvency, or dissolution of the General Partner. The Partnership shall not incur the cost of that portion of liability insurance which insures the General Partner and its Affiliates for any liability as to which the General Partner and its Affiliates are prohibited from being indemnified. (c) Affiliate. As used in this Agreement, the term "Affiliate" of a person shall mean: (i) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such person; (ii) any partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such person; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, such person; or (iv) any officer, director or partner of such person. Notwithstanding the foregoing, solely for purposes of determining eligibility for indemnification under Section 14(b), the term "Affiliate" shall include only those persons performing services for the Partnership. (d) Indemnification by Partners. In the event that the Partnership is made a party to any claim, demand, dispute, or litigation or otherwise incurs any loss, liability, damage, cost, or expense as a result of, or in connection with, any Partner's (or assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) shall indemnify, defend, hold harmless and reimburse the Partnership for such loss, liability, damage, cost and expense to which the Partnership shall become subject (including attorneys' and accountants' fees and expenses). 15. Amendments; Meetings. (a) Amendments with Consent of the General Partner. If, at any time during the term of the Partnership, the General Partner shall deem it necessary or desirable to amend this Agreement, such amendment shall be effective only if embodied in an instrument approved by the General Partner and by Limited Partners owning more than 50% of the Units then outstanding, and if made in accordance with, and to the extent permissible under, the Act. Any amendment to this Agreement or actions taken pursuant to this Section 15 that shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. Notwithstanding the foregoing, the General Partner shall be authorized to amend this Agreement without the consent of any Limited Partner in order to: (i) change the name of the Partnership or cause the Partnership to transact business under another name; (ii) clarify any inaccuracy or any ambiguity, or reconcile any inconsistent provisions herein; (iii) make any amendment to this Agreement that is not adverse to the Limited Partners; (iv) effect the intent of the allocations proposed herein to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (v) attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes; (vi) qualify or maintain the qualification of the Partnership as a limited partnership in any jurisdiction; (vii) delete or add any provision of or to this Agreement required to be deleted or added by the staff of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official, or other governmental official, or in order to opt to be governed by any amendment or successor to the Act, or to comply with applicable law; (viii) make any modification to this Agreement to reflect the admission of additional or substitute general partners and to reflect any modification to the Net Worth requirements applicable to the General Partner and any other general partner, as contemplated by Section 5 hereof; (ix) make any amendment that is appropriate or necessary, in the opinion of the General Partner, to prevent the Partnership or the General Partner or its directors, officers or controlling persons from in any manner being subject to the provisions of the Investment Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940, as amended (the "Advisers Act"), or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended; and (x) to make any amendment that is appropriate or necessary, in the opinion of the General Partner, to qualify the Partnership under the 1940 Act, and any persons under the 1940 Act and the Advisers Act, if the General Partner reasonably believes that doing so is necessary. Any such supplemental or amendatory agreement shall be adhered to and have the same force and effect from and after its effective date as if the same had originally been embodied in, and formed a part of, this Agreement; provided, however, that no such supplemental or amendatory agreement shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses or distributions to which any Partner is entitled. (b) Meetings. Any Limited Partner or his authorized attorney or agent, upon written request to the General Partner, delivered either in person or by certified mail, and upon payment of reasonable duplicating and postage costs, shall be entitled to obtain from the General Partner by mail a list of the names and addresses of record of all Limited Partners and the number of Units owned by each. Upon receipt of a written request, signed by Limited Partners owning at least 10% of the Units then owned by Limited Partners, that a meeting of the Partnership be called to vote upon any matter upon which all Limited Partners may vote pursuant to this Agreement, the General Partner, by written notice to each Limited Partner of record sent by certified mail or delivered in person within 15 days after such receipt, shall call a meeting of the Partnership. Such meeting shall be held at least 30 but not more than 60 days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time, and the purpose of such meeting. (c) Amendments and Actions without Consent of the General Partner. At any meeting of the Limited Partners, upon the affirmative vote (which may be in person or by proxy) of Limited Partners owning more than 50% of the Units then owned by Limited Partners, the following actions may be taken without the consent of the General Partner: (i) this Agreement may be amended in accordance with, and only to the extent permissible under, the Act; provided, however, that no such amendment shall, without the consent of all Partners affected thereby, change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new general partner or general partners may be elected if the General Partner terminates or liquidates or elects to withdraw from the Partnership pursuant to Section 12, or becomes insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner or any of its Affiliates may be terminated without penalty on not less than 60 days' prior written notice; and (vi) the sale of all or substantially all of the assets of the Partnership may be approved; provided, however, that no such action shall adversely affect the status of the Limited Partners as limited partners under the Act or the classification of the Partnership as a partnership under the federal income tax laws; and provided further, 1940 Act 15(a) Act 1 Advisers Act 15(a) Affiliate 14(c) Agreement Preamble CEAct 8(e) Certificate of Limited Partnership 1 CFTC 3 Code 7(c)(4) Commodity Broker 6 Customer Agreement 8(b) Determination Date 7(b) Exchange Agreement and Power of Attorney 10(c) Exchange Date 10(c) Futures Interests 3 General Partner Preamble Limited Partners Preamble Management Agreement 8(b) Morgan Stanley DW 6 MS & Co. 6 NASAA Guidelines 5 Net Asset Value 7(d)(2) Net Assets 7(d)(1) NFA 6 Non-Series Exchange 10(b) Partners Preamble Partnership 1 Prospectus 6 Pyramiding 8(c)(5) Redemption 10(b) Redemption Date 10(b) Request for Redemption 10(b) SEC 5 Selling Agent 6 Series Exchange 10(c) Special Redemption Date 9 Spectrum Series Partnership(s) 10(b) Trading Advisor 6 Trading Profits 7(e) Transaction Fees and Costs 7(e) Unit(s) of General Partnership Interest 6 Unit(s) 6 Partners' Capital, December 31, 2001 10,074,715.726 238,821,840 2,589,745 241,411,585 Offering of Units 2,459,750.992 62,682,840 130,000 62,812,840 Net income 40,391,145 432,054 40,823,199 Redemptions (1,852,798.671 ) (49,669,825 ) (49,669,825 ) Name: Title: ,000 (Branch Telephone Number) Please enter a SELL order upon receipt of a completed Request for Redemption. Partners' Capital, December 31, 2002 10,681,668.047 292,226,000 3,151,799 295,377,799 Offering of Units 4,942,610.490 141,160,704 1,340,000 142,500,704 Net income 33,822,853 364,052 34,186,905 Redemptions (1,058,775.458 ) (30,542,924 ) (30,542,924 ) Partners' Capital, December 31, 2003 14,565,503.079 436,666,633 4,855,851 441,522,484 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Technical L.P. Partners' Capital, December 31, 2000 16,670,218.496 265,060,579 3,072,513 268,133,092 Offering of Units 2,591,525.213 40,832,142 40,832,142 Net loss (19,062,561 ) (220,808 ) (19,283,369 ) Redemptions (1,981,247.508 ) (31,707,743 ) (31,707,743 ) Partners' Capital, December 31, 2001 17,280,496.201 255,122,417 2,851,705 257,974,122 Offering of Units 3,538,032.569 58,538,660 180,000 58,718,660 Net income 60,110,064 665,371 60,775,435 Redemptions (2,579,002.913 ) (41,646,591 ) (41,646,591 ) Partners' Capital, December 31, 2002 18,239,525.857 332,124,550 3,697,076 335,821,626 Offering of Units 7,617,427.705 156,115,402 1,240,00 157,355,402 Net income 86,960,795 981,093 87,941,888 Redemptions (2,082,749.238 ) (42,934,638 ) (42,934,638 ) Partners' Capital, December 31, 2003 23,774,204.324 532,266,109 5,918,169 538,184,278 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Strategic L.P. Partners' Capital, December 31, 2000 6,994,953.429 73,433,119 801,330 74,234,449 Offering Units 892,802.518 9,240,482 9,000 9,249,482 Net loss (475,383 ) (5,160 ) (480,543 ) Redemptions (1,362,078.833 ) (14,186,002 ) (14,186,002 ) Partners' Capital, December 31, 2001 6,525,677.114 68,012,216 805,170 68,817,386 Offering of Units 1,160,993.682 13,475,899 13,475,899 Net income 6,238,448 75,968 6,314,416 Redemptions (1,155,895.491 ) (13,238,629 ) (13,238,629 ) Partners' Capital, December 31, 2002 6,530,775.305 74,487,934 881,138 75,369,072 Offering of Units 2,823,095.529 36,375,972 180,000 36,555,972 Net income 20,281,103 232,309 20,513,412 Redemptions (877,978.963 ) (11,168,017 ) (11,168,017 ) Partners' Capital, December 31, 2003 8,475,891.871 119,976,992 1,293,447 121,270,439 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Global Balanced L.P. Partners' Capital, December 31, 2000 3,437,465.006 55,220,008 659,742 55,879,750 Offering of Units 640,074.598 10,254,342 10,254,342 Net loss (150,650 ) (1,949 ) (152,599 ) Redemptions (512,291.775 ) (8,195,733 ) (8,195,733 ) Partners' Capital, December 31, 2001 3,565,247.829 57,127,967 657,793 57,785,760 Offering of Units 572,583.510 8,829,394 8,829,394 Net loss (5,720,328 ) (66,590 ) (5,786,918 ) Redemptions (677,650.657 ) (10,422,804 ) (10,422,804 ) Partners' Capital, December 31, 2002 3,460,180.682 49,814,229 591,203 50,405,432 Offering of Units 690,016.887 10,491,897 10,491,897 Net income 3,043,649 33,859 3,077,508 Redemptions (748,285.123 ) (11,285,344 ) (50,000 ) (11,335,344 ) Partners' Capital, December 31, 2003 3,401,912.446 52,064,431 575,062 52,639,493 MORGAN STANLEY SPECTRUM SERIES STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years Ended December 31, 2003, 2002 and 2001 Units of Partnership Interest Limited Partners General Partner Total $ $ $ Morgan Stanley Spectrum Currency L.P. Partners' Capital, December 31, 2000 1,406,451.233 13,988,414 1,718,818 15,707,232 Offering of Units 2,572,156.095 28,921,302 277,000 29,198,302 Net income 4,119,027 217,312 4,336,339 Redemptions (125,958.895 ) (1,430,132 ) (1,430,132 ) Partners' Capital, December 31, 2001 3,852,648.433 45,598,611 2,213,130 47,811,741 Offering of Units 3,918,276.910 48,564,478 420,000 48,984,478 Net income 10,038,409 244,711 10,283,120 Redemptions (868,307.236 ) (10,309,879 ) (610,008 ) (10,919,887 ) Partners' Capital, December 31, 2002 6,902,618.107 93,891,619 2,267,833 96,159,452 Offering of Units 6,157,215.998 89,883,376 790,000 90,673,376 Net income 16,514,538 282,271 16,796,809 Redemptions (920,425.880 ) (12,246,860 ) (1,326,857 ) (13,573,717 ) Partners' Capital, December 31, 2003 12,139,408.225 188,042,673 2,013,247 190,055,920 MORGAN STANLEY SPECTRUM SELECT L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 34,186,905 40,823,199 3,165,349 Noncash item included in net income: Net change in unrealized (18,883,947 ) (12,501,282 ) 20,155,561 (Increase) decrease in operating assets: Net option premiums (1,232,488 ) 167,063 (167,063 ) Interest receivable (Morgan Stanley DW) (15,337 ) 70,073 584,598 Increase in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 738,759 221,961 208,881 Accrued incentive fee 2,227,005 Accrued management fees 305,694 91,845 86,434 Net cash provided by operating activities 17,326,591 28,872,859 24,033,760 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 142,500,704 62,812,840 41,261,535 Increase in subscriptions receivable (5,997,473 ) (1,699,578 ) (3,407,225 ) Increase (decrease) in redemptions payable 528,720 (719,023 ) 484,897 Redemptions of Units (30,542,924 ) (49,669,825 ) (23,745,268 ) Net cash provided by financing activities 106,489,027 10,724,414 14,593,939 Net increase in cash 123,815,618 39,597,273 38,627,699 Balance at beginning of period 274,780,334 235,183,061 196,555,362 Balance at end of period 398,595,952 274,780,334 235,183,061 MORGAN STANLEY SPECTRUM TECHNICAL L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 87,941,888 60,775,435 (19,283,369 ) Noncash item included in net income (loss): Net change in unrealized (22,330,997 ) (12,597,598 ) 28,536,694 (Increase) decrease in operating assets: Net option premiums (3,973,725 ) Interest receivable (Morgan Stanley DW) (22,974 ) 49,837 744,371 Increase (decrease) in operating liabilities: Accrued incentive fees 4,924,640 (111,599 ) Accrued brokerage fees (Morgan Stanley DW) 1,041,470 397,100 51,079 Accrued management fees 411,562 91,431 21,704 Net cash provided by operating activities 67,991,864 48,716,205 9,958,880 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 157,355,402 58,718,660 40,832,142 Increase in subscriptions receivable (8,746,329 ) (2,663,228 ) (3,357,977 ) Increase (decrease) in redemptions payable (270,216 ) 818,573 (1,055,038 ) Redemptions of Units (42,934,638 ) (41,646,591 ) (31,707,743 ) Net cash provided by financing activities 105,404,219 15,227,414 4,711,384 Net increase in cash 173,396,083 63,943,619 14,670,264 Balance at beginning of period 310,115,973 246,172,354 231,502,090 Balance at end of period 483,512,056 310,115,973 246,172,354 MORGAN STANLEY SPECTRUM STRATEGIC L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 20,513,412 6,314,416 (480,543 ) Noncash item included in net income (loss): Net change in unrealized (990,641 ) (2,439,378 ) (2,505,634 ) (Increase) decrease in operating assets: Net option premiums (455,512 ) 65,784 (62,352 ) Interest receivable (Morgan Stanley DW) (4,813 ) 27,581 217,520 Increase (decrease) in operating liabilities: Accrued incentive fees 811,250 (289,687 ) Accrued brokerage fees (Morgan Stanley DW) 218,453 7,354 14,950 Accrued management fees 90,394 3,043 (11,028 ) Net cash provided by (used for) operating activities 20,182,543 3,978,800 (3,116,774 ) CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 36,555,972 13,475,899 9,249,482 Increase in subscriptions receivable (3,488,707 ) (1,002,535 ) (189,876 ) Increase (decrease) in redemptions payable (459,678 ) (956,549 ) 765,005 Redemptions of Units (11,168,017 ) (13,238,629 ) (14,186,002 ) Net cash provided by (used for) financing activities 21,439,570 (1,721,814 ) (4,361,391 ) Net increase (decrease) in cash 41,622,113 2,256,986 (7,478,165 ) Balance at beginning of period 68,224,648 65,967,662 73,445,827 Balance at end of period 109,846,761 68,224,648 65,967,662 MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 3,077,508 (5,786,918 ) (152,599 ) Noncash item included in net income (loss): Net change in unrealized (1,801,107 ) (56,725 ) 2,628,436 (Increase) decrease in operating assets: Net option premiums 752,173 (712,573 ) 192,500 Interest receivable (Morgan Stanley DW) 13,348 40,360 191,236 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) (7,218 ) (17,837 ) 17,157 Accrued management fees (1,962 ) (4,846 ) 4,661 Net cash provided by (used for) operating activities 2,032,742 (6,538,539 ) 2,881,391 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 10,491,897 8,829,394 10,254,342 Increase in subscriptions receivable (319,625 ) (105,151 ) (81,007 ) Increase in redemptions payable 136,265 171,491 122,794 Redemptions of Units (11,335,344 ) (10,422,804 ) (8,195,733 ) Net cash provided by (used for) financing activities (1,026,807 ) (1,527,070 ) 2,100,396 Net increase (decrease) in cash 1,005,935 (8,065,609 ) 4,981,787 Balance at beginning of period 49,330,482 57,396,091 52,414,304 Balance at end of period 50,336,417 49,330,482 57,396,091 MORGAN STANLEY SPECTRUM CURRENCY L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 16,796,809 10,283,120 4,336,339 Noncash item included in net income: Net change in unrealized 772,909 (2,473,166 ) (2,622,814 ) (Increase) decrease in operating assets: Interest receivable (Morgan Stanley DW) (31,679 ) (19,622 ) 4,876 Increase (decrease) in operating liabilities: Accrued brokerage fees (Morgan Stanley DW) 345,106 161,731 99,484 Accrued incentive fees 159,553 (673,773 ) 880,379 Accrued management fees 150,046 70,317 43,254 Net cash provided by operating activities 18,192,744 7,348,607 2,741,518 CASH FLOWS FROM FINANCING ACTIVITIES Offering of Units 90,673,376 48,984,478 29,198,302 (Increase) decrease in subscriptions receivable (4,531,110 ) (1,536,641 ) 412,033 Increase (decrease) in redemptions payable (465,852 ) 1,361,111 (2,072,127 ) Redemptions of Units (13,573,717 ) (10,919,887 ) (1,430,132 ) Net cash provided by financing activities 72,102,697 37,889,061 26,108,076 Net increase in cash 90,295,441 45,237,668 28,849,594 Balance at beginning of period 88,478,803 43,241,135 14,391,541 Balance at end of period 178,774,244 88,478,803 43,241,135 Morgan Stanley Spectrum Select L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $441,522,484 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 11,095,838 2.51 691,093 0.16 11,786,931 14,607,137,889,667 Commodity 20,983,272 4.75 (175,989 ) (0.04 ) 20,807,283 11,866 Interest rate 1,338,070 0.31 (87,559 ) (0.02 ) 1,250,511 11,094 Equity 5,391,145 1.22 5,391,145 3,874 Grand Total: 38,808,325 8.79 427,545 0.10 39,235,870 Unrealized Currency Loss (2,453,905 ) Total Net Unrealized Gain per Statement of Financial Condition 36,781,965 Partnership Net Assets at December 31, 2002: $295,377,799 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 16,008,784 5.42 * (5,655,235 ) (1.91 ) 10,353,549 11,828,382,656 Interest rate 9,770,731 3.31 (48,039 ) (0.02 ) 9,722,692 14,820 Commodity (1,443,818 ) (0.49 ) 371,055 0.13 (1,072,763 ) 5,211 Equity (194,728 ) (0.07 ) 829,442 0.28 634,714 1,202 Grand Total: 24,140,969 8.17 (4,502,777 ) (1.52 ) 19,638,192 Unrealized Currency Loss (1,740,174 ) Total Net Unrealized Gain per Statement of Financial Condition 17,898,018 Morgan Stanley Spectrum Technical L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $538,184,278 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 22,436,449 4.17 (1,729,369 ) (0.32 ) 20,707,080 15,752,105,748 Interest rate 53,129 0.01 (5,502,664 ) (1.02 ) (5,449,535 ) 18,105 Commodity 23,626,420 4.39 (2,094,377 ) (0.39 ) 21,532,043 15,966 Equity 10,843,962 2.01 (2,020,472 ) (0.37 ) 8,823,490 7,658 Grand Total: 56,959,960 10.58 (11,346,882 ) (2.10 ) 45,613,078 Unrealized Currency Gain 821,132 Total Net Unrealized Gain per Statement of Financial Condition 46,434,210 Partnership Net Assets at December 31, 2002: $335,821,626 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 21,362,440 6.36 1,833,683 0.55 23,196,123 Unrealized Currency Gain 907,090 Total Net Unrealized Gain per Statement of Financial Condition 24,103,213 Morgan Stanley Spectrum Strategic L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $121,270,439 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts $ % $ % $ Foreign currency 1,149,874 0.95 13,175 0.01 1,163,049 2,274,600,195 Commodity 6,059,248 5.00 * (1,198,617 ) (0.99 ) 4,860,631 9,826 Interest rate 207,192 0.17 8,576 0.01 215,768 1,476 Equity 1,807,241 1.49 1,807,241 1,160 Grand Total: 9,223,555 7.61 (1,176,866 ) 0.97 8,046,689 Unrealized Currency Loss (124,904 ) Total Net Unrealized Gain per Statement of Financial Condition 7,921,785 Partnership Net Assets at December 31, 2002: $75,369,072 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 6,968,255 9.24 139,669 0.19 7,107,924 Unrealized Currency Loss (176,780 ) Total Net Unrealized Gain per Statement of Financial Condition 6,931,144 Morgan Stanley Spectrum Global Balanced L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $52,639,493 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 2,470,465 4.69 103,550 0.20 2,574,015 Unrealized Currency Loss (26,975 ) Total Net Unrealized Gain per Statement of Financial Condition 2,547,040 Partnership Net Assets at December 31, 2002: $50,405,432 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Number of Contracts/ Notional Amounts Grand Total: 755,900 1.50 162,545 0.33 918,445 Unrealized Currency Loss (172,512 ) Total Net Unrealized Gain per Statement of Financial Condition 745,933 Morgan Stanley Spectrum Currency L.P. Schedules of Investments Partnership Net Assets at December 31, 2003: $190,055,920 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 10,021,102,895 Grand Total: 5,023,184 2.64 (144,544 ) (0.07 ) 4,878,640 Unrealized Currency Gain Total Net Unrealized Gain per Statement of Financial Condition 4,878,640 Partnership Net Assets at December 31, 2002: $96,159,452 Futures and Forward Contracts: Long Gain/(Loss) Percentage of Net Assets Short Gain/(Loss) Percentage of Net Assets Net Unrealized Gain/(Loss) Notional Amounts $ % $ % $ Foreign currency Other 4,758,215 4.95 (4,013,755 ) (4.18 ) 744,460 9,742,575,176 Euro/US dollar Mar. 03 4,860,786 5.05 4,860,786 143,425,000 Grand Total: 9,619,001 10.00 (4,013,755 ) (4.18 ) 5,605,246 Unrealized Currency Gain 46,303 Total Net Unrealized Gain per Statement of Financial Condition 5,651,549 4. FINANCIAL INSTRUMENTS The Partnerships trade futures contracts, options on futures contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the market value of these contracts, including interest rate volatility. The market value of contracts is based on closing prices quoted by the exchange, bank or clearing firm through which the contracts are traded. The Partnerships' contracts are accounted for on a trade-date basis and marked-to-market on a daily basis. The Partnerships account for derivative investments in accordance with the provisions of Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 defines a derivative as a financial instrument or other contract that has all three of the following characteristics: (1)One or more underlying notional amounts or payment provisions; (2)Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; (3)Terms require or permit net settlement. Generally derivatives include futures, forward, swaps or options contracts, and other financial instruments with similar characteristics such as caps, floors and collars. The net unrealized gains (losses) on open contracts at December 31, reported as a component of "Equity in futures interests trading accounts" on the statements of financial condition, and their longest contract maturities were as follows: Spectrum Select Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 31,690,225 5,091,740 36,781,965 Mar. 2005 March 2004 2002 12,359,670 5,538,348 17,898,018 Dec. 2003 March 2003 Spectrum Technical Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded Spectrum Strategic Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 6,905,992 1,015,793 7,921,785 July 2005 March 2004 2002 6,387,996 543,148 6,931,144 July 2004 March 2003 Spectrum Global Balanced Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded $ $ $ 2003 2,472,718 74,322 2,547,040 April 2004 March 2004 2002 717,293 28,640 745,933 March 2003 March 2003 Spectrum Currency Net Unrealized Gains on Open Contracts Longest Maturities Year Exchange- Traded Off- Exchange- Traded Total Exchange- Traded Off- Exchange- Traded 5. FINANCIAL HIGHLIGHTS Spectrum Select PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 27.65 NET OPERATING RESULTS: Realized Profit 4.12 Unrealized Profit 1.51 Interest Income 0.23 Expenses (3.20 ) Net Income 2.66 NET ASSET VALUE, DECEMBER 31, 2003: $ 30.31 Expense Ratio 10.9 % Net Income Ratio 9.3 % TOTAL RETURN 2003 9.6 % INCEPTION-TO-DATE RETURN 203.1 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Technical PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 18.41 NET OPERATING RESULTS: Realized Profit 5.61 Unrealized Profit 1.07 Interest Income 0.16 Expenses (2.61 ) Net Income 4.23 NET ASSET VALUE, DECEMBER 31, 2003: $ 22.64 Expense Ratio 12.5 % Net Income Ratio 20.2 % TOTAL RETURN 2003 23.0 % INCEPTION-TO-DATE RETURN 126.4 % COMPOUND ANNUALIZED RETURN 9.3 % Spectrum Strategic PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 11.54 NET OPERATING RESULTS: Realized Profit 4.10 Unrealized Profit 0.14 Interest Income 0.10 Expenses (1.57 ) Net Income 2.77 NET ASSET VALUE, DECEMBER 31, 2003: $ 14.31 Spectrum Global Balanced PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 14.57 NET OPERATING RESULTS: Realized Profit 1.08 Unrealized Profit 0.54 Interest Income 0.16 Expenses (0.88 ) Net Income 0.90 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.47 Expense Ratio 5.8 % Net Income Ratio 6.1 % TOTAL RETURN 2003 6.2 % INCEPTION-TO-DATE RETURN 54.7 % COMPOUND ANNUALIZED RETURN 4.9 % Spectrum Currency PER UNIT NET ASSET VALUE, JANUARY 1, 2003: $ 13.93 NET OPERATING RESULTS: Realized Profit 2.92 Unrealized Loss (0.08 ) Interest Income 0.11 Expenses (1.22 ) Net Income 1.73 NET ASSET VALUE, DECEMBER 31, 2003: $ 15.66 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 November 30, Total Assets 28,645,415 28,863,962 LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Payable to Parent 18,547,853 20,444,379 Accrued expenses 13,206 18,000 Total Liabilities 18,561,059 20,462,379 STOCKHOLDER'S EQUITY: Common stock, no par value: Authorized 1,000 shares; outstanding 100 shares at stated value of $500 per share 50,000 50,000 Additional paid-in capital 195,100,000 123,170,000 Retained earnings 9,934,356 8,251,583 205,084,356 131,471,583 Less: Notes receivable from Parent (195,000,000 ) (123,070,000 ) Total Stockholder's Equity 10,084,356 8,401,583 Total Liabilities and Stockholder's Equity 28,645,415 28,863,962 DEMETER MANAGEMENT CORPORATION (Wholly-owned subsidiary of Morgan Stanley) Purchasers of units in a Spectrum Series partnership will not receive any interest in this company. NOTES TO STATEMENTS OF FINANCIAL CONDITION November 30, 2003 and 2002 1. INTRODUCTION AND BASIS OF PRESENTATION Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of Morgan Stanley ("Parent") Effective June 20, 2002, Morgan Stanley Dean Witter & Co. changed its name to Morgan Stanley. Demeter manages the following commodity pools as sole general partner: Dean Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter Cornerstone Fund IV, Dean Witter Diversified Futures Fund Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley/Chesapeake L.P., Morgan Stanley/JWH Futures Fund L.P., Morgan Stanley Charter MSFCM L.P., Morgan Stanley Charter Graham L.P., Morgan Stanley Charter Millburn L.P., Morgan Stanley Charter Campbell L.P. ("Charter Campbell"), Morgan Stanley Strategic Alternatives Fund L.P,. and Morgan Stanley/Mark J. Walsh & Company L.P. Each of the commodity pools is a limited partnership organized to engage in the speculative trading of commodity futures contracts, forward contracts on foreign currencies and other commodity interests. The statements of financial condition are prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. On December 31, 2002, Columbia Futures Fund, Morgan Stanley Charter Welton L.P. and Morgan Stanley Spectrum Commodity L.P. each terminated trading in accordance with their limited partnership agreements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes Income tax expense is provided for using the asset and liability method, under which deferred tax assets and liabilities are determined based upon the temporary differences between the financial statement and the income tax basis of assets and liabilities, using enacted tax rates and laws that will be in effect when such differences are expected to reverse. 3. INVESTMENTS IN AFFILIATED PARTNERSHIPS The limited partnership agreement of each commodity pool requires Demeter to maintain a general partnership interest in each partnership, generally in an amount equal to, but not less than, 1 percent of the aggregate capital contributed to the partnership by all partners. The total assets, liabilities and partners' capital of all the funds managed by Demeter at November 30, 2003 and 2002 were as follows: November 30, $ $ Total assets 2,403,993,109 1,645,639,679 Total liabilities 35,113,850 28,967,603 Total partners' capital 2,368,879,259 1,616,672,076 EXHIBIT A TABLE OF CONTENTS TO FORM OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENTS Page that Units owned by the General Partner and any Affiliate thereof shall not be voted on the matters described in clauses (iii) and (v) above. Any action which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Limited Partners. (d) Action Without Meeting. Notwithstanding contrary provisions of this Section 15 covering notices to, meetings of, and voting by Limited Partners, any action required or permitted to be taken by Limited Partners at a meeting or otherwise may be taken by Limited Partners without a meeting, without prior notice, and without a vote if a consent in writing setting forth the action so taken shall be signed by Limited Partners owning Units having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting of Limited Partners at which all outstanding Units shall have been present and voted. Notice of the taking of action by Limited Partners without a meeting by less than unanimous written consent of the Limited Partners shall be given to those Limited Partners who shall not have consented in writing within seven business days after the occurrence thereof. (e) Amendments to Certificate of Limited Partnership. If an amendment to this Agreement shall be made pursuant to this Section 15, the General Partner shall be authorized to execute, acknowledge, swear to, deliver, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to the Certificate of Limited Partnership as shall be necessary or desirable to reflect such amendment. 16. Index of Defined Terms. Defined Term Section 17. Governing Law. The validity and construction of this Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, including, specifically, the Act (without regard to its choice of law principles); provided, however, that causes of action for violations of federal or state securities laws shall not be governed by this Section 17. 18. Miscellaneous. (a) Priority among Limited Partners. Except as otherwise specifically set forth in this Agreement, no Limited Partner shall be entitled to any priority or preference over any other Limited Partner in regard to the affairs of the Partnership. (b) Notices. All notices and requests to the General Partner under this Agreement (other than Subscriptions, Requests for Redemption, and notices of assignment or transfer, of Units) shall be in writing and shall be effective upon personal delivery or, if sent by registered or certified mail, postage prepaid, addressed to the General Partner at 825 Third Avenue, 9th Floor, New York, New York 10022 (or such other address as the General Partner shall have notified the Limited Partners), upon the deposit of such notice in the United States mail. Requests for Redemption, and notices of assignment or transfer of Units shall be effective upon timely receipt by the General Partner. Except as otherwise provided herein, all reports and notices hereunder shall be in writing and shall be sent by first-class mail to the last known address of the Limited Partner. (c) Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, all of the parties, their successors, assigns as permitted herein, custodians, estates, heirs, and personal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the Partnership and the General Partner may rely upon the Partnership's records as to who are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and that they shall be bound thereby, including all rights which they may have under Section 15. (d) Captions. Captions in no way define, limit, extend, or describe the scope of this Agreement nor the effect of any of its provisions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Additional Limited Partners: General Partner: By: Demeter Management Corporation, General Partner, as Authorized Agent and Attorney-in-Fact Demeter Management Corporation By: Name: Title: By: Annex A to Limited Partnership Agreement REQUEST FOR REDEMPTION: MORGAN STANLEY MANAGED FUTURES FUNDS THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED PARTNER'S LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, (ATTN: MANAGED FUTURES, HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DAY OF THE MONTH IN WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED. , 20 - [date] [print or type Morgan Stanley DW account number] I hereby request redemption (effective as of the next applicable date as of which redemption is permitted as set forth in the Limited Partnership Agreement of the Partnership for which redemption is requested, subject to all terms and conditions set forth therein) of my capital account in an amount equal to the respective Net Asset Value, as defined in the Limited Partnership Agreement, of the following Unit(s) of Limited Partnership Interest ("Units"), less any amounts specified in the Limited Partnership Agreement. COMPLETE ONLY ONE SECTION A, B, C, OR D PER FORM Section A Spectrum Series shall only redeem Units in a minimum amount of 50 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [DWSB] Spectrum Global Balanced Entire Interest Units [DWSF] Spectrum Select Entire Interest Units [DWSS] Spectrum Strategic Entire Interest Units [DWST] Spectrum Technical Entire Interest Units [DWSX] Spectrum Currency Entire Interest Units Section B Cornerstone Funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [CFCFB] Cornerstone Fund II Entire Interest Units $ ,000 [CFCFC] Cornerstone Fund III Entire Interest Units $ ,000 [CFCFD] Cornerstone Fund IV Entire Interest Units $ ,000 Section C Charter Series shall only redeem Units in a minimum amount of 100 Units, unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. [MSCC] Charter Campbell Entire Interest Units [MSCD] Charter MSFCM Entire Interest Units [MSCG] Charter Graham Entire Interest Units [MSCM] Charter Millburn Entire Interest Units Section D Other managed futures funds shall only redeem $1,000 increments or WHOLE Units unless a Limited Partner is redeeming his/her entire interest (all) in such Partnership. MARK ONE FUND ONLY (Use One Form Per Fund): Entire Interest [DFF] Diversified Futures Fund [PGF] Multi-Market Portfolio [DFF2] Diversified Futures Fund II [PPF] Principal Plus Fund Units [DFF3] Diversified Futures Fund III [PSF] Portfolio Strategy Fund [GPP] Global Perspective Portfolio [WCF] World Currency Fund $ ACCOUNT INFORMATION AND SIGNATURES I understand that I may only redeem Units at such times as are specified in the Limited Partnership Agreement and that, under certain circumstances described therein, I may be subject to a redemption charge. I (either in my individual capacity or as an authorized representative of an entity, if applicable) hereby represent and warrant that I am the true, lawful and beneficial owner of Units (or fractions thereof) to which this Request for Redemption relates, with full power and authority to request redemption. The Units (or fractions thereof) which are the subject of this request are not subject to any pledge or otherwise encumbered in any fashion. My signature has been represented by a member of a registered national securities exchange. Signatures Must Be Identical to Name(s) in Which Units are Registered Type or Print all Information Below 1. Account Information (Name of Limited Partner) (Morgan Stanley DW Account Number) Address: (Street) (City) (State Province) (Zip Code or Postal Code) 2.a. Signature(s) of Individual Partner(s) or Assignee(s) including IRAs (Signature) (Signature) (Date) 2.b. Signature of Entity Partner or Assignee (Name of Entity) By: X (Authorized officer, partner, trustee, or custodian. If a corporation, include certified copy of authorized resolution.) 3. Branch Manager and Financial Advisor Use Only (Financial Advisor MUST sign) (Branch Manager MUST sign) MORGAN STANLEY SPECTRUM SERIES SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY If you are subscribing for units of limited partnership interest in the Morgan Stanley Spectrum Series, consisting of five commodity pool limited partnerships, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Currency L.P., you should carefully read and review the Prospectus. For Cash Subscribers: By executing the Cash Subscription Signature Page of this Subscription and Exchange Agreement and Power of Attorney, you will irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. For Exchange Subscribers: By executing the Exchange Subscription Signature Page of this Agreement, you will irrevocably redeem the units of limited partnership interest of each limited partnership indicated on the signature page of this Agreement and, with the proceeds of that redemption, irrevocably subscribe for units of one or more of the partnerships at the price per unit described in the Prospectus. Notwithstanding the foregoing, you may revoke this Agreement, and receive a full refund of the subscription amount you paid, plus any accrued interest thereon (or revoke the redemption of units in the other limited partnership in the case of an exchange), within five business days after execution of this Agreement or no later than 3:00 p.m., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. If this Agreement is accepted, you agree to: (i) contribute your subscription to each partnership designated on the Signature Page of this Agreement; and (ii) be bound by the terms of each such partnership's Amended and Restated Limited Partnership Agreement, included as Exhibit A to the Prospectus (the "Limited Partnership Agreement"). By executing the Signature Page of this Agreement, you shall be deemed to have executed this Agreement and the Limited Partnership Agreement (including the Powers of Attorney in both Agreements). PAYMENT INSTRUCTIONS For Cash Subscribers: You must pay your subscription amount by charging your customer account with Morgan Stanley DW (the "Customer Account"). In the event that you do not have a Customer Account or do not have sufficient funds in your existing Customer Account, you must make appropriate arrangements with your Morgan Stanley financial advisor. If you don't have a financial advisor, contact your local Morgan Stanley branch office. Payment must NOT be mailed to the general partner at its offices in New York City. Any such payment will not be accepted by the general partner and will be returned to you for proper placement with the Morgan Stanley branch office where your Customer Account is maintained. By executing the Signature Page of this Agreement, you authorize and direct the general partner and Morgan Stanley DW to transfer the appropriate amount from your Customer Account to the escrow account. For Exchange Subscribers: You must pay your subscription amount by applying the proceeds from the redemption of your limited partnership units in one of the partnerships or another commodity pool which Demeter Management Corporation serves as the general partner and commodity pool operator. You may only redeem units at such times as are specified in the limited partnership agreement for that commodity pool, and under certain circumstances described in that agreement you may be subject to a redemption charge. REPRESENTATIONS AND WARRANTIES STATE SUITABILITY REQUIREMENTS ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS You agree that as of the date that your name is entered on the books of a partnership, you shall become a limited partner of that partnership. You also agree to each and every term of the Limited Partnership Agreement of that partnership as if you signed that agreement. You further agree that you will not be issued a certificate evidencing the units that you are purchasing, but that you will receive a confirmation of purchase in Morgan Stanley DW's customary form. POWER OF ATTORNEY AND GOVERNING LAW You hereby irrevocably constitute and appoint Demeter Management Corporation, the general partner of each partnership, as your true and lawful Attorney-in-Fact, with full power of substitution, in your name, place, and stead: (1) to do all things necessary to admit you as a limited partner of each Partnership requested below, and such other partnership(s) of the Morgan Stanley Spectrum Series as you may request from time to time; (2) to admit others as additional or substituted limited partners to such partnership(s) so long as such admission is in accordance with the terms of the applicable Limited Partnership Agreement or any amendment thereto; (3) to file, prosecute, defend, settle, or compromise any and all actions at law or suits in equity for or on behalf of each partnership in connection with any claim, demand, or liability asserted or threatened by or against any partnership; and (4) to execute, acknowledge, swear to, deliver, file, and record on your behalf and as necessary in the appropriate public offices, and publish: (a) each Limited Partnership Agreement and each Certificate of Limited Partnership and all amendments thereto permitted by the terms thereof; (b) all instruments that the general partner deems necessary or appropriate to reflect any amendment, change, or modification of any Limited Partnership Agreement or any Certificate of Limited Partnership made in accordance with the terms of such Limited Partnership Agreement; (c) certificates of assumed name; and (d) all instruments that the general partner deems necessary or appropriate to qualify or maintain the qualification of each partnership to do business as a foreign limited partnership in other jurisdictions. You agree to be bound by any representation made by the general partner or any successor thereto acting in good faith pursuant to this Power of Attorney. The Power of Attorney granted hereby shall be deemed to be coupled with an interest and shall be irrevocable and survive your death, incapacity, dissolution, liquidation, or termination. This Subscription and Exchange Agreement and Power of Attorney shall be governed by and interpreted in accordance with the laws of the State of New York, provided, however, that this provision shall not be deemed a waiver of any rights of action you may have under applicable federal or state securities law. RECEIPT OF DOCUMENTATION A Morgan Stanley Spectrum Series Units of Limited Partnership Interest Cash Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-7 AND B-8, THE CASH SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Cash Subscription Signature Page and by payment of the purchase price for units of limited partnership interest of one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. CASH SUBSCRIPTION SIGNATURE PAGE BUY Item 1 SUBSCRIBER Spectrum Fund Symbol Amount of Subscription - Morgan Stanley DW Account No. D W S B Morgan Stanley Spectrum Global Balanced L.P. $ D W S F Morgan Stanley Spectrum Select L.P. $ D W S S Morgan Stanley Spectrum Strategic L.P. $ D W S T Morgan Stanley Spectrum Technical L.P. $ D W S X Morgan Stanley Spectrum Currency L.P. $ Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. *If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. *In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account _____________________________________________________________________________________________ Your Full Name or Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription and Exchange Agreement and Power of Attorney on their behalf and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each partnership specified is authorized under applicable law and the governing documents of the entity, has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Branch Manager and Financial Advisor Use Only (Complete in Full and in Ink) B Morgan Stanley Spectrum Series Units of Limited Partnership Interest Exchange Subscription Signature Page , 2004 Please print or type (except signatures). Use ink only. PAGES B-9 AND B-10, THE EXCHANGE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO YOUR LOCAL MORGAN STANLEY BRANCH OFFICE AND MUST BE RECEIVED BY MORGAN STANLEY DW, AS SELLING AGENT, ATTN: MANAGED FUTURES, AT HARBORSIDE FINANCIAL CENTER, PLAZA II, 1ST FLOOR, JERSEY CITY, NEW JERSEY 07311, AT LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING. THIS FORM CANNOT BE FAXED. By execution and delivery of this Exchange Subscription Signature Page, you hereby redeem the units of limited partnership interest of the limited partnership(s) named in Item 1 below and, by application of the proceeds of such redemption to the payment of the purchase price for units of limited partnership interest in one or more partnerships in the Morgan Stanley Spectrum Series you hereby subscribe for units in the partnership(s) specified below at a price equal to 100% of the net asset value per unit of the applicable partnership(s) as of the close of business on the date of the applicable monthly closing. Redemption of units of any partnership for an exchange must be in whole units, unless you are redeeming your entire interest in such partnership. BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE MORGAN STANLEY SPECTRUM SERIES PROSPECTUS, DATED , 2004, INCLUDING THE LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS. Item 1 SUBSCRIBER - Morgan Stanley DW Account No. Symbol(s) for Fund(s) from which Units are to be redeemed Specify quantity of Units to be redeemed (check box if Entire Interest; insert number if Whole Units) Spectrum Series Fund Symbol Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / Entire Interest or Whole Units to /D/ /W/ /S/ / / You hereby authorize Demeter Management Corporation to redeem the quantity of units of limited partnership interest set forth opposite the symbol for each partnership identified on the left above at the "Net Asset Value" thereof, as defined in the limited partnership agreement of each such partnership, less any redemption charges, and to utilize the net proceeds of that redemption to purchase units in the applicable Morgan Stanley Spectrum Series partnership as indicated on the right above. Redemptions for an exchange must meet the applicable minimum investment requirements described under "Subscription Procedure" in the prospectus. Morgan Stanley Spectrum Series , 2004 Item 2 SIGNATURES You MUST Sign Below INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE BENEFIT PLAN OR IRA SUBSCRIPTION If you are subscribing for a joint or community property account, the statements, representations, and warranties set forth in this Subscription and Exchange Agreement and Power of Attorney shall be deemed to have been made by each owner of the account. * If the units will be owned by joint owners, tenants in common, or as community property, signatures of all owners are required. * In the case of a participant-directed employee benefit plan or IRA, the beneficiary must sign immediately below and the trustee or custodian must sign below under "Entity Subscription." Full Name of Account: _____________________________________________________________________________________________ Your Full Name or Full Name of Trust or Custodial Account do not use initials X X Signature of Subscriber Date Signature of Co-Subscriber Date Print Full Name of Subscriber Print Full Name of Co-Subscriber ENTITY SUBSCRIPTION ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAs) IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR MORGAN STANLEY DW THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. The undersigned officer, partner, trustee, manager, or other representative hereby certifies and warrants that: (a) s/he has full power and authority from or on behalf of the entity named below and its shareholders, partners, beneficiaries, or members to (i) complete, execute, and deliver this Subscription Agreement and Power of Attorney on their behalf; and (ii) to make the statements, representations, and warranties made herein on their behalf; and (b) the investment in each Partnership specified is authorized under applicable law and the governing documents of the entity, and has been affirmatively authorized by the governing board or body, if any, of the entity, and is legally permissible. X Print Full Name of Entity Signature of Person Signing for Entity Date Title Print Full Name of Person Signing for Entity Item 3 Financial Advisor and Branch Manager Use Only (Complete in Full and in Ink) EXHIBIT C Morgan Stanley Spectrum Series Units of Limited Partnership Interest Additional Subscription Agreement Update Form , 2004 C Please print or type (except signatures). Use ink only. Morgan Stanley DW Account No. - I am an investor in one or more of the Morgan Stanley Spectrum Series partnership(s) I acknowledge receipt of the Morgan Stanley Spectrum Series Prospectus dated April 28, 2003 (the "Prospectus"). I have signed this form, which updates each Subscription and Exchange Agreement and Power of Attorney I signed when I purchased units in one or more of the Morgan Stanley Spectrum Series partnership(s), so that I may purchase additional units of such partnership(s) without the need to execute a new Subscription Agreement. I understand that if I wish to purchase additional units by way of an exchange, or if I wish to purchase units of any Morgan Stanley Spectrum Series partnership in which I am not currently an investor, I must first execute a new Subscription Agreement in the form annexed to the applicable Prospectus as Exhibit B. I hereby confirm that the representations, warranties and other information regarding the Subscriber in the Subscription Agreement(s) I previously executed are still accurate, and that any purchase of additional Units following the date of this Subscription Agreement Update Form shall be deemed confirmation that such representations, warranties and other information are still accurate at the time of that additional purchase. I will notify my Morgan Stanley Financial Advisor prior to the purchase of additional Units if there is any material change in the Subscriber's representations, warranties, or other information contained in the previously executed Subscription Agreement(s). I understand that I will need to execute a new Subscription Agreement Update Form when a new Prospectus or Prospectus Supplement is issued. INDIVIDUAL SUBSCRIBERS IF SUBSCRIBER IS AN ENTITY X Signature of Subscriber Print Full Name of Entity X Print Full Name of Subscriber Signature of Person Signing for Entity By: X Signature of Co-Subscriber Print Full Name of Person Signing for Entity Print Full Name of Co-Subscriber Title Date: Date: Branch Manager and Financial Advisor Use Only No person is authorized to give any information or to make any representation not contained in this prospectus in connection with the matters described herein, and, if given or made, such information or representation must not be relied upon as having been authorized. This prospectus does not constitute an offer by any person within any jurisdiction in which such offer is not authorized, or in which the person making such offer is not qualified to do so, or to any person to whom such offer would be unlawful. The delivery of this prospectus at any time does not imply that information contained herein is correct as of any time subsequent to the date of its issue. Until 40 days from the date of this prospectus, all dealers that effect transactions in these securities, or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. $ Total 205,640 *Represents an estimate of the registrant's portion of the fees and expenses that are common to this Registration Statement and the Registration Statements on Form S-1 for each of Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., and Morgan Stanley Spectrum Strategic L.P. and Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 for Morgan Stanley Spectrum Global Balanced L.P., which are being filed concurrently with this Registration Statement. Item 14. Indemnification of Directors and Officers. Section 14 of the Amended and Restated Limited Partnership Agreement (a form of which is annexed to the Prospectus as Exhibit A) provides for indemnification of the General Partner and its affiliates (as such term is defined therein) by the Partnership for any loss, liability, damage, cost or expense arising from any act, omission, activity or conduct undertaken by or on behalf of the Partnership that is determined by the General Partner in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 11 of the Amended and Restated Selling Agreement provides for indemnification of the General Partner and its affiliates and its successors and assigns by Morgan Stanley DW Inc. ("MSDW") for any loss, claim, damage, liability, cost and expense incurred for a breach by MSDW of a representation or agreement in the Selling Agreement, or for misleading statements and material omissions regarding MSDW in the Registration Statement or Prospectus. Such Section also provides for the indemnification by the Partnership of MSDW, the General Partner and their affiliates for any act, omission, conduct, or activity undertaken by or on behalf of a Partnership that is determined by MSDW or the General Partner, as applicable, in good faith to be in the best interests of the Partnership and was not the result of misconduct or negligence. Section 8 of the Customer Agreement, between the Partnership and MSDW, provides for indemnification of MSDW and its affiliates for liabilities, losses, damages, costs, or expenses for activities taken by or on behalf of the Partnership which MSDW has determined in good faith are in the best interests of the Partnership and are not the result of misconduct or negligence. Section 8 of each Management Agreement provides for indemnification of the General Partner and its affiliates by the Trading Advisor for losses, claims, damages, liabilities, costs and expenses incurred as a result of actions or omissions by the Trading Advisor involving the Partnership's trading which are the result of a breach of agreement, representation or warranty or the result of bad faith, misconduct or negligence. Item 15. Recent Sales of Unregistered Securities. None. II-1 Item 16. Exhibits and Financial Statements. (a) Exhibits Exhibit Number Description of Document 1.01(5) Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Commodity L.P., Demeter Management Corporation, and Morgan Stanley DW Inc. 1.01(a)(8) Amendment No. 1 to the Amended and Restated Selling Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P. and Morgan Stanley Spectrum Commodity L.P. 1.01(b) Form of Amendment No. 2 to the Amended and Restated Seller's Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Global Balanced L.P. 1.03(1) Form of Additional Seller Agreement between Morgan Stanley DW Inc. and additional selling agents. 3.01(6) Form of Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the prospectus). 3.02(1) Certificate of Limited Partnership of the Registrant. 3.03(4) Certificate of Amendment of Certificate of Limited Partnership of the Registrant (changing its name from Morgan Stanley Dean Witter Spectrum Currency L.P.). 5.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 5.02(6) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent) 5.03(7) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding the legality of Units (including consent). 5.04 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding the legality of Units (including consent). 8.01(1) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). 8.02(6) Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent) 8.03(7) Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 8.04 Opinion of Cadwalader, Wickersham & Taft LLP to the Registrant regarding certain federal income tax matters (including consent). 10.01(2) Management Agreement among the Registrant, Demeter Management Corporation, and John W. Henry & Company, Inc. 10.01(a)(3) Amendment to Management Agreement among the Registrant, John W. Henry & Company, Inc., and Demeter Management Corporation. 10.02(2) Management Agreement among the Registrant, Demeter Management Corporation, and Sunrise Capital Partners, LLC. 10.02(a)(3) Amendment to Management Agreement among the Registrant, Sunrise Capital Partners, LLC, and Demeter Management Corporation. 10.05(5) Amended and Restated Escrow Agreement among the Registrant, Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Technical L.P., Morgan Stanley Spectrum Strategic L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Commodity L.P., Morgan Stanley DW Inc., and The Chase Manhattan Bank, the escrow agent. 10.06(6) Form of Subscription and Exchange Agreement and Power of Attorney to be executed by each purchaser of Units (included as Exhibit B to the prospectus). 10.08(6) Form of Subscription Agreement Update Form to be executed by purchasers of units (included as Exhibit C to the prospectus). 10.09(4) Customer Agreement between the Registrant and Morgan Stanley DW Inc. 10.10(4) Customer Agreement among the Registrant, Morgan Stanley & Co. Incorporated, and Morgan Stanley DW Inc. 10.11(4) Foreign Exchange and Options Master Agreement between the Registrant and Morgan Stanley & Co. Incorporated. II-2 10.12(4) Securities Account Control Agreement among the Registrant, Morgan Stanley & Co. Incorportated, and Morgan Stanley DW Inc. 23.01 Consent of Independent Auditors. (1)Incorporated by reference to the Registrant's Registration Statement No. 333-90485 filed with the SEC on November 5, 1999. (2)Incorporated by reference to the Registrant's quarterly report on Form 10-Q filed with the SEC on November 14, 2000 (File No. 0-31563). (3)Incorporated by reference to the Registrant's Form 8-K filed with the SEC on January 3, 2001 (File No. 0-31563). (4)Incorporated by reference to the Registrant's Form 8-K filed with the SEC on November 1, 2001 (File No. 0-31563). (5)Incorporated by reference to the Registrant's Registration Statement No. 333-90485 filed with the SEC on November 2, 2001. (6)Incorporated by reference to the Registrant's Registration Statement No. 333-84654 filed with the SEC on March 20, 2002. (b)Financial Statements. Included in the Prospectus: Morgan Stanley Spectrum Currency L.P. Independent Auditors' Report Statement of Financial Condition Notes to Statement of Financial Condition Demeter Management Corporation Independent Auditors' Report Statements of Financial Condition Notes to Statements of Financial Condition Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (7)Incorporated by reference to Registrant's Registration Statement No. 333-104004 filed with the SEC on March 25, 2003. (8)Incorporated by reference to the Post-Effective No. 1 to the Registrant's Registration Statement No. 333-104004 filed with the SEC on December 3, 2003. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York and State of New York, on the 8th day of March, 2004. MORGAN STANLEY SPECTRUM CURRENCY L.P. By: DEMETER MANAGEMENT CORPORATION, General Partner By: /s/ JEFFREY A. ROTHMAN Jeffrey A. Rothman, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date DEMETER MANAGEMENT CORPORATION General Partner /s/ JEFFERY A. ROTHMAN Jeffrey A. Rothman President and Chairman of the Board of the General Partner March 8, 2004 /s/ DOUGLAS J. KETTERER Douglas J. Ketterer Director of the General Partner March 8, 2004 /s/ JEFFREY S. SWARTZ Jeffrey S. Swartz Director of the General Partner March 8, 2004 /s/ RICHARD A. BEECH Richard A. Beech Director of the General Partner March 8, 2004 /s/ RAYMOND A. HARRIS Raymond A. Harris Director of the General Partner March 8, 2004 /s/ FRANK ZAFRAN Frank Zafran Director of the General Partner March 8, 2004 /s/ JEFFREY D. HAHN Jeffrey D. Hahn Chief Financial Officer and Director of the General Partner March 8, 2004 II-4 QuickLinks MORGAN STANLEY SPECTRUM CURRENCY L.P. CROSS REFERENCE SHEET EXPLANATORY STATEMENT COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT Table of Contents PART ONE DISCLOSURE DOCUMENT SUMMARY
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100124_celebrate_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100124_celebrate_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..e9011519c0ae8e57be7d6457cd3f3906daa32c14
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common shares. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the Risk Factors and financial statements and related notes included in this prospectus. The Company Celebrate Express is a leading provider of celebration products serving families with young children, via the Internet and catalogs. We currently operate three brands, Birthday Express, Storybook Heirlooms and Costume Express, which respectively offer high-quality children s party products, girls specialty apparel and children s costumes. Our marketing strategy utilizes our branded websites, complemented by our branded catalogs, to offer products as completely coordinated assortments. We support our customer s purchasing experience with detailed product information, knowledgeable event planning advice and responsive customer service. Our goal is to help busy parents celebrate the special moments in their children s lives. Our business model offers a broad assortment of proprietary products, which we internally design and manufacture or directly source, as well as third-party products which we purchase from market suppliers. Our proprietary products, which currently represent over 55% of our sales, serve to differentiate us from competitors and provide a margin advantage relative to our other products, while third-party products allow us to capitalize on market trends. We complement our product mix with a wide variety of accessories, allowing customers to purchase an entire suite of coordinated products from a single source without having to travel to multiple retail locations. Our centralized inventory management maximizes product availability and allows us to customize our product assortment to meet specific customer needs. Our internal product development, manufacturing and sourcing capabilities allow us to develop creative new products and quickly respond to changes in customer demand. We believe that the combination of these factors creates a more compelling shopping experience than traditional retail stores. We launched our Birthday Express brand in 1994, offering customers a wide selection of high-quality children s theme-based party supplies in customized assortments. We currently offer more than 100 popular children s themes, including third-party products such as Spider-Man, Finding Nemo and Disney Princesses, as well as over 40 proprietary themes such as Tony Hawk, Unicorn and Disney s Home on the Range. Each party theme includes as many as 35 products, such as traditional paper goods complemented by activity kits, whimsical party hats, personalized banners and distinctive favor-filled boxes. We offer our party products individually or in bundled party packages ranging in price from approximately $21 to $170, all of which can be customized for the exact number of guests. As a result, our average Birthday Express order contained 20 items during our fiscal year ended May 31, 2004. In addition, our Birthday Express customers receive detailed party planning advice, including suggestions on age-appropriate party activities, recipes and decorating ideas. In recent years, we have increased our customer s frequency of purchase by offering additional brands. Our Storybook Heirlooms, or Storybook, brand, which we acquired in 2001, provides high-quality specialty apparel for young girls, with a particular focus on age-appropriate special occasion dresses. Our Costume Express brand, which we launched in 2003, offers an assortment of high-quality children s and family costumes for Halloween and year-round dress-up fun. These additional brands have allowed us to leverage our product development expertise, sourcing capabilities, inventory management skills and customer database to increase our revenue. The predictable demand for these celebration products and the diversity of our brand portfolio have also served to minimize the seasonality of our business. Our objective is to become the leading multi-brand destination for celebration products, marketed as complete solutions, for families with young children. To achieve this, we plan to introduce new brands with which we can effectively leverage our customer database and existing business infrastructure. This will give customers greater opportunities to purchase our products, which we believe will increase frequency of purchase. We continually review our product portfolio in an effort to increase net sales per Table of Contents order. As we grow, we plan to manufacture or directly source a larger portion of our products to efficiently manage our product costs. Our database has grown from 1.3 million customers as of May 31, 2002 to over 2.0 million as of August 31, 2004. We classify a customer as any individual or household that has at any time placed an order with us. For the three months ended August 31, 2004, we generated $14.5 million in net sales, an increase of 37.9% from $10.5 million in the three months ended August 31, 2003. Our gross margin as a percentage of sales improved from 48.5% in the three months ended August 31, 2003 to 49.3% in the three months ended August 31, 2004. For the three months ended August 31, 2004, our operating income increased to $518,000 from a loss of $471,000 in the three months ended August 31, 2003. For our fiscal year ended May 31, 2004, we generated $51.9 million in net sales, an increase of 37.4% from $37.8 million in our fiscal year ended May 31, 2003. Gross margin as a percentage of net sales improved from 48.5% in our fiscal year ended May 31, 2003 to 48.8% in our fiscal year ended May 31, 2004. For our fiscal year ended May 31, 2004, operating income increased to $1.3 million from a loss of $1.1 million in our fiscal year ended May 31, 2003. In our fiscal year ended May 31, 2004, our Birthday Express brand accounted for approximately 80% of total sales. Our websites, www.BirthdayExpress.com, www.Storybook.com and www.CostumeExpress.com, represent our fastest growing sales channel and comprised approximately 55% of sales for our fiscal year ended May 31, 2004. In the same period, our net sales per order was $78.02 and 47% of our sales came from repeat customers. Company Information Our business was incorporated in Washington on June 15, 1994 as Birthday Express, Inc. In January 2000, we changed our name to CelebrateExpress.com, Inc., and in June 2004 we changed our name to Celebrate Express, Inc. Our principal executive offices are located at 11220-120th Avenue NE, Kirkland, Washington 98033, and our telephone number is (425) 250-1061. Our websites include and references in this prospectus to our websites refer to www.BirthdayExpress.com, www.Storybook.com and www.CostumeExpress.com. Information contained on, or accessible through, our websites does not constitute part of this prospectus. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents The Offering Common stock we are offering 1,716,979 shares Common stock the selling shareholders are offering 1,140,221 shares Common stock to be outstanding after this offering 6,643,540 shares Use of proceeds We intend to use the net proceeds from this offering for the repayment of a $5.0 million term loan and general corporate purposes, including working capital. In addition, we may use a portion of the net proceeds to acquire complementary businesses or products. We have no commitments with respect to any acquisition. We will not receive any proceeds from the sale of shares by the selling shareholders. See Use of Proceeds. Proposed Nasdaq National Market symbol BDAY The number of shares of common stock to be outstanding after this offering is based on 4,926,561 shares of common stock issued and outstanding as of August 31, 2004. Except where we state otherwise, the common stock information we present in this prospectus: gives effect to a 1-for-1.51 reverse stock split of our common stock which was effected on October 15, 2004; is based on shares outstanding as of August 31, 2004, and excludes: 27,174 shares issuable upon exercise of outstanding warrants at a weighted average exercise price of $12.56 per share; 726,475 shares issuable upon exercise of options outstanding as of August 31, 2004 at a weighted average exercise price of $1.95 per share; and an additional 805,581 shares available for future issuance under our equity incentive and employee stock purchase plans, each containing provisions that automatically increase their share reserves each year, as more fully described in Management Benefit Plans ; assumes no exercise of the underwriters over-allotment option; gives effect to the conversion of 4,738,584 shares of our preferred stock into 3,138,175 shares of our common stock upon the closing of this offering; assumes the net exercise of warrants to purchase 190,394 shares of our preferred stock at a weighted average exercise price of $3.55 and 6,622 shares of our common stock at an exercise price of $1.66, which will expire or for which we have been notified will be net exercised at the closing of this offering, resulting in the issuance of 147,928 shares of common stock, based on the assumed initial public offering price of $14.00; and assumes adoption of our amended and restated articles of incorporation and restated bylaws at the closing of this offering. Birthday Express , BirthdayExpress.com , Celebrate ExpressTM, Costume ExpressTM, CostumeExpress.comTM, Storybook Heirlooms and Storybook.comTM are trademarks owned by us. This prospectus also makes reference to trademarks, brand names and logos of other companies which are the property of their respective owners. This prospectus contains market data and industry forecasts that were obtained from independent industry and government publications. Amendment No. 4 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Weighted average shares outstanding: Basic 1,382,217 1,388,323 1,444,964 1,398,625 1,636,993 Diluted 1,382,217 1,388,323 5,127,377 1,398,625 5,265,642 Pro forma weighted average shares outstanding: Basic (unaudited) 4,665,761 4,919,204 Diluted (unaudited) 5,127,377 5,265,642 Additional Operating Data: Total number of customers in our database 1,265 1,554 1,924 1,638 2,034 Percentage of sales from repeat customers 44 % 47 % 47 % 43 % 48 % Number of orders shipped 464 524 666 139 182 Net sales per order $ 64.52 $ 72.14 $ 78.02 $ 75.67 $ 79.81 Celebrate Express, Inc. (Exact name of registrant as specified in its charter) Washington 5961 91-1644428 (State of or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 11220-120th Avenue NE Kirkland, Washington 98033 (425) 250-1061 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Michael K. Jewell Chief Executive Officer 11220-120th Avenue NE Kirkland, Washington 98033 (425) 250-1061 (Name, address, including zip code, and telephone number, including area code, of agent for service) (in thousands) Balance Sheet Data: Cash and cash equivalents $ 1,412 $ 1,412 $ 17,617 Working capital 5,575 5,575 21,780 Total assets 23,079 23,079 39,284 Long-term debt, less current portion 4,341 4,341 12 Mandatorily redeemable convertible preferred stock 28,110 Mandatorily redeemable convertible preferred stock warrants 1,056 Total shareholders equity (deficit) (17,841 ) 11,326 32,531 The table above summarizes our balance sheet as of August 31, 2004: on an actual basis; on a pro forma basis to give effect to the conversion of 4,738,584 shares of preferred stock into 3,138,175 shares of our common stock and the assumed net exercise of warrants to purchase 190,394 shares of our preferred stock at a weighted average exercise price of $3.55 and 6,622 shares of our common stock at an exercise price of $1.66, resulting in the issuance of 147,928 shares of common stock, based on the assumed initial public offering price of $14.00; and on a pro forma as adjusted basis to give effect to the sale of 1,716,979 shares of common stock offered by us at an assumed initial offering price of $14.00 per share, the midpoint of our expected public offering price range, after deducting estimated underwriting discounts and commissions and our estimated offering expenses and to reflect repayment of our $5 million term loan with the proceeds of this offering. Copies to: Sonya F. Erickson Jeffry A. Shelby Heller Ehrman White McAuliffe LLP 701 Fifth Avenue, Suite 6100 Seattle, WA 98104 (206) 447-0900 Gary J. Singer Thomas J. Leary O Melveny Myers LLP 610 Newport Center Drive, 17th Floor Newport Beach, CA 92660 (949) 760-6900 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100722_bi-llc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100722_bi-llc_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
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@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100723_omark_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100723_omark_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001100723_omark_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100724_4520-corp_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100724_4520-corp_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001100724_4520-corp_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100725_gear_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100725_gear_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001100725_gear_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100726_dixon_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100726_dixon_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
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+++ b/parsed_sections/prospectus_summary/2004/CIK0001100726_dixon_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001100727_frederick_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001100727_frederick_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001100727_frederick_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001101555_central_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001101555_central_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..e20378bcaea5ac6555af8dc55ce039830c65ae56
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+SUMMARY" --> SUMMARY This summary highlights selected information from this document and does not contain all of the information that you need to consider in making your investment decision. To understand the material terms of this offering of the notes and the certificates, carefully read this entire document and the accompanying prospectus. THE PARTIES Issuer Capital Auto Receivables Asset Trust - will be the issuer of the notes and the certificates. Seller Capital Auto Receivables, Inc. will be the seller to the trust. Servicer General Motors Acceptance Corporation will be the servicer for the trust. Indenture Trustee . Owner Trustee . THE NOTES Class A Notes The trust will offer the four classes of notes listed on the cover page of this prospectus supplement. The trust will also issue Class A-1 Notes. The Class A-1 Notes are not being offered under this prospectus supplement and will instead be sold in a private placement. Interest Payments The trust will pay interest on the Class A Notes monthly on each distribution date based on a 360-day year consisting of twelve 30-day months. Interest payments on all classes of notes will have the same priority. Principal Payments The trust will pay principal on the notes monthly on each distribution date. The trust will make principal payments on the notes based on the amount of collections and defaults on the receivables during the prior month. The amount available for the payment of principal on the Class A Notes as a group will be applied to pay the Class A Notes in sequential priority; that is, the Class A-1 Notes will be paid in full before any payments are made on the Class A-2 Notes and the Class A-2 Notes will be paid in full before any payments are made on the Class A-3 Notes, etc. The failure of the trust to pay any class of notes in full on or before its final scheduled distribution date will constitute an event of default. On each distribution date after an event of default occurs and the notes are accelerated, until the time when all events of default have been cured or waived as provided in the indenture, principal payments on each class of notes will be made ratably to all noteholders, based on the outstanding principal balance of each class of notes. THE CERTIFICATES The trust will offer the certificates listed on the cover page of this prospectus supplement. The seller will initially retain certificates with an initial certificate balance of $ . SUMMARY" --> SUMMARY The following summary highlights selected information from this document and does not contain all of the information that you need to consider in making your investment decision. To understand the material terms of this offering of the notes [and the certificates], carefully read this entire document and the accompanying prospectus. THE PARTIES Issuer Capital Auto Receivables Asset Trust 20 -SN . The CARAT trust will be established by the seller for the purpose of issuing the notes [and the certificates] and owning a series of secured notes. Seller Capital Auto Receivables, Inc. ( CARI ) will be the seller to the CARAT trust. CARAT Servicer, COLT Servicer and VAULT Servicer General Motors Acceptance Corporation ( GMAC ) will be the servicer for the secured notes owned by the CARAT trust. GMAC will also be the servicer for the lease assets held by COLT and the vehicles titled in the name of VAULT. We refer to GMAC in its role as the servicer for CARAT as the CARAT servicer and in its role as servicer for COLT as the COLT servicer. CARAT Owner Trustee will be the owner trustee of the CARAT trust. CARAT Indenture Trustee will be the indenture trustee for the indenture pursuant to which the notes will be issued by the CARAT trust. VAULT Vehicle Asset Universal Leasing Trust or V.A.U.L. Trust ( VAULT ) was established by GMAC for the purpose of holding and facilitating the transfer of legal title to the vehicles subject to automobile and light duty truck leases acquired by GMAC. All vehicles titled in the name of VAULT are presently 100% beneficially owned by GMAC or GMAC Automotive Bank. COLT Central Originating Lease Trust ( COLT ) was established by GMAC and is owned by Central Originating Lease, LLC ( COLT, LLC ), a limited liability company whose sole member is GMAC. COLT acquires leases and the related leased vehicles from GMAC, financed in part by issuing non-recourse secured notes to GMAC. Each secured note has a security interest in a pool of new [or used] General Motors automobiles and light duty trucks and leases of those automobiles and light duty trucks. The offered securities are secured by a series of these secured notes sold by GMAC to CARI and by CARI to the CARAT trust. COLT Owner Trustee Deutsche Bank Trust Company Delaware is the owner trustee for COLT. COLT Indenture Trustee is the COLT indenture trustee for the COLT Indenture pursuant to which the secured notes will be issued by COLT. THE NOTES Class A Notes The CARAT trust will offer [three] classes of notes listed on the cover page of this prospectus supplement, which we refer to as the offered notes. [The CARAT trust will also issue Class A-1 Notes with an initial principal amount of $ . The Class A-1 Notes Interest Payments The trust will pay interest on the certificates monthly on each distribution date. Interest will accrue on the certificates from and including the closing date. Payments upon Acceleration If an event of default occurs and the notes are accelerated, no payments of interest on the certificates will be made until the notes are paid in full or the acceleration is rescinded. Certificate Balance No distributions on the certificate balance will be made until the notes have been paid in full. After the notes have been paid in full, on each distribution date, remaining amounts available will be applied to distributions on the certificate balance. REDEMPTION OF THE NOTES AND EARLY RETIREMENT OF THE CERTIFICATES When the aggregate discounted principal balance of the receivables declines to 10% or less of the initial aggregate discounted principal balance of the receivables, the servicer may purchase all of the remaining receivables. If the servicer purchases the receivables, the outstanding notes, if any, and the certificates will be redeemed at a price equal to their remaining principal balance and certificate balance, as applicable, plus accrued and unpaid interest thereon. THE RECEIVABLES The primary assets of the trust will be a pool of fixed rate retail instalment sales contracts and direct purchase money loans used to finance the purchase of new cars and light trucks. We refer to these contracts and loans as receivables and to the persons who financed their purchases with these contracts and loans as obligors. Further, when we use the term remaining payments on receivables as of a specific date, we mean all scheduled payments on scheduled interest receivables which are due on and after that specified date and all payments on simple interest receivables which have not been received prior to that specified date. The receivables in the trust will be sold on the closing date by GMAC to the seller, and then by the seller to the trust. The trust will grant a security interest in the receivables and the other trust property to the indenture trustee on behalf of the noteholders. All of the receivables to be sold to the trust were originated or acquired by GMAC or its subsidiaries under special incentive rate financing programs. The initial aggregate discounted principal balance of the receivables to be sold to the trust on the closing date, which is the present value of all remaining payments as of the cutoff date, discounted at %, was $ . PRIORITY OF DISTRIBUTIONS The trust will distribute available funds in the following order of priority: servicing fee payments to the servicer; net amount payable, if any, to the swap counterparty, other than any swap termination amounts; interest on the notes and any swap termination amounts on interest rate swaps related to the notes, pro rata; interest on the certificates; principal on the notes and, after the notes have been paid in full, distributions on the certificate balance; and deposits into the reserve account. If an event of default occurs and the notes are accelerated, the trust will pay each class of notes, on a pro rata basis, before making IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS" --> IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS We provide information to you about the Class A Certificates in two separate documents: (a) the accompanying prospectus, which provides general information, and (b) this prospectus supplement, which will describe the specific terms of your Class A Certificates and the specific meanings that certain terms will have and provides information regarding the pool of contracts held by the trust. You should rely only on the information provided in this prospectus supplement and the accompanying prospectus, including the information incorporated by reference. We have not authorized anyone to provide you with other or different information. We are not offering the Class A Certificates in any state where the offer is not permitted. The following Table of Contents and the Table of Contents in the accompanying prospectus provide the pages on which these captions are located. You can find the definitions of the capitalized terms used in this prospectus supplement are defined in the caption Glossary of Terms which appears at the end of the accompanying prospectus. will have a final scheduled distribution date of , 20 . The Class A-1 Notes are not being offered under this prospectus supplement [and will instead be sold in a private placement.]] Interest Payments The interest rate for each class of notes will be a fixed rate or a floating rate. We refer to notes that bear interest at a floating rate as floating rate notes and to notes that bear interest at a fixed rate as fixed rate notes. [Because the CARAT trust will issue floating rate notes, the CARAT trust will enter into corresponding interest rate swaps.] Interest will accrue on the notes from and including the closing date. The CARAT trust will pay interest on the notes on the fifteenth day of each calendar month, or if that day is not a business day, the next business day, beginning on , 20 . We refer to these dates as distribution dates. The CARAT trust will pay interest on fixed rate notes on each distribution date based on a 360-day year consisting of twelve 30-day months. The CARAT trust will pay interest on floating rate notes on each distribution date based on the actual days elapsed during the period for which interest is payable and a 360-day year. Interest payments on all classes of notes will have the same priority. Principal Payments The CARAT trust will pay principal on the notes monthly on each distribution date. The CARAT trust will make principal payments based on the amount of payments on the secured notes during the prior month. Principal payments on the notes will be made in the order of priority listed below. On each distribution date, except as described below, the amount available to make principal payments will be applied: (1) to the Class A-1 Notes, until the Class A-1 Notes are paid in full; (2) to the Class A-2 Notes, until the Class A-2 Notes are paid in full; (3) to the Class A-3 Notes, until the Class A-3 Notes are paid in full; and (4) to the Class A-4 Notes, until the Class A-4 Notes are paid in full. The failure of the CARAT trust to pay any class of notes in full on or before its final scheduled distribution date will constitute an event of default under the CARAT indenture. On each distribution date after an event of default occurs under the CARAT indenture and the notes are accelerated until the time when all events of default have been cured or waived as provided in the CARAT indenture, principal payments on each class of notes will be made ratably to all noteholders based on the outstanding principal balance of each class of notes. [THE CERTIFICATES [The CARAT trust will offer the certificates listed on the cover page of this prospectus supplement.] [The seller will initially retain certificates with an initial certificate balance of $ .] Interest Payments [The interest rate for the certificates will be % based on a 360-day year consisting of twelve 30-day months.] [The interest rate for the certificates will be a floating rate based on the actual days elapsed during the period for which interest is payable and a 360-day year.] any interest payments on the certificates until the notes are paid in full or all events of default have been cured or waived as provided in the indenture. RESERVE ACCOUNT On the closing date, the seller will deposit $ in cash or eligible investments into the reserve account. Collections on the receivables, to the extent available for this purpose, will be added to the reserve account on each distribution date. See The Transfer and Servicing Agreements Reserve Account in this prospectus supplement for additional information. To the extent that funds from principal and interest collections on the receivables are not sufficient to pay the basic servicing fee, to pay the net amount, if any, due to the swap counterparty and to make required payments and distributions on the notes and the certificates, the amount deposited in the reserve account provides an additional source of funds. On any distribution date, if the amount in the reserve account exceeds the specified reserve account balance, the trust will pay the excess to the seller. INTEREST RATE SWAPS The trust will enter into an interest rate swap with as the swap counterparty with respect to each class or tranche of floating rate notes. Under the interest rate swap, on the business day prior to each distribution date, the trust will be obligated to pay the swap counterparty a fixed interest rate and the swap counterparty will be obligated to pay the trust a floating interest rate of One-Month LIBOR plus an applicable spread. For the swap, the notional amount will equal the outstanding principal balance of the related class or tranche of floating rate notes. See The Transfer and Servicing Agreements Interest Rate Swaps in this prospectus supplement for additional information. SERVICING FEES The trust will pay the servicer a monthly 1% per annum basic servicing fee as compensation for servicing the receivables. The servicer will also be entitled to any late fees, prepayment charges and other administrative fees and expenses collected during the month and investment earnings on the trust accounts. TAX STATUS Kirkland Ellis LLP, special tax counsel, has delivered its opinion that: the notes will be characterized as indebtedness for federal income tax purposes; and the trust will not be taxable as an association or publicly traded partnership taxable as a corporation, but instead will be classified as a partnership for federal income tax purposes. Each noteholder, by accepting a note, will agree to treat the notes as indebtedness for federal, state and local income and franchise tax purposes. Each certificateholder, by accepting a certificate, will agree to treat the certificates as equity interests in a partnership for federal, state and local income and franchise tax purposes. A purchaser of certificates who is a pension, profit sharing or employee benefit plan or other tax-exempt entity, including an individual retirement account, should be aware that all of the taxable income allocated to such purchaser will constitute unrelated business taxable income generally taxable to such purchaser under the Internal Revenue Code. See Federal Income Tax Consequences in this prospectus supplement and the prospectus for additional information. Prospectus Supplement THE CERTIFICATES S-5 THE RECEIVABLES POOL S-5 THE SERVICER S-8 ERISA CONSIDERATIONS S-10 FEDERAL INCOME TAX CONSEQUENCES S-10 UNDERWRITING S-10 LEGAL OPINIONS S-11 Prospectus SUMMARY 2
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+PROSPECTUS SUMMARY This summary highlights some of the information found in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus, including Risk Factors and our financial statements and accompanying notes, before making an investment decision. Our Company We are developing novel antimicrobial drugs designed to overcome many of the shortcomings of currently prescribed anti-infectives. These shortcomings result from the wide range of microbes responsible for serious infections and the fact that many microbes have become resistant to current therapies. We have selected our product candidate, iseganan, for development because it kills a broad spectrum of microbes and has a low propensity to engender resistance. Iseganan is currently in clinical development for two indications: the prevention of ventilator-associated pneumonia, or VAP, and the treatment of lung infections associated with cystic fibrosis, or CF. Additionally, we are evaluating the use of iseganan for other types of infection where we believe that its properties may render it more effective than current therapies. VAP is the most common infection contracted by patients in the intensive care unit. Worldwide, more than one million patients annually are at risk of developing VAP. VAP represents a significant unmet medical need, as there are no drugs approved for its prevention. VAP is caused by aspiration of infectious microbes into the lungs of ventilated patients. Prophylaxis with combinations of conventional antimicrobial drugs has been shown to reduce the incidence of VAP, but is not generally used due to concerns over antimicrobial resistance. Iseganan has been granted Fast Track designation by the FDA for this indication and has been accepted for inclusion into the FDA s CMA Pilot 2 Program. In addition, we have established a Special Protocol Assessment, or SPA, in collaboration with the FDA, detailing an agreed-upon pivotal trial design for prevention of VAP that, if successful, will support registration of iseganan for this indication. The SPA requires us to conduct two identical pivotal trials, the first of which is currently enrolling patients. We expect results from this first trial by the end of 2004. CF is a lethal disease in which patients develop chronic, progressive infections in their lungs, beginning in infancy. In the United States, approximately 30,000 people suffer from CF. Patients are treated with inhaled antibiotics, but efficacy is limited by antimicrobial resistance, narrow antimicrobial spectrum, or both. Most patients die of progressive lung infection and the median survival of CF patients is 33 years of age. Iseganan kills the majority of pathogens that cause lung infection in CF, including multi-drug resistant pathogens. Based on our completed Phase I studies, we believe we have sufficient safety data to submit to the FDA in support of a Phase II study, which we plan to initiate in the second half of 2004. We have chosen to pursue indications for which clinical proof-of-principle exists, but where resistance diminishes the therapeutic value of existing drugs. We believe that targeting indications where antimicrobial drugs have already demonstrated effectiveness may reduce our development risk. Additionally, in contrast to the conventional practice of delivering antibiotics systemically to treat infection, we have focused on conditions where we can deliver iseganan directly to the site or source of disease. We believe that this strategy may optimize efficacy by maximizing drug concentrations where the infection occurs, and reduce potential toxicity by limiting systemic drug exposure. We retain worldwide commercial rights to iseganan for all indications. Our key U.S. patents, which cover the composition of iseganan, expire in 2015. Background Two interrelated problems are thwarting efforts to improve the prevention and treatment of infectious disease. First, patients are vulnerable to infection caused by a wide range of Table of Contents microbes. Second, many microbes encountered by patients today are not susceptible to current therapies. The result of these problems is that infectious diseases are increasingly difficult to treat and are adding substantial costs to the health care system. Since the discovery of penicillin more than 50 years ago, many types of antimicrobial drugs have been developed to fight microbial infections. Until recently, these antimicrobial drugs have been highly successful in controlling the morbidity associated with serious infections. In recent years, however, many microbes have developed resistance to currently marketed antibiotics. Once microbes become resistant, infections can become difficult or impossible to treat. The antibiotic resistance problem is worsening, in part, because of the use of multiple antibiotics to treat individual cases of infection. In order to combat infection, doctors typically prescribe combinations of antibiotics for two reasons. First, many infections can be caused by a broad range of microbial pathogens, while most current antibiotics individually have a narrow spectrum of activity. Second, because the results of diagnostic tests that determine the pathogen(s) causing an infection are often not available in a timely fashion, physicians are frequently forced to prescribe multiple antibiotics to cover the range of possible microbes. As pathogens have evolved to evade the activity of the commonly-prescribed antibiotics, multi-drug resistant strains have proliferated. Key Features and Benefits of Iseganan We are developing a novel class of drugs designed to kill a broad range of microbes without engendering resistance. These drugs are derived from a class of antimicrobial peptides known as protegrins that have evolved in mammals and are a natural part of the body s mechanism to kill microbes and fight infection. In contrast, conventional antimicrobial drugs, developed from plants, molds and other non-mammals, are naturally narrower in spectrum and engender resistance. Iseganan is a synthetic protegrin analog that we have optimized to enhance its microbe-killing activity. We believe that four key features of iseganan will translate into important clinical benefits. Broad Spectrum. Iseganan kills a diverse range of pathogens, including the two major classes of bacteria as well as yeast-like fungi, which are often not naturally susceptible to antibiotics. Treating these three classes of pathogens typically requires two or three antimicrobial drugs. Iseganan is also active against the vast majority of drug-resistant pathogens. We are unaware of any other agent on the market or in clinical development that possesses this breadth of antimicrobial activity. Low Propensity to Engender Resistance. Iseganan destroys the cell membranes of microbes, thus damaging their structural integrity. Based on tests conducted in the laboratory, iseganan works 100 to 1,000 times faster than conventional antibiotics. Because the cell membrane is a fundamental structure and cannot readily change, and because iseganan destroys membranes so quickly, there is little chance for a microbe to survive iseganan s killing activity and develop resistance. In laboratory experiments designed to engender resistance, organisms have remained susceptible to iseganan s killing effects while developing significant resistance to conventional antibiotics. This has been confirmed in both drug-susceptible, as well as multi-drug resistant, strains of pathogens. Low Propensity to Engender Cross-Resistance. Cross-resistance, which arises when an organism develops resistance to a second antibiotic upon exposure to a first, unrelated antibiotic, is particularly problematic because it can severely limit the number of viable therapeutic options a physician has to treat a patient. Organisms treated with iseganan have been shown to remain susceptible to the killing effects of other drugs. As a result, we believe that use of iseganan will preserve therapeutic options. (Dollars in thousands) Stockholders equity: Convertible preferred stock, $0.001 par value: 5,000,000 shares authorized, actual and as adjusted; 325 shares issued and outstanding, actual and as adjusted $ 1,771 $ 1,771 Common stock, $0.001 par value: 70,000,000 shares authorized, actual and as adjusted; 5,298,206 shares issued and outstanding, actual, and 8,298,206 shares issued and outstanding, as adjusted 5 8 Additional paid-in capital 239,237 277,227 Deferred stock compensation (188 ) (188 ) Accumulated other comprehensive income 2 Balances at December 31, 2002 3,269 3 216,466 (720 ) (200,269 ) 15,480 Issuance of common stock upon an exercise of options for cash 50 380 380 Issuance of common stock and warrants on private placement, net of $710 issuance costs 1,774 2 18,536 18,538 Issuance of Series A preferred stock and common stock warrants on private placement, net of $268 issuance costs 1,906 1,326 3,232 Beneficial conversion feature on Series A preferred stock 1,436 (1,436 ) Issuance of common stock upon conversion of Series A preferred stock (135 ) 132 135 Issuance of common stock as dividend on Series A preferred stock 18 117 (182 ) (65 ) Issuance of common stock upon exercise of warrants 55 Amortization of deferred stock compensation 126 126 Stock compensation for variable option awards 993 993 Stock compensation for consultant services 254 254 Cancellation of stock options related to employee terminations (406 ) 406 Comprehensive loss: Net loss (13,312 ) (13,312 ) Unrealized gain on securities 2 Balances at December 31, 2003 $ 1,771 5,298 $ 5 $ 239,237 $ (188 ) $ Net loss $ (13,312 ) $ (34,453 ) $ (67,366 ) Unrealized gain (loss) on available-for-sale securities Money market funds $ 13,845 $ $ $ 13,845 Auction rate securities 8,200 8,200 U.S. government agencies 3,906 $ 25,951 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Safe and Well-Tolerated. Based on our experience to date, iseganan appears to be safe and well-tolerated at therapeutically relevant doses when administered to the oral cavity, the planned route of administration for the prevention of VAP. In addition, we believe that we have sufficient safety data from our completed Phase I studies to support a Phase II study for inhaled iseganan in CF patients. Iseganan for Ventilator-Associated Pneumonia We completed a 42-patient, Phase I/ II clinical trial in patients on artificial life support. In this trial, local oral administration of iseganan was safe and resulted in several hundred-fold reductions in levels of microbes in the mouth. Our SPA calls for two identical pivotal trials that will each enroll approximately 900 patients. The primary efficacy end point in each of the two trials will be the occurrence of VAP. The analysis of the primary end point in each trial will be the proportion of patients developing VAP among survivors. In addition, the data from the two trials will be combined and analyzed for VAP-free survival. This pooled analysis will be the primary analysis used by the FDA for product registration. The first pivotal trial began enrolling patients in September 2003 and has enrolled more than 450 patients to date. Given that VAP arises through the aspiration of microbes from the mouth into the lungs, decontaminating the mouth using antimicrobial drugs to prevent VAP is an approach that has received significant medical and scientific interest. Since 1984, there have been more than 30 randomized clinical trials using conventional antimicrobial drugs topically applied in the oral cavity. Most of these trials have independently been statistically significant, and, in the aggregate, they have demonstrated reductions in the incidence of VAP of approximately 50%. Despite these positive results, oral decontamination using conventional antimicrobial drugs generally has not been adopted as a prevention strategy for VAP due to concerns over causing resistance and cross-resistance. We believe that iseganan, due to the features and benefits discussed above, could become an attractive therapeutic option for the prevention of VAP. Iseganan for Cystic Fibrosis We have completed four Phase I studies in a total of 41 healthy human volunteers and 81 adult CF patients. We believe that the safety data support a Phase II study. Preclinical studies suggest that the inhaled dose administered in our multi-dose Phase I study is in a therapeutically relevant range. Based on this, we have designed a Phase II study in collaboration with the Cystic Fibrosis Foundation to evaluate the antimicrobial efficacy of inhaled iseganan in patients with CF. A principal treatment for CF today is an inhaled antibiotic, tobramycin solution for inhalation, known as TOBI . This drug had annual sales of approximately $170 million worldwide in 2003. Because of resistance to TOBI, it must be administered intermittently, in a schedule that calls for one-month breaks following each month of therapy. During the six months of the year in which patients do not use TOBI, microbes re-accumulate in the patients lungs, and gradually their condition deteriorates. We believe that iseganan may represent an attractive treatment option for CF. In particular, because of its low propensity to engender resistance, iseganan may be suitable for continuous, uninterrupted therapy. Iseganan for Other Indications We believe that iseganan s pharmacologic properties may make it an attractive therapeutic option for a variety of other indications, including ear infections, acne, folliculitis or other skin infections, and vaginitis. These conditions each are characterized by infections that are caused by a diverse range of microbes not normally susceptible to a single antimicrobial drug, are caused by multi-drug resistant pathogens in which therapeutic options may already be limited and occur in parts of the body that can be directly accessed by iseganan. We are evaluating Amendment No. 1 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents microbiological efficacy, formulation requirements and market opportunities to enable selection of our next clinical development program. Our Management Team We have assembled a senior management team with prior experience in developing, registering and partnering novel pharmaceutical products. The members of this team have more than 50 years of combined experience in the biotechnology and pharmaceutical industries, and have been collectively responsible for the successful development and registration of seven new pharmaceutical products. We are also advised by leaders in the fields of pulmonary and critical care medicine, infectious disease and biostatistics. We believe that our collective experience will facilitate the successful development and commercialization of iseganan for multiple indications. Risks Related to Our Business We are at an early stage in the development of our company with a limited operating history and have had no revenues derived from operations. We are subject to numerous risks and obstacles, and we have highlighted the most important of them in Risk Factors, beginning on page 7. In particular, we have experienced significant operating losses since our inception, and we expect to continue to incur substantial additional operating losses. If we are unable to develop, receive approval for, or successfully commercialize our lead product candidate, iseganan, we may never be profitable and may have to cease operations. Corporate Information We were founded and incorporated in Delaware on January 19, 1994. Our principal offices are located at 2483 East Bayshore Road, Suite 100, Palo Alto, CA 94303, and our telephone number is (650)526-6800. Our website address is www.intrabiotics.com. The information found on our website is not part of this prospectus. Unless the context requires otherwise, in this prospectus the terms IntraBiotics, we, us and our refer to IntraBiotics Pharmaceuticals, Inc. IntraBiotics and the IntraBiotics logo are trademarks of IntraBiotics Pharmaceuticals, Inc. This prospectus also includes trademarks, trade names and service marks of other companies. Use by us of other parties trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties and those names or marks are the property of their respective holders. IntraBiotics Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 2834 94-3200380 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 2483 East Bayshore Road, Suite 100 Palo Alto, CA 94303 (650) 526-6800 (Address, including zip code, and telephone number, including area code, of the registrant s principal executive offices) Henry J. Fuchs, M.D. President and Chief Executive Officer IntraBiotics Pharmaceuticals, Inc. 2483 East Bayshore Road, Suite 100 Palo Alto, CA 94303 (650) 526-6800 (Name and address, including zip code, and telephone number, including area code, of agent for service) Copies to: John W. Larson, Esq. Elizabeth A. R. Yee, Esq. Morgan, Lewis Bockius LLP One Market Spear Street Tower San Francisco, CA 94105 Tel: (415) 442-1000 Fax: (415) 442-1001 Mark B. Weeks, Esq. Sonya F. Erickson, Esq. Heller Ehrman White McAuliffe LLP 2775 Sand Hill Road Menlo Park, CA 94025 Tel: (650) 854-4488 Fax: (650) 233-8386 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters over-allotment option. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities Exchange Commission, acting pursuant to said Section 8(a), may determine. (In thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments $ 26,394 $ 64,387 Working capital 25,424 63,417 Total assets 27,326 65,319 Long-term obligations, less current portion Accumulated deficit (215,199 ) (215,199 ) Total stockholders equity 25,628 63,621 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001104252_ddi-corp_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001104252_ddi-corp_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary contains basic information about this offering. It may not contain all the information that may be important to you. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors beginning on page 6 of this Prospectus, before making an investment decision. Our Company We are a provider of time-critical, technologically advanced printed circuit board engineering and manufacturing services. We specialize in engineering and fabricating complex multi-layer printed circuit boards on a quick-turn basis with lead times as short as 24 hours. We have approximately 1,500 customers in the communications and networking, high-end computing, medical, test and industrial instruments, military and aerospace equipment markets. Our experience in providing our customer base with an average of 70 new printed circuit board designs tooled per day has enabled us to accumulate significant process and engineering expertise. Our core strength is developing innovative, high-performance solutions during the engineering, test and launch phases of our customers new electronic product development. Our entire organization is focused on rapidly and reliably filling complex customer orders and building long-term customer relationships. Our global engineering capabilities and highly scalable manufacturing facilities in the United States, Canada and Europe enable us to respond to time-critical orders and technology challenges for our customers. Our Customer Solution Our customer solution combines reliable, time-critical service, industry-leading engineering expertise and advanced process and manufacturing technologies. We play an integral role in our customers product development and manufacturing strategies. We believe our core strengths in the engineering, test and launch phases of new electronic product development provide a competitive advantage in delivering our services to customers in industries characterized by rapid product introduction and strong growth. Our customers benefit from the following: Time-Critical Service. We specialize in providing time-critical, or quick-turn, printed circuit board engineering and manufacturing services. Our engineering, fabrication, assembly, manufacturing, quotation and sales systems are designed to respond to customers needs with quick-turn services. Our personnel are trained and experienced in providing our services with speed and precision. For example, we are able to issue price quotes to our customers in hours, rather than days. Approximately 50% of our net printed circuit board sales in 2003 were generated from services delivered in 10 days or less, and we fill many of our customers orders in as little as 24 hours. Customized Engineering Solutions. We are actively involved in the early stages of our customers product development cycles. This positions us at the leading edge of technology innovation in the engineering of complex printed circuit boards. Our engineering and sales teams collaborate to identify the specific needs of our customers and work with them to develop innovative, high performance solutions. This method of product development provides us with an in-depth understanding of our customers businesses and enables us to better anticipate and serve their needs. Advanced Manufacturing Technology. We maintain a strong commitment to research and development and focus on enhancing existing capabilities as well as developing new technologies. We are consistently among the first to adopt advances in printed circuit board manufacturing technology. For example, we believe that we are the only company in North America that manufactures printed circuits boards utilizing stacked microvia, or SMV , technology. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Our Services Quick-turn Printed Circuit Board Engineering and Fabrication Prototype Fabrication Services. We engineer and manufacture highly complex, technologically advanced multi-layer printed circuit board prototypes on a quick-turn basis. These prototypes are used in the design, testing and launch phases of new electronic products. Our advanced development and manufacturing technologies facilitate production with delivery times ranging from 24 hours to 10 days. Pre-production Fabrication Services. We offer quick-turn pre-production fabrication services to our customers when they introduce products to the market and require larger quantities of printed circuit boards in a short period of time. Our pre-production services typically include manufacturing 500 to 5,000 printed circuit boards per order with delivery times ranging from two to 20 days. Value-Added Services Assembly Services. We complement our quick-turn printed circuit board fabrication business with time-critical printed circuit board assembly. We also build, configure and test electronic products and assemblies. These services provide significant value to our customers by accelerating their products time to market. Transition Services. We provide our customers with seamless access to volume printed circuit board manufacturing capabilities located in Asia. Through a single purchase order, our customers can place prototype work with us and still benefit from volume production done by an Asia-based manufacturer. Our Strategy Our goal is to be the leading provider of time-critical, technologically advanced printed circuit board engineering and manufacturing services. To pursue this strategy, we intend to: focus on time-critical services that command a premium, generate higher margins, target more stable market segments and are more resistant to pricing pressure and commoditization; maintain leadership in manufacturing technologies to position ourselves as an industry innovator in providing time-critical, technologically-advanced services; continue to serve a large, diverse customer base to reduce end-market and customer concentration risk; and pursue new customers and further penetrate high-growth end-markets characterized by rapid product introduction cycles. Our Reorganization In August 2003, DDi Corp. and our subsidiary, DDi Capital, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. Our plan of reorganization was confirmed on December 2, 2003. The plan became effective and we emerged from bankruptcy on December 12, 2003. The plan provided for, among other things: cancellation of our pre-petition equity, senior secured notes and senior discount notes; issuance of 23,749,926 shares of our common stock and 1,000,000 shares of our Series A preferred stock; issuance of warrants that, as of February 6, 2004, were exercisable for 4,035,454 shares of our common stock, are held in an escrow account until December 12, 2005 and are exercisable at an initial exercise price of $0.01 per share from December 13, 2005 through July 31, 2008, and may be reduced by 50% if the credit facility is reduced by 50% or more as of December 12, 2005; Year ending December 31, 2003 $ 2,428 $ 599 $ 1,829 2004 2,076 419 1,657 2005 1,613 240 1,373 2006 4 4 2007 2 FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents and may be terminated if 100% of our borrowings under the credit facility are paid by December 12, 2005. adoption of new charter documents; cancellation of all pre-petition stock-based award plans and adoption of the 2003 Management Incentive Plan and 2003 Directors Equity Incentive Plan; issuance by DDi Capital of $17.7 million in new senior accreting notes that bear interest payable in cash at 14% per annum or payable by issuance of additional senior accreting notes at 16% per annum; restructuring of Dynamic Details $65.9 million senior credit facility into a new Dynamic Details $72.9 million senior credit facility that is guaranteed by DDi Corp.; consists of a $15 million revolving and term loan facility and a $57.9 million term loan, each with an April 15, 2008 maturity date, and has an aggregate of $67.9 million and $0.5 million of letters of credit obligations outstanding as of February 6, 2004; and election of four new independent directors of our seven member board. Our Address We are a Delaware Corporation incorporated in 2000. Our predecessor corporation was organized in 1978. Our principal executive office is located at 1220 Simon Circle, Anaheim, California 92806 and our telephone number is (714) 688-7200. We maintain a website on the Internet at www.ddiglobal.com. Our website, and the information contained therein, is not a part of this Prospectus. DDi Corp. (Exact Name of Registrant as Specified in its Charters) Delaware 3672 06-1576013 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number of Registrant) (I.R.S. Employer Identification No.) 1220 Simon Circle Anaheim, California 92806 (714) 688-7200 (Address, Including Zip Code, and Telephone Number, Including Area Code, of the Registrant s Principal Executive Offices) Table of Contents
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in the common stock. You should read the entire prospectus carefully, especially the risks of investing in the common stock discussed under "Risk Factors," and the consolidated financial statements and the notes relating to those statements included elsewhere in this prospectus. Archipelago Holdings, Inc. We operate the Archipelago Exchange, or ArcaEx , the first open all-electronic stock market in the United States. Through our alliance with the Pacific Exchange, Inc., or PCX, we operate ArcaEx as the exclusive equities trading facility of PCX Equities, Inc., a wholly owned subsidiary of the Pacific Exchange. Through ArcaEx, our customers can trade over 8,000 equity securities, including securities listed on the NYSE, Nasdaq, AMEX and PCX. During 2003, our customers executed 295.1 million transactions in U.S. equity securities through ArcaEx, and we handled 24.6% of the total trading volume in Nasdaq-listed securities. For the six months ended June 30, 2004, our customers executed 200.8 million transactions in U.S. equity securities through ArcaEx, and we handled 25.6% of the total trading volume in Nasdaq-listed securities. We believe that we have promoted significant change and market innovation in the securities trading industry in recent years. We were the first to link traders to multiple U.S. market centers without market intermediaries. We accomplished this by developing an "outbound" routing capability that directs customers' orders to other market centers that display a better price than our trading system. We refer to this process as our "best execution" model. By bringing together buy orders and sell orders in this manner, we were able to increase the liquidity of our trading platform i.e., the number and range of buy orders and sell orders available to our customers. We have also introduced trading platforms and services designed to enhance the speed and quality of trade execution for our customers. Our trading platforms provide our customers with fast electronic execution and open, direct and anonymous market access. In addition to our core execution services, we provide customers with market data on a real-time and on a summary basis and, through our alliance with PCX, we offer companies and index providers that list on PCX a trading venue for their equity securities, exchange-traded funds and other structured products. We are committed to expanding and enhancing our suite of product and service offerings for both trading clientele and listed companies. Our revenues consist predominantly of transaction fees and market data fees generated by securities transactions executed on or through our trading platforms, which together represented 99.9% of our total revenues for the year ended December 31, 2003 and the six months ended June 30, 2004. We generated $458.3 million in total revenues for the year ended December 31, 2003 and $275.5 million in total revenues for the six months ended June 30, 2004. Trading Platforms and Services. ArcaEx's electronic trading system enables buyers and sellers to meet directly in an electronic environment. Unlike the NYSE, Nasdaq and other market centers that require market intermediaries to link buyers and sellers, ArcaEx is designed to search across multiple market centers, including the NYSE and other exchanges, Nasdaq and electronic communications networks, or ECNs, to achieve best execution for each order. The rules governing trading on ArcaEx require automatic execution of orders, without discretion, in accordance with the principles of openness, fairness and equal access. The technological capabilities of our trading systems, together with our trading rules, have allowed us to create a large pool of liquidity available to our customers internally on ArcaEx or externally through other market centers. During 2003, our customers executed 295.1 million transactions in U.S. equity securities through ArcaEx; 80.6% of the volume represented by these transactions was executed within our internal liquidity pool i.e., the matching buy and sell orders were posted on ArcaEx without routing to other market centers. We refer to these customer orders as "customer orders matched internally," and to customer orders that we route to other market centers as "customer orders routed out." During 2003, we handled 24.6% of total trading volume in Nasdaq-listed securities (of which 16.8% was matched internally and 7.8% was routed to other market centers). During the six months ended June 30, 2004, we handled 25.6% of total trading volume in Nasdaq-listed securities (of which 19.3% was matched internally and 6.3% was routed to other market centers). We refer to the Nasdaq-listed shares handled on our trading platforms that are executed within our internal liquidity pool as "handled shares matched internally" and to shares handled on our trading platforms that are executed by routing to other market centers as "handled shares routed out." Our transaction volumes in 2003 represented approximately 104.3 billion shares of Nasdaq-listed securities, 4.9 billion shares of NYSE-listed securities and 7.6 billion shares of AMEX-listed securities. For a discussion of the method by which we calculate our market share, our trading volumes and selected operating measures, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Key Statistical Information." Market Data Products. Through the Pacific Exchange, we participate in the consolidation, dissemination and sale of market data in U.S. exchange-listed securities and Nasdaq-listed securities. We receive market data fees, based on the level of trading activity on ArcaEx, for providing data to centralized aggregators that in turn sell the data to third-party consumers such as Thomson Financial Inc. and Bloomberg, L.P. We also offer customers informational and decision-making tools. In the spring of 2004 we launched a new product on a pilot basis, known as ArcaVisionSM, in response to demand for detailed and analytic market trading information. For the year ended December 31, 2003 and the six months ended June 30, 2004, we derived $29.5 million and $24.2 million, respectively, in revenues from market data fees. Agency Brokerage Services. Through our wholly-owned subsidiary, Wave Securities, L.L.C., we also offer agency brokerage services to institutional customers seeking to access ArcaEx and other U.S. market centers electronically. Typically, these institutional customers are not registered as broker-dealers and therefore may not access ArcaEx or other market centers directly. Wave also provides access to ArcaEx for broker-dealers that may be seeking to maintain anonymity of their trades. For the year ended December 31, 2003 and the six months ended June 30, 2004, we generated $49.1 million and $28.2 million, respectively, in revenues from our agency brokerage business operations. Our Competitive Strengths We believe that the competitive strengths set forth below provide us with opportunities for continued growth and increased revenues. Exchange Facility & Market Structure As the operator of ArcaEx, the first open all-electronic stock market in the United States, we believe we have business flexibility and the opportunity to increase our revenues. We believe these advantages, together with our efficient regulatory structure, will enable us to improve our competitive position. For example: Although our operations are regulated by the Pacific Exchange, we do not control, and we are not controlled by, the Pacific Exchange. We believe that this regulatory structure reduces the potential for conflicts of interest between ArcaEx and our customers. ArcaEx operates largely without market intermediaries such as specialists on the NYSE or market makers on Nasdaq whom customers are forced to rely on, and may compete with, for trade execution. We believe that this lack of conflicting interests allows us to respond more quickly and efficiently to changes in the marketplace. Our status as the operator of a facility of PCX Equities allows us to generate revenues from two additional sources, market data fees and listing fees, which we were ineligible to earn as an ECN. Our operation of ArcaEx has also allowed us to reduce our costs since clearing charges are not incurred for trades matched internally on ArcaEx. Accordingly, we believe UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 our right to operate ArcaEx as the exclusive equities trading facility of PCX Equities allows us to compete more effectively with Nasdaq, the NYSE and ECNs. Trading Technology Platform Our technologically-advanced trading platform offers: functionality our systems have been designed to offer our customers increased functionality through features such as our outbound routing capability; performance our systems provide fast electronic execution and are designed with substantial surplus capacity we currently execute approximately two million trades per day and have capacity to execute up to six million trades per day, which we believe we can quickly increase to accommodate a maximum capacity of up to ten million trades per day; and reliability we believe our systems satisfy core requirements consistently with minimal disruption. We believe our technology has been and will continue to be a major factor in the development and growth of our business. Management Team with Track Record of Success and Innovation Led by Gerald D. Putnam, our Chairman and Chief Executive Officer, we have a strong and dedicated management team with significant experience in the securities trading industry and technology sector. These individuals have worked together closely since we partnered with PCX to create ArcaEx in 2000. We believe that through their leadership we have successfully recognized and responded to market opportunities and adapted to numerous changes in our operating and regulatory environment, while continuing to grow our business. We believe we have demonstrated our ability to innovate and execute successfully our business objectives. For information related to litigation and regulatory proceedings involving Mr. Putnam and a dispute over the termination of his prior employment, see "Business Legal Proceedings Matters Relating to Mr. Putnam." Customer Focus We are committed to building strong relationships with our customers, and believe we have been successful in doing so through: bringing to market new products and services that serve our customers' trading objectives; developing a highly trained and experienced sales team that is responsive to our customers' trading needs; and investing resources to establish connectivity between our trading platforms and the desktops and trading systems of our customers, enabling them to do business with us more easily. We believe that the strong relationships we have forged with our customers, together with this connectivity, make ArcaEx the preferred trading platform of many of our customers. Although we believe that our competitive strengths distinguish us from other market centers and trading platforms in the securities trading industry, we operate in a highly competitive business environment. We compete with a number of entities on several different bases, including the cost, quality and speed of our trade execution, the functionality and ease of use of our trading platforms, the range of our products and services, our technological innovation and adaptation and our reputation. In addition, we operate in a highly regulated industry and changes to those regulations or to interpretations of those regulations could impede our business. Our Growth Strategy We are committed to becoming the leading destination for equity securities trading in the United States. We seek to use our status as the operator of ArcaEx and our technology platform to take advantage of growth opportunities in the securities trading industry resulting from evolving regulatory, market and technology conditions. The principal elements of our strategy include the following: Sustain and grow market share in our key markets. Diversify and grow revenues by expanding our business. Selectively pursue strategic alliances and acquisitions to enhance our business. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Developments In November 2003, GAP Archa Holdings, Inc., an investment entity affiliated with General Atlantic Partners, LLC, agreed to make a $125 million equity investment in Archipelago, consisting of a $50 million purchase of preferred membership interests in Archipelago and a $75 million purchase of membership interests from our then-current investors, including an $8.9 million interest in our company from GSP, LLC, an entity controlled by Gerald D. Putnam, our Chairman and Chief Executive Officer, and a $13.4 million interest in our company from affiliates of Goldman, Sachs & Co. In addition, the following investors, either directly or through affiliates, sold interests in our company to GAP Archa Holdings: the Pacific Exchange, our regulator, sold $3.0 million in interests; Virago Enterprises, L.L.C., an entity controlled by Stuart and MarrGwen Townsend, two of our co-founders, sold $8.9 million in interests; Charles Schwab & Co., Inc. sold $17.3 million in interests; E*TRADE Group, Inc. sold $12.5 million in interests; Banc of America Securities LLC sold $1.6 million in interests; and Terra Nova Trading, L.L.C., a broker-dealer in which Mr. Putnam and his wife have an indirect 40% ownership interest and Stuart and MarrGwen Townsend have an additional indirect 40% ownership interest, sold $1.2 million in interests. As a result of this investment, GAP Archa Holdings acquired in the aggregate a 23.4% equity interest in Archipelago. See "Business Evolution of Archipelago: From Leading ECN to Facility of PCX Equities." Under the terms of Archipelago's limited liability company agreement, we are required to issue additional shares to affiliates of GAP Archa Holdings (collectively "GAP") if the initial public offering price per share is $11.50 in this offering. At an assumed initial public offering price per share of $11.50, we would be required to issue 717,349 additional shares to GAP upon the consummation of this offering. In addition, GAP, which holds a 23.4% equity interest in our company prior to the offering, has advised the underwriters that it is considering acquiring shares from the underwriters in this offering. If GAP places an order for shares, the underwriters expect to sell up to 500,000 shares to GAP in this offering. If GAP purchases 500,000 shares in this offering, and giving effect to our obligation to issue to GAP 717,349 additional shares assuming an initial public offering price per share of $11.50, GAP will hold 22.8% of our outstanding shares after completion of this offering. See "Underwriting." General Our business was founded in December 1996. In 1997, we began trading operations on the Archipelago Electronic Communications Network, or the Archipelago ECN, the precursor to ArcaEx, which we operated until April 2003 (together with ArcaEx, the "Archipelago system"). Since our formation, our business has grown substantially and we have received equity investments from a number of investors in the institutional and retail financial services sectors, including investments (either directly or through affiliates) from Goldman, Sachs & Co. and J.P. Morgan Securities Inc., the lead underwriters for this offering. We also received investments from Merrill Lynch & Co., Inc., an underwriter for this offering. Through our merger with REDIBook ECN LLC, a competing ECN operated by Spear, Leeds & Kellogg, L.P. (a subsidiary of The Goldman Sachs Group, Inc.), we expanded our investor base to include additional investors from the financial services sector. Of these investors, Spear, Leeds & Kellogg, Fleet Securities, Inc., Credit Suisse First Boston, Lehman Brothers Inc. and Bank of America Corporation are underwriters or affiliates of underwriters for this offering. Prior to this offering, the underwriters named in this prospectus in the aggregate owned, directly or through affiliates, a 41.9% equity interest in our company and following this offering in the aggregate will own, directly or through affiliates, approximately 27.0% of our common stock. See "Principal and Selling Stockholders." The conduct rules of the National Association of Securities Dealers require that the initial public offering price for our common stock be no higher than that recommended by a "qualified independent underwriter," as defined by the NASD. Piper Jaffray & Co. has served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part. We expect that five named underwriters in this offering (either directly or through their affiliates) will be selling stockholders in this offering. These institutions, and the respective number of shares and corresponding percentage interest in our company they will sell, include: 2,284,563 shares (5.7%) by affiliates of Goldman, Sachs & Co.; 411,941 shares (1.0%) by J.P. Morgan Securities Inc. and one of its affiliates; 561,331 shares (1.4%) by Merrill Lynch L.P. Holdings, Inc.; 870,801 shares (2.2%) by Credit Suisse First Boston Next Fund, Inc.; and 70,817 shares (0.2%) by affiliates of Banc of America Securities LLC. Our principal executive offices are located at 100 South Wacker Drive, Suite 1800, Chicago, Illinois 60606. The telephone number for our principal executive offices is 312-960-1696. Our Internet address is www.archipelago.com. This Internet address is provided for informational purposes only. The information at this Internet address is not a part of this prospectus. Our Reorganization On August 11, 2004, we converted our company from a Delaware limited liability company (Archipelago Holdings, L.L.C.) to a Delaware corporation (Archipelago Holdings, Inc.). As a result of the completion of the conversion and related transactions, all limited liability company interests of Archipelago Holdings, L.L.C. held by our members were converted into common stock of Archipelago Holdings, Inc. As approved by our board of managers on July 16, 2004, we made a cash distribution to our members immediately prior to the incorporation transactions. In accordance with the terms of the limited liability company agreement of Archipelago Holdings, L.L.C., the cash distribution provided funds to our members to permit them to pay the taxes that the members will owe for their share of Archipelago's profits in 2004 as a limited liability company through the date of the incorporation transactions, calculated primarily based on the highest federal and state income tax rate applicable for tax withholding purposes to an individual. The cash distribution was approximately $24.6 million. See "Certain Relationships and Related Transactions Incorporation Transactions."
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+following summary, you should read and consider carefully the more detailed information and financial statements and related notes that we include in this prospectus. If you invest in our common stock, you are assuming a high degree of risk. See
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+PROSPECTUS SUMMARY 1
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+PROSPECTUS SUMMARY This summary contains basic information that we believe is especially important concerning our business and this offering of common stock. This summary does not contain all of the information that may be important to you in deciding whether to participate in this offering. We encourage you to read the entire prospectus, including the information described under the heading "Risk Factors" before you make your investment decision. This prospectus is part of a registration statement we filed with the SEC using a "shelf" registration process. Under this shelf process, the selling stockholders may offer and sell shares of our common stock under this prospectus, up to a total of 5,007,237 shares. We will not receive any proceeds from any sale of our common stock by the selling stockholders. This prospectus provides you with a general description of our common stock the selling stockholders may offer. From time to time, we will provide a prospectus supplement which may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement, together with additional information described under the heading "Available Information." Company Overview We are an affiliate of Sprint PCS, the operator of a 100% digital personal communications service or PCS wireless network with licenses to provide voice and data service to the entire United States population using a single frequency band and a single technology. We are the exclusive provider of wireless voice and data products and services under the Sprint brand throughout the territory licensed to us by Sprint PCS. Our licensed territory includes 40 basic trading areas, or markets, located in Illinois, Michigan, Iowa and eastern Nebraska. Based on the 2000 population counts compiled by the U.S. Census Bureau adjusted by estimated growth rates from third party proprietary demographic databases, at June 30, 2004, our licensed territory had a total population of approximately 7.8 million residents, of which our wireless network covered approximately 5.9 million residents. At June 30, 2004, we had approximately 233,000 subscribers in all our markets. We sell Sprint PCS products and services through distribution outlets located in our territory which are comprised of our own retail stores, major national distributors, including RadioShack and Best Buy, and local third-party distributors. We also own and are responsible for building, operating and managing the portion of the Sprint PCS wireless network located in our territory. Our portion of the Sprint PCS wireless network uses the same technology as Sprint PCS to transmit calls, called code division multiple access or CDMA, and is designed to offer a seamless connection with the Sprint PCS wireless network. On March 26, 2004, Sprint PCS notified us that we have completed the build-out of the wireless network in our territory, including those aspects that were not required to be completed by us until a future date, and that we are in compliance with all applicable build-out requirements. As we do not own any licenses to operate a wireless network, our operations and revenues are substantially dependent on the continuation of our affiliation with Sprint PCS. Additionally, our affiliation agreements with Sprint PCS give Sprint PCS a substantial amount of control over factors that significantly affect the conduct of our business. We sustained a net loss of $178.4 million for the fiscal year ended September 30, 2002, and, on February 23, 2003, we and our wholly owned subsidiaries, iPCS Wireless, Inc. and iPCS Equipment, Inc., filed a voluntary petition with the bankruptcy court seeking relief from our creditors pursuant to Chapter 11 of the Bankruptcy Code. Our decision to file was based on a combination of factors including weakness in the wireless telecommunications industry and the economy generally. During the year ended September 30, 2002, we incurred costs to acquire an increased percentage of sub-prime (or credit challenged) subscribers than we had in the past. As the economy slowed and the wireless industry became more competitive, our churn percentage from these sub-prime (or credit challenged) subscribers increased significantly which had a negative impact on our liquidity as we had Operating activities $ 19,712 $ (13,798 ) $ (4,745 ) $ (20 ) $ 1,149 Investing activities (17,501 ) 6,411 19 (11,071 ) Financing activities (20,023 ) 20,399 (2,668 ) not even recouped our costs to acquire these subscribers. However, we believe the primary reason for our decline in liquidity was caused by actions of Sprint PCS. Accordingly, in connection with our bankruptcy filing, we also filed a complaint against Sprint alleging that it had breached our affiliation agreements. We sustained net losses of $72.9 million for the fiscal year ended September 30, 2003, and $21.1 million for the nine months ended June 30, 2004. We also experienced overall declining net subscriber growth during these periods compared to periods prior to fiscal year 2003, as we limited new subscriber activation volume to ensure adequate liquidity to meet our financial obligations. On July 20, 2004, we emerged from bankruptcy and, as part of our reorganization, we amended our affiliation agreements with Sprint PCS to provide us a number of benefits, we settled our claims against Sprint PCS, we paid off in full and in cash our then existing senior secured credit facility, cancelled our existing common stock, and cancelled our existing senior discount notes and issued our new common stock to the holders of the senior discount notes. Business Strategy We believe that we can achieve greater market penetration in our territory and that we will have the opportunity to accelerate our rate of subscriber growth now that we have completed the reorganization. At June 30, 2004, our market penetration of the population covered by our wireless network in our territory was approximately 4.0%, which is below the 5.7% average market penetration of the publicly traded PCS Affiliates of Sprint, as well as Sprint PCS' overall penetration of approximately 8.3%. We believe that our current penetration levels are attributable in part to the steps taken by management prior to the reorganization to ensure adequate liquidity to continue to operate our business. Now that we have completed the reorganization, we intend to accelerate the growth of our subscriber base by increasing our sales and marketing activities and, we believe that, over time, we can achieve market penetration levels more comparable to the publicly traded PCS Affiliates of Sprint. In addition, we believe our focus on acquiring and retaining high quality credit subscribers in our markets, combined with the more favorable terms we achieved under our amended affiliation agreements with Sprint PCS, will enable us to grow profitably in the future. The following are key components of our business strategy. Leverage our third generation network and advanced product offerings. Sprint PCS is the only wireless carrier offering third generation, or 3G, technology-based services (which we and Sprint PCS brand as "PCS Vision") in all its markets. PCS Vision allows our subscribers to use their PCS Vision-enabled devices to check e-mail, take, send and receive pictures, play games with full-color graphics and polyphonic sounds and browse the Internet wirelessly. We believe that PCS Vision provides us with a differentiated product and a competitive advantage in many of our markets where other carriers do not currently offer 3G technology-based services. We also believe this product is a major factor in penetrating the prime credit subscriber segment of our markets and in building a recurring revenue stream from data products. Continue to focus on the quality of our subscriber base. We have focused our marketing efforts and aligned our sales distribution channels to attract and retain high quality credit subscribers to reduce our involuntary subscriber turnover. Expand sales distribution channels. The expansion of our sales distribution channels, particularly the number of local third party distributors and our company-owned retail stores, is a key strategy to growing our subscriber base post-reorganization. In connection with our bankruptcy filing, we limited our new subscriber activation volume and subscriber growth to ensure adequate liquidity to meet our financial obligations. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Competitive Strengths Strategic relationship with Sprint PCS. We believe that our strategic relationship with Sprint PCS provides us with significant competitive advantages, including the following: Strong brand recognition and nationwide advertising. We believe that we benefit from Sprint PCS' national and regional television, radio, print, outdoor and other advertising campaigns. National retailer sales. National retailers with existing distribution relationships with Sprint PCS market Sprint PCS products and services under the highly recognizable Sprint and Sprint PCS brand names in their stores in our territory. Sprint PCS network. Our subscribers can immediately access PCS systems in over 300 major metropolitan areas, including the 100 largest U.S. metropolitan areas. Advanced technology. We believe that the technology used by Sprint PCS offers advantages in capacity and voice quality, as well as access to advanced features, such as Sprint PCS' suite of PCS Vision products. Handset availability and pricing. Sprint PCS' purchasing leverage allows us to acquire the latest innovative handsets more quickly and at a lower cost than we could without our affiliation with Sprint PCS. National reseller agreements. We receive additional revenue as a result of Sprint PCS' relationships with wireless resellers, such as Virgin Mobile, when subscribers of those resellers use our portion of the Sprint PCS network. Attractive markets. We believe we operate in attractive markets with favorable roaming and travel characteristics that have resulted in a favorable ratio of Sprint PCS subscribers from outside our territory and subscribers of other wireless service providers using our portion of the Sprint PCS network as compared to our subscribers using wireless communications networks outside our territory. Recent Developments On November 9, 2004, we announced that we serve more than 240,500 subscribers at September 30, 2004 and for the quarter ended September 30, 2004, our gross subscriber additions were approximately 30,300 with net subscriber additions of approximately 7,500. Our average monthly churn, net of 30 day deactivations, was 2.9% for the quarter ended September 30, 2004. On November 1, 2004, our wholly owned subsidiary, iPCS Wireless, Inc., entered into Amended and Restated Addendum VIII to the Sprint PCS Management Agreement and Sprint PCS Services Agreement with Sprint PCS. This amendment amended and restated, and superseded in its entirety, the existing Addendum VIII, dated as of March 26, 2004. This amendment reflects our agreement with Sprint PCS with respect to our participation in the Sprint PCS reseller program. In addition, pursuant to the "most favored nation" provision in our management agreement, we exercised our right to amend the terms of our affiliation agreements with Sprint PCS to incorporate the terms of the affiliation agreements of another PCS Affiliate of Sprint. Accordingly, the amendment also reflects changes to our affiliation agreements as a result of the exercise of our "most favored nation" right. On September 8, 2004, our wholly owned subsidiary, iPCS Wireless, Inc., entered into an Agreement of Purchase and Sale with TCP Communications LLC pursuant to which we agreed to sell to TCP up to 92 owned telecommunications tower sites. As a condition to closing of the transaction, we and TCP will enter into a Master Leaseback Agreement whereby we will lease space on the tower sites sold to TCP at rates and terms consistent with that of our existing tower leases with other tower owners. The tower sites are priced individually under the Agreement with an average sale price of approximately $180,000 per tower. The sale of all 92 tower sites would provide us with gross proceeds Operating loss (52,573 ) (157,205 ) (47,204 ) Interest income 70 604 3,537 Interest expense (20,301 ) (26,154 ) (16,995 ) Other income (expense), net (63 ) 56 AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 of approximately $16.5 million. The agreement contains customary representations and warranties and customary closing conditions and deliveries. TCP has the right to exclude those tower sites which it determines do not meet the closing conditions set forth in the Agreement. On November 9, 2004, we had our initial closing of 51 tower sites which provided gross proceeds of approximately $9.0 million. Additional Information Our principal executive office is located at 1901 North Roselle Road, Schaumburg, Illinois 60195. Our telephone number is (847) 885-2833. As used herein, unless the context otherwise requires: (i) "Sprint PCS" refers to Sprint Communications Company, L.P., Sprint Spectrum L.P. and WirelessCo, L.P.; (ii) "Sprint" refers to Sprint Corporation and its affiliates; (iii) a "PCS Affiliate of Sprint" is an entity whose sole or predominant business is operating (directly or through one or more subsidiaries) a personal communications service business pursuant to affiliation agreements with Sprint Spectrum L.P. and/or its affiliates or their successors; (iv) "Sprint PCS products and services" refers to digital wireless personal communications services, including wireless voice and data services, and related retail products, including handsets, in any case, offered under the Sprint brand name; and (v) "our subscribers" refers to Sprint PCS subscribers who reside in our territory. Statements in this prospectus regarding Sprint or Sprint PCS are derived from information contained in our affiliation agreements with Sprint PCS, periodic reports and other documents filed by Sprint with the SEC or press releases issued by Sprint or Sprint PCS. Market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms and other published independent sources, as well as information provided to us by Sprint PCS. Some data is also based on our good faith estimates, which estimates are derived from our review of internal surveys and independent sources, including information provided to us by Sprint, the U.S. Census Bureau and Kagan World Media. Although we believe these sources are reliable, we have not independently verified the information. This prospectus contains trademarks, service marks and trade names of companies and organizations other than us. Other than with respect to Sprint PCS, our use or display of other parties' trade names, trademarks or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, the trade name or trademark owners. iPCS, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 4812 36-4350876 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 1901 North Roselle Road Schaumburg, Illinois 60195 (847) 885-2833 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) THE OFFERING Common stock offered by the selling stockholders 5,007,237 shares Common stock outstanding before and after this offering 8,724,998 shares Dividend policy We have not paid any cash dividends on our common stock in the past and currently do not expect to pay dividends or make any other distributions on our common stock in the immediate future. Use of proceeds We will not receive any proceeds from the sale of shares by the selling stockholders. National Quotation Bureau's Pink Sheets symbol "iPCX" All of the shares of common stock in this offering are being sold by the selling stockholders. As of November 22, 2004, the number of shares of common stock outstanding before and after this offering excludes 700,500 shares of common stock issuable upon exercise of outstanding stock and stock unit awards and stock options, 19,166 shares of restricted common stock which have been granted but not yet issued, an additional 155,334 shares of common stock available for future awards under our long-term incentive plan and 400,002 shares of common stock included in a distribution reserve provided under our plan of reorganization issuable upon resolution of outstanding claims. As of November 22, 2004, the selling stockholders held approximately 57.4% of our outstanding common stock. After giving effect to this offering, the selling stockholders will no longer own any shares of our outstanding common stock.
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+Prospectus Summary 1
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. You should carefully consider, among other things, the matters discussed in "Risk Factors." RIGHTNOW TECHNOLOGIES, INC. We are a leading provider of on-demand software solutions designed to optimize customer service operations for businesses of all sizes. Our comprehensive customer service solution features a self-learning knowledgebase to ensure accurate and consistent interactions with customers. Our solution is designed to seamlessly support multiple communications channels, including web, interactive voice, e-mail, chat, telephone and proactive outbound e-mail communications, creating a comprehensive record of customer interactions. We offer our solutions through a multi-tenant, hosted on-demand model that reduces the cost and risk associated with deploying traditional enterprise customer relationship management, or CRM, software. To increase the satisfaction and loyalty of our clients, we provide value added services such as business process optimization and product tune-ups throughout the lifecycle of our relationship with our clients. Since 1998, we have achieved 26 consecutive quarters of sequential revenue growth, but we achieved our initial quarters of profitability in the quarters ended March 31 and June 30, 2004. For the six months ended June 30, 2004, our total revenue was $27.6 million, as compared to $16.1 million during the same period in 2003. As of June 30, 2004, we had more than 1,100 active clients, including large, medium and small enterprises. Our on-demand clients serviced more than 212 million customer interactions, or unique sessions hosted by our solutions, directly through our customer service solutions for the six months ended June 30, 2004, as compared to 109 million customer interactions in the same period in 2003. We believe the emergence of on-demand application services has the potential to transform the enterprise application software industry, enabling faster deployment, higher return-on-investment and lower total cost of ownership. On-demand application services are accessed over existing Internet architectures through Internet web browsers in a secure and scalable manner, greatly simplifying the application delivery process, compared to traditional enterprise software that is implemented and deployed on-site within an organization's internal information technology, or IT, environment. We believe the on-demand model expands the addressable market opportunity for many enterprise software applications by making them more affordable for divisions of large corporations, middle-market companies and small businesses. The market for on-demand application services is projected to grow from $665 million in 2003 to $3.6 billion in 2008, a compounded annual growth rate of 41%, according to a May 2004 report by International Data Corporation, or IDC, an independent market research firm. Our solution is focused on the market for customer service applications. According to a March 2004 report by IDC, the customer service and contact center applications market accounted for $2.6 billion, or 36%, of the $7.2 billion CRM applications market in 2003. We believe that customer service applications are strategically important to businesses because they play a critical role in cost-effectively improving customer satisfaction and can serve as a comprehensive record of customer interactions and integrate with other systems to create a single view of the customer. We also believe customer service organizations have a significantly greater and more diverse level of customer interaction compared to sales and marketing organizations, and therefore require more robust solutions. Furthermore, we believe businesses have an opportunity to use their customer service applications to proactively anticipate and solve customer problems and drive revenue through cross-selling and up-selling, rather than simply providing reactive customer service. We believe our on-demand CRM solutions provide our clients with the following benefits: Reduced cost of customer service. Our solutions help our clients achieve significant reductions in the cost of customer service by improving the efficiency and effectiveness of their customer service organizations, often leading to a reduction in the number of telephone inquiries, inbound e-mails and customer service representatives. Furthermore, our on-demand solutions provide lower total cost of ownership as compared to traditional enterprise applications by reducing required IT investments and staff. Enhanced quality of customer service. Our solutions enable businesses to track and analyze customer interactions across multiple communications channels, enabling enhanced customer service and creating a single view of the customer. Our self-learning knowledgebase provides customer service organizations with real-time access to relevant information to offer effective self-service, better assist their customers, deliver more consistent answers and provide higher customer service levels. Increased flexibility and control. We offer clients the flexibility to choose from multiple software licensing and deployment options. We provide both term and perpetual licensing options with each option available either as a hosted on-demand solution or as a non-hosted, on-site implementation. In addition, our solution allows for high levels of configurability and ease of integration with other enterprise applications. Our comprehensive hosting management and automated upgrade systems enable our clients to choose, schedule and test upgrades, and monitor their customer service applications. Reduced deployment and lifecycle risks. Our solutions can be quickly deployed and updated, reducing the risks of lengthy and complex implementations typically associated with traditional enterprise software applications. We also provide comprehensive services throughout the lifecycle of our relationship with our clients to help them adopt best practices and achieve improvements in their customer service levels. Improved knowledge of customer trends and preferences. Because our solutions provide a comprehensive record of customer interactions, our clients can gain a better understanding of their customers' interests, concerns and preferences. Our solutions leverage advanced intelligence capabilities to help our clients increase sales and marketing opportunities and enhance product development efforts. We plan to enhance our market position by: Remaining intensely focused on our clients' success; Continuing our leadership in on-demand application services; Increasing our penetration within our existing client base; Expanding our client base; and Extending our CRM product and service offerings. We were incorporated in Montana in September 1995 and reincorporated in Delaware in August 2000. Our principal executive offices are located at 40 Enterprise Boulevard, Bozeman, Montana 59718-9300, and our telephone number is (406) 522-4200. Our web site is located at http://www.rightnow.com. Information contained on, or that can be accessed through, our web site does not constitute a part of this prospectus. Income (loss) from operations (563 ) (373 ) (232 ) (1,224 ) (761 ) (829 ) (945 ) (831 ) 162 693 Interest and other income (expense), net (81 ) (112 ) (79 ) (85 ) (117 ) (35 ) (65 ) Income (loss) from operations (15,571 ) (2,392 ) (3,366 ) (1,590 ) 855 Interest and other income (expense): Interest income 514 108 142 37 45 Interest expense (166 ) (485 ) (371 ) (194 ) (157 ) Other (119 ) 20 14 5 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 THE OFFERING Common stock offered: By RightNow Technologies 6,000,000 shares By the selling stockholder 300,000 shares Total 6,300,000 shares Common stock to be outstanding after this offering 28,485,890 shares Use of proceeds We expect to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures. We also may use a portion of the net proceeds to fund possible investments in, or acquisitions of, complementary businesses, products or technologies. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholder. See "Use of Proceeds." Proposed Nasdaq National Market symbol RNOW The number of shares of common stock to be outstanding immediately after the offering is based on 22,485,890 shares outstanding as of June 30, 2004, and does not include: 5,300,885 shares of common stock issuable upon exercise of outstanding options as of June 30, 2004 at a weighted average exercise price of $2.15 per share; 1,022,122 shares of common stock available for future grant under our 1998 Long-Term Incentive and Stock Option Plan; 3,500,000 shares of common stock available for future grant under our 2004 Equity Incentive Plan, subject to certain automatic annual increases; 750,000 shares of common stock available for issuance under our 2004 Employee Stock Purchase Plan, subject to certain automatic annual increases; and 115,221 shares of common stock issuable upon the exercise of outstanding warrants at an exercise price of $4.50 per share. Except as otherwise indicated, the information in this prospectus reflects the number of shares outstanding on June 30, 2004 and (a) gives effect to a two-for-three reverse stock split which was effected on July 14, 2004; and (b) assumes: an initial public offering price of $7.00 per share; the conversion of all outstanding shares of our preferred stock into 7,265,444 shares of common stock upon the closing of this offering; and no exercise of the underwriters' over-allotment option. Net income (loss) (73 )% (10 )% (11 )% (11 )% AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1)See Note 1 of Notes to Consolidated Financial Statements for an explanation of the calculation of basic and diluted net income (loss) per share and pro forma basic and diluted net income (loss) per share, and for an explanation of the determination of the number of weighted average shares used for such calculations. The pro forma information in the above tables assumes conversion of all outstanding shares of our preferred stock into 7,265,444 shares of common stock upon the closing of this offering. The pro forma as adjusted information in the above consolidated balance sheet data table is adjusted to reflect the sale of 6,000,000 shares of common stock offered by us in this offering at an initial public offering price of $7.00 per share, after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Net income (loss) (11 )% (8 )% (3 )% (18 )% (11 )% (10 )% (11 )% (13 )% 1 %
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001112422_motive-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001112422_motive-inc_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing in the back of this prospectus. You should carefully consider, among other
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001113247_bearingpoi_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001113247_bearingpoi_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a17b727ea13625dfb4aab70e8208e956bd1cb208
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+PROSPECTUS SUMMARY The following summary highlights information contained elsewhere in this prospectus. It may not contain all of the information that is important to you. You should read this entire prospectus carefully, especially the discussion regarding the risks of investing in our common stock under the heading Risk Factors, before investing in our common stock. BearingPoint, Inc. We are a large business consulting, systems integration and managed services firm serving Global 2000 companies, which are large, multi-national companies that we have identified as important customers; medium-sized businesses; government agencies and other organizations. We provide business and technology strategy, systems design, architecture, applications implementation, network infrastructure, systems integration and managed services. Our service offerings are designed to help our clients generate revenue, reduce costs and access the information necessary to operate their business on a timely basis. On February 2, 2004, our board of directors approved a change in our fiscal year end from a twelve-month period ending June 30 to a twelve-month period ending December 31. Our company was formed as a Delaware corporation in August 1999. Our headquarters are located at 1676 International Drive, McLean, VA 22102, and our telephone number is (703) 747-3000. Our web site address is www.bearingpoint.net. The information contained on our web site is not part of this prospectus. BearingPoint Common Stock Our common stock trades on the New York Stock Exchange under the symbol BE . The Offering The selling stockholder identified in this prospectus is offering for sale up to 16,501,650 shares of our common stock. We will not receive any of the proceeds from the selling stockholder s sale of its common stock. As of April 30, 2004, there were 196,423,647 shares of our common stock outstanding. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001113469_prn-corp_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001113469_prn-corp_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors beginning on page 8. PRN Corporation Overview We are the largest in-store television network in the United States based on the number of consumers reached each month. We sell airtime on our proprietary network, the PRN Network, to national and local advertisers that want to target consumers within the United States. We deliver programming and television advertising to consumers in the stores of mass merchant, department store, consumer electronics, warehouse club and supermarket retailers. Based on information provided by several third-party research firms and retailers, we estimate that the PRN Network is watched approximately 180 million times each month by consumers in retail stores. This estimate is calculated by multiplying the number of stores airing the PRN Network, as reported by each retailer, by the average number of consumers per store who said they viewed the PRN Network, according to surveys conducted by several independent research firms. This measurement can include multiple shopping visits by the same consumer in a given month. In 2003, more than 150 advertisers purchased airtime on the PRN Network, including major consumer product companies, major entertainment companies, large consumer electronics companies, satellite service providers and television networks. The PRN Network enables advertisers to target specific consumer groups, while they are shopping in retail stores making purchasing decisions, with advertising messages that generate significant recall of advertised products. In a March 2002 custom study of a major U.S. retailer, Nielsen Media Research, Inc. reported average brand recall of 66.8% for persons ten years of age and older who watched/listened to the network. This is the total of unaided plus aided recall and is a modeled estimate. This research methodology, typically used to measure recall of media, involves a process where consumers are first asked what they remember about a product without it being mentioned by name, called unaided recall, and then asked if they remember when the specific product is named, called aided recall. Programming on the PRN Network is targeted to a captive audience of shoppers in the stores of our retailers. Consumers can view and listen to our programming in high traffic areas, key departments, areas where consumers wait for service and check-out lanes. Over the last ten years, we have developed a television programming format that we believe improves the shopping experience by providing relevant, informative and entertaining content to consumers in the retail environment. Our programming consists primarily of traditional television advertising, custom advertising segments and other content supplied by leading media companies including Discovery, ESPN, the Food Network and Lifetime. We derive revenues from services related to the operation of the PRN Network from three sources: advertising airtime sales, media management services and creative services. Advertising airtime sales to advertisers and retailers account for a majority of our revenues. For the year ended December 31, 2003, we generated $112 million of revenues and $10 million of net income. For the quarter ended March 31, 2004, we generated $27 million of revenues and $1 million of net income. We generated net losses during the years ended December 31, 1999, 2000, 2001 and 2002. As of March 31, 2004, we had an accumulated deficit of approximately $95.8 million, the majority of which is related to non-operating accretion charges of $64.2 million related to our redeemable convertible preferred stock. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 PRN CORPORATION (Exact name of registrant as specified in its charter) Table of Contents Wal-Mart Stores is our single largest source of revenue. We generate revenues under contracts directly with Wal-Mart for media management services, advertising airtime and creative services, which accounted for 35% of our total revenues for the year ended December 31, 2003 and 37% of our total revenues for the three months ended March 31, 2004. We also generate revenues under contracts with third-party advertisers purchasing airtime or creative services for the PRN Network in Wal-Mart stores, which accounted for an additional 54% of our total revenues for the year ended December 31, 2003 and an additional 50% of our total revenues for the three months ended March 31, 2004. Together, revenues from contracts entered into directly with Wal-Mart and revenues from contracts entered into with third-party advertisers purchasing airtime or creative services airing in Wal-Mart stores accounted for 89% of our total revenues for the year ended December 31, 2003 and 87% of our total revenues for the quarter ended March 31, 2004. Our current agreement with Wal-Mart expires on March 31, 2005, but our relationship under the agreement continues through September 30, 2005, after which time the relationship would terminate if not renewed. Wal-Mart is not obligated to renew its agreement with us. A more detailed discussion of our relationship with Wal-Mart appears in the Risk Factors and the Business sections. Factors Leading to Advertiser Adoption of the PRN Network We believe we are well-positioned to take advantage of the anticipated shift of advertising dollars away from traditional at-home television networks. The following factors should lead to increased adoption of the PRN Network: National Reach. Through the PRN Network, we enable national and local advertisers to target consumers in over 5,000 retail stores in all of the 210 media markets designated by AC Nielsen in the United States. Captive Audience. We estimate that each month there are more than 680 million shopping visits to retailers carrying the PRN Network. Unlike viewers of at-home broadcast television, viewers of our network do not have the ability to change channels, skip commercials or time-shift their viewing. Relevant Content. Our programming integrates advertisers messages in a relevant, informative and entertaining context that is specifically tailored to consumers in the retail environment. According to Point-Of-Purchase Advertising International, approximately 70% of brand decisions are made while consumers are in stores. Targeted Media. Our network has the capability to deliver highly targeted messages for our advertisers based on demographics, product distribution, geography, type of retail store and location within the store. Timely Delivery. We believe the PRN Network enables advertisers to deliver their messages at the precise time when they create the most value. Our Competitive Strengths First Mover Advantage. We have been selling airtime on the PRN Network for over ten years. Across the stores airing the PRN Network there are over 5,000 installed computer servers, thousands of video displays, and, typically, satellite equipment to receive our programming. Established Advertiser Base. Our national advertising sales force sells airtime to advertisers spanning most major advertising categories, including apparel, consumer packaged goods, electronics, entertainment, financial services, office supplies, pharmaceutical, retail and telecommunication services. Media Management Expertise. Over the past ten years, we have invested in software and other proprietary technologies for operating the PRN Network. These technologies combined with our management know-how enable us to produce, manage and distribute thousands of individual media files across the PRN Network. Acquisition and Integration Experience. We have successfully completed three acquisitions in the past eight years, through which we have broadened our retailer base to include Best Buy, Circuit City, Ralphs and Sears. Delaware 4833 54-1615029 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 600 Harrison Street 4th Floor San Francisco, CA 94107 (415) 808-3500 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Corporate Information We were incorporated in Delaware in February 1992 as JMC Acquisitions, Inc. We changed our name to PICS Previews, Inc. in January 1994, to Qorvis Media Group, Inc. in April 1997 and to PRN Corporation in June 2000. Our principal executive offices are located at 600 Harrison Street, 4th Floor, San Francisco, California 94107 and our telephone number is (415) 808-3500. We maintain a web site at www.prn.com. The reference to our web address does not constitute incorporation by reference of the information contained on this web site. In this prospectus, PRN, we, us and our refer to PRN Corporation and its consolidated subsidiaries. Charles A. Nooney Chief Executive Officer and Chairman of the Board PRN Corporation 600 Harrison Street, 4th Floor San Francisco, CA 94107 (415) 808-3500 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Jorge del Calvo, Esq. Stanley F. Pierson, Esq. Mary A. Helvey, Esq. Pillsbury Winthrop LLP 2475 Hanover Street Palo Alto, California 94304-1114 (650) 233-4500 Craig W. Adas, Esq. Anthony S. Wang, Esq. Weil, Gotshal & Manges LLP 201 Redwood Shores Parkway Redwood Shores, California 94065 (650) 802-3000 Table of Contents The Offering Common stock offered by PRN 7,000,000 shares Common stock to be outstanding after this offering 21,905,261 shares Use of proceeds We intend to use approximately $44.6 million of the net proceeds from this offering to redeem 2,361,276 shares of our currently outstanding series E redeemable convertible preferred stock. This amount will be adjusted upward to the extent the initial public offering price of our common stock is greater than $18.90 per share. From this redemption consideration, consistent with a prior agreement with holders of our series E redeemable convertible preferred stock, approximately $1.1 million will be further distributed to holders of our series B, C and D redeemable convertible preferred stock and approximately $1.1 million will be further distributed to members of our management and other key employees. We intend to use the remaining $44.9 million of the net proceeds from this offering for general corporate purposes, including working capital, and possible acquisitions of businesses, products or technologies that we believe complement our business. See Use of Proceeds and Certain Relationships and Related Transactions. Proposed Nasdaq National Market symbol PRNC The number of shares of common stock that will be outstanding immediately after this offering is based on the number of shares outstanding on March 31, 2004 and excludes: 917,150 shares of common stock subject to warrants outstanding as of March 31, 2004, with a weighted average exercise price of $8.10 per share; 3,867,849 shares of common stock subject to options outstanding as of March 31, 2004, with a weighted average exercise price of $4.55 per share; and 2,779,431 shares of common stock available for future issuance under our stock option plans and employee stock purchase plan. Unless otherwise stated, all information in this prospectus: assumes an initial public offering price of $14.00 per share, the midpoint of the initial public offering price range indicated on the cover of this prospectus; reflects the filing, prior to the completion of this offering, of our amended and restated certificate of incorporation, referred to in this prospectus as our certificate of incorporation, and the adoption of our amended and restated bylaws, referred to in this prospectus as our bylaws, implementing the provisions described under Description of Capital Stock; assumes the issuance to the holders of series D and E redeemable convertible preferred stock of warrants to purchase 1,682,322 shares of common stock and, at the completion of this offering, the exercise of these warrants and of other outstanding warrants to purchase 1,141,898 shares of common stock; assumes the redemption of 2,361,276 shares of our series E redeemable convertible preferred stock at the completion of this offering; reflects the automatic conversion of all of our outstanding shares of series A convertible preferred stock and all of our remaining outstanding shares of redeemable convertible preferred stock into shares of common stock, and the automatic conversion of all of our outstanding shares of class A common stock into shares of common stock; and assumes no exercise of the over-allotment option granted to the underwriters. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Net income (loss) per common share attributable to common stockholders: Basic and diluted $ (1.75 ) $ (4.33 ) $ (2.79 ) $ (0.79 ) $ (1.15 ) Pro forma basic (1) $ 0.56 $ 0.05 Pro forma diluted (1) $ 0.51 $ 0.05 Weighted average common shares used in per share calculations (in thousands): Basic and diluted 4,438 5,690 5,681 5,671 5,847 Pro forma basic (1) 17,916 18,082 Pro forma diluted (1) 19,698 20,064 Balance sheet data (at end of period): Cash and equivalents $ 28,699 $ 19,070 $ 16,119 $ 26,549 $ 13,459 Short-term investments 10,400 17,503 Total assets 60,442 60,845 79,543 65,252 77,036 Redeemable convertible preferred stock 63,485 88,577 114,532 94,581 122,215 Total stockholders deficit (27,439 ) (51,225 ) (67,253 ) (55,665 ) (73,918 ) Other financial and operating data: Adjusted EBITDA (2) $ 838 $ 7,526 $ 13,907 $ 1,630 $ 1,938 Adjusted EBITDA margin (3) 1.4 % 9.2 % 12.4 % 7.5 % 7.3 % Average number of CVAs (4) 31,151 31,484 33,772 32,764 34,794 Advertising revenues recognized in accordance with GAAP $ 30,718 $ 53,275 $ 76,965 $ 13,627 $ 16,774 Advertising revenues per CVA (5) $ 986 $ 1,692 $ 2,279 $ 416 $ 482 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1) The unaudited pro forma basic and diluted net income per share data is adjusted for: the assumed redemption of 2,361,276 shares of series E redeemable convertible preferred stock for an aggregate amount of approximately $44.6 million and the related sale of 3,187,723 shares of common stock at a per share amount of $14.00 in connection with the offering to generate the redemption funds; the assumed conversion of all outstanding shares of series B, C and D redeemable convertible preferred stock and 2,361,284 shares of series E redeemable convertible preferred stock; the conversion of all outstanding shares of series A convertible preferred stock into common stock; and the exercise of warrants to purchase 2,824,220 shares of our common stock. (2) We define adjusted EBITDA as net income (loss) excluding other income, net, income taxes, impairment of PRN Network equipment, stock-based compensation, depreciation and amortization. This definition may not be comparable to similarly titled measures reported by other companies. We are presenting adjusted EBITDA because it provides an additional way to view our operations, when considered with both our GAAP results and the reconciliation to net income (loss), which we believe provides a more complete understanding of our business than could be obtained without this disclosure. Adjusted EBITDA is presented solely as a supplemental disclosure because we believe it is a useful tool for investors to assess the operating performance of our business without the effect of other income, net, income taxes, non-cash impairment, stock-based compensation, depreciation and amortization expenses, and because we use adjusted EBITDA internally to evaluate the performance of our personnel and also as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. We use adjusted EBITDA to evaluate the performance of our business because we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Television media companies such as ours typically invest in substantial capital expenditures as they expand their delivery networks, and we believe adjusted EBITDA allows us to present comparable measurements in this regard. We exclude the effects of stock-based compensation due to the non-cash nature of the expense. We also exclude the loss from the impairment of PRN Network equipment as we only experienced those costs in one quarter since inception, and we do not believe that the impairment reflects a reasonably likely recurring cost of operating our business. Our management and board of directors also use adjusted EBITDA in computing and awarding bonuses to certain of our managerial employees. Since adjusted EBITDA excludes specific operating and non-operating expenses, as detailed above, and the effects of capital expenditures, we review adjusted EBITDA alongside other GAAP measures such as net income (loss) and cash flows to obtain a full representation of our financial performance. The use of adjusted EBITDA has limitations and you should not consider adjusted EBITDA in isolation from or as an alternative to GAAP measures, such as net income, cash flows from operating activities and consolidated income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. The following table sets forth the reconciliation of adjusted EBITDA, a non-GAAP financial measure, from net income (loss), our most directly comparable financial measure presented in accordance with GAAP. Balances as of March 31, 2004 (unaudited) 595 $ 8,494 1,706 $ 24,710 200 $ 6,671 4,723 $ 82,340 1,279 $ 13 5,858 $ Adjusted EBITDA margin 1.4 % 9.2 % 12.4 % 7.5 % 7.3 % (3) We define adjusted EBITDA margin as our adjusted EBITDA expressed as a percentage of our revenues. Adjusted EBITDA margin allows us to evaluate the efficiency of our business from period to period relative to revenues generated in those periods. This measure may not be comparable to similarly titled measures of other companies. (4) We define a consumer viewing area, or CVA, as a discreet shopping area of the retail store, in which one or more video displays are installed and the PRN Network is aired. Examples of individual CVAs include the television department of an electronics retailer, the entrance of a mass merchant retailer or a single check-out lane in a grocery store. Because store environments and consumer shopping patterns vary by retailer, CVAs may contain multiple video displays, and we may define CVAs differently based on configuration and programming. Average number of CVAs is calculated quarterly using the number of stores airing the PRN Network and the typical CVA configuration within these stores. Configurations of stores airing the PRN Network change from time to time based on the estimated in-service dates of CVAs. (5) We define our advertising revenues per CVA as our advertising revenues recognized in accordance with GAAP in a given period divided by the average number of CVAs for that same period. Recent Financial Results Our revenues for the three months ended June 30, 2004 were $28.6 million, as compared to revenues of $25.8 million for the three months ended June 30, 2003. Revenues for the six months ended June 30, 2004 were $55.3 million, compared to revenues of $47.4 million for the six months ended June 30, 2003. Our adjusted EBITDA for the three months ended June 30, 2004 was $3.0 million, as compared to adjusted EBITDA of $2.5 million for the three months ended June 30, 2003. Adjusted EBITDA for the six months ended June 30, 2004 was $5.0 million, compared to adjusted EBITDA of $4.2 million for the six months ended June 30, 2003. We also expanded distribution of the PRN Network to 34,907 average consumer viewing areas, or CVAs, during the three months ended June 30, 2004 compared to 33,307 during the three months ended June 30, 2003. Our advertising revenues as recognized in accordance with GAAP increased to $18.7 million during the three months ended June 30, 2004 compared to $17.5 million during the three months ended June 30, 2003. Our advertising revenues per CVA increased to $535 for the quarter ended June 30, 2004 from $526 for the three months ended June 30, 2003. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion, dated August 3, 2004 PROSPECTUS 7,000,000 Shares Common Stock Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001115091_fuzebox_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001115091_fuzebox_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information contained in greater detail elsewhere in this prospectus. You should read the entire prospectus carefully before making an investment decision, including Risk Factors and the consolidated financial statements and the related notes. Our Business We provide application services on a subscription basis that add features and functionality to the telecommunications services used by mainstream consumers and small and home offices. Our software-based services are delivered to consumers and small and home offices through our proprietary Enhanced Services Platform, which allows subscribers to manage calls across their existing landline, mobile and Internet networks. We refer to this process as call-bridging. Our affordable call-bridging services enable subscribers to receive calls on any communications device that is available to them at the time without requiring them to purchase or install additional hardware. For example, our platform allows subscribers who can not answer a call on their home telephone (because either they are not home or the line is busy), to screen and accept the call on a mobile phone or on a personal computer connected to the Internet using voice-over-IP technology. Unlike traditional call-forwarding services, our software allows our subscribers to screen a voicemail in real-time before deciding whether to take the call on their existing landline, mobile or Internet networks, enabling our mass-market subscribers to more effectively manage their personal telecommunications. By bridging incoming calls across subscribers existing landline, mobile and Internet networks, our subscribers realize greater value from their existing telecommunications services. Our services extend the functionality of our subscribers existing lines by adding easy to use, enhancements such as real-time voicemail with call screening, and virtual phone and fax numbers. As of June 30, 2004, we had approximately 797,000 paying subscribers for these application services. Because our services improve the utilization of existing telecommunications networks, we believe that our application services complement the efforts of landline, mobile and Internet service providers to reduce their subscriber churn. This has allowed us to establish cooperative relationships with network service providers. We began offering our current services on a paid, subscription basis in April 2001. We continued to sustain net losses through the quarter ended December 31, 2001, experienced our first quarter of profitability in the quarter ended March 31, 2002, and have been profitable in each quarter since. We had an accumulated deficit of $16,933,000 as of June 30, 2004. The emergence of mobile telephones and the Internet has reshaped the communications market. A decade ago, households and small and home offices typically used a landline telephone as their primary means of communication. Today, both mobile telephones and the Internet are commonly used in addition to traditional landline telephones. Mobile telephones and the Internet, which penetrated early adopter markets in the 1990s, have now reached mass-market acceptance with cost-conscious consumers and small and home offices the mainstream market by delivering to users compelling value at affordable prices. International Data Corporation, or IDC, an independent industry research firm, estimates that there were over 106 million households and over 19 million small and home offices in the United States at the end of 2003. Mainstream users increasingly subscribe to a combination of landline phone, Income before income taxes (9,641 ) (16,053 ) (3,049 ) 1,637 11,010 Income tax expense (benefit) 1 1 1 Income (loss) before income taxes (3,049 ) 1,637 11,010 Income tax expense (benefit) 1 Operating expenses: Sales and marketing 26 18 15 Research and development 27 22 14 General and administrative 26 15 13 Impairment of long-lived assets Income (loss) before income taxes (3,049 ) 1,637 11,010 Income tax expense (benefit) 1 $ 1 $ $ 1 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents mobile phone and Internet services, but do not have an effective means of managing communications across these networks. We provide mainstream users with software-based services that allow them to bridge inbound communications across their existing devices and otherwise manage their incoming calls. Our objective is to be the leading provider of application services that help mainstream consumers and small and home offices utilize their existing telecommunications services more efficiently and cost-effectively. The key elements of our strategy are to: maintain focus on the needs of the mainstream market; continue our subscriber-driven approach to product development and marketing; provide affordable application services for mainstream telecommunications users; extend and enhance component applications and service levels; and extend our reach through strategic relationships with network service providers. Corporate Information We were incorporated in California in 1998. We reincorporated in Delaware in September 2004. Our principal executive offices are located at 136 West Canon Perdido Street, Suite A, Santa Barbara, California, and our telephone number at this address is (805) 690-4000. Our website is www.callwave.com. The information on our website is not part of this prospectus. Our wholly-owned subsidiary, Liberty Telecom, is a Nevada-based Competitive Local Exchange Carrier, or CLEC, that provides us access to telecommunications services. Our registered trademarks include CallWave, our CallWave logo, our CW Logo, ECallerID, Fax2Email, FaxWave, our FaxWave name design, Liberty Telecom, The Future of Faxing and Internet Answering Machine. We have applied for a trademark for our Take The Call slogan. This prospectus contains other trade names, trademarks and service marks of ours and of other companies. Table of Contents THE OFFERING Type of securities Common stock Shares to be offered 4,000,000 shares Shares outstanding after this offering 18,905,016 shares Use of proceeds We anticipate that we will use the net proceeds of this offering for general corporate purposes, including working capital and potential acquisitions. See the section titled Use of Proceeds. Proposed Nasdaq National Market symbol CALL
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001115143_acusphere_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001115143_acusphere_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001115285_eyetech_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001115285_eyetech_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the Risk Factors section and our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in shares of our common stock. Eyetech Pharmaceuticals, Inc. We are a biopharmaceutical company that specializes in the development and commercialization of novel therapeutics to treat diseases of the eye. Our initial focus is on diseases affecting the back of the eye, particularly the retina, because we believe that these diseases have the greatest unmet medical need and represent the largest potential market opportunities in ophthalmology. Our most advanced product candidate is MacugenTM (pegaptanib sodium injection), which we are developing for the treatment of the wet form of age-related macular degeneration, known as AMD, and for the treatment of diabetic macular edema, known as DME. Both AMD and DME are serious diseases of the retina that can lead to severe vision loss and blindness. We have entered into a collaboration with Pfizer Inc. to develop and commercialize Macugen for the prevention and treatment of diseases of the eye. Based on the results from the first year of our two Phase 2/3 pivotal clinical trials of Macugen, we and Pfizer are in the process of filing a new drug application, or NDA, with the United States Food and Drug Administration, or FDA, seeking marketing approval for the 0.3 mg dose of Macugen for the treatment of all subtypes of wet AMD. We plan to complete the filing in the third quarter of 2004. The FDA has given fast track designation to Macugen for the treatment of both wet AMD and DME. The FDA has announced a meeting on August 27, 2004 of the dermatologic and ophthalmic drugs public advisory committee to discuss our NDA for the use of Macugen in the treatment of wet AMD. If approved by the FDA, Macugen would be our only commercially available product. In the near term, we anticipate that our ability to generate product revenues will depend solely on the successful development and commercialization of Macugen for the treatment of wet AMD. AMD is the leading cause of severe vision loss and blindness in patients over the age of 50 in the developed world. In the United States, we estimate that there are more than 1.6 million cases of wet AMD, with approximately 200,000 new cases arising each year. Because AMD generally affects adults over 50 years of age, we expect the incidence of AMD to increase significantly as the baby boom generation ages and overall life expectancy increases. Diabetic retinopathy is the leading cause of blindness in working age adults and a leading cause of vision loss in diabetics. DME is a common complication of diabetic retinopathy and often results in severe vision loss and blindness. In the United States, there are approximately 500,000 people suffering from DME, with approximately 75,000 new cases each year. We expect the incidence of DME to increase as the number of people with diabetes increases. Because the existing treatments for both wet AMD and DME have significant limitations, there is a significant unmet medical need for a new therapy for these diseases. Macugen. We believe that Macugen may provide considerable benefits over the existing therapies for wet AMD and DME because it addresses the abnormal blood vessel growth and blood vessel leakage associated with wet AMD and the blood vessel leakage associated with DME. Abnormal blood vessel growth and blood vessel leakage are associated with elevated levels of a protein known as vascular endothelial growth factor, or VEGF, in the eye. The active ingredient in Macugen is a chemically synthesized aptamer, which is a single strand of oligonucleotide that binds with specificity to a particular target. Based on animal tests that we conducted, we believe that Macugen binds with high specificity to VEGF and prevents VEGF from binding to its natural receptor, thereby inhibiting abnormal blood vessel growth and blood vessel leakage. The FDA has not approved Macugen for marketing. Clinical Trials. We are conducting one of our two Phase 2/3 pivotal clinical trials for the use of Macugen in the treatment of wet AMD in North America with 578 enrolled patients and one primarily 0.3 mg 206/294 70 % 0.0001 1 mg 213/300 71 % 0.0003 3 mg 193/296 65 % 0.0310 Control 164/296 55 % Based on the data from the combined patient populations of both trials, the 0.3 mg dose of Macugen was the lowest effective dose of the three doses tested. In addition, based on our preliminary analysis of the safety data from these trials, each of the three dose levels tested in the trials appears to have a favorable safety profile. To address statistical and other regulatory requirements, we plan to seek approval for the 0.3 mg dose of Macugen in our NDA for wet AMD. For the 0.3 mg Macugen dose, the primary clinical endpoint was achieved with statistical significance in both the North American and international trials using a more stringent statistical methodology required for regulatory purposes for clinical trials in which multiple doses of a drug are tested against a single control group. There are three subtypes of wet AMD that are characterized by the pattern of the abnormal blood vessels associated with this disease. These subtypes are known as predominantly classic, minimally classic and occult. The combined data from the two trials demonstrate that the treatment effect of Macugen is consistent across the three subtypes of wet AMD. Accordingly, in our NDA filing, we intend to seek approval for the use of the 0.3 mg dose of Macugen in the treatment of patients with all three subtypes of wet AMD. Based on the results of the first year of our Phase 2/3 pivotal clinical trials, we and Pfizer are filing our NDA with the FDA for the use of Macugen in the treatment of all subtypes of wet AMD as a rolling submission. The FDA has accepted for review the preclinical and clinical study report sections of our NDA filing. We plan to complete our NDA filing in the third quarter of 2004. Upon acceptance, the FDA will then review our NDA to determine whether Macugen is safe and effective for the treatment of wet AMD. In connection with its review, the FDA may request additional information from us, including data from additional clinical trials, and, ultimately, may not grant marketing approval for Macugen. We will not be able to begin marketing and sales of Macugen unless the product is approved by the FDA. DME. In July 2003, we completed enrollment of our second Phase 2 clinical trial for the use of Macugen in the treatment of DME. The 169 patients enrolled in this study were required to have been eligible for laser therapy for DME. In this randomized, double-masked, placebo-controlled trial, patients treated with Macugen receive 0.3 mg, 1 mg or 3 mg doses via intravitreal injection every six weeks for at UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Maintenance of or gain in vision: 0 line vision gain 73 % 51 % 0.02 Gain in vision: 1 line vision gain 59 % 34 % 0.01 2 line vision gain 34 % 10 % 0.003 3 line vision gain 18 % 7 % The results shown in the table with respect to the proportion of patients gaining 0 or greater, 1 or greater and 2 or greater lines of vision at 36 weeks were statistically significant using the Hochberg statistical methodology. As shown in the table, the proportion of patients gaining 3 or greater lines of vision was higher for the group receiving 0.3 mg of Macugen than for the control group, but the number of patients was not sufficient to demonstrate statistical significance. Collaboration with Pfizer. In December 2002, we entered into our collaboration with Pfizer. In February 2003, Pfizer paid us $100 million, consisting of a $75 million up-front license fee and a $25 million equity investment. Concurrently with the closing of our initial public offering in February 2004, Pfizer made an additional equity investment of $10 million. Pfizer s future financial obligations to us include equity investments of up to an additional $15 million, funding of a majority of the ongoing development costs for Macugen, payments of up to $195.5 million based on regulatory milestones and payments of up to $450 million based on sales milestones. We and Pfizer have agreed to co-promote Macugen in the United States and to share in profits and losses. We have granted Pfizer the exclusive right to develop and commercialize Macugen outside the United States pursuant to a royalty-bearing license. Under the collaboration, we are entitled to participate in the United States in selling activities, or detailing, of Pfizer s product Xalatan for the treatment of glaucoma. Business Strategy. Our mission is to develop and commercialize novel therapeutics to treat diseases of the eye, with an initial focus on diseases of the back of the eye. The key elements of our strategy are to: Maximize Commercial Potential of Macugen. We are devoting most of our efforts to completing the clinical and regulatory development of Macugen and preparing for the commercial launch of the product for the treatment of wet AMD. We are also exploring the application of Macugen to a range of additional ophthalmic indications, including DME and retinal vein occlusion. Establish Specialized Ophthalmic Sales and Marketing Capabilities. We are in the process of establishing focused domestic sales and marketing capabilities that will primarily target the approximately 1,400 retinal specialists in the United States who perform most of the medical procedures involving back of the eye diseases. Develop Alternative Drug Delivery Technologies. We are working to develop or acquire alternative technologies for the administration of drugs to the back of the eye that could facilitate the use of Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 We were incorporated under the laws of the State of Delaware in February 2000. Our principal executive offices are located at 3 Times Square, 12th Floor, New York, New York 10036, and our telephone number is (212) 824-3100. Our website address is www.eyetech.com. The information on our website is not a part of this prospectus. We have included our website address in this document as an inactive textual reference only. EyetechTM, Eyetech PharmaceuticalsTM and MacugenTM are our trademarks. Each of the other trademarks, trade names or service marks appearing in this prospectus belongs to its respective holder. In this prospectus, unless otherwise stated or the context otherwise requires, references to Eyetech, we, us, our and similar references refer to Eyetech Pharmaceuticals, Inc. 0 % 0 % Eyetech Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 2834 13-4104684 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 3 Times Square, 12th Floor New York, New York 10036 (212) 824-3100 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Unless otherwise noted, the information in this prospectus assumes that the underwriters do not exercise their over-allotment option. David R. Guyer, M.D. Chief Executive Officer Eyetech Pharmaceuticals, Inc. 3 Times Square, 12th Floor New York, New York 10036 (212) 824-3100 (Name, address, including zip code and telephone number, including area code, of agent for service) (Unaudited) (In thousands) Balance Sheet Information: Cash, cash equivalents and marketable securities $ 266,915 Total assets 288,478 Long-term capital lease obligations 874 Accumulated deficit (153,323 ) Total stockholders equity 205,570 Copies to: James R. Tanenbaum, Esq. Morrison Foerster LLP 1290 Avenue of the Americas New York, New York 10104 (212) 468-8000 Douglas H. Altschuler, Esq. Eyetech Pharmaceuticals, Inc. 3 Times Square, 12th Floor New York, New York 10036 (212) 824-3100 Patrick O Brien, Esq. Ropes Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001116449_xenogen_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001116449_xenogen_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, including the section entitled Risk Factors and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Our Business We sell an integrated system of instruments and equipment, software and reagents to academic and biopharmaceutical researchers that we believe improves the productivity and efficiency of the drug discovery and development process. Our proprietary biophotonic IVIS Imaging Systems, living animal models and research services collectively expedite in vivo data collection and analysis, a critical bottleneck in drug discovery and development. Biophotonic imaging is the measurement of photons as they interact with biological tissue. We genetically engineer cells and animals to emit light and thereby display visually a chosen tumor, disease, pathogen, organ or biochemical reaction. Our products are also used to validate the predictive quality of animal models, primarily rats and mice, for preclinical drug discovery and development. Animal models are used to predict human response to a condition or drug. We believe our products enable our pharmaceutical and biotechnology customers to generate higher-quality safety and efficacy data for drug candidates, to increase the speed of preclinical development and to reduce the development risk of product candidates that enter clinical development. The sources of our revenues are: one-time fees: IVIS instrument, accessories and software sales; recurring revenue: multi-year licensing fees for our biophotonic imaging technologies and reagents such as animals and cell lines; and long-term service contracts: custom animal production (the genetic altering of animals according to customer preference), animal phenotyping (the measuring of an animal s genetic traits to determine gene function) and IVIS service contracts. In addition to our IVIS Imaging Systems and animal models, we also provide a wide range of contract research services relating to the production of transgenic animals (in which foreign genes are incorporated) and knockout animals (in which specific genes are disabled). We also provide custom animal production and phenotyping services to our customers for the purpose of target validation (verifying the role of a specific gene, protein or pathway in a disease) and compound screening (testing of multiple compounds, or form of a drug, to assess which one interacts best with a specific target). We sell our products in the U.S. and Europe through our direct sales force. In addition, we have marketing and distribution agreements with Charles River Laboratories, Inc. and Taconic Farms covering certain services and animal models. As of December 31, 2003, we had approximately $20.8 million of revenue backlog, or expected future revenue, under existing agreements for our products, licenses and services. Of this $20.8 million, we currently expect that approximately $12.9 million will be recognized as revenue in 2004 and that the remaining approximately $7.9 million will be recognized as revenue through 2005 and thereafter, including $4.5 million in 2005, $2.1 million in 2006, $0.6 million in 2007 and $0.7 million from one customer from 2008 to 2013. We may not, however, realize our backlog in a particular period, or at all. This figure does not include anticipated revenue from long-term agreements with two customers, Pfizer Inc. and the National Institute of Environmental Health Sciences, that may be renewed annually and are expected to generate future revenues. Assuming the agreements with these two customers are renewed annually and are not terminated or renegotiated at any time during their anticipated terms, we estimate these additional revenues would be $19.4 million from 2005 to 2008. We have incurred significant losses since inception and as of March 31, 2004, we had an accumulated deficit Stockholders equity: Convertible preferred stock, $0.007 par value; 10,428,571 shares authorized; 9,418,766 shares issued and outstanding; pro forma as adjusted no shares authorized; no shares issued and outstanding $ 66 $ Common stock, $0.007 par value, 15,714,285 shares authorized, actual and pro forma as adjusted, respectively; 1,058,512 shares issued and outstanding, actual; 14,977,278 shares issued and outstanding, pro forma as adjusted 7 105 Additional paid-in capital 161,447 192,896 Notes receivable from stockholders (111 ) Deferred stock-based compensation (5,030 ) (5,030 ) Accumulated other comprehensive income 1 Commitments and contingencies (Note 9) Redeemable convertible preferred stock, $0.001 par value; 3,464,057 shares authorized at December 31, 2002; 3,062,604 shares issued and outstanding at December 31, 2002; liquidation preference of $112,691 at December 31, 2002, and cumulative accretion of $2,099 114,941 Stockholders equity (deficit): Convertible preferred stock, $0.007 par value; 190,240, 10,428,571 and 10,428,571 shares authorized at December 31, 2002, 2003 and March 31, 2004, respectively; 27,169, 9,418,766 and 9,418,766 issued and outstanding at December 31, 2002, 2003 and March 31, 2004, respectively; liquidation preference of $102,853 at December 31, 2003 and March 31, 2004 1 66 66 Common stock, $0.007 par value; 5,714,285, 15,714,285 and 15,714,285 shares authorized at December 31, 2002, 2003 and March 31, 2004, respectively; 547,716, 1,016,480 and 1,058,512 issued and outstanding at December 31, 2002, 2003 and March 31, 2004, respectively 4 7 7 Additional paid-in capital 17,218 159,600 161,447 Notes receivable from stockholders (111 ) (111 ) (111 ) Deferred stock-based compensation (1,269 ) (5,436 ) (5,030 ) Accumulated other comprehensive income 3 1 Balance, March 31, 2004* $ 9,418,766 $ 66 1,058,512 $ 7 $ 161,447 $ (111 ) $ (5,030 ) $ December 31, 2003: Money market funds $ 1,024 $ $ 1,024 Certificates of deposit 1,159 1,159 Corporate debt securities 1,026 $ 3,209 $ March 31, 2004 (unaudited): Money market funds $ 1,159 $ $ 1,159 Certificates of deposit Corporate debt securities 3,415 $ 4,574 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Index to Financial Statements of $152.2 million. We expect to continue to incur losses over the near to medium term as we seek to increase our sales, continue to invest in research and development and expand our manufacturing capabilities. Our Solution Our products allow researchers to observe in real-time the disease and molecular mechanisms in living intact organisms in a non-invasive manner. Moreover, our products allow researchers to focus on those stages of disease progression within animal models that are most predictive of human response. With this information, researchers can observe the spread of a disease or cancer, or the effects of a drug, throughout the same animal over time. We believe that our integrated system of technologies and services enables pharmaceutical companies to reduce costs and standardize analytical techniques across four key areas of the drug discovery and development chain: biological screening; pharmacokinetics and bioavailability; safety and toxicological testing; and drug dosage and formulation. Increasing the throughput of in vivo animal testing and utilizing in vivo animal testing earlier in the drug development cycle may substantially reduce the costs of drug development failures and improve time to market of drug development successes. Our Strategy We believe our technology platform and revenue model is highly scalable. Our goal is to make our non-invasive IVIS Imaging System, living animal models and research services the industry standard for in vivo biological assessment. To achieve this goal, we intend to do the following: expand our sales and marketing effort in order to increase our initial equipment and licensing sales; continue to penetrate our existing customer base by moving from individual IVIS Imaging System placements to providing enterprise-wide solutions under long-term contracts; maximize the revenue potential of our existing installed base through high-margin reagent sales; leverage our intellectual property and licensing strategy to in-license new technologies and animal models to strengthen our competitive position; and expand our custom animal production business and animal phenotyping to screen genes and compounds for pharmaceutical research and development programs. We believe our management team and staff have the necessary experience and expertise to implement our strategy successfully. However, we may have difficulties achieving our objectives if we are unable to continue hiring qualified individuals to add to our sales and marketing team or are unable to continue to add new validated reagents to demonstrate the value of our technology. Risks Related to Our Business Our business is subject to a number of risks, which you should be aware of before making an investment decision. These risks are discussed more fully in Risk Factors. Our products are relatively new, are seeking to replace technology that has been used by the biopharmaceutical industry for over 40 years, and to date the commercial adoption of our in vivo biophotonic imaging products has been limited. Although we believe our integrated system of instruments and equipment, software and reagents improve the productivity and efficiency of drug discovery and development, the up-front costs and licensing fees associated with our products make their use generally more expensive than conventional technologies for in vivo testing. Company Information We were incorporated in California in August 1995 and reincorporated in Delaware in September 2000. Our principal executive offices are located at 860 Atlantic Avenue, Alameda, California 94501, and our telephone number is (510) 291-6100. Our website address is http://www.xenogen.com. Information contained in our website is not a part of this prospectus. AMENDMENT NO. 7 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents Index to Financial Statements THE OFFERING Common stock offered by us 4,500,000 shares Common stock to be outstanding after this offering 14,977,278 shares Use of proceeds We intend to use the net proceeds received by us from this offering to expand our sales and marketing organization, expand our research and development efforts, expand our manufacturing capacity for our IVIS Imaging Systems and for working capital. See Use of Proceeds. Nasdaq National Market Symbol XGEN The number of shares of common stock outstanding after this offering is based on 10,477,278 shares outstanding as of March 31, 2004 and does not include: 1,016,211 shares of common stock issuable upon the exercise of options outstanding, at a weighted average exercise price of $0.98 per share; 395,483 shares of common stock issuable upon the exercise of warrants outstanding, at a weighted average exercise price of $5.07 per share; and 464,542 shares of common stock reserved for issuance under our 1996 stock option plan. We intend to reserve an additional 1,000,000 shares of common stock for issuance under our 2004 equity incentive plan and 150,000 shares of common stock for issuance under our 2004 director stock plan. Unless otherwise indicated, all information in this prospectus assumes: the conversion of all outstanding shares of our preferred stock into 9,418,766 shares of common stock upon the completion of this offering; the conversion of warrants to purchase shares of preferred stock into warrants to purchase shares of common stock, upon the closing of this offering; a 1-for-7 reverse split of our common stock was completed on July 7, 2004; the adoption of our amended and restated certificate of incorporation; and the underwriters do not exercise their option to purchase 675,000 additional shares from us in this offering. December 31, 2002: Money market funds $ 1,015 $ $ 1,015 Certificates of deposit 1,279 1,279 Corporate debt securities 1,446 $ 3,740 $ XENOGEN CORPORATION (Exact name of Registrant as specified in its charter) Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments $ 8,248 $ 39,728 Deferred revenue 8,516 8,516 Working capital 2,635 34,115 Total assets 24,803 56,283 Long-term obligations 3,851 3,851 Convertible preferred stock 66 Total stockholders equity 4,198 35,678 The pro forma as adjusted balance sheet data above reflects the conversion of all of our preferred stock into an aggregate of 9,418,766 shares of our common stock immediately prior to the closing of this offering, and the sale of 4,500,000 shares of our common stock at an assumed initial offering price of $8.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. See our consolidated financial statements and related notes for a description of the calculation of the historical net loss attributable to common stockholders. Delaware 2835 77-0412269 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 860 Atlantic Avenue Alameda, California 94501 (510) 291-6100 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents Index to Financial Statements
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+If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. addition, any issued patents may not provide us with any competitive advantages, or may be challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our solution is available. As a result, we cannot assure you that our means of protecting our proprietary rights will be adequate. Furthermore, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property. Any such infringement or misappropriation could have a material adverse effect on our revenues and prospects for growth. Our ability to generate increased revenues depends in part on the efforts of our strategic partners, over whom we have little control. Our ability to generate increased revenues depends in part upon the ability and willingness of our strategic partners to increase awareness of our solution to their customers. We cannot control the level of effort these partners expend or the extent to which any of them will be successful in increasing awareness of our solution. We may not be able to prevent these parties from devoting greater resources to support services developed by them or other third parties. If our strategic partners fail to increase awareness of our solution or to assist us in getting access to decision-makers, then we may need to increase our marketing expenses, change our marketing strategy or enter into marketing relationships with different parties, any of which could impair our ability to generate increased revenues. Our certificate of incorporation authorizes our board of directors to issue new series of preferred stock that may have the effect of delaying or preventing a change of control, which could adversely affect the value of your shares. Our certificate of incorporation, as amended, provides that our board of directors will be authorized to issue from time to time, without further stockholder approval, up to 20,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, rights of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of any series. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. We may issue additional preferred stock in ways which may delay, defer or prevent a change of control of our company without further action by our stockholders. Such shares of preferred stock may be issued with voting rights that may adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights. Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock. Our certificate of incorporation, as amended, and our bylaws, as amended, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. In addition, our certificate of incorporation, as amended, and our bylaws, as amended, provide that our board of directors will be classified into three classes of directors upon consummation of this offering, with each class elected at a separate election. The existence of a staggered board could delay a potential acquiror from obtaining majority control of our board, and thus deter potential acquisitions that might otherwise provide our stockholders with a premium over the then current market price for their shares. In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, as amended, and our bylaws, as amended, and Delaware law could make it more difficult for stockholders or The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares. Risks Related to this Offering Our common stock price may fluctuate substantially, and your investment could suffer a decline in value. The market price of our common stock may be volatile and could fluctuate substantially due to many factors, including: actual or anticipated fluctuations in our results of operations; announcements of technological innovations or technology standards by us or our competitors; the introduction of new products or services, or product or service enhancements by us or our competitors; developments with respect to our or our competitors' intellectual property rights; announcements of significant acquisitions or other agreements by us or our competitors; our sale of common stock or other securities in the future; the trading volume of our common stock; conditions and trends in the nonprofit industry; changes in our pricing policies or the pricing policies of our competitors; changes in the estimation of the future size and growth of our markets; and general economic and geopolitical conditions. In addition, the stock market in general, the Nasdaq National Market, and the market for shares of technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, the market prices of securities and technology companies have been particularly volatile. These broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources. Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions. Our executive officers, directors and their affiliates, in the aggregate, beneficially own approximately 41.4% of our outstanding common stock. As a result, these persons, acting together, will have the ability to determine the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any significant transaction involving us. In addition, these persons, acting together, will have the ability to control the management and affairs of our company. This concentration of ownership may harm the market price of our common stock by, among other things: delaying, deferring, or preventing a change in control of our company; impeding a merger, consolidation, takeover, or other business combination involving our company; causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. Our future capital needs are uncertain, and we may need to raise additional funds in the future which may not be available on acceptable terms or at all. Our capital requirements will depend on many factors, including: acceptance of, and demand for, Kintera Sphere; the costs of developing new products, services or technology; the extent to which we invest in new technology and product development; the number and timing of acquisitions and other strategic transactions; and the costs associated with the growth of our business, if any. We may need to raise additional funds, and such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those or our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products and services, execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Total operating expenses 16,227 7,022 Operating loss (9,037 ) (4,664 ) Interest income (expense) and other, net 128 FORWARD LOOKING STATEMENTS This prospectus contains forward looking statements that involve risks and uncertainties. The forward looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward looking statements. Forward looking statements include, but are not limited to, statements about: marketing and commercialization of our products and services; our estimates for future revenues, expenses and profitability; our ability to attract customers and enter into customer contracts; our estimates regarding our capital requirements and our needs for additional financing; plans for future products and services and for enhancements of existing products and services; our patent applications and licensed technology; our plans to pursue strategic alliances and acquisitions; and sources of revenues and anticipated revenues and the continued viability and duration of those agreements. In some cases, you can identify forward looking statements by terms such as "may," "might," "will," "should," "could," "would," "expect," "believe," "intend," "estimate," "predict," "potential," or the negative of these terms, and similar expressions intended to identify forward looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward looking statements. We discuss many of these risks in this prospectus in greater detail under the heading "Risk Factors." Also, these forward looking statements represent our estimates and assumptions only as of the date of this prospectus. This prospectus contains statistical data that we obtained from industry publications and other industry sources, including reports generated by Giving USA and other third parties. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications are reliable, we have not independently verified their data. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward looking statements by these cautionary statements. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. (Subject to Completion, dated November 3, 2004) PRELIMINARY PROSPECTUS 2,694,998 Shares Common Stock Year ended December 31, 2004 First quarter $ 18.00 $ 9.70 Second quarter $ 17.73 $ 7.00 Third quarter $ 10.85 $ 5.25 Fourth quarter (through October 6, 2004) $ 10.13 $ 9.37 Year ended December 31, 2003 Fourth quarter (since December 19, 2003) $ 12.90 $ 7.91 DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock and do not anticipate paying such cash dividends in the foreseeable future. We currently anticipate that we will retain all of our future earnings for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operation, financial condition and other factors as the board of directors, in its discretion, deems relevant. This prospectus relates to the resale of 2,694,998 shares of our common stock held by certain of our stockholders. We are registering our common stock for resale by these selling stockholders who may offer such shares for sale from time to time at market prices prevailing at the time of sale or at privately negotiated prices. The selling stockholders may sell the shares directly to purchasers or through underwriters, broker-dealers or agents, that may receive compensation in the form of discounts, concessions or commissions. We will not receive any proceeds from this offering. See "Plan of Distribution." We will bear costs relating to the registration of these shares. Our common stock is traded on the Nasdaq National Market under the symbol "KNTA." On October 1, 2004, the last reported sales price for our common stock as quoted on the Nasdaq National Market was $9.80 per share. Our business and an investment in our common stock involve significant risks. These risks are described under the caption "Risk Factors" beginning on Page 2 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. November , 2004 The above table does not assume the following: Assumes no exercise of options or warrants after June 30, 2004. As of June 30, 2004, there were options outstanding to purchase a total of 3,062,571 shares of common stock at a weighted average exercise price of $4.35 per share. To the extent outstanding options are exercised, you would experience further dilution. In addition, to the extent there are purchases made under our employee stock purchase plan or warrants are exercised, you may experience further dilution. Excludes the issuance of 180,231 shares of restricted stock issued in connection with the acquisitions of Kindmark, Kamtech, Inc., and Giving Capital that were completed subsequent to June 30, 2004. Supplemental disclosure of cash flow information: Cash paid for interest $ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this prospectus. In addition to historical information, the following discussion contains forward looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled "Risk Factors" and elsewhere in this prospectus. Overview We are an innovative provider of software that enables nonprofit organizations to use the Internet to increase donations, reduce fundraising costs and build awareness and affinity for an organization's cause by bringing their employees, volunteers and donors together in online, interactive communities. Our flagship product, Kintera Sphere, is managed as a single system and offered as a service accessed with a web browser. We were incorporated in the State of Delaware in February 2000 and launched our service in the first quarter of 2001. Nonprofit organizations pay Kintera service fees for access to Kintera Sphere and transaction-based fees tied to the donations and purchases. Since inception, we have significantly increased our revenues through a combination of factors, including obtaining new customers, expanding existing customer relationships, acquiring complementary businesses, expanding the features of Kintera Sphere and increasing the number and amount of donations we process that result in transaction-based fees. Although our revenues have increased substantially in recent periods, we have experienced significant net losses and negative cash flows from operations in each fiscal period since inception, and as of June 30, 2004, we had an accumulated deficit of $42.7 million. We have derived the substantial majority of our historical revenues from fees paid by nonprofit organizations related to their use of Kintera Sphere. The fees we receive for Kintera Sphere include upfront and monthly service fees that nonprofit organizations pay for access to Kintera Sphere as well as transaction-based fees tied to donations and purchases we process. We also derive advertising and subscription revenue from the placement of advertisements in and the sale of subscriptions to our Masterplanner print and online calendar publications in several cities. We anticipate that revenues related to Masterplanner will account for a substantially smaller portion of our revenues in future periods. We derive a significant amount of our revenues from upfront service fees for Kintera Sphere, which are deferred and recognized as revenue over the entire term of our contracts. Conversely, we recognize the operating expenses associated with generation of revenues from upfront service fees as they are incurred. Our operating expenses continue to increase as we expand our selling and marketing efforts and administrative infrastructure to support increased sales that we will recognize as revenue in subsequent periods. We anticipate that our operating expenses will continue to grow in the near term. As a result, because of the deferral of recognition of a portion of our revenues, our revenues and operating results will not increase at the same rate as our operating expenses incurred to support revenue recognized in future periods. We currently market Kintera Sphere through a direct sales force that includes personnel located in our corporate headquarters and throughout the United States. To date, we have signed contracts with over 500 nonprofit organizations, some of which have hundreds of individual chapters or divisions. Our customers include health organizations, educational institutions, religious institutions, professional associations, political organizations, civic organizations and other charities, at both a local and national level. We expect that a small group of nonprofit organizations in each fiscal period generally will account for a large portion of our revenues. The significance of a particular customer or group of customers in a given period will depend on the nature and size of their fundraising events in that (unaudited) Assets Current assets: Cash and cash equivalents $ 8,966 Marketable securities 20,590 Accounts receivable, net of allowance for doubtful accounts of $366 at June 30, 2004 3,335 Accounts receivable from related party Prepaid expenses and other current assets 876 Note receivable from employee period as well as the scope of their use of Kintera Sphere. To continue our revenue growth, we must both obtain new customers and expand our existing customer relationships through usage of Kintera Sphere for new campaigns. In February 2004, we completed the acquisition of Prospect Information Network, LLC (PIN), a provider of software, services and data for data screening services for nonprofit organizations. PIN's services enable fundraisers to more efficiently identify, profile, monitor and rank the wealth of prospects in their database. As consideration for all of the membership interests of PIN, we issued approximately 219,000 shares of common stock. Up to 336,000 additional shares of common stock are being held in escrow to the members of PIN if the revenue generated from PIN's business during the year following the closing of the transaction meets certain targets. In addition, some of the shares issued to the PIN members are being held in escrow to secure the obligations of PIN and its members under the purchase agreement. In March 2004, we completed the acquisition of Carol/Trevelyan Strategy Group (CTSG), a provider of online advocacy solutions. CTSG's services enable customers to meld offline and online strategies and tools to build membership, affinity and impact for nonprofit organizations, political campaigns and unions. We issued approximately 331,000 shares of common stock and paid $250,000 to acquire CTSG. Up to 93,000 additional shares of common stock are being held in escrow if the revenue generated from CTSG's business during the year following the closing of the transaction meets certain targets. In addition, some of the shares issued are being held in escrow to secure the obligations of CTSG and its stockholders. In June 2004, we completed the acquisition of BNW, Inc. (BNW), a provider of recreational/athletic facilities management software. BNW's services were designed specifically for colleges, universities and community centers like the YMCA. We issued approximately 22,000 shares of restricted common stock and $281,000 in cash to acquire BNW. Up to 105,000 additional shares of common stock are being held in escrow if the revenue generated from BNW's business during the year following the closing of the transaction meets certain targets. Some of the shares issued are being held in escrow to secure the obligations of BNW and its stockholders. In August 2004, we completed the acquisition of certain intellectual property and other assets of KindMark, a developer of corporate giving solutions to help corporations and nonprofits automate and support their workplace giving programs. We issued approximately 58,000 shares of restricted common stock and paid $145,000 in cash. Up to approximately 130,000 additional shares of common stock are being held in escrow and may be released to the stockholder of KindMark if the revenue generated from KindMark's business during the year following the closing of the transaction meets certain targets. Some of the shares issued are being held in escrow to secure the obligations of KindMark and its stockholder. In August 2004, we completed the acquisition of Kamtech, Inc., a provider of wealth screening services. We issued approximately 103,000 shares of restricted common stock and paid $310,000 in cash. Up to approximately 272,000 additional shares of common stock are being held in escrow and may be released to the former stockholders of Kamtech if the revenue generated from Kamtech's business during the year following the closing of the transaction meets certain targets. Some of the shares issued are being held in escrow to secure the obligations of Kamtech's former stockholders. In September 2004, we completed the acquisition of certain intellectual property and other assets of GivingCapital, which offers on-demand solutions for donor-advised funds and wealth management products to financial institutions. We issued approximately 20,000 shares of restricted stock and paid $7,000 in cash. Up to approximately 162,000 additional shares of common stock are being held in escrow and may be released to GivingCapital if the revenue generated from GivingCapital's business during the year following the closing of the transaction meets certain targets. Some of the shares issued are being held in escrow to secure the obligations of GivingCapital. Cost of Revenues and Operating Expenses Cost of revenues consists primarily of salaries, benefits and related expenses of operations and database support personnel, depreciation allocations and communications charges associated with the delivery of our software as a service. Our operating expenses are classified into four categories: sales and marketing, product development and support, general and administrative and stock-based compensation. We allocate the costs of overhead and facilities to each of the functional areas that use the overhead and facilities services based on their headcount. These allocated charges include facilities rent for corporate offices, communication charges and depreciation expenses for office furniture and equipment. Sales and marketing expenses consist primarily of salaries, commissions, benefits and related expenses of personnel engaged in selling, marketing and customer support functions as well as public relations, advertising and promotional costs. As we expand our sales and marketing force, we expect sales and marketing expenses to increase due to new personnel expenses in future periods. Product development and support expenses consist primarily of salaries and benefits and related expenses for engineers, developers and quality assurance personnel as well as facilities and depreciation allocation. We expect to continue to devote substantial resources to product development and support such that these expenses will increase in absolute dollars. General and administrative expenses consist primarily of salaries, benefits and related expenses for our executive, accounting, and administrative personnel, third party professional service fees and allocated facilities and depreciation expenses. We expect general and administrative expenses to increase in the future, reflecting growth in our operations, increased expenses associated with being a public company and other factors. We had 289 employees as of June 30, 2004 and intend to hire a significant number of employees in the future. This expansion will likely place significant demands on our management and operational resources. To manage rapid growth and increased customer demand for our service, we must continue to invest in and implement additional operational systems, procedures and controls. Application of Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to the allowance for doubtful accounts, intangible assets, income taxes, commitments and accrued liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment: revenue recognition; accounting for goodwill and other intangible assets; accounting for software development costs; accounting for stock-based compensation; and accounting for income taxes. Revenue Recognition. We receive revenues related to Kintera Sphere including activation fees, monthly maintenance fees and transaction fees tied to the donations and purchases that we process. We recognize revenues when all of the following criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or receipt of an authorized purchase order from the customer); (2) delivery has occurred (upon performance of services in accordance with contract specifications); (3) customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties (credit terms extending beyond twelve months or significantly longer than is customary are deemed not to be fixed and determinable); and (4) collection is probable (there are no indicators of non-payment based upon history with the customer and/or upon completion of credit procedures, if completed). Billings made or payments received in advance of providing services are deferred until the period these services are provided. As of June 30, 2004, we had $2.8 million of deferred revenues. To date, our arrangements that contain multiple elements have been contracts that include upfront payments for activation of Kintera Sphere, monthly fees for the maintenance and use of Kintera Sphere and transaction fees tied to the donations and purchases that we process. Revenues associated with these payments are deferred and recognized on a straight-line basis over the entire term of the contract, which in general ranges from twelve to thirty-six months. Revenues related to monthly maintenance and transaction fees for donations made through the website are recognized as services are provided. Credit card fees directly associated with processing customer donations and billed to customers are excluded from revenues in accordance with Emerging Issues Task Force (EITF) consensus on Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. For arrangements with multiple elements, we allocate revenues to each element of the transaction based upon its fair value. Fair value for all elements of an arrangement is determined when the delivered items have value to the customer on a stand alone basis, evidence of the fair value of the undelivered items exists, and delivery or performance of the undelivered items is considered probable and substantially in our control. Items are considered to have stand alone value if (1) we have sold that item separately in the past or (2) the customer could resell that item. When the fair value of a delivered element has not been established or Kintera is unable to establish stand alone value, as is the case for upfront payments for activation, maintenance and use of Kintera Sphere, the revenues for the elements for which fair value is not determinable are recognized on a straight-line basis over the entire term of the contract. The unearned portion of paid subscriptions is deferred until the publications are mailed to subscribers. Upon each mailing, a proportionate share of the gross subscription price is included in revenues. Advertising revenues are recognized when the advertisements are mailed. Accounting for Goodwill and Other Intangible Assets. Acquisitions which cause us to recognize goodwill and other intangible assets require us to make determinations about the value and recoverability of those assets that involve estimates and judgments. We have made several acquisitions of businesses and assets that resulted in both goodwill and intangible assets being recorded in our financial statements. We have typically paid most of the acquisition prices in these transactions through the issuance of equity securities. The value of the equity securities prior to our initial public offering in December 2003 was determined through comparison to the issuance prices received in private placement transactions. We adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in the first quarter of 2002. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets, and requires that goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill is subject to at least an annual assessment for impairment. If facts and circumstances indicate goodwill may be impaired, we perform a recoverability evaluation. The calculation of fair value includes a number of estimates and assumptions, including projections of future income and cash flows, the identification of appropriate market multiples and the choice of an appropriate discount rate. If these estimates or their related assumptions change in the future, we may be required to record an impairment charge. We also assess the impairment of our long-lived assets when events or changes in circumstances indicate that an asset's carrying value may not be recoverable. An impairment charge is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying value of the asset. An impairment charge would be measured by comparing the amount by which the carrying value exceeds the fair value of the asset being evaluated for impairment. Any resulting impairment charge could have an adverse impact on our results of operations. Accounting for Deferred Stock based Compensation. In connection with the grant of stock options during the six months ended June 30, 2003 and 2004, we recorded $4.5 million and $5.1 million in deferred stock based compensation within stockholders' equity, respectively. These options were considered compensatory because the deemed fair value of the underlying common stock for financial reporting purposes was greater than the exercise prices determined by the board of directors on the date of grant. The determination of the fair value prior to the Company's initial public offering of the underlying shares of common stock involves subjective judgment and the consideration of a variety of factors, including the prices obtained in private placement transactions of other equity securities, and as a result the amount of the compensatory charge is not based on an objective measure such as the trading price of the common stock since there was no public market for our common stock prior to December 19, 2003. As of June 30, 2004, we had an aggregate of $12.7 million of deferred stock based compensation remaining to be amortized. This deferred compensation balance will be amortized as follows: $2.5 million in 2004; $4.4 million in 2005; $4.1 million in 2006; and $1.7 million in 2007. We are amortizing the deferred compensation on a straight-line basis over the vesting period of the related options, which is generally four years. The amount of stock based compensation amortization actually recognized in future periods could decrease if options for which accrued but unvested deferred compensation has been recorded are forfeited. Accounting for Income Taxes. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a full valuation allowance on our net deferred tax assets as of June 30, 2003 and 2004, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward and research and development tax credits, before they expire. As a result, we have provided a full valuation allowance on our net deferred tax assets on our balance sheet as of June 30, 2004. Software Development Costs. We account for Internal Use Software Development costs in accordance with Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. In accordance with SOP 98-1, costs to develop internal use computer software during the application development stage are capitalized. Internal use capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to three years and are included in depreciation and amortization. We account for the development cost of software that is marketed to customers in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (SFAS 86). SFAS 86 requires product development costs to be charged to expense as incurred until technological feasibility is attained. Technological feasibility is attained when software has completed a detailed design program for its intended use. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the related software applications of up to three years and are included in depreciation and amortization. We periodically review the software that has been capitalized for impairment. The increase in revenue from 2003 to 2004 was due to a number of factors, including an increase in transaction fees and data purchases (approximately $2.2 million for the six months ended June 30, 2004), monthly service fees (approximately $2.5 million for the six months ended June 30, 2004), and amortization of upfront fees (approximately $1.3 million for the six months ended June 30, 2004). The increase in transaction and data processing fees resulted from higher transaction processing volumes for the six months ended June 30, 2004 compared to the six months ended June 30, 2003, as well as the inclusion of data processing fee revenue in 2004 due to the acquisition of PIN in February 2004. The increase in monthly service fees and amortization of upfront fees for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 was due to the addition of new customers, the increase in the scope of services from existing customers and the acquisition of CTSG in March 2004. Cost of Revenues. Cost of revenues increased from $0.6 million for the six months ended June 30, 2003 to $1.8 million for the six months ended June 30, 2004 This increase was due primarily to expenses incurred to service customer and revenue growth. Sales and Marketing. Sales and marketing expenses increased from $3.7 million for the six months ended June 30, 2003 to $6.8 million for the six months ended June 30, 2004. The increase was due primarily to the expansion of our sales force and customer support staff, both internally and from acquisitions (approximately $2.1 million for the six months ended June 30, 2004), amortization of intangible assets relating to acquisitions (approximately $0.4 million for the six months ended June 30, 2004) and increased travel, advertising, telephone and consulting (approximately $0.6 million for the six months ended June 30, 2004). Product Development and Support. Product development and support expenses increased from $1.6 million for the six months ended June 30, 2003 to $3.7 million for the six months ended June 30, 2004. These increases were primarily due to expenses related to increased headcount, both internally and from acquisitions, to support the development, enhancement and integration of Kintera Sphere. General and Administrative. General and administrative expenses increased from $0.9 million for the six months ended June 30, 2003 to $3.5 million for the six months ended June 30, 2004. These increases were due primarily to increased staffing and costs from the Company's growth related to being a public company including the implementation of Section 404 of the Sarbanes Oxley Act. Stock-based Compensation. Stock-based compensation increased from $0.9 million for the six months ended June 30, 2003 to $2.3 million for the six months ended June 30, 2004. These increases were due to the amortization of deferred compensation expense from stock issuances in acquisitions and additional stock option grants to new and existing employees prior to our initial public offering in 2003. Comparison of Years Ended December 31, 2003, 2002 and 2001 Revenue. Revenue increased from $287,000 for 2001 to $1.9 million for 2002. Revenue increased from $1.9 million for 2002 to $8.0 million for 2003, which includes $475,000 in revenue from a related party. The increase in revenue from 2002 to 2003 was due to a number of factors, including an increase in transaction based fees (approximately $2.0 million) from an increase in the number of events from both new and existing customers, increased monthly maintenance ($2.4 million, including approximately $330,000 in maintenance fees associated with the acquisition of H2O Networks, Inc.), amortization of upfront fees (approximately $900,000), and increased Masterplanner revenue of approximately $250,000. Revenue from a related party totaled $475,000 for the year ended December 31, 2003. This revenue was from a single customer and was classified as related party revenue as a member of the executive management of the customer is a family relative of executive officers of Kintera. The increase in revenue from 2001 to 2002 was primarily due to an increase in the number of events sponsored by both new and existing customers, resulting in increased amortization of upfront fees (approximately $153,000), monthly maintenance fees (approximately $591,000), and transaction based fees (approximately $411,000). Other factors that contributed to the increase in revenue included the acquisition of Masterplanner Media, Inc. in January 2002 (approximately $491,000). Cost of Revenues. Cost of revenues increased from $46,000 in 2001 to $323,000 in 2002 to $1.4 million in 2003. These increases were due primarily to expenses incurred to service customer and revenue growth. Sales and Marketing. Sales and marketing expenses increased from $6.0 million in 2002 to $7.9 million for 2003. The increase was due primarily to the expansion of our sales force and customer support staff (approximately $1.1 million), increased commission expenses due to higher revenue levels (approximately $650,000), and costs associated with the expansion of Masterplanner to the San Diego market (approximately $100,000). Sales and marketing expenses decreased from $9.0 million for 2001 to $6.0 million in 2002. The decrease was due primarily to the conclusion of an advertising agreement entered into in September 2000 with Infinity Outdoor, Inc. (a subsidiary of CBS Broadcasting, Inc. and an indirect subsidiary of Viacom, Inc.) under which we issued shares of our Series B preferred stock to acquire the use of billboard advertising to promote awareness of the Kintera solution as well as customer events. The value of the advertising and Series B preferred stock was based on the quantity of advertising received and quoted market rates. We recorded approximately $4.5 million in expenses in 2001 pursuant to the Infinity agreement, including approximately $4.1 million of non-cash advertising expense. Another factor that caused sales and marketing expenses to be higher in 2001 was the write-off of the remaining balance of $865,000 of prepaid advertising from the Infinity agreement due to its impairment at the conclusion of the contract. The decrease was partially offset by expenses related to the expansion of our sales force in 2002. Product Development and Support. Product development and support expenses increased from $2.4 million in 2001 to $2.5 million in 2002 to $3.5 million in 2003. These increases were primarily due to expenses related to increased headcount to support the development efforts for enhancements to Kintera Sphere features. General and Administrative. General and administrative expenses increased from $1.5 million in 2001 to $2.0 million in 2002 to $2.3 million in 2003. These increases were due primarily to increased staffing. Liquidity and Capital Resources We have historically funded our operations principally through private placements of equity securities. In December 2003, we completed our initial public offering and received net proceeds of $36.1 million, including $4.9 million from the exercise of the underwriters' over allotment option. As of June 30, 2004, we had cash, cash equivalents and short-term investments totaling approximately $29.6 million. In July 2004, we completed a sale of stock in a private placement, which provided us with approximately $18.8 million in cash, net of transaction fees. Net cash used in operating activities was $3.0 million and $6.6 million for the six months ended June 30, 2003 and June 30, 2004, respectively. In 2003, this was primarily the result of the net loss ($4.7 million), partially offset by changes in operating assets and liabilities (approximately $0.3 million) and non-cash expenses (approximately $1.5 million) consisting primarily of amortization of deferred compensation and intangible assets and depreciation. In 2004, this was primarily the result of the net loss ($8.9 million) and changes in operating assets and liabilities (approximately $1.1 million), partially offset by non-cash expenses (approximately $3.4 million) consisting primarily of amortization of deferred compensation, software development costs and intangible assets and depreciation. Net cash provided by investing activities was $1.6 million for the six months ended June 30, 2003. This was primarily the result of the sale of marketable securities (approximately $2.0 million) partially offset by purchases of property and equipment (approximately $0.1 million) and acquisition and other costs (approximately $0.3 million). Net cash used in investing activities was $23.0 million for the six months ended June 30, 2004. This was primarily the result of the purchase of marketable securities (approximately $24.3 million), purchases of property and equipment (approximately $1.3 million) and acquisition and other costs (approximately $1.1 million) offset by the sale of marketable securities (approximately $3.7 million). Net cash provided by financing activities was $2.8 million for the six months ended June 30, 2003 was primarily from sale of preferred stock. Net cash used for financing activities was relatively unchanged for the six months ended June 30, 2004. Net cash used for financing activities for the six months ended June 30, 2004 was primarily for the payment of the line of credit and issuance costs for common stock (approximately $0.5 million) and was offset primarily from sale of our stock in our Employee Stock Purchase Plan and from exercise of stock options (approximately $0.5 million). We believe that our cash, cash equivalents and short-term investments and available borrowings under our line of credit that we may draw from time to time will be sufficient to meet our working capital requirements and contractual commitments for at least the next 12 months. If we are unable to increase our revenues, we will need to raise additional funds to finance our future capital needs. We may need additional financing earlier than we anticipate. If we raise additional funds through the sale of equity or convertible debt securities, these transactions may dilute the value of our outstanding common stock. We may also decide to issue securities, including debt securities, which have rights, preferences and privileges senior to our common stock. We cannot assure you that we will be able to raise additional funds on terms favorable to us or at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs. This may prevent us from increasing our market share, capitalizing on new business opportunities or remaining competitive in our industry. Recent Accounting Pronouncements In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We do not expect the adoption of EITF Issue No. 00-21 to have a material impact on our financial position, results of operations or cash flows. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities", FIN No. 46 classifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities (VIEs) created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We have not identified any VIEs for which we are the primary beneficiary or have significant involvement. In December 2003, the FASB issued FIN No. 46 (revised December 2003), "Consolidation of Variable Interest Entities" (FIN No. 46-R) to address certain FIN 46 implementation issues. The effective dates and impact of FIN No. 46 and FIN No. 46-R are as follows: (i) For special purpose entities (SPEs) created prior to February 1, 2003, we must apply either the provisions of FIN No. 46 or early adopt the provisions of FIN No. 46-R at the end of the first interim or annual reporting period ending after December 15, 2003. (ii) For non-SPEs created prior to February 1, 2003, we are required to adopt FIN No. 46-R at the end of the first interim or annual reporting period ending after March 15, 2004. (iii) For all entities, regardless of whether a SPE, that were created subsequent to January 31, 2003, the provisions of FIN No. 46 were applicable for variable interests in entities obtained after January 31, 2003. We are required to adopt Fin No. 46-R at the end of the first interim or annual reporting period ending after March 31, 2004. The adoption of the provisions applicable to SPEs and all other variable interests obtained after January 31, 2003 did not have a material impact on our financial statements. We are currently TRADEMARKS Kintera, the Kintera logo, Kintera Sphere, Friends Asking Friends, Kintera Thon, Knowledge Interaction, Honor Roll, Volunteer Interactive Pyramid, Kintera VIP, Kintera Gala, Kintera Golf, KindMark, Kamtech and Giving Capital are our trademarks, trade names or service marks. Each trademark, trade name or service mark of another company appearing in this prospectus belongs to its holder, and does not belong to us. USE OF PROCEEDS We will not receive any proceeds from the sale by the selling stockholders of the shares of common stock offered by this prospectus. PRICE RANGE OF COMMON STOCK Our common stock has been traded on the NASDAQ National Market under the symbol "KNTA" since December 19, 2003. Prior to that time, there was no public market for our common stock. The following table sets forth the range of high and low sales prices on the National Market of the common stock for the periods indicated, as reported by NASDAQ. High evaluating the impact of adopting FIN No. 46-R applicable to non-SPEs created prior to February 1, 2003, but do not expect a material impact. In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable of Interest Entities, an Interpretation of ARB No. 51," which addresses consolidation by business enterprises of variable interest entities (VIEs) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (Revised Interpretations) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied no later than the first quarter of fiscal year 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. There has been no material impact to our financial statements from potential VIEs entered into after January 31, 2003 or from the adoption of the deferred provisions in the first quarter of fiscal year 2004. Qualitative and Quantitative Disclosure about Market Risk Due to the nature of our short-term investments, we have concluded that there is no material market risk exposure. Therefore, no quantitative tabular disclosures are required. Low BUSINESS Overview We are an innovative provider of software that enables nonprofit organizations to use the Internet to increase donations, reduce fundraising costs and build awareness and affinity for an organization's cause by bringing their employees, volunteers and donors together in online, interactive communities. Our flagship product, Kintera Sphere, is managed as a single system and offered as a service accessed with a web browser. Nonprofit organizations raised approximately $241 billion in donations in 2002, and many of the more than 1.3 million nonprofit organizations registered in the United States have begun using Internet tools to enhance their fundraising and communication efforts. Kintera Sphere is an enterprise grade software suite that provides content management, contact management, communication, commerce, community and reporting, all of which are built on a unified database and payment processing engine. Our system automates the workflow of a nonprofit organization's employees, volunteers and donors, facilitating better communication and more effective fundraising. Using Kintera Sphere, nonprofit organizations can motivate and reward community members with timely feedback, personalized communications and targeted content. By building a stronger sense of community, nonprofit organizations can increase the commitment of employees, volunteers and donors and improve the success of their fundraising efforts. Under contracts which are typically one year or more in duration, nonprofit organizations pay Kintera upfront and monthly service fees for access to Kintera Sphere and transaction based fees tied to the donations and purchases we process. We believe our software-as-a-service model reduces our customers' software and related infrastructure maintenance, upgrade and support costs, thereby providing them with significant features and benefits at an attractive price. Since launching our service in the first quarter of 2001, we have signed contracts with over 500 nonprofit organizations, some of which have hundreds of individual chapters or divisions. Our customers include both national and local health organizations, educational institutions, religious institutions, professional associations, political organizations, civic organizations and other charities. Current customer relationships that illustrate our national and local customer base and target markets include the American Cancer Society, the American Heart Association, American Lung Association, Big Brothers Big Sisters of America and Special Olympics. Usage of our Kintera Sphere has grown rapidly. Our total online donations processed have grown from $27.0 million for the twelve months ended June 30, 2003 to $70.9 million for the twelve months ended June 30, 2004. Industry Background The Nonprofit Industry Raises a Significant Amount of Funds for Diverse Causes Nonprofit organizations in the United States represent a large and growing part of the U.S. economy. According to the National Center for Charitable Statistics, data from nonprofit organizations' IRS Form 990s filed within twenty-four months through July 2003 showed revenues of $1.69 trillion. Donations to nonprofit organizations represented approximately $241 billion in 2002 according to Giving USA. Giving USA estimates that there are over 1.3 million registered U.S. nonprofit organizations in nine principal sectors: religion, education, foundations and unallocated giving organizations, such as United Way, health, human services, arts and cultures, public and societal benefits, environment and animal welfare and international and foreign affairs. To advance their missions, nonprofit organizations sponsor and manage a variety of campaigns designed to raise awareness of their cause and to raise funds to support their services. In designing and implementing these campaigns, nonprofit organizations frequently use a mixture of marketing programs to address the numerous challenges for fundraising. Traditional Fundraising Methods are Costly and Inefficient Despite the significant amount of funds raised by the nonprofit industry, traditional fundraising methods are frequently costly and inefficient. Launching a campaign involves both a significant investment and the risk that the campaign will not generate enough donations to cover fundraising and administrative costs. While the costs of any individual campaign will vary depending on the nature of the fundraising activity and the success of the campaign, industry experts consistently agree that these costs are significant as a percentage of funds raised. In a 2001 study, experts from the Center on Nonprofits and Philanthropy (Urban Institute) and Center on Philanthropy (Indiana University) found that nonprofit organizations spend on average approximately 26% of their revenues on fundraising plus administration expenses. These experts also estimate that on average $0.24 of each dollar donated is used by nonprofit organizations for their fundraising expenses. Applying these averages to the $1.69 trillion total revenue and the $241 billion in donations and allocating administration expenses uniformly across all functions of the organization, at least an additional $0.16 of each dollar donated is spent on administration expenses for fundraising. Taken together, fundraising and administration costs are in excess of $0.40 for each dollar donated. As a result, many nonprofit organizations struggle to raise the funds needed to support their missions. Common fundraising methods include special events such as walk-a-thons, running events, golf outings and gala fundraisers, as well as direct mail, telemarketing and personal solicitations. Publicly available data from 11 of the largest health foundations that sponsor walk-a-thons, runs and similar athletic fundraising events indicates that these organizations raised an aggregate of over $900 million from such events during a recently reported annual period. Volunteers, often numbering in the thousands per event location, personally solicit friends, family and co-workers for donations. It is difficult for employees of nonprofit organizations to track donations and collect important donor profile data. Direct mail campaigns involve significant upfront printing, mailing and labor costs. Additionally, donation rates for direct mail campaigns are typically low because their success depends heavily on the quality of the mailing lists and the persuasiveness of the campaign materials. A joint study by the Direct Marketing Association's Information Services Executive Council and its Nonprofit Federation, using data from a survey conducted between August and October of 2002, estimated the overall cost of direct mail fundraising to be 41% of revenues raised. Much of the data generated by traditional fundraising methods, including telephonic solicitations, direct mail, print publications and in-person meetings is manually entered into isolated databases, if it is stored at all. Many of the inefficiencies of nonprofit fundraising result from difficulties in collecting and sharing important data among the nonprofit organization's employees, volunteers and donors. In an effort to improve the effectiveness of their fundraising campaigns, nonprofit organizations are seeking new means to coordinate the efforts of their employees and volunteers and improve the data sharing capabilities of their employees, volunteers and donors. Fundraising Success Depends on Organizing, Motivating and Rewarding Volunteers and Donors The success of a nonprofit organization's fundraising campaign depends principally on the efforts and support of employees, volunteers and donors who share a commitment to a unifying cause or belief. One of the most significant challenges facing a nonprofit organization's employees is the need to organize, motivate and reward volunteers and donors. Volunteers donate their time, reputation and money to assist a nonprofit organization, and effectively serve as a large, widespread sales force. Coordinating this sales force requires frequent and effective communication among the nonprofit organization's employees and volunteers. Identifying potential donors and communicating a message that results in a donation is often an intimidating, frustrating and time-consuming task. Employees are seeking better ways to arm volunteers with the data and tools required to cultivate and reward donors. Because volunteers often derive satisfaction DILUTION The pro forma net tangible book value per share of our common stock will be substantially below an assumed public offering price of $9.80. Our pro forma net tangible book value as of June 30, 2004 (after giving effect to the sale of 2,500,000 shares of our common stock on July 20, 2004 for net proceeds of $18.6 million) was approximately $49.8 million, or approximately $1.80 per share. Pro forma net tangible book value per share represents our total net tangible assets as of June 30, 2004 (after giving effect to the receipt of $18.6 million from the sale of our common stock on July 20, 2004), divided by the number of shares of our common stock outstanding at June 30, 2004 plus 2,500,000 shares of common stock sold on July 20, 2004. Dilution in pro forma net tangible book value per share represents the difference between the amount per share of our common stock that you pay and the pro forma net tangible book value per share of our common stock immediately afterwards. Assuming an offering price of $9.80, you will incur immediate and substantial dilution of $8.00 per share. The actual prices at which the selling stockholders may sell shares of our common stock will vary from time to time. Therefore, the actual amount of dilution that you will experience, if any, will depend upon the price at the time of your purchase. The following table illustrates this dilution per share: Assumed offering price per share $ 9.80 Pro forma net tangible book value per share as of June 30, 2004 $ 1.80 from helping others and advancing a cause, timely progress reports and expressions of gratitude can provide powerful motivation. Empowering volunteers with robust data and continuous feedback can increase the effectiveness and commitment of a nonprofit organization's volunteer fundraising force and help the organization meet its fundraising needs. Nonprofit organizations are also continually seeking ways to strengthen ties with existing donors and prospective donors. Creating a deeper sense of affinity between a nonprofit organization and a donor can elevate an initial transaction to a lasting commitment. We believe that donors who receive targeted, personalized messages and information in recognition of their contributions are more likely to develop a deeper commitment to an organization and its cause. The organization can strengthen its ties with donors by inviting them to special events, providing them with special services or benefits, involving them in community activities and communicating the organization's progress. Donors who have established an affinity with a cause are critical assets of a nonprofit organization, and we believe these donors are more likely to contribute larger amounts with increased frequency in the future. Nonprofit Organizations are Looking to the Internet for Better Tools Nonprofit organizations are showing increasing interest in using Internet tools to improve their communication and fundraising efforts. Online giving, though currently a small part of total donations, is growing rapidly. Based on research we conducted, we estimate total online giving exceeded $1.0 billion in 2002. Until recently nonprofit organizations typically used the website as an online brochure, outlining their mission and services but providing little ability for employees, volunteers and donors to interact using the Internet. Although some nonprofit organizations experimented with "donate here" buttons, few made a real effort to use the Internet as a primary fundraising tool. Typically, these websites did not allow organizations to build digital relationships with volunteers and donors by collecting emails, distributing e-newsletters, soliciting funds, managing volunteers or providing online registration for events, activities, courses and other services. The failure of nonprofit organizations to use the Internet effectively for fundraising comes largely from a lack of coordinated collection and use of data. Standard software tools generally offer solutions for a single purpose such as email or web publishing, but they often fail as fundraising tools because they are not integrated into the nonprofit organization's database, workflow or community building activities. Current multi vendor solutions are not linked to a unified database, resulting in multiple databases that can be difficult to manage. This hinders the execution of effective marketing and community building programs and the development of useful records on the activities of volunteers and donors. Moreover, building custom software tools can carry high implementation and maintenance costs. The Kintera Solution Our solution addresses the challenges facing nonprofit organizations by providing them with tools that coordinate and motivate volunteers, and empower volunteers with valuable data and content that enables more targeted and effective donor solicitations. Kintera Sphere is optimized to meet the workflow requirements of nonprofit organizations. Our software organizes data gathered in the donor cultivation and fundraising processes, disseminates this data throughout the organization and simplifies important activities such as making donations and processing payments. This software is built on a unified database and comprehensive payment processing system to provide customers with scalable, reliable and secure services. Our customers access Kintera Sphere through a web browser and pay for access to our software through a combination of upfront and monthly service fees and transaction based fees under contracts that are typically more than one year in duration. We believe this software-as-a-service model offers our customers significant features and benefits at an attractive price with flexible payment options. Dilution per share to you $ 8.00 Kintera Sphere Improves the Effectiveness of Employees, Motivates Volunteers and Engages Donors Solutions for Employees. Kintera Sphere combines a comprehensive database with a suite of software tools to help employees manage their organization's relationships with volunteers and donors. In each step of the fundraising process, our software enables nonprofit organizations to collect important data, including contact information, demographic profiles and donation history. Employees can access this data quickly and easily and can communicate timely information to both volunteers and donors. For example, an employee can provide a volunteer with a potential donor's complete giving history to help the volunteer solicit a donation. The employee can cause a congratulatory email to be sent automatically moments after the donation is processed on a website using Kintera Sphere. Similarly, employees are able to communicate directly with donors to invite them to special events, update them regarding a particular cause or remind them of upcoming community activities. This type of real-time feedback and communication increases the affinity of volunteers and donors with the nonprofit organization's cause and helps ensure fundraising success. Solutions for Volunteers. Kintera Sphere provides volunteers with the tools and data they need to succeed in fundraising. Nonprofit organizations use our communication and database tools to provide volunteers with information that helps them identify and cultivate donors. Using targeted email solicitations, volunteers can direct potential donors to personalized websites created with our content management tools. Kintera Sphere tracks the number of email solicitations sent, website visits, donations received and other key information. The ability of volunteers to track their progress towards a fundraising goal is a powerful motivational tool, and nonprofit organizations can more effectively manage volunteers' fundraising effectiveness during the course of a campaign. Each of these tools is designed with an intuitive user interface, making it easy for volunteers to replace in person or paper driven solicitation methods. Solutions for Donors. Kintera Sphere simplifies the process of making a donation and collects data on donors that can be used to increase their involvement in a nonprofit organization's community. Donors can make convenient, secure online donations by accessing the nonprofit organization's website or a volunteer's web page and selecting one of several common electronic payment methods. A timely email thanking the donor and providing a tax receipt reinforces the donor's connection with the cause. Based on information collected during the cultivation or donation process, donors receive information tailored to their interests regarding special events, membership programs or other community activities. Nonprofit Organizations Use Kintera's Online Solutions to Increase Donations Customers implement Kintera Sphere to increase donations by improving the effectiveness of their fundraising efforts. Our software solution enables nonprofit organizations to use the most powerful aspects of the Internet for fundraising, by creating vibrant online communities of employees, volunteers and donors. We believe there are a number of reasons that online communities help nonprofit organizations increase donations, including: access to a unified database enables employees and volunteers to better target potential donors and communicate personalized fundraising messages; volunteers can solicit many more friends, family and co-workers using their email address books and our email tools than they can using traditional offline methods; personalized websites, email solicitations and other personalized messages help create greater affinity between potential donors and the cause they are asked to support; our online donation tools are easy to use, encouraging donors to give at the time of solicitation and at a moment when they are emotionally connected to the cause; and timely recognition and feedback, such as thanks and progress reports, motivate volunteers and encourage repeat gifts from donors. Because our software tools are designed specifically for use by nonprofit organizations, our customers are able to easily integrate Kintera Sphere into their existing workflow and processes. This ease of integration enables nonprofit organizations to establish online giving as a new source of donations that adds to existing fundraising efforts. Our Software-as-a-Service Model Reduces Fundraising Costs By offering our software as a service, we provide a flexible solution that meets the needs of our customers and minimizes their implementation and maintenance costs. In exchange for a monthly service fee, our customers receive access to Kintera Sphere's specialized nonprofit applications via the Internet. Customers can reduce their upfront implementation costs and match the cost of our services with their event donations by paying for our service, in part, with transaction based fees. Because we host and manage our software, customers can reduce or eliminate the difficulty and expense of software and hardware installations, upgrades and technical support. Kintera Sphere's frequent product updates are available automatically when customers access our software, and we provide troubleshooting, customer support and training. Kintera Sphere is cost-effective for our customers because it is a shared, multi customer software service. We maintain our software, hardware and transaction processing in redundant but centralized locations. By sharing the costs of our infrastructure and support, customers receive more favorable rates than would be possible if we provided packaged software or customized, individually hosted solutions. We believe that under this model we automate many of the more time-consuming services of a nonprofit organization's information technology department. We offer an outsourced solution for critical but expensive needs such as security, redundancy and scale as well as provide 24/7 support for employees, volunteers and donors. Scalable Transaction Engine Improves and Simplifies Payment Processing Kintera Sphere incorporates an integrated transaction processing engine that enables donors to make donations and purchases through simple secure online transactions. Kintera accepts all major credit cards, PayPal, the Automated Clearing House network (ACH) and numerous currencies. When a donor makes a donation or purchase on a website powered by Kintera Sphere, we typically collect the payment and related information, clear the transaction, provide a receipt to the donor and remit the funds to the nonprofit organization net of any credit card or other payment method fees and a Kintera transaction fee. Donor data generated from online transactions is automatically integrated into the nonprofit organization's database using our contact management tools. Because we process a significant volume of transactions, we are typically able to secure lower credit card transaction fees and more enhanced account services for our clients than would be possible for them on a stand alone basis. Our payment processing services also include 24/7 access to financial networks, collection of donations paid by check to lock boxes, account reconciliation, multiple layers of security and database management. These services are complex to establish and expensive to maintain, particularly for smaller nonprofit organizations or local branches of large organizations that experience lower or intermittent transaction volumes. Powerful Database Software Enhances Data Analysis, Collection and Management Prior to implementing Kintera Sphere, many of our customers maintained multiple isolated databases that supported a range of fundraising and other activities. These separate databases make data collection and analysis difficult. Kintera Sphere enables automated data collection through volunteer and donor data entry and real-time tracking of their activities, eliminating cumbersome and SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) The consolidated statements of operations data for the years ended December 31, 2001, 2002 and 2003, and the consolidated balance sheet data as of December 31, 2002 and 2003, are derived from our audited consolidated financial statements which have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, and are included elsewhere in this prospectus. The selected consolidated statement of operation for the period from February 8, 2000 (inception) to December 31, 2000, and the consolidated balance sheet data as of December 31, 2000 are derived from the audited financial statements which are not included in this prospectus. Historical results are not indicative of future results. The selected consolidated statements of operations data for the six month periods ended June 30, 2003 and 2004 and the selected consolidated balance sheet data as of June 30, 2004, have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements include, in the opinion of management, all adjustments that management considers necessary for the fair presentation of the financial information set forth in those statements. The selected financial data set forth below contains only a portion of Kintera's financial statements, and should be read in conjunction with the financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. In particular, see Note 1 to our financial statements for the year ended December 31, 2003 and the six months ended June 30, 2004 for an explanation of the calculations of earnings per share and per share amounts. Period from February 8, 2000 (inception) to December 31, 2000 inaccurate manual processes. Kintera Sphere aggregates the collected data in a sophisticated, comprehensive database. Using our reporting tools, nonprofit organizations and their volunteers are able to access the database for fundraising and other activities that support the organization's cause. Because data collected by Kintera Sphere is stored in a central database, we believe our customers are able to more effectively analyze the success of their fundraising operations, and active campaigns can be monitored and managed on a day-to-day basis. Kintera Sphere Kintera Sphere provides a suite of software tools that helps nonprofit organizations use the Internet to enhance their fundraising efforts and community building initiatives. Kintera Sphere's software system easily integrates with most existing email programs and other applications used by nonprofit organizations. Overall online donations using Kintera Sphere have increased dramatically from 2002 to 2003. Our total online donations processed have grown from $27.0 million for the twelve months ended June 30, 2003 to $70.9 million for the twelve months ended June 30, 2004. Kintera Sphere's Features Include Content Management, Contact Management, Communication, Reporting, Commerce and Community Content Management. Kintera Sphere's content management tools enable nonprofit organizations to create and manage websites optimized for community building and fundraising. Organizations can add new functionality to an existing website while maintaining the site's "look and feel" or they can create new, customized websites that meet their specific needs. These websites are integrated with our Kintera Sphere database, enabling nonprofit organizations to personalize content viewed by users. Content can be segmented based on a range of criteria, including previous usage patterns, user requests, demographic profiles and prior donation history to increase the donor's affinity with the nonprofit organization and its cause. Kintera Sphere also enables volunteers and donors to create personalized content, receive progress reports and obtain continuously updated information on their web pages. Volunteers and donors return to websites repeatedly to see who donated and how much, and to track volunteers' progress towards fundraising goals. We believe the use of personalized web pages, particularly in conjunction with our market segment tracking, creates effective content based communities. Contact Management. Nonprofit organizations use our contact management tools to track the activities of and manage communications with their volunteers, prospects and donors. We provide a comprehensive set of customer relationship management tools that build user profiles by tracking content viewing and preferences, website usage patterns, event attendance and transactional activities. Our contact management tools enable nonprofit organizations to: send targeted email messages with links to customized web pages to specific groups within their databases; integrate email campaigns with direct mail and other fundraising methods; effectively manage their contact databases; monitor gift history and communications; monitor email receipt and click through rates; monitor all communications or meetings; deliver information on upcoming events; Six Months Ended June 30, deliver highly targeted and personalized content; and research their databases to evaluate key traits about their donors. Communication. Our communications tools enable nonprofit organizations and their volunteers to improve the efficiency and impact of their communications. We automate and simplify many of the tasks required to manage enterprise-wide or individual email campaigns. Users are able to query and sort large address book files, select people they would like to contact or solicit, send recipients personalized email and track responses. When a donor makes a gift, our tools automatically generate and send a thank you email and tax receipt to the donor and notify the volunteer that a gift has been made. We have developed specific tools for managing the preparation, targeting and distribution of electronic newsletters, an important tool for keeping volunteers and donors engaged in an organization's cause. We also provide tools that manage high volume email distributions that often strain customers' technology and bandwidth resources. Reporting. Using our integrated software platform, nonprofit organizations can access an online reporting system that delivers extensive, real-time information such as account information status, website visitation metrics, member profiles and donation data. Using intuitive interfaces, nonprofit organizations can generate a variety of standard and customized reports on individual donors and campaigns or on a composite of donors or campaigns. Kintera Sphere can also export data for extensive analytics, and we provide benchmarking data as part of our service. Commerce. Our commerce applications enable nonprofit organizations to capture additional value from their members, volunteers and donors. Our software can be used to collect donations, sell products and services, run online stores, provide membership and benefit centers, manage event registration and offer tribute cards. Community. Our community tools coordinate users' interaction with our content, communication, database and other tools. When a user logs on to a website using Kintera, that user's role or status in the organization determines which data, tools, features and content they are able to access. Community tools also track the activity of employees, volunteers and donors. Information regarding activities such as online transactions, email usage and content viewing are stored in the Kintera Sphere database, allowing our customers to effectively manage the workflow of their nonprofit organizations. How Nonprofit Organizations Use Kintera Sphere Nonprofit organizations use Kintera Sphere tools to manage special events, organize individuals, advocate causes, raise major gifts, deliver services and programs and execute personalized direct marketing campaigns. Special Events and Advocacy Special Events. Many of our customers use Kintera Sphere to manage and improve the effectiveness of fundraising events such as walk-a-thons, running events, golf outings and gala fundraisers. To launch an event using Kintera Sphere, nonprofit organizations typically begin by using our content management tools to build a comprehensive website dedicated to the event. This website is managed using our software and is integrated with the Kintera Sphere database. Using the Internet, volunteers participating in the event access our software tools to build personal or team websites. These websites serve as a personal intranet for each volunteer and are their primary tool for soliciting donations, tracking funds raised and monitoring progress to goal. Our Friends Asking Friends solicitation program bundles a number of Kintera Sphere's most important tools to make it easier for volunteers to use the Internet to raise money. Volunteers can add or import their contacts Year Ended December 31, Advocacy. Nonprofit organizations focused on advocacy can use the same tools to increase awareness of their causes and influence public opinion. Kintera Sphere provides online tools to allow these volunteers to reach out to key elected officials, voice their opinion, track progress and organize supporters to attend an event. Individuals can find elected officials in their area and send cause oriented emails or faxes using our advocacy tools. Major Gifts Through the use of Kintera Volunteer Interactive Pyramid, or Kintera VIP, nonprofit organizations can enhance the management and therefore effectiveness of their major gift officers and their volunteers. Kintera VIP automates the existing phone and paper based solicitation practices of major gift campaigns and eliminates many inherent redundancies and inefficiencies in the current manual processes. Campaign managers use Kintera VIP to interact with and monitor the performance of employees and volunteers. The campaign manager will typically distribute a list of donor prospects to volunteers through password protected websites, who can then request which of the potential donors they want to pursue. Volunteers can quickly and easily communicate this information back to the campaign manager by completing web based forms and entering the data into a shared database. The campaign manager selects the best employee or volunteer for particular prospects and provides additional information to the employee or volunteers about their specific prospects to enhance the solicitors' knowledge about the prospect. Kintera VIP provides easy to use web-based tools for the employees and volunteers to report the status of their efforts with each potential donor to the campaign manager and other employees and volunteers involved in the campaign. Based on these status reports, employees and volunteers receive regular email communications from the campaign manager providing links back to the campaign website for additional data about the progress of the campaign. This data and real-time feedback educates and motivates the employees and volunteers, and provides for updated interactions with prospects. Services and Programs Through the use of Kintera Sphere, nonprofit organizations can provide their members and volunteers with services, information, exclusive benefits and networking opportunities. These organizations can use Kintera Sphere's contact management tools to enable members and volunteers to build relationships and communicate with one another online. Using Kintera Sphere's content management tools, a nonprofit organization can deliver personalized content to viewers based on membership level, type of content viewed on prior visits to the website, log-in information and other criteria. These websites can also include a member calendar, member benefits including discounts at the online store, continuing education course registration, credit tracking and certification processing, interactive jobsites with resume posting functions, collaborative document sharing and other networking areas. Personalized and Targeted Direct Marketing Campaigns Kintera Sphere enables nonprofit organizations to strategically integrate existing direct mail, telemarketing and communications programs with their email and website to maximize fundraising effectiveness. Kintera Sphere's communication and contact management tools enable nonprofit organizations and their volunteers to effectively manage email campaigns and publish e-newsletters using personalization and market segmentation. Key content in an email or web page can be tagged, allowing organizations to track content viewed and build a profile of their interests. Future content delivered to the consumer can be based on these prior identified areas of interest. Alternatively, consumers can select areas of interest. This information is stored in their contact record to define future content delivered to them. By designing effective communications, nonprofit organizations can acquire and renew donors or members and minimize fundraising costs. In addition, by using Kintera Sphere for their direct marketing campaigns, nonprofit organizations can analyze the results of such campaigns to learn about the behavior and interests of their donors and improve the effectiveness of future campaigns. Stock-based compensation includes the following: Sales and marketing $ 1,447 $ 507 Product development and support 393 341 General and administrative 443 Strategic Relationships Our strategic relationships are an important part of both our sales and marketing strategies. We have established relationships with a variety of businesses serving the nonprofit industry in order to increase awareness of our solutions and increase our access to decision makers within nonprofit organizations. We believe these relationships enable us and our partners to deliver comprehensive services and resources to our target customers. We have also established relationships with a number of consulting firms who focus on the nonprofit industry. For example, we recently entered into a strategic relationship with Marts & Lundy, a national consulting firm focused on prominent organizations within the nonprofit industry, under which we will jointly service nonprofit organizations who are engaged in major gift campaigns. These consultants are typically retained by nonprofit organizations to evaluate, create, implement and manage fundraising campaigns. Using Kintera Sphere in these engagements enables our partners to more effectively implement and manage projects from grassroots fundraising to major gifts and capital campaigns. Moreover, successful engagements with these consulting firms can result in our ability to achieve ongoing customer relationships with the nonprofit organizations they serve. In addition, we have received contracts for technology grants and sponsorship funding from corporate sponsors, including VISA and MasterCard, and advertising inventory from media publications. Our relationships with VISA and MasterCard enable us to decrease the costs incurred by the nonprofit organization when moving to our web based solution. We also work with financial services firms, such as private banking groups of major brokerage firms, to increase their clients' awareness of opportunities for using Kintera solutions to leverage their charitable giving. Customer Service Each of our clients is assigned an account manager who has experience with fundraising, donor management and Internet marketing for nonprofit organizations. Account managers work with our customers to launch the online component of each initiative, implement email campaigns and encourage the use of other Kintera Sphere tools. As customer service representatives educate clients regarding the full range of Kintera Sphere services, they are often involved in upgrading these clients to larger, more comprehensive contracts. Our help desk and web-based support system are available to our customers on a 24/7 basis and are staffed with experienced technical support engineers. We utilize a customized software application for tracking support issues and a state of the art call routing technology to ensure timely responses to customer issues. Our training staff provides general purpose online continuing educational programs to our strategic partners and staff of our customers as well as customer specific online and in-person educational alternatives. Payment Processing Kintera Sphere offers payment processing capabilities that enable consumers to make donations and purchases using numerous payment options through secure online transactions. Credit card transactions are processed with automatic failover through redundant paths, including redundant frame relay lines to separate payment processors. In addition, an Internet gateway is available as an alternate backup mechanism to maintain transaction processing, and we have retained the capability to batch transactions for future processing in the event of backup failure. These layers of redundancy offer high levels of reliability for large scale online fundraising. We are able to process online checking transactions through ACH and are integrated with PayPal. We accept all major credit cards and numerous currencies, and provide the specific government required receipts to donors. Once the donor's credit card is charged for the amount of the donation and we have deducted fees owed to us by the customer, the net amount of the donation is delivered to the customer. Sales and Marketing We sell our software services primarily through our direct sales force, with sales professionals located at our headquarters in San Diego and in metropolitan areas throughout the United States. Our sales force consists of two teams, a team focused on smaller customers typically at a local level and a team focused on major accounts both locally and nationally. We intend to increase the headcount in both of these sales groups and to locate sales personnel in additional metropolitan areas. Our sales efforts for major accounts typically target large nationally recognized organizations. We deploy a multi disciplined sales team consisting of sales, technical and support professionals that can address all aspects of Kintera Sphere and its integration into a nonprofit organization's workflow and fundraising or service efforts. Our senior management also takes an active role in these sales efforts. To enhance our opportunities for increased sales to major accounts, we often rely on references from existing customers or develop a pilot or custom demonstration. In selling to smaller customers, we typically target nonprofit organizations in need of an event solution or other point solution. This sales force makes extensive use of email and telemarketing to identify potential customers with such needs. In many cases, our small customers are independent chapters affiliated with larger nonprofit organizations. We believe the sale of event or point solutions is an extremely effective method for introducing Kintera Sphere to small customers who may develop into major accounts. Occasionally, this sales force sells more extensive solutions to smaller customers. As part of our growth strategy, we continually seek to expand small event contracts into large enterprise-wide contracts. The account managers are a critical part of this process. We complement our direct sales force through relationships with third parties, such as consultants, publishers, and financial service providers. We also maintain relationships with a number of complementary businesses focused on direct marketing, donor database management and integration, event production and planning, public relations and web development for nonprofit organizations. These businesses use Kintera Sphere to enhance the quality and range of the services they provide to nonprofit organizations while remaining focused on their core strengths. For example, web developers can use our content management system to quickly develop websites for nonprofit organizations without relying on expensive, individually hosted content management systems designed for other industries. As a result, these web developers can focus more of their resources on qualitative and customer specific issues. We typically provide compensation to these third parties in the form of commissions based upon the revenues that they generate. To support our sales efforts and to increase awareness of Kintera, we conduct various marketing programs aimed at nonprofit organizations. We also leverage Masterplanner, our comprehensive print and online calendar are available in several cities for planning, attending or providing services for fundraising, corporate and social events. Masterplanner subscribers receive publications listing the upcoming year of events, openings, and major events and online access to Masterplanner's searchable daily updated database and historical event archives. In cities where Masterplanner is not available, we provide online tools to allow event planners to publish their events in an online calendar in partnership with many local print publications to generate leads for Kintera. We also engage in public relations, print advertisements, online advertisements, trade shows, speaking engagements and ongoing customer communications. Customers Since launching our services in the first quarter of 2001, we have signed contracts to provide Kintera Sphere with over 500 nonprofit organizations. Our customers include both national and local health organizations, educational institutions, religious institutions, professional associations, political organizations, civic organizations and other charities, at both a local and national level, many of which have hundreds of chapters or divisions. A small group of nonprofit organizations in each fiscal period generally accounts for a large portion of our revenues. The significance of a particular customer or group of customers in a given period will depend on the nature and size of their fundraising events in that period as well as the scope of their use of Kintera Sphere. In the six months ended June 30, 2004, our 10 largest customers accounted for approximately 30% of our total revenues. In particular, American Heart Association accounted for 13% of our net revenues for the six months ended June 30, 2003. Competition The market for our products and services is fragmented, competitive and rapidly evolving, and there are limited barriers to entry for some aspects of this market. As a result, we expect to encounter new and evolving competition as this market becomes aware of the advantages of online communities for fundraising programs and services. We mainly face competition from four sources: traditional fundraising methods; custom developed solutions; companies that offer specialized software designed to address needs of businesses across a variety of industries; and companies that offer integrated software solutions designed to address the needs of nonprofit organizations. We compete with the traditional methods of fundraising and membership service delivery to which volunteers and staff of nonprofit organizations are accustomed. We believe we compete successfully against traditional methods of fundraising and membership service delivery because such methods are more costly and less efficient than our solutions. We also compete with custom developed solutions for online giving and other online communities created either by the technical staff of the nonprofit organization or outside custom service providers. In many cases, building a custom solution requires a nonprofit organization to deploy extensive financial and technical resources. Often, the legacy database and software system were not designed to support the advanced needs of the Internet and the legacy system ultimately does not meet the customers' needs. Also, because we sell our software as a service, we believe it provides a more flexible solution that meets the needs of customers and minimizes their upfront and ongoing costs and reduces the need for technical support at the nonprofit organization. We face competition from companies that offer specialized software designed to address the needs of businesses across a variety of industries, such as content or contact management software programs, e-commerce solutions and other products that compete with a portion of our unified service offerings. We believe that we compete successfully against these companies because Kintera Sphere provides highly innovative features that have been optimized for the workflow of nonprofit organizations and provide a fully unified, database driven system. Finally, there are other companies that offer integrated software solutions designed to address the needs of nonprofit organizations. We believe that we compete effectively against these companies due to our technically advanced product, our track record with leading nonprofit organizations and our reputation for being the innovator in the field. We believe that the principal competitive factors in our market include service features, integration, reliability, security, price, ease of use, installation, maintenance and upgrades. We believe that we compete favorably with respect to all of these factors. Facilities We lease approximately 20,000 square feet in San Diego, California, for our corporate headquarters and principal offices. We also lease space in Melrose Park, Pennsylvania, New York, New York, Eugene, Oregon, San Francisco, California, Washington, D.C., Daytona, Florida and Poolesville, Maryland. Employees As of June 30, 2004, we had 289 employees. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. Legal Proceedings From time to time, we may be involved in litigation relating to claims arising out of our operations. As of the date of this prospectus, we are not a party to any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results. (1)Member of audit committee. (2)Member of compensation committee. (3)Member of nominating and corporate governance committee. Harry E. Gruber, M.D., co-founded Kintera and has served as our President, Chief Executive Officer and Chairman of the Board of Directors since 2000. Prior to founding Kintera, Dr. Gruber co founded INTERVU Inc., a publicly held Internet video and audio delivery company, where he served as the Chief Executive Officer from 1995 to 2000, and which was acquired by Akamai Technologies, Inc. in 2000. In 1986, Dr. Gruber founded Gensia Pharmaceuticals, Inc. (now known as SICOR Inc. which was acquired by Teva Pharmaceutical Industries Ltd.) and served as the Vice President, Research of the publicly held biotechnology firm from its inception until 1995. Dr. Gruber was also the founder of two additional public companies: Aramed, Inc., a central nervous system drug discovery company, and Viagene, Inc., a gene therapy company, which was acquired by Chiron Corporation. After completing his training in Internal Medicine, Rheumatology and Biochemical Genetics, Dr. Gruber served on the faculty at the University of California, San Diego from 1977 until 1986. In addition to serving as Chairman of the Board of Directors of Kintera, Dr. Gruber currently is a member of the Board of Overseers of the School of Arts and Sciences of the University of Pennsylvania, a member of the University of Pennsylvania Medical School Medical Alumni Leadership Council, a board member of the San Diego Regional Chamber of Commerce Foundation, High Tech High, San Diego and an advisory board member of KPBS and previously served on the UCSD Foundation Board of Directors where he headed the development committee. He is the author of over 100 original scientific articles and an inventor of 33 issued and numerous pending patents. Dr. Gruber holds a B.A. and an M.D. from the University of Pennsylvania. Dennis N. Berman co-founded Kintera and has served as our Executive Vice President, Corporate Development and Vice Chairman of the Board of Directors since 2000. Prior to founding Kintera, Mr. Berman was Vice President of Corporate Development of INTERVU Inc. from 1999 to 2000, where he oversaw strategic alliances and financings. From 1978 to 1985, Mr. Berman was a law partner and law associate of Fred Adler, a New York City venture capitalist. He has represented technology companies, venture capitalists and underwriters in numerous public and private equity financings. In addition, he has represented national nonprofit organizations in numerous financings. Mr. Berman holds a B.A. from the University of Pennsylvania and a B.S. from The Wharton School at the University of Pennsylvania. Mr. Berman also holds a General Course Certificate from the London School of Economics and received his J.D. from Harvard Law School. Allen B. Gruber, M.D., co-founded Kintera and served as Kintera's initial President. Dr. Gruber has served as Executive Vice President, Operations and a director of Kintera since 2000. Prior to founding Kintera, Dr. Gruber was a practicing physician specializing in Neurology from 1989 to 1999. Dr. Gruber was also the initial seed investor in INTERVU Inc. and served as a member of its Board of Directors from 1995 until 1996. Dr. Gruber is board certified by the American Board of Neurology and Psychiatry (Neurology) and has served on the faculty of the University of Texas Health Science Center in San Antonio, Texas. Dr. Gruber worked with the Muscular Dystrophy Association as a Clinic Director and volunteer and has held various positions with hospitals and health insurance companies. He is on the Board of Directors of the National Multiple Sclerosis Society in San Diego, California and is a member of Institute of Electrical and Electronics Engineers and the American Academy of Neurology. Dr. Gruber holds a B.A. from the University of Pennsylvania and received his M.D. from the University of Pennsylvania. James A. Rotherham, C.P.A., joined Kintera as Chief Financial Officer in 2001. Prior to joining Kintera, Mr. Rotherham was Chief Financial Officer of Copiers Now, Inc. from 2000 until 2001. Mr. Rotherham was Chief Financial Officer of Epidemic Marketing, Inc. from 1999 to 2000. Mr. Rotherham was employed by the accounting firm Ernst & Young LLP from 1986 until 1999, where he worked extensively with venture capital backed companies and public companies in the Internet, software, telecommunications and biotechnology industries. As a Senior Manager at Ernst & Young, Mr. Rotherham worked on numerous public offerings of securities and assisted Ernst & Young's local nonprofit clients. Mr. Rotherham holds a B.S. from The Wharton School at the University of Pennsylvania. Hector Garcia Molina, Ph.D., joined Kintera as a member of our Technical Advisory Board and has served as a Director since September 2003. Dr. Garcia Molina has been the Leonard Bosack and Sandra Lerner Professor in the Departments of Computer Science and Electrical Engineering at Stanford University since October 1995 and has served as Chairman of the Department of Computer Science since January 2001. He has been a professor at Stanford University since January 1992. From August 1994 until December 1997, he was the Director of the Computer Systems Laboratory at Stanford University. Dr. Garcia Molina also serves on the board of directors of Oracle Corporation. Dr. Garcia Molina holds a B.S. in Electrical Engineering from the Instituto Tecnologico de Monterrey, Mexico, and received his M.S. in Electrical Engineering and Ph.D. in Computer Science from Stanford University. Alfred R. Berkeley III joined Kintera as a Director in September 2003. Mr. Berkeley was appointed Vice Chairman of the NASDAQ Stock Market, Inc. in July 2000 and served through July 2003. Mr. Berkeley had served as President of NASDAQ from 1996 until 2000. From 1972 to 1996, Mr. Berkeley served in a number of capacities at Alex. Brown & Sons, Inc. Most recently, he was Managing Director and Senior Banker in the corporate finance department where he financed computer software and electronic commerce companies. Mr. Berkeley joined Alex. Brown & Sons, Inc. as a research analyst in 1972 and became a general partner in 1983. From 1985 to 1987, he served as Head of Information Services for the firm. Mr. Berkeley served as a Captain in the United States Air Force from 1968 to 1972. Mr. Berkeley holds a B.A. from the University of Virginia and received his M.B.A. from The Wharton School at the University of Pennsylvania. Philip Heasley joined Kintera as a Director in September 2003. From 2000 until 2003, Mr. Heasley served as Chairman and Chief Executive Officer of First USA Bank, the credit card subsidiary of Bank One Corp. Prior to joining First USA, Mr. Heasley spent 13 years in executive positions at U.S. Bancorp, including six years as Vice Chairman and the last two years as President and Chief Operating Officer. Before joining U.S. Bancorp, Mr. Heasley spent 13 years at Citicorp, including three years as President and Chief Operating Officer of Diners Club, Inc. Mr. Heasley served as Chairman of the Board of Visa USA from 1996 until November 2003 and was a member of the Board of Visa International during the same period. Mr. Heasley also serves as a director of Fidelity National Financial, Inc., Ohio Casualty Corporation, Fair Isaac Corporation and Public Radio International. Mr. Heasley holds a B.A. from Marist College and an M.B.A. from Bernard Baruch Graduate School of Business. Deborah D. Rieman, Ph.D., joined Kintera as a Director in September 2003. Dr. Rieman currently manages a private investment fund. From July 1995 to December 1999, Dr. Rieman was the President and Chief Executive Officer of CheckPoint Software Technologies, Inc., an Internet security software company. Prior to joining CheckPoint, Dr. Rieman held various executive and marketing positions with Adobe Systems Inc., a computer software company, Sun Microsystems Inc., a computer networking company, and Xerox Corporation, a diversified electronics manufacturer. Dr. Rieman also serves as a director of Altera Corp., Corning Inc., Keynote Systems, Inc., and Tumbleweed Communications Corporation and Switch and Data Facilities Corp., a privately held company. Dr. Rieman holds a B.A. from Sarah Lawrence College and received her Ph.D. in mathematics from Columbia University. Robert J. Korzeniewski, C.P.A., joined Kintera as a Director in September 2003. Mr. Korzeniewski currently serves as Executive Vice President, Corporate and Business Development of VeriSign, Inc., a position he has held since June 2000. From 1996 until 2000, Mr. Korzeniewski served as Chief Financial Officer of Network Solutions, Inc. Prior to joining Network Solutions, Mr. Korzeniewski held various senior financial positions at SAIC from 1987 until 1996. Mr. Korzeniewski also serves as a Director of Talk America Holdings Inc. Mr. Korzeniewski holds a B.S. from Salem State College. Board of Directors We have a classified board of directors consisting of three Class I directors (Alfred R. Berkeley III, Dennis N. Berman and Philip Heasley), three Class II directors (Allen B. Gruber, M.D., Robert Korzeniewski and Deborah D. Rieman, Ph.D.) and two Class III directors (Hector Garcia Molina, Ph.D. and Harry E. Gruber, M.D.) who will serve until the annual meetings of stockholders to be held in 2004, 2005 and 2006, respectively, and until their respective successors are duly elected and qualified. Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which such term expires. Each director's term is subject to the election and qualification of his successor, or his earlier death, resignation or removal. Two of our directors, Harry E. Gruber, M.D., and Allen B. Gruber, M.D., are brothers. There are no other family relationships among any of our directors and executive officers. Board Committees Our board of directors has established three standing committees: an audit committee; a compensation committee; and a nominating and corporate governance committee. Audit Committee. Each of the members of the Audit Committee is independent for purposes of the Nasdaq rules as they apply to audit committee members. Mr. Korzeniewski is an audit committee financial expert, as defined in the rules of the Securities and Exchange Commission ("SEC"). The audit committee oversees, reviews and evaluates our financial statements, accounting and financial reporting processes, internal control functions and the audits of our financial statements. The audit committee is responsible for the appointment, compensation, retention and oversight of our independent auditors. The members of our audit committee are Alfred R. Berkeley III, Philip Heasley, and Robert J. Korzeniewski. Compensation Committee. The compensation committee reviews and makes recommendations to our board of directors concerning the compensation and benefits of our executive officers and directors, administers our stock option and employee benefits plans, and reviews general policy relating to compensation and benefits. The members of our compensation committee are Hector Garcia Molina, Ph.D., Robert J. Korzeniewski and Deborah D. Rieman, Ph.D. Nominating and Corporate Governance Committee. The nominating and corporate governance committee identifies prospective board candidates, recommends nominees for election to our board of directors, develops and recommends board member selection criteria, considers committee member qualification, recommends corporate governance principles to the board of directors, and provides oversight in the evaluation of the board of directors and each committee. The members of our nominating and corporate governance committee are Alfred R. Berkeley III, Hector Garcia Molina, Ph.D., Deborah D. Rieman, Ph.D., and Philip Heasley. Compensation Committee Interlocks and Insider Participation None of the members of the compensation committee is or has ever been one of our officers or employees. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other entity, nor has any interlocking relationship existed in the past. For information concerning transactions between us and Hector Garcia Molina, Ph.D., Robert J. Korzeniewski and Deborah D. Rieman, Ph.D., or their affiliates, see "Related Party Transactions." Compensation of Directors Each of our non-employee directors is paid a stipend of $1,000 per month and is reimbursed for reasonable expenses incurred in connection with attending board and committee meetings. Upon their election to our board of directors, each of our non-employee directors is granted an initial option to purchase up to 50,000 shares of our common stock at the then fair market value pursuant to the terms of our 2003 Equity Incentive Plan. This option vests daily over four years and such vesting is conditioned upon continued status as one of our directors. In addition, each non-employee director is automatically granted an option to purchase up to 25,000 shares of our common stock if he or she remains on the board of directors on the date of each annual meeting of stockholders (unless he or she joined our board of directors within six months of such meeting). Such grants will vest ratably over four years. The options will become fully vested immediately prior to a change in control of our company. Our directors are also eligible for discretionary option grants under the terms of our 2003 Equity Incentive Plan. Limitations on Liability and Indemnification Matters Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act. As permitted by the Delaware General Corporation Law, our certificate of incorporation includes a provision that permits the elimination of personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability: for any breach of the director's duty of loyalty to us or our stockholders; for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; for unlawful payments of dividends or unlawful stock repurchases or redemptions, as provided under Section 174 of the Delaware General Corporation Law; or for any transaction from which the director derived an improper personal benefit. Such limitation of liability may not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. In addition and in accordance with the Delaware General Corporation Law, our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether indemnification would be permitted under the Delaware General Corporation Law. We have obtained liability insurance for our directors and officers. Our bylaws authorize us to indemnify our officers, directors, employees and agents to the fullest extent permitted by the Delaware General Corporation Law. Section 145 of the Delaware General Corporation Law empowers us to enter into indemnification agreements with our officers, directors, employees and agents. We have entered into separate indemnification agreements with our directors and executive officers to give such directors and executive officers additional contractual assurances regarding the scope of indemnification set forth in our certificate of incorporation and our bylaws and to provide additional procedural protections which may, in some cases, be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements may require us, among other things, to indemnify such directors and executive officers against liabilities that may arise by reason of status or service as directors or executive officers and to advance expenses they spend as a result of any proceeding against them as to which they could be indemnified. At present, there is no pending litigation or proceeding involving any of our directors, executive officers, other employees or agents for which indemnification is sought and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Executive Compensation The following table summarizes the compensation paid to or earned by our Chief Executive Officer and our other four most highly compensated executive officers whose total annual salary and bonus during the fiscal year ended December 31, 2003 exceeded $100,000. (1)This amount represents a contribution made by us to our 401(k) Plan on behalf of such officer. (2)Effective July 29, 2004, our Board of Directors determined that Ms. Chen was no longer an executive officer of Kintera. She continues to be our Executive Vice President, Engineering reporting to Allen Gruber, Executive Vice President and Director. (3)This amount represents $37,500 of a relocation loan forgiven during such fiscal year. Option Grants in Last Fiscal Year The following table sets forth certain information with respect to stock options granted to the individuals named in the Summary Compensation Table during the fiscal year ended December 31, 2003, including the potential realizable value over the ten-year term of the options, based on assumed rates of stock appreciation of 5% and 10%, compounded annually, minus the applicable per share exercise price. These assumed rates of appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of our future common stock price. There can be no assurance that any of the values in the table will be achieved. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock and overall stock market conditions. In the fiscal year ended December 31, 2003, we granted options to purchase up to an aggregate of 1,657,074 shares of our common stock to employees, directors and consultants. All options have a term Harry E. Gruber, M.D. Dennis N. Berman Jeane Chen, Ph.D. 75,000 $ 187,500 Allen B. Gruber, M.D. James A. Rotherham, C.P.A. 150,000 $ 1,660,000 Employment and Severance Arrangements None of our executive officers have any employment or severance arrangements. (unaudited) Current assets $ 1,052 $ 1,475 $ 199 Fixed assets 51 186 72 Intangible assets 2,372 327 417 Goodwill 1,480 479 100 Other assets 74 RELATED PARTY TRANSACTIONS Since our inception, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeds $60,000 and in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities or members of such person's immediate family had or will have a direct or indirect material interest other than the transactions described below. All future transactions between us and any of our directors, executive officers or related parties will be subject to the review and approval of our audit committee. Director Compensation Each of our non-employee directors is paid a stipend of $1,000 per month and is reimbursed for reasonable expenses incurred in connection with attending board and committee meetings. Upon their election to our board of directors, each of our non-employee directors is granted an initial option to purchase up to 50,000 shares of our common stock at the then fair market value pursuant to the terms of our 2003 Equity Incentive Plan. This option vests daily over four years and such vesting is conditioned upon continued status as one of our directors. In addition, each non-employee director is automatically granted an option to purchase up to 25,000 shares of our common stock if he or she remains on the board of directors on the date of each annual meeting of stockholders (unless he or she joined our board of directors within six months of such meeting). Such grants will vest ratably over four years. The options will become fully vested immediately prior to a change in control of our company. Our directors are also eligible for discretionary option grants under the terms of our 2003 Equity Incentive Plan. Indemnification Agreements We have entered into indemnification agreements with each of our executive officers and directors containing provisions that may require us to, among other things, indemnify those executive officers and directors against certain liabilities that may arise by reasons of their status or service as executive officers or directors. The agreements also provide for us to advance to the executive officers and directors expenses that they expect to incur as a result of any proceeding against them as to which they could be indemnified. We also intend to execute such agreements with our future executive officers and directors. Common Stock Issuances We were incorporated in February 2000. Since inception, we have issued an aggregate of 11,500,500 shares of our common stock to Harry E. Gruber, M.D., Dennis N. Berman and Allen B. Gruber, M.D., each an executive officer, director and holder of more than 5% of our capital stock, for an aggregate purchase price exceeding $60,000. Preferred Stock Issuances In October 2000, we sold in a private placement 624,997 shares of Series C preferred stock in exchange for an aggregate purchase price of $5,000,000 in cash. In connection with such offering, Harry E. Gruber & Joan D. Cunningham TR. DTD. 7/12/88 purchased 12,500 shares of Series C preferred stock. Harry E. Gruber, M.D., one of the trustees thereof, is our Chief Executive Officer and one of our directors, and Joan Cunningham, one of the trustees thereof, is the wife of Harry E. Gruber, M.D. From March through September 2003, we sold in a private placement 549,926 shares of Series G preferred stock in exchange for an aggregate purchase price of $5,499,260 in cash. In connection with such offering, the Gruber Living Trust, Family Share, Jean Gruber, Trustee, purchased 10,000 shares of Series G preferred stock. Jean Gruber, the mother of Harry E. Gruber, M.D., and Allen B. Gruber, Operating activities: Net loss $ (8,909 ) $ (4,654 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debt expense 79 72 Depreciation 465 284 Amortization of software development costs 33 Amortization of intangible assets 478 230 Forgiveness of employee note 2 18 Interest expense associated with issuance of warrant 55 Stock-based compensation expense 127 21 Amortization of deferred compensation 2,186 859 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 1,731 (821 ) Prepaid expenses and other current assets (139 ) (22 ) Accounts payable and accrued expenses (1,864 ) 304 Accrued salaries and employee benefits (508 ) (26 ) Donations payable to customers 183 Customer deposits (958 ) Deferred revenue 592 773 Notes payable (160 ) Deferred rent Harry E. Gruber, M.D. 52 President, Chief Executive Officer and Chairman of the Board of Directors Dennis N. Berman 53 Executive Vice President, Corporate Development and Vice Chairman of the Board of Directors Allen B. Gruber, M.D. 47 Executive Vice President, Operations and Director James A. Rotherham, C.P.A. 39 Chief Financial Officer Hector Garcia Molina, Ph.D.(2)(3) 50 Director Alfred R. Berkeley III(1)(3) 59 Director Philip Heasley(1)(3) 54 Director Deborah D. Rieman, Ph.D.(2)(3) 54 Director Robert J. Korzeniewski, C.P.A.(1)(2) M.D., each of whom is one of our directors and executive officers, is the trustee of the Gruber Living Trust, Family Share, Jean Gruber, Trustee. In addition, in connection with such offering, Harry E. Gruber & Joan D. Cunningham TR. DTD. 7/12/88 purchased 100,000 shares of Series G preferred stock. Harry E. Gruber, M.D., one of the trustees thereof, is our Chief Executive Officer and one of our directors, and Joan Cunningham, one of the trustees thereof, is the wife of Harry E. Gruber, M.D. Services In December 2003, we provided services to Dot Org Foundation, a related party and recognized $475,000 in revenue relating to the services provided. This revenue was from a single customer and was classified as related party revenue as a member of the executive management of the customer is a family relative of certain of our executive officers. Stock Option Grants Certain stock option grants to our directors and executive officers are described in this prospectus under the captions "Management Compensation of Directors" and "Management Option Grants in Last Fiscal Year." On July 29, 2004, we granted stock options under our 2003 Equity Incentive Plan to Harry E. Gruber, M.D., our President, Chief Executive Officer and Chairman of the Board of Directors, Dennis N. Berman, our Executive Vice President, Corporate Development and Vice Chairman of the Board of Directors, Allen B. Gruber, M.D., our Executive Vice President, Operations and Director, and James A. Rotherham, C.P.A., our Chief Financial Officer, which are exercisable into 200,000 shares, 200,000 shares, 200,000 shares and 150,000 shares of our common stock, respectively. Each of the foregoing stock options has an exercise price of $7.70 and vests over four years, with one-quarter of the stock option vesting upon the first anniversary of the grant date and the remainder of the stock option vesting on a daily basis over the remaining three years. 5% Stockholder: Wasatch Advisors, Inc.(2) 150 Social Hall Avenue Suite 400 Salt Lake City, UT 84111 4,096,734 14.1 % 1,375,000 2,721,734 9.3 % Executive Officers: Harry E. Gruber, M.D.(3) 4,170,000 14.6 % 4,170,000 14.6 % Allen B. Gruber, M.D. 3,600,500 12.6 % 3,600,500 12.6 % Dennis N. Berman(4) 3,327,850 11.6 % 3,327,850 11.6 % Jeane Chen, Ph.D.(5) 526,971 1.8 % 526,971 1.8 % James A. Rotherham, C.P.A.(6) 153,285 * 153,285 * Directors: Hector Garcia Molina, Ph.D.(7) 60,000 * 60,000 * Alfred R. Berkeley III(8) 50,000 * 50,000 * Deborah D. Rieman, Ph.D. 50,000 * 50,000 * Robert J. Korzeniewski, C.P.A.(9) 52,000 * 52,000 * Philip Heasley(10) 50,000 * 50,000 * Executive officers and directors as a group (9 persons): 11,513,635 40.2 % 11,513,635 40.2 % Other Selling Stockholders:(11) Apex Capital, LLC(12) 25 Orinda Way Suite 300 Orinda, CA 94563 Zaxis Offshore Limited 378,100 1.3 % 166,000 212,100 * Permal U.S. Opportunities Limited 313,300 1.1 % 139,500 173,800 * Zaxis Partners, L.P. 115,000 * 50,500 64,500 * Zaxis Institutional Partners, L.P. 88,600 * 38,600 50,000 * Zaxis Equity Neutral, L.P. 57,600 * 25,600 32,000 * Zaxis Institutional Offshore 48,500 * 21,500 27,000 * Guggenheim Portfolio Company XIII, LLC 46,300 * 20,100 26,200 * Barclays Equity Hedge Fund IV 22,500 * 9,900 12,600 * Peter W. Branagh and Ramona Y. Branagh, Trustees of the Branagh Revocable Trust 2,000 * 2,000 * Pollat, Evans & Co. 3,100 * 1,300 1,800 * Charles H. Finnie 128 Alvarado Rd. Berkeley, CA 94705 25,000 * 25,000 * Ardsley Partners(13) 262 Harbor Drive 4th Floor Stamford, CT 06902 Ardsley Offshore Fund, Ltd. 317,500 1.1 % 122,500 195,000 * Ardsley Partners Fund II, L.P. 212,500 * 82,500 130,000 * Ardsley Partners Institutional Fund, L.P. 105,000 * 42,500 62,500 * Marion Lynton 7,500 * 2,500 5,000 * Gruber & McBaine Capital Management(14) 50 Osgood Place Penthouse San Francisco, CA 94133 Lagunitas Partners LP(15) 182,000 * 100,000 82,000 * Jon D. Gruber & Linda W. Gruber(15) 187,500 * 25,000 162,500 * Firefly Partners, L.P.(15) 21,875 * 21,875 * Gruber & McBaine International(15) 21,875 * 21,875 * The Wallace Foundation(15) 12,500 * 12,500 * Trustees of Hamilton College(15) 6,250 * 6,250 * BTG Investments, LLC(16) 24 Corporate Plaza Newport Beach, CA 92660 200,000 * 187,500 12,500 * Wasatch Advisors, Inc.(17) 150 Social Hall Avenue 4th Floor Salt Lake City, UT 84111 Wasatch Small Cap Growth Fund 755,450 2.6 % 755,450 * Wasatch Ultra Growth Fund 774,646 2.7 % 102,525 672,121 * Wasatch Micro Cap Fund 384,525 1.3 % 144,050 240,475 * Wasatch Global Science & Technology 187,050 * 105,100 81,950 * Associated Bank Employee Benefit 29,050 * 29,050 * Associated Bank Personal Trust 29,950 * 29,950 * Acorn Investment 3,175 * 3,175 * American Public Media Group 7,431 * 1,000 6,431 * BASF Corporation Pension & Savings Plan Committee 22,375 * 22,375 * Brandywine Conservancy Inc. 5,450 * 5,450 * Celanese Americas Corporation Retirement Pension Plan 60,854 * 8,400 52,454 * Key Bank NA Trustee of the Cleveland Foundation Equity Fund 45,350 * 6,250 39,100 * Creer Family Dentistry 625 * 625 * Gannett Retirement Plan Master Trust 74,046 * 10,225 63,821 * The Governing Council of the University of Toronto 23,683 * 3,275 20,408 * The J. Paul Getty Trust 70,091 * 9,675 60,416 * Thomas R. Grimm Revocable Trust 700 * 700 * Ralph C. and Marjorie D. Hafer Trustees 675 * 675 * The Hemingway Foundation 3,250 * 3,250 * The Henry S. Hemingway Revocable Trust 1,300 * 1,300 * Henderson Wheel & Warehouse Supply 2,425 * 2,425 * Indianapolis Symphony Orchestra Foundation Inc. 4,525 * 4,525 * The Kroger Co. Consolidated Master Retirement Trust 36,085 * 5,000 31,085 * Ridgeline Endoscopy Center LC Retirement Trust 1,725 * 650 1,075 * MA 1994 B Shares L.P. 15,923 * 2,200 13,723 * Merced County Employees Retirement Association 30,620 * 4,225 26,395 * Edwin C. McGough Trustee 875 * 875 * Edwin McGough IRA Rollover 2,950 * 2,950 * *Represents less than 1%. (1)Applicable percentage ownership is based on 28,604,649 shares of our common stock outstanding as of September 15, 2004. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, based on factors including voting and investment power with respect to shares, subject to the applicable community property laws. Shares of our common stock subject to options or warrants currently exercisable, or exercisable within 60 days after September 15, 2004, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person. (2)Wasatch Advisors, Inc. is the investment advisor to Wasatch Funds, Inc., a registered investment company comprised of a series of funds under the Investment Company Act of 1940, and to a number of private separate client accounts which are the beneficial owners of shares of our common stock. When the Wasatch Funds and the separate client accounts are aggregated together, Wasatch Advisors, Inc. exercises sole dispositive power with respect to 4,096,734 shares of our common stock and sole voting power with respect to 3,911,442 shares of our common stock. Wasatch Advisors, Inc. has represented to us that it holds our stock solely for investment purposes, with no intent to control our business or affairs. (3)Consists of 3,785,000 shares held by Harry E. Gruber & Joan D. Cunningham TR DTD 7/12/88, and 385,000 shares held by the Gruber Children 1992 Trust. (4)Includes 2,977,800 shares held by Mr. Berman, 350,000 shares held by Molino Associates, LLC and 50 shares held by Mr. Berman as Custodian for one of his children under the Uniform Transfer to Minors Act. (5)Includes 173,639 shares and options to purchase up to 75,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Dr. Chen, 235,832 shares and options to purchase up to 12,500 shares of our common stock exercisable within 60 days of September 15, 2004, held by Ephraim Feig, Ph.D., Dr. Chen's spouse, and 30,000 shares held by Ephraim Feig as Custodian for Vivian Rachel Feig under the Uniform Transfers to Minors Act. (6)Includes 1,785 shares and options to purchase up to 150,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Mr. Rotherham and 1,500 shares of our common stock held by Christine Rotherham, Mr. Rotherham's spouse. (7)Includes options to purchase up to 60,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Dr. Garcia Molina. (8)Includes options to purchase up to 50,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Mr. Berkeley. (9)Includes 2,000 shares and options to purchase up to 50,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Mr. Korzeniewski. (10)Includes options to purchase up to 50,000 shares of our common stock exercisable within 60 days of September 15, 2004, held by Mr. Heasley. (11)Except as otherwise stated in this table, none of the selling stockholders are registered broker-dealers or affiliates of registered broker-dealers. Within the past three years, each of the selling stockholders acquired their respective shares of common stock through open market purchases, except for those shares set forth in this table that are being registered and offered pursuant to this prospectus, all of which were acquired in the private placement, the PIN acquisition or the CTSG acquisition. (12)Sanford J. Colen, the principal of Apex Capital, LLC, exercises voting and dispositive power with respect to the securities registered on behalf of the accounts listed under Apex Capital, LLC in this table. (13)Each of the Ardsley entities set forth in this table files periodic reports with the SEC. (14)There is no family relationship or any other affiliation between Gruber & McBaine Capital Management and any of our executive officers. (15)Includes 162,500 shares of our common stock held by accounts managed by Gruber & McBaine Capital Management. Jon D. Gruber and J. Patterson McBaine are managers of Gruber & McBaine Capital Management and exercise shared voting and dispositive powers with respect to the securities registered on their behalf under this registration statement. Gruber & McBaine Capital Management acts as the general partner for Lagunitas Partners LP and Firefly Partners, L.P. and the investment advisor that exercises sole voting and dispositive powers with respect to the securities registered on behalf of Gruber & McBaine International, The Wallace Foundation and Trustees of Hamilton College. (16)Of the shares available for sale hereunder, 12,500 were acquired for investment by BTG Investments, LLC, a wholly-owned subsidiary of Roth Capital Partners LLC, a registered broker-dealer. Such 12,500 shares are not being offered hereunder and were not acquired in the private placement, the PIN acquisition or the CTSG acquisition. Bryon Roth, the Chief Executive Officer, and Gordon Roth, the Chief Financial Officer, share voting and dispositive power over the securities registered on behalf of BTG Investments, LLC under this registration statement. (17)Each of the series of Wasatch Funds and separate client accounts listed beneath the "Wasatch Advisors, Inc." heading are funds and accounts for which Wasatch Advisors, Inc. acts as investment adviser. Except as otherwise provided in the table, Wasatch Advisors, Inc., which files periodic reports with the SEC, exercises sole voting and dispositive powers over the shares of our common stock held by those funds and accounts. The separate series of Wasatch Funds and the separate clients are the beneficial owners of shares of our common stock. (18)Barbara Hall, who serves as Trustee and a Board member of Mount Carmel Health System Foundation, exercises sole voting power over Mount Carmel Health System Foundation. (19)Roy Seidler, a general partner of O'Malley Seidler Partners Growth Fund L.P., is a member of the New York Stock Exchange. (20)Consists of 112,126 shares of our common stock that were issued in connection with our acquisition of PIN. Mr. John W. Schauweker exercises sole voting and dispositive power with respect to the securities registered on behalf of Argus Business Consulting, L.P. under this registration statement. (21)Includes 147,722 shares of our common stock that are subject to vesting and/or cancellation and were issued in connection with our acquisition of CTSG. Mr. Stuart Trevelyan exercises sole voting and dispositive power with respect to the securities registered on his behalf under this registration statement. In the event that Mr. Trevelyn holds all of his shares of our common stock until June 15, 2007 and during that period, he and the other former shareholders of CTSG never had the opportunity to sell such shares for an aggregate of least $1,750,000, then we have agreed to pay Mr. Trevelyan an amount equal to up to approximately $676,000 less the value of his registrable shares of our common stock based on a 20 day trading average. We believe any amounts to be paid to Mr. Trevelyan will be $0 based upon our historical trading prices. (22)Includes 113,183 shares of our common stock that are subject to vesting and/or cancellation and were issued in connection with our acquisition of CTSG. Mr. Stryder Thompkins exercises sole voting and dispositive power with respect to the securities registered on his behalf under this registration statement. In the event that Mr. Thompkins holds all of his shares of our common stock until June 15, 2007 and during that period, he and the other former shareholders of CTSG never had the opportunity to sell such shares for an aggregate of least $1,750,000, then we have agreed to pay Mr. Thompkins an amount equal to up to approximately $478,000 less the value of his registrable shares of our common stock based on a 20 day trading average. We believe any amounts to be paid to Mr. Thompkins will be $0 based upon our historical trading prices. (23)Includes 52,584 shares of our common stock that are subject to vesting and/or cancellation and were issued in connection with our acquisition of Carol/Trevelyan Strategy Group. Mr. Greg Nelson exercises sole voting and dispositive power with respect to the securities registered on his behalf under this registration statement. In the event that Mr. Nelson holds all of his shares of our common stock until June 15, 2007 and during that period, he and the other former shareholders of CTSG never had the opportunity to sell such shares for an aggregate of least $1,750,000, then we have agreed to pay Mr. Nelson an amount equal to up to approximately $177,000 less the value of his registrable shares of our common stock based on a 20 day trading average. We believe any amounts to be paid to Mr. Nelson will be $0 based upon our historical trading prices. DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 60,000,000 shares of common stock, par value $0.001 per share, and 20,000,000 shares of preferred stock, par value $0.001 per share. The following summary of certain provisions of our common stock and preferred stock is not complete and a full understanding requires a review of our certificate of incorporation and bylaws that are included as exhibits to the registration statement of which this prospectus forms a part, and the provisions of applicable law. Common Stock As of September 15, 2004, there were 28,604,649 shares of our common stock outstanding held by 338 stockholders of record. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of Kintera, after payment of all of our debts and liabilities and subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to share ratably in all assets. Our common stock has no preemptive or conversion rights or other subscription rights, and there are no redemptive or sinking funds provisions applicable to our common stock. We have received full payment for all outstanding shares of our common stock and cannot require our stockholders to make further payments on the stock. Our common stock to be outstanding upon completion of this offering will have the same status. Preferred Stock Under our certificate of incorporation, 20,000,000 shares of undesignated preferred stock are authorized but none are currently outstanding. Our board of directors has the authority, without further action by our stockholders, to issue from time to time the preferred stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and purchase funds and other matters. The issuance of shares of our preferred stock could decrease the amount of earnings and assets available for distribution to holders of our common stock or affect adversely the rights and powers, including voting rights, of the holders of our common stock, and may have the effect of delaying, deferring or preventing a change in control of Kintera. Warrants We have outstanding warrants to purchase an aggregate of 20,000 shares of our common stock at an exercise price of $10.00 per share. These warrants expire on September 2, 2013. Delaware Anti-takeover Law and Certain Charter Provisions We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date that the stockholder became an interested stockholder unless: prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding, those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. A "business combination" includes a merger, asset or stock sale or other transaction resulting in financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of a corporation's outstanding voting stock. This provision may have the effect of delaying, deterring or preventing a change in control of Kintera without further actions by our stockholders. Our certificate of incorporation and bylaws include a number of provisions that may have the effect of deterring or impeding hostile takeovers or changes in control or management. These provisions include: our board of directors is classified into three classes of directors with staggered 3-year terms; the authority of our board of directors to issue up to 20,000,000 shares of undesignated preferred stock and to determine the rights, preferences and privileges of these shares, without stockholder approval; all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent; and the elimination of cumulative voting. Such provisions may have the effect of delaying or preventing a change in control. Transfer Agent and Registrar The transfer agent and registrar for our common stock is U.S. Stock Transfer Corporation. Nasdaq National Market Listing Our common stock is traded on the Nasdaq National Market under the trading symbol "KNTA." PLAN OF DISTRIBUTION The selling stockholders and any of their pledgees, donees, transferees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares: ordinary brokerage transactions and transactions in which the broker-dealer solicits investors; block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; purchases by a broker-dealer as principal and resale by the broker-dealer for its account; an exchange distribution in accordance with the rules of the applicable exchange; privately negotiated transactions; to cover short sales made after the date that this Registration Statement is declared effective by the Securities and Exchange Commission; broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; a combination of any such methods of sale; and any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. Upon Kintera being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of common stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon Kintera being notified in writing by a selling stockholder that a donee or pledgee intends to sell more than 500 shares of common stock, a supplement to this prospectus will be filed if then required in accordance with applicable securities law. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus. The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the selling stockholder and/or the purchasers. Each selling stockholder has represented and warranted to Kintera that it acquired the securities subject to this registration statement in the ordinary course of such selling stockholder's business and, at the time of its purchase of such securities such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute any such securities. Kintera has advised each selling stockholder that it may not use shares registered on this registration statement to cover short sales of common stock made prior to the date on which this registration statement shall have been declared effective by the Commission. If a selling stockholder uses this prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act. The selling stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such selling stockholders in connection with resales of their respective shares under this registration statement. Kintera is required to pay all fees and expenses incident to the registration of the shares, but Kintera will not receive any proceeds from the sale of the common stock. Kintera has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for Kintera by Morrison & Foerster LLP, San Diego, California. EXPERTS Ernst & Young LLP, Independent Registered Public Accounting Firm, have audited our consolidated financial statements at December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing. Total operating expenses 2,233 12,963 11,043 16,432 7,022 16,227 WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. When used in this prospectus, the term "registration statement" includes amendments to the registration statement as well as the exhibits, schedules, financial statements and notes filed as part of the registration statement. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement. This prospectus omits information contained in the registration statement as permitted by the rules and regulations of the Securities and Exchange Commission. For further information with respect to us and the common stock offered by this prospectus, reference is made to the registration statement. Statements herein concerning the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed with the Securities and Exchange Commission as an exhibit to the registration statement, each such statement being qualified by and subject to such reference in all respects. With respect to each such document filed with the Securities and Exchange Commission as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance with such laws, will file reports and other information with the Securities and Exchange Commission. Reports, registration statements, proxy statements, and other information filed by us with the Securities and Exchange Commission can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the operation of the public reference facilities may be obtained by calling 1 800 SEC 0330. The Securities and Exchange Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is http://www.sec.gov. We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as we may determine or as may be required by law. Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 1,328 Accrued salaries and employee benefits 716 Donations payable to customers 982 Line of credit 6 Deferred revenue 2,785 Notes payable 207 Note payable to founder Net loss $ (2,101 ) $ (12,438 ) $ (9,416 ) $ (9,872 ) $ (4,654 ) (8,909 ) Earnings (loss) per common share Basic and diluted $ (2.08 ) $ (3.86 ) $ (1.44 ) $ (0.97 ) (0.52 ) (0.38 ) Number of shares used in per share computations Basic and diluted 1,008 3,223 6,545 10,160 8,952 23,176 As of December 31, As of June 30, (1)Stock-based compensation for the years ended December 31, 2002 and 2003 and the six months ended June 30, 2003 and 2004 includes the following: Year Ended December 31, Six Months Ended June 30, Total $ 1,961 $ 739 $ 1,126 $ Results of Operations Comparison of Results for the Six Months Ended June 30, 2004 to the Six Months Ended June 30, 2003 Revenues. Revenue increased from $2.9 million for the six months ended June 30, 2003 to $9.0 million for the six months ended June 30, 2004.The revenues for each of these periods were as follows: For the Six Months Ended June 30, Transaction and data processing fees $ 3,998,000 $ 1,822,000 Monthly service fees 3,417,000 911,000 Amortization of upfront fees 1,549,000 212,000 Total $ 8,964,000 $ 2,945,000 We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. At December 31, 2003, our outstanding commitments included (in thousands): Payments due by period Contractual Obligations Total Loss from operations (2,216 ) (12,722 ) (9,433 ) (9,853 ) (4,664 ) (9,037 ) Interest income and other 115 284 17 (19 ) 10 Less than 1 year 1-3 years 3-5 years More than 5 years from Microsoft Outlook or other popular email programs to their personal intranet and send personalized emails to friends, family and co-workers to solicit funds for the cause. Using Friends Asking Friends, volunteers can solicit many more people over greater distances far more quickly than they could when relying on in-person, telephonic or mail solicitations. Once a solicitation has been made, our tools make it easy for the donor to visit the volunteer's website and make a secure donation. When a donor completes a gift transaction, both the donor and the volunteer receive a thank you email within minutes. In the process of making a donation, the donor typically enters personal data that can be tracked by the nonprofit organization, using our contact management tools, to increase the effectiveness of its future fundraising campaigns. Nonprofit organizations can also leverage data within a fundraising campaign to increase donations using a Kintera Sphere feature called Honor Roll. This feature posts recent donations on a scrolling list on the volunteer's personal website, providing donor recognition and creating peer pressure when potential donors visit the site. The ability of nonprofit organizations to recognize and thank both donors and the volunteers who solicited the funds, often within minutes of a donation being made, heightens the connection between the nonprofit organization and its community members. Volunteers are gratified by the attention and motivated to raise more money. Donors feel a stronger affinity to the nonprofit organization and its cause and are encouraged to donate again. Our events tools include: Kintera Thon Provides participants of charity walk a thons, running events, bike a thons and similar events with an interactive, automated way to solicit and collect donations from friends, family and co workers. Friends Asking Friends program automates much of the solicitation process, motivating volunteers to send more solicitations to potential donors. Kintera Gala Allows the event planner to manage the sale of tables at gala events such as dinners, banquets, cocktail parties and luncheons. Assists in filling tables at the event and increasing the prominence of attendees. Enables nonprofit organizations to create customized invitations and websites, send reminder emails, provide online ticketing and manage the activities of volunteers. Auction feature enables nonprofit organizations to display the silent auction items before the event, start the bidding and close out items not purchased at the event. Kintera Golf Enables nonprofit organizations to host convenient and fun golf events. Nonprofit organizations can auction the right to golf with celebrities, increase competition by challenging friends through the Closest to the Pin feature and buy mulligans to use during the event. Memorial and Tribute Enables donors to send a printed or email card in memory or in honor of someone or to commemorate a special occasion. Creates and displays the personalized message, as well as processing the donation, printing and mailing of the print or email card. MANAGEMENT Directors and Executive Officers The following table provides information concerning the name, age, position and brief account of the business experience of each of our directors and executive officers as of July 30, 2004: Name Age Position(s) Total assets acquired 5,029 2,512 788 Current liabilities assumed (2,658 ) (691 ) (332 ) Deferred compensation 1,200 3,768 Summary Compensation Table Annual Compensation Long-Term Compensation Name of Principal Position Fiscal Year Salary($) Bonus($) Securities Underlying Options(#) All Other Compensation(1)($) of ten years. The percentage of total options granted is based upon an aggregate of 1,657,074 options granted during 2003. Percent of Total Options Granted to Employees In Last Fiscal Year(%) Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term Number of Shares Underlying Options Granted(#) Name Exercise Price ($/share) Expiration Date 5% 10% Harry E. Gruber, M.D. Dennis N. Berman Jeane Chen, Ph.D. Allen B. Gruber, M.D. James A. Rotherham, C.P.A.(1) 45,000 2.7 % $ 2.0 9/26/13 $ 423,102 $ 727,029 (1)These options are immediately exercisable and vest over four years. 1/4 vests on the anniversary of the option grant date and the remainder vest daily over the subsequent three years. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth for the individuals named in the Summary Compensation Table their option exercises for the fiscal year ended December 31, 2003, and exercisable and unexercisable options held by them as of December 31, 2003. The "Value of Unexercised In-the-Money Options at December 31, 2003" is calculated based on the difference between $12.40, the closing price of our common stock on the Nasdaq National Market on December 31, 2003, and the exercise price for the shares underlying the option, multiplied by the number of shares issuable upon exercise of the option. All options were granted under our 2000 Stock Option Plan. All options listed below are immediately exercisable; however, as a condition of exercise, the optionee must enter into a stock restriction agreement granting us the right to repurchase the unvested shares issuable by such exercise at their cost in the event of the optionee's termination of employment. There were no exercises of options by any of the officers named in the Summary Compensation Table during the fiscal year ended December 31, 2003. Number of Shares Underlying Unexercised Options at December 31, 2003 (#) Value of Unexercised In-the-Money Options at December 31, 2003 Name Exercisable Unexercisable Exercisable Unexercisable PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information concerning the beneficial ownership of the shares of our common stock as of September 15, 2004, by (i) each person we know to be the beneficial owner of 5% or more of the outstanding shares of our common stock, (ii) each executive officer listed in the Summary Compensation Table, (iii) each of our directors, (iv) all of our executive officers and directors as a group and (v) each of the selling stockholders. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by such stockholder. The address of the individuals listed below is the address appearing on the cover of the registration statement of which this prospectus is part unless otherwise noted below. Shares of Common Stock Beneficially Owned Prior to the Offering Shares of Common Stock Beneficially Owned After the Offering Name or Group of Beneficial Owners Number of Shares Being Offered Number Percentage(1) Number Percentage Mount Carmel Health System Foundation(18) 1,175 * 1,175 * Ralph K. Miller 875 * 875 * Modern Display Profit Sharing Trust 1,850 * 1,850 * Neese Family Equity Investment, Ltd. 3,500 * 1,325 2,175 * Neese Family Equity Investment, Ltd. socially restricted 1,975 * 750 1,225 * Northeast Utilities Service Company Master Trust 66,705 * 9,200 57,505 * O'Malley Seidler Partners Small Cap Growth Fund L.P.(19) 5,775 * 2,175 3,600 * Opus Portfolio, Ltd. 2,117 * 300 1,817 * Peninsula Regional Medical Center Endowment 2,125 * 2,125 * Peninsula Regional Medical Center Operating Fund 2,825 * 2,825 * Peninsula Regional Medical Center Pension Plan 1,725 * 1,725 * Portland State University Foundation, Inc. 950 * 950 * Rio Tinto America Master Retirement Trust 20,900 * 20,900 * Wendell R. & Joanna L. Sala, Trustees for The Sala Family Trust 675 * 675 * SECURA Insurance Employees Pension Plan 4,075 * 4,075 * Suburban Hospital, Inc 7,150 * 7,150 * Suncorp Metway Investment Management Limited 16,900 * 2,350 14,550 * Connie R. Sutterfield Revocable Trust 1,475 * 1,475 * University of North Texas Foundation, Inc. 7,743 * 1,075 6,668 * University of South Florida Foundation, Inc. 12,875 * 4,850 8,025 * Ventura County Employees Retirement Fund 41,350 * 41,350 * WEA Staff Retirement Trust Fund 3,414 * 475 2,939 * Argus Business Consulting, L.P.(20) 17625 El Camino Real, No. 230 Houston, TX 77058 112,126 * 112,126 * Stuart Trevelyan(21) 3920 Benton Street., N.W. Washington, D.C. 20007 147,722 * 53,435 94,287 * Stryder Thompkins(22) 2640 McMillan Street Eugene, OR 97405 113,183 * 23,711 89,472 * Gregory Nelson(23) 397 50th Street Oakland, CA 94609 52,584 * 5,726 46,858 * FINANCIAL STATEMENTS INDEX Page Kintera, Inc. Consolidated Balance Sheet December 31, Assets Current assets: Cash and cash equivalents $ 38,480,107 $ 1,234,777 Short-term investments 191,706 2,141,925 Accounts receivable, net of allowance for bad debt of $195,940 and $46,215 at December 31, 2003 and 2002, respectively 1,933,211 201,910 Accounts receivable from related party 475,000 Prepaid expenses and other current assets 735,702 163,277 Note receivable from employee 18,750 37,500 Total current assets 41,834,476 3,779,389 Property and equipment, net 1,458,304 893,167 Note receivable from employee 18,750 Other assets 769,016 317,305 Intangible assets, net 3,694,823 628,078 Total assets $ 47,756,619 $ 5,636,689 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued expenses $ 1,692,509 $ 503,340 Accrued salaries and employee benefits 703,475 352,394 Donations payable to customers 798,758 347,743 Line of credit 361,119 Deferred revenue 1,931,169 524,886 Note payable to founder 44,500 44,500 Total current liabilities 5,531,530 1,772,863 Deferred rent 72,189 99,971 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, 20,000,000 and no shares authorized at December 31, 2003 and 2002, respectively; no shares issued and outstanding at December 31, 2003 and 2002; Convertible preferred stock, $.001 par value, no shares and 20,000,000 shares authorized at December 31, 2003 and 2002, respectively; no shares and 4,235,780 shares issued and outstanding at December 31, 2003 and 2002, respectively; liquidation value of $26,964,990 at December 31, 2002; 4,236 Common stock, $.001 par value, 60,000,000 shares authorized; 23,748,564 and 12,641,761 shares issued and outstanding at December 31, 2003 and 2002, respectively; 23,749 12,641 Additional paid-in capital 86,820,526 30,053,048 Deferred compensation (10,863,225 ) (2,347,451 ) Accumulated other comprehensive loss (294 ) (2,593 ) Accumulated deficit (33,827,856 ) (23,956,026 ) Total stockholders' equity 42,152,900 3,763,855 Total liabilities and stockholders' equity $ 47,756,619 $ 5,636,689 Kintera, Inc. Consolidated Statements of Operations Year ended December 31, Net revenues $ 7,490,098 $ 1,933,110 $ 287,402 Revenue from related party 475,000 Total net revenues 7,965,098 1,933,110 287,402 Cost of revenues 1,386,452 323,333 46,001 Gross profit 6,578,646 1,609,777 241,401 Sales and marketing 7,862,834 6,038,071 9,045,121 Product development and support 3,466,764 2,465,312 2,433,043 General and administrative 2,255,616 1,989,506 1,485,161 Stock-based compensation 2,846,265 550,716 Total operating expenses 16,431,479 11,043,605 12,963,325 Operating loss (9,852,833 ) (9,433,828 ) (12,721,924 ) Interest income (expense) and other, net (18,997 ) 17,389 283,674 Net loss $ (9,871,830 ) $ (9,416,439 ) $ (12,438,250 ) Net loss per share: Basic and diluted $ (0.97 ) $ (1.44 ) $ (3.86 ) Weighted average shares basic and diluted 10,159,995 6,545,331 3,222,852 Stock-based compensation includes the following: Sales and marketing $ 1,667,908 $ 369,240 $ Product development and support 816,534 169,817 General and administrative 361,823 11,659 $ 2,846,265 $ 550,716 $ Kintera, Inc. Consolidated Statements of Stockholders' Equity Period from December 31, 2000 through December 31, 2003 Convertible preferred stock Common stock Accumulated other comprehensive loss Additional paid-in capital Deferred Compensation Accumulated deficit Total stockholders' equity Shares Amount Shares Amount Balance at December 31, 2000 2,839,282 $ 2,839 12,711,000 $ 12,710 $ 13,174,465 $ $ $ (2,101,337 ) $ 11,088,677 Issuance of common stock for other assets 15,000 15 14,985 15,000 Repurchase of restricted common stock (114,465 ) (114 ) (7,249 ) (7,363 ) Exercise of stock options 17,250 17 13,283 13,300 Issuance of Series D preferred stock in March 2001, net of issuance costs of $10,865 578,000 578 5,768,557 5,769,135 Comprehensive loss: Net loss (12,438,250 ) (12,438,250 ) Unrealized loss on short-term investments (14,786 ) (14,786 ) Comprehensive loss (12,453,036 ) Balance at December 31, 2001 3,417,282 3,417 12,628,785 12,628 18,964,041 (14,786 ) (14,539,587 ) 4,425,713 Repurchase of restricted common stock (15,244 ) (15 ) (899 ) (914 ) Exercise of stock options 28,220 28 25,805 25,833 Issuance of Series E preferred stock in January 2002 in connection with an acquisition 49,999 50 499,950 500,000 Issuance of Series F preferred stock in March through June 2002, net of issuance costs of $18,237 768,499 769 7,665,984 7,666,753 Stock-based compensation expense to consultants 176,650 176,650 Deferred compensation related to options issued to employees 3,035,845 (3,035,845 ) Reversal of deferred compensation related to stock option cancellations (314,328 ) 314,328 Amortization of deferred compensation 374,066 374,066 Comprehensive loss: Net loss (9,416,439 ) (9,416,439 ) Unrealized gain on short-term investments 12,193 12,193 Comprehensive loss (9,404,246 ) Balance at December 31, 2002 4,235,780 $ 4,236 12,641,761 $ 12,641 $ 30,053,048 $ (2,347,451 ) $ (2,593 ) $ (23,956,026 ) $ 3,763,855 Repurchase of restricted common stock (85,669 ) (85 ) (5,054 ) (5,139 ) Exercise of stock options 197,221 197 235,355 235,552 Issuance of common stock, net of expenses 5,750,000 5,750 36,087,685 36,093,435 Issuance of Series G preferred stock in March through September 2003, net of issuance costs of $7,822 549,926 550 5,490,888 5,491,438 Issuance of common stock and stock options in January and September 2003 in connection with acquisitions 459,545 460 5,859,643 (2,483,512 ) 3,376,591 Issuance of warrant in connection with entering into a loan and security agreement 166,396 166,396 Conversion of preferred stock to common stock (4,785,706 ) (4,786 ) 4,785,706 4,786 Stock-based compensation expense to consultants 186,065 186,065 Deferred compensation related to options issued to employees 9,209,592 (9,209,592 ) Reversal of deferred compensation related to stock option cancellations (463,092 ) 463,092 Amortization of deferred compensation 2,714,238 2,714,238 Comprehensive loss: Net loss (9,871,830 ) (9,871,830 ) Unrealized gain on short-term investments 2,299 2,299 Comprehensive loss (9,869,531 ) Balance at December 31, 2003 $ 23,748,564 $ 23,749 $ 86,820,526 $ (10,863,225 ) $ (294 ) $ (33,827,856 ) $ 42,152,900 Kintera, Inc. Consolidated Statements of Cash Flows Year ended December 31, Operating activities: Net loss $ (9,871,830 ) $ (9,416,439 ) $ (12,438,250 ) Adjustments to reconcile net loss to net cash used in operating activities: Bad debt expense 149,726 36,029 10,186 Depreciation 590,166 478,958 313,481 Amortization of intangible assets 388,835 182,266 Forgiveness of employee note 37,500 37,500 37,500 Amortization and write-off of prepaid advertising 4,969,600 Interest expense associated with issuance of warrant 36,977 Stock-based compensation expense to consultants 186,065 176,650 Amortization of deferred compensation 2,714,238 374,066 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (1,958,917 ) (174,957 ) (47,608 ) Prepaid expenses and other current assets (545,381 ) (120,344 ) (11,154 ) Accounts payable and accrued expenses 845,843 (450,325 ) 479,271 Accrued salaries and employee benefits 310,700 165,832 127,083 Donations payable to customers 451,015 330,619 17,124 Deferred revenue 1,310,316 331,959 38,044 Deferred rent (27,781 ) 85,185 14,786 Sponsorships payable (212,313 ) 212,313 Net cash used in operating activities (5,594,841 ) (7,750,688 ) (6,489,937 ) Investing activities: Purchases of marketable securities (192,000 ) (5,899,666 ) (6,879,230 ) Maturities of marketable securities 2,047,993 4,352,232 3,500,000 Sales of marketable securities 96,525 1,302,146 1,480,000 Acquisition costs, net of cash acquired 105,556 (17,099 ) Purchases of property and equipment (958,010 ) (525,205 ) (611,125 ) Other assets (279,645 ) (298,848 ) 8,913 Net cash provided by (used in) investing activities 820,419 (1,086,440 ) (2,501,442 ) Financing activities: Draw on line of credit obligation 403,357 Payment of line of credit obligation (154,448 ) (35,128 ) Repayment of employee note (44,444 ) (30,000 ) Proceeds from issuance of common stock 36,093,435 Proceeds from exercise of common stock options 235,553 25,833 13,300 Repurchase of common stock (5,139 ) (914 ) (7,363 ) Net proceeds from sale of preferred stock 5,491,438 7,666,753 5,769,135 Net cash provided by financing activities 42,019,752 7,626,544 5,775,072 Net increase (decrease) in cash and cash equivalents 37,245,330 (1,210,584 ) (3,216,307 ) Cash and cash equivalents at beginning of year 1,234,777 2,445,361 5,661,668 Cash and cash equivalents at end of year $ 38,480,107 $ 1,234,777 $ 2,445,361 Supplemental disclosure of cash flow information: Cash paid for interest $ 16,945 $ $ Supplemental disclosure of noncash investing and financing activities: Issuance of common stock for other assets $ $ $ 15,000 Issuance of Series E preferred stock in Masterplanner acquisition $ $ 500,000 $ Issuance of common stock and options for acquisitions $ 5,860,103 $ $ Warrant issued in connection with financing agreement $ 166,396 $ $ Operating leases $ 1,600 $ 378 $ 1,126 $ 96 $ Note payable $ 361 $ Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the grant date using the Black-Scholes method for option pricing with the following assumptions: Year ended December 31, Weighted average risk free interest rate 3.0 % 3.8 % 4.5 % Expected option life 5.0 years 5.0 years 5.0 years Expected stock price volatility see below 0 % 0 % Expected dividend yield 0 % 0 % 0 % Weighted average fair value of options with exercise price equaling stock price on date of grant $6.92 $0.18 $0.18 Weighted average fair value of options granted with exercise price less than stock price on date of grant $8.45 $4.24 $ Future pro forma results of operations under SFAS No. 123 may be materially different from actual amounts reported. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The Company has used the minimum value method to determine the fair value of options granted prior to its initial filing in a registration statement under the Securities Act of 1933 relating to an initial public offering of the Company's common stock. This method does not consider the expected volatility of the underlying stock, and is only available to non-public entities. Accordingly, the Company has used an estimated volatility factor of 80% through December 31, 2003. The following table illustrates the effect on net losses if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation: Year ended December 31, Net loss as reported $ (9,871,830 ) $ (9,416,439 ) $ (12,438,250 ) Add: Stock-based employee compensation expense included in reported net loss 2,846,265 374,066 Less: Total stock-based employee compensation expense determined under the fair value method for all awards (3,391,198 ) (396,523 ) (27,349 ) Pro forma net loss $ (10,416,763 ) $ (9,438,896 ) $ (12,465,599 ) Net loss per share: Basic and diluted as reported $ (0.97 ) $ (1.44 ) $ (3.86 ) Basic and diluted pro forma $ (1.03 ) $ (1.44 ) $ (3.87 ) Comprehensive Income (Loss) Comprehensive loss is the total of net loss and all other non-owner changes in stockholders' equity. The Company's other comprehensive income (loss) consists of unrealized gains or losses on available-for-sale investments. Such amounts are excluded from net loss and are reported in accumulated other comprehensive income (loss) in the accompanying consolidated financial statements. Net Loss Per Share In accordance with SFAS No. 128, Earnings Per Share, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Potentially dilutive securities are not considered in the calculation of net loss per common share as their inclusions would be anti-dilutive. In accordance with SAB No. 98, common shares issued for nominal consideration, if any, would be included in the per share calculations as if they were outstanding for all periods presented. No common shares have been issued for nominal consideration. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share is as follows: Year ended December 31, Numerator Net loss $ (9,871,830 ) $ (9,416,439 ) $ (12,438,250 ) Denominator Basic and diluted: Weighted average common shares outstanding 13,257,098 12,635,396 12,619,263 Less: Weighted average shares subject to repurchase (3,097,103 ) (6,090,065 ) (9,396,411 ) Denominator on basic calculation 10,159,995 6,545,331 3,222,852 Basic and diluted net loss per share $ (0.97 ) $ (1.44 ) $ (3.86 ) The following table summarizes potential common shares that are not included in the denominator used in the diluted net loss per share calculation because to do so would be antidilutive: December 31, Common Stock Equivalents Common stock subject to repurchase 1,711,489 4,491,993 7,502,920 Options to purchase common stock 2,713,355 1,429,952 935,800 Warrants to purchase common stock 20,000 Convertible preferred stock 4,235,780 3,417,282 4,444,844 10,157,725 11,856,002 2. Acquisitions Masterplanner Media, Inc. On January 31, 2002, the Company entered into a merger agreement with Masterplanner Media, Inc. ("Masterplanner"). The acquisition was accounted for as a purchase, therefore the results of Masterplanner's operations have been included in the consolidated financial statements since that date. Masterplanner publishes a monthly print and online calendar in New York City and Los Angeles that provides assistance to non-profit organization administrators in planning fundraising and other events. The Company acquired Masterplanner primarily to enhance its customer base in the New York City and Los Angeles markets as well as to increase brand awareness in other markets (the San Diego Masterplanner publication was established subsequent to the merger). The purchase price consisted of 49,999 shares of Series E convertible preferred stock valued at $10.00 per share, plus $17,099 in related acquisition costs. The fair value of the preferred stock was determined based on prior and subsequent sales of preferred stock for cash. The $500,000 purchase price, plus $17,099 of related acquisition costs, was allocated as follows: Current assets $ 29,950 Fixed assets 3,101 Intangible asset 795,344 Total assets acquired 828,395 Current liabilities assumed (311,296 ) Net assets acquired $ 517,099 The acquired intangible asset represents the customer base of Masterplanner and was assigned an estimated useful life of four years for amortization purposes. H2O Networks, Inc. (dba Involve) On January 10, 2003, the Company entered into a merger agreement with H2O Networks, Inc. (dba Involve). The acquisition was accounted for as a purchase, therefore the results of Involve's operations have been included in the consolidated financial statements since that date. Involve provides online communications and marketing services. The Company acquired Involve primarily to enhance its content management system and advocacy market positions. The purchase price consisted of 259,545 shares of common stock valued at $9.00 per share, options to purchase 140,459 shares of common stock valued using the Black-Scholes method at a weighted average of $8.66 per share and $117,519 in related acquisition costs. The $3,553,445 purchase price, plus $117,534 in acquisition costs, was allocated as follows: Current assets $ 140,462 Fixed assets 40,929 Intangible assets 690,000 Goodwill 1,435,465 Other assets 28,475 Total assets acquired 2,335,331 Current liabilities assumed (203,050 ) Deferred compensation 1,538,697 Net assets acquired $ 3,670,978 The acquired intangible asset represents the customer base of Involve and was assigned an estimated useful life of five years for amortization purposes. VirtualSprockets, LLC On September 25, 2003, the Company entered into an asset purchase agreement with VirtualSprockets, LLC ("VirtualSprockets"). VirtualSprockets develops web-sites, intranets and database software for nonprofit organizations. The Company acquired the net assets of VirtualSprockets primarily to enhance its customer base in the Washington D.C. market and to enhance its industry knowledge of and relationships with the nonprofit industry. These factors motivated the Company to pay a purchase price in excess of the net book value, which resulted in intangible assets. The purchase price consisted of 100,000 shares of common stock valued at $10.00 per share, plus $100,000 in acquisition costs. In addition, the Company also issued options to purchase 51,863 shares of common stock to former VirtualSprockets employees. The $1,000,000 purchase price, plus $100,000 in acquisition costs, was allocated as follows: Current assets $ 32,595 Fixed assets 66,126 Intangible assets 370,000 Goodwill 27,229 Other assets 3,700 Total assets acquired 499,650 Current liabilities assumed (66,317 ) Deferred compensation 666,667 Net assets acquired $ 1,100,000 The $1,306,658 purchase price, plus $88,853 in acquisition costs, was allocated as follows: Current assets $ 356,541 Fixed assets 90,238 Intangible assets 670,000 Goodwill 262,998 Other assets 10,472 Total assets acquired 1,390,249 Current liabilities assumed (272,886 ) Deferred compensation 278,148 Net assets acquired $ 1,395,511 The acquired intangible asset represents the customer base of Little Tornadoes and was assigned an estimated useful life of five years for amortization purposes. Unaudited Pro Forma Information The unaudited pro forma information for the year ended December 31, 2003 and the year ended December 31, 2002 assumes the acquisitions of Involve, VirtualSprockets and Little Tornadoes were consummated on January 1, 2002. Year Ended December 31, 2003 Year Ended December 31, 2002 (unaudited) (unaudited) Net revenues $ 9,982,441 $ 5,414,378 Net loss $ (9,760,949 ) $ (11,018,372 ) Net loss per share basic and diluted $ (0.96 ) $ (1.60 ) The results of operations for Masterplanner has been excluded from the pro forma information for the year ended December 31, 2002 as the acquisition occurred near the beginning of the period. The results of operations for Involve has been excluded from the pro forma information for the year ended December 31, 2003 as the acquisition occurred near the beginning of the period. These results give effect to the pro forma adjustments for the amortization of acquired intangible assets and the amortization of deferred compensation. In addition, the common stock used as consideration for the acquisitions is presented as being outstanding during the entire period. 3. Short-Term Investments
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+PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before buying shares or ADSs in this offering and highlights information contained elsewhere in this prospectus that we believe is most important to understanding our business. You should read the entire prospectus carefully, including the Risk Factors section and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. GPC Biotech AG GPC Biotech is a biopharmaceutical company discovering and developing new drugs to treat cancer. Our lead product candidate is satraplatin, an oral platinum-based compound intended for use as a chemotherapy drug. Satraplatin is being evaluated in a Phase 3 registrational trial for second-line treatment of hormone refractory prostate cancer, or HRPC. Patients suffering from HRPC are those who have suffered relapse after having been treated with hormone ablation therapy. See Business Our Product Pipeline Prostate Cancer and Existing Treatment Regimens. Second-line treatments are those implemented when primary, or first-line, treatment fails. In Phase 3 registrational trials, the drug is tested on patients in a controlled randomized trial comparing the investigational new drug to a placebo or an approved form of therapy, if there is one. Phase 3 registrational trials are usually the final clinical evaluation to support a new drug application, or NDA. Randomized means that patients are randomly assigned to receive the drug candidate or a placebo. Our goal is to file an NDA, with the U.S. Food and Drug Administration, or FDA, in this disease setting in 2006. Our second most advanced product candidate is 1D09C3, a monoclonal antibody. Assuming successful and timely completion of preclinical activities and timely approval by the relevant regulatory authorities and ethics committees, we anticipate initiating clinical trials for 1D09C3 in 2004. A monoclonal antibody is an immune system related protein that binds preferentially to one type of foreign substance and may thereby stimulate a biological response. Our third development program involves inhibitors of the cell division cycle, or cell cycle. The cell cycle is the process by which a cell grows, duplicates its DNA and divides into two cells. RGB-286199, our lead compound in this program, is currently in preclinical development. Preclinical development includes work to demonstrate a drug candidate s efficacy and safety in cell culture and animal models prior to testing in humans. Our goal is to complete preclinical development work on RGB-286199 in the first half of 2005. We also have a number of research programs focused on the discovery of new anticancer drugs. Cancer is the second leading cause of death in the United States after cardiovascular disease. Prostate cancer is the most common cancer among men and the second leading cause of cancer deaths in men in the United States. Despite progress in understanding cancer and the resulting development of new therapies, there is still a lack of effective treatments, resulting in a substantial unmet medical need. Our Product Candidates Satraplatin. Satraplatin is in a Phase 3 registrational trial as second-line treatment of HRPC. Satraplatin is an oral platinum-based compound intended for use as a chemotherapy drug. Platinum-based drugs have been clinically proven to be one of the most effective classes of anticancer therapies and are used to treat a wide range of cancers. Unlike the currently marketed platinum-based drugs, satraplatin is administered orally. We licensed satraplatin in September 2002 and, in September 2003, initiated a Phase 3 registrational trial of satraplatin as a second-line chemotherapy treatment for HRPC, with sites in the United States, Europe and South America. We modelled our registrational trial, in which we expect over 900 patients to be enrolled, on a successful 50-patient study of satraplatin in SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents the first-line chemotherapy treatment of HRPC, conducted by others. There is currently no approved second-line chemotherapy treatment regimen for patients who fail first-line chemotherapy treatment for HRPC. We were therefore able to obtain fast-track designation from the FDA for satraplatin in this disease setting. The FDA s fast track program is intended to facilitate the development and to expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no approved treatment. Our goal is to complete the filing of an NDA with the FDA for satraplatin as a treatment of HRPC in 2006. Based on existing clinical data, we believe that satraplatin may have application in a number of cancers, both as a single agent and in combination with other therapies. 1D09C3. 1D09C3 is a monoclonal antibody intended for the treatment of selected leukemias and lymphomas, including non-Hodgkin s lymphoma. Preclinical activities that need to be completed prior to initiating clinical trials include a toxicological evaluation and the development of certain tests for monitoring drug levels and drug responses in the blood of treated patients. We expect to complete these preclinical activities during 2004. Assuming successful and timely completion of these preclinical activities and timely approval by the relevant regulatory authorities and ethics committees, we anticipate initiating clinical trials for this product candidate in 2004. RGB-286199. RGB-286199 is our lead compound in a family of small molecule compounds that inhibit the cell cycle, which is essential for tumor growth. RGB-286199 is currently in preclinical development. Our goal is to complete preclinical development work on RGB-286199 in the first half of 2005 and, if successful, to advance this product candidate into clinical trials thereafter. Our Research Programs Our research is focused on new anticancer drug discovery opportunities. To date, our research activities have led us to the discovery of 1D09C3 and RGB-286199, our two product candidates in preclinical development. Our current approach to new drug discovery programs is to start with existing small molecules or small molecule classes that are either known to have anticancer activity or known to act on selected targets relevant for cancer drug research. We design our research programs to discover product candidates that have potentially broad application in the treatment of various cancers. Most of our research programs are directed toward discovering cytotoxic drugs, which are drugs that kill cancer cells rather than prevent their growth. Our current research programs can be classified in two areas, inducers of programmed cell death and inhibitors of protein kinases, which play a role in signalling between and within cells. Our Drug Discovery Technologies We also have a portfolio of technologies in the fields of proteomics (the systematic study of proteins and their functions) and genomics (the systematic study of genes) that we use in our internal drug discovery efforts and that we have licensed to, or used in collaborations with, various pharmaceutical companies. In early 2003, we expanded our technology portfolio through the introduction of LeadCodeTM, our proprietary cell-based drug-protein interaction screening technology. LeadCode enables us to improve our understanding of the potential efficacy and side effects of drugs and drug candidates. We believe that these technologies allow us to prioritize and optimize drug candidates in our pipeline, identify new drug uses and potentially reduce the risk of failure in drug development. In 2001, we entered into an agreement with ALTANA Pharma AG, which is our most significant technology collaboration to date. Under this contract, we are assisting ALTANA Pharma through 2007 with its establishment of a research institute in the United States. This agreement includes a research Amendment No. 1 to Form F-1 Registration Statement Under the Securities Act of 1933 Table of Contents collaboration as well as a transfer of technologies. Effective January 2003, we have also licensed LeadCode to ALTANA Pharma under a separate agreement. We are entitled to receive a total of $60 million in payments from ALTANA Pharma, including upfront payments, license and technology transfer fees, and research funding over the term of the agreements. As of December 31, 2003, we had received an aggregate of 37.4 million from ALTANA Pharma under these agreements, of which 27.4 million have been recognized as revenue. Our Strategy Our goals are to discover, develop and commercialize new anticancer drugs. We are pursuing these goals through the following strategies: Enhance the commercial value of satraplatin to us; Broaden the potential range of applications of satraplatin; Build and maintain a balanced portfolio of oncology drugs; Use our research expertise, technologies and external network to build our product candidate pipeline; Use our internal expertise to find the fastest path to market approval for our product candidates; and Generate revenue through technology and research collaborations. Our Management and Scientific Team We have assembled a management and scientific team, which we believe has the expertise and experience required to discover, develop and commercialize oncology product candidates. Our clinical development team is highly experienced in designing and conducting successful clinical trial programs for oncology drugs. Members of this group have a combined career track record of obtaining more than 20 marketing approvals with the FDA, including those for TAXOL (paclitaxel), a widely used chemotherapy drug, and PARAPLATIN (carboplatin), one of the most well-established platinum-based chemotherapy drugs. Furthermore, we have an extensive external network of scientists and experts in the oncology field, which helps us to identify and evaluate opportunities to license drug candidates from third parties. Risks of Drug Development All of our product candidates are undergoing clinical trials or are in earlier stages of development, and failure is common and can occur at any stage of development. To date, we have not obtained regulatory approval for the commercial sale of any drug product, and we have not received any revenues from the commercial sale of drug products. For the year ended December 31, 2003, our total revenues were 21.6 million, our net loss was 26.8 million and, as of that date, we had an accumulated deficit of 127.3 million. Company Information GPC Biotech AG was originally formed as a limited liability company (Gesellschaft mit beschr nkter Haftung or GmbH) under German law in January 1997, and was named RM 102 Verm gensverwaltungs GmbH. In August 1997, all of the company s shares were sold and transferred to members of the company s management team and scientific advisory board, and its name was GPC BIOTECH AG (Exact Name of Registrant as Specified in its Charter) Table of Contents changed to Genome Pharmaceuticals Corporation GmbH. In February 1998, Genome Pharmaceuticals Corporation GmbH was transformed into a stock corporation (Aktiengesellschaft or AG) under German law and its name was changed to GPC Aktiengesellschaft Genome Pharmaceuticals Corporation. On March 3, 2000, the company changed its name to GPC Biotech AG. In March 2000, we acquired Mitotix, Inc., a U.S. drug discovery and development company focused on treatments for cancer and fungal infections. The total purchase price for the acquisition was approximately 31.2 million, which we paid for with our ordinary shares. After the acquisition, Mitotix, Inc. changed its name to GPC Biotech Inc. Historically, we have been focused on applying genomic, proteomic and drug-discovery technologies to accelerate the identification and validation of novel drug targets for the development of mechanism-based drugs in oncology, infectious diseases and immunology. In September 2002, we licensed satraplatin, our late stage chemotherapy product candidate for the treatment of HRPC, from Spectrum Pharmaceuticals, Inc. We are now focusing our efforts on our oncology drug discovery and development. Trademarks We own rights in the following trademarks: GPC Biotech, the GPC Biotech design, the globe design, LeadCode, ExpressCode, PathCode, UbiCode and KeyCode. All other trademarks or tradenames referred to in this prospectus are the property of their respective owners. Executive Offices Our principal executive offices are located at Fraunhoferstrasse 20, D-82152 Martinsried/Munich, Germany and our telephone number is 011 49 89 8565 2600. Presentation of Financial Information In this prospectus, references to are to euro and references to USD , U.S.$ , $ and U.S. dollars are to United States dollars. We publish our financial statements in euro. In this prospectus, unless otherwise provided, references to GPC Biotech , the company , we , us and our refer to GPC Biotech AG and its wholly owned subsidiary, GPC Biotech Inc. Table of Contents The Combined Offering The shares being offered by this prospectus are part of a combined offering of up to 8,279,000 newly issued shares offered by the Company (including an over-allotment option of up to 1,119,000 new shares) and 300,000 existing shares offered by selling shareholders. The combined offering consists of a rights offering to existing holders of our shares and a global offering consisting of public offerings in Germany and the United States and private placements with institutional investors in certain other jurisdictions. We are offering up to 7,152,047 newly issued shares in the rights offering. To avoid a fractional subscription ratio, we have excluded shareholders subscription rights for a residual amount of 7,953 newly issued shares in accordance with German law and our Articles of Association. Those new shares as to which subscription rights have been excluded or not exercised during the subscription period will be offered in the global offering. In addition, the global offering will include 300,000 existing shares to be sold by certain management shareholders. See Principal and Selling Shareholders . All the shares offered in the rights offering and the global offering will be offered through the underwriters. The combined offering can be terminated under some circumstances, even with respect to rights that have been effectively exercised. See The Combined Offering , Plan of Distribution and The Rights Offering below. The Rights Offering Existing holders of our shares will have the right to subscribe for one new share for every three shares held at the subscription price. As of the evening of June 14, 2004, Clearstream Banking AG will automatically credit the subscription rights for shares held in collective custody to the depositary banks. Subscription Price We will determine the subscription price at the latest by 12:00 p.m. (noon) Frankfurt time on June 25, 2004. The subscription price will be between or at (x) the volume-weighted average price of the shares from the beginning of the subscription period until the determination of the subscription price and (y) the current market price of our shares at the time of the determination of the subscription price. In determining the subscription price, we will, among other things, consider the current market conditions and the preliminary results of the bookbuilding process for the shares to be offered in the global offering. We will only determine the subscription price during the subscription period. Therefore, we advise you to inform yourself about the subscription price via the various media set forth below before exercising your subscription rights. See also The Rights Offering Important Notices . The subscription price will be published through electronic media (Reuters) immediately after being determined and in the electronic version of the German Federal Gazette (elektronischer Bundesanzeiger) on the first practicable date after determination, at the latest on June 25, 2004. As soon as practicable after determination, the subscription price will also be published in the Frankfurter Allgemeine Zeitung and made available on GPC Biotech s website at http://www.gpc-biotech.com. 1998 14,400 1:1 1.16 10 1999 14,400 1:1 1.16 10 2000 15,000 25,000 1:1 1:1 6.62 17.89 10 10 2001 40,000 1:1 9.55 5 (1) 10,000 1:1 16.38 10 2002 2003 97,000 1:1 5.77 Fraunhoferstrasse 20 D-82152 Martinsried/Munich, Germany Tel: 011 49 89 8565 2600 Brent Hatzis-Schoch Vice President Legal Affairs GPC Biotech Inc. 101 College Road East Princeton, New Jersey 08540 Tel: (609) 524-1000 (Address and telephone number of Registrant s principal executive offices) (Name, address and telephone number of agent for service) Table of Contents Existing holders and investors should note that the subscription price in the rights offering may be higher than the initial offer price of the shares to be sold in the global offering. See The Combined Offering Important Notices and The Right Offering Important Notices . The subscription rights expire at 11:59 p.m. (Frankfurt time) on June 28, 2004. If you subscribe for new shares in the rights offering, you will receive them as soon as practicable on or after July 2, 2004. The Global Offering Those new shares as to which shareholders subscription rights have been excluded and any new shares not subscribed for in the rights offering, will be offered by GPC Biotech, together with the shares offered by certain management shareholders, through the underwriters in the global offering. We plan to offer these shares through the underwriters to the public in Germany and the United States, and to institutional investors in certain other jurisdictions. Offer Price The initial offer price of those new shares as to which shareholders subscription rights have been excluded, any new shares not subscribed for in the rights offering and the shares offered by certain management shareholders will be determined by GPC Biotech and Goldman, Sachs & Co. oHG at the end of a bookbuilding period. The bookbuilding period will begin on June 15 and is expected to end on or about June 29, 2004. The initial offer price of the shares to be sold in the global offering to the public will be published through electronic media (Reuters) immediately after being determined on or about June 29, 2004. The initial offer price to the public will be published in the Frankfurter Allgemeine Zeitung and The Wall Street Journal on or about July 1, 2004. Over-Allotment Option As part of the global offering, the underwriters have an option to purchase up to 1,119,000 additional new shares from GPC Biotech to cover over-allotments; shareholders subscription rights with respect to these shares will be excluded. Shares Outstanding 29,735,140 (assuming that all the new shares are sold in the combined offering and that the underwriters exercise their over-allotment option in full). American Depositary Shares Investors in the United States may also purchase shares in the form of ADSs. Each ADS, evidenced by an American Depositary Receipt, represents an ownership interest in one share. We are offering ADSs in addition to shares so that our company can be quoted on the Nasdaq National Market and investors will be able to trade our securities and receive dividends on them in U.S. dollars if they wish. Copies to: Danielle Carbone Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022 Tel: (212) 848-4000 Fax: (212) 848-7179 Michael Leppert Shearman & Sterling LLP Gervinusstrasse 17 D-60322 Frankfurt am Main, Germany Tel: 011 49 69 9711 1000 Fax: 011 49 69 9711 1100 Wolfgang Feuring David B. Rockwell Sullivan & Cromwell LLP Neue Mainzer Strasse 52 Frankfurt, Germany 60311 Tel: 011 49 69 4272 520 Fax: 011 49 69 4272 5210 Table of Contents Voting Rights Each share entitles the holder to cast one vote on all matters submitted to a vote of our shareholders. Holders of ADSs must follow specific procedures to exercise the voting rights of the shares underlying the ADSs and will not be able to exercise those rights unless we request The Bank of New York, as ADS depositary, to solicit voting instructions from ADS holders. We discuss these voting rights and procedures further in the sections of this prospectus entitled Description of Share Capital Shareholders Meeting and Voting Rights and Description of American Depositary Receipts Voting Rights . Dividends All shares offered in the combined offering are or will be entitled to full dividend rights for all periods commencing January 1, 2003. We have, however, not paid any dividends on our shares in the past and do not intend to pay dividends on our shares for the foreseeable future. Lock-Up We will agree with the underwriters that, on or before December 27, 2004 we will, subject to certain exceptions, (a) not directly or indirectly, offer, sell or otherwise dispose of any shares of our capital stock or any other securities which are convertible into or exchangeable for shares of our capital stock, (b) not exercise any authorization pursuant to our articles of association to increase our capital other than for the purpose of issuing ordinary shares to the beneficiaries of our existing stock option plans and convertible bond programs upon the exercise of option or conversion rights, and (c) not propose a capital increase to our shareholders other than a proposal for authorized capital (genehmigtes Kapital) or for conditional capital (bedingtes Kapital), in each case except with the prior written consent of Goldman, Sachs & Co. oHG. Certain exceptions apply for share issuances directly to strategic partners in the pharmaceutical or biotech sector in connection with partnering or licensing transactions or in connection with an acquisition or joint venture. See Plan of Distribution . All Management Board members will individually agree with the underwriters that, except with the prior written consent of Goldman, Sachs & Co. oHG, on or before December 27, 2004 they will not sell their shares or enter into similar transactions to this effect or propose, or vote in favor of, any increase in our share capital unless GPC Biotech is or would be permitted to propose such resolution. These lock-up restrictions do not apply to up to 150,000 cash settled stock options, which two of the Company s Management Board members intend to exercise before the end of the combined offering but after the publication of the initial offer price (see Principal and Selling Shareholders and Exercise of Cash Settled Stock Options Exercise of Cash Settled Stock Options ). Listing and Quotation Our shares are listed on the Frankfurt Stock Exchange under the symbol GPC (International Securities Identification Number (ISIN) DE0005851505; German securities code (WKN) 585 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents 150). Application has been made for quotation of the ADSs on the Nasdaq National Market under the symbol GPCB. Application has been made for admission of the new shares offered in the combined offering to the Frankfurt Stock Exchange, which is expected to be granted on June 28, 2004. Trading of the new shares on the Frankfurt Stock Exchange is expected to commence on June 30, 2004. The subscription rights (ISIN DE000A0AYYP6) will be admitted for trading on the Frankfurt Stock Exchange. The subscription rights will not be listed on a U.S. exchange or quoted on the Nasdaq National Market. Since we will only determine the subscription price during the subscription period, a price for the traded subscription rights may not be determinable or, to the extent that a price for the traded subscription rights can be determined, any such price may not constitute the arithmetic value of the subscription rights. See The Rights Offering Important Notices. Stabilization Goldman, Sachs & Co. oHG is authorized for a period beginning on the date of publication of the initial offer price and ending 30 days after allocation of the shares in the global offering to perform either by itself or through any of its affiliates certain stabilization measures for the purpose of keeping the market price of the shares or ADSs at a level that may not otherwise prevail. Any stabilization may be discontinued at any time. Stabilization measures will be performed in Germany and elsewhere in accordance with applicable laws. Use of Proceeds We intend to use the net proceeds from this offering to continue to fund clinical trials of satraplatin, to make regulatory filings for marketing approval of satraplatin, and to fund our other clinical, preclinical and research programs, including our monoclonal antibody program (1D09C3) and cell cycle inhibitor program (RGB-286199). We currently estimate that from the net proceeds of this offering we will spend between 50% and 60% to continue to fund clinical trials of satraplatin, to broaden the potential anticancer applications of this drug candidate, and to make regulatory filings for marketing approval of satraplatin; between 20% and 30% to fund our other clinical, preclinical and research programs, including our monoclonal antibody program (1D09C3) and cell cycle inhibitor program (RGB-286199), and to invest in new capabilities relating to our research and development activities; and between 15% and 25% for general corporate purposes, which may include the licensing of other product candidates, technologies or intellectual property. We will not receive any proceeds from the sale of the shares by the selling shareholders. See Use of Proceeds . If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. If delivery of the registration statement is expected to be made pursuant to Rule 434, please check the following box. (1) Does not include restricted cash of 2.5 million, 3.0 million and 3.5 million at December 31, 2003, 2002 and 2001, respectively and 2.6 million at March 31, 2004. CALCULATION OF REGISTRATION FEE Table of Contents
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+PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, including the section entitled Risk Factors and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Renovis, Inc. We are a biopharmaceutical company developing drugs to treat neurological diseases and disorders. We are currently pursuing eight distinct programs, including three product candidates in clinical development. Our most advanced product candidate is Cerovive , an intravenous drug for acute ischemic stroke. Cerovive is being evaluated in a Phase III clinical trial program that is planned to involve approximately 4,000 patients by our exclusive licensee, AstraZeneca. We are also independently developing two product candidates for the treatment of pain: REN-1654, an oral drug for neuropathic pain in Phase II clinical trials, and REN-213, an intravenous drug for acute post-operative pain in a Phase II clinical trial. Our research and development programs currently focus on major medical needs in the areas of pain, trauma and stroke, as well as neurodegenerative diseases. Our goal is to file one investigational new drug application (IND) with the U.S. Food and Drug Administration (FDA) in 2004 and another in 2005. Products in Clinical Development Cerovive is in Phase III clinical trials for the treatment of acute ischemic stroke. Cerovive works as a neuroprotectant to protect brain cells from damage triggered by a stroke. Stroke is the third leading cause of death in North America and Western Europe and the most common cause of adult long-term disability. More than two million strokes occur each year in the world s major industrialized countries, about 700,000 of which occur in the United States. However, the leading drug to treat stroke must be administered within three hours of the onset of symptoms and requires that the patient first receive a CT scan to be administered safely. As a result, it is administered to only approximately 3% to 5% of stroke victims. We believe a drug capable of reducing stroke-related disability that can be administered six hours after stroke without significant safety concerns would be used to treat a substantially broader population of stroke victims. In May 2003, AstraZeneca commenced two Phase III trials to test Cerovive versus a placebo. The first trial is being conducted in Europe, Australia, South Africa and Asia and is planned to include more than 1,500 subjects. The second trial is being conducted in the United States, Canada and South America and is also planned to include more than 1,500 subjects. A global safety study is planned to include approximately 600 patients with acute hemorrhagic stroke. AstraZeneca has announced a goal to submit applications for regulatory approval of Cerovive in 2006. We believe that Cerovive enters Phase III clinical trials with strong preclinical and clinical data on safety and efficacy. Based on published data, we believe Cerovive is the only drug that has met the Stroke Therapy Academic Industry Roundtable criteria (the STAIR criteria), a stringent set of preclinical criteria designed to guide the successful development of neuroprotectant drugs. In addition, Cerovive is the only drug in clinical trials that has been shown to substantially decrease both motor and cognitive disability in primates when given four hours after stroke. To date, a total of ten Phase I and Phase II clinical trials have been performed with Cerovive. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Table of Contents REN-1654 is in Phase II clinical trials for the treatment of neuropathic pain. REN-1654 is an oral drug that we are evaluating in Phase II clinical trials for the treatment of certain types of neuropathic pain. A total of approximately 26 million people worldwide suffer each year from some form of neuropathic pain. Conventional pain relievers are typically ineffective in treating this condition. REN-1654 has been shown to decrease inflammatory signaling that we believe plays a significant role in the damage of nerve cells underlying certain forms of neuropathic pain. Based on the results of ten previous safety trials, we initiated a Phase II clinical program with REN-1654 in October 2003. We plan to conduct five Phase II and Phase III trials over the next three years. We hold exclusive worldwide rights to patents covering REN-1654 and its uses. REN-213 is in a Phase II clinical trial for the treatment of acute post-operative pain. REN-213 is an intravenous formulation, the use of which is patented, of two marketed, off-patent drugs: nalbuphine, used for pain during labor and delivery, and naloxone, used to treat opiate overdose. Morphine and related narcotic opiates are presently the standard-of-care for acute post-operative pain, but they have serious side effects including constipation, respiratory depression, nausea, itching and confusion. These side effects can delay recovery and hospital release. In investigator-initiated studies designed to measure the effectiveness of REN-213 against acute post-operative pain, human patients treated with REN-213 reported pain relief comparable to morphine and did not report serious side effects. There are more than 31 million surgeries performed in the United States each year that require drugs for post-operative pain. If successfully developed and marketed, we believe that REN-213 has the potential to capture a significant share of this market. REN-213 is currently in a Phase II clinical trial. We plan to commence additional Phase II trials during the first quarter of 2004. REN-213 was tested in human clinical studies involving more than 370 patients who had undergone major dental surgery. Based on consultations with the FDA, we plan to conduct a total of eight Phase II and Phase III trials to determine the safety and effectiveness of REN-213 in patients suffering from acute post-operative pain following multiple types of surgery. The entire clinical program is planned to involve a relatively low number of patients due to the nature of acute post-operative pain and the history of usage of the components of REN-213 in humans. If these trials are successful, we believe that the clinical program for REN-213 can be completed by 2006. We hold exclusive worldwide license rights to a patent and pending patent applications covering REN-213. Research Our research is focused on developing new drugs to treat neurological diseases and disorders. Drugs that target central nervous system diseases and disorders represent the second largest sector of the worldwide drug market, accounting for more than $55 billion in worldwide drug sales in 2002. Within neurological diseases and disorders, our research is currently focused in three therapeutic areas: pain, trauma and stroke, as well as neurodegenerative diseases. Our neurobiology expertise includes broad capabilities in assay development, screening, lead optimization and target identification and validation. Our medicinal chemistry expertise includes the use of state-of-the-art technologies to turn initial promising compounds identified by our neuroscientists into drug candidates. As of January 1, 2004, we employed 26 Ph.D.s and M.D.s. Existing stockholders 17,495,609 75 % $ 96,159,000 55 % $ 5.50 New investors 5,500,000 24 77,000,000 43 14.00 New investment by Genentech 214,285 1 3,000,000 AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Our Strategy Our goal is to become the leading biopharmaceutical company focused on discovering, developing and commercializing drugs to treat neurological diseases and disorders. The key elements of our current strategy for achieving this goal are to: build a balanced portfolio of product candidates based on neurological diseases and disorders; independently pursue significant market opportunities in indications that can be tested in clinical trials that involve clear patient outcomes and short periods of patient follow-up, such as acute post-operative pain; establish selective corporate collaborations to assist in the development and commercialization of our products while retaining significant commercial rights; and develop a specialized U.S. sales and marketing organization to commercialize our lead products in pain. Risks Our business is subject to a number of risks, which you should be aware of before making an investment decision. These risks are discussed more fully in Risk Factors . All of our product candidates, including Cerovive, REN-1654 and REN-213, are in clinical or earlier stages of development. Accordingly, we have not received regulatory approval for, or received commercial revenues from, any of our product candidates. It is possible that we may never successfully commercialize any of our product candidates. As of September 30, 2003, we had incurred $71.0 million in net losses since inception. We expect to continue to incur increasing losses over the next several years, and we may never become profitable. Company Information We were incorporated in Delaware in January 2000 as Renovis Neuroscience, Inc. and changed our name to Renovis, Inc. in June 2000. Our principal executive offices are located at Two Corporate Drive, South San Francisco, California 94080, and our telephone number is (650) 266-1400. Our website address is www.renovis.com. Information contained in our website is not a part of this prospectus. References in this prospectus to we , us and our refer to Renovis, Inc. RENOVIS is our registered trademark. Cerovive is a registered trademark of AstraZeneca. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. Renovis, Inc. (Exact name of Registrant as specified in its charter) Delaware 2834 94-3353740 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Number) (I.R.S. Employer Identification No.) Two Corporate Drive South San Francisco, California 94080 (650) 266-1400 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Except as otherwise indicated, all information in this prospectus: gives effect to our certificate of incorporation which we will file immediately prior to the closing of this offering; gives effect to a 1-for-4.5 reverse stock split; gives effect to the automatic conversion of all outstanding shares of preferred stock into 16,208,583 shares of common stock upon the closing of this offering; and assumes no exercise by the underwriters of their option to purchase 825,000 additional shares from Renovis in this offering. Corey S. Goodman, Ph.D. President and Chief Executive Officer Renovis, Inc. Two Corporate Drive South San Francisco, California 94080 (650) 266-1400 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Alan C. Mendelson, Esq. Mark V. Roeder, Esq. Latham & Watkins LLP 135 Commonwealth Drive Menlo Park, California 94025-1105 (650) 328-4600 Scott D. Miller, Esq. Sullivan & Cromwell LLP 1870 Embarcadero Road Palo Alto, California 94303-3308 (650) 461-5600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the Securities Act ) check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (1) Represents current assets less current liabilities. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents
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+Prospectus Summary 1
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+S-1/A Table of Contents Summary 1
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+PROSPECTUS SUMMARY This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors," before making an investment decision. PNY TECHNOLOGIES We are a leading designer and marketer of Flash memory cards, USB Flash drives, dynamic random access memory, or DRAM, modules, consumer and professional graphics cards and other computer-related technology products. We market these products to consumers through traditional retailers, such as Best Buy Co., Inc., CompUSA, Inc. and Staples, Inc., through other retail and distribution channels, and directly to professionals. We also design, manufacture and market custom and standard DRAM modules for original equipment manufacturers, or OEMs, and their designated contract manufacturers. These customers include high-end computing, networking, storage and telecommunications equipment manufacturers, such as LSI Logic Corporation and Network Appliance, Inc. We currently market our products throughout the United States, as well as in Canada, Western Europe and certain parts of the Asia Pacific region. For the year ended December 31, 2003, we had net sales of $364.0 million. We believe we are a value-added supplier for many of our customers, and that our strong customer relationships are the result of our combination of the following competitive strengths: - Strong brand. We were one of the top ten overall sellers, as measured in both dollars and units, at each of our four leading retail customers for 2003, according to NPD Intelect. We believe that our well recognized PNY Technologies(R) brand allows us to collaborate effectively with our retail customers to introduce new products and product line extensions. - Broad portfolio of complementary products. Our broad product portfolio allows our customers to consolidate their vendor relationships and more efficiently manage their inventory. Our comprehensive product line also allows us to work with our traditional retail customers to provide a variety of cross-promotional activities that we believe increases foot traffic through their stores. - Merchandising and marketing expertise. We work closely with our key customers to create a variety of advertisements, promotions and product bundles, which reduces our reliance on traditional consumer incentives and increases our customers' sales. - Strong supplier relationships. Many of our key supplier relationships are more than a decade old. We believe our purchasing history with these suppliers has enabled us to obtain adequate supplies of our products during periods of industry shortage. - Supply-chain management expertise. We believe our logistical operations, supply-chain management expertise and operational flexibility help our retail and OEM customers better manage their inventory, thereby reducing their exposure to potential price fluctuations and further strengthening our customer relationships. We operate through two divisions: Consumer and OEM. We market our complete line of products through our Consumer division, including: - Flash memory cards. Flash memory cards are used to store data in digital cameras, multimedia cell phones, MP3 players, personal digital assistants, or PDAs, and other consumer electronic devices. According to NPD Intelect, we had an 11.0% share of the U.S. retail market in Flash memory cards for 2003. - USB Flash drives. USB Flash drives are self-contained, compact computer drives with no moving parts. We introduced our Attache((TM)) line of USB Flash drives in June 2003, and according to NPD Intelect, for the last six months of 2003, we had a 17.9% share of the U.S. retail market. - DRAM modules. DRAM modules are compact circuit board assemblies of DRAM semiconductors and related circuitry. DRAM upgrades provide a cost-effective way of improving the speed and performance of desktop and laptop computers. According to NPD Intelect, we have been the leading supplier of DRAM modules to the U.S. retail market in each of the last six years, and we had a 40.2% share and a 64.3% share of the U.S. retail market for desktop and laptop DRAM upgrades, respectively, for 2003. - Graphics cards. Our consumer graphics cards are used to enhance the performance of graphics-intensive applications on desktop computers. According to NPD Intelect, we had a 24.1% share of the U.S. retail market for consumer graphics cards for 2003. We are the exclusive provider of NVIDIA Corporation-based professional graphics cards to the professional aftermarket in the United States, Western Europe and other regions. These cards are used by game developers, computer assisted design, or CAD, engineers, digital animators and others who require advanced graphics capabilities. In our OEM division, our engineers work with OEMs or their designated contract manufacturers to design and manufacture custom and standard DRAM modules. Our OEM products include a broad range of DRAM modules that incorporate leading-edge, mainstream and trailing-edge memory technologies. OEMs use these modules in a variety of applications, including high-end computing products, such as servers and workstations, as well as networking, storage and telecommunications equipment products. MARKET OPPORTUNITY We believe that our strengths and our product offerings make us well positioned to take advantage of the expected growth in the market for Flash memory and related products. Semico Research forecasts that worldwide sales of Flash memory cards will grow from $2.0 billion in 2002 to $11.9 billion in 2006, a 56.4% compound annual growth rate. We believe this growth will be driven by the continuing proliferation of consumer electronic products that use Flash memory cards as their primary data storage device, such as digital cameras, multimedia cell phones, MP3 players and PDAs. We believe that the market for USB Flash drives, such as our Attache((TM)) device, will grow at an even greater rate. We believe USB Flash drives are beginning to replace floppy disk drives because of their small size, ease of use, rewrite capability, speed and security. Gartner Dataquest estimates that the worldwide market for USB Flash drives will grow from $135.6 million in 2002 to $1.7 billion in 2007, a 66.3% compound annual growth rate. We believe consumer and OEM demand for DRAM will increase due to the greater complexity of software enabled by increasing computer processing power, the development of high-bandwidth and graphics-intensive applications, evolving Internet and telecommunications infrastructure requirements, increased information technology, or IT, spending and computer-related equipment upgrades. Gartner Dataquest estimates that the worldwide market for DRAM will increase from $15.5 billion in 2002 to $23.4 billion in 2007. BUSINESS STRATEGY Our goal is to enhance our competitive position as a leading designer and marketer of computer-related technology products. We seek to accomplish this goal through the following strategies: - Capitalize on the growing demand for Flash products. We believe that the Flash memory industry will experience significant growth, driven by widespread adoption of consumer electronic devices with increasing data storage requirements and the adoption of USB Flash drives as a common storage device. We plan to capitalize on this growth by continuing to aggressively market our comprehensive offering of Flash memory products and by optimizing our opportunities to introduce new Flash memory products. For 2003, net sales of our Flash products increased by 132.4% compared to 2002. - Introduce complementary product lines. We plan to capitalize on our brand by further broadening our product portfolio with new products that complement our existing offerings, as we did with our Attache((TM)) USB Flash drive introduced in June 2003 and our Executive Attache((TM)) in January 2004. We plan to take advantage of the growing computer, consumer electronics, storage and networking markets by initially focusing on the product needs of our existing customer base and expanding into new markets as opportunities arise. - Expand OEM market presence. As demand returns for networking, storage and high-end computing products, we plan to maintain our relationships with our existing customers and selectively add new customers. One of our strengths in the OEM market is our ability to access trailing-edge memory technologies not readily available to other suppliers, which often offers us increased profit opportunities. - Further broaden our geographic presence. We intend to expand our geographic presence by targeting emerging and growing markets, such as the Far East, for both Consumer and OEM market expansion. Our facility in Taiwan allows us to increase our operational flexibility by establishing new supplier and contract manufacturing relationships, strengthening our existing supplier relationships and improving access to new technologies and products. - Continue to focus on superior customer service. We intend to focus our resources and expertise on providing superior quality and service to a core group of market leaders. We plan to further integrate our business with that of our existing retail customers, while seeking new customers that we believe have the potential to generate significant revenue. - Pursue acquisitions of complementary technologies, products or companies. We may make acquisitions to strengthen our position in our target markets, enhance our technology base, increase our supply capabilities or expand our geographic presence. PNY is a Delaware corporation, originally incorporated in 1985. Our principal executive office is located at 299 Webro Road, Parsippany, New Jersey 07054. Our telephone number is (973) 515-9700. We maintain a website on the Internet at www.pny.com. Our website and the information it contains are not a part of this prospectus. THE OFFERING <TABLE> <S> <C> Common stock offered............................................................ shares Common stock to be outstanding after this offering.............................. shares Use of proceeds................................................................. We intend to use the net proceeds from this offering to repay substantially all of our existing indebtedness and for working capital and general corporate purposes. Proposed Nasdaq National Market symbol.......................................... "PNYT" </TABLE> The number of shares of common stock to be outstanding after this offering is as of December 31, 2003, after giving effect to: (1) the automatic conversion of all of our issued and outstanding Series A preferred stock into shares of common stock upon the consummation of this offering, which will result in the issuance of 3,980,400 shares of common stock with an effective conversion price of $3.85 per share, and (2) the shares of common stock being sold by us in this offering, and excludes: - 2,497,080 shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2003, under our employee stock option plan, with a weighted average exercise price of $3.03 per share; - 49,500 shares of common stock issuable upon exercise of warrants outstanding as of December 31, 2003, with an exercise price of $0.03 per share; - 4,998,170 additional shares of common stock reserved for issuance under our employee stock option plan; and - up to shares of common stock to be sold by us if the underwriters exercise their over-allotment option in full. You should read the discussion under "Management - Stock Option and Other Benefit Plans" for additional information about our employee stock option plan. SUMMARY CONSOLIDATED FINANCIAL DATA The following tables set forth summary consolidated financial information and other data for our company as of and for the periods indicated. You should read the summary data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. The pro forma net income per share for the year ended December 31, 2003 reflects the automatic conversion of all of our outstanding Series A preferred stock into shares of common stock, described under "Capitalization," as if it had occurred on the first day of the period presented. The pro forma as adjusted balance sheet data give effect to the conversion of all our issued shares of Series A preferred stock and this offering and the application of the net proceeds therefrom as though they had occurred at December 31, 2003. <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, -------------------------------------------------- 2001 2002 2003 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) <S> <C> <C> <C> CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $ 314,197 $ 334,603 $ 363,993 Cost of sales (1) 281,688 286,351 318,167 ------------ ------------ ------------ Gross profit 32,509 48,252 45,826 Operating expenses: Selling (1) 21,184 26,228 28,136 Warehouse (1) 1,608 1,735 2,199 General and administrative (1) 9,586 8,513 8,985 Restructuring and other charges (2) -- 10,387 1,745 ------------ ------------ ------------ Operating income 131 1,389 4,761 Total other expenses, net (1,576) (3,435) (1,173) ------------ ------------ ------------ (Loss) income before income taxes (1,445) (2,046) 3,588 Income taxes 943 1,189 1,625 ------------ ------------ ------------ Net (loss) income (2,388) (3,235) 1,963 Dividends (waiver of dividends) on Series A preferred stock 1,147 650 (1,797) ------------ ------------ ------------ Net (loss) income available to common stockholders $ (3,535) $ (3,885) $ 3,760 ============ ============ ============ Net (loss) income per common share: Basic $ (0.14) $ (0.14) $ 0.14 Diluted (0.14) (0.14) 0.06 Shares used in computing net income per common share: Basic 26,120,205 26,954,800 26,954,800 Diluted 26,120,205 26,954,800 32,569,891 Pro forma net income per common share (unaudited): Basic $ 0.06 Diluted 0.06 Shares used in computing pro forma net income per common share (unaudited): Basic 30,935,200 Diluted 32,569,891 </TABLE> --------------- (1) Stock-based compensation included in the above amounts is as follows: <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, ------------------------------- 2001 2002 2003 ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> Cost of sales $1,073 $ (279) $ 174 Selling 596 89 87 Warehouse 7 5 6 General and administrative 150 (38) 39 ------ ------ ------ Total $1,826 $ (223) $ 306 </TABLE> (2) Represents charge for the impairment of long-lived assets and the shutdown and closure of our manufacturing facility in Ireland and manufacturing operations in California. <TABLE> <CAPTION> DECEMBER 31, 2003 ------------------------- PRO FORMA ACTUAL AS ADJUSTED ------ ----------- (IN THOUSANDS) <S> <C> <C> CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................................................... $ 7,190 $ Working capital......................................................................... 18,069 Total assets............................................................................ 137,193 Total bank debt......................................................................... 40,380 Capital lease obligations and bank overdrafts, including current maturities............. 4,033 Note payable to related party........................................................... 4,971 Total stockholders' equity.............................................................. 15,599 </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001123979_senomyx_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001123979_senomyx_prospectus_summary.txt
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+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001124941_qxo_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001124941_qxo_prospectus_summary.txt
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+Prospectus summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001125011_kanbay_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001125011_kanbay_prospectus_summary.txt
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+S-1/A Net long-lived assets: Australia $ 316 $ 243 Canada 2 Hong Kong 26 24 India 5,632 8,459 Japan 7 34 Singapore 7 11 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 KANBAY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 7371 (Primary Standard Industrial Classification Code Number) 36-4387594 (I.R.S. Employer Identification Number) 6400 Shafer Court, Suite 100 Rosemont, Illinois 60018 Phone: (847) 384-6100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Raymond J. Spencer Chairman and Chief Executive Officer Kanbay International, Inc. 6400 Shafer Court, Suite 100 Rosemont, Illinois 60018 Phone: (847) 384-6100 Fax: (847) 384-0500 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Janet Smerling LeVee, Esq. Benjamin D. Kern, Esq. Gordon & Glickson LLC 444 North Michigan Avenue Chicago, Illinois 60611 Phone: (312) 321-1700 Fax: (312) 321-9324 Leland E. Hutchinson, Esq. Matthew F. Bergmann, Esq. Winston & Strawn LLP 35 West Wacker Drive Chicago, Illinois 60601 Phone: (312) 558-5600 Fax: (312) 558-5700 Winthrop B. Conrad, Jr., Esq. Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Phone: (212) 450-4890 Fax: (212) 450-3890 Operating profit/(loss) existing operations 3,842,814 4,603,086 3,477,116 acquisitions 517,518 Total operating profit 3 3,842,814 4,603,086 3,994,634 Interest receivable and similar income 24,933 42,009 46,488 Interest payable and similar charges Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If this Form is to be a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement of the earlier effective registration statement for the same offering: If this Form is a post-effective amendment pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: Profit on ordinary activities before taxation 3,867,747 4,645,095 4,009,478 Taxation on profit on ordinary activities The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Profit for the financial year(1) 2,679,246 3,215,445 2,471,364 Dividends The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted. PRELIMINARY PROSPECTUS Subject to Completion December 7, 2004 Fixed assets Intangible assets 9 1,574,328 Tangible assets 10 3,078,729 3,750,072 Investments 4,800,000 Shares Common Stock 3,308,729 5,397,400 Current assets Debtors The selling stockholders named in this prospectus are offering 4,800,000 shares of our common stock. We will not receive any proceeds from the sale of any shares of our common stock sold by the selling stockholders. Our common stock is listed on the Nasdaq National Market under the symbol "KBAY." On December 6, 2004, the last sale price of our common stock as reported on the Nasdaq National Market was $27.59 per share. Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock under "Risk factors" beginning on page 7 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Share Total 5,586,617 7,858,462 Creditors: amounts falling due within one year Public offering price $ $ Underwriting discounts and commissions $ $ Total assets less current liabilities 5,538,373 7,728,721 Creditors: amounts falling due after more than one year 14 587,206 Provisions for liabilities and charges Deferred taxation Proceeds, before expenses, to the selling stockholders $ $ The underwriters may also purchase up to an additional 720,000 shares of our common stock from the selling stockholders to cover over-allotments, if any. The underwriters are offering the common stock as set forth under "Underwriting." Delivery of the shares of common stock will be made on or about , 2004. UBS Investment Bank Robert W. Baird & Co. Janney Montgomery Scott LLC The date of this prospectus is , 2004. Capital and reserves Called up share capital 16 914 918 Share premium account 17 29,480 57,701 Capital reserve 17 9,962 9,962 Profit and loss account You should rely only on the information contained in this prospectus. We have not, and the selling stockholders and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. The selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where those offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. TABLE OF CONTENTS Retained profit for the year Equity shareholders' funds(1) i Prospectus summary This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including "Risk factors" and the financial statements, before making an investment decision. OUR BUSINESS We are a global provider of information technology, or IT, services and solutions focused on the financial services industry. We combine technical expertise with deep industry knowledge to offer a broad suite of services, including business process and technology advice, software package selection and integration, application development, maintenance and support, network and system security and specialized services, through our global delivery model. Our three-tier global delivery model combines onsite client relationship teams, senior technical and industry experts at our offsite regional service centers and cost-effective global delivery centers in India. The three tiers of our global delivery model help us to provide our clients with value-enhancing solutions using a seamless, consistent and cost-effective client service approach. We focus on the financial services industry and provide our services primarily to credit services companies, banking institutions, capital markets firms and insurance companies. In providing our services, we utilize a wide array of technologies to develop customized solutions that address our clients' specific needs. As of September 30, 2004, Household International (and its affiliates within the HSBC Group), Morgan Stanley, CitiFinancial (an affiliate of Citigroup), Development Bank of Singapore and ABN-AMRO were among our top clients. Our engagements with our top clients typically involve numerous projects and multiple business units within each client and vary in complexity, scope and duration. We seek to expand our client relationships and migrate each client over time from discrete initial engagements to longer-term, recurring projects. For example, over the past several years we have successfully deepened our relationship with our largest client, Household International. For the year ended December 31, 2003 and for the nine months ended September 30, 2004, Household International, which is also our largest stockholder with approximately 14.2% of our common stock after completion of this offering, and its affiliates within the HSBC Group, accounted for 53.2% and 56.0% of our total revenues. Similarly, we have successfully developed our relationship with our second largest client, Morgan Stanley, which will own approximately 4.7% of our common stock after completion of this offering, and accounted for 13.0% and 10.3% of our total revenues in the year ended December 31, 2003 and in the nine months ended September 30, 2004. Our five largest clients together accounted for 80.7% of our total revenues in the year ended December 31, 2003 and in the nine months ended September 30, 2004. We have operated our business since 1989 and are headquartered in suburban Chicago. We have operations and clients around the world, with regional offices located in eight countries and delivery centers in Pune and Hyderabad, India. We also own a 49.0% interest in SSS Holdings Corporation Limited (SSS), which is based in Liverpool, England and focuses on providing IT services to the securities industry. From 1999 through 2003, our revenues grew from $44.2 million to $107.2 million, representing a compound annual growth rate of 24.8%. Our net income was $11.4 million for the year ended December 31, 2003 and $19.3 million for the nine months ended September 30, 2004. Our share of the earnings of SSS provided us with $2.0 million of equity in earnings of affiliate for the year ended December 31, 2003 and for the nine months ended September 30, 2004. Net cash (used in) provided by financing activities 1,367 (1,412 ) (2,273 ) Effect of exchange rates on cash 50 (32 ) 1 OUR INDUSTRY The role of IT has evolved from simply supporting business enterprises to enabling their expansion and transformation. As a result of the recent global economic downturn, companies are placing a greater emphasis on improving their return on IT investments and closely managing IT spending. To attain high-quality IT services at a lower cost, companies are turning to providers with offshore delivery capabilities. India has become the preferred destination for the provision of offshore IT services, offering high-quality and accelerated delivery, significant cost benefits and an abundance of skilled professionals. The global financial services industry is currently faced with a number of challenges, including increased regulatory scrutiny, growing competition and ongoing domestic and international consolidation. As a result, providing rapid access to, and delivery of, real-time information and implementing solutions and processes that minimize system downtime are vital to the success of financial institutions. However, providing these solutions and processes internally is often more costly and time-consuming than outsourcing these services. Consequently, financial institutions are looking externally for solutions that allow them to reduce costs and improve performance. Total global IT services spending within the financial services industry is expected to increase from $123.1 billion in 2003 to $154.3 billion in 2007, representing a compound annual growth rate of 5.8%. The financial services industry is expected to account for 21.2% of total global IT services spending from 2003 to 2007, the highest percentage of any single industry sector. OUR COMPETITIVE STRENGTHS We believe our competitive strengths include: >Deep industry expertise. We have developed expertise in the financial services industry, with a specific focus on credit services companies, banking institutions, capital markets firms and insurance companies. Our industry focus has enabled us to acquire a thorough understanding of our clients' business issues and applicable technologies, which allows us to deliver services and solutions tailored to each client's needs. Because of our specific industry focus, a significant economic downturn in the financial services industry could negatively affect our business. >Three-tier global delivery model. Our global delivery model allows us to provide each of our clients with a responsive and accessible relationship management team at the client's location, a readily available offsite team of technology and industry experts at one of our regional delivery centers and a cost-effective application development, maintenance and support team at one of our global delivery centers in India. Although our global delivery model allows us to provide these benefits to our clients, demand for our services could decline as a result of negative public perception regarding or new legislation restricting the use of offshore IT service providers. >Commitment to attracting, developing and retaining the highest quality employees. We believe we have established a business culture throughout Kanbay that enables us to attract and retain the best available industry talent. From 2001 to 2003, we retained an average of 90% of our employees even though the number of our employees grew significantly. We believe that our high employee retention rate provides tangible benefits to our clients, such as low turnover on long-term engagements, retention of knowledge which can be applied to new projects, consistent quality and competent and responsive personnel. We expect that we will continue to grow and our anticipated growth could place a significant strain on our ability to maintain our culture and provide these tangible benefits to our clients. >Long-term client relationships. We have long-standing relationships with many large, international companies within the financial services industry. Our ability to successfully deliver consistent, seamless solutions on a global basis combined with our deep knowledge of the financial services industry helps us expand the breadth and scope of our engagements with existing clients. We Income (loss) from operations (3,691 ) 3,136 8,288 Other income (expense): Interest expense (335 ) (424 ) (287 ) Interest income 62 17 39 Foreign exchange gain (loss) (31 ) 69 (120 ) Equity in earnings of affiliate 861 2,241 2,046 Loss on investment (644 ) Other, net 8 6 Balance at December 31, 2003 3,333,333 $ 3 20,725,776 $ 2 manage client relationships with our relationship development methodology, which helps us to migrate our clients over time from discrete initial engagements to longer-term, recurring projects. Because of our long-standing relationships, we have historically earned, and believe that in the future we will continue to earn, a significant portion of our revenues from a limited number of clients. >Scalable global business model. We believe that our three-tier global delivery model allows us to quickly engage new projects in order to rapidly meet client needs. Because of our financial services industry focus, we can rapidly deploy our project teams on new engagements located anywhere in the world. Our ability to rapidly deploy our project teams on new engagements and to provide our services to our clients is dependent on many factors, including continued compliance with various immigration restrictions and the maintenance of our global communications infrastructure. OUR STRATEGY In order to enhance our position as a global IT services provider focused on the financial services industry, we intend to: >Diversify and develop our client base; >Expand our service offerings and solutions; >Deepen our financial services expertise; >Continue to attract and retain highly skilled IT professionals; and >Enhance our brand visibility. Our principal executive office is located at 6400 Shafer Court, Suite 100, Rosemont, Illinois 60018, and our telephone number at that office is (847) 384-6100. Our website is located at www.kanbay.com. Information contained on our website is not part of this prospectus. You should carefully consider the information contained in the "Risk factors" section of this prospectus before you decide to purchase our common stock. Strategic Investments Solutions Limited England 50 % Pension investment adviser The Monocle Holdings Corporation Limited England 23 % Computer software development The Monocle Corporation Limited England 3 The offering Common stock offered by the selling stockholders 4,800,000 shares Common stock to be outstanding after this offering 32,913,097 shares Use of proceeds after expenses We will not receive any proceeds from this offering. Nasdaq National Market symbol KBAY Unless otherwise indicated, the number of shares of common stock to be outstanding after this offering includes 512,264 shares of common stock offered hereby and to be issued upon the exercise of options by some of the selling stockholders and excludes: >8,287,680 shares of common stock issuable after the completion of this offering upon the exercise of outstanding stock options under our stock option plan and stock incentive plan at a weighted average exercise price of $7.58 per share; >596,064 shares of common stock issuable after the completion of this offering upon the exercise of outstanding warrants at a weighted average exercise price of $6.03 per share; and >1,640,520 shares of common stock available for future grants under our stock incentive plan. Unless otherwise indicated, all share amounts assume the underwriters' over-allotment option is not exercised. Certain of the selling stockholders have agreed to pay for a portion of the expenses we incur in connection with this offering. See "Underwriting Commissions and discounts." 4 Summary historical consolidated financial data The following table presents summary historical consolidated financial data as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003, which has been derived from our audited consolidated financial statements, and as of, and for the nine months ended, September 30, 2003 and 2004, which has been derived from our unaudited consolidated financial statements and which, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. These historical results are not necessarily indicative of results to be expected for any future period. You should read this information together with "Selected historical consolidated financial data," "Management's discussion and analysis of financial condition and results of operations," and our consolidated financial statements and related notes for the years ended December 31, 2001, 2002 and 2003 and the nine months ended September 30, 2003 and 2004, which are included elsewhere in this prospectus. Nine months ended September 30, Years ended December 31, Income (loss) from operations (4,363 ) (10,986 ) (3,691 ) 3,136 8,288 5,512 22,034 Interest expense (379 ) (1,478 ) (335 ) (424 ) (287 ) (206 ) (17 ) Interest income 103 129 62 17 39 16 261 Foreign exchange gain (loss) 209 (17 ) (31 ) 69 (120 ) (48 ) (168 ) Equity in earnings of affiliate(2) 29 861 2,241 2,046 1,569 2,009 Loss on investment (644 ) Other, net 2 8 6 21 12 Income from operations 5,512 22,034 Other income (expense): Interest expense (206 ) (17 ) Interest income 16 261 Foreign exchange gain (loss) (48 ) (168 ) Equity in earnings of affiliate 1,569 2,009 Other, net 12 (in thousands, except per share amounts) Net revenues related parties $ 11,292 $ 14,377 $ 38,001 $ 50,253 $ 70,942 $ 48,909 $ 87,308 Net revenues third parties 32,914 43,144 31,653 32,336 36,211 26,515 44,420 Total selling, general and administrative expenses 21,985 31,819 31,065 29,756 36,846 26,159 36,474 Depreciation and amortization 1,362 2,171 2,437 2,682 3,308 2,305 3,860 (Gain) loss on sale of fixed assets 2 (9 ) 57 38 36 31 Total selling, general and administrative expenses 21,985 31,819 31,065 29,756 36,846 26,159 36,474 Depreciation and amortization 1,362 2,171 2,437 2,682 3,308 2,305 3,860 (Gain) loss on sale of fixed assets 2 (9 ) 57 38 36 31 Total selling, general and administrative expenses 26,159 36,474 Depreciation and amortization 2,305 3,860 Loss on sale of fixed assets 31 Total revenues 44,206 57,521 69,654 82,589 107,153 75,424 131,728 Cost of revenues 25,220 34,526 39,786 46,977 58,675 41,417 69,326 Total selling, general and administrative expenses 31,065 29,756 36,846 Depreciation and amortization 2,437 2,682 3,308 Loss on sale of fixed assets 57 38 8,557 11,315 Investment in affiliate 18,858 22,185 Deferred income taxes 1,350 Other assets 161 Raymond J. Spencer(1) 54 Chairman and Chief Executive Officer William F. Weissman 46 Vice President and Chief Financial Officer Jean A. Cholka 46 Vice President Global Client Management Cyprian D'Souza 49 Chief People Officer and Director Shrihari Gokhale 41 Vice President Global Services Delivery Mark L. Gordon(1)(2) 53 Director Donald R. Caldwell(1)(3)(4) 58 Director Kenneth M. Harvey(2)(4) 44 Director B. Douglas Morriss(2)(3) 41 Director Michael E. Mikolajczyk(3)(4) Income (loss) from operations (4,363 ) (10,986 ) (3,691 ) 3,136 8,288 5,512 22,034 Other income (expense): Interest expense and other, net (67 ) (1,364 ) (296 ) (332 ) (347 ) (226 ) 103 Equity in earnings of affiliate(2) 29 861 2,241 2,046 1,569 2,009 Loss on investment (644 ) Income (loss) before cumulative effect of accounting change (4,368 ) (12,310 ) (3,788 ) 4,819 11,439 Cumulative effect of accounting change(3) (2,043 ) Payments to acquire subsidiary undertakings and goodwill (note 21) (75 ) (587,130 ) Net cash and bank balances acquired Net income (loss) (4,368 ) (12,310 ) (3,788 ) 2,776 11,439 6,755 19,317 Dividends on preferred stock (608 ) (610 ) (608 ) (608 ) (608 ) (455 ) (277 ) (Increase) decrease in carrying value of stock subject to repurchase (6,558 ) (864 ) (676 ) 4,077 3,063 (2,362 ) Foreign debt $ 1,680 $ Capital leases Income (loss) available to common stockholders $ (11,534 ) $ (13,784 ) $ (5,072 ) $ 6,245 $ 13,894 $ 3,938 $ 19,040 Carrying value in SSS at beginning of year $ 15,961 $ 18,858 Equity in earnings of SSS 2,241 2,046 Cash dividend received from SSS (1,215 ) (763 ) Foreign currency translation adjustments 1,779 2,134 Change in ownership percentage and other Note payable to stockholder, interest at 7.4%, due in monthly payments of $3 $ 25 $ Note payable to stockholder, interest at 6%, due on demand 200 Notes payable to stockholder, non interest bearing, due on demand 331 Other related party loans Income (loss) before income taxes (4,430 ) (12,321 ) (3,770 ) 5,045 9,987 6,855 24,146 Income tax expense (benefit) (62 ) (11 ) 18 226 (1,452 ) Income (loss) before income taxes (4,430 ) (12,321 ) (3,770 ) 5,045 9,987 6,855 24,146 Income tax expense (benefit) (62 ) (11 ) 18 226 (1,452 ) Income before income taxes 6,855 24,146 Income tax expense Strategic System Solutions Ltd England 100 % Computer software development Strategic System Solutions Inc. USA 100 % Computer software development Strategic Training Solutions Ltd England 100 % Computer training provider Strategic Back-Office Solutions Ltd England 75 % Back office services SSS Hangzhou Co. Limited(*) China 5 The following table presents a summary of our balance sheet as of September 30, 2004: >on an actual basis; and >on an as adjusted basis to give effect to the issuance of 512,264 shares of common stock in connection with the exercise of options by some of the selling stockholders in conjunction with this offering, resulting in proceeds of $401,000, after deducting the estimated offering expenses that we will pay. As of September 30, 2004 Consolidated balance sheet data: Actual As adjusted (in thousands) Cash and cash equivalents $ 16,650 $ 17,051 Working capital 76,268 76,669 Total assets 164,809 165,210 Long-term debt Total stockholders' equity 128,508 128,909 (1) Reflects the results of Kanbay Australia Pty Ltd. from the date of its acquisition on October 29, 1999 for approximately $3 million in cash and stock. (2) On November 30, 2000, we acquired a 49.4% interest in SSS Holdings Corporation Limited (SSS) in exchange for 2,086,697 shares of our common stock valued at approximately $15.9 million. As of September 30, 2004, we owned approximately 49.0% of SSS. We account for SSS under the equity method of accounting. (3) Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 does not permit goodwill and indefinite-lived intangible assets to be amortized. Upon adoption of SFAS No. 142, we recorded a non-cash charge of $2.0 million to reduce the carrying value of goodwill. This non-cash charge was recorded as a cumulative effect of an accounting change. If we had applied SFAS No. 142 retroactively as of January 1, 1999, our net income (loss) would have been $(4.3 million) in 1999, $(12.0 million) in 2000 and $(2.4 million) in 2001. (4) For the period from January 1, 1999 through August 23, 2000, we operated as a Delaware limited liability company (LLC). On August 24, 2000, we converted from a LLC into a Delaware C corporation when all members exchanged their common and preferred units in the LLC for an equivalent number of shares of our common and preferred stock. Income (loss) per share of common stock and average shares outstanding is presented for the years during which we operated as a C corporation. Provision at U.S. federal statutory rate $ (1,282 ) $ 1,715 $ 3,396 State taxes, net of federal effect (94 ) 135 242 Foreign tax holiday (302 ) (655 ) (1,637 ) Undistributed earnings of SSS (402 ) (510 ) Foreign tax credit (259 ) Non-deductible items 501 326 470 Change in valuation allowance 1,204 (1,002 ) (2,772 ) Other (9 )
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001126119_brightmail_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001126119_brightmail_prospectus_summary.txt
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+Prospectus summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001126167_claria_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001126167_claria_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, including Risk Factors and the consolidated financial statements and the related notes. References in this prospectus to Claria, we, our and us refer to Claria Corporation and our consolidated subsidiaries. Our Business We pioneered, developed and operate a leading online behavioral marketing platform that enables us to deliver, manage and analyze highly targeted online advertising campaigns. We target our advertisements to specific segments of our large, permission-based audience of users based on a broad range of anonymously identified behaviors exhibited across the Internet. These behaviors include a number of commercial behaviors and lifestyle indicators that suggest commercial interests and purchase intent and are therefore valuable to advertisers. Since the launch of our services in 2000, we have grown rapidly by attracting a large number of advertisers and users. Our audience currently consists of more than 43 million users worldwide, and our direct and indirect customers in 2003 included approximately 425 advertisers, including many leading online advertisers such as Cendant Corporation, FTD.com, Inc., Netflix, Inc. and Orbitz, Inc. We display ads through our proprietary online advertising network, the GAIN Network. The GAIN Network offers advertisers anonymous consumer targeting, ad delivery, optimized delivery timing, campaign management, research and analytics. The GAIN Network also features SearchScout, an online service that displays paid search listings from Yahoo! s Overture Services division. We attract our audience by integrating our GAIN AdServer software with consumer software products that are offered free of charge to Internet users in exchange for permission to display our advertisements. Our GAIN Publishing unit publishes some of these software products, such as DashBar, Date Manager, Gator eWallet, Precision Time, WeatherScope and WebSecureAlert. We also enter into strategic relationships to include our AdServer software with free software products offered by third-party publishers, including DivXNetworks, Inc., iMesh and Sharman Networks Ltd., which publishes the KaZaA Media Desktop. We market our services to advertisers primarily through our sales organization. We presently have sales operations located at our headquarters in Redwood City, California and in Austin, Chicago, Detroit, Los Angeles, London, New York and Tokyo. For the year ended December 31, 2003, we generated revenue of approximately $90.5 million, substantially all of which came from online advertising. Our Industry Marketing is one of the largest industries in the United States and globally, consisting of mass-media advertising channels, such as television, radio and print, as well as direct marketing channels, such as direct mail, telemarketing and catalogs. Despite the size and growth of the advertising and direct marketing industries, campaign effectiveness has been constrained by a number of factors. These factors include a limited ability to identify and isolate targeted consumers, optimize delivery timing and measure the effectiveness of ad spending. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents The Internet has emerged as a powerful mass medium and is beginning to have a profound impact on the marketing industry. Following two years of decline, online advertising represented an estimated $7.2 billion market in the United States in 2003 according to the Interactive Advertising Bureau, an industry trade group, in its Interactive Advertising Revenue Report. Forrester Research, a market research firm, projects that the online advertising market will grow at a 17.5% compound annual growth rate over the next five years to reach $15.6 billion during 2008. Key drivers of growth in the online advertising market include an increased share of the overall advertising market, increased Internet and broadband use and the proliferation of more targeted and effective online advertising, such as paid search and behavioral marketing. The Internet differs from traditional advertising and direct marketing channels in two fundamental ways that could help enable highly-targeted online marketing on a large scale. First, the Internet is a two-way interactive medium, which offers the potential to help identify and target the commercial interests of an individual user. Second, the Internet is a mass medium for both viewing content and transacting commerce, which helps enable the delivery of marketing messages when consumers are actively shopping for a product or service. Much online advertising, however, still suffers from similar limitations as traditional mass media advertising and fails to take full advantage of the opportunities offered by the Internet for more targeted and effective advertising. Our Solution Our platform is designed to address the limitations of both traditional and many forms of online marketing by enabling advertisers to deliver highly-targeted and effective online advertising campaigns to our audience and to analyze and optimize the effectiveness of these campaigns. Key advantages of our platform and solution include: Ability to anonymously identify, gather and analyze a broad range of online behaviors across the Internet. Through our proprietary GAIN AdServer software, which is installed on users personal computers, we can anonymously identify a broad range of online consumer behaviors exhibited by our users across the Internet. Unlike server-based targeting approaches, our client-based approach is not limited to identifying only behaviors exhibited while viewing web pages displayed by a particular online media property or network. Further, we can identify a broad range of behaviors that suggest commercial interests and purchase intent and are therefore valuable to advertisers, including various commercial behaviors, such as researching sport utility vehicles, and lifestyle indicators, such as planning a wedding. Superior targeting capabilities. Anonymously identified behavioral data is gathered in a central database, analyzed by our proprietary software tools for key trends and indicators and used for ad-targeting purposes. As a result, we can target consumers that exhibit specific online behaviors and lifestyle indicators. Enhanced delivery timing. We can display advertisements at various points throughout a consumer s purchase cycle, from initial research to time of purchase. This feature allows advertisers to enhance the timing of their message for purposes of influencing purchase decisions. Ability to measure, analyze and enhance campaign effectiveness. We can anonymously identify how our users respond to advertisements, including click-through and purchase conversion rate data, to measure, analyze and improve campaign effectiveness. Operating expenses: Cost of revenue 152 1,637 5,823 6,951 8,843 Product and technology development 1,739 5,134 4,841 3,294 3,533 Sales and marketing 4,800 21,652 16,918 21,560 36,922 General and administrative 671 3,411 3,372 7,374 10,695 Stock-based expense(1) 8 121 16 Total stock-based expense $ 8 $ 121 $ 16 $ (in thousands) Stock-based expense $ Operating expenses: Cost of revenue 5,823 6,951 8,843 Product and technology development 4,841 3,294 3,533 Sales and marketing 16,918 21,560 36,922 General and administrative 3,372 7,374 10,695 Stock-based expense 16 Total stock-based expense $ 16 $ 2004 $ 4,051 2005 3,729 2006 1,069 2007 Current: Federal $ $ $ 629 State 14 2,544 Foreign FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Network scale. With a current worldwide audience of over 43 million users, we enable advertisers to target even narrowly defined market segments, such as prospective new purchasers of sport utility vehicles, in significant numbers. Robust, proprietary technology. The key components of our online behavioral marketing platform are based on proprietary, internally-developed software. Consumer privacy. To protect our users privacy, we do not identify or collect any personally identifiable information, and all of the behaviors that we identify, collect and analyze are anonymous. We are sensitive to the privacy concerns expressed by consumers, government and consumer advocacy groups and believe we have established best practices designed to respect consumer privacy. Our Strategy Our goal is to leverage our online behavioral marketing platform to become one of the leading marketing service providers in the world. Key elements of our strategy include: increasing the number of behaviorally-targeted advertisements that we deliver by expanding our audience and increasing the range of online behaviors that we can anonymously identify; increasing our number of advertisers and revenue per advertiser; extending applications of our platform; expanding internationally; and continuing to increase awareness of behavioral marketing and our best practices and advocate the adoption of industry standards.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001128495_anadys_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001128495_anadys_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001130216_win-or_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001130216_win-or_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read the entire prospectus carefully if you want to understand the risks of our business plan and the terms of this offering. You should pay special attention to the discussion in the risk factors section of this prospectus. We are a "blank check company." We have not engaged in any substantive business activities to date and we have no specific plans to engage in any particular business in the future. We have registered this distribution for the purpose of creating a "public shell" and facilitating our plans to engage in a business combination with an unidentified company. We refer to acquisition candidates as "targets." We believe that the owners of a target may conclude that a business combination with our company is a reasonable alternative to an initial public offering or "IPO." Our belief is based on the experience of our officers in similar transactions between private companies and public shells. We have not commenced our search for a target and will not restrict our search to any particular industry. There can be no assurance that we will be able to identify a suitable target or negotiate a business combination on acceptable terms. Our business office is located at 1268 Bayshore Boulevard, Dunedin, Florida 33698. Our Internet address is www.winorlose.info. Our telephone number is (727) 734-7346. Current capitalization Our officers own 2,400,000 shares of our common stock. They will distribute 403,000 gift shares to donees and they will offer to sell a maximum of 1,597,000 founders' shares to third parties in connection with a business combination. Our officers will continue to hold at least 400,000 shares after the completion of this distribution. The distribution We have registered 12,600,000 acquisition shares that we will offer to issue in connection with a business combination. We have also registered 2,000,000 shares that are owned by four officers of our company who are identified as selling stockholders in this prospectus. The principal components of our planned distribution are: o A gift share distribution that will make us a public company; and o A business combination with an unidentified target that will make us an operating company. In connection with the gift share distribution, our officers will give 403,000 shares of our stock to family members, personal friends and business acquaintances. Each donee will receive 500 gift shares and be subject to the restrictions described in this prospectus. Our officers will not receive money, property or other consideration from any donee in connection with the gift share distribution. Upon completion of the gift share distribution, we will have 810 stockholders and 2,400,000 shares outstanding. In connection with a business combination, our company will offer to issue up to 12,600,000 acquisition shares to the owners of a target. Concurrently, our officers will offer to resell up to 1,597,000 founders' shares to our advisors, owners of a target and other participants in the business combination. We will receive property in connection with the issuance of acquisition shares, but our officers will keep any proceeds from the resale of founders' shares. We will have up to 15,000,000 shares outstanding upon completion of a business combination. If we ultimately conclude that we will be unable to negotiate a suitable business combination, comply with Rule 419 and close the proposed transaction within 18 months from the date of this prospectus, we intend to unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares. Rule 419 requirements The gift share distribution is subject to Rule 419 and our officers will promptly deposit all certificates for the gift shares that they transfer to donees in the Rule 419 escrow. Stock certificates in the Rule 419 escrow will be held in trust for the sole benefit of the donees until we negotiate a business combination and comply with the disclosure, reconfirmation and closing requirements of Rule 419. Donees will not be permitted to sell or transfer their gift shares until we complete a business combination. If we negotiate a business combination, we will file an amendment to our registration statement that includes the information specified in Rule 419(e)(1). Within five days after the effective date of this amendment, we will deliver an updated prospectus to each donee. Each donee will then be required to either approve the proposed transactions in writing and retain the gift shares, or reject the proposed transactions and return the gift shares to the officer who made the original gift. Donees that approve the proposed transactions will be required to retain ownership of at least 100 gift shares until the earlier of nine months after the closing of the business combination or the listing of the combined companies' shares on the American Stock Exchange or the Nasdaq Stock Market. Prior distribution We registered a substantially identical distribution of gift shares, founders' shares and acquisition shares in June 2002. Since our prior distribution was also subject to Rule 419 and we were unable to complete a business combination within 18 months, we unwound the gift share distribution and removed the gift shares, founders' shares and acquisition shares from registration. Each donee that received gift shares in the prior distribution will receive a like number of gift shares in this distribution. We cannot give you any assurance that we will be able to close an acquisition, or that this distribution will have a better outcome than our prior distribution. Acquisition plan We will promptly begin our search for a target. We believe our search for a target will require months of investigation. We also expect the negotiation of a business combination to be a time consuming process. Our officers will have broad discretion to structure a business combination and negotiate terms for the issuance of acquisition shares and the resale of founders' shares. The prospectus for our reconfirmation offering will disclose the material terms of all such all transactions. The following example provides summary forward-looking information on the future ownership of our company assuming that 12,600,000 acquisition shares are issued in connection with a business combination, 1,400,000 founders' shares are sold to the owners of a target and 197,000 founders' shares are sold to our advisors. <TABLE> <CAPTION> Current Share purchases Potential future Percent Our Officers capitalization and (sales) capitalization of total <S> <C> <C> <C> <C> Shares currently outstanding 2,400,000 Gift shares transferred to donees (403,000) Founders' shares sold to advisors (197,000) Founders' shares sold to owners of the target -- (1,400,000) -- ----------- Total 2,400,000 (2,000,000) 400,000 2.67% Gift Share Donees -- 403,000 400,000 2.69% Advisors to our company -- 197,000 200,000 1.31% Owners of the target Founders' shares purchased -- 1,400,000 Acquisition shares received -- 12,600,000 ---------- Total 14,000,000 14,000,000 93.33% ---------- ------- Total shares outstanding after business combination 15,000,000 100.00% ========== ======= </TABLE> The ownership interests of the various classes of stockholders will not be known until we have negotiated a business combination transaction. Accordingly, such interests may vary significantly from the forward-looking information set forth in the example. While there are no limits on the number of founders' shares that could be sold to our advisors, we expect that the owners of a target will seek to maximize their collective ownership interest in the combined companies. If a target has significant minority stockholders who will not otherwise be classified as affiliates of the combined companies under applicable Amex and Nasdaq rules, it is possible that no founders' shares will be sold to advisors. We will not negotiate a business combination on terms that would result in the combined companies having a public float of less than 1,000,000 shares. No established market There has never been a public market for our shares. Even if we complete a business combination, the combined companies' shares will not qualify for an immediate Amex or Nasdaq listing. At present, the securities of public companies that do not qualify for an Amex or Nasdaq listing are either quoted on the OTC Bulletin Board or listed in the Pink Sheets. The markets for OTC Bulletin Board and Pink Sheet securities are frequently illiquid and volatile. SUMMARY FINANCIAL INFORMATION Summary Statement of Operations data The following table presents summary information on our results of operations for the years ended December 31, 2001 through 2003. This data is qualified in its entirety by our financial statements. Year ended December 31, ----------------------- 2003 2002 2001 Operating expenses $ 13,113 $16,120 $3,072 Expenses of prior offering (1) $176,47 9 Net income (loss) ($189,592) ($16,120) ($3,072) Net Income (loss) per share ($0.08) ($0.01) ($0.00) Number of shares outstanding $2,400,000 $2,400,000 $2,400,000 (1) When we withdrew the registration statement for our prior offering, we charged all accumulated deferred offering costs to expense. Summary Balance Sheet data The following table presents summary information on our financial condition at December 31, 2002 and 2003. The table also presents as adjusted information that gives retroactive effect to our receipt of $40,000 in additional capital and the completion of the gift share distribution. This data is qualified in its entirety by our financial statements. Year ended December 31, As Adjusted ----------------------- 2003 2002 for offering Cash in banks (1)(2) $ 1,085 $ 10,210 $ 28,845 Deferred Offering Costs (2) 10 174,212 10,000 --- -------- ------- Total Assets $ 1,095 $184,422 $ 38,845 ======= ======== ======== Current liabilities (2) 2,250 2,837 -- Long-term debt -- -- -- -- -- -- Total Liabilities 2,250 2,837 -- Common Stock 2,400 2,400 2,400 Additional paid-in capital (1) 213,443 206,591 253,443 Deficit accumulated during development stage (216,998) (27,407) (218,998) --------- --------- --------- Total stockholders equity (1,155) 181,584 38,845 --------- -------- ------- Total liabilities and equity $ 1,095 $184,422 $ 38,845 ======= ======== ======== (1) Our officers contributed $20,000 of additional capital on January 23, 2004 and will contribute an additional $20,000 in capital on the effective date of our registration statement. (2) After paying our current liabilities and $10,000 of estimated offering costs, we will have $28,845 in cash to finance our proposed business operations. (3) Deferred offering costs will be carried as an asset until we complete a business combination or unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares. <PAGE> RISK FACTORS Our shares are extremely speculative and our business plan involves a very high degree of risk. We believe that common stock in a blank check company is one of the most speculative investments available. You should carefully consider the following risks together with the other detailed information in this prospectus. Risks for all stockholders Our officers expect the gift share distribution to significantly increase the value of their remaining shares and their "gifts" cannot be viewed as acts of simple generosity. We will become a publicly held blank check company as a direct result of the gift share distribution. Our officers believe this legal status will make our company more attractive to potential targets and significantly increase the value of their remaining shares. If we are able to successfully implement our business plan, our officers expect to realize substantial personal gains from the immediate resale of 1,597,000 founders' shares and the future resale of the 400,000 shares they will retain for investment. Under these circumstances, their "gifts" cannot be viewed as acts of simple generosity. Even if we negotiate and close a business combination, an active, sustained and stable public market for our shares may never develop. Sally Fonner and John Petersen have previously served as officers and directors of public shells that effected business combinations with privately held companies. In each of these transactions, the combined companies shares have only qualified for quotation on the OTC Bulletin Board, trading has not been active or sustained and the market prices have been volatile. Even if we negotiate and close a business combination, an active, sustained and stable public market for our shares may never develop. Donees are encouraged to independently review the available information on these prior transactions. Our prior distribution was unsuccessful and there is no assurance that this distribution will have a better outcome. Transactions under Rule 419 are considerably more difficult and complex than other shell transactions. In connection with our prior distribution, we were unable to close a business combination within 18 months and we ultimately unwound the distribution and removed our shares from registration. We cannot give you any assurance that this distribution will have a better outcome than our prior distribution. You will not be able to sell your gift shares until we complete a business combination. All certificates for gift shares will be promptly deposited in the Rule 419 escrow and held in trust until we close a business combination. You will not be able to sell or transfer your gift shares until we have completed a business combination and the escrow agent has mailed your stock certificates to you. You will be required to retain ownership of at least 100 gift shares for up to six months after we complete a business combination. Each donee will be required to retain ownership of at least 100 gift shares until the earlier of six months after the completion of a business combination or the listing of the combined companies' shares on the Amex or Nasdaq. A simple quotation on the OTC Bulletin Board, the Pink Sheets will not satisfy this listing requirement. When the gift shares are released from the Rule 419 escrow, each donee will receive two certificates: one for 100 shares and a second for 400 shares. The certificate for 100 shares will be imprinted with a restrictive legend that describes the applicable limitations on transfer. We will not be able to obtain additional financing until we complete a business combination. Our officers contributed $20,000 of additional capital on January 23, 2004 and will contribute $20,000 in additional capital on the effective date of our registration statement. We will not be able to obtain additional financing until we complete a business combination. If we spend our available cash before we close a business combination, we may be forced to unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares. Our prior failure to close an acquisition within 18 months may increase the risk that we will truncate due diligence procedures or liberalize our target selection standards over time. Our prior distribution was unsuccessful because we failed to close an acquisition within 18-months. When presented with a choice to recapitalize our company or abandon the investment they made in connection with our prior distribution, our officers decided to recapitalize our company and file a new registration statement for a second distribution on substantially identical terms. Our prior failure to close an acquisition within 18 months may increase the risk that we will truncate due diligence procedures or liberalize our target selection standards over time. Our reconfirmation offering will be a "take it or leave it" proposition. We must conduct our reconfirmation offering as soon as we negotiate a transaction where the fair value of the target exceeds $2,920,000. If we select a target and make a reconfirmation offering that is not accepted by the requisite percentage of donees, Rule 419 will require us to unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares. Therefore, our reconfirmation offering will be a "take it or leave it" proposition. You may not be able to rely on the collective business judgment of others. Rule 419 does not establish a fixed percentage of donees that must approve our reconfirmation offering. Instead, it only requires that our prospectus disclose the reconfirmation threshold negotiated by the parties. If a proposed transaction provides for a relatively low reconfirmation threshold, you may not be able to rely on the collective business judgment of the other donees. Conversely, if a proposed transaction provides for a relatively high reconfirmation threshold, the other donees may have the power to overrule your individual decision. We do not intend to comply with the corporate governance standards that would be required under Amex or Nasdaq rules until we complete a business combination. We do not have any independent directors or an audit committee to review related party transactions. We do not intend to solicit stockholder approval for a business combination. We do not intend to comply with the corporate governance standards that would be required under Amex or Nasdaq rules until we complete a business combination. After the gift share distribution, our officers will own approximately 83% of our stock and they will have both the executive and voting power to approve all corporate actions without your consent. We expect a business combination to result in a change in control and our officers will not have any power to influence future decisions of the combined companies. We will issue up to 12,600,000 acquisition shares in connection with a business combination. Therefore we expect a business combination to result in a change in control. After a change in control, the owners of the target will have the right to appoint their own management team and our current officers will not be able to influence future decisions, seek an Amex or Nasdaq listing for our stock or take any other action to promote a public market. There can be no assurance that we will be able to negotiate appropriate after-market support agreements or that any terms we negotiate will be effective. If successor management does not devote sufficient time and resources to developing and promoting a public market, you may be unable to sell your gift shares at any price. The personal pecuniary interests of our officers may conflict with their fiduciary duties. Our registration statement includes 1,597,000 founders' shares that our officers may resell to our advisors, owners of a target and other participants in the business combination. While our officers will not resell founders' shares at a price that represents a premium to the comparable per share value received by our company, it is likely that a business combination and the related resale of founders' shares will result in the transfer of property to our company and the payment of cash to our officers. Therefore, the personal pecuniary interests of our officers may conflict with their fiduciary duties. We will not receive any proceeds from the resale of the founders' shares. All of our officers are engaged in other business activities and will face conflicts of interest in allocating their time among their various business affairs. Our officers are not required to devote any specific amount of time to our business. Each of our officers is actively involved in other business pursuits and they will all face conflicts in allocating their time among their various business interests. Such conflicts may cause delays or prevent us from effecting a business combination. If we lose the services of Mr. Petersen, we may be unable to pay the fees of outside legal counsel. We expect that John L. Petersen, our general counsel, will represent our company in connection with a business combination and assist in drafting the post-effective amendment to our registration statement. We will not pay any cash fees to Mr. Petersen for these services. If Mr. Petersen fails to provide the required services in a timely manner, we may have insufficient cash to retain outside legal counsel to perform the required work. We have registered the bulk of our outstanding shares and all of the shares we plan to issue. We have registered the bulk of our outstanding shares and all of the shares we plan to issue. If we close a business combination, all shares held by gift share donees, our advisors and other stockholders who are not affiliates of the combined companies will be eligible for immediate resale. If a substantial number of shares are offered for sale at the same time, the market price is likely to decline and such declines may be permanent. Our regulatory status may make a business combination more complex and expensive. This distribution has been registered on Form S-1. Our decision to use this form may make compliance with the disclosure and reconfirmation requirements of Rule 419 more difficult. All our future SEC filings must comply with the requirements of Regulations S-K and S-X, which can be more complex than their counterparts under Regulation S-B. Therefore, the owners of a potential target may decide that added cost of regulatory compliance will make our company less desirable than a competing public shell. There has never been a public market for our shares and such a market may never develop. There has never been a public market for our shares and such a market may never develop. No market makers have expressed any interest in our company and we do not intend to engage in discussions with potential market makers until we have negotiated a business combination. If an active public market for the shares of the combined companies does not develop, you may be unable to resell your shares at any price. The combined companies' shares are likely to be subject to the SEC's penny stock regulations, which may discourage brokers from effecting transactions in those shares. Under applicable SEC regulations, shares that are issued by a company that has less than $5,000,000 in net tangible assets, have a market price of less than $5 and are not listed on Nasdaq or a stock exchange are classified as "penny stock." The penny stock regulations impose significant restrictions on brokers who sell penny stock to persons other than established customers and accredited investors. The combined companies' shares are likely to be subject to the penny stock regulations, which may discourage brokers from effecting transactions in those shares. This would decrease market liquidity, adversely affect market price and make it difficult for you to use the combined companies' shares as collateral. Additional risks for owners of potential targets A business combination with our company will probably not be less expensive than an IPO. We do not have access to any substantial financial resources. Accordingly, a business combination with our company will probably not be less expensive than an IPO. We expect you will expend substantial sums for: o The fees of your lawyers and accountants who will bear primary responsibility for preparing the information that must be included in the prospectus for our reconfirmation offering; o The costs of preparing any additional registrations and applications necessary to facilitate the closing of a business combination, comply with state law or facilitate the development of a trading market; and o The costs of preparing, filing and distributing regular reports under the Exchange Act, together with the specific stockholder reports required by Rule 419. We believe that an IPO is usually a better alternative than a business combination with a public shell. If you have the ability to conduct an IPO, we encourage you to do so. If you are not in a position to conduct an IPO and you still want to go public, you should be aware that the process of effecting a business combination with a public shell is difficult, expensive and subject to numerous substantial risks that will make it very difficult to develop an active, liquid, stable and sustained trading market for the combined companies' shares. You should not consider a business combination with our company if you need additional capital or will require additional capital within 12 to 18 months. A business combination with our company will not give you immediate access to the capital markets. You should not consider a business combination with our company if you need additional capital or will require additional capital within 12 to 18 months. Until the combined companies have been active for a sufficient period of time to demonstrate credible operating performance, it will be very difficult, if not impossible, for the combined companies to raise additional capital. You cannot assume that additional capital will ever be available. You should expect increased regulatory scrutiny and a high degree of skepticism from the financial community if you enter into a business combination with our company. Blank check companies have been used as vehicles for fraud and manipulation in the penny stock market. Therefore, you should expect more regulatory scrutiny at the Federal and state level than you might otherwise encounter if you simply filed a registration statement for an IPO. Moreover, the financial community views shell transactions with a high degree of skepticism until the combined companies have been active for a sufficient period of time to demonstrate credible operating performance. Increased regulatory scrutiny may increase your compliance costs and market skepticism may make it more difficult to establish and maintain an active, liquid, stable and sustained trading market for the combined companies' shares. You should not consider a business combination with our company if you are seeking short-term investment liquidity for corporate insiders. While the acquisition and founders' shares have been registered under the Securities Act, all shares held by persons who are affiliates of the combined companies will be classified as "restricted securities" that were issued on the closing date of the business combination. These shares will not be eligible for resale for a period of one year after the closing date unless the resale is registered under the Securities Act. You should not consider a business combination with our company if you are seeking short-term investment liquidity for corporate insiders. The combined companies' shares will not qualify for an immediate Amex or Nasdaq listing and may never qualify for such a listing. We expect the combined companies to satisfy Nasdaq's record holder and public float standards. Even if a target satisfies the operating history, stockholders' equity, net income and market capitalization standards for an Amex or Nasdaq listing, the combined companies must also have three active market makers and satisfy certain minimum bid price standards. The Amex and Nasdaq ordinarily require an established trading history of 30 to 90 days at a price that exceeds their respective minimum bid standards before they consider a listing application. Therefore, the combined companies' shares will have to begin trading on the OTC Bulletin Board or the Pink Sheets, and wait to apply for an Amex or Nasdaq listing until all of the applicable listing standards have been satisfied. There can be no assurances that the combined companies' shares will ever qualify for a listing. The holders of gift shares are likely to be "sellers" and the availability of large quantities of gift shares may impede the development of a trading market or increase market volatility. The holders of gift shares will have no money at risk in our company. If you enter into a business combination with us, the donees are likely to be willing to sell gift shares at a price that is significantly less than the minimum bid price required for a Nasdaq listing. In such an event, the market may have to absorb a substantial percentage of the outstanding gift shares before the prevailing market price stabilizes. If the combined companies are successful, there may not be enough shares available. Our capital structure has been designed to foster the development of an orderly trading market. However, if the combined companies are successful, the relatively small number of freely transferable shares may make it difficult to satisfy market demand. Our existing stockholders can be expected to maximize their personal benefit and if substantial quantities of our gift shares are withheld from the market, the resulting supply and demand imbalances may drive the market price of the combined companies' shares to unsustainable levels. We are not investment bankers and you will need to devote substantial time, effort and expense to developing and maintaining an active trading market. We are not investment bankers and we have no ability to promote a market for the combined companies' shares. Therefore, you will need to devote substantial time, effort and expense to developing and maintaining an active trading market. If you fail to devote adequate time and resources to that effort, any market that does develop is likely to be short-lived and volatile. If an active, sustained and stable trading market does not develop, the price of our shares will decline and those price declines are likely to be permanent. THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements and information on a number of topics, including: o Our goals, our business plan and the availability of suitable targets; o Our ability to locate a suitable target, conduct an adequate due diligence investigation and negotiate a reasonable business combination; o Our ability to execute our business plan in compliance with the requirements of Rule 419; o The potential development of a public trading market for the combined companies' shares; and o Other topics that can be identified by the use of forward looking terminology such as "may," "will," "expect," "anticipate," "estimate," "continue," "believe" and other similar words. These statements are forward-looking and reflect our current expectations. They are subject to a number of risks and uncertainties, including the risk factors and other uncertainties described in this prospectus. We do not intend to update our forward-looking statements. In light of the many risks and uncertainties surrounding our business plan, donees, owners of targets and potential purchasers of founders' shares should be aware that we can provide no assurance that any of the forward-looking statements in this prospectus will prove to be accurate. THE GIFT SHARE DISTRIBUTION IS SUBJECT TO SECURITIES AND EXCHANGE COMMISSION RULE 419 We are a "blank check company," as defined in Rule 419. Our business plan may be described as a "blind pool" because neither you nor we know what the business of our company will be. This section explains the requirements of Rule 419 and describes the procedures we will implement to insure compliance with that Rule. Introduction to Rule 419 Blank check companies have been used as vehicles for fraud and manipulation in the penny stock market. In response to a Congressional mandate, the SEC adopted Rule 419, which requires blank check companies to implement certain safekeeping, disclosure and reconfirmation procedures in their public offerings, including: o Depositing at least 90% of any net offering proceeds in escrow until the requirements of Rule 419 have been satisfied and an acquisition has been completed; o Depositing all stock certificates for shares distributed to the public in escrow until the requirements of Rule 419 have been satisfied and an acquisition has been completed; o Conducting a reconfirmation offering for the purpose of giving public stockholders an opportunity to review and consider detailed prospectus disclosure concerning a proposed acquisition; o Giving each public stockholder an opportunity to either approve the proposed acquisition and retain his shares, or reject the proposed acquisition and unwind his share acquisition transaction; o Unwinding individual transactions with any public stockholders that fail to approve the reconfirmation offering in writing; and o Returning all offering proceeds if a specified percentage of the public stockholders do not approve the reconfirmation offering in writing, or if an acquisition is not closed within 18 months. Application of Rule 419 Rule 419 applies to every registration statement filed by a blank check company. The staff of the SEC's Division of Corporation finance has taken the position that Rule 419 applies to both issuer transactions and the resale of outstanding securities. We will comply with the applicable requirements of Rule 419. Gift share donees. Our officers will not receive money, property or other consideration from any donee in connection with the gift share distribution. Accordingly, there will be no offering proceeds that can be deposited in escrow. When a gift share transaction is completed, our officers will promptly deposit certificates for the gift shares in the Rule 419 escrow. Those certificates will be held in trust for the sole benefit of the donee until we negotiate an acquisition and comply with the disclosure, reconfirmation and closing requirements of Rule 419. All gift shares deposited in the Rule 419 escrow will be represented by individual stock certificates that are registered in the names of the individual donees. While certificates for gift shares are held in the Rule 419 escrow, the donees will be entitled to all of the voting and other rights of stockholders of our company. However gift shares deposited in the Rule 419 escrow may not be sold or transferred by donees, except upon death or pursuant to a qualified domestic relations order. Founders' share purchasers. Purchasers of founders' shares will have the right to terminate their agreements without penalty until they approve the terms of our reconfirmation offering in writing. Notwithstanding such approval, all contracts for the resale of founders' shares will be contingent on the successful completion of our reconfirmation offering to donees. Purchasers of founders' shares will not be required or permitted to pay for founders' shares until the related business combination has closed. Therefore, the resale of founders' shares will not result in any proceeds that can be deposited in escrow. When our officers agree to resell founders' shares, they will promptly deposit certificates for those shares in the Rule 419 escrow where they will be held in trust until we complete our reconfirmation offering and close a business combination. Resale transactions for founders' shares will close concurrently with or promptly after the related business combination closing. Founders' shares deposited in the Rule 419 escrow will be registered in the name of the selling officer and accompanied by duly executed instruments of transfer. Purchasers of founders' shares will not obtain title to their shares or have any voting or other stockholders' rights until the resale transactions are closed. Pending closing of the resale transactions, all voting and other stockholders rights will remain vested in our officers. Reconfirmation offering Rule 419 requires us to conduct a reconfirmation offering before we close a business combination. We will take the following steps to insure compliance with the requirements of Rule 419: o When we negotiate a business combination, we will sign a preliminary agreement that is contingent on the approval of the target's stockholders and subject to the completion of our reconfirmation offering. o When our officers negotiate agreements for the resale of founders' shares, they will sign agreements that are contingent on the purchaser's approval of our reconfirmation offering and subject to the completion of our reconfirmation offering. o When conditional agreements have been signed by all parties, we will file a post-effective amendment to our registration statement that contains the information required by Rule 419(e)(1)(i)-(iii), together with other appropriate disclosure. o Before we conduct our reconfirmation offering, we will deliver an updated prospectus to each stockholder of the target and each purchaser of founders' shares. o When all necessary parties approve our reconfirmation offering, we will sign definitive agreements that are only subject to the successful completion of our reconfirmation offering. o After signing the definitive agreements, we will deliver a final prospectus to each donee and conduct our reconfirmation offering. In connection with our reconfirmation offering, each donee will be given at least 20 and not more than 45 days to consider the prospectus information and make reconfirmation decision. Each donee will then be required to either approve the terms of our reconfirmation offering in writing and retain the gift shares, or reject the terms of our reconfirmation offering and return the gift shares to the officer who made the original gift. Rule 419 requires us to treat a donees' failure to respond to our reconfirmation offering as a rejection of the reconfirmation offering terms. If a donee fails to respond in a timely manner his gift share transaction will be unwound and his gift shares will be returned to the officer who made the original gift. If a specified percentage of the donees do not approve the terms of our reconfirmation offering in writing, all of the gift share transactions will be unwound, all gift shares will be returned to our officers and the proposed transactions will be abandoned Donees should understand that if our reconfirmation offering provides for a relatively low reconfirmation threshold, they might not be able to rely on the collective business judgment of a large number of other donees in making a reconfirmation decision. Conversely, if our reconfirmation offering provides for a relatively high reconfirmation threshold, the donees as a group might have the power to overrule individual decisions. After we complete our reconfirmation offering and close a business combination, we will send a notice of completion to the escrow agent. This notice will include a copy of our final prospectus and identify the donees that approved the terms of our reconfirmation offering in writing. Upon the receipt of this notice, the escrow agent will release all of the remaining stock certificates from the Rule 419 escrow and we will file a prospectus supplement that indicates the number of shares released from the Rule 419 escrow and the date of such release. USE OF PROCEEDS Our officers contributed $20,000 of new capital on January 23, 2004 and they will contribute $20,000 more on the effective date of our registration statement. This contribution will not be classified as offering proceeds. While our officers will not receive any money, property or other consideration in connection with the gift share distribution, they may resell all or any portion of the founders' shares. The proceeds from the resale of founders' shares may be substantial, but our company will not have any interest in those proceeds. Our company will not receive any proceeds from either the gift share distribution or the resale of founders' shares. If we close a business combination, we will receive property in connection with the issuance of acquisition shares. It is impossible to predict the value of such property. REASONS FOR THE GIFT SHARE DISTRIBUTION We will become a publicly held blank check company as a direct result of the gift share distribution. Our officers believe this status will make our company more attractive to potential targets and significantly increase the value of their remaining shares. Because of the complexities involved in soliciting investors and accounting for investor funds under Rule 419, our officers have concluded it is in their best interest to simply distribute gift shares to family members, personal friends and business acquaintances. If we can successfully implement our business plan, our officers expect to realize substantial personal gains from the immediate resale of 1,597,000 founders' shares and the future resale of 400,000 shares they will retain for investment. DILUTION After giving effect to the $20,000 our officers will contribute to our company on the date of this prospectus, our net tangible book value will be $28,845, or approximately $.01 per share. Since the gift share distribution involves the transfer of issued and outstanding shares that are currently owned by our officers, it will not change the net tangible book value of our shares. We cannot predict whether a future business combination will dilute the net tangible book value of our shares, but we believe such an outcome is unlikely. If appropriate, the prospectus for our reconfirmation offering will include a detailed dilution discussion. CAPITALIZATION The following table sets forth our capitalization at December 31,2003. The table also presents as adjusted information that gives retroactive effect to our receipt of $40,000 in additional capital contributions from our officers after year end and the completion of the gift share distribution. This data is qualified in its entirety by our financial statements. As of As adjusted December 31, 2003 for offering Common stock, $0.001 par value, 25,000,000 shares authorized, 2,400,000 shares issued and outstanding, $ 2,400 $ 2,400 Preferred, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding -- -- Additional paid-in capital 213,443 253,443 (1)(2) Deficit accumulated during development stage (216,998) (216,998) --------- --------- Total stockholders' equity ($1,155) $38,845 ======== ======= (1) Includes $20,000 that our officers contributed on January 23, 2004 and $20,000 that they will contribute on the effective date of our registration statement. (2) After paying $2,250 of current liabilities and $10,000 of estimated offering costs, we will have $28,845 in cash to finance our proposed business operations. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS Organization and prior distribution We were incorporated in Delaware on December 1, 2000. Thereafter, we registered a substantially identical distribution of gift shares, founders' shares and acquisition shares. Our prior registration statement was declared effective in June 2002 and we completed our gift share distribution in August 2002. Market conditions were very poor in late 2002 and early 2003. Moreover, our president became ill in early 2003 and she subsequently learned that her condition would require complex surgery and a lengthy recovery. The combination of poor market timing and unanticipated medical problems negatively impacted our ability to implement our business plan. Since our prior distribution was subject to Rule 419 and we were unable to close an acquisition within 18 months, we unwound the gift share distribution in November 2003 and removed all our shares from registration. Between December 2000 and December 2003, our officers spent $218,999 to organize our company, register our prior distribution and finance our operations. Our expenses included $7,215 in organization costs, $176,479 in offering costs and $35,305 in operating costs. When our prior distribution was unsuccessful, our officers considered the available options and ultimately decided to recapitalize our company and file a second registration statement for a substantially identical distribution of securities. We believe market conditions and our president's health have improved to a point where we have a reasonable probability of success. However we cannot give you any assurance that this distribution will have a better outcome than our prior distribution. Financial condition We had $1.085 in cash and $2,250 in current liabilities at December 31, 2003. Our officers contributed $20,000 of additional capital on January 23, 2004 and will contribute an additional $20,000 on the effective date of our registration statement. After paying our current liabilities and $10,000 of estimated offering costs, we will have $28,845 in cash to finance our proposed operations. Plan of operations We will use our available cash resources to pay the costs of operating our company, investigating business opportunities, negotiating a business combination and preparing the required post-effective amendment to our registration statement. We will not pay any compensation to our officers, but we will reimburse any out-of-pocket expenses they incur on our behalf. We intend to request a reasonable due diligence fee before we begin a detailed investigation into the affairs of a potential target. There can be no assurance that any potential target will be willing to pay a due diligence fee, or that any due diligence fees we receive will be sufficient to offset the out-of-pocket costs incurred. Rule 419 will require us to unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares if we are unable to negotiate a business combination, complete our reconfirmation offering and close the transaction within 18 months from the date of this prospectus. If we ultimately conclude that we will be unable to meet this deadline, we will promptly distribute any remaining assets to our stockholders and liquidate our company. We believe our available cash resources will be adequate for our anticipated needs. Nevertheless, we may run out of money if a particular investigation requires significant technical expertise, or if we spend substantial amounts of money investigating a potential target and then determine that the potential target is not suitable. The SEC's integration and general solicitation doctrines will preclude private placement transactions until we complete our reconfirmation offering and close the associated business combination. Therefore, we will be unable to obtain funds by selling additional securities. We have the corporate power to borrow money, but credit is not likely to be available. Our officers have no duty to loan money to our company. If we spend our available cash and are unable to obtain additional financing, we will be forced to abandon our business and liquidate. PROPOSED BUSINESS We are a blank check company. Our goal is to engage in a business combination on terms that will give our stockholders a reasonable share of the increased market value that ordinarily arises when a private company makes the transition to public ownership. We have not engaged in any substantive business to date and we have no plans to engage in any particular business in the future. We will not limit our search to a particular industry. The IPO market has been weak since the spring of 2000 and many proposed IPO's have been delayed or abandoned. Despite uncertain market conditions, we believe that a substantial number of adequately financed private companies want to become publicly held in order to satisfy the requirements of their early-stage investors and implement their growth strategies. We believe our blank check company structure may present a viable alternative for certain private companies that want to be publicly held, but have been unable to conduct an IPO. Overview of shell transactions The two most common ways for a private company to "go public" are a traditional IPO, or a business combination with a public shell. Most private companies that decide to go public do so because they need to raise capital. But financing is not the only reason that private companies decide to go public. Other reasons include: o Increasing total stockholder value by transforming a private company into a public company; o Creating an "alternative currency" (i.e. publicly traded shares) that can be used for acquisitions; o Facilitating equity-based compensation for employees and management; o Providing investment liquidity for investors and minority stockholders; and o Preparing a foundation for future financing activities. We believe an IPO is usually preferable to a shell transaction. But in cases where an adequately financed private company wants to go public for reasons other than a current need for additional capital, we believe it is important for the management and owners to carefully consider the pros and cons of each alternative. The following table highlights some of the differences we believe the management and owners of a private company should consider before deciding between an IPO and a shell transaction. <TABLE> <S> <C> Characteristics of IPO Market Characteristics of Business Combination Market An IPO usually generates substantial cash proceeds and Business combinations do not usually generate dilutes the ownership interest of insiders. substantial cash proceeds or dilute ownership. The IPO market can be "trendy," and if a company is not in The business combination market is frequently less a "hot" industry it can be difficult or impossible to concerned with current market trends. conduct an IPO. Secondary markets develop rapidly, the markets are Secondary markets develop slowly, liquidity is often a generally liquid and there is usually a good balance problem and there are frequently more sellers than between sellers and buyers. buyers. The IPO market is very sensitive to current market The business combination market has less sensitivity to conditions and deals are frequently aborted or delayed at current market conditions and deals are less likely to a relatively late stage in the process. be aborted or delayed in their final stages. The IPO market has a high degree of visibility and The business combination market has relatively low companies that complete an IPO find it relatively easy to visibility and companies frequently find it difficult develop "institutional" interest in their stock. to develop "institutional" interest in their stock. Because of the competition and due diligence associated Companies that engage in shell transactions are with the IPO process, companies that complete an IPO are generally viewed with skepticism for an extended period often perceived as more substantial and credible. of time. </TABLE> The generic term "public shell" can be used to describe any existing company that has no substantial business activities, a relatively large stockholder base and outstanding stock that may be lawfully resold by the holders. Within this broad definition, there are substantial variations in the structure, value and overall utility of public shells. The factors that are typically considered when evaluating a public shell include: Control status Public shells that can offer a controlling interest to the owners of a target are generally more desirable than shells that cannot implement a change in control. Regulatory status Public shells that are registered with the SEC are generally more desirable than shells that will be required to register with the SEC at some future date. 1933 Act registration Public shells that can issue registered stock in connection with a business combination are generally more desirable than shells that can only issue restricted stock. Trading status Public shells that are listed for trading or eligible for immediate listing are generally more desirable than shells that will be required to pursue a listing at a future date. Available resources Public shells that have available resources, particularly cash resources, are generally more desirable than shells that have no available resources or material liabilities. Prior operations Public shells that have no prior operations are generally more desirable than shells that have prior operations and the potential for contingent liabilities. Stock distribution Public shells that have a substantial number of existing stockholders and a relatively even distribution of stock ownership are generally more desirable than shells that have a small number of stockholders, or a few stockholders who control large blocks of stock. In developing a structure for our blank check company, we have endeavored to maximize our competitive advantages and minimize our competitive disadvantages. Therefore, we believe our company will have a strong competitive position when compared with other available public shells. We can provide you no assurances, however, that potential targets will find our structure more desirable than competitive shells. Information requirements for targets We must file a post effective amendment to our registration statement and conduct a reconfirmation offering before we close a business combination. Rule 419(e)(1) requires that the amendment contain: o The information specified by Form S-1 and the applicable Industry Guides; o Audited balance sheets as of the end of the two most recently completed fiscal years and unaudited interim balance sheets for the dates specified in Regulation S-X; o Audited statements of income and cash flow for the three most recently completed fiscal years and unaudited interim statements of income and cash flow for the periods specified in Regulation S-X; and o Unaudited pro forma financial information on the combined companies. We cannot enter into a business combination with a target that cannot provide the foregoing information. Our future SEC filings must comply with the requirements of Regulations S-K and S-X, which can be more complex than their counterparts under Regulation S-B. Therefore, the owners of a potential target may decide that added cost of regulatory compliance will make our company less desirable than a competing public shell. Selecting a target We anticipate that our officers and a variety of unaffiliated sources will bring potential targets to our attention. Potential lead sources include broker-dealers, investment bankers, venture capitalists, attorneys and other members of the financial community, who may present solicited or unsolicited proposals. We will not enter into exclusive relationships with professional firms that specialize in business acquisitions. We may, however, agree to work with such firms on a non-exclusive basis. In evaluating potential targets, our officers will ordinarily consider the following factors, among others: o The target's liquidity, financial condition and results of operation; o The target's growth potential and future capital requirements; o The nature, competitive position and market potential of the target's products, processes or services; o The relative strengths and weaknesses of the target's intellectual property protection; o The education, experience and abilities of the target's management and key personnel; o The regulatory environment within the target's industry; and o The market performance of the equity securities of similar public companies in the target's industry. The foregoing is not an exhaustive list of the factors we may consider in our evaluation of potential targets. We will also consider other factors that our officers deem relevant under the circumstances. In evaluating a potential target, we intend to conduct a due diligence review that will include, among other things, meetings with management and key staff, inspection of properties and facilities, reviews of material contracts, financial statements and projections, and any other matters that we believe are relevant under the circumstances. Our registration statement includes 12,600,000 acquisition shares that we may issue in connection with a business combination. It also includes 1,597,000 shares that our founders may resell to our advisors, owners of a target and other participants in the business combination. Within these limits, our officers will have unlimited flexibility to structure a business combination and establish terms for the resale the founders' shares. The time, effort and expense required to evaluate a target and negotiate a business combination cannot be predicted with any degree of accuracy. We do not have any full-time employees. Our officers act as part-time employees but are not required to devote any specific amount of time to our business. If our officers do not devote adequate time to investigation, due diligence and negotiations, we may be unable to identify a suitable target, negotiate a business combination and comply with the requirements of Rule 419 in a timely manner. Limited ability to evaluate management We intend to evaluate the management of a potential target when considering the desirability of a business combination. We cannot assure you that our assessment will prove to be correct or that a target's management will possess the particular skills, qualifications and abilities required to effectively manage a public company. We may require the target to recruit additional personnel to supplement its current management team. We cannot assure you that a target will have the ability to recruit additional managers, or that any new management team members that are recruited will have the requisite skills, knowledge or experience. While one or more of our officers may remain involved in the affairs of the combined companies, they are not likely to have executive or board level authority. While our officers have significant experience in a variety of industries, we cannot assure you that our officers will have significant experience or knowledge relating to the operations of a particular target. The prospectus for our reconfirmation offering will include summary information on the identity, education and experience of the officers, directors and key personnel of the target. Valuation of targets Our board of directors intends to rely on established metrics that are generally used in the financial community to determine the value of a target and negotiate the terms of a business combination. Our board of directors will ordinarily begin its evaluation of a target using the following objective factors, among others: o The target's audited balance sheet; o The target's historical and projected sales; and o The target's historical and projected results of operations and cash flow. In most cases, our board of directors will also consider a variety of subjective factors that can have a positive or negative impact on valuation decisions, including: o Overall conditions in the target's industry and the target's competitive position within its industry; o The relative strengths and weaknesses of the target's business development plans; o The market capitalization of similarly situated public companies; and o The relative strengths and weaknesses of the target, compared with similarly situated public companies. Based on their analysis, our board of directors will reach a conclusion concerning the fair market value of a target. It will then attempt to negotiate a business combination that maximizes stockholder value. The board of directors may retain independent experts to assist in the evaluation of a target but it is not required to do so. The valuation of a potential target is an inherently subjective process that is subject to a substantial degree of risk and uncertainty. Our directors are not experts in the evaluation of businesses. We can offer no assurance that our directors will be able to accurately assess the value of a particular target. We can offer no assurance that our directors will be able to negotiate a business combination on terms that are advantageous to our stockholders. If a business combination is concluded, we can give you no assurance that the combined companies' shares will ever achieve a market price that is in line with the value determined by our board of directors. Amex listing standards The following table summarizes the quantitative listing standards for companies that want to list their securities on the American Stock Exchange <TABLE> <CAPTION> Standard 1 Standard 2 Standard 3 Standard 4 ---------------- ------------------- ------------------- ------------------------ <S> <C> <C> <C> <C> Operating history N/A 2 years N/A N/A Stockholders' equity $4,000,000 $4,000,000 $4,000,000 N/A Net income in last year or two of three most recent years $750,000 N/A N/A N/A ------------------------ Total Market capitalization N/A N/A $50,000,000 $75,000,000 or Total Assets $75,000,000 and Total Revenue $75,000,000 ------------------------ Minimum price $3 $3 N/A N/A Market value of public float $3,000,000 $15,000,000 $15,000,000 $20,000,000 </TABLE> Distribution alternatives 800 public stockholders and 500,000 shares publicly held or 400 public stockholders and 1 million shares publicly held or 400 public stockholders, 500,000 shares publicly held and average daily trading volume of 2,000 shares for last 6 months Nasdaq listing standards The following table summarizes the quantitative listing standards for companies that want to list their securities on the Nasdaq Stock Market: <TABLE> <CAPTION> SmallCap National Market System ---------------------------------------------------------- ---------------------------------------------------------- <S> <C> <C> Operating history 1 year and N/A 2 years and N/A Stockholders' equity $5,000,000 or $15,000,000 $30,000,000 N/A ---------------------- Net income in last year or two of three most recent years $750,000 or $1,000,000 N/A N/A ---------------------------------------------------------- ------------------ Market capitalization $50,000,000 N/A N/A $75,000,000 or Total Assets N/A N/A N/A $75,000,000 and Total Revenue N/A N/A $75,000,000 ------------------- Minimum price $4.00 $5.00 $5.00 $5.00 Market value of float $5,000,000 $8,000,000 $18,000,000 $20,000,000 Number of stockholders 300 400 400 400 Number of publicly held shares 1,000,000 1,100,000 1,100,000 1,100,000 </TABLE> We will have 810 stockholders when the gift share distribution is completed. This initial number is likely to decline in connection with our reconfirmation offering. We will endeavor to negotiate a business combination with a target that has sufficient operating history, stockholders' equity and net income to satisfy the applicable Amex or Nasdaq listing standards. If we are successful in negotiating a proposed transaction with a target that believes the combined companies can satisfy the quantitative listing standards for an Amex or Nasdaq listing, the target may ask us to modify our capital structure by implementing a forward or reverse stock split to facilitate their planned listing application. As long as the aggregate percentage interests of the various classes of stockholders remain unchanged, we are likely to comply with such a request. We will not, however, negotiate a business combination on terms that would result in the combined companies having a public float of less than 1,100,000 shares. There is no assurance that we will be able to negotiate a business combination with a target that has sufficient operating history, stockholders' equity and net income to satisfy the applicable Amex or Nasdaq listing standards. Even if the quantitative standards are met, the Amex or Nasdaq may require the combined companies to establish a trading history before considering a listing application. Therefore, the combined companies' shares will likely have to begin trading on the OTC Bulletin Board, the Pink Sheets or the proposed BBX, and wait to apply for an Amex or Nasdaq listing until all applicable listing standards are met. Under the circumstances, there is no assurance our shares will ever qualify for an Amex or Nasdaq listing. Structuring a business combination We believe the most likely business combination structure will involve a "reverse takeover" where we issue acquisition shares in exchange for the assets or outstanding stock of the target. Upon the completion of a reverse takeover, we expect that the former stockholders of the target will likely own a substantial majority interest in the combined companies. Since the ongoing costs and expenses associated with reporting under the Exchange Act can be a significant burden for a small company, we believe that larger established companies are better suited to shell transactions than small entrepreneurial companies. Moreover, a substantial transaction will be required to meet the minimum listing standards for the Amex or Nasdaq. No right to approve specific terms We do not intend to provide information to our stockholders regarding our evaluation of potential targets or the progress of negotiations. Our officers will have the necessary executive and equity voting power to unilaterally approve all corporate actions until we close a business combination. As a result, gift share donees will have no effective voice in decisions made by management and will be entirely dependent on management's judgment in the selection of a target and the negotiation of the specific terms of a business combination. Under Delaware law, the stockholders of a corporation are not entitled to vote with respect to a stock issuance transaction that does not involve a statutory merger, even if the transaction will result in a change in control. We presently intend to structure a business combination as an exchange of stock in our company for the assets or outstanding stock of a target. Since we do not intend to conduct a statutory merger with a target, we do not intend to seek prior stockholder approval of the terms of a proposed business combination. Rule 419 will not give stockholders voting rights that they do not otherwise possess under Delaware law. If we successfully negotiate a business combination, the transaction will be presented to our stockholders as an integrated whole. Each gift share donee will then be required to make an independent decision about whether he wants to remain a stockholder. If a donee does not approve our reconfirmation offering in writing, Rule 419 requires us to treat the failure to act as a rejection of our reconfirmation offering. If the requisite percentage of donees does not reconfirm their subscriptions in writing, we will not close a proposed business combination. Rule 419 does not require that a specific percentage of the gift share donees accept our reconfirmation offering. Instead, Rule 419 leaves that issue to negotiations between our company and the target. If the terms of our reconfirmation offering establish a relatively low reconfirmation threshold, gift share donees will not necessarily be able to rely on the collective business judgment others in making their decisions. We will endeavor to structure a business combination so as to achieve the most favorable tax treatment to us, the target and the stockholders of both companies. We cannot assure you, however, that the Internal Revenue Service or any state tax authority will agree with our tax treatment of the business combination. Business diversification is unlikely Rule 419 will require us to conduct our reconfirmation offering as soon as we negotiate a transaction where the fair value of the business or assets to be acquired exceeds $2,920,000, calculated as 80% of the estimated value of the maximum number of shares included in our registration statement. Since we intend to issue acquisition shares in exchange for the stock or assets of a target, any material acquisition is almost certain to result in a change in control. We will probably not be able to diversify our operations or benefit from the spreading of risks or offsetting of losses. We will probably be dependent upon the development or market acceptance of a single or limited number of products, processes or services. Our probable lack of diversification may subject us to a variety of economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact on our future business. Accordingly, there is no assurance that our future operations will be commercially viable. Finders' fees If our company or the target agrees to pay cash finders' fees, the payments will reduce the cash resources of the combined companies. If our company or the target agrees to pay stock-based finders' fees, the share issuances will reduce the number of shares that would otherwise be available to the owners of a target. Therefore, we believe the target should participate in all decisions respecting the payment of finders' fees. Accordingly, we will not agree to pay any finder's fees or similar compensation without the express consent of the target. We will not pay finders' fees, commissions or similar compensation to our officers or their respective affiliates. Our company and our officers will not pay any finders' fees, commissions or similar compensation to persons who are not duly licensed broker-dealers without first obtaining an opinion of legal counsel that registration is not required under the circumstances. Our reconfirmation offering prospectus will disclose the material terms of any agreements for the direct or indirect payment of finders' fees, commissions or similar compensation by our company and/or our officers. Competition We expect to encounter intense competition from other entities that have a similar business objective. Some potential competitors have significant cash resources that will be available for use following a business combination. Others have outstanding warrants that can be expected to generate substantial cash for future operations. In addition, many of our potential competitors may possess more experienced management teams and greater technical, human and other resources than we do. The inherent limitations on our competitive position may give others an advantage in pursuing the acquisition of a target. Further, our obligation to file a post-effective amendment and conduct a reconfirmation offering will probably delay the completion of a transaction. This may be viewed as a competitive disadvantage in negotiations with potential targets. Facilities and employees We do not have any office facilities of our own and we do not intend to establish separate office facilities until we complete a business combination. We presently share an office with our president, Sally A. Fonner, who provides the necessary facilities at no cost to our company. We expect this arrangement to continue until we close a business combination and believe that our office sharing arrangement will be adequate for our needs. We do not have any full-time employees. Our executive officers serve as part-time employees but they will not receive any cash compensation from us and are not required to devote any specific amount of time to our business. We do not intend to hire any full-time employees until we complete a business combination. Periodic reporting and audited financial statements We have registered our common stock under the Securities Exchange Act of 1934. Therefore, the combined companies will be required to file annual and quarterly reports, proxy statements and other reports with the SEC. In addition, Rule 419(f)(1) will require the combined companies to furnish stockholders audited financial statements for the first full fiscal year of operations following the consummation of a business combination. Until we complete a business combination, all registration statement amendments, reports and other filings we make with the SEC will be available on our corporate website at www.winorlose.info. No established market There has never been a public market for our stock. Even if we complete a business combination, our stock will not qualify for an immediate Amex or Nasdaq listing. At present, the securities of public companies that do not qualify for an Amex or Nasdaq listing are either quoted on the OTC Bulletin Board or published in the Pink Sheets. The markets for OTC Bulletin Board and Pink Sheet securities are notoriously illiquid and volatile. There is no assurance that an active, stable or sustained market for our shares will ever develop We have not engaged in discussions or negotiations with potential market makers. We will not approach any market makers until a business combination is completed. We will not take any steps to seek a listing for our shares until the stock certificates are released from the Rule 419 escrow. We do not intend to use consultants or advisors to negotiate with potential market makers or promote an active trading market. Our officers and their respective affiliates will not recommend, encourage or advise donees to open brokerage accounts with any broker-dealer. Donees will have the exclusive authority to make their own decisions regarding whether to hold or sell their gift shares. We will not attempt to influence those decisions. MANAGEMENT The following table identifies our directors and executive officers. Name Age Position Sally A. Fonner 55 President Mark R. Dolan 52 Executive Vice President, Director John L. Petersen 52 General Counsel, Director Rachel A. Fefer 40 Secretary/Treasurer, Director The following is a brief account of the business experience of each of our directors and executive officers. Ms. Sally A. Fonner is a principal stockholder of our company and has served as our president since inception. We believe Ms. Fonner will continue to serve as an officer until we complete a business combination. Ms. Fonner is not a full-time employee of our company and is not required to devote a specific amount of time to our business. During the past five years Ms. Fonner has served as an officer and director of seven public shells. The following table identifies the public shells that have been managed by Ms. Fonner and provides summary information on the time periods for which she served as an officer and director. <TABLE> <CAPTION> Company Name Term as an officer Term as a director <S> <C> <C> <C> Tamboril Cigar Company February to December 2003 February 2003 to February 2004 The Enchanted Village, Inc. June 2002 to November 2003 June 2002 to December 2003 Yifan Communications, Inc. March 2000 to July 2000 March 2000 to March 2001 Dupont Direct Financial Holdings, Inc. June 1998 to April 1999 June 1998 to March 2000 Liberty Group Holdings, Inc. March 1997 to November 1999 March 1997 to December 1999 eNote.com, Inc. June 1998 to April 1999 June 1998 to November 1999 Telemetrix, Inc. July 1997 to April 1999 July 1997 to April 1999 </TABLE> A more detailed description of Ms. Fonner's prior activities as an officer and director of the identified public shells is set forth below. Ms. Fonner graduated from Stephens University in 1969 with a Bachelor of Arts in Social Systems. After a stint in the private sector, she returned to further her education and earned her MBA degree from the Executive Program of the University of Illinois in 1979. Mr. Mark R. Dolan is a principal stockholder of our company and has served as a member of our board of directors and our executive vice president since inception. We believe Mr. Dolan will continue to serve as a director and officer until we complete a business combination. Mr. Dolan is not a full-time employee of our company and is not required to devote a specific amount of time to our business. Mr. Dolan has been principally engaged in the practice of law for 17 years. He is a member of the Florida Bar Association and practices in the areas of corporate and intellectual property law, First Amendment law and commercial litigation. Mr. Dolan has been an employee of Mark R. Dolan, PA, Tampa, Florida, since June 1998. From April 2001 to September 2002, Mr. Dolan also served as an officer and director of Yseek, Inc., a publicly held Internet technology company based in Tampa, Florida. Mr. Dolan is a 1983 graduate of the Wayne State University College of Law and a 1977 honors graduate of Michigan State University. Mr. John L. Petersen is a principal stockholder of our company and has served as a member of our board of directors and our general counsel since inception. We believe Mr. Petersen will continue to serve as a director and officer until we complete a business combination. Mr. Petersen is not a full-time employee of our company and is not required to devote a specific amount of time to our business. Mr. Petersen has been principally engaged in the practice of law for 23 years. He is a member of the Texas Bar Association and practices in the areas of securities and corporate law where he focuses on the corporate finance needs of entrepreneurial companies. Since April 1999, Mr. Petersen has been a partner in the law firm of Petersen & Fefer, Barbereche, Switzerland. From January 1995 to April 1999, he was a self-employed solo practitioner. Since February 2003, Mr. Petersen has served as an officer and director of Tamboril Cigar Company, a public shell that recently completed a business combination transaction. A more detailed description of Mr. Petersen's activities as an officer and director Tamboril is set forth below. Mr. Petersen is a 1976 graduate of the College of Business Administration at Arizona State University and a 1979 graduate of the Notre Dame Law School. Mr. Petersen was admitted to the State Bar of Texas in May 1980 and received his license to practice as a Certified Public Accountant in March 1981. Ms. Rachel A. Fefer is a principal stockholder of our company and has served as a member of our board of directors and our secretary-treasurer since inception. We believe Ms. Fefer will continue to serve as a director until we complete a business combination. Ms. Fefer is not a full-time employee of our company and is not required to devote a specific amount of time to our business. Ms. Fefer has been principally engaged in the practice of law for 15 years. She is a member of the Texas Bar Association and specializes in corporate law and commercial litigation. Since April 1999, Ms. Fefer has been a partner in the law firm of Petersen & Fefer, Barbereche, Switzerland. From September 1997 to April 1999, Ms. Fefer was an employee of Rachel A. Fefer, PC, Houston, Texas. Ms. Fefer is a 1988 Graduate of the University of Texas Law School and a 1985 graduate (magna cum laude) of the School of Computer Science at the University of North Texas. John L. Petersen and Rachel A. Fefer are husband and wife. Board structure Our certificate of incorporation provides that the board of directors may fix the number of directors by resolution. Our board currently has three members who were re-elected by the unanimous written consent of our stockholders in January 2004. The terms of our current directors will expire on the date of our next annual meeting of stockholders. Until we effect a business combination, our current board members will have sufficient voting power to re-elect themselves as directors without the approval or consent of the other stockholders. Corporate governance We do not currently comply with all of the corporate governance standards that would be required if our shares were listed on Amex or Nasdaq. In particular, we do not have independent directors, we have not created an audit committee to review related party transactions and except as require by Rule 419, we do not plan to seek stockholder approval of a proposed business combination. We will endeavor to include corporate governance standards that comply with Amex and Nasdaq listing requirements in the definitive agreements for a business combination. Nevertheless, the implementation of such corporate governance standards is a matter that will fall within the exclusive authority of successor management and there can be no assurance that any standards we negotiate will be properly implemented. If new management fails to implement appropriate corporate governance standards, the combined companies' shares will not qualify for an Amex or Nasdaq listing. Summary compensation table In December 2001, Mr. Dolan, Mr. Petersen and Ms. Fefer each transferred 125,000 shares of common stock to Ms. Fonner as compensation for services she rendered to us during the year ended December 31, 2001. Between June 2002 and April 2003, Ms. Fonner received a cash overhead allowance of $1,000 per month. Except for this overhead allowance, no cash compensation was awarded to, earned by or paid to any of our officers or directors during the three years ended December 31, 2003. The following table summarizes the foregoing. <TABLE> <CAPTION> Name and principal position Year Salary Bonus All other compensation <S> <C> <C> Sally A. Fonner, president 2003 -- -- $4,000 2002 -- -- $7,000 2001 -- -- $11,250 </TABLE> Future compensation of officers We will not pay any cash compensation or overhead allowances to our officers in connection with our future operations. However, each of our officers will be reimbursed for any out-of-pocket expenses they incur on our behalf. There is no limit on the amount of allowable expense reimbursements and there will be no review of the reasonableness of such expenses by anyone other than our board of directors. Potential conflicts of interest None of our officers are affiliated with or involved in any other blank check companies or public shells at the date of this prospectus. However, donees should be aware of the following potential conflicts of interest: o Our officers are not full-time employees of our company and they are not required to devote any specific amount of time to our business. o Our officers are actively involved in other business pursuits and will face conflicts of interest in allocating their time between our affairs and their other business interests. o Our officers may become affiliated with other entities, including blank check companies and public shells, which propose to engage in business activities similar to ours. o Our officers may have fiduciary obligations to more than one entity and they might be obligated to present a single opportunity to more than one entity. o Each of our officers is also an owner of founders' shares that will be offered for sale to third parties in connection with a business combination. Therefore, it is likely that: o A business combination will result in a series of related transactions where our company receives property for the acquisition shares but our officers receive cash for their founders' shares; and o Our officers may face a significant conflict of interest if the owners of two similarly situated targets offer different prices for the founders' shares, or if the owners of a relatively weak target are willing to pay a higher price for the founders' shares than the owners of a stronger target. We do not have an audit committee to review related party transactions and we cannot assure you that any of the potential conflicts mentioned above would be resolved in our favor. In general, officers and directors of a Delaware corporation are obligated to act in a manner that is in, or not opposed to, the best interests of the stockholders. In particular, under the Delaware corporate opportunity doctrine, officers and directors are required to bring business opportunities to the attention of a corporation if: o The corporation could financially undertake the opportunity; o The opportunity is within the corporation's line of business; and o It would be unfair to the corporation and the stockholders if the officers and directors failed to bring the opportunity to the attention of the corporation. To minimize potential conflicts of interest arising from multiple corporate affiliations, each of our officers has agreed to present to us, prior to presentation to any other entity, any business opportunity which, under Delaware law, may reasonably be required to be presented to us, until we agree to a business combination. Prior involvement in shell transactions Tamboril Cigar Company (SEC Central Index Key 0001028153) In January 2003, Mr. Petersen and Ms. Fonner paid $100 to purchase a controlling interest in Tamboril Cigar Company, a Delaware corporation that declared bankruptcy in 2000. In February 2003, they became officers and directors of Tamboril and commenced their search for a suitable acquisition. In December 2003, Tamboril entered into a business combination with Axion Power Corporation that was structured as a reverse takeover. Axion is a Canadian company that is engaged in research and development on a nanotechnology enabled hybrid electrochemical storage battery. In connection with the Axion transaction, Mr. Petersen and Ms. Fonner sold the substantial bulk of their common stock to an affiliate of Axion for $200,000; the original stockholders of Tamboril retained 8,956,640 shares (4.8%); Mr. Petersen and Ms. Fonner retained 1,043,360 shares (0.5%); the former stockholders of Axion received 191,826,432 shares (94.8%); and Mr. Petersen and Ms. Fonner received 3,731,462 common stock purchase warrants in connection with the cancellation of $484,123 in related party debt. Mr. Petersen presently serves as director of Tamboril and has agreed to continue serving as the company's interim chief financial officer pending the recruitment of a suitable successor. Ms. Fonner resigned her position as Tamboril's president on December 31, 2003 and resigned from Tamboril's board on February 2, 2004. The stock of Tamboril Cigar trades in the over-the-counter market and transactions are reported in the OTC Pink Sheets under the trading symbol SMKE. The Enchanted Village, Inc. (SEC Central Index Key 0000714284) In June 2002, Ms. Fonner became the sole officer and director of The Enchanted Village, Inc., a Delaware corporation that declared bankruptcy in 1988. She subsequently received a controlling interest in the company in return for a combination of cash and services. In addition, Mr. Petersen acquired a substantial interest in Enchanted Village as partial compensation for services that he rendered as legal counsel for the company. After restructuring Enchanted Village's affairs, Ms. Fonner commenced her search for a suitable acquisition. As a result of her illness, Ms. Fonner decided to sell her interest in Enchanted Village to an unrelated third party in November 2003. In connection with the sale, Ms. Fonner and Mr. Petersen received a total of $225,000 for their respective interests in the company. Ms. Fonner has not been involved in the affairs of Enchanted Village since she resigned as a director in December 2003. The stock of Enchanted Village trades on the OTC Bulletin Board and transactions are reported under the trading symbol ECVL. Smart Games Interactive, Inc. (SEC Central Index Key 0000915766) In March 2000, an investor purchased a controlling interest in Smart Games for $75,000 and then asked Ms. Fonner to serve as the sole officer and director of the company. Under the terms of the associated agreements, the investor agreed to share its interest in Smart Games with Ms. Fonner. She subsequently purchased additional stock in the company for cash. After assuming control of the company, Ms. Fonner commenced her search for a suitable acquisition. In July 2000, Smart Games changed its name to Yifan Communications, Inc. and entered into a business combination with Yifan.com, Inc. that was structured as a reverse takeover. Yifan.com is a New York corporation that operates a Chinese language Internet portal. In connection with the Yifan transaction, the original stockholders of Smart Games retained 315,986 shares (2.4%); Ms. Fonner and the investor retained 462,500 shares (3.6%); finders and third party professionals received 213,715 shares (1.7%); the former stockholders of Yifan.com received 11,994,750 shares (92.4%); and Ms. Fonner received a cash fee of $350,000. Ms. Fonner has not been involved in the affairs of Yifan Communications since she resigned as a director in March 2001. The stock of Yifan Communications trades in the over-the-counter market and transactions are reported in the OTC Pink Sheets under the trading symbol YIFN. Marci International Imports, Inc. (SEC Central Index Key 0000807904) In June 1988, Ms. Fonner became the sole officer and director of Marci International Imports, Inc., a Georgia corporation that declared bankruptcy in 1989. She subsequently received a controlling interest in the company in return for a combination of cash and services. After assuming control of Marci, Ms. Fonner restructured the company's affairs and then commenced her search for a suitable acquisition. In April 1999, Marci changed its name to FAB Global, Inc. and entered into a business combination with FAB Capital Corporation and Western Union Leasing that was structured as a reverse takeover. At the time, FAB Capital and Western Union Leasing were both involved in the financial services industry. When FAB Capital and Western Union Leasing failed to perform on certain covenants in the business combination agreements, the transaction was rescinded and the company immediately entered into a second business combination with Wavecount, Inc. that was structured as a reverse takeover. Wavecount was also involved in the financial services industry and its owners previously worked for FAB Global. The company then changed its name to Dupont Direct Financial Holdings Inc. In connection with the Wavecount transaction, the original stockholders of Marci retained 300,000 shares (4.2%); Ms. Fonner and her advisors retained 450,000 shares (6.3%); the former stockholders of Wavecount received 6,400,000 shares (89.5%); finders received cash fees of $10,000; and Ms. Fonner received a cash fee of $140,000. Ms. Fonner has not been involved in the affairs of Dupont Direct Financial Holdings since she resigned as a director in March 2000. The stock of Dupont Direct Financial Holdings trades on the OTC Bulletin Board and transactions are reported under the trading symbol DIRX. Bio Response, Inc.. (SEC Central Index Key 0000311927) In March 1997, Ms. Fonner became the sole officer and director of Bio Response, Inc., a Delaware corporation that declared bankruptcy in 1989. She subsequently received a controlling interest in the company in return for a combination of cash and services. After assuming control of Bio Response, Ms. Fonner restructured the company's affairs and then commenced her search for a suitable acquisition. In November 1999, Bio Response changed its name to Liberty Group Holdings, Inc. and entered into a business combination with Liberty Food Group, Ltd. that was structured as a reverse takeover. Liberty Food Group is engaged in the wholesale distribution of food products. In connection with the Liberty Food Group transaction, the original stockholders of Bio Response retained 300,000 shares (4.7%); Ms. Fonner and her advisors retained 450,000 shares (7.8%); the former stockholders of Liberty Food Group received 5,575,000 shares (87.5%); and Ms. Fonner received a cash fee of $75,000. Ms. Fonner has not been involved in the affairs of Liberty Group Holdings since she resigned as a director in December 1999. The stock of Liberty Group Holdings trades in the over-the-counter market and transactions are reported in the OTC Pink Sheets under the trading symbol LGHI. Webcor Electronics, Inc.. (SEC Central Index Key 0000311927) In June 1998, Ms. Fonner became the sole officer and director of Webcor Electronics, Inc., a Delaware corporation that declared bankruptcy in 1989. She subsequently received a controlling interest in the company in return for a combination of cash and services. After assuming control of Webcor, Ms. Fonner restructured the company's affairs and then commenced her search for a suitable acquisition. In April 1999, Webcor changed its name to eNote.com, Inc. and entered into a business combination with Navis Technologies, Ltd. that was structured as a reverse takeover. Navis was engaged in the development of a proprietary communications product known as TV-Email. In connection with the Navis transaction, the original stockholders of Webcor retained 540,000 shares (3.6%); Ms. Fonner and her advisors retained 740,000 shares (4.9%); the former stockholders of Navis received 13,720,000 shares (91.5%%); finders received cash fees of $100,000 and Ms. Fonner received a cash fee of $150,000. Ms. Fonner has not been involved in the affairs of eNote.com since she resigned as a director in November 1999. The stock of eNote.com trades in the over-the-counter market and transactions are reported in the OTC Pink Sheets under the trading symbol ENOT. Arnox Corporation (SEC Central Index Key 0000311927) In June 1997, Ms. Fonner became the sole officer and director of Arnox Corporation a Delaware corporation that declared bankruptcy in 1989. She subsequently received a controlling interest in the company in return for a combination of cash and services. After assuming control of Arnox, Ms. Fonner restructured the company's affairs and then commenced her search for a suitable acquisition. In March 1999, Arnox changed its name to Telemetrix Inc. and entered into a business combination with Telemetrix Resource Group and Tracy Corporation II that was structured as a reverse takeover. Telemetrix and Tracy were involved in the development of a proprietary wireless personal communications system for utilities. In connection with the Telemetrix transaction, the original stockholders of Arnox retained 300,000 shares (2.3%); Ms. Fonner and her advisors retained 450,000 shares (3.5%); the former owners of Telemetrix and Tracy II received 12,117,000 shares (94.1%); and Ms. Fonner received a cash fee of $125,000. Ms. Fonner has not been involved in the affairs of Telemetrix since she resigned as a director in April 1999. The stock of Telemetrix trades in the over-the-counter market and transactions are reported in the OTC Pink Sheets under the trading symbol TLXT. Indemnification of officers and directors We have included a provision in our Certificate of Incorporation to indemnify our officers and directors against liability for monetary damages for breach or alleged breach of their duties as officers or directors, other than in cases of fraud or other willful misconduct. Our bylaws provide that we will indemnify our officers and directors to the maximum extent permitted by Delaware law. In addition, our bylaws provide that we will advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing, we have been advised that the SEC believes such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Incentive stock plan Our stockholders adopted our 2000 Incentive Stock Plan in connection with the organization of our company. Under the terms of the plan, we are authorized to grant incentive awards for an indeterminate number of shares that will be equal to the lesser of 750,000 shares, or 10% of our outstanding common stock immediately after the closing of a business combination. No incentive awards are outstanding at the date of this prospectus. No incentive awards may be granted until after the closing of a business combination. No incentive awards may be granted to our current officers unless that person becomes a full-time employee of the combined companies. The plan provides for the grant of incentive awards to full-time employees of the combined companies who are not eligible to receive awards under the terms of their employment contract or another specialty plan. Except for the requirement that all participants be full-time employees, the combined companies will have absolute discretion in deciding who will receive awards and the terms of such awards. The plan authorizes the combined companies to issue incentive and/or non-qualified stock options, shares of restricted and/or phantom stock and stock bonuses. In addition, the plan will allow the combined companies to grant cash bonuses payable when an employee is required to recognize income for federal income tax purposes because of the vesting of shares of restricted stock or the grant of a stock bonus. The exercise price of incentive stock options must be equal to the fair market value of such shares on the date of the grant or, in the case of incentive stock options granted to the holder of more than 10% of our common stock, at least 110% of the fair market value of such shares on the date of the grant. The maximum exercise period for incentive stock options is ten years from the date of grant, or five years in the case of an individual owning more than 10% of our common stock. The aggregate fair market value determined at the date of the option grant, of shares with respect to which incentive stock options are exercisable for the first time by the holder of the option during any calendar year, shall not exceed $100,000. Upon completion of a business combination, the combined companies will need to appoint a committee to administer the plan. In general, the committee must consist two or more directors, each of whom is a "non-employee director" as defined in Rule 16b-3(b)(3). The committee will decide which employees will receive incentive awards, the type of award to be granted and the number of shares covered by the award. The committee will also determine the exercise prices, expiration dates and other features of awards. The committee will be authorized to interpret the terms of the plan and to adopt any administrative procedures it deems necessary. All decisions of the committee will be binding on all parties. The combined companies will indemnify each member of the committee for good faith actions taken in connection with the administration of the plan. The board of directors may adopt administrative amendments to the plan without stockholder consent. The board may not, increase the number of shares subject to the plan; materially increase the benefits accruing to holders of incentive awards; or materially modify the eligibility requirements. PRINCIPAL STOCKHOLDERS The following table contains information on the ownership of our shares at December 31, 2003. The table also presents two pro forma cases that give immediate effect to: o The completion of the gift share distribution; and o The issuance of 12,600,000 acquisition shares and the resale of 1,597,000 founders' shares in connection with a business combination. All persons named in the table have sole voting and investment power with respect to the shares owned by them. The table identifies: o Each of our officers, directors and 5% stockholders; and o All our officers and directors as a group. <TABLE> <CAPTION> Name and Address Before Distribution After Distribution (1) After Combination (2) ------------------- ---------------------- --------------------- of Beneficial Owner Shares Percent Shares Percent Shares Percent <S> <C> <C> <C> <C> <C> <C> <C> <C> John L. Petersen (2)(3)(4) 1,200,000 50.00% 998,500 41.60% 200,000 1.33% Rachel A. Fefer (2)(3)(4) 1,200,000 50.00% 998,500 41.60% 200,000 1.33% Mark R. Dolan (4)(5) 600,000 25.00% 499,000 20.79% 100,000 0.67% Sally A. Fonner (4)(6) 600,000 25.00% 499,500 20.81% 100,000 0.67% All Officers and Directors as a group (four persons) 2,400,000 100.00% 1,997,000 83.21% 400,000 2.67% </TABLE> (1) Gives effect to the distribution of 400,000 shares to donees. (2) Chateau de Barbereche, Switzerland 1783 Barbereche. (3) Mr. Petersen and Ms. Fefer are husband and wife and each may be deemed to be the beneficial owner of any shares held by the other. Mr. Petersen and Ms. Fefer have sole investment power and sole voting power over the shares registered in their name and each disclaims beneficial ownership of shares held by the other. (4) Assumes that all 1,597,000 founders' shares will be sold to unaffiliated third parties. (5) 112 East Street, Suite B, Tampa, Florida 33602. (6) 1268 Bayshore Boulevard, Dunedin, Florida 34698. Each of our officers is a "promoter" of our company as that term is defined in Rule 12b-2 of the General Rules of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934. CERTAIN TRANSACTIONS John L. Petersen is the author of our registration statement, which was substantially complete and reduced to a tangible medium of expression before our company was incorporated. Accordingly, the law firm of Petersen & Fefer has claimed copyright ownership with respect to our registration statement and this prospectus. In addition, the law firm of Petersen & Fefer has filed two preliminary business processes patent applications (Nos. 10/404,202 published January 8, 2004 and 10/317,453 published July 17, 2003) relating to the legal structure of our Rule 419 offering and the associated contracts included in our registration statement. Petersen & Fefer has granted our company a non-exclusive, royalty-free license that gives us the right to use their copyright, patent and other intellectual property rights for the purpose preparing our registration statement and certain derivative works, including this prospectus, future amendments to the registration statement, and our subsequent reports under the Exchange Act. The license includes the unrestricted right to reproduce and distribute copies of any of the foregoing documents to the extent required by law or permitted by established practice in the securities industry. All other intellectual property rights are reserved. We have not paid Petersen & Fefer in connection for the intellectual property license. Nevertheless, all parties believe that our attempt to implement the underlying business plan developed by Mr. Petersen may give rise to substantial indirect value by establishing the validity and proving the utility of a previously unproven legal structure. Petersen & Fefer and our board of directors have determined that the license agreement represents a fair and reasonable exchange of intangible values. Our officers contributed $20,000 of additional capital on January 23, 2004 and have agreed to contribute an additional $20,000 on the effective date of our registration statement. We will not be obligated to reimburse these additional capital contributions. All future transactions between us and any of our officers or their respective affiliates will be on terms that we believe are no less favorable than the terms that could have been negotiated with unaffiliated third parties. All related party transactions will require prior approval from a majority of our disinterested directors. <PAGE> DESCRIPTION OF SECURITIES General We are authorized to issue 25,000,000 shares of common stock, par value $0.001, and 5,000,000 shares of preferred stock, par value $0.001. A total of 2,400,000 shares of common stock are issued, outstanding and held by our officers on the date of this prospectus. No shares of preferred stock are currently outstanding. After the completion of a business combination, we will have at least 10,000,000 shares of authorized and unissued common stock and 5,000,000 shares of authorized and unissued preferred stock. These authorized and unissued shares may be issued without stockholder approval at any time, in the sole discretion of our board of directors. The authorized and unissued shares may be issued for cash, to acquire property or for any other purpose that is deemed in the best interests of our company. Any decision to issue additional shares will reduce the percentage of our stockholders' equity held by donees and could dilute our net tangible book value. Common stock Our stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Our stockholders are entitled to receive dividends when, as and if declared by our board out of funds legally available. In the event of our liquidation, dissolution or winding up, our stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the common stock. Our stockholders have no conversion, preemptive or other subscription rights and there are no redemption provisions applicable to the common stock. All of the outstanding shares of common stock are fully paid and nonassessable. Preferred stock Our certificate of incorporation authorizes the issuance of 5,000,000 shares of a blank check preferred stock. Our board of directors will have the power to establish the designation, rights and preferences of any preferred stock we issue in the future. Accordingly, our board of directors has the power, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. Subject to the directors' duty to act in the best interest of our company, shares of preferred stock can be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. Although we have no present plans to issue any shares of preferred stock, we cannot assure you that we will not do so in the future. We do not intend to issue preferred stock to effect a business combination. Rule 419 escrow Wachovia Bank, N.A. will serve as the escrow agent for our Rule 419 escrow. We are not issued paper certificates for our outstanding shares. Instead all such shares are maintained in book entry form on the records of our transfer agent. When our officers distribute gift shares to donees, the gifts may also be registered in book entry form. We are not required to issue paper stock certificates until we have negotiated a business combination and complied with the disclosure, reconfirmation and closing requirements of Rule 419. Resale limitations Donees will not be able to sell, pledge or otherwise transfer gift shares, or any interest therein, until we have completed our reconfirmation offering and the escrow agent has released our shares from the Rule 419 escrow. Purchasers of founders' shares will not obtain title to their shares until we have closed a business combination and they have paid the consideration required by the underlying agreements. Each donee and each purchaser of founders' shares will be required to retain ownership of at least 100 shares until the earlier of six months after the completion of a business combination or the listing of the combined companies' shares on Amex or Nasdaq. When our shares are released from the Rule 419 escrow, each donee and each purchaser of founders' shares will receive two certificates: one for 100 shares and a second for the balance. The certificate for 100 shares will be imprinted with a restrictive legend that describes the foregoing limitations on transfer. Dividend policy We have never paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. Our company is not likely to pay cash dividends for an extended period of time, if ever. You should not subscribe to purchase our shares if you require current income from your investments. Transfer agent X-Clearing Corporation, Denver, Colorado serves as our transfer agent. PLAN OF DISTRIBUTION Self-underwritten distribution This is a "self-underwritten" distribution of securities. That means we do not intend to use an underwriter in connection with the negotiation of a business combination or the issuance of acquisition shares. Likewise, our officers do not intend to use an underwriter in connection with the distribution of gift shares or the resale of founders' shares. However, our company and our officers reserve the right to enter into appropriate underwriting or brokerage contracts if warranted. Our officers are the only individuals who will distribute gift shares to donees, participate in negotiations with potential targets and participate in negotiations with potential purchasers of founders' shares. However, once we have identified a target and negotiated a business combination, established standards of care in securities offerings will generally require the target's management to assume primary legal responsibility for the conduct of our reconfirmation offering. While our officers and their affiliates will not receive any direct or indirect selling commissions, finders' fees or other remuneration in connection with this distribution, they will be entitled to retain any and all proceeds from the resale of founders' shares. Our officers will perform substantially all of the functions that would ordinarily be performed by brokers in a more conventional securities offering, but they will not seek registration as brokers because: o They will be acting as principals, rather than intermediaries, in connection with the gift share distribution and the resale of founders' shares; and o They will rely on the safe harbor exemption of SEC Rule 3a4-1(a)(4)(i)(C) in connection with the issuance of acquisition shares. If we conclude that an exemption from the broker registration requirements of the Exchange Act is not available for a particular proposed transaction, we will either retain a registered broker or ensure that the necessary registrations are obtained before selling activities begin. If we retain an underwriter or broker, we will halt the distribution and amend our registration statement to disclose the material terms of the agreement. Gift share distribution Our officers will give 403,000 shares of our issued and outstanding common stock to family members, personal friends and business acquaintances selected by them. Each donee that received gift shares in connection with our prior distribution will receive 500 gift shares in connection with this distribution. In the event that our officers are unable to give shares to a particular donee because he has died, rejected the new gift or moved without leaving appropriate contact information, those gift shares will be given to new donees selected by our officers. The selection of donees will be an arbitrary process and each of our officers will consider a variety of personal factors during the selection process. While our officers will have broad discretion in the selection of donees, they may not: o Transfer gift shares to donees that have no family, personal or business relationship with the officer; o Transfer gift shares to our current officers, any affiliates of our current officers or any immediate family members of our current officers who share an officer's residence; o Effect transactions where two or more officers transfer gift shares to the same donee; or o Demand or accept money, property or other consideration in connection with a gift share transaction. Subject to these limitations, multiple gifts within a single family will be permitted. For example, an officer will be permitted to give 500 shares to a friend, an additional 500 shares to that friend's spouse, and an additional 500 shares to each of that friend's children. Our officers will not receive money, property or other consideration from any donee and our company will not receive any proceeds in connection with the gift share distribution. Our officers will promptly distribute copies of this prospectus to the donees selected by them. Each donee will be required to sign a "Gift Share Acceptance Certificate" that documents the gift transaction, summarizes the conditions of the gift share distribution and acknowledges the applicable restrictions on transfer. An electronic version of this prospectus will be posted on a special Internet website at www.winorlose.info for the convenience of donees. Donees will be given the option to either request a printed copy of this prospectus or download an electronic version. They will also be given the option to execute either a printed or electronic version of the gift share acceptance certificate. After the completion of the gift share distribution, the website will be used to distribute copies of our registration statement amendments, together with copies of the reports, proxy statements and other filings we make with the SEC and other stockholder information. The website may also be used to distribute copies of our prospectus and other company information to representatives of potential targets. We believe the gift share distribution will not be subject to regulation under the securities or Blue Sky laws of most states and other jurisdictions where donees reside. Nevertheless, we have not yet identified any specific states where we will be able to make the gift share distribution without regulatory supervision. We will confer with legal counsel on state law matters before offering the gift shares to donees; but we are not obligated to request formal legal opinions from our counsel. We may also seek appropriate clarification from the securities regulatory authorities in certain states. If legal counsel or a state regulatory authority indicates that the gift share distribution is subject to state regulation, we will take appropriate action to comply with state law. We will know the identity and residence of every potential donee before we make an offer. Gift shares will not be offered in any state unless we are confident that the offer will not give rise to problems under local law. If a potential donee lives in a state where additional compliance steps are required, we will either take the necessary steps before making the offer or eliminate the donee from our list of potential donees. If we distribute gift shares in reliance on the advice of counsel and a state regulatory authority takes a contrary view, we may become subject to enforcement action at the state level. Such an action could force us to rescind our offers in certain states, or abandon our business plan in its entirety. Our officers will promptly deposit all certificates for gift shares the Rule 419 escrow. The stock certificates deposited in the Rule 419 escrow will be held in trust for the sole benefit of the donees until we negotiate a business combination and comply with the disclosure, reconfirmation and closing requirements of Rule 419. Donees will not be permitted to sell or otherwise transfer gift shares until we close a business combination. Offer and sale of acquisition shares We have registered 12,600,000 acquisition shares that our company may offer to issue in connection with a business combination. Our company will receive property in exchange for acquisition shares. Our officers will promptly open discussions within their personal networks of investment bankers, venture capitalists, broker-dealers, attorneys and other financial professionals who they believe are likely to represent suitable potential targets. We may host formal information meetings for these financial professionals. Mr. Dolan, Mr. Petersen and Ms. Fefer will also open discussions with current and former clients that have expressed an interest in going public. In each case where a potential target expresses an interest in considering a transaction with us, we will provide copies of our prospectus and request preliminary due diligence information. We do not intend to hold public meetings for targets, or use print advertising or other forms of mass solicitation. We believe that our networking and prospectus distribution activities are likely to generate interest from several potential targets. We also anticipate that potential targets may come to know about our company from collateral sources including the Edgar system. When we receive in an inquiry from a representative of a potential target, the inquiry will be forwarded to the appropriate officers. With the help of counsel, we intend to implement protocols and procedures that will ensure compliance with the requirements of applicable federal and state law. We expect to devote several months to the process of gathering and evaluating information on potential targets. We hope to review due diligence information on a large number of potential targets and expect that our analysis will ultimately reduce the pool of potential targets to a single acquisition. Thereafter, we will endeavor to negotiate a preliminary written agreement that is subject to the approval or consent of the target's stockholders and contingent on the completion of our reconfirmation offering. We do not intend to negotiate multiple or sequential acquisitions and we believe the acquisition shares will be issued to the owners of a single target. If material acquisition becomes probable before our officers complete the gift share distribution, we will immediately suspend the distribution and file an amendment to our registration statement that contains the information required by Rule 419, Form S-1 and applicable SEC regulations. Given the time required to engage in preliminary discussions, deliver copies of our prospectus to representatives of potential target, assemble due diligence information, conduct detailed investigations and negotiate the terms of a business combination, we believe it unlikely that an acquisition will become probable before the gift share distribution is completed. Subject to the limits described in this prospectus, our officers will have broad discretion to structure a business combination and establish terms for the issuance of acquisition shares. All material terms of a proposed business combination will be determined by arms-length negotiations between our officers and the representatives of a potential target. All material terms of a proposed business combination will be disclosed in the prospectus for our reconfirmation offering. Any acquisition shares that are not issued in connection with a business combination will be removed from registration in connection with our reconfirmation offering. Offer and Sale of Founders' Shares We have registered 1,597,000 founders' shares that our officers may resell to our advisors, owners of a target and other participants in the business combination. Purchasers of founders' shares will have the right to terminate their agreements without penalty until they approve the terms of our reconfirmation offering in writing. The prices to be paid by purchasers of founders' shares will be negotiated on a case-by-case basis and may be substantial. Our company will not have any interest in the proceeds received by our officers from the resale of founders' shares. Our officers have reserved the right to make bona fide gifts or charitable contributions of founders' shares. However, such gifts and charitable contributions are not expected to be numerous or substantial. Any gifts and charitable contributions that are made will be fully disclosed in the reconfirmation prospectus. In connection with the offer and sale of founders' shares, our officers may not: o Resell founders' shares at a price that represents a premium to the per share value received by our company in connection with the issuance of acquisition shares; o Transfer founders' shares for value unless the purchaser is an advisor to our company, a stockholder of a target, or an essential participant in the business combination; o Transfer founders' shares to our current officers, any affiliates of our current officers or any immediate family members of our current officers who share an officer's residence; o Transfer founders' shares to any person unless all material transaction terms are described in the prospectus for our reconfirmation offering; o Permit any purchaser to pay for founder's shares until the closing of the business combination; or o Complete any resale or other transfer of founders' shares before the closing of a business combination. Our officers will not transfer founders' shares to advisors in exchange for services because we believe compensation transactions are inconsistent with the requirements of Rule 419 and the limitations described above. Our company's offer to the owners of a target will not be contingent on an agreement to purchase all or any part of the founders' shares. All agreements for the resale or other transfer of founders' shares will require the transferee to retain at least 100 shares until the earlier of nine months after the closing of a business combination or the listing of the combined companies' shares on Nasdaq. When our officers agree to resell founders' shares, they will promptly deposit certificates for those shares in the Rule 419 escrow where they will be held in trust until we close a business combination. Resale transactions for founders' shares will close concurrently with or promptly after the related business combination closing. Founders' shares deposited in the Rule 419 escrow will be registered in the name of the selling officer and accompanied by duly executed instruments of transfer. Purchasers of founders' shares will not obtain title to the founders' shares or have any voting or other stockholders' rights until the resale transactions are closed. Pending closing of the resale transactions, all voting and other stockholders rights will remain vested in our officers. Any founders' shares that are not transferred to third parties will be removed from registration in connection with our reconfirmation offering. Selling Stockholders We have registered 2,000,000 shares of our common stock on behalf of four executive officers of our company who will also be selling stockholders in this distribution. A total of 403,000 shares will be distributed as gift shares and 1,597,000 shares have been registered for resale as founders' shares. Each selling stockholder is an "underwriter" of the gift shares and founders' shares. Shares registered on behalf of the selling stockholders may only be transferred in the manner and for the purposes described in this prospectus. Shares registered on behalf of the selling stockholders may not be resold in open market transactions. While they are not required to do so, the selling stockholders may retain broker-dealers to represent them in connection with the resale of founders' shares. If all of the acquisition shares are issued and all of the founders' shares are sold, none of the selling stockholders will own more than 1% of the outstanding stock of the combined companies. The following table provides certain information with respect to the ownership interests of the selling stockholders, including: o The identity of each selling stockholder and the number of shares owned at the date of this prospectus; o The number of shares registered for transfer as gift shares and resale as founders' shares; and o The maximum number of shares that will be owned by each selling stockholder after a business combination if all registered securities are ultimately given, sold or transferred to third parties.. <TABLE> <CAPTION> Current Gift shares Founders' Ownership Identity of share transferred shares to after business Ownership Selling Stockholder ownership to donees be sold combination percent (1) <S> <C> <C> <C> <C> <C> <C> John L. Petersen (2) 600,000 (101,000) (399,000) 100,000 0.67% Rachel A. Fefer (2) 600,000 (100,500) (399,500) 100,000 0.67% Mark R. Dolan 600,000 (101,000) (399,000) 100,000 0.67% Sally A. Fonner 600,000 (100,500) (399,500) 100,000 0.67% </TABLE> (1) Based on a total capitalization of 15,000,000 shares. (2) Mr. Petersen and Ms. Fefer may each be deemed to be the beneficial owner of shares held by the other. All direct and indirect offering costs incurred by our company prior to the date of this prospectus have been paid or reimbursed by our officers and accounted for as additional capital contributions. We will pay all direct and indirect costs associated with negotiating a business combination, preparing a post-effective amendment to our registration statement, conducting our reconfirmation offering and distributing the acquisition shares. Our officers will pay all direct costs associated with the resale of founders' shares. SHARES ELIGIBLE FOR FUTURE SALE We will have up to 15,000,000 shares of common stock outstanding after closing a business combination. While we have included the bulk of these shares in our registration statement a stockholder's ability to resell our shares will depend on the nature of his relationship with our company and the target. The following sections discuss the general rules that will be applicable to the resale of our shares by certain classes of stockholders. Shares Eligible for Immediate Resale The following shares will generally not be subject to resale restrictions. Gift shares 400,000 gift shares that are transferred to donees. Certain founders' Founders' shares that are sold to advisors shares and other persons who are not classified as affiliates of the combined companies. Certain acquisition Acquisition shares that are issued to persons who are shares not classified as affiliates of the combined companies. Resale of Shares Held by Affiliates of the Target Rule 145 establishes a safe harbor exemption for the resale of securities acquired in connection with certain business combinations. While it is possible to structure a business combination that is not subject to Rule 145, we intend to incorporate resale restrictions that follow the framework established by Rule 145 in the underlying contracts for any business combination. In general, we intend to impose contractual resale restrictions with respect to all acquisition and founders' shares that are issued to or purchased by the following classes of persons: o Officers and directors of the target; and o Other persons who directly or indirectly own 10% or more of the combined companies' shares. Acquisition and founders' shares held by such persons will be treated as restricted securities that were first acquired on the closing date of the business combination. Such shares will not be eligible for resale for a period of one year after the closing date unless the transaction is registered under the Securities Act. During the second year after the closing date, acquisition and founders' shares held by the foregoing classes of persons may be resold in transactions effected in compliance with all applicable regulations and the provisions of paragraphs (c), (e), (f) and (g) of Rule 144. Any contractual or other arrangements that provide piggy-back or demand registration rights for any holders of acquisition and founders' shares will be described in our reconfirmation offering prospectus. Resale of Shares Retained by Our Officers Our officers own 2,400,000 shares of common stock. A total of 403,000 shares will be transferred to donees and an additional 1,597,000 shares have been registered for resale as founders' shares. All founders' shares that are not transferred to unaffiliated third parties will be removed from registration in connection with our reconfirmation offering. Each of our founders has agreed that they will not sell or otherwise transfer any shares that are retained by them after the completion of a business combination unless the transaction is effected pursuant to an effective registration statement under the Act or an available exemption from registration. Any contractual or other arrangements that provide registration rights for any of our officers will be described in our post-effective amendment and the final prospectus for our reconfirmation offering. Rule 144 Rule 144 provides a safe harbor exemption for the open market resale of "restricted securities." The term "restricted securities" generally includes securities that were sold in an exempt transaction, or that are held by a person who is an affiliate of the issuer of the securities. The term "affiliate" is generally defined as any person who directly or indirectly controls, is controlled by or under common control with the issuer of the securities. Under Rule 144 as currently in effect, a holder of restricted securities that are eligible for resale, will be entitled to sell in any rolling three-month period a number of shares that does not exceed the greater of 1% of the number of shares of common stock then outstanding, or the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. To the extent that shares of a company are only quoted on the OTC Bulletin Board or in the "Pink Sheets" the 1% limit will be applied without regard to trading volume. Sales under Rule 144 are also limited by manner of sale provisions, notice requirements and the availability of current public information about our company. The staff of the SEC's Division of Corporation finance has taken the position that Rule 144 is not available to the officers, directors, promoters and affiliates of blank check companies. Accordingly our officers have agreed that they will seek a "no-action" letter or other interpretive guidance from the SEC before entering into a contract for the unregistered resale or other transfer of any shares that are retained by them after the closing of a business combination and all associated transactions. EXPERTS The financial statements included in this prospectus have been audited by Michael F. Cronin, CPA, independent public accountant, as indicated in his report on such financial statements, and are included in this prospectus in reliance upon the authority of Mr. Cronin as an expert in accounting and auditing. The report of Michael F. Cronin, CPA, contains an explanatory paragraph that states that our historical lack of substantive business operations; our lack of a specific plan to engage in substantive business operations in the foreseeable future, our limited financial resources and our history of operating losses raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Want & Ender CPA, PC audited our financial statements for the years ended December 31, 2000 through December 31, 2002. In January 2004, Want & Ender notified us that it did not intend to register with the Public Company Accounting Oversight Board and would no longer be able to serve as our independent auditors. The report of Want & Ender on our financial statements for the years ended December 31, 2000 through December 31, 2002 did not contain an adverse opinion or a disclaimer of opinion. There have been no disagreements between our company and Want & Ender during the years ended December 31, 2000 through December 31, 2002 or any subsequent interim period on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Want & Ender, would have caused them to make reference to the subject matter of the disagreement in connection with their report. LEGAL MATTERS We are not a party to any legal proceedings. The firm of Mark R. Dolan, PA, has given us its opinion that (a) the gift shares are issued, outstanding, duly authorized, validly issued, fully paid and nonassessable common stock of our company, (b) the founders' shares are issued, outstanding, duly authorized, validly issued, fully paid and nonassessable common stock of our company, and (c) upon issuance, the acquisition shares will be duly authorized, validly issued, fully paid and non assessable common stock of our company. Mark R. Dolan, the sole stockholder of Mark R. Dolan, PA, is an officer and director of our company who owns 600,000 shares of our common stock, 500,000 of which have been registered for distribution as gift shares or resale as founders' shares. John L. Petersen, our general counsel, and Rachel A. Fefer, our secretary-treasurer, are partners in the law firm of Petersen & Fefer which has been primarily responsible for the preparation of our registration statement. Mr. Petersen and Ms. Fefer collectively own 1,200,000 shares of our common stock, 1,000,000 of which have been registered for resale. Andrews & Kurth LLP, Dallas, Texas, has served as special counsel to the law firm of Petersen & Fefer and advised our company on certain limited matters associated with our registration statement. Andrews & Kurth has not passed on any legal matters in connection with this distribution and will not render any legal opinions. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed a Form S-1 registration statement under the Securities Act of 1933 with the Securities and Exchange Commission. Our registration statement includes certain exhibits, schedules and other materials that are not included in this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, other parts of the registration statement have been omitted as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for further information about our securities, this distribution and us. The registration statement and its exhibits can be inspected and copied at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004. You may obtain information about the public reference room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site at www.sec.gov that contains our Form S-1 and other reports that we file electronically with the SEC. <PAGE> F-19 WIN OR LOSE ACQUISITION CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Financial Statements: Page Report of Michael F. Cronin, CPA on financial statements for the year ended December 31, 2003 F-2 Report of Want & Ender CPA PC on financial statements for the years ended December 31, 2002, 2001 and 2000 F-3 Balance Sheet as of December 31, 2003 and 2002 F-4 Statement of Operations for the years ended December 31, 2003, 2002 and 2001 F-5 Statement of Changes in Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001 F-6 Statement of Cash Flow for the years ended December 31, 2003, 2002 and 2001 F-7 Summary of Significant Accounting Policies F-8 Notes to Financial Statements F-12 <PAGE> WIN OR LOSE ACQUISITION CORPORATION REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Win or Lose Acquisition Corporation I have audited the accompanying balance sheet of Win or Lose Acquisition Corporation (a Delaware corporation in the development stage) as of December 31, 2003 and the related statements of operations, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of Win or Lose Acquisition Corp. as of December 31, 2002 were audited by other auditors whose report dated February 28, 2003 expressed an unqualified opinion on those financial statements. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that our audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Win or Lose Acquisition Corporation as of December 31, 2003 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has never engaged in substantive business activities and does not have a specific plan to engage in substantive business activities in the foreseeable future. The Company's limited financial resources and its history of operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Michael F. Cronin, CPA Rochester. New York February 20, 2004 <PAGE> To the Board of Directors and Stockholders Win or Lose Acquisition Corporation We have audited the accompanying balance sheet of Win or Lose Acquisition Corporation (a Delaware corporation in the development stage) as of December 31, 2002, 2001 and 2000, and the related statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2002 and 2001, and the period from inception (December 1, 2000) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Win or Lose Acquisition Corporation as of December 31, 2002, 2001 and 2000, and the results of its operations and its cash flows for the years ended December 31, 2002 and 2001, and the period from inception (December 1, 2000) through December 31, 2000, in conformity with generally accepted accounting principles. Want & Ender CPA PC By Martin Ender, CPA New York, New York March 24, 2003 <PAGE> WIN OR LOSE ACQUISITION CORPORATION BALANCE SHEETS AT DECEMBER 31, 2003 AND 2002 ASSETS December 31, -------------------------------------------- -------------------------------------------- 2003 2002 -------------------------------------------- Current Assets: Cash $ 1,085 $ 10,210 -------- -------- Total current assets 1,085 10,210 ------ ------ Deferred Offering Costs Filing fees 10 2,502 Miscellaneous offering costs - 62,382 Legal fees - 109,328 ---- ------- Total deferred offering costs 10 174,212 ---- ------- Total Assets $ 1,095 $ 184,422 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable $ 2,250 $ - Due to affiliates - 2,837 ---- ------- ----- Total current liabilities 2,250 2,837 ------ ------- ----- Long-term Debt Total long-term debt - - - - Total Liabilities 2,250 2,837 ------ ----- Stockholders' Equity (Deficit) Common stock, $0.001 par value, 25,000,000 shares authorized, 2,400,000 shares outstanding at December 31, 2003 and 2002 $ 2,400 $ 2,400 Preferred, $0.001 par value, 5,000,000 shares authorized, no shares outstanding - - Additional paid in capital 213,443 206,591 Deficit accumulated during development stage (216,998) (27,407) --------- -------- Total Stockholder's Equity (Deficit) (1,155) 181,584 ------- ------- Total Liabilities and Equity (Deficit) $ 1,095 $ 184,421 ======== ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS <PAGE> WIN OR LOSE ACQUISITION CORPORATION STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001 <TABLE> <CAPTION> Year Ended December 31, ------------------------------------------------------------- 2003 2002 2001 ------------------------------------------------------------- Revenue $ - $ - $ - Expenses <S> <C> <C> <C> Organization Costs - - - General and administrative 13,113 16,120 3,072 Expenses of prior offering 176,479 - - ------------- ------------- - Total Expenses 189,592 16,120 3,072 ------------- -------------- ----- Net Income (Loss) $(189,592) $(16,120) $(3,072) =========== ========== ========= Net Income (Loss) Per Common Share $ (0.08) $ (0.01) $ (0.00) ========= ========= ======== Number of common shares issued and outstanding during period 2,400,000 2,400,000 2,400,000 =========== =========== ========= Number of common shares used in calculation of earnings per share 2,400,000 2,400,000 2,400,000 =========== =========== ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS </TABLE> <PAGE> WIN OR LOSE ACQUISITION CORPORATION STATEMENT OF CHANGES IN STOCKHOLDERS' EQITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001 <TABLE> <CAPTION> Deficit Accumulated Additional During The Common Stock Paid-In Development Shares Par Value Capital Stage Total <S> <C> <C> <C> <C> <C> <C> <C> BALANCE, December 31, 2000 1,500,000 $1,500 $65,255 $ (8,215) $ 58,540 ----------- -------- --------- ---------- -------- Direct payment of certain costs by affiliates Operating costs paid by stock transfer $ 3,000 Offering costs paid by stock transfer $ 8,250 Additional offering costs paid by affiliates - $ - $82,057 $ - $ 93,307 Three share for five stock dividend 900,000 $ 900 $ (900) $ - $ - Net Income (Loss) For the year ended December 31, 2001 - $ - $ - $ (3,072) $ (3,072) -------- - ------- -------- ---------- --------- BALANCE, December 31, 2001 2,400,000 $2,400 $157,662 $(11,287) $ 148,775 ----------- -------- ---------- ---------- --------- Additional cash capital contribution $ 7,574 $ 7,574 Direct payment of certain costs by affiliates Operating costs paid by affiliates $ 1,250 Additional offering costs paid by affiliates - $ - $40,105 $ - $ 41,355 Net Income (Loss) For the year ended December 31, 2002 - $ - $ - $(16,120) $(16,120) -------- - ------- -------- ---------- --------- BALANCE, December 31, 2002 2,400,000 $2,400 $206,591 $(27,407) $ 181,584 ----------- -------- ---------- ---------- --------- Direct payment of certain costs by affiliates Operating costs paid by affiliates $ 6,852 $ 6,852 Net Income (Loss) For the year ended December 31, 2002 - $ - $ - $(189,592) $(189,592) -------- - ------- -------- ----------- ---------- BALANCE, December 31, 2003 2,400,000 $2,400 $213,443 $(216,999) $ (1,156) =========== ======== ========== =========== ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS <PAGE> WIN OR LOSE ACQUISITION CORPORATION (A DEVELOPMENT STAGE ENTITY) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001 <TABLE> <CAPTION> Year Ended December 31, ---------------------------------------------------- 2003 2002 2001 ---------------------------------------------------- Cash flows from operating activities <S> <C> <C> <C> Net income (loss) $(189,592) $(16,120) $ (3,072) Less operating costs paid by affiliates 6,852 1,250 3,000 ------ ------------- ----- Net cash operating loss (182,740) (14,870) (72) --------- ------------- ---- Change in operating assets and liabilities: Increase (decrease) in current liabilities $ (587) $ 2,837 $ (4,000) (Increase) decrease in offering costs 174,202 (23,758) (1,502) -------- -------------- ------- Net cash provided by (used in) operating activities 173,615 (20,921) (5,502) -------- -------------- ------- Cash flows from financing activities Proceeds from issuance of common stock $ - $ - $ - Additional cash capital contribution - 7,574 - ------------- ------------------ - Net cash provided by (used in) financing activities - 7,574 - ------------- ------------------ - Net increase (decrease) in cash $ (9,125) $(28,217) $ (5,574) Cash balance, beginning of period $ 10,209 $ 38,426 $ 44,000 --------- - ---------- -------- Cash balance, end of period $ 1,084 $ 10,209 $ 38,426 ======== = ========== ======== Supplemental disclosure of non-cash transactions involving direct payment of certain costs by affiliates Direct payment of operating costs by affiliates $ 6,852 $ 1,250 $ 3,000 Direct payment of offering costs by affiliates $ - $ 40,105 $ 90,307 -------- - ---------- -------- Total non-cash transactions involving direct $ 6,852 $ 41,355 $ 93,307 payments of certain costs by affiliates ======== ========= ======== </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS <PAGE> WIN OR LOSE ACQUISITION CORPORATION Summary of Significant Accounting Policies December 31, 2003 Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Cash and Cash Equivalents For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. Property and Equipment Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place. Stock Based Compensation As of January 1, 2003, the Company adopted the fair value method of accounting for employee stock options contained in Statement of Financial Standards No.123 ("SFAS No. 123") "Accounting for Stock-Based Compensation," which is considered the preferable method of accounting for stock-based employee compensation. Prior to the change, the Company accounted for employee stock options using the intrinsic value method of APB 25. During the transition period, the Company will be utilizing the prospective method under SFAS No.148 "Accounting for Stock-Based Compensation -Transition and Disclosures." All employee stock options granted subsequent to January 1, 2003 will be expensed over the stock option vesting period based on fair value, determined using the Black-Scholes option-pricing method, at the date the options were granted. Prior to January 1, 2003, the Company had applied the "disclosure only" option of SFAS No.123 for employee stock options. Accordingly, no compensation cost has been recognized for stock options granted prior to January 1, 2003 Fair Value of Financial Instruments Statements of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2003. The respective carrying value of certain on-balance sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts payable and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company's notes and debentures payable would be estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying value approximates the fair value of the notes payable. Earnings per Common Share The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 replaces the previous "primary" and "fully diluted" earnings per share with <PAGE> WIN OR LOSE ACQUISITION CORPORATION Summary of Significant Accounting Policies December 31, 2003 "basic" and "diluted" earnings per share. Unlike "primary" earnings per share that included the dilutive effects of options, warrants and convertible securities, "basic" earnings per share reflects the actual weighted average of shares issued and outstanding during the period. "Diluted" earnings per share are computed similarly to "fully diluted" earnings per share. In a loss year, the calculation for "basic" and "diluted" earnings per share is considered to be the same as the impact of potential common shares is anti-dilutive. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. Recent Accounting Pronouncements In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Standards No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 is effective for business combinations completed after June 30, 2001, and SFAS 142 is effective for fiscal years beginning after December 15, 2001. SFAS 141 proscribes the exclusive use of the purchase method of accounting for all business combinations subsequent to the effective date. SFAS 142 mandates that acquired goodwill and intangible assets deemed to have indefinite lives will no longer be amortized. Rather, goodwill and these intangibles will be subject to regular impairment tests in accordance with SFAS 142. All other intangible assets will continue to be amortized over their estimated useful lives. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS 143 is effective for the fiscal years beginning after June 15, 2002. SFAS 143 is expected to improve financial reporting because all asset retirement obligations that fall within the scope of this Statement and their related asset retirement cost will be accounted for consistently and financial statements of different entities will be more comparable. As provided for in SFAS 143, we have elected adoption of this statement in our fiscal year beginning January 1, 2002. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business". SFAS 144 is effective for fiscal years beginning after December 15, 2001 (with early adoption permitted under certain circumstances). SFAS 144 is expected to improve financial reporting by requiring that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and by broadening the presentation of discontinued operations to include more disposal transactions. As provided for in SFAS 144, we have adopted of this statement in our fiscal year beginning January 1, 2002. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." This statement addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities. SFAS No. 146 is applicable to restructuring activities and costs related to terminating a contract that is not a capital lease and one time benefit arrangements received by employees who are involuntarily terminated. SFAS No. 146 <PAGE> WIN OR LOSE ACQUISITION CORPORATION Summary of Significant Accounting Policies December 31, 2003 supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146 the cost associated with an exit or disposal activity is recognized in the periods in which it is incurred rather than at the date the Company committed to the exit plan. This statement is effective for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Previously issued financial statements will not be restated. The provisions of EITF Issue No. 94-3 will continue to apply for exit plans initiated prior to the adoption of SFAS No. 146. Adoption did not have a material impact on the financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of fiscal 2002 and the recognition provisions of FIN 45 effective January 1, 2003. Such adoption did not have a material impact on the financial statements. In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure ("SFAS 148"). SFAS 148 amends Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), to provide alternative methods for voluntary transition to the fair value method of accounting for stock-based employee compensation prescribed by SFAS 123. SFAS 148 also requires disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financials statements. The Company adopted the disclosure provisions of SFAS 148 effective January 1, 2003 and has included the additional required disclosures below under "Stock-Based Compensation." Such adoption did not have a material impact on the financial statements. In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). In general, a variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003. The Company adopted the provisions of FIN 46 effective February 1, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no variable interest entities. In December 2003, the FASB issued FIN 46R with respect to variable interest entities created before January 31, 2003, which among other things, revised the implementation date to the first fiscal year or interim period ending after March 15, 2004, with the exception of Special Purpose Entities ("SPE). The consolidation requirements apply to all SPE's in the first fiscal year or interim period ending after December 15, 2003. The Company adopted the provisions of FIN 46R effective December 29, 2003 and such adoption did not have a material impact on its consolidated financial statements since it currently has no SPE's. In April 2003, FASB issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for contracts and hedging relationships entered into or modified after June 30, 2003. The Company adopted the provisions of SFAS 149 effective June 30, 2003 and such adoption did not have a material impact on its consolidated financial statements since the Company has not entered into any derivative or hedging transactions. <PAGE> WIN OR LOSE ACQUISITION CORPORATION Summary of Significant Accounting Policies December 31, 2003 In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet: o a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur; o a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and o a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuer's equity shares, or (3) variations inversely related to changes in the fair value of the issuer's equity shares. In November 2003, FASB issued FASB Staff Position No. 150-3 ("FSS 150-3") which deferred the effective dates for applying certain provisions of SFAS 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies. For public entities, SFAS 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interests that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS 150, but would be classified as liabilities by the parent, the classification and measurement provisions of SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period. The Company adopted the provisions of SFAS 150 effective June 30, 2003 and such adoption did not have a material impact on its financial statements. <PAGE> WIN OR LOSE ACQUISITION CORPORATION Notes To Financial Statements December 31, 2003 1. Organization and Operations Win or Lose Acquisition Corporation (the "Company") was incorporated in Delaware on December 1, 2000, for the purpose of conducting a public distribution of securities and then effecting a merger, acquisition or other business combination transaction (a "Business Combination") with an unidentified privately-held company (a "Target"). The Company has not engaged in any substantive business activities to date and has no specific plans to engage in any particular business in the future. The Company's ability to commence operations is contingent upon completion of a proposed distribution of securities described in Note 2. The Company's business goal is to engage in a Business Combination on terms that will give its' stockholders a reasonable share of the increased market value that ordinarily arises when a private company makes the transition to public ownership. Since the Company has not yet identified Target, persons who acquire the Company's securities will have virtually no substantive information available for advance consideration of any specific Target. The Company's business strategy is also referred to as a "blind pool" because neither the management of the Company nor the persons who acquire securities in the Proposed Distribution know what the business of the Company will be. The Company has never engaged in any substantive business activities and does not have a specific plan to engage in substantive business activities in the foreseeable future. The Company has never generated operating revenue and will be wholly dependent upon capital contributed by its officers until it identifies a Target and closes a Business Combination. Since there is no assurance that the Company will be able to identify a Target or close a business combination, these conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's financial statements do not include any adjustments that might result if the Company were unable to continue operations. 2. Stockholders' Equity The Company's Certificate of Incorporation authorizes the issuance of 25,000,000 shares of common stock. The Company's Board of Directors has the power to issue any or all of the authorized but unissued common stock without stockholder approval. The Company currently has no commitments to issue any shares, however, it may issue a substantial number of additional shares in connection with a Business Combination. The Board of Directors is also empowered, without stockholder approval, to issue up to 5,000,000 shares of "blank check" preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the company's common stock. There are no shares of preferred stock issued or outstanding. Prior Rule 419 Distribution On June 7, 2002, the SEC issued an order of effectiveness with respect to the Company's first Form S-1 registration statement under the Securities Act of 1933. This registration statement included: o 400,000 shares that the Company's officers intended to transfer to 800 donees selected by them; o 1,600,000 shares that the Company's officers intended to offer to advisors to the Company, the owners of a target and other participants in a business combination; and o 12,600,000 shares that the Company intended to offer in connection with a business combination. The Company's officers completed the gift share distribution on August 2, 2002. In connection with the Distribution, the Company's officers distributed a total of 400,000 gift shares and 3,000 founders' shares to 806 donees selected by them. Each donee received 500 gift shares, which were promptly deposited in a Rule 419 escrow. <PAGE> WIN OR LOSE ACQUISITION CORPORATION Notes To Financial Statements December 31, 2003 2. Stockholders' Equity - continued In November 2003, the Company's officers determined that the Company would not be able to close a business combination transaction within the 18-month time period specified in Rule 419. Therefore the Company filed a post effective amendment to its registration statement for the purpose of deregistering its securities. The post-effective amendment was declared effective on November 24, 2003 and the shares on deposit in the Rule 419 escrow were returned to the company's officers. Proposed Rule 419 Distribution In January 2004, the Company's officers elected to recapitalize the Company by contributing an additional $40,000 and filing a second Form S-1 registration statement under the Securities Act of 1933. This registration statement will include: o 403,000 shares that the Company's officers intended to transfer to the 806 donees who received shares in connection with the first Rule 419 distribution; o 1,597,000 shares that the Company's officers intended to offer to advisors to the Company, the owners of a target and other participants in a business combination; and o 12,600,000 shares that the Company intended to offer in connection with a business combination. There is no assurance that the Company will be able to effect a Business Combination. If the Company is unable to close a transaction within 18 months from the date of its prospectus, Rule 419 will require that all gift share transactions be unwound and all certificates for gift shares be returned to the Company's officers. In that event, the Donees will receive nothing. Additional Contribution of Capital In January 2004, the Company's officers contributed $20,000 in additional paid in capital and an additional $20,000 on the effective date of the registration statement for the Company's proposed distribution of securities. The Company intends to use this additional capital to pay $2,250 in current liabilities and $10,000 in estimated expenses associated with the proposed distribution. Year 2000 Incentive Stock Plan Purpose of the Plan In December, 2000, the company approved its Year 2000 Incentive Stock Plan. The Plan's charter calls for a 10 year life. It is intended to promote the interests of Win or Lose Acquisition Corporation by providing the employees of the Company, who are largely responsible for the management, growth and protection of the business of the Company, with a proprietary interest in the Company. Stock Subject to the Plan Under the Plan, the plan committee may grant to participants (i) options, (ii) shares of restricted stock, (iii)shares of phantom Stock, (iv) stock bonuses and (v) cash bonuses. The committee may grant options, shares of restricted stock, shares of phantom stock and stock bonuses under the Plan with respect to an underlying number of shares of Common Stock that in the aggregate at any time does not exceed the lesser of (a) 750,000 shares of common stock, or (b) 10% of the number of shares of common stock issued and outstanding immediately after the completion of a Business Combination. <PAGE> WIN OR LOSE ACQUISITION CORPORATION Notes To Financial Statements December 31, 2003 2. Stockholders' Equity - continued Eligibility The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be such full-time employees of the Company as the plan committee, in its absolute discretion, shall select from time to time. There were no employee grants issued or exercised in the years ended December 31, 2003 and December 31, 2002. Valuation As of January 1, 2003, the Company adopted the fair value method of accounting for employee stock options contained in Statement of Financial Standards No.123 ("SFAS No. 123") "Accounting for Stock-Based Compensation," which is considered the preferable method of accounting for stock-based employee compensation. Prior to the change, the Company accounted for employee stock options using the intrinsic value method of APB 25. During the transition period, the Company will be utilizing the prospective method under SFAS No.148 "Accounting for Stock-Based Compensation -Transition and Disclosures." All employee stock options granted subsequent to January 1, 2003 will be expensed over the stock option vesting period based on fair value, determined using the Black-Scholes option-pricing method, at the date the options were granted. Prior to January 1, 2003, the Company applied the "disclosure only" option of SFAS No.123 for employee stock options. Accordingly, no compensation cost has been recognized for stock options granted prior to January 1, 2003 There was no impact on the financial statements for the years ended December 31, 2003 and 2002, since no stock options were granted during those periods. 3. Related party payments The Company entered into an employment agreement with its President and Chief Executive Officer that provided for a salary of $ 1,000 per month commencing on the effective date of the registration statement for its prior Rule 419 distribution and terminating 17 months thereafter. During the year ended December 31, 2002, the company paid $7,000 in cash compensation to its president under the terms of the foregoing agreement. During the year ended December 31, 2003, the company accrued $8,000 in compensation expense and paid $4,000 to its president under the terms of the foregoing agreement. The unpaid balance of the accrued compensation was forgiven in November 2003 and recorded as an addition to paid-in capital. The company has no further obligation under this agreement. 4. Income Taxes: The Company has approximately $ 217,000 in net operating loss carryovers available to reduce future income taxes. These carryovers expire at various dates through the year 2021. The Company has adopted SFAS 109 which provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income taxes and management's estimate of the probability of the realization of these tax benefits. A summary of the deferred tax asset presented on the accompanying balance sheets is as follows: <TABLE> <CAPTION> December 31, 2003 December 31, 2002 <S> <C> <C> Federal Deferred Tax Asset Relating to Net Operating Losses $70,091 $ 8,852 State Deferred Tax Asset Relating to Net Operating Losses 10,850 1,370 Less: Valuation Allowance (80,941) (10,222) ------- ------ Total Deferred Tax Asset $ 0 $ 0 =========== ========== </TABLE> 5. Subsequent Events In January 2004, the Company's officers contributed $20,000 in additional paid in capital and an additional $20,000 on the effective date of the registration statement for the Company's proposed distribution of securities. The Company intends to use this additional capital to pay $2,250 in current liabilities and $10,000 in estimated expenses associated with the proposed distribution. <PAGE> S-6 INSTRUCTIONS FOR GIFT SHARE DONEES One of our officers has offered to give you 500 shares of our common stock. You will not be expected or permitted to give our officer any money, property or other valuable consideration in connection with this gift. In order to receive the gift shares you must execute either a paper or an electronic copy of the Gift Share Acceptance Certificate set forth below. IF GIFT SHARES WILL BE ISSUED TO MORE THAN ONE MEMBER OF YOUR FAMILY, A SEPARATE GIFT SHARE ACCEPTANCE CERTIFICATE MUST BE COMPLETED FOR EACH FAMILY MEMBER. GIFT SHARE ACCEPTANCE CERTIFICATES FOR GIFTS TO MINOR CHILDREN MUST BE EXECUTED BY A PARENT OR LEGAL GUARDIAN ACTING AS CUSTODIAN FOR THE CHILD. PaperExecution: If you want to execute a paper copy of the Gift Share Acceptance Certificate you must: o Make a photocopy of the Gift Share Acceptance Certificate and complete all required information; o Sign the Gift Share Acceptance Certificate in the space indicated; and o Mail the executed Gift Share Acceptance Certificate to: Win or Lose Acquisition Corporation c/o Wachovia Bank NA Corporate Trust Group 5847 San Felipe, Suite 1050 Houston, Texas 77057 Electronic Execution: If you would rather execute an electronic version of the Gift Share Acceptance Certificate you must: o Log-on to the electronic Gift Share Acceptance Certificate on our Internet website at: www.winorlose.info/acceptance/home.html o Follow the on-line instructions and complete all required information; and o Electronically sign the Gift Share Acceptance Certificate in the space indicated. WIN OR LOSE ACQUISITION CORPORATION GIFT SHARE ACCEPTANCE CERTIFICATE Win or Lose Acquisition Corporation c/o Wachovia Bank NA Corporate Trust Group 5847 San Felipe, Suite 1050 Houston, Texas 77057 Gentlemen, 1. _____________________________, an officer of Win or Lose Acquisition Corporation (the "Company"), has advised me in writing of his or her intent to transfer 500 shares of the Company's common stock to me as a gift. I understand that I will not be asked to transfer any money, property or other valuable consideration to the above-named officer of the Company or to any other person in connection with the transfer of gift shares. I also understand that I must execute a copy of this Gift Share Acceptance Certificate as a condition to the transfer of the gift shares to me. <PAGE> 2. I have received a copy of the Company's prospectus dated _____________, 2004. I understand that: (a) The Company is a "blank check company," as defined in Securities and Exchange Commission Rule 419, and the gift share distribution is subject to the requirements of Rule 419. (b) The Company's officers will give a total of 403,000 shares of our common stock to family members, personal friends and business acquaintances selected by them (the "Donees"). Each donee will receive 500 gift shares and will be subject to the resale restrictions described in the prospectus. (c) The gift shares are fully paid and nonassessable common stock of the Company and the execution of this Gift Share Acceptance Certificate will not subject me to any liability to the officer identified above, the Company, any other Donee or any target that subsequently enters into a business combination with the Company. (d) The Company's officers will deposit all certificates for gift shares in escrow with Wachovia Bank NA. The stock certificates deposited in the Rule 419 escrow will be registered in my name and held in trust for my benefit until the Company negotiates a business combination and complies with the disclosure, reconfirmation and closing requirements of Rule 419. (e) I will be required to retain ownership of at least 100 gift shares until the earlier of six months after the completion of a business combination or the listing of the combined companies' stock on the American Stock Exchange or Nasdaq Stock Market. (f) THE COMPANY'S Shares are EXTREMELY speculative AND ITS BUSINESS PLAN involves a VERY high degree of risk. 2. I understand that if the Company fails to negotiate a business combination within 18 months from the date of the prospectus, the board of directors will unwind the gift share distribution and deregister the gift shares, founders' shares and acquisition shares. In such an event, I will receive nothing. 3. I understand that if the Company negotiates a business combination, I will be sent an updated prospectus that provides a description of the proposed transaction and the other information required by Rule 419. The updated prospectus will be sent to me within 5 business days after the effective date of the post-effective amendment to the Company's registration statement. I will then be given not less than 20 days nor more than 45 days to decide whether I want to: (a) Approve the proposed transaction and remain a stockholder of the Company, or (b) Reject the proposed transaction and instruct the escrow agent to return my gift shares to the officer identified above. 4. If I elect to remain a stockholder of the Company, I will execute a written reconfirmation certificate and send the executed reconfirmation certificate to the escrow agent within the reconfirmation period specified in the updated prospectus. If the escrow agent does not receive an executed reconfirmation certificate from me within the specified time period, the escrow agent will return my gift shares to the officer identified above. 5. Even if I elect to remain a stockholder of the Company, my decision will be subject to the reconfirmation threshold specified in the Company's updated prospectus. I understand that if a sufficient number of other gift share donees do not also execute reconfirmation certificates within the specified time period, the escrow agent will return all gift shares to the Company's officers. 7. If I elect to remain a stockholder of the Company and the reconfirmation threshold specified in the Company's updated prospectus is met, the escrow agent will mail my stock certificates to me within 5 business days after the escrow agent receives a notice from the Company that the business combination has been closed and all other conditions to the release of my stock certificates have been satisfied. I understand that when the escrow agent delivers my shares, I will receive two stock certificates: one for 100 shares and a second for 400 shares. I understand that the certificate for 100 shares will be imprinted with a restrictive legend that describes the applicable limitations on transfer. <PAGE> 8. I hereby confirm that I have not promised or agreed to transfer any money, property or other valuable consideration to the above-named officer of the Company or to any other person in connection with the transfer of gift shares. I further represent that (i) I am acquiring the gift shares solely for my personal account, (ii) I am acquiring the gift shares for investment, (iii) I am not acquiring the gift shares with a view to or for resale in connection with any subsequent distribution thereof, and (iv) I have no present plans to enter into any contract, undertaking, agreement or arrangement for such resale or distribution. 9. I understand that this Gift Share Acceptance Certificate does not impose any legal obligations on me, but constitutes a valid unilateral contract that is a binding obligation of the officer identified above. I understand that the gift evidenced hereby is subject to all of the conditions set forth herein, and no others. 10. Subject to all of the foregoing, I hereby accept the above named officer's gift of 500 shares of the Company's common stock. I have executed this Gift Share Acceptance Certificate on the date set forth below and forwarded the executed Gift Share Acceptance Certificate to the escrow agent. Executed in the City of _________________, State of ________________ this ___ day of ___________, 2004 (Signature of Donee) GENERAL REGISTRATION INFORMATION Please register my shares as follows (Name of Registered Owner) (Social Security or Federal Tax I.D. Number) (Street Address) (City, State, Zip Code) (Telephone, including area code) (e-mail address) ADDITIONAL REGISTRATION INFORMATION FOR STOCK GIFTS TO MINOR CHILDREN Please register the gift shares under the Uniform Gifts to Minors Act as follows: _________________________________, as custodian for _________________________ under the Uniform Gifts to Minors Act of the State of ____________________. <PAGE> Win or Lose Acquisition Corporation Common Stock 12,600,000 shares to be issued by us in connection with a business combination; and 2,000,000 shares to be distributed by selling stockholders 1268 Bayshore Boulevard Dunedin, Florida 34698 (727) 734-7346 <PAGE> Part II - 6 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth summary information on the expenses that we had incurred in connection with our registration statement as of March 31, 2002, and the additional expenses we expect to incur in connection with our cash offering. It is presently impossible to estimate the additional expenses that we may incur in connection with our offering of acquisition shares and our reconfirmation offering. Total Estimated Expenses SEC registration fee $ 462 Accounting fees and expenses $ 1,000 Legal fees and expenses $ 4,000 Rule 419 escrow agent fees $ 750 Printing and engraving expenses $ 1,000 Miscellaneous expenses $ 2,788 -------- Total Offering Costs $ 10,000 ======== ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Certificate of Incorporation provides for indemnification of officers and directors as follows: ELEVENTH: To the fullest extent permitted by law, the Corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), liability, loss, judgment, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, upon a plea of nolo contendere or equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect of any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Such indemnity shall inure to the benefit of the heirs, executors and administrators of any such person so indemnified pursuant to this Article. The right to indemnification under this Article shall be a contract right and shall include, with respect to directors and officers, the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its disposition; provided however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The Corporation may, by action of its board of directors, pay such expenses incurred by employees and agents of the Corporation upon such terms as the board of directors deems appropriate. Such indemnification and advancement of expenses shall be in addition to any other rights to which those seeking indemnification and advancement of expenses may be entitled under any law, Bylaw, agreement, vote of stockholders, or otherwise. <PAGE> The Corporation may, to the fullest extent permitted by applicable law, at any time without further stockholder approval, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under applicable law. Any repeal or amendment of this Article by the stockholders of the Corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and shall not adversely affect any right to indemnification or advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or amendment. In addition to the foregoing, the right to indemnification and advancement of expenses shall be to the fullest extent permitted by the General Corporation Law of the State of Delaware or any other applicable law and all amendments to such laws as hereafter enacted from time to time. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following is a list of Exhibits filed herewith as part of the Registration Statement: <TABLE> <CAPTION> <C> <C> 3.1 Certificate of Incorporation of Registrant (1) 3.2 Amendment No. 1 to the Registrant's Certificate of Incorporation dated April 1, 2002 (1) 4.1 By-laws of Registrant (2) 4.2 Form of certificate evidencing shares of common stock (2) 4.3 Rule 419 Escrow Agreement between the Registrant and Wachovia Bank N.A. as escrow agent (3) 5.1 Opinion of Mark R. Dolan, PA, respecting legality of common stock (3) 10.1 2000 Incentive Stock Plan of Win or Lose Acquisition Corporation (2) 10.3 Intellectual Property License Agreement, effective as of December 20, 2000 between Petersen & Fefer, Attorneys and Win or Lose Acquisition Corporation (4) 23.1 Consent of Michael F. Cronin, CPA 23.2 Consent of Want & Ender CPA, PC 23.3 Consent of Mark R. Dolan, PA (included in Exhibit 5.1) 24.1 Power of Attorney (included on the signature page of Part II of this Registration Statement) 27.1 Financial Data Schedule (1) Filed as an Exhibit to Amendment No. 8 to our Form S-1 registration statement (Registration No. 333-52414) dated May 20, 2002. (2) Filed as an Exhibit to our Form S-1 registration statement (Registration No. 333-52414) dated December 21, 2000. (3) Filed as an Exhibit to our Form S-1 registration statement (Registration No. 333-112975) dated February 20, 2004. (4) Filed as an Exhibit to Amendment No. 5 to our Form S-1 registration statement (Registration No. 333-52414) dated October 31, 2001. (b) Financial Statement Schedules. </TABLE> + Previously filed as Exhibits to our first Form S-1 registration statement. (A-#) Previously filed as an Exhibit to the specified amendment to our first Form S-1 registration statement. (b) Financial Statement Schedules. Financial statement schedules are omitted because the conditions requiring their filing do not exist or the information required thereby is included in the financial statements filed, including the notes thereto. ITEM 17. UNDERTAKINGS Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Registrant pursuant to Item 14 of this Part II to the registration statement, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against the public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (5) That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (6) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dunedin, State of Florida, on the 1st day of March 2004. Win or Lose Acquisition Corporation /s/ Sally A. Fonner, President /s/ Rachel A. Fefer, principal financial officer /s/ John L. Petersen, principal accounting officer <PAGE> POWER OF ATTORNEY Each of the officers and directors of Win or Lose Acquisition Corporation whose signature appears below hereby constitutes and appoints Sally A. Fonner and Mark R. Dolan, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution, each with the power to act alone, to sign and execute on behalf of the undersigned any amendment or amendments to this registration statement on Form S-1, and to perform any acts necessary to be done in order to file such amendment, and each of the undersigned does hereby ratify and confirm all that such attorneys-in-fact and agents, or their or his substitutes, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: Signature Title Date /s/ Sally A. Fonner President March 1, 2004 /s/ Mark R. Dolan Executive Vice President and Director March 1, 2004 /s/ Rachel A. Fefer Secretary/Treasurer and Director March 1, 2004 /s/ John L. Petersen General Counsel and Director March 1, 2004 </TEXT> </DOCUMENT>
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+PROSPECTUS SUMMARY This summary is qualified in its entirety by the more detailed information and the consolidated financial statements and notes appearing elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section entitled Risk Factors, our consolidated financial statements and the related notes, before making an investment decision. Unless otherwise indicated, references in this prospectus to Leadis Technology, Leadis, the Company, we, our and us refer to Leadis Technology, Inc. and its subsidiaries, Leadis Technology Ltd., Leadis International Limited and Leadis Technology Korea, Inc. Leadis Technology, Inc. We design, develop and market mixed-signal semiconductors that enable and enhance the features and capabilities of small panel displays. Our core products are color display drivers with integrated controllers, which are critical components of displays used in mobile consumer electronics devices. A display driver interfaces with the host processor to generate the precise analog voltages and currents required to create the images on the display. The performance characteristics of a display driver are critical to the quality and visual appeal of the images and text generated on the display and the power efficiency of the mobile device. Our current focus is on the wireless handset market, where high performance display drivers allow handset manufacturers to provide value-added, differentiating display features to attract wireless service providers and consumers. We were formed in 2000 and began commercially shipping our products in the third quarter of 2002. We generated $84.5 million in revenue and $12.8 million of net income in 2003 and $34.8 million in revenue and $4.7 million of net income in the first quarter of 2004, and have been profitable in each of the last six quarters. Prior to commencing volume shipments, we incurred net losses of approximately $0.1 million and $1.7 million in 2001 and 2002, respectively, and generated cumulative losses of $2.2 million from our inception through the end of 2002. We sell our products directly to display module manufacturers, which incorporate our drivers into their display module subassemblies for leading wireless handset manufacturers, with which we also seek to establish direct technical relationships. Our drivers are currently used by three of the top five global wireless handset manufacturers, including LG Electronics Inc., Nokia Corporation and Samsung Electronics Co., Ltd. Consumers throughout the world are rapidly adopting mobile consumer electronics devices such as wireless handsets, personal digital assistants, mobile gaming devices and digital cameras. According to International Data Corporation, or IDC, there were 552 million wireless handsets sold globally in 2003, making wireless handsets the most widely adopted mobile devices today. By 2007, the number of wireless handsets sold globally is expected to grow to over 748 million annually. Growth in unit shipments of mobile devices is driven primarily by two factors: new users and the replacement of current devices by existing users. To attract new users and to cultivate the replacement cycle, mobile device manufacturers must continue to frequently introduce new products with innovative technologies and applications. While early wireless handset models were primarily used for voice communication, usage patterns are shifting rapidly to include visually oriented data- and content-driven applications. Such applications require color displays. According to IDC, 55% of wireless handsets shipped in 2003 were equipped with a color display, and that percentage is expected to climb to 90% in 2007. With an increasing number of mobile device models available to consumers, manufacturers have realized that the display has significant potential to immediately distinguish their devices from competing products. Receipt of cash for subscription receivable 18 18 Issuance of warrants to customer 33 33 Issuance of common stock options 4 1 (unaudited) Interest income $ 45 $ 103 $ 189 $ 55 $ 72 Foreign currency transaction gain (loss) 23 (123 ) (38 ) 398 Other income (expense) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Every mobile device display needs a display driver to function. While advances in materials used to manufacture displays have played an important role in display innovation, display drivers are the critical semiconductor components that enable the display s functionality. Our proprietary display drivers are highly-integrated, customized, analog-intensive semiconductors. We believe our design engineering expertise, technology leadership, manufacturing process expertise, and library of functional building blocks enable us to create in relatively short time periods power-efficient, cost effective display drivers that enable displays with high-impact visual performance. In addition, we outsource all of our semiconductor fabrication, assembly and test, which enables us to focus on the design, development and marketing of our products. As a result, our products help our customers differentiate their products and introduce them into the market quickly. Our independence and focus on small panel display drivers has allowed us to quickly penetrate the wireless handset market and provide technologically advanced products. As an example of our focus and innovation, we were the first company to commercialize single-chip display drivers for full color organic light-emitting diodes, or OLED, which is a new display technology that offers enhanced visual experience and performance characteristics as compared to alternative technologies. Our current product portfolio includes passive matrix OLED display drivers and color super twisted nematic liquid crystal display, or color STN, drivers. Color STN is a color display technology widely used in small panel displays. We are also developing drivers for other major display technologies. Our objective is to be the leading provider of small panel display drivers by leveraging our advanced design engineering expertise, technology leadership, high voltage manufacturing process expertise and library of proprietary functional building blocks. The principal elements of our strategy are to: expand our product offering; develop closer and deeper relationships with display module and mobile device manufacturers; broaden our customer base; maintain time-to-market leadership; provide cost-competitive, value-added products to our customers; and enter other small panel display markets. While we believe we compete favorably in the markets we serve, we face a variety of challenges. We have a limited operating history and a limited number of customers as compared to many of our competitors that have longer operating histories, greater name recognition, more established customer relationships, more diversified product offerings and greater resources than we do. In addition, some of these competitors are divisions of larger organizations of which our primary customers are a part. While we have recently experienced significant growth, we must continue to develop our operational, accounting and management systems to manage any future growth, and we must continue to expand our product offerings and broaden our customer base to further grow our business. We were incorporated in Delaware on May 15, 2000. Our principal executive offices are located at 474 Potrero Avenue, Suite A, Sunnyvale, California 94085, and our telephone number is (408) 387-8800. Our web site is leadis.com. The information on, or that can be accessed through, our web site is not part of this prospectus. Deferred stock-based compensation 4,329 (4,329 ) Amortization of deferred stock- based compensation 737 737 Issuance of warrants to customer 183 183 Exercise of common stock options 342 47 47 Conversion of Series A convertible preferred stock to common stock (1,915 ) (2 ) 1,915 AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents The Offering Common stock offered by Leadis Technology 6,000,000 shares Common stock to be outstanding after this offering 27,415,082 shares Use of proceeds We plan to use the net proceeds from this offering for general corporate purposes, including working capital, research and development, general and administrative expenses and capital expenditures. Proposed Nasdaq National Market symbol. LDIS
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001131933_tolerrx_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001131933_tolerrx_prospectus_summary.txt
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+Prospectus summary 1
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+John McCartney 51 Chairman of the Board of Directors Thomas Dolan 50 Director, President and Chief Executive Officer John P. O Malley III 42 Vice President, Finance and Chief Financial Officer Anthony Daley 40 Senior Vice President and General Manager, the Americas, Westcon Group North America Simon John England 40 Managing Director, Comstor Europe Ing. Willem J.H. de Haan 40 Vice President, Westcon Europe Robin Rindel 42 General Manager, Asia Pacific and Senior Vice President for Mergers and Acquisitions Brian Weisfeld 36 Senior Vice President, Corporate Operations Russ Fein 41 Vice President, Worldwide Business Operations and Chief Risk and Compliance Officer Jason Molfetas 40 Chief Information Officer Duncan Potter 39 Vice President, Worldwide Marketing Carol Rivetti 42 Vice President and General Manager, U.S., Westcon Group North America Jens Montanana 43 Director Christopher Seabrooke 51 Director John McCartney has served as one of our directors since August 1998 and was elected Chairman of our board of directors in January 2001. Mr. McCartney served as vice chairman of the board of directors of Datatec from October 1998 until March 2004. Since 1998, Mr. McCartney has served as a director and the audit committee chairman of A.M. Castle Corporation, a steel distributor. From June 1997 to March 1998, he held the position of president of 3Com Corporation s Client Access Unit. He joined the executive management team of US Robotics in March 1984 as vice president and chief financial officer and served in various executive capacities until serving as president and chief operating officer of US Robotics from January 1996 to June 1997. From 1981 to 1984, Mr. McCartney was vice president of operations of Dur-o-wal, Inc., a company that manufactures and supplies products to the masonry construction industry. From 1976 to 1981, he held the position of manager at Grant Thornton LLP, a public accounting firm. Mr. McCartney is a certified public accountant with a B.A. in philosophy from Davidson College and an M.B.A. from The Wharton School of the University of Pennsylvania. Thomas Dolan, our co-founder, has served as our President and Chief Executive Officer since May 2004 and as one of our directors since September 1996. From October 2002 to April 2004, he served as our Executive Vice President. From June 2001 until October 2002, he served as the Chairman of our board of directors, and from November 2000 to June 2001, he served as our President and Chief Executive Officer. From our inception in April 1985 to November 2000, Mr. Dolan served as our Executive Vice President of Worldwide Sales and Marketing. Prior to founding Westcon Group, Mr. Dolan was the manager of systems development at Avon Products, Inc., a manufacturer of cosmetics, from 1979 to 1985. Mr. Dolan has a B.S. in engineering from Tulane University. Following his graduation, Mr. Dolan served as an officer in the U.S. Marine Corps. John P. O Malley III has served as our Vice President, Finance and Chief Financial Officer since January 2001. Mr. O Malley served as one of our directors from August 2003 to February 2004. From March 1999 until January 2001, he served as our Vice President, Worldwide Finance. Prior to joining us, Mr. O Malley was self-employed as a financial consultant from November 1997 to March 1999. From September 1996 to November 1997, Mr. O Malley worked at Medical Resources, Inc., a national provider of diagnostic imaging services, where he served as the executive vice president, finance and chief financial officer. From 1992 to 1996, Mr. O Malley served as the executive vice president, finance, chief financial officer and secretary of NMR of America, Inc. which is also a provider of diagnostic imaging services. He initially joined NMR as its director of finance in May 1992. From August 1984 to May 1992, Mr. O Malley was employed by the public accounting firm of Ernst & Young LLP and its predecessors, most recently as an audit manager. Mr. O Malley is a certified public accountant with a B.S. in accounting from the University of Delaware. Anthony Daley has served as our Senior Vice President and General Manager, the Americas, Westcon Group North America since November 2002. From December 2001 to November 2002, he was our General Manager for the Westcon division. Mr. Daley joined us in August 1999 as Vice President of Sales in the United States, a position he held until December 2001. Prior to joining us, Mr. Daley worked at Anixter, a global specialty distribution company focused on IT communications, where he began his career in sales in 1985, and held several executive positions during his tenure including area manager for the Georgia and Alabama region and manager of strategic vendor relations for the southeast region, and most recently as vice president of sales from March 1998 to August 1999 where he was responsible for the southeast region. Mr. Daley studied business administration at Gwinett County Community College. Simon John England has served as our Managing Director for Comstor Europe since February 2002. Prior to joining us, from March 1995 to January 2002 he held several executive positions at Ingram Micro Inc., a global wholesale provider of technology products and services, and Compu-Shack GmbH, a subsidiary of Ingram Micro, including European enterprise networking director at Ingram Micro from July 2001 to January 2002, and senior director, business development and product marketing, at Compu-Shack from January 1998 to January 2002. From September 1989 to February 1995, Mr. England managed the networking division of Mathiesen Daten, a large German system integrator, and ran his own training company from September 1988 to June 1990. From September 1986 to August 1988, he worked as a support engineer and trainer at Complus, a German networking distributor. Mr. England studied mathematics and computer science at Bonn University. Ing. Willem J.H. de Haan has served as our Vice President for the Westcon division in Europe since May 2002. From March 2000 until May 2002, he was responsible for European distribution for Landis Group NV, a position he held until our acquisition of the distribution division of Landis Group NV in May 2002. From September 1998 to March 2000, he was managing director of Landis bv in The Netherlands. From April 1992 to September 1998, he served as general manager at A-Line Technologies bv, a company that distributes networking components and software applications. From 1988 to 1992, he served in various sales and sales management positions at the Dutch Getronics Group, a company that delivered industrial automation solutions, networking components and infrastructures as well as applications and services. Mr. de Haan received a bachelors degree in technical education from Hoogeschool Eindhoven and a bachelors degree in business administration from the University of Nijenrode. Robin Rindel has served as our General Manager, Asia Pacific and Senior Vice President for Mergers and Acquisitions since November 2002. Mr. Rindel served as one of our directors from August 1998 to September 2002. Prior to joining us, Mr. Rindel served as an executive director of Datatec from September 1995 to July 2002. During this period he held the position of chief financial officer of Datatec from April 2001 to July 2002 (a position he also held from September 1995 to September 1998). He served as the group commercial director of Datatec from September 1998 to April 2001 and was responsible for Datatec's finance and investor relations activities and for overseeing Datatec's acquisition activities. Mr. Rindel resigned as a director of Datatec in March 2003 and as an employee of Datatec in February 2004. Mr. Rindel is a chartered accountant and graduated from the University of South Africa in Pretoria, South Africa. Brian Weisfeld has served as our Senior Vice President, Corporate Operations since January 2004. Prior to joining us, Mr. Weisfeld founded The Harold Martin Company, a private investment and consulting firm, where he served as the president from March 2002 to December 2003. From June 1994 to September 2001, he was employed by IMAX Corporation, the giant-screen theater company, where he held various senior executive positions including senior vice president, operations from January 1999 to September 2001. From 1993 to 1994, Mr. Weisfeld served as a vice president of Cheviot Capital Advisors, a private equity firm that acquired IMAX Corporation in addition to other investments. Prior to that, he was a financial analyst at Kidder, Peabody & Co. Incorporated. Mr. Weisfeld has a B.B.A. from the University of Michigan and an M.B.A. from The Wharton School of the University of Pennsylvania. Russ Fein has served as our Vice President, Worldwide Business Operations and Chief Risk and Compliance Officer since June 2003. From December 2001 until June 2003, he served as our General Manager of the Westcon division in the United States. From April 2001 until December 2001, he was our Vice President of Business Management. Prior to joining us, from December 1999 to April 2001 Mr. Fein was chief operating officer and chief financial officer of Iron Street Labs, a new business incubator that launched more than ten Internet based businesses. From June 1995 to September 1999, Mr. Fein served as the chief operating officer of United Studios of Self Defense, East Coast, a company that operated a chain of more than 20 martial art studios. Mr. Fein has a B.A. with honors from Union College and an M.B.A. from the University of Chicago. Jason Molfetas has served as our Chief Information Officer since November 2002. Prior to joining us, he worked at Xerox Engineering Systems (a division of Xerox), where he served as the chief information officer from November 2000 to September 2002 and managed the worldwide information and application systems including data centers in the United States, United Kingdom and Australia. From May 1998 to October 2000, Mr. Molfetas served as the vice president of global systems at Pearson Technologies, PLC, an international media company with operations that include education, business information and consumer publishing, where he directed the implementation of Pearson s global SAP system. Prior thereto, Mr. Molfetas worked at Pepsi Cola, Inc., where he held various information technology management roles. Mr. Molfetas has a B.S. in computer science from Pace University and an M.B.A from Fordham University. Duncan Potter has served as our Vice President, Worldwide Marketing since June 2004. Prior to joining us, from October 2000 to June 2004 Mr. Potter held various positions as vice president, product marketing and vice president, corporate marketing at Extreme Networks, Inc., a network infrastructure equipment provider, where he was responsible for Extreme Network s worldwide field, channel, corporate and relationship marketing activities. From November 1999 to October 2000, he was senior product line manager for storage and local area networks marketing at Cisco Systems Inc. From September 1989 to November 1999, Mr. Potter held various positions at 3Com Corporation including director of product marketing from April 1997 to November 1999 and European product marketing manager from November 1994 to April 1997. Carol Rivetti has served as our Vice President and General Manager, U.S., Westcon Group North America since April 2003. From April 2000 until March 2003, she was the General Manager of Comstor, Inc. Prior to joining us, Ms. Rivetti worked at Lucent, where she served as a global account manager and national sales manager for the North America service provider division from February 1996 to March 2000. From April 1989 to January 1996, Ms. Rivetti worked at AT&T, where she served in various management roles, including sales management, project management and strategic planning. From December 1983 until April 1989, Ms. Rivetti worked for the Air Force as a contracting officer in support of Department of Defense communications procurement. She has a B.A. from Cedarville College. Jens Montanana has served as one of our directors since August 1998. Mr. Montanana founded Datatec in February 1986 and served as the Chairman of the board of directors of Datatec from 1986 to November 2001 and has served as Datatec s Chief Executive Officer since October 1994. Since October 2002, Mr. Montanana has also served as the chief executive officer of Logicalis, a wholly owned subsidiary of Datatec. Since 1999, Mr. Montanana has served as a director of Versatile Mobile Systems (Canada) Inc., a Canadian company that develops mobile business solutions. In 1993, Mr. Montanana co-founded Xedia Corporation, a provider of network switching products. From 1989 to 1993, Mr. Montanana held the position of managing director and vice president of US Robotics UK Limited, a wholly owned subsidiary of US Robotics (now 3Com). Mr. Montanana has a degree in electronic engineering from the University of Reading. Christopher Seabrooke has served as one of our directors since May 2001. Mr. Seabrooke has served as a director of Datatec since June 1994. Since 1988, he has served as the chief executive officer and chairman of Sabvest Limited, an investment and finance group listed on the JSE Securities Exchange in South Africa. Since July 2003, Mr. Seabrooke has served as the non-executive chairman of each of Massmart Holdings Limited, a South DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the adjusted net tangible book value per share of our common stock immediately after this offering. Our net tangible book value as of February 29, 2004 was $ million, or $ per share of common stock. Net tangible book value per share of common stock is determined by dividing our tangible net worth (total tangible assets less total liabilities) by the aggregate number of shares of common stock outstanding. Dilution is determined by subtracting net tangible book value per share after this offering from the initial public offering price per share. After giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us and the application of the estimated net proceeds therefrom, our adjusted net tangible book value as of February 29, 2004 would have been $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value to existing investors of $ per share of common stock and an immediate dilution to new investors of $ per share of common stock. The following table illustrates this per share dilution: Assumed initial public offering price per share $ Net tangible book value per share of common stock before this offering $ Increase in net tangible book value per share of common stock attributable to new investors ____________ Adjusted net tangible book value per share of common stock after this offering ____________ Dilution per share of common stock to new investors $ Africa based managed portfolio of consumer chains, and MGX Holdings Limited, a South Africa based information technology company. Mr. Seabrooke is a director of three other JSE Securities Exchange-listed companies, namely Primedia Limited, a South Africa based media group, Primeserv Group Limited, a South Africa based investment holding company with specialized operations in the human resources arena, and Set Point Technology Holdings Limited, a South Africa based industrial technology group. Mr. Seabrooke also chairs the State Theatre of South Africa. He has degrees in economics and accounting from the University of Natal and an M.B.A. from the University of the Witwatersrand. Board Composition Our bylaws allow for between six and 11 directors, with the exact number of directors to be determined from time to time by the board of directors. As a result of three recent resignations, including the resignation of Alan Marc Smith who served as our President and Chief Executive Officer from June 2001 to May 2004, our board currently consists of four members, who are Mr. Dolan, our Chief Executive Officer, Mr. Montanana, who is an executive officer of Datatec, Mr. Seabrooke, who is also a director of Datatec, and Mr. McCartney, who is an independent director and the Chairman of our board. Although Mr. McCartney was a director of Datatec until March 2004, Mr. McCartney was neither an employee of, nor a consultant to, Datatec and did not receive any compensation from Datatec other than in his capacity as a director. Since Datatec will own more than 50% of our outstanding shares of common stock upon the completion of this offering, we will be a controlled company, as such term is defined under Nasdaq Marketplace Rule 4350(c). Following this offering, we expect to increase the number of directors on our board to nine directors and to fill these newly-created vacancies with directors who will be independent of both us and Datatec. At that time a majority of our board of directors will be independent directors. Until such time, we intend to rely on Nasdaq s controlled company exception. As a controlled company, we will be exempt from many of the Nasdaq corporate governance requirements, including requirements that our board of directors be comprised of a majority of independent directors or that our compensation committee and nominating and governance committee be comprised of independent directors. There are no family relationships among any of our directors and executive officers. There are no contractual obligations regarding election of our directors. Director Compensation Prior to the completion of this offering, our directors receive no additional cash compensation for their services as directors, but are reimbursed for their reasonable and necessary out-of-pocket expenses incurred for attending board and board committee meetings. Pursuant to the Westcon Group, Inc. Stock Option Plan, all of our directors, other than directors who serve on the compensation committee of our board, are eligible to receive stock option grants. Following the completion of this offering, we intend to pay to our directors who are independent of us, Datatec and Datatec s board of directors an annual retainer of $40,000, which will be payable in quarterly installments, and $1,000 for each board and committee meeting attended. In Fiscal 2003, we granted non-qualified stock options to purchase 200,000 shares of our common stock to John McCartney, the Chairman of our board of directors, under the Westcon Group, Inc. Stock Option Plan. The stock options vest over three years from the date of the grant and have an exercise price of $6.40 per share. Prior to the completion of this offering, we intend to adopt the Westcon Group, Inc. Non-Employee Directors Stock Plan under which each of our non-employee directors will receive an annual grant of a non-qualified option to purchase our common stock or other award with respect to our common stock. The following table sets forth, on an as adjusted basis, as of February 29, 2004, the number of shares of common stock purchased from us, the total consideration paid and the average consideration per share paid by existing stockholders and by the new investors in this offering, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us: Shares Purchased Total Consideration Board Committees Our board of directors has the authority to appoint committees to perform certain management and administrative functions. Our board of directors currently has a compensation committee and will have an audit committee and a nominating and corporate governance committee. Audit Committee The audit committee of our board of directors will be comprised of three directors. Under the Securities and Exchange Commission and the Nasdaq Marketplace rules, our audit committee must have at least one independent member as of the date of this offering, a majority of independent members within 90 days of the date of this offering and all independent members within one year of the date of this offering. As a result of these rules, we will be required to change the composition of our audit committee over time to satisfy these requirements. Our audit committee shall initially consist of John McCartney, who is an independent director, _____ and _____. The audit committee will be responsible for, among other things: assisting our board of directors in its oversight of: o the qualifications, independence and performance of our independent auditors; and o our compliance with legal and regulatory requirements; appointing, retaining and terminating (when appropriate) our independent auditors; and reviewing our financial statements and pre-approving all audit and non-audit services to be provided by our independent auditors. Compensation Committee Our compensation committee currently consists of John McCartney, Jens Montanana and Chris Seabrooke. Our compensation committee reviews and, as it deems appropriate, recommends to the board of directors policies, practices and procedures relating to the compensation of our executive officers and other managerial employees and the establishment and administration of employee benefit plans. The compensation committee also administers the Westcon Group, Inc. Stock Option Plan and advises and consults with our officers as may be requested regarding policies relating to managerial personnel. Nominating and Corporate Governance Committee The nominating and corporate governance committee will identify and recommend nominees to our board of directors and oversee compliance with our corporate governance guidelines. The nominating and corporate governance committee currently consists of _____, ______ and ______. Compensation Committee Interlocks and Insider Participation None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Jens Montanana, a member of our compensation committee, is a director and chief executive officer of Datatec. David Pfaff, who was a director of our company and a member of our compensation committee until February 2004, is a director and an executive officer of Datatec. Each of Alan Marc Smith, our former Chief Executive Officer, and John McCartney, the Chairman of our board of directors, was a director of Datatec until March 2004. (1) No awards of restricted shares were granted to the named executive officers during Fiscal 2004. (2) Effective May 21, 2004, Thomas Dolan became our President and Chief Executive Officer. (3) Based on a currency exchange ratio of 0.80 Euro to one U.S. Dollar as of February 29, 2004. (4) Reflects bonus received under our variable compensation plan. The bonus amount reported in the table is subject to adjustment, based on the achievement of certain performance targets. The actual amount due has not yet been determined. (5) Mr. England received other compensation in the amount of $29,715 consisting of a $27,000 car allowance as part of his employment agreement and $2,175 as a company contribution to our employee retirement plan on his behalf. (6) Based on a currency exchange ratio of 1.29 Australian Dollars to one U.S. Dollar as of February 29, 2004. (7) Mr. Rindel received other compensation in the amount of $49,632 consisting of $36,650 as a company contribution to a government mandated employee retirement plan on his behalf and a $12,712 relocation allowance. (8) Effective May 21, 2004, Mr. Smith resigned as our President and Chief Executive Officer. Average Price Per Share Number Percent Amount Percent (1) Options are for the purchase of our shares of common stock and were granted under the Westcon Group, Inc. Stock Option Plan. All stock options were granted with an exercise price which will be equal to the initial public offering price set forth on the cover page of this prospectus. One-third of the shares covered by the option vest on each anniversary of February 12, 2004, the date of the grant. The exercise of all stock options granted to our employees during Fiscal 2004 is contingent upon our completing an initial public offering of our common stock by October 1, 2004. (2) Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 0%, 5% and 10% rates of stock price appreciation are provided in accordance with rules of the Securities and Exchange Commission based on the assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and do not represent our estimate or projection of the future stock price. Datatec Stock Options Thomas Dolan John P. O Malley III 150,000 Anthony Daley 60,800 Simon John England 75,000 (1) Stock options are in-the-money if the market price of Datatec s ordinary shares exceeds the exercise price of the stock options. At February 29, 2004, the closing price of Datatec s ordinary shares on the JSE Securities Exchange, which was $2.23 per share, based on a currency exchange ratio of 6.64 South African Rand to one U.S. Dollar as of that date, did not exceed the exercise price of the stock options held by the named executive officers as of that date. Therefore, the named executive officers had no unexercised in-the-money stock options at February 29, 2004. (2) Prior to joining us in November 2002, Mr. Rindel was an employee of Datatec. He received these stock options to purchase ordinary shares of Datatec from Datatec during his employment with Datatec. Employment Agreements We have entered into employment agreements with all of our executive officers, except with Messrs. Dolan, O Malley, Rindel and de Haan. We intend to enter into employment agreements with Messrs. Dolan, O Malley, Rindel and de Haan. Each employment agreement with our other executive officers has a one-year term, automatically renewable for successive one year terms; however, each agreement may be terminated by either us or the executive officer at any time with cause or upon 60 days notice without cause. The employment agreements provide for annual salary, bonus amounts, and participation in our employee benefit plans. Under each agreement, the executive officer has agreed not to compete with us during his or her employment and for one year following a voluntary termination of employment. The executive officer has also agreed not to solicit any of our employees, consultants or customers during his or her employment and for two years following any termination of employment. Mr. Smith, who had been our President and Chief Executive Officer since June 2001, resigned from this position on May 21, 2004 and will cease to be our employee as of July 30, 2004. In connection with this resignation, we entered into a Separation and General Release Agreement with Mr. Smith on May 21, 2004, under which we obtained from Mr. Smith a general release of claims and Mr. Smith obtained from us certain severance and other benefits, including a release of claims by us. Pursuant to Mr. Smith s original employment agreement with us, Mr. Smith is entitled to aggregate payments of approximately $2.4 million representing severance equal to base salary and bonus through July 2005 and base salary for 18 months thereafter, unpaid fiscal year 2004 bonus and accrued vacation. In addition, Mr. Smith will receive the remaining payment due to him under his non-competition agreement with us, full vesting of all outstanding stock options to purchase our common stock and Datatec ordinary shares held by him, which options shall remain exercisable for the remainder of their original ten-year terms, and continued participation in our health and medical plans for Mr. Smith and his immediate family for 30 months after he terminates employment with us. After this 30-month period, Mr. Smith and his family may elect to continue to participate in our health, medical and dental plans (or obtain equivalent coverage under replacement plans if such participation is not permitted by the terms of the plans) for the remainder of their lives or, in the case of his children, until they attain age 21. Mr. Smith will be responsible for all costs associated with such participation, which shall be at the same rates paid by or charged to our other senior executives from time to time. The separation agreement also requires that we enter into a registration rights agreement with Mr. Smith with respect to those shares of common stock that he owns. All rights to indemnification provided under Mr. Smith s employment agreement with us will continue to remain in effect. We have also agreed to reimburse Mr. Smith for all reasonable fees, including attorneys fees, incurred by him in connection with entering into the separation agreement or, if applicable, in connection with any dispute related to his employment or termination of employment. As described under Executive Compensation, Mr. Smith has also entered into a non-competition agreement with us, which was amended on April 29, 2004 and subsequently amended by the Separation and General Release Agreement. Pursuant to this agreement, he has agreed not to compete with us, or solicit any of our employees, consultants or customers, for a period of 12 months following the termination of his employment with us. See
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+PROSPECTUS SUMMARY 
+ 
+ The
+following summary highlights information about our business and this offering contained elsewhere in this prospectus and should be read in conjunction with the more detailed information and financial statements and related notes appearing elsewhere
+in this prospectus. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001133324_inphonic_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001133324_inphonic_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read this entire prospectus carefully, including Risk Factors, our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this prospectus, before you decide to invest in our common stock. We are a leading online seller of wireless services and devices based upon the number of activations of wireless services sold online in the United States. We operate our business in three business segments: wireless activation and services, MVNO services and data services. Wireless activation and services. We sell wireless services and devices to consumers through websites that we create and manage for third parties under their own brands. These third parties include online businesses, member-based organizations and associations, and national retailers, whom we refer to collectively as marketers. We also sell services and devices through our own branded websites, including Wirefly.com. Our five largest sources of customers include websites that we create and manage for Yahoo, Quixtar, MSN and AOL, and Google, through which we generate customers for our own branded websites by purchasing advertising. MVNO services. We also provide wireless services for consumers through wireless airtime service that we purchase wholesale from Sprint. We provide such services as a mobile virtual network operator, or MVNO, under our Liberty Wireless brand. This service utilizes the same e-commerce platform, operational infrastructure and marketing relationships we have developed for our wireless activation and services segment to sell wireless services and devices, resulting in what we believe is a cost-effective means of acquiring customers. We also plan to offer marketers the ability to sell wireless services, or MVNO services, to their customers under their own brands using the same e-commerce platform, operational infrastructure and wholesale wireless airtime that we purchase. Data Services. We leverage the relationships we have established with customers through the sale of wireless services from carriers, as well as our MVNO service, to sell a variety of wireless data services such as unified communications, wireless e-mail and mobile marketing. Our unified communications services allow carriers and us to provide customers with the ability to organize personal communications by providing access to e-mail, voicemail, faxes, contacts, scheduling, calendar and conference calling functionality through a website or telephone. Our mobile marketing services allow carriers and us to deliver wireless advertising and subscription-based content services to the wireless devices of customers to strengthen both marketing efforts and brand awareness. We have developed a proprietary e-commerce information technology platform that integrates merchandising, provisioning, procurement, customer care and billing operations into a single system for the online sale of wireless services and devices. This platform, which uses a combination of internally developed and licensed technologies, has been designed to serve as a foundation for us to build upon, offer additional products and services and to maximize performance, scalability, reliability and security. For example, this platform supports both the websites that we create and manage for third-party marketers as well as our own branded websites and allows us to manage the sale of wireless services and devices offered from wireless carriers, our Liberty Wireless MVNO service, and MVNO services offered by marketers under their own brands. Our revenues include commissions, bonuses and other payments we receive from wireless carriers in connection with the activation of customers on their networks, as well as payments from customers for wireless services and devices. For 2003, total revenues and net loss were $136.1 million and $20.2 million, respectively. For the three months ended September 30, 2004, total revenues and net loss were $54.1 million and $1.1 million, respectively. For the nine months ended September 30, 2004, total revenues and net loss were $144.2 million and $8.9 million, respectively. For 2003, revenues from our wireless activation and services segment, MVNO Operating expenses: General and administrative, excluding depreciation and amortization 112 45 30 31 21 36 23 Sales and marketing, excluding depreciation and amortization 38 28 22 26 21 26 23 Depreciation and amortization 4 4 4 4 3 5 3 Impairment of goodwill and intangibles 5 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents services segment and our data services segment represented $91.2 million, $36.1 million, and $8.9 million, respectively. For the three months ended September 30, 2004, revenues from the same three segments represented $39.1 million, $13.2 million, and $1.7 million, respectively. For the nine months ended September 30, 2004, revenues from the same three segments represented $100.6 million, $38.1 million, and $5.6 million, respectively. Revenues from our top three wireless carriers represented 49%, 46%, and 43% of our total revenues for 2003, the three months ended September 30, 2004, and the nine months ended September 30, 2004, respectively. During our limited history of operations, we have incurred significant losses and had negative cash flow from operations. As of September 30, 2004, we had an accumulated deficit of $118.6 million and a total stockholders deficit of $74.3 million. In recent years, use of wireless communication services has grown significantly in the United States fueled by enhanced convenience, mobility and affordability. As wireless carriers face increasing competition, excess network capacity as well as new challenges resulting from wireless local number portability, they are turning to the Internet as a cost-effective and growing channel to acquire customers. In addition, as consumers are faced with an increasingly complex and constantly changing selection of wireless service plans and devices, they are turning to the Internet to find real-time comparative pricing and feature information to help them make an informed choice. As a result of these trends, we believe the proportion of wireless services and devices sold on the Internet will grow, creating a significant market opportunity for us. We believe our online business model connects wireless carriers, marketers and consumers of wireless services and devices more effectively and efficiently than traditional retail channels. Wireless carriers benefit from broader access to consumers who shop on the Internet through our marketing relationships with highly-trafficked websites as well as our own branded websites. We also believe that our model provides wireless carriers with a cost-effective means of acquiring new customers. Marketers benefit by generating additional revenue from the marketing fees that we pay them for selling wireless services and devices through the private-labeled websites we create and manage. Marketers also benefit from our broad carrier relationships and selection of service plans and devices. Consumers benefit from competitive pricing, broad selection and the convenience of using the websites we create and manage for our marketers as well as our own branded websites for comparing and purchasing wireless services and devices. Through agreements we have with the seven largest U.S. wireless carriers, as well as with several regional carriers, we offer consumers a selection of at least four carriers in each of the top 100 U.S. metropolitan markets. Collectively, these carriers networks cover 99.4% of the U.S. population. Because our agreements with the wireless carriers are non-exclusive, we also compete against the services and devices that they offer directly or through third-party retailers, both online and offline. Our business is subject to numerous risks, which are highlighted in the section entitled Risk Factors immediately following this prospectus summary. In particular, our limited operating history makes it difficult for us to accurately forecast revenues and appropriately plan for our expenses. Furthermore, we have incurred significant operating losses in the past and may incur significant operating losses in the future. We were incorporated in Delaware in January 1997 and we began operations in October 1999. Our principal executive offices are located at 1010 Wisconsin Avenue, Suite 600, Washington, DC 20007 and our telephone number is (202) 333-0001. We maintain our technology and operations center in Largo, Maryland. Our website address is located at www.inphonic.com. The information on, or that can be accessed through, our website is not part of this prospectus. InPhonic, Wirefly, Welcome to Our Wireless World and Liberty Wireless are registered trademarks of InPhonic and we have a pending trademark for Powered by InPhonic. All other trademarks or service marks appearing in this prospectus are trademarks or service marks of others. AMENDMENT NO. 9 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering Common stock offered by InPhonic 6,000,000 shares Common stock offered by selling stockholders 1,000,000 shares Common stock to be outstanding after this offering 31,739,547 shares Use of proceeds We estimate that our net proceeds from this offering will be approximately $85.3 million. We intend to use approximately $10.5 million to repay existing debt, approximately $10.1 million to pay accrued and unpaid dividends on our preferred stock and the remainder for working capital and other general corporate purposes, including potential acquisitions. We will not receive any of the proceeds from the sale of common stock by the selling stockholders in this offering. See Use of Proceeds.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001135271_jamdat_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001135271_jamdat_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. You should carefully read the entire prospectus, including the section titled "Risk Factors," and the consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Our Company We are a global publisher of wireless entertainment applications, including games, ring tones, images and other entertainment content. We design our applications to take advantage of the multimedia capabilities of the latest generation of mobile phones, including high-resolution color displays and increased processing power. We have developed a diversified portfolio of more than 70 applications designed to appeal to a broad range of wireless subscribers based on intellectual properties that we create and own, like JAMDAT Bowling, and well-established brands that we license from third parties, like The Lord of the Rings . Our customers download our applications to their mobile phones through a carrier's branded e-commerce service, including Verizon Wireless' Get It Now , Sprint PCS Vision and Vodafone live! . Our customers are charged a fee for the applications, which appears on their mobile phone bills. The wireless carriers retain a percentage of the fee and remit the balance to us. Our wireless distribution channel eliminates traditional publishing complexities, including physical production, packaging, shipping, inventory management and return processing. We have agreements to distribute our applications in 39 countries through 80 wireless carriers serving approximately 880 million subscribers. These wireless carriers include AT&T Wireless, China Mobile, Cingular, mmO2, Nextel, NTT DoCoMo, Orange, Sprint PCS, Tata Teleservices, Telef nica M viles, T-Mobile, Verizon Wireless, Vivo and Vodafone. Subscribers must have a mobile phone with multimedia capabilities enabled by technologies such as BREW and Java to download and use our applications. Currently, only a limited number of wireless subscribers have the capability to download entertainment applications. We commenced operations in the United States in 2000. We have recently expanded internationally and are still highly dependent on the U.S. wireless market. In 2003 and for the six months ended June 30, 2004, we received approximately 78% and 79%, respectively, of our revenues from U.S. subscribers. Subscribers of Verizon Wireless and Sprint PCS, our largest and second largest carrier relationships by revenue, accounted for approximately 50% and 18%, respectively, of our revenues for the year ended December 31, 2003, and approximately 40% and 18%, respectively, of our revenues for the six months ended June 30, 2004. The Wireless Entertainment Market The wireless entertainment market has emerged as a result of the rapid growth and technological evolution in the wireless communications industry. Growth in Wireless Subscribers. The number of global wireless subscribers is expected to grow from approximately 1.3 billion in 2003 to 2.0 billion in 2008 with most of this new growth occurring in markets outside the United States, Western Europe and Japan, according to IDC. Deployment of Advanced Wireless Networks. Wireless carriers are deploying high-speed, next-generation digital networks which have enabled the over-the-air delivery and billing of data applications, including games, to their mobile phones. Availability of Mobile Phones with Multimedia Capabilities. Annual sales of mobile phones are expected to grow from 465.0 million units in 2003 to 689.1 million units in 2008, according to Assumed conversion of convertible redeemable preferred stock (Unaudited) 11,313,876 ARC. Manufacturers are increasingly offering mobile phones with multimedia capabilities enabled by technologies such as BREW and Java. Penetration of mobile phones with BREW and Java is expected to grow from approximately 23% of all mobile phones sold in 2003 to approximately 97% of all mobile phones sold in 2008, according to ARC. Demand for Wireless Entertainment. Total wireless gaming revenues in North America were approximately $119 million in 2003 and are expected to grow to $1.2 billion in 2008, according to ARC, a 59% compound annual growth rate. In addition, according to ARC, global wireless gaming revenues in 2003 were approximately $1.1 billion and are expected to grow to $8.4 billion in 2008, a 49% compound annual growth rate. Our Competitive Strengths and Challenges We believe that our competitive strengths include: Innovative, Award-Winning Applications. We publish high-quality, innovative applications that build JAMDAT brand loyalty among our customers and appeal to wireless carriers and mobile phone manufacturers looking to promote new mobile phone features and services. Our applications have received high rankings from industry critics and have won several major industry awards. Diverse Portfolio of Original and Licensed Properties. We publish a diverse portfolio of wireless entertainment applications. We earned 50% of our revenues for the six months ended June 30, 2004 from JAMDAT-branded applications, with the balance coming from applications based on license agreements with, among others, Activision, Atari, Microsoft, New Line Productions, Nickelodeon and PopCap Games, as well as the NFL, MLB, the NBA and the NHL. Proven Revenue-Generating Catalog. Many of our applications have lasting appeal and continue to generate revenue long after their initial release. Four of our five best-selling applications by revenues in the first half of 2004 had been on sale for over 22 months. Multiple Carrier Relationships. Our carrier relationships are a result of our early commitment to the wireless entertainment market and focus on carrier and customer service. Proprietary Technology and Commitment to Research and Development. We have created proprietary technologies that enhance our publishing business and enable us to develop and deploy innovative applications to more than 200 mobile phone models. Experienced Management Team. Our executive team has significant experience in the video game publishing, wireless communications and media industries, and most of them have been with us since at least 2001. We believe our management team's expertise and continuity is a significant competitive advantage in the increasingly complex wireless entertainment publishing market. Notwithstanding these strengths, we expect to face significant challenges in our business, including: Dependence on Wireless Carriers. We depend on wireless carriers for delivery of our applications and for billing and collection of the fees our customers are charged for our applications. Many factors outside our control could impair our ability to deliver our applications through wireless carriers, including the carriers' preference for our competitors' applications or the carriers' decision to discontinue altogether the sale of applications such as ours. Need to Create Compelling Content. Our customers demand increasingly sophisticated and compelling applications, which requires us to invest significant resources in research and development to enhance our existing offerings of wireless applications and introduce new applications. Income (loss) from operations (6,134 ) (408 ) (53 ) (104 ) 8 Interest and other income (expense), net 279 3 1 2004 $ 2,327 2005 59 2006 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Rapidly Evolving Market. The wireless entertainment market is evolving rapidly and we must have the management and technical expertise to respond adequately to the increasing technological sophistication and complexity of mobile phones and wireless networks. Intense Competition. The wireless entertainment market is intensely competitive. Some of our existing and potential competitors have greater resources, stronger brand names and a broader geographic presence than we do. Sales, Marketing and Support Requirements. The size and increasing complexity of the global wireless entertainment market requires us to have sophisticated sales, marketing and support organizations to meet the needs of both our customers and the wireless carriers that distribute our applications. We must also have effective quality assurance capabilities to deliver high quality products and sufficient resources to deploy our applications widely. Our Strategy Our goal is to be the leading global publisher of wireless games and other entertainment applications. To achieve this goal, we plan to: Publish High-Quality Entertainment Applications. We will continue to publish high-quality, innovative applications based on original and licensed brands. Enhance Our Distribution Channels. We plan to enhance our distribution channels by increasing our application deployment capability and strengthening our wireless carrier relationships. We will also expand our use of alternative channels, including Internet portal sites and retail stores. Build the JAMDAT Brand. We will continue to build the JAMDAT brand through application quality, customer and carrier support, advertising and other marketing efforts. Expand Our Global Presence. We will continue to expand organically as well as pursue attractive acquisition candidates, including other wireless entertainment publishers, developers or related companies, both in the United States and abroad. Our Offices Our executive offices are located at 3415 South Sepulveda Boulevard, Suite 700, Los Angeles, California 90034. Our website is located at www.jamdat.com. The information contained in our website does not constitute a part of this prospectus. Income (loss) from operations (14,308 ) (430 ) (303 ) (233 ) (153 ) (66 ) (23 ) (35 ) 11 5 Interest and other income (expense), net 142 2 2 2 1 Balance December 31, 2002 533,988 548,934 (219,744 ) 329,190 Additional paid-in capital 628,082 628,082 Issuance of Class A shares on exercise of stock options 118,810 3 AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 The Offering Common stock offered by: JAMDAT 3,581,908 shares of common stock The selling stockholders, including members of our management 1,727,772 shares of common stock Total 5,309,680 shares of common stock Common stock outstanding after this offering 19,509,677 shares of common stock Over-allotment option We have granted to the underwriters an option to purchase up to an additional 532,569 shares from us and the selling stockholders have granted to the underwriters an option to purchase up to an additional 263,883 shares of common stock, in each case, exercisable to cover over-allotments, if any, at the public offering price less the underwriting discount shown on the cover page of this prospectus. The underwriters may exercise these options at any time until 30 days after the date of this prospectus. Use of proceeds We intend to use the net proceeds we receive from this offering primarily for working capital and general corporate purposes. We may also use a portion of such net proceeds for the acquisition of businesses, applications and technologies. We will not receive any proceeds from the sale of common stock by the selling stockholders. See "Use of Proceeds."
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001136655_arbinet_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001136655_arbinet_prospectus_summary.txt
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+S-1/A (1) 2003 full year compared to 2002 full year and 2004 first nine months compared to 2003 first nine months. In July 2004, we launched products and services that allow the trading of Internet capacity through our exchange. As of September 30, 2004, we had 25 members who subscribed to our Internet data trading services. In September 2004, we acquired the Internet protocol trading exchange business of Band-X Limited, or Band-X, with operations located in New York, London, and Edinburgh, Scotland for $4.0 million in cash, subject to certain working capital adjustments. As part of our acquisition, 195 former Band-X customers became our customers and nine former Band-X suppliers became our suppliers. We are in the process of establishing direct contractual relationships with these customers and suppliers. We believe many of such customers and suppliers will become members of our exchange. We believe the acquisition will accelerate the growth of our exchange for Internet capacity. Net loss under UK GAAP (747,984 ) (2,389,686 ) Adjustment for: Development costs Divisional funds under UK GAAP (289,709 ) 123,735 Adjustment for: Development costs UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents For the year ended December 31, 2003, we reported fee revenues of $34.0 million, net loss of approximately five thousand dollars and earnings before income tax, depreciation and amortization, or EBITDA, of $8.8 million. For the nine months ended September 30, 2004, we reported fee revenues of $32.2 million, net income of $1.9 million and EBITDA of $10.6 million. By comparison, for the nine months ended September 30, 2003, we reported fee revenues of $25.0 million, a net loss of $1.3 million and EBITDA of $5.8 million. For information regarding our calculation of and the reasons why management uses EBITDA, we refer you to Management s Discussion and Analysis of Financial Condition and Results of Operations. Our operations and development, sales and marketing, and general and administrative costs are predominantly fixed in nature. We have grown, and believe we will be able to continue to grow, fee revenues significantly faster than these operating costs and expenses. For example, these costs and expenses increased approximately 10% from $25.1 million for the nine months ended September 30, 2003 to $27.7 million for the nine months ended September 30, 2004, and our fee revenue grew approximately 29% over the same period. Industry Overview The global communications services industry continues to evolve, providing significant opportunities and creating competitive pressures for market participants. The industry has been experiencing significant changes, including the proliferation of wireless and data products and services, increased voice and data volume, declining unit pricing and the emergence of new participants due to deregulation and low-cost technologies. The growth in competition and associated fragmentation along with declining unit pricing and an industry structure that is characterized by high fixed costs have resulted in increased pressure on communications services providers profitability. Most communications services providers must access other providers networks to send and receive voice and data traffic. The process of establishing, managing and maintaining these interconnections is labor-intensive, costly, time-consuming and highly negotiated, which leads to higher installation, network management, selling, legal, billing and collection costs, creating the need and demand for a centralized and efficient marketplace. Our Solution We have created a global market where our members, through a single interconnection to our facilities, trade, route and settle voice calls and Internet capacity. Our exchange is neutral, favoring neither buyer nor seller, and allows our members to trade anonymously. Our system incorporates the following processes and attributes: Trade On our exchange, members can buy communications capacity to every country in the world. Our members place orders based on quality and price criteria, through our easy-to-use, web-based trading platform. We independently monitor and update the route quality rating of our sellers. We provide our members with market quality, price and volume information that helps them trade effectively on our exchange. Route Our proprietary software and patented processes automatically match and prioritize the orders based on the quality and price parameters that our members place on our exchange. Traffic is automatically routed from the buyer to the seller based on this order prioritization. Settle We manage all of the clearing, settlement and credit risk management for our members. Our members receive a single invoice from us that reflects the net amount due to or from us. We also manage the credit risk of (unaudited) (unaudited) Net profit / (loss) under UK GAAP 110,374 (463,032 ) Adjustment for: Development costs (i ) (20,857 ) Liabilities for employees remuneration for future paid absences (unaudited) (unaudited) Divisional funds under UK GAAP (136,549 ) (267,083 ) Adjustment for: Development costs (i ) 1,198 22,055 Liabilities for employees remuneration for future paid absences AMENDMENT NO. 6 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents transactions executed on our exchange through third-party financing arrangements, prepayment programs, cash deposits and letters of credit. This enables us to pay our sellers regardless of whether we have collected payment from the buyers. The Benefits of our Solution to our Exchange Members Our exchange provides many benefits to our members. By trading, routing and settling voice calls and Internet capacity through our exchange, members can access multiple buyers and sellers, increase network utilization, achieve better pricing and improve profitability and cash flow by reducing the number of interconnections, reducing selling, legal, billing and collection expenses and eliminating disputes and bad debt. Benefits of a single interconnection. By establishing a single interconnection to one of our five exchange delivery points, or EDPs, and executing a standard membership agreement with us, communications services providers gain immediate targeted access to and a link with several hundred buyers and sellers. This replaces the lengthy, costly and highly negotiated process of searching for and interconnecting to other communications services providers on a one-to-one basis and managing each interconnection on an ongoing basis. Furthermore, by aggregating traffic through a single interconnection to our exchange, we believe that our members can improve their network utilization by increasing the traffic they buy and sell through their existing infrastructure. Benefits of our trading platform and automatic routing. We believe our buyers are able to lower their costs at their specified quality criteria for voice calls and Internet capacity because buyers have access to quality and price data of numerous sellers. We eliminate the need for buyers to independently assess the quality of each seller s network by providing a centralized and up-to-date source of quality rating of sellers routes, enabling buyers to make quality comparisons between sellers routes. Benefits of our settlement and credit risk management features. Our settlement procedures are standardized and centralized. We handle all invoicing for voice calls and Internet capacity sold on our exchange. Members receive a single payment or invoice from us reflecting net buying or selling activity on our exchange. This settlement reduces members administrative costs and improves their working capital. We eliminate bad debt exposure for sellers because we assume the credit risk of every transaction executed on our exchange. We pay our sellers regardless of whether we have collected payment from the buyers. We manage our credit risk through the netting of our members buying and selling activity, third-party financing arrangements, prepayment programs, cash deposits and letters of credit. We believe our standard settlement terms accelerate the payment and improve cash flow for our sellers. Our Strategy Our mission is to provide the trading platform where virtually any digital good can be traded. The key elements of our strategy are: Expand our voice business through the following initiatives: Increase participation on our exchange from existing members. We believe our members benefit from economies of scale as they send more voice calls through our exchange allowing them to further reduce their expenses and reallocate resources. By demonstrating the cost savings of our exchange to senior management of our members, we believe members will increase their participation on our exchange. ARBINET-THEXCHANGE, INC. (Exact name of registrant as specified in its charter) Table of Contents Increase membership on our exchange. We intend to continue to add members to our exchange in order to increase liquidity and volume. We are focusing our sales and marketing efforts on incumbent national carriers, regional Bell operating companies and competitive communications services providers in deregulated markets in the United States, Western Europe, Asia and Latin America. Additionally, we are focusing our sales efforts on communications services providers that we believe are best positioned to add market share as minutes shift to wireless and VoIP, including European and Asian wireless communications services providers, cable companies and VoIP service providers. As our membership increases, we expect the network effect of our exchange to attract even more buyers and sellers, which will further increase liquidity. Expand our global presence. We currently have EDPs in New York, Los Angeles, London, Frankfurt and Hong Kong. We plan to expand our presence in the high-growth markets of Asia and Latin America. Develop, market and expand complementary services. We plan to develop, market and expand services that are complementary to our existing offerings, including enhanced trading, credit and clearing services and switch partitioning. Leverage our trading platform, intellectual property and operations support systems to offer a trading platform for other digital goods. We believe that we can leverage our web-based trading platform, intellectual property portfolio and operations support systems to allow for the trading, routing and settlement of other digital goods and offer additional services. In July 2004, we launched an automated full service web-based trading platform for Internet capacity. Internet capacity can be bought or sold on our exchange in a manner similar to our voice offerings. Members are able to enter orders with quality and price specifications. We deliver the capacity over our proprietary platform and handle all billing and settlement functions. We currently have 25 members on our exchange for Internet capacity. In September 2004, we acquired the Internet protocol trading exchange business of Band-X Limited, with operations located in New York, London and Edinburgh, Scotland for $4.0 million in cash, subject to certain working capital adjustments. As part of our acquisition, 195 former Band-X customers became our customers and nine former Band-X suppliers became our suppliers. We are in the process of establishing direct contractual relationships with these customers and suppliers. We believe many of such customers and suppliers will become members of our exchange. Certain Risks We have incurred significant losses since our inception in November 1996. At September 30, 2004, our accumulated deficit was approximately $105.1 million. Although we achieved net income of $1.9 million in the first nine months of 2004, we expect to incur significant future expenses, particularly with respect to the development of new products and services, deployment of additional infrastructure and expansion in strategic global markets. To remain profitable, we must continue to increase the usage of our exchange by our members and attract new members in order to improve the liquidity of our exchange. We must also deliver superior service to our members, mitigate the credit risks of our business and develop and commercialize new products and services. We may not succeed in these activities and may never generate revenues that are significant or large enough to sustain profitability on a quarterly or annual basis. See Risk Factors and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. Corporate Information We were incorporated in Delaware in November 1996 as SmartGroup Holdings, Inc. In July 2002, we changed our name to Arbinet-thexchange, Inc. Our principal executive offices are located at 120 Albany Street, Tower II, Suite 450, New Brunswick, New Jersey 08901. Our telephone number is (732) 509-9100. Our website Delaware 7389 13-3930916 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 120 Albany Street, Tower II, Suite 450 New Brunswick, New Jersey 08901 (732) 509-9100 (Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Unless otherwise stated, all references to us, our, Arbinet, we, the Company and similar designations refer to Arbinet-thexchange, Inc. and its subsidiaries. Arbinet and Arbinet-thexchange are registered trademarks of Arbinet-thexchange, Inc. ThexchangeSM, voice on thexchangeSM, OptimizedVoiceSM, SelectVoiceSM, PrimeVoiceSM, data on thexchangeSM, OptimizedIPSM, SelectIPSM, PrimeIPSM, SwitchAxcessSM, RapidClearSM, BilateralAxcessSM, AxcessCodeSM, AxcessRateSM and CreditWatchSM are service marks of Arbinet-thexchange, Inc. Our logo, trademarks and service marks are the property of Arbinet. Other trademarks or service marks appearing in this prospectus are the property of their respective holders. Operating loss 3 (741,015 ) (2,389,323 ) Interest receivable and similar income 4 86 607 Interest payable and similar charges Operating profit /(loss) 3 113,726 (462,882 ) Interest receivable and similar income 4 1,360 420 Interest payable and similar charges J. Curt Hockemeier President and Chief Executive Officer Arbinet-thexchange, Inc. 120 Albany Street, Tower II, Suite 450 New Brunswick, New Jersey 08901 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent for Service) Table of Contents THE OFFERING Common stock offered: By Arbinet 4,233,849 shares By the selling stockholders 2,301,556 shares Total 6,535,405 shares Common stock to be outstanding after this offering 24,180,196 shares Use of proceeds We estimate that we will receive net proceeds from the sale of shares of common stock in this offering of $57.0 million, assuming an initial public offering price of $15 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds to: redeem all outstanding shares of our series B preferred stock and series B-1 preferred stock for approximately $15.2 million; repay approximately $3.7 million in outstanding principal and $0.4 million in outstanding interest on various outstanding equipment leases and promissory notes with interest rates that vary between 9.5% and 15.4% per annum and maturity dates ranging from June 2005 to April 2008; and fund sales and marketing activities, working capital, capital expenditures for additional EDPs in our voice and data businesses and other general corporate purposes. We currently cannot estimate the portion of the net proceeds which will be used for each of these purposes. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See Use of Proceeds.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001140415_dresser_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001140415_dresser_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under "Risk Factors," "Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Our Business We are a leading worldwide manufacturer and marketer of highly engineered energy infrastructure and oilfield products and services. In 2003, approximately 85% of our revenues were generated from energy infrastructure and oilfield equipment spending. Our customers use our products for the exploration and production, transportation and processing and storage and distribution of oil and gas and their by-products. Our principal business segments are flow control, measurement systems and compression and power systems. We serve the energy industry globally, with an established sales presence in over 100 countries and manufacturing or customer support facilities in over 22 countries. For the nine months ended September 30, 2004, approximately 59% of our revenues were generated from our operations outside of the United States, and we expect this percentage to increase going forward. We offer our customers a broad portfolio of highly engineered products, including valves, instruments, meters, retail fuel dispensers, software and related control systems and natural gas fueled engines. Because a number of our products are for use in mission-critical applications, our customers require us to meet stringent internal, government and industry standards in order to reduce the likelihood of costly system failures. Our customers select our products based on our product performance and reliability, timely service, support and price. Our products are often developed and engineered in cooperation with our customers for specific applications. We believe our established brands, such as Consolidated, Grove, Masoneilan, Roots, Waukesha and Wayne, are well regarded among our customers. As a result of our long operating history, we believe we have developed an installed equipment base that provides us with recurring aftermarket revenues. Our more than 10,000 customers include most of the world's major and national oil companies, multinational engineering and construction companies and a number of other Fortune 500 firms. In 2003, our top customers in terms of revenues, excluding distributors, included BPAmoco Corporation, ChevronTexaco Corporation, China Petroleum & Chemical Corporation, Daewoo Engineering and Construction Co. Ltd., ExxonMobil Corporation and Shell Oil Company. In 2003, our largest customer accounted for approximately 2.6% of our revenues. Our principal business segments are as follows: Flow Control (59.9% of 2003 revenues). We believe our flow control segment is a leading manufacturer of on/off valves, control valves and pressure relief valves. We serve the oil and gas production, transportation, storage, refining, petrochemical and power generation sectors of the energy industry. In addition to valve products, our flow control segment designs, manufactures and markets six other primary product lines: actuators, which are devices that perform a mechanical function in response to an input signal, integrated flow systems, instruments, meters, pressure regulators and piping specialties. Measurement Systems (23.5% of 2003 revenues). We believe our measurement systems segment is a leading supplier of retail fuel dispensers, pumps, peripherals, point-of-sale and site monitoring systems and software for the retail fueling industry. Compression and Power Systems (16.6% of 2003 revenues). Our compression and power systems segment is a leader in the design, manufacture and marketing of natural gas fueled engines. Our engines are used primarily for natural gas compression and distributed power generation. We believe we have been Income (loss) before income taxes (31.1 ) (0.6 ) 10.2 (16.7 ) (38.2 ) Provision for income taxes (14.5 ) 0.7 (5.1 ) 5.7 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell common stock and seeking offers to buy common stock, only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the shares of common stock. We have not taken any action to permit a public offering of the common stock outside the United States, or to permit the possession or distribution of this prospectus outside the United States, except as described below. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the common stock and the distribution of this prospectus outside of the United States. This offering is only being made to persons in the United Kingdom whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the UK Financial Services and Markets Act 2000, or FSMA, and each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of the common stock in circumstances in which section 21(1) of FSMA does not apply to us. Each of the underwriters agrees and acknowledges that it has able to develop a large installed base of natural gas fueled industrial engines as a result of our long operating history. Our Competitive Strengths We believe that our focus on the energy sector along with the following competitive strengths position us to enhance our growth and profitability. Global Presence and Market Leadership. We have a long history of leadership and innovation in the energy infrastructure and oilfield equipment industry. We operate in all of the world's major energy markets and believe that we are a leading provider in most of the key markets we serve. Our sales presence in over 100 countries and manufacturing or customer support and service facilities in over 22 countries enables us to service our customers around the world. We believe that our broad portfolio of products and services, global presence, strong brand recognition and reputation for quality and performance provide us with a significant advantage in competing for business from large, multinational customers. Broad Portfolio of Products with Reputation for Performance and Reliability. We believe our products and brands have earned a reputation for product reliability, performance and innovation. We are one of a select number of approved vendors to many of our clients. We hold more than 120 regulatory and industry approvals or certifications worldwide, and have a history of advanced product introductions. Long-Standing Customer Relationships. We have over 10,000 customers, including long-standing relationships with many of the world's major national and independent oil companies, multinational engineering and construction companies and other Fortune 500 firms. The recurring nature of our sales to our major customers reflects their satisfaction with the reliability and performance of our products and the timeliness of our service. Large Installed Base. We believe that our global installed base of products provides us with recurring aftermarket revenue since our customers award a significant portion of replacement equipment, parts and maintenance services business to the original equipment manufacturer. Integrated Solutions Capability. Our customers are increasingly looking to procure more products and services from fewer global manufacturers in order to increase their efficiency and reduce their costs. We believe our ability to provide our customers with comprehensive solutions to their equipment, engineering and service needs provides us with a competitive advantage in competing for business from large, multinational customers. Strong, Experienced Management. Our management team has substantial experience in manufacturing and in the energy infrastructure and oilfield equipment markets as well as in acquiring and integrating assets and companies. Although we believe that we exhibit the competitive strengths described above, our competitors may have greater financial and other resources than we do, and may, among other things, have better product performance, customer service, or product pricing than we do. In addition, we are subject to a number of risks discussed in "Risk Factors" and elsewhere in this prospectus. The principal risks facing our business include, among others, the risk of losing one of our large customers or failing to win a national, regional or global contract from a customer, the economic, political and other risks associated with our international operations, our reliance on third party suppliers and our ability to retain substitute suppliers if our supplies are interrupted, our reliance on the availability and pricing of raw materials and components, particularly steel and steel-related products, our reliance on independent distributors, with whom we have non-exclusive, cancelable contracts, to sell our products and provide aftermarket service and support to our customers and risks relating to our regulatory compliance and accounting controls and procedures. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Ashcroft , Becker Precision Equipment , BPE , Consolidated , Control Seal , Dresser , Ebro , Enginator , Global Century , Global Star , Green-Tag , Grove , Heise , Ledeen , MARC , Masoneilan , Mooney , Nil-Cor , Nucleus , Ovation , Ring-O , Roots , SVI , Tom Wheatley , Texsteam , TK , Valvue , VHP , Vista , Waukesha , Wayne , Wayne Plus/3 and Wheatley are our and/or our subsidiaries' trademarks to which we refer in this prospectus. All other trademarks, service marks or trade names referred to in this prospectus are the property of their respective owners. Our Business Strategy In 2003, approximately 85% of our revenues were generated from energy infrastructure and oilfield equipment spending. We intend to capitalize on the expected long-term global growth in energy infrastructure and oilfield equipment investment, especially related to natural gas, by growing our energy-oriented businesses both organically and by acquisitions. We specifically intend to: Increase Our Global Presence. The percentage of our revenues from outside the United States has grown from approximately 50% in 2001 to approximately 59% for the nine months ended September 30, 2004. Our customers are increasingly operating on a global basis, and we plan to continue to pursue new international opportunities and significantly expand our presence in key international growth markets, such as Brazil, China, Russia and West Africa. Expand Integrated Solutions Capability. We intend to continue to provide our customers with comprehensive solutions to their equipment, engineering and service needs. This integrated approach to marketing our products and services streamlines the engineering and procurement process for our customers and increases our revenues over the life cycle of a particular project, while improving our margins. Develop New and Innovative Products. We believe that continued product innovation will provide us with significant opportunities to increase revenues from both new product sales and upgrades to our installed base of products. Many of the products with innovative technology that lower operating costs, improve convenience and increase reliability and performance often generate higher margins than more conventional products. We plan to continue developing innovative products and have invested $69.8 million in research and development over the last three years. Continued Focus on Operational Efficiency. We will continue to focus on operational efficiency in order to improve our earnings, cash flow and return on capital employed. To improve productivity, we are implementing a variety of initiatives including firm-wide lean manufacturing initiatives, a new enterprise resource planning, or ERP, system and a highly disciplined quality management and process optimization methodology, known as Six Sigma. Selectively Pursue Acquisitions. We intend to continue our disciplined pursuit of acquisition opportunities that fit our business strategy. We expect to make acquisitions within the energy sector that add new products or technologies to our portfolio, provide us with access to new markets or enhance our current market positions. Our Sponsors We are now, and after the offering will continue to be, controlled by DEG Acquisitions, LLC, an entity owned by private equity funds managed by First Reserve Corporation and Odyssey Investment Partners, LLC. As of September 30, 2004, the First Reserve and Odyssey funds, through DEG Acquisitions, LLC, indirectly owned approximately 88.48% of our common stock. Following the completion of this offering, the First Reserve and Odyssey funds will indirectly own approximately % of our common stock ( % if the underwriters' over-allotment option is fully exercised). The First Reserve and Odyssey funds acquired their interests in DEG Acquisitions, LLC in connection with a recapitalization of our business in April 2001 under its prior owner, Halliburton Company. In January 2001, Halliburton Company, together with its wholly owned subsidiary, Dresser B.V., entered into an Agreement and Plan of Recapitalization with DEG Acquisitions, LLC in order to effect the recapitalization of its business relating to, among other things, the design, manufacture and marketing of flow control, measurement systems and compression and power systems. The recapitalization was accomplished through a reorganization of various legal entities that comprised the Dresser Equipment Group segment of Halliburton. Halliburton originally acquired our businesses as part of its acquisition of Net (loss) income (1 ) Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Dresser Industries, Inc. in 1998. Dresser Industries' operations consisted of certain of our current businesses and certain other operating units that were retained by Halliburton. In connection with the recapitalization transactions in April 2001, we entered into an Investor Rights Agreement with DEG Acquisitions, LLC, Halliburton and all other stockholders. Additionally, in connection with the recapitalization transactions in April 2001, we entered into a Sponsor Rights Agreement with affiliates of the First Reserve and Odyssey funds. Our obligations under both the Investor Rights Agreement and Sponsor Rights Agreement were assigned to Dresser, Ltd. on July 3, 2002. In connection with this offering, we intend to amend both the Investor Rights Agreement and Sponsor Rights Agreement. See "Certain Relationships and Related Transactions Amended and Restated Investor Rights Agreement" and " Amended and Restated Sponsor Rights Agreement." Recent and Concurrent Transactions Acquisition of Research and Development Technology. In September 2004, we acquired several engines and core technology from Wartsila France SAS, for $12.3 million. The technology and engines were purchased for the purpose of advancing the development of new engine designs. In accordance with Statement of Financial Accounting Standards, or SFAS, No. 2 "Accounting for Research and Development Costs," items acquired for a particular research and development project that have no alternative future use should be expensed at the time the costs are incurred. As a result, we recognized $12.3 million of expense in the third quarter of 2004, which was reflected in selling, engineering, administrative and general expense in our compression and power systems segment. Acquisition of Distribution Business of Nuovo Pignone S.p.A. On June 4, 2004, we completed the purchase of the distribution business of Nuovo Pignone S.p.A., a subsidiary of General Electric Company, for approximately $170 million and approximately $1.5 million of direct acquisition costs. The purchased business includes a retail fueling systems operation, comprised of gasoline, liquefied petroleum gas and compressed natural gas dispenser products and services, and a gas meters operation, which manufactures and markets certain natural gas meters. This business generated $151.4 million of revenues in the year ended December 31, 2003. The acquisition is expected to substantially improve our market share in retail fueling systems, be complementary from a customer, product and geographical perspective and provide us with substantial cost saving opportunities. To finance the cash consideration related to the acquisition, we incurred additional borrowings under the Tranche C term loan of our credit facility in the amount of $175 million, which included $2.8 million of capitalized financing fees. Stock-based Compensation. In July 2004, we implemented a program allowing employee option holders the opportunity to surrender a portion of their current options in exchange for some combination of new time-based and performance options. The program was completed on August 23, 2004. In some foreign jurisdictions the program was structured as a cancellation of options and amendment of existing options to comply with foreign tax laws, but the end result of the program did not change. The replacement options were issued with the same exercise price as the original options ($40) and will vest and expire as if issued on the original issuance date of the surrendered options. All of the option holders exchanged their options. As a result, 234,333 options were surrendered and 35,208 and 149,875 time-based and performance options, respectively, were issued in replacement. The incremental value associated with the cancellation and reissuance of these options did not have a significant impact on our stock-based compensation expense. Additionally, in July 2004, 258,750 new time-based options and 258,750 new performance options were issued to certain employees. The issuance of the time-based options is expected to result in a non-cash compensation charge of approximately $8.4 million, which will be expensed over the five-year vesting period. The issuance of the performance options is expected to result in a non-cash compensation charge of approximately $8.7 million, which will be expensed over the estimated vesting period of three and one-half to nine and one-half years. Ownership Structure. In connection with this offering, we intend to simplify our ownership structure so that DEG Acquisitions, LLC and the other shareholders of Dresser, Ltd., currently our indirect parent, Combined operating results Revenues 108 137 115 Operating (loss) income (1 ) Dresser, Inc. (Exact name of registrant as specified in its charter) Delaware 75-2795365 3829 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) (Primary Standard Industrial Classification Code Number) 15455 Dallas Parkway, Suite 1100 Addison, TX 75001 (972) 361-9800 (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) will become direct holders of our common stock. Dresser, Ltd., as well as our intermediate parent holding companies, Dresser Holdings, Ltd. and Dresser Holdings, Inc., will liquidate and the Dresser, Inc. shares currently held by Dresser Holdings, Inc. will be distributed to the current holders of Dresser, Ltd. shares. In connection with these transactions, each of the employee stock benefits plans that are currently the obligations of Dresser, Ltd. will become the obligations of Dresser, Inc., and compensation under these plans will be based on Dresser, Inc. common stock. For more information regarding these plans, see "Management Executive Compensation Dresser, Inc. Plans." In addition, the Investor Rights Agreement and Sponsor Rights Agreement of Dresser, Ltd. will be assumed by Dresser, Inc. and amended as described under "Certain Relationships and Related Transactions Amended and Restated Investor Rights Agreement" and " Amended and Restated Sponsor Rights Agreement." These transactions will occur before the completion of this offering. Frank P. Pittman Vice President, General Counsel and Secretary Dresser, Inc. 15455 Dallas Parkway, Suite 1100 Addison, TX 75001 (972) 361-9800 (Name, address, including zip code, and telephone number, including area code, of agent for service) Our principal executive offices are located at 15455 Dallas Parkway, Suite 1100, Addison, TX 75001 and our telephone number is (972) 361-9800. Our internet address is www.dresser.com. The contents of our website are not part of this prospectus. Copies to: Kirk A. Davenport II, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200 James S. Scott Sr., Esq. Shearman & Sterling LLP 599 Lexington Avenue New York, New York 10022 (212) 848-4000 (in millions, except share and per share data) Statement of operations data: Revenues $ 1,540.1 $ 1,589.4 $ 1,657.0 $ 1,183.8 $ 1,440.4 $ 1,785.6 $ 1,507.6 Cost of revenues 1,079.2 1,167.8 1,223.8 871.4 1,025.2 1,323.8 1,075.2 Selling, engineering, administrative and general expenses 344.7 338.7 384.6 272.5 325.2 411.1 336.5 Operating income 116.2 82.9 48.6 39.9 90.0 50.7 95.9 Net income (loss) (44.8 ) (23.2 ) (44.7 ) (32.2 ) 3.8 (50.5 ) 2.7 Share data: Net income (loss) per share: Basic Diluted Weighted average common stock outstanding: Basic Diluted Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. (1)Our financial statements for periods presented prior to April 10, 2001 have been prepared on a carve-out basis as described in Note 1 to our financial statements. (2)Adjusted to give effect to the offering of shares by us, including the application of the net proceeds therefrom, based upon an assumed initial offering price of $ per share, the midpoint of the offering range. The adjusted statement of operations information gives effect to the application of the net proceeds of the sale of shares by us to repay indebtedness under the Tranche C term loan of our credit facility as well as to reflect the mark-to-market adjustments in respect of our deferred compensation plan and the write-off of deferred financing costs in connection with this offering. See "Use of Proceeds." (3)EBITDA is defined as net income before interest, taxes, depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by our investors and other interested parties, as well as by our management, in the evaluation of companies in our industry, many of which present EBITDA when reporting their results. In addition, EBITDA provides additional information used by our management and board of directors to facilitate internal comparisons to historical operating performance of prior periods. Further, management believes EBITDA facilitates their operating performance comparisons from period to period because it excludes potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). EBITDA also provides the basis for a number of awards under our stock incentive plan. In addition, some of the covenants contained in our senior credit facility and indenture relating to our senior subordinated notes are based on measures The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our financial results prepared in accordance with U.S. GAAP. Some of these limitations are: EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; EBITDA does not reflect changes in, or cash requirements for, our working capital needs; EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA only supplementally.
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information regarding us and the common stock being sold in this offering and our consolidated financial statements and the related notes appearing elsewhere
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+PROSPECTUS SUMMARY This prospectus summary highlights selected information from this prospectus to aid your understanding and does not contain all of the information that you need to consider in making your investment decision. It is qualified by the full description of the information contained in this prospectus. To understand all of the terms of the offering of the notes, you should read carefully this entire prospectus. You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption Index of Terms beginning on page 110 of this prospectus.
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+Prospectus summary This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including Risk Factors and our consolidated financial statements and the related notes, before making an investment decision. Corus Pharma, Inc. Overview We are a biopharmaceutical company focused on the development and commercialization of novel applications and formulations of known therapeutics to treat severe respiratory diseases. According to the American Lung Association, respiratory diseases are the third most common cause of death in the United States, responsible for one in seven deaths. Our goal is to provide respiratory patients facing limited therapeutic options with innovative treatments that improve their medical condition and enhance their quality of life. We currently have two product candidates in late-stage clinical development and several proprietary programs in preclinical development. Our two most advanced product candidates focus on cystic fibrosis, or CF, and severe persistent asthma, two of the most severe respiratory diseases in the United States. Our most advanced product candidate, Corus 1020, is designed to treat respiratory infections such as Pseudomonas aeuroginosa, or P. aeruginosa, in CF patients using an inhalable form of an antibiotic called aztreonam. According to the Cystic Fibrosis Foundation, or CFF, there are approximately 30,000 CF patients in the United States and 33,000 CF patients throughout the rest of the world. Approximately 60% of CF patients in the United States are infected with P. aeruginosa, the predominant bacteria infecting the lungs of CF patients. Despite improvements in therapies and enhanced understanding of the disease in the last ten years, there is still no cure for CF and, according to the CFF, the current median life expectancy of a CF patient is 33.4 years. According to the CFF, more than 90% of CF patients ultimately die from lung destruction resulting from the inflammatory response to chronic lung infections. We believe that Corus 1020 would be an attractive therapy for the management of respiratory infections in CF patients, and may offer significant advantages over existing therapies. We have recently completed a Phase II clinical trial of Corus 1020 and expect to complete the analysis of the study data in late 2004. We anticipate the commencement of Phase III clinical trials in early 2005, and we expect to complete these trials by the end of 2005. We plan to submit a new drug application, or NDA, for Corus 1020 in 2006. Corus 1020 was granted orphan drug status in the United States in March 2002 and in the European Union, or EU, in June 2004. Generally, the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies may grant orphan drug designation to drugs intended to treat a rare disease or condition. If approved, orphan drug status would give Corus 1020 market exclusivity for the same drug for the same use for seven years in the United States and ten years in the EU. We do not expect to achieve final approval of the NDA, if at all, until at least 2007 or, if we are able to obtain priority review from the FDA, the second half of 2006. Our second product candidate, Corus 1030, is inhaled lidocaine for the treatment of patients suffering from the most severe persistent forms of asthma. Based on our internal marketing research, we estimate that of the approximately 700,000 patients who are classified by the National Institutes of Health as suffering from severe persistent asthma, 175,000 depend on the use of oral corticosteroids, such as prednisone, to control their disease. Despite the efficacy of oral corticosteroids in treating severe persistent asthma, when used chronically, they can have severe side effects, including osteoporosis, weight gain, adrenal suppression, growth suppression, dermal thinning, hypertension, diabetes, cataracts and muscle weakness. According to a 2003 study in Journal of SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Allergy and Clinical Immunology, patients with severe persistent asthma spend $12,813 a year, or nearly five times more, in direct and indirect costs, than those with mild persistent asthma caring for their disease. We believe that Corus 1030 would offer an attractive alternative to oral corticosteroids in the treatment of asthma, enabling the reduction of oral corticosteroid use by patients with severe persistent asthma while maintaining or improving their lung function. We currently have an ongoing Phase II clinical trial for Corus 1030 in patients with severe persistent asthma who are dependent on the chronic use of oral corticosteroids. We have completed enrollment in this trial and expect the data to be available in early 2005. We anticipate the commencement of pivotal Phase III clinical trials in late 2005, and we expect to complete these trials by early 2007. We plan to submit an NDA for Corus 1030 in 2007. In addition to the development activities for our two lead product candidates, we continue to develop additional clinical programs for a variety of respiratory diseases. Our most promising preclinical product candidate is Corus 1040, a novel broad spectrum antibiotic combination formulation for the treatment of respiratory infections. We expect to commence Phase I clinical testing for Corus 1040 by 2006. We have entered into two agreements with PARI GmbH, or PARI, under which PARI has agreed to provide its proprietary eFlow inhalation device for Corus 1020 and Corus 1030. We believe the PARI eFlow inhalation device, when used with our novel formulations, will provide for faster and more efficient drug delivery, resulting in decreased dosing times. The PARI eFlow inhalation device received 510(k) clearance from the FDA in May 2004 as a handheld nebulizer to be used with medications for which a doctor has prescribed nebulization. We are led by a team of experienced pharmaceutical and biotechnology industry executives. These individuals have played key leadership roles in the successful development, approval and commercialization of multiple therapeutic products, including the most recently approved product for the treatment of respiratory infections in CF patients, TOBI , which is tobramycin solution for inhalation, marketed by Chiron Corporation, as well as several other respiratory therapeutics. Strategy The key elements of our strategy are as follows: Continue to advance our lead product candidates in clinical trials. We will continue to develop our lead product candidates, Corus 1020 and Corus 1030, with the intention of submitting NDAs in 2006, for Corus 1020, and 2007, for Corus 1030. Maximize commercial potential of our two lead product candidates. We plan to build a sales organization in the United States to commercialize Corus 1020 and Corus 1030 directly to pulmonologists. We believe that we can initially develop the CF market for Corus 1020 through a sales force of 25 sales representatives. Later, in anticipation of the commercial launch of Corus 1030, we plan to expand our sales force to approximately 100 sales representatives to cover the majority of pulmonologists treating patients with severe persistent asthma. We intend to develop partnerships with multinational or regional pharmaceutical companies to commercialize our products outside the United States. Continue to develop new product candidates for respiratory disease. We believe our expertise in respiratory disease will enable us to identify additional product candidates, such as Corus 1040, for which there is strong existing preclinical or clinical data from which we can continue to build a robust pipeline of product candidates. AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Develop new product candidates with defensible intellectual property and the potential for marketing exclusivity. We will continue to build protection around our products by pursuing method-of-use, formulation and drug delivery device patents or in-licensing composition-of-matter or use patents. We will also continue to file for patent protection for the drug and device combinations and related new chemical entities that we develop. Where available, we will pursue designations such as orphan drug status in an effort to obtain marketing exclusivity for our product candidates. Risks Associated With Our Business We are a development stage company. We are subject to numerous risks and obstacles as described in the Risk Factors section of this prospectus beginning on page 7. These risks include the following: We have a limited operating history. We have not generated any cash from operations since inception. To date, we have derived no revenue from product sales or royalties and do not expect to do so for a number of years. We have incurred significant operating losses since we began operations in 2001, and we may never become profitable. Our operating losses will continue to increase significantly over the next several years. In addition to the net proceeds from this offering, we will need to raise substantial additional capital to fund our operations and execute our strategy. All of our products are in development and none have been approved for commercial sale. Prior to any commercial sale, we need to successfully complete our clinical trials and obtain regulatory approvals. Any delays or failures in completing our clinical trials or obtaining regulatory approvals would harm our business and future prospects. Our success is heavily dependent on the successful development and commercialization of our lead product candidate, Corus 1020. Our Corporate Information We were incorporated in Delaware on January 2, 2001. Our principal executive offices are located at 2025 1st Avenue, Suite 800, Seattle, Washington 98121, and our telephone number is (206) 728-5090. You can access our website at www.coruspharma.com. Information contained on our website is not a part of this prospectus. References in this prospectus to we, our, us and Corus refer to Corus Pharma, Inc. and our subsidiaries on a consolidated basis unless the context means otherwise. Corus Pharma is our trademark. Each of the other trademarks, trade names or service marks appearing in this prospectus belong to its respective holder. A. Bruce Montgomery, M.D. President, Chief Executive Officer and Director (Principal Executive Officer) /s/ DONALD F. SEATON Corus Pharma, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 2834 91-2094307 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 2025 1st Avenue, Suite 800 Seattle, Washington 98121 (206) 728-5090 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) A. BRUCE MONTGOMERY, M.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER 2025 1ST AVENUE, SUITE 800 SEATTLE, WASHINGTON 98121 (206) 728-5090 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Stephen M. Graham Mark B. Weeks Alan C. Smith John W. Robertson Dennis E. Michaels Jeffry A. Shelby Orrick, Herrington & Sutcliffe LLP Heller Ehrman White & McAuliffe LLP 719 2nd Avenue, Suite 900 701 5th Avenue, Suite 6100 Seattle, Washington 98104 Seattle, Washington 98104 (206) 839-4300 (206) 447-0900 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1) In the Pro Forma As Adjusted column, we have adjusted the balance sheet data as of June 30, 2004, to reflect the conversion of convertible preferred stock into common stock upon the closing of this offering and to give effect to our receipt of the estimated net proceeds of $ million from the sale of shares of our common stock by us under this prospectus at an assumed initial public offering price of $ per share after deducting the underwriting discount and estimated offering expenses payable by us. See Use of Proceeds and Capitalization. Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001145750_seven_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001145750_seven_prospectus_summary.txt
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+Prospectus summary This summary provides an overview of the key aspects of this offering. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the Risk factors section and our consolidated financial statements and the related notes appearing at the end of this prospectus before deciding to invest in shares of our common stock. OUR BUSINESS We are a global provider of software that enables wireless operators to offer secure, affordable and real-time wireless data services to their subscribers on a wide variety of wireless handheld devices. Wireless data services allow subscribers to use wireless handheld devices to access business and personal information such as e-mail, calendar, contacts, corporate directories and documents. Our objective is to provide software that drives the mass market adoption of affordable wireless data services by making information portable, ubiquitous and easy to access. We license our System SEVEN software to wireless operators who embed it into their existing networks and systems. We believe this operator-centric approach allows operators to offer their subscribers bundled, branded and differentiated wireless data services at a relatively low cost in order to enhance customer loyalty and increase revenues. As of March 31, 2004, our customers consisted of the following wireless operator carriers: Cingular Wireless and Sprint PCS in the United States; KDDI Corp and NTT DoCoMo in Japan; Globe Telecom, Optus and SingTel in Asia-Pacific; and mmO2 and Orange in Europe. Our customers license our software either directly or through our distribution and systems integrator partners, NEC and Hewlett-Packard. Currently, our System SEVEN software is compatible with wireless handheld devices manufactured by Hitachi, HTC, Motorola, palmOne, Samsung, Sanyo, Sony Ericsson and Toshiba. Currently, our software also supports the following software platforms: BREW, J2ME, Microsoft Pocket PC and Smartphone, Palm OS and Symbian OS, as well as enterprise and consumer e-mail servers such as Microsoft Exchange, Lotus Domino and IMAP4/POP3. KEY INDUSTRY DYNAMICS Worldwide use of wireless voice and data services has grown rapidly as cellular and other mobile communications technologies have become more widely available and affordable. Specific factors driving the growth of the wireless data services market include: Established revenue opportunity. IDC estimates that revenues from wireless data services will increase from $47 billion in 2003 to $135 billion in 2007. Large mobile workforce. IDC estimates that the number of U.S. and European mobile workers will increase from 171 million in 2003 to 188 million in 2006. Ubiquity of e-mail. Ovum estimates that the number of worldwide wireless e-mail messages will increase from 6.1 billion in 2003 to 40.3 billion in 2005. Next generation devices. Advanced converged wireless handheld devices that combine voice and enhanced data services in a single portable device are increasingly available. Gartner estimates that the number of these devices will grow from 10 million in 2003 to 93 million in 2007. Next generation wireless networks. Wireless operators have made significant investments to upgrade their networks in order to capture a growing wireless data services revenue opportunity. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents OUR SOLUTION AND STRATEGY Our System SEVEN software allows subscribers to use wireless handheld devices to access business and personal information such as e-mail, calendar, contacts, corporate directories and documents. We offer three editions of our software. SEVEN Personal Edition targets individual subscribers seeking a self-provisioned and easy to use solution. For enterprises, we offer SEVEN Server Edition and SEVEN Enterprise Edition. SEVEN Server Edition is a behind-the-firewall, server-based solution that integrates easily into the existing IT infrastructure of an enterprise. SEVEN Enterprise Edition is an operator-hosted, yet IT-managed solution that does not require additional hardware or software to be installed by the enterprise. We believe that our System SEVEN software overcomes many of the limitations of competing solutions and has the following advantages: Low cost and easy to use and manage. Our software reduces the need for high up-front costs and can be offered by the wireless operator as an inexpensive, add-on feature to wireless voice services. Compared to competing solutions, our software is easy to install, integrate and use with complementary hardware and software platforms. Wide choice of wireless handheld devices. Our software employs an extensible architecture that is compatible with leading software platforms and wireless handheld devices from such manufacturers as Hitachi, HTC, Motorola, palmOne, Samsung, Sanyo, Sony Ericsson and Toshiba. Network-integrated, operator-centric solution. Our software has been designed so that wireless operators can embed the software into their existing networks and systems. As a result, subscribers benefit from the reliability, scalability, service and customer support of the wireless operator. The following are key elements of our business strategy: Further penetrate the subscriber base of our existing customers. We have an established global customer base of nine wireless operators that have reported approximately 144 million wireless subscribers of voice services as of December 31, 2003. While only a small fraction of these subscribers use wireless data services based on our software, we intend to further penetrate the subscriber base of these customers by enabling affordable and easy to use wireless data services. Grow our customer base in key geographic regions. We intend to focus our sales and marketing efforts on adding customers in key geographic regions with market characteristics that are favorable for accelerated growth in wireless data services. Maintain technology leadership. By continuing to invest in research and development, we intend to establish our technology as the industry-leading standard for delivering mass market wireless data services. Leverage relationships with leading strategic partners. We have developed, and intend to continue to forge, key alliances and relationships with strategic partners. We believe that these relationships will allow us to efficiently drive adoption of our software. CORPORATE INFORMATION Our principal executive offices are located at 901 Marshall Street, Redwood City, California 94063, and our telephone number is (650) 381-2500. We maintain a website at www.seven.com where general information about our business is available. The information contained in our website is not a part of this prospectus. (in thousands, except percentages) Revenues by geography: United States $ 3,115 100 % $ 1,173 18.9 % (62.3 )% Europe 4,658 75.0 nm Japan 380 6.1 nm Asia-Pacific AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and are seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. SEVEN NETWORKS, INC. (Exact Name of Registrant as Specified in its Charter) Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001156934_oasis_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001156934_oasis_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully before making an investment in our common stock. We use the terms "us," "our," "Oasis," "we," the "Company" and similar designations in this prospectus to refer to the business of Oasis Semiconductor, Inc. Oasis Semiconductor, Inc. We are a leading supplier of semiconductor-based solutions to the All-In-One peripheral, or AIO, market. AIOs, also known as Multi- Function Peripherals, or MFPs, may incorporate a printer, photo-printer, copier, scanner, and fax machine into a single device. This market, which totaled 19.9 million units in 2003, is growing faster than the printer, copier, and scanner markets, which together totaled over 96 million units in 2003 according to IDC, a market research firm. Our products, which provide the core system control functionality within an AIO, are commonly known as system controller solutions, and provide substantially all of an AIO's electronic processing functionality, including image capture and processing, motor control, print engine control, and connectivity with personal computers and other peripherals. The AIO brand name companies that use our products include Canon, Dell, Lexmark, Sagem, Samsung, and Sharp. Our revenues increased from $7.1 million in 2001, to $18.0 million in 2002, and to $36.3 million in 2003. During the same period, our operating results have grown from a net loss of $334,000 in 2001, to net income of $1.4 million in 2002, and to $5.0 million in 2003. Several powerful trends are driving growth in sales of AIOs: Growing consumer demand as AIOs offer performance equivalent to stand-alone, single function peripherals at attractive prices; Strong business demand as a result of the cost and space savings AIOs offer over stand-alone products; Heightened focus of peripheral vendors on increasing recurring revenue from sales of ink and toner supplies by offering products that incorporate multiple ink- and toner-intensive functions; and Increasing need for vendors to offer devices capable of performing multiple functions that support higher average selling prices, as well as address market segments beyond the scope of their traditional businesses. AIO vendors face pressure to regularly introduce feature-rich, high performance products that are both easy to use and affordable. In addition, the costs of developing and maintaining core, complex AIO technologies have become prohibitively expensive for many vendors. As a result, AIO brand name companies are increasingly outsourcing some or all of the design, critical components, and manufacturing of their AIOs to third parties who can more cost-effectively meet their performance demands in a timely fashion. We provide AIO vendors with complete AIO system controller solutions comprised of: integrated circuits, or ICs, which include both analog and digital circuitry; extensive firmware, which is software that operates on our ICs; reference designs; and development tools. We offer our solutions as application-specific standard products, or ASSPs, so that a wide range of AIO vendors can utilize them in their AIO products. Our solutions enable our customers to rapidly bring to market high-quality AIOs and other related products. By incorporating the functionality of multiple separate devices into our products, we significantly lower our customers' costs to produce AIOs by reducing the number of components in their products and by reducing the complexity of AIO design and manufacturing. Using our advanced design expertise, we carefully select which aspects of AIO functionality to implement in hardware or software in order to allow optimal AIO system performance. Our system controller solutions also include extensive firmware to support the simultaneous operation of complex AIO functions. These functions include controlling multiple motors and print nozzles, which precisely fire millions of times per second, while at the same time processing high-resolution images, communicating with other peripherals, and sending or receiving faxes. We market our AIO system controller solutions directly to AIO brand name companies that typically qualify and specify our products for use in their systems, as well as to contract manufacturers. We generally sell our products directly to contract manufacturers. In 2003, the contract manufacturing subsidiaries of Lite-On Technology Corporation, a diversified corporation headquartered in Asia, accounted for 77% of our sales. We believe that these sales were predominantly for use in Lexmark and Dell AIO products. In the future, we intend to extend our position as a leading supplier of semiconductor-based solutions to the AIO market and leverage our core technologies and customer relationships to expand into the broader consumer and office equipment market and to address other opportunities that require semiconductor-based system control functionality. Our Corporate Information We were incorporated in Delaware in November 1995. Our principal executive office is located at 201 Jones Road, Waltham, Massachusetts 02451, and our telephone number is (781) 370-8989. Our logo and "DigiColor" are trademarks or service marks of Oasis. Other trademarks or service marks appearing in this prospectus are the property of their respective holders. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Except where we state otherwise, the information we present in this prospectus assumes no exercise by the underwriters of the over-allotment option we and the selling stockholders granted to the underwriters to purchase additional shares in this offering, and has been adjusted to reflect: A 10-for-1 split of common stock effected on November 6, 1997 and a subsequent 10-for-1 split of common stock effected on September 17, 1999; The conversion of all outstanding shares of convertible preferred stock into 7,439,140 shares of common stock upon the closing of the offering; The filing of an amendment to our certificate of incorporation; and The filing of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws immediately prior to the closing of the offering. Cash paid for interest $ $ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OASIS SEMICONDUCTOR, INC. (Exact Name of Registrant as Specified in Its Charter) (in thousands) Balance Sheet Data: Cash and cash equivalents and current portion of restricted cash $ 8,150 $ 8,150 Working capital 10,283 10,283 Total assets 17,280 17,280 Total current liabilities 5,623 5,623 Total stockholders' equity 10,763 10,763 China 70 % 65 % 83 % Japan 1 Taiwan 11 6 3 U.S. 16 25 10 Other 3 3 Delaware (State or Other Jurisdiction of Incorporation or Organization) 3674 (Primary Standard Industrial Classification Code Number) 04-3295270 (I.R.S. Employer Identification Number) 201 Jones Road Waltham, Massachusetts 02451 (781) 370-8989 (Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001162461_cutera-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001162461_cutera-inc_prospectus_summary.txt
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+Rent expense was $183,000, $189,000 and $193,000 for the years ended December 31, 2001, 2002 and 2003, respectively. On February 17, 2004, the Company terminated one of its facilities operating leases and incurred a termination charge of $250,000. The termination of this agreement resulted in a reduction of the Company s operating lease commitments of $166,000 and $152,000 for the years ended December 31, 2004 and 2005, respectively. Contingencies In February 2002, Palomar Medical Technologies ( Palomar ) filed a lawsuit against the Company in the United States District Court, District of Massachusetts. The plaintiff alleges that by making, using, selling or offering for sale the Company s CoolGlide CV, CoolGlide Excel, CoolGlide Vantage and CoolGlide Xeo products, the Company is willfully and deliberately infringing U.S. Patent No. 5,735,844. This patent concerns a method and apparatus for removing hair with light energy. Massachusetts General Hospital ( MGH ) later joined the lawsuit as an additional plaintiff, since Palomar is the exclusive licensee, and MGH is the owner, of the patent at issue in the lawsuit. Palomar and MGH are seeking to enjoin the Company from selling products found to infringe the patent, and to obtain compensatory and treble damages, reasonable costs and attorney s fees, and other relief as the court deems just and proper. The Company is defending the action vigorously, claiming that its products do not infringe applicable claims of the patent, and that these claims are invalid and unenforceable. Additionally, the Company has filed a counterclaim alleging that the patent should be declared unenforceable because of inadequate disclosures made to the U.S. Patent and Trademark Office by the plaintiffs during that patent s prosecution with the U.S. Patent and Trademark Office. In February 2004, the court issued a ruling on a claims construction, or Markman, hearing held in June 2003. In that hearing, the parties each offered alternative definitions for 12 disputed claim terms in that patent. In its ruling, the court construed these disputed terms, commenting that some of the Company s proposed definitions would have improperly limited the patent s scope, while some of the plaintiffs proposed definitions would have been overly broad and untenable. The litigation is active and the parties are now continuing with the discovery phase of this lawsuit, although either party may file a motion for summary judgment at any time, which could accelerate the litigation s determination. The Company believes that it has meritorious defenses of non-infringement and invalidity in this action. However, litigation is unpredictable and the Company may not prevail in successfully defending or asserting its position. If the Company does not prevail, it may be ordered to pay substantial damages for past sales and an ongoing royalty for future sales of products found to infringe. The Company could also be ordered to stop selling any products that perform hair removal, currently representing substantially all of its revenues. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Balance at December 31, 2003 2,229,514 $ AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 CUTERA, INC. (Exact name of registrant as specified in its charter) Kevin P. Connors President and Chief Executive Officer Cutera, Inc. 3240 Bayshore Blvd. Brisbane, California 94005 (415) 657-5500 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001163345_partners_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001163345_partners_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary explains the significant aspects of the conversion, the offering and the exchange of existing shares of Partners Trust Financial Group common stock for shares of new Partners Trust Financial Group common stock. It may not contain all the information that is important to you. For additional information, you should read this entire document carefully, including the consolidated financial statements and the notes to the consolidated financial statements for both Partners Trust Financial Group and BSB Bancorp. Unless we specify otherwise, the words we , our and us refer to the new Delaware-chartered Partners Trust Financial Group, the current federally chartered Partners Trust Financial Group, Partners Trust, MHC and SBU Bank, collectively. The Companies Partners Trust, MHC Partners Trust, MHC is the federally chartered mutual holding company of Partners Trust Financial Group. Partners Trust, MHC s principal business activity is the ownership of 7,627,353 shares of common stock of Partners Trust Financial Group, or 53.7% of the issued and outstanding shares as of December 31, 2003. After the completion of the mutual-to-stock conversion, Partners Trust, MHC will no longer exist. Partners Trust, MHC s executive offices are located at 233 Genesee Street, Utica, New York 13501. Its telephone number at this address is (315) 768-3000. Partners Trust Financial Group Partners Trust Financial Group is a federally chartered corporation that owns all of the outstanding common stock of SBU Bank. Partners Trust Financial Group was formed in April 2002 to be the holding company of SBU Bank. At the same time, Partners Trust Financial Group conducted an initial public offering of its common stock. At December 31, 2003, Partners Trust Financial Group had consolidated assets of $1.3 billion, deposits of $796.1 million and stockholders equity of $175.3 million. After the completion of the mutual-to-stock conversion, the federally chartered Partners Trust Financial Group will cease to exist and will be succeeded by new Partners Trust Financial Group. As of December 31, 2003, Partners Trust Financial Group had 14,193,806 shares of common stock issued and outstanding. As of that date, Partners Trust, MHC owned 7,627,353 shares, representing 53.7% of the issued and outstanding shares of common stock. The remaining 46.3% of the shares were held by the public. Partners Trust Financial Group s executive offices are located at 233 Genesee Street, Utica, New York 13501. Its telephone number at this address is (315) 768-3000. New Partners Trust Financial Group New Partners Trust Financial Group is a newly-formed Delaware corporation that will own all of the outstanding common stock of SBU Bank upon completion of the mutual-to-stock conversion and the offering. Concurrently with the completion of the conversion and offering, new Partners Trust Financial Group will be the successor to Partners Trust Financial Group. New Partners Trust Financial Group s executive offices are located at 233 Genesee Street, Utica, New York 13501. Its telephone number at this address is (315) 768-3000. SBU Bank SBU Bank is a federally chartered stock savings bank headquartered in Utica, New York. SBU Bank was established in 1839 as a New York chartered mutual savings bank and, in April 2002, reorganized under a mutual holding company form of ownership as a federally chartered, wholly owned subsidiary of Partners Trust Financial Group. Upon completion of the acquisition of BSB Bancorp and the merger of BSB Bank & Trust Company with SBU Bank, SBU Bank will change its name to Partners Trust Bank. SBU Bank offers a wide variety of business and retail banking products as well as a full range of trust, investment, and municipal banking services through its sixteen central New York locations in Oneida, Onondaga and Herkimer counties. Customers banking needs are serviced 24 hours a day through a network of ATMs, automated telephone banking and the convenience of internet banking. SBU Bank emphasizes personal service and customer convenience in serving the financial needs of the individuals, families, businesses and municipalities in its markets. SBU Bank s executive offices are located at 233 Genesee Street, Utica, New York 13501. Its telephone number at this address is (315) 768-3000. Our Organizational Structure (see page 147) In April 2002, SBU Bank s mutual predecessor reorganized into the mutual holding company form of organization. As a part of the mutual holding company reorganization, Partners Trust Financial Group sold 46.3% of its shares of common stock to depositors in a subscription offering. The remaining 53.7% of the shares were issued to Partners Trust, MHC. Partners Trust, MHC is a mutual holding company that has no stockholders. Partners Trust Financial Group owns 100% of the outstanding shares of SBU Bank. The following chart shows our current organizational structure, which is commonly referred to as the two-tier mutual holding company structure: Pursuant to the terms of the plan of conversion and reorganization, Partners Trust, MHC will convert from the mutual holding company form to the fully public form of corporate structure. As part of the conversion, we are offering for sale stock representing the majority ownership interest of Partners Trust Financial Group that is currently held by Partners Trust, MHC. Upon the completion of the conversion and offering, Partners Trust, MHC will cease to exist, and we will complete the transition from partial to full public stock ownership. At the completion of the conversion, existing public stockholders of Partners Trust Financial Group will receive shares of common stock of new Partners Trust Financial Group in exchange for their existing shares of Partners Trust Financial Group. 233 Genesee Street Utica, New York 13501 (315) 768-3000 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive office) After the conversion and offering are completed, we will be organized as a fully public holding company, as follows: BSB Bancorp Acquisition (see page 42) At the time we adopted our plan of conversion and reorganization, we also entered into an agreement to acquire BSB Bancorp, Inc. As of December 31, 2003, BSB Bancorp had consolidated assets of $2.2 billion, deposits of $1.6 billion and stockholders equity of $146.3 million. BSB Bancorp is the bank holding company for BSB Bank & Trust Company. The primary market areas served by BSB Bank & Trust Company are the southern tier of New York State, centered around the city of Binghamton, and central New York, centered around Syracuse. These metropolitan areas have a combined population of nearly one million people. BSB Bank & Trust Company is a diversified financial services organization providing a full range of deposit and loan products, trust, investment and insurance services. BSB Bank & Trust Company provides banking services to consumers and the business community, as well as school districts and cooperative education centers, cities, towns, villages and numerous municipal agencies. Immediately following the acquisition of BSB Bancorp, BSB Bank & Trust Company will be merged into SBU Bank, which will change its name to Partners Trust Bank. The BSB Bancorp acquisition will expand our presence in Onondaga county, New York and will provide us entry into Broome, Chenango and Tioga counties, New York. As a result of the merger of BSB Bancorp into us, BSB Bancorp stockholders will have the right, with respect to each of their shares of BSB Bancorp common stock, to elect to receive either $36.00 in cash, without interest, or 3.6 shares of common stock of new Partners Trust Financial Group. Under the terms of the merger agreement, 60% of the outstanding shares of BSB Bancorp will be exchanged for shares of new Partners Trust Financial Group, and the remainder of the shares of BSB Bancorp will be exchanged for cash. We expect to pay approximately $133.1 million in cash (and incur after-tax acquisition expenses of approximately $19.2 million) and issue approximately 19,972,470 shares of common stock to BSB Bancorp s stockholders in exchange for their shares of BSB Bancorp common stock. This will represent 38.0% of the outstanding common stock of new Partners Trust Financial Group at the midpoint of the offering range. To the extent we raise less than $152.4 million in the offering, we will use our existing cash balances plus cash received from the sale of securities or a cash dividend from SBU Bank to finance the acquisition. As of December 31, 2003, we had $20.9 million in cash and $3.1 million in securities, and $23.2 million was available at SBU Bank after the payment of all declared dividends to pay future dividends to Partners Trust Financial Group without prior OTS approval. The acquisition of BSB Bancorp is contingent on completion of the conversion. The merger is subject to approval by the stockholders of Partners Trust Financial Group and BSB Bancorp. The merger is also subject to receipt of all required regulatory approvals, including approvals from the Office of Thrift Supervision and the New York State Banking Department. We anticipate simultaneously completing the conversion, the stock offering and the merger in mid-2004, although no assurance can be given that we will be able to complete these transactions by that date. (In thousands) Service cost $ 1,139 $ 850 $ 828 $ 164 $ 152 $ 182 $ $ $ Interest cost 1,694 1,561 1,498 338 329 350 14 14 14 Expected return on assets (2,146 ) (1,942 ) (1,978 ) Amortization of unrecognized transition obligation 173 173 173 Unrecognized loss (gain) 484 (70 ) (2 ) (39 ) (24 ) (2 ) (4 ) (4 ) Unrecognized past (credit) cost (25 ) (24 ) (25 ) 5 5 Steven A. Covert Chief Financial Officer Partners Trust Financial Group, Inc. 233 Genesee Street Utica, New York 13501 (315) 768-3000 (Name, address including zip code, and telephone number, including area code, of agent for service) (1) Includes estimated after-tax acquisition expenses of $19.2 million. We may use the funds retained for general corporate purposes to pay cash dividends and repurchase shares of common stock. Initially, the portion of the net proceeds remaining after the loan to the ESOP and the acquisition of BSB Bancorp will be invested in short-term investments, investment-grade debt obligations and mortgage-backed securities. Terms of the Conversion and Offering (see page 147) Pursuant to the plan of conversion and reorganization, our organization will convert from a partially public to a fully public form of holding company structure. In connection with the conversion, we are selling shares representing the ownership interest in Partners Trust Financial Group currently held by Partners Trust, MHC. Copies to: Stuart G. Stein, Esq. R. Daniel Keating, Esq. Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20004-1109 (202) 637-8575 Paul M. Aguggia, Esq. Muldoon Murphy Faucette & Aguggia LLP 5101 Wisconsin Avenue, N.W. Washington, D.C. 20016 (202) 362-0840 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. We are offering between 14,875,000 and 20,125,000 shares of common stock to eligible depositors of SBU Bank, our employee benefit plans and, to the extent shares remain available, to our existing public stockholders, depositors of BSB Bank & Trust Company, our community and the general public. The number of shares of common stock to be sold may be increased up to 23,143,750 as a result of regulatory conditions, demand for the shares or changes in the market for financial institution stocks. Unless the number of shares of common stock to be offered is increased to more than 23,143,750 or decreased to less than 14,875,000, or the offering is extended beyond [ ] 2004, you will not have the opportunity to change or cancel your stock order. The purchase price of each share of common stock to be issued in the offering is $10. All investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock. Sandler O Neill & Partners, L.P., our marketing advisor in the offering, will use its best efforts to assist us in selling shares of our common stock. Sandler O Neill & Partners, L.P. is not obligated to purchase any shares of common stock in the offering. Reasons for the Conversion (see page 148) The primary reasons for converting and raising additional capital are: to provide us with the capital to acquire BSB Bancorp; to support internal growth through lending in communities we serve; to enhance existing products and services and support the development of new products and services; to facilitate growth through other acquisitions and de novo branching as opportunities arise; to improve our overall competitive position; and to enhance stockholder returns through higher earnings and more flexible capital management strategies. As a fully converted stock holding company, we will have greater flexibility in structuring future mergers and acquisitions, including the form of consideration that we can use to pay for an acquisition. Our current mutual holding company structure limits our ability to offer shares of our common stock as consideration in a merger or acquisition since Partners Trust, MHC is required to own a majority of our outstanding shares of common stock. Potential sellers often want stock for at least part of the purchase price. Our new stock holding company structure will enable us to offer stock or cash consideration, or a combination thereof, and will, therefore, enhance our ability to compete with other bidders when acquisition opportunities arise. The conversion will afford our officers and employees the opportunity to increase their stock ownership, which we believe to be an effective performance incentive and an effective means of attracting and retaining qualified personnel. The conversion also will provide our customers and local community members with an opportunity to acquire our stock. Conditions to Completion of the Conversion (see page 45) We cannot complete the conversion and related offering unless: the plan of conversion and reorganization is approved by at least a majority of the total number of outstanding votes entitled to be cast by members of Partners Trust, MHC (depositors of SBU Bank); the plan of conversion and reorganization is approved by at least two-thirds of the outstanding common stock of Partners Trust Financial Group; If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. the plan of conversion and reorganization is approved by at least a majority of the outstanding shares of Partners Trust Financial Group common stock, excluding those shares held by Partners Trust, MHC; Partners Trust, MHC, Partners Trust Financial Group and SBU Bank receive opinions of counsel or tax advisers as set forth in the plan of conversion and reorganization; we sell at least the minimum number of shares of common stock offered; and the conversion and offering are completed within the time frame set forth in the plan of conversion and reorganization. Partners Trust, MHC intends to vote its ownership interest in favor of the plan of conversion and reorganization. At December 31, 2003, Partners Trust, MHC owned 53.7% of the outstanding shares of common stock of Partners Trust Financial Group. The directors and executive officers of Partners Trust Financial Group and their affiliates owned 477,270 shares of Partners Trust Financial Group, or 3.4% of the outstanding shares of common stock, including shares that can be acquired upon the exercise of stock options. They intend to vote those shares in favor of the plan of conversion and reorganization. Differences in Stockholders Rights For Existing Stockholders of Partners Trust Financial Group (see page 175) As a result of the conversion and reorganization, existing stockholders of Partners Trust Financial Group will become stockholders of new Partners Trust Financial Group. Some rights of stockholders of the new Delaware corporation will be different from the rights Partners Trust Financial Group stockholders currently have. The differences in stockholder rights result from differences in the Delaware certificate of incorporation and bylaws of new Partners Trust Financial Group compared to the federal stock charter and bylaws of Partners Trust Financial Group, and from distinctions between Delaware corporate law and federal regulations for mutual holding companies. Most of the differences in stockholder rights under the Delaware certificate of incorporation and bylaws are not mandated by Delaware law but have been chosen by management as being in the best interests of the corporation and all of its stockholders. The differences in stockholder rights include the following areas: filling of board vacancies for the remaining term; removal of directors; calling special meetings of stockholders; lead time required for stockholders to submit proposals for new business or nominate directors; limitation on voting rights of greater-than-10% stockholders; board criteria for evaluation of offers; and supermajority voting requirements with respect to certain acquisitions of stock, business combinations and amendments to the certificate of incorporation and bylaws. Because it owns 53.7% of the outstanding shares of Partners Trust Financial Group, Partners Trust, MHC currently controls the election of directors of Partners Trust Financial Group and determines the outcome of any matters put to a vote of stockholders. Notwithstanding the differences in stockholder rights described above, stockholders of new Partners Trust Financial Group will have greater ability to take action opposed by our board of directors because new Partners Trust Financial Group will be a fully public company with no majority stockholder. Benefits to Management and Potential Dilution to Stockholders Resulting From the Conversion (see page 46) Our tax-qualified employee stock ownership plan expects to purchase up to 8.0% of the shares of common stock we sell in the offering, or 1,610,000 shares of common stock, assuming we sell the maximum of the shares proposed to be sold. If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum. We (In thousands) Time deposits: 0% to 1.99% $ 106,545 $ 243,298 $ 223,189 $ 19,633 $ 476 $ 2% to 3.99% 369,324 372,222 119,968 103,745 91,004 57,505 4% to 5.99% 147,886 76,741 23,212 12,171 24,874 16,484 6% to 7.99% 17,297 600 446 144 10 8% to 9.99% 583 51 43 Weighted average basic shares outstanding 13,532 13,678 Effect of dilutive securities: Stock options 150 16 Unearned restricted stock awards 67 CALCULATION OF REGISTRATION FEE (1) The actual value of restricted stock grants will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value is assumed to be the same as the offering price of $10 per share. No value is given for options because their exercise price will be equal to the fair market value of the common stock on the day the options are granted. (2) Calculated at maximum of offering range, and considering 19,972,470 shares of common stock issued to BSB Bancorp stockholders. How We Determined the Offering Range and the $10 Per Share Stock Price (see page 152) The amount of common stock we are offering is based on an independent appraisal of the estimated market value of new Partners Trust Financial Group, assuming the conversion, offering and acquisition of BSB Bancorp Current: Federal $ 5,986 $ 3,247 $ 3,187 State 826 270 515 Deferred: Federal 385 292 (1,109 ) State 71 Title of each class of securities to be registered Amount to be registered Proposed maximum offering price per share Proposed maximum aggregate offering price(1) Amount of registration fee Valuation of peer group companies as of February 13, 2004 Averages 19.33 (1) Based on trailing 12-month earnings. The independent appraisal does not indicate market value. Do not assume or expect that the valuation of new Partners Trust Financial Group as indicated above means that, after the conversion and offering, the shares of common stock will trade at or above the $10 purchase price. The independent appraisal will be updated prior to the completion of the conversion. Any changes in the appraisal are subject to Office of Thrift Supervision approval. If the appraised value changes to either below $476.6 million or above $630.5 million, we will resolicit persons who had submitted stock orders, providing them an opportunity to modify or cancel their stock orders. The Exchange of Shares of Partners Trust Financial Group Common Stock (see page 149) If you are currently a stockholder of Partners Trust Financial Group, your shares will be canceled and exchanged for shares of common stock of new Partners Trust Financial Group at the conclusion of the conversion. The number of shares of common stock you receive will be based on an exchange ratio determined as of the closing of the conversion, which will depend upon the number of shares sold in the offering and the number of outstanding shares of Partners Trust Financial Group at the time we consummate the conversion. The following table shows how the exchange ratio will adjust, based on the number of shares of common stock sold Ratio of interest-earning assets to interest-bearing liabilities 1.14 x 1.16 x 1.15 Condensed Statement of Income Interest income $ 257 $ 379 Other income 1.1 Agency Agreement between Partners Trust Financial Group, Inc. and Sandler O Neill & Partners, L.P. X 1.2 Letter agreement among SBU Bank, Partners Trust Financial Group, Inc. Partners Trust, MHC and Sandler O Neill & Partners, L.P., dated December 16, 2003 X 1.3 Letter agreement among SBU Bank, Partners Trust Financial Group, Inc. Partners Trust, MHC and Sandler O Neill & Partners, L.P., dated December 16, 2003 X 2.1 Amended Plan of Conversion and Reorganization of Partners Trust, MHC (the Plan ) X 2.2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan Exhibit 2 to Partners Trust Financial Group, Inc. s Registration Statement on Form S-1, Registration No. 333-75514 2.3 Agreement and Plan of Merger by and between Partners Trust, MHC, Partners Trust Financial Group, Inc., a federal corporation, Partners Trust Financial Group, Inc., a Delaware corporation, SBU Bank and BSB Bancorp, dated as of December 23, 2003 X 3.1 Certificate of Incorporation of the Registrant X 3.2 Bylaws of the Registrant X 4.1 Form of Stock Certificate of Partners Trust Financial Group X 5.1 Opinion of Hogan & Hartson L.L.P. regarding legality of securities being registered X 8.1 Opinion of Hogan & Hartson L.L.P. regarding certain federal income tax matters X 10.1 Second Amended and Restated Employment Agreement between Partners Trust Financial Group and John A. Zawadzki, dated as of April 29, 2004 X 10.2 Second Amended and Restated Employment Agreement between Partners Trust Financial Group and Steven A. Covert, dated as of April 29, 2004 X 10.3 Employment Protection Agreement between SBU Bank, Partners Trust Financial Group, Inc. and Richard F. Callahan 10.4 Employment Protection Agreement between SBU Bank, Partners Trust Financial Group, Inc. and Daniel J. O Toole X 10.5 Amended and Restated Employment Agreement by and between Partners Trust Financial Group and Howard W. Sharp, dated May 4, 2004 X 10.6 Amended and Restated Employment Agreement by and between Partners Trust Financial Group and William M. Le Beau, dated as of May 4, 2004 X 10.7 Amended and Restated Employment Agreement by and between Partners Trust Financial Group and Randy J. Wiley, dated as of May 5, 2004 X 10.8 Letter Agreement by and between BSB Bancorp, Inc. and William M. Le Beau X 10.9 Letter Agreement by and between BSB Bancorp, Inc. and Randy J. Wiley X 10.10 Executive Supplemental Retirement Income Agreement by and between The Savings Bank of Utica and John A. Zawadzki, dated as of June 27, 2001 X 10.11 Endorsement Split Dollar Agreement by and between The Savings Bank of Utica and John A. Zawadzki, dated as of June 27, 2001 X 10.12 SBU Bank Employee Change of Control Severance Plan, dated as of August 26, 2003 X 10.13 Partners Trust Long-Term Equity Compensation Plan Exhibit A to Partners Trust Financial Group, Inc. s Proxy Statement filed September 6, 2002 pursuant to Section 14(a) of the Securities Exchange Act of 1934 10.14 Partners Trust Financial Group, Inc. Employee Stock Ownership Plan, dated as of January 1, 2002 X 10.15 ESOP Trust Agreement between RSGroup Trust Company and Partners Trust Financial Group, Inc., dated as of March 1, 2002 X 10.16 The Savings Bank of Utica Management Employees Deferred Compensation Plan, dated as of January 1, 1999 10.17 The Savings Bank of Utica Board of Trustees Deferred Compensation Plan, amended and restated as of January 1, 1999 X 10.18 Amendment Number Two to The Savings Bank of Utica Board of Trustees Deferred Compensation Plan, dated as of February 14, 2002 X 10.19 The Savings Bank of Utica Incentive Savings Plan, amended and restated as of January 1, 1999 X 10.20 Amendment Number One to The Savings Bank of Utica Incentive Savings Plan, dated as of November 5, 2001 X 10.21 Amendment Number Two to The Savings Bank of Utica Incentive Savings Plan, dated as of February 13, 2002 X 10.22 Amendment Number Three to The Savings Bank of Utica Incentive Savings Plan, dated as of May 28, 2002 X 10.23 Amendment Number Four to the SBU Bank Incentive Savings Plan, dated as of October 15, 2002 X 10.24 Addendum A to the SBU Bank Incentive Savings Plan, dated as of October 15, 2002 X 10.25 The Retirement Plan of SBU Bank In RSI Retirement Trust, amended and restated as of October 1, 1997 X 10.26 Trust Agreement between RSGroup Trust Company and The Savings Bank of Utica, dated as of January 1, 1999 X 10.27 Amendment Number One to The Retirement Plan of SBU Bank In RSI Retirement Trust, dated as of September 24, 2002 X 10.28 Addendum A to The Retirement Plan of SBU Bank In RSI Retirement Trust, dated as of October 15, 2002 X 10.29 The Retirement Plan of SBU Bank, amended and restated as of January 1, 2004 X 21 Subsidiaries of the Registrant X 23.1 Consent of KPMG LLP with respect to Partners Trust Financial Group X 23.2 Consent of KPMG LLP with respect to BSB Bancorp, Inc. X 23.3 Consent of PricewaterhouseCoopers, with respect to BSB Bancorp, Inc. X 23.4 Consent of Hogan & Hartson L.L.P. Included in Exhibits 5.1 and 8.1 respectively 23.5 Consent of RP Financial, LC. X 24.1 Powers of Attorney X 99.1 Form of Marketing Materials X 99.2 Form of Partners Trust, MHC proxy material X 99.3 Prospectus Supplement for participants in the Partners Trust Financial Group, Inc. 401(k) Plan 99.4 Appraisal Report of RP Financial, LC. X 99.5 Consent of Robert Allen to be identified as a proposed director X 99.6 Consent of William Craine to be identified as a proposed director X 99.7 Consent of David Niermeyer to be identified as a proposed director Common Stock, $0.0001 par value per share 23,143,750 Shares $ 10.00 $ 231,437,500 $ 29,323.13 * Minimum 14,875,000 31.2 % 12,813,425 26.9 % 19,972,470 41.9 % 47,660,895 1.9502 195 Midpoint 17,500,000 33.2 15,074,617 28.7 19,972,470 38.0 52,547,087 2.2944 229 Maximum 20,125,000 35.0 17,335,810 30.2 19,972,470 34.8 57,433,280 2.6385 263 Adjusted Maximum 23,143,750 36.7 19,936,181 31.6 19,972,470 31.7 63,052,401 3.0343 303 If you own shares of Partners Trust Financial Group common stock in a brokerage account in street name, you do not need to take any action to exchange your shares of common stock. If you own shares in the form of Partners Trust Financial Group stock certificates, you will receive a transmittal form with instructions to surrender your stock certificates after consummation of the conversion. New certificates of new Partners Trust Financial Group common stock will be mailed to you within five business days after the exchange agent receives properly executed transmittal forms and old certificates. No fractional shares of new Partners Trust Financial Group common stock will be issued to any public stockholder of Partners Trust Financial Group. For each fractional share that would otherwise be issued, new Partners Trust Financial Group will pay in cash an amount equal to the product obtained by multiplying the fractional share interest to which the holder would otherwise be entitled by the $10 per share subscription price. Current stockholders of Partners Trust Financial Group do not have dissenters or appraisal rights in connection with the conversion or the merger. Persons Who May Order Shares of Common Stock in the Offering (see page 156) We are offering the shares of common stock of new Partners Trust Financial Group in a subscription offering in the following descending order of priority: (1) First, to depositors with accounts at SBU Bank, SBU Municipal Bank or The Herkimer County Trust Company with aggregate balances of at least $50 on December 15, 2002. (2) Second, to our employee stock ownership plan. (3) Third, to depositors with accounts at SBU Bank and SBU Municipal Bank with aggregate balances of at least $50 on March 31, 2004. (4) Fourth, to depositors of SBU Bank and SBU Municipal Bank as of May 2, 2004. If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 10% of shares of common stock sold in the offering. The employee stock ownership plan expects to submit an order for 8.0% of the shares to be sold in the offering. Shares of common stock not purchased in the subscription offering will be offered for sale in a community offering, with a preference given first to Partners Trust Financial Group public stockholders as of January 30, (In thousands) Net income $ 14,046 $ 8,412 $ 6,641 Other comprehensive (loss) income, net of tax: (Decrease) increase in unrealized holding gains on securities available-for-sale (pre-tax, ($5,295), $2,982, and $6,259) (3,177 ) 1,789 3,755 Reclassification adjustment for net (gain)/loss on sales of available-for-sale securities realized in net income (pre-tax amounts of $ -, $19 and ($266)) Plan Interests (2) (3) 2004, then to depositors with accounts at BSB Bank & Trust Company on November 30, 2003 who reside in Oneida, Herkimer, Onondaga, Broome, Chenango, or Tioga County, New York, and then to other members of the local community and the general public. The community offering will begin concurrently with the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering or community offering through a syndicated community offering or an underwritten public offering managed by Sandler O Neill & Partners, L.P. We have the right to accept or reject, in our sole discretion, orders received in the community offering, syndicated community offering or underwritten public offering. Limits on How Much Common Stock You May Purchase (see pages 156 and 160) The minimum number of shares of common stock that may be purchased is 25. No individual may purchase more than 100,000 shares of common stock. If any of the following persons purchase shares of common stock, their purchases when combined with your purchases cannot exceed 200,000 shares: your spouse or relatives of you or your spouse living in your house; companies, trusts or other entities in which you have a 10% or greater financial interest or hold a senior officer or director position; or other persons who may be acting in concert with you. If you are currently a Partners Trust Financial Group stockholder In addition to the above purchase limitations, there is an ownership limitation. Shares of common stock that you purchase in the offering individually and together with persons described above, plus any new shares you and they receive in the exchange for existing Partners Trust Financial Group common stock, may not exceed 5% of the total shares of common stock to be issued and outstanding after the completion of the conversion, excluding, for purposes of this calculation, shares issued in connection with the merger. Subject to Office of Thrift Supervision approval, we may increase or decrease the purchase and ownership limitations at any time. How You May Purchase Shares of Common Stock (see page 163) In the subscription offering and community offering, you may pay for your shares only by: personal check, bank check or money order; or authorizing us to withdraw funds from the types of SBU Bank deposit accounts designated on the stock order form. SBU Bank and SBU Municipal Bank are not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering. Additionally, you may not use an SBU Bank line of credit to pay for shares of common stock. You may subscribe for shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment payable to Partners Trust Financial Group or authorization to withdraw from one or more of your SBU Bank deposit accounts, provided that we receive the stock order form and full payment before 12:00 noon, Eastern Time, on , 2004, which is the end of the offering period. We Performance Ratios: Return on average assets 1.08 % 0.82 % 0.67 % 0.54 % 0.65 % Return on average equity 8.18 5.67 6.85 6.34 6.94 Interest rate information: Yield on assets 5.91 6.60 7.39 7.62 7.58 Cost of funds 2.24 3.38 4.59 4.97 4.38 Net interest rate spread(1) 3.67 3.22 2.80 2.65 3.20 Net interest margin(2) 3.98 3.70 3.20 3.03 3.61 Net charge-offs to average loans 0.43 0.37 0.21 0.48 0.14 Efficiency ratio(3) 61.90 68.96 72.12 74.56 74.11 Asset Quality Ratios: Non-performing loans to total loans(4) 0.53 % 1.36 % 1.51 % 1.46 % 1.78 % Non-performing assets to total assets(5) 0.34 1.06 0.95 0.89 1.07 Allowance for loan losses to non-performing loans 202.92 100.05 86.85 84.83 90.75 Allowance for loan losses to total loans(6) 1.07 1.37 1.32 1.24 1.61 Other Data:(7) Book value per share $ 12.72 $ 12.04 N/A N/A N/A Book value per share, including unallocated ESOP shares 12.35 11.65 N/A N/A N/A Tangible book value per share 9.98 9.20 N/A N/A N/A Tangible book value per share, including unallocated ESOP shares 9.69 8.90 N/A N/A N/A Number of full-service offices 16 16 9 13 * A fee of $29,323.13 was previously paid. (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. (2) In addition, pursuant to Rule 416(c) under the Securities Act, this registration statement also covers an indeterminate amount of interests to be offered or sold pursuant to the employee benefit plan described herein. (3) The securities to be purchased by the Partners Trust Financial Group Employee Stock Ownership Plan are included in the amount shown for Common Stock. However, pursuant to Rule 457(h) of the Securities Act, no separate fee is required for the plan interests. Pursuant to such rule, the amount being registered has been calculated on the basis of the number of shares of Common Stock that may be purchased with the current assets of such Plan. will pay interest at SBU Bank s passbook savings rate from the date funds are received until completion or termination of the conversion. Withdrawals from certificates of deposit to purchase shares of common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with SBU Bank must be in the accounts at the time the stock order is received. However, funds will not be withdrawn from the accounts until the completion of the offering and will earn interest at the applicable deposit account rate until that time. A hold will be placed on those funds when your stock order is received, making the designated funds unavailable to you. After we receive an order, the order cannot be withdrawn or changed. You may subscribe for shares of common stock using funds in your individual retirement account, or IRA, at SBU Bank or elsewhere. However, common stock must be held in a self-directed retirement account, such as those offered by a brokerage firm or SBU Bank s Investment Management and Trust Departments. By regulation, SBU Bank s individual retirement accounts that were not established through our Investment Management or Trust Departments are not self-directed, so they cannot be invested in our common stock. If you wish to use some or all of the funds in your SBU Bank individual retirement account, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm or our Investment Management or Trust Departments. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing of retirement fund orders takes additional time, we recommend that you contact our conversion center promptly, preferably at least two weeks before the end of the offering period, for assistance with purchases using your individual retirement account or other retirement accounts that you may have. Whether you may use such funds for the purchase of shares in the stock offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held. Delivery of Stock Certificates (see page 165) Certificates representing shares of common stock sold in the offering will be mailed to the persons entitled thereto at the certificate registration address noted on the order form as soon as practicable following consummation of the offering and receipt of all necessary regulatory approvals. It is possible that, until certificates for the common stock are delivered to purchasers, purchasers might not be able to sell the shares of common stock which they ordered, even though the common stock will have begun trading. Deadline for Orders of Common Stock (see page 163) If you wish to purchase shares of common stock, a properly completed original stock order form, together with payment for the shares of common stock, must be received by the conversion center no later than 12:00 noon, Eastern Time, on , 2004, unless we extend this deadline. You may submit your order form by mail using the return envelope provided or by overnight courier to the indicated address on the order form. Stock order forms also may be delivered to our branch offices. Once submitted, your order is irrevocable unless the offering is terminated or extended beyond , 2004 or the number of shares of common stock to be sold is increased to more than 23,143,750 shares or decreased to less than 14,875,000 shares. If the subscription offering or community offering is extended beyond , 2004, we will be required to resolicit subscriptions before proceeding with the offering. You May Not Sell or Transfer Your Subscription Rights (see page 166) Office of Thrift Supervision regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action, including reporting persons to federal or state regulatory agencies, against The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. anyone who we believe has sold or given away his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. You may not add any names of other persons who are not beneficial owners on your qualifying deposit account to your stock registration. Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares by the Expiration Date (see page 158) If we do not receive orders for at least 14,875,000 shares of common stock by 12:00 noon, Eastern Time on , 2004, we may take several steps in order to issue the minimum number of shares of common stock in the offering range. Specifically, we may: extend the community offering for a period of up to 45 days after the expiration of the subscription offering; increase the purchase and ownership limitations; undertake a syndicated community offering; and/or seek regulatory approval to extend the offering beyond the , 2004 expiration date, provided that any such extension will require us to resolicit subscriptions received in the offering. Purchases by Officers and Directors (see page 146) We expect our current directors and executive officers, along with the new proposed directors and officers of new Partners Trust Financial Group, together with their associates, to subscribe for 104,000 shares of common stock in the offering. The purchase price paid by them will be the same $10 per share price paid by all other persons who purchase shares of common stock in the offering. Following the conversion and offering, such individuals are expected to own 2,397,179 shares of common stock (including exercisable options), or 4.6% of our total outstanding shares of common stock at the midpoint of the offering range. Market for Common Stock (see page 37) Existing publicly held shares of our common stock trade on the Nasdaq National Market under the symbol PRTR. Upon completion of the conversion, the shares of common stock of new Partners Trust Financial Group will replace existing shares of Partners Trust Financial Group and will be traded on the Nasdaq National Market. For a period of 20 trading days following completion of the conversion, our trading symbol will be PRTRD. Thereafter it will revert to PRTR. Sandler O Neill & Partners, L.P. currently intends to remain a market maker in the common stock and, if needed, will assist us in obtaining additional market makers, but it is under no obligation to do so. We cannot assure you that other market makers will be obtained or that an active and liquid trading market for the shares of common stock will develop or, if developed, will be maintained. Our Dividend Policy (see page 36) Partners Trust Financial Group currently pays a quarterly cash dividend of $0.12 per share. After the conversion, we intend to continue to pay cash dividends on a quarterly basis. We expect the annualized dividends to equal $0.25, $0.21, $0.18 and $0.16 per share at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, which represents an annual dividend yield of 2.5%, 2.1%, 1.8% and 1.6%, at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, based upon a price of $10 per share. The amount of dividends that we intend to pay after the conversion will preserve the dividend amount that Partners Trust Financial Group stockholders currently receive, adjusted to reflect the exchange ratio. The dividend rate and the continued payment of dividends will depend on a number of factors, including our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations and general economic conditions. No assurance can be given that we will continue to pay dividends or that they will not be reduced in the future. See Selected Consolidated Financial and Other Data of Partners Trust Financial Group and Subsidiaries, Our Dividend Policy and Market for the Common Stock for information regarding our historical dividend payments. Tax Consequences of the Conversion (see page 167) As a general matter, the conversion will not be a taxable transaction for purposes of federal or New York state income taxes to Partners Trust, MHC, Partners Trust Financial Group, SBU Bank, persons eligible to subscribe in the subscription offering, or existing stockholders of Partners Trust Financial Group. Existing stockholders of Partners Trust Financial Group who receive cash in lieu of fractional share interests in new shares of Partners Trust Financial Group will recognize a gain or loss equal to the difference between the cash received and the tax basis of the fractional share. Restrictions on Acquisition of New Partners Trust Financial Group (see page 171) Office of Thrift Supervision regulations prohibit any person from making an offer, announcing an intent to make an offer or participating in any other arrangement to purchase stock or acquiring stock or subscription rights in a converting institution or its holding company from another person prior to completion of its conversion. Further, without the prior written approval of the Office of Thrift Supervision, no person may make such an offer or announcement of an offer to purchase shares or actually acquire shares in the converting institution or its holding company for a period of three years from the date of the completion of the conversion if, upon the completion of such offer, announcement or acquisition, that person would become the beneficial owner of more than 10% of the outstanding stock of the institution or its holding company. In addition, provisions of new Partners Trust Financial Group s certificate of incorporation and bylaws, federal and state regulations and various other factors may make it more difficult for companies or persons to acquire control of new Partners Trust Financial Group without the consent of the board of directors. These provisions will also make the removal of the current board of directors or management, or the appointment of new directors, more difficult. These provisions include: limitations on voting rights of beneficial owners of more than 10% of new Partners Trust Financial Group s common stock; approval by at least 80% of the outstanding shares required to approve business combinations involving an interested stockholder; the election of directors to staggered terms of three years; and the absence of cumulative voting by stockholders in the election of directors. For further information about these provisions, see Restrictions on Acquisition of New Partners Trust Financial Group. How You Can Obtain Additional Information Our branch office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion or stock offering, please call our conversion center, toll free, at 1-877-890-9657, Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The conversion center will be closed weekends and bank holidays. TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO THE EXPIRATION DATE OF , 2004 IN ACCORDANCE WITH FEDERAL LAW, NO PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO , 2004 OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO , 2004. Net periodic benefit cost $ 1,146 $ 445 $ 253 $ 673 $ 615 $ 681 $ 17 $ 15 $ (In thousands) Current expense (benefit) $ 1,400 $ (269 ) $ 13,746 Deferred expense (benefit) 7,325 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS PARTNERS TRUST FINANCIAL GROUP, INC. (Proposed Holding Company for SBU Bank, to become Partners Trust Bank)
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information regarding us and the common stock being sold in this offering and our consolidated financial statements and the related notes appearing elsewhere
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. Because this is a summary, it may not contain all of the information that you should consider before investing in our common stock. Therefore, you should read the following summary together with the more detailed information set forth in this prospectus, including the risks of investing in our common stock discussed under the Risk Factors section and our consolidated financial statements and the related notes before making a decision to invest in our common stock. Unless we indicate otherwise, the information in this prospectus assumes that the underwriters will not exercise their option to purchase additional shares to cover over-allotments. Overview We are the bank holding company for State Bank, a commercial bank headquartered in La Grange, Texas, with 20 full service banking locations and three loan production offices serving 12 counties located primarily between the Houston, Austin and San Antonio metropolitan areas in central and south central Texas. Through State Bank, we also own Community Home Loan, a mortgage company with eight loan production offices located in Houston and San Antonio. We provide a wide range of financial services to small to medium-sized businesses, including commercial loans and commercial mortgage loans, and to individuals, including mortgage loans and consumer loans. As of March 31, 2004, on a consolidated basis, we had total assets of $658.7 million, total loans, including loans held for sale, of $406.8 million, total deposits of $536.7 million and shareholders equity of $40.8 million. On April 29, 2004, we entered into a merger agreement to acquire GNB Bancshares, Inc., which operates seven branches located north and south of the Dallas-Fort Worth metroplex. As of March 31, 2004, GNB Bancshares had total assets of $224.4 million, total loans of $161.7 million, total deposits of $190.6 million and shareholders equity of $19.5 million. On July 30, 2004, we acquired the Caldwell and Lexington, Texas branches of Central Bank, Houston, Texas. As of March 31, 2004, deposits at both branches totaled $102.4 million and loans totaled $33.3 million. Accounting for the GNB Bancshares and Central Bank branch acquisitions, we would have had approximately $1.0 billion in assets and $829.8 million in deposits as of March 31, 2004 on a pro forma basis. History and Expansion In 1996, our board of directors decided to pursue a growth strategy focused on internal growth and acquisitions while maintaining our high level of customer service, core earnings and asset quality. To implement this strategy, we hired L. Don Stricklin as President and Chief Executive Officer in July of 1996 and he began to add a senior management team to execute our plan. We were formed in 1995 as a bank holding company for State Bank, which was chartered in 1906. We adopted our current name, Texas United Bancshares, Inc., in June of 1998 after the merger of South Central Texas Bancshares, Inc. into our company, which was then named Premier Bancshares, Inc. After the South Central Texas merger, we consolidated our three separate bank subsidiaries into our subsidiary, State Bank. (1) Adjusted for a five-for-one stock split effective January 15, 2000 and a three-for-two stock split effective October 15, 2003. (Unaudited) (Dollars in thousands, except per share data) Interest income: Interest and fees on loans $ 2,916 $ 2,828 Investment securities 276 273 Federal funds sold 24 15 Other 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Pending Acquisition of GNB Bancshares On April 29, 2004, we entered into a definitive agreement to acquire GNB Bancshares, Inc., located in Gainesville, Texas. Pursuant to the terms of the agreement, in exchange for all of the outstanding shares of GNB Bancshares capital stock, we will pay $18.4 million in cash and issue approximately 1,415,384 shares of our common stock, subject to adjustment in the event that the 20 trading day average sales price of our common stock exceeds $21.00 or falls below $18.00. For illustrative purposes only, if the exchange ratio was determined based on the 20 trading day average sales price of our common stock ending June 30, 2004 which was $17.65, the aggregate purchase price for GNB Bancshares would be $43.9 million and we would issue approximately 1,443,451 shares of our common stock. We intend to operate GNB Bancshares wholly-owned subsidiary bank, GNB Financial, n.a., as a separate bank subsidiary. See Pending Acquisitions for more details about this transaction. We expect to complete the acquisition, subject to shareholder and regulatory approval, in the third quarter of 2004, after the completion of this offering. We intend to pay the cash portion of the purchase price with a portion of the net proceeds from this offering. The GNB Bancshares acquisition is consistent with our expansion strategy. We believe that it will provide us with a well-managed community-based bank with seven locations, including branches in Gainesville, Denton and Ennis, Texas, all of which are bedroom communities for the Dallas-Fort Worth metroplex. We also believe that GNB Bancshares management team will be compatible with our senior management team and that our companies share a similar customer-focused culture. Acquisition of Two Central Bank Branches On May 3, 2004 we entered into a definitive agreement to purchase the loans and premises and assume the deposit liabilities of the Caldwell, Texas and Lexington, Texas branches of Central Bank, Houston, Texas. Under the terms of the agreement, we agreed to pay a premium of 8.02% of total deposits, book value for the loans and $800,000 for the related real property and improvement and the related furniture, fixtures and equipment. Because the title work and survey for the Caldwell location was not complete at July 30, 2004, the planned closing date, the definitive agreement was amended to defer the acquisition of the Caldwell real estate and related improvements until a survey and title commitment could be delivered by Central Bank and reviewed and approved by us. Pending acquisition of the property at the agreed price of $395,000, we entered into a 60-day lease of the facility for a nominal rent. Except for the Caldwell facility, the acquisition was completed on July 30, 2004. On such date, deposits at both branches totaled $99.2 million and loans totaled $33.1 million. Based on these totals, we paid approximately $8.4 million to acquire these branches, not including the $395,000 purchase price for the Caldwell facility. The acquisition of the Central Bank branches are expected to improve our efficiency given their proximity to some of our existing banking centers and their relatively low levels of noninterest expense. The acquisition of the Lexington branch increased our deposit share in Lee County, where we maintain two other banking centers. The acquisition of the Caldwell branch provides us a point of entry into the county seat of Burleson County, which is contiguous to Brazos County, home of our three Bryan-College Station banking centers. We intend to use a portion of the net proceeds of this offering to repay borrowings under a line of credit that were used to supplement our bank s capital to support the acquisition of these assets. Market Our primary market consists of the rural and bedroom communities served by our 20 banking centers within 12 counties located primarily between the Austin, Houston and San Antonio metropolitan areas in central and south central Texas. Based on the most recently available FDIC data, we hold the number one deposit market share in two of those counties, Fayette and Waller Counties. We believe that we maintain a visible, competitive presence in the other counties. Balance at the beginning of the year $ 1,841 $ 1,564 Provision for loan losses 60 123 Loans charged to the allowance (160 ) (50 ) Recoveries on loans previously charged-off 5 Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The merger with GNB Bancshares will expand our market area into areas surrounding the Dallas-Fort Worth metropolitan area where GNB Bancshares operates seven banking centers located in Cooke, Denton and Ellis Counties. Based on the most recently available FDIC data, GNB Bancshares has the number two deposit market share in Cooke County, Texas. The Central Bank branch acquisitions added an additional branch in Lee County as well as our first branch in Burleson County. Growth and Operating Strategies The key components of our growth and operating strategies are as follows: Our Growth Strategy. We have grown through a combination of internal growth and acquisitions. Our growth strategy is to increase our presence in north central, central and south central Texas by branching into or acquiring community banks with a presence in rural areas or higher growth suburban areas of Austin, Houston, San Antonio and Dallas. We believe that our current locations provide us with the necessary platform to expand our services within our existing market area and into new markets offering growth potential, and that we have the back office and technology systems in place to accommodate additional growth. We also intend to continue to add experienced lenders and, over the last 12 months, we have hired eight experienced lenders in four different market areas. Our growth plan entails the following: Continued focus on internal growth and de novo branching. An important part of our growth strategy is to continue our expansion efforts through internal growth and de novo branching. To do so, we intend to evaluate and consider opening de novo banking centers in our market areas and contiguous market areas when opportunities arise. We have established a successful track record of opening de novo banking centers, having opened six banking centers between May 1999 and December 2002. Continued growth through selected acquisitions. Another significant part of our growth strategy is to continue our pursuit of growth opportunities through acquisitions. We believe that we have a history of successfully integrating the operational and cultural aspects of our prior acquisitions. Because we have focused on organizations that have already proven to be successful in their respective market areas, we believe that our integration risk in prior acquisitions has been low. Further, we have experienced little customer defection and staff attrition following our prior acquisitions. The additional capital provided by this offering will enable us to take advantage of what we believe are two attractive expansion opportunities in our existing and targeted market areas. See Use of Proceeds. Continued focus on rural areas and bedroom communities of larger metropolitan areas. In evaluating acquisition opportunities, we plan to continue to focus on the needs of small to medium-sized businesses in both the rural communities in which our banking centers are located and in bedroom communities of larger metropolitan areas, which while within a commutable distance from a metropolitan area, generally have the characteristics of a small town. In evaluating de novo branching opportunities, we intend to focus mostly on bedroom communities of larger metropolitan areas. Our management believes that the larger regional banks are not allocating their resources to serve small to medium-sized businesses effectively. These customers generally have the size and sophistication to demand customized products and services, which management believes our bankers are well-equipped to understand and address as a result of their experience. Further, it has been our experience that it is less costly to establish a location in a rural or bedroom community than in a metropolitan area, and that these markets generally are less competitive. Our Operating Strategies. While pursuing our growth strategy, we plan to continue our focus on customer service, asset quality and prudent capital management as described below. Continued emphasis on relationship based banking and decentralized decision-making. We operate under a community banking philosophy which is customer driven, emphasizes long-term customer relationships and provides practical financial solutions, convenience and consistent service. Each of Texas United Bancshares, Inc. (Exact name of registrant as specified in its charter) Texas 6022 75-2768656 (State or other jurisdiction of Incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 202 West Colorado La Grange, Texas 78945 (979) 968-8451 (Address, including zip code, and telephone, including area code, of registrant s principal executive offices) L. Don Stricklin 202 West Colorado La Grange, Texas 78945 (979) 968-8451 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents our banking centers is administered by its own local president who has knowledge of the particular community and lending expertise in the specific industries found within the community. We entrust our banking center presidents with the authority and flexibility within general parameters to make customer-related decisions, as our management believes that the most efficient and effective decisions are made at the point of customer contact by the people who know the customer. With our decentralized decision-making process, we are able to provide customers with rapid decisions on lending issues. The support services we provide to our banking centers are centralized in our main office located in La Grange. These services include back office operations, credit administration, human resources, internal audit, compliance, training and data processing. As a result, we believe our operations enhance efficiencies, maintain consistency in policies and procedures and enable our employees to focus on developing and strengthening customer relationships. Continued emphasis on our credit administration and sound asset quality. Our experienced credit administration team has developed an asset quality culture consisting of comprehensive policies and procedures for credit underwriting and funding that have enabled us to maintain sound credit quality during our rapid growth. Combined with our significant lending experience, these procedures and controls have enabled us to provide responsive, customized service to our customers. Our total assets have grown from $313.1 million at December 31, 1999 to $658.7 million at March 31, 2004. Despite this growth, at March 31, 2004, our ratio of nonperforming loans to total loans was 0.51% and our ratio of nonperforming assets to total loans and other real estate owned was 0.59%. Going forward, we intend to adhere to the practices and policies that have contributed to our sound asset quality to date. Continued prudent management of our capital. Our goal is to operate at a capital level that supports our growth but does not unduly hamper our achievement of an attractive return on equity. In order to strike this balance, we rely on our management s expertise to prudently manage our capital resources. In the past we have initiated repurchases of our common stock and would consider doing so again in an effort to manage our capital. During 2000 and 2003, we issued an aggregate of $12.4 million in junior subordinated debentures to our unconsolidated subsidiary trusts because we believed it to be the lowest cost source of capital available to accommodate our growth. We believe that this common stock offering will not only provide us capital for our pending growth and expansion, but may also provide increased liquidity for our shareholders. Copies To: William T. Luedke IV Charlotte M. Rasche Bracewell Patterson, L.L.P. 711 Louisiana Street, Suite 2900 Houston, TX 77002-2781 (713) 223-2900 Tom W. Zook David W. Brown Lewis, Rice Fingersh, LC 500 N. Broadway, Suite 2000 St. Louis, MO 63102 (314) 444-7600 (1) Assumes that the underwriters will not exercise their option to purchase up to an additional 300,000 shares of our common stock to cover over-allotments, if any. If the underwriters exercise this option in full, 6,324,553 shares of our common stock will be outstanding immediately after the offering. See Underwriting. (2) The number of shares of our common stock described as being outstanding after this offering excludes up to: 267,922 shares that we may issue upon the exercise of stock options outstanding as of March 31, 2004 at a weighted average exercise price of $6.14 per share; 1,443,451 shares that we may issue to shareholders of GNB Bancshares in conjunction with the proposed acquisition of GNB Bancshares, assuming an adjustment to the exchange ratio based on a 20 trading day average sales price of our common stock of $17.65. The actual number of shares to be issued in the merger will not be determined until immediately prior to the closing date as described under Pending and Completed Acquisitions; 15,331 additional shares at March 31, 2004 that we may issue under our 1998 stock option plan; 250,000 additional shares that we may issue under our 2004 stock incentive plan, which was approved by our board of directors on July 14, 2004 and is subject to shareholder approval; and 300,000 additional shares that we may issue upon exercise of the underwriters over-allotment option. Our principal executive offices are located at 202 West Colorado Street, La Grange, Texas 78945 and our telephone number is (979) 968-8451. Our website address is www.statebanktx.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information contained in our website as part of this prospectus. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. Table of Contents Recent Developments Preliminary Financial Results of Texas United for the Six Months Ended June 30, 2004 On July 19, 2004, we announced unaudited preliminary results for the first six months of 2004. Our net income for the six months ended June 30, 2004 was $3.1 million, or $0.73 per diluted share, compared with $2.5 million, or $0.61 per diluted share, for the same period in 2003, an increase in net income of $537,000 or 21.3%. This increase was primarily due to gains on the sale of mortgage loans generated by Community Home Loan, a decrease in the provision for loan losses and an increase in net interest income, partially offset by a decrease in mortgage servicing revenue and lower securities gains compared with the same period in 2003. For the six months ended June 30, 2004, our return on average assets was 0.90% and our return on average shareholders equity was 15.7%. For the first six months of 2004, our net interest margin was 4.57% compared with 5.17% for the same period in 2003. Net income for the three months ended June 30, 2004 was $1.5 million or $0.36 per diluted share, an increase in net income of $103,000 or 7.4% compared with net income of $1.4 million, or $0.34 per diluted share, for the same period in 2003. For the three months ended June 30, 2004, our return on average assets was 0.83% and our return on average shareholders equity was 15.8%. At June 30, 2004, we had total assets of $751.6 million compared with total assets of $614.4 million at June 30, 2003, total deposits of $567.4 million, total loans of $435.1 million and shareholders equity of $37.6 million. Our nonperforming assets totaled $2.6 million, or 0.61% of total loans and other real estate, at June 30, 2004, compared with $2.3 million, or 0.59% of total loans and other real estate at December 31, 2003, and $1.8 million, or 0.49% of total loans and other real estate at June 30, 2003. Of the nonperforming assets at June 30, 2004, approximately $924,000 was categorized as other real estate related to a bed and breakfast facility. We have received an earnest money contract for sale of the bed and breakfast for $925,000, which management anticipates to close during August 2004. For the first six months of 2004, we had net charge-offs of $221,000, or 0.05% of average loans, compared with $1.0 million, or 0.27% of average loans, for the first six months of 2003. The provision for loan losses was $300,000 and $450,000 for the three and six months ended June 30, 2004, respectively. The allowance for loan losses at June 30, 2004 was $4.1 million and represented 0.95% of total loans compared with $3.6 million representing 0.97% of total loans at June 30, 2003. We have a $2.1 million in outstanding loans to a borrower that filed Chapter 11 bankruptcy on August 3, 2004. The loan is secured by eight parcels of real property with an aggregate appraised value of approximately $4.1 million. While management believes that the collateral is adequate security for this loan, there can be no assurance that we will be able to sell the real property in a timely manner or for the appraised value. 2004 $ 104 2005 64 2006 58 2007 If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Common Share Data(1): Basic earnings per share $ 0.76 $ 0.64 Diluted earnings per share 0.73 0.61 Book value per share 9.34 9.68 Tangible book value per share(2) 6.87 7.20 Cash dividends declared per share 0.14 0.14 Dividend payout ratio 18.4 % 14.8 % Weighted average shares outstanding (basic) 4,015 3,971 Weighted average shares outstanding (diluted) 4,197 4,130 Shares outstanding at end of period 4,025 3,995 Balance Sheet Data: Total assets $ 751,631 $ 614,374 Securities 241,286 174,349 Loans (including loans held for sale) 435,128 369,514 Allowance for loan losses 4,122 3,584 Total deposits 567,440 495,614 Borrowings 87,330 54,000 Junior subordinated deferrable interest debentures 12,365 7,210 Total shareholders equity 37,570 38,647 Performance Ratios: Return on average assets 0.90 % 0.85 % Return on average equity 15.73 13.48 Net interest margin 4.57 5.17 Efficiency ratio(3) 78.01 78.98 (Dollars in thousands, except per share data) Net income, as reported $ 1,565 $ 1,131 Less: Total stock-based compensation expense determined under the fair value method for all awards, net of tax 7 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1) Adjusted for a three-for-one stock split effective October 15, 2003. (2) Calculated by dividing total assets, less total liabilities, goodwill and core deposit intangibles, by shares outstanding at end of period. (3) Efficiency ratio is noninterest expense (excluding securities losses) divided by net interest income plus noninterest income (excluding securities gains). Taxes are not part of this calculation. (4) At period end, except for net (recoveries) charge-offs to average loans, which is for periods ended at such dates. (5) Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and restructured loans. (Dollars in thousands) Assets Interest-earning assets: Loans $ 391,820 $ 7,517 7.72 % $ 378,671 $ 7,580 8.12 % Taxable securities 176,593 1,587 3.61 118,363 1,264 4.33 Non-taxable securities 8,815 98 4.47 13,504 151 4.53 Federal funds sold 1,502 4 1.07 1,917 (In thousands, except per share data) (Unaudited) Interest income: Loans $ 7,517 $ 7,580 Investment securities: Taxable 1,587 1,264 Tax-exempt 98 151 Federal funds sold and other temporary investments 4 (1) Included in noninterest expense is a one-time pre-tax charge of $1.1 million in connection with an embezzlement loss. On July 27, 2004, GNB Bancshares insurance company indicated in writing that at least $989,000 of the loss would be covered subject to the receipt of appropriate releases and assignments. The insurance company reserved its rights and defenses under the bond, and until funds are received by GNB Bancshares, there can be no assurance that any payment will be made. (2) Calculated by dividing total assets, less total liabilities, goodwill and deposit premiums, by shares outstanding at end of period. (3) Efficiency ratio is noninterest expense (excluding securities losses) divided by net interest income plus noninterest income (excluding securities gains). Taxes are not part of this calculation. (4) At period end, except for net charge-offs to average loans, which is for periods ended at such dates. (5) Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and restructured loans. Table of Contents Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION, DATED JULY 20, 2004 PROSPECTUS 2,000,000 Shares Common Stock Common Share Data(1): Basic earnings per share $ 0.39 $ 0.29 $ 1.31 $ 1.12 $ 0.86 $ 0.83 $ 0.88 Diluted earnings per share 0.37 0.27 1.26 1.07 0.83 0.79 0.85 Book value per share 10.17 9.28 9.49 8.94 7.35 6.62 5.54 Tangible book value per share(2) 7.70 6.78 7.13 6.43 5.50 4.66 4.63 Cash dividends declared per share 0.07 0.07 0.28 0.28 0.24 0.21 0.20 Dividend payout ratio 18.0 % 24.1 % 21.4 % 25.0 % 27.9 % 25.3 % 22.7 % Weighted average shares outstanding (basic) 4,010 3,965 3,984 3,826 3,742 3,652 3,606 Weighted average shares outstanding (diluted) 4,193 4,120 4,151 3,998 3,894 3,813 3,714 Shares outstanding at end of period 4,017 3,968 4,002 3,960 3,724 3,717 3,583 We are offering 2,000,000 shares of our common stock. Our common stock is quoted on the Nasdaq National Market System under the symbol TXUI. The last reported sales price of our common stock on the Nasdaq National Market on July 16, 2004 was $17.47 per share. On April 29, 2004, we entered into a merger agreement to acquire GNB Bancshares, Inc. We expect to complete this acquisition in the third quarter 2004 and use a significant portion of the net proceeds from this offering for that purpose. See Use of Proceeds for more details. (1) Adjusted for a five-for-one stock split effective January 15, 2000 and a three-for-two stock split effective October 15, 2003. (2) Calculated by dividing total assets, less total liabilities, goodwill and core deposit intangibles, by shares outstanding at end of period. (3) Efficiency ratio is noninterest expense (excluding securities losses) divided by net interest income plus noninterest income (excluding securities gains). Taxes are not part of this calculation. (4) At period end, except for net (recoveries) charge-offs to average loans, which is for periods ended at such dates. (5) Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and restructured loans. Net interest income after provision for loan losses 23,323 9,374 261 2,234 35,192 Noninterest income: Service charges 6,753 2,469 768 9,990 Other operating income 7,051 1,658 Investing in our common stock involves risks. See Risk Factors beginning on page 18. Common Share Data: Basic earnings per share $ (0.15 ) $ 0.77 $ 1.61 $ 3.36 $ 2.28 $ 3.29 $ 2.86 Diluted earnings per share (0.15 ) 0.77 1.61 3.36 2.28 3.29 2.86 Book value per share 29.74 30.17 29.63 29.74 27.09 24.46 20.81 Tangible book value per share(2) 29.73 30.15 29.62 29.73 27.08 24.45 20.79 Cash dividends declared per share 0.25 1.00 0.85 0.60 0.60 0.60 Dividend payout ratio % 32.3 % 62.1 % 25.3 % 26.3 % 18.2 % 21.0 % Weighted average shares outstanding (basic) 648 619 619 621 620 620 631 Weighted average shares outstanding (diluted) 648 619 619 621 620 620 631 Shares outstanding at end of period 656 619 634 619 623 620 621 Net interest income after provision for loan losses 6,514 2,485 33 559 9,591 Noninterest income: Service charges 1,597 599 170 2,366 Other operating income 2,307 310 The shares of our common stock being offered are not savings accounts, deposits or obligations of any bank or savings association and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Per Share Total (1) Included in noninterest expense is a one-time pre-tax charge of $1.1 million in connection with an embezzlement loss. On July 27, 2004, GNB Bancshares insurance company indicated in writing that at least $989,000 of the loss would be covered subject to the receipt of appropriate releases and assignments. The insurance company reserved its rights and defenses under the bond, and until funds are received by GNB Bancshares, there can be no assurance that any payment will be made. (2) Calculated by dividing total assets, less total liabilities, goodwill and deposit premiums, by shares outstanding at end of period. (3) Efficiency ratio is noninterest expense (excluding securities losses) divided by net interest income plus noninterest income (excluding securities gains). Taxes are not part of this calculation. (4) At period end, except for net charge-offs to average loans, which is for periods ended at such dates. (5) Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and restructured loans. Per Common Share Data: Basic earnings $ 0.20 $ 0.89 Diluted earnings 0.19 0.87 Cash dividends 0.07 0.28 Book value 13.10 12.63 Tangible book value 7.33 6.90 Weighted average common shares outstanding: Basic 7,087 7,061 Diluted 7,270 7,228 (In thousands) Balance Sheet Data: Total assets $ 1,004,044 Loans, net (including loans held for sale) 596,049 Securities 255,913 Deposits 829,762 Borrowings 48,747 Junior subordinated deferrable interest debentures 17,520 Shareholder s equity 93,745 Table of Contents Table of Contents
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+SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus and its exhibits carefully before you decide to invest. MORGAN STANLEY CHARTER SERIES The Morgan Stanley Charter Series consists of four continuously offered limited partnerships, each organized in the State of Delaware: <Table> <Caption> DATE ORGANIZED ------------------ <S> <C> Morgan Stanley Charter Graham L.P. July 15, 1998 Morgan Stanley Charter Millburn L.P. July 15, 1998 Morgan Stanley Charter MSFCM L.P. October 22, 1993 Morgan Stanley Charter Campbell L.P. March 26, 2002 </Table> The offices of each partnership are located at 825 Third Avenue, 9th Floor, New York, NY 10022, (212) 310-6444. Each partnership provides the opportunity to invest in futures, forwards, and options contracts managed by an experienced, professional trading advisor. Since each partnership's assets are traded by a different trading advisor, each employing a different trading program, you should review the specific information relating to each partnership and its trading advisor to better understand how a partnership may fit into your overall investment plan. If you decide to invest in more than one partnership, you may allocate your investment among any one or more of the partnerships and, after an initial six-month holding period, you may shift your investment among one or more of the other Charter Series partnerships. A futures contract is an agreement to buy or sell a fixed amount of a commodity or other underlying product, instrument, or index at a predetermined price at a specified time in the future. In order to secure its obligation to make or take delivery under a futures contract, the trader must deposit funds, referred to as margin, with the commodity broker through which it trades. An option on a futures contract gives the buyer of the option, in exchange for a one-time payment known as premium, the right, but not the obligation, to buy or sell a futures contract at a specified price within a specified period of time. The seller of an option on a futures contract receives the premium payment and has the obligation to buy or sell the futures contract at the specified price within the specified period of time. Futures contracts and options on futures contracts are traded on U.S. and foreign exchanges. A forward contract is an agreement directly between two parties to buy or sell a fixed amount of an underlying product at an agreed price at an agreed date in the future. Forward contracts are not traded on exchanges, but rather are traded in the dealer markets. A partnership may take long positions in futures, forwards, and options contracts in which the partnership is obligated to take delivery of the underlying commodity, product, instrument, or index. A partnership also may take short positions in those contracts in which the partnership has an obligation to deliver the underlying commodity, product, instrument, or index. Futures, forwards, and options contracts are traded in a number of commodities, products, instruments, and indices, including foreign currencies, financial instruments, precious and industrial metals, energy products, agricultural commodities, stock indices, and "soft" commodities like cotton and cocoa. For additional information on the futures, options, and forwards markets, see "Statement of Additional Information" beginning on page * . The investment objective of each partnership is to achieve capital appreciation and to provide investors with the opportunity to diversify a portfolio of traditional investments consisting of stocks and bonds. While the partnerships have the same overall investment objective, and the trading advisors may trade in the same futures, forwards, and options contracts, each trading advisor and its trading programs trades differently. Each partnership has a different trading advisor and trading program. You should review and compare the specifics of each partnership, its terms, and its trading advisor before selecting one or more partnerships in which to invest. MORGAN STANLEY CHARTER GRAHAM L.P. This partnership's assets are traded by Graham Capital Management, L.P. pursuant to its Global Diversified Program at 1.5 times the leverage it normally applies for the program and its K4 Program at 1.5 times the leverage it normally applies for the program. The Global Diversified Program utilizes computerized trading models to participate in the potential profit opportunities in approximately 80 markets. The computer models on a daily basis analyze the recent price action, the relative strength, and the risk characteristics of each market and compare statistically the quantitative results of this data to years of historical data on each market. The program will normally have weightings of approximately 26% in futures contracts based on short-term and long-term global interest rates, 25% in currencies, 17% in stock index futures, 15% in softs and agricultural futures, 8% in metal futures, and 9% in energy futures. The K4 Program uses a mathematical model to identify certain price patterns that have very specific characteristics indicating that there is a high probability that a significant directional move will occur, and will normally enter or exit a position only when a significant price and volatility spike takes place. The program trades in approximately 65 markets and will normally have weightings of approximately 27% in futures contracts based on short-term and long-term global interest rates, 31% in currencies, 14% in stock index futures, 11% in softs and agricultural futures, 9% in metal futures, and 8% in energy futures. The average leverage employed by the partnership from February 2003 through January 2004 was 9.0 times net assets. The actual weighting and leverage used in each market will change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MILLBURN L.P. This partnership's assets are traded by Millburn Ridgefield Corporation pursuant to its Diversified Portfolio at standard leverage. The objective of Millburn's trading method is to participate in major sustained price moves in the markets traded. Millburn will make trading decisions pursuant to its trading method, which includes technical trend analysis and certain non-trend-following technical systems, as well as the application of money management principles. The Diversified Portfolio trades in approximately 30 to 50 markets and will normally have weightings of approximately 42% in currencies, 23% in interest rates, 7% in softs and agricultural futures, 10% in stock index futures, 12% in energy futures, and 6% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.9 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER MSFCM L.P. This partnership's assets are traded by Morgan Stanley Futures & Currency Management Inc. pursuant to its Global Portfolio at standard leverage. The Global Portfolio employs a technical trading strategy that concentrates participation in futures contracts traded on futures exchanges worldwide and select foreign currencies traded in the forward markets. The Global Portfolio trades global interest rates and stock index futures, currencies, energy futures, and precious and industrial metals. The Global Portfolio trades approximately 20 markets and will normally have weightings of approximately 30% in global interest rate futures, 6% in stock index futures, 30% in currencies, 20% in energy futures, and 14% in metal futures. The average leverage employed by the partnership from February 2003 through January 2004 was 7.0 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. MORGAN STANLEY CHARTER CAMPBELL L.P. This partnership's assets are traded by Campbell & Company, Inc. pursuant to its Financial, Metal & Energy Large Portfolio. Campbell's trading models are designed to detect and exploit medium- to long-term price changes, while also applying proven risk management and portfolio management principles. Trading models may include trend-following trading models, counter-trend trading models, and trading models that do not seek to identify or follow price trends at all. The Financial, Metal & Energy Large Portfolio trades more than 50 markets and will normally have weightings of approximately 12% in global interest rate futures, 17% in stock index futures, 55% in currencies, 14% in energy futures, and 2% in metal futures. The average leverage employed by the partnership from January 2003 through February 2004 was 6.6 times net assets. The actual weightings and leverage used in each market may change over time due to liquidity, price action, and risk considerations. WHO MAY SUBSCRIBE INVESTMENT CONSIDERATIONS You must have a brokerage account with Morgan Stanley DW in order to purchase units in a partnership. You should purchase units in a partnership only if you understand the risks involved in the investment and only if your financial condition permits you to bear those risks, including the risk of losing all or substantially all of your investment in the partnership. You should invest in the units only with the risk capital portion of your investment portfolio. MINIMUM INVESTMENT If you are a new investor in the Charter Series of partnerships, you must invest at least $20,000. You may allocate your investment among any one or more of the partnerships in the Charter Series, but you must invest at least $5,000 in a partnership. Once you become an investor in any Charter Series partnership, you may increase that investment with an additional contribution of at least $1,000. If you are an investor in another limited partnership for which Demeter Management Corporation serves as the general partner, you may redeem your interest in that other partnership and use the proceeds to invest in any one or more of the Charter Series of partnerships. The $20,000 minimum subscription will be satisfied if the proceeds from the redemption would have equaled at least $20,000 as of the last day of the month immediately preceding the monthly closing at which the units are purchased, irrespective of whether the actual proceeds from the redemption are less than $20,000 when the units are redeemed. The general partner may, in its sole discretion, reject any subscription in whole or in part. FINANCIAL SUITABILITY Unless otherwise specified in the subscription agreement under "State Suitability Requirements," you must have either: a net worth of at least $150,000, exclusive of home, furnishings, and automobiles; or both a net worth of at least $45,000, exclusive of home, furnishings, and automobiles, and an annual income of at least $45,000. You should be aware, however, that certain states impose more restrictive suitability and/or higher minimum investment requirements. Before you invest you will be required to represent and warrant that you meet the applicable state minimum financial suitability standard set forth in the subscription agreement, which may also require a greater minimum investment. LIMITED REVOCATION RIGHT After you subscribe for units in any Charter Series partnership, you will have limited rights to revoke your subscription. You may only revoke a subscription and receive a full refund of the subscription amount, plus any accrued interest, within five business days after execution of the subscription agreement or no later than 3:00 P.M., New York City time, on the date of the applicable monthly closing, whichever comes first, by delivering written notice to your Morgan Stanley financial advisor. THE OFFERING OF UNITS THE CHARTER SERIES CONTINUOUS OFFERING Each partnership is continuously offering units of limited partnership interest for sale at monthly closings held as of the last day of each month. Since you must subscribe for units prior to the month-end closing date, you will not know the actual per unit purchase price until after the monthly closing has occurred. The purchase price of each unit in a partnership will be equal to 100% of the partnership's net asset value per unit as of the month-end closing date. The general partner calculates each partnership's net asset value per unit on a monthly basis by dividing the partnership's month-end net assets by the number of its month-end outstanding units. A partnership's net assets is its assets minus its liabilities. ESCROW TERMS During each partnership's continuous offering, your subscription will be transferred to, and held in escrow by, JPMorgan Chase Bank, New York, New York. Subscription funds held in escrow will be invested in the escrow agent's money market account and will earn interest at the rate then paid by the bank on that money market account. If the general partner accepts your subscription, the escrow agent will pay the subscription amount to the appropriate partnerships and pay any interest earned on those funds to Morgan Stanley DW Inc., the non-clearing commodity broker for each partnership. In turn, the non-clearing commodity broker will credit your customer account with the interest. If the general partner rejects a subscription, your account will be credited in an amount equal to the rejected subscription amount, together with any interest earned on those funds while held in escrow. SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER * These are speculative securities. * You could lose all or substantially all of your investment in the partnerships. * Past performance is not necessarily indicative of future results. * Each partnership's futures, forwards, and options trading is speculative and trading performance has been, and is expected to be, volatile. * Each partnership's trading is highly leveraged, which accentuates the trading profit or loss on a trade. * Charter Campbell has a limited operating history. * You may not redeem your units until you have been an investor for at least six months. * If you redeem units within 24 months after they are purchased, you will pay a redemption charge, except in defined circumstances. * Units will not be listed on an exchange and no other secondary market will exist for the units. * Each partnership pays substantial charges and fees and must earn substantial trading profits in order to pay these expenses. * Profits earned by a partnership will be taxable to an investor even though the general partner does not intend to make any distributions. MAJOR CONFLICTS OF INTEREST * Because the general partner, the commodity brokers, and the trading advisor for Charter MSFCM are affiliates, the fees and other compensation received by those parties and the other terms relating to the operation of the partnerships and the sale of units were not negotiated by an independent party. * Because your Morgan Stanley financial advisor receives a portion of the brokerage fees paid by the partnerships, your financial advisor has a conflict of interest in advising you in the purchase or redemption of units. * The trading advisors, commodity brokers, and general partner may trade futures, forwards, and options for their own accounts and, thus, they may compete with a partnership for positions. Also, the other commodity pools managed by the general partner and the trading advisors compete with the partnerships for positions. These conflicts can result in less favorable prices on the partnerships' transactions. THE GENERAL PARTNER The general partner for each partnership is Demeter Management Corporation, a Delaware corporation. The general partner is or has been the general partner of 34 other commodity pools and currently operates 22 other commodity pools. As of January 31, 2004, the general partner managed $2.8 billion of client assets. The general partner's address is 825 Third Avenue, 9th Floor, New York, NY 10022, telephone (212) 310-6444. THE COMMODITY BROKERS The commodity brokers for the partnerships are responsible for holding the partnerships' funds deposited with them as margin for trades. If the commodity broker is also a clearing broker, it will also be responsible for assuring that the partnerships' trades are properly processed and recorded or "cleared" by the clearinghouse affiliated with the exchange on which the trade took place. Morgan Stanley DW Inc., an affiliate of the general partner, is the non-clearing commodity broker for each partnership. As non-clearing commodity broker, Morgan Stanley DW Inc. holds each partnership's funds and provides margin funds to the clearing commodity brokers for the partnership's futures, forwards, and options positions. Morgan Stanley & Co. Incorporated, an affiliate of the general partner, serves as the clearing commodity broker for each partnership, with the exception of trades on the London Metal Exchange, which are cleared by Morgan Stanley & Co. International Limited, also an affiliate of the general partner. In addition, Morgan Stanley & Co. Incorporated acts as the counterparty on all of the foreign currency forward trades for the partnerships. ORGANIZATIONAL CHART Following is an organizational chart, which shows the relationships among the various parties involved with this offering. All of the parties are affiliates of Morgan Stanley except for the trading advisors for Charter Graham, Charter Millburn, and Charter Campbell. [chart] ------------------ * Demeter presently serves as general partner for 22 other commodity pools. Morgan Stanley DW acts as the non-clearing commodity broker for all of the commodity pools. Morgan Stanley & Co. acts as clearing commodity broker for all but one of the other commodity pools, and Morgan Stanley International serves as the clearing commodity broker for trades of such pools that take place on the London Metal Exchange. Morgan Stanley DW also serves as selling agent for all of the commodity pools managed by the general partner. All of the commodity pools, including the partnerships, are managed and traded independently of one another. FEES TO BE PAID BY THE PARTNERSHIPS The partnerships pay the following fees on a monthly basis, except that Charter MSFCM pays a quarterly incentive fee: <Table> <Caption> MANAGEMENT FEE BROKERAGE FEE (ANNUAL RATE) INCENTIVE FEE (ANNUAL RATE) -------------- -------------- ------------- % % % <S> <C> <C> <C> Charter Graham.................. 2 20 6.25 Charter Millburn................ 2 20 6.25 Charter MSFCM................... 2 20 6.25 Charter Campbell................ 2.65 20 6.25 </Table> The management fee payable to each trading advisor and the brokerage fee payable to the non-clearing commodity broker are based on a percentage of net assets and will be paid monthly regardless of a partnership's performance. Each partnership pays its trading advisor an incentive fee only if trading profits are earned on the net assets managed by the trading advisor. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses, after brokerage, management, and incentive fees have been paid. Neither you nor the partnerships will pay any selling commissions or organizational, initial, or continuing offering expenses in connection with the offering of units by the partnerships. The non-clearing commodity broker will pay all costs incurred in connection with the continuing offering of units of each partnership and will pay the ordinary administrative expenses of each partnership. Each partnership will pay any extraordinary expenses it may incur. BREAK EVEN ANALYSIS Following is a table that sets forth the fees and expenses that you would incur on an initial investment of $20,000 in a partnership and the amount that your investment must earn, after taking into account estimated interest income, in order to break even after one year and after more than two years. The fees and expenses applicable to each partnership are described above. <Table> <Caption> $20,000 INVESTMENT -------------------------------------- CHARTER SERIES PARTNERSHIPS (EXCLUDING CHARTER CAMPBELL) CHARTER CAMPBELL ------------------ ---------------- <S> <C> <C> Management Fee.................................... 400 530 Brokerage Fee..................................... 1,250 1,250 Less: Interest Income (1)......................... 190 190 Incentive Fee (2)................................. -- -- Redemption Charge (3)............................. 408 408 Amount of trading profits a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge............................................ 1,868 1,998 Trading profits as a percentage of net assets that a partnership must earn for you to recoup your initial investment at the end of one year after paying a redemption charge........................ 9.34% 9.99% Amount of trading profits a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge............................................ 1,460 1,590 Trading profits as a percentage of net assets that a partnership must earn each year for you to recoup your initial investment after two years with no redemption charge......................... 7.30% 7.95% </Table> (1) The partnerships receive interest at the rate earned by the non-clearing commodity broker on its U.S. Treasury bill investments with customer segregated funds as if 100% of each partnership's average net assets deposited with the non-clearing commodity broker for the month were invested at that rate. In addition, the non-clearing commodity broker will credit each partnership with 100% of the interest income the non-clearing commodity broker receives from the clearing commodity brokers with respect to such partnership's assets deposited as margin with the clearing commodity brokers. For purposes of the break even calculation, it was estimated that approximately 80% of a partnership's average daily funds maintained in trading accounts will be on deposit with the non-clearing commodity broker and earn interest income at a rate of approximately 1.00%, and that approximately 20% of a partnership's average daily funds maintained in trading accounts will be on deposit with the clearing commodity broker and generate interest income at a rate of approximately 0.75%. An interest rate of 1.00% was derived by using an average of the blended rate for the five recent weekly auction rates for three-month U.S. Treasury bills and adjusting for the historical rate that the non-clearing commodity broker earned in excess of such amount. The combined rate used for this break even analysis is estimated to be approximately 0.95%. Investors should be aware that the break even analysis will fluctuate as interest rates fluctuate, with the break even percentage declining as interest rates increase or increasing as interest rates decline. (2) Incentive fees are paid to a trading advisor only on trading profits earned. Trading profits are determined after deducting all partnership expenses, other than any extraordinary expenses, and do not include interest income. Therefore, incentive fees will be zero at the partnership's break even point. (3) Units redeemed at the end of 12 months from the date of purchase are generally subject to a 2% redemption charge; after 24 months there are no redemption charges. REDEMPTION CHARGES INCURRED BY YOU You will pay a redemption charge equal to 2% of the net asset value of the units redeemed if you redeem within the first 12 months after the units were purchased, and 1% if you redeem units within the 13th through the 24th month after the units were purchased. Units are not subject to a redemption charge after you have owned them for more than 24 months. You will not incur a redemption charge if you redeem units during the first 24 months after they were issued in the following circumstances: * If you redeem units immediately following notice of an increase in brokerage, management or incentive fees. * If you redeem units in connection with an exchange for units in another Charter Series partnership. * If you acquire units with the proceeds from the redemption of interests in a non-Charter Series partnership for which Demeter serves as the general partner, you will not be subject to a redemption charge on those units when they are redeemed. * If you previously redeemed units and paid a redemption charge or held those units for at least 24 months, you will not have to pay a redemption charge on subsequently purchased units, provided they are purchased within 12 months of the redemption of the old units and the purchase price of the new units does not exceed the net proceeds received from the prior redemption. REDEMPTIONS Once you have been an investor in any Charter Series partnership for more than six months, you are permitted to redeem any part of your investment, even if subsequent purchases have been held for less than six months. However, you will pay a redemption charge of 2% of the net asset value redeemed if your redeemed units were purchased within 12 months of the date of redemption, and 1% if purchased within 13 to 24 months of the date of redemption. You will not be subject to a redemption charge after you have owned your units for more than 24 months. Unless you are redeeming your entire interest in a partnership, redemptions may only be made in whole units, with a minimum of 100 units required for each redemption. EXCHANGE RIGHT You may redeem units in any partnership after you have been an investor for six months and use the proceeds to purchase units in one or more of the other partnerships in the Charter Series at a price equal to 100% of the net asset value per unit, without incurring any redemption or other charge on the transaction. DISTRIBUTIONS The general partner currently does not intend to make any distribution of partnership profits. TAX CONSIDERATIONS Even though the general partner currently does not intend to make distributions, your allocable share of the trading profits and other income of the partnerships in which you invest will be taxable to you. The trading activities of each partnership, in general, generate capital gains and losses and ordinary income. 40% of any trading profits on U.S. exchange-traded contracts are taxed as short-term capital gains at your ordinary income tax rate, while 60% of such gains are taxed at your long-term capital gains tax rate. We expect that each partnership's trading gains from other contracts will be primarily short-term capital gains. This tax treatment applies regardless of how long you hold your units. You may deduct losses on units against capital gains income. You may deduct losses in excess of capital gains against ordinary income only to the extent of $3,000 per year. You may also have to pay tax on a partnership's interest income even though you have lost money on your units.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001170593_primus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001170593_primus_prospectus_summary.txt
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+Prospectus Summary 1 Risk Factors 9 Special Note Regarding Forward-Looking Statements 19 Use Of Proceeds and Purposes of the Offering 20 Dividend Policy 20 Capitalization 21 Dilution 22 Selected Historical Consolidated Financial Data 23 Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Industry Overview 43 Business 47 Management 59 Principal and Selling Shareholders 71 Certain Relationships and Related Transactions 73 Description of Share Capital 75 Shares Eligible for Future Sale 86 Tax Considerations 89 Underwriting 97 Notice to Canadian Investors 102 Legal Matters 104 Experts 104 Where You Can Find Additional Information 104 Index to Consolidated Financial Statements F-1 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotment or subscriptions. PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before investing in our common shares. You should read the entire prospectus carefully, including the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001171032_bakers_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001171032_bakers_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..c86aa54f67388395d72a919817492c79485b954b
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+elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in shares of our common stock, which we refer to as our shares. We urge you to read this entire prospectus carefully including the Risk Factors section, which begins on page 6, and the Financial Statements and the Notes to those statements. An investment in these shares involves a high degree of risk. In this prospectus, we refer to the fiscal years ended December 31, 1999, December 30, 2000, January 5, 2002, January 4, 2003 and January 3, 2004 and the fiscal years ending January 1, 2005 and December 31, 2005 as fiscal year 1999, fiscal year 2000, fiscal year 2001, fiscal year 2002, fiscal year 2003, fiscal year 2004 and fiscal year 2005, respectively. For more information, please see Management s Discussion and Analysis of Financial Condition and Results of Operations Fiscal Year, appearing elsewhere in this prospectus. When this prospectus uses the words Company, we, us or our, these words refer to Bakers Footwear Group, Inc., unless the context otherwise requires. Our Company We are a national, mall-based, specialty retailer of distinctive footwear and accessories for young women. Our merchandise includes private label and national brand dress, casual and sport shoes, boots, sandals and accessories. As of April 3, 2004, we operated 207 stores, 178 of which were Bakers stores and 29 of which were Wild Pair stores. Our Bakers stores focus on women between the ages of 12 and 29 who demand quality fashion products. Based on our analysis of our competitors, we believe that our Bakers stores are the only nationwide, full-service retailer specializing in moderately priced footwear for this segment. Our Wild Pair stores offer edgier, faster fashion-forward footwear that reflects the attitude and lifestyles of both women and men between the ages of 17 and 24. The growing Bakers target market is generally concerned about image. Young women spend a significant percentage of their disposable income on footwear, accessories and apparel. Our strong relationships with manufacturers and advanced management systems support our test and react strategy of testing new styles and reacting quickly to fashion trends. In addition, we employ a micro-merchandising strategy of classifying multiple stores and merchandising them similarly based upon the style preferences and fashion trends of their customer demographics. On February 10, 2004, we sold 2,160,000 shares of our common stock in our initial public offering. We sold an additional 324,000 shares of our common stock on March 12, 2004 in connection with the exercise by the underwriters of the over-allotment option relating to our initial public offering. Upon consummation of our initial public offering, our subordinated convertible debentures and our previously outstanding shares of capital stock converted into shares of our one class of common stock and the repurchase obligations relating to our previously outstanding shares of capital stock were terminated. We also issued warrants to purchase 216,000 shares of our common stock in connection with the offering. Please see Management s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Unaudited Condensed Financial Statements. Competitive Strengths Our stores have historically generated strong cash flow and operating margins due to the following competitive strengths: Our Reputation as a Leading Fashion Footwear Retailer for Young Women. A Disciplined Management Approach. Sourcing Capabilities. Advanced Inventory Management Systems. Flexible Store Location Strategy. (1) Excludes 268,992 shares issuable upon exercise of outstanding fully vested employee stock options at an exercise price of $0.01 per share and 304,500 shares underlying options granted on February 10, 2004 at an exercise price equal to the initial public offering price, $7.75 per share. Also excludes 216,000 shares issuable upon the exercise of the warrants, at an exercise price of $12.7875 per share, which were issued to the representatives of the underwriters of our initial public offering. For more information about the representatives warrants, please see Related Party Transactions. (2) The 653,331 shares of common stock that are covered by this prospectus were issued by us to the selling shareholders upon the automatic conversion upon consummation of our initial public offering of our subordinated convertible debentures due 2007 held by them. For more information about the debentures, please see Management s Discussion and Analysis of Financial Condition and Results of Operations and Related Party Transactions. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Weighted average number of common shares outstanding: Basic 1,426,188 1,426,188 1,426,188 1,426,188 3,454,666 Diluted 2,337,840 2,285,706 2,300,270 1,426,188 4,318,154 Alabama 1 Arizona 2 Arkansas 1 California 31 Colorado 4 Connecticut 2 Delaware 1 Florida 18 Georgia 15 Idaho 1 Illinois 17 Indiana 5 Kansas 2 Louisiana 5 Maryland 5 Massachusetts 4 Michigan 8 Minnesota 2 Mississippi 1 Missouri 7 Nebraska 2 Nevada 4 New Jersey 9 New Mexico 1 New York 17 North Carolina 2 Ohio 5 Oklahoma 2 Pennsylvania 8 Rhode Island 1 South Carolina 1 Texas 17 Utah 4 Virginia 4 Washington 3 Wisconsin POST-EFFECTIVE AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) Effective December 30, 2000, we changed our fiscal year from the calendar year ending December 31 to a 52/53 week period. The fiscal year ended January 5, 2002 was a 53-week period. For more information regarding our fiscal year, please see Management s Discussion and Analysis of Financial Condition and Results of Operations Fiscal Year. (2) Represents the cumulative effect of adopting Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets and recognizing as income the unamortized deferred credit related to the excess of fair value over cost arising from the Bakers acquisition. (3) Through January 3, 2004, we elected S corporation status for Federal and state income tax purposes. Accordingly, no provision has been made for Federal or certain state income taxes. Pro forma net income has been computed as if we had been fully subject to Federal, state and city taxes. Effective January 4, 2004, we terminated our S election and are now taxed as a C corporation. For a reconciliation of our historical income (loss) before cumulative effect of change in accounting to pro forma income (loss) before cumulative effect of change in accounting and income taxes, please see Note 12 in the financial statements. In accordance with SFAS 109, Accounting for Income Taxes, we have reflected the net impact of the temporary differences between the book and tax bases of our Table of Contents assets and liabilities as of the date of conversion as a component of our provision for income taxes for the period. This resulted in the recognition of a nonrecurring income tax benefit of approximately $1.0 million for the first quarter of 2004. In addition, we recognized a tax benefit of approximately $500,000 for the first quarter of 2004 related to the taxable loss incurred during the quarter. Because we were an S corporation during the first quarter of 2003, there was no comparable income tax benefit for that period. As an S corporation, we paid distributions to our shareholders in amounts sufficient to allow them to pay income taxes related to an allocable share of our taxable income and did not pay traditional cash dividends per share. Such distributions are not comparable to dividends that would be paid by a C corporation. The Company did not declare any cash dividends during the thirteen weeks ended April 3, 2004 and currently has no plans to pay dividends. See Revocation and Termination of Prior S Corporation Status and Dividend Policy. (4) Consists of approximately $1.7 million in initial public offering costs charged in fiscal year 2002 as a result of a delay in the initial public offering process. (5) On February 10, 2004, we consummated our initial public offering with the sale of 2,160,000 shares of common stock. On March 12, 2004, we sold an additional 324,000 shares of common stock in connection with the exercise by the underwriters of the full over-allotment option. All of the shares of common stock sold to the public were sold at a price of $7.75 per share. The aggregate gross proceeds from the initial public offering were approximately $19.3 million. The net proceeds to us from the offering were approximately $15.6 million. As of April 3, 2004, we have used the net proceeds received from the initial public offering to repay $4.9 million on our revolving credit agreement, $0.9 million to redeem outstanding warrants, $0.9 million to repay subordinated debt and $1.4 million for capital expenditures. Immediately prior to our initial public offering, we had three classes of common stock authorized, Class A common stock, Class B common stock and Class C common stock, of which only shares of Class A and Class B common stock were outstanding. Upon the consummation of our initial public offering, in accordance with our then existing articles of incorporation, 1,693,244.92 shares of Class A common stock and 271,910 shares of Class B common stock automatically converted into an aggregate of 1,965,150 shares of common stock on a 1.0 for 1.0 basis, excluding fractional shares. Mandatory redemption rights in favor of certain holders of prior Class A and Class B common stock were also terminated. Prior to the initial public offering, 1,426,188 Class A shares were classified within shareholders equity for accounting purposes and the 267,057 Class A and 271,910 Class B redeemable shares were classified within liabilities for accounting purposes, less fractional shares. In addition, upon the consummation of our initial public offering, $4.9 million in aggregate principal amount of our subordinated convertible debentures due 2007 were automatically converted into 653,331 shares of our common stock. Further, in connection with the closing of our initial public offering, we sold to the representatives of the underwriters and their designees warrants to purchase up to an aggregate of 216,000 shares of common stock at an exercise price equal to $12.7875 per share, subject to antidilution adjustments, for a purchase price of $0.0001 per warrant. See Note 2 in the Notes to the Unaudited Condensed Financial Statements for the thirteen weeks ended April 3, 2004. (6) In the first quarter of fiscal year 2002, we completed the acquisition of 33 former Sam Libby store locations for approximately $1.8 million in cash. 2815 Scott Avenue St. Louis, Missouri 63103 (314) 621-0699 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001172480_santarus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001172480_santarus_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
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@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001172755_b-g-foods_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001172755_b-g-foods_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..3bad2e57672885d250abbf98e32046a651d3f061
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@@ -0,0 +1 @@
+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+PROSPECTUS SUMMARY Our Business Citadel is the sixth largest radio broadcasting company in the United States based on net broadcasting revenue. As of April 30, 2004, we owned and operated 148 FM and 58 AM radio stations in 44 markets located in 24 states across the country. We have a well-clustered radio station portfolio that is diversified by programming formats, geographic regions, audience demographics and advertising clients. We rank first or second in audience share in 30 of our 41 rated markets. Our top 25 markets accounted for approximately 81% of our 2003 revenue. Our radio stations are predominantly located in mid-sized markets, which we define as those ranked 30 to 150 by market revenue. We believe mid-sized markets are attractive because they derive a significant portion of their revenue from local advertisers and generally have fewer signals and competitors than larger markets. Furthermore, we believe that there are more opportunities for consolidation in mid-sized markets than in larger markets. Our current acquisition strategy focuses on identifying and acquiring radio stations that would expand our station clusters in existing and contiguous markets, as well as provide us entry into new markets that rank in the top 100 based on total market revenue. Since January 1, 2003, we have acquired or entered into agreements to acquire radio stations in four new top 100 markets (including two top 50 markets), New Orleans, Des Moines, Memphis and Springfield, as well as stations in existing and contiguous markets, including Modesto/Stockton and Oklahoma City. With our experienced management team and financial resources, we believe that we can significantly improve the operations and financial performance of these stations. Additionally, we seek to gradually dispose of non-core radio stations that do not complement our overall strategy. Our Chairman and Chief Executive Officer, Farid Suleman, has over 17 years of experience in the media industry. Prior to joining our company in March 2002, he was the Chief Executive Officer of Infinity Broadcasting. Under his leadership, we have assembled a highly experienced management team, including our Chief Operating Officer, Judith Ellis, a 28-year radio industry veteran, who joined our company in February 2003. We have also strengthened our programming, sales and regional management positions. Our management team has instilled a strong focus and discipline on improving business operations and maximizing the growth opportunities and margin potential of our stations. These efforts include investing in and improving programming, developing regional clusters to attract both regional and national advertisers, improving sales practices to drive revenue growth and reducing costs. On August 6, 2003, we completed an initial public offering of 25.3 million shares of our common stock at $19.00 per share, resulting in net proceeds to us of approximately $448.0 million. We used substantially all of the net proceeds from the offering to repay amounts outstanding under our credit facility, resulting in a substantial decrease in our debt. In February 2004, we completed the offering of the notes and a concurrent offering of 9,630,000 shares of our common stock. Several of our stockholders also offered 20,000,000 shares in the concurrent common stock offering. We used the proceeds of these offerings to redeem all of our outstanding 6% subordinated debentures. We did not receive any of the proceeds from the shares of common stock sold by the selling stockholders. For the fiscal year ended December 31, 2003, we had net broadcasting revenue of $371.5 million, an operating loss of $4.0 million, and a net loss of $89.6 million, as compared to net broadcasting revenue of $348.9 million, an operating loss of $41.7 million, and a net loss of $89.2 million for the fiscal year ended December 31, 2002. As of December 31, 2003, we had an accumulated deficit of $232.4 million and indebtedness of $669.0 million. We explain the market and industry data from third party sources used in this prospectus under "Market and Industry Data" on page 20. Operating Strategy Our operating strategy is to maximize revenues and profits through the ownership and operation of leading radio station clusters in the nation's most attractive markets. Specifically, we seek to: operate and develop our stations in clusters in order to increase operating efficiencies and reach a broader audience attractive to advertisers, as well as to compete more effectively with other forms of local media; position each station as a distinct brand through an emphasis on programming, including developing significant on-air talent and recognizable brand names to enhance the presence, marketability and competitiveness of our stations within each market; build geographic, format and customer diversity, reducing our dependence on any particular local economy, market, station, format, on-air personality or advertiser; apply improved sales and marketing efforts to capture a greater share of advertising revenues, develop regional clusters to attract regional and national advertisers, and improve our share of national sales; participate in local communities to reinforce our position and improve the marketability of our stations to advertisers who are targeting these communities; and optimize technical capabilities in order to operate stations with the strongest signals in their respective markets. Acquisition Strategy Our current acquisition strategy focuses on identifying and acquiring radio stations that would expand our station clusters in existing and contiguous markets, as well as provide us entry into new markets that rank in the top 100 based on total market revenue. In analyzing acquisition opportunities, we consider the following criteria: our ability to improve the operating performance of the stations; our ability to acquire a new or improve an existing cluster of stations towards achieving a higher share of revenue in the market; the number and quality of competing commercial radio signals, as well as the number and nature of competitors, in the market; the power and quality of the stations' broadcasting signals; and the general economic conditions in the market. Our predecessor company was founded in 1991 and grew rapidly through acquisitions subsequent to the passage of the Telecommunications Act of 1996. In June 2001, affiliates of Forstmann Little & Co. acquired our predecessor company from its public shareholders for an aggregate purchase price, including the redemption of debt and exchangeable preferred stock, of approximately $2.0 billion. Affiliates of Forstmann Little & Co. currently own approximately 58% of our common stock and continue to control us. Our principal executive offices are located at City Center West, Suite 400, 7201 West Lake Mead Boulevard, Las Vegas, Nevada 89128 and our telephone number at that address is (702) 804-5200. Our Net loss (89,570 ) (89,160 ) (53,635 ) (149,338 ) Dividend requirement and premium paid on redemption of exchangeable preferred stock 6 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 World Wide Web site address is www.citadelbroadcasting.com. The information in our website is not part of this prospectus and is not incorporated by reference. Recent Developments In March of 2004, we completed the acquisition of three radio stations in the Memphis, TN market and entered into a local marketing agreement to operate a fourth station for a cash purchase price of approximately $94.7 million. The acquisition of the fourth station is expected to occur by the fourth quarter of 2004. Subsequent to December 31, 2003, we entered into agreements to acquire three radio stations for an aggregate cash purchase price of approximately $38.0 million. First Quarter 2004 Results For the three months ended March 31, 2004, we had net broadcasting revenue of $86.9 million, operating loss of $3.8 million, and net loss of $29.5 million, as compared to net broadcasting revenue of $77.2 million, operating loss of $13.8 million, and net loss of $33.8 million for the three months ended March 31, 2003. AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 The Offering Notes $330,000,000 aggregate principal amount of our 1.875% Convertible Subordinated Notes due February 15, 2011. Interest Payable We will pay interest on the notes semiannually on February 15 and August 15 of each year, commencing on August 15, 2004. The notes will accrue interest at a rate of 1.875% per annum, beginning on the date of original issuance (February 18, 2004). Maturity February 15, 2011. Conversion Holders may convert their notes into our common stock at a conversion rate of 39.2157 shares of common stock per $1,000 principal amount of notes, equal to a conversion price of $25.50 per share. The ability to surrender notes for conversion will expire at the close of business on February 15, 2011. Ranking The notes are unsecured obligations subordinated to all of our existing and future senior indebtedness (as defined herein). The notes are also effectively subordinated to all indebtedness of our subsidiaries. The indenture for the notes does not restrict the incurrence of indebtedness, including senior indebtedness, by us. Provisional Redemption We may redeem the notes, in whole or in part, at any time before February 15, 2011, at a redemption price equal to $1,000 in cash per $1,000 principal amount of notes to be redeemed plus the additional "make whole" payment described below if: the closing price of our common stock has exceeded 150% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date of the mailing of the provisional redemption notice, and the shelf registration statement covering resales of the notes and the common stock issuable upon conversion of the notes is effective and available for use and is expected to remain effective and available for use for the 30 days following the provisional redemption date, unless registration is no longer required. New London, CT 179 9 2 3 1 4 14.6 3 1 Stockton, CA 189 5 4 2 5 17.3 1 1 Muncie-Marion, IN 232 6 4 1 1 4 N/A N/A 3 New Bedford, MA 255 2 4 1 1 4 11.4 1 1 Augusta/Waterville, ME 263 7 5 2 2 4 14.9 2 2 Ithaca, NY 271 4 3 1 1 4 12.8 2 2 Other(5) N/A N/A N/A Upon any provisional redemption, we will make an additional "make whole" payment in cash or common stock or a combination thereof with respect to the notes called for redemption. The "make whole" amount per $1,000 principal amount of notes will equal $165 less any interest actually paid on the notes from the date of issuance through the redemption date. We will be obligated to make this additional "make whole" payment on all notes called for provisional redemption, including any notes converted after the redemption notice date and before the provisional redemption date. See "Description of Notes Provisional Redemption". Repurchase at the Option of the Holder Upon a Fundamental Change If a fundamental change (as defined in the "Description of Notes Repurchase at Option of Holder Upon a Fundamental Change") occurs, you will have the right, at your option, subject to the rights of holders of senior indebtedness, to require us to repurchase all or a portion of your notes at a purchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to the date of repurchase. Such repurchase payment may be made, at our election, in cash or common stock, or a combination thereof. Events of Default If there is an event of default on the notes, the principal amount of the notes plus accrued interest may be declared immediately due and payable. See "Description of Notes Events of Default". Use of Proceeds We will not receive any of the proceeds from the sale by any selling securityholder of the notes or the common stock issuable upon conversion of the notes. DTC Eligibility The notes were issued in book-entry form and are represented by permanent global certificates deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company, or DTC, in New York, New York. Beneficial interests in any such global notes are shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants and any such interest may not be exchanged for certificated securities, except in limited circumstances. See "Description of Notes Book-Entry Delivery and Form". Trading The notes are eligible for trading in PORTAL. Our common stock is traded on the New York Stock Exchange under the symbol "CDL". City Center West, Suite 400 7201 West Lake Mead Blvd. Las Vegas, Nevada 89128 (702) 804-5200 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Unless we specifically state otherwise, the information in this prospectus: excludes any shares of common stock issuable upon the conversion of the notes being offered in this offering; and excludes 7,983,625 shares of common stock issuable upon the exercise of stock options outstanding as of April 30, 2004, which had a weighted average exercise price of $10.30 per share. In addition, unless we specifically state otherwise, the number of shares of our common stock outstanding in this prospectus is based on the number of shares of our common stock outstanding as of December 31, 2003. On June 26, 2001, we acquired all of the outstanding common stock of Citadel Communications Corporation. In this prospectus, we refer to Citadel Communications, together with its wholly owned operating subsidiary Citadel Broadcasting Company, prior to June 26, 2001 as our predecessor company. Net loss (8,928 ) (39,224 ) (149,338 ) (53,635 ) (89,160 ) (89,570 ) Dividend requirement and premium paid on redemption of exchangeable preferred stock(6) 20,299 12,474 26,994 2 Net loss (8,928 ) (39,224 ) (149,338 ) (53,635 ) (89,160 ) (89,570 ) Dividend requirement and premium paid on redemption of exchangeable preferred stock(6) 20,299 12,474 26,994 2 Randy L. Taylor City Center West, Suite 400 7201 West Lake Mead Blvd. Las Vegas, Nevada 89128 (702) 804-5200 (Name, address, including zip code, and telephone number, including area code, of agent for service) (1)The pro forma adjustments for the initial public offering completed on August 6, 2003 reflect reduced interest expense after giving effect to (i) the repayment of approximately $448.0 million of senior debt outstanding under our credit facility using the net proceeds from our initial public offering, (ii) the decrease of our average interest rate on the remaining amounts outstanding under our credit facility to 2.75% during 2003 as a result of improved leverage ratios due to the repayment of a portion of our credit facility, and (iii) reduced amortization of deferred loan costs due to the repayment of a portion of our credit facility, as if these events had occurred on January 1, 2003. (2)The pro forma adjustments for the February 2004 notes offering and concurrent offering of 9.6 million shares of common stock reflect (i) reduced interest expense and reduced amortization of deferred financing costs due to the redemption of $500 million of our outstanding 6% subordinated debentures using the net proceeds from these offerings, and (ii) increased interest expense and increased amortization of deferred financing costs due to the issuance of $330 million Copy to: David C. Golay Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, New York 10004 (212) 859-8000 We discuss EBITDA and the limitations of this financial measure under "Management's Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measure" on page 32. EBITDA consists of income (loss) from continuing operations, which includes corporate non-cash deferred stock compensation, before income taxes and, if applicable, before discontinued operations, net of tax plus interest expense (net) and depreciation and amortization. This term is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States. (5)The ratio of earnings to fixed charges is calculated by dividing earnings by fixed charges. For this purpose, "earnings" means income (loss) before income tax (benefit) expense plus fixed charges. "Fixed charges" means total interest incurred on outstanding debt (whether capitalized or expensed), including amortization of deferred financing costs, plus an estimate of interest within rental expense and dividends required on outstanding preference securities. For the year ended December 31, 2003, earnings were insufficient to cover fixed charges by approximately $61.6 million. The pro forma ratio of earnings to fixed charges gives effect to the net decrease in interest expense resulting from the application of all of our net proceeds from the February 2004 notes offering and the concurrent common stock offering to redeem all of our outstanding 6% subordinated debentures, as if these events had occurred on January 1, 2003. The ratio has been computed using an interest rate of 1.875% for the notes. For the year ended December 31, 2003, earnings were insufficient to cover pro forma fixed charges by approximately $37.7 million. Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1)We adopted SFAS No. 142 on January 1, 2002. See Note 2 to the Consolidated Financial Statements. (2)In connection with our acquisition of Citadel Communications, our predecessor company incurred approximately $40.6 million in non-recurring merger-related charges during the period from January 1, 2001 through June 25, 2001. These charges primarily included $26.9 million paid to employees for the cancellation of stock options as provided for under the merger agreement, $9.8 million for a merger fairness opinion, $2.5 million for legal, accounting and other professional fees and $0.9 million for a legal settlement to its shareholders. (3)In connection with our acquisition of Citadel Communications and the related extinguishment of substantially all of its 101/4% Senior Subordinated Notes due 2007 and all of our predecessor company's 91/4% Senior Subordinated Notes due 2008, our predecessor company recorded a loss of approximately $39.1 million in the period from January 1, 2001 through June 25, 2001. In connection with the repayment of debt using the proceeds of the Company's initial public offering in August 2003 and the amendment of the Company's credit agreement in December 2003, the Company wrote off deferred financing costs of $9.3 million during the year ended December 31, 2003. (4)We recorded a non-cash deferred income tax benefit during the period from June 26, 2001 through December 31, 2001. This benefit represents the utilization of deferred tax liabilities recorded at the date of our acquisition of our predecessor company. For the year ended December 31, 2002, due to an increase in valuation allowance related primarily to our net operating loss carryforwards, the Property and equipment $ 3,977 Intangible assets 63,726 Other assets We discuss EBITDA and the limitations of this financial measure under "Management's Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measure" on page 32. EBITDA consists of income (loss) from continuing operations, which includes corporate non-cash deferred stock compensation, before income taxes and, if applicable, before discontinued operations, net of tax plus interest expense (net) and depreciation and amortization. This term is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States. (8)The ratio of earnings to fixed charges is calculated by dividing earnings by fixed charges. For this purpose, "earnings" means loss from continuing operations before income tax benefit and discontinued operations plus fixed charges. "Fixed charges" means total interest incurred on outstanding debt (whether capitalized or expensed), including amortization of deferred financing costs, plus an estimate of interest within rental expense and dividends required on outstanding preference securities. For the years ended December 31, 1999 and 2000, the periods from January 1 through June 25, 2001 and from June 26, 2001 through December 31, 2001, and the years ended December 31, 2002 and 2003, earnings were insufficient to cover fixed charges by approximately $6.3 million, $38.9 million, $152.2 million, $84.4 million, $103.4 million and $61.6 million, respectively. SUBJECT TO COMPLETION, DATED MAY 12, 2004 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. $330,000,000 1.875% Convertible Subordinated Notes due 2011 Common Stock
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+PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus, before deciding whether to buy our common stock. You should carefully consider, among other things, the matters
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+S-1/A Summary 1
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our consolidated financial statements and the related notes before making an investment decision. We use the words "we," "our" and "us" in this prospectus to refer both to Xyratex Ltd and Xyratex Group Limited, its subsidiaries and predecessors. Xyratex Ltd will become the new Bermuda parent company of our business immediately prior to the closing of the initial public offering of our common shares, pursuant to the prospectus attached as Annex A to this prospectus. Initial Public Offering of Our Common Shares/Scheme of Arrangement In connection with the initial public offering of our common shares, as described in Annex A, pg. 1, "Prospectus Summary," and to facilitate the listing of our common shares on the Nasdaq National Market, Xyratex Ltd, a Bermuda company, will become the parent company of our business. Xyratex Ltd will become the parent company of our business immediately prior to the closing of the initial public offering, at which time it will own the entire share capital of Xyratex Group Limited, the parent company of our business prior to the initial public offering. Xyratex Ltd was formed in April 2002, and prior to the initial public offering has had no operations. Xyratex Ltd will become our parent company by way of a scheme of arrangement under Section 425 of the Companies Act 1985 of the United Kingdom, pursuant to which the issued shares in Xyratex Group Limited will be cancelled in consideration of (i) the issue of common shares of Xyratex Ltd to the former shareholders of Xyratex Group Limited and (ii) the issue of new shares in Xyratex Group Limited to Xyratex Ltd. The scheme of arrangement will not become effective unless our board of directors believes that the closing of the initial public offering will occur shortly afterwards. The Option Substitution Offer Xyratex Group Limited Plan Xyratex Group Limited has a U.S. stock option plan, the Xyratex Group Limited 2000 Plan, pursuant to which options may be granted to purchase Xyratex Group Limited class A preferred ordinary shares. The Xyratex Group Limited 2000 Plan provides for the grant of incentive stock options and nonqualified stock options. As more fully described under "United States Federal Income Taxation", holders of incentive stock options will not have taxable income upon exercise and generally will have long-term capital gain or loss upon sale of the shares acquired if the shares are held for the requisite periods, while holders of nonqualified stock options will have ordinary income upon exercise measured by the option spread on the exercise date. Xyratex Ltd Plan Xyratex Ltd has a U.S. stock option plan, the Xyratex Ltd 2004 Plan, under which we will grant options to purchase Xyratex Ltd common shares. Under the Xyratex Ltd 2004 Plan, we may grant incentive stock options to our U.S. resident employees and nonqualified stock options to our U.S. resident employees, consultants and non-employee officers and directors. The Substitution Offer We are offering to grant new options to purchase Xyratex Ltd common shares under the Xyratex Ltd 2004 Plan in substitution for existing options to purchase Xyratex Group Limited class A preferred ordinary shares under the current Xyratex Group Limited 2000 Plan. The substitution of new options for existing options will take place upon effectiveness of the scheme of arrangement pursuant to which Xyratex Ltd will become our parent company and the issued shares of Xyratex Group Limited will be exchanged for common shares of Xyratex Ltd. The existing options will be cancelled when the substitution occurs. We are making the offer so that option holders will be able to acquire Xyratex Ltd common shares, which we expect to be quoted on the Nasdaq National Market, and for which we expect there will be a public trading market after the initial public offering of Xyratex Ltd common shares. If the scheme of arrangement does not become effective, new Xyratex Ltd options will not be granted in substitution for existing Xyratex Group Limited options and option holders will retain their existing options. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our consolidated financial statements and the related notes before making an investment decision. We use the words "we," "our" and "us" in this prospectus to refer both to Xyratex Ltd, which will become the new Bermuda parent company of our business immediately prior to the closing of this offering, and to Xyratex Group Limited, our parent company prior to the consummation of this offering, its subsidiaries and predecessors. Xyratex Ltd We are a leading provider of modular enterprise-class data storage subsystems and storage process technology. We design, develop and manufacture enabling technology that provides our customers with data storage products to support high-performance storage and data communication networks. We operate in two business segments: Storage and Network Systems and Storage Infrastructure. We sell our Storage and Network Systems products exclusively to original equipment manufacturers, or OEMs, and our Storage Infrastructure products directly to disk drive manufacturers. We form long-term, strategic relationships with our customers, which include Network Appliance, Seagate Technology and Western Digital. These three customers comprised our top three customers in our 2003 fiscal year and accounted for 78% of our revenue in that year. In our 2003 fiscal year our single largest customer accounted for 45% of our revenues. For a discussion of the percentage of revenues attributable to certain of our largest customers, please see "Risk Factors Sales to a small number of customers represent a substantial portion of our revenues" and "Business Customers". Our storage subsystems and test equipment products enable our customers to improve asset utilization, reduce capital costs and better focus on their value-added objectives. We have manufacturing, research and development and sales operations in the United States, Asia and Europe. We operate in an industry that seeks to address the growing need to store data. The last decade has seen a dramatic increase in the volume of data that is being captured, processed, stored and manipulated as digital information. This information is generated from many sources, including critical business applications, e-mail communications, the Internet and multimedia applications, which have collectively fueled an increase in demand for data storage capacity. In addition, businesses increasingly face the challenge of managing the accessibility, prioritization and protection of data in a cost-efficient manner. There has also been a trend toward more scalable networked solutions which provide greater access to shared information and greater efficiencies in managing data. A proliferation of technologies has emerged to address the complex requirements of network storage. These changes have led to an increase in technology outsourcing by leading OEMs. This enables them to provide a broad range of network storage solutions while maintaining a focus on their core technologies. We design, develop and manufacture products that enable our customers to address this growth in data storage demand and proliferation of technologies. Our strategy has been to create a range of modular subsystems and process technologies that integrate directly with our customers' product offerings so that together we can address the diversity of end-user requirements. Our Network and Storage Systems products address the challenge of managing the increasing complexity of both data and network technologies to ensure that data can be made available and shared across organizations in a reliable and scalable fashion. Our Storage Infrastructure products provide disk drive manufacturers cost efficiencies and time-to-market advantages, and also enable them to prioritize their internal resources in order to achieve their strategic objectives. We believe we derive significant advantages from the technology synergies and requirements across our Storage and Network Systems and Storage Infrastructure business segments. Both segments require the integration of many types of high-speed disk drive technologies into a range of high-density, high-availability, scalable solutions. Each new Xyratex Ltd option will entitle the option holder to purchase a number of our common shares equal to the number of Xyratex Group Limited class A preferred ordinary shares subject to the existing Xyratex Group Limited option that it replaces multiplied by 1.036378, less any fractional share. No consideration will be paid in lieu of the right to purchase any fractional share. Each new option will have an exercise price per share, denominated in the same currency as the exercise price for the existing option that it replaces (either U.K. pounds sterling or U.S. dollars), equal to the exercise price per share for the existing option that it replaces divided by 1.036378 and rounded to the next higher whole penny or cent. Each new option will have the same vesting schedule and expiration date as the existing option that it replaces. Except for certain unvested options granted after April 1, 2004, all outstanding options under the current U.S. option plan are now exercisable in full. Each new option will have the same designation (as an incentive stock option or as a nonqualified stock option) as the existing option that it replaces. The other terms of each new option will be substantially similar to those of the existing option that it replaces. The tax consequences to the option holders of the exercise of the new options should be the same as for the existing options. To accept the option substitution offer, option holders will be required to sign the form of option substitution agreement delivered with this prospectus. The option substitution agreements provide: for the substitution of new options for existing options and the cancellation of the existing options; that the option holder agrees not to sell or otherwise dispose of any Xyratex Ltd common shares acquired either on the exercise of new options or in exchange for Xyratex Group Limited class A preferred ordinary shares acquired on the exercise of existing options until 180 days after the initial public offering without the consent of the representative of the underwriters; that the option holder appoints each of Steve Barber and Richard Pearce (executive officers of Xyratex Group Limited) as the option holder's attorney-in-fact to take various actions in connection with the substitution of options, including signing the new option agreement on the option holder's behalf; that the option holder will not exercise the option during the period beginning on May 17, 2004 and ending at the time that the scheme of arrangement becomes effective; and that as soon as practicable after the registration statement filed with the Securities and Exchange Commission to register the new options becomes effective, Xyratex Ltd will deliver to the option holder a final prospectus and a confirmation stating that the new option will be substituted for the existing option at the time that the scheme of arrangement becomes effective. Except for certain unvested options granted after April 1, 2004, an option holder may exercise all or any portion of his or her option at any time before May 17, 2004. At the time the scheme of arrangement becomes effective, all Xyratex Group Limited class A preferred ordinary shares acquired by an option holder on the prior exercise of options or otherwise will be exchanged for Xyratex Ltd common shares on a basis of 1.036378 Xyratex Ltd common shares for each Xyratex Group Limited class A preferred ordinary share, less any fractional share. The Xyratex Ltd common shares will be freely tradable under U.S. securities laws and regulations, but will be subject to the agreement not to sell for 180 days after the date of the initial public offering without the consent of the representative of the underwriters if the option holder has signed an option substitution agreement. Option holders who do not sign option substitution agreements will not receive new options to purchase Xyratex Ltd common shares and will retain their existing options. If an option holder who has not signed the option substitution agreement exercises the option after the date on which Xyratex Ltd becomes our parent company, Xyratex Group Limited will issue the number of its shares for which the option is exercised. Under the terms of Xyratex Group Limited's Articles of Association as will then be in effect, however, Xyratex Group Limited will immediately deliver those shares to Xyratex Ltd and Xyratex Ltd will deliver to the option holder a number of Xyratex Ltd common shares equal to the number of Xyratex Group Limited shares delivered to Xyratex Ltd multiplied by 1.036378, less any fractional share. The Xyratex Ltd common shares will, however, be restricted securities under U.S. securities laws and regulations, and the option holder will not be able to sell the common shares until he or she has held them for at least one year and satisfied other requirements. Storage and Network Systems Our Storage and Network Systems products provide modular, highly scalable, high-speed, high-density, reliable and flexible data storage. Our storage subsystems support a range of high-speed communication technologies and cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the network storage market by enabling different specifications of storage subsystem designs to be created from a standard set of interlocking technology modules. The specific configuration of the embedded technology modules within any storage subsystem can be tailored to meet cost, performance, network connection interface, data protection and system availability requirements. Our configuration options include: a range of storage controller devices to protect and manage data; a range of connection options to attach to various high-speed networks; fail-safe internal power systems; and embedded switching technology to improve overall system reliability and performance. Our storage subsystems are internally managed by a range of software modules and features. This software can monitor the internal performance of the subsystem, create high-availability internal environments, communicate independently with remote service and support organizations and integrate seamlessly with our customer's controlling software and management technology through industry standard interfaces. Storage Infrastructure Our Storage Infrastructure products enable our customers to test and produce highly reliable disk drives with greater efficiency and at a lower cost. These products include disk drive production test systems, process automation and servo track writers. Our modular design approach enables us to provide a broad range of process equipment to a wide variety of segments of the disk drive market, including the enterprise storage system, laptop and desk top personal computer, and the emerging consumer electronics segments. Our product options provide solutions supporting a range of disk drive physical sizes and shapes; high-speed disk drive interface connections; and high-density disk drive production process requirements. These options can be integrated with fully automated control and handling systems. Our Competitive Strengths We believe that the following attributes of our business position us to take advantage of market opportunities: Leadership in High-Growth Market Segments: We are an established leader in key segments of the external storage and networking markets. We are the leading subsystem provider to OEMs in the Network Attached Storage systems segment. We are also the leading independent supplier of disk drive production test and servo track writing process equipment to the disk drive industry. We are well positioned to become a leader in providing technology to OEMs in the Near Line Storage segment. We have also established a significant market share as a provider to OEMs who operate in the low- to mid-range Fibre Channel Storage Area Network segment. Excellence in Technology Innovation: We are a leader in high-specification design of high-density, scalable, storage subsystems and automated process test equipment. We are also a leader in the development and integration of network communication protocols and switching technologies. Our history of innovation and first-mover positioning has contributed to our success in winning large OEM contracts and developing long-term customer relationships. Strategic Relationships with Technology Leaders: We have established long-term strategic relationships with many of our customers, including our three largest customers: Network Appliance, Seagate Technology and Western Digital. They rely on us to deliver high-quality products, which they often integrate into their branded product offerings or processes. Our (US dollars) Total shareholders' equity $ Total capitalization $ (in thousands) Years Ending December 31, 2004 $ 100 $ 204 2005 146 6 2006 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001175359_american_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001175359_american_prospectus_summary.txt
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+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001175361_hadley_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001175361_hadley_prospectus_summary.txt
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@@ -0,0 +1 @@
+S-1/A Summary 1
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+S-1/A Summary 1
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+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001175367_ocean_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001175367_ocean_prospectus_summary.txt
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001175371_katie-ann_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001175371_katie-ann_prospectus_summary.txt
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001177257_h-e_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001177257_h-e_prospectus_summary.txt
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+Prospectus Summary 1
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001177259_gne_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001177259_gne_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001177260_great_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001177260_great_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001177317_noveon_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001177317_noveon_prospectus_summary.txt
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+PROSPECTUS SUMMARY In this prospectus, "Noveon International, Inc.," "Noveon International," "Noveon," the "Company," "we," "us" or "our" refer to Noveon International, Inc. (formerly known as Noveon Holdings, Inc.) and its subsidiaries, except where the context makes clear that the reference is only to Noveon International, Inc. itself and not its subsidiaries. Any references to the "Company," "we," "us" or "our" as of a date prior to February 28, 2001, the date of the completion of our acquisition of the Performance Materials Segment from the Goodrich Corporation (formerly known as The B.F.Goodrich Company), are to the Performance Materials Segment of the Goodrich Corporation, the predecessor to Noveon, Inc. Any references to "Goodrich" are to the Goodrich Corporation. Any references to "Noveon, Inc." are to Noveon, Inc., our wholly owned operating subsidiary. Unless otherwise indicated, the information in this prospectus does not give effect to a -for-one stock split of our common stock, which will occur immediately prior to the completion of this offering. Our Business We are a leading global producer and marketer of technologically advanced specialty materials and chemicals used in a broad range of consumer and industrial applications. We have a number of high growth, industry-leading product franchises marketed under some of the industry's most recognized brand names including Carbopol , TempRite , Estane and Hycar . These global brands are complemented by a diverse portfolio of historically stable, cash-generating businesses. We have a significant presence in many niche product categories, where customers value our long-standing ability to provide need-specific formulations and solutions. Our products and services enhance the value of customers' end-products by improving performance, providing essential product attributes, lowering cost, simplifying processing or making them more environmentally friendly. Through our worldwide network of 29 strategically located manufacturing facilities, we serve more than 7,000 customers operating in over 25 industries. In 2003, we generated sales of $1,135.9 million, a net loss of $7.9 million, net cash provided by operating activities of $118.0 million and Adjusted EBITDA of $201.3 million. We derived approximately 59% of our sales from the United States, 21% of our sales from Europe and 20% of our sales from the rest of the world in 2003. Our margins, combined with our strong cash flow from operations, ongoing capital efficiency efforts and available cash, provide us with significant flexibility to capitalize on future growth opportunities. Consistent with our focus on industries and end-use applications, we have organized our business into three segments: Consumer Specialties, Specialty Materials and Performance Coatings. Consumer Specialties is a global producer of specialty chemicals targeting the personal care, pharmaceutical and food and beverage industries. Key products in this segment include Carbopol acrylic thickeners, film formers, fixatives, emollients, silicones, botanicals, active pharmaceutical ingredients and intermediates, benzoate preservatives, fragrances, synthetic food dyes and natural colorants. Primary end-uses in the personal care industry for Carbopol acrylic thickeners include hair care, skin care and personal and oral hygiene products. In 2003, Consumer Specialties generated sales of $328.7 million, segment operating income of $47.0 million and Segment EBITDA of $73.1 million. Specialty Materials is the largest global supplier of chlorinated polyvinyl chloride (CPVC) resins and compounds and reactive liquid polymers (RLP), sold under the respective trademarks TempRite and Hycar . Specialty Materials is also a leading producer of thermoplastic polyurethane (TPU) sold under the trademark Estane . With respect to the markets in which we compete, Specialty Materials is a leading producer of cross-linked polyethylene compounds (PEX) sold under the trademark TempRite . Applications for TempRite resins and compounds include piping for residential and commercial plumbing and fire sprinkler systems. Applications for Estane TPU include plastic film and sheet for various coatings processes. Applications for Hycar RLP include engineering adhesives. Specialty Materials is also a leading North American producer of rubber and lubricant antioxidants and rubber accelerators. In 2003, Specialty Materials generated sales of $428.6 million, segment operating income of $75.8 million and Segment EBITDA of $110.6 million. Performance Coatings is a leading global producer of high-performance polymers for specialty paper, printing and packaging, industrial and architectural specialty coatings and textile applications. Approximately 70% of Performance Coatings' sales are generated from our water-based acrylic polymers and compounds and polyurethane dispersions. We believe that we offer customized solutions to meet the specific needs of our customers sold under the trademarks Hycar , Sancure , Algan , Performax and Myflam . In 2003, Performance Coatings generated sales of $378.6 million, segment operating income of $43.3 million and Segment EBITDA of $63.4 million. Our Competitive Strengths Leading Product Franchises. Approximately 65% of our 2003 EBITDA was generated by products that hold #1 or #2 global positions, including Carbopol acrylic thickener, TempRite CPVC, Estane TPU and Hycar acrylic emulsions. We have a proprietary technology position in each of these products within their respective industries, which contributed to above average industry growth rates. Carbopol acrylic thickener volume for personal care and pharmaceuticals, measured in pounds sold, grew at a compound annual rate of approximately 8.5% per year between 1993 and 2003, while we estimate that the personal care industry grew at 3.5% during the same period. Between 1993 and 2003, volume, measured in pounds used, of our TempRite resins and compounds grew at a compound annual rate of approximately 8.4% per year, 1.9 times the growth rate of U.S. residential construction during the same period. Commitment to Innovation. We believe that innovation and new product development is critical to meeting our customers' needs and to fuel future growth. Our history of technological innovation includes the invention of Carbopol acrylic thickener and the commercial development of TempRite CPVC. Carbopol acrylic thickener is the global leader in synthetic thickeners due to its efficient stabilizing properties and superior thickening capabilities. TempRite CPVC is the industry standard for CPVC piping, which is a higher performance, lower cost alternative to copper and steel in household plumbing, fire sprinklers and other industrial applications. Our commitment to innovation is demonstrated by recent increases in research and development employment and spending. We have increased our research and development and technical service staff by 21%, or 64 positions, and spending has increased 21%, or $7.7 million, since 2001. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Customized Value-Added Products. We have developed many of our products in cooperation with our customers, often as a result of their specific needs, resulting in long-standing, loyal customer relationships. Our products generally represent a small percentage of our customers' production costs but are critical to end-product performance. In addition, many of our products are specified in our customers' formulations, resulting in significant barriers to changing suppliers. Specific examples include carbomer thickeners in personal care and pharmaceutical applications and FDA-approved polymers used in food packaging applications. Strong Cash Flow. We generate strong cash flow from operations after capital expenditures. Since our inception in March 2001, we have generated $278.2 million in cash flow from operations after capital expenditures. Our ability to generate strong and stable cash flows is principally attributable to the diversity of our product lines, industry-leading margins, rigorous management of working capital and relatively low capital expenditures. Our strong cash flow will enable us to invest in targeted growth strategies and continue to reduce indebtedness thereby enhancing our ability to grow earnings. Relentless Focus on Productivity Improvement. Our operating culture is based on continuing productivity improvement, maximizing operating efficiency and optimizing the use of capital resources across all production lines. Since we began operation as a stand-alone company in 2001, we have successfully implemented cost-saving initiatives that reduced our fixed manufacturing overhead by over $20 million, delayered our organization, reduced working capital, refocused our capital spending and introduced our Six Sigma productivity initiative. Proven Management Team with Significant Equity Interest. We have a highly motivated senior management team with an average of approximately 20 years of experience in the specialty chemicals industry. Our senior management has instilled an entrepreneurial culture throughout our organization, successfully implemented leading productivity practices, reinvigorated our new product development efforts, and positioned us for strong future earnings growth and cash flow generation. As of February 29, 2004, our management and employees held outstanding shares and granted options representing approximately 9.3% of our equity. Our Growth Strategy Enter New Applications and End-Uses. We intend to build on our core product franchises and technology to expand our product offerings by modifying existing formulations to meet new end-use applications. For example, we pioneered the development of hand sanitizing gels by using the thickening and stabilizing properties of Carbopol acrylic thickener to combine water and alcohol, and we broadened the use of Carbopol acrylic thickeners into applications such as oven cleaners and alkaline batteries. We have also expanded our BlazeMaster fire sprinkler opportunities by obtaining amendments to building codes, allowing us to participate in a broader spectrum of fire sprinkler applications, including dormitories and single and multi-family homes. Expand Global Reach. We expect to continue to serve our existing multinational customers globally as they penetrate emerging regions and to target other customers in such regions. Our approach is to strategically add sales, marketing and research and development related personnel in selected regions and to follow with further infrastructure expansion as the markets for our customers' products develop. For example, in 2003 we acquired a controlling interest in a Thailand-based manufacturer of formulated botanical extracts used in personal care applications. This acquisition provides us with access to products that we plan to sell throughout our global distribution system. In addition, we began producing textile coating compounds and started construction of a TPU plant in China to service regional demand. Extend Product Breadth. We expect to continue to expand our product offerings through both internal research and development and the acquisition of new formulations and products. For example, AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 in 2003, we developed and introduced Fixate , a fixative used in hair care styling resins, allowing us to broaden our hair care application base. In addition, we acquired aliphatic TPU technologies and assets that allow us to enter high-value optical film and medical tubing applications. In 2004, we purchased Scher Chemicals, Inc., a manufacturer of emollients used in skin care, one of the largest and fastest growing applications in the personal care industry. Continue Productivity Improvements. We expect to continue our successful cost-saving initiatives by pursuing operational efficiencies, optimizing available technologies, maintaining a lean organizational structure, reducing fixed costs, rationalizing capacity and efficiently managing capital spending. In 2002, we launched a Six Sigma initiative, which has been designed to further enhance our understanding of our customers' needs, our process capabilities and the total cost of maintaining quality. We have 21 employees trained as Six Sigma black belts throughout our Company. We are targeting an increase of 10 black belts per year. We believe this initiative is a natural extension of our productivity efforts and allows us to focus our activities on those areas expected to provide us with the highest customer impact and organizational productivity. Actively Manage Business Portfolio. We plan to accelerate profitable growth through selected acquisitions of assets and technology that focus on high value niche applications and complement our current product offerings and capabilities. We have made 11 targeted strategic acquisitions since our inception. At the same time, we will consider selective divestitures to optimize our product portfolio and to strengthen our financial flexibility. Other Information We commenced operations on March 1, 2001 through the acquisition on February 28, 2001 of the Performance Materials Segment of Goodrich. The total purchase price was $1,386.5 million before fees and expenses. The textile dyes and drug delivery system businesses that were operated as part of the Performance Materials Segment of Goodrich were not part of the acquisition. PMD Investors I LLC and PMD Investors II LLC, collectively referred to in this prospectus as PMD, are entities owned by investor groups led by AEA Investors LLC, the successor company of AEA Investors Inc., referred to in this prospectus as AEA. DLJ Merchant Banking Partners III, LP and affiliated funds are affiliates of Credit Suisse First Boston LLC. DLJ Merchant Banking Partners III, LP and its affiliated funds that hold shares of our common stock are collectively referred to as DLJ Merchant Banking in this prospectus. MidOcean Capital/PMD Investors, LLC is referred to as MidOcean in this prospectus. We have no independent operations or investments other than our investment in Noveon, Inc. We and Noveon, Inc. were capitalized as follows: PMD, DLJ Merchant Banking and MidOcean contributed $355.0 million of cash as equity to us, which we in turn contributed to Noveon, Inc. Of this amount, PMD contributed $155.0 million, DLJ Merchant Banking contributed $150.0 million and MidOcean contributed $50.0 million. The price paid per share of our common stock by PMD, DLJ Merchant Banking and MidOcean, after giving effect to a -for-one stock split of our common stock, that will occur immediately prior to the completion of this offering, was $ ; We issued a $172.0 million seller note to Goodrich, which was subsequently sold by Goodrich in March 2003 to various holders in a private placement; and Noveon, Inc. issued $275.0 million of senior subordinated notes and borrowed $635.0 million under senior credit facilities. The credit facilities are secured by substantially all of our assets, substantially all of the assets of Noveon, Inc. and its domestic subsidiaries, 100% of the capital stock of its direct and indirect restricted domestic subsidiaries and 65% of the capital stock of its first tier foreign subsidiaries. In addition, the credit facilities are guaranteed by us and each of the direct and indirect material domestic subsidiaries of Noveon, Inc. Our principal executive offices are located at 9911 Brecksville Road, Cleveland, Ohio 44141 and our telephone number is 216-447-5000. Our website is located at www.noveoninc.com. Information contained on our website does not constitute a part of this prospectus. THE OFFERING Common stock offered: By us shares ( shares if the underwriters' over-allotment option is fully exercised). By the selling stockholders shares ( shares if the underwriters' over-allotment option is fully exercised). Total shares ( shares if the underwriters' over-allotment option is fully exercised). Common stock outstanding after the offering shares. Use of proceeds We estimate that our net proceeds from the sale of the shares offered by us, after deducting estimated expenses and underwriting discounts and commissions of $ million, will be approximately $ million (approximately $ million if the underwriters' over-allotment option is fully exercised). We intend to use substantially all of the net proceeds from this offering and the proposed concurrent senior notes offering to repay approximately $ million of our debt obligations outstanding under the seller note, including call premiums and accrued interest, to repay a portion of our term loans and to make total payments of $ million in connection with the management and advisory services agreements, which are being terminated. We will not receive any proceeds from the sale of shares by the selling stockholders. See "Use of Proceeds." Proposed NYSE symbol "NOV."
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001178056_palmsource_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001178056_palmsource_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our financial statements and notes to those statements appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the Risk Factors section beginning on page 5. PalmSource, Inc. We are a leading developer and licensor of platform software that enables mobile information devices. Our software platform consists of operating system software, or Palm OS, and software development tools. We have also enhanced our platform with applications such as personal information management software, web browsers and e-mail. A wide range of smart mobile devices incorporate our solutions, including personal digital assistants, or PDAs; smartphones; location-aware devices; entertainment devices; and industry-specific devices used in industries such as education, hospitality and healthcare. We license Palm OS to leading smart mobile information device manufacturers, including Founder Technology, Garmin, GSPDA, Kyocera, Lenovo (formerly known as Legend), palmOne, Samsung and Sony. Products using Palm OS, or Palm Powered products, have held the number one PDA market share position in each of the past six annual reports prepared by IDC, as measured in units sold. Our primary product offering, Palm OS, provides a flexible platform that enables the creation of powerful, innovative and easy-to-use smart mobile devices. Historically, the majority of our licensees have developed PDAs and Palm OS has attracted a large and loyal following, with approximately 30 million Palm Powered products sold to date. We have begun to license Palm OS to smartphone manufacturers and intend to continue to build on our leadership position and experience in PDAs to become a leading licensor of platform software for smartphones and other next generation smart mobile products. There are approximately 300,000 third parties who have registered as developers to use Palm OS developer tools to create software applications for our platform. According to PalmGear.com, a leading online provider of handheld applications with whom we have a strategic relationship, there are currently more than 20,000 applications available for Palm Powered products. To promote our software platform, we provide professional services and support for our licensees and developers. According to an IDC report dated December 2003, annual worldwide shipments of pen-based handheld devices are projected to increase from approximately 10.2 million units in 2003 to an estimated 11.9 million units in 2007. In addition, professionals and individual consumers increasingly need to communicate while mobile, as evidenced by the rapid adoption of mobile phones and PDAs throughout the world. In an effort to reduce the number of devices that they need to carry to stay connected to critical information, users have begun to adopt a new class of smart mobile devices that provide the combined functionality of mobile phones and traditional PDAs. According to the December 2003 IDC report, annual worldwide shipments of smartphones, which IDC refers to as converged handheld devices, are projected to increase from approximately 8.6 million units in 2003 to an estimated 72.4 million units in 2007, and Palm OS is projected to power 9.0% of these devices by 2007. Mobile information device manufacturers face the significant challenge of developing devices to appeal to a variety of customers with diverse needs, preferences and budgets. We Total liabilities 3,883 2,747 Commitments and Contingencies (Note 4) Stockholders Equity: Preferred stock, $.001 par value, 2,000,000 shares authorized; none outstanding Common stock, $.001 par value, 78,000,000 shares authorized; outstanding: December 31, 1999, 34,692,415 shares; December 31, 2000, 36,202,899 shares 35 36 Additional paid-in capital 106,322 108,880 Deferred stock compensation (4,690 ) (1,218 ) Accumulated deficit (73,223 ) (94,375 ) Accumulated other comprehensive income (loss) (17 ) Balance, December 31, 2000 36,202,899 $ 36 $ 108,880 $ (1,218 ) $ (94,375 ) $ Total liabilities 2,747 1,472 Commitments and Contingencies (Note 6) Stockholders Equity: Common stock, $.001 par value, 78,000,000 shares authorized; outstanding: December 31, 2000, 36,202,899 shares; September 30, 2001, 36,792,563 shares 36 37 Additional paid-in capital 108,880 108,344 Deferred stock compensation (1,218 ) (280 ) Accumulated deficit (94,375 ) (106,552 ) Accumulated other comprehensive income Unrealized gain on marketable securities $ $ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents believe that to attract new customers and generate new upgrade sales, manufacturers will need to meet user demands by incorporating new innovations into mobile information devices. Palm OS is designed to enable mobile information device manufacturers to rapidly and efficiently create devices that meet diverse customer needs. Our objective is to be a leading licensor of platform software for smartphones and other next generation smart mobile products. The key elements of our strategy to achieve this objective include: extending our success in PDAs to smartphones and other next generation smart mobile products; increasing penetration of Palm Powered products in the enterprise; expanding internationally; pursuing additional opportunities in vertical industries; continuing to extend our technological advantages; and continuing to grow and support our developer community. Company Information We were incorporated on December 3, 2001 as a wholly-owned subsidiary of Palm, Inc., or Palm, an event that we refer to in this prospectus as the separation and the date of which we refer to as the separation date. The purpose of the separation was to establish PalmSource as an independent company to conduct substantially all of Palm s operating system software group business. In October 2003, Palm distributed to its stockholders on a pro-rata basis all of the outstanding shares of our common stock owned by Palm, an event that we refer to in this prospectus as the distribution. For further discussion of our separation from Palm and the distribution, see the section entitled The Separation and Distribution. At the same time as the distribution, Palm acquired Handspring, Inc., an event that we refer to in this prospectus as the Handspring merger, and the combined entity changed its name to palmOne, Inc. In this prospectus, we refer to palmOne, Inc. as palmOne or Palm interchangeably, depending upon the time and context of the event described. References in this prospectus to PalmSource, we, our and us refer to PalmSource, Inc. and not to the underwriters, Palm or palmOne. Our principal executive offices are located at 1240 Crossman Avenue, Sunnyvale, California 94089-1116 and our telephone number is (408) 400-3000. Our website can be found at www.palmsource.com. Information contained in our website is not a prospectus and does not constitute a part of this prospectus. AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents Recent Developments Results for the Third Quarter and Nine Months Ended February 27, 2004 Our revenues for the third quarter ended February 27, 2004 were $21.6 million, as compared to revenues of $26.3 million for the same quarter of the prior fiscal year. Revenues for the nine months ended February 27, 2004 were $55.5 million, compared to revenues of $56.1 million for the same period of the prior fiscal year. Our net income for the third quarter of fiscal year 2004 was $0.6 million, or $0.05 per share on a fully-diluted basis. Net income for the same quarter of the prior fiscal year was $0.7 million, or $0.07 per share on a fully-diluted basis. Our net loss for the nine months ended February 27, 2004 was $12.3 million, or $1.20 per share on a fully-diluted basis, as compared to a net loss of $18.3 million, or $1.83 per share on a fully diluted basis, for the same period of the prior fiscal year. At February 27, 2004, cash, cash equivalents and restricted investments were $33.3 million. Cash utilized for operating activities during the third quarter was $2.2 million. On a non-GAAP basis that excludes the effect of stock-based compensation, amortization of intangible assets, restructuring, and/or separation (related to our spin-off from palmOne), our net income for the third quarter of fiscal year 2004 was $3.6 million. This compares to a non-GAAP net income for the same quarter of the prior fiscal year of $4.4 million. Our non-GAAP net income for the nine months ended February 27, 2004 was $1.7 million, as compared to a non-GAAP net loss of $11.1 million for the same period of the prior fiscal year. Non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Our management refers to these non-GAAP financial measures such as non-GAAP net income and net loss in making operating decisions because they provide meaningful supplemental information regarding our operational performance, including our ability to provide cash flows to invest in research and development and fund acquisitions and capital expenditures. In addition, these non-GAAP financial measures facilitate management s internal comparisons to our historical operating results and comparisons to competitors operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency to supplemental information used by management in its financial and operational decision-making. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this section of the prospectus to their most directly comparable GAAP financial measure as provided with the financial statements in this section. Current: Federal $ $ $ State 6 104 Foreign 9 PALMSOURCE, INC. (Exact name of registrant as specified in its charter) Table of Contents Third Quarter Highlights During the third quarter we introduced Palm OS Cobalt, a new enhanced version of the Palm operating system designed to enable the creation of innovative smartphones and new categories of devices for the communications, enterprise, education and entertainment markets. We also announced Palm OS Garnet, the latest version of Palm OS 5, designed to accelerate the development of Palm Powered handhelds and smartphones. Additionally, in the third quarter, we: Announced that we and Research In Motion Limited, or RIM, have entered into a joint software development agreement to create a BlackBerry connectivity solution for Palm OS licensees and anticipate negotiating a technology distribution agreement for the BlackBerry connectivity solution on Palm OS at a later date. Reaffirmed the business relationship with AlphaSmart, Inc. by extension of the term of the license agreement by an additional two and one half years, acceleration of the receipt of revenues into the third quarter of fiscal 2004 and subsequent quarters and revisions of other key business terms. Together with GSPDA, a subsidiary of Group Sense (International) Limited, announced the G88 GSM smartphone. The G88 is a full-featured smartphone that combines telephony features with the traditional Palm OS personal information management functionality. Launched Palm Powered Mobile World in Europe, connecting mobile operators, infrastructure providers and software developers to bring Palm OS solutions to market, and announced collaborations with Orange S.A. and Telph nica M viles Espa a S.A.U. to accelerate availability and extend the reach of Palm Powered smartphones. Announced plans to partner with NVIDIA Corporation to enhance the graphics acceleration in Palm Powered smart mobile devices running Palm OS Cobalt and Palm OS Garnet. NVIDIA joins existing Palm OS Ready partners including Intel Corporation, ATI Technologies, Inc., Motorola, Inc., Samsung Semiconductor and Texas Instruments. Expanded Java support for Palm OS through the licensing for distribution to our customers of IBM s WebSphere MicroEnvironment (WME) Java 2 Micro Edition (J2ME) certified runtime environment and WebSphere Studio Device Developer (WSDD) toolset. Delaware 7372 77-0586278 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 1240 Crossman Avenue Sunnyvale, California 94089-1116 (408) 400-3000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Business Outlook Our management s current outlook for the fourth quarter is as follows: Revenues are expected to be in the range of $17 million, plus or minus 5%. Financial results on a GAAP basis are expected to be in the range of a net loss of $4 million to $7 million; and on a non-GAAP basis, are expected to be in the range of a net loss of $1 million to $3 million. The difference between our financial results on a GAAP basis and a non-GAAP basis is expected to be primarily the result of charges for stock-based compensation and restructuring costs that may be incurred. Cash flow used by operating activities is expected to be in the range of $4 million to $6 million. Our estimates of operating results are based on estimates and assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future circumstances. These estimates and assumptions include forecasts of shipments for PDAs by our licensees, actual historical sales by our licensees, seasonality of sales by our licensees, the timing and success of introduction of new products by our licensees, revenue generation from consummation of transactions with prospective or existing licensees, market trends impacting sales of PDAs and other smart mobile devices, our licensees meeting their obligations to us, our ability to control and successfully manage our expenses and assumptions regarding the growth of our industries and markets. These estimates and assumptions are inherently subject to significant business, economic and competitive uncertainties, many of which, with respect to future events, are subject to change. These uncertainties and contingencies can affect actual results of operations and could cause actual results of operations to differ materially from those provided in our guidance. Table of Contents BE INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 4. Commitments and Contingencies Lease Commitments The Company leases its facilities under non-cancelable operating leases expiring at various dates through January, 2003. Future annual minimum lease payments as of December 31, 2000 are as follows (in thousands): 2001 $ 1,299 2002 270 2003 David C. Nagel Chief Executive Officer PalmSource, Inc. 1240 Crossman Avenue Sunnyvale, California 94089-1116 (408) 400-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Lawrence B. Rabkin, Esq. Deborah A. Marshall, Esq. Maurine M. Murtagh, Esq. Howard Rice Nemerovski Canady Falk & Rabkin, A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 (415) 434-1600 David A. Krinsky, Esq. Timothy R. Curry, Esq. Andrew R. Hull, Esq. O Melveny & Myers LLP 2765 Sand Hill Road Menlo Park, California 94025 (650) 473-2600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents Option Exchange Program Our board of directors recently authorized a program whereby eligible employees will have the opportunity to exchange certain of their outstanding, unexercised options to purchase our common stock for new options. Participation by employees is completely voluntary. Members of our board of directors and our executive officers will not be permitted to participate in this offer. The option exchange offer will be made to all eligible employees for all vested and unvested options with exercise prices equal to or greater than $30.00 per share and that were granted on or after November 7, 2003. If tendered for exchange, new options will be granted on a one-for-one basis no sooner than six months and one day after the date of cancellation of the old options, at an exercise price equal to the closing price per share of our common stock on the new option grant date as reported on the Nasdaq National Market during regular trading hours. Each new option granted with respect to an exchanged option will vest as to one-third (1/3) of the shares covered by such new option six (6) months after the new option grant date and the remaining shares covered by such new option will vest with respect to one-third (1/3) of the shares covered by such new option twelve (12) months after the new option grant date and with respect to one-third (1/3) of the shares covered by such new option eighteen (18) months after the new option grant date. We expect to file with the Securities and Exchange Commission, on or about April 1, 2004, a Tender Offer Statement on Schedule TO that will provide additional information concerning the exchange program, including the detailed terms and conditions thereof. We have not commenced the option exchange offer and holders of our options are strongly advised to read the Schedule TO and other documents to be filed with the Securities and Exchange Commission in connection with the option exchange offer when they become available, because they will contain important information. Holders of our options may obtain copies of these documents for free, when available, at the Securities and Exchange Commission website located at www.sec.gov or from our Human Resources Department, Attention: Ken Boehm, Telephone Number: (408) 400-3000, facsimile number: (408) 400-1940, e-mail: stock@palmsource.com. Trademarks Graffiti and HotSync are registered trademarks of PalmSource. Palm, Palm OS and PalmSource are registered trademarks of, and Palm Powered is a trademark of, Palm Trademark Holding Company, LLC. Each trademark, trade name or service mark of any other company appearing in the prospectus belongs to its holder. If the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents The Offering Common stock offered by PalmSource 2,750,000 shares Common stock to be outstanding after the offering 14,380,203 shares Use of proceeds We anticipate using the net proceeds from this offering for working capital, capital expenditures and other general corporate purposes. We may also use a portion of the net proceeds to repay our outstanding debt to Texas Instruments Incorporated or to fund possible investments in, or acquisitions of, complementary businesses, products or technologies. See the section titled Use of Proceeds. Nasdaq National Market symbol PSRC The number of shares of our common stock outstanding after this offering is based on shares outstanding as of November 30, 2003 and assumes no exercise of the underwriters over-allotment option. This number does not include as of November 30, 2003: 1,762,630 shares of common stock issuable on exercise of outstanding stock options, at a weighted average exercise price of $36.33 per share; 1,336,127 additional shares of common stock reserved and available for future issuance under our employee stock option and purchase plans; 125,481 shares of common stock reserved and available for future issuance upon conversion of our convertible note held by Texas Instruments at a conversion price of $119.54 per share; and shares of common stock issued subsequent to November 30, 2003. Unless otherwise indicated, all information in this prospectus assumes that the underwriters do not exercise the over-allotment option granted to purchase additional shares in this offering. In addition, unless otherwise indicated, shares outstanding and all per share numbers have been adjusted to reflect the one-for-five reverse stock split effected on September 22, 2003. Total current 9 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine. Consolidated Balance Sheet Data: (in thousands) Cash and cash equivalents $ 34,065 $ 86,102 Working capital 17,131 69,168 Total assets 102,385 154,422 Long-term convertible subordinated note 15,000 15,000 Total stockholders equity 48,135 100,172 The balance sheet data as of November 30, 2003 are set forth: on an actual basis; and on an as adjusted basis to reflect the estimated proceeds from the sale of 2,750,000 shares of common stock at an assumed public offering price of $20.37 per share after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. Cash flows used in operating activities: Net loss $ (24,506 ) $ (21,152 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 966 1,187 Loss on disposal of fixed assets 69 5 Licensed technology used in research and development 320 Amortization of discount on technology license obligations 134 109 Compensation expense incurred on issuance of stock 662 38 Amortization of deferred stock compensation 6,233 2,613 Changes in assets and liabilities: Accounts receivable 310 141 Prepaid and other current assets (525 ) 241 Other accrued (91 ) Accounts payable 284 (548 ) Accrued expenses 456 (169 ) Deferred revenue (293 ) Table of Contents
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+PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD PAY SPECIAL ATTENTION TO THE "RISK FACTORS" SECTION.
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information and our consolidated financial statements and the notes to these statements appearing elsewhere in this prospectus. In this prospectus, "we," "us," "our company" and "our" refer to Globix Corporation and its consolidated subsidiaries, unless the context otherwise requires. Our Company We are a provider of Internet services to businesses. Our services include: o Hosting and co-location in our secure and fault-tolerant Internet data centers; o Network services and connectivity to the Internet through our Domestic and International Internet Protocol (IP) fiber based network; o Internet based managed services focusing on application management and operating system management, security services and storage services; and o Media services including: streaming media, webcasting and digital asset management solutions. Our target market for our services is small to large size businesses in a broad range of industries, including media, publishing, financial services, retail, healthcare, governmental agencies, manufacturing, technology and non-profit organizations. No single customer comprised more than 10% of our revenues in the fiscal years ended September 30, 2003 or 2002. We sell our services to businesses primarily through our direct sales force. Our customers use our services to operate and maintain computer equipment in a secure, fault-tolerant environment with connectivity to a high-speed, high-capacity, direct link to the Internet, through our own network, and to support Internet applications. Our employees are located in New York City, New York; Atlanta, Georgia; Santa Clara, California; Fairfield New Jersey; and London, England. Our principal executive offices are located at 139 Centre Street, New York, New York 10013, and our telephone number at that location is (212) 334-8500. Although we maintain a website at www.globix.com, we do not intend that the information available through our website be incorporated into this registration statement. Our SEC filings will be available on our website. Globix was founded in 1989 and in 1998 undertook a major expansion plan in order to pursue opportunities resulting from the growth of the Internet. On March 1, 2002, Globix filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, together with a prepackaged plan of reorganization, which we refer to as the "Plan," with the United States Bankruptcy Court for the District of Delaware. We continued to operate in Chapter 11 in the ordinary course of business and received permission from the bankruptcy court to pay our employees, trade, and certain other creditors in full and on time, regardless of whether these claims arose prior to or after the Chapter 11 filing. On April 8, 2002, the bankruptcy court confirmed the Plan. Effective April 25, 2002, which we refer to as the "Effective Date of the Plan," all conditions necessary for the Plan to become effective were satisfied or waived and we emerged from Chapter 11 bankruptcy protection. For additional information see "Our Chapter 11 Bankruptcy Reorganization" which begins on page 39, for a discussion of our reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. <TABLE> <CAPTION> <S> <C> The Offerings Use of proceeds........................ We will not receive any of the proceeds from the sale of the shares of our common stock and the notes offered by the selling holders. Common Stock Common stock offered by the selling holders ............................... Up to 4,797,442 shares 11% Senior Notes Notes offered by the selling holders... Up to $19,146,306 aggregate principal amount of notes. Maturity Date.......................... May 1, 2008. Interest............................... Payable annually in arrears on May 1, commencing on May 1, 2003: o in additional notes through May 1, 2004; o in cash or, at the election of our board of directors, in additional notes (or any combination of additional notes and cash) on May 1, 2005 and May 1, 2006; and o in cash thereafter until the maturity date of the notes. Guaranties............................. Our wholly owned direct and indirect subsidiaries, 415 Greenwich GC, LLC, 415 Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC have fully and unconditionally and jointly and severally guaranteed all amounts payable under the notes, including principal and interest. These subsidiaries currently have no assets and Globix intends to dissolve them. Ranking................................ The notes are our senior secured obligations and rank on parity with, or senior to, all of our existing and future debt and liabilities. The notes are secured by our assets and the assets of the subsidiary guarantors so that claims of the holders of the notes will rank ahead of unsecured claims of our creditors to the extent of the value, priority and validity of the liens securing the notes and the subsidiary guarantees. However, since we and our subsidiary guarantors may incur up to $20 million of debt in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes and the subsidiary guaranties, this debt will effectively rank ahead of the notes and subsidiary guaranties. The subsidiary guaranties are senior secured obligations of the subsidiary guarantors and rank on parity with, or senior to, all existing and future debt and liabilities of the subsidiary guarantors. However, our company and the subsidiary guarantors may collectively incur up to $20 million of indebtedness in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes, and the subsidiary guaranties will in effect be subordinated to this indebtedness. Security............................... Our obligations under the notes are secured by a first priority security interest in all of the otherwise unencumbered tangible and intangible assets of our company and of each subsidiary guarantor, subject to agreed upon permitted liens. The liens securing the notes may also be released or subordinated in priority to liens securing up to $20 million of debt under credit facilities, so long as the fair market value of the assets subject to these liens does not exceed to any material extent 1.5 times the amount of the debt secured by these liens. Change of control...................... In the event of a "Change of Control" (as defined on page 58) of our company, each holder of notes may require us to repurchase, in whole or in part, all of that holder's notes for a cash payment equal to 101% of the aggregate principal amount of that holder's notes, plus accrued and unpaid interest, if any, to the redemption date. </TABLE> <TABLE> <CAPTION> <S> <C> Optional redemption.................... We may redeem the notes at our option, in whole or in part, at any time and from time to time, upon notice mailed not less than 15 days but not more than 60 days prior to the date of redemption, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. However, in the event that a Change of Control of our company has occurred and we have not offered to purchase all of the notes in connection with the Change of Control, the redemption price will be equal to 101% of the aggregate principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. Certain covenants...................... The indenture governing the notes among other things, restricts, with certain exceptions, the ability of our company and our subsidiaries to: o sell assets unless the proceeds are applied to the acquisition of property or assets to be used in the Internet service business, or to repay certain debt; o incur indebtedness unless our consolidated debt to EBITDA ratio would be greater than zero and less than 6:1, except that we may incur up to $20 million of senior debt and certain other indebtedness as permitted under the indenture; o incur liens other than certain permitted liens; o declare or pay any dividend (other than stock, options, warrants or other rights to acquire stock); o make certain investments, except in a company that is or as a result of an investment becomes a subsidiary of our company and except as otherwise permitted by the indenture; o purchase, redeem, retire or otherwise acquire for value any shares of stock of our company, except as specifically permitted under the indenture; and o enter into any transaction (or series of related transactions) not in the ordinary course of business with an affiliate or related person of our company involving aggregate consideration in excess of $2 million unless such transaction is on terms no less favorable to us than those that could be obtained in a comparable arm's-length transaction with an entity that is not an affiliate or related person and is in the best interests of our company. Governing law.......................... New York </TABLE> As of the date of this prospectus, we had 16,460,000 shares of common stock outstanding. -------------------- Risk Factors You should carefully consider all of the information contained in this prospectus before making an investment in our common stock or the notes. In particular, you should consider the risk factors described under "Risk Factors" beginning on page 9. SUMMARY CONSOLIDATED FINANCIAL DATA The following summary historical consolidated financial data as of and for the year ended September 30, 2003 (Successor Company), five months ended September 30, 2002 (Successor Company), the seven months ended April 30, 2002 (Predecessor Company), as of and for the fiscal years ended September 30, 2001, 2000 and 1999 (Predecessor Company) have been derived from our audited consolidated financial statements and related notes. The selected historical financial data as of and for the three months ended December 31, 2003 and 2002 (Successor Company) is derived from our unaudited consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, which, in our opinion, are necessary for a fair presentation of the financial position and results of operations for these periods. This information should be read together with, and is qualified in its entirety by reference to, our consolidated financial statements included elsewhere in this prospectus, and the notes thereto and the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21. As a result of the application of fresh start accounting under SOP No. 90-7 as of May 1, 2002 our financial results for the fiscal year ended September 30, 2002 include two different bases of accounting and, accordingly, the operating results and cash flows of the Successor Company and the Predecessor Company have been separately disclosed. For the purposes of this prospectus and the financial statements and related notes contained in this prospectus, references to the "Predecessor Company" are references to our company for periods prior to April 30, 2002 (the last day of the calendar month in which we emerged from bankruptcy) and references to the "Successor Company" are references to our company for periods subsequent to April 30, 2002. The Successor Company's financial statements are not comparable to the Predecessor Company's financial statements. (In thousands of United States dollars, except share and per share data) <TABLE> <CAPTION> Successor Company Predecessor Company -------------------------------- --------------- -------------------------------------------- Year Ended Five Months Seven Months Year Ended Year Ended Year Ended eptember 30 Ended Ended September 30, September 30, September 30, 2003 September 30, April 30, 2001 2000 1999 Consolidated Statement of ------------- --------------- --------------- -------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Operations Data: Revenue $ 60,177 $ 30,723 $ 51,273 $ 104,210 $ 81,287 $ 33,817 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, payroll and occupancy shown below) 19,990 10,458 22,123 40,609 42,513 22,184 Selling, general and administrative 44,430 29,313 57,206 124,821 98,113 36,495 Loss (gain) on impairment of assets - - 2,578 3,500 - - Restructuring and other charges (credits) (1,020) - 24,834 56,109 - - Depreciation and amortization 15,523 6,060 28,115 36,657 18,228 6,329 ------------ ------------ ------------ ------------ ------------ ------------ Total operating costs and expenses 78,923 45,831 134,856 261,696 158,854 65,008 Other operating income 345 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Loss from operations (18,401) (15,108) (83,583) (157,486) (77,567) (31,191) Interest and financing expense, net (13,962) (5,866) (32,487) (51,846) (33,082) (18,386) Other income (expense) 1,232 (157) (509) (1,379) 1,779 6,192 Gain (loss) on debt discharge 6,023 - 427,066 - (17,577) - Reorganization items - - (7,762) - - - Fresh start accounting adjustments - - (148,569) - - - Minority interest in subsidiary - - 5,778 - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (25,108) (21,131) 159,934 (210,711) (126,447) (43,385) Income tax expense 167 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (25,275) (21,131) 159,934 (210,711) (126,447) (43,385) Cumulative effect of a change in accounting principle - - - (2,332) - - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) (25,275) (21,131) 159,934 (213,043) (126,447) (43,385) Dividends and accretion on preferred stock - - (3,178) (7,104) (5,768) - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) attributable to common stockholders $ (25,275) $ (21,131) $ 156,756 $ (220,147) $ (132,215) $ (43,385) ============ ============ ============ ============ ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.96 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle - - - (0.06) - - ------------ ------------ ------------ ------------ ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.96 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 39,618,856 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ </TABLE> <TABLE> <S> <C> <C> <C> <C> <C> <C> Diluted: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.30 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle -- -- -- (0.06) -- -- ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.30 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 48,507,456 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (12,188) $ 3,679 $ (59,684) $ (140,543) $ (94,318) $ (36,897) Net cash provided by (used in) investing activities $ (858) $ (6,461) $ 5,842 $ (113,271) $ (149,939) $ (58,774) Net cash provided by (used in) financing activities $ (10,539) $ (2,279) $ (4,946) $ 387 $ 509,395 $ 135,589 Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 33,260 $ 54,281 $ 113,112 $ 378,510 $ 111,412 Restricted cash and investments $ 6,928 $ 9,097 $ 33,870 $ 43,178 $ 45,039 Working capital $ 28,449 $ 42,421 $ 78,340 $ 366,139 $ 101,216 Total assets $ 222,282 $ 262,720 $ 552,988 $ 729,591 $ 302,518 Current portion of long-term debt $ 1,510 $ 1,520 $ 6,687 $ 2,173 $ 2,088 Long-term debt, less current portion $ 140,389 $ 151,274 $ 630,750 $ 621,809 $ 161,005 Mandatory redeemable convertible preferred stock $ -- $ -- $ 83,230 $ 76,042 $ -- Stockholders' equity (deficit) $ 53,351 $ 72,547 $ (237,325) $ (18,030) $ 106,405 </TABLE> Successor Company --------------------------------- Consolidated Statement of Three Months Three Months Ended Ended December 31, December 31, Operations Data: 2003 2002 --------------------------------- (Unaudited) (Unaudited) ------------- --------------- Revenue $ 14,385 $ 16,480 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, and certain payroll and occupancy shown below) 4,876 5,624 Selling, general and administrative 10,944 11,891 Loss on impairment of assets 17,313 - Restructuring and other charges (credits) - - Depreciation and amortization 3,371 3,727 ------------ ------------ Total operating costs and expenses 36,504 21,242 Other operating income - - ------------ ------------ Loss from operations (22,119) (4,762) Interest and financing expense, net (3,274) (3,516) Other income (expense) 297 182 Gain (loss) on debt discharge 1,747 2,727 Reorganization items - - Fresh start accounting adjustments - - Minority interest in subsidiary - 108 ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (23,349) (5,261) Income tax expense - - ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (23,349) (5,261) Cumulative effect of a change in accounting principle - - ------------ ------------ Net income (loss) (23,349) (5,261) Dividends and accretion on preferred stock - - ------------ ------------ Net income (loss) attributable to common stockholders $ (23,349) $ (5,261) ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle - - ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 ============ ============ Diluted: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle -- -- ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (2,960) $ (915) Net cash provided by (used in) investing activities $ (6,278) $ (3,483) Net cash provided by (used in) financing activities $ (6,275) $ (2,955) Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 21,226 $ 48,704 Restricted cash and investments $ 6,938 $ 8,856 Working capital $ 67,929 $ 37,831 Total assets $ 196,153 $ 252,716 Current portion of long-term debt $ 742 $ 1,668 Long-term debt, less current portion $ 135,846 $ 144,369 Mandatory redeemable convertible preferred stock $ -- $ -- Stockholders' equity (deficit) $ 31,857 $ 68,241
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information and our consolidated financial statements and the notes to these statements appearing elsewhere in this prospectus. In this prospectus, "we," "us," "our company" and "our" refer to Globix Corporation and its consolidated subsidiaries, unless the context otherwise requires. Our Company We are a provider of Internet services to businesses. Our services include: o Hosting and co-location in our secure and fault-tolerant Internet data centers; o Network services and connectivity to the Internet through our Domestic and International Internet Protocol (IP) fiber based network; o Internet based managed services focusing on application management and operating system management, security services and storage services; and o Media services including: streaming media, webcasting and digital asset management solutions. Our target market for our services is small to large size businesses in a broad range of industries, including media, publishing, financial services, retail, healthcare, governmental agencies, manufacturing, technology and non-profit organizations. No single customer comprised more than 10% of our revenues in the fiscal years ended September 30, 2003 or 2002. We sell our services to businesses primarily through our direct sales force. Our customers use our services to operate and maintain computer equipment in a secure, fault-tolerant environment with connectivity to a high-speed, high-capacity, direct link to the Internet, through our own network, and to support Internet applications. Our employees are located in New York City, New York; Atlanta, Georgia; Santa Clara, California; Fairfield New Jersey; and London, England. Our principal executive offices are located at 139 Centre Street, New York, New York 10013, and our telephone number at that location is (212) 334-8500. Although we maintain a website at www.globix.com, we do not intend that the information available through our website be incorporated into this registration statement. Our SEC filings will be available on our website. Globix was founded in 1989 and in 1998 undertook a major expansion plan in order to pursue opportunities resulting from the growth of the Internet. On March 1, 2002, Globix filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, together with a prepackaged plan of reorganization, which we refer to as the "Plan," with the United States Bankruptcy Court for the District of Delaware. We continued to operate in Chapter 11 in the ordinary course of business and received permission from the bankruptcy court to pay our employees, trade, and certain other creditors in full and on time, regardless of whether these claims arose prior to or after the Chapter 11 filing. On April 8, 2002, the bankruptcy court confirmed the Plan. Effective April 25, 2002, which we refer to as the "Effective Date of the Plan," all conditions necessary for the Plan to become effective were satisfied or waived and we emerged from Chapter 11 bankruptcy protection. For additional information see "Our Chapter 11 Bankruptcy Reorganization" which begins on page 39, for a discussion of our reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. <TABLE> <CAPTION> <S> <C> The Offerings Use of proceeds........................ We will not receive any of the proceeds from the sale of the shares of our common stock and the notes offered by the selling holders. Common Stock Common stock offered by the selling holders ............................... Up to 4,797,442 shares 11% Senior Notes Notes offered by the selling holders... Up to $19,146,306 aggregate principal amount of notes. Maturity Date.......................... May 1, 2008. Interest............................... Payable annually in arrears on May 1, commencing on May 1, 2003: o in additional notes through May 1, 2004; o in cash or, at the election of our board of directors, in additional notes (or any combination of additional notes and cash) on May 1, 2005 and May 1, 2006; and o in cash thereafter until the maturity date of the notes. Guaranties............................. Our wholly owned direct and indirect subsidiaries, 415 Greenwich GC, LLC, 415 Greenwich GC Tenant, LLC and 415 Greenwich GC MM, LLC have fully and unconditionally and jointly and severally guaranteed all amounts payable under the notes, including principal and interest. These subsidiaries currently have no assets and Globix intends to dissolve them. Ranking................................ The notes are our senior secured obligations and rank on parity with, or senior to, all of our existing and future debt and liabilities. The notes are secured by our assets and the assets of the subsidiary guarantors so that claims of the holders of the notes will rank ahead of unsecured claims of our creditors to the extent of the value, priority and validity of the liens securing the notes and the subsidiary guarantees. However, since we and our subsidiary guarantors may incur up to $20 million of debt in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes and the subsidiary guaranties, this debt will effectively rank ahead of the notes and subsidiary guaranties. The subsidiary guaranties are senior secured obligations of the subsidiary guarantors and rank on parity with, or senior to, all existing and future debt and liabilities of the subsidiary guarantors. However, our company and the subsidiary guarantors may collectively incur up to $20 million of indebtedness in the aggregate which may be secured by liens superior to, or in lieu of, those securing the notes, and the subsidiary guaranties will in effect be subordinated to this indebtedness. Security............................... Our obligations under the notes are secured by a first priority security interest in all of the otherwise unencumbered tangible and intangible assets of our company and of each subsidiary guarantor, subject to agreed upon permitted liens. The liens securing the notes may also be released or subordinated in priority to liens securing up to $20 million of debt under credit facilities, so long as the fair market value of the assets subject to these liens does not exceed to any material extent 1.5 times the amount of the debt secured by these liens. Change of control...................... In the event of a "Change of Control" (as defined on page 58) of our company, each holder of notes may require us to repurchase, in whole or in part, all of that holder's notes for a cash payment equal to 101% of the aggregate principal amount of that holder's notes, plus accrued and unpaid interest, if any, to the redemption date. </TABLE> <TABLE> <CAPTION> <S> <C> Optional redemption.................... We may redeem the notes at our option, in whole or in part, at any time and from time to time, upon notice mailed not less than 15 days but not more than 60 days prior to the date of redemption, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. However, in the event that a Change of Control of our company has occurred and we have not offered to purchase all of the notes in connection with the Change of Control, the redemption price will be equal to 101% of the aggregate principal amount of the notes being redeemed plus accrued and unpaid interest up to, but excluding, the redemption date. Certain covenants...................... The indenture governing the notes among other things, restricts, with certain exceptions, the ability of our company and our subsidiaries to: o sell assets unless the proceeds are applied to the acquisition of property or assets to be used in the Internet service business, or to repay certain debt; o incur indebtedness unless our consolidated debt to EBITDA ratio would be greater than zero and less than 6:1, except that we may incur up to $20 million of senior debt and certain other indebtedness as permitted under the indenture; o incur liens other than certain permitted liens; o declare or pay any dividend (other than stock, options, warrants or other rights to acquire stock); o make certain investments, except in a company that is or as a result of an investment becomes a subsidiary of our company and except as otherwise permitted by the indenture; o purchase, redeem, retire or otherwise acquire for value any shares of stock of our company, except as specifically permitted under the indenture; and o enter into any transaction (or series of related transactions) not in the ordinary course of business with an affiliate or related person of our company involving aggregate consideration in excess of $2 million unless such transaction is on terms no less favorable to us than those that could be obtained in a comparable arm's-length transaction with an entity that is not an affiliate or related person and is in the best interests of our company. Governing law.......................... New York </TABLE> As of the date of this prospectus, we had 16,460,000 shares of common stock outstanding. -------------------- Risk Factors You should carefully consider all of the information contained in this prospectus before making an investment in our common stock or the notes. In particular, you should consider the risk factors described under "Risk Factors" beginning on page 9. SUMMARY CONSOLIDATED FINANCIAL DATA The following summary historical consolidated financial data as of and for the year ended September 30, 2003 (Successor Company), five months ended September 30, 2002 (Successor Company), the seven months ended April 30, 2002 (Predecessor Company), as of and for the fiscal years ended September 30, 2001, 2000 and 1999 (Predecessor Company) have been derived from our audited consolidated financial statements and related notes. The selected historical financial data as of and for the three months ended December 31, 2003 and 2002 (Successor Company) is derived from our unaudited consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, which, in our opinion, are necessary for a fair presentation of the financial position and results of operations for these periods. This information should be read together with, and is qualified in its entirety by reference to, our consolidated financial statements included elsewhere in this prospectus, and the notes thereto and the information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21. As a result of the application of fresh start accounting under SOP No. 90-7 as of May 1, 2002 our financial results for the fiscal year ended September 30, 2002 include two different bases of accounting and, accordingly, the operating results and cash flows of the Successor Company and the Predecessor Company have been separately disclosed. For the purposes of this prospectus and the financial statements and related notes contained in this prospectus, references to the "Predecessor Company" are references to our company for periods prior to April 30, 2002 (the last day of the calendar month in which we emerged from bankruptcy) and references to the "Successor Company" are references to our company for periods subsequent to April 30, 2002. The Successor Company's financial statements are not comparable to the Predecessor Company's financial statements. (In thousands of United States dollars, except share and per share data) <TABLE> <CAPTION> Successor Company Predecessor Company -------------------------------- --------------- -------------------------------------------- Year Ended Five Months Seven Months Year Ended Year Ended Year Ended eptember 30 Ended Ended September 30, September 30, September 30, 2003 September 30, April 30, 2001 2000 1999 Consolidated Statement of ------------- --------------- --------------- -------------- ------------- ------------- <S> <C> <C> <C> <C> <C> <C> Operations Data: Revenue $ 60,177 $ 30,723 $ 51,273 $ 104,210 $ 81,287 $ 33,817 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, payroll and occupancy shown below) 19,990 10,458 22,123 40,609 42,513 22,184 Selling, general and administrative 44,430 29,313 57,206 124,821 98,113 36,495 Loss (gain) on impairment of assets - - 2,578 3,500 - - Restructuring and other charges (credits) (1,020) - 24,834 56,109 - - Depreciation and amortization 15,523 6,060 28,115 36,657 18,228 6,329 ------------ ------------ ------------ ------------ ------------ ------------ Total operating costs and expenses 78,923 45,831 134,856 261,696 158,854 65,008 Other operating income 345 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Loss from operations (18,401) (15,108) (83,583) (157,486) (77,567) (31,191) Interest and financing expense, net (13,962) (5,866) (32,487) (51,846) (33,082) (18,386) Other income (expense) 1,232 (157) (509) (1,379) 1,779 6,192 Gain (loss) on debt discharge 6,023 - 427,066 - (17,577) - Reorganization items - - (7,762) - - - Fresh start accounting adjustments - - (148,569) - - - Minority interest in subsidiary - - 5,778 - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (25,108) (21,131) 159,934 (210,711) (126,447) (43,385) Income tax expense 167 - - - - - ------------ ------------ ------------ ------------ ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (25,275) (21,131) 159,934 (210,711) (126,447) (43,385) Cumulative effect of a change in accounting principle - - - (2,332) - - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) (25,275) (21,131) 159,934 (213,043) (126,447) (43,385) Dividends and accretion on preferred stock - - (3,178) (7,104) (5,768) - ------------ ------------ ------------ ------------ ------------ ------------ Net income (loss) attributable to common stockholders $ (25,275) $ (21,131) $ 156,756 $ (220,147) $ (132,215) $ (43,385) ============ ============ ============ ============ ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.96 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle - - - (0.06) - - ------------ ------------ ------------ ------------ ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.96 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 39,618,856 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ </TABLE> <TABLE> <S> <C> <C> <C> <C> <C> <C> Diluted: Before cumulative effect of a change in accounting principle $ (1.54) $ (1.28) $ 3.30 $ (5.66) $ (3.73) $ (1.73) Cumulative effect of a change in accounting principle -- -- -- (0.06) -- -- ------------ ------------ ------------ ------------ ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.54) $ (1.28) $ 3.30 $ (5.72) $ (3.73) $ (1.73) ============ ============ ============ ============ ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 48,507,456 38,476,909 35,484,040 25,116,800 ============ ============ ============ ============ ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (12,188) $ 3,679 $ (59,684) $ (140,543) $ (94,318) $ (36,897) Net cash provided by (used in) investing activities $ (858) $ (6,461) $ 5,842 $ (113,271) $ (149,939) $ (58,774) Net cash provided by (used in) financing activities $ (10,539) $ (2,279) $ (4,946) $ 387 $ 509,395 $ 135,589 Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 33,260 $ 54,281 $ 113,112 $ 378,510 $ 111,412 Restricted cash and investments $ 6,928 $ 9,097 $ 33,870 $ 43,178 $ 45,039 Working capital $ 28,449 $ 42,421 $ 78,340 $ 366,139 $ 101,216 Total assets $ 222,282 $ 262,720 $ 552,988 $ 729,591 $ 302,518 Current portion of long-term debt $ 1,510 $ 1,520 $ 6,687 $ 2,173 $ 2,088 Long-term debt, less current portion $ 140,389 $ 151,274 $ 630,750 $ 621,809 $ 161,005 Mandatory redeemable convertible preferred stock $ -- $ -- $ 83,230 $ 76,042 $ -- Stockholders' equity (deficit) $ 53,351 $ 72,547 $ (237,325) $ (18,030) $ 106,405 </TABLE> Successor Company --------------------------------- Consolidated Statement of Three Months Three Months Ended Ended December 31, December 31, Operations Data: 2003 2002 --------------------------------- (Unaudited) (Unaudited) ------------- --------------- Revenue $ 14,385 $ 16,480 Operating costs and expenses: Cost of revenues (excluding depreciation, amortization, and certain payroll and occupancy shown below) 4,876 5,624 Selling, general and administrative 10,944 11,891 Loss on impairment of assets 17,313 - Restructuring and other charges (credits) - - Depreciation and amortization 3,371 3,727 ------------ ------------ Total operating costs and expenses 36,504 21,242 Other operating income - - ------------ ------------ Loss from operations (22,119) (4,762) Interest and financing expense, net (3,274) (3,516) Other income (expense) 297 182 Gain (loss) on debt discharge 1,747 2,727 Reorganization items - - Fresh start accounting adjustments - - Minority interest in subsidiary - 108 ------------ ------------ Income (loss) before income taxes and cumulative effect of a change in accounting principle (23,349) (5,261) Income tax expense - - ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle (23,349) (5,261) Cumulative effect of a change in accounting principle - - ------------ ------------ Net income (loss) (23,349) (5,261) Dividends and accretion on preferred stock - - ------------ ------------ Net income (loss) attributable to common stockholders $ (23,349) $ (5,261) ============ ============ Earnings (loss) per common share: Basic: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle - - ------------ ------------ Basic earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - basic 16,460,000 16,460,000 ============ ============ Diluted: Before cumulative effect of a change in accounting principle $ (1.42) $ (0.32) Cumulative effect of a change in accounting principle -- -- ------------ ------------ Diluted earnings (loss) per share attributable to common stockholders $ (1.42) $ (0.32) ============ ============ Weighted average common shares outstanding - diluted 16,460,000 16,460,000 ============ ============ Other Consolidated Financial Data: Net cash provided by (used in) operating activities $ (2,960) $ (915) Net cash provided by (used in) investing activities $ (6,278) $ (3,483) Net cash provided by (used in) financing activities $ (6,275) $ (2,955) Consolidated Balance Sheet Data: Cash, cash equivalent, short-term investments and marketable securities $ 21,226 $ 48,704 Restricted cash and investments $ 6,938 $ 8,856 Working capital $ 67,929 $ 37,831 Total assets $ 196,153 $ 252,716 Current portion of long-term debt $ 742 $ 1,668 Long-term debt, less current portion $ 135,846 $ 144,369 Mandatory redeemable convertible preferred stock $ -- $ -- Stockholders' equity (deficit) $ 31,857 $ 68,241
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001179755_endurance_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001179755_endurance_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. While we have highlighted what we believe is the most important information about the Company and this offering in this summary, you should read the entire prospectus carefully, including the Risk Factors and Cautionary Statement Regarding Forward-Looking Statements sections and our consolidated financial statements and the notes to those financial statements before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to we, us, our and the Company refer to the consolidated operations of Endurance Specialty Holdings Ltd., and its direct and indirect subsidiaries, including Endurance Specialty Insurance Ltd. ( Endurance Bermuda ), Endurance Worldwide Holdings Limited, Endurance Worldwide Insurance Limited ( Endurance U.K. ), Endurance U.S. Holdings Corp., Endurance Reinsurance Corporation of America ( Endurance U.S. ) and Endurance Services Ltd. ( Endurance Services ). Endurance Holdings refers solely to Endurance Specialty Holdings Ltd. In this prospectus, amounts are expressed in U.S. dollars and the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ), except as otherwise indicated. We have included a glossary of insurance and other terms, commencing on page G-1. Each term defined in the glossary is printed in boldface the first time it appears in this prospectus. On December 17, 2002, we effected a share premium issuance to our existing shareholders at that time. Except as otherwise indicated, all share data in this prospectus assumes the share premium issuance to such existing shareholders of four additional shares for each common share outstanding had occurred as of the date such data is presented. As used in this prospectus, common shares refers to our ordinary shares and class A shares collectively. Unless otherwise indicated, all data in this prospectus assumes no exercise of either the underwriters over-allotment option or of any outstanding warrants or options to purchase common shares of Endurance Holdings. The Company Overview Endurance Holdings is a holding company domiciled in Bermuda. Through our operating subsidiaries based in Bermuda, the United Kingdom and the United States, we focus on writing specialty lines of personal and commercial property and casualty insurance and reinsurance on a global basis. We define specialty lines as those lines of insurance and reinsurance that require dedicated, specialized underwriting skills and resources in order to be profitably underwritten. Our portfolio of specialty lines of business is organized into the following segments: property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risk, casualty individual risk and aerospace and other specialty lines. We seek to create a portfolio of specialty lines which are profitable and have limited correlation with one another. We believe that a well constructed portfolio of diversified risks will produce less volatile results than each of the individual lines of business independently, allow for greater capital efficiency, and provide a superior risk-adjusted return on capital. We identify and underwrite attractive insurance and reinsurance business through our experienced underwriting staff and apply a centralized, quantitative framework of risk analysis across all of our business segments. We produce our business through the leading worldwide insurance and reinsurance intermediaries. Since our inception in December 2001, we have been able to achieve significant success in the development of our business. Our accomplishments include: building our business from a startup in 2001 to $1.6 billion in gross premiums and $263.4 million in net income for the year ended December 31, 2003; generating an 18.4% return on average equity for the year ended December 31, 2003; successfully launching multiple specialty business segments; building a substantial client base around the world; recruiting a highly experienced management team and building a staff of approximately 250; licensing insurance subsidiaries in Bermuda, the United Kingdom and the United States; $ 1,597,844 $ 1,173,947 $ 764,918 $ 369,489 $ 376 $ AMENDMENT NO. 2 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Back to Contents acquiring renewal rights to the property catastrophe business of LaSalle Re Limited ( LaSalle ); acquiring renewal rights to the majority of the reinsurance business of The Hartford Fire Insurance Company and HartRe Company, L.L.C. (collectively, HartRe ); establishing a $192 million multi-year term loan facility and a $108 million one-year revolving credit facility that was expanded to a $500 million letter of credit and revolving credit facility, and; successfully completing our initial public offering in February 2003 and obtaining a NYSE listing. Current conditions in the global insurance and reinsurance markets continue to present an attractive opportunity for us to deploy our capital. Many global property and casualty insurers and reinsurers are currently experiencing significantly reduced capital resulting from several years of excessively competitive pricing, expanding coverage terms, significant increases in losses from asbestos liability, under-reserving, and poor investment performance. In addition, Standard & Poor s Rating Services ( Standard & Poor s ) and A.M. Best Company Inc. ( A.M. Best ) have lowered the financial strength ratings of a significant number of reinsurers in 2002 and 2003, further reducing available reinsurance capacity with sufficient financial security. Our Competitive Strengths We believe certain characteristics distinguish us from our competitors, including: Extensive Specialized Underwriting and Risk Management Capabilities. We have made significant investments in our technical capabilities, including hiring 103 experienced underwriters and an actuarial, risk analysis and modeling staff of 28. Underwriting and Risk Management Discipline. We remain highly selective in our underwriting approach. All of our underwriting activity is supported by detailed, upfront pricing analyses through which we seek to limit our exposure to any single contract and any single geographic or catastrophic peril. In 2003, despite significant expansion of our business, we provided insurance quotes on 36.7% of the 8,637 submissions we received. Our quotation rate in 2002 was similar to that in 2003. Experienced Management Team. Our senior management team averages over 20 years of experience in the insurance and reinsurance industry and participates in our stock-based compensation plan that ties compensation to the achievement of goals aligned with those of our shareholders. Strong Market Relationships. The underwriting expertise and extensive industry relationships previously developed by our senior management team and underwriters have allowed us to quickly establish our presence in the global insurance and reinsurance markets. We have strong relationships with major insurance and reinsurance brokers, including: Aon Corporation ( Aon ), Marsh & McLennan Companies, Inc. ( Marsh ), Willis Group Holdings, Ltd. ( Willis ), Benfield Group plc ( Benfield ) and Towers Perrin Reinsurance ( Towers Perrin ). Bermuda-Based Operations. Bermuda is our principal base of operations, which allows us to benefit from its well-developed network of insurance and reinsurance brokers, an experienced pool of employees with significant insurance expertise and a responsive regulatory environment that allows for rapid innovation in insurance and reinsurance products. Conservative Investment Policy. We have a conservative investment policy aimed at minimizing the volatility of our investment results. At December 31, 2003, 100% of our invested assets were held in cash and cash equivalents and fixed maturity securities, 87% of which were rated AAA and 100% were rated A or better. Excellent Financial Strength. The Company s operating subsidiaries are rated A (Excellent) by A.M. Best and A- (Strong) by Standard & Poor s. We were one of a small Back to Contents number of companies to be upgraded by A.M. Best in 2003 when we received our upgrade to A ( Excellent ). These ratings reflect A.M. Best and Standard & Poor s opinions of our financial strength and are not applicable to the ordinary shares offered by this prospectus and are not recommendations to buy, sell or hold such shares. Unencumbered Capital Base. At December 31, 2003, we had total shareholders equity of approximately $1.6 billion. As a recently formed company, we are unencumbered by any historical losses relating to asbestos liabilities, the World Trade Center tragedy and other pre-December 2001 liability exposures currently affecting many of our competitors. By choosing to form and license new subsidiaries rather than assuming unknown liabilities through the acquisition of existing licensed shell companies, we have no risk that loss reserve development relating to historical exposures prior to our formation will negatively impact our future financial results. Business Strategy Our goal is to generate a superior long-term return on capital by leveraging our competitive strengths and successfully executing our strategy. The key elements of our strategy are: Maintain a Portfolio of Profitable Specialty Lines. We believe there are significant opportunities in a number of lines of business in the current market environment. We participate in those specific specialty lines that we believe have the potential to offer the highest risk-adjusted return on capital and in which we believe we can establish a competitive advantage through our specialized teams of expert underwriters. We intend to use our ability to participate in multiple lines of business to deploy capital and resources to the most attractive business lines at the most opportune times. Utilize Monoline Level of Expertise in Each Line of Business. We have formed teams of highly experienced professionals to manage each of our specific lines of business. Each team is led by a senior executive and is supported by highly experienced underwriting personnel who are specialists in their unique business line. Apply Extensive Technical Analysis to Our Underwriting. We manage our portfolio of risks through the utilization of catastrophe modeling and dynamic financial analysis techniques that provide a quantitative basis for the management of risk aggregation and correlation. We license a broad array of catastrophe modeling products. We have our own proprietary underwriting risk management system and have built a proprietary suite of individual contract, portfolio, capital allocation, and market risk management and price monitoring tools around this system. Maintain an Efficient Expense Structure. Several factors contribute to our low cost structure, including our utilization of variable cost brokerage distribution, our presence in the Bermuda market which targets large insurance and reinsurance programs for clients, our current emphasis on high severity, low frequency lines which can be underwritten by relatively small teams, and our centralized risk management structure which limits redundant expenses and systems. Proactively Manage Our Capital Base. We actively manage our capital by allocating resources to underwriting opportunities which we believe will offer the highest risk-adjusted return on capital. Over the long-term, we will seek to return excess capital to our shareholders rather than use it to underwrite business at unattractive pricing levels. We have already undertaken a number of capital management initiatives, including two acquisitions at prices which were accretive to our earnings, selective repurchases of our ordinary shares on favorable terms, and the payment of shareholder dividends. Wellesley House, 90 Pitts Bay Road Pembroke HM 08, Bermuda (441) 278-0400 CT Corporation System 111 Eighth Avenue, 13th Floor New York, New York 10011 (212) 590-9200 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Our principal executive offices are located at Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda and our telephone number is (441) 278-0400. Total revenues 2,865 Copies To: Susan J. Sutherland, Esq. John V. Del Col, Esq. Michael Groll, Esq. Skadden, Arps, Slate, Meagher & Flom LLP General Counsel and Secretary Sheri E. Bloomberg, Esq. Four Times Square Wellesley House LeBoeuf, Lamb, Greene & MacRae, L.L.P. New York, New York 10036 90 Pitts Bay Road 125 West 55th Street (212) 735-3000 Pembroke HM 08, Bermuda New York, NY 10019 (212) 735-2000 (facsimile) (441) 278-0400 (212) 424-8000; (212) 424-8500 (facsimile) Back to Contents The Offering Ordinary shares offered by the selling shareholders 8,000,000 ordinary shares Over-allotment option granted by the selling shareholders 1,200,000 ordinary shares Common shares outstanding before and after this offering 63,915,000 ordinary shares Use of proceeds We will not receive any proceeds from the sale of ordinary shares by the selling shareholders. Voting Rights On all matters submitted to a vote of shareholders, holders of our ordinary shares are entitled to one vote per share, subject to the adjustments regarding voting set forth in Description of Share Capital Voting Adjustments. Dividend policy We paid dividends of $0.08 per ordinary share on June 30, 2003, $0.12 per ordinary share on September 30, 2003 and $0.12 per ordinary share on December 31, 2003. On February 12, 2004, our board of directors declared a dividend of $0.18 per ordinary share to be paid on March 31, 2004 to holders of ordinary shares as of the close of business on March 17, 2004. Any future payment of dividends will be at the discretion of our board of directors and will be subject to significant restrictions which are described under Dividend Policy, Regulatory Matters and elsewhere in this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001182129_auxilium_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001182129_auxilium_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including Risk Factors and the financial statements, before making an investment decision. Our Business We are a specialty pharmaceutical company that develops and markets products for urologic and sexual health. We currently market one product through our 100 person sales and marketing organization and have three primary products in development. Our marketed product, Testim, is a proprietary, topical 1% testosterone gel indicated for the treatment of hypogonadism. Hypogonadism is a disorder that affects approximately 20% of the U.S. male population over age 50. We estimate there is a similar percentage of affected men in Europe. Since we launched Testim in the first quarter of 2003, we have increased Testim s share of monthly total testosterone gel prescriptions to 8.9% in March 2004, according to IMS Health Incorporated, or IMS, a pharmaceutical market research firm. Total monthly Testim prescription units dispensed have increased from approximately 1,000 in March 2003 to over 15,500 in March 2004. Hypogonadal men exhibit lower than normal levels of testosterone, resulting in a variety of symptoms. These symptoms include low energy levels, loss of sex drive, decreased muscle mass and mild depression. The standard treatment for hypogonadism is testosterone replacement therapy, or TRT, which is typically a long-term therapy. According to IMS, this market has grown by over 20% for each of the previous three years. Hypogonadism is often underdiagnosed and undertreated. About 5% of hypogonadal men currently receive TRT. Therefore, we believe the TRT market is poised to experience further growth due to increasing diagnosis and improving physician and patient awareness. Currently, there are two marketed testosterone gels, including Testim. Other TRT products include pills, injections, transdermal patches and a buccal tablet. Since their recent introduction, testosterone gels have grown to 61% of the total testosterone prescriptions in 2003. We believe that this growth is attributable to the ease of use and reduced side effects associated with gels. Until recently, treatment for many urologic and sexual health disorders, including TRT, was viewed as medically unnecessary. As a result, these disorders were undertreated or not treated at all. This dynamic has changed as therapeutic options have improved and as physicians and patients have begun to appreciate the benefits of treatment. This has resulted in significant growth in drug categories such as treatments for benign prostatic hypertrophy, or BPH, which is a benign prostate enlargement that results in obstruction of the urinary tract. According to EvaluatePharma, a pharmaceutical market research firm, the BPH market grew from $450 million to over $3 billion from 1992 to 2003. We believe Testim s growth has been due to Testim s favorable clinical profile, as well as the growth of the TRT market. We have conducted 11 clinical studies for Testim in over 1,400 patients, including three studies with currently marketed products. We have designed and conducted our clinical trials to provide prescribing physicians with comprehensive information regarding Testim s benefits. In one single-dose study in 29 patients, we demonstrated that Testim produced 30% higher total testosterone absorption and 47% higher free testosterone absorption compared to another commercial gel. In two additional studies conducted with 400 and 200 patients, respectively, Testim brought significantly more men with low testosterone to normalized 24-hour levels than a transdermal patch. We believe there is an opportunity to continue to increase sales of Testim through targeted sales force detailing, increased product awareness and label expansion. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents We intend to utilize our experienced development and regulatory team to identify and successfully develop product candidates. For example, we in-licensed the underlying gel technology to our commercial product, Testim, from Bentley Pharmaceuticals. In the U.S., we received approval of Testim from the U.S. Food and Drug Administration, or FDA, within ten months of filing after a full clinical development program that was executed over a 12-month period. We believe these competencies, in addition to our internal sales and marketing organization, make us attractive as a collaborator to companies that wish to license or partner their urologic or sexual health products for commercialization or development. We intend to supplement these internal competencies with consultant clinical research associates and data management and analysis services from contract research organizations. Our current product pipeline consists of an in-licensed product candidate for Peyronie s disease and two product candidates that utilize a proprietary transmucosal film technology that adheres to the gum. We recently in-licensed AA4500, an early Phase II product for Peyronie s disease from BioSpecifics Technologies. Peyronie s disease is the development of scar tissue in the shaft of the penis which can cause pain on erection and prevent intercourse. This disease predominantly affects men over age 50, according to an article published in International Journal of Impotence Research in 2002. Peyronie s disease is generally treated by urologists although we believe no treatment has been demonstrated to be effective in controlled clinical trials. Our transmucosal film product candidates include an additional product for the treatment of hypogonadism, as well as a treatment for overactive bladder, a medical condition affecting both men and women, characterized by urinary urgency and increased frequency of urination. As we have done with Testim, we plan to commercialize our product candidates through our internal sales and marketing organization. We also consider acquiring rights to marketed products or entering into other strategic arrangements, such as co-promotion, to augment our product portfolio, to expand market opportunities for our product candidates and to further leverage our sales force. Our Strategy Our goal is to become a leading specialty pharmaceutical company focused on urologic and sexual health disorders. The key elements of our strategy for achieving this goal include: Increase the market penetration of Testim. Expand Testim to other TRT applications. Acquire or in-license urologic and sexual health products that allow us to leverage our specialty sales force and drive profitability. Utilize our development and regulatory experience to identify and develop urologic and sexual health products. Amendment No. 7 to FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 We were incorporated under the laws of the State of Delaware in July 1999 as Auxilium A2, Inc. We changed our name to Auxilium Pharmaceuticals, Inc. in February 2002. Our principal executive offices are located at 160 West Germantown Pike, Norristown, Pennsylvania 19401. Our telephone number is (610) 239-8850. Our website address is www.auxilium.com. The information on our website is not a part of this prospectus. We have included our website address in this document as an inactive textual reference only. Testim and our AUXILIUM logo are our trademarks. Other trademarks or service marks appearing in this prospectus are the property of their respective holders. In this prospectus, unless stated or the context otherwise requires, references to Auxilium, we, us, our, the Company and similar references refer to Auxilium Pharmaceuticals, Inc. and its subsidiaries. AUXILIUM PHARMACEUTICALS, INC. (Exact name of registrant as specified in its charter) Except as otherwise noted, all information in this prospectus assumes: no exercise of the underwriters over-allotment option; a 1-for-5 reverse stock split of our common stock that occurred on June 21, 2004; the conversion of all shares of our preferred stock, including 80,000 shares of series B preferred stock issuable upon the exercise of an outstanding series B warrant, outstanding as of March 31, 2004 into 14,058,482 shares of common stock immediately prior to the closing of this offering; the issuance of 93,437 shares of restricted common stock to employees upon the effectiveness of the registration statement for this offering; and the filing of our restated certificate of incorporation following conversion of our preferred stock, which authorizes us to issue 120,000,000 shares of common stock and creates 5,000,000 shares of undesignated preferred stock. (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 25,907 $ 26,007 $ 62,630 Working capital 24,544 24,644 61,267 Total assets 43,943 44,043 80,666 Other long-term liabilities 6,086 6,086 6,086 Redeemable convertible preferred stock 93,456 Total stockholders equity (deficit) (72,347 ) 21,209 57,832 Pro forma balance sheet data as of March 31, 2004 gives effect to: the exercise in full, prior to the closing of this offering, of an outstanding warrant to purchase 80,000 shares of our series B preferred stock; the conversion of all outstanding shares of our preferred stock into 14,058,482 shares of common stock immediately prior to the closing of this offering; and the issuance of 93,437 shares of restricted common stock to employees upon the effectiveness of the registration statement for this offering. The pro forma as adjusted balance sheet data as of March 31, 2004 also gives effect to the sale of 5,500,000 shares of common stock offered by this prospectus at an assumed initial public offering price of $7.50 per share, after deducting underwriting discounts and commissions and estimated offering expenses. 160 West Germantown Pike Norristown, Pennsylvania 19401 (610) 239-8850 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Gerri A. Henwood Chief Executive Officer Auxilium Pharmaceuticals, Inc. 160 West Germantown Pike Norristown, Pennsylvania 19401 (610) 239-8850 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001184172_tmm_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001184172_tmm_prospectus_summary.txt
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+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001192305_lecg-corp_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001192305_lecg-corp_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..65b6f5e8c92a6db86bb1b8a822b99be389696405
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+S-1/A Cash flows from investing activities Business acquisitions (2,852 ) (2,863 ) (2,498 ) Purchase of property and equipment (3,196 ) (2,102 ) (1,349 ) Proceeds on sale of property and equipment 100 1 2 Collection (payment) of security deposits on operating leases, 228 (121 ) SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 LECG CORPORATION (Exact name of Registrant as specified in its charter) Delaware 8742 81-0569994 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 2000 Powell Street Emeryville, California 94608 (510) 985-6700 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) David J. Teece Chairman LECG Corporation 2000 Powell Street Emeryville, California 94608 (510) 985-6700 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Mario M. Rosati, Esq. Mark L. Reinstra, Esq. Alexander D. Phillips, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, CA 94304-1050 (650) 493-9300 James A. Hutchinson, Esq. Brian J. Lynch, Esq. Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, DC 20004 (202) 637-5600 Steven B. Stokdyk, Esq. Sullivan & Cromwell LLP 1888 Century Park East Los Angeles, CA 90067 (310) 712-6600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine. PRELIMINARY PROSPECTUS Subject to completion December 9, 2004 The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted. 3,000,000 Shares Common Stock Certain of our stockholders are offering 3,000,000 shares of our common stock. We will not receive any proceeds from the sale of any shares sold by the selling stockholders. Our common stock is traded on the Nasdaq National Market under the symbol "XPRT." On December 8, 2004, the last reported sale price of our common stock was $19.25 per share. Before buying any shares, you should read the discussion of material risks of investing in our common stock in "Risk factors" beginning on page 7. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Share Total Public offering price $ $ Underwriting discounts and commissions $ $ Proceeds, before expenses, to the selling stockholders $ $ The underwriter may also purchase up to 450,000 shares of common stock from us and certain of the selling stockholders at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus. The underwriter may exercise this option only to cover over-allotments, if any. The underwriter is offering the common stock as set forth under "Underwriting." Delivery of the shares of common stock will be made on or about , 2004. UBS Investment Bank The date of this Prospectus is , 2004 You should only rely on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. TABLE OF CONTENTS Prospectus summary This summary highlights some of the information contained elsewhere in this prospectus. We urge you to read the entire prospectus carefully, including the "Risk factors" section and our financial statements and notes to those statements, before deciding whether or not to buy our common stock. Except as otherwise noted, when we refer to "LECG," "us," "we" and "our," this reference is made with respect to LECG Corporation, its wholly owned subsidiary, LECG, LLC, and their predecessors, LECG Holding Company, LLC, The Law and Economics Consulting Group, Inc. and LECG, Inc. LECG We provide expert services. Our highly credentialed experts and professional staff address complex, unstructured business and public policy problems. We deliver independent expert testimony and original authoritative studies in both adversarial and non-adversarial environments. We conduct economic, financial and statistical analyses to provide objective opinions and strategic advice to legislative, judicial, regulatory and business decision makers. Our experts are renowned academics, former senior government officials, experienced industry leaders, technical analysts and seasoned consultants. We are organized and operate in a manner that is attractive to our experts by providing them with autonomy, flexibility and the support of a highly capable professional staff. Our clients include Fortune Global 500 corporations, major law firms and local, state and federal governments and agencies in the United States and abroad. Since 1994, our experts and professional staff have worked on over 8,200 assignments for over 4,500 clients in over 30 countries. Businesses, courts, arbitration panels, tribunals, regulatory authorities, legislative bodies and boards of directors throughout the world use independent expert analysis and advice to help resolve disputes through litigation, arbitration and negotiation, as well as to understand and address regulation and legislation. These processes generate ongoing demand for original economic, financial and statistical analyses, irrespective of the business cycle. The credibility of expert analysis and advice is enhanced if the work is independent, is prepared by highly qualified individuals and is informed by the objective facts and circumstances concerned. Traditional management consulting firms that apply a standard methodology to problem solving are typically unable to provide the level of specialization and customization required. Our experts and professional staff have specialized knowledge in economic, financial and statistical theories and analysis as well as in-depth knowledge of specific markets, regulations and industries. These core competencies enable us to incorporate complex methodologies and tools developed in research settings to deliver our expert services in adversarial and non-adversarial settings. The quality of our experts' services has resulted in a high level of repeat business and the development of significant new business. Since our inception in 1988, we have grown from one office in northern California to 29 offices in 10 countries. We derive the majority of our revenues from professional service fees that are billed at hourly rates charged by our experts and professional staff. Hourly fees charged by the professional staff that support our experts, rather than the hourly fees charged by our experts, generate the majority of our gross profit. While we have experienced significant revenue growth and were profitable for the year ended December 31, 2003 and the nine months ended September 30, 2004, we experienced net losses during prior periods, largely attributable to equity-based compensation expense and expenses relating to our management led buyout that occurred in September 2000. We incurred net losses of $8.4 million and $12.1 million in 2001 and 2002, and we had net income of $26.7 million and $12.0 million in 2003 and the nine months ended September 30, 2004, respectively. OUR BUSINESS >Renowned experts. Our experts include internationally recognized faculty and former faculty from many of the world's best universities and individuals who have worked in or with government 1 agencies, such as the United States Department of Justice, the United States Federal Trade Commission and the Environmental Protection Agency, and professionals who have gained experience in large professional services organizations. The quality and experience of our experts drives the demand for our services. >Expert services vision. Our strategy is to hire and retain leading independent experts in fields where we believe there is substantial business opportunity for expert analysis and advice due to the significant economic and financial impact of the disputes and decisions involved. The clarity of our vision as an expert services firm simplifies our internal decision-making processes and enables us to efficiently recruit top expert talent. >Distinctive business model. Our incentive system generally ties expert compensation directly to individual expert performance. Under our model, significant margins are realized on the revenues generated by our professional staff rather than on the individual fees of our experts. Our experts generate assignments that utilize our professional staff and infrastructure. The result is a business model with a flat organizational structure, a variable cost structure and incentive alignment that is scalable across different disciplines and fields of expertise. >Entrepreneurial culture. Our comparatively non-hierarchical structure fosters an entrepreneurial culture that enables us to attract, deploy and retain leading independent experts. Our experts are successful, self-motivated, credentialed individuals who prefer to work in a non-bureaucratic organization. Our management structure is decentralized, and we allow experts high autonomy and intellectual freedom. >Highly proficient professional staff. We employ an experienced professional staff to support our experts. Many of our professional staff have advanced degrees in economics, finance or related disciplines, and relevant business and public service experience. Our professional staff enables our experts to focus their time on the most significant components of a project, allowing the expert to deliver a higher quality, more robust and timely work product in a cost-effective manner. >Attractive support infrastructure. We provide a comprehensive support infrastructure for our experts, including information technology, marketing, billing, project accounting, receivables collection and other administrative support services. We believe that our support infrastructure relieves our experts from the burden of daily administrative tasks and enables our experts to be more focused, collegial and productive than established academics, researchers and other professionals who choose to consult as sole practitioners. >Experienced, high quality leadership team. Our leadership team has extensive experience in guiding professional services companies, including David J. Teece, PhD., our Chairman, who co-founded our company in 1988, and David P. Kaplan, our President, who managed Capital Economics, an economics consulting firm he helped found, from 1985 until he joined us in 1998. We believe our leadership team is able to effectively guide our company while also providing expert services. We face a number of challenges in our business, and investors in this offering will face a number of additional risks. Among the most important of these are: >Retaining our experts and professional staff. Many of our clients are attracted to us by their desire to engage individual experts, and the ongoing relationship with our clients is often managed primarily by our experts. In the event an expert terminates his or her relationship with us, it is probable that many of the clients for which the departing expert is responsible would terminate their relationship with us. We also depend on our professional staff to service our clients. Qualified professionals are in great demand, and we face competition for our professional staff from other consulting firms, universities, governments and research firms. >Maintaining high utilization and billing rates. Our profitability under our business model greatly depends on the utilization and billing rates of our professional staff. Our financial results could suffer if we are unable to achieve and maintain high utilization and billing rates for our professional staff. 2 >Managing our growth. Since the management buyout, we have experienced significant growth in the number of our experts and professional staff, and we have expanded our practice areas and opened offices in many locations. We seek to continue the growth of our business by adding experts and professional staff, expanding our practice areas and acquiring consulting practices. If we are unable to successfully manage the growth of our business, our financial results and business prospects could suffer. >Competition. The market for expert services is highly competitive and subject to rapid change. Many of our competitors are larger and have greater marketing, personnel and financial resources. There are also low barriers to entry into our industry, and new market entrants may seek to compete with us. >Concentrated ownership. Because our management, members of our board of directors and their affiliates will beneficially own approximately 25.4% of our outstanding common stock following this offering, they will be able to substantially influence corporate events requiring stockholder approval. >Payment of dividends. We do not anticipate paying any dividends in the foreseeable future. OUR GROWTH STRATEGY We believe that there are numerous opportunities to continue to grow our business by: >Expanding our base of experts. We attract business primarily due to the reputation and renown of our experts and believe that increasing the number of our experts will increase our business. We intend to continue to identify additional experts through existing relationships and affiliations, governmental and industry knowledge and the advancement of capable members of our professional staff. Since the end of 2003 through September 30, 2004, we have increased our number of experts by 30% to 256 and our number of professional staff by 26% to 376. We believe our unique expert compensation model, strong support system and flexible, autonomous work environment provide an attractive alternative for experts compared to our competitors and sole proprietorships. >Expanding our practice areas. We believe that there are a number of opportunities to apply our business model and attract experts and clients in other fields. In the past year we have successfully added new experts in the fields of labor and employment disputes, forensic accounting, electronic discovery and strategic technology management. We believe that there are additional opportunities in public health and pharmacology and for our professional staff to provide additional complementary services that are natural extensions of our current service offerings, such as litigation document management and historical research. >Expanding our geographic reach. Demand for expert services is growing overseas as foreign countries increasingly adopt methods of regulation and dispute resolution used in the United States. In addition, globalization has increased the number of cases being reviewed and considered in multiple national jurisdictions, elevating the importance of seamless, multi-national case management. We plan to expand our footprint opportunistically to new countries and regions over time by identifying experts in locations in which there is unmet demand for expert analysis and advice. We believe that the long-term, international opportunities in expert services are substantial. In March 2004, we expanded our presence in Europe with the hiring of two new experts and other professional staff in connection with the opening of offices in Belgium, France and Spain. >Strengthening awareness of our brand. Our marketing and sales efforts to date have focused on leveraging the reputations, personal relationships and professional visibility of our experts attained through prior assignments, publishing, teaching and speaking engagements. We believe that we can provide additional marketing support to raise awareness of the firm's total capabilities. >Acquiring complementary businesses; developing strategic alliances. We expect to evaluate and recruit individual experts and groups of experts who have nationally and internationally recognized stature with specific knowledge and skills that enhance or complement our existing service offerings. Our acquisitions of Economic Analysis, LLC and Low Rosen Taylor Soriano in 3 March 2004 have bolstered our capabilities in the areas of antitrust, business valuation and litigation support, adding 19 experts and 43 professional staff. In August 2004, we acquired Silicon Valley Expert Witness Group, Inc., a firm specializing in complex technology and intellectual property disputes, with a network of over 400 affiliated scientific and engineering experts. In October 2004, we acquired Washington Advisory Group, LLC, a firm specializing in technology assessment and policy and research development strategy. We may also continue to enter into strategic alliances and marketing agreements to gain exposure to new clients and broaden awareness of our service offerings. BACKGROUND Our predecessor company was incorporated in March 1988 as a California corporation under the name "The Law and Economics Consulting Group, Inc." This predecessor company was formed to provide expert advisory services. In October 1997, this company changed its name to "LECG, Inc.", and in December 1997, it effected an initial public offering of its common stock which was listed on the New York Stock Exchange under the symbol "XPT." During the next nine months, this company continued to perform expert services as a stand alone company. In August 1998, The Metzler Group, Inc., which changed its name to Navigant Consulting, Inc. in 1999, acquired all of the outstanding common stock of our predecessor company. After the acquisition, our predecessor company operated as a wholly owned subsidiary of Navigant Consulting under the name "LECG, Inc." In September 2000, 35 of our experts, including four of our founding experts, with equity sponsorship led by affiliates of Thoma Cressey Equity Partners, executed a management buyout of substantially all of the assets and the assumption of certain liabilities of LECG, Inc. The total cash purchase price was $44.3 million. For the purpose of conducting the management buyout, these experts formed LECG Holding Company, LLC, which owned all of our operating assets through its wholly owned subsidiary, LECG, LLC. Prior to our November 2003 initial public offering, there was a series of integrated reorganization transactions, including an equity exchange transaction by the members of LECG Holding Company, LLC. Following all of the integrated transactions, LECG, LLC became wholly owned by LECG Corporation through its direct subsidiary, LECG Funding Corporation. LECG Holding Company, LLC, the prior sole equityholder of LECG, LLC, ceased to exist as a result of a merger into LECG Funding Corporation. LECG Corporation is the registrant in this offering. PRINCIPAL EXECUTIVE OFFICE Our principal executive office is located at 2000 Powell Street, Suite 600, Emeryville, California 94608 and our telephone number is (510) 985-6700. 4 The offering Common stock offered by selling stockholders 3,000,000 shares Over-allotment option 450,000 shares, of which we may sell up to 250,000 shares and the remainder may be sold by certain selling stockholders Common stock to be outstanding after the offering 22,439,134 shares Nasdaq National Market symbol XPRT Use of proceeds We will not receive any proceeds from the sale of any shares sold by the selling stockholders. If we sell shares as part of the underwriter's over-allotment option, we intend to use the proceeds to satisfy our expenses associated with this offering and the balance for general corporate purposes, including working capital. The number of shares of common stock to be outstanding after this offering is based on 22,439,134 shares outstanding as of September 30, 2004, and excludes: >6,092,198 shares issuable upon exercise of outstanding options as of September 30, 2004 under our 2000 Incentive Plan and our 2003 Stock Option Plan at a weighted average exercise price of $15.02 per share; >383,275 shares available for future grant or issuance as of September 30, 2004 under our 2003 Stock Option Plan; and >873,229 shares available for future grant or issuance as of September 30, 2004 under our 2003 Employee Stock Purchase Plan. If the underwriter exercises its over-allotment option in full, 22,689,134 shares of common stock will be outstanding after this offering. Except as otherwise noted, the information in this prospectus assumes that the underwriter does not exercise its over-allotment option. 5 Summary financial data The following table sets forth our summary financial data. The data have been derived from the financial statements for each of the three years in the period ended December 31, 2003 and the nine months ended September 30, 2003 and 2004 included elsewhere in this prospectus. You should read this data together with our financial statements and related notes and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. Year ended December 31, Nine months ended September 30, Operating income 3,586 4,880 5,605 5,042 5,436 6,883 7,797 Interest income 15 6 9 73 111 71 69 Interest (expense) (857 ) (569 ) (516 ) (678 ) (67 ) (55 ) (61 ) Other income (expense), net 95 148 (97 ) 320 (27 ) (26 ) Total cost of services 75,767 106,728 112,388 82,123 101,048 Gross profit 24,968 26,976 53,206 39,660 51,799 Costs of postponed equity offering 3,500 Operating expenses 30,755 32,651 34,093 25,589 31,682 Income (loss) before provision for income taxes (8,418 ) (12,064 ) 17,062 12,305 20,158 Income tax provision (benefit) (9,613 ) 8,184 Net income (loss) (8,418 ) (12,064 ) 26,675 12,305 11,974 Accrued preferred dividends and accretion of preferred units 3,251 3,692 7,712 3,135 (unaudited) Cash flows from operating activities Net income $ 12,305 $ 11,974 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Bad debt expense 165 Depreciation and amortization of property and equipment 2,329 1,834 Amortization of intangible assets 900 843 Amortization of signing bonuses 1,080 2,812 Equity-based compensation 398 (73 ) Tax benefit of stock option plans 2,718 Deferred rent expense 490 801 Other non-cash (income) expense (213 ) 58 Changes in assets and liabilities, net of effect of acquisitions: Accounts receivable (11,728 ) (23,318 ) Prepaid and other current assets (1,856 ) (3,009 ) Accounts payable and other accrued liabilities (21 ) 4,505 Accrued compensation 2,837 2,198 Signing bonuses and other assets (1,429 ) (18,341 ) Other liabilities, net Net income (loss) available to common shares $ (11,669 ) $ (15,756 ) $ 18,963 $ 9,170 $ 11,974 David J. Teece 56 Chairman of the Board of Directors David P. Kaplan 49 President and Director John C. Burke 66 Chief Financial Officer Gary S. Yellin 53 Chief Accounting Officer J. Geoffrey Colton 57 Director of Finance and Assistant Secretary Marvin A. Tenenbaum 53 Vice President, General Counsel and Secretary Tina M. Bussone 32 Director of Administration Michael R. Gaulke 58 Director(1)(2) Michael J. Jeffery 57 Director(1)(2)(3) William W. Liebeck 49 Director(2)(3) Ruth M. Richardson 53 Director(2)(3) David T. Scheffman 60 Director William J. Spencer 74 Director(1)(2) Walter H.A. Vandaele Net income (loss) per share: Basic $ (1.11 ) $ (1.41 ) $ 1.39 $ 0.73 $ 0.55 Diluted $ (1.11 ) $ (1.41 ) $ 1.17 $ 0.61 $ 0.51 Shares used in calculating net income (loss) per share: Basic 10,478 11,169 13,674 12,492 21,725 Diluted 10,478 11,169 16,261 15,034 23,333 Other operating data (period end) (in thousands) Cash and cash equivalents $ 24,142 Total assets 197,084 Total stockholders' equity 143,097
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+SUMMARY This summary represents a summary of all material terms of this offering and highlights selected information described in greater detail elsewhere in this prospectus. You should read this entire prospectus carefully before making an investment decision. THE COMPANY Carl Paul founded our company in 1967 when he began providing clubmakers with the components necessary to offer custom-made golf clubs at a time when most golfers could only purchase ready-made, off-the-shelf equipment. In order to capitalize on this market opportunity, we helped pioneer the golf club components industry by designing and selling a line of components and supplies (principally golf clubheads, shafts, grips and tools) for custom clubmakers through our clubmakers' catalog. Over the years we have complemented and expanded our operations by opening our first retail outlet in 1972, mailing our first general golf product catalog in 1975, opening our first superstore in 1992, opening the Harvey Penick Golf Academy in 1993 and launching golfsmith.com in 1997. We are a multi-channel retailer of golf equipment, merchandise and training curriculum for consumers and golf clubmaking businesses. We offer equipment from leading manufacturers, including Callaway(R), Cobra(R), FootJoy(R), Nike(R), Ping(R), Taylor Made(R) and Titleist(R). In addition, we offer our own proprietary brands, including Golfsmith(R), Lynx(R), Snake Eyes(R), Killer Bee(R) and Zevo(R). We market our products through 42 superstores as well as through our direct-to-consumer channel, which includes our clubmaking and accessory catalogs and our Internet site. We also operate the Harvey Penick Golf Academy, an instructional school incorporating the techniques of the well-known golf instructor, the late Harvey Penick. We offer a complete line of golf equipment and related accessories through multiple distribution channels: Superstores. We opened our first golf superstore in 1992 and currently operate 42 superstores. These stores range in size from approximately 8,000 to 30,000 square feet. Our superstores feature a wide selection of golf equipment from major name brand manufacturers. Direct-to-Consumer. Our principal publications are the Golfsmith Accessory Catalog and the Golfsmith Clubmaking Catalog. We also sell our products through our website,www.golfsmith.com. Through our direct-to-consumer distribution channels, we provide customers our offering of products, including equipment, apparel, accessories and clubmaking components and tools. Harvey Penick Academy. In 1993, we partnered with Austin native and well-known golf instructor, the late Harvey Penick, to form the Harvey Penick Golf Academy. The academy has attracted over 17,000 students since its inception. We believe the academy helps contribute to sales at our adjacent Austin superstore. International. We work with a group of international distributors to offer golf club components and equipment to clubmakers and golfers in selected regions outside the United States. In the United Kingdom, we sell our proprietary branded equipment through a commissioned sales force directly to retailers. Throughout most of Europe and parts of Asia and other parts of the world, we sell our products through a network of distributors. THE MERGER On October 15, 2002, BGA Acquisition Corp., a wholly owned subsidiary of Golfsmith International Holdings, Inc., or Holdings, merged with and into Golfsmith International, Inc., or Golfsmith. Golfsmith is the surviving corporation and is a wholly owned subsidiary of Holdings as a result of the merger. The aggregate purchase price for the merger was approximately $121.0 million. The components of this purchase price included the payment to our stockholders prior to the merger of $101.5 million in cash and $12.8 million of our equity securities, and $6.7 million in fees and expenses incurred in connection with the merger. The cash portion of the purchase price for the merger was funded out of: - the net proceeds from the offering of our 8.375% senior secured notes due 2009, of approximately $67.9 million; - the cash contribution of $50.0 million described below; and - existing cash. The merger agreement required Golfsmith to repay and terminate all then existing indebtedness and also required Holdings to put in place a new revolving credit facility as a condition to the closing of the merger. For more information about the terms of the merger generally, you should read the description of the merger agreement in "Related Party Transactions." Holdings was formed by Atlantic Equity Partners III, L.P., a limited partnership operated by First Atlantic Capital Ltd. First Atlantic is a private equity investment firm. Holdings was formed solely for the purpose of completing the merger and had no operations, assets or properties prior to the merger. In connection with the merger, Atlantic Equity Partners III contributed $50.0 million in return for approximately 79.7% of the common stock of Holdings on a fully diluted basis. In addition, some of our stockholders prior to the merger, including members of our current management, received shares of common stock of Holdings and restricted common stock units, which entitle the holders thereof to shares of common stock of Holdings. As of July 3, 2004, these stockholders owned in the aggregate 17.3% of the common stock of Holdings on a fully diluted basis, including outstanding stock options. In connection with the merger, we entered into a management consulting agreement with First Atlantic, and all of Holdings' stockholders, including members of our management, entered into a stockholders agreement and certain other contractual arrangements with First Atlantic as described in "Related Party Transactions." --------------------- We were incorporated in Texas in 1973 and reincorporated in Delaware in 1998. Our principal offices are located at 11000 N. IH-35, Austin, Texas 78753-3195. Our telephone number is (512) 837-8810. Our website address is www.golfsmith.com. Information on our website does not constitute part of this prospectus. Except as the context otherwise requires, we have assumed in this prospectus that Holdings will issue 1,535,877 shares of its common stock to its majority stockholder, Atlantic Equity Partners III, L.P., in exchange for $7,250,000 aggregate principal amount at maturity of notes in the private transaction described in "Related Party Transactions -- Issuances of Common Stock of Holdings" and "Selling Noteholder," which assumes that Holdings will sell the notes offered by this prospectus for an offering price of 84.3668% of the principal amount at maturity (the book value of such notes as of September 17, 2004). If the actual sale price of the notes is greater than the book value of the notes at the time of sale, then Holdings will make a cash payment to Atlantic Equity Partners III in addition to issuing shares of its common stock, as described in "Related Party Transactions -- Issuances of Common Stock of Holdings" and "Selling Noteholder." You should rely only on the information contained in this prospectus. Neither we nor any of the guarantors have authorized anyone else to provide you with additional or different information. Holdings is offering to sell, and seeking offers to buy, notes only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our notes. THE NOTES The following summary is not intended to be complete. For a more complete description of the terms of the notes, see "Description of the Notes" in this prospectus. Issuer........................ Golfsmith International, Inc. Securities Offered............ $7,250,000 aggregate principal amount at maturity of our 8.375% senior secured notes due 2009. Issue Price................... The notes were issued at an issue price of $800 per note. Each note has a principal amount at maturity of $1,000. Maturity Date................. October 15, 2009. Interest Rate and Payment Dates......................... We pay interest on the notes at a rate equal to 8.375% per year. Interest on the notes is payable semi-annually in cash in arrears on March 1 and September 1 of each year. Original Issue Discount....... The notes were issued with original issue discount (that is, the difference between the stated principal amount at maturity and the issue price of the notes) for federal income tax purposes. Thus, original issue discount accrues from the issue date and must be included as interest income periodically in a holder's gross income for federal income tax purposes in advance of receipt of the cash payments to which the income is attributable. See "Material United States Federal Income Tax Consequences." HYDO Payments................. On each interest payment date beginning March 1, 2008, in addition to accrued interest due on that date, we will make a payment, which we call a HYDO payment, on each note in an amount equal to the excess, if any, of: - the total amount of interest and original issue discount accrued on the note through that date, over - the sum of: - all amounts of interest and original issue discount paid in cash with respect to such note through and including that date; - all HYDO payments previously made by us; and - the annual "yield to maturity" applicable for purposes of the accrual of original issue discount multiplied by the original principal amount at maturity of the note. Each HYDO payment will reduce the outstanding principal amount at maturity of the applicable note. As a result of making these HYDO payments, we will not be subject to special rules (applicable to some high-yield debt obligations with significant amounts of unpaid original issue discount after five years from their issue date), that would otherwise limit the amount of interest expense we could deduct on the notes for U.S. federal income tax purposes. See "Material United States Federal Income Tax Consequences -- Effect of HYDO Payments on Our Ability to Deduct Interest on the Notes." Guarantees.................... Holdings, our parent company, and all of our domestic restricted subsidiaries have fully and unconditionally guaranteed, and all of our future domestic restricted subsidiaries will fully and unconditionally guarantee, on a senior basis, jointly and severally, the full and prompt performance of our obligations under the indenture governing the notes, the notes and the agreements relating to the security interest described below, including the payment of principal of, interest on and premium, if any, on the notes. If we are unable to make payments on the notes when they are due, Holdings and our subsidiary guarantors will be obligated to make them instead. The guarantee of each guarantor ranks senior in right of payment to all subordinated indebtedness of such guarantor and equal in right of payment with all other senior obligations of such guarantor, including borrowings or guarantees of borrowings under our senior credit facility. The obligations of each guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such guarantor and after giving effect to any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution obligations under the indenture, will result in the obligations of such guarantor under the guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Security Interest............. The notes are secured by a first priority lien on our real property, fixtures, equipment and proceeds thereof and a second priority lien on substantially all of our other assets (including stock of subsidiaries), and each guarantee is secured by a first priority lien on the real property, fixtures, equipment and proceeds thereof of the relevant guarantor and a second priority lien on substantially all of the other assets (including stock of subsidiaries) of such guarantor. Our senior credit facility is secured by a first priority lien on substantially all of the assets of the borrowers and the guarantors under the senior credit facility, including stock of their respective subsidiaries (including all of our stock) but excluding real property, fixtures, equipment and proceeds thereof. Ranking....................... The notes are our senior secured obligations and rank equal in right of payment with all of our existing and future senior indebtedness. The guarantees are the senior secured obligations of Holdings and the subsidiary guarantors and rank equal in right of payment with all of their respective existing and future senior indebtedness. As of July 3, 2004, we had no senior indebtedness outstanding except for the notes. However, we had $12.0 million of borrowing availability (after giving effect to required reserves of $500,000), subject to customary conditions, under our senior credit facility, which, if borrowed, would be senior indebtedness. In the event of a bankruptcy, the rights of noteholders to receive any distribution of assets or the proceeds therefrom from us, Holdings or the subsidiary guarantors with respect to the collateral on which the notes have a second priority lien will be subject to the prior claims of the lenders under our senior credit facility. Optional Make-Whole Redemption.................... We may, at our option, redeem some or all of the notes at any time prior to October 15, 2006 by paying the greater of (1) 100% of the accreted value of the notes and (2) the sum of the present values of 106.5% of the accreted value of the notes plus scheduled interest payments on the notes through and including October 15, 2006, discounted to the redemption date on a semi-annual basis at the adjusted treasury rate plus 50 basis points, plus accrued and unpaid interest to the redemption date. In the event that we redeem less than all of the notes, the trustee will select the notes for redemption on a pro rata basis or another method it reasonably determines is fair and appropriate. Optional Redemption........... On or after October 15, 2006, we may redeem all or a portion of the notes at our option at the redemption prices described under "Description of the Notes -- Redemption -- Optional Redemption On or After October 15, 2006." In the event that we redeem less than all of the notes, the trustee will select the notes for redemption on a pro rata basis or another method it reasonably determines is fair and appropriate. Equity Offering Optional Redemption.................... Prior to October 15, 2005, we may redeem on one or more occasions notes in an amount equal to up to 35% in the aggregate of the principal amount at maturity of the notes originally issued at 113% of the accreted value of the notes being redeemed plus accrued and unpaid interest, if any, to the redemption date with the net cash proceeds realized by us from any equity offering. In the event that we redeem less than all of the notes, we will redeem such notes on a pro rata basis. Mandatory Redemption.......... We must make a partial pro rata redemption of a portion of the original principal amount at maturity of each note according to the following schedule: <Table> <Caption> PERCENTAGE OF DATE PRINCIPAL REDEEMED ---- ------------------ <S> <C> October 15, 2007........................ 20% October 15, 2008........................ 10% </Table> In addition, we must pay accrued and unpaid interest on the principal amount of notes redeemed to the redemption date. If we issue additional notes after the issue date, these percentages will be reduced by multiplying the relevant percentage by a fraction, the numerator of which is the principal amount at maturity of notes issued on the issue date and the denominator of which is the sum of the principal amount at maturity of such notes and the principal amount at maturity of any additional notes issued under the indenture. However, the principal amount at maturity of notes we must redeem on the dates set forth above will be reduced by the aggregate principal amount at maturity of notes we have previously repurchased pursuant to the excess cash flow offers, as described below. Excess Cash Flow Offer........ Within 120 days after the end of each fiscal year, we must offer to repurchase the maximum principal amount of notes that may be purchased with 50% of our excess cash flow from our previous fiscal year at a purchase price of 100% of the accreted value of the notes to be purchased. We will repurchase notes pursuant to any excess cash flow offer on a pro rata basis, or by another method if required by law. The indenture governing the notes defines excess cash flow as consolidated net income plus interest, amortization and depreciation expense, income taxes, and net non-cash charges, less certain capital expenditures, increases in working capital, cash interest expense and income taxes. Change of Control Offer....... If we experience a change of control, each holder of notes will have the right to sell us all or a portion of its notes at 101% of the accreted value of the notes, plus accrued and unpaid interest, if any, to the date of purchase. In addition, a change of control under the indenture would also constitute a change of control, and thus an event of default, under our senior credit facility. We may not have sufficient funds at the time of the change of control to make the required repurchases of notes or payments under our senior credit facility, and restrictions in our senior credit facility may not allow such repurchases of the notes. Asset Sale Offers............. If we do not reinvest the proceeds from the sale of assets in our business, we may have to use the proceeds to offer to repurchase notes at 100% of the accreted value of the notes, plus accrued and unpaid interest, if any, to the date of purchase. Restrictive Covenants......... The indenture governing the notes contains covenants that, among other things, limit our ability to: - incur additional indebtedness or issue disqualified capital stock; - pay dividends or make other restricted payments; - issue capital stock of certain subsidiaries; - make capital expenditures; - enter into transactions with affiliates; - enter into sale/leaseback transactions; - create or incur liens; - transfer or sell assets; - incur dividend or other payment restrictions affecting certain subsidiaries; and - consummate a merger, consolidation or sale of all or substantially all of our assets. These covenants are subject to a number of important exceptions described below in "Description of the Notes -- Certain Covenants." Events of Default............. The indenture governing the notes contains the following as events of default, which could result in the accreted value and all accrued and unpaid interest on the notes becoming immediately due and payable: - failure to pay premium, if any, interest or any other amount (other than principal) on any notes for a period of 30 days or more after it becomes due and payable; - failure to pay the principal on any notes when it becomes due and payable; - a default upon certain covenants that continues for a specified period; - a default under any other agreement in the indenture or any agreement contained in the documents relating to the collateral, including the security agreement described below, that continues for a specified period; - our or any guarantor's failure to pay any indebtedness when due, if the amount of such indebtedness is $5.0 million or more at any one time; - judgments in excess of $5.0 million are rendered against us or any of our restricted subsidiaries and remain unpaid for a specified period; - certain events of bankruptcy affecting us or certain of our subsidiaries; - any agreement relating to the collateral ceases to be effective; - we or any of our subsidiaries contest any agreement relating to the collateral; and - certain guarantees cease to be in effect. You should read the description of these events of default below under "Description of the Notes -- Events of Default" for a complete explanation of their terms and exceptions. SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated financial data as of and for fiscal 1999, 2000, 2001 and for the period from December 30, 2001 through October 15, 2002 have been derived from the audited consolidated financial statements of Golfsmith International, Inc., and for the period from October 16, 2002 through December 28, 2002 and as of and for fiscal 2003 have been derived from the audited consolidated financial statements of Golfsmith International Holdings, Inc., all periods of which have been audited by Ernst & Young LLP. Golfsmith International Holdings, Inc. was formed on September 4, 2002 and became the parent company of Golfsmith International, Inc. on October 15, 2002 as a result of the merger. Holdings is a holding company and had no material assets or operations prior to acquiring all of the capital stock of Golfsmith International, Inc. in the merger. As a result of applying the required purchase accounting rules, the financial statements of Golfsmith International Holdings, Inc. are significantly affected. The application of purchase accounting rules results in different accounting bases and hence different financial information for the periods beginning on October 16, 2002. We refer to Golfsmith International Holdings, Inc. and all of its subsidiaries, including Golfsmith International, Inc. following the acquisition on October 15, 2002, as the successor for purposes of the presentation of financial information below. We refer to Golfsmith International, Inc. prior to being acquired by Golfsmith International Holdings, Inc. as the predecessor for purposes of the presentation of financial information below. References to any "fiscal" year of our company refer to the fiscal year of us or our predecessor ended or ending on the Saturday closest to December 31 of such year. The summary consolidated financial data of Holdings as of and for the six months ended June 28, 2003 and July 3, 2004 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus and, in our opinion, reflect all adjustments, consisting of normal accruals, necessary for a fair presentation of the data for those periods. Our results of operations for the six months ended July 3, 2004 may not be indicative of results that may be expected for the full year. You should read the information set forth below in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus. <Table> <Caption> PREDECESSOR SUCCESSOR --------------------------------------------- ------------------------------------------------- PERIOD FROM PERIOD FROM DECEMBER 30, OCTOBER 16, 2001 2002 SIX MONTHS ENDED FISCAL YEAR THROUGH THROUGH -------------------- ------------------------------ OCTOBER 15, DECEMBER 28, FISCAL YEAR JUNE 28, JULY 3, 1999 2000 2001 2002 2002 2003 2003 2004 -------- -------- -------- ------------ ------------ ----------- --------- -------- (IN THOUSANDS, EXCEPT RATIOS) <S> <C> <C> <C> <C> <C> <C> <C> <C> RESULTS OF OPERATIONS: Net revenues.................. $267,946 $232,080 $221,439 $180,315 $ 37,831 $257,745 $125,086 $162,726 Cost of products sold......... 175,600 153,630 143,118 117,206 25,147 171,083 84,425 106,377 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit.................. 92,346 78,450 78,321 63,109 12,684 86,662 40,661 56,349 Selling, general and administrative.............. 78,360 76,352 64,081 48,308 13,581 73,400 33,439 47,072 Store pre-opening/closing expenses.................... 493 1,592 -- 122 93 600 163 382 Amortization of deferred compensation(1)............. -- -- 458 6,033 -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses...... 78,853 77,944 64,539 54,463 13,674 74,000 33,602 47,454 -------- -------- -------- -------- -------- -------- -------- -------- Operating income.............. 13,493 506 13,782 8,646 (990) 12,662 7,059 8,895 Interest expense.............. (5,775) (6,905) (6,825) (5,206) (2,210) (11,157) (5,451) (5,597) Interest income............... 22 82 597 331 7 40 22 5 Other income, net............. 275 449 1,031 2,365 14 164 43 (18) Minority interest............. (583) 454 (581) (844) -- -- -- -- Loss on debt extinguishment(1)........... -- -- -- (8,047) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes....................... 7,432 (5,414) 8,004 (2,755) (3,179) 1,709 1,673 3,285 Income tax benefit (expense)................... (289) 190 (251) (709) 633 (645) (669) (1,223) -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) from continued operations.................. 7,143 (5,224) 7,753 (3,464) (2,546) 1,064 1,004 2,062 Income (loss) from discontinued operations..... 52 (380) (590) (230) (40) -- -- -- Income (loss) before extraordinary items......... 7,195 (5,604) 7,163 (3,694) (2,586) 1,064 1,004 2,062 Extraordinary items(1)........ -- -- -- 4,122 -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)............. $ 7,195 $ (5,604) $ 7,163 $ 428 $ (2,586) $ 1,064 $ 1,004 $ 2,062 ======== ======== ======== ======== ======== ======== ======== ======== </Table> <Table> <Caption> PREDECESSOR SUCCESSOR --------------------------------------------- ------------------------------------------------- PERIOD FROM PERIOD FROM DECEMBER 30, OCTOBER 16, 2001 2002 SIX MONTHS ENDED FISCAL YEAR THROUGH THROUGH -------------------- ------------------------------ OCTOBER 15, DECEMBER 28, FISCAL YEAR JUNE 28, JULY 3, 1999 2000 2001 2002 2002 2003 2003 2004 -------- -------- -------- ------------ ------------ ----------- --------- -------- (IN THOUSANDS, EXCEPT RATIOS) <S> <C> <C> <C> <C> <C> <C> <C> <C> OTHER FINANCIAL DATA: Depreciation and amortization(2)............. $ 5,601 $ 9,118 $ 6,717 $ 4,808 $ 1,349 $ 5,228 $ 2,610 $ 2,892 Capital expenditures(3)....... 9,740 2,107 1,345 2,086 1,127 5,759 1,758 3,957 Ratio of earnings to fixed charges(4).................. 1.6x 0.6x 1.6x 0.7x 0.1x 1.1x 1.2x 1.3x Deficiency of earnings to fixed charges............... $ -- $ (5,794) $ -- $ (2,755) $ (3,179) $ -- $ -- $ -- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents..... $ 3,023 $ 11,149 $ 39,550 $ 3,788 $ 11,412 $ 2,928 $ 20,010 $ 5,456 Total assets.................. 105,882 106,902 111,500 153,135 160,011 179,327 183,657 195,105 Long-term debt................ 23,540 37,145 33,720 75,000 75,380 77,488 76,387 78,607 Total stockholders' equity.... 33,004 24,921 32,519 56,011 53,473 58,976 54,527 61,079 </Table> --------------- (1) For the period from December 31, 2001 through October 15, 2002, please refer to note 5 and note 14 in our consolidated financial statements included in this prospectus for a discussion of the extraordinary items, loss on debt extinguishment and amortization of deferred compensation. (2) Excludes the amortization of the debt discount and deferred charges associated with our 12% senior subordinated notes which were outstanding prior to the merger, the deferred charges associated with our credit facility in effect prior to the merger, the amortization of the debt discount and deferred charges associated with our 8.375% senior secured notes and deferred charges associated with our senior credit facility in effect subsequent to the merger. (3) Capital expenditures consist of total capital expenditures, including capital costs associated with opening new stores. (4) The ratio of earnings to fixed charges is calculated by dividing the fixed charges into net income before taxes plus fixed charges. Fixed charges consist of interest expense, including amortization of debt discount associated with our 12% senior subordinated notes and our 8.375% senior secured notes during the respective periods in which they were outstanding and amortization of deferred debt issuance costs, and the estimated interest component of rent expense.
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing in the back of this prospectus. You should carefully consider, among other things, the matters discussed in
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001207070_franklin_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001207070_franklin_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should read the following together with the more detailed information set out in this prospectus, including the "Risk Factors" section beginning on page 7 and our consolidated financial statements and the notes to these financial statements appearing elsewhere in this document. THE COMPANY GENERAL We are a Texas-based savings and loan holding company with approximately $2.3 billion in assets, $1.3 billion in deposits and $245.4 million in stockholders' equity as of December 31, 2003. Through our wholly-owned subsidiary, Franklin Bank, S.S.B., a Texas state savings bank, we originate single family residential mortgage loans, provide community banking products and services, originate residential construction loans and provide mortgage banker finance products and services. As of December 31, 2003, in addition to our corporate offices in Houston, Texas, where we provide many of our banking services, we had 13 full service banking branches in Texas, two regional residential construction lending offices in Florida and Arizona, 34 retail mortgage offices in 16 states throughout the United States, and a regional wholesale origination office in California. On December 22, 2003, we completed an initial public offering of our common stock and received net proceeds of approximately $140.2 million. On December 30, 2003, we acquired Jacksonville Bancorp, Inc., a Texas-based savings and loan holding company with approximately $469.5 million in assets, $395.9 million in deposits and $39.1 million in stockholders' equity at the date of acquisition. Jacksonville Bancorp's wholly-owned subsidiary, Jacksonville Savings Bank, S.S.B., is a Texas state savings bank that operates nine banking branches in and around Tyler, Texas. Jacksonville Bank provides retail banking products, originates single-family residential mortgage loans and, to a lesser extent, multi-family and commercial real estate, construction, land, business and consumer loans. We paid a purchase price for the acquisition of approximately $72.5 million in cash. The Jacksonville Bancorp acquisition provides us with a community-based banking presence in a growing region of the Texas market. In addition, Jacksonville Bancorp's products complement our niche products by expanding our deposit market and providing us with a well-established mortgage origination group in an area of Texas we did not previously serve. We expect to be able to build upon the base that the Jacksonville Bancorp acquisition provides us. On February 29, 2004, we acquired Lost Pines Bancshares, Inc., a Texas-based bank holding company with approximately $40.3 million in assets and $36.5 million in deposits at the date of acquisition. Lost Pine's wholly-owned subsidiary, Lost Pines National Bank, is a national bank chartered under the National Bank Act, that operates two banking branches outside of Austin, Texas. Lost Pines Bank provides retail banking products and originates commercial real estate and commercial loans. We paid a purchase price for the acquisition of approximately $6.9 million in cash. The Lost Pines acquisition complements our existing branches and expands our presence in the outlying areas of the Austin, Texas market. Pro forma for the Lost Pines acquisitions, we would have had approximately $2.3 billion in assets, $1.3 billion in deposits, and 15 full service banking branches in Texas as of December 31, 2003. OUR EXPERIENCED MANAGEMENT Our Chairman and senior management team have extensive experience building high quality, profitable financial services franchises in our niche products. Our Chairman, Lewis S. Ranieri, and our President and Chief Executive Officer, Anthony J. Nocella, are the former Chairman and Vice Chairman/ Chief Financial Officer, respectively, of Bank United Corp., which successfully employed an asset strategy similar to ours. Additionally, most of our executive management, including the heads of three of our four main product lines, and most of our senior employees, worked together at Bank United Corp. Prior to its acquisition by Washington Mutual, Inc. in 2001, Bank United Corp. was the largest publicly traded depository institution based in Texas, with approximately $18 billion in total assets. OUR STRATEGY Our principal growth and operating strategies are to: - increase the scope and profitability of our product lines by expanding our markets and utilizing the expertise of our key management; - expand our community banking business by acquiring small- to medium-sized financial institutions in growing Texas markets outside of metropolitan areas and by establishing new banking branches to complement our existing branch network; and - continue to build our franchise by providing superior service through qualified and relationship-oriented employees who are committed to the communities in which we offer our products. ACQUISITIONS Since our formation in August 2001, we have announced or completed the following acquisitions: <Table> <Caption> TOTAL DATE INSTITUTION ACQUIRED OR TO BE ACQUIRED PURCHASE PRICE ASSETS BRANCHES ---- -------------------------------------- -------------- ------ -------- <S> <C> <C> <C> <C> February 2004 Lost Pines Bancshares, Inc. $ 6.9 million $40.3 million 2 December 2003 Jacksonville Bancorp, Inc. $69.2 million $469.5 million 9 April 2003 Highland Lakes Bancshares Corporation $18.6 million $83.6 million 1 April 2002 Franklin Bank, S.S.B. $11.2 million $62.3 million 2 </Table> We continue to seek opportunities to expand our community banking business by acquiring small- to medium-sized financial institutions in growing Texas markets outside of metropolitan areas. We believe that acquisitions such as these complement our asset strategy and provide an excellent source of deposits, a key component of our growth. OUR BUSINESS We provide services relating to the following four niche products: - MORTGAGE BANKING. We originate residential mortgage loans through two channels, retail and wholesale, and also acquire mortgage loans through our correspondents. As of December 31, 2003, we had 34 retail mortgage offices in 16 states throughout the United States, in markets where we believe there are growth opportunities in single family housing. In these retail mortgage offices, we compensate our mortgage office managers based upon the office's profitability, with most of the fixed expenses charged back to the individual office. We believe this structure provides us with significant flexibility in managing the cyclical nature of the mortgage business. Through these offices, as of December 31, 2003, we had originated $188.6 million in mortgage loans since January 1, 2003, including $51.5 million in the fourth quarter of 2003. We intend to continue to add additional retail mortgage offices that meet our growth and profitability criteria. During the year ended December 31, 2003, we originated $103.2 million in mortgage loans through our wholesale office in California and our corporate office in Houston, Texas, and had purchased $1.4 billion in single family loans through our correspondent relationships since January 1, 2003. For the year ended December 31, 2003, approximately 80% of our interest income came from mortgage banking activities, including approximately 71% from our portfolio loans and approximately 9% from our origination activities. - COMMUNITY BANKING. Our community banking strategy is to expand through strategic acquisitions and the establishment of new banking branches in growing Texas markets outside of principal metropolitan areas. By acquiring and establishing new branches, and providing superior service in these markets, we believe we will increase deposits, a key component for our overall growth. As of December 31, 2003, total deposits from our community banking products were $565.4 million, with interest expense related to these deposits representing approximately 12% of our total interest expense for the year ended December 31, 2003. Interest income on community banking products was approximately 5% of our total interest income for the same period. In April 2003, we acquired Highland Lakes Bancshares Corporation, located in Kingsland, Texas. At the time of our acquisition, Highland had one branch, approximately $83.6 million in assets and $72.9 million in deposits. In December 2003, we acquired Jacksonville Bancorp, which added nine branches in a growing region of the Texas market. At the time of our acquisition, Jacksonville Bancorp had approximately $399.8 million in deposits. In February 2004, we completed our acquisition of Lost Pines, that added two branches to our existing branch network and increased our deposits by approximately $36.5 million. We will continue to seek opportunities to acquire financial institutions that are consistent with our strategy of growing our community banking presence in our target markets. - RESIDENTIAL CONSTRUCTION LENDING. We operate our residential construction business out of our offices in Houston, Texas, Phoenix, Arizona and Orlando, Florida. We have assembled a team that worked together at Bank United Corp. with extensive experience in the residential construction business. We focus on making loans to medium sized builders who produce at least 50 single-family residential units per year. As of December 31, 2003, we had $291.7 million in residential construction loans committed, of which $161.8 million were outstanding. For the year ended December 31, 2003, we derived approximately 8% of our total interest income from residential construction lending products. - MORTGAGE BANKER FINANCE. We entered the mortgage banker finance business in July 2003. In this business, we provide warehouse lines of credit, cash management and other services to small-and medium-sized mortgage companies. In addition to providing interest income, we expect the mortgage banker finance business to give us an excellent source of deposits generated by our cash management products. We have assembled a team of experienced mortgage banker finance professionals to manage this business. As of December 31, 2003, we had $20.0 million in warehouse lines committed, of which $3.7 million was outstanding. MARKET OPPORTUNITY We believe that there is an opportunity to build a significant franchise using our strategy because of the following: - ATTRACTIVE BANKING MARKET. We conduct our community banking business in Texas, which we believe is an attractive banking market. According to 2000 U.S. Census Bureau data, Texas is the second most populous state in the nation with approximately 20.9 million residents and, according to the Texas Comptroller, is expected to have 23.1 million residents by 2006. In addition, the Texas Department of Economic Development reports that Texas has led the nation in nonagricultural job creation over the last 13 years with a 36.1% increase, which is substantially above the national average of 20.1%. - BANKING INDUSTRY CONSOLIDATION. Many Texas-based financial institutions have been acquired by larger, out-of-state banking organizations. According to the FDIC, during the twelve-year period ended December 31, 2002, the number of depository institutions based in Texas declined by approximately 43.4%. We believe the result of the transition to large multi-branch banking has been the loss of local decision-making, lack of timely response to customer needs and unwillingness to provide personalized customer interaction. We believe this trend enables us to attract: - quality customers neglected by our competitors; - qualified personnel who are experienced with, and have a desire to sell, our niche products; and - attractive acquisition candidates that share our banking philosophy. - SIZE OF RESIDENTIAL MORTGAGE MARKET. The large size of the residential mortgage market provides substantial opportunities for smaller, niche lenders such as us. The Mortgage Bankers Association is forecasting that mortgage loan originations for 2004 will approximate $2.5 trillion. Of this amount, mortgage loans used to purchase a home are expected to exceed $1.4 trillion. Additionally, the U.S. Department of Commerce reported that December 2003 single-family housing starts were 1.66 million on an annual basis. HISTORY In August 2001, our founders organized Franklin Bank Corp. as a new holding company for the purpose of acquiring all of the outstanding capital stock of Franklin Bank. We consummated that acquisition on April 9, 2002. At the time of the acquisition, Franklin Bank had approximately $62.3 million in assets, $58.5 million in deposits and $3.1 million in stockholders' equity, and operated two banking branches in Austin, Texas. In April 2003, we acquired Highland, located in Kingsland, Texas. At the time of the acquisition, Highland had approximately $83.6 million in assets and $72.9 million in deposits. The acquisition of Highland complemented our existing banking branches and expanded our presence in our target market. In December 2003, we acquired Jacksonville, which had $476.6 million in assets and $399.8 million in deposits at the time of the acquisition. The acquisition of Jacksonville added nine branches in and around the Tyler/Jacksonville, Texas area. On February 29, 2004, we acquired Lost Pines, which had approximately $40.3 million in assets and $36.5 million in deposits at the time of acquisition. The acquisition of Lost Pines expands our presence in the outlying areas of the Austin, Texas market. --------------------- Our principal executive offices are located at 9800 Richmond Avenue, Suite 680, Houston, Texas 77042, and our telephone number is (713) 339-8900. Our website is www.bankfranklin.com. The information and content contained on our website are not part of this document. THE OFFERING Common stock offered by the selling stockholders........... 8,440,500 shares Common stock outstanding prior to this offering (as of December 31, 2003)(1).......... 21,225,263 shares Risk Factors................... See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock. Dividend policy................ We currently do not intend to pay any dividends on our common stock. Nasdaq National Market symbol......................... "FBTX." --------------- (1) The number of shares of common stock outstanding prior to this offering does not include: - 775,000 shares of our common stock reserved for issuance under our 2002 Stock Option Plan and 1,000,000 shares of our common stock reserved for issuance under our 2004 Long-Term Incentive Plan. As of December 31, 2003, there were options outstanding to purchase a total of 534,205 shares of our common stock under our 2002 Stock Option Plan, with a weighted average exercise price of $10.90 per share. No awards have yet been granted under our 2004 Long-Term Incentive Plan. See "Management--Employee Benefit Plans;" and - 570,000 shares of our common stock issuable under an option we originally granted to Ranieri & Co., Inc., which are currently vested and exercisable in full. See "Certain Relationships and Related Transactions -- Ranieri & Co., Inc." These shares are being registered for sale by the selling stockholders pursuant to this prospectus. SUMMARY HISTORICAL FINANCIAL DATA You should read the summary historical financial data presented below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes to those financial statements appearing elsewhere in this prospectus. The consolidated balance sheet information and statements of operations for the years ended December 31, 2003 and 2002 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. Actual results for the year ended December 31, 2003 include activity for Highland since its acquisition by us on April 30, 2003. Pro forma results for the year ended December 31, 2003, include activity for Highland and Jacksonville as if their acquisitions had occurred on January 1, 2003. See "Unaudited Pro Forma Combined Consolidated Financial Information." Actual results for the year ended December 31, 2002 include activity for Franklin Bank since its acquisition by us on April 10, 2002. <Table> <Caption> AT OR FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------- 2003 2002 ------------------------------ ----------- ACTUAL PRO FORMA ACTUAL ------------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> SELECTED OPERATING DATA: Interest income......................................... $ 40,393 $ 66,874 $ 6,446 Interest expense........................................ (20,958) (30,698) (3,553) ---------- -------- -------- Net interest income..................................... 19,435 36,176 2,893 Provision for credit losses............................. (1,004) (2,631) (152) Non-interest income..................................... 4,770 7,914 453 Non-interest expense.................................... (18,227) (35,441) (4,198) ---------- -------- -------- Income (loss) before taxes.............................. 4,974 6,018 (1,004) Income tax (expense) benefit............................ (1,776) (2,431) 278 ---------- -------- -------- Net income (loss)....................................... $ 3,198 $ 3,587 $ (726) ========== ======== ======== CONSOLIDATED BALANCE SHEET DATA: Total loans, net........................................ $1,813,116 $307,160 Total assets............................................ 2,251,300 365,681 Total deposits.......................................... 1,259,843 182,334 Federal Home Loan Bank advances......................... 713,119 62,800 Junior subordinated notes............................... 20,135 20,007 Total stockholders' equity.............................. 245,438 97,407 OTHER DATA (1): Earnings per common share -- basic...................... $ 0.30 $ (0.24) Earnings per common share -- diluted.................... 0.29 (0.24) Return on average assets................................ 0.28% (0.46)% Return on average common equity......................... 2.92% (3.32)% Stockholders' equity to assets.......................... 10.90% 26.64% Book value per share.................................... $ 11.56 $ 9.41 Tangible book value per share........................... $ 8.83 $ 8.53 Net yield on interest-earning assets.................... 1.77% 1.98% Allowance for credit losses to non-performing loans..... 87.20% 75.34% Allowance for credit losses to total loans.............. 0.27% 0.37% Net charge-offs to average loans........................ 0.02% 0.19% Non-performing assets to total loans and real estate owned................................................. 0.35% 0.80% </Table> --------------- (1) Ratio and yield information for the year ended December 31, 2003 are based on average daily balances. Ratio and yield information for the year ended December 31, 2002 are based on average monthly balances.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001210697_todco_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001210697_todco_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information described more fully elsewhere in this prospectus. This summary may not contain all the information that is important to you. You should read the entire prospectus, including the financial statements and related notes, before making an investment decision with respect to our Class A common stock. References in this prospectus to the terms we, us or other similar terms mean TODCO and its subsidiaries, references to Transocean mean Transocean Inc. and its subsidiaries (excluding us), unless the context indicates otherwise. References to Transocean Holdings mean Transocean Holdings Inc. TODCO Overview TODCO is a leading provider of contract oil and gas drilling services, primarily in the U.S. Gulf of Mexico shallow water and inland marine region, an area that we refer to as the U.S. Gulf Coast. We have the largest fleet of drilling rigs in the U.S. Gulf Coast and believe that, as a result of our leading position and geographic focus, we are well-positioned to benefit from a potential increase in drilling activity associated with the search for natural gas in this region. We are a controlled subsidiary of Transocean, the world s largest offshore oil and gas drilling contractor. We operate a fleet of 70 drilling rigs consisting of 30 inland barge rigs, 24 jackup rigs, three submersible rigs, one platform rig, nine land rigs and three lake barge rigs. Currently, 53 of these rigs are located in shallow and inland waters of the United States with the remainder in Mexico, Trinidad and Venezuela. Our core business is to contract our drilling rigs, related equipment and work crews on a dayrate basis to customers who are drilling oil and gas wells. We provide these services mainly to independent oil and gas companies, but we also service major international and government-controlled oil and gas companies. Our customers in the U.S. Gulf Coast typically focus on drilling for natural gas. Upon the closing of this offering, we will no longer be controlled by Transocean. We expect, however, that Transocean will be our largest stockholder immediately after this offering, and that a number of agreements previously entered into by us and Transocean will remain in effect. For a discussion of related risks, see Risk Factors Risks Related to Our Largest Stockholder Transocean. Recent Industry Trends The drilling industry in the U.S. Gulf Coast is highly cyclical and is typically driven by general economic activity and changes in actual or anticipated oil and gas prices. We believe that both our earnings and demand for our rigs will typically be correlated to our customers expectations of energy prices, particularly natural gas prices, and that sustained high energy prices will generally have a positive impact on our earnings. We believe that the drilling industry has emerged from a cyclical low point and that there are several trends that should benefit our operations, including: Redeployment of Jackup Rigs. Greater demand for jackup rigs in international areas over the last two years has reduced the overall supply of jackups in the U.S. Gulf Coast as reflected in the first chart below. This has created a more favorable supply environment for the remaining jackups, including ours. This favorable supply environment has led to increased jackup dayrates as reflected in the second chart below. U.S. GULF OF MEXICO JACKUP SUPPLY AND DEMAND Source: ODS-Petrodata. As of November 30, 2004. U.S. GULF OF MEXICO JACKUP DAYRATES Source: ODS-Petrodata. As of November 30, 2004. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 High Natural Gas Prices. While U.S. natural gas prices are volatile, the rolling twelve-month average price of natural gas has increased from $2.11 in January 1994 to $5.73 in October 2004, as shown in the chart below. We believe high natural gas prices in the United States, if sustained, should result in more exploration and development drilling activity and higher utilization and dayrates for drilling companies like us. U.S. NATURAL GAS PRICE ROLLING TWELVE MONTH AVERAGE Source: Bloomberg (last twelve months rolling average of historical Henry Hub prices). As of October 31, 2004. Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Need for Increased Natural Gas Drilling Activity. From 1994 to 2003, U.S. demand for natural gas grew at an annual rate of 0.6% while its supply grew at an annual rate of 0.2%. We believe that this supply and demand growth imbalance will continue if demand for natural gas continues to increase and production decline rates continue to accelerate. As illustrated in the chart below, even though the number of U.S. gas wells drilled has increased overall in recent years, a corresponding increase in production has not been realized. We believe that an increase in U.S. drilling activity will be required for the natural gas industry to meet the expected increased demand for, and compensate for the slowing production of, natural gas in the United States. U.S. NATURAL GAS PRODUCTION AND GAS WELLS DRILLED Source: EIA. As of October 31, 2004. Trend Towards Drilling Deeper Shallow Water Gas Wells. A current trend by oil and gas companies is to drill deep gas wells along the U.S. Gulf Coast in search of new and potentially prolific untapped natural gas reserves. We believe that this trend towards deeper drilling will benefit premium jackup rigs as well as barge rigs and submersible rigs that are capable of drilling deep gas wells. In addition, we believe this trend will indirectly benefit conventional jackup fleets as the use of premium rigs in the U.S. Gulf Coast to drill deep wells should reduce the supply of rigs available to drill conventional wells. Our Strengths We believe that we have the following strengths: Leading Presence in the U.S. Gulf Coast. We have the largest combined jackup and inland barge fleet in the U.S. Gulf Coast. Our leading presence and geographic focus provide us with logistical advantages in servicing our customers, including reduced mobilization times TODCO (Exact name of registrant as specified in its charter) Delaware 1381 76-0544217 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification Number) 2000 W. Sam Houston Parkway South, Suite 800 Houston, Texas 77042 (713) 278-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) T. Scott O Keefe TODCO 2000 W. Sam Houston Parkway South, Suite 800 Houston, Texas 77042 Telephone: (713) 278-6000 Fax: (713) 278-6107 (Name, address, including zip code, and telephone number, including area code, of agent for service) and costs and increased flexibility of rig and crew deployment. Our size also generates economies of scale and helps us attract, train and retain qualified crew personnel. Well-Positioned to Benefit from an Upturn in Natural Gas Drilling Activity. Our customers in the U.S. Gulf Coast drill primarily for natural gas. Given our leading presence in this market, we believe we are well-positioned to benefit from any significant increases in U.S. natural gas drilling activity in the U.S. Gulf Coast. Because operating costs in our industry are largely fixed, our earnings and cash flow are very sensitive to improvements in utilization rates and dayrates. Strong Balance Sheet. At September 30, 2004 we had $29.3 million of total debt and a total debt to total capitalization ratio of 5.8%. We believe this strong balance sheet should enable us to take advantage of opportunities for growth as the market improves and to respond effectively to market downturns. Experienced and Incentivized Management Team. Our senior and operating level management team has extensive industry experience in the U.S. Gulf Coast. Their considerable knowledge of and experience with the cyclical nature of our business should enhance our ability to operate effectively through industry cycles. Additionally, our management s participation in incentive compensation plans is designed to align their interests with our operating and financial performance. For a discussion of risks related to potential conflicts of interest involving our management, see Risk Factors Risks Related to Our Largest Stockholder Transocean Some of our executive officers and directors may have potential conflicts of interest because of their ownership of Transocean ordinary shares or their role as directors or executive officers of Transocean. Copies to: T. William Porter Nick D. Nicholas Porter Hedges, L.L.P. 700 Louisiana, 35th Floor Houston, Texas 77002-2764 Telephone: (713) 226-0600 Fax: (713) 226-0237 Gene J. Oshman John D. Geddes Baker Botts L.L.P. 3000 One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Telephone: (713) 229-1234 Fax: (713) 229-7778 Alan J. Sinsheimer Sullivan Cromwell LLP 125 Broad Street New York, New York 10004-2498 Telephone: (212) 558-4000 Fax: (212) 558-3588 Our Strategy Our objective is to continue to be a leading offshore drilling company with a focus on the North American natural gas industry. Specifically, we intend to: Focus on Marine Assets and Drilling for Natural Gas Along the U.S. Gulf Coast. We plan to maintain our position as the leading contractor of jackup rigs and drilling barges in the U.S. Gulf Coast. We believe that this approach will allow us to take advantage of improvements in dayrates and rig demand that may result from increased drilling activity in this region. We believe that our focus on this region will also allow us to take advantage of deep gas drilling opportunities. Although we intend to focus on the U.S. Gulf Coast, we also plan to pursue selective opportunities for our rigs in Mexico, Trinidad, Venezuela and possibly other regions. Pursue Efficient, Low-Cost Operations and a Disciplined Approach to Capital Spending. We intend to be a low-cost contractor in the U.S. Gulf Coast drilling market. We believe that by being an efficient, low-cost contractor, we can maintain significant operating flexibility and maximize our earnings and cash flow over the entire business cycle. We believe that this operational flexibility will provide us with an important competitive advantage and allow us to compete effectively with competitors with higher specification fleets and higher cost structures than ours. We plan to pursue a disciplined approach to capital spending in increasing the size and upgrading the capabilities of our fleet. Maintain High Operating Standards. We plan to continue to maintain a high level of quality service and safety. We have in place a comprehensive set of safety management systems, standards and procedures that we believe benefit our employees, our margins and our reputation. Maintain a Conservative Capital Structure. We intend to maintain our conservative capital structure with a low percentage of debt. We believe this is a prudent financial strategy given that our industry is highly cyclical. Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Average Rig Revenue Per Day: U.S. Gulf of Mexico Jackups and Submersibles $ 22,400 $ 21,000 $ 22,600 $ 20,200 $ 22,900 $ 26,700 $ 30,600 $ 30,700 $ 33,800 U.S. Inland Barges 20,700 19,600 19,100 17,600 18,300 18,700 20,300 22,500 22,900 Other International 23,500 19,400 19,700 19,100 21,000 25,600 40,000 37,500 34,600 Utilization: U.S. Gulf of Mexico Jackups and Submersibles 32 % 34 % 31 % 44 % 54 % 50 % 43 % 50 % 54 % U.S. Inland Barges 47 % 44 % 47 % 39 % 38 % 40 % 40 % 42 % 45 % Other International 23 % 27 % 35 % 44 % 38 % 28 % 29 % 29 % 33 % Our Relationship with Transocean In February 2004, we completed an initial public offering of 13,800,000 shares of our Class A common stock (the IPO ) as part of our separation from Transocean. In September 2004, we completed another public offering of 17,940,000 shares of our Class A common stock. All proceeds from the IPO and our second offering went to Transocean, the selling stockholder. Before completion of the IPO, we entered into various agreements to complete the separation of our business from Transocean, including a master separation agreement, a tax sharing agreement, a registration rights agreement and an employee matters agreement. For a description of these agreements, see Certain Relationships and Related Party Transactions Relationship Between Us and Transocean. Transocean currently owns 28,260,000 shares or 100 percent of our outstanding Class B common stock, which represent approximately 47 percent of our outstanding common stock. Transocean has approximately 82 percent of the combined voting power of our outstanding common stock due to the five votes per share of our Class B common stock, as compared to the one vote per share of our Class A common stock. Transocean does not currently own any of our outstanding Class A common stock. Transocean has informed us that it intends to agree in the underwriting Our executive offices are located at 2000 W. Sam Houston Parkway South, Suite 800, Houston, Texas 77042, and our telephone number is (713) 278-6000. Proposed Maximum Proposed Maximum Amount of Title of Each Class of Amount Offering Price Aggregate Registration Securities to be Registered to be Registered(1) Per Unit(2) Offering Price(3) Fee(4) THE OFFERING Class A common stock offered 13,000,000 shares Common stock to be outstanding after the offering: Class A common stock 60,304,501 shares Class B common stock 0 shares Common stock to be held by Transocean after the offering: Class A common stock 15,260,000 shares, approximately 25% of our outstanding Class A common stock Class B common stock 0 shares Use of proceeds We will not receive any of the proceeds from this offering. All proceeds from this offering will be received by the selling stockholder. Dividend policy We do not intend to declare or pay regular dividends on our common stock in the foreseeable future. Instead, we generally intend to invest any future earnings for use in our business. New York Stock Exchange symbol for Class A common stock THE The number of shares of our common stock to be outstanding after this offering excludes: 1,658,617 shares of Class A common stock issuable in connection with the exercise of stock options, and 1,036,853 additional shares of Class A common stock reserved for issuance under our long-term incentive plan. Unless we specifically state otherwise: the information in this prospectus does not take into account the sale of up to 1,950,000 shares of Class A common stock which the underwriters have the option to purchase from Transocean to cover over-allotments, and the share-related information related to the offering in this prospectus assumes the conversion of the shares to be sold in this offering into Class A common stock and the conversion by Transocean of all its unsold shares of Class B common stock into shares of Class A common stock upon completion of this offering. Class A common stock 14,950,000 $16.75 $250,412,500 $31,728 (In millions, except per share data) Statement of Operations Data: Operating revenues $ 48.5 $ 441.0 $ 187.8 $ 227.7 $ 167.3 $ 247.7 Operating and maintenance expense 23.2 270.0 185.7 227.4 178.6 193.4 Loss from continuing operations before cumulative effect of a change in accounting principle (90.1 ) (96.7 ) (529.1 ) (222.0 ) (193.7 ) (32.2 ) Per Share Data: Loss from continuing operations before cumulative effect of a change in accounting principle per common share basic and diluted $ (0.43 ) $ (7.96 ) $ (43.57 ) $ (18.28 ) $ (15.95 ) $ (0.59 ) Average common shares outstanding: Basic and diluted 211.3 12.1 12.1 12.1 12.1 54.3 (In millions) Balance Sheet Data: Cash and cash equivalents $ 15.0 $ $ 20.0 $ 53.8 Working capital 222.4 199.1 (2.6 ) 54.9 Total assets 8,838.8 2,227.2 778.2 750.7 Total debt 1,538.0 40.7 26.8 26.3 Total debt related party 55.0 1,080.1 525.0 3.0 Shareholders equity 6,496.5 561.9 137.7 475.8 (1) Each share of our Class A common stock includes an associated preferred stock purchase right. (2) Pursuant to Rule 457(c), the registration fee is calculated based upon the average high and low prices for Class A common stock on November 16, 2004, as reported in the consolidated reporting system of the New York Stock Exchange. (3) Estimated solely for the purpose of calculating the registration fee. (4) $31,728 was previously paid with the initial filing of this registration statement. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Weighted average shares outstanding Basic and diluted 60.0 60.3
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+S-1 Table of Contents Summary This summary highlights all material information contained elsewhere in this prospectus but may not contain all of the information that you should consider before investing in the notes. We urge you to read this entire prospectus, including the Risk Factors section and the financial statements and related notes. Unless otherwise indicated in this prospectus, we, our, us and National Waterworks refer to National Waterworks, Inc. after giving effect to its acquisition on November 22, 2002 of substantially all of the assets and businesses of, and the assumption of certain of the liabilities and obligations of, U.S. Filter Distribution Group, Inc. ( U.S. Filter ). References to Holdings refer to our parent company, National Waterworks Holdings, Inc., which is not a guarantor or co-issuer of the notes. Our Company We are a leading distributor of water and wastewater transmission products in the United States with approximately a 20% share of the estimated $6 billion U.S. waterworks products distribution market. We distribute a full line of products including pipe, fittings, valves, meters, service and repair products, fire hydrants and other components that are used to transport clean water and wastewater between reservoirs and treatment plants and residential and commercial locations. In addition, we provide a broad array of value-added services such as project estimation, project management and product advice. Our products are integral to building, repairing and maintaining water and wastewater (sewer) systems and serve as part of the basic municipal infrastructure required to support population and economic growth and residential and commercial construction. Through our network of 133 branches in 36 states, we sell to municipalities directly and contractors who serve municipalities and also perform residential, commercial and industrial waterworks projects. For the year ended December 31, 2003, which we refer to in this prospectus as fiscal 2003, we had net sales of approximately $1.3 billion and net income of approximately $33.6 million. Our principal executive offices are located at 200 West Highway 6, Suite 620, Waco, Texas 76712. Our telephone number is (254) 772-5355. The Transactions On November 22, 2002, we consummated the purchase of substantially all of the assets and businesses of, and assumed certain liabilities and obligations of, U.S. Filter, a wholly-owned subsidiary of United States Filter Corporation, which is an indirect wholly-owned subsidiary of Veolia Environnement S.A (formerly Vivendi Environnement S.A.) ( Veolia ). We refer to the foregoing transaction as the Acquisition. The total cost of the Acquisition, including the payment of transaction fees and expenses incurred by us and our stockholders, was approximately $662.2 million, after giving effect to a post-closing adjustment made in February 2003 related to the level of our working capital at the time of closing. We closed the Acquisition simultaneously with the issuance of the notes and the closing of our senior credit facility. The Financings The notes were issued as part of the financings to consummate the Acquisition. The balance of the proceeds necessary to complete the Acquisition was funded by borrowings under the term loan portion of our senior credit facility which consisted of a $250.0 million term loan facility and a $75.0 million revolving credit facility, and a $211.0 million cash equity investment in Holdings, of which an aggregate of $206.0 million was made equally by affiliates of each of J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. and $5.0 million was made by certain members of our management and Holdings board of directors. For convenience, J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. are collectively referred to in this prospectus as the Sponsors. For a description of our senior credit facility, see Description of Certain Indebtedness. In addition, concurrent with the closing of the Acquisition, U.S. Filter used a portion of the Acquisition consideration to repay and terminate its accounts receivable securitization facility. The Acquisition, the offering of the notes, the initial borrowings under our senior credit facility, the cash equity investment described above, the repayment of the accounts receivable securitization facility and the other related transactions are collectively referred to in this prospectus as the Transactions. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Financial Sponsors J.P. Morgan Partners, LLC ( JPMP ) is a global partnership with over $19 billion under management. Since its inception in 1984, JPMP has been a leading provider of private equity and has closed over 1,300 individual transactions. JPMP has more than 130 investment professionals in nine offices throughout the world. JPMP is an affiliate of J.P. Morgan Chase Co., one of the largest financial institutions in the United States. Thomas H. Lee Partners, L.P. ( THL ) is a Boston-based private equity firm that currently manages approximately $12 billion of committed capital. Founded in 1974, THL has invested in over 90 transactions and is currently investing from the Thomas H. Lee Equity Fund V, a $6.1 billion fund. THL has 22 investment professionals, with offices in Boston and New York City. National Waterworks, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 5099 (Primary Standard Industrial Classification Code Number) 05-532711 (I.R.S. Employer Identification No.) 200 West Highway 6, Suite 620 Waco, Texas 76712 (254) 772-5355 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Harry K. Hornish, Jr. President and Chief Executive Officer 200 West Highway 6, Suite 620 Waco, Texas 76712 (254) 772-5355 (Name, address, including zip code, and telephone number, including area code, of agent for service or process) With a copy to: Cristopher Greer, Esq. O Melveny Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 408-2400 Table of Contents Summary of the Terms of the Notes The following is a summary of the material terms of the notes. For a more detailed description of the notes, see Description of Notes. Issuer. National Waterworks, Inc. Notes Outstanding. $200,000,000 aggregate principal amount of 10.50% Senior Subordinated Notes, Series B, due 2012. Maturity Date. December 1, 2012. Interest Payment Dates. June 1 and December 1 of each year. Guarantees. The notes will be guaranteed on a senior subordinated basis by all of our future domestic subsidiaries, if any. We do not currently have any subsidiaries. Ranking. The notes are our general unsecured senior subordinated obligations. They rank behind all of our current and future indebtedness, other than trade payables, except future indebtedness that expressly provides that it ranks equally with, or subordinated in right of payment to, the notes. The notes rank equally with all of our future senior subordinated indebtedness. The notes will be effectively subordinated to all obligations of our subsidiaries that exist in the future and do not guarantee the notes. As of December 31, 2003: we had approximately $240.0 million of senior indebtedness outstanding. This amount does not include up to $75.0 million of additional borrowings that are available under the revolving credit portion of our senior credit facility, of which $3.8 million was used to support outstanding letters of credit at December 31, 2003. All borrowings under the senior credit facility are secured and senior to the notes; we did not have any senior subordinated indebtedness other than the notes; and we did not have any subordinated indebtedness. Optional Redemption. Before December 1, 2005, we may redeem up to 35% of the notes with the net cash proceeds of certain equity offerings at the redemption price listed in Description of Notes Optional Redemption. In addition, we may redeem all or a portion of the notes prior to December 1, 2007 at a price equal to 100% of the principal amount of the notes plus a make-whole premium. On or after December 1, 2007, we may redeem all or a portion of the notes at any time at the redemption prices listed in Description of Notes Optional Redemption. Mandatory Offer to Repurchase If we sell certain assets without applying the proceeds therefrom in a specified manner, or experience specific kinds of changes of control, we must offer to repurchase the notes at the price set forth in Description of Notes Repurchase at the Option of Holders. Our senior credit facility restricts us from repurchasing any of the notes, including upon any repurchase we may be required to make as a result of a change of control or certain asset sales. See Risk Factors for a description of the possible effects if we are unable to repurchase the notes upon a change of control. Certain Covenants. The indenture governing the notes contains covenants that impose significant restrictions on our business. The restrictions that these covenants place on us and our restricted subsidiaries include limitations on our ability and the ability of our restricted subsidiaries to, among other things: Approximate date of commencement of proposed sale to the public: As promptly as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents incur indebtedness or issue preferred shares; pay dividends or make distributions in respect of our capital stock or to make other restricted payments; make investments; sell assets; create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with our affiliates; and designate our subsidiaries as unrestricted subsidiaries. These covenants are subject to important exceptions and qualifications, which are described under Description of Notes Certain Covenants.
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001217688_foxhollow_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001217688_foxhollow_prospectus_summary.txt
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+described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all of the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements and related notes appearing elsewhere in this prospectus, before investing in our common stock. References in this prospectus to we, us and our refer to FoxHollow Technologies, Inc. unless the context requires otherwise. Our Business We design, develop, manufacture and sell medical devices primarily for the treatment of peripheral artery disease. PAD results from the accumulation of plaque in arteries, most commonly occurring in the pelvis and legs. Plaque accumulation, known as atherosclerosis, causes the narrowing of arteries, thereby reducing the flow of oxygenated blood to tissue and organs. Left untreated, PAD increases the risk of heart attack, stroke, amputation or death. Our first product, the SilverHawk Plaque Excision System, is a minimally-invasive catheter system that treats PAD by removing plaque in order to reopen narrowed or blocked arteries. The SilverHawk consists of two primary components, a low profile catheter connected to a battery-driven control unit, both of which are disposable. In June 2003, the U.S. Food and Drug Administration, or FDA, granted us 510(k) clearance to market the SilverHawk in the United States for treatment of atherosclerosis in the peripheral vasculature, which includes arteries outside the heart and brain. We commenced full commercial introduction of the SilverHawk in the United States in January 2004. For the nine months ended September 30, 2004, we sold over 12,000 devices primarily to more than 500 hospital customers in the United States, generating net revenue of approximately $23.9 million and a net loss of approximately $22.4 million, which includes a stock-based compensation charge of approximately $4.0 million. PAD Market and Conventional Treatments PAD affects approximately 12 million people in the United States. PAD becomes more common with age and affects approximately 20% of the U.S. population over 70. Growth in the prevalence of diabetes and obesity, which are risk factors for PAD, is also contributing to an increase in the prevalence of PAD. PAD is currently underdiagnosed and undertreated. Of the PAD population in the United States, only approximately 2.5 million people are diagnosed. Underdiagnosis is due in large part to the fact that over one-half of the PAD population does not display symptoms of the disease. In addition, others dismiss their symptoms as part of the normal aging process or attribute them to another cause. Although approximately one-third of those with PAD have a mild to moderate form of the disease, PAD can progress to critical limb ischemia, a condition where there is not enough oxygenated blood being delivered to the leg to keep the tissue alive. We believe approximately 750,000 people in the United States suffer from critical limb ischemia. Despite the current underdiagnosis, we believe that several factors are contributing to a growing diagnosed PAD patient population, including increasing public and physician awareness, evolving physician practice patterns, and increasing diagnostic screening for PAD. Physicians typically treat patients with mild to moderate PAD through non-invasive management, including lifestyle changes and drug treatment, which may slow or reverse the progression of PAD. When PAD progresses despite these measures, physicians may advise minimally-invasive interventional procedures. Based on publicly available information, we believe that there were approximately 400,000 interventional, or endovascular, procedures in 2000 and that the number of procedures is growing annually. The most frequently used interventional procedures are angioplasty, a procedure during which a balloon is used to expand the artery wall, and stenting, a procedure during which a metal cage is implanted to hold the artery wall open, neither of which SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents removes plaque. Angioplasty may cause injury to the artery wall and may contribute to high rates of plaque regrowth, or restenosis, and correspondingly low rates of patency, or openness of the artery. In addition, angioplasty is not well suited to treat long areas of accumulated plaque, or lesions, in the leg or to treat small arteries below the knee. Use of stents in the legs has been problematic due to high restenosis and stent-fracture rates. Stenting also limits future treatment alternatives by leaving a foreign object in the artery. When interventional procedures have failed and PAD has progressed to an advanced state, invasive surgical procedures are the sole remaining treatment option. Surgical options include bypass surgery, endarterectomy, a procedure during which the artery is stripped of plaque, and amputation. All of these procedures have a high risk of complications from blood loss, post-procedural infection or reaction to general anesthesia and may require patients to remain hospitalized for several days. Despite conventional treatment alternatives, PAD leads to approximately 150,000 amputations per year in the United States. Our Solution The SilverHawk Plaque Excision System The SilverHawk Plaque Excision System represents a new approach to the treatment of PAD that provides physicians and patients with a safe and effective alternative for lesions that may otherwise be difficult to treat in a minimally-invasive manner. We offer five different SilverHawk models in the United States of various catheter diameters and tip lengths to accommodate different artery sizes and amounts of plaque for use in the peripheral vasculature. We believe that the principal benefits of the SilverHawk are: Safety. The SilverHawk is designed not to stretch or damage the artery walls, which can lead to perforation or dissection. We believe that the safety of the SilverHawk, measured by low rates of perforation and dissection is supported by results from the treatment of 731 lesions in 362 patients recorded in our ongoing clinical outcomes registry. As of August 31, 2004, there were dissections and perforations in less than 3% and 1%, respectively, of these treated lesions. The SilverHawk procedure also does not have many of the risks associated with more invasive surgeries and general anesthesia. We have not conducted, and do not have any current plans to conduct, studies designed to measure the comparative safety of the SilverHawk against alternative procedures, such as angioplasty, stenting or bypass grafting. Efficacy. The SilverHawk is designed to remove atherosclerotic plaque and thereby alleviate the symptoms of PAD. We believe that excising plaque without causing stretch injury to the artery wall may minimize restenosis and the need for reintervention. We also believe that the efficacy of the SilverHawk, measured by low six-month restenosis rates is supported by the results of two single site studies. The first study, which involved 133 patients, showed a six-month restenosis rate of approximately 10% and the second study, which involved 181 patients, showed a six-month patency rate of 96%. This short-term data may not predict the long-term efficacy of the SilverHawk. We have not conducted, and do not have any current plans to conduct, studies designed to measure the efficacy, measured by rates of long-term restenosis or patency, of the SilverHawk procedure, including its efficacy compared to alternative procedures, such as angioplasty, stenting or bypass grafting. Treats Difficult to Treat Lesions. The SilverHawk enables physicians to remove plaque from long, calcified (hard) or bifurcated (branched) lesions in a wide variety of locations, including arteries below the knee. Approximately one-third of SilverHawk procedures to date have been performed below the knee, an area where lesions have traditionally gone untreated until they require bypass surgery or amputation. Certain treatment locations, such as arteries below the knee or above the leg, are not suited for physicians unskilled in endovascular techniques, or otherwise skilled endovascular physicians with limited experience using the device. AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents Utilizes Familiar Techniques. The SilverHawk procedure employs similar techniques to those used in angioplasty, which are familiar to the approximately 10,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States, who are generally trained in endovascular techniques. Cost and Time Efficient. A single SilverHawk device can be used to treat multiple lesions and long lesions, where more than one stent might otherwise be required. Compared to surgical alternatives, the SilverHawk procedure reduces cost by allowing physicians to treat patients in a catheterization lab instead of an operating room, decreasing the length of hospitalization and reducing complications. Leaves Treatment Options Open. The SilverHawk procedure does not leave a foreign object, such as a stent, in the artery. Adjunctive and future treatment options remain available. Captures and Removes Plaque. The patient and the physician get immediate feedback by seeing the volume of plaque removed, visibly reinforcing the benefits of the procedure. Risks of using the SilverHawk peripherally include the risks that are common to use of interventional devices, including infection, perforation or dissection of the artery wall, internal bleeding, limb loss and death. The SilverHawk has not been approved by FDA for the treatment of coronary artery disease, which refers to plaque accumulation in the arteries leading to the heart. Use of the SilverHawk in the coronary arteries has led to serious adverse events, including perforations, emergency bypass surgery, stroke, heart attack and patient death. In the United States, the SilverHawk is contraindicated, and should therefore not be used, for treatment of lesions formed at the site of prior stent placement, known as in-stent restenosis, and in the carotid arteries. We do not recommend the SilverHawk for use in renal (lower back), subclavian (under the breastbone), or iliac (upper pelvis) arteries, or in arteriovenous fistulas (clumps of deformed arteries). We maintain a registry with participating sites, which we have called our TALON registry, to track outcomes of patients who have been treated in the legs with the SilverHawk. As of August 31, 2004, we had eight U.S. sites participating and 362 patients enrolled in the registry. We believe that currently under 5% of all SilverHawk procedures are performed at TALON sites. Sites participating in our TALON registry typically have a high-volume practice, employ highly-skilled practitioners, have the staff available to collect follow-up data and are interested in publishing clinical results. Due to these criteria, the clinical results collected by the TALON registry may be significantly more favorable than typical results of practicing physicians. Nearly all of the physicians who have participated in our TALON registry are our consultants and securityholders and have been compensated for their consulting services with both cash and stock. Physicians are not compensated for their participation in our TALON registry other than nominal reimbursement paid to partially offset the costs incurred due to participation in the registry and collection of long-term follow-up data. We have completed our evaluation of preliminary six-month follow-up data from our TALON registry regarding retreatment rates collected through August 31, 2004. Based upon 162 lesions treated in 86 patients, physicians reported retreatment of 18 lesions, or 11.1%, within the first six months following initial treatment. Short-term data may not predict the long-term efficacy of the SilverHawk. We market the SilverHawk in the United States to interventional cardiologists, vascular surgeons and interventional radiologists through our 69-person direct sales force. We sell limited quantities of the SilverHawk through four distributors in four European countries. International sales do not currently account for a significant portion of our total sales. Reimbursement claims for our SilverHawk procedure are typically submitted by the hospital and physician to Medicare or other third-party payors using established billing codes for atherectomy procedures. FOXHOLLOW TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) Table of Contents Our Strategy Our goal is to be the leading provider of medical devices for the treatment of atherosclerosis. The key elements of our strategy include: Drive adoption of the SilverHawk within the physician community; Penetrate the PAD market with an expanded U.S. direct sales force; Expand manufacturing capacity and reduce costs; Improve the SilverHawk s capabilities and features; Leverage broadly applicable proprietary technology to expand into new markets; and Acquire or partner with complementary businesses. Recent Developments A brief summary of certain of our preliminary unaudited financial results for the three months ended September 30, 2004 is set forth below. This summary is not meant to be a comprehensive statement of our financial results for this period. In the three months ended September 30, 2004, our net revenue was approximately $11.6 million, our cost of revenue was approximately $7.0 million, our total operating expenses were approximately $12.1 million, our loss from operations was approximately $7.5 million, and our net loss was approximately $7.4 million. The above results of operations include a stock-based compensation charge of approximately $1.8 million. Our cash, cash equivalents and short-term investments balance as of September 30, 2004 was approximately $12.6 million. You should read this data together with our financial statements and related notes included elsewhere in this prospectus and the information under Selected Financial Data and Management s Discussion and Analysis of Financial Condition and Results of Operations. Corporate Information We were incorporated in Delaware in September 1996 as ArterRx, Inc. We changed our name to FoxHollow Technologies, Inc. in October 1996. Our principal executive offices are located at 740 Bay Road, Redwood City, California 94063-2469. Our telephone number is (650) 421-8400. Our website is located at www.foxhollowtech.com. The information contained on our website is not a part of this prospectus. We are in the process of registering our trademarks, FoxHollow, SilverHawk and NightHawk, with the U.S. Patent and Trademark Office. All other trademarks, tradenames and service marks appearing in this prospectus are the property of their respective owners. Delaware 3841 94-3252085 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 740 Bay Road Redwood City, California 94063-2469 (650) 421-8400 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents The Offering Common stock offered by us 4,500,000 shares Common stock to be outstanding after this offering 22,088,321 shares Estimated initial public offering price per share $12.00 to $14.00 Use of proceeds We intend to use the net proceeds from this offering for sales and marketing initiatives, research and development activities, and general corporate purposes. See Use of Proceeds. NASDAQ National Market symbol FOXH The number of shares of common stock that will be outstanding after this offering is based on 17,588,321 shares outstanding as of September 30, 2004, and excludes: 212,670 shares issuable upon exercise of outstanding warrants at an exercise price of $3.04 per share; 3,090,485 shares issuable upon the exercise of outstanding options at a weighted-average exercise price of approximately $1.32 per share; 444,332 shares reserved for issuance upon the exercise of options available for grant under our 1997 Stock Plan and 2004 Equity Incentive Plan; and 600,000 shares reserved for issuance under our 2004 Employee Stock Purchase Plan. Unless otherwise indicated, all information in this prospectus assumes: a 1-for-4 reverse split of our common stock; the conversion of all our outstanding shares of preferred stock into shares of our common stock; the underwriters do not exercise their over-allotment option; and the adoption of our amended and restated certificate of incorporation and bylaws. Robert W. Thomas President and Chief Executive Officer FoxHollow Technologies, Inc. 740 Bay Road Redwood City, California 94063-2469 (650) 421-8400 (Name, address, including zip code, and telephone number, including area code, of agent for service) (2) In connection with the issuance of preferred stock in 2004, we recorded a non-cash charge representing the deemed dividend relating to the intrinsic value of the beneficial conversion feature of the preferred stock. See Note 8 of the notes to our financial statements. (3) See Note 13 of the notes to our financial statements for a description of the method used to compute basic and diluted pro forma net loss per common share and basic and diluted weighted-average number of shares used in pro forma per common share calculations. Copies to: David J. Saul Philip H. Oettinger Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 (650) 493-9300 Michael W. Hall William C. Davisson Latham & Watkins LLP 135 Commonwealth Drive Menlo Park, California 94025 (650) 328-4600 (1) The pro forma as adjusted data reflect (a) the conversion of all our outstanding convertible preferred stock into shares of common stock immediately prior to the completion of this offering, (b) the reclassification of the proceeds of the restricted preferred stock outstanding from an accrued liability to additional paid-in capital in the amount of $1,223, (c) the acceleration of deferred compensation expense associated with the assumed vesting of the restricted preferred stock in the amount of $766 and (d) receipt of net proceeds from the sale of 4,500,000 shares of common stock offered by us at an assumed initial public offering price of $13.00 per share, the mid-point of the range on the front cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses. Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001229505_ardent_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001229505_ardent_prospectus_summary.txt
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--- /dev/null
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@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001231129_american_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001231129_american_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
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@@ -0,0 +1 @@
+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001232229_syntax_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001232229_syntax_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001232229_syntax_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001232241_journal_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001232241_journal_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..32039e2e14fb5450b2370f88fcc983d053396153
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. Because this is a summary, it is not complete and does not contain all of the information that may be important to you. For a more complete understanding of us and this offering of our class A common stock, we encourage you to read this prospectus in its entirety, especially the risks of investing in our class A common stock discussed under Risk Factors and our consolidated financial statements, including the notes thereto, appearing elsewhere in this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001239672_entourage_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001239672_entourage_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..61c315a13975027c9c14cd2ee563123f4478e122
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@@ -0,0 +1,45 @@
+PROSPECTUS SUMMARY 
+
+The following summary highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document, including our financial statements and related notes, to understand our business, our common shares and the other considerations that are important to your decision to invest in our common shares. You should pay special attention to the "Risk Factors" section. 
+
+The phrase "fiscal year" refers to the twelve months ended December 31 of the relevant year. All references to "$" or "dollars" mean U.S. dollars, unless otherwise indicated. All financial information with respect to us has been prepared in accordance with generally accepted accounting principles in the United States, unless otherwise indicated. 
+
+ENTOURAGE MINING LTD.
+
+We were originally incorporated under the name, Entourage Holdings Ltd., pursuant to the Company Act (British Columbia) on June 16, 1995. On June 25, 1996, we changed our name to Entourage Mining Ltd. We are a natural resource company engaged in the acquisition and exploration of natural resource properties. We commenced operations in 1996 and currently have entered into an option agreement to acquire a 60% interest in the Finlayson Properties consisting of 2,976 unsurveyed quartz claims described below and intend to seek and acquire additional properties worthy of exploration and development.
+
+We are an exploration stage company and there is no assurance that a commercially viable mineral deposit exists on any of the property, and further exploration will be required before a final evaluation as to the economic and legal feasibility is determined. 
+
+Corporate Information 
+
+On February 18, 1998, we became a reporting Issuer as defined under the Securities Act of the Province of British Columbia in British Columbia, Canada.
+
+We have no subsidiary corporations.
+
+Trademarks and Trade Names 
+
+We have no trademarks or trade names. 
+
+ 
+
+ 
+
+ 
+
+ - 4 - 
+
+The Offering 
+
+Common shares offered by selling shareholders 
+
+881,000 shares 
+
+Common shares to be outstanding before and
+
+after the offering 
+
+15,130,005 shares
+
+Estimated initial public offering price 
+
+at market
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246704_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246704_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fe52ba1b402bb84738b4e616a00d29c4c8f85519
--- /dev/null
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group I, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246709_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246709_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9d3a194cbf8f061152f61b5e14edbe00a71304ce
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001246709_madison_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group II, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246713_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246713_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3f008903d794b079ea9e8eb0a53778e8a62b852c
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001246713_madison_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group III, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246715_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246715_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e8ef73c7f7779d6adf304a618ab2ecdd3d5cb2dc
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001246715_madison_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group IV, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246718_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246718_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a14dc8667eb9b9b60a25e99945cef1ffe4d42dcb
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001246718_madison_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group V, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001246720_madison_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001246720_madison_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c1f21a9152fc7a1b9546989d492156891cba85fb
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001246720_madison_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this Prospectus. For a more complete understanding of this offering, you should read the entire Prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this Prospectus, references to "we," "us," "Madison Group," or "our" refer to Madison Group VI, Inc. The Company Madison Group is what is classified as a "blank-check" company, sometimes referred to as a "shell" company. We are a legally formed entity having been incorporated under the laws of the State of Delaware on April 25, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our search for a potential acquisition is not limited to any particular industry. To date, we have engaged in no substantive business activities and our efforts have been limited to organizational activities. We will seek shareholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, our officers, directors and "control" persons (i.e. persons who own 10% or more of our issued and outstanding shares) have agreed to vote the shares owned by them in accordance with the vote of our other, non- affiliated shareholders. We will proceed with a business combination only if a majority of the non-affiliated shareholders vote in favor of the business combination. Certain disadvantages are inherent in becoming a public company, and these should be carefully considered by any business considering a business combination with us. Immediately upon consummation of a merger with us, the surviving entity would be subject to all of the reporting requirements of the 1934 Act. Additionally, management would assume certain fiduciary duties with respect to shareholders and the public, including, but not limited to; the timely disclosure of all material information regarding us that might bear upon the consideration of our shares as a suitable investment; the duties of care and loyalty in the conducting of our business; and the duty not to misappropriate corporate opportunities. Prior to entering into a business combination, we will fulfill the reporting requirements of the 1934 Act through the services of our officers, directors and general counsel. Our principal executive office is located at 444 Madison Avenue, Suite 2904, New York, New York 10022. Our telephone number is (212) 750-7878. The Offering Our offering includes 8,250,000 shares of our common stock that we may issue in connection with a business combination. We will receive property and/or equity consideration in exchange for these shares. No public market exists for our shares. Our shares are not expected to qualify for immediate inclusion in the NASDAQ system or any other public trading market following the completion of a business combination. However, we expect that after completion of a business combination a trading market may develop for our shares although we may never qualify for a listing on the NASDAQ system or any other recognized trading market. The likely alternative would be a listing on the OTC Bulletin Board, an inter-dealer automated quotation service for equity securities that do not qualify for inclusion in the NASDAQ system. If a public market for our shares develops, it is likely to be illiquid and volatile. Securities Offered by Madison Group: 8,250,000 Shares Shares Outstanding Prior to Offering: 1,750,000 Shares Shares Outstanding After Offering: 10,000,000 Shares* * Assumes that all 8,250,000 shares will be issued in a business combination with a yet unidentified private company. As of the date hereof we have not commenced our search for a suitable business combination. We expect to begin this process immediately upon the effectiveness of the registration statement of which this prospectus is a part.
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001252301_southern_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001252301_southern_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001252301_southern_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001252304_american_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001252304_american_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001252304_american_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001253347_commonweal_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001253347_commonweal_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b8d50445f27e8014794aa45461f32fe7b6c3931b
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001253347_commonweal_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY THE FOLLOWING IS A SUMMARY WHICH HIGHLIGHTS THE MATERIAL INFORMATION CONTAINED IN THIS PROSPECTUS. IT MAY NOT INCLUDE ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND THE FINANCIAL STATEMENTS. OUR COMPANY Commonwealth Income & Growth Fund V is a Pennsylvania limited partnership that will own and lease computer peripheral equipment. Our office is located at Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton, Pennsylvania 19341. Our phone number is 1-800-249-3700. We refer to Commonwealth Income & Growth Fund V as "CIGF5" in this prospectus. Our business strategy is as follows: O We will use a substantial portion of the proceeds of the offering to acquire computer peripheral and other similar equipment, which will be leased to U.S. corporations and other institutions. O We will make distributions to investors after the general partner has determined that there is sufficient cash flow from lease payments to make distributions. Sufficient cash flow will be available for distributions if income for a distribution period exceeds both expenses for that period and any existing lease acquisition commitments for that period. O We will also use excess cash flow, sale proceeds and the proceeds of debt financing to purchase additional equipment from time to time throughout our operational phase. We expect that most of the equipment will be placed on operating leases (short term leases under which we will normally receive total rental payments in an amount less than the purchase price of the equipment). O At the end of initial operating leases, we will either re-lease or sell equipment. Substantially all of the equipment will be manufactured by, or compatible with equipment manufactured by IBM. See "Risk Factors" and "Investment Objectives and Policies." O We intend to purchase only equipment which will be leased at the same time we acquire the equipment. O We intend to dispose of all our assets approximately 10 years after the termination of this offering. GENERAL PARTNER Our general partner is Commonwealth Income & Growth Fund, Inc., located at Oaklands Corporate Center, 470 John Young Way, Suite 300, Exton, Pennsylvania 19341 (telephone number is 1-800-249-3700). The general partner is responsible for managing our affairs on a day-to-day basis. The general partner is also responsible for identifying and making investments on our behalf. Our general partner is owned by Commonwealth of Delaware, Inc., which is owned by Commonwealth Capital Corp., which we may refer to as "Com Cap Corp." Affiliates, who are individuals or entities considered to be in control of, controlled by, or under common control with a specified person or entity, of our general partner have sponsored several prior equipment leasing programs. Kimberly A. Springsteen and George S. Springsteen, acting through the general partner, make our investment decisions. See "Conflicts of Interest," "Management" and "Table II -- Prior Performance Tables."
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001255145_lightfirst_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001255145_lightfirst_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3803798b05ea1b317123aa3a4b940e6d1633ce6c
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001255145_lightfirst_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary may not contain all the information that may be important to you. Before making a decision to purchase our common stock, you should read this entire prospectus, including, but not limited to, the risk factors and financial statements and related notes. Our Business We have developed a new model for consolidated electronic bill presentment and payment services, or e-bill consolidation. E-bill consolidation is the practice of using a single online location to manage the bill paying process for the consumer: the typical e-bill consolidator provides electronic bill presentment, bill payment, and record-keeping services. Our plan is to build upon the prevailing model, whereby the e-bill consolidator acts as a simple delivery system for electronic bills and payments, by adding discounts, rebates and payment programs that add convenience and value to the online bill paying experience. Our model expands our role in the online billing process by positioning us as an intermediary that will manage the relationship between consumers and providers of household products and services, such as utilities, telecommunications services, insurance, financial services, and others. As the intermediary, we intend to use the combined buying power of our customer base to negotiate volume discounts, rebate and reward arrangements, reduced interest rates and premiums, and other money-saving advantages for our customers. In addition, our model incorporates flexible payment options and unique credit management tools that we believe will provide additional economic benefits to our customers. We seek to use our intermediary position as a point of control for many important spending decisions in our target households. We believe that controlling the means by which our customers receive, review, and pay most household bills will establish us as the primary distributor of household products and services for these customers. Our model has been designed to earn us revenue from transactions performed through our service. Specifically, we may earn revenue in the following ways: retaining a portion of the rebates or administrative discounts that we negotiate for our customers, receiving commissions or referral fees from companies whose services we introduce to our customers, reselling products and services that we purchase at wholesale or bulk rates, and selling services that we originate ourselves, such as dial-up Internet access. To date, we have earned all of our revenue by providing dial-up Internet access services to households in the Chicago metropolitan area, which is currently the only region in which we operate. We have not earned any revenues from our e-bill consolidation service. To begin offering a full array of bills and, thereby, earning revenue from our e-bill consolidation service, we must first enter into agreements with providers of household services that permit us to present their bills to our customers online and that enable us to offer our customers discounts and advantageous terms for these services. We will not be able to commence offering our e-bill consolidation services before we have secured such agreements. In this prospectus, we refer to providers of household services whose bills we intend to present online as billers. We have had preliminary discussions with several dozen billers, but as of the date of this prospectus we have not entered into any agreements with billers. We currently intend to focus on offering our e-bill consolidation service to customers of our Internet access services. We market our Internet access services to a target market consisting primarily of women with elementary school children. We make direct contact with members of this target group through a community-based awareness program that we call the LightFirst Associate Program or Associate Program . Through this program, we engage individuals who are active participants in community projects to help introduce our services to members of their respective communities. Your position/relationship to Business (circle one): A. Owner B. Employee Community Member Your primary residence in located in one of the following Illinois counties: Cook, DuPage, Kane, Kendall, Lake, McHenry, Will. All Others (4) LIGHTFIRST DIRECTORS, EXECUTIVE OFFICERS, ASSOCIATES Check here if you are a LightFirst director or executive officer. Check here if you are a member of the immediate family of a LightFirst director or executive officer. (See definition on reverse side of this Form.) Table of Contents Our Market Opportunity We believe that an opportunity exists for a new entrant into the e-bill consolidation market to take advantage of projected market growth by providing tangible and quantifiable benefits that motivate the household bill-payer to adopt its service. Since 1998, the electronic bill presentment and payment market has exhibited slow, steady growth. At the end of 2002, a research firm specializing in the financial services industry estimated that the number of consumers paying bills online had risen from two percent in 1998 to approximately 13%. Another research firm specializing in emerging technologies has estimated that about 17% of U.S. households viewed and paid bills online in 2003. Industry analysts predict that the rate of growth will increase sharply over the next few years if providers can remove certain barriers that have prevented greater utilization of electronic bill paying services, such as perceived lack of value, inconvenient enrollment, and security concerns. The technology research firm referenced above predicts that the number of consumers performing bill-paying tasks online will grow to 55% of the U.S. adult population by the end of 2008. Another group of researchers has projected that online payment volume will reach $1.3 trillion by the year 2010. We expect that the majority of growth in the use of online bill paying services will occur among adult women who are the primary managers of finances for their households. A recent study by a leading market research firm showed that women are in control of 75% of household finances and 80% of purchasing decisions. In addition, a survey conducted by a firm researching Internet trends found that women s primary reasons for using online applications were practical they reported using sites that helped them save time or money, make informed decisions, and simplify their lives. We intend to take advantage of the growth in the online bill paying services market by providing a product that provides tangible benefits to women in the area of household finance management. Our Competitive Position We believe that we are well positioned to attract customers because of the following competitive strengths: Product Innovations Designed to Appeal to Target Market. Our model for e-bill consolidation introduces economic benefits for the consumer into the online bill-paying experience by providing them with opportunities to save money on household products and services and by reducing expenses associated with bill-paying, such as late fees and overdraft charges. We believe that these added benefits will make our service more attractive to the value-conscious consumer than competing services that do not offer economic benefits and rely solely upon the promise of increased convenience to motivate consumers to try their service. In addition, we do not intend to charge our customers a monthly fee for our e-bill consolidation service, because we do not believe it is necessary to do so in view of the revenue streams contemplated by our business plan. Marketing Strategy Developed to Reach Specific Market. We market our service by using a series of community enrichment programs to create opportunities for our target customers to come into direct contact with participants in our Associate Program and, thereby, to learn about our service first-hand from one of our representatives. We believe that a face-to-face introduction to our service from a person whom the customer may already know, in conjunction with our commitment to helping the community, will help us acquire customers more effectively than the limited-success mass-media marketing campaigns employed by competing providers. Bill-Paying Introduced Gradually to Facilitate Adoption and Training. Our combination Internet access/e-bill consolidation service enables us to acquire Internet access customers and introduce e-bill consolidation to them gradually. We accomplish this by requiring our customers to enter our proprietary e-Bill Manager bill payment software at regular intervals to pay their bill for our Internet access service electronically, which allows them to practice using the bill paying software before making it their primary bill-paying tool. This also helps our customers establish a habit of paying at least one bill online each month. Title (if applicable) ORDER NOT VALID UNLESS SIGNED Questions? See page iii for instructions, or call the Stock Information Center at 1-877-LF-OFFER [1-877-536-3337], Mon.-Fri., 9:00 a.m. to 9:00 p.m., Central time. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 LightFirst Inc. (Exact name of registrant as specified in its charter) Delaware 7370 36-4437640 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 25 Northwest Point Boulevard, Suite 700 Elk Grove Village, IL 60007 (847) 640-8880 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Martin P. Gilmore President and Chief Executive Officer 25 Northwest Point Boulevard, Suite 700 Elk Grove Village, IL 60007 Tel: (847) 640-8880 Fax: (847) 640-1818 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: John T. Blatchford Robyn B. Goldman Vedder, Price, Kaufman Kammholz, P.C. 222 North LaSalle Street, Suite 2400 Chicago, Illinois 60601 Tel: (312) 609-7500 Fax: (312) 609-5005 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the commission, acting pursuant to Section 8(a), may determine. Pursuant to the provisions of Rule 429 under Securities Act of 1933, this Registration Statement relates to Registration Statement No. 333-107769, filed by the Registrant. The prospectus forming part of this Registration Statement shall serve the purpose of a post-effective amendment to Registration Statement No. 333-107769 as specified in Rule 429. EXPLANATORY NOTE LightFirst Inc. has previously filed a Registration Statement on Form S-1, File No. 333-107769, and certain amendments thereto in order to register shares of its Common Stock. Pursuant to Rule 429 under the Securities Act of 1933, this Registration Statement constitutes a post-effective amendment to Registrant Statement File No. 333-107769 terminating the offering of an aggregate of 2,000,000 shares of its Common Stock covered by such Registration Statement. Accordingly, this Registration Statement carries forward from the previously filed Registration Statement 2,000,000 shares of Common Stock pursuant to Rule 457(p) under the Securities Act and is not registering any additional shares. Table of Contents Scalable Support Solutions to Accommodate Customer Base. We have developed a number of cost-effective and highly scaleable measures that allow us to provide support at the levels needed to serve our customer base. These include a virtual call center, which eliminates the overhead associated with a physical call center, a student internship program, which reduces training and recruitment costs, and several proprietary software applications that allow customer self-care for forgotten passwords and other common problems. We believe that these measures allow us to provide support to our customer base that is superior than that provided by our competitors and that promotes long-term customer satisfaction and retention. Although we believe that the above factors represent a significant competitive advantage, many of our competitors have substantially more capital resources than we have and have longer operating histories than we do, which may afford them certain advantages with respect to market experience, negotiations with third-party vendors, and brand-name recognition among consumers. In addition, we are subject to a number of risks that are described in the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001255474_whiting_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001255474_whiting_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4c1abfbdc85c047b1c6c6453bee2de01c815212c
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001255474_whiting_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Unless the context otherwise requires, references in this prospectus to Whiting, we, us, our or ours refer to Whiting Petroleum Corporation, together with its operating subsidiaries. When the context requires, we refer to these entities separately. References in this prospectus to Resources refer to Alliant Energy Resources, Inc., a wholly-owned subsidiary of Alliant Energy Corporation. References in this prospectus to Alliant Energy refer to Alliant Energy Corporation. You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 WHITING PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 1311 20-0098515 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 1700 Broadway, Suite 2300 Denver, Colorado 80290-2300 (303) 837-1661 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) James J. Volker President and Chief Executive Officer Whiting Petroleum Corporation 1700 Broadway, Suite 2300 Denver, Colorado 80290-2300 (303) 837-1661 (Name, address, including zip code, and telephone number, including area code, of agent for service) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Gross: Productive 22 10 22 2 3 3 25 7 31 15 4 64 24 56 Dry 3 6 6 5 3 2 8 9 Table of Contents EXPLANATORY NOTE This registration statement contains two forms of prospectus: one to be used in connection with an underwritten offering by Whiting Petroleum Corporation of 7,500,000 primary shares of our common stock, and one to be used in a concurrent offering by Alliant Energy Resources, Inc., the selling stockholder, of 1,080,000 currently outstanding shares of our common stock. The prospectus for the offering by Whiting follows immediately after this explanatory note. After the Whiting prospectus are the alternate pages for the selling stockholder prospectus. A copy of the complete Whiting prospectus and the selling stockholder prospectus in the exact forms in which they are to be used after effectiveness will be filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion Preliminary Prospectus Dated October 29, 2004 PROSPECTUS 7,500,000 Shares Whiting Petroleum Corporation Common Stock We are offering 7,500,000 shares of our common stock. Our common stock trades on the New York Stock Exchange under the symbol WLL. On October 28, 2004, the last sale price of our common stock as reported on the New York Stock Exchange was $29.53 per share. Investing in our common stock involves risks that are described in the
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+Prospectus Summary 1
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+SUMMARY The ABC BIGS(SM) Trust I will be formed under the depositary trust agreement, dated as of [_______], 2004 among The Bank of New York, as trustee, and SIG Indices, LLLP, as initial depositor, and, subsequently, other registered holders and beneficial owners of ABC BIGS and persons depositing securities in the trust. The trust is not a registered investment company under the Investment Company Act of 1940. The trust will hold shares of common stock issued by the Company. Initially, each ABC BIGS will represent [___] shares of the Company's common stock. The common stock of the Company is sometimes referred to in this prospectus as the underlying Company securities. The number or designation of shares represented by each ABC BIGS may change if there is a stock dividend, stock split, consolidation or similar transaction involving the underlying Company securities. Under no circumstances will the securities of another company be substituted or added as an underlying Company security. The trust will issue ABC BIGS that represent your undivided beneficial ownership interest in the underlying Company securities held by the trust on your behalf. ABC BIGS are separate and distinct from the underlying Company securities that are represented by ABC BIGS.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001260167_travelport_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001260167_travelport_prospectus_summary.txt
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+S-1/A Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 92% and 8%, respectively, of our revenues in the twelve months ended March 31, 2004. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market), with a 31% market share of all travel agency transactions processed through a GDS, and the largest processor globally for online travel agencies, with a 65% market share of all GDS online air transactions processed during the twelve months ended March 31, 2004. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services, or IT, to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. During the twelve months ended March 31, 2004, we processed over 67% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. While these relationships have allowed us to develop a market leading position, we are highly dependent on these four online travel agencies, and the success of our business depends on continuing these relationships. Expedia has recently announced that it intends to move a portion of its transactions to another GDS provider. If Expedia were to move a material portion of its transactions to another GDS provider, our business would be negatively and materially impacted. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. During the twelve months ended March 31, 2004, airline transactions generated through online travel agencies accounted for approximately 29% of all airline transactions in the United States processed by a GDS, up from approximately 28% in 2003, approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. However, despite the substantial shift to online transactions in the past few years, we cannot assure you that this shift will continue at the rate that it has in the past or at all. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. On the other hand, because we do not own an online travel agency, we do not have a captive customer like the other GDSs. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. While we believe we have strong technological capabilities, we are substantially dependent on IBM, our most significant and material vendor, for much of this technological capability. An adverse development in our relationship with IBM would have a material impact on our technological capabilities. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From January 1, 1999 through March 31, 2004, we generated $823.6 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from January 1, 1999 through the closing of the Acquisition. However, given the uncertainty in the airline industry, from which we derive most of our revenues, we cannot be Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. certain that we can generate cash at the rates we were able to in the past. In addition, we have significantly more indebtedness than we did prior to the Acquisition, and a significant portion of our generated cash will be used to service our indebtedness. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 67% of online airline transactions made in the United States and processed by a GDS during the twelve months ended March 31, 2004, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. Nevertheless, given our currently strong position in the online market, we cannot be certain how much more of the market we can capture or whether we can maintain our current position. Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. However, because we have not historically focused on these geographic markets, we cannot be sure how successful we will be in attracting new business in these markets or at what cost. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Nevertheless, because we are relying on our online travel agencies to develop and service the corporate travel market, our ability to compete in this market will depend on the success of our online travel agencies in attracting and maintaining corporate travel departments as customers. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues during the twelve months ended March 31, 2004 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Nevertheless, we cannot be certain that the hospitality and destination services market will embrace the use of online travel agencies quickly or to the extent experienced by the airline services market. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. However, despite our belief that we can provide important IT services to airlines and other travel suppliers, we have historically provided most of our IT services to only two airlines. We cannot be certain that other airlines and travel services providers will be receptive to our services. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Nevertheless, we face the challenge of continuing to reduce costs without adversely impacting our productivity and operational performance. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totaling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. Recent Developments On May 7, 2004 and June 3, 2004, we signed fare content agreements with Continental Airlines and US Airways, respectively, for web fares. Pursuant to these agreements, the airlines commit (subject to the exceptions contained in the agreements) to provide traditional and online travel agencies covered by the agreements in the territories covered by the agreements with substantially the same fare content (including web fares) it provides to the travel agencies of other GDSs in exchange for payments from us to each airline and subject to us keeping steady the average transaction fees paid by each airline for travel agency bookings in the territories covered by the agreements. The agreements are similar to other fare content agreements we have entered into with Delta, Northwest and United Air Lines. On May 5, 2004, Sabre and Expedia announced they had signed a five year agreement to process Expedia transactions through Sabre. While Sabre stated that it expects to process a "meaningful" portion of Expedia's GDS bookings through its system, no specific volumes, percentage of volumes or timelines have been provided or released. Historically, we have been the sole GDS provider to Expedia. To our knowledge, Sabre has not yet begun to process these transactions for Expedia and, at this time, we cannot forecast the timing or magnitude of the impact of the Sabre-Expedia agreement on us. Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. On June 15, 2004, we made a payment of $625 to the selling noteholder as liquidated damages for our delay of three days in filing the registration statement of which this prospectus is a part. Table of Additional Registrants Name Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; State of Incorporation or Organization the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. Primary Standard Industrial Classification Code Number Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. IRS Employer Identification No. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,266 49,019 99,122 93,598 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED JULY 19, 2004 PROSPECTUS $30,000,000 Worldspan, L.P. WS Financing Corp. 95/8% Senior Notes Due 2011
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+Until , all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. This prospectus may only be used where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus. (1)MIDT airline transactions data for Worldspan, Amadeus, Galileo and Sabre. We have executed an alternative strategy with regard to the online travel agency channel. Unlike our primary competitors, we do not own an online travel agency that competes with travel suppliers or travel agencies. Instead, we have developed strategic relationships with online travel agencies to provide them with transaction processing, mission-critical technology and services, and access to our aggregated travel information, which enable online travel agencies to operate effectively and efficiently. As a result of this strategy, we have entered into long-term contracts with Expedia, Orbitz and Priceline, which are three of the five largest online travel agencies in the world. In addition, we have an agreement with Hotwire, another leading online travel agency, to process its airline transactions and have converted all of its airline transactions from Sabre, its previous provider, to us since March 2003. Business Segments We operate in two business segments: electronic travel distribution and information technology services, which represented approximately 90% and 10%, respectively, of our revenues in the year ended December 31, 2003. Electronic Travel Distribution We are the second largest transaction processor for travel agencies in the United States (the world's largest travel market) and the largest processor globally for online travel agencies as measured by transactions. The GDS industry is a core component of the worldwide travel industry and is organized around two major sets of customers: travel suppliers and travel agencies. Suppliers of travel and travel-related products and services (such as airlines, car rental companies and hotels) utilize GDSs as a means of selling tickets and generating sales. Travel agencies (including traditional travel agencies, online travel agencies and corporate travel departments) utilize GDSs to search schedule, price, availability and other travel information and to process transactions on behalf of consumers. GDSs provide travel agencies with a single, expansive source of travel information, allowing travel agencies to search and process tens of thousands of itinerary and pricing options across multiple travel suppliers within seconds. Through our GDS, we provide approximately 16,000 traditional travel agency locations in over 70 countries and approximately 50 online travel agencies, including four of the largest online travel agencies, with access to the inventory, reservations and ticketing of travel suppliers, including approximately 465 airlines, 225 hotel chains and 35 car rental companies throughout the world. As compensation for performing these services, we generally charge the travel supplier a fee for every transaction we process. For example, for a roundtrip ticket with one connection each way, a three night hotel stay and a three day car rental, we charge the respective travel suppliers one transaction fee for each segment of the airline ticket, one transaction fee for the hotel stay and one transaction fee for the car rental for a total of six transaction fees. The value of the travel purchase or the length of stay has no impact on our transaction fee. Information Technology Services We provide a comprehensive suite of information technology services to airlines, including: (i) internal reservation system services; (ii) flight operations technology services; and (iii) software development and licensing services, which include custom development and integration. We provide some of these services to several airlines, including Delta and Northwest. We have also developed other products and services to meet the needs of airlines, which we sell on a subscription basis. These products and services include Worldspan Rapid RepriceSM, Electronic Ticketing, e-Pricing and Fares and Pricing. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Competitive Strengths We believe the following strengths will allow us to continue to grow our market position and enhance our operating profitability and cash flow: Market Leading Transaction Processor for Online Travel Agencies. In 2003, we processed over 65% of online airline transactions made in the United States and processed by a GDS. Our leadership in the online travel agency channel began in 1995 when Microsoft chose us as its transaction processing partner when it was developing Expedia as an online travel agency. In addition, we have executed a strategy of developing contractual relationships with online travel agencies, rather than owning an online travel agency like our primary competitors. As a result, we process online transactions for Expedia, Hotwire, Orbitz and Priceline, four of the six largest online travel agencies in the world. Well Positioned to Take Advantage of the Shift to the Online Travel Agency Channel. An increasing number of travel transactions are being made online. In 2003, airline transactions generated through online travel agencies accounted for approximately 28% of all airline transactions in the United States processed by a GDS, up from approximately 23% in 2002 and approximately 17% in 2001. Our relationships with four of the six largest online travel agencies in the world have positioned us well to take advantage of this shift. Neutrality. Unlike our competitors, we have intentionally not pursued a strategy of vertical integration and instead have forged strategic partnerships with leading online travel agencies. As the shift towards the online travel agency channel continues, we believe the traditional travel agencies will increasingly view the GDS-owned online travel agencies as competitive to their core business. As a result, our neutrality gives us an opportunity to capture additional business from both online and traditional travel agencies. Robust Technology Capabilities. Our use of Internet and server-based technologies has allowed us to provide travel suppliers and online and traditional travel agencies with products and services that enable custom applications, reduce operating costs, increase productivity and enhance the customer experience. In addition, as a result of a new agreement with IBM, we believe that we will be able to increase our processing and computer capabilities without a significant increase in associated software and hardware costs. Proven Business Model with Strong Cash Flow Generation. Our ability to leverage our cost structure, grow transaction volumes, enlarge our customer base, and incur moderate ongoing capital expenditure and working capital requirements, enables us to generate significant net cash from operations. From 1999 through 2003, we generated $801 million of net cash from operations, which primarily enabled us to distribute $715 million to our founding airlines from 1999 through the closing of the Acquisition. Business Strategy We intend to continue to strengthen our market leadership position, maximize profitability and enhance cash flow through the following strategies: Continue to Increase Our Share and the Number of Online Travel Agency Transactions. While we processed over 65% of online airline transactions made in the United States and processed by a GDS in 2003, we believe there are still opportunities to increase our number of transactions and our market share in the online travel agency channel. Our primary competitors own online travel agencies, and we believe that the channel conflict inherent in our primary competitors' strategy leaves us well positioned to compete for the business of independent online travel agencies. FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Worldspan, L.P. WS Financing Corp. (Exact name of Registrant as specified in its charter) Delaware Delaware 7374 7374 43-1537250 75-3125720 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) See Table of Additional Registrants Below Jeffrey C. Smith, Esq. General Counsel Worldspan, L.P. 300 Galleria Parkway, N.W. Atlanta, Georgia 30339 (770) 563-7400 (Name, address including zip code, and telephone number, including area code, of agent for service) Copies to: G. Daniel O'Donnell, Esq. Geraldine A. Sinatra, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, Pennsylvania 19103 (215) 994-4000 Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Increase Our Global Penetration of the Traditional Travel Agency Channel. We have historically focused on selected geographic markets where our founding airlines had significant operations. We believe we have the opportunity to obtain new traditional travel agencies both in and outside the United States, particularly in Europe, Asia, Australia, South America and Latin America, where we have not previously concentrated and where travel reservations are not generally made using current Internet technologies. In addition, we intend to expand the number of transactions we process for traditional travel agencies in the United States. Capitalize on the Shift by Corporate Travel Departments to Online Travel Services. We believe there will be a substantial opportunity to capitalize on the trend of corporate travel departments toward making bookings for business travel through online services. We are well positioned to benefit from this trend, as Expedia and Orbitz, two of our largest online travel agency customers, have entered the corporate travel market. Increase Hospitality and Destination Services Transactions. We intend to increase our transaction revenues from hospitality and destination services, which include car, hotel, tour, cruise and rail transactions. We derived approximately 8% of our transaction fee revenues for the year ended December 31, 2003 from hospitality and destination services transactions. We expect these future transactions to increase in number, largely as a result of the emergence of the Internet and online travel agencies as a means of facilitating travel commerce. Expand Information Technology Services Business. We intend to expand our existing information technology services business. We believe airlines and other travel suppliers have been and will be increasingly outsourcing non-core technology functionalities due to the desire to focus on their core travel business, to better manage fixed costs and to leverage the technology of information technology service providers. Continue to Reduce Costs. Since the Acquisition, we have executed several strategic cost reduction initiatives. We believe additional opportunities exist to reduce costs and improve profitability. We plan to improve our cost structure by streamlining our programming and processing systems and reducing our network and data center costs, among other initiatives. Summary Risks You should consider carefully the following important risks: Our revenues are highly dependent on the level of travel activity and are therefore highly subject to declines or disruptions to travel, particularly with respect to airlines that participate in our GDS. The travel industry is susceptible to safety and security concerns, including acts of terrorism and war and global epidemics such as SARS. In 2003, our revenues were adversely affected by the war in Iraq and the SARS epidemic, both of which resulted in the cancellation of a significant number of flights and travel bookings and a decrease in new travel bookings. We depend on a relatively small number of airlines for a significant portion of our revenues and the loss of any of our major airline relationships would harm us. In 2003, our five largest airline customers represented 54% of our revenues. We seek to obtain as our customers traditional travel agencies, online travel agencies, corporate travel departments and travel suppliers. We face significant competition in each of these areas. We also face significant competition with respect to our information technology services from other companies offering internal reservation systems and related technology. Travel suppliers, particularly airlines, are aggressively seeking ways to reduce distribution costs and, through the use of the Internet and otherwise, are seeking to decrease their reliance on GDSs including us. Several airlines have entered into direct supplier agreements with Orbitz and Title of each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee(2) have established their own travel distribution websites. We may not always have access to the lowest prices that travel suppliers offer through these alternative channels. We are highly dependent on a small number of large online travel agencies, and the success of our business depends on continuing these relationships. In 2003, Expedia, Hotwire, Orbitz and Priceline represented approximately 43% of our total transactions, with Expedia representing over 20% of our total transactions. Under our agreements with these agencies, the agencies have a variety of termination rights and other rights to reduce their business with Worldspan. For example, Expedia informed us in May 2004 that it intends to exercise its right to move a portion of its transactions to another GDS provider. In connection with WTI's acquisition of our outstanding general partnership interests and limited partnership interest in June 2003, we incurred substantial indebtedness. As a result of the interest expense associated with this indebtedness combined with other events as described above, our net income in 2003 was significantly lower than 2002. Please see the section entitled "Risk Factors" for information on these and other risks related to our business and this offering. Our Corporate Structure and History WTI was formed in March 2003 by Citigroup Venture Capital Equity Partners, L.P., or CVC, and Ontario Teachers' Pension Plan Board, or OTPP, for the purpose of acquiring all of our general partnership interests and indirectly acquiring all of our limited partnership interest. On June 30, 2003, WTI acquired 100% of our outstanding general partnership interests and limited partnership interest from affiliates of our founding airlines for an aggregate consideration of $901.5 million and agreed to provide credits to Delta and Northwest totalling up to $250.0 million structured over nine years in exchange for the agreement of those airlines to continue using us for information technology services. Our principal executive offices are located at 300 Galleria Parkway, N.W., Atlanta, Georgia 30339, and our telephone number is (770) 563-7400. Our website is http://www.worldspan.com. The website and the information included therein are not part of this prospectus. Equity Sponsors CVC is a private equity fund managed by Citigroup Venture Capital Ltd., one of the industry's oldest private equity firms. Citigroup Venture Capital Ltd. was established in 1968, and manages funds in excess of $6.0 billion. Citigroup Venture Capital is a leading technology and travel investor, sponsoring such industry leading names as Fairchild Semiconductor, Intersil, ChipPAC, AMI Semiconductor, Federal Express and People Express. OTPP, with approximately C$75.7 billion in net assets at December 31, 2003, is one of the largest pension plans in Canada. OTPP's private equity arm was established in 1991. The private equity arm has completed more than 100 transactions in a wide range of industries having participated in many management buy-outs in Canada, the United States and Europe, including The Yellow Pages Group Co. and Shoppers Drug Mart Corporation. With a portfolio valued at C$4.5 billion as of December 31, 2003, OTPP's private equity arm is one of Canada's largest private equity investors. 95/8% Senior Notes due 2011 30,000,000 $3,801 Purpose of the Offering On June 30, 2003, we completed the private offering and sale of $280,000,000 in aggregate principal amount of our 95/8% senior notes due 2011. At the time of that private sale, we and our subsidiary guarantors entered into a registration rights agreement with the initial purchasers of the notes, relating to the registration of those notes (which we refer to as the "old notes") with the Securities and Exchange Commission. In that agreement, we agreed to deliver to the holders of the old notes either (a) an exchange offer prospectus, by which we would offer to exchange the old notes of eligible holders for new registered notes (the "exchange notes"), or (b) this prospectus, by which the holders of old notes not eligible to participate in the exchange offer described in clause (a) above may publicly resell their old notes. It is our understanding that, under current interpretations by the Securities and Exchange Commission of applicable provisions of the Securities Act of 1933, as amended, "affiliates" of an issuer of securities are not eligible to participate in exchange offers of the type we conducted for the other holders of the old notes. Since the selling noteholder named in this prospectus is our affiliate for purposes of the federal securities laws, it was not eligible to participate in the exchange offer. Accordingly, we are performing our obligation to file the registration statement of which this prospectus is a part, by which the holder of old notes that was not eligible to participate in the exchange offer for exchange notes may publicly resell its old notes. In the registration rights agreement, we agreed to use all commercially reasonable efforts to: (1) file the registration statement of which this prospectus is a part on or prior to 90 days after our filing obligation arose; (2) cause the registration statement to be declared effective by the Securities and Exchange Commission on or prior to 180 days after the filing obligation arose; and (3) keep the registration statement of which this prospectus is a part effective until the earlier of two years from the date the registration statement is declared effective and such earlier date when no notes covered by the registration statement of which this prospectus is a part remain outstanding (failure to perform each such obligation referred to in (1), (2) and (3) above, a "registration default"). If we fail to meet any of these obligations, we must pay liquidated damages to the holders of outstanding old notes affected thereby. These liquidated damages will equal with respect to the first 90-day period immediately following the occurrence of the first registration default, an amount equal to 0.25% per annum on the principal amount of notes held by that holder. The amount of liquidated damages shall increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of 1.00% per annum with respect to all registration defaults, until all registration defaults have been cured. Guarantees(2) (3) Summary of the Terms of the Offering The form and terms of the resale notes are the same as the form and terms of the outstanding exchange notes, except that the resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration in which the restrictions on transfer lapse. The resale notes represent the same debt as the exchange notes. Both the resale notes and the exchange notes are governed by the same indenture. Unless otherwise required by the context, we use the term "notes" in this prospectus to collectively refer to the resale notes and the exchange notes and the term "guarantees" to collectively refer to the resale guarantees and the exchange guarantees. Securities Offered $30,000,000 aggregate principal amount of 95/8% senior notes due 2011. Issuers Worldspan, L.P. and WS Financing Corp. Maturity Date June 15, 2011. Interest Payment Dates June 15 and December 15, commencing December 15, 2003. Use of Proceeds We will not receive any proceeds from the sale of the resale notes by the selling noteholder. Guarantees The issuers' obligations with respect to the resale notes, including principal and interest and liquidated damages, if any, are fully and unconditionally guaranteed on a senior unsecured basis by each of the issuers' existing and future domestic subsidiaries. None of the issuers' foreign subsidiaries will be guarantors. Rankings The resale notes and the resale guarantees are unsecured, general obligations of the issuers and the guarantors. Accordingly, they will rank: effectively subordinate in right of payment to all of the issuers' and the guarantors' existing and future senior secured indebtedness (including all borrowings under our senior credit facility); equal in right of payment to the issuers' and the guarantors' existing and future senior indebtedness; senior in right of payment to the issuers' and the guarantors' future subordinated indebtedness, if any; and effectively subordinated to all existing and future indebtedness and other liabilities (including trade debt) of the issuers' non-guarantor subsidiaries. As of March 31, 2004: the issuers and the guarantors had approximately $86.0 million of senior secured debt outstanding under our senior credit facility, and an additional $50.0 million was available for borrowing under the revolving credit facility portion of our senior credit facility; the issuers and the guarantors had approximately $87.2 million of senior secured obligations under capital leases; and the issuers' non-guarantor subsidiaries had approximately $28.3 million in trade accounts payable and other accrued expenses outstanding. See "Description of Other Indebtedness." Optional Redemption On or after June 15, 2007, the issuers may redeem some or all of the notes at any time at the redemption prices described in the section "Description of the Notes Optional Redemption." Before June 15, 2006, the issuers may redeem up to 35% of the aggregate principal amount of the notes originally issued with the proceeds of certain equity offerings, provided that at least 65% of the aggregate principal amount of the notes originally issued remains outstanding after such redemption. Mandatory Redemption None. Covenants The notes were issued under an indenture among the issuers, the guarantors and the trustee. The indenture (among other things) limits the ability of Worldspan, L.P. and its restricted subsidiaries to, among other things: pay dividends or make other distributions; purchase, redeem or otherwise acquire for value any of the equity interests of the issuers or their parent entities; make other restricted payments and investments; incur additional indebtedness or issue preferred stock; sell assets; create liens; incur restrictions on the ability of the restricted subsidiaries to pay dividends or other payments to Worldspan, L.P.; merge or consolidate with other entities; and enter into transactions with affiliates. The indenture will also limit: the ability of WS Financing Corp. to hold any material assets, to incur liability for any material obligations and to engage in any significant business activities; and the ability of WTI and WS Holdings LLC to engage in any activities other than holding the capital stock of Worldspan, L.P. (1)Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The other companies listed in the Table of Additional Registrants below have guaranteed, jointly and severally, the 95/8% Senior Notes Due 2011 being registered hereby. The Guarantors are registering the Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the Guarantees. (3)Not applicable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of the Notes Certain Covenants." Transfer: The resale notes are currently restricted securities and will remain so until transferred pursuant to this prospectus or pursuant to an available exemption from registration on which the restrictions on transfer lapse. The Initial Offering of the Notes: We sold the 95/8% senior notes due 2011 on June 30, 2003 to Lehman Brothers Inc., Deutsche Bank Securities Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., collectively, the "initial purchasers." The initial purchasers subsequently resold the outstanding notes to qualified institutional buyers, including the selling noteholder, pursuant to Rule 144A under the Securities Act of 1933, as amended and to non-U.S. Persons within the meaning of Regulation S under the Securities Act. Registration Rights Agreement: Simultaneously with the initial sale of the outstanding notes, we entered into a registration rights agreement with respect to an exchange offer and this shelf registration statement. In the registration rights agreement, we agreed, among other things, to use all commercially reasonable efforts to file a registration statement with the SEC and to complete an exchange offer. We also agreed to file a shelf registration statement to register the notes for resale for noteholders who were not permitted to participate in the exchange offer. The Exchange Offer: We completed the exchange offer on January 30, 2004. Shelf Registration: On February 18, 2004, the selling noteholder notified us that it was not permitted to participate in the exchange offer and exercised its right under the registration rights agreement to require us to file this shelf registration statement. (unaudited) Balance Sheet Data: Cash and cash equivalents $ 32,104 Working capital (deficit)(1) (21,971 ) Property and equipment 137,406 Total assets 1,136,588 Total debt(2) 453,152 Partners' capital 432,971 Total transactions (in thousands) 195,564 192,175 49,019 99,121 93,757 55,411 Depreciation and amortization $ 83,425 $ 79,215 $ 17,146 $ 32,322 $ 52,955 $ 25,063 Capital expenditures(4) 56,653 56,484 19,317 22,840 29,490 23,781 Distributions 175,000 100,000 60,000 110,000 Ratio of earnings to fixed charges(5) 6.6 x 12.6 x 13.2 x 7.4 x 0.4 x 2.4 (5)The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include income before taxes and income or loss from equity investees. "Fixed charges" include interest costs and such portion of rental expense as can be demonstrated to be representative of the interest factor. Table of Additional Registrants Name
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+PROSPECTUS SUMMARY" --> PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus which we consider important to investors. You should read the entire prospectus carefully before making an investment in our common stock. Our Business GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men s health conditions. Our drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones. We currently have two product candidates that are in human clinical trials. We are developing Acapodene, our most advanced product candidate, through clinical trials for two separate indications: (1) a Phase IIb clinical trial for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of advanced prostate cancer therapy. Phase IIb clinical trials typically evaluate efficacy and safety and determine the optimal dosing regimen. Pivotal Phase III clinical trials typically further evaluate efficacy and safety in an expanded patient population. We are initially developing our second product candidate, Andarine, for the treatment of potentially life-threatening muscle wasting weight loss from various types of cancer. Andarine is the most advanced of our internally discovered portfolio of compounds designed to modulate the effects of hormones. We plan to build a specialized sales and marketing capability to market our product candidates directly to the relatively small and concentrated community of urologists and medical oncologists in the United States and to seek collaborators to commercialize our product candidates outside the United States and to broader target physician markets. Acapodene for the Reduction in the Incidence of Prostate Cancer in Men with Precancerous Prostate Lesions Prostate cancer is one of the most commonly diagnosed cancers in men and the second leading cause of cancer-related deaths in the United States. We believe that treating the precancerous lesions of prostate cancer known as high grade PIN may be an effective approach to this disease. In the United States, there are over 115,000 new cases of precancerous prostate lesions diagnosed each year, and an estimated 9.4 million men unknowingly harbor this condition. As there is currently no therapy for the treatment of this condition, we believe this represents a significant unmet medical need. A planned interim analysis of the first 120 patients in our Phase IIb clinical trial showed that treatment with Acapodene resulted in a 26% to 57% reduction in the incidence of prostate cancer compared to the placebo group 12 months after the diagnosis of precancerous prostate lesions. While these interim results do not necessarily predict favorable results from this trial or any future trial, we believe that the results of this interim analysis suggest that Acapodene may be effective in reducing the incidence of prostate cancer in men with precancerous prostate lesions. The last of the 515 enrolled patients is scheduled to complete this trial in May 2004, with final results expected in the third quarter of 2004. We believe that if the results of this Phase IIb clinical trial and an anticipated single Phase III clinical trial are positive, this trial and the anticipated Phase III clinical trial will be sufficient to support an application with the FDA for marketing approval of Acapodene for this indication. However, even if we file this application, it may not result in marketing approval from the FDA. Table of Contents Acapodene for the Treatment of Side Effects of Advanced Prostate Cancer Therapy The standard medical treatment for men who have advanced, recurrent or metastatic prostate cancer is androgen deprivation therapy, which reduces blood levels of testosterone, the growth factor for prostate cancer. In the United States, more than 675,000 men are currently being treated by this therapy, with over 120,000 new patients started on this therapy each year. Advanced prostate cancer therapy has serious side effects, including: severe bone loss, or osteoporosis, leading to skeletal fractures; hot flashes; and breast pain and enlargement. We are developing Acapodene as a treatment for these side effects. Because there are no drugs approved by the FDA for the treatment of these side effects, we believe that there could be a substantial market for Acapodene for this indication. We have completed two six-month Phase II clinical trials of Acapodene for the treatment of osteoporosis and hot flashes in men receiving advanced prostate cancer therapy. Phase II clinical trials are typically conducted in a limited population to evaluate dosage, safety and, preliminarily, efficacy for a specific indication. The first Phase II clinical trial evaluated the use of Acapodene shortly after initiation of therapy, and the second Phase II clinical trial evaluated Acapodene in patients who had been receiving therapy for more than 12 months. The analysis of the second trial showed that Acapodene at the highest tested dose produced an increase in bone mineral density, an indicator of bone strength, and a reduction in the frequency of hot flashes. Our pivotal Phase III clinical trial for this indication, which we commenced in November 2003, is principally based on the results of the second Phase II clinical trial. The Phase III trial will evaluate the effect of Acapodene on the incidence of skeletal fractures as well as on bone loss and the incidence of hot flashes and breast pain and enlargement. The increase in bone mineral density and reduction in the frequency of hot flashes observed in the second Phase II clinical trial are not necessarily indicative of the results that will be demonstrated in our pivotal Phase III trial. Andarine for the Treatment of Muscle Wasting Weight Loss from Cancer We believe that Andarine has the potential to treat a variety of men s health conditions, including testosterone deficiency in aging men and related diseases, including osteoporosis and muscle wasting. Our strategy is to develop Andarine initially for the treatment of muscle wasting weight loss from various types of cancer, which is known as cancer cachexia. We selected this indication because it represents a potentially large market and, we believe, has a relatively well-defined clinical and regulatory process. There are approximately 1.3 million patients diagnosed with cancer each year in the United States. Muscle wasting weight loss afflicts approximately one-third of newly-diagnosed cancer patients. There are no drugs that have been approved by the FDA for the treatment of muscle wasting weight loss from cancer. We have completed three Phase I clinical trials of Andarine in which Andarine was well-tolerated by all participants with no serious adverse events. Phase I clinical trials are designed to confirm safety and tolerance. In one of these Phase I clinical trials, we measured increased levels of a growth factor in the blood of some men who received Andarine, which suggests that Andarine may promote growth activity and thus may be an effective treatment for muscle wasting weight loss from cancer. However, Phase I clinical trials are not designed to show efficacy, and these early observations are not necessarily indicative of the results that will be demonstrated in future clinical trials. We plan to commence a placebo-controlled, dose-finding Phase II clinical trial of Andarine for the treatment of muscle wasting weight loss from non-small cell lung cancer in the first half of 2004. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Pipeline We have multiple product candidates that we are evaluating in preclinical and toxicology studies to support the possible commencement of clinical trials. We are developing our current preclinical product candidates for the treatment of major indications in men s health, including: Prostarine for the treatment of a benign prostate enlargement that results in obstruction of the urinary tract; Ostarine for the treatment of osteoporosis and testosterone deficiency in aging men; and Andromustine for the treatment of prostate cancer that is not responsive to androgen deprivation therapy. We believe that our drug discovery capabilities position us well to design and develop nonsteroidal small molecule drugs that modulate the effects of hormones. Early Stage Company All of our product candidates are undergoing clinical trials or are in early stages of development, and failure is common and can occur at any stage of development. To date, we have not obtained regulatory approval for the commercial sale of any products, and we have not received any revenues from the commercial sale of products. Industry sources report that the preparation and submission of new drug applications, or NDAs, which are required for regulatory approval, generally take six months to one year to complete after completion of a pivotal clinical trial. Industry sources also report that approximately 75% of all NDAs are approved by the FDA, and the FDA reports that most NDAs are approved within 12 to 24 months of submission, although it may take longer if additional information is required by the FDA or for other reasons. The Pharmaceutical Research and Manufacturers of America reports that only one out of five product candidates that enter clinical trials will ultimately be approved by the FDA for commercial sale. We do not expect any of our product candidates, if successfully developed, to receive regulatory approval for commercial sale for at least several years. Any products that we sell may not become commercially successful. For the nine months ended September 30, 2003, our net loss was $9.6 million, and as of that date, we had a deficit accumulated during the development stage of $144.9 million, of which $110.6 million related to non-cash dividends and adjustments to the preferred stock redemption value. Company Information We were originally incorporated under the name Genotherapeutics, Inc. in Tennessee in September 1997. We changed our name to GTx, Inc. in 2001, and we reincorporated in Delaware in 2003. Our principal executive office is located at 3 N. Dunlap Street, 3rd Floor, Van Vleet Building, Memphis, Tennessee, and our telephone number is (901) 523-9700. Our website address is www.gtxinc.com. The information contained in our website is not a part of this prospectus. Service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. Amendment No. 4 To Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 GTx, Inc. (Exact name of registrant as specified in its charter) Delaware 2834 62-1715807 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) GTx, Inc. 3 N. Dunlap Street, 3rd Floor Van Vleet Building Memphis, TN 38163 (901) 523-9700 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Mitchell S. Steiner, M.D., F.A.C.S. Chief Executive Officer GTx, Inc. 3 N. Dunlap Street, 3rd Floor Van Vleet Building Memphis, TN 38163 (901) 523-9700 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The Offering Common stock offered by GTx 5,400,000 shares Common stock to be outstanding after the offering 24,592,753 shares Nasdaq National Market symbol GTXI Use of proceeds We expect to use the net proceeds from this offering to fund our clinical trials and other research and development activities and for general corporate purposes. The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of December 31, 2003 and excludes: 828,750 shares of common stock issuable upon exercise of options issued under our current stock option plans, at a weighted average exercise price of $6.18 per share; 453,050 shares of common stock reserved for future issuance under our current stock option plans and 1,700,000 shares of common stock reserved for future issuance under our 2004 Equity Incentive Plan and 2004 Non-Employee Directors Stock Option Plan, which will become effective upon the completion of this offering; and shares of common stock issuable upon conversion of outstanding preferred stock in satisfaction of dividends that will accrue on our preferred stock between January 1, 2004 and the closing of this offering. Except as otherwise noted, all information in this prospectus: assumes no exercise of the underwriters over-allotment option; gives effect to the conversion into common stock of all outstanding shares of preferred stock and dividends accrued thereon through December 31, 2003; and gives effect to an 8.5-for-1 stock split of our common stock, which was effected on January 14, 2004. Copies to: Robert L. Jones, Esq. Suzanne Sawochka Hooper, Esq. Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 (650) 843-5000 Leigh Walton, Esq. Robert J. DelPriore, Esq. Bass, Berry Sims PLC 100 Peabody Avenue Suite 900 Memphis, TN 38103 (901) 543-5904 David E. Redlick, Esq. Peter N. Handrinos, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 (617) 526-6000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. (in thousands) Balance Sheet Data: Cash and cash equivalents $ 19,788 $ 87,796 Working capital 18,280 86,289 Total assets 21,107 89,115 Cumulative redeemable convertible preferred stock 162,978 Deficit accumulated during development stage (144,891 ) (145,159 ) Total stockholders (deficit) equity (143,838 ) 87,149 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine. Table of Contents
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+PROSPECTUS SUMMARY This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors. Tessera Technologies, Inc. We develop semiconductor packaging technology that meets the demand for miniaturization and increased performance of electronic products. We license our technology to our customers, enabling them to produce semiconductors that are smaller and faster, and incorporate more features. These semiconductors are utilized in a broad range of communications, computing and consumer electronic products. By using our technology, we believe that our customers are also able to reduce the time-to-market and development costs of their semiconductors. Our technology is currently licensed to more than 45 companies, and has been incorporated into more than three billion semiconductors worldwide, including more than one billion semiconductors shipped in 2003. In 2003, we had revenues of $37.3 million and net income of $9.4 million. Since our formation, we have focused on developing chip-scale packaging, or CSP, and multi-chip packaging technology. Our CSP technology enables our customers to assemble semiconductors into packages that are almost the size of the chip itself, and our multi-chip packaging technology enables multiple chips to be vertically stacked in almost the same area as a CSP. According to Gartner Dataquest, the market for chip-scale packaging is expected to grow from 6.2 billion units in 2003 to 18.9 billion units in 2006, representing a compound annual growth rate of 45%. The demand for miniaturization and increased performance and functionality of electronic products, such as digital cameras, MP3 players, personal computers, personal digital assistants, video game consoles and wireless phones, has created a significant challenge for the manufacturers of electronic products. Semiconductor companies have traditionally responded to this challenge by decreasing the size of the transistors and integrating more functions on a chip, resulting in higher-performance, lower-cost chips that use less silicon area. Semiconductor packages, which act as the physical and electrical interface between the chip and the printed circuit board, traditionally have been much larger than the chip itself and occupied significant area on the printed circuit board. These packages have also been limited in their ability to accommodate the processing speeds of higher performing chips due to their relatively long electrical connections. While the integration of more functions on a chip is critical to the miniaturization of electronic products, its impact has been limited by packaging technology, which has not kept pace with the advancements achieved by chip integration. Our technology offers the following key benefits: Miniaturization. Our technology enables fully-packaged chips to be almost as small as the chip itself, and multi-chip packages that occupy almost the same circuit board area as a single CSP, resulting in improved product miniaturization. High performance. Packaged chips that use our technology have short electrical connections that allow the rapid transfer of data and enable high system-level performance. High reliability. By allowing movement within the package, our technology alleviates thermally-induced stress, resulting in high reliability without compromising package size, performance or cost. Supplemental disclosure of cash flow information: Interest paid $ 269 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Tessera Technologies, Inc. (Exact name of Registrant as specified in its charter) In this prospectus, the Company, Tessera, we, us and our refer to Tessera Technologies, Inc. and, for periods prior to our corporate restructuring in January 2003 or if the context otherwise requires, Tessera, Inc., which is our wholly-owned subsidiary. Delaware 3674 16-1620029 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) Tessera Technologies, Inc. 3099 Orchard Drive San Jose, California 95134 (408) 894-0700 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents
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+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to Great Wall Acquisition Corporation. Unless otherwise specified, references to "China" or the "PRC" refer to the People's Republic of China as well as the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but does not include Taiwan. Additionally, unless we tell you otherwise, the information in this prospectus has been adjusted to give retroactive effect to a two-for-one forward stock split effected in January 2004 resulting in two shares for every one share of common stock outstanding and assumes that the underwriters will not exercise their over-allotment option. We are a blank check company organized under the laws of the State of Delaware on August 20, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a company having its primary operations in the PRC. To date, our efforts have been limited to organizational activities. Opportunities for market expansion have emerged for businesses with operations in the PRC in the industries we intend to focus on and other industries due to certain changes in the PRC's political, economic and social policies as well as certain fundamental changes affecting the PRC and its neighboring countries. We believe that the PRC represents both a favorable environment for making acquisitions and an attractive operating environment for a target business for several reasons, including: prolonged economic expansion within the PRC, including gross domestic product growth of approximately 9% on average over the last 25 years, with growth of 8.2% in the first half of 2003; increased government focus within the PRC on privatizing assets, improving foreign trade and encouraging business and economic activity; access to a highly trained and educated workforce which in turn leads to favorable labor rates and efficient, low-cost manufacturing capabilities; and attractive valuations for target businesses within the PRC. Although our efforts in identifying a prospective target business will not be limited to a particular industry, we initially intend to focus our search on target businesses in the PRC that are engaged in the technology, media or telecommunications industries. We believe that the factors described above are more evident in these industries. Notwithstanding this fact, there are certain government regulations relating to these proposed industries that may negatively impact our ability to operate following a business combination. For instance, the PRC has adopted and proposed regulations within the technology, telecommunications and media industries that would limit foreign investors' equity ownership or prohibit foreign investments altogether in these companies. As a result, our capital structure and ownership may limit the number of potential target businesses within our proposed industries. For a more complete discussion of the government regulations affecting our proposed industries, see the section below entitled "Proposed business — Government regulations of proposed industries." While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 660 Madison Avenue, 15th Floor, New York, New York 10021, and our telephone number is (212) 753-0804. The Offering Securities offered 4,000,000 units, at $6.00 per unit, each unit consisting of: one share of common stock; and two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless Broadband Capital Management determines that an earlier date is acceptable. In no event will Broadband Capital Management allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering 1,000,000 shares Number to be outstanding after this offering 5,000,000 shares Warrants: Number outstanding before this offering 0 Number to be outstanding after this offering 8,000,000 warrants Exercisability Each warrant is exercisable into one share of common stock. Exercise price $5.00 Exercise period The warrants will become exercisable on the later of: the completion of a business combination with a target business, or , 2005 [one year from the date of this prospectus.] The warrants will expire at 5:00 p.m., New York City time, on , 2009 [five years from the date of this prospectus] or earlier upon redemption. Redemption We may redeem the outstanding warrants: in whole and not in part, at a price of $.01 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days' prior written notice of redemption, and if and only if the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Units [ ] Common stock [ ] Warrants [ ] Offering proceeds to be held in trust: $20,400,000 of the proceeds of this offering ($5.10 per unit) will be placed in a trust fund maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the effective date of this offering. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $930,000). Since none of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination: We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the vote of the public stockholders owning a majority of the shares sold in this offering. We will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in this offering vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination: Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination: We will dissolve and distribute only to our public stockholders the amount in our trust fund plus any remaining net assets, if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Following our dissolution, we would no longer exist as a corporation. Escrow of management shares: On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they own before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be released from escrow until , 2007 [three years from the date of this prospectus.] Risks In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider all of the risks set forth in the section entitled "Risk Factors" beginning on page 6 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our common shares. Before you decide to invest in our common stock, you should read the entire prospectus carefully, including the Risk Factors and consolidated financial statements and related notes included in this prospectus. The Company We operate an e-commerce marketplace of websites for perishable goods that consistently delivers fresh, high-quality products direct from the supplier to the customer at competitive prices. We combine an online storefront, proprietary supply chain management technology, established supplier relationships and an integrated logistical relationship with Federal Express Corporation to create a market platform that bypasses traditional supply chains of wholesalers, distributors and retailers. The benefits to our customers include freshness, quality, price and selection, all with a guaranteed delivery date. The benefits to our suppliers include enhanced margins, broader customer reach and better inventory management. We believe our business model is highly scalable with low capital investment requirements and minimal inventory carrying costs. Our marketplace is a collection of our own branded websites and websites that we operate for other retailers, each offering high-quality perishable products shipped directly from the supplier to the customer. By using our market platform to eliminate multiple intermediaries from the traditional product supply chain, we are able to purchase products directly from suppliers at lower prices and reduce or eliminate many of the typical costs associated with traditional retail businesses, including inventory, capital expenditures, labor and administrative expenses. We believe this allows us to achieve higher operating margins than many of our competitors. We have designed our technology infrastructure to be highly scalable and adaptable to different categories of time-sensitive shipments, including perishable products. We initially launched our marketplace in 1998 to sell and deliver flowers, one of the most difficult perishable products to ship, under our Proflowers brand at www.proflowers.com. Our flowers are generally seven or more days fresher than flowers delivered via the traditional floral supply chain. We guarantee that our flowers will reach their destination on the requested delivery date. We believe our global network of growers, proprietary technology and integrated relationship with Federal Express Corporation, or FedEx, provide us with competitive advantages in the online floral market. Our price points start at $29.99, and in most instances are significantly lower than other online floral merchants for comparable items, yet we believe we offer a higher quality and fresher product at higher margins. To date, we have derived our revenues primarily from the sale of flowers, plants and gifts on our proflowers.com website. For the nine months ended March 31, 2004, we reported net sales of $76.9 million, an increase of 41.3% from the nine months ended March 31, 2003, and net income of $15.4 million as compared to a net loss of ($0.2) million in the same period in the prior year. During the nine months ended March 31, 2004, we reassessed the valuation allowance previously established against our net deferred tax assets and released the remaining allowance of approximately $12.2 million, resulting in the recognition of a tax benefit of $11.8 million. For the fiscal year ended June 30, 2003, we reported net sales of $88.7 million, an increase of 26.2% from the prior year, and net income of $4.3 million. Since our inception, we have incurred significant losses. As of March 31, 2004, we have an accumulated deficit of $35.1 million. Our database of customers has grown from approximately 69,000 as of June 30, 1999 to approximately 2.7 million as of March 31, 2004. In the nine months ended March 31, 2004, 54.3% of our total orders placed came from repeat customers. In the fiscal year ended June 30, 2003, 53.1% of our total orders placed came from repeat customers. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents We have designed our e-commerce marketplace specifically around the way consumers shop for time-sensitive and perishable products. Our branded websites are designed to streamline the order process by minimizing the time and number of web pages a customer views when searching for or placing an order. In contrast to many other e-commerce shopping experiences, our order process begins with the selection of a specific delivery time window. Our marketplace automatically considers supplier inventory levels before displaying any product or shipping date to prevent out of stock or back-order scenarios and to allow us to provide our customers with greater assurance that the package will arrive for the intended occasion. Our customers receive three automatically generated confirmation emails one each at the time of order, product shipment and package delivery. We plan to assess and target additional categories based on our market platform s ability to add value by streamlining the supply chain for the benefit of customers and suppliers. We have identified premium meat and fresh fruit as initial categories where we believe we can leverage our customer base, marketing and distribution relationships and infrastructure. In October 2003, we launched and are now operating Uptown Prime at www.uptownprime.com, offering premium meats, and Cherry Moon Farms at www.cherrymoonfarms.com, offering fresh premium fruits. In addition, in March 2004, we began testing a premium seafood merchandising extension within Uptown Prime, called Uptown Catch. To support the launch of additional categories and merchandising extensions, we have engineered our system to support peak loads in excess of 50 times our current average daily volumes and have managed peak shipment days of over 184,000 orders. We believe our market platform can be tailored for use by any business desiring to offer high-quality, perishable products to its customers. To validate this belief, we have entered into multi-year agreements with two Fortune 100 retailers and a company that creates content and domestic merchandise for homemakers and other consumers to use our market platform to sell products under their brand names. Under these arrangements, we design and host a dedicated website for selling perishable goods, handling all order processing and fulfillment and providing customer service. We are not dependent on these arrangements and they represent an immaterial percentage of our net sales in fiscal 2003 and for the nine months ended March 31, 2004. We have developed rigorous quality assurance procedures in our flower business which we believe we can apply to other perishable products. In the floral category, we work closely with our global network of growers and distribution facilities to ensure that our quality assurance standards are implemented throughout cultivation, harvesting, packing, inspection and transportation. In addition to systematic inspections, lab testing, training manuals and on-site quality assurance personnel, our quality initiatives rely on detailed product tracking that allows us to trace any issue resulting in customer dissatisfaction back to the supplier, specific product and time of shipment for correction of the cause. Provide Commerce s objective is to become our customers preferred e-commerce marketplace for the delivery of perishable products direct from the supplier. Our long-term strategy is to deploy this market platform across multiple products and brands through our own websites and websites that we design and operate for other retailers. We believe this will result in increased operating leverage by allowing us to use our common customer base, marketing and distribution relationships and infrastructure across the entire marketplace. We plan to attain this goal through the following key strategies: expand the Provide Commerce marketplace by expanding the type and number of product offerings on our own websites and pursuing additional relationships and product offerings with other retailers; increase our brand awareness through a variety of online and offline marketing and promotional programs; AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents continue to acquire and retain customers through online and offline marketing activities, ongoing modification of our website and its offerings and continued contact with our customer base through email, direct mail and other channels; continue to establish strong relationships with our existing suppliers and to add new suppliers to provide a broad selection of quality products; expand distribution initiatives by continuing to work closely with FedEx and updating our systems and distribution processes; and grow our relationships with retailers and other third parties who want to sell perishable products online. Jared Schutz Polis, Dr. Stephen Schutz and Jordanna Schutz and persons affiliated with each of them will hold approximately 36.7% of our outstanding stock upon the closing of this offering, assuming exercise of the underwriters over-allotment option in full and the sale by Mr. Polis and persons affiliated with him of 1,425,000 shares in this offering. Mr. Polis, Dr. Schutz and Ms. Schutz and these affiliated persons will have the ability to exert significant influence over our management. Recent Developments Since our initial public offering in December 2003, we have accomplished the following: Accelerated our revenue and pre-tax income growth over comparable periods. For the nine months ended March 31, 2004, revenues increased 41.3% to $76.9 million, from $54.4 million during the same period of fiscal 2003 and pre-tax income increased to $3.6 million from a loss of $0.2 million during the same period of fiscal 2003. Exhibited strong performance during core holiday seasons. On May 11, 2004, we reported record shipments for the Mother s Day shopping period defined as shipments from the beginning of May through the Saturday of Mother s Day weekend. During this period, shipments for our core consumer floral business were more than 550,000, compared to approximately 380,000 shipments in the Mother s Day period a year ago. On February 17, 2004, we reported record shipments for the Valentine s Day shopping period defined as February 8th through February 14th. During the period, shipments for our core consumer floral business were more than 400,000, compared to approximately 304,000 in the Valentine s period a year ago. Achieved strong results in our new product categories. The launch of our Uptown Prime and Cherry Moon Farms websites was the first application of our business model to product categories outside of floral products. Since the launch, we have grown sales in both websites. These new business initiatives are currently an immaterial part of our business. We expect them to account for approximately 1.5% of revenues for the fiscal year ending June 30, 2004. In addition, in March 2004, we began testing a premium seafood merchandising extension within Uptown Prime, called Uptown Catch. Improved and utilized new marketing initiatives. We have introduced new targeted online and offline marketing initiatives including the more frequent distribution of catalogs and an increased focus on our non-seasonal business. We believe this has allowed us to retain existing customers, demonstrated by the increase of 43.3% in the number of orders placed by existing customers from 561,000 in the nine months ended March 31, 2003 to 804,000 in the nine months ended March 31, 2004. We have also continued to focus on the acquisition of new customers, demonstrated by the increase of 40.8% in the number of new customers purchasing products from 414,000 in the nine months ended March 31, 2003 to 583,000 in the same period during 2004. Continued to seek ways to optimize and refine our distribution and delivery methods. We continually evaluate our distribution and delivery methods to improve cost effectiveness and efficiency, including the introduction of the use of FedEx Ground in early 2004. We also look to expand and diversify our delivery methods and relationships over time to improve customer satisfaction. PROVIDE COMMERCE, INC. (Exact Name of Registrant as Specified in its Charter) Table of Contents Company Information Our business was incorporated in Delaware in February 1998 as ProFlowers, Inc. We changed our name to Provide Commerce, Inc. in September 2003. Our principal executive offices are located at 5005 Wateridge Vista Drive, San Diego, California 92121. Our telephone number is (858) 638-4900. Our corporate website is located at www.providecommerce.com. Our branded flower website is located at www.proflowers.com and our additional branded websites are located at www.uptownprime.com and www.cherrymoonfarms.com. The information contained on our branded websites is not part of this prospectus. Delaware 5961 84-1450019 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 5005 Wateridge Vista Drive San Diego, California 92121 (858) 638-4900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Offering Common stock we are offering 100,000 shares Common stock and warrants the selling stockholders are offering 1,841,764 shares or 2,128,793 shares if the underwriters exercise their over-allotment option in full. In addition, the underwriters will purchase a warrant exercisable into 39,255 shares of common stock from a selling stockholder (49,379 shares of common stock if the over-allotment option is exercised in full), pay us the exercise price specified in the warrant to obtain these shares and sell the shares in this offering. Common stock to be outstanding after the offering 11,656,115 shares Use of proceeds We intend to use the net proceeds from this offering for general corporate purposes, including paying expenses in connection with this offering. We will not receive any proceeds from the sale of shares by the selling stockholders. See Use of Proceeds. Nasdaq National Market symbol PRVD Dividend policy We do not intend to pay dividends on our common stock in the foreseeable future. See Dividend Policy. The number of shares of common stock to be outstanding after this offering is based on 11,419,615 shares of common stock issued and outstanding as of March 31, 2004. Except where we state otherwise, the common stock information we present in this prospectus: is based on shares outstanding, and excludes, as of March 31, 2004: 964,465 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $4.27 per share; 2,207,209 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $3.45 per share; and 2,036,619 shares of common stock available for future issuance under our existing equity incentive plans, from which options to purchase up to 92,350 shares of common stock at a weighted average exercise price of $21.92 per share have been granted for the period from April 1, 2004 to June 28, 2004; and assumes no exercise of stock options or warrants after March 31, 2004, other than the exercise of options and warrants exercisable for 136,500 shares of common stock at a weighted average exercise price of $1.27 per share in connection with this offering (163,026 shares if the over-allotment option is exercised in full). William Strauss Chief Executive Officer PROVIDE COMMERCE, INC. 5005 Wateridge Vista Drive San Diego, California 92121 (858) 638-4900 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Table of Contents Provide Commerce , Proflowers , Uptown Prime , Uptown Catch , Cherry Moon Farms , Freshness Factor , and a flower logo are trademarks of Provide Commerce, Inc. We have trademark rights in these marks in the U.S. and have registrations issued or applications pending for the marks in the U.S. We also have registrations issued or applications pending for the trademark Proflowers in Australia, Brazil, Canada, the European Union, Japan, Mexico, New Zealand and Switzerland. This prospectus also refers to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. This prospectus contains market data and industry forecasts that were obtained from independent industry and government publications. Service cost $ $ 52 Interest cost 10 Amortization of prior service cost Copies to: Faye H. Russell, Esq. Latham & Watkins LLP 12636 High Bluff Drive, Suite 300 San Diego, California 92130 (858) 523-5400 Thomas J. Leary, Esq. O Melveny & Myers LLP 610 Newport Center Drive, 17th Floor Newport Beach, California 92660 (949) 760-9600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. 2004 $ 1,188 $ 131 2005 820 49 2006 128 2007 20 2008 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. (unaudited) Consolidated Balance Sheet Data: Cash and cash equivalents $ 51,784 $ 53,357 Working capital 38,913 40,486 Total assets 74,963 76,536 Total stockholders equity 56,976 58,549 The table above summarizes our balance sheet at March 31, 2004: on an actual basis; and on an as adjusted basis to give effect, after deducting estimated underwriting discounts and commissions and our estimated offering expenses, to: the sale of 100,000 shares of common stock offered by us at an assumed public offering price of $20.16 per share, the last reported sale price on June 28, 2004; and the exercise of options and warrants exercisable for 136,500 shares of common stock at a weighted average exercise price of $1.27 per share in connection with this offering. Table of Contents
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+INCORPORATED INFORMATION This prospectus incorporates business and financial information about the company that is not included in or delivered with this prospectus. This information is available free of charge to security holders upon written or oral request to: Norcross Safety Products L.L.C., attn: Chief Financial Officer, 2211 York Road, Suite 215, Oak Brook, Illinois 60523, phone (630) 572-5715. To ensure timely delivery, you should request any information no later than five business days prior to the expiration date of the exchange offer. CURRENCIES AND EXCHANGE RATES References in this prospectus to "dollars" or "$" are to the currency of the United States. References to "euros" or " " are to the currency of the European Union. References in this prospectus to "Canadian dollars" or "C$" are to the currency of Canada. Except as otherwise stated herein, conversions of non-dollar currencies to dollars in the financial statements and the other information included herein have been calculated, for statement of operations purposes, on the basis of average exchange rates over the related periods and, for balance sheet purposes, on the date of the balance sheet. Conversions of the closing date indebtedness and cash on hand for K chele-Cama Latex GmbH ("KCL") are based on the exchange rate on July 29, 2003, the date of its acquisition. As of July 29, 2003, 1.00 was equivalent to $1.15. MARKET, RANKING AND OTHER DATA Unless otherwise indicated, the market, ranking and other similar data contained in this prospectus, including statements regarding our being a leader and one of the largest participants in our industry and regarding the breadth of our product offering, are based upon our management's knowledge of and experience in the markets in which we operate, and upon information from independent industry publications, including Frost & Sullivan. None of the independent industry publications was prepared on our or our affiliates' behalf and Frost & Sullivan has not consented to the inclusion of any data from its reports, not have we sought their consent. While management believes this data and its estimates and beliefs based on such data, to be reasonable, market, ranking and other similar data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market size. In addition, consumption patterns and customer preferences can and do change. TRADEMARKS North , Morning Pride , Ranger , Servus , Pro-Warrington , Salisbury and Total Fire Group are some of our trademarks. Other brand names or trademarks appearing in this prospectus are the property of their respective owners. PRO FORMA FINANCIAL INFORMATION Unless otherwise indicated, the pro forma financial data presented in this prospectus for the year ended December 31, 2002 gives pro forma effect to (1) our December 20, 2002 acquisition of Arbin Veiligheid B.V. ("Arbin"), (2) the offering of notes and the application of the net proceeds from the offering as described under "Use of Proceeds," and (3) the acquisition of KCL on July 29, 2003 as if each of these transactions had occurred on January 1, 2002. The pro forma Statement of Operations for the nine months ended September 27, 2003 gives pro forma effect to (1) the offering of the notes and the application of the net proceeds from the offering as described under "Use of Proceeds" and (2) the acquisition of KCL on July 29, 2003 as if these transactions had occurred on January 1, 2002. NSP Holdings and NSP are limited liability companies organized under the laws of the State of Delaware. Norcross Capital is a Delaware corporation. Our principal executive offices are located at 2211 York Road, Suite 215, Oak Brook, Illinois, 60523, and our telephone number is (630) 572-5715. Balance at December 31, 2001 4,602 3,525 9 8,136 Foreign currency translation adjustments 1 Issuers Norcross Safety Products L.L.C. and Norcross Capital Corp., as joint and several obligors. Securities Offered $152,500,000 principal amount of 97/8% Senior Subordinated Notes, Series B. Maturity Date August 15, 2011. Interest Rate 97/8% per year. Interest Payment Dates Each February 15 and August 15, beginning February 15, 2004. Guarantees NSP's present and future direct and indirect domestic subsidiaries, other than Norcross Capital, which is a co-issuer of the notes, have guaranteed the notes with unconditional guarantees of payment that rank junior in right of payment to their senior debt, but rank equal in right of payment to their future senior subordinated debt. Security and Ranking The notes are not secured by any collateral. The notes rank junior in right of payment to all of our senior debt and the senior debt of our subsidiary guarantors (other than trade payables) and rank equal in right of payment to our senior subordinated debt and the senior subordinated debt of our subsidiary guarantors and senior in right of payment to our subordinated debt and the subordinated debt of our subsidiary guarantors. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt and the senior debt of our subsidiary guarantors to collect money we owe them at the time. Our senior debt and the senior debt of our subsidiary guarantors are secured by our and their assets. The notes are structurally subordinated to indebtedness and other liabilities of our subsidiaries which have not guaranteed the notes. A portion of our operations are conducted through our non-guarantor subsidiaries. See "Description of the Notes Subordination." As of December 31, 2003, our non-guarantor subsidiaries had $19.8 million of indebtedness and other liabilities, including trade payables. As of December 31, 2003 we had $257.2 million of debt, of which $101.4 million would have been senior debt. As of December 31, 2003 our Senior Credit Facility permitted borrowing of up to $37.7 million. Optional Redemption Except in the case of equity offerings by us, we cannot choose to redeem the notes prior to August 15, 2007. At any time from and after that date (which may be more than once), we can choose to redeem some or all of the notes, pro rata, at specified prices, plus accrued and unpaid interest. Income before income taxes and minority interest 3,599 400 1,706 238 5,943 Income tax expense (benefit) 7,795 728 (236 )(7) 8,287 Minority interest 2 Income before income taxes and minority interest 2,124 1,812 Income tax expense 816 772 Minority interest 10 Balance at December 31, 2001 353 256 Contributed capital 2 Net income 193 Balance at December 31, 2002 353 370 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Optional Redemption After Equity Offerings On one or more occasions before August 15, 2006, we can choose to purchase up to 35% of the outstanding principal amount of the notes with money that we raise in one or more equity offerings, as long as: we pay 109.875% of the face amount of the notes bought, plus accrued and unpaid interest; we purchase the notes within 90 days of completing the equity offering; and at least 65% of the notes originally issued remain outstanding afterwards. Change of Control Offer If we experience a change in control, we must offer to purchase your notes at 101% of their face amount, plus accrued and unpaid interest. We might not be able to pay you the required price for notes you present to us at the time of a change in control because: we might not have enough funds at that time; or the terms of our other debt may prevent us from paying. Asset Sale Proceeds We may have to use the net cash proceeds from selling assets to offer to purchase your notes at their face amount, plus accrued and unpaid interest. Certain Indenture Provisions The indenture governing the notes limits what we (and most or all of our subsidiaries) may do. The provisions of the indenture limit our ability to: incur additional debt or issue preferred stock; pay dividends and make distributions on, or redeem or repurchase, capital stock; issue stock of subsidiaries; make investments; create liens; enter into transactions with affiliates; enter into sale-leaseback transactions; merge or consolidate; and transfer and sell assets. These covenants are subject to a number of important exceptions. See "Description of the Notes Certain Covenants." You should refer to the section entitled "Risk Factors" for an explanation of material risks of participating in the exchange offer. Operating activities Net income (loss) $ 4,823 $ (183 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,905 7,656 Amortization of intangibles 2,427 2,427 Amortization of deferred financing fees 1,517 1,749 Amortization of original issue discount 762 641 Write-off of deferred financing fees 7,284 Deferred income taxes (19 ) 143 Minority interest (1 ) Impairment of investment in Zimbabwe 2,072 Changes in operating assets and liabilities: Accounts receivable (9,576 ) (6,265 ) Inventories (2,996 ) (11,551 ) Prepaid expenses and other current assets 88 886 Other noncurrent assets (52 ) 44 Accounts payable 3,802 3,884 Accrued expenses 3,232 2,390 Pension, postretirement, and deferred compensation 517 1,335 Other noncurrent liabilities (1,262 ) (248 ) Other Net cash used in financing activities (553 ) 170 Effect of exchange rate changes on cash FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Other Financial Data and Ratios: EBITDA (1) $ 39,504 $ 45,298 $ 45,386 $ 33,997 $ 39,389 Adjusted EBITDA (1) 39,504 45,298 48,171 36,782 39,389 Depreciation and amortization 20,932 19,795 18,617 9,332 10,083 Capital expenditures 5,590 6,933 7,197 5,129 4,571 Net cash (used in) provided by operating activities (2,722 ) 21,401 24,012 12,240 10,194 Net cash used in investing activities (34,069 ) (6,474 ) (19,165 ) (9,804 ) (30,726 ) Net cash provided by (used in) financing activities 39,420 (12,937 ) (6,164 ) (2,812 ) 24,633 Ratio of earnings to fixed charges (2) 1.1 x 1.4 x 1.1 x 2,449 2,396 Members' equity: Contributed capital 4,602 4,602 Retained earnings 4,563 5,636 Accumulated other comprehensive income 10 (a)In addition to the non-cash charges excluded in calculating adjusted EBITDA, we incurred restructuring and merger-related charges of $3.5 million, $1.7 million and $3.0 million for the years ended December 31, 2000, 2001 and 2002, respectively. (b)Due to adverse political and economic conditions in Zimbabwe, we recorded a non-cash impairment charge of $2.8 million, equivalent to our net investment, with regard to the impairment of our Zimbabwe subsidiary for the year ended December 31, 2002 and the nine months ended September 28, 2002. (c)Depreciation expense for the year ended December 31, 2002 includes $6.3 million of non-cash charges relating to accelerated depreciation in connection with the write-off of long-lived assets. (2)In calculating the ratio of earnings to fixed charges, earnings consist of (loss) income before income taxes and minority interest plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and original issue discount, and the portion of rental expenses deemed attributable to interest. For the years ended December 31, 2000 and 2001, our earnings were insufficient to cover our fixed charges by $12,532 and $1,355. 2211 York Road, Suite 215 Oak Brook, Illinois 60523 Telephone: (630) 572-5715 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices)
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001264008_north_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001264008_north_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfbadc8ffc566f730a547cba766ef0e8d7281da
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001264008_north_prospectus_summary.txt
@@ -0,0 +1 @@
+INCORPORATED INFORMATION This prospectus incorporates business and financial information about the company that is not included in or delivered with this prospectus. This information is available free of charge to security holders upon written or oral request to: Norcross Safety Products L.L.C., attn: Chief Financial Officer, 2211 York Road, Suite 215, Oak Brook, Illinois 60523, phone (630) 572-5715. To ensure timely delivery, you should request any information no later than five business days prior to the expiration date of the exchange offer. CURRENCIES AND EXCHANGE RATES References in this prospectus to "dollars" or "$" are to the currency of the United States. References to "euros" or " " are to the currency of the European Union. References in this prospectus to "Canadian dollars" or "C$" are to the currency of Canada. Except as otherwise stated herein, conversions of non-dollar currencies to dollars in the financial statements and the other information included herein have been calculated, for statement of operations purposes, on the basis of average exchange rates over the related periods and, for balance sheet purposes, on the date of the balance sheet. Conversions of the closing date indebtedness and cash on hand for K chele-Cama Latex GmbH ("KCL") are based on the exchange rate on July 29, 2003, the date of its acquisition. As of July 29, 2003, 1.00 was equivalent to $1.15. MARKET, RANKING AND OTHER DATA Unless otherwise indicated, the market, ranking and other similar data contained in this prospectus, including statements regarding our being a leader and one of the largest participants in our industry and regarding the breadth of our product offering, are based upon our management's knowledge of and experience in the markets in which we operate, and upon information from independent industry publications, including Frost & Sullivan. None of the independent industry publications was prepared on our or our affiliates' behalf and Frost & Sullivan has not consented to the inclusion of any data from its reports, not have we sought their consent. While management believes this data and its estimates and beliefs based on such data, to be reasonable, market, ranking and other similar data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market size. In addition, consumption patterns and customer preferences can and do change. TRADEMARKS North , Morning Pride , Ranger , Servus , Pro-Warrington , Salisbury and Total Fire Group are some of our trademarks. Other brand names or trademarks appearing in this prospectus are the property of their respective owners. PRO FORMA FINANCIAL INFORMATION Unless otherwise indicated, the pro forma financial data presented in this prospectus for the year ended December 31, 2002 gives pro forma effect to (1) our December 20, 2002 acquisition of Arbin Veiligheid B.V. ("Arbin"), (2) the offering of notes and the application of the net proceeds from the offering as described under "Use of Proceeds," and (3) the acquisition of KCL on July 29, 2003 as if each of these transactions had occurred on January 1, 2002. The pro forma Statement of Operations for the nine months ended September 27, 2003 gives pro forma effect to (1) the offering of the notes and the application of the net proceeds from the offering as described under "Use of Proceeds" and (2) the acquisition of KCL on July 29, 2003 as if these transactions had occurred on January 1, 2002. NSP Holdings and NSP are limited liability companies organized under the laws of the State of Delaware. Norcross Capital is a Delaware corporation. Our principal executive offices are located at 2211 York Road, Suite 215, Oak Brook, Illinois, 60523, and our telephone number is (630) 572-5715. Balance at December 31, 2001 4,602 3,525 9 8,136 Foreign currency translation adjustments 1 Issuers Norcross Safety Products L.L.C. and Norcross Capital Corp., as joint and several obligors. Securities Offered $152,500,000 principal amount of 97/8% Senior Subordinated Notes, Series B. Maturity Date August 15, 2011. Interest Rate 97/8% per year. Interest Payment Dates Each February 15 and August 15, beginning February 15, 2004. Guarantees NSP's present and future direct and indirect domestic subsidiaries, other than Norcross Capital, which is a co-issuer of the notes, have guaranteed the notes with unconditional guarantees of payment that rank junior in right of payment to their senior debt, but rank equal in right of payment to their future senior subordinated debt. Security and Ranking The notes are not secured by any collateral. The notes rank junior in right of payment to all of our senior debt and the senior debt of our subsidiary guarantors (other than trade payables) and rank equal in right of payment to our senior subordinated debt and the senior subordinated debt of our subsidiary guarantors and senior in right of payment to our subordinated debt and the subordinated debt of our subsidiary guarantors. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt and the senior debt of our subsidiary guarantors to collect money we owe them at the time. Our senior debt and the senior debt of our subsidiary guarantors are secured by our and their assets. The notes are structurally subordinated to indebtedness and other liabilities of our subsidiaries which have not guaranteed the notes. A portion of our operations are conducted through our non-guarantor subsidiaries. See "Description of the Notes Subordination." As of December 31, 2003, our non-guarantor subsidiaries had $19.8 million of indebtedness and other liabilities, including trade payables. As of December 31, 2003 we had $257.2 million of debt, of which $101.4 million would have been senior debt. As of December 31, 2003 our Senior Credit Facility permitted borrowing of up to $37.7 million. Optional Redemption Except in the case of equity offerings by us, we cannot choose to redeem the notes prior to August 15, 2007. At any time from and after that date (which may be more than once), we can choose to redeem some or all of the notes, pro rata, at specified prices, plus accrued and unpaid interest. Income before income taxes and minority interest 3,599 400 1,706 238 5,943 Income tax expense (benefit) 7,795 728 (236 )(7) 8,287 Minority interest 2 Income before income taxes and minority interest 2,124 1,812 Income tax expense 816 772 Minority interest 10 Balance at December 31, 2001 353 256 Contributed capital 2 Net income 193 Balance at December 31, 2002 353 370 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Optional Redemption After Equity Offerings On one or more occasions before August 15, 2006, we can choose to purchase up to 35% of the outstanding principal amount of the notes with money that we raise in one or more equity offerings, as long as: we pay 109.875% of the face amount of the notes bought, plus accrued and unpaid interest; we purchase the notes within 90 days of completing the equity offering; and at least 65% of the notes originally issued remain outstanding afterwards. Change of Control Offer If we experience a change in control, we must offer to purchase your notes at 101% of their face amount, plus accrued and unpaid interest. We might not be able to pay you the required price for notes you present to us at the time of a change in control because: we might not have enough funds at that time; or the terms of our other debt may prevent us from paying. Asset Sale Proceeds We may have to use the net cash proceeds from selling assets to offer to purchase your notes at their face amount, plus accrued and unpaid interest. Certain Indenture Provisions The indenture governing the notes limits what we (and most or all of our subsidiaries) may do. The provisions of the indenture limit our ability to: incur additional debt or issue preferred stock; pay dividends and make distributions on, or redeem or repurchase, capital stock; issue stock of subsidiaries; make investments; create liens; enter into transactions with affiliates; enter into sale-leaseback transactions; merge or consolidate; and transfer and sell assets. These covenants are subject to a number of important exceptions. See "Description of the Notes Certain Covenants." You should refer to the section entitled "Risk Factors" for an explanation of material risks of participating in the exchange offer. Operating activities Net income (loss) $ 4,823 $ (183 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,905 7,656 Amortization of intangibles 2,427 2,427 Amortization of deferred financing fees 1,517 1,749 Amortization of original issue discount 762 641 Write-off of deferred financing fees 7,284 Deferred income taxes (19 ) 143 Minority interest (1 ) Impairment of investment in Zimbabwe 2,072 Changes in operating assets and liabilities: Accounts receivable (9,576 ) (6,265 ) Inventories (2,996 ) (11,551 ) Prepaid expenses and other current assets 88 886 Other noncurrent assets (52 ) 44 Accounts payable 3,802 3,884 Accrued expenses 3,232 2,390 Pension, postretirement, and deferred compensation 517 1,335 Other noncurrent liabilities (1,262 ) (248 ) Other Net cash used in financing activities (553 ) 170 Effect of exchange rate changes on cash FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Other Financial Data and Ratios: EBITDA (1) $ 39,504 $ 45,298 $ 45,386 $ 33,997 $ 39,389 Adjusted EBITDA (1) 39,504 45,298 48,171 36,782 39,389 Depreciation and amortization 20,932 19,795 18,617 9,332 10,083 Capital expenditures 5,590 6,933 7,197 5,129 4,571 Net cash (used in) provided by operating activities (2,722 ) 21,401 24,012 12,240 10,194 Net cash used in investing activities (34,069 ) (6,474 ) (19,165 ) (9,804 ) (30,726 ) Net cash provided by (used in) financing activities 39,420 (12,937 ) (6,164 ) (2,812 ) 24,633 Ratio of earnings to fixed charges (2) 1.1 x 1.4 x 1.1 x 2,449 2,396 Members' equity: Contributed capital 4,602 4,602 Retained earnings 4,563 5,636 Accumulated other comprehensive income 10 (a)In addition to the non-cash charges excluded in calculating adjusted EBITDA, we incurred restructuring and merger-related charges of $3.5 million, $1.7 million and $3.0 million for the years ended December 31, 2000, 2001 and 2002, respectively. (b)Due to adverse political and economic conditions in Zimbabwe, we recorded a non-cash impairment charge of $2.8 million, equivalent to our net investment, with regard to the impairment of our Zimbabwe subsidiary for the year ended December 31, 2002 and the nine months ended September 28, 2002. (c)Depreciation expense for the year ended December 31, 2002 includes $6.3 million of non-cash charges relating to accelerated depreciation in connection with the write-off of long-lived assets. (2)In calculating the ratio of earnings to fixed charges, earnings consist of (loss) income before income taxes and minority interest plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and original issue discount, and the portion of rental expenses deemed attributable to interest. For the years ended December 31, 2000 and 2001, our earnings were insufficient to cover our fixed charges by $12,532 and $1,355. 2211 York Road, Suite 215 Oak Brook, Illinois 60523 Telephone: (630) 572-5715 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices)
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001264012_morning_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001264012_morning_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfbadc8ffc566f730a547cba766ef0e8d7281da
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001264012_morning_prospectus_summary.txt
@@ -0,0 +1 @@
+INCORPORATED INFORMATION This prospectus incorporates business and financial information about the company that is not included in or delivered with this prospectus. This information is available free of charge to security holders upon written or oral request to: Norcross Safety Products L.L.C., attn: Chief Financial Officer, 2211 York Road, Suite 215, Oak Brook, Illinois 60523, phone (630) 572-5715. To ensure timely delivery, you should request any information no later than five business days prior to the expiration date of the exchange offer. CURRENCIES AND EXCHANGE RATES References in this prospectus to "dollars" or "$" are to the currency of the United States. References to "euros" or " " are to the currency of the European Union. References in this prospectus to "Canadian dollars" or "C$" are to the currency of Canada. Except as otherwise stated herein, conversions of non-dollar currencies to dollars in the financial statements and the other information included herein have been calculated, for statement of operations purposes, on the basis of average exchange rates over the related periods and, for balance sheet purposes, on the date of the balance sheet. Conversions of the closing date indebtedness and cash on hand for K chele-Cama Latex GmbH ("KCL") are based on the exchange rate on July 29, 2003, the date of its acquisition. As of July 29, 2003, 1.00 was equivalent to $1.15. MARKET, RANKING AND OTHER DATA Unless otherwise indicated, the market, ranking and other similar data contained in this prospectus, including statements regarding our being a leader and one of the largest participants in our industry and regarding the breadth of our product offering, are based upon our management's knowledge of and experience in the markets in which we operate, and upon information from independent industry publications, including Frost & Sullivan. None of the independent industry publications was prepared on our or our affiliates' behalf and Frost & Sullivan has not consented to the inclusion of any data from its reports, not have we sought their consent. While management believes this data and its estimates and beliefs based on such data, to be reasonable, market, ranking and other similar data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market size. In addition, consumption patterns and customer preferences can and do change. TRADEMARKS North , Morning Pride , Ranger , Servus , Pro-Warrington , Salisbury and Total Fire Group are some of our trademarks. Other brand names or trademarks appearing in this prospectus are the property of their respective owners. PRO FORMA FINANCIAL INFORMATION Unless otherwise indicated, the pro forma financial data presented in this prospectus for the year ended December 31, 2002 gives pro forma effect to (1) our December 20, 2002 acquisition of Arbin Veiligheid B.V. ("Arbin"), (2) the offering of notes and the application of the net proceeds from the offering as described under "Use of Proceeds," and (3) the acquisition of KCL on July 29, 2003 as if each of these transactions had occurred on January 1, 2002. The pro forma Statement of Operations for the nine months ended September 27, 2003 gives pro forma effect to (1) the offering of the notes and the application of the net proceeds from the offering as described under "Use of Proceeds" and (2) the acquisition of KCL on July 29, 2003 as if these transactions had occurred on January 1, 2002. NSP Holdings and NSP are limited liability companies organized under the laws of the State of Delaware. Norcross Capital is a Delaware corporation. Our principal executive offices are located at 2211 York Road, Suite 215, Oak Brook, Illinois, 60523, and our telephone number is (630) 572-5715. Balance at December 31, 2001 4,602 3,525 9 8,136 Foreign currency translation adjustments 1 Issuers Norcross Safety Products L.L.C. and Norcross Capital Corp., as joint and several obligors. Securities Offered $152,500,000 principal amount of 97/8% Senior Subordinated Notes, Series B. Maturity Date August 15, 2011. Interest Rate 97/8% per year. Interest Payment Dates Each February 15 and August 15, beginning February 15, 2004. Guarantees NSP's present and future direct and indirect domestic subsidiaries, other than Norcross Capital, which is a co-issuer of the notes, have guaranteed the notes with unconditional guarantees of payment that rank junior in right of payment to their senior debt, but rank equal in right of payment to their future senior subordinated debt. Security and Ranking The notes are not secured by any collateral. The notes rank junior in right of payment to all of our senior debt and the senior debt of our subsidiary guarantors (other than trade payables) and rank equal in right of payment to our senior subordinated debt and the senior subordinated debt of our subsidiary guarantors and senior in right of payment to our subordinated debt and the subordinated debt of our subsidiary guarantors. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt and the senior debt of our subsidiary guarantors to collect money we owe them at the time. Our senior debt and the senior debt of our subsidiary guarantors are secured by our and their assets. The notes are structurally subordinated to indebtedness and other liabilities of our subsidiaries which have not guaranteed the notes. A portion of our operations are conducted through our non-guarantor subsidiaries. See "Description of the Notes Subordination." As of December 31, 2003, our non-guarantor subsidiaries had $19.8 million of indebtedness and other liabilities, including trade payables. As of December 31, 2003 we had $257.2 million of debt, of which $101.4 million would have been senior debt. As of December 31, 2003 our Senior Credit Facility permitted borrowing of up to $37.7 million. Optional Redemption Except in the case of equity offerings by us, we cannot choose to redeem the notes prior to August 15, 2007. At any time from and after that date (which may be more than once), we can choose to redeem some or all of the notes, pro rata, at specified prices, plus accrued and unpaid interest. Income before income taxes and minority interest 3,599 400 1,706 238 5,943 Income tax expense (benefit) 7,795 728 (236 )(7) 8,287 Minority interest 2 Income before income taxes and minority interest 2,124 1,812 Income tax expense 816 772 Minority interest 10 Balance at December 31, 2001 353 256 Contributed capital 2 Net income 193 Balance at December 31, 2002 353 370 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Optional Redemption After Equity Offerings On one or more occasions before August 15, 2006, we can choose to purchase up to 35% of the outstanding principal amount of the notes with money that we raise in one or more equity offerings, as long as: we pay 109.875% of the face amount of the notes bought, plus accrued and unpaid interest; we purchase the notes within 90 days of completing the equity offering; and at least 65% of the notes originally issued remain outstanding afterwards. Change of Control Offer If we experience a change in control, we must offer to purchase your notes at 101% of their face amount, plus accrued and unpaid interest. We might not be able to pay you the required price for notes you present to us at the time of a change in control because: we might not have enough funds at that time; or the terms of our other debt may prevent us from paying. Asset Sale Proceeds We may have to use the net cash proceeds from selling assets to offer to purchase your notes at their face amount, plus accrued and unpaid interest. Certain Indenture Provisions The indenture governing the notes limits what we (and most or all of our subsidiaries) may do. The provisions of the indenture limit our ability to: incur additional debt or issue preferred stock; pay dividends and make distributions on, or redeem or repurchase, capital stock; issue stock of subsidiaries; make investments; create liens; enter into transactions with affiliates; enter into sale-leaseback transactions; merge or consolidate; and transfer and sell assets. These covenants are subject to a number of important exceptions. See "Description of the Notes Certain Covenants." You should refer to the section entitled "Risk Factors" for an explanation of material risks of participating in the exchange offer. Operating activities Net income (loss) $ 4,823 $ (183 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,905 7,656 Amortization of intangibles 2,427 2,427 Amortization of deferred financing fees 1,517 1,749 Amortization of original issue discount 762 641 Write-off of deferred financing fees 7,284 Deferred income taxes (19 ) 143 Minority interest (1 ) Impairment of investment in Zimbabwe 2,072 Changes in operating assets and liabilities: Accounts receivable (9,576 ) (6,265 ) Inventories (2,996 ) (11,551 ) Prepaid expenses and other current assets 88 886 Other noncurrent assets (52 ) 44 Accounts payable 3,802 3,884 Accrued expenses 3,232 2,390 Pension, postretirement, and deferred compensation 517 1,335 Other noncurrent liabilities (1,262 ) (248 ) Other Net cash used in financing activities (553 ) 170 Effect of exchange rate changes on cash FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Other Financial Data and Ratios: EBITDA (1) $ 39,504 $ 45,298 $ 45,386 $ 33,997 $ 39,389 Adjusted EBITDA (1) 39,504 45,298 48,171 36,782 39,389 Depreciation and amortization 20,932 19,795 18,617 9,332 10,083 Capital expenditures 5,590 6,933 7,197 5,129 4,571 Net cash (used in) provided by operating activities (2,722 ) 21,401 24,012 12,240 10,194 Net cash used in investing activities (34,069 ) (6,474 ) (19,165 ) (9,804 ) (30,726 ) Net cash provided by (used in) financing activities 39,420 (12,937 ) (6,164 ) (2,812 ) 24,633 Ratio of earnings to fixed charges (2) 1.1 x 1.4 x 1.1 x 2,449 2,396 Members' equity: Contributed capital 4,602 4,602 Retained earnings 4,563 5,636 Accumulated other comprehensive income 10 (a)In addition to the non-cash charges excluded in calculating adjusted EBITDA, we incurred restructuring and merger-related charges of $3.5 million, $1.7 million and $3.0 million for the years ended December 31, 2000, 2001 and 2002, respectively. (b)Due to adverse political and economic conditions in Zimbabwe, we recorded a non-cash impairment charge of $2.8 million, equivalent to our net investment, with regard to the impairment of our Zimbabwe subsidiary for the year ended December 31, 2002 and the nine months ended September 28, 2002. (c)Depreciation expense for the year ended December 31, 2002 includes $6.3 million of non-cash charges relating to accelerated depreciation in connection with the write-off of long-lived assets. (2)In calculating the ratio of earnings to fixed charges, earnings consist of (loss) income before income taxes and minority interest plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and original issue discount, and the portion of rental expenses deemed attributable to interest. For the years ended December 31, 2000 and 2001, our earnings were insufficient to cover our fixed charges by $12,532 and $1,355. 2211 York Road, Suite 215 Oak Brook, Illinois 60523 Telephone: (630) 572-5715 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices)
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001264017_norcross_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001264017_norcross_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfbadc8ffc566f730a547cba766ef0e8d7281da
--- /dev/null
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+INCORPORATED INFORMATION This prospectus incorporates business and financial information about the company that is not included in or delivered with this prospectus. This information is available free of charge to security holders upon written or oral request to: Norcross Safety Products L.L.C., attn: Chief Financial Officer, 2211 York Road, Suite 215, Oak Brook, Illinois 60523, phone (630) 572-5715. To ensure timely delivery, you should request any information no later than five business days prior to the expiration date of the exchange offer. CURRENCIES AND EXCHANGE RATES References in this prospectus to "dollars" or "$" are to the currency of the United States. References to "euros" or " " are to the currency of the European Union. References in this prospectus to "Canadian dollars" or "C$" are to the currency of Canada. Except as otherwise stated herein, conversions of non-dollar currencies to dollars in the financial statements and the other information included herein have been calculated, for statement of operations purposes, on the basis of average exchange rates over the related periods and, for balance sheet purposes, on the date of the balance sheet. Conversions of the closing date indebtedness and cash on hand for K chele-Cama Latex GmbH ("KCL") are based on the exchange rate on July 29, 2003, the date of its acquisition. As of July 29, 2003, 1.00 was equivalent to $1.15. MARKET, RANKING AND OTHER DATA Unless otherwise indicated, the market, ranking and other similar data contained in this prospectus, including statements regarding our being a leader and one of the largest participants in our industry and regarding the breadth of our product offering, are based upon our management's knowledge of and experience in the markets in which we operate, and upon information from independent industry publications, including Frost & Sullivan. None of the independent industry publications was prepared on our or our affiliates' behalf and Frost & Sullivan has not consented to the inclusion of any data from its reports, not have we sought their consent. While management believes this data and its estimates and beliefs based on such data, to be reasonable, market, ranking and other similar data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market size. In addition, consumption patterns and customer preferences can and do change. TRADEMARKS North , Morning Pride , Ranger , Servus , Pro-Warrington , Salisbury and Total Fire Group are some of our trademarks. Other brand names or trademarks appearing in this prospectus are the property of their respective owners. PRO FORMA FINANCIAL INFORMATION Unless otherwise indicated, the pro forma financial data presented in this prospectus for the year ended December 31, 2002 gives pro forma effect to (1) our December 20, 2002 acquisition of Arbin Veiligheid B.V. ("Arbin"), (2) the offering of notes and the application of the net proceeds from the offering as described under "Use of Proceeds," and (3) the acquisition of KCL on July 29, 2003 as if each of these transactions had occurred on January 1, 2002. The pro forma Statement of Operations for the nine months ended September 27, 2003 gives pro forma effect to (1) the offering of the notes and the application of the net proceeds from the offering as described under "Use of Proceeds" and (2) the acquisition of KCL on July 29, 2003 as if these transactions had occurred on January 1, 2002. NSP Holdings and NSP are limited liability companies organized under the laws of the State of Delaware. Norcross Capital is a Delaware corporation. Our principal executive offices are located at 2211 York Road, Suite 215, Oak Brook, Illinois, 60523, and our telephone number is (630) 572-5715. Balance at December 31, 2001 4,602 3,525 9 8,136 Foreign currency translation adjustments 1 Issuers Norcross Safety Products L.L.C. and Norcross Capital Corp., as joint and several obligors. Securities Offered $152,500,000 principal amount of 97/8% Senior Subordinated Notes, Series B. Maturity Date August 15, 2011. Interest Rate 97/8% per year. Interest Payment Dates Each February 15 and August 15, beginning February 15, 2004. Guarantees NSP's present and future direct and indirect domestic subsidiaries, other than Norcross Capital, which is a co-issuer of the notes, have guaranteed the notes with unconditional guarantees of payment that rank junior in right of payment to their senior debt, but rank equal in right of payment to their future senior subordinated debt. Security and Ranking The notes are not secured by any collateral. The notes rank junior in right of payment to all of our senior debt and the senior debt of our subsidiary guarantors (other than trade payables) and rank equal in right of payment to our senior subordinated debt and the senior subordinated debt of our subsidiary guarantors and senior in right of payment to our subordinated debt and the subordinated debt of our subsidiary guarantors. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt and the senior debt of our subsidiary guarantors to collect money we owe them at the time. Our senior debt and the senior debt of our subsidiary guarantors are secured by our and their assets. The notes are structurally subordinated to indebtedness and other liabilities of our subsidiaries which have not guaranteed the notes. A portion of our operations are conducted through our non-guarantor subsidiaries. See "Description of the Notes Subordination." As of December 31, 2003, our non-guarantor subsidiaries had $19.8 million of indebtedness and other liabilities, including trade payables. As of December 31, 2003 we had $257.2 million of debt, of which $101.4 million would have been senior debt. As of December 31, 2003 our Senior Credit Facility permitted borrowing of up to $37.7 million. Optional Redemption Except in the case of equity offerings by us, we cannot choose to redeem the notes prior to August 15, 2007. At any time from and after that date (which may be more than once), we can choose to redeem some or all of the notes, pro rata, at specified prices, plus accrued and unpaid interest. Income before income taxes and minority interest 3,599 400 1,706 238 5,943 Income tax expense (benefit) 7,795 728 (236 )(7) 8,287 Minority interest 2 Income before income taxes and minority interest 2,124 1,812 Income tax expense 816 772 Minority interest 10 Balance at December 31, 2001 353 256 Contributed capital 2 Net income 193 Balance at December 31, 2002 353 370 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Optional Redemption After Equity Offerings On one or more occasions before August 15, 2006, we can choose to purchase up to 35% of the outstanding principal amount of the notes with money that we raise in one or more equity offerings, as long as: we pay 109.875% of the face amount of the notes bought, plus accrued and unpaid interest; we purchase the notes within 90 days of completing the equity offering; and at least 65% of the notes originally issued remain outstanding afterwards. Change of Control Offer If we experience a change in control, we must offer to purchase your notes at 101% of their face amount, plus accrued and unpaid interest. We might not be able to pay you the required price for notes you present to us at the time of a change in control because: we might not have enough funds at that time; or the terms of our other debt may prevent us from paying. Asset Sale Proceeds We may have to use the net cash proceeds from selling assets to offer to purchase your notes at their face amount, plus accrued and unpaid interest. Certain Indenture Provisions The indenture governing the notes limits what we (and most or all of our subsidiaries) may do. The provisions of the indenture limit our ability to: incur additional debt or issue preferred stock; pay dividends and make distributions on, or redeem or repurchase, capital stock; issue stock of subsidiaries; make investments; create liens; enter into transactions with affiliates; enter into sale-leaseback transactions; merge or consolidate; and transfer and sell assets. These covenants are subject to a number of important exceptions. See "Description of the Notes Certain Covenants." You should refer to the section entitled "Risk Factors" for an explanation of material risks of participating in the exchange offer. Operating activities Net income (loss) $ 4,823 $ (183 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,905 7,656 Amortization of intangibles 2,427 2,427 Amortization of deferred financing fees 1,517 1,749 Amortization of original issue discount 762 641 Write-off of deferred financing fees 7,284 Deferred income taxes (19 ) 143 Minority interest (1 ) Impairment of investment in Zimbabwe 2,072 Changes in operating assets and liabilities: Accounts receivable (9,576 ) (6,265 ) Inventories (2,996 ) (11,551 ) Prepaid expenses and other current assets 88 886 Other noncurrent assets (52 ) 44 Accounts payable 3,802 3,884 Accrued expenses 3,232 2,390 Pension, postretirement, and deferred compensation 517 1,335 Other noncurrent liabilities (1,262 ) (248 ) Other Net cash used in financing activities (553 ) 170 Effect of exchange rate changes on cash FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Other Financial Data and Ratios: EBITDA (1) $ 39,504 $ 45,298 $ 45,386 $ 33,997 $ 39,389 Adjusted EBITDA (1) 39,504 45,298 48,171 36,782 39,389 Depreciation and amortization 20,932 19,795 18,617 9,332 10,083 Capital expenditures 5,590 6,933 7,197 5,129 4,571 Net cash (used in) provided by operating activities (2,722 ) 21,401 24,012 12,240 10,194 Net cash used in investing activities (34,069 ) (6,474 ) (19,165 ) (9,804 ) (30,726 ) Net cash provided by (used in) financing activities 39,420 (12,937 ) (6,164 ) (2,812 ) 24,633 Ratio of earnings to fixed charges (2) 1.1 x 1.4 x 1.1 x 2,449 2,396 Members' equity: Contributed capital 4,602 4,602 Retained earnings 4,563 5,636 Accumulated other comprehensive income 10 (a)In addition to the non-cash charges excluded in calculating adjusted EBITDA, we incurred restructuring and merger-related charges of $3.5 million, $1.7 million and $3.0 million for the years ended December 31, 2000, 2001 and 2002, respectively. (b)Due to adverse political and economic conditions in Zimbabwe, we recorded a non-cash impairment charge of $2.8 million, equivalent to our net investment, with regard to the impairment of our Zimbabwe subsidiary for the year ended December 31, 2002 and the nine months ended September 28, 2002. (c)Depreciation expense for the year ended December 31, 2002 includes $6.3 million of non-cash charges relating to accelerated depreciation in connection with the write-off of long-lived assets. (2)In calculating the ratio of earnings to fixed charges, earnings consist of (loss) income before income taxes and minority interest plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and original issue discount, and the portion of rental expenses deemed attributable to interest. For the years ended December 31, 2000 and 2001, our earnings were insufficient to cover our fixed charges by $12,532 and $1,355. 2211 York Road, Suite 215 Oak Brook, Illinois 60523 Telephone: (630) 572-5715 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices)
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+PROSPECTUS SUMMARY 1 RISK FACTORS 13 INFORMATION REGARDING FORWARD-LOOKING STATEMENTS 33 USE OF PROCEEDS 35 MARKET PRICE OF OUR COMMON SHARES 35 DIVIDEND POLICY 35 CAPITALIZATION 36 INDUSTRY BACKGROUND 37 BUSINESS 40 UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS 60 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 64 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 67 REGULATION 88 MANAGEMENT 104 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 114 MATERIAL TAX CONSIDERATIONS 118 DESCRIPTION OF SHARE CAPITAL 130 SHARES ELIGIBLE FOR FUTURE SALE 139 PRINCIPAL SHAREHOLDERS 140 SELLING SHAREHOLDERS 141 PLAN OF DISTRIBUTION 157 LEGAL MATTERS 160 EXPERTS 160 ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS 160 WHERE YOU CAN FIND MORE INFORMATION 161 INDEX TO FINANCIAL STATEMENTS F-1 GLOSSARY OF SELECTED REINSURANCE, INSURANCE AND INVESTMENT TERMS G-1 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. While we have highlighted what we believe is important information about us and this offering in this summary, it does not contain all of the information that you should consider before investing in us. You should read the entire prospectus carefully, including the sections entitled "Risk Factors," "Information Regarding Forward-Looking Statements" and the financial statements and the related notes contained in this prospectus before making an investment decision. Our Company Overview We are a new Bermuda holding company formed to provide specialty insurance, reinsurance and consulting products and services on a global basis through our subsidiaries. We were incorporated in May 2003 and began conducting our business in September 2003. We focus on writing coverage for specialized classes of risk through a team of experienced, technically qualified underwriters. These specialty lines insurance and reinsurance products differ significantly from products written in the standard market. In the standard market insurance rates and forms are highly regulated, products and coverages are largely uniform and have relatively predictable exposures and companies tend to compete for customers on the basis of price and service. In contrast, the specialty insurance and reinsurance market provide coverage for risks that are often unusual or difficult to place and do not fit the underwriting criteria of standard commercial products carriers. As a result, our insurance and reinsurance products require extensive technical underwriting skills and risk assessment resources and, in many cases, engineering expertise, in order to be profitably underwritten. We also provide risk assessment and consulting services to our clients. Historically, insurers and reinsurers have experienced significant fluctuations in operating results due to competition, frequency of occurrence or severity of catastrophic events (such as earthquakes, hurricanes, floods, fires and other natural or man-made disasters), levels of underwriting capacity, as defined by availability of capital, and other factors. While we expect our returns to be impacted by the cyclical nature of the insurance and reinsurance industry, we believe that disciplined pricing and technical risk assessment through prudent risk selection in these specialty lines will result in superior returns on equity for our shareholders during different business cycles compared to insurers and reinsurers in other lines of business. We also believe that products and policies within specialty insurance and reinsurance lines that require technical underwriting and risk assessment expertise experience less competitive pricing pressure and volatility because of barriers to entering these markets, which exist principally due to the difficulty of acquiring experienced and specialized personnel with these skills. We proactively manage our allocation of capital and resources among our insurance and reinsurance business units and among product lines within those business units. In our insurance business unit, we write or plan to write professional liability, marine, technical risk and aviation, environmental liability, structured insurance, fidelity and crime, surety and technical risk property. In our reinsurance business unit, we write or plan to write casualty, property, marine, technical risk and aviation and structured reinsurance. Within these business units, we intend to target the insurance and reinsurance product lines in areas where we believe we can derive a competitive advantage from our technical underwriting skills and that meet our risk and long-term profitability criteria. Our consulting services include investigation, remediation and engineering services, assessment services, other technical services initially focusing on environmental liabilities and information management services. We plan to expand the scope of our consulting services to provide risk assessment and evaluation services in other specialty insurance and claims areas. Our senior management team includes Tobey J. Russ, our chairman and chief executive officer, and Michael J. Murphy, our deputy chairman and chief operating officer, each of whom has more than INFORMATION CONCERNING DEFINITIONS AND FINANCIAL INFORMATION In this prospectus, references to the "Company," "we," "us" or "our" refer to Quanta Capital Holdings Ltd. and its subsidiaries and branch, which include or will include, Quanta Reinsurance Ltd., Quanta U.S. Holdings Inc., Quanta Reinsurance U.S. Ltd., Quanta Indemnity Company, Quanta Specialty Lines Insurance Company, Quanta Insurance Ireland Ltd., Environmental Strategies Consulting LLC, or ESC, Quanta Technical Services LLC and our branch in the United Kingdom, unless the context suggests otherwise. We refer to Quanta Reinsurance Ltd., Quanta Reinsurance U.S. Ltd., Quanta Insurance Ireland Ltd. and our branch in the United Kingdom as Quanta Bermuda, Quanta U.S. Re, Quanta Ireland and Quanta U.K., respectively. References to Quanta Holdings refer solely to Quanta Capital Holdings Ltd. We purchased National Farmers Union Standard Insurance Company, or NFU Standard, which we renamed Quanta Indemnity Company, from National Farmers Union Property and Casualty Company, or NFU, on December 19, 2003, to underwrite specialty insurance and reinsurance in the United States on an admitted basis. We refer to this acquisition as the NFU Standard acquisition. For your convenience, we have provided a Glossary, beginning on page G-1, of selected insurance, reinsurance and investment terms. In this prospectus, amounts are expressed in U.S. dollars and the financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, except as otherwise indicated. We have filed for registration in the U.S. Patent and Trademark Office for the mark "Quanta." All other brand names or trade names appearing in this prospectus are the property of their respective holders. 20 years of experience and extensive contacts in the insurance, reinsurance or risk consulting industries. Messrs. Russ and Murphy have assembled a core group of underwriting officers, underwriters and other professionals to write insurance and reinsurance policies. While we have already hired a number of managers and employees, to achieve our financial and operational goals, we intend, among other things, to hire additional underwriting officers, underwriters, actuaries and other professionals with experience and expertise in identification of exposures, risk assessment and underwriting specialized or technically demanding types of risks or industries. We are using our Bermuda operations primarily to write U.S. insurance and reinsurance business from Bermuda on a non-admitted basis. We have begun to write insurance and reinsurance in the United States on an admitted basis through Quanta Indemnity, which is a U.S. licensed insurer with licenses in approximately 41 states and was acquired by us on December 19, 2003. Further, we are writing insurance from the United States on an excess and surplus lines basis and U.S. reinsurance on a non-admitted or an unregulated basis through Quanta Specialty Lines, which was acquired by us on October 28, 2003. As an excess and surplus lines insurer, we may provide insurance on an unregulated basis for risks for which there is no market available through licensed insurers in the state. Because we have not yet received authorization for Quanta Ireland to conduct insurance business, we have also begun to write European insurance and reinsurance business from the United States, and we will write European insurance and reinsurance business from Bermuda. Once Quanta Ireland is authorized to conduct insurance business, we intend to use Quanta Ireland to write our European insurance and reinsurance business from Ireland. Market Opportunities and Industry Trends In the late 1990s, the insurance and reinsurance industry suffered from excess underwriting capacity, which generally is a surplus of capital available for underwriting. The industry was also negatively affected by the underpricing of its policies and the overly favorable policy terms and conditions it provided to its customers. During the period from 2000 through the end of 2003, an accumulation of losses from emerging risks relating to previously written business, such as liability under pre-existing policies for claims related to asbestos, environmental remediation, mold and professional liability, as well as poor investment performance as a result of a rapidly declining interest rate environment and increasingly negative returns on equity investments, caused a substantial contraction in the capital base of the insurance and reinsurance industry. The terrorist attacks of September 11, 2001 and severe losses in the general and professional liability insurance and reinsurance business added to the loss and reserve deficiencies of many insurers and reinsurers around the world. These capital reductions and ratings downgrades of many insurers and reinsurers in 2001 and 2002, caused many significant insurers and reinsurers to either withdraw from particular business lines or significantly reduce the amount of capital dedicated to writing insurance and reinsurance in these businesses. We believe that from the beginning of 2001 through the end of 2003, the amount of capital available to write property insurance and casualty insurance and reinsurance (which is primarily concerned with liabilities for losses by or injuries to persons other than the policyholder) was reduced by an estimated $275 billion to $295 billion in potential and realized underwriting and investment losses. This amount is equal to 39.2% to 42.1% of the approximately $700 billion in available capital at the end of 2000 according to Sigma, a publication of Swiss Reinsurance Company. At the same time that capacity has decreased, we believe the demand for commercial insurance and reinsurance has risen as insureds have become increasingly aware of their risk exposures. We believe that this reduction in underwriting capacity, coupled with increased demand for insurance, has resulted in considerable increases in pricing and in policy terms and conditions that are significantly more favorable for insurers and reinsurers. While newly formed and existing insurance and reinsurance companies have recently raised capital and prices in some market segments have started to decrease, we believe that opportunities remain for us to provide needed underwriting capacity at attractive rates and upon terms and conditions more favorable to insurers than in the past. Strategy and Competitive Strengths We believe we can capitalize on the opportunities created by the continuing dislocation in the insurance marketplace, as described above. Our strategy is to operate a new insurance company, unburdened by liabilities resulting from historical operation, with a solid capital base, strong management and experienced team of specialty line underwriting officers. We are developing advanced risk assessment and loss control capabilities, applying those capabilities in the more technically demanding lines of insurance and deploying capital to what we believe are the most attractive business lines at the most opportune times. We are committed to building a diversified product portfolio and a cost-effective underwriting platform that will allow us to react quickly to changing market dynamics. Our competitive strengths and the key elements of this strategy are: Experienced Management and Extensive Specialized Underwriting Capabilities. We have assembled a core group of underwriting officers, underwriters and other professionals to write insurance and reinsurance policies. While we must still employ additional professionals in order to successfully operate and grow our businesses, we believe that the extensive depth and knowledge of our senior management team and underwriting officers provide us with the ability to successfully select, price and manage complex risks. We have formed teams of experienced underwriting officers, underwriters, actuaries and other professionals with specialized knowledge of their respective market segments to manage each of our product lines where we currently write business. Portfolio of Profitable Specialty Products with Strong Margins through Different Business Cycles. We offer products and policies within specialty insurance and reinsurance lines that require technical proficiency to underwrite, such as professional liability, marine, technical risk and aviation, environmental liability, fidelity and crime and surety. We believe these lines have some of the highest barriers to entry in the insurance industry. While we expect our returns to be impacted by the cyclical nature of the industry, we believe that specialty lines have the potential to offer high risk-adjusted returns on capital through different business cycles compared to insurers and reinsurers in other lines of business. Technical Risk Assessment and Loss Control Capabilities. We use our technical underwriting capabilities to help us assess risk, attempt to control potential losses and to price the risks we intend to insure and reinsure. We use ESC to provide risk evaluation services to our underwriters in the environmental liability segment, and we plan to use Quanta Technical Services to serve as the platform for developing those capabilities in our other product lines. We believe that this will increase our ability to price risks in a manner that will produce superior underwriting results. Innovative and Customer-Focused Underwriting and Structured Insurance Products. We have established structured insurance and reinsurance teams that work closely with each of the teams of our other product lines to develop alternative risk products that meet our clients' needs. Our existing management team has extensive experience in developing customized structured products. Disciplined Capital Management and Allocation. We intend to flexibly increase and decrease the amount of capital we allocate among product lines within our insurance and reinsurance business units in response to our changing business needs and with the objective of maximizing our risk-adjusted return on capital. We purchase reinsurance, retrocessional protection and other forms of protection to more efficiently manage the allocation of our capital. Retrocessional protection is a transaction in which a reinsurer cedes to another reinsurer, the retrocessionaire, all or part of the reinsurance that it assumes. Bermuda-Based Operations. Our Bermuda-based insurance operations allow us to access clients seeking Bermuda-based capacity, as well as provide us access to Bermuda's well developed network of insurance and reinsurance brokers and agents. We believe that we also benefit from our access to Bermuda's pool of experienced professionals and its responsive regulatory environment that allows for the development and sale of innovative insurance and reinsurance products. Strong Market Relationships. Our senior management team and underwriting officers have industry relationships with a number of brokers and agents. While many of the brokers that we use or intend to use have had longer-term relationships with our competitors than with us, we believe our industry relationships are allowing us to establish our presence in the global insurance and reinsurance markets. New Insurance Company without Historical Underwriting Liabilities. Because we only recently started writing insurance policies, we are unencumbered by historical liabilities currently affecting competitors, including claims relating to asbestos, environmental remediation, mold and the terrorist attacks of September 11, 2001. Insurance and Reinsurance Product Lines Our commitment to specialized underwriting requires experienced underwriters, market knowledge, risk assessment and loss control resources, analytic capabilities, a flexible underwriting platform, geographic reach and financial markets experience. We have organized our company by business units under the direction of experienced underwriting officers in their fields. We intend to support these managers with advanced analytic tools, advanced risk assessment capabilities, structured insurance resources and disciplined capital management. While we currently intend to write our insurance and reinsurance products within the limits and terms described in this prospectus, we are a new company with a limited operating history. As we continue to ramp-up operations, our experience and changes in market conditions and other factors outside our control may require us to alter our methods of conducting our business, such as the nature, amount and types of risks we assume and the terms and limits of the products we write or intend to write. Insurance Product Lines We offer specialty insurance lines that provide tailored solutions to our clients in order to respond to distinctive risk characteristics. Our insurance operations focus or we expect they will focus on specialty products and policies within the following lines: Professional Liability — Directors' and officers' liability insurance, errors and omissions liability insurance (covering errors or omissions in the performance of professional duties), employment practices liability (covering claims from wrongful termination, discrimination, sexual harassment and other wrongful employment practices) and fiduciary liability insurance. Marine, Technical Risk and Aviation — Ocean marine, inland marine, technical risk and general aviation insurance. Environmental Liability — Insurance for environmental site protection, remediation cost cap and contractors environmental protection. Environmental site protection insurance helps protect an owner or operator against liability for pollution incidents at fixed sites. Remediation cost cap insurance helps limit or "cap" the costs an insured would have to pay for remediation with respect to a scheduled remediation project. Contractors environmental protection insurance helps protect contractors and their clients against liability for pollution incidents that arise from the contractors' operations. Structured Insurance — Coverage tailored to meet an individual client's strategic and financial objectives that are not efficiently met by traditional insurance products, such as structured property and casualty insurance, structured directors' and officers' liability insurance, deferred executive compensation insurance and finite risk insurance. Fidelity and Crime — Financial institution blanket bonds, commercial crime, kidnap and ransom and computer crime insurance. Surety — Bonding for self-insured workers' compensation, land reclamation, closure of landfills and their maintenance after closure, court appeals and various forms of performance and compliance guarantees. Technical Risk Property — Excess of loss property insurance, which indemnifies the insured against all or a specified portion of loss above a specified amount, natural catastrophe excess of loss insurance and business interruption insurance. Reinsurance Product Lines We write reinsurance products on a treaty basis using quota share (in which the insurer cedes an agreed-upon fixed percentage of liabilities, premiums and losses for each policy covered on a pro rata basis), risk excess, clash (which is exposure to loss under two or more coverages or policies from the same event) and aggregate excess of loss structures, as appropriate. In treaty reinsurance, a reinsurer accepts a specified portion of a category of risks insured by an insurer or reinsurer. Our reinsurance operations focus on specialty products within the following lines: Casualty — Directors' and officers' liability, professional liability, commercial umbrella and excess liability, and workers' compensation catastrophe. Property — Property and business interruption. Marine, Technical Risk and Aviation — Ocean marine, inland marine, technical risk and aviation. Structured Reinsurance — Solutions tailored to meet an individual cedent's strategic and financial objectives, such as products for customers whose risk management needs may not be met effectively through traditional reinsurance products. Consulting Services We provide risk assessment and consulting services to our clients. We offer full-service environmental engineering, remediation, risk management and consulting services through ESC, which we acquired in September 2003. We believe that the ESC acquisition presents opportunities for synergies between our insurance and reinsurance operations and our consulting operations. We have formed Quanta Technical Services which together with ESC, serves as the platform for establishing our technical talent in our specialty lines of insurance. ESC provides risk assessment and consulting support to our environmental underwriters. We plan to use Quanta Technical Services to provide risk assessment and evaluation consulting services in our other specialty lines of insurance and to third parties on a fee basis. Through Quanta Technical Services and its subsidiaries, we also provide liability assumption programs under which these subsidiaries assume specified liabilities (which may, at times, include taking title to property) associated with environmental conditions in properties and agree to provide consulting and to perform the required remediation services. We are continuing ESC's historical business, which focuses on environmental services. ESC provides diversified environmental risk management services to assist customers in environmental remediation, regulatory analyses, technical support for environmental claims, merger and acquisition due diligence, environmental audits, risk assessments, engineering and information management services. Its customers are primarily private sector businesses in the United States. ESC's consulting services include the following: Investigation, Remediation and Engineering Services — Investigation, remediation and engineering activities relating to cleanups, regulatory actions, engineering design, remediation, underground tank and asbestos/lead paint management, operation and maintenance of remedial systems and facility decommissioning and demolition. Assessment Services — Risk management, merger and acquisition support, environment, health and safety audits, regulatory analyses and health and ecological risk assessments. Other Technical Services — Litigation support, technical support for insurance claims, regulatory compliance plans, regulatory permits, training, technical reviews and property redevelopment services. Information Management Services — Technology-based solutions for the control and management of environmental and facility information. Private Offering and Founder Agreements On September 3, 2003, we sold an aggregate of 55,000,000 common shares in a private placement exempt from registration under the Securities Act, which we call the Private Offering. We raised approximately $505.6 million in net proceeds from the Private Offering that we used to, among other things, acquire ESC, Quanta Specialty Lines and NFU Standard, repay indebtedness and capitalize our subsidiaries. In connection with our formation and capitalization, we issued an aggregate of 1,506,956 shares to W. Russell Ramsey, one of our directors, Messrs. Russ and Murphy and BEM Investments, LLC, or BEMI, which is beneficially owned by Mr. Ramsey. We refer to these shares as Founder Shares. We also granted warrants, or Founder Warrants, to purchase shares equal to, in the aggregate, 2,542,813 shares at an exercise price of $10.00 per share to Messrs. Ramsey, Russ and Murphy. In connection with the Private Offering, we also entered into a registration rights agreement for the benefit of the holders of the shares sold in the Private Offering, the Founder Shares and the common shares underlying the Founder Warrants. See "Description of Share Capital — Registration Rights." For more information concerning the arrangements with BEMI, Messrs. Ramsey, Russ and Murphy, see "Certain Relationships and Related Transactions." Recent Developments For the first quarter ended March 31, 2004, our net loss was $4.8 million, or $0.08 per share. The net loss includes net realized gains on investments of $1.2 million, or $0.02 per share. Our gross premiums written, net premiums written and net premiums earned for the first quarter of 2004 were $118.7 million, $112.5 million and $27.2 million, respectively. During this same period, reinsurance represented $80.7 million of net premiums written and insurance represented $31.8 million of net premiums written. Organization and Principal Executive Offices Quanta Holdings was organized on May 23, 2003 as an exempted company under Bermuda law. Quanta Holdings' principal executive offices are located at Cumberland House, 1 Victoria Street, Hamilton HM 11, Bermuda, and its telephone number is (441) 294-6350. The following chart summarizes our corporate organization showing only Quanta Holdings and our principal subsidiaries after giving effect to the establishment of Quanta U.K. as a branch. We may change our corporate organization from time to time as we expand our business. (b) Financial Statement Schedules Schedule Number Description Independent Auditors' Report I Summary of Investments Other Than Investments in Related Parties II Condensed Financial Information of Registrant – Not Required III Supplementary Insurance Information IV Reinsurance V Valuation and Qualifying Accounts For additional information about these entities and the business each of these entities conducts or the business we expect each of these entities to conduct, see "Business — Organization." Risks Relating to Our Company As part of your evaluation of our company, you should take into account the risks we will face. See "Risk Factors" beginning on page 13. You should carefully consider these risk factors together with all the other information included in this prospectus. Some of the risks include: We have a limited operating history. If we are unable to implement our business strategy or operate our business as we currently expect, our results may be adversely affected. A downgrade in our rating would materially and adversely affect our competitive position resulting in a substantial loss of business and business opportunities as insureds and ceding companies purchase insurance or reinsurance from companies with higher claims-paying and financial strength ratings instead of from us. We are dependent on our key executives and may not be able to hire and retain key employees or successfully integrate our management. While we have assembled a core group of underwriting officers, underwriters and other professionals to write insurance and reinsurance policies, we must attract and retain additional experienced underwriters, claims personnel, actuarial staff and risk analysis and modeling personnel in order to successfully operate and grow our businesses. We will need to raise additional funds through financings in order to fully implement our business plan. We may also require additional funds to acquire other businesses or groups of underwriters or other personnel. If we cannot obtain adequate capital, our business, financial condition and results of operations will be adversely affected. As a newly formed company, we have no operating history on which you can base an estimate of our future earnings prospects. The historical financial information and unaudited pro forma financial information of ESC, our predecessor for accounting purposes, and of NFU Standard presented in this prospectus are not comparable with or representative of the results that we expect to achieve in future periods and will not be helpful in deciding whether to invest in our shares. We compete with a large number of companies in the insurance and reinsurance industry for underwriting revenues. Many of them also have more (in some cases substantially more) capital and greater marketing and management resources than we have and may offer a broader range of products and more competitive pricing than we expect to, or will be able to, offer. We may misevaluate the risks we seek to insure in the underwriting and pricing of our products. If we misevaluate these risks, our business, reputation, financial condition and results of operations could be materially and adversely affected. We may not be able to manage our growth effectively, and this could have a material adverse effect on our business, financial condition and results of operations. We may pursue additional opportunities to acquire complementary businesses or groups of underwriters or other individuals, and, if we fail to successfully integrate any acquired business or group, this could adversely affect our financial condition. The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates. This Offering Shares offered by the selling shareholders A total of up to 59,049,769 common shares including the following: 55,000,000 common shares sold in the Private Offering, 1,506,956 Founder Shares, and 2,542,813 common shares issuable upon exercise of the Founder Warrants, in each case, held by the selling shareholders. Shares outstanding 56,798,218 shares. Our outstanding shares exclude: 2,542,813 shares issuable upon exercise of the Founder Warrants; 2,883,400 shares issuable upon exercise of outstanding options; and 2,966,600 additional shares available for issuance under our 2003 long term incentive plan. Use of proceeds We will not receive any of the proceeds from the sale of our shares, but if the selling shareholders pay the exercise price for the Founder Warrants in cash, we will use such proceeds for working capital. Trading Our common shares are not currently listed on any national securities exchange or on Nasdaq Stock Market, Inc. However, following the Private Offering, our common shares have been sold from time to time in private transactions and some of those sales have been reported on The Portal Market. Shares sold pursuant to this prospectus will not continue to trade on The Portal Market. Our common shares have been approved for listings on the Nasdaq National Market System under the symbol "QNTA." Voting limitation Our bye-laws contain a provision limiting the voting rights of any U.S. person, as defined in the Internal Revenue Code, who owns (directly, indirectly or constructively under the Code) shares with more than 9.9% of the total voting power of all shares entitled to vote generally at an election of directors to 9.9% of such voting power. Summary Financial Information The following tables set forth our summary financial information for the periods ended and as of the dates indicated. Quanta Holdings was incorporated on May 23, 2003 and we acquired ESC on September 3, 2003. The acquisition was accounted for under the purchase method. ESC is considered our predecessor for accounting purposes. The summary income statement data presented below for the years ended December 31, 1998 and 1999 and the summary balance sheet data as of December 31, 1998, 1999 and 2000 have been derived from ESC's audited financial statements. The summary income statement data for the periods ended September 30, 2002 and September 3, 2003 and the summary balance sheet data as of September 3, 2003 have been derived from ESC's audited financial statements included elsewhere in this prospectus. The summary income statement data for the years ended December 31, 2000, 2001 and 2002 and the summary balance sheet data as of December 31, 2001 and 2002 have been derived from ESC's audited financial statements included elsewhere in this prospectus. The summary income statement data for the period from May 23, 2003 (date of incorporation) to December 31, 2003 and the summary balance sheet data as of December 31, 2003 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. We caution you that the financial information and results presented in this prospectus are neither comparable to nor representative of the actual results that we expect to achieve in future periods. Many factors will cause our actual results to differ materially from the financial information and results presented for our predecessor and for the short period since we were incorporated including, but not limited to, the following: For the period to December 31, 2003, we focused on completing the acquisition and integration of ESC, Quanta Specialty Lines and NFU Standard and implementing our business strategy through the development and implementation of our operating procedures, underwriting platforms and guidelines, other systems, infrastructure and facilities and assembling our group of underwriting and other professionals required to write insurance and reinsurance business. We began to write insurance and reinsurance business during the fourth quarter of 2003. The business of our predecessor principally relates to environmental engineering and remediation risk management consulting and is intended to be only a small portion of our business in the future. It is not representative of or comparable with the principal businesses of insurance and reinsurance in which we have started to engage. Until its date of acquisition, ESC was an S corporation for income taxes purposes, and as consequence, it had not incurred any income taxes. The results of operations of the predecessor presented below include an estimate, on a pro forma basis, for taxes that may have been incurred if it had been a C corporation for all predecessor periods presented. Our summary income statement data for the period from May 23, 2003 to December 31, 2003 includes a 100% valuation allowance against our net deferred tax assets. In accordance with the accounting standards under U.S. GAAP, as a start-up with limited operating history, the recovery of deferred tax assets from future taxable income is currently neither assured nor accurately determinable. Some or all of the amount of these net deferred tax assets would be realized if and when our operations become profitable. Those factors discussed in
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+S-1/A Table of Contents TABLE OF CONTENTS SUMMARY 1
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266445_acs-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266445_acs-of_prospectus_summary.txt
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266446_acs-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266446_acs-of_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266446_acs-of_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266448_acs-long_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266448_acs-long_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266450_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266450_acs_prospectus_summary.txt
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266451_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266451_acs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fd4752c2e827e78501dd0eb7b68e8f632267d834
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@@ -0,0 +1 @@
+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266453_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266453_acs_prospectus_summary.txt
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266660_acs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266660_acs_prospectus_summary.txt
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+S-1/A Until , 2004 (25 days after the date of this prospectus), all dealers that buy, sell or trade our IDSs, the underlying securities represented thereby or the % senior subordinated notes due 2019 offered separately, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. SUMMARY The following is a summary of this offering of IDSs, Class A common stock and notes and should be read in conjunction with the more detailed information and financial data appearing elsewhere in this prospectus. Throughout this prospectus, we refer to Alaska Communications Systems Group, Inc., the issuer of the IDSs, and its consolidated subsidiaries, as "ACS Group," the "company," "we," "our" and "us," unless otherwise indicated. Any reference to "ACSH" refers to our wholly owned subsidiary, Alaska Communications Systems Holdings, Inc., and its consolidated subsidiaries, unless otherwise indicated. Our Company We are the leading facilities-based telecommunications services provider and largest local exchange carrier (LEC) in Alaska and the 13th largest LEC in the United States. We offer consumer and business customers throughout the state a diverse mix of telecommunications services, including local telephone, wireless, Internet, and long distance services using our own network, as well as video entertainment through our partnership arrangement with DISH Network, a leading satellite service provider. We offer our telecommunications services under a single brand name, Alaska Communications Systems. As of March 31, 2004, we had 311,919 local telephone access lines, 87,991 wireless subscribers, 45,686 Internet subscribers (including 19,429 high-speed digital subscriber line, or DSL, subscribers) and 42,053 long distance customers. We began operations in May 1999 when we completed the acquisition and integration of four local telephone companies in Alaska. Each of the businesses we purchased had been operating in its local markets for over 50 years. Since 1999, we have invested in upgrading our network and service capabilities and improved our cost management in our local telephone operations. As a result, our core local telephone business has generated stable revenues and cash flows since 2000. We have generated a net loss from operations during each year since 1999 and we currently have substantial indebtedness and an accumulated deficit of $262.6 million as of March 31, 2004. Competitive Strengths We enjoy strong operating margins and attractive growth prospects due to the following competitive strengths: Leading Competitive Position. We are the leading facilities-based telecommunications services provider in Alaska. As the largest incumbent LEC, largest provider of DSL and second-largest provider of wireless services, we have strong brand recognition within Alaska and a solid local market position. We believe our brand recognition and leading market position result in improved customer loyalty and contribute to the stability of our cash flows. Integrated Portfolio of Service Offerings. We offer a variety of bundled service packages to our consumer and business customers, which include local telephone, wireless, Internet, long distance, messaging, video entertainment and other services. We believe that bundled offerings are popular because they allow for a single customer service interface and fewer billing statements, while providing greater value and pricing benefits across a number of services. By actively marketing and selling our bundled service packages, we believe we can increase our customer base, improve customer loyalty and increase our share of our customers' telecommunications purchases. Advanced Networks and Facilities. We have made significant investments in our telecommunications networks and facilities over the past five years. As a result of these investments, we are able to offer a full range of telecommunications services. Over the next few years, we expect to augment our existing networks and facilities, including the completion of the build-out of our statewide CDMA 1xRTT wireless network, which will allow us to expand our covered population and to offer a range of wireless voice and broadband services to our customers. Equity securities* 73 % 63 % Debt securities* 26 % 36 % Other/Cash 1 % Favorable Alaskan Market Conditions. We believe the Alaskan market provides an attractive and growing potential customer base. Alaska is characterized by higher-than-average median incomes, higher expenditures per household on communications services, population growth at a rate almost three times the national average and increasing federal government expenditures. We believe that Alaska's combination of large geographic size and isolated markets featuring both major metropolitan areas and small, dense population clusters reduces the likelihood of entry by new facilities-based service providers. Strong Management Team. Our management team has a proven track record of operating and managing integrated telecommunications companies. During the last nine months, we have added a number of key individuals to our executive management team who have broad experience in the telecommunications industry and understand the dynamics of the Alaskan markets and our customers. Our Chief Executive Officer, President and Chairperson, Liane Pelletier, joined us in October 2003 after 17 years at Sprint Corporation, and our Chief Financial Officer, David Wilson, was previously chief financial officer of Triumph Communications and DIRECTV Broadband. A number of other key senior executives recently joined us from Sprint, including David Eisenberg, as Senior Vice President, Corporate Strategy and Development, and Sheldon Fisher, as Senior Vice President, Sales and Product Marketing. Andrew Coon has also joined us as Director of Business, Sales and Services and Mark Enzenberger has joined us as Director, Product Management, both from our principal competitor, General Communication, Inc. Business Strategy Our goal is to be the premier telecommunications services provider in our markets and to maintain and grow our cash flow by capitalizing on: our ability to provide a broad array of communications services; our extensive facilities-based network; and our long history of meeting the communications needs of the customers of our unique state. We consider the following strategies to be integral to achieving our goal: maintaining and increasing the number of loyal consumer, business and wholesale customers that we serve and having our customers buy more of our services and regularly refer new customers to us; offering our customers an integrated bundle of telecommunications services including local telephone, wireless, Internet, long distance, messaging and video entertainment; capitalizing on our significant existing investment in our technologically advanced networks to provide feature-rich, high-quality and highly reliable telecommunications services such as DSL and broadband wireless service to our customers; increasing our margins through ongoing process improvements, strategic sourcing initiatives, reduced costs and improved operating efficiencies; and exploring profitable strategic acquisitions of other telecommunications businesses. The Transactions We are offering the IDSs and the separate notes described in this prospectus as part of our overall plan to recapitalize and to refinance a portion of our existing debt, which we believe will improve our Service cost $ 2 $ 3 Interest cost 4 5 Expected return on plan assets (3 ) (3 ) Amortization of prior service cost 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1D = date of this preliminary prospectus 2The final terms of the reclassification will be announced by press release, on our public web site, in The Wall Street Journal and via a toll-free telephone number from which holders of existing common stock may obtain general recorded information, and also will be included in a post-effective amendment to our registration statement on Form S-4 filed with the Securities and Exchange Commission. Operating loss (52 ) (539 ) (1,595 ) Interest expense (33 ) (126 ) Other Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current portion of long-term obligations $ 518 $ 1,776 $ (284 ) $ $ 2,010 Accounts payable affiliates 2,605 1,299 946 4,850 Accounts payable, accrued and other current liabilities 11,754 25,450 888 2,259 40,351 Income taxes payable 3,593 (3,593 ) Advance billings and customer deposits 8,384 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recent Development On May 17, 2004, we announced that on June 14, 2004 we will be redeeming in full the $17.3 million principal amount of our 13% senior discount debentures due May 15, 2011 together with interest accrued thereon. We will pay a call premium of approximately $1.1 million to redeem these outstanding senior discount debentures and plan to fund the redemption out of available cash. Total operating expenses 72,307 72,307 Operating income (loss) 3,098 3,098 Other income (expense): Interest expense (12,097 ) 652 (g) (11,445 ) (i)(j)(k) Interest income and other 226 226 (k) Equity in earnings of investment 4 Service cost $ 14 $ 69 $ 11 Interest cost 18 40 6 Expected return on plan assets (10 ) (11 ) Amortization of prior service cost 7 24 Summary of Material U.S. Federal Income Tax Considerations The material U.S. federal income tax considerations in connection with an investment in IDSs or notes. The U.S. federal income tax consequences of the purchase, ownership, and disposition of the IDSs are not entirely clear. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the purchase of IDSs in this offering should be treated for U.S. federal income tax purposes as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to this treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes represented by the IDSs in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ aggregate principal amount of our notes represented by the IDSs as $ (assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus), and by purchasing IDSs, you agree to be bound by this allocation. Our counsel, Skadden, Arps, Slate, Meagher & Flom LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flows. For a more complete discussion of the material U.S. federal income tax considerations in connection with an investment in IDSs or notes, see "Material U.S. Federal Income Tax Considerations." The material U.S. federal income tax considerations in connection with a subsequent issuance of IDSs or notes. The U.S. federal income tax consequences to you of the subsequent issuance of notes with original issue discount, as defined below, (and any issuance of notes thereafter) are not entirely clear. The indenture governing the notes and the agreements with DTC will provide that, in the event there is a subsequent issuance by us of notes with original issue discount (and any issuance of notes thereafter), each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes and the records of any record holders of the notes will be revised to reflect these exchanges. Such an exchange may occur in connection with the exchange for IDSs of the remaining portion of Class B common stock issued in the reclassification (to the extent not redeemed or exchanged on or prior to the 12th day after the completion of the reclassification), which is expected to occur two years following the closing of this offering or upon a subsequent issuance of IDSs or notes as described above. As a result of these exchanges, any original issue discount associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may result in holders having to include original issue discount in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. See "Risk Factors Risks Relating to the IDSs, Including the Class A Common Stock and Notes Represented by the IDSs, and the Separate Notes Subsequent issuances of notes may cause you to recognize original issue discount and may reduce your recovery in the event of bankruptcy." Original issue discount is generally the excess, if any, of the stated redemption price at maturity of a note over its issue price. If this difference satisfies the statutory definition of de minimis, there is no original issue discount for U.S. federal income tax purposes. Due to the lack of applicable authority, it is unclear whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is therefore not able to provide an opinion on this issue. It is possible that the Internal Revenue Service might successfully assert that such an exchange should be treated as a taxable exchange, resulting in the recognition of gain or loss. It is also possible that the Internal Revenue Service might successfully assert that any such loss should be disallowed under the "wash sale" rules. 600 TELEPHONE AVENUE, ANCHORAGE, ALASKA 99503, (907) 297-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) The Offering Summary of the IDSs and the Notes We are offering IDSs, or Income Deposit Securities, at an initial public offering price of $ per IDS. We are also separately offering $ million aggregate principal amount of separate notes at a public offering price of % of their stated principal amount of $ per separate note. In addition, see " Summary of the Notes." What are IDSs? IDSs are units comprised of our Class A common stock and our % senior subordinated notes due 2019. Each IDS initially represents: one share of our Class A common stock, and $ principal amount of notes. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon closing of this offering, you will receive in aggregate approximately $ per year in dividends and interest on the Class A common stock and notes represented by each IDS. Dividends are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $ per IDS per year. You will also be entitled to receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and our amended and restated certificate of incorporation, the terms of the indenture governing the notes, the new revolving credit facility and the terms of our then existing other indebtedness, including the outstanding ACSH notes. See "Description of Notes Certain Covenants" and "Description of Other Indebtedness." We will
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266914_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266914_bhc_prospectus_summary.txt
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@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266916_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266916_ahs_prospectus_summary.txt
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+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266919_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266919_ahs_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
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@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266920_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266920_ahs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266920_ahs_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266921_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266921_ahs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266921_ahs_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266922_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266922_ahs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266922_ahs_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266923_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266923_ahs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266923_ahs_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266924_ahs-new_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266924_ahs-new_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266924_ahs-new_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266925_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266925_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266925_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266926_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266926_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266926_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266927_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266927_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266927_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266928_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266928_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266928_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266929_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266929_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266929_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266930_valle_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266930_valle_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266930_valle_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266931_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266931_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266931_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266932_bloomingto_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266932_bloomingto_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266932_bloomingto_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266933_columbus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266933_columbus_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266933_columbus_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266934_indiana_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266934_indiana_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266934_indiana_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266937_lebanon_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266937_lebanon_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266937_lebanon_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266939_mesilla_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266939_mesilla_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266939_mesilla_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266941_mesilla_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266941_mesilla_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266941_mesilla_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266942_northern_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266942_northern_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266942_northern_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266943_valle_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266943_valle_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266943_valle_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266945_willow_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266945_willow_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266945_willow_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266957_ardent_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266957_ardent_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266957_ardent_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266959_ahs_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266959_ahs_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266959_ahs_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266972_ahs-sed_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266972_ahs-sed_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266972_ahs-sed_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266979_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266979_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266979_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266981_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266981_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266981_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266984_bhc-cedar_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266984_bhc-cedar_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266984_bhc-cedar_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266988_columbus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266988_columbus_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266988_columbus_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266989_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266989_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266989_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266992_bhc-fox_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266992_bhc-fox_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266992_bhc-fox_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001266995_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001266995_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001266995_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267000_bhc-gulf_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267000_bhc-gulf_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267000_bhc-gulf_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267005_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267005_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267005_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267007_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267007_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267007_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267012_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267012_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267012_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267014_lebanon_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267014_lebanon_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267014_lebanon_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267015_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267015_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267015_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267019_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267019_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267019_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267020_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267020_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267020_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267029_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267029_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267029_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267032_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267032_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267032_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267033_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267033_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267033_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267035_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267035_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267035_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267037_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267037_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267037_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267038_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267038_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267038_bhc_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267039_bhc-of_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267039_bhc-of_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267039_bhc-of_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267040_northern_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267040_northern_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001267040_northern_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001267041_bhc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001267041_bhc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
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+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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+S-1/A 1 file001.htm AMENDMENT NO. 8 TO FORM S-1 As filed with the Securities and Exchange Commission on January 30, 2004 Registration No. 333-110513 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 8 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TRW AUTOMOTIVE HOLDINGS CORP. (Exact Name of Registrant as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 3714 (Primary Standard Industrial Classification Code Number) ______________________ 81-0597059 (I.R.S. Employer Identification Number) 12025 Tech Center Drive Livonia, Michigan 48150 (734) 266-2600 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) David L. Bialosky, Esq. Vice President and General Counsel TRW Automotive Holdings Corp. 12025 Tech Center Drive Livonia, Michigan 48150 (734) 266-2600 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) With copies to: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 D. Collier Kirkham, Esq. Ronald Cami, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza, 825 Eighth Avenue New York, New York 10019 (212) 474-1000 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. CALCULATION OF REGISTRATION FEE Title Of Each Class Of Securities To Be Registered Amount To Be Registered Proposed Maximum Offering Price Per Unit Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Common Stock, par value $.01 per share — — $ 805,000,000 $ 65,124.50 (2) Preferred Stock Purchase Rights (3) — — — — Total — — $ 805,000,000 $ 65,124.50 (1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o). Includes shares subject to the underwriters' over-allotment option. (2) Previously paid. (3) The preferred stock purchase rights initially will trade together with the common stock. The value attributable to the preferred stock purchase rights, if any, is reflected in the offering price of the common stock. ____________________ The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements." Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information and, in particular, appear under the headings "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." When used in this prospectus, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," or future or conditional verbs, such as "will," "should," "could" or "may," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, management's examination of historical operating trends and data are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will be achieved. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this prospectus are set forth in this prospectus, including under the heading "Risk Factors." All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to update or revise forward-looking statements which may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. MARKET AND INDUSTRY DATA AND FORECASTS This prospectus includes industry data and forecasts that we obtained from industry publications and surveys and internal company surveys. As noted in this prospectus, CSM Worldwide and J.D. Power & Associates were the primary sources for third-party industry data and forecasts. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position relative to our competitors are based on CSM Worldwide data, except for statements as to our market position in engine valves, which are based on our internal analysis and estimates of supply positions for our and our competitors' engine component products. SUMMARY This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "TRW Automotive," "we," "our" and "us" mean, unless the context indicates otherwise, (1) our predecessor, which is the former TRW Automotive Inc. and its subsidiaries and the other subsidiaries, divisions and affiliates of TRW Inc. (now known as Northrop Grumman Space & Mission Systems Corp.) ("TRW") that together constituted the automotive business of TRW, for the periods prior to February 28, 2003, the date the Acquisition (as defined under "—Transactions") was consummated and (2) the issuer of the common stock, TRW Automotive Holdings Corp. ("TRW Automotive Holdings") and its subsidiaries, that own and operate the automotive business of TRW, including TRW's subsidiaries, divisions and affiliates associated with TRW's automotive business, as a result of the Acquisition. In addition, when the context so requires, we use the term "Predecessor" to refer to the historical operations of our predecessor company prior to the Acquisition and "Successor" to refer to our historical operations following the Acquisition; and we use the terms "we," "our" and "us" to refer to the Predecessor and the Successor collectively. The historical financial statements for the periods prior to the Acquisition and summaries thereof appearing in this prospectus are those of our predecessor company and represent the combined financial statements of TRW's automotive business. Prior to the Acquisition, our predecessor company operated as a division of TRW, which was acquired by Northrop Grumman Corporation ("Northrop Grumman") on December 11, 2002. Following the Acquisition, our indirect wholly-owned subsidiary, TRW Automotive Acquisition Corp., which acquired TRW's automotive business, was renamed TRW Automotive Inc. For explanations of certain technical terms relating to our business and products discussed in this prospectus, see "Glossary of Selected Terms." All references in this prospectus to "pro forma" results of operations, financial position, cash flows and other financial data mean, unless the context indicates otherwise, pro forma for the Transactions (as defined under "— Transactions") only and not for this offering. For a more detailed discussion of our business, please see "Business." Our Company We are among the world's largest and most diversified suppliers of automotive systems, modules and components to global automotive vehicle manufacturers, or VMs, and related aftermarkets. We believe we have leading market positions in our primary business lines, which encompass the design, manufacture and sale of active and passive safety related products. Active safety related products principally refer to vehicle dynamic controls (primarily braking and steering), and passive safety related products principally refer to occupant restraints (primarily air bags and seat belts) and crash sensors. We are primarily a "Tier-1" supplier (a supplier which sells directly to VMs), with over 85% of our sales in 2002 made directly to VMs. Our products are primarily used in the manufacture of light vehicles, consisting of passenger cars and light trucks (which include vans and sport-utility vehicles (SUVs)). Our products were on all of the ten highest volume light vehicle automotive platforms in the world in 2002. Our history in the automotive supply business dates back to the early 1900s when our predecessor companies began manufacturing valves, wheels, and electrical components and selling them to the burgeoning automobile industry. Our pro forma sales, pro forma EBITDA (as defined) and pro forma net earnings were approximately $10.4 billion, $1.1 billion and $201 million, respectively, for the year ended December 31, 2002 and approximately $8.3 billion, $798 million and $94 million, respectively, for the nine months ended September 26, 2003. See note (3) in "—
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. We urge you to read the entire prospectus carefully, including the Risk Factors section beginning on page 7 and our consolidated financial statements and the related notes, before you decide whether to invest in our common stock. Cabela s , Cabela s Club , World s Foremost Outfitter , World s Foremost Bank , and Bargain Cave are registered trademarks that we own. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. Overview We are the nation s largest direct marketer, and a leading specialty retailer, of hunting, fishing, camping and related outdoor merchandise. Since our founding in 1961, Cabela s has grown to become one of the most well-known outdoor recreation brands in the United States, and we have long been recognized as the World s Foremost Outfitter . Through our established direct business and our growing number of destination retail stores, we believe we offer the widest and most distinctive selection of high quality outdoor products at competitive prices while providing superior customer service. We operate as an integrated multi-channel retailer, offering our customers a seamless shopping experience through our catalogs, website and destination retail stores, thereby capitalizing on our strong brand recognition. We also issue the Cabela s Club VISA credit card through which we offer a related customer loyalty rewards program as a vehicle for strengthening our customer relationships. Our extensive product offering consists of approximately 235,000 stock keeping units, or SKUs, and includes hunting, fishing, marine and camping merchandise, casual and outdoor apparel and footwear, optics, vehicle accessories, gifts and home furnishings with an outdoor theme. Our direct business uses catalogs and the Internet to increase brand awareness and generate customer orders via the mail, telephone and the Internet. In fiscal 2003, we circulated over 100 million catalogs with over 60 separate titles and received approximately 46.6 million visits to our website. We opened our first destination retail store in 1987 and currently operate ten destination retail stores, including our five large-format destination retail stores which are 150,000 square feet or larger. We have a long history of revenue growth and profitability. Over the past five fiscal years we have achieved compound annual revenue growth of 16% with revenue of $1.4 billion in fiscal 2003, and compound annual operating income growth of 18% with operating income of $84.9 million in fiscal 2003. Competitive Strengths We have a multi-channel retailing model that provides a seamless shopping experience. We have a highly recognized and established brand within the hunting, fishing, camping and related outdoor recreation market. We offer the widest and most distinctive selection of high quality products at competitive prices in the outdoor recreation market. We have an appealing and highly productive destination retail store model. We operate a compelling customer loyalty program through our profitable financial services business. We have long-standing and experienced senior executive management and merchandising teams. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Growth Strategy We plan to continue to grow our destination retail store base, our direct business and our financial services business while growing our profits by: continuing to open new destination retail stores; expanding our direct business; improving our operating efficiencies and store productivity; and expanding the reach of our brand and target market through complementary opportunities. Risks Related to Our Business Our business is subject to numerous risks which are discussed more fully in the section entitled Risk Factors immediately following this prospectus summary. For example, if we cannot successfully implement our destination retail store expansion strategy, our growth and profitability would be adversely impacted. In addition, we face intense competition in the outdoor recreation and casual apparel and footwear markets. We are also subject to risks relating to disruption of merchandise from our vendors and our ability to obtain economic development packages from local and state governments in connection with the expansion of our retail business. In addition, we face a number of risks relating to our financial services business, including limited availability of financing, variation in funding costs and increased capital requirements for the business. Our financial services business could also be adversely affected by changes in interest rates and by economic downturns that result in higher charge-offs. We were initially incorporated as a Nebraska corporation in 1965 and were reincorporated as a Delaware corporation in January of 2004. Our principal executive offices are located at One Cabela Drive, Sidney, Nebraska 69160. Our telephone number is (308) 254-5505. You can access our website at www.cabelas.com. Information contained on our website or that can be accessed through our website is not a part of this prospectus. AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering Common stock offered by the selling stockholders 12,000,000 shares Common stock to be outstanding after this offering, including 8,305,944 shares of non-voting common stock 64,779,202 shares New York Stock Exchange symbol CAB Use of proceeds We will not receive any of the proceeds from the sale of shares of common stock in this offering.
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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements and related notes appearing elsewhere in this prospectus. You should read the entire prospectus carefully in evaluating an investment in our securities. Please see Annex A Glossary of Technical Terms for a description of certain technical terms and definitions used in this prospectus. Overview We are one of the leading semiconductor foundries in the world. As a foundry, we fabricate semiconductors for customers based on their own or third parties integrated circuit designs. We were founded in April 2000 and within three years have developed the capabilities to offer a wide range of leading edge integrated wafer manufacturing services, including copper interconnects capabilities, to our global customer base. We operate 8-inch wafer fabrication facilities in the Zhangjiang High-Tech Park in Shanghai, China and, as a result of a recent acquisition, an 8-inch wafer fab in Tianjin, China. These fabs had an aggregate capacity as of December 31, 2003 of 49,000 8-inch wafers per month for wafer fabrication and 9,000 wafers per month for copper interconnects, which positions us as a leading foundry in China. In addition, we are currently constructing 12-inch wafer fabrication facilities in Beijing, which we believe will be the first 12-inch fabs in China. Fab 1 at our facility in Shanghai was selected as one of the two Top Fabs of 2003 by Semiconductor International, a leading industry publication. In addition, we were ranked second in a readers poll of top global foundries of 2003 conducted by Silicon Strategies, another leading semiconductor industry publication. We currently provide semiconductor fabrication services using 0.35 micron to 0.13 micron process technology for the following devices: logic technologies, including standard logic, mixed-signal, radio frequency and high voltage circuits; memory technologies, including dynamic random access memory, static random access memory, flash, electronically erasable programmable read-only memory and mask read-only memory; and specialty technologies, including liquid crystal on silicon, complementary metal oxide silicon image sensor and system-on-chip. We intend to expand our capabilities in the fabrication of semiconductor wafers using both high-end logic and memory technologies. In addition to wafer fabrication, our service offerings include a comprehensive portfolio of intellectual property consisting of libraries and circuit design blocks, design support, mask-making and wafer probing. We also work with our partners to provide assembly and testing services. We have a global and diversified customer base that includes integrated device manufacturers, such as Fujitsu Limited, Infineon Technologies AG, Samsung Electronics Co., Ltd., STMicroelectronics Pte. Ltd. and Texas Instruments Incorporated, and fabless semiconductor companies, such as Broadcom Corporation, Elite Semiconductor Memory Technology Inc. and Marvell Semiconductor, Inc. The foregoing is not intended to identify our top customers, but rather to provide a representative sampling of our customer base. In recent years, fabless semiconductor companies have grown both in terms of their geographic reach as well as their overall worldwide sales. In addition, integrated device manufacturers have increasingly outsourced their manufacturing requirements for complex and high performance semiconductor devices to semiconductor foundries in order to become more cost competitive. Semiconductor foundries have emerged as key strategic partners to fabless semiconductor companies and integrated device manufacturers, enabling the manufacturing of increasingly more complex, higher performance semiconductor devices at lower costs. According to IC Insights, a leading semiconductor industry publication, the compound annual growth rate of the semiconductor foundry industry in terms of worldwide sales is projected to UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents facilities, we are referring to the installed capacity based on specifications established by the manufacturers of the equipment used in those facilities. References to key process technology nodes, such as 0.35 micron, 0.25 micron, 0.18 micron, 0.15 micron, and 0.13 micron, include the stated resolution of the process technology, as well as intermediate resolutions down to but not including the next key process technology node of finer resolution. For example, when we state 0.25 micron process technology, that also includes 0.22 micron, 0.21 micron, 0.20 micron and 0.19 micron technologies. 0.18 micron process technology also includes 0.17 micron and 0.16 micron technologies. References to U.S. GAAP mean the generally accepted accounting principles in the United States. Unless otherwise indicated, our financial information presented in this prospectus has been prepared in accordance with U.S. GAAP. The Glossary of Technical Terms contained in Annex A of this prospectus sets forth the description of certain technical terms and definitions used in this prospectus. Solely for the convenience of the reader, this prospectus contains translations of certain Hong Kong dollar and Renminbi amounts into U.S. dollars at specified rates. All translations from Hong Kong dollars and Renminbi to U.S. dollars were made (unless otherwise indicated) at the noon buying rates in The City of New York for cable transfers in Hong Kong dollars and Renminbi per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translations of Hong Kong dollars and Renminbi into U.S. dollars have been made at the noon buying rates in effect on February 23, 2004, which were HK$7.7755 to US$1.00 and Rmb 8.2772 to US$1.00. No representation is made that the Hong Kong dollar, Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars, Hong Kong dollars or Renminbi, as the case may be, at any particular rate or at all. See Risk Factors Risks Related to Conducting Operations in China Devaluation or appreciation in the value of the Renminbi or restrictions on convertibility of the Renminbi could adversely affect our operating results and Risk Factors Risks Related to Our Financial Condition and Business Exchange rate fluctuations could increase our costs, which could adversely affect our operating results and the value of our ADSs for a discussion of the effects on our company of fluctuating exchange rates. Except as otherwise indicated, all information contained in this prospectus assumes: a 10-for-1 share split to be effected in the form of a share dividend immediately after the conversion of our preference shares into ordinary shares and immediately prior to the completion of the global offering; the conversion of (i) all of our convertible preference shares issued or issuable as of December 31, 2003 into 13,299,009,450 post-split ordinary shares, which amount assumes the closings as of December 31, 2003 of the subscriptions for Series C convertible preference shares convertible into 547,499,980 post-split ordinary shares, which have closed or which we expect to close in the second quarter of 2004, (ii) the Series D convertible preference shares issued in January 2004 to Motorola, Inc. and its subsidiary, Motorola (China) Electronics Limited, or MCEL, which are convertible into 1,605,174,900 post-split ordinary shares and which were issued in connection with our acquisition of assets constituting Motorola s fab in Tianjin, China, and (iii) the Series D convertible preference shares, which are convertible into 39,290,830 post-split ordinary shares and which are issued or issuable to two of our technology partners upon the closing of our technology transactions with them, one of which closed on February 26, 2004 and the other which we anticipate will be consummated by the end of the second quarter of 2004; Table of Contents be 21.8% from 1998 to 2008, compared to 9.5% for the semiconductor industry as a whole for the same period. We believe that we are well positioned to benefit from the growth of fabless semiconductor companies and the increase in outsourcing by integrated device manufacturers, particularly because our facilities are equipped to manufacture integrated circuits using leading edge technologies at competitive costs. China has emerged as a global manufacturing center for electronic products that are sold both within China and abroad. In addition, according to China s Ministry of Information Industry, the domestic market for electronic information products in China has grown in terms of overall sales from US$20.2 billion in 1999 to US$77.1 billion in 2002. An increasing proportion of the semiconductors required for these products has been sourced in China. We believe our position as a leading foundry in China will allow us to take advantage of this growth in local semiconductor sourcing to meet domestic Chinese demand as well as for use in electronic products for export. Our Solutions and Competitive Advantages We offer a wide range of integrated manufacturing services and solutions to our global customers to assist them in bringing their products to market rapidly and cost effectively. Our solutions and competitive advantages include the following: Leading edge process technology capabilities; Flexible and customizable manufacturing; Integrated one-stop manufacturing service; Proximity to electronics manufacturing supply chain in China; Cost-effective services; Focus on high quality customer service; and Strong management team, corporate culture and availability of qualified personnel. Our Strategy The key elements of our strategy consist of the following: Capitalize on our first mover advantage to capture semiconductor industry growth opportunities in China; Target a diversified and global customer base; Maintain leading edge technology and innovation through internal research and development and strategic alliances and partnerships; Provide high quality customer service; and Shift product mix to logic wafers while maintaining expertise in dynamic random access memory technology. Risks of Investment See Risk Factors beginning on page 10 for a description of the risks relating to an investment in our shares or ADSs. Corporate Information We are a limited liability company that was incorporated in the Cayman Islands in April 2000. Our principal executive offices are located at 18 Zhangjiang Road, Pudong New Area, Shanghai 201203, China. Our telephone number in Shanghai is (+86-21) 5080-2000. Investor inquiries should be directed to our Investor Relations Department at (+86-21) 5080-2000, extension 16012. Our website is www.smics.com. Information contained on our website does not constitute part of this prospectus. Ordinary shares 71 141,772,000 58.4 % Series A preference shares 120 238,500,365 25.0 % Series A-2 preference shares 0 0 0.0 % Series B preference shares 0 0 0.0 % Series C preference shares 54 99,290,423 54.6 % Series D preference shares 3 103,771,428 98.6 % Series B preference share warrants 0 0 0.0 % Series C preference share warrants(3) 54 9,757,130 54.2 % Series D preference share warrants(3) AMENDMENT NO. 6 TO THE FORM F-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents the conversion of our convertible preference shares into ordinary shares upon the closing of the global offering at the following approximate conversion rates: Series A convertible preference shares 1 to 1 Series A-2 convertible preference shares 1 to 1 Series B convertible preference shares 1 to 1.09 Series C convertible preference shares 1 to 1.75 Series D convertible preference shares 1 to 1.68 the redemption of all of our outstanding Series A-1 non-convertible preference shares immediately prior to the closing of the global offering; the filing of our Ninth Amended and Restated Memorandum and Articles of Association following conversion of our preference shares, which increases our authorized number of ordinary shares to 50,000,000,000 and creates 5,000,000,000 undesignated preference shares; and no exercise by the representatives of the underwriters right to purchase up to an additional 772,727,000 ordinary shares to cover overallotments. The automatic conversion of our convertible preference shares into ordinary shares shall be deemed to occur immediately prior to the adoption of our Ninth Amended and Restated Memorandum and Articles of Association, which in turn shall be deemed to occur immediately prior to the implementation of our 10-for-1 share split in the form of a share dividend. Accordingly, when we give information in this prospectus relating to the number and per share prices of preference shares, such information is given on a pre-split basis. However, when we give information relating to the number of ordinary shares, such information is given on a post-split basis. For example, if, prior to the share split, a shareholder owned ten convertible preference shares each of which converted into five ordinary shares, then we would disclose in the prospectus that such shareholder s convertible preference share ownership was ten, but if we presented his share ownership on an as-converted basis, we would disclose that he owned five hundred ordinary shares. Table of Contents The Global Offering ADSs offered by us 55,454,540 ADSs, representing 2,772,727,000 ordinary shares. ADSs offered by the selling shareholders 42,424,240 ADSs, representing 2,121,212,000 ordinary shares. Global offering The global offering consists of the offering of a total of 5,151,515,000 ordinary shares, including ordinary shares represented by ADSs, pursuant to the U.S. offering, the international offering and the Hong Kong public offering. U.S. offering ADSs in a public offering in the United States and on a private placement basis in Canada. International offering ADSs outside the United States and Canada, including to professional and institutional investors in Hong Kong and in a public offering without listing in Japan. Hong Kong public offering 257,576,000 ordinary shares in a public offering in Hong Kong. If the number of ordinary shares validly applied for in the Hong Kong public offering is 15 times or more but less than 50 times, 50 times or more but less than 100 times, or 100 times or more than the number of ordinary shares initially available for subscription in the Hong Kong public offering, then we will reallocate an additional 128,788,000 ordinary shares, 386,363,000 ordinary shares or 772,727,000 ordinary shares, respectively, to the Hong Kong public offering from the U.S. offering and/or the international offering in a manner the underwriters consider appropriate. Any unsold ordinary shares in the Hong Kong public offering may be reallocated to the U.S. offering and/or the international offering. Global coordinator Credit Suisse First Boston (Hong Kong) Limited. Joint bookrunners Credit Suisse First Boston (Hong Kong) Limited and Deutsche Bank AG, Hong Kong Branch. Election of American depositary shares or ordinary shares Purchasers in the U.S. and international offerings may elect to take delivery of our ordinary shares in lieu of ADSs. Overallotment option The selling shareholders have granted an option to the underwriters to purchase up to 15,454,540 additional ADSs, representing 772,727,000 ordinary shares, exercisable in whole or in part by the representatives of the underwriters to cover overallotments, if any. We will not receive any proceeds from the exercise of the underwriters overallotment option. American depositary shares Each ADS represents 50 ordinary shares, which will be held by JPMorgan Chase Bank as depositary. The ADSs will be evidenced Shanghai 1,476 3,146 4,033 Beijing 40 341 Tianjin 49 United States 5 13 Europe 4 Japan 2 Semiconductor Manufacturing International Corporation (Exact Name of Registrant as Specified in its Charter) Cayman Islands 3674 Not Applicable (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification Number) 18 Zhangjiang Road Pudong New Area Shanghai 201203 People s Republic of China Attn: Richard R. Chang, Chief Executive Officer (+86-21) 5080-2000 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) CT Corporation System 111 Eighth Avenue New York, New York 10011 Tel: (212) 894-8440 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Carmen Chang James B. Bucher Shearman & Sterling LLP 1080 Marsh Road Menlo Park, California 94025 Tel: (650) 838-3600 Fax: (650) 838-3699 Jon L Christianson Skadden, Arps, Slate, Meagher & Flom LLP East Wing Office, Level Table of Contents by American depositary receipts, or ADRs. To understand the terms of the ADRs, you should carefully read the section in this prospectus entitled Description of American Depositary Shares. That section describes the deposit agreement under which the ADRs are issued. We also encourage you to read the deposit agreement, which is an exhibit to the registration statement of which this prospectus forms a part. Price per ADS and per ordinary share in the U.S. and international offerings We currently estimate that the initial public offering price per ADS will be between US$15.50 and US$17.50, which is equivalent to between HK$2.41 and HK$2.72 per ordinary share at the exchange rate of HK$7.7755 to US$1.00, the noon buying rate on February 23, 2004. The initial public offering price for ADSs under the U.S. and international offerings is payable in U.S. dollars. Price per ordinary share in the Hong Kong public offering The initial public offering price per ordinary share in the Hong Kong public offering, when increased by a 1% brokerage fee, a 0.005% Hong Kong Securities and Futures Commission transaction levy, a 0.002% investor compensation levy and a 0.005% Hong Kong Stock Exchange trading fee payable by purchasers, is effectively equivalent to the initial public offering price per ADS in the U.S. and international offerings, based on an exchange rate of HK$7.7755 to US$1.00, the noon buying rate on February 23, 2004, and adjusted for the ratio of 50 ordinary shares per ADS. The initial public offering price for ordinary shares in the Hong Kong public offering is payable in Hong Kong dollars. Timing of the global offering The following is a tentative timetable of various events in the global offering (Hong Kong time): Commencement of the Hong Kong public offering March 8, 2004 Closing of the Hong Kong public offering March 11, 2004 Pricing of the global offering March 11, 2004 Final allocation of ordinary shares under the Hong Kong public offering March 17, 2004 Commencement of trading of ADSs on the New York Stock Exchange March 17, 2004 Commencement of trading of ordinary shares on the Hong Kong Stock Exchange March 18, 2004 Five business day gap between pricing and trading of ordinary shares The ordinary shares offered in the global offering will not commence trading on the Hong Kong Stock Exchange until all of Table of Contents the conditions contained in the underwriting agreement for the Hong Kong public offering have been satisfied, which is expected to be five business days in Hong Kong after the date of pricing of the ordinary shares. The ADSs offered in the U.S. and international offerings are expected to commence trading on the New York Stock Exchange on the business day in New York immediately preceding the day when trading of the ordinary shares commences on the Hong Kong Stock Exchange. You will not be able to sell or otherwise deal in the ordinary shares or ADSs prior to the commencement of their trading on the Hong Kong Stock Exchange or the New York Stock Exchange, respectively. Use of proceeds We intend to use the proceeds of this offering for constructing and ramping up our Beijing fabs, upgrading the technology and increasing the capacity at our Shanghai and Tianjin fabs and for general corporate purposes. We may use a portion of the proceeds of the global offering to fund strategic acquisitions or investments. See Use of Proceeds. Listings The ADSs have been approved for listing on the New York Stock Exchange under the symbol SMI and the ordinary shares have received approval in principle for listing on the Hong Kong Stock Exchange under the stock code 981. Dividend policy We do not intend to pay dividends on our ordinary shares for the foreseeable future. ADS depositary JPMorgan Chase Bank. Lock-up and monetization We and all of our securityholders have agreed to a lock-up of our securities for a period of 180 days after the date of this prospectus. See Underwriting. In addition, substantially all of our larger securityholders have agreed to a further lock-up of securities, subject to certain exceptions, for a period equal to the shorter of three years from the expiration of the 180-day lock-up period and the date on which these securityholders collectively own less than 10% of our ordinary shares. The purpose of these additional monetization restrictions is to provide a mechanism following completion of the global offering for orderly sales of our securities by some of our larger shareholders, which sales are consistent with our expected need to raise capital. See Related Party Transactions Registration Rights Agreement for more information on this additional lock-up. Ordinary shares to be outstanding immediately after the global offering The number of ordinary shares to be outstanding immediately following the global offering is 18,216,373,180, based on (i) 13,541,604,450 post-split ordinary shares issued or issuable as of December 31, 2003, (ii) 1,605,174,900 post-split ordinary shares issuable upon conversion of Series D convertible preference shares issued in connection with our acquisition in January 2004 Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act of 1933, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents of the assets constituting Motorola s fab in Tianjin, China, and (iii) 39,290,830 post-split ordinary shares issuable upon conversion of Series D convertible preference shares issued or issuable in connection with the closing of our transactions with two technology partners, one of which closed on February 26, 2004 and the other which we anticipate will be consummated by the end of the second quarter of 2004, and excludes the following post-split as-converted shares: 583,813,880 ordinary shares issuable upon the exercise of options outstanding as of December 31, 2003, with exercise prices ranging from US$0.005 to US$0.35 per share (on a post-split basis); 623,380 ordinary shares issuable upon conversion of Series B convertible preference shares issuable upon exercise of a warrant outstanding as of December 31, 2003, which warrant is automatically exercised upon the attainment of certain milestones and has an exercise price of US$3.50 per convertible preference share; 17,272,730 ordinary shares issuable upon conversion of Series B convertible preference shares issuable upon exercise of a warrant outstanding as of December 31, 2003, which warrant is automatically exercised upon the attainment of certain milestones and has an exercise price of US$3.00 per convertible preference share; 314,999,280 ordinary shares issuable upon conversion of Series C convertible preference shares issuable upon exercise of a warrant outstanding as of December 31, 2003, with an exercise price of US$0.01 per convertible preference share, which warrant is not exercisable prior to and shall terminate upon the completion of the global offering; 11,978,920 ordinary shares issuable upon conversion of Series D convertible preference shares issuable upon exercise of a warrant outstanding as of December 31, 2003, with an exercise price of US$0.01 per convertible preference share, which warrant will remain outstanding after completion of the global offering if the price to the public in the global offering is less than US$0.35 per ordinary share (on a post-split basis); and 413,451,380 ordinary shares reserved for future grants under our employee stock option plans as of December 31, 2003. Assuming that all of the options outstanding as of December 31, 2003 and outstanding warrants that may not terminate upon completion of the global offering, including 160,517,470 ordinary shares issuable upon conversion of warrants issued in connection with the acquisition of the assets constituting Motorola s fab in Tianjin, China, are exercised, the number of ordinary shares to be outstanding immediately following the global offering would be 18,990,579,560. Title of each class of Securities to be registered Amount to be registered(1) Proposed maximum offering price per unit Proposed maximum aggregate offering price(2) Amount of registration fee(3) (1) Including amortization of deferred stock compensation for employees directly involved in manufacturing activities. (2) Deemed dividend represents the difference between the sale and conversion prices of warrants and Series C convertible preference shares we issued in the third and fourth quarters of 2003 and their respective fair market values. (3) Anti-dilutive preference shares, options and warrants were excluded from the weighted average ordinary shares outstanding for the diluted per share calculation. For 2001, 2002 and 2003, basic loss per share did not differ from diluted loss per share. (4) Share and per share information for the 10-for-1 share split to be effected after the conversion of our preference shares into ordinary shares and upon completion of the global offering has been excluded from the weighted average ordinary shares and ADSs outstanding for the basic and diluted per share and per ADS calculation. Ordinary shares, par value US$0.0004 per share(4) 3,116,666,000 $0.35 $1,090,833,100 $138,208.55 (1) Excluding copper interconnects and memory wafers. (2) Including logic, memory, copper interconnects and all other wafers. (1) Includes (a) shares that may be purchased by the underwriters pursuant to an overallotment option and (b) all shares initially offered and sold outside the United States that may be resold from time to time in the United States. The shares are not being registered for the purpose of sales outside the United States. See Underwriting. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457 under the Securities Act of 1933, as amended. (3) This amount was previously paid in full. (4) American Depositary Shares issuable on deposit of the shares registered hereby will be registered under a separate registration statement on Form F-6. Each American Depositary Share represents 50 ordinary shares. (1) Including amortization of deferred stock compensation for employees directly involved in manufacturing activities. (2) Deemed dividend represents the difference between the sale and conversion prices of warrants and Series C convertible preference shares we issued in the third and fourth quarters of 2003 and their respective fair market values. (3) Excluding copper interconnects and memory wafers. (4) Including logic, memory, copper interconnects and all other wafers. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents
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+Prospectus Summary This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to CEA Acquisition Corporation. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Additionally, unless we tell you otherwise, the information in this prospectus has been adjusted to give retroactive effect to a 1.1666666-to-one forward stock split effected in January 2004. We are a blank check company organized under the laws of the State of Delaware on October 14, 2003. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the entertainment, media and communications industry. To date, our efforts have been limited to organizational activities. The entertainment, media and communications industry encompasses those companies which create, produce, deliver, distribute and/or market entertainment and information products and includes among others: broadcast television; cable and satellite television; filmed entertainment; publishing; specialty media; radio broadcasting; recorded music and music publishing; theme park attractions; video games; interactive multimedia software; and voice and data transmission services. Although we may consider a target business in any segments of the entertainment, media and communications industry, we currently intend to concentrate our search for an acquisition candidate on companies in the cable and satellite television, broadcast television, radio broadcasting, newspaper publishing, consumer magazine publishing, specialty media and voice and data transmission-related segments of the entertainment, media and communications industry. We initially intend to focus on these segments because of our management's experience in these areas. However, we are not limited to these segments and may find acquisition candidates in other segments of the entertainment, media and communications industry with greater growth potential. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 101 East Kennedy Boulevard, Suite 3300, Tampa, Florida 33602, and our telephone number is (813) 226-8844. The Offering Securities offered: 3,500,000 units, at $6.00 per unit, each unit consisting of: one share of common stock; and two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital determines that an earlier date is acceptable. In no event will EarlyBirdCapital allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering 875,000 shares Number to be outstanding after this offering 4,375,000 shares Warrants: Number outstanding before this offering 0 Number to be outstanding after this offering 7,000,000 warrants Exercisability Each warrant is exercisable into one share of common stock. Exercise price $5.00 Exercise period The warrants will become exercisable on the later of: the completion of a business combination with a target business, or [ ], 2005 [one year from the date of this prospectus]. The warrants will expire at 5:00 p.m., New York City time, on [ ], 2008 [four years from the date of this prospectus] or earlier upon redemption. Redemption We may redeem the outstanding warrants: in whole and not in part, at a price of $.01 per warrant at any time after the warrants become exercisable, UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 upon a minimum of 30 days' prior written notice of redemption, and if, and only if, the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Units [ ] Common stock [ ] Warrants [ ] Offering proceeds to be held in trust: $17,850,000 of the proceeds of this offering ($5.10 per unit) will be placed in a trust fund maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the date of this prospectus. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $705,000). None of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination: We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the vote of the public stockholders owning a majority of the shares sold in this offering. We will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in this offering vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. AMENDMENT NO. 4 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Conversion rights for stockholders voting to reject a business combination: Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination: We will dissolve and promptly distribute only to our public stockholders the amount in our trust fund plus any remaining net assets, if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Escrow of management shares: On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they owned before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be transferable during the escrow period and will not be released from escrow until [ ], 2007 [three years from the date of this prospectus] . Risks In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider all of the risks set forth in the section entitled "Risk Factors" beginning on page 6 of this prospectus. CEA ACQUISITION CORPORATION (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 6770 (Primary Standard Industrial Classification Code Number) 20-0308891 (I.R.S. Employer Identification Number) 101 East Kennedy Boulevard Suite 3300 Tampa, Florida 33602 (813) 226-8844 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Balance Sheet Data: Working capital/(deficiency) $ (8,914 ) $ 18,580,000 Total assets $ 85,000 $ 18,580,000 Total liabilities $ 60,000 Value of common stock which may be converted to cash ($5.10 per share) $ 3,568,215 Stockholders' equity $ 25,000 $ 15,011,785 The "as adjusted" information gives effect to the sale of the units we are offering and the application of the estimated net proceeds from their sale. The working capital and total assets amounts include the $17,850,000 being held in the trust fund, which will be available to us only upon the consummation of a business combination within the time period described in this prospectus. If a business combination is not so consummated, we will be dissolved and the proceeds held in the trust fund will be distributed solely to our public stockholders. We will not proceed with a business combination if public stockholders owning 20% or more of the shares sold in this offering vote against the business combination and exercise their conversion rights. Accordingly, we may effect a business combination if public stockholders owning up to approximately 19.99% of the shares sold in this offering exercise their conversion rights. If this occurred, we would be required to convert to cash up to approximately 19.99% of the 3,500,000 shares sold in this offering, or 699,650 shares of common stock, at an initial per-share conversion price of $5.10, without taking into account interest earned on the trust fund. The actual per-share conversion price will be equal to: the amount in the trust fund as of the record date for the determination of stockholders entitled to vote on the business combination plus any interest accrued through the record date, divided by the number of shares of common stock sold in the offering. J. Patrick Michaels, Jr. Chairman and Chief Executive Officer 101 East Kennedy Boulevard Suite 3300 Tampa, Florida 33602 (813) 226-8844 (Name, address, including zip code, and telephone number, including area code, of agent for service) Risk Factors An investment in our securities involves a high degree of risk. You should consider carefully the risks described below, together with the other information contained in this prospectus before making a decision to invest in our units. Risks associated with our business We are a development stage company with no operating history and very limited resources and our financial statements contain a statement indicating that our ability to continue as a going concern is dependent on us raising funds in this offering. We are a recently incorporated development stage company with no operating results to date. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business in the entertainment, media and communications industry. We have not conducted any discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues (other than interest income on the proceeds of this offering) until, at the earliest, after the consummation of a business combination. The report of our independent certified public accountants on our financial statements includes an explanatory paragraph, stating that our ability to continue as a growing concern, is dependent on the consummation of this offering. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are forced to liquidate before a business combination, our public stockholders will receive less than $6.00 per share upon distribution of the trust fund and our warrants will expire worthless. If we are unable to complete a business combination and are forced to liquidate our assets, the per-share liquidation distribution will be less than $6.00 because of the expenses of this offering, our general and administrative expenses and the anticipated costs of seeking a business combination. Furthermore, there will be no distribution with respect to our outstanding warrants and, accordingly, the warrants will expire worthless if we liquidate before the completion of a business combination. For a more complete discussion of the effects on our stockholders if we are unable to complete a business combination, see the section below entitled "Effecting a business combination Liquidation if no business combination." You will not be entitled to protections normally afforded to investors of blank check companies. Since the net proceeds of this offering are intended to be used to complete a business combination with a target business that has not been identified, we may be deemed to be a "blank check" company under the United States securities laws. However, since we will have net tangible assets in excess of $5,000,000 upon the successful consummation of this offering and our units are being offered at an initial price of $6.00 per unit, we are exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Because we are not subject to Rule 419, our units will be immediately tradable and we have a longer period of time to complete a business combination in certain circumstances. For a more detailed comparison of our offering to offerings under Rule 419, see the section entitled "Comparison to offerings of blank check companies" below. If third parties bring claims against us, the proceeds held in trust could be reduced and the per-share liquidation price received by stockholders will be less than $5.10 per share. Our placing of funds in trust may not protect those funds from third party claims against us. The proceeds held in trust could be subject to claims which could take priority over the claims of our public stockholders. We cannot assure you that the per-share liquidation price will not be less than $5.10, plus Copies to: David Alan Miller, Esq. Graubard Miller 600 Third Avenue New York, New York 10016 (212) 818-8800 (212) 818-8881 Facsimile Floyd I. Wittlin, Esq. Bingham McCutchen LLP 399 Park Avenue New York, New York 10022 (212) 705-7000 (212) 752-5378 Facsimile interest, due to claims of creditors. If we liquidate before the completion of a business combination, J. Patrick Michaels, Jr., our chairman of the board and chief executive officer, and Robert Moreyra, our executive vice president and a member of our board of directors, will be personally liable under certain circumstances to ensure that the proceeds in the trust fund are not reduced by the claims of various vendors or other entities that are owed money by us for services rendered or products sold to us. However, we cannot assure you that Messrs. Michaels and Moreyra will be able to satisfy those obligations. Since we have not currently selected any target business with which to complete a business combination, we are unable to currently ascertain the merits or risks of the business' operations. Since we have not yet identified a prospective target business, investors in this offering have no current basis to evaluate the possible merits or risks of the target business' operations. To the extent we complete a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the business operations of those entities. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in a target business. Subject to the limitations that a target business be in the entertainment, media and communications industry and have a fair market value of at least 80% of our net assets at the time of the acquisition, we will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. For a more complete discussion of our selection of a target business, see the section below entitled "Effecting a business combination We have not identified a target business." We may issue shares of our common stock and preferred stock to complete a business combination, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership. Our certificate of incorporation authorizes the issuance of up to 20,000,000 shares of common stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par value $.0001 per share. Immediately after this offering (assuming no exercise of the underwriters' over-allotment option), there will be 7,575,000 authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants and the purchase option granted to EarlyBirdCapital, the representative of the underwriters) and all of the 1,000,000 shares of preferred stock available for issuance. Although we have no commitments as of the date of this offering to issue our securities, we will, in all likelihood, issue a substantial number of additional shares of our common stock or preferred stock, or a combination of common and preferred stock, to complete a business combination. The issuance of additional shares of our common stock or any number of shares of our preferred stock may: significantly reduce the equity interest of our stockholders; likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely also result in the resignation or removal of our present officers and directors; and adversely affect prevailing market prices for our common stock. For a more complete discussion of the possible structure of a business combination, see the section below entitled "Effecting a business combination Selection of a target business and structuring of a business combination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. It is likely that our current officers and directors will resign upon consummation of a business combination and we will have only limited ability to evaluate the management of the target business. Our ability to successfully effect a business combination will be totally dependent upon the efforts of our key personnel. The future role of our key personnel in the target business, however, cannot presently be ascertained. Although it is possible that some of our key personnel will remain associated in various capacities with the target business following a business combination, it is likely that the management of the target business at the time of the business combination will remain in place. Although we intend to closely scrutinize the management of a prospective target business in connection with evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of management will prove to be correct. Our officers and directors may allocate their time to other businesses which could cause a conflict of interest as to which business they present a viable acquisition opportunity to. Our officers and directors are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. Some of these persons may in the future become affiliated with entities, including other "blank check" companies, engaged in business activities similar to those intended to be conducted by us. Our officers and directors may become aware of business opportunities which may be appropriate for presentation to us as well as the other entities with which they may be affiliated. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. We cannot assure you that these conflicts will be resolved in our favor. All of our directors and officers own shares of our securities which will not participate in liquidation distributions and therefore they may have a conflict of interest in determining whether a particular target business is appropriate for a business combination. All of our directors and officers own stock in our company, but have waived their right to receive distributions upon liquidation. Additionally, J. Patrick Michaels, Jr. has agreed with the representative of the underwriters that he and certain of his affiliates or designees will purchase warrants in the open market following this offering. The shares and warrants owned by our directors and officers will be worthless if we do not consummate a business combination. The personal and financial interests of our directors and officers may influence their motivation in identifying and selecting a target business and completing a business combination timely. Consequently, our directors' and officers' discretion in identifying and selecting a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders' best interest. If our common stock becomes subject to the SEC's penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected. If at any time we have net tangible assets of $5,000,000 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock may be subject to the "penny stock" rules promulgated under the Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors: must make a special written suitability determination for the purchaser; receive the purchaser's written agreement to a transaction prior to sale; provide the purchaser with risk disclosure documents which identify certain risks associated with investing in "penny stocks" and which describe the market for these "penny stocks" as well as a purchaser's legal remedies; and If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a "penny stock" can be completed. If our common stock becomes subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities. It is probable that we will only be able to complete one business combination, which will cause us to be solely dependent on a single business and a limited number of products or services. The net proceeds from this offering will provide us with only approximately $18,555,000 which we may use to complete a business combination. Our initial business combination must be with a business with a fair market value of at least 80% of our net assets at the time of such acquisition. Consequently, it is probable that we will have the ability to complete only a single business combination. Accordingly, the prospects for our success may be: solely dependent upon the performance of a single business, or dependent upon the development or market acceptance of a single or limited number of products, processes or services. In this case, we will not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. Because of our limited resources and the significant competition for business combination opportunities, we may not be able to consummate a business combination with growth potential. We expect to encounter intense competition from other entities having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions in the entertainment, media and communications industry. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Further, the obligation we have to seek stockholder approval of a business combination may delay the consummation of a transaction, and our obligation to convert into cash the shares of common stock held by public stockholders in certain instances may reduce the resources available for a business combination. Additionally, our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular business combination. Although we believe that the net proceeds of this offering will be sufficient to allow us to consummate a business combination, in as much as we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. proceeds of this offering prove to be insufficient, either because of the size of the business combination or the depletion of the available net proceeds in search of a target business, or because we become obligated to convert into cash a significant number of shares from dissenting stockholders, we will be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination. Our existing stockholders, including our officers and directors, control a substantial interest in us and thus may influence certain actions requiring stockholder vote. Upon consummation of our offering, our existing stockholders (including all of our officers and directors) will collectively own 20% of our issued and outstanding shares of common stock (assuming they do not purchase units in this offering). Our board of directors is divided into three classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. It is unlikely that there will be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office at least until the consummation of the business combination. If there is an annual meeting, as a consequence of our "staggered" board of directors, only a minority of the board of directors will be considered for election and our existing stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our existing stockholders will continue to exert control at least until the consummation of a business combination. In addition, our existing stockholders and their affiliates and relatives are not prohibited from purchasing units in this offering or shares in the aftermarket. If they do, we cannot assure you that our existing stockholders will not have considerable influence upon the vote in connection with a business combination. Our existing stockholders paid an aggregate of $25,000, or an average of $0.029 per share, for their shares and, accordingly, you will experience immediate and substantial dilution from the purchase of our common stock. The difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering constitutes the dilution to you and the other investors in this offering. The fact that our existing stockholders acquired their shares of common stock at a nominal price has significantly contributed to this dilution. Assuming the offering is completed, you and the other new investors will incur an immediate and substantial dilution of approximately 32% or $1.92 per share (the difference between the pro forma net tangible book value per share of $4.08, and the initial offering price of $6.00 per unit). Our outstanding warrants may have an adverse effect on the market price of common stock and make it more difficult to effect a business combination. In connection with this offering, as part of the units, we will be issuing warrants to purchase 7,000,000 shares of common stock. We will also issue an option to purchase 350,000 units to the representative of the underwriters which, if exercised, will result in the issuance of an additional 700,000 warrants. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of substantial numbers of additional shares upon exercise of these warrants and options could make us a less attractive acquisition vehicle in the eyes of a target business as such securities, when exercised, will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares issued to complete the business combination. Accordingly, our warrants and options may make it more difficult to effectuate a business combination or increase the cost of the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the warrants and options could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants and options are exercised, you may experience dilution to your holdings. If our existing stockholders exercise their registration rights, it may have an adverse effect on the market price our common stock and the existence of these rights may make it more difficult to effect a business combination. Our existing stockholders are entitled to demand that we register the resale of their shares of common stock at any time after the date on which their shares are released from escrow. If our existing stockholders exercise their registration rights with respect to all of their shares of common stock, then there will be an additional 875,000 shares of common stock eligible for trading in the public market. The presence of this additional number of shares of common stock eligible for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of these rights may make it more difficult to effectuate a business combination or increase the cost of the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities as a result of these registration rights and the potential future effect their exercise may have on the trading market for our common stock. If you are not an institutional investor, you may purchase our securities in this offering only if you reside within certain states and may engage in resale transactions only in those states and a limited number of other jurisdictions. We have applied to register our securities, or have obtained or will seek to obtain an exemption from registration, in Delaware, the District of Columbia, Florida, Hawaii, Illinois, Maryland, New York and Rhode Island. If you are not an "institutional investor," you must be a resident of these jurisdictions to purchase our securities in the offering. The definition of an "institutional investor" varies from state to state but generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. In order to prevent resale transactions in violation of states' securities laws, you may engage in resale transactions only in these states and in a limited number of other jurisdictions in which an applicable exemption is available or a blue sky application has been filed and accepted. This restriction on resale may limit your ability to resell the securities purchased in this offering and may impact the price of our securities. For a more complete discussion of the Blue Sky state securities laws and registrations affecting this offering, please see the section entitled "State Blue Sky Information" below. We intend to have our securities quoted on the OTC Bulletin Board, which will limit the liquidity and price of our securities more than if our securities were quoted or listed on the Nasdaq Stock Market or a national exchange. Our securities will be traded in the over-the-counter market. It is anticipated that they will be quoted on the OTC Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board will limit the liquidity and price of our securities more than if our securities were quoted or listed on The Nasdaq Stock Market or a national exchange. The representative of the underwriters in the offering will not make a market for our securities which could adversely affect the liquidity and price of our securities. EarlyBirdCapital, the representative of the underwriters in this offering, does not make a market in securities and will not be making a market in our securities. Following the completion of this offering, we believe certain broker-dealers other than EarlyBirdCapital, including GunnAllen Financial, Inc., one of the underwriters in this offering, will be making a market in our securities. EarlyBirdCapital not acting as a market maker for our securities may adversely impact the liquidity of our securities. If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination. If we are deemed to be an investment company under the Investment Company Act of 1940, our activities may be restricted, including: restrictions on the nature of our investments; and restrictions on the issuance of securities, which may make it difficult for us to complete a business combination. In addition, we may have imposed upon us burdensome requirements, including: registration as an investment company; adoption of a specific form of corporate structure; and reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. We do not believe that our anticipated principal activities will subject us to the Investment Company Act of 1940. To this end, the proceeds held in trust may only be invested by the trust agent in "government securities" with specific maturity dates. By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act of 1940. If we were deemed to be subject to the act, compliance with these additional regulatory burdens would require additional expense that we have not allotted for. Risks associated with the entertainment, media and communications industry The speculative nature of the entertainment, media and communications industry may negatively impact our results of operations. Certain segments of the entertainment, media and communications industry are highly speculative and historically have involved a substantial degree of risk. For example, the success of a particular film, video game, program or recreational attraction depends upon unpredictable and changing factors, including the success of promotional efforts, the availability of alternative forms of entertainment and leisure time activities, general economic conditions, public acceptance and other tangible and intangible factors, many of which are beyond our control. If we complete a business combination with a target business in such a segment, our operations may be adversely affected. CALCULATION OF REGISTRATION FEE Changes in technology may adversely affect our operations and financial condition following a business combination. The entertainment, media and communications industry is substantially affected by rapid and significant changes in technology. These changes may render certain existing services and technologies used in the industry obsolete. We cannot assure you that the technologies used by or relied upon by a target business with which we effect a business combination will not be subject to such obsolescence. While we may attempt to adapt and apply the services provided by the target business to newer technologies, we cannot assure you that we will have sufficient resources to fund these changes or that these changes will ultimately prove successful. If, following a business combination, the products that we market or sell are not accepted by the public, our results of operations will be adversely affected. Certain segments of the entertainment, media and communications industry are dependent on developing and marketing new products and services that respond to technological and competitive developments and changing customer needs. We cannot assure you that the products and services of a target business with which we effect a business combination will gain market acceptance. Any significant delay or failure in developing new or enhanced technology, including new product and service offerings, could result in a loss of actual or potential market share and a decrease in revenues. If we are unable to protect our intellectual property rights following a business combination, competitors may be able to use our technology or trademarks, which could weaken our competitive position. If we are successful in acquiring a target business and the target business is the owner of proprietary programming, characters, software or technology, our success will depend in part on our ability to obtain and enforce intellectual property rights for those assets, both in the United States and in other countries. In those circumstances, we may file applications for patents, copyrights and trademarks as our management deems appropriate. We cannot assure you that these applications, if filed, will be approved, or that we will have the financial and other resources necessary to enforce our proprietary rights against infringement by others. Additionally, we cannot assure you that any patent, trademark or copyright obtained by us will not be challenged, invalidated or circumvented. We may not be able to successfully compete in our desired industry and segments, which are characterized by the existence of large competitors and rapidly changing technology. There is substantial competition in all aspects and segments of the entertainment, media and communications industry. Numerous companies, most of which have substantially greater financial resources available to them than we will, are already engaged in the various segments in which we may seek to engage. We cannot assure you that we will be able to compete successfully with others in the relevant market upon the successful acquisition of a target business. We may not be able to comply with the government regulations that may be adopted with respect to the entertainment, media and communications industry. Certain segments of the entertainment, media and communications industry, including broadcast networks, cable networks and radio stations, have historically been subject to substantial regulation at the Federal, state and local levels. In the past, the regulatory environment, particularly with respect to the telecommunications industry and the television and radio industry, has been fairly rigid. We cannot assure you that regulations currently in effect or adopted in the future will not have a material adverse affect on any target business acquired by us. Title of each Class of Security being registered Amount being Registered Proposed Maximum Offering Price Per Share(1) Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee $17,850,000, or $20,527,500 if the underwriters' over-allotment option is exercised in full, of net proceeds will be placed in a trust fund maintained by Continental Stock Transfer & Trust Company, New York, New York, as trustee. The proceeds will not be released from the trust fund until the earlier of the completion of a business combination or our liquidation. The payment to CEA Group, LLC, one of our initial stockholders and an entity that is ultimately owned by J. Patrick Michaels, Jr., of a monthly fee of $7,500 is for general and administrative services including office space, utilities and secretarial support. We believe, based on rents and fees for similar services in the Tampa, Florida metropolitan area, that the fee charged by CEA Group is at least as favorable as we could have obtained from an unaffiliated person. We intend to use the excess working capital (approximately $285,000) for director and officer liability insurance premiums (approximately $60,000), with the balance being held in reserve in the event due diligence, legal, accounting and other expenses of structuring and negotiating business Units, each consisting of one share of Common Stock, $.0001 par value, and two Warrants(2) 4,025,000 Units $6.00 $24,150,000 $1,953.74 combinations exceed our estimates, as well as for reimbursement of any out-of-pocket expenses incurred by our existing stockholders in connection with activities on our behalf as described below. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust fund as well as any other net proceeds not expended will be used to finance the operations of the target business. CEA Group has advanced to us $60,000 which was used to pay a portion of the expenses of this offering referenced in the line items above for SEC registration fee, NASD registration fee and legal fees and expenses. The loan will be payable without interest on the earlier of October 21, 2004 or the consummation of this offering. The loan will be repaid out of the gross proceeds of this offering. The net proceeds of this offering not held in the trust fund and not immediately required for the purposes set forth above will only be invested in United States "government securities," defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less, so that we are not deemed to be an investment company under the Investment Company Act. The interest income derived from investment of these net proceeds during this period will be used to defray our general and administrative expenses, as well as costs relating to compliance with securities laws and regulations, including associated professional fees, until a business combination is completed. We believe that, upon consummation of this offering, we will have sufficient available funds to operate for at least the next 24 months, assuming that a business combination is not consummated during that time. Commencing on the effective date of this prospectus through the consummation of the acquisition of the target business, we will pay CEA Group the fee described above. Other than this $7,500 per month administrative fee, no compensation of any kind (including finders and consulting fees) will be paid to any of our existing stockholders, or any of their affiliates, for services rendered to us prior to or in connection with the consummation of the business combination. However, our existing stockholders will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on suitable business combinations. Since the role of present management after a business combination is uncertain, we have no ability to determine what remuneration, if any, will be paid to those persons after a business combination. A public stockholder will be entitled to receive funds from the trust fund (including interest earned on his, her or its portion of the trust fund) only in the event of our liquidation or if that public stockholder were to seek to convert such shares into cash in connection with a business combination which the public stockholder voted against and which we actually consummate. In no other circumstances will a public stockholder have any right or interest of any kind to or in the trust fund. Shares of Common Stock included as part of the Units(2) 4,025,000 Shares (3) Warrants included as part of the Units(2) 8,050,000 Warrants (3) If we consummate a business combination, the conversion rights afforded to our public stockholders may result in the conversion into cash of up to approximately 19.99% of the aggregate number of shares sold in this offering at a per-share conversion price equal to the amount in the trust fund as of the record date for determination of stockholders entitled to vote on the business combination, inclusive of any interest thereon, divided by the number of shares sold in this offering. Shares of Common Stock underlying the Warrants included in the Units(4) 8,050,000 Shares $5.00 $40,250,000 $3,256.23 Management's Discussion and Analysis of Financial Condition and Results of Operations We were formed on October 14, 2003, to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a company in the entertainment, media and communications industry. We intend to utilize cash derived from the proceeds of this offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination. We have neither engaged in any operations nor generated any revenues to date. Our entire activity since inception has been to prepare for our proposed fundraising through an offering of our equity securities. We estimate that the net proceeds from the sale of the units, after deducting offering expenses of approximately $975,000, including $630,000 evidencing the underwriters' non-accountable expense allowance of 3% of the gross proceeds, and underwriting discounts of approximately $1,470,000, will be approximately $18,555,000, or $21,390,000 if the underwriters' over-allotment option is exercised in full. Of this amount, $17,850,000, or $20,527,500 if the underwriters' over-allotment option is exercised in full, will be held in trust and the remaining $705,000, or $862,500 if the underwriters' over-allotment option is exercised in full, will not be held in trust. We will use substantially all of the net proceeds of this offering to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. To the extent that our capital stock is used in whole or in part as consideration to effect a business combination, the proceeds held in the trust fund as well as any other net proceeds not expended will be used to finance the operations of the target business. We believe that, upon consummation of this offering, we will have sufficient available funds outside of the trust fund to operate for at least the next 24 months, assuming that a business combination is not consummated during that time. Over this time period, we anticipate $180,000 for the administrative fee payable to CEA Group ($7,500 per month for two years), approximately $150,000 of expenses for legal, accounting and other expenses attendant to the due diligence investigations, structuring and negotiating of a business combination, $50,000 of expenses for the due diligence and investigation of a target business, $40,000 of expenses in legal and accounting fees relating to our SEC reporting obligations and $285,000 for general working capital that will be used for miscellaneous expenses and reserves, including approximately $60,000 for director and officer liability insurance premiums. We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, we may need to raise additional funds through a private offering of debt or equity securities if such funds are required to consummate a business combination that is presented to us. We would only consummate such a fund raising simultaneously with the consummation of a business combination. We are obligated, commencing on the date of this prospectus, to pay to CEA Group, one of our initial stockholders and an affiliate of J. Patrick Michaels, Jr., a monthly fee of $7,500 for general and administrative services. In addition, on October 22, 2003, CEA Group advanced $60,000 to us, on a non-interest bearing basis, for payment of offering expenses on our behalf. The loan will be payable without interest on the earlier of October 21, 2004 or the consummation of this offering. The loan will be repaid out of the gross proceeds of this offering. Proposed Business Introduction We are a recently organized blank check company formed to serve as a vehicle for the acquisition of a target business in the entertainment, media and communications industry. We are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time following this offering. We intend to utilize cash derived from the proceeds of this offering, our capital stock, debt or a combination of these in effecting a business combination. Our management has broad discretion with respect to the specific application of the net proceeds of this offering and, as a result, this offering can be characterized as a blank check offering. While we may seek to effect business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination. The entertainment, media and communications industry The entertainment, media and communications industry encompasses those companies which create, produce, deliver, distribute or market entertainment and information products and includes among others: broadcast television; cable television; filmed entertainment; publishing; specialty media; radio broadcasting; recorded music and music publishing; theme park attractions; video games; interactive multimedia software; and voice and data transmission services. Although we may consider a target business in any segments of the entertainment, media and communications industry, we currently intend to concentrate our search for an acquisition candidate on companies in the cable and satellite television, broadcast television, radio broadcasting, newspaper publishing, consumer magazine publishing, specialty media and voice and data transmission-related segments of the entertainment, media and communications industry. We initially intend to focus on these segments because of our management's experience in these areas. However, we are not limited to these segments and may find acquisition candidates in other segments with greater growth potential. The entertainment, media and communications industry represents a large and expanding segment of the United States economy. According to PricewaterhouseCoopers, LLP, global entertainment, media and communications industry spending will surpass $1.1 trillion in 2003 and is expected to increase to $1.4 trillion in 2006. The United States marketplace accounts for $479 billion, or 44%, of the $1.1 trillion in spending. Certain segments of the entertainment, media and communications industry, such as video games and interactive multimedia software, are growing at rates above the industry average domestically and are growing at even greater rates internationally. Growth in this industry has historically been driven by the introduction of new technologies and the expansion of domestic and international markets. The latter part of the 20th century witnessed the Units underlying the Underwriter's Unit Purchase Option ("Underwriter's Units")(4) 350,000 Units $9.90 $3,465,000 $280.32 introduction and consumer acceptance of cable television, home video, video games and compact discs. The 1990s witnessed the emergence of additional products and improved delivery systems such as interactive multimedia entertainment software, simulator and virtual reality attractions and fiber optic cable. The beginning of the 21st century has witnessed even greater expansion as the emergence of next-generation technologies has significantly strengthened growth opportunties for television distribution through direct broadcast satellite and digital cable, video games, Internet access and home video. The emergence of the DVD and CD-ROM formats has further increased this expansion. Our strategic focus Although we may consider a target business in any segment of the entertainment, media and communications industry, we currently intend to focus our efforts in areas in which our management's industry relationships and expertise are most likely to produce attractive opportunities. These areas include: Cable and Satellite Television The cable and satellite television segment is comprised of companies that own and operate wired cable television systems, satellite television services, and cable television networks. Over the last several years, cable television systems have significantly expanded their distribution and programming capacity through the use of digital compression technology. As a result, companies have been able to increase the number and types of channels that they can offer to customers. Examples include: network-type programming for thematic channels such as comedy, sporting news or science fiction channels; special interest programming such as music video channels dedicated to specific forms of music such as country, pop or rap; special event programming such as concerts or plays; and interactive and collaborative programming where viewers compete with players on the program or with other households. Broadcast Television The broadcast television segment consists of companies that own television networks and/or station groups. Radio Broadcasting The radio broadcasting segment consists of companies that operate radio networks and stations as well as operate satellite radio services. Newspaper Publishing The newspaper publishing segment includes companies that publish daily and weekly mass-market newspapers primarily in greater metropolitan areas of the United States and Canada. Consumer Magazine Publishing The consumer magazine publishing segment consists of companies that have significant consumer magazine publishing operations. Shares of Common Stock included as part of the Underwriter's Units(4) 350,000 Shares (3) Specialty Media The specialty media and marketing services segment consists of companies that generate significant revenues from providing a broad range of marketing communications, products and services. The companies in this segment are divided into the following categories: direct marketing and promotional services companies that provide services including in-store marketing and promotion, direct mail, membership clubs, telemarketing, merchandising and other components of promotion and direct marketing; outdoor advertising, including billboards and blimps; telephone directory publishing including yellow pages and other advertising-based directories; specialty publishing and syndication including comic books and coloring books; and other advertising, marketing and public relation services. Effecting a business combination General Although substantially all of the net proceeds of this offering are intended to be generally applied toward effecting a business combination as described in this prospectus, the proceeds are not otherwise being designated for any more specific purposes. Accordingly, prospective investors will invest in us without an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense, loss of voting control and compliance with various Federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. We have not identified a target business To date, we have not selected any target business on which to concentrate our search for a business combination. Subject to the limitations that a target business be within the entertainment, media and communications industry and have a fair market value of at least 80% of our net assets at the time of the acquisition, as described below in more detail, we will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. Accordingly, there is no basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete a business combination. To the extent we effect a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors. Sources of target businesses We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community, who may present solicited or unsolicited proposals. Our officers, directors and special advisor as well as their affiliates may also bring to our attention target business candidates. While we do not presently anticipate engaging the services of professional firms that specialize in business acquisitions on any Warrants included as part of the Underwriter's Units(4) 700,000 Warrants (3) formal basis, we may engage these firms in the future, in which event we may pay a finder's fee or other compensation. In no event, however, will we pay any of our existing officers, directors or stockholders or any entity with which they are affiliated any finder's fee or other compensation for services rendered to us prior to or in connection with the consummation of a business combination. Selection of a target business and structuring of a business combination Subject to the requirement that our initial business combination must be with a target business with a fair market value that is at least 80% of our net assets at the time of such acquisition, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. In evaluating a prospective target business, our management will consider, among other factors, the following: financial condition and results of operation; growth potential; experience and skill of management and availability of additional personnel; capital requirements; competitive position; stage of development of the products, processes or services; degree of current or potential market acceptance of the products, processes or services; proprietary features and degree of intellectual property or other protection of the products, processes or services; regulatory environment of the entertainment, media and communications industry; and costs associated with effecting the business combination. These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business objective. In evaluating a prospective target business, we will conduct an extensive due diligence review which will encompass, among other things, meetings with incumbent management and inspection of facilities, as well as review of financial and other information which will be made available to us. No finders or consulting fees will be paid to our existing stockholders, or any of their respective affiliates, for services rendered prior to or in connection with a business combination. The time and costs required to select and evaluate a target business and to structure and complete the business combination cannot presently be ascertained with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which a business combination is not ultimately completed will result in a loss to us and reduce the amount of capital available to otherwise complete a business combination. Fair Market Value of Target Business The initial target business that we acquire must have a fair market value equal to at least 80% of our net assets at the time of such acquisition. The fair market value of such business will be determined by our board of directors based upon standards generally accepted by the financial community, such as actual and potential sales, earnings and cash flow and book value. If our board is not able to independently determine that the target business has a sufficient fair market value, we will obtain an opinion from an unaffiliated, independent investment banking firm which is a member of the National Association of Securities Dealers, Inc. with respect to the satisfaction of such criteria. Since Shares of Common Stock underlying the Warrants included in the Underwriter's Units(4) 700,000 Shares $6.40 $4,480,000 $567.62 any opinion, if obtained, would merely state that fair market value meets the 80% of net assets threshold, it is not anticipated that copies of such opinion would be distributed to our stockholders, although copies will be provided to stockholders who request it. We will not be required to obtain an opinion from an investment banking firm as to the fair market value if our board of directors independently determines that the target business has sufficient fair market value. Probable lack of business diversification While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business which satisfies the minimum valuation standard at the time of such acquisition, as discussed above. Consequently, it is probable that we will have the ability to effect only a single business combination. Accordingly, the prospects for our success may be entirely dependent upon the future performance of a single business. Unlike other entities which may have the resources to complete several business combinations of entities operating in multiple industries or multiple areas of a single industry, it is probable that we will not have the resources to diversify our operations or benefit from the possible spreading of risks or offsetting of losses. By consummating a business combination with only a single entity, our lack of diversification may: subject us to numerous economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact upon the entertainment, media and communications industry, and result in our dependency upon the development or market acceptance of a single or limited number of products, processes or services. Limited ability to evaluate the target business' management Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of the target business' management will prove to be correct. In addition, we cannot assure you that the future management will have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of our officers and directors, if any, in the target business cannot presently be stated with any certainty. While it is possible that one or more of our directors will remain associated in some capacity with us following a business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to a business combination. Moreover, we cannot assure you that our officers and directors will have significant experience or knowledge relating to the operations of the particular target business. Following a business combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management. Opportunity for stockholder approval of business combination Prior to the completion of a business combination, we will submit the transaction to our stockholders for approval, even if the nature of the acquisition is such as would not ordinarily require stockholder approval under applicable state law. In connection with seeking stockholder approval of a business combination, we will furnish our stockholders with proxy solicitation materials prepared in accordance with the Securities Exchange Act of 1934, which, among other matters, will include a description of the operations of the target business and audited historical financial statements of the business. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote their respective shares of common stock Total $72,345,100 $6,057.91(5) owned by them immediately prior to this offering in accordance with the vote of the public stockholders owning a majority of the shares of our common stock sold in this offering. This voting arrangement shall not apply to shares included in units purchased in this offering or purchased following this offering in the open market by any of our existing stockholders, officers and directors. We will proceed with the business combination only if the public stockholders, who own at least a majority of the shares of common stock sold in this offering, vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights. Conversion rights At the time we seek stockholder approval of any business combination, we will offer each public stockholder the right to have such stockholder's shares of common stock converted to cash if the stockholder votes against the business combination and the business combination is approved and completed. The actual per-share conversion price will be equal to the amount in the trust fund, inclusive of any interest, as of the record date for determination of stockholders entitled to vote on the business combination, divided by the number of shares sold in this offering. Without taking into any account interest earned on the trust fund, the initial per-share conversion price would be $5.10, or $0.90 less than the per-unit offering price of $6.00. An eligible stockholder may request conversion at any time after the mailing to our stockholders of the proxy statement and prior to the vote taken with respect to a proposed business combination at a meeting held for that purpose, but the request will not be granted unless the stockholder votes against the business combination and the business combination is approved and completed. Any request for conversion, once made, may be withdrawn at any time up to the date of the meeting. It is anticipated that the funds to be distributed to stockholders entitled to convert their shares who elect conversion will be distributed promptly after completion of a business combination. Public stockholders who convert their stock into their share of the trust fund still have the right to exercise the warrants that they received as part of the units. We will not complete any business combination if public stockholders, owning 20% or more of the shares sold in this offering, exercise their conversion rights. Liquidation if no business combination If we do not complete a business combination within 18 months after the consummation of this offering, or within 24 months if the extension criteria described below have been satisfied, we will be dissolved and will distribute to all of our public stockholders, in proportion to their respective equity interests, an aggregate sum equal to the amount in the trust fund, inclusive of any interest, plus any remaining net assets. Our existing stockholders have waived their rights to participate in any liquidation distribution with respect to shares of common stock owned by them immediately prior to this offering. There will be no distribution from the trust fund with respect to our warrants. If we were to expend all of the net proceeds of this offering, other than the proceeds deposited in the trust fund, and without taking into account interest, if any, earned on the trust fund, the initial per-share liquidation price would be $5.10, or $0.90 less than the per-unit offering price of $6.00. The proceeds deposited in the trust fund could, however, become subject to the claims of our creditors which could be prior to the claims of our public stockholders. We cannot assure you that the actual per-share liquidation price will not be less than $5.10, plus interest, due to claims of creditors. J. Patrick Michaels, Jr., our chairman of the board and chief executive officer, and Robert Moreyra, our executive vice president and a member of our board of directors, have each agreed pursuant to an agreement with us and EarlyBirdCapital that, if we liquidate prior to the consummation of a business combination, they will be personally liable to pay debts and obligations to vendors or other entities that are owed money by us for services rendered or products sold to us in excess of the net proceeds of this offering not held in the trust account. We cannot assure you, however, that Messrs. Michaels and Moreyra would be able to satisfy those obligations. 1.1 Form of Underwriting Agreement. 1.2 Form of Selected Dealers Agreement. 3.1 * Certificate of Incorporation. 3.2 * By-laws. 4.1 * Specimen Unit Certificate. 4.2 * Specimen Common Stock Certificate. 4.3 * Specimen Warrant Certificate. 4.4 Form of Unit Purchase Option to be granted to Representative. 4.5 Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant. 5.1 * Form of opinion of Graubard Miller 10.1 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and J. Patrick Michaels, Jr. 10.2 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Robert Moreyra. 10.3 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Donald Russell. 10.4 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Brad Gordon. 10.5 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Harold Ewen. 10.6 * Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and CEA Group, LLC. 10.7 * Form of Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the Registrant. 10.8 * Form of Stock Escrow Agreement between the Registrant, Continental Stock Transfer & Trust Company and the Initial Stockholders. 10.9 * Form of Letter Agreement between CEA Group, LLC and Registrant regarding administrative support. 10.10 * Promissory Note, dated October 22, 2003, in the principal amount of $60,000 issued to CEA Group, LLC. 10.11 * Registration Rights Agreement among the Registrant and the Initial Stockholders. 10.12 * Warrant Purchase Agreement among J. Patrick Michaels, Jr. and EarlyBirdCapital, Inc. 23.1 Consent of BDO Seidman, LLP. 23.2 * Consent of Graubard Miller (included in Exhibit 5.1). (1)Estimated solely for the purpose of calculating the registration fee. (2)Includes 525,000 Units and 525,000 shares of Common Stock and 1,050,000 Warrants underlying such Units which may be issued on exercise of a 45-day option granted to the Underwriter to cover over-allotments, if any. (3)No fee pursuant to Rule 457(g). (4)Pursuant to Rule 416, there are also being registered such indeterminable additional securities as may be issued as a result of the anti-dilution provisions. (5)$5,830.05 of the fee has been previously paid. If we enter into either a letter of intent, an agreement in principle or a definitive agreement to complete a business combination prior to the expiration of 18 months after the consummation of this offering, but are unable to complete the business combination within the 18-month period, then we will have an additional six months in which to complete the business combination contemplated by the letter of intent, agreement in principle or definitive agreement. If we are unable to do so by the expiration of the 24-month period from the consummation of this offering, we will then liquidate. Upon notice from us, the trustee of the trust fund will commence liquidating the investments constituting the trust fund and will turn over the proceeds to our transfer agent for distribution to our stockholders. We anticipate that our instruction to the trustee would be given promptly after the expiration of the applicable 18-month or 24-month period. Our public stockholders shall be entitled to receive funds from the trust fund only in the event of our liquidation or if the stockholders seek to convert their respective shares into cash upon a business combination which the stockholder voted against and which is actually completed by us. In no other circumstances shall a stockholder have any right or interest of any kind to or in the trust fund. Competition In identifying, evaluating and selecting a target business, we expect to encounter intense competition from other entities having a business objective similar to ours. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than us and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of a target business. Further: our obligation to seek stockholder approval of a business combination may delay the completion of a transaction; our obligation to convert into cash shares of common stock held by our public stockholders in certain instances may reduce the resources available to us for a business combination; and our outstanding warrants and options, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of these obligations may place us at a competitive disadvantage in successfully negotiating a business combination. Our management believes, however, that our status as a public entity and potential access to the United States public equity markets may give us a competitive advantage over privately-held entities having a similar business objective as us in acquiring a target business with significant growth potential on favorable terms. If we succeed in effecting a business combination, there will be, in all likelihood, intense competition from competitors of the target business in the entertainment, media and communications industry. There is substantial competition in all aspects and segments of the entertainment, media and communications industry. Numerous companies, most of which have substantially greater financial resources available to them than we do, are already engaged in the industry segments we intend to focus on. We cannot assure you that, subsequent to a business combination, we will have the resources or ability to compete effectively. Facilities We maintain our executive offices at 101 East Kennedy Boulevard, Suite 3300, Tampa, Florida. The cost for this space is included in the $7,500 per-month fee CEA Group charges us for general and administrative services pursuant to a letter agreement between us and CEA Group. We believe, based The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. on rents and fees for similar services in the Tampa, Florida metropolitan area, that the fee charged by CEA Group is at least as favorable as we could have obtained from an unaffiliated person. We consider our current office space adequate for our current operations. Employees We have four executive officers and directors and one special advisor. These individuals are not obligated to contribute any specific number of hours per week and intend to devote only as much time as they deem necessary to our affairs. The amount of time they will devote in any time period will vary based on the availability of suitable target businesses to investigate, although we expect J. Patrick Michaels, Jr., our chairman of the board and chief executive officer, and Donald Russell, our vice chairman of the board, will each devote an average of approximately ten hours per week to our business. We do not intend to have any full time employees prior to the consummation of a business combination. Periodic Reporting and Audited Financial Statements We have registered our units, common stock and warrants under the Securities Exchange Act of 1934, as amended, and have reporting obligations, including the requirement that we file annual and quarterly reports with the SEC. In accordance with the requirements of the Securities Exchange Act of 1934, our annual reports will contain financial statements audited and reported on by our independent accountants. We will not acquire a target business if audited financial statements based on United States generally accepted accounting principles cannot be obtained for the target business. Additionally, our management will provide stockholders with audited financial statements, prepared in accordance with generally accepted accounting principles, of the prospective target business as part of the proxy solicitation materials sent to stockholders to assist them in assessing the target business. Our management believes that the requirement of having available audited financial statements for the target business will not materially limit the pool of potential target businesses available for acquisition. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Preliminary Prospectus Subject to Completion, February 9, 2004 PROSPECTUS $21,000,000 CEA ACQUISITION CORPORATION 3,500,000 units Escrow of offering proceeds $17,850,000 of the net offering proceeds will be deposited into a trust fund maintained by Continental Stock Transfer & Trust Company. $16,699,500 of the offering proceeds would be required to be deposited into either an escrow account with an insured depositary institution or in a separate bank account established by a broker-dealer in which the broker-dealer acts as trustee for persons having the beneficial interests in the account. Investment of net proceeds The $17,850,000 of net offering proceeds held in trust will only be invested in U.S. "government securities," defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less. Proceeds could be invested only in specified securities such as a money market fund meeting conditions of the Investment Company Act of 1940 or in securities that are direct obligations of, or obligations guaranteed as to principal or interest by, the United States. Limitation on Fair Value or Net Assets of Target Business The initial target business that we acquire must have a fair market value equal to at least 80% of our net assets at the time of such acquisition. We would be restricted from acquiring a target business unless the fair value of such business or net assets to be acquired represent at least 80% of the maximum offering proceeds. Trading of securities issued The units may commence trading on or promptly after the date of this prospectus. The common stock and warrants comprising the units will begin to trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital informs us of its decision to allow earlier separate trading, provided we have filed with the SEC a Current Report on Form 8-K, which includes an audited balance sheet reflecting our receipt of the proceeds of this offering, including any proceeds we receive from the exercise of the over-allotment option, if such option is exercised prior to the filing of the Form 8-K. No trading of the units or the underlying common stock and warrants would be permitted until the completion of a business combination. During this period, the securities would be held in the escrow or trust account. CEA Acquisition Corporation is a blank check company organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the entertainment, media and communications industry. This is an initial public offering of our securities. Each unit consists of: one share of our common stock; and two warrants. Each warrant entitles the holder to purchase one share of our common stock at a price of $5.00. Each warrant will become exercisable on the later of our completion of a business combination or , 2005 [one year from the date of this prospectus], and will expire on , 2008 [four years from the date of this prospectus], or earlier upon redemption. We have granted the underwriters a 45-day option to purchase up to 525,000 additional units solely to cover over-allotments, if any (over and above the 3,500,000 units referred to above). The over-allotment will be used only to cover the net syndicate short position resulting from the initial distribution. We have also agreed to sell to the representative of the underwriters, for $100, an option to purchase up to a total of 350,000 units at a per-unit offering price of $9.90. The units issuable upon exercise of this option are identical to those offered by this prospectus except that the warrants included in the option have an exercise price of $6.40 (128% of the exercise price of the warrants included in the units sold in the offering). The purchase option and its underlying securities have been registered under the registration statement of which this prospectus forms a part. There is presently no public market for our units, common stock or warrants. We anticipate that the units will be quoted on the OTC Bulletin Board under the symbol on or promptly after the date of this prospectus. Once the securities comprising the units begin separate trading, the common stock and warrants will be traded on the OTC Bulletin Board under the symbols and , respectively. Investing in our securities involves a high degree of risk. See "Risk Factors" beginning on page 6 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Public offering price Exercise of the warrants The warrants cannot be exercised until the later of the completion of a business combination or one year from the date of this prospectus, and, accordingly, will only be exercised after the trust fund has been terminated and distributed. The warrants could be exercised prior to the completion of a business combination, but securities received and cash paid in connection with the exercise would be deposited in the escrow or trust account. Election to remain an investor We will give our stockholders the opportunity to vote on the business combination. In connection with seeking stockholder approval, we will send each stockholder a proxy statement containing information required by the SEC. A stockholder following the procedures described in this prospectus is given the right to convert his or her shares into his or her pro rata share of the trust fund. However, a stockholder who does not follow these procedures or a stockholder who does not take any action would not be entitled to the return of any funds. A prospectus containing information required by the SEC would be sent to each investor. Each investor would be given the opportunity to notify the company, in writing, within a period of no less than 20 business days and no more than 45 business days from the effective date of the post-effective amendment, to decide whether he or she elects to remain a stockholder of the company or require the return of his or her investment. If the company has not received the notification by the end of the 45th business day, funds and interest or dividends, if any, held in the trust or escrow account would automatically be returned to the stockholder. Unless a sufficient number of investors elect to remain investors, all of the deposited funds in the escrow account must be returned to all investors and none of the securities will be issued. Business combination deadline A business combination must occur within 18 months after the consummation of this offering or within 24 months after the consummation of this offering if a letter of intent or definitive agreement relating to a prospective business combination was entered into prior to the end of the 18-month period. If an acquisition has not been consummated within 18 months after the effective date of the initial registration statement, funds held in the trust or escrow account would be returned to investors. Release of funds The proceeds held in the trust account will not be released until the earlier of the completion of a business combination or our liquidation upon failure to effect a business combination within the allotted time. The proceeds held in the escrow account would not be released until the earlier of the completion of a business combination or the failure to effect a business combination within the allotted time. Underwriting discount and commissions(1) J. Patrick Michaels, Jr. 59 Chairman of the Board and Chief Executive Officer Donald Russell 51 Vice Chairman Robert Moreyra 45 Executive Vice President and Director Brad A. Gordon 49 Chief Financial Officer and Director J. Patrick Michaels, Jr. has been our chairman of the board and chief executive officer since our inception. Mr. Michaels has been the chairman of the board and chief executive officer of Communications Equity Associates, LLC, an investment banking firm that provides investment and merchant banking services exclusively to the entertainment, media and communications industries, since he founded the firm in 1973. He is also a member of each Investment Committee for all of Communications Equity Associates' private equity funds. In July 2000, Mr. Michaels founded Atlantic American Corporate Group, LLC, the parent company of a number of private investment banking companies, and has been its chairman of the board and chief executive officer since its founding. Mr. Michaels has also been the chief executive officer of CEA Group, one of our initial stockholders and the entity that is providing us with general & administrative services, since August 1999. He received a B.S. from Tulane University, where he graduated magna cum laude, was a member of Phi Beta Kappa and Phi Beta Sigma and was also a Tulane Scholar and Tulane Fellow. In addition, Mr. Michaels studied at the London School of Economics and later received a M.A. from the Annenberg School of Communications at the University of Pennsylvania. He received the President's Medal from the University of South Florida and an American Broadcasting Corporation Fellowship from the University of Pennsylvania. He also holds an honorary master's degree from St. Leo College. Donald Russell has been our vice chairman of the board since our inception. Mr. Russell has been the chairman of the Investment Committee for CEA Capital Partners USA, L.P., a $150 million private equity fund, since its inception in February 1997. He also has been a member of the Investment Committee of Seaport Capital Partners II, L.P., a $250 million private equity fund, since its inception in February 2000. Both of these funds are focused on the entertainment, media, telecommunications and information services industries and are operated by Communications Equity Associates, LLC through its subsidiary, CEA Capital Advisors, LLC. From July 1987 to June 1994, he was president of Communications Equity Associates' New York affiliate, CEA, Inc., and was responsible for overseeing CEA's mergers, acquisitions and corporate financing businesses in the cable television and broadcasting segments. Mr. Russell received a B.A. in economics from Colgate University. He was also elected to the Society of International Business Fellows in 2000. Robert Moreyra has been our executive vice president since our inception. Mr. Moreyra has been a principal and executive vice president of Atlantic American Corporate Group since February 2001. Since February 2001, he also has been a managing director of Atlantic American Capital Advisors, LLC, an investment banking firm wholly owned by Atlantic American Corporate Group specializing in assisting small and mid-sized private and public companies. Mr. Moreyra has been a director of Digital Lightwave, Inc., a Nasdaq-listed public company that designs, develops and markets a portfolio of portable and network based products for installing, maintaining and monitoring fiber optic circuits and networks, since June 30, 2003. From February 2000 to February 2001, Mr. Moreyra was a managing director with H. C. Wainwright & Co., Inc., an investment banking firm. From May 1999 until February 2000, he was a managing director of the investment banking department of The First Proceeds, before expenses, to us American Investment Banking Corporation. From March 1998 until May 1999, he was vice president of corporate finance with William R. Hough & Co., an investment banking firm. He joined Pardue, Heid, Church, Smith & Waller, Inc., a real estate consulting firm, in February 1986 and was a principal and its chief executive officer from March 1992 until March 1998. Mr. Moreyra received a B.B.A in finance from the Florida International University and a M.B.A. from the University of Central Florida's graduate school of business. Brad A. Gordon has been our chief financial officer since our inception. Mr. Gordon has been chief financial officer of Communications Equity Associates since November 1981. He is also a founding member and has been an executive vice president of Atlantic American Capital Advisors since July 2000. He received a B.S. in business administration from the Tennessee Technological University. Our board of directors is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Brad Gordon, will expire at our first annual meeting of stockholders. The term of office of the second class of directors, consisting of Robert Moreyra, will expire at the second annual meeting. The term of office of the third class of directors, consisting of J. Patrick Michaels, Jr. and Donald Russell, will expire at the third annual meeting. Special Advisor Harold D. Ewen is our special advisor who will advise us concerning our acquisition of a target business. Since December 2002, Mr. Ewen has been the head of the private equity group of Communications Equity Associates. Mr. Ewen was president of Communications Equity Associates from July 1982 until December 1991 and was its vice chairman from December 1991 until December 2002. Mr. Ewen helped found Communications Equity Associates' private equity activity in 1992. He currently sits on the board of directors and Investment Committees of the Communications Equity Associates funds in the United States, Central Europe, Western Europe, Asia, Australia and Latin America. Mr. Ewen received a B.S. in business from Butler University and a J.D. (cum laude) from the Indiana University School of Law. Collectively, through their positions described above, our directors, officers and special advisor have collectively been involved in over 500 transactions within the entertainment, media and communications industry over the past 30 years valued at more than $25 billion. These individuals will play a key role in identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating its acquisition. None of these individuals has been a principal of a public company that executed a business plan similar to our business plan. However, the skills and expertise of these individuals, their collective access to acquisition opportunities and ideas, their contacts, and their transactional expertise may enable them to successfully identify and effect an acquisition. The sale of our securities under this prospectus is being made in compliance with the applicable provisions of Conduct Rule 2720 of the National Association of Securities Dealers, Inc. Under that rule, within twelve months of the consummation of this offering, we are required to establish an audit committee with certain functions that is composed of members of our board of directors (but excluding our chief financial officer) and elect one "public director" (defined generally under the rule as a director elected from the general public who is not an officer or employee of ours or our affiliates and is not the beneficial owner of more than five percent of our securities). Although we do not currently have an audit committee or a "public director" on our board of directors, our board will form an audit committee and seek and retain a "public director" within the twelve months following this offering. Per unit $6.00 $0.60 $5.40 Total $21,000,000 $2,100,000 $18,900,000 Executive Compensation No executive officer has received any cash compensation for services rendered. Commencing on the effective date of this prospectus through the acquisition of a target business, we will pay CEA Group, one of our initial stockholders and an entity ultimately owned by J. Patrick Michaels, Jr., a fee of $7,500 per month for providing us with office space and certain office and secretarial services. No other executive officer or director has a relationship with or interest in CEA Group. Other than this $7,500 per-month fee, no compensation of any kind, including finders and consulting fees, will be paid to any of our existing stockholders, or any of their respective affiliates, for services rendered prior to or in connection with a business combination. However, our existing stockholders will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than our board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged. Conflicts of Interest Potential investors should be aware of the following potential conflicts of interest: None of our officers and directors are required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating management time among various business activities. In the course of their other business activities, our officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to us as well as the other entities with which they are affiliated. They may have conflicts of interest in determining to which entity a particular business opportunity should be presented. Our officers and directors may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by us. Since our directors own shares of our common stock which will be released from escrow only if a business combination is successfully completed, our board may have a conflict of interest in determining whether a particular target business is appropriate to effect a business combination. The personal and financial interests of our directors and officers may influence their motivation in identifying and selecting a target business, completing a business combination timely and securing the release of their stock. In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if: the corporation could financially undertake the opportunity; the opportunity is within the corporation's line of business; and it would not be fair to the corporation and its stockholders for the opportunity not to be brought to the attention of the corporation. Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above mentioned conflicts will be resolved in our favor. In order to minimize potential conflicts of interest which may arise from multiple corporate affiliations, each of our officers and directors has agreed, until the earlier of a business combination, (1)Includes a non-accountable expense allowance in the amount of 3% of the gross proceeds, or $0.18 per unit ($630,000 in total) payable to EarlyBirdCapital, Inc. Of the net proceeds we receive from this offering, $17,850,000 ($5.10 per unit) will be deposited into trust with Continental Stock Transfer & Trust Company acting as trustee. We are offering the units for sale on a firm-commitment basis. EarlyBirdCapital, Inc., acting as representative of the underwriters, expects to deliver our securities to investors in the offering on or about , 2004. our liquidation or such time as he ceases to be an officer or director, to present to us for our consideration, prior to presentation to any other entity, any business opportunity which may reasonably be required to be presented to us under Delaware law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote their respective shares of common stock which were owned prior to this offering in accordance with the vote of the public stockholders owning a majority of the shares of our common stock sold in this offering. In addition, they have agreed to waive their respective rights to participate in any liquidation distribution but only with respect to those shares of common stock acquired by them prior to this offering. To further minimize potential conflicts of interest, we have agreed not to consummate a business combination with an entity which is affiliated with any of our existing stockholders unless we obtain an opinion from an independent investment banking firm that the business combination is fair to our stockholders from a financial point of view. EarlyBirdCapital, Inc. GunnAllen Financial, Inc. , 2004 (1)Unless otherwise indicated, the business address of each of the following is 101 East Kennedy Boulevard, Suite 3300, Tampa, Florida 33602. (2)J. Patrick Michaels, Jr. exercises voting power with respect to such shares as he is the chairman of the board and chief executive officer of CEA Group. (3)Represents 437,500 shares of common stock held by CEA Group of which Mr. Michaels is the chairman of the board and chief executive officer. Immediately after this offering, our existing stockholders, which includes all of our officers and directors, collectively, will beneficially own 20.0% of the then issued and outstanding shares of our common stock. Because of this ownership block, these stockholders may be able to effectively exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions other than approval of a business combination. All of the shares of our common stock outstanding prior to the date of this prospectus will be placed in escrow with Continental Stock Transfer & Trust Company, as escrow agent, until the earliest of: three years following the date of this prospectus; our liquidation; or the consummation of a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for Table Of Contents Page cash, securities or other property subsequent to our consummating a business combination with a target business. During the escrow period, the holders of these shares will not be able to sell their securities, but will retain all other rights as our stockholders, including, without limitation, the right to vote their shares of common stock and the right to receive cash dividends, if declared. If dividends are declared and payable in shares of common stock, such dividends will also be placed in escrow. If we are unable to effect a business combination and liquidate, none of our existing stockholders will receive any portion of the liquidation proceeds with respect to common stock owned by them prior to the date of this prospectus. J. Patrick Michaels, Jr. has agreed with EarlyBirdCapital that after this offering is completed and within the first forty trading days after separate trading of the warrants has commenced, he or certain of his affiliates or designees will collectively purchase up to 1,000,000 warrants in the public marketplace at prices not to exceed $0.65 per warrant. He has further agreed that any warrants purchased by him or his affiliates or designees will not be sold or transferred until after we have completed a business combination with a target business in the entertainment, media and communications industry. The warrants may trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital determines that an earlier date is acceptable. In no event will EarlyBirdCapital allow separate trading of the common stock and warrants until we file a Current Report on Form 8-K which includes an audited balance sheet reflecting our receipt of the proceeds of this offering including any proceeds we receive from the exercise of the over-allotment option if such option is exercised prior to our filing of the Form 8-K. Purchases of warrants demonstrate confidence in our ultimate ability to effect a business combination because the warrants will expire worthless if we are unable to consummate a business combination and are ultimately forced to liquidate. CEA Group, J. Patrick Michaels, Jr., Robert Moreyra, Donald Russell and Harold Ewen may be deemed to be our "parents" and "promoters," as these terms are defined under the Federal securities laws. CEA Group, LLC 375,000 10% Stockholder Donald Russell 150,000 Vice Chairman Robert Moreyra 112,500 Executive Vice President and Director Harold Ewen 75,000 Special Advisor Brad Gordon 37,500 Chief Financial Officer and Director In January 2004, our board of directors authorized a 1.1666666-to-one forward stock split of our common stock, effectively lowering the purchase price of $0.029 per share. The holders of the majority of these shares will be entitled to make up to two demands that we register these shares pursuant to an agreement to be signed prior to or on the date of this prospectus. The holders of the majority of these shares may elect to exercise these registration rights at any time after the date on which these shares of common stock are released from escrow. In addition, these stockholders have certain "piggy-back" registration rights on registration statements filed subsequent to the date on which these shares of common stock are released from escrow. We will bear the expenses incurred in connection with the filing of any such registration statements. CEA Group, one of our initial stockholders and an affiliate of J. Patrick Michaels, Jr., has agreed that, commencing on the effective date of this prospectus through the acquisition of a target business, it will make available to us a small amount of office space and certain office and secretarial services, as we may require from time to time. We have agreed to pay CEA Group $7,500 per month for these services. CEA Group has advanced $60,000 to us as of the date of this prospectus to cover expenses related to this offering. The loan will be payable without interest on the earlier of October 21, 2004 or the consummation of this offering. We intend to repay this loan from the proceeds of this offering. We will reimburse our officers and directors for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on our behalf such as identifying and investigating possible target businesses and business combinations. There is no limit on the amount of accountable out-of-pocket expenses reimbursable by us, which will be reviewed only by our board or a court of competent jurisdiction if such reimbursement is challenged. Other than the $7,500 per-month administrative fee and reimbursable out-of-pocket expenses payable to our officers and directors, no compensation or fees of any kind, including finders and consulting fees, will be paid to any of our existing stockholders, officers or directors who owned our common stock prior to this offering, or to any of their respective affiliates for services rendered to us prior to or with respect to the business combination. All ongoing and future transactions between us and any of our officers and directors or their respective affiliates, will be on terms believed by us to be no less favorable than are available from unaffiliated third parties and will require prior approval in each instance by a majority of the members of our board who do not have an interest in the transaction. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this prospectus. Description Of Securities General We are authorized to issue 20,000,000 shares of common stock, par value $.0001, and 1,000,000 shares of preferred stock, par value $.0001. As of the date of this prospectus, 875,000 shares of common stock are outstanding, held by five recordholders. No shares of preferred stock are currently outstanding. Units Each unit consists of one share of common stock and two warrants. Each warrant entitles the holder to purchase one share of common stock. The common stock and warrants will begin to trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital informs us of its decision to allow earlier separate trading, provided that in no event may the common stock and warrants be traded separately until we have filed with the SEC a Current Report on Form 8-K, which includes an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K which includes this audited balance sheet upon the consummation of this offering. The audited balance sheet will reflect proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock Our stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote their respective shares of common stock owned by them immediately prior to this offering in accordance with the vote of the public stockholders owning a majority of the shares of our outstanding common stock. This voting arrangement shall not apply to shares included in units purchased in this offering or purchased following this offering in the open market by any of our existing stockholders, officers and directors. Additionally, our existing stockholders, officers and directors will vote all of their shares in any manner they determine, in their sole discretion, with respect to any other items that come before a vote of our stockholders. We will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in this offering vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise conversion rights discussed below. Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. If we are forced to liquidate prior to a business combination, our public stockholders are entitled to share ratably in the trust fund, inclusive of any interest, and any net assets remaining available for distribution to them after payment of liabilities. Our existing stockholders have agreed to waive their rights to share in any distribution with respect to common stock owned by them prior to the offering if we are forced to liquidate. Our stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that public stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust fund if they vote against the business combination and the business combination is approved and completed. Public stockholders who convert their stock into their share of the trust fund still have the right to exercise the warrants that they received as part of the units. Preferred stock Our certificate of incorporation authorizes the issuance of 1,000,000 shares of a blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of preferred stock are being issued or registered in this offering. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of common stock, although the underwriting agreement prohibits us, prior to a business combination, from issuing preferred stock which participates in any manner in the proceeds of the trust fund, or which votes as a class with the common stock on a business combination. We may issue some or all of the preferred stock to effect a business combination. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future. Warrants No warrants are currently outstanding. Each warrant entitles the registered holder to purchase one share of our common stock at a price of $5.00 per share, subject to adjustment as discussed below, at any time commencing on the later of: the completion of a business combination; or one year from the date of this prospectus. The warrants will expire four years from the date of this prospectus at 5:00 p.m., New York City time. We may call the warrants for redemption, in whole and not in part, at a price of $.01 per warrant at any time after the warrants become exercisable, upon not less than 30 days' prior written notice of redemption to each warrantholder, and if, and only if, the reported last sale price of the common stock equals or exceeds $8.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrantholders. The warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. Reference is made to the warrant agreement, which has been filed as an exhibit to the registration statement of which this prospectus is a part, for a complete description of the terms and conditions applicable to the warrants. The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of common stock at a price below their respective exercise prices. The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us, for the number of warrants being exercised. The warrantholders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders. No warrants will be exercisable unless at the time of exercise a prospectus relating to common stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to meet these conditions and to maintain a current prospectus relating to common stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so. The warrants may be deprived of any value and the market for the warrants may be limited if the prospectus relating to the common stock issuable upon the exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the warrants reside. No fractional shares will be issued upon exercise of the warrants. However, if a warrantholder exercises all warrants then owned of record by him, we will pay to the warrantholder, in lieu of the issuance of any fractional share which is otherwise issuable to the warrantholder, an amount in cash based on the market value of the common stock on the last trading day prior to the exercise date. Purchase Option We have agreed to sell to the representative of the underwriters an option to purchase up to a total of 350,000 units at a per-unit price of $9.90. The units issuable upon exercise of this option are identical to those offered by this prospectus except that the warrants included in the option have an exercise price of $6.40 (128% of the exercise price of the warrants included in the units sold in the offering). For a more complete description of the purchase option, see the section below entitled "Underwriting Purchase Option." Dividends We have not paid any dividends on our common stock to date and do not intend to pay dividends prior to the completion of a business combination. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of a business combination. The payment of any dividends subsequent to a business combination will be within the discretion of our then board of directors. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future. Our Transfer Agent and Warrant Agent The transfer agent for our securities and warrant agent for our warrants is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004. Shares Eligible for Future Sale Immediately after this offering, we will have 4,375,000 shares of common stock outstanding, or 4,900,000 shares if the underwriters' over-allotment option is exercised in full. Of these shares, the 3,500,000 shares sold in this offering, or 4,025,000 shares if the over-allotment option is exercised, will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. All of the remaining 875,000 shares are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. None of those will be eligible for sale under Rule 144 prior to October 23, 2004. Notwithstanding this, all of those shares have been placed in escrow and will not be transferable for a period of three years from the date of this prospectus and will only be released prior to that date subject to certain limited exceptions. Rule 144 In general, under Rule 144 as currently in effect, a person who has beneficially owned restricted shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of either of the following: 1% of the number of shares of common stock then outstanding, which will equal 43,750 shares immediately after this offering (or 49,000 if the underwriters' exercise their over-allotment option); and the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Sales under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us. Rule 144(k) Under Rule 144(k), a person who is not deemed to have been one of our affiliates at the time of or at any time during the three months preceding a sale, and who has beneficially owned the restricted shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell their shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. SEC Position on Rule 144 Sales The Securities and Exchange Commission has taken the position that promoters or affiliates of a blank check company and their transferees, both before and after a business combination, would act as an "underwriter" under the Securities Act when reselling the securities of a blank check company. Accordingly, the Securities and Exchange Commission believes that those securities can be resold only through a registered offering and that Rule 144 would not be available for those resale transactions despite technical compliance with the requirements of Rule 144. Registration Rights The holders of our 875,000 issued and outstanding shares of common stock on the date of this prospectus will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of this offering. The holders of the majority of these shares are entitled to make up to two demands that we register these shares. The holders of the majority of these shares can elect to exercise these registration rights at any time after the date on which these shares of common stock are released from escrow. In addition, these stockholders have certain "piggy-back" registration rights on registration statements filed subsequent to the date on which these shares of common stock are released from escrow. We will bear the expenses incurred in connection with the filing of any such registration statements. A copy of the underwriting agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part. State Blue Sky Information We will offer and sell the units to retail customers only in Delaware, Florida, Hawaii, Illinois, Maryland, New York and Rhode Island. In New York and Hawaii, we have relied on exemptions from the state registration requirements for transactions between an issuer and an underwriter involving a firm-commitment underwritten offering. In the other states, we have applied to have the units registered for sale and will not sell the units in these states until such registration is effective. We also believe that the units, from and after the effective date, and the common stock and warrants comprising the units, once they become separately transferable, will be eligible for sale on a secondary market basis in each of the following states based upon the registration of the units, common stock and warrants in those states or the availability of an applicable exemption from the state's registration requirements: immediately in Alabama, Colorado, Delaware, Florida, Georgia, Illinois, Kentucky, Maryland, New York, Pennsylvania, Rhode Island and Wisconsin; commencing 90 days from the date of this prospectus in the District of Columbia, Iowa, Maine, Missouri, Nevada, New Mexico; and commencing 180 days from the date of this prospectus in Massachusetts. Additionally, the units, from and after the effective date, and the common stock and warrants comprising the units, once they become separately transferable, will be eligible for sale on a secondary market basis in certain states based on exemptions from such states' registration requirements as a result of the National Securities Markets Improvement Act of 1996. The National Securities Markets Improvement Act exempts from state registration requirements certain secondary market trading transactions for issuers that file periodic and annual reports under the Securities Exchange Act of 1934. However, under the act, the states are able to continue to require notice filings and collect fees with regard to these transactions. As of the date of this prospectus, we have not determined which states we will submit the required notice filing and applicable fee to in order to take advantage of this exemption. We will amend this prospectus for the purpose of disclosing additional states, if any, in which our securities will be eligible for resale in the secondary trading market. If you are not an institutional investor, you may purchase our securities in this offering or in any subsequent trading market which may develop, only in the jurisdictions described above. Institutional investors in every state except in Idaho and South Dakota may purchase the units in this offering and in the secondary market pursuant to exemptions provided to such entities under the Blue Sky laws of various states. The definition of an "institutional investor" varies from state to state but generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. Pricing of Securities We have been advised by the representative that the underwriters propose to offer the units to the public at the initial offering price set forth on the cover page of this prospectus. They may allow some dealers concessions not in excess of $ per unit and the dealers may reallow a concession not in excess of $ per unit to other dealers. Prior to this offering there has been no public market for any of our securities. The public offering price of the units and the terms of the warrants were negotiated between us and the representative. Factors considered in determining the prices and terms of the units, including the common stock and warrants underlying the units, include: the history and prospects of companies whose principal business is the acquisition of other companies; prior offerings of those companies; our prospects for acquiring an operating business at attractive values; our capital structure; an assessment of our management and their experience in identifying operating companies in the entertainment, media and communications industry; general conditions of the securities markets at the time of the offering; and other factors as were deemed relevant. However, although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry since the underwriters are unable to compare our financial results and prospects with those of public companies operating in the same industry. Over-Allotment Option We have also granted to the underwriters an option, exercisable during the 45-day period commencing on the date of this prospectus, to purchase from us at the offering price, less underwriting discounts and the non-accountable expense allowance, up to an aggregate of 525,000 additional units for the sole purpose of covering over-allotments, if any. The over- allotment option will only be used to cover the net syndicate short position resulting from the initial distribution. The underwriters may exercise that option if the underwriters sell more units than the total number set forth in the table above. If any units underlying the option are purchased, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
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+You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. In this prospectus, the terms we , us , our company , our and Telewest refer to Telewest Global, Inc. and its subsidiaries as a combined entity, except where the context requires otherwise. The term Telewest Communications refers to Telewest Communications plc and its subsidiaries as a combined entity, except where the context requires otherwise. Telewest Jersey refers to Telewest Finance (Jersey) Limited, a wholly owned subsidiary of Telewest Communications; Telewest UK refers to Telewest UK Limited, a wholly owned subsidiary of Telewest. TCN refers to Telewest Communications Networks Limited, an indirectly wholly owned subsidiary of Telewest. Table of Contents SUMMARY This summary highlights selected information from this prospectus and may not contain all of the information that is important to you. You should carefully read this entire prospectus, including any appendices and the other documents that are referred to in this prospectus. Telewest Global, Inc. We were incorporated in the US state of Delaware on November 12, 2003 as a wholly owned subsidiary of Telewest Communications. As a result of the financial restructuring of Telewest Communications, on July 14, 2004 we became the holding company for the operating companies that previously had carried on the business of Telewest Communications. Our principal executive offices are located at 160 Great Portland Street, London W1W 5QA, United Kingdom. Our telephone number is (+44) 20 7299 5000. Our Business We are a leading broadband communications and media group in the United Kingdom. Our business is divided into two main reporting segments: cable and content. The cable segment is further subdivided into a consumer sales division and a business sales division. The consumer sales division provides cable television, cable telephony and internet access services to residential customers. Our business sales division focuses on a wide range of voice, data and managed solutions services for businesses. Our content segment supplies basic television channels and related services to the UK pay-television broadcasting market. Our business includes a broadband, local access broadcasting network covering approximately 4.7 million homes. Our network consists of local distribution networks, our national network and an internet protocol, or IP, services platform which allow us to handle the voice, video and data needs of our customers. Our broadband, local access network and architecture provide us with high-speed interconnection and true two-way interactivity with directly connected residential and business customers. We have connected approximately 1.7 million residential subscribers, including cable television, telephony and internet services customers. In addition, as at March 31, 2004, we provided business telephony services to approximately 67,000 business customer accounts. A growing and strategically significant part of our business is blueyonder broadband, a high-speed internet service which we launched in March 2000. As at March 31, 2004, we had approximately 465,000 blueyonder subscribers, approximately 71% of whom also subscribed to both our telephony and cable television services and 94% of whom subscribed to at least one of our residential telephony or cable television services. In June 2002, we introduced a 1Mb internet service to complement the existing 512Kb internet service. Approximately 8% of Telewest s broadband customers subscribed to our 1Mb service at March 31, 2004. The 1Mb service allows for the faster downloading of software, the sharing of large files and enhanced full-screen video and audio streaming. We subsequently launched a 2Mb blueyonder broadband internet service on May 12, 2003, and approximately 8,000 subscribers had subscribed to the 2Mb service as of March 31, 2004. The 2Mb service is approximately 40 times faster than traditional dial-up internet services and two times faster than the fastest consumer services offered by AOL, Wanadoo (formerly Freeserve) and BT (1Mb). In order to strengthen our current position in the broadband internet market, we recently launched a 256Kb service, which we expect will broaden the range of customers we attract. In addition, in May 2004, we announced that we increased the speed of each of our 512Kb, 1Mb and 2Mb blueyonder broadband products by approximately 50%, to 750Kb, 1.5Mb and 3Mb, respectively. These upgrades are available to new and existing subscribers and do not involve any price increase. Flextech, our content segment, which has four pay-television channels and one free to air channel, owns 50% of UKTV, a joint venture formed with BBC Worldwide. UKTV offers a portfolio of multi-channel television channels based on the BBC s program library. Flextech, together with UKTV, is the largest provider of basic (non-premium) thematic channels to the UK multi-channel television broadcasting market, measured by viewing share, reaching approximately 10.4 million pay multi-channel television subscriber homes. Operating (loss)/profit (178 ) (359 ) (1,121 ) (2,440 ) 20 36 2 19 35 Other (expense)/income, net (50 ) (17 ) (203 ) 151 301 554 (41 ) 86 159 Interest expense (including amortization of debt discount)(4) (313 ) (385 ) (487 ) (528 ) (488 ) (898 ) (125 ) (109 ) (201 ) Tax benefit/(expense) 6 70 28 (16 ) (29 ) Operating (loss)/profit (178 ) (359 ) (1,121 ) (2,440 ) 20 $ 36 2 19 $ 35 Other income/(expenses) Interest income 7 15 15 19 24 44 6 7 13 Interest expense (including amortization of debt discount)(6) (313 ) (385 ) (487 ) (528 ) (488 ) (897 ) (125 ) (109 ) (201 ) Foreign exchange (losses)/gains, net (49 ) (15 ) 213 268 493 (48 ) 77 142 Share of net (losses)/profits of affiliates and impairment(5) (6 ) (15 ) (216 ) (118 ) 1 2 2 3 6 Minority interest in losses/(profits) of subsidiaries, net (1 ) 1 1 1 Other, net (1 ) (3 ) (3 ) 36 8 14 (1 ) (1 ) (2 ) Tax benefit/(expense) 6 70 28 (16 ) (29 ) (in millions) Other income/(expense) Interest income 6 7 16.7 % Interest expense (including amortization of debt discount) (125 ) (109 ) (12.8 %) Foreign exchange (losses)/gains, net (48 ) 77 Share of net profits of affiliates 2 3 50.0 % Other, net (1 ) (1 ) Tax benefit SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Strategy During 2002, Telewest Communications conducted an operational review, leading to the adoption of the current long-range plan in December 2002. This plan reflects a shift in operational focus from subscriber acquisition to increasing average revenue per user and decreasing churn. This plan focuses on acquiring profitable customers and controlling costs, and reflects the constraints on the capital available to Telewest Communications that existed while its financial restructuring was in progress. Our aim is to be the leading broadband communications group in the United Kingdom, measured by free cash flow, customer service and broadband deployment. Accordingly, our focus and strategy under the current long-range plan are: in the consumer sales division, to be the broadband leader in the geographic areas in which we operate and to use that broadband leadership to drive the triple play penetration of high-speed internet bundled with television and telephony; in the business sales division, to focus on profitable small-to-medium-sized enterprise, or SME, customers and to continue to build a profitable data-led business in the larger corporate and public sector; in the content segment, to become a significant force in multi-channel television by leveraging our relationship with the BBC, through UKTV, and by targeting niche markets with our wholly owned channels and UKTV channels; and to make the most of our existing capital investment by exploiting previous investments in network efficiency, rather than network expansion or investment in new product development, and to maximize the capital efficiency of our network by, among other things, ensuring appropriate recovery and reuse of customer premises equipment. We aim to reduce our operating cost base through a more selective customer acquisition approach, new customer self-service initiatives and a continued focus on the efficiency of network maintenance and corporate expenditure. A strong focus on cash and cost control is intended to speed growth in positive free cash flow, which will now be significantly aided by the completion of the financial restructuring. In light of the successful completion of Telewest Communications financial restructuring, it is likely that our board of directors will, upon further consideration, revise or replace our current long-range plan. The Financial Restructuring Telewest Communications incurred substantial operating and net losses and substantial borrowings prior to its financial restructuring, principally to fund the capital costs of its network construction, operations and the acquisition of UK cable assets. In the first half of 2002, a series of circumstances, including the well-publicized downturn in the telecommunications, media and technology sector, increasingly tight capital markets, and the downgrading of Telewest Communications corporate credit ratings, severely limited Telewest Communications access to financing and consequently impaired its ability to service its debt and refinance its existing debt obligations. In April 2002, Telewest Communications began exploring a number of options to address its funding requirements, and subsequently began discussions with, among others, an ad hoc committee of its noteholders, its senior lenders and other creditors. After extensive negotiations with these creditors, the terms, conditions and structure of a financial restructuring were substantially agreed between these creditors and certain major shareholders at the time. The financial restructuring received the approval of Telewest Communications creditors on June 1, 2004 and became effective on July 15, 2004. It is anticipated that the key remaining steps of the financial restructuring, the distribution of 245,000,000 shares of our common stock to creditors and shareholders of Telewest Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Communications and Telewest Jersey and the quotation of that stock on the Nasdaq National Market, will be completed on or after July 19, 2004. Among other things, the financial restructuring resulted in: the reorganization of Telewest Communications business under Telewest; the cancellation of all of the outstanding notes and debentures of Telewest Communications and its finance subsidiary, Telewest Jersey, in return for the distribution of 98.5% of our common stock, and the distribution of the remaining 1.5% of our common stock to Telewest Communications shareholders, in accordance with English and Jersey schemes of arrangement involving certain creditors of Telewest Communications and Telewest Jersey. This reduced the total outstanding indebtedness of the business by approximately 3.8 billion to approximately 2.0 billion and will significantly reduce interest expense; the entry into an amended senior secured credit facility; and the cessation of dealings in Telewest Communications shares on the London Stock Exchange and Telewest Communications ADRs on the Nasdaq National Market. Telewest Communications and its wholly owned finance subsidiary, Telewest Jersey, are expected to be placed in solvent liquidation by their respective shareholders as soon as practicable. (in millions) Content Segment Subscription revenue 9 10 11.1 % Advertising revenue 11 13 18.2 % Other revenue 7 Number of paying homes receiving Telewest programming 8.6 9.2 7.0 % Share of the net profits of UKTV 6 TELEWEST GLOBAL, INC. (Exact name of Registrant as specified in its charter) Delaware 4813, 4841 59-3778247 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification No.) Table of Contents
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+This summary highlights information contained in this prospectus. Before deciding to invest in our ordinary shares, you should carefully read this entire prospectus, including the section entitled
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+PROSPECTUS SUMMARY Linktone Ltd. You should read the following summary together with the more detailed information and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. Unless otherwise indicated, information contained in this prospectus assumes that the underwriters will not exercise their option to purchase additional ADSs in this offering. In addition, unless the context otherwise requires, references in this prospectus to Linktone or to we, us or our, or any like terms, are to Linktone Ltd. and its subsidiaries and affiliates. References to China are to the People s Republic of China, and references to provinces of China are to the provinces and autonomous regions of China. All references to RMB or Renminbi are to the legal currency of China and all references to U.S. dollars or $ are to the legal currency of the United States. Our Business We provide entertainment-oriented wireless value-added services to mobile phone users in China. We specialize in the development, aggregation, marketing and distribution of consumer wireless content and applications for access by China s estimated 268.7 million mobile phone users. Our services are offered through China Mobile Communications Corporation, or China Mobile, and China United Telecommunications Corporation, or China Unicom. China Mobile and China Unicom, the two mobile network operators in China, are owned by the Chinese government and have publicly listed subsidiaries. We have rapidly grown our user base to approximately 5.6 million active users for the month of December 2003, representing a 72.9% increase over the approximately 3.2 million active users for the month of June 2003. Active users are customers who use one of our services at least once in a month. We offer a diverse portfolio of popular, fee-based short messaging services, or SMS, distributed on the second generation mobile technology platform, or 2G. Our services include ringtones, icons and screen savers, interactive SMS messaging in certain television programs, adventure, action and trivia games, lunar and Western horoscopes, topical updates on lifestyle trends, or POP Messaging, jokes, fan clubs, event-driven or entertainment news updates and a virtual mobile amusement park. We recently began offering services on the more advanced 2G technology platform, known as 2.5G, which include multimedia messaging services, or MMS, such as animated cartoons and comic strips, wireless application protocol services, or WAP, such as WAP-based games, and advanced JAVA games. We also offer audio-related services such as ringback, which replaces the common ring-ring sound heard by callers with high quality music and sound effects, and our voice entertainment services, which allow users to send songs, jokes and stories with personal messages to their mobile phones or to the mobile phones of their friends or others. Leveraging our experience and thorough understanding of the wireless value-added services market in China, our internal team of innovative product developers has consistently developed content, applications and technologies which are popular in the Chinese wireless market. To further enhance and differentiate our services, we have entered into, and will continue to actively pursue, collaborative relationships with domestic and international media companies to customize, localize, market and distribute their content through various wireless technology platforms to Chinese consumers. In addition, all of our services are promoted by our highly localized sales force strategically located in 24 of China s 32 provinces and municipalities and is supported by our award-winning customer service team. Users can purchase our services on a per use basis and, in most cases, on a subscription basis. Under our contracts with the mobile operators, which generally have a term of one or two years, we receive a portion of the revenue paid by the user to the mobile operators and rely on the operators to bill and collect all fees. We have contracts with each of the mobile operators at the national, provincial and local level, each of which covers a specific geographic area and/or type of service without overlap. We typically receive 85% of the gross revenue in the case of China Mobile and 88% in the case of China Unicom, less network fees payable to China Mobile, and to China Unicom affiliates in two provinces. Network fees are payable for Table of Contents services provided to the extent the number of messages sent by us over the mobile networks exceeds the number of messages our customers sent to us. In 2003, these network fees totaled approximately 48.1% of the total fees paid by us to the mobile operators. For 2003, we generated $16.6 million in gross revenues, compared to $4.3 million for 2002, representing an increase of 285.3%. We also generated $3.6 million in net income for 2003, compared to a net loss of $0.5 million for 2002. To date, we have derived virtually all of our revenues from SMS-based services. We incurred significant net losses until the first quarter of 2003. While our revenue has grown in recent quarters primarily as a result of the continued increase in sales of our SMS-based services, which was in turn largely due to an overall increase in the size of the market, we cannot be certain that either of these trends will continue. As of December 31, 2003, our accumulated deficit was $0.9 million. Market Opportunity Wireless telephony has become an increasingly important medium of communication in China. According to the Ministry of Information Industries of the People s Republic of China, or the Ministry of Information Industries, the number of mobile subscribers in China increased from 43.4 million as of December 31, 1999 to 268.7 million as of December 31, 2003, representing a growth rate of 519.1% through December 31, 2003. According to ASIAcom, a business newsletter focusing on the telecom industry, as of June 30, 2003, China s wireless penetration rate of 20.9% remained relatively low in comparison to other Asian wireless markets such as Japan, South Korea and Hong Kong, which have penetration rates of 61.8%, 68.3% and 91.1%, respectively. Pyramid Research, an independent research agency, estimates that the number of mobile subscribers in China will reach 394.6 million by December 31, 2005, representing a penetration rate (i.e., the number of subscribers divided by the estimated population of China) of 30.0% as of December 31, 2005. In addition, the market for wireless value-added services in China has expanded significantly and is expected to continue to grow at a fast pace. Norson Telecom Consulting, an independent research agency, estimates that total wireless value-added services revenue in China will grow from RMB1.0 billion ($120.8 million) in 2001 to RMB15.0 billion ($1.8 billion) in 2003 and to RMB26.0 billion ($3.1 billion) in 2004. Despite such growth, Norson Telecom Consulting estimates that total revenue gained from wireless value-added services accounted only for 3.5% of total wireless revenue in China in 2002. This is a significantly lower percentage than that experienced by operators in other markets with progressive wireless value-added services businesses such as NTT DoCoMo, Inc., or NTT DoCoMo, in Japan with approximately 21.0% of revenue from wireless value-added services in 2002, SK Telecom Co., Inc., or SK Telecom, in Korea with approximately 8.5% of revenue from wireless value-added services in 2002, and Vodafone Group PLC, or Vodafone, in Europe with approximately 11.9% of revenue from wireless value-added services in 2002. We believe that SMS services continue to represent the vast majority of the wireless value-added services market in China. According to Norson Telecom Consulting, approximately 90.0 billion SMS messages were sent in China for 2002, and 180.0 billion SMS messages were expected for 2003. This market is increasingly shifting towards next generation technologies, with mobile operators upgrading their networks to general packet-switched radio service, or GPRS, and code division multiple access 1x RTT, or CDMA 1x RTT, systems and users upgrading to next generation handsets that can operate with technologies such as MMS and WAP. The mobile operators, China Mobile and China Unicom, have recognized this opportunity and are collaborating with select service providers, including us, to further develop 2.5G applications and services. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Our Strengths and Challenges Our competitive strengths include: Wireless Focus and Expertise. We focus exclusively on offering entertainment-oriented wireless value-added services in China, the largest mobile phone market in the world as measured by the total number of subscribers. Diversified Services Portfolio. We offer a diversified portfolio of high quality, SMS-based wireless value-added services. We have also launched numerous next-generation MMS, WAP, JAVA and audio-related services. Strong Sales Capabilities and Operator Relationships. We have well-established relationships with China Mobile and China Unicom. We believe our on-the-ground sales force enhances our relationships with the mobile operators at the provincial and local level, where pricing and important marketing, product placement and operational decisions are made. Powerful Product Development Capabilities and Technology Platform. We have a 64-member product development team focused exclusively on developing, aggregating, customizing and localizing content and applications for the Chinese wireless market. Superior Customer Understanding and Service. We have a dedicated customer research department that enhances our understanding of consumer preferences and focuses our product offerings and marketing initiatives. In addition, we operate customer service centers which seek to maintain the fastest response times and highest customer satisfaction levels in the industry. Proven Ability to Establish and Maintain Collaborative Relationships with Leading Content Providers. Our content is developed both in-house and aggregated from domestic and international providers, and we have licensing arrangements with leading international media companies such as Sony Music, STAR TV and Turner Broadcasting/ Cartoon Network. Experienced Management Team. We have an experienced management team which combines both local and international expertise working with technology and growth companies. Notwithstanding these strengths, we expect to face significant challenges in our business, including: Dependence on Mobile Operators. We depend on the two mobile phone operators in China for delivery of our services, maintenance of accurate records, and billing of, and collection from, mobile phone users of fees for our services. Further, as a result of the way in which China Mobile and China Unicom report our revenues to us, we are not currently able to definitively calculate and monitor service-by-service revenue, and also as a result cannot definitively determine which of our services are or may be profitable. Rapidly Evolving Industry. We have operated in the wireless value-added services industry for more than four years, and during that time, the industry has evolved rapidly. We cannot assure you that we will maintain or increase our current share of the highly competitive market in which we operate. Dependence on Third Party Content and Technology. We increasingly obtain much of our content, including wireless games, logos, music, news and other information, from third parties. Furthermore, we expect that we will license technology in connection with our development of next generation services such as MMS and JAVA. Intense Competition. The Chinese market for wireless value-added services is intensely competitive, with more than 800 service providers as of November 28, 2003. There are low barriers to entry to the wireless value-added services market. Several of our competitors have longer operating histories in China, greater name and brand recognition, larger customer bases and databases, significantly greater financial, technological and marketing resources and superior access to original content than we have. Dependence on Contractual Arrangements. Because we are restricted by the Chinese government from wholly owning telecommunications or Internet operations in China, we depend on Shanghai (in millions) (in thousands) India 1,055 $ 543 18,297 1.7 % Indonesia 220 997 16,480 7.5 % Brazil 175 2,780 37,957 21.7 % Philippines 81 885 20,169 24.8 % United States 282 37,620 159,041 56.5 % Japan 127 34,410 78,594 61.8 % South Korea 49 10,660 33,274 68.3 % Germany 82 28,710 59,644 72.9 % United Kingdom 60 29,240 50,218 84.1 % Hong Kong 7 23,320 6,754 91.1 % Singapore Pre-Effective Amendment No. 3 to Form F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Weilan Computer Co., Ltd., or Shanghai Weilan, and Shanghai Unilink Computer Co., Ltd., or Shanghai Unilink, in which we have no direct ownership interest, to provide those services through contractual agreements with the mobile operators. Difficulty of Predicting Future Consumer Acceptance and Demand. We are currently focused on developing SMS-based services and establishing a wide range of wireless value-added services using 2.5G technologies. There can be no assurance that these 2.5G technologies and any services compatible with them will be accepted by consumers or promoted by mobile operators. Accordingly, it is extremely difficult to accurately predict consumer acceptance and demand for various existing and potential new offerings and services, and the future size, composition and growth of this market. Uncertain China Legal and Regulatory Environment. The telecommunication laws and regulations in China are evolving and subject to interpretation and will likely change in the near future. The regulation of Internet Web site operators is also unclear in China, and our business could be adversely affected if we are deemed to have violated applicable laws and regulations. The uncertain legal environment in China could limit the legal protections available to foreign investors. Our Strategy Our objective is to maintain and strengthen our position as an innovative provider of entertainment-oriented wireless value-added services in China. Key strategies for achieving our goal are to: Continue to expand and diversify our portfolio of consumer wireless services, including new SMS, 2.5G and other next generation services such as those compatible with 3G, primarily through in-house development of content and technology, and aggregation, customization and localization of third party content and technology, Continue to build collaborative relationships with domestic and international media companies, primarily by promoting the success of our services and the size of the user base of our services to desirable content providers, to improve the quality of presentation and substantive content of our services, and enter into a sufficient number of these relationships so that we are positioned as the premier channel for these companies to reach China s wireless market, Increase investment in sales, marketing and branding, both in conjunction with the mobile operators and through independent activities, in order to promote customer awareness and recognition of Linktone as a leading wireless service provider in China, Continue to strengthen our relationships with China Mobile and China Unicom by increasing our sales presence at the national, provincial and local levels and through joint marketing and promotion activities, Increase average revenue per user by migrating users from SMS-related services to premium content, predominantly monthly subscription-based, 2.5G services primarily through promotion of the superior content and functions those services offer, Deepen penetration of our consumer wireless value-added services in less-developed provincial markets in central and western China through expansion of our sales force at the provincial and local levels, Expand our marketing channels by continuing to develop integrated marketing campaigns with traditional media companies and multinational corporations, and Target suitable acquisitions of companies that would allow us to increase our market share in China and to strategically complement our core wireless services business. Our Operating History and Corporate Structure We commenced operations as a business division of Intrinsic China Technology Ltd., which was incorporated in the Cayman Islands in November 1999. Intrinsic China Technology Ltd. focused primarily on Linktone Ltd. (Exact Name of Registrant as Specified in its Charter) Table of Contents developing wireless data software and wireless value-added services. In April 2001, our affiliated business division which focused on wireless data software was spun off to form a newly established holding company, Intrinsic Technology (Holdings) Ltd., or Intrinsic Technology, and our company was renamed Linktone Ltd. Due to the significance of the spun-off division relative to that of our company, the transaction was accounted for as a reverse spin-off, with our company as the spinnee for accounting purposes. We conduct our business in China solely through our wholly owned subsidiaries, Shanghai Linktone Consulting Co., Ltd., or Linktone Consulting, and Shanghai Huitong Information Co., Ltd., or Shanghai Huitong. In order to meet ownership requirements under Chinese law which restrict us, as a foreign company, from operating in certain industries such as value-added telecommunication and Internet services, we have established two Chinese companies: Shanghai Weilan, which is owned 50.0% by each of two of our shareholders, Ankai Hu and Dong Li, and Shanghai Unilink, which is 90.0% owned by Shanghai Weilan, 5.0% owned by our chief executive officer, Raymond Lei Yang, and 5.0% owned by our financial controller, Simon Minsheng Du. Pursuant to powers of attorney, Raymond Lei Yang and Mark Begert, our chief financial officer, have the power to vote on behalf of Shanghai Weilan s and Shanghai Unilink s shareholders, respectively, on all matters with respect to Shanghai Weilan and Shanghai Unilink, respectively. We hold no ownership interest in Shanghai Weilan or Shanghai Unilink. Shanghai Weilan is a party to all of our contracts with China Mobile and China Unicom. Shanghai Unilink will assume Shanghai Weilan s contracts with China Unicom. The following diagram shows the group structure of our subsidiaries and affiliated companies: Regarding contracts with our affiliates, Linktone Consulting only has contractual arrangements with Shanghai Weilan, and Shanghai Huitong only has contractual arrangements with Shanghai Unilink. Our Offices and Other Corporate Information Our principal executive offices are located at Harbour Ring Plaza, 6th Floor, 18 Xizang Zhong Road, Shanghai, 200001, People s Republic of China, and our telephone number is (86 21) 5385 3800. Our Internet addresses are www.linktone.com, www.linktone.com.cn, www.lt2000.com.cn, www.ul9000.com.cn, wap.linktone.com and wap.linktone.com.cn. The information on our Web sites is not a part of this prospectus. Cash flow from operating activities Net income/(loss) $ (1,805,247 ) $ (535,953 ) $ 3,616,083 Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Stock compensation costs 1,119,529 Depreciation 81,038 85,235 90,856 Provision for bad debts 161,478 Changes in assets and liabilities: Accounts receivable 127,048 (119,927 ) (2,690,310 ) Deposits and other receivables 11,638 (5,938 ) (429,087 ) Tax payable 128,048 154,055 704,645 Accrued liabilities and other payables 373,467 216,203 307,552 Due to related parties 96,987 (83,200 ) Cayman Islands 7374 Not Applicable (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) Harbour Ring Plaza, 6th Floor 18 Xizang Zhong Road Shanghai, People s Republic of China 200001 (86-21) 5385-3800 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents This Offering American Depositary Shares offered: By us: U.S. offering ADSs International offering ADSs Total: 5,150,000 ADSs By the selling shareholders: U.S. offering ADSs International offering ADSs Total: 990,000 ADSs The ADSs Each ADS represents ten ordinary shares, par value $0.0001 per share. The ADSs will be evidenced by American Depositary Receipts. As an ADR holder, we will not treat you as one of our shareholders. The depositary, The Bank of New York, will be the holder of the shares underlying your ADRs. You will have ADR holder rights as provided in the deposit agreement. Under the deposit agreement, you may instruct the depositary to vote the shares underlying your ADRs but only if we ask the depositary to ask for your instructions. The depositary will pay you the cash dividends or other distributions it receives on shares after deducting its fees and expenses. You must pay a fee for each issuance or cancellation of an ADS, distribution of securities by the depositary or some other depositary service. You may turn in your ADRs at the depositary s office and after payment of some fees and expenses, the depositary will deliver the deliverable shares underlying your ADRs to you. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled Description of American Depositary Shares. We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. Ordinary shares outstanding after the offering 250,129,200 ordinary shares (or 256,129,200 ordinary shares if the underwriters exercise the over-allotment option in full). Proposed Nasdaq National Market symbol LTON Use of proceeds For general corporate purposes, including working capital, for the expansion of our operations in China and for technology and next generation service research and development. In addition, we may use a portion of the net proceeds to acquire or invest in businesses, technologies, services or products which are complementary to our core wireless value-added services business. Specifically, we anticipate making approximately $1.4 million in capital expenditures in 2004 for software and technology infrastructure products and other items related to the expansion of our business such as computers and office furniture. We also anticipate spending approximately US$5.0 million for research and development. We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders. Dividend policy We do not anticipate paying any cash dividends in the foreseeable future. Assets Current assets: Cash and cash equivalents $ 2,375,776 $ 3,036,065 $ 5,612,893 $ 5,612,893 Accounts receivable, net 443,860 563,787 3,092,619 3,092,619 Deposits and other receivables CT Corporation System 111 Eighth Avenue New York, NY 10011 (212) 894-8940 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Directed Share Program At our request, the underwriters have reserved at the initial public offering price up to 5% of the ADSs for sale to certain of our business associates and friends and family of employees and directors of our company who have expressed an interest in purchasing our ADSs in this offering.
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. You should read this summary together with the more detailed information that is contained in this prospectus. On May 6, 2004, we changed our name from Tabletop Holdings, Inc. to Merisant Worldwide, Inc. Unless otherwise indicated or the context requires otherwise, all references in this prospectus to "Merisant Worldwide," "our company," "we," "us," "our," or similar references mean Merisant Worldwide, Inc. and its consolidated subsidiaries. All references to "Merisant" mean Merisant Company, Merisant Worldwide's wholly-owned subsidiary. Our Company Overview We are the worldwide leader in the marketing of low calorie tabletop sweeteners, with an estimated 30% share of a growing global retail market which we estimate at $1.3 billion. We believe that we have the leading market share in 11 of the top 20 countries for low calorie tabletop sweetener sales. Our brands, including our premium-priced brands Equal and Canderel , are sold in over 85 countries and are among the most recognized low calorie tabletop sweetener products in the world, with brand awareness estimated at or above 85% in each of their respective key markets. The strength of our leading brands is evidenced by price premiums relative to most of our competitors. We have a global infrastructure, including manufacturing operations whose principal activity is to blend and package our products. For the year ended December 31, 2003, we generated net sales of $352.3 million and a net loss of $17.6 million. We generated income before income taxes of $2.0 million for the year ended December 31, 2003. For the six months ended June 30, 2004, we generated net sales of $167.9 million and a net loss of $5.2 million. We generated a loss before income taxes of $3.1 million for the six months ended June 30, 2004. Our strong margins and low capital expenditures help us generate significant cash flows. Cash flow from operating activities was $68.4 million and $55.9 million for the years ended December 31, 2003 and 2002, respectively, and $20.9 million and $23.3 million for the six months ended June 30, 2004 and 2003, respectively. Bank EBITDA was $110.2 million and $115.6 million for the years ended December 31, 2003 and 2002, respectively, and $38.0 million and $46.5 million for six months ended June 30, 2004 and 2003, respectively. For a reconciliation of Bank EBITDA to cash flow from operating activities, see "Selected Consolidated Financial Data" on page 67 of this prospectus. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Our typical customer tends to be female, over 35 years of age and either a member of a diabetic household or a dieter. Our core customer base is growing as a result of an increased level of health consciousness and product awareness among consumers, as well as an aging population and an increased number of diabetics and persons who are glucose intolerant. We believe that these demographic trends have been primarily responsible for growth in the low calorie tabletop sweetener industry. We estimate that total sales of low calorie tabletop sweeteners have grown by 16% from 2002 to 2003. This growth has been accompanied by increased competition within the industry. According to LMC International Ltd, or LMC, global demand for low calorie tabletop sweeteners grew at a CAGR of 3% between 1990 and 2000 to 952,000 tons of sugar equivalent, but it only represented 2% of total tabletop sweetener demand. As a result, we believe there is substantial room for further growth in the low calorie tabletop sweetener industry. Operating expenses: Marketing and selling expenses 69.3 77.1 20 % 22 % (7.7 ) (11 )% Administration expenses 31.1 32.0 9 % 9 % (1.0 ) (3 )% Amortization of intangibles 36.2 28.7 11 % 8 % 7.5 21 % Start-up expenses 13.7 0.7 4 % % 13.0 95 % Restructuring expenses 0.7 2.3 % We sometimes refer to standard case and CAGR in this prospectus. We define standard case as the equivalent in sweetness power of 1,200 teaspoonfuls of sugar. CAGR refers to compound annual growth rate. INDUSTRY AND MARKET DATA We generate market and competitive position data to measure the performance of, and plan for, our business. We obtained the market and competitive position data used throughout this prospectus from our own research as well as surveys or studies conducted by third parties and industry or general publications. In particular, historical and projected retail sales of low calorie tabletop sweeteners, and the growth rates of such historical retail sales, are derived from data generated by the market research firms A.C. Nielsen Co., which we refer to as ACNielsen, and Information Resources, Inc., which we refer to as IRI, where available. Where third party data is unavailable or does not cover the entire segment of the market being reviewed, we formulate estimates based upon internal data, including, for example, regional sales and pricing data. Where market and competitive position data used in this prospectus contains such estimates, we have so indicated by using the words "management estimates," "our market research," "we estimate," "an estimated" and "we believe." Certain brand awareness and loyalty figures in this prospectus were derived from a study conducted by Synovate Inc., which study we commissioned and funded for use in our business. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data. Similarly, we believe that our internal research is reliable, but it has not been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks, including Equal , Canderel , Misura , Mivida , Sucaryl and Chuker , which are material to our business. We have licensed from The NutraSweet Company the right to use the NutraSweet trademark in our tabletop sweetener business. Unless otherwise indicated, all other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. We sell through multiple channels of distribution, including grocery and pharmacy retailers, food service distributors, mass merchandisers and club/warehouse retailers. We use distributors and brokers to distribute our products throughout the world and sell our products directly to selected customers in our largest markets. In 2003, $83.8 million, or 24% of our net sales, were made to Heinz U.S.A., which we refer to as Heinz, our primary distributor to the grocery and food service customers in the United States. Other than Heinz, no customer, including those serviced by Heinz, accounted for greater than 10% of our total net sales in 2003. We enjoy strong relationships with our customers, who include well-known mass merchandisers such as Wal-Mart, Sam's and Costco, restaurant chains such as McDonald's and Starbucks and grocery chains such as Kroger and Carrefour. The key ingredient in a majority of our products, including Equal and Canderel , is aspartame, although we also offer tabletop products sweetened with saccharin and other blended low calorie tabletop sweeteners. We currently obtain aspartame from the same third party manufacturer that supplies it as a sweetening ingredient to many leading low calorie food and beverage manufacturers. We believe aspartame is one of the most thoroughly tested low calorie tabletop sweeteners, and has gained widespread acceptance among consumers. Our global business model results from 25 years of experience in the low calorie tabletop sweetener industry, first as a division of G.D. Searle & Co., or Searle, and later Monsanto, and currently as a stand-alone company. Our global infrastructure includes manufacturing operations in the United States and Argentina and dedicated facilities in Germany that are operated by a third party. We are the only competitor in the low calorie tabletop sweetener market with global infrastructure and presence, which provides us with a competitive advantage over companies that compete in regional markets. The low calorie tabletop sweetener market remains fragmented, and most of our competitors focus on distinct markets and products. We estimate that our global retail sales are 50% larger than those of our next largest competitor. Our global scale allows us to work with leading suppliers in local markets and to develop local distribution channels. We will continue to look for opportunities to leverage our global presence and enhance global efficiencies in our business. Our Strengths We believe that our competitive strengths include: Leading global market position. We are the leading global marketer of low calorie tabletop sweeteners, with an estimated 30% dollar share of the global retail market in 2003. We estimate that, as of December 31, 2003, we had a 29% dollar share in North America, which, for our purposes, consists of the United States and Canada, a 37% dollar share in Europe, Africa and the Middle East, which we refer to as EAME, and a 28% dollar share in Latin America. Within the Asia/Pacific region, we believe we have captured a 49% dollar share of the Australia/New Zealand market and believe that we have established leading positions in several other markets within that region. Given our significant market share in most of our markets, we are well positioned to take advantage of overall industry growth in each of those markets. Strong brand equity and brand portfolio. Over the past 25 years, our brands have benefited from significant investments in consistent quality production and brand awareness. As a result, Equal enjoys consumer loyalty of 65% in the United States as of December 2003. This brand equity has allowed us to expand by developing new products and new uses for our existing products, such as Equal Sugar Lite , a unique blend of sugar and low calorie sweeteners designed for cooking and baking with half the calories and half the carbohydrates of sugar that measures exactly like sugar; Equal Spoonful , a zero calorie product that measures like sugar to make it easier to use in recipes designed for Equal ; Same with Sugar, a zero calorie tabletop sweetener that is a blend of sugar and low calorie sweetener launched in Puerto Rico; Equal Perfect Pleasures candies, which we have successfully launched in the United States, Puerto Rico, (in millions) as % of Sales Dollars % Net sales $ 173.3 $ 167.9 100 % 100 % $ (5.4 ) (3 )% Cost of sales 67.2 65.8 39 % 39 % 1.5 Income before income taxes 13.7 32.8 4 % 9 % 19.1 140 % Provision for income taxes 7.4 8.1 2 % UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Canada, Australia and South Africa; and Canderel branded chocolates, which we have successfully launched throughout Europe and the Middle East. Our worldwide brand recognition and leadership position in the industry facilitate geographic expansion. Unmatched global scale. We are the only global competitor in the marketplace that is focused primarily on the low calorie tabletop sweetener business. We estimate that our global retail sales are 50% larger than those of our next largest competitor. We have the focus, resources and consumer insights to quickly and effectively develop new products, market our brands and serve our global customers. Our global scope allows us to selectively invest in markets with the highest potential for growth and the highest returns. We continue to seek efficiencies and optimize our resource allocation to take advantage of our global scale. Our leading competitive position in the low calorie tabletop sweetener market, which results from our brand equity, global scope and customer relationships, would be difficult and costly for our competitors to replicate. Strong and stable cash flow characteristics. Supported by a unique combination of strong brand equity, high consumer loyalty, attractive margins and low capital expenditures, we have consistently produced strong cash flows, regardless of economic conditions, which have allowed us to pay down substantial debt. Our net sales have grown from an estimated $341.2 million in 2000 to $352.3 million in 2003. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Experienced and incentivized management team. Our senior management team has extensive experience in global brand management and the consumer products industry in markets around the world. Our chief executive officer, Etienne Veber, has a proven track record in the industry. Our senior management team has a financial incentive in the success of the business. In connection with the offering, we have established an annual incentive bonus plan and a long-term incentive plan designed to align the interests of management with those of our IDS holders. Our Business Strategy Our business strategy since our inception has been to enhance and develop world-class brands that drive cash flow and create value. By capitalizing on the strength of our existing brand portfolio and global infrastructure, we believe we will achieve steady revenue growth and stable cash flows through identifiable near-term initiatives, including: Expand our sales by promoting new usage among our existing consumers. Our core consumer group, consisting primarily of health-conscious consumers and diabetics, has been responsible for our historical growth and momentum. We intend to build on this group's loyalty and grow further by encouraging new and more frequent uses of our brands. We intend to increase usage through various value-focused promotional and in-store activities with retail partners and distributors and promote new uses by introducing innovative products, packaging and recipes designed especially for Equal and Canderel . Our active communication with our core consumers such as diabetics through our extensive consumer database and newsletters has been one of the key factors behind our consumer loyalty. Our market research indicates that in the United States, approximately 42% of the users of Equal are diabetics; similarly, approximately 52% of the volume of Equal sold is consumed by diabetics. We estimate that diabetic consumers also represent a significant portion of our volume in most of our other markets. Expand the Equal and Canderel brand positioning to attract new users into our franchise. We seek to attract consumers who currently do not use low calorie tabletop sweeteners by convincing them that our brands can be used in their everyday lives as part of a healthier (in millions) (in millions) North America $ 167.2 $ 161.0 $ (6.2 ) (4 )% $ 77.8 $ 75.2 $ (2.6 ) (3 )% Operating EBITDA Margin 47 % 47 % % EAME 109.2 123.9 14.7 13 % 36.6 38.7 2.1 6 % Operating EBITDA Margin 33 % 31 % (2 )% Latin America 54.2 46.7 (7.5 ) (14 )% 20.9 15.7 (5.2 ) (25 )% Operating EBITDA Margin 39 % 34 % (5 )% Asia/Pacific 19.0 20.7 1.7 9 % 0.6 0.6 (9 )% Operating EBITDA Margin 3 % Gross profit 208.5 215.1 61 % 62 % 6.5 (in millions) (in millions) North America $ 159.8 $ 167.2 $ 7.4 5 % $ 79.7 $ 77.8 $ (1.9 ) (2 )% Operating EBITDA Margin 50 % 47 % (3 )% EAME 104.8 109.2 4.4 4 % 38.3 36.6 (1.7 ) (5 )% Operating EBITDA Margin 37 % 34 % (3 )% Latin America 62.8 54.2 (8.6 ) (14 )% 20.9 20.9 Operating EBITDA Margin 33 % 39 % 5 % Asia/Pacific 15.7 19.0 3.3 21 % 1.4 0.6 (0.8 ) (53 )% Operating EBITDA Margin 9 % Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 lifestyle. Market research indicates that Equal is used by approximately 6% of all households in the United States and that approximately 14 million U.S. households, or 14%, are open to moving away from sugar. Our initiative to attract new users focuses on the great taste, health benefits, usefulness and quality of our product through an integrated marketing campaign, including print, television, other media and sampling. While the household penetration of our brands varies from country to country, we see opportunities to attract new users in all of our major markets. Gain market share among current users of low calorie tabletop sweeteners. In North America, our market research indicates that there are approximately 7 million households in the United States that currently use low-calorie sweeteners who would consider conversion to our Equal brand. We plan to pursue competitive brand users through focused promotion aimed at encouraging Equal brand trial and conversion. Outside North America, we will pursue share gain primarily through geographic expansion. For example, we have recently launched our Equal brand in Taiwan, Korea and Israel. Continue to improve efficiencies and margins throughout our operations. We have successfully achieved significant improvements in our working capital management and lowered our costs of operations. As a result, we have improved our gross margins and increased our cash flow. Beginning in 2001, we began consolidating vendors, increasing plant productivity and optimizing global sourcing of materials and business models. In addition, we recently renegotiated our agreement for the 2004 and a significant portion of the 2005 supply of our primary raw material, aspartame. Our operating model has enabled us to increase cash flow and accelerate the repayment of debt. We will continue to examine cost reduction and working capital management strategies in an effort to enhance efficiencies and maximize cash flow. In addition, our headcount reduction actions begun in June 2002, resulted in savings of approximately $8.0 million, excluding severance costs, for the year ended December 31, 2003. Execute aggressive marketing plans in our key markets to enhance our brands. By continuing to execute our current marketing efforts, we believe we can solidify and enhance our position as a leader in our four key markets: North America, France, the United Kingdom and Mexico, which represent a large majority of our total net sales for 2003. We intend to increase our consumer marketing spending which will enable us to significantly increase our share of voice with consumers. Specifically, we are looking to invigorate our market positions in North America and the United Kingdom, and build on our leadership positions in France and Mexico. We believe that we have additional opportunities to achieve sustainable long-term growth by capitalizing on positive consumer macro-trends, which include the increasing health consciousness of consumers, the aging of the population, and the increasing incidence of diabetes, through the following initiatives: Pursue brand repositioning campaign to capture category growth. We intend to reposition our brand in our key markets in 2004 to appeal to a broader consumer base, in order to take advantage of the favorable consumer trends that are occurring. We will continue with our increased marketing spending discussed earlier for this campaign which we believe will accelerate the growth of our Equal and Canderel franchises over the long-term. For instance, our new marketing effort is highlighted by our "Plan E" campaign in North America that we expect will reposition Equal as a lifestyle brand to be utilized in our customers' everyday lives. In Europe, our marketing plans are centered around a new formulation of Canderel and revamped brand identity. Innovate new products and brand extensions to increase future product pipeline. We will continue to focus resources on the research and development and launch of new products and brand extensions in an effort to grow the category in our key markets. In 2003, we introduced Canderel branded chocolates in Europe and Equal Spoonful and Equal Perfect Pleasures Net income (loss) $ 6.8 $ (5.2 ) Financing Activities Borrowings under long-term obligations 70,000 575,000 Principal payments on long-term obligations (43,570 ) (125,241 ) (349,206 ) Payment of deferred financing costs (1,357 ) (20,130 ) Dividends to shareholders (264,028 ) Repurchase of common stock (350 ) (260 ) (1 ) Issuance of common stock 980 90 Financing activities Borrowings under long-term obligations 75,000 500,000 575,000 Principal payments on long-term obligations (349,206 ) (349,206 ) Payment of deferred financing costs (2,645 ) (17,485 ) (20,130 ) Distribution to shareholder (264,028 ) (187,908 ) 187,908 (264,028 ) Repurchase of common stock (1 ) (1 ) Issuance of common stock 4 Merisant Worldwide, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 5141 52-2219000 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 10 South Riverside Plaza, Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Warren B. Grayson Vice President, General Counsel and Secretary Merisant Worldwide, Inc. 10 South Riverside Plaza Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) SEE TABLE OF ADDITIONAL REGISTRANTS candies in North America, all of which were well received by the marketplace. By continuing to expand our Canderel chocolate line in other markets such as Mexico and South Africa, and introducing further new products in Europe, in addition to brand extensions, we believe we will continue to expand the category and strengthen our market share. In France, we relaunched our Canderel brand with an improved formulation of a blend of low calorie sweeteners. We recently announced the launch in the United States of Equal Sugar Lite and in Europe of Canderel Crystal , each containing the same unique blend of sugar and low calorie sweeteners designed for cooking and baking that measure and function like sugar. Equal Sugar Lite is planned for launch in additional markets in 2004 and 2005. Similarly, Canderel Crystal has been launched in Belgium in 2004 and is planned for launch in additional markets later this year. Our History The main sweetening ingredient in our leading tabletop brands, aspartame, was discovered in 1965 by Dr. James Schlatter while doing research at Searle on amino acids. By the early 1980s, after many years of testing before being approved for consumer use, the product was being marketed as Canderel in much of Europe and as Equal in the United States. In 1985, Monsanto entered the low calorie sweetener market through its acquisition of Searle. Monsanto sold the assets that now form the basis of our tabletop sweetener business to an investor group led by an affiliate of Pegasus Capital Advisors, L.P., who we refer to as our sponsor investor, on March 17, 2000 and the business was named Merisant Company. The Transactions Concurrently with this offering: we will effect a recapitalization of the equity interests of our existing stockholders and a number of other internal corporate transactions; and Merisant will enter into a senior secured credit facility in an amount up to $255.0 million, which we refer to as the new senior credit facility. We estimate that we will sell IDSs in this offering and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs) and receive net proceeds of approximately $ million after deducting underwriting discounts, commissions, and other estimated offering expenses, assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. We will use the net proceeds of this offering together with the estimated $ million net proceeds from our new senior credit facility and cash on hand, to: repay all outstanding borrowings under, and terminate, Merisant's current senior secured credit facility, which we refer to as our existing senior credit facility, and unwind our current interest rate hedges; consummate tender offers and consent solicitations for all of our outstanding $136.0 million aggregate principal amount at maturity of 121/4% senior subordinated discount notes due 2014, which we refer to as the discount notes, and all of Merisant's outstanding $225.0 million aggregate principal amount of 91/2% senior subordinated notes due 2013, which we refer to as the existing senior subordinated notes; repurchase approximately shares of our currently outstanding Class B common stock from our existing stockholders; make payments under existing management incentive plans of approximately $ (assuming an initial public offering price of $ per IDS); and Total other expenses 43.7 41.4 13 % 12 % 2.3 With copies to: Carol M. Lind Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000 Bruce S. Mendelsohn Akin Gump Strauss Hauer & Feld LLP Robert S. Strauss Building 1333 New Hampshire Avenue, NW Washington, DC 20036 (202) 887-4000 pre-fund capital expenditures of approximately $ . If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase additional shares of our Class B common stock from our Class B stockholders. We refer to this offering, our entering into the new senior credit facility, the repayment in full and termination of the existing senior credit facility, the unwinding of our current interest rate hedges, the repurchase of a portion of the outstanding Class B common stock of our Class B stockholders, the making of payments and issuance of shares of Class B common stock under existing management incentive plans, the internal corporate transactions and the tender offer for our discount notes and the existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than this offering as the other Transactions. The closing of this offering is conditioned on our completion of the other Transactions (other than the repurchase of shares from our Class B stockholders and the making of payments and issuance of shares of Class B common stock under our management incentive plans). New Senior Credit Facility. Concurrently with this offering, Merisant will enter into a new senior secured credit facility in an amount up to $255.0 million with a syndicate of financial institutions, including affiliates of Credit Suisse First Boston, RBC Capital Markets and Merrill Lynch & Co. We anticipate that the new senior credit facility will consist of a senior secured revolving credit facility in a total principal amount of up to $35.0 million, which we refer to as the new revolving facility, and a senior secured term loan facility in an aggregate principal amount of up to $220.0 million, consisting of up to $40.0 million of Euro Term Loan A and up to $180.0 million of Term Loan B. While the new senior credit facility is expected to permit us to pay dividends on the shares of Class A common stock that constitute the IDSs and our Class B common stock, we expect that it will contain restrictions on our ability to do so, as described more fully below under "Description of Certain Indebtedness New Senior Credit Facility." We also expect the new senior credit facility to require us to defer the payment of interest on the senior subordinated notes if we fail to meet specified financial tests or if there is a default or potential default. We anticipate that the new revolving facility will be undrawn at closing and that we will have $ million of availability immediately following the offering. Tender Offers and Consent Solicitations. We have commenced tender offers and consent solicitations with respect to all of the discount notes and all of the existing senior subordinated notes. The closing of this offering is conditioned upon the receipt of the tenders and consents of at least a majority in aggregate outstanding principal amount at maturity of the discount notes and existing senior subordinated notes. We and Merisant have received the required consents with respect to the existing discount notes and the existing senior subordinated notes, respectively. Such consents may not be revoked. Holders of the discount notes and existing senior subordinated notes that provide consents will be obligated to tender their notes in the tender offers, and holders of the discount notes and existing senior subordinated notes that tender their notes in the tender offers will be obligated to provide consents. The consummation of the tender offers will be conditioned upon this offering. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of two term loans and a revolving credit facility. We expect to pay the entire principal amount outstanding under the existing senior credit facility, which was $236.5 million as of June 30, 2004, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 1, 2004 of 4.1% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty. We will also unwind our interest rate hedges related to the existing credit facility. Income before income taxes 32.8 2.0 9 % 1 % (30.8 ) (94 )% Provision for income taxes 8.1 19.7 2 % Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. *Where required by local law, a nominal number of shares may be held by directors or other persons. Net income (loss) $ 24.7 $ (17.6 ) Total operating expenses 151.1 140.8 44 % 40 % 10.3 If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Information About Us We are a Delaware corporation. Our chief executive offices are located at 10 South Riverside Plaza, Suite 850, Chicago, Illinois 60606. Our telephone number is (312) 840-6000. Our Internet address is www.merisant.com. The information found on our website is not a part of this prospectus. Other Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: an initial public offering price of $ per IDS (comprised of $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the mid-point of the range set forth on the cover page of this prospectus; a % annual interest rate on the senior subordinated notes, which is subject to change depending on market conditions prior to the pricing date; no exercise of the underwriters' over-allotment option; the reclassification of our existing common stock effective immediately prior to this offering; the issuance of shares of Class B common stock to participants in our Stock Appreciation Rights Plan upon the consummation of this offering, which represents the number of such shares that will be issued assuming an initial offering price of $ per IDS; and receipt of tenders and consents with respect to 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes. In the event that less than 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes are tendered, the term loan portion of the new senior credit facility will be reduced proportionately. Furthermore, unless the context otherwise requires, references in this prospectus to "senior subordinated notes" refer to both senior subordinated notes underlying IDSs as well as senior subordinated notes issued separately (not in the form of IDSs). The Offering Summary of the IDSs and Senior Subordinated Notes We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs). The aggregate principal amount of our % senior subordinated notes due 2019 offered hereby, including both notes initially represented by IDSs and notes sold separately, is $299.0 million ($331.0 million if the underwriters exercise their over-allotment option in full). Purchasers of separate senior subordinated notes may not also purchase IDSs in this offering. See "Notice to Purchasers of Separate Senior Subordinated Notes and Acknowledgement of Purchaser Intent" above. What are IDSs? IDSs, or income deposit securities, are securities comprised of our Class A common stock and senior subordinated notes. Each IDS initially represents one share of our Class A common stock and one % senior subordinated note with $ principal amount. CALCULATION OF REGISTRATION FEE What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of % of the aggregate principal amount of senior subordinated notes held separately or represented by your IDSs, or approximately $ per IDS, or per $ of senior subordinated notes held separately, per year, subject to our right, under specified circumstances, to defer interest payments on the senior subordinated notes as described below under "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." You may also receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new senior credit facility and our senior subordinated notes are each expected to contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. Upon the completion of this offering, our board of directors intends to adopt a dividend policy with respect to our common stock pursuant to which cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness and capital expenditures sufficient to maintain our properties and other assets would, in general, be distributed as regular quarterly cash dividends (up to the intended dividend rates set forth below) to the holders of our common stock. We intend to make our first dividend payment on April 15, 2005 to holders of record as of April 10, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock, and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock for the remainder of the first full year following completion of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarter, including the dividends expected to be paid on April 15, 2005, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indenture governing our senior subordinated notes and our new senior credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at the level set forth above or at all. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." We intend to make interest payments and, if declared, dividend payments on January 15, April 15, July 15 and October 15 of each year to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Will my rights as a holder of an IDS be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges, and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the IDSs (or % if the over-allotment option with respect to the IDSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, the existing stockholders, or their transferees, may greatly influence the outcome of all matters presented to our stockholders for a vote. In addition, so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. What will happen to the IDS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. How can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in subsequent offerings of IDSs of the same series, may, at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control, through a broker or other financial institution, separate each of their IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through a broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been separated on an automatic basis as a result of the repurchase, redemption or maturity of any senior subordinated notes. Any separation or recombination will be effective as of the close of business on the trading day that the instructions to separate or recombine are received if the instructions are received by 3:00 p.m., Eastern Standard Time, on that trading day. Any instructions received after 3:00 p.m. will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. See "Description of Income Deposit Securities (IDSs) Book-Entry Settlement and Clearance Separation and recombination." Will the IDSs be listed on an exchange or automated quotation system? Yes. We have applied to list our IDSs on the Nasdaq National Market under the trading symbol "MERI." Ratio of earnings to fixed charges x x Ratio of Bank EBITDA to pro forma cash interest expense x x Ratio of pro forma total debt to Bank EBITDA x Income from operations 26.0 16.8 15 % Income Deposit Securities (IDSs)(2) $ $ Will the senior subordinated notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange or automated quotation system? We do not anticipate that the senior subordinated notes represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be listed for separate trading on any exchange or automated quotation system. Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares are held separately and not in the form of IDSs as may be necessary to satisfy applicable listing requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The senior subordinated notes and Class A common stock represented by the IDSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the additional senior subordinated notes to be sold separately (not in the form of IDSs) be the same as the senior subordinated notes issued as a component of the IDSs? Yes. The additional senior subordinated notes to be sold separately (not in the form of IDSs) will be identical to the senior subordinated notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of IDSs) and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately be issued? The IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs), and you will not receive a certificate for your IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs and additional senior subordinated notes. Upon separation of the IDSs, a holder of Class A common stock may request one or more stock certificates representing the shares of Class A common stock. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance of a payment default (without cure) on the senior subordinated notes for 90 days; the exercise by us of our right to redeem all or a portion of the senior subordinated notes; the exercise by a holder of senior subordinated notes of its right to require us to repurchase its senior subordinated notes following the occurrence of a change of control (as defined in the indenture governing the senior subordinated notes); the date on which principal on the senior subordinated notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof; or if The Depository Trust Company no longer makes the IDS securities eligible for deposit or ceases to be a registered clearing agency Less (plus): Corporate expenses 12,194 Restructuring expenses 1,800 Depreciation expense 4,882 Impairment loss on fixed assets 3,128 Loss on sale or disposal of fixed assets 143 Amortization expense 11,118 Currency gain on euro debt (1,534 ) Unrealized gain on derivative instruments (5,577 ) Other non-cash income Class A Common Stock, par value $0.01 per share(3) under the Exchange Act and we are unable to find a successor depository. See "Description of Income Deposit Securities (IDSs) Automatic Separation." What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms and conditions that are identical to those of the IDSs or senior subordinated notes (not in the form of IDSs) being sold in this offering, except that if IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the IDSs issued hereunder may separate. Additional IDSs will represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding IDSs. In addition, we will be required to issue additional IDSs in the future upon the exercise of exchange rights by holders of our Class B common stock. Although the senior subordinated notes represented by such additional IDSs or sold separately (not represented by IDSs) will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with "original issue discount" (referred to as OID) for U.S. federal income tax purposes, and with accrued interest. If any new senior subordinated notes are issued (separately or as part of IDSs), all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) will exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result, following any such new issuance, we intend to allocate and report any OID associated with the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See " What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such new senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy of the issuer prior to the maturity of the senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and subject you to other adverse consequences." Any subsequent issuance of IDSs and senior subordinated notes of the same series that results in an exchange of a portion of your senior subordinated notes for a portion of the senior subordinated notes issued in such subsequent issuance and/or replacement of your IDSs with new IDSs will not impair the rights you would otherwise have to assert claims against us or the underwriters with respect to the full amount of the senior subordinated notes purchased by you, notwithstanding such exchange and/or replacement, if and to the extent such claim is based on alleged material misstatements or omissions contained in this prospectus. Senior subordinated notes sold after the date of this offering, whether represented by additional IDSs or sold separately (not in the form of IDSs), will be issued with accrued interest from the most recent interest payment date. In addition, such senior subordinated notes will be deemed to have the same deferred interest and defaults as the senior subordinated notes that are being issued at the closing of this offering and will be deemed to have expended payment blockage periods, acceleration forbearance periods and interest deferral periods to the same extent as the senior subordinated notes issued at the closing of this offering. See "Description of the Senior Subordinated Notes General." Total other expenses 15.9 19.9 9 % (in millions) (in millions) North America $ 81.5 $ 69.7 $ (11.7 ) (14 )% $ 38.0 $ 27.8 $ (10.3 ) (27 )% Operating EBITDA Margin 47 % 40 % (7 )% EAME 62.0 67.7 5.7 9 % 14.9 16.7 1.8 12 % Operating EBITDA Margin 24 % 25 % 1 % Latin America 20.1 18.9 (1.3 ) (6 )% 5.3 4.4 (1.0 ) (18 )% Operating EBITDA Margin 26 % 23 % (3 )% Asia/Pacific 9.6 11.5 1.9 20 % (0.5 ) 0.9 1.4 305 % Operating EBITDA Margin (5 )% 8 % % Senior Subordinated Notes(4) We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in IDSs? Certain aspects of the U.S. federal income tax consequences to us and to you of the IDSs and separately issued senior subordinated notes being offered hereby are uncertain. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel, Sidley Austin Brown & Wood LLP, is of the opinion that, for U.S. federal income tax purposes, an IDS issued by Merisant Worldwide should be treated as two separate instruments consisting of a senior subordinated note issued by Merisant Worldwide and a share of Class A common stock of Merisant Worldwide. Accordingly, we intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and of our senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values on the issue date, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our senior subordinated notes as $ , assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. By purchasing IDSs, you will agree to be bound by this allocation. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel is also of the opinion that, for U.S. federal income tax purposes, the senior subordinated notes should be treated as debt. Based on that opinion, we believe that the senior subordinated notes (whether issued separately or as part of IDSs) should be treated as debt for U.S. federal income tax purposes. There is no authority that directly addresses the tax treatment of the IDSs, and the application to the IDSs of existing authority regarding the tax treatment of subordinated debt offered under circumstances such as the offering (i.e., offered as a unit consisting of debt and common stock) is not entirely clear. Accordingly, neither we nor our special counsel can conclude with certainty that an IDS will be treated as two separate instruments or that the senior subordinated notes will be treated as debt for U.S. federal income tax purposes. The IRS may challenge our position and such challenge may be successful. If all or a portion of the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then a corresponding portion of the interest on the senior subordinated notes would be treated as a dividend and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow and materially and adversely impact our ability to make interest and dividend payments. In addition, if any payments were treated as dividends, such payments to holders who are not U.S. persons for federal income tax purposes would generally be subject to withholding of U.S. federal income taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. We would also be liable for withholding taxes (and for interest and possibly penalties for failure to withhold) on any interest payments previously made by us to non-U.S. holders that are recharacterized as dividends for U.S. federal income tax purposes. Dividends paid on the common stock through 2008, under current tax law and to the extent those dividends are paid out of our earnings and profits, will be taxable to U.S. individuals at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to U.S. individuals at ordinary income rates. Guarantees of Senior Subordinated Notes(5) The opinions of counsel referred to above are not binding on the IRS or courts, and no ruling on this issue has been requested from the IRS. There is no statutory, judicial or administrative authority directly addressing the treatment of the IDSs or instruments substantially similar to the IDSs for U.S. federal income tax purposes. We urge you to consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of an investment in the IDSs, the senior subordinated notes and Class A common stock. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? As discussed above under " What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future?" the issuance of new senior subordinated notes (separately or as part of IDSs) may in certain circumstances be treated as an exchange by holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) of a ratable portion of their outstanding notes for a portion of the new notes. It is uncertain whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. It is also possible that the IRS might successfully assert that any resulting loss on an exchange should be disallowed under the "wash sale" rules, in which case the holder's basis in the subsequently issued senior subordinated notes would be increased to reflect the amount of the disallowed loss. Even if the exchange is not treated as a taxable event, such exchange might result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner regardless of whether the senior subordinated notes are held as part of IDSs or directly, the recombination of senior subordinated notes and shares of common stock to form IDSs or the separation of IDSs should not affect your tax treatment. See "Material U.S. Federal Income Tax Considerations." Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of senior subordinated notes and IDSs, and each holder of senior subordinated notes and IDSs will, by purchasing senior subordinated notes and IDSs, agree to report OID in a manner consistent with this approach. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the IDSs and senior subordinated notes and could adversely affect the market for the IDSs and senior subordinated notes. Due to the complexity and uncertainty surrounding the U.S. federal income tax treatment of subsequent issuances and exchanges of senior subordinated notes, prospective investors are urged to consult their tax advisors regarding the tax consequences to them in light of their particular circumstances. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." Total $775,000,000 $98,193(6) What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under GAAP regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, or FASB, the Emerging Issues Task Force, or EITF, or the Securities and Exchange Commission, or SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates." (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs consist of shares of Class A common stock and $ aggregate principal amount of % senior subordinated notes due 2019, including IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (3)Includes shares of Class A common stock subject to the underwriters' over-allotment option. (4)Includes $ million aggregate principal amount of % senior subordinated notes subject to the underwriters' over-allotment option and $ million aggregate principal amount of % senior subordinated notes sold separately (not as part of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Pursuant to Rule 457(n), no separate filing fee is required for the guarantees. (6)Previously paid. Summary of the Common Stock Issuer Merisant Worldwide, Inc. Shares of Class A common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Our bylaws will provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Shares of Class B common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Total shares of common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Voting rights Subject to applicable law, each outstanding share of our Class A and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote, except that so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, the holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. Listing Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares is held separately and not in the form of IDSs as may be necessary to satisfy any applicable requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The shares of our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. We do not expect to list our shares of Class B common stock for separate trading on any exchange or automated quotation system and the shares of Class B common Stock will have limitations on their transferability. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Dividends Holders of our Class A common stock and the holders of our Class B common stock will receive quarterly dividends on our Class A common stock and Class B common stock, respectively, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, we expect that the senior subordinated notes indenture and our new senior credit facility will each restrict our ability to declare and pay dividends on our Class A and Class B common stock as described in detail under "Dividend Policy and Restrictions." Upon the completion of this offering, our board of directors intends to adopt a dividend policy which reflects our judgment that our stockholders would be better served if we distributed the cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets to them (up to the intended dividend rates set forth below) instead of retaining it in our business. We intend to make our first dividend payment on April 15, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock through the first full year following the completion of this offering. However, our dividend policy is subject to adjustment by our board at its sole discretion. In the event of any reduction in the cash available for dividends, the dividend on the Class A common stock and the Class B common stock will be reduced proportionately. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rate set forth above or discontinue entirely the payment of dividends. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." Dividend payment dates If declared, dividends on our Class A and Class B common stock will be paid quarterly on January 15, April 15, July 15 and October 15 to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Rights to exchange shares of Class B common stock for IDSs Holders of our Class B common stock have agreed to restrictions on the transferability of the Class B common stock. Beginning on the first anniversary of the consummation of this offering, holders of our Class B common stock will have the right to exchange their Class B common stock for the equivalent value of IDSs under certain circumstances. However, until the second anniversary of the consummation of this offering, the shareholders agreement will restrict the holders of our Class B common stock from exercising such exchange right if following the exchange the holders of our Class B common stock would hold less than shares. See "Description of Capital Stock." Total other expenses 41.4 65.1 12 % Summary of the Senior Subordinated Notes Issuer Merisant Worldwide, Inc. Senior subordinated notes represented by IDSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not in the form of IDSs) $ million aggregate principal amount. Senior subordinated notes to be outstanding following the offering $299.0 million aggregate principal amount (or $331.0 million aggregate principal amount if the underwriters exercise their over-allotment option in full). Interest rate % per annum. Interest payment dates Interest will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing April 15, 2005, to holders of record on the 10th day of each such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate. In addition, after , 2009, but before , 2014 and after , 2014, but before , 2019, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions, provided that no more than three quarters of interest may be deferred during either such period. No later than , 2009, we will pay in full all interest deferred prior to , 2009 (together with accrued interest thereon). No later than , 2014, we will pay in full all interest deferred after , 2009 and prior to , 2014 (together with accrued interest thereon). We will pay in full all interest deferred after , 2014 (together with accrued interest thereon) no later than , 2019, the maturity date of the senior subordinated notes. Income from operations 74.2 67.1 21 % MERISANT WORLDWIDE, INC. TABLE OF ADDITIONAL REGISTRANTS Name of Additional Registrants During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include stated interest in your income for U.S. federal income tax purposes on an economic accrual basis, possibly before the receipt of corresponding cash interest payments. See "Material U.S. Federal Income Tax Considerations." We expect that our new senior credit facility will restrict our ability to pay interest on the senior subordinated notes in certain circumstances as further described under "Description of Certain Indebtedness" and "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms and at the prices set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, all senior subordinated notes and Class A common stock represented by each IDS will automatically separate and will no longer be combinable into IDSs following such separation. See "Description of the Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of the Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. State of Incorporation Guarantees The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new senior credit facility. Ranking We are a holding company and derive all of our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor's existing and future senior indebtedness, including the borrowings under and all guarantees of the new senior credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor's existing and future senior subordinated indebtedness and trade payables except for the impact of the contractual subordination provided in the indenture governing the senior subordinated notes which may have the effect of causing the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness, including trade payables, of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and our subsidiaries to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: we would have had no senior or pari passu indebtedness outstanding except for trade payables of approximately $1.0 million and our guarantee under the new senior credit facility, as described below; Merisant would have had $220.0 million aggregate principal amount of senior indebtedness outstanding under the new senior credit facility and an additional $35.0 million of availability under the new revolving facility, all of which would have been guaranteed on a senior basis by us and Merisant's domestic guarantors; Primary Standard Industrial Classification Code in addition to the senior indebtedness described above, our guarantor subsidiaries would have had an aggregate of $18.4 million of pari passu indebtedness outstanding, consisting entirely of trade payables; and the total liabilities of our non-guarantor subsidiaries (other than liabilities owed to us or the guarantors) would have been approximately $16.6 million, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will restrict our ability and certain of our subsidiaries' ability to, among other things: incur additional indebtedness; layer indebtedness; pay dividends or make other distributions; repurchase or redeem capital stock; make investments or other restricted payments; create liens; enter into transactions with our affiliates; sell assets or shares of capital stock of our subsidiaries; restrict dividend or other payments to us from our subsidiaries; and merge, consolidate or transfer substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. Absent certain conditions, such as a default in the payment of interest, there will be no restriction in the indenture, however, on our ability to issue additional senior subordinated notes in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock included in such IDSs will not exceed the equivalent ratio represented by the then existing IDSs and separate senior subordinated notes. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of the Senior Subordinated Notes Certain Covenants." Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange or automated quotation system.
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+This summary highlights the information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. For a more complete understanding of the offering, we encourage you to read this entire prospectus and the documents to which this prospectus refers. You should read the following summary together with the more detailed information and consolidated financial statements and the notes to those statements included elsewhere in this prospectus. Unless otherwise indicated, financial information included in this prospectus is presented on a historical basis. Certain statements include forward looking information that involves risks and uncertainties. See "Forward looking statements." Our Company We are one of the largest wire and cable manufacturers in North America based on revenues and enjoy number one market share positions in North America in our core copper communications cable and magnet wire businesses. Based on sales, we are a leading manufacturer and supplier of communications wire and cable products to telephone companies, CATV companies, distributors and systems integrators, and magnet wire and insulation materials to major original equipment manufacturers, or OEMs, and, through our distribution operations, to small OEMs and the motor repair industry. Our magnet wire products are used in industrial, automotive and other motor applications, power transformers and generators, and electrical coils and controls. We manufacture and supply over 30,000 copper, aluminum, fiber optic and composite wire and cable products. In each of our core markets, we believe we offer our customers the largest single source in North America for their respective copper communications cable and magnet wire needs. We are one of the leading suppliers of communications cable in North America for telephone local loop applications with a complete offering of copper and fiber optic cable products for our customers. We are the only manufacturer in North America to produce both copper and fiber optic cable products from a single facility and believe this production strategy gives us a cost advantage over certain of our competitors. Through our four production facilities, we are well positioned to efficiently adjust production levels to respond to changing industry conditions. In our magnet wire and distribution business, we differentiate ourselves through vertical integration by manufacturing a substantial portion of our own copper rod from copper cathode, and formulating and producing our own enamel coating products. Controlling our own copper and enamel production, we believe, gives us a distinct advantage over certain of our competitors in terms of higher quality, and along with our economies of scale, contributes to our standing as a low-cost producer in our core markets. In addition, we are the only North American magnet wire manufacturer to own a national distribution channel. We believe that our Essex Brownell distribution operations, through which we distribute magnet wire, insulation and a full line of complementary electrical accessory products, provides us with a unique ability, among the major North American magnet wire producers, to serve as a single source supplier to the motor repair and small OEM markets. We operate 16 manufacturing facilities in the United States, United Kingdom and Mexico. For the fiscal year ended December 31, 2003, we generated $1.0 billion of net sales. Our Products and Markets We divide our business operations into three business segments, based on the principal markets that we serve. "Essex International" refers to Essex International Inc., a wholly owned subsidiary of Superior Essex Holding Corp. "Essex Group" refers to Essex Group, Inc., a wholly owned subsidiary of Essex International. Industry and market data Unless otherwise indicated, information contained in this prospectus concerning the wire and cable industry, our general expectations concerning the industry and its segments and our market position and market share within the industry and its segments are principally derived from management estimates. Such estimates are derived from third party sources as well as data from our internal research and on assumptions made by us, based on such data and our knowledge of the industry which we believe to be reasonable. Our internal research has not been verified by any independent source. In addition, some similar information in this prospectus is based on data from various third party sources, including industry publications, government publications, reports by market research firms or other published independent sources. We have not independently verified any of such information and cannot assure you of its accuracy or completeness. While we are not aware of any misstatements regarding any industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the caption "Risk factors" in this prospectus. Communications Cable Copper outside plant (OSP) wire and cable Fiber optic OSP and composite cable Copper and fiber optic premise wire and cable Outside plant applications, including: Voice and data transmission in the local loop; Trunking and feeder applications in local exchange, CATV and metropolitan rings; and Local exchange distribution and service wire Premise product applications, including: Homes, home offices and offices; Central office switching; and Local area networks (LANs) and wide area networks (WANs) Regional Bell operating companies (RBOCs) Major independent telephone companies Distributors CATV operators Magnet Wire and Distribution Over 2,000 types of magnet wire (copper and aluminum) Fabricated insulation products Industrial motor applications Automotive applications Power transformers and generators Appliances Electrical coils and controls Motor repair Global OEMs (industrial, power, automotive and appliance) Small OEMs (power tool and small appliance) Motor repair shops Distributors Copper Rod Continuous cast copper rod products Basic raw material used in the copper wire and cable industry Internal use Third party copper wire and cable producers Communications Cable. Through our communications cable segment, which generated $340 million of net sales in fiscal 2003, we develop, manufacture and market copper wire, copper cable, fiber optic cable, composite cable and other related products to telephone companies, CATV companies, distributors and systems integrators. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Forward looking statements This prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are based on current expectations, estimates and forecasts about us, our future performance, the industries in which we operate and our liquidity. In addition, other written and oral statements that constitute forward-looking statements may be made by us or on our behalf. Such forward-looking statements include statements regarding expected financial results and other planned events, including, but not limited to, anticipated liquidity and capital expenditures. Words such as "anticipate," "assume," "believe," "estimate," "expect," "intend," "plan," "seek," "target," "goal," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. These risks and uncertainties include the impact of the following: General economic, business and industry conditions; Spending reductions by the telephone industry; Competition, including from other wire and cable manufacturers and other alternative sources and technologies; Increases or decreases in sales due to contract losses or gains as expirations, renewals and rebuilding efforts occur; Rapid product and technology development; Market acceptance of new products and continuing product demand; Production and timing of customer orders; The migration of magnet wire demand to China and other countries; Fluctuations in the supply and pricing of copper and other principal raw materials; Our significant level of indebtedness and debt covenant requirements; The potential need for and availability of additional sources of capital and liquidity; Our ability to successfully realize the benefits of our acquisition of assets from Belden Inc. and Nexans Magnet Wire USA Inc. and to identify, finance and integrate other acquisitions; Changes in short-term interest rates and foreign exchange rates; A significant deterioration in our labor relations; The volatility of the market price of our common stock; and Other
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001272209_gregg_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001272209_gregg_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d61299e93518e88576bb3700d1aa6a7b1fd772a
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001272209_gregg_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary contains basic information about us and highlights selected information from the prospectus. It likely does not contain all the information that is important to you. Because it is a summary, it does not contain all the information that you should consider before purchasing any Notes. We encourage you to read this entire document and the documents to which we have referred you. As used in this prospectus, except as the context otherwise requires, the terms "company," "we," "our," "ours," and "us" refers to Neenah Foundry Company and its subsidiaries, collectively and individually, as appropriate from the context. OUR COMPANY We manufacture and market a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We sell our products throughout the continental United States and believe that we are one of the largest manufacturers of heavy municipal iron castings in the United States. We have two reportable segments, Castings and Forgings. The Castings segment produces iron and other metal castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers and to industrial end users. The forgings segment, operated by Mercer Forge Corporation, hereinafter referred to as Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces microalloy forgings. Mercer sells directly to original equipment manufacturers, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Neenah Foundry Company, which we refer to hereafter as Neenah, a wholly-owned subsidiary of NFC Castings, Inc. and its parent company, ACP Holding Company, which we refer to hereafter respectively as NFC and ACP, is a corporation organized under the laws of the State of Wisconsin and is the operating subsidiary of NFC and ACP. The principal executive offices of Neenah are located at 2121 Brooks Avenue, Neenah, Wisconsin 54957. Our telephone number is (920) 725-7000. RECENT REORGANIZATION On August 5, 2003, ACP, NFC, Neenah and all of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware. By order dated September 26, 2003, the Bankruptcy Court confirmed our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of our PIK Note and the elimination of the interests of the former equity owners of our indirect parent company, ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. In connection with the Plan of Reorganization we conducted a rights offering, whereby holders of the 11 1/8% Notes purchased approximately $113.0 million face amount of the Notes, and certain purchasers with a standby commitment purchased approximately $7.0 million face amount of Notes. We also issued $100.0 million in aggregate principal amount of 13% Senior Subordinated Notes to the holders of the 11 1/8% Notes in partial satisfaction of their claims against us. See "The Refinancing Transactions".
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001272663_messilla_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001272663_messilla_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..32adf0e8e0dc0d4df0e1de925f248c93a6939440
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001272663_messilla_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents SUMMARY This summary highlights important information about our business and the exchange offer. For a more complete understanding of the exchange offer, you are encouraged to read this entire document carefully, including the risk factors and the financial statements and the related notes, before you decide to invest. Company Overview We are an owner and operator of acute care hospitals (which provide medical treatment to persons with short-term or episodic illnesses) and free-standing behavioral hospitals, principally located in urban and suburban markets in the United States. We own and operate seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 1,259 licensed beds, in Albuquerque, New Mexico, Lexington, Kentucky and Baton Rouge, Louisiana. In each of these markets, our acute care hospitals provide a broad range of services, including general surgery, internal medicine, emergency room care, orthopedics, neurosurgery, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. Through our subsidiary, Lovelace Sandia Health System, Inc., we operate the second largest integrated healthcare delivery system in Albuquerque, New Mexico, comprised of five of our seven acute care hospitals (including one inpatient rehabilitation hospital), with a total of 722 licensed beds, approximately 320 employed physicians, two specialty care centers, 15 primary care clinics and a full service reference laboratory. In addition, we own and operate a health plan with approximately 175,000 participants throughout New Mexico (plus approximately 71,000 participants who access our provider network through a contract with CIGNA HealthCare). We believe that the geographic presence and breadth of services of Lovelace Sandia Health System provide us with a competitive advantage in the Albuquerque market. We are a leading operator of behavioral hospitals in the United States with 21 behavioral hospitals, totaling 2,044 licensed beds, in Arkansas, California, Idaho, Illinois, Indiana, Nevada, New Mexico, Ohio, Pennsylvania, Virginia and Washington. Our behavioral hospitals offer a broad array of behavioral healthcare services ranging from inpatient hospitalization to residential treatment programs and outpatient services. We seek opportunities to expand our services and facilities and grow through selective acquisitions. Our expansion strategy focuses on expanding our existing hospitals and other healthcare facilities and broadening the range of services they provide. Key elements of our acquisition strategy include: making selective acquisitions of hospitals, clinics and other healthcare facilities in our existing markets in order to grow our revenue base and enhance our competitive position and economies of scale; and targeting hospitals and other healthcare facilities in new markets with favorable population growth rates, where we can improve operating performance and profitability, either through a network of hospitals and other healthcare facilities or a single well-positioned facility. We are especially interested in acquiring hospitals currently owned by not-for-profit organizations as we believe we can improve these hospitals performance through the application of our business strategy. We also intend to selectively acquire well-positioned behavioral hospitals. Our parent is a holding company that conducts substantially all of its operations through its subsidiaries. Beginning unrestricted net assets $ 45,350 Deficit of revenues over expenses (785 ) Net unrealized losses on investments (592 ) Mission and Ministry Fund (2 ) Transfer to/from affiliates 3 Contributions to Capital Resource Pool (7 ) Other changes Table of Contents Competitive Strengths Attractive Portfolio of Acute Care Hospitals in Growing Markets. We currently own and operate seven acute care hospitals (including one inpatient rehabilitation hospital) in three separate geographic markets. We believe that these hospitals are attractive because they are located in markets with population growth rates above the national average, have attractive payor mixes and offer opportunities for expansion. A Leading Provider of Behavioral Healthcare Services. We currently own and operate 21 free-standing behavioral hospitals in 11 states. Customized, Scalable Information Systems. We believe that our hospitals will benefit from the substantial investment we have made in our new clinical and financial information systems. Focused and Disciplined Acquisition Approach. Since August 1, 2001, we have successfully completed the acquisition of seven acute care hospitals, including a significant health plan, two behavioral hospitals and various other ancillary services. Experienced Management Team. Our executive management team has a successful track record of integrating and operating large multi-facility healthcare systems. Business Strategy We manage our hospitals with the following business strategy, tailored, as appropriate for each community in which we operate. The key elements of our business strategy are: Improve Operating Margins and Efficiency. We believe there are opportunities to improve operating margins at our hospitals, and we seek to position ourselves as a cost-effective provider of healthcare services in each of the markets we serve. Grow Through Selective Acquisitions in New and Attractive Markets. We selectively seek opportunities to grow through acquisitions, particularly in new markets with populations over 100,000 and growth rates above the national average. Continue to Recruit and Retain Quality Physicians. We intend to continue to recruit both primary and specialty care physicians, including psychiatrists who can provide quality services that we believe are currently needed in the communities we serve. Expand Services Offered to Increase Revenue. We intend to expand our hospitals and augment the range of services we offer based on the needs of the communities we serve to increase our market share and grow our revenue base. Continue to Negotiate Favorable Managed Care Contracts. As we expand our network of hospitals in a market, broaden the services we provide and increase the volume of patients at our hospitals, we intend to continue to negotiate more favorable contracts with managed care organizations than those available to independent facilities. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001272957_bristol_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001272957_bristol_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f67f4f5694ab2ba9d4f63241a42aa2b3a93734ae
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001272957_bristol_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary may not contain all the information that may be important to you. You should carefully read the entire prospectus before
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001273397_procentury_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001273397_procentury_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001273397_procentury_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001273584_gracechurc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001273584_gracechurc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4ded3c88581cfd9ceee2195a2e45effdc76e72e8
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001273584_gracechurc_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following is a brief overview of the key aspects of the class A notes, the class B notes and the class C notes, which we refer to as the notes. You need to read all of this prospectus to fully understand the terms of the notes. SERIES STRUCTURE <TABLE> <CAPTION> Initial Principal Class of Notes Balance % of Total <S> <C> <C> Class A $ 675,000,000 90% Class B $ 37,500,000 5% Class C $ 37,500,000 5% ----------------- ---------- Total $ 750,000,000 100% ================= ========== </TABLE> <TABLE> <CAPTION> Class A Notes Class B Notes Class C Notes <S> <C> <C> <C> Anticipated Ratings: "Aaa" from Moody's and "A1" from Moody's and "Baa1" from Moody's and "AAA" from Standard & "A" from Standard & "BBB" from Standard & Poor's. Poor's. Poor's. Credit Enhancement: Subordination of the class Subordination of the class Spread Account. B notes and class C notes. C notes. Interest Rate: One-month USD LIBOR, One-month USD LIBOR, One-month USD LIBOR, plus [ ] per cent. plus [ ] per cent. plus [ ] per cent. annually, except for the annually, except for the annually, except for the first interest period, first interest period, first interest period, where LIBOR will be where LIBOR will be where LIBOR will be based on the linear based on the linear based on the linear interpolation of two-month interpolation of two-month interpolation of two-month and three-month and three-month and three-month USD LIBOR. USD LIBOR. USD LIBOR. Interest Accrual Method: Actual/360. Actual/360. Actual/360. Interest Payment Dates: The 15th day of each The 15th day of each The 15th day of each calendar month. calendar month. calendar month. First Interest Payment Date: 17 May 2004 interest 17 May 2004 interest 17 May 2004 interest payment date. payment date. payment date. Scheduled Redemption Date: 15 February 2007 interest 15 February 2007 interest 15 February 2007 interest payment date. payment date. payment date. Legal Final Redemption Date: 17 February 2009 interest 17 February 2009 interest 17 February 2009 interest payment date. payment date. payment date. Clearance/Settlement: DTC/Euroclear/ DTC/Euroclear/ DTC/Euroclear/ Clearstream, Clearstream, Clearstream, Luxembourg. Luxembourg. Luxembourg. Minimum Denomination: $1,000. $1,000. $1,000. Tax Treatment: Debt for United States Debt for United States Debt for United States federal income tax federal income tax federal income tax purposes, subject to the purposes, subject to the purposes, subject to the important considerations important considerations important considerations contained in "Material contained in "Material contained in "Material United States Federal United States Federal United States Federal Income Tax Income Tax Income Tax Consequences". Consequences". Consequences". ERISA Eligible: Yes, subject to the Yes, subject to the Yes, subject to the important considerations important considerations important considerations in "Certain ERISA and in "Certain ERISA and in "Certain ERISA and other Considerations". other Considerations". other Considerations". </TABLE> PROGRAM STRUCTURAL SUMMARY The following is a brief summary description of the Barclaycard securitisation program, of which your notes will form a part. Barclaycard, a division of Barclays Bank PLC, and called "Barclays", has previously assigned all of its present and future beneficial interest in receivables in designated revolving credit and charge card accounts owned by Barclaycard and opened in the United Kingdom. Only the receivables were assigned. The accounts were retained by Barclaycard. The receivables were assigned to a special purpose company, incorporated in Jersey, Channel Islands, acting as receivables trustee. The receivables trustee holds the receivables on trust for Barclaycard, as transferor beneficiary and excess interest beneficiary, and a special purpose subsidiary of Barclays called the "MTN Issuer", as investor beneficiary. Barclaycard will separately transfer its entitlement to receive excess interest attributable to series 04-1 to the MTN Issuer. The receivables trustee may issue multiple series of investor certificates to the MTN Issuer. Each series of investor certificates will represent an undivided beneficial interest in the receivables trust. They will entitle the MTN Issuer to payments of interest and principal payable from collections on the receivables. The MTN Issuer will finance its acquisition of an undivided beneficial interest in the receivables trust, evidenced by the issuance of each series of investor certificates, by issuing series of limited recourse medium term notes or certificates to individual issuers and credit enhancement providers, if any. The limited recourse nature of the medium term notes or certificates will ensure that the MTN Issuer is only ever liable under a series of medium term notes or certificates for payments of principal and interest equal to what is paid under the corresponding series of investor certificates. The issuers, in turn, will finance their purchases of each series of medium term notes or certificates by issuing series of notes to investors. Your series of notes, series 04-1, will be the sixth series of notes issued under this program. STRUCTURAL DIAGRAM OF BARCLAYS BANK PLC SECURITISATION PROGRAM [ LOGO structural_diagram ] 1 Barclays Bank PLC will transfer excess interest attributable to series 04-1 to the MTN Issuer pursant to an agreement between beneficiaries. 2 Series 99-1 was repaid in full on 15 November 2002. THE ISSUER Gracechurch Card Funding (No. 6) PLC is a public limited company incorporated in England and Wales. Its registered office is at 54 Lombard Street, London EC3P 3AH. Its telephone number is +44 (0)20 7699 5000. The issuer is a newly created special purpose company. One share of the issuer is held by a share trustee under the terms of a share declaration of trust. The remaining issued shares of the issuer are held by Gracechurch Card (Holdings) Limited. The shares of Gracechurch Card (Holdings) Limited are in turn held by SFM Corporate Services Limited as trustee for a charitable trust. The purpose of the issuer is to issue the notes which represent its asset-backed debt obligations. The issuer will not engage in any unrelated activities. This prospectus including the appendices comprises listing particulars given in compliance with the listing rules made by the UK Listing Authority under Part VI of the Financial Service and Markets Act 2000 for the purposes of giving information about the issuer and the notes. The issuer accepts responsibility for the information contained in this document. To the best of the knowledge and belief of the issuer, which has taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. The issuer accepts responsibility accordingly. THE NOTE TRUSTEE, PRINCIPAL PAYING AGENT AND AGENT BANK The note trustee, principal paying agent and agent bank is The Bank of New York, London Branch. The note trustee will act as trustee for the noteholders under the trust deed. The principal paying agent will make payments on the notes. The agent bank will calculate the interest rate on the notes. The Bank of New York, London Branch's address is One Canada Square, London E14 5AL, United Kingdom. Its telephone number is +44 (0)20 7570 1784. THE NOTES In this document, we are offering three classes of notes: * class A floating rate asset-backed notes with an initial principal balance of $675,000,000. * class B floating rate asset-backed notes with an initial principal balance of $37,500,000. * class C floating rate asset-backed notes with an initial principal balance of $37,500,000. The notes represent asset-backed debt obligations of the issuer. The notes are secured by payments received by the issuer from the series 04-1 medium term note certificate and payments received from the swap counterparty. The issuer's ability to make these payments will ultimately be dependent upon collections Barclaycard receives on the receivables. We will issue the notes under the trust deed. The notes will also be subject to a paying agency and agent bank agreement. The security for the notes will be created under a deed of charge and a pledge agreement between the issuer and the note trustee. The terms of the notes will be contained in the trust deed, the paying agency and agent bank agreement and the deed of charge. The class B notes will be subordinated to the class A notes. The class C notes will be subordinated to both the class A notes and the class B notes. If there is an event of default under the notes, the note trustee, on your behalf, can appoint a receiver of the issuer who would continue to collect amounts paid by the MTN Issuer under the series 04-1 medium term note certificate. The note trustee would also be able to sell the series 04-1 medium term note certificate. In addition, pursuant to the trust deed, the note trustee may give an enforcement notice to the issuer declaring the notes to be immediately due and payable. A declaration that the notes have become immediately due and payable will not, of itself, accelerate the timing or amount of redemption of the notes. In this prospectus, we will refer to the owners of interests in the class A notes, the class B notes and the class C notes as the class A noteholders, the class B noteholders and the class C noteholders, respectively, and together as the noteholders. PREVIOUS SERIES Five previous series of notes have been issued by five previous note issuers, Gracechurch Card Funding (No. 1) PLC, Gracechurch Card Funding (No. 2) PLC, Gracechurch Card Funding (No. 3) PLC, Gracechurch Card Funding (No. 4) PLC and Gracechurch Card Funding (No. 5) PLC respectively, in relation to the receivables trust. The first series, called series 99-1, was issued on 23 November 1999 and repaid in November 2002. Series 99-1 is described in more detail at Appendix G. The second series, called 02-1, was issued on 24 October 2002. The third series, called 03-1, was issued on 8 April 2003. The fourth series, called 03-2, was issued on 13 June 2003. The fifth series, called 03-3, was issued on 18 September 2003. Series 02-1, Series 03-1, Series 03-2 and Series 03-3 are described in more detail at Appendix G. The proceeds of the series 99-1 notes were used by Gracechurch Card Funding (No. 1) PLC to purchase, respectively, corresponding series of medium term notes issued in three classes, which we shall refer to as the "series 99-1 medium term notes", issued by the MTN Issuer. The series 99-1 medium term notes issued by the MTN Issuer were called the class A medium term note, the class B medium term note and the class C medium term note, respectively. The MTN Issuer invested the proceeds from the issue of the series 99-1 medium term notes in the receivables trust by paying the proceeds to the receivables trustee and becoming an investor beneficiary with an aggregate investor interest in the receivables trust. This aggregate investor interest entitles the MTN Issuer to payments arising out of its entitlement to receivables in the receivables trust. The class A medium term note, the class B medium term note and the class C medium term note were each secured in favour of a trustee for the benefit of the secured creditors in relation to the class A notes, the class B notes and the class C notes of series 99-1. The security for each class of notes issued for series 99-1 was the class A medium term note, the class B medium term note and the class C medium term note, respectively. Series 99-1 was finally repaid in full on the interest payment date falling in November 2002. The proceeds of the series 02-1 notes were used by Gracechurch Card Funding (No. 2) PLC to purchase a corresponding series medium term note certificate, which we shall refer to as the "series 02-1 medium term note certificate", issued by the MTN Issuer. The MTN Issuer invested the proceeds from the issue of the series 02-1 medium term note certificate in the receivables trust by paying the proceeds to the receivables trustee and becoming an investor beneficiary with an aggregate investor interest in the receivables trust. This aggregate investor interest entitles the MTN Issuer to payments arising out of its entitlement to receivables in the receivables trust. The series 02-1 medium term note certificate, is secured in favour of a trustee for the benefit of the secured creditors in relation to the class A notes, the class B notes and the class C notes of series 02-1. The security for each class of notes issued for series 02-1 is the series 02-1 medium term note certificate. The security for the notes issued for series 02-1 will not be cross-collateralised with the security for your notes. The proceeds of the series 03-1 notes were used by Gracechurch Card Funding (No. 3) PLC to purchase a corresponding series medium term note certificate, which we shall refer to as the "series 03-1 medium term note certificate", issued by the MTN Issuer. The MTN Issuer invested the proceeds from the issue of the series 03-1 medium term note certificate in the receivables trust by paying the proceeds to the receivables trustee and becoming an investor beneficiary with an aggregate investor interest in the receivables trust. This aggregate investor interest entitles the MTN Issuer to payments arising out of its entitlement to receivables in the receivables trust. The series 03-1 medium term note certificate, is secured in favour of a trustee for the benefit of the secured creditors in relation to the class A notes, the class B notes and the class C notes of series 03-1. The security for each class of notes issued for series 03-1 is the series 03-1 medium term note certificate. The security for the notes issued for series 03-1 will not be cross-collateralised with the security for your notes. The proceeds of the series 03-2 notes were used by Gracechurch Card Funding (No. 4) PLC to purchase a corresponding series medium term note certificate, which we shall refer to as the "series 03-2 medium term note certificate", issued by the MTN Issuer. The MTN Issuer invested the proceeds from the issue of the series 03-2 medium term note certificate in the receivables trust by paying the proceeds to the receivables trustee and becoming an investor beneficiary with an aggregate investor interest in the receivables trust. This aggregate investor interest entitles the MTN Issuer to payments arising out of its entitlement to receivables in the receivables trust. The series 03-2 medium term note certificate, is charged in favour of a trustee for the benefit of the noteholders in relation to the class A notes, the class B notes and the class C notes of series 03-2. The security for each class of notes issued for series 03-2 is the series 03-2 medium term note certificate. The security for the notes issued for series 03-2 will not be cross- collateralised with the security for your notes. The proceeds of the series 03-3 notes were used by Gracechurch Card Funding (No. 5) PLC to purchase a corresponding series medium term note certificate, which we shall refer to as the "series 03-3 medium term note certificate", issued by the MTN Issuer. The MTN Issuer invested the proceeds from the issue of the series 03-3 medium term note certificate in the receivables trust by paying the proceeds to the receivables trustee and becoming an investor beneficiary with an aggregate investor interest in the receivables trust. This aggregate investor interest entitles the MTN Issuer to payments arising out of its entitlement to receivables in the receivables trust. The series 03-3 medium term note certificate, is charged in favour of a trustee for the benefit of the noteholders in relation to the class A notes, the class B notes and the class C notes of series 03-3. The security for each class of notes issued for series 03-3 is the series 03-3 medium term note certificate. The security for the notes issued for series 03-3 will not be cross- collateralised with the security for your notes. THE CLOSING DATE We will issue the notes on or about 11 March 2004. THE MTN ISSUER AND INITIAL INVESTOR BENEFICIARY The MTN Issuer is Barclaycard Funding PLC, a public limited company incorporated in England and Wales. Its registered office is located at 54 Lombard Street, London EC3P 3AH. The MTN Issuer is a subsidiary of Barclays. The MTN Issuer was established to issue series of secured limited recourse medium term notes or certificates under a program. THE MEDIUM TERM NOTE CERTIFICATE On the closing date, the MTN Issuer will sell to the issuer one limited recourse medium term note certificate issued as a series under its medium term note or certificate program. This limited recourse medium term note certificate, approximately in the amount of the sterling equivalent of $750,000,000, using the fixed exchange rate in the swap agreements, will be called the series 04-1 medium term note certificate. The series 04-1 medium term note certificate is governed by English law and is subject to the English courts in the event of proceedings relating to the Series 04-1 medium term note certificate. The issuer will make payments of interest and principal on the class A notes, the class B notes and the class C notes from payments of interest and principal made by the MTN Issuer on the series 04-1 medium term note certificate, including MTN Issuer additional interest payments, and from amounts paid by the swap counterparty. The issuer will also make payment of the deferred subscription price in respect of the series 04-1 medium term note certificate out of unutilised MTN Issuer additional interest payments received by it. If an event of default occurs under the series 04-1 medium term note certificate, the security trustee, on behalf of the issuer as holder of the series 04-1 medium term note certificate, may appoint a receiver of the MTN Issuer who would continue to collect amounts paid on the investor certificate. The security trustee would also be able to sell the investor certificate. In addition, pursuant to the Series 04-1 Supplement the security trustee may give an enforcement notice to the MTN Issuer declaring the series 04-1 medium term note certificate to be immediately due and payable. A declaration that the series 04-1 medium term note certificate has become immediately due and payable will not, of itself, accelerate the timing or amount of redemption of the series 04-1 medium term note certificate. THE SECURITY TRUSTEE The security trustee is The Bank of New York, London Branch. The security trustee will act as trustee for the holder of the series 04-1 medium term note certificate under the security trust deed and MTN Issuer cash management agreement.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274032_simply-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274032_simply-inc_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d24cac766a67a9b63df24d137afd53d7337a2c6
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274032_simply-inc_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY The following summary highlights information contained in this prospectus. You should read this entire prospectus carefully, including the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274081_lydian_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274081_lydian_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..7c026eaf0c52df6d13bc51ba2f3caae01c7d8150
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274081_lydian_prospectus_summary.txt
@@ -0,0 +1 @@
+Total effect of discouraging or delaying attempts to gain control of us, including provisions which, among other things: authorize the issuance of additional shares of common stock and preferred stock, which may have terms which make it more difficult and/or expensive to acquire us; classify the board of directors into three classes to serve for three-year terms, with one class being elected annually, which makes it more difficult to change a majority of our board of directors; provide for a 662/3% vote for removal of directors by stockholders and a 50% vote for stockholders to call a special meeting of stockholders, which also make it more difficult to change a majority of our board of directors; and provide that action by stockholders may only be taken at a duly called meeting of stockholders and not by written consent and that stockholders must provide us with advance notice for nominations of directors and stockholder proposals, which could have the effect of delaying or impeding a proxy contest for control of us. Any or all of the foregoing provisions of Florida law and our Restated Articles and Restated Bylaws could delay or prevent tender offers or other business combination transactions that might otherwise result in our stockholders receiving a premium over the market price of our common stock. Initial public offering price $ $ Underwriting discount $ $
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274684_operadora_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274684_operadora_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274684_operadora_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274685_compania_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274685_compania_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274685_compania_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274686_transporte_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274686_transporte_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274686_transporte_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274688_division_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274688_division_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274688_division_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274689_inmobiliar_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274689_inmobiliar_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274689_inmobiliar_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274691_linea_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274691_linea_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274691_linea_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274694_operadora_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274694_operadora_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274694_operadora_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274696_personal_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274696_personal_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274696_personal_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274697_servicios_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274697_servicios_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274697_servicios_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274699_servicios_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274699_servicios_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274699_servicios_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274700_servicios_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274700_servicios_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274700_servicios_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274701_servicios_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274701_servicios_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274701_servicios_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274702_terminal_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274702_terminal_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274702_terminal_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274704_tmm_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274704_tmm_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274704_tmm_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274707_tmm_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274707_tmm_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274707_tmm_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274709_transporta_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274709_transporta_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274709_transporta_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274712_tmg_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274712_tmg_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274712_tmg_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274715_operadora_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274715_operadora_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..118b178d2fb1b39729e0d03a5f18d9bae173cd5d
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274715_operadora_prospectus_summary.txt
@@ -0,0 +1 @@
+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS PRESENTATION OF FINANCIAL INFORMATION ii EXCHANGE RATES iii ABOUT THIS PROSPECTUS iv SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001274727_ag-chem_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001274727_ag-chem_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f320e6ab7a4d51f700850fcf2fa27e31223f77eb
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001274727_ag-chem_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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+PROSPECTUS SUMMARY This summary highlights selected information about us and the material terms of the offering. This summary does not contain all of the information that you should consider before making an investment decision. This prospectus contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Risk Factors and elsewhere in this prospectus. Except as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters option to purchase additional shares. Unless otherwise indicated, the terms fiscal year and year in this prospectus refer to the 52 or 53 weeks ended on the last Saturday in December of the year referenced, except with respect to the year ended December 27, 2003, which refers to the consolidated results for our predecessor for the period from December 29, 2002 through December 19, 2003 combined with our consolidated results for the period from December 20, 2003 through December 27, 2003. Our Business We are a leading manufacturer and distributor of branded bedding products in the United States. We sell a broad range of mattresses and foundations under our well-recognized brand names, including Simmons , Beautyrest , our flagship product, and BackCare . Over our 134-year history, we have developed numerous innovations, including the first mass-produced innerspring mattress, the Pocketed Coil innerspring, the Murphy Bed, the Hide-a-Bed sofa and our patented no flip mattress. We also pioneered the national distribution of queen and king size mattresses and, in 2001, introduced the Olympic Queen mattress, an extra-wide queen mattress. For the year ended December 27, 2003 and the quarter ended March 27, 2004, we generated net sales of $806.3 million and $223.3 million, respectively, which represents growth of 13.8% over the year ended December 28, 2002 and 19.7% over the quarter ended March 29, 2003, respectively. The majority of our products are innerspring mattresses and foundations, which comprise an estimated 80% 90% of the U.S. wholesale bedding industry, according to industry sources. We place particular emphasis on premium products targeted to sell at higher-end retail price points of $799 and above per queen set. Additionally, we focus on selling queen and larger size mattresses. For the year ended December 27, 2003, we derived approximately 57% of our sales from mattresses with retail price points of $799 and above (39% from above $1,000) and approximately 83% of our sales from queen and larger size mattresses. We believe these product categories offer faster growth and higher gross margins than other bedding segments. Primarily as a result of this focus, our average unit selling price ( AUSP ) for the year ended December 27, 2003 was approximately 50% above the industry average as reported by the International Sleep Products Association ( ISPA ). We sell to a diverse nationwide base of approximately 3,400 retail customers, representing over 11,000 outlets, including furniture stores, specialty sleep shops, department stores and furniture rental stores. Our sales force added approximately 700 net new retail accounts from January 2001 to December 2003, broadening our revenue base and improving customer credit quality. We support these retailers with significant advertising and promotional spending, as well as extensive customer service. We also distribute branded bedding products on a contract sales basis, with an emphasis on premium products, directly to the hospitality industry and government agencies. Starwood Hotels Resorts Worldwide, Inc. has selected our Beautyrest mattress as the product for their Heavenly Bed program, a luxury hotel room program targeted at their preferred customer club members. In addition, we license selected trademarks, patents and other intellectual property to various domestic and foreign manufacturers. We operate 17 manufacturing facilities strategically located throughout the United States and Puerto Rico. Unlike many of our competitors that operate as associations of independent licensees, we have national in-house manufacturing capabilities. We believe that there are a number of important advantages to operating nationally, including the ability to service multi-state accounts, maintain more consistent quality of products and leverage research and development activities. Our just-in-time manufacturing Income (loss) before income taxes (7,190 ) (8,373 ) 665 (63 ) 6,944 (8,017 ) Income tax expense (benefit) (1,183 ) 355 Table of Contents capability enables us to manufacture and ship approximately 75% of our products to our retail customers within five business days of receiving their order and to minimize our working capital requirements. We have proven research and development capabilities. Guided by our Better Sleep Through Science philosophy, we apply extensive research to design, develop, manufacture and market innovative sleep products to provide consumers with a better night s sleep. We currently own 44 domestic and 188 international patents, and have 28 domestic and 38 international patent applications pending. In 2000, our management team began investing heavily in training to revitalize our corporate culture. Under the supportive team environment our management introduced, we have designed new products, diversified our customer base, standardized manufacturing processes and upgraded our information systems. In January 2004, Simmons was named one of FORTUNE magazine s 100 Best Places To Work . We have also improved our cost structure through our Zero Waste initiative, a program begun in January 2001 that focuses on the key result areas of safety, quality, service and cost. As a result of these and other efforts, our gross margin has increased from 40.8% for the year ended December 30, 2000 to 48.2% for the year ended December 27, 2003. Industry We compete in the U.S. wholesale bedding industry, which generated sales of approximately $5.0 billion in 2003, according to ISPA. While there are approximately 700 bedding manufacturers in the United States, four companies (including Simmons) accounted for approximately 59% of the industry s wholesale revenues for 2003 according to Furniture/Today. The remainder of the domestic conventional bedding market primarily consists of hundreds of smaller independent local and regional manufacturers. The U.S. bedding industry is characterized by growing unit demand, rising AUSPs and stability throughout various economic environments. Annual growth of total bedding industry sales has averaged approximately 5.9% over the last twenty years. During this period, there has been just one year in which industry revenues declined (0.3% in 2001). This stability and resistance to economic downturns is due largely to replacement purchases, which account for approximately 80% of bedding industry sales. In addition, high shipping costs and the short lead times demanded by mattress retailers limited Asian imports to less than 3% of the U.S. market in 2003 according to the International Trade Association. For the twelve months ended March 31, 2004, ISPA estimates that total bedding industry sales increased 10.1% over the prior twelve-month period. We believe that current trends favor increased consumer spending on mattresses. These trends are particularly favorable for sales of mattresses at the premium end of the market and queen and larger size mattresses, two areas where we believe we are well-positioned. We believe that the factors contributing to growth in these areas include: Rapid growth in the 39-57 year old segment of the population, the largest and fastest growing segment of the population according to the U.S. Census Bureau, a group that tends to have higher earnings and more discretionary income and makes a disproportionate share of the purchases of bedding products relative to the general population; Growth in the size of homes, which increased from an average of approximately 1,725 square feet in 1983 to approximately 2,320 square feet in 2003, and the number of bedrooms in homes in the last twenty years, according to the National Association of Home Builders; Strong historical and projected growth in the number of people purchasing second homes, which grew approximately 17% from 1990-2000 according to the U.S. Census Bureau; Increasing consumer awareness of the health benefits of better sleep, as evidenced by a study conducted by the Better Sleep Council in March 2004, in which 90% of all respondents reported that a good mattress was essential to health and well being; and Greater relative profitability that the bedding category provides to retailers, particularly in higher-end products. Definite-lived intangible assets: Patents 10 $ 29,994 $ (66 ) $ 17,647 $ (17,049 ) Customer contracts 11 20,078 (40 ) Licenses 6 15,370 (56 ) 398 (8 ) Contract sales 4 8,823 (48 ) Employment contracts 3 3,367 (25 ) Equipment leases 1 660 (14 ) Software 2 2,249 (25 ) Non-compete agreements SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents As a result of these and other trends, mattress units sold in the United States at retail price points of at least $1,000, as a percent of total mattress units sold, rose from 15.5% in 2000 to 19.8% in 2003, according to ISPA. Mattress units sold by us at retail price points of at least $1,000, as a percent of total mattress units sold by us, rose from 20.7% in 2000 to 39.2% in 2003. Additionally, queen and larger size mattress units sold in the United States, as a percent of total mattress units sold, rose from 43.3% in 2000 to 46.5% in 2003, according to ISPA. Queen and larger size mattress units sold by us, as a percent of total mattress units sold by us, rose from 66.0% in 2000 to 70.9% in 2003. Competitive Strengths We believe that the following key competitive strengths will contribute to our continued success: Leading Market Position, Particularly in Premium Segments. According to Furniture/ Today, we are the second largest bedding manufacturer in the United States, with an estimated 15.7% market share for 2003. Because our AUSP is 50% higher than the industry average, we believe that our market share is significantly greater in the premium segments and queen and larger size mattresses. Strong Portfolio of Brands. We have a strong portfolio of brands, including Simmons , Beautyrest and BackCare . These brands together have approximately 84% domestic brand recognition, according to a 2002 report that we commissioned. Industry-leading Innovation and New Product Introductions. Guided by our Better Sleep Through Science philosophy, we apply extensive research to design, develop, manufacture and market innovative sleep products to provide consumers with a better night s sleep. We believe our continuing focus on innovation and new product introductions has led us to increase our unit sales and AUSP. Superior Manufacturing Platform. Our manufacturing facilities are strategically located throughout the United States and Puerto Rico with complete national coverage. We are vertically integrated and manufacture our Pocketed Coil springs at each of our plants. Our just-in-time manufacturing system, supported by our fully integrated information technology systems, allows us to manufacture and ship approximately 75% of our products to our retail customers within five business days of receiving their order. Highly Diversified Customer Base. We sell to a diverse nationwide customer base of approximately 3,400 retail customers, representing over 11,000 outlets, including furniture, specialty bedding and department stores and furniture rental centers. No single customer accounted for more than 4.2% of our sales in 2003. Strong Track Record of Growth and Free Cash Flow Generation. Driven by a shift in sales mix to higher margin products, a focus on the elimination of manufacturing waste, as well as control over fixed manufacturing costs and selling, general and administrative expenses, we have significantly increased our gross margin and operating cash flow. Additionally, we have low capital expenditure and working capital requirements. Our ability to generate strong and consistent free cash flow has given us the flexibility to invest in our operations, pursue attractive growth opportunities and reduce debt. Outstanding Management Team Driving a Unique Corporate Culture. Our management team, which includes executives with significant bedding and consumer products experience, has helped us build a high- performance culture. A significant portion of the compensation of our management team and certain key employees is subject to performance-based vesting, and our management team currently owns approximately % of our common equity on a fully-diluted as-converted basis, after giving effect to the vesting of all outstanding restricted stock ( % after this offering). In January 2004, Simmons was named one of FORTUNE magazine s 100 Best Places To Work. Amendment No. 1 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Our Strategy Our goal is to further enhance our position as a leading manufacturer and distributor of branded bedding products. Key elements of our strategy include: Increase Market Share in Premium Segments. We are focused on increasing our market share in the higher-margin and higher-growth premium segments, which include mattresses sold at retail price points greater than $1,000. In 2003, we launched a number of additional products in the premium segments, including several high-end luxury mattress lines through our subsidiary, Windsor Bedding Co., LLC, with retail price points ranging from $2,899 to $8,999 for queen sets. Continue to Introduce New Innovative Products. We plan to continue our successful record of innovation and to introduce new products designed to increase our unit sales and AUSP. We intend to launch new Beautyrest and BackCare product lines in 2005. Increase Customer Penetration. We seek to improve the quality of, and selectively expand, our customer base through the following dual-pronged approach: Expand Within Existing Accounts. Only 48% of our retail customers carry both our leading lines of mattresses, Beautyrest and BackCare , and we believe that with focused marketing and education of retail salespersons, we can significantly increase our penetration levels. In addition, we believe our new product introductions will allow us to penetrate further our existing accounts. Target New Accounts. Continuing on our prior success of opening new accounts, our management team has targeted a significant number of new accounts on a national and regional basis in our current and new distribution channels. Optimize Cost Structure and Manufacturing Network. We intend to continue managing our cost structure while driving revenue growth. Our Zero Waste initiative, which started in 2001 and is focused upon safety, quality, service and cost, has been instrumental in generating cost savings and expanding margins. In 2003, we began a process to optimize our manufacturing network by replacing and repositioning existing facilities. We believe we have additional opportunities to leverage further our manufacturing network and our selling, general and administrative infrastructure. Pursue Selective Acquisition Opportunities. We license our trademarks, patents and other intellectual property to various domestic and foreign manufacturers and distributors. These licensees generated sales of Simmons-branded products of over approximately $470 million in 2003. We believe there may be opportunities to selectively acquire licensees and other bedding businesses in the future. Our Corporate Information We are a corporation organized under the laws of the State of Delaware. Our principal executive office is located at One Concourse Parkway, Suite 800, Atlanta, Georgia 30328 and our telephone number is (770) 512-7700. Our website address is www.simmons.com. Our website, and the information contained in our website, is not a part of this prospectus. Unless the context otherwise requires, references to THL Holding refer to THL Bedding Holding Company, references to we, our, ours and us refer to THL Holding and its consolidated subsidiaries, and references to Simmons refer to Simmons Company and its consolidated subsidiaries. We intend to change the name of THL Holding to Simmons Company and to change the name of Simmons to Simmons Bedding Company. THL Holding is the direct parent of THL-SC Bedding Company, which is the direct parent of Simmons Company. All of our business operations are conducted by Simmons. THL Holding was formed by Thomas H. Lee Equity Fund V, L.P., or THL, an affiliate of Thomas H. Lee Partners, L.P. The (In thousands) Net sales to external customers $ 6,509 $ 2,208 $ $ 8,717 Intersegment net sales 346 (346 ) Adjusted EBITDA (826 ) (85 ) 307 (604 ) Segment assets 1,142,939 38,638 1,542 1,183,119 Depreciation and amortization expense 638 18 656 Expenditures for long-lived assets Reconciliation of adjusted EBITDA to net income (loss): Net income (loss) $ (6,824 ) $ (673 ) $ 307 $ (7,190 ) Depreciation and amortization 638 18 656 Income taxes (827 ) (827 ) Interest expense, net 4,657 4 4,661 Interest income 4 Net cash provided by (used in) investing activities (7,681 ) (532 ) THL Bedding Holding Company (Exact name of Registrant as specified in its charter) Simmons , Beautyrest , BackCare , BackCare Kids , Deep Sleep , Olympic , Pocketed Coil , Better Sleep Through Science , Hide-A-Bed , The Do Not Disturb Mattress , Slumberland , World Class and Dreamwell are registered United States trademarks of Simmons Company or one of its wholly owned subsidiaries, and s ngTM, Pocketed Cable CoilTM, BackCare AdvancedTM, Living RightTM, ExceptionaleTM, LatitudesTM, Moisture BanTM, RightHeightTM and Columbia Fine BeddingTM are unregistered trademarks of Simmons Company or one of its wholly owned subsidiaries. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective holders. Delaware 2511 20-0646221 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) One Concourse Parkway, Suite 800 Atlanta, Georgia 30328-6188 (770) 512-7700 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents The Offering Common stock offered by us shares Common stock offered by the selling stockholders shares Common stock to be outstanding after this offering shares Use of proceeds We intend to use the net proceeds of this offering to repay a portion of our outstanding indebtedness and to fund working capital. See Use of Proceeds. Proposed New York Stock Exchange symbol
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 26, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 55 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined in Certain Relationships and Related Transactions beginning on page 110) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. As a result of our broad scale and scope, which includes a comprehensive network of approximately 350 distribution and storage facilities, five formulation and blending plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,000 sales people, we provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended May 30, 2004, on a pro forma basis after giving effect to the Transactions, we generated net sales of $2.6 billion and income before income taxes of $38.1 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 150 other suppliers as well as over 250 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of February 22, 2004, we had approximately 78,000 customers, with our ten largest customers accounting for approximately 2% of our net sales in fiscal 2004, on a pro forma basis after giving effect to the Acquisition. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as Income from operations 20,435 78,966 (1,117 ) 98,284 98,284 Corporate allocations Finance charges 19,550 (19,550 )(h) Finance fee income (3,432 ) (7,341 ) (10,773 ) (10,773 ) Interest expense 7,376 704 30,635 (h) 38,715 28,671 (l) 67,386 Dividends on Series A redeemable preferred stock 1,049 1,690 Income from operations 73,612 23,584 (745 ) 96,451 96,451 Corporate allocations Finance charges 15,420 (15,420 )(h) Finance fee income (4,403 ) (5,632 ) (10,035 ) (10,035 ) Interest expense 18,749 434 20,344 (h) 39,527 28,844 (l) 68,371 Dividends on Series A redeemable preferred stock 1,808 1,343 Balance at February 22, 2004 $ 1.1 Form of Underwriting Agreement.* 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Form of Amended and Restated Certificate of Incorporation of UAP Holding Corp.* 3.6 Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock.* 3.7 Form of Amendment to Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock.* 3.8 Form of Amended and Restated By-Laws of UAP Holding Corp.* 3.9 Amended and Restated Articles of Incorporation of AG-CHEM, Inc. dated as of September , 2004.* 3.10 Amended and Restated By-Laws of AG-CHEM, Inc. as adopted on September , 2004.* 3.11 Amended and Restated Articles of Incorporation of Balcom Chemicals, Inc. dated as of September , 2004.* 3.12 Amended and Restated By-Laws of Balcom Chemicals, Inc. as adopted on September , 2004.* 3.13 Amended and Restated Articles of Incorporation of Cropmate Company dated as of September , 2004.* 3.14 Amended and Restated By-Laws of Cropmate Company as adopted on September , 2004.* 3.15 Amended and Restated Articles of Incorporation of CSK Enterprises, Inc. dated as of September , 2004.* 3.16 Amended and Restated By-Laws of CSK Enterprises, Inc. as adopted on September , 2004.* 3.17 Amended and Restated Articles of Incorporation of GAC 26, Inc. dated as of September , 2004.* 3.18 Amended and Restated By-Laws of GAC 26, Inc. as adopted on September , 2004.* SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.0% in fiscal 2004, on a pro forma basis after giving effect to the Transactions, while reducing average working capital as a percentage of net sales from approximately 25% in fiscal 2001 to approximately 20% in fiscal 2004, a reduction of $216.9 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures, and has experienced relative stability since 1997 (as measured by total revenues). Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our net sales, market share and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. Operating Model Focused on Free Cash Flow. We believe that our operating model generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Extensive Distribution Network. As of February 22, 2004, we operated a broad distribution network of approximately 350 retail and wholesale farm distribution and storage facilities, five formulation facilities, approximately 1,000 sales people across North America, and had a sales presence in all 50 states of the United States and nine of the 13 Canadian provinces. Coastal Carolinas NC, SC, VA 1 13 14 Florida FL 1 13 14 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AZ, CA, NV 3 16 19 Northern Great Lakes MI, OH, WI 17 14 31 Midwest IA, MN 19 24 43 Northern Plains MT, ND, SD 8 9 17 Northwest HI, ID, OR, UT, WA 6 14 20 Pueblo CO, KS, NE, WY 11 6 17 Richter MO, IL, IN 28 29 57 Southern Delta LA, MS 7 30 37 Midsouth AR, KY, TN 5 22 27 Southeast AL, GA 6 9 15 Southwest NM, OK, TX 6 24 30 Canada 4 13 17 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) Long-term debt 86,432 225,000 311,432 Series A redeemable preferred stock 35,379 35,379 Deferred income taxes 264 264 Other noncurrent liabilities 96 96 Common stock, $.001 par value, 2,200,000 shares authorized, 1,208,450 shares issued and outstanding 1 1 (1 ) 1 Additional paid in capital 67,139 179,999 372,839 33,316 (586,154 ) 67,139 Retained earnings 35,175 38,699 43,156 (1,231 ) (80,624 ) 35,175 Accumulated other comprehensive loss (602 ) (2 ) 3.19 Amended and Restated Articles of Incorporation of Genmarks, Inc. dated as of September , 2004.* 3.20 Amended and Restated By-Laws of Genmarks, Inc. as adopted on September , 2004.* 3.21 Amended and Restated Articles of Incorporation of Grower Service Corporation (New York) dated as of September , 2004.* 3.22 Amended and Restated By-Laws of Grower Service Corporation (New York) as adopted on September , 2004.* 3.23 Amended and Restated Articles of Incorporation of HACO, Inc. dated as of September , 2004.* 3.24 Amended and Restated By-Laws of HACO, Inc. as adopted on September , 2004.* 3.25 Amended and Restated Articles of Incorporation of Loveland Industries, Inc. dated as of September , 2004.* 3.26 Amended and Restated By-Laws of Loveland Industries, Inc. as adopted on September , 2004.* 3.27 Amended and Restated Articles of Incorporation of Loveland Products, Inc. dated as of September , 2004.* 3.28 Amended and Restated By-Laws of Loveland Products, Inc. as adopted on September , 2004.* 3.29 Amended and Restated Articles of Incorporation of Midwest Agriculture Warehouse Co. dated as of September , 2004.* 3.30 Amended and Restated By-Laws of Midwest Agriculture Warehouse Co. as adopted on September , 2004.* 3.31 Amended and Restated Articles of Incorporation of Ostlund Chemical Co. dated as of September , 2004.* 3.32 Amended and Restated By-Laws of Ostlund Chemical Co. as adopted on September , 2004.* 3.33 Amended and Restated Articles of Incorporation of Platte Chemical Co. dated as of September , 2004.* 3.34 Amended and Restated By-Laws of Platte Chemical Co. as adopted on September , 2004.* 3.35 Amended and Restated Articles of Incorporation of Pueblo Chemical & Supply Co. dated as of September , 2004.* 3.36 Amended and Restated By-Laws of Pueblo Chemical & Supply Co. as adopted on September , 2004.* 3.37 Amended and Restated Articles of Incorporation of Ravan Products, Inc. dated as of September , 2004.* 3.38 Amended and Restated By-Laws of Ravan Products, Inc. as adopted on September , 2004.* 3.39 Amended and Restated Articles of Incorporation of S.E. Enterprises, Inc. dated as of September , 2004.* 3.40 Amended and Restated By-Laws of S.E. Enterprises, Inc. as adopted on September , 2004.* 3.41 Amended and Restated Articles of Incorporation of Snake River Chemicals, Inc. dated as of September , 2004.* 3.42 Amended and Restated By-Laws of Snake River Chemicals, Inc. as adopted on September , 2004.* 3.43 Amended and Restated Articles of Incorporation of Transbas, Inc. dated as of September , 2004.* 3.44 Amended and Restated By-Laws of Transbas, Inc. as adopted on September , 2004.* Amendment No. 3 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Strong Supplier Relationships. We purchase products from over 150 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of agricultural inputs of our seven largest suppliers. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Proven and Incentivized Management Team. Our current senior management team has an average of over 18 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to continue to seek to improve margins and reduce working capital through the following principal strategies: Targeting continued margin enhancement and working capital management; Expanding our presence in seeds, branded and non-crop products; and Leveraging our scale. 3.45 Amended and Restated Articles of Incorporation of Tri-River Chemical Company, Inc. dated as of September , 2004.* 3.46 Amended and Restated By-Laws of Tri-River Chemical Company, Inc. as adopted on September , 2004.* 3.47 Amended and Restated Articles of Incorporation of Tri-State Chemicals, Inc. dated as of September , 2004.* 3.48 Amended and Restated By-Laws of Tri-State Chemicals, Inc. as adopted on September , 2004.* 3.49 Amended and Restated Articles of Incorporation of Tri-State Delta Chemicals, Inc. dated as of September , 2004.* 3.50 Amended and Restated By-Laws of Tri-State Delta Chemicals, Inc. as adopted on September , 2004.* 3.51 Amended and Restated Articles of Incorporation of UAP 22, Inc. dated as of September , 2004.* 3.52 Amended and Restated By-Laws of UAP 22, Inc. as adopted on September , 2004.* 3.53 Amended and Restated Articles of Incorporation of UAP 23, Inc. dated as of September , 2004.* 3.54 Amended and Restated By-Laws of UAP 23, Inc. as adopted on September , 2004.* 3.55 Amended and Restated Articles of Incorporation of UAP 27, Inc. dated as of September , 2004.* 3.56 Amended and Restated By-Laws of UAP 27, Inc. as adopted on September , 2004.* 3.57 Amended and Restated Articles of Incorporation of UAP Receivables Corporation dated as of September , 2004.* 3.58 Amended and Restated By-Laws of UAP Receivables Corporation as adopted on September , 2004.* 3.59 Amended and Restated Articles of Incorporation of UAP/GA AG Chem, Inc. dated as of September , 2004.* 3.60 Amended and Restated By-Laws of UAP/GA AG Chem, Inc. as adopted on September , 2004.* 3.61 Amended and Restated Articles of Incorporation of UAPLP, Inc. dated as of September , 2004.* 3.62 Amended and Restated By-Laws of UAPLP, Inc. as adopted on September , 2004.* 3.63 Amended and Restated Articles of Incorporation of United Agri Products, Inc. dated as of November 24, 2003 (incorporated by reference to Exhibit 3.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.64 Certificate of Amendment of the Certificate Incorporation of United Agri Products, Inc. dated as of December 11, 2003 (incorporated by reference to Exhibit 3.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.65 By-Laws of United Agri Products, Inc. as adopted on November 17, 2003 (incorporated by reference to Exhibit 3.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.66 Amended and Restated Articles of Incorporation of United Agri Products Financial Services, Inc. dated as of September , 2004.* 3.67 Amended and Restated By-Laws of United Agri Products Financial Services, Inc. as adopted on September , 2004.* 3.68 Amended and Restated Articles of Incorporation of United Agri Products Florida, Inc. dated as of September , 2004.* UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Table of Contents THE TRANSACTIONS THE AMENDED CREDIT FACILITIES Concurrently with the closing of this offering, United Agri Products will amend and restate its existing $500.0 million revolving credit facility and enter into a new seven-year $165.0 million senior secured second lien term loan facility. In this prospectus, we refer to the revolving credit facility, as amended, as the amended and restated revolving credit facility, and to the amended and restated revolving credit facility and the new senior secured second lien term loan facility, collectively, as the Amended Credit Facilities. While the Amended Credit Facilities will permit us to pay interest and dividends to IDS holders and to pay interest to holders of the separate senior subordinated notes under certain circumstances, they will contain significant restrictions on our ability to make interest and dividend payments to such holders and on our subsidiaries ability to make distributions to us. For a summary description of the Amended Credit Facilities, see Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. THE RECAPITALIZATION Prior to the closing of this offering, we will enter into a management incentive agreement with certain of our security holders, and we will enter into a recapitalization agreement with our equity sponsor. Pursuant to these agreements, the following transactions will occur: Prior to the closing of this offering, we will amend and restate our certificate of incorporation to, among other things, authorize a new class of participating preferred stock and effect a 49.578-for-1 split of our common stock. In this offering, our equity sponsor will sell a portion of its shares of common stock, and we will sell the senior subordinated notes represented by the IDSs and the separate senior subordinated notes. We will use a portion of the proceeds from the senior subordinated notes represented by the IDSs and the separate senior subordinated notes to repurchase a portion of our equity sponsor s remaining shares of common stock and to make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. We will issue shares of our new participating preferred stock in exchange for all shares of common stock held by our equity sponsor other than the shares sold in this offering or repurchased with the proceeds from the senior subordinated notes. We will issue shares of participating preferred stock to a rabbi trust in exchange for shares of common stock currently held in such trust, and the deferred compensation accounts under our deferred compensation plans, which are currently deemed to be invested in such shares of common stock, will instead be deemed to be invested in such shares of participating preferred stock. We will issue additional shares of participating preferred stock to the rabbi trust, and deferred compensation accounts under our deferred compensation plans will be deemed to be invested in such additional shares, in consideration for the cancellation of all options that are not cancelled in exchange for the cash payments described above. To the extent the underwriters over-allotment option is exercised, we will sell additional IDSs to the underwriters and use the proceeds to repurchase shares of our participating preferred stock from our equity sponsor. In this prospectus, we refer to these transactions as the Recapitalization. For a more detailed description of the management incentive agreement and the recapitalization agreement, see Certain Relationships and Related Transactions Related Party Transactions in Connection with this Offering beginning on page 118. Property, plant and equipment, net 93,295 3,870 97,165 Goodwill 43,465 43,465 Intangible assets, net 6,705 6,705 Deferred income taxes 6,605 6,605 Debt issue costs 2,360 9,658 9,589 21,607 Investment in subsidiaries 218,699 448,078 (666,777 ) Other assets 978 7,757 3.69 Amended and Restated By-Laws of United Agri Products-Florida, Inc. as adopted on September , 2004.* 3.70 Amended and Restated Articles of Incorporation of Verdicon, Inc. dated as of September , 2004.* 3.71 Amended and Restated By-Laws of Verdicon, Inc. as adopted on September , 2004.* 3.72 Amended and Restated Articles of Incorporation of YVC, Inc. dated as of September , 2004.* 3.73 Amended and Restated By-Laws of YVC, Inc. as adopted on September , 2004.* 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.5 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.6 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.8 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Form of Amendment to Credit Agreement, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Holding Company, as Canadian agent.* See Table of Additional Registrants on Following Page Table of Contents Currently, our equity sponsor beneficially owns 100% of our total voting power. Immediately following the Recapitalization and this offering, our equity sponsor will beneficially own 14.3% of our total voting power (or 2.1% if the underwriters over-allotment option is exercised in full). Following the first anniversary of the consummation of this offering, the holders of our participating preferred stock will have the right to convert such stock into IDSs or, if the IDSs have automatically separated, shares of our common stock and senior subordinated notes, provided that certain conditions are satisfied. In this prospectus, we refer to these conditions as the Conversion Conditions. One of the Conversion Conditions is compliance with the requirement under the indenture governing the senior subordinated notes that a number of shares of participating preferred stock representing at least 10% of the fair value of our equity immediately after this offering remain outstanding for the first two years following this offering. For a description of the terms of the participating preferred stock, including the Conversion Conditions, see Description of Capital Stock Participating Preferred Stock beginning on page 140. Each share of participating preferred stock will initially be convertible into one IDS. No fractional portion of an IDS, or fractional portion of the components of an IDS, will be issued upon a conversion of shares of participating preferred stock. Instead, we will pay the holder of the shares converted an amount in cash in respect of the fractional interest based upon the fair market value of the IDSs on the trading day immediately preceding the date of conversion. ACCOUNTING TREATMENT FOR THE TRANSACTIONS For a detailed description of the accounting treatment for the Transactions (as defined below), see Management s Discussion and Analysis of Financial Condition and Risks of Operations Critical Accounting Policies Accounting Treatment for IDSs beginning on page 78 and Accounting for Participating Preferred Stock beginning on page 79. THE TENDER OFFERS AND CONSENT SOLICITATIONS On April 26, 2004, United Agri Products commenced a tender offer and consent solicitation with respect to all its outstanding $225.0 million aggregate principal amount of 8 % Senior Notes due 2011 (the 8 % Senior Notes ) and UAP Holdings commenced a tender offer and consent solicitation with respect to all its outstanding $125.0 million aggregate principal amount at maturity of 10 % Senior Discount Notes due 2012 (the 10 % Senior Discount Notes ). In this prospectus, we refer to the tender offer and consent solicitation with respect to the 8 % Senior Notes and the tender offer and consent solicitation with respect to the 10 % Senior Discount Notes as the 8 % Senior Note Tender Offer and the 10 % Senior Discount Note Tender Offer, respectively, and we refer to both tender offers and consent solicitations, collectively, as the Tender Offers. For a summary description of the terms of the 8 % Senior Note Tender Offer, see Description of Other Indebtedness 8 % Senior Notes Tender Offer and Consent Solicitation beginning on page 130, and for a summary description of the terms of the 10 % Senior Discount Note Tender Offer, see Description of Other Indebtedness 10 % Senior Discount Notes Tender Offer and Consent Solicitation beginning on page 132. As of the date of this prospectus, all $125,000,000 aggregate principal amount at maturity of 10 3/4% Senior Discount Notes and all $225,000,000 aggregate principal amount of 8 1/4% Senior Notes have been validly tendered and have not been withdrawn in the Tender Offers. The Tender Offers will currently expire on October 8, 2004, unless otherwise extended, and are conditioned upon, among other things, the closing of this offering. We expect to use a portion of the net proceeds from this offering and borrowings under the new term loan facility to pay for the 8 % Senior Notes and the 10 % Senior Discount Notes accepted for purchase in the Tender Offers. Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies Common stock 1 1 Additional paid-in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) ASSETS CURRENT ASSETS: Cash and cash equivalents Accounts receivable net of allowance 703,679 39,866 743,545 Inventory 647,223 40,475 687,698 Deferred income taxes 21,912 21,912 Other current assets 18,962 4.10 Form of Senior Secured Second Lien Term Loan Facility, by and among United Agri Products, as borrower, the other credit parties thereto, the lenders party thereto and , as agent and lender.* 4.11 Form of Senior Subordinated Notes Indenture, by and among UAP Holding Corp., the Guarantors named therein and JPMorgan Chase Bank, as trustee.* 4.12 Form of global senior subordinated note (included in Exhibit 4.11).* 4.13 Form of global IDS certificate.* 4.14 Form of global stock certificate for Common Stock.* 4.15 First Supplemental Indenture, dated as of May 24, 2004, by and among United Agri Products, Inc. the Guarantors named therein and JPMorgan Chase Bank, as trustee.** 4.16 First Supplemental Indenture, dated as of May 24, 2004, by and between UAP Holding Corp and JPMorgan Chase Bank, as trustee.** 4.17 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among United Agri Products, Inc., each of the subsidiary guarantors party thereto, and the holders of at least a majority in aggregate principal amount at maturity of United Agri Products, Inc. s 8 1/4% Senior Notes due 2011 outstanding as of the date thereof.** 4.18 Amendment No. 1 to the Registration Rights Agreement, dated as of May 24, 2004, by and among UAP Holding Corp. and the holders of at least a majority in aggregate principal amount at maturity of UAP Holding Corp. s 10 3/4% Senior Discount Notes due 2012 outstanding as of the date thereof.** 4.19 Form of Amended and Restated Registration Rights Agreement dated as of , 2004 among UAP Holding Corp., Apollo Investment Fund V, LP, Apollo Netherlands Partners V (A), LP, Apollo Netherlands Partners V (B), LP and Apollo German Partners V GmbH & Co. KG.* 5.1 Opinion of O Melveny & Myers LLP.* 5.2 Opinion of Faegre & Benson LLP, special counsel to the Colorado guarantors.* 5.3 Opinion of Holland & Knight LLP, special counsel to the Florida guarantor.* 5.4 Opinion of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors.* 5.5 Opinion of Perkins Coie LLP, special counsel to the Idaho guarantor.* 5.6 Opinion of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor.* 5.7 Opinion of Venable LLP, special counsel to the Maryland guarantor.* 5.8 Opinion of Watkins Ludlam Winter & Stennis, P.A., special counsel to the Mississippi guarantor.* 5.9 Opinion of Holland & Hart LLP, special counsel to the Montana guarantor.* 5.10 Opinion of Stinson Morrison Hecker LLP, special counsel to the Nebraska guarantors.* 5.11 Opinion of Dorsey & Whitney LLP, special counsel to the North Dakota guarantor.* 5.12 Opinion of Bass, Berry & Sims PLC, special counsel to the Tennessee guarantor.* 5.13 Opinion of Baker & McKenzie LLP, special counsel to the Texas guarantors.* 5.14 Opinion of Stoel Rives LLP, special counsel to the Washington guarantor.* 8.1 Opinion of O Melveny & Myers LLP.* 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $20 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from the offering of IDSs of approximately $346.8 million after deducting underwriting discounts, commissions, and other estimated offering expenses and that our equity sponsor will receive net proceeds of approximately $566.6 million. We estimate that we will also sell $40.6 million aggregate principal amount of senior subordinated notes in this offering separately from the IDSs, and receive net proceeds of approximately $40.6 million from the sale of such senior subordinated notes. We will not receive any of the proceeds from the sale of shares of common stock represented by IDSs offered hereby by our equity sponsor. We will use the net proceeds received by us from this offering, together with borrowings under the Amended Credit Facilities, to: repurchase the outstanding 8 % Senior Notes tendered pursuant to the 8 % Senior Note Tender Offer; repurchase the outstanding 10 % Senior Discount Notes tendered pursuant to the 10 % Senior Discount Note Tender Offer; repurchase all our outstanding Series A Redeemable Preferred Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ); and repurchase shares of common stock from our equity sponsor and make cash payments to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor. We refer to this offering, and the application of the proceeds thereof, the Amended Credit Facilities, the Tender Offers and the Recapitalization, collectively, as the Transactions. 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 18, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. (1) Includes $438.0 million of proceeds from the sale of common stock by our equity sponsor. We will not receive any of the proceeds from the sale by our equity sponsor of shares of common stock represented by the IDSs offered hereby. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (2) Reflects the repurchase in the 8 % Senior Note Tender Offer of 100% of United Agri Products existing 8 % Senior Notes. The proceeds of the 8 % Senior Notes, which mature on December 15, 2011, were used to repay United Agri Products senior bridge loan facility, which was incurred in connection with the Acquisition, to repay a portion of the existing revolving credit facility and to pay related fees and expenses. See Description of Other Indebtedness 8 % Senior Notes beginning on page 128. (3) Reflects the repurchase in the 10 % Senior Discount Note Tender Offer of 100% of UAP Holdings 10 % Senior Discount Notes. The proceeds of the 10 % Senior Discount Notes, which mature on July 15, 2012, were used to pay a dividend to the holders of our common stock, to redeem a portion of our outstanding Series A Redeemable Preferred Stock and to pay related fees and expenses. (4) Reflects the redemption of all our issued and outstanding Series A Redeemable Preferred Stock from ConAgra Foods. (5) Reflects the proceeds to our existing stockholders from (a) the sale of common stock represented by the IDSs offered hereby by our equity sponsor, (b) the repurchase of shares of our outstanding common stock from our equity sponsor pursuant to the recapitalization agreement and (c) cash payments of approximately $13.7 million to certain members of our management in exchange for the cancellation of 20% of their vested common equity, including options that will immediately vest in connection with this offering, pursuant to the management incentive agreement. To the extent the underwriters over-allotment option is exercised, we will use all the proceeds from the sale of additional IDSs to repurchase shares of our participating preferred stock from our equity sponsor pursuant to the recapitalization agreement. (6) Includes $55.0 million of prepayment penalties related to the repurchase of outstanding indebtedness, $8.4 million of accrued interest, and $53.8 million of fees and expenses related to this offering. 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between UAP Holding Corp. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.16 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.** 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.** 10.20 Form of Amended and Restated 2004 Non-Executive Director Option Plan.* 10.21 Form of First Amendment to Registration Rights Agreement, by and between UAP Holding Corp. and the Apollo Investors.* 10.22 Form of Termination of Management Consulting Agreement, between UAP Holding Corp. and Apollo Management V, L.P.* 10.23 Form of Amended and Restated 2004 Deferred Compensation Plan.* 10.24 Form of Recapitalization Agreement.* 10.25 Form of Management Incentive Agreement.* 10.26 Form of Amended and Restated 2003 Stock Option Plan.* 10.27 Form of Long-Term Incentive Plan.* 12.1 Computation of Ratios of Earnings to Fixed Charges.** 12.2 Pro Forma Computation of Ratios of Earnings to Fixed Charges. 21.1 Subsidiaries of UAP Holding Corp. (incorporated by reference to Exhibit 21.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of O Melveny & Myers LLP (included in Exhibits 5.1 and 8.1).* 23.3 Consent of Faegre & Benson LLP, special counsel to the Colorado guarantors (included in Exhibit 5.2).* 23.4 Consent of Holland & Knight LLP, special counsel to the Florida guarantor (included in Exhibit 5.3).* 23.5 Consent of Hartman, Simmons, Speilman & Wood, LLP, special counsel to the Georgia guarantors (included in Exhibit 5.4).* 23.6 Consent of Perkins Coie LLP, special counsel to the Idaho guarantor (included in Exhibit 5.5).* 23.7 Consent of Bell, Boyd & Lloyd LLC, special counsel to the Illinois guarantor (included in Exhibit 5.6).* 23.8 Consent of Venable LLP, special counsel to the Maryland guarantor (included in Exhibit 5.7).* Table of Contents OTHER INFORMATION ABOUT THIS PROSPECTUS Unless the context otherwise requires, references in this prospectus to this offering or the offering refer collectively to the offering of 36,500,000 IDSs and $40.6 million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $20.00 per IDS (comprised of $8.00 principal amount allocated to each senior subordinated note and $12.00 allocated to each share of common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the participating preferred stock: (1) in which deferred compensation accounts under our amended and restated 2004 deferred compensation plan will be deemed to be invested after consummation of this offering; (2) to be issued to our equity sponsor in the Recapitalization; or (3) to be issuable upon the exercise of outstanding stock options after the Recapitalization; and gives effect to the proposed 49.578-for-1 split of our common stock. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has managed the investment of an aggregate of approximately $18 billion in equity capital, including $13 billion invested in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * To be filed by Amendment. ** Previously filed. Table of Contents UAP HOLDING CORP. TABLE OF ADDITIONAL REGISTRANTS Name Table of Contents THE OFFERING This is an offering of 36,500,000 IDSs at an assumed initial public offering price of $20.00 per IDS (comprised of $8.00 allocated to each senior subordinated note and $12.00 allocated to each share of common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs at an assumed initial public offering price of 100% of their stated principal amount. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. In addition, no purchaser, including our existing stockholders, or any affiliate of such purchaser, will be permitted to purchase both IDSs and senior subordinated notes. SUMMARY OF THE IDSs What are IDSs? IDSs are securities comprised of our common stock and senior subordinated notes. Each IDS initially represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. The ratio of common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our common stock. For example, if we elect to effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our common stock, each IDS will thereafter represent the appropriate number of shares of common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs, or approximately $0.960 per senior subordinated note per year, subject to our right, under certain circumstances, to defer interest payments on our senior subordinated notes. We expect to make our first interest payment on February 1, 2005. In addition, we currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005, based on a quarterly dividend level of $0.235 per share of common stock. We currently intend to continue to pay quarterly dividends at this rate for the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes contains restrictions on our ability to declare and pay dividends on our common stock. We expect to make interest payments and any dividend payments on or about the first day of each February, May, August and November, commencing February 1, 2005, to holders of record on the 15th day of January, April, July and October or the immediately preceding business day. The cash used to make such interest and any Jurisdiction of Incorporation or Organization Table of Contents dividend payments is expected to come from distributions by United Agri Products. The Amended Credit Facilities will contain provisions limiting United Agri Products ability to make distributions to us. See Description of Other Indebtedness Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility beginning on page 125. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the Amended Credit Facilities. See Dividend Policy and Restrictions beginning on page 44. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the common stock and senior subordinated notes represented by the IDSs. The common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our common stock, and the senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the American Stock Exchange under the trading symbol UAP. Will the senior subordinated notes sold separately from the IDSs be the same as the senior subordinated notes issued as part of the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical to the terms of the senior subordinated notes that are part of IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book entry form only. As discussed under Description of Income Deposit Securities (IDSs) Clearance and Settlement beginning on page 134, Cede & Co., a nominee of The Depository Trust Company, will be the sole registered holder of IDSs, the securities Financial Ratios: Ratio of EBITDA, as defined to interest expense 2.02 x Ratio of EBITDA, as defined to cash interest expense (4) 2.18 x Ratio of total debt to EBITDA, as defined (5) 4.54 x Ratio of senior debt to EBITDA, as defined (6) 2.13 Total current liabilities 725 3,135 828,579 11,367 843,806 Long-term debt 83,570 225,000 308,570 Series A redeemable preferred stock 34,620 34,620 Deferred income taxes 83 83 Other noncurrent liabilities 96 96 Commitments and contingencies (Note 8) Common stock, $.001 par value, 2,200,00 shares authorized, 1,208,450 shares issued and outstanding 1 1 Additional paid in capital 67,139 180,000 358,494 27,445 (565,939 ) 67,139 Distributions in excess of capital Retained earnings 9,653 10,791 13,462 (245 ) (24,008 ) 9,653 Accumulated other comprehensive loss (5 ) (5 ) (5 ) Primary Standard Industrial Classification Number Table of Contents represented by the IDSs and the senior subordinated notes sold separately. That means you will not be a registered holder of the securities, and you will not receive a certificate for your securities. However, a holder of common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of common stock and senior subordinated notes or recombine shares of common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby. At any time after the IDSs become separable by the holders thereof, any holder of shares of our common stock and senior subordinated notes, whether represented by IDSs purchased in this offering or in a subsequent offering, may, through his or her broker or other financial institution, combine the applicable number of shares of common stock and senior subordinated notes to form IDSs. Separation and recombination of IDSs will occur promptly in accordance with DTCs procedures upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of Income Deposit Securities (IDSs) Clearance and Settlement Separation and Combination beginning on page 135. Will my IDSs automatically separate into shares of common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes, whether it be on the scheduled maturity date or upon acceleration following an event of default. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated as the purchase of shares of our common stock and senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. The value attributed to the shares of common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of common stock and senior subordinated notes. Under the terms of the indenture governing the senior subordinated notes, by acceptance of a beneficial ownership interest in the senior subordinated notes, you will be deemed to have agreed to allocate the purchase price of the IDSs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $12.00 and the initial fair market value of each of our senior subordinated notes as $8.00, and by purchasing IDSs, you will agree to such allocation, assuming an initial public offering price of $20.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. Treatment of Senior Subordinated Notes. The senior subordinated notes should be treated as debt for U.S. federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a IRS Employer Identification Number Table of Contents dividend, and interest on the senior subordinated notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed up on account of any such taxes. What will be the U.S. federal income tax consequences to you of a subsequent issuance of senior subordinated notes? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with original issue discount upon a subsequent offering by us of IDSs or senior subordinated notes sold separately are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, if there is a subsequent issuance of senior subordinated notes having identical terms as the senior subordinated notes represented by the IDSs and the senior subordinated notes being offered separately in this offering but issued with original issue discount ( OID ), including an issuance upon a conversion of participating preferred stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that upon such issuance and upon any issuance of senior subordinated notes thereafter a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether a subsequent issuance results in a taxable exchange, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse tax consequences. Reporting of Original Issue Discount. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs or separately held senior subordinated notes will, by purchasing senior subordinated notes or IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences beginning on page 199. AG-CHEM, Inc. Maryland 2875 47-0667732 Balcom Chemicals, Inc. Colorado 2875 84-0577781 Cropmate Company Delaware 2875 47-0741555 CSK Enterprises, Inc. Delaware 2875 47-0765398 GAC 26, Inc. Nebraska 2875 47-0671148 Genmarks, Inc. Delaware 2875 91-2194897 Grower Service Corporation (New York) New York 2875 13-1978741 HACO, Inc. Illinois 2875 47-0677092 Loveland Industries, Inc. Colorado 2875 84-0601553 Loveland Products, Inc. Colorado 2875 47-0736713 Midwest Agriculture Warehouse Co. Nebraska 2875 47-0482929 Ostlund Chemical Co. North Dakota 2875 45-0336249 Platte Chemical Co. Nebraska 2875 47-0557041 Pueblo Chemical & Supply Co. Colorado 2875 84-0527554 Ravan Products, Inc. Georgia 2875 47-0747845 S.E. Enterprises, Inc. Delaware 2875 47-0681589 Snake River Chemicals, Inc. Idaho 2875 82-0309706 Transbas, Inc. Tennessee 2875 81-0350050 Tri-River Chemical Company, Inc. Washington 2875 91-0934287 Tri-State Chemicals, Inc. Texas 2875 75-1379150 Tri-State Delta Chemicals, Inc. Mississippi 2875 64-0602271 UAP 22, Inc. Texas 2875 47-0748616 UAP 23, Inc. Delaware 2875 47-0737593 UAP 27, Inc. Delaware 2875 47-0778040 UAP Receivables Corporation Delaware 2875 47-0824588 UAP/GA AG Chem, Inc. Georgia 2875 47-0648557 UAPLP, Inc. Delaware 2875 47-0751595 United Agri Products, Inc. Delaware 2875 47-0621017 United Agri Products Financial Services, Inc. Colorado 2875 84-0678346 United Agri Products Florida, Inc. Florida 2875 47-0680109 Verdicon, Inc. Delaware 2875 04-3769161 YVC, Inc. Montana 2875 81-0345692 The address of the principal executive offices of the additional registrants listed above is 7251 W. 4th St., Greeley, Colorado 80634. Their telephone number at that address is (970) 356-4400. Table of Contents SUMMARY OF THE COMMON STOCK Issuer UAP Holding Corp. Shares of common stock represented by IDSs 36,500,000 shares (or 41,975,000 shares if the underwriters over-allotment option is exercised in full). Except for the 5,475,000 shares represented by IDSs subject to the underwriters over-allotment option, all such shares will be sold by our equity sponsor. Shares of our common stock and Class A common stock are identical in all respects, except that only shares of our common stock are eligible to be included in IDSs. Shares of common stock may not be issued unless such shares are issued as part of IDSs. Shares of common stock to be outstanding following the offering 36,500,000 shares, or 41,975,000 shares if the underwriters over-allotment option is exercised in full. Voting rights Each outstanding share of our common stock will carry one vote per share and will vote as a single class with the holders of our Class A common stock and participating preferred stock. There will be no shares of Class A common stock outstanding immediately following this offering. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy that reflects a basic judgment that our stockholders would be better served if we distributed to them any cash available to pay dividends instead of retaining it in our business. We currently intend to pay an initial dividend on February 1, 2005 with respect to the partial quarterly period commencing on the closing of this offering and ending on October 15, 2004 and a regular quarterly dividend payment for the period commencing on October 16, 2004 and ending on January 15, 2005 based on a quarterly dividend level of $0.235 per share of common stock and $0.475 per share of participating preferred stock. We currently intend to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the senior subordinated notes, and by applicable provisions of our other indebtedness. Dividend payments are not guaranteed, and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. . Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash as defined in the indenture. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, cash income tax expense, and certain capital expenditures. See Description of Senior Subordinated Notes Certain Table of Contents Covenants Restricted Payments beginning on page 156. Similar limitations on dividends and other distributions exist under the Amended Credit Facilities. See Description of Other Indebtedness The Amended and Restated Revolving Credit Facility beginning on page 122 and Description of Other Indebtedness Senior Secured Second Lien Term Loan Facility. In addition, both the indenture and the Amended Credit Facilities contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. See Dividend Policy and Restrictions beginning on page 44. Dividend payment dates If declared, dividends will be paid quarterly on the 1st day of each February, May, August and November to holders of record on the 15th day of January, April, July and October or the immediately preceding business day of such month, commencing February 1, 2005. Listing We do not anticipate that our common stock will trade on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our common stock are held separately to meet the minimum distribution requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days (assuming that we otherwise continue to satisfy all other applicable listing requirements of such stock exchange at that time). Our common stock will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the Securities Act ), unless purchased by affiliates, as that term is defined in Rule 144 under the Securities Act. This offering consists in part of an offering of 36,500,000 Income Deposit Securities, or IDSs, representing 36,500,000 shares of common stock and $292.0 million aggregate principal amount of % senior subordinated notes due 2019. Each IDS represents: one share of our common stock; and a % senior subordinated note with $8.00 principal amount. All the senior subordinated notes represented by IDSs are being sold by us. All the shares of common stock represented by the IDSs are being sold by funds affiliated with Apollo Management V, L.P., our equity sponsor. Simultaneously with the sale by us and our equity sponsor of these securities in the offering, we will combine all the shares and the senior subordinated notes into IDSs for sale to the public by the underwriters. We will not receive any of the proceeds from the sale of shares of common stock by our equity sponsor. We also are offering $40.6 million aggregate principal amount of senior subordinated notes separately from the IDSs. The completion of the separate offering of senior subordinated notes is a condition to the sale of IDSs. This is the initial public offering of our IDSs, and the shares of our common stock and senior subordinated notes represented thereby, and our senior subordinated notes being offered separately from the IDSs. Prior to this offering, there has been no public market for our IDSs, shares of common stock or our senior subordinated notes. We anticipate that the public offering price will be between $19.00 and $21.00 per IDS and the public offering price of the senior subordinated notes sold separately will be % of their stated principal amount. We have applied to list the IDSs on The American Stock Exchange under the trading symbol UAP. We do not anticipate that the senior subordinated notes will be separately listed on any exchange. Holders of IDSs will have the right to separate the IDSs into the shares of our common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and senior subordinated notes may, at any time after the IDSs become separable by the holders, unless the IDSs have automatically separated upon the occurrence of certain events, combine the applicable number of shares of common stock and principal amount of senior subordinated notes to form IDSs. Upon a subsequent issuance by us of IDSs or senior subordinated notes (including issuances of IDSs upon conversion of our participating preferred stock), a portion of your senior subordinated notes may be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance, and in that event your IDSs or senior subordinated notes will be replaced with new IDSs or new senior subordinated notes, as the case may be. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Senior Subordinated Notes Covenants Relating to IDSs Procedures Relating to Subsequent Issuance beginning on page 156 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances beginning on page 203. We have granted the underwriters an option to purchase up to 5,475,000 additional IDSs to cover over-allotments, if any. We will use all the proceeds from the sale of additional IDSs upon exercise of the underwriters over-allotment option to repurchase shares of our participating preferred stock from our equity sponsor. Investing in our IDSs, shares of our common stock and senior subordinated notes involves risks. See the
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001275631_inrob-ltd_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001275631_inrob-ltd_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should rely only on the information contained in this prospectus and not upon anything else in deciding whether to purchase the common shares offered through this prospectus. Neither Inrob nor any of the selling shareholders will authorize providing you with any other information in connection with your purchase. This prospectus does not offer to sell or solicit an offer to buy any security other than the common shares that this prospectus offers. In addition, this prospectus does not offer to sell or solicit any offer to buy any common shares to any person in any jurisdiction where it is unlawful to make this offer to or solicit an offer from a person in that jurisdiction. You should not assume that the information contained in this prospectus remains correct after the date of this prospectus. ABOUT OUR COMPANY Inrob Ltd. was established in 1988 as an engineering firm providing a cost-efficient solution for organizations to outsource maintenance of critical and sophisticated equipment. We now provide maintenance support of industrial electronic, electro-mechanical, optical and other scientific equipment, mainly to customers in the defense industry. Inrob and its management team built on this engineering experience and customer base and in 1992 expanded into a second area of operations. Today, on top of our maintenance and support services, we develop, integrate and produce advanced wireless control solutions for unmanned ground vehicle (UGV) robots. Our remote control systems are the "brains" for many UGV solutions. The current nature of Israel's security situation coupled with our close work with the Israel Defense Forces (IDF) and the Israeli police, has helped us gain extensive experience in a wide range of military and law enforcement UGV applications and control solutions. We have the ability to provide fast and reliable solutions to meet the immediate operational needs of front-line IDF units as they arise. We recently began targeting the civilian applications market, which includes dangerous tasks such as nuclear plant maintenance, inspection and decommissioning, the demolition industry and firefighting and rescue services. Our UGV solutions include: o Remote control systems (the "brains" of any robot) o Complete robot systems o Customized solutions We are certified to design, manufacture and maintain electronic, optical and electro-mechanical equipment and are a certified supplier to the Israel Defense Forces and the Israeli Air Force. We have also been issued a certificate from the Israeli Air Force stating that our quality system is approved to perform inspection of products and services supplied to the Israeli Air Force. Our principal executive offices are located at 2 Haprat Street, Yavne, Israel. Our telephone number is +972 8 9324 333. 5 <PAGE> THE OFFERING: The offering is being made by the selling stockholders. Shares offered by the Selling Shareholders: 30,000,000 shares Shares Outstanding as of January 7, 2004: 200,000,000 shares Shares Outstanding At Conclusion of Offering: 200,000,000 shares Use of Proceeds: We will not receive any proceeds from the sale of the shares by the Selling Shareholders. Our Trading Symbol: Our Common Stock does not have a trading symbol at this time, there is currently no market for our shares of Common Stock and there can be no assurance that a market will develop for our shares of Common Stock SUMMARY FINANCIAL INFORMATION All figures are in US Dollars. 6/30/04 6/30/03 (unaudited) (unaudited) Balance Sheet Data: Total Assets $ 1,223,903 $1,148,505 Total Liabilities 1,675,005 1,190,457 Total Stockholders' Deficit (441,102) (41,952) Statement of Operations: Revenues $ 689,187 $751,139 Expenses 890,318 741,362 Net (Loss) Earnings (201,131) 9,777 Shares Used In Computing 200,000,000 1,002,000 Net Loss Per Share $(0.00) $0.01 6 <PAGE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001275711_novacept_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001275711_novacept_prospectus_summary.txt
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+Table of Contents establishment of operations at our facility in Costa Rica will further reduce per unit disposable device costs. Research and Development. Research and development expenses consist primarily of costs of product research, product development, regulatory and clinical functions, stock-based compensation and personnel. Research and development expenses increased from $1.6 million in the nine months ended September 30, 2002 to $1.8 million in the nine months ended September 30, 2003. The increase resulted primarily from increased spending of $259,000 on consultants used in the ongoing design of a second-generation NovaSure controller and stock-based compensation of $171,000, offset by reduced clinical trial expense of $77,000. Research and development expenses have been related to our NovaSure System. We expect to continue to make substantial investments in research and development and anticipate that research and development expenses will continue to increase in absolute dollars in the future. Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs, stock-based compensation, physician training programs and marketing activities. Sales and marketing expenses increased from $6.4 million in the nine months ended September 30, 2002 to $10.5 million in the nine months ended September 30, 2003. The increase resulted primarily from increased spending of $4.3 million for hiring, training and compensating additional territory managers, increased travel expenditures of $240,000 and stock-based compensation of $75,000, offset by reduced advertising and promotional activities of $629,000. As we continue to commercialize our NovaSure System and increase the number of sales territories in the United States, we expect to significantly increase our sales and marketing expenditures in absolute dollars. General and Administrative. General and administrative expenses consist of personnel costs, stock-based compensation, professional service fees, intellectual property protection and general corporate expenses. General and administrative expenses increased from $1.9 million in the nine months ended September 30, 2002 to $5.2 million in the nine months ended September 30, 2003. The increase resulted primarily from increased personnel costs of $320,000, increased professional service fees of $158,000 and stock-based compensation of $3.0 million. We expect general and administrative expenses to increase in the future as we add personnel and incur reporting and investor-related expenses as a public company. Interest Income. Interest income decreased from $257,000 in the nine months ended September 30, 2002 to $130,000 in the nine months ended September 30, 2003 due to lower cash, cash equivalent and short-term investment balances and a lower rate of return on those investments. Interest Expense. Interest expense decreased from $484,000 in the nine months ended September 30, 2002 to $23,000 in the nine months ended September 30, 2003. For the nine months ended September 30, 2002, interest expense included $444,000 of non-cash charges, known as beneficial conversion charges, related to convertible notes and the fair value of warrants issued prior to our March 2002 preferred stock financing. The proceeds from the convertible notes were used to fund our operations until the preferred stock financing was completed. The notes were converted into preferred stock upon the closing of the preferred stock financing and the effective conversion price was reduced by the value of the warrants. This reduction created a beneficial conversion feature, which is considered interest expense for financial reporting purposes. For the nine months ended September 30, 2003, interest expense consists of loan fees and expenses associated with our bank line of credit. Years Ended December 31, 2000, 2001 and 2002 Revenue. Revenue generated from sales of our products increased by $503,000, or 413%, from $122,000 in 2000 to $625,000 in 2001. The increase in 2001 resulted from a full year of sales activity, compared with two months of sales activity in 2000. Revenue increased by $7.7 million, or 1,229%, to $8.3 million in 2002. The increase in 2002 resulted primarily from our full commercial product launch in the United States in January 2002. In 2000, 2001 and 2002, 0%, 2% and 91%, respectively, of revenue was for product sales in the United States. Public offering price $ $ Underwriting discounts $ $ Proceeds, before expenses, to Novacept, Inc. $ $ Proceeds, before expenses, to Selling Stockholders $ $ Table of Contents Cost of Revenue. Cost of revenue increased from $537,000 in 2000 to $4.2 million in 2001. The increase in 2001 resulted primarily from higher costs associated with increased sales volume of our products, an increase in the number of our manufacturing personnel in anticipation of our full commercial product launch in the United States and the full-year effect of a shift in classification of start-up manufacturing expenses from research and development to cost of revenue in the fourth quarter of 2000. As a percentage of revenue, cost of revenue increased from 441% in 2000 to 667% in 2001. Cost of revenue increased to $9.1 million in 2002. The increase in 2002 resulted primarily from higher material, labor and overhead costs associated with increased sales volume of our products. As a percentage of revenue, cost of revenue decreased from 667% in 2001 to 109% in 2002 primarily as a result of the spreading of fixed overhead costs over higher production volumes, lower material unit costs and greater labor efficiency. Research and Development. Research and development expenses decreased from $7.0 million in 2000 to $2.6 million in 2001. The decrease in 2001 resulted primarily from reduced clinical trial expense after we completed our NovaSure pivotal trial, and the full-year effect of a shift in classification of start-up manufacturing expenses from research and development to cost of revenue in the fourth quarter of 2000. Research and development expenses decreased to $2.1 million in 2002. The decrease in 2002 resulted primarily from reduced regulatory and clinical trial expenses due to the completion of our NovaSure pivotal clinical trial and FDA submission in the previous year. Sales and Marketing. Sales and marketing expenses increased from $1.0 million in 2000 to $3.1 million in 2001. The increase in 2001 resulted primarily from our efforts to build our sales and marketing organization in the fourth quarter of 2001 in preparation for full commercial launch of our NovaSure System in the United States. Sales and marketing expenses increased to $9.6 million in 2002. The increase in 2002 resulted from our ongoing efforts to build our sales and marketing organization and expand sales and marketing activities and resulted primarily from increased personnel costs of $4.5 million, increased travel expenses of $454,000 and increased advertising and promotion expenses of $666,000. General and Administrative. General and administrative expenses declined slightly in 2001 to $2.2 million. General and administrative expenses increased to $2.5 million in 2002. The increase in 2002 resulted primarily from increased personnel costs of $332,000. Interest Income. Interest income increased from $182,000 in 2000 to $216,000 in 2001. The increase in 2001 resulted from higher cash investment balances associated with our March 2001 preferred stock financing. Interest income increased to $333,000 in 2002. The increase in 2002 resulted from higher cash and cash equivalents and short-term investment balances associated with our March 2002 preferred stock financing. Interest Expense. Interest expense increased from $128,000 in 2000 to $1.1 million in 2001. The increase in 2001 resulted primarily from $782,000 of non-cash, beneficial conversion charges related to convertible notes payable and the fair value of warrants issued together with notes associated with our March 2001 preferred stock financing and to a lesser extent from interest on the outstanding balance of our equipment lease line. Interest expense decreased to $525,000 in 2002. The decrease in 2002 resulted primarily from lower beneficial conversion charges associated with our March 2002 preferred stock financing, as compared to similar charges associated with our March 2001 financing, and lower interest expense on our equipment lease line. Income Taxes Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by valuation allowances as of December 31, 2001 and 2002 to reflect these uncertainties. As of December 31, 2002, we had federal and state net operating loss carryforwards of $59.4 million and federal and state tax credit carryforwards of $900,000. The net operating loss and tax credit carryforwards will expire on various dates beginning in 2008, if not utilized. Utilization of the net operating loss and tax The underwriters have a 30-day option to purchase up to additional shares of common stock from us to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved of anyone s investment in these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Piper Jaffray JPMorgan Table of Contents Liquidity and Capital Resources From inception, we financed our operations primarily through private sales of convertible preferred stock yielding net proceeds of $77.6 million. To a lesser extent, we also financed our operations through equipment lease financing loans, which were fully repaid in November 2002. In September 2003, we entered into a $4.0 million loan agreement with Silicon Valley Bank, whereby we are able to borrow up to $4.0 million secured by our accounts receivable. To date, we have not borrowed under that agreement. As of September 30, 2003, we had $11.4 million of cash, cash equivalents and short-term investments and $15.7 million of working capital. Cash Used in Operations. Net cash used in operations was $10.7 million in 2000, $11.9 million in 2001, $15.4 million in 2002, $12.3 million for the nine months ended September 30, 2002 and $2.0 million for the nine months ended September 30, 2003. For those periods, cash used in operations was attributable primarily to net losses after adjustment for non-cash charges related to depreciation, non-cash interest expenses associated with convertible notes and related warrants, stock-based compensation and increases in accounts receivable and inventories. The increases in cash used in operations in 2000, 2001 and 2002 were offset in part by increases in accounts payable, accrued compensation and other accrued liabilities resulting from the upward trend in business activities in years 2000, 2001 and 2002. The decrease in net cash used in operations for the nine months ended September 30, 2003 compared with the nine months ended September 30, 2002 was primarily attributable to a reduction in our net loss from operations and increased non-cash charges for depreciation, and increase in stock based-compensation charges. Cash Used in Investing Activities. Net cash used in investing activities was $539,000 in 2000, $734,000 in 2001, $12.0 million in 2002, $13.6 million for the nine months ended September 30, 2002 and $36,000 for the nine months ended September 30, 2003. For each of these periods, cash used in investing activities reflected purchases of property and equipment. In 2002 and the nine months ended September 30, 2003, it also reflected purchases and maturities of short-term investments. Cash Provided by Financing Activities. Net cash provided by financing activities was $10.4 million in 2000, $13.3 million in 2001, $29.8 million in 2002, $29.9 million for the nine months ended September 30, 2002 and $286,000 for the nine months ended September 30, 2003. Cash provided during 2000, 2001 and 2002 was attributable to proceeds from the issuance of convertible preferred stock, common stock, bridge loans and equipment lease financing. Cash provided during the nine months ended September 30, 2003 consisted of proceeds from the exercise of stock options and warrants. Equipment Financing. In January 2000, we entered into an equipment lease financing line totaling $2.0 million. This line expired in 2001 and the outstanding balance was fully repaid in November 2002. Thomas Weisel Partners LLC The date of this prospectus is , 2004. Total $ 1,780,000 The foregoing amounts include lease costs associated with our new manufacturing facility in Costa Rica. In addition, we incurred capital expenditures of $442,000 for leasehold improvements to this facility, which will be amortized over the term of the facility lease. We expect to increase capital expenditures consistent with our anticipated growth in manufacturing, infrastructure and personnel. We also may increase our capital expenditures in the event we acquire businesses, products or technologies. We believe that the net proceeds from this offering, together with our current cash and investment balances and cash generated from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If existing cash and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain an additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock, and could contain covenants that would restrict our operations. Any additional financing may not be available in amounts or on terms acceptable to us, or at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned product development and sales and marketing efforts. Quantitative and Qualitative Disclosures About Market Risk Our exposure to interest rate risk at September 30, 2003 is related to our investment portfolio. Fixed rate investments may have their fair market value adversely impacted from changes in interest rates. Floating rate investments may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in U.S. interest rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our invested cash without significantly increasing risk of loss. We invest our excess cash in debt instruments of high-quality corporate issuers. Due to the short-term nature of these investments, we have assessed that there is no material exposure to interest rate risk arising from our investments. TABLE OF CONTENTS SUMMARY
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001275873_southwest_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001275873_southwest_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..10d51ceff8642f0c7b34e2bff1ec1f5d81e25433
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+PROSPECTUS SUMMARY THIS IS ONLY A SUMMARY AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN THE COMMON STOCK. SOUTHWEST COMMUNITY BANCORP Southwest Community Bancorp is a California corporation and a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Southwest Community's principal business is to serve as a holding company for our banking subsidiary, Southwest Community Bank ("SWCB"), and our subsidiary services company, Financial Data Solutions, Inc. ("FDSI"). When we say "we," "our" or the "Company," we mean Southwest Community Bancorp on a consolidated basis with SWCB and FDSI. When we refer to "Southwest Community" or to the holding company, we are referring to the parent company on a stand-alone basis. Southwest Community was incorporated on December 4, 2002, under the laws of the State of California, at the direction of the Board of Directors of SWCB for the purpose of becoming SWCB's holding company. The holding company reorganization was consummated on April 1, 2003. In April 2003 Southwest Community raised approximately $8.0 million in net proceeds from the sale of "trust preferred" securities, due June 26, 2033. The holders of the trust preferred securities will be entitled to receive cumulative cash distributions at a variable annual rate, reset quarterly, equal to three month LIBOR plus 3.15%, with a current interest rate of 4.26%. Southwest Community used the proceeds from the offering to fund SWCB's growth and for general corporate purposes. The Company consists of two business segments. The primary source of income comes from banking services provided by SWCB and to a lesser extent from data processing services provided by FDSI. SWCB derives its income primarily from interest received on loans and investment securities and from fees received from deposit services. The expenses of SWCB are the interest it pays on deposits and borrowings, salaries and benefits for employees, occupancy costs for its banking offices and general operating expenses. FDSI derives its income primarily from fees for services. The expenses of FDSI are salaries and benefits for employees, occupancy and equipment costs for its processing facilities and general operating expenses. The assets of the Company are primarily those of SWCB. The growth in Company assets and earnings and the contribution to earnings from these business segments is summarized in the following table (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for more detailed information regarding lending, deposits and securities portfolios): <TABLE> <CAPTION> FOR THE QUARTERS ENDED MARCH 31, (UNAUDITED) FOR THE YEARS ENDED DECEMBER 31, ---------------------- ----------------------------------------------------------- 2004 2003 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- --------- --------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> <C> BUSINESS SEGMENT BANKING: Southwest Community Bank $ 1,169 $ 652 $ 3,047 $ 1,568 $ 863 $ 903 $ (159) Southwest Community Bancorp (105) - (195) - - - - --------- --------- --------- --------- --------- --------- --------- Total Banking 1,064 652 2,852 1,568 863 903 (159) DATA PROCESSING: Financial Data Solutions, Inc 32 17 83 249 31 (177) (334) --------- --------- --------- --------- --------- --------- --------- Total Company $ 1,096 $ 669 $ 2,935 $ 1,817 $ 894 $ 726 $ (493) ========= ========= ========= ========= ========= ========= ========= CONSOLIDATED ASSETS $ 362,890 $ 260,211 $ 338,815 $ 250,898 $ 123,074 $ 87,201 $ 47,545 ========= ========= ========= ========= ========= ========= ========= </TABLE> Southwest Community's common stock is traded on the OTC Bulletin Board under the symbol "SWCB.OB." Southwest Community's headquarters are located at 5810 El Camino Real, Carlsbad, California 92008. Southwest Community's telephone number is (760) 918-2616 and website is www.swcbank.com. Southwest Community files annual, quarterly and special reports, proxy statements and other information with the SEC. These documents are filed electronically with the SEC and are available at the SEC's website, or at www.sec.gov or at Southwest Community's website, www.swcbank.com. In addition, you may request a copy of any SEC filing at no cost, by writing to Southwest Community Bancorp, Attention: Executive Vice President and Chief Financial Officer, at the address above. SOUTHWEST COMMUNITY BANK SWCB commenced operations on December 1, 1997, as a California state-chartered bank. SWCB is authorized to engage in the general commercial banking business by the California Department of Financial Institutions ("DFI") and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the applicable limits of the law. SWCB is not a member of the Federal Reserve System ("FRB"). Since opening its first office in Encinitas, California, SWCB has experienced continued growth in total assets and locations. In 1998 SWCB opened a Private Banking Office in downtown San Diego. During 2000, SWCB added offices in Escondido and El Cajon. In 2001, SWCB opened a fifth office in the Carlsbad commercial business district and relocated its administrative offices from Encinitas to the new Carlsbad office. During 2002, SWCB opened its sixth office in Murrieta, California. During 2003, SWCB opened a seventh office in Anaheim and a loan production office in Glendale, California. In May 2004 SWCB opened an eighth office in San Bernardino, California. FINANCIAL DATA SOLUTIONS, INC. FDSI was established in November 1998 as a wholly-owned subsidiary of SWCB. FDSI, headquartered in Murrieta, California, is a technology related servicing company that was formed for the purpose of providing quality, state-of-the-art item processing and related services to the financial services community in Southern California. Shortly after establishing FDSI, SWCB sold a 49% interest in FDSI to another financial institution. In February 2001 FDSI opened its second processing center in El Monte, California, to expand its service area to Los Angeles and Orange Counties. In July 2001 FDSI took over the item processing responsibilities of the Bank Link Corporation, adding 5 clients to its Murrieta center. In 2001, FDSI further expanded its product offering with automated remittance processing/lock box services. In January 2003 a third processing center in San Leandro, California, was opened, expanding FDSI's market area to Northern California. In May 2003 SWCB transferred its 51% equity interest in FDSI to Southwest Community. In February 2004 pursuant to a Buy-Sell Agreement between FDSI and its two shareholders and following the acquisition of the minority shareholder by another financial institution, Southwest Community purchased the minority shareholder's interest in FDSI for $3,350,000. OUR MISSION AND STRATEGY The following Mission Statement is taken from SWCB's Strategic Business Plan: "Southwest Community Bank will provide high quality, personalized services to businesses and consumers alike at a reasonable profit level; thereby building franchise value, providing for reasonable shareholder appreciation and supporting local community needs. Southwest's goal is to be recognized as Southern California's "Premier Business Bank." Our goal is to be the premier community banking company for the long-term benefit of our shareholders, customers and employees by increasing shareholder value and providing high-quality customer service. To continue to grow and to implement this goal, our operating strategies are to: - Capitalize on the economic growth in our geographic market by expanding through de novo o establishment of branch locations or acquisition of community banks or branches in strategic markets; - Leverage the talent of our management team, all of whom have local market knowledge and extensive experience serving the banking industry; - Enhance our sales culture through ongoing training, daily and weekly sales meetings and incentive plans developed to support our sales objectives; - Maintain high asset quality by continuing to utilize rigorous but efficient credit approval and credit risk management practices; - Utilize technology and customer profile analytics so that we may tailor our services to our o customers' needs while enhancing our earnings by marketing the most profitable products designed to meet those needs; and - Reduce our loan and other transaction process management time and expense by employing advanced technology that is scalable to meet the demands of our growth opportunities. OUR PRINCIPAL MARKETS Our primary market areas include the cities and surrounding communities of San Diego, Carlsbad, El Cajon, Escondido, Encinitas, Murietta, Anaheim and San Bernardino, encompassing portions of San Diego, Riverside, San Bernardino and Orange Counties. The sixth-largest city in the United States, San Diego is the southern-most major metropolitan area in California. The city lies 125 miles south of Los Angeles and 500 miles south of San Francisco. The county covers 4,261 square miles, and borders Orange, Riverside and Imperial Counties to the north and east, and Baja California, Mexico, to the south. San Diego's economy has undergone a remarkable transformation over the past decade. The severe recession in the first half of the 1990s was the longest and deepest of the past 60 years. The downturn, subsequent recovery and expansion were not mere business or cyclical adjustments, but an extensive overhauling and restructuring of the region's basic economic drivers. SWCB, having commenced operations in late 1997, has been a beneficiary of the region's economic growth and was not burdened by the economic downturn earlier in the decade. San Diego's economic growth has enabled SWCB to expand from one office in 1997 to five offices in San Diego County. We also operate branch offices in Orange, Riverside and San Bernardino Counties. The Anaheim office serves customers in Anaheim and neighboring Orange County communities. The Murrieta office extends our service area to Riverside County. In May 2004 SWCB opened a new office in the City of San Bernardino, San Bernardino County, California. As of June 30, 2003, the most recent period for which figures are available, data reported by state and federal agencies indicated that the 518 banks and savings and loan offices then open in our primary market area, San Diego County, held approximately $37.9 billion in total deposits averaging approximately $73.2 million per banking office. Our total deposits ($236,795,000) in the San Diego market area, as of June 30, 2003, constituted 0.62% of the total deposits in that market. OUR MANAGEMENT TEAM We have assembled a management team with depth and breadth of experience in the financial services industry. Our executive management team, comprised principally of San Diego natives or long-time residents, includes: <TABLE> <CAPTION> YEARS OF FINANCIAL SERVICES NAME AGE TITLE EXPERIENCE -------------------- --- --------------------------------------------------------- ---------- <S> <C> <C> <C> Frank J. Mercardante 56 Director, President and Chief Executive Officer, 37 Southwest Community Bancorp; Director and Chief Executive Officer, Southwest Community Bank James L. Lemery 62 Executive Vice President and Chief Financial Officer, 33 Southwest Community Bancorp and Southwest Community Bank Stuart F. McFarland 56 Executive Vice President, Southwest Community Bancorp; 29 President and Chief Operating Officer, Southwest Community Bank Alan J. Lane 42 Vice Chairman and Chief Executive Officer, FDSI 23 Fredrik Mirzaian 32 President and Chief Operating Officer, FDSI 13 </TABLE> THE OFFERING <TABLE> <S> <C> Issuer Southwest Community Bancorp Securities Offered 500,000 shares of Southwest Community Bancorp common stock Offering Price Per Share $30.00 Net Proceeds $14,850,000, if all 500,000 shares are sold, net of estimated expenses related to the offering of $150,000. Minimum Subscription 500 shares ($15,000) Common Stock Outstanding at 2,942,662 shares June 1, 2004 Common Stock to be Outstanding 3,442,662 shares, assuming all 500,000 After the Offering shares of common stock are sold and assuming none of our outstanding warrants or stock options are exercised. Offering Expiration Date September 15, 2004, unless we decide to extend or terminate earlier. Use of Proceeds We plan to use approximately $1,000,000 of the net proceeds from this offering for general corporate purposes and working capital; $2,000,000 to repay a loan to an unrelated third party the proceeds of which were used to repurchase the minority shareholder's interest in FDSI; and the remainder to be invested in SWCB to fund future growth. Risk Factors See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before investing in the common stock. Dividend Policy We intend to continue to follow our strategic plan of retaining earnings to increase our capital and provide additional basis for growth. Accordingly, we do not plan to pay dividends on our common stock in the near future, although we have declared four stock splits since inception. OTC "Bulletin Board" "SWCB.OB" Trading Symbol </TABLE>
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+PROSPECTUS SUMMARY You should read the entire prospectus, including detailed information regarding us, the common stock being sold in this offering, our financial statements and notes to those statements appearing elsewhere in this prospectus, and the matters discussed in the Risk Factors section beginning on page 9. References to we , us , our and Mtone refer to Mtone Wireless Corporation. Mtone Wireless Corporation Overview Mtone is a developer and provider of mobile phone value-added entertainment and interactive services in China. We offer two types of mobile services. Our multi-user interactive services allow customers to compete, socialize and communicate with other users in virtual fantasy and role playing environments, including interactive services using virtual Mtone characters to provide subscribers with quizzes, humor and horoscopes. Our downloadable mobile content services include ringtones, greetings, pictures, entertainment music, and sports information. Our customers primarily access and pay for our services via their mobile handsets utilizing the networks and billing and collection systems of China Mobile Communications Corporation, or China Mobile, and, to a lesser extent, China United Telecommunications Corporation, or China Unicom. China Mobile and China Unicom are currently China s two licensed mobile carriers. In cooperation with the mobile carriers, we market and support our mobile value-added services throughout China, primarily in 26 of the 31 provinces and in over two hundred cities. We are entering into arrangements to offer our mobile value-added services to customers of the limited range wireless services of China Telecommunications Corporation, or China Telecom, and China Network Communications Group Corporation, or China Netcom. Founded in Santa Clara, California, in Silicon Valley, our management culture drives innovation in technology and content. We focus on offering subscription-based services that are internally created, designed and developed. During 2003 and the quarter ended March 31, 2004, approximately 89% and 95%, respectively, of our revenue was derived from services based on our own internal content and approximately 90% and 95%, respectively, of our revenue was derived from subscription-based services. Interactive services and downloadable content are typically charged for on a subscription basis and a per use basis, respectively. During the quarter ended March 31, 2004, we estimate we had an average of approximately 3.1 million paid subscriptions compared to an average of approximately 1.5 million paid subscriptions during the quarter ended March 31, 2003. During the quarter ended March 31, 2004, we estimate that we had an average of 2.7 million paying subscribers, compared to an average of 1.3 million paying subscribers during the quarter ended March 31, 2003. These figures are based on our internal records and, due to limitations on the information provided to us by our carriers, we are unable to definitively calculate or monitor the number of our paid subscription services and paying subscribers. Subscriber totals do not include customers that only receive services on a per use basis, including downloadable content. Historically, we have provided our services principally through short messaging technology, or 2G technology. We have introduced and expanded 2.5G services based on wireless application protocol, or WAP, for information browsing, multimedia message services, or MMS, for transmission of multimedia information, and interactive voice response, or IVR, for voice and audio-based services. In the last nine months, we have introduced over twelve new services based on WAP, MMS and IVR. We are developing and introducing 2.5G advanced interactive single and multi-user games and other applications based upon the last Kjava handsets. Although incorporated in 1994, in 2001 we shifted our business focus to providing mobile value-added services to mobile phone users in China. Our revenues in 2002, 2003 and the quarter ended March 31, 2004 were (unaudited) (thousands) Revenues Mobile value-added service $ 741 $ 1,127 $ 1,517 $ 2,281 $ 3,842 $ 4,736 $ 5,279 $ 6,689 $ 7,528 Network equipment 165 386 162 (unaudited) (unaudited) Net income (loss) $ (15,561 ) $ (5,971 ) $ 1,096 $ 43 $ 1,153 Other comprehensive gain (loss) foreign currency translation adjustment (6 ) 1 (3 ) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents $6.4 million, $20.5 million and $7.5 million, respectively. Our mobile value-added service revenues in 2002, 2003 and the quarter ended March 31, 2004 were $5.7 million, $20.5 million and $7.5 million, respectively. Our other revenues and discontinued operations relate to our network equipment and fixed-line services, each of which has been discontinued since March 31, 2004. China s Mobile Phone and Mobile Value-Added Services Markets In the last five years, China has emerged as one of the largest mobile phone markets in the world. According to the Chinese Ministry of Information Industries, or the MII, the number of mobile subscribers in China at the end of 2003 grew to 269 million. In addition, at the end of the first quarter of 2004, the fixed-line operators, including China Telecom and China Netcom, provided limited range wireless services, primarily within cities, to approximately 45 million customers. The mobile carriers, primarily China Mobile and China Unicom, allow third-party service providers, like Mtone, to provide value-added services over their mobile networks. Norson Telecom Consulting estimates that value-added service providers generated RMB4.6 billion ($556 million) from mobile data value-added services in 2003. Our Strategy Our objective is to integrate the capabilities of the next generation mobile handsets and infrastructure with our services to provide engaging new media-rich interactive mobile value-added capabilities that increase the entertainment value and number of our services, including mobile multi-user games, music and sports. We are increasing the number of our customer recruitment channels by entering into new relationships and expanding existing relationships with handset manufacturers and branded media companies and by expanding our existing relationships with the mobile operators. Risks Related to Our Business In evaluating our company, you should consider the risks we face in our business and not solely our competitive strengths and growth strategies. We were unprofitable in four of the last five years, only recently attaining profitability. Our profitability may not be sustainable. As of March 31, 2004, we had accumulated net losses of approximately $89.5 million. We have a limited history of providing mobile value-added services and limited related financial data. This business is in the early stages of development and the revenue and income potential of the mobile value-added services industry and our business is unproven. We depend on our carriers to transmit our services and bill and collect our revenues. Our contracts with the mobile carriers and their local operators are short-term, may be terminated without recourse, and the operators can and have imposed significant penalties on us for violations of their rules and regulations. Additionally, the mobile operators provide us and other industry participants with limited aggregated service and revenue information at both the provincial and central levels. Therefore, we do not know information about individual subscriber service usage and payment, which can impede business planning and service development. If our services do not succeed or if our revenues and the number of our service users do not grow, or decline, our operating results may be below the expectations of investors and market analysts, which would likely cause the price of our common stock to decline. See Risk Factors for a more detailed discussion of factors you should carefully consider before investing in our stock. Corporate Information and Structure We were incorporated in Delaware in January 27, 1994 as GWCOM, Inc., changed our name to byair Corporation in April 2002, and to Mtone Wireless Corporation in November 2003. After this offering, our directors, executive officers, principal stockholders and their affiliated entities will beneficially own approximately % of our outstanding common stock. If these stockholders act together, they could exert substantial control over matters requiring approval by our stockholders, including electing directors and approving mergers or other business combination transactions. AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents We conduct substantially all of our mobile service business through our wholly-owned subsidiary in China, Mtone Wireless Telecommunications (Shanghai) Co. Ltd, or Mtone Telecommunications. Due to current restrictions on foreign ownership of mobile value-added services businesses in China, we conduct substantially all of our China operations through a series of contractual arrangements with Shanghai Mtone Wireless Network Information Co., Ltd., or Shanghai Mtone. Investors in our common stock will not have any equity interest in Shanghai Mtone. Operating cash flow generated by Shanghai Mtone is only remitted to us through contractual arrangements, the enforceability of which is subject to legal uncertainty. Weijia Wang, as chairman and general manager of Mtone Telecommunications, holds a power of attorney to vote on all corporate matters of Shanghai Mtone. Additionally, Mtone Telecommunications is party to a business operation agreement with Shanghai Mtone, which allows Mtone Telecommunications to designate the officers and directors of Shanghai Mtone. For a detailed description of the terms of these agreements, see Related Party Transactions Arrangements Involving Shanghai Mtone. Our principal executive offices are located at 3080 Olcott Street, Suite 100-A, Santa Clara, California 95054. Our telephone number is (408) 986-8988. Our English website is located at www.mtone.com. Our Chinese website is located at www.mtone.com.cn. The information on our websites is not part of this prospectus. Mtone, in English and Chinese, and the Mtone logo are our trademarks. Table of Contents MTONE WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED (d) Operating lease commitments The Company rents offices under operating lease agreements. The net aggregate minimum future lease payments under non-cancelable operating leases as of March 31, 2004 are as follows (in thousands): 2004 $ 279 2005 225 2006 MTONE WIRELESS CORPORATION (Exact name of registrant as specified in its charter) (1) Ming Li and Wenliang Zhao, company employees, hold 60% and 40%, respectively. Mtone extended loans to Ming Li and Wenliang Zhao to acquire their equity interests in Shanghai Mtone. Ming Li and Wenliang Zhao are contractually restricted from transferring their Shanghai Mtone equity interests, and repayment of the loans may only be made by surrender of those equity interests. (2) Contractual arrangements including Business Operation Agreement, Domain Name Assignment Agreement, Domain Name License Agreement, Equity Interests Pledge Agreement, Exclusive Technical Consulting and Services Agreement, Loan Agreements, Power of Attorney, Leased Line Transfer Agreement and Contract Relating to the Exclusive Purchase Right of Equity Interest. Delaware 4812 77-0369080 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 3080 Olcott Street, Suite 100-A Santa Clara, California 95054 (408) 986-8988 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents The Offering Common stock offered by Mtone shares Common stock offered by selling stockholders shares Common stock to be outstanding after the offering shares Use of proceeds We will use the proceeds from this offering for general corporate purposes, including working capital, product development, capital expenditures and possible acquisitions or investments in businesses, products or technologies. We currently have no agreements or commitments with respect to any such acquisitions or investments and are not involved in any related negotiations. We will not receive any proceeds from the sale of shares held by the selling stockholders. See Use of Proceeds. Proposed Nasdaq National Market symbol MTWI Dividend Policy We do not anticipate declaring or paying any cash dividends in the foreseeable future. See Dividend Policy. The total number of shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of March 31, 2004, and unless we indicate otherwise, assumes: The conversion of all outstanding shares of convertible preferred stock into 30,090,805 shares of common stock upon completion of this offering; The conversion of all outstanding shares of our class B common stock into 3,775,791 shares of our common stock upon completion of this offering; The shares of common stock offered in this offering by us; That the underwriters do not exercise their over-allotment option; The filing of our restated certificate of incorporation following conversion of our preferred stock and class B common stock, which increases the authorized number of shares of common stock to 100,000,000 shares. The above information excludes: 5,138,340 shares of common stock issuable upon exercise of stock options outstanding as of March 31, 2004 at a weighted average exercise price of $1.80 per share; 398,521 shares of common stock reserved for issuance under our 1997 stock option plan; and shares of common stock reserved for issuance under our 2004 stock plan. For additional information regarding these shares, see Management Benefit Plans and Description of Capital Stock. Weijia Wang President and Chief Executive Officer Mtone Wireless Corporation 3080 Olcott Street, Suite 100-A Santa Clara, California 95054 (408) 986-8988 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Certain Conventions Although the limited range wireless services offered by China Telecom and China Netcom over their personal access system networks are not regulated in China as mobile services, we refer to China Telecom and China Netcom, together with China Mobile and China Unicom, as our mobile carriers. We refer to the provincial or other local affiliates of the mobile carriers as our mobile operators. Unless we specify otherwise or the context otherwise requires, references to our mobile carriers include our mobile operators. Statistics for mobile phone and mobile services users in China do not include users of limited range wireless services. All references to RMB are to renminbi, the legal currency of China, and all references to $ and dollars are to the legal currency of the United States. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB were made at the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2004, which was RMB8.277 to $1.00. We make no representation that the RMB or U.S. dollar amounts referred to herein could have been or could be converted to U.S. dollars or RMB, as the case may be, at any particular rate. The nation of China includes 34 provinces, including directly administered municipalities, special administrative regions and autonomous regions. Our references to China include 31 of its provinces, but exclude Hong Kong, Macau and Taiwan, where we do not provide mobile value-added services. Copies to: Jeffrey D. Saper Kurt J. Berney WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 Page Mill Road Palo Alto, California 94304 (650) 493-9300 Philip M. Culhane SIMPSON THACHER & BARTLETT LLP Asia Pacific Finance Tower, 7th Floor 3 Garden Road Central, Hong Kong (852) 2514-7600 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. (in thousands) Balance Sheet Data: Cash and cash equivalents $ 4,988 $ 4,988 $ Working capital 7,323 7,323 Total assets 11,045 11,045 Convertible preferred stock 87,466 Accumulated deficit (89,502 ) (89,502 ) Total stockholders equity 7,949 7,949 The balance sheet data as of March 31, 2004 is set forth: on an actual basis; on a pro forma basis to give effect to the automatic conversion of all outstanding shares of convertible preferred stock and class B common stock into common stock; and on a pro forma as adjusted basis to reflect the adjustments described above and the estimated net proceeds from the sale of shares of common stock by us at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. See Use of Proceeds and Capitalization for further information. Gross profit 2,966 218 3,184 Operating expense (5,622 ) (3,584 ) Income (loss) from continuing operations $ (2,656 ) $ (3,366 ) $ Calculation of Registration Fee Table of Contents
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including our consolidated financial statements and related notes appearing elsewhere in this prospectus and the "Risk Factors" section, before making an investment decision. All references in this prospectus to "InfraSource Services," "InfraSource," "the Company," "we," "us," "our company" or "our" refer to InfraSource Services, Inc. and its consolidated subsidiaries, except where it is clear that such terms mean only InfraSource Services, Inc. As used in this prospectus, "pro forma consolidated" means that the information presented gives effect to our acquisition of InfraSource Incorporated and our acquisition of Maslonka & Associates, Inc. on January 27, 2004, in each case as if such transaction or transactions occurred on January 1, 2003 with respect to statement of operations data, and with respect to balance sheet data, the information presented gives effect to the Maslonka acquisition as if it occurred on December 31, 2003. "Pro forma consolidated as adjusted" as used in this prospectus means that the information presented gives effect to the foregoing acquisitions and the completion of this offering, including the application of the net proceeds as described under "Use of Proceeds," in each case, as if such transaction or transactions occurred on January 1, 2003 with respect to statement of operations data, and with respect to balance sheet data, the information presented gives effect to the Maslonka acquisition and this offering as if such transaction or transactions occurred on December 31, 2003. InfraSource Services, Inc. We are one of the largest specialty contractors servicing the utility transmission and distribution infrastructure in the United States based on market share. Our broad range of services includes the design, engineering, procurement, construction, testing, maintenance and leasing of utility infrastructure. The following chart depicts our revenue mix by end market for the year ended December 31, 2003, on a pro forma consolidated basis: Our customers rely on us to design, construct and maintain reliable electric, natural gas and other utility infrastructure. We believe we are able to combine our broad geographic footprint, integrated service offerings, skilled workforce and experienced management team to deliver a compelling value proposition to our customers. Our customers primarily include electric power utilities, natural gas utilities, government entities and heavy industrial companies, such as petrochemical, processing and refining businesses. Our representative customers include: Electric power: Exelon Corporation, American Transmission Company, TXU Corporation and Pacific Gas & Electric Co.; Natural gas: Exelon Corporation, Consumers Energy, Michigan Consolidated Gas Company and the Columbia Gas companies; and Telecommunications and other: Verizon Communications and Merck & Co., Inc. Gross profit 23,801 51,946 3,579 79,326 12,092 177 91,595 91,595 Selling, general and administrative expenses 14,144 49,315 75 (b) 63,534 6,955 (3,463) (h) 67,026 (k) 67,026 Merger-related costs 16,242 (16,242) (c) Provision for uncollectible accounts 178 236 414 414 414 Amortization of intangible assets and goodwill 2,600 1,500 (d) 4,100 9,400 Total current liabilities 95,848 16,131 12,563 124,542 124,542 Long-term debt, net of current portion 162,934 7,630 (6,630) (f) 163,934 (79,084) (k) 84,850 Other liabilities 15,946 305 2,144 Net income (loss), as reported $ (6,044 ) $ (175,437 ) $ (23,518 ) $ 1,335 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,357 ) (1,068 ) (89 ) Add: Total stock-based employee compensation expense, net of related tax effects included in the determination of net income as reported Our blanket master service agreements and new construction projects provide a balanced mix of recurring and project-based work. The broad range of customers, geographic regions and industries we serve provides us with diversified revenues, and a number of our specialized services generate strong margins. For the year ended December 31, 2003, on a pro forma consolidated basis, we had revenues of approximately $559.2 million. On a pro forma basis after giving effect to the Exelon Transaction as if it occurred on January 1, 2003, but not the Maslonka acquisition, our revenues for this period were $520.6 million. Industry Trends We believe growth in our end markets will benefit from the following principal factors: Inadequacy of Current Electric Infrastructure. We believe the electric transmission infrastructure in the United States will require significant spending to cure historical underinvestment and to respond to increasing electricity demand. The increase in demand for electricity and growth in electric power generation capacity have outpaced the increase in transmission expenditures. This relative underinvestment in transmission has contributed to the current inadequacy of the electric power grid, which was one of the causal factors in the August 2003 blackouts in the Midwest and Northeast United States and Canada, the rolling blackouts in California in 2001, the power outages in Chicago, Long Island and New Jersey in the summer of 1999 and the increase in the number of emergency relief procedures needed to avoid overloading of transmission lines. In its 2002 National Transmission Grid Study, the U.S. Department of Energy emphasized the urgent need to modernize the nation's transmission system. Increased Outsourcing of Infrastructure Services. Utilities are constantly seeking ways to improve cost efficiencies, driven by pressure from investors, regulators and consumer advocates. We believe that utilities are frequently able to reduce operating costs and increase efficiencies by outsourcing a range of services to third parties. Specialty contractors can often provide services in a more efficient and cost-effective manner, in part by managing their flexible labor forces across various projects and multiple customers, while utilities generally must employ their labor forces full-time. As a result, many utilities are continuing to reduce the size of their labor forces and increase their reliance on third-party service providers. Favorable Regulatory, Legislative and Political Environment. The Federal Energy Regulatory Commission, or FERC, states in its Strategic Plan FY2004-2008 that its top priority is to "promote a secure, high-quality, environmentally responsible infrastructure." This goal includes objectives to expedite appropriate energy infrastructure development to ensure sufficient energy supplies and provide for timely cost recovery by infrastructure investors. We believe our end markets are well positioned to benefit from initiatives focused on these and related objectives. Examples of recent and proposed actions are: Transmission Rate Incentives. In January 2003, FERC proposed a new incentive pricing policy to encourage investment in transmission infrastructure and improve grid performance. Specifically, FERC is proposing to increase the allowed return on equity to eligible transmission entities. These proposed incentives, if adopted, should help attract capital from existing owners as well as new entrants seeking to capitalize on the higher rates of return. More Stringent Reliability Requirements and Enforcement. Some state utility commissions have begun to hold utilities accountable for failing to meet established minimum reliability standards or are considering such measures. In many cases, they are requiring minimum levels of capital spending to upgrade and maintain the electric power transmission and distribution network. FERC is developing an order that will require transmission system operators to publicly report violations of the electric power grid reliability standards. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Facilitation of Infrastructure Investment. Federal energy legislation proposed in 2003 contained several key provisions that we believe would, if included in legislation that is passed, contribute to increased investment in the U.S. electric power grid. Although it appears unlikely that any legislation will be passed as a comprehensive energy bill, the provisions granting transmission and other energy infrastructure incentives could be included as attachments to other bills or as separate pieces of legislation. Clarification of Generator Interconnection Policies. In July 2003, FERC issued new standards for interconnection of large power generators to the transmission grid. These standards are intended to facilitate infrastructure development by clarifying interconnection procedures and by reducing interconnection time and cost. FERC reaffirmed its basic approach to standard generator interconnection policies in a rehearing order issued on March 3, 2004. Competitive Strengths Leadership in Attractive Markets. As a result of our market leadership and reputation for high-quality service, we believe we are well positioned to benefit from anticipated spending by customers in our end markets. Breadth of Capabilities. We believe that customers in our end markets are increasingly seeking to improve their efficiencies by contracting with fewer service providers that can rapidly and effectively design, construct and maintain their infrastructure, in some cases across multiple geographic regions. We are one of the few utility infrastructure service providers capable of meeting a broad range of service needs in multiple service territories. We believe these capabilities are particularly advantageous because many of our competitors are small, regional firms. Strong Reputation for Project Execution and Safety. Our reputation as a premier service contractor has been built on an excellent performance record of delivering projects on time, on budget and to customer specifications. Most of our operating companies have been building this reputation for decades. Our strong reputation is reflected in our long-standing relationships with most of our major customers. In addition, the safety record of most of our operating subsidiaries has historically been better than industry averages, which provides us with a competitive advantage in bidding for many projects. Highly Skilled and Flexible Workforce. We have an experienced and skilled workforce trained to handle technically complex projects, including high-voltage electric power work and specialized subsurface work. In addition, we are generally able to quickly vary the size of our workforce to efficiently staff our projects and to meet the needs of our customers. This provides us with a variable cost structure that permits us to effectively respond to changes in demand for our services. Moreover, our labor force consists of both union and non-union personnel, which enables us to satisfy the varied labor requirements of customers in our end markets. Financial Strength. Financial strength is often an important consideration for customers in selecting service providers. We believe our diverse revenue base, attractive operating margins and strong cash flow contribute to our financial strength, which provides us with an advantage over many of our competitors. In addition, our financial strength, combined with our reputation and experience, improves our access to surety bonding to support our projects. We believe the consummation of this equity offering will further enhance our financial strength and our access to surety bonding to support our growth in what has become, in recent years, a difficult bonding environment. Experienced Management Team. We have a strong management team with extensive industry experience. The key members of our senior management team have worked in the utility or contracting industries for most of their careers and average over 20 years of industry experience. Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Business Strategy Capitalize on Favorable Industry Trends in Utility Infrastructure Markets. Large utility customers continue to present growth opportunities for us. We believe we are well positioned to capitalize on growth opportunities resulting primarily from expected increases in spending on utility infrastructure and increased outsourcing by customers in our end markets. Increase Our Market Share. We intend to leverage our competitive strengths to increase our market share by: gaining a greater share of our existing customers' spending for outsourced services we currently provide to them; expanding cross-selling of additional services to our existing customers; obtaining business from new customers in the territories we currently serve; and introducing services to new and existing customers in regions we do not currently serve. Focus on Specialized Services that Generate High Margins. We intend to continue to increase our focus on technically complex projects where the specialized capabilities of our highly skilled personnel differentiates us from many of our competitors. For example, we have targeted turnkey substation services as a core competency, where our expertise enables us to perform the work efficiently and generate high margins. Pursue Highly Strategic Acquisitions. Although we do not consider acquisitions fundamental to the achievement of our objectives, we intend to evaluate and pursue acquisition opportunities to bolster our presence in select regional markets or to broaden our service offerings. For example, our acquisition of Maslonka & Associates, Inc., or Maslonka, will enhance our capabilities for large, high-voltage transmission projects and will allow us to cross-sell other services across a broader territory. We are currently evaluating certain potential acquisition opportunities to expand our capabilities and have delivered indications of interest with respect to two such opportunities with an aggregate proposed indicative price of less than $30 million. We have no commitments to purchase any of these businesses, nor are any of the acquisitions currently probable. Risks Related to Our Business and Strategy Although we believe that focusing on the key areas set forth above will provide us with opportunities to reach our goals, there are a number of risks and uncertainties that may affect our financial and operating performance, including that: demand for our services is cyclical and vulnerable to downturns in the industries we serve, which could result in extended periods of low demand for our services; we currently derive a significant portion of our revenues from a small group of customers and, if we are unable to maintain and further develop our relationships with these customers or to obtain sufficient new customers, our business will be negatively affected; the outcome of federal energy legislation and regulation is uncertain, and resolution could adversely affect our growth opportunities; the expected increased investment in electric infrastructure may not materialize, and, as a result, there could be reduced demand or slower growth in demand for our services; shortages of qualified personnel could adversely affect our ability to expand into new geographic markets or to meet current or expected demand for our services; Balance as of September 23, 2003 1 $ 46,765,073 $ we may be unsuccessful at integrating companies that we acquire or have acquired, in which case our overall profitability could be adversely affected. In addition to the preceding risks, you should also consider the risks discussed under "Risk Factors" and elsewhere in this prospectus. Recent Developments First Quarter 2004 Financial Highlights. Our revenues for the quarter ended March 31, 2004, increased $37.7 million, or 34.7%, to $146.5 million, compared to $108.8 million for the quarter ended March 31, 2003 on an actual basis. This increase was primarily attributable to the Maslonka acquisition. Our backlog for the first quarter of 2004 was $790.4 million, compared to $589.0 million for the same period in 2003, representing an increase of 34.2%. In addition, we expect that our gross margin as a percentage of revenues for the first quarter of 2004 will exceed our gross margin as a percentage of revenues for the comparable period in 2003, primarily as a result of the transmission work resulting from the Maslonka acquisition and improvements in our margins on our natural gas infrastructure services. Although full results for the first quarter of 2004 are not yet available, based upon information available to us and except as otherwise described in this prospectus: we are not aware of nor do we anticipate that our results for the first quarter will be adversely impacted, in the aggregate, by material or unusual adverse events, and we do not believe that, during the first quarter, we incurred material additional borrowings or other liabilities, contingent or otherwise, or, except as set forth in Note 18 to our consolidated financial statements included in this prospectus, defaulted under our debt covenants. However, our actual results may differ from our expectations. We cannot assure you that our results for this interim period will be indicative of our results for a full year, and we do not expect to sustain the rate of increase in revenue we experienced in the first quarter. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations Outlook" included elsewhere in this prospectus for information regarding trends and other factors that we expect will influence our operating performance in 2004. Maslonka Acquisition. On January 27, 2004, we acquired Maslonka & Associates, Inc. The consideration for the Maslonka acquisition consisted of $38.3 million in cash and 4,330,820 shares of our common stock, which are both subject to a final working capital adjustment and a holdback provision as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Developments," and the assumption of certain liabilities. Maslonka specializes in the construction and installation of aerial transmission interconnection systems primarily in the Western and Southwestern United States. Maslonka concentrates on projects that involve challenging requirements, including accelerated construction schedules, complex excavation, helicopter-assisted installation, environmental impact mitigation and difficult terrain. In May 2003, Maslonka won its largest project to date, the transmission line portion of one of the largest electric power transmission projects awarded in 2003, the upgrade of Path 15. Path 15 is an 84-mile stretch of electric high-voltage transmission lines in the central valley of California connecting Southern California with Northern California. We believe the Maslonka acquisition will significantly enhance our opportunities to win high-voltage transmission infrastructure projects in multiple service territories. For more information regarding the Maslonka acquisition and the financing thereof, please refer to "InfraSource Services, Inc. Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Developments" and "Certain Relationships and Related Transactions" included elsewhere in this prospectus. PowerUp Wisconsin. On December 15, 2003, the Public Service Commission of Wisconsin issued an authorization to proceed for the construction of a 210-mile high-voltage transmission line linking Duluth, Minnesota and Wauasau, Wisconsin. We were awarded a contract relating to the project over 500 West Dutton Mill Road Aston, Pennsylvania 19014 (610) 619-3000 (Address, including zip code, and telephone number including area code, of registrant's principal executive offices) three years ago. Our portion of the work had a contract value of approximately $75-90 million, but the authorization to proceed was not immediately issued. Within days after the August 2003 blackout, the Governor of Wisconsin made a commitment to reform Wisconsin's regulatory process to ensure a reliable, modern transmission system and in December 2003 signed a bill containing legislative changes required to streamline the regulatory review process for siting energy projects. Since January, we have received authorizations to proceed on various portions of this project, and we expect additional project authorizations throughout 2004. Bonneville Power Administration. In January 2004, Bonneville Power Administration, or BPA, a division of the Department of Energy, selected and awarded to Maslonka a $33.5 million contract to construct the Schultz-Wautoma Transmission Line, a new 63.7 mile 500kV transmission line that is part of the Schultz-Hanford Area Project in Washington state. The line is scheduled to be completed prior to the end of 2005. This project is intended to improve reliability of the transmission grid and ensure that BPA can continue to meet its statutory and contractual obligations to deliver power in the Pacific Northwest. Corporate Information OCM/GFI Power Opportunities Fund, L.P. and OCM Principal Opportunities Fund II, L.P. (together, the "Principal Stockholders"), investment funds managed by GFI Energy Ventures LLC ("GFI") and Oaktree Capital Management, LLC ("Oaktree"), formed our company in May 2003 as a Delaware corporation to acquire InfraSource Incorporated and certain of its subsidiaries from Exelon Enterprises Company, LLC ("Exelon"). The transaction was completed on September 24, 2003. We refer to this acquisition as the "Exelon Transaction." In connection with the Exelon Transaction, we entered into a senior credit facility with a syndicate of lenders, consisting of a $40 million revolving credit facility and a $140 million term loan. In addition, we issued a $29 million subordinated promissory note payable to Exelon, which was increased to $30 million in December 2003 upon completion of our acquisition of an additional entity from Exelon. The proceeds from the term loan and the initial Exelon note, together with equity contributions from the Principal Stockholders and certain of our executive officers, were used to fund the Exelon Transaction. For additional information regarding the Exelon Transaction, please refer to "InfraSource Services, Inc. Unaudited Pro Forma Condensed Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Relationships and Related Transactions" included elsewhere in this prospectus. After completion of this offering, the Principal Stockholders, together with our executive officers, will beneficially own in the aggregate approximately 63.2% of our fully diluted common stock. Our principal executive offices are located at 500 West Dutton Mill Road, Aston, Pennsylvania 19014. Our telephone number is (610) 619-3000. David R. Helwig Chief Executive Officer and President InfraSource Services, Inc. 500 West Dutton Mill Road Aston, Pennsylvania 19014 (610) 619-3000 (Name, Address, Including Zip Code, and Telephone Number Including Area Code, of Agent For Service) The Offering Issuer InfraSource Services, Inc. Total common stock offered 10,000,000 shares Common stock offered by InfraSource Services, Inc. 8,500,000 shares Common stock offered by selling stockholders 1,500,000 shares Underwriters' option to purchase additional shares from the selling stockholders 1,500,000 shares Common stock outstanding after this offering 39,167,163 shares Use of proceeds We estimate that the net proceeds to us from this offering will be approximately $109.0 million. We intend to use the net proceeds from this offering to repay debt and for general corporate purposes, which may include acquisitions. See "Use of Proceeds." We will not receive any of the proceeds from the sale of shares by the selling stockholders. Proposed New York Stock Exchange symbol IFS Except as otherwise indicated, all share information in this prospectus is based on the number of shares outstanding on April 30, 2004 and: assumes an initial public offering price of $14.00 per share, the midpoint of the range set forth on the cover of this prospectus; assumes completion of an approximate 21.8-for-1 split of our common stock; excludes 2,212,969 shares of common stock subject to outstanding stock options with a weighted average exercise price of $7.53 per share; and excludes 197,561 shares of common stock available for future grant or issuance under our 2004 omnibus stock incentive plan and 2,000,000 shares of common stock available for issuance under our 2004 employee stock purchase plan. Copies to: Jeffrey H. Cohen, Esq. Jennifer A. Bensch, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 (213) 687-5000 Mark Stegemoeller, Esq. Latham & Watkins LLP 633 West Fifth Street, Suite 4000 Los Angeles, California 90071 (213) 485-1234 Summary Consolidated Financial and Other Data The summary consolidated statement of operations and comprehensive income (loss) data for the years ended December 31, 2001 and 2002 and the periods January 1, 2003 to September 23, 2003 and May 30, 2003 to December 31, 2003 and the consolidated balance sheet data as of December 31, 2003 have been derived from our audited consolidated financial statements included elsewhere in this prospectus, which include, with respect to the periods presented below, the results of our predecessor entity, InfraSource Incorporated, for the years ended December 31, 2001 and 2002 and for the period January 1, 2003 to September 23, 2003, and our results for the period May 30, 2003 (date of inception) to December 31, 2003 and as of December 31, 2003. We had no operating activity prior to the Exelon Transaction on September 24, 2003. The summary pro forma consolidated as adjusted financial data as of and for the year ended December 31, 2003 have been derived from our unaudited pro forma condensed consolidated financial data included elsewhere in this prospectus. The pro forma consolidated as adjusted statement of operations and comprehensive income (loss) data for the year ended December 31, 2003 give effect to the Exelon Transaction and the Maslonka acquisition and the completion of this offering, including the application of the net proceeds as described under "Use of Proceeds," as if such events occurred on January 1, 2003. The pro forma consolidated as adjusted balance sheet data as of December 31, 2003 give effect to the Maslonka acquisition and the completion of this offering, including the application of the net proceeds as described under "Use of Proceeds," as if such events occurred on that date. Our unaudited pro forma consolidated financial data is based on currently available information and is not necessarily indicative of our financial position or results of operations that would have occurred had these transactions taken place on the dates indicated, nor are they necessarily indicative of future results. The pro forma adjustments and the allocation of the purchase price for the Exelon Transaction are subject to adjustment based upon the outcome of certain estimates and contingencies, including the valuation of certain specialty equipment acquired and the finalization of a working capital adjustment. The pro forma adjustments and the allocation of the purchase price for the Maslonka acquisition are preliminary and are based on management's estimates of the fair value of the assets acquired and liabilities assumed. The final allocations of acquisition consideration will be based on management's final valuation analyses. Any adjustments based on these final valuations analyses may change the allocations of the acquisition consideration, which could affect the fair value assigned to our assets and liabilities and could result in a change to the unaudited pro forma condensed consolidated financial data. You should read the following financial information together with the information under "InfraSource Services, Inc. Unaudited Pro Forma Condensed Consolidated Financial Data," "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes of InfraSource Services, Inc., and Maslonka & Associates, Inc. included elsewhere in this prospectus. Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective. Other Financial Data from Continuing Operations: Cash flow provided by (used in) operating activities from continuing operations $ 60,364 $ 22,474 $ 17,834 $ (2,053 ) Cash flow provided by (used in) investing activities from continuing operations (78,396 ) (14,491 ) (12,541 ) (210,698 ) Cash flow provided by (used in) financing activities from continuing operations 29,117 (1,063 ) (10,188 ) 224,831 Capital expenditures, net of disposals (48,043 ) (16,649 ) (12,541 ) (2,833 ) EBITDA from continuing operations, before extraordinary items and cumulative effect of a change in accounting principle, net of tax(3)(5) $ 56,466 $ 73,239 $ 3,592 $ 14,474 $ 42,283 Net cash flows used in investing activities from continuing operations (78,396 ) (14,491 ) (12,541 ) (210,698 ) Net cash flows provided by (used in) investing activities from discontinued operations (4,172 ) (274 ) 4,995 If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. (a) We recognized a gain of $5.2 million relating to an arbitration settlement of a dispute regarding a purchase price adjustment with respect to an acquisition completed in 1999. (b) Since the formation of InfraSource Incorporated in 1999, we have utilized an actuarial analysis to assist management in estimating the accrual for our self-insured workers' compensation, auto and general liability insurance on an annual basis. In late 2002, we revised our estimate based on available loss data and adjusted our reserve for losses attributable to 2002 and prior periods. In September 2003, we had an updated actuarial analysis performed. As a result of the updated actuarial analysis and an increase in data available for loss history, we revised our estimate and increased our insurance reserve by $8.6 million for losses attributable to periods prior to 2003. For 2002, after giving effect to the portion of the adjustment in 2003 attributable to 2002 and the portion of the adjustment in 2002 attributable to periods prior to 2002, we had a net adjustment of $(0.4) million in 2002. (c) In connection with our acquisition of InfraSource Incorporated and certain of its subsidiaries on September 24, 2003, we incurred $16.2 million of expenses, including severance and retention costs and professional service fees. (d) We recognized a $3.8 million charge in connection with a litigation judgment entered against us in January 2004 related to a proposed 1999 acquisition. We filed a notice of appeal on February 19, 2004, and the plaintiff filed a notice of cross-appeal on March 2, 2004. (4)Upon adoption of SFAS No. 142, we recorded a non-cash charge of $204.1 million (net of tax) to reduce the carrying amount of goodwill and other intangibles to their implied fair value. See Note 4 to our consolidated financial statements included elsewhere in this prospectus. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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+S-1/A SUMMARY This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements. Gander Mountain Company We are a leading specialty retailer that caters to the needs of outdoor lifestyle enthusiasts, with a particular focus on hunting, fishing and camping. Our core strategy and focus is to provide our target customer with a unique retail experience founded upon our "We Live Outdoors" culture and theme. Our stores offer competitively priced national, regional and owned brand outdoor equipment, accessories, related technical apparel and footwear. We seek to combine our broad and deep merchandise assortments with a unique store environment and an emphasis on customer service based on our store associates' extensive product knowledge and outdoor-related experience. We have expanded our store base from 26 stores in 1997 to our current base of 66 Gander Mountain outdoor lifestyle stores in nine states Illinois, Indiana, Iowa, Michigan, Minnesota, New York, Ohio, Pennsylvania and Wisconsin. We are transforming our market position from a traditional specialty store to a larger format, category-focused store. Our new larger format stores, which range from 50,000 to 100,000 square feet, have a warehouse-style shopping environment that reinforces our overall value proposition to our customers and enables us to substantially increase the breadth and depth of our product offerings. We currently have nine larger format stores, the first of which opened in March 2003. We believe that the following strengths distinguish us from our competitors and are critical to our continuing success: the 43 year heritage and strong brand identity of the Gander Mountain brand name; a merchandise assortment that we believe is significantly broader and deeper than that offered by our primary competitors; a superior level of customer assistance, outdoor product expertise and value-added technical services; our price leadership and "every day low price" policy; and the broad retail operating experience of our current management team. Our long-term objectives are to build upon the Gander Mountain brand name and create the leading retail store chain that defines the outdoor lifestyle category. To achieve our objectives we intend to: use the strong store economics of our larger format stores to continue profitable new store expansion and gain a substantial share within the outdoor lifestyle market; continue to employ our flexible real estate strategy using different store prototype sizes depending on market characteristics, demographics and availability of sites and facilities; continue increasing our comparable store sales, store operating margins and profitability through improved purchasing leverage, strengthening of inventory positions and supply chain initiatives; and leverage our scalable infrastructure, including our management ranks and information systems.
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+S-1/A SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 SUMMARY The following is a summary of the principal features of this offering of the notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Simultaneously with the completion of this offering, B&G Foods, Inc. will be merged with and into B&G Foods Holdings Corp., the sole asset of which is the capital stock of B&G Foods, Inc. The surviving entity will be named B&G Foods, Inc. Throughout this prospectus, the terms "our," "we," "us," and "B&G Foods" refer to B&G Foods Holdings Corp. before the merger, and B&G Foods, Inc., after the merger, in each case together with their wholly owned subsidiaries, except where it is clear that the term refers only to B&G Foods individually or to B&G Foods, Inc. before the merger. We sometimes refer to B&G Foods Holdings Corp. as "B&G Holdings." Our fiscal year is the 52 or 53 week reporting period ending on the Saturday closest to December 31. Our fiscal year 2003 ended on January 3, 2004. Our Company Overview We manufacture, sell and distribute a diverse portfolio of shelf-stable foods, many of which have leading retail market shares in our relevant markets. In general, we position our retail products to appeal to the consumer desiring a high quality and reasonably priced branded product. In our relevant retail markets, 10 of our branded products hold number one or two retail market share nationally or regionally or are unique products. We complement our retail product sales with a growing institutional and food service business. Over the past five years, we have achieved consistent growth in net sales and EBITDA through a combination of internal growth, including long-term licensing of a brand, plus the addition of eight brands through acquisitions, our most recent being the acquisition of the Ortega line of branded Mexican food products in August 2003. In fiscal 2003, our net sales and EBITDA were $328.4 million and $61.9 million, having increased at compound annual growth rates since fiscal 2001 of 8.3% and 6.9%, respectively. Our pro forma as adjusted net sales and EBITDA for the latest twelve months ended July 3, 2004, reflecting the full year impact of the Ortega acquisition, were $377.9 million and $73.4 million, respectively. During the nine months ended July 3, 2004, which includes the results of the Ortega line of products after the completion of the integration of the acquired assets into our existing business, our net sales, EBITDA and EBITDA margin were $285.6 million, $56.0 million and 19.6%, respectively, compared to net sales, EBITDA and EBITDA margin of $222.5 million, $40.3 million and 18.1%, respectively, for the comparable period in the prior year nine month period ended June 28, 2003. We sell and distribute our products through a multiple-channel sales and distribution system including to the following: supermarket warehouses; distributors and food service accounts; mass merchants, warehouse clubs and other non-food outlets; specialty food distributors; direct-store-organization on a regional basis to individual grocery stores in the greater New York Metropolitan area; and catalogs and the Internet. Balance at December 30, 2000 20,321 $ 12,311 $ 102,500 $ Balance at December 29, 2001 20,341 12,311 105,500 Balance at December 28, 2002 20,341 12,311 105,500 Balance at January 3, 2004 20,341 $ 12,311 $ 105,500 $ Balance at July 3, 2004 (unaudited) 20,341 $ 12,311 $ 105,500 $ (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 5,998 $ 15,245 $ 15,168 $ 6,271 $ 11,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,290 5,300 6,014 2,741 3,237 Amortization of deferred debt issuance costs and bond discount 1,972 2,686 2,839 1,487 1,284 Write-off of deferred debt issuance costs 1,831 Deferred income taxes 3,832 5,532 4,382 2,254 3,138 Gain from sale of assets (3,112 ) Provision for doubtful accounts 118 84 711 585 Changes in assets and liabilities, net of effects from business acquired: Trade accounts receivable 2,432 (363 ) (1,159 ) 1,979 (3,497 ) Inventories (2,788 ) (1,394 ) (6,542 ) (1,574 ) (3,658 ) Prepaid expenses 303 (234 ) (63 ) (1,626 ) (2,864 ) Other assets (400 ) 33 (1 ) (1 ) Trade accounts payable (3,525 ) (2,430 ) 990 517 3,989 Accrued expenses 2,263 1,903 3,205 (1,308 ) (2,763 ) Due to related party Other liabilities 87 55 56 28 *Pro forma for the Ortega acquisition. *Pro Forma for the Ortega acquisition. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in Our Strengths We have experienced consistent net sales growth, strong operating margins and stable and growing free cash flow over the past five years due to the following competitive strengths: Portfolio of brands with leading market positions. We have assembled a diverse portfolio of 16 brands consisting primarily of high margin products with strong market positions. We believe our portfolio of brands and products provides us with financial stability, cash flow diversity and the ability to mitigate the financial impact of seasonality or competitive pressure against any single brand or product. Diversity of customers and distribution channels. We have strong representation in most U.S. food distribution channels and have a broad customer base. The diversity of our multiple-channel sales and distribution system enhances the stability of our financial results and our ability to capitalize on growth trends within a number of these distribution channels. Experienced management team. We have an experienced management team, averaging over 28 years of industry experience and 16 years of experience with our company or our predecessor company. Successful track record of acquisitions and integration. Since 1996, we have acquired and successfully integrated 16 shelf-stable brands. We seek to acquire shelf-stable products with leading market positions, high and sustainable margins and identifiable growth opportunities. Disciplined approach to operations. We bring a disciplined approach to operations through a detailed budgeting process, daily review of our results and by providing employees with incentives to meet operating targets and improve cash flows. We have realized consistent EBITDA margins over the past three years, increasing these margins to 18.9% in fiscal 2003. During the nine months ended July 3, 2004, our EBITDA margins were 19.6%, as compared to EBITDA margins of 18.1% during the comparable nine month period ended June 28, 2003, reflecting the positive impact of the integration of the Ortega line of products into our existing business platform. Business Strategy Our goal is to continue to increase sales, profitability and free cash flow by enhancing our existing portfolio of branded shelf-stable products and by capitalizing on our competitive strengths. We intend to implement our strategy through the following initiatives: Profitably grow established brands. We have identified numerous opportunities to profitably grow our established brands through increased and focused consumer marketing and trade support. Leverage our unique multiple-channel sales and distribution system. Our unique multiple-channel sales and distribution system allows us to capitalize on growth opportunities quickly and efficiently. We continue to strengthen our sales and distribution system in order to realize distribution economies of scale and provide an efficient, national platform for new products and product line extensions. Introduce new products. We intend to introduce new products and product line extensions within our existing portfolio of brands and under new brands that we may license. Capitalize on higher growth segments of the food industry. We intend to continue to focus on segments of the processed food industry characterized by high growth and high margins, such as the Mexican and other ethnic food segments, enabling us to leverage our distribution platform. Expand brand portfolio with new licensing arrangements and selective acquisitions. We introduced our Emeril's brand products through a licensing arrangement with celebrity chef Emeril Lagasse in September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. AMENDMENT NO. 11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 September 2000. Since introduction, we have been able to expand our Emeril's brand product line and retail distribution rapidly. We intend to pursue additional licensing arrangements with third parties to introduce and market other products. Additionally, we intend to expand our brand portfolio by making selective acquisitions of businesses that enhance our existing business platform and provide us with the opportunity to grow our free cash flow. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; and offer $240.0 million aggregate principal amount of % senior notes due 2011. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell 17,391,305 EISs and an additional $22.8 million aggregate principal amount of senior subordinated notes (not in the form of EISs) as part of this offering. Assuming an initial public offering price of $15.00 per EIS, we estimate that we will receive aggregate net proceeds of $494.6 million from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes after deducting underwriting discounts, commissions and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of senior notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. The Transactions Concurrently with this offering we will: effect a number of internal corporate transactions, including merging B&G Foods, Inc. with B&G Foods Holding Corp., recapitalizing the equity interests of our existing stockholders, including, among other things, the conversion of each share of existing common stock into 109.8901 shares of Class B common stock; enter into a $30.0 million senior secured revolving credit facility, which we refer to as the new revolving credit facility; separately offer 17,391,305 Enhanced Income Securities, or EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016; and separately offer an additional $22.8 million aggregate principal amount of % senior subordinated notes due 2016. The additional senior subordinated notes will be of the same series and have terms identical to the senior subordinated notes represented by the EISs. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will receive net proceeds in this offering and the concurrent offerings of the EISs and the additional senior subordinated notes of $494.6 million after deducting underwriting discounts, commissions, and other estimated offering expenses. We will use the net proceeds of this offering and the concurrent offering of the EISs and the additional senior subordinated notes and cash on hand: to repay all outstanding borrowings under, and terminate, our current senior secured credit facility, which we refer to as our existing senior credit facility; to retire our $220.0 million aggregate principal amount outstanding 95/8% senior subordinated notes due 2007, which we refer to as our existing senior subordinated notes; to repurchase all of our outstanding preferred stock from our existing stockholders; and all remaining net proceeds will be used to repurchase 2,704,334 shares of our outstanding Class B common stock, options and warrants from our existing stockholders. Because we intend to use all remaining net proceeds to buy a fixed number of shares of Class B common stock from our existing stockholders, if the net proceeds that we receive in this offering are greater or less than anticipated, the price per share that we pay to our existing stockholders to redeem their shares of Class B common stock could be higher or lower than the price per share allocated to the Class A common stock included within the EISs. We do not intend to use any such additional proceeds for any other purpose. If the underwriters for the EIS offering exercise their over-allotment option with respect to the EISs in full, we will use all of the additional net proceeds to repurchase 5,231,335 shares of our then outstanding Class B common stock and warrants from Bruckmann, Rosser, Sherrill & Co., L.P. (whom we refer to in this prospectus as our sponsor investor), Canterbury Mezzanine Capital II, L.P., Protostar Equity Partners, L.P. (whom we refer to in this prospectus collectively with our sponsor investor as our existing financial investors) and certain other non-management stockholders. We refer to this offering, our entering into the new revolving credit facility, the concurrent offering of the EISs and the additional senior subordinated notes, the repayment in full and termination of the existing senior credit facility, the repurchase of a portion of the outstanding Class B common stock including outstanding warrants and options for our Class B common stock and all the preferred stock of our existing stockholders, the internal corporate transactions and the retirement of our existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than B&G FOODS HOLDINGS CORP. (Exact name of Registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 2035 (Primary Standard Industrial Classification Code Number) 13-3918742 (I.R.S. Employer Identification No.) Four Gatehall Drive, Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EISs is exercised in full, the net proceeds from this offering of EISs and additional senior subordinated notes and the concurrent offering of senior notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding (1)We do not expect any borrowings under the new revolving credit facility upon the completion of the Transactions. (2)If the over-allotment option with respect to the EIS offering is exercised in full, the net proceeds from this offering and the concurrent offerings of EISs and the additional senior subordinated notes are expected to be approximately $531.3 million. (3)Immediately following the closing of the Transactions, we expect to have a minimum of $10.0 million of cash on our consolidated balance sheet. (4)Reflects the repayment of $149.0 million of term loan borrowings under our existing senior credit facility and accrued and unpaid interest. The proceeds of the six-year term loan and of certain drawings under the five-year revolving credit facility were used to fund the acquisition of the Ortega line of products and to pay related transaction fees and expenses and to fully pay off our remaining obligations under the term loan of our then-existing term loan agreement. With respect to our existing senior credit facility, interest is determined based on several alternative rates, including the base lending rate per annum plus an applicable margin, or LIBOR plus an applicable margin (4.59% at July 3, 2004). We have no revolving credit facility borrowings under our existing senior credit facility. (5)Reflects the retirement of $220.0 million aggregate principal amount of our existing 95/8% senior subordinated notes due 2007 plus accrued and unpaid interest. (6)Reflects the repurchase of all of our issued and outstanding 13% Series A cumulative preferred stock, 13% Series B cumulative preferred stock and Series C senior preferred stock. (7)Reflects the repurchase of 2,704,334 shares of our outstanding Class B common stock, including all of our outstanding options and a portion of our outstanding warrants to purchase Class B common stock. If the EIS underwriters exercise their over-allotment option with respect to the EIS offering in full, we will use all of the additional net proceeds to repurchase an additional 5,231,335 outstanding shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the EIS underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of See Table of Additional Registrants on Next Page shares of our Class B common stock, including all of our remaining outstanding warrants, owned by certain of our existing stockholders. The holders of the existing warrants have notified us that any existing warrants not repurchased by us upon the initial closing of the Transactions or on or prior to the date of expiration of the underwriters' over-allotment option will be exercised on such expiration date, and all holders of these remaining warrants will receive shares of Class B common stock pursuant to the terms of their warrants. (8)Includes (i) $20.4 million of debt issuance costs related to the Transactions, (ii) fees associated with the Class A common stock portion of the EISs of $10.4 million and (iii) other costs of $10.0 million which will be expensed when incurred. Of these fees, $1.7 million have been paid as of July 3, 2004. (9)Our board of directors has approved in principle a transaction bonus plan that will provide our six most senior executive officers upon completion of this offering cash compensation in an aggregate amount, if any, equal to the amount by which the aggregate value of the Class B common stock retained by all members of our management plus the aggregate cash proceeds they receive upon the repurchase of their existing equity does not equal at least 10% of the total equity value of our company. If the initial public offering price is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our consolidated balance sheet at the closing date. The closing of this offering of EISs and additional senior subordinated notes is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility contains restrictions on our ability to pay dividends on the shares of Class A common stock that constitute the EISs and our Class B common stock. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following the offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Senior Notes. Concurrently with this offering, we will offer $240.0 million aggregate principal amount of % senior notes due 2011. The indenture governing the senior notes will contain restrictions on our ability to pay dividends on the shares of Class A common stock included in the EISs and our Class B common stock. See "Description of Certain Indebtedness New Senior Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. our company. If the initial public offering price of the EISs is $15.00, we estimate the total compensation payable to the six most senior executive officers would be approximately $4.5 million (or $4.9 million if the underwriters' over-allotment option is exercised in full). Any such cash compensation paid to the six most senior executive officers will reduce the cash proceeds of the Transactions available to repurchase our existing equity and will not result in any increase in borrowings under our new revolving credit facility or reduce the amount of cash on our balance sheet at the closing date. The closing of this offering is conditioned upon our completion of the other Transactions. New Revolving Credit Facility. Concurrently with this offering, we will enter into a $30.0 million new senior secured revolving credit facility. The new revolving credit facility will have a five-year maturity. The new revolving credit facility will be undrawn at closing, and we expect to have $29.4 million of availability immediately following this offering (net of $0.6 million reserved for issued and outstanding letters of credit). See "Description of Certain Indebtedness New Revolving Credit Facility" for a summary of the terms of the new revolving credit facility. Enhanced Income Securities. Concurrently with this offering, we will separately offer 17,391,305 EISs, representing 17,391,305 shares of Class A common stock and $124.3 million aggregate principal amount of % senior subordinated notes due 2016. Holders of our EISs, will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes represented by their EISs, or approximately $0.858 per EIS per year. In addition, holders of our EIS will also receive quarterly dividend payments on the shares of Class A common stock represented by their EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. See " Dividend Payments to Holders of EISs." Additional Senior Subordinated Notes. Concurrently with this offering, we will separately offer $22.8 million aggregate principal amount of % senior subordinated notes due 2016. See "Description of Certain Indebtedness New Senior Subordinated Notes." Retirement of the Existing Senior Subordinated Notes. The existing senior subordinated notes bear cash interest at a rate of 95/8% per year. Immediately following and subject to the completion of the Transactions, we intend to retire the $220.0 million aggregate principal amount outstanding of the existing senior subordinated notes. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of a term loan and a revolving credit facility. We expect to repay the outstanding principal amount outstanding under the existing senior credit facility of $149.0 million, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at LIBOR plus an applicable margin (4.59% as of July 3, 2004). The terms of the existing senior credit facility allow us to prepay without premium or penalty. Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted David L. Wenner Four Gatehall Drive Suite 110 Parsippany, NJ 07054 (973) 401-6500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Our Existing Stockholders Our existing financial investors, selected members of management and certain others, are the owners of all of our outstanding preferred stock, Class B common stock, options and warrants. Upon consummation of the Transactions, our existing financial investors will beneficially own 11,502,065 shares of our outstanding Class B common stock, representing approximately 38.1% of our outstanding capital stock (or 6,270,730 shares, representing approximately 22.8% of our outstanding capital stock, if the over-allotment option with respect to the EISs is exercised in full), and selected members of management will own 1,285,716 shares of our outstanding Class B common stock, representing approximately 4.3% of our outstanding capital stock (or 1,285,716 shares, representing approximately 4.7% if the over-allotment option with respect to the EISs is exercised in full). Following the fifth anniversary of the closing of this offering, holders of our Class B common stock may demand registration of their Class B common stock. In addition, beginning on the 181st day following this offering, the holders of our Class B common stock may sell shares of Class B common stock to a third party in a private sale (other than to the public), subject to certain restrictions. See "Certain Relationships and Related Transactions Stockholders Agreement and Registration Rights Agreement Stockholders Agreement." Other Information About This Prospectus Unless we specifically state otherwise, the share, per share, option and warrant information included in this prospectus reflect the conversion in the merger of B&G Foods, Inc. with and into B&G Holdings of each of the shares of our existing common stock (which we refer to as our Class B common stock) into 109.8901 shares of our Class B common stock to become effective simultaneously with the closing of this offering. Throughout this prospectus, we have assumed an initial public offering price of $15.00 per EIS (comprised of $7.15 principal amount allocated to each senior subordinated note and $7.85 allocated to each share of Class A common stock). Throughout this prospectus, we have also assumed an interest rate of 12.0% for the senior subordinated notes. The information in this prospectus, unless otherwise indicated, does not take into account the exercise by the underwriters of their over-allotment option with respect to the EISs. Throughout this prospectus we use the terms "EBITDA" and "EBITDA margin," which are not indicators of performance or other measures determined in accordance with Generally Accepted Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Unless the context otherwise requires, references in this prospectus to the "offering" refer collectively to the offering of EISs, including the shares of Class A common stock and senior subordinated notes represented by such EISs, and $22.8 million aggregate principal amount of senior subordinated notes offered separately (not in the form of EISs). Accounting Principles in the United States (GAAP) and are fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Rating On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. With copies to: Christopher G. Karras, Esq. Glyndwr P. Lobo, Esq. Scott E. Lerner, Esq. Dechert LLP 4000 Bell Atlantic Tower 1717 Arch Street Philadelphia, PA 19103 (215) 994-4000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Kirk A. Davenport, Esq. Monica K. Thurmond, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 Our Corporate Information We are a Delaware corporation. Our corporate headquarters are located at Four Gatehall Drive, Suite 110, Parsippany, New Jersey 07054, and our telephone number is (973) 401-6500. Our web site address is www.bgfoods.com. The information contained on our web site is not part of this prospectus and is not incorporated in this prospectus by reference. Credit Ratings On May 4, 2004, Standard & Poor's Ratings Services and Moody's Investors Service issued press releases announcing changes to our corporate credit ratings. Standard & Poor's lowered our corporate credit and existing senior secured debt ratings to 'B' from 'B+' and lowered our existing subordinated debt ratings to 'CCC+' from 'B-'. Standard & Poor's assigned a 'BB-' rating to our new revolving credit facility, a 'B' rating to our senior notes and a 'CCC+' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). These ratings reflect, among other things, the impact of the offering of the EISs and the other Transactions. Moody's lowered our senior implied rating to 'B2' from 'B1' and our unsecured issuer rating to 'B3' from 'B2'. Moody's assigned a 'B1' rating to our new revolving credit facility, a 'B2' rating to our senior notes and a 'Caa1' rating to our senior subordinated notes (including the senior subordinated notes comprising EISs). The assignments of ratings by both Standard & Poor's Ratings Services and Moody's Investors Service are subject to review of final documentation. We expect ratings for our existing senior credit facility and existing senior subordinated notes will be withdrawn by both Standard & Poor's and Moody's upon closing of the Transactions. Non-cash transactions: Accretion of series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Offering Issuer B&G Foods Holdings Corp. Notes Offered $240,000,000 in aggregate principal amount of % Senior Notes due 2011. Maturity Date , 2011. Interest Payment Dates and of each year, commencing , 2005. Guarantees Our obligations under the notes will be jointly and severally and fully and unconditionally guaranteed on a senior basis by all of our existing and future domestic subsidiaries. For a discussion of the risks relating to the guarantees, see "Risk Factors Your right to receive payment on these notes is effectively subordinated to the rights of our existing and future secured creditors. Further, the guarantees of these notes are effectively subordinated to all the guarantors' existing and future secured indebtedness" and " If the guarantees of the notes are held to be invalid or unenforceable or are limited in accordance with their terms, the notes would be structurally subordinated to the debt of our subsidiaries." Ranking The notes and the subsidiary guarantees will be our and the guarantors' general unsecured obligations and: will be effectively junior in right of payment to all of our and the guarantors' secured indebtedness and to the indebtedness and other liabilities of our non-guarantor subsidiary, Les Produits Alimentaires Jacques et Fils Inc.; will be pari passu in right of payment to all of our and the guarantors' existing and future unsecured senior debt; and will be senior in right of payment to all of our and the guarantors' future subordinated debt. As of July 3, 2004, after giving effect to the completion of the Transactions, we would have had $240.0 million principal amount of outstanding senior debt and $165.8 million principal amount (if the over-allotment option related to the EIS offering is exercised in full) of outstanding senior subordinated debt. In addition, as of July 3, 2004, after giving effect to the completion of the Transactions, we would have had the ability to borrow up to $29.4 million under our new senior credit facilities (net $0.6 million reserved for issued and outstanding letters of credit), which would be effectively senior in right of payment to the notes. Optional Redemption On or after , 2008, we may redeem some or all of the notes at the redemption prices set forth under "Description of Notes Optional Redemption." Non-cash transactions: Accretion of Series C senior preferred stock warrants $ 16 $ 16 $ 16 $ 8 $ The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The Offering Summary of the EISs and Senior Subordinated Notes We are offering 17,391,305 EISs at an assumed initial public offering price of $15.00 per EIS, and $22.8 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents one share of our Class A common stock and one % senior subordinated note with $7.15 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 12.0% of the aggregate principal amount of senior subordinated notes held separately or represented by your EISs, or approximately $0.858 per EIS, or per senior subordinated note held separately, per year. You may also receive quarterly dividend payments on the shares of Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new revolving credit facility and the indentures governing our senior notes and our senior subordinated notes will each contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. We intend to make our first dividend payment on our Class A common stock on January 30, 2005, to holders of record as of December 31, 2004. Such dividend payment will be a partial quarterly dividend payment for the period commencing on the date of completion of this offering and ended on January 1, 2005. We intend to make our first dividend payment on our Class B common stock on February 20, 2006, to holders of record as of December 31, 2005. Such dividend payment will be an annual dividend payment for the year ending December 31, 2005. Under our dividend policy, we intend to pay quarterly dividends of $0.212 per share of Class A common stock through the first four full quarterly dividend payment periods following the closing of this offering, and we intend to pay an annual dividend per share of Class B common stock equal to Class B Available Cash (as defined herein under "Dividend Policy and Restrictions General") for that period, divided by the number of shares of Class B common stock outstanding on the record date for such period, subject to the subordination provisions described herein under "Description of Capital Stock Common Stock." Assuming we pay quarterly and annual dividends as intended under our dividend policy, and assuming our EBITDA for the twelve months ended December 31, 2005 were equal to our pro forma as adjusted EBITDA for the twelve months ended July 3, 2004 ($73.4 million), this would equate to $0.848 of dividends per share of Class A common stock and $0.665 per share of Class B common stock for the period beginning January 2, 2005 through December 31, 2005, the first four full quarterly dividend payment periods and the first annual dividend payment period, respectively, following the closing of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarterly dividend payment date, including the January 30, 2005 dividend payment date, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indentures governing our senior subordinated notes and our senior notes and the terms of our new revolving credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you
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+Prospectus Summary 1 Risk Factors 9 Forward-Looking Statements and Projections 27 Use of Proceeds 28 Dividend Policy 28 Capitalization 29 Dilution 30 Selected Consolidated Financial and Other Data 31 Management's Discussion and Analysis of Financial Condition and Results of Operations 33 Industry Overview 59 Business 65 Management 94 Executive Compensation 99 Principal Shareholders 108 Certain Relationships and Related Transactions 112 Description of Our Share Capital 114 Shares Eligible for Future Sales 122 Material U.S. Federal Income Tax and Bermuda Tax Considerations 124 Underwriting 138 Validity of Securities 140 Experts 140 Where You Can Find Additional Information 140 Index to Consolidated Financial Statements F-1 Certain Ratings Information Appendix A In this prospectus, "we," "us" and "our" refer to American Capital Access Holdings Limited, or ACA Holdings, and its subsidiaries and not to the underwriters. PROSPECTUS SUMMARY You should read the entire prospectus carefully, especially the matters discussed in "Risk Factors." All share amounts and related terms contained in this prospectus have been adjusted to reflect a 5.63 for 1 share split which we will effect prior to the consummation of this offering and the conversion of all outstanding convertible preference shares and senior convertible preferred shares which will automatically convert into common shares immediately prior to the consummation of this offering. OUR BUSINESS Overview ACA Holdings conducts business through its subsidiaries in the following areas: Municipal Bond Insurance: We provide insurance on municipal bonds that guarantees the timely payment of interest and principal. This is known as financial guaranty insurance and providers of this type of insurance are referred to as financial guarantors or financial guaranty insurers. Financial Services: We participate in the market for structured finance products called collateralized debt obligations, or more commonly, CDOs. We originate and structure CDOs as well as manage the financial assets that comprise the CDOs. Originating and structuring CDOs generally involves the acquisition of corporate obligations or asset-backed securities and the packaging of these obligations and securities within an investment entity. The investment entity issues debt obligations to institutional investors, and these obligations are repaid with the cash flows from the underlying obligations and securities. Customized Solutions: In addition to our financial guaranty insurance, we also provide other types of specialized insurance products for the financial and insurance markets. Our personnel have expertise in analyzing credit, assessing risk in financial instruments and structuring transactions to suit the specific needs of our clients. We use this expertise in all of our business lines. Our financial guaranty insurance business has an "A" ("strong", the sixth highest of twenty rating levels) financial strength rating from Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, or S&P, and an "A" ("strong", the sixth highest of nineteen rating levels) financial strength rating from Fitch Ratings Inc., or Fitch. A "financial strength" rating relates to our ability to pay under our insurance policies. We use our financial guaranty insurance to enhance the credit rating of lower-rated and non-rated municipal bonds to an effective "A" rating. This allows municipal bond issuers to borrow at a lower cost and increases the marketability of their bonds. We receive premiums from municipal bond issuers in exchange for providing insurance against payment defaults. Nearly half of all municipal bonds outstanding carry some form of financial guaranty insurance, and the vast majority of insured municipal bonds are insured by financial guarantors whose credit ratings are "AAA" (which is the highest financial strength rating assigned by the rating agencies). Due to both rating agency and internally imposed constraints, these "AAA" financial guarantors generally do not insure non-investment grade or non-rated municipal bonds. By contrast, our "A" financial strength rating combined with our expertise in credit analysis allows us to guarantee the bonds of issuers in this underserved segment of the market. As of December 31, 2003, we had insured obligations consisting of $8.6 billion net par outstanding, which is equal to the outstanding principal amount of obligations net of reinsurance, $5.6 billion of which represents our insured municipal bond portfolio. From our inception in 1997 through December 31, 2003, our paid losses and expenses relating to the settlement of losses, net of recoveries, have been less than 1% of the total net insurance premiums we received during this period. Within our financial services business, we receive fees for originating and structuring CDOs and managing the financial assets that comprise CDOs: We originate CDOs by collaborating with financial institutions, such as investment banks, to create new CDOs and assist in the selection and acquisition of the financial assets that will comprise the CDO. We structure CDOs by seeking to ensure that the cash flows from the underlying financial assets of the CDO meet the debt obligations of the CDO. These debt obligations are divided into layers, or tranches, with different priorities of claims on the cash flows from the underlying financial assets of the CDO. These priorities reflect a tranche's exposure to risk from potential losses on the underlying financial assets of the CDO. We manage CDOs by actively monitoring the credit worthiness of the issuers of the underlying financial assets and trading the underlying financial assets of the CDO. We believe that our ability to manage these underlying financial assets of the CDO allows us to mitigate losses as they develop, and to lower the risk of defaults by selling the financial assets of the CDO that develop an increased risk of default. In addition to these fee-based services, we assume the risk up to the principal amount of the most junior, or equity, tranche of the CDO. This equity tranche, which generally represents a small portion of the total assets of the CDO, is also known as the "first-loss" layer because it absorbs any initial losses on the financial assets of the CDO. By assuming the risk associated with the equity layer, we become entitled to the difference, often referred to as excess spread, between the payments the CDO receives from the underlying financial assets of the CDO and the payments that the CDO makes to holders of its debt obligations. We believe that this approach increases and diversifies our economic return by complementing our fee-based revenue with risk-based revenue. We completed our first CDO in January 2002 and have completed a total of seven transactions to date with $6.0 billion of CDO assets under management. Through our customized solutions business, we use our expertise in credit analysis and quantitative risk assessment to offer insurance and structured finance products to our clients. Our customized insurance products assist financial institutions in meeting their regulatory, accounting or capital requirements. Products that we currently provide include: Financial guaranty insurance of the most senior liability, commonly referred to as the "super-senior" tranche, of CDOs structured by third parties. Reinsurance of discrete amounts that allows us to selectively participate in the property catastrophe insurance market. We expect that the types of customized solutions we offer will vary as market opportunities arise. As of December 31, 2003, we had $2.8 billion of total insured exposure related to our customized solutions business. For the year ended December 31, 2003, we had total revenues of $108.0 million and net income of $17.2 million. Our shareholders' equity was $194.3 million at December 31, 2003. The Municipal Finance Market The U.S. municipal finance market includes debt obligations issued by states, political subdivisions (cities, counties and towns), utility districts, airports, higher educational institutions, hospitals, transportation, housing authorities and other similar authorities and agencies. These obligations are generally supported by the issuer's taxing authority or ability to collect fees or assessments for projects or public services. Our municipal bond insurance business involves guaranteeing obligations in virtually all of these categories, but we specifically target low- and non-investment grade or non-rated issuers. In 2003, there were over 15,000 new issues in the U.S. municipal finance market with a par amount of approximately $384 billion. Of these issues, 4,300, with a par amount of approximately $36 Signature Title * Director Warren A. Stephens /s/ Michael E. Satz Authorized representative in the United States Michael E. Satz * The undersigned by signing his name hereto, does hereby sign and execute this Amendment No. billion, were low and non-investment grade or non-rated. For the year ended December 31, 2003, we insured 66 of these new issues with a par amount of $981 million. The Collateralized Debt Obligation (CDO) Market The market for CDOs developed in the late 1980s and has experienced considerable growth over the last seven years. U.S. CDO issuance in 2003 was approximately $150 billion in total principal amount compared to approximately $36 billion in 1997. The CDOs we completed in 2003 had a total principal amount of $3.6 billion. Competitive Strengths We believe we possess the following competitive strengths: Focus on credit analysis and risk management. We emphasize the importance of rigorous credit analysis throughout our insurance and financial services businesses. We have established systems of risk management and risk surveillance that we apply to all of our product offerings. Use of "A" financial strength rating to provide financial guaranty insurance to underserved segments of the municipal finance market. We are currently the only financial guarantor that has an "A" financial strength rating. All other financial guarantors that serve the municipal finance market are rated "AAA" or "AA." The insurers with "AAA" or "AA" ratings generally are not able or choose not to guarantee the bonds of non-investment grade and non-rated issuers due to both rating agency and internally imposed constraints. By contrast, our "A" financial strength rating combined with our expertise in credit analysis allows us to provide financial guaranty insurance to these underserved issuers. We carefully analyze each issuer we insure to mitigate the increased risk associated with the low or non-existent underlying rating of their bonds. Unique approach to structured finance. Through our participation in the CDO market, we receive both fee-based and risk-based revenues while limiting our risk of economic loss to the first loss layer of a CDO. This provides us with higher returns than would be available if we acted solely as a traditional financial guarantor by insuring debt obligations of the CDO, while also limiting our risk. Management team with significant industry and operating experience. Our management team is led by our Chief Executive Officer, who has worked in the financial guaranty insurance and structured finance markets for 22 years. Our senior management team collectively averages over 17 years in the financial services industry. Business Strategy Our goal is to generate recurring revenues that will provide returns on our capital, adjusted for risk, that are superior to those of our competitors by adhering to the following strategies: Capitalize on the flexibility of our "A" financial strength rating. In the municipal finance market, our "A" financial strength rating allows us to provide financial guaranty insurance to issuers that are historically underserved by "AAA" rated financial guarantors. Because of the number of active market participants, premium levels for "AAA" or "AA" financial guaranty insurance are quite competitive. By contrast, we can charge premiums that reflect the greater risk we assume. We intend to continue to capitalize on the advantages that we believe our "A" financial strength rating affords us. Pursue growth opportunities in underpenetrated segments of the municipal finance market. We target the lower- or non-rated segment of the municipal finance market, which we believe has strong growth potential. As issuers in this segment seek financial guaranty insurance, we believe our established reputation as a long-time provider to this market segment will give us an advantage over other potential competitors. Continue the origination of our CDOs. We intend to continue to originate, structure and manage the assets of new CDOs. We believe that we can build on our track record of managing CDOs, which should enhance market reception to our new CDOs with new asset classes. Seek diversified revenues from multiple sources. We intend to maintain the diversity of our revenues, including fees, premiums and investment income. In addition, we will continue to generate revenues from multiple sources, including municipal finance, structured finance and other insurance products. We believe that this approach will limit our exposure to negative cycles in one or more of these markets. Offer new insurance products and services to our clients. We intend to use our expertise in credit analysis and quantitative risk management to create and offer new products for the insurance and structured finance markets. Risks Any analysis of our competitive strengths and our business strategy must be balanced by an analysis of some of the risks we face and other countervailing factors that could adversely affect our future. These include: We may not accurately analyze the credit and other risks we assume. A fundamental part of our business involves accurate and timely analysis of credit risk and other risks we assume. We could suffer extensive losses if we do not accurately analyze the risk of default or credit quality deterioration in the obligations we insure or in the financial assets in our CDOs. These losses could jeopardize our financial position. We may not be able to maintain our "A" financial strength rating. The rating agencies that have assigned us "A" financial strength ratings could revise or withdraw these ratings at any time. If they did so, we would be unable to continue our current business of insuring municipal obligations and our CDO and customized solutions businesses would be materially hurt. We are required to have $300 million in capital (which may include first loss or excess of loss reinsurance, bank letters of credit or other facilities) by December 31, 2004 in order to maintain our S&P rating, and Fitch has stated that a rating action could be forthcoming if we do not raise the additional capital contemplated by this offering. While we expect that the consummation of this offering will address these concerns, losses in excess of our expectations could diminish our capital. We may need more capital for growth. Because of both rating agency and insurance regulatory factors, we may need significant amounts of additional capital in the future to continue our growth. That additional capital may not be readily available or may be very costly to obtain. Our CDO business is relatively new and may not perform as we expect. We completed our first CDO only in 2002 and have only completed seven CDO transactions in total. It will be several years before we know whether these CDOs have performed as we expect. If they do not, we may suffer losses and be unable to increase our participation in the CDO market. Our insurance reserves may be inadequate. We do not use traditional actuarial methods to establish reserves for our financial guaranty insurance business, but must rely on an uncertain process of estimating future losses based on the limited available information regarding defaults. If we do not accurately establish our reserves, our losses may adversely affect our future income and capital. Our business is inherently complex and our financial statements now, and future financial reporting will, reflect this complexity. Our recent significant growth strained our resources and, as a result, in 2003 we had to take steps to improve our systems and controls. In addition, the U.S. federal income tax treatment of our company and our shareholders is complex and involves some judgments and uncertainties that investors are urged to consider carefully. There are further discussions of all of these matters elsewhere in this prospectus, and we encourage you to read these discussions carefully. Additional Information We were originally incorporated in 1997 and moved our domicile to Bermuda in 2002. We are a holding company that conducts all of its operations through subsidiaries in the United States and other jurisdictions, including Bermuda. Our principal executive office is located at 44 Church Street, Hamilton HM 12, Bermuda and our telephone number is (441) 295-3688. We maintain a website at www.aca.com. Information on our website is not a part of this prospectus. THE OFFERING Common shares offered shares Common shares to be outstanding after this offering (1) shares Use of proceeds We estimate that our net proceeds from the initial public offering of our common shares, after deducting the underwriting discounts and commissions and our estimated offering expenses, will be approximately $ million. We estimate that our net proceeds will be approximately $ million if the underwriters exercise their over-allotment option in full. We intend to use the net proceeds of this offering for general corporate purposes. Proposed NYSE symbol "ACA" Dividend policy We do not anticipate paying dividends on our common shares in the foreseeable future. We plan to retain earnings for use in the operation of our business and to fund future growth. (1) The number of common shares to be outstanding after this offer excludes: common shares issuable upon the exercise of the underwriters' over-allotment option; 2,015,212 common shares issuable upon the exercise of outstanding stock options at a weighted average exercise price of $11.44 per share; and common shares issuable upon the exercise of stock options to be issued upon the consummation of this offering, at an exercise price equal to the initial public offering price set forth on the cover page of this prospectus. Summary Consolidated Financial and Other Data The following table sets forth summary historical consolidated financial and other data as of and for the years ended December 31, 2003, 2002 and 2001. We derived our summary consolidated financial data as of and for the years ended December 31, 2003, 2002 and 2001 from our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and audited by PricewaterhouseCoopers LLP, our independent auditors. Our historical results are not necessarily indicative of our results for any future period. You should read the data set forth below in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information appearing elsewhere in this prospectus. For the Year Ended Dec. 31, Dec. 31, Dec. 31, 2003 2002 2001 (in thousands, except per share amounts) Income Statement Data: Gross premiums written $ 66,014 $ 55,264 $ 23,021 Net premiums written 62,549 47,434 5,459 Premiums earned 23,836 13,976 6,672 Net investment income 52,868 20,269 11,567 Net realized gains (losses) 3,188 4,138 6,511 Net realized and unrealized gains (losses) on derivative instruments 6,821 (8,666 ) — Derivative income 11,972 4,975 — Fee income 8,898 4,236 194 Other income 423 676 — Total revenues 108,006 39,604 24,944 Loss and loss adjustment expenses 3,168 1,801 1,636 Policy acquisition costs 4,077 4,046 3,680 Other operating expenses 29,466 18,683 14,304 Interest expense 42,046 9,869 126 Depreciation and amortization 1,329 1,081 730 Reorganization costs — — 1,749 Total expenses 80,086 35,480 22,225 Income (loss) before income taxes 27,920 4,124 2,719 Provision (benefit) for income taxes 10,717 (444 ) 110 Net income (loss) $ 17,203 $ 4,568 $ 2,609 Basic earnings (loss) per share $ 2.92 $ 0.77 $ 0.45 Diluted earnings (loss) per share 1.37 0.37 0.23 Weighted average number of common shares outstanding: Basic 5,886 5,895 5,786 Diluted 12,559 12,268 11,136 Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2001 (in thousands, except share amounts) Summary Balance Sheet Data: Cash and investments (a) $ 3,321,690 $ 808,545 $ 231,672 Total assets (a) 3,468,426 916,966 299,062 Reserve for losses and loss adjustment expenses 9,547 6,555 3,405 Unearned premiums 172,337 136,222 101,208 Total debt (a) 2,964,332 541,470 825 Total liabilities 3,274,120 757,106 128,144 Total shareholders' equity 194,306 159,860 170,918 Per Share Data: Book value per share (b) $ 16.03 $ 13.23 $ 14.38 Other Data (c): Net par exposure (in millions) $ 8,563 $ 6,378 $ 5,563 CDO assets under management (in millions) 5,826 2,400 N/A Present value of future cash flows (after tax) (d) 89,650 41,712 14,873 Statutory Financial Data (ACA Financial Guaranty) (e): Contingency reserve (f) $ 31,520 $ 21,162 $ 13,959 Policyholders' surplus 137,783 123,635 106,802 (a) Includes cash and investments related to our consolidated CDOs of $2,943.5 million and $511.3 million as of December 31, 2003 and December 31, 2002. Includes total assets related to our consolidated CDOs of $2,943.5 million and $511.3 million as of December 31, 2002, respectively. Includes debt related to our consolidated CDOs of $2,905.1 million and $523.5 million as of December 31, 2003 and December 31, 2002, respectively. (b) Book value per share is based on total shareholders' equity divided by basic common shares outstanding including the assumed conversion of convertible preference shares and senior convertible preferred shares. (c) This information is not derived from our audited consolidated financial statements. (d) Includes the present value of installment premiums and future cash flows from CDOs discounted at 6% in 2003, 8% in 2002 and 6% in 2001 net of taxes. Actual results will differ if the assumptions above prove incorrect. Management believes that this data provides more complete information regarding our potential future revenues. In particular, installment premiums are not reflected in unearned premiums but the present value of installment premiums is considered an important measure of future revenues for public financial guaranty insurance companies. (e) Derived from the statutory financial statements of ACA Financial Guaranty, which have been prepared in accordance with statutory accounting practices prescribed and permitted by the Maryland Insurance Administration, or SAP, which differ in material respects from U.S. GAAP. (f) Under statutory accounting principles, or SAP, we are required to establish contingency reserves based on a specified percentage of either written premiums or insured exposure by bond type. A contingency reserve is an additonal liability reserve established to protect the policyholder against the effects of adverse economic developments or cycles or other unforseen circumstances. RISK FACTORS You should carefully consider the risks described below, together with all of the other information in this prospectus, before deciding to invest in our common shares. We believe the risks and uncertainties described below are the material risks we currently face. Risks Related to Our Business If we do not accurately analyze credit and other risks we assume, we could suffer large losses. If we do not accurately analyze the credits and other risks we assume in our insurance business, then we may not correctly price our insurance products and, therefore, we may suffer losses in excess of our expectations. If that happens our capital adequacy, which is a measure of our ability to meet future obligations with then currently available resources, will be hurt. Our financial guaranty insurance premium rates are based on, among other factors, our analysis of the credit quality of the issuer of the insured obligation, the difference between market interest rates on insured and uninsured obligations, the amounts, known as capital charges, which the rating agencies and state insurance regulators assess against our capital based on the risk category assigned to an insured obligation, and competition from other forms of credit enhancement. Our premium rates on our other insurance products are based upon, among other factors, our expected risk of losses on the insured obligations. Approximately 43.3% of our municipal bond insurance portfolio currently consists of obligations that are non investment grade or non-rated. These obligations may be subject to a greater risk of default than obligations that are rated investment grade. While we have adopted limits on the amount of exposure we assume from a single particular issuer or credit source, a major loss on several insured securities could adversely affect the amount of our (resources available to pay claims). That could potentially result in a downgrade of the financial strength rating of our insurance subsidiary, ACA Financial Guaranty Corporation, which we refer to as ACA Financial Guaranty. Our future success in originating, structuring and managing CDOs will depend on our ability accurately and timely to analyze the financial assets that comprise the CDOs. If we fail to do this our CDOs may experience defaults and that may result in our potentially losing all of our equity interests in those CDOs. Our aggregate first loss, or equity, position in our CDOs is $161.5 million. Poor performance of our CDOs may also adversely affect our ability to originate future CDOs. To date, we have experienced no downgrades of or defaults under any of the tranches of our CDOs. Our customized solutions business also relies on our ability accurately to assess the risks associated with the transactions we undertake. These transactions are often uniquely tailored to meet the needs of our clients and as a result we have limited historical data and experience with which to establish premium rates. Losses on these customized insurance products could also adversely affect our capital adequacy. We try to manage our portfolio of assumed risks with regard to exposures to single credits, concentration of risk, and what we refer to as correlation of risk, which involves offsetting risks. Our failure to adequately manage these risks on an aggregate basis across all of our businesses could cause us to suffer excessive losses and could affect our capital adequacy. If ACA Financial Guaranty fails to maintain minimum capital requirements it may not be able to write new insurance or may be downgraded by the rating agencies. Rating agencies and state insurance regulators impose on ACA Financial Guaranty minimum capital requirements, meaning requirements to maintain specified amounts of resources available to pay claims. These capital requirements have the effect of limiting the amount of insurance that ACA Financial Guaranty may write, including with respect to single risks. Capital includes a combination of "hard" capital, which consists of paid-in capital and retained earnings, and "soft" capital, which consists of contractual arrangements such as reinsurance agreements or credit facilities. S&P's stable ratings outlook on ACA Financial Guaranty assumes that our insurance subsidiaries will satisfy S&P's current minimum hard and soft capital requirement of $300 million (of which at least $200 million must be hard capital) by December 31, 2004. Because we were formed in 1997 when lower capital requirements were in place, we were given until December 31, 2004 to comply with S&P's current minimum capital requirements, which were adopted in 2001. Upon the consummation of this offering on a pro forma basis as of December 31, 2003, our insurance subsidiaries expect to have hard capital of $ million and aggregate hard and soft capital of approximately $ million. However, the rating agencies could revise their capital requirements at any time, and losses in excess of our expectations could diminish our capital below then required rating agency levels. In January 2001, ACA Financial Guaranty was placed on "Rating Watch Negative" by Fitch when it appeared that we might then be unable to raise the additional capital necessary to support our "A" rating. Our need to raise additional capital at that time was the result of cumulative statutory operating losses and the failure to obtain standby capital facilities that would constitute soft capital. During the period we were on "Rating Watch Negative" our business was adversely affected. We were removed from "Rating Watch Negative" after we received commitments for $45 million of equity from existing and new shareholders. In addition, Fitch stated in March 2004 that it views our current capital and liquidity levels as insufficient to support our current insured book of business and our short-term growth aspirations at our current rating level. Although we believe that the proceeds from this offering will address these concerns, should we face similar circumstances in the future, we may not be able to raise additional hard or soft capital to avoid a rating downgrade. ACA Financial Guaranty is also subject to state regulations that set minimum statutory capital requirements for insurance companies in relation to the amount of outstanding insured obligations and limit the amount of net exposure which ACA Financial Guaranty may insure in relation to qualified statutory capital (which is the sum of policyholders' surplus and contingency reserve). Under New York insurance law, for example, a financial guaranty insurance company must maintain policyholders' surplus of at least $65 million. As of December 31, 2003, ACA Financial Guaranty's qualified statutory capital was $169.3 million and our policyholders' surplus was $137.8 million. Material reductions in the qualified statutory capital of ACA Financial Guaranty could result from losses on our insured obligations or investment losses. Our capital may also be inadequate if our insurance in force grows because we write new policies. Failure to meet these minimum capital requirements would limit ACA Financial Guaranty's ability to write new business, both on single risks and in the aggregate, require ACA Financial Guaranty to obtain reinsurance for existing business or could result in ratings downgrades, which then could materially adversely affect our results of operations and financial condition. Reinsurance, which can help alleviate capital needs, may be difficult or costly to obtain. If the rating agencies lower the insurance financial strength ratings that they have assigned to ACA Financial Guaranty, our ability to generate new business across all of our business lines would be seriously hurt. Rating agencies, such as S&P and Fitch, assign financial guaranty insurance companies, such as ACA Financial Guaranty, a "financial strength" rating. Our financial strength rating is essential to our insurance and financial services businesses. As of the date of this prospectus, ACA Financial Guaranty has been assigned an "A" financial strength rating with a "stable" outlook from both S&P and Fitch. Our ratings are subject to periodic review by the rating agencies, and the rating agencies may revise or withdraw these ratings at any time at their sole discretion. These actions may be based on factors which are entirely outside of our control, such as general industry trends, or they may reflect changes in the views or the policies of the rating agencies or adverse developments in our financial condition or results of operations, or those of ACA Financial Guaranty. If the rating agencies were to reduce ACA Financial Guaranty's financial strength rating to below "A", we would be severely limited in our ability to issue new insurance of municipal bonds. In addition, if that happened, we could be required to provide collateral in the form of cash or securities to back guarantees we have issued or in certain instances could be replaced as the collateral manager in our managed CDOs. If these events occurred, it could materially hurt our financial performance and liquidity and severely strain our capital resources. We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. We are undertaking this offering in large part to address current capital needs. Although we believe that the proceeds of this offering should be sufficient to address our current needs, our future capital requirements depend on many factors, including the growth of our insurance and financial services businesses and losses we may incur. Because we face state insurance regulatory restrictions on the ability of our insurance subsidiaries to pay dividends and to enter into transactions with us or our other subsidiaries, funds generated in our insurance operations may not be available to fund our other operations. To the extent that the funds generated from this offering and our operations are insufficient to meet our future requirements, we may need to raise additional funds through financings. If additional funds are unavailable, we may need to curtail our growth. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Equity or debt we may issue in the future may have rights, preferences and privileges that are senior to those of the current common shares. In the case of equity financings, our shareholders could experience dilution. If we require additional capital and are not able to obtain it on favorable terms or at all, our business, operating results and financial condition could be adversely affected. We have a limited history of originating, structuring and managing CDOs and our CDOs may not perform as we expect. We completed our first CDO only in 2002 and have completed a total of seven through December 31, 2003. Our CDOs have terms ranging from five to thirty years, which means that it will be several years before our first CDOs terminate and their total performance is known. As a result, there is limited historical information available to help you evaluate our track record in this type of business. It is possible that the actual performance of our CDOs may not meet our expectations or that we may suffer losses in our operations from poor performance in our CDOs. Our ability to grow our CDO business will depend on the performance of our outstanding CDOs. If our CDOs perform poorly, whether due to our failure to properly structure or manage the assets in our CDOs, the investors in our CDOs could suffer reduced returns and we may not be able to originate CDOs in the future. We provide "first loss" protection on our CDOs. We do this by either purchasing the equity tranche of our CDO or insuring the credit default swaps, or CDSs, of our CDS CDO. A credit default swap is a contract that involves the transfer of credit risk from one party to another without removal of the associated assets from the transferor's balance sheet. We currently have approximately $161.5 million of first loss exposure in our CDOs. If our CDOs fail to perform as we expect, we could suffer losses on our first loss position. We are still in the start-up phase of our CDO business, and our CDO business currently puts a strain on our liquidity because we are unable to distribute the excess funds generated by some of our CDOs due to the provisions of the borrowings we use to finance our purchase of the equity of some of our CDOs. Additionally, we are required to consolidate on our balance sheet, and to mark-to-market on the balance sheet, assets related to certain of our CDOs. Mark-to-market adjustments reflect changes in the value of the securities that comprise our CDOs and are influenced by changes in factors including general economic conditions and interest rate changes. Mark-to-market adjustments reflecting unrealized losses may exceed the value of our equity participation in a CDO. Although our economic exposure to losses is limited to our equity participation in the CDO and unrealized losses may not ultimately be realized, mark-to-market adjustments reflecting unrealized losses would reduce our shareholders' equity and could cause negative investor perception of us. This could impair our ability to originate future CDOs. We finance our purchase of the equity in our CDOs by borrowing the funds and backing our borrowing with a financial guaranty insurance policy from ACA Financial Guaranty. If we were unable to continue financing our purchase in this manner, we would be required to commit additional capital to each CDO or establish alternative sources of financing, which may limit the number of CDOs we could originate. If the reserves we establish for our insurance business are inadequate our results of operations may be adversely affected. Our future results of operation and financial condition are affected by our ability to establish adequate reserves for losses we may suffer on the risks we insure. Our financial guaranties insure the financial performance of the obligations guaranteed over an extended period of time, in some cases over 30 years, under policies that we cannot cancel. As a result of the small number of losses in the financial guaranty industry in general, financial guaranty insurers like ACA Financial Guaranty do not use traditional actuarial approaches to determine loss reserves. Instead, we establish an unallocated loss reserve in an amount we deem adequate to cover the expected levels of losses and loss adjustment expenses, which consist of losses plus the expense of settling claims (including legal and other fees and the portion of general expenses allocated to claim settlement costs), on our overall portfolio. Establishing loss reserves is an inherently uncertain process. The size of our unallocated loss reserve is determined by a formula, the components of which are reviewed regularly. In our non-financial guaranty insurance business, we establish loss reserves to cover our estimated liability for the payment of all losses and adjusted loss expenses incurred on the policies that we write. These estimates are based on statistical projections and our assessment of currently available information. Setting our loss reserves involves significant reliance upon estimates with regard to the probability, magnitude and timing of a loss. The models and estimates we use to establish loss reserves may prove to be inaccurate, especially during an extended economic downturn. There can be no assurance that the reserves we establish in any year will be adequate to cover the ultimate cost of losses incurred in that year. If our loss reserves are determined to be inadequate, we will be required to increase our loss reserves by recognizing a loss, which results in a corresponding reduction in our net income and capital in the period in which the deficiency is recognized. The effect of this could be very significant to us. Our significant recent growth and expansion into new markets placed a strain on personnel and internal controls and reporting in prior periods, and future growth could lead to further strains that could materially and adversely affect our business. Since 2001, we have significantly increased the scope of our financial guaranty operations and entered into markets in which we previously did not conduct business, including the origination, structuring and management of our CDOs and our customized solutions business. This growth placed a strain on our management, other personnel, resources and financial reporting systems. To implement our business strategy, we will need to evaluate continually and, where necessary, upgrade our operating and financial systems, procedures and controls. In connection with the audit of our financial statements for the year ended December 31, 2002, our independent auditor, PricewaterhouseCoopers LLP, recommended that we, among other things, expand our accounting staff (particularly with respect to individuals experienced in structured transactions and the application of SFAS 133, which addresses accounting for derivatives) and document policies, procedures and accounting methodology, and that we implement a function independent of operations management that is responsible for reviewing the models and data used in valuation of CDS transactions. We have expanded our accounting staff and otherwise taken the actions recommended by PricewaterhouseCoopers. In consultation with our auditors in early 2004, we determined to restate our financial statements for the year ended December 31, 2002. The restatement related in part to the recognition of forward purchase agreements associated with the warehousing phase of our CDO business as derivatives in accordance with SFAS 133. A forward purchase agreement is a legal agreement to purchase an asset at a specified price in the future. This component of the restatement reduced our reported consolidated net income before taxes for the year ended December 31, 2002 by $8.3 million and consolidated shareholders' equity by $19.7 million. Another component of the 2002 restatement related to the deferral of certain costs related to our financial services business. Upon further review, we determined that these costs should not have been deferred. This component of the restatement reduced our reported consolidated net income before taxes for the year ended December 31, 2002 by $4.4 million and consolidated shareholders' equity by the same amount. We intend to continue to monitor and, where necessary, take steps to improve our controls and systems, but if we are unsuccessful in doing so, our business and results of operations could be materially and adversely affected. General economic factors and interest rate changes may adversely affect our loss experience and the demand for our products. Our business, and the risks associated with it, tend to track general economic and market conditions. We could incur losses due to extended economic recessions, business failures, interest rate changes or volatility, changes in investor perceptions regarding the strength of financial guaranty insurers and the policies or guaranties offered by such insurers, investor concern over the credit quality of municipalities and corporations, terrorist attacks, acts of war, or combinations of such factors. The occurrence of any of these events could also materially decrease demand for our insurance products. In addition to exposure to general economic factors, our insurance policies expose us to the specific risks faced by the particular businesses, municipalities or pools of assets covered by our insurance. Prevailing interest rate levels affect demand for financial guaranty insurance. Higher interest rates may result in declines in new bond issue and refunding volume which may reduce demand for our financial guaranty products. Lower interest rates generally are accompanied by narrower interest rate spreads between insured and uninsured obligations resulting in generally lower cost savings to issuers than during periods of wider spreads. These lower cost savings could be accompanied by a corresponding decrease in demand for financial guaranty insurance. The performance of our CDOs and our ability to originate future CDOs may be adversely affected by volatility or deteriorating economic and market conditions, extended economic recession, interest rate volatility, deteriorating credit environment, increasing default rates or a combination of these factors. In addition, to the extent actual defaults occur in the securities and instruments that comprise our CDOs, we could suffer losses to the extent of our equity and the investors in our CDOs could suffer reduced returns. Poor performance of our CDOs may adversely effect our ability to originate future CDOs. If ACA Financial Guaranty's investments perform poorly, our financial results and ability to conduct business could be harmed. Our operating results are affected in part by the performance of our investment portfolio. Income from the investment portfolio of ACA Financial Guaranty is one of our primary sources of cash flow to support our insurance operations, including our ability to pay any claims. For the year ended December 31, 2003, approximately $11.6 million of our revenue, or 10.7%, was derived primarily from ACA Financial Guaranty's investment portfolio and cash and equivalents. ACA Financial Guaranty's investments are subject to: market value risk, which is the risk that ACA Financial Guaranty's invested assets will decrease in value. This decrease in value may be due to a change in the yields realized on ACA Financial Guaranty's investment portfolio and prevailing market yields for similar assets, an unfavorable change in the liquidity of the investments or an unfavorable change in the financial prospects or a downgrade in the credit rating of the issuers of the securities in ACA Financial Guaranty's investment portfolio; default risk, which is the risk that some of the investments will not pay principal or interest owed to us when due; and reinvestment risk, which is the risk that interest rates will decline and funds reinvested will earn less than expected. ACA Financial Guaranty's investment portfolio includes mortgage-backed securities, or MBSs, and collateralized mortgage obligations, or CMOs. As of December 31, 2003, MBSs and CMOs constituted approximately 35% of ACA Financial Guaranty's invested assets. As with other fixed income investments, the fair value of these securities fluctuates depending on market and other general economic conditions and the interest rate environment. Changes in interest rates can expose us to the risk that MBS and CMO issuers will be required to prepay their obligations. In periods of declining interest rates, mortgage prepayments generally increase and MBSs and CMOs are prepaid more quickly, potentially requiring us to reinvest the proceeds at less attractive interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we take measures to manage the risks of investing in a changing interest rate environment, we may not be able to mitigate interest rate sensitivity effectively. Although we have not done so in the past, we may also enter into interest rate, foreign currency and credit derivatives and other hedging transactions with respect to ACA Financial Guaranty's investment portfolio in an effort to manage risks. Structuring these derivatives and hedges so as to effectively manage these risks is an inherently uncertain process. If our calculations are incorrect, or if we do not properly structure our derivatives or hedges, we may have unexpected losses and our assets may not be adequate to meet our obligations under our policies, which could adversely affect our results of operations and financial condition. We may need to obtain reinsurance to continue our growth, and it may not be available on favorable terms or at all, which could have an adverse impact on our ability to grow and could adversely affect our future results of operations. In order to comply with state insurance regulatory and rating agency capital requirements and single risk limits as our business grows, we may need to obtain additional reinsurance. Reinsurance is the commitment by one insurance company, the "reinsurer," to reimburse another insurance company, the "ceding company," for losses on a specified portion of the ceding company's insurance obligations in return for a premium payment. Reinsurance allows us to grow our business by reducing the amount of our own capital we must allocate to risks we have reinsured. The market for reinsurance has recently become more concentrated. While we currently have $50 million of first loss reinsurance and $75 million of excess of loss reinsurance, we may need additional reinsurance. At the time we seek additional reinsurance, reinsurance may not be available at acceptable terms or at all. In the event that the financial strength rating of a reinsurer with whom we have a reinsurance agreement is downgraded, we will be required to allocate additional capital to the risks we have reinsured pursuant to rating agency guidelines we must follow, or find an alternative reinsurer. If we are unable to obtain sufficient reinsurance, or other similar forms of capital support, when needed, this could have an adverse impact on our ability to grow our insurance business and could adversely affect our future results of operations. We face risks from the concentration of our liabilities and investments. We face concentration risks in all of our businesses. While we seek diversification across our businesses, in each of our business segments and in our investment portfolio, we face risks to the extent that our aggregate exposure to losses is concentrated geographically, by industry, sector, obligor or type of credit or investment. In particular, in our municipal financial guaranty business we face risk from the concentration of our exposure in certain states and certain industries. As of December 31, 2003, $1,102 million, or 19.7%, of our outstanding municipal financial guaranty exposure was concentrated in California-located issuers, and $2,093 million, or 37.3%, of our municipal financial guaranty exposure was concentrated in nine other jurisdictions. This concentration increases our vulnerability to economic downturns in those states. In addition, as of December 31, 2003, $1,422 million, or 25.4% of our municipal financial guaranty exposure was related to healthcare and long-term care facilities. Both the healthcare and long-term care sectors of the economy have faced rising costs and are perceived to be higher risk than other segments of the municipal finance market. These factors could undermine the assumptions we made in our credit analysis of the issuers in those sectors and cause actual losses to exceed estimated losses. We are dependent on key executives. Our future success depends to a significant extent on the efforts of our senior management, including Mr. Michael E. Satz, our chief executive officer, Ms. Maryam Muessel, our chief operating officer, Mr. Edward Gilpin, our chief financial officer, and Mr. William Tomljanovic, our executive vice president responsible for our customized solutions business. We currently have employment agreements with each of these individuals with terms that expire in 2007, but employment agreements do not assure the retention of these individuals. While we have not experienced difficulty attracting or retaining key personnel in the past, we believe that there is a limited number of available, qualified executives with relevant experience in both the insurance and capital markets industries, and our inability to hire additional senior executives or the loss of the services of any of these individuals could significantly and negatively affect our business. We may be prohibited from doing business with certain state agencies. The states of North Carolina and California have passed laws that prohibit state agencies from contracting with expatriate corporations and their subsidiaries, and other states are considering similar legislation. An expatriate corporation is generally defined as a corporation whose principal market for the trading of its stock is the United States, but is itself incorporated in a "tax haven" country and/or has no substantial business activities in its place of incorporation. We may meet the definition of an expatriate corporation. While ACA Financial Guaranty does not generally contract directly with state agencies when issuing its municipal bond insurance policies, to the extent we are or become subject to these laws, ACA Financial Guaranty would be prohibited from contracting with these agencies, which could have an adverse impact on our future municipal financial guaranty insurance business. ACA Holdings is a holding company and its cash flow is dependent on payments by its subsidiaries, which are subject to various limitations imposed on them by Maryland and Bermuda law. ACA Holdings. ACA Holdings is a holding company that conducts no operations of its own. All operations are conducted by our operating subsidiaries. As a holding company, ACA Holdings' cash flow will consist primarily of dividends, interest and other permissible payments from its subsidiaries. ACA Holdings depends on such payments to fund general corporate activities and to meet its obligations, including the payment of any dividends to its shareholders and the payment of interest and principal on its debt. ACA Financial Guaranty. ACA Financial Guaranty is organized in the State of Maryland. Under Maryland insurance law, ACA Financial Guaranty may pay dividends without the approval of the Maryland insurance commissioner only out of earned surplus. At December 31, 2003, ACA Financial Guaranty had a negative earned surplus of approximately $53.5 million. As a result, ACA Financial Guaranty is currently unable to pay dividends. Advances or other inter-company payments by ACA Financial Guaranty may also require prior approval of the Maryland insurance commissioner, depending on the amount involved. ACA Financial Guaranty is also subject to restrictions on paying dividends under its reinsurance agreement. Bermuda Insurance Subsidiaries. The payment of dividends by our Bermuda insurance subsidiaries, ACA Assurance, Ltd., which we refer to as ACA Bermuda, and ACA Solutions, Ltd., which we refer to as ACA Solutions, is limited under Bermuda law and regulations, including Bermuda insurance law. Under the Bermuda Insurance Act 1978, as amended, and related regulations, ACA Bermuda and ACA Solutions will be required to maintain a specified solvency margin and minimum liquidity ratio and will be prohibited from declaring or paying any dividends if to do so would cause them to fail to meet their solvency margin and minimum liquidity ratio. Under the Bermuda Insurance Act, if ACA Bermuda or ACA Solutions fails to maintain its solvency margin, it will be prohibited from declaring or paying dividends until such failure is rectified. Additionally, under the Bermuda Companies Act 1981, or the Companies Act, ACA Bermuda, ACA Solutions and the holding company of our Bermuda insurance subsidiaries may declare or pay a dividend only if, among other things, we have reasonable grounds for believing that they are, or would after the payment be, able to pay their liabilities as they become due. Non-Insurance Subsidiaries. Funds available to us from our CDOs are limited under provisions of the borrowings we incurred to purchase the equity of the CDOs. Excess funds generated by our CDOs and/or structuring, placement, and asset management fees are retained by our subsidiaries as collateral or are used to make required payments on these borrowings. Our ability to conduct our business may be adversely affected by Bermuda employment restrictions. We formed our holding company in Bermuda in 2002. Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in any gainful occupation in Bermuda without a work permit. None of our executive officers is a Bermudian and any such officers who will be working in Bermuda will have to do so under a work permit. We will need to obtain long-term work permits from the Bermuda authorities for any of our employees who are not Bermuda citizens and who will be working in Bermuda. The Bermuda government recently announced a new policy that places a six-year term limit on individuals with work permits, subject to certain exemptions for key employees. Our ability to conduct the business of our Bermuda subsidiaries may be adversely affected by these Bermuda employment restrictions. It is possible that we could lose the services of one or more of our key employees if we are unable to obtain their work permits, which could significantly and adversely affect our operations. Risks Related to Our Industry We operate our businesses in competitive environments. The financial guaranty industry is competitive. The principal sources of direct and indirect competition are: other forms of credit enhancement, including letters of credit, guaranties and credit default swaps provided primarily by banks and other financial institutions; and other financial guaranty insurance companies with respect to certain segments of our business. Competition in the financial guaranty business is based on many factors, including overall financial strength, pricing, service and evaluation by the rating agencies of financial strength. Most other financial guarantors are larger and more highly rated than we are, and have greater capital resources, name recognition and longer operating histories. If other financial guarantors or other third-party credit enhancement providers duplicate our business strategy and compete directly with us by providing comparable forms of credit enhancement to our target markets, we could be adversely affected. The CDO market is also competitive. We compete with investment and commercial banks, investment advisory firms, private equity funds and hedge funds in the origination, structuring and managing of these structured finance products. Many of these entities have greater financial strength and are more established and well known in the CDO market than we are. The regulatory systems under which we operate, and potential changes in regulation, could significantly and adversely affect our business. We operate in a regulated industry, and these regulations can restrict our ability to take actions or conduct our business for the ultimate benefit of our shareholders. ACA Holdings. ACA Holdings is subject to the insurance holding company laws of Maryland, where ACA Financial Guaranty is organized and domiciled. This law generally requires each domestic insurance company directly or indirectly owned by a holding company to register with the Maryland Insurance Commissioner and to furnish annually financial and other information. Generally, all intercompany transactions between ACA Holdings or any affiliate and the domestic insurers in the holding company system must be fair and, if material, require prior notice to and approval by the Maryland Insurance Commissioner. ACA Financial Guaranty. ACA Financial Guaranty is organized and domiciled in Maryland and licensed, authorized or accredited to write insurance in all 50 states of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam. State insurance laws regulate many aspects of its insurance business and state insurance departments supervise its insurance operations. Report of Independent Auditors on Financial Statement Schedules To the Board of Directors and Shareholders of American Capital Access Holdings Limited: The share split described in Note 4 to the financial statement Schedule II has not been consummated as of April 8, 2004. When it has been consummated, we will be in a position to furnish the following report. "Our audits of the consolidated financial statements referred to in our report dated April 2, 2004, and appearing in the Form S-1 of American Capital Access Holdings Limited also included an audit of the accompanying financial statement schedules listed in Item ACA Financial Guaranty's principal insurance regulatory authority is the Maryland Insurance Commissioner. The purpose of the state insurance regulatory statutes is to protect insureds, not shareholders. Among other things, Maryland regulation requires ACA Financial Guaranty to maintain minimum levels of capital, surplus and liquidity, and imposes restrictions on payment of dividends and distributions. These statutes and regulations may, in effect, restrict the ability of ACA Financial Guaranty to write new business or, as indicated above, distribute funds to ACA Holdings. In recent years, the state insurance regulatory framework has come under increased federal scrutiny, and some state legislators have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. ACA Bermuda. ACA Bermuda and ACA Solutions are registered Bermuda insurance companies and are subject to regulation and supervision in Bermuda. The applicable Bermuda statutes and regulations generally are designed to protect insureds and ceding insurance companies, not shareholders. ACA Bermuda and ACA Solutions are not registered or licensed as insurance companies in any jurisdiction outside Bermuda. ACA Bermuda and ACA Solutions conduct their business through their offices in Bermuda and will not maintain offices, and their personnel will not conduct any insurance activities, in the U.S. or elsewhere outside of Bermuda. Although ACA Bermuda and ACA Solutions intend to conduct their business so as not to be subject to licensing requirements of any jurisdiction outside Bermuda, inquiries or challenges to ACA Bermuda's and ACA Solutions' insurance activities may be raised in the future. The offshore insurance and reinsurance regulatory framework recently has become subject to increased scrutiny in many jurisdictions, including in the United States. In the past, there have been congressional and other proposals in the United States regarding increased supervision and regulation of the insurance industry, including proposals to supervise and regulate insurers domiciled outside the United States. If ACA Bermuda and ACA Solutions were to become subject to any insurance laws and regulations of the United States or any U.S. state, which are generally more restrictive than those applicable to them in Bermuda, at any time in the future, they might be required to post deposits or maintain minimum surplus levels and might be prohibited from engaging in lines of business or from writing specified types of policies or contracts. Complying with those laws could have a material adverse effect on our ability to conduct business or on our results of operations. In addition, changes in laws and regulations affecting the municipal and asset-backed debt markets, as well as other governmental regulations, may subject us to additional legal liability or adversely affect the demand for financial guaranty insurance generally and/or the demand for the financial guaranty insurance that we provide. Changes in laws and regulations relating to the issuance of unregistered securities and the management of investments such as CDOs could adversely affect our ability to originate, structure and manage CDOs. Risks Related to Taxation U.S. corporate-level taxes may have a material adverse effect on our results of operations and your investment. ACA Holdings, ACA Assurance Corporation, Ltd., ACA Solutions and ACA Bermuda are Bermuda companies. We intend to manage our business so that each of these companies will operate in such a manner as to avoid being treated as engaged in a trade or business within the United States and therefore generally to avoid subjecting these companies to U.S. tax (other than excise tax on premiums from insuring or reinsuring U.S. risks and withholding tax on certain U.S. source investment income). However, there is considerable uncertainty as to the activities that constitute being engaged in a trade or business within the United States, and we cannot be certain that the IRS will not contend successfully that one or more of these companies are engaged in a trade or business in the United States. If ACA Holdings or any of its foreign subsidiaries were considered to be engaged in a trade or business in the United States, we would be subject to U.S. federal corporate income and branch profits taxes on the portion of our earnings effectively connected to such U.S. trade or business, in which case our results of operations and your investment could be materially adversely affected. A number of our subsidiaries are classified as domestic corporations for United States federal income tax purposes. They are subject to taxation by the United States at regular corporate rates with respect to their worldwide income. In addition, under U.S. federal income tax rules, our subsidiaries ACA Risk Solutions, LLC and American Capital Access Service Corporation are subject to U.S. federal income tax with respect to the net income of the Cayman special purpose entities that issue our CDO debt obligations and that they own (directly or indirectly) even if that income is not actually distributed to them. Furthermore, dividends paid by the United States subsidiaries to ACA Holdings will be subject to a 30% U.S. federal withholding tax. Additional taxes may be imposed if ACA Holdings or any of its subsidiaries is classified as a personal holding company, or a PHC. It is possible that ACA Holdings and/or any of its subsidiaries could be classified as PHCs and subjected to additional tax on their undistributed personal holding company income. See "Material U.S. Federal Income Tax and Bermuda Tax Considerations – United States – Personal Holding Companies" for a description of the factors that could cause us to be classified as a PHC. These factors relate generally to concentration of actual or constructive ownership of stock in five or fewer individuals and receipt of passive income above a threshold. Prior to consummation of this offering, ownership of ACA Holdings shares are concentrated in this manner, and the passive income of ACA Holdings exceeded the statutory threshold in 2003. We do not expect that ACA Holdings or any of its subsidiaries will satisfy the PHC stock ownership concentration test immediately following the offering, but there can be no assurance that the information provided by our shareholders or available to us upon which this expectation is based is accurate, and such information is not complete in all respects. We also intend to manage the business of ACA Holdings so as to reduce the risk that the PHC passive income test will be satisfied in the future, although we cannot be certain that we will succeed in doing so. More generally, we cannot be certain that ACA Holdings or any of its subsidiaries will not be PHCs following the offering or in the future because of factors including legal and factual uncertainties regarding the application of the constructive ownership rules, the makeup of ACA Holdings' shareholder base, the gross income of ACA Holdings or any of its subsidiaries and other circumstances that could affect the application of the PHC rules to ACA Holdings and/or its subsidiaries. If you own or are deemed to own 10% or more of ACA Holdings' shares, you may be subject to taxation under the controlled foreign corporation, or CFC, rules. Prior to the consummation of this offering, ACA Holdings, ACA Assurance Corporation, Ltd., ACA Bermuda and ACA Solutions are CFCs. Each "10% U.S. Shareholder" of a CFC may have to pay U.S. income tax on such shareholder's pro rata share of all or a significant portion of the CFC's income, even if that income is not distributed. A foreign corporation is considered a CFC if "10% U.S. Shareholders" own (directly, indirectly or constructively) more than 50% of the total combined voting power or value of all classes of its voting stock. A foreign insurance company such as ACA Bermuda (or ACA Solutions) is treated as a CFC if "10% U.S. Shareholders" collectively own (through ACA Holdings) more than 25% of the total combined voting power or total value of ACA Bermuda's (or ACA Solutions') shares. A "10% U.S. Shareholder" is a U.S. Person (as defined in "Material U.S. Federal Income Tax and Bermuda Tax Considerations – Taxation of Shareholders – United States Taxation – Classification of ACA Holdings or its Foreign Subsidiaries as Controlled Foreign Corporations") who owns (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of stock entitled to vote. Upon consummation of the offering, one or more U.S. Persons are expected to still own 10% or more of our common shares. Those persons will collectively still own more than 25% of our common shares, and they may collectively own more than 50% of our common shares. Our bye-laws contain provisions (described in "Description of Our Share Capital") that (i) limit to approximately 9.9% the voting power of any U.S. Person who owns or is deemed to own 10% or more of our common shares, and (ii) require the board of directors of ACA Holdings to submit to the shareholders of ACA Holdings any matter that requires ACA Holdings to vote the shares of a non-U.S. subsidiary. These provisions are intended to prevent U.S. Persons who own 10% or more of our shares from being treated for U.S. federal income tax purposes as 10% U.S. Shareholders and to prevent ACA Holdings, ACA Assurance Corporation, Ltd., ACA Bermuda and ACA Solutions from being classified as CFCs, but it is not clear whether the provisions will accomplish these objectives. Accordingly, U.S. Persons who directly, indirectly or constructively own or are deemed to own 10% or more of our common shares should consider the possible application of the CFC rules. Additional provisions in our bye-laws (also described in "Description of Our Share Capital") prohibit any issuance, transfer or redemption of shares that would have the effect of generally causing any person to become an owner of 10% or more of our common shares. If these provisions are followed, investors purchasing common shares in this offering generally should not be 10% U.S. Shareholders. Subject to the possible application of the RPII provisions discussed below, an investor who is not a 10% U.S. Shareholder should not be required by the CFC rules to include in income a portion of our undistributed passive and insurance income regardless of whether ACA Holdings or its Bermuda subsidiaries are classified as CFCs. We and some of our subsidiaries each may be considered to be a foreign personal holding company, or a FPHC, for U.S. federal income tax purposes, and U.S. persons who hold common shares will be subject to adverse tax consequences if we are or a subsidiary is an FPHC. A foreign corporation will be classified as an FPHC with respect to a taxable year for U.S. federal income tax purposes if (i) at any time during the taxable year, five or fewer individuals who are U.S. citizens or residents (referred to as the "United States group") own (actually or constructively) more than 50% of all classes of the corporation's stock measured by voting power or value (the "stock ownership test") and (ii) certain passive income thresholds are met by the corporation (the "passive income test"). If a foreign corporation is classified as an FPHC with respect to a taxable year, each U.S. Person who owns (directly or through other foreign entities) shares of the foreign corporation on the day of the taxable year of the corporation that was the last day on which a "United States group" existed with respect to the corporation must include in income such U.S. person's pro rata share of the "undistributed foreign personal holding company income" (defined as taxable income with certain adjustments) of the foreign corporation. Prior to this offering, ACA Holdings and its foreign subsidiaries have satisfied the stock ownership test for classification as an FPHC. During 2003, ACA Holdings and certain foreign subsidiaries have had sufficient passive income that they have also satisfied the passive income test and therefore have been classified as FPHCs. However, we expect that, immediately following the consummation of the offering, 50% or more of the stock of ACA Holdings will not be owned or deemed owned by five or fewer individuals and that a "United States group" will no longer exist with respect to ACA Holdings and its subsidiaries immediately following completion of the offering. There can be no assurance, however, that the information provided by our shareholders or made available to us on which we base this expectation is accurate, and such information is not complete in all respects. Because a "United States group" will have existed for the portion of 2004 preceding completion of the offering, the stock ownership test for FPHC status will nevertheless be satisfied for 2004. We intend, however, to manage the business of ACA Holdings and its Bermuda subsidiaries so as to reduce the risk that the passive income test will be satisfied for 2004 with respect to ACA Holdings and its Bermuda subsidiaries and thereby to reduce the risk that ACA Holdings and its Bermuda subsidiaries will be FPHCs for 2004. We cannot be certain, however, that we will be successful in doing so. Provided that no "United States group" exists in 2005 and subsequent years, ACA Holdings and its foreign subsidiaries will not be FPHCs. In addition, we intend to continue managing the business of ACA Holdings and its foreign subsidiaries (other than the Cayman special purpose entities) so as to reduce the risk that the passive income test will be satisfied. We cannot be certain, however, that changes in share ownership subsequent to the offering may not cause ACA Holdings and its foreign subsidiaries to again satisfy the stock ownership test, so that a "United States group" again exists; nor can we be certain that we will not satisfy the passive income test in the future. More generally, we cannot be certain that ACA Holdings or any of its foreign subsidiaries will not be considered an FPHC because of various factors including legal and factual uncertainties regarding the application of the constructive ownership rules, the makeup of ACA Holdings' shareholder base, the gross income of ACA Holdings and/or any of its foreign subsidiaries and other circumstances that could affect the application of the FPHC rules to ACA Holdings and its foreign subsidiaries. We may be considered a passive foreign investment company, or a PFIC, for U.S. federal income tax purposes, and U.S. persons who hold common shares will be subject to adverse tax consequences if we are a PFIC. A foreign corporation will constitute a PFIC with respect to a taxable year if 75% or more of its gross income for that taxable year consists of passive income, or 50% or more of its average assets held during that taxable year consist of passive assets. We were a PFIC in 2003. If we were considered a PFIC in 2004 or subsequent years, it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation, including subjecting the investor to a greater U.S. tax liability, including payments of interest, than might otherwise apply and subjecting the investor to tax on amounts in advance of when tax would otherwise be imposed. We have taken steps in 2004 to seek to avoid classification as a PFIC, primarily by taking advantage of a complex rule, contained in the PFIC provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, involving our corporate structure, described further in "Material U.S. Federal Income Tax and Bermuda Tax Considerations – Taxation of Shareholders – United States Taxation – Passive Foreign Investment Companies" below. The rule upon which we are relying to avoid PFIC classification will not be available to us in any year if we are a PHC or an FPHC in that year, and we cannot be certain that we will not be a PHC or FPHC in 2004 or any subsequent year. If we are a PHC or an FPHC, we will be a PFIC. Moreover, there are substantial uncertainties regarding the manner in which the PFIC rules generally, and the rule upon which we are relying in particular, are to be interpreted and applied. It is possible that the IRS will take a position that we are a PFIC, and a court may sustain such position. Furthermore, it should be noted that, in early 2003, legislation was proposed in the U.S. Congress that would have eliminated the rule upon which we are relying. The proposed legislation was not enacted, but no assurance can be given that similar legislation might not be proposed or enacted in the future. Any prospective investor considering an investment in our common shares is urged to consult his tax advisor regarding these uncertainties. U.S. holders of common shares may be required to pay U.S. federal income taxes on their pro rata share of ACA Bermuda's or ACA Solutions' "related person insurance income." A foreign insurance company's related person insurance income, or RPII, is its insurance income attributable to policies of insurance or reinsurance with respect to which the person directly or indirectly insured is either (i) a U.S. person who is a shareholder (directly or indirectly through foreign entities) of the insurer or (ii) a person related to that U.S. shareholder. If the RPII of ACA Bermuda (or ACA Solutions) were to equal or exceed 20% of its gross insurance income in any taxable year and direct or indirect insureds (and persons related to such insureds) own (directly or indirectly) 20% or more of the voting power or value of the shares of ACA Bermuda (or ACA Solutions), then a U.S. person who owns any common shares of ACA Holdings (directly or indirectly through foreign entities) on the last day of the taxable year would be required to include in its income for U.S. federal income tax purposes the shareholder's pro rata share of ACA Bermuda's (or ACA Solutions') RPII for the entire taxable year, determined as if RPII were distributed proportionately to those U.S. shareholders at that date regardless of whether it is distributed. U.S. tax-exempt organizations would be required to treat RPII as unrelated business taxable income. While there can be no assurance on this point because of the difficulties, described below, in applying the RPII rules, we currently have no reason to believe that, in the foreseeable future, 20% or more of the gross insurance income of ACA Bermuda (or ACA Solutions) will be determined to be RPII. It may be difficult or impossible for us to establish whether or not we satisfy either the 20% gross income exception or the 20% ownership exception in the future, and we may fail to satisfy either or both of these exceptions because of events beyond our control. For example, when we reinsure risks insured by unrelated insurance companies, we often do not know the identity of the person or persons who are covered by the primary insurance and who are therefore indirectly covered by our reinsurance. Accordingly, we often do not have information necessary to determine whether or to what extent our reinsurance policies indirectly insure persons who are shareholders of ACA Holdings or are "related persons" with respect to shareholders of ACA Holdings, and we therefore cannot ascertain whether or to what extent our income from such reinsurance is RPII. As another example, our financial guaranty insurance protects the holders of insured obligations against payment defaults on the part of the issuers of those obligations. The insured obligations are sometimes publicly traded. Accordingly, it may be difficult or impossible for us to ascertain the degree of overlap (which may change from time to time) between our "insureds" (i.e., the holders of debt obligations insured or reinsured by ACA Bermuda or ACA Solutions) and our shareholders or persons related to our shareholders. We are not aware of any IRS rulings or other authority providing guidance as to the manner in which the RPII rules are to be applied in these circumstances. U.S. tax-exempt organizations who own our common shares may recognize unrelated business taxable income. A U.S. tax-exempt organization may recognize unrelated business taxable income if a portion of our insurance income is allocated to the organization. In general, insurance income will be allocated to a U.S. tax-exempt organization if either we are a CFC and the tax-exempt shareholder is a U.S. 10% Shareholder or there is RPII and certain exceptions do not apply. Potential U.S. tax-exempt investors are advised to consult their own tax advisors. Changes in U.S. federal income tax law could materially adversely affect shareholders' investments. Legislation has been introduced in the U.S. Congress intended to eliminate tax advantages of companies (including insurance companies) that have legal domiciles outside the United States but have certain U.S. connections. In this regard, legislation has been introduced that affects the U.S. tax treatment of foreign corporations that are deemed to have "inverted" and that includes provisions that would permit the IRS to reallocate or recharacterize items of income, deduction or certain other items related to a reinsurance agreement between related parties to reflect the proper source, character and amount for each item (in contrast to current law, which only refers to source and character). Other legislation would provide additional limits on the deductibility of interest by foreign owned U.S. companies. As noted earlier, legislation was proposed in the U.S. Congress early in 2003 but not enacted that would have eliminated the statutory rule upon which we intend to rely to avoid being classified as a PFIC. We cannot predict whether this or other restrictive legislation may be enacted or, if enacted, what the specific provisions or effective date of any such legislation would be, or what effect it might have on us or our subsidiaries. Additionally, U.S. federal income tax laws and interpretations thereof with respect to a number of issues potentially important to us and our subsidiaries – including such matters as the rules for determining whether a company is engaged in a trade or business within the United States, whether a company is a PFIC and whether and in what manner the rules relating to controlled foreign corporations apply – are uncertain in many respects and are subject to change, possibly on a retroactive basis. We cannot be certain if, when or in what form future regulations or other pronouncements may be provided or implemented and whether such guidance will have retroactive effect. We may become subject to taxes in Bermuda after 2016. We have received a standard assurance from the Bermuda Minister of Finance, under Bermuda's Exempted Undertakings Tax Protection Act 1966, that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or to any of our operations or our shares, debentures or other obligations until March 28, 2016. Consequently, if our Bermuda tax exemption is not extended past March 28, 2016, we may be subject to any Bermuda tax after that date. Bermuda could be subject to sanctions by a number of multinational organizations, which could adversely affect Bermuda companies. A number of multinational organizations, including the European Union, the Organization for Economic Cooperation and Development, or the OECD, including its Financial Action Task Force, and the Financial Stability Forum have all recently identified certain countries as blocking information exchange, engaging in harmful tax competition or not maintaining adequate controls to prevent corruption, such as money laundering activities. Recommendations to limit such harmful practices are under consideration by these organizations, and a recent report published on November 27, 2001 by the OECD contains an extensive discussion of specific recommendations. The OECD has threatened non-member jurisdictions that do not agree to cooperate with the OECD with punitive sanctions by OECD member countries. It is unclear what these sanctions will be and if they will be imposed. Bermuda has committed to a course of action to enable compliance with the requirements of these multinational organizations. However, the action taken by Bermuda may not be sufficient to preclude all effects of the measures or sanctions described above, which if ultimately adopted could adversely affect Bermuda companies such as ACA Holdings and ACA Bermuda. Risks Related to the Offering and our Common Shares If a substantial number of our common shares become available for sale and are sold in a short period of time, the market price of our common shares could decline. If our existing shareholders sell substantial amounts of our common shares in the public market following the consummation of this offering, the market price of our common shares could decrease significantly. The perception in the public market that our existing shareholders might sell our common shares could also depress our market price. Upon consummation of this offering we will have of our common shares outstanding, assuming no exercise of the underwriters' over-allotment option. Our directors, officers and most of our existing shareholders will be subject to agreements with the underwriters that restrict their ability to transfer their shares for a period of 180 days from the date of this prospectus, subject to a few exceptions. After all of these agreements expire, an aggregate of additional shares will be eligible for sale in the public market. However, the underwriters may waive these restrictions and allow these shareholders to sell their shares at any time. In addition, options for approximately of our common shares will be exercisable. Upon the consummation of this offering, the holders of most of our currently outstanding common shares and their transferees will have the right to require us to register their common shares under the Securities Act of 1933, or the Securities Act, for sale into the public markets, subject to the 180-day lock-up agreements. Upon the effectiveness of any such registration statement, all shares covered by the registration statement will be freely transferable. In addition, within 90 days following the consummation of this offering we intend to file one or more registration statements on Form S-8 under the Securities Act to register common shares issued or reserved for issuance under our Omnibus Incentive Compensation Plan. Subject to the exercise of issued and outstanding options, shares registered under the registration statement on Form S-8 will be available for sale into the public markets after the expiration of the 180-day lock-up agreements. The market price of our common shares may drop significantly when the restrictions on resale by our directors, officers and existing shareholders lapse. If you purchase the common shares sold in this offering, you will experience immediate dilution. If you purchase our common shares in this offering, you will experience immediate dilution of $ per share, because the price that you pay will be greater than the net tangible book value per share of the shares you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. You will experience additional dilution upon the exercise of outstanding stock options to purchase common shares. We do not currently intend to pay dividends in the foreseeable future. It is uncertain when, if ever, we will declare dividends to our shareholders. During the next few years of operations, we expect that we will retain virtually all profit. Our ability to pay dividends may be constrained by our holding company structure under which we are dependent on payments by our subsidiaries, which are subject to limitations imposed on them by Maryland and Bermuda law, as discussed above. You should not rely on an investment in us if you require dividend income. In the foreseeable future, the only possible return on an investment in us would come from an appreciation of our common shares. Insiders will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including a change of control. Our directors, executive officers and principal shareholders and entities affiliated with them will own approximately % of our outstanding common shares after this offering. As a result, these shareholders, if acting together, would be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other fundamental transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares. It may be difficult to effect service of process and to enforce judgments against us and our officers and directors in the future. ACA Holdings is a Bermuda company. In the future, certain of our officers and directors may not be residents of the United States and a substantial portion of our assets may ultimately be located in jurisdictions outside the U.S. As a result, it may become difficult for investors to effect service of process within the U.S. on our directors and officers who reside outside the U.S. or to enforce against us or our directors and officers judgments of U.S. courts predicated upon civil liability provisions of the U.S. federal securities laws. We have been advised by our Bermuda counsel, Conyers Dill & Pearman, that uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions including actions for claims under U.S. federal securities laws. There are limitations on the ownership, transfer and voting rights of ACA Holdings' common shares. Under the bye-laws of ACA Holdings, directors of ACA Holdings may decline to register any transfer of common shares that would result in a person (or any group of which such person is a member) beneficially owning, directly or indirectly, 10% or more of the voting shares or the total combined value of ACA Holdings' issued shares. Similar restrictions apply to ACA Holdings' ability to issue or repurchase shares. The directors also may, in their discretion, decline to register the transfer of any shares if they have reason to believe (1) that the transfer may lead to adverse tax or regulatory consequences in any jurisdiction or (2) that the transfer would violate the registration requirements of the U.S. federal securities laws or of any other jurisdiction. These restrictions would apply to a transfer of shares even if the transfer has been executed on the NYSE. A transferor of common shares will be deemed to own those shares for dividend, voting and reporting purposes until a transfer of those common shares has been registered on ACA Holdings' register of shareholders. ACA Holdings is authorized to request information from any holder or prospective acquiror of common shares as necessary to give effect to the transfer, issuance and repurchase restrictions referred to above, and may decline to effect any transaction if complete and accurate information is not received as requested. In addition, ACA Holdings' bye-laws generally provide that any person (or any group of which such person is a member) beneficially owning, directly or indirectly, shares carrying 10% or more of the total voting rights attached to all of our outstanding voting shares, will have the voting rights attached to its issued shares reduced so that it may not exercise more than 9.9% of such total voting rights. Because of the attribution provisions of the Internal Revenue Code, this requirement may have the effect of reducing the voting rights of a shareholder whether or not such shareholder directly holds 10% or more of ACA Holdings' common shares. Further, the directors have the authority to require from any shareholder certain information for the purpose of determining whether that shareholder's voting rights are to be reduced. Failure to respond to such a notice, or submitting incomplete or inaccurate information, gives the directors discretion to disregard all votes attached to that shareholder's common shares. The insurance law of Maryland prevents any person from acquiring control of ACA Holdings or of ACA Financial Guaranty unless that person has filed a notification with specified information with the Maryland Insurance Commissioner and has obtained his or her prior approval. Under the Maryland statute, acquiring 10% or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. Accordingly, any person who acquires, directly or indirectly, 10% or more of the voting securities of ACA Holdings without the prior approval of the Maryland Insurance Commissioner will be in violation of this law and may be subject to injunctive action requiring the disposition or seizure of those securities by the Maryland Insurance Commissioner or prohibiting the voting of those securities and to other actions determined by the Maryland Insurance Commissioner. In addition, many U.S. state insurance laws require prior notification of state insurance departments of a change in control of a non-domiciliary insurance company doing business in that state. While these pre-notification statutes do not authorize the state insurance departments to disapprove the change in control, they authorize regulatory action, including revocation of ACA Financial Guaranty's license, in the affected state if particular conditions exist such as undue market concentration. Any future transactions that would constitute a change in control of ACA Holdings may require prior notification in those states that have adopted preacquisition notification laws. Given the importance of ACA Financial Guaranty's "A" rating to our business, as a practical matter, a change of control would require confirmation in advance from the rating agencies that such transaction would not result in a downgrading of the financial strength rating assigned to ACA Financial Guaranty. The foregoing provisions of ACA Holdings' bye-laws and legal restrictions will have the effect of rendering more difficult or discouraging unsolicited takeover bids from third parties or the removal of incumbent management. U.S. persons who own our common shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation. The Companies Act, which applies to us, differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act, which includes, where relevant, information on modifications thereto adopted pursuant to our bye-laws, applicable to us, which differ in certain respects from provisions of Delaware corporate law. Because the following statements are summaries, they do not discuss all aspects of Bermuda law that may be relevant to us and our shareholders. Interested Directors. Bermuda law provides that we cannot void any transaction we enter into in which a director has an interest, nor can such director be liable to us for any profit realized pursuant to such transaction, provided the nature of the interest is disclosed at the first opportunity at a meeting of directors, or in writing to the directors. Under Delaware law such transaction would not be voidable solely because a director has an interest in the transaction or solely because the director participates in the board meeting that authorizes such transaction or solely because such director's vote is counted for such purpose, if: The material facts as to such interested director's relationship or interests were disclosed or were known to the board of directors and the board had in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors; Such material facts were disclosed or were known to the shareholders entitled to vote on such transaction and the transaction was specifically approved in good faith by vote of the shareholders; or The transaction was fair as to the corporation as of the time it was authorized, approved or ratified by the board or the shareholders. Under Delaware law, the interested director could be held liable for a transaction in which the director derived an improper personal benefit. Business Combinations with Large Shareholders or Affiliates. As a Bermuda company, we may enter into business combinations with our large shareholders or affiliates, including mergers, asset sales and other transactions in which a large shareholder or affiliate receives, or could receive, a financial benefit that is greater than that received, or to be received, by other shareholders, without obtaining prior approval from our board of directors or from our shareholders. If we were a Delaware company, we would need prior approval from our board of directors or a supermajority of our shareholders to enter into a business combination with an interested shareholder for a period of three years from the time the person became an interested shareholder, unless we opted out of the relevant Delaware statute. Shareholders' Suits. The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders in many United States jurisdictions. Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in the name of the company to remedy a wrong done to the company where an act is alleged to be beyond the corporate power of the company, is illegal or would result in the violation of our memorandum of continuance or bye-laws. Furthermore, the court would consider acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of our shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys' fees incurred in connection with such action. Our bye-laws provide that shareholders waive all claims or rights of action that they might have, individually or in the right of the company, against any director or officer for any act or failure to act in the performance of such director's or officer's duties, except with respect to any fraud or dishonesty of such director or officer. Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action. Indemnification of Directors and Officers. We may indemnify our directors or officers, or any person appointed to any committee by the Board acting in their capacity as such, in relation to any of our affairs for any loss, damages or expenses (including attorneys' fees) arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which such person may be guilty in relation to the company other than in respect of his own fraud or dishonesty. Indemnification permitted under Delaware law is more limited. Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position, if such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not to be opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, such director or officer had no reasonable cause to believe his or her conduct was unlawful. For more information on the differences between Bermuda and Delaware corporate laws, see "Description of Our Share Capital—Differences in Corporate Law." We may require you to sell your common shares to us. Under our bye-laws and subject to Bermuda law, we have the option, but not the obligation, to require a shareholder to sell some or all of its common shares to us at their fair market value if the board of directors reasonably determines, in its absolute discretion, that share ownership, directly, indirectly or constructively by any shareholder is likely to result in adverse tax, regulatory or legal consequences to us, certain of our other shareholders or our subsidiaries. Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares. Our bye-laws contain provisions that may entrench directors and make it more difficult for shareholders to replace directors even if the shareholders consider it beneficial to do so. In addition, these provisions could delay or prevent a change of control that a shareholder might consider favorable. For example, these provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our common shares offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common shares if they are viewed as discouraging takeover attempts in the future. For example, our bye-laws contain the following provisions that could have such an effect: election of our directors is staggered, meaning that the members of only one of three classes of our directors are selected each year; shareholders have limited ability to remove directors; the total voting power of any shareholder owning 10% or more of our common shares will be reduced to less than 10% of the total voting power of our common shares; our directors may decline to register the transfer of any common shares on our share register if it appears to the board of directors, in their sole and reasonable discretion, after taking into account the limitations on voting rights contained in our bye-laws, that any adverse tax, regulatory or legal consequences to us, any person ceding insurance to us, any of our subsidiaries or any shareholder, would result from such transfer; and subject to any applicable requirements of the NYSE, our directors may decline to record the transfer of any common shares on our share register unless all approvals from appropriate governmental authorities in Bermuda, the United States or any other applicable jurisdiction required to be obtained prior to such transfer have been obtained. Management has discretion to use unallocated net proceeds. We have not designated a specific use for the net proceeds to our company from the sale of common shares in this offering. We expect to use the net proceeds of this offering for general corporate purposes. Consequently, the board of directors and management of our company will have broad discretion in allocating the net proceeds to our company from this offering. FORWARD-LOOKING STATEMENTS AND PROJECTIONS This prospectus contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from what is expressed or implied by these forward-looking statements. The "Risk Factors" section and those sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" as well as other sections in this prospectus discuss some of the factors that could contribute to these differences. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. Except as may be required under the U.S. securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. This prospectus also contains market data related to our business and industry. These market data include projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, results of operations and financial condition, and the market price of our common shares. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act, each of which provide protection in connection with certain forward-looking statements, do not directly protect any statements we make in connection with this offering. USE OF PROCEEDS We estimate that our net proceeds from the initial public offering of our common shares, after deducting the underwriting discounts and commissions and our estimated offering expenses, will be approximately $ million. We estimate that our net proceeds will be approximately $ million if the underwriters exercise their over-allotment option in full. We intend to use the net proceeds of this offering for general corporate purposes. DIVIDEND POLICY Following the consummation of this offering, we intend to retain all available funds for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our results of operations and cash flows, our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and any other factors our board of directors deems relevant. We are a holding company and have no direct operations. Our ability to pay dividends depends, in part, on the ability of our subsidiaries to pay dividends to us. Our subsidiaries are subject to significant regulatory and contractual restrictions limiting their ability to declare and pay dividends. As of December 31, 2003, ACA Financial Guaranty had a negative earned surplus in the amount of $53.5 million. Applicable insurance laws would prohibit ACA Financial Guaranty from paying dividends without the approval of the Maryland insurance commissioner until it has a positive earned surplus calculated on a SAP basis. Additionally, we are subject to Bermuda regulatory constraints that will affect our ability to pay dividends on our common shares and make other payments. Under the Companies Act, we may declare or pay a dividend out of distributable reserves only if we have reasonable grounds for believing that we are, or would after the payment be, able to pay our liabilities as they become due and if the realizable value of our assets would thereby not be less than the aggregate of our liabilities and issued share capital and share premium accounts. In addition, under the terms of our trust preferred securities, we may not pay common dividends in any period in which we elect to defer payment of interest on the trust preferred securities. For more information regarding restrictions on the payment of dividends by us and our subsidiaries, see "Regulation—Dividends" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources." CAPITALIZATION The following table sets forth our capitalization as of December 31, 2003: on an actual basis; and on an as adjusted basis to reflect the automatic conversion of all outstanding convertible preference shares and all outstanding senior convertible preferred shares into 6,235,929 common shares immediately prior to the consummation of this offering and to give effect to the receipt of approximately $ million in estimated net proceeds from the sale of common shares in this offering, assuming an initial public offering price of $ per share, the midpoint of the range on the cover of this prospectus and assuming no exercise of the underwriters' over-allotment option. December 31, 2003 Actual(1)(2) As Adjusted(1) (dollars in thousands) Trust preferred debt $ 59,280 $ CDO-related debt(3) 2,905,052 Total debt(3) 2,964,332 Shareholder's equity: Senior convertible preferred shares 7,339 — Convertible preference shares 54,858 Common shares, $0.0177 par value; authorized 149,998,280 shares; issued and fully paid 6,045,635, actual, as adjusted 107 Gross paid-in and contributed capital 125,721 Treasury shares (3,222 ) Notes receivable from shareholders (4,200 ) Accumulated other comprehensive income 751 Retained earnings 12,952 Total shareholders' equity 194,306 Total capitalization(3) $ 3,158,638 $ (1) Excludes 2,015,212 common shares that may be issued pursuant to outstanding options as of December 31, 2003 at a weighted average exercise price of $11.44 per share. (2) Excludes common shares issuable upon the exercise of stock options to be issued upon the consummation of this offering, at an exercise price equal to the initial public offering price set forth on the cover page of this prospectus. (3) Represents debt related to our CDOs. Includes $2,804 million of debt issued by our CDOs which is solely the obligation of the entities which issue the CDOs. Excluding such debt, total debt would be $159.5 million and total capitalization would be $353.9 million. DILUTION Dilution per share represents the amount by which the price per share paid by purchasers of common shares in this initial public offering exceeds the net tangible book value per common share immediately after completion of this offering. Net tangible book value per common share at December 31, 2003 was $32.18. After giving effect to the automatic conversion of all outstanding convertible preference shares and all outstanding senior convertible preferred shares into common shares immediately prior to the consummation of this offering the pro forma net tangible book value of our common shares as of December 31, 2003 was $189.4 million, or approximately $15.63 per share. Pro forma net tangible book value per share represents our total tangible assets less total liabilities, divided by the pro forma number of common shares outstanding. After giving effect to the sale of common shares by us at an assumed initial public offering price of $ per share, the mid-point of the price range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2003 would have been $ , or approximately $ per common share. This represents an immediate increase in pro forma net tangible book value of $ per common share to existing shareholders and an immediate dilution in adjusted net tangible book value of $ per share to new investors purchasing common shares in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share $ Pro forma net tangible book value per share as of December 31, 2003 $ 15.63 Increase in pro forma net tangible book value per share attributable to new investors $ Pro forma net tangible book value per share after this offering $ Dilution per share to new investors $ The following table summarizes, as of December 31, 2003, on the pro forma basis described above, the difference between existing shareholders and new investors with respect to the number of common shares purchased from us, the total consideration paid to us and the average price per share paid by our existing shareholders and by the investors purchasing common shares in this offering. The calculation below is based on an assumed initial public offering price of $ per share before deducting underwriting discounts and commissions and estimated offering expenses payable by us. Shares Purchased Total Consideration Average Price Number Percent Amount Percent Per Share Existing shareholders % $ % $ New investors Total 100.0 % $ 100.0 % $ The share amounts in this table exclude 2,015,212 of our common shares that were subject to outstanding options granted under our Omnibus Incentive Compensation Plan as of December 31, 2003 at a weighted average exercise price of $11.44 per common share. The amount of shares and exercise price have been adjusted to reflect a share split which we expect to effect prior to the consummation of the offering. To the extent that any options are exercised, there will be further dilution to new investors. If all of our outstanding options as of December 31, 2003 had been exercised, the pro forma net tangible book value per share after this offering would be $ per share, representing an immediate increase in pro forma net tangible book value of $ per share to our existing shareholders and an immediate decrease in the pro forma net tangible book value to our new investors of $ . If the underwriters exercise their over-allotment option in full, the number of shares held by new investors will increase to , or % of the total number of common shares outstanding after this offering and the dilution per share to new investors will be $ . SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth historical consolidated financial and other data as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999. We derived our selected consolidated financial data as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 from our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP and audited by PricewaterhouseCoopers LLP, our independent auditors. Our historical results are not necessarily indicative of our results for any future period. You should read the data set forth below in conjunction with our consolidated financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information appearing elsewhere in this prospectus. For the Year Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2003 2002 2001 2000 1999 (in thousands, except per share amounts) Income Statement Data: Gross premiums written $ 66,014 $ 55,264 $ 23,021 $ 43,786 $ 47,493 Net premiums written 62,549 47,434 5,459 29,920 41,409 Premiums earned 23,836 13,976 6,672 6,869 6,474 Net investment income 52,868 20,269 11,567 9,653 7,400 Net realized gains (losses) 3,188 4,138 6,511 (11 ) (100 ) Net realized and unrealized gains (losses) on derivative instruments 6,821 (8,666 ) — — — Derivative income 11,972 4,975 — — — Fee income 8,898 4,236 194 833 215 Other income 423 676 — 226 813 Total revenues 108,006 39,604 24,944 17,570 14,802 Loss and loss adjustment expenses 3,168 1,801 1,636 1,332 937 Policy acquisition costs 4,077 4,046 3,680 4,676 2,213 Other operating expenses 29,466 18,683 14,304 12,806 11,399 Interest expense 42,046 9,869 126 25 — Depreciation and amortization 1,329 1,081 730 852 — Reorganization costs — — 1,749 3,130 — Total expenses 80,086 35,480 22,225 22,821 14,549 Income (loss) before income taxes 27,920 4,124 2,719 (5,251 ) 253 Provision (benefit) for income taxes 10,717 (444 ) 110 130 — Net income (loss) $ 17,203 $ 4,568 $ 2,609 $ (5,381 ) $ 253 Basic earnings (loss) per share $ 2.92 $ 0.77 $ 0.45 $ (0.97 ) $ 0.04 Diluted earnings (loss) per share 1.37 0.37 0.23 (0.97 ) 0.04 Weighted average number of common shares outstanding: Basic 5,886 5,895 5,786 5.561 5,630 Diluted 12,559 12,268 11,136 5,561 5,630 Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2003 2002 2001 2000 1999 (In thousands, except share amounts) Summary Balance Sheet Data: Cash and investments(a) $ 3,321,690 $ 808,545 $ 231,672 $ 185,376 $ 157,392 Total assets(a) 3,468,426 916,966 299,062 235,002 196,304 Reserve for losses and loss adjustment expenses 9,547 6,555 3,405 2,675 1,343 Unearned premiums 172,337 136,222 101,208 96,654 70,918 Total debt (a) 2,964,332 541,470 825 — — Total liabilities 3,274,120 757,106 128,144 108,048 82,305 Total shareholders' equity 194,306 159,860 170,918 126,954 113,999 Per Share Data: Book value per share (b) $ 16.03 $ 13.23 $ 14.38 $ 18.03 $ 20.25 Other Data (c): Net par exposure (in millions) $ 8,563 $ 6,378 $ 5,563 $ 5,447 $ 5,327 CDO assets under management (in millions) 5,826 2,400 N/A N/A N/A Present value of future cash flows (after tax) (d) 89,650 41,712 14,873 21,094 N/A Statutory Financial Data (ACA Financial Guaranty)(e): Contingency reserve (f) $ 31,520 $ 21,162 $ 13,959 $ 7,903 $ 2,985 Policyholders' surplus 137,783 123,635 106,802 76,054 77,834 (a) Includes cash and investments related to our consolidated CDOs of $2,943.5 million and $511.3 million as of December 31, 2003 and December 31, 2002. Includes total assets related to our consolidated CDOs of $2,943.5 million and $511.3 million as of December 31, 2002, respectively. Includes debt related to our consolidated CDOs of $2,905.1 million and $523.5 million as of December 31, 2003 and December 31, 2002, respectively. (b) Book value per share is based on total shareholders' equity divided by basic common shares outstanding including the assumed conversion of convertible preference shares and senior convertible preferred shares. (c) This information is not derived from our audited consolidated financial statements. (d) Includes the present value of installment premiums and future cash flows from CDOs discounted at 6% in 2003, 8% in 2002 and 6% in 2001 and 2000 net of taxes. Actual results will differ if the assumptions above prove incorrect. Management believes that this data provides more complete information regarding our potential future revenues. In particular, installment premiums are not reflected in unearned premiums but the present value of installment premiums is considered an important measure of future revenues for public financial guaranty insurance companies. (e) Derived from the statutory financial statements of ACA Financial Guaranty, which have been prepared in accordance with statutory accounting practices prescribed and permitted by the Maryland Insurance Administration, which differ in material respects from U.S. GAAP. (f) Under statutory accounting principles, we are required to establish contingency reserves based on a specified percentage of either written premiums or insured exposure by bond type. A contingency reserve is an additonal liability reserve established to protect the policyholder against the effects of adverse economic developments or cycles or other unforseen circumstances. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of our financial condition and results of operations should be considered along with a careful analysis of our consolidated financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or in other sections of this prospectus may include forward-looking statements especially as they relate to our plans and strategy for our business. Forward-looking statements entail uncertainties and risks. Please see the "Forward-Looking Statements and Projections" for more information. You should also review the "Risk Factors" set forth elsewhere in this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. Executive Summary We provide financial guaranty and other insurance products and related financial services. We provide financial guaranty insurance primarily in connection with our credit enhancement of underserved segments of the municipal finance market. We originate, structure, credit enhance and provide asset management services for collateralized debt obligations as an alternative to the credit enhancement of individual corporate credits and asset-backed securities. In addition, we develop customized insurance products that typically address the regulatory, accounting and capital requirements of financial institutions. We began operations in September 1997 as an "A" rated financial guarantor. Late in 2000, in response to ratings pressure and a deteriorating capital position, our board of directors hired new senior management and undertook a process to raise additional capital and to revise and expand our business model. Under the direction of the new management team, the focus of the municipal finance business was redirected from volume and revenue targets to transactional profitability. In addition, in our structured finance business, we discontinued the insurance of most third-party transactions and instead began originating proprietary CDOs. This was done to increase our control of risk and to create improved economics by capturing multiple fee-based and risk-based revenue sources. The implementation of the expanded business model also involved a corporate reorganization that included the termination of approximately one-half of the staff and the closure of two satellite offices. We conduct our business through two operating segments: Insurance, primarily financial guaranty insurance, which provides protection against payment defaults on municipal and non-municipal financial obligations. Our non-municipal insurance supports our customized solutions business, which includes credit enhancement of super-senior tranches of CDOs, certain capital relief products and structured participation in the insurance market. Also, our non-municipal insurance supports our financial services business by facilitating our ability to borrow funds to participate in the equity or "first loss" positions of our proprietary CDOs. Our insurance business is driven by several economic and industry specific factors that include: (i) interest rates, (ii) the financing needs of municipal issuers, (iii) the capital requirements of financial institutions, and (iv) the demand for "A" rated insurance. All of these impact the volume of available business and the profitability to us of such business. Financial services, which includes our non-insurance participation in our CDO business. We originate, structure and provide asset management services for our proprietary CDOs. Our proprietary CDO business is driven by several economic and industry specific factors that include: (i) the relationship between asset and liability yields, (ii) the availability and desirability of asset-backed securities, and (iii) the demand for CDO securities. All of these impact our ability to acquire sufficient assets to originate our proprietary CDOs consistent with our profitability targets. For financial reporting purposes, and to reconcile to the totals reported in our consolidated financial statements, we have two additional segments which are not part of our operating segments, which we refer to as consolidated variable interest entities, or VIEs, and corporate/other. Consolidated VIEs. Under FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", or FIN 46, and prior accounting literature, we are required to consolidate VIEs when we are the primary beneficiary, defined as the entity maintaining the majority of the risks and rewards of ownership. The consolidated VIE segment includes revenue in the form of investment and derivative income on our consolidated CDOs. It also includes interest expenses associated with the liability payments on these CDOs. The consolidated VIE segment's revenues and expenses should net to zero unless there are timing differences. Timing differences include any temporary unrealized and realized gains and losses which are reflected in the consolidated VIE segment. We believe these will return to zero over time. The corporate/other segment consists of revenue and expense items relating to corporate and other central costs not attributable to any individual segment. These items include unallocated investment income, overhead, depreciation and taxes. Revenues Within our insurance segment, our sources of revenue include: (i) Insurance premiums Municipal financial guaranty – insuring the obligations of municipalities and other tax-exempt entities Non-municipal financial guaranty – including insuring corporate obligations in CDOs, credit enhancement of "super-senior" tranches of CDOs, providing capital relief to financial institutions in our customized solutions business, and insuring the borrowings used to fund the equity or first loss position in our proprietary CDOs in our structured finance business (ii) Investment income – on fixed-income securities in our insurance company investment portfolio Within our financial services segment, our sources of revenue include: (i) Fees Warehousing fees – earned for the management of CDO assets during warehousing Asset management fees – management of the CDO assets Other fees – primarily CDO structuring and placement fees (ii) Derivative income – on credit default swaps in certain CDOs Fees paid by consolidated VIEs are eliminated in consolidation. In addition to the revenue items listed above which are recurring and more predictable, we experience net realized and unrealized gains and losses on investments and net realized and unrealized gains and losses on derivatives. The gains and losses related to investments include both the gains and losses from our insurance company investment portfolio as well as gains and losses on assets from our consolidated CDOs. Net realized gains and losses result from the sale of securities executed as part of the ongoing management of our insurance company investment portfolio and of our proprietary CDOs. Our economic exposure to realized losses in our CDOs is limited to our participation in the equity tranches of the CDO. Under GAAP, we may realize losses in excess of our investment in the equity tranches of our CDOs, although we will recover those losses in excess of the equity on the termination of the CDO. See "Business—Financial Services." Net unrealized gains and losses relate to fluctuations based on changes in interest rates and credit quality. Net realized and unrealized gains and losses on derivatives are a function of changes in the estimated fair value of the credit derivative contracts related to our proprietary CDO business in the form of equity exposure to credit default swap CDOs, forward purchase agreements on warehoused assets and the credit enhancement of super-senior tranches of CDOs. We expect these unrealized gains and losses to fluctuate primarily based on changes in credit spreads and credit quality of the referenced entities (for the synthetic CDOs). We generally hold these derivative contracts to maturity and, in these cases, the cumulative unrealized gains and losses will net to zero if we incur no losses on that contract. Realized gains and losses can relate to a derivative security or forward purchase agreements on our proprietary CDO warehouse facilities. Gains or losses recorded during the warehousing period are recovered through amortization of the purchase premium or discount over the life of the applicable security purchased. For example, if, during the warehouse period the value of a security with a maturity of five years declined by $0.5 million, we would record an unrealized mark-to-market loss of $0.5 million in the "net realized and unrealized gains and losses on derivative instruments" line on the consolidated statement of income. When this security is purchased by the VIE under the forward purchase agreement, the purchase price is reduced by the $0.5 million. If this security is held to maturity (which is the expectation when purchased by the VIE), $0.1 million will be accreted into net investment income each year over the next five years, recovering the $0.5 million loss originally recorded in "net realized and unrealized gains and losses on derivative instruments" on the income statement. Expenses Our consolidated expenses include five types: (i) The provision for losses and loss adjustment expenses, or LAE, is a function of the amount and types of insurance business we write. Losses and LAE are based upon the ultimate aggregate losses expected to develop in our insurance portfolio. Typically these are calculated as a percentage of insurance premiums earned based on company and industry experience. (ii) Policy acquisition costs relate to the expenses incurred to generate insurance premiums, including, but not limited to, employee compensation expenses and premium taxes. (iii) Other operating expenses consist primarily of employee compensation and general operating expenses, including rent, marketing and advertising and other service fees. (iv) Interest expenses consist primarily of interest payments due on the debt of the consolidated VIEs as well as, to a lesser extent, the amortization of debt issuance costs (including rating, legal and banking fees related to our proprietary CDOs). Additionally, a portion of our interest expense is associated with various trust preferred debt we have issued. (v) Depreciation and amortization expenses primarily consist of the depreciation of office equipment. Critical Accounting Policies Our consolidated financial statements include amounts that, either by their nature or due to the requirements under U.S. GAAP, are determined using estimates and assumptions. The actual amounts ultimately realized could be materially different from the amounts provided in our consolidated financial statements. We believe the items and circumstances requiring the most subjective determinations are: consolidation of VIEs reserves for losses and LAE valuation of derivatives other than temporary impairments deferred policy acquisition costs, or DPAC premium revenue recognition valuation of investments An understanding of our accounting policies for these items is critically important to understanding our consolidated financial statements. The following discussion provides more information regarding the estimates and assumptions used for these items and should be read in conjunction with the notes to our consolidated financial statements. Consolidation of VIEs Under FIN 46, we must determine who is the primary beneficiary of our proprietary CDOs. Since we retain the equity interest, or first loss position, in certain of our proprietary CDOs, we are entitled to the majority of our proprietary CDOs' expected residual returns and losses. Thus, we have determined that under FIN 46 and previous accounting literature we are the primary beneficiary of our proprietary CDOs and must consolidate those CDOs subject to FIN 46 as VIEs. For example, in May 2003 we originated a proprietary CDO to which the provisions of FIN 46 had been applied. This CDO consists of an approximately $400 million portfolio of investment grade asset-backed securities and issued approximately $382 million of debt security tranches on top of $18 million of equity interest, which we retained. While we consolidate the VIE in accordance with FIN 46, our only risk relates to our $18 million equity investment. We do not have the right to use the assets of the CDO, and the $382 million of debt liabilities of the CDO are without recourse to us. Because of the requirement to consolidate VIEs where we are the primary beneficiary, we may experience increased volatility on our financial statements which make their evaluation more difficult. Our contractual exposure to our CDO is limited to our equity interest. We record fluctuations in the value of the consolidated assets and liabilities of our CDOs. These fluctuations have exceeded our exposure in the past and could exceed our exposure in the future. This volatility could be recorded in our consolidated income statement as a realized loss, or in our consolidated accumulated other comprehensive income on the consolidated balance sheet in the form of unrealized gains and losses. Reserves for Losses and Loss Adjustment Expenses Reserves for losses and LAE are based upon estimates of the ultimate aggregate losses expected to develop in our insurance portfolio. The reserve for losses and LAE consists of unallocated loss reserves and case basis reserves. Case basis reserves are established for losses on identified guaranteed obligations that have already defaulted or are expected to default. These reserves are established in an amount that is sufficient to cover both the present value of the anticipated defaulted debt service payments over the expected period of default, plus the estimated expenses associated with settling claims, less the estimated recoveries under collateral and subrogation rights. We discount these reserves in accordance with discount rates prescribed by state regulatory authorities. We establish and accrue an unallocated loss reserve, which is separate from case basis reserves. The unallocated loss reserve is established based upon the expected debt service defaults in the insured portfolio. Active surveillance of the insured portfolio enables us to track the credit migration of insured obligations from period to period. Senior management meets at least quarterly with our surveillance group to review the status of our credit portfolio. During these reviews, senior management determines the adequacy of our loss reserves based on the surveillance group reports, the latest available industry data, an analysis of historical default and recovery experience for the relevant sectors of the fixed-income market, and the changing mix of our book of business. A determination is then made as to any necessary adjustments to reserves. Due to the inherent uncertainties of estimating loss and LAE reserves, actual experience may be materially different from the estimates reflected in our consolidated financial statements. Valuation of Derivatives In 2001, we adopted FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", or FAS 133, which established accounting and reporting standards for derivative instruments and was subsequently amended. FAS 133 requires the recognition of derivative financial instruments, including embedded derivative instruments, as either assets or liabilities on the balance sheet and the measurement of those instruments at fair value. We are required to recognize derivative activity when: (i) We originate credit default swap CDOs where we insure the equity or first loss position. (ii) We insure super-senior tranches of credit default swap CDOs (iii) We hedge against interest rate risk in our CDOs and (iv) We enter into forward purchase agreements to acquire asset-backed securities for our CDOs during the warehousing period. (i)(ii) We view both (i) and (ii) above as an extension of our financial guaranty insurance business. However, under FAS 133 neither of these insurance contracts qualifies for the financial guaranty insurance scope exemption. As a result, in both instances our insurance contract is accounted for as a derivative and reported at fair value. Changes in fair value are included in our consolidated income statement as realized and unrealized gains and losses on derivative financial instruments. Since the equity tranche that we retain in our proprietary CDOs is not an actively traded security and has no observable market price and since our super-senior participation is highly structured, we utilize comprehensive internally developed models to estimate changes in fair value. We generally hold derivative contracts to maturity. Where we hold a derivative to maturity, and assuming no deterioration in credit quality, the cumulative unrealized gains and losses will offset each other over time. (iii) We purchase interest rate swaps in our asset-backed CDOs to hedge the liabilities issued by the CDO vehicle. Our consolidated CDOs have floating-rate liabilities that serve to fund the purchase of fixed and floating rate assets. In order to minimize exposure to interest rate movement, we enter into interest rate swap contracts that match the fixed-rate assets with the floating-rate liabilities. The value of the swap will vary with changes in interest rates. Any ineffective portion of the cash flow hedge will have its change in fair value recorded in our consolidated income statement. The effective portion of a cash flow hedge is reflected in accumulated other comprehensive income. (iv) We enter into forward purchase agreements on warehouse facilities through which we accumulate asset-backed securities for potential CDO transaction. The forward purchase agreement is a legal agreement to purchase the warehoused assets at their original cost from an investment bank, plus the cost of any interest rate hedges on the fixed-rate securities. We structure the agreement this way to lock in the credit price of the assets since the price is fixed and the interest rate risk is economically hedged. We enter into these agreements to insure that assets selected will ultimately be delivered with the desired credit spread to meet the return objectives of the CDO. For CDOs originated in 2003 and prior, these forward purchase agreements did not qualify for cash flow hedge accounting treatment under the contemporaneous documentation and aggregation of dissimilar assets requirements of FAS 133. Therefore, the changes in fair value of the forward purchase agreements were recorded in our consolidated income statement. Management believes that the forward purchase agreements entered into in 2002 and 2003 were economically effective in their purpose of locking in credit spreads. No assets purchased under these forward purchase agreements defaulted or have been considered to be other-than-temporarily impaired during the warehousing period. Valuation changes recorded under the forward purchase agreement were expected given the movement in credit spreads. Going forward, all forward purchase agreements will initially be structured and documented to qualify for cash flow hedge accounting treatment. Under cash flow hedge accounting, the effective portion of the valuation changes of the forward purchase derivative will be reflected in accumulated other comprehensive income on the balance sheet, subject to an impairment test. Derivatives described in (iii) above qualify as cash flow hedges under FAS 133. The change in fair value of these cash flow hedges is included in other comprehensive income on our consolidated balance sheet. We value derivative contracts based on quoted market prices, when available. However, if quoted prices are not available, the fair value is estimated using valuation models specific to the type of credit protection. Valuation models include the use of management estimates and current market information. Management is also required to make assumptions on how the fair value of derivative instruments is affected by current market conditions. We utilize both proprietary and vendor based models (including rating agency models) and a variety of market data to provide the best estimate of fair value. Some of the more significant types of market data that influence our models include, but are not limited to, credit ratings, interest rates, credit spreads, default probabilities, and recovery rates. If management's underlying assumptions for evaluating fair value prove to be inaccurate, there could be material differences in our consolidated operating results. Other Than Temporary Impairments We have a formal review process for all securities in our investment portfolio, including a review for impairments. The following factors are considered when assessing impairment: the level and duration of a decline in the fair value of a security; a decline in the fair value of a security for a continuous period of 12 months; recent credit downgrades of the applicable security or the issuer by rating agencies; the current or forecasted financial condition of the applicable issuer; interest payments; the position of the security in the issuer's capital structure; the length of time to maturity; an estimate of expected cash flows for asset-backed securities; interest rates; and our intent and ability to hold the security until the fair value recovers. If we believe that a decline in the value of a particular investment is temporary, we record the decline as an unrealized loss on our balance sheet under "accumulated other comprehensive income," net of deferred income taxes, in shareholder's equity. If we believe the decline is "other than temporary," we write down the carrying value of the investment and record a realized loss in our income statement. Other than temporary declines in the fair value of securities in our investment portfolio for the year ended December 31, 2003 was $0.8 million. There were no other than temporary declines for the years ended December 31, 2002 or 2001. With respect to securities where the decline in value is determined to be temporary and the security's value is not written down, a subsequent decision may be made to sell that security and realize a loss. Subsequent decisions on security sales are made within the context of overall risk monitoring, taking into account changing information, market conditions and assessing value relative to other comparable securities. We believe that subsequent decisions to sell such securities are consistent with the classification of our portfolio as available for sale. Certain of our CDOs are invested in subordinated classes (below "AA" ratings categories) of asset-backed securities. These assets are accounted for in accordance with Emerging Issues Task Force Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets". This statement addresses how a holder of a securitized financial asset should account for interest income and impairment. With respect to impairment losses, it requires that such losses be recognized if both of the following conditions are satisfied: the fair value of the security is less than the security's carrying value, and the most recent evaluation determines that there has been an adverse change in the cash flows. We evaluate the cash flow of each security on a monthly basis to assess whether any impairments have occurred. There are risks and uncertainties associated with determining whether declines in the fair value of investments are other than temporary. These include subsequent significant changes in general economic conditions as well as specific business conditions affecting particular issuers, assessment of issue-specific factors (e.g. seniority of claims, collateral value, collateral default rates, severity rates on defaulted collateral and prepayment speeds), future financial market effects, stability of foreign governments and economies, future rating agency actions and significant disclosure, accounting, fraud or corporate governance issues that may adversely affect certain investments. If management determines that a decline in fair value is temporary and hence a security's value is not written down at that time, there are potential effects upon our future earnings and financial position should management later conclude that some of the current declines in the fair value of the investments are other than temporary declines. Deferred Policy Acquisition Costs Within our insurance segment, we defer acquisition costs that are related to the acquisition of policies and premium production. Such costs are comprised primarily of premium taxes, personnel-related expenses of individuals involved in marketing, underwriting, and reinsurance functions, along with certain rating agency and legal fees. These costs are reduced by commissions from reinsurance to derive net acquisition costs. Net acquisition costs are deferred and amortized over the period in which the related premiums are earned. Anticipated claims and claim adjustment expenses are considered in determining the recoverability of acquisition costs. When an insured issue is retired early or is called by the issuer, remaining deferred acquisition costs relating to the policy are recorded in our consolidated statements of income. Management uses its best judgment in determining what costs should be deferred, as well as what percentage of these costs should be deferred. We periodically conduct studies to determine which operating costs vary with, and are directly related to, the acquisition of new business and therefore qualify for deferral. Premium Revenue Recognition Premiums are generally received in advance or in installments. Premiums received in advance are non-refundable and are earned in proportion to the expiration of the related risk. Most of the obligations we insure have amortization or sinking fund provisions. Installment premiums are earned over each installment period, generally one year or less. Therefore, premium earnings are greater in the earlier periods of an upfront transaction when there is a higher amount of risk outstanding. The premiums are apportioned in accordance with the principal amortization schedule of the related bond issue and are earned ratably over the amortization period. When an insured issue is retired early or is called by the issuer, any remaining deferred premium revenue is recognized at that time. Accordingly, deferred premium revenue represents the portion of premiums written that is attributable to the unexpired risk of insured bonds or notes. Valuation of Investments Our investments are mainly comprised of fixed-income investments. These fixed income investments include the investments of our insurance company assets and the assets related to our consolidated VIEs and are carried on our balance sheet at fair market value. Quoted market prices are generally available for these investments. If a market price is not available, a price is derived from available market data and/or internal analysis. In certain cases where a particular security is not traded and we believe that available price quotes are not indicative of fair market value, fair value is determined by using internally developed discounted cash flow models using available market data and internal estimates. We had six such investments at December 31, 2003. If these non-market price assessments prove to be incorrect there may be a material effect on our balance sheet. Results of Operations The following is a discussion and analysis of our consolidated results of operations for the years ended December 31, 2003, 2002 and 2001. Years ended December 31, 2003 and December 31, 2002 Gross Premiums Written. Gross premiums written for the year ended December 31, 2003 were $66.0 million compared with $55.3 million for the year ended December 31, 2002, an increase of $10.7 million. The increase was primarily related to an increase in municipal insurance gross premiums written of $3.5 million and an increase in non-municipal gross premiums written of $7.2 million. We believe that the growth in our municipal business has been driven by increased market acceptability of our insurance products in our selected markets, which resulted in an increase in our gross par written for municipal insurance. Gross par written for municipal insurance for the year ended December 31, 2003 was $1,082.5 million compared with $875.6 million for the year ended December 31, 2002. The increase in our non-municipal insurance was primarily due to increased market acceptance of our customized products and the annual installment premiums from business written in prior years resulting in a $7.0 million increase in gross premiums written. For the year ended December 31, 2003 2002 ($ in millions) Gross premiums written Municipal $ 49.1 $ 45.6 Non-municipal Customized solutions 14.8 7.8 Structured finance 2.1 1.9 Total $ 66.0 $ 55.3 Gross par written (municipal) $ 1,082.5 $ 875.6 Net Premiums Written. Net premiums written for the year ended December 31, 2003 were $62.5 million compared with $47.4 million for the year ended December 31, 2002, an increase of $15.1 million. The difference between gross and net premiums written is the amount of premiums ceded during the period. We cede premiums under various contractual arrangements with third parties on a first loss or excess of loss basis, which are designed to provide protection against unexpected levels of losses. In addition, we cede premiums on a quota share basis when our insured exposure to any single credit exceeds the amount allowed by internal policies, the rating agencies and regulators. For the year ended December 31, 2003, we ceded $3.5 million and for the year ended December 31, 2002, we ceded $7.8 million. For the year ended December 31, 2003 2002 ($ in millions) Net premiums written Municipal $ 46.1 $ 38.1 Non-municipal Customized solutions 14.3 7.4 Structured finance 2.1 1.9 Total $ 62.5 $ 47.4 Premiums Earned. Premiums earned for the year ended December 31, 2003 were $23.9 million compared with $14.0 million for the year ended December 31, 2002, an increase of $9.9 million. Municipal premiums earned increased $3.6 million due to the increase in recognition of premiums written in prior periods and lower reinsurance cessions for the year ended December 31, 2003. Non-municipal premiums earned, primarily those related to our customized solutions business, increased $6.3 million due to increased premiums in our super-senior business, which are written and earned in the same period. For the year ended December 31, 2003 2002 ($ in millions) Premiums earned Municipal $ 9.2 $ 5.6 Non-municipal Customized solutions 12.6 6.5 Structured finance 2.1 1.9 Total $ 23.9 $ 14.0 Net Investment Income. Net investment income for the year ended December 31, 2003 was $52.9 million compared with $20.3 million for the year ended December 31, 2002, an increase of $32.6 million. This increase was primarily due to the closing of three proprietary CDOs in 2003 that we consolidated. We earned $42.7 million of investment income for the year ended December 31, 2003 on $2,834 million of consolidated CDO assets at December 31, 2003. This compares with $9.8 million of investment income for the year ended December 31, 2002 on $505.2 million of consolidated CDO assets at December 31, 2002. Our CDOs typically have an average life of five to seven years. As we originate and consolidate new CDOs, our investment income is likely to continue to increase until our CDOs begin to mature in proportion to our origination of new CDOs. We expect our first CDO to mature between 2007 and 2009. We expect to continue originating proprietary CDOs over the next several years. The balance of our net investment income, $11.6 million in 2003 and $11.0 million in 2002, consisted of interest on cash equivalents and fixed-income securities primarily in our insurance company investment portfolio. This increase was primarily the result of the increase in invested assets of $54.3 million. The weighted average book yield on our insurance company investment portfolio increased to 4.4% from 4.2%. Net investment income is recorded net of investment management, accounting and custody fees of $1.4 million for the year ended December 31, 2003 and $0.5 million for the year ended December 31, 2002. For the year ended December 31, 2003 2002 ($ in millions) Investment income – non-VIE $ 11.6 $ 11.0 Investment income – VIE 42.7 9.8 Total investment income 54.3 20.8 Investment expenses (1.4 ) (0.5 ) Net investment income $ 52.9 $ 20.3 Net Realized Gains (Losses). Net realized gains for the year ended December 31, 2003 were $3.2 million compared with $4.1 million for the year ended December 31, 2002, a decrease of $0.9 million. Our net realized gains for the year ended December 31, 2003 were the result of net capital gains on our insurance company investment portfolio of $4.7 million, offset by losses of $1.5 million relating to our consolidated CDOs. $0.7 million of the loss was a result of the sale of one asset-backed security held in one of our consolidated CDOs. We sold this asset-backed security in order to protect our equity position and to preserve the overall credit quality of the CDO. The remainder, a loss of $0.8 million, was a result of an other than temporary impairment on an asset-backed security also held in one of our consolidated CDOs. The gains from our insurance company investment portfolio are attributable to our modified total return investment management strategy and gains on our portfolio created by falling interest rates. Net Realized and Unrealized Gains (Losses) on Derivative Instruments. Net realized and unrealized gains (losses) on derivative instruments for the year ended December 31, 2003 were a gain of $6.8 million compared to a loss of $8.7 million for the year ended December 31, 2002, an increase of $15.5 million. Net gains on derivative instruments consisted of an unrealized gain of $9.9 million and a realized loss of $3.1 million for the year ended December 31, 2003. For the year ended December 31, 2002, net losses on derivative instruments consisted of an unrealized loss of $2.8 million and a realized loss of $5.9 million. These gains and losses are primarily related to our forward purchase agreements to purchase warehoused assets for pending CDOs at their original cost, plus the cost of any interest rate hedges on the fixed rate securities. The realized loss represents the transfer or termination costs of the interest rate swaps on the fixed rate assets in the warehouse facilities. The realized losses that relate to swap termination payments are affected by interest rates. During the warehousing of our CDOs in 2003, rates declined less than in 2002, resulting in a smaller loss for the year ended December 31, 2003. Also, for the year ended December 31, 2003, $2.0 million of the unrealized gains were the result of unrealized mark-to-market gains on derivatives underlying our super-senior business. Derivative Income. Derivative income for the year ended December 31, 2003 was $12.0 million compared with $5.0 million for the year ended December 31, 2002, an increase of $7.0 million. This increase was primarily the result of increased derivative income on a consolidated credit default swap CDO of $4.5 million and increased derivative income of $1.1 million on a credit derivative contract relating to a portfolio of high-quality corporate credit risk. Fee Income. Fee income for the year ended December 31, 2003 was $8.9 million compared with $4.2 million for the year ended December 31, 2002, an increase of $4.7 million. This increase was primarily the result of increased warehouse fees related to the formation of three consolidated CDOs and asset management fees from two non-consolidated CDOs. Fee income also includes revenues from certain municipal transactions in the secondary markets and related structuring fees. For the year ended December 31, 2003 2002 ($ in millions) Fee income Warehousing fees $ 4.6 $ 1.8 Asset management fees 2.5 1.4 Other 1.8 1.0 Total $ 8.9 $ 4.2 Provision for Losses and Loss Adjustment Expense. Provision for losses and LAE for the year ended December 31, 2003 was $3.2 million compared with $1.8 million for the year ended December 31, 2002, an increase of $1.4 million. This was a direct result of the increase in premiums earned, and represents management's estimate of losses on our insured book of business. For a detailed description of how we establish our reserve for losses and LAE see "—Critical Accounting Policies" above. Net Policy Acquisition Costs. Policy acquisition costs for the year ended December 31, 2003 were $4.1 million compared with $4.0 million for the year ended December 31, 2002, an increase of $0.1 million. This increase was consistent with the increase in premiums earned and the amortization of deferred expenses. Other Operating Expenses. Other operating expenses for the year ended December 31, 2003 were $29.5 million compared with $18.7 million for the year ended December 31, 2002, an increase of $10.8 million. This change was driven by $1.3 million of additional CDO operating expenses, $3.6 million related to employee compensation and benefits expense, primarily driven by the addition of employees to our structured finance business throughout late 2002 and 2003. The remaining $5.9 million was attributable to general corporate overhead expenses. Interest Expense. Interest expense for the year ended December 31, 2003 was $42.0 million compared with $9.9 million for the year ended December 31, 2002, an increase of $32.1 million. This increase was a result of increased debt issuance of $2,390.0 million related to our consolidated CDOs, resulting in increases in both interest expense and amortization of debt issuance costs. Interest expense also included the interest on $20.6 million, $20.6 million and $18.0 million of debt issued to the trust preferred vehicle issued on October 29, 2003, May 15, 2003, and December 4, 2002, respectively. For the year ended December 31, 2003 2002 ($ in millions) Interest expense – Trust preferred debt $ 1.9 $ 0.1 Interest expense – CDO debt 36.8 8.5 Other interest expense 0.2 0.4 Amortization of debt issuance costs 3.1 0.9 Total interest expense $ 42.0 $ 9.9 Depreciation and Amortization. Depreciation and amortization expenses for the year ended December 31, 2003 were $1.3 million compared with $1.1 million for the year ended December 31, 2002, an increase of $0.2 million. This $0.2 million increase was mainly the result of increased costs related to fixed assets. Provision for Income Taxes. Provision for income taxes for the year ended December 31, 2003 was $10.7 million compared with an income tax benefit of $0.4 million for the year ended December 31, 2002, resulting in an effective tax rate of 38.4% and a negative 10.8%, respectively. The significant change in the effective tax rate resulted from the release of the valuation allowance in the fourth quarter of 2002. Net Income (Loss). Net income for the year ended December 31, 2003 was $17.2 million compared with $4.6 million for the year ended December 31, 2002, an increase of $12.6 million. Years ended December 31, 2002 and December 31, 2001 Gross Premiums Written. Gross premiums written for the year ended December 31, 2002 were $55.3 million compared with $23.0 million for the year ended December 31, 2001, an increase of $32.3 million. The increase was primarily related to an increase in our municipal insurance gross premiums written of $28.6 million. In addition, our non-municipal insurance gross premiums increased $3.7 million. Gross par written for municipal insurance for the year ended December 31, 2002 was $875.6 million compared with $365.6 million written for the year ended December 31, 2001. The increase was primarily due to our being removed from credit watch early in 2001 that adversely impacted 2001 business written. For the year ended December 31, 2002 2001 ($ in millions) Gross premiums written Municipal $ 45.6 $ 17.0 Non-municipal Customized solutions 7.8 6.0 Structured finance 1.9 — Total $ 55.3 $ 23.0 Gross par written (municipal) $ 875.6 $ 365.6 Net Premiums Written. Net premiums written for the year ended December 31, 2002 were $47.4 million compared with $5.5 million for the year ended December 31, 2001, an increase of $41.9 million. In the year ended December 31, 2002, we ceded $7.8 million of which $6.9 million under various contractual arrangements with third parties on a first loss or excess of loss basis designed to provide protection against unexpected levels of losses. In the year ended December 31, 2001, we ceded $17.6 million of which $10.2 million was ceded on a first loss or excess of loss basis and the remainder was ceded to assure compliance with insurance regulatory single risk limits. The decline in cessions was primarily due to a $7.0 million non-recurring "first-loss" reinsurance cession in 2001. In addition, we terminated a reinsurance treaty and replaced it with another reinsurance treaty at a lower cost. For the period ended December 31, 2001 we had negative municipal premiums written due to ceding more business than we wrote. This was done by new management to create a "first loss" reinsurance facility to cover any unexpected losses that may have been embedded in the insured portfolio to that date. For the year ended December 31, 2002 2001 ($ in millions) Net premiums written Municipal $ 38.1 $ (0.4 ) Non-municipal Customized solutions 7.4 5.9 Structured finance 1.9 — Total $ 47.4 $ 5.5 Premiums Earned. Premiums earned for the year ended December 31, 2002 were $14.0 million compared with $6.7 million for the year ended December 31, 2001, an increase of $7.3 million. Municipal premiums earned increased $5.0 million due to the increase in recognition of premiums written in prior periods and lower reinsurance cessions for the year ended December 31, 2002. Non-municipal premiums earned, primarily those related to our structured finance business, increased $2.3 million due to the initiation of our proprietary CDO business. For the year ended December 31, 2002 2001 ($ in millions) Premiums earned Municipal $ 5.6 $ 0.6 Non-municipal Customized solutions 6.5 6.1 Structured finance 1.9 — Total $ 14.0 $ 6.7 Net Investment Income. Net investment income for the year ended December 31, 2002 was $20.3 million compared with $11.6 million for the year ended December 31, 2001, an increase of $8.7 million. In 2001, we changed our approach to the structured finance market. We discontinued providing traditional credit enhancement to asset backed securities and began executing our strategy of participating in the structured finance market through our proprietary CDO business. During 2002 we closed our first two consolidated CDOs. This resulted in investment income in 2002 of $9.8 million earned on $505.2 million of consolidated CDO assets at December 31, 2002. For the year ended December 31, 2001 we had no consolidated VIEs. Our first CDO which required consolidation closed in June 2002. The balance of our net investment income, $11.0 million and $12.1 million for the years ended December 31, 2002 and 2001, respectively, consisted of interest on cash and fixed-income securities in our insurance company investment portfolio. This decrease was the result of lower interest rates. The weighted average book yield on our insurance company investment portfolio decreased to 4.2% from 5.0%. Net investment income was partially offset by expenses for investment management, accounting and custody fees of $0.5 million for each of the years ended December 31, 2002 and 2001. For the year ended December 31, 2002 2001 ($ in millions) Investment income – non-VIE $ 11.0 $ 12.1 Investment income – VIE 9.8 — Total investment income 20.8 12.1 Investment expenses (0.5 ) (0.5 ) Net investment income $ 20.3 $ 11.6 Net Realized Gains. Net realized gains for the year ended December 31, 2002 were $4.1 million compared with $6.5 million for the year ended December 31, 2001, a decrease of $2.4 million. Our net realized gains resulted from the sale of fixed income securities executed as part of the ongoing management of our insurance company investment portfolio. Net Realized and Unrealized Gains (Losses) on Derivative Instruments. Net realized and unrealized loss on derivative instruments for the year ended December 31, 2002 was $8.7 million. We had no realized gains or losses on derivatives for the year ended December 31, 2001. Our first warehouse facility was in the early stages of asset accumulation in late 2001, with no changes in the fair values. The 2002 loss represents realized and unrealized losses on the assets being held in various warehouse facilities prior to those assets being purchased by a VIE that we consolidate under FIN 46. These gains and losses are related to our forward purchase agreements to purchase these warehoused assets for pending CDOs at their original cost, plus the cost of any interest rate hedges on the fixed rate securities. The net unrealized losses of $2.4 million and $0.4 million represent the change in value of the underlying assets being accumulated in the warehouse facilities and the non-consolidated CDS CDOs, respectively. The realized loss of $5.9 million represents the transfer or termination costs of the interest rate swaps on the fixed rate assets in the warehouse facilities. Net realized and unrealized gains and losses during the warehouse period do not impact our expectation of the economic benefits to us derived from a CDO transaction. Derivative Income. Derivative income for the year ended December 31, 2002 was $5.0 million. This was the result of a consolidated credit default swap CDO which closed in the second quarter of 2002. We had no derivatives in 2001. Fee Income. Fee income for the year ended December 31, 2002 was $4.2 million compared with $0.2 million for the year ended December 31, 2001, an increase of $4.0 million. This increase was primarily the result of increased warehouse fees related to the formation of one proprietary CDO and asset management fees from two non-consolidated CDOs. We closed our first credit default swap CDO on January 25, 2002 and our only fee income in 2001 was $0.2 million primarily from fees earned on municipal transactions in the secondary market. For the year ended December 31, 2002 2001 ($ in millions) Fee income Warehouse fees $ 1.8 $ — Asset management fees 1.4 — Other 1.0 0.2 Total $ 4.2 $ 0.2 Provision for Losses and Loss Adjustment Expenses. Provision for losses and LAE for the year ended December 31, 2002 was $1.8 million compared with $1.6 million for the year ended December 31, 2001, an increase of $0.2 million. This increase was a direct result of the increase in premiums earned in the year ended December 31, 2002. In addition, for the year ended December 31, 2001 there was included in the $1.6 million a provision for a loss of $0.9 million, as a result of a paid loss on a municipal obligation. For a detailed description of how we establish our reserve for losses and LAE see "—Critical Accounting Policies" above. Net Policy Acquisition Costs. Net policy acquisition costs for the year ended December 31, 2002 were $4.0 million compared with $3.7 million for the year ended December 31, 2001, an increase of $0.3 million. This increase was consistent with the increase in premiums earned and the resulting amortization of deferred expenses. Other Operating Expenses. Other operating expenses for the year ended December 31, 2002 were $18.7 million compared with $14.3 million for the year ended December 31, 2001, an increase of $4.4 million. This increase was primarily driven by the continued compensation and operating expense growth related to our proprietary CDO and other structured finance products. Interest Expense. Interest expense for the year ended December 31, 2002 was $9.9 million compared with $0.1 million for the year ended December 31, 2001, an increase of $9.8 million. This increase was a result of both increased debt issuance of $523.5 million related to our consolidated CDOs and the interest on $17.5 million of trust preferred debt issued on December 4, 2002. The following table sets forth the composition of our interest expense. For the years ended December 31, 2002 2001 ($ in millions) Interest expense – Trust preferred debt $ 0.1 $ — Interest expense – CDO debt 8.5 — Other interest expense 0.4 0.1 Amortization of debt issuance expenses 0.9 — Total interest expense $ 9.9 $ 0.1 Depreciation and Amortization. Depreciation and amortization expenses for the year ended December 31, 2002 were $1.1 million compared with $0.7 million for the year ended December 31, 2001, an increase of $0.4 million. This increase was primarily a result of increased amortization on leasehold improvements and depreciation on office equipment. Reorganization Costs. Reorganization costs for the year ended December 31, 2001 were $1.7 million. This expense was related to a major reorganization, which included a termination of approximately one half of our staff and the closure of two satellite offices. There were no reorganization costs for the year ended December 31, 2002. See note 2 to the notes to our consolidated financial statements for further information. Provision for Income Taxes. Provision for income taxes for the year ended December 31, 2002 was a benefit of $0.4 million compared with an expense of $0.1 million for the year ended December 31, 2001, resulting in an effective tax rate of negative 10.8% and 4.0%, respectively. Through 2001, a full valuation allowance was maintained against our gross deferred tax assets due to the uncertainty of the benefit of their realization. However, in the fourth quarter of 2002, as a result of our current and projected profitability, the valuation allowance was released which resulted in recognition of approximately a $2.4 million tax benefit. See Note 10 to the notes to our consolidated financial statements for further information. Net Income (Loss). Net income for the year ended December 31, 2002 was $4.6 million compared with $2.6 million for the year ended December 31, 2001, an increase of $2.0 million. Results by Operating Segments We have two operating segments: (i) insurance, and (ii) financial services. For financial reporting purposes, two additional segments are reported: consolidated VIEs and corporate/other. The following tables summarize the results for our business segments as of and for the years ended December 31, 2003, 2002 and 2001: December 31, 2003 Insurance Financial Services Consolidated VIEs Corporate/ Other Segment Eliminations Total Consolidated ($ in millions) Net premiums written $ 66.2 $ — $ — $ — $ (3.7 ) $ 62.5 Premiums earned 27.6 — — — (3.8 ) 23.8 Total revenues 44.5 19.1 56.9 0.4 (12.9 ) 108.0 Total expenses 19.1 17.5 53.5 2.8 (12.8 ) 80.1 Income (loss) before income taxes 25.4 1.6 3.4 (2.4 ) (0.1 ) 27.9 Assets 431.8 12.1 2,985.6 38.9 — 3,468.5 December 31, 2002 Insurance Financial Services Consolidated VIEs Corporate/ Other Segment Eliminations Total Consolidated ($ in millions) Net premiums written $ 49.6 $ — $ — $ — $ (2.2 ) $ 47.4 Premiums earned 15.7 — — — (1.7 ) 14.0 Total revenues 30.8 4.8 9.5 0.3 (5.8 ) 39.6 Total expenses 16.2 9.9 14.7 0.8 (6.1 ) 35.5 Income (loss) before income taxes 14.6 (5.1 ) (5.2 ) (0.5 ) 0.3 4.1 Assets 349.4 15.8 536.0 14.8 — 917.0 December 31, 2001 Insurance Financial Services Consolidated VIEs Corporate/ Other Segment Eliminations Total Consolidated ($ in millions) Net premiums written $ 5.5 $ — $ — $ — $ — $ 5.5 Premiums earned 6.7 — — — — 6.7 Total revenues 24.7 — — 0.2 — 24.9 Total expenses 19.9 0.1 — 2.2 — 22.2 Income (loss) before income taxes 4.8 (0.1 ) — (2.0 ) — 2.7 Assets 286.0 5.2 — 7.9 — 299.1 Insurance Operations Our insurance segment includes financial guaranty insurance which provides protection against payment defaults on municipal bonds and structured finance obligations and supports our structured finance business by facilitating our ability to borrow funds to participate in the equity or first loss positions in our proprietary CDOs. Year Ended December 31, 2003 2002 ($ in millions) Net premiums written $ 66.2 $ 49.6 Premiums earned 27.6 15.7 Net investment income (including realized gains and losses) 14.5 14.4 Net realized and unrealized gain on derivative instruments 2.0 — Fee and other income 0.4 0.7 Total revenues 44.5 30.8 Total expenses 19.1 16.2 Income (loss) before income taxes $ 25.4 $ 14.6 Years ended December 31, 2003 and December 31, 2002 Net Premiums Written. Net premiums written for the year ended December 31, 2003 were $66.2 million compared with $49.6 million for the year ended December 31, 2002, an increase of $16.6 million. This is due to both an increase of $8.0 million in municipal net premiums written and a $8.6 million increase in non-municipal insurance premiums which we believe is the result of the increased market acceptance of the ACA insurance product. Premiums Earned. Premiums earned for the year ended December 31, 2003 were $27.6 million compared with $15.7 million for the year ended December 31, 2002, an increase of $11.9 million. The increase is attributable primarily to $14.7 million of non-municipal installment premiums earned in the year ended December 31, 2003, compared to $8.3 million of installment premiums earned from our non-municipal business in the year ended December 31, 2002. This is attributable to an increase in credit enhancement business related to our customized solutions business. Net Investment Income (including realized gains and losses). Net investment income for the year ended December 31, 2003 was $14.5 million compared with $14.4 million for the year ended December 31, 2002, an increase of $0.1 million. This represents the investment income on our insurance company portfolio. This was primarily due to an increase in net realized gains of $0.6 million offset by a decrease in net investment income of $0.5 million due to lower prevailing interest rates. Net realized and unrealized gain on derivative instruments. Net realized and unrealized gains on derivatives for the year ended December 31, 2003 was $2.0 million. This was the result of unrealized mark-to-market gains underlying our super-senior business and our insured unfunded synthetic CDS CDOs. Expenses. Expenses for the year ended December 31, 2003 were $19.1 million compared with $16.2 million for the year ended December 31, 2002, an increase of $2.9 million, which is primarily attributable increases in employee compensation and other operating expenses. Income (Loss) Before Income Taxes. Income before income taxes for the year ended December 31, 2003 was $25.4 million compared with $14.6 million for the year ended December 31, 2002, an increase of $10.8 million. Years Ended December 31, 2002 2001 ($ in millions) Net premiums written $ 49.6 $ 5.5 Premiums earned 15.7 6.7 Net investment income (including realized gains and losses) 14.4 17.9 Fee and other income 0.7 0.1 Total revenues 30.8 24.7 Total expenses 16.2 19.9 Income (loss) before income taxes $ 14.6 $ 4.8 Years ended December 31, 2002 and December 31, 2001 Net Premiums Written. Net premiums written for the year ended December 31, 2002 were $49.6 million compared with $5.5 million for the year ended December 31, 2001, an increase of $44.1 million. The increase is due to a $38.5 million increase in municipal net premiums written and a $5.7 million increase in our non-municipal insurance, which we believe is the result of increased market acceptance of our insurance product following a corporate reorganization and an additional capital infusion in 2001. Premiums Earned. Premiums earned for the year ended December 31, 2003 were $15.7 million compared with $6.7 million for the year ended December 31, 2002, an increase of $9.0 million. The increase is attributable to the recognition of municipal premiums received in prior periods and $8.3 million of non-municipal installment premiums earned in the year ended December 31, 2002, compared to $6.0 million of installment premiums earned from our non-municipal business for the year ended December 31, 2001. This is attributable to an increase in credit enhancement business related to our customized solutions business. Net Investment Income (including realized gains and losses). Net investment income for the year ended December 31, 2002 was $14.4 million compared with $17.9 million for the year ended December 31, 2001, a decrease of $3.5 million. The decrease is related to a reduction in realized capital gains of $2.4 million for the year ended December 31, 2002. Expenses. Expenses for the year ended December 31, 2002 were $16.2 million compared with $19.9 million for the year ended December 31, 2001, a decrease of $3.7 million. The decrease in expenses was primarily the result of expense controls initiated at the end of 2001 arising from a corporate reorganization. Income (Loss) Before Income Taxes. Income before income taxes for the year ended December 31, 2002 was $14.6 million compared with $4.8 million for the year ended December 31, 2001, an increase of $9.8 million. Financial Services Our financial services segment includes origination, structuring, placement and asset management fees in our proprietary CDO business. In addition, it includes the excess distributions received on our equity or first loss position on two of our managed CDOs that do not involve VIEs and are not consolidated. The equity distributions from these CDOs are recognized as derivative income. Years Ended December 31, 2003 2002 ($ in millions) Investment income (loss) $ (0.3 ) $ 0.3 Net realized and unrealized gain (loss) on derivative instruments 1.4 (3.4 ) Derivative income 1.9 0.6 Fee and other income 16.0 7.3 Total revenues 19.0 4.8 Interest expense 1.1 1.8 Total expenses 17.5 9.9 Income (loss) before income taxes $ 1.5 $ (5.1 ) Years ended December 31, 2003 and December 31, 2002 Net Realized and Unrealized Gains (Loss) on Derivative Instruments. Net realized and unrealized gains for the year ended December 31, 2003 were $1.4 million compared with a loss of $3.4 million for the year ended December 31, 2002, an increase of $5.1 million. These gains represent the realized and unrealized gains on our forward purchase agreements which relates to balances on our outstanding warehouse assets. Derivative income and fee and other income. Derivative income and fee and other income for the year ended December 31, 2003 was $17.9 million compared with $7.9 million for the year ended December 31, 2002, an increase of $10.0 million. This increase was primarily a result of a full year of revenue earned on three proprietary CDOs that closed in 2002 and the incremental revenue from four additional CDOs that closed in 2003. These revenues include: warehousing, structuring and asset management fees, and derivative income from credit default swap CDOs. Expenses. Expenses for the year ended December 31, 2003 were $17.5 million compared with $9.9 million for the year ended December 31, 2002, an increase of $7.6 million. This increase was a result of our continued origination of proprietary CDOs and the related operating and compensation expenses as we expanded the segment's employee base. Expenses also included the interest expense on the borrowings used to fund the equity portion of our CDOs of $1.1 million and $1.8 million for the year ended December 31, 2003 and 2002, respectively. Income (Loss) Before Income Taxes. Income before income taxes for the year ended December 31, 2003 was $1.6 million compared with a loss of $5.2 million for the year ended December 31, 2002, an increase of $7.0 million. Years Ended December 31, 2002 2001 ($ in millions) Investment income $ 0.3 $ — Net realized and unrealized gain (loss) on derivative instruments (3.4 ) — Derivative income 0.6 — Fee and other income 7.3 0.0 Total revenues 4.8 0.0 Interest expense 1.8 — Total expenses 9.9 0.1 Income (loss) before income taxes $ (5.1 ) $ (0.0 ) Years ended December 31, 2002 and December 31, 2001 Our financial services segment was operating for less than thirty days of the year ended December 31, 2001. Net Realized and Unrealized Gains (Loss) on Derivative Instruments. Net realized and unrealized losses for the year ending December 31, 2002 were a loss of $3.4 million. These losses represent the unrealized fair value changes in our forward purchase agreements which relate to balances on outstanding warehouse assets. Derivative income and fee and other income. Derivative income and fee and other income for the year ended December 31, 2002 was $7.9 million. Our revenue was a result of the initiation and growth of our proprietary CDO business and includes fee income from warehousing, structuring and asset management and derivative income related to our non-consolidated CDOs. Expenses. Expenses for the year ending December 31, 2002 were $9.9 million. This increase was a result of the initiation and growth of our proprietary CDO business and the related operating and compensation expenses, as we expanded the segment's employee base. Expenses also included the interest expense on our funding notes of $1.8 million in 2002. Income (Loss) Before Income Taxes. Loss before income taxes for the year ended December 31, 2002 was $5.1 million. Consolidated VIEs We consider our consolidated VIEs a separate segment only for financial reporting purposes and to reconcile to the totals reported in our consolidated financial statements. We do not consider it to be an operating segment. It is necessary to highlight the activity in this segment because it clarifies our consolidated financial statements. The consolidated VIE segment includes revenue in the form of investment and derivative income on our consolidated CDOs. It also includes interest expenses associated with the liability payments on these CDOs. In addition, any temporary unrealized and realized gains and losses would be reflected in the consolidated VIE segment as it is our belief that these will return to zero over time. Liquidity and Capital Resources We are a holding company, and as such, have no direct operations of our own. Our liquidity on a short-term basis (for the next twelve months), is largely dependent upon: (1) investment income from our invested assets and (2) external financings. On a long-term basis (beyond the next twelve months), we expect our liquidity to benefit from the previously mentioned factors as well as the ability of our subsidiaries to pay dividends or make other payments to ACA Holdings. Certain of our operating subsidiaries are subject to restrictions on their ability to pay dividends without the approval of the Maryland Insurance Commissioner until they have a positive earned surplus calculated on a SAP basis. See "Regulation." As of December 31, 2003 ACA Financial Guaranty was unable to pay dividends due to statutory insurance restrictions and will not be able to pay dividends until it earns more than $53.5 million on a SAP basis. Our non-insurance subsidiaries are not subject to regulatory restrictions with regard to dividend payments to the holding company. However, further liquidity requirements restrict their ability to pay dividends in the short term, during which time they will retain earnings to meet their operating needs. In the ordinary course of our business, we evaluate our liquidity needs and capital resources in light of holding company expenses, debt-related expenses and rating agency capital requirements. ACA Holdings' liquidity requirements consist primarily of interest on our capital securities. We may also require liquidity to make periodic capital investments in our operating subsidiaries. It is our current policy to retain earnings to support the growth of our businesses and we do not currently intend to pay dividends. Based on the amount of income we expect to receive on our invested assets, we believe that ACA Holdings will have sufficient liquidity to satisfy its needs over the next twelve months. Beyond the next twelve months, a variety of factors, including market and general economic conditions that effect investment income on our invested assets and the ability of our subsidiaries to pay dividends, will affect the sufficiency of our liquidity. Consequently, although we believe that ACA Holdings will continue to have sufficient liquidity to meet its debt service and other obligations over the long term, we can not guarantee that we will not be required to seek external equity financing in order to meet our debt service obligations. Liquidity at our operating subsidiaries is used to pay operating expenses, claims, obligations on our debt, reinsurance premiums, and where appropriate, to make capital investments in their own subsidiaries. In addition, certain of our operating companies may be required to post collateral in connection with credit derivatives and reinsurance transactions. Management believes that these subsidiaries' operating needs generally can be met from operating cash flow. For our insurance subsidiaries, this includes gross written premiums and investment income on their respective investment portfolios. The cash flow of certain of our non-insurance subsidiaries related to our CDO business is restricted by contract until we satisfy certain collateral or funding obligations related to the borrowings used to finance the equity of the CDOs we originate. This cash flow would be sufficient to meet the operating expenses of these subsidiaries if it were not restricted. We anticipate that these obligations will be satisfied on our existing CDOs beginning in 2006, and as a result this cash flow will no longer be restricted and will be available for dividends. To date, we have funded the operating expenses of these non-insurance subsidiaries through a combination of intercompany borrowings and from the proceeds of the trust preferred debt we have issued. We anticipate using a portion of the proceeds from this offering to fund the operations of certain non-insurance subsidiaries until cash generated by such non-insurance subsidiaries is no longer restricted. On an ongoing basis, our sources of funds primarily consist of premiums written, investment income and proceeds from the sale and redemption of investments. Cash is used primarily to pay losses and loss expenses, policy acquisition costs, other operating expenses and interest expenses. Our cash flow from operations generally represents the difference between premiums collected along with the investment income realized, and investment earnings realized and the losses and loss expenses paid, policy acquisition and other operating expenses and investment losses realized. Cash flow from operations may differ substantially from net income. To date, we have invested all cash flow that is not required for operating purposes. If the rating agencies were to reduce ACA Financial Guaranty's financial strength rating to below "A", we would be severely limited in our ability to issue new insurance of municipal bonds. In addition, if that happened, we could be required to provide collateral in the form of cash or securities to back guaranties we have issued or in certain instances be replaced as the collateral manager in our managed CDOs. If these events occurred, it could materially hurt our financial performance and liquidity and severely strain our capital resources. We expect that the proceeds of this offering will permit us to continue to implement our business strategy. We expect our existing capital base and the associated earnings, along with the proceeds of this offering, to be sufficient to operate our business. However, there can be no assurance that we will not need to raise additional capital in the future. Cash Flows for the year ended December 31, 2003 In the year ended December 31, 2003, we generated positive net operating cash flow of $66.0 million, primarily related to premiums written and investment income. During the same period, we invested a net cash amount of $2.4 billion. We generated a net cash amount of $2.4 billion through financing activities, and as of December 31, 2003, had a cash balance of $212.5 million. On October 29, 2003, we privately placed $20.0 million of trust preferred debt which was issued by a subsidiary trust holding $20.6 million aggregate principal amount of a thirty-year subordinated note of ACA Holdings. Net proceeds were $19.4 million. ACA Holdings provided a $10.0 million capital infusion to its direct subsidiary, ACA Financial Guaranty, and used the remainder of the net proceeds for general corporate purposes. On May 15, 2003, we privately placed $20.0 million of trust preferred debt which was issued by a subsidiary trust holding $20.6 million aggregate principal amount of a thirty-year subordinated note of ACA Holdings. Net proceeds were $19.4 million. ACA Holdings provided a $10.0 million capital infusion to its direct subsidiary, ACA Financial Guaranty, and used the remainder of the net proceeds for general corporate purposes. Cash Flows for the year ended December 31, 2002 In the year ended December 31, 2002, we generated a net operating cash inflow of $45.4 million, primarily relating to premiums received and investment income. During the same period, we invested a net cash amount of $526.5 million. We generated a net cash amount of $531.1 million through financing activities, and as of December 31, 2002 had a cash and cash equivalents balance of $82.4 million. On December 4, 2002, we privately placed $17.5 million of trust preferred debt which was issued by a subsidiary trust holding $18.0 million aggregate principal amount of a thirty-year subordinated note of ACA Holdings. Net proceeds were $17.0 million. ACA Holdings provided a $10.0 million capital infusion to its direct subsidiary, ACA Financial Guaranty and used the remainder of the net proceeds for general corporate purposes. Cash Flows for the year ended December 31, 2001 In the year ended December 31, 2001, we generated a net operating cash inflow of $0.6 million, primarily relating to premiums received and investment income. During the same period, we invested a net cash amount of $24.4 million. We generated a net cash amount of $42.3 million through financing activities, and as of December 31, 2001 had a cash and cash equivalents balance of $32.4 million. We did not make any significant capital expenditures during the year ended December 31, 2003 or the year ended December 31, 2002. We do not anticipate any significant capital expenditures for 2004. The following table summarized our contractual obligations as of December 31, 2003. As of December 31, 2003 Less Than One Year 1-3 Years 4-5 Years After 5 Years Total ($ in millions) Debt: Non-VIE $ — $ — $ 16.0 $ 143.5 $ 159.5 VIE 1,265.7 — 107.1 1,432.0 2,804.8 Total long-term debt 1,265.7 — 123.1 1,575.5 2,964.3 Lease obligations 1.8 3.6 3.6 1.2 10.2 Total $ 1,267.5 $ 3.6 $ 126.7 $ 1,576.7 $ 2,974.5 Investment Portfolio As of December 31, 2003, our investment portfolio consisted of $2,986.7 million of fixed maturity securities, of which $2,711.4 million were from VIEs that we consolidate under FIN 46, and $275.3 million were held in our insurance company investment portfolio. Our fixed maturity securities are designated as available for sale in accordance with FAS 115 "Accounting for Certain Investments in Debt and Equity Securities." Fixed maturity securities are reported at fair value in accordance with FAS 115, and the change in fair value is reported as part of accumulated other comprehensive income in shareholders' equity. The following table summarizes our investment portfolio as of December 31, 2003: December 31, 2003 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value ($ in millions) Available for sale (non-VIE) U.S. Treasury securities $ 59.4 $ 1.4 $ 0.1 $ 60.7 Federal agency securities 29.1 0.5 — 29.6 Obligations of states and political subdivisions 28.6 0.8 0.3 29.1 Corporate securities 58.8 0.4 0.6 58.6 Asset-backed securities 16.6 0.3 0.0 16.9 Mortgage-backed securities 80.3 0.5 0.4 80.4 Total non-VIE securities 272.8 3.9 1.4 275.3 Available for sale (VIE) Asset-backed securities – VIE 2,700.2 20.7 9.5 2,711.4 Total $ 2,973.0 $ 24.6 $ 10.9 $ 2,986.7 The amortized cost and estimated fair value of fixed maturity securities available for sale as of December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. See Note 6 of the notes to our consolidated financial statements for information on our fixed maturity securities available for sale as of December 31, 2003 and 2002. December 31, 2003 Amortized Cost Estimated Fair Value ($ in millions) Available for sale: Due in one year or less $ 18.2 $ 18.3 Due after one year through five years 158.6 160.6 Due after five years through ten years 303.3 303.2 Due after ten years 2,492.9 2,504.6 Total $ 2,973.0 $ 2,986.7 The amortized cost and estimated fair value of asset-backed securities owned by the VIEs at December 31, 2003, included in the above chart by contractual maturity, are shown below: December 31, 2003 Amortized Cost Estimated Fair Value ($ in millions) Available for sale (VIE): Due in one year or less $ — $ — Due after one year through five years 77.6 77.6 Due after five years through ten years 262.8 262.6 Due after ten years 2,359.8 2,371.2 Total $ 2,700.2 $ 2,711.4 Fair value of the fixed maturity securities is based upon quoted market prices provided by either independent pricing services or, when such prices are not available, by reference to broker or underwriter bid indications. For a detailed description of our valuation of investments, see "—Critical Accounting Policies" above. We review our investment portfolio on at least a quarterly basis for possible impairment losses. For additional information, see "—Critical Accounting Policies" above. The following table summarizes the ratings distributions of ACA Financial Guaranty's investment portfolio as of December 31, 2003, 2002 and 2001 and the investment portfolio of our consolidated VIEs as of December 31, 2003 and 2002: As of December 31, 2003 2002 2001 AAA or Equivalent 36.4 % 29.5 % 62.8 % AA 20.4 % 3.5 % 12.7 % A 11.6 % 17.5 % 22.4 % BBB 30.2 % 47.2 % 2.1 % < BBB 1.4 % 2.3 % 0.0 % Total 100.0 % 100.0 % 100.0 % Ratings are represented by the lower of the S&P and Moody's Investors Service classifications. The following table summarizes the unrealized losses in our investment portfolio by type of security and the length of time such securities have been in a continuous unrealized loss position as of December 31, 2003 ($ in thousands): As of December 31, 2003 Estimated Fair Value Gross Unrealized Losses Non-VIE U.S. Treasury & Federal agency securities 0 - 6 months $ 7,004 $ (12 ) 7 - 12 months 6,002 (74 ) Greater than 12 months — — 13,006 (86 ) Corporate securities 0 - 6 months $ 26,318 $ (369 ) 7 - 12 months — — Greater than 12 months 1,635 (234 ) 27,953 (603 ) Mortgage and asset-backed securities 0 - 6 months $ 35,842 $ (384 ) 7 - 12 months 4,160 (12 ) Greater than 12 months 1,499 (33 ) 41,501 (429 ) Municipal securities 0 - 6 months $ 2,239 $ (19 ) 7 - 12 months 14,405 (310 ) Greater than 12 months — — 16,644 (329 ) Total non-VIE 99,104 (1,447 ) VIE: Asset-backed securities 0 - 6 months $ 422,910 $ (3,121 ) 7 - 12 months 86,221 (3,546 ) Greater than 12 months 101,122 (2,831 ) Total VIE 610,253 (9,498 ) Total $ 709,357 $ (10,945 ) The following table summarizes the unrealized losses in our investment portfolio at December 31, 2003 by type of security and remaining time to maturity as of December 31, 2003 ($ in thousands): As of December 31, 2003 Estimated Fair Value Gross Unrealized Losses Non-VIE U.S. Treasury & Federal agency securities due in one year or less $ — $ — due after one year through five years 13,006 (86 ) due after five years through ten years — — due after ten years — — 13,006 (86 ) Corporate securities due in one year or less $ — $ — due after one year through five years — — due after five years through ten years 14,994 (127 ) due after ten years 12,959 (476 ) 27,953 (603 ) Mortgage and asset-backed securities due in one year or less $ — $ — due after one year through five years — — due after five years through ten years — — due after ten years 41,501 (429 ) 41,501 (429 ) Municipal securities due in one year or less $ — $ — due after one year through five years — — due after five years through ten years 4,440 (86 ) due after ten years 12,204 (243 ) 16,644 (329 ) Total non-VIE 99,104 (1,447 ) VIE Asset-backed securities Total VIE $ 610,253 $ (9,498 ) Total $ 709,357 $ (10,945 ) Market Risk Market risk represents the potential for losses that may result from changes in the value of a financial instrument as a result of changes in market conditions. The primary market risks that impact the value of our financial instruments are interest rate risk, basis risk (for example, taxable interest rates relative to tax-exempt interest rates), and credit spread risk. Each of these risks and the specific types of financial instruments which they impact are described below. Senior managers in our risk management department are responsible for monitoring risk limits and applying risk measurement methodologies. The estimation of potential losses arising from adverse changes in market conditions is a key element in managing market risk. We use various systems, models and stress test scenarios to monitor and manage market risk. These models include estimates made by management that use current and historic market information. The valuation results from these models could differ materially from amounts that actually are realized in the market. See "—Critical Accounting Policies—Valuation of Investments" and "—Valuation of Derivatives" above. December 31, 2003 Notional Value of Derivatives Estimated Fair Value Hypothetical Fair Value After +100 Basis Point Parallel Yield Curve Shift Hypothetical Change in Fair Value +100 Yield Shift Hypothetical Fair Value After -100 Basis Point Parallel Yield Curve Shift Hypothetical Change in Fair Value -100 Yield Shift ($ in millions) Financial assets with interest rate risk: Fixed maturities: Available for sale — $ 2,986.7 $ 2,953.8 $ (32.9 ) $ 3,022.2 $ 35.5 Derivatives: Swaps 505.5 (45.9 ) (21.0 ) 24.9 (72.4 ) (26.5 ) Options (interest rate caps) 161.3 2.6 4.1 1.5 1.4 (1.2 ) Total estimated potential (loss) gain $ (6.5 ) $ 7.8 Financial instruments that may be adversely affected by changes in interest rates consist primarily of investment securities. The primary objective in managing our investment portfolio is the generation of an optimal level of after-tax investment income while preserving capital and maintaining adequate liquidity. Investment strategies are based on many factors, including our tax position, fluctuations in interest rates, regulatory and rating agency criteria and other market factors. Two external investment managers, Stephens Capital Management Division, an affiliate of Stephens Group Inc. and Dreyfus Investment Advisors, Inc., manage our fixed maturity investment portfolio in accordance with investment guidelines approved by our Board of Directors. Completed Proprietary CDOs The following table provides certain information on the seven CDOs we have originated to date: Originated Proprietary CDOs ($ in millions) Name Type Closed Notional Portfolio Size First Loss or Equity Size ACA CDS 2001-1 CDS 01/25/02 $ 1,000 $ 22.5 ACA CDS 2002-1 CDS 06/26/02 1,000 22.0 ACA ABS 2002-1 ABS 07/29/02 400 18.0 ACA CDS 2002-2 CDS 04/09/03 1,000 25.0 ACA ABS 2003-1 ABS 05/20/03 400 18.0 Grenadier Funding Ltd ABS 07/21/03 1,500 22.5 ACA ABS 2003-2 ABS 11/06/03 725 33.5 New Accounting Pronouncements In January 2003, the FASB issued FIN No. 46, "Consolidation of Variables Interest Entities". FIN 46 relates to the consolidation of variable interest entities in which the equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties or the equity investors lack essential characteristics of a controlling financial interest. We adopted the provisions of FIN 46 in the year ended December 31, 2003. As a result of the adoption of FIN 46 and previous accounting pronouncements, we have consolidated five of our seven currently outstanding CDOs which has resulted in an increase in both our assets and our liabilities. There was no material impact on our financial statements as a result of this implementation. In April 2003, FASB issued FAS No. 149, "Amendment of FASB Statement No. 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FAS 133. This Statement is effective for contracts entered into or modified after June 30, 2003, except for the provisions of this Statement that relate to FAS 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 and for hedging relationships designated after June 30, 2003. All provisions are to be applied prospectively, except for the provisions of this Statement that relate to FAS 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003. These provisions are to be applied in accordance with their respective effective dates. We do not foresee that the implementation of this statement will have a material impact on our financial statements. In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The statement requires the issuer of such financial instruments to classify these items as liabilities on its balance sheets. We do not foresee the implementation of this statement having a material impact on our financial statements since the only financial instruments that we own with such balance sheet qualities is our trust preferred debt, which is currently classified as a liability on our balance sheet. On December 23, 2003 the FASB released revised FASB Statement No. 132 (FAS 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised standard provides required disclosures for pensions and other postretirement benefit plans. The revised standard replaces existing pension disclosure requirements. The requirements of the standard are effective for public entities for fiscal years ending after December 15, 2003 and for quarters beginning after December 15, 2003, unless otherwise stated in the standard. We do not anticipate that the implementation of this statement will have a material impact on its financial statements. INDUSTRY OVERVIEW The Municipal Finance Market Financial guaranty insurance is a form of credit enhancement that unconditionally and irrevocably guarantees payment, when due, of the principal of and interest on third party payment obligations. Financial guaranty insurance is principally offered as a credit enhancement to municipal bonds, to corporate credits and to asset-backed securities. Insurance can be provided on all or a portion of an issue of securities at the time of original issuance or to holders of all or a portion of an issue of uninsured obligations at any time following issuance. Financial guaranty insurers seek to minimize the risk inherent in the liabilities they guarantee by maintaining diverse portfolios, thereby spreading risk with respect to a number of criteria, including issue size, type of bond, type of collateral and geographic area. Financial guaranty insurers employ various techniques such as reinsurance and single risk limits to maintain the diversity of their insured portfolios. Financial guaranty insurance benefits both the underlying issuer and the investor. The issuer benefits because its securities are generally sold with a higher credit rating than securities of the same issuer sold without financial guaranty insurance. With respect to the insurance of municipal bonds, this can result in significant interest cost savings to issuers, and therefore to taxpayers as well. The Association of Financial Guaranty Insurors estimates that in 2002, the most recent year for which data is available, U.S. municipal issuers saved approximately $2.8 billion in borrowing costs because of lower interest rates resulting from the use of bond insurance. In addition to reducing borrowing costs, financial guaranty insurance also generally results in superior marketability of insured securities both at issuance and in the secondary market. Furthermore, for complex financings and obligations of issuers that are not well known by investors, insured obligations can receive greater market acceptance than obligations without insurance, and may help a lesser known issuer execute a financing it otherwise might have been unable to complete. One of the most important benefits to investors in insured financial obligations is that the risk of loss associated with an issuer's default is significantly mitigated. An additional benefit is the price stability that the guaranty or insurance creates in volatile or distressed situations. When comparing insured bonds to uninsured bonds issued by the same obligor, insured bonds have fared significantly better in terms of price stability through times of stress (e.g., recession when credit spreads widen). This is a significant consideration for investors, especially for those who mark their investments to market. One important measure investors, clients and others look to in evaluating a financial guarantor is its claims-paying ability or insurer financial strength rating assigned by one or more of the major rating agencies. The major rating agencies evaluate bond insurers to determine whether the insurer's capital is adequate to satisfy its obligations during potential stress scenarios and to confirm that the insurer is maintaining appropriate financial flexibility. For more information on the meaning of the ratings assigned by S&P and Fitch see Appendix A. The municipal finance market in the United States includes debt issued by states, political subdivisions (e.g., cities, counties and towns), utility districts, airports, higher educational institutions, hospitals, transportation and housing authorities and other similar authorities and agencies. These obligations are generally supported by either the taxing authority of the issuer or the issuer's or underlying obligor's ability to collect fees or assessments for certain projects or public services. The following table sets forth certain information regarding long-term U.S. municipal new issues sold during the periods indicated: Insured Obligations(1) Year New Total Volume New Insured Volume New Insured Volume as Percent of New Total Volume (dollars in billions) 1995 $ 160.4 $ 68.6 42.8 % 1996 185.2 85.7 46.3 1997 220.7 107.5 48.7 1998 286.7 145.6 50.8 1999 227.6 105.6 46.4 2000 200.7 79.3 39.5 2001 288.3 134.2 46.5 2002 358.8 178.9 49.9 2003 384.2 190.1 49.5 (1) Information is based on data provided in The Bond Buyer, February 6, 2004. Volume is expressed in terms of par insured. Insurance of municipal obligations historically has been the largest portion of the financial guaranty insurance industry. The issuance of municipal obligations is predominantly driven by the prevailing interest rate environment, but is also subject to the timing of the financing needs of certain municipal issuers. Both total new issuance of municipal obligations and refundings of previously issued municipal obligations increased in 1996, 1997 and 1998, primarily due to lower interest rates. In 1999, rising interest rates caused a decrease in refundings, which was responsible for much of the decline in total issuance that year. The year 2000 saw a further decline in both total municipal issuance and the percentage of municipal par insurance. This was attributable in part to the effect of budget surpluses reducing municipal borrowing needs, as well as the strengthened credit ratings of municipal issuers. In 2001, new issue volume grew due, in part, to a declining interest rate environment, and insurance penetration returned to approximately the same level as in 1999. Volume increased in 2002 as low interest rates, diminished tax revenues and continuing needs for infrastructure investment drove municipalities to borrow at unprecedented levels. Between 1995 and 2002 approximately 47% of new municipal issues utilized bond insurance, and in 2003 approximately 50% of new municipal issues utilized bond insurance. The market for "A" rated insurance of new issues of municipal obligations is a subset of the municipal finance market and consists of lower investment grade and below investment grade or unrated issues not historically served by the "AAA" financial guaranty insurance industry. It is a market that is relatively less driven by the prevailing interest rate environment and more driven by the timing of the financing needs of certain municipal issuers that are infrequent participants in the municipal finance market. Further, refundings have not to date comprised a significant portion of this market. The following table sets forth certain information regarding long-term U.S. municipal new issues sold by low or non-rated issuers during the periods indicated: Municipal New Issues—Low Investment Grade(1) and Non-Investment Grade/Non Rated(2) Year Par Amount Number Of Issues (dollars in billions) 1995 $ 26.4 4,221 1996 23.6 4,459 1997 23.4 4,342 1998 30.0 4,780 1999 30.8 4,679 2000 23.3 3,643 2001 24.5 3,772 2002 22.8 3,756 2003 36.2 4,309 (1) Low investment grade includes any issue rated in the "BBB" category by a nationally recognized statistical rating organization. (2) Source: Securities Data Corp. as of February 6, 2004. The Collateralized Debt Obligations (CDO) Market The CDO market is a subset of the asset-backed securities, or structured finance, market. The asset-backed securities market consists of transactions in which a stream of payments derived from specified assets is packaged as a security and sold in the capital markets in a process called "securitization." A CDO is a securitization of financial instruments. For example, an ABS CDO is a repackaging of asset-backed securities and a CDS CDO is a repackaging of credit default swaps combined with income bearing securities. A credit default swap is a contract that involves the transfer of credit risk without the transfer of the associated assets. A typical credit default swap provides for reimbursement to the risk-transferor for any loss of par of the associated asset in the event of a default or upon the occurrence of another specified credit event. Although the first CDOs were issued in the late 1980s, annual aggregate issuance remained below $1.5 billion until 1996, when issuance volume increased to approximately $15 billion. By 2003, CDO issuance volume in the U.S. had grown to approximately $150 billion. The following table depicts CDO issuance in the United States from 1997 through 2003: U.S. CDO Issuance 1997-2003 Year CDO Issuance (dollars in billions) 1997 $ 36.2 1998 74.9 1999 86.7 2000 113.7 2001 139.6 2002 123.0 2003 150.4 Source: Bear, Stearns & Co. Inc., "CDO Perspectives: January 2004." Global issuance of CDOs totaled approximately $227 billion in 2002 and approximately $343 billion in 2003. Investment grade CDOs have contributed significantly to CDO new issuance since 2000, when they represented only 3% of the global market. In 2003, the investment grade CDO share of the U.S. market grew to 44% and to 73% in the European market. CDOs enable financial institutions to manage their risk profiles, optimize capital utilization, manage market price volatility and improve returns on equity by transferring risks from their balance sheets, either through the sale of assets to CDO vehicles or by entering into credit default swaps with CDO vehicles. A credit default swap has the further benefit of allowing a financial institution to transfer risk without the legal or economic transfer of assets. CDOs are also used by dealers and portfolio managers to provide leveraged investments in diversified asset portfolios. The investor base for both ABS CDOs and CDS CDOs presently is comprised largely of banks, money managers and insurance companies. Managed tranches of the CDO are structured to appeal to different investor groups with varying appetites for risk. The managed aspect of CDOs allows new classes of investors to participate in asset classes they would not otherwise invest in due to the costs of information gathering. As a result, CDOs deepen and broaden the market for the underlying assets. CDO Structures The basic CDO is generally structured with a bankruptcy remote special purpose entity, commonly referred to as an SPE. In an ABS CDO, the SPE purchases an underlying portfolio of previously issued ABSs. An ABS CDO applies the income it receives from the portfolio of ABSs it has purchased to pay interest and principal on the securities it has issued. The purchase price for the portfolio is funded by the SPE through the issuance of its own securities. For CDS CDOs, the SPE assumes credit risk not by directly holding collateral but by entering into one or more credit default swaps that reference such obligations. The CDS CDO funds the collateral for its obligations under these credit default swaps by issuing its own securities either in funded form or in synthetic or credit derivative form. A CDS CDO applies the income it receives from the credit default swap to pay interest and principal on the securities it has issued. The securities issued by the SPE in a CDO represent undivided interests in the assets of the SPE, and are divided into layers, also known as tranches or classes, with decreasing priority of claims on the cash flows from the collateral (e.g., Class AA, Class B, Class C, Class D, etc). Each tranche of securities is subordinated to the tranche or tranches above it in the right to receive principal and interest. The last tranche to be paid is also the first tranche to suffer a loss and is often referred to as the first loss tranche or the equity tranche. Each of the tranches is assigned a credit rating, except for the equity tranche which is unrated. The difference between the annual cash flow to the CDO and the annual interest payments to the rated securities is called the excess spread. The excess spread is paid to the equity tranche and can be reduced by payment defaults in the underlying portfolio. The credit protection for the rated tranches comes from the overcollateralization provided by the equity and junior tranches and from the excess spread. If a CDO is actively managed, the portfolio manager will direct the selection and acquisition of the assets and will monitor the credit performance of the CDO assets for compliance with the CDO's requirements for diversification and asset quality, replacing poor performing underlying assets when necessary. Many CDOs have revolving periods where distributions from the underlying assets are re-invested in additional assets. The following chart illustrates the typical structure of an ABS CDO: CDS CDOs A CDS CDO generates income (and takes on risk) when it enters into credit default swaps. The CDO vehicle, which is the special purpose entity into which the underlying securitized assets of a CDO are placed, is paid a swap premium for each credit default swap on which it sells protection. When a credit event with respect to a credit default swap occurs during the term of the CDS CDO, the CDO vehicle (as the party who has taken on credit risk) must compensate the counter-party to the credit default swap. This is accomplished in one of two ways. The CDO vehicle either delivers in cash the notional amount, which is the payment obligation on the credit default swap, and accepts, in return, a security issued by the entity referenced in the credit default swap (physical settlement) or makes a cash payment to the counter-party that amounts to the difference between the notional value of the credit default swap less the market price of the defaulted asset (cash settlement). In order to satisfy the credit requirements of the credit protection buyer (the CDO vehicle's counterparty), the CDO vehicle sets up a credit-protection account with the proceeds from the sale of the CDO's securities or with insurance policies or credit derivatives sold by counterparties willing to offer credit protection to the CDO vehicle. If the CDO vehicle issues securities, it invests the proceeds in highly-rated securities. Otherwise, if securities were not issued, the CDO vehicle instead pledges insurance contracts or credit derivatives against its obligations. The principal in this account or the credit derivatives or insurance policies are used as collateral for potential payments the CDO vehicle would make upon the occurrence of a credit event. Any income from this account, like the premium amounts received on the credit default swaps, are paid to the holders of the CDO's securities. An important structural feature of the CDS CDO is the most senior liability in the structure, which is commonly referred to as the super-senior tranche. The CDO vehicle and the super-senior investor enter into a credit default swap whereby the CDO vehicle agrees to pay an ongoing premium to the super-senior investor in return for a commitment by the super-senior buyer to compensate the CDO vehicle for defaults in the reference portfolio after the credit protection account is depleted. Since the credit quality of the reference pool is investment grade and the credit-protection account provides the first loss protection, the risk taken on by the super-senior investor is remote. Because of this remoteness and the fact that the super-senior buyer is often a triple-A rated entity, the CDO vehicle enters into the super-senior swap on an unfunded basis. This means that the super-senior investor is not required to make any initial commitment of capital. In return for accepting the risk of the super-senior swap, the investor is paid a risk premium. The unfunded nature of the super-senior tranche allows a CDS CDO to have a large notional amount of reference credits while requiring its investors to fund a much smaller amount. The following chart illustrates the typical structure of a CDS CDO: BUSINESS Overview ACA Holdings conducts business through its subsidiaries in the following areas: Municipal Bond Insurance: We provide financial guaranty insurance primarily in connection with our credit enhancement of underserved segments of the municipal finance market. Financial Services: We participate in the market for CDOs. We originate and structure CDOs as well as manage the financial assets that comprise the CDOs. Originating and structuring CDOs generally involves the acquisition of corporate obligations or asset-backed securities and the packaging of these obligations and securities within an investment entity. The investment entity issues debt obligations to institutional investors, and these obligations are repaid with the cash flows from the underlying obligations and securities. Customized Solutions: In addition to our financial guaranty insurance, we also provide other types of specialized insurance products for the financial and insurance markets. Our personnel have expertise in analyzing credit, assessing risk in financial instruments and structuring transactions to suit the specific needs of our clients. We use this expertise in all of our business lines. Our financial guaranty insurance business has an "A" financial strength rating from S&P and Fitch. We use our financial guaranty insurance to enhance the credit rating of lower-rated and non-rated municipal bonds to an effective "A" rating. This allows municipal bond issuers to borrow at a lower cost and increases the marketability of their bonds. We receive premiums from municipal bond issuers in exchange for providing insurance against payment defaults. Nearly half of all municipal bonds outstanding carry some form of financial guaranty insurance, and the vast majority of insured municipal bonds are insured by financial guarantors whose credit ratings are "AAA". Due to both rating agency and internally imposed constraints, these "AAA" financial guarantors generally do not insure non-investment grade or non-rated municipal bonds. By contrast, our "A" financial strength rating combined with our expertise in credit analysis allows us to guarantee the bonds of issuers in this underserved segment of the market. As of December 31, 2003, we had insured obligations consisting of $8.6 billion net par outstanding, $5.6 billion of which represents our insured municipal bond portfolio. From our inception in 1997 through December 31, 2003, our paid losses and expenses relating to the settlement of losses, net of recoveries, have been less than 1% of the total net insurance premiums we received during this period. Within our financial services business, we receive fees for originating, structuring and managing the financial assets that comprise CDOs: We originate CDOs by collaborating with financial institutions, such as investment banks, to create new CDOs and assist in the selection and acquisition of the financial assets that will comprise the CDO. We structure CDOs by seeking to ensure that the cash flows from the underlying financial assets of the CDO meet the debt obligations of the CDO. These debt obligations are divided into layers, or tranches, with different priorities of claims on the cash flows from the underlying financial assets of the CDO. These priorities reflect a tranche's exposure to risk from potential losses on the underlying financial assets of the CDO. We manage CDOs by actively monitoring the credit worthiness of the issuers of the underlying financial assets and trading the underlying financial assets of the CDO. We believe that our ability to manage these underlying financial assets of the CDO allows us to mitigate losses as they develop, and to lower the risk of defaults by selling the financial assets of the CDO that develop an increased risk of default. In addition to these fee-based services, we assume the risk up to the principal amount of the most junior, or equity, tranche of the CDO. This equity tranche, which generally represents a small portion of the total assets of the CDO, is also known as the "first-loss" layer because it absorbs any initial losses on the financial assets of the CDO. By assuming the risk associated with the equity layer, we become entitled to the difference, often referred to as excess spread, between the payments the CDO receives from the underlying financial assets of the CDO and the payments that the CDO makes to holders of its debt obligations. We believe that this approach increases and diversifies our economic return by complementing our fee-based revenue with risk-based revenue. We completed our first CDO in January 2002 and have completed a total of seven transactions to date with $6.0 billion of CDO assets under management. Through our customized solutions business, we use our expertise in credit analysis and quantitative risk assessment to offer insurance and structured finance products to our clients. Our customized insurance products assist financial institutions in meeting their regulatory, accounting or capital requirements. Products that we currently provide include: Financial guaranty insurance of the most senior liability, commonly referred to as the "super-senior" tranche, of CDOs structured by third parties. Reinsurance of discrete amounts that allows us to selectively participate in the property catastrophe insurance market. We expect that the types of customized solutions we offer will vary as market opportunities arise. As of December 31, 2003, we had $2.8 billion of total insured exposure related to our customized solutions business. For the year ended December 31, 2003, we had total revenues of $108.0 million and net income of $17.2 million. Our shareholders' equity was $194.3 million at December 31, 2003. Competitive Strengths We believe we possess the following competitive strengths: Focus on credit analysis and risk management. Use of "A" financial strength rating to provide financial guaranty insurance to underserved segments of the municipal finance market. Unique approach to structured finance. Management team with significant industry and operating experience. Focus on credit analysis and risk management. We emphasize the importance of rigorous credit analysis throughout our insurance and financial services businesses. In our insurance operations we have developed an expertise in analyzing non-traditional lower investment grade, non-investment grade and unrated municipal credits. In our financial services operations, our CDO asset selection and asset management strategies are based on extensive review and monitoring of credits on an individual and portfolio basis. We support our credit decisions across both of these businesses with extensive quantitative analysis, risk assessment and management and portfolio surveillance using proprietary software systems. Our focus on credit analysis is evidenced by the fact that since inception our paid losses and expenses relating to the settlement of losses, net of reinsurance recoverables and salvage from obligors, have been less than 1% of the total insurance premiums we received during this period. Use of "A" financial strength rating to provide financial guaranty insurance to underserved segments of the municipal finance market. We are currently the only financial guarantor that has an "A" financial strength rating. All other financial guarantors that serve the municipal finance market are rated "AAA" or "AA." Insurers with "AAA" or "AA" ratings generally are not able or choose not to guarantee the bonds of non-investment grade and non-rated issuers due to both rating agency and internally imposed constraints. By contrast, our "A" financial strength rating combined with our expertise in credit analysis allows us to provide financial guaranty insurance to these underserved issuers. We carefully analyze each issuer we insure to mitigate the increased risk associated with the low or non-existent underlying rating of their bonds. Unique approach to structured finance. Through our participation in the CDO market, we receive both fee-based and risk-based revenues while limiting our risk of economic loss to the first loss layer of a CDO. This provides us with higher returns than would be available if we acted solely as a traditional financial guarantor by insuring debt obligations of the CDO, while also limiting our risk. This approach emphasizes capturing diverse revenue streams. We are paid structuring fees for originating CDOs, asset management fees for actively managing the underlying credits, and additional income related to our participation in the equity of the CDO. We are able to efficiently leverage our capital by using our financial guaranty insurance to facilitate our participation in the first loss layer of the CDOs. By receiving multiple revenue sources, we can create a more conservative CDO portfolio than is typical and still attain our return hurdles objectives. In addition, we believe that our ability to manage the underlying financial assets of the CDO allows us to mitigate losses as they develop, and to lower the risk of defaults by trading out of financial assets of the CDO that develop credit issues. Management team with significant industry and operating experience. Our management team is led by our Chief Executive Officer, Michael Satz. Mr. Satz has worked in the financial guaranty insurance and structured finance markets for 22 years, having served previously as Chief Executive Officer and Chairman of Capital Re Corporation and before that, as Chief Operating Officer and General Counsel of the predecessor company to Ambac Financial Group. In addition, our senior management team collectively averages over 17 years in the financial services industry. Business Strategy Our goal is to generate recurring revenues that will provide returns on our capital, adjusted for risk, that are superior to those of our competitors by adhering to the following strategies: Capitalize on the flexibility of our "A" financial strength rating. Pursue growth opportunities in underpenetrated segments of the municipal finance market. Continue the origination of our CDOs. Seek diversified revenues from multiple sources. Offer new insurance products and services to our clients and expand geographically. Capitalize on the flexibility of our "A" financial strength rating. Our "A" financial strength rating from both S&P and Fitch affords us the flexibility to participate in our chosen markets. In the municipal finance market, our "A" financial strength rating allows us to provide financial guaranty insurance to issuers that are historically underserved by "AAA" rated financial guarantors. Because of the number of active market participants, premium levels for "AAA" or "AA" financial guaranty insurance are quite competitive. By contrast, we can charge premiums that reflect the greater risk we assume. We intend to continue to capitalize on the advantages that we believe our "A" financial strength rating affords us. Pursue growth opportunities in underpenetrated segments of the municipal finance market. From the early 1980s to the mid-1990s, the growth of the "AAA" financial guaranty industry accelerated as insurance was increasingly used to facilitate the distribution of municipal bonds. The volume of insured bonds increased and a discrete market for "AAA" insured bonds was established. We target the lower- or non-rated segment of the municipal finance market, which we believe has strong growth potential. We believe that our segment of the municipal finance market will similarly evolve from the current low level of insured penetration, which we estimate to be less than 4% in 2002. As issuers in this segment seek financial guaranty insurance, we believe our established reputation as a long-time provider to this market segment will give us an advantage over other potential competitors. Continue the origination of our CDOs. We intend to continue to originate, structure and manage the assets of new CDOs. We believe that we can build on our track record of managing CDOs, which should enhance market reception to our new CDOs with new asset classes. Seek diversified revenues from multiple sources. We intend to maintain the diversity of our revenues, including fees, premiums and investment income. In addition, we will continue to generate revenues from multiple sources, including municipal finance, structured finance and other insurance products. We believe the municipal credit default risk assumed in our municipal finance business, the credit default risk assumed in our financial services business, and the risks assumed in our customized solutions business are generally uncorrelated. We intend to continue to generate diverse revenue streams from both risk assumption (insurance premium and CDO equity tranche returns) and financial services (asset management and CDO structuring fees). We believe that this approach will limit our exposure to negative cycles in one or more of these markets. Offer new insurance products and services to our clients. We intend to use our expertise in credit analysis and quantitative risk management to create and offer new products for the insurance and structured finance markets. History We began operations in September 1997 as an "A" rated financial guarantor. Late in 2000, in response to ratings pressure and deteriorating capital position, our board of directors hired new senior management and undertook a process to raise additional capital and to revise and expand our business model. Under the direction of the new management team, the focus of the municipal finance business was redirected from volume and revenue targets to transactional profitability. In addition, in our financial services business, we discontinued the insurance of most third-party transactions and instead began originating our CDOs. We redomesticated our holding company to Bermuda in 2002. We carry out our U.S. insurance operations through ACA Financial Guaranty and our non-U.S. insurance operations through ACA Bermuda and ACA Solutions. We carry out our financial services operations through our non-insurance subsidiaries, which include a registered broker-dealer and an asset management company registered under the Investment Advisers Act of 1940. Our principal executive office is located at 44 Church Street, Hamilton HM 12, Bermuda and our telephone number is (441) 295-3688. We maintain a website at www.aca.com on which we will post all reports we file with the Securities and Exchange Commission, or the SEC, under Section 13(a) of the Securities Exchange Act of 1934, or the Exchange Act, after the closing of this offering. We also will post on this site our key corporate governance documents, including our board committee charters, our code of conduct and our principles of corporate governance. Information on our website is not, however, a part of this prospectus. Insurance Operations We offer financial guaranty insurance that (i) provides protection against payment defaults in the municipal bond market and customized risk protection in the insurance market and (ii) supports our involvement in the structured finance market by facilitating our ability to borrow funds to purchase the equity tranche of our CDOs issued by special purpose entities or to insure the first loss layer of our synthetic CDS CDOs. We provide financial guaranty insurance primarily to underserved segments of the municipal finance market. We offer customized insurance products that assist financial institutions in meeting their regulatory, accounting or capital requirements. Our products may take the form of direct insurance or structured credit derivatives backed by our financial guaranty insurance. The table below depicts our net par exposure at the end of the last three years: Total Net Par Exposure As of December 31, 2003 2002 2001 ($ in millions) Municipal $ 5,604 $ 4,693 $ 4,062 Non-Municipal 2,959 1,685 1,501 Total $ 8,563 $ 6,378 $ 5,563 The following table is a breakdown of net premiums written by ACA Financial Guaranty during the last three fiscal years by type of transaction. For a more detailed discussion of the results of our insurance operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Insurance Operations Net Premiums Written Years ended December 31, 2003 2002 2001 ($ in millions) Municipal $ 46.1 $ 38.1 $ (0.4 ) Non-municipal Customized solutions 14.3 7.4 5.9 Structured finance 2.1 1.9 — Total $ 62.5 $ 47.4 $ 5.5 Our financial guaranty insurance policies unconditionally and irrevocably guarantee to the holder of the underlying obligation the payment of the principal and interest on the insured obligation in accordance with the original payment schedule, with no provision for mandatory acceleration of our liabilities by the holders without our consent, regardless of the terms of the insured obligations. In the event we are required to make payments under our financial guaranty, we become subrogated to the right to payment that the holder has against the issuer, meaning that we have recourse against the issuer and any related collateral for amounts paid under the policy. The premiums for our financial guaranty insurance are non-refundable and are payable by the issuer of the debt obligation either in full at the policy's inception, as is generally the case with municipal bonds, or in periodic installments, as is generally the case with structured finance obligations. For financial reporting and statutory accounting purposes, we recognize periodic installment premiums when received and recognize premiums that are paid in advance over the term of the related risk. We determine premium rates based on the type of transaction and our assessment of the risk we are assuming. Factors we consider in setting premium rates include: the credit strength of the obligor; the obligor's sources of income and available liquidity; any collateral pledged to secure the insured obligation; restrictive covenants in the instruments under which the debt obligations are issued; size, type and maturity of the issue; prevailing market spreads between the insured obligation and uninsured obligations with similar characteristics, as a market indicator of relative credit quality; our cost of the capital used to support the risks, including rating agency capital charges, and our projected return; the interest rate spread between the insured obligation and uninsured obligations with similar characteristics, to define the potential value of the financial guaranty; competition from other providers of credit enhancement; and alternatives to financial guaranty insurance. Premium rates are typically calculated as a percentage of the principal and interest scheduled to come due during the stated term of the insured obligation. In most instances, we have been able to price our financial guaranty business to capture the majority of the difference in borrowing cost, or spread, between our insured bonds and the same bonds if uninsured. In 2003, this resulted in an average price of 2.22% of insured principal and interest in our municipal bond insurance business. This compares to an average price of 0.5%, for the "AAA" rated financial guaranty insurers in 2002, the most recent year for which data is available. Municipal Insurance Operations We target segments of the municipal finance market that are historically underserved by "AAA" rated financial guarantors. Insurers with "AAA" or "AA" ratings generally do not insure lower investment grade, non-investment grade and non-rated issuers primarily due to rating agency requirements and internal constraints. As of December 31, 2003, approximately 57% of our portfolio was investment grade with approximately 54% of the portfolio rated "BBB." We also provide financial guaranty insurance on financial obligations that are unrated or are non-investment grade but that in our opinion either have inherent credit characteristics or have been sufficiently enhanced by additional security to support our strong expectation of timely payment. The table below shows the diversification of our insured municipal portfolio by underlying credit quality as of December 31, 2003: Insured Municipal Portfolio Credit Quality Credit Quality Percentage of Portfolio AAA 0.0 % AA 0.0 A 2.3 BBB 54.4 Non-investment grade 37.0 Non-rated 6.3 Total 100.0 % We also actively participate in the secondary market for municipal bonds. During 2003, approximately 92.5% of our municipal written premiums were derived from new issues and 7.5% from secondary market transactions. Typically, a holder of outstanding bonds in the secondary market will purchase financial guaranty insurance to facilitate the future sale of the bonds. Clients include institutional investors, bond traders, portfolio managers and underwriters. A financial guaranty insurance policy affords access to a broader secondary market in insured bonds and therefore greater marketability. A financial guaranty insurance policy will also support the market value of the insured bond if the underlying credit is distressed. As is the case with new issues, the premium is generally payable in full at the time of policy issuance. We employ the same underwriting standards for secondary market issues that we do for new issues. The secondary market also provides us with the opportunity to diversify our insured portfolio. We originate our municipal bond insurance business both through referrals and our internal sales force. A substantial portion of ACA Financial Guaranty's net par written in 2003 was the result of referrals from investment banks, financial advisors and previously insured issuers or obligors. In addition, as of December 31, 2003, ACA Financial Guaranty had a team of four experienced sales personnel responsible for identifying potential municipal bond insurance transactions and educating participants in the municipal bond market about the value of our "A" rated insurance. We generate interest in our secondary market capability by pre-approving municipal bonds for our insurance. We then communicate the availability of our insurance capacity to the market through on-line systems such as Bloomberg, direct e-mail and our website. In addition, we review our current clients' portfolios for insurance opportunities. Description of Our Insured Municipal Portfolio We seek to maintain an insured portfolio designed to manage risk by means of diversification based on a variety of criteria including revenue source, issue size, type of asset, industry concentrations, type of bond and geographic area. As of December 31, 2003, we had 739 municipal policies outstanding. These policies are diversified among 352 "credits," which we define as any group of bond issues supported by the same revenue source. Our insured portfolio of municipal bonds is divided into the following major types: General Obligation Bonds. General obligation or full faith and credit bonds are issued by states, their political subdivisions and other municipal issuers and are supported by the general obligation of the issuer to pay the bonds from available funds and by a pledge of the issuer to levy sufficient taxes to provide for the full payment of the bonds. Tax-Supported (Non-General Obligation) Bonds. Tax-supported bonds include a variety of bonds that are supported, not by a general obligation, but instead by a specific tax source, and include tax-backed revenue bonds and general fund obligations of the issuer, such as lease revenue bonds. Tax-backed revenue bonds may be secured by a lien on pledged tax revenues, such as revenues from special taxes, including retail sales and gasoline taxes, or from tax increments (or tax allocations) generated by growth in property values within a district. Higher Education Bonds. Higher education bonds that we insure consist primarily of bonds issued to finance the construction of educational facilities. As an example, we insure student housing projects that have strong demand characteristics, involvement by established universities, including participation in the marketing and referral to the facility, and experienced management. In addition, for new construction projects, we require that other insurance and debt service guaranties, or capital, cover completion and certain stabilization risks. Health Care Revenue Bonds. Health care revenue bonds include long-term financings for capital construction or improvements of health care facilities typically secured by a general reserve pledge and an underlying mortgage note of the not-for-profit corporation owning and operating the individual hospital or health care system. To date, our focus has been on insuring the debt of acute care hospitals that are sole community providers in rural areas or specialty providers of essential services. Long-Term Care Bonds. Long-term care bonds that we insure consist primarily of long-term financings for capital construction or improvements of continuing care retirement communities, or CCRCs. CCRCs are organizations that offer a full range of housing, residential supportive services and healthcare to residents of retirement age. We insure the debt of CCRCs that have been operating with strong demand and stabilized occupancy or are being built to augment established operations. Transportation Revenue Bonds. Transportation revenue bonds include a wide variety of revenue-supported bonds, such as bonds for airports, ports, tunnels, municipal parking facilities, toll roads and toll bridges. Municipal Utility Revenue Bonds. Municipal utility revenue bonds include obligations of all forms of municipal utilities, including electric, water and sewer utilities. Insurable utilities may be organized as municipal enterprise systems, authorities or joint-action agencies. Housing Revenue Bonds. Housing revenue bonds include affordable multifamily housing bonds, with varying security structures based on the presence of underlying mortgages, reserve funds, and various other features. Investor-Owned Utilities Bonds. Pollution control bonds or industrial development bonds are issued to finance projects of investor-owned utilities. The bonds are secured by the senior credit or first mortgage obligation of an investor-owned utility, typically an electric distribution utility. Other Municipal Bonds. Other types of domestic municipal bonds insured by ACA Financial Guaranty include private college and university revenue bonds, and financings for stadiums, government office buildings, recreation facilities, resource recovery facilities, prison facilities and cultural institutions. These bond types are typically secured by a combination of project-related fee revenue, lease payments and/or other support of a state or local governmental entities. The tables below show the diversification of our municipal finance insured portfolio, which represents 65.4% of our total insured portfolio, by bond type as of December 31, 2003: Municipal Insured Portfolio by Bond Type ($ in millions) Bond Type Net Par Exposure Percent of Municipal Portfolio General obligations and tax-supported $ 1,426 25.5 % Higher education 1,163 20.7 Acute health care revenue 927 16.5 Long-term care 495 8.8 Transportation revenue 410 7.3 Municipal utility revenue 289 5.2 Housing revenue 233 4.2 Investor-owned utilities 131 2.3 Other 530 9.5 Total municipal $ 5,604 100.0 % ACA Financial Guaranty is licensed to write business in all 50 states, the District of Columbia, Guam, the U.S. Virgin Islands and Puerto Rico. The table below sets forth the geographic distribution, by location of the insured entity, of ACA Financial Guaranty's net par exposure by the ten largest jurisdictions as of December 31, 2003. Our geographic exposure to California is in line with California municipal bond issuance as a percentage of total U.S. municipal bond issuance. Municipal Insured Portfolio by State or Territory ($ in millions) Location Net Par Exposure Percent of Municipal Portfolio California $ 1,102 19.7 % New York 339 6.1 Texas 283 5.0 Pennsylvania 274 4.9 Florida 229 4.1 Washington 213 3.8 U.S. Virgin Islands 209 3.7 Louisiana 192 3.4 Colorado 178 3.2 Arizona 176 3.1 All Other 2,410 43.0 Total municipal $ 5,604 100.0 % We underwrite financial guaranty insurance on the assumption that the insurance will remain in force until maturity of the insured obligations. We estimate that the average life of our insurance policies in force at December 31, 2003 was 13.9 years. The average life was determined by applying a weighted-average calculation, using the remaining years to maturity of each insured obligation and weighting them on the basis of the remaining debt service insured. No assumptions were made for any future refundings of insured bond issues. Average annual debt service on the portfolio at December 31, 2003 was approximately $263 million. Estimated Terms to Maturity of Municipal Net Exposure (Par and Interest) of Insured Obligations (1) ($ in millions) Estimated Term to Maturity December 31, 2003 0-5 years $ 2,259 6-10 years 2,272 11-15 years 2,002 16-20 years 1,703 Over 20 years 2,300 (1) Depicts amortization of existing guaranteed portfolio, assuming no advance refundings, as of December 31, 2003. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations. We have adopted underwriting and exposure management policies designed to limit our net exposure in force for any one credit risk. As of December 31, 2003, the municipal net par amount outstanding for our 20 largest credits, totaling $1.3 billion, was 22.9% of our total municipal net par amount outstanding, with no one credit representing more than 1.5% of our total net par amount outstanding. We are also subject to certain regulatory limits and rating agency guidelines on our exposure to a single risk. Non-Municipal Insurance Operations Structured Finance Financial Guaranty We assume the risk up to the principal amount of the first loss layer of the CDOs that are originated through our financial services subsidiaries. Our financial services subsidiaries either purchase the equity tranche or insure the credit default swaps of each of our CDOs, thus providing first loss protection to investors and potential income to us and enhancing the marketability of our CDOs. While we currently hold 100% of the equity tranches of proprietary CDOs, we may in the future reduce our exposure, but in any event, we intend to retain at least 51% of this amount. We finance our purchase of the equity tranche by borrowing the required amount. We use any cash flows from our participation in the first loss layer and fees from our management of the CDO assets to repay any debt incurred to finance the equity tranche in advance of the scheduled maturity of the CDO. Our borrowing is backed by a financial guaranty from ACA Financial Guaranty. We use a portion of the fees that our financial services subsidiaries earn in originating our CDOs to pay the premiums to ACA Financial Guaranty for issuing its financial guaranty insurance policy. To date, we have completed seven CDOs with the first loss protection on each CDO ranging between $18.0 million and $33.5 million, with our aggregate economic exposure amounting to $161.5 million. The aggregate outstanding net par amount under policies issued by ACA Financial Guaranty associated with the first loss protection in our proprietary CDO business is approximately $140.1 million as of December 31, 2003. See "—Financial Services." Customized Solutions In our customized solutions business, we develop products for financial institutions, corporations and financial intermediaries in the insurance and structured finance markets. In developing our products, we look for opportunities to apply our expertise in analyzing credit, assessing risk in financial instruments and structuring transactions to suit the specific needs of our clients. Our products may take the form of direct insurance or structured credit derivatives backed by our financial guaranty insurance. The majority of our customized insurance products are structured to limit our maximum policy exposure while addressing the regulatory, accounting or capital requirements of financial institutions. We expect that the types of products we offer will vary as market opportunities arise. Customized solutions that we currently provide include: credit enhancement of super-senior tranches of CDOs in the structured finance market. We provide credit enhancement of the super-senior tranche by entering into a credit default swap which is backed by an insurance policy issued by ACA Financial Guaranty. We receive payments under the credit default swap, which are then used to pay premiums to ACA Financial Guaranty for the financial guaranty insurance policy that backs the credit default swap. We make payments under our swap obligations only after all other subordinate tranches of the structure have been exhausted. The credit enhancement of a super-senior tranche generally attaches at a point that would represent losses at least 50% higher than that of a "AAA" credit, and therefore we believe that the credit risk is substantially lower than that of a "AAA" credit. As of December 31, 2003, we had approximately $1.6 billion of net par exposure relating to sixteen super-senior CDO transactions. selective participation in the property catastrophe insurance market. We view this as a discrete opportunity that has arisen in the market because of favorable risk/return dynamics and limited reinsurance capacity. We are able to quantify our maximum probable loss and limit our risk by creating a portfolio of uncorrelated risks. Our participation under catastrophic loss reinsurance agreements, also referred to as industry loss warranty insurance, or ILW, provide first loss protection with respect to a small amount (typically $5 million to $10 million) of an insurer's catastrophic loss liability. The ILW reinsurance agreements are also narrowly tailored to exclude coverage of certain types of catastrophic risk, such as terrorism. The ILW reinsurance agreements operate on a portfolio basis to reduce our maximum probable loss by the aggregate premiums that are paid. To date, we have participated in four ILW reinsurance agreements through ACA Bermuda with $22.5 million of aggregate exposure to us. ACA Financial Guaranty issues a financial guaranty insurance policy backing ACA Bermuda's obligations under the ILW reinsurance agreements. Potential customers for our customized solutions include financial institutions, banks, corporations, financial intermediaries and insurance companies. We market our products directly to our potential customers and indirectly through brokers/dealers, insurance brokers and investment banks. We attempt to develop strong relationships with our customers to facilitate recurring business. Description of Our Insured Non-Municipal Portfolio Our non-municipal insured portfolio, which includes our structured finance financial guaranty and customized solutions transactions, is divided into the following major types: Super-senior. Super-senior includes transactions under which we assume from a third party a portion of the credit risk above the "AAA" tranche of a CDO by entering into a credit default swap with the third party that is backed by a financial guaranty policy from ACA Financial Guaranty. The primary purpose of the transaction is to allow the institutional investor in the super-senior tranche of the CDO to transfer risk to us and thereby reduce its capital requirements with respect to that risk. Capital Relief. Capital relief includes any insured transaction the principal purpose of which is not to transfer credit risk, but to provide regulatory, accounting or balance sheet relief to the beneficiary of our insurance policy. Structured finance. Structured finance includes the net par amount under policies issued by us in connection with the first loss protection in our CDOs. Other. Other includes our selective participations in the insurance market and certain asset-backed securities that we have insured. The table below shows the diversification of our non-municipal finance insured portfolio, which represents 34.6% of our total insured portfolio, by risk sector as of December 31, 2003: Non-Municipal Insured Portfolio by Risk Sector ($ in millions) Risk Sector Net Exposure Percentage of Non-Municipal Portfolio Super-senior $ 1,621 54.8 % Capital relief 833 28.1 Structured finance 150 5.1 Other 355 12.0 Total non-municipal $ 2,959 100.0 % Financial Services We offer financial services through the origination, structuring and management of the assets of our CDOs. We collaborate with financial institutions, such as investment banks, to structure and acquire assets for our CDOs. The investment banks also market the senior and mezzanine securities of our CDOs. We also actively manage the assets of the CDOs. For these services, we receive originating, structuring, placement and asset management fees. While all of the CDOs we have originated to date consisted solely of investment grade assets at inception, we may expand the type of CDOs we originate in the future to include non-investment grade assets. We act in several capacities in connection with the origination of our proprietary CDOs, for which we receive compensation. Typically, we receive a fee for our work in structuring the CDOs, a fee related to positive credit spreads earned during the warehousing phase of the CDO origination when collateral is selected, acquired and held pending closing, and fees for providing asset management services during the term of the CDO. In addition, we assume risk for the first loss portion of each of our CDOs, thus providing first loss protection to investors and potential income to us. We provide this first loss protection by either purchasing the equity tranche of our CDO or insuring credit default swaps of the CDO. We finance the purchase of the equity in our CDOs by borrowing the funds and backing our borrowing with a financial guaranty from ACA Financial Guaranty. By investing in only investment grade corporate credits and actively managing our CDOs, we believe we are able to more effectively control our risk, which as an economic matter is limited to the amount of our first loss protection. In addition, our CDOs may have the benefit of various forms of overcollateralization. We completed our first proprietary CDO in January 2002. To date, we have completed a total of seven CDOs and have $6.0 billion of CDO assets under management. Since February 2001, we have hired 28 professionals with backgrounds in insurance, credit analysis, capital markets and risk assessment and management to support our proprietary CDO business. For a more detailed discussion of the results of our financial services operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following table provides certain information on the seven CDOs we have originated to date: Proprietary CDOs ($ in millions) Name Type Closed Notional Portfolio Size First loss or Equity Size ACA CDS 2001-1 CDS 01/25/02 $ 1,000 $ 22.5 ACA CDS 2002-1 CDS 06/26/02 1,000 22.0 ACA ABS 2002-1 ABS 07/29/02 400 18.0 ACA CDS 2002-2 CDS 04/09/03 1,000 25.0 ACA ABS 2003-1 ABS 05/20/03 400 18.0 Grenadier Funding Ltd ABS 07/21/03 1,500 22.5 ACA ABS 2003-2 ABS 11/06/03 725 33.5 The following is a diagram of our CDO origination and management process. The CDO origination process typically takes six to nine months for ABS CDOs and two to four months for CDS CDOs: Structuring of Proprietary CDOs We begin the CDO origination process by approaching several investment banks to discuss a proposed transaction with us. The role of the investment bank is primarily to assist us in the purchase of the collateral for the CDO prior to funding the CDO, also referred to as the warehousing phase, and to place securities issued by the CDO in the capital markets. Once we have selected an investment bank, we enter into a warehousing agreement with the investment bank. During the structuring phase of the CDO origination process, our credit analysts identify a suitable group of ABSs or CDSs to collateralize the CDO. We analyze and identify suitable assets for acquisition with the intent to hold the assets to maturity. Our industry-specific research analysts are responsible for the initial selection of CDO assets. In evaluating an ABS for potential inclusion in an ABS CDO, our analysts first perform an extensive review of the credit and performance of the issuer and/or servicer of the ABS. They then prepare a comprehensive written analysis of each proposed ABS for the CDO that focuses on areas such as the underlying collateral, the structure of the ABS, any legal issues and the relative value of the ABS. The analysis of the collateral in each proposed ABS includes testing the collateral against a series of objective criteria and evaluating historical data on the ABS pool, including prior delinquencies, losses, recoveries and prepayments. The structural review of each ABS includes a review of the first loss/spread account structure of the ABS with respect to liquidity and credit, the effect of triggers on cash flows and the flow of payment of interest and principal to the different tranches of the CDO, or the payment waterfall. When deemed necessary, our internal legal staff performs an analysis of key legal and regulatory aspects of the ABS, including the bankruptcy remote status of the ABS issuer entity, the transfer of assets to the ABS issuer, the risk of consolidation of the ABS issuer with the seller or originator, the rights of and conditions for the replacement of the servicers, the termination events, remedies, and voting rights of the constituent parties, and tax issues. The evaluation of the referenced credits underlying the credit default swaps for our CDS CDOs begins with a macro analysis by our analysts of a target industry in a process similar to what we use in evaluating industries for our ABS CDOs. In their quantitative analysis, our analysts look at each credit's liquidity, profitability, leverage and cash flow. They will often hold discussions directly with management of the corporate credit and with rating agencies. They review rating agency issuer reports, sell-side analysts' fixed-income and equity reports, and industry consolidation trends that may affect a credit's leverage. In their qualitative analysis, our analysts also perform an extensive evaluation of the corporate credit's industry and its business. Once the credit analysis is complete, our analysts make extensive presentations of the results of the analyses and reviews to the ABS Collateral Committee or the CDS Collateral Committee, as appropriate. Our CDO Collateral Committees currently consist of six members representing senior management in our financial services group and a representative from our legal department. All decisions of each Committee require the affirmative vote of a majority of the members of that Committee, including the Committee chairperson. After our CDO Collateral Committees have approved a list of ABSs or corporate credits, we perform extensive modeling and valuation analyses to determine the optimal portfolio for the proposed CDO. Our primary goal in asset selection is capital preservation. To date, our ABS CDOs have been initially comprised only of investment grade asset-backed securities and our CDS CDOs reference only investment grade corporate credits. Our underwriting guidelines stipulate maximum single credit risk limits as a percentage of total exposure in a CDO. Placement of Proprietary CDOs During the warehousing period, the investment bank will acquire the ABSs or credit default swaps that will constitute the assets of the CDO. The completion of the warehousing stage of the CDO process typically takes approximately 30 days for a CDS CDO and several months for an ABS CDO. An important feature of our warehousing arrangement is the allocation of risk between us and the investment bank in the event the CDO transaction does not close and securities have been purchased. The allocation of risk is subject to negotiation, but in any event our maximum risk is limited by the amount of our proposed equity investment. Once the warehousing stage is complete, we and the investment bank will market the rated tranches of the CDO to potential investors in the U.S. and Europe. The investor base for our CDOs is comprised largely of banks, money managers and insurance companies. At closing, the CDO vehicle uses the proceeds from the sale of its tranched securities to purchase the selected ABSs from the warehouse facility provided by the investment bank, in the case of ABS CDOs, or enters into credit default swaps and sets up a credit protection account, in the case of CDS CDOs. Asset Management As the asset manager for our originated CDOs, we are responsible for monitoring the credits in the CDOs and, for a certain period of time, acquiring new assets from the proceeds of any previously purchased retired assets. We attempt to manage the CDO portfolio by trading out of deteriorating credits in a timely manner. Our underlying philosophy as asset manager is to preserve capital. Since we retain at least 51% of the equity tranche we purchase in our CDOs, we are willing to use excess spread that would otherwise go to the equity tranche to hedge or sell deteriorating credits. The purpose of our trading is to offset risk, not to improve yield. We retain the ability to defensively sell assets in order to mitigate potential losses. Underwriting and Risk Management The process of underwriting new financial guaranty transactions follows several stages. All proposed transactions are first viewed by a Screening Committee consisting of members of senior management and experienced credit analysts. The Screening Committee is responsible for screening transactions prior to committing management time or company resources to a more formal underwriting process. The screening seeks to identify any inherent obstacles to insuring the transaction and preliminary underwriting concerns, to ensure that the risk profile is or can be consistent with our credit standards, the transaction affords the opportunity for adequate profitability and the transaction is otherwise appropriate for us. Transactions that pass our Screening Committee are sent to the appropriate Underwriting Committee. Our Municipal Underwriting Committee consists of seven members, including our chief executive officer, chief operating officer and general counsel. Our Structured Finance Underwriting Committee consists of six members, including our chief operating officer, the head of customized solutions and general counsel. The primary objective of the Underwriting Committee is to recommend individual transactions for approval by our Senior Credit Committee, thereby optimizing review by personnel with credit specific expertise, and in the case of municipal guaranty transactions, to approve certain routine municipal transactions. Any recommendation of a transaction to the Senior Credit Committee requires the affirmative vote of a majority of the Underwriting Committee, including, for municipal financial guaranty transactions, the affirmative vote of the chairman of the Underwriting Committee (currently the chief executive officer, or in his absence, the chief operating officer) and for structured finance financial guaranty transactions, the affirmative vote of both the chief executive officer and chief operating officer. During the underwriting process, our credit analysts perform quantitative and qualitative risk assessments that include stress testing the transaction to a remote-loss standard, a review of the economic rationale and the motivation of participants, an analysis of relative value and a legal review of the transaction structure. As part of the risk assessment process, the credit analysts also perform an economic analysis of each transaction, including a review of the proposed pricing relative to credit spreads for similar assets available in the market and the return on capital to us based on capital charges assessed by rating agencies. The underwriting process involves review of structural, legal, political and credit issues, including compliance with our current underwriting standards. These standards are reviewed periodically by the Senior Credit Committee and reviewed by our board of directors. Additionally, the underwriting process often entails on-site due diligence covering the parties to a transaction, such as the issuer, originator, servicer or manager. The decision to guarantee an issue is based upon such credit factors as the issuer's ability to repay the bonds, the bond's security features and the bond's structure, rather than upon an actuarial prediction of the likelihood that the issuer will default on the underlying debt obligation. In addition, before an underwriting commitment is provided for a customized insurance transaction, we conduct an in-depth analysis of the proposed insurance risk, the effects of the risk on both the customized risk portfolio and the ACA Financial Guaranty risk portfolio and the appropriate single risk limit to be assigned to the transaction. We also seek pricing points to provide analysis on the appropriate premium to be collected. Underwriting is a process which involves the analysis of accounting, legal, credit, structural and tax considerations. The Senior Credit Committee approves all customized insurance transactions. The mandate of our Senior Credit Committee is to create and support a credit culture, establish underwriting policies and procedures (subject to review by our board of directors), define underwriting guidelines and monitor compliance, require appropriate portfolio risk management for assets and liabilities, and approve the assumption of risk and related pricing. The Senior Credit Committee consists of five members, including our chief executive officer, chief operating officer, chief financial officer, general counsel and the head of customized solutions. An approval by the Senior Credit Committee requires a majority vote of the Senior Credit Committee, including the affirmative vote of the chairman of the Senior Credit Committee (currently the chief executive officer, or in his absence, the chief operating officer). Surveillance Financial Guaranty Surveillance. Our Surveillance Group is responsible for monitoring outstanding issues insured by us. The Group's first function is to detect any deterioration in credit quality or changes in the economic or political environment which could interrupt the timely payment of debt service on an insured issue. Once an obligation is insured, the issuer and the trustee are typically required to furnish periodically financial and asset related information, including audited financial statements, to the Surveillance Group for review. Potential problems uncovered through this review, such as poor financial results, low fund balances, covenant or trigger violations, trustee or servicer problems, or excessive litigation, could result in an immediate surveillance review and an evaluation of possible remedial actions. The Surveillance Group also monitors state and municipal finances and budget developments and evaluates their impact on issuers. Credits are monitored according to a frequency of review schedule that is based on risk type and credit quality. Surveillance analysts conduct regular and ad hoc reviews of credits in our portfolio. Risk adjusted surveillance strategies have been developed for each transaction type. Review periods and scope of review vary by bond type based upon the risk inherent in the nature of the credits. The focus of the surveillance review is to determine credit trends and recommend appropriate classifications, ratings and review periods. The Surveillance Group and our other credit professionals review our financial guaranty portfolio for concentration of risk by (i) specific bond types; (ii) geographic location; and (iii) size of issue. Our Underwriting Group is also responsible for portfolio analysis which entails a broader examination of trends in specific asset classes and bond types. The Surveillance Group works closely with the Underwriting Department to provide feedback on insured issue performance and credit risk parameters. Those issues that are either in default or have developed problems that eventually may lead to a claim or loss are tracked especially closely by the appropriate surveillance team. Once a problem is detected, the group then works with the issuer, trustee, bond counsel, servicers, underwriters, and other interested parties to deal with the concern in order to minimize potential defaults. Relevant information, along with the schedule of corrective actions, is reviewed in the regular remedial credit meetings. Internal and/or outside counsel reviews the documents underlying any problem credit and an analysis is prepared outlining our rights and potential remedies, the duties of all parties involved and recommendations for corrective actions. We also meet with relevant parties to the transaction as necessary. In many instances, under the terms of the documents governing the underlying obligation, we have the ability, among other things, to direct that audits be performed with respect to servicer and trustee contractual responsibilities. The rating agencies also monitor the credits underlying our financial guaranties in force and, in most cases, advise us of the credit rating each transaction would receive if it were not insured. We have developed proprietary software programs to assist our analysts in monitoring outstanding issues insured by us. Our internally developed software named Book of Business, or BoB2, assists us in managing our insurance portfolio. BoB2 is used to produce monthly risk management and premium based reports for our insurance transactions. BoB2 is also used to monitor the equity component of our CDOs. Structured Finance Surveillance. We actively monitor the performance of our CDOs. For the ABS CDOs, our analysts perform a review of the monthly reports sent to us by trustees on the performance of the ABS assets underlying the CDO. The analysts then perform trend line analyses on delinquencies, defaults/charge-offs, gross losses, recoveries and net losses, and compare actual performance to expected performance. They also analyze how close a specific ABS asset is to hitting its triggers. They monitor levels, reductions and month-to-month changes in the spread account/first loss. They perform a first dollar loss break-even analysis. They track the prices of the ABS asset from two market makers, the current ratings of the ABS asset, and review Credit Watch for upgrades and downgrades. In addition, they monitor the rating of the seller/servicer and its most recent BondScore score. Our analysts collect all pertinent news on issuers under their coverage for our CDOs and incorporate such information in the monitoring system on an ongoing basis. Analysts review dealer research for data that will assist in performance evaluation and trading opportunities for sectors and issuers they cover. Analysts contact dealer analysts for additional data as needed to track sector and issuer performance and monitor dealer fixed-income and equity research for each issuer. Analysts maintain regular contact with major rating agencies and closely monitor all agency reports and announcements. Our analysts review all public information when issuers report earnings and participate in conference calls and visit sellers' and servicers' origination and servicing operations. If necessary, the analyst will contact the appropriate individuals at the issuer to clarify any issues not satisfactorily addressed by the earnings report and conference call. Annual due diligence site inspections are completed on all small sellers/servicers and most larger ones. We meet regularly with the analysts to review each CDO portfolio. The review will include both seller/servicer and collateral assessment. Under-performing credits are placed on a Credit Monitor List and additional analytical and stress scenarios are run which incorporate the current economic environment. Analysts are responsible for presenting all relevant information that may be contributing to the underperformance. The issue will be presented at the Collateral Committee meeting to determine changes in investment strategy. The Collateral Committee has regularly scheduled meetings, and meets more frequently, as necessary, when issuer-specific and broad market events occur. All credits on the Credit Monitor List are reviewed and an appropriate investment decision is made for each issue. We work closely with the quantitative structuring group when making trade decisions on individual credits. Prior to execution, we will perform an evaluation on the CDO portfolio. Using a short list of acceptable replacement bonds, hypothetical portfolios are created and stressed under various scenarios to calculate expected cash flows. Over-collateralization triggers are recalculated under various scenarios to understand how the traded credit may affect such triggers in the immediate payment period. The Moody's Rating Factor Score is recalculated to understand the impact on the overall credit quality of the CDO portfolio. Industry and issuer concentrations are recalculated to ensure that the risk of the CDO portfolio is not exposed to one particular concentration. We perform an analysis of the expected cash flow to the equity tranche. The analysts conduct a break-even loss analysis at each CDO tranche level and a review of applicable constraints relating to our compliance with rating agency requirements. All underlying assets of the CDO are marked-to-market, however, we have no legal or financial obligation to make payments as a direct consequence of market volatility. Liability attachment levels are recalculated to quantify the impact on the CDO's rated securities. We have developed proprietary software programs to assist our analysts in monitoring our CDOs. Our internally developed Surveillance And Reporting Analysis, or SARA, programs are compatible with our portfolio management system and assist our analysts in monitoring exposure and minimizing potential negative credit developments, thereby optimizing risk and return in our managed CDOs. SARA also stores critical data for each credit exposure and provides a medium for us to deliver information to our CDO investors on the performance of the CDO. We have also developed proprietary software to assist our analysts in cash flow analysis. Losses and Reserves ACA Financial Guaranty maintains losses and LAE reserves in an amount believed by its management to be sufficient to pay the net present value of its estimated ultimate liability for losses and LAE with respect to obligations it has insured. The reserve for losses and LAE consist of unallocated loss reserves and case basis reserves. In accordance with U.S. GAAP and SAP and as required by laws applicable to financial guaranty insurers, ACA Financial Guaranty establishes a case basis reserve for the net present value of an estimated loss when, in management's opinion, the likelihood of a future loss on a particular insured obligation is imminent and measurable and determinable at the balance sheet date. The case basis reserve represents ACA Financial Guaranty's estimate of the present value of the anticipated shortfall, net of reinsurance, between (i) scheduled payments on the insured obligations plus anticipated LAE and (ii) anticipated cash flow from and proceeds to be received on sales of any collateral supporting the obligation and other anticipated recoveries. Case basis reserves are discounted by an amount representing the average rate of return on ACA Financial Guaranty's investment portfolio as of the year end most immediately preceding the date of establishment of the case basis reserve, which is currently 6%. In accordance with U.S. GAAP, ACA Financial Guaranty maintains a non-specific unallocated loss reserve in order to account for unidentified risks inherent in its overall portfolio. ACA Financial Guaranty does not consider traditional actuarial approaches used in the property/casualty insurance industry to be applicable to the determination of its loss reserves because of the absence of a sufficient number of losses in its financial guaranty insurance activities and in the financial guaranty industry generally to establish a meaningful statistical base. The unallocated loss reserve amount is calculated by applying a loss factor to the total net par amount of ACA Financial Guaranty's insured obligations outstanding over the term of such insured obligations and discounting the result at the then current risk-free rate. The loss factor used for this purpose has been determined based upon an independent rating agency study of bond defaults and ACA Financial Guaranty's portfolio characteristics and history. The unallocated loss reserve is available to be applied against future additions or accretions to existing case basis reserves or to new case basis reserves to be established in the future. To the extent that any such future additions to case basis reserves are applied from the available unallocated loss reserve, there will be no impact on our earnings for that period. To the extent that additions to case basis reserves for any period are not applied from the unallocated loss reserve, the excess will be charged against our earnings for that period. Any addition to the unallocated loss reserve which results from applying the loss factor to net par written will result in a charge to earnings at that time. Since reserves are necessarily based on estimates and because of the absence of a sufficient number of losses in the financial guaranty insurance industry to establish a meaningful statistical base, there can be no assurance that the ultimate liability will not differ from such estimates. We will continue, on an ongoing basis, to monitor these reserves and may periodically adjust such reserves, upward or downward, based on our actual loss experience, its future mix of business and future economic conditions. Reinsurance Reinsurance is the commitment by one insurance company, the "reinsurer," to reimburse another insurance company, the "ceding company," for a specified portion of the insurance risks underwritten by the ceding company in consideration for a portion of the premiums received. The ceding company typically, but not always, receives ceding commissions to cover costs of business generation. Because the insured party contracts for coverage solely with the ceding company, the failure of the reinsurer to perform does not relieve the ceding company of its obligation to the insured party under the terms of the insurance contract. As a result, ceding companies are subject to the risk that their reinsurers may not perform their obligations. State insurance laws and regulations (as well as the rating agencies) impose minimum capital requirements and single risk limits on financial guaranty insurance companies, limiting the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. Financial guaranty insurance companies can use reinsurance to diversify risk, increase underwriting capacity, reduce capital needs, stabilize shareholder returns and strengthen financial ratios. We employ a variety of reinsurance structures to help manage risk, including quota share, first loss and excess of loss reinsurance on both a single risk and portfolio basis. We currently maintain $10 million of first loss coverage reinsurance on our entire insured portfolio of risk which, under certain circumstances, is also available to cover both realized and unrealized losses incurred by ACA Financial Guaranty under policies of insurance issued with respect to derivative contracts related to our credit default swap CDO transactions. We also maintain an additional $40 million of first loss coverage, which will increase to $50 million in 2005. We have also purchased $75 million excess of loss reinsurance to enhance our resources available to pay claims to meet rating agency requirements. Reinsurance used to enhance rating agency claims paying resources are subject to annual review by the rating agencies and may require restructuring to maintain rating agency credit requirements. We cede risks to a number of reinsurers, some of whom are not licensed in Maryland. Generally, our contracts require unlicensed reinsurers to deposit security with us in respect of their obligations under the reinsurance contracts. ACA Financial Guaranty is able to take credit in its statutory financial statements for any reserves ceded to all licensed reinsurers and unlicensed reinsurers to the extent of such security. As of December 31, 2003, all ceded reserves for unlicensed reinsurers, other than $43,607 owed by one unlicensed reinsurer, were creditable under Maryland law. Investment Portfolio Our consolidated balance sheet under U.S. GAAP includes both our investment portfolio, consisting essentially of the assets of our insurance subsidiaries, and the assets of the consolidated SPEs that constitute our proprietary CDOs. The following discussion relates to our insurance subsidiary portfolio. Our principal objective in managing our investment portfolio is to generate an optimal level of after-tax investment income while preserving our "A" financial strength rating, to maintain adequate liquidity and to minimize the correlation with insurance risk. The investment policy is set by our board of directors and ACA Financial Guaranty's investment portfolio is managed by two outside professional money managers, Dreyfus Investment Advisors, Inc. and Stephens Capital Management Division, an affiliate of Stephens Group Inc. Both managers commenced investment management for us in May of 2002. See "Certain Relationships and Related Transactions" for a description of the relationship of Stephens Capital Management Division to Stephens Inc., an indirect subsidiary of Stephens Group Inc., an investor in our company. To accomplish our objectives, we have established guidelines for building a portfolio of high-quality fixed income investments, requiring that such investments be rated at least "BBB" at acquisition and the overall portfolio be rated "A+" on average. Fixed income investments falling below the minimum quality level are disposed of at such time as management, with approval of the board of directors, deems appropriate. For liquidity purposes, our policy is to invest in instruments which are readily marketable with no legal or contractual restrictions on resale. Eligible fixed income investments include U.S. Treasury and agency obligations, corporate bonds, municipal bonds and mortgage backed securities. The assets of our CDOs are not available to meet the commitments of our insurance operations. The following tables set forth certain information concerning ACA Financial Guaranty's investment portfolio and include one security held by ACA Service Corporation, one of our wholly owned subsidiaries. The following table reflects the composition of our investment portfolio, excluding assets related to our consolidated CDOs, by security type: Investment Portfolio by Security Type As of December 31, 2003 2002 2001 Security Type Amount Percent of Investment Portfolio Amount Percent of Investment Portfolio Amount Percent of Investment Portfolio ($ in millions) U.S. Treasury securities $ 60.7 22.1 % $ 68.7 31.1 % $ 64.0 32.1 % Federal agency securities 29.6 10.7 % 64.0 28.9 % 22.1 11.1 % Obligations of states and political subdivisions 29.1 10.6 % 3.0 1.4 % 0.9 0.5 % Corporate securities 58.6 21.3 % 74.5 33.7 % 101.6 51.0 % Asset-backed securities 16.9 6.1 % 9.8 4.4 % 4.6 2.3 % Mortgage-backed securities 80.4 29.2 % 1.0 0.5 % 6.1 3.0 % Total $ 275.3 100.0 % $ 221.0 100.0 % $ 199.3 100.0 % The following table reflects our investment portfolio results for each year in the three-year period ended December 31, 2003: Investment Results December 31, Investment Category 2003 2002 2001 ($ in millions, except yields) Average invested assets $ 248.1 $ 210.1 $ 185.4 Net investment income(1) 10.1 10.1 11.3 Net effective yield(2) 4.1 % 4.8 % 6.1 % Net realized capital gains (losses) $ 4.7 $ 4.1 $ 6.5 Effective yield including net realized capital gains (losses)(3) 6.0 % 6.8 % 9.6 % (1) Excluding investment expenses, realized investment gains (losses), and investment income from cash equivalents. (2) Net investment income for the period divided by average invested assets for the same period. (3) Net investment income plus net realized capital gains (losses) for the period divided by average invested assets for the same period. ACA Financial Guaranty's investment portfolio is invested primarily in fixed income securities. The National Association of Insurance Commissioners, or the NAIC, assigns quality ratings which range from Class 1 (highest quality) to Class 6 (lowest quality). The following table shows our investment portfolio, by NAIC designation and comparable rating as of December 31, 2003: Investment Portfolio by Rating NAIC Designation/Rating Amount Percent of Investment Portfolio ($ in millions) 1 / AAA, AA, A $ 238.6 86.6 % 2 / BBB 32.4 11.8 % Total investment grade $ 271.0 98.4 % 3 / BB $ 4.3 1.6 % 4 / B – – 5 / CCC, CC, C – – 6 / D – – Total non-investment grade $ 4.3 1.6 % Total $ 275.3 100.0 % The following table indicates the composition of our fixed income security portfolio by time to maturity as of December 31, 2003: Distribution of Investments by Maturity Investment Category Amount Percent of Investment Portfolio ($ in millions) Due in one year or less $ 18.3 6.6 % Due after one year through five years 82.9 30.1 % Due after five years through ten years 40.6 14.8 % Due over ten years 133.5 48.5 % Total $ 275.3 100.0 % Rating Agencies The value of the insurance product we sell is generally a function of the "rating" applied to obligations we insure. Our financial strength is rated "A" by Fitch and S&P. For more information on the meaning of ratings assigned by S&P and Fitch see Appendix A. Such ratings reflect only the views of the respective rating agency, are not recommendations to buy, sell or hold securities and are subject to revision or withdrawal at any time by such rating agencies. These rating agencies periodically review our business and financial condition, focusing on our underwriting policies and procedures and the quality of the obligations insured, and publish their ratings and supporting analyses. Each rating agency performs periodic assessments of the credits insured by us, and our reinsurers and other providers of capital support, to confirm that we continue to satisfy such rating agency's capital adequacy criteria necessary to maintain an "A" financial strength rating. S&P and Fitch apply their own capital adequacy models in assessing our financial strength. Financial factors considered in assessing capital adequacy include: (i) capital charges or other assessments of credit risks for our insured portfolio; (ii) the quality of our investment portfolio; (iii) the credit quality of our reinsurers and the type of reinsurance provided thereby; (iv) credit lines and other capital support arrangements, or soft capital; (v) premium revenues expected to be generated from outstanding policies; and (vi) anticipated future new business originations and anticipated future losses. Given the importance of our ratings to our on-going business, our underwriting and business decisions generally include an analysis of the impact on rating agency capital determinations in addition to other measures of creditworthiness. Regulation United States Insurance Regulation ACA Financial Guaranty Corporation. ACA Financial Guaranty is licensed to provide financial guaranty insurance in the state of Maryland (its state of incorporation), as well as in each of the other 49 states, the District of Columbia, the Commonwealth of Puerto Rico and the territories of Guam and the United States Virgin Islands. The extent of state insurance regulation and supervision varies by jurisdiction but Maryland, New York and most other jurisdictions have laws and regulations prescribing minimum standards of solvency, including minimum capital requirements and business conduct that must be maintained by licensed insurance companies. These laws prescribe permitted classes of risks which may be written and limitations on the size of risks insured. In addition, some state laws and regulations require the approval or filing of policy forms and rates. ACA Financial Guaranty is required to file detailed annual financial statements with the Maryland Insurance Administration and similar supervisory agencies in each of the other jurisdictions in which it is licensed. The operations and accounts of ACA Financial Guaranty are subject to examination by these regulatory agencies at regular intervals. Maryland Financial Guaranty Insurance Law. Chapter 10 of Subtitle 05 of Title 31 of the Code of Maryland Regulations (pursuant to the authority vested in the Commissioner of Insurance under Section 5-1005 of the Maryland Insurance Code) establishes, with respect to the transaction of financial guaranty insurance, single and aggregate risk limits, limits on the types of debt instruments and monetary obligations which may be insured and contingency reserve funding requirements. These limits and reserve requirements are substantially similar to those contained under Article 69 of the New York Insurance Law as described below. New York Financial Guaranty Insurance Law. Article 69 of the New York Insurance Law is a comprehensive financial guaranty insurance statute that governs all financial guaranty insurers licensed to do business in New York, including ACA Financial Guaranty. This statute limits the business of financial guaranty insurers to financial guaranty insurance and related lines (such as surety). Article 69 requires that financial guaranty insurers maintain a special statutory accounting reserve called the contingency reserve to protect policyholders against the impact of excessive losses occurring during adverse economic cycles. Article 69 requires ACA Financial Guaranty to provide a contingency reserve quarterly on a pro rata basis over a period of 20 years for municipal bonds and 15 years for all other obligations in an amount equal to the greater of 50% of premiums written for the relevant category of insurance or a percentage of the principal guaranteed (varying from 0.55% to 2.50%, depending upon the type of obligation guaranteed), until the contingency reserve amount for the category equals the applicable percentage of net unpaid principal. Under statutory accounting principles, this reserve must be maintained for the periods specified above, except that reductions by the insurer may be permitted under specified circumstances if actual incurred losses exceed certain thresholds or if the reserve accumulated is deemed excessive in relation to the insurer's outstanding insured obligations. Financial guaranty insurers also are required to maintain an unearned premium reserve as well as reserves for losses and loss adjustment expenses for insured obligations that have already defaulted. Article 69 establishes single risk limits for financial guaranty insurers applicable to all obligations issued by a single entity and backed by a single revenue source. For example, under the limit applicable to qualifying asset-backed securities, the lesser of (1) the insured average annual debt service for a single risk or (2) the insured unpaid principal (reduced by the extent to which the unpaid principal of the supporting assets exceeds the insured unpaid principal), divided by nine, net of qualifying reinsurance and collateral, may not exceed 10% of the sum of the insurer's policyholders' surplus and contingency reserve, subject to certain conditions. Under the limit applicable to municipal obligations, the insured average annual debt service for a single risk, net of qualifying reinsurance and collateral, may not exceed 10% of the sum of the insurer's policyholders' surplus and contingency reserve. In addition, insured principal of municipal obligations attributable to any single risk, net of qualifying reinsurance and collateral, is limited to 75% of the insurer's policyholders' surplus and contingency reserve. Single risk limits also are specified for other categories of insured obligations and generally are more restrictive than those listed for asset-backed or municipal obligations. Article 69 also establishes aggregate risk limits on the basis of aggregate net liability insured as compared to statutory capital. Aggregate net liability is defined as outstanding principal and interest of guaranteed obligations insured, net of qualifying reinsurance and collateral. Under these limits, policyholders' surplus and contingency reserves must not be less than a percentage of aggregate net liability equal to the sum of various percentages of aggregate net liability for various categories of specified obligations. The percentage varies from 0.33% for certain municipal obligations to 4.00% for certain non-investment grade obligations. In addition, Article 69 requires 95% of ACA Financial Guaranty's outstanding total liability on municipal bonds to be investment grade. Insurance Holding Company Law. ACA Financial Guaranty is subject to regulation under the insurance holding company statute of Maryland, where ACA Financial Guaranty is domiciled. The requirements of the holding company statute require ACA Financial Guaranty to register and file certain reports describing, among other information, our capital structure, ownership, financial condition and transactions with affiliates. The holding company statute also generally requires prior approval of changes in control, the payment of certain dividends and other inter-corporate transfers of assets, and of certain transactions between ACA Financial Guaranty and us and our affiliates. The holding company statute imposes standards on certain transactions between ACA Financial Guaranty and related companies that include, among other requirements, that all transactions be fair and reasonable, be appropriately recorded in the books of both parties and be appropriately accounted for, and requires prior regulatory approval for transactions not in the ordinary course of business that exceed specified limits. The holding company statute prohibits any person from acquiring control of us or ACA Financial Guaranty unless that person has filed a notification with specified information with the Maryland Insurance Commissioner and has obtained his prior approval. Under the Maryland statute, acquiring ten percent or more of the voting stock of an insurance company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. Accordingly, any person who acquires, directly or indirectly, ten percent or more of our voting securities without either the prior approval of the Maryland Insurance Commissioner, or a filed and approved disclaimer of control, will be in violation of this law and may be subject to injunctive action. Such injunctive action may include requiring the disposition or seizure of those securities or prohibiting the voting of those securities. In addition, many U.S. state insurance laws require prior notification of state insurance departments of a change in control of a non-domiciliary insurance company doing business in that state. While these pre-notification statutes do not authorize the state insurance departments to disapprove the change in control, they authorize regulatory action in the affected state if particular conditions exist, such as undue market concentration or revocation of ACA Financial Guaranty's license. Any future transactions that would constitute a change in control of us may require prior notification in those states that have adopted pre-acquisition notification laws. These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of us, including through transactions, and in particular unsolicited transactions, that some or all of our shareholders might consider to be desirable. Dividends. Under Maryland insurance law, ACA Financial Guaranty may pay dividends only out of positive earned surplus. At December 31, 2003, ACA Financial Guaranty had a negative earned surplus of $53.5 million. As a result, ACA Financial Guaranty is currently unable to pay dividends without the approval of the Maryland Insurance Commissioner until they have a positive earned surplus calculated on a SAP basis. ACA Financial Guaranty must give ten days' prior notice to the Maryland Insurance Commissioner of its intention to pay any dividend or make any distribution other than an extraordinary dividend or an extraordinary distribution. The Maryland Insurance Commissioner has the right to prevent such a dividend or distribution if he determines, in his discretion, that after the payment thereof, ACA Financial Guaranty's policyholder surplus would be inadequate or could cause ACA Financial Guaranty to be in a hazardous financial condition. ACA Financial Guaranty is also subject to restrictions on paying dividends set forth in its reinsurance agreement. In addition, ACA Financial Guaranty must provide the Maryland Insurance Commissioner with at least thirty days' prior notice before paying an "extraordinary dividend" or making an "extraordinary distribution." Extraordinary dividends and extraordinary distributions are dividends or distributions that, together with any other dividends and distributions paid during the immediately preceding twelve-month period, would exceed the lesser of: ten percent of ACA Financial Guaranty's statutory policyholders' surplus (as determined under SAP as of December 31 of the prior year); and ACA Financial Guaranty's net investment income excluding realized capital gains (as determined under SAP) for the twelve-month period ending on December 31 of the prior year, plus any amounts of net investment income (excluding realized capital gains) in the three preceding years that have not been distributed. These statutory limitations are subject to change. ACA Financial Guaranty may not pay extraordinary dividends or make extraordinary distributions until either the thirty-day notice period has expired (without the Maryland Insurance Commissioner disapproving such payment) or the Maryland Insurance Commissioner has approved the payment within that period. The foregoing dividend limitations are determined in accordance with SAP, which generally produce statutory earnings in amounts less than earnings computed in accordance with U.S. GAAP. Similarly, policyholders' surplus, computed on a SAP basis, will normally be less than net worth computed on a U.S. GAAP basis. Guaranty fund laws in most states require insurers transacting business in the state to participate in guaranty associations, which pay claims of policyholders and third-party claimants against impaired or insolvent insurance companies doing business in the state. In most states, insurers licensed to write only municipal bond insurance, financial guaranty insurance and other forms of surety insurance, such as ACA Financial Guaranty, are exempt from assessment by these funds and their policyholders are prohibited from making claims on these funds. Premium Rates and Policy Forms. ACA Financial Guaranty's premium rates and policy forms are subject to regulation in every state in which it is licensed to transact business in order to protect policyholders against the adverse effects of excessive, inadequate or unfairly discriminatory rates and to encourage competition in the insurance marketplace. In most states, premium rates and policy forms must be filed either prior to or shortly after their use. In some states, such rates and forms also must be approved prior to use. Changes in premium rates are subject to justification, generally on the basis of the insurer's loss experience, expenses and future trend analysis. Reinsurance. Certain restrictions apply under the laws of several states to any licensed company ceding business to an unlicensed reinsurer. Under such laws, if a reinsurer is not admitted or approved in such states, the company ceding business to the reinsurer cannot take credit in its statutory financial statements for the risk ceded to such reinsurer absent compliance with certain reinsurance security requirements. Investment. Under Maryland insurance law, ACA Financial Guaranty may only invest in certain permitted investments. In addition, pursuant to Maryland insurance law, ACA Financial Guaranty may make an investment only if it is approved by ACA Financial Guaranty's board of directors or a committee of ACA Financial Guaranty's board of directors that is responsible for supervising or making such investment. Although it is not domiciled in New York, ACA Financial Guaranty must remain in substantial compliance with New York insurance law limitations on investments in order to retain its license there. Bermuda Insurance Subsidiaries. ACA Bermuda and ACA Solutions are licensed in Bermuda to write insurance and reinsurance, respectively, and are not admitted to do business in any jurisdiction in the United States or in any country other than Bermuda. The insurance laws of each state of the United States and of many other jurisdictions regulate the sale of insurance within their jurisdictions by alien insurers, such as ACA Bermuda and ACA Solutions. ACA Bermuda and ACA Solutions intend to conduct their business so as not to be subject to the licensing requirements of insurance regulators in the United States or elsewhere (other than Bermuda). We cannot assure you, however, that insurance regulators in the United States or elsewhere will not review the activities of ACA Bermuda and ACA Solutions and claim that ACA Bermuda and ACA Solutions are subject to such jurisdiction's licensing requirements. Bermuda Insurance Regulation The following summary of Bermuda insurance regulation is based upon current law and is for general information only. The Insurance Act. As a holding company, we are not subject to Bermuda insurance regulations. However, ACA Bermuda and ACA Solutions are subject to regulations under the Insurance Act which provides that no person may carry on any insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda Monetary Authority. The BMA is responsible for the day-to-day supervision of insurers. The BMA is required by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in the insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. The continued registration of a company as an insurer under the Insurance Act is subject to its complying with the terms of its registration and such other conditions as the BMA may impose from time to time. An Insurance Advisory Committee appointed by the Bermuda Minister of Finance advises the BMA on matters connected with the discharge of the BMA's functions, and sub-committees thereof supervise and review the law and practice of insurance in Bermuda, including reviews of accounting and administrative procedures. The Insurance Act imposes on Bermuda insurance companies solvency and liquidity standards and auditing and reporting requirements. The Insurance Act also grants to the BMA powers to supervise, investigate and intervene in the affairs of insurance companies. Certain significant aspects of the Bermuda insurance regulatory framework are set forth below. Classification of Insurers. The Insurance Act distinguishes between insurers carrying on long-term business and insurers carrying on general business. There are four classifications of insurers carrying on general business, with Class 4 insurers subject to the strictest regulation. ACA Bermuda and ACA Solutions are registered to carry on general business as Class 3 insurers in Bermuda and are regulated as such under the Insurance Act. Cancellation of Insurer's Registration. An insurer's registration may be canceled by the BMA on certain grounds specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance Act or if, in the opinion of the BMA, the insurer has not been carrying on business in accordance with sound insurance principles. Principal Representative. An insurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative in Bermuda. For the purpose of the Insurance Act, the principal office of ACA Bermuda and ACA Solutions are at our offices at 44 Church Street, Hamilton HM 12, Bermuda, and ACA Bermuda's principal representative is International Advisory Services Ltd. Without a reason acceptable to the BMA, an insurer may not terminate the appointment of its principal representative, and the principal representative may not cease to act as such, unless 30 days' prior notice is given in writing to the BMA. The principal representative must make a report in writing to the BMA, containing all particulars available to such representative, within 30 days of determining that there is a likelihood of such insurer becoming insolvent or that a reportable event has, to such representative's knowledge, occurred or is believed to have occurred. Examples of such a reportable event include failure by the insurer to comply substantially with a condition imposed upon the insurer by the BMA relating to a solvency margin or a liquidity or other ratio. Independent Approved Auditor. Every registered insurer must appoint an independent auditor who will annually audit and report on the statutory financial statements and the statutory financial return of the insurer, both of which, in the case of ACA Bermuda, are required to be filed annually with the BMA. The independent auditor of ACA Bermuda must be approved by the BMA and may be the same person or firm that audits ACA Bermuda's financial statements and reports for presentation to its shareholders. ACA Bermuda's independent auditor is PricewaterhouseCoopers LLP. Loss Reserve Specialist. As a registered Class 3 insurer, ACA Bermuda is required to submit an opinion of its approved loss reserve specialist with its statutory financial return in respect of its loss and loss expenses provisions. The loss reserve specialist, who will normally be a qualified casualty actuary, must be approved by the BMA. Our Bermuda loss reserve specialist is Milliman USA, Inc. Statutory Financial Statements. The insurer must prepare annual statutory financial statements. The Insurance Act prescribes rules for the preparation and substance of such statutory financial statements (which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus and notes thereto). The insurer is required to give detailed information and analyses regarding premiums, claims, reinsurance and investments. The statutory financial statements of ACA Bermuda are not prepared in accordance with U.S. GAAP and are distinct from our consolidated financial statements, which, under the Companies Act, are prepared in accordance with U.S. GAAP. ACA Bermuda, as a general business insurer, is required to submit the annual statutory financial statements as part of its annual statutory financial return. The statutory financial statements and the statutory financial return do not form part of the public records maintained by the BMA. Annual Statutory Financial Return. ACA Bermuda is required to file with the BMA a statutory financial return no later than four months after its financial year end (unless specifically extended). The statutory financial return for a Class 3 insurer includes, among other matters, a report of the approved independent auditor on the statutory financial statements of such insurer, solvency certificates, the statutory financial statements, a declaration of statutory ratios and the opinion of the loss reserve specialist. The solvency certificates must be signed by the principal representative and at least two directors of the insurer who are required to certify, among other matters, whether the minimum solvency margin has been met and whether the insurer complied with the conditions attached to its certificate of registration. The independent approved auditor is required to state whether, in its opinion, it was reasonable for the directors to make those certifications. In the event an insurer's accounts have been audited for any purpose other than compliance with the Insurance Act, a statement to that effect must be filed with the statutory financial return. Minimum Solvency Margin and Restrictions on Dividends and Distributions. Under the Insurance Act, the value of the general business assets of a Class 3 insurer, such as ACA Bermuda, must exceed the amount of its general business liabilities by an amount greater than the prescribed minimum solvency margin. ACA Bermuda: is required, with respect to its general business, to maintain a minimum solvency margin equal to the greatest of: $1.0 million; or 20% of net premium income (generally being gross premium income less any premium ceded by ACA Bermuda for reinsurance) up to the first $6.0 million of writings plus 15% of net premium income in excess of $6.0 million; or 15% of the aggregate of loss expense provisions and other general business insurance reserves; is prohibited from declaring or paying any dividends during any financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio (as described below) or if the declaration or payment of such dividends would cause it to fail to meet such margin or ratio (and if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, ACA Bermuda and ACA Solutions will be prohibited, without the approval of the BMA, from declaring or paying any dividends during the next financial year); is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital as set out in its previous year's financial statements, and is required, at any time it fails to meet its solvency margin, within 30 days after becoming aware of that failure or having reason to believe that such failure has occurred, to file with the BMA a written report containing certain information. Until such failure is rectified, ACA Bermuda and ACA Solutions may not declare or pay any dividends. Additionally, under the Companies Act, ACA Bermuda may only declare or pay a dividend if they have no reasonable grounds for believing that they are, or would after the payment be, unable to pay their liabilities as they become due, or if the realizable value of their assets would not be less than the aggregate of their liabilities and their issued share capital and share premium accounts. Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity ratio for general business insurers, such as ACA Bermuda and ACA Solutions. An insurer engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include, but are not limited to, cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable and reinsurance balances receivable. There are certain categories of assets that, unless specifically permitted by the BMA, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to affiliates and real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined). Supervision, Investigation and Intervention. The BMA may appoint an inspector with extensive powers to investigate the affairs of an insurer if it believes that an investigation is required in the interest of the insurer's policyholders or persons who may become policyholders. In order to verify or supplement information otherwise provided to the BMA, it may direct an insurer to produce documents or information relating to matters connected with the insurer's business. If it appears to the BMA that there is a risk of the insurer becoming insolvent, or that it is in breach of the Insurance Act or any conditions imposed upon its registration, the BMA may, among other things, direct the insurer (1) not to take on any new insurance business, (2) not to vary any insurance contract if the effect would be to increase the insurer's liabilities, (3) not to make certain investments, and (4) not to declare or pay any dividends or other distributions or to restrict the making of such payments. In addition, the BMA may, among other things, require the insurer to (1) realize certain investments, (2) maintain, or transfer to the custody of a specified bank, certain assets, and/or (3) limit its premium income. Disclosure of Information. In addition to powers under the Insurance Act to investigate the affairs of an insurer, the BMA may require disclosure of certain information from an insurer (or certain other persons). Further, the BMA has been given powers to assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involving insurance companies in Bermuda, subject to certain restrictions. For example, the BMA must be satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities of the foreign regulatory authority. Further, the BMA must consider whether its cooperation would be in the public interest. The grounds for disclosure are limited and the Insurance Act provides sanctions for breach of the statutory duty of confidentiality. Certain Bermuda Law Considerations We, ACA Bermuda and ACA Solutions are each designated as non-resident for exchange control purposes by the BMA. Each of us, Bermuda and ACA Solutions is required to obtain the permission of the BMA for the issue and transfer of all of our or their common shares. Prior to the consummation of this offering, we expect the BMA will have issued their permission for the issue and transfer of our common shares to and between non-residents of Bermuda for exchange control purposes, subject to the condition that our common shares shall be listed on the New York Stock Exchange or any other appointed stock exchange. We have been granted permission by the BMA to hold all of the currently issued shares of common shares of ACA Bermuda and ACA Solutions. Because we do not intend to transfer any of these shares to any other person or entity and ACA Bermuda and ACA Solutions do not intend to issue any additional shares, no further permissions of the BMA are required with respect to ACA Bermuda and ACA Solutions. The transfer and issuance of our common shares to any resident in Bermuda for exchange control purposes may require specific prior approval under the Exchange Control Act 1972. Shares of ACA Bermuda's and ACA Solution's common stock cannot be transferred without the consent of the BMA. Because we, ACA Bermuda and ACA Solutions are designated as non-resident for Bermuda exchange control purposes, we are allowed to engage in transactions and to pay dividends, in currencies other than the Bermuda dollar to Bermuda non-residents who are holders of our common shares, subject to Bermuda law and regulations, including but not limited to insurance regulations as discussed above. There are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda to United States residents who are holders of our common shares. In addition, share transfers must be by written instrument and comply with our bye-laws. In accordance with Bermuda law, share certificates are issued only in the names of corporations or individuals. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, we are not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust. We will take no notice of any trust applicable to any of our common shares whether or not we have notice of such trust. We, ACA Bermuda and ACA Solutions each have been incorporated in Bermuda as an exempted company. Under Bermuda law, exempted companies are companies formed for the purpose of conducting business outside Bermuda from a principal place in Bermuda. As a result, such companies are exempt from Bermuda laws restricting the percentage of share capital that may be held by non-Bermudians. However, under Bermuda law, exempted companies may not participate in certain business transactions, including: (1) the acquisition or holding of land in Bermuda (except that required for their business and held by way of lease or tenancy for terms of not more than 50 years) without the express authorization of the Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Finance; (3) the acquisition of any bonds or debentures secured by any land in Bermuda, other than certain types of Bermuda government securities; or (4) the carrying on of business of any kind in Bermuda, except in furtherance of their business carried on outside Bermuda or under license granted by the Minister of Finance. While an insurer is permitted to engage in the insurance business, generally it is not permitted without a special license granted by the Minister of Finance to insure Bermuda domestic risks or risks of persons of, in or based in Bermuda. ACA Bermuda and ACA Solutions do not have such special license. We, ACA Bermuda and ACA Solutions must comply with the provisions of the Companies Act regulating the payment of dividends and making distributions from contributed surplus. Under the Companies Act, a company shall not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that: (a) the company is, or after the payment would be, unable to pay its liabilities as they become due; or (b) the realizable value of the company's assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Under the Companies Act, when a Bermuda company issues shares at a premium (that is, for a price above the par value), whether for cash or otherwise, a sum equal to the aggregate amount or value of the premium on those shares must be transferred to an account called the share premium account. The provisions of the Companies Act relating to the reduction of the share capital of a company apply as if the share premium account were paid-up share capital of that company, except for certain matters such as premium arising on a particular class of shares that may be used in paying up unissued shares to be issued to shareholders as fully paid bonus shares. The paid-up share capital may not be reduced if on the date the reduction is to be effected there are reasonable grounds for believing that the company is, or after the reduction would be, unable to pay its liabilities as they become due. Exempted companies, such as us, ACA Bermuda and ACA Solutions, must comply with Bermuda resident representation provisions under the Companies Act, which require that a minimum number of offices must be filled by persons who are ordinarily resident in Bermuda. We do not believe that such compliance will result in any material expense or inconvenience to us. Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not engage in any gainful occupation in Bermuda without an appropriate governmental work permit. Most of our principal employees are not Bermudians and are not spouses of Bermudians. Accordingly, any such employee will require specific approval to work for us in Bermuda. A work permit may be granted or extended upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian) is available who meets the minimum standards reasonably required by the employer. The Bermuda government has a policy that places a six-year term limit on individuals with work permits, subject to certain exemptions for principal employees. Competition Financial Guaranty Insurance The financial guaranty insurance industry is highly competitive. Competition is based on many factors, including premium charges, the general reputation and perceived financial strength of the financial guaranty insurer, other terms and conditions of products offered, and reputation and experience in the particular line of financial guaranty to be written. We face competition from other providers of credit enhancement, including providers of "AAA" and lower rated insurance (such as Ambac Financial Group, Inc., MBIA, Inc. and Radian Group Inc.). We also face competition from alternatives to third-party credit enhancement, including senior-subordinated structures, over-collateralization, letters of credit and guaranties provided by monoline and multiline insurers, banks and other financial institutions. Many of our competitors have greater financial resources and higher ratings than we do and are more established than we are and there can be no assurance that our strategy will permit us to compete effectively with these other providers of credit enhancement. We are currently the only company in the financial guaranty insurance industry classified as an "A" rated insurer. Our rating is used by potential purchasers of our financial guaranty insurance as a means of assessing our financial strength and the quality of our financial guaranties. Likewise, the decreased overall cost of borrowing realized by our issuers and the increase in liquidity in the secondary market of their financial obligations that are subject to our financial guaranties largely depend on our credit rating. Financial Services The financial services industry, and in particular, the market for proprietary CDOs, is also highly competitive. We compete with other entities that structure and market CDOs, such as investment and commercial banks, investment advising firms, private equity funds and hedge funds. In our role as asset manager, we compete with mutual funds, hedge funds and other asset managers. Many of these companies have greater financial resources and are more established and well known in the CDO market than we are. Employees As of March 31, 2004, we had 87 full-time employees. None of our employees is covered by collective bargaining agreements. We consider our employee relations to be good. Properties Our headquarters are located in Hamilton, Bermuda. ACA Financial Guaranty has an office at 140 Broadway, New York, New York 10005, where we lease 42,000 square feet of office space under a lease that expires on August 31, 2009. We believe our leased facilities are adequate for us to conduct our business. Legal Proceedings In the normal course of business, we may become involved in various claims and legal proceedings. We are not currently aware of any pending or threatened material litigation. MANAGEMENT Executive Officers, Significant Employees and Directors We list below our executive officers and members of our board of directors and their ages and positions. Name Age Position (at February 1, 2004) John G. Berylson 50 Chairman of the Board Michael E. Satz 55 Deputy Chairman and Chief Executive Officer Maryam H. Muessel 45 Chief Operating Officer Edward U. Gilpin 42 Chief Financial Officer, Executive Vice President William T. Tomljanovic 41 Executive Vice President Stephen D. Cooke 50 Managing Director and General Counsel David M. Barse 41 Director Bradley E. Cooper 37 Director Steven B. Gruber 46 Director Curtis R. Jensen 41 Director Demos Kouvaris 38 Director Douglas H. Martin 50 Director Mani A. Sadeghi 40 Director Warren A. Stephens 46 Director Biographical information about the foregoing persons is as follows: John G. Berylson has been a member of our board of directors since 2000 and our Chairman since 2002. Since March 2002, Mr. Berylson has served as Chairman and Chief Executive of Chestnut Hill Ventures LLC. Since October 2000, he has served as President of GCC Investments, Inc. From 1993 until October 2000, he served as Senior Vice President and Chief Investment Officer of GC Companies, Inc. On October 11, 2000, GC Companies, Inc. filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. Mr. Berylson currently serves on the boards of two privately held companies, FleetCor Technologies, Inc. and Youngworld Stores Group, Inc. Mr. Berylson received his undergraduate degree from Brown University, his M.S. from New York University and his M.B.A. from Harvard Business School. Michael E. Satz is our Chief Executive Officer and Deputy Chairman of our board of directors. He has been our Chief Executive Officer and has served on our board since joining us in August 2000. From January 1988 until December 1998, Mr. Satz was the founder, Chief Executive Officer and Chairman of Capital Re Corporation, a financial guaranty and specialty reinsurance company. From 1985 until 1987, Mr. Satz was the Chief Operating Officer of the predecessor company to Ambac Financial Group, or Ambac, and from 1982 until 1985, he served as the General Counsel of Ambac. Mr. Satz received his undergraduate degree from Cornell University and his J.D. from Harvard Law School. Maryam H. Muessel is our Chief Operating Officer. She has been our Chief Operating Officer since joining us in April 2001. Prior to joining us, Ms. Muessel served as the Managing Director of the Credit Structured Products Group at Gen Re Securities from January 2001 until March 2001. From March 2000 until November 2000, Ms. Muessel was the head of the CDO group at Prudential Securities, Inc., or Prudential Securities. Prior to joining Prudential Securities, Ms. Muessel served as head of the Alternative Structured Finance Group at MBIA, Inc., or MBIA, from 1998 until 1999. At MBIA, Ms. Muessel was responsible for proprietary investments in structured products, credit arbitrage and alternative investments. Prior to its merger with MBIA, Ms. Muessel was at CapMAC from 1988 until 1998 where she held various positions, including Managing Director and head of Financial Engineering. Ms. Muessel currently serves on the board of Commodity Capital Group, a privately held company. Ms. Muessel received her undergraduate degree in Economics from the University of Southern California and received her M.A. (ABD) in Economics from Georgetown University. Edward U. Gilpin is our Executive Vice President and Chief Financial Officer. He has served in this capacity since he joined the company in December 2000. Prior to joining us, Mr. Gilpin was a senior investment banker in the Financial Institutions Group at Prudential Securities. From September 1998 to March 2000, Mr. Gilpin was the Chief Financial Officer for a "AAA" start-up venture sponsored by ACA Holdings and Prudential Securities. From 1991 until 1998, Mr. Gilpin served in various senior positions at MBIA, including Chief of Staff to the President. Prior to that Mr. Gilpin headed up finance and corporate development for MBIA Municipal Investors Service Corporation, an investment management subsidiary of MBIA. Mr. Gilpin received his undergraduate degree from St. Lawrence University and his M.B.A. in Finance and Management from Columbia University. Mr. Gilpin is also a NASD Financial and Operations Principal. William T. Tomljanovic is an Executive Vice President responsible for our customized solutions business. He has held this position since joining us in February 2001. Prior to joining us, Mr. Tomljanovic was a Director of Investment Banking for Prudential Securities from May 2000 until December 2000 and was responsible for originating and structuring CDOs, focusing on various asset classes including credit derivatives, high yield bonds and loans, asset-backed securities and new products. Before joining Prudential Securities, Mr. Tomljanovic worked as an independent consultant to Greenwich Street Capital Partners and Salomon Smith Barney from May 1999 until May 2000. From 1989 until 1999, Mr. Tomljanovic served in various senior management positions with Capital Re Corporation, including Senior Vice President of Mortgage and Financial Lines, Vice President Global Underwriting and Special Projects, and Vice President and Treasurer. Mr. Tomljanovic received his undergraduate degree from Duquesne University and his M.B.A. from Fordham University. Stephen D. Cooke is our Managing Director and General Counsel. He has held this position since joining us in April 2003. Prior to joining us, Mr. Cooke was special counsel at the law firm of Cadwalader, Wickersham & Taft from February 2001 until April 2003 in the corporate finance, mergers and acquisitions department, focusing on insurance-related capital markets transactions. Mr. Cooke joined Ambac Assurance Corporation in 1983 as Vice President and Assistant General Counsel and was Managing Director and General Counsel from 1988 until 2000. Prior to that, he was an associate at the law firm of Willkie Farr & Gallagher from 1979 until 1983. Mr. Cooke received his undergraduate degree from Harvard College and his J.D. from Harvard Law School. Bradley E. Cooper has been a member of our board of directors since 1997. He has been a Partner, Senior Vice President, Director and co-founder of Capital Z Management, LLC and its affiliates, or Capital Z, since July 1998. Since February 1994, he has been an officer of Insurance Partners Advisors, L.P., an investment advisor to Insurance Partners, L.P., one of our shareholders. See "Principal Shareholders." Mr. Cooper currently serves on the boards of three NYSE-listed companies, CERES Group, Inc., Universal American Financial Corp., and PXRE Group, Ltd. and other privately held companies Mr. Cooper received his undergraduate degree from the University of Michigan. David M. Barse has been a member of our board of directors since March 2001. From May 1998 until September 2003, he has served as President and Chief Operating Officer of Third Avenue Trust and its predecessor, Third Avenue Value Fund, Inc. (together with its predecessor, "Third Avenue Trust"), a registered open-end management company, before assuming the position of Chief Executive Officer in September 2003. Third Avenue Trust is one of our shareholders. See "Principal Shareholders." From July 1999 until September 2003, Mr. Barse served as President and Chief Operating Officer of Third Avenue Variable Series Trust, or Variable Trust, a registered open-end management company, before assuming the position of Chief Executive Officer in September 2003. From February 1998 until June 2003, Mr. Barse served as the President and Chief Operating Officer of Third Avenue Management LLC and its predecessor EQSF Advisers, Inc., the investment adviser of Third Avenue Trust and Variable Trust, before assuming the position of Chief Executive Officer in June 2003. Since June 1995, Mr. Barse has been President and Chief Operating Officer, and since June 1999, Chief Executive Officer of M.J. Whitman LLC and its predecessor, M.J. Whitman, Inc., together with its predecessor, MJWI, a full service broker-dealer. From July 1996 until July 2002, Mr. Barse served as President and Chief Operating Officer of Danielson Holding Corporation, or Danielson, an American Stock Exchange listed company, engaging in the financial services and specialty insurance business through its subsidiaries. Mr. Barse currently serves on the board of Danielson. Mr. Barse received his undergraduate degree from George Washington University and his J.D. from Brooklyn Law School. Steven B. Gruber has been a member of our board of directors since 2002. Since April 1990, he has been a Managing Partner of Oak Hill Capital Management, Inc., the manager of Oak Hill Capital Partners, L.P., and its predecessor companies. Since February 1994, he has been an officer of Insurance Partners Advisors, L.P., an investment advisor to Insurance Partners, L.P., one of our shareholders. See "Principal Shareholders." Since October 1992, he has been a Vice President of Keystone, Inc., or Keystone. Mr. Gruber currently serves on the boards of American Skiing Company, Williams Scotsman Holdings, Inc., TravelCenters of America, Inc. and several private companies related to Keystone and Oak Hill Capital Partners, L.P. Mr. Gruber received his undergraduate degree from University of Michigan and an M.B.A. from the University of Chicago. Curtis R. Jensen has been a member of our board of directors since 2001. Since February 2003, Mr. Jensen has served as Co-Chief Investment Officer of Third Avenue Management LLC, a registered investment adviser and the investment advisor of Third Avenue Trust, one of our shareholders. Mr. Jensen has been a research analyst with that adviser and its predecessor, EQSF Advisers, Inc. since August 1995. From April 1997 until May 2001, when he was named sole Portfolio Manager, he served as Co-Portfolio Manager of Third Avenue Small-Cap Value Fund. Since 1995, Mr. Jensen has been a senior analyst for Third Avenue Value Fund. Mr. Jensen has served as Co-Portfolio Manager of the Third Avenue Value Portfolio of the Third Avenue Variable Series Trust since April 2001. Mr. Jensen received his undergraduate degree from Williams College and an M.B.A. from the Yale School of Management. Demos Kouvaris has been a member of our board of directors since 2000. Since March 2002, Mr. Kouvaris has served as Chief Operating Officer and Chief Financial Officer of Chestnut Hill Ventures LLC, an investment management company and ultimate parent of one of our shareholders. From February 1996 until March 2002, he was Vice President of Finance for GCC Investments, Inc. Mr. Kouvaris currently serves on the board of Vanguard Modular Building Systems, LLC, a privately held company. Mr. Kouvaris is a C.P.A. and received his undergraduate degree from Boston College. Douglas H. Martin has been a member of our board of directors since 2001. Since 1981, Mr. Martin has served as an Executive Vice President of Stephens Group, Inc. and Stephens Inc., a full service broker dealer and a wholly-owned subsidiary of Stephens Group, Inc. and one of our shareholders. He is responsible for the investment of the firm's capital in private companies. Mr. Martin currently serves on the boards of Conn's, Inc., a NYSE-listed company, and numerous privately held companies. Mr. Martin received his undergraduate degree in physics and economics from Vanderbilt University and his M.B.A. from Stanford University. Mani A. Sadeghi has been a member of our board of directors since 2002. Since 2001, Mr. Sadeghi has been a Partner and Vice President of Capital Z. From 1998 until 2001, he was Chief Executive Officer and Managing Partner of Equifin Capital Management, an investment management company. Mr. Sadeghi currently serves on the boards of Aames Financial Corp., which trades on the OTC Bulletin Board, and Brookdale Living Communities, Inc., a privately held company. Mr. Sadeghi received his undergraduate degree and a masters degree from Stanford University and his M.B.A. from the Wharton School. Warren A. Stephens has been a member of our board of directors since 2001. Since 1998, Mr. Stephens has been the President and Chief Executive Officer of Stephens Group, Inc., one of our shareholders, and Stephens Inc. He currently serves on the boards of two NYSE-listed companies, Dillard's, Inc. and Alltel Corporation, and numerous privately held companies. Mr. Stephens received his undergraduate degree from Washington and Lee University and a master's degree from Wake Forest University. Board Composition Our bye-laws provide that our board of directors shall consist of between three and fifteen members, or such number as determined by the shareholders. The current board of directors consists of ten persons. At the first meeting of our shareholders following the consummation of this offering, our directors will be divided into three equal classes with initial terms of one, two and three years and termination staggered according to class. Thereafter, classes will be elected to serve three year terms. Committees of the Board of Directors Audit Committee Our audit committee consists of Demos Kouvaris, who serves as chairman, Curtis Jensen and Mani Sadeghi. The board has made an affirmative decision that Demos Kouvaris is a "financial expert" as defined in Item 401 of Regulation S-K. Under the terms of its charter, the audit committee's primary duties and assigned roles are to: serve as an independent and objective body to monitor and assess our compliance with legal and regulatory requirements, our financial reporting processes and related internal control systems and the performance, generally, of our internal audit function; oversee the audit and other services of our outside auditors and be directly responsible for the appointment, independence, qualifications, compensation and oversight of the outside auditors, who are to report directly to the audit committee; and resolve any disagreements between management and the outside auditors regarding financial reporting. The audit committee charter also mandates that the audit committee approve all audit, audit-related, tax and other services conducted by our independent accountants. Any other services not expressly approved in advance must be specifically pre-approved by the audit committee. The audit committee will also approve budgets annually for the pre-approved audit, audit-related, tax and other services to be performed by the independent accountants. Compensation Committee Our compensation committee consists of John Berylson, who serves as chairman, Steven Gruber and David Barse. The purpose of the compensation committee is to discharge the board of directors' responsibilities relating to compensation of our directors and executive officers, and to administer and implement our incentive-compensation plans and equity-based plans. The compensation committee will also be responsible for preparing a report on executive compensation for inclusion in our proxy statement for our 2004 annual meeting. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of David Barse, who serves as chairman, Bradley Cooper and John Berylson. The primary functions of the nominating and corporate governance committee are: to identify individuals qualified to become board members and recommend to our board candidates for election or re-election to the board; to consider and make recommendations to our board concerning the size and composition of our board, committee structure and makeup, and retirement and procedures affecting board members; and to monitor our human resource practices, our performance in meeting our obligations of fairness in internal and external matters, and our principles of corporate governance and practices. Independent Directors The NYSE's recently adopted rules include a requirement that a majority of directors of NYSE-listed companies be "independent." The board of directors has determined that seven of the board's nine non-management members, a majority of the ten-member board, are "independent" directors for the purposes of the NYSE's rules. Warren Stephens and Douglas Martin were determined not to qualify as independent directors. Michael Satz is not independent because he is employed by us. Each of the members of our compensation and nominating and corporate governance committees meets the "independence" requirements of the NYSE's rules. The NYSE's recently adopted rules, as well as recently adopted SEC rules, impose additional independence requirements for all members of the audit committee. The board of directors has determined that all of the members of the audit committee meet the independence requirements for audit committee members adopted by the NYSE and the SEC. EXECUTIVE COMPENSATION The following table sets forth the total compensation earned during the year ending December 31, 2003 by our Chief Executive Officer and the other four most highly compensated executive officers employed by us in fiscal year 2003, who we refer to as the named executive officers. Summary Compensation Table(1) Annual Compensation Long-Term Compensation Awards Name and Principal Position Year Salary Bonus(2) Other Annual Compensation Securities Underlying Stock Options All Other Compensation Michael E. Satz 2003 $ 450,000 $ 875,000 (3) — — — Chief Executive Officer and Deputy Chairman of the Board Maryam H. Muessel 2003 400,000 900,000 — — — Chief Operating Officer Edward U. Gilpin 2003 300,000 525,000 — — — Executive Vice President and Chief Financial Officer William T. Tomljanovic 2003 300,000 600,000 — — — Executive Vice President Stephen D. Cooke(4) 2003 173,077 300,000 (5) — 68,454 — Managing Director and General Counsel (1) In accordance with the rules of the SEC, the compensation described in this table does not include (i) medical, group life insurance or other benefits received by the executive officers that are available generally to all salaried employees and (ii) various perquisites and other personal benefits received by the executive officers, that do not exceed the lesser of $50,000 or 10% of any officer's salary and bonus disclosed in this table. (2) The annual bonuses for fiscal year 2003 were awarded in March 2004. (3) Includes a $400,000 execution award which we agreed to pay to Mr. Satz upon execution of his new employment agreement. (4) Mr. Cooke joined our company as Managing Director and General Counsel in April 2003. (5) Includes a $50,000 execution award paid by us to Mr. Cooke upon commencement of his employment. Option Grants in Last Fiscal Year The following table sets forth information concerning the stock option grants made to Mr. Cooke, who was the only named executive officer to receive an option grant in the fiscal year ended December 31, 2003. The percentage of total options granted is based on an aggregate of 205,368 options granted to all our employees and directors in 2003. Individual Grants Name Number of Securities Underlying Options Granted Percent of Total Options Granted to Employees in 2003 Exercise Price per Share(1) Expiration Date(2) Potential Realizable Value at Assumed Annual Rates of Share Price Appreciation for Option Terms(3) 5% 10% Stephen D. Cooke 68,454 33 % $ 13.77 3/21/2013 (4) $ $ (1) The exercise price per share for the options was equal to the fair market value of the common shares as of the grant date as determined by our board of directors. (2) The options have a term of 10 years, subject to earlier termination in certain events related to termination of employment. (3) Potential realizable values are computed by (1) multiplying the number of common shares subject to a given option by the midpoint of the initial public offering price range of $ per share, (2) assuming that the aggregate share value derived from that calculation compounds at the annual 5% or 10% rate shown in the table for the entire ten-year term of the option and (3) subtracting from that result the aggregate option exercise price. The 5% and 10% assumed annual rates of share price appreciation are mandated by the rules of the SEC and do not represent our estimate or projection of future common share prices. (4) Share amounts and exercise prices will be adjusted to reflect a share split which we expect to effect prior to the consummation of this offering. Aggregate Option Exercises in 2003 and Fiscal Year-End Option Values The following table sets forth information regarding exercisable and unexercisable stock options held as of December 31, 2003 by each of the named executive officers. None of our named executive officers exercised any options in 2003. The value of unexercised in-the-money options at December 31, 2003, is calculated on a value of $ per share of our common share, which is the midpoint of the range listed on the cover of this prospectus, less the per share exercise price multiplied by the number of shares issued upon exercise of the options. Name Shares Acquired on Exercise Value Realized Number of Securities Underlying Unexercised Options at December 31, 2003 Value of Unexercised In-the-Money Options at December 31, 2003 Exercisable Unexercisable Exercisable Unexercisable Michael E. Satz — — 276,696 138,438 $ $ Maryam H. Muessel — — 138,385 69,193 $ $ Edward U. Gilpin — — 92,257 46,128 $ $ William T. Tomljanovic — — 92,257 46,128 $ $ Stephen D. Cooke — — — 68,454 $ $ Employment Agreements We currently have employment agreements with each of Michael Satz, Maryam Muessel, Edward Gilpin and William Tomljanovic which will expire in 2004. We have entered into new employment agreements with each of these executive officers which will become effective on the expiration of their current employment agreements. We have also entered into an employment agreement with Stephen Cooke. Both the current and future employment agreements for each these named executive officers are described below. 2001 Employment Agreements Michael Satz. On March 1, 2001, we entered into an employment agreement with Michael Satz, under which Mr. Satz agreed to serve as our chief executive officer and chairman of our board of directors. Mr. Satz's employment agreement provides for a three-year term expiring on March 1, 2004. During the term of the agreement, Mr. Satz is paid a base salary of $450,000. Mr. Satz's base salary shall not be decreased at any time or for any purpose during his employment. Mr. Satz is eligible for an annual incentive bonus award. Mr. Satz was also granted options to acquire 415,044 shares of our common shares and is eligible for other long-term incentives at the discretion of our board of directors. Pursuant to the terms of the employment agreement, we also loaned Mr. Satz $2,200,000 for the purchase of 217,714 of our common shares. The material terms of Mr. Satz's agreement which relate to a change of control, termination for cause and termination as a result of death or disability are substantially identical to his new employment agreement as described below. If we terminate Mr. Satz's employment without cause or if he terminates his employment with us as a result of a "constructive termination", as defined in the agreement, we are required to pay his base salary through the date of termination, a pro-rata amount of his annual incentive award, a lump-sum payment of all accrued but unused vacation days, any other amounts earned, accrued or owing to Mr. Satz but not yet paid and other benefits in accordance with our applicable plans and programs. We are also required to make a lump-sum severance payment equal to the sum of his annual base salary plus his target annual incentive award. Mr. Satz is also subject to non-competition and non-solicitation provisions for a period of six months after termination of his employment agreement along with ongoing confidentiality requirements. Maryam Muessel. On May 1, 2001 we entered into an employment agreement with Maryam Muessel, under which Ms. Muessel agreed to serve as our chief operating officer. Ms. Muessel's employment agreement provides for a three-year term expiring on May 1, 2004. During the term of the agreement, Ms. Muessel is paid a base salary of $400,000, which shall be reviewed at least annually for increases. Ms. Muessel's base salary will not be decreased at any time or for any purpose during her employment. Ms. Muessel is eligible for an annual incentive bonus award. Ms. Muessel was also granted options to acquire 207,578 shares of our common shares and is eligible for other long-term incentives at the discretion of our board of directors. Pursuant to the terms of the employment agreement, we also loaned Ms. Muessel $1,000,000 for the purchase of 98,961 of our common shares. The material terms of Ms. Muessel's agreement which relate to a change of control, termination for cause and termination as a result of death or disability are substantially identical to her new employment agreement as described below. Upon the consummation of this offering, all of Ms. Muessel's outstanding and unvested options will immediately vest and become exercisable. If we terminate Ms. Muessel's employment without cause or if she terminates her employment with us as a result of a "constructive termination", as defined in the agreement, we are required to pay her base salary through the date of termination, a pro-rata annual incentive award for the year in which she was terminated, a lump-sum severance payment equal to the greater of (i) the sum of her annual base salary on the termination date and her target annual incentive award for the year in which she was terminated (with such award deemed to be equal to 75% of her base salary at the time of such termination) and (ii) the excess of the amount of base salary and minimum annual incentive award ($900,000) payable to her through the third anniversary of the effective date of the agreement and over her pro-rata annual incentive award for the year in which she is terminated, a lump-sum payment of all accrued but unused vacation days and payment of any other amounts earned, accrued or owing to Ms. Muessel but not yet paid, and other benefits in accordance with our applicable plans and programs. Ms. Muessel is also subject to non-competition and non-solicitation provisions for a period of six months after termination of her employment agreement along with ongoing confidentiality requirements. Edward Gilpin. On March 1, 2001, we entered into an employment agreement with Edward Gilpin, under which Mr. Gilpin agreed to serve as our chief financial officer and executive vice president. The employment agreement provides for a three-year term expiring on March 1, 2004. During the term of the agreement, Mr. Gilpin is paid a base salary of $300,000, which shall not be decreased at any time or for any purpose during his employment. Mr. Gilpin's base salary will be subject to review by our board at least annually for increases. Mr. Gilpin was also granted options to acquire 138,385 of our common shares and is eligible for other long-term incentives in the discretion of our board of directors. Pursuant to the terms of the employment agreement, we have also loaned Mr. Gilpin $500,000 for the purchase of 49,481 of our common shares. Mr. Gilpin is also eligible for an annual incentive bonus award. The material terms of Mr. Gilpin's agreement which relate to a change of control, termination for cause and termination as a result of death or disability are substantially identical to his new employment agreement as described below. If we terminate Mr. Gilpin's employment without cause or if he terminates his employment with us as a result of a "constructive termination", as defined in the agreement, we are required to pay his accrued base salary, a pro-rata amount of this annual incentive award, a lump-sum severance payment of his annual base salary on the date of termination plus his target annual incentive award, a lump-sum payment of all accrued but unused vacation days, and payment of any other amounts earned, accrued or owing to Mr. Gilpin but not yet paid, and other benefits in accordance with our applicable plans and programs. Mr. Gilpin is also subject to non-competition and non-solicitation provisions for a period of six months after termination of his employment agreement along with ongoing confidentiality requirements. William Tomljanovic. On March 1, 2001, we entered into an employment agreement with William Tomljanovic, under which he agreed to such as our executive vice president. The employment agreement provides for a three-year term expiring on March 1, 2004. During the term of the agreement, Mr. Tomljanovic is paid a base salary of $300,000, which shall not be decreased at any time or for any purpose during his employment and which will be reviewed at least annually for increases. Mr. Tomljanovic was also granted options to acquire 138,385 of our common shares and is eligible for other long-term incentives at the discretion of our board of directors. Pursuant to the terms of the employment agreement, we have also loaned Mr. Tomljanovic $500,000 for the purchase of 49,481 of our common shares. Mr. Tomljanovic is also eligible for an annual incentive bonus award. The remaining material terms of Mr. Tomljanovic's employment agreement are substantially identical to Mr. Gilpin's employment agreement described above. 2004 Employment Agreements Michael Satz. On February 11, 2004, we entered into an employment agreement with Michael Satz, under which Mr. Satz agreed to serve as our chief executive officer and deputy chairman of our board of directors. The effective date of the agreement is May 1, 2004. The employment agreement provides for a three-year term expiring on May 1, 2007 followed by additional automatic one-year terms unless either party to the agreement provides the other party with six months' advance written notice of its intent to terminate the employment. During the term of the agreement, Mr. Satz will be paid a base salary of $450,000, which will be increased to $750,000 on May 1, 2005. At the time of signing of the agreement, Mr. Satz received an execution award in the amount of $400,000. Mr. Satz is also eligible for an annual incentive bonus award. In addition, simultaneously with the closing of this offering, we shall grant Mr. Satz options, exercisable at the initial public offering price, to purchase 0.4% of our fully diluted common shares outstanding immediately after the consummation of this offering. Mr. Satz is entitled to certain rights if the composition of our board of directors changes in specified ways, if any single person or entity is able to elect a majority of the members of our board, upon specified changes in our beneficial ownership, or if our shareholders approve specified liquidation, sale or merger transactions that result in a change in our ownership or of all or substantially all of our assets. We refer to these events as "change of control" events. If a change of control event occurs during his employment, then (i) all company stock options shall become fully vested and nonforfeitable, except that any options granted simultaneously with the consummation of this offering shall not vest upon the consummation of this offering; and (ii) Mr. Satz shall have the continued right to exercise each outstanding stock option, including any portion of his options vesting prior to or upon the change of control, to the extent permitted by the applicable plan or grant document. If we terminate Mr. Satz's employment for "cause", as defined in the agreement, we are required to pay his base salary through the date of termination, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to him but not yet paid and other benefits in accordance with our applicable plans and programs. If we terminate Mr. Satz's employment without cause or if he terminates as a result of a "constructive termination", as defined in the agreement, we are required to pay his base salary through the date of termination, a pro-rata annual incentive award, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to the executives but not yet paid and other benefits in accordance with our applicable plans and programs. All company stock options will immediately vest and remain exercisable for the remainder of their stated terms. If Mr. Satz is terminated after a change of control event or on or after May 1, 2005, we are required to pay him with a lump-sum severance payment of 125% of one year of his annual base salary as of the termination date plus his target annual incentive award. Mr. Satz is also subject to non-competition and non-solicitation provisions along with ongoing confidentiality requirements. Mr. Satz has agreed that for a period of six months after termination of his employment (except if he is terminated before May 1, 2005), he shall not directly or indirectly (i) in any capacity similar to the capacity in which he was employed by us or otherwise competitive with us, engage, enter into or attempt to enter into a "restricted business" in the U.S. or other jurisdictions in which we conduct business or are planning to conduct business within the next one year or (ii) induce or attempt to persuade any former or then-current employee, agent, manager, consultant or director of our company to terminate such employment or other relationship in order to enter into any business relationship or business combination with him in competition with our business. A "restricted business" is defined as a financial guaranty insurance or specialized surety business, whether existing or to be formed, without regard to its claims-paying ability, which competes in any manner with our business. Maryam Muessel. On February 11, 2004, we entered into a employment agreement with Maryam Muessel, under which Ms. Muessel has agreed to serve as our chief operating officer. The effective date of the agreement is May 1, 2004. Ms. Muessel's employment agreement provides for a three-year term expiring on May 1, 2007 followed by additional automatic one-year terms unless either party to the agreement provides the other party with six months' advance written notice of its intent to terminate the agreement. During the term of the agreement, Ms. Muessel will be paid a base salary of $600,000. Ms. Muessel is also eligible for an annual incentive bonus. In addition, simultaneously with the closing of this offering, we shall grant Ms. Muessel options, exercisable at the initial public offering price, to purchase 0.4% of our fully diluted common shares outstanding immediately after the consummation of this offering. If a change of control event (as defined above) occurs during Ms. Muessel's employment, then (i) all company stock options shall become fully vested and nonforfeitable, except that any options granted simultaneously with the consummation of this offering shall not vest upon the consummation of this offering; and (ii) Ms. Muessel shall have the continued right to exercise each outstanding stock option, including any portion of her options vesting prior to or upon the change of control, to the extent permitted by the applicable plan or grant document. If we terminate Ms. Muessel's employment for "cause", as defined in the agreement, we are required to pay her base salary through the date of termination, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to her but not yet paid and other benefits in accordance with our applicable plans and programs. If we terminate Ms. Muessel's employment without cause or if she terminates as a result of a "constructive termination", as defined in the agreement, we are required to pay her base salary through the date of termination, a pro-rata annual incentive award for the year in which she was terminated, a lump-sum severance payment equal to the greater of (x) 120% of one year of her annual base salary as of the termination date or (y) her base salary and annual incentive award for the remaining term of her agreement, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to Ms. Muessel but not yet paid and other benefits in accordance with our applicable plans and programs. All company stock options will immediately vest and remain exercisable for the remainder of their stated terms. Ms. Muessel is also subject to non-competition and non-solicitation provisions along with ongoing confidentiality requirements. Ms. Muessel has agreed that through a period of six months after termination of her employment, she shall not directly or indirectly (i) in any capacity similar to the capacity in which she was employed by us or otherwise competitive with us, engage, enter into or attempt to enter into a restricted business (as defined above) in the U.S. or other jurisdictions in which we conduct business or are planning to conduct business within the next one year or (ii) induce or attempt to persuade any former or then-current employee, agent, manager, consultant or director of our company to terminate such employment or other relationship in order to enter into any business relationship or business combination with her in competition with our business. Edward Gilpin. On February 11, 2004, we entered into an employment agreement with Edward Gilpin, under which Mr. Gilpin has agreed to serve as our chief financial officer and executive vice president. The effective date of the agreement is March 1, 2004. The employment agreement provides for a three-year term expiring on March 1, 2007 followed by automatic additional one-year terms unless either party to the agreement provides the other party with six months' advance written notice of its intent to terminate the agreement. During the term of the agreement, Mr. Gilpin will be paid a base salary of $350,000. Mr. Gilpin's base salary will be subject to review by our board at least annually for increases. Upon consummation of this offering, Mr. Gilpin's base salary will be increased by $50,000. Mr. Gilpin is also eligible for an annual incentive bonus award. In addition, simultaneously with the closing of this offering, we shall grant Mr. Gilpin options, exercisable at the initial public offering price, to purchase 0.4% of our fully diluted common shares outstanding immediately after the consummation of this offering. If a change of control event (as defined above) occurs during Mr. Gilpin's employment, then (i) all company stock options shall become fully vested and nonforfeitable, except that any options granted simultaneously with the consummation of this offering shall not vest upon the consummation of this offering; and (ii) Mr. Gilpin shall have the continued right to exercise each outstanding stock option, including any portion of his options vesting prior to or upon the change of control, to the extent permitted by the applicable plan or grant document. If we terminate Mr. Gilpin's employment for "cause", as defined in the agreement, we are required to pay his base salary through the date of termination, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to him but not yet paid and other benefits in accordance with our applicable plans and programs. If we terminate Mr. Gilpin's employment without cause or if he terminates as a result of a "constructive termination", as defined in the agreement, we are required to pay his accrued base salary, a pro-rata annual incentive award, a lump-sum severance payment equal to one year of his annual base salary on the date of termination, a lump-sum payment of all accrued but unused vacation days at the base salary rate in effect on the date of termination, any other amounts earned, accrued or owing to Mr. Gilpin but not yet paid and other benefits in accordance with our applicable plans and programs. All company stock options will immediately vest and remain exercisable for the remainder of their stated terms. Mr. Gilpin is also subject to non-competition and non-solicitation non-compete provisions along with ongoing confidentiality requirements. Mr. Gilpin has agreed that through a period of six months after termination of his employment, he shall not directly or indirectly (i) in any capacity similar to the capacity in which he was employed by us or otherwise competitive with us, engage, enter into or attempt to enter into a restricted business (as defined above) in the U.S. or other jurisdictions in which we conduct business or are planning to conduct business within the next one year or (ii) induce or attempt to persuade any former or then-current employee, agent, manager, consultant or director of our company to terminate such employment or other relationship in order to enter into any business relationship or business combination with him in competition with our business. William Tomljanovic. On February 11, 2004, we entered into an employment agreement with William Tomljanovic, under which he has agreed to serve as our executive vice president. The effective date of the agreement is March 1, 2004. The employment agreement provides for a three-year term expiring on March 1, 2007 followed by automatic additional one-year terms unless either party to the agreement provides the other party with six months' advance written notice of its intent to terminate the agreement. During the term of the agreement, Mr. Tomljanovic will be paid a base salary of $350,000. Upon consummation of this offering, Mr. Tomljanovic's base salary will be increased by $50,000. Mr. Tomljanovic is also eligible for an annual incentive bonus award. In addition, simultaneously with the closing of this offering, we shall grant Mr. Tomljanovic options, exercisable at the initial public offering price, to purchase 0.4% of our fully diluted common shares outstanding immediately after the consummation of this offering. The remaining material terms of Mr. Tomljanovic's employment agreement are substantially identical to Mr. Gilpin's employment agreement described above. Stephen Cooke. On March 17, 2003, we and Stephen Cooke entered into an employment letter agreement outlining the terms of his employment as our general counsel. Under the terms of Mr. Cooke's agreement, he is paid a base salary of $250,000 and is eligible for a merit bonus award for 2003 equal to 100% of his base salary. Mr. Cooke was also granted options to acquire 68,454 of our common shares. Mr. Cooke also received an execution award in the amount of $50,000 payable upon commencement of his employment. Compensation of Directors Our directors currently do not receive cash compensation for their services as directors or members of committees of the board of directors, but are reimbursed for their reasonable expenses incurred in attending meetings of the board of directors. In the future we expect to compensate our directors at levels commensurate with market practice. Compensation Committee Interlocks and Insider Participation During 2003, the members of our compensation committee included Warren Stephens, David Barse, Steven Gruber and our Chief Executive Officer, Michael Satz. Warren Stephens is the President, Chief Executive Officer and Director of Stephens Inc. and Stephens Group, Inc., an investor in our company. See "Certain Relationships and Related Transactions—Transactions with Stephens." As of November 24, 2003, Mr. Stephens and Mr. Satz resigned from and John G. Berylson was appointed to our compensation committee. In 2003, none of our executive officers served as a director or member of the compensation committee of another entity whose executive officers had served on our board of directors or on our compensation committee. Employee Plans Omnibus Incentive Compensation Plan A description of the provisions of our Omnibus Incentive Compensation Plan is set forth below. In this summary, the Omnibus Incentive Compensation Plan is referred to as the incentive compensation plan. This summary is qualified in its entirety by the detailed provisions of the incentive compensation plan. You may refer to the exhibits that are a part of the registration statement of which this prospectus is a part for a copy of the incentive compensation plan. Our board of directors approved the incentive compensation plan on February 28, 2001 and our members approved it on June 13, 2001. The objectives of the incentive compensation plan are to optimize our profitability and growth by linking the personal interests of our employees and outside directors to our interests, to provide our employees and outside directors with incentives for excellence in individual performance, and to promote teamwork amongst our employees and outside directors. Further, the incentive compensation plan provides us with the flexibility to motivate and attract personnel who make significant contributions to our success. As of December 31, 2003 the number of common shares reserved for issuance under the incentive compensation plan was 2,122,076. As of December 31, 2003, options with respect to 2,015,212 common shares were outstanding under the incentive compensation plan and 106,864 shares were available for issuance. On February 11, 2004, our board amended the incentive compensation plan, subject to shareholder approval, to increase the number of common shares reserved for issuance by an amount equal to 5.1% of our fully diluted common shares outstanding immediately after the consummation of this offering (excluding the underwriters' over-allotment option). Administration. The incentive compensation plan is administered by the compensation committee of our board of directors. Subject to the terms of the incentive compensation plan, the compensation committee may select participants to receive awards, determine the types of awards and terms and conditions of awards, and interpret provisions of the incentive compensation plan. Source of Shares. The common shares issued under the incentive compensation plan consists of authorized but unissued shares and treasury shares. Eligibility. Awards may be made under the incentive compensation plan to our employees, our affiliates' or subsidiaries' employees, and our outside directors. Amendment or Termination of the Plan. While our board of directors may terminate or amend the incentive compensation plan at any time, no amendment may adversely impair the rights of grantees with respect to outstanding awards without the written consent of such grantees. Unless terminated earlier, the incentive compensation plan will terminate when all of the common shares reserved for issuance under the incentive compensation plan have been purchased or acquired, but will continue to govern unexpired awards. Amendments will be submitted for shareholder approval to the extent required by applicable law. Options. The incentive compensation plan permits the granting of options to purchase common shares intended to qualify as incentive stock options under the Internal Revenue Code, referred to as incentive stock options, and stock options that do not qualify as incentive stock options, referred to as non-qualified stock options. The exercise price of each stock option is determined by the compensation committee. The term of each stock option is fixed by the compensation committee. The term of an incentive stock option may not exceed 10 years from the option's date of grant. The compensation committee determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options may be made exercisable in installments. In general, an optionee may pay the exercise price of an option by cash or its equivalent, by tendering common shares (which if acquired from us have been held by the optionee for at least six months), by a promissory note or by means of a broker-assisted cashless exercise. Stock options granted under the incentive compensation plan may not be sold, transferred, pledged, or assigned other than by will or under applicable laws of descent and distribution. However, we may permit limited transfers of non-qualified stock options pursuant to the terms of the respective non-qualified stock option award agreements. Other Awards. The compensation committee may also grant under the incentive compensation plan other types of awards. These awards include share appreciation rights, restricted share, performance shares, performance units, and cash-based awards. Only options have been granted under the incentive compensation plan to date. Effect of Extraordinary Corporate Transactions. In general, options granted under the incentive compensation plan will be fully vested in the event of a "change of control," as such term is defined in the incentive compensation plan and associated option award agreements. Adjustments for Share Dividends and Similar Events. The compensation committee will make appropriate adjustments in outstanding awards and in the number of shares available for issuance under the incentive compensation plan, including the individual limitations on awards, to reflect common share dividends, share splits, spin-offs and other similar events. PRINCIPAL SHAREHOLDERS The following table sets forth information known to us regarding beneficial ownership of our common shares as of April 1, 2004, and as adjusted to reflect the sale of the common shares offered by this prospectus, by: Each person known by us to be the beneficial owner of more than 5% of our common shares; Each of our named executive officers; Each of our directors; and All of our executive officers and directors as a group. Unless otherwise noted below, and subject to applicable community property laws, to our knowledge, each person has sole voting and investment power over the shares shown as beneficially owned, except to the extent authority is shared by spouses under applicable law. The number of shares beneficially owned by each shareholder is determined under rules promulgated by the SEC and assumes the underwriters do not exercise their over-allotment option. The information does not necessarily indicate beneficial ownership for any other purpose. Common shares subject to options and convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days after April 1, 2004, are deemed outstanding for purposes of computing the percentage beneficially owned by the person or entity holding such securities but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person or entity. All outstanding convertible preference shares and senior convertible preferred shares automatically convert into common shares immediately prior to the consummation of this offering. Percentage of beneficial ownership is based on 5,885,766 of our common shares outstanding as of April 1, 2004, and common shares outstanding upon consummation of this offering. Beneficial Owner Number of Common Shares Beneficially Owned Prior to the Offering Percentage of Outstanding Common Shares Before the Offering(1) Number of Common Shares Beneficially Owned Following the Offering Percentage of Outstanding Common Shares Following the Offering(1) 5% Shareholders Stephens Group, Inc. (2) 111 Center Street Little Rock, AR 72201 3,046,241 40.1 % Third Avenue Trust (3) 622 Third Avenue, 32nd floor New York, NY 10017 2,801,932 34.9 % Chestnut Hill ACA, LLC (4) 60 Williams Street, Suite 230 Wellesley, MA 02481 2,258,059 33.2 % Insurance Partners Entities (5) 54 Thompson Street New York, NY 10012 1,337,822 22.7 % Transamerica Life Insurance Company (6) 581,858 9.1 % 4333 Edgewood Road N.E. Cedar Rapids, IA 52499 Life Investors Insurance Company of America (7) 581,858 9.1 % 4333 Edgewood Road N.E. Cedar Rapids, IA 52499 Beneficial Owner Number of Common Shares Beneficially Owned Prior to the Offering Percentage of Outstanding Common Shares Before the Offering(1) Number of Common Shares Beneficially Owned Following the Offering Percentage of Outstanding Common Shares Following the Offering(1) BankAmerica Investment Corporation (8) 494,806 7.8 % 600 Montgomery Street San Francisco, CA 94111 FW ACA Investors, L.P.(9) 494,806 7.8 % Directors and Executive Officers John G. Berylson (10) 2,258,059 33.2 % Michael E. Satz (11) 632,758 10.0 % Maryam H. Muessel (12) 306,539 5.0 % Edward U. Gilpin (13) 187,866 3.1 % William T. Tomljanovic (14) 187,866 3.1 % Stephen D. Cooke (15) 45,636 * David M. Barse (16) 2,801,932 34.9 % Bradley E. Cooper(17) 1,337,822 22.7 % Steven B. Gruber (18) 1,337,822 22.7 % Curtis R. Jensen (19) 2,801,932 34.9 % Demos Kouvaris (20) 2,258,059 33.2 % Douglas H. Martin (21) 0 * Mani Sadeghi 0 * Warren A. Stephens (22) 0 * All Executive Officers and Directors as a Group (14 persons) (23) 14,156,291 % Unless otherwise indicated in the footnotes, the address of each of the beneficial owners identified is c/o American Capital Access Holdings Limited, 44 Church Street, Hamilton Hm 12, Bermuda. * Less than 1% of our outstanding common shares. (1) Our bye-laws will limit the total voting power of any shareholder owning 10% or more of the total combined voting power of our issued common shares. See "Description of Our Share Capital—Limitation on Voting Rights." (2) The principal stockholders of Stephens Group, Inc. are the Jackson T. Stephens Trust No. One UID 1/4/88, Jackson T. Stephens as trustee, and the Bess C. Stephens Trust UID 1/4/85, Bess C. Stephens as trustee. Warren A. Stephens, one of our directors, is a director and an officer of Stephens Group, Inc. and its subsidiary Stephens Inc. Douglas H. Martin, another of our directors, is an officer of Stephens Group, Inc. Includes 1,708,419 common shares issuable upon conversion of convertible preference shares and senior convertible preferred shares, all of which will automatically convert into common shares immediately prior to this consummation of the offering. The address of each of the above named persons is c/o Stephens Group, Inc., 111 Center Street, Little Rock, Arkansas, 72201. (3) Consists of shares beneficially owned by Third Avenue Value Fund Series of the Third Avenue Trust, an investment company registered under the Investment Company Act of 1940. Third Avenue Management LLC is the investment advisor of Third Avenue Trust. Third Avenue Management LLC is 60% owned by Affiliated Managers Group, Inc., a NYSE listed company. Includes 2,133,021 common shares issuable upon conversion of convertible preference shares and senior convertible preferred shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. (4) Includes 920,237 common shares issuable upon the conversion of convertible preference shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. Chestnut Hill ACA, LLC is indirectly wholly owned by Chestnut Hill Ventures LLC, which we refer to as Chestnut Hill Ventures. JD Capital Partners LLC is the manager of Chestnut Hill and is owned equally by Mr. Berylson and Demos Kouvaris, two of our directors. (5) Consists of 855,544 common shares held by Insurance Partners, L.P., which we refer to as Insurance Partners, and 471,522 common shares held by Insurance Partners Offshore (Bermuda), L.P., we refer to Insurance Partners Offshore and Insurance Partners as the Insurance Partners Entities. Bradley E. Cooper, Steven B. Gruber and Robert A. Spass have voting and investment power over securities held by the Insurance Partners Entities. (6) Includes 247,403 common shares issuable upon conversion of convertible preference shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. Transamerica Life Insurance Company is wholly owned by AEGON, N.V. (7) Includes 247,403 common shares issuable upon conversion of convertible preference shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. Life Investors Insurance Company of America is wholly owned by AEGON, N.V. (8) Consists of 494,806 common shares issuable upon conversion of convertible preference shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. BankAmerica Investment Corporation is wholly owned by Bank of America Corporation. (9) Consists of 494,806 common shares issuable upon conversion of convertible preference shares, all of which will automatically convert into common shares immediately prior to the consummation of this offering. The general partner of FW ACA Investors, L.P. is Group III 31, L.L.C., whose sole owner and manager is J. Taylor Crandall. (10) Consists of 2,258,059 common shares beneficially owned by Chestnut Hill ACA, LLC. (11) Includes 415,044 common shares issuable upon the exercise of outstanding stock options currently exercisable or exercisable within 60 days of April 1, 2004. (12) Includes 207,578 common shares issuable upon the exercise of outstanding stock options exercisable within 60 days of April 1, 2004. (13) Includes 138,385 common shares issuable upon the exercise of outstanding stock options currently exercisable or exercisable within 60 days of April 1, 2004. (14) Includes 138,385 common shares issuable upon the exercise of outstanding stock options currently exercisable or exercisable within 60 days of April 1, 2004. (15) Consists of 45,636 common shares issuable upon exercise of outstanding stock options exercisable within 60 days of April 1, 2004. (16) Consists of 2,801,932 shares beneficially owned by Third Avenue Trust. Mr. Barse is the President and Chief Operating Officer of Third Avenue Management LLC, the investment advisor of Third Avenue Value Fund Series. Mr. Barse disclaims beneficial ownership of these shares. (17) Consists of 1,337,822 common shares held by the Insurance Partners Entities which shares may be deemed to be beneficially owned by Mr. Cooper. (18) Consists of 1,337,822 common shares held by the Insurance Partners Entities, which shares may be deemed to be beneficially owned by Mr. Gruber. (19) Consists of 2,801,932 shares beneficially owned by Third Avenue Trust. Mr. Jensen is the Co-Chief Investment Officer of Third Avenue Management LLC, the investment advisor of Third Avenue Value Fund Series. Mr. Jensen disclaims beneficial ownership of these shares. (20) Consists of 2,258,059 shares beneficially owned by Chestnut Hill ACA, LLC. Mr. Kouvaris disclaims beneficial ownership of these shares. (21) Douglas H. Martin, one of our directors, is an officer of Stephens Group, Inc. (22) Warren A. Stephens, one of our directors, is a director and an officer of Stephens Group, Inc. and its subsidiary Stephens Inc. (23) Includes common shares issuable upon the exercise of outstanding stock options exercisable within 60 days of April 1, 2004 or upon the completion of this offering and common shares issuable upon conversion of convertible preference shares and senior convertible preferred shares which will automatically convert immediately prior to the consummation of this offering. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Stephens. Two of our directors, Messrs. Stephens and Martin are executive officers of Stephens Group, Inc., an investor in our company. As of April 1, 2004, Stephens Group, Inc. was the beneficial owner of approximately 40% of our common shares. On March 26, 2002, we replaced one of the investment managers of ACA Financial Guaranty's investment portfolio with Stephens Capital Management Division, or SCM, an affiliate of Stephens Group, Inc. Pursuant to a Fixed Income Investment Management Agreement, dated March 26, 2002, between us and Stephens, Inc., SCM provides us with investment advice, management services and other functions, such as brokerage, clearance and settlement services. We incurred investment management fees to SCM totaling approximately $94,900 in 2002 and approximately $151,141 in 2003. Transactions with Bank of America. In February 2001, Banc of America Securities, LLC, an affiliate of Bank of America Investment Corporation, acted as placement agent in connection with the issuance by us of convertible preference shares and convertible preferred shares. We paid Banc of America Securities, LLC $1,143,171 for these services. As of April 1, 2004, BankAmerica Investment Corporation was the beneficial owner of approximately 8% of our common shares. In May 2003, Banc of America Securities, LLC, an affiliate of Bank of America Investment Corporation, acted as placement agent in connection with the origination of one of our proprietary CDOs. We paid Banc of America Securities, LLC a total of approximately $3,538,708 in placement and structuring fees and expenses. Transactions with executive officers. Gordon Muessel, the husband of our Chief Operating Officer, Maryam Muessel, is a managing partner in the Libertas Group, a placement and consulting firm. Libertas Group has acted on behalf of our company in connection with the hiring of several of our employees. For these services, we paid Libertas Group, approximately $88,750 in 2002 and approximately $72,500 in 2003. Libertas Group does not currently provide services to our company and will not do so in the future. Indebtedness of Management Michael Satz, Chief Executive Officer. Pursuant to an employment contract approved by the board of directors in 2001, Michael Satz purchased 217,714 of our common shares in exchange for a $2.2 million 10-year promissory note, dated April 18, 2001, payable to us. The promissory note accrues interest at either the 10-year U.S. Treasury rate or the 10-year U.S. Treasury rate plus 4%. Principal and interest on the note are payable on February 28 of each year starting in 2002. As of December 31, 2003 and March 31, 2004 the outstanding principal balance and unpaid accrued interest on the note, including default interest and past due interest from past due payments at December 31, 2003, totaled approximately $2,552,156 and $2,402,862, respectively. As of the date hereof, all past due amounts have been paid in full. Upon Michael Satz's employment with us in 2001, we agreed to guarantee payments of any amounts charged by Mr. Satz on a corporate credit card and Mr. Satz agreed to reimburse us for any personal amounts charged to his corporate credit card and paid by us. As of December 31, 2003, the outstanding amounts under this arrangement, together with accrued interest, totaled $225,994. On February 11, 2004, Mr. Satz made a payment to us of all outstanding amounts under this arrangement and we discontinued the guarantee arrangement. Maryam Muessel, Chief Operating Officer. Maryam Muessel purchased 98,961 of our common shares in exchange for a $1 million 10-year promissory note, dated June 29, 2001, payable to us. The promissory note accrues interest at the 10-year U.S. Treasury rate. Principal and interest on the note are payable on February 28 of each year starting in 2004. In accordance with the terms of the promissory note, no principal or interest payments were made in 2001, 2002 or 2003. As of December 31, 2003 and March 31, 2004, the outstanding principal balance and unpaid accrued interest on the note totaled approximately $1,115,773 and $899,859, respectively. Edward Gilpin, Chief Financial Officer, Executive Vice President. Pursuant to an employment contract approved by the board of directors in 2001, Edward Gilpin purchased 49,481 of our common shares in exchange for a $500,000 10-year promissory note payable to us. The promissory note accrues interest at the 10-year U.S. Treasury rate. Principal and interest on the note are payable on February 28 of each year starting in 2004. In accordance with the terms of the promissory note, no principal or interest payments were made in 2001, 2002 or 2003. As of December 31, 2003 and March 31, 2004, the outstanding principal balance and unpaid accrued interest on the note totaled approximately $557,458 and $390,207, respectively. William Tomljanovic, Executive Vice President. Pursuant to an employment contract approved by the board of directors in 2001, William Tomljanovic purchased 49,481 of our common shares in exchange for a $500,000 10-year promissory note payable to us. The promissory note accrues interest at the 10-year U.S. Treasury rate. Principal and interest on the note are payable on February 28 of each year starting in 2004. In accordance with the terms of the promissory note, no principal or interest payments were made in 2001, 2002 or 2003. As of December 31, 2003 and March 31, 2004, the outstanding principal balance and unpaid accrued interest on the note totaled approximately $557,458 and $371,396, respectively. DESCRIPTION OF OUR SHARE CAPITAL The following description of our share capital summarizes certain provisions of our amended and restated bye-laws. A copy of our bye-laws is incorporated by reference into the registration statement of which this prospectus is a part. General Upon the consummation of this offering, our authorized share capital will consist of 130,000,000 common shares and 20,000,000 preferred shares, par value $0.0177 per share, of which common shares will be outstanding (assuming the underwriters' over-allotment option is not exercised). Common Shares Holders of common shares have no pre-emptive, redemption, conversion or sinking fund rights. The quorum for any meeting of our shareholders is two or more persons present in person and representing in person or by proxy the majority of the aggregate voting power of our company. Subject to the limitation on voting rights described below, holders of common shares are entitled to one vote per share on all matters submitted to a vote of holders of common shares. Most matters to be approved by holders of common shares require approval by a simple majority vote cast at a meeting where quorum is present. However, the holders of at least 75% of the common shares voting in person or by proxy at a meeting must generally approve a merger or consolidation with another company. In addition, a resolution to remove our auditor before the expiration of its term of office must be approved by at least two-thirds of the votes cast at a meeting of our shareholders. The rights attached to any class of shares, common or preferred, may be varied with the consent in writing of the holders of at least 75% of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class in accordance with the Companies Act. In the event of a liquidation, dissolution or winding-up of our company, the holders of our common shares are entitled to share equally and ratably in the assets of our company, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any outstanding preferred shares. Limitation on Voting Rights Each common share has one vote on a poll of the shareholders, except that, if and for as long as the number of issued Controlled Shares (as defined below) attributable to any person would constitute 10% or more of the total combined voting power of our issued common shares and any of our other class or classes of shares conferring voting rights on the holder thereof (before giving effect to the provision as described below), each issued Controlled Share attributable to such person, regardless of the identity of the registered holder thereof, will confer a fraction of a vote as determined by the following formula: (T-C) (9.102 x C) Where (1) "T" is the aggregate number of votes conferred by all the issued common shares, any other class that confers voting rights, immediately prior to the application of the formula with respect to such issued Controlled Shares, adjusted to take into account any prior reduction taken with respect to any issued Controlled Shares pursuant to the "sequencing provision" described below; and (2) "C" is the number of votes attributable to the Controlled Shares attributable to such person. "Controlled Shares" of any person refers to all common shares and shares of any other class or classes of shares of the company conferring voting rights owned by that person, whether (i) directly; or (ii) with respect to persons who are U.S. persons, by application of the attribution and constructive ownership rules of sections 958(a) and 958(b) of the Internal Revenue Code. The formula will be applied successively as many times as may be necessary to ensure that no person will be a 10% Shareholder (as defined below) at any time, or the "sequencing provision". For the purposes of determining the votes exercisable by shareholders as of any date, the formula first will be applied to the shares of each shareholder in declining order based on the respective numbers of total Controlled Shares attributable to each shareholder. Thus, the formula will be applied first to the votes of shares held by the shareholder to whom the largest number of total Controlled Shares is attributable and thereafter sequentially with respect to the shareholder with the next largest number of total Controlled Shares. The formula will be applied iteratively thereafter to ensure that no person will be a 10% Shareholder. In each case, calculations are made on the basis of the aggregate number of votes conferred by the issued common shares and any other class or classes of shares of the company conferring voting rights as of such date, as reduced by the application of the formula to any issued shares of any shareholder with a larger number of total Controlled Shares as of such date. "10% Shareholder" means a person who owns, in the aggregate, (i) directly or (ii) with respect to persons who are U.S. persons, by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Internal Revenue Code, common shares and any other class or classes of shares of the company conferring voting rights on such person representing 10% or more of the total combined voting rights attaching to all issued shares. Our directors are empowered to require any shareholder to provide information as to that shareholder's beneficial ownership of common shares, the names of persons having beneficial ownership of the shareholder's common shares, relationships, associations or affiliations with other shareholders or any other facts the directors may deem relevant to a determination of the number of Controlled Shares attributable to any person. Our directors may disregard the votes attached to the common shares of any holder failing to respond to such a request or submitting incomplete or untrue information. Our directors retain certain discretion to make such final adjustments to the aggregate number of votes attaching to the common shares of any shareholder that they consider fair and reasonable in all the circumstances to ensure that no person will be a 10% Shareholder at any time. Restrictions on Transfer Our bye-laws contain several provisions restricting the transferability of common shares. Our directors are required to decline to register a transfer of common shares if they have reason to believe that the result of such transfer would be that any person would become or continue to be a 10% Shareholder without giving effect to the limitation on voting rights described above. Similar restrictions apply to our ability to issue or repurchase common shares. Our directors also may, in their absolute discretion, decline to register the transfer of any common shares if they have reason to believe (i) that the transfer may expose us, any of our subsidiaries, any shareholder or any person ceding insurance to us or any of our subsidiaries to adverse tax or regulatory treatment in any jurisdiction or (ii) that registration of the transfer under the Securities Act or under any U.S. state securities laws or under the laws of any other jurisdiction is required and such registration has not been duly effected. In addition, our directors may decline to approve or register a transfer of shares unless all applicable consents, authorizations, permissions or approvals of any governmental body or agency in Bermuda, the United States or any other applicable jurisdiction required to be obtained prior to such transfer shall have been obtained. We are authorized to request information from any holder or prospective acquiror of common shares as necessary to give effect to the transfer, issuance and repurchase restrictions described above, and may decline to effect any transaction if complete and accurate information is not received as requested. Conyers Dill & Pearman, our Bermuda counsel, has advised us that while the precise form of the restrictions on transfer contained in our bye-laws is untested, as a matter of general principle, restrictions on transfers are enforceable under Bermuda law and are not uncommon. A proposed transferee will be permitted to dispose of any common shares purchased that violate the restrictions and as to the transfer of which registration is refused. The proposed transferor of those common shares will be deemed to own those common shares for dividend, voting and reporting purposes until a transfer of such common shares has been registered on the register of shareholders of our company. If our directors refuse to register a transfer for any reason, they must notify the proposed transferor and transferee within 30 days of such refusal. Our bye-laws also provide that our board of directors may suspend the registration of transfers for any reason and for such periods as it may determine, provided that it may not suspend the registration of transfers for more than 45 days in any period of 365 consecutive days. The voting restrictions and restrictions on transfer described above may have the effect of delaying, deferring or preventing a change in control of our company. Preferred Shares Pursuant to our bye-laws and Bermuda law, our board of directors by resolution may establish one or more series of preferred shares having a number of shares, designations, relative voting rights, dividend rates, liquidation and other rights, preferences, limitations and powers as may be fixed by the board of directors without any further shareholder approval which, if any preferred shares are issued, will include restrictions on voting and transfer intended to avoid having us constitute a "controlled foreign corporation" for U.S. federal income tax purposes. If our board of directors issues preferred shares conferring any voting rights, it will amend our bye-laws to apply the limitations on the voting rights discussed above under "—Limitation on Voting Rights" to those preferred shares. Any rights, preferences, powers and limitations as may be established could also have the effect of discouraging an attempt to obtain control of our company. The issuance of preferred shares could also adversely affect the voting power of the holders of our common shares, deny such holders the receipt of a premium on their common shares in the event of a tender or other offer for the common shares and depress the market price of the common shares. We have no current plans to issue any preferred shares. Registration Rights Agreements Generally Certain of our existing shareholders, who will collectively hold approximately of our common shares after consummation of the offering, including members of our management, are entitled to certain rights with respect to the registration of such shares under the Securities Act pursuant to a Registration Rights Agreement dated as of September 23, 1997 and a Registration Rights Agreement dated as of February 28, 2001. Demand Rights Under the terms of our Registration Rights Agreements, at any time following 180 days after the consummation of this offering, holders of our registrable securities (as defined in the Registration Rights Agreements) have the right, subject to certain limitations, to demand the registration of all or a part of their common shares. Under the agreements, no party may exercise their right to demand registration of any common shares if we have registered any shares pursuant to a demand by any party to that agreement in the preceding six months of the new demand. Furthermore, we are only obligated to effect a total of up to two such "demand" registrations under each agreement, provided, however, that any such registration statement that we file in response to such a demand must remain effective for the earlier of 180 days or until the date on which all of the securities registered under such registration statement have been sold. Piggyback Rights Subject to the exceptions and limitations set forth in the Registration Rights Agreements, the holders of registrable securities under the agreements have unlimited piggyback registration rights, subject to cutback at the option of the underwriters of that particular offering. S-8 Registration Rights We have agreed to use commercially reasonable efforts to file no later than 90 days following the consummation of this offering a registration statement on Form S-8 covering the common shares issuable upon exercise of options granted under all our stock option plans. Bye-laws Our bye-laws provide for our corporate governance, including the establishment of share rights, modification of those rights, issuance of share certificates, imposition of a lien over shares in respect of unpaid amounts on those shares, calls on shares which are not fully paid, forfeiture of shares, the transfer of shares, alterations of capital, the calling and conduct of general meetings, proxies, the appointment and removal of directors, conduct and power of directors, the payment of dividends, the appointment of an auditor and the winding-up of our company. Our bye-laws provide that our board of directors shall consist of three approximately equal classes, each class (after the initial class) to be elected to serve for a three year term. Shareholders may only remove a director for cause prior to the expiration of that director's term at a special meeting of shareholders at which a majority of the holders of shares voting thereon vote in favor of that action. A special meeting of shareholders may be convened by the chairman or any two directors or any director and the secretary or on the request of shareholders holding not less than 10% of the paid-up share capital of our company that carries the right to vote at general shareholders' meetings. For a description of the number and term of our Directors, see "Management." Our bye-laws also provide that if our board of directors in its absolute discretion determines that share ownership by any shareholder may result in adverse tax, regulatory or legal consequences to us, any of our subsidiaries or any other shareholder, then we will have the option, but not the obligation, to repurchase all or part of the shares held by such shareholder to the extent the board of directors determines it is necessary to avoid such adverse or potential adverse consequences. We will also be entitled to assign this repurchase right to one or more third parties, including other shareholders. The price to be paid for such shares will be the fair market value of such shares. Transfer Agent Our registrar and transfer agent for the common shares is Mellon Investor Services LLC. Listing We intend to apply to have our common shares listed on the New York Stock Exchange under the symbol "ACA." Differences in Corporate Law The Companies Act differs in certain material respects from laws generally applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Act (including modifications adopted pursuant to our bye-laws) applicable to us, which differ in certain respects from provisions of Delaware corporate law, which is the law that governs many U.S. public companies. The following statements are summaries, and do not purport to deal with all aspects of Bermuda law that may be relevant to us and our shareholders. Duties of Directors. Under Bermuda law, at common law, members of a board of directors owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty has the following essential elements: a duty to act in good faith in the best interests of the company; a duty not to make a personal profit from opportunities that arise from the office of director; a duty to avoid conflicts of interest; and a duty to exercise powers for the purpose for which such powers were intended. The Companies Act imposes a duty on directors and officers of a Bermuda company: to act honestly and in good faith with a view to the best interests of the company; and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In addition, the Companies Act imposes various duties on officers of a company with respect to certain matters of management and administration of the company. The Companies Act provides that in any proceedings for negligence, default, breach of duty or breach of trust against any officer, if it appears to a court that such officer is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that, having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from any liability on such terms as the court may think fit. This provision has been interpreted to apply only to actions brought by or on behalf of the company against such officers. Our bye-laws, however, provide that shareholders waive all claims or rights of action that they might have, individually or in the right of our company, against any director or officer of us for any act or failure to act in the performance of such director's or officer's duties, except this waiver does not extend to any claims or rights of action that arise out of fraud or dishonesty on the part of such director or officer. Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its stockholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of corporate employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the stockholders. A party challenging the propriety of a decision of a board of directors bears the burden of rebutting the applicability of the presumptions afforded to directors by the "business judgment rule." If the presumption is not rebutted, the business judgment rule attaches to protect the directors and their decisions, and their business judgments will not be second-guessed. Where, however, the presumption is rebutted, the directors bear the burden of demonstrating the entire fairness of the relevant transaction. Notwithstanding the foregoing, Delaware courts subject directors' conduct to enhanced scrutiny in respect of defensive actions taken in response to a threat to corporate control and approval of a transaction resulting in a sale of control of the corporation. Interested Director. Under Bermuda law, transactions we enter into in which a director has an interest are not voidable by us, nor can the interested director be liable to us for any profit realized pursuant to such transactions, provided the nature of the interest is disclosed at the first opportunity at a meeting of directors, or in writing to the directors. Under Delaware law, such a transaction would be voidable unless (i) the material facts as to the interested director's relationship or interests are disclosed or are known to the board of directors and the board in good faith authorized the transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum, (ii) the material facts as to the director's relationship or interest and as to the transaction are disclosed or are known to the shareholders entitled to vote on the transaction and the transaction is specifically approved in good faith by vote of the shareholders or (iii) the transaction is fair to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee of the board of directors or the shareholders. Under Delaware law, the interested director could be held liable for a transaction in which that director derived an improper personal benefit. Dividends. Bermuda law does not permit payment of dividends or distributions of contributed surplus by a company if there are reasonable grounds for believing that the company, after the payment is made, would be unable to pay its liabilities as they become due, or the realizable value of the company's assets would be less, as a result of the payment, than the aggregate of its liabilities and its issued share capital and share premium accounts. The excess of the consideration paid on issue of shares over the aggregate par value of such shares must (except in certain limited circumstances) be credited to a share premium account. Share premium may be distributed in certain limited circumstances, for example to pay up unissued shares which may be distributed to shareholders in proportion to their holdings, but is otherwise subject to limitation. In addition, our ability to pay dividends is subject to insurance laws and other regulatory constraints. See "Dividend Policy" and "Regulation." Under Delaware law, subject to any restrictions contained in the company's certificate of incorporation, a company may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Delaware law also provides that dividends may not be paid out of net profits at any time when capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets. Mergers and Similar Arrangements. We may acquire the business of another Bermuda company or a company incorporated outside Bermuda and carry on such business when it is within the objects of our memorandum of continuance. We may, with the approval of at least 75% of the votes cast at a general meeting of our shareholders at which a quorum is present, amalgamate with another Bermuda company or with a body incorporated outside Bermuda. A shareholder who did not vote in favor of the amalgamation may apply to a Bermuda court for a proper valuation of his or her shares if he or she is not satisfied that fair value has been offered for those shares. The court would not be expected to disapprove the transaction on that ground absent evidence of fraud or bad faith. Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and the holders of a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a stockholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which the stockholder may receive cash in the amount of the fair value of the shares held by that stockholder (as determined by a court) in lieu of the consideration that stockholder would otherwise receive in the transaction. Delaware law does not provide stockholders of a corporation with voting or appraisal rights when the corporation acquires another business through the issuance of its stock or other consideration (i) in exchange for the assets of the business to be acquired; (ii) in exchange for the outstanding stock of the corporation to be acquired; (iii) in a merger of the corporation to be acquired with a subsidiary of the acquiring corporation; or (iv) in a merger in which the corporation's certificate of incorporation is not amended and the corporation issues less than 20% of its common stock outstanding prior to the merger. Takeovers. Bermuda law provides that where an offer is made for shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer (other than shares held by or for the offeror or its subsidiaries) accept, the offeror may by notice require the nontendering shareholders to transfer their shares on the terms of the offer. Dissenting shareholders may apply to the court within one month of the notice objecting to the transfer. The burden is on the dissenting shareholders to show that the court should exercise its discretion to enjoin the required transfer, which the court will be unlikely to do unless the offer is obviously and convincingly unfair. Delaware law provides that a parent corporation, by resolution of its board of directors and without any shareholder vote, may merge with any subsidiary of which it owns at least 90% of the outstanding shares of each class of stock that is entitled to vote on the transaction. Upon any such merger, dissenting stockholders of the subsidiary would have appraisal rights. Shareholder's Suit. The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders under legislation or judicial precedent in many U.S. jurisdictions. Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in our name to remedy a wrong done to us where the act complained of is alleged to be beyond our corporate power or is illegal or would result in the violation of our memorandum of continuance or bye-laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys' fees incurred in connection with such action. Our bye-laws provide that shareholders waive all claims or rights of action that they might have, individually or in the right of our company, against any director or officer for any action or failure to act in the performance of such director's or officer's duties, except such waiver shall not extend to claims or rights of action that arise out of any fraud or dishonesty of such director or officer. Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys' fees incurred in connection with such action. Indemnification of Directors. Our bye-laws provide for indemnification of our directors and officers in their capacity as such in respect of any loss arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which a director or officer may be guilty in relation to us other than in respect of his own fraud or dishonesty, which is the maximum extent of indemnification permitted under the Companies Act. Under Delaware law, a corporation may indemnify a director or officer of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if (i) the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and (ii) with respect to any criminal action or proceeding, if the director or officer had no reasonable cause to believe his conduct was unlawful. Inspection of Corporate Records. Members of the general public have the right to inspect our public documents available at the office of the Registrar of Companies in Bermuda, which will include our memorandum of continuance (including our objects and powers) and alterations to our memorandum of continuance, including any increase or reduction of our authorized capital. Our shareholders have the additional right to inspect our bye-laws, minutes of general meetings and our audited financial statements, which must be presented to the annual general meeting of shareholders. Our register of shareholders is also open to inspection by shareholders without charge, and to members of the public for a fee. We are required to maintain a share register in Bermuda but may establish a branch register outside Bermuda. We are required to keep at our registered office a register of our directors and officers which is open for inspection by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records. Delaware law permits any stockholder to inspect or obtain copies of a corporation's stockholder list and its other books and records for any purpose reasonably related to such person's interest as a stockholder. Approval of Corporate Matters by Written Consent. Under Bermuda law, the Companies Act provides that shareholders may take action by written consent with 100% shareholders' consent required. Delaware law permits shareholders to take action by the consent in writing by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of stockholders at which all shares entitled to vote thereon were present and voted. Amendment of Bye-Laws. Consistent with the Companies Act, our bye-laws provide that the bye-laws may only be rescinded, altered or amended, upon approval by a resolution of our board of directors and by a resolution of our shareholders. Under Delaware law, holders of a majority of the voting power of a corporation and, if so provided in the certificate of incorporation, the directors of the corporation, have the power to adopt, amend and repeal the bye-laws of a corporation. Enforcement of Judgments and Other Matters. We have been advised by Conyers Dill & Pearman, our Bermuda counsel, that there is doubt as to whether the courts of Bermuda would enforce (1) judgments of United States courts obtained in actions against us or our directors and officers, as well as the experts named in this prospectus who reside outside the United States predicated upon the civil liability provisions of the United States federal securities laws and (2) original actions brought in Bermuda against us or our directors and officers, as well as the experts named in this prospectus who reside outside the United States predicated solely upon United States federal securities laws. There is no treaty in effect between the United States and Bermuda providing for such enforcement, and there are grounds upon which Bermuda courts may not enforce judgments of United States courts. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies available under the U.S. federal securities laws, would not be allowed in Bermuda courts as contrary to Bermuda's public policy. Staggered Board of Directors. Under Bermuda law, the Companies Act does not contain statutory provisions specifically mandating staggered board arrangements for a Bermuda exempted company. Such provisions, however, may validly be provided for in the bye-laws governing the affairs of such a company. Delaware law permits corporations to have a staggered board of directors. SHARES ELIGIBLE FOR FUTURE SALES Prior to this offering, there has been no public market for our common shares. Upon consummation of this offering, we will have outstanding an aggregate of of our common shares, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options. If the underwriters exercise their over-allotment option in full, assuming no exercise of outstanding options, we will have of our common shares outstanding. All of the shares we sell in this offering will be freely tradable without restriction or further registration under the Securities Act, other than shares purchased by our "affiliates," as that term is defined in Rule 144. The remaining %, or of our common shares that are outstanding after this offering, will be restricted shares under the terms of the Securities Act. of these shares are subject to lock-up agreements as described below. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. We and our executive officers and directors and most of our shareholders have agreed under lock-up agreements that, during the period beginning from the date of this prospectus and continuing to and including the date 180 days after the date of this prospectus, none of us will, directly or indirectly, offer, sell, offer to sell, contract to sell or otherwise dispose of any of our common shares except in limited circumstances, without the prior written consent of J.P. Morgan Securities Inc. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus a person who has beneficially owned restricted shares for at least one year and has complied with the requirements described below would be entitled to sell a specified number of shares within any three-month period. That number of shares cannot exceed the greater of one percent of the number of our common shares then outstanding, which will equal approximately shares immediately after this offering, or the average weekly trading volume of our common shares on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 reporting the sale. Sales under Rule 144 are also restricted by manner of sale provisions, notice requirements and the availability of current public information about us. Rule 144 also provides that our affiliates who are selling shares of our common shares that are not restricted shares must comply with the same restrictions applicable to restricted shares with the exception of the holding period requirement. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Accordingly, unless otherwise restricted, these shares may be sold either immediately after completion of this offering or upon the expiration of the lock-up period described above, if applicable. Rule 701 provides that common shares acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our equity incentive plan may be resold, to the extent not restricted by the terms of the lock-up agreements, by persons, other than affiliates, beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates under Rule 144, without compliance with its one-year minimum holding period. As of December 31, 2003, options to purchase a total of 2,015,212 of our common shares were outstanding, 1,124,416 of which options are exercisable. Of the total shares issuable upon exercise of these options, are subject to 180-day lock-up agreements. We intend to file a registration statement on Form S-8 under the Securities Act within 90 days after this offering to register up to of our common shares underlying outstanding stock options or reserved for issuance under our Omnibus Incentive Compensation Plan. This registration statement will become effective upon filing, and shares covered by this registration statement will be eligible for sale in the public market immediately after the effective date of this registration statement, unless such shares are subject to vesting restrictions with us or the lock-up agreements described above. As a result of lock-up agreements, the Form S-8 and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: Number of Shares Date of First Availability for Resale Immediately 90 days after the date of this prospectus After 180 days from the date of the prospectus subject, in some cases, to volume limits. Prior to this offering, there has been no public market for our common shares. No predictions can be made as to the effect, if any, that sales of our common shares from time to time, or the availability of our common shares for future sale, may have on the market price for our common shares. Sales of substantial amounts of common shares, or the perception that such sales could occur, could adversely affect prevailing market prices for our common shares and could impair our future ability to obtain capital through an offering of equity securities. MATERIAL U.S. FEDERAL INCOME TAX AND BERMUDA TAX CONSIDERATIONS The following summary of our taxation and the taxation of our shareholders is based upon current law and does not purport to be a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase common shares. Legislative, judicial or administrative changes may be forthcoming that could affect this summary. Except as otherwise indicated, the statements as to United States federal income tax law set forth below under the headings "Taxation of ACA Holdings and Subsidiaries—United States" and "Taxation of Shareholders—United States Taxation" represent the opinion of Hogan & Hartson L.L.P. (subject to the qualifications, assumptions and factual determinations set forth in said statements). Statements as to Bermuda tax law set forth below under the headings "Taxation of ACA Holdings and Subsidiaries—Bermuda" and "Taxation of Shareholders—Bermuda Taxation" represent the opinion of Conyers Dill & Pearman, special Bermuda legal counsel (subject to the qualifications, assumptions and factual determinations set forth in said statements). The advice and opinions of such law firms do not include any factual or accounting matters, determinations or conclusions, computations or determinations regarding amounts or values of items or categories of income, expense or assets (including, for example, computations pertaining to RPII or PFIC status), determination of facts relating to the business, income, assets, reserves or activities of ACA Holdings and its subsidiaries, or determination of facts pertaining to the identities of or relationships among shareholders or potential shareholders of ACA Holdings. The advice and opinions of these firms rely upon and are premised on the accuracy of factual statements and representations made by ACA Holdings concerning the current and intended future business and assets, ownership, organization, source of income and manner of operation of ACA Holdings and its subsidiaries. The discussion below is based upon current law. Legislative, judicial or administrative changes or interpretations may be forthcoming that could be retroactive and could affect the tax consequence to holders of common shares. The tax treatment of a holder of common shares, or of a person treated as a holder of common shares for U.S. federal income, state, local or non-U.S. tax purposes, may vary depending on the holder's particular tax situation. Prospective investors are urged to consult their own tax advisors concerning the U.S. federal, state, local and non-U.S. tax consequences of owning common shares under the laws of their countries of citizenship, residence, ordinary residence or domicile. Taxation of ACA Holdings and Subsidiaries Bermuda Under current Bermuda law, there is no income, corporate or profits tax or withholding tax, capital gains tax or capital transfer tax payable by us. ACA Holdings and ACA Bermuda have each obtained from the Minister of Finance under The Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to ACA Holdings and ACA Bermuda or to any of their operations or their shares, debentures or other obligations, until March 28, 2016. ACA Holdings and ACA Bermuda could be subject to taxes in Bermuda after that date. This assurance is subject to the proviso that it is not to be construed so as to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967 or otherwise payable in relation to any property leased to ACA Holdings and ACA Bermuda. ACA Holdings and ACA Bermuda each pay annual Bermuda government fees, and ACA Bermuda pays annual insurance license fees. In addition, all entities employing individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the Bermuda government. United States The following discussion is a summary of the material U.S. federal income tax considerations relating to our operations. Following consummation of this offering, we intend to conduct substantially all of our foreign operations outside the United States and to limit the U.S. contacts of ACA Holdings and its foreign subsidiaries in order to avoid the conduct by ACA Holdings and its foreign subsidiaries of a trade or business in the United States. However, whether a trade or business is being conducted in the United States is an inherently factual determination. Because of the factual nature of these matters (which, in the case of ACA Holdings and its foreign subsidiaries, relate primarily to intended future operations and activities rather than existing operations and activities) and because the Code, regulations and court decisions fail to identify definitively activities that constitute being engaged in a trade or business in the United States, counsel will not render an opinion as to whether ACA Holdings and its foreign subsidiaries will be engaged in a trade or business in the United States, and we cannot be certain that the IRS will not contend successfully that any or all of ACA Holdings and its foreign subsidiaries should be considered as engaged in a trade or business in the United States. A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax at regular corporate rates, as well as the U.S. federal branch profits tax, on its income which is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, as discussed below. Such income tax, if imposed, would be based on effectively connected income computed in a manner generally analogous to that applied to the income of a U.S. corporation, except that a foreign corporation is generally entitled to deductions and credits only if it timely files a U.S. federal income tax return. The highest marginal U.S. federal income tax rates currently are 35% for a corporation's effectively connected income and 30% for the "branch profits" tax. If ACA Bermuda or ACA Solutions is entitled to the benefits under the income tax treaty between Bermuda and the United States, or the Bermuda Treaty, it would not be subject to U.S. federal income tax on any income derived from carrying on the business of insurance and found to be effectively connected with a U.S. trade or business unless that trade or business is conducted through a permanent establishment in the United States. No regulations interpreting the Bermuda Treaty have been issued. ACA Bermuda and ACA Solutions currently intend to conduct their activities following the consummation of this offering so that they do not have a permanent establishment in the United States, although we cannot be certain that we will achieve this result. Because of the factual nature of, and the lack of definitive parameters for, determining the existence of a permanent establishment, counsel will not render an opinion with respect to whether ACA Bermuda or ACA Solutions will have a permanent establishment in the U.S. An insurance enterprise resident in Bermuda generally will be entitled to the benefits of the Bermuda Treaty if (i) more than 50% of its shares are owned beneficially, directly or indirectly, by individual residents of the United States or Bermuda or U.S. citizens and (ii) its income is not used in substantial part, directly or indirectly, to make disproportionate distributions to, or to meet certain liabilities of, persons who are neither residents of either the United States or Bermuda nor U.S. citizens. We cannot be certain that ACA Bermuda and ACA Solutions will be eligible for Bermuda Treaty benefits immediately following this offering or in the future because of factual and legal uncertainties regarding the residency and citizenship of ACA Holdings' shareholders. ACA Holdings will not be eligible for treaty benefits because it is not an insurance company. Foreign insurance companies carrying on an insurance business within the United States have a certain minimum amount of effectively connected net investment income, determined in accordance with a formula that depends, in part, on the amount of U.S. risk insured or reinsured by such companies. If ACA Bermuda or ACA Solutions is considered to be engaged in the conduct of an insurance business in the United States and it is not entitled to the benefits of the Bermuda Treaty in general (because it fails to satisfy one of the limitations on treaty benefits discussed above), the Code would subject a significant portion of its investment income to U.S. federal income tax. In addition, while the Bermuda Treaty clearly applies to premium income, it is uncertain whether or to what extent the Bermuda Treaty applies to other income such as investment income. If ACA Bermuda or ACA Solutions is considered engaged in the conduct of an insurance business in the United States and is entitled to the benefits of the Bermuda Treaty in general, but the Bermuda Treaty is interpreted to not apply to investment income, a significant portion of its investment income would be subject to U.S. federal income tax. Foreign corporations not engaged in a trade or business in the United States are nonetheless subject to U.S. federal income tax imposed by withholding on certain "fixed or determinable annual or periodic gains, profits and income" derived from sources within the United States (such as dividends and certain interest on investments), subject to exemption under the Code or reduction by applicable treaties. The United States also imposes an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks located in the United States. The rates of tax applicable to premiums paid to ACA Bermuda and ACA Solutions are 4% for casualty insurance premiums and 1% for reinsurance premiums. A number of the subsidiaries of ACA Holdings, including ACA Holding, LLC, ACA FG, ACA Risk Solutions, LLC and American Capital Access Service Corporation, are classified as domestic corporations for United States federal income tax purposes. They are subject to taxation by the United States at regular corporate rates with respect to their worldwide income. A number of these U.S. subsidiaries own domestic limited liability companies that are treated as disregarded entities for United States federal income tax purposes, and the income of such limited liability companies will be taxable to such subsidiaries. In addition, ACA Risk Solutions, LLC or American Capital Access Service Corporation own (directly or through such disregarded domestic limited liability companies) all the preferred shares of the Cayman SPEs that issue the CDOs. Under U.S. tax rules, ACA Risk Solutions, LLC and American Capital Access Service Corporation are subject to U.S. federal income tax with respect to the net income of the Cayman SPEs they own even if such income is not actually distributed to them. Furthermore, dividends paid by the United States subsidiaries to ACA Holdings would be subject to a 30% U.S. federal withholding tax. Personal Holding Companies. ACA Holdings and/or any of its subsidiaries would be subject to U.S. personal holding company tax if any of them is considered to be a PHC for U.S. federal income tax purposes. A corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value, or the "PHC stock ownership test" and (ii) at least 60% of the corporation's gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of "PHC income", or the "PHC income test". PHC income includes, among other things, dividends, interest, royalties, annuities and, under certain circumstances, rents. Under the constructive ownership rules, among other things, a partner will be treated as owning a proportionate amount of the stock owned by the partnership and a partner who is an individual will be treated as owning the stock owned by his or her partners. Also, stock treated as owned by such partner proportionally through such partnership will be treated as owned by the partner for purposes of reapplying the constructive ownership rules. Additionally, certain entities (such as tax-exempt organizations and pension funds) will be treated as individuals. The PHC rules contain an exception for foreign corporations that are classified as foreign personal holding companies (as discussed below). If ACA Holdings or any subsidiary were a PHC in a given taxable year, such corporation would be subject to 15% PHC tax on its "undistributed PHC income" (which, in the case of its foreign subsidiaries, would exclude PHC income that is from non-U.S. sources, except to the extent that such income is effectively connected with a trade or business in the United States). For taxable years beginning after December 31, 2008, the PHC tax rate would be the highest marginal rate on ordinary income applicable to individuals. Thus, the PHC income of ACA Holdings and its foreign subsidiaries would not include underwriting income or investment income that is derived from non-U.S. sources and that is not effectively connected with a U.S. trade or business and should not include dividends received by ACA Holdings from its foreign subsidiaries (as long as such foreign subsidiaries are not engaged in a trade or business in the United States). Prior to the completion of this offering, more than 50% of the stock of ACA Holdings has been owned or deemed to be owned by five or fewer individuals under the PHC rules. Based upon, and assuming the accuracy of, information provided to us by our shareholders and other information available to us regarding our existing shareholder base and further assuming that (i) as we have been advised by the underwriters, this offering will be widely distributed and (ii) no additional shares of ACA Holdings stock are acquired (actually or constructively) by the five or fewer individuals referred to in the preceding sentence, we expect that, immediately following the consummation of the offering, 50% or more of the stock of ACA Holdings will not be owned or deemed owned by five or fewer individuals. Accordingly, based on said information and assumptions and provided that the offering is completed during the first half of 2004, we do not expect that ACA Holdings or any of its subsidiaries will satisfy the PHC stock ownership test immediately following the offering. There can be no assurance, however, that the information provided to us by our shareholders or available to us is accurate, and it is not complete in all respects. We also intend to manage the business of ACA Holdings so as to reduce the risk that 60% or more of its gross income will consist of PHC income (i.e., to reduce the risk that the PHC income test will be satisfied), although we cannot be certain that we will succeed in doing so. More generally, we cannot be certain that ACA Holdings and its subsidiaries will not become PHCs following this offering or in the future because of factors including legal and factual uncertainties regarding the application of the constructive ownership rules, the makeup of ACA Holdings' shareholder base, the gross income of ACA Holdings or any of its subsidiaries and other circumstances that could change the application of the PHC rules to ACA Holdings and its subsidiaries. Counsel will provide no opinion as to whether ACA Holdings or any of its subsidiaries is or will be a PHC in 2004 or any subsequent year because such determination depends upon future facts and events, including, among other things, the identities of and relationships among the shareholders of ACA Holdings and the nature and amount of the gross income of ACA Holdings and its subsidiaries. Taxation of Shareholders Bermuda Taxation Currently, there is no Bermuda withholding or other tax payable on principal, interests or dividends paid to the holders of the common shares. United States Taxation The following summary sets forth the material United States federal income tax considerations related to the purchase, ownership and disposition of common shares. Unless otherwise stated, this summary deals only with shareholders that are U.S. Persons (as defined below) who purchase their common shares in this offering and who hold their common shares as capital assets within the meaning of section 1221 of the Code. The following discussion is only a discussion of the material U.S. federal income tax matters as described herein and does not purport to address all of the U.S. federal income tax consequences that may be relevant to a particular shareholder in light of such shareholder's specific circumstances. For example, if a partnership holds our common shares, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the common shares, you should consult your tax advisors. In addition, the following summary does not address the U.S. federal income tax consequences that may be relevant to special classes of shareholders, such as financial institutions, insurance companies, regulated investment companies, real estate investment trusts, financial asset securitization investment trusts, dealers or traders in securities, tax exempt organizations, expatriates, persons who are considered to be "United States shareholders" for purposes of the controlled foreign corporation rules of the Code (generally, a U.S. Person, as defined below, who owns or is deemed to own 10% or more of the total combined voting power of all classes of stock of ACA Holdings or of any of our foreign subsidiaries), or persons who hold the common shares as part of a hedging or conversion transaction or as part of a short-sale or straddle, who may be subject to special rules or treatment under the Code. This discussion is based upon the Code, the regulations promulgated thereunder and any relevant administrative rulings or pronouncements or judicial decisions, all as in effect on the date hereof and as currently interpreted, and does not take into account possible changes in such tax laws or interpretations thereof, which may apply retroactively. This discussion does not include any description of the tax laws of any state or local governments within the United States. For purposes of this discussion, the term "U.S. Person" means: (i) a citizen or resident of the United States, (ii) a partnership or corporation, or entity treated as a corporation, created or organized in or under the laws of the United States, or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (iv) a trust if either (x) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. Persons have the authority to control all substantial decisions of such trust or (y) the trust has a valid election in effect to be treated as a U.S. Person for U.S. federal income tax purposes or (v) any other person or entity that is treated for U.S. federal income tax purposes as if it were one of the foregoing. General Taxation of Dividends. Subject to the discussions below relating to the potential application of the controlled foreign corporation, related person insurance income or RPII, FPHC, and PFIC rules, cash distributions, if any, made with respect to the common shares will constitute dividends for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits of ACA Holdings (as computed using U.S. federal income tax principles). Under recently enacted legislation, dividends paid by ACA Holdings before 2009 will generally be eligible for a maximum U.S. federal income tax rate of 15% if received by a non-corporate shareholder, provided that ACA Holdings is not considered to be an FPHC, a PFIC or a foreign investment company pursuant to the relevant provisions of the Code. Dividends paid by ACA Holdings will not be eligible for the dividends- received deduction. General Taxation of Gains from Dispositions of Common Shares. Subject to the discussions below relating to the potential application of rules in the Code relating to CFCs, PFICs and FPHCs, holders of common shares generally should recognize capital gain or loss for U.S. federal income tax purposes on the sale, exchange or other disposition of common shares in the same manner as on the sale, exchange or other disposition of any other shares held as capital assets. If the holding period for these common shares exceeds one year, any gain will be subject to tax at a current maximum marginal tax rate of 15% for individuals and 35% for corporations. Moreover, gain, if any, generally will be a U.S. source gain and generally will constitute "passive income" for foreign tax credit limitation purposes. Classification of ACA Holdings or its Foreign Subsidiaries as Controlled Foreign Corporations. Each U.S. Person that (i) is a 10% U.S. Shareholder (as defined below) of a foreign corporation that is a CFC for an uninterrupted period of 30 days or more during a taxable year and (ii) owns shares in the CFC, directly or indirectly through foreign entities, on the last day of the CFC's taxable year, must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income" (including insurance income and passive income such as interest and dividends) even if the subpart F income is not distributed. A foreign corporation is considered a CFC if 10% U.S. Shareholders own (directly, indirectly through foreign entities or by attribution by application of the constructive ownership rules of section 958(b) of the Code (i.e., "constructively")) more than 50% of the total combined voting power of all classes of voting stock of such foreign corporation, or more than 50% of the total value of all stock of such corporation. For purposes of taking into account insurance income, a CFC also includes a foreign insurance company in which more than 25% of the total combined voting power of all classes of stock or more than 25% of the total value of the stock is owned by 10% U.S. Shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts (other than certain exempt contracts defined in section 953(e)(2) of the Code) exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks. A "10% U.S. Shareholder" is a U.S. Person that owns (directly, indirectly through foreign entities or constructively) 10% or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation. There are a number of rules pursuant to which a U.S. Person is treated as constructively owning shares of a foreign corporation held by another person for purposes of determining whether the U.S. Person is a 10% Shareholder of such corporation. One of these rules, the "corporate attribution rule", provides that a person who owns 10% or more in value of the stock of a corporation is regarded as owning constructively his proportionate share of the stock of any direct or indirect subsidiary of that corporation. Prior to the consummation of this offering, ACA Holdings, ACA Assurance Corporation, Ltd., ACA Bermuda and ACA Solutions are CFCs. Upon consummation of this offering, one or more U.S. Persons are expected to still own 10% or more of our common shares and therefore 10% or more of the value of the outstanding common shares. At that time, such persons will collectively still own more than 25% of our common shares, and they may collectively own more than 50% of our common shares. Our bye-laws contain provisions (described in "Description of Our Share Capital") that (i) limit to approximately 9.9% the voting power of any U.S. Person who owns (directly, indirectly through foreign entities or constructively) 10% or more of common shares, and (ii) require the board of directors of ACA Holdings to submit to the shareholders of ACA Holdings any matter that requires ACA Holdings to vote the shares of a non-U.S. subsidiary (including lower-tier non-U.S. subsidiaries). These provisions are intended to prevent U.S. Persons who own 10% or more of our shares from being treated for U.S. federal income tax purposes as 10% U.S. Shareholders and to prevent ACA Holdings, ACA Assurance Corporation, Ltd., ACA Bermuda and ACA Solutions from being classified as CFCs. We are not, however, aware of any IRS rulings or judicial decisions addressing the effect of such voting limitation or pass-through provisions under the CFC rules generally or with respect to the corporate attribution rule (described above) in particular, and it is possible that the IRS will challenge the effectiveness of these provisions and that a court will sustain such a challenge. Because of the lack of IRS rulings and judicial decisions addressing such matters and because of factual uncertainty regarding ACA Holdings' shareholder base (which may change over time), counsel will not render an opinion as to whether ACA Holdings, ACA Assurance Corporation, Ltd., ACA Bermuda or ACA Solutions will be classified as a CFC for federal income tax purposes. Additional provisions in our bye-laws (also described in "Description of Our Share Capital") prohibit the issuance or transfer of shares to any person (other than a person who was a 10% U.S. Shareholder or a non-U.S. shareholder that directly owned 10% or more of ACA Holdings' shares at the time the bye-laws became effective) if the effect of such issuance or transfer would be that such person would become or continue to be an owner (directly, indirectly or constructively) of 10% or more of ACA Holdings' common shares. Similarly, ACA Holdings is prohibited from redeeming or purchasing shares if such redemption or purchase would result in any person (other than a person who was a 10% U.S. shareholder or a non-U.S. shareholder that directly owned 10% or more of ACA Holdings' shares at the time the bye-laws became effective) becoming or continuing to be an owner (directly, indirectly or constructively) of 10% or more of ACA Holdings' common shares. We intend fully to comply with and to enforce these provisions. Accordingly, if, as we intend, these provisions are followed, any investor purchasing common shares in this offering should not be a 10% U.S. Shareholder, provided that such investor does not bear a relationship to a person who was a 10% U.S. Shareholder or a non-U.S. shareholder that directly owned 10% or more of ACA Holdings' shares at the time these bye-law provisions became effective that would cause such investor to be deemed to own shares owned directly, indirectly or constructively by such pre-existing shareholder. Therefore, subject to the possible application of the RPII provisions discussed hereinafter, such investor should not be required by the CFC rules to include in his income the undistributed subpart F income of ACA Holdings and/or its non-U.S. subsidiaries regardless of whether such corporations are classified as CFCs. While the Cayman SPEs may be CFCs because their preferred shares are owned by U.S. subsidiaries of ACA Holdings, the subpart F income of the Cayman SPEs would be includible in the income of such U.S. subsidiaries, not in the income of the shareholders of ACA Holdings. The RPII CFC Provisions. The following discussion generally is applicable only if the related person insurance income of ACA Bermuda or ACA Solutions, determined on a gross basis, is 20% or more of its gross insurance income for the taxable year and the 20% Ownership Exception (as defined below) is not met. The following discussion generally would not apply for any fiscal year in which the RPII of ACA Bermuda or ACA Solutions falls below the 20% threshold. ACA Holdings is not licensed as an insurance company, and we therefore do not anticipate that ACA Holdings will have insurance income, including RPII. RPII is any "insurance income" (as defined below) attributable to policies of insurance or reinsurance with respect to which the person directly or indirectly insured is a "RPII shareholder" (as defined below) or a "related person" (as defined below) to such RPII shareholder. In general, and subject to certain limitations, "insurance income" is income (including premium and investment income) attributable to the issuing of any insurance or reinsurance contract which would be taxed under the portions of the Code relating to insurance companies if the income were the income of a domestic insurance company. For purposes of inclusion of the RPII of ACA Bermuda or ACA Solutions in the income of RPII shareholders, unless an exception applies, the term "RPII shareholder" means any U.S. Person who owns (directly or indirectly through foreign entities) any amount of ACA Holdings' common shares. Generally, the term "related person" for this purpose means someone who controls or is controlled by the RPII shareholder or someone who is controlled by the same person or persons that control the RPII shareholder. Control is measured by either more than 50% in value or more than 50% in voting power of stock applying certain constructive ownership principles. Unless one of the exceptions described below applies, ACA Bermuda and ACA Solutions will be treated as CFCs under the RPII provisions if, as we expect to be the case, RPII shareholders are treated as owning (directly, indirectly through foreign entities or constructively) 25% or more of the shares of ACA Holdings by vote or value. RPII Exceptions. The special RPII rules will not apply to ACA Bermuda (or ACA Solutions) if (i) direct and indirect insureds and persons related to such insureds, whether or not U.S. Persons, are treated as owning (directly or indirectly) less than 20% of the voting power and less than 20% of the value of the stock of ACA Holdings, or the "20% Ownership Exception", (ii) RPII, determined on a gross basis, is less than 20% of ACA Bermuda's (or ACA Solution's) gross insurance income for the taxable year, or the "20% Gross Income Exception", (iii) ACA Bermuda (or ACA Solutions) elects to be taxed on its RPII as if the RPII were effectively connected with the conduct of a U.S. trade or business, and to waive all treaty benefits with respect to RPII and meet certain other requirements or (iv) ACA Bermuda (or ACA Solutions) elects to be treated as a U.S. corporation and waives all treaty benefits and meet certain other requirements. Neither ACA Bermuda nor ACA Solutions intends to make either of the elections described in the preceding sentence (and neither may be eligible to make the election described in clause (iii) of that sentence). While there can be no assurance on this point because of the difficulties, described below, in applying the RPII rules, we presently have no reason to believe that, in the foreseeable future, 20% or more of the gross insurance income of ACA Bermuda (or ACA Solutions) will be determined to be RPII. It may be difficult or impossible for us to establish whether or not we satisfy either the 20% Gross Income Exception or the 20% Ownership Exception in the future, and we may fail to satisfy either or both of these exceptions because of events beyond our control. For example, when we reinsure risks insured by unrelated insurance companies, we often do not know the identity of the person or persons who are covered by the primary insurance and who are therefore indirectly covered by our reinsurance. Accordingly, we often do not have information necessary to determine whether or to what extent our reinsurance policies indirectly insure persons who are shareholders of ACA Holdings or are "related persons" with respect to shareholders of ACA Holdings, and we therefore cannot ascertain whether or to what extent our income from such reinsurance is RPII. As another example, our financial guaranty insurance protects the holders of insured obligations against payment defaults on the part of the issuers of those obligations. The insured obligations are typically issued in a public offering and thereafter are publicly traded. Accordingly, it may be difficult or impossible for us to ascertain or establish the degree of overlap (which may change from time to time) between our "insureds" (i.e., the holders of debt obligations insured or reinsured by ACA Bermuda or ACA Solutions) and our shareholders or persons related to our shareholders. We are not aware of any IRS rulings or other authority providing guidance as to the manner in which the RPII rules are to be applied in these circumstances. Because of these factual and legal uncertainties, counsel will provide no opinion regarding the application of the RPII rules to ACA Bermuda or ACA Solutions. Where none of the exceptions described above applies, each U.S. Person owning or treated as owning any shares in ACA Holdings (and therefore, indirectly, in ACA Bermuda and ACA Solutions) on the last day of ACA Holdings' taxable year will be required to include in its gross income for U.S. federal income tax purposes its share of the RPII for the portion of the taxable year during which ACA Bermuda and/or ACA Solutions was a CFC under the RPII provisions, determined as if all such RPII were distributed proportionately only to such U.S. Persons at that date, but limited by each such U.S. Person's share of ACA Bermuda's and/or ACA Solution's current-year earnings and profits as reduced by the U.S. Person's share, if any, of certain prior-year deficits in earnings and profits. Computation of RPII. For the reasons discussed above, ACA Holdings may not be able to determine accurately the gross amount of RPII earned by ACA Bermuda or ACA Solutions in a given taxable year. ACA Holdings may seek information periodically from its shareholders in an effort to ascertain the amount of RPII and whether the 20% Gross Income Exception or the 20% Ownership Exception is applicable, but such effort may not be successful. The information sought may also include information as to whether beneficial owners of common shares at the end of a given taxable year are U.S. Persons so that the RPII may be apportioned among such persons; to the extent ACA Holdings is unable to determine whether a beneficial owner of common shares is a U.S. Person, ACA Holdings may assume that such owner is not a U.S. Person, thereby increasing the per share RPII amount for all known RPII shareholders. Apportionment of RPII to U.S. Holders. Every RPII shareholder who owns common shares on the last day of any fiscal year of ACA Holdings in which ACA Bermuda's (or ACA Solution's) gross insurance income constituting RPII for that year equals or exceeds 20% of its gross insurance income and ACA Bermuda (or ACA Solutions) does not meet the 20% Ownership Exception should expect that for such year it will be required to include in gross income its share of ACA Bermuda's (or ACA Solution's) RPII for the portion of the taxable year during which ACA Bermuda (or ACA Solutions) was a CFC under the RPII provisions, whether or not distributed, even though it may not have owned the shares throughout such period. A RPII shareholder who owns common shares during such taxable year but not on the last day of the taxable year is not required to include in gross income any part of ACA Bermuda's (or ACA Solution's) RPII. The amount of RPII includable in the income of a RPII shareholder will be based upon the net RPII income for the year after deducting related expenses such as losses, loss reserves and operating expenses. Basis Adjustments. A RPII shareholder's tax basis in its common shares will be increased by the amount of any RPII that the shareholder includes in income. The RPII shareholder may exclude from income the amount of any distributions by ACA Holdings out of previously taxed RPII income. The RPII shareholder's tax basis in its common shares will be reduced by the amount of such distributions that are excluded from income. Uncertainty as to Application of RPII. The RPII provisions have never been interpreted by the courts or the Treasury Department in final regulations, and regulations interpreting the RPII provisions of the Code exist only in proposed form. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of RPII by the IRS, the courts or otherwise, might have retroactive effect. These provisions include the grant of authority to the Treasury Department to prescribe "such regulations as may be necessary to carry out the purpose of this subsection including . . . regulations preventing the avoidance of this subsection through cross insurance arrangements or otherwise." Accordingly, the meaning of the RPII provisions and the application thereof to ACA Bermuda and ACA Solutions is uncertain. As discussed above, neither the Treasury Department nor the IRS has provided guidance as to the manner in which the RPII rules are to be applied when it is inherently difficult or impossible to identify the persons who are covered directly or indirectly by such insurance or reinsurance. In addition, we cannot be certain that the amount of RPII or the amounts of the RPII inclusions for any particular RPII shareholder, if any, will not be subject to adjustment based upon subsequent IRS examination. Any prospective investor considering an investment in common shares is urged to consult his tax advisor as to the effects of these uncertainties. Tax-Exempt Shareholders. Tax-exempt entities will be required to treat certain subpart F insurance income, including RPII, that is includible in income by the tax-exempt entity as unrelated business taxable income. Prospective investors that are tax exempt entities are urged to consult their tax advisors as to the potential impact of the unrelated business taxable income provisions of the Code. A tax-exempt organization that is treated as a 10% U.S. Shareholder or a RPII Shareholder also must file IRS Form 5471 in the circumstances described below in "--Information Reporting and Backup Withholding." Disposition of CFC Shares. Code section 1248 provides that if a U.S. Person sells or exchanges stock in a foreign corporation and such person owned, directly, indirectly through certain foreign entities or constructively, 10% or more of the voting power of the corporation at any time during the five-year period ending on the date of disposition when the corporation was a CFC, any gain from the sale or exchange of the shares will be treated as a dividend to the extent of the CFC's earnings and profits (determined under U.S. federal income tax principles) during the period that the shareholder held the shares and while the corporation was a CFC (with certain adjustments). A 10% U.S. Shareholder may in certain circumstances be required to report a disposition of shares of a CFC by attaching IRS Form 5471 to the U.S. federal income tax or information return that it would normally file for the taxable year in which the disposition occurs. Code section 1248 also applies to the sale or exchange of shares in a foreign corporation if the foreign corporation would be treated as a CFC for RPII purposes regardless of whether the shareholder is a 10% U.S. Shareholder or whether RPII constitutes 20% or more of the corporation's gross insurance income or the 20% Ownership Exception applies. It is presently uncertain whether Code section 1248 and the requirement to file IRS Form 5471 would apply if a person who is not, and has not during the preceding five years been, a 10% U.S. Shareholder of ACA Holdings but who, through his ownership of ACA Holdings shares, is a RPII shareholder with respect to ACA Bermuda or ACA Solutions disposes of his ACA Holdings shares. We believe that Code section 1248 should not apply in these circumstances under the RPII rules because ACA Holdings will not be directly engaged in the insurance business. This conclusion is not free from doubt, however, and it is possible that the IRS will take a contrary view or that the Treasury Department will propose regulations to provide that section 1248 and the requirement to file IRS Form 5471 will apply to dispositions of common shares in these circumstances. Prospective investors should consult their tax advisors regarding these matters. If the IRS or U.S. Treasury Department were to make Section 1248 and the IRS Form 5471 filing requirement applicable to the sale of our capital stock, we intend to notify shareholders of such developments and provide to them information necessary to comply with Section 1248 and the filing requirement. Passive Foreign Investment Companies. In general and as described in greater detail below, a foreign corporation will be a PFIC during a given year if (i) 75% or more of its gross income constitutes "passive income" or (ii) 50% or more of its assets produce passive income or are held for the production of passive income, or "passive assets". The PFIC rules impose a tax regime on U.S. Persons who hold shares of a PFIC that is significantly less favorable than the tax rules generally applicable to U.S. Persons who hold shares of a foreign corporation that is not a PFIC. Under the PFIC rules, if a U.S. Person sells at a gain shares of a foreign corporation that has been a PFIC at any time during such person's holding period for such shares and if such person has not made a "qualified electing fund," or QEF, election or a "mark-to-market" election as described hereinafter, then such gain is allocated ratably to each day of such person's holding period for such shares. The portion of the gain allocable to the current year is taxed as ordinary income. Tax is calculated with respect to the portions of the gain allocated to each of the prior years of the shareholder's holding period by multiplying the portion allocable to each prior year by the highest tax rate applicable to ordinary income in effect for such prior year. In addition, interest is charged with respect to the tax attributable to the gain allocated to such prior years. Thus, in the year a shareholder sells PFIC shares, such shareholder is subject to an amount of tax equal to the sum of (i) the tax on the gain allocable to the year of sale, (ii) the tax on the gain allocable to each of the prior years of his holding period, and (iii) an interest charge with respect to such prior year tax amounts. "Excess distributions" received by a U.S. Person with respect to PFIC shares are subject to tax in the same manner as gain from disposition of such shares. In general, a shareholder receives an "excess distribution" if the amount of the distribution is more than 125% of the average distribution with respect to the shares during the three preceding taxable years (or shorter period during which the taxpayer held the shares). A shareholder may avoid being subjected to tax calculated under the PFIC rules just described if such shareholder has elected to treat the PFIC as a QEF and such election has been in effect throughout the holding period for such shareholder's PFIC shares. A U.S. Person who is a shareholder of a QEF is required to include in such shareholder's income each year (i) as ordinary income, such shareholder's pro rata share of the ordinary earnings of the QEF for such year, and (ii) as long-term capital gain, such shareholder's pro rata share of the net capital gain of the QEF for such year. The shareholder is taxable with respect to such amounts even if they are not distributed to such shareholder by the corporation. A shareholder making a QEF election may also elect to extend the time for payment of tax with respect to such undistributed PFIC earnings, generally until such time as such shareholder receives a distribution of such earnings from the PFIC or transfers such shareholder's shares, but such shareholder will be required to pay interest to the IRS with respect to the deferred tax amounts. The shareholder's basis for such shareholder's PFIC shares is adjusted each year to reflect the amounts includible in the shareholder's income pursuant to the QEF rules. If a shareholder of a PFIC wishes to avoid future application of the PFIC tax rules described in the preceding paragraph but has failed to make a timely QEF election effective starting with the first year of such shareholder's holding period for the PFIC stock, such shareholder may "catch up" by making a QEF election going forward and further electing to recognize gain, taxable pursuant to the PFIC tax rules, as if such shareholder sold the stock on the first day of the year in which the QEF election becomes effective. In the case of a shareholder of a PFIC that is also a CFC, such shareholder may also "catch up" by making a QEF election going forward and electing to include in income, as an "excess distribution" subject to the PFIC tax rules, such shareholder's share of the accumulated earnings and profits of the PFIC. As an alternative to a QEF election, a shareholder holding publicly traded shares of stock in a PFIC may make a mark-to-market election with respect to such shares. In that case, if the fair market value of the shares as of the close of a taxable year exceeds the shareholder's adjusted basis for the shares, the shareholder must include the excess in his income as ordinary income for that year. If the value of the shares is less than the shareholder's adjusted basis, the shareholder may deduct the loss up to the amount of gain previously included in his income pursuant to the mark-to-market election with respect to such shares. The taxpayer's basis for the shares is adjusted each year to reflect the amounts included in income or allowed as deductions for that year pursuant to these rules. Upon sale of the shares, any gain is treated as ordinary income. For purposes of the PFIC rules, passive income generally includes interest, dividends, annuities and other investment income. The determination whether 50% or more of a corporation's assets are passive assets is made on a gross basis; no liabilities are taken into account even if secured by or otherwise traceable to specific assets. In the case of a publicly traded corporation, such determination is based on the fair market value of the assets. The PFIC provisions also contain a look-through rule, the "subsidiary look-through rule", under which a foreign corporation is generally treated as if it "received directly its proportionate share of the income" and as if it "held its proportionate share of the assets" of any other corporation in which it owns (directly or indirectly) at least 25% of the value of the stock. The PFIC rules provide that income "derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business" is not treated as passive income. This exception is intended to ensure that income derived by a bona fide insurance company is not treated as passive income, provided that the company does not maintain financial reserves in excess of the reasonable needs of the insurance business. We expect for purposes of the PFIC rules, that each of our insurance subsidiaries, ACA Bermuda, ACA Solutions and ACA FG, will be predominantly engaged in an insurance business and is unlikely to have financial reserves in excess of the reasonable needs of its insurance business. Accordingly, the assets used by the insurance subsidiaries in their insurance operations and the income generated by those operations should not be treated as passive. We regard our CDO investments and activities as an integral part of our overall business of providing insurance against financial risks. For purposes of the PFIC rules, however, the assets of the Cayman SPEs will generally be regarded as passive assets. If the subsidiary look-through rule discussed above were applied, we would be treated as owning the assets of the SPEs. Such assets would be taken into account based on their gross value, not their value net of the indebtedness of the SPEs, for purposes of determining whether 50% or more of our assets are passive assets. If the subsidiary look-through rule were applicable, we would be classified as a PFIC. We believe that we were a PFIC in 2003. However, although the matter is not free from doubt, we believe that, as a result of a change in the U.S. federal income tax classification of ACA Holding, LLC from a disregarded entity to a corporation that was effective as of January 1, 2004, and assuming that ACA Holdings is neither a PHC nor an FPHC in 2004 (see the discussions of "Taxation of Holdings and Subsidiaries—Personal Holding Companies" above and "—Foreign Personal Holding Companies" below), we should not be classified as a PFIC immediately following consummation of this offering. The preferred shares in each Cayman SPE are not held by a foreign corporation but are held rather directly or indirectly by a either ACA Risk Solutions, LLC or American Capital Access Service Corporation, each of which is treated as a domestic corporation for U.S. federal income tax purposes. ACA Risk Solutions, LLC and American Capital Access Service Corporation are each wholly owned by ACA Holding, LLC, a domestic subsidiary of ACA Holdings. Effective as of January 1, 2004, we have elected to classify ACA Holding, LLC as a corporation for U.S. federal income tax purposes. This structure is intended to bring ACA Holdings within a special rule, the "domestic corporation look-through rule," contained within the provisions of the Code relating to PFICs. Under that rule, provided that ACA Holdings is neither a PHC nor an FPHC, the shares of the second tier domestic corporations (i.e., ACA Risk Solutions, LLC and American Capital Access Service Corporation) should not be treated as passive assets and income associated with such shares should not be treated as passive income for purposes of determining whether or not ACA Holdings is a PFIC. Although the matter is not free from doubt, we believe that, provided that ACA Holdings is neither a PHC nor an FPHC, the domestic corporation look-through rule should override the subsidiary look-through rule and the assets of the Cayman SPEs should not be counted as passive assets for purposes of determining whether ACA Holdings is a PFIC. In that case, based on our projections regarding the income and assets of ACA Holdings and its subsidiaries, ACA Holdings should not be classified as a PFIC. ACA Holdings will be eligible to utilize the domestic corporation look-through rule for 2004 and subsequent years only if it is neither a PHC nor FPHC in each such year. As discussed under "Taxation of Holdings and Subsidiaries—Personal Holding Companies" above and "—Foreign Personal Holding Companies" below, we intend to take steps to reduce the risk that ACA Holdings will be classified as either a PHC or FPHC in 2004 and subsequent years, but we cannot be certain that we will be successful in doing so, and counsel will give no opinion as to whether ACA Holdings is or will be a PHC or FPHC in 2004 and subsequent years. If ACA Holdings were classified as a PHC or FPHC, the domestic corporation look-through rule would be unavailable, and ACA Holdings would be a PFIC. No regulations have been proposed with respect to the domestic corporation look-through rule, and there are substantial uncertainties regarding the manner in which the rule is to be interpreted and applied. For example, we are not aware of any IRS rulings or court decisions addressing the interaction between the domestic corporation look-through rule and the subsidiary look-through rule in circumstances such as those pertaining to our CDOs. Accordingly, it is possible that the IRS will take the position that the domestic corporation look-through rule does not prevent the assets of the Cayman SPEs from being counted as passive assets and that ACA Holdings is therefore a PFIC, and a court may sustain such position. Furthermore, it should be noted that, in early 2003, legislation was proposed in the U.S. Congress that would have repealed the accumulated earnings tax and, in connection with that repeal, would have eliminated the domestic corporation look-through rule. The proposed legislation was not enacted, but no assurance can be given that similar legislation might not be proposed or enacted in the future. Any prospective investor considering an investment in common shares is urged to consult his tax advisor regarding these uncertainties. Foreign Personal Holding Companies. A foreign corporation will be classified as an FPHC with respect to a taxable year for U.S. federal income tax purposes if (i) at any time during the taxable year at issue, five or fewer individuals who are U.S. citizens or residents, referred to as a "United States group", own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of all classes of the corporation's stock measured by voting power or value, the "stock ownership test", and (ii) either (A) at least 60% of its gross income for the year is "FPHC income" if the corporation has not been an FPHC with respect to a previous taxable year or (B) at least 50% of its gross income is FPHC income if the corporation has already been an FPHC with respect to a prior taxable year, the "passive income test". Under the constructive ownership rules, among other things, a partner will be treated as owning a proportionate amount of the stock owned by the partnership and a partner who is an individual will be treated as owning the stock owned by his partners. Also, stock treated as owned by such partner proportionally through such partnership will be treated as owned by the partner for purposes of reapplying the constructive ownership rules. "FPHC income" includes, among other things, dividends, interest, other types of investment income and gains from the sale or exchange of stock and securities. If a foreign corporation is classified as an FPHC with respect to a taxable year, each U.S. Person who owns shares of the foreign corporation (directly or through other foreign entities) on the day of the taxable year of the corporation which was the last day on which a "United States group" (as defined above) existed with respect to the corporation must include in income such U.S. Person's pro rata share of the "undistributed foreign personal holding company income" (defined as taxable income with certain adjustments) of the foreign corporation. In the event that the "United States group" ceases to exist prior to the end of the taxable year, the proportion of the undistributed foreign personal holding company income includible in such U.S. Person's income is based on the ratio of the number of days in the taxable year up to and including the last day on which the "United States group" existed to the total number of days in that year. Such income is taxable as a dividend and is not be eligible for a reduced rate of tax under recently enacted legislation, even if no cash dividend is actually paid. In such event, subsequent cash distributions are first treated as a tax-free return of any previously taxed and undistributed amounts. In addition, a distribution actually paid by an FPHC to a U.S. shareholder that is not treated as a tax-free return of any previously taxed and undistributed amount and is characterized as a dividend is not eligible for a reduced rate of tax under recently enacted legislation with respect to dividends paid before 2009. Upon the death of any U.S. individual owning shares of the FPHC, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the common shares which might otherwise be available under U.S. federal income tax laws. Prior to this offering, ACA Holdings and its foreign subsidiaries have satisfied the stock ownership test for classification as an FPHC (i.e., 50% or more of the shares have been owned or deemed owned by five or fewer individuals who are U.S. citizens or residents and therefore constitute a "United States group"). During 2003, ACA Holdings and certain foreign subsidiaries have had sufficient passive income that they have also satisfied the passive income test and therefore have been classified as FPHCs. However, based upon, and assuming the accuracy of, information provided to us by our shareholders and other information available to us regarding our existing shareholder base and further assuming that (i) as we have been advised by the underwriters, this offering will be widely distributed and (ii) no additional shares of ACA Holdings stock are acquired (actually or constructively) by the individuals who have heretofore constituted the "United States group," we expect that, immediately following the consummation of the offering, 50% or more of the stock of ACA Holdings will not be owned or deemed owned by five or fewer individuals. In other words, based upon said information and assumptions, we expect that a "United States group" will no longer exist with respect to ACA Holdings and its subsidiaries immediately following completion of the offering. There can be no assurances, however, that the information provided by our shareholders or made available to us is accurate, and it is not complete in all respects. Because a "United States group" will have existed for the portion of 2004 preceding completion of the offering, the stock ownership test for FPHC status will nevertheless be satisfied for 2004. We intend, however, to manage the business of ACA Holdings and its foreign subsidiaries so as to reduce the risk that the passive income test will be satisfied for 2004 with respect to ACA Holdings and its foreign subsidiaries (other than the Cayman SPEs) and thereby to reduce the risk that ACA Holdings and its foreign subsidiaries (other than the Cayman SPEs) will be FPHCs for 2004. We cannot be certain, however, that we will be successful in doing so. (The Cayman SPEs will be FPHCs for 2004, but, because the Cayman SPEs are owned directly or indirectly by U.S. entities that are treated as domestic corporations for U.S. federal income tax purposes, their status as FPHCs will not cause amounts to be includible in the income of shareholders of ACA Holdings under the FPHC rules.) Provided that no "United States group" exists in 2005 and subsequent years, ACA Holdings and its foreign subsidiaries should not be FPHCs. In addition, we intend to continue managing the business of ACA Holdings and its foreign subsidiaries (other than the SPEs) so as to reduce the risk that the passive income test will be satisfied. We cannot be certain, however, that changes in share ownership subsequent to the offering may not cause ACA Holdings and its foreign subsidiaries to again satisfy the stock ownership test, so that a "United States group" again exists; nor can we be certain that we will not satisfy the passive income test in the future. More generally, we cannot be certain that ACA Holdings or any of its foreign subsidiaries will not be considered an FPHC because of various factors including legal and factual uncertainties regarding the application of the constructive ownership rules, the makeup of ACA Holdings' shareholder base, the gross income of ACA Holdings and/or any of its foreign subsidiaries and other circumstances that could change the application of the FPHC rules to ACA Holdings and its foreign subsidiaries. Counsel will provide no opinion as to whether ACA Holdings or any of its foreign subsidiaries is or will be a FPHC in 2004 or any subsequent year because such determination depends upon future facts and events, including, among other things, the identities of and relationships among the shareholders of ACA Holdings and the nature and amount of the gross income of ACA Holdings and its subsidiaries. Foreign tax credit. Because it is anticipated that U.S. Persons will own a majority of our shares, only a portion of the current income inclusions, if any, under the CFC, RPII and PFIC rules and of dividends paid by us (including any gain from the sale of common shares that is treated as a dividend under section 1248 of the Code) will be treated as foreign source income for purposes of computing a shareholder's U.S. foreign tax credit limitations. We will consider providing shareholders with information regarding the portion of such amounts constituting foreign source income to the extent such information is reasonably available. It is also likely that substantially all of the "subpart F income," RPII and dividends that are foreign source income will constitute either "passive" or "financial services" income for foreign tax credit limitation purposes. Thus, it may not be possible for most shareholders to utilize excess foreign tax credits to reduce U.S. federal income tax on such income. Information Reporting and Backup Withholding. Under certain circumstances, U.S. Persons owning stock in a foreign corporation are required to file IRS Form 5471 with their U.S. federal income tax returns. Generally, information reporting on IRS Form 5471 is required by (i) a person who is treated as a RPII shareholder, (ii) a 10% U.S. Shareholder of a foreign corporation that is a CFC for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and who owned the stock on the last day of that year, (iii) a U.S. citizen or resident who owns 10% or more of the value of the outstanding stock of an FPHC, and (iv) under certain circumstances, a U.S. Person who acquires stock in a foreign corporation and as a result thereof owns 10% or more of the voting power or value of such foreign corporation, whether or not such foreign corporation is a CFC. Failure to file IRS Form 5471 may result in penalties. Information returns may be filed with the IRS in connection with distributions on the common shares and the proceeds from a sale or other disposition of the common shares unless the holder of the common shares establishes an exemption from the information reporting rules. A holder of common shares that does not establish such an exemption may be subject to U.S. federal backup withholding tax on these payments if the holder is not a corporation or non-U.S. Person or fails to provide its taxpayer identification number or otherwise comply with the backup withholding rules. The amount of any backup withholding from a payment to a U.S. Person will be allowed as a credit against the U.S. Person's U.S. federal income tax liability and may entitle the U.S. Person to a refund, provided that the required information is furnished to the IRS. AMERICAN CAPITAL ACCESS HOLDINGS LIMITED AND SUBSIDIARIES Schedule V Valuation and Qualifying Accounts and Reserves For the Years Ended December 31, 2003, 2002, and 2001 (Dollars in Thousands) Additions Description Balance at Beg. of Period Charged to Costs and Expense/(Deductions Balance at End of Period 2003 Valuation allowance on deferred tax asset $ 0 $ 0 $ 0 2002 Valuation allowance on deferred tax asset $ 2,361 $ (2,361 ) $ 0 2001 Valuation allowance on deferred tax asset $ 2,225 $ Proposed U.S. Tax Legislation. Legislation has been introduced in the U.S. Congress intended to eliminate tax advantages of companies (including insurance companies) that have legal domiciles outside the United States but have certain U.S. connections. There have been a variety of legislative proposals, including the following: U.S. legislation targeting so-called "inversion transactions" which would treat a foreign corporation as a U.S. corporation for U.S. federal income tax purposes. If such a proposal were enacted and made applicable to us and our subsidiaries, we would be subject to taxation in the United States at regular corporate rates, in which case our earnings and shareholders' investments would be materially adversely affected. In addition, the U.S. federal income tax consequences to our shareholders would be significantly different from those described above. U.S. legislation which would permit the IRS to reallocate or recharacterize items of income, deduction or certain other items related to a reinsurance agreement between related parties to reflect the proper source, character and amount for each item (in contrast to current law, which only refers to source and character). U.S. legislation which would amend the so-called "earnings stripping" provisions of existing law to impose more severe limitations on interest deductions on debt borrowed from or guaranteed by a related non-U.S. party. Such legislation could impose significant restrictions on the amount of available interest deductions by our U.S. subsidiaries on debt owed to or guaranteed by related non-U.S. parties. Legislation was proposed in the last Congress that would have effectively denied—by deferring for an extended period—a U.S.-based insurer that reinsures or retrocedes a portion of its risk with or to a related foreign-based reinsurer or retrocedent in a low tax rate jurisdiction (such as Bermuda) a deduction for the portion of the insurance or reinsurance premium ceded to the related foreign-based party, thereby effectively subjecting all of the premium income to U.S. federal income tax. Moreover, a senior official of the U.S. Treasury Department has also identified related party reinsurance arrangements as an area that requires study because it may result in an inappropriate shift of income from a U.S. corporate group to its foreign affiliates, implying that, were that to be the conclusion of such a study, legislation, possibly in the form of legislation imposing a premium-based tax, might be needed. Enactment of legislation of either type could materially adversely affect our earnings and shareholders' investments. As discussed earlier, legislation was proposed in the U.S. Congress early in 2003 but not enacted that would have repealed the accumulated earnings tax and, in connection with that repeal, would have eliminated the domestic corporation look-through rule contained in the PFIC provisions of the Code. Such repeal, if enacted in the future, could have an adverse effect upon U.S. Persons that are directly or indirectly our shareholders because we are relying upon the domestic corporation look-through rule to avoid classification as a PFIC. We cannot predict whether this or other restrictive legislation may be enacted or, if enacted, what the specific provisions or effective date of any such legislation would be, or whether it would have any effect on us or our subsidiaries. More generally, U.S. federal income tax laws and interpretations thereof with respect to a number of issues potentially important to us and our subsidiaries — including such matters as the rules for determining whether a company is engaged in a trade or business within the United States, whether a company is a passive foreign investment company and whether and in what manner the "subpart F" rules relating to controlled foreign corporations apply — are uncertain in many respects and are subject to change and clarification. We cannot be certain if, when or in what form future regulations or other pronouncements may be provided and whether such guidance will have retroactive effect. UNDERWRITING J.P. Morgan Securities Inc. is acting as book-running manager for this offering. We and J.P. Morgan Securities Inc. have entered into an underwriting agreement covering the common shares to be sold in this offering. J.P. Morgan Securities Inc., is acting as representative of the underwriters. Each underwriter has agreed to purchase the number of common shares set forth opposite its name in the following table. Name Number of Shares J.P. Morgan Securities Inc. Total The underwriting agreement provides that if the underwriters take any of the shares presented in the table above, then they must take all of these shares. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under limited circumstances. The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and our independent auditors. The underwriters are offering the common shares, subject to the prior sale of shares, and when, as and if such shares are delivered to and accepted by them. The underwriters will initially offer to sell shares to the public at the initial public offering price shown on the front cover page of this prospectus. The underwriters may sell shares to securities dealers at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering, the underwriters may vary the public offering price and other selling terms. If the underwriters sell more shares than the total number shown in the table above, the underwriters have the option to buy up to an additional common shares from us to cover such sales. They may exercise this option during the 30-day period from the date of this prospectus. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. The following table shows the per share and total underwriting discounts that we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares. Without Over-allotment Exercise With Over-allotment Exercise Per share $ $ Total $ $ J.P. Morgan Securities Inc. has advised us that, on behalf of the underwriters, it may make short sales of our common shares in connection with this offering, resulting in the sale by the underwriters of a greater number of shares than they are required to purchase pursuant to the underwriting agreement. The short position resulting from those short sales will be deemed a "covered" short position to the extent that it does not exceed the shares subject to the underwriters' over-allotment option and will be deemed a "naked" short position to the extent that it exceeds that number. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the trading price of the common shares in the open market that could adversely affect investors who purchase shares in this offering. The underwriters may reduce or close out their covered short position either by exercising the over-allotment option or by purchasing shares in the open market. In determining which of these alternatives to pursue, the underwriters will consider the price at which shares are available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Any "naked" short position will be closed out by purchasing shares in the open market. Similar to the other stabilizing transactions described below, open market purchases made by the underwriters to cover all or a portion of their short position may have the effect of preventing or retarding a decline in the market price of our common shares following this offering. As a result, our common shares may trade at a price that is higher than the price that otherwise might prevail in the open market. J.P. Morgan Securities Inc. has advised us that, pursuant to Regulation M under the Securities Act of 1933, it may engage in transactions, including stabilizing bids or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the common shares at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of common shares on behalf of the underwriters for the purpose of fixing or maintaining the price of the common shares. A "penalty bid" is an arrangement permitting J.P. Morgan Securities Inc. to claim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common shares originally sold by that underwriter or syndicate member are purchased by J.P. Morgan Securities Inc. in the open market pursuant to a stabilizing bid or to cover all or part of a syndicate short position. J.P. Morgan Securities Inc. has advised us that stabilizing bids and open market purchases may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. We and our executive officers and directors and most of our shareholders have agreed that, during the period beginning from the date of this prospectus and continuing to and including the date 180 days after the date of this prospectus, none of us will, directly or indirectly, offer, sell, offer to sell, contract to sell or otherwise dispose of any of our common shares except in limited circumstances, without the prior written consent of J.P. Morgan Securities Inc. The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of our common shares offered by them and that no sales to discretionary accounts may be made without prior written approval of the customer. We intend to apply to list the common shares on the New York Stock Exchange under the symbol "ACA." The underwriters intend to sell our common shares to a minimum of 2,000 beneficial owners in lots of 100 or more so as to meet the distribution requirements of this listing. There has been no public market for our common shares prior to this offering. We and the underwriters will negotiate the initial public offering price. In determining the initial public offering price, we and the underwriters expect to consider a number of factors in addition to prevailing market conditions, including: the history of and prospects for our industry and companies engaged in activities similar to ours; an assessment of our management; our present operations; our historical results of operations; the trend of our revenues and earnings; and our earnings prospects. We and the underwriters will consider these and other relevant factors in relation to the price of similar securities of generally comparable companies. Neither we nor the underwriters can assure investors that an active trading market will develop for the common shares, or that the common shares will trade in the public market at or above the initial public offering price. In the ordinary course, we have entered into a credit default swap transaction with J.P. Morgan Securities Inc. in which, in exchange for payments of customary fees, we provide loss protection on referenced pools of securities, backed by a financial guaranty insurance policy issued by ACA Financial Guaranty. We and our affiliates may enter into future such transactions or otherwise engage in commercial banking and/or investment banking transactions with the underwriters of this offering. VALIDITY OF SECURITIES Certain matters as to U.S. law in connection with this offering will be passed upon for us by Hogan & Hartson L.L.P., New York, New York. The validity of the shares of common shares to be issued in this offering will be passed upon for us by Conyers Dill & Pearman, Hamilton, Bermuda. Certain legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS PricewaterhouseCoopers LLP, our independent auditors, have audited our consolidated financial statements for the periods set forth in their reports. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on PricewaterhouseCoopers LLP's reports, given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act registering the common shares to be sold in this offering. As permitted by the rules and regulations of the SEC, this prospectus does not contain all of the information included in the registration statement and the exhibits and schedules filed as a part of the registration statement. For further information concerning us and the common shares to be sold in this offering, you should refer to the registration statement and to the exhibits and schedules filed as part of the registration statement. Statements contained in this prospectus regarding the contents of any agreement or other document filed as an exhibit to the registration statement are not necessarily complete, and in each instance reference is made to the copy of the agreement filed as an exhibit to the registration statement each statement being qualified by this reference. The registration statement, including the exhibits and schedules filed as a part of the registration statement, may be inspected at the public reference facility maintained by the SEC at its public reference room at 450 Fifth Street, NW, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room and you can request copies of the documents upon payment of a duplicating fee, by writing to the SEC. In addition, the SEC maintains a web site that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC which can be accessed at http://www.sec.gov. shares Common shares Prospectus JPMorgan , 2004 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, common shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares. Common shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 2003 of Bermuda which regulates the sale of securities in Bermuda. In addition, the Bermuda Monetary Authority, or the BMA, must approve all issuances and transfers of shares of a Bermuda exempted company. The BMA has issued its permission for the issue and free transferability of the common shares being offered pursuant to this prospectus, as long as the shares are listed on the New York Stock Exchange, or the NYSE, to and among persons who are non-residents of Bermuda for exchange control purposes. In addition, we will deliver to and file a copy of this prospectus with the Registrar of Companies in Bermuda in accordance with Bermuda law. The BMA and the Registrar of Companies accept no responsibility for the financial soundness of any proposal or for the correctness of any of the statements made or opinions expressed in this prospectus. Until , 2004, all dealers that buy, sell or trade in our common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution The following table shows the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. Except as otherwise noted, we will pay all of these amounts. All amounts except the SEC registration fee are estimated. Securities and Exchange Commission registration fee $ 15,838 National Association of Securities Dealers, Inc. filing fee 13,000 New York Stock Exchange listing fee * Printing and engraving expenses * Legal fees and expenses * Accounting fees and expenses * Transfer agent fees and expenses * Miscellaneous * Total $* * To be provided by amendment. Item 14. Indemnification of Directors and Officers. Bye-law 29 of our bye-laws provides, among other things, that: the directors, officers and any other persons appointed to a committee of our board of directors, and their heirs, executors and administrators, shall be indemnified and secured harmless out of the assets of our company to the full extent permitted by law from and against all actions, costs, charges, liabilities, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the conduct of our business or the execution of their duty, or supposed duty, or in their respective offices or trusts, and none of them shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to our company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to us shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto; provided, that this indemnity shall not extend to any matter in which any of said persons is found, in a final judgment or decree not subject to appeal, to have committed fraud or dishonesty. Bye-law 30 of our bye-laws provides that each shareholder agrees to waive any claim or right of action it might have, whether individually or by or in the right of our company, against any director or officer on account of any action taken by such director or officer, or the failure of such director or officer to take any action in the performance of his duties with or for us, provided that such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such director or officer. Section 98 of the Bermuda Companies Act 1981, or the Companies Act, provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of Bermuda law otherwise would be imposed on them, except in cases where such liability arises from the fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceeding, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted if granted relief by the Supreme Court of Bermuda in certain proceedings arising under Section 281 of the Companies Act. II-1 We have purchased directors and officers liability insurance policies. Such insurance would be available to our directors and officers in accordance with its terms. In addition, certain directors may be covered by directors and officers liability insurance policies purchased by their respective employers. Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1 hereto for provisions providing that the Underwriters are obligated, under certain circumstances, to indemnify the directors, certain officers and the controlling persons of our company against certain liabilities under the Securities Act. Reference is made to the employment agreements with our named executive officers filed as Exhibits 10.1 through 10.8 hereto for provisions that provide our named executive officers with further indemnification to the maximum extent permitted by law. Item 15. Recent Sales of Unregistered Securities The following is a list of all securities sold by us or our predecessor, American Capital Access Holdings, Incorporated in the last three years. All of the issuances described below were exempt from registration (i) pursuant to Section 4(2) of the Securities Act, as transactions not involving a public offering or (ii) Rule 701 promulgated under the Securities Act or (iii) as transactions not involving a sale of securities. No underwriters were involved in connection with the sales of securities referred to in this Item 15. On February 26, 2001, we sold to certain accredited investors 571.27 convertible preference shares for an aggregate purchase price of $32.5 million and 219.72 shares of senior convertible preferred shares for an aggregate purchase price of $12.5 million. In February 2001, our board of directors authorized a 1000-for-1 share split of our common shares to be distributed to our security holders in the form of a share dividend. From April 2001 until June 2001, we sold approximately 415,638 of our common shares to four of our executive officers for an aggregate purchase price of $4.2 million. Since March 31, 2001 we granted options, with exercise prices ranging from $10.90 to $13.77, to purchase a total of 2,015,212 of our common shares pursuant to our Omnibus Incentive Compensation Plan. As of December 31, 2003, options with respect to 2,015,212 of our common shares were outstanding. In August 2002, three of our accredited investors converted an aggregate of 90.49 of their senior convertible preferred shares for convertible preference shares. In addition, we sold to one of the accredited investors an additional 30.32 convertible preference shares for an aggregate purchase price of $2,000,000. On December 4, 2002, ACA Statutory Trust I, or Trust I, issued and sold $17,500,000 of the its Floating Rate Capital Securities to I-Preferred Term Securities I, Ltd. The proceeds from these sales were used by Trust I to purchase $18,042,000 in principal amount of Floating Rate Junior Subordinated Deferrable Interest Debentures of American Capital Access Holdings Limited. On May 15, 2003, ACA Statutory Trust II, or Trust II, issued and sold $20,000,000 of its Floating Rate Capital Securities to I-Preferred Term Securities II, Ltd. The proceeds from these sales were used by Trust II to purchase $20,619,000 in principal amount of Floating Rate Junior Subordinated Deferrable Interest Debentures of American Capital Access Holdings Limited. On October 29, 2003, ACA Statutory Trust III, or Trust III, issued and sold $20,000,000 of its Floating Rate Capital Securities to I-Preferred Term Securities III, Ltd. The proceeds from these sales were used by Trust III to purchase $20,619,000 in principal amount of Floating Rate Junior Subordinated Deferrable Interest Debentures of American Capital Access Holdings Limited. II-2 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The Exhibit Index filed herewith is incorporated herein by reference. (b) Financial Statement Schedules Schedule II: Condensed Financial Information of Registrant Schedule III: Supplementary Insurance Information Schedule IV: Reinsurance Schedule V: Valuation and Qualifying Accounts and Reserves II-3 Schedule II Condensed Financial Information of AMERICAN CAPITAL ACCESS HOLDINGS LIMITED (Parent Company) BALANCE SHEETS (Dollars in Thousands, Except Share Amounts) December 31, ASSETS 2003 2002 Investments in subsidiaries and affiliates $ 222,919 $ 168,873 Cash and cash equivalents 9,512 3,320 Receivable from affiliates 10,572 — Deferred debt issuance costs 1,691 525 Intangibles 4,891 4,891 Other assets 4,400 1,432 Total assets $ 253,985 $ 179,041 LIABILITIES AND SHAREHOLDERS' EQUITY Debt 59,280 18,042 Accrued interest payable 399 76 Payable to affiliates — 956 Accrued expenses and other liabilities — 107 Total liabilities 59,679 19,181 Senior convertible preferred shares (129 shares issued and outstanding at December 31, 2003 and 2002) 7,339 7,339 Convertible preferred shares (959 shares issued and outstanding at December 31, 2003 and 2002) 54,858 54,858 Common shares (149,998,280 and 19,998,280 shares authorized at December 31, 2003 and 2002, respectively; 6,045,635 shares issued and outstanding at December 31, 2003 and 2002; par value of $0.0177) 107 107 Gross paid-in and contributed capital 125,721 125,721 Treasury shares at cost (159,870 shares at December 31, 2003 and 2002) (3,222 ) (3,222 ) Notes receivable from shareholders (4,200 ) (4,200 ) Accumulated other comprehensive income (loss) (net of deferred income tax of $404 and $8,880 at December 31, 2003 and 2002, respectively) 751 (16,492 ) Retained earnings (deficit) 12,952 (4,251 ) Total shareholders' equity 194,306 159,860 Total liabilities and shareholders' equity $ 253,985 $ 179,041 See accompanying notes to financial statements II-5 Schedule II Condensed Financial Information of AMERICAN CAPITAL ACCESS HOLDINGS LIMITED (Parent Company) STATEMENTS OF INCOME (Dollars in Thousands, Except Share Amounts) For the years ended December 31, 2003 2002 2001 Revenues: Equity in earnings of subsidiaries and affiliates $ 19,033 $ 4,522 $ 2,724 Net investment income 322 314 134 Total revenues 19,355 4,836 2,858 Expenses: Other operating expenses 264 141 31 Interest expense 1,888 76 — Depreciation and amortization — — 137 Total expenses 2,152 217 168 Income before income taxes 17,203 4,619 2,690 Provision for income taxes — 51 81 Net income $ 17,203 $ 4,568 $ 2,609 Net income per share: Basic $ 2.92 $ 0.77 $ 0.45 Diluted $ 1.37 $ 0.37 $ 0.23 Weighted average number of common shares outstanding: Basic 5,885,765 5,895,423 5,786,307 Diluted 12,559,380 12,268,260 11,136,000 See accompanying notes to financial statements II-6 Schedule II Condensed Financial Information of AMERICAN CAPITAL ACCESS HOLDINGS LIMITED (Parent Company) NOTES TO FINANCIAL STATEMENTS 1. Business, Organization and Operations American Capital Access Holdings Limited (the "Company"), a company incorporated in Bermuda was established on November 22, 2002 as a result of a corporate reorganization. American Capital Access Holdings, Inc. ("ACAHI") a Delaware Corporation incorporated on January 3, 1997 was merged into American Capital Access Holdings (Arizona), Inc. (an Arizona corporation) and a wholly-owned subsidiary of the Company. American Capital Access Holdings (Arizona), Inc. then transferred its domicile to Bermuda pursuant to a redomestication procedure under Arizona law and a continuance procedure under Bermuda law and changed its name to American Capital Access Holdings Limited (Bermuda). The Company, through its subsidiary ACA Financial Guaranty Corporation ("ACA Financial Guaranty") is engaged in the business of providing financial guaranty insurance on municipal obligations, and, asset-backed and corporate financings, bank certificates of deposit and surety risks. Also, the Company, through its subsidiary ACA Risk Solutions, L.L.C. participates in the structured finance market through its investment, structuring and management of collateralized debt obligations ("CDO") and Asset Backed Securities ("ABS") originated in partnership with investment banks. These parent company condensed financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), which are included elsewhere in this registration statement. 2. Debt As of December 31, 2003 and 2002, the Company issued trust preferred debt securities of $59.3 million and $18.0 million, respectively. The trust preferred securities have an initial with a stated term of 30 years with a call provision of five years from the date of each issuance. The current interest rates on the outstanding securities range from 5.14% to 5.23% at December 31, 2003. The effective interest rate of these securities is calculated based on 3-Month LIBOR plus a margin of 3.95% to 4.1% per annum subject to certain interest rate caps during the lives of the securities. 3. Intangibles The Company purchased all of the outstanding common stock of a Maryland-domiciled insurance company on September 24, 1997, and changed its name to ACA Financial Guaranty Corporation. The acquisition was accounted for as a purchase and the price was allocated to the fair market value of the investments acquired of $15.1 million. In addition to the investments acquired, the Company paid $5.5 million for 54 certificates of authority (licenses) to transact financial guaranty insurance. The licenses through 2001 were being amortized over a 40-year life, beginning with commencement of operations of ACA Financial Guaranty on September 24, 1997. The unamortized balance of these licenses at December 31, 2003 and 2002 was $4.9 million. Effective January 1, 2002 the Company adopted FAS No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 142 requires that an entity no longer amortize intangible assets that have an indefinite life but rather test for impairment losses on an annual basis. The Company believes these licenses have an indefinite life. If the carrying value of the intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. The Company did not have an impairment loss. ACA Financial Guaranty is licensed, or otherwise authorized, to transact business in 50 states, the District of Columbia, Guam, the Virgin Islands and Puerto Rico. 4. Subsequent Events In connection with the Company's public offering, this condensed financial information has been retroactively adjusted for a 5.63 for 1 share split, which will become effective prior to consummation of the offering. All share, stock option and related amounts included in this condensed financial information footnotes have been adjusted to reflect the share split. II-8 AMERICAN CAPITAL ACCESS HOLDINGS LIMITED AND SUBSIDIARIES Schedule III Supplementary Insurance Information As of and for the Years ended December 31, 2003, 2002, and 2001 (Dollars in Thousands) 2003 Segment Deferred Policy Acquisition Costs Unearned Premium Reserve Reserve for Loss and LAE Expense Net Investment Income Net Written Premiums Net Premiums Earned Loss and LAE Expense Acquisition Costs Other Operating Expenses Insurance $ 41,723 $ 172,337 $ 9,547 $ 9,774 $ 66,249 $ 27,622 $ 3,168 $ 4,077 $ 11,129 Financial Services — — — 1,217 — — — — 16,388 Consolidated VIEs — — — 43,463 — — — — 12,592 Corporate/Other and Segment Eliminations — — — (1,586 ) (3,700 ) (3,786 ) — — (10,643 ) Total $ 41,723 $ 172,337 $ 9,547 $ 52,868 $ 62,549 $ 23,836 $ 3,168 $ 4,077 $ 29,466 2002 Segment Deferred Policy Acquisition Costs Unearned Premium Reserve Reserve for Loss and LAE Expense Net Investment Income Net Written Premiums Net Premiums Earned Loss and LAE Expense Acquisition Costs Other Operating Expenses Insurance $ 38,387 $ 136,222 $ 6,555 $ 10,277 $ 49,607 $ 15,692 $ 1,801 $ 4,046 $ 9,784 Financial Services — — — 320 — — — — 8,170 Consolidated VIEs — — — 9,801 — — — — 5,314 Corporate/Other and Segment Eliminations — — — (129 ) (2,173 ) (1,716 ) — — (4,585 ) Total $ 38,387 $ 136,222 $ 6,555 $ 20,269 $ 47,434 $ 13,976 $ 1,801 $ 4,046 $ 18,683 2001 Segment Deferred Policy Acquisition Costs Unearned Premium Reserve Reserve for Loss and LAE Expense Net Investment Income Net Written Premiums Net Premiums Earned Loss and LAE Expense Acquisition Costs Other Operating Expenses Insurance $ 34,795 $ 101,208 $ 3,405 $ 11,363 $ 5,459 $ 6,672 $ 1,636 $ 3,680 $ 13,857 Financial Services — — — — — — — — 231 Consolidated VIEs — — — — — — — — — Corporate/Other and Segment Eliminations — — — 204 — — — — 216 Total $ 34,795 $ 101,208 $ 3,405 $ 11,567 $ 5,459 $ 6,672 $ 1,636 $ 3,680 $ 14,304 II-9 Item 17. Undertakings The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430(A) and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933 each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-12 Signatures Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, State of New York, on April 8, 2004. AMERICAN CAPITAL ACCESS HOLDINGS LIMITED By: /s/ Michael E. Satz Name: Michael E. Satz Title: Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to this Registration Statement has been signed by the following persons in the capacities indicated below on the 8th day of April, 2004. Signature Title * Chairman of the Board of Directors John G. Berylson /s/ Michael E. Satz Deputy Chairman and Chief Executive Officer (Principal Executive Officer) Michael E. Satz /s/ Edward U. Gilpin Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Edward U. Gilpin * Director David M. Barse * Director Bradely E. Cooper * Director Steven B. Gruber * Director Curtis R. Jensen * Director Demos Kouvaris * Director Douglas H. Martin * Director Mani A. Sadeghi II-13 EXHIBIT INDEX The registrant agrees to furnish a copy of any long-term debt instrument wherein the securities authorized do not exceed 10 percent of the registrant's total assets on a consolidated basis upon the request of the Securities and Exchange Commission. Exhibit No. Description 1.1 Form of Underwriting Agreement, dated as of , by and between American Capital Access Holdings Limited and J.P. Morgan Securities Inc.* 3.1 Memorandum of Continuance.** 3.2 Form of Amended and Restated Bye-laws.* 4.1 Form of Certificate of Common Shares of American Capital Access Holdings Limited.* 4.2 Registration Rights Agreement, dated as of September 23, 1997.** 4.3 Registration Rights Agreement, dated as of February 28, 2001.** 4.4 Indenture, dated as of July 29, 2002, among ACA ABS 2002-1, Limited, ACA ABS 2002-1, L.L.C., and Lasalle Bank National Association.* 4.5 Indenture, dated as of May 20, 2003, between ACA ABS 2003-1, Limited, and Lasalle Bank National Association.* 4.6 Indenture, dated as of November 6, 2003, among ACA ABS 2003-2, Limited, ACA ABS 2003-2, L.L.C., Lasalle Bank National Association, and CDC Ixis Financial Guaranty North America, Inc.* 4.7 Indenture, dated as of July 14, 2003, among Grenadier Funding, Limited, Grenadier Funding Corp., JPMorgan Chase Bank, and Citibank, N.A.* 5.1 Opinion of Conyers Dill & Pearman as to the legality of the securities being registered.* 8.1 Opinion of Hogan & Hartson LLP with respect to certain U.S. federal income tax considerations.* 10.1 Agreement of Lease, dated as of August 7, 1998, between MSDW 140 Broadway Property, L.L.C. and American Capital Access Service Corporation, as amended.** 10.2 Employment Agreement, dated as of March 1, 2001, between the company and Michael E. Satz.** 10.3 Employment Agreement, dated as of May 1, 2001, between the company and Maryam H. Muessel.** 10.4 Employment Agreement, dated as of March 1, 2001, between the company and Edward U. Gilpin.** 10.5 Employment Agreement, dated as of March 1, 2001, between the company and William T. Tomljanovic.** 10.6 Letter, dated March 17, 2003, from the company to Stephen Cooke outlining the terms of his employment.** 10.7 Employment Agreement, effective as of May 1, 2004, between the company and Michael E. Satz.* 10.8 Employment Agreement, effective as of May 1, 2004, between the company and Maryam H. Muessel.* Exhibit No. Description 10.9 Employment Agreement, effective as of March 1, 2004, between the company and Edward U. Gilpin.* 10.10 Employment Agreement, effective as of March 1, 2004, between the company and William T. Tomljanovic.* 10.11 Fixed Income Investment Management Agreement, dated as of March 26, 2002, between ACA Financial Guaranty Corporation and Stephens Inc.** 10.12 Omnibus Equity Incentive Compensation Plan.** 21.1 List of Subsidiaries.** 23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).* 23.2 Consent of PricewaterhouseCoopers LLP. 24.1 Power of Attorney (included on signature page).** * To be filed by amendment. ** Previously filed. AMERICAN CAPITAL ACCESS HOLDINGS LIMITED AND SUBSIDIARIES Schedule IV Reinsurance For the Years Ended December 31, 2003, 2002, and 2001 (Dollars in Thousands) Gross Amount Ceded to Other Companies Assumed from Other Companies Net Amount Percentage of Amount Assumed to Net 2003 Earned Premium $ 28,899 $ (6,064 ) $ 1,001 $ 23,836 4.2 % 2002 Earned Premium $ 19,435 $ (6,273 ) $ 814 $ 13,976 5.8 % 2001 Earned Premium $ 18,106 $ (11,795 ) $ CERTAIN RATINGS INFORMATION The following descriptions of financial strength ratings are derived from more extensive explanations provided by Fitch Ratings Inc. and Standard & Poor's Rating Group, a division of The McGraw-Hill Companies. Fitch Ratings Inc. Insurer Financial Strength Ratings The Insurer Financial Strength Rating (IFS Rating) provides an assessment of the financial strength of an insurance organization, and its capacity to meet senior obligations to policyholders and contractholders on a timely basis. The IFS Rating is assigned to the insurance organization itself, and no liabilities or obligations of the insurer are specifically rated unless otherwise stated (for example, Fitch Ratings may separately rate the debt obligations of an insurer). The IFS Rating can be assigned to insurance and reinsurance companies in all insurance sectors, including the life & health, property & casualty, mortgage, financial guaranty and title insurance sectors, as well as managed care companies such as health maintenance organizations. The IFS Rating does not address the willingness of an insurance organization's management to honor its company's obligations, nor does the IFS Rating address the quality of an insurer's claims handling services. In the context of the IFS Rating, the timeliness of payments is considered relative to both contract and/or policy terms and also recognizes the possibility of acceptable delays caused by circumstances unique to the insurance industry, including claims reviews, fraud investigations and coverage disputes. The IFS Rating is based on a comprehensive analysis of relevant factors that in large part determine an insurance organization's financial strength, including its regulatory solvency characteristics, liquidity, operating performance, financial flexibility, balance sheet strength, management quality, competitive positioning and long-term business viability. The IFS Rating is an international-scale rating, and incorporates relevant economic and political risks that could impair an insurance organization's capacity to meet its obligations. As a result, in most cases it would be rare for an insurance organization to achieve an IFS Rating that would be higher than the long-term, international-scale local currency ratings assigned to the obligations of its sovereign state of domicile. One exception could be cases in which foreign parental support commitments are in place. Other exceptions could include cases in which, due to the international nature of an insurer's business, a major portion of its business and financial resources are not exposed to the economic and political risks of its sovereign state. Since the IFS Rating is not assigned to any specific obligations of the insurer, the rating does not take into account the potential for government restrictions that could prevent specific obligations from being met on a timely basis, such as exchange controls placed on obligations owed in a foreign currency. The IFS Rating uses the same ratings scale and symbols used by Fitch Ratings for its international ratings of long-term debt obligations and issuers. However, the definitions associated with the ratings reflect the unique aspects of the IFS Rating within an insurance industry context. Ratings in the 'AA' through 'CCC' categories may be amended with a (+) or (-) sign to show relative standing within the major rating category. Ratings of 'BBB-' and higher are considered to be 'Secure', and those of 'BB+' and lower are considered to be 'Vulnerable'. AAA Exceptionally strong. Insurers assigned this highest rating are viewed as possessing exceptionally strong capacity to meet policyholder and contract obligations. For such companies, risk factors are minimal and the impact of any adverse business and economic factors is expected to be extremely small. AA Very strong. Insurers are viewed as possessing very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and the impact of any adverse business and economic factors is expected to be very small. A Strong. Insurers are viewed as possessing strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small. BBB Good. Insurers are viewed as possessing good
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+Table of Contents SUPERVISION AND REGULATION General Placer Sierra Bancshares As a bank holding company, we are subject to regulation under the Bank Holding Company Act of 1956, as amended, which we refer to as the BHCA, and are registered with and subject to the supervision of the FRB. It is the policy of the FRB, that each bank holding company serve as a source of financial and managerial strength to its subsidiary banks. The FRB has the authority to examine us and our subsidiaries. The BHCA requires us to obtain the prior approval of the FRB before acquisition of all or substantially all of the assets of any bank or ownership or control of the voting shares of any bank if, after giving effect to the acquisition, we would own or control, directly or indirectly, more than 5% of the voting shares of that bank. Recent amendments to the BHCA expand the circumstances under which a bank holding company may acquire control of or all or substantially all of the assets of a bank located outside the State of California. We may not engage in any business other than managing or controlling banks or furnishing services to our subsidiaries, with the exception of certain activities which, in the opinion of the FRB, are so closely related to banking or to managing or controlling banks as to be incidental to banking. In addition, we are generally prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company unless that company is engaged in such authorized activities and the Federal Reserve approves the acquisition. We and our subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or provision of services. For example, with certain exceptions, the bank may not condition an extension of credit on a customer obtaining other services provided by us, the bank or any other subsidiary of ours, or on a promise by the customer not to obtain other services from a competitor. In addition, federal law imposes certain restrictions on transactions between the bank and its affiliates. As affiliates, we and the bank are subject, with certain exceptions, to the provisions of federal law imposing limitations on and requiring collateral for extensions of credit by the bank to any affiliate. The Bank As a California state-chartered bank, the bank is subject to regulation, supervision and periodic examination by the DFI. As a member of the Federal Reserve System, the bank also is subject to regulation, supervision and periodic examination by the Federal Reserve Bank of San Francisco. The bank s deposits are insured by the FDIC to the maximum amount permitted by law, which is currently $100,000 per depositor in most cases. Insured banks are subject to FDIC regulations applicable to all insured institutions. The regulations of these state and federal bank regulatory agencies govern, or will govern, most aspects of the bank s businesses and operations, including the scope of its business, its investments, its reserves against deposits, the nature and amount of any collateral for loans and leases, the timing of availability of deposited funds, the issuance of securities, the payment of dividends, bank expansion and bank activities, including real estate development and insurance activities, and the payment of interest on certain deposits. The bank is also subject to the requirements and restrictions of various consumer laws, regulations and the Community Reinvestment Act, or CRA. Payment of Dividends Placer Sierra Bancshares Our shareholders are entitled to receive dividends when and as declared by our Board of Directors, out of funds legally available therefor, subject to the dividends preference, if any, on preferred shares that may be outstanding and also subject to the restrictions of the California General Corporation Law. Table of Contents Our principal sources of cash revenue are dividends received from the bank. The bank s ability to make dividend payments to us is subject to state and federal regulatory restrictions. Placer Sierra Bank Under state law, the board of directors of a California state chartered bank may declare a cash dividend, subject to the restriction that the amount available for the payment of cash dividends is limited to the lesser of the bank s retained earnings, or the bank s net income for the latest three fiscal years, less dividends previously paid during that period, or, with the approval of the Commissioner of the DFI, to the greater of the retained earnings of the bank, the net income of the bank for its last fiscal year or the net income of the bank for its current fiscal year. FRB regulations also govern the payment of dividends by a state member bank. Under FRB regulations, dividends may not be paid unless both capital and earnings limitations have been met. First, no dividend may be paid if it would result in a withdrawal of capital or exceed the member bank s net profits then on hand, after deducting its losses and bad debts. Exceptions to this limitation are available only upon the prior approval of the FRB and the approval of two-thirds of the member bank s shareholders which, in the case of the bank, would require our approval, as sole shareholder of the bank. Second, a state member bank may not pay a dividend without the prior written approval of the FRB if the total of all dividends declared in one calendar year, including the proposed dividend, exceeds the total of net income for that year plus the preceding two calendar years less any required transfers to surplus under state or federal law. The FRB has broad authority to prohibit a bank from engaging in banking practices which it considers to be unsafe or unsound. It is possible, depending upon the financial condition of the bank in question and other factors, that the FRB may assert that the payment of dividends or other payments by a member bank is considered an unsafe or unsound banking practice and therefore, implement corrective action to address such a practice. Accordingly, the future payment of cash dividends by the bank to us will generally depend not only on the bank s earnings during any fiscal period but also on the bank meeting certain capital requirements and maintaining an adequate allowance for loan and lease losses. Change in Control The BHCA, and the Change in Bank Control Act of 1978, as amended, together with regulations of the FRB, require that, depending on the particular circumstances, either FRB approval must be obtained or notice must be furnished to the FRB and not disapproved prior to any person or entity acquiring control of a state member bank, such as the bank, subject to exemptions for some transactions. Control is conclusively presumed to exist if an individual or entity acquires 25% or more of any class of voting securities of the bank. Control is rebuttably presumed to exist if an entity acquires 10% or more but less than 25% of any class of voting securities and either the entity has registered securities under Section 12 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or no other person will own a greater percentage of that class of voting securities immediately after the transaction. Capital Standards The FRB and the FDIC have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization s operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit and recourse arrangements, which are reported as off-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0.0% for assets with low credit risk, such as certain U.S. government securities, to 100.0% for assets with relatively higher credit risk, such as business loans. Table of Contents A banking organization s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance-sheet items. The regulators measure risk-adjusted assets and off-balance-sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. Since December 31, 1992, the FRB and the FDIC have required a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance-sheet items of 8.0%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off-balance-sheet items of 4.0%. In addition to the risk-based guidelines, the FRB and FDIC require banking organizations to maintain a minimum amount of Tier 1 capital to average total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3.0%. It is improbable, however, that an institution with a 3.0% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators ratings. For all banking organizations not rated in the highest category, the minimum leverage ratio is at least 100 to 200 basis points above the 3.0% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least 4.0% or 5.0%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the FRB and FDIC have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. A bank that does not achieve and maintain the required capital levels may be issued a capital directive by the FDIC to ensure the maintenance of required capital levels. As discussed above, we are required to maintain certain levels of capital, as is the bank. The regulatory capital guidelines as well as our actual capitalization on a consolidated basis and for the banks as of March 31, 2004 is as follows: Leverage Ratio Placer Sierra Bancshares and subsidiaries 9.8 % Minimum regulatory requirement 4.0 % Placer Sierra Bank 8.8 % Minimum requirement for Well-Capitalized institution 5.0 % Minimum regulatory requirement 4.0 % Bank of Orange County 9.7 % Minimum requirement for Well-Capitalized institution 5.0 % Minimum regulatory requirement 4.0 % Tier 1 Risk-Based Capital Ratio Placer Sierra Bancshares and subsidiaries 12.5 % Minimum regulatory requirement 4.0 % Placer Sierra Bank 11.5 % Minimum requirement for Well-Capitalized institution 6.0 % Minimum regulatory requirement 4.0 % Bank of Orange County 11.7 % Minimum requirement for Well-Capitalized institution 6.0 % Minimum regulatory requirement 4.0 % Table of Contents Total Risk-Based Capital Ratio Placer Sierra Bancshares and subsidiaries 13.7 % Minimum regulatory requirement 8.0 % Placer Sierra Bank 12.7 % Minimum requirement for Well-Capitalized institution 10.0 % Minimum regulatory requirement 8.0 % Bank of Orange County 12.9 % Minimum requirement for Well-Capitalized institution 10.0 % Minimum regulatory requirement 8.0 % Prompt Corrective Action Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including those institutions that fall below one or more prescribed minimum capital ratios described above. An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. Additionally, a holding company s inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company. Premiums for Deposit Insurance Through the Bank Insurance Fund, or BIF, the FDIC insures our customer deposits up to prescribed limits for each depositor. The amount of FDIC assessments
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001279529_uap_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001279529_uap_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the Risk Factors section beginning on page 11, the Unaudited Pro Forma Condensed Consolidated Financial Data section beginning on page 24 and the historical financial statements of UAP Holding Corp. and its predecessor, the ConAgra Agricultural Products Business, and the accompanying notes to those statements. Unless the context requires otherwise, all references to we, us, our and UAP refer specifically to UAP Holding Corp. and its consolidated subsidiaries after the Acquisition (as defined on page 76 in Certain Relationships and Related Transactions ) and its predecessor, the ConAgra Agricultural Products Business, before the Acquisition. All references to UAP Holdings refer specifically only to UAP Holding Corp., excluding its subsidiaries, and all references to United Agri Products refer specifically only to United Agri Products, Inc., a direct, wholly-owned subsidiary of UAP Holdings, excluding its subsidiaries. UAP operates on a 52- or 53-week year. UAP s fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 27, 2000, February 25, 2001, February 24, 2002, February 23, 2003, and February 22, 2004, respectively. UAP s fiscal years in 2000, 2001, 2002, 2003 and 2004 contained 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they ended. For example, the fiscal year ended February 22, 2004 is referred to herein as fiscal 2004. OUR COMPANY Founded in 1978, we are the largest private distributor of agricultural and non-crop inputs in the United States and Canada. We market a comprehensive line of products including crop protection chemicals, seeds and fertilizers to growers and regional dealers, and provide a broad array of value-added services including crop management, biotechnology advisory services, custom blending, inventory management and custom applications of crop inputs. We have a comprehensive network of approximately 320 distribution and storage facilities, three formulation plants that are strategically located in the major crop-producing areas of the United States and Canada, over 40,000 active stock keeping units, or SKUs, and the support of approximately 1,100 salespeople. Our network enables us to provide leading agricultural input companies with an efficient means to access a highly fragmented customer base of farmers and growers. For the twelve months ended August 29, 2004, on a pro forma basis after giving effect to the Acquisition, the Special Dividends (as defined on page 4) and this offering, we generated net sales of $2.6 billion and income before income taxes of $65.5 million. We distribute products manufactured by the world s leading agricultural input companies, including BASF, Bayer, Dow, DuPont, Monsanto and Syngenta, as well as ConAgra International Fertilizer Company. We also distribute products from over 300 other suppliers as well as over 218 of our own proprietary private label products. Our extensive infrastructure is a critical element of our suppliers route-to-market, as it enables them to reach a highly fragmented customer base. As of August 29, 2004, we had approximately 75,000 customers, with our ten largest customers accounting for approximately 3% of our net sales in fiscal 2004. Our customers include commercial growers and regional dealers, as well as consumers in non-crop industries. Our significant scale provides our customers with an efficient and cost-effective method of purchasing agricultural and non-crop inputs. At the end of fiscal 2002, our new management team began to implement several strategic initiatives to increase our operational efficiency, including rationalizing headcount, enhancing our credit policies and information systems, improving inventory management and closing unprofitable distribution centers. Largely as 1.1 Form of Underwriting Agreement. 2.1 Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 2.2 Amendment No. 1, dated as of November 23, 2003, to the Stock Purchase Agreement, dated as of October 29, 2003, by and among UAP Holding Corp., ConAgra Foods, Inc. and United Agri Products, Inc. (incorporated by reference to Exhibit 2.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 3.1 Certificate of Incorporation of UAP Holding Corp. dated as of October 28, 2003 (incorporated by reference to Exhibit 3.1 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.2 Certificate of Amendment dated November 24, 2003 to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.3 Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.4 Bylaws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 3.5 Amended and Restated Certificate of Incorporation of UAP Holding Corp. filed with the Secretary of State of the State of Delaware on November 17, 2004. 3.6 Form of Certificate of Elimination Series A Redeemable Preferred Stock. 3.7 Form of Amended and Restated Bylaws of UAP Holding Corp. 4.1 Credit Agreement dated as of November 24, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Company, as Canadian agent (incorporated by reference to Exhibit 4.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.2 First Amendment to Credit Agreement dated as of December 9, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Company, as Canadian agent (incorporated by reference to Exhibit 4.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.3 Second Amendment to Credit Agreement dated as of December 18, 2003, by and among United Agri Products, Inc. and United Agri Products Canada Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Company, as Canadian agent (incorporated by reference to Exhibit 4.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.4 Third Amendment to Credit Agreement dated as of January 15, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Company, as Canadian agent (incorporated by reference to Exhibit 4.4 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents a result of that strategy, we successfully increased our income before income taxes as a percentage of net sales from 0.1% in fiscal 2001 to 2.8% in fiscal 2004 on a pro forma basis after giving effect to the Acquisition, while reducing average working capital as a percentage of net sales from approximately 25.5% in fiscal 2001 to approximately 20.4% in fiscal 2004, a reduction of $205.3 million. We believe we are well positioned to drive further efficiencies in working capital and further enhance our margins. INDUSTRY OVERVIEW AND TRENDS The three primary product areas of the agricultural inputs and non-crop market are crop protection chemicals, seeds and fertilizer. According to the most recent available survey by the USDA National Agricultural Statistics Service, the agricultural inputs market in the United States was estimated at $27.7 billion in 2003, of which approximately $8.4 billion represented crop protection chemicals expenditures, approximately $9.3 billion represented seed expenditures, and approximately $10.0 billion represented fertilizer expenditures. The agricultural inputs market has grown at a compound annual growth rate of approximately 3% over the past ten years (as measured by total revenues). We also operate in the non-crop market that consists of turf and ornamental (golf courses, resorts, nurseries and greenhouses), pest control operators and vegetation management. We estimate this market to be approximately $3.0 billion and believe it is experiencing significant organic growth. Agricultural input distributors represent the main route-to-market for agricultural input manufacturers, and fill a critical need in the U.S. and Canadian agricultural inputs market by allowing suppliers to economically access a highly fragmented customer base of approximately two million growers, dealers and non-crop customers. The market has consolidated significantly over the last ten years, and based on independent consulting work which we sponsored, we believe that: in 2003 the largest six retailers accounted for over 50% of sales by the largest 100 retailers in our industry measured by sales; independent national distributors (i.e., non-grower-owned cooperatives) increased their retail market share amongst the largest 100 retailers measured by sales from 37% in 1998 to 41% in 2003; and larger companies, such as UAP, will continue to increase their competitive advantage over businesses with fewer resources. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths will allow us to increase our market share, net sales and profitability: Leading Market Positions. We are the largest private distributor of agricultural input products in major crop-producing regions throughout the United States and Canada, and based on independent consulting work which we sponsored, we believe that we hold the number one market position in each of our core product categories: crop protection chemicals, seeds and fertilizers. We are also the only national distributor that holds a position in all the non-crop market segments of pest control, turf and ornamental, forestry, and vegetation management. Multiple Opportunities for Growth. We believe that we are well positioned to take advantage of growth opportunities in our product areas. We have recently experienced sales increases in seed, proprietary branded products and non-crop products as we take advantage of the growth in these product areas. In addition, by leveraging our competitive position as the market leader, we have been able to increase our market share in these products. Coastal Carolinas NC, SC, VA 2 12 14 Florida FL 1 10 11 Northeast CT, DE, MA, MD, ME, NH, NJ, NY, PA, RI, VT, WV 4 22 26 West AK, AZ, CA, NV 5 12 17 Northern Great Lakes MI, OH, WI 18 15 33 Midwest IA, MN 15 27 42 Northern Plains MT, ND, SD 9 12 21 Northwest HI, ID, OR, UT, WA 5 13 18 Pueblo CO, KS, NE, WY 10 11 21 Richter MO, IL, IN 25 24 49 Southern Delta LA, MS 8 30 38 Midsouth AR, KY, TN 5 19 24 Southeast AL, GA 3 11 14 Southwest NM, OK, TX 6 23 29 Canada 3 10 13 Administrative CO 1 1 Net loss, as reported $ (37,036 ) Add goodwill amortization (net of tax) 290 Add identifiable intangible asset amortization (net of tax) 4.5 Form of Amended and Restated Credit Agreement by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other credit parties thereto, the lenders party thereto, General Electric Capital Corporation, as agent and GE Canada Finance Company, as Canadian agent. 4.6 Indenture dated as of January 26, 2004 between UAP Holding Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.5 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.7 Registration Rights Agreement, dated as of January 26, 2004, by and among UAP Holding Corp. and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.7 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 4.8 Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.9 Registration Rights Agreement, dated as of December 16, 2003, by and among United Agri Products, Inc., the guarantors listed on the signature pages attached thereto, and UBS Securities LLC, Goldman, Sachs & Co. and Bear, Stearns & Co. Inc. (incorporated by reference to Exhibit 4.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 4.10 Form of stock certificate for Common Stock. 5.1 Opinion of O Melveny & Myers LLP. 10.1 Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.2 Seller Transition Services Agreement, dated as of November 24, 2003, by and between ConAgra Foods, Inc., UAP Holding Corp., United Agri Products, Inc. and each other company listed on the signatures page thereto (incorporated by reference to Exhibit 10.2 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.3 Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc., UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri Products Florida, Inc., United Agri Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.4 Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). Amendment No. 6 To FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Extensive Distribution Network. We operate the largest distribution network in the industry with approximately 320 retail and wholesale farm distribution and storage facilities, three formulation facilities and approximately 1,100 salespeople across North America. We have a sales presence in all 50 states of the United States and nine of the 10 Canadian provinces, and approximately 75,000 customers as of August 29, 2004. Strong Supplier Relationships. We purchase products from over 300 suppliers, including some of the largest chemical, seed and fertilizer companies in the world, and are a critical part of our suppliers route-to-market because we are able to help them access a highly fragmented customer base. We believe we are one of the largest customers of our seven largest suppliers in terms of agricultural inputs sales. Diversified Product Offering. We provide our customers with a comprehensive offering of agricultural inputs stretching across our three core product categories and covering over 40,000 active SKUs, with no single brand accounting for more than 5% of our pro forma net sales in fiscal 2004. Flexible Operating Model Focused on Free Cash Flow Generation. We believe that our flexible operating model consistently generates significant free cash flow as a result of our variable cost structure, low capital expenditure requirements and efficient working capital management. Our operating model is also highly scalable, allowing us to expand our business without significant additional fixed costs. Proven and Incentivized Management Team. Our current senior management team has an average of over 19 years of experience in the agricultural inputs industry, and has been responsible for developing our recent business strategy, including store rationalization, enhanced credit policies and an increased focus on working capital management, which has resulted in operational improvements and margin expansion. OUR STRATEGY Our goal is to grow our business, and continue to improve our profitability and free cash flow through the following principal strategies: Capitalize on our size, leading market share and North American-wide presence to enhance our position as the distributor of choice for seed, chemical and fertilizer suppliers. Increase revenues by continuing to grow our seed business and expand our presence in non-crop markets. Capture market share from competitors through our ability to offer a broader range of products and a higher level of service to our customers. Increase our margins and free cash flow by expanding our proprietary and private label business, which offers significantly higher margins than those on the branded products that we sell. Continue to reduce the working capital and administrative expense in our business in order to reduce leverage and increase our profitability and cash flow. USE OF PROCEEDS FROM THIS OFFERING Assuming an initial public offering price of $16.00 per share, which represents the mid-point of the range set forth on the cover page of this prospectus, we estimate that we will receive net proceeds from this offering of approximately $47.0 million after deducting underwriting discounts and commissions. We will use the net proceeds received by us from this offering to repurchase all our outstanding Series A Redeemable Preferred Net proceeds received $ 46,133 Less: Common stock, par value $.001 10.5 International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.6 Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.7 Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.8 2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.9 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and Bryan S. Wilson (incorporated by reference to Exhibit 10.9 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.10 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and David W. Bullock (incorporated by reference to Exhibit 10.10 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.11 Retention Agreement, dated as of November 18, 2003 between UAP Holding Corp. and L. Kenneth Cordell (incorporated by reference to Exhibit 10.11 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.12 Retention Agreement, dated as of November 19, 2003, between UAP Holding Corp. and Dave Tretter (incorporated by reference to Exhibit 10.12 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.13 Retention Agreement, dated as of November 19, 2003 between UAP Holding Corp. and Robert A. Boyce, Jr. (incorporated by reference to Exhibit 10.13 to United Agri Products, Inc. s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)). 10.14 Investor Rights Agreement, dated as of the Original Issue Date among UAP Holding Corp. and the Holders party thereto (incorporated by reference to Exhibit 10.14 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.15 Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.16 Management Consulting Agreement, dated as of November 21, 2003, between United Agri Products, Inc. (as successor by merger to UAP Acquisition Corp.) and Apollo Management V, L.P.* 10.17 2003 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.17 to UAP Holding Corp. s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)). 10.18 2004 Deferred Compensation Plan of UAP Holding Corp.* 10.19 2004 Non-Executive Director Stock Option Plan of UAP Holding Corp.* 10.20 Form of Management-Incentive Agreement. UAP Holding Corp. (Exact name of registrant as specified in its charter) Delaware 2875 11-3708834 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7251 W. 4th Street Greeley, Colorado 80634 (970) 356-4400 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Stock from our former parent, ConAgra Foods, Inc., ( ConAgra Foods ), for approximately $16.4 million, to redeem approximately $21.5 million principal amount of the 8 1/4% Senior Notes (together with approximately $2.6 million of accrued interest and redemption premiums) for approximately $24.1 million and to pay approximately $6.5 million of fees and expenses of this offering, with any balance to be used for general corporate purposes. We will not receive any proceeds from the sale of our common stock by the selling stockholders, including if the underwriters exercise the over-allotment option. In the aggregate, the selling stockholders will receive approximately $305.5 million of the net proceeds of this offering, or approximately $358.4 million if the underwriters over-allotment option is exercised in full. APOLLO Apollo Management V, L.P. and its affiliated investment funds ( Apollo ), our equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. has raised in excess of $10 billion in equity capital, and has invested in excess of $13 billion in corporate transactions, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and its affiliates or in which Apollo Management, L.P. and its affiliates have a significant equity investment include, among others, AMC Entertainment Inc., Borden Chemical, Inc., Compass Minerals Group, Inc., General Nutrition Centers, Inc., Nalco Company and National Financial Partners Corp. RECENT DEVELOPMENTS On October 4, 2004, UAP Holdings paid a special dividend to the holders of its common stock in the aggregate amount of $40.0 million and redeemed 18,683 shares of its Series A Redeemable Preferred Stock held by ConAgra Foods for an aggregate amount of approximately $20.0 million. This special dividend and redemption were financed with the proceeds of a dividend of $60.0 million from United Agri Products, which in turn was financed with borrowings under United Agri Products revolving credit facility. In this prospectus, we refer to these special dividend and redemption payments and the financing thereof with borrowings under United Agri Products revolving credit facility as the Special Dividends. In connection with this offering, UAP Holdings will redeem the remaining outstanding Series A Redeemable Preferred Stock held by ConAgra Foods. See Use of Proceeds beginning on page 20. As part of our efforts to rationalize our infrastructure by closing or selling unprofitable facilities, we sold a substantial portion of the assets at a facility located in Fremont, Nebraska, in February 2004. Except for a limited amount of toll manufacturing, we have ceased all operations at the Fremont facility. We expect to divest the remaining assets at that facility in the near future and to cease the remaining toll manufacturing activities by the end of fiscal 2005. In addition, we closed a formulation facility located in Caldwell, Idaho, in October 2004, and we expect eventually to sell that facility to a third party. OUR CORPORATE INFORMATION UAP Holdings is a holding company with no significant assets or operations other than the ownership of 100% of the stock of United Agri Products. Our principal executive offices are located at 7251 W. 4th Street, Greeley, Colorado 80634. Our main telephone number is (970) 356-4400. * Previously filed. L. Kenny Cordell President and Chief Executive Officer UAP Holding Corp. 7251 W. 4th Street Greeley, Colorado (970) 356-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) With copies to: Rosa A. Testani, Esq. O Melveny & Myers LLP Times Square Tower 7 Times Square New York, New York 10036 (212) 326-2000 Mark C. Smith, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square Tower New York, New York 10036 (212) 735-3000 Table of Contents THE OFFERING Common stock offered 3,125,000 shares by us 20,312,500 shares by the selling stockholders Total offering 23,437,500 shares Shares of common stock to be outstanding following the offering 50,373,244 shares Dividends We intend to pay quarterly cash dividends on our common stock at an annual rate of $0.50 per share. We intend to make our first quarterly dividend payment following the thirteen-week period ending February 27, 2005. The declaration and payment of future dividends to holders of our common stock will be at the sole discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors our board of directors deems relevant. See Dividend Policy beginning on page 21, Management s Discussion and Analysis of Financial Condition and Results of Operations Obligations and Commitments beginning on page 43, Description of Certain Indebtedness beginning on page 87, Description of Capital Stock Common Stock beginning on page 96. Listing We have applied for the quotation of our common stock on the NASDAQ National Market under the trading symbol UAPH. OTHER INFORMATION ABOUT THIS PROSPECTUS The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option; does not give effect to the issuance of the following: (1) 3,418,162 shares of common stock issuable upon the exercise of options outstanding as of August 29, 2004, at an exercise price of approximately $2.56 per share; or (2) 451,282 shares of common stock which may be issued upon the exercise of options reserved for future grant; and gives effect to the approximately 39.085-for-1 split of our common stock which occurred on November 17, 2004.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001279831_gigabeam_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001279831_gigabeam_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001279831_gigabeam_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280403_pacific_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280403_pacific_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280403_pacific_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280405_deep_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280405_deep_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280405_deep_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280406_north_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280406_north_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280406_north_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280408_lilli-ann_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280408_lilli-ann_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..020f09a92d2f25219825f8ffe3a5b3c331064ada
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280408_lilli-ann_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280707_infiniti_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280707_infiniti_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..8f5274b17e31fa38de4ef38cae0060bf3b593aa6
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280707_infiniti_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in the ordinary shares. You should read the entire prospectus carefully, including the information under
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001280998_alibris_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001280998_alibris_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..33807e392917fb0c0332879b82feff2ef0d87c24
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001280998_alibris_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully. Alibris, Inc. Alibris operates an online marketplace for used and hard-to-find books. We connect an international network of over 5,000 independent professional booksellers with retail and business customers from around the world. Our booksellers value the broad distribution, specialized inventory management and logistics that help them to increase their sales. Our customers value the ability to quickly select from over 40 million used and hard-to-find books. We generate revenue by selling books through multiple sales channels. Our website, www.alibris.com, provides consumers with one of the largest selections of books on the Internet. Librarians rely on our dedicated library website to meet their special collections and replacement needs. Online and traditional book retailers and wholesalers, including Amazon.com, Barnes&Noble.com and Borders, use us to supply used or hard-to-find books to their customers. Alibris has developed a proprietary data architecture that enables us to obtain specific and timely information about our market. This allows us to acquire and resell large quantities of low-cost books from retailers, publishers, non-profit organizations and liquidators. We also use this knowledge to create inventory management and pricing services to further assist our sellers in improving their business results. Additionally, our logistics services enable our distribution system to aggregate supply from thousands of sellers and distribute products through multiple sales channels. This allows us to satisfy the differing logistics needs of our many suppliers and business customers. Our goal is to be the preferred partner to independent booksellers, the supplier of choice to retailers, and a trusted vendor to consumers and libraries around the world. We believe that our selection, customer base, market intelligence and logistics provide us with opportunities to grow our business, increase revenue and achieve profitability by continuing to implement the following strategies: Increase and diversify our product offerings by expanding our bookseller network, selectively building our inventory of used, new and hard-to-find books, and continuing to grow our movie and music offerings, sales of which have not been significant to date. Grow revenue through expanding marketing and sales activities by increasing seller participation in our business customer programs and investing in targeted online marketing and sales campaigns that include keyword purchases and direct e-mail marketing. Leverage our market intelligence and logistics assets by identifying and purchasing large quantities of books that we believe can be sold quickly and profitably and providing additional services to our sellers. Expand geographic reach by attracting additional international booksellers, retail customers and business customers through direct marketing efforts and creating local websites for overseas customers. Any investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties related to our business and an investment in our common stock set forth in "Risk Factors," beginning on page 8 of this prospectus. 2004 $ 92 $ 174 $ 266 2005 90 166 256 2006 67 80 147 2007 3 Year ending December 31: 2004 $ 92 $ 174 2005 90 166 2006 67 80 2007 Year ended December 31, 2002: U.S. federal $ 16 $ $ 16 State 3 PRE-EFFECTIVE AMENDMENT NO. 5 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Alibris was incorporated in California in May 1998 and reincorporated in Delaware in May 2004. In June 1998, we opened our distribution center in Sparks, Nevada. In November 1998, we began providing an online marketplace for used and hard-to-find books. During our history of operations, we have incurred significant losses and had negative cash flow from operations in each year from our inception through 2003. As of March 31, 2004, we had an accumulated deficit of $79.0 million. Our principal executive offices are located at 1250 45th Street, Suite 100, Emeryville, California 94608 and our telephone number is (510) 594-4500. Our website address is www.alibris.com. Information contained on our website should not be considered a part of, nor incorporated into, this prospectus. Alibris, Inc. (Exact name of Registrant as specified in its charter)
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281223_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281223_sensus_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281223_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281226_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281226_sensus_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281226_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281233_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281233_sensus_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281233_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281264_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281264_sensus_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281264_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281273_smith_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281273_smith_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281273_smith_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281275_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281275_sensus_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281275_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001281312_sensus_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001281312_sensus_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001281312_sensus_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001282269_valor_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001282269_valor_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8efb0dd5c7b1709c856db7d58ceb1125da0fe6ea
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001282269_valor_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001282270_valor_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001282270_valor_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8efb0dd5c7b1709c856db7d58ceb1125da0fe6ea
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001282270_valor_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Table of Contents Summary 1
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001282440_mdf-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001282440_mdf-inc_prospectus_summary.txt
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+S-1/A ENHANCED INCOME SECURITIES TRADEMARK Enhanced Income Securities (EISs) is a trademark used by us under license from RBC Capital Markets Corporation. SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Prior to the closing of this offering, we will amend our certificate of incorporation to change the name of our company from Davco Acquisition Holding Inc. to DavCo Restaurants Inc. and, prior thereto, we will cause our wholly-owned subsidiary, DavCo Restaurants, Inc., to change its name to DavCo Operations Inc. All references in this prospectus (other than in our Consolidated Financial Statements) give effect to these name changes. Throughout this prospectus, "we," "our," "us," or "our company" refers to DavCo Restaurants and its consolidated operations, and "Wendy's" or "Wendy's International" refers to Wendy's International, Inc., a franchisor to our company. For further information on defined terms, see "General Information About This Prospectus." Our Company Overview We are one of the largest franchisees of Wendy's Old Fashioned Hamburgers restaurants and the fifth largest hamburger quick service restaurant franchisee in the United States. In the last 10 years, the number of Wendy's restaurants we have owned and operated in our franchise territory has grown from 110 to 153, and we serve approximately 50.2 million customers annually through our operation of Wendy's restaurants. Our exclusive franchise territory comprises Baltimore and the Eastern Shore of Maryland, Washington, D.C. and portions of Northern Virginia. As one of the earliest franchisees of Wendy's International, we have been operating Wendy's restaurants since 1976. As of June 27, 2004 (the end of our fiscal 2004 third quarter), our company employed approximately 680 full-time employees and approximately 5,200 part-time employees. Our restaurants generated approximately $204.4 million and $155.8 million of sales, $20.0 million and $16.1 million of Adjusted EBITDA and $12.5 million and $8.1 million of cash flow from operating activities for our fiscal year ended September 28, 2003 and the nine months ended June 27, 2004, respectively. Adjusted EBITDA is defined in our new credit facility and the indenture governing our senior subordinated notes and results from certain specified adjustments to EBITDA (which is earnings before interest, taxes, depreciation and amortization). See "Summary Financial Information" for a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Wendy's International Wendy's International is one of the world's largest restaurant operating and franchising companies, with approximately 9,300 total restaurants and several quality brands, including Wendy's Old Fashioned Hamburgers. For the fiscal year ended December 31, 2003, Wendy's International reported approximately $3.1 billion in consolidated total revenues and $236.0 million in net income and $2.2 billion in total revenues for its Wendy's restaurants. We believe that the Wendy's brand name is widely recognized in the restaurant industry as being a symbol for fresh, high quality food and menu variety. The "Wendy's" name, design, logo and the designated Wendy's marks are registered trademarks of Oldemark, LLC and are licensed to Wendy's International, which sublicenses these trademarks to independently owned and operated franchisees like us. Dave Thomas created the first Wendy's Old Fashioned Hamburgers restaurant in Columbus, Ohio in November 1969. In 1972, Mr. Thomas sold his first franchise in Indianapolis, Indiana. At December 31, 2003, Wendy's International and its franchise owners operated over 6,480 Wendy's restaurants in 50 states, the District of Columbia, and 21 other countries and territories. Of these restaurants, approximately 1,465 were operated by Wendy's International and approximately 5,015 by its franchisees. Our Strengths We believe we maintain the following competitive advantages within the restaurant industry and the hamburger segment of the quick service restaurant market: Strength of Wendy's brand name. We believe that the Wendy's brand name is widely recognized in the restaurant industry as a brand associated with fresh, high quality food and menu variety. Wendy's focus on fresh food and menu innovation. Wendy's International's focus on customer research and innovation with new food items enables its restaurants to offer a varied menu which we believe is distinctive among hamburger quick service restaurant chains. Well-positioned in a market with strong fundamentals. The hamburger segment of the United States quick service restaurant market is estimated to have generated sales of approximately $50.7 billion in 2003. From 1999 to 2003, Wendy's share of the hamburger segment, the largest segment of the U.S. quick service restaurant market, expanded from approximately 13.4% to 14.5%. One of the largest Wendy's franchisees. We are one of the largest Wendy's franchisees with 154 restaurants. Our relatively large number of restaurants in a geographically contiguous area enables us to control costs, take advantage of purchasing and distribution efficiencies, and negotiate favorable terms with suppliers and service providers. Territorial exclusivity. We have the exclusive right to develop new Wendy's restaurants in our franchise territory until December 31, 2015 and, from January 1, 2016 to December 31, 2025, a right of first refusal with respect to the development of any new Wendy's restaurant in our franchise territory. Expertise in restaurant development and management. Our senior management team has over 20 years of experience in developing, acquiring and operating Wendy's restaurants. Our Business Strategy and Growth Opportunities We intend to grow our business by implementing the following business strategies: Open new Wendy's restaurants. We believe that there are significant expansion opportunities in our exclusive franchise territory and have identified a number of undeveloped sites that satisfy our new restaurant site selection criteria. Increase same store sales. We intend to increase same store sales through a combination of extending store hours, introducing new or promotional menu items, and our recently introduced electronic payment ("e-pay") option, which facilitates faster customer service and increases average check size. Achieve operating efficiencies. Our centralized management and relatively large number of restaurants in a geographically contiguous area enable us to control costs and capture economies of scale by spreading our existing corporate expenditures over our 154 restaurants and through purchasing and distribution efficiencies. Introduce new products. We intend to continue to introduce new products developed and launched by Wendy's International that are responsive to what Wendy's believes are emerging lifestyle trends. Our Industry The restaurant industry in the United States is comprised of five major segments: quick service restaurants, quick casual restaurants, family/mid-scale restaurants, casual dining restaurants and fine dining restaurants. The quick service restaurant market is the largest segment of the United States restaurant industry with sales of approximately $144.1 billion in 2003. We operate in the hamburger segment of the quick service restaurant market. The hamburger segment of the U.S. quick service restaurant market generated sales of approximately $50.7 billion in 2003 representing approximately 35.1% of the total sales of quick service restaurants in this period. Sales in this segment grew at a SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 compound annual growth rate of 4.2% between 1998 and 2003, and are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. See "Industry." Relationship with Wendy's International Information concerning Wendy's International contained in this prospectus has been derived from publicly available information filed by Wendy's International with the Securities and Exchange Commission, is historic and was not prepared for purposes of this prospectus. This prospectus has been prepared by us and we are responsible for this offering. Wendy's International is not selling, offering for sale or underwriting any part of this offering and is not receiving any proceeds from this offering. We and our subsidiary guarantors are the sole obligors under or guarantors of the senior subordinated notes which are part of this offering. Wendy's International has not made any recommendation with respect to the merits of this offering and neither this offering nor the contents of this prospectus (including any financial data or any analysis of tax consequences contained herein) have been approved or endorsed by Wendy's International. Wendy's International has assumed no obligations in connection with this offering or with respect to the accuracy, adequacy or completeness of this prospectus. Our relationship with Wendy's International is governed by the following material agreements: an amended and restated consent, which, among other things, contains the required Wendy's International consent to this offering and sets forth the related terms and conditions of that consent; a development letter, which, among other things, grants us our exclusive franchise territory and sets forth a schedule of required new restaurant openings; and separate unit franchise agreements, as amended, which govern the operation of each of our restaurants. In order to maintain our exclusive franchise territory, our development letter with Wendy's International requires us, net of any closures, to open or commence construction of a minimum of four restaurants in each of 2004 and 2005, a minimum of eight restaurants in each year from 2006 through 2012, and a minimum of seven restaurants in each of 2013 through 2015. The development letter requires us to operate a total of 240 restaurants in our franchise territory by December 31, 2015. We have opened two new restaurants in 2004, and currently have two new restaurant locations under development, seven new restaurant locations subject to signed leases and five new restaurant locations subject to letters of intent. For further information on our agreements with Wendy's see "Business Relationship with Wendy's International." Wendy's International has an option to purchase all of our equity interests in DavCo Operations and all of our assets and all of the assets of DavCo Operations, at fair market value, in the event that, among other things, any direct or indirect interest in our company or DavCo Operations is transferred in violation of our franchise agreements with Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Purchase option." Use of Proceeds We will sell 7,999,168 EISs and an additional $7.5 million aggregate principal amount of senior subordinated notes (not in the form of EISs) in this offering. Assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive aggregate net proceeds of approximately $114.5 million from this offering of EISs and additional senior subordinated notes, after deducting underwriting discounts and commissions and other estimated transaction fees and expenses. Assuming the transactions described in this prospectus had occured on June 27, 2004, we would have used the aggregate net proceeds of this offering of approximately $114.5 million and cash on hand AMENDMENT NO. 4 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and assumed borrowings under credit facilities (of approximately $11.4 million in the aggregate) as follows: approximately $103.3 million to repay certain outstanding indebtedness under term loans, net of prepayment discount and restricted cash balances; $3.0 million to fund a portion of the capital expenditures for renovations and upgrades to our restaurants required by Wendy's International; approximately $13.0 million to repurchase 1,701,863 shares of our Class B common stock from Citicorp Venture Capital (as defined below under "Our Existing Equity Investors") at a purchase price of $7.65 per share; and approximately $4.7 million to pay a make-whole premium in connection with the prepayment of indebtedness under Term Loan 1 and approximately $1.8 million to pay bonuses to certain of our senior officers in connection with the termination of our annual cash bonus plan which will be replaced by the long term incentive plan and dividend reinvestment plan. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the net proceeds we receive from the sale of additional EISs under the over-allotment option to repurchase 2,352,696 additional shares of our Class B common stock held by Citicorp Venture Capital. In such event, Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock. No existing equity investor, other than Citicorp Venture Capital, will receive any of the proceeds of this offering. See "Use of Proceeds." Our New Credit Facility Concurrently with the closing of this offering, DavCo Operations will enter into a new senior secured credit facility with SunTrust Bank ("SunTrust"). We refer to this credit facility as the "new credit facility." The new credit facility will provide our company with a three-year $20.0 million revolving credit line with a floating interest rate of LIBOR plus 1.5%. The purpose of the new credit facility will be to provide for letters of credit, new ground lease construction financing, new equipment financing and other restaurant capital expenditures, and working capital needs. The new credit facility will be guaranteed by us and by each subsidiary of DavCo Operations and will be secured by a first priority security interest in certain of our assets. The new credit facility will contain a number of financial and other covenants, including restrictions on our ability to pay interest on our senior subordinated notes and to pay dividends on our common stock. The closing of this offering is conditioned upon the closing of the new credit facility. At the closing of this offering, we expect that approximately $6.0 million of letters of credit will be outstanding under the new credit facility and that there will not be any borrowings outstanding thereunder. See "Description of Certain Indebtedness New Credit Facility." Our Existing Equity Investors Certain officers of our company, namely Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III, Richard H. Borchers, Charles C. MacGuire, III, Elizabeth Brown, Thomas A. Hughes, Sandra L. Hughes and Stacey E.Y. Jackson, and Citicorp Venture Capital and certain of its affiliates and employees, namely Byron L. Knief, Charles Schweitzer, 63 BR Partnership, David F. Thomas, Charles Corpening and James A. Urry (collectively, "Citigroup Venture Capital"), are the beneficial owners of all our shares of outstanding common stock prior to this offering. In this prospectus, we refer to all of these owners as the "existing equity investors." Pursuant to a recapitalization to be effected concurrent with this offering, all outstanding shares of our existing common stock held by the existing equity investors will be recapitalized into shares of our Class B common stock. The recapitalization is a condition to our sale of EISs and the senior subordinated notes hereunder and completion of the sale of the EISs and the senior subordinated Davco Acquisition Holding Inc. (Exact name of registrant as specified in its charter) Delaware (Jurisdiction of incorporation or organization) 5812 (Primary Standard Industrial Classification Code Number) 52-2069955 (I.R.S. Employer Identification Number) 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Address, including zip code, and telephone number, including area code, of Co-Registrants' principal executive offices) notes is a condition to the recapitalization. The shares of our Class B common stock will have identical rights and privileges in all respects to the shares of our Class A common stock, other than dividend rights and certain exchange rights provided in the stockholders agreement. Our amended and restated certificate of incorporation will provide that the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. For a full description of the dividend rights applicable to our Class A common stock and Class B common stock and the exchange right provided in the stockholders agreement in respect of our Class B common stock, see "Dividend Policy and Restrictions", "Description of Capital Stock" and "Related Party Transactions Amendment and Restatement of Stockholders Agreement." Upon the completion of the recapitalization to be effected concurrent with this offering, but prior to the closing, Citicorp Venture Capital will own 4,862,466 shares of our outstanding Class B common stock, representing approximately 78.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of our outstanding Class B common stock, representing 21.7% of our outstanding capital stock. Upon the closing of this offering and after a portion of the proceeds of this offering have been used to repurchase 1,701,863 shares of our Class B common stock owned by Citicorp Venture Capital, Citicorp Venture Capital will own 3,160,603 shares of our outstanding Class B common stock, representing approximately 25.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of Class B common stock, representing 10.8% of our outstanding capital stock. If the underwriters' over-allotment option with respect to the EISs is exercised in full, we will purchase 4,054,559 shares of our Class B common stock from Citicorp Venture Capital and Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock and our management investors will own 1,348,827 shares of our Class B common stock, representing 11.9% of our outstanding capital stock. See "Use of Proceeds." Exchange Rights of Holders of Class B Common Stock Beginning on the 366th day after the consummation of this offering, the holders of shares of our Class B common stock will have certain rights to exchange or cause the exchange of their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of our Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). In connection with this exchange, no fractional EISs will be issued. Instead, any fractional interest that would otherwise be issuable will be paid for in cash at the then fair market value of our EISs. Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors, consisting of Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III and Richard H. Borchers, from exercising this exchange right with respect to all of their shares of our Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if, following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). In addition, any exchange of shares of our Class B common stock for EISs is subject to compliance with, among others, the following conditions: any issuance of EISs upon exchange must occur pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); and at the time of the exchange, no default may exist under the terms of our new credit facility, the indenture governing our senior subordinated notes (including the non-payment of interest on such notes, when due) or our franchise agreements with Wendy's. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." Our Corporate Information Our principal executive office is located at 1657 Crofton Boulevard, Crofton, Maryland 21114, and our telephone number is (410) 721-3770. See Table of Additional Registrants on Next Page The Offering Summary of our EISs and Senior Subordinated Notes We are offering 7,999,168 EISs at an assumed initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $7.5 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 13.25% of the aggregate principal amount of senior subordinated notes, whether held separately or as a component of an EIS. We intend to make interest payments and, if declared, dividend payments on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively. The terms of our new credit facility will prevent us from paying principal and interest on our senior subordinated notes during the existence of a payment default thereunder, and for 179 days following a default thereunder, other than a payment default. You may also receive quarterly dividend payments on the shares of our Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Each of these agreements will contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock of which the material restrictions are as follows. We may not pay dividends on our Class A and Class B common stock: under the terms of our new credit facility, if an event of default exits thereunder or if certain financial ratios and tests set forth therein are not met. See "Description of Certain Indebtedness New Credit Facility"; under the indenture governing our senior subordinated notes, if an event of default exists thereunder or if our fixed charge coverage ratio for the most recent four fiscal quarter period is less than 1.6 to 1.0. See "Description of Senior Subordinated Notes Certain Covenants Restricted Payments"; and under our franchise agreements with Wendy's, if at the time of payment of the dividends we are not current in our royalty fee, advertising contribution and other payment obligations to Wendy's, or our capital expenditure obligations, or if such dividend payment would prevent us from making our required payments to Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Dividend Restrictions." David J. Norman, Esq. General Counsel 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A common stock and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the level set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Copies to: Bradley P. Cost, Esq. Torys LLP 237 Park Avenue New York, NY 10017 (212) 880-6000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Will my rights as a holder of EISs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of EISs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your EISs. As such, through your broker or other financial institution and the Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of EISs? Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing equity investors, through their ownership of shares of Class B common stock, will own approximately 36.1% of the voting power of our common stock immediately following the offering of the EISs (or approximately 19.0% if the over-allotment option with respect to the EISs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Can I separate my EISs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form EISs? Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control, through their broker or other financial institution, separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of Class A common stock and senior subordinated notes, whether represented by EISs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, the custodian or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Any such separation or recombination will be effective as of the close of business on the trading day that DTC receives such instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day. Any instructions received after 3:00 p.m., New York time, will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of EISs may involve transaction fees charged by your broker, the custodian and/or your financial intermediary. See "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance Separation and recombination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Will the EISs be listed on an exchange? Yes. We will apply to list the EIS on the American Stock Exchange under the trading symbol "DVC." Will the shares of our common stock and senior subordinated notes be separately listed on an exchange? The senior subordinated notes represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will not be listed on any exchange. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when the shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class A common stock and our senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares of our Class B common stock will not be listed on any exchange. Will the additional senior subordinated notes sold separately (not in the form of EISs) be the same as the senior subordinated notes issued as a component of the EISs? Yes. The additional senior subordinated notes to be sold separately (not in the form of EISs) will be the same as the senior subordinated notes represented by EISs and will be part of the same series of senior subordinated notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of EISs) and holders of senior subordinated notes represented by EISs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing our senior subordinated notes. If you purchase separate senior subordinated notes in this offering, you will be required to deliver to us a letter containing certain representations, including that you are not a holder of our equity, that you are not purchasing EISs in this offering and that you have no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. We believe that these representation letters will help us to demonstrate that a market exists for the separate senior subordinated notes independent of the market for EISs. See "Underwriting." In what form will EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately be issued? The EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will be initially issued in book-entry form only. This means that you will not be a registered holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs), and you will not receive a certificate for your EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). Following the separation, if any, of your EISs into the component parts of the Class A common stock and senior subordinated notes, these securities will be held in book-entry form or, if requested by you, the Class A common stock may be held in registered form. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. A registered holder of shares of our Class A common stock, including a holder of EISs that requests that the EISs be separated, has the right to obtain a certificate representing such shares. If a holder of EISs requests certificated shares of Class A common stock, such holder's EISs must be split into the component parts of the Class A common stock and senior subordinated notes, and for so long as the shares of Class A common stock are held in separately certificated form, the shares of Class A common stock may no longer be eligible for inclusion in DTC's book-entry settlement and clearance system described under the heading "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance." However, if a holder of separately certificated shares of Class A common stock is subsequently willing to forgo being a registered holder of shares and deposits the shares in an eligible institution, those shares of Class A common stock may again become DTC eligible. EISs and, subject to certain exceptions described under "Description of Senior Subordinated Notes Exchange of Global Notes for Certificated Notes," the senior subordinated notes may only be held in book-entry form. Will my EISs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the EISs will occur automatically upon redemption of all or a portion of the senior subordinated notes, upon maturity of the senior subordinated notes or upon certain bankruptcy events. See "Description of Enhanced Income Securities (EISs) Automatic Separation." What will happen if we issue additional EISs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional EISs or senior subordinated notes of the same series. We will only issue EISs or senior subordinated notes of the same series in the future pursuant to a registration statement that has been declared effective by the SEC. Additional EISs will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will also represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of exchange rights by our existing equity investors. Although the senior subordinated notes that may be issued in the future (whether or not represented by EISs) will have terms that are substantially identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such senior subordinated notes are issued with OID, or any senior subordinated notes are issued thereafter, all holders of EISs of the same series (including the EISs being offered hereby), and all holders of outstanding senior subordinated notes not held in EISs, will automatically exchange a ratable portion of their outstanding senior subordinated notes, whether held separately or in the form of EISs, for a portion of the new senior subordinated notes, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new EIS (consisting of such senior subordinated note unit and common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy prior to the maturity of the senior subordinated notes. We will immediately file with the Securities and Exchange Commission (the "SEC" or "Commission") a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in the EISs? The U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our common stock and senior subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $7.65 and the initial fair market value of each $7.35 aggregate principal amount of our senior subordinated notes as $7.35, assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus. By purchasing EISs, under the terms of the indenture governing our senior subordinated notes, you will be deemed to have agreed to and be bound by such allocation. If this allocation is not respected by the Internal Revenue Service ("IRS"), it is possible that the senior subordinated notes will be treated as having been issued with OID (if the allocation to the senior subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the senior subordinated notes were determined to be too low). For additional information on the U.S. federal income tax consequences if this allocation is not respected, see "Risk Factors The allocation of the purchase price of the EISs may not be respected which may adversely affect your tax position" and "Material U.S. Federal Income Tax Consequences." We believe that the senior subordinated notes should be treated as debt for U.S. federal income tax purposes. We are receiving an opinion from our counsel, Torys LLP, that the senior subordinated notes should be treated as debt for such purposes; however, as there is an absence of direct authority, this position may not be sustained if challenged by the IRS. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend (and would likely not qualify for the special dividend rate described below), and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and senior subordinated notes. In addition, if any payments were treated as dividends, such payments to holders of our EISs or senior subordinated notes (not in the form of EISs) who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you (if you are an individual) at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to you at ordinary income rates. What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) pursuant to an offering by us of EISs or senior subordinated notes of the same series or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the senior subordinated notes and the agreements with DTC will provide that in the event there is a subsequent Balance at June 27, 2004 (unaudited) $ issuance by us of senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (or any issuance of senior subordinated notes thereafter), each holder of senior subordinated notes or EISs (as the case may be) agrees that a portion of such holder's senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes and the records of any record holders of the senior subordinated notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of senior subordinated notes or EISs (as the case may be) will own an inseparable unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of senior subordinated notes will be included in such holder's EISs). However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Due to the lack of applicable authority, it is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is not able to opine on this issue; consequently, it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Regardless of whether the exchange is treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of EISs or directly, the recombination of senior subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment. See "Material U.S. Federal Income Tax Consequences." Following any subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of EISs and senior subordinated notes, and each holder of EISs or senior subordinated notes will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Under the terms of the indenture governing our senior subordinated notes, by purchasing the senior subordinated notes, you will be deemed to have agreed to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and senior subordinated notes and could adversely affect the market for EISs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences." TABLE OF ADDITIONAL REGISTRANTS Name Summary of the Common Stock Issuer DavCo Restaurants Inc. Shares of Class A common stock to be outstanding following the offering 7,999,168 shares (or 9,199,043 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class B common stock to be outstanding following the offering 4,509,430 shares (or 2,156,734 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class C common stock to be outstanding following the offering No shares of Class C common stock will be outstanding upon the closing of this offering. Total shares of common stock to be outstanding following the offering 12,508,598 shares (or 11,355,777 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. So long as the existing equity investors hold at least 8% or more of the total economic value of the total outstanding equity interests in our company and 8% or more of the total outstanding voting interests in our company, they will be entitled to nominate two individuals for election to our board of directors. Listing Shares of our Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as this term is defined in Rule 144 under the Securities Act. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list shares of Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class B common stock will not be listed for separate trading. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Jurisdiction of Incorporation or Organization Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the levels set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Primary Standard Industrial Classification Number Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Dividend payment dates We intend to pay dividends quarterly on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively, commencing January 30, 2005. Rights to exchange shares of Class B common stock for EISs Beginning on the 366th day after the consummation of this offering, holders of shares of our Class B common stock will have certain rights to exchange their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors from exercising this exchange right with respect to all of their shares of Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). If any holder of Class B common stock has not exercised its exchange right in full, then following the maturity date of the senior subordinated notes, and at any other time that there are no senior subordinated notes and EISs outstanding, any remaining shares of Class B common stock will be exchangeable (at the option of the holder) into shares of Class A common stock on a one-for-one basis. Any exchange is subject to compliance with the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. In addition, any issuance of EISs upon exchange of shares of our Class B common stock must occur pursuant to an effective registration statement under the Securities Act. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." I.R.S. Employer Identification Number 20% ownership limitations Pursuant to our amended and restated certificate of incorporation, no person or group acting together (other than the management investors) may be the beneficial owner of more than 20% of the total economic value of the total outstanding equity interests in our company or more than 20% of the total outstanding voting interests in our company. In the event that either of the foregoing limitations is or may be contravened, we may take such actions with respect to such ownership level over the 20% ownership level as we deem advisable, including refusing to give effect thereto on the stock transfer books, instituting proceedings, redeeming such interest or requiring the sale of such interest in order to reduce the ownership level to below or a 20% ownership level. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International 20% ownership limitations" and "Description of Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws 20% ownership limitations." (Unaudited) Tax (benefit) expense at U.S. statutory rate $ (6,172 ) $ 609 $ 1,034 $ 348 $ (1,080 ) State income taxes, net of federal tax benefit (861 ) 125 152 51 (202 ) Permanent differences 624 178 21 16 13 Change in valuation allowance for deferred tax assets 6,409 (4,179 ) (916 ) (108 ) 1,383 Other DavCo Restaurants, Inc. Delaware 5812 52-1633813 FriendCo Restaurants, Inc. Maryland 5812 52-2037752 Heron Realty Corporation Maryland 6500 52-2020474 MDF, Inc. Delaware 5812 52-1712539 The address, including zip code, telephone number and area code, of the principal executive offices of each of the additional registrants listed above is: 1657 Crofton Boulevard, Crofton, Maryland 21114; the telephone number at that address is (410) 721-3770. Summary of the Senior Subordinated Notes Issuer DavCo Restaurants Inc. Senior subordinated notes to be outstanding following the offering $58.8 million aggregate principal amount (or $67.6 million aggregate principal amount if the underwriters' over-allotment option with respect to the EISs is exercised in full); and $7.5 million aggregate principal amount sold separately (not in the form of EISs.) Interest rate % per annum. Interest payment dates Interest on the senior subordinated notes will be payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year commencing January 30, 2005. Maturity date The senior subordinated notes will mature on , 2016 unless earlier redeemed at our option as described under "Description of Senior Subordinated Notes Optional Redemption." Optional redemption We may not redeem the notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days' notice to the owners of senior subordinated notes, at redemption prices described under "Description of Senior Subordinated Notes Optional Redemption." If we redeem any senior subordinated notes (under any circumstances), the senior subordinated notes and Class A common stock represented by each EIS will be automatically separated. Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Repurchase at the Option of Holders Change of Control," unless we have exercised our right to redeem all senior subordinated notes as described above, each holder of the senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the senior subordinated notes and Class A common stock represented by such holder's EISs. Ranking The senior subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under the new credit facility. The senior subordinated notes will rank equally in right of payment with all of our senior subordinated indebtedness. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, we would have had approximately $28.0 million of senior indebtedness outstanding. The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS Subject to completion, dated September 22, 2004 DavCo Restaurants Inc. 7,999,168 Enhanced Income Securities (EISs) representing 7,999,168 Shares of Class A Common Stock $58.8 million % Senior Subordinated Notes due 2016 and $7.5 million % Senior Subordinated Notes due 2016 Note guarantees The senior subordinated notes will be fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The senior subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under the terms of our new credit facility. Any future foreign or partially owned domestic subsidiaries will not be guarantors of our senior subordinated notes. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, the guarantors would have had, in the aggregate, approximately $28.0 million of senior indebtedness outstanding. Acceleration forbearance Except in the event of bankruptcy or insolvency, the maturity of the principal amount of the senior subordinated notes may not be accelerated and the principal amount will not become due and payable, prior to the scheduled maturity date, for a period beginning on the date notice is provided to Wendy's International by the trustee with respect to the occurrence of certain events of default and ending 45 days after such date, as described in "Description of Senior Subordinated Notes Acceleration Forbearance Periods." Restrictive covenants The indenture governing our senior subordinated notes will contain covenants with respect to us and will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends or distributions on, and purchase or redemption of, capital stock; a number of other restricted payments, including the making of certain investments; specified creation of liens, sale-leaseback transactions and sales of assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Expenditures for additions to long-lived assets: Wendy's $ 4,686 $ 2,352 $ 5,936 $ 5,168 $ 2,325 Friendly's 40 We are selling 7,999,168 Enhanced Income Securities, or EISs, representing 7,999,168 shares of our Class A common stock and $58.8 million aggregate principal amount of our % senior subordinated notes due 2016. Each EIS represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. We are also selling separately (not in the form of EISs) an additional $7.5 million aggregate principal amount of our % senior subordinated notes due 2016. The completion of the offering of separate senior subordinated notes is a condition to our sale of EISs. The senior subordinated notes (whether or not in the form of EISs) will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of our domestic subsidiaries which, on the date hereof, consist of DavCo Operations Inc., FriendCo Restaurants, Inc., Heron Realty Corporation and MDF, Inc. Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. This is the initial public offering of our EISs and senior subordinated notes. We anticipate that the public offering price will be between $14.50 and $15.50 per EIS. We will apply to list the EISs on the American Stock Exchange under the trading symbol "DVC." Neither our Class A common stock nor our senior subordinated notes will be listed for trading on any exchange. Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the senior subordinated notes or upon maturity of the senior subordinated notes. Upon a subsequent issuance by us of EISs or senior subordinated notes of the same series (not in the form of EISs), a portion of your senior subordinated notes will be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance and, in that event, your EISs or senior subordinated notes will be replaced with new EISs or senior subordinated notes, as the case may be. In addition to the EISs and senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new EISs to be issued to you upon any such subsequent issuance. For more information regarding these automatic exchanges and the adverse effect they may have on your investment, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize original issue discount and have other adverse consequences," "Risk Factors Subsequent issuances of senior subordinated notes may adversely affect your treatment in a bankruptcy," "Description of Senior Subordinated Notes Covenants Relating to EISs Procedures Relating to Subsequent Issuances" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Procedures relating to subsequent issuances The indenture governing our senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs or senior subordinated notes sold separately, or any senior subordinated notes are issued thereafter, each EIS or separately held senior subordinated note will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held senior subordinated notes, as the case may be, will own an indivisible unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing our senior subordinated notes will permit issuances of additional senior subordinated notes upon exchange of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder in this offering. However, any subsequent issuance of senior subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Listing The senior subordinated notes will not be separately listed on any exchange. Representation letter Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. See "Underwriting." Investing in EISs, shares of our Class A common stock and/or senior subordinated notes involves risks. See "Risk Factors" section beginning on page 27 of this prospectus. Per EIS
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+S-1/A ENHANCED INCOME SECURITIES TRADEMARK Enhanced Income Securities (EISs) is a trademark used by us under license from RBC Capital Markets Corporation. SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Prior to the closing of this offering, we will amend our certificate of incorporation to change the name of our company from Davco Acquisition Holding Inc. to DavCo Restaurants Inc. and, prior thereto, we will cause our wholly-owned subsidiary, DavCo Restaurants, Inc., to change its name to DavCo Operations Inc. All references in this prospectus (other than in our Consolidated Financial Statements) give effect to these name changes. Throughout this prospectus, "we," "our," "us," or "our company" refers to DavCo Restaurants and its consolidated operations, and "Wendy's" or "Wendy's International" refers to Wendy's International, Inc., a franchisor to our company. For further information on defined terms, see "General Information About This Prospectus." Our Company Overview We are one of the largest franchisees of Wendy's Old Fashioned Hamburgers restaurants and the fifth largest hamburger quick service restaurant franchisee in the United States. In the last 10 years, the number of Wendy's restaurants we have owned and operated in our franchise territory has grown from 110 to 153, and we serve approximately 50.2 million customers annually through our operation of Wendy's restaurants. Our exclusive franchise territory comprises Baltimore and the Eastern Shore of Maryland, Washington, D.C. and portions of Northern Virginia. As one of the earliest franchisees of Wendy's International, we have been operating Wendy's restaurants since 1976. As of June 27, 2004 (the end of our fiscal 2004 third quarter), our company employed approximately 680 full-time employees and approximately 5,200 part-time employees. Our restaurants generated approximately $204.4 million and $155.8 million of sales, $20.0 million and $16.1 million of Adjusted EBITDA and $12.5 million and $8.1 million of cash flow from operating activities for our fiscal year ended September 28, 2003 and the nine months ended June 27, 2004, respectively. Adjusted EBITDA is defined in our new credit facility and the indenture governing our senior subordinated notes and results from certain specified adjustments to EBITDA (which is earnings before interest, taxes, depreciation and amortization). See "Summary Financial Information" for a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Wendy's International Wendy's International is one of the world's largest restaurant operating and franchising companies, with approximately 9,300 total restaurants and several quality brands, including Wendy's Old Fashioned Hamburgers. For the fiscal year ended December 31, 2003, Wendy's International reported approximately $3.1 billion in consolidated total revenues and $236.0 million in net income and $2.2 billion in total revenues for its Wendy's restaurants. We believe that the Wendy's brand name is widely recognized in the restaurant industry as being a symbol for fresh, high quality food and menu variety. The "Wendy's" name, design, logo and the designated Wendy's marks are registered trademarks of Oldemark, LLC and are licensed to Wendy's International, which sublicenses these trademarks to independently owned and operated franchisees like us. Dave Thomas created the first Wendy's Old Fashioned Hamburgers restaurant in Columbus, Ohio in November 1969. In 1972, Mr. Thomas sold his first franchise in Indianapolis, Indiana. At December 31, 2003, Wendy's International and its franchise owners operated over 6,480 Wendy's restaurants in 50 states, the District of Columbia, and 21 other countries and territories. Of these restaurants, approximately 1,465 were operated by Wendy's International and approximately 5,015 by its franchisees. Our Strengths We believe we maintain the following competitive advantages within the restaurant industry and the hamburger segment of the quick service restaurant market: Strength of Wendy's brand name. We believe that the Wendy's brand name is widely recognized in the restaurant industry as a brand associated with fresh, high quality food and menu variety. Wendy's focus on fresh food and menu innovation. Wendy's International's focus on customer research and innovation with new food items enables its restaurants to offer a varied menu which we believe is distinctive among hamburger quick service restaurant chains. Well-positioned in a market with strong fundamentals. The hamburger segment of the United States quick service restaurant market is estimated to have generated sales of approximately $50.7 billion in 2003. From 1999 to 2003, Wendy's share of the hamburger segment, the largest segment of the U.S. quick service restaurant market, expanded from approximately 13.4% to 14.5%. One of the largest Wendy's franchisees. We are one of the largest Wendy's franchisees with 154 restaurants. Our relatively large number of restaurants in a geographically contiguous area enables us to control costs, take advantage of purchasing and distribution efficiencies, and negotiate favorable terms with suppliers and service providers. Territorial exclusivity. We have the exclusive right to develop new Wendy's restaurants in our franchise territory until December 31, 2015 and, from January 1, 2016 to December 31, 2025, a right of first refusal with respect to the development of any new Wendy's restaurant in our franchise territory. Expertise in restaurant development and management. Our senior management team has over 20 years of experience in developing, acquiring and operating Wendy's restaurants. Our Business Strategy and Growth Opportunities We intend to grow our business by implementing the following business strategies: Open new Wendy's restaurants. We believe that there are significant expansion opportunities in our exclusive franchise territory and have identified a number of undeveloped sites that satisfy our new restaurant site selection criteria. Increase same store sales. We intend to increase same store sales through a combination of extending store hours, introducing new or promotional menu items, and our recently introduced electronic payment ("e-pay") option, which facilitates faster customer service and increases average check size. Achieve operating efficiencies. Our centralized management and relatively large number of restaurants in a geographically contiguous area enable us to control costs and capture economies of scale by spreading our existing corporate expenditures over our 154 restaurants and through purchasing and distribution efficiencies. Introduce new products. We intend to continue to introduce new products developed and launched by Wendy's International that are responsive to what Wendy's believes are emerging lifestyle trends. Our Industry The restaurant industry in the United States is comprised of five major segments: quick service restaurants, quick casual restaurants, family/mid-scale restaurants, casual dining restaurants and fine dining restaurants. The quick service restaurant market is the largest segment of the United States restaurant industry with sales of approximately $144.1 billion in 2003. We operate in the hamburger segment of the quick service restaurant market. The hamburger segment of the U.S. quick service restaurant market generated sales of approximately $50.7 billion in 2003 representing approximately 35.1% of the total sales of quick service restaurants in this period. Sales in this segment grew at a SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 compound annual growth rate of 4.2% between 1998 and 2003, and are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. See "Industry." Relationship with Wendy's International Information concerning Wendy's International contained in this prospectus has been derived from publicly available information filed by Wendy's International with the Securities and Exchange Commission, is historic and was not prepared for purposes of this prospectus. This prospectus has been prepared by us and we are responsible for this offering. Wendy's International is not selling, offering for sale or underwriting any part of this offering and is not receiving any proceeds from this offering. We and our subsidiary guarantors are the sole obligors under or guarantors of the senior subordinated notes which are part of this offering. Wendy's International has not made any recommendation with respect to the merits of this offering and neither this offering nor the contents of this prospectus (including any financial data or any analysis of tax consequences contained herein) have been approved or endorsed by Wendy's International. Wendy's International has assumed no obligations in connection with this offering or with respect to the accuracy, adequacy or completeness of this prospectus. Our relationship with Wendy's International is governed by the following material agreements: an amended and restated consent, which, among other things, contains the required Wendy's International consent to this offering and sets forth the related terms and conditions of that consent; a development letter, which, among other things, grants us our exclusive franchise territory and sets forth a schedule of required new restaurant openings; and separate unit franchise agreements, as amended, which govern the operation of each of our restaurants. In order to maintain our exclusive franchise territory, our development letter with Wendy's International requires us, net of any closures, to open or commence construction of a minimum of four restaurants in each of 2004 and 2005, a minimum of eight restaurants in each year from 2006 through 2012, and a minimum of seven restaurants in each of 2013 through 2015. The development letter requires us to operate a total of 240 restaurants in our franchise territory by December 31, 2015. We have opened two new restaurants in 2004, and currently have two new restaurant locations under development, seven new restaurant locations subject to signed leases and five new restaurant locations subject to letters of intent. For further information on our agreements with Wendy's see "Business Relationship with Wendy's International." Wendy's International has an option to purchase all of our equity interests in DavCo Operations and all of our assets and all of the assets of DavCo Operations, at fair market value, in the event that, among other things, any direct or indirect interest in our company or DavCo Operations is transferred in violation of our franchise agreements with Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Purchase option." Use of Proceeds We will sell 7,999,168 EISs and an additional $7.5 million aggregate principal amount of senior subordinated notes (not in the form of EISs) in this offering. Assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive aggregate net proceeds of approximately $114.5 million from this offering of EISs and additional senior subordinated notes, after deducting underwriting discounts and commissions and other estimated transaction fees and expenses. Assuming the transactions described in this prospectus had occured on June 27, 2004, we would have used the aggregate net proceeds of this offering of approximately $114.5 million and cash on hand AMENDMENT NO. 4 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and assumed borrowings under credit facilities (of approximately $11.4 million in the aggregate) as follows: approximately $103.3 million to repay certain outstanding indebtedness under term loans, net of prepayment discount and restricted cash balances; $3.0 million to fund a portion of the capital expenditures for renovations and upgrades to our restaurants required by Wendy's International; approximately $13.0 million to repurchase 1,701,863 shares of our Class B common stock from Citicorp Venture Capital (as defined below under "Our Existing Equity Investors") at a purchase price of $7.65 per share; and approximately $4.7 million to pay a make-whole premium in connection with the prepayment of indebtedness under Term Loan 1 and approximately $1.8 million to pay bonuses to certain of our senior officers in connection with the termination of our annual cash bonus plan which will be replaced by the long term incentive plan and dividend reinvestment plan. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the net proceeds we receive from the sale of additional EISs under the over-allotment option to repurchase 2,352,696 additional shares of our Class B common stock held by Citicorp Venture Capital. In such event, Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock. No existing equity investor, other than Citicorp Venture Capital, will receive any of the proceeds of this offering. See "Use of Proceeds." Our New Credit Facility Concurrently with the closing of this offering, DavCo Operations will enter into a new senior secured credit facility with SunTrust Bank ("SunTrust"). We refer to this credit facility as the "new credit facility." The new credit facility will provide our company with a three-year $20.0 million revolving credit line with a floating interest rate of LIBOR plus 1.5%. The purpose of the new credit facility will be to provide for letters of credit, new ground lease construction financing, new equipment financing and other restaurant capital expenditures, and working capital needs. The new credit facility will be guaranteed by us and by each subsidiary of DavCo Operations and will be secured by a first priority security interest in certain of our assets. The new credit facility will contain a number of financial and other covenants, including restrictions on our ability to pay interest on our senior subordinated notes and to pay dividends on our common stock. The closing of this offering is conditioned upon the closing of the new credit facility. At the closing of this offering, we expect that approximately $6.0 million of letters of credit will be outstanding under the new credit facility and that there will not be any borrowings outstanding thereunder. See "Description of Certain Indebtedness New Credit Facility." Our Existing Equity Investors Certain officers of our company, namely Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III, Richard H. Borchers, Charles C. MacGuire, III, Elizabeth Brown, Thomas A. Hughes, Sandra L. Hughes and Stacey E.Y. Jackson, and Citicorp Venture Capital and certain of its affiliates and employees, namely Byron L. Knief, Charles Schweitzer, 63 BR Partnership, David F. Thomas, Charles Corpening and James A. Urry (collectively, "Citigroup Venture Capital"), are the beneficial owners of all our shares of outstanding common stock prior to this offering. In this prospectus, we refer to all of these owners as the "existing equity investors." Pursuant to a recapitalization to be effected concurrent with this offering, all outstanding shares of our existing common stock held by the existing equity investors will be recapitalized into shares of our Class B common stock. The recapitalization is a condition to our sale of EISs and the senior subordinated notes hereunder and completion of the sale of the EISs and the senior subordinated Davco Acquisition Holding Inc. (Exact name of registrant as specified in its charter) Delaware (Jurisdiction of incorporation or organization) 5812 (Primary Standard Industrial Classification Code Number) 52-2069955 (I.R.S. Employer Identification Number) 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Address, including zip code, and telephone number, including area code, of Co-Registrants' principal executive offices) notes is a condition to the recapitalization. The shares of our Class B common stock will have identical rights and privileges in all respects to the shares of our Class A common stock, other than dividend rights and certain exchange rights provided in the stockholders agreement. Our amended and restated certificate of incorporation will provide that the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. For a full description of the dividend rights applicable to our Class A common stock and Class B common stock and the exchange right provided in the stockholders agreement in respect of our Class B common stock, see "Dividend Policy and Restrictions", "Description of Capital Stock" and "Related Party Transactions Amendment and Restatement of Stockholders Agreement." Upon the completion of the recapitalization to be effected concurrent with this offering, but prior to the closing, Citicorp Venture Capital will own 4,862,466 shares of our outstanding Class B common stock, representing approximately 78.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of our outstanding Class B common stock, representing 21.7% of our outstanding capital stock. Upon the closing of this offering and after a portion of the proceeds of this offering have been used to repurchase 1,701,863 shares of our Class B common stock owned by Citicorp Venture Capital, Citicorp Venture Capital will own 3,160,603 shares of our outstanding Class B common stock, representing approximately 25.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of Class B common stock, representing 10.8% of our outstanding capital stock. If the underwriters' over-allotment option with respect to the EISs is exercised in full, we will purchase 4,054,559 shares of our Class B common stock from Citicorp Venture Capital and Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock and our management investors will own 1,348,827 shares of our Class B common stock, representing 11.9% of our outstanding capital stock. See "Use of Proceeds." Exchange Rights of Holders of Class B Common Stock Beginning on the 366th day after the consummation of this offering, the holders of shares of our Class B common stock will have certain rights to exchange or cause the exchange of their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of our Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). In connection with this exchange, no fractional EISs will be issued. Instead, any fractional interest that would otherwise be issuable will be paid for in cash at the then fair market value of our EISs. Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors, consisting of Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III and Richard H. Borchers, from exercising this exchange right with respect to all of their shares of our Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if, following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). In addition, any exchange of shares of our Class B common stock for EISs is subject to compliance with, among others, the following conditions: any issuance of EISs upon exchange must occur pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); and at the time of the exchange, no default may exist under the terms of our new credit facility, the indenture governing our senior subordinated notes (including the non-payment of interest on such notes, when due) or our franchise agreements with Wendy's. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." Our Corporate Information Our principal executive office is located at 1657 Crofton Boulevard, Crofton, Maryland 21114, and our telephone number is (410) 721-3770. See Table of Additional Registrants on Next Page The Offering Summary of our EISs and Senior Subordinated Notes We are offering 7,999,168 EISs at an assumed initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $7.5 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 13.25% of the aggregate principal amount of senior subordinated notes, whether held separately or as a component of an EIS. We intend to make interest payments and, if declared, dividend payments on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively. The terms of our new credit facility will prevent us from paying principal and interest on our senior subordinated notes during the existence of a payment default thereunder, and for 179 days following a default thereunder, other than a payment default. You may also receive quarterly dividend payments on the shares of our Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Each of these agreements will contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock of which the material restrictions are as follows. We may not pay dividends on our Class A and Class B common stock: under the terms of our new credit facility, if an event of default exits thereunder or if certain financial ratios and tests set forth therein are not met. See "Description of Certain Indebtedness New Credit Facility"; under the indenture governing our senior subordinated notes, if an event of default exists thereunder or if our fixed charge coverage ratio for the most recent four fiscal quarter period is less than 1.6 to 1.0. See "Description of Senior Subordinated Notes Certain Covenants Restricted Payments"; and under our franchise agreements with Wendy's, if at the time of payment of the dividends we are not current in our royalty fee, advertising contribution and other payment obligations to Wendy's, or our capital expenditure obligations, or if such dividend payment would prevent us from making our required payments to Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Dividend Restrictions." David J. Norman, Esq. General Counsel 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A common stock and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the level set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Copies to: Bradley P. Cost, Esq. Torys LLP 237 Park Avenue New York, NY 10017 (212) 880-6000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Will my rights as a holder of EISs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of EISs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your EISs. As such, through your broker or other financial institution and the Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of EISs? Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing equity investors, through their ownership of shares of Class B common stock, will own approximately 36.1% of the voting power of our common stock immediately following the offering of the EISs (or approximately 19.0% if the over-allotment option with respect to the EISs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Can I separate my EISs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form EISs? Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control, through their broker or other financial institution, separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of Class A common stock and senior subordinated notes, whether represented by EISs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, the custodian or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Any such separation or recombination will be effective as of the close of business on the trading day that DTC receives such instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day. Any instructions received after 3:00 p.m., New York time, will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of EISs may involve transaction fees charged by your broker, the custodian and/or your financial intermediary. See "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance Separation and recombination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Will the EISs be listed on an exchange? Yes. We will apply to list the EIS on the American Stock Exchange under the trading symbol "DVC." Will the shares of our common stock and senior subordinated notes be separately listed on an exchange? The senior subordinated notes represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will not be listed on any exchange. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when the shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class A common stock and our senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares of our Class B common stock will not be listed on any exchange. Will the additional senior subordinated notes sold separately (not in the form of EISs) be the same as the senior subordinated notes issued as a component of the EISs? Yes. The additional senior subordinated notes to be sold separately (not in the form of EISs) will be the same as the senior subordinated notes represented by EISs and will be part of the same series of senior subordinated notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of EISs) and holders of senior subordinated notes represented by EISs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing our senior subordinated notes. If you purchase separate senior subordinated notes in this offering, you will be required to deliver to us a letter containing certain representations, including that you are not a holder of our equity, that you are not purchasing EISs in this offering and that you have no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. We believe that these representation letters will help us to demonstrate that a market exists for the separate senior subordinated notes independent of the market for EISs. See "Underwriting." In what form will EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately be issued? The EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will be initially issued in book-entry form only. This means that you will not be a registered holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs), and you will not receive a certificate for your EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). Following the separation, if any, of your EISs into the component parts of the Class A common stock and senior subordinated notes, these securities will be held in book-entry form or, if requested by you, the Class A common stock may be held in registered form. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. A registered holder of shares of our Class A common stock, including a holder of EISs that requests that the EISs be separated, has the right to obtain a certificate representing such shares. If a holder of EISs requests certificated shares of Class A common stock, such holder's EISs must be split into the component parts of the Class A common stock and senior subordinated notes, and for so long as the shares of Class A common stock are held in separately certificated form, the shares of Class A common stock may no longer be eligible for inclusion in DTC's book-entry settlement and clearance system described under the heading "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance." However, if a holder of separately certificated shares of Class A common stock is subsequently willing to forgo being a registered holder of shares and deposits the shares in an eligible institution, those shares of Class A common stock may again become DTC eligible. EISs and, subject to certain exceptions described under "Description of Senior Subordinated Notes Exchange of Global Notes for Certificated Notes," the senior subordinated notes may only be held in book-entry form. Will my EISs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the EISs will occur automatically upon redemption of all or a portion of the senior subordinated notes, upon maturity of the senior subordinated notes or upon certain bankruptcy events. See "Description of Enhanced Income Securities (EISs) Automatic Separation." What will happen if we issue additional EISs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional EISs or senior subordinated notes of the same series. We will only issue EISs or senior subordinated notes of the same series in the future pursuant to a registration statement that has been declared effective by the SEC. Additional EISs will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will also represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of exchange rights by our existing equity investors. Although the senior subordinated notes that may be issued in the future (whether or not represented by EISs) will have terms that are substantially identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such senior subordinated notes are issued with OID, or any senior subordinated notes are issued thereafter, all holders of EISs of the same series (including the EISs being offered hereby), and all holders of outstanding senior subordinated notes not held in EISs, will automatically exchange a ratable portion of their outstanding senior subordinated notes, whether held separately or in the form of EISs, for a portion of the new senior subordinated notes, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new EIS (consisting of such senior subordinated note unit and common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy prior to the maturity of the senior subordinated notes. We will immediately file with the Securities and Exchange Commission (the "SEC" or "Commission") a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in the EISs? The U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our common stock and senior subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $7.65 and the initial fair market value of each $7.35 aggregate principal amount of our senior subordinated notes as $7.35, assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus. By purchasing EISs, under the terms of the indenture governing our senior subordinated notes, you will be deemed to have agreed to and be bound by such allocation. If this allocation is not respected by the Internal Revenue Service ("IRS"), it is possible that the senior subordinated notes will be treated as having been issued with OID (if the allocation to the senior subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the senior subordinated notes were determined to be too low). For additional information on the U.S. federal income tax consequences if this allocation is not respected, see "Risk Factors The allocation of the purchase price of the EISs may not be respected which may adversely affect your tax position" and "Material U.S. Federal Income Tax Consequences." We believe that the senior subordinated notes should be treated as debt for U.S. federal income tax purposes. We are receiving an opinion from our counsel, Torys LLP, that the senior subordinated notes should be treated as debt for such purposes; however, as there is an absence of direct authority, this position may not be sustained if challenged by the IRS. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend (and would likely not qualify for the special dividend rate described below), and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and senior subordinated notes. In addition, if any payments were treated as dividends, such payments to holders of our EISs or senior subordinated notes (not in the form of EISs) who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you (if you are an individual) at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to you at ordinary income rates. What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) pursuant to an offering by us of EISs or senior subordinated notes of the same series or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the senior subordinated notes and the agreements with DTC will provide that in the event there is a subsequent Balance at June 27, 2004 (unaudited) $ issuance by us of senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (or any issuance of senior subordinated notes thereafter), each holder of senior subordinated notes or EISs (as the case may be) agrees that a portion of such holder's senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes and the records of any record holders of the senior subordinated notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of senior subordinated notes or EISs (as the case may be) will own an inseparable unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of senior subordinated notes will be included in such holder's EISs). However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Due to the lack of applicable authority, it is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is not able to opine on this issue; consequently, it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Regardless of whether the exchange is treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of EISs or directly, the recombination of senior subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment. See "Material U.S. Federal Income Tax Consequences." Following any subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of EISs and senior subordinated notes, and each holder of EISs or senior subordinated notes will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Under the terms of the indenture governing our senior subordinated notes, by purchasing the senior subordinated notes, you will be deemed to have agreed to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and senior subordinated notes and could adversely affect the market for EISs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences." TABLE OF ADDITIONAL REGISTRANTS Name Summary of the Common Stock Issuer DavCo Restaurants Inc. Shares of Class A common stock to be outstanding following the offering 7,999,168 shares (or 9,199,043 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class B common stock to be outstanding following the offering 4,509,430 shares (or 2,156,734 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class C common stock to be outstanding following the offering No shares of Class C common stock will be outstanding upon the closing of this offering. Total shares of common stock to be outstanding following the offering 12,508,598 shares (or 11,355,777 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. So long as the existing equity investors hold at least 8% or more of the total economic value of the total outstanding equity interests in our company and 8% or more of the total outstanding voting interests in our company, they will be entitled to nominate two individuals for election to our board of directors. Listing Shares of our Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as this term is defined in Rule 144 under the Securities Act. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list shares of Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class B common stock will not be listed for separate trading. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Jurisdiction of Incorporation or Organization Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the levels set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Primary Standard Industrial Classification Number Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Dividend payment dates We intend to pay dividends quarterly on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively, commencing January 30, 2005. Rights to exchange shares of Class B common stock for EISs Beginning on the 366th day after the consummation of this offering, holders of shares of our Class B common stock will have certain rights to exchange their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors from exercising this exchange right with respect to all of their shares of Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). If any holder of Class B common stock has not exercised its exchange right in full, then following the maturity date of the senior subordinated notes, and at any other time that there are no senior subordinated notes and EISs outstanding, any remaining shares of Class B common stock will be exchangeable (at the option of the holder) into shares of Class A common stock on a one-for-one basis. Any exchange is subject to compliance with the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. In addition, any issuance of EISs upon exchange of shares of our Class B common stock must occur pursuant to an effective registration statement under the Securities Act. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." I.R.S. Employer Identification Number 20% ownership limitations Pursuant to our amended and restated certificate of incorporation, no person or group acting together (other than the management investors) may be the beneficial owner of more than 20% of the total economic value of the total outstanding equity interests in our company or more than 20% of the total outstanding voting interests in our company. In the event that either of the foregoing limitations is or may be contravened, we may take such actions with respect to such ownership level over the 20% ownership level as we deem advisable, including refusing to give effect thereto on the stock transfer books, instituting proceedings, redeeming such interest or requiring the sale of such interest in order to reduce the ownership level to below or a 20% ownership level. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International 20% ownership limitations" and "Description of Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws 20% ownership limitations." (Unaudited) Tax (benefit) expense at U.S. statutory rate $ (6,172 ) $ 609 $ 1,034 $ 348 $ (1,080 ) State income taxes, net of federal tax benefit (861 ) 125 152 51 (202 ) Permanent differences 624 178 21 16 13 Change in valuation allowance for deferred tax assets 6,409 (4,179 ) (916 ) (108 ) 1,383 Other DavCo Restaurants, Inc. Delaware 5812 52-1633813 FriendCo Restaurants, Inc. Maryland 5812 52-2037752 Heron Realty Corporation Maryland 6500 52-2020474 MDF, Inc. Delaware 5812 52-1712539 The address, including zip code, telephone number and area code, of the principal executive offices of each of the additional registrants listed above is: 1657 Crofton Boulevard, Crofton, Maryland 21114; the telephone number at that address is (410) 721-3770. Summary of the Senior Subordinated Notes Issuer DavCo Restaurants Inc. Senior subordinated notes to be outstanding following the offering $58.8 million aggregate principal amount (or $67.6 million aggregate principal amount if the underwriters' over-allotment option with respect to the EISs is exercised in full); and $7.5 million aggregate principal amount sold separately (not in the form of EISs.) Interest rate % per annum. Interest payment dates Interest on the senior subordinated notes will be payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year commencing January 30, 2005. Maturity date The senior subordinated notes will mature on , 2016 unless earlier redeemed at our option as described under "Description of Senior Subordinated Notes Optional Redemption." Optional redemption We may not redeem the notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days' notice to the owners of senior subordinated notes, at redemption prices described under "Description of Senior Subordinated Notes Optional Redemption." If we redeem any senior subordinated notes (under any circumstances), the senior subordinated notes and Class A common stock represented by each EIS will be automatically separated. Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Repurchase at the Option of Holders Change of Control," unless we have exercised our right to redeem all senior subordinated notes as described above, each holder of the senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the senior subordinated notes and Class A common stock represented by such holder's EISs. Ranking The senior subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under the new credit facility. The senior subordinated notes will rank equally in right of payment with all of our senior subordinated indebtedness. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, we would have had approximately $28.0 million of senior indebtedness outstanding. The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS Subject to completion, dated September 22, 2004 DavCo Restaurants Inc. 7,999,168 Enhanced Income Securities (EISs) representing 7,999,168 Shares of Class A Common Stock $58.8 million % Senior Subordinated Notes due 2016 and $7.5 million % Senior Subordinated Notes due 2016 Note guarantees The senior subordinated notes will be fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The senior subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under the terms of our new credit facility. Any future foreign or partially owned domestic subsidiaries will not be guarantors of our senior subordinated notes. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, the guarantors would have had, in the aggregate, approximately $28.0 million of senior indebtedness outstanding. Acceleration forbearance Except in the event of bankruptcy or insolvency, the maturity of the principal amount of the senior subordinated notes may not be accelerated and the principal amount will not become due and payable, prior to the scheduled maturity date, for a period beginning on the date notice is provided to Wendy's International by the trustee with respect to the occurrence of certain events of default and ending 45 days after such date, as described in "Description of Senior Subordinated Notes Acceleration Forbearance Periods." Restrictive covenants The indenture governing our senior subordinated notes will contain covenants with respect to us and will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends or distributions on, and purchase or redemption of, capital stock; a number of other restricted payments, including the making of certain investments; specified creation of liens, sale-leaseback transactions and sales of assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Expenditures for additions to long-lived assets: Wendy's $ 4,686 $ 2,352 $ 5,936 $ 5,168 $ 2,325 Friendly's 40 We are selling 7,999,168 Enhanced Income Securities, or EISs, representing 7,999,168 shares of our Class A common stock and $58.8 million aggregate principal amount of our % senior subordinated notes due 2016. Each EIS represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. We are also selling separately (not in the form of EISs) an additional $7.5 million aggregate principal amount of our % senior subordinated notes due 2016. The completion of the offering of separate senior subordinated notes is a condition to our sale of EISs. The senior subordinated notes (whether or not in the form of EISs) will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of our domestic subsidiaries which, on the date hereof, consist of DavCo Operations Inc., FriendCo Restaurants, Inc., Heron Realty Corporation and MDF, Inc. Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. This is the initial public offering of our EISs and senior subordinated notes. We anticipate that the public offering price will be between $14.50 and $15.50 per EIS. We will apply to list the EISs on the American Stock Exchange under the trading symbol "DVC." Neither our Class A common stock nor our senior subordinated notes will be listed for trading on any exchange. Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the senior subordinated notes or upon maturity of the senior subordinated notes. Upon a subsequent issuance by us of EISs or senior subordinated notes of the same series (not in the form of EISs), a portion of your senior subordinated notes will be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance and, in that event, your EISs or senior subordinated notes will be replaced with new EISs or senior subordinated notes, as the case may be. In addition to the EISs and senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new EISs to be issued to you upon any such subsequent issuance. For more information regarding these automatic exchanges and the adverse effect they may have on your investment, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize original issue discount and have other adverse consequences," "Risk Factors Subsequent issuances of senior subordinated notes may adversely affect your treatment in a bankruptcy," "Description of Senior Subordinated Notes Covenants Relating to EISs Procedures Relating to Subsequent Issuances" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Procedures relating to subsequent issuances The indenture governing our senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs or senior subordinated notes sold separately, or any senior subordinated notes are issued thereafter, each EIS or separately held senior subordinated note will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held senior subordinated notes, as the case may be, will own an indivisible unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing our senior subordinated notes will permit issuances of additional senior subordinated notes upon exchange of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder in this offering. However, any subsequent issuance of senior subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Listing The senior subordinated notes will not be separately listed on any exchange. Representation letter Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. See "Underwriting." Investing in EISs, shares of our Class A common stock and/or senior subordinated notes involves risks. See "Risk Factors" section beginning on page 27 of this prospectus. Per EIS
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+S-1/A ENHANCED INCOME SECURITIES TRADEMARK Enhanced Income Securities (EISs) is a trademark used by us under license from RBC Capital Markets Corporation. SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Prior to the closing of this offering, we will amend our certificate of incorporation to change the name of our company from Davco Acquisition Holding Inc. to DavCo Restaurants Inc. and, prior thereto, we will cause our wholly-owned subsidiary, DavCo Restaurants, Inc., to change its name to DavCo Operations Inc. All references in this prospectus (other than in our Consolidated Financial Statements) give effect to these name changes. Throughout this prospectus, "we," "our," "us," or "our company" refers to DavCo Restaurants and its consolidated operations, and "Wendy's" or "Wendy's International" refers to Wendy's International, Inc., a franchisor to our company. For further information on defined terms, see "General Information About This Prospectus." Our Company Overview We are one of the largest franchisees of Wendy's Old Fashioned Hamburgers restaurants and the fifth largest hamburger quick service restaurant franchisee in the United States. In the last 10 years, the number of Wendy's restaurants we have owned and operated in our franchise territory has grown from 110 to 153, and we serve approximately 50.2 million customers annually through our operation of Wendy's restaurants. Our exclusive franchise territory comprises Baltimore and the Eastern Shore of Maryland, Washington, D.C. and portions of Northern Virginia. As one of the earliest franchisees of Wendy's International, we have been operating Wendy's restaurants since 1976. As of June 27, 2004 (the end of our fiscal 2004 third quarter), our company employed approximately 680 full-time employees and approximately 5,200 part-time employees. Our restaurants generated approximately $204.4 million and $155.8 million of sales, $20.0 million and $16.1 million of Adjusted EBITDA and $12.5 million and $8.1 million of cash flow from operating activities for our fiscal year ended September 28, 2003 and the nine months ended June 27, 2004, respectively. Adjusted EBITDA is defined in our new credit facility and the indenture governing our senior subordinated notes and results from certain specified adjustments to EBITDA (which is earnings before interest, taxes, depreciation and amortization). See "Summary Financial Information" for a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Wendy's International Wendy's International is one of the world's largest restaurant operating and franchising companies, with approximately 9,300 total restaurants and several quality brands, including Wendy's Old Fashioned Hamburgers. For the fiscal year ended December 31, 2003, Wendy's International reported approximately $3.1 billion in consolidated total revenues and $236.0 million in net income and $2.2 billion in total revenues for its Wendy's restaurants. We believe that the Wendy's brand name is widely recognized in the restaurant industry as being a symbol for fresh, high quality food and menu variety. The "Wendy's" name, design, logo and the designated Wendy's marks are registered trademarks of Oldemark, LLC and are licensed to Wendy's International, which sublicenses these trademarks to independently owned and operated franchisees like us. Dave Thomas created the first Wendy's Old Fashioned Hamburgers restaurant in Columbus, Ohio in November 1969. In 1972, Mr. Thomas sold his first franchise in Indianapolis, Indiana. At December 31, 2003, Wendy's International and its franchise owners operated over 6,480 Wendy's restaurants in 50 states, the District of Columbia, and 21 other countries and territories. Of these restaurants, approximately 1,465 were operated by Wendy's International and approximately 5,015 by its franchisees. Our Strengths We believe we maintain the following competitive advantages within the restaurant industry and the hamburger segment of the quick service restaurant market: Strength of Wendy's brand name. We believe that the Wendy's brand name is widely recognized in the restaurant industry as a brand associated with fresh, high quality food and menu variety. Wendy's focus on fresh food and menu innovation. Wendy's International's focus on customer research and innovation with new food items enables its restaurants to offer a varied menu which we believe is distinctive among hamburger quick service restaurant chains. Well-positioned in a market with strong fundamentals. The hamburger segment of the United States quick service restaurant market is estimated to have generated sales of approximately $50.7 billion in 2003. From 1999 to 2003, Wendy's share of the hamburger segment, the largest segment of the U.S. quick service restaurant market, expanded from approximately 13.4% to 14.5%. One of the largest Wendy's franchisees. We are one of the largest Wendy's franchisees with 154 restaurants. Our relatively large number of restaurants in a geographically contiguous area enables us to control costs, take advantage of purchasing and distribution efficiencies, and negotiate favorable terms with suppliers and service providers. Territorial exclusivity. We have the exclusive right to develop new Wendy's restaurants in our franchise territory until December 31, 2015 and, from January 1, 2016 to December 31, 2025, a right of first refusal with respect to the development of any new Wendy's restaurant in our franchise territory. Expertise in restaurant development and management. Our senior management team has over 20 years of experience in developing, acquiring and operating Wendy's restaurants. Our Business Strategy and Growth Opportunities We intend to grow our business by implementing the following business strategies: Open new Wendy's restaurants. We believe that there are significant expansion opportunities in our exclusive franchise territory and have identified a number of undeveloped sites that satisfy our new restaurant site selection criteria. Increase same store sales. We intend to increase same store sales through a combination of extending store hours, introducing new or promotional menu items, and our recently introduced electronic payment ("e-pay") option, which facilitates faster customer service and increases average check size. Achieve operating efficiencies. Our centralized management and relatively large number of restaurants in a geographically contiguous area enable us to control costs and capture economies of scale by spreading our existing corporate expenditures over our 154 restaurants and through purchasing and distribution efficiencies. Introduce new products. We intend to continue to introduce new products developed and launched by Wendy's International that are responsive to what Wendy's believes are emerging lifestyle trends. Our Industry The restaurant industry in the United States is comprised of five major segments: quick service restaurants, quick casual restaurants, family/mid-scale restaurants, casual dining restaurants and fine dining restaurants. The quick service restaurant market is the largest segment of the United States restaurant industry with sales of approximately $144.1 billion in 2003. We operate in the hamburger segment of the quick service restaurant market. The hamburger segment of the U.S. quick service restaurant market generated sales of approximately $50.7 billion in 2003 representing approximately 35.1% of the total sales of quick service restaurants in this period. Sales in this segment grew at a SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 compound annual growth rate of 4.2% between 1998 and 2003, and are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. See "Industry." Relationship with Wendy's International Information concerning Wendy's International contained in this prospectus has been derived from publicly available information filed by Wendy's International with the Securities and Exchange Commission, is historic and was not prepared for purposes of this prospectus. This prospectus has been prepared by us and we are responsible for this offering. Wendy's International is not selling, offering for sale or underwriting any part of this offering and is not receiving any proceeds from this offering. We and our subsidiary guarantors are the sole obligors under or guarantors of the senior subordinated notes which are part of this offering. Wendy's International has not made any recommendation with respect to the merits of this offering and neither this offering nor the contents of this prospectus (including any financial data or any analysis of tax consequences contained herein) have been approved or endorsed by Wendy's International. Wendy's International has assumed no obligations in connection with this offering or with respect to the accuracy, adequacy or completeness of this prospectus. Our relationship with Wendy's International is governed by the following material agreements: an amended and restated consent, which, among other things, contains the required Wendy's International consent to this offering and sets forth the related terms and conditions of that consent; a development letter, which, among other things, grants us our exclusive franchise territory and sets forth a schedule of required new restaurant openings; and separate unit franchise agreements, as amended, which govern the operation of each of our restaurants. In order to maintain our exclusive franchise territory, our development letter with Wendy's International requires us, net of any closures, to open or commence construction of a minimum of four restaurants in each of 2004 and 2005, a minimum of eight restaurants in each year from 2006 through 2012, and a minimum of seven restaurants in each of 2013 through 2015. The development letter requires us to operate a total of 240 restaurants in our franchise territory by December 31, 2015. We have opened two new restaurants in 2004, and currently have two new restaurant locations under development, seven new restaurant locations subject to signed leases and five new restaurant locations subject to letters of intent. For further information on our agreements with Wendy's see "Business Relationship with Wendy's International." Wendy's International has an option to purchase all of our equity interests in DavCo Operations and all of our assets and all of the assets of DavCo Operations, at fair market value, in the event that, among other things, any direct or indirect interest in our company or DavCo Operations is transferred in violation of our franchise agreements with Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Purchase option." Use of Proceeds We will sell 7,999,168 EISs and an additional $7.5 million aggregate principal amount of senior subordinated notes (not in the form of EISs) in this offering. Assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive aggregate net proceeds of approximately $114.5 million from this offering of EISs and additional senior subordinated notes, after deducting underwriting discounts and commissions and other estimated transaction fees and expenses. Assuming the transactions described in this prospectus had occured on June 27, 2004, we would have used the aggregate net proceeds of this offering of approximately $114.5 million and cash on hand AMENDMENT NO. 4 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and assumed borrowings under credit facilities (of approximately $11.4 million in the aggregate) as follows: approximately $103.3 million to repay certain outstanding indebtedness under term loans, net of prepayment discount and restricted cash balances; $3.0 million to fund a portion of the capital expenditures for renovations and upgrades to our restaurants required by Wendy's International; approximately $13.0 million to repurchase 1,701,863 shares of our Class B common stock from Citicorp Venture Capital (as defined below under "Our Existing Equity Investors") at a purchase price of $7.65 per share; and approximately $4.7 million to pay a make-whole premium in connection with the prepayment of indebtedness under Term Loan 1 and approximately $1.8 million to pay bonuses to certain of our senior officers in connection with the termination of our annual cash bonus plan which will be replaced by the long term incentive plan and dividend reinvestment plan. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the net proceeds we receive from the sale of additional EISs under the over-allotment option to repurchase 2,352,696 additional shares of our Class B common stock held by Citicorp Venture Capital. In such event, Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock. No existing equity investor, other than Citicorp Venture Capital, will receive any of the proceeds of this offering. See "Use of Proceeds." Our New Credit Facility Concurrently with the closing of this offering, DavCo Operations will enter into a new senior secured credit facility with SunTrust Bank ("SunTrust"). We refer to this credit facility as the "new credit facility." The new credit facility will provide our company with a three-year $20.0 million revolving credit line with a floating interest rate of LIBOR plus 1.5%. The purpose of the new credit facility will be to provide for letters of credit, new ground lease construction financing, new equipment financing and other restaurant capital expenditures, and working capital needs. The new credit facility will be guaranteed by us and by each subsidiary of DavCo Operations and will be secured by a first priority security interest in certain of our assets. The new credit facility will contain a number of financial and other covenants, including restrictions on our ability to pay interest on our senior subordinated notes and to pay dividends on our common stock. The closing of this offering is conditioned upon the closing of the new credit facility. At the closing of this offering, we expect that approximately $6.0 million of letters of credit will be outstanding under the new credit facility and that there will not be any borrowings outstanding thereunder. See "Description of Certain Indebtedness New Credit Facility." Our Existing Equity Investors Certain officers of our company, namely Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III, Richard H. Borchers, Charles C. MacGuire, III, Elizabeth Brown, Thomas A. Hughes, Sandra L. Hughes and Stacey E.Y. Jackson, and Citicorp Venture Capital and certain of its affiliates and employees, namely Byron L. Knief, Charles Schweitzer, 63 BR Partnership, David F. Thomas, Charles Corpening and James A. Urry (collectively, "Citigroup Venture Capital"), are the beneficial owners of all our shares of outstanding common stock prior to this offering. In this prospectus, we refer to all of these owners as the "existing equity investors." Pursuant to a recapitalization to be effected concurrent with this offering, all outstanding shares of our existing common stock held by the existing equity investors will be recapitalized into shares of our Class B common stock. The recapitalization is a condition to our sale of EISs and the senior subordinated notes hereunder and completion of the sale of the EISs and the senior subordinated Davco Acquisition Holding Inc. (Exact name of registrant as specified in its charter) Delaware (Jurisdiction of incorporation or organization) 5812 (Primary Standard Industrial Classification Code Number) 52-2069955 (I.R.S. Employer Identification Number) 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Address, including zip code, and telephone number, including area code, of Co-Registrants' principal executive offices) notes is a condition to the recapitalization. The shares of our Class B common stock will have identical rights and privileges in all respects to the shares of our Class A common stock, other than dividend rights and certain exchange rights provided in the stockholders agreement. Our amended and restated certificate of incorporation will provide that the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. For a full description of the dividend rights applicable to our Class A common stock and Class B common stock and the exchange right provided in the stockholders agreement in respect of our Class B common stock, see "Dividend Policy and Restrictions", "Description of Capital Stock" and "Related Party Transactions Amendment and Restatement of Stockholders Agreement." Upon the completion of the recapitalization to be effected concurrent with this offering, but prior to the closing, Citicorp Venture Capital will own 4,862,466 shares of our outstanding Class B common stock, representing approximately 78.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of our outstanding Class B common stock, representing 21.7% of our outstanding capital stock. Upon the closing of this offering and after a portion of the proceeds of this offering have been used to repurchase 1,701,863 shares of our Class B common stock owned by Citicorp Venture Capital, Citicorp Venture Capital will own 3,160,603 shares of our outstanding Class B common stock, representing approximately 25.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of Class B common stock, representing 10.8% of our outstanding capital stock. If the underwriters' over-allotment option with respect to the EISs is exercised in full, we will purchase 4,054,559 shares of our Class B common stock from Citicorp Venture Capital and Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock and our management investors will own 1,348,827 shares of our Class B common stock, representing 11.9% of our outstanding capital stock. See "Use of Proceeds." Exchange Rights of Holders of Class B Common Stock Beginning on the 366th day after the consummation of this offering, the holders of shares of our Class B common stock will have certain rights to exchange or cause the exchange of their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of our Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). In connection with this exchange, no fractional EISs will be issued. Instead, any fractional interest that would otherwise be issuable will be paid for in cash at the then fair market value of our EISs. Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors, consisting of Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III and Richard H. Borchers, from exercising this exchange right with respect to all of their shares of our Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if, following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). In addition, any exchange of shares of our Class B common stock for EISs is subject to compliance with, among others, the following conditions: any issuance of EISs upon exchange must occur pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); and at the time of the exchange, no default may exist under the terms of our new credit facility, the indenture governing our senior subordinated notes (including the non-payment of interest on such notes, when due) or our franchise agreements with Wendy's. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." Our Corporate Information Our principal executive office is located at 1657 Crofton Boulevard, Crofton, Maryland 21114, and our telephone number is (410) 721-3770. See Table of Additional Registrants on Next Page The Offering Summary of our EISs and Senior Subordinated Notes We are offering 7,999,168 EISs at an assumed initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $7.5 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 13.25% of the aggregate principal amount of senior subordinated notes, whether held separately or as a component of an EIS. We intend to make interest payments and, if declared, dividend payments on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively. The terms of our new credit facility will prevent us from paying principal and interest on our senior subordinated notes during the existence of a payment default thereunder, and for 179 days following a default thereunder, other than a payment default. You may also receive quarterly dividend payments on the shares of our Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Each of these agreements will contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock of which the material restrictions are as follows. We may not pay dividends on our Class A and Class B common stock: under the terms of our new credit facility, if an event of default exits thereunder or if certain financial ratios and tests set forth therein are not met. See "Description of Certain Indebtedness New Credit Facility"; under the indenture governing our senior subordinated notes, if an event of default exists thereunder or if our fixed charge coverage ratio for the most recent four fiscal quarter period is less than 1.6 to 1.0. See "Description of Senior Subordinated Notes Certain Covenants Restricted Payments"; and under our franchise agreements with Wendy's, if at the time of payment of the dividends we are not current in our royalty fee, advertising contribution and other payment obligations to Wendy's, or our capital expenditure obligations, or if such dividend payment would prevent us from making our required payments to Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Dividend Restrictions." David J. Norman, Esq. General Counsel 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A common stock and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the level set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Copies to: Bradley P. Cost, Esq. Torys LLP 237 Park Avenue New York, NY 10017 (212) 880-6000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Will my rights as a holder of EISs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of EISs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your EISs. As such, through your broker or other financial institution and the Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of EISs? Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing equity investors, through their ownership of shares of Class B common stock, will own approximately 36.1% of the voting power of our common stock immediately following the offering of the EISs (or approximately 19.0% if the over-allotment option with respect to the EISs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Can I separate my EISs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form EISs? Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control, through their broker or other financial institution, separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of Class A common stock and senior subordinated notes, whether represented by EISs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, the custodian or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Any such separation or recombination will be effective as of the close of business on the trading day that DTC receives such instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day. Any instructions received after 3:00 p.m., New York time, will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of EISs may involve transaction fees charged by your broker, the custodian and/or your financial intermediary. See "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance Separation and recombination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Will the EISs be listed on an exchange? Yes. We will apply to list the EIS on the American Stock Exchange under the trading symbol "DVC." Will the shares of our common stock and senior subordinated notes be separately listed on an exchange? The senior subordinated notes represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will not be listed on any exchange. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when the shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class A common stock and our senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares of our Class B common stock will not be listed on any exchange. Will the additional senior subordinated notes sold separately (not in the form of EISs) be the same as the senior subordinated notes issued as a component of the EISs? Yes. The additional senior subordinated notes to be sold separately (not in the form of EISs) will be the same as the senior subordinated notes represented by EISs and will be part of the same series of senior subordinated notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of EISs) and holders of senior subordinated notes represented by EISs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing our senior subordinated notes. If you purchase separate senior subordinated notes in this offering, you will be required to deliver to us a letter containing certain representations, including that you are not a holder of our equity, that you are not purchasing EISs in this offering and that you have no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. We believe that these representation letters will help us to demonstrate that a market exists for the separate senior subordinated notes independent of the market for EISs. See "Underwriting." In what form will EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately be issued? The EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will be initially issued in book-entry form only. This means that you will not be a registered holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs), and you will not receive a certificate for your EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). Following the separation, if any, of your EISs into the component parts of the Class A common stock and senior subordinated notes, these securities will be held in book-entry form or, if requested by you, the Class A common stock may be held in registered form. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. A registered holder of shares of our Class A common stock, including a holder of EISs that requests that the EISs be separated, has the right to obtain a certificate representing such shares. If a holder of EISs requests certificated shares of Class A common stock, such holder's EISs must be split into the component parts of the Class A common stock and senior subordinated notes, and for so long as the shares of Class A common stock are held in separately certificated form, the shares of Class A common stock may no longer be eligible for inclusion in DTC's book-entry settlement and clearance system described under the heading "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance." However, if a holder of separately certificated shares of Class A common stock is subsequently willing to forgo being a registered holder of shares and deposits the shares in an eligible institution, those shares of Class A common stock may again become DTC eligible. EISs and, subject to certain exceptions described under "Description of Senior Subordinated Notes Exchange of Global Notes for Certificated Notes," the senior subordinated notes may only be held in book-entry form. Will my EISs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the EISs will occur automatically upon redemption of all or a portion of the senior subordinated notes, upon maturity of the senior subordinated notes or upon certain bankruptcy events. See "Description of Enhanced Income Securities (EISs) Automatic Separation." What will happen if we issue additional EISs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional EISs or senior subordinated notes of the same series. We will only issue EISs or senior subordinated notes of the same series in the future pursuant to a registration statement that has been declared effective by the SEC. Additional EISs will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will also represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of exchange rights by our existing equity investors. Although the senior subordinated notes that may be issued in the future (whether or not represented by EISs) will have terms that are substantially identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such senior subordinated notes are issued with OID, or any senior subordinated notes are issued thereafter, all holders of EISs of the same series (including the EISs being offered hereby), and all holders of outstanding senior subordinated notes not held in EISs, will automatically exchange a ratable portion of their outstanding senior subordinated notes, whether held separately or in the form of EISs, for a portion of the new senior subordinated notes, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new EIS (consisting of such senior subordinated note unit and common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy prior to the maturity of the senior subordinated notes. We will immediately file with the Securities and Exchange Commission (the "SEC" or "Commission") a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in the EISs? The U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our common stock and senior subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $7.65 and the initial fair market value of each $7.35 aggregate principal amount of our senior subordinated notes as $7.35, assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus. By purchasing EISs, under the terms of the indenture governing our senior subordinated notes, you will be deemed to have agreed to and be bound by such allocation. If this allocation is not respected by the Internal Revenue Service ("IRS"), it is possible that the senior subordinated notes will be treated as having been issued with OID (if the allocation to the senior subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the senior subordinated notes were determined to be too low). For additional information on the U.S. federal income tax consequences if this allocation is not respected, see "Risk Factors The allocation of the purchase price of the EISs may not be respected which may adversely affect your tax position" and "Material U.S. Federal Income Tax Consequences." We believe that the senior subordinated notes should be treated as debt for U.S. federal income tax purposes. We are receiving an opinion from our counsel, Torys LLP, that the senior subordinated notes should be treated as debt for such purposes; however, as there is an absence of direct authority, this position may not be sustained if challenged by the IRS. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend (and would likely not qualify for the special dividend rate described below), and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and senior subordinated notes. In addition, if any payments were treated as dividends, such payments to holders of our EISs or senior subordinated notes (not in the form of EISs) who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you (if you are an individual) at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to you at ordinary income rates. What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) pursuant to an offering by us of EISs or senior subordinated notes of the same series or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the senior subordinated notes and the agreements with DTC will provide that in the event there is a subsequent Balance at June 27, 2004 (unaudited) $ issuance by us of senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (or any issuance of senior subordinated notes thereafter), each holder of senior subordinated notes or EISs (as the case may be) agrees that a portion of such holder's senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes and the records of any record holders of the senior subordinated notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of senior subordinated notes or EISs (as the case may be) will own an inseparable unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of senior subordinated notes will be included in such holder's EISs). However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Due to the lack of applicable authority, it is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is not able to opine on this issue; consequently, it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Regardless of whether the exchange is treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of EISs or directly, the recombination of senior subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment. See "Material U.S. Federal Income Tax Consequences." Following any subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of EISs and senior subordinated notes, and each holder of EISs or senior subordinated notes will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Under the terms of the indenture governing our senior subordinated notes, by purchasing the senior subordinated notes, you will be deemed to have agreed to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and senior subordinated notes and could adversely affect the market for EISs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences." TABLE OF ADDITIONAL REGISTRANTS Name Summary of the Common Stock Issuer DavCo Restaurants Inc. Shares of Class A common stock to be outstanding following the offering 7,999,168 shares (or 9,199,043 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class B common stock to be outstanding following the offering 4,509,430 shares (or 2,156,734 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class C common stock to be outstanding following the offering No shares of Class C common stock will be outstanding upon the closing of this offering. Total shares of common stock to be outstanding following the offering 12,508,598 shares (or 11,355,777 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. So long as the existing equity investors hold at least 8% or more of the total economic value of the total outstanding equity interests in our company and 8% or more of the total outstanding voting interests in our company, they will be entitled to nominate two individuals for election to our board of directors. Listing Shares of our Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as this term is defined in Rule 144 under the Securities Act. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list shares of Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class B common stock will not be listed for separate trading. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Jurisdiction of Incorporation or Organization Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the levels set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Primary Standard Industrial Classification Number Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Dividend payment dates We intend to pay dividends quarterly on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively, commencing January 30, 2005. Rights to exchange shares of Class B common stock for EISs Beginning on the 366th day after the consummation of this offering, holders of shares of our Class B common stock will have certain rights to exchange their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors from exercising this exchange right with respect to all of their shares of Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). If any holder of Class B common stock has not exercised its exchange right in full, then following the maturity date of the senior subordinated notes, and at any other time that there are no senior subordinated notes and EISs outstanding, any remaining shares of Class B common stock will be exchangeable (at the option of the holder) into shares of Class A common stock on a one-for-one basis. Any exchange is subject to compliance with the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. In addition, any issuance of EISs upon exchange of shares of our Class B common stock must occur pursuant to an effective registration statement under the Securities Act. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." I.R.S. Employer Identification Number 20% ownership limitations Pursuant to our amended and restated certificate of incorporation, no person or group acting together (other than the management investors) may be the beneficial owner of more than 20% of the total economic value of the total outstanding equity interests in our company or more than 20% of the total outstanding voting interests in our company. In the event that either of the foregoing limitations is or may be contravened, we may take such actions with respect to such ownership level over the 20% ownership level as we deem advisable, including refusing to give effect thereto on the stock transfer books, instituting proceedings, redeeming such interest or requiring the sale of such interest in order to reduce the ownership level to below or a 20% ownership level. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International 20% ownership limitations" and "Description of Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws 20% ownership limitations." (Unaudited) Tax (benefit) expense at U.S. statutory rate $ (6,172 ) $ 609 $ 1,034 $ 348 $ (1,080 ) State income taxes, net of federal tax benefit (861 ) 125 152 51 (202 ) Permanent differences 624 178 21 16 13 Change in valuation allowance for deferred tax assets 6,409 (4,179 ) (916 ) (108 ) 1,383 Other DavCo Restaurants, Inc. Delaware 5812 52-1633813 FriendCo Restaurants, Inc. Maryland 5812 52-2037752 Heron Realty Corporation Maryland 6500 52-2020474 MDF, Inc. Delaware 5812 52-1712539 The address, including zip code, telephone number and area code, of the principal executive offices of each of the additional registrants listed above is: 1657 Crofton Boulevard, Crofton, Maryland 21114; the telephone number at that address is (410) 721-3770. Summary of the Senior Subordinated Notes Issuer DavCo Restaurants Inc. Senior subordinated notes to be outstanding following the offering $58.8 million aggregate principal amount (or $67.6 million aggregate principal amount if the underwriters' over-allotment option with respect to the EISs is exercised in full); and $7.5 million aggregate principal amount sold separately (not in the form of EISs.) Interest rate % per annum. Interest payment dates Interest on the senior subordinated notes will be payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year commencing January 30, 2005. Maturity date The senior subordinated notes will mature on , 2016 unless earlier redeemed at our option as described under "Description of Senior Subordinated Notes Optional Redemption." Optional redemption We may not redeem the notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days' notice to the owners of senior subordinated notes, at redemption prices described under "Description of Senior Subordinated Notes Optional Redemption." If we redeem any senior subordinated notes (under any circumstances), the senior subordinated notes and Class A common stock represented by each EIS will be automatically separated. Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Repurchase at the Option of Holders Change of Control," unless we have exercised our right to redeem all senior subordinated notes as described above, each holder of the senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the senior subordinated notes and Class A common stock represented by such holder's EISs. Ranking The senior subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under the new credit facility. The senior subordinated notes will rank equally in right of payment with all of our senior subordinated indebtedness. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, we would have had approximately $28.0 million of senior indebtedness outstanding. The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS Subject to completion, dated September 22, 2004 DavCo Restaurants Inc. 7,999,168 Enhanced Income Securities (EISs) representing 7,999,168 Shares of Class A Common Stock $58.8 million % Senior Subordinated Notes due 2016 and $7.5 million % Senior Subordinated Notes due 2016 Note guarantees The senior subordinated notes will be fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The senior subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under the terms of our new credit facility. Any future foreign or partially owned domestic subsidiaries will not be guarantors of our senior subordinated notes. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, the guarantors would have had, in the aggregate, approximately $28.0 million of senior indebtedness outstanding. Acceleration forbearance Except in the event of bankruptcy or insolvency, the maturity of the principal amount of the senior subordinated notes may not be accelerated and the principal amount will not become due and payable, prior to the scheduled maturity date, for a period beginning on the date notice is provided to Wendy's International by the trustee with respect to the occurrence of certain events of default and ending 45 days after such date, as described in "Description of Senior Subordinated Notes Acceleration Forbearance Periods." Restrictive covenants The indenture governing our senior subordinated notes will contain covenants with respect to us and will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends or distributions on, and purchase or redemption of, capital stock; a number of other restricted payments, including the making of certain investments; specified creation of liens, sale-leaseback transactions and sales of assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Expenditures for additions to long-lived assets: Wendy's $ 4,686 $ 2,352 $ 5,936 $ 5,168 $ 2,325 Friendly's 40 We are selling 7,999,168 Enhanced Income Securities, or EISs, representing 7,999,168 shares of our Class A common stock and $58.8 million aggregate principal amount of our % senior subordinated notes due 2016. Each EIS represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. We are also selling separately (not in the form of EISs) an additional $7.5 million aggregate principal amount of our % senior subordinated notes due 2016. The completion of the offering of separate senior subordinated notes is a condition to our sale of EISs. The senior subordinated notes (whether or not in the form of EISs) will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of our domestic subsidiaries which, on the date hereof, consist of DavCo Operations Inc., FriendCo Restaurants, Inc., Heron Realty Corporation and MDF, Inc. Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. This is the initial public offering of our EISs and senior subordinated notes. We anticipate that the public offering price will be between $14.50 and $15.50 per EIS. We will apply to list the EISs on the American Stock Exchange under the trading symbol "DVC." Neither our Class A common stock nor our senior subordinated notes will be listed for trading on any exchange. Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the senior subordinated notes or upon maturity of the senior subordinated notes. Upon a subsequent issuance by us of EISs or senior subordinated notes of the same series (not in the form of EISs), a portion of your senior subordinated notes will be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance and, in that event, your EISs or senior subordinated notes will be replaced with new EISs or senior subordinated notes, as the case may be. In addition to the EISs and senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new EISs to be issued to you upon any such subsequent issuance. For more information regarding these automatic exchanges and the adverse effect they may have on your investment, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize original issue discount and have other adverse consequences," "Risk Factors Subsequent issuances of senior subordinated notes may adversely affect your treatment in a bankruptcy," "Description of Senior Subordinated Notes Covenants Relating to EISs Procedures Relating to Subsequent Issuances" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Procedures relating to subsequent issuances The indenture governing our senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs or senior subordinated notes sold separately, or any senior subordinated notes are issued thereafter, each EIS or separately held senior subordinated note will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held senior subordinated notes, as the case may be, will own an indivisible unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing our senior subordinated notes will permit issuances of additional senior subordinated notes upon exchange of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder in this offering. However, any subsequent issuance of senior subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Listing The senior subordinated notes will not be separately listed on any exchange. Representation letter Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. See "Underwriting." Investing in EISs, shares of our Class A common stock and/or senior subordinated notes involves risks. See "Risk Factors" section beginning on page 27 of this prospectus. Per EIS
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+S-1/A ENHANCED INCOME SECURITIES TRADEMARK Enhanced Income Securities (EISs) is a trademark used by us under license from RBC Capital Markets Corporation. SUMMARY The following is a summary of the principal features of this offering of EISs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Prior to the closing of this offering, we will amend our certificate of incorporation to change the name of our company from Davco Acquisition Holding Inc. to DavCo Restaurants Inc. and, prior thereto, we will cause our wholly-owned subsidiary, DavCo Restaurants, Inc., to change its name to DavCo Operations Inc. All references in this prospectus (other than in our Consolidated Financial Statements) give effect to these name changes. Throughout this prospectus, "we," "our," "us," or "our company" refers to DavCo Restaurants and its consolidated operations, and "Wendy's" or "Wendy's International" refers to Wendy's International, Inc., a franchisor to our company. For further information on defined terms, see "General Information About This Prospectus." Our Company Overview We are one of the largest franchisees of Wendy's Old Fashioned Hamburgers restaurants and the fifth largest hamburger quick service restaurant franchisee in the United States. In the last 10 years, the number of Wendy's restaurants we have owned and operated in our franchise territory has grown from 110 to 153, and we serve approximately 50.2 million customers annually through our operation of Wendy's restaurants. Our exclusive franchise territory comprises Baltimore and the Eastern Shore of Maryland, Washington, D.C. and portions of Northern Virginia. As one of the earliest franchisees of Wendy's International, we have been operating Wendy's restaurants since 1976. As of June 27, 2004 (the end of our fiscal 2004 third quarter), our company employed approximately 680 full-time employees and approximately 5,200 part-time employees. Our restaurants generated approximately $204.4 million and $155.8 million of sales, $20.0 million and $16.1 million of Adjusted EBITDA and $12.5 million and $8.1 million of cash flow from operating activities for our fiscal year ended September 28, 2003 and the nine months ended June 27, 2004, respectively. Adjusted EBITDA is defined in our new credit facility and the indenture governing our senior subordinated notes and results from certain specified adjustments to EBITDA (which is earnings before interest, taxes, depreciation and amortization). See "Summary Financial Information" for a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Wendy's International Wendy's International is one of the world's largest restaurant operating and franchising companies, with approximately 9,300 total restaurants and several quality brands, including Wendy's Old Fashioned Hamburgers. For the fiscal year ended December 31, 2003, Wendy's International reported approximately $3.1 billion in consolidated total revenues and $236.0 million in net income and $2.2 billion in total revenues for its Wendy's restaurants. We believe that the Wendy's brand name is widely recognized in the restaurant industry as being a symbol for fresh, high quality food and menu variety. The "Wendy's" name, design, logo and the designated Wendy's marks are registered trademarks of Oldemark, LLC and are licensed to Wendy's International, which sublicenses these trademarks to independently owned and operated franchisees like us. Dave Thomas created the first Wendy's Old Fashioned Hamburgers restaurant in Columbus, Ohio in November 1969. In 1972, Mr. Thomas sold his first franchise in Indianapolis, Indiana. At December 31, 2003, Wendy's International and its franchise owners operated over 6,480 Wendy's restaurants in 50 states, the District of Columbia, and 21 other countries and territories. Of these restaurants, approximately 1,465 were operated by Wendy's International and approximately 5,015 by its franchisees. Our Strengths We believe we maintain the following competitive advantages within the restaurant industry and the hamburger segment of the quick service restaurant market: Strength of Wendy's brand name. We believe that the Wendy's brand name is widely recognized in the restaurant industry as a brand associated with fresh, high quality food and menu variety. Wendy's focus on fresh food and menu innovation. Wendy's International's focus on customer research and innovation with new food items enables its restaurants to offer a varied menu which we believe is distinctive among hamburger quick service restaurant chains. Well-positioned in a market with strong fundamentals. The hamburger segment of the United States quick service restaurant market is estimated to have generated sales of approximately $50.7 billion in 2003. From 1999 to 2003, Wendy's share of the hamburger segment, the largest segment of the U.S. quick service restaurant market, expanded from approximately 13.4% to 14.5%. One of the largest Wendy's franchisees. We are one of the largest Wendy's franchisees with 154 restaurants. Our relatively large number of restaurants in a geographically contiguous area enables us to control costs, take advantage of purchasing and distribution efficiencies, and negotiate favorable terms with suppliers and service providers. Territorial exclusivity. We have the exclusive right to develop new Wendy's restaurants in our franchise territory until December 31, 2015 and, from January 1, 2016 to December 31, 2025, a right of first refusal with respect to the development of any new Wendy's restaurant in our franchise territory. Expertise in restaurant development and management. Our senior management team has over 20 years of experience in developing, acquiring and operating Wendy's restaurants. Our Business Strategy and Growth Opportunities We intend to grow our business by implementing the following business strategies: Open new Wendy's restaurants. We believe that there are significant expansion opportunities in our exclusive franchise territory and have identified a number of undeveloped sites that satisfy our new restaurant site selection criteria. Increase same store sales. We intend to increase same store sales through a combination of extending store hours, introducing new or promotional menu items, and our recently introduced electronic payment ("e-pay") option, which facilitates faster customer service and increases average check size. Achieve operating efficiencies. Our centralized management and relatively large number of restaurants in a geographically contiguous area enable us to control costs and capture economies of scale by spreading our existing corporate expenditures over our 154 restaurants and through purchasing and distribution efficiencies. Introduce new products. We intend to continue to introduce new products developed and launched by Wendy's International that are responsive to what Wendy's believes are emerging lifestyle trends. Our Industry The restaurant industry in the United States is comprised of five major segments: quick service restaurants, quick casual restaurants, family/mid-scale restaurants, casual dining restaurants and fine dining restaurants. The quick service restaurant market is the largest segment of the United States restaurant industry with sales of approximately $144.1 billion in 2003. We operate in the hamburger segment of the quick service restaurant market. The hamburger segment of the U.S. quick service restaurant market generated sales of approximately $50.7 billion in 2003 representing approximately 35.1% of the total sales of quick service restaurants in this period. Sales in this segment grew at a SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 compound annual growth rate of 4.2% between 1998 and 2003, and are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. See "Industry." Relationship with Wendy's International Information concerning Wendy's International contained in this prospectus has been derived from publicly available information filed by Wendy's International with the Securities and Exchange Commission, is historic and was not prepared for purposes of this prospectus. This prospectus has been prepared by us and we are responsible for this offering. Wendy's International is not selling, offering for sale or underwriting any part of this offering and is not receiving any proceeds from this offering. We and our subsidiary guarantors are the sole obligors under or guarantors of the senior subordinated notes which are part of this offering. Wendy's International has not made any recommendation with respect to the merits of this offering and neither this offering nor the contents of this prospectus (including any financial data or any analysis of tax consequences contained herein) have been approved or endorsed by Wendy's International. Wendy's International has assumed no obligations in connection with this offering or with respect to the accuracy, adequacy or completeness of this prospectus. Our relationship with Wendy's International is governed by the following material agreements: an amended and restated consent, which, among other things, contains the required Wendy's International consent to this offering and sets forth the related terms and conditions of that consent; a development letter, which, among other things, grants us our exclusive franchise territory and sets forth a schedule of required new restaurant openings; and separate unit franchise agreements, as amended, which govern the operation of each of our restaurants. In order to maintain our exclusive franchise territory, our development letter with Wendy's International requires us, net of any closures, to open or commence construction of a minimum of four restaurants in each of 2004 and 2005, a minimum of eight restaurants in each year from 2006 through 2012, and a minimum of seven restaurants in each of 2013 through 2015. The development letter requires us to operate a total of 240 restaurants in our franchise territory by December 31, 2015. We have opened two new restaurants in 2004, and currently have two new restaurant locations under development, seven new restaurant locations subject to signed leases and five new restaurant locations subject to letters of intent. For further information on our agreements with Wendy's see "Business Relationship with Wendy's International." Wendy's International has an option to purchase all of our equity interests in DavCo Operations and all of our assets and all of the assets of DavCo Operations, at fair market value, in the event that, among other things, any direct or indirect interest in our company or DavCo Operations is transferred in violation of our franchise agreements with Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Purchase option." Use of Proceeds We will sell 7,999,168 EISs and an additional $7.5 million aggregate principal amount of senior subordinated notes (not in the form of EISs) in this offering. Assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, we estimate that we will receive aggregate net proceeds of approximately $114.5 million from this offering of EISs and additional senior subordinated notes, after deducting underwriting discounts and commissions and other estimated transaction fees and expenses. Assuming the transactions described in this prospectus had occured on June 27, 2004, we would have used the aggregate net proceeds of this offering of approximately $114.5 million and cash on hand AMENDMENT NO. 4 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and assumed borrowings under credit facilities (of approximately $11.4 million in the aggregate) as follows: approximately $103.3 million to repay certain outstanding indebtedness under term loans, net of prepayment discount and restricted cash balances; $3.0 million to fund a portion of the capital expenditures for renovations and upgrades to our restaurants required by Wendy's International; approximately $13.0 million to repurchase 1,701,863 shares of our Class B common stock from Citicorp Venture Capital (as defined below under "Our Existing Equity Investors") at a purchase price of $7.65 per share; and approximately $4.7 million to pay a make-whole premium in connection with the prepayment of indebtedness under Term Loan 1 and approximately $1.8 million to pay bonuses to certain of our senior officers in connection with the termination of our annual cash bonus plan which will be replaced by the long term incentive plan and dividend reinvestment plan. If the underwriters exercise their over-allotment option with respect to the EISs in full, we will use all of the net proceeds we receive from the sale of additional EISs under the over-allotment option to repurchase 2,352,696 additional shares of our Class B common stock held by Citicorp Venture Capital. In such event, Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock. No existing equity investor, other than Citicorp Venture Capital, will receive any of the proceeds of this offering. See "Use of Proceeds." Our New Credit Facility Concurrently with the closing of this offering, DavCo Operations will enter into a new senior secured credit facility with SunTrust Bank ("SunTrust"). We refer to this credit facility as the "new credit facility." The new credit facility will provide our company with a three-year $20.0 million revolving credit line with a floating interest rate of LIBOR plus 1.5%. The purpose of the new credit facility will be to provide for letters of credit, new ground lease construction financing, new equipment financing and other restaurant capital expenditures, and working capital needs. The new credit facility will be guaranteed by us and by each subsidiary of DavCo Operations and will be secured by a first priority security interest in certain of our assets. The new credit facility will contain a number of financial and other covenants, including restrictions on our ability to pay interest on our senior subordinated notes and to pay dividends on our common stock. The closing of this offering is conditioned upon the closing of the new credit facility. At the closing of this offering, we expect that approximately $6.0 million of letters of credit will be outstanding under the new credit facility and that there will not be any borrowings outstanding thereunder. See "Description of Certain Indebtedness New Credit Facility." Our Existing Equity Investors Certain officers of our company, namely Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III, Richard H. Borchers, Charles C. MacGuire, III, Elizabeth Brown, Thomas A. Hughes, Sandra L. Hughes and Stacey E.Y. Jackson, and Citicorp Venture Capital and certain of its affiliates and employees, namely Byron L. Knief, Charles Schweitzer, 63 BR Partnership, David F. Thomas, Charles Corpening and James A. Urry (collectively, "Citigroup Venture Capital"), are the beneficial owners of all our shares of outstanding common stock prior to this offering. In this prospectus, we refer to all of these owners as the "existing equity investors." Pursuant to a recapitalization to be effected concurrent with this offering, all outstanding shares of our existing common stock held by the existing equity investors will be recapitalized into shares of our Class B common stock. The recapitalization is a condition to our sale of EISs and the senior subordinated notes hereunder and completion of the sale of the EISs and the senior subordinated Davco Acquisition Holding Inc. (Exact name of registrant as specified in its charter) Delaware (Jurisdiction of incorporation or organization) 5812 (Primary Standard Industrial Classification Code Number) 52-2069955 (I.R.S. Employer Identification Number) 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Address, including zip code, and telephone number, including area code, of Co-Registrants' principal executive offices) notes is a condition to the recapitalization. The shares of our Class B common stock will have identical rights and privileges in all respects to the shares of our Class A common stock, other than dividend rights and certain exchange rights provided in the stockholders agreement. Our amended and restated certificate of incorporation will provide that the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. For a full description of the dividend rights applicable to our Class A common stock and Class B common stock and the exchange right provided in the stockholders agreement in respect of our Class B common stock, see "Dividend Policy and Restrictions", "Description of Capital Stock" and "Related Party Transactions Amendment and Restatement of Stockholders Agreement." Upon the completion of the recapitalization to be effected concurrent with this offering, but prior to the closing, Citicorp Venture Capital will own 4,862,466 shares of our outstanding Class B common stock, representing approximately 78.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of our outstanding Class B common stock, representing 21.7% of our outstanding capital stock. Upon the closing of this offering and after a portion of the proceeds of this offering have been used to repurchase 1,701,863 shares of our Class B common stock owned by Citicorp Venture Capital, Citicorp Venture Capital will own 3,160,603 shares of our outstanding Class B common stock, representing approximately 25.3% of our outstanding capital stock and our management investors will own 1,348,827 shares of Class B common stock, representing 10.8% of our outstanding capital stock. If the underwriters' over-allotment option with respect to the EISs is exercised in full, we will purchase 4,054,559 shares of our Class B common stock from Citicorp Venture Capital and Citicorp Venture Capital will own 807,907 shares of our outstanding Class B common stock, representing approximately 7.1% of our outstanding capital stock and our management investors will own 1,348,827 shares of our Class B common stock, representing 11.9% of our outstanding capital stock. See "Use of Proceeds." Exchange Rights of Holders of Class B Common Stock Beginning on the 366th day after the consummation of this offering, the holders of shares of our Class B common stock will have certain rights to exchange or cause the exchange of their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of our Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). In connection with this exchange, no fractional EISs will be issued. Instead, any fractional interest that would otherwise be issuable will be paid for in cash at the then fair market value of our EISs. Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors, consisting of Ronald D. Kirstien, Harvey Rothstein, David J. Norman, Joseph F. Cunnane, III and Richard H. Borchers, from exercising this exchange right with respect to all of their shares of our Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if, following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). In addition, any exchange of shares of our Class B common stock for EISs is subject to compliance with, among others, the following conditions: any issuance of EISs upon exchange must occur pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"); and at the time of the exchange, no default may exist under the terms of our new credit facility, the indenture governing our senior subordinated notes (including the non-payment of interest on such notes, when due) or our franchise agreements with Wendy's. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." Our Corporate Information Our principal executive office is located at 1657 Crofton Boulevard, Crofton, Maryland 21114, and our telephone number is (410) 721-3770. See Table of Additional Registrants on Next Page The Offering Summary of our EISs and Senior Subordinated Notes We are offering 7,999,168 EISs at an assumed initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $7.5 million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of EISs). What are EISs? EISs, or Enhanced Income Securities, are units comprised of our Class A common stock and senior subordinated notes. Each EIS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. What payments can I expect to receive as a holder of EISs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of 13.25% of the aggregate principal amount of senior subordinated notes, whether held separately or as a component of an EIS. We intend to make interest payments and, if declared, dividend payments on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively. The terms of our new credit facility will prevent us from paying principal and interest on our senior subordinated notes during the existence of a payment default thereunder, and for 179 days following a default thereunder, other than a payment default. You may also receive quarterly dividend payments on the shares of our Class A common stock represented by your EISs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Each of these agreements will contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock of which the material restrictions are as follows. We may not pay dividends on our Class A and Class B common stock: under the terms of our new credit facility, if an event of default exits thereunder or if certain financial ratios and tests set forth therein are not met. See "Description of Certain Indebtedness New Credit Facility"; under the indenture governing our senior subordinated notes, if an event of default exists thereunder or if our fixed charge coverage ratio for the most recent four fiscal quarter period is less than 1.6 to 1.0. See "Description of Senior Subordinated Notes Certain Covenants Restricted Payments"; and under our franchise agreements with Wendy's, if at the time of payment of the dividends we are not current in our royalty fee, advertising contribution and other payment obligations to Wendy's, or our capital expenditure obligations, or if such dividend payment would prevent us from making our required payments to Wendy's. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International Dividend Restrictions." David J. Norman, Esq. General Counsel 1657 Crofton Boulevard Crofton, Maryland 21114 (410) 721-3770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A common stock and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the level set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Copies to: Bradley P. Cost, Esq. Torys LLP 237 Park Avenue New York, NY 10017 (212) 880-6000 Jeffrey J. Rosen, Esq. Steven J. Slutzky, Esq. Debevoise & Plimpton LLP 919 Third Avenue New York, NY 10022 (212) 909-6000 Will my rights as a holder of EISs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of EISs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your EISs. As such, through your broker or other financial institution and the Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of EISs? Yes. As a holder of EISs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing equity investors, through their ownership of shares of Class B common stock, will own approximately 36.1% of the voting power of our common stock immediately following the offering of the EISs (or approximately 19.0% if the over-allotment option with respect to the EISs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. What will happen to the EIS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an EIS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each EIS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EIS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Can I separate my EISs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form EISs? Yes. Holders of EISs, whether purchased in this offering or in subsequent offerings of EISs of the same series, may, at any time after the earlier of 45 days from the date of original issuance of the EISs or the occurrence of a change of control, through their broker or other financial institution, separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of Class A common stock and senior subordinated notes, whether represented by EISs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, the custodian or other financial institution, recombine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Any such separation or recombination will be effective as of the close of business on the trading day that DTC receives such instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day. Any instructions received after 3:00 p.m., New York time, will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of EISs may involve transaction fees charged by your broker, the custodian and/or your financial intermediary. See "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance Separation and recombination." Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Will the EISs be listed on an exchange? Yes. We will apply to list the EIS on the American Stock Exchange under the trading symbol "DVC." Will the shares of our common stock and senior subordinated notes be separately listed on an exchange? The senior subordinated notes represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will not be listed on any exchange. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list the shares of our Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when the shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class A common stock and our senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Shares of our Class B common stock will not be listed on any exchange. Will the additional senior subordinated notes sold separately (not in the form of EISs) be the same as the senior subordinated notes issued as a component of the EISs? Yes. The additional senior subordinated notes to be sold separately (not in the form of EISs) will be the same as the senior subordinated notes represented by EISs and will be part of the same series of senior subordinated notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of EISs) and holders of senior subordinated notes represented by EISs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing our senior subordinated notes. If you purchase separate senior subordinated notes in this offering, you will be required to deliver to us a letter containing certain representations, including that you are not a holder of our equity, that you are not purchasing EISs in this offering and that you have no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. We believe that these representation letters will help us to demonstrate that a market exists for the separate senior subordinated notes independent of the market for EISs. See "Underwriting." In what form will EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately be issued? The EISs, the securities represented by the EISs and the additional senior subordinated notes sold separately (not in the form of EISs) will be initially issued in book-entry form only. This means that you will not be a registered holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs), and you will not receive a certificate for your EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of EISs, the securities represented by the EISs or the additional senior subordinated notes sold separately (not in the form of EISs). Following the separation, if any, of your EISs into the component parts of the Class A common stock and senior subordinated notes, these securities will be held in book-entry form or, if requested by you, the Class A common stock may be held in registered form. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. A registered holder of shares of our Class A common stock, including a holder of EISs that requests that the EISs be separated, has the right to obtain a certificate representing such shares. If a holder of EISs requests certificated shares of Class A common stock, such holder's EISs must be split into the component parts of the Class A common stock and senior subordinated notes, and for so long as the shares of Class A common stock are held in separately certificated form, the shares of Class A common stock may no longer be eligible for inclusion in DTC's book-entry settlement and clearance system described under the heading "Description of Enhanced Income Securities (EISs) Book-Entry Settlement and Clearance." However, if a holder of separately certificated shares of Class A common stock is subsequently willing to forgo being a registered holder of shares and deposits the shares in an eligible institution, those shares of Class A common stock may again become DTC eligible. EISs and, subject to certain exceptions described under "Description of Senior Subordinated Notes Exchange of Global Notes for Certificated Notes," the senior subordinated notes may only be held in book-entry form. Will my EISs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the EISs will occur automatically upon redemption of all or a portion of the senior subordinated notes, upon maturity of the senior subordinated notes or upon certain bankruptcy events. See "Description of Enhanced Income Securities (EISs) Automatic Separation." What will happen if we issue additional EISs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional EISs or senior subordinated notes of the same series. We will only issue EISs or senior subordinated notes of the same series in the future pursuant to a registration statement that has been declared effective by the SEC. Additional EISs will have terms that are identical to those of the EISs being sold in this offering, except that if they are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the EISs issued hereunder may separate. Additional EISs will also represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding EISs. In addition, we will be required to issue additional EISs in the future upon the exercise of exchange rights by our existing equity investors. Although the senior subordinated notes that may be issued in the future (whether or not represented by EISs) will have terms that are substantially identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with original issue discount (referred to as OID) for U.S. federal income tax purposes. If such senior subordinated notes are issued with OID, or any senior subordinated notes are issued thereafter, all holders of EISs of the same series (including the EISs being offered hereby), and all holders of outstanding senior subordinated notes not held in EISs, will automatically exchange a ratable portion of their outstanding senior subordinated notes, whether held separately or in the form of EISs, for a portion of the new senior subordinated notes, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new EIS (consisting of such senior subordinated note unit and common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See "What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy prior to the maturity of the senior subordinated notes. We will immediately file with the Securities and Exchange Commission (the "SEC" or "Commission") a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of EIS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in the EISs? The U.S. federal income tax consequences of the purchase, ownership, and disposition of the EISs being offered hereby are not entirely clear. We intend to treat the purchase of EISs in this offering as the purchase of shares of our common stock and senior subordinated notes and, by purchasing EISs, you will agree to such treatment. You must allocate the purchase price of the EISs between those shares of common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis. We expect to report the initial fair market value of each share of common stock as $7.65 and the initial fair market value of each $7.35 aggregate principal amount of our senior subordinated notes as $7.35, assuming an initial public offering price of $15.00 per EIS, which represents the midpoint of the range set forth on the cover page of this prospectus. By purchasing EISs, under the terms of the indenture governing our senior subordinated notes, you will be deemed to have agreed to and be bound by such allocation. If this allocation is not respected by the Internal Revenue Service ("IRS"), it is possible that the senior subordinated notes will be treated as having been issued with OID (if the allocation to the senior subordinated notes were determined to be too high) or amortizable bond premium (if the allocation to the senior subordinated notes were determined to be too low). For additional information on the U.S. federal income tax consequences if this allocation is not respected, see "Risk Factors The allocation of the purchase price of the EISs may not be respected which may adversely affect your tax position" and "Material U.S. Federal Income Tax Consequences." We believe that the senior subordinated notes should be treated as debt for U.S. federal income tax purposes. We are receiving an opinion from our counsel, Torys LLP, that the senior subordinated notes should be treated as debt for such purposes; however, as there is an absence of direct authority, this position may not be sustained if challenged by the IRS. If the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend (and would likely not qualify for the special dividend rate described below), and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow available to make dividend and interest payments on our common stock and senior subordinated notes. In addition, if any payments were treated as dividends, such payments to holders of our EISs or senior subordinated notes (not in the form of EISs) who are not U.S. persons would generally be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008, under current legislation and to the extent those dividends are paid out of our earnings and profits, will be taxable to you (if you are an individual) at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to you at ordinary income rates. What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? The U.S. federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) pursuant to an offering by us of EISs or senior subordinated notes of the same series or upon an exercise of conversion or exchange rights by the holders of our Class B common stock are not clear. The indenture governing the senior subordinated notes and the agreements with DTC will provide that in the event there is a subsequent Balance at June 27, 2004 (unaudited) $ issuance by us of senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (or any issuance of senior subordinated notes thereafter), each holder of senior subordinated notes or EISs (as the case may be) agrees that a portion of such holder's senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes and the records of any record holders of the senior subordinated notes will be revised to reflect such exchanges. Consequently, immediately following each such subsequent issuance and exchange, without any further action by such holder, each holder of senior subordinated notes or EISs (as the case may be) will own an inseparable unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder (and, for any such holder of EISs, such inseparable unit composed of senior subordinated notes will be included in such holder's EISs). However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Due to the lack of applicable authority, it is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes and our counsel is not able to opine on this issue; consequently, it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. Regardless of whether the exchange is treated as a taxable event, such exchange may result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of EISs or directly, the recombination of senior subordinated notes and shares of common stock to form EISs, or the separation of EISs, should not affect your tax treatment. See "Material U.S. Federal Income Tax Consequences." Following any subsequent issuance and exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of EISs and senior subordinated notes, and each holder of EISs or senior subordinated notes will, by purchasing EISs, agree to report OID in a manner consistent with this approach. Under the terms of the indenture governing our senior subordinated notes, by purchasing the senior subordinated notes, you will be deemed to have agreed to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the EISs and senior subordinated notes and could adversely affect the market for EISs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EISs or instruments similar to the EISs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the EISs. For additional information, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences." TABLE OF ADDITIONAL REGISTRANTS Name Summary of the Common Stock Issuer DavCo Restaurants Inc. Shares of Class A common stock to be outstanding following the offering 7,999,168 shares (or 9,199,043 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class B common stock to be outstanding following the offering 4,509,430 shares (or 2,156,734 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Shares of Class C common stock to be outstanding following the offering No shares of Class C common stock will be outstanding upon the closing of this offering. Total shares of common stock to be outstanding following the offering 12,508,598 shares (or 11,355,777 shares if the underwriters' over-allotment option with respect to the EISs is exercised in full). Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote. So long as the existing equity investors hold at least 8% or more of the total economic value of the total outstanding equity interests in our company and 8% or more of the total outstanding voting interests in our company, they will be entitled to nominate two individuals for election to our board of directors. Listing Shares of our Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as this term is defined in Rule 144 under the Securities Act. Shares of our Class A common stock will not initially be listed for separate trading on the American Stock Exchange or any other exchange. We will apply to list shares of Class A common stock for separate trading on the American Stock Exchange (or another exchange or quotation system on which the EISs are then listed, or were previously listed) when shares held separately and not in the form of EISs satisfy applicable listing requirements for a period of 30 consecutive trading days as described under "Description of Enhanced Income Securities (EISs)." Shares of our Class B common stock will not be listed for separate trading. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy with respect to our Class A common stock and Class B common stock pursuant to which cash generated by our company in excess of operating needs, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets would in general be distributed as regular quarterly dividends to the holders of our Class A common stock and Class B common stock rather than retained by us as cash on our consolidated balance sheet. We currently intend to pay an initial dividend on January 30, 2005 with respect to the period commencing on the completion of this offering and ending September 30, 2004 based on a quarterly dividend level of $0.155 per share of Class A and Class B common stock, and to continue to pay quarterly dividends at these rates for the twelve months following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Jurisdiction of Incorporation or Organization Our amended and restated certificate of incorporation will provide that at all times the payment of dividends on our Class B common stock will be subordinated to the payment of dividends on our Class A common stock. Payment of dividends is subject at all times to the sole discretion of our board of directors. However, under our amended and restated certificate of incorporation, if in any quarter the amount of any cash to be distributed is insufficient to pay dividends at the levels described herein on our Class A common stock and Class B common stock, any shortfall will first reduce the dividends on the Class B common stock to zero prior to reducing the dividends on the Class A common stock. In addition, our amended and restated certificate of incorporation will provide that following the payment of dividends at the levels set forth above on our Class A common stock in any quarter, no further dividends may be paid on our Class A common stock in that quarter until we have paid dividends for that quarter at the level described above on our Class B common stock. Our amended and restated certificate of incorporation will further provide that for the first and second year following the closing of this offering, to the extent that dividends on our Class A common stock are declared and paid in full at the level set forth above in any quarter and dividends on our Class B common stock are not declared and paid at least at the level set forth above in such quarter, if dividends on our Class A common stock are declared and paid in full at the level set forth above in the next subsequent quarter, then holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments equal to the amount of any shortfall from that level in such next subsequent quarter only before any dividends in excess of the level set forth above may be paid on our Class A common stock in such subsequent quarter. To the extent that dividends on our Class A common stock are not declared and paid at the level set forth above in any quarter, holders of our Class A common stock will not be entitled to dividend payments in the amount of any shortfall in any subsequent quarter. Primary Standard Industrial Classification Number Further, our amended and restated certificate of incorporation will provide that for the third and fourth year following the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.25 times the amount of any dividends paid per share of Class A common stock. Subsequent to the fourth anniversary of the closing of this offering, if dividends are to be paid in the sole discretion of our board of directors, holders of our Class B common stock will receive (subject to the subordination provisions described above) dividend payments per share equal to 1.10 times the amount of any dividends paid per share of Class A common stock. See "Dividend Policy and Restrictions" and "Risk Factors You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all." Dividend payment dates We intend to pay dividends quarterly on January 30, April 30, July 30 and October 30 of each year to holders of record on the immediately preceding December 31, March 31, June 30 and September 30, respectively, commencing January 30, 2005. Rights to exchange shares of Class B common stock for EISs Beginning on the 366th day after the consummation of this offering, holders of shares of our Class B common stock will have certain rights to exchange their shares of our Class B common stock for EISs pursuant to the stockholders agreement. Each share of Class B common stock will be exchangeable for 0.51 of an EIS (representing approximately $3.75 principal amount of our % senior subordinated notes due 2016 and 0.51 of a share of our Class A common stock). Until the second anniversary of the consummation of this offering, our franchise agreements with Wendy's will prohibit the management investors from exercising this exchange right with respect to all of their shares of Class B common stock, and our stockholders agreement will restrict the holders of shares of our Class B common stock from exercising this exchange right if following the exchange, the holders of shares of our Class B common stock would hold less than 1,250,860 shares of our Class B common stock, representing 10% of our common stock equity at the closing of this offering (or less than 1,135,578 shares assuming full exercise of the underwriters' over-allotment option). If any holder of Class B common stock has not exercised its exchange right in full, then following the maturity date of the senior subordinated notes, and at any other time that there are no senior subordinated notes and EISs outstanding, any remaining shares of Class B common stock will be exchangeable (at the option of the holder) into shares of Class A common stock on a one-for-one basis. Any exchange is subject to compliance with the terms of our new credit facility, the indenture governing our senior subordinated notes and our franchise agreements with Wendy's. In addition, any issuance of EISs upon exchange of shares of our Class B common stock must occur pursuant to an effective registration statement under the Securities Act. For a complete description of this exchange right and the terms of our Class A and Class B common stock, see "Related Party Transactions Amendment and Restatement of Stockholders Agreement" and "Description of Capital Stock." I.R.S. Employer Identification Number 20% ownership limitations Pursuant to our amended and restated certificate of incorporation, no person or group acting together (other than the management investors) may be the beneficial owner of more than 20% of the total economic value of the total outstanding equity interests in our company or more than 20% of the total outstanding voting interests in our company. In the event that either of the foregoing limitations is or may be contravened, we may take such actions with respect to such ownership level over the 20% ownership level as we deem advisable, including refusing to give effect thereto on the stock transfer books, instituting proceedings, redeeming such interest or requiring the sale of such interest in order to reduce the ownership level to below or a 20% ownership level. See "Business Relationship with Wendy's International Ownership and Other Requirements of Wendy's International 20% ownership limitations" and "Description of Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws 20% ownership limitations." (Unaudited) Tax (benefit) expense at U.S. statutory rate $ (6,172 ) $ 609 $ 1,034 $ 348 $ (1,080 ) State income taxes, net of federal tax benefit (861 ) 125 152 51 (202 ) Permanent differences 624 178 21 16 13 Change in valuation allowance for deferred tax assets 6,409 (4,179 ) (916 ) (108 ) 1,383 Other DavCo Restaurants, Inc. Delaware 5812 52-1633813 FriendCo Restaurants, Inc. Maryland 5812 52-2037752 Heron Realty Corporation Maryland 6500 52-2020474 MDF, Inc. Delaware 5812 52-1712539 The address, including zip code, telephone number and area code, of the principal executive offices of each of the additional registrants listed above is: 1657 Crofton Boulevard, Crofton, Maryland 21114; the telephone number at that address is (410) 721-3770. Summary of the Senior Subordinated Notes Issuer DavCo Restaurants Inc. Senior subordinated notes to be outstanding following the offering $58.8 million aggregate principal amount (or $67.6 million aggregate principal amount if the underwriters' over-allotment option with respect to the EISs is exercised in full); and $7.5 million aggregate principal amount sold separately (not in the form of EISs.) Interest rate % per annum. Interest payment dates Interest on the senior subordinated notes will be payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year commencing January 30, 2005. Maturity date The senior subordinated notes will mature on , 2016 unless earlier redeemed at our option as described under "Description of Senior Subordinated Notes Optional Redemption." Optional redemption We may not redeem the notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days' notice to the owners of senior subordinated notes, at redemption prices described under "Description of Senior Subordinated Notes Optional Redemption." If we redeem any senior subordinated notes (under any circumstances), the senior subordinated notes and Class A common stock represented by each EIS will be automatically separated. Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Repurchase at the Option of Holders Change of Control," unless we have exercised our right to redeem all senior subordinated notes as described above, each holder of the senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued and unpaid interest to the date of repurchase. In order to exercise this right, a holder must separate the senior subordinated notes and Class A common stock represented by such holder's EISs. Ranking The senior subordinated notes will be unsecured obligations and will be subordinated in right of payment to all of our existing and future senior secured and senior unsecured indebtedness, including the indebtedness under the new credit facility. The senior subordinated notes will rank equally in right of payment with all of our senior subordinated indebtedness. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, we would have had approximately $28.0 million of senior indebtedness outstanding. The information in this Prospectus is not complete and may be changed. We cannot sell these securities until the Securities and Exchange Commission declares our Registration Statement effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS Subject to completion, dated September 22, 2004 DavCo Restaurants Inc. 7,999,168 Enhanced Income Securities (EISs) representing 7,999,168 Shares of Class A Common Stock $58.8 million % Senior Subordinated Notes due 2016 and $7.5 million % Senior Subordinated Notes due 2016 Note guarantees The senior subordinated notes will be fully and unconditionally guaranteed by all of our existing domestic subsidiaries and certain future domestic subsidiaries on an unsecured and subordinated basis on the terms set forth in the indenture. The senior subordinated note guarantees will be subordinated in right of payment to all existing and future senior indebtedness of the guarantors, including the indebtedness under the terms of our new credit facility. Any future foreign or partially owned domestic subsidiaries will not be guarantors of our senior subordinated notes. At June 27, 2004, after giving pro forma effect to this offering and the transactions contemplated hereby, including the use of proceeds, the guarantors would have had, in the aggregate, approximately $28.0 million of senior indebtedness outstanding. Acceleration forbearance Except in the event of bankruptcy or insolvency, the maturity of the principal amount of the senior subordinated notes may not be accelerated and the principal amount will not become due and payable, prior to the scheduled maturity date, for a period beginning on the date notice is provided to Wendy's International by the trustee with respect to the occurrence of certain events of default and ending 45 days after such date, as described in "Description of Senior Subordinated Notes Acceleration Forbearance Periods." Restrictive covenants The indenture governing our senior subordinated notes will contain covenants with respect to us and will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends or distributions on, and purchase or redemption of, capital stock; a number of other restricted payments, including the making of certain investments; specified creation of liens, sale-leaseback transactions and sales of assets; fundamental changes, including consolidation, mergers and transfers of all or substantially all of our assets; and specified transactions with affiliates. The limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Expenditures for additions to long-lived assets: Wendy's $ 4,686 $ 2,352 $ 5,936 $ 5,168 $ 2,325 Friendly's 40 We are selling 7,999,168 Enhanced Income Securities, or EISs, representing 7,999,168 shares of our Class A common stock and $58.8 million aggregate principal amount of our % senior subordinated notes due 2016. Each EIS represents: one share of our Class A common stock; and a % senior subordinated note with $7.35 principal amount. We are also selling separately (not in the form of EISs) an additional $7.5 million aggregate principal amount of our % senior subordinated notes due 2016. The completion of the offering of separate senior subordinated notes is a condition to our sale of EISs. The senior subordinated notes (whether or not in the form of EISs) will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by all of our domestic subsidiaries which, on the date hereof, consist of DavCo Operations Inc., FriendCo Restaurants, Inc., Heron Realty Corporation and MDF, Inc. Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. This is the initial public offering of our EISs and senior subordinated notes. We anticipate that the public offering price will be between $14.50 and $15.50 per EIS. We will apply to list the EISs on the American Stock Exchange under the trading symbol "DVC." Neither our Class A common stock nor our senior subordinated notes will be listed for trading on any exchange. Holders of EISs will have the right to separate the EISs into the shares of our Class A common stock and senior subordinated notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, unless the EISs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of senior subordinated notes to form EISs. Separation of all of the EISs will occur automatically upon the occurrence of any redemption of the senior subordinated notes or upon maturity of the senior subordinated notes. Upon a subsequent issuance by us of EISs or senior subordinated notes of the same series (not in the form of EISs), a portion of your senior subordinated notes will be automatically exchanged for an identical principal amount of the senior subordinated notes issued in such subsequent issuance and, in that event, your EISs or senior subordinated notes will be replaced with new EISs or senior subordinated notes, as the case may be. In addition to the EISs and senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new EISs to be issued to you upon any such subsequent issuance. For more information regarding these automatic exchanges and the adverse effect they may have on your investment, see "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize original issue discount and have other adverse consequences," "Risk Factors Subsequent issuances of senior subordinated notes may adversely affect your treatment in a bankruptcy," "Description of Senior Subordinated Notes Covenants Relating to EISs Procedures Relating to Subsequent Issuances" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Procedures relating to subsequent issuances The indenture governing our senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having substantially identical terms as the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional EISs or senior subordinated notes sold separately, or any senior subordinated notes are issued thereafter, each EIS or separately held senior subordinated note will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EISs or separately held senior subordinated notes, as the case may be, will own an indivisible unit composed of senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate stated principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing our senior subordinated notes will permit issuances of additional senior subordinated notes upon exchange of shares of Class B common stock by the holders of our Class B common stock into EISs and for other permitted purposes, subject to compliance with certain debt covenants. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us or any of our agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder in this offering. However, any subsequent issuance of senior subordinated notes by us may adversely affect the tax and non-tax treatment of the EISs and senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and have other adverse consequences" and "Material U.S. Federal Income Tax Consequences Senior Subordinated Notes Exchange Rights and Additional Issuances." Listing The senior subordinated notes will not be separately listed on any exchange. Representation letter Each investor purchasing separate senior subordinated notes in this offering must represent to us that it is not a holder of our equity, is not purchasing EISs in this offering and has no plan to acquire EISs or our equity or transfer the separate senior subordinated notes to any holder of EISs or our equity. See "Underwriting." Investing in EISs, shares of our Class A common stock and/or senior subordinated notes involves risks. See "Risk Factors" section beginning on page 27 of this prospectus. Per EIS
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+per share (1) Table of Contents shares may be offered to individuals other than shareholders at the discretion of the Board. If we do sell additional shares of common or preferred stock to raise capital, the sale may dilute your ownership interest and such dilution could be substantial. In addition, our directors and employees hold 65,300 outstanding options which have an average exercise price of $4.19 per share, and our directors and employees also may receive additional options in the future under our 2004 stock plan. See Management Stock Option Plan. Certain provisions of Florida law may discourage or prevent a takeover of our company and result in a lower market price for our common stock Florida law, as well as certain federal regulations, contain anti-takeover provisions that apply to us. While these provisions may provide us with flexibility in managing our business, they could discourage potential buyers from seeking to acquire us, even though certain shareholders may wish to participate in such a transaction. These provisions could also adversely affect the market price of our common stock. CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS Some discussions in this prospectus may contain forward-looking statements. We caution you to be aware of the speculative nature of forward-looking statements. Statements that are not historical in nature, including the words anticipate, estimate, should, expect, believe, intend, assume and similar expressions, are intended to identify forward-looking statements. Although these statements reflect our good faith belief based on current expectations, estimates and projections about (among other things) the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to a number of known and unknown risks and uncertainties, including the risks and uncertainties discussed in this prospectus; general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position; changes in the quality or composition of loan and investment portfolios; our ability to manage growth; the opportunities that may be presented to and pursued by us; competitive actions by other companies; changes in laws or regulations; changes in the policies of federal or state regulators and agencies; and other circumstances, many of which are beyond our control. Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise. USE OF PROCEEDS We estimate that the net proceeds from the sale of 2,127,500 shares of our common stock in this offering will be approximately $21,464,000 (assuming an offering price of $11.00 per share) or approximately $24,729,000 if the underwriters over-allotment option is exercised in full. In each case, this assumes deduction of estimated offering expenses of $300,000 and underwriting discounts and commissions. We intend to use up to $4.0 million of these proceeds to repay the amounts outstanding on our line of credit and contribute substantially all of the remaining net proceeds to First State Bank to provide it with capital to support our loan and deposit growth. We also may use a portion of the net to pursue acquisition opportunities that may become available, although at the current time we do not have any agreements or understandings. Any remaining proceeds will be used for general corporate purposes. Under the line of credit to be repaid from the proceeds of this offering, we may borrow up to $4.0 million at an annual interest rate equal to the prime rate minus one percent. This credit facility matures on April 30, 2005. As of the date of this prospectus, we have received advances of approximately $4.0 million under this line of credit. These funds were used to provide capital to the Bank in support of its continued deposit and loan growth. Current $ 724 $ 296 $ 213 Deferred (217 ) (57 ) price (1) Book value per share (5) $ 4.25 $ 6.50 Capital ratios (6): Tier 1 leverage ratio 6.28 % 15.53 % Tier 1 capital to risk-weighted assets 6.79 % 16.47 % Total capital to risk-weighted assets 8.02 % 17.70 % (1) This table excludes 65,300 shares of common stock issuable upon exercise of outstanding options, at an average exercise price of $4.19 per share. Also excludes any options that may be issued under our 2004 Stock Plan, none of which were outstanding at September 30, 2004. (2) If the underwriters over-allotment option is exercised in full, common stock, additional paid-in capital and total shareholders equity would be $5,846,000, $29,504,000 and $39,189,000, respectively. (3) Reflects an amendment to the articles of incorporation approved in October 2004, authorizing 5,000,000 shares of preferred stock and increasing the authorized shares of common stock from 10,000,000 to 25,000,000 shares (4) Before issuance of up to 319,125 shares of common stock pursuant to the underwriters over-allotment option. (5) Actual book value per share equals total shareholders equity of $14,460,000, divided by 3,399,040 shares issued and outstanding at September 30, 2004. Book value per share as adjusted equals total shareholders equity of $35,924,000 (assuming net proceeds of this offering of $21,464,000), divided by 5,526,540 shares (assuming issuance and sale of 2,127,500 shares). (6) These ratios as adjusted assume that the net proceeds will be invested initially in federal funds until utilized by the Company over time. fee (3) Table of Contents MANAGEMENT TEAM The composition of our management team includes individuals who have significant banking experience in our primary markets. Our President and Chief Executive Officer is Corey J. Coughlin, who has more than 33 years of banking experience, a significant portion of which has been in the Florida market, including serving as: Founder and principal of CJC Financial Services in St. Petersburg, Florida, a banking and general management consulting firm. President and Chief Operating Officer at CNB Florida Bancshares, Inc., a publicly traded bank holding company in Jacksonville, Florida from 1999 to 2002. He increased profitability at the company and managed its initial public offering in 1999. President and Chief Executive Officer of First Bankshares, Inc. and its subsidiary bank, First National Bank of Central Florida in Orlando, Florida from 1997 to 1998. He developed and implemented a strategic plan that returned the bank to profitability. Chairman, President and Chief Executive Officer at SouthTrust Northeast Florida from 1994 to 1997. Executive Vice President and Chief Operating Officer of SouthTrust Bank of West Florida in St. Petersburg, Florida from 1990 to 1994. Prior to assuming this position in August 1990, he had been the Senior Lending Officer since 1987. He managed all operating functions of a bank which grew to $4 billion in assets in West Central Florida. Our Executive Vice President and Senior Lending Officer is Michael K. Worthington, who has more than 25 years of banking experience, nearly entirely in the lending area and with extensive experience in the West Central Florida market. During the approximately two-year departure from First State, he was the Senior Lending Officer at Peoples Community Bank of the West Coast. Our Executive Vice President and Senior Retail Officer is John Wilkinson, who has more than 29 years of banking experience. Prior to assuming his position with First State, he had spent about 16 years with SouthTrust in Tampa Bay rising to the position of Executive Vice President and Chief Operating Officer. Our Senior Vice President and Chief Financial Officer is Dennis Grinsteiner, who has more than 36 years of banking experience. Prior to assuming his current position with First State, he had been Executive Vice President, Chief Financial Officer and Cashier at Southern Exchange Bank in Tampa from 1997 to May 2003. INFORMATION ABOUT OUR MARKETS We currently consider our principal markets to be West Central Florida including Sarasota, Pinellas, Hillsborough, Pasco, Manatee and Charlotte Counties. The Counties in First State s principal markets include the five largest cities of Tampa, St. Petersburg, Clearwater, Sarasota and Bradenton, and the wealthy communities of Harbor Island, Longboat Key and Siesta Key. In these six counties in 2004, covering approximately 100 miles from New Port Richey in Pasco County to Punta Gorda in Charlotte County, reside 3.2 million people with effective buying income of more than $80 billion, and deposits of nearly $55 billion at June 30, 2004. While only about 25% of the population and market wealth reside in the five largest cities of West Central Florida, nearly 61% of the deposit accounts are located in these five cities. Of the $16 billion in deposit growth over the last five years, approximately 76% of the deposit growth occurred in the five largest cities. These are markets in which targeted branching, especially commercial banking relationships, can result in significant growth in assets and deposits. 2003 U.S. Government and federal agency $ 4,039 $ 36 $ Mortgage-backed 16,182 Common Shares, $1.00 par value 2,446,625 shares (2) $12.00 $ 29,359,500 $ 3,720 (1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933. (2) Includes an aggregate of 319,125 shares to cover overallotments, if any, pursuant to the overallotment option granted to the Underwriters. (3) Of this amount, $3,235 was paid upon the filing of the Registration Statement on October 18, 2004, and Amendment No. 1 thereto on November 23, 2004. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents First State Bank currently has three locations in Sarasota County and three locations in Pinellas County, Florida. The headquarters of First State Financial and First State Bank are located in downtown Sarasota. Sarasota County is one of the wealthiest counties in Florida. The County s 2004 average household income of $67,460 is 14% higher than the Florida average and is projected over the next five years to increase to $75,903. It is a sizable market with effective buying income in 2004 of nearly $11 billion and is expected to grow by $2.5 billion over the next five years. While only 15% of the county population reside in the city of Sarasota, business activity remains centered in the city. At June 30, 2004, the City of Sarasota had $7.28 billion in deposits or 74% of the $9.87 billion in county deposits and the city s deposit base grew by $2.77 billion over the last five years or 83% of the approximately $3.34 billion county deposit growth. Pinellas County is a much larger banking market with $17 billion in total deposits. Pinellas County is the 2nd smallest County in Florida, but is ranked 5th in population in the state of Florida, making it the most densely populated County in the State. The county includes the 2nd and 3rd largest cities in West Central Florida of St. Petersburg and Clearwater, respectively. These two cities, along with Tampa in Hillsborough County, make up the core markets of the Tampa Bay region. The Tampa Bay market is one of the largest markets nationwide. It ranks in the top 25 in terms of population, wealth and retail sales. The population in the Tampa Bay market has increased by over 20% since 1990 and is projected to grow by more than 10% over the next five years. Between the Tampa Bay market and Sarasota is Manatee County with the city of Bradenton. The Manatee County market is the fastest growing both in terms of population and average household income in West Central Florida. The County s population has grown by 10.2% since 2002 and is expected to grow 11.6% over the next five years. During the same period, Manatee County s average household income grew by 13.7% and is expected to grow by 14.7%. We believe the demographics of our markets strongly support our plan to grow assets and deposits with limited, full service locations. We have successfully operated in two of the most significant markets in West Central Florida, Sarasota and St. Petersburg, and anticipate continued growth in existing markets and select expansion to neighboring markets offers significant opportunities for continued growth. MARKET FOR OUR COMMON STOCK There is currently no public market for our common stock. Our management is aware of certain transactions in our common stock that have occurred, although the trading prices of all stock transactions are not known. As to the shares of common stock traded since January 1, 2002, management is aware of the trading prices for the following transactions: In 2002, there were 18,907 shares traded at $5.00 per share in 29 transactions; in 2003, there were 255,963 shares traded in 19 transactions at prices ranging from $4.00 to $5.50 per share; and during the first nine months of 2004, there were 24,788 shares traded in five transactions at prices ranging from $5.25 to $6.00 per share. Transactions in the common stock are infrequent and are negotiated privately between the persons involved in those transactions. In addition, on February 6, 2004, we completed a private offering of 300,000 shares of our common stock, at a price of $6.25 per share in cash for a total of $1,875,000, before deducting expenses of the offering of approximately $25,000. The shares were sold to accredited investors, consisting primarily of directors, officers and local residents. As of September 30, 2004, there were outstanding 3,399,040 shares of common stock which were held by approximately 367 shareholders of record. We have applied for listing of our common stock on the Nasdaq National Market under the proposed trading symbol FSTF. The qualification for quotation of the common shares on the Nasdaq National Market requires at least three securities firm to make a market in the common stock. Advest, Inc. has informed us that it presently intends to make a market in our common stock and to encourage other securities firms to do the same, but it has no obligation to do so. Making a market involves maintaining bid and ask quotations and being able, as principal, to effect transactions in reasonable quantities at those Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell the securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion, Dated December 8, 2004 PROSPECTUS 2,127,500 Shares First State Financial Corporation Common Stock (1) Assumes no exercise of the overallotment option, an offering price of $11.00 per share, and underwriting discounts and offering expenses of $1.94 million. We are offering 2,127,500 shares of our common stock, par value $1.00 per share. We are the parent company of First State Bank, a Florida-chartered commercial bank headquartered in Sarasota, Florida. We anticipate that the initial public offering price will be between $10.00 and $12.00 per share. Prior to the date of this offering, there has been no public market for our common stock. We have applied for the listing of the common stock on the Nasdaq National Market under the proposed trading symbol FSTF. Investing in our common stock involves risks. See Risk Factors beginning on page 7. Table of Contents MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes thereto, as well as the interim statements as of and for the nine months ended September 30, 2004 and 2003, included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those set forth under Risk Factors and elsewhere in this prospectus. General First State Financial Corporation was incorporated in Florida in August 13, 1997 to serve as a holding company for First State Bank, which it acquired in 1998. In 2001, First State Bank and First State Bank of Pinellas, which was acquired by First State Financial in 1998, were merged. First State Bank is a full service commercial bank that offers a complete range of interest-bearing and non-interest bearing accounts, including commercial and retail checking accounts, money market accounts, individual retirement accounts, regular interest-bearing statement savings accounts, and certificates of deposit. Lending products include commercial loans, real estate loans, home equity loans and consumer/installment loans. In addition, First State Bank provides travelers checks, cashiers checks, safe deposit boxes, bank by mail services, direct deposit, on-line banking, and automated teller services. Specialized services to commercial customers include cash management, expanded on-line banking, lock box and door-to-door banking. Overview Total assets at September 30, 2004 were $243.1 million compared to $212.3 million at December 31, 2003, an increase of $30.8 million, or 14.5%. The increase in total assets was primarily attributable to an increase in net loans receivable of $29.9 million, or 16.6%. The increase in loans was funded by the deposit growth experienced during the period, Federal Home Loan Bank advances, and proceeds from the issuance of common stock. The increase in net loans receivable consisted primarily of an increase in commercial real estate loans of $17.1 million, or 16.3%. Total deposits were $205.3 million at September 30, 2004 compared to $184.7 million at December 31, 2003, an increase of $20.6 million, or 11.1%. During this period, we experienced an increase in core deposit accounts of $9.0 million, or 14.3%, and time deposits of $11.6 million, or 9.5%. Consequently, the certificate of deposit portfolio as a percent of total deposits declined slightly to 65.2% at September 30, 2004 from 66.2% at December 31, 2003. Almost all certificates of deposit held by us mature in less than five years with approximately 42% maturing in the next year. For the nine months ended September 30, 2004, we recorded diluted earnings per share of 43 cents. This compares to diluted earnings per share of 14 cents in the prior year s comparable period, resulting in an increase in diluted earnings per share of 29 cents. Further, net interest margin increased by 22 basis points from 3.78% for the first nine months of 2003 to 4.00% for the current period. Management believes that if interest rates continue to increase, the net interest margin should be further positively impacted. Forward Looking Statements Management s Discussion and Analysis of Financial Condition and Results of Operation contains various forward-looking statements with respect to financial performance and business matters. Such statements are generally contained in sentences including the words expect or could or should or would or believe . We caution that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and therefore actual results could differ materially from those contemplated by the forward-looking statements. In addition, we assume no duty to update forward-looking statements. Per Share Total Table of Contents Critical Accounting Policies Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on our stated results of operations. In management s opinion, our critical accounting policies deal with the following area: the establishment of our allowance for loan losses, as explained in detail in the Loan Quality and Classification of Assets sections of this discussion and analysis. Our allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative, that management believes are appropriate at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, loan concentrations and other factors. Qualitative factors include the general economic conditions in Florida, size and complexity of individual credits in relation to loan structure, existing loan policies, and pace of portfolio growth. As we add new products and increase the complexity of our loan portfolio, we anticipate enhancing our methodology accordingly. Management may report a materially different amount for the provision for loan loss in the statement of operations to change the allowance for loan losses if its assessment of the above factors were different. This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes presented elsewhere in this prospectus as well as the portions of this discussion and analysis section entitled Lending Activities, Loan Quality and Classification of Assets. Although management believes the levels of the allowance as of September 30, 2004 are adequate to absorb probable losses inherent in the loan portfolio, a decline in local economic conditions, or other factors, could result in increasing losses that cannot be reasonably predicted at this time. This discussion presents management s analysis of the financial condition and results of operations of First State Financial for the nine months ended September 30, 2004 and 2003 and for each of the years ended December 31, 2003, 2002 and 2001, and includes the statistical disclosures required by the Securities and Exchange Commission Guide 3 ( Statistical Disclosure by Bank Holding Companies ). The discussion should be read in conjunction with the consolidated financial statements of First State Financial and the notes related thereto which appear elsewhere in this prospectus. Results of Operations Net interest income increased to $6.47 million or by $1.74 million (up 37%) in the first nine months of 2004 compared to the same period in 2003. Net interest spread, the difference between the yield on earning assets and the rate paid on interest-bearing liabilities, was 3.64% in the first nine months of 2004, up 3 basis points from the average for 2003 and up 20 basis points from the first nine months of 2003. The net interest margin was 4.00% for the first nine months of 2004, an increase of 10 basis points from the average for 2003 and up 22 basis points from the first nine months of 2003. The following table represents, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average cost of liabilities. Such yields are derived by dividing income or expenses by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages. Interest rate spread 3.64 % 3.44 % Net interest margin (b) 4.00 % 3.78 % (a) Average loans include nonperforming loans (b) Net interest margin is net interest income divided by average total interest-earning assets The following table represents for the twelve-month periods indicated, certain information related to our average balance sheet and our average yields on assets and average cost of liabilities. Such yields have been derived by dividing income or expenses by the average balance or the corresponding assets or liabilities. Average balances have been derived from daily averages. Public offering price $ $ Underwriting discount $ $ Proceeds to us, before expenses $ $ Interest rate spread 3.61 % 2.86 % 3.08 % Net interest margin (b) 3.90 % 3.31 % 3.66 % (a) Average loans include nonperforming loans (b) Net interest margin is net interest income divided by average total interest-earning assets The effect of changes in average balances (volume) and rates on interest income, interest expense and net interest income, for the period indicated, is shown below. The effect of a change in average balance has been determined by applying the average rate in the earlier period to the change in the average balance of the later period, as compared with the earlier period. The effect of a change in the average rate has been determined by applying the average balance in the later period to the change in the average rate in the later period, as compared with the earlier period. Changes resulting from average balance/rate variances are allocated to the two categories based on the proportionate absolute changes in each category. TABLE OF CONTENTS ABOUT THIS
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+Prospectus Summary 1
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+PROSPECTUS SUMMARY This prospectus summary highlights selected information from this prospectus to aid your understanding and does not contain all of the information that you need to consider in making your investment decision. It is qualified by the full description of the information contained in this prospectus. To understand all of the terms of the offering of the notes, you should read carefully this entire prospectus. You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption Index of Terms beginning on page 110 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled Risk Factors and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated, the terms Jackson Hewitt, the Company, we, us and our refer to Jackson Hewitt Tax Service Inc. together with its subsidiaries. Unless otherwise indicated or the context requires, the term office refers to any location where individuals may obtain Jackson Hewitt tax preparation services and the terms Jackson Hewitt network and network refer to our franchised, together with our company-owned, offices. Unless otherwise indicated or the context requires, Cendant refers to Cendant Corporation, together with its subsidiaries, excluding Jackson Hewitt. Unless otherwise indicated or the context requires, yearly references contained throughout this prospectus refer to our fiscal year which ends on April 30. Jackson Hewitt Jackson Hewitt is the second largest paid tax return preparer in the United States, based on the number of tax returns filed by paid preparers, with a nationwide network comprised of 4,330 franchised offices and 605 company-owned offices as of April 30, 2004. We have grown rapidly, more than doubling the number of offices in our network since 1998 and our annual volume of tax returns prepared since 1999. In 2004, our network filed 3.1 million tax returns, an increase of 11% as compared to 2003. Despite our growth and industry position, we estimate that the 3.1 million tax returns our network prepared in 2004 represented less than 5% of the total paid tax return preparer industry in the United States. Until the completion of this offering, Cendant Corporation, or Cendant, will be our sole stockholder. Cendant is selling all of its ownership stake in us in this offering. We will not receive any proceeds from the sale of shares of common stock offered by Cendant. In 2004, our net revenues were $205.6 million, which were generated from revenues from franchisees including royalty, marketing and advertising fees and other revenues (43% of net revenues), service revenue including tax return preparation and related service fees provided at company-owned offices (28% of net revenues), and fees and other revenue received from financial institutions in connection with our facilitation of the sale of financial products (29% of net revenues). Because of the higher profit margins inherent in the franchise model, our franchise revenues contribute a disproportionately higher percentage of our income from operations than those of our company-owned offices. The average revenue per tax return in our network in 2004 was $146.76, an increase of 6% as compared to 2003. In 2004, our net income was $43.0 million, which included a $10.4 million litigation charge ($6.3 million after-tax). At the core of our business strategy is the growth and development of our franchise system. Royalty and marketing and advertising fees are, collectively, our largest and fastest growing source of revenue. In 2004, revenues from royalty and marketing and advertising fees were $75.9 million, an increase of approximately 19% compared to 2003. Tax returns filed by our franchised offices represented 87% of the total number of tax returns filed by our network in 2004. Complementing our franchise system are our company-owned offices. Increases in revenues and earnings of our company-owned offices are derived from growth in our operations and through our acquisition of independent tax return preparation businesses. Service revenue from our company-owned offices was $56.6 million in 2004, an increase of approximately 17% compared to 2003. Tax returns filed by our company-owned offices represented 13% of the total tax returns filed by our network in 2004. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Additionally, to meet the needs of our customers, we facilitate the sale of financial products that are primarily designed to accelerate the availability of funds to our customers and enable them to have their tax returns prepared by trained preparers with no cash outlay at the time of filing. In 2004, our customers purchased nearly 2.8 million financial products in conjunction with having their tax returns prepared by our network, approximately 16% more than in 2003. We continue to develop and offer financial products to meet our customers needs and generate incremental revenue. Industry Opportunity Jackson Hewitt is the second largest paid tax return preparer in the United States, based on the number of tax returns filed by paid preparers in 2003, with an approximate 4% share, and H&R Block is the largest, with an approximate 21% share. The remaining 75% of the paid tax return preparer industry is highly fragmented and consists of tens of thousands of paid tax return preparers. In 2003, we estimate our network had the potential to reach only 30% of the population that used paid tax return preparers. As we expand into new territories and increase our penetration of existing territories, we believe we are well positioned to increase our share of the paid tax return preparer segment because of our strong brand name, our franchise model, our electronic filing capability and our ability to offer our customers fast and convenient means of obtaining funds associated with their tax refunds. Growth Strategy Our objective is to grow our revenues and net income by pursuing the following six strategic initiatives: Increase the Number of Offices in Our Network. The core element of our growth strategy is to expand our network. In 2004, our existing territories were largely under-penetrated, with only 21% of our territories having reached our target of at least three offices per territory. We also plan to expand into new territories by selling new franchises, converting established third-party tax preparation businesses to our franchise system and acquiring established tax return preparation businesses to be company-owned offices. Additionally, we will continue to utilize our relationships with large retailers to enhance office growth in both existing and new markets. During 2004, our network had approximately 1,400 offices in retailer locations nationwide, including approximately 1,000 in Wal-Mart stores. We recently renewed our two-year agreement with Wal-Mart allowing us to continue operating office locations within their retail stores. Increase the Number of Tax Returns Filed by Our Existing Offices. To generate more tax returns throughout our network, we expect to increase both the number of offices and the number of tax returns filed by existing offices. In 2004, we increased same-store tax return volume by 5%, despite limited growth in the overall market for tax returns filed by paid tax return preparers. However, our network has yet to achieve its full potential, since 57% of our offices have been part of our network for fewer than five years and our experience has demonstrated that the number of tax returns filed per office grows as offices mature. We also expect to increase the number of tax returns filed within our office network through improved marketing efforts, operational and productivity enhancements and a focus on growing our share of late-season filers. Increase Our Profitability by Using Our Franchise Model. Our franchise model enables us to grow more quickly with less capital investment and lower operating expenses than if we directly operated all of the offices in our network. The franchise model has an inherently higher profit margin than that of our company-owned offices, as our existing infrastructure permits additional franchise growth without significant additional fixed cost investment. Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 1 $ 9 $ AMENDMENT NO. 6 To Form S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Jackson Hewitt Tax Service Inc. (Exact name of registrant as specified in charter) Delaware 7291 20-0779692 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 7 Sylvan Way Parsippany, New Jersey 07054 (973) 496-1040 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Increase the Profitability of Company-Owned Offices. We intend to improve the profitability of our company-owned offices by focusing on growth and by taking advantage of our previous investments in infrastructure. While we will continue to pursue acquisition opportunities for our company-owned office network, we are focused primarily on organic growth through the opening of new company-owned offices within existing owned territories as well as increasing office productivity. Continue to Focus on Offering Innovative Financial Products. We continually develop and introduce new products designed to attract and retain customers and generate incremental revenue. The primary financial products we offer are refund anticipation loans, accelerated check refunds and assisted direct deposit, which help our customers obtain access to funds more quickly than if they filed tax returns on their own. We also develop and introduce innovative products, including the introduction since 2000 of the Jackson Hewitt CashCard, HELP, Gold Guarantee and Money Now. Expand into New Markets. One of our long-term strategies is to expand into markets with income tax systems similar to the United States , such as Canada and Puerto Rico. We also plan to develop products and services to capture customers in the growing online segment.
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. You should read this summary together with the more detailed information that is contained in this prospectus. On May 6, 2004, we changed our name from Tabletop Holdings, Inc. to Merisant Worldwide, Inc. Unless otherwise indicated or the context requires otherwise, all references in this prospectus to "Merisant Worldwide," "our company," "we," "us," "our," or similar references mean Merisant Worldwide, Inc. and its consolidated subsidiaries. All references to "Merisant" mean Merisant Company, Merisant Worldwide's wholly-owned subsidiary. Our Company Overview We are the worldwide leader in the marketing of low calorie tabletop sweeteners, with an estimated 30% share of a growing global retail market which we estimate at $1.3 billion. We believe that we have the leading market share in 11 of the top 20 countries for low calorie tabletop sweetener sales. Our brands, including our premium-priced brands Equal and Canderel , are sold in over 85 countries and are among the most recognized low calorie tabletop sweetener products in the world, with brand awareness estimated at or above 85% in each of their respective key markets. The strength of our leading brands is evidenced by price premiums relative to most of our competitors. We have a global infrastructure, including manufacturing operations whose principal activity is to blend and package our products. For the year ended December 31, 2003, we generated net sales of $352.3 million and a net loss of $17.6 million. We generated income before income taxes of $2.0 million for the year ended December 31, 2003. For the six months ended June 30, 2004, we generated net sales of $167.9 million and a net loss of $5.2 million. We generated a loss before income taxes of $3.1 million for the six months ended June 30, 2004. Our strong margins and low capital expenditures help us generate significant cash flows. Cash flow from operating activities was $68.4 million and $55.9 million for the years ended December 31, 2003 and 2002, respectively, and $20.9 million and $23.3 million for the six months ended June 30, 2004 and 2003, respectively. Bank EBITDA was $110.2 million and $115.6 million for the years ended December 31, 2003 and 2002, respectively, and $38.0 million and $46.5 million for six months ended June 30, 2004 and 2003, respectively. For a reconciliation of Bank EBITDA to cash flow from operating activities, see "Selected Consolidated Financial Data" on page 67 of this prospectus. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Our typical customer tends to be female, over 35 years of age and either a member of a diabetic household or a dieter. Our core customer base is growing as a result of an increased level of health consciousness and product awareness among consumers, as well as an aging population and an increased number of diabetics and persons who are glucose intolerant. We believe that these demographic trends have been primarily responsible for growth in the low calorie tabletop sweetener industry. We estimate that total sales of low calorie tabletop sweeteners have grown by 16% from 2002 to 2003. This growth has been accompanied by increased competition within the industry. According to LMC International Ltd, or LMC, global demand for low calorie tabletop sweeteners grew at a CAGR of 3% between 1990 and 2000 to 952,000 tons of sugar equivalent, but it only represented 2% of total tabletop sweetener demand. As a result, we believe there is substantial room for further growth in the low calorie tabletop sweetener industry. Operating expenses: Marketing and selling expenses 69.3 77.1 20 % 22 % (7.7 ) (11 )% Administration expenses 31.1 32.0 9 % 9 % (1.0 ) (3 )% Amortization of intangibles 36.2 28.7 11 % 8 % 7.5 21 % Start-up expenses 13.7 0.7 4 % % 13.0 95 % Restructuring expenses 0.7 2.3 % We sometimes refer to standard case and CAGR in this prospectus. We define standard case as the equivalent in sweetness power of 1,200 teaspoonfuls of sugar. CAGR refers to compound annual growth rate. INDUSTRY AND MARKET DATA We generate market and competitive position data to measure the performance of, and plan for, our business. We obtained the market and competitive position data used throughout this prospectus from our own research as well as surveys or studies conducted by third parties and industry or general publications. In particular, historical and projected retail sales of low calorie tabletop sweeteners, and the growth rates of such historical retail sales, are derived from data generated by the market research firms A.C. Nielsen Co., which we refer to as ACNielsen, and Information Resources, Inc., which we refer to as IRI, where available. Where third party data is unavailable or does not cover the entire segment of the market being reviewed, we formulate estimates based upon internal data, including, for example, regional sales and pricing data. Where market and competitive position data used in this prospectus contains such estimates, we have so indicated by using the words "management estimates," "our market research," "we estimate," "an estimated" and "we believe." Certain brand awareness and loyalty figures in this prospectus were derived from a study conducted by Synovate Inc., which study we commissioned and funded for use in our business. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data. Similarly, we believe that our internal research is reliable, but it has not been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks, including Equal , Canderel , Misura , Mivida , Sucaryl and Chuker , which are material to our business. We have licensed from The NutraSweet Company the right to use the NutraSweet trademark in our tabletop sweetener business. Unless otherwise indicated, all other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. We sell through multiple channels of distribution, including grocery and pharmacy retailers, food service distributors, mass merchandisers and club/warehouse retailers. We use distributors and brokers to distribute our products throughout the world and sell our products directly to selected customers in our largest markets. In 2003, $83.8 million, or 24% of our net sales, were made to Heinz U.S.A., which we refer to as Heinz, our primary distributor to the grocery and food service customers in the United States. Other than Heinz, no customer, including those serviced by Heinz, accounted for greater than 10% of our total net sales in 2003. We enjoy strong relationships with our customers, who include well-known mass merchandisers such as Wal-Mart, Sam's and Costco, restaurant chains such as McDonald's and Starbucks and grocery chains such as Kroger and Carrefour. The key ingredient in a majority of our products, including Equal and Canderel , is aspartame, although we also offer tabletop products sweetened with saccharin and other blended low calorie tabletop sweeteners. We currently obtain aspartame from the same third party manufacturer that supplies it as a sweetening ingredient to many leading low calorie food and beverage manufacturers. We believe aspartame is one of the most thoroughly tested low calorie tabletop sweeteners, and has gained widespread acceptance among consumers. Our global business model results from 25 years of experience in the low calorie tabletop sweetener industry, first as a division of G.D. Searle & Co., or Searle, and later Monsanto, and currently as a stand-alone company. Our global infrastructure includes manufacturing operations in the United States and Argentina and dedicated facilities in Germany that are operated by a third party. We are the only competitor in the low calorie tabletop sweetener market with global infrastructure and presence, which provides us with a competitive advantage over companies that compete in regional markets. The low calorie tabletop sweetener market remains fragmented, and most of our competitors focus on distinct markets and products. We estimate that our global retail sales are 50% larger than those of our next largest competitor. Our global scale allows us to work with leading suppliers in local markets and to develop local distribution channels. We will continue to look for opportunities to leverage our global presence and enhance global efficiencies in our business. Our Strengths We believe that our competitive strengths include: Leading global market position. We are the leading global marketer of low calorie tabletop sweeteners, with an estimated 30% dollar share of the global retail market in 2003. We estimate that, as of December 31, 2003, we had a 29% dollar share in North America, which, for our purposes, consists of the United States and Canada, a 37% dollar share in Europe, Africa and the Middle East, which we refer to as EAME, and a 28% dollar share in Latin America. Within the Asia/Pacific region, we believe we have captured a 49% dollar share of the Australia/New Zealand market and believe that we have established leading positions in several other markets within that region. Given our significant market share in most of our markets, we are well positioned to take advantage of overall industry growth in each of those markets. Strong brand equity and brand portfolio. Over the past 25 years, our brands have benefited from significant investments in consistent quality production and brand awareness. As a result, Equal enjoys consumer loyalty of 65% in the United States as of December 2003. This brand equity has allowed us to expand by developing new products and new uses for our existing products, such as Equal Sugar Lite , a unique blend of sugar and low calorie sweeteners designed for cooking and baking with half the calories and half the carbohydrates of sugar that measures exactly like sugar; Equal Spoonful , a zero calorie product that measures like sugar to make it easier to use in recipes designed for Equal ; Same with Sugar, a zero calorie tabletop sweetener that is a blend of sugar and low calorie sweetener launched in Puerto Rico; Equal Perfect Pleasures candies, which we have successfully launched in the United States, Puerto Rico, (in millions) as % of Sales Dollars % Net sales $ 173.3 $ 167.9 100 % 100 % $ (5.4 ) (3 )% Cost of sales 67.2 65.8 39 % 39 % 1.5 Income before income taxes 13.7 32.8 4 % 9 % 19.1 140 % Provision for income taxes 7.4 8.1 2 % UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Canada, Australia and South Africa; and Canderel branded chocolates, which we have successfully launched throughout Europe and the Middle East. Our worldwide brand recognition and leadership position in the industry facilitate geographic expansion. Unmatched global scale. We are the only global competitor in the marketplace that is focused primarily on the low calorie tabletop sweetener business. We estimate that our global retail sales are 50% larger than those of our next largest competitor. We have the focus, resources and consumer insights to quickly and effectively develop new products, market our brands and serve our global customers. Our global scope allows us to selectively invest in markets with the highest potential for growth and the highest returns. We continue to seek efficiencies and optimize our resource allocation to take advantage of our global scale. Our leading competitive position in the low calorie tabletop sweetener market, which results from our brand equity, global scope and customer relationships, would be difficult and costly for our competitors to replicate. Strong and stable cash flow characteristics. Supported by a unique combination of strong brand equity, high consumer loyalty, attractive margins and low capital expenditures, we have consistently produced strong cash flows, regardless of economic conditions, which have allowed us to pay down substantial debt. Our net sales have grown from an estimated $341.2 million in 2000 to $352.3 million in 2003. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Experienced and incentivized management team. Our senior management team has extensive experience in global brand management and the consumer products industry in markets around the world. Our chief executive officer, Etienne Veber, has a proven track record in the industry. Our senior management team has a financial incentive in the success of the business. In connection with the offering, we have established an annual incentive bonus plan and a long-term incentive plan designed to align the interests of management with those of our IDS holders. Our Business Strategy Our business strategy since our inception has been to enhance and develop world-class brands that drive cash flow and create value. By capitalizing on the strength of our existing brand portfolio and global infrastructure, we believe we will achieve steady revenue growth and stable cash flows through identifiable near-term initiatives, including: Expand our sales by promoting new usage among our existing consumers. Our core consumer group, consisting primarily of health-conscious consumers and diabetics, has been responsible for our historical growth and momentum. We intend to build on this group's loyalty and grow further by encouraging new and more frequent uses of our brands. We intend to increase usage through various value-focused promotional and in-store activities with retail partners and distributors and promote new uses by introducing innovative products, packaging and recipes designed especially for Equal and Canderel . Our active communication with our core consumers such as diabetics through our extensive consumer database and newsletters has been one of the key factors behind our consumer loyalty. Our market research indicates that in the United States, approximately 42% of the users of Equal are diabetics; similarly, approximately 52% of the volume of Equal sold is consumed by diabetics. We estimate that diabetic consumers also represent a significant portion of our volume in most of our other markets. Expand the Equal and Canderel brand positioning to attract new users into our franchise. We seek to attract consumers who currently do not use low calorie tabletop sweeteners by convincing them that our brands can be used in their everyday lives as part of a healthier (in millions) (in millions) North America $ 167.2 $ 161.0 $ (6.2 ) (4 )% $ 77.8 $ 75.2 $ (2.6 ) (3 )% Operating EBITDA Margin 47 % 47 % % EAME 109.2 123.9 14.7 13 % 36.6 38.7 2.1 6 % Operating EBITDA Margin 33 % 31 % (2 )% Latin America 54.2 46.7 (7.5 ) (14 )% 20.9 15.7 (5.2 ) (25 )% Operating EBITDA Margin 39 % 34 % (5 )% Asia/Pacific 19.0 20.7 1.7 9 % 0.6 0.6 (9 )% Operating EBITDA Margin 3 % Gross profit 208.5 215.1 61 % 62 % 6.5 (in millions) (in millions) North America $ 159.8 $ 167.2 $ 7.4 5 % $ 79.7 $ 77.8 $ (1.9 ) (2 )% Operating EBITDA Margin 50 % 47 % (3 )% EAME 104.8 109.2 4.4 4 % 38.3 36.6 (1.7 ) (5 )% Operating EBITDA Margin 37 % 34 % (3 )% Latin America 62.8 54.2 (8.6 ) (14 )% 20.9 20.9 Operating EBITDA Margin 33 % 39 % 5 % Asia/Pacific 15.7 19.0 3.3 21 % 1.4 0.6 (0.8 ) (53 )% Operating EBITDA Margin 9 % Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 lifestyle. Market research indicates that Equal is used by approximately 6% of all households in the United States and that approximately 14 million U.S. households, or 14%, are open to moving away from sugar. Our initiative to attract new users focuses on the great taste, health benefits, usefulness and quality of our product through an integrated marketing campaign, including print, television, other media and sampling. While the household penetration of our brands varies from country to country, we see opportunities to attract new users in all of our major markets. Gain market share among current users of low calorie tabletop sweeteners. In North America, our market research indicates that there are approximately 7 million households in the United States that currently use low-calorie sweeteners who would consider conversion to our Equal brand. We plan to pursue competitive brand users through focused promotion aimed at encouraging Equal brand trial and conversion. Outside North America, we will pursue share gain primarily through geographic expansion. For example, we have recently launched our Equal brand in Taiwan, Korea and Israel. Continue to improve efficiencies and margins throughout our operations. We have successfully achieved significant improvements in our working capital management and lowered our costs of operations. As a result, we have improved our gross margins and increased our cash flow. Beginning in 2001, we began consolidating vendors, increasing plant productivity and optimizing global sourcing of materials and business models. In addition, we recently renegotiated our agreement for the 2004 and a significant portion of the 2005 supply of our primary raw material, aspartame. Our operating model has enabled us to increase cash flow and accelerate the repayment of debt. We will continue to examine cost reduction and working capital management strategies in an effort to enhance efficiencies and maximize cash flow. In addition, our headcount reduction actions begun in June 2002, resulted in savings of approximately $8.0 million, excluding severance costs, for the year ended December 31, 2003. Execute aggressive marketing plans in our key markets to enhance our brands. By continuing to execute our current marketing efforts, we believe we can solidify and enhance our position as a leader in our four key markets: North America, France, the United Kingdom and Mexico, which represent a large majority of our total net sales for 2003. We intend to increase our consumer marketing spending which will enable us to significantly increase our share of voice with consumers. Specifically, we are looking to invigorate our market positions in North America and the United Kingdom, and build on our leadership positions in France and Mexico. We believe that we have additional opportunities to achieve sustainable long-term growth by capitalizing on positive consumer macro-trends, which include the increasing health consciousness of consumers, the aging of the population, and the increasing incidence of diabetes, through the following initiatives: Pursue brand repositioning campaign to capture category growth. We intend to reposition our brand in our key markets in 2004 to appeal to a broader consumer base, in order to take advantage of the favorable consumer trends that are occurring. We will continue with our increased marketing spending discussed earlier for this campaign which we believe will accelerate the growth of our Equal and Canderel franchises over the long-term. For instance, our new marketing effort is highlighted by our "Plan E" campaign in North America that we expect will reposition Equal as a lifestyle brand to be utilized in our customers' everyday lives. In Europe, our marketing plans are centered around a new formulation of Canderel and revamped brand identity. Innovate new products and brand extensions to increase future product pipeline. We will continue to focus resources on the research and development and launch of new products and brand extensions in an effort to grow the category in our key markets. In 2003, we introduced Canderel branded chocolates in Europe and Equal Spoonful and Equal Perfect Pleasures Net income (loss) $ 6.8 $ (5.2 ) Financing Activities Borrowings under long-term obligations 70,000 575,000 Principal payments on long-term obligations (43,570 ) (125,241 ) (349,206 ) Payment of deferred financing costs (1,357 ) (20,130 ) Dividends to shareholders (264,028 ) Repurchase of common stock (350 ) (260 ) (1 ) Issuance of common stock 980 90 Financing activities Borrowings under long-term obligations 75,000 500,000 575,000 Principal payments on long-term obligations (349,206 ) (349,206 ) Payment of deferred financing costs (2,645 ) (17,485 ) (20,130 ) Distribution to shareholder (264,028 ) (187,908 ) 187,908 (264,028 ) Repurchase of common stock (1 ) (1 ) Issuance of common stock 4 Merisant Worldwide, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 5141 52-2219000 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 10 South Riverside Plaza, Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Warren B. Grayson Vice President, General Counsel and Secretary Merisant Worldwide, Inc. 10 South Riverside Plaza Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) SEE TABLE OF ADDITIONAL REGISTRANTS candies in North America, all of which were well received by the marketplace. By continuing to expand our Canderel chocolate line in other markets such as Mexico and South Africa, and introducing further new products in Europe, in addition to brand extensions, we believe we will continue to expand the category and strengthen our market share. In France, we relaunched our Canderel brand with an improved formulation of a blend of low calorie sweeteners. We recently announced the launch in the United States of Equal Sugar Lite and in Europe of Canderel Crystal , each containing the same unique blend of sugar and low calorie sweeteners designed for cooking and baking that measure and function like sugar. Equal Sugar Lite is planned for launch in additional markets in 2004 and 2005. Similarly, Canderel Crystal has been launched in Belgium in 2004 and is planned for launch in additional markets later this year. Our History The main sweetening ingredient in our leading tabletop brands, aspartame, was discovered in 1965 by Dr. James Schlatter while doing research at Searle on amino acids. By the early 1980s, after many years of testing before being approved for consumer use, the product was being marketed as Canderel in much of Europe and as Equal in the United States. In 1985, Monsanto entered the low calorie sweetener market through its acquisition of Searle. Monsanto sold the assets that now form the basis of our tabletop sweetener business to an investor group led by an affiliate of Pegasus Capital Advisors, L.P., who we refer to as our sponsor investor, on March 17, 2000 and the business was named Merisant Company. The Transactions Concurrently with this offering: we will effect a recapitalization of the equity interests of our existing stockholders and a number of other internal corporate transactions; and Merisant will enter into a senior secured credit facility in an amount up to $255.0 million, which we refer to as the new senior credit facility. We estimate that we will sell IDSs in this offering and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs) and receive net proceeds of approximately $ million after deducting underwriting discounts, commissions, and other estimated offering expenses, assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. We will use the net proceeds of this offering together with the estimated $ million net proceeds from our new senior credit facility and cash on hand, to: repay all outstanding borrowings under, and terminate, Merisant's current senior secured credit facility, which we refer to as our existing senior credit facility, and unwind our current interest rate hedges; consummate tender offers and consent solicitations for all of our outstanding $136.0 million aggregate principal amount at maturity of 121/4% senior subordinated discount notes due 2014, which we refer to as the discount notes, and all of Merisant's outstanding $225.0 million aggregate principal amount of 91/2% senior subordinated notes due 2013, which we refer to as the existing senior subordinated notes; repurchase approximately shares of our currently outstanding Class B common stock from our existing stockholders; make payments under existing management incentive plans of approximately $ (assuming an initial public offering price of $ per IDS); and Total other expenses 43.7 41.4 13 % 12 % 2.3 With copies to: Carol M. Lind Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000 Bruce S. Mendelsohn Akin Gump Strauss Hauer & Feld LLP Robert S. Strauss Building 1333 New Hampshire Avenue, NW Washington, DC 20036 (202) 887-4000 pre-fund capital expenditures of approximately $ . If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase additional shares of our Class B common stock from our Class B stockholders. We refer to this offering, our entering into the new senior credit facility, the repayment in full and termination of the existing senior credit facility, the unwinding of our current interest rate hedges, the repurchase of a portion of the outstanding Class B common stock of our Class B stockholders, the making of payments and issuance of shares of Class B common stock under existing management incentive plans, the internal corporate transactions and the tender offer for our discount notes and the existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than this offering as the other Transactions. The closing of this offering is conditioned on our completion of the other Transactions (other than the repurchase of shares from our Class B stockholders and the making of payments and issuance of shares of Class B common stock under our management incentive plans). New Senior Credit Facility. Concurrently with this offering, Merisant will enter into a new senior secured credit facility in an amount up to $255.0 million with a syndicate of financial institutions, including affiliates of Credit Suisse First Boston, RBC Capital Markets and Merrill Lynch & Co. We anticipate that the new senior credit facility will consist of a senior secured revolving credit facility in a total principal amount of up to $35.0 million, which we refer to as the new revolving facility, and a senior secured term loan facility in an aggregate principal amount of up to $220.0 million, consisting of up to $40.0 million of Euro Term Loan A and up to $180.0 million of Term Loan B. While the new senior credit facility is expected to permit us to pay dividends on the shares of Class A common stock that constitute the IDSs and our Class B common stock, we expect that it will contain restrictions on our ability to do so, as described more fully below under "Description of Certain Indebtedness New Senior Credit Facility." We also expect the new senior credit facility to require us to defer the payment of interest on the senior subordinated notes if we fail to meet specified financial tests or if there is a default or potential default. We anticipate that the new revolving facility will be undrawn at closing and that we will have $ million of availability immediately following the offering. Tender Offers and Consent Solicitations. We have commenced tender offers and consent solicitations with respect to all of the discount notes and all of the existing senior subordinated notes. The closing of this offering is conditioned upon the receipt of the tenders and consents of at least a majority in aggregate outstanding principal amount at maturity of the discount notes and existing senior subordinated notes. We and Merisant have received the required consents with respect to the existing discount notes and the existing senior subordinated notes, respectively. Such consents may not be revoked. Holders of the discount notes and existing senior subordinated notes that provide consents will be obligated to tender their notes in the tender offers, and holders of the discount notes and existing senior subordinated notes that tender their notes in the tender offers will be obligated to provide consents. The consummation of the tender offers will be conditioned upon this offering. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of two term loans and a revolving credit facility. We expect to pay the entire principal amount outstanding under the existing senior credit facility, which was $236.5 million as of June 30, 2004, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 1, 2004 of 4.1% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty. We will also unwind our interest rate hedges related to the existing credit facility. Income before income taxes 32.8 2.0 9 % 1 % (30.8 ) (94 )% Provision for income taxes 8.1 19.7 2 % Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. *Where required by local law, a nominal number of shares may be held by directors or other persons. Net income (loss) $ 24.7 $ (17.6 ) Total operating expenses 151.1 140.8 44 % 40 % 10.3 If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Information About Us We are a Delaware corporation. Our chief executive offices are located at 10 South Riverside Plaza, Suite 850, Chicago, Illinois 60606. Our telephone number is (312) 840-6000. Our Internet address is www.merisant.com. The information found on our website is not a part of this prospectus. Other Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: an initial public offering price of $ per IDS (comprised of $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the mid-point of the range set forth on the cover page of this prospectus; a % annual interest rate on the senior subordinated notes, which is subject to change depending on market conditions prior to the pricing date; no exercise of the underwriters' over-allotment option; the reclassification of our existing common stock effective immediately prior to this offering; the issuance of shares of Class B common stock to participants in our Stock Appreciation Rights Plan upon the consummation of this offering, which represents the number of such shares that will be issued assuming an initial offering price of $ per IDS; and receipt of tenders and consents with respect to 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes. In the event that less than 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes are tendered, the term loan portion of the new senior credit facility will be reduced proportionately. Furthermore, unless the context otherwise requires, references in this prospectus to "senior subordinated notes" refer to both senior subordinated notes underlying IDSs as well as senior subordinated notes issued separately (not in the form of IDSs). The Offering Summary of the IDSs and Senior Subordinated Notes We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs). The aggregate principal amount of our % senior subordinated notes due 2019 offered hereby, including both notes initially represented by IDSs and notes sold separately, is $299.0 million ($331.0 million if the underwriters exercise their over-allotment option in full). Purchasers of separate senior subordinated notes may not also purchase IDSs in this offering. See "Notice to Purchasers of Separate Senior Subordinated Notes and Acknowledgement of Purchaser Intent" above. What are IDSs? IDSs, or income deposit securities, are securities comprised of our Class A common stock and senior subordinated notes. Each IDS initially represents one share of our Class A common stock and one % senior subordinated note with $ principal amount. CALCULATION OF REGISTRATION FEE What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of % of the aggregate principal amount of senior subordinated notes held separately or represented by your IDSs, or approximately $ per IDS, or per $ of senior subordinated notes held separately, per year, subject to our right, under specified circumstances, to defer interest payments on the senior subordinated notes as described below under "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." You may also receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new senior credit facility and our senior subordinated notes are each expected to contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. Upon the completion of this offering, our board of directors intends to adopt a dividend policy with respect to our common stock pursuant to which cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness and capital expenditures sufficient to maintain our properties and other assets would, in general, be distributed as regular quarterly cash dividends (up to the intended dividend rates set forth below) to the holders of our common stock. We intend to make our first dividend payment on April 15, 2005 to holders of record as of April 10, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock, and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock for the remainder of the first full year following completion of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarter, including the dividends expected to be paid on April 15, 2005, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indenture governing our senior subordinated notes and our new senior credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at the level set forth above or at all. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." We intend to make interest payments and, if declared, dividend payments on January 15, April 15, July 15 and October 15 of each year to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Will my rights as a holder of an IDS be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges, and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the IDSs (or % if the over-allotment option with respect to the IDSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, the existing stockholders, or their transferees, may greatly influence the outcome of all matters presented to our stockholders for a vote. In addition, so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. What will happen to the IDS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. How can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in subsequent offerings of IDSs of the same series, may, at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control, through a broker or other financial institution, separate each of their IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through a broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been separated on an automatic basis as a result of the repurchase, redemption or maturity of any senior subordinated notes. Any separation or recombination will be effective as of the close of business on the trading day that the instructions to separate or recombine are received if the instructions are received by 3:00 p.m., Eastern Standard Time, on that trading day. Any instructions received after 3:00 p.m. will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. See "Description of Income Deposit Securities (IDSs) Book-Entry Settlement and Clearance Separation and recombination." Will the IDSs be listed on an exchange or automated quotation system? Yes. We have applied to list our IDSs on the Nasdaq National Market under the trading symbol "MERI." Ratio of earnings to fixed charges x x Ratio of Bank EBITDA to pro forma cash interest expense x x Ratio of pro forma total debt to Bank EBITDA x Income from operations 26.0 16.8 15 % Income Deposit Securities (IDSs)(2) $ $ Will the senior subordinated notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange or automated quotation system? We do not anticipate that the senior subordinated notes represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be listed for separate trading on any exchange or automated quotation system. Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares are held separately and not in the form of IDSs as may be necessary to satisfy applicable listing requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The senior subordinated notes and Class A common stock represented by the IDSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the additional senior subordinated notes to be sold separately (not in the form of IDSs) be the same as the senior subordinated notes issued as a component of the IDSs? Yes. The additional senior subordinated notes to be sold separately (not in the form of IDSs) will be identical to the senior subordinated notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of IDSs) and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately be issued? The IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs), and you will not receive a certificate for your IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs and additional senior subordinated notes. Upon separation of the IDSs, a holder of Class A common stock may request one or more stock certificates representing the shares of Class A common stock. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance of a payment default (without cure) on the senior subordinated notes for 90 days; the exercise by us of our right to redeem all or a portion of the senior subordinated notes; the exercise by a holder of senior subordinated notes of its right to require us to repurchase its senior subordinated notes following the occurrence of a change of control (as defined in the indenture governing the senior subordinated notes); the date on which principal on the senior subordinated notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof; or if The Depository Trust Company no longer makes the IDS securities eligible for deposit or ceases to be a registered clearing agency Less (plus): Corporate expenses 12,194 Restructuring expenses 1,800 Depreciation expense 4,882 Impairment loss on fixed assets 3,128 Loss on sale or disposal of fixed assets 143 Amortization expense 11,118 Currency gain on euro debt (1,534 ) Unrealized gain on derivative instruments (5,577 ) Other non-cash income Class A Common Stock, par value $0.01 per share(3) under the Exchange Act and we are unable to find a successor depository. See "Description of Income Deposit Securities (IDSs) Automatic Separation." What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms and conditions that are identical to those of the IDSs or senior subordinated notes (not in the form of IDSs) being sold in this offering, except that if IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the IDSs issued hereunder may separate. Additional IDSs will represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding IDSs. In addition, we will be required to issue additional IDSs in the future upon the exercise of exchange rights by holders of our Class B common stock. Although the senior subordinated notes represented by such additional IDSs or sold separately (not represented by IDSs) will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with "original issue discount" (referred to as OID) for U.S. federal income tax purposes, and with accrued interest. If any new senior subordinated notes are issued (separately or as part of IDSs), all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) will exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result, following any such new issuance, we intend to allocate and report any OID associated with the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See " What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such new senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy of the issuer prior to the maturity of the senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and subject you to other adverse consequences." Any subsequent issuance of IDSs and senior subordinated notes of the same series that results in an exchange of a portion of your senior subordinated notes for a portion of the senior subordinated notes issued in such subsequent issuance and/or replacement of your IDSs with new IDSs will not impair the rights you would otherwise have to assert claims against us or the underwriters with respect to the full amount of the senior subordinated notes purchased by you, notwithstanding such exchange and/or replacement, if and to the extent such claim is based on alleged material misstatements or omissions contained in this prospectus. Senior subordinated notes sold after the date of this offering, whether represented by additional IDSs or sold separately (not in the form of IDSs), will be issued with accrued interest from the most recent interest payment date. In addition, such senior subordinated notes will be deemed to have the same deferred interest and defaults as the senior subordinated notes that are being issued at the closing of this offering and will be deemed to have expended payment blockage periods, acceleration forbearance periods and interest deferral periods to the same extent as the senior subordinated notes issued at the closing of this offering. See "Description of the Senior Subordinated Notes General." Total other expenses 15.9 19.9 9 % (in millions) (in millions) North America $ 81.5 $ 69.7 $ (11.7 ) (14 )% $ 38.0 $ 27.8 $ (10.3 ) (27 )% Operating EBITDA Margin 47 % 40 % (7 )% EAME 62.0 67.7 5.7 9 % 14.9 16.7 1.8 12 % Operating EBITDA Margin 24 % 25 % 1 % Latin America 20.1 18.9 (1.3 ) (6 )% 5.3 4.4 (1.0 ) (18 )% Operating EBITDA Margin 26 % 23 % (3 )% Asia/Pacific 9.6 11.5 1.9 20 % (0.5 ) 0.9 1.4 305 % Operating EBITDA Margin (5 )% 8 % % Senior Subordinated Notes(4) We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in IDSs? Certain aspects of the U.S. federal income tax consequences to us and to you of the IDSs and separately issued senior subordinated notes being offered hereby are uncertain. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel, Sidley Austin Brown & Wood LLP, is of the opinion that, for U.S. federal income tax purposes, an IDS issued by Merisant Worldwide should be treated as two separate instruments consisting of a senior subordinated note issued by Merisant Worldwide and a share of Class A common stock of Merisant Worldwide. Accordingly, we intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and of our senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values on the issue date, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our senior subordinated notes as $ , assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. By purchasing IDSs, you will agree to be bound by this allocation. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel is also of the opinion that, for U.S. federal income tax purposes, the senior subordinated notes should be treated as debt. Based on that opinion, we believe that the senior subordinated notes (whether issued separately or as part of IDSs) should be treated as debt for U.S. federal income tax purposes. There is no authority that directly addresses the tax treatment of the IDSs, and the application to the IDSs of existing authority regarding the tax treatment of subordinated debt offered under circumstances such as the offering (i.e., offered as a unit consisting of debt and common stock) is not entirely clear. Accordingly, neither we nor our special counsel can conclude with certainty that an IDS will be treated as two separate instruments or that the senior subordinated notes will be treated as debt for U.S. federal income tax purposes. The IRS may challenge our position and such challenge may be successful. If all or a portion of the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then a corresponding portion of the interest on the senior subordinated notes would be treated as a dividend and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow and materially and adversely impact our ability to make interest and dividend payments. In addition, if any payments were treated as dividends, such payments to holders who are not U.S. persons for federal income tax purposes would generally be subject to withholding of U.S. federal income taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. We would also be liable for withholding taxes (and for interest and possibly penalties for failure to withhold) on any interest payments previously made by us to non-U.S. holders that are recharacterized as dividends for U.S. federal income tax purposes. Dividends paid on the common stock through 2008, under current tax law and to the extent those dividends are paid out of our earnings and profits, will be taxable to U.S. individuals at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to U.S. individuals at ordinary income rates. Guarantees of Senior Subordinated Notes(5) The opinions of counsel referred to above are not binding on the IRS or courts, and no ruling on this issue has been requested from the IRS. There is no statutory, judicial or administrative authority directly addressing the treatment of the IDSs or instruments substantially similar to the IDSs for U.S. federal income tax purposes. We urge you to consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of an investment in the IDSs, the senior subordinated notes and Class A common stock. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? As discussed above under " What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future?" the issuance of new senior subordinated notes (separately or as part of IDSs) may in certain circumstances be treated as an exchange by holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) of a ratable portion of their outstanding notes for a portion of the new notes. It is uncertain whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. It is also possible that the IRS might successfully assert that any resulting loss on an exchange should be disallowed under the "wash sale" rules, in which case the holder's basis in the subsequently issued senior subordinated notes would be increased to reflect the amount of the disallowed loss. Even if the exchange is not treated as a taxable event, such exchange might result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner regardless of whether the senior subordinated notes are held as part of IDSs or directly, the recombination of senior subordinated notes and shares of common stock to form IDSs or the separation of IDSs should not affect your tax treatment. See "Material U.S. Federal Income Tax Considerations." Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of senior subordinated notes and IDSs, and each holder of senior subordinated notes and IDSs will, by purchasing senior subordinated notes and IDSs, agree to report OID in a manner consistent with this approach. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the IDSs and senior subordinated notes and could adversely affect the market for the IDSs and senior subordinated notes. Due to the complexity and uncertainty surrounding the U.S. federal income tax treatment of subsequent issuances and exchanges of senior subordinated notes, prospective investors are urged to consult their tax advisors regarding the tax consequences to them in light of their particular circumstances. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." Total $775,000,000 $98,193(6) What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under GAAP regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, or FASB, the Emerging Issues Task Force, or EITF, or the Securities and Exchange Commission, or SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates." (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs consist of shares of Class A common stock and $ aggregate principal amount of % senior subordinated notes due 2019, including IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (3)Includes shares of Class A common stock subject to the underwriters' over-allotment option. (4)Includes $ million aggregate principal amount of % senior subordinated notes subject to the underwriters' over-allotment option and $ million aggregate principal amount of % senior subordinated notes sold separately (not as part of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Pursuant to Rule 457(n), no separate filing fee is required for the guarantees. (6)Previously paid. Summary of the Common Stock Issuer Merisant Worldwide, Inc. Shares of Class A common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Our bylaws will provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Shares of Class B common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Total shares of common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Voting rights Subject to applicable law, each outstanding share of our Class A and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote, except that so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, the holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. Listing Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares is held separately and not in the form of IDSs as may be necessary to satisfy any applicable requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The shares of our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. We do not expect to list our shares of Class B common stock for separate trading on any exchange or automated quotation system and the shares of Class B common Stock will have limitations on their transferability. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Dividends Holders of our Class A common stock and the holders of our Class B common stock will receive quarterly dividends on our Class A common stock and Class B common stock, respectively, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, we expect that the senior subordinated notes indenture and our new senior credit facility will each restrict our ability to declare and pay dividends on our Class A and Class B common stock as described in detail under "Dividend Policy and Restrictions." Upon the completion of this offering, our board of directors intends to adopt a dividend policy which reflects our judgment that our stockholders would be better served if we distributed the cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets to them (up to the intended dividend rates set forth below) instead of retaining it in our business. We intend to make our first dividend payment on April 15, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock through the first full year following the completion of this offering. However, our dividend policy is subject to adjustment by our board at its sole discretion. In the event of any reduction in the cash available for dividends, the dividend on the Class A common stock and the Class B common stock will be reduced proportionately. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rate set forth above or discontinue entirely the payment of dividends. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." Dividend payment dates If declared, dividends on our Class A and Class B common stock will be paid quarterly on January 15, April 15, July 15 and October 15 to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Rights to exchange shares of Class B common stock for IDSs Holders of our Class B common stock have agreed to restrictions on the transferability of the Class B common stock. Beginning on the first anniversary of the consummation of this offering, holders of our Class B common stock will have the right to exchange their Class B common stock for the equivalent value of IDSs under certain circumstances. However, until the second anniversary of the consummation of this offering, the shareholders agreement will restrict the holders of our Class B common stock from exercising such exchange right if following the exchange the holders of our Class B common stock would hold less than shares. See "Description of Capital Stock." Total other expenses 41.4 65.1 12 % Summary of the Senior Subordinated Notes Issuer Merisant Worldwide, Inc. Senior subordinated notes represented by IDSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not in the form of IDSs) $ million aggregate principal amount. Senior subordinated notes to be outstanding following the offering $299.0 million aggregate principal amount (or $331.0 million aggregate principal amount if the underwriters exercise their over-allotment option in full). Interest rate % per annum. Interest payment dates Interest will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing April 15, 2005, to holders of record on the 10th day of each such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate. In addition, after , 2009, but before , 2014 and after , 2014, but before , 2019, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions, provided that no more than three quarters of interest may be deferred during either such period. No later than , 2009, we will pay in full all interest deferred prior to , 2009 (together with accrued interest thereon). No later than , 2014, we will pay in full all interest deferred after , 2009 and prior to , 2014 (together with accrued interest thereon). We will pay in full all interest deferred after , 2014 (together with accrued interest thereon) no later than , 2019, the maturity date of the senior subordinated notes. Income from operations 74.2 67.1 21 % MERISANT WORLDWIDE, INC. TABLE OF ADDITIONAL REGISTRANTS Name of Additional Registrants During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include stated interest in your income for U.S. federal income tax purposes on an economic accrual basis, possibly before the receipt of corresponding cash interest payments. See "Material U.S. Federal Income Tax Considerations." We expect that our new senior credit facility will restrict our ability to pay interest on the senior subordinated notes in certain circumstances as further described under "Description of Certain Indebtedness" and "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms and at the prices set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, all senior subordinated notes and Class A common stock represented by each IDS will automatically separate and will no longer be combinable into IDSs following such separation. See "Description of the Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of the Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. State of Incorporation Guarantees The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new senior credit facility. Ranking We are a holding company and derive all of our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor's existing and future senior indebtedness, including the borrowings under and all guarantees of the new senior credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor's existing and future senior subordinated indebtedness and trade payables except for the impact of the contractual subordination provided in the indenture governing the senior subordinated notes which may have the effect of causing the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness, including trade payables, of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and our subsidiaries to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: we would have had no senior or pari passu indebtedness outstanding except for trade payables of approximately $1.0 million and our guarantee under the new senior credit facility, as described below; Merisant would have had $220.0 million aggregate principal amount of senior indebtedness outstanding under the new senior credit facility and an additional $35.0 million of availability under the new revolving facility, all of which would have been guaranteed on a senior basis by us and Merisant's domestic guarantors; Primary Standard Industrial Classification Code in addition to the senior indebtedness described above, our guarantor subsidiaries would have had an aggregate of $18.4 million of pari passu indebtedness outstanding, consisting entirely of trade payables; and the total liabilities of our non-guarantor subsidiaries (other than liabilities owed to us or the guarantors) would have been approximately $16.6 million, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will restrict our ability and certain of our subsidiaries' ability to, among other things: incur additional indebtedness; layer indebtedness; pay dividends or make other distributions; repurchase or redeem capital stock; make investments or other restricted payments; create liens; enter into transactions with our affiliates; sell assets or shares of capital stock of our subsidiaries; restrict dividend or other payments to us from our subsidiaries; and merge, consolidate or transfer substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. Absent certain conditions, such as a default in the payment of interest, there will be no restriction in the indenture, however, on our ability to issue additional senior subordinated notes in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock included in such IDSs will not exceed the equivalent ratio represented by the then existing IDSs and separate senior subordinated notes. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of the Senior Subordinated Notes Certain Covenants." Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange or automated quotation system.
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. You should read this summary together with the more detailed information that is contained in this prospectus. On May 6, 2004, we changed our name from Tabletop Holdings, Inc. to Merisant Worldwide, Inc. Unless otherwise indicated or the context requires otherwise, all references in this prospectus to "Merisant Worldwide," "our company," "we," "us," "our," or similar references mean Merisant Worldwide, Inc. and its consolidated subsidiaries. All references to "Merisant" mean Merisant Company, Merisant Worldwide's wholly-owned subsidiary. Our Company Overview We are the worldwide leader in the marketing of low calorie tabletop sweeteners, with an estimated 30% share of a growing global retail market which we estimate at $1.3 billion. We believe that we have the leading market share in 11 of the top 20 countries for low calorie tabletop sweetener sales. Our brands, including our premium-priced brands Equal and Canderel , are sold in over 85 countries and are among the most recognized low calorie tabletop sweetener products in the world, with brand awareness estimated at or above 85% in each of their respective key markets. The strength of our leading brands is evidenced by price premiums relative to most of our competitors. We have a global infrastructure, including manufacturing operations whose principal activity is to blend and package our products. For the year ended December 31, 2003, we generated net sales of $352.3 million and a net loss of $17.6 million. We generated income before income taxes of $2.0 million for the year ended December 31, 2003. For the six months ended June 30, 2004, we generated net sales of $167.9 million and a net loss of $5.2 million. We generated a loss before income taxes of $3.1 million for the six months ended June 30, 2004. Our strong margins and low capital expenditures help us generate significant cash flows. Cash flow from operating activities was $68.4 million and $55.9 million for the years ended December 31, 2003 and 2002, respectively, and $20.9 million and $23.3 million for the six months ended June 30, 2004 and 2003, respectively. Bank EBITDA was $110.2 million and $115.6 million for the years ended December 31, 2003 and 2002, respectively, and $38.0 million and $46.5 million for six months ended June 30, 2004 and 2003, respectively. For a reconciliation of Bank EBITDA to cash flow from operating activities, see "Selected Consolidated Financial Data" on page 67 of this prospectus. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Our typical customer tends to be female, over 35 years of age and either a member of a diabetic household or a dieter. Our core customer base is growing as a result of an increased level of health consciousness and product awareness among consumers, as well as an aging population and an increased number of diabetics and persons who are glucose intolerant. We believe that these demographic trends have been primarily responsible for growth in the low calorie tabletop sweetener industry. We estimate that total sales of low calorie tabletop sweeteners have grown by 16% from 2002 to 2003. This growth has been accompanied by increased competition within the industry. According to LMC International Ltd, or LMC, global demand for low calorie tabletop sweeteners grew at a CAGR of 3% between 1990 and 2000 to 952,000 tons of sugar equivalent, but it only represented 2% of total tabletop sweetener demand. As a result, we believe there is substantial room for further growth in the low calorie tabletop sweetener industry. Operating expenses: Marketing and selling expenses 69.3 77.1 20 % 22 % (7.7 ) (11 )% Administration expenses 31.1 32.0 9 % 9 % (1.0 ) (3 )% Amortization of intangibles 36.2 28.7 11 % 8 % 7.5 21 % Start-up expenses 13.7 0.7 4 % % 13.0 95 % Restructuring expenses 0.7 2.3 % We sometimes refer to standard case and CAGR in this prospectus. We define standard case as the equivalent in sweetness power of 1,200 teaspoonfuls of sugar. CAGR refers to compound annual growth rate. INDUSTRY AND MARKET DATA We generate market and competitive position data to measure the performance of, and plan for, our business. We obtained the market and competitive position data used throughout this prospectus from our own research as well as surveys or studies conducted by third parties and industry or general publications. In particular, historical and projected retail sales of low calorie tabletop sweeteners, and the growth rates of such historical retail sales, are derived from data generated by the market research firms A.C. Nielsen Co., which we refer to as ACNielsen, and Information Resources, Inc., which we refer to as IRI, where available. Where third party data is unavailable or does not cover the entire segment of the market being reviewed, we formulate estimates based upon internal data, including, for example, regional sales and pricing data. Where market and competitive position data used in this prospectus contains such estimates, we have so indicated by using the words "management estimates," "our market research," "we estimate," "an estimated" and "we believe." Certain brand awareness and loyalty figures in this prospectus were derived from a study conducted by Synovate Inc., which study we commissioned and funded for use in our business. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data. Similarly, we believe that our internal research is reliable, but it has not been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks, including Equal , Canderel , Misura , Mivida , Sucaryl and Chuker , which are material to our business. We have licensed from The NutraSweet Company the right to use the NutraSweet trademark in our tabletop sweetener business. Unless otherwise indicated, all other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. We sell through multiple channels of distribution, including grocery and pharmacy retailers, food service distributors, mass merchandisers and club/warehouse retailers. We use distributors and brokers to distribute our products throughout the world and sell our products directly to selected customers in our largest markets. In 2003, $83.8 million, or 24% of our net sales, were made to Heinz U.S.A., which we refer to as Heinz, our primary distributor to the grocery and food service customers in the United States. Other than Heinz, no customer, including those serviced by Heinz, accounted for greater than 10% of our total net sales in 2003. We enjoy strong relationships with our customers, who include well-known mass merchandisers such as Wal-Mart, Sam's and Costco, restaurant chains such as McDonald's and Starbucks and grocery chains such as Kroger and Carrefour. The key ingredient in a majority of our products, including Equal and Canderel , is aspartame, although we also offer tabletop products sweetened with saccharin and other blended low calorie tabletop sweeteners. We currently obtain aspartame from the same third party manufacturer that supplies it as a sweetening ingredient to many leading low calorie food and beverage manufacturers. We believe aspartame is one of the most thoroughly tested low calorie tabletop sweeteners, and has gained widespread acceptance among consumers. Our global business model results from 25 years of experience in the low calorie tabletop sweetener industry, first as a division of G.D. Searle & Co., or Searle, and later Monsanto, and currently as a stand-alone company. Our global infrastructure includes manufacturing operations in the United States and Argentina and dedicated facilities in Germany that are operated by a third party. We are the only competitor in the low calorie tabletop sweetener market with global infrastructure and presence, which provides us with a competitive advantage over companies that compete in regional markets. The low calorie tabletop sweetener market remains fragmented, and most of our competitors focus on distinct markets and products. We estimate that our global retail sales are 50% larger than those of our next largest competitor. Our global scale allows us to work with leading suppliers in local markets and to develop local distribution channels. We will continue to look for opportunities to leverage our global presence and enhance global efficiencies in our business. Our Strengths We believe that our competitive strengths include: Leading global market position. We are the leading global marketer of low calorie tabletop sweeteners, with an estimated 30% dollar share of the global retail market in 2003. We estimate that, as of December 31, 2003, we had a 29% dollar share in North America, which, for our purposes, consists of the United States and Canada, a 37% dollar share in Europe, Africa and the Middle East, which we refer to as EAME, and a 28% dollar share in Latin America. Within the Asia/Pacific region, we believe we have captured a 49% dollar share of the Australia/New Zealand market and believe that we have established leading positions in several other markets within that region. Given our significant market share in most of our markets, we are well positioned to take advantage of overall industry growth in each of those markets. Strong brand equity and brand portfolio. Over the past 25 years, our brands have benefited from significant investments in consistent quality production and brand awareness. As a result, Equal enjoys consumer loyalty of 65% in the United States as of December 2003. This brand equity has allowed us to expand by developing new products and new uses for our existing products, such as Equal Sugar Lite , a unique blend of sugar and low calorie sweeteners designed for cooking and baking with half the calories and half the carbohydrates of sugar that measures exactly like sugar; Equal Spoonful , a zero calorie product that measures like sugar to make it easier to use in recipes designed for Equal ; Same with Sugar, a zero calorie tabletop sweetener that is a blend of sugar and low calorie sweetener launched in Puerto Rico; Equal Perfect Pleasures candies, which we have successfully launched in the United States, Puerto Rico, (in millions) as % of Sales Dollars % Net sales $ 173.3 $ 167.9 100 % 100 % $ (5.4 ) (3 )% Cost of sales 67.2 65.8 39 % 39 % 1.5 Income before income taxes 13.7 32.8 4 % 9 % 19.1 140 % Provision for income taxes 7.4 8.1 2 % UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Canada, Australia and South Africa; and Canderel branded chocolates, which we have successfully launched throughout Europe and the Middle East. Our worldwide brand recognition and leadership position in the industry facilitate geographic expansion. Unmatched global scale. We are the only global competitor in the marketplace that is focused primarily on the low calorie tabletop sweetener business. We estimate that our global retail sales are 50% larger than those of our next largest competitor. We have the focus, resources and consumer insights to quickly and effectively develop new products, market our brands and serve our global customers. Our global scope allows us to selectively invest in markets with the highest potential for growth and the highest returns. We continue to seek efficiencies and optimize our resource allocation to take advantage of our global scale. Our leading competitive position in the low calorie tabletop sweetener market, which results from our brand equity, global scope and customer relationships, would be difficult and costly for our competitors to replicate. Strong and stable cash flow characteristics. Supported by a unique combination of strong brand equity, high consumer loyalty, attractive margins and low capital expenditures, we have consistently produced strong cash flows, regardless of economic conditions, which have allowed us to pay down substantial debt. Our net sales have grown from an estimated $341.2 million in 2000 to $352.3 million in 2003. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Experienced and incentivized management team. Our senior management team has extensive experience in global brand management and the consumer products industry in markets around the world. Our chief executive officer, Etienne Veber, has a proven track record in the industry. Our senior management team has a financial incentive in the success of the business. In connection with the offering, we have established an annual incentive bonus plan and a long-term incentive plan designed to align the interests of management with those of our IDS holders. Our Business Strategy Our business strategy since our inception has been to enhance and develop world-class brands that drive cash flow and create value. By capitalizing on the strength of our existing brand portfolio and global infrastructure, we believe we will achieve steady revenue growth and stable cash flows through identifiable near-term initiatives, including: Expand our sales by promoting new usage among our existing consumers. Our core consumer group, consisting primarily of health-conscious consumers and diabetics, has been responsible for our historical growth and momentum. We intend to build on this group's loyalty and grow further by encouraging new and more frequent uses of our brands. We intend to increase usage through various value-focused promotional and in-store activities with retail partners and distributors and promote new uses by introducing innovative products, packaging and recipes designed especially for Equal and Canderel . Our active communication with our core consumers such as diabetics through our extensive consumer database and newsletters has been one of the key factors behind our consumer loyalty. Our market research indicates that in the United States, approximately 42% of the users of Equal are diabetics; similarly, approximately 52% of the volume of Equal sold is consumed by diabetics. We estimate that diabetic consumers also represent a significant portion of our volume in most of our other markets. Expand the Equal and Canderel brand positioning to attract new users into our franchise. We seek to attract consumers who currently do not use low calorie tabletop sweeteners by convincing them that our brands can be used in their everyday lives as part of a healthier (in millions) (in millions) North America $ 167.2 $ 161.0 $ (6.2 ) (4 )% $ 77.8 $ 75.2 $ (2.6 ) (3 )% Operating EBITDA Margin 47 % 47 % % EAME 109.2 123.9 14.7 13 % 36.6 38.7 2.1 6 % Operating EBITDA Margin 33 % 31 % (2 )% Latin America 54.2 46.7 (7.5 ) (14 )% 20.9 15.7 (5.2 ) (25 )% Operating EBITDA Margin 39 % 34 % (5 )% Asia/Pacific 19.0 20.7 1.7 9 % 0.6 0.6 (9 )% Operating EBITDA Margin 3 % Gross profit 208.5 215.1 61 % 62 % 6.5 (in millions) (in millions) North America $ 159.8 $ 167.2 $ 7.4 5 % $ 79.7 $ 77.8 $ (1.9 ) (2 )% Operating EBITDA Margin 50 % 47 % (3 )% EAME 104.8 109.2 4.4 4 % 38.3 36.6 (1.7 ) (5 )% Operating EBITDA Margin 37 % 34 % (3 )% Latin America 62.8 54.2 (8.6 ) (14 )% 20.9 20.9 Operating EBITDA Margin 33 % 39 % 5 % Asia/Pacific 15.7 19.0 3.3 21 % 1.4 0.6 (0.8 ) (53 )% Operating EBITDA Margin 9 % Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 lifestyle. Market research indicates that Equal is used by approximately 6% of all households in the United States and that approximately 14 million U.S. households, or 14%, are open to moving away from sugar. Our initiative to attract new users focuses on the great taste, health benefits, usefulness and quality of our product through an integrated marketing campaign, including print, television, other media and sampling. While the household penetration of our brands varies from country to country, we see opportunities to attract new users in all of our major markets. Gain market share among current users of low calorie tabletop sweeteners. In North America, our market research indicates that there are approximately 7 million households in the United States that currently use low-calorie sweeteners who would consider conversion to our Equal brand. We plan to pursue competitive brand users through focused promotion aimed at encouraging Equal brand trial and conversion. Outside North America, we will pursue share gain primarily through geographic expansion. For example, we have recently launched our Equal brand in Taiwan, Korea and Israel. Continue to improve efficiencies and margins throughout our operations. We have successfully achieved significant improvements in our working capital management and lowered our costs of operations. As a result, we have improved our gross margins and increased our cash flow. Beginning in 2001, we began consolidating vendors, increasing plant productivity and optimizing global sourcing of materials and business models. In addition, we recently renegotiated our agreement for the 2004 and a significant portion of the 2005 supply of our primary raw material, aspartame. Our operating model has enabled us to increase cash flow and accelerate the repayment of debt. We will continue to examine cost reduction and working capital management strategies in an effort to enhance efficiencies and maximize cash flow. In addition, our headcount reduction actions begun in June 2002, resulted in savings of approximately $8.0 million, excluding severance costs, for the year ended December 31, 2003. Execute aggressive marketing plans in our key markets to enhance our brands. By continuing to execute our current marketing efforts, we believe we can solidify and enhance our position as a leader in our four key markets: North America, France, the United Kingdom and Mexico, which represent a large majority of our total net sales for 2003. We intend to increase our consumer marketing spending which will enable us to significantly increase our share of voice with consumers. Specifically, we are looking to invigorate our market positions in North America and the United Kingdom, and build on our leadership positions in France and Mexico. We believe that we have additional opportunities to achieve sustainable long-term growth by capitalizing on positive consumer macro-trends, which include the increasing health consciousness of consumers, the aging of the population, and the increasing incidence of diabetes, through the following initiatives: Pursue brand repositioning campaign to capture category growth. We intend to reposition our brand in our key markets in 2004 to appeal to a broader consumer base, in order to take advantage of the favorable consumer trends that are occurring. We will continue with our increased marketing spending discussed earlier for this campaign which we believe will accelerate the growth of our Equal and Canderel franchises over the long-term. For instance, our new marketing effort is highlighted by our "Plan E" campaign in North America that we expect will reposition Equal as a lifestyle brand to be utilized in our customers' everyday lives. In Europe, our marketing plans are centered around a new formulation of Canderel and revamped brand identity. Innovate new products and brand extensions to increase future product pipeline. We will continue to focus resources on the research and development and launch of new products and brand extensions in an effort to grow the category in our key markets. In 2003, we introduced Canderel branded chocolates in Europe and Equal Spoonful and Equal Perfect Pleasures Net income (loss) $ 6.8 $ (5.2 ) Financing Activities Borrowings under long-term obligations 70,000 575,000 Principal payments on long-term obligations (43,570 ) (125,241 ) (349,206 ) Payment of deferred financing costs (1,357 ) (20,130 ) Dividends to shareholders (264,028 ) Repurchase of common stock (350 ) (260 ) (1 ) Issuance of common stock 980 90 Financing activities Borrowings under long-term obligations 75,000 500,000 575,000 Principal payments on long-term obligations (349,206 ) (349,206 ) Payment of deferred financing costs (2,645 ) (17,485 ) (20,130 ) Distribution to shareholder (264,028 ) (187,908 ) 187,908 (264,028 ) Repurchase of common stock (1 ) (1 ) Issuance of common stock 4 Merisant Worldwide, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 5141 52-2219000 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 10 South Riverside Plaza, Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Warren B. Grayson Vice President, General Counsel and Secretary Merisant Worldwide, Inc. 10 South Riverside Plaza Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) SEE TABLE OF ADDITIONAL REGISTRANTS candies in North America, all of which were well received by the marketplace. By continuing to expand our Canderel chocolate line in other markets such as Mexico and South Africa, and introducing further new products in Europe, in addition to brand extensions, we believe we will continue to expand the category and strengthen our market share. In France, we relaunched our Canderel brand with an improved formulation of a blend of low calorie sweeteners. We recently announced the launch in the United States of Equal Sugar Lite and in Europe of Canderel Crystal , each containing the same unique blend of sugar and low calorie sweeteners designed for cooking and baking that measure and function like sugar. Equal Sugar Lite is planned for launch in additional markets in 2004 and 2005. Similarly, Canderel Crystal has been launched in Belgium in 2004 and is planned for launch in additional markets later this year. Our History The main sweetening ingredient in our leading tabletop brands, aspartame, was discovered in 1965 by Dr. James Schlatter while doing research at Searle on amino acids. By the early 1980s, after many years of testing before being approved for consumer use, the product was being marketed as Canderel in much of Europe and as Equal in the United States. In 1985, Monsanto entered the low calorie sweetener market through its acquisition of Searle. Monsanto sold the assets that now form the basis of our tabletop sweetener business to an investor group led by an affiliate of Pegasus Capital Advisors, L.P., who we refer to as our sponsor investor, on March 17, 2000 and the business was named Merisant Company. The Transactions Concurrently with this offering: we will effect a recapitalization of the equity interests of our existing stockholders and a number of other internal corporate transactions; and Merisant will enter into a senior secured credit facility in an amount up to $255.0 million, which we refer to as the new senior credit facility. We estimate that we will sell IDSs in this offering and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs) and receive net proceeds of approximately $ million after deducting underwriting discounts, commissions, and other estimated offering expenses, assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. We will use the net proceeds of this offering together with the estimated $ million net proceeds from our new senior credit facility and cash on hand, to: repay all outstanding borrowings under, and terminate, Merisant's current senior secured credit facility, which we refer to as our existing senior credit facility, and unwind our current interest rate hedges; consummate tender offers and consent solicitations for all of our outstanding $136.0 million aggregate principal amount at maturity of 121/4% senior subordinated discount notes due 2014, which we refer to as the discount notes, and all of Merisant's outstanding $225.0 million aggregate principal amount of 91/2% senior subordinated notes due 2013, which we refer to as the existing senior subordinated notes; repurchase approximately shares of our currently outstanding Class B common stock from our existing stockholders; make payments under existing management incentive plans of approximately $ (assuming an initial public offering price of $ per IDS); and Total other expenses 43.7 41.4 13 % 12 % 2.3 With copies to: Carol M. Lind Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000 Bruce S. Mendelsohn Akin Gump Strauss Hauer & Feld LLP Robert S. Strauss Building 1333 New Hampshire Avenue, NW Washington, DC 20036 (202) 887-4000 pre-fund capital expenditures of approximately $ . If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase additional shares of our Class B common stock from our Class B stockholders. We refer to this offering, our entering into the new senior credit facility, the repayment in full and termination of the existing senior credit facility, the unwinding of our current interest rate hedges, the repurchase of a portion of the outstanding Class B common stock of our Class B stockholders, the making of payments and issuance of shares of Class B common stock under existing management incentive plans, the internal corporate transactions and the tender offer for our discount notes and the existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than this offering as the other Transactions. The closing of this offering is conditioned on our completion of the other Transactions (other than the repurchase of shares from our Class B stockholders and the making of payments and issuance of shares of Class B common stock under our management incentive plans). New Senior Credit Facility. Concurrently with this offering, Merisant will enter into a new senior secured credit facility in an amount up to $255.0 million with a syndicate of financial institutions, including affiliates of Credit Suisse First Boston, RBC Capital Markets and Merrill Lynch & Co. We anticipate that the new senior credit facility will consist of a senior secured revolving credit facility in a total principal amount of up to $35.0 million, which we refer to as the new revolving facility, and a senior secured term loan facility in an aggregate principal amount of up to $220.0 million, consisting of up to $40.0 million of Euro Term Loan A and up to $180.0 million of Term Loan B. While the new senior credit facility is expected to permit us to pay dividends on the shares of Class A common stock that constitute the IDSs and our Class B common stock, we expect that it will contain restrictions on our ability to do so, as described more fully below under "Description of Certain Indebtedness New Senior Credit Facility." We also expect the new senior credit facility to require us to defer the payment of interest on the senior subordinated notes if we fail to meet specified financial tests or if there is a default or potential default. We anticipate that the new revolving facility will be undrawn at closing and that we will have $ million of availability immediately following the offering. Tender Offers and Consent Solicitations. We have commenced tender offers and consent solicitations with respect to all of the discount notes and all of the existing senior subordinated notes. The closing of this offering is conditioned upon the receipt of the tenders and consents of at least a majority in aggregate outstanding principal amount at maturity of the discount notes and existing senior subordinated notes. We and Merisant have received the required consents with respect to the existing discount notes and the existing senior subordinated notes, respectively. Such consents may not be revoked. Holders of the discount notes and existing senior subordinated notes that provide consents will be obligated to tender their notes in the tender offers, and holders of the discount notes and existing senior subordinated notes that tender their notes in the tender offers will be obligated to provide consents. The consummation of the tender offers will be conditioned upon this offering. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of two term loans and a revolving credit facility. We expect to pay the entire principal amount outstanding under the existing senior credit facility, which was $236.5 million as of June 30, 2004, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 1, 2004 of 4.1% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty. We will also unwind our interest rate hedges related to the existing credit facility. Income before income taxes 32.8 2.0 9 % 1 % (30.8 ) (94 )% Provision for income taxes 8.1 19.7 2 % Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. *Where required by local law, a nominal number of shares may be held by directors or other persons. Net income (loss) $ 24.7 $ (17.6 ) Total operating expenses 151.1 140.8 44 % 40 % 10.3 If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Information About Us We are a Delaware corporation. Our chief executive offices are located at 10 South Riverside Plaza, Suite 850, Chicago, Illinois 60606. Our telephone number is (312) 840-6000. Our Internet address is www.merisant.com. The information found on our website is not a part of this prospectus. Other Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: an initial public offering price of $ per IDS (comprised of $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the mid-point of the range set forth on the cover page of this prospectus; a % annual interest rate on the senior subordinated notes, which is subject to change depending on market conditions prior to the pricing date; no exercise of the underwriters' over-allotment option; the reclassification of our existing common stock effective immediately prior to this offering; the issuance of shares of Class B common stock to participants in our Stock Appreciation Rights Plan upon the consummation of this offering, which represents the number of such shares that will be issued assuming an initial offering price of $ per IDS; and receipt of tenders and consents with respect to 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes. In the event that less than 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes are tendered, the term loan portion of the new senior credit facility will be reduced proportionately. Furthermore, unless the context otherwise requires, references in this prospectus to "senior subordinated notes" refer to both senior subordinated notes underlying IDSs as well as senior subordinated notes issued separately (not in the form of IDSs). The Offering Summary of the IDSs and Senior Subordinated Notes We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs). The aggregate principal amount of our % senior subordinated notes due 2019 offered hereby, including both notes initially represented by IDSs and notes sold separately, is $299.0 million ($331.0 million if the underwriters exercise their over-allotment option in full). Purchasers of separate senior subordinated notes may not also purchase IDSs in this offering. See "Notice to Purchasers of Separate Senior Subordinated Notes and Acknowledgement of Purchaser Intent" above. What are IDSs? IDSs, or income deposit securities, are securities comprised of our Class A common stock and senior subordinated notes. Each IDS initially represents one share of our Class A common stock and one % senior subordinated note with $ principal amount. CALCULATION OF REGISTRATION FEE What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of % of the aggregate principal amount of senior subordinated notes held separately or represented by your IDSs, or approximately $ per IDS, or per $ of senior subordinated notes held separately, per year, subject to our right, under specified circumstances, to defer interest payments on the senior subordinated notes as described below under "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." You may also receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new senior credit facility and our senior subordinated notes are each expected to contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. Upon the completion of this offering, our board of directors intends to adopt a dividend policy with respect to our common stock pursuant to which cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness and capital expenditures sufficient to maintain our properties and other assets would, in general, be distributed as regular quarterly cash dividends (up to the intended dividend rates set forth below) to the holders of our common stock. We intend to make our first dividend payment on April 15, 2005 to holders of record as of April 10, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock, and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock for the remainder of the first full year following completion of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarter, including the dividends expected to be paid on April 15, 2005, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indenture governing our senior subordinated notes and our new senior credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at the level set forth above or at all. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." We intend to make interest payments and, if declared, dividend payments on January 15, April 15, July 15 and October 15 of each year to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Will my rights as a holder of an IDS be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges, and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the IDSs (or % if the over-allotment option with respect to the IDSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, the existing stockholders, or their transferees, may greatly influence the outcome of all matters presented to our stockholders for a vote. In addition, so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. What will happen to the IDS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. How can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in subsequent offerings of IDSs of the same series, may, at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control, through a broker or other financial institution, separate each of their IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through a broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been separated on an automatic basis as a result of the repurchase, redemption or maturity of any senior subordinated notes. Any separation or recombination will be effective as of the close of business on the trading day that the instructions to separate or recombine are received if the instructions are received by 3:00 p.m., Eastern Standard Time, on that trading day. Any instructions received after 3:00 p.m. will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. See "Description of Income Deposit Securities (IDSs) Book-Entry Settlement and Clearance Separation and recombination." Will the IDSs be listed on an exchange or automated quotation system? Yes. We have applied to list our IDSs on the Nasdaq National Market under the trading symbol "MERI." Ratio of earnings to fixed charges x x Ratio of Bank EBITDA to pro forma cash interest expense x x Ratio of pro forma total debt to Bank EBITDA x Income from operations 26.0 16.8 15 % Income Deposit Securities (IDSs)(2) $ $ Will the senior subordinated notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange or automated quotation system? We do not anticipate that the senior subordinated notes represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be listed for separate trading on any exchange or automated quotation system. Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares are held separately and not in the form of IDSs as may be necessary to satisfy applicable listing requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The senior subordinated notes and Class A common stock represented by the IDSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the additional senior subordinated notes to be sold separately (not in the form of IDSs) be the same as the senior subordinated notes issued as a component of the IDSs? Yes. The additional senior subordinated notes to be sold separately (not in the form of IDSs) will be identical to the senior subordinated notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of IDSs) and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately be issued? The IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs), and you will not receive a certificate for your IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs and additional senior subordinated notes. Upon separation of the IDSs, a holder of Class A common stock may request one or more stock certificates representing the shares of Class A common stock. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance of a payment default (without cure) on the senior subordinated notes for 90 days; the exercise by us of our right to redeem all or a portion of the senior subordinated notes; the exercise by a holder of senior subordinated notes of its right to require us to repurchase its senior subordinated notes following the occurrence of a change of control (as defined in the indenture governing the senior subordinated notes); the date on which principal on the senior subordinated notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof; or if The Depository Trust Company no longer makes the IDS securities eligible for deposit or ceases to be a registered clearing agency Less (plus): Corporate expenses 12,194 Restructuring expenses 1,800 Depreciation expense 4,882 Impairment loss on fixed assets 3,128 Loss on sale or disposal of fixed assets 143 Amortization expense 11,118 Currency gain on euro debt (1,534 ) Unrealized gain on derivative instruments (5,577 ) Other non-cash income Class A Common Stock, par value $0.01 per share(3) under the Exchange Act and we are unable to find a successor depository. See "Description of Income Deposit Securities (IDSs) Automatic Separation." What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms and conditions that are identical to those of the IDSs or senior subordinated notes (not in the form of IDSs) being sold in this offering, except that if IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the IDSs issued hereunder may separate. Additional IDSs will represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding IDSs. In addition, we will be required to issue additional IDSs in the future upon the exercise of exchange rights by holders of our Class B common stock. Although the senior subordinated notes represented by such additional IDSs or sold separately (not represented by IDSs) will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with "original issue discount" (referred to as OID) for U.S. federal income tax purposes, and with accrued interest. If any new senior subordinated notes are issued (separately or as part of IDSs), all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) will exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result, following any such new issuance, we intend to allocate and report any OID associated with the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See " What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such new senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy of the issuer prior to the maturity of the senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and subject you to other adverse consequences." Any subsequent issuance of IDSs and senior subordinated notes of the same series that results in an exchange of a portion of your senior subordinated notes for a portion of the senior subordinated notes issued in such subsequent issuance and/or replacement of your IDSs with new IDSs will not impair the rights you would otherwise have to assert claims against us or the underwriters with respect to the full amount of the senior subordinated notes purchased by you, notwithstanding such exchange and/or replacement, if and to the extent such claim is based on alleged material misstatements or omissions contained in this prospectus. Senior subordinated notes sold after the date of this offering, whether represented by additional IDSs or sold separately (not in the form of IDSs), will be issued with accrued interest from the most recent interest payment date. In addition, such senior subordinated notes will be deemed to have the same deferred interest and defaults as the senior subordinated notes that are being issued at the closing of this offering and will be deemed to have expended payment blockage periods, acceleration forbearance periods and interest deferral periods to the same extent as the senior subordinated notes issued at the closing of this offering. See "Description of the Senior Subordinated Notes General." Total other expenses 15.9 19.9 9 % (in millions) (in millions) North America $ 81.5 $ 69.7 $ (11.7 ) (14 )% $ 38.0 $ 27.8 $ (10.3 ) (27 )% Operating EBITDA Margin 47 % 40 % (7 )% EAME 62.0 67.7 5.7 9 % 14.9 16.7 1.8 12 % Operating EBITDA Margin 24 % 25 % 1 % Latin America 20.1 18.9 (1.3 ) (6 )% 5.3 4.4 (1.0 ) (18 )% Operating EBITDA Margin 26 % 23 % (3 )% Asia/Pacific 9.6 11.5 1.9 20 % (0.5 ) 0.9 1.4 305 % Operating EBITDA Margin (5 )% 8 % % Senior Subordinated Notes(4) We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in IDSs? Certain aspects of the U.S. federal income tax consequences to us and to you of the IDSs and separately issued senior subordinated notes being offered hereby are uncertain. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel, Sidley Austin Brown & Wood LLP, is of the opinion that, for U.S. federal income tax purposes, an IDS issued by Merisant Worldwide should be treated as two separate instruments consisting of a senior subordinated note issued by Merisant Worldwide and a share of Class A common stock of Merisant Worldwide. Accordingly, we intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and of our senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values on the issue date, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our senior subordinated notes as $ , assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. By purchasing IDSs, you will agree to be bound by this allocation. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel is also of the opinion that, for U.S. federal income tax purposes, the senior subordinated notes should be treated as debt. Based on that opinion, we believe that the senior subordinated notes (whether issued separately or as part of IDSs) should be treated as debt for U.S. federal income tax purposes. There is no authority that directly addresses the tax treatment of the IDSs, and the application to the IDSs of existing authority regarding the tax treatment of subordinated debt offered under circumstances such as the offering (i.e., offered as a unit consisting of debt and common stock) is not entirely clear. Accordingly, neither we nor our special counsel can conclude with certainty that an IDS will be treated as two separate instruments or that the senior subordinated notes will be treated as debt for U.S. federal income tax purposes. The IRS may challenge our position and such challenge may be successful. If all or a portion of the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then a corresponding portion of the interest on the senior subordinated notes would be treated as a dividend and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow and materially and adversely impact our ability to make interest and dividend payments. In addition, if any payments were treated as dividends, such payments to holders who are not U.S. persons for federal income tax purposes would generally be subject to withholding of U.S. federal income taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. We would also be liable for withholding taxes (and for interest and possibly penalties for failure to withhold) on any interest payments previously made by us to non-U.S. holders that are recharacterized as dividends for U.S. federal income tax purposes. Dividends paid on the common stock through 2008, under current tax law and to the extent those dividends are paid out of our earnings and profits, will be taxable to U.S. individuals at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to U.S. individuals at ordinary income rates. Guarantees of Senior Subordinated Notes(5) The opinions of counsel referred to above are not binding on the IRS or courts, and no ruling on this issue has been requested from the IRS. There is no statutory, judicial or administrative authority directly addressing the treatment of the IDSs or instruments substantially similar to the IDSs for U.S. federal income tax purposes. We urge you to consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of an investment in the IDSs, the senior subordinated notes and Class A common stock. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? As discussed above under " What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future?" the issuance of new senior subordinated notes (separately or as part of IDSs) may in certain circumstances be treated as an exchange by holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) of a ratable portion of their outstanding notes for a portion of the new notes. It is uncertain whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. It is also possible that the IRS might successfully assert that any resulting loss on an exchange should be disallowed under the "wash sale" rules, in which case the holder's basis in the subsequently issued senior subordinated notes would be increased to reflect the amount of the disallowed loss. Even if the exchange is not treated as a taxable event, such exchange might result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner regardless of whether the senior subordinated notes are held as part of IDSs or directly, the recombination of senior subordinated notes and shares of common stock to form IDSs or the separation of IDSs should not affect your tax treatment. See "Material U.S. Federal Income Tax Considerations." Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of senior subordinated notes and IDSs, and each holder of senior subordinated notes and IDSs will, by purchasing senior subordinated notes and IDSs, agree to report OID in a manner consistent with this approach. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the IDSs and senior subordinated notes and could adversely affect the market for the IDSs and senior subordinated notes. Due to the complexity and uncertainty surrounding the U.S. federal income tax treatment of subsequent issuances and exchanges of senior subordinated notes, prospective investors are urged to consult their tax advisors regarding the tax consequences to them in light of their particular circumstances. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." Total $775,000,000 $98,193(6) What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under GAAP regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, or FASB, the Emerging Issues Task Force, or EITF, or the Securities and Exchange Commission, or SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates." (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs consist of shares of Class A common stock and $ aggregate principal amount of % senior subordinated notes due 2019, including IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (3)Includes shares of Class A common stock subject to the underwriters' over-allotment option. (4)Includes $ million aggregate principal amount of % senior subordinated notes subject to the underwriters' over-allotment option and $ million aggregate principal amount of % senior subordinated notes sold separately (not as part of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Pursuant to Rule 457(n), no separate filing fee is required for the guarantees. (6)Previously paid. Summary of the Common Stock Issuer Merisant Worldwide, Inc. Shares of Class A common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Our bylaws will provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Shares of Class B common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Total shares of common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Voting rights Subject to applicable law, each outstanding share of our Class A and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote, except that so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, the holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. Listing Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares is held separately and not in the form of IDSs as may be necessary to satisfy any applicable requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The shares of our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. We do not expect to list our shares of Class B common stock for separate trading on any exchange or automated quotation system and the shares of Class B common Stock will have limitations on their transferability. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Dividends Holders of our Class A common stock and the holders of our Class B common stock will receive quarterly dividends on our Class A common stock and Class B common stock, respectively, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, we expect that the senior subordinated notes indenture and our new senior credit facility will each restrict our ability to declare and pay dividends on our Class A and Class B common stock as described in detail under "Dividend Policy and Restrictions." Upon the completion of this offering, our board of directors intends to adopt a dividend policy which reflects our judgment that our stockholders would be better served if we distributed the cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets to them (up to the intended dividend rates set forth below) instead of retaining it in our business. We intend to make our first dividend payment on April 15, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock through the first full year following the completion of this offering. However, our dividend policy is subject to adjustment by our board at its sole discretion. In the event of any reduction in the cash available for dividends, the dividend on the Class A common stock and the Class B common stock will be reduced proportionately. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rate set forth above or discontinue entirely the payment of dividends. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." Dividend payment dates If declared, dividends on our Class A and Class B common stock will be paid quarterly on January 15, April 15, July 15 and October 15 to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Rights to exchange shares of Class B common stock for IDSs Holders of our Class B common stock have agreed to restrictions on the transferability of the Class B common stock. Beginning on the first anniversary of the consummation of this offering, holders of our Class B common stock will have the right to exchange their Class B common stock for the equivalent value of IDSs under certain circumstances. However, until the second anniversary of the consummation of this offering, the shareholders agreement will restrict the holders of our Class B common stock from exercising such exchange right if following the exchange the holders of our Class B common stock would hold less than shares. See "Description of Capital Stock." Total other expenses 41.4 65.1 12 % Summary of the Senior Subordinated Notes Issuer Merisant Worldwide, Inc. Senior subordinated notes represented by IDSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not in the form of IDSs) $ million aggregate principal amount. Senior subordinated notes to be outstanding following the offering $299.0 million aggregate principal amount (or $331.0 million aggregate principal amount if the underwriters exercise their over-allotment option in full). Interest rate % per annum. Interest payment dates Interest will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing April 15, 2005, to holders of record on the 10th day of each such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate. In addition, after , 2009, but before , 2014 and after , 2014, but before , 2019, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions, provided that no more than three quarters of interest may be deferred during either such period. No later than , 2009, we will pay in full all interest deferred prior to , 2009 (together with accrued interest thereon). No later than , 2014, we will pay in full all interest deferred after , 2009 and prior to , 2014 (together with accrued interest thereon). We will pay in full all interest deferred after , 2014 (together with accrued interest thereon) no later than , 2019, the maturity date of the senior subordinated notes. Income from operations 74.2 67.1 21 % MERISANT WORLDWIDE, INC. TABLE OF ADDITIONAL REGISTRANTS Name of Additional Registrants During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include stated interest in your income for U.S. federal income tax purposes on an economic accrual basis, possibly before the receipt of corresponding cash interest payments. See "Material U.S. Federal Income Tax Considerations." We expect that our new senior credit facility will restrict our ability to pay interest on the senior subordinated notes in certain circumstances as further described under "Description of Certain Indebtedness" and "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms and at the prices set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, all senior subordinated notes and Class A common stock represented by each IDS will automatically separate and will no longer be combinable into IDSs following such separation. See "Description of the Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of the Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. State of Incorporation Guarantees The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new senior credit facility. Ranking We are a holding company and derive all of our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor's existing and future senior indebtedness, including the borrowings under and all guarantees of the new senior credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor's existing and future senior subordinated indebtedness and trade payables except for the impact of the contractual subordination provided in the indenture governing the senior subordinated notes which may have the effect of causing the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness, including trade payables, of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and our subsidiaries to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: we would have had no senior or pari passu indebtedness outstanding except for trade payables of approximately $1.0 million and our guarantee under the new senior credit facility, as described below; Merisant would have had $220.0 million aggregate principal amount of senior indebtedness outstanding under the new senior credit facility and an additional $35.0 million of availability under the new revolving facility, all of which would have been guaranteed on a senior basis by us and Merisant's domestic guarantors; Primary Standard Industrial Classification Code in addition to the senior indebtedness described above, our guarantor subsidiaries would have had an aggregate of $18.4 million of pari passu indebtedness outstanding, consisting entirely of trade payables; and the total liabilities of our non-guarantor subsidiaries (other than liabilities owed to us or the guarantors) would have been approximately $16.6 million, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will restrict our ability and certain of our subsidiaries' ability to, among other things: incur additional indebtedness; layer indebtedness; pay dividends or make other distributions; repurchase or redeem capital stock; make investments or other restricted payments; create liens; enter into transactions with our affiliates; sell assets or shares of capital stock of our subsidiaries; restrict dividend or other payments to us from our subsidiaries; and merge, consolidate or transfer substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. Absent certain conditions, such as a default in the payment of interest, there will be no restriction in the indenture, however, on our ability to issue additional senior subordinated notes in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock included in such IDSs will not exceed the equivalent ratio represented by the then existing IDSs and separate senior subordinated notes. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of the Senior Subordinated Notes Certain Covenants." Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange or automated quotation system.
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. You should read this summary together with the more detailed information that is contained in this prospectus. On May 6, 2004, we changed our name from Tabletop Holdings, Inc. to Merisant Worldwide, Inc. Unless otherwise indicated or the context requires otherwise, all references in this prospectus to "Merisant Worldwide," "our company," "we," "us," "our," or similar references mean Merisant Worldwide, Inc. and its consolidated subsidiaries. All references to "Merisant" mean Merisant Company, Merisant Worldwide's wholly-owned subsidiary. Our Company Overview We are the worldwide leader in the marketing of low calorie tabletop sweeteners, with an estimated 30% share of a growing global retail market which we estimate at $1.3 billion. We believe that we have the leading market share in 11 of the top 20 countries for low calorie tabletop sweetener sales. Our brands, including our premium-priced brands Equal and Canderel , are sold in over 85 countries and are among the most recognized low calorie tabletop sweetener products in the world, with brand awareness estimated at or above 85% in each of their respective key markets. The strength of our leading brands is evidenced by price premiums relative to most of our competitors. We have a global infrastructure, including manufacturing operations whose principal activity is to blend and package our products. For the year ended December 31, 2003, we generated net sales of $352.3 million and a net loss of $17.6 million. We generated income before income taxes of $2.0 million for the year ended December 31, 2003. For the six months ended June 30, 2004, we generated net sales of $167.9 million and a net loss of $5.2 million. We generated a loss before income taxes of $3.1 million for the six months ended June 30, 2004. Our strong margins and low capital expenditures help us generate significant cash flows. Cash flow from operating activities was $68.4 million and $55.9 million for the years ended December 31, 2003 and 2002, respectively, and $20.9 million and $23.3 million for the six months ended June 30, 2004 and 2003, respectively. Bank EBITDA was $110.2 million and $115.6 million for the years ended December 31, 2003 and 2002, respectively, and $38.0 million and $46.5 million for six months ended June 30, 2004 and 2003, respectively. For a reconciliation of Bank EBITDA to cash flow from operating activities, see "Selected Consolidated Financial Data" on page 67 of this prospectus. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Our typical customer tends to be female, over 35 years of age and either a member of a diabetic household or a dieter. Our core customer base is growing as a result of an increased level of health consciousness and product awareness among consumers, as well as an aging population and an increased number of diabetics and persons who are glucose intolerant. We believe that these demographic trends have been primarily responsible for growth in the low calorie tabletop sweetener industry. We estimate that total sales of low calorie tabletop sweeteners have grown by 16% from 2002 to 2003. This growth has been accompanied by increased competition within the industry. According to LMC International Ltd, or LMC, global demand for low calorie tabletop sweeteners grew at a CAGR of 3% between 1990 and 2000 to 952,000 tons of sugar equivalent, but it only represented 2% of total tabletop sweetener demand. As a result, we believe there is substantial room for further growth in the low calorie tabletop sweetener industry. Operating expenses: Marketing and selling expenses 69.3 77.1 20 % 22 % (7.7 ) (11 )% Administration expenses 31.1 32.0 9 % 9 % (1.0 ) (3 )% Amortization of intangibles 36.2 28.7 11 % 8 % 7.5 21 % Start-up expenses 13.7 0.7 4 % % 13.0 95 % Restructuring expenses 0.7 2.3 % We sometimes refer to standard case and CAGR in this prospectus. We define standard case as the equivalent in sweetness power of 1,200 teaspoonfuls of sugar. CAGR refers to compound annual growth rate. INDUSTRY AND MARKET DATA We generate market and competitive position data to measure the performance of, and plan for, our business. We obtained the market and competitive position data used throughout this prospectus from our own research as well as surveys or studies conducted by third parties and industry or general publications. In particular, historical and projected retail sales of low calorie tabletop sweeteners, and the growth rates of such historical retail sales, are derived from data generated by the market research firms A.C. Nielsen Co., which we refer to as ACNielsen, and Information Resources, Inc., which we refer to as IRI, where available. Where third party data is unavailable or does not cover the entire segment of the market being reviewed, we formulate estimates based upon internal data, including, for example, regional sales and pricing data. Where market and competitive position data used in this prospectus contains such estimates, we have so indicated by using the words "management estimates," "our market research," "we estimate," "an estimated" and "we believe." Certain brand awareness and loyalty figures in this prospectus were derived from a study conducted by Synovate Inc., which study we commissioned and funded for use in our business. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data. Similarly, we believe that our internal research is reliable, but it has not been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks, including Equal , Canderel , Misura , Mivida , Sucaryl and Chuker , which are material to our business. We have licensed from The NutraSweet Company the right to use the NutraSweet trademark in our tabletop sweetener business. Unless otherwise indicated, all other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. We sell through multiple channels of distribution, including grocery and pharmacy retailers, food service distributors, mass merchandisers and club/warehouse retailers. We use distributors and brokers to distribute our products throughout the world and sell our products directly to selected customers in our largest markets. In 2003, $83.8 million, or 24% of our net sales, were made to Heinz U.S.A., which we refer to as Heinz, our primary distributor to the grocery and food service customers in the United States. Other than Heinz, no customer, including those serviced by Heinz, accounted for greater than 10% of our total net sales in 2003. We enjoy strong relationships with our customers, who include well-known mass merchandisers such as Wal-Mart, Sam's and Costco, restaurant chains such as McDonald's and Starbucks and grocery chains such as Kroger and Carrefour. The key ingredient in a majority of our products, including Equal and Canderel , is aspartame, although we also offer tabletop products sweetened with saccharin and other blended low calorie tabletop sweeteners. We currently obtain aspartame from the same third party manufacturer that supplies it as a sweetening ingredient to many leading low calorie food and beverage manufacturers. We believe aspartame is one of the most thoroughly tested low calorie tabletop sweeteners, and has gained widespread acceptance among consumers. Our global business model results from 25 years of experience in the low calorie tabletop sweetener industry, first as a division of G.D. Searle & Co., or Searle, and later Monsanto, and currently as a stand-alone company. Our global infrastructure includes manufacturing operations in the United States and Argentina and dedicated facilities in Germany that are operated by a third party. We are the only competitor in the low calorie tabletop sweetener market with global infrastructure and presence, which provides us with a competitive advantage over companies that compete in regional markets. The low calorie tabletop sweetener market remains fragmented, and most of our competitors focus on distinct markets and products. We estimate that our global retail sales are 50% larger than those of our next largest competitor. Our global scale allows us to work with leading suppliers in local markets and to develop local distribution channels. We will continue to look for opportunities to leverage our global presence and enhance global efficiencies in our business. Our Strengths We believe that our competitive strengths include: Leading global market position. We are the leading global marketer of low calorie tabletop sweeteners, with an estimated 30% dollar share of the global retail market in 2003. We estimate that, as of December 31, 2003, we had a 29% dollar share in North America, which, for our purposes, consists of the United States and Canada, a 37% dollar share in Europe, Africa and the Middle East, which we refer to as EAME, and a 28% dollar share in Latin America. Within the Asia/Pacific region, we believe we have captured a 49% dollar share of the Australia/New Zealand market and believe that we have established leading positions in several other markets within that region. Given our significant market share in most of our markets, we are well positioned to take advantage of overall industry growth in each of those markets. Strong brand equity and brand portfolio. Over the past 25 years, our brands have benefited from significant investments in consistent quality production and brand awareness. As a result, Equal enjoys consumer loyalty of 65% in the United States as of December 2003. This brand equity has allowed us to expand by developing new products and new uses for our existing products, such as Equal Sugar Lite , a unique blend of sugar and low calorie sweeteners designed for cooking and baking with half the calories and half the carbohydrates of sugar that measures exactly like sugar; Equal Spoonful , a zero calorie product that measures like sugar to make it easier to use in recipes designed for Equal ; Same with Sugar, a zero calorie tabletop sweetener that is a blend of sugar and low calorie sweetener launched in Puerto Rico; Equal Perfect Pleasures candies, which we have successfully launched in the United States, Puerto Rico, (in millions) as % of Sales Dollars % Net sales $ 173.3 $ 167.9 100 % 100 % $ (5.4 ) (3 )% Cost of sales 67.2 65.8 39 % 39 % 1.5 Income before income taxes 13.7 32.8 4 % 9 % 19.1 140 % Provision for income taxes 7.4 8.1 2 % UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Canada, Australia and South Africa; and Canderel branded chocolates, which we have successfully launched throughout Europe and the Middle East. Our worldwide brand recognition and leadership position in the industry facilitate geographic expansion. Unmatched global scale. We are the only global competitor in the marketplace that is focused primarily on the low calorie tabletop sweetener business. We estimate that our global retail sales are 50% larger than those of our next largest competitor. We have the focus, resources and consumer insights to quickly and effectively develop new products, market our brands and serve our global customers. Our global scope allows us to selectively invest in markets with the highest potential for growth and the highest returns. We continue to seek efficiencies and optimize our resource allocation to take advantage of our global scale. Our leading competitive position in the low calorie tabletop sweetener market, which results from our brand equity, global scope and customer relationships, would be difficult and costly for our competitors to replicate. Strong and stable cash flow characteristics. Supported by a unique combination of strong brand equity, high consumer loyalty, attractive margins and low capital expenditures, we have consistently produced strong cash flows, regardless of economic conditions, which have allowed us to pay down substantial debt. Our net sales have grown from an estimated $341.2 million in 2000 to $352.3 million in 2003. Prior to Merisant's refinancing in July 2003, we had repaid approximately $149.4 million, or 34%, of the debt we incurred in connection with our formation as a stand-alone company in March 2000. As of June 30, 2004, we have repaid approximately $42.2 million, or 7.3%, of the debt incurred by Merisant in connection with its refinancing. Experienced and incentivized management team. Our senior management team has extensive experience in global brand management and the consumer products industry in markets around the world. Our chief executive officer, Etienne Veber, has a proven track record in the industry. Our senior management team has a financial incentive in the success of the business. In connection with the offering, we have established an annual incentive bonus plan and a long-term incentive plan designed to align the interests of management with those of our IDS holders. Our Business Strategy Our business strategy since our inception has been to enhance and develop world-class brands that drive cash flow and create value. By capitalizing on the strength of our existing brand portfolio and global infrastructure, we believe we will achieve steady revenue growth and stable cash flows through identifiable near-term initiatives, including: Expand our sales by promoting new usage among our existing consumers. Our core consumer group, consisting primarily of health-conscious consumers and diabetics, has been responsible for our historical growth and momentum. We intend to build on this group's loyalty and grow further by encouraging new and more frequent uses of our brands. We intend to increase usage through various value-focused promotional and in-store activities with retail partners and distributors and promote new uses by introducing innovative products, packaging and recipes designed especially for Equal and Canderel . Our active communication with our core consumers such as diabetics through our extensive consumer database and newsletters has been one of the key factors behind our consumer loyalty. Our market research indicates that in the United States, approximately 42% of the users of Equal are diabetics; similarly, approximately 52% of the volume of Equal sold is consumed by diabetics. We estimate that diabetic consumers also represent a significant portion of our volume in most of our other markets. Expand the Equal and Canderel brand positioning to attract new users into our franchise. We seek to attract consumers who currently do not use low calorie tabletop sweeteners by convincing them that our brands can be used in their everyday lives as part of a healthier (in millions) (in millions) North America $ 167.2 $ 161.0 $ (6.2 ) (4 )% $ 77.8 $ 75.2 $ (2.6 ) (3 )% Operating EBITDA Margin 47 % 47 % % EAME 109.2 123.9 14.7 13 % 36.6 38.7 2.1 6 % Operating EBITDA Margin 33 % 31 % (2 )% Latin America 54.2 46.7 (7.5 ) (14 )% 20.9 15.7 (5.2 ) (25 )% Operating EBITDA Margin 39 % 34 % (5 )% Asia/Pacific 19.0 20.7 1.7 9 % 0.6 0.6 (9 )% Operating EBITDA Margin 3 % Gross profit 208.5 215.1 61 % 62 % 6.5 (in millions) (in millions) North America $ 159.8 $ 167.2 $ 7.4 5 % $ 79.7 $ 77.8 $ (1.9 ) (2 )% Operating EBITDA Margin 50 % 47 % (3 )% EAME 104.8 109.2 4.4 4 % 38.3 36.6 (1.7 ) (5 )% Operating EBITDA Margin 37 % 34 % (3 )% Latin America 62.8 54.2 (8.6 ) (14 )% 20.9 20.9 Operating EBITDA Margin 33 % 39 % 5 % Asia/Pacific 15.7 19.0 3.3 21 % 1.4 0.6 (0.8 ) (53 )% Operating EBITDA Margin 9 % Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 lifestyle. Market research indicates that Equal is used by approximately 6% of all households in the United States and that approximately 14 million U.S. households, or 14%, are open to moving away from sugar. Our initiative to attract new users focuses on the great taste, health benefits, usefulness and quality of our product through an integrated marketing campaign, including print, television, other media and sampling. While the household penetration of our brands varies from country to country, we see opportunities to attract new users in all of our major markets. Gain market share among current users of low calorie tabletop sweeteners. In North America, our market research indicates that there are approximately 7 million households in the United States that currently use low-calorie sweeteners who would consider conversion to our Equal brand. We plan to pursue competitive brand users through focused promotion aimed at encouraging Equal brand trial and conversion. Outside North America, we will pursue share gain primarily through geographic expansion. For example, we have recently launched our Equal brand in Taiwan, Korea and Israel. Continue to improve efficiencies and margins throughout our operations. We have successfully achieved significant improvements in our working capital management and lowered our costs of operations. As a result, we have improved our gross margins and increased our cash flow. Beginning in 2001, we began consolidating vendors, increasing plant productivity and optimizing global sourcing of materials and business models. In addition, we recently renegotiated our agreement for the 2004 and a significant portion of the 2005 supply of our primary raw material, aspartame. Our operating model has enabled us to increase cash flow and accelerate the repayment of debt. We will continue to examine cost reduction and working capital management strategies in an effort to enhance efficiencies and maximize cash flow. In addition, our headcount reduction actions begun in June 2002, resulted in savings of approximately $8.0 million, excluding severance costs, for the year ended December 31, 2003. Execute aggressive marketing plans in our key markets to enhance our brands. By continuing to execute our current marketing efforts, we believe we can solidify and enhance our position as a leader in our four key markets: North America, France, the United Kingdom and Mexico, which represent a large majority of our total net sales for 2003. We intend to increase our consumer marketing spending which will enable us to significantly increase our share of voice with consumers. Specifically, we are looking to invigorate our market positions in North America and the United Kingdom, and build on our leadership positions in France and Mexico. We believe that we have additional opportunities to achieve sustainable long-term growth by capitalizing on positive consumer macro-trends, which include the increasing health consciousness of consumers, the aging of the population, and the increasing incidence of diabetes, through the following initiatives: Pursue brand repositioning campaign to capture category growth. We intend to reposition our brand in our key markets in 2004 to appeal to a broader consumer base, in order to take advantage of the favorable consumer trends that are occurring. We will continue with our increased marketing spending discussed earlier for this campaign which we believe will accelerate the growth of our Equal and Canderel franchises over the long-term. For instance, our new marketing effort is highlighted by our "Plan E" campaign in North America that we expect will reposition Equal as a lifestyle brand to be utilized in our customers' everyday lives. In Europe, our marketing plans are centered around a new formulation of Canderel and revamped brand identity. Innovate new products and brand extensions to increase future product pipeline. We will continue to focus resources on the research and development and launch of new products and brand extensions in an effort to grow the category in our key markets. In 2003, we introduced Canderel branded chocolates in Europe and Equal Spoonful and Equal Perfect Pleasures Net income (loss) $ 6.8 $ (5.2 ) Financing Activities Borrowings under long-term obligations 70,000 575,000 Principal payments on long-term obligations (43,570 ) (125,241 ) (349,206 ) Payment of deferred financing costs (1,357 ) (20,130 ) Dividends to shareholders (264,028 ) Repurchase of common stock (350 ) (260 ) (1 ) Issuance of common stock 980 90 Financing activities Borrowings under long-term obligations 75,000 500,000 575,000 Principal payments on long-term obligations (349,206 ) (349,206 ) Payment of deferred financing costs (2,645 ) (17,485 ) (20,130 ) Distribution to shareholder (264,028 ) (187,908 ) 187,908 (264,028 ) Repurchase of common stock (1 ) (1 ) Issuance of common stock 4 Merisant Worldwide, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 5141 52-2219000 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 10 South Riverside Plaza, Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Warren B. Grayson Vice President, General Counsel and Secretary Merisant Worldwide, Inc. 10 South Riverside Plaza Suite 850 Chicago, Illinois 60606 (312) 840-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) SEE TABLE OF ADDITIONAL REGISTRANTS candies in North America, all of which were well received by the marketplace. By continuing to expand our Canderel chocolate line in other markets such as Mexico and South Africa, and introducing further new products in Europe, in addition to brand extensions, we believe we will continue to expand the category and strengthen our market share. In France, we relaunched our Canderel brand with an improved formulation of a blend of low calorie sweeteners. We recently announced the launch in the United States of Equal Sugar Lite and in Europe of Canderel Crystal , each containing the same unique blend of sugar and low calorie sweeteners designed for cooking and baking that measure and function like sugar. Equal Sugar Lite is planned for launch in additional markets in 2004 and 2005. Similarly, Canderel Crystal has been launched in Belgium in 2004 and is planned for launch in additional markets later this year. Our History The main sweetening ingredient in our leading tabletop brands, aspartame, was discovered in 1965 by Dr. James Schlatter while doing research at Searle on amino acids. By the early 1980s, after many years of testing before being approved for consumer use, the product was being marketed as Canderel in much of Europe and as Equal in the United States. In 1985, Monsanto entered the low calorie sweetener market through its acquisition of Searle. Monsanto sold the assets that now form the basis of our tabletop sweetener business to an investor group led by an affiliate of Pegasus Capital Advisors, L.P., who we refer to as our sponsor investor, on March 17, 2000 and the business was named Merisant Company. The Transactions Concurrently with this offering: we will effect a recapitalization of the equity interests of our existing stockholders and a number of other internal corporate transactions; and Merisant will enter into a senior secured credit facility in an amount up to $255.0 million, which we refer to as the new senior credit facility. We estimate that we will sell IDSs in this offering and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs) and receive net proceeds of approximately $ million after deducting underwriting discounts, commissions, and other estimated offering expenses, assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. We will use the net proceeds of this offering together with the estimated $ million net proceeds from our new senior credit facility and cash on hand, to: repay all outstanding borrowings under, and terminate, Merisant's current senior secured credit facility, which we refer to as our existing senior credit facility, and unwind our current interest rate hedges; consummate tender offers and consent solicitations for all of our outstanding $136.0 million aggregate principal amount at maturity of 121/4% senior subordinated discount notes due 2014, which we refer to as the discount notes, and all of Merisant's outstanding $225.0 million aggregate principal amount of 91/2% senior subordinated notes due 2013, which we refer to as the existing senior subordinated notes; repurchase approximately shares of our currently outstanding Class B common stock from our existing stockholders; make payments under existing management incentive plans of approximately $ (assuming an initial public offering price of $ per IDS); and Total other expenses 43.7 41.4 13 % 12 % 2.3 With copies to: Carol M. Lind Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000 Bruce S. Mendelsohn Akin Gump Strauss Hauer & Feld LLP Robert S. Strauss Building 1333 New Hampshire Avenue, NW Washington, DC 20036 (202) 887-4000 pre-fund capital expenditures of approximately $ . If the underwriters exercise their over-allotment option in full, we will use all of the additional net proceeds to repurchase additional shares of our Class B common stock from our Class B stockholders. We refer to this offering, our entering into the new senior credit facility, the repayment in full and termination of the existing senior credit facility, the unwinding of our current interest rate hedges, the repurchase of a portion of the outstanding Class B common stock of our Class B stockholders, the making of payments and issuance of shares of Class B common stock under existing management incentive plans, the internal corporate transactions and the tender offer for our discount notes and the existing senior subordinated notes collectively as the Transactions. We refer to all of the Transactions other than this offering as the other Transactions. The closing of this offering is conditioned on our completion of the other Transactions (other than the repurchase of shares from our Class B stockholders and the making of payments and issuance of shares of Class B common stock under our management incentive plans). New Senior Credit Facility. Concurrently with this offering, Merisant will enter into a new senior secured credit facility in an amount up to $255.0 million with a syndicate of financial institutions, including affiliates of Credit Suisse First Boston, RBC Capital Markets and Merrill Lynch & Co. We anticipate that the new senior credit facility will consist of a senior secured revolving credit facility in a total principal amount of up to $35.0 million, which we refer to as the new revolving facility, and a senior secured term loan facility in an aggregate principal amount of up to $220.0 million, consisting of up to $40.0 million of Euro Term Loan A and up to $180.0 million of Term Loan B. While the new senior credit facility is expected to permit us to pay dividends on the shares of Class A common stock that constitute the IDSs and our Class B common stock, we expect that it will contain restrictions on our ability to do so, as described more fully below under "Description of Certain Indebtedness New Senior Credit Facility." We also expect the new senior credit facility to require us to defer the payment of interest on the senior subordinated notes if we fail to meet specified financial tests or if there is a default or potential default. We anticipate that the new revolving facility will be undrawn at closing and that we will have $ million of availability immediately following the offering. Tender Offers and Consent Solicitations. We have commenced tender offers and consent solicitations with respect to all of the discount notes and all of the existing senior subordinated notes. The closing of this offering is conditioned upon the receipt of the tenders and consents of at least a majority in aggregate outstanding principal amount at maturity of the discount notes and existing senior subordinated notes. We and Merisant have received the required consents with respect to the existing discount notes and the existing senior subordinated notes, respectively. Such consents may not be revoked. Holders of the discount notes and existing senior subordinated notes that provide consents will be obligated to tender their notes in the tender offers, and holders of the discount notes and existing senior subordinated notes that tender their notes in the tender offers will be obligated to provide consents. The consummation of the tender offers will be conditioned upon this offering. Repayment of the Existing Senior Credit Facility. The existing senior credit facility consists of two term loans and a revolving credit facility. We expect to pay the entire principal amount outstanding under the existing senior credit facility, which was $236.5 million as of June 30, 2004, consisting entirely of term loan borrowings, plus accrued and unpaid interest. These term loan borrowings bear interest at variable rates with a weighted average interest rate as of January 1, 2004 of 4.1% per year. The terms of the existing senior credit facility allow us to prepay without premium or penalty. We will also unwind our interest rate hedges related to the existing credit facility. Income before income taxes 32.8 2.0 9 % 1 % (30.8 ) (94 )% Provision for income taxes 8.1 19.7 2 % Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. *Where required by local law, a nominal number of shares may be held by directors or other persons. Net income (loss) $ 24.7 $ (17.6 ) Total operating expenses 151.1 140.8 44 % 40 % 10.3 If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Information About Us We are a Delaware corporation. Our chief executive offices are located at 10 South Riverside Plaza, Suite 850, Chicago, Illinois 60606. Our telephone number is (312) 840-6000. Our Internet address is www.merisant.com. The information found on our website is not a part of this prospectus. Other Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: an initial public offering price of $ per IDS (comprised of $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the mid-point of the range set forth on the cover page of this prospectus; a % annual interest rate on the senior subordinated notes, which is subject to change depending on market conditions prior to the pricing date; no exercise of the underwriters' over-allotment option; the reclassification of our existing common stock effective immediately prior to this offering; the issuance of shares of Class B common stock to participants in our Stock Appreciation Rights Plan upon the consummation of this offering, which represents the number of such shares that will be issued assuming an initial offering price of $ per IDS; and receipt of tenders and consents with respect to 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes. In the event that less than 100% of the aggregate outstanding principal amount of discount notes and existing senior subordinated notes are tendered, the term loan portion of the new senior credit facility will be reduced proportionately. Furthermore, unless the context otherwise requires, references in this prospectus to "senior subordinated notes" refer to both senior subordinated notes underlying IDSs as well as senior subordinated notes issued separately (not in the form of IDSs). The Offering Summary of the IDSs and Senior Subordinated Notes We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and $ million aggregate principal amount of additional senior subordinated notes sold separately (not in the form of IDSs). The aggregate principal amount of our % senior subordinated notes due 2019 offered hereby, including both notes initially represented by IDSs and notes sold separately, is $299.0 million ($331.0 million if the underwriters exercise their over-allotment option in full). Purchasers of separate senior subordinated notes may not also purchase IDSs in this offering. See "Notice to Purchasers of Separate Senior Subordinated Notes and Acknowledgement of Purchaser Intent" above. What are IDSs? IDSs, or income deposit securities, are securities comprised of our Class A common stock and senior subordinated notes. Each IDS initially represents one share of our Class A common stock and one % senior subordinated note with $ principal amount. CALCULATION OF REGISTRATION FEE What payments can I expect to receive as a holder of IDSs or senior subordinated notes? You will be entitled to receive quarterly interest payments at an assumed annual rate of % of the aggregate principal amount of senior subordinated notes held separately or represented by your IDSs, or approximately $ per IDS, or per $ of senior subordinated notes held separately, per year, subject to our right, under specified circumstances, to defer interest payments on the senior subordinated notes as described below under "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." You may also receive quarterly dividend payments on the shares of Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. The new senior credit facility and our senior subordinated notes are each expected to contain restrictions on our ability to declare and pay dividends on our Class A and Class B common stock. Upon the completion of this offering, our board of directors intends to adopt a dividend policy with respect to our common stock pursuant to which cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness and capital expenditures sufficient to maintain our properties and other assets would, in general, be distributed as regular quarterly cash dividends (up to the intended dividend rates set forth below) to the holders of our common stock. We intend to make our first dividend payment on April 15, 2005 to holders of record as of April 10, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock, and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock for the remainder of the first full year following completion of this offering. However, notwithstanding the dividend policy, the amount of dividends, if any, for each quarter, including the dividends expected to be paid on April 15, 2005, will be determined by our board of directors on a quarterly basis after taking into account various factors, including our results of operations, cash requirements, financial condition, the dividend restrictions set forth in the indenture governing our senior subordinated notes and our new senior credit facility, provisions of applicable law and other factors that our board of directors may deem relevant. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at the level set forth above or at all. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." We intend to make interest payments and, if declared, dividend payments on January 15, April 15, July 15 and October 15 of each year to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Will my rights as a holder of an IDS be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs, you are the beneficial owner of Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges, and preferences, including rights to receive distributions and interest, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the IDSs (or % if the over-allotment option with respect to the IDSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, the existing stockholders, or their transferees, may greatly influence the outcome of all matters presented to our stockholders for a vote. In addition, so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. What will happen to the IDS units I hold upon a stock split, recombination or reclassification of the Class A common stock? The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. How can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in subsequent offerings of IDSs of the same series, may, at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control, through a broker or other financial institution, separate each of their IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through a broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been separated on an automatic basis as a result of the repurchase, redemption or maturity of any senior subordinated notes. Any separation or recombination will be effective as of the close of business on the trading day that the instructions to separate or recombine are received if the instructions are received by 3:00 p.m., Eastern Standard Time, on that trading day. Any instructions received after 3:00 p.m. will be effective the next business day, if permitted by the custodian or participant delivering the instructions. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. See "Description of Income Deposit Securities (IDSs) Book-Entry Settlement and Clearance Separation and recombination." Will the IDSs be listed on an exchange or automated quotation system? Yes. We have applied to list our IDSs on the Nasdaq National Market under the trading symbol "MERI." Ratio of earnings to fixed charges x x Ratio of Bank EBITDA to pro forma cash interest expense x x Ratio of pro forma total debt to Bank EBITDA x Income from operations 26.0 16.8 15 % Income Deposit Securities (IDSs)(2) $ $ Will the senior subordinated notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange or automated quotation system? We do not anticipate that the senior subordinated notes represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be listed for separate trading on any exchange or automated quotation system. Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares are held separately and not in the form of IDSs as may be necessary to satisfy applicable listing requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The senior subordinated notes and Class A common stock represented by the IDSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the additional senior subordinated notes to be sold separately (not in the form of IDSs) be the same as the senior subordinated notes issued as a component of the IDSs? Yes. The additional senior subordinated notes to be sold separately (not in the form of IDSs) will be identical to the senior subordinated notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of additional senior subordinated notes sold separately (not in the form of IDSs) and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of senior subordinated notes are entitled to vote under the indenture governing the senior subordinated notes. In what form will IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately be issued? The IDSs and the securities represented by the IDSs and the additional senior subordinated notes sold separately (not in the form of IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs), and you will not receive a certificate for your IDSs or the securities represented by the IDSs or the additional senior subordinated notes sold separately (not in the form of IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs and additional senior subordinated notes. Upon separation of the IDSs, a holder of Class A common stock may request one or more stock certificates representing the shares of Class A common stock. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance of a payment default (without cure) on the senior subordinated notes for 90 days; the exercise by us of our right to redeem all or a portion of the senior subordinated notes; the exercise by a holder of senior subordinated notes of its right to require us to repurchase its senior subordinated notes following the occurrence of a change of control (as defined in the indenture governing the senior subordinated notes); the date on which principal on the senior subordinated notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof; or if The Depository Trust Company no longer makes the IDS securities eligible for deposit or ceases to be a registered clearing agency Less (plus): Corporate expenses 12,194 Restructuring expenses 1,800 Depreciation expense 4,882 Impairment loss on fixed assets 3,128 Loss on sale or disposal of fixed assets 143 Amortization expense 11,118 Currency gain on euro debt (1,534 ) Unrealized gain on derivative instruments (5,577 ) Other non-cash income Class A Common Stock, par value $0.01 per share(3) under the Exchange Act and we are unable to find a successor depository. See "Description of Income Deposit Securities (IDSs) Automatic Separation." What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms and conditions that are identical to those of the IDSs or senior subordinated notes (not in the form of IDSs) being sold in this offering, except that if IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued less than 45 days from the closing of this offering, they will be separable on the same date as the IDSs issued hereunder may separate. Additional IDSs will represent the same proportions of Class A common stock and senior subordinated notes as are represented by the then outstanding IDSs. In addition, we will be required to issue additional IDSs in the future upon the exercise of exchange rights by holders of our Class B common stock. Although the senior subordinated notes represented by such additional IDSs or sold separately (not represented by IDSs) will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold with "original issue discount" (referred to as OID) for U.S. federal income tax purposes, and with accrued interest. If any new senior subordinated notes are issued (separately or as part of IDSs), all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) will exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold a unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result, following any such new issuance, we intend to allocate and report any OID associated with the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See " What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series?" In addition, if such new senior subordinated notes are issued with OID, holders of such senior subordinated notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the senior subordinated notes or a bankruptcy of the issuer prior to the maturity of the senior subordinated notes. See "Risk Factors Subsequent issuances of senior subordinated notes may cause you to recognize OID and subject you to other adverse consequences." Any subsequent issuance of IDSs and senior subordinated notes of the same series that results in an exchange of a portion of your senior subordinated notes for a portion of the senior subordinated notes issued in such subsequent issuance and/or replacement of your IDSs with new IDSs will not impair the rights you would otherwise have to assert claims against us or the underwriters with respect to the full amount of the senior subordinated notes purchased by you, notwithstanding such exchange and/or replacement, if and to the extent such claim is based on alleged material misstatements or omissions contained in this prospectus. Senior subordinated notes sold after the date of this offering, whether represented by additional IDSs or sold separately (not in the form of IDSs), will be issued with accrued interest from the most recent interest payment date. In addition, such senior subordinated notes will be deemed to have the same deferred interest and defaults as the senior subordinated notes that are being issued at the closing of this offering and will be deemed to have expended payment blockage periods, acceleration forbearance periods and interest deferral periods to the same extent as the senior subordinated notes issued at the closing of this offering. See "Description of the Senior Subordinated Notes General." Total other expenses 15.9 19.9 9 % (in millions) (in millions) North America $ 81.5 $ 69.7 $ (11.7 ) (14 )% $ 38.0 $ 27.8 $ (10.3 ) (27 )% Operating EBITDA Margin 47 % 40 % (7 )% EAME 62.0 67.7 5.7 9 % 14.9 16.7 1.8 12 % Operating EBITDA Margin 24 % 25 % 1 % Latin America 20.1 18.9 (1.3 ) (6 )% 5.3 4.4 (1.0 ) (18 )% Operating EBITDA Margin 26 % 23 % (3 )% Asia/Pacific 9.6 11.5 1.9 20 % (0.5 ) 0.9 1.4 305 % Operating EBITDA Margin (5 )% 8 % % Senior Subordinated Notes(4) We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. What will be the U.S. federal income tax consequences of an investment in IDSs? Certain aspects of the U.S. federal income tax consequences to us and to you of the IDSs and separately issued senior subordinated notes being offered hereby are uncertain. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel, Sidley Austin Brown & Wood LLP, is of the opinion that, for U.S. federal income tax purposes, an IDS issued by Merisant Worldwide should be treated as two separate instruments consisting of a senior subordinated note issued by Merisant Worldwide and a share of Class A common stock of Merisant Worldwide. Accordingly, we intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and of our senior subordinated notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values on the issue date, which will establish your initial tax basis. We expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each of our senior subordinated notes as $ , assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus. By purchasing IDSs, you will agree to be bound by this allocation. As discussed more fully below under "Material U.S. Federal Income Tax Considerations Senior Subordinated Notes Characterization of Senior Subordinated Notes," our special counsel is also of the opinion that, for U.S. federal income tax purposes, the senior subordinated notes should be treated as debt. Based on that opinion, we believe that the senior subordinated notes (whether issued separately or as part of IDSs) should be treated as debt for U.S. federal income tax purposes. There is no authority that directly addresses the tax treatment of the IDSs, and the application to the IDSs of existing authority regarding the tax treatment of subordinated debt offered under circumstances such as the offering (i.e., offered as a unit consisting of debt and common stock) is not entirely clear. Accordingly, neither we nor our special counsel can conclude with certainty that an IDS will be treated as two separate instruments or that the senior subordinated notes will be treated as debt for U.S. federal income tax purposes. The IRS may challenge our position and such challenge may be successful. If all or a portion of the senior subordinated notes were treated as equity rather than debt for U.S. federal income tax purposes, then a corresponding portion of the interest on the senior subordinated notes would be treated as a dividend and would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow and materially and adversely impact our ability to make interest and dividend payments. In addition, if any payments were treated as dividends, such payments to holders who are not U.S. persons for federal income tax purposes would generally be subject to withholding of U.S. federal income taxes at rates of up to 30%. Payments to non-U.S. holders would not be grossed-up on account of any such taxes. We would also be liable for withholding taxes (and for interest and possibly penalties for failure to withhold) on any interest payments previously made by us to non-U.S. holders that are recharacterized as dividends for U.S. federal income tax purposes. Dividends paid on the common stock through 2008, under current tax law and to the extent those dividends are paid out of our earnings and profits, will be taxable to U.S. individuals at long-term capital gains rates. Interest income on the senior subordinated notes will be taxable to U.S. individuals at ordinary income rates. Guarantees of Senior Subordinated Notes(5) The opinions of counsel referred to above are not binding on the IRS or courts, and no ruling on this issue has been requested from the IRS. There is no statutory, judicial or administrative authority directly addressing the treatment of the IDSs or instruments substantially similar to the IDSs for U.S. federal income tax purposes. We urge you to consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of an investment in the IDSs, the senior subordinated notes and Class A common stock. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." What will be the U.S. federal income tax consequences of a subsequent issuance of senior subordinated notes of the same series? As discussed above under " What will happen if Merisant Worldwide issues additional IDSs or senior subordinated notes of the same series in the future?" the issuance of new senior subordinated notes (separately or as part of IDSs) may in certain circumstances be treated as an exchange by holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not held in IDSs (including the senior subordinated notes being offered hereby) of a ratable portion of their outstanding notes for a portion of the new notes. It is uncertain whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for U.S. federal income tax purposes, and it is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. It is also possible that the IRS might successfully assert that any resulting loss on an exchange should be disallowed under the "wash sale" rules, in which case the holder's basis in the subsequently issued senior subordinated notes would be increased to reflect the amount of the disallowed loss. Even if the exchange is not treated as a taxable event, such exchange might result in holders having to include OID in taxable income as it accrues on the senior subordinated notes, in addition to stated interest, and to suffer other potentially adverse U.S. federal income tax consequences. Because a subsequent issuance will affect the senior subordinated notes in the same manner regardless of whether the senior subordinated notes are held as part of IDSs or directly, the recombination of senior subordinated notes and shares of common stock to form IDSs or the separation of IDSs should not affect your tax treatment. See "Material U.S. Federal Income Tax Considerations." Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of senior subordinated notes and IDSs, and each holder of senior subordinated notes and IDSs will, by purchasing senior subordinated notes and IDSs, agree to report OID in a manner consistent with this approach. However, the IRS may assert that any OID should be reported only to the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and thus may challenge the holders' reporting of OID on their tax returns. Such a challenge could create significant uncertainties in the pricing of the IDSs and senior subordinated notes and could adversely affect the market for the IDSs and senior subordinated notes. Due to the complexity and uncertainty surrounding the U.S. federal income tax treatment of subsequent issuances and exchanges of senior subordinated notes, prospective investors are urged to consult their tax advisors regarding the tax consequences to them in light of their particular circumstances. For a more complete discussion of the material U.S. federal income tax consequences of investing in the IDSs, senior subordinated notes and Class A common stock, see "Material U.S. Federal Income Tax Considerations." Total $775,000,000 $98,193(6) What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under GAAP regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, or FASB, the Emerging Issues Task Force, or EITF, or the Securities and Exchange Commission, or SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates." (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs consist of shares of Class A common stock and $ aggregate principal amount of % senior subordinated notes due 2019, including IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (3)Includes shares of Class A common stock subject to the underwriters' over-allotment option. (4)Includes $ million aggregate principal amount of % senior subordinated notes subject to the underwriters' over-allotment option and $ million aggregate principal amount of % senior subordinated notes sold separately (not as part of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Pursuant to Rule 457(n), no separate filing fee is required for the guarantees. (6)Previously paid. Summary of the Common Stock Issuer Merisant Worldwide, Inc. Shares of Class A common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Our bylaws will provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Shares of Class B common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Total shares of common stock to be outstanding following the offering shares (or shares if the underwriters exercise their over-allotment option in full). Voting rights Subject to applicable law, each outstanding share of our Class A and Class B common stock will carry one vote per share and will vote together as a single class on all matters presented to the stockholders for a vote, except that so long as our existing financial investor, together with its affiliates, beneficially owns 5% or more of the outstanding shares of Class A and Class B common stock in the aggregate on a fully-diluted basis, the holders of our Class B common stock will have the exclusive right to elect two directors to the board of directors. Listing Our shares of Class A common stock will not be listed for separate trading on any exchange or automated quotation system until a sufficient number of shares is held separately and not in the form of IDSs as may be necessary to satisfy any applicable requirements for separate trading on any exchange or automated quotation system on which the IDSs are then trading. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of IDSs for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on any exchange or automated quotation system on which the IDSs are then trading. The shares of our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. We do not expect to list our shares of Class B common stock for separate trading on any exchange or automated quotation system and the shares of Class B common Stock will have limitations on their transferability. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Dividends Holders of our Class A common stock and the holders of our Class B common stock will receive quarterly dividends on our Class A common stock and Class B common stock, respectively, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, we expect that the senior subordinated notes indenture and our new senior credit facility will each restrict our ability to declare and pay dividends on our Class A and Class B common stock as described in detail under "Dividend Policy and Restrictions." Upon the completion of this offering, our board of directors intends to adopt a dividend policy which reflects our judgment that our stockholders would be better served if we distributed the cash generated by our company in excess of operating needs and working capital requirements, interest and principal payments on indebtedness, and capital expenditures sufficient to maintain our properties and other assets to them (up to the intended dividend rates set forth below) instead of retaining it in our business. We intend to make our first dividend payment on April 15, 2005 based on a quarterly dividend level of $ per share of Class A common stock and Class B common stock and including an additional amount for the partial period commencing on the closing of this offering and ending on December 31, 2004. We intend to continue to pay quarterly dividends at a rate of $ per share of Class A common stock and Class B common stock through the first full year following the completion of this offering. However, our dividend policy is subject to adjustment by our board at its sole discretion. In the event of any reduction in the cash available for dividends, the dividend on the Class A common stock and the Class B common stock will be reduced proportionately. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rate set forth above or discontinue entirely the payment of dividends. See "Dividend Policy and Restrictions" and "Risk Factors We are not required to pay dividends and therefore you may not receive the level of dividends provided for in the dividend policy our board of directors intends to adopt upon the completion of this offering, or any dividends at all." Dividend payment dates If declared, dividends on our Class A and Class B common stock will be paid quarterly on January 15, April 15, July 15 and October 15 to holders of record on the preceding January 10, April 10, July 10 and October 10, respectively. Rights to exchange shares of Class B common stock for IDSs Holders of our Class B common stock have agreed to restrictions on the transferability of the Class B common stock. Beginning on the first anniversary of the consummation of this offering, holders of our Class B common stock will have the right to exchange their Class B common stock for the equivalent value of IDSs under certain circumstances. However, until the second anniversary of the consummation of this offering, the shareholders agreement will restrict the holders of our Class B common stock from exercising such exchange right if following the exchange the holders of our Class B common stock would hold less than shares. See "Description of Capital Stock." Total other expenses 41.4 65.1 12 % Summary of the Senior Subordinated Notes Issuer Merisant Worldwide, Inc. Senior subordinated notes represented by IDSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not in the form of IDSs) $ million aggregate principal amount. Senior subordinated notes to be outstanding following the offering $299.0 million aggregate principal amount (or $331.0 million aggregate principal amount if the underwriters exercise their over-allotment option in full). Interest rate % per annum. Interest payment dates Interest will be paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing April 15, 2005, to holders of record on the 10th day of each such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate. In addition, after , 2009, but before , 2014 and after , 2014, but before , 2019, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions, provided that no more than three quarters of interest may be deferred during either such period. No later than , 2009, we will pay in full all interest deferred prior to , 2009 (together with accrued interest thereon). No later than , 2014, we will pay in full all interest deferred after , 2009 and prior to , 2014 (together with accrued interest thereon). We will pay in full all interest deferred after , 2014 (together with accrued interest thereon) no later than , 2019, the maturity date of the senior subordinated notes. Income from operations 74.2 67.1 21 % MERISANT WORLDWIDE, INC. TABLE OF ADDITIONAL REGISTRANTS Name of Additional Registrants During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include stated interest in your income for U.S. federal income tax purposes on an economic accrual basis, possibly before the receipt of corresponding cash interest payments. See "Material U.S. Federal Income Tax Considerations." We expect that our new senior credit facility will restrict our ability to pay interest on the senior subordinated notes in certain circumstances as further described under "Description of Certain Indebtedness" and "Description of the Senior Subordinated Notes Terms of the Notes Interest Deferral." Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms and at the prices set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, all senior subordinated notes and Class A common stock represented by each IDS will automatically separate and will no longer be combinable into IDSs following such separation. See "Description of the Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of the Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. State of Incorporation Guarantees The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new senior credit facility. Ranking We are a holding company and derive all of our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor's existing and future senior indebtedness, including the borrowings under and all guarantees of the new senior credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor's existing and future senior subordinated indebtedness and trade payables except for the impact of the contractual subordination provided in the indenture governing the senior subordinated notes which may have the effect of causing the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness, including trade payables, of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and our subsidiaries to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: we would have had no senior or pari passu indebtedness outstanding except for trade payables of approximately $1.0 million and our guarantee under the new senior credit facility, as described below; Merisant would have had $220.0 million aggregate principal amount of senior indebtedness outstanding under the new senior credit facility and an additional $35.0 million of availability under the new revolving facility, all of which would have been guaranteed on a senior basis by us and Merisant's domestic guarantors; Primary Standard Industrial Classification Code in addition to the senior indebtedness described above, our guarantor subsidiaries would have had an aggregate of $18.4 million of pari passu indebtedness outstanding, consisting entirely of trade payables; and the total liabilities of our non-guarantor subsidiaries (other than liabilities owed to us or the guarantors) would have been approximately $16.6 million, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will restrict our ability and certain of our subsidiaries' ability to, among other things: incur additional indebtedness; layer indebtedness; pay dividends or make other distributions; repurchase or redeem capital stock; make investments or other restricted payments; create liens; enter into transactions with our affiliates; sell assets or shares of capital stock of our subsidiaries; restrict dividend or other payments to us from our subsidiaries; and merge, consolidate or transfer substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. Absent certain conditions, such as a default in the payment of interest, there will be no restriction in the indenture, however, on our ability to issue additional senior subordinated notes in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock included in such IDSs will not exceed the equivalent ratio represented by the then existing IDSs and separate senior subordinated notes. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of the Senior Subordinated Notes Certain Covenants." Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange or automated quotation system.
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information provided in this prospectus, including the section entitled Risk Factors, regarding our company and the common stock being sold in this offering. References in this prospectus to we, our, us or our company refer to Thomas Properties Group, Inc., a Delaware corporation, together with our consolidated subsidiaries, including Thomas Properties Group, L.P., a Maryland limited partnership which we refer to in this prospectus as our operating partnership. We are the sole general partner of the operating partnership. Unless otherwise indicated, the information in this prospectus assumes the underwriters overallotment option is not exercised, all of the transactions described under the caption Structure and Formation beginning on page 133 and the intended acquisitions described herein are consummated, and our common stock is sold at a price of $14.00 per share, which is the mid-point of the range of prices indicated on the cover page of this prospectus. Our Company We are a full-service real estate operating company that owns, acquires, develops and manages office, retail and multi-family properties on a nationwide basis. We are the successor company to Thomas Properties Group, LLC and its affiliates, referred to in this prospectus as TPG. TPG was founded in late 1996 by our Chairman, President and Chief Executive Officer, Mr. James A. Thomas. Following the consummation of the offering, Mr. Thomas will beneficially own 100% of our limited voting stock, representing 53.7% of our outstanding voting stock. Mr. Thomas real estate experience dates back to 1976, when he entered the real estate business with Robert F. Maguire as a principal and as legal counsel. In 1983, their partnership arrangement was formalized as Maguire Thomas Partners. Messrs. Maguire and Thomas served as co-managers, and the firm quickly expanded into a national full-service real estate operating company. From 1976 to 1996, Maguire Thomas Partners and its predecessor entities acquired, developed, managed and/or owned interests in 17 properties with approximately 14 million rentable square feet of commercial space. In 1996, Maguire Thomas Partners split into two organizations, with several key members of Maguire Thomas Partners senior management joining Mr. Thomas at TPG. In the seven years since our founding, we have developed, restructured or acquired, for our own account or the account of third parties, properties in the West Coast and Mid-Atlantic regions of the United States with approximately 7.4 million rentable square feet of space, including the acquisition and restructuring of properties Mr. Thomas originally developed while at Maguire Thomas Partners. We have four primary areas of focus: property operations, property acquisitions, property development and redevelopment, and investment management. We believe our business model allows us to capitalize on opportunities for risk-adjusted investment returns from real estate ownership, while seeking to manage the volatility associated with the real estate industry by earning fees and other revenues derived from third parties. Concurrent with the closing of this offering, we will complete the formation transactions to facilitate the offering and to acquire property interests as described in this prospectus. In the formation transactions, we will issue 16,666,666 limited partnership units in our operating partnership to contributors of property interests, with a value of approximately $233.3 million based on the mid-point of the range of prices on the cover page of this prospectus. As a result of these transactions, we will own interests in and asset manage six operating properties with 4.8 million rentable square feet and provide asset and/or property management services on behalf of third parties for an additional five operating properties with 2.6 million rentable square feet. These owned and managed properties consist of office, mixed-use and residential space located in the West Coast and Mid-Atlantic regions of the United States. We currently own interests in four of these properties. We will acquire a 25.0% interest in two of the six properties that we currently asset manage for the California State Teachers Retirement System ( CalSTRS ) pursuant to a separate account agreement with CalSTRS. These two properties are Available(2) 24,574 2.6 % $ % $ $ 2004 2005 2006 2 5,127 0.5 87,367 0.3 17.04 18.88 2007 4 23,875 2.5 590,784 2.3 24.74 27.16 2008 3 384,402 40.3 11,112,430 43.4 28.91 28.94 2009 1 377,999 39.6 11,339,971 44.3 30.00 30.00 2010 2011 2 27,243 2.9 417,285 1.6 15.32 20.62 2012 1 2,896 0.3 81,088 0.3 28.00 32.00 2013 2 82,671 8.7 1,730,683 6.7 20.93 28.86 Thereafter Balance, June 30, 2004 $ $ 167 $ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Reflections I and Reflections II in Reston, Virginia. We will continue to provide asset management services to these two properties and asset and/or property management services to the four other CalSTRS separate account properties. We will also increase our ownership interest from 5% to 25% in our joint venture with CalSTRS, which holds an 85% interest in ARCO Plaza located in downtown Los Angeles. As a result, our indirect interest in ARCO Plaza will increase from 4.3% to 21.3%. We have also entered into an agreement to buy an unaffiliated third party s 50.0% interest in our One Commerce Square property located in downtown Philadelphia. We have a substantial development pipeline, owning or having the ability to develop land suitable for the development of approximately 4.8 million square feet of space. We developed and continue to manage the California Environmental Protection Agency ( CalEPA ) headquarters building in Sacramento, California. In connection with the formation transactions, we will use $59.0 million of the proceeds of this offering in connection with the acquisitions of the property interests described above, $10.7 million to repay existing indebtedness, $11.4 million to redeem preferred equity held by an unaffiliated mezzanine lender on One Commerce Square, and $4.2 million to fund required reserves for One Commerce Square. Our total outstanding pro forma consolidated indebtedness as of June 30, 2004 is approximately $295.9 million. In addition, as of June 30, 2004, we owned interests in unconsolidated entities subject to total long-term debt of $195.0 million. We believe that our current infrastructure provides us with the ability to increase the number of properties we own and manage without a significant increase in corporate personnel. As of June 30, 2004, we had approximately 70 employees. We were incorporated in the State of Delaware in March 2004. Under Delaware law and our certificate of incorporation, our duration is perpetual. Our founder, James A. Thomas, is also our Chairman, President and Chief Executive Officer. Our corporate headquarters are located at ARCO Plaza, 515 South Flower Street, Sixth Floor, Los Angeles, California 90071. Our phone number at that address is (213) 613-1900. Our Internet address is www.thomaspropertiesgroup.com. The information on our website is not part of this prospectus. Our Business We have four complementary and integrated areas of business focus: Property Operations: A geographically diverse portfolio of properties in which we own interests or which we manage comprises our primary source of cash flow and provides a steady and reliable source of revenues through rental operations, property management, asset management, leasing and other fee income. Property Acquisitions: We have an active and successful record of acquiring properties both for our own account and that of third parties, targeted at three categories of properties: core, consisting of properties that are stabilized at the time of acquisition; core plus, consisting of under-performing properties that we believe can be brought to market potential through improved management; and value-add properties, requiring redevelopment, repositioning and investment to achieve desired returns. Property Development and Redevelopment: Beginning with TPG s predecessor, Maguire Thomas Partners, our senior management team has significant experience pre-leasing and developing or redeveloping commercial space in various West Coast, Southwest and Mid-Atlantic markets of the United States. Investment Management: One of our subsidiaries is a registered investment advisor with the Securities and Exchange Commission. We earn fees for advising institutional investors on property portfolios and believe this service is complementary to our other areas of business and provides income diversification. Available(5)(6) 1,344,719 27.0 %(7) $ % $ $ 2004 4 462,735 9.9 1,843,299 3.4 3.98 3.98 2005 18 271,130 5.8 3,420,437 6.4 12.62 12.45 2006 4 35,178 0.8 454,924 0.8 12.93 12.83 2007 10 36,776 0.8 411,188 0.8 11.18 12.13 2008 7 73,613 1.6 1,029,685 1.9 13.99 14.14 2009 3 27,674 0.6 371,865 0.7 13.44 13.55 2010 2 61,477 1.3 865,173 1.6 14.07 13.23 2011 2 122,398 2.6 1,534,568 2.9 12.54 15.56 2012 1 2,355 0.1 468 0.0 0.20 (1.83 )(8) 2013 Thereafter One Bedroom 140 102,872 92.9 % 10 $ 135,774 $ 1,044 Two Bedroom 28 29,491 92.9 Available(3)(4) 1,344,719 49.2 %(5) $ % $ $ 2004 4 462,735 18.0 1,843,299 14.2 3.98 3.98 2005 18 271,130 10.6 3,420,437 26.3 12.62 12.45 2006 4 35,178 1.3 454,924 3.5 12.93 12.83 2007 10 36,776 1.4 411,188 3.2 11.18 12.13 2008 7 73,613 2.9 1,029,685 7.9 13.99 14.14 2009 3 27,674 1.1 371,865 2.9 13.44 13.55 2010 2 61,477 2.4 865,173 6.6 14.07 13.23 2011 2 122,398 4.8 1,534,568 11.8 12.54 15.56 2012 1 2,355 0.1 468 0.0 0.20 (1.83 )(6) 2013 Thereafter AMENDMENT NO. 7 ON FORM S-11 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Business and Growth Strategies Our primary business objective is to achieve sustainable long-term growth in order to maximize long-term stockholder value. Our strategies to achieve this objective are: Portfolio Enhancement: We will focus on increasing earnings from the properties in which we own an interest or which we manage for third parties through proactive management. Following the closing of this offering, we will have a portfolio of 11 operating properties. We will own interests in six of these properties and we will provide asset and/or property management services for five properties, comprising approximately 7.4 million rentable square feet in the aggregate. We intend to reinvest a substantial portion of our earnings in the business. Targeted Property Acquisitions: We will seek significant acquisitions of substantially leased core properties for our own account, and of core plus and value-add properties for our own account and/or in joint ventures with others where such acquisitions provide us with attractive risk-adjusted returns. Strategic Joint Ventures: We will seek to leverage our expertise to acquire or develop commercial real estate in joint ventures with institutional investors. Joint ventures provide us with additional capital for investment, shared risk exposure, and earned fees for asset management, property management, leasing and other services. We view our joint venture with CalSTRS as a model for the development of other strategic alliances. Selective Development and Redevelopment: We intend to develop and redevelop projects in diversified geographic markets using pre-leasing, guaranteed maximum cost construction contracts and other measures to reduce development risk. Currently, we have the ability to develop approximately 4.8 million square feet of office, residential and retail uses in Los Angeles, Philadelphia and Austin. We plan to develop these properties as market conditions warrant while attempting to minimize development risks. We are currently in the process of redeveloping and repositioning ARCO Plaza, a 2.6 million square foot office project in downtown Los Angeles, and repositioning 1835 Market Street, a 685,853 square foot office tower in Philadelphia which we asset and property manage for CalSTRS. Strong Tenant Relationships: We intend to maintain strong tenant relationships through our commitment to service in marketing, lease negotiations, building design and property management. Our Strengths and Competitive Advantages We believe we distinguish ourselves from other owners, operators, acquirers and developers of commercial properties in a number of ways and enjoy significant competitive strengths, including: Experienced Management Team with Significant Ownership Interest: Our executive management team has over 120 years of combined experience in the commercial real estate industry and has worked together for an average of approximately 10 years. Beginning at TPG s predecessor, Maguire Thomas Partners, our senior management team has acquired, entitled, leased and/or developed or redeveloped approximately 29.2 million square feet in various West Coast, Southwest and Mid-Atlantic markets in the United States resulting in 19.5 million rentable square feet of commercial space acquired and/or completed. Our management team will collectively hold a 53.9% ownership interest in our company following this offering on a fully diluted basis excluding incentive units in our operating partnership, or 55.0% on a fully diluted basis including incentive units, which we believe appropriately aligns the interests of management with that of our public stockholders. Diversified Business Model: We have a business model that we believe positions us for significant long-term growth by facilitating our investment in all areas and property types of the commercial real estate business. We have four separate, but complementary, areas of business focus: a portfolio of geographically diverse properties in which we own interests or which we asset and/or property manage; Available 63,202 6.7 % $ % $ $ 2004 3 12,225 1.3 44,010 0.4 3.60 3.60 2005 5 130,345 13.8 1,694,806 15.8 13.00 13.04 2006 5 49,114 5.2 490,296 4.6 9.98 9.88 2007 8 85,572 9.1 884,584 8.2 10.34 11.13 2008 8 112,659 11.9 1,141,129 10.6 10.13 12.08 2009 3 46,334 4.9 633,726 5.9 13.68 15.45 2010 1 100 0.0 12,000 0.1 120.00 132.30 2011 1 1,488 0.2 22,320 0.2 15.00 15.00 2012 3 226,900 24.1 2,697,769 25.2 11.89 17.36 2013 2 201,845 21.4 2,885,284 26.9 14.29 19.29 Thereafter THOMAS PROPERTIES GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 6500 20-0852352 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) ARCO Plaza, 515 South Flower Street, Sixth Floor Los Angeles, California 90071 (213) 613-1900 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents the acquisition of commercial properties; selective development and redevelopment of under-performing projects incorporating a conservative pre-leased property development program; and fee management services such as investment management for institutional investors. National Presence: We intend to continue to operate and expand our business on a national level, targeting and entering attractive markets. Currently we are concentrating on the West Coast, Southwest, and Mid-Atlantic regions of the United States, but intend to expand into other markets as market conditions warrant. CalSTRS Joint Venture: Our strategic joint venture relationship with CalSTRS provides us with a key opportunity to serve as the operating partner and an equity owner of, and to provide fee services for, a joint venture that acquires and redevelops or repositions core plus and value-add office and mixed-use projects on a national basis. We will increase our ownership interest from 5% to 25% in a joint venture with CalSTRS, which holds an 85% interest in ARCO Plaza located in downtown Los Angeles. As a result, our indirect interest in ARCO Plaza will increase from 4.3% to 21.3%. Concurrent with or following this offering, we will also acquire a 25.0% interest in two of the properties that we asset manage for CalSTRS for its separate account. We intend to hold these properties in our joint venture. The total capital commitments to the joint venture have recently been increased to $333 million, of which approximately $220 million has not been invested. Our aggregate commitment to the joint venture is $83 million, of which approximately $56 million will be unfunded following completion of this offering. CalSTRS aggregate commitment is $250 million, of which approximately $164 million remains unfunded.
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes offered separately (not in the form of IDSs) and should be read together with more detailed information and financial data and statements contained elsewhere in this prospectus. Our Company Overview We are a leading provider of communications services to rural communities, offering an array of services, including local voice, long distance, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural communities, and we are the 16th largest local telephone company, in each case based on number of access lines. We operate in 17 states with approximately 272,450 access line equivalents (including voice access lines and digital subscriber lines) in service as of June 30, 2004. We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 residents. All of our telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996. Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Competitive Strengths We believe we are distinguished by the following competitive strengths: Consistent and predictable cash flows and strong margins. We have the leading market position in the rural communities we serve, with limited competition. Demand for telephone services from our residential and local business customers has historically been very stable despite changing economic conditions. Additionally, our telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate consistent cash flows and strong margins. Geographically diversified markets. We currently operate 26 rural local exchange carriers in 17 states, clustered in five regions, enabling us to capitalize on economies of scale and operating efficiencies and enhance our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory changes. Technologically advanced infrastructure. Our advanced network infrastructure enables us to provide a wide array of communications services, including digital subscriber lines. As of June 30, 2004, approximately 92% of our exchanges were capable of providing broadband services. Broadest service offerings in our markets. We believe that, as a result of our advanced network and switching infrastructure, we offer the only comprehensive suite of communications services in our markets, including local voice, long distance, data and Internet services. Total adjustments 19,153 (2,959 ) 12,512 PROSPECTUS SUMMARY Summary of our Offer to Exchange Class A Common Stock and Class C Common Stock for IDSs This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering a number of IDSs, which will be determined based on the public IDS offering price, in exchange for certain of our existing issued and outstanding shares of class A common stock and class C common stock. In order to be exchanged for IDSs, your shares of class A common stock or class C common stock, as applicable, must be properly tendered and accepted. All shares of class A common stock and class C common stock that are subject to this offer and are properly tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All shares of class A common stock and class C common stock that are subject to this offer and are not properly tendered or which are validly withdrawn prior to the expiration date of this offer will be reclassified into shares of our new class C common stock, which we refer to as the new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer. Exchange ratio The number of IDSs you will receive in exchange for your shares of class A common stock or class C common stock is based on the price of the IDSs offered in the public IDS offering. We will consummate this offer if the price of the IDSs in the public IDS offering is between $15.00 and $17.00. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth in "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, and (iv) we price the IDSs in the public IDS offering at: $17.00, the high point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; $15.00, the low point of the price range, you will receive IDSs per share of class A common stock or class C common stock tendered in this offer; and $16.00, the midpoint of the price range, you will receive .26827 IDSs per share of class A common stock or class C common stock tendered in this offer. Fractional shares We will not issue fractional IDSs to the holders of our class A common stock and class C common stock in connection with this offer. Instead, each holder of class A common stock or class C common stock who will be entitled to receive a fractional IDS in connection with this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the stockholder is entitled multiplied by the public IDS offering price. PROSPECTUS SUMMARY Summary of our Offer to Exchange Options to Purchase Class A Common Stock and Restricted Stock Units This offer is being made in connection with, and subject to the consummation of, the public IDS offering and the related transactions described under "The Transactions." The offer We are offering certain existing optionholders and restricted stock unitholders the opportunity to exchange options and restricted stock units for IDSs or awards of IDSs under our new 2004 Retention and Incentive Plan. In order to be exchanged for IDSs or awards of IDSs, your options or restricted stock units, as applicable, must be subject to this offer and properly tendered and accepted. All options and restricted stock units that are subject to this offer and tendered and not validly withdrawn prior to the expiration date of this offer will be exchanged for IDSs. All options and restricted stock units that are subject to this offer and not tendered or which are validly withdrawn prior to the expiration date of this offer will automatically be adjusted into options to purchase shares of our new class C common stock, which we refer to as the new class C common stock, and any restricted stock units will be adjusted into restricted stock units covering our new class C common stock. If you accept this offer: any options to purchase shares of class A common stock that are vested, exercisable and in-the-money will be exchanged for fully vested IDSs; any options to purchase shares of class A common stock that are not vested, exercisable and in-the-money will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to certain vesting requirements; and any restricted stock units granted under our 2000 Employee Stock Incentive Plan will be exchanged for a replacement award of IDSs that will be granted under our new 2004 Retention and Incentive Plan and will be subject to the same vesting requirements as the restricted stock units being so replaced. Exchange ratio If you accept this offer, the number of IDSs and/or the award of IDSs granted under our 2004 Retention and Incentive Plan that you will receive in respect of your existing options or restricted stock units, as applicable, will be determined based on the public IDS offering price, and in certain circumstances, the exercise price of the option. We will consummate this offer if the public IDS offering price is between $15.00 and $17.00. Management team with proven track record. Our experienced management team, which has an average of 21 years of experience working with a variety of telephone companies, has successfully integrated 30 business acquisitions since 1993, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy The key elements of our strategy are to: Increase revenue per customer. We are focused on increasing our revenues by introducing innovative product offerings and marketing strategies for enhanced and ancillary services and successfully cross-selling broadband and value-added services, such as digital subscriber lines, long distance, Internet dial-up, voicemail and other services, to our customers. Continue to improve operating efficiencies and profitability. We intend to continue to increase our operating efficiencies by consolidating various administrative functions and implementing best practices across all of our regions. Enhance customer loyalty. We intend to continue to build our customer relationships by offering an array of communications services and quality customer care. Pursue selective acquisitions. We will continue to evaluate and pursue acquisitions which provide the opportunity to enhance our revenues and cash flows. The Transactions Concurrently with this offering, we will enter into a new senior secured $500.0 million credit facility, which we refer to as the new credit facility, consisting of a revolving facility in an aggregate principal amount of up to $100.0 million and a term facility in an aggregate principal amount of $400.0 million. We expect to receive gross proceeds from this offering of approximately $685.0 million, assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, and an initial public offering price of % of the stated principal amount per senior subordinated note to be sold separately (not in the form of IDSs). These proceeds, together with approximately $400.0 million in borrowings we expect to receive under the term facility of the new credit facility, primarily will be used to: Repay in full all $192.3 million of outstanding loans under our existing credit facility. Consummate tender offers and consent solicitations for all of our outstanding $115.2 million aggregate principal amount of 91/2% senior subordinated notes due 2008, which we refer to as the 91/2% notes; all of our outstanding $75.0 million aggregate principal amount of floating rate callable securities due 2008, which we refer to as the floating rate notes; all of our outstanding $193.0 million aggregate principal amount of 121/2% senior subordinated notes due 2010, which we refer to as the 121/2% notes; and all of our outstanding $225.0 million aggregate principal amount of 117/8% senior notes due 2010, which we refer to as the 117/8% notes. Redeem all of our $116.9 million liquidation preference of series A preferred stock (together with accrued and unpaid dividends thereon). The series A preferred stock was initially issued in May 2002 in exchange for debt of one of our subsidiaries whose operations we discontinued. Pay $20.0 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility. Pay fees and expenses, including tender premiums, consent payments and redemption premiums, of $132.1 million. Cash, end of period $ 3,276 Net cash contributed (from) to continuing operations (to) from discontinued operations (2,341 ) 712 (8,724 ) (10,353 ) Net increase in cash 1,131 768 576 2,475 Cash, beginning of year (696 ) Total current assets 20,753 35,157 PROPERTY, PLANT AND EQUIPMENT Net 29,622 29,473 DEFERRED CHARGES AND OTHER ASSETS Net 1 Expiration date This offer will expire on the eleventh day after the date of the public IDS offering, or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for tendering class A common stock or class C common stock Each holder of class A common stock or class C common stock subject to this offer wishing to accept this offer must deliver to the exchange agent, at the address listed below, by the expiration date of this offer: a completed, signed and dated exchange agreement, or a facsimile thereof; and your original class A common stock certificate or class C common stock certificate, as applicable, or an affidavit of lost stock certificate if you cannot locate your class A common stock certificate or class C common stock certificate. To be validly tendered, such documents must reach the exchange agent before 5:00 p.m., New York City time, on the expiration date of this offer. Withdrawal rights You may withdraw your tender of shares of class A common stock or class C common stock at any time prior to 5:00 p.m., New York City time, on the expiration date of this offer; provided, however, that if we exercise our right to accept for exchange shares of class A common stock and class C common stock which have been validly tendered by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering, such shares that were accepted for exchange cannot be withdrawn. Exchange date Promptly following the expiration date of this offering, we will accept for exchange all shares of class A common stock and class C common stock that are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the expiration date of this offer. However, we reserve the right to accept for exchange all shares of class A common stock and class C common stock which are subject to this offer and have been validly tendered and not withdrawn by 5:00 p.m., New York City time, on the business day prior to the closing date of the public IDS offering. Assuming that (i) the transactions are consummated on the terms described in "The Transactions," (ii) the sources and uses of the proceeds to consummate the transactions are as set forth under "Use of Proceeds," (iii) the interest rate on the senior subordinated notes is 11%, (iv) we price the IDSs in the public IDS offering at $16.00 (the midpoint of the price range set forth on the cover), (v) you do not choose to provide us with cash amounts with respect to the exercise price or the required withholding taxes relating to these exchanges (see "Net Issuance of IDSs" below) and (vi) we withhold assuming your effective income tax rate is %: For each option granted under our 1995 Stock Incentive Plan, you will receive .15158 IDSs, which is calculated net of the applicable exercise price of the options and net of all withholding and other similar taxes, calculated in a manner intended to cover your anticipated income tax liabilities arising as a result of this exchange. For each option granted under our 1998 Stock Incentive Plan, which is vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive the number of IDSs described below, which is dependent on the exercise price of the option, and which is calculated net of the applicable exercise price of such options and net of anticipated income and similar tax liabilities as a result of such exchange, which we will withhold and pay over to the proper governmental authorities on your behalf: .09683 IDSs for options with a $1.71 exercise price; .05858 IDSs for options with a $2.74 exercise price; and .03799 IDSs for options with a $3.28 exercise price. For each option granted under our 1998 Stock Incentive Plan which is not vested, exercisable (or being made exercisable in connection with the public IDS offering) and in-the-money, you will receive an award of IDSs described below under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein: .28357 IDSs subject to vesting for options with a $1.71 exercise price; .23714 IDSs subject to vesting for options with a $2.74 exercise price; and .089315 IDSs subject to vesting for options with a $7.00 exercise price. For each option granted under our 2000 Employee Stock Incentive Plan you will receive an award of .089315 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 If the underwriters' over-allotment option is exercised in full, the net proceeds therefrom will be used to: Repay $28.7 million of the borrowings under our new credit facility's term facility. Repay in full all $14.1 million of our subsidiaries' outstanding long-term debt. Repay in full a $7.0 million unsecured promissory note issued by us in connection with a past acquisition. Our issued and outstanding capital stock currently consists of series A preferred stock, class A common stock and class C common stock. The series A preferred stock is held by one of our equity sponsors and by certain former institutional lenders to one of our subsidiaries. The class A common stock is held primarily by our equity sponsors, our directors, our founders and current and former employees (which includes certain of our executive officers named in our management table). The class C common stock is held by certain institutional investors, including affiliates of certain of the underwriters. In connection with this offering, the following transactions will occur: All holders of our existing class A common stock and class C common stock will be offered the right to exchange their common stock for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The exchange ratio for such exchanges will be .26827 IDSs per share of class A common stock or class C common stock, which exchange ratio is based on the price to the public of the IDSs being offered hereby. Assuming the exchange of all of our class A common stock and class C common stock for IDSs, other than the class A common stock and class C common stock that will be exchanged for class B common stock as described below, IDSs will be issued in exchange for our class A common stock and 780,544 IDSs will be issued in exchange for our class C common stock. of these IDSs will be issued to Thomas H. Lee Equity Fund IV, L.P. and its affiliates, or Thomas H. Lee Equity Fund, Kelso Investment Associates V, L.P. and Kelso Equity Partners, or Kelso & Company, certain of our directors and certain of our executive officers named in our management table, which IDSs will not be registered under the Securities Act. Thomas H. Lee Equity Fund, Kelso & Company, certain other significant equityholders, certain of our directors and certain of our executive officers named in our management table will exchange a portion of the existing class A common stock, class C common stock or stock options held by them for shares of our class B common stock, rather than IDSs. The exchange ratio for such exchange will be the same as the exchange ratio for our class A common stock, class C common stock or stock options into IDSs. The expected initial dividend rate on the class B common stock will be the weighted average of the coupon on the senior subordinated notes and the dividend yield on the class A common stock represented by the IDSs. Upon our achieving certain specified financial performance targets, based on our year-end audited financial statements, and satisfying certain other conditions, the subordination of the dividends on our class B common stock will terminate and 25,962 shares of our class B common stock will become exchangeable, at the holders' option, on a one-for-one basis for IDSs. If the subordination of the dividends on our class B common stock has terminated, the remaining shares of class B common stock will, at the holders' option, be exchangeable on a one-for-one basis for IDSs upon our liquidation or during specified periods beginning on the second anniversary of the closing date of this offering, subject to certain conditions. Our counsel has advised us that having a portion of our common stock held separately and not in the form of IDSs may potentially strengthen our position that the senior subordinated notes should be respected as debt for U.S. federal income tax purposes. Consequently, certain of our existing stockholders and optionholders will retain some of our common stock, in the form of class B common stock, for at least two years after the closing of this offering separately from the class A common stock represented by the IDSs. See "Description of Capital Stock Class B Common Failure to exchange will affect you adversely If you hold shares of class A common stock or class C common stock and you do not timely tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock. There will be no public trading market for our new class C common stock and, accordingly, the liquidity of your investment will be adversely affected. See "Risk Factors of the Offer There will not be a public market for our new class C common stock." For a description of our new class C common stock, see "Description of Capital Stock Class C Common Stock." Material United States federal income tax consequences The exchange of class A common stock or class C common stock pursuant to this offer may result in a taxable event. See "Certain United States Federal Tax Consequences of the Offer." Exchange agent The Bank of New York is serving as exchange agent in connection with this offer. Deliveries by hand, registered, certified, first class or overnight mail should be addressed to . For information with respect to this offer, contact the exchange agent at telephone number or facsimile number . Absence of a public market for the new class C common stock There will be no public trading market for our new class C common stock. We do not intend to apply for listing of the shares of new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. See "Risk Factors of the Offer There will not be a public market for the new class C common stock." This offer constitutes an offer to exchange IDSs for shares of class A common stock and class C common stock. If you hold shares of class A common stock or class C common stock and you do not tender your shares of class A common stock or class C common stock, you will not have contractual rights to exchange your shares of class A common stock or class C common stock for IDSs in the future and your shares of common stock will be reclassified into shares of our new class C common stock with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock pursuant to this offer in accordance with our restated certificate of incorporation, which will become effective in connection with the public IDS offering and which will be approved by the requisite action of our board of directors and stockholders prior to the closing of the public IDS offering. For each restricted stock unit granted under our 2000 Employee Stock Incentive Plan you will receive an award of .26827 IDSs under our 2004 Retention and Incentive Plan, which IDSs will be subject to certain vesting criteria described herein. If the effective income tax rate that we have estimated applies to you differs from the percentage set forth above, the number of IDSs you receive with respect to any vested, exercisable and in-the-money options will be adjusted accordingly. Fractional shares We will not issue fractional IDSs to the holders of our vested, exercisable and in-the money stock options in this offer. Instead, each holder of vested, exercisable and in-the money stock options who will be entitled to receive a fractional IDS in this offer will be entitled to an amount of cash, without interest, equal to the product of the amount of the fractional IDS interest to which the optionholder is entitled multiplied by the public IDS offering price. Expiration date This offer will expire at 5:00 p.m., New York City time, on the eleventh day following the date of our public IDS offering or, if such date falls on a weekend or holiday, on the first business day prior to such date. We expect that the public IDS offering will occur on or about , 2004. Conditions to the offer This offer is subject to certain conditions which we may waive. See "The Offer Conditions." Procedures for acceptance of the offer Each holder of options and/or restricted stock units subject to this offer wishing to accept this offer must deliver to us, at the address listed below, by the expiration date of this offer: a completed, signed and dated election form, or a facsimile thereof; and your original stock option agreements and/or restricted stock unit agreements, as applicable, evidencing your outstanding options and restricted stock units. To be validly delivered such documents must reach us before 5:00 p.m., New York City time, on the expiration date. Your election form, stock option agreements and/or restricted stock unit agreements and all other required documents, as well as any questions and requests for assistance and requests for additional copies of this prospectus or of the election form or accompanying documents, should be addressed or directed to us as follows: By Mail, Overnight Courier or Hand Delivery: FairPoint Communications, Inc. 521 East Morehead Street, Suite 250 Charlotte, North Carolina 28202 Attention: AMENDMENT NO. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Stock." We will issue 4,307,921 shares of our class B common stock in exchange for shares of our class A common stock, class C common stock and stock options. We will offer holders of our existing vested, exercisable and in-the-money stock options the right to cancel their stock options in exchange for IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs). The holders of any of our existing stock options which are not vested, exercisable and in-the-money will be offered the right to cancel their stock options in exchange for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under a new retention and incentive plan we intend to adopt in connection with this offering, which IDSs will be subject to certain vesting requirements. The holders of our restricted stock units will be offered the right to exchange their restricted stock units for an award of IDSs (no additional consideration will be paid for the senior subordinated notes represented by such IDSs) under our new retention and incentive plan, which IDSs will be subject to certain vesting requirements. In addition, we will issue to certain of our employees IDSs as new awards under our new retention and incentive plan. See "Management New Retention and Incentive Plan." Assuming that all of our existing stock options and restricted stock units are cancelled and exchanged for IDSs or awards of IDSs under our new retention and incentive plan, other than the stock options that will be exchanged for class B common stock, and that all applicable stock options are exchanged on a cashless exercise basis and net of applicable withholding taxes, IDSs will be issued in exchange for such stock options and restricted stock units. of these IDSs will be issued to our executive officers named in our management table, which IDSs will not be registered under the Securities Act. We will reclassify all shares of our existing class A common stock and class C common stock that are not exchanged for IDSs or class B common stock in this offering into shares of our new reclassified class C common stock, or our new class C common stock, with a value approximately equivalent to the value of the IDSs which would have been issued in exchange for such shares of class A common stock or class C common stock. In addition, each stock option and restricted stock unit not cancelled and exchanged for IDSs or an award of IDSs under any new retention and incentive plan in connection with this offering will be converted into a stock option to purchase shares of our new class C common stock and a restricted stock unit representing shares of our new class C common stock, respectively. Our new class C common stock will not be exchangeable for IDSs. After this offering, our class A common stock, class B common stock and new class C common stock will be entitled to the same rights and preferences, except as to dividends, dividend priority and liquidation preference with respect to the class B common stock, that our class B common stock and new class C common stock cannot be combined with senior subordinated notes to form IDSs and that the holders of our class B common stock may, subject to certain conditions, exchange their shares of class B common stock for IDSs. See "Description of Capital Stock." In this prospectus, we refer to this offering, the new credit facility and the transactions described above collectively as the transactions. For additional information concerning the transactions, see "The Transactions," "Use of Proceeds," "Description of Certain Indebtedness" and "Capitalization." Our Investors Upon the completion of this offering and assuming the exchange of all of our class B common stock for IDSs, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 10.5% and 8.9%, respectively, of our class A common stock. If the over-allotment option is exercised in full, Thomas H. Lee Equity Fund and Kelso & Company will own approximately 9.9% and 8.4%, respectively, of our class A common stock. Net increase (decrease) in cash 1,864 1 (1,902 ) (1,035 ) (1,072 ) Cash, beginning of year (2,557 ) NEW CLASS C COMMON STOCK COMPARISON WITH IDSs Payments Holders of IDSs will receive interest payments on the senior subordinated notes represented by the IDSs, subject to certain exceptions, and dividends on the class A common stock represented by the IDSs, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. The new class C common stockholders will receive dividends at the same rate as the class A common stock, to the extent dividends are declared by our board of directors and permitted by Delaware law and the terms of the indenture governing the senior subordinated notes and the new credit facility. Liquidity The IDSs will be listed on the New York Stock Exchange under the trading symbol "FRP". We do not intend to apply for listing of the shares of our new class C common stock on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Accordingly, there will be no public trading market for our new class C common stock. In addition, we do not intend to develop a public market for the new class C common stock or to provide liquidity for the new class C common stock. Liquidation In the event of our voluntary or involuntary liquidation, dissolution or winding up, holders of IDSs will be entitled to receive payment of the principal and accrued interest on the senior subordinated notes represented by such IDS prior to any payments being made with respect to our class A common stock or our new class C common stock. Formation of IDSs The holders of shares of our new class C common stock will not be permitted to combine such shares with outstanding senior subordinated notes to form IDSs. For a more detailed description of: the IDSs, see "Description of IDSs"; the class A common stock represented by the IDSs, see "Description of Capital Stock Class A Common Stock"; the senior subordinated notes represented by the IDSs, see "Description of Senior Subordinated Notes"; and the new class C common stock, see "Description of Capital Stock Class C Common Stock."
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+PROSPECTUS SUMMARY This summary highlights material information found in greater detail elsewhere in this prospectus. Before making an investment decision, we urge you to read this entire prospectus carefully, including the risks of investing in our common stock discussed under Risk Factors, the assumptions and other information set forth under Conventions and Assumptions Used in this Prospectus and the financial statements and related notes set forth at the end of this prospectus. All references in this prospectus to WPT Enterprises, we, us, our company or our refer to WPT Enterprises, Inc. All references to the World Poker Tour refer to the circuit of poker tournaments that are affiliated under the World Poker Tour name. Depending upon the context in which it is used, the World Poker Tour may also refer to the television series based on the World Poker Tour circuit of tournaments or the World Poker Tour brand in general. WPT Enterprises, Inc. WPT Enterprises, Inc. is a media and entertainment company engaged in the creation of branded entertainment through the development, production and marketing of televised programming based on poker and other gaming themes. To date, our operations have principally revolved around the creation of our World Poker Tour brand through the production and licensing of a reality television series exhibited on the Travel Channel that is based on a circuit of previously-established high-stakes poker tournaments that we have affiliated under the World Poker Tour name. Our immediate business plan involves continuing to build our World Poker Tour concept into a highly-recognizable brand from which we can generate increasing revenues through license fees, retail sales, corporate sponsorships and other sources. We also intend to expand our operations by creating entertainment concepts derived from our existing brand. These derivative concepts may include the production of fictional or reality-based content for television, movies or other audio-visual works that are based upon the World Poker Tour circuit, the competitors on the World Poker Tour circuit, the casinos that host the World Poker Tour tournaments, or the game of poker itself. In the future, we intend to apply a similar business model to create brands based on gaming-related entertainment concepts other than poker. Our ultimate objective is to be the leading media and entertainment company specializing in the development and marketing of premier brands based on gaming themed entertainment. Our Current Brand The World Poker Tour World Poker Tour tournaments are located in prestigious casinos and poker rooms. There are currently 15 regular tournaments (or tour stops ) on the circuit, culminating in the WPT Championship at Bellagio, Las Vegas, Nevada, that includes the winner of each of the previous tournaments. These regular tour stops have attracted well-known and established professional and amateur poker players on the poker circuit. We also make our regular tour stops accessible to the mainstream poker player by partnering with casinos and poker rooms which host satellite and super satellite poker tournaments in which the winner or winners may ultimately earn the right to participate in our main events. At our regular tour stops, we videotape the final table of participants competing for some of the poker world s largest tournament prize pools. We then package this footage into two hour episodes which are distributed for broadcast to both domestic and international television audiences. See Description of the Business Our Existing Brand The World Poker Tour. In addition, we also videotape and produce special episodes based on a variety of non-traditional poker tournaments, which we also distribute for broadcast along with the episodes based on our regular tour stops. See Description of the Business Our Existing Brand The World Poker Tour World Poker Tour Special Events. The World Poker Tour brand has gained recognition through the telecast of the World Poker Tour television series, which is exhibited on the Travel Channel. Since its premiere during the spring and summer of 2003, the television series has become the Travel Channel s highest rated program, based on data compiled by Nielsen Media Research that measures the number of television households viewing the series episodes. We have recently completed production of the episodes based on Season Two s regular Table of Contents tour stops and its season opening tour stop was exhibited on the Travel Channel on March 3, 2004. Season Two will consist of 14 two hour episodes based on the World Poker Tour s regular tour stops and 11 two-hour episodes based on the World Poker Tour s special events, with episodes currently scheduled to be exhibited through early 2005. Our Business Units Based on the popularity of the World Poker Tour television series, we are developing and marketing the World Poker Tour brand in order to generate revenue from three business units: WPT Studios, WPT Consumer Products and WPT Corporate Alliances. WPT Studios. Through its multi-media entertainment business, WPT Studios generates revenue through the domestic and international licensing of broadcast and telecast rights and membership fees from casinos and cardrooms that host the televised World Poker Tour events. Since we began generating revenues in fiscal 2003 and through the first quarter of fiscal 2004, the revenue generated by WPT Studios has accounted for $8,026,696, which represents approximately 96% of our company s total revenue since inception. See Management Discussion and Analysis of Financial Condition and Results of Operations. WPT Consumer Products. Through its branded consumer products business, WPT Consumer Products generates revenue through the licensing and direct sale of merchandise that features our World Poker Tour brand. Through the first quarter of fiscal 2004, WPT Consumer Products has generated aggregate revenues of $244,945 from the sale of merchandise and receipt of brand licensing royalties. WPT Corporate Alliances. Through its corporate promotional business, WPT Corporate Alliances generates revenue through sales of corporate sponsorships that include elements of on-air visibility, corporate live event sponsorship, promotional sponsorships and corporate hospitality events. Through the first quarter of fiscal 2004, WPT Corporate Alliances has generated aggregate revenues of $127,500, primarily in connection with our sponsorship arrangements with Anheuser-Busch. See Description of the Business WPT Corporate Alliances Corporate Sponsorship. In addition to these core businesses, we plan to expand the mainstream potential of the World Poker Tour brand in both domestic and international markets by developing new programming, utilizing the Internet as an advertising platform and a means of content distribution, and exploring new business opportunities that leverage the popularity of the World Poker Tour brand and other brands that we may develop. Financial Performance Since Inception Although we realized our first quarterly profit during the first quarter of fiscal 2004, we have a history of losses since our inception in March 2002. We incurred a net loss of approximately $2.14 million in fiscal 2002, or approximately $0.17 per diluted share, and a net loss of $493,214 in fiscal 2003, or $0.04 per diluted share. In the first quarter of fiscal 2004, we realized a net profit of $791,563, or approximately $0.05 per diluted share. Since our inception, approximately 94% of our WPT Studios business unit s revenues (and approximately 88% of our company s total revenues) have resulted from our broadcast license agreements with the Travel Channel, LLC. These agreements provide the Travel Channel with options to license the World Poker Tour television series exclusively in the United States through its seventh season (which will end in 2009) and limit season by season license fee increases to prescribed rates upon the Travel Channel s exercise of these options. See Description of the Business WPT Studios Distribution of the World Poker Tour Television Series Broadcast License Agreements with the Travel Channel. The operation of our branding and licensing businesses has only recently begun and will require additional time before significantly increasing its operating profits. Due to this and a variety of other factors, many of which are discussed in this prospectus under Risk Factors beginning on page 5, we may be unable to generate significant revenues or margins, control operating expenses, or achieve or sustain profitability in future years. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (1) Excludes an aggregate of 3,120,000 shares of our common stock currently reserved for issuance under our 2004 Stock Incentive Plan, of which (a) 1,120,000 shares are subject to outstanding options, with a nominal per share exercise price, which options are held by Audrey Kania, Robyn Moder, Mike Sexton and Linda Johnson, each of whom is an employee or consultant of ours; and (b) a total of 1,386,000 shares will be subject to options to be granted on the effective date of the offering to our employees and persons who are or will become our outside directors, including a total of 1,100,000 shares subject to options that will be granted to our President, our Executive Vice Presidents and our Chief Financial Officer. (2) Excludes up to 600,000 shares to be sold by us if the underwriters exercise their over-allotment option in full, as described under Underwriting. (3) As of July 28, 2004, the principal and interest balance of our promissory note to our parent company was $0. If there is any balance remaining on the note at the completion of the offering, we will repay that balance with a portion of the net proceeds. (4) We have applied to list our common stock on the Nasdaq National Market under this symbol. Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) On July 28, 2004, we converted from a Delaware limited liability company named World Poker Tour, LLC into a Delaware corporation named WPT Enterprises, Inc. As part of the conversion, each limited liability company unit was converted into 160 shares of common stock (restricted units and unit options will be converted using the same ratio). The net loss per common share (basic and diluted) gives retroactive effect to the conversion for the periods presented. Restricted limited liability company units are included in the basic earnings per common share computations only to the extent Total revenues were $8.9 million for the six months ended July 4, 2004 compared to $3.5 million for the comparable period in the prior year. Revenues for the current and prior year periods were derived primarily from license fees related to the World Poker Tour series. The increase in revenue is primarily due to higher per episode license fees received from the Travel Channel for our Season Two programming and a greater number of episodes delivered to the Travel Channel during the six months ended July 4, 2004, compared to the per episode license fee for our Season One programming and the number of episodes delivered to the Travel Channel during the comparable 2003. Also contributing to the increase for the 2004 period was revenue of approximately $0.9 million resulting from our licensing, sponsorship and merchandising activities, compared to no significant revenue from such activities during the comparable 2003 period. Our production costs increased from $2.1 million for the six months ended June 29, 2003 to $5.1 million for the six months ended July 4, 2004. The increase was also due to a greater number of episodes being delivered to the Travel Channel during the 2004 period compared to the comparable 2003 period. Productions costs for the six months ended June 29, 2003 excluded a significant amount of costs related to episodes delivered in that period that were expensed as incurred prior to the signing of the 1041 North Formosa Avenue, Formosa Building, Suite 99 West Hollywood, California 90046 Telephone: (323) 850-2888 Facsimile: (323) 850-2870 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents Travel Channel contract in March 2003. The gross margins were comparable for the respective six month periods due to higher per episode license fees during the 2004 period that were offset by the exclusion of production costs in the comparable 2003 period. Our net income for the six months ended July 4, 2004 was approximately $1.7 million, with basic earnings of $.12 per share and diluted earnings of $.10 per share. This compares with net income of approximately $594,000, with basic earnings of $.05 per share and diluted earnings of $.04 per share, for the six months ended June 29, 2003. Total revenues were $4.7 million for the three months ended July 4, 2004, compared to $3.0 million in the prior year period. Revenues for the 2004 second quarter and comparable prior year periods were primarily derived from license fees related to the World Poker Tour television series. The increase in revenue is primarily due to higher per episode license fees received from the Travel Channel for episodes delivered during the three months ended July 4, 2004, partially offset by fewer episodes delivered during the 2004 period than during the comparable 2003 period. Also contributing to the increase for the second quarter of 2004 was revenue of approximately $0.5 million that resulted from our licensing, sponsorship and merchandising activity, compared to no significant revenue from such activities during the second quarter of 2003. Our production costs increased from $1.2 million for the three months ended June 29, 2003 to $2.6 million for the three months ended July 4, 2004. Production costs for the three months ended June 28, 2003 excluded a significant amount of costs related to episodes delivered in that period that were expensed as incurred prior to the signing of the Travel Channel contract in March 2003. This resulted in a gross margin of 60% for the three months ended June 29, 2003 compared to 44% for the three months ended July 4, 2004. Our net income for the three months ended July 4, 2004 was approximately $887,000, and basic and diluted earnings were $.06 per share. This compares with net income of $1.3 million, with basic earnings of $.10 per share and diluted earnings of $.08 per share, for the three months ended June 29, 2003. The decrease was due to the unusually high gross margin for the three months ended June 29, 2003 and an additional $750,000 of general and administrative expenses for the three months ended July 4, 2004. Steven Lipscomb WPT Enterprises, Inc. 1041 North Formosa Avenue, Formosa Building, Suite 99 West Hollywood, California 90046 Telephone: (323) 850-2888 Facsimile: (323) 850-2870 (Name, Address, including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies to: Martin R. Rosenbaum, Esq. Alan M. Gilbert, Esq. Maslon Edelman Borman Brand, LLP 90 South 7th Street, Suite 3300 Minneapolis, Minnesota 55402 Telephone: (612) 672-8200 Facsimile: (612) 672-8397 Girard P. Miller, Esq. Lindquist Vennum P.L.L.P. 4200 IDS Center 80 South Eighth Street Minneapolis, Minnesota 55402 Telephone: (612) 371-3211 Facsimile: (612) 371-3207 Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001283858_home_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001283858_home_prospectus_summary.txt
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+SUMMARY This summary highlights selected information from this prospectus and may not contain all the information that is important to you. To completely understand the stock offering, you should read this entire prospectus carefully, including the consolidated financial statements and the notes to the consolidated financial statements. The Companies: Home Federal Bancorp, Inc. 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal Bancorp, Inc. ("Home Federal Bancorp") will be formed a federally-chartered stock corporation for the purpose of acquiring all of the capital stock that Home Federal Savings and Loan Association of Nampa ("Home Federal") will issue upon its reorganization into a mutual holding company structure. Following the reorganization, a majority of the outstanding common stock of Home Federal Bancorp will be held by Home Federal MHC, a federally-chartered mutual holding company. As part of the reorganization, Home Federal Bancorp is offering for sale up to 5,290,000 shares of common stock, subject to adjustment. These shares will represent 40.00% of the outstanding common stock of Home Federal Bancorp after the completion of the reorganization and stock offering. Home Federal Bancorp will form a charitable foundation, to which it will contribute cash and stock equal to 3% of the gross proceeds of shares sold in the offering. Of the contribution, 80% will be made in stock and 20% will be made in cash. Home Federal MHC will own the remainder of the outstanding common stock of Home Federal Bancorp. The following chart shows the corporate structure after completion of the reorganization and stock offering. Home Federal MHC Public Stockholders of Home Federal Home Federal Bancorp Foundation, Inc. 59.04% 40.00% 0.96% Home Federal Bancorp 100.00% Home Federal Home Federal MHC 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal MHC will be formed as a federally-chartered mutual holding company in connection with the mutual holding company reorganization of Home Federal. Following completion of the reorganization, Home Federal MHC will own 59.04% of the outstanding common stock of Home Federal Bancorp. So long as Home Federal MHC is in existence, it will at all times own at least a majority of the outstanding common stock of Home Federal Bancorp. i -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Home Federal Savings and Loan Association of Nampa 500 12th Avenue South Nampa, Idaho 83653 (208) 466-4634 Home Federal was founded in 1920 as a building and loan association and reorganized as a federal mutual savings and loan association in 1936. We are a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market area. We engage primarily in the business of attracting deposits from the general public and using these funds to originate loans. We emphasize the origination of loans secured by first mortgages on owner-occupied, residential real estate, residential development and construction, and commercial real estate. To a lesser extent, we originate other types of real estate loans, commercial business loans and consumer loans. See "Business of Home Federal - Lending Activities." We serve the Treasure Valley region of southwestern Idaho, which includes Ada, Canyon, Elmore and Gem Counties, through our 14 full-service banking offices, two loan centers, 15 automated teller machines and Internet banking services. Included in our 14 full-service banking offices are five Wal-Mart in-store branch locations and an office located in the Hispanic Cultural Center of Idaho. At March 31, 2004, we had total assets of $496.8 million, deposit accounts of $329.5 million and equity of $42.4 million. Through the reorganization, we are changing our corporate structure by becoming a federally-chartered stock savings bank and also are changing our name to "Home Federal Bank." Our Operating Strategy Our mission is to operate and grow a profitable community-oriented financial institution serving individuals and commercial real estate customers in our market area. We plan to achieve this by executing our strategy of: o maintaining favorable asset quality reflected primarily by a low level of nonperforming assets, low charge-offs and adequacy of loan loss reserves; o seeking to improve net interest margin through a combination of reduced funding costs and improved pricing relative to asset risk; o analyzing profitability of products and business lines and allocating resources to those areas offering the greatest potential for future profits; o expanding the number of households we serve through internal expansion of the branch network and possible selective acquisitions of financial service providers in existing or surrounding markets; o pursuing further loan portfolio diversification, with an emphasis on credit risk management; o continuing an internal management culture which is driven by a focus on profitability, productivity and accountability for results and which responds proactively to the challenge of change; o providing our staff members with the knowledge and skills necessary to perform their job functions and develop their career potential; o enhancing the perception of Home Federal with both the retail and commercial banking public as the bank of choice; o maintaining a sales and service culture based on an understanding of the customer's needs and reflecting our commitment to excellence; ii -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- o reducing future reliance on net interest income by creating additional sources of fee income from products and services we offer; and o utilizing technology to gain efficiencies in processing customer information, to provide a competitive tool to assist the sales process and to allow the efficient integration of acquired businesses. The Reorganization and Stock Offering In connection with Home Federal's reorganization into the mutual holding company form of organization, it is offering the common stock of Home Federal Bancorp to the public primarily to allow it to grow through expanded operations, particularly in the area of commercial real estate lending, as well as through increased branching within our current market area. The stock form of organization will also give us more flexibility to increase our capital position and to offer stock-based employee compensation which will provide greater incentive to improve corporate performance. Home Federal also considered reorganizing as the wholly-owned subsidiary of a stock holding company, known as a standard conversion, rather than as a second-tier subsidiary of a mutual holding company. The amount of equity capital that would be raised in a standard conversion, however, would be substantially more than the amount raised in a minority stock offering by a subsidiary of a mutual holding company. As a result, the capital raised in a standard conversion would be significantly in excess of the amount needed for business operations, thereby making it more difficult for Home Federal Bancorp to achieve acceptable returns on equity. See "Home Federal's Reorganization and Stock Offering - Our Reasons for the Reorganization and Stock Offering." We are offering between 3,400,000 and 4,600,000 shares of Home Federal Bancorp common stock at $10.00 per share, which corresponds to the offering range based on our independent appraisal after the contribution of shares to the charitable foundation formed by Home Federal Bancorp and shares that will be held by Home Federal MHC. Home Federal Bancorp will contribute cash and stock equal to 3% of the gross proceeds of shares sold in the offering to the Home Federal Foundation, Inc. ("Home Federal Foundation"). Of this contribution, 80% will be made in stock and 20% will be made in cash. Home Federal MHC will own 59.04% of the outstanding common stock of Home Federal Bancorp. In the event of subsequent developments in the financial condition of Home Federal Bancorp or Home Federal or general financial market conditions before we complete the stock offering, the number of shares we offer may increase up to 5,290,000 shares with the approval of the Office of Thrift Supervision and without any notice to you. If so, you will not have the chance to change or cancel your stock order. Keefe, Bruyette & Woods will assist us in selling the stock. For further information about the role of Keefe, Bruyette & Woods in the offering, see "Home Federal's Reorganization and Stock Offering - Marketing Arrangements." Terms of the Stock Offering We are offering the shares of common stock to those with subscription rights in the following order of priority: (1) Depositors who held at least $50 with us on December 31, 2002. (2) The Home Federal Bancorp, Inc. employee stock ownership plan. (3) Depositors who held at least $50 with us on June 30, 2004. (4) Depositors with us as of _____ __, 2004 and borrowers as of March 16, 2004 whose loans continue to be outstanding as of _____ __, 2004. Shares of common stock not subscribed for in the subscription offering will be offered to the general public in a direct community offering with a preference to natural persons residing in Ada, Canyon, Elmore and Gem iii -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Counties, Idaho and, if necessary, a syndicated community offering. The direct community offering and syndicated community offering, if any, shall begin at the same time as, during or promptly after the subscription offering. See "Home Federal's Reorganization and Stock Offering - Subscription Offering and Subscription Rights," "- Direct Community Offering" and "- Syndicated Community Offering." If we receive subscriptions for more shares than are to be sold in this offering, shares will be allocated in order of the priorities described above under a formula outlined in the plan of reorganization and stock issuance. If we increase the number of shares to be sold above 4,600,000, the employee stock ownership plan will have the first priority right to purchase any shares exceeding that amount to the extent that its subscription has not previously been filled. Any shares remaining will be allocated in the order of priorities described above. See "Home Federal's Reorganization and Stock Offering - Subscription Offering and Subscription Rights" for a description of the allocation procedure. How We Determined the Offering Range and the $10.00 Price Per Share The independent appraisal by RP Financial, LC. ("RP Financial"), dated as of May 21, 2004, established the offering range. This appraisal was based on our financial condition and operations and the effect of the additional capital raised in the stock offering. The $10.00 price per share was determined by our Board of Directors and is the price most commonly used in stock offerings involving reorganizations of mutual savings institutions. The appraisal incorporated an analysis of a peer group of publicly traded mid-tier thrift holding companies and mutual holding companies that RP Financial deemed comparable to Home Federal. This analysis included an evaluation of the average and median price-to-earnings and price-to-tangible book value ratios indicated by the market prices of the peer group companies. RP Financial applied the peer group's pricing ratios, as adjusted for certain qualitative valuation factors to account for differences between Home Federal and the peer group, to Home Federal's pro forma earnings and book value to derive the estimated pro forma market value of Home Federal. RP Financial has estimated that as of May 21, 2004, the pro forma market value of Home Federal Bancorp on a fully converted basis, including the effect of the contribution of cash and stock to the Home Federal Foundation, ranged from a minimum of $85.0 million to a maximum of $115.0 million. Based on this valuation and the $10.00 per share price, the number of shares of common stock to be issued by Home Federal Bancorp will range from a minimum of 8,500,000 shares to a maximum of 11,500,000 shares. Home Federal Bancorp is offering 40.00% of these shares, or between 3,400,000 and 4,600,000 or $34.0 million to $46.0 million, for sale to eligible members of Home Federal, the Home Federal Bancorp, Inc. Employee Stock Ownership Plan and possibly to the general public in a community offering. In addition, the charitable foundation established by Home Federal Bancorp will be funded with cash and stock equal in value to 3% of the shares sold in the offering. It is intended that 80% of the foundation funding will be made by means of a stock contribution and 20% of the foundation funding will be made by means of a cash contribution. Accordingly, based on the minimum and maximum of the offering range, respectively, a minimum of 81,600 shares to a maximum of 110,400 shares will be contributed in stock and a minimum of $204,000 to a maximum of $276,000 will be contributed in cash. Home Federal MHC will own between 5,018,400 and 6,789,600 shares, or 59.04%, of Home Federal Bancorp at the completion of the stock offering. The establishment of the charitable foundation has the effect of reducing the valuation of Home Federal Bancorp. See "Comparison of Valuation and Pro Forma Information With and Without Charitable Foundation." The following tables present a summary of selected pricing ratios for the peer group companies and the resulting pricing ratios for Home Federal Bancorp. The estimated appraised value and the resulting premium/discount took into consideration the potential financial impact of the stock offering of Home Federal Bancorp. iv -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Recent and projected stock trading multiples. The following table presents the pricing ratios for the peer group companies in their current structure, as publicly traded mutual holding companies, and the pro forma pricing ratios for Home Federal Bancorp. Price-to-earnings Price-to-tangible multiple book value ratio ----------------- ----------------- Home Federal Bancorp (pro forma) Maximum............................ 24.9x 143.9% Minimum............................ 18.1 121.7 Valuation of peer group companies as of May 21, 2004 (1) Averages........................... 23.1x 200.5% Medians............................ 23.1 203.2 -------------- (1) Reflects earnings of the most recent 12 month period for which data is publicly available. Stock trading multiples of mutual holding companies on a fully-converted basis. The following table presents pro forma pricing ratios for the peer group companies, assuming they had completed a second-step conversion, and for Home Federal Bancorp, assuming it had also fully converted. RP Financial's calculations of the fully-converted pricing multiples for the peer group companies assume the pro forma impact of selling the mutual holding company shares of each of the peer group companies at their respective trading prices as of May 21, 2004. RP Financial's calculation of the fully-converted pricing multiples for Home Federal Bancorp assumes the pro forma impact of selling 100% of the shares to be issued to the public at $10.00 per share. Pro forma Pro forma price-to-earnings price-to-tangible multiple book value ratio ----------------- ----------------- Home Federal Bancorp Maximum...................... 25.2x 82.6% Minimum...................... 18.2 74.6 Valuation of peer group companies as of May 21, 2004 (1) Averages...................... 25.4x 99.0% Medians....................... 20.7 95.5 -------------- (1) Reflects earnings of the most recent 12 month period for which data is publicly available. The pro forma fully-converted calculations for Home Federal Bancorp and the peer group companies include the following assumptions: o 8.0% of the shares sold would be purchased by an employee stock ownership plan, with the expense to be amortized over ten years; o 4.0% of the shares sold would be purchased by a restricted stock plan, with the expense to be amortized over five years; and o offering expenses would equal 2.0% of the gross proceeds of the offering. With respect to Home Federal Bancorp, the pro forma fully-converted calculations also assume the impact of the establishment of a charitable foundation, funded at the rate of 3.0% of the gross proceeds of the offering. v -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Based on the results of the appraisal, compared to the average pricing of the peer group on a fully-converted basis, Home Federal Bancorp's fully-converted pro forma pricing ratios at the maximum of the offering range indicated a discount of 0.8% on a price-to-earnings basis and a discount of 16.6% on a price-to-book basis. The independent appraisal is not necessarily indicative of the post-stock offering trading value. Do not assume or expect that the valuation of Home Federal Bancorp as indicated above means that the common stock will trade at or above the $10.00 purchase price after the stock offering is completed. The independent valuation must be updated before we complete the stock offering. The amount of common stock being offered may be increased by up to 15% without notice to persons who have subscribed for stock, so that a total of 5,290,000 shares would be sold in the offering. We received authorization from the Office of Thrift Supervision to conduct the stock offering on _____ __, 2004. The updated independent valuation will be subject to the further approval of the Office of Thrift Supervision before we can complete the stock offering. If the updated independent valuation would result in more than 5,290,000 shares being sold, we would notify persons who have subscribed for stock and they would have the opportunity to confirm, change or cancel their subscription orders. See "Pro Forma Data." After-Market Performance Information Provided by Independent Appraiser The following information was provided to the Board of Directors by RP Financial as part of its appraisal review. The table presents for all mutual holding company reorganizations with a minority stock issuance from October 1, 2003 to May 21, 2004, and from January 1, 2002 to May 21, 2004, the average and median percentage stock appreciation from the initial trading date of the offering to the dates presented in the table. The Board did not consider this data particularly relevant to Home Federal's appraisal given that the information relates to stock appreciation experienced by other companies that reorganized in different markets and that may have issued more or less than 40.00% of their outstanding common stock. In addition, the companies may have no similarities to Home Federal with regard to the market in which Home Federal competes, earnings quality and growth potential, among other factors. Finally, the amount of proceeds raised as a percentage of pro forma stockholders' equity for Home Federal Bancorp is substantially higher than the amount of proceeds raised as a percentage of pro forma stockholders' equity for the institutions represented in the table. The substantial proceeds raised as a percentage of pro forma stockholders' equity may have a negative effect on our stock price performance. See "Risk Factors - After this offering, our return on equity will be low compared to other companies and our compensation expenses will increase. This could negatively impact the price of our stock." This table is not intended to indicate how our stock may perform. Stock appreciation is affected by many factors, including, but not limited to, the factors set forth below. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the Risk Factors beginning on page 1. <TABLE> <CAPTION> Average Percentage Stock Price Appre- Median Percentage Stock Price Appre- ciation from Initial Public Offering Price ciation from Initial Public Offering Price ------------------------------------------- ------------------------------------------ Through Through Number of After One After One May 21, After One After One May 21, Transactions Day Month 2004 Day Month 2004 ------------ -------------- ------------ ------------- -------------- ------------ ------------ <S> <C> <C> <C> <C> <C> <C> <C> October 1, 2003- May 21, 2004 8 36.2% 31.8% 21.6% 31.4% 25.5% 18.8% January 1, 2002 -May 21, 2004 12 33.7% 31.1% 42.8% 29.4% 25.3% 21.8% </TABLE> Data presented in the table were calculated on a small sample. The data, therefore, may not be meaningful for investors. While stock prices of reorganizing institutions have, on average, increased for the period presented, there can be no assurance that our stock price will appreciate the same amount, if at all. There can also be no assurance that our stock price will not trade below $10.00 per share, as has been the case for some thrift institutions that have formed mutual holding companies. In addition, the transactions from vi -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- which the data are arrived occurred primarily during a falling interest rate environment, during which the market for financial institutions typically increases. If interest rates rise, our net interest income and the value of our assets likely would be reduced, negatively affecting our stock price. See "Risk Factors - A significant decline or rise in rising interest rates may hurt our profits and net portfolio value." The increase in any particular company's stock price is subject to various factors, including the amount of proceeds a company raises (see "Risk Factors - After this offering, our return on equity will be low compared to other companies and our compensation expenses will increase. This could negatively impact the price of our stock."), the quality of management and management's ability to deploy proceeds (such as through investments, the acquisition of other financial institutions or other businesses, the payment of dividends and common stock repurchases). In addition, stock prices may be affected by general market conditions, the interest rate environment, the market for financial institutions and merger or takeover transactions, the presence of professional and other investors who purchase stock on speculation, as well as other unforeseeable events not necessarily in the control of management. The Board of Directors carefully reviewed the information provided to it by RP Financial through the appraisal process, but did not make any determinations regarding whether or not prior mutual to stock conversions have been undervalued on a price-to-tangible-book value basis, nor did the Board draw any conclusions regarding how the historical data reflected above may impact Home Federal's appraisal. Instead, the Board hired RP Financial to help it understand the regulatory process and to advise the Board as to how much capital Home Federal Bancorp would likely be required to raise under the Office of Thrift Supervision's appraisal guidelines. The Board's ability to control the amount of capital Home Federal will raise in the stock offering is limited by the regulatory framework established by the Office of Thrift Supervision, which requires that Home Federal hire an independent appraiser and permit the independent appraiser to arrive at a value without undue influence from outside parties, including Home Federal. The Board fully complied with the Office of Thrift Supervision's guidelines and permitted RP Financial to arrive at the appraised value of Home Federal independently, which the Board also understood would be subject to Office of Thrift Supervision review and approval. RP Financial, an independent appraisal firm expert in the appraisal guidelines of the Office of Thrift Supervision, considered all factors that may appropriately be considered under the Office of Thrift Supervision's appraisal guidelines when arriving at the appraised value of Home Federal. The Board of Directors recognized the duty of care it owes to Home Federal and its members to proceed with the reorganization transaction in an informed manner with the best interests of Home Federal and its members in the forefront of its deliberations and decision making. The Board worked closely with RP Financial to understand RP Financial's methodology and to consider the appropriateness of RP Financial's assumptions in determining the appraised value. The Board understood that if RP Financial's assumptions were appropriate and the methodology employed was consistent with the Office of Thrift Supervision's appraisal guidelines, the appraisal, once approved by the Office of Thrift Supervision, would fairly estimate the pro forma market value of Home Federal. Termination of the Offering The subscription offering will end at 12:00 Noon, Mountain time, on _____ __, 2004, unless extended. The direct community offering and syndicated community offering, if any, will also end at 12:00 Noon, Mountain time, on _____ __, 2004, unless extended. If fewer than the minimum number of shares are subscribed for in the subscription offering and we do not get orders for at least the minimum number of shares by _____ __, 2004, we will either: (1) promptly return any payment you made to us, with interest, or cancel any withdrawal authorization you gave us; or (2) extend the offering, if allowed, and give you notice of the extension and of your rights to confirm, change or cancel your order. If we extend the offering and you do not respond to the notice, then we will cancel your order and return your payment, with interest, or cancel any withdrawal authorization you gave us. We must complete or terminate the offering by _____ __, 2006. vii -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- How We Will Use the Proceeds Raised from the Sale of Common Stock We intend to use the net proceeds received from the stock offering as follows: <TABLE> <CAPTION> Maximum, Minimum Maximum as adjusted --------- --------- ----------- (In Thousands) <S> <C> <C> <C> Gross proceeds............................................ $ 34,000 $ 46,000 $ 52,900 Less: Estimated underwriting commission....................... 377 526 611 Estimated other offering expenses....................... 1,017 1,017 1,017 --------- --------- ----------- Net proceeds.............................................. 32,606 44,457 51,272 Less: Net proceeds to Home Federal............................ 16,303 22,229 25,636 Loan to our employee stock ownership plan............... 2,785 3,768 4,334 Cash contribution to the Home Federal Foundation........ 204 276 317 Funding of the restricted stock plan.................... 2,486 3,363 3,868 --------- --------- ----------- Net cash proceeds retained by Home Federal Bancorp........ $ 10,828 $ 14,821 $ 17,117 ========= ========= =========== </TABLE> The net proceeds retained by Home Federal Bancorp and Home Federal may ultimately be used to support lending and investment activities, and future expansion of operations through the establishment or acquisition of additional banking offices or other financial service providers, although no such acquisitions are specifically being considered at this time. We intend to use the proceeds for future lending and investment activities, repurchasing stock and payment of dividends, in addition to general and other corporate purposes. See "Risk Factors" and "How We Intend to Use the Proceeds from this Offering." We May Pay a Cash Dividend in the Future We may pay cash dividends in the future, however, the amount and timing of any dividends has not yet been determined. Although future dividends are not guaranteed, based on our pro forma net income and stockholders' equity, we believe Home Federal Bancorp will be capable of paying a dividend after completion of this offering. Based on the minimum and maximum of net proceeds expected to be retained, Home Federal Bancorp will have between $10.8 million and $14.8 million available for payment of dividends. Home Federal Bancorp can also pay dividend from dividends it receives from Home Federal. As of May 21, 2004, all of the companies that comprised the peer group for the independent appraisal paid regular cash dividends with implied dividend yields ranging from 1.08% to 4.86%. As of May 21, 2004, the median dividend yield paid by the peer group companies equaled 2.37%. We currently have no intention to pay or take any steps to pay a tax-free dividend which qualifies as a return of capital. Regulations of the Office of Thrift Supervision prohibit a return of capital during the term of the three-year business plan submitted by Home Federal to the Office of Thrift Supervision in connection with the reorganization and stock offering. Plans to List the Common Stock for Trading on the Nasdaq National Market We plan to list our common stock for trading on the Nasdaq National Market under the symbol "HOME." Our application to list our stock on the Nasdaq National Market is currently pending. However, because of the unpredictability of the stock market and other factors, persons purchasing shares may not be able to sell their shares when they want to, or at a price equal to or above $10.00. viii -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- Limitations on the Purchase of Common Stock in the Stock Offering The minimum purchase is 25 shares. The maximum purchase in the subscription offering by any person or group of persons through a single deposit account is $250,000 of common stock, which equals 25,000 shares. The maximum purchase by any person in the direct community offering is $250,000 of common stock, which equals 25,000 shares. The maximum purchase in the subscription offering, direct community offering and syndicated community offering combined by any person, related persons or persons acting together is one percent of the shares sold in the offering. At the maximum of the offering range, this equals $529,000 of common stock, or 52,900 shares. If any of the following persons purchase common stock, their purchases when combined with your purchases cannot exceed one percent of the shares sold in the offering: o your spouse or relatives of you or your spouse living in your house; o companies, trusts or other entities in which you have an interest or hold a position; or o other persons who may be acting in concert with you. How to Purchase Common Stock Note: Once we receive your order, you cannot cancel or change it without our consent. If Home Federal Bancorp intends to sell fewer than 3,400,000 shares or more than 5,290,000 shares, all subscribers will be notified and given the opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will return your funds promptly with interest or will cancel any withdrawal authorization you gave us. If you want to subscribe for shares, you must complete an original stock order form and drop it off at any Home Federal branch office or send it, together with full payment or withdrawal authorization, to Home Federal in the postage-paid envelope provided. You must sign the certification that is part of the stock order form. We must receive your stock order form before the end of the offering period. You may pay for shares in any of the following ways: o By check or money order made payable to Home Federal Bancorp, Inc. o By authorizing a withdrawal from an account at Home Federal, including certificates of deposit, designated on the stock order form. To use funds in an individual retirement account at Home Federal, you must transfer your account to an unaffiliated institution or broker. Please contact the stock information center at (208) 468-5025 as soon as possible for assistance. o In cash, if delivered in person to any Home Federal branch office. We will pay interest on your subscription funds at the rate Home Federal pays on regular savings accounts from the date we receive your funds until the stock offering is completed or terminated. Payments for shares subscribed for, other than withdrawals from a deposit account at Home Federal, will be deposited in a segregated deposit account at Home Federal. All funds authorized for withdrawal from deposit accounts with Home Federal will earn interest at the applicable account rate until the stock offering is completed. There will be no early withdrawal penalty for withdrawals from certificates of deposit at Home Federal used to pay for stock. ix -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- You may subscribe for shares of common stock using funds in your individual retirement account ("IRA") at Home Federal or elsewhere. However, common stock must be held in a self-directed retirement account. Home Federal's IRAs are not self-directed, so they cannot be invested in common stock. If you wish to use some or all of the funds in your Home Federal IRA to purchase common stock, the applicable funds must be transferred to a self-directed account reinvested by an independent trustee, such as a brokerage firm. If you do not have such an account, you will need to establish one before placing your stock order. An annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and processing of retirement fund orders takes additional time, we recommend that you contact the stock information center promptly, preferably at least two weeks before the end of the offering period, for assistance with purchases using your IRA or other retirement account. Whether you may use these funds for the purchase of shares in the stock offering may depend on timing constraints and possible limitations imposed by the institution where the funds are held. For further discussion regarding the stock ordering procedures, see "Home Federal's Reorganization and Stock Offering - Procedure for Purchasing Shares in the Subscription Offering." Purchases of Common Stock by Home Federal Officers and Directors Home Federal's directors and executive officers intend to subscribe for 332,500 shares regardless of the number of shares sold in the offering. This number equals 7.2% of the 4,600,000 shares that would be sold at the maximum of the offering range. If fewer shares are sold in the stock offering, then officers and directors will own a greater percentage of Home Federal Bancorp. Directors and executive officers will pay the same $10.00 per share price for these shares as everyone else who purchases shares in the stock offering. Tax Consequences of the Reorganization As a general matter, the reorganization will not be a taxable transaction for purposes of federal or state income taxes to Home Federal MHC, Home Federal Bancorp or Home Federal or persons who receive or exercise subscription rights. Our special counsel, Breyer & Associates PC, has issued an opinion to us that, among other items, for federal income tax purposes: o the reorganization will qualify as a tax free reorganization; o it is more likely than not that the fair market value of the subscription rights is zero and accordingly, no gain or loss will be recognized by recipients of subscription rights; and o no gain or loss will be recognized for federal income tax purposes by Home Federal MHC, Home Federal Bancorp or Home Federal as a result of the reorganization to mutual holding company structure. Home Federal has also received an opinion from Penland Munther Goodrum, Chartered, stating that, assuming the reorganization does not result in any federal income tax liability to Home Federal, its account holders, Home Federal Bancorp or Home Federal MHC, the reorganization will not result in any Idaho income tax liability to those entities or persons. For a further discussion of the tax consequences of the reorganization and stock offering, see "Home Federal's Reorganization and Stock Offering - Effects of the Reorganization and Stock Offering - Tax Effects." Benefits to Management from the Offering We intend to establish an employee stock ownership plan, which will purchase in the offering 3.3% of the aggregate shares issued in the reorganization, including those issued to Home Federal MHC, or if shares are not available, in the open market after the stock offering. A loan from Home Federal Bancorp to the plan, funded by a portion of the proceeds from this offering, will be used to purchase these shares. The loan will accrue interest at the prime rate in effect at the time the employee stock ownership loan is entered into. The employee stock ownership x -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- plan will provide a retirement benefit to all employees eligible to participate in the plan. The establishment of the employee stock ownership plan will result in additional compensation expense to Home Federal Bancorp. See "Pro Forma Data" for an illustration of the effects of this plan. We also intend to adopt a stock option plan and a restricted stock plan for the benefit of our directors, officers and employees, subject to stockholder approval. If we adopt the restricted stock plan, some of these individuals will be awarded stock at no cost to them. As a result, both the employee stock ownership plan and the restricted stock plan will increase the voting control of management without a cash outlay by the recipient of shares. The establishment of the restricted stock plan and the stock option plan will result in additional compensation expense to Home Federal. At this time, no determination has been made regarding whether any options that may be granted will be expensed; however, if we were to expense options, it would negatively affect net income. The value of the stock options that would be issued under a stock option plan will be affected by the price of the Home Federal Bancorp stock at the time the stock option plan is implemented and the options are granted. If a stock option plan were to award stock options for 7.3% of the maximum amount of shares that could be issued in the reorganization based on RP Financial's appraisal, the total shares subject to options would be 621,814 shares, 731,546 shares, 841,277 shares and 967,469 shares, respectively, at the minimum, midpoint, maximum and maximum, as adjusted, of the valuation range. The following table presents the total estimated value of the shares of common stock, assuming 11,500,000 shares are issued in the reorganization at the maximum of the offering range, which would be acquired by the employee stock ownership plan and the total value of all shares to be available for award and issuance under the restricted stock plan. The table assumes that the value of the shares is $10.00 per share. The table does not include a value for the options because the price paid for the option shares will be equal to the fair market value of the common stock on the day that the options are granted. As a result, financial gains can be realized under an option only if the market price of the common stock increases. Estimated Percentage of Number of Shares Value of Shares Shares Issued ---------------- --------------- ------------- (Dollars in Thousands) Employee stock ownership plan. 376,832 $ 3,768 3.3% Restricted stock awards....... 336,323 3,363 2.9 Stock options................. 841,277 8,413 7.3 ---------------- --------------- ------------- Total....................... 1,554,432 $ 15,544 13.5% ================ =============== ============= The value of the shares obtained for the restricted stock plan will be based on the price of Home Federal Bancorp's common stock at the time those shares are purchased or issued, which, subject to stockholder approval, cannot be implemented until at least six months after the reorganization and offering. The following table presents the total value of all shares to be available for award and issuance under the restricted stock plan, assuming the shares for the plan are purchased or issued in a range of market prices from $8.00 per share to $14.00 per share. xi -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- <TABLE> <CAPTION> 248,586 Shares 336,323 Shares 386,771 Shares Awarded at 292,456 Shares Awarded at Awarded at Minimum of Awarded at Maximum of Maximum of Share Price Range Midpoint of Range Range Range, As Adjusted ----------- -------------- ----------------- -------------- ------------------ (Dollars in Thousands) <S> <C> <C> <C> <C> $ 8.00 $ 1,989 $ 2,340 $ 2,691 $ 3,094 $ 10.00 2,486 2,925 3,363 3,868 $ 12.00 2,983 3,509 4,036 4,641 $ 14.00 3,480 4,094 4,709 5,415 </TABLE> In addition, upon completion of the stock offering, we intend to enter into an employment agreement with Daniel L. Stevens, President and Chief Executive Officer, and severance agreements with Robert A. Schoelkoph, Roger D. Eisenbarth, Lynn A. Sander, Denis J. Trom and Karen Wardwell. The agreements are designed to assist us in maintaining a stable and competent management team after the stock offering. The agreements will have a term of three years and provide for a severance payment in the event of a change in control of Home Federal Bancorp or Home Federal. The employment and severance agreements to be entered into provide no additional compensation to members of management as the employment agreement maintains Mr. Stevens' current annual salary of $205,000 and the severance agreements do not provide for a benefit, except under certain circumstances, such as a change in control. For a further discussion of benefits to management, see "Management." Stock Information Center If you have any questions regarding the offering or our conversion to stock form, please call the stock information center at (208) 468-5025. Subscription Rights Subscription rights are not allowed to be transferred, and we will act to ensure that you do not do so. We will not accept any stock orders that we believe involve the transfer of subscription rights. Home Federal Bancorp Has Established a Charitable Foundation In connection with the reorganization, Home Federal Bancorp has established a charitable foundation, the Home Federal Foundation, in order to further its commitment to the local community. The foundation is anticipated to distribute at least 5% of its assets each year to support charitable organizations and activities that enhance the quality of life for residents within its market area. The Home Federal Foundation will allow the local communities to share in the anticipated future success of Home Federal and Home Federal Bancorp through cash dividends payable on the common stock and potential appreciation of the value of the common stock, as well as enable Home Federal Bancorp and its related entities to develop a unified charitable donation strategy. Directors of the foundation will be charged with the specific development of a donation strategy consistent with the regulations set forth in Section 501(c)(3) of the Internal Revenue Code. Home Federal Bancorp will fund the foundation with a contribution of cash and stock equal in value to 3% of the shares sold in the offering. It is intended that 80% of the foundation funding will be made by means of a stock contribution and 20% of the foundation funding will be made by means of a cash contribution. Accordingly, based on the minimum and maximum of the offering range, respectively, a minimum of 81,600 shares to a maximum of 110,400 shares will be contributed in stock and a minimum of $204,000 to a maximum of $276,000 will be contributed in cash. There are no plans by Home Federal Bancorp to provide additional funding beyond this initial funding to the foundation over the next three years. xii -------------------------------------------------------------------------------- <PAGE> -------------------------------------------------------------------------------- As a result of the foundation's establishment and funding, the appraisal will be reduced and Home Federal Bancorp will sell fewer shares of common stock than if the reorganization were completed without the foundation. See "Comparison of Valuation and Pro Forma Information With and Without Charitable Foundation" and "Home Federal Foundation." Important Risks in Owning Home Federal Bancorp's Common Stock Before you decide to purchase stock, you should read the "Risk Factors" section on pages 1 to 4 of this prospectus. Possible Conversion of Home Federal MHC to Stock Form In the future, Home Federal MHC may convert from the mutual to capital stock form, in a transaction commonly known as a "second-step conversion." This second-step conversion may be undertaken in order to, among other things, raise additional capital for Home Federal or facilitate an acquisition transaction. Home Federal MHC is not fully converting to stock form at this time because the expected net proceeds from the stock offering are sufficient in our opinion to support the growth of Home Federal MHC and Home Federal anticipated at this time. In a second-step conversion, members of Home Federal MHC would have subscription rights to purchase common stock in an offering of new shares to be conducted by Home Federal Bancorp or its successor, the shares of Home Federal Bancorp would be cancelled and the public stockholders of Home Federal Bancorp would be entitled to exchange their shares of common stock for an equal percentage of new shares of the converted Home Federal MHC. This percentage may be adjusted to reflect any assets owned by Home Federal MHC. Home Federal Bancorp's public stockholders, therefore, would own approximately the same percentage of the resulting entity as they owned prior to the second-step conversion. The Board of Directors has no current plans to undertake a "second-step conversion" transaction. Restrictions on Acquisition of Home Federal Bancorp and Home Federal Federal law restricts the ability of any person, firm or entity to acquire Home Federal Bancorp, Home Federal or their respective capital stock. No person, firm or entity may acquire more than 25% of any class of voting stock of Home Federal Bancorp or Home Federal without approval by the Office of Thrift Supervision. In addition, for a period of three years following completion of the stock offering, Office of Thrift Supervision regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership of more than 10% of the stock of Home Federal Bancorp or Home Federal without approval from the Office of Thrift Supervision. Certain provisions in the charter and bylaws of Home Federal Bancorp and Home Federal affect the ability of any person, firm or entity or acquire control of Home Federal Bancorp and Home Federal. These provisions include limitations on voting rights of persons owning more than 10% of any class of outstanding voting stock of Home Federal Bancorp or Home Federal. xiii -------------------------------------------------------------------------------- <PAGE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001283902_accent_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001283902_accent_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including our financial statements and the risks of investing in our common stock discussed under
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001284698_liberty_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001284698_liberty_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..2dfd9a983891522e2ad5c30c6facd0a755c4f1ad
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001284823_xyratex_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001284823_xyratex_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..b4ce0d44d516d21b50862cc1686e6f6de4b24e41
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our consolidated financial statements and the related notes before making an investment decision. We use the words "we," "our" and "us" in this prospectus to refer both to Xyratex Ltd and Xyratex Group Limited, its subsidiaries and predecessors. Xyratex Ltd will become the new Bermuda parent company of our business immediately prior to the closing of the initial public offering of our common shares, pursuant to the prospectus attached as Annex A to this prospectus. Initial Public Offering of Our Common Shares/Scheme of Arrangement In connection with the initial public offering of our common shares, as described in Annex A, pg. 1, "Prospectus Summary," and to facilitate the listing of our common shares on the Nasdaq National Market, Xyratex Ltd, a Bermuda company, will become the parent company of our business. Xyratex Ltd will become the parent company of our business immediately prior to the closing of the initial public offering, at which time it will own the entire share capital of Xyratex Group Limited, the parent company of our business prior to the initial public offering. Xyratex Ltd was formed in April 2002, and prior to the initial public offering has had no operations. Xyratex Ltd will become our parent company by way of a scheme of arrangement under Section 425 of the Companies Act 1985 of the United Kingdom, pursuant to which the issued shares in Xyratex Group Limited will be cancelled in consideration of (i) the issue of common shares of Xyratex Ltd to the former shareholders of Xyratex Group Limited and (ii) the issue of new shares in Xyratex Group Limited to Xyratex Ltd. The scheme of arrangement will not become effective unless our board of directors believes that the closing of the initial public offering will occur shortly afterwards. The Option Substitution Offer Xyratex Group Limited Plan Xyratex Group Limited has a U.S. stock option plan, the Xyratex Group Limited 2000 Plan, pursuant to which options may be granted to purchase Xyratex Group Limited class A preferred ordinary shares. The Xyratex Group Limited 2000 Plan provides for the grant of incentive stock options and nonqualified stock options. As more fully described under "United States Federal Income Taxation", holders of incentive stock options will not have taxable income upon exercise and generally will have long-term capital gain or loss upon sale of the shares acquired if the shares are held for the requisite periods, while holders of nonqualified stock options will have ordinary income upon exercise measured by the option spread on the exercise date. Xyratex Ltd Plan Xyratex Ltd has a U.S. stock option plan, the Xyratex Ltd 2004 Plan, under which we will grant options to purchase Xyratex Ltd common shares. Under the Xyratex Ltd 2004 Plan, we may grant incentive stock options to our U.S. resident employees and nonqualified stock options to our U.S. resident employees, consultants and non-employee officers and directors. The Substitution Offer We are offering to grant new options to purchase Xyratex Ltd common shares under the Xyratex Ltd 2004 Plan in substitution for existing options to purchase Xyratex Group Limited class A preferred ordinary shares under the current Xyratex Group Limited 2000 Plan. The substitution of new options for existing options will take place upon effectiveness of the scheme of arrangement pursuant to which Xyratex Ltd will become our parent company and the issued shares of Xyratex Group Limited will be exchanged for common shares of Xyratex Ltd. The existing options will be cancelled when the substitution occurs. We are making the offer so that option holders will be able to acquire Xyratex Ltd common shares, which we expect to be quoted on the Nasdaq National Market, and for which we expect there will be a public trading market after the initial public offering of Xyratex Ltd common shares. If the scheme of arrangement does not become effective, new Xyratex Ltd options will not be granted in substitution for existing Xyratex Group Limited options and option holders will retain their existing options. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the section entitled "Risk Factors," our consolidated financial statements and the related notes before making an investment decision. We use the words "we," "our" and "us" in this prospectus to refer both to Xyratex Ltd, which will become the new Bermuda parent company of our business immediately prior to the closing of this offering, and to Xyratex Group Limited, our parent company prior to the consummation of this offering, its subsidiaries and predecessors. Xyratex Ltd We are a leading provider of modular enterprise-class data storage subsystems and storage process technology. We design, develop and manufacture enabling technology that provides our customers with data storage products to support high-performance storage and data communication networks. We operate in two business segments: Storage and Network Systems and Storage Infrastructure. We sell our Storage and Network Systems products exclusively to original equipment manufacturers, or OEMs, and our Storage Infrastructure products directly to disk drive manufacturers. We form long-term, strategic relationships with our customers, which include Network Appliance, Seagate Technology and Western Digital. These three customers comprised our top three customers in our 2003 fiscal year and accounted for 78% of our revenue in that year. In our 2003 fiscal year our single largest customer accounted for 45% of our revenues. For a discussion of the percentage of revenues attributable to certain of our largest customers, please see "Risk Factors Sales to a small number of customers represent a substantial portion of our revenues" and "Business Customers". Our storage subsystems and test equipment products enable our customers to improve asset utilization, reduce capital costs and better focus on their value-added objectives. We have manufacturing, research and development and sales operations in the United States, Asia and Europe. We operate in an industry that seeks to address the growing need to store data. The last decade has seen a dramatic increase in the volume of data that is being captured, processed, stored and manipulated as digital information. This information is generated from many sources, including critical business applications, e-mail communications, the Internet and multimedia applications, which have collectively fueled an increase in demand for data storage capacity. In addition, businesses increasingly face the challenge of managing the accessibility, prioritization and protection of data in a cost-efficient manner. There has also been a trend toward more scalable networked solutions which provide greater access to shared information and greater efficiencies in managing data. A proliferation of technologies has emerged to address the complex requirements of network storage. These changes have led to an increase in technology outsourcing by leading OEMs. This enables them to provide a broad range of network storage solutions while maintaining a focus on their core technologies. We design, develop and manufacture products that enable our customers to address this growth in data storage demand and proliferation of technologies. Our strategy has been to create a range of modular subsystems and process technologies that integrate directly with our customers' product offerings so that together we can address the diversity of end-user requirements. Our Network and Storage Systems products address the challenge of managing the increasing complexity of both data and network technologies to ensure that data can be made available and shared across organizations in a reliable and scalable fashion. Our Storage Infrastructure products provide disk drive manufacturers cost efficiencies and time-to-market advantages, and also enable them to prioritize their internal resources in order to achieve their strategic objectives. We believe we derive significant advantages from the technology synergies and requirements across our Storage and Network Systems and Storage Infrastructure business segments. Both segments require the integration of many types of high-speed disk drive technologies into a range of high-density, high-availability, scalable solutions. Each new Xyratex Ltd option will entitle the option holder to purchase a number of our common shares equal to the number of Xyratex Group Limited class A preferred ordinary shares subject to the existing Xyratex Group Limited option that it replaces multiplied by 1.036378, less any fractional share. No consideration will be paid in lieu of the right to purchase any fractional share. Each new option will have an exercise price per share, denominated in the same currency as the exercise price for the existing option that it replaces (either U.K. pounds sterling or U.S. dollars), equal to the exercise price per share for the existing option that it replaces divided by 1.036378 and rounded to the next higher whole penny or cent. Each new option will have the same vesting schedule and expiration date as the existing option that it replaces. Except for certain unvested options granted after April 1, 2004, all outstanding options under the current U.S. option plan are now exercisable in full. Each new option will have the same designation (as an incentive stock option or as a nonqualified stock option) as the existing option that it replaces. The other terms of each new option will be substantially similar to those of the existing option that it replaces. The tax consequences to the option holders of the exercise of the new options should be the same as for the existing options. To accept the option substitution offer, option holders will be required to sign the form of option substitution agreement delivered with this prospectus. The option substitution agreements provide: for the substitution of new options for existing options and the cancellation of the existing options; that the option holder agrees not to sell or otherwise dispose of any Xyratex Ltd common shares acquired either on the exercise of new options or in exchange for Xyratex Group Limited class A preferred ordinary shares acquired on the exercise of existing options until 180 days after the initial public offering without the consent of the representative of the underwriters; that the option holder appoints each of Steve Barber and Richard Pearce (executive officers of Xyratex Group Limited) as the option holder's attorney-in-fact to take various actions in connection with the substitution of options, including signing the new option agreement on the option holder's behalf; that the option holder will not exercise the option during the period beginning on May 17, 2004 and ending at the time that the scheme of arrangement becomes effective; and that as soon as practicable after the registration statement filed with the Securities and Exchange Commission to register the new options becomes effective, Xyratex Ltd will deliver to the option holder a final prospectus and a confirmation stating that the new option will be substituted for the existing option at the time that the scheme of arrangement becomes effective. Except for certain unvested options granted after April 1, 2004, an option holder may exercise all or any portion of his or her option at any time before May 17, 2004. At the time the scheme of arrangement becomes effective, all Xyratex Group Limited class A preferred ordinary shares acquired by an option holder on the prior exercise of options or otherwise will be exchanged for Xyratex Ltd common shares on a basis of 1.036378 Xyratex Ltd common shares for each Xyratex Group Limited class A preferred ordinary share, less any fractional share. The Xyratex Ltd common shares will be freely tradable under U.S. securities laws and regulations, but will be subject to the agreement not to sell for 180 days after the date of the initial public offering without the consent of the representative of the underwriters if the option holder has signed an option substitution agreement. Option holders who do not sign option substitution agreements will not receive new options to purchase Xyratex Ltd common shares and will retain their existing options. If an option holder who has not signed the option substitution agreement exercises the option after the date on which Xyratex Ltd becomes our parent company, Xyratex Group Limited will issue the number of its shares for which the option is exercised. Under the terms of Xyratex Group Limited's Articles of Association as will then be in effect, however, Xyratex Group Limited will immediately deliver those shares to Xyratex Ltd and Xyratex Ltd will deliver to the option holder a number of Xyratex Ltd common shares equal to the number of Xyratex Group Limited shares delivered to Xyratex Ltd multiplied by 1.036378, less any fractional share. The Xyratex Ltd common shares will, however, be restricted securities under U.S. securities laws and regulations, and the option holder will not be able to sell the common shares until he or she has held them for at least one year and satisfied other requirements. Storage and Network Systems Our Storage and Network Systems products provide modular, highly scalable, high-speed, high-density, reliable and flexible data storage. Our storage subsystems support a range of high-speed communication technologies and cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the network storage market by enabling different specifications of storage subsystem designs to be created from a standard set of interlocking technology modules. The specific configuration of the embedded technology modules within any storage subsystem can be tailored to meet cost, performance, network connection interface, data protection and system availability requirements. Our configuration options include: a range of storage controller devices to protect and manage data; a range of connection options to attach to various high-speed networks; fail-safe internal power systems; and embedded switching technology to improve overall system reliability and performance. Our storage subsystems are internally managed by a range of software modules and features. This software can monitor the internal performance of the subsystem, create high-availability internal environments, communicate independently with remote service and support organizations and integrate seamlessly with our customer's controlling software and management technology through industry standard interfaces. Storage Infrastructure Our Storage Infrastructure products enable our customers to test and produce highly reliable disk drives with greater efficiency and at a lower cost. These products include disk drive production test systems, process automation and servo track writers. Our modular design approach enables us to provide a broad range of process equipment to a wide variety of segments of the disk drive market, including the enterprise storage system, laptop and desk top personal computer, and the emerging consumer electronics segments. Our product options provide solutions supporting a range of disk drive physical sizes and shapes; high-speed disk drive interface connections; and high-density disk drive production process requirements. These options can be integrated with fully automated control and handling systems. Our Competitive Strengths We believe that the following attributes of our business position us to take advantage of market opportunities: Leadership in High-Growth Market Segments: We are an established leader in key segments of the external storage and networking markets. We are the leading subsystem provider to OEMs in the Network Attached Storage systems segment. We are also the leading independent supplier of disk drive production test and servo track writing process equipment to the disk drive industry. We are well positioned to become a leader in providing technology to OEMs in the Near Line Storage segment. We have also established a significant market share as a provider to OEMs who operate in the low- to mid-range Fibre Channel Storage Area Network segment. Excellence in Technology Innovation: We are a leader in high-specification design of high-density, scalable, storage subsystems and automated process test equipment. We are also a leader in the development and integration of network communication protocols and switching technologies. Our history of innovation and first-mover positioning has contributed to our success in winning large OEM contracts and developing long-term customer relationships. Strategic Relationships with Technology Leaders: We have established long-term strategic relationships with many of our customers, including our three largest customers: Network Appliance, Seagate Technology and Western Digital. They rely on us to deliver high-quality products, which they often integrate into their branded product offerings or processes. Our (US dollars) Total shareholders' equity $ Total capitalization $ (in thousands) Years Ending December 31, 2004 $ 100 $ 204 2005 146 6 2006 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001285137_kongzhong_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001285137_kongzhong_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6fd1b31a26ec10bc1fd1e216e073634da63e7929
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001285137_kongzhong_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001285735_ninetowns_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001285735_ninetowns_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6fd1b31a26ec10bc1fd1e216e073634da63e7929
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001285735_ninetowns_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001285736_iowa_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001285736_iowa_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a3330c2ca34535a20ce3813a45c7372da32ec60
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001285736_iowa_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. References in this prospectus to community means a city, town or village and its environs, incorporated or unincorporated. There may be more than one community in a single exchange. An exchange is a geographical area approved by the Iowa Utilities Board and established for the administration of telephone service in a specified area. Our Company Overview We are the largest provider of wireline local exchange telecommunications services to residential and business customers in rural Iowa, serving 440 communities across the state. We are the second largest local exchange carrier in Iowa and the fifteenth largest in the United States. We operate 294 telephone exchanges as the incumbent or historical local exchange carrier and are currently the sole telecommunications company providing wireline services in 87% of the communities we serve. Together with our competitive local exchange carrier subsidiary, we provide services to more than 267,000 access lines in Iowa. See Telecommunications Market Overview. Our core businesses are local telephone service and the provision of network access to other telecommunications carriers for calls originated or terminated on our network. These businesses generated 78% of our total revenues in 2003. Our stable market and subscriber base, predictable capital expenditure requirements and our rural customers high degree of reliance on basic wireline services have produced consistent financial results. Although operating costs and interest expense have declined since 2001, we recorded net losses of $6.7 million in 2001 and $75.7 million in 2002 (including in 2002 a $98.4 million non-cash charge relating to a change in accounting principle). In 2003 we recorded net income of $28.1 million, on revenues of $205.5 million. We have funded our operations through operating cash flow and long-term debt, of which we had $692.5 million at June 30, 2004. In addition to our basic local service and network access businesses, we provide long distance service, dial-up and DSL Internet access and other communications services. Our strong incumbent market position gives us a platform to cross-sell these additional services to our customers. From 2001 to 2003, the growth in revenues from these additional services contributed to an increase in our average annual revenue per access line from $716 to $764. We believe we are building strong consumer loyalty and brand recognition by providing superior, locally-focused customer service and maintaining strong ties to our rural communities. Our stable customer base, combined with the higher costs of offering competitive wireline services, leads to limited competition in rural regions compared to urban areas. Our Strengths We believe we are distinguished by the following strengths: Leading Market Position and Strong Local Brand. Concentrated Geographic Service Region. Favorable Rural Telecom Market Characteristics. Less Risk from Potential Regulatory Change. Successful Introduction of New Businesses. Experienced Leadership. Equity securities 30 % 23 % 35 % Debt securities 65 % 75 % 64 % Real estate 0 % 0 % 0 % Other 5 % 2 % SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001285738_iowa_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001285738_iowa_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a3330c2ca34535a20ce3813a45c7372da32ec60
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001285738_iowa_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. References in this prospectus to community means a city, town or village and its environs, incorporated or unincorporated. There may be more than one community in a single exchange. An exchange is a geographical area approved by the Iowa Utilities Board and established for the administration of telephone service in a specified area. Our Company Overview We are the largest provider of wireline local exchange telecommunications services to residential and business customers in rural Iowa, serving 440 communities across the state. We are the second largest local exchange carrier in Iowa and the fifteenth largest in the United States. We operate 294 telephone exchanges as the incumbent or historical local exchange carrier and are currently the sole telecommunications company providing wireline services in 87% of the communities we serve. Together with our competitive local exchange carrier subsidiary, we provide services to more than 267,000 access lines in Iowa. See Telecommunications Market Overview. Our core businesses are local telephone service and the provision of network access to other telecommunications carriers for calls originated or terminated on our network. These businesses generated 78% of our total revenues in 2003. Our stable market and subscriber base, predictable capital expenditure requirements and our rural customers high degree of reliance on basic wireline services have produced consistent financial results. Although operating costs and interest expense have declined since 2001, we recorded net losses of $6.7 million in 2001 and $75.7 million in 2002 (including in 2002 a $98.4 million non-cash charge relating to a change in accounting principle). In 2003 we recorded net income of $28.1 million, on revenues of $205.5 million. We have funded our operations through operating cash flow and long-term debt, of which we had $692.5 million at June 30, 2004. In addition to our basic local service and network access businesses, we provide long distance service, dial-up and DSL Internet access and other communications services. Our strong incumbent market position gives us a platform to cross-sell these additional services to our customers. From 2001 to 2003, the growth in revenues from these additional services contributed to an increase in our average annual revenue per access line from $716 to $764. We believe we are building strong consumer loyalty and brand recognition by providing superior, locally-focused customer service and maintaining strong ties to our rural communities. Our stable customer base, combined with the higher costs of offering competitive wireline services, leads to limited competition in rural regions compared to urban areas. Our Strengths We believe we are distinguished by the following strengths: Leading Market Position and Strong Local Brand. Concentrated Geographic Service Region. Favorable Rural Telecom Market Characteristics. Less Risk from Potential Regulatory Change. Successful Introduction of New Businesses. Experienced Leadership. Equity securities 30 % 23 % 35 % Debt securities 65 % 75 % 64 % Real estate 0 % 0 % 0 % Other 5 % 2 % SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001285739_iowa_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001285739_iowa_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a3330c2ca34535a20ce3813a45c7372da32ec60
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001285739_iowa_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. References in this prospectus to community means a city, town or village and its environs, incorporated or unincorporated. There may be more than one community in a single exchange. An exchange is a geographical area approved by the Iowa Utilities Board and established for the administration of telephone service in a specified area. Our Company Overview We are the largest provider of wireline local exchange telecommunications services to residential and business customers in rural Iowa, serving 440 communities across the state. We are the second largest local exchange carrier in Iowa and the fifteenth largest in the United States. We operate 294 telephone exchanges as the incumbent or historical local exchange carrier and are currently the sole telecommunications company providing wireline services in 87% of the communities we serve. Together with our competitive local exchange carrier subsidiary, we provide services to more than 267,000 access lines in Iowa. See Telecommunications Market Overview. Our core businesses are local telephone service and the provision of network access to other telecommunications carriers for calls originated or terminated on our network. These businesses generated 78% of our total revenues in 2003. Our stable market and subscriber base, predictable capital expenditure requirements and our rural customers high degree of reliance on basic wireline services have produced consistent financial results. Although operating costs and interest expense have declined since 2001, we recorded net losses of $6.7 million in 2001 and $75.7 million in 2002 (including in 2002 a $98.4 million non-cash charge relating to a change in accounting principle). In 2003 we recorded net income of $28.1 million, on revenues of $205.5 million. We have funded our operations through operating cash flow and long-term debt, of which we had $692.5 million at June 30, 2004. In addition to our basic local service and network access businesses, we provide long distance service, dial-up and DSL Internet access and other communications services. Our strong incumbent market position gives us a platform to cross-sell these additional services to our customers. From 2001 to 2003, the growth in revenues from these additional services contributed to an increase in our average annual revenue per access line from $716 to $764. We believe we are building strong consumer loyalty and brand recognition by providing superior, locally-focused customer service and maintaining strong ties to our rural communities. Our stable customer base, combined with the higher costs of offering competitive wireline services, leads to limited competition in rural regions compared to urban areas. Our Strengths We believe we are distinguished by the following strengths: Leading Market Position and Strong Local Brand. Concentrated Geographic Service Region. Favorable Rural Telecom Market Characteristics. Less Risk from Potential Regulatory Change. Successful Introduction of New Businesses. Experienced Leadership. Equity securities 30 % 23 % 35 % Debt securities 65 % 75 % 64 % Real estate 0 % 0 % 0 % Other 5 % 2 % SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001286603_synetics_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001286603_synetics_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8edaafad6630237c83d01477a67d5961fe04da9e
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001286603_synetics_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. We urge you to read the entire prospectus carefully, especially the risks of investing in our common stock discussed under the heading
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001286686_collegiate_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001286686_collegiate_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d9ea36e8dfbba2c17499be0fdbfa45ba12efa697
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001286686_collegiate_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in shares of our common stock. You should read this entire
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001286692_mulberry_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001286692_mulberry_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..023a7353b119858bd1af76f01e052309278e26ff
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001286692_mulberry_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated. Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data." Our Company Overview KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc. Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives. At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location. Industry The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services. Number of centers at the beginning of the period 1,169 1,242 1,264 1,264 1,264 Openings 44 35 28 24 12 Acquisitions 75 Number of centers at the beginning of the period 1,264 1,264 Openings 24 12 Acquisitions Openings 39 35 44 35 28 12 Acquisitions 13 75 Our Business Strengths Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following: Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers. High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 482 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003. Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability. Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and United States: Alabama 8 Kentucky 14 New York 10 Arizona 23 Louisiana 11 North Carolina 33 Arkansas 2 Maryland 26 Ohio 80 California 143 Massachusetts 49 Oklahoma 6 Colorado 36 Michigan 32 Oregon 20 Connecticut 19 Minnesota 39 Pennsylvania 65 Delaware 5 Mississippi 3 Rhode Island 1 Florida 70 Missouri 32 Tennessee 23 Georgia 31 Nebraska 10 Texas 95 Illinois 96 Nevada 8 Utah 8 Indiana 25 New Hampshire 4 Virginia 54 Iowa 10 New Jersey 51 Washington 58 Kansas 13 New Mexico 6 Wisconsin 24 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 retaining a high quality workforce, which is an important factor in the successful operation of our centers. Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers. Growth Opportunities We are pursuing the following growth opportunities: Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by: Sharing best practices Center directors are incentivized to share best practices; Providing incentives for center directors Bonus programs reward center directors for enrollment growth and overall operating profit performance; Using targeted marketing Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events; Maintaining competitive tuition pricing In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers; Increasing the number and availability of supplemental fee programs We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and Continuing to operate clean, safe and attractive facilities We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 16 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation. Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services. Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services. Transactions Related to This Offering and Our Capital Structure Our Existing Equity Investors KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders." Our Recapitalization Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration. We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock. Dividends on the Class B common stock will be multiplied by dividends on the Class A common stock. Dividends on the Class A and Class B common stock will be pari passu based on their relative dividends. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. However, following the redemption or maturity of the notes, each share of Class B common stock will also be convertible at the option of the holder into shares of Class A common stock. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock. KINDERCARE LEARNING CENTERS, INC. (Exact name of registrant as specified in its charter) DELAWARE (Jurisdiction of incorporation or organization) 8351 (Primary Standard Industrial Classification Code Number) 63-0941966 (I.R.S. Employer Identification Numbers) 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) For a detailed description of the transactions described above, see "Recapitalization." The following chart reflects our ownership structure immediately after this offering: Revolving Credit Facility Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness Revolving Credit Facility." Tender Offer and Consent Solicitation Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this Copies To: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness Senior Subordinated Notes." CMBS Mortgage Loan In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness Mortgage Loan." Our Corporate Information We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus. Net book value $ 1,277 $ 397 $ Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. The Offering Summary of the IDSs and Notes We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note. What are IDSs? IDSs are securities comprised of common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or after a subsequent issuance of notes with OID, a portion of each holder's notes, whether held directly as separate notes or in the form of IDSs, will be exchanged without any further action on the part of the holder, for a portion of the additional notes, such that each holder of separate notes or IDSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes, in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. What payments can I expect to receive as a holder of IDSs or notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right to defer interest payments on our notes, if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see "Description of Notes Terms of the Notes Interest Deferral." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our CALCULATION OF REGISTRATION FEE other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. We expect to make interest and dividend payments quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month. Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of common stock. IDSs have no voting rights separate and apart from the underlying equity securities. Our existing equity investors will own securities that represent approximately % of the voting power of our common equity outstanding immediately following this offering. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, our existing equity investors, or their transferees, will influence the outcome of all matters presented to our stockholders for a vote. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the New York Stock Exchange under the trading symbol "KLC." Listing is subject to our fulfillment of all of the requirements of the New York Stock Exchange, including the distribution of the IDSs to a minimum number of public holders. Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange? The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs? Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued? The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes. Can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and combination of IDSs will occur promptly in accordance with DTC's procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or combination of IDSs. See "Description of IDSs Book Entry Settlement and Clearance Separation and Combination." Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes, upon the continuance of a payment default for 90 days or upon certain bankruptcy events. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable; and Income Deposit Securities (IDSs)(2) Shares of Class A Common Stock, par value $0.01 per share(3) $625,000,000 $79,188(6) % Senior Subordinated Notes(4) Subsidiary Guarantees of % Senior Subordinated Notes(5) if additional IDSs are issued less than 45 days from the closing of this offering, they will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes (whether or not in the form of IDSs) in the future and these notes are sold with OID for U.S. federal income tax purposes, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances." Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and described in more detail in "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes" and "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased. Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3)Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs. (4)Includes $ million aggregate principal amount of KLC's % senior subordinated notes represented by IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering. (5)Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. What will be the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear. Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns. Immediately following such an event, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributed to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences." The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Summary of Our Class A Common Stock Issuer KinderCare Learning Centers, Inc. Shares of Class A common stock represented by IDSs offered hereby shares, or shares if the underwriters' over-allotment option to purchase additional IDSs is exercised in full. Shares of all classes of common stock to be outstanding following the offering and the recapitalization shares of Class A common stock and shares of Class B common stock. Voting rights Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividends. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. Dividend payment dates If declared, dividends will be paid quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month or, if any dividend payment date falls on a day that is not a business day, then on the next day that is a business day. Listing We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Summary of Notes Issuer KinderCare Learning Centers, Inc. Notes $ million aggregate principal amount of % senior subordinated notes represented by IDSs; and $ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs). Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding. Each note will have a principal amount of $ . Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each August, November, February and May, commencing , 2004 to holders of record on the first day of each such month or, if any interest payment date falls on a day that is not a business day, then on the next day that is a business day. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009 but before 2019 we may, subject to certain restrictions, defer interest payments on our notes on up to occasions for up to two quarters per occasion. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Notes Terms of the Notes Interest Deferral." In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The notes will mature on , 2019. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Optional redemption Upon the occurrence of certain tax circumstances, we may, at our option, redeem all, but not less than all, of the notes at any time, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. See "Description of Notes Optional Redemption." Other than as set forth above, we may not redeem the notes at our option prior to , 20 . After , 20 , we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. If we redeem any notes, there will be an automatic separation of IDSs. Change of control Upon the occurrence of a change of control, as defined under "Description of Notes Repurchase at the Option of Holders Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility. State or Other Jurisdiction of Incorporation or Organization Subsequent issuances may affect tax treatment The indenture governing the notes will provide that in the event we issue additional notes in connection with the issuance by us of additional IDSs and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." Ranking of notes and guarantees The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables, except for contractual subordination and statutory priorities provided under the bankruptcy code or other applicable laws. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes; I.R.S. Employer Identification Number we would have had $ million of pari passu indebtedness outstanding, including trade payables; and the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of liens; and consolidations, mergers and transfers of all or substantially all of our assets. Listing We do not anticipate that our notes will be separately listed on any exchange. Representation Letter None of the notes sold separately (not in the form of IDSs) in this offering, which we refer to as the "separate notes," may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See "Underwriting." Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated. Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data." Our Company Overview KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc. Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives. At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location. Industry The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services. Number of centers at the beginning of the period 1,169 1,242 1,264 1,264 1,264 Openings 44 35 28 24 12 Acquisitions 75 Number of centers at the beginning of the period 1,264 1,264 Openings 24 12 Acquisitions Openings 39 35 44 35 28 12 Acquisitions 13 75 Our Business Strengths Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following: Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers. High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 482 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003. Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability. Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and United States: Alabama 8 Kentucky 14 New York 10 Arizona 23 Louisiana 11 North Carolina 33 Arkansas 2 Maryland 26 Ohio 80 California 143 Massachusetts 49 Oklahoma 6 Colorado 36 Michigan 32 Oregon 20 Connecticut 19 Minnesota 39 Pennsylvania 65 Delaware 5 Mississippi 3 Rhode Island 1 Florida 70 Missouri 32 Tennessee 23 Georgia 31 Nebraska 10 Texas 95 Illinois 96 Nevada 8 Utah 8 Indiana 25 New Hampshire 4 Virginia 54 Iowa 10 New Jersey 51 Washington 58 Kansas 13 New Mexico 6 Wisconsin 24 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 retaining a high quality workforce, which is an important factor in the successful operation of our centers. Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers. Growth Opportunities We are pursuing the following growth opportunities: Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by: Sharing best practices Center directors are incentivized to share best practices; Providing incentives for center directors Bonus programs reward center directors for enrollment growth and overall operating profit performance; Using targeted marketing Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events; Maintaining competitive tuition pricing In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers; Increasing the number and availability of supplemental fee programs We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and Continuing to operate clean, safe and attractive facilities We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 16 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation. Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services. Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services. Transactions Related to This Offering and Our Capital Structure Our Existing Equity Investors KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders." Our Recapitalization Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration. We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock. Dividends on the Class B common stock will be multiplied by dividends on the Class A common stock. Dividends on the Class A and Class B common stock will be pari passu based on their relative dividends. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. However, following the redemption or maturity of the notes, each share of Class B common stock will also be convertible at the option of the holder into shares of Class A common stock. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock. KINDERCARE LEARNING CENTERS, INC. (Exact name of registrant as specified in its charter) DELAWARE (Jurisdiction of incorporation or organization) 8351 (Primary Standard Industrial Classification Code Number) 63-0941966 (I.R.S. Employer Identification Numbers) 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) For a detailed description of the transactions described above, see "Recapitalization." The following chart reflects our ownership structure immediately after this offering: Revolving Credit Facility Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness Revolving Credit Facility." Tender Offer and Consent Solicitation Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this Copies To: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness Senior Subordinated Notes." CMBS Mortgage Loan In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness Mortgage Loan." Our Corporate Information We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus. Net book value $ 1,277 $ 397 $ Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. The Offering Summary of the IDSs and Notes We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note. What are IDSs? IDSs are securities comprised of common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or after a subsequent issuance of notes with OID, a portion of each holder's notes, whether held directly as separate notes or in the form of IDSs, will be exchanged without any further action on the part of the holder, for a portion of the additional notes, such that each holder of separate notes or IDSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes, in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. What payments can I expect to receive as a holder of IDSs or notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right to defer interest payments on our notes, if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see "Description of Notes Terms of the Notes Interest Deferral." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our CALCULATION OF REGISTRATION FEE other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. We expect to make interest and dividend payments quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month. Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of common stock. IDSs have no voting rights separate and apart from the underlying equity securities. Our existing equity investors will own securities that represent approximately % of the voting power of our common equity outstanding immediately following this offering. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, our existing equity investors, or their transferees, will influence the outcome of all matters presented to our stockholders for a vote. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the New York Stock Exchange under the trading symbol "KLC." Listing is subject to our fulfillment of all of the requirements of the New York Stock Exchange, including the distribution of the IDSs to a minimum number of public holders. Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange? The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs? Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued? The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes. Can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and combination of IDSs will occur promptly in accordance with DTC's procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or combination of IDSs. See "Description of IDSs Book Entry Settlement and Clearance Separation and Combination." Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes, upon the continuance of a payment default for 90 days or upon certain bankruptcy events. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable; and Income Deposit Securities (IDSs)(2) Shares of Class A Common Stock, par value $0.01 per share(3) $625,000,000 $79,188(6) % Senior Subordinated Notes(4) Subsidiary Guarantees of % Senior Subordinated Notes(5) if additional IDSs are issued less than 45 days from the closing of this offering, they will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes (whether or not in the form of IDSs) in the future and these notes are sold with OID for U.S. federal income tax purposes, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances." Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and described in more detail in "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes" and "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased. Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3)Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs. (4)Includes $ million aggregate principal amount of KLC's % senior subordinated notes represented by IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering. (5)Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. What will be the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear. Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns. Immediately following such an event, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributed to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences." The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Summary of Our Class A Common Stock Issuer KinderCare Learning Centers, Inc. Shares of Class A common stock represented by IDSs offered hereby shares, or shares if the underwriters' over-allotment option to purchase additional IDSs is exercised in full. Shares of all classes of common stock to be outstanding following the offering and the recapitalization shares of Class A common stock and shares of Class B common stock. Voting rights Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividends. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. Dividend payment dates If declared, dividends will be paid quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month or, if any dividend payment date falls on a day that is not a business day, then on the next day that is a business day. Listing We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Summary of Notes Issuer KinderCare Learning Centers, Inc. Notes $ million aggregate principal amount of % senior subordinated notes represented by IDSs; and $ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs). Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding. Each note will have a principal amount of $ . Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each August, November, February and May, commencing , 2004 to holders of record on the first day of each such month or, if any interest payment date falls on a day that is not a business day, then on the next day that is a business day. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009 but before 2019 we may, subject to certain restrictions, defer interest payments on our notes on up to occasions for up to two quarters per occasion. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Notes Terms of the Notes Interest Deferral." In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The notes will mature on , 2019. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Optional redemption Upon the occurrence of certain tax circumstances, we may, at our option, redeem all, but not less than all, of the notes at any time, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. See "Description of Notes Optional Redemption." Other than as set forth above, we may not redeem the notes at our option prior to , 20 . After , 20 , we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. If we redeem any notes, there will be an automatic separation of IDSs. Change of control Upon the occurrence of a change of control, as defined under "Description of Notes Repurchase at the Option of Holders Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility. State or Other Jurisdiction of Incorporation or Organization Subsequent issuances may affect tax treatment The indenture governing the notes will provide that in the event we issue additional notes in connection with the issuance by us of additional IDSs and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." Ranking of notes and guarantees The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables, except for contractual subordination and statutory priorities provided under the bankruptcy code or other applicable laws. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes; I.R.S. Employer Identification Number we would have had $ million of pari passu indebtedness outstanding, including trade payables; and the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of liens; and consolidations, mergers and transfers of all or substantially all of our assets. Listing We do not anticipate that our notes will be separately listed on any exchange. Representation Letter None of the notes sold separately (not in the form of IDSs) in this offering, which we refer to as the "separate notes," may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See "Underwriting." Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated. Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data." Our Company Overview KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc. Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives. At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location. Industry The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services. Number of centers at the beginning of the period 1,169 1,242 1,264 1,264 1,264 Openings 44 35 28 24 12 Acquisitions 75 Number of centers at the beginning of the period 1,264 1,264 Openings 24 12 Acquisitions Openings 39 35 44 35 28 12 Acquisitions 13 75 Our Business Strengths Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following: Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers. High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 482 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003. Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability. Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and United States: Alabama 8 Kentucky 14 New York 10 Arizona 23 Louisiana 11 North Carolina 33 Arkansas 2 Maryland 26 Ohio 80 California 143 Massachusetts 49 Oklahoma 6 Colorado 36 Michigan 32 Oregon 20 Connecticut 19 Minnesota 39 Pennsylvania 65 Delaware 5 Mississippi 3 Rhode Island 1 Florida 70 Missouri 32 Tennessee 23 Georgia 31 Nebraska 10 Texas 95 Illinois 96 Nevada 8 Utah 8 Indiana 25 New Hampshire 4 Virginia 54 Iowa 10 New Jersey 51 Washington 58 Kansas 13 New Mexico 6 Wisconsin 24 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 retaining a high quality workforce, which is an important factor in the successful operation of our centers. Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers. Growth Opportunities We are pursuing the following growth opportunities: Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by: Sharing best practices Center directors are incentivized to share best practices; Providing incentives for center directors Bonus programs reward center directors for enrollment growth and overall operating profit performance; Using targeted marketing Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events; Maintaining competitive tuition pricing In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers; Increasing the number and availability of supplemental fee programs We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and Continuing to operate clean, safe and attractive facilities We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 16 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation. Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services. Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services. Transactions Related to This Offering and Our Capital Structure Our Existing Equity Investors KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders." Our Recapitalization Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration. We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock. Dividends on the Class B common stock will be multiplied by dividends on the Class A common stock. Dividends on the Class A and Class B common stock will be pari passu based on their relative dividends. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. However, following the redemption or maturity of the notes, each share of Class B common stock will also be convertible at the option of the holder into shares of Class A common stock. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock. KINDERCARE LEARNING CENTERS, INC. (Exact name of registrant as specified in its charter) DELAWARE (Jurisdiction of incorporation or organization) 8351 (Primary Standard Industrial Classification Code Number) 63-0941966 (I.R.S. Employer Identification Numbers) 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) For a detailed description of the transactions described above, see "Recapitalization." The following chart reflects our ownership structure immediately after this offering: Revolving Credit Facility Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness Revolving Credit Facility." Tender Offer and Consent Solicitation Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this Copies To: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness Senior Subordinated Notes." CMBS Mortgage Loan In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness Mortgage Loan." Our Corporate Information We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus. Net book value $ 1,277 $ 397 $ Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. The Offering Summary of the IDSs and Notes We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note. What are IDSs? IDSs are securities comprised of common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or after a subsequent issuance of notes with OID, a portion of each holder's notes, whether held directly as separate notes or in the form of IDSs, will be exchanged without any further action on the part of the holder, for a portion of the additional notes, such that each holder of separate notes or IDSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes, in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. What payments can I expect to receive as a holder of IDSs or notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right to defer interest payments on our notes, if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see "Description of Notes Terms of the Notes Interest Deferral." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our CALCULATION OF REGISTRATION FEE other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. We expect to make interest and dividend payments quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month. Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of common stock. IDSs have no voting rights separate and apart from the underlying equity securities. Our existing equity investors will own securities that represent approximately % of the voting power of our common equity outstanding immediately following this offering. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, our existing equity investors, or their transferees, will influence the outcome of all matters presented to our stockholders for a vote. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the New York Stock Exchange under the trading symbol "KLC." Listing is subject to our fulfillment of all of the requirements of the New York Stock Exchange, including the distribution of the IDSs to a minimum number of public holders. Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange? The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs? Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued? The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes. Can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and combination of IDSs will occur promptly in accordance with DTC's procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or combination of IDSs. See "Description of IDSs Book Entry Settlement and Clearance Separation and Combination." Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes, upon the continuance of a payment default for 90 days or upon certain bankruptcy events. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable; and Income Deposit Securities (IDSs)(2) Shares of Class A Common Stock, par value $0.01 per share(3) $625,000,000 $79,188(6) % Senior Subordinated Notes(4) Subsidiary Guarantees of % Senior Subordinated Notes(5) if additional IDSs are issued less than 45 days from the closing of this offering, they will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes (whether or not in the form of IDSs) in the future and these notes are sold with OID for U.S. federal income tax purposes, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances." Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and described in more detail in "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes" and "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased. Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3)Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs. (4)Includes $ million aggregate principal amount of KLC's % senior subordinated notes represented by IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering. (5)Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. What will be the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear. Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns. Immediately following such an event, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributed to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences." The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Summary of Our Class A Common Stock Issuer KinderCare Learning Centers, Inc. Shares of Class A common stock represented by IDSs offered hereby shares, or shares if the underwriters' over-allotment option to purchase additional IDSs is exercised in full. Shares of all classes of common stock to be outstanding following the offering and the recapitalization shares of Class A common stock and shares of Class B common stock. Voting rights Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividends. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. Dividend payment dates If declared, dividends will be paid quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month or, if any dividend payment date falls on a day that is not a business day, then on the next day that is a business day. Listing We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Summary of Notes Issuer KinderCare Learning Centers, Inc. Notes $ million aggregate principal amount of % senior subordinated notes represented by IDSs; and $ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs). Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding. Each note will have a principal amount of $ . Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each August, November, February and May, commencing , 2004 to holders of record on the first day of each such month or, if any interest payment date falls on a day that is not a business day, then on the next day that is a business day. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009 but before 2019 we may, subject to certain restrictions, defer interest payments on our notes on up to occasions for up to two quarters per occasion. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Notes Terms of the Notes Interest Deferral." In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The notes will mature on , 2019. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Optional redemption Upon the occurrence of certain tax circumstances, we may, at our option, redeem all, but not less than all, of the notes at any time, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. See "Description of Notes Optional Redemption." Other than as set forth above, we may not redeem the notes at our option prior to , 20 . After , 20 , we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. If we redeem any notes, there will be an automatic separation of IDSs. Change of control Upon the occurrence of a change of control, as defined under "Description of Notes Repurchase at the Option of Holders Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility. State or Other Jurisdiction of Incorporation or Organization Subsequent issuances may affect tax treatment The indenture governing the notes will provide that in the event we issue additional notes in connection with the issuance by us of additional IDSs and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." Ranking of notes and guarantees The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables, except for contractual subordination and statutory priorities provided under the bankruptcy code or other applicable laws. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes; I.R.S. Employer Identification Number we would have had $ million of pari passu indebtedness outstanding, including trade payables; and the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of liens; and consolidations, mergers and transfers of all or substantially all of our assets. Listing We do not anticipate that our notes will be separately listed on any exchange. Representation Letter None of the notes sold separately (not in the form of IDSs) in this offering, which we refer to as the "separate notes," may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See "Underwriting." Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated. Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data." Our Company Overview KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc. Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives. At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location. Industry The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services. Number of centers at the beginning of the period 1,169 1,242 1,264 1,264 1,264 Openings 44 35 28 24 12 Acquisitions 75 Number of centers at the beginning of the period 1,264 1,264 Openings 24 12 Acquisitions Openings 39 35 44 35 28 12 Acquisitions 13 75 Our Business Strengths Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following: Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers. High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 482 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003. Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability. Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and United States: Alabama 8 Kentucky 14 New York 10 Arizona 23 Louisiana 11 North Carolina 33 Arkansas 2 Maryland 26 Ohio 80 California 143 Massachusetts 49 Oklahoma 6 Colorado 36 Michigan 32 Oregon 20 Connecticut 19 Minnesota 39 Pennsylvania 65 Delaware 5 Mississippi 3 Rhode Island 1 Florida 70 Missouri 32 Tennessee 23 Georgia 31 Nebraska 10 Texas 95 Illinois 96 Nevada 8 Utah 8 Indiana 25 New Hampshire 4 Virginia 54 Iowa 10 New Jersey 51 Washington 58 Kansas 13 New Mexico 6 Wisconsin 24 United Kingdom SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 retaining a high quality workforce, which is an important factor in the successful operation of our centers. Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers. Growth Opportunities We are pursuing the following growth opportunities: Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by: Sharing best practices Center directors are incentivized to share best practices; Providing incentives for center directors Bonus programs reward center directors for enrollment growth and overall operating profit performance; Using targeted marketing Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events; Maintaining competitive tuition pricing In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers; Increasing the number and availability of supplemental fee programs We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and Continuing to operate clean, safe and attractive facilities We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 16 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation. Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services. Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services. Transactions Related to This Offering and Our Capital Structure Our Existing Equity Investors KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders." Our Recapitalization Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration. We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock. Dividends on the Class B common stock will be multiplied by dividends on the Class A common stock. Dividends on the Class A and Class B common stock will be pari passu based on their relative dividends. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. However, following the redemption or maturity of the notes, each share of Class B common stock will also be convertible at the option of the holder into shares of Class A common stock. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock. KINDERCARE LEARNING CENTERS, INC. (Exact name of registrant as specified in its charter) DELAWARE (Jurisdiction of incorporation or organization) 8351 (Primary Standard Industrial Classification Code Number) 63-0941966 (I.R.S. Employer Identification Numbers) 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service) For a detailed description of the transactions described above, see "Recapitalization." The following chart reflects our ownership structure immediately after this offering: Revolving Credit Facility Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness Revolving Credit Facility." Tender Offer and Consent Solicitation Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this Copies To: Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness Senior Subordinated Notes." CMBS Mortgage Loan In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness Mortgage Loan." Our Corporate Information We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus. Net book value $ 1,277 $ 397 $ Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. The Offering Summary of the IDSs and Notes We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note. What are IDSs? IDSs are securities comprised of common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or after a subsequent issuance of notes with OID, a portion of each holder's notes, whether held directly as separate notes or in the form of IDSs, will be exchanged without any further action on the part of the holder, for a portion of the additional notes, such that each holder of separate notes or IDSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes, in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. What payments can I expect to receive as a holder of IDSs or notes? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right to defer interest payments on our notes, if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see "Description of Notes Terms of the Notes Interest Deferral." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our CALCULATION OF REGISTRATION FEE other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. We expect to make interest and dividend payments quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month. Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of common stock. IDSs have no voting rights separate and apart from the underlying equity securities. Our existing equity investors will own securities that represent approximately % of the voting power of our common equity outstanding immediately following this offering. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Therefore, our existing equity investors, or their transferees, will influence the outcome of all matters presented to our stockholders for a vote. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the New York Stock Exchange under the trading symbol "KLC." Listing is subject to our fulfillment of all of the requirements of the New York Stock Exchange, including the distribution of the IDSs to a minimum number of public holders. Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange? The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs? Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued? The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes. Can I separate my IDSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and combination of IDSs will occur promptly in accordance with DTC's procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or combination of IDSs. See "Description of IDSs Book Entry Settlement and Clearance Separation and Combination." Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes, upon the continuance of a payment default for 90 days or upon certain bankruptcy events. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable; and Income Deposit Securities (IDSs)(2) Shares of Class A Common Stock, par value $0.01 per share(3) $625,000,000 $79,188(6) % Senior Subordinated Notes(4) Subsidiary Guarantees of % Senior Subordinated Notes(5) if additional IDSs are issued less than 45 days from the closing of this offering, they will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes (whether or not in the form of IDSs) in the future and these notes are sold with OID for U.S. federal income tax purposes, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances." Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and described in more detail in "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes" and "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. What will be the U.S. federal income tax consequences of an investment in the IDSs? The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear. Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased. Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. (1)Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2)The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3)Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs. (4)Includes $ million aggregate principal amount of KLC's % senior subordinated notes represented by IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering. (5)Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. What will be the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear. Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns. Immediately following such an event, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributed to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences." The Registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Summary of Our Class A Common Stock Issuer KinderCare Learning Centers, Inc. Shares of Class A common stock represented by IDSs offered hereby shares, or shares if the underwriters' over-allotment option to purchase additional IDSs is exercised in full. Shares of all classes of common stock to be outstanding following the offering and the recapitalization shares of Class A common stock and shares of Class B common stock. Voting rights Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividends. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. Dividend payment dates If declared, dividends will be paid quarterly on the 15th day of each August, November, February and May to holders of record on the first day of each such month or, if any dividend payment date falls on a day that is not a business day, then on the next day that is a business day. Listing We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the New York Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the New York Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. Summary of Notes Issuer KinderCare Learning Centers, Inc. Notes $ million aggregate principal amount of % senior subordinated notes represented by IDSs; and $ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs). Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding. Each note will have a principal amount of $ . Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each August, November, February and May, commencing , 2004 to holders of record on the first day of each such month or, if any interest payment date falls on a day that is not a business day, then on the next day that is a business day. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009 but before 2019 we may, subject to certain restrictions, defer interest payments on our notes on up to occasions for up to two quarters per occasion. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Notes Terms of the Notes Interest Deferral." In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The notes will mature on , 2019. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Optional redemption Upon the occurrence of certain tax circumstances, we may, at our option, redeem all, but not less than all, of the notes at any time, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. See "Description of Notes Optional Redemption." Other than as set forth above, we may not redeem the notes at our option prior to , 20 . After , 20 , we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. If we redeem any notes, there will be an automatic separation of IDSs. Change of control Upon the occurrence of a change of control, as defined under "Description of Notes Repurchase at the Option of Holders Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility. State or Other Jurisdiction of Incorporation or Organization Subsequent issuances may affect tax treatment The indenture governing the notes will provide that in the event we issue additional notes in connection with the issuance by us of additional IDSs and such notes are issued with OID or after a subsequent issuance of notes with OID, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances." Ranking of notes and guarantees The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables, except for contractual subordination and statutory priorities provided under the bankruptcy code or other applicable laws. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes; I.R.S. Employer Identification Number we would have had $ million of pari passu indebtedness outstanding, including trade payables; and the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of liens; and consolidations, mergers and transfers of all or substantially all of our assets. Listing We do not anticipate that our notes will be separately listed on any exchange. Representation Letter None of the notes sold separately (not in the form of IDSs) in this offering, which we refer to as the "separate notes," may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See "Underwriting." Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
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+S-1/A Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Alliance Laundry Holdings, Inc., a Delaware corporation, as Alliance Holdings, and, together with its consolidated operations, as the Company, Alliance, we, our and us, unless otherwise indicated. Any reference to Alliance Laundry refers to our wholly-owned subsidiary, Alliance Laundry Systems LLC, a Delaware limited liability company, and its consolidated operations, unless otherwise indicated. Alliance Holdings is a holding company and has no direct operations. Alliance Holdings principal assets are the direct and indirect equity interests of Alliance Laundry. Our Company Overview We are the leading designer, manufacturer and marketer in North America of commercial laundry equipment used in laundromats, multi-housing laundries and on-premise laundries. Under the well-known brand names of Speed Queen , UniMac and Huebsch , we produce a full line of commercial washing machines and dryers with load capacities from 16 to 250 pounds. We believe we have been the market share leader in the North American stand alone commercial laundry equipment industry for more than ten years. With a market share of approximately 39% in 2003, we believe our sales are more than twice as large as those of the next largest competitor. We serve three distinct end-customer groups: (i) laundromats; (ii) multi-housing laundries, consisting primarily of common laundry facilities in apartment buildings, universities and military installations; and (iii) on-premise laundries, consisting primarily of in-house laundry facilities in hotels, hospitals, nursing homes and prisons. The primary means of serving these end-customers is through distributors and route operators. We believe that we have the most extensive distribution network in North America which gives us a significant competitive advantage. We reach laundromat and on-premise laundry end-customers through a network of over 200 North American distributors and over 100 international distributors, serving over 90 different countries. Our distributors purchase equipment from us, then re-sell and install it for laundromat and on-premise end-customers. We serve multi-housing end-customers through a network of over 80 route operators. Route operators purchase equipment from us, and then obtain leases from multi-housing property managers to place it into common laundry rooms. We estimate that our distributors and route operators have either the number one or number two market position in over 80% of North American markets. We believe that the superior quality and loyalty of our distribution network has been a significant factor in achieving the number one market share in North America in each of our three end-customer groups. We estimate that the North American stand alone commercial laundry equipment industry generated approximately $472.0 million in revenue in 2003. The industry s revenues are primarily driven by population growth and the replacement cycle of laundry equipment. North American consumers view clean clothes as a necessity, with economic conditions having limited effect on the frequency of use, and therefore the useful life, of laundry equipment. As a result, the industry s revenues have been relatively stable over time and through economic downturns. Company Strengths We believe that we have the following competitive strengths: Market Leader with Significant Installed Base. We are the market share leader in the overall North American stand alone commercial laundry equipment industry, and we believe that our sales are Asset Category: Equity securities 68 % 61 % Debt securities 31 % 38 % Other 1 % (1) Management estimates. As a result of our market leadership for more than ten years, we believe that we have the largest installed base of equipment in North America comprised of over two million machines. A significant majority of our revenue is attributable to replacement sales driven by our large installed base combined with an average ten year estimated life per machine. Stable Revenues and Increasing Cash Flow. We have experienced stable revenues even during economic slowdowns, driven by the underlying stability of the industry and the recurring sales of replacement equipment and service parts which together comprise the majority of our revenues. In addition, since 1995, we have progressively reduced our manufacturing costs through improvements in raw material usage and labor efficiency, as well as through plant consolidation, resulting in improving cash from operations as demonstrated by our historical financial performance. Our net cash from operating activities was approximately $11.7 million, $15.3 million, $21.3 million, $22.8 million and $30.4 million for 1999, 2000, 2001, 2002 and 2003, respectively. Limited Working Capital and Consistent Capital Expenditure Requirements. We aggressively manage our working capital requirements, having reduced net working capital as a percent of revenue from 8.2% in 2000 to 6.7% in 2003. From December of 2000 to December of 2003, inventory has been reduced from $37.5 million to $26.2 million, an improvement of 30.0%. We also have consistent capital expenditure requirements, with maintenance capital expenditures of $3.6 million, $2.6 million, $3.6 million, $2.7 million and $3.6 million, for 1999, 2000, 2001, 2002 and 2003, respectively. We believe that we currently have excess manufacturing capacity and can increase production without incurring significant additional capital expenditures. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Extensive and Loyal Distribution Network. We believe we have developed the most extensive distribution network in the North American industry, with over 200 distributors and 80 route operators. We estimate that our laundromat and on-premise laundry distributors and multi-housing route operators have either the number one or number two market position in over 80% of North American markets. These leading distributors and route operators are attracted by our industry-leading brand equity, broad product array, significant installed base and our comprehensive value-added support, which includes training, extensive electronic support of installation and service and joint promotion efforts. These factors lead to high costs for distributors and route operators to switch manufacturers, especially when combined with their substantial investments in service parts inventories and in training their sales and installation personnel with respect to our highly engineered products. Our customers place great value on the proven reliability of our products, backed by years of demonstrated experience in the field, as this significantly impacts their long term repair and maintenance expenses. We have not experienced any significant turnover of our distributors and route operators, of which a significant number have been customers for over ten years. High Barriers to Entry. We believe that significant time and substantial capital investment would be required for a new entrant to compete effectively in this market. Many years of engineering and field testing, plus substantial investment in plant and equipment, are required before the process of attempting to earn market share can take place. In addition, a new entrant would have to break the strong, established relationships that existing manufacturers have developed with distributors. There are significant costs for distributors and route operators to break these long-term relationships, including extensive retraining of distributors and route operators sales, installation and service personnel and duplication of service parts inventories which must be stocked for years. Comprehensive and Innovative Product Offering. We believe our product lines lead the industry in reliability, breadth of offerings, functionality and advanced features. In addition, we believe we are the only manufacturer in North America to produce a full product line (including topload washers, dryers, frontload washers, washer- extractors and tumbler dryers for all commercial customer groups), thereby providing customers with a single source solution for all their stand alone commercial laundry equipment needs. Our development team of more than 80 engineers and technical personnel, along with our marketing and sales personnel, work together with our major customers to redesign and enhance our products to better meet customer needs. For example, new products such as our NetMasterTM system emphasize efficiency and feature new electronic controls, facilitating ease of use as well as improving performance and reliability. Leading North American Brands. We market and sell our products under the widely recognized brand names Speed Queen , UniMac , Huebsch and Ajax . We believe that we have industry-leading brand equity and brand recognition, based upon historical customer survey results and the substantial market share growth achieved since 1993. Strong and Experienced Management Team. Led by chief executive officer and president Thomas L Esperance, we have assembled a strong and experienced management team. Our seven executive officers have an average of over 16 years of experience in the commercial laundry equipment and appliance industries. This management team has executed numerous strategic initiatives, including: (i) developing strategic alliances with key customers; (ii) acquiring and successfully integrating the commercial washer-extractor business of UniMac and the press and finishing equipment business of Ajax ; (iii) implementing manufacturing cost reduction and quality improvement programs; and (iv) ongoing refinements to our product offerings. Management s economic interests will align with those of securityholders through management s participation in our long-term incentive plan. Business Strategy We strive to continue our strong financial performance and selectively pursue growth opportunities by offering to our customers a full line of the most reliable and functional stand alone commercial laundry equipment, AMENDMENT NO. 3 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents together with industry-leading, comprehensive value-added services. The key elements of our strategy are as follows: Develop and Strengthen Relationships with Key Customers. We have developed and will continue to pursue long-term relationships with key customers and will pursue additional supply agreements with such customers. The relationships that we establish with our customers are comprehensive and include training, extensive technical support and promotion activities. In addition, we model our product development efforts to meet evolving customer preferences by working with key customers to develop new products, features and value-added services. We have not experienced any significant customer turnover. Our top ten customers, other than a significant new account that was added in 2003, have been our customers for at least ten years. For example, we currently sell our products to Coinmach Corporation, our largest customer, under a multi-year supply agreement. Coinmach, which is the largest operator of multi-housing laundries in North America, has been a significant customer of ours for over two decades. Continue to Improve Manufacturing Operations. We seek to continuously enhance our product quality and reduce costs through ongoing refinements to our manufacturing processes. We achieve such improvements, and intend to continue doing so, through collaboration among key customers, suppliers and our engineering and marketing personnel. Since 1996, we have progressively reduced our manufacturing costs through improvements in raw material usage and labor efficiency, as well as plant consolidation. Since 2000, we have been implementing a demand flow production system on our higher volume product lines. These process changes have resulted in significant improvements in assembly efficiency, inventory levels, customer order lead times and production quality. For example, labor productivity improved by 4.5% from 2002 to 2003, and over the same period, we improved our first year warranty incident rate to 0.3% of sales. Expand into the U.S. Home Laundry Market. We are planning to re-enter the U.S. home laundry market in October 2004, after the expiration of a non-compete agreement. This non-compete agreement was a result of the divestiture of a sister division in 1997. Our strategy in the home laundry market will be dual-pronged. First, we plan to re-enter the mid to high-end home laundry market with existing products that we currently sell internationally and into other markets. These existing products are designed to have useful lives approximately twice that of typical home laundry equipment. Before exiting the home laundry market in 1999 pursuant to the non-compete agreement, we produced annual home laundry units of about 500,000 for a 5% market share of annual home laundry units, which generated approximately $150 million in annual sales. We plan to leverage the strong brand equity of our Speed Queen name in order to recapture our historic market share. Second, we have signed a letter-of-intent with an ultra-premium home appliance company to produce professional-quality home laundry equipment to be sold under their brand name. This equipment is based completely on our current commercial equipment technology and production methods. These plans to enter both the mid to high-end and the ultra-premium home laundry markets should allow us to expand our sales and continue to diversify our customer base. These products will be produced in our current facilities with minimal incremental capital expenditures. New Credit Facility Concurrently with the closing of this offering, we will enter into a $185.0 million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp., General Electric Capital Corporation, LaSalle Bank NA and Lehman Commercial Paper Inc. Throughout this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility in a total principal amount of up to $50.0 million (less amounts reserved for letters of credit), which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $135.0 million, which we refer to as the Alliance Laundry Holdings, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 5080 (Primary Standard Industrial Classification Code Number) 20-0908915 (I.R.S. Employer Identification No.) P.O. Box 990 Ripon, Wisconsin 54971-0990 (920) 748-3121 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents new term loan. We expect that the new revolving credit facility and the new term loan will each have a 4.75-year maturity. We may use borrowings under the new credit facility to pay interest on the senior subordinated notes or dividends on our capital stock if we meet certain specified conditions. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. Tender Offer and Consent Solicitation Prior to this offering, we will commence a tender offer and consent solicitation with respect to all of our outstanding $110.0 million aggregate principal amount of 9 5/8% senior subordinated notes due 2008, for an expected aggregate consideration of $113.5 million plus accrued interest. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Holders of our existing senior subordinated notes that provide consents will be obligated to tender their notes in the offer, and holders of our existing senior subordinated notes that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we and the trustee of the existing senior subordinated notes will enter into a supplemental indenture that will delete all of the material restrictive covenants contained in the indenture governing the existing senior subordinated notes. The tender offer and consent solicitation will be consummated on the terms described above. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for our existing senior subordinated notes accepted for purchase in the tender offer and consent solicitation. Use of Proceeds We estimate that we will receive net proceeds from this offering of approximately $297.0 million after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. We will use these net proceeds, together with cash on hand and borrowings under our new credit facility, to repay our existing indebtedness, to repurchase a portion of our existing equity investors interest in our predecessor, and for working capital and general corporate purposes. We will not receive any of the proceeds from the underwriters exercise of their over-allotment option. Reorganization of Alliance Laundry Holdings LLC Bain Capital Fund V, L.P. and its co-investors, Bruckmann, Rosser, Sherrill Co., L.P. and its co-investors, and certain other persons listed in Principal and Selling Stockholders are the owners of our predecessor s equity interests prior to this offering. In this prospectus, we refer to these owners as the existing equity investors. Concurrently with the closing of the offering, our existing equity investors will contribute all of these equity interests to us in exchange for 3,353,841 IDSs (of which 2,062,754 will be subject to the underwriters over-allotment option), 1,803,045 shares of Class B common stock, and approximately $116.6 million in cash in the aggregate. We will own 100% of the equity interests in Alliance Laundry after the reorganization and the existing equity investors will own 20% of the voting power of our capital stock. We refer to this contribution as the reorganization. The reorganization itself will not immediately change the percentage ownership interests of any existing equity investors in Alliance Laundry. Following our reorganization, our executive management will collectively hold an aggregate of 564,697 IDSs and 218,396 shares of Class B common stock. Thomas F. L Esperance Chief Executive Officer and President Alliance Laundry Holdings, Inc. P.O. Box 990 Ripon, Wisconsin 54971-0990 (920) 748-3121 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at Shepard Street, Ripon, Wisconsin 54971-0990, and our telephone number is (920) 748-3121. Our internet address is www.comlaundry.com. www.comlaundry.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Copies to: Joshua N. Korff, Esq. Kirkland Ellis LLP Citigroup Center 153 East 53rd Street New York, New York 10022 (212) 446-4800 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. Table of Contents The Offering We are offering 20,627,540 IDSs at an assumed initial public offering price of $15.00 per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $13.9 million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any affiliate of such purchaser, is entitled to purchase both IDSs and separate senior subordinated notes in the offering. As part of our reorganization described elsewhere in this prospectus, we also intend to issue 3,353,841 IDSs to our existing equity investors in exchange for the interests they hold in our predecessor (of which 2,062,754 will be subject to the underwriters over-allotment option). None of the senior subordinated notes sold separately (not represented by IDSs) in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our reorganization. Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $4.85 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. In addition, we currently intend to pay an initial dividend on December 30, 2004 in an amount of $ and $ per share of our Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at a quarterly rate of $0.2455 and $0.4001 per share of our Class A common stock and Class B common stock, respectively, for the remainder of the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes and our new credit facility will contain restrictions on our ability to declare and pay dividends on our common stock. See Dividend Policies and Restrictions. We expect to make interest and dividend payments, if any, on the 30th day of March, June, September and December of each year to holders of record on the 20th day of each such month, or, if such day is not a business day, the business day immediately preceding such 20th day. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Further, our ability to pay dividends is restricted by Delaware law and by the indenture and the new credit facility. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol ALH. Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. However, a holder of our Class A common stock has a legal right under Delaware law to request that we issue a certificate for such common stock. Any holder of IDSs that wants to exercise such right, must first separate his IDSs into the shares of Class A common stock and senior subordinated notes represented thereby. Table of Contents Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering, in a subsequent offering of IDSs of the same series or in the open market, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Any voluntary separation or recombination of IDSs can occur on the same day as the request for separation or recombination as long as instructions are received by 3:00 p.m., Eastern Standard Time on that trading day. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Equity Investors Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange will not impair any rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by you; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. (In thousands) Cash flows from operating activities $ 11,662 $ 15,290 $ 21,338 $ 22,775 $ 30,393 $ 4,818 $ 16,751 Interest expense, net of non-cash interest 27,023 31,134 27,155 20,959 20,951 10,772 9,613 Net change in operating assets and liabilities 14,753 (393 ) 2,148 (1,301 ) 1,735 9,574 1,306 Income tax provision 29 20 34 56 55 43 54 Loss from early extinguishment of debt (2,004 ) Other(A) (2,470 ) (48 ) (67 ) 33 (33 ) (In thousands) Cash flows from operating activities $ 11,662 $ 15,290 $ 21,338 $ 22,775 $ 30,393 $ 4,818 $ 16,751 Interest expense, net of non-cash interest 27,023 31,134 27,155 20,959 20,951 10,772 9,613 Net change in operating assets and liabilities 14,753 (393 ) 2,148 (1,301 ) 1,735 9,574 1,306 Income tax provision 29 20 34 56 55 43 54 Loss from early extinguishment of debt (2,004 ) Other(A) (2,470 ) (48 ) (67 ) 33 (33 ) Service cost $ 406 $ 361 $ 23 $ 15 Interest cost 671 643 27 23 Expected return on assets (826 ) (705 ) Amortization of net obligation 12 12 Amortization of prior service cost 17 17 Amortization of loss 18 129 15 Title of Each Class of Securities Proposed Maximum to be Registered Aggregate Offering Price(1) Amount of Registration Fee(1) Table of Contents What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. Our counsel, Kirkland Ellis LLP, is of the opinion that the purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the terms of the IDSs (that is, securities structured as a unit consisting of senior subordinated notes and common stock). In light of this absence of direct authority, neither we nor our counsel can conclude with certainty that the IDSs should be so treated. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $10.15 and the initial fair market value of each $4.85 principal amount of senior subordinated notes as $4.85, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel, Kirkland Ellis LLP, is of the opinion that the senior subordinated notes should be treated as debt for United States federal income tax purposes, and we intend to deduct interest on such senior subordinated notes for tax purposes. However, there is no authority that directly addresses the tax treatment of instruments with terms substantially similar to the senior subordinated notes or offered under circumstances such as this offering (that is, senior subordinated notes offered as a unit with common stock). In light of this absence of direct authority, neither we nor our counsel can conclude with certainty that the senior subordinated notes will be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs, and in the event of any such ruling we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes with OID, and in connection with each issuance of senior subordinated notes thereafter, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of Table of Contents Item 15. Recent Sales of Unregistered Securities The registrant was formed in March 2004 and has not issued any securities. Simultaneously with the consummation of the offering of the securities being registered hereby, the registrant will issue an aggregate of 1,803,045 shares of the registrant s Class B common stock in connection with its reorganization. This issuance will be made in reliance upon Section 4(2) of the Securities Act of 1933, as amended and will not involve any underwriters, underwriting discounts or commissions, or any public offering. The persons and entities who will receive such securities have represented that each of them is an accredited investor (as such term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended) to acquire these securities for investment only and not with a view for sale or in connection with any distribution thereof, and appropriate legends will be affixed to any share certificates issued. All recipients have adequate access through their relationship with the registrant to information about the registrant. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits. The following exhibits are filed as part of this Registration Statement. 1 .1 Form of Underwriting Agreement.* 3 .1 Form of Amended and Restated Certificate of Incorporation of Alliance Laundry Holdings, Inc.* 3 .2 Certificate of Formation of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .3 Form of By-laws of Alliance Laundry Holdings, Inc. 3 .4 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .5 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.4 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857). 4 .1 Form of Indenture, among Alliance Laundry Holdings, Inc., the guarantors thereto and , as Trustee.* 4 .2 Form of Senior Subordinated Note (included in Exhibit 4.1).* 4 .3 Form of Investor Rights Agreement. 4 .4 Form of stock certificate for common stock.* 4 .5 Form of global IDS.* 4 .6 Form of guarantee related to the % Senior Subordinated Notes due 2019 (included in Exhibit 4.1).* 5 .1 Form of Opinion of Kirkland Ellis LLP. 8 .1 Form of Opinion of Kirkland Ellis LLP.** 10 .1 Purchase Agreement, dated as of April 29, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation and the Initial Purchasers (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .2 Registration Rights Agreement, dated as of May 5, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse First Boston Corporation (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as of May 5, 1998, between Alliance Laundry Holdings LLC and the Securityholders (Incorporated by reference to Exhibit 10.6 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .7 Alliance Laundry Holdings LLC, Registration Rights Agreement, made as of May 5, 1998, by and among Alliance Laundry Holdings LLC, Raytheon Company, Bain/RCL and the Securityholders (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .8 Employment Agreement, made as of May 5, 1998, by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .9 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, Thomas F. L Esperance and Stifel, Nicolaus Custodian for Thomas F. L Esperance IRA and Stifel, Nicolaus Custodian for Paula K. L Esperance IRA (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. Baird Co. Inc. TTEE for R. Scott Gaster IRA (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. Brothers, IRA (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, Nicolaus Custodian for Bruce P. Rounds IRA (Incorporated by reference to Exhibit 10.13 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Scott L. Spiller and Stifel, Nicolaus Custodian for Scott Spiller IRA (Incorporated by reference to Exhibit 10.14 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .16 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Thomas F. L Esperance, Raytheon Company, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.16 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .17 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.17 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .18 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.18 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .20 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.20 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.35 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.36 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.38 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Laundry Systems LLC, and Bain Capital, Inc. (Incorporated by reference to Exhibit 10.40 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Alliance Laundry Holdings LLC to Raytheon Company (Incorporated by reference to Exhibit 10.42 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .47 Letter Agreement, dated as of April 29, 1998, by and among Bain/RCL, L.L.C. and RCL Acquisitions, L.L.C., Raytheon Company and Raytheon Commercial Laundry L.L.C. (Incorporated by reference to Exhibit 10.47 to Alliance Laundry Systems LLC s Form S-4, Amendment #5, dated March 3, 1999 (file no. 333-56857)). 10 .49 Indenture Agreement, dated as of November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.49 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .50 Purchase Agreement, dated as of November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, in its own capacity and as servicer (Incorporated by reference to Exhibit 10.50 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .51 Pooling and Servicing Agreement, dated November 28, 2000, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Equipment Receivables Trust 2000-A (Incorporated by reference to Exhibit 10.51 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .52 Trust Agreement, dated November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.52 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .53 Administration Agreement, dated November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and Alliance Laundry Systems LLC as administrator, and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.53 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .54 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables LLC, dated as of November 28, 2000 (Incorporated by reference to Exhibit 10.54 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .55 Insurance and Indemnity Agreement, dated as of November 28, 2000, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.55 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .59 Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of February 27, 2002 (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). Table of Contents 10 .61 Second amendment, Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of August 19, 2002 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .62 Amended and Restated Credit Agreement, dated as of August 2, 2002, among Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC, the several banks or other financial institutions or entities from time to time parties to this Agreement, Lehman Commercial Paper Inc. as syndication agent, Fleet National Bank and LaSalle Bank National Association as documentation agents and General Electric Capital Corporation as administrative agent (Incorporated by reference to Exhibit 10.62 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .63 Intercreditor Agreement, dated as of November 26, 2002, by and between General Electric Capital Corporation as administrative agent and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.63 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .64 Supply Agreement, effective January 1, 2003, by and among Coinmach Corporation, Super Laundry Equipment Corporation and Alliance Laundry Systems LLC (certain portions of this exhibit were omitted subject to a pending request for confidential treatment) (Incorporated by reference to Exhibit 10.64 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .65 Indenture, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A and The Bank of New York as indenture trustee (incorporated by reference to Exhibit 4.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .66 Purchase Agreement, dated as of November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as buyer and Alliance Laundry Systems LLC as seller (Incorporated by reference to Exhibit 10.66 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .67 Pooling and Servicing Agreement, dated November 26, 2002, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables 2002 LLC as transferor and Alliance Laundry Equipment Receivables Trust 2002-A as issuer (Incorporated by reference to Exhibit 10.67 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .68 Trust Agreement, dated November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as transferor and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.68 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .69 Administration Agreement, dated November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A, as insurer, and Alliance Laundry Systems LLC, as administrator, and The Bank of New York, as indenture trustee (Incorporated by reference to Exhibit 10.69 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .70 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables 2002 LLC, dated as of November 26, 2002 (Incorporated by reference to Exhibit 10.70 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). Table of Contents 10 .72 Note Purchase Agreement, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A as issuer, The Bank of New York as indenture trustee, Alliance Laundry Systems LLC as the servicer, Alliance Laundry Equipment Receivables 2002 LLC as the transferor, the Note Purchasers party hereto, Bear Stearns Co. Inc. as co-administrative agent, and Canadian Imperial Bank of Commerce as co-administrative agent and agent (Incorporated by reference to Exhibit 10.72 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .73 Amendment No. 1 to Alliance Laundry Systems LLC Employment Agreement, dated as of July 23, 2003 by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .74 Amendment No. 1 to Alliance Laundry Holdings LLC Securityholders Agreement and Registration Rights Agreement, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.2 of Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .75 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .76 Amendment No. 2 to Securityholders Agreement and Registration Rights Agreement by and among Alliance Laundry Holdings LLC and Bain/RCL, L.L.C., dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .77 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.5 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .78 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William J. Przybysz (Incorporated by reference to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .79 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and R. Scott Gaster (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .80 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey J. Brothers (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .81 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Bruce P. Rounds (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .82 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .83 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Baudhuin.** 10 .84 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Bittner.** 10 .85 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Charles Eaves.** 10 .86 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Kaull.** Table of Contents 10 .88 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Gary Luckow.** 10 .89 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Richard Pyle.** 10 .90 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Rice.** 10 .91 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Quandt.** 10 .92 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .93 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Timothy Studt.** 10 .94 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey Thoms.** 10 .95 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Peter Toonen.** 10 .96 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Daniel Agnello.** 10 .97 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Richard Casey.** 10 .98 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Lee Wilson.** 10 .99 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Patti Andresen-Shew.** 10 .100 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Scott Gaster.** 10 .101 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Thomas F. L Esperance.** 10 .102 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Jay McDonald.** 10 .103 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Albert Rios.** 10 .104 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Bruce Rounds.** 10 .105 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Kim Shady.** 10 .106 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .107 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .108 Amendment No. 2 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). Table of Contents Exhibit Index 1 .1 Form of Underwriting Agreement.* 3 .1 Form of Amended and Restated Certificate of Incorporation of Alliance Laundry Holdings, Inc.* 3 .2 Certificate of Formation of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .3 Form of By-laws of Alliance Laundry Holdings, Inc. 3 .4 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 3.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 3 .5 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement of Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.4 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857). 4 .1 Form of Indenture, among Alliance Laundry Holdings, Inc., the guarantors thereto and , as Trustee.* 4 .2 Form of Senior Subordinated Note (included in Exhibit 4.1).* 4 .3 Form of Investor Rights Agreement. 4 .4 Form of stock certificate for common stock.* 4 .5 Form of global IDS.* 5 .1 Form of Opinion of Kirkland Ellis LLP. 8 .1 Form of Opinion of Kirkland Ellis LLP.** 10 .1 Purchase Agreement, dated as of April 29, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation and the Initial Purchasers (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .2 Registration Rights Agreement, dated as of May 5, 1998, by and among Alliance Laundry Systems LLC, Alliance Laundry Corporation, Alliance Laundry Holdings LLC, and Lehman Brothers Inc. and Credit Suisse First Boston Corporation (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .5 Amended and Restated Limited Liability Company Agreement of Alliance Laundry Holdings LLC, dated as of May 5, 1998 (Incorporated by reference to Exhibit 10.5 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .6 Alliance Laundry Holdings LLC, Securityholders Agreement, dated as of May 5, 1998, between Alliance Laundry Holdings LLC and the Securityholders (Incorporated by reference to Exhibit 10.6 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .7 Alliance Laundry Holdings LLC, Registration Rights Agreement, made as of May 5, 1998, by and among Alliance Laundry Holdings LLC, Raytheon Company, Bain/RCL and the Securityholders (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .8 Employment Agreement, made as of May 5, 1998, by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .10 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, LLC, R. Scott Gaster and Robert W. Baird Co. Inc. TTEE for R. Scott Gaster IRA (Incorporated by reference to Exhibit 10.10 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .11 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Jeffrey J. Brothers and Delaware Charter Guarantee and Trust Company, TTEE for Jeffrey J. Brothers, IRA (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .13 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Bruce P. Rounds and Stifel, Nicolaus Custodian for Bruce P. Rounds IRA (Incorporated by reference to Exhibit 10.13 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .14 IRA and Executive Unit Purchase Agreement, made as of May 5, 1998, by and between RCL Acquisitions, L.L.C., Scott L. Spiller and Stifel, Nicolaus Custodian for Scott Spiller IRA (Incorporated by reference to Exhibit 10.14 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .16 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Thomas F. L Esperance, Raytheon Company, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.16 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .17 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among R. Scott Gaster, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.17 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .18 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Jeffrey J. Brothers, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.18 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .20 Deferred Compensation Agreement, made and entered into as of May 5, 1998, by and among Bruce P. Rounds, Alliance Laundry Holdings LLC, and Alliance Laundry Systems LLC (Incorporated by reference to Exhibit 10.20 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .34 Promissory Note, dated as of May 5, 1998, from Thomas F. L Esperance to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.34 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .35 Promissory Note, dated as of May 5, 1998, from R. Scott Gaster to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.35 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .36 Promissory Note, dated as of May 5, 1998, from Jeffrey J. Brothers to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.36 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .38 Promissory Note, dated as of May 5, 1998, from Bruce P. Rounds to RCL Acquisitions, L.L.C. (Incorporated by reference to Exhibit 10.38 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .40 Advisory Agreement, dated as of May 5, 1998, by and between Alliance Laundry Systems LLC, and Bain Capital, Inc. (Incorporated by reference to Exhibit 10.40 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .42 Junior Subordinated Promissory Note, dated as of May 5, 1998, from Alliance Laundry Holdings LLC to Raytheon Company (Incorporated by reference to Exhibit 10.42 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). Table of Contents 10 .49 Indenture Agreement, dated as of November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.49 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .50 Purchase Agreement, dated as of November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Alliance Laundry Systems LLC, in its own capacity and as servicer (Incorporated by reference to Exhibit 10.50 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .51 Pooling and Servicing Agreement, dated November 28, 2000, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables LLC and Alliance Laundry Equipment Receivables Trust 2000-A (Incorporated by reference to Exhibit 10.51 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .52 Trust Agreement, dated November 28, 2000, between Alliance Laundry Equipment Receivables LLC and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.52 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .53 Administration Agreement, dated November 28, 2000, among Alliance Laundry Equipment Receivables Trust 2000-A and Alliance Laundry Systems LLC as administrator, and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.53 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .54 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables LLC, dated as of November 28, 2000 (Incorporated by reference to Exhibit 10.54 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .55 Insurance and Indemnity Agreement, dated as of November 28, 2000, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2000-A as Issuer, Alliance Laundry Equipment Receivables LLC as Seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.55 to Alliance Laundry Systems LLC s Form 10-K, dated March 28, 2001 (file no. 333-56857)). 10 .59 Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of February 27, 2002 (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .60 First amendment to the Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of June 21, 2002 (Incorporated by reference to Exhibit 10.2 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .61 Second amendment, Alliance Laundry Holdings LLC nonqualified deferred compensation plan, dated as of August 19, 2002 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 6, 2002 (file no. 333-56857)). 10 .62 Amended and Restated Credit Agreement, dated as of August 2, 2002, among Alliance Laundry Holdings LLC, Alliance Laundry Systems LLC, the several banks or other financial institutions or entities from time to time parties to this Agreement, Lehman Commercial Paper Inc. as syndication agent, Fleet National Bank and LaSalle Bank National Association as documentation agents and General Electric Capital Corporation as administrative agent (Incorporated by reference to Exhibit 10.62 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .63 Intercreditor Agreement, dated as of November 26, 2002, by and between General Electric Capital Corporation as administrative agent and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.63 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). Table of Contents 10 .65 Indenture, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A and The Bank of New York as indenture trustee (incorporated by reference to Exhibit 4.1 to Alliance Laundry Systems LLC s Form S-4, Amendment #1, dated July 2, 1998 (file no. 333-56857)). 10 .66 Purchase Agreement, dated as of November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as buyer and Alliance Laundry Systems LLC as seller (Incorporated by reference to Exhibit 10.66 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .67 Pooling and Servicing Agreement, dated November 26, 2002, among Alliance Laundry Systems LLC as servicer and originator, Alliance Laundry Equipment Receivables 2002 LLC as transferor and Alliance Laundry Equipment Receivables Trust 2002-A as issuer (Incorporated by reference to Exhibit 10.67 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .68 Trust Agreement, dated November 26, 2002, between Alliance Laundry Equipment Receivables 2002 LLC as transferor and Wilmington Trust Company as owner trustee (Incorporated by reference to Exhibit 10.68 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .69 Administration Agreement, dated November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A, as insurer, and Alliance Laundry Systems LLC, as administrator, and The Bank of New York, as indenture trustee (Incorporated by reference to Exhibit 10.69 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .70 Limited Liability Company Agreement of Alliance Laundry Equipment Receivables 2002 LLC, dated as of November 26, 2002 (Incorporated by reference to Exhibit 10.70 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .71 Insurance and Indemnity Agreement, dated as of November 26, 2002, between AMBAC Assurance Corporation as insurer, Alliance Laundry Equipment Receivables Trust 2002-A as issuer, Alliance Laundry Equipment Receivables 2002 LLC as seller, Alliance Laundry Systems LLC and The Bank of New York as indenture trustee (Incorporated by reference to Exhibit 10.71 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .72 Note Purchase Agreement, dated as of November 26, 2002, among Alliance Laundry Equipment Receivables Trust 2002-A as issuer, The Bank of New York as indenture trustee, Alliance Laundry Systems LLC as the servicer, Alliance Laundry Equipment Receivables 2002 LLC as the transferor, the Note Purchasers party hereto, Bear Stearns Co. Inc. as co-administrative agent, and Canadian Imperial Bank of Commerce as co-administrative agent and agent (Incorporated by reference to Exhibit 10.72 to Alliance Laundry Systems LLC s Form 10-K, dated March 12, 2003 (file no. 333-56857)). 10 .73 Amendment No. 1 to Alliance Laundry Systems LLC Employment Agreement, dated as of July 23, 2003 by and between Alliance Laundry Systems LLC and Thomas F. L Esperance (Incorporated by reference to Exhibit 10.1 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .74 Amendment No. 1 to Alliance Laundry Holdings LLC Securityholders Agreement and Registration Rights Agreement, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.2 of Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .75 Amendment No. 1 to Amended and Restated Limited Liability Company Agreement by Alliance Laundry Holdings LLC, dated as of July 23, 2003 (Incorporated by reference to Exhibit 10.3 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .76 Amendment No. 2 to Securityholders Agreement and Registration Rights Agreement by and among Alliance Laundry Holdings LLC and Bain/RCL, L.L.C., dated as of September 12, 2003 (Incorporated by reference to Exhibit 10.11 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). Table of Contents 10 .78 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William J. Przybysz (Incorporated by reference to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .79 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and R. Scott Gaster (Incorporated by reference to Exhibit 10.7 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .80 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey J. Brothers (Incorporated by reference to Exhibit 10.8 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .81 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Bruce P. Rounds (Incorporated by reference to Exhibit 10.9 to Alliance Laundry Systems LLC s Form 10-Q, dated November 12, 2003 (file no. 333-56857)). 10 .82 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Wallace.** 10 .83 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Robert Baudhuin.** 10 .84 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Bittner.** 10 .85 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Charles Eaves.** 10 .86 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Kaull.** 10 .87 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Paul Larkin.** 10 .88 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Gary Luckow.** 10 .89 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Richard Pyle.** 10 .90 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Todd Rice.** 10 .91 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and William Quandt.** 10 .92 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Scott Spiller.** 10 .93 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Timothy Studt.** 10 .94 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Jeffrey Thoms.** 10 .95 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Peter Toonen.** 10 .96 Alliance Laundry Holdings LLC 2003 Executive Unit Agreement, dated as of August 1, 2003 by and between Alliance Laundry Holdings LLC and Daniel Agnello.** 10 .97 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Richard Casey.** 10 .98 Alliance Laundry Holdings LLC Executive Unit Repurchase Agreement, dated as of February 24, 2004 by and between Alliance Laundry Holdings LLC and Lee Wilson.** Income Deposit Securities (IDSs)(2) Table of Contents existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and due to the lack of authoritative guidance, statutes, regulations or rulings governing this situation, our counsel is unable to opine on the issue of whether such an exchange of senior subordinated notes would be a taxable exchange. It is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor in light of your particular circumstances concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies (Income Taxes and IDSs and Class B common stock). Class A Common Stock, par value $0.01 per share(3) Table of Contents Summary of the Capital Stock Issuer Alliance Laundry Holdings, Inc. Common stock We have 75,000,000 shares of authorized Class A common stock, par value $0.01 per share, 10,000,000 shares of authorized Class B common stock, par value $0.01 per share and 25,000,000 shares of authorized Class C common stock, par value $0.01 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by-laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Upon the closing of this offering, we will enter into an exchange agreement with our existing equity investors. This agreement will provide that following the second anniversary of this offering, at the option of holders of shares of our Class B common stock, in connection with a sale of such shares, we will exchange with the purchasers each share of Class B common stock into one IDS, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by Alliance Holdings 20,627,540 shares. by our existing equity investors 2,062,754 shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors 3,353,841 shares. Shares of common stock to be outstanding following the offering 23,981,381 shares of Class A common stock, all of which will be represented by IDSs and 1,803,045 shares of Class B common stock. No % Senior Subordinated Notes due 2019(4) Table of Contents shares of Class C common stock or preferred stock will be outstanding following the consummation of this offering. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends Dividends on the shares of our Class A, Class B and Class C common stock will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. We currently intend to pay an initial dividend on December 30, 2004 in an amount of $ and $ per share of our Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at a quarterly rate of $0.2455 and $0.4001 per share of our Class A common stock and Class B common stock, respectively, for the remainder of the first full year following the closing of this offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, which may decide, at any time and for any reason, not to pay dividends. In addition, the indenture governing the senior subordinated notes and our new credit facility will contain restrictions on our ability to declare and pay dividends on our common stock. See Dividend Policies and Restrictions. No dividends can be declared or paid to holders of Class A common stock in any fiscal quarter unless we declare and pay, in such fiscal quarter, dividends on our Class B common stock at a rate per share equal to $ plus the rate per share of dividends paid on our Class A common stock; provided, that dividends on our Class B common stock will not exceed $ per share above the dividends rate paid on our Class A common stock with respect to any fiscal quarter. No shares of Class C common stock will be outstanding and we do not anticipate that we will issue any shares of Class C common stock or declare dividends thereon in the near future. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as Adjusted EBITDA reduced by cash interest expense, deferred interest, cash income tax expense, capital expenditures, any cash non-recurring fees, expenses or charges that were excluded in arriving at Adjusted EBITDA and repayments of our indebtedness. See Description of Senior Subordinated Notes Certain Definitions. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility. In addition, both the indenture and the new credit facility contain dividend suspension provisions under which we would be prohibited from paying dividends during any interest deferral period, while any deferred interest remains unpaid or if our interest coverage level fell below specified levels. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 30th day of March, June, September and December of each year to holders of record on the 20th Subsidiary Guarantee of % Senior Subordinated Notes(5) Table of Contents day, or, if such day is not a business day, the business day immediately preceding such 20th day, of such month. Listing We have applied to list the IDSs on the American Stock Exchange under the trading symbol ALH. We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Total $397,597,037 $50,375.54(6) Table of Contents Summary of Senior Subordinated Notes Issuer Alliance Laundry Holdings, Inc. Senior subordinated notes represented by IDSs being offered to the public: by Alliance Holdings $100.0 million aggregate principal amount of % senior subordinated notes. by our existing investors $10.0 million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $13.9 million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $16.3 million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $130.2 million aggregate principal amount of % senior subordinated notes (or $138.9 million assuming exchange of all of our Class B common stock for IDSs). Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 30th day of March, June, September and December of each year, commencing December 30, 2004 to holders of record on the 20th day of each such month, or, if such day is not a business day, the business day immediately preceding such 20th day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be Table of Contents permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date if we receive an opinion of counsel that the interest on the notes is not deductible for federal income tax purposes. Except as described above, we may not redeem the senior subordinated notes prior to , 2011. As described under Description of Senior Subordinated Notes Optional Redemption, we may, at our option, redeem all, but not less than all, of the senior subordinated notes at any time within 90 days following the occurrence of certain tax events, upon not less than 30 or more than 60 days notice at a redemption price equal to 100% of the principal amount of the senior subordinated notes, plus accrued and unpaid interest, if any, through but not limited to the redemption date. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect wholly-owned domestic subsidiaries that guarantees any indebtedness under any senior credit document and is existing on the closing of this offering other than our securitization entities and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. (2) The IDSs represent 23,981,381 shares of the Class A common stock and $116,309,698 aggregate principal amount of % senior subordinated notes of Alliance Laundry Holdings, Inc. ( Alliance Holdings ). Includes 3,353,841 IDSs issued to existing investors in this offering at an assumed price equal to the price per IDSs to the public of which 2,062,754 are subject to the underwriters over-allotment option. Also includes an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents 23,981,381 shares of Alliance Holdings Class A common stock represented by the IDSs described above. (4) Includes $116,309,698 aggregate principal amount of Alliance Holdings % senior subordinated notes represented by the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $13,894,940 principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantor listed in the Table of Additional Registrant Guarantor on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6) $49,190.97 was previously paid and $1,184.57 additional registration fee is being paid in connection with this filing. The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes with OID, and in connection with each issuance of senior subordinated notes thereafter, including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences United States Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees Alliance Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables, except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing the indebtedness. Because we are a holding company, the senior subordinated notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit Alliance Holdings and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of June 30, 2004: Alliance Holdings would have had no senior or pari passu indebtedness outstanding except for its guarantee under the new credit facility, as described below; and Alliance Holdings would have had $135.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility plus approximately $26.9 million of letters of Table of Contents credit, which would have been guaranteed on a senior secured basis by Alliance Holdings and the subsidiary guarantors. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Table of Contents Alliance Laundry Holdings LLC Notes to Financial Statements (Continued) Distributions Subject to any restrictions contained in any financing agreements to which we or any of our affiliates (as defined in the LLC Agreement) is a party, the Board of Managers (the Board ) may make distributions, whether in cash, property, or securities of the Company, at any time in the following order of priority: First, to the holders of Preferred Units, an amount determined by the aggregate unreturned capital. Second, to the holders of Class L Units, an amount equal to the aggregate unreturned capital of $45.6 million. Third, to the holders of Class L Units, the unpaid yield accrued on such Class L Units in an amount up to $900 per Class L Unit ($5.1 million). Fourth, ratably to the holders of Class L Units and Class M Units, any remaining unpaid yield accrued on the Class L Units ($38.3 million at December 31, 2003). Fifth, ratably to the holders of Common Units, an amount equal to the amount of such distribution that has not been distributed pursuant to the clauses described above, including achievement of the Class B and C Unit target multiples. We may distribute to each holder of units within 75 days after the close of each fiscal year such amounts as determined by the Board to be appropriate to enable each holder of units to pay estimated income tax liabilities. There were no distributions to holders of units during 2003, 2002 or 2001. Allocations Profits and losses of our Company are allocated among the various classes of units in order to adjust the capital accounts of such holders to the amount to be distributed upon liquidation of the Company. Restrictions on Transfer of Securities No holder of securities may sell, assign, pledge or otherwise dispose of any interest in the holder s securities except that (i) Bain LLC may transfer its securities to other security holders in the same class, (ii) holders may transfer their securities through applicable laws of descent and distribution, (iii) transfers of securities may be made to an affiliate, and (iv) the Preferred Units may be transferred with the consent of the Board. Note 11 Commitments and Contingencies: At December 31, 2003, we had commitments under long-term operating leases requiring approximate annual rentals in subsequent years as follows: 2004 $ 507 2005 389 2006 210 2007 33 2008 33 Thereafter Table of Contents
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+PROSPECTUS SUMMARY This summary highlights key aspects of the information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the Risk Factors section and the consolidated financial statements and related notes, which are included elsewhere in this prospectus. All references in this prospectus to Memec, we, our and us mean, unless the context indicates otherwise, the issuer of the common stock, Memec, Inc. and its subsidiaries. Except as otherwise indicated, all information in this prospectus: assumes the adoption of our certificate of incorporation and bylaws to be effective prior to the pricing of this offering; assumes no exercise of the underwriters over-allotment option; gives effect to the share exchange transactions required to change the ultimate parent for the Memec group of companies, which exchange is to occur at a -to- exchange ratio as described under Change in Ultimate Parent; and assumes the repurchase of deferred shares and deferred ordinary shares at par value. Our Business We are a leading global semiconductor demand creation distributor servicing the electronics industry, with more than 2,400 employees, including over 1,800 field application engineers, technical sales specialists, technical marketing professionals and account representatives around the world. We buy integrated semiconductor devices, such as programmable logic devices, analog products and application specific standard products, from semiconductor companies and distribute them to original equipment manufacturers or electronic manufacturing services companies. Our demand creation model focuses on providing pro-active engineering support to help customers evaluate and select key semiconductor devices at an early stage of their design process. We believe that this differs significantly from traditional semiconductor distribution channels which are focused on fulfilling existing customer requirements with limited technical support. We provide original equipment manufacturer customers with engineering expertise and a portfolio of leading edge semiconductor devices and help them design customized, differentiated products, reduce their time-to-market and lower their overall costs. We work closely with our customers and as a result, have a deep understanding of their requirements. This enables us to create demand for the devices of the semiconductor companies we represent by offering customized solutions that incorporate these devices early in our customers design processes. Our customized solutions constitute the key architectural blocks of our customers designs. These key architectural blocks form the critical core of the customers products and largely determine their features and functionality. When a customer indicates its intention to utilize a specific semiconductor device in a future product being designed by the customer and we secure the selection of the semiconductor device by the customer, we have achieved what is known as a design win. We seek design wins as a way to increase our influence over the customers selection of additional complementary semiconductor devices which are provided by us and which are required to complete the product design. A semiconductor device is considered complementary if the original device selected by a customer leads to the selection of the semiconductor device or the semiconductor device enhances the performance of the original device selected by the customer. The knowledge generated from these activities provides us with earlier visibility into the device requirements of our customers next generation products, enhances our ability to secure future design wins and deepens our customer relationships. Semiconductor design wins garnered through demand creation generate significantly higher gross margins than semiconductor devices sold without demand creation. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. Memec , Unique , Memec Express , Insight Express , Unique Express , Impact and Insight are our trademarks which we use in the U.S. Memec , Impact Electronics , Insight Electronics , Unique Technologies and Unique-Impact Memec are our trademarks which we use in the European Union. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. Table of Contents As a result of our demand creation capabilities, our deep customer relationships and our global presence, we have contractual agreements with over 140 semiconductor companies, including Xilinx, Actel, PMC-Sierra and Texas Instruments. Through these supplier relationships, we are able to offer our customers over 20,000 specialized semiconductor devices, including programmable logic devices, analog products, application specific standard products and other specialty products. Founded in 1974, we have continually invested in our demand creation capabilities and expanded our global presence. Today, we operate in, and generate net revenue from, all of the world s major technology markets: the Americas, Asia-Pacific, including the People s Republic of China, EMEA, which consists of Europe, the Middle East and Africa, and Japan. Industry Background As the semiconductor industry has become increasingly competitive, semiconductor companies have outsourced many aspects of their business, including the manufacturing, packaging and testing, and distribution of semiconductor devices that can be performed more effectively by specialized, third party companies. Outsourcing is a well-established trend in the industry and has created rapid growth for companies specializing in these outsourced activities. We believe that semiconductor companies will increasingly outsource critical functions, including demand creation, field application engineering, technical sales, technical marketing and account representation to specialized third parties. Our strategy is to provide the infrastructure and resources to enable today s semiconductor companies, including both vertically integrated companies and fabless companies to support all of their original equipment manufacturer customers comprehensive requirements in a cost-effective manner. The semiconductor industry s customers, including original equipment manufacturers and their electronic manufacturing services companies, are facing an increasingly competitive environment. This is driving their demand for lower overall costs, increased integration and functionality, shorter time-to-market, greater knowledge of system level design, higher levels of technical support and seamless global logistics from their semiconductor suppliers. Traditional semiconductor sales channels are limited in their ability to meet the comprehensive and changing needs of semiconductor companies, original equipment manufacturers and electronic manufacturing services companies. As a result of these growing challenges, the semiconductor sales channel is under increasing pressure to evolve. Our Solution Our solution addresses the rapidly evolving needs of semiconductor companies and their customers. The key benefits of our solution include: Demand creation through our highly skilled field application engineers, technical sales specialists, technical marketing professionals and account representatives. We offer outsourced demand creation capabilities delivered through our highly skilled and technical field force in order to secure product design wins early in the original equipment manufacturer s product development process. More than three-quarters of our employees have direct contact with our customers, including over 1,800 field application engineers, technical sales specialists, technical marketing professionals and account representatives around the world. Deep understanding of customers technical requirements. We work closely with our customers to help them develop customized products and also provide services including design, technical support and global logistics. These solutions and services enable our customers to lower their overall costs, increase product integration and functionality and accelerate their time-to-market. Through these close customer relationships, we build a deep understanding of customers products, processes and targeted Amendment No. 2 to FORM S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 Table of Contents end-markets. Once our semiconductor solutions are designed into a customer s product they are difficult to replace without the customer incurring significant re-design and re-development costs. Comprehensive, complementary semiconductor device offerings. We offer a comprehensive portfolio of complementary semiconductor devices and solutions, such as programmable logic devices, analog products, application specific standard products and other specialty products. This allows us to offer customized and comprehensive solutions that often include several of our semiconductor devices, related firmware or software codes embedded in a semiconductor device, and intellectual property. In addition, we increase the likelihood that devices from our semiconductor suppliers will be selected for our customers product designs because we offer their devices alongside complementary devices from other semiconductor companies that we represent. Our portfolio of devices delivered in a customized solution is a compelling value proposition for our customers. As compared with single device offerings from multiple semiconductor companies, our comprehensive, complementary semiconductor solutions simplify the supply chain, lower overall costs and accelerate time-to-market. Focused sales divisions, each consisting of field application engineers, technical sales specialists, technical marketing professionals and account representatives. We eliminate the inherent conflicts associated with simultaneously promoting the devices of competing semiconductor companies by having multiple and separate sales divisions, each consisting of field application engineers, technical sales specialists, technical marketing professionals and account representatives. Each division is dedicated to a limited number of non-competing, complementary semiconductor companies. This flexible and scalable structure allows us to enjoy strategic relationships with a large number of competing suppliers while maintaining focus and deep technical product knowledge. As a result of this status, these suppliers share confidential information with us, including their strategic device roadmaps. This early access to confidential product information further enhances our ability to create demand for the devices of our semiconductor suppliers and enhances our value to customers. Global presence and scale. We have the global presence and scale to support all potential customers worldwide on a cost-effective basis and service them throughout the entire product life cycle, including design, technical support, manufacturing and logistics. We have employees in over 30 countries and in more than 130 cities. As original equipment manufacturers, electronic manufacturing services companies and our semiconductor suppliers have continued to consolidate relationships on a worldwide basis, our global presence has become an increasingly valuable competitive advantage. Our Business Strategy Our objective is to continue to expand our position as a leading global semiconductor demand creation distributor and to continue to deliver capital-efficient, profitable growth in excess of the semiconductor industry and our competition. Our strategy includes the following key elements: Aggressively target an optimal mix of suppliers, customers and geographies. We believe that we can achieve superior growth and financial performance by focusing our resources on the most attractive mix of suppliers, customers and geographies. We intend to actively pursue opportunities with new suppliers, with new customers and in new geographies. We regularly evaluate the attractiveness of our current mix of suppliers, customers and geographies based on historical and forecasted growth rates, the potential for demand creation and profitability. In those opportunities that remain attractive, we intend to grow our market share. We will also disengage from suppliers and customers and de-emphasize geographies that no longer meet our financial or strategic requirements. Table of Contents Sign new, high-growth semiconductor companies. We intend to establish contractual agreements with semiconductor companies which do not currently use our services but which would benefit from outsourced demand creation. Historically, we have been successful in signing demand creation agreements with both large vertically integrated semiconductor companies, such as Texas Instruments, and fabless semiconductor companies, such as Xilinx, Actel and PMC-Sierra. We also intend to continue to focus on identifying and signing emerging, high growth, specialized semiconductor companies with leading edge technology, such as current suppliers Atheros and Silicon Labs. Leverage our established global presence to extend existing relationships. We have global relationships with many customers and suppliers. Further opportunities exist to globalize relationships with regional customers and suppliers. We intend to use our global demand creation capabilities to enable suppliers to have access to markets where they do not currently operate or to improve their market position where their existing sales channels are inadequate or ineffective. Our established global presence enables us to provide semiconductor companies with a consistent approach, philosophy and organizational structure across regions. Similarly, many customers are increasingly seeking proximity to their end customers or to conduct business in low cost regions of the world such as Asia-Pacific, including the People s Republic of China. Our established global presence enables us to fully support customers regardless of where their design, development or manufacturing functions take place. Penetrate new high-growth vertical markets and customer segments. We intend to use our demand creation capabilities and strong supplier relationships to penetrate new customer segments defined by industry, otherwise known as vertical markets, such as, medical systems, digital still cameras, wireless local area networks, power management systems, plasma display panels, global positioning systems, set-top boxes and others. Additionally, we plan to expand our business with small and medium sized customers by providing call center and online purchase capabilities through our recently formed Memec Express division. Increase market share in existing vertical markets and with existing customers. We intend to use our deep understanding of customer requirements and in-depth application expertise to gain market share in our existing vertical markets, including mobile communications infrastructure, remote access equipment which supports the communication between a network or central processing facility and a remote location through a data link, public network equipment, local and wide area networks, broadcast infrastructure, storage area networks which are shared storage or disk drives that are accessed via a local or wide area network, test and measurement equipment, automotive systems and others. Additionally, through our demand creation capabilities, we intend to grow market share by selling to our existing customers more of the complementary semiconductor devices that we can supply. Increase penetration of high-potential geographic markets, including the People s Republic of China. As of March 31, 2004, we have 32 offices and approximately 275 field application engineers, technical sales specialists, technical marketing professionals and account representatives in the People s Republic of China. We intend to build on this strong presence by expanding our existing infrastructure, including additional information technology and logistics capabilities, by investing in additional field application engineers, technical sales specialists, technical marketing professionals and account representatives and by increasing the number of our offices in the People s Republic of China. In addition, we plan to build on our existing presence in the emerging semiconductor markets of India, Eastern Europe and Latin America to be well-positioned for future growth opportunities in these regions. Mr. David Ashworth Chief Executive Officer Memec, Inc. 3721 Valley Centre Drive San Diego, CA 92130 (858) 314-8800 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service) Table of Contents The Transactions Originally founded in 1974, we have used a number of different corporate structures. Most recently, from 1991 to 2000, we operated as a division of Veba Electronics Group, the worldwide electronic component distribution unit of the German energy and chemical conglomerate E.ON AG. In October 2000, we were acquired in a management buyout supported by the senior management team, Schroder Ventures US Fund LP I and Schroder Ventures US Fund LP II, which we refer to as Schroder Ventures US Fund, Schroder Ventures Europe Fund II, Schroder Ventures UK Venture Fund IV, DB Industrial Holdings Beteiligungs AG & Co KG, a former member of our board of directors, and other members of the purchasing consortium. Thereafter, Schroder Ventures Europe Fund II changed its name to Permira Europe II, and Schroder Ventures UK Venture Fund IV changed its name to Permira UK Venture IV. We refer to Permira Europe II and Permira UK Venture IV as the Permira funds. In the management buyout transaction, Memec Group Holdings Limited, a newly created company organized under the laws of England and Wales, became the ultimate holding company for the Memec group of companies. Memec, Inc. is a newly-formed Delaware holding company and was incorporated in April 2004 solely for the purpose of changing the ultimate parent for the Memec group of companies from Memec Group Holdings Limited to a corporation organized in the U.S. under the laws of the State of Delaware. The change in ultimate parent for the Memec group of companies will be completed immediately prior to the pricing of this offering. We intend to effect this change through: the share exchange transactions between Memec Group Holdings Limited s shareholders and Memec, Inc. required to change the ultimate parent for the Memec group of companies as described under Change in Ultimate Parent; and the assumption by Memec, Inc. of the currently effective 2001 Memec Group Holdings Limited Global Share Option Plan, which we refer to as the 2001 Plan and which will entitle holders of options to purchase capital stock of Memec Group Holdings Limited to receive shares of common stock of Memec, Inc. upon exercise. When this change has been effected, Memec, Inc. will own all of the then outstanding share capital of Memec Group Holdings Limited, which at present is the ultimate parent company for the Memec group of companies. In addition, we intend to complete a related internal restructuring of certain of our subsidiaries in order to optimize our organizational structure subsequent to this offering. Copies to: L. Kevin O Mara, Jr., Esq. Kevin P. Kennedy, Esq. Richard D. Pritz, Esq. Simpson Thacher & Bartlett LLP Clifford Chance US LLP 3330 Hillview Avenue 3611 Valley Centre Drive, Suite 500 Palo Alto, California 94304 San Diego, California 92130 (650) 251-5000 (858) 720-3500 Our principal executive offices are located at 3721 Valley Centre Drive, San Diego, California 92130, and our telephone number is (858) 314-8800. Our website address is www.memec.com. Information contained on our website is not a part of this prospectus. Service cost $ 419 $ 390 $ 3,241 Interest cost 109 161 76 Expected return on plan assets (71 ) (58 ) (112 ) Recognition of net (gain) loss 2 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Table of Contents The Offering Common stock we are offering shares Common stock to be outstanding after the offering shares Use of proceeds We intend to use the net proceeds of this offering to purchase approximately $200 million of the debt owed to the Permira funds, Schroder Ventures US Fund, DB Industrial Holdings Beteiligungs AG & Co KG, a former member of our board of directors and other shareholders. We intend to use the remainder of the net proceeds from this offering to pay a one-time fee of $2 million to an affiliate of the Permira funds, and for general corporate purposes, including working capital. See Use of Proceeds. Proposed New York Stock Exchange symbol MEC The number of shares of common stock to be outstanding after this offering is based on shares of common stock outstanding as of June 30, 2004 and excludes: shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $ per share; shares of common stock issuable upon exercise of options that we expect to grant in connection with the closing of this offering at an exercise price equal to the fair market value of our common stock on the date of the closing of this offering; shares available for future issuance under our equity incentive and employee stock purchase plans adopted in connection with this offering, subject to stockholder approval, and under our existing equity incentive plans; and shares of our common stock issuable to the existing holders of our deep discount bonds upon conversion of the remaining balance on these bonds, which was approximately $218 million as of March 31, 2004 and $233 million as of June 2, 2004, assuming application of $200 million of the proceeds from this offering to reduce the balance on these bonds. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. (in thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 33,338 $ 61,189 Working capital 259,067 286,918 Total assets 935,770 964,146 Senior long-term debt 200,000 Subordinated long-term debt to consortium and shareholders 607,550 Redeemable common stock 35,230 Common stock and additional paid-in capital 3,431 486,862 Total stockholders equity (deficit) $ (168,419 ) $ 302,737 Table of Contents The table above summarizes our consolidated balance sheet data at March 31, 2004 on: an actual basis for Memec Group Holdings Limited; and a pro forma as adjusted basis for Memec, Inc. to give effect to: the share exchange transactions required to change the ultimate parent for the Memec group of companies as described under Change in Ultimate Parent; the repurchase of deferred shares and deferred ordinary shares at par value; the receipt of the net proceeds from the sale of shares of common stock that we are offering at an assumed initial offering price of $ per share, the midpoint of our expected public offering price range, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us; the receipt of $200 million drawn under our new $300 million senior credit facility on June 2, 2004, the recording of debt issuance costs of approximately $11 million incurred in connection with establishing this credit facility and the write-off of approximately $10 million of debt issuance costs associated with the shareholder consortium loans and deep discount bonds; the application of the $200 million drawn under our new $300 million senior credit facility on June 2, 2004 to purchase approximately $189 million of our outstanding consortium loans and deep discount bonds on this date; the use of the net proceeds of this offering to purchase approximately $200 million of our outstanding deep discount bonds as described under Use of Proceeds and Related Party Transactions Consortium Loans and Deep Discount Bonds, and to pay a one-time fee of $2 million to Permira Advisors Limited, an affiliate of the Permira funds; and the conversion of our remaining indebtedness under our deep discount bonds, which was approximately $218 million as of March 31, 2004, and $233 million as of June 2, 2004, into shares of our common stock at the initial public offering price less underwriting discounts and commissions. Table of Contents The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion. Dated July 6, 2004. Shares Common Stock Table of Contents RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this prospectus before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In any of such cases, the trading price of our common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business Risks Related to Our Supplier Relationships We depend on the availability of semiconductor devices from a select group of semiconductor companies for a majority of our net revenue, and if our relationships with these semiconductor companies become unavailable or unacceptable to us, our net revenue could suffer. Our sales and distribution of products from our top ten semiconductor suppliers generated approximately 65% of our net revenue during the three months ended March 31, 2004, approximately 66% of our net revenue during our 2003 fiscal year, approximately 63% of our net revenue during our 2002 fiscal year and approximately 57% of our net revenue during our 2001 fiscal year. In addition, sales and distribution of products from our largest supplier Xilinx accounted for approximately 39% of our net revenue during the three months ended March 31, 2004, approximately 40% of our net revenue during our 2003 fiscal year, approximately 37% of our net revenue during our 2002 fiscal year and approximately 29% of our net revenue during our 2001 fiscal year. Our contracts with semiconductor companies, including those with Xilinx, vary in duration and are generally terminable by either party at will on 30 to 90 days notice. The loss of our relationship with a principal supplier, the delay or termination of a principal supplier s launch of a new semiconductor device or the inability of a principal supplier to continue in business would harm our business, revenue and operating results. In addition, to the extent Xilinx or a group of other key semiconductor suppliers modifies our existing contractual provisions, including, without limitation, provisions to protect our gross margins, or business arrangements our results of operations could be harmed. We may not be able to retain our principal suppliers or, if we were to lose any of our principal suppliers, we may not be able to timely replace the revenue generated by the lost supplier. We traditionally spend significant time and resources in having our technical sales specialists and technical marketing professionals acquire expertise on our suppliers semiconductor devices. The loss of one of our suppliers would markedly diminish the value of this investment and require the expenditure of additional time and money familiarizing these personnel with new semiconductor devices. This could exacerbate the harm that the loss of a principal supplier would have on our operating results and financial condition. The semiconductor industry has historically experienced periods of consolidation and any future consolidation could result in the number of semiconductor companies we represent decreasing, which could cause our net revenue to decline. Substantially all of our net revenue is generated by sales of semiconductor devices. The semiconductor industry has been characterized by numerous merger and acquisition transactions. Further consolidation in this industry could decrease the number of semiconductor companies we represent and result in the surviving company choosing to use the services of one of our competitors or its own in-house sales force in lieu of our services. We are particularly vulnerable on this issue given that a relatively small number of semiconductor companies represent the majority of our net revenue. During the three months ended March 31, 2004, and our fiscal year 2003, approximately 65% and 66%, respectively, of our net revenue was generated by sales and distribution of products from our top ten semiconductor suppliers. If the semiconductor industry undergoes further consolidation, potential suppliers and existing strategic relationships may be lost and our strategic goals and financial objectives could be harmed. This is an initial public offering of shares of common stock of Memec, Inc. All of the shares to be sold in the offering are being sold by Memec, Inc. Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We intend to list the common stock on the New York Stock Exchange under the symbol MEC . See Risk Factors on page 10 to read about factors you should consider before buying shares of the common stock. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Price to Public Table of Contents Unavailability of design registration procedures in the future could harm our gross margins and results of operations. At the time that we propose a specialized semiconductor device for incorporation into the product design of an original equipment manufacturer customer, we typically register the semiconductor device opportunity with the semiconductor company we represent that supplies the proposed device. In accordance with industry practice, with very few exceptions, this registration of the semiconductor device opportunity secures with the semiconductor company our right to purchase this semiconductor device at a lower net price than our competitors. If one or more of the principal semiconductor companies that we represent now or in the future ceases to abide by the design registration system, other semiconductor distributors may be able to compete economically with us for the distribution of semiconductor devices for which we provided the demand creation activities. This could significantly harm our gross margins and cause our results of operations to suffer. Our business could suffer if the semiconductor companies we represent become less reliant on the demand creation services we perform. Our demand creation strategy requires semiconductor companies that are willing to outsource, in whole or in part, their field application engineering, technical sales, technical marketing and account representation functions. If emerging semiconductor companies develop the ability to perform these services in-house, or if mature semiconductor companies focus on the customers that we have traditionally targeted for them, our competition would be increased, our breadth of semiconductor device product offerings would be reduced and our net revenue and gross margins could be harmed. The success of our demand creation strategy depends upon the continued existence and creation of new companies focused on specialized semiconductor device solutions. To implement our demand creation strategy, we sign agreements with semiconductor companies which supply innovative semiconductor devices and technologies and target customers, including original equipment manufacturers and electronic manufacturing services companies, that demand these semiconductor devices and technologies so they can develop and market innovative products. Our strategy is predicated on our belief that the dynamics of the semiconductor market will result in the continued creation of new companies supplying and demanding these semiconductor devices and technologies. The success of our strategy depends on our ability to identify and partner with the most promising of these new companies. Many of these new companies rely upon venture capital financing to begin operations and upon strong public capital markets to fund their sustained growth. The global economic downturn of the last few years has greatly decreased the availability of each of these financing sources, particularly for technology companies. If these financing sources continue to be available only on a limited basis, due to market conditions or for any other reason, the creation and growth of our targeted semiconductor suppliers and customers could be harmed, which in turn could render more difficult or impracticable the successful implementation of our growth strategy. Historically, we have been highly selective in choosing our suppliers. For example, in our first quarter of 2004, we evaluated 60 potential semiconductor suppliers and selected two semiconductor companies with which to sign agreements. A decrease in the number of potential suppliers, our inability or unwillingness to begin working with new suppliers or our inability to select suppliers that become successful could cause our growth strategy to suffer. If we or the semiconductor companies we represent fail to keep pace with changes in technology or fail to identify new technologies, our business could be harmed. The market for specialized semiconductor devices is characterized by rapidly changing technology and evolving industry standards, often resulting in short product life cycles and rapid product obsolescence. Our success depends upon our ability to anticipate technological advancements in the industry and then identify, obtain semiconductor suppliers for, and successfully market new products that take advantage of these Underwriting Discounts and Commissions Table of Contents technological advancements. If our competitors market products that have perceived or real technological advantages over the products that we market, our business, results of operations and financial condition could be harmed. A shortage of the semiconductor devices that we supply could affect our ability to meet our customers requirements. We rely on the semiconductor companies we represent for timely supply of the semiconductor devices we market. From time to time, there have been shortages of semiconductor devices in the semiconductor industry, mainly due to suppliers manufacturing constraints, their inability to secure wafer allocation from the foundries they use or other production problems. We expect that shortages may occur in the future as a result of the current upturn in the semiconductor industry. Because we primarily supply specialized semiconductor devices from semiconductor companies we represent for which there are no ready substitutes, a shortage of semiconductor devices could cause us to delay shipments to customers, which could impact our net revenue and damage our customer relationships. Alternatively, a shortage could force us to pay higher prices for semiconductor devices from competing suppliers, and we might not be able to pass the higher prices on to our customers. Either of these events could cause our financial condition and results of operations to suffer. Risks Related to the Semiconductor Industry Substantially all of our net revenue comes from sales of semiconductor devices, and as the semiconductor industry is a highly cyclical industry, downturns could harm our operating results. Sales of semiconductor devices make up almost all of our net revenue. The semiconductor industry is highly cyclical and has experienced severe and prolonged downturns, often in connection with, or in anticipation of, maturing product cycles for semiconductor devices and for the end-user products in which they are used and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. During the 1990s and continuing into 2000, the semiconductor industry enjoyed unprecedented growth, benefiting from the rapid expansion of the Internet and other computing and communications technologies. During 2001, we, like many of our customers and competitors, were harmed by a general economic slowdown and an accompanying abrupt decline in demand for many of the end-user products that incorporate integrated circuits and semiconductor devices. The terrorist attacks of September 11, 2001 further depressed economic activity and demand for end-user products. The impact of slowing end-customer demand was compounded by higher than normal levels of equipment and semiconductor device inventories among our customers and our customers adjustments in their order levels, resulting in increasing pricing pressure. According to Gartner Dataquest s estimates, global semiconductor device sales decreased by approximately 32% in 2001, increased by approximately 2% in 2002 and increased by approximately 14% in 2003. These estimates were derived from Gartner Dataquest s Semiconductor Forecast Database, dated February 15, 2004. It is uncertain whether recent improvements in semiconductor industry performance will continue or whether such improvements will benefit us to the same extent as they benefit other industry participants. Our net revenue has declined significantly from historical highs and we may be unable to achieve levels experienced in the past. Although our experience has been that the specialized semiconductor devices we supply have been less cyclical and experience less price volatility than the semiconductor market in general, our operations have been significantly and negatively affected by the recent downturn in the technology industry and the general economy. Our net revenue reached a peak of $3.3 billion in 2000 and declined substantially to $2.1 billion in 2001 and $1.6 billion in 2002. Net revenue then increased to $1.8 billion in 2003 but was still well below historical highs. In addition, we realized a net loss of $86 million in fiscal year 2003, $85 million in fiscal year 2002 and $25 million in fiscal year 2001. As of March 31, 2004, our accumulated deficit was approximately $188 million. Proceeds to Memec, Inc. Table of Contents Future downturns in the semiconductor industry, or any failure of the industry to recover fully from its current downturn, could reduce demand for specialized semiconductor devices and for our services. If we have a shortfall in net revenue without a corresponding reduction to our expenses, our operating results may suffer. It is possible that results of operations may be below the expectations of public market analysts and investors, which could cause the trading price of our common stock to fall. Our quarterly operating results have fluctuated significantly. You should not rely on them as an indication of our future results. Historically, our quarterly operating results have fluctuated significantly and we expect our future operating results to continue to fluctuate. As a result, period-to-period comparisons of our operating results may not be a good indication of our future performance. Our future net revenue and results of operations may fluctuate significantly from quarter to quarter due to a combination of factors, many of which are outside of our control. Significant factors, in addition to factors described elsewhere in Risk Factors, which have impacted our results in the past or may impact our results in the future include: the termination of key supplier agreements such as that with any of our top ten semiconductor suppliers including Xilinx; the cancellation or modification of contractual provisions, including without limitation, provisions to protect our gross margins, or of other business arrangements with the semiconductor companies we represent; the rate of introduction of new products by our customers or the semiconductor companies that we represent; costs related to possible acquisitions of technologies or businesses; changes in foreign currency exchange rates, particularly in light of the global nature of our business; and unforeseen catastrophic events, such as armed conflict, terrorism, fires and earthquakes. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall resulting from any of these or other factors. If we have a shortfall in net revenue in relation to our expenses, our operating results will suffer. Our operating results for any particular period may not be indicative of future operating results. You should not rely on quarter-to-quarter comparisons of results of operations as an indication of our future performance. In future periods, it is possible that our results of operations may be below the expectations of public market analysts and investors. This could cause the trading price of our common stock to fall. Declines in the value of our inventory could negatively affect our financial condition, results from operations and liquidity. During an economic downturn, such as that which the industry recently experienced, it is possible that prices will decline due to an oversupply of semiconductor devices, resulting in declines in the value of our inventory. Although it is the policy of many of our suppliers to offer distributors protection from loss in value of inventory, we cannot assure you that such protection will fully compensate us for the loss in value, or that the suppliers will continue to offer or choose or be able to honor such agreements, some of which are not documented and therefore subject to the discretion of the vendor. We cannot assure you that unforeseen new product developments or declines in the value of our inventory will not cause our results of operations, financial condition or liquidity to suffer, or that we will successfully manage our existing and future inventories. Our gross margins depend upon industry conditions, our geographic mix, the level of service demanded by our customers and our product mix, and as a result, we may experience fluctuations from period to period. Our gross margins have in the past been, and may in the future be, affected by a number of factors, some of which are beyond our control. These fluctuations primarily result from the following: industry conditions, including the overall economic environment, the level of end-market demand for semiconductor devices, a shift in the degree and type of outsourcing and general pricing dynamics; Per Share $ $ $ Total $ $ $ To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from us at the initial public offering price less the underwriting discounts. The underwriters expect to deliver the shares against payment in New York, New York on , 2004. Credit Suisse First Boston Goldman, Sachs & Co. Table of Contents the geographic mix of our sales, including higher sales in the Asia-Pacific region, including the People s Republic of China, which have historically yielded lower gross margins than our sales in the Americas, EMEA, which consists of Europe, the Middle East and Africa, and Japan; the levels of service we provide to customers, such as customer support and logistics; and our product mix, including the economic attractiveness and technological and life cycle status of the specialized semiconductor devices we supply. In addition, we typically receive higher gross margins on the demand creation services we provide compared to fulfillment services and as a result, the proportion of demand creation services to fulfillment services provided in any given period can result in fluctuations in our gross margins. We expect that industry conditions, our geographic mix, levels of service and product mix will continue to vary in future periods, resulting in fluctuations in our gross margins. In future periods, it is possible that our gross margins may be below the expectations of public market analysts and investors. This could cause the trading price of our stock to fall. Risks Related to Our Management and Operations We are dependent on our management team and key employees, and the loss of any of them could harm our business. Our success depends, in part, upon the continued availability and contributions of our senior management team, particularly David Ashworth, our chief executive officer, and Doug Lindroth, our chief financial officer. Important factors that could cause the loss of key personnel include: the ability of members of our management team to terminate their employment with us at any time; the equity held by our executive officers becoming tradable upon the removal of the transfer restrictions currently applicable to our executive officers common stock upon consummation of the initial public offering described in this prospectus; and a portion of the stock options held by key personnel other than our executive officers becoming exercisable upon the completion of the initial public offering described in this prospectus. In addition, we do not maintain key man life insurance on any of our employees. The loss of key personnel or an inability to attract qualified replacement personnel in a timely manner could harm our ability to perform our demand creation services or otherwise execute our business plan. If we cannot attract and retain highly skilled personnel, the growth of our business and our ability to provide demand creation services might suffer. We depend on our ability to identify, attract, hire, train, retain and motivate highly skilled personnel for our future success. Our business is especially dependent on sales, marketing and application engineering personnel who create demand for the semiconductor devices of the semiconductor companies we represent. Competition for highly skilled personnel in the semiconductor industry is intense, and we might not be able to attract sufficient numbers of personnel to meet our growth objectives. The high demand for sales, marketing and application engineering personnel, including demand from our competitors, the semiconductor companies we represent and our customers, also makes the retention of these personnel increasingly expensive. If we cannot attract and retain the personnel we require at a reasonable cost, our costs would increase and the profitability of our business could be negatively affected. We may have difficulty managing any growth that we might experience which could harm our business. We expect to continue to experience growth in the scope of our operations and/or the number of our employees. For example, we currently intend to expand our presence in a number of geographic markets, such as the People s Republic of China where, as of March 31, 2004 we had 32 offices and 275 field applications, technical sales specialists, technical marketing professionals and account representatives. We intend to invest in JPMorgan Deutsche Bank Securities Merrill Lynch & Co. Table of Contents additional personnel as well as increase our number of offices in the People s Republic of China. In addition, we plan to build on our existing presence in the emerging semiconductor markets of India, Eastern Europe and Latin America. If we complete our growth or expansion plans, it will place a significant strain on our management team and on our operational and financial systems, procedures and controls. Our future success will depend in part on the ability of our management team to manage any growth effectively. This will require our management to: maintain our cost structure at an appropriate level based on the net revenue we generate; manage multiple, concurrent development projects; hire and train additional personnel; implement and improve our operational and financial systems, procedures and controls; and manage operations in multiple time zones. Any failure to manage our growth successfully could distract management s attention and result in our failure to execute our business plan and increased expenses which could significantly harm our business, operating results and financial condition and not allow us to meet the expectations of the market. We are in the process of implementing the governance and accounting practices and policies required of a publicly-traded U.S. company. Any delay in implementing such governance and accounting practices and policies could harm our business. In becoming a publicly-traded U.S. company, we will be subject to many rules and regulations, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. We will also need to comply with the Sarbanes-Oxley Act of 2002, as amended, and the new rules and regulations implemented as a result of that act that are currently becoming applicable to all U.S. public companies. In changing our jurisdiction of incorporation from the U.K. to the U.S., we will become uniformly subject to accounting principles generally accepted in the United States, or U.S. GAAP, in all jurisdictions where we transact business. In an effort to comply with all of these new requirements, we are implementing a number of measures, including the following: continuing to work with a reputable, international accounting firm on improving the quality of our financial reporting and complying with all regulations under U.S. GAAP applicable to us; transitioning our financial reporting oversight department from the U.K. to the U.S.; establishing an internal audit function; strengthening our existing financial reporting processes and internal controls in order to comply with U.S. GAAP, hiring personnel with an understanding of U.S. GAAP and implementing new internal controls and processes as required under the Sarbanes-Oxley Act of 2002, as amended; evaluating our internal control processes in our major geographic regions in order to permit management to monitor and evaluate internal controls over financial reporting as required under Sarbanes-Oxley Act Rule 404 in anticipation of our need to comply with Rule 404 in 2005; reconstituting our board of directors by adding experienced, independent directors to our board and audit committee; creating a disclosure control committee and implementing a global policies manual; adopting new board committee charters, a code of business conduct and ethics and a corporate anti-fraud policy; and performing a risk assessment and documenting our procedures and key controls. Any failure on our part to effect the transition or to meet the requirements of operating as a U.S. publicly-traded company could jeopardize our ability to produce reliable financial statements, subject us to disciplinary proceedings by the SEC or the NYSE, or otherwise harm our business or results of operations. Prospectus dated , 2004. Table of Contents We recently identified instances where our internal controls over financial reporting were not adequate to identify employee misconduct as well as a material weakness in our internal controls over financial reporting for our 2002 and 2001 fiscal years. We cannot assure you that our efforts to remedy these issues will prove successful or be sufficient to prevent similar issues from arising in the future. We have recently identified instances where our internal controls over financial reporting were not adequate to identify the misconduct of a few non-senior management employees. Over the period from 1999 until corrected in mid 2003, the liability created by this misconduct was $3.3 million, of which $1.8 million occurred prior to the October 2000 management buyout. In addition, our external auditors have identified a material weakness relating to our internal controls over financial reporting for our 2002 and 2001 fiscal years. As a result of these control issues, including those relating to our employees misconduct, we needed to restate our financial statements for our prior fiscal years. The largest of these adjustments related to the fact that we did not accrue for inventory in transit, which caused our inventory and accounts payable to be understated in 2002. This accounting policy also affected prior periods. While this adjustment did not impact our income statement or our working capital, as of December 31, 2002, inventory and accounts payable were increased by $15 million to account for the inventory in transit. In addition, inventory was increased and other current assets were decreased by $8 million, respectively, to properly reflect additional inventory in transit which had inadvertently been misclassified as other current assets. This accounting policy was correctly implemented in 2003 and, accordingly, no adjustment to our 2003 financial statement was required. During 2003 and continuing into 2004, we began implementing a number of actions aimed at strengthening our financial reporting process and internal controls. These include: the substantial completion of the transition of the reporting oversight role from the U.K. to the U.S.; the addition of qualified, experienced, personnel with requisite understanding of U.S. GAAP; initiation of a Sarbanes-Oxley Section 404 preparedness project with the assistance of a reputable international accounting firm; implementation of a disclosure control committee including the development of a certification and sub-certification process; and changes in controls and processes, such as preparing for adoption of an anti-fraud policy and a code of business conduct and ethics, aimed at improving the quality of financial reporting. While we believe that the actions that we have taken and are continuing to take to strengthen our internal controls over financial reporting will prevent issues similar to those we have encountered in the past from arising, we cannot assure you that these measures will be successful. Any future issues related to our internal controls over financial reporting could harm our business and results of operations. Our sales cycle is lengthy and unpredictable, involving significant expense and effort by us in securing a design win and may cause our operating results to fluctuate which could result in volatility in the price of our stock. In order to be successful under our business plan, we need to sell to customers whose products utilize the semiconductor devices of the semiconductor companies that we represent and generate significant net revenue from those customers. The sales cycle for the semiconductor devices and services we offer is long and requires us to invest significant resources as we work with each potential customer, without assurance of sales to that customer. Due to the highly specialized nature of the products we sell, our sales cycle typically begins with the potential customer s design phase as we seek to convince potential customers to design products that take advantage of the semiconductor devices we offer. We recognize revenue only when we ship the semiconductor devices and the title and risk of loss have passed to the customer. We estimate that the average time lag between the design win and the point at which we begin to generate net revenue from these activities is between six and 12 months. Due in part to the length of this process, we cannot assure you that a given design will actually be implemented in our customer s product and result in commercial orders or generate any net revenue. If we are Table of Contents [EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK] Blended line of photographs in the center of the page showing the Memec logo, a photograph of chips Memec sells, a photograph of professionals talking, a photograph of electronics products and a photograph of a portion of the globe. At the top of the page are the words Enabling Leading Semiconductor Companies to Bring Advanced Products to a Global Market. The following text is placed beneath the photographs: Memec Driving growth through demand creation Demand creation [de mand cre a tion] creating opportunities to incorporate a semiconductor company s devices into the design of new products. Founded in 1974, Memec is a leading global semiconductor distributor specializing in demand creation and servicing the electronics industry with more than 2,400 employees, including over 1,800 field application engineers, technical sales specialists, technical marketing professionals, and account representatives. We provide original equipment manufacturers with the expertise to help them incorporate advanced semiconductor devices into the design of their differentiated products, reduce their time-to-market, and lower their overall costs. The semiconductor chips pictured in the first frame of the photo strip represent our four largest suppliers: Xilinx, Actel Corporation, Texas Instruments and PMC-Sierra. These four suppliers represented over 50% of our 2003 net revenue in the aggregate. The consumer products depicted in the third frame of the photo strip are manufactured by Phat Noise, Alcatel Corporation and Delphi, who are all customers of ours. None of these customers represented more than 5% of our 2003 net revenue. Table of Contents not successful in persuading customers to use the semiconductor devices and services that we offer, our net revenue and results of operations will be harmed. Because our ability to forecast accurately our customers demand for semiconductor devices is limited our costs are relatively fixed in the short-term, and if a customer cancels an order or our forecasts otherwise prove inaccurate we may not be able to reduce our expenses quickly enough to avoid lower quarterly operating results. Our sales are typically made pursuant to individual purchase orders, and we generally do not have long-term supply arrangements with our customers. Generally, our customers may cancel orders 30 days prior to shipment with minimal penalties. We routinely purchase inventory based on customers estimates of demand for their products, which is difficult to predict due to factors such as rapid technological change, the introduction of new and enhanced products and evolving industry standards. This difficulty may be compounded when we sell to original equipment manufacturers indirectly through electronic manufacturing services companies or other distributors, or both, as our forecasts for demand are then based on estimates provided by multiple parties. The cancellation or deferral of semiconductor device orders, the return of previously sold semiconductor devices or over-purchasing due to failure of anticipated orders to materialize, in each case in excess of our contractual protections, could result in excess obsolete inventory, which could result in write-downs of inventory or the incurrence of significant cancellation penalties under our arrangements with the semiconductor companies that we represent. Moreover, our expense levels are based in part on our expectations of future net revenue, and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. Our non-U.S. operations represent a significant and growing portion of our net revenue and consequently, we are increasingly exposed to risks associated with operating internationally, which if not managed properly could harm our business. In the first quarter of 2004 and in our 2003 fiscal year, approximately 24% and 28%, respectively, of our net revenue resulted from our operations in EMEA, which consists of Europe, the Middle East and Africa, approximately 25% and 23%, respectively, of our net revenue resulted from our operations in the Asia-Pacific region, including the People s Republic of China, and approximately 7% and 9%, respectively, of our net revenue resulted from our operations in Japan. Because we sell a substantial portion of our semiconductor devices and services in overseas markets and enter into international transactions with complicated terms that differ on a contract-by-contract basis, we are subject to additional risks related to operating in foreign countries. These risks include: the difficulties associated with managing and administrating a globally dispersed business; foreign currency fluctuations and devaluations, which could result in increased operating expenses and reduced net revenue due to the fact that generally we generate foreign net revenue in dollars and incur foreign costs in local currencies; multiple and possibly overlapping tax structures that could have a significant impact on the financial performance of our foreign operations; economic weaknesses, political instability and terrorism affecting foreign economies and markets; an inability to repatriate earnings of our foreign operations without significant tax consequences; difficulties in collecting accounts receivable in some geographic regions such as the Asia-Pacific region, where many countries have underdeveloped insolvency laws and customers are often slower to pay; difficulty in enforcing or adequately protecting intellectual property or avoiding involvement, directly or indirectly, in cross infringement or other third party claims; the impact of other applicable foreign regulations, including but not limited to import and export duties, value added taxes and tariffs; Table of Contents current or future restrictions on foreign ownership rights of assets by countries in which our assets are or may be located; and difficulties in enforcing a uniform corporate code of business conduct and ethics across various foreign cultures. Any of these factors could cause our business, financial condition and results of operations to suffer. Although we have invested significant human and financial resources to establish a presence in the People s Republic of China, we may not be able to achieve the intended benefits as quickly as anticipated, or at all. As part of our strategy, as of March 31, 2004 we had established 32 offices and employed approximately 275 field application engineers, technical sales specialists, technical marketing professionals and account representatives in the People s Republic of China. We currently intend to further extend this presence. This strategy involves significant risks, including: the need to establish relationships with manufacturers in the People s Republic of China that historically have not relied upon distributors to the same extent as facilities located in North America and Europe; health-related risks, such as outbreaks of diseases, in the People s Republic of China or other Asian countries in which we have offices and the adverse impact of any quarantine or closure of such offices or the offices of our customers; potential escalation of political tensions between the People s Republic of China and Taiwan and the possibility that the U.S. may become involved in any resultant conflict; the risk that we may not be able to attract and retain key personnel in our Chinese offices; the risk of economic turmoil based on structural deficiencies within the Chinese financial system; the risk that the Chinese government may allow the Yuan to float against the U.S. dollar, which could significantly increase our operating costs; and the risk of trade wars between the U.S. and the People s Republic of China due to trade tariffs. In addition to these risks, we may not be able to successfully comply with the People s Republic of China s governmental regulations. The regulatory environment in the People s Republic of China is evolving, and officials in the Chinese government often exercise discretion in deciding how to interpret and apply applicable regulations. Consequently, actions by Chinese governmental regulators may limit or harm our ability to conduct business in the People s Republic of China. Moreover, the People s Republic of China s economy has only recently evolved to be more tolerant of capitalism. If this trend was reversed and the economy were to return to a more strictly communistic model, it could result in the nationalization of foreign assets, including ours, or otherwise interfere with our ability to operate in the People s Republic of China. Our inability to manage these and other risks could significantly impact our goal to reduce our operating costs and to broaden our supplier and customer base, as well as result in us incurring significant costs or asset impairments and potentially damage our relationships with existing and prospective suppliers and customers. Intellectual property rights are difficult to enforce in the People s Republic of China, which may inhibit our ability to protect our intellectual property rights or those of our suppliers and customers in that country. Though we do not currently have any material patents or copyrights, we do have valuable trademarks and trade secrets including computer-related and other processes and methodologies we developed to maximize the quality and effectiveness of our services. We may also develop or otherwise acquire other intellectual property rights including patent and copyrights that could play a material role in our business in the future. Commercial law in the People s Republic of China is relatively undeveloped compared to the commercial law in the U.S. Limited protection of intellectual property is available under Chinese law. Consequently, operating in the Table of Contents TABLE OF CONTENTS Page Table of Contents People s Republic of China may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise obtain or use our intellectual property or the intellectual property of our suppliers or customers. We cannot assure you that we will be able to effectively protect our intellectual property rights or those of our suppliers and customers or have adequate legal recourse in the event that we encounter difficulties with infringements of intellectual property under Chinese law. Our organizational structure relies on independent sales divisions which limits our ability to sell competing semiconductor devices, which could harm our results of operations if our supplier s semiconductor device loses out to its competitors in the marketplace. A key strategy of ours is to sell only non-competing semiconductor devices in a given region through our teams providing field application engineering, technical sales, technical marketing and account representation services. By definition, this limits the number of semiconductor devices we can sell using our personnel in any given country or area. If the semiconductor devices we represent lose out to competing semiconductor devices in the marketplace, we may incur significant expense in shifting our efforts to represent the supplier of this competing semiconductor device. In some instances, this supplier may be already firmly entrenched with another distributor and unwilling to begin working with us or may be dedicated to providing such services on its own. In either circumstance, our results of operations and business could suffer. Our substantial debt and provisions contained in the agreements relating to our indebtedness could impair our financial condition and harm our ability to operate our business. We are highly leveraged and have substantial debt service obligations. As of June 2, 2004, we had $200 million drawn under our $300 million senior credit facility and outstanding deep discount bonds of $433 million. We intend to use the net proceeds of this offering to purchase approximately $200 million of these deep discount bonds. The remaining deep discount bonds will convert into shares of our common stock at the consummation of the offering. However, we may incur additional debt in the future, subject to certain limitations contained in our debt instruments. The degree to which we are leveraged and the provisions of our credit facilities and other debt agreements could have important consequences to our results of operations and your investment, including: our ability to enter into or obtain additional financing, including additional debt financing, in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, may be impaired; a significant portion of cash flow from operations must be dedicated to the servicing of debt, which reduces our flexibility in planning for, or reacting to changes in our business and the semiconductor industry by making operational or capital expenditures or entering into strategic transactions; some of the debt is and will continue to be at variable rates of interest, which may result in higher interest expense in the event of increases in market interest rates; the debt agreements contain, and any agreements to refinance the debt likely will contain, financial and restrictive covenants, including covenants requiring compliance with specified financial ratios and restricting, among other things, our ability to pay dividends, redeem capital stock, enter into new lines of business and sell or dispose of specified assets, and our failure to comply with these covenants may result in an event of default which, if not cured or waived, could have a significant impact on our results of operations; we could have increased vulnerability to general economic downturns and adverse industry conditions; and substantial leverage could place us at a competitive disadvantage relative to our competitors that have less leverage relative to their overall capital structures. Further, our Japanese credit facilities, which are comprised of short-term loan agreements with a number of Japanese banks, are subject to termination at the discretion of the lenders. As of March 31, 2004, our outstanding Table of Contents indebtedness under these credit facilities was approximately $26 million. If the lenders cause us to repay the outstanding amounts under these credit facilities without notice, it may cause a decrease in our short-term liquidity. We may incur more debt, which could exacerbate the risks described above. We may incur substantial additional indebtedness in the future. The agreements relating to our outstanding indebtedness permit us to incur additional indebtedness under those agreements, but restrict the incurrence of additional indebtedness outside of our senior credit facility and our asset backed loan agreement to $25 million in non-stockholder and non-affiliate debt. If new debt is added to our current debt levels, the related risks that we and they now face could intensify. We may not be able to generate sufficient cash flow to meet our debt service obligations which could cause our business to suffer. Our ability to generate sufficient cash flows from operations to make scheduled payments on debt obligations will depend on future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. If we do not generate sufficient cash flow from operations to satisfy outstanding debt obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring debt, selling additional assets, reducing or delaying capital investments or seeking to raise additional capital. The terms of our financing agreements contain limitations on our ability to incur indebtedness. We cannot assure you that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, or that additional financing could be obtained on acceptable terms, if at all, or would be permitted under the terms of the various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy debt obligations, or to refinance obligations on commercially reasonable terms, would cause our business, financial condition and results of operations to suffer, as well as harm our ability to satisfy our debt obligations. Any failure to satisfy our debt obligations would constitute a default under our $300 million senior credit facility, and the lenders under that facility could start enforcing their security interests which are over substantially all of our assets. If we do not successfully address any problems encountered in connection with future acquisitions, our business could be disrupted and our operating results could suffer. We have in the past strategically acquired or invested in technologies, products and businesses. For example, in 2001 we acquired Inicore Holding AG in Switzerland, Analog Semiconductor KK and Analog KK in Japan, assets of Sunin in Korea and Atop Sp. Z o.o in Poland. We expect to continue to seek strategic acquisition or investment opportunities from time to time. Potential and completed acquisitions and strategic investments involve numerous risks, including: risks associated with entering markets in which we have no or limited prior experience; potential losses of key employees of acquired organizations; problems assimilating the purchased technologies, products or business operations; problems maintaining uniform standards, procedures, controls and policies; unanticipated costs associated with the transactions, including accounting charges and transaction expenses; diversion of management s attention from our core business; and adverse effects on existing business relationships with suppliers and customers. If we fail to properly evaluate and execute acquisitions and strategic investments and integrate the acquired businesses or assets effectively, our management team may be distracted from our day-to-day operations, our business may be disrupted and our operating results may suffer. In addition, if we finance acquisitions by issuing equity or convertible debt securities, our existing stockholders would be diluted. Table of Contents If we fail to protect our intellectual property rights, our ability to compete could be harmed. Protection of our intellectual property is important to our success. Although we currently do not rely on patent or copyright protection, we rely on trademark and trade secret laws and confidentiality and other contractual provisions to protect our trademarks and processes and methodologies we developed to maximize the quality and effectiveness of our services. In addition, we may also develop or otherwise acquire other intellectual property rights, including patents and copyrights that could play a material role in our business in the future. Related laws and provisions afford only limited protection and may not permit us to gain or keep any competitive advantage. We face numerous risks in protecting our intellectual property rights, including the following: our trademarks, trade secrets and other intellectual property rights may be challenged or invalidated by our competitors; we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees, consultants or advisors; the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate in foreign countries; and we may be unable to identify successfully or prosecute unauthorized uses of our intellectual property. As a result, our means of protecting our intellectual property rights and brands may not be sufficient. Furthermore, despite our efforts, third parties may have violated and may in the future violate, or attempt to violate, our intellectual property rights. Infringement claims and lawsuits would likely be expensive to resolve and would require substantial management time and resources. In addition, we traditionally have not sought trademark and other intellectual property protections in many foreign countries. In countries where we do not have such protection, businesses may use our trademarks to sell products or to develop a distribution method that incorporates our technology or that of our partners. If we are subject to a protracted infringement, misappropriation or unauthorized disclosure claim or one that results in significant damage awards, our results of operations may be harmed. Our success depends on the designs of the semiconductor companies we represent and our original equipment manufacturer customers, and we are responsible for preserving the intellectual property embodied in these designs. Due to the complexity of the technology used and the multitude of patents, copyrights and other overlapping intellectual property rights, the semiconductor industry is characterized by frequent litigation regarding patent, trade secret, copyright and other intellectual property rights. We expect that from time to time the semiconductor companies that we represent and our original equipment manufacturer customers will become involved in intellectual property infringement disputes. If the intellectual property rights of our suppliers or customers are misappropriated, we may become involved in these disputes. We may also become involved in infringement suits against our suppliers or customers and are particularly vulnerable in cases where our arrangements do not provide for indemnification or where such rights are governed by jurisdictions which do not have vigorous or precise intellectual property regulation. In the event of any successful claim against us for unauthorized transfer, sale or disclosure of intellectual property, we could face substantial liability and lose valuable relationships and our reputation could be harmed. In addition, we may not have sufficient resources to defend against litigation. As a result, our business, operating results and financial condition could be significantly harmed. Our operating costs could materially increase if we do not successfully integrate our various accounting platforms successfully. As a result of our rapid growth across broad geographic regions, we have developed numerous accounting systems. We are in the process of integrating our various accounting systems to improve our internal controls and financial reporting process. We expect the integration to be complete in the second half of 2004. It is possible that errors and delays will occur during this integration. In addition, we cannot be certain that this integration Table of Contents project will be successful. If the full integration of our accounting systems is not successful, our costs of maintaining these systems could increase significantly and our internal controls and financial reporting processes could be significantly impacted. We rely heavily on our information technology systems to coordinate our purchases from semiconductor suppliers and our sales of semiconductor devices to customers. Causes beyond our control may damage or render inoperable our information technology systems and therefore harm our ability to operate and our results of operations, particularly due to the lack of back-up systems in significant markets. Our information technology systems and operations are vulnerable to damage or interruption from a number of factors, many of which are beyond our control. We do not have fully redundant systems or a formally tested disaster recovery plan in Asia-Pacific or Japan, so any of these events in these regions could lead to system interruptions, delays and loss of critical data or could prevent us from effectively operating on a global scale. For the year ended December 31, 2003, Asia-Pacific and Japan represented in excess of 35% of our net revenues. A failure of our information technology systems could harm our operations and financial results. We have engaged in a number of related party transactions with our majority stockholders and because of the significant stock ownership and contractual rights of our majority stockholders, our majority stockholders will be able to exert control over us and our significant corporate decisions. Upon completion of this offering, the Permira funds, Schroder Ventures US Fund and DB Industrial Holdings Beteiligungs AG & Co KG will beneficially own approximately % of our outstanding common stock. These stockholders will have the ability to control our management and affairs, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership may harm the market price of our common stock by, among other things: delaying, deferring or preventing a merger, consolidation, takeover or other business combination involving us; causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. We have engaged in several transactions with our majority stockholders. For example, prior to this offering, we obtained debt financing from our major stockholders and their affiliates, a portion of which we will repay from the net proceeds of this offering. See Use of Proceeds and Related Party Transactions Consortium Loans and Deep Discount Bonds. We also paid an annual fee for advisory services of approximately $2 million in the aggregate to affiliates of the Permira Funds and Schroder Ventures US Fund in each of 2003, 2002 and 2001 and expect to pay such fee in 2004. In addition, upon consummation of this offering, we have agreed to pay Permira Advisers Limited, an affiliate of the Permira funds, a one-time fee of $2 million. See Related Party Transactions Relationship with our Major Stockholders. The Permira funds also have the right to designate a nominee for election to our board of directors, but have currently chosen not to do so. Peter Smitham, who we have agreed will not be considered as the nominee of the Permira funds, serves as the chairman of our board and on the board of directors of an advisor to the Permira funds. Simultaneous service on our board of directors and as a director of an advisor to the Permira funds may create a conflict of interest because the interests of the Permira funds may differ from those of other stockholders. Our board of directors is considering a conflicts of interest policy. Further, we have reserved approximately 3% of the shares offered in this offering under a directed share program in which our officers, directors, and employees and their designees may be able to purchase shares in this offering at the initial public offering price. This program may further increase the amount of stock held by persons whose interests are aligned with management s interests. Table of Contents We are a holding company with substantially all of our operations being conducted through our subsidiaries and, as a result, we depend upon the performance of our subsidiaries. We have virtually no operations independent of those of Memec Group Holdings Limited and its subsidiaries and our principal assets are our investments in Memec Group Holdings Limited and its subsidiaries. As a consequence, the success of an investment in our common stock will be entirely dependent upon the future performance of Memec Group Holdings Limited and its subsidiaries and will be subject to the financial, business and other factors affecting Memec Group Holdings Limited and its subsidiaries and the markets in which they do business, as well as general economic and financial conditions. The change in our ultimate parent company and our related internal restructuring may result in unanticipated tax liabilities. Immediately prior to this offering, we will change the ultimate parent for the Memec group of companies from a company organized in England and Wales to a corporation organized in the U.S. In addition we intend to complete a related restructuring of various of our non-U.S. subsidiaries, in order to optimize our organizational structure subsequent to the offering. We do not expect that we will incur material tax liabilities on the exchange of shares in Memec Group Holdings Limited by its existing stockholders for shares of common stock of Memec, Inc. We also do not expect that we will incur material tax liabilities, other than approximately $2 million of capital taxes, from the internal restructuring of various of our non-U.S. subsidiaries. However, we have not obtained rulings from any tax authorities as to the tax consequences of the change in our ultimate parent company or our related internal restructuring. If the tax consequences of any aspect of these transactions were challenged by tax authorities in the United Kingdom, the U.S. or elsewhere, we could incur significant unanticipated tax liabilities. Failure to comply with governmental export regulations or applicable laws by us, the semiconductor companies we represent or our customers could result in increased expenses or reduced net revenue. The semiconductor devices we distribute and the end products produced by our customers may be subject to U.S. export control and other regulations as well as various standards established by authorities in other countries. In addition, our global presence brings us and our employees under the laws of various jurisdictions. We have in the past and may in the future be subject to government inquiries or investigations, and we will be unable to control their timing or the extent to which they impair our ability to focus on our business. Failure to comply with existing or evolving U.S. or foreign governmental regulations and other laws or to obtain timely domestic or foreign regulatory approvals or certificates could result in substantial penalties or require modifications to the semiconductor devices of the semiconductor companies that we represent. These restrictions may make foreign competitors facing less stringent controls or legal requirements more competitive in the global market than we are. The U.S. government may not approve any pending or future export license requests. In addition, the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, could be revised. We may face product liability claims which may subject us to increased costs and harm our reputation. The semiconductor devices that we supply in many cases perform critical functions. If these semiconductor devices are used in defective or malfunctioning products, we could be sued for damages, especially if the defect or malfunction causes physical harm to people. The occurrence of a problem could result in product liability claims as well as a recall of, or safety alert or advisory notice relating to, the product. While we maintain insurance intended to cover these types of claims, we cannot assure you that our coverage will be adequate to satisfy claims made against us in the future or that we will be able to obtain insurance in the future at satisfactory rates, in adequate amounts, or at all. Product liability claims or product recalls in the future, regardless of their ultimate outcome, could harm our business and financial condition and our ability to attract and retain customers. Table of Contents Labor issues at our facilities outside of the U.S. could harm our operations. As of March 31, 2004, all 53 of our employees located in France and approximately 25 of the 148 employees located in Germany are members of their respective local workers council, a union-like organization. These employees represent approximately 5% of our workforce outside of the U.S. The rules of the workers council located in France and Germany are set by French and German employment law, respectively, which dictate the basis of our relationship with these employees. These rules limit our flexibility to respond to changing market conditions and the application of these rules could harm our business. It is likely that a portion of our workforce will remain members of a workers council in France and Germany for the foreseeable future. It is also possible that the portion of our workforce that participates in a workers council may increase in the future. None of our employees, including those who are members of the workers council, are covered by a collective bargaining or labor agreement. Risks Related to Our Competitors and Our Customer Relationships If our competitors improve their demand creation capability or expand their geographic reach, our gross margins and sales volumes could be harmed. The markets in which we operate are highly competitive. We compete principally with semiconductor companies that manufacture semiconductor devices and sell their products directly to original equipment manufacturers and electronics manufacturing services companies. We also compete with semiconductor distributors, called broadline distributors, that specialize in fulfillment of non-specialized semiconductor devices but that may also provide some demand creation services, with regional distributors that perform demand creation services similar to ours within individual markets, with catalog distributors and, to a lesser extent, with independent sales representatives operating regionally. Direct sales. We compete with semiconductor companies, including semiconductor companies currently represented by us, that use their own direct sales teams. These semiconductor companies compete with us to design their semiconductor devices into our customers products and receive the resulting revenue stream from customer orders. As semiconductor companies mature, they may enhance their demand creation capabilities or increase the number of customers to whom they sell directly, increasing the number of our competitors. In addition, the mature semiconductor companies we represent could decide that it would be more cost-effective for them to enhance their own sales force rather than continuing to rely on our services. Global broadline distributors. We compete with global broadline distributors, such as Arrow Electronics Inc. and Avnet Inc., which supply primarily non-specialized semiconductor devices and other products. Although these suppliers are currently focused on fulfillment of orders for non-specialized devices, they may choose to change their focus in the future to providing demand creation services. Regional distributors. We also compete with distributors that provide demand creation services similar to ours, but which operate on a local or regional basis. Two of these companies are Nu Horizons, which operates primarily in the U.S., and Tokyo Electron Devices, which operates primarily in Japan. Mergers or aggressive expansion could enable these regional distributors to compete with us globally. In addition, some of these distributors possess exclusive rights to supply semiconductor device product lines in specified geographic territories. Catalog distributors and others. We compete to a limited extent with catalog distributors that focus on low-volume fulfillment for a wide range of mass-market products; small, independent representatives that provide account management services; brokers which act as procurement or disposal agents for excess inventories; and non-franchised, independent distributors. Many of our current and potential competitors enjoy substantial competitive advantages over us either globally or in individual markets, including: greater name recognition; a longer operating history; Table of Contents a more extensive customer base; broader, or broader access to, semiconductor device and service offerings; and greater financial and other resources for competitive activities, such as sales and marketing, research and development, strategic acquisitions, alliances and joint ventures. As a result, these current and potential competitors may be able to purchase semiconductor devices from suppliers on more favorable terms and may be able to adopt more aggressive pricing policies. These companies may also make significant acquisitions or enter into business combinations or alliances that strengthen their competitive positions and that may prevent us from entering into similar strategic relationships. Some of our competitors have in the past made significant acquisitions of other competitors or have publicly-disclosed intentions to make future acquisitions. They also may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. New competitors entering the marketplace and existing competitors expanding their businesses to compete with us globally may reduce demand for our semiconductor devices and services. This is particularly true if current semiconductor companies that we represent decide to focus on competing with us globally. Intense or increased competition may also lead to: price reductions, decreased net revenue and lower profit margins; loss of market share; or increased marketing expenditures. Substantial defaults by our customers with respect to accounts receivable could have a significant negative impact on our financial condition, results of operations and liquidity. A significant portion of our working capital consists of accounts receivable from customers. If customers responsible for a significant amount of accounts receivable were to become insolvent or otherwise unable to pay for semiconductor devices and services, or were to become unwilling or unable to make payments in a timely manner, our operating results and financial condition could be harmed. If the recent economic recovery fails, it could harm our ability to collect these accounts receivable in line with agreed upon terms and therefore result in longer payment cycles, increased collection costs and defaults in excess of management s expectations. If the trend towards using electronic manufacturing services companies continues, it may become more difficult to maintain our gross margins and our working capital requirements may increase. We view original equipment manufacturers as our most important customers because they ultimately make the decision to incorporate into product designs and to purchase the semiconductor devices that we market. However, we increasingly make the actual sales of semiconductor devices to electronic manufacturing services companies to whom our original equipment manufacturer customers have outsourced their manufacturing requirements. Electronic manufacturing services companies are, therefore, becoming increasingly important customers for semiconductor devices, particularly in the U.S. Although we believe the semiconductor companies that we represent are the main beneficiaries of our demand creation services and they seek to incentivize us by preserving our gross margins on sales, electronic manufacturing services companies are focused on cost reductions and generally seek, where possible, to use their purchasing power to lower the cost of the semiconductor devices we supply to them. To the extent that electronic manufacturing services companies increase their leverage in the marketplace or find alternate channels for purchasing the semiconductor devices we supply at lower prices, our business could suffer. In addition, electronic manufacturing services companies may request that we provide semiconductor devices to them on a consignment basis at their location and request additional related services from us. Although we seek to be reimbursed for the costs of such services, there is a risk that we will not always be reimbursed, which would harm our operating margins and could increase our working capital requirements. Table of Contents Decreases in demand for, and average selling price of, end-user applications of our customers products may decrease demand for the semiconductor devices and services we offer and may result in a decrease in our net revenue and results of operations. A vast majority of our net revenue is derived from customers that use the semiconductor devices we offer in communications equipment, industrial and medical systems, consumer electronics, automotive systems and data processing equipment. Any significant decrease in the demand for end-user products in these market segments may decrease the demand for the semiconductor devices and services that we offer and may result in a decrease in our net revenue and results of operations. In addition, the historical and continuing trend of declining average selling prices of end-user applications places pressure on the prices of the components that go into these end-user applications. If the average selling prices of end-user applications continue to decrease, the pricing pressure on semiconductor devices offered by us to our customers may lead to a reduction of our net revenue and harm our results of operations. Risks Related to this Offering There is no existing market for our common stock and we do not know if one will develop to provide you with adequate liquidity. There has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the New York Stock Exchange or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our common stock at prices equal to or greater than the price paid by you in this offering. The market price of our common stock may fluctuate significantly, and you could lose all or part of your investment. The market price of our common stock could fluctuate significantly, in which case you may not be able to resell your shares at or above the initial public offering price. The initial public offering price for the shares of our common stock sold in this offering has been determined by negotiation between the representatives of the underwriters and us. This price may not reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including the factors discussed elsewhere in this Risk Factors section. In addition, the capital markets in general, and the market for securities of technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. In addition, substantially all of our net revenue comes from sales of semiconductor devices. The market prices of securities of companies in the semiconductor industry have been particularly volatile. This volatility, including volatility as a result of economic, market or political factors, could harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management s attention and other resources. Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return. We intend to use the majority of the net proceeds from this offering to repay a portion of our existing indebtedness and management will have broad discretion over the use of the remaining proceeds. We may use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. We have not reserved or allocated specific amounts for these purposes, and we cannot specify with certainty how we will use the net proceeds. Accordingly, our management will have Table of Contents The chart below illustrates a summary of the corporate structure of the Memec group of companies after giving effect to this offering: As of the date of this prospectus. 90 days after the date of the final prospectus due to provisions of Rules 144, 144(k) and 701 promulgated under the Securities Act. 180 days after the date of the final prospectus due to agreements that stockholders and option holders have with the underwriters, subject to applicable holding period requirements. In addition, $ million of the deep discount bonds held by our existing investors will be converted into shares of our common stock at the initial public offering price less estimated underwriting discounts and commissions. When issued, these shares will be restricted from immediate resale, subject to applicable holding periods or registration under federal securities laws. We, our stockholders, a select number of our option holders, our executive officers and our directors, together representing over 98% of our pre-offering shares on a fully-diluted basis, have agreed with the underwriters not to sell, dispose of, or hedge shares of our common stock or securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions, during the period from the date of the final prospectus continuing through the date that is 180 days after the date of the final prospectus, except with the prior written consent of Credit Suisse First Boston LLC and Goldman, Sachs & Co. Table of Contents If our common stockholders sell substantial amounts of common stock in the public market, or if the market perceives that these sales may occur, the market price of our common stock may decline. After this offering, the holders of approximately shares of common stock will have rights, subject to some conditions, to require us to file registration statements covering the resale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. These registration rights of our stockholders could impair our ability to raise capital by depressing the price at which we could sell our common stock. In addition, as soon as practicable after the completion of this offering, we intend to file registration statements under the Securities Act covering shares of common stock issuable upon exercise of outstanding options and shares available for future issuance under our equity incentive and employee stock purchase plans adopted in connection with this offering, subject to stockholder approval, and under our existing equity incentive plans. As of June 30, 2004, none of the outstanding stock options are vested. On the date of this prospectus, approximately shares issuable upon the exercise of vested options will become eligible for sale in the public market. Beginning on the date 180 days after the date of this prospectus, approximately shares issuable upon the exercise of vested options will become eligible for sale in the public market. Accordingly, shares registered under the registration statements described above will be available for sale in the open market, subject to vesting restrictions with us and the contractual lock-up agreements described above that prohibit the sale or other disposition of the shares of common stock underlying the options. We have no intention to pay dividends on our shares and our ability to do so is also limited. We have never declared or paid any cash dividends on our shares. We currently intend to retain future earnings to finance the expansion of the business. In addition, our ability to declare and pay dividends on our shares of common stock will be restricted by covenants in our new $300 million senior credit facility that limit any dividends to be paid to a maximum of 50% of our consolidated net income for the prior fiscal year. In addition, our current corporate organizational structure imposes a significant tax burden on intercompany dividends and distributions of earnings to us by our operating subsidiaries. Because our future capital needs are uncertain, we may need to raise additional funds in the future, and such funds may not be available on acceptable terms or at all. Our capital requirements will depend on many factors, including: changes in our operating plan; deviations from anticipated net revenue; levels of expenses related to new technology; the number and timing of acquisitions and other strategic transactions; and the costs associated with our expansion, if any. We believe that our cash flows from operations, borrowing capacity under our credit facilities and loans and the net proceeds from this offering will be sufficient to fund our working capital and capital expenditure requirements for at least the next 18 months; however, we cannot assure you that the funds will be sufficient to fund our activities for such period. As a result, we may need to raise additional funds, and such funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may provide their holders with rights, preferences and privileges senior to those of our existing stockholders. If we cannot raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements, which could harm our business, results of operations and financial condition. Table of Contents Provisions contained in our charter documents and Delaware law could delay, prevent or deter a change of control and could also limit the market price of our stock. Our certificate of incorporation and bylaws, to be adopted and effective prior to the pricing of this offering assuming stockholder approval thereof, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. These provisions include: the authority of our board of directors to issue, without stockholder approval, preferred stock with such terms as our board may determine; a requirement that special meetings of our stockholders may be called only by our board of directors, the chairman of the board of directors, our chief executive officer or the Permira funds to the extent they continue to own, directly or indirectly, at least 5% of our common stock; removal of the ability of our stockholders to act by written consent in lieu of a meeting; and advance written notice of stockholder proposals and director nominations. These and other provisions in our certificate of incorporation and bylaws, to be adopted and effective prior to the pricing of this offering assuming stockholder approval thereof, and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay, impede or deter a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline. Table of Contents
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. We are a holding company and have no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 39 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 3.0% from 1980 to 2002, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Amendment No. 3 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $455 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger and sole bookrunner. In this prospectus, we refer to this credit facility as the new credit facility. The new credit facility will consist of a revolving credit facility in an aggregate principal amount of up to $100 million (to be reduced to $50 million after the first anniversary of the closing date) and a $355 million term loan facility. While the new credit facility will permit us to pay interest and dividends to our security holders, including IDS holders, it will contain significant restrictions on our ability to make such interest and dividend payments and on our subsidiaries ability to make payments or distributions to us. The new credit facility will have a 4.5 year maturity, except the portion of the term loan allocated to Canadian borrowers, which will have a 5 year maturity. See Description of Certain Indebtedness New Credit Facility. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 13 3 (3) 8 (3) 2 (4) 10 Table of Contents Our Existing Equity Investors We are an indirect, wholly-owned subsidiary of Xerium S.A. prior to this offering. Apax Europe IV GP, L.P., which, together with its affiliates, we refer to as Apax in this prospectus, is manager, directly or indirectly, of investment funds holding the majority of the outstanding common stock of Xerium S.A. Affiliates of CIBC World Markets Corp., the lead managing underwriter for this offering, own approximately 5.6% of the common stock of Xerium S.A. prior to this offering. We refer to CIBC World Markets Corp. as CIBC in this prospectus. Our senior management and certain other investors also own equity interests in Xerium S.A. We refer to Apax and these other investors in Xerium S.A. as our existing equity investors in this prospectus. Xerium 3 S.A. is our direct parent company and, prior to our recapitalization and the offering, owns 100% of our capital stock. The Recapitalization and the Offering This offering consists of an offering of 40,625,000 IDSs, representing 40,625,000 shares of Class A common stock and $296.6 million aggregate principal amount of % senior subordinated notes due 2019, and an offering of $53.9 million aggregate principal amount of % senior subordinated notes due 2019 sold separately (not represented by IDSs). We refer to the % senior subordinated notes due 2019 as the notes. The completion of the offering of the separate notes is a condition to our sale of IDSs. All of the notes represented by IDSs and all of the notes sold separately are being sold by us. Of the shares of Class A common stock represented by IDSs, 29,246,834 shares are being sold by us and 11,378,166 shares are being sold by our current stockholders. We will combine the notes (other than the notes to be sold separately) and the shares of Class A common stock to form the IDSs sold to the public. Prior to the closing of this offering, we will recapitalize our common stock into Class A common stock, Class B common stock and IDSs. The directors and members of our senior management who own equity interests in Xerium S.A. will exchange such interests for our Class A common stock, Class B common stock and IDSs. Xerium 3 S.A. and such directors and members of our senior management will each sell a portion of their shares of Class A common stock to the underwriters for inclusion in the IDSs and will each sell the remaining portion of their shares of Class A common stock not represented by IDSs to us, in each case for $8.70 per share, less the underwriting discount. Each share of Class B common stock will, subject to certain conditions, be automatically exchanged for one IDS at or after the second anniversary of this offering, subject to adjustment in the event of a stock split, recombination or reclassification of the Class B common stock. The exchange rate was set so that holders of Class B common stock will, upon such exchange, receive the same number of IDSs as they would have received if the equity interests that they exchanged for Class B common stock had instead been exchanged directly for IDSs at the time of the recapitalization. If the IDSs have automatically separated or are otherwise not outstanding at the time of the exchange of Class B common stock for IDSs, each share of Class B common stock will be exchanged for one share of Class A common stock, subject to adjustment in the event of a stock split, recombination or reclassification of the Class A common stock or Class B common stock, and a note having a principal amount equal to each note which was represented by an IDS. In addition, immediately prior to the completion of any transaction after which no notes will remain outstanding, each share of Class B common stock will be automatically exchanged for either one IDS or, if the IDSs have automatically separated or are not otherwise outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS, regardless of when the transaction occurs or whether the other conditions to the exchange are satisfied. See Description of Capital Stock Class B Common Stock. One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) Table of Contents The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock, and Dividend Policy and Restrictions. After giving effect to the offering and these transactions (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs), the public IDS holders will hold approximately 61.1% of the voting power in us and our existing equity investors (including members of our senior management) will, directly or indirectly, collectively hold the remaining 38.9% through IDSs and shares of Class B common stock. See The Transactions. Use of Proceeds We estimate that the offering will generate net proceeds of approximately $669.8 million after deducting underwriting discounts and commissions assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). These net proceeds, together with $355 million of borrowings under our new credit facility will be used as follows: $786.6 million to repay outstanding debt, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $24.9 million, to pay fees related to our new credit facility and other fees and expenses; $29.8 million for general corporate purposes; and $172.9 million to purchase equity interests held by the selling stockholders. If the underwriters exercise their over-allotment option in full, Xerium 3 S.A. will sell 6,093,750 IDSs to the underwriters to cover over-allotments. See Table of Additional Registrant Guarantors Table of Contents Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Argentina Sociedad Anonima, Huyck Australia Pty. Ltd, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The Offering Summary of the IDSs and the Notes We are offering 40,625,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.30 allocated to each note and $8.70 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $53.9 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors, holders of IDSs will receive dividends and interest on the Class A common stock and notes represented by each IDS at an annual rate of $1.52 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. See Risk Factors Risks Relating to our Capital Structure. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. Holders of our common stock do not have any legal right to receive or require the payment of dividends. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.30 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our current dividend policy, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.52 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.949 per IDS per year, subject to our right to defer interest payments on the notes, if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Upon the closing of this offering, our board of directors will adopt an initial dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.571 per share on our Class A common stock in the first year following the offering. However, dividend payments are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments beginning on December 15, 2004, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month or the immediately preceding business day of such month if the 5th day is not a business day. On December 15, 2004, we expect to pay of $ per IDS, which is the amount payable in respect to interest and dividends computed based upon our initial dividend rate and the annual interest rate on the notes for the actual number of days elapsed following the completion of this offering and up to such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or require the payment of dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will not initially be listed for separate trading on the New York Stock Exchange or any other exchange or quotation system. If, for a period of 30 consecutive trading days, a sufficient number of shares of Class A common stock is held separately and not in the form of IDSs to satisfy applicable requirements for separate trading on the New York Stock Exchange, we will apply to list the shares of our Class A common stock for separate trading on the New York Stock Exchange. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry settlement and clearance system described under Description of IDSs Book-Entry Settlement and Clearance. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes or otherwise. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., New York time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, New York time, on a trading day. Separation and recombination of IDSs Table of Contents Table of Contents may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Book-Entry Settlement and Clearance Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days or the occurrence of any redemption, whether in whole or in part, of the notes, or upon the acceleration or maturity of the notes. What will happen if we issue additional IDSs or notes of the same series in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Book-Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. CALCULATION OF REGISTRATION FEE Table of Contents We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs or notes in this offering are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.70 and the initial fair market value of each $7.30 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . Total 45 16 24 6 34 TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(1) Income Deposit Securities (IDSs)(2) 1,003,103,424 Shares of Class A Common Stock, par value $0.01 per share(3) 545,437,487 % Senior Subordinated Notes(4) 511,590,004 Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Total(6) $1,057,027,491 $ 133,925.39 (7) Table of Contents As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. (1) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. Includes IDSs subject to the underwriters over-allotment option. (2) The IDSs represent 62,693,964 shares of Class A common stock of Xerium Technologies, Inc. and $457.7 million aggregate principal amount of % senior subordinated notes due 2019 of Xerium Technologies, Inc., including 6,093,750 IDSs subject to the underwriters over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series as the IDSs offered hereby, which will be received on one or more occasions in the future in replacement of the IDSs offered hereby in the event of a subsequent issuance of IDSs or notes (not represented by IDSs) of the same series as the notes offered hereby upon an automatic exchange of a portion of the notes offered hereby for a portion of the additional notes. Assuming the underwriters over-allotment option is exercised in full, 46,718,750 IDSs will be sold to the public in connection with this initial public offering and 15,975,214 IDSs will be issued to our existing equity investors in connection with the transactions described in this registration statement under The Transactions. (3) Includes (a) 46,718,750 shares of Class A common stock of Xerium Technologies, Inc. represented by IDSs to be sold to the public in connection with this initial public offering (which includes 6,093,750 shares of Class A common stock represented by IDSs which are subject to the underwriters over-allotment option) and (b) 15,975,214 shares of Class A common stock represented by IDSs to be issued to our existing equity investors in connection with the transactions described in this registration statement under The Transactions. (4) Includes (a) $341,046,875 principal amount of notes represented by IDSs to be sold to the public in connection with this initial public offering (which includes $44,484,375 principal amount of notes represented by IDSs which are subject to the underwriters over-allotment option), (b) $116,619,062 principal amount of notes represented by IDSs to be issued to our existing equity investors in connection with the transactions described in this registration statement under The Transactions, (c) $53,924,067 principal amount of notes sold separately (not represented by IDSs) and (d) an indeterminate principal amount of notes of the same series as the notes offered hereby, which will be received on one or more occasions in the future by holders of notes offered hereby (whether or not represented by IDSs) in the event of a subsequent issuance of IDSs or notes of the same series (not represented by IDSs) upon an automatic exchange of a portion of the notes offered hereby for a portion of the additional notes. (5) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6) Pertains to $1,003,103,424 of IDSs and $53,924,067 principal amount of notes sold separately (not represented by IDSs). (7) $88,690 was previously paid in connection with the initial filing of this Registration Statement on April 22, 2004, and $45,545.22 was previously paid in connection with the filing of Amendment No. 2 on July 9, 2004. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 40,625,000 shares of Class A common stock, or 46,718,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 62,693,964 shares of Class A common stock, which includes shares represented by IDSs issued to our existing equity investors upon completion of this offering. 3,787,760 shares of Class B common stock that, subject to the satisfaction of certain conditions, will be automatically exchanged for IDSs at an initial exchange rate of one IDS for each share of Class B common stock, subject to adjustment in the event of a stock split, recombination or reclassification of our Class B common stock. Except as described below, such exchange will not occur until at or after the second anniversary of the closing of this offering. The conditions to such exchange include financial tests requiring us to have generated Adjusted EBITDA (as defined in the indenture governing our notes) of at least $181 million and excess cash (as defined in the indenture governing the notes) of at least $41.2 million, in each case over the most recent four consecutive fiscal quarters immediately prior to such exchange. The amounts set forth in such financial tests are subject to increase in the event of additional issuances of Class A common stock or Class B common stock following the closing of the offering. Following the fifth anniversary of the closing of the offering, the Adjusted EBITDA and excess cash tests will no longer apply and the exchange will occur subject only to the satisfaction of the other conditions. See Related Party Transactions Investor Rights Agreement. Upon such exchange, the holders of Class B common stock will receive an aggregate of 3,787,760 IDSs. If the IDSs have automatically separated or are otherwise not outstanding at the time of such exchange, each share of Class B will be exchanged for one share of Class A common stock, subject to adjustment in the event of a stock split, recombination or reclassification of our Class A common stock or Class B common stock, and a note having a principal amount equal to each note which was represented by an IDS. In addition, immediately prior to the completion of any transaction after which no notes will remain outstanding, each share of Class B common stock will be automatically exchanged for either one IDS or, if the IDSs have automatically separated or are not otherwise outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS, regardless of when the transaction occurs The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents or whether the other conditions to the exchange are satisfied. See Description of Capital Stock Class B Common Stock. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is subject to automatic exchange for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that we may not issue Class A common stock as long as any IDSs are outstanding unless (i) such shares are issued as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC or (ii) any IDSs that may result from the combination of such shares of Class A common stock and any notes have been issued in a registered transaction. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock rather than retained by us and used to finance other growth opportunities. We currently intend to pay dividends under this policy at an initial annual rate of $0.571 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on December 15, 2004 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed following the completion of this offering and up to such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.14275 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness. Dividend payments are not mandatory or Table of Contents guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $ million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness or with insurance or condemnation proceeds or proceeds from asset sales), and certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension provisions under which we will be prohibited from paying dividends during any interest deferral period, at any time when any deferred interest or interest on deferred interest remains outstanding from a prior interest deferral period. In addition, under the indenture we will be prohibited from paying dividends if our interest coverage ratio falls below specified levels. Under the new credit facility, we must also satisfy senior interest coverage, senior leverage and total leverage tests in order to pay dividends. In addition we will be prohibited from paying dividends if a default or event of default under the indenture or the new credit facility has occurred and is continuing. There is no requirement that we use any excess cash to pay dividends. Dividend payment dates We intend to make dividend payments, if any, quarterly on the 15th day of each March, June, September and December, commencing December 15, 2004, to holders of record on the 5th day of such month or the immediately preceding business day of such month if the 5th day is not a business day. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Listing Our shares of Class A common stock will not initially be listed for separate trading on the New York Stock Exchange or any other exchange or quotation system. If, for a period of 30 consecutive trading days, a sufficient number of shares of Class A common stock is held separately and not in the form of IDSs to satisfy applicable requirements for separate trading on the New York Stock Exchange, we will apply to list the shares of our Class A common stock for separate trading on the New York Stock Exchange. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by affiliates as that term is defined in Rule 144 under the Securities Act. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Notes Issuer Xerium Technologies, Inc. Notes to be outstanding following the offering $511.6 million aggregate principal amount of % notes, which includes $296.6 million aggregate principal amount of notes represented by IDSs sold in this offering, $161.1 million aggregate principal amount of notes represented by IDSs issued to our existing equity investors and $53.9 million aggregate principal amount of notes sold separately in this offering (not represented by IDSs). If the underwriters over-allotment option is exercised, one of the existing equity investors will sell IDSs to the underwriters to cover such overallotment option. Accordingly, if the over-allotment option is exercised in full, the aggregate principal amount of notes represented by IDSs sold in this offering would increase by $44.4 million from $296.6 million to $341.0 million and the aggregate principal amount of notes issued to our existing equity investors would correspondingly decrease from $161.1 million to $116.7 million. Each note will have a principal amount of $7.30. Assuming the exchange of all of our outstanding Class B Common Stock for IDSs, $539.2 million aggregate principal amount of notes will be outstanding Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of each March, June, September, and December of each year commencing December 15, 2004 to holders of record on the 5th day of such month, or the business day immediately following the 5th day if such interest payment date is not a business day. Interest deferral Prior to , 2009, we may, at our election and under specified circumstances described below, defer interest payments on the notes on one or more occasions for up to an aggregate period of eight quarters. In addition, after , 2009, we may, at our election and under specified circumstances described below, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. After the end of any deferral period we will resume paying interest (including interest on deferred interest). No later than , 2009, we must pay in full all interest previously deferred (together with accrued interest thereon). We will repay all interest deferred after , 2009 on or before maturity, provided that we must pay all deferred interest and accrued interest on deferred interest in full prior to deferring interest for a second occasion or paying any dividends on our shares of common stock. Primary Standard Industrial Classification Code Number Table of Contents During any interest deferral period and so long as any deferred interest or accrued interest thereon remains outstanding, we will not be permitted to make any payment of dividends on any class of our common stock. We are only permitted to defer interest payments on the notes if such deferral is reasonably necessary to avoid a default under our senior indebtedness. In addition, we may not commence a deferral, and any on-going deferral will cease, if: a default in payment of principal or premium, if any, on the notes has occurred and is continuing, an event of default with respect to payment of interest on the notes has occurred and is continuing; or another event of default with respect to the notes has occurred and is continuing and the notes have been accelerated as a result of the occurrence of such event of default. For a detailed description of interest deferral provisions of the indenture governing our notes, see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Deferral of Interest. Maturity date The notes will mature on , 2019. Optional redemption The notes will be redeemable, in whole or in part, at our option, at any time on or after , 2011 at the redemption prices set forth in this prospectus, plus accrued but unpaid interest to the date of redemption. If the notes are redeemed in whole or in part, the notes and Class A common stock represented by each IDS will be automatically separated. See Description of Notes Optional Redemption. We may, at our option, redeem all, but not less than all, of the notes if we receive an opinion of nationally recognized tax counsel that we would not be permitted to deduct all or a substantial portion of the interest payable on the notes from our income for U.S. federal income tax purposes, at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, if any, to the redemption date. Other than as set forth above we may not redeem the notes prior to , 2011. Change of control Upon the occurrence of a change of control, as defined under Description of Notes Change of Control, each holder of notes will I.R.S. Employer Identification Number Table of Contents have the right to require us to repurchase that holder s notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. We may not have sufficient financial resources to purchase all of the notes that are tendered upon a change of control offer. Furthermore, our new credit facility, with certain limited exceptions, will prohibit the repurchase or redemption of the notes before their stated maturity. See Risk Factors Risks Related to our Capital Structure We may not be able to repurchase the notes upon a change of control and Description of Notes Change of Control. Guarantees of notes The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned U.S. subsidiaries existing on the closing of this offering and certain of our direct and indirect wholly-owned foreign subsidiaries existing on the closing of this offering, and all our future wholly-owned restricted subsidiaries (other than certain foreign subsidiaries that will not guarantee the notes) that incur indebtedness under our new credit facility. The guarantees will be joint and several. Procedures relating to subsequent issuances The indenture governing our notes will provide that in the event we issue additional notes (whether or not represented by IDSs) with OID, and upon each issuance of notes thereafter, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder s notes, whether or not represented by IDSs, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and automatic exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. The indenture governing the notes will permit issuances of additional notes upon the exercise of the underwriters over-allotment option, in connection with the exchange of Class B common stock for IDSs and, subject to compliance with restrictive covenants contained in the indenture, for other permitted purposes. However, we may not issue additional notes if and for so long as an event of default with respect to the notes has occurred and is continuing. Any subsequent issuance of notes by us may adversely affect the tax treatment of the IDSs and notes. See Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Ranking of notes and guarantees The notes will be unsecured and subordinated obligations, junior in right of payment to all of our existing and future senior indebtedness Huyck Argentina Sociedad Anonima Argentina 2221 Not Applicable Huyck Australia Pty. Ltd Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents and effectively subordinated in right of payment to any future secured indebtedness. The notes will rank pari passu with all of our other indebtedness, including trade payables, except as discussed in Risk Factors Risks Related to our Capital Structure and Description of Notes Ranking. The guarantees will be unsecured and subordinated obligations, junior in right of payment to all existing and future senior indebtedness of our subsidiary guarantors, including all guarantees of our subsidiary guarantors under the new credit facility, and effectively subordinated in right of payment to any future secured indebtedness of our subsidiary guarantors. The guarantees will rank pari passu with all other indebtedness of the subsidiary guarantors, including trade payables, except as discussed in Risk Factors Risks Related to our Capital Structure and Description of Notes Ranking. The notes will be structurally subordinated to all indebtedness of any of our subsidiaries which are not guarantors of the notes. Our non-guarantor subsidiaries accounted for approximately 52% of our net sales in 2003 and, as of December 31, 2003, they held approximately 53% of our total consolidated assets. For the three months ended March 31, 2004, our non-guarantor subsidiaries accounted for approximately 51% of our net sales and, as of March 31, 2004, they held approximately 52% of our total consolidated assets. See Note 17 of the audited consolidated financial statements included elsewhere in this prospectus and Note 12 of the unaudited consolidated financial statements included elsewhere in this prospectus. We are a holding company and derive all of our operating income and cash flows from our subsidiaries. As of March 31, 2004, on a pro forma basis after giving effect to the transactions contemplated by this prospectus: Xerium Technologies, Inc. would have had $210.0 million aggregate principal amount of senior indebtedness outstanding, all of which would have been senior secured indebtedness to which the notes would be junior in right of payment; Xerium Technologies, Inc. would have had $457.7 million aggregate principal amount of indebtedness outstanding (consisting exclusively of the notes); the subsidiary guarantors would have had $60.0 million aggregate principal amount of senior indebtedness outstanding, all of which would have been senior secured indebtedness to which the guarantees of the notes would be junior in right of payment; the subsidiary guarantors would have had $80.5 million aggregate principal amount other indebtedness outstanding, including trade payables, all of which would have ranked pari passu with the guarantees, except as discussed in Risk Factors Risks Related to Capital Structure and Description of Notes Ranking ; and Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated July 23, 2004 40,625,000 Income Deposit Securities (IDSs) Representing 40,625,000 Shares of Class A Common Stock and $296.6 million % Senior Subordinated Notes due 2019 and $53.9 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents our subsidiaries which are not guarantors would have had $175.6 million aggregate principal amount of indebtedness outstanding, including trade payables, to which the notes would be structurally subordinated. In addition, as of March 31, 2004, on a pro forma basis after giving effect to the transactions contemplated by this prospectus, based on the covenants in the indenture and our new credit facility, we would have had the ability to incur an additional $135.0 million aggregate principal amount of indebtedness, all of which could be senior in right of payment to the notes. Shortly after completion of the offering we expect to borrow approximately $40 million under our revolving credit facility to fund the reorganization of a portion of our international operations. Restrictive covenants The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will, among other things, restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; a number of restricted payments, including dividends, investments and acquisitions; specified sales of assets; specified transactions with affiliates; the creation of liens on our assets; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture governing the notes will also prohibit certain distributions from our restricted subsidiaries. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Notes Certain Covenants. Listing We do not anticipate that our notes will be separately listed on any exchange or quotation system. Representation letter None of the notes sold separately (not represented by IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will be asked to make certain representations to us in connection with these restrictions. See Underwriting. This offering consists in part of an offering of 40,625,000 Income Deposit Securities, or IDSs, representing 40,625,000 shares of our Class A common stock and $296.6 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.30 principal amount. We are also offering separately (not represented by IDSs) $53.9 million aggregate principal amount of our % senior subordinated notes due 2019, which, along with the notes represented by IDSs, we refer to as the notes. The completion of the offering of the separate notes is a condition to our sale of IDSs. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.00 and $17.00 and the public offering price of the notes sold separately (not represented by IDSs) will be their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 141. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 35, Description of Notes Additional Notes on page 142, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 191. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM . Our shares of Class A common stock will not initially be listed for separate trading on the New York Stock Exchange or any other exchange or quotation system. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287258_planetout_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287258_planetout_prospectus_summary.txt
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+elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including Risk Factors and our financial statements and the notes to those financial statements appearing elsewhere in this prospectus before making an investment decision. References to PlanetOut, we, us and our refer to PlanetOut Inc. and its subsidiaries. PlanetOut Inc. We are a leading global online media company serving the lesbian, gay, bisexual and transgendered, or LGBT, community, a market with reported buying power of approximately $485 billion annually in the United States alone. Our network of websites, including our flagship websites Gay.com and PlanetOut.com, allows our members, or those visitors who registered on our websites by providing us with a name, e-mail address and other personal data, to connect with other members of the LGBT community around the world. According to Nielsen NetRatings, in June 2004, Gay.com ranked second in terms of average time online per person and sixteenth in terms of visits per person among all websites measured. We generate most of our revenue from subscription fees for premium membership services that we offer in English, French, German, Italian, Portuguese and Spanish to our members who identify themselves as residing in more than 100 countries. We also generate revenue from online advertising and e-commerce targeted to the LGBT community. Our membership base is large and growing. We believe that our base of over 3.3 million active members, or those members who have logged on at least once during the preceding twelve months, constitutes the most extensive network of gay and lesbian people in the world. References to our active members reflect a discount from our raw active membership data to adjust for automated registrations created by third-party software programs, or adbots, based upon management s estimates of historical adbot activity on our websites. In the twelve month period ended June 30, 2004, we registered approximately 2.2 million new members, or approximately 6,000 new member registrations per day. Registration is free and allows access to integrated services, including profile creation and search, chat and instant messaging. By paying a fee, members become subscribers with access to our premium membership services, including advanced search, unlimited access to profiles and photographs, enhanced chat and premium content. Since we introduced our premium membership services in 2001, our subscribers have grown rapidly to approximately 110,000 as of June 30, 2004, with a weighted average monthly subscription fee of approximately $12.50 per subscriber. Although we have incurred net losses in each of the last three fiscal years, these losses have decreased as our subscription base has grown, from a net loss of approximately $16.5 million for the year ended December 31, 2001 to a net loss of approximately $0.8 million for the year ended December 31, 2003. Through our global reach, we believe that we are able to provide advertisers with unparalleled access to the LGBT community. We generate revenue from run-of-site advertising, an advertising option in which advertisements are displayed across all sections of a website or a family of websites, advertising within specialized content channels and on our online-community areas, member-targeted emails and research for our advertisers. We have run advertising campaigns on our network for numerous Fortune 500 and other companies. We also offer our users access to specialized shopping and travel products and services through our e-commerce, or transaction-based, websites that generate revenue through sales of the products and services of interest to the LGBT community. Through Kleptomaniac.com, we offer fashion, video and music products. Through OutandAbout.com, we provide access to premium content targeted to gay and lesbian travelers. 2004 $ 534 2005 65 2006 Table of Contents Our goal is to enhance our position as an LGBT-focused media market leader by connecting, enriching and illuminating the lives of gay and lesbian people worldwide. We intend to achieve this through the following strategies: growing traffic, membership and subscribers by increasing marketing, introducing compelling new features and expanding internationally; increasing our retention of subscribers; capitalizing on the growth of Internet advertising and the increased acceptance of the LGBT market; and leveraging our online reach and relationships with our members to expand into other media, such as print, radio, cable and broadcast programming. We were incorporated in Delaware in December 2000, and we began operations in April 2001 when we acquired all of the outstanding stock of Online Partners.com, Inc. and PlanetOut Corporation. The stockholders of Online Partners.com, Inc. received a majority of our stock in that transaction. Therefore for accounting purposes, we treat the operations and financial results of Online Partners.com, Inc. as our own for periods prior to April 2001. In April 2004, we changed our name from PlanetOut Partners, Inc. to PlanetOut Inc. Our principal executive offices are located at 300 California Street, San Francisco, CA 94104 and our telephone number at that address is (415) 834-6500. Our website can be found at www.planetoutinc.com. Information contained on, or accessed through, our website does not constitute a part of this prospectus. (Unaudited) Redeemable convertible preferred stock 86,748 95,677 102,227 95,677 102,003 Redeemable convertible preferred stock options and warrants 2,409 4,930 3,598 4,632 3,539 Common stock options and warrants 1,086 2,137 1,790 2,160 2,318 Common stock subject to repurchase 11 2 2 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents The Offering Common stock offered by PlanetOut Inc. 4,650,000 shares Shares to be outstanding after the offering 16,481,410 shares Use of proceeds We estimate that our net proceeds from this offering will be approximately $41.6 million. We intend to use these net proceeds for: repayment of approximately $5.0 million of indebtedness under our senior subordinated promissory note, including interest accrued from the date of issue; and general corporate purposes, including working capital, capital expenditures and, potentially, for the acquisition of complementary businesses, products or technologies. See Use of Proceeds.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287503_ecost-com_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287503_ecost-com_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287808_hill_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287808_hill_prospectus_summary.txt
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+++ b/parsed_sections/prospectus_summary/2004/CIK0001287808_hill_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to Arpeggio Acquisition Corporation. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Additionally, unless we tell you otherwise, the information in this prospectus has been adjusted to give retroactive effect to a 1.2-to-one forward stock split effected on May 25, 2004. We are a blank check company organized under the laws of the State of Delaware on April 2, 2004. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. To date, our efforts have been limited to organizational activities. Our efforts in identifying a prospective target business will not be limited to a particular industry. Instead, we intend to focus on various industries and target businesses in both the United States and Canada that may provide significant opportunities for growth. We believe that in addition to the United States, Canada represents both a favorable environment for making acquisitions and an attractive operating environment for a target business for several reasons, including a lack of competition for business combinations compared to the United States, the immaturity of the Canadian private equity market compared to the United States, attractive valuations for target businesses and strong economic factors such as low inflation and interest rates. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 10 East 53rd Street, 36th Floor, New York, New York 10022 and our telephone number is (212) 319-7676. <TABLE> <CAPTION> <S> <C> THE OFFERING Securities offered:.................................. 6,000,000 units, at $6.00 per unit, each unit consisting of: o one share of common stock; and o two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital determines that an earlier date is acceptable. In no event will EarlyBirdCapital allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering........... 1,500,000 shares Number to be outstanding after this offering...... 7,500,000 shares Warrants: Number outstanding before this offering........... 0 Number to be outstanding after this offering...... 12,000,000 warrants Exercisability.................................... Each warrant is exercisable for one share of common stock Exercise price.................................... $5.00 Exercise period................................... The warrants will become exercisable on the later of: o the completion of a business combination with a target business, or o [________], 2005 [ONE YEAR FROM THE DATE OF THIS PROSPECTUS]. The warrants will expire at 5:00 p.m., New York City time, on [________], 2008 [FOUR YEARS FROM THE DATE OF THIS PROSPECTUS] or earlier upon redemption. Redemption........................................ We may redeem the outstanding warrants: o in whole and not in part, o at a price of $.01 per warrant at any time after the warrants become exercisable, o upon a minimum of 30 days' prior written notice of redemption, and o if, and only if, the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our:......... Units............................................. [______] Common stock...................................... [______] Warrants.......................................... [______] Offering proceeds to be held in trust:............... $30,840,000 of the proceeds of this offering ($5.14 per unit) will be placed in a trust fund at JPMorgan Chase NY Bank maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the date of this prospectus. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $1,420,000). None of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination:...... We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the majority of the shares of common stock voted by the public stockholders. We will proceed with a business combination only if a majority of the shares of common stock voted by the public stockholders are voted in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination:................................ Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination:.............. We will dissolve and promptly distribute only to our public stockholders the amount in our trust fund plus any remaining net assets if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Escrow of management shares:......................... On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they owned before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be transferable during the escrow period and will not be released from escrow until [________], 2007 [THREE YEARS FROM THE DATE OF THIS PROSPECTUS]. RISKS In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should also note that our financial statements contain a statement indicating that our ability to continue as a going concern is dependent on us raising funds in this offering. You should carefully consider these and the other risks set forth in the section entitled "Risk Factors" beginning on page 8 of this prospectus. </TABLE>
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287868_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287868_ecca_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
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@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287869_eye-care_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287869_eye-care_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
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@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287870_enclave_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287870_enclave_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287870_enclave_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287872_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287872_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
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@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287874_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287874_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
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@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287875_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287875_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
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@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287876_eyemasters_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287876_eyemasters_prospectus_summary.txt
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index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287876_eyemasters_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287878_eyemasters_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287878_eyemasters_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287878_eyemasters_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287880_stein_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287880_stein_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287880_stein_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287881_vision_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287881_vision_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287881_vision_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287882_eye-drx_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287882_eye-drx_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287882_eye-drx_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287885_metropolit_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287885_metropolit_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287885_metropolit_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287886_hour-eyes_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287886_hour-eyes_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287886_hour-eyes_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287888_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287888_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287888_ecca_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287889_eyemasters_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287889_eyemasters_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287889_eyemasters_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287890_visionary_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287890_visionary_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287890_visionary_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287891_visionary_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287891_visionary_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287891_visionary_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287892_eyemasters_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287892_eyemasters_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287892_eyemasters_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287894_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287894_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287894_ecca_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287898_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287898_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287898_ecca_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287901_visionary_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287901_visionary_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287901_visionary_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287905_visionary_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287905_visionary_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287905_visionary_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287906_ecca_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287906_ecca_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287906_ecca_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287907_visionary_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287907_visionary_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..190eebe79e1d179e7d798a0b753e2b12d582b146
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287907_visionary_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1 Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001287957_windsor_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001287957_windsor_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a1f3e47c2af3f5be6bc3401dbc822f6821adba63
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001287957_windsor_prospectus_summary.txt
@@ -0,0 +1 @@
+Prospectus Summary 1
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001288351_blountsvil_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001288351_blountsvil_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cf7fa9a0945562ebc86008b6140f661623ee02d4
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001288351_blountsvil_prospectus_summary.txt
@@ -0,0 +1 @@
+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+S-1/A Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes (not in the form of IDSs) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, the disclosure contained in this prospectus assumes the underwriters' over-allotment option has not been exercised. Our Company Overview We are the sole wireline telephone services provider in several rural communities in Alabama and Missouri. Our services include local telephone, network access, long distance, Internet access, cable television and other telephone related services. Our core businesses of providing local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network generated approximately 77.9% and 77.1% of our pro forma revenue for the nine months ended September 30, 2004 and the year ended December 31, 2003, respectively. As of September 30, 2004, we operated approximately 36,500 access lines, cable modems and digital subscriber lines, or DSL, which we collectively refer to as access line equivalents, which we believe places us among the top 50 largest local exchange carriers in the United States based on number of access line equivalents. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Access Line and Customer Trends" for a discussion of our access line trends. For the nine months ended September 30, 2004 and the year ended December 31, 2003, we had pro forma revenues of approximately $35.8 million and $44.9 million, respectively. As of September 30, 2004, on a pro forma basis without giving effect to this offering, we had long-term notes payable of approximately $94.5 million and upon completion of this offering we expect to have total indebtedness of approximately $161.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Impact of this Offering on our Results of Operations and Liquidity" and " Liquidity and Capital Resources" for a discussion of our indebtedness. We operate five incumbent telephone companies serving rural markets, or rural local exchange carriers, each of which can trace its history as a local telecommunications provider as far back as the early 1900s. We are able to leverage our long-standing relationship with our local service customers by offering them a broad suite of other telecommunications and information services, such as long distance, Internet access and cable television, thereby increasing customer loyalty and average revenue per access line. Our average monthly revenue per access line has increased from $91.41 to $101.45 from 2001 to 2003 and to $104.28 for the nine months ended September 30, 2004. Our rural local exchange carriers have generally experienced stable operating results and strong cash flows and operate in supportive regulatory environments. Each of our rural local exchange carriers qualifies as a "rural telephone company" under the federal Communications Act of 1934, as amended, or the Communications Act, so we are currently exempt from certain costly interconnection requirements imposed on incumbent or "historical" local telephone companies, or incumbent local exchange carriers, by the Communications Act. This exemption helps us maintain our strong competitive position. Competition is typically limited because rural local exchange carriers primarily serve low customer density communities with predominantly residential customers, and the cost of operations and capital investment requirements for new entrants is high. Our Strengths Consistent and Predictable Cash Flows. We maintain a recurring revenue stream and stable and predictable cash flows as a result of (i) our established and loyal customer base, which consists primarily of residential customers, (ii) the near-essential nature of telephone services and (iii) the absence of wireline telephone competition in our rural local exchange carrier territories. Our cash flows provided by operating activities were $17.1 million for each of the years ended December 31, 2003 and 2002. Modest Capital Expenditure Requirements. We have made significant capital expenditures to upgrade our telephone, cable and Internet networks over the past five years. Due to these investments, we expect that capital expenditures required to maintain our existing networks will be modest and lower than in the past. Sole Provider of Integrated Services. We believe we are the only telecommunications service provider in our markets offering an integrated package consisting of local telephone, long distance, Internet access and, in certain markets, cable television, as well as a variety of enhanced features such as caller identification, call waiting, call forwarding and voicemail. Experienced Management Team. We are led by an experienced senior management team, the members of which have an average of more than 20 years of telecommunications industry experience. Our management team has successfully integrated four acquisitions since 1999, improving revenues and cash flow significantly while enhancing service quality and broadening service offerings. Our Strategy Cross-Sell Additional Services and Introduce New Services. We will continue to focus on increasing our average revenue per access line through cross-selling additional services to our existing local telephone customers and offering new services to meet our customers' growing needs. Continue to Improve Operating Efficiencies and Profitability. We have achieved significant efficiencies as a result of our operating, regulatory and management expertise. We intend to continue to improve our operating efficiencies by consolidating various administrative functions at Mid-Missouri Holding Corp., or Mid-Missouri Holding, and implementing best practices across our company. Increase Customer Loyalty and Brand Identity. We believe that our local presence allows us to provide consistent and exceptional customer service that leads to high levels of customer satisfaction and greater demand for our services, thus strengthening our brand identity and customer loyalty. Expand Through Strategic Acquisitions. Since January 1999, we have acquired four rural local exchange carrier businesses, and immediately prior to the closing of this offering, will acquire Mid-Missouri Holding. We intend to pursue selective strategic mergers or acquisitions, primarily with rural local exchange carriers that are proximate, though not necessarily contiguous, to our current territories, or which serve a customer base large enough for us to realize operational efficiencies or other strategic benefits. Actions to Occur in Connection with this Offering New Credit Facility. Concurrent with the closing of this offering, we will enter into a new senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "new credit facility." CIBC World Markets Corp. will act as sole lead arranger in connection with the new credit facility in which capacity it will assist us with the structuring and allocation of the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $15.0 million and a senior secured term loan in an aggregate principal amount of $80.0 million. The revolving credit facility and the term loan will each have a five year maturity. CIBC is also acting as a joint book-running manager of this offering. The closing of this offering is conditioned upon the closing of the new credit facility. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Our Conversion. Prior to the closing of this offering, we will convert from a Delaware limited liability company to a Delaware corporation and change our name to Otelco Inc., which we refer to as our conversion. All 2,512,699.41 of the outstanding membership interests of Rural LEC Acquisition LLC will convert to a combination of IDSs and shares of Class B common stock, par value $0.01 per share, of Otelco Inc. based on a conversion ratio of 3.10570 IDSs and 0.20349 shares of Class B common stock for each membership interest of Rural LEC Acquisition LLC. The membership interests of Rural LEC Acquisition LLC are held by our financial sponsors and their affiliates and certain of our officers. In addition, affiliates of certain of the underwriters in this offering own a percentage of funds managed by one of our financial sponsors. See "Principal and Selling Stockholders" and "Underwriting." Unless otherwise specifically stated, the information in this prospectus assumes this conversion has occurred. In general, beginning on the second anniversary of the closing of this offering, and subject to a financial test and other conditions, each share of Class B common stock will be exchangeable at the holder's option for one IDS registered under the Securities Act of 1933. See "Related Party Transactions Investor Rights Agreement." No additional consideration will be paid by such holders for the senior subordinated notes that form part of the IDSs. The conversion was structured to include both IDSs and shares of Class B common stock to strengthen the positions regarding the tax treatment of the IDSs. All outstanding options to acquire membership interests in Rural LEC Acquisition LLC will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. We expect to record compensation expense of approximately $0.4 million in connection with the vesting of the remaining options in applying variable accounting under Accounting Principles Board Opinion No. 25 ("APB 25"). The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that a holder would have received in the conversion had the holder exercised the option on a "cashless basis." Certain of our officers and one of our directors hold options that will be exchanged for IDSs and shares of Class B common stock. See "Management Director and Executive Compensation." No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. Acquisition of Mid-Missouri Holding. Prior to the closing of this offering, we will acquire Mid-Missouri Holding from Mid-Missouri Parent, LLC, which is an affiliate of certain of our existing equity investors. As a result of the acquisition, Mid-Missouri Holding will become a wholly owned subsidiary of ours and will guarantee the senior subordinated notes and borrowings under the new credit facility. All outstanding options to acquire shares of Mid-Missouri Holding common stock will vest and immediately prior to the closing of this offering, each holder of outstanding options will exchange those options for a combination of IDSs and shares of Class B common stock. No additional consideration will be paid by holders of outstanding options for the senior subordinated notes that form part of the IDSs. The number of IDSs and shares of Class B common stock to be received upon exchange of each outstanding option will be equal to the number of IDSs and shares of Class B common stock that the holder would have received in the merger had the holder exercised the option on a "cashless basis." Certain of Mid-Missouri Holding's officers hold options to acquire shares of Mid-Missouri Holding common stock that will be exchanged for IDSs and shares of Class B common stock. The stockholders of Mid-Missouri Holding immediately prior to the consummation of the acquisition will receive an aggregate of 850,750 IDSs and 55,744 shares of Class B common stock as consideration for their shares of Mid-Missouri Holding, using an exchange ratio of 0.14036 IDSs and 0.00920 shares of Class B common stock for each share of common stock of Mid-Missouri Holding. Mid-Missouri Holding is currently the sole stockholder of Mid-Missouri Telephone Company, or Mid-Missouri Telephone, a rural local exchange carrier based in central Missouri, which at September 30, 2004 operated approximately 4,300 access line equivalents. Although Mid-Missouri Holding will guarantee our obligations under the senior subordinated notes and the new credit facility, because of regulatory requirements in Missouri relating to the pledge of the capital stock of a telephone operating company Amendment No. 6 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 and the ability of a telephone operating company to guarantee debt, the stock of Mid-Missouri Telephone will not be pledged to secure the obligations under the senior subordinated notes and Mid- Missouri Telephone will not guarantee the senior subordinated notes or borrowings under the new credit facility. Unless otherwise specifically stated herein, the information in this prospectus, other than financial information, assumes this acquisition has occurred and the pro forma financial information in this prospectus assumes this acquisition occurred as of the respective period presented, for balance sheet information, and on the first day of the respective period presented, for income statement information. See "Selected Unaudited Pro Forma Consolidated Financial Information." The respective boards of directors of each of Rural LEC Acquisition LLC, Mid-Missouri Parent, LLC and Mid-Missouri Holding agreed that Mid-Missouri Holding's equity owners would own approximately 9.6% of the combined entity, Otelco Inc., consisting of Rural LEC Acquisition LLC and Mid-Missouri Holding immediately prior to this offering. This percentage ownership approach was the basis for the consideration and conclusions by the respective boards of directors of Rural LEC Acquisition LLC, Mid-Missouri Holding and Mid-Missouri Parent LLC. None of the boards assigned a dollar value to Mid-Missouri Holding. Class B common stock. The Class B common stock to be issued in connection with our conversion and the acquisition of Mid-Missouri Holding will be exchangeable, at the holder's option and subject to a financial test and other conditions, into IDSs, registered under the Securities Act, at an initial exchange rate of one-to-one (subject to certain adjustments). Only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions. Otherwise, the Class B common stock will have the same rights, preferences and privileges as the Class A common stock. See "Related Party Transactions Investor Rights Agreement," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." Repurchase of Class B common stock and IDSs. Concurrently with this offering, we will repurchase and retire an aggregate of 11,941 shares of Class B common stock and 65,727 IDSs to be issued in connection with the exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock. We will repurchase a portion of the IDSs and all of the shares of the Class B common stock issued in connection with such option exchanges with management of Rural LEC Acquisition LLC and Mid-Missouri Holding in an amount necessary to satisfy the tax liability incurred by such option holders in connection with such option exchanges. All of the IDSs will be repurchased at the public offering price set forth on the cover page of this prospectus less the applicable underwriting discount. All of the Class B common stock will be repurchased at the same price as the IDSs. See "Principal and Selling Stockholders" and "Related Party Transactions Repurchase of Class B common stock and IDSs." Use of Proceeds Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus) and that the initial public offering price of the senior subordinated notes (not in the form of IDSs) will be 100% of the stated principal amount, we estimate that we will receive net proceeds from this offering of approximately $22.3 million before deducting underwriting discounts and commissions and that our existing equity investors will receive net proceeds of $117.3 million. We will use our net proceeds from this offering, together with $5.3 million of cash on hand and $80.0 million from the senior secured term loan under our new credit facility, as follows: approximately $94.5 million to repay in full our existing long-term notes payable; approximately $4.4 million to purchase an interest rate cap in connection with the floating rate borrowings under our new credit facility; Long-term notes payable, net of current portion 69,266,576 69,266,576 15,428,400 84,694,976 (84,694,976 ) 10 0 New credit facility 80,000,000 8 80,000,000 % Senior Subordinated Notes due 2019 60,214,678 1 60,214,678 6,397,640 3 66,612,318 6,472,141 5 72,590,192 (494,267 ) 6 % Senior Subordinated Notes due 2019 held separately 8,500,000 9 8,500,000 Derivative liability 2,654,729 1 2,654,729 282,065 3 2,936,794 (60,421 ) 6 2,876,372 Class B common convertible to senior subordinated notes 3,089,802 1 3,089,802 328,291 3 3,418,093 (70,324 ) 6 3,347,769 Members' equity Common stock 60,040 (60,040 ) 3 Membership units 39,000,010 (39,000,010 ) 1 Class A stock, $.01 par value 80,073 1 80,073 8,508 3 88,580 8,607 5 96,530 (657 ) 6 Class B stock, $.01 par value 5,247 1 5,247 557 3 5,804 (119 ) 6 5,685 Additional paid-in capital 39,000,010 1 0 7,768,908 3 7,633,767 7,289,765 5 13,785,254 (80,073 ) 1 (282,065 ) 3 206,083 6 (5,247 ) 1 146,923 4 (595,940 ) 11 (36,244,449 ) 1 (557,365 ) 7 (3,089,802 ) 1 (191,056 ) 7 419,560 2 Treasury stock (11,645 ) 11,645 3 Treasury stock Class A (557,365 ) 6 0 557,365 7 Treasury stock Class B (191,056 ) 6 0 191,056 7 Paid in capital 5,951,605 (5,951,605 ) 3 Retained earnings 21,164,992 (23,970,229 ) 1 (5,879,526 ) 4,405,161 (4,405,161 ) 3 (6,026,449 ) (988,241 ) 13 (9,716,507 ) (2,654,729 ) 1 (2,701,816 ) 11 (419,560 ) 2 (146,923 ) approximately $1.2 million to repurchase shares of Class B common stock and IDSs issued upon exchange of the options with respect to Rural LEC Acquisition LLC's membership interests and Mid-Missouri Holding's common stock; and approximately $7.5 million to pay fees and expenses. We will not receive any of the $117.3 million of proceeds from the sale of IDSs offered hereby by our existing equity investors. The selling stockholders are deemed to be underwriters in this offering. Certain of our existing equity investors have granted the underwriters an option to purchase from them up to 865,940 additional IDSs, at the public offering price, solely to cover over-allotments in this offering. We will not receive any of the proceeds from the exercise of the underwriters' over-allotment option. Land $ 551,991 $ 653,434 Building and improvements 20-40 4,481,840 5,465,529 Telephone equipment 6-20 48,039,375 62,027,949 Cable television equipment 7 4,426,578 4,908,938 Furniture and equipment 8-14 876,532 1,076,144 Vehicles 7-9 1,707,924 2,568,176 Computer hardware and software 5-7 2,080,967 2,628,578 Internet equipment 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (For Co-Registrants, please see "Table of Additional Registrant Guarantors") Michael D. Weaver President and Chief Executive Officer Rural LEC Acquisition LLC 505 Third Avenue East Oneonta, Alabama 35121 (205) 625-3574 (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Our Corporate Information Our principal executive office is located at 505 Third Avenue East, Oneonta, Alabama 35121, and our telephone number is (205) 625-3574. Our Internet address is www.otelco.net. www.otelco.net is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Customer Base Internet $ 1,200,000 10 Customer Base Long Distance 600,000 With copies to: Richard A. Boehmer, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, California 90071 (213) 430-6643 Richard L. Muglia, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3710 The Offering Summary of the IDSs This is an offering of: 8,659,000 IDSs, representing 8,659,000 shares of Class A common stock and $65,115,680 aggregate principal amount of senior subordinated notes, at an assumed initial public offering price of $16.00 per IDS (comprised of $8.48 allocated per share of Class A common stock and $7.52 allocated per senior subordinated note), which represents the midpoint of the range set forth on the cover page of this prospectus; and $8,500,000 aggregate principal amount of senior subordinated notes sold separately (not in the form of IDSs). The IDSs offered hereby are comprised of 860,657 shares of Class A common stock and $6,472,141 aggregate principal amount of senior subordinated notes to be sold by us, and 7,798,343 shares of Class A common stock and $58,643,539 aggregate principal amount of senior subordinated notes to be sold by our existing equity investors. If the underwriters' over-allotment option is exercised in full, certain of our existing equity investors will sell an additional 865,940 IDSs. The $8,500,000 aggregate principal amount of senior subordinated notes offered separately (not in the form of IDSs) is being offered by us. The offering of IDSs and the separate offering of senior subordinated notes (not in the form of IDSs) are conditioned upon each other and the closing of this offering is conditioned upon the closing of the new credit facility. In addition, none of the senior subordinated notes sold separately (not in the form of IDSs) are to be purchased in connection with this offering, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving shares of Class B common stock in connection with our conversion or our acquisition of Mid-Missouri Holding. The aggregate principal amount of the senior subordinated notes sold separately (not in the form of IDSs) will represent at least 10% of the aggregate principal amount of senior subordinated notes outstanding immediately following this offering. Interest payments on the senior subordinated notes may be deferred under certain circumstances and dividends on the Class A common stock are payable at the discretion of our board of directors and only as permitted by applicable law and the terms of the agreements governing our indebtedness. What are IDSs? IDSs are securities consisting of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $7.52 principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by the dividend policy we will adopt upon the closing of this offering, for the first full year following completion of this offering you will receive in the aggregate approximately $1.68 in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $0.9776 per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the senior subordinated notes and in our new credit facility, including the failure to meet certain financial tests specified in our new credit facility, to defer interest payments on our senior subordinated notes. For a detailed description of these circumstances, see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation, the terms of the new credit facility, the indenture governing our senior subordinated notes and any other then outstanding indebtedness of ours. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments." In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policy and Restrictions" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our certificate of incorporation, and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the global notes and guarantees. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, or the Canadian Depository for Securities Ltd., or CDS, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC or CDS, as applicable. Will the terms of the senior subordinated notes represented by IDSs be the same as the senior subordinated notes sold separately (not in the form of IDSs)? Yes. The terms of the senior subordinated notes sold separately (not in the form of IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of senior subordinated notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Do I have voting rights as a holder of IDSs? Yes. As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. Shares of our Class A common stock and Class B common stock are entitled to one vote per share and vote together as a single class on all matters with respect to which holders are entitled to vote. Our existing equity investors, through their ownership of shares of Class A and Class B common stock, will hold 15.3% of the voting power of our common equity outstanding immediately following this offering. Will the IDSs be listed on an exchange? The IDSs have been approved for listing on the American Stock Exchange under the trading symbol "OTT," subject to official notice of issuance. In addition, we have applied to list the IDSs on the Toronto Stock Exchange under the trading symbol "OTT.un." Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We will apply to list the shares of our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We cannot assure you that our Class A common stock will trade on the Toronto Stock Exchange or any other exchange or that our senior subordinated notes will trade separately from the IDSs on any exchange. We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under the applicable Canadian provincial and territorial securities laws. Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. We do not believe that there are any material differences from being a registered holder of IDSs and holding IDSs in book-entry form. However, a holder of Class A common stock, including a holder of an IDS that requests that IDSs be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Until such request is made, you must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Similarly, any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption or maturity of any senior subordinated notes or upon a payment default on the senior subordinated notes continuing for 90 days. A holder of IDSs that purchases in this offering or in a subsequent offering may choose to separate such IDSs in order to sell either the Class A common stock or senior subordinated notes represented by such IDSs and an investor that purchases Class A common stock and separate senior subordinated notes may choose to recombine such securities to form IDSs, for which there will be a public trading market. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs Book-Entry Settlement and Clearance Separation and recombination." Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes, upon a payment default on the senior subordinated notes continuing for 90 days or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series. Additional IDSs or senior subordinated notes will have terms that are identical to those of the IDSs or senior subordinated notes, respectively, being sold in this offering, except that: if additional IDSs are issued 45 days or more after the closing of this offering, they will be immediately separable into shares of Class A common stock and senior subordinated notes represented by such IDSs, whereas the IDSs issued in this offering are not separable for 45 days after the closing of this offering; and Income Deposit Securities (IDSs)(2) $ $ if additional IDSs are issued less than 45 days after the closing of this offering, they will become separable on the same date as the IDSs issued in this offering. If we issue senior subordinated notes (whether or not in the form of IDSs) in the future and these senior subordinated notes are sold with original issue discount, or OID, for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter), holders of our senior subordinated notes outstanding prior to such issuance and purchasers of the newly issued senior subordinated notes will automatically exchange among themselves a portion of the senior subordinated notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new senior subordinated notes and the old senior subordinated notes. In addition to the senior subordinated notes offered hereby, the registration statement of which this prospectus is a part also registers the senior subordinated notes and new IDSs to be issued to you upon any subsequent issuance. The automatic exchange has been structured this way to ensure fungibility of the new senior subordinated notes and the old senior subordinated notes. The automatic exchange provisions ensure that the IDSs and senior subordinated notes offered in this offering can be fungible with IDSs and senior subordinated notes offered in the future and accordingly, can trade in the same trading market. The ability to issue fungible securities in the future allows for an expansion of the public float, which could increase liquidity in the trading market and facilitate our ability to conduct future financings into an existing market. Accordingly, the aggregate amount of new senior subordinated notes and old senior subordinated notes held by any holder prior to the exchange will be the same as such holder holds subsequent to the exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See "Description of IDSs Book-Entry Settlement and Clearance Procedures relating to subsequent issuances." The automatic exchange has been structured in this manner to promote and increase the fungibility and liquidity of our senior subordinated notes and IDSs upon the occurrence of any such subsequent issuances. Other than the fact that the holders will receive senior subordinated notes with OID, which may have adverse tax consequences and may affect such holders' ability to collect the full stated principal amount prior to maturity, we do not believe that the automatic exchange described above will affect the underlying economics of your investment in our IDSs or senior subordinated notes sold separately (not represented by IDSs), as the case may be. For a description of the tax and economic impact of OID in connection with a subsequent issuance of senior subordinated notes, see "Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and Senior Subordinated Notes Represented by the IDSs and the Senior Subordinated Notes Offered Separately (not in the form of IDSs) Subsequent issuances of senior subordinated notes may cause you to recognize taxable gain and/or original issue discount and may reduce your recovery in the event of bankruptcy." This automatic exchange will not impair the rights any holder might otherwise have to assert a claim under applicable securities laws, against us or the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. Our counsel, O'Melveny & Myers LLP, is of the opinion that purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A Property and equipment, net 36,216,766 36,216,766 12,900,026 49,116,792 49,116,792 Goodwill 101,903,148 101,903,148 16,395,404 2,298,743 3 120,597,295 120,597,295 Intangible assets, net 321,424 321,424 1,800,000 3 2,121,424 2,121,424 Investments 1,326,958 1,326,958 30,833 1,357,791 1,357,791 Deferred IPO costs 832,308 832,308 15,039 847,347 847,347 Deferred financing costs 828,755 828,755 159,486 988,241 (988,241 ) 13 4,258,475 4,258,475 11 Other 4,400,000 Class A Common Stock, par value $0.01 per share(3) common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. Assuming an initial public offering price of $16.00 per IDS (the midpoint of the range set forth on the cover page of this prospectus), we will report the initial fair market value of each share of Class A common stock as $8.48 and the initial fair market value of each $7.52 principal amount of senior subordinated notes as $7.52, and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Our counsel is of the opinion that under U.S. federal income tax laws senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding taxes at rates of up to 30% if the senior subordinated notes were treated as equity. Payments to foreign holders would not be grossed-up on account of any such taxes. It is the opinion of our counsel that if we elect to defer the payment of interest on the senior subordinated notes, you would incur OID income. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID upon a subsequent offering by us of IDSs or upon the issuance of senior subordinated notes following an automatic exchange with purchasers of our Class B common stock from our existing equity investors are not entirely clear, and accordingly, our counsel is unable to opine on those consequences. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and these senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical (other than issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes results in a taxable exchange for United States federal income tax purposes, and it % Senior Subordinated Notes due 2019(4) is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Even if the exchange were not treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder's reporting of OID on its tax returns. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material United States Federal Income Tax Considerations." What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and senior subordinated notes like the IDSs. Any accounting treatment utilized by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standards Board, the Emerging Issues Task Force or the SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Additional Critical Accounting Policies and Estimates Related to IDSs and Class B Common Stock." Subsidiary Guarantees of % Senior Subordinated Notes due 2019(5) Summary of the Common Stock Issuer Otelco Inc. Shares of Class A common stock represented by IDSs being offered to the public by us 860,657 shares. by our existing equity investors 7,798,343 shares, or 8,664,283 shares if the underwriters' over-allotment option is exercised in full. Shares of common stock to be outstanding following the offering and the use of proceeds therefrom 9,652,951 shares of Class A common stock and 568,453 shares of Class B common stock. Common Stock We have 20,000,000 shares of authorized Class A common stock, par value $0.01 per share, and 800,000 shares of authorized Class B common stock, par value $0.01 per share. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and entitled to receive dividends and other distributions, as more fully described in "Dividend Policy and Restrictions," "Description of Capital Stock Class A Common Stock" and "Description of Capital Stock Class B Common Stock." In addition, we will enter into an agreement with holders of our Class B common stock that provides that, beginning on the second anniversary of the closing of this offering, and subject to a financial test relating to our Adjusted EBITDA (as such term is defined in the indenture governing our senior subordinated notes) that will no longer apply following the fifth anniversary of the closing of this offering and other conditions, at the option of such holders we will automatically exchange one IDS for each share of Class B common stock, subject to compliance with law and applicable agreements more fully described in "Related Party Transactions Investor Rights Agreement." Furthermore, our third amended and restated by-laws, or by-laws, provide that we may only issue additional shares of Class A common stock as part of IDSs. Unless the context otherwise requires, references to our "common stock" throughout this prospectus refer to our Class A common stock and Class B common stock. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Dividends You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law, our certificate of incorporation and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policy and Restrictions," "Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments" and "Description of New Credit Facility Interest Deferral/Dividend Suspension." Upon the closing of this offering, our board of directors will adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $0.7024 per share of our Class A common stock for the first full year following completion of this offering. However, our board of directors may, in its discretion, modify or repeal this dividend policy at any time. We cannot assure you that we will pay dividends at this level in the future or at all. Total $190,000,000 $24,073(6) Our certificate of incorporation prevents the payment of any dividends, whether in cash or in property, on shares of our Class B common stock. Dividend payment dates If declared, dividends on our Class A common stock will be paid quarterly on March 30, June 30, September 30 and December 30 of each year. Listing We have applied to list our Class A common stock on the Toronto Stock Exchange under the trading symbol "OTT." We currently do not expect an active trading market for our Class A common stock to develop. In addition, we will use our commercially reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Within 30 days after the maturity or redemption of the senior subordinated notes, we will use our commercially reasonable efforts to list or quote the outstanding shares of our Class A common stock on the securities exchange(s) or automated securities quotation system(s), if any, on which the IDSs then are listed or quoted, in addition to any other securities exchange on which the Class A common stock is then listed. The shares of Class A common stock offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by "affiliates" as that term is defined in Rule 144 under the Securities Act, and under the securities legislation in all the provinces (other than the province of Quebec) and territories of Canada, subject to "control person" distribution rules under applicable Canadian provincial and territorial securities laws. (1)Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933. (2)The IDSs represent 9,524,940 underlying shares of the Class A common stock and $71,627,549 aggregate principal amount of underlying % senior subordinated notes of the Registrant. Includes IDSs subject to the underwriters' over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes as discussed in note (4) below. (3)Represents 9,524,940 shares of the Registrant's Class A common stock included in the IDSs described in note (2) above. (4)Includes $71,627,549 aggregate principal amount of the Registrant's % senior subordinated notes included in the IDSs described in note (2) above and $8,500,000 aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not in the form of IDSs). Also includes an indeterminate principal amount of notes of the same series as the senior subordinated notes which may be received by holders of the senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional notes. (5)Each of the subsidiary guarantors listed in the Table of Additional Registrant Guarantors on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that may be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. (6)Previously paid. Summary of the Senior Subordinated Notes Issuer Otelco Inc. Senior subordinated notes represented by IDSs being offered to the public by us $6,472,141 aggregate principal amount of % senior subordinated notes. by our existing equity investors $58,643,539 aggregate principal amount of % senior subordinated notes, or $65,155,408 aggregate principal amount of % senior subordinated notes if the underwriters' over-allotment option to purchase IDSs is exercised in full. Senior subordinated notes being offered to the public separately (not in the form of IDSs) $8,500,000 aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $81,090,192 aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 of each year to holders of record on the preceding March 15, June 15, September 15 and December 15, respectively, commencing March 30, 2005. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to an aggregate period of eight quarters. We will repay all interest deferred prior to , 2009, including interest accrued on deferred interest, on , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on four occasions for not more than an aggregate of two quarters on each occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock. For a detailed description of interest deferral provisions of the indenture see "Description of Senior Subordinated Notes Maturity and Interest Interest Deferral." The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Our new credit facility will require that we defer interest on our senior subordinated notes if we fail to meet certain financial tests and other specified conditions so long as we are permitted to defer interest payments under the indenture. See "Description of New Credit Facility Interest Deferral/Dividend Suspension." In the event that interest payments on the senior subordinated notes are deferred, you would be required to continue to include the yield on the senior subordinated notes in your income for United States federal income tax purposes as it accrues, even if you do not receive any cash interest payments. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Stated Interest; Deferral of Interest." In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem the senior subordinated notes on the terms set forth in the indenture governing the senior subordinated notes. If the senior subordinated notes are redeemed in whole or in part, the senior subordinated notes and Class A common stock represented by each IDS will be automatically separated and may not be subsequently recombined to form IDSs. See "Description of Senior Subordinated Notes Optional Redemption." Change of control Upon the occurrence of a change of control, as defined under "Description of Senior Subordinated Notes Change of Control," each holder of senior subordinated notes will have the right to require us to repurchase that holder's senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally, fully and unconditionally guaranteed by all our subsidiaries on the closing date of this offering, other than Mid-Missouri Telephone, on a senior subordinated basis on the terms set forth in the indenture. All guarantors of the senior subordinated notes will be guarantors of our new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event there is a subsequent issuance of senior subordinated notes (whether or not in the form of IDSs) and the senior subordinated notes are sold with OID for U.S. federal income tax purposes (and any subsequent issuance of senior subordinated notes thereafter) having terms that are otherwise identical to the senior subordinated notes (except for the issuance date) in connection with the issuance by us of additional IDSs, including any issuance of IDSs in exchange for shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder's senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and our records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See "Material United States Federal Income Tax Considerations Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances." Ranking of senior subordinated notes and guarantees We are a holding company that derives our operating income and cash flow from our subsidiaries. The senior subordinated notes will be our and any guarantor's unsecured senior subordinated indebtedness, and will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all our and any guarantor's existing and future senior subordinated indebtedness and trade payables except that the contractual subordination provided in the indenture governing the senior subordinated notes may have the effect of causing the holders of the senior subordinated notes to receive less, ratably, than other creditors that are not subject to contractual subordination, and except for statutory priorities provided under the U.S. federal bankruptcy code or other applicable bankruptcy, insolvency and other laws dealing with creditors rights generally. The senior subordinated notes will be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness. The senior subordinated notes will also be effectively subordinated to all existing and future indebtedness of our subsidiaries that do not guarantee the senior subordinated notes. The indenture governing the senior subordinated notes will permit us and our subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis as of September 30, 2004: we and the subsidiary guarantors would have had no senior or pari passu indebtedness outstanding except for the new credit facility, as described below; and we and the subsidiary guarantors would have had $80.0 million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. However, there will be no restriction in the indenture on our ability to incur indebtedness in connection with the issuance of additional IDSs so long as the ratio of the aggregate principal amount of the additional senior subordinated notes to the number of the additional shares of Class A common stock will not exceed the equivalent ratio represented by the then existing IDSs. In addition, all the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under "Description of Senior Subordinated Notes Certain Covenants." Listing We do not anticipate that our senior subordinated notes will be separately listed on any exchange. Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter
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+Prospectus Summary This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to we, us or our company refer to Sand Hill IT Security Acquisition Corp. Unless we specify otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. We are a newly organized blank check company. We were organized under the laws of the State of Delaware on April 15, 2004. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in a specified industry. As a Targeted Acquisition Corporation or TAC our objective is to acquire an operating business in the IT security industry. To date, our efforts have been limited to organizational activities. Opportunities for market expansion have emerged for businesses in the IT security industry. We believe that IT security is a favorable industry in which to seek acquisitions and an attractive operating environment for a target business for several reasons, including: (i) International Data Corporation, a recognized expert in research data in the IT security industry, or IDC, predicts that the IT security industry will continue to grow at an annual compound growth rate of 20% with security spending reaching $17.4 billion in 2006; (ii) IT security violations and incidents have increased from 3,000 in 1998 to more than 80,000 in 2002 according to the CERT Coordination Center, a center of Internet security expertise, or CERT; and (iii) The following macro forces create a strong demand for IT security companies to provide solutions: (a) Risk - fear of terrorism, vandalism and crime and the wide recognition of the dependence of business and governmental organizations on the viability of their networks; (b) Regulation - federal regulation of financial and health care sectors and state regulation to protect private data; and (c) Liability - legal exposure from negligent disclosure and accounting and other compliance violations. IT security is a broad industry because it touches all aspects of networks and computers. The industry is not a single market but encompasses many sub-sectors at different stages of maturity. Within the IT security market, industry analyst Trusted Strategies, an independent market research firm specializing in the IT security industry, has identified 600 companies and 46 defined market segments. In addition, new technologies requiring innovative security solutions (such as instant messenger, VOIP and Wi-Fi) continue to emerge and attract investment capital and market entrants. The resulting industry landscape is highly fragmented and in a constant state of flux. Furthermore, a limited IPO market and access to capital for technology companies in general and for IT security companies in particular, combined with an abundance of vendors has created significant opportunities for consolidation and merger and acquisition opportunities in the sector. Our company s management team has significant expertise and experience in the IT security industry, as well as in acquisitions, operations and corporate governance, which we believe gives us the ability to successfully acquire an operating business in this industry. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 3000 Sand Hill Road, Building 1, Suite 240, Menlo Park, California 94025 and our telephone number is (650) 234-7222. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Index to Financial Statements The Offering Securities offered: 4,000,000 units, at $6.00 per unit (plus an additional 600,000 units if the representatives of the underwriters exercise the over-allotment option), each unit consisting of: one share of common stock; and two warrants The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless the representatives of the underwriters determine that an earlier date is acceptable. In no event will the representatives of the underwriters allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will reflect proceeds we receive from the exercise of the over-allotment option if the over-allotment option is exercised prior to the filing of the Form 8-K. Common Stock: Number outstanding before this offering 1,000,000 shares Number to be outstanding after this offering 5,000,000 shares (without giving effect to exercise of warrants) Warrants: Number outstanding before this offering 0 Number to be outstanding after this offering 8,000,000 Securities issuable on exercise Each warrant is exercisable for one share of common stock. Exercise price $5.00 Exercise period The warrants will become exercisable on the later of: the completion of a business combination with a target business, or , 2005 [ONE YEAR FROM THE DATE OF THIS PROSPECTUS.] The warrants will expire at 5:00 p.m., New York City time, on , 2009 [FIVE YEARS FROM THE DATE OF THIS PROSPECTUS] or earlier upon redemption. AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Index to Financial Statements Redemption We may redeem the outstanding warrants with I-Banker s and Newbridge Securities prior consent: in whole and not in part, at a price of $.01 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days prior written notice of redemption, and if, and only if, the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Units [ ] Common stock [ ] Warrants [ ] Offering proceeds to be held in trust: $20,400,000 ($23,460,000 if the underwriters over-allotment option is exercised) of the proceeds of this offering ($5.10 per unit) will be placed in a trust fund maintained by American Stock Transfer & Trust Company, pursuant to an agreement to be signed on the date of this prospectus (and in the event the Units are registered in Colorado, pursuant to 11-51-302(6) Colorado Revised Statutes). These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These business combination related expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $957,200, or $1,263,200 if the underwriters over-allotment option is exercised). None of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed. The warrant exercise price will be paid directly to us. Stockholders must approve business combination: We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have SAND HILL IT SECURITY ACQUISITION CORP. (Exact name of registrant as specified in its charter) Table of Contents Index to Financial Statements agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the vote of the public stockholders owning a majority of the shares sold in this offering. We will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in this offering vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination: We will dissolve and promptly distribute only to our public stockholders the amount in our trust fund plus any remaining net assets if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Escrow of management shares: On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they owned before this offering into an escrow account maintained by American Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be transferable during the escrow period and will not be released from escrow until , 2007 [THREE YEARS FROM THE DATE OF THIS PROSPECTUS]. Risks In making your decision on whether to invest in our securities, you should take into account not only the risks of the industry we propose to do business in and the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider all of the risks set forth in the section entitled Risk Factors beginning on page 6 of this prospectus. Delaware 6770 20-0996152 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 3000 Sand Hill Road Building 1, Suite 240 Menlo Park, California 94025 (650) 234-7222 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Balance Sheet Data: Working capital $ 11,047 $ 21,368,247 Total assets 34,203 21,368,247 Total liabilities 13,953 Value of common stock which may be converted to cash ($5.10 per share) 4,077,960 Stockholders equity 20,250 17,290,287 The as adjusted information gives effect to the sale of the units we are offering and the application of the estimated net proceeds from their sale. The working capital and total assets amounts include the $20,400,000 to be held in the trust fund, which will be available to us only upon the consummation of a business combination within the time period described in this prospectus. If a business combination is not so consummated, we will be dissolved and the proceeds held in the trust fund will be distributed solely to our public stockholders. We will not proceed with a business combination if public stockholders owning 20% or more of the shares sold in this offering vote against the business combination and exercise their conversion rights. Accordingly, we may effect a business combination if public stockholders owning up to approximately 19.99% of the shares sold in this offering exercise their conversion rights. If this occurred, we would be required to convert to cash up to approximately 19.99% of the 4,000,000 shares sold in this offering, or 799,600 shares of common stock, at an initial per-share conversion price of $5.10 without taking into account interest earned on the trust fund. The actual per-share conversion price will be equal to: the amount in the trust fund as of the record date for the determination of stockholders entitled to vote on the business combination plus any interest accrued through the record date, divided by the number of shares of common stock sold in the offering. Humphrey P. Polanen Chief Executive Officer 3000 Sand Hill Road Building 1, Suite 240 Menlo Park, California 94025 (650) 926-7022 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Ronald J. Frappier, Esq. Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 (214) 855-4743 Facsimile: (214) 855-4300 Ralph V. DeMartino, Esq. Dilworth Paxson LLP 1818 N. Street N.W., Suite 400 Washington, DC 20036 (202) 452-0900 Facsimile: (202) 452-0930 Table of Contents Index to Financial Statements Risk Factors An investment in our securities involves a high degree of risk. You should consider carefully the risks described below, together with the other information contained in this prospectus before making a decision to invest in our units. Risks Associated with our business. We are a development stage company with no operating history and very limited resources and our financial statements contain a statement indicating that our ability to begin operations depends on the success of this offering. We are a recently incorporated development stage company with no operating results to date. Therefore, our ability to begin operations is dependent upon obtaining financing through the public offering of our securities. Since we do not have an operating history, you will have no basis upon which to evaluate our ability to achieve our business objective, which is to acquire an operating business in the IT security industry. We have not conducted any discussions and we have no plans, arrangements or understandings with any prospective acquisition candidates. We will not generate any revenues (other than interest income on the proceeds of this offering) until, at the earliest, after the consummation of a business combination. The Company s management has broad discretion with respect to the specific application of the net proceeds of the offering. Although substantially all of the net proceeds of this offering are intended to be generally applied toward consummating a merger with or acquisition of an operating business whose primary business is in the IT security industry, management has virtually unrestricted flexibility in identifying and selecting a prospective target business. Investors must therefore rely on management s due diligence review and evaluation of potential acquisition candidates. If we are forced to liquidate before a business combination, our public stockholders will receive less than $6.00 per share upon distribution of the Trust Fund and our Warrants will expire worthless. If we are unable to complete a business combination and are forced to liquidate our assets, the per-share liquidation distribution will be less than $6.00 because of the expenses of this offering, our general and administrative expenses and the anticipated costs of seeking a business combination. Furthermore, there will be no distribution with respect to our outstanding warrants and, accordingly, the warrants will expire worthless if we liquidate before the completion of a business combination. For a more complete discussion of the effects on our stockholders if we are unable to complete a business combination, see the section below entitled Effecting a business combination - Liquidation if no business combination. You will not be entitled to protections normally afforded to investors of blank check companies. Since the net proceeds of this offering are intended to be used to complete a business combination with a target business that has not been identified, we may be deemed to be a blank check company under the United States securities laws. However, since we will have net tangible assets in excess of $5,000,000 upon the successful consummation of this offering and our units are being offered at an initial price of $6.00 per unit, we are exempt from rules promulgated by the SEC to protect investors of blank check companies such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Because we are not subject to Rule 419, our units will be immediately tradable and we have a longer period of time to complete a business combination in certain circumstances. For a more detailed comparison of our offering to offerings under Rule 419, see the section entitled Comparison to offerings of blank check companies below. APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. . If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents Index to Financial Statements If third parties bring claims against us, the proceeds held in trust could be reduced and the per share liquidation price received by stockholders will be less than $5.10 per share. Our placing of funds in trust may not protect those funds from third party claims against us. The proceeds held in trust could be subject to claims which could take priority over the claims of our public stockholders. We cannot assure you that the per-share liquidation price will not be less than $5.10, plus interest, due to claims of creditors. If we liquidate before the completion of a business combination, Humphrey P. Polanen, our chairman of the board and chief executive officer, will be personally liable under certain circumstances to ensure that the proceeds in the trust fund are not reduced by the claims of various vendors or other entities that are owed money by us for services rendered or products sold to us. However, we cannot assure you that Mr. Polanen will be able to satisfy those obligations. Since we have not yet selected any target business with which to complete a business combination, we are unable to currently ascertain the merits or risks of the business which we may ultimately operate. Subject to the limitations that a target business be an operating business in the IT security industry and have a fair market value of at least 80% of our net assets at the time of the acquisition, we will have flexibility in identifying and selecting a prospective acquisition candidate. To the extent we complete a business combination with a financially unstable company or an entity in its development stage, we may be affected by numerous risks inherent in the business operations of those entities. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in a target business. For a more complete discussion of our selection of a target business, see the section below entitled Effecting a business combination. We have not identified a target business. Resources could be wasted in researching acquisitions that are not consummated. It is anticipated that the investigation of each specific business acquisition or merger and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, and others. If a decision is made not to complete a specific business acquisition or merger, the costs incurred up to that point for the proposed transaction would not be recoverable. Furthermore, even if an agreement is reached for the acquisition of or merger with a specific business, the failure to consummate that transaction (which failure could occur as a result of any number of reasons, including issues beyond our control) will result in a loss to us of the related costs incurred. Such a loss could materially adversely affect subsequent attempts to locate and acquire or merge with another business. See the section below entitled Effecting a business combination We have not identified a target business. We may issue shares of our capital stock or debt securities to complete a business combination, which would reduce the equity interest of our stockholders and likely cause a change of control of our ownership. Our certificate of incorporation authorizes the issuance of up to 50,000,000 shares of common stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par value $.01 per share. Immediately after this offering (assuming no exercise of the underwriters over-allotment option), there will be 36,100,000 authorized but unissued shares of our common stock available for issuance (after appropriate reservation for the issuance of shares upon full exercise of our outstanding warrants and the purchase option granted to I-Bankers Securities and Newbridge Securities, the representatives of the underwriters. or the Representatives ) and all of the 5,000,000 shares of preferred stock available for issuance. Although we have no commitments as of the date of this offering to issue our securities, we will, in all likelihood, issue a substantial number of additional shares of our common stock or preferred stock, or a combination of common and preferred stock, to complete a business combination. The issuance of additional shares of our common stock or any number of shares of our preferred stock. may significantly reduce the equity interest of investors in this offering; Table of Contents Index to Financial Statements Calculation of Registration Fee Title of each Class of Security being Registered Amount being Registered Proposed Maximum Offering Price Per Security(1) Proposed Maximum Aggregate Offering Price(1) Amount of Registration Fee Units, each consisting of one share of Common Stock, $.01 par value, and two Warrants (2) 4,600,000 Units $6.00 $27,600,000 $3,496.92 Shares of Common Stock included as part of the Units (2) 4,600,000 Shares (3) Warrants included as part of the Units (2) 9,200,000 Warrants (3) Shares of Common Stock underlying the Warrants included in the Units (4) 9,200,000 Shares $5.00 $46,000,000 $5,828.20 Representatives Unit Purchase Option 1 $100.00 $100 (3) Units underlying the Representatives Unit Purchase Option ( Underwriter s Units ) (4) 300,000 Units $7.50 $2,250,000 $285.08 Shares of Common Stock included as part of the Underwriter s Units (4) 300,000 Shares (3) Warrants included as part of the Representatives Units (4) 600,000 Warrants (3) Shares of Common Stock underlying the Warrants included in the Representatives Units (4) 600,000 Shares $6.65 $3,990,000 $505.53 Total $79,840,100 $10,115.73(5) (1) Estimated solely for the purpose of calculating the registration fee. (2) Includes 600,000 Units and 600,000 shares of Common Stock and 1,200,000 Warrants underlying such Units which may be issued on exercise of a 45-day option granted to the Underwriters to cover over-allotments, if any. (3) No fee pursuant to Rule 457(g). (4) Pursuant to Rule 416, there are also being registered such indeterminable additional securities as may be issued as a result of the anti-dilution provisions contained in the Warrants. (5) Fee of $10,531.30 has been previously paid. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Table of Contents Index to Financial Statements will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely also result in the resignation or removal of our present officers and directors; and may adversely affect prevailing market prices for our common stock. Similarly, if we issued debt securities, it could result in: default and foreclosure on our assets if our operating cash flow after a business combination were insufficient to pay our debt obligations; acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenant were breached without a waiver or renegotiation of that covenant; our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; covenants that limit our ability to acquire capital assets or make additional acquisitions; and our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding. For a more complete discussion of the possible structure of a business combination, see the section below entitled Effecting a business combination - Selection of a target business and structuring of a business combination. Our current officers and directors may resign upon consummation of a business combination. We may have limited ability to evaluate the management of the target business. Our ability to successfully effect a business combination will be totally dependent upon the efforts of our key personnel. The future role of our key personnel in the target business, however, cannot presently be ascertained. Although it is possible that some of our key personnel will remain associated in various capacities with the target business following a business combination, it is also possible that the management of the target business at the time of the business combination will remain in place. Although we intend to closely scrutinize the management of a prospective target business in connection with evaluating the desirability of effecting a business combination, we cannot assure you that our assessment of management will prove to be correct. Our officers and directors may allocate their time to other businesses, which could cause a conflict of interest as to which business they present a viable acquisition opportunity to. Our officers and directors are not required to commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. Some of these persons may in the future become affiliated with entities, including other blank check companies, engaged in business activities similar to those intended to be conducted by us. Our officers and directors may become aware of business opportunities that may be appropriate for presentation to us as well as the other entities with which they may be affiliated. Accordingly, they may have conflicts of interest in determining to which entity a particular business opportunity should be presented. We cannot assure you that these conflicts will be resolved in our favor. See the section entitled Management Directors and Executive Officers and Conflicts of Interest. All of our officers and directors own stock in our company, but have waived their right to receive distributions upon liquidation. Additionally, Humphrey P. Polanen has agreed with the Representatives that he and certain of his affiliates or designees will purchase warrants in the open market following this offering. The shares and warrants owned by our directors and officers will be worthless if we do not consummate a business combination. The personal and financial interests of our directors and officers may influence their motivation in identifying and selecting a target business and completing a business combination within the time allotted. Consequently, our directors and officers discretion in identifying and selecting a suitable target business may Table of Contents Index to Financial Statements This information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, JULY 20, 2004 $24,000,000 SAND HILL IT SECURITY ACQUISITION CORP. 4,000,000 UNITS Sand Hill IT Security Acquisition Corp. is a newly organized blank check company. We were organized for the purpose of effecting a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in a specified industry. As a Targeted Acquisition Corporation or TAC, our objective is to acquire an operating business in the information technology, or IT, security industry. This is an initial public offering of our securities. Each unit consists of: one share of our Common Stock; and two warrants. Each warrant entitles the holder to purchase one share of our common stock at a price of $5.00. Each warrant will become exercisable on the later of our completion of a business combination or , 2005 [ONE YEAR FROM THE DATE OF THIS PROSPECTUS], and will expire on , 2009 [FIVE YEARS FROM THE DATE OF THIS PROSPECTUS], or earlier upon redemption. We have granted the underwriters a 45-day option to purchase up to 600,000 additional units solely to cover over-allotments, if any. The over-allotment will be used only to cover the net syndicate short position resulting from the initial distribution. There is presently no public market for our units, common stock or warrants. We anticipate that the units will be quoted on the OTC Bulletin Board under the symbol on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless the representatives of the underwriters determine that an earlier date is acceptable. Once the securities comprising the units begin separate trading, the common stock and warrants will be traded on the OTC Bulletin Board under the symbols and , respectively. INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN OUR SECURITIES. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Table of Contents Index to Financial Statements result in a conflict of interest when determining whether the terms, conditions and timing of a particular business combination are appropriate and in our stockholders best interest. See Effecting a business combination Liquidation if no business combination. If our common stock becomes subject to the SEC s Penny Stock rules, Broker Dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected. If at any time we have net tangible assets of $5,000,000 or less and our common stock has a market price per share of less than $5.00, transactions in our common stock may be subject to the penny stock rules promulgated under the Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: make a special written suitability determination for the purchaser; receive the purchaser s written agreement to a transaction prior to sale; provide the purchaser with risk disclosure documents that identify certain risks associated with investing in penny stocks and which describe the market for these penny stocks as well as a purchaser s legal remedies; and obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a penny stock can be completed. If our common stock becomes subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities. It is probable that we will only be able to complete one business combination, which will cause us to be solely dependent on a single business and a limited number of products or services. The net proceeds from this offering will provide us with only approximately $21,357,200 which we may use to complete a business combination. Our initial business combination must be with a business with a fair market value of at least 80% of our net assets at the time of such acquisition. Consequently, it is probable that we will have the ability to complete only a single business combination. Accordingly, the prospects for our success may be: solely dependent upon the performance of a single business, or dependent upon the development or market acceptance of a single or limited number of products, processes or services. In this case, we will not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities that may have the resources to complete several business combinations. See Effecting a business combination Probable lack of business diversification. Because of our limited resources and the significant competition for business combination opportunities, we may not be able to consummate a business combination. We expect to encounter intense competition from other entities having a business objective similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions in the IT security industry. Many of these entities are well established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors possess greater technical, human and other resources than we do and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire with the net proceeds of this offering, our ability to compete in acquiring certain PRICE $6.00 A UNIT Table of Contents Index to Financial Statements sizable target businesses will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Further, the obligation we have to seek stockholder approval of a business combination may delay the consummation of a transaction, and our obligation to convert into cash the shares of common stock held by public stockholders in certain instances may reduce the resources available for a business combination. Additionally, our outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Any of these obligations combined with the time limitation within which we must complete a business combination may place us at a competitive disadvantage in successfully negotiating a business combination. See, generally, Effecting a business combination and Use of Proceeds. We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular business combination. Although we believe that the net proceeds of this offering will be sufficient to allow us to consummate a business combination, in as much as we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of this offering prove to be insufficient, either because of the size of the business combination or the depletion of the available net proceeds in search of a target business, or because we become obligated to convert into cash a significant number of shares from dissenting stockholders, we will be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination, we would be compelled to restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination. Our existing stockholders, including our officers and directors, control a substantial interest in us and thus may influence certain actions requiring stockholder vote. Upon consummation of our offering, our existing stockholders (including all of our officers and directors) will collectively own 20.0% of our issued and outstanding shares of common stock (assuming they do not purchase units in this offering). Our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. It is unlikely that there will be an annual meeting of stockholders to elect new directors prior to the consummation of a business combination, in which case all of the current directors will continue in office at least until the consummation of a business combination or our liquidation. If there is an annual meeting, as a consequence of our staggered board of directors, only a minority of the board of directors will be considered for election and our existing stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our existing stockholders will continue to exert control at least until the consummation of a business combination. In addition, our existing stockholders and their affiliates and relatives are not prohibited from purchasing units in this offering or shares in the aftermarket. If they do, we cannot assure you that our existing stockholders will not have considerable influence upon the vote in connection with a business combination. See Principal Stockholders. Our existing stockholders paid an aggregate of $25,000.00, or an average of $0.025 per share, for their shares and, accordingly, you will experience immediate and substantial dilution from the purchase of our common stock. The difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering constitutes the dilution to you and the other investors in this offering. The fact that our existing stockholders acquired their shares of common stock at a Price to Public Table of Contents Index to Financial Statements nominal price has significantly contributed to this dilution. Assuming the offering is completed, you and the other new investors will incur an immediate and substantial dilution of approximately 31.5% or $1.88 per share (the difference between the pro forma net tangible book value per share of $4.12, and the initial offering price of $6.00 per unit). See Dilution. Our outstanding warrants may have an adverse effect on the market price of our common stock and make it more difficult to effect a business combination. In connection with this offering, as part of the units, we will be issuing warrants to purchase 8,000,000 shares of common stock. We will also issue an option to purchase 300,000 units to the Representatives which, if exercised, will result in the issuance of an additional 600,000 warrants. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of substantial numbers of additional shares upon exercise of these warrants and options could make us a less attractive acquisition vehicle in the eyes of a target business as such securities, when exercised, will increase the number of issued and outstanding shares of our common stock, reduce the ownership the shareholders would have had excluding the shares issued from the exercise of warrants, and may reduce the value of the shares issued to complete the business combination. Accordingly, our warrants and options may make it more difficult to effectuate a business combination or increase the cost of the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the warrants and options could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If and to the extent these warrants and options are exercised, you may experience dilution to your holdings. If our existing stockholders exercise their registration rights, it may have an adverse effect on the market price of our common stock and the existence of theses rights may make it more difficult to effect a business combination. Our existing stockholders are entitled to demand that we register the resale of their shares of common stock at any time after the date on which their shares are released from escrow. If our existing stockholders exercise their registration rights with respect to all of their shares of common stock, then there will be an additional 1,000,000 shares of common stock eligible for trading in the public market. The presence of this additional number of shares of common stock eligible for trading in the public market may have an adverse effect on the market price of our common stock. In addition, the existence of these rights may make it more difficult to effectuate a business combination, or may increase the cost of the target business, as the stockholders of the target business may be discouraged from entering into a business combination with us or will request a higher price for their securities as a result of these registration rights and the potential future effect their exercise may have on the trading market for our common stock. See Certain Transactions. If you are not an institutional investor, you may purchase our securities in this offering only if you reside within certain states and may engage in resale transaction only in those states and other jurisdictions. We have applied to register our securities, or have obtained or will seek to obtain an exemption from registration, in Colorado, Delaware, Florida, Hawaii, Illinois, Indiana, Maryland, New York, and Rhode Island. If you are not an institutional investor, you must be a resident of these jurisdictions to purchase our securities in the offering. The definition of an institutional investor varies from state to state but generally includes financial institutions, broker-dealers, banks, insurance companies and other qualified entities. In order to prevent resale transactions in violation of states securities laws, you may engage in resale transactions only in these states and in other jurisdictions in which an applicable exemption is available or a Blue Sky application has been filed and accepted. This restriction on resale may limit your ability to resell the securities purchased in this offering and may impact the price of our securities. For a more complete discussion of the Blue Sky state securities laws and registrations affecting this offering, please see the section entitled State Blue Sky Information below. Underwriting Discounts and Commissions(1) Table of Contents Index to Financial Statements We intend to have our securities quoted on the OTC Bulletin Board, which will limit the liquidity and price of our securities more than if our Securities were quoted or listed on the NASDAQ Stock Market or a national exchange. Our securities will be traded in the over-the-counter market. It is anticipated that they will be quoted on the OTC Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included in the Nasdaq Stock Market. Quotation of our securities on the OTC Bulletin Board will limit the liquidity and price of our securities more than if our securities were quoted or listed on The Nasdaq Stock Market or a national exchange. There is currently no market for our securities and a market for our securities may not develop, which could adversely affect the liquidity and price of our securities. There is no market for our securities. Therefore, stockholders should be aware that they cannot benefit from information about prior market history as to their decisions to invest which means they are at further risk if they invest. In addition, the price of the securities, after the Offering, can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Furthermore, the Representatives in this offering are not required to make a market in our securities. An active trading market for our securities may never develop or, if developed, it may not be maintained. Investors may be unable to sell their securities unless a market can be established or maintained. If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete a business combination. If we are deemed to be an investment company under the Investment Company Act of 1940, our activities may be restricted, including: restrictions on the nature of our investments; and restrictions on the issuance of securities, which may make it difficult for us to complete a business combination. In addition, we may have imposed upon us burdensome requirements, including: registration as an investment company under federal and state laws; adoption of a specific form of corporate structure; and reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations. We do not believe that our anticipated principal activities will subject us to the Investment Company Act of 1940. To this end, the proceeds held in trust may only be invested by the trust agent in government securities with specific maturity dates. By restricting the investment of the proceeds to these instruments, we intend to meet the requirements for the exemption provided in Rule 3a-1 promulgated under the Investment Company Act of 1940. If we were deemed to be subject to the act, compliance with these additional regulatory burdens would require additional expense that we have not allotted for. Proceeds to Sand Hill IT Security Acquisition Corp. Table of Contents Index to Financial Statements Risks associated with our acquisition of an operating business in the IT security industry. The products or services of the companies we intend to target for a business combination may become obsolete due to rapid technological change. The IT security market is characterized by: rapid technological change; the proliferation of new and changing methods of security threats; frequent product and service introductions and updates; changing customer needs; technological standards which may be lacking, unsettled or changing; fragmentation characterized by numerous vendors in many market sub-segments; a small number of large market participants; and a complex landscape of intellectual property areas that may already be, or following a Business Combination may become, taken by competitors. These characteristics of our targeted market create significant risks and uncertainties for our business success. Our competitors might introduce products or services that have better performance, are more effective, or are more accurate. Numerous service providers and vendors have already announced that they are developing or considering developing products and technologies to enhance the effectiveness of their existing security offerings. Venture capital firms are continuously looking for opportunities to invest in development stage businesses which may have products or services that are better than those currently available from business we may target for a business combination. Additionally, new software operating systems, hardware or messaging security industry standards could emerge that render existing products or services obsolete or require substantial investment to upgrade existing products or services to meet the requirements of these new systems and equipment. We may not be successful in developing appropriate modifications and enhancements to our products and services or in bringing them to market on a timely basis. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our product development expenses at a business we acquire. Our existing products might be incompatible with some or all of such standards or if such new standards are successful in eliminating security threats, the demand for our products could significantly decrease. Our business and operating results could materially suffer unless we are able to respond quickly and effectively to these developments. Per unit $ 6.00 $ 0.57 $ 5.43 Total $ 24,000,000 $ 2,280,000 $ 21,720,000 (1) Includes a non-accountable expense allowance in the amount of 3% of the gross proceeds, or $0.18 per unit ($720,000 in total) payable to the Representatives. Of the net proceeds we receive from this offering, $20,400,000 ($5.10 per unit) will be deposited into trust with American Stock Transfer & Trust Company acting as trustee. We are offering the units for sale on a firm-commitment basis. I-Bankers Securities and Newbridge Securities, acting as representatives of the underwriters, expect to deliver our securities to investors in the offering on or about , 2004. I-Bankers Securities Incorporated Newbridge Securities Corporation , 2004 $20,400,000 or $23,460,000 if the underwriters over-allotment option is exercised in full, of net proceeds will be placed in a trust fund maintained by American Stock Transfer & Trust Company, New York, New York, as trustee. The proceeds will not be released from the trust fund until the earlier of the completion of a business combination or our liquidation. The proceeds held in the trust fund may be used as consideration to pay the sellers of a target business with which we ultimately complete a business combination. Any amounts not paid as consideration to the sellers of the target business may be used to finance operations of the target business or to effect other acquisitions, as determined by our board of directors at that time. The payment to Sand Hill Security, LLC, an affiliate of Mr. Polanen, of a monthly fee of $7,500 is for general and administrative services including office space, utilities, and secretarial support. Although the monthly rents and fees was arbitrarily arrived at, we believe, based on rents and fees for similar services in the Menlo Park, California area, that the fees charged by Sand Hill Security, LLC is at least as favorable as we could have obtained from an unaffiliated person. We intend to use the excess working capital shown above for director and officer liability insurance premiums with the balance being held in reserve in the event that due diligence, legal, accounting, and other Table of Contents Index to Financial Statements TABLE OF CONTENTS Prospectus Summary 1
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+Prospectus Summary 1 Summary Financial Data 5 Risk Factors 6 Use of Proceeds 17 Dilution 19 Capitalization 20 Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Proposed Business 22 Management 32 Principal Stockholders 36 Certain Transactions 38 Description of Securities 39 Underwriting 43 Legal Matters 46 Experts 46 Where You Can Find Additional Information 46 Disclosure of SEC Position on Indemnification for Securities Act Liabilities 47 Index To Financial Statements F-1 You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this prospectus. For a detailed understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to China Mineral Acquisition Corporation. Unless otherwise specified, references to "China" or the "PRC" refer to the People's Republic of China as well as the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but does not include Taiwan. We are a blank check company organized under the laws of the State of Delaware on March 30, 2004. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a company having its primary operations in the PRC. To date, our efforts have been limited to organizational activities. Opportunities for market expansion have emerged for businesses with operations in the PRC in the industry on which we intend to focus and other industries due to certain changes in the PRC's political, economic and social policies as well as certain fundamental changes affecting the PRC and its neighboring countries. We believe that the PRC represents both a favorable environment for making acquisitions and an attractive operating environment for a target business for several reasons, including: prolonged economic expansion within the PRC, including gross domestic product growth of approximately 9% on average over the last 25 years, with, according to a January 14, 2004 Wall Street Journal article, growth of 8.5% in 2003; increased government focus within the PRC on privatizing assets, improving foreign trade and encouraging business and economic activity; access to a highly trained and educated workforce which in turn leads to favorable labor rates and efficient, low-cost manufacturing capabilities; and attractive valuations for target businesses within the PRC. Although our efforts in identifying a prospective target business will not be limited to a particular industry, we intend initially to focus our search on target businesses in the PRC that are engaged in the minerals industry. We believe that the factors described above are more evident in this industry. Notwithstanding this fact, there are certain government regulations relating to our proposed industry that may negatively impact our ability to operate following a business combination. For instance, the PRC has adopted regulations within the minerals industry that forbids or restricts foreign investors' equity ownership or prohibit foreign investments altogether in these companies. As a result, our capital structure and ownership may limit the number of potential target businesses within our proposed industry. For a more complete discussion of the government regulations affecting our proposed industry, see the section below entitled "Proposed Business — Government regulations of our proposed industry." While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at c/o Fu and Tong LLC, 245 Park Avenue, New York, New York 10167, and our telephone number at that office is (212) 672-1909. CALCULATION OF REGISTRATION FEE Title of each Class of Security being registered Amount being Registered Proposed Maximum Offering Price Per Share (1) Proposed Maximum Aggregate Offering Price(l) Amount Registration Fee Units, each consisting of one share of Common Stock, $.0001 par value, and two Warrants(2) 4,600,000 Units $6.00 $27,600,000 $3,496.92 Shares of Common Stock included as part of the Units(2) 4,600,000 Shares — — —(3) Warrants included as part of the Units(2) 9,200,000 Warrants — — —(3) Shares of Common Stock underlying the Warrants included in the Units(4) 9,200,000 Shares $5.00 $46,000,000 $5,828.20 Underwriter's Unit Purchase Option 1 $100 $100 —(3) Units underlying the Underwriter's Unit Purchase Option ("Underwriter's Units")(4) 300,000 Units $7.50 $2,250,000 $285.08 Shares of Common Stock included as part of the Underwriter's Units(4) 300,000 Shares — — —(3) Warrants included as part of the Underwriter's Units(4) 600,000 Warrants — — —(3) Shares of Common Stock underlying the Warrants included in the Underwriter's Units(4) 600,000 Shares $6.65 $3,990,000 $505.54 Total $79,840,100 $10,115.74 (1) Estimated solely for the purpose of calculating the registration fee. (2) Includes 600,000 Units and 600,000 shares of Common Stock and 1,200,000 Warrants underlying such Units which may be issued on exercise of a 45-day option granted to the Underwriter to cover over-allotments, if any. (3) No fee pursuant to Rule 457(g). (4) Pursuant to Rule 416, there are also being registered such indeterminable additional securities as may be issued as a result of the anti-dilution provision. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The Offering Securities offered: 4,000,000 units, at $6.00 per unit, each unit consisting of: one share of common stock; and two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless Broadband Capital Management determines that an earlier date is acceptable. In no event will Broadband Capital Management allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option, if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering 1,000,000 shares Number to be outstanding after this offering 5,000,000 shares Warrants: Number outstanding before this offering 0 Number to be outstanding after this offering 8,000,000 warrants Exercisability Each warrant is exercisable into one share of common stock. Exercise price $5.00 Exercise period The warrants will become exercisable on the later of: the completion of a business combination with a target business, or , 2005 [one year from the date of this prospectus.] The warrants will expire at 5:00 p.m., New York City time, on , 2009 [five years from the date of this prospectus] or earlier upon redemption. Redemption: We may redeem the outstanding warrants: in whole and not in part, at a price of $.01 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days' prior written notice of redemption, and if and only if the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Units CMAWU Common stock CMAQ Warrants CMAQW Offering proceeds to be held in trust: $20,400,000 of the proceeds of this offering ($5.10 per unit) will be placed in a trust fund maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the effective date of this offering. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $1,050,000). Since none of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination: We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the vote of the public stockholders owning a majority of the shares sold in this offering. We will proceed with a business combination only if the public stockholders who own at least a majority of the shares of common stock sold in this offering vote in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination: Only the public stockholders who vote against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination: We will dissolve and distribute only to our public stockholders the amount in our trust fund plus any remaining net assets, if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Following our dissolution, we would no longer exist as a corporation. Escrow of existing stockholder shares: On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they own before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be released from escrow until , 2007 [three years from the date of this prospectus.] Risks: In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider all of the risks set forth in the section entitled "Risk Factors" beginning on page 6 of this prospectus.
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+This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and the related notes. References in this prospectus to "McCormick & Schmick's," "company," "we," "us" and "our" refer to McCormick & Schmick's Seafood Restaurants, Inc. and its subsidiaries. Our Business We are a leading national seafood restaurant operator in the affordable upscale dining segment. Over the past 32 years, we have successfully grown our business to 51 restaurants in 22 states by focusing on serving a broad selection of fresh seafood. Our daily-printed menu typically contains between 85 and 110 made-to-order dishes, including an extensive selection of international, national, regional and local species of seafood. Our signature "Fresh List," prominently displayed at the top of our daily-printed menu, typically contains 30 to 40 varieties of fresh seafood, based on product availability, price and customer preferences. Our restaurants are designed to capture the distinctive characteristics of each local market, positioning us to compete successfully in a sector comprised primarily of locally-owned and operated seafood restaurants. We seek to create an inviting atmosphere that allows us to attract a diverse customer base of men and women, primarily ages 30 to 60, typically college-educated and in the middle to upper-middle income brackets. We believe the combination of our restaurant atmosphere, extensive menu offering and broad range of price points appeals to a diverse customer base from casual diners, families and tourists to business travelers and special occasion diners. In 2003, our revenues were $196.7 million and we had a net loss of $3.2 million. The loss in 2003 was due primarily to a write-off of $2.3 million in deferred loan costs, a $1.5 million charge related to the impairment of one of our restaurants and a $1.2 million expense to settle a California labor dispute. Also contributing to the net loss were expenses of $2.6 million related to management fees and non-compete payments, which will be terminated in connection with our initial public offering. Our Strengths We believe the key strengths of our business model that differentiate us from our competitors are the following: Fresh Seafood. Our extensive, daily-printed menu includes our signature "Fresh List" of typically 30 to 40 fresh seafood items. Attraction of Our Full-Service Bar. We operate our bars as revenue centers, rather than mere holding areas for patrons waiting to dine, and to showcase our commitment to quality, service and authenticity by offering hand-poured and hand-shaken cocktail drinks made with freshly squeezed juices and other high quality ingredients. Broad Appeal of Our Concept. We believe our broad range of price points, averaging $21 for lunch and $42 for dinner, makes our restaurants more affordable and allows us to attract a more diverse customer base than our upscale competitors. Entrepreneurial Culture with Corporate Control. For over 32 years, we have been committed to promoting and sustaining an entrepreneurial culture throughout our restaurants while maintaining strong corporate oversight and financial controls. 1.1** Form of Underwriting Agreement 3.1** Certificate of Incorporation of McCormick & Schmick's Seafood Restaurants, Inc. 3.2** Bylaws of McCormick & Schmick's Seafood Restaurants, Inc. 3.3** Amended and Restated Limited Liability Company Agreement, dated as of August 22, 2001, of McCormick & Schmick Holdings LLC by and among Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan Partners III, L.P. and certain other parties thereto 4.1** Members Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan Partners III, L.P. and certain other parties thereto 4.2** Registration Rights Agreement, dated as of August 22, 2001, by and among McCormick & Schmick Holdings LLC, Bruckmann, Rosser, Sherrill & Co. II, L.P., Castle Harlan Partners III, L.P. and certain other parties thereto 4.3** Form of Agreement and Plan of Merger by and among McCormick & Schmick Holdings LLC, McCormick and Schmick's Seafood Restaurants, Inc., Bruckmann, Rosser, Sherrill & Co. II, L.P. and Castle Harlan Partners III, L.P. 5.1** Opinion of Stoel Rives LLP as to the legality of the securities being registered, including consent 10.1** Amended and Restated Revolving Credit Agreement, dated as of October 28, 2003, among McCormick & Schmick Acquisition Corp., McCormick & Schmick Restaurant Corp., McCormick & Schmick Maryland Liquor, Inc. McCormick & Schmick Acquisition I Texas, Inc., McCormick & Schmick Acquisition II Texas, Inc., McCormick & Schmick Acquisition Texas LP, McCormick & Schmick Acquisition III Texas, Inc., McCormick & Schmick's Atlanta II, LLC, McCormick & Schmick's Hackensack, LLC, McCormick & Schmick Orlando, LLC, McCormick & Schmick Dallas, LP, McCormick & Schmick Dallas Liquor, Inc., McCormick & Schmick Austin, LP, McCormick & Schmick Austin Liquor, Inc., the lenders party thereto, Fleet National Bank, as Administrative Agent, Bank of America, N.A., as Documentation Agent, Wells Fargo Bank N.A., as Documentation Agent and Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International" New York Branch, as Syndication Agent, with Fleet Securities, Inc., as Arranger 10.2** Stock and Warrant Purchase Agreement, dated as of August 22, 2001, by and among Mellon Bank, N.A., as Trustee for The Bell Atlantic Master Trust, McCormick & Schmick Acquisition Corp. II, and McCormick & Schmick Holdings LLC 10.3** Class A-2 Common Units Purchase Warrant to purchase Class A-2 Units of McCormick & Schmick Holdings LLC, issued to Mellon Bank, N.A., as Trustee for The Bell Atlantic Master Trust 10.4** Preferred Units Purchase Warrant to purchase Preferred Units of McCormick & Schmick Holdings LLC, issued to Mellon Bank, N.A., as Trustee for The Bell Atlantic Master Trust 10.5** Management Agreement, dated as of August 22, 2001, by and among Bruckmann, Rosser, Sherrill & Co., L.L.C., Castle Harlan, Inc., McCormick & Schmick Acquisition Corp. and McCormick & Schmick Restaurant Corp. Portability of Our Brand. We believe our established national infrastructure and the flexibility of our real estate model allow us to maintain the quality and consistency of our concept at each of our locations while celebrating the uniqueness of each of our markets in 21 states in the United States. Our Growth Strategy We believe there are significant opportunities to grow our concept and brand on a nationwide basis in both existing and new markets and through ancillary business opportunities. Key elements of our growth strategy include: Expansion in Existing Markets. We continue to evaluate opportunities to grow the McCormick & Schmick's brand in existing markets, particularly in affluent suburban areas near existing units in downtown areas to better diversify our presence. Entry into New Markets. We will select new market opportunities by focusing on downtown and affluent suburban areas that have large middle to upper-middle income populations, have high customer traffic from thriving businesses or retail markets, and are convenient for and appealing to business and leisure travelers. Capture of Ancillary Business Opportunities. We will continue to pursue secondary opportunities that are complementary to our primary concept and further our growth objectives such as catering opportunities and management agreements with hotels as well as the expansion of the M&S Grill restaurant concept. Our ability to expand our restaurant base is influenced by factors beyond our control, such as our ability to hire skilled management and chefs and to secure sufficient suitable new restaurant sites, and therefore we may not be able to achieve our planned growth. All of the material risks relating to our growth strategy are discussed in "Risk Factors Risks Related to Our Business." Our principal executive offices are located at 720 SW Washington Street, Suite 550, Portland, Oregon 97205. Our telephone number is (503) 226-3440. Our website is www.mccormickandschmicks.com. The information on our website is not part of this prospectus. Recent Developments For the three months ended June 26, 2004, our revenues were $59.8 million and our comparable restaurant sales increased 2.9%; for three months ended June 28, 2003, our revenues were $48.6 million. Each period included 13 weeks. Corporate Reorganization In connection with this offering, we will terminate the management agreements with Bruckmann, Rosser, Sherrill & Co., Inc. ("BRS") and Castle Harlan, Inc. in consideration of cash payments to each of them of $1.1 million and we will terminate the covenant not to compete agreements of our founders, William P. McCormick and Douglas L. Schmick, in consideration of cash payments to each of them of $286,712. McCormick & Schmick's Seafood Restaurants, Inc., a Delaware corporation, the shares of which are being sold to the public in this offering, will be the successor to McCormick & Schmick Holdings LLC, our current holding company, following a reorganization merger that will take place before the completion of this offering. The reorganization will include the following: An aggregate of 7,782,349 shares of our common stock will be issued in the merger to existing holders of units in McCormick & Schmick Holdings LLC (which number includes a total of 602,992 shares issuable upon exercise of warrants at a nominal exercise price). Various other agreements among the members of McCormick & Schmick Holdings LLC will be terminated. See "Certain Relationships and Related Party Transactions Corporate Reorganization." 10.6** Covenant Not to Compete, effective as of January 1, 2004, between William P. McCormick and McCormick & Schmick Acquisition Corp. 10.7** Covenant Not to Compete, effective as of January 1, 2004, between Douglas L. Schmick and McCormick & Schmick Acquisition Corp. 10.8** Form of Executive Subscription Agreement 10.9** Lease, dated as of October 13, 1994, between Boin Properties, LLC, as successor in interest to William P. McCormick, and McCormick & Schmick Restaurant Corp., as successor in interest to Jake's Restaurant, Inc. 10.10** Retail Lease Agreement, dated as of February 14, 1985, between Harborside Partners, LLC, as successor in interest to Cornerstone Development Company, and McCormick & Schmick Restaurant Corp., as successor in interest to the Cornerstone-McCormick Joint Venture dba Harborside Restaurant, and Amendments 4 and 5 thereto 10.11** Lease, dated June 18, 2004, between DLS Investments, LLC and McCormick & Schmick Restaurant Corp. 10.12** Form of Executive Severance Agreement to be entered into by William P. McCormick, Douglas L. Schmick and Saed Mohseni and McCormick & Schmick's Seafood Restaurants, Inc. 10.13** Management Agreement, dated as of August 22, 2001, by and among Castle Harlan, Inc., Bruckmann, Rosser, Sherrill & Co., LLC, McCormick & Schmick Acquisition Corp. and McCormick & Schmick Restaurant Corp. 10.14** Form of Termination of BRS and Castle Harlan Management Agreements, effective as of June 25, 2004, between McCormick & Schmick Acquisition Corp., McCormick & Schmick Restaurant Corp., McCormick & Schmick's Seafood Restaurants, Inc., Bruckmann, Rosser, Sherrill & Co., L.L.C. and Castle Harlan, Inc. 10.15** Termination of Covenant Not to Compete, dated as of June 25, 2004, between McCormick & Schmick Acquisition Corp., McCormick & Schmick Holdings LLC, McCormick & Schmick's Seafood Restaurants, Inc. and Douglas L. Schmick; Termination of Covenant Not to Compete, dated as of June 25, 2004, between McCormick & Schmick Acquisition Corp., McCormick & Schmick Holdings LLC, McCormick & Schmick's Seafood Restaurants, Inc. and William P. McCormick 10.16** McCormick & Schmick's Seafood Restaurants, Inc. 2004 Stock Incentive Plan 10.17** Form of McCormick & Schmick's Seafood Restaurants, Inc. Incentive Stock Option Agreement; form of McCormick & Schmick's Seafood Restaurants, Inc. Non-Statutory Stock Option Agreement 21.1** Subsidiaries of McCormick & Schmick Holdings LLC 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm 23.2** Consent of Stoel Rives LLP (included in Exhibit 5.1) 24.1** Power of Attorney 99.1** Consent of J. Rice Edmonds 99.2** Consent of David B. Pittaway 99.3** Consent of Harold O. Rosser 99.4** Consent of Fortunato N. Valenti UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 January 1, 2000 1999 December 30, 2000 2000 December 29, 2001 2001 December 28, 2002 2002 December 27, 2003 2003 All fiscal years shown included 52 weeks. Throughout this prospectus, the fiscal quarter ended March 29, 2003 is referred to as 2003 Q1 and the fiscal quarter ended March 27, 2004 is referred to as 2004 Q1. Each of the 2003 Q1 and the 2004 Q1 included 13 weeks. Investing activities Acquisition of business, net of cash received (131,372 ) Acquisition of equipment and leasehold improvements (8,449 ) (2,933 ) (7,242 ) (14,616 ) (1,452 ) (10,648 ) Other assets (80 ) (168 ) (328 ) (67 ) **Filed previously AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Unless we indicate otherwise, all of the information in this prospectus assumes: the underwriters will not exercise their over-allotment option to purchase up to 900,000 additional shares of our common stock from us at the price set forth on the cover of this prospectus; completion of our corporate reorganization. See "Certain Relationships and Related Party Transactions Corporate Reorganization;" and The exercise of warrants to purchase a total of 602,992 shares of common at a nominal exercise price. McCORMICK & SCHMICK'S SEAFOOD RESTAURANTS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 5812 (Primary standard industrial classification code number) 20-1193199 (I.R.S. employer identification number) 720 SW Washington Street, Suite 550 Portland, Oregon 97205 (503) 226-3440 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Emanuel N. Hilario Chief Financial Officer 720 SW Washington Street, Suite 550 Portland, Oregon 97205 (503) 226-3440 (Name, address, including zip code, and telephone number, including area code, of agent for service) Summary Consolidated Financial and Operating Data The summary consolidated financial and operating data below are derived from the following sources: The financial statements of our company while operated as a division of Avado Brands (which we refer to as our Predecessor) for the period from December 31, 2000 to August 22, 2001. The Predecessor financial statements, which have been audited by an independent registered public accounting firm, represent the financial position and results of operations of the McCormick & Schmick division, which have been "carved-out" from the consolidated financial statements of Avado Brands. Our consolidated financial statements for the period from August 23, 2001 to December 29, 2001 and for 2002 and 2003, which have been audited by an independent registered public accounting firm. Our unaudited interim financial statements for 2003 Q1 and 2004 Q1, which in the opinion of management reflect all adjustments necessary to present fairly in accordance with accounting principles generally accepted in the United States the information for 2003 Q1 and 2004 Q1. The operating results of the interim periods are not necessarily indicative of results for a full year. The summary consolidated financial and operating data below represent portions of our financial statements and are not complete. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of future performance. The historical results below reflect quarterly management fees and expenses related to covenants not to compete in the aggregate annual amount of $2.6 million, which will be terminated in connection with our initial public offering. The results for 2003 also reflect a charge of $1.5 million related to the impairment of one of our restaurants, a $1.2 million expense for the settlement of a labor dispute and a $2.3 million write-off of deferred loan costs. Copies To: Robert J. Moorman James M. Kearney Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204-1268 (503) 224-3380 Christopher C. Paci Shearman & Sterling LLP 599 Lexington Avenue New York, New York 10022 (212) 848-4000 (1)In calculating shares of our pro forma common stock outstanding, we give retroactive effect to the completion of our corporate reorganization. See "Certain Relationships and Related Party Transactions Corporate Reorganization." Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.
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+Copies to: Christian E. Montegut, Esq. Donald S. Harrison, Esq. Ricardo E. Velez, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 (650) 493-9300 Table of Contents SUMMARY This summary highlights information contained elsewhere in this offering circular and does not contain all of the information you should consider in deciding whether to accept or reject the rescission offer. You should read this summary together with the more
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001288834_visionwork_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001288834_visionwork_prospectus_summary.txt
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+S-1 Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001289141_mimis_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001289141_mimis_prospectus_summary.txt
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+Table of Contents Director Compensation Non-employee members of our board of directors may receive cash compensation from time to time as the board of directors deems appropriate. Board members are also reimbursed for expenses incurred in connection with attendance at board meetings. Compensation Committee Interlocks and Insider Participation in Compensation Decisions Our compensation committee consists of Messrs. and . No executive officer serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. Executive Compensation The following table sets forth all compensation received for services rendered to us in all capacities during the years ended December 31, 2003, 2002 and 2001, by our chief executive officer and each of the four other most highly compensated executive officers whose salary and bonus exceeded $100,000 in 2003. These officers are referred to in this prospectus as the named executive officers. The compensation table excludes other compensation in the form of perquisites and other personal benefits that constitutes the lesser of $50,000 or 10.0% of the total annual salary and bonus earned by each of the named executive officers in 2003. Summary Compensation Table Annual Compensation SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 MIMI S CAFE, INC. (Exact name of registrant as specified in its charter) Delaware 5812 20-1062072 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 17852 East 17th Street, South Building, Suite 108 Tustin, California 92780 (714) 544-4826 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Russell W. Bendel, President and Chief Executive Officer Mimi s Cafe, Inc. 17852 East 17th Street, South Building, Suite 108 Tustin, California 92780 (714) 544-4826 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: K.C. Schaaf, Esq. Michael E. Flynn, Esq. Marc G. Alcser, Esq. STRADLING YOCCA CARLSON & RAUTH 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 (949) 725-4000 Daniel S. Evans, Esq. Juliana C. Capata, Esq. ROPES & GRAY LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 Stuart H. Gelfond, Esq. Sean A. Monroe, Esq. FRIED FRANK HARRIS SHRIVER & JACOBSON LLP 350 S. Grand Avenue, 32nd Floor Los Angeles, California 90071 (213) 473-2000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents
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+Prospectus Summary 1
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+S-1/A Table of Contents SUMMARY This summary does not contain all of the information that you should consider before investing. We encourage you to read this entire prospectus, including the Risk Factors section and the financial statements and related notes, before deciding to invest in our common stock. All references to our fiscal year reflect the twelve-month period ended December 31 of that year. All references to non-financial operating statistics are as of March 31, 2004, unless the context indicates otherwise. Unless otherwise indicated, the information in this prospectus gives effect to a 10 for 1 stock split effectuated as a stock dividend during our second quarter 2004. Our Company We are a leading provider of payday loans in the United States. We operate 295 stores in 21 states. Payday loan revenues constituted approximately 87% of our total revenue in fiscal year 2003 and in the three months ended March 31, 2004. We believe that our customers are typically middle-income, working individuals who use our services because they find them to be a convenient source for small, short-term loans. We focus on payday loans because of the strong customer demand for them. We also offer additional services in our stores, such as check cashing, title loans, money orders and money transfers. We have 20 years of experience operating retail consumer finance businesses. We entered the payday loan industry in 1992, and we believe that we were one of the first companies to offer the payday loan product in the United States. We have served the same customer base since 1984, beginning with a rent-to-own business and continuing with check cashing services in 1988. We sold our rent-to-own stores in 1994. Several of our executives and senior managers have worked in all levels of our stores. Through this direct, store-level experience, we learned first-hand which products, services and practices were successful. We also learned the importance of creating personal relationships with customers and providing store managers with discretion, under corporate supervision, to determine how best to reach and serve customers in their markets. From January 1, 1999 to March 31, 2004, we grew from 48 stores to 295 stores through a combination of acquisitions and new store openings. During this period, we opened 137 new stores, acquired 137 stores and closed 27 stores. Comparable store revenue and gross profit growth for stores open at least 24 months were 17% and 31%, respectively, for the year ended December 31, 2003. Our revenue and store gross profit for the year ended December 31, 2003 were $98.5 million and $36.1 million, respectively. Industry Background The payday loan industry began its rapid growth in 1996 when there were an estimated 2,000 payday loan stores in the United States. According to the Community Financial Services Association of America (CFSA) and the investment banking firm Stephens Inc., the industry has grown to approximately 22,000 payday loan stores in 2003, generating over $40 billion in annual loan volume. The growth of the payday loan industry has followed the increased acceptance of payday lending by state legislatures. Since 1996, the number of jurisdictions with legislation permitting or not prohibiting payday loans has grown from 6 states to 35 states and the District of Columbia. Each of these jurisdictions now regulates the payday loan business in some form, including licensure requirements, compliance examinations and lending regulations. We believe that the payday loan industry is fragmented and has only 10 companies operating more than 150 stores. We estimate that these 10 companies operate approximately 7,000 stores. We believe consumers use payday loans for a variety of reasons. A survey by the Credit Research Center at the McDonough School of Business at Georgetown University found that 70% of payday loan customers surveyed who considered other sources of credit use payday loans for reasons of convenience, while only 6% of those payday loan customers use payday loans because they had no other alternative. Store Information: Number of stores, beginning of year 258 294 De novo stores opened 13 2 Acquired stores Stores closed 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Competitive Strengths We believe that the following competitive strengths position us well for growth: Management Team with Significant Industry and Company Experience. Our management team has significant experience in the payday loan industry and other retail consumer finance businesses. In addition, they have extensive operating experience as a result of working at all levels of our stores. We believe that this store-level experience has been critical to our outstanding store performance. Customer Service and Respect. We believe that customer loyalty results from treating customers in a positive, respectful manner and by providing quick and efficient service. Lending Policy. We believe that our lending policies allow us to efficiently generate loan volume, enabling new stores to become profitable within six months of opening. For the year ended December 31, 2003, our stores generated an average of more than $350,000 of annual revenue and our highest-revenue store generated approximately $1.5 million in revenues. Significant Role of Our Store Managers. We reward store managers for the success of their stores. We also encourage store managers to share with us the methods that bring them success. We believe that these practices encourage store managers to implement company strategies at the store level. Balance Sheet Flexibility. Immediately after the closing of this offering, we will have no debt. With cash flow from operations and the net proceeds from this offering, we will be poised to grow through the opening of new stores and opportunistic acquisitions. In addition, we will have the ability to leverage our assets to further grow the company. Business Strategies Our primary objective is to increase our profits by expanding our payday lending business and increasing comparable store revenues and gross profit. To accomplish this, we: Focus on Payday Loans. Our primary focus is to provide the most efficient payday loan services available. We deemphasize low-margin ancillary services, such as bill payments, and concentrate on payday lending. Pursue De Novo Store Growth. Since 1998, we have grown from 48 stores in five states to 295 stores in 21 states, partly through opening 137 new, or de novo, stores. We believe that through de novo growth we can achieve a strong return on capital due to our new store economics. Seek Opportunistic Acquisitions. Since 1998, we have acquired 137 stores. Our experience integrating acquired stores has taught us how to leverage our current management structure. Promote Operational Excellence. Our company-wide Operational Excellence program, which we developed in 2002, is designed to refine operational procedures and improve our internal processes. This program has become part of our culture and continues to foster improvements to our systems and procedures. Challenges We face challenges in executing our business strategies. Among the most important we face are: Regulation. The payday loan industry is highly regulated. Changes in laws governing payday loans, consumer protection or general lending practices may negatively affect our payday loan operations. Amendment No. 3 to FORM S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 Table of Contents Loss of Key Personnel. Our success depends to a large degree upon the continued services of our senior managers. If we lose these senior managers, our operating results could suffer. Employee Turnover. We experience high turnover among our store-level employees and in our store managers, which increases our operating costs and interferes with implementation of our store operating strategies. Litigation and Regulatory Actions. The payday lending industry is sometimes the subject of state regulatory actions that result from new interpretations of existing laws. Should any state in which we operate change its historical interpretations of existing laws that permit our operation, our operating results could suffer. Please see Risk Factors beginning on page 8 for information on these and other risks related to our business and this offering. Company Information Our principal executive offices are located at 2812 West 47th Avenue, Kansas City, Kansas 66103, and our telephone number is (913) 439-1100. Our website address is www.qcholdings.com. Our website and the information contained on our website are not incorporated into this prospectus or the registration statement of which it forms a part. QC Holdings, Inc. (Exact name of Registrant as specified in its charter) Each trademark, trade name or service mark of any other company or person appearing in this prospectus belongs to its holder or holders. Kansas 6099 43-1209939 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 2812 West 47th Avenue Kansas City, Kansas 66103 Phone: (913) 439-1100 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Darrin J. Andersen President and Chief Operating Officer QC Holdings, Inc. 2812 West 47th Avenue Kansas City, Kansas 66103 Phone: (913) 439-1100 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) Earnings (loss) per share (1): Basic $ (0.21 ) $ 0.04 $ 0.31 $ 0.41 $ 0.41 $ (0.13 ) $ 0.34 Diluted (0.21 ) 0.04 0.31 0.41 0.39 (0.13 ) 0.32 Shares used to calculate earnings (loss) per share: Basic 16,666,129 18,915,000 18,915,000 18,915,000 15,934,673 18,915,000 11,688,010 Diluted 16,666,129 18,991,998 19,036,641 19,256,263 16,436,429 19,381,398 12,347,417 Cash dividends per share $ 0.03 $ 0.06 Operating Data: Stores (at end of period) 122 176 204 258 294 270 295 Percentage increase in comparable total store revenues from prior period (3) 64.7 % 8.1 % 24.9 % 4.1 % 16.6 % 14.4 % 25.2 % Payday loans: Number of loan transactions new loans and refinances (in thousands) 443 778 1,194 1,381 1,878 393 519 Loan volume (in thousands) $ 85,610 $ 204,169 $ 327,334 $ 398,494 $ 590,071 $ 119,441 $ 168,848 Average loan 193.42 262.29 274.21 288.53 314.14 303.97 325.28 Average fee 26.06 37.47 40.89 44.11 47.76 46.36 49.29 Loss Data: Provision for losses as a percentage of revenues 16.2 % 17.4 % 24.6 % 21.1 % 21.6 % 18.2 % 13.5 % Copies to: Craig L. Evans Shook, Hardy & Bacon L.L.P. 2555 Grand Boulevard Kansas City, Missouri 64108 (816) 474-6550 Elizabeth R. Hughes Matthew B. Swartz Venable LLP 8010 Towers Crescent Drive Suite 300 Vienna, Virginia 22182 (703) 760-1649 Basic earnings (loss) per share $ (0.21 ) $ 0.04 $ 0.31 $ 0.41 $ 0.41 $ (0.13 ) $ 0.34 Diluted earnings (loss) per share (0.21 ) 0.04 0.31 0.41 0.39 (0.13 ) 0.32 Arizona 5 14 19 19 California 29 32 36 49 53 53 Colorado 4 6 8 8 Florida 1 Idaho 5 5 6 6 6 Illinois 14 13 27 26 26 Indiana 5 12 12 11 8 7 7 Kansas 10 10 10 10 10 13 13 Kentucky 7 9 10 10 Louisiana 2 3 5 4 Mississippi 4 6 6 8 7 7 7 Missouri 23 30 33 35 39 47 47 Nevada 3 4 5 5 5 New Mexico 15 16 19 19 19 North Carolina 6 22 23 24 24 20 20 Oregon 7 7 7 4 4 4 South Carolina 2 2 3 3 3 Utah 9 9 10 12 12 Virginia 6 15 15 Washington 6 5 6 6 9 10 Wisconsin 3 6 Balance, January 1, 2001 18,915,000 $ 191 $ (668 ) $ 5,819 $ (2,165 ) $ (326 ) $ 2,851 Net income and comprehensive income 5,897 5,897 Payments received on notes 6 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities Accounts payable $ 276 $ 276 Accrued expenses and other liabilities 1,235 834 Deferred revenue 2,188 1,833 Income taxes payable 1,051 1,182 Deferred income taxes 2,517 2,381 Revolving credit facility 6,256 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents Basic and diluted earnings (loss) per share computations are adjusted to reflect our obligation to purchase shares from two principal stockholders, Don Early and Gregory L. Smith, upon their death pursuant to our stockholders agreement with them. Under generally accepted accounting principles, for purposes of computing income available to common stockholders in the earnings per share calculations, we are required to include as a reduction to net income the increase in the carrying amount of the shares subject to redemption that is charged directly to retained earnings in any given period. Accordingly, we reduced net income available to common stockholders by $5.5 million in 1999, $3.3 million in 2000, $5.3 million in 2003 and $5.3 million for the three months ended March 31, 2003, to reflect the amount charged directly to retained earnings associated with this obligation. Pursuant to the stockholders agreement, we maintain insurance policies with respect to these two stockholders that will cover the entire share repurchase obligation. The stockholders agreement has been terminated effective June 30, 2004. Upon the termination of the stockholders agreement and related liability for mandatory stock redemption, the computation for earnings per share will no longer require the various adjustments associated with the shares subject to mandatory redemption as described herein. (a) As set forth in Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which we adopted on July 1, 2003, the shares considered to be subject to redemption under the stockholders agreement are excluded from weighted average shares for purposes of computing basic and diluted earnings per share. The number of shares excluded will vary based on the change in the market price from period to period. Further, SFAS 150 requires that the portion of net income representing dividend and participation rights associated with the mandatory stock redemption be removed from income available to common stockholders pursuant to the two-class method set forth by Statement of Financial Accounting Standards No. 128, Earnings per Share. (2) The unaudited as adjusted balance sheet data as of March 31, 2004 gives effect to this offering and the application of a portion of the net proceeds thereof for the repayment of outstanding indebtedness, as well as the termination of the stockholders agreement during second quarter 2004, which removed the liability for mandatory stock redemption and increased stockholders equity by $17 million. (3) Comparable stores are stores which are open during the full periods for which a comparison is being made. For example, comparable stores for the quarterly analysis as of March 31, 2004 are those stores opened for at least 15 months on such date, and comparable stores for the annual analysis as of December 31, 2003 are those stores opened for at least 24 months on such date. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. Table of Contents
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+Prospectus Summary 1 Summary Financial Data 7 Risk Factors 8 Use of Proceeds 15 Dilution 17 Capitalization 18 Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Proposed Business 21 Management 30 Principal Stockholders 34 Certain Transactions 35 Description of Securities 36 Underwriting 41 Legal Matters 45 Experts 45 Where You Can Find Additional Information 45 Index to Financial Statements F-1 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our" refer to Trinity Partners Acquisition Company Inc. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. We are a blank check company organized under the laws of the State of Delaware on April 14, 2004. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a currently unidentified operating business with significant growth potential. Our efforts in identifying a prospective target business will not be limited to a particular industry. To date, our efforts have been limited to organizational activities. We believe that the skills and expertise of our officers and directors and their collective access to acquisition opportunities and industry contacts will enable us to successfully identify and effect an acquisition. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. We believe that certain key trends create favorable circumstances for our acquisition of a target business. As a result of current market conditions, many privately held companies have been closed off from the public marketplace. Additionally, while the economy slowed over the last few years, many companies attempted to divest non-core assets and divisions and valuations have decreased significantly. As a result, we believe that there are substantial opportunities to effect attractive acquisitions and that, as a well-financed public entity possessing broad investment and acquisition expertise, we are well positioned to identify target acquisitions and to effect a business combination. Our offices are located at 245 Fifth Avenue, Suite 1600, New York, New York 10016, and our telephone number is (212) 696-4282. The Offering Securities offered: 125,000 Series A units, at $10.50 per unit, each unit consisting of: two shares of common stock; five Class W warrants; and five Class Z warrants. 650,000 Series B units, at $10.10 per unit, each unit consisting of: two shares of Class B common stock; one Class W warrant; and one Class Z warrant. The Series A and Series B units will begin trading on or promptly after the date of this prospectus. Each of the common stock, Class B common stock, and Class W and Class Z warrants may trade separately on the 90th day after the date of this prospectus unless HCFP/Brenner Securities determines that an earlier date is acceptable. In no event will HCFP/Brenner Securities allow separate trading of the common stock, Class B common stock, Class W warrants and Class Z warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering 100 shares Number to be outstanding after this offering 250,100 shares Class B common stock: Number outstanding before this offering 0 shares Number to be outstanding after this offering 1,300,000 shares Class W Warrants: Number outstanding before this offering 362,500 Number to be outstanding after this offering 1,637,500 Class W warrants Exercisability Each Class W warrant is exercisable for one share of common stock. Exercise price $5.00 Exercise period The Class W warrants will become exercisable on the later of (a) , 2005 [one year from the date of this prospectus] or (b) the earlier of: the completion of a business combination with a target business, or the distribution of the trust fund to the Class B stockholders. The Class W warrants will expire at 5:00 p.m., New York City time, on [ ], 2009 [five years from the date of this prospectus] or earlier upon redemption. Redemption We may redeem the outstanding Class W warrants with HCFP/Brenner Securities' prior consent: in whole and not in part, at a price of $.05 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days' prior written notice of redemption, and if, and only if, the last sale price of our common stock equals or exceeds $7.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Class Z Warrants: Number outstanding before this offering 362,500 Number to be outstanding after this offering 1,637,500 Class Z warrants Exercisability Each Class Z warrant is exercisable for one share of common stock. Exercise price $5.00 Exercise period The Class Z warrants will become exercisable on the later of (a) , 2005 [one year from the date of this prospectus] or (b) the earlier of: the completion of a business combination with a target business, or the distribution of the trust fund to the Class B stockholders. The Class Z warrants will expire at 5:00 p.m., New York City time, on [ ], 2011 [seven years from the date of this prospectus] or earlier upon redemption. Redemption We may redeem the outstanding Class Z warrants with HCFP/Brenner Securities' prior consent: in whole and not in part, at a price of $.05 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days' prior written notice of redemption, and if, and only if, the last sale price of our common stock equals or exceeds $8.75 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Series A units [ ] Series B units [ ] Common stock [ ] Class B common stock [ ] Class W warrants [ ] Class Z warrants [ ] Offering proceeds to be held in trust: $6,565,000 of the proceeds of this offering (representing the aggregate offering price of the Series B units) will be placed in a trust fund maintained by American Stock Transfer & Trust Company, as trustee, pursuant to an agreement with American Stock Transfer & Trust Company to be signed on the date of this prospectus. These proceeds will not be released to us until the completion of a business combination. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $432,300). Different voting rights of common stock and Class B common stock: Holders of our common stock and Class B common stock are each entitled to one vote for each share of record on all matters to be voted on by stockholders other than in connection with a proposed business combination. Only holders of our Class B common stock are entitled to vote in connection with a proposed business combination. Following the completion of a business combination or the distribution of the trust fund to the holders of our Class B common stock, we will have only one class of common stock outstanding. At that time, each holder will be entitled to vote on all matters. Class B stockholders must approve business combination: We will seek Class B stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. We will proceed with a business combination only if a majority in interest of the Class B shares present in person or by proxy at a special meeting of Class B stockholders vote in favor of the business combination and Class B stockholders owning less than 20% of the Class B shares sold in this offering exercise their conversion rights described below. In the event of a business combination, all outstanding Class B common stock will be automatically converted into common stock. In the event we are unable to complete a business combination, the trust fund will be distributed to our Class B stockholders and all outstanding Class B common stock will be cancelled. Accordingly, following the completion of a business combination or the distribution of the trust fund to the Class B stockholders, we will have only one class of common stock outstanding. Conversion rights for Class B stockholders voting to reject a business combination: Class B stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Distribution of the proceeds held in trust to Class B stockholders in the event of no business combination: We will promptly distribute only to our Class B stockholders the amount in our trust fund if we do not effect a business combination within 12 months after consummation of this offering (or within 18 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 12 months after consummation of this offering and the business combination has not been consummated within such 12 month period). The holders of common stock will not receive any of the proceeds held in the trust fund. However, in the event there is no business combination, any remaining net assets, after the distribution of the trust fund to the Class B stockholders, will be available for our use. Risks In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should also note that our financial statements contain a statement indicating that our ability to continue as a going concern is dependent on us raising funds in this offering. You should carefully consider these and the other risks set forth in the section entitled "Risk Factors" beginning on page 8 of this prospectus.
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+(State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 1489 Marine Drive Suite 136 West Vancouver, British Columbia, Canada V7T 1B8 (Address of principal executive offices, including Postal Code) Registrant's area code and telephone number: (604) 992-6663 Conrad C. Lysiak Attorney and Counselor at Law 601 West First Avenue Suite 503 Spokane, Washington 99201 (509) 624-1475 (Name, address, including zip code, and telephone number, including area code, of agent of service) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act of 1933, check the following box. [ ] Calculation of Registration Fee Proposed Proposed Maximum Maximum Amount of Title of Each Class of Amount to Be Offering Price Aggregate Registration Securities to Be Registered Registered per Share [1] Offering Price Fee Common stock, without par value: 4,512,600 $ 0.01 $ 45,126 $ 100.00 [1] Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. - 2 - PROSPECTUS HOMELAND PRECIOUS METALS CORP. 4,512,600 SHARES BEING SOLD BY SELLING SHAREHOLDERS The 4,512,600 shares of common stock, without par value, of HOMELAND PRECIOUS METALS CORP., a British Columbia corporation, are offered by 40 selling shareholders from time to time. See "Plan of Distribution." The expenses of the offering, estimated at $25,000.00, are being paid by us. We will not receive any proceeds form the sale of shares by the selling shareholders. The selling shareholders will offer and sell up to an aggregate of 4,512,600 common shares directly to the public at a price of US$0.01 per share until such time as the common stock may be quoted on the Bulletin Board operated by the National Association of Securities Dealers, Inc. and thereafter at prevailing market prices or privately at negotiated prices. WE CURRENTLY DO NOT OWN ANY PRECIOUS METALS OR RIGHTS TO THOSE METALS. Our common stock is not listed for trading anywhere. There is no assurance that the shares will ever be listed for trading anywhere or an active trading market for our common stock will ever develop. Prior to this offering, there has been no public market for the common shares. See "Risk Factors" beginning on page 6 to read about factors you should consider before buying common shares. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Prospectus dated _________________________, 2004. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT. - 3 - PROSPECTUS SUMMARY The following summary highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document, including our financial statements and related notes, to understand our business, our common shares and the other considerations that are important to your decision to invest in our common shares. You should pay special attention to the "Risk Factors" section. The phrase "fiscal year" refers to the twelve months ended December 31 of the relevant year. All references to "$" or "dollars" mean U.S. dollars, unless otherwise indicated. All financial information with respect to us has been prepared in accordance with generally accepted accounting principles in the United States, unless otherwise indicated. HOMELAND PRECIOUS METALS CORP. We were incorporated pursuant to the Company Act (British Columbia) on April 28, 2003. We are a natural resource company engaged in the acquisition and exploration of natural resource properties. We commenced operations on April 28, 2003. As of today, we have not acquired any interests in any properties. We are currently looking for properties worthy of exploration and development. We are an exploration stage company and there is no assurance that a commercially viable mineral deposit will exist on any property we select. Exploration will be required before a final evaluation as to the economic and legal feasibility is determined. Corporate Information Our offices are located at 1489 Marine Drive, Suite 136, West Vancouver, British Columbia, Canada V7V 1A9. Our telephone number is (604) 992-6663. We have no subsidiary corporations. Trademarks and Trade Names We have no trademarks or trade names. The Offering Common shares offered by selling shareholders 4,512,600 shares Common shares to be outstanding before and after the offering 4,512,600 shares Estimated initial public offering price $0.01 per share or at the market, should the shares beginning trading on the Bulletin Board operated by the National Association of Securities Dealers, Inc. Use of proceeds No proceeds will be received by us. All proceeds will be received by selling shareholders. - 4 -
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "we," "our" and "us" mean, unless the context indicates otherwise, Nalco Holdings LLC, or Nalco Holdings, including Nalco Holdings' subsidiaries and affiliates, after giving effect to the Transactions described below in this summary. Nalco Holdings LLC's subsidiaries include: Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, Nalco Holdings LLC's subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. TABLE OF ADDITIONAL REGISTRANT GUARANTORS Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices ADX Corp. Michigan 36-3112436 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Board Chemistry Incorporated Delaware 36-3282850 1602 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Calgon Corporation Delaware 25-1711614 1603 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco American Holding, Inc. (f/k/a Degremont American Holding, Inc.) Delaware 54-1887359 1604 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Company LLC (f/k/a Ondeo Nalco Company LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Delaware Company Delaware 36-3765301 1605 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Equatorial Guinea LLC (f/k/a ONES Equatorial Guinea LLC) Delaware 76-0444295 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services Holdings LLC (f/k/a ONDEO Nalco Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Energy Services, Inc. (f/k/a ONDEO Nalco Energy Services, Inc.) Delaware 76-0444292 7702 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services, L.P. (f/k/a ONDEO Nalco Energy Services, L.P.) Delaware 76-0444295 7703 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 Nalco Energy Services Middle East Holdings, Inc. (f/k/a ONDEO Nalco Energy Services Middle East Holdings, Inc.) Delaware 22-2429311 7701 Highway 90-A Sugar Land, Texas 77478 (281) 263-7000 MARKET AND INDUSTRY DATA AND FORECASTS We derived the market and industry data we present in this prospectus from the following sources: Market Size. We based the 2003 global market size for water treatment chemicals and services in the industrials and institutional sector on estimates of Kline & Company Inc., Lake View Associates and SRI International for the years 2000, 2001 and 2002. We adjusted these estimates by deducting results for the Paper and Energy Services water treatment chemicals markets based on estimates of Mars & Co. and internal estimates derived from discussion with our sales force and other industry participants. We further adjusted as necessary to reflect that certain of the third party sources included product lines, such as commodity chemicals, which are outside our relevant market. We based the 2003 global market size for process improvement and water treatment to the petroleum and petrochemical market on our internal estimates for downstream chemical markets and estimates of SRI International and Business Communications Company, Inc. for 2000 and 2002 upstream chemical markets. We adjusted the upstream chemical results by adding results for the production chemicals and drag reducers submarkets and deducting results for the commodity chemical submarket. We based the 2003 global market size for paper process specialty chemicals and services on estimates of Mars & Co., Kemira (a market participant), SRI International and Business Communications Company, Inc. for the years 1999, 2000 and 2002. We deducted from this market results for certain submarkets in which we do not operate. We adjusted each of the historical market size estimates from prior years to 2003 by applying an assumed annual growth rate of 2% and by applying actual changes in foreign exchange rates against the U.S. dollar. Market Share. We determined our market share and market position in each of the markets based on the sizes of the 2003 markets, our 2003 sales in each of the markets, publicly available information of sales by competitors and our internal estimates of competitors' sales based on discussion with our sales force and other industry participants. We also derived information about our market share and our competitors' market share of the Industrial and Institutional Services market from reports of SRI International and The Freedonia Group, Inc. for 2001 and 2002. Market Growth. Our analysis of market growth information reflects historical growth patterns in our market researched by Mars & Co., Environmental Business International, Merrill Lynch, J.P. Morgan and Frost & Sullivan, along with our own historical market trends. The specific forecasts we prepared were primarily based on economic forecasts for general industrial production ("IP") and gross domestic production ("GDP") data through 2007 from Global Insight for different regions in the world and different industrial segments in North America. We believe the Global Insights forecast for GDP and IP were too aggressive on an overall basis and for the specific industrial segments, and adjusted our forecast downward. We also used the Global Insight North American industrial forecasts as a basis for our projections of industrial growth in North America, and extrapolated the Global Insight industrial North American numbers to industries in other regions of the world. We made further adjustments to these regional industrial forecasts in each region and industry based on our internal estimations of competitive pressures (both for us and our customers), pricing activities and other factors specific to the region or the industry. TRADEMARKS AND SERVICEMARKS AQUAMAX , Core Shell , Fiber NEU , OptiLux , ValueLine , Vantage , PROSPECSM, ACTRENE , BIO-MANAGE , Calgon , COKELESS , ELIMIN-OX , EN/ACT , ENERCEPT , ENERSPERSE , Fiber Brite , LAZON , Metrix , Nalco , Nalco ACT , NALMET , NEOSTAR , NexGuard , ODORtech , PORTA-FEED , Ultra POSITEK , Scale-Guard , SCORPION II, SheeTracker , SmartSoft , STA BR EX , SULFA-CHECK , SUR-GUARD , THERMOGAIN , TRA-CIDE , TRASAR , 3D TRASAR , Tri-ACT , ULTIMER , UltraTreat , ULTRAXOL , ULTRION and certain other products and services named in this prospectus are our registered trademarks and servicemarks. Our Divisions Industrial and Institutional Services Energy Services Paper Services Market Positions #1 Market Position $5.3 billion global market(1)(2) #1 Market Position $2.9 billion global market(1) #2 Market Position $7.1 billion global market(1) Market Share 19% 25% 9% 2003 Net Sales(3) $1,315 million(4) $740 million $617 million(5) Representative Markets Food and Beverage Buildings, Hotels, Hospitals Chemicals, Pharmaceuticals Manufacturing, Metals, Utilities, Mining Exploration Field Development Production Refining Petrochemical Manufacturing Fine Paper Uncoated Free Sheet Coated Free Sheet Newsprint Tissue Containerboard (1) Approximate market size based on internal estimates and industry publications and surveys. See "Market and Industry Data and Forecasts" and "Industry Overview." (2) Industrial and Institutional Services market position and size represents the water treatment and services markets (excluding water treatment and services markets served by the Energy Services and Paper Services divisions), which accounted for approximately 78% of our Industrial and Institutional Services division's net sales in 2003. (3) Divisional net sales exclude approximately $95 million of sales not allocated among the divisions. (4) Includes approximately $129 million of sales realized in the Pacific region. (5) Includes approximately $55 million of sales realized in the Pacific region. Industrial and Institutional Services Our Industrial and Institutional Services division provides products and services that are principally utilized in water treatment applications such as raw water treatment, wastewater treatment, cooling programs and boiler treatment programs to control corrosion, the build up of scale and microbial fouling. Customers use our water treatment programs to extend the useful life of their assets, minimize downtime of their facilities and conserve water and energy. We serve companies across a broad spectrum of industries, including aerospace, chemical, pharmaceutical, steel, power, food and beverage, medium and light manufacturing, metalworking and institutions such as hospitals, universities and hotels. Six of our ten largest Industrial and Institutional Services customers in 2003 have been with us for more than ten years. Energy Services Our Energy Services division provides on-site, technology driven solutions to the global petroleum and petrochemical industries. In addition, we provide a full range of water treatment offerings to refineries and petrochemical plants. Our upstream process applications improve oil and gas production, extend production equipment life and decrease operating costs through services that include scale and corrosion control, oil and water separation, emulsion breakers and gas hydrate solutions. Our downstream process applications increase production efficiency and the useful lives of customer assets, while improving refining and petrochemical product quality and product yields. Our customers include the fifteen largest publicly traded oil companies. Our ten largest Energy Services customers in 2003 have been with us for more than twenty years. Paper Services Our Paper Services division offers a comprehensive portfolio of products and services that are used in all principal steps of the paper-making process and across all grades of paper, including fine paper, uncoated free sheet, coated free sheet, newsprint, tissue and containerboard. Some examples of our product applications include pulp digestion, microbial control, de-inking agents, retention and Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Nalco FT, Inc. Delaware 36-3690790 1606 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Global Holdings LLC (f/k/a ONDEO Nalco Global Holdings LLC) Delaware 36-1520480 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Holdings LLC Delaware 73-1683500 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Industrial Outsourcing Company Delaware 36-4344205 1601 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco International Holdings LLC (f/k/a ONDEO Nalco International Holdings LLC) Delaware 36-6114238 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Leasing Corporation Delaware 36-3308773 1607 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco PWS, Inc. Delaware 36-4466815 1608 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Resources Investment Company Texas 36-6113527 1609 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco TWO, Inc. Delaware 36-4023948 1610 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco U.S. Holdings LLC (f/k/a ONDEO Nalco U.S. Holdings LLC) Delaware 36-4402250 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalco Worldwide Holdings LLC (f/k/a ONDEO Nalco Worldwide Holdings LLC) Delaware 36-6114100 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Nalgreen, Inc. Delaware 36-3650277 1611 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 drainage. In these applications, our products and services help our customers maximize production rates, optimize the quality of finished sheets and minimize down time. Our customers include the 20 largest paper companies in the world, which collectively accounted for approximately 45% of global production capacity in the paper industry in 2002. Eight of our ten largest Paper Services customers in 2003 have been with us for more than ten years. Competitive Strengths We have benefited from the following competitive strengths: Leading Market Positions. We are the #1 provider of water treatment services to industrial and institutional end markets. We are also a leading provider of integrated water treatment and process improvement services, maintaining the #1 position in the petroleum and petrochemical markets and the #2 position in the pulp and paper market. Diverse Customers and Industries Served. We provide products and services to more than 60,000 customer locations across a broad range of industries and institutions. Our customers include over 60% of the companies that comprise the S&P 500 index. In 2003, no single customer accounted for more than 3% of our net sales. Our business is also diversified geographically. In 2003, 51% of total sales were in North America, 31% in Europe, Africa and the Middle East, 7% in Latin America and 11% in the Pacific region. We believe this diversification minimizes the potential impact of volatility from any one customer, industry or geographic area. Global Reach. We have a direct sales and marketing presence in 130 countries across six continents. This enables us to provide a consistently high level of service to local, regional and multinational customers. We believe our global presence offers us a competitive advantage in meeting the global needs of our multinational customers, which are increasingly seeking single-source suppliers and positions us to extend our reach to higher-growth markets. World Class Sales Team. Through the expertise of our more than 5,000 sales professionals and engineers, we provide our customers with relevant industry knowledge and experience in order to solve technically challenging and dynamic problems. Our team of experts has significant experience, with approximately 40% of our approximately 2,100 person North American sales team having more than ten years of service with our company. We believe this contributes significantly to the number and strength of relationships with our customers. We also invest heavily in recruiting and continuously training our sales professionals. For example, new hires spend more than half of their first year on training. Integrated Technology, Sales and Service. We combine on-site service, innovative technology and engineering excellence to create value for our customers. Our technical sales professionals identify problems and opportunities at the customer's plant and our research teams then work to develop effective solutions to these needs, often working jointly with our customers. Many of our customers specify our formulations into their processes and products. This approach has resulted in a high degree of customer loyalty. Stable and Significant Cash Flow Generation. We have produced consistent cash flows and maintained high margins over a sustained period of time. We attribute this to (1) the diversity of our revenues, (2) the service nature of our business, (3) the high value we offer our customers, (4) the strength of our customer relationships, (5) our limited dependency on any single raw material and (6) our low capital expenditures relative to our net sales. Premier Management Team. Our senior management team consists of professionals with significant experience within our company and the water treatment and industrial process improvement industry. Our seven executive officers have an average of over 11 years of service with our company and over 27 years of industry experience. Exact Name of Registrant as Specified in its Charter State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification Number Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices Naltech, Inc. Delaware 51-0357514 1612 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 ONES West Africa LLC Delaware 57-1187680 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Paper Chemicals, Inc. Texas 75-1867607 P.O. Box 6837 Texarkana, Texas 75505-6837 (903) 832-7515 Pure-Chem Products Company, Inc. California 95-3235235 8371 Monroe Ave Stanton, California 90680 (714) 995-4141 Visco Products Company Texas 36-3205037 1613 West Diehl Road Naperville, IL 60563-1198 (630) 305-1000 Business Strategy We have historically experienced sales growth in excess of industrial production growth in our core markets. We are pursuing a strategy designed to continue this trend by expanding our market positions and increasing our revenues, as well as enhancing our cash flow. The key elements of this strategy are: Build Upon Our Customer Base. We seek to strengthen our position with our existing customer base as well as pursue new customers by continuing to serve as the leading global provider of fully integrated water treatment services and industrial process solutions. We continually seek to add value for our customers by identifying those services, products and equipment that will enhance their profitability through reduced costs, improved yields and decreased capital spending. Pursue High-Growth Markets. We intend to continue to focus on high-growth markets and segments. Geographically, we plan to leverage our global reach by capitalizing on our presence in high-growth emerging markets including Asia, Eastern Europe and Latin America. We also intend to continue to pursue high-growth segments in a variety of areas closely related to our core businesses and competencies. Maintain Technological Leadership. We strive to develop new technologies and products through a focused commitment to technology, research and development. The evolution of our existing products and the development of new technologies have historically allowed us to sustain and enhance the profitability of our business and further penetrate our target markets, including our existing customer base. Our engineers will continue to work closely with our customers in an effort to identify new product opportunities and jointly develop new technologies. Follow the Global Expansion of Multinational Customers. As one of a small number of companies that can provide turnkey water management solutions on a global basis, we seek to leverage our relationships with multinational companies by servicing them globally. Continue to Reduce Costs. We have initiated a comprehensive cost reduction plan which we expect will yield savings in 2004 of at least $75 million compared to 2003. We expect our cost reduction plan to achieve incremental efficiencies through work process redesign and other targeted cost improvement programs, which address inefficiencies in our administrative and overhead functions, as well as other support functions around the world. Maximize Cash Flow and Reduce Debt. We believe that there are significant opportunities to increase our cash flow. We believe that while the capital expenditures required to maintain our business are low relative to our sales, we can further reduce our capital expenditures from 2003 levels through enhanced management focus. We believe there is an opportunity to reduce our working capital needs. We intend to use our free cash flow to reduce indebtedness. During the six months ended June 30, 2004, we made $14.3 million of scheduled repayments and $90.0 million of optional prepayments on our indebtedness from operating cash flows. Focus on Supply Chain Management. We have a dedicated global supply chain team that focuses on managing manufacturing, procurement, logistics, and customer service activities. We believe that by coordinating these functions, we achieve better inventory management and lower procurement costs. Sophisticated customer demand analyses and logistics strategies have contributed to a nine-day reduction in our investment in inventories as of June 30, 2004 compared to June 30, 2003. We believe that we will be able to make additional improvements in our inventory management and lower procurement costs. The information in this prospectus is not complete and may not be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated October 1, 2004 PRELIMINARY PROSPECTUS Nalco Company $665,000,000 7&frac34;% Senior Notes due 2011 200,000,000 7&frac34;% Senior Notes due 2011 $465,000,000 8 7/8% Senior Subordinated Notes due 2013 200,000,000 9% Senior Subordinated Notes due 2013 The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 7&frac34;% senior notes due 2011 were issued on September 14, 2004 in exchange for the 7&frac34;% senior notes due 2011 originally issued on November 4, 2003. The 8 7/8% senior subordinated notes due 2013 were issued on September 14, 2004 in exchange for the 8 7/8% senior subordinated notes due 2013 originally issued on November 4, 203. The 9% senior subordinated notes were issued on September 14, 2004 in exchange for the 9% senior subordinated notes originally issued on November 4, 2003. The senior notes will mature on November 15, 2011 and the senior subordinated notes will mature on November 15, 2013. Nalco Company may redeem some or all of the senior notes at any time prior to November 15, 2007 and some or all of the senior subordinated notes at any time prior to November 15, 2008, in each case, at a price equal to 100% of the principal amount of the notes, plus a "make-whole" premium. Thereafter, Nalco Company may redeem some or all of the senior notes and some or all of the senior subordinated notes, in each case, at the redemption prices described in this prospectus. In addition, on or prior to November 15, 2006, Nalco Company may redeem up to 35% of each of the senior notes and the senior subordinated notes with the proceeds from certain equity offerings. The senior notes are Nalco Company's unsecured obligations and rank equally with all of Nalco Company's existing and future senior obligations and senior to Nalco Company's subordinated indebtedness. The senior subordinated notes are Nalco Company's unsecured senior subordinated obligations and are subordinated to all of its existing and future senior indebtedness including the senior notes. The notes are effectively subordinated to Nalco Company's existing and future secured indebtedness to the extent of the assets securing that indebtedness. The notes are guaranteed by Nalco Holdings LLC and Nalco Company's direct and indirect domestic subsidiaries that guarantee its obligations under the senior credit facilities. These guarantees are unsecured and, with respect to the senior notes, rank equally with all existing and future senior obligations of the guarantors and, with respect to the senior subordinated notes, are subordinated to all existing and future senior obligations of the guarantors. The guarantees are effectively subordinated to existing and future secured indebtedness of the guarantors to the extent of the assets securing that indebtedness. The dollar notes are expected to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages Market, commonly referred to as the Portal Market. We intend to apply to list the euro notes on the Luxembourg Stock Exchange. See
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that is important to you. You should read this prospectus carefully, particularly the section entitled Risk Factors and the financial statements and the related notes to those statements, and the other documents to which this prospectus refers you. Unless otherwise indicated or the context otherwise requires, the terms Grande, we, our, us refer to Grande Communications Holdings, Inc. and its subsidiaries. Our Business Our primary business is to provide communities in Texas with a bundled package of cable television, telephone and broadband Internet services. We operate fully integrated advanced broadband networks in six markets that passed 280,959 out of approximately 1.4 million marketable homes and small businesses as of March 31, 2004. We have achieved over 39% customer penetration of the marketable homes and small businesses that we pass. We expect that with existing cash on hand and our anticipated cash flow from operations, we will be fully funded to build-out our networks to pass all 1.4 million marketable homes and small businesses over the next several years. We believe our ability to offer bundled services to our customers over our own advanced networks provides us with a number of operational and capital efficiency advantages over our competitors. Our strategy, which is described below, has allowed us to rapidly grow each of our markets. Grande Competitive Advantages We believe we have been able to rapidly and cost effectively achieve our customer penetration levels because of the following competitive advantages: Flexible product offerings, attractively bundled and priced. We are able to deliver a wide range of products that allow our customers to select the services that meet their specific needs and preferences; from bundled product offerings that include 4.0 Mbps Internet access, over 300 channels of cable television and local and long distance calling with custom features, to simple packages of basic cable television, local telephone and/or 384 Kbps Internet access. We also offer packages of multi-line calling plans and high-speed Internet offerings of up to 10 Mbps for commercial customers. We believe we can offer a competitively priced appropriate package for virtually any customer passed by our networks. Because of operating efficiencies that result from providing multiple services to one customer, we are able to provide our customers additional savings when they purchase products as part of a bundle of two or three services. We believe that we have been able to provide our customers with an attractively priced bundle while growing our average monthly revenue per customer to approximately $87 during the first quarter of 2004. We also believe that our ability to provide a single consolidated bill for multiple services is an attractive feature for our customers. Strong local brand and customer service. We have chosen to serve customers in six attractive and growing markets in Texas: Austin/San Marcos, San Antonio, suburban northwest Dallas, Waco, Corpus Christi and Midland/Odessa. In each of these markets, we have established a strong local presence that we believe has positioned Grande as the home-town company, despite the fact that we are not the incumbent service provider in any of our markets. Our customer service and technical representatives, as well as our sales representatives, installation technicians and other employees who interact with our Table of Contents Table of Contents PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution. The following are the estimated expenses to be incurred in connection with the issuance and distribution of the securities being registered. SEC registration fee $ 329 Printing and engraving expenses 50,000 Legal fees and expenses 50,000 Accounting fees and expenses 45,000 Blue Sky fees and expenses 5,000 Transfer agent fees 5,000 Miscellaneous 5,000 Total $ 160,329 Item 14. Indemnification of Directors and Officers. The Restated Certificate of Incorporation (the Charter ) and Bylaws of Grande provide for the indemnification of Grande s directors and officers to the fullest extent permitted by law. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or controlling persons of Grande pursuant to Grande s Charter, Bylaws and the Delaware General Corporation Law, Grande has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is therefore unenforceable. As permitted by the Delaware General Corporation Law, the Charter provides that directors of Grande shall not be personally liable to Grande or its stockholders for monetary damages for breach of fiduciary duty as a director. As a result of this provision, Grande and its stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care. Section 6.1 of the Charter provides that Grande shall, to the maximum extent permitted by Delaware law, insure, indemnify and, upon request, advance expenses to: [e]ach person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the Corporation or otherwise (a proceeding ), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to an employee benefit plan only if such proceeding was authorized by the Board of Directors of the Corporation Persons who are not directors or officers of the Corporation and are not so serving at the request of the Corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the Board of directors of the Corporation. Section 145 of the Delaware General Corporation Law sets forth provisions that define the extent to which a corporation organized under the laws of Delaware may indemnify directors, officers, employees or agents. Section 145 provides as follows: (a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents customers, know our markets and products, and are part of our customer-focused culture. We operate four call centers located in our markets allowing us to offer customer care 24 hours a day, seven days a week in an efficient, cost-effective manner. We believe our home-town brand, combined with local customer service and support, enables us to appeal to residential customers and small businesses in our markets as well as to local universities, utilities, hospitals and other institutions. Competitively superior networks. We provide our services over our newly constructed, fully integrated, high-speed, high capacity networks, which bring fiber optic cable close to our potential customers, known as fiber to the curb. Our networks deploy fiber optic cable to nodes that serve from 24 to 500 customers, depending on network configuration. Our networks utilize an 860 Mhz signal, which is easily upgradeable to 1Ghz. By comparison, our cable television competitors use networks with a maximum of 750 Mhz signals, which are not designed to be as easily upgraded. Our networks are designed to have sufficient capacity to meet the growing demand for high-bandwidth cable television, telephone and Internet services while providing additional capacity to enable us to offer planned and future products. The architecture of our networks allows us to offer dedicated Internet products that we believe are superior to the shared bandwidth Internet products offered by our competitors. We already offer high definition television and digital video recording, and our networks are positioned to deliver on-demand cable television and Internet services, home security, interactive gaming and other demand-driven services, without requiring a significant additional capital investment. The Grande Strategy We seek to take advantage of our market position by pursuing the following operating strategy: Pursue scalable growth. We have chosen to serve six Texas markets that we believe have significant growth potential. As of March 31, 2004, we passed 280,959 out of approximately 1.4 million marketable homes and small businesses in our existing markets. Since we have deployed or acquired substantial core infrastructure in each of our six markets, we will be able to increase the coverage of our existing networks by five times without the need to make the substantial capital expenditures required to enter a new market. In addition to capitalizing on our existing network investment, expanding our networks past additional homes in existing markets will enable us to take advantage of our local branding and marketing efforts and to minimize the loss of satisfied customers that move outside of our current network footprint. Deploy capital in markets with demonstrated demand and operating metrics. We believe that each our existing markets has demonstrated strong consumer demand and favorable operating metrics. As of March 31, 2004, each of our markets had achieved at least 30% customer penetration. In addition, several of our community franchise agreements have required us to initiate our network deployment in areas with below average income demographics. As a result, we expect that as we continue to build out our networks into more of the higher income areas in these markets, our customer penetration rates and revenues per customer will continue to improve. Leverage our infrastructure by serving enterprises and carriers. In addition to our primary business of offering bundled cable television, telephone and broadband Internet services to residential and small business customers, we also offer broadband transport services and network services to medium and large enterprises and communications carriers. These services are primarily provided using our existing infrastructure and personnel with minimal incremental operating costs and capital requirements. Historically, these services represented a majority of our revenues as a result of our acquisition in July 2000 of the assets of Thrifty Call, a communications service provider, which served as the platform for our provision of residential telephone and broadband Internet services. Since completing that acquisition, we have focused on the deployment and operation of our residential operations. However, we have continued to generate meaningful cash flows from the legacy telephone and data transport services, and we will continue to pursue incremental revenue opportunities from these and other Table of Contents fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person s conduct was unlawful. (b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the stockholders. (e) Expenses (including attorneys fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. (f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person s official capacity and as to action in another capacity while holding such office. Pre-effective Amendment No. 1 to the FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents network services. We expect that our broadband transport and network services, together, will represent approximately one-third of our revenues in 2004 and that most of our growth opportunities will come from our cable television, telephone and broadband Internet services. History of Grande Grande was founded in October 1999 by our chief executive officer, William Morrow, with the objective of providing a bundled package of cable television, telephone and broadband Internet services to residential and small business customers in Texas, and in February 2000 we raised $232 million in initial equity capital. As a result of subsequent equity investments and mergers, we now have $508 million of total invested equity capital and a base of over 20 institutional private equity investors. We have incurred net losses for the past three years and expect to continue to incur net losses for the next several years. In July 2000, we acquired the assets of Thrifty Call, a communications service provider, which served as the platform for our provision of residential telephone and broadband Internet services, and has generated a significant but declining portion of our revenues through an agreement with MCI. The agreement with MCI, under which we provided various carrier services, was terminated in the fourth quarter of 2003 as part of MCI s bankruptcy proceedings. We expect that our recent acquisition of Advantex, discussed below, will offset a significant portion of the revenues lost from the termination of this agreement. In early 2001, we began delivering bundled cable television, telephone and broadband Internet services to residential customers in San Antonio and Austin/San Marcos. In June 2002, we acquired ClearSource, which provided bundled services similar to ours to residential and small business customers over a broadband network in the Waco, Corpus Christi and Midland/Odessa markets. Our CEO, William Morrow, was one of the founders of ClearSource, and at the time of the acquisition we shared most of the same major investors with ClearSource, and a number of ClearSource s directors were members of our board of directors. At the time of the acquisition, ClearSource was the largest customer of our local telephone services. In October 2003, we acquired Advantex, which provided broadband residential and commercial services primarily in suburban northwest Dallas and provided us with approximately 30,000 customers. In addition to these acquisitions, we have been able to acquire additional network assets at attractive prices that have reduced our expected cost of operations and avoided some of our planned capital expenditures. In particular, in March 2003, we acquired the long-haul network assets of C3 Communications, which provided us with 3,000 route miles of fiber optic cable in Texas, Oklahoma, Arkansas and Louisiana. These assets serve as a backbone connecting each of our markets except Midland/Odessa and, along with our metro area networks, constitute the core infrastructure for our provision of broadband transport and network services.
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+Table of Contents SELECTED CONSOLIDATED FINANCIAL DATA You should read the following information with our consolidated financial statements and related notes and Management s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. The selected consolidated statements of operations and cash flow data for the period from April 4, 2001, the date of our inception, through December 31, 2001 and for the years ended December 31, 2002 and 2003, and the selected consolidated balance sheet data as of December 31, 2002 and 2003, are derived from our audited consolidated financial statements included elsewhere in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements and related notes. The selected consolidated balance sheet data as of December 31, 2001 are derived from our audited consolidated balance sheet and the related notes which are not included in this prospectus. These consolidated financial statements are prepared in accordance with U.S. GAAP. The selected consolidated statements of operations and cash flow data for the six months ended June 30, 2003 and 2004 and the selected consolidated balance sheet data as of June 30, 2004 are derived from our unaudited consolidated financial statements for these periods and as of these dates included elsewhere in this prospectus. We have prepared the unaudited information on the same basis as the audited consolidated financial statements, and have included, in our opinion, all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results do not necessarily indicate results expected for any future periods. On April 23, 2001, we purchased all of the shares of eLong Information Technology (Beijing) Co., Ltd, our predecessor. This acquisition was accounted for as a business combination using the purchase method of accounting. Accordingly, the following table also presents selected consolidated financial data of our predecessor as of and for each of the periods indicated. From April 4, 2001 to April 22, 2001, we had no business operations. The selected historical financial data of our predecessor as of December 31, 1999 and 2000 and for the period from August 17, 1999, the date of the inception of the predecessor, to December 31, 1999, for the year ended December 31, 2000 and for the period from January 1, 2001 to April 22, 2001 have been derived from unaudited financial statements, containing all normal and recurring adjustments, which, in the opinion of our management, are necessary to present fairly the financial position of the predecessor as of December 31, 1999 and 2000, and its results of operations for the period from August 17, 1999 to December 31, 1999, for the year ended December 31, 2000 and for the period from January 1, 2001 to April 22, 2001 in accordance with U.S. GAAP. As the business of our predecessors during 1999 and part of 2000 was different from ours, the historical results of our predecessor may not be comparable to our results. Earnings (loss) per ordinary share Basic (0.94 ) (0.63 ) 0.09 0.01 (0.21 ) (0.56 ) (0.07 ) Diluted (0.94 ) (0.63 ) 0.07 0.01 (0.21 ) (0.56 ) (0.07 ) Pro forma earnings (loss) per ordinary share Basic 0.01 0.00 (0.31 ) (0.04 ) Diluted(2) 0.01 0.00 (0.31 ) (0.04 ) Earnings (loss) per ADS(3) Basic (1.88 ) (1.26 ) 0.18 0.02 (0.42 ) (1.11 ) (0.13 ) Diluted(2) (1.88 ) (1.26 ) 0.14 0.02 (0.42 ) (1.11 ) (0.13 ) Pro forma earnings (loss) per ADS(3) Basic 0.02 0.00 (0.63 ) (0.08 ) Diluted(2) 0.02 0.00 (0.63 ) (0.08 ) (1) Stock-based compensation is all related to general and administrative expenses. (2) All dilutive potential ordinary shares arise from (a) the stock options granted to our directors and employees under our stock option plans, (b) the stock warrants granted to non-employees, (c) stock options to purchase up to 971,633 ordinary shares granted to IAC, (d) the automatic conversion of 8,205,620 existing Series A preferred shares into 8,205,620 ordinary shares upon the completion of this offering and giving effect to the repurchase of Series A preferred shares and ordinary shares in connection with the issuance of Series B preferred shares, and (e) the automatic conversion of 11,188,570 Series B preferred shares into 11,188,570 ordinary shares (if IAC does not exercises its warrant) or 11,188,570 high-vote ordinary shares (if IAC exercises its warrant), subject in each case to certain anti-dilution adjustments, if applicable, 31 business days after the completion of this offering. For the purpose of computing pro forma diluted income per share, dilutive potential ordinary shares arise from (a) conversion of the 9,787,494 Series A preferred shares of outstanding ordinary shares that will be issued for the preferred shares, as if the preferred shares issuance and the conversion of these shares upon the occurrence of the IPO had both taken place on January 1, 2003 and (b) the issuance of Series B preferred shares and repurchase of ordinary shares and Series A preferred shares from existing shareholders. For the year ended December 31, 2003, the pro forma diluted income per share computation was based on the pro forma net income available to ordinary shareholders of RMB173,618, divided by the weighted average number of ordinary shares outstanding on a pro forma basis of 32,969,281, adjusted for the dilutive effect of non-vested ordinary shares and stock options and warrants of 3,866,430, but exclusive of the effect of stock options and warrants granted subsequent to December 31, 2003 which were granted in the ordinary course of business or in connection with the issuance of Series B preferred shares on August 4, 2004. For the six-month period ended June 30, 2004, the pro forma diluted loss per share computation was based on the pro forma net loss available to ordinary shareholders of RMB10,054,136, divided by the weighted average number of ordinary shares outstanding on a pro forma basis of 32,169,285. The pro forma diluted loss per share for the six-month period did not include the effect of non-vested ordinary shares and stock Table of Contents options and warrants as the effect would be anti-dilutive. In addition, the pro forma diluted loss per share for the six-month period did not include the effect of stock options and warrants granted subsequent to December 31, 2003 which were granted in the ordinary course of business or in connection with the issuance of Series B preferred shares on August 4, 2004. The pro forma diluted income (loss) per share data for the year ended December 31, 2003 and for the six-month period ended June 30, 2004 gives effect to the option to purchase up to 260,204 ordinary shares granted to IAC on October 1, 2004 as if such options had been granted on January 1, 2003 at the same terms and exercise price. For more information regarding the issuance of options to IAC, see Investment by IAC/InterActiveCorp Stock Options. On the date of the grant, the fair value of the option to purchase up to 260,204 ordinary shares was RMB5,769,047 and will be recorded as a deduction in arriving at net income available to ordinary shareholders over the vesting term. (3) Each ADS represents two ordinary shares. (4) Represents the amount of total current assets less current liabilities. Table of Contents MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. We caution you that our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption Risk Factors beginning on page 14 in this prospectus. Overview We are a leading online travel service provider in China. We utilize a centralized modern call center and web-based distribution technologies to provide our services. We seek to serve China s emerging class of frequent independent travelers, or FITs, who engage in business and leisure travel. According to the China Statistical Yearbook 2003, China s domestic tourism spending totaled approximately RMB388 billion in 2002, and we believe FITs to be a fast-growing, yet relatively underserved, segment of this market. FITs are defined as travelers who do not travel with tour groups and who require flexibility in the selection of accommodations and transportation. Through our nationwide 24-hour toll-free call center, our user-friendly Chinese and English language websites, and our extensive reseller network, we provide our customers with consolidated travel information and the ability to book rooms at discounted rates at over 2,600 hotels in more than 220 cities across China. The majority of our hotel suppliers are three-, four- or five-star hotels, as rated by the China National Tourism Bureau, catering to higher-end travelers. We also offer convenient air ticketing and other travel related services, such as rental cars, vacation packages and corporate travel services at competitive prices. We have experienced significant growth since our inception in April 2001. For the six months ended June 30, 2004, we generated revenues of RMB60.1 million (US$7.3 million), an increase of 146.3% over RMB24.4 million generated in the six months ended June 30, 2003. In 2003, we generated RMB74.4 million (US$9.0 million) in revenues, compared to RMB55.8 million in 2002, representing an increase of 33.3%. Our increase in revenues during this period was due to an increase in the number of hotel room-nights booked and an increase in our average commission per hotel room-night booked. We recorded a net income of RMB1.6 million (US$0.2 million) for the year ended December 31, 2003 and a net loss of RMB9.3 million (US$1.1 million) for the six months ended June 30, 2004. Approximately 79.8% of our total revenues for the six months ended June 30, 2004 were derived from our hotel booking business. Foreign ownership in the Internet content provision, advertising and air-ticketing businesses is subject to significant restrictions under current PRC law. As a result, we have a wholly owned subsidiary in China that conducts its operations in China through a series of contractual arrangements with our affiliated Chinese entities solely to facilitate our operations. We do not have any direct ownership interests or voting rights in our affiliated Chinese entities. Under these contractual arrangements, we have management control over these entities. We also bear economic risks with respect to, and derive economic benefits from, their operations. Accordingly, the financial statements of our affiliated Chinese entities are consolidated with our financial statements. See Corporate Structure and Related Party Transactions. Management and administration 47 56 67 91 Customer service 103 202 361 577 Sales and marketing 151 289 381 453 Supplier management 61 62 52 68 Technical services 21 24 32 Table of Contents Major Factors Affecting the Travel Industry A variety of factors affect the travel industry in China, and hence our results of operations and financial condition, including: The growth in the overall economy and demand for travel services in China. We expect that our financial results will continue to be affected by the overall growth of the economy and demand for travel services in China. According to the China Statistical Yearbooks 2001, 2002 and 2003, the gross domestic product, or GDP, of China grew from RMB8.9 trillion (US$1.1 trillion) in 2000 to RMB10.5 trillion (US$1.3 trillion) in 2002, representing a compound annual growth rate of 8.2%. GDP per capita in the same period rose from RMB7,086 (US$856) to RMB8,184 (US$989), representing a 7.5% compound annual growth rate. At the same time, according to the China Statistical Yearbook 2001, 2002 and 2003, domestic tourism spending grew from RMB317.6 billion (US$38.4 billion) in 2000 to RMB387.8 billion (US$46.9 billion) in 2002, representing a compound annual growth of 10.5%. We anticipate that demand for travel services in China will continue to increase substantially in the foreseeable future as the economy in China continues to grow. Seasonality in the travel service industry. The travel service industry is characterized by seasonal fluctuations and accordingly our revenues may vary from quarter to quarter. We typically generate a larger portion of our revenues in the second half of the year. The first quarter of each year generally contributes the smallest portion of our annual revenues due to reduced business activity during the Chinese New Year holiday. These seasonality trends are difficult to discern in our historical results since our revenues have grown steadily since inception. However, our results in the future may be affected by seasonal fluctuations in the use of our services by our customers. Disruptions in the travel industry. Individual travelers tend to modify their travel plans based on the occurrence of events such as: the outbreak of serious epidemics; travel-related accidents; bad weather; natural disasters; threats of war or incidents of terrorism; general economic downturns; and increased prices in the hotel, airline or other travel-related industries. During the period from March 2003 through June 2003, the economies of several countries in Asia, including China, were severely affected by the outbreak of SARS. In addition, several reported cases of SARS have also emerged from China within recent months. Our business and our operating results were also adversely affected. Total room-nights booked through us decreased from approximately 59,000 and 58,000 in May and June 2002, respectively, to approximately 16,000 and 41,000 in May and June 2003, respectively. Principal Factors Affecting Our Results of Operations Revenues. Our revenues are generated predominantly through our hotel reservation and to a lesser extent, air-ticketing businesses. We act as agents for the travel services that we provide, and recognize the commissions that we earn. We have achieved significant growth Revenues from our hotel reservation service are determined by the number of room-nights we book and the commission we earn, ranging from 10% to 20% of the room price. Our customers pay the hotels directly, and we collect our commissions based on the number of room-nights our customers stayed. Under our agreements with many hotels that generate a substantial portion of our revenues, we receive an escalating commission rate that is subject to specific performance targets such as the number of room-nights booked during a defined period. Our commission from hotel reservation services is recognized after hotel customers have completed their stay at the hotel and upon confirmation by the hotel of the customer s stay. Because we act as an agent in transactions with no risk of losses due to obligations for Table of Contents cancelled visits, we recognize our revenues from hotel transactions on a net basis in our statements of operations. We have a diversified base of customers. No individual customer accounted for more than 2% of our revenues in 2003 or during the six months ended June 30, 2004. In addition, no one hotel room-night supplier or hotel room-night supplier chain provides room-night inventory representing more than 3% of our revenue. Revenues derived from our air-ticketing service currently represent the second largest component of our travel-related revenues. We conduct our air-ticketing business through contractual arrangements with Beijing eLong Airline Service Co., Ltd., one of our affiliated Chinese entities, and we use a network of local agents to issue and deliver air tickets and collect air-ticketing fares. Our customers pay the local agents directly for the air ticket and we settle our commission payments with these agents periodically. Our commission from our air-ticketing service, ranging from 3% to 10% of the net ticket price, is recognized after the air ticket is delivered to and paid for by the customer. We recognize our revenues from such transactions on a net basis in our statements of operations since we act as an agent in these transactions with no risk of losses due to obligations for cancelled service. We also provide corporate travel services to our corporate customers. We prepay travel service suppliers for the cost of the hotel room-nights and air tickets already booked by our corporate customers. We subsequently bill our corporate customers for the cost plus a fixed commission. As we act as an agent in these transactions, revenues earned from reservations made for corporate customers are recorded on a net commission basis. We also derive travel revenues from vacation package services and sales of our VIP and co-branded membership cards. Currently, revenues from these services represent a small portion of our total revenues. In 2003 and for the six months ended June 30, 2004, other travel revenues decreased, primarily due to a decline in the number of membership cards sold compared to 2002. We believe that our hotel reservation and air-ticketing businesses will remain our principal sources of revenues, and that our other travel related services will allow our customers to choose from more travel options. Our sources of non-travel revenues include short messaging service revenues derived from Internet advertising, and to a lesser extent, Internet services to hotels to integrate them into our network, and revenues from small merchants who use our services to promote their establishments through advertising on our websites. Revenues generated from Internet advertising decreased in 2003 compared to 2002 primarily due to our increased focus on our core travel services. We believe that going forward, we will continue to focus growth on our travel revenues. As our revenues have grown, our accounts receivable have also increased correspondingly. Our accounts receivable balance mainly represents unsettled amounts with our corporate travel service customers and our earned commissions outstanding from travel suppliers. For our corporate travel service customers, our accounts receivable include both our commission and the gross value of the hotel and airline services provided. We bill our corporate customers for the gross value of travel services provided and then settle with the suppliers on behalf of the corporate customers. These accounts receivable are typically unsecured. We perform periodic credit evaluations of the financial condition of our suppliers and corporate customers. We make provisions for doubtful accounts, individually and collectively, based on an assessment of the recoverability of individual accounts by considering the age of the receivable, our historical Table of Contents write-off experience with the account and the general credit history of the supplier or corporate customer. Our accounts receivable increased significantly from RMB12.0 million as of December 31, 2002 to RMB28.5 million (US$3.4 million) as of December 31, 2003 and to RMB41.5 million (US$5.0 million) as of June 30, 2004, principally as a result of the increased volume of our corporate travel service provided in 2003 and during the six months ended June 30, 2004. In our corporate travel service business, we make a hotel room reservation after receiving an order from a corporate customer. On our corporate customer s behalf, we make a prepaid deposit to the hotel for the room nights requested by the corporate customer. After our corporate customers complete his or her stay at the hotel, we bill our customer for the cost of the room nights and the commission earned on the transaction. We also bill our corporate customers for the full value of air tickets and then settle with each air ticket supplier. As a result we expect the growth of this business to lead to significant increases in accounts receivable relative to its revenue contribution. We receive our commissions from our suppliers based on the number of hotel room-nights that we book. As we increase our revenues and the number of hotel room-night suppliers with whom we have relationships, we expect our accounts receivable from our suppliers to increase. We have taken steps to enforce an accounts receivable collection policy and typically require our hotel room-night suppliers and corporate customers to pay the commissions due to us within 45 days. We seek to minimize the working capital requirement and our accounts receivable risk by substituting partial deposits with periodic settlement for full prepayment and by focusing on large creditworthy corporate clients. In addition, our deposits for rooms can be utilized by our corporate customers booking hotel rooms, minimizing our risk. Cost of services. Our cost of services consists primarily of payroll compensation, telecommunications expenses, rentals and related expenses incurred by our transaction and service platform which are directly attributable to the provision of our travel services and other related services. From our inception in April 2001 to December 31, 2001 and for the years ended December 31, 2002 and 2003 and for the six months ended June 30, 2004, our cost of services accounted for 34.2%, 18.1%, 12.6% and 11.8% of our total revenues, respectively, with our call center accounting for 41.2%, 56.3%, 61.7% and 78.3% of our cost of services in the same periods, respectively. Because we provide the bulk of our services directly to customers from our call center, the principal components of our cost of services are our payroll compensation for our call center employees and our telecommunications expenses relating to customer transactions. Because these costs are largely variable in nature, we expect that our cost of services in future periods will generally increase in line with our expanding business operations. We participate in various government-mandated multi-employer defined contribution plans. Our government mandated contributions include unemployment insurance, medical insurance, pension benefits and housing assistance. All of our full-time employees are eligible for full benefits after a three month probationary period of employment. We are required to make monthly contributions to these plans at rates ranging from 33.0% to 44.5% of the base salaries, bonuses and certain allowances of our employees. Under these plans, we have no obligation to provide retirement benefits beyond the contributions we have made. Contributions to these plans are expensed as incurred. During the period from April 4, 2001 to December 31, 2001, we contributed RMB2,453,151. In 2002 and 2003 and for the six months ended June 30, 2004, we contributed RMB2,105,224, RMB3,126,707 (US$377,777) and RMB5,348,034 (US$646,163), respectively. Table of Contents Operating expenses. Our operating expenses primarily consist of service development, sales and marketing, general and administrative, which includes stock-based compensation, and business tax expenses. Our service development expenses primarily consist of expenses we incur to develop our transaction and service platform, as well as to maintain, monitor and manage our websites. We expect our service development expenses to increase as we continue to upgrade our transactions platform and obtain additional necessary software licenses for our information technology system. Our sales and marketing expenses include advertising expenses, commissions payable to our co-marketers and resellers, expenses associated with the production of marketing materials and our loyalty program, and the payroll and other expenses for our marketing personnel. Our sales and marketing expenses as a percentage of our revenues declined from 75.9% for the period from our inception in April 2001 to December 31, 2001 to 63.0% and 60.4%, respectively, for the years ended December 31, 2002 and 2003, as we achieved greater efficiency in our marketing expenditures. For the six month ended June 30, 2004, our sales and marketing expenses increased to 65.2% as a percentage of our revenues as we significantly increased our marketing and promotional efforts with a view to strengthening our brand and generating further growth in our sales. We expect our total sales and marketing expenses to increase in 2004 as compared to 2003. Our general and administrative expenses include our payroll, benefits and travel expenses for our Chief Executive Officer, other senior management, and our administrative staff. Our general and administrative expenses as a percentage of revenues declined from 21.1% for the period from our inception in April 2001 to December 31, 2001 to 14.1% for the year ended December 31, 2003, as we benefited from the economies of scale in our growing business. For the six months ended June 30, 2004, our general and administrative expenses as a percentage of revenues increased to 18.0% primarily because our board of directors approved for us to pay the individual income tax obligations of our chief executive officer and three other senior managers totalling RMB3.3 million. We expect in the future that as we continue to grow our business, our general and administrative costs will increase in absolute terms. In addition, we expect our general and administrative costs to increase in absolute terms as we increased the compensation of our Chief Executive Officer and other members of senior management in accordance with our new employment contracts with these employees. See Management Employment Agreements with Executive Officers Compensation and Benefits for more details regarding our compensation arrangement with each of the senior members of our management team. Our stock-based compensation expenses are related to stock options granted to employees. We have adopted the fair value recognition provision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123. See Critical Accounting Policies Stock-based Compensation for more details of our fair value recognition method. We expect in the future as we grant additional stock options to our employees these expenses will increase in absolute terms. Under PRC law, our services related revenues are subject to a 5% business tax. In addition, our advertising service revenue is subject to a cultural development surcharge of 3% of the advertising service revenue. Income tax. Because we, our wholly owned foreign subsidiary and our affiliated Chinese entities are incorporated in different jurisdictions, we file separate income tax returns. We were The ultimate utilization of operating loss carryforwards will depend upon our ability to generate sufficient future taxable income prior to their expiration. Under PRC tax rules and regulations, our post-acquisition operating loss carry forwards may be utilized only after we have fully utilized our pre-acquisition operating loss carry forwards. The utilization of net operating loss carryforwards will reduce our income tax payment. However, if we utilize our pre-acquisition loss carryforwards to offset against our future taxable income, we will incur an accounting tax expense in our consolidated statement of operations until such time as the goodwill and other non-current intangible assets related to the acquisition have been reduced to zero. The amount of income tax expense incurred will be equivalent to the amount of the savings of income tax payment resulting from the utilization of such pre-acquisition operating loss carry forwards. Table of Contents Recent Acquisition In December 2003, two of our affiliated Chinese entities acquired a 100% interest in GCH. The total consideration for the acquisition was RMB6.0 million (US$0.7 million) in cash, payable over a two-year payment term. We have paid RMB2.5 million (US$0.3 million) and are obligated to pay RMB2.5 million (US$0.4 million), RMB0.5 million (US$0.1 million) and RMB0.5 million (US$0.1 million) in 2004, 2005, and 2006, respectively. GCH is a regional hotel reservation company with its main presence in Shanghai and surrounding areas. We are the sole beneficiary and have effective control over GCH through contractual agreements between us and our affiliated Chinese entities. Accordingly, the results of operations of GCH are consolidated with our financial statements from December 2003 onward. Potential Acquisition On December 23, 2003, we signed a non-binding letter of intent to purchase 80% of the outstanding equity interest of Ray Time. Ray Time operates one of the leading hotel VIP card businesses that distribute membership cards with entitlements to free room-nights and other benefits at participating hotels in China. Ray Time currently operates 15 individual VIP card programs in 14 major cities in China. The proposed consideration for the acquisition based on current negotiations consists of a cash consideration of up to RMB27.8 million (US$3.4 million). The proposed payment schedule includes: RMB12.5 million (US$1.3 million) in cash, due upon closing of the acquisition; Two cash payments of RMB2.0 million each, with one cash payment due 18 months after the closing and one cash payment due 24 months after the closing; Earnout payment of RMB5.7 million (US$0.7 million) payable one year after the closing of the transaction based on Ray Time s revenue and net income for such year; and Earnout payments of up to RMB5.6 million (US$0.7 million) based on Ray Time s revenue and net income for two years following the closing of the transaction. In addition, both we and the existing shareholders of Ray Time are expected to invest an additional RMB2.5 million each directly into Ray Time at closing for working capital purposes. We believe we have sufficient funding to meet our payment obligations if the proposed acquisition is consummated. Our original letter of intent specified that the acquisition would be completed by February 23, 2004. Prior to the expiration of our original letter of intent dated December 23, 2003, we entered into a subsequent non-binding letter of intent dated February 21, 2004 to extend the effective period in which we may acquire Ray Time. Under the terms of our subsequent non-binding letters of intent, the deadline to acquire Ray Time was extended to and expired on June 23, 2004. We have a non-binding, oral understanding with Ray Time that we will continue our negotiations with them. As of the end of the third quarter of 2004, we have made two refundable deposit totalling RMB3.0 million (US$0.4 million) to Ray Time under our oral understanding to continue negotiations with respect to our acquisition of Ray Time. Our oral understanding with Ray Time is that our deposit will be returned upon demand. Neither the letters of intent entered into between us and Ray Time nor our oral understanding with Ray Time obligates either party to continue with negotiations, enter into any definitive agreements or complete a transaction. We will incur no penalty if we choose not to continue with our Table of Contents acquisition, but we cannot provide any assurance that Ray Time will immediately return our deposit. In addition, we cannot provide any assurance as to whether, or when, we will reach an agreement with respect to, or complete, the acquisition of Ray Time. Furthermore, even if we decided we wanted to acquire Ray Time and had agreed to terms with respect to an acquisition of Ray Time, under the terms of our agreement with IAC, we would not be permitted to complete the acquisition without the prior written consent of IAC. For more information about IAC s investment in our company, see Investment by IAC/InterActiveCorp. To date, IAC has not given us its consent to the potential Ray Time acquisition and we cannot provide any assurance that IAC will do so in the future. Critical Accounting Policies The discussion and analysis of our operating results and financial condition are based on our audited financial statements, which have been prepared in accordance with U.S. GAAP. Our operating results and financial condition are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources. Our management evaluates these estimates on an ongoing basis. Actual results may differ from these estimates as facts, circumstances and conditions change or as a result of different assumptions. Our management considers the following factors in reviewing our financial statements: the selection of critical accounting policies; and the judgments and other uncertainties affecting the application of those critical accounting policies. The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 2 to our audited financial statements included elsewhere in this prospectus. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. Depreciation. Our equipment and software are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account their estimated residual value. We review periodically our policies with regard to the estimated useful lives of the assets. The useful lives are based on our historical experience with similar assets and taking into account anticipated technological changes. Impairment. We review periodically the carrying amounts of long-lived assets, including equipment and intangible assets, to assess whether they are impaired. We test these assets for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. When such a decline has occurred, we adjust the carrying amount to the recoverable amount. We measure the recoverability of assets by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. In determining estimates of future cash flows, significant judgment in terms of projection of future cash flows and assumptions is required. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Justin Yue Tang 33 Chairman of the Board, President and Chief Executive Officer Richard Zheng Xue 33 Director and Vice President of Business Development and Strategy Richard Chen 34 Vice President and Chief Technology Officer Frank Zheng 38 Vice President of Travel Services Derek Palaschuk 40 Chief Financial Officer Liming Sun 41 Director Xiaojian Zhong 37 Director Barney Harford 32 Director Diarmuid Russell 35 Director Thomas Gurnee(1) Total revenues 27,838 55,750 74,390 8,988 24,440 60,109 7,262 Table of Contents Goodwill and certain intangible assets. We test annually whether goodwill and intangible assets, which are not subject to amortization, have been impaired. Such tests are performed more frequently if events and circumstances indicated that the assets might be impaired. An impairment loss is recognized to the extent that the reporting unit s carrying amount, including the amount of the goodwill, exceeds the reporting unit s fair value. Where quoted market prices are not available, fair value is determined using valuation techniques such as discounted cash flows and earnings and revenue multiples. Provision for doubtful accounts. We maintain an allowance for doubtful accounts for estimated probable losses resulting from the inability of our customers to make required payments. We base our estimates on the aging of our accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of our customers were to deteriorate, actual write-offs might be higher than expected, which could adversely affect our operating results and financial condition through the recording of a higher level of provisions. Deferred tax assets. We recognize deferred tax assets for all deductible temporary differences and operating loss carryforwards for regular tax purposes. At each reporting date, we assess whether a valuation allowance is required to reduce the amount of the deferred tax amount to a remaining amount that is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all available evidence, including projected future taxable income, tax planning strategies, historical taxable income, and the expiration period of the operating loss carryforwards. Differences in actual results from projections used in determining the valuation allowances could result in future adjustments to the allowances which could adversely affect our operating results and financial condition. Provision for loyalty points. Cardholders of our eLong membership program can earn loyalty points based on their usage of the cards. We award travel services and other non-cash gifts to the cardholders upon the redemption of loyalty points that are accumulated based on the cardholders transactions. We estimate the costs to provide free travel and other non-cash gifts based on historical redemption data and recognize such costs as sales and marketing expenses in the statements of operations. If actual redemption differs significantly from our estimates, it will result in an adjustment to our liabilities and the corresponding expenses. Stock-based compensation. We have adopted the preferred fair value recognition provision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123. Under the fair value based method, compensation cost related to employee stock options or similar equity instruments is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. We determine fair value using the Black-Scholes model. Under this model, certain assumptions, including the risk-free interest rate, the expected life of the options and the estimated fair value of our ordinary shares, are required to determine the fair value of the options. If different assumptions had been used, the fair value of the options would have been different from the amount we computed and recorded, which would have resulted in either an increase or decrease in the compensation expense. We account for equity instruments issued to non-employee vendors in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force, or EITF, Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, Table of Contents whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the date on which the counterparty s performance is complete. We believe that our assumptions, including the risk-free interest rate and expected life used to determine fair value, are appropriate. However, if different assumptions had been used, the fair value of the equity instruments issued to non-employee vendors would have been different from the amount we computed and recorded, which would have resulted in either an increase or decrease in the compensation expense. Revenue recognition. Our revenues are principally derived from the provision of travel services, including hotel reservation, air ticketing and other related travel services. In general, we recognize revenues when all of the following have occurred: persuasive evidence of an agreement with the customer exists; the fees for services performed are fixed or determinable; the services that the customer booked have been performed; and there is reasonable assurance that the fees will be collected. We believe our revenue recognition policies are consistent with Staff Accounting Bulleting No. 104, Revenue Recognition in Financial Statements and EITF 99-19 Reporting Revenue Gross as a Principal Versus Net as an Agent. As we operate as an agent of our travel suppliers, we have no risk of loss due to obligations for cancelled services. We therefore recognize commissions on a net basis. Gross margin 80.5 % 80.7 % 85.9 % 83.4 % 80.3 % 90.5 % 89.6 % 88.7 % 87.9 % 87.9 % Operating margin (23.0 )% (10.5 )% (4.8 )% (12.7 )% (24.1 )% 20.4 % 6.5 % 7.2 % (32.8 )% (32.8 )% Depreciation and amortization 1,530 1,384 1,495 1,455 696 415 440 636 612 74 Operating Data Number of room-nights 171,161 212,487 227,681 226,772 116,839 315,353 373,105 374,975 472,349 N/A Number of air tickets 5,199 15,124 12,965 13,834 6,876 23,478 28,959 38,105 55,484 N/A Our quarterly revenues have experienced continued sequential growth since the first quarter of 2002, with the exception of the first and second quarters of 2003, during which our revenues were materially adversely affected by SARS, and the first quarter of 2004, during which our revenues were affected by seasonality. The growth of our revenues was consistent with the increase in the number of room-nights booked during the quarterly periods presented. Our gross margins have remained at or above 80% in the past nine quarters, primarily due to the low cost of labor in China and the relatively high efficiency of our transaction platform. Our gross profit and income from operations for the quarter ended September 30, 2003 increased substantially compared to the preceding quarters. The increase is attributable to the rebound of the travel industry in China following a downturn during the SARS period. During the second quarter of 2004, we experienced a net loss of RMB11 million (US$1.3 million) after recording a net income of RMB1.6 million (US$0.2 million) during the first quarter US$ US$ US$ Shareholders as of June 30, 2004 32,319,786 67 % 74,929,915 43 % 2.32 4.64 New investors 16,101,576 33 100,634,851 Table of Contents of 2004. Our net loss for the second quarter of 2004 was attributable to the following expenses incurred in the second quarter of 2004 with no comparable expenses in the first quarter of 2004: a one-time payment approved by the board of directors for our company to pay the individual income tax obligations of our chief executive officer and four other senior members of our management team, totaling RMB4.5 million (US$0.5 million), of which RMB3.3 million (US$0.4 million) is included in our general and administrative expenses and RMB1.2 million (US$0.1 million) is included in our service development expenses; stock-based compensation of RMB3.9 million (US$0.5 million) recorded on the 150,000 Series A preferred shares which our chief financial officer purchased from Series A preferred shareholders (a principal shareholders group) at a below-fair-market-value price of US$1.53 per share during the second quarter of 2004; additional expenses of RMB2.9 million (US$0.4 million) for our increased contribution to government-mandated multi-employer defined contribution plans; provisions for doubtful accounts and supplier deposits of RMB1.7 million (US$0.2 million); and a performance bonus to non-senior management of RMB0.6 million (US$0.1 million). Number of room-nights booked 343,611 847,324 146.6 % Average commission per room-night (RMB) 57 57 0.4 Number of air tickets sold 20,710 93,589 351.9 % We had revenues of RMB60.1 million (US$7.3 million) for the six months ended June 30, 2004, an increase of 145.9% over RMB24.4 million for the six months ended June 30, 2003. The outbreak of SARS in early 2003 had a significant negative impact on our revenues during the six months ended June 30, 2003. As a result, our growth rate of approximately 146% in our revenues for the first six months of 2004 compared to the first six months of 2003 reflects to a significant extent the effect of SARS during the first six months of 2003. Our total revenues increased primarily as a result of increases in our hotel booking and air-ticketing businesses, partially offset by a decrease in our other travel related services. During the same period, revenues from our hotel reservations increased from RMB19.4 million for the six months ended June 30, 2003 to RMB48.0 million (US$5.8 million) for the six months ended June 30, 2004, representing a 147.5% increase, and revenues from air ticketing increased from RMB1.2 million for the six months ended June 30, 2003 to RMB3.8 million (US$0.5 million) for the six months ended June 30, 2004, representing a 206.8% increase. The increases in our hotel reservation revenues reflect an increase in the number of hotel room-nights we booked due to growth in the industry and the absence of the negative impact of SARS in the six months ended June 30, 2003, as well as a slight increase in our average commission per hotel room-night. We generated a higher average commission by triggering escalating commissions for booking greater room-night volumes and through experiencing a general rise in room rates. The increase in air-ticketing revenues was due to an increase in the number of air tickets we sold in the six months ended June 30, 2004, as well as growth in the travel industry in China in general and the absence of the negative impact of SARS in the six months ended June 30, 2004. In addition, our other revenues increased in the six months ended June 30, 2004 due primarily to an increase in revenues from our short messaging service. Our operating expenses were RMB62.1 million (US$7.5 million) for the six months ended June 30, 2004, representing an increase of 154.6% over RMB24.4 million for the six months ended June 30, 2003. Due to the negative impact of SARS during the first six months ended June 30, 2003, we had significantly reduced our spending in 2003 by reducing staff and promotional expenditures. As a result, our 154.6% increase in operating expenses for the first six months of 2004 reflects the lower operating costs that we incurred as a result of the negative impact of SARS during the first six months of 2003. Our total operating expenses as a percentage of our total revenues also increased from 99.7% to 103.3% for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. Our service development expenses grew higher for the first six months of 2004 due to the fact that our service development expenses for the six months ended June 30, 2003 were lower as a result of our cost-cutting measures implemented during the SARS outbreak in 2003. After the SARS outbreak in 2003, we increased our service development expenses to accommodate the growth of our business. In addition, during the second quarter of 2004, our board of directors approved for us to pay the individual income tax obligation of one senior member of our management team, totalling RMB1.2 million (US$0.1 million). Such expense is included in our service development expenses. Our sales and marketing expenses for the six months ended June 30, 2003 were significantly reduced as a result of the SARS outbreak and therefore are not comparable to our sales and marketing expenses for the six months ended June 30, 2004. During the SARS outbreak in 2003 we stopped our major sales and marketing efforts and significantly reduced Table of Contents staff in our sales and marketing department. For the six months ended June 30, 2004, we returned our sales and marketing expenses to higher levels to provide for the growth of our business. As a result of higher sales during the six months ended June 30, 2004, we paid more commissions to our resellers as they generated higher booking volumes during the six-months ended June 30, 2004 compared to the six months ended June 30, 2003. We also incurred additional expenses of approximately RMB2.9 million (US$0.4 million) for our increased contribution to our government-mandated multi-employer defined contribution plans, of which RMB1.7 million (US$0.2 million) was attributable as sale and marketing expenses, during the six months ended June 30, 2004 as compared to expenses of RMB1.5 million for the six months ended June 30, 2003. Our general and administrative expenses increased in the six months ended June 30, 2004 compared to the six months ended June 30, 2003. During the second quarter of 2004, our board of directors approved for us to pay the individual income tax obligations of our Chief Executive Officer and three other senior members of our management team, which totaled RMB 3.3 million (US$0.4 million). Our remaining increase in general and administrative expenses was due to our additional provisions for doubtful accounts and supplier deposits of RMB1.7 million (US$0.2 million) during the six months ended June 30, 2004. Our stock-based compensation expense results from amortization of vesting ordinary shares and stock options granted to directors and executive officers. The increase in our stock-based compensation expense in the six months ended June 30, 2004 compared to the six months ended June 30, 2003 was due to stock-based compensation expense of RMB3.9 million (US$0.5 million) recorded on the 150,000 Series A preferred shares which our chief financial officer purchased during the second quarter of 2004 from Series A preferred share holders, partially offset by the full vesting in 2003 of most of the stock previously granted. Because the Series A shares were purchased by our chief financial officer from a principal shareholders group at a price below fair market value, non-cash stock based compensation expense was recorded, which represented the difference between the purchase price of US$1.53 and US$4.69, which is our best estimate of the fair market value of the Series A preferred shares at the time of sale based on the recent selling price of our shares. We incurred an amortization of intangibles in the amount of RMB120,000 (US$14,499) due to our acquisition of GCH. We paid more business taxes and surcharges in for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 in line with increases in our revenues. Other expenses, net. We recorded other expenses of RMB22,602 (US$2,731) for the six months ended June 30, 2004, compared to RMB46,168 (US$5,578) for the six months ended June 30, 2003. Income tax expense. We incurred a tax expense of RMB0.3 million (US$0.1 million) for the six months ended June 30, 2004, compared to RMB1.0 million for the six months ended June 30, 2003. Our effective tax rate differs from the statutory tax rate of 33% primarily due to the preferential tax status of one of our affiliated Chinese entities, foreign tax differentials and certain non-deductible expenses. Net loss. We had net loss of RMB9.3 million (US$1.1 million) for the six months ended June 30, 2004, compared to a net loss of RMB3.4 million for the six months ended June 30, 2003. The increase in net loss was due to a significant increase in our operating expenses in the first six months of 2004. Number of room-nights booked 742,175 1,032,069 39.1 % Average commission per room-night (RMB) 54 58 7.4 Number of air tickets sold 37,972 73,147 92.6 % We had revenues of RMB74.4 million (US$9.0 million) in 2003, an increase of 33.3% over RMB55.8 million in 2002. Our total revenues increased primarily as a result of increases in our hotel booking and air-ticketing businesses, partially offset by decreases in our other travel related services. During the same period, revenues from our hotel reservations increased from RMB40.0 million in 2002 to RMB60.3 million (US$7.3 million) in 2003, representing a 50.6% growth, and revenues from air ticketing increased from RMB2.0 million in 2002 to RMB3.7 million (US$0.4 million) in 2003, representing an 84.8% growth. Our revenue growth was adversely affected by the outbreak of SARS, primarily during the second quarter of 2003. However, our hotel reservation and air-ticketing businesses experienced a strong rebound during the second half of the year. The increases in our hotel reservation revenues reflect an increase in the number of hotel room-nights we booked, together with an increase in our average commission per hotel room-night. We generated a higher average commission by triggering escalating commissions for booking greater room-night volumes and experiencing a general rise in room rates. We generated higher air-ticketing revenues by booking more air tickets. With the exception of our short messaging service, our revenues from our non-travel related services have shown decreases as we continue to focus on our core travel business. Cost of services. Our cost of services declined 7.0% from RMB10.1 million in 2002, to RMB9.4 million (US$1.1 million) in 2003. Our cost of services decreased as a result of decreases in our payroll compensation during SARS when we implemented a policy of unpaid vacations, which was partially offset by higher telecommunication expenses resulting from an increase in toll-free phone calls. Gross profit. As a result of the above factors, we had a gross profit of RMB65.0 million (US$7.9 million) in 2003, an increase of 42.2% over RMB45.7 million in 2002. Our operating expenses were RMB62.9 million (US$7.6 million) in 2003, an increase of 15.5% over RMB54.5 million in 2002. As we achieve greater economies of scale, we expect that our operating expenses will continue to decrease as a percentage of our total revenues. Our service development expenses grew in line with our revenues and reflect the expanding number of hotel supplier and air-ticketing supplier relationships, as well as higher maintenance costs on our expanded websites in 2003. We also incurred service development expenses as we upgraded the software used for our service platform in 2003. Our sales and marketing expenses increased in 2003 because we significantly increased our promotion and marketing efforts in 2003. These efforts included the distribution of more eLong membership cards, additional online marketing programs, and other service promotional activities. We also paid more commissions to our resellers as they generated higher booking volumes. The increase in sales and marketing expenses was partially offset by reduced depreciation charges as a portion of our fixed assets became fully depreciated. Our general and administrative expenses remained stable as a result of the increased expenses related to the hiring of additional administrative staff in the fourth quarter of 2003 and higher rental expenses resulting from the expansion of our business in 2003, offset by reduced depreciation charges as a portion of our fixed assets become fully depreciated. Our stock-based compensation expense results from amortization of vesting ordinary shares and stock options granted to directors and executive officers. The decrease in our stock-based compensation expense in 2003 was due to the full vesting of the ordinary shares in May 2003. We paid more business taxes and surcharges in 2003 compared to 2002 due to increases in our revenues. Other expenses, net. We recorded other expenses of RMB21,043 (US$2,543) in 2003, compared to RMB690,232 in 2002. Other expenses decreased in 2003 primarily as a result of an impairment charge of RMB591,000 we recognized in 2002 due to the other-than-temporary decline in the market value of an investment security that we held, which was partially offset by Number of room-nights 388,677 742,175 90.9 % Average commission per room-night (RMB) 47 54 14.9 % We had revenues of RMB55.8 million in 2002 and RMB27.8 million in 2001. Our total revenues increased primarily as a result of a full year operating period in 2002 compared to an abbreviated operating period in 2001, as well as increases in revenues from our travel related services. The increases in our hotel reservation revenues reflect an increase in the number of Our operating expenses were RMB54.5 million in 2002, compared to RMB33.3 million in 2001. Our service development expenses grew in 2002 due to the expanding number of travel supplier relationships, as well as higher maintenance costs due to our expanded websites. We also incurred service development expenses as we upgraded the software used for our service platform in 2002. Our sales and marketing expenses increased in 2002 compared to 2001 due to the longer operating period in 2002. In this longer operating period we incurred higher salary and bonus expenses, distributed more eLong membership cards, and paid more commissions to our resellers as they generated more booking volumes in 2002. Our general and administrative expenses increased in 2002 as a result of the longer operating period and additional payroll expenses associated with hiring more staff. RMB RMB RMB US$ RMB RMB US$ (in thousands, except for percentage data) Net cash provided by (used in) operating activities (7,910 ) 1,621 (7,429 ) (898 ) 1,803 (12,285 ) (1,484 ) Net cash used in investing activities (23,305 ) (494 ) (1,628 ) (197 ) (616 ) (7,293 ) (881 ) Net cash provided by (used in) financing activities 36,649 (1,218 ) 76,856 9,286 (138 ) (1,084 ) (131 ) Effect of foreign exchange rate changes on cash (11 ) (1 ) (22 ) (3 ) Net increase (decrease) in cash and cash equivalents 5,434 (91 ) 67,788 8,190 1,049 (20,684 ) (2,499 ) Cash and cash equivalents at beginning of period/year 5,434 5,344 646 5,344 73,132 8,836 Cash and cash equivalents at end of period/year 5,434 5,344 73,132 8,836 6,393 52,448 6,337 Operating activities. Our net cash used in operating activities was RMB12.3 million (US$1.5 million) for the six months ended June 30, 2004, compared to net cash provided by operating activities of RMB1.8 million for the six months ended June 30, 2003. Net cash used in Table of Contents operating activities increased primarily as a result of a RMB15.1 million increase in accounts receivable associated with our corporate travel business, partially offset by a net increase in accrued expenses and other payables mainly associated with payroll and commissions. Net cash used in operating activities was RMB7.4 million (US$0.9 million) in 2003, compared to net cash provided by operating activities of RMB1.6 million in 2002 and net cash used in operating activities of RMB7.9 million in 2001. The level of cash used in operating activities was higher in 2003 as a result of increases in our accounts receivable and prepaid expenses and other current assets, partially offset by increases in our accounts payable. Our accounts receivable increased primarily as a result of an expansion of our corporate travel service in which hotel rooms and air tickets are prepaid by us. As we continue to expand our corporate travel service business, we expect that our accounts receivable will increase substantially. We intend to finance the additional working capital needs resulting from the growth in our corporate travel services with our cash balances and a portion of the net proceeds we will receive from this offering. Our prepaid expenses and other current assets increased primarily as a result of the rental deposits for new office space and other prepaid marketing expenses. We used additional net cash in 2001 due to the start up and commencement of operations of our business. Our operations are dependent on the cash flow we receive from our affiliated Chinese entities through our contractual arrangements with each affiliated Chinese entity. Our affiliated Chinese entities pay pre-agreed fees to us for the technical or other services that we provide to them. Our affiliated Chinese entities pay pre-agreed fees based on prevailing market rates. The term market rates in our agreements with our affiliated Chinese entities is not clearly defined and we determine market rates based on input from ourselves and our affiliated Chinese entities, taking into account any external market rate that may have developed for the services that we provide. Because the same individuals control both our company and our affiliated Chinese entities, we are able to adjust market rates and any payment schedule from the affiliated Chinese entity to us. While we are not aware of any restrictions that prevent the transfer of funds from our affiliated Chinese entities to us, any such restriction would limit our cash flow and have an adverse effect on our financial condition. See Risk Factors Risks Related to Our Business Our affiliated Chinese entities are controlled by Justin Tang, which may pose potential conflicts of interests, and if they violate their contractual agreements with us, our business could be harmed, our reputation could be damaged and we might have to resort to litigation to enforce our rights, which could be time-consuming and expensive. Investing activities. Our net cash used in investing activities was RMB7.3 million (US$0.9 million) for the six months ended June 30, 2004, compared to net cash used in investing activities of RMB0.6 million for the six months ended June 30, 2003. Net cash used in investing activities increased as a result of our GCH acquisition and our capital expenditures spent during the first quarter of 2004. In addition, for the six months ended June 30, 2003, we did not invest significantly in any activities as a result of the negative impact of the SARS outbreak in 2003. Net cash used in investing activities was RMB1.6 million (US$0.2 million) in 2003, compared to net cash used in investing activities of RMB0.5 million in 2002 and RMB23.3 million in 2001. In 2001 we acquired eLong Beijing for US$1.5 million (RMB equivalent 12.4 million) in order to commence operations. In addition, from 2001 to 2002, we also placed a total of RMB12.0 million with Shenzhen Youyuan Investment Company, an affiliate of Billable Development, which is a significant shareholder of our company. Shenzhen Youyuan Investment Company managed the money for us and we received a guaranteed annual interest of 2.25% on the placement. As of December 31, 2003, all the principal and interest were repaid in full. In 2003, we used RMB5.2 Cost of services (9,528 ) (10,079 ) (9,370 ) (1,132 ) (4,376 ) (7,068 ) (854 ) Table of Contents million (US$0.6 million) to purchase certain fixed assets including server equipment and computers as part of our relocation to our new headquarters. Financing activities. Our net cash used in financing activities was RMB1.1 million (US$0.1 million) for the six months ended June 30, 2004, compared to net cash used in financing activities of RMB0.1 million for the six months ended June 30, 2003. Our net cash provided by financing activities was due to a repayment of receivables from certain shareholders in connection with the issuance of our ordinary shares. Our net cash provided by financing activities was RMB76.9 million (US$9.3 million) in 2003, compared to net cash used in financing activities of RMB1.2 million in 2002 and net cash provided by financing activities of RMB36.6 million in 2001. In April 2001, we issued 16.0 million of our ordinary shares to our initial shareholders for RMB37.3 million. In August 2003, we repurchased and cancelled approximately 3.3 million shares from our shareholders for RMB41.4 million and we received US$15.0 million from four investors, in exchange for 9,787,494 Series A preferred shares. The Series A preferred shares will be automatically converted into ordinary shares upon consummation of this offering. We do not currently have any borrowing facility in place and have no current plans to establish one. Our capital expenditures totalled RMB0.8 million, RMB3.0 million and RMB5.2 million (US$0.6 million) in 2001, 2002 and 2003, respectively. We expect our capital expenditures in 2004 to amount to approximately RMB12.0 million (US$1.5 million) of which RMB3.2 million (US$0.4 million) was spent in the first six months of 2004. Our capital expenditures relate primarily to purchases of computer equipment, servers and computer software to support the expansion of our business. We anticipate that our capital expenditures in the remainder of 2004 will also consist of similar equipment and software purchases. During the near term, we intend to continue to focus our marketing campaign on retaining existing customers and acquiring new customers. In addition, we plan to continue to invest in expanding our service offerings, improving our websites and improving the infrastructure supporting customer service and customer care. We believe that the proceeds to us from this offering, our available cash and anticipated future operating cash flows will be sufficient to fund currently anticipated liquidity needs in the near term. However, any projections of future cash inflows and outflows and any projections of the future state of the economy and travel industry conditions, which may have direct effect on our cash inflows, are subject to substantial uncertainty. If we determine that we need to raise additional capital in the future, we may seek to sell additional equity or borrow funds. The sale of additional equity would result in dilution to our existing equity holders. We cannot assure you that any of these financing alternatives will be available in amounts or on terms acceptable to us, if at all. If we are unable to raise or borrow any needed additional capital, we could be required to significantly alter our operating plan, which could have a material adverse effect on our business, operating results or financial condition. Subsequent Event In August 2004, we received US$58.7 million from IAC in exchange for the issuance of 11,188,570 Series B preferred shares, and we repurchased and cancelled 1,581,874 Series A preferred shares and 4,012,411 ordinary shares from existing shareholders for an aggregate (1) Also includes approximately RMB1.4 million (US$0.2 million) for lease payments on our other branch offices. We are also contractually obligated to pay RMB3.0 million (US$0.4 million) and RMB0.5 million (US$0.1 million) in 2004 and 2005, respectively, related to the acquisition of GCH. See Recent Acquisition. Off-balance Sheet Arrangements We do not have any outstanding derivative financial instruments, off-balance sheet guarantees or arrangements, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts. Inflation and Monetary Risk Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 0.7%, -0.8% and 1.2% in 2001, 2002 and 2003, respectively. Quantitative and Qualitative Disclosures about Market Risk Interest rate risk. Our exposure to interest rate risk for changes in interest rates relates primarily to the interest income generated by excess cash and cash equivalents deposited in banks. Cash and cash equivalents consist of cash on hand and in bank and certificates of deposit with an initial term of less than three months. Table of Contents The carrying amounts of cash and cash equivalents, accounts receivable and other receivables represent our principal exposure to credit risk in relation to our financial assets. As of December 31, 2003, substantially all of our cash and cash equivalents were held with major international banks which we believe are of acceptable credit quality. We have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates, although our future interest income may fluctuate in line with changes in interest rates. The risk associated with fluctuating interest rates is principally confined to our cash deposits in banks, and, therefore, our exposure to interest rate risk is minimal. Foreign exchange risk. Substantially all of our revenue-generating operations are transacted in Renminbi, which is not fully convertible into foreign currencies. Excluding amounts held in escrow, we currently have approximately US$30 million held in United States dollar denominated deposits. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk, but we believe that our current exposure to foreign exchange risks is manageable. See Risk Factors Risks Related to Doing Business in the People s Republic of China Fluctuation of the Renminbi may materially and adversely affect the value of your investment. Recent Accounting Pronouncements In November 2002, the EITF reached a consensus on Issue No.00-21, Revenue Arrangements with Multiple Deliverables , or EITF No.00-21 . EITF No. 00-21 addresses how revenue arrangements with multiple deliverables should be divided into separate units of accounting and how the arrangement consideration should be allocated to the identified separate accounting units. For our purposes, EITF No.00-21 is effective for fiscal periods beginning after June 15, 2003. The adoption of this consensus did not have a significant impact on our consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity SFAS No.150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. It also includes required disclosures for financial instruments within its scope. For our purposes, SFAS No.150 was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first financial year beginning after June 15, 2003. FASB Staff Provision No. FAS150-3 deferred certain provisions of SFAS No.150 for certain mandatorily redeemable non-controlling interests. We currently do not have any financial instruments that are within the scope of SFAS No.150. Table of Contents THE TRAVEL AND TOURISM INDUSTRY IN CHINA The facts and statistics used in this prospectus relating to the travel industry and economy in China are derived from various government and institute research publications. While we have taken reasonable care to ensure that these facts and statistics presented are accurately reproduced from such sources, we have not independently verified them. These facts and statistics may not be comparable to similar facts and statistics collected for the industry or economy in the United States and other countries. In terms of domestic tourism spending in 2002, the approximately RMB388 billion (US$46.9 billion) travel industry in China is large and growing rapidly. We expect the industry to continue to experience rapid growth as China s economy continues to develop. Travel and tourism in China is characterized by a highly fragmented and inefficient travel service sector due to many factors, including the lack of consolidated hotel ownership, the lack of a centralized hotel reservation system, the localized nature of travel agencies and a dual regulatory regime. We believe that the fragmented nature of the travel market in China will create increasing demand for central reservation platforms such as our own capable of consolidating a wide range of travel information and negotiating favorable terms with travel suppliers on the basis of scale from our aggregated demand. According to the China National Tourism Administration, as of the end of 2002, China had more than 11,500 travel agencies, with the top 100 domestic travel agencies having an aggregate market share of less than 2%. As the requirements of travelers become more complex, we believe that these local agencies, which had been accustomed to providing services using state-owned travel suppliers, have been increasingly unable to respond to the changing needs of business and leisure travelers in China. In addition, the development of China s tourism infrastructure has resulted in an increasing number of travelers who choose to engage in leisure travel without the constraints inherent in packaged group tours. These frequent independent travelers, or FITs, represent a key segment of the growing travel industry in China that we seek to serve. The increasing accessibility of the Internet in China creates a foundation for new markets and opportunities, providing the ability to bring together a large number of segmented suppliers and customers in a highly fragmented travel industry. We believe that we are well positioned to benefit from these trends in China s travel industry. Historical Background Following the founding of the People s Republic of China, government agencies and state-owned enterprises dominated commercial activity in China up until the late 1970s when the Chinese government began to introduce market-based economic reforms. In the past, large state-owned travel agencies provided travel services to the consumers. The three largest travel agencies, the China Travel Service, or CTS, the China International Travel Service, or CITS, and the China Youth Travel Service, or CYTS, operated as loosely organized groups of individual local agencies that often had strong ties to local governments. The local offices of these organizations functioned individually with their own networks of customers and service suppliers. The choices available to travelers through these organizations were limited and the quality of services was inconsistent. For example, accommodation and transportation arrangements would be limited to hotels and airlines with which the local branch of the travel agencies had established relationships. While these state-owned agencies have made some Sources: The Yearbooks of China Tourism Statistics 2001, 2002 and 2003 (1) The Shanghai Pudong International Airport opened on October 1, 1999. As a result, growth rates for passenger traffic at this airport may not represent an accurate basis of comparison. (2) The decline in airport traffic in the United States in 2001 and 2002 may reflect to a significant extent the effects of the terrorist attacks on September 11, 2001. Sources: National Bureau of Statistics of China website (www.stats.gov.cn/english/); China Statistical Yearbooks 2000 2003; the John F. Kennedy International Airport website (www.panynj.gov/aviation/jfkframe.htm); the Chicago O Hare International Airport website (www.ohare.com/ohare/home.asp). Changing Travel Patterns in China Leisure travel in China has in the past consisted principally of packaged group tours. Traditional travel agencies in China focus on packaged group tours. According to CYTS, one of the largest traditional travel agencies, approximately 90% of their customers traveled in tour Table of Contents groups in 2002. The typical tour group follows a set itinerary and is organized by a travel agency. The agency receives a fixed fee and negotiates discounted prices for hotel rooms and other travel related services either directly or through other intermediaries. Guided tour groups are generally useful to travelers who travel infrequently and who are unfamiliar with their destinations and who are looking for an economical way of travel. However, tour groups offer minimal flexibility in the choice of destinations, length of stay and timing of one s travel. According to market data from CEIC Data Company Ltd., the frequent independent traveler, or FIT, segment of travelers grew at an approximately 18% compound annual growth rate from 1999 to 2002 and is the largest growing group of travelers in China. FITs are defined as travelers who do not travel with tour groups and who require flexibility in the selection of accommodations and transportation. FITs are typically more sophisticated urban dwellers who value customized experiences. We expect that as Chinese travelers become wealthier and more experienced with leisure travel, the appeal of traditional tours will become less important than the ability to arrange one s own schedule. In the past, business travelers, who usually traveled on government business, had little choice but to accept the arrangements made by their organizations or by local travel agencies hired by their organizations. Accommodation and transportation arrangements were generally in the form of state-owned guesthouses or airlines that were part of the travel agent s network. We believe that the increase in commercial activity has contributed to a growing number of people in China conducting business travel outside of government related business travel. Traditionally, most companies in China have relied on either local travel agencies or their internal resources for business travel planning. Companies in China have begun to recognize the importance of focusing on their core competency by outsourcing non-critical functions. A growing number of medium and large-sized companies are beginning to centralize their corporate travel management by outsourcing to professional travel service providers. Inefficiencies and Fragmentations in the Travel Market in China The travel market in China is highly fragmented with an underdeveloped booking, reservation and fulfillment infrastructure, and with no dominant nationwide travel agencies. As a result of market reforms, a gradual shift from state-owned to privately-owned travel agencies and changing travel patterns, the travel market in China is undergoing a period of change. While competition among the older state-owned travel agencies and the privately owned travel agencies has significantly promoted the development of China s travel service, the industry remains inefficient and is likely to remain so in the foreseeable future. Inefficiencies in the hotel reservation system. According to the Year Book of China Tourism Statistics 2003, as of December 31, 2002, China had 3,656 three-, four- or five-star hotels. Hotels in China are generally run independently and are not part of large chains. The largest hotel chains in China are small relative to the larger hotel chains in the United States. There is no industry wide electronic reservation infrastructure similar to that available in the United States and parts of Europe. There is no national distribution system for hotel rooms in China. Travel agents generally have to negotiate room availability and rates with the hotel each time they make a booking. Hotel suppliers in China are not able to benefit from an efficient distribution system that is managed by a centralized process. Until recently, travelers in China did not have access to comprehensive hotel information or a central location for bookings. Instead, consumers in Table of Contents China and hotels interact through walk-in room reservations, direct call-in reservations, business conventions and traditional travel agency bookings. Inefficiencies in the air-ticketing system. Currently, TravelSky Technology Limited, or TravelSky, operates the only nationwide system for air-ticket reservations in China. Consumers in China do not have access to direct bookings on TravelSky unless it is done through individual travel agencies. Moreover, the delivery of air tickets remains inefficient. The majority of consumers in China receive their air tickets through physical delivery and payment to the travel agency is made upon delivery. The process of physical delivery means that consumers in China do not have a reliable or timely delivery process that can respond to last minute travel needs. For example, business travelers who change their flight destinations at the last minute often have to wait for the delivery of a physical ticket before they can initiate their travel. While some airlines in China have recently begun to offer electronic ticketing, there is currently no universal electronic ticketing system available. Inefficiencies in traditional travel agencies. Travel agencies in China tend to be unaffiliated, small office operations. Even the four travel agencies that operate on a nationwide basis are mostly structured such that each office operates independently from the others. Consumers in China have generally not been able to enjoy the benefits that can be offered by a nationwide, integrated travel agency. Inefficiencies created by separate regulatory regimes. Under current regulations, two distinct regulatory bodies regulate the travel industry in China. In order to sell air tickets, travel agencies must obtain a permit from the Civil Aviation Administration of China. If a travel agency intends to conduct the air-ticketing business in more than one city, an air-ticketing permit is required for every city, as there is currently no national air ticketing license. In addition, in order to conduct other travel-related business such as hotel reservations, the travel agency must obtain a separate license from the China National Tourism Administration. Consumers who wish to purchase both air tickets and make hotel reservations through a single agency must use a travel agency that performs both functions. Many traditional travel agencies are unable to perform both functions given the limited number of licenses that can be issued and the costs associated with obtaining each license. As a result, consumers are often forced to arrange travel plans with multiple travel agencies. Internet Growth in China According to the China Statistical Yearbook 2003, China had a total population of 1.3 billion, with approximately 470 million people concentrated in urban areas such as Beijing, Shanghai, Guangzhou and Wuhan. According to China Internet Network Information Center, China had approximately 87 million Internet users as of June 30, 2004, 28% higher than as of June 30, 2003. The majority of these Internet users are from urban centers. The increasing accessibility of the Internet in China creates a foundation for new markets and opportunities, providing the ability to bring together a large number of segmented suppliers and customers in a fragmented travel industry. In an online environment, consumers have access to a broad array of information that enables them to conveniently and efficiently evaluate and compare travel options, while suppliers can extend their marketing reach to a large base of widely dispersed potential customers. As Internet usage grows, consumer adoption of e-commerce and online travel booking is expected to increase accordingly. Table of Contents OUR BUSINESS Overview We are a leading online travel service provider in China. We utilize a centralized modern call center and web-based distribution technologies to provide our services. We seek to serve China s emerging class of FITs, who engage in business and leisure travel. According to the China Statistical Yearbook 2003, China s domestic tourism spending totaled approximately RMB388 billion in 2002, and we believe FITs to be a fast-growing, yet relatively underserved segment of this market. Through our nationwide 24-hour toll-free call center, our user-friendly Chinese and English language websites and our extensive reseller network, we provide our customers with consolidated travel information and the ability to book rooms at discounted rates at over 2,600 hotels in more than 220 cities across China. The majority of our hotel suppliers are three-, four- or five-star hotels, as rated by the China National Tourism Bureau, catering to higher-end travelers. We also offer convenient air ticketing and other travel related services, such as rental cars, vacation packages and corporate travel services, at competitive prices. Since our inception in April 2001, we believe we have built one of the largest travel service distribution networks in China. We offer our customers a wide selection of hotel rooms in all major cities in China, usually at significant discounts to published rates, and guaranteed year-round room availability at many hotels. Our hotel booking volume has increased from approximately 389,000 room-nights in 2001 to approximately 1,032,000 room-nights in 2003. In the six months ended June 30, 2004, we booked approximately 847,300 room-nights, compared to the approximately 343,600 room-nights we booked in the six months ended June 30 2003. For the three months ended September 30, 2004, we booked approximately 538,000 room-nights. We offer our travel suppliers access to aggregated consumer demand, giving them the ability to promote their hotels and other travel related services to a large and growing base of customers at low incremental cost. We also book air tickets for all major airlines in China and many international airlines that operate flights originating from China. We issue and deliver air tickets using a network of local agents throughout major cities in China. In the six months ended June 30 2004, we sold approximately 93,600 air tickets, compared to approximately 20,700 air tickets we sold in the six months ended June 30, 2003. For the three months ended September 30, 2004, we sold approximately 81,000 air tickets. We have experienced significant growth since we began operations in 2001. For the six months ended June 30, 2004, we generated revenues of RMB60.1 million (US$7.3 million), an increase of 146.0% over RMB24.4 million generated in the six months ended June 30 2003. We generated revenues of RMB74.4 million (US$9.0 million) for the year ended December 31, 2003, an increase of 33.3% from 2002. We recorded a net income of RMB1.6 million (US$0.2 million) for the year ended December 31, 2003 and a net loss of RMB9.3 million (US$1.1 million) for the six months ended June 30, 2004. We recorded a net loss for the first six months ended June 30, 2004 as a result of our one-time payment of individual income tax obligations on behalf of five senior members of our management team, our payments into government-mandated multi-employer defined contribution plans, our compensation charge in relation to the employment of our chief financial officer, our provisions for doubtful accounts and our performance bonus paid to non-senior members of management. Approximately 81.0% of our total revenues in 2003 and 79.9% of our total revenues for the six months ended June 30, 2004 were derived from our hotel booking business, with the remainder of our revenues being largely derived from sales of air tickets, short messaging services, Internet advertising the sale of co-branded and VIP membership cards and Internet service to hotels. Table of Contents
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+Summary This summary highlights the more detailed information in this prospectus and you should read the entire prospectus carefully. Our fiscal year ends on September 30 of each year. Unless the context indicates otherwise, whenever we refer in this prospectus to a particular fiscal year, we mean the fiscal year ending in that particular calendar year. The Exchange Offer <TABLE> <S> <C> Securities Offered.................................... We are offering up to $223,000,000 aggregate principal amount at maturity of 14 3/4% Senior Discount Exchange Notes due 2014, which have been registered under the Securities Act. The Exchange Offer.................................... We are offering to issue the new notes in exchange for a like principal amount at maturity of your old notes. We are offering to issue the new notes to satisfy our obligations contained in the registration rights agreement entered into when the old notes were sold in transactions permitted by Rule 144A and Regulation S under the Securities Act and therefore not registered with the SEC. For procedures for tendering, see "The Exchange Offer." Tenders, Expiration Date, Withdrawal.................. The exchange offer will expire at 5:00 p.m. New York City time on , 2004 unless it is extended. If you decide to exchange your old notes for new notes, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the new notes. If you decide to tender your old notes in the exchange offer, you may withdraw them at any time prior to , 2004. If we decide for any reason not to accept any old notes for exchange, your old notes will be returned to you without expense to you promptly after the exchange offer expires. United States Federal Income Tax Consequences......... Your exchange of old notes for new notes in the exchange offer will not result in any income, gain or loss to you for United States federal income tax purposes. See "Material United States Federal Income Tax Consequences of the Exchange Offer." Use of Proceeds....................................... We will not receive any proceeds from the issuance of the new notes in the exchange offer. Exchange Agent........................................ Law Debenture Trust Company of New York is the exchange agent for the exchange offer. Failure to Tender Your Old Notes...................... If you fail to tender your old notes in the exchange offer, you will not have any further rights under the registration rights agreement, including any right to require us to register your old notes or to pay you additional interest. </TABLE> You will be able to resell the new notes without registering them with the SEC if you meet the requirements described below. Based on interpretations by the SEC's staff in no-action letters issued to third parties, we believe that new notes issued in exchange for old notes in the exchange offer may be offered for resale, resold or otherwise transferred by you without registering the new notes under the Securities Act or delivering a prospectus, unless you are a broker-dealer receiving securities for your own account, so long as: o you are not one of our "affiliates", which is defined in Rule 405 of the Securities Act; o you acquire the new notes in the ordinary course of your business; o you do not have any arrangement or understanding with any person to participate in the distribution of the new notes; and o you are not engaged in, and do not intend to engage in, a distribution of the new notes. If you are an affiliate of Mueller Holdings, or you are engaged in, intend to engage in or have any arrangement or understanding with respect to, the distribution of new notes acquired in the exchange offer, you (1) should not rely on our interpretations of the position of the SEC's staff and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If you are a broker-dealer and receive new notes for your own account in the exchange offer: o you must represent that you do not have any arrangement with us or any of our affiliates to distribute the new notes; o you must acknowledge that you will deliver a prospectus in connection with any resale of the new notes you receive from us in the exchange offer; the letter of transmittal states that by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an "underwriter" within the meaning of the Securities Act; and o you may use this prospectus, as it may be amended or supplemented from time to time, in connection with the resale of new notes received in exchange for old notes acquired by you as a result of market-making or other trading activities. For a period of 90 days after the expiration of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any resale described above. Summary Description of the Notes The terms of the new notes and the old notes are identical in all material respects, except that the new notes have been registered under the Securities Act, and the transfer restrictions and registrations rights relating to old notes do not apply to the new notes. The following summary contains basic information about the new notes. It does not contain all of the information that is important to you. For a more complete understanding of the notes, see "Description of Notes". <TABLE> <S> <C> Issuer............................................ Mueller Holdings (N.A.), Inc. Securities Offered................................ $223.0 million aggregate principal amount at maturity of senior discount notes due 2014 Maturity.......................................... April 15, 2014. Interest payment dates............................ No cash interest will accrue on the notes prior to April 15, 2009. The old notes had an initial accreted value of $493.596 per $1,000 principal amount at maturity of notes. The accreted value of each note will increase from the date of issuance until April 15, 2009, at a rate of 14 3/4% per annum compounded semi-annually such that the accreted value will equal the principal amount at maturity on April 15, 2009. Thereafter, cash interest on the notes will accrue and be payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2009 at a rate of 14 3/4% per annum (calculated using a 360 day year of twelve 30-day months). Original issue discount........................... The notes are being offered with original issue discount for U.S. federal income tax purposes. Thus, although cash interest will not be payable on the notes prior to October 15, 2009, original issue discount will accrue for tax purposes from the issue date of the notes based on the yield to maturity of the notes and generally will be included as interest income (including for periods ending on or prior to October 15, 2009) for U.S. federal income tax purposes. Optional Redemption............................... We may redeem the notes at any time on or after April 15, 2009 in whole or in part, in cash at the redemption prices described in this prospectus, plus accrued and unpaid interest. See "Description of Notes--Optional Redemption." In addition, prior to April 15, 2007, we may redeem up to 35% of the aggregate principal amount at maturity of notes originally issued at a redemption price of 114.75% of accreted value with the proceeds of public equity offerings within 90 days of the closing of a public equity offering. We may make that redemption only if, after the redemption, at least 65% of the aggregate principal amount of notes originally issued remains outstanding. Change of Control................................. Upon a change of control, as defined in "Description of Notes," we will be required to make an offer to purchase </TABLE> <TABLE> <S> <C> the notes. The purchase price will equal 101% of the accreted value of the notes on the date of repurchase, plus accrued and unpaid interest to the date of repurchase. Use of Proceeds................................... We will not receive any proceeds from the exchange of new notes for old notes. </TABLE> Our Company Overview We are a leading North American manufacturer of a broad range of flow control products for use in water distribution networks, water and wastewater treatment facilities, gas distribution systems and piping systems. Our products include hydrants, valves, pipe fittings, pipe hangers and pipe nipples and a variety of related products. We believe we have the broadest product line of any of our competitors and enjoy strong market positions, leading brand recognition and a reputation for quality and service within the markets we serve. For the fiscal year ended September 30, 2003, approximately 75% of our total sales were from products in which we believe we have the #1 or #2 market share in the United States and Canada. We believe our network of over 5,000 independent flow control distributors is the largest such distribution network in the United States and Canada. Our sales force of approximately 400 field sales representatives and manufacturer's representatives works directly with municipalities and other end-users as well as with distributors, which market our products to end-users. While most of our products are generally sold through distributors, for most of our hydrant and valve products it is the end-user who either chooses the brand or establishes product specifications, including required approvals from industry standard-setting organizations. We believe our reputation for quality, our large installed base of products and our coordinated marketing approach have helped our products to be "specified" as an approved product for use in most major metropolitan areas throughout the United States. We have manufactured industry leading products for almost 150 years and currently operate 30 manufacturing facilities located in the United States, Canada and China. Our production capabilities include foundry operations, machining, fabrication, assembly and testing. We sell our products under several brand names, including Mueller and James Jones for hydrants, gate valves and brass products, Mueller and Henry Pratt for butterfly valves, Hersey for water meters and Anvil for piping system components. Industry Overview The North American flow control industry consists of the manufacturers of pumps, valves, fittings, fixtures and seals. Growth in the sectors we serve is influenced largely by the state of the general economy, population growth, new residential and non-residential construction activity and the need to replace, repair and upgrade existing water and wastewater infrastructure. Our sales are substantially driven by new residential and non-residential construction and by infrastructure replacement, repair and upgrades. We estimate that substantially all our sales of piping component products, which represented approximately 42% of our 2003 total sales, are to the non-residential construction market, with the remainder split between the residential construction market and the market for infrastructure replacement, repair and upgrades, accounting for approximately 60% and 40% of such sales, respectively. However, we anticipate that sales related to infrastructure replacement, repair and upgrade will become a larger portion of the market for water-related flow control products as a result of the continued aging of municipal water systems in the United States and Canada and the increasingly large base of water-related flow control installations. o In the residential construction market, U.S. housing starts have remained relatively stable from 1998 to 2003, with a low of 1.57 million units in 2000 and a high of 1.85 million units in 2003. While the residential construction market historically has been cyclical, many economists believe that the housing cycle has recently been less volatile as a result of strong demographic trends and changes in the structure of the residential market that have made credit more available throughout the economic cycle. o Growth in the infrastructure upgrades, repairs and replacement sector is driven primarily by (1) the growing installed base of our products, (2) the age of existing systems, (3) the operating cost of systems, (4) general use of systems, (5) governmental budgetary constraints and (6) changes in federal and state environmental regulations, including, most recently, the Clean Water Act and the Safe Drinking Water Act. Much of the water distribution infrastructure in the United States is considered to be old and in need of updating. In a November 2002 study, the Congressional Budget Office estimated that the average annual spending necessary to upgrade, repair and replace existing water and wastewater infrastructure will be between $24.6 billion and $41.0 billion a year over the next 15 years, which represents a significant increase over the $21.6 billion spent in 1999. We believe spending in this sector has been constrained in recent years as a result of budgetary limitations imposed on state and local governments and the weak economic environment. We expect that the infrastructure upgrades, repairs and replacement sector will likely benefit from an improvement in the overall economy as state and local governments address deferred infrastructure needs. o Non-residential construction activity includes (1) public works and utility construction, (2) institutional construction, including education, dormitory, health facility, public, religious and amusement construction, and (3) commercial and industrial construction. In the non-residential building construction market, U.S. non-residential building construction has decreased from $173.1 billion in 2000 to $149.7 billion in 2003 as a result of the recent downturn in the economic cycle, principally relating to reduced office and institutional construction; however, according to the U.S. Census Bureau, spending for non-residential construction increased by 0.6% in the fourth quarter of calendar year 2003 relative to the fourth quarter of calendar year 2002. While office construction remained weak in 2003, construction for health, religious and educational facilities remained steady. Our products are sold to a variety of end-user customers including municipalities, publicly and privately-owned water companies, gas utilities and construction contractors. This diverse group of end-users generally purchases our products as well as other flow control products from one or more of the over 5,000 independent distributors to whom we supply. Distributors typically provide a comprehensive line of flow control products on demand as well as important technical and support services to their customers. The competitive environment for independent distributors has been and continues to be characterized by consolidation as distributors seek to broaden their geographical reach and achieve economies of scale. We believe many independent distributors are increasingly seeking to partner with the leading manufacturers of flow control products that offer a broad product range, with strong brands that can support their growing geographic footprints. Although the flow control products that we manufacture are generally sold through independent distributors to contractors, end-users, such as municipalities, often specify the brands to be used based on quality, installed base or industry accepted standards. This specification dynamic elevates the importance of a manufacturer's history, installed base and relationship with end-users of flow control products. Information About Us Our principal executive office is located at 500 West Eldorado Street, Decatur, Illinois 62522-1808, and our telephone number is (217) 423-4471. Our Sponsor We were formed in 1999 by DLJ Merchant Banking Partners II, L.P. and related funds for the purpose of acquiring our business from Tyco International (U.S.) Inc. and its affiliates. Prior to our acquisition by the DLJ Merchant Banking funds, our business was operated by Tyco under a variety of names, including Mueller & Co., Grinnell Supply Sales, Grinnell Manufacturing and Henry Pratt Company. We represent the single largest investment of DLJ Merchant Banking Partners II, L.P. The DLJ Merchant Banking funds and certain of their co-investors beneficially own approximately 87% of the common stock of Mueller Holdings (N.A.), Inc., our parent company. See "Principal Stockholders." DLJ Merchant Banking Partners II, L.P. is part of CSFB Private Equity, the global private equity arm of Credit Suisse First Boston LLC or CSFB. DLJ Merchant Banking Partners II, L.P. is focused on leveraged buyouts, was organized in 1996 with approximately $3.0 billion in committed capital and has approximately $150 million available for follow-on investments. Risk Factors Investment in the notes involves substantial risks. See "Risk Factors" immediately following this summary for a discussion of certain risks relating to an investment in the notes. Summary Financial Data The following table includes a summary of our historical and other consolidated financial data for Mueller Holdings for each of the periods indicated. The summary historical financial data is derived from our audited or unaudited consolidated financial statements and the notes to those statements, which are included elsewhere in this prospectus. Our results of operations include the results for various acquired entities from the date of acquisition. The pro forma financial information is derived from the unaudited pro forma financial statements included elsewhere in this prospectus and gives effect to our recent acquisition of Star, the old notes offering and the related transactions. You should read the information contained in this table in conjunction with "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Financial Statements" and our consolidated financial statements and the notes to those statements included elsewhere in this prospectus. <TABLE> Fiscal years ended September 30, Six months ended Pro forma ------------------------------- ------------------- ------------------- Fiscal Six year months ended ended March 29, March 27, September March 27, 2001 2002 2003 2003 2004 30, 2003 2004 --------- -------- -------- -------- -------- -------- -------- (dollars in millions) <S> <C> <C> <C> <C> <C> <C> <C> Income Statement Data: Net sales........................ $ 864.7 $ 901.9 $ 925.1 $ 439.0 $ 454.9 $ 945.1 $ 460.8 Cost of sales.................... 629.6 658.1 674.7 324.9 328.0 689.2 332.5 Royalty expense(1)............... 29.1 13.5 -- -- -- -- -- --------- -------- -------- -------- -------- -------- -------- Gross profit..................... 206.0 230.3 250.4 114.1 126.9 255.9 128.3 Selling, general and administrative expenses........ 147.0 145.7 154.9 75.0 79.3 158.6 80.3 Facility rationalization(2)...... 27.6 2.7 1.7 1.5 0.9 1.7 0.9 --------- -------- -------- -------- -------- -------- -------- Operating income.................... 31.4 81.9 93.8 37.6 46.7 95.6 47.1 Interest expense.................... (92.5) (60.2) (36.4) (19.2) (21.2) (94.5) (51.3) Net income (loss)................... (42.8) 13.3 34.4 11.3 15.5 (1.7) (3.6) Other Data: Cash flows from operating activities..................... 52.1 47.6 65.2 7.6 9.1 Cash flows used in investing activities..................... (56.2) (39.3) (19.6) (7.6) (30.7) Cash flows used in financing activities..................... (9.3) (12.5) (5.5) (1.1) (42.8) EBITDA(3)........................ 133.4 160.5 161.0 71.0 80.3 163.8 80.9 Depreciation and amortization.... 65.4 62.8 66.3 32.9 33.2 67.3 33.4 Capital expenditures............. 51.0 31.3 20.0 10.0 11.0 20.0 11.0 Total debt (end of period)....... 587.1 581.0 575.7 579.6 533.5 -- 1,077.9 Ratio of earnings to fixed charges(4)..................... -- 1.37 2.10 1.68 2.19 1.02 -- </TABLE> --------- (1) In connection with the acquisition of Mueller by the DLJ Merchant Banking funds from Tyco in August 1999, we acquired a non-exclusive license to use the Mueller brand name for a period of two years, with an option to purchase it after August 2001, and to use the Grinnell brand name for three years. We exercised the option and purchased the Mueller intellectual property in September 2001. Payments under such license are reflected as royalty expense in our statement of operations. These royalty expenses were funded out of restricted cash we placed into escrow in August 1999 in connection with our acquisition from Tyco. (2) Facility rationalization includes severance and exit costs and non-cash impairment charges due to the idling and obsolescence of certain assets related to (1) the implementation of lost foam technology at our Albertville, Alabama and Chattanooga, Tennessee facilities, (2) the closure of our Statesboro, Georgia manufacturing facility, and (3) the relocation of certain manufacturing lines to other facilities. (3) EBITDA is defined as income (loss) before cumulative effect of accounting change plus income tax expense, interest expense (not net of interest income), depreciation and amortization expense and royalty expenses (which were funded out of restricted cash deposited upon our acquisition by the DLJ Merchant Banking funds). We present EBITDA because we consider it an important supplemental measure of our performance as it measures our operating performance before interest expense. Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure. EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: o EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; o EBITDA does not reflect changes in, or cash requirements for, our working capital needs; o EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and o although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements. The following is a reconciliation of EBITDA to income (loss) before cumulative effect of accounting change: <TABLE> Fiscal years ended September 30, Six months ended Pro forma ------------------------------- ------------------- ------------------- Fiscal Six year months ended ended March 29, March 27, September March 27, 2001 2002 2003 2003 2004 30, 2003 2004 --------- -------- -------- -------- -------- -------- -------- (dollars in millions) <S> <C> <C> <C> <C> <C> <C> <C> Income (loss) before cumulative effect of accounting change... $ (33.7) $ 13.3 $ 34.4 $ 11.3 $ 15.5 $ (1.7) $ (3.6) Income tax expense (benefit)..... (19.9) 10.7 23.9 7.6 10.4 3.7 (0.2) Royalty expense.................. 29.1 13.5 -- -- -- -- -- Interest expense................. 92.5 60.2 36.4 19.2 21.2 94.5 51.3 Depreciation and amortization.... 65.4 62.8 66.3 32.9 33.2 67.3 33.4 --------- -------- -------- -------- -------- -------- -------- EBITDA........................... $ 133.4 $ 160.5 $ 161.0 $ 71.0 $ 80.3 $ 163.8 $ 80.9 ========= ======== ======== ======== ======== ======== ======== </TABLE> (4) Earnings consist of income from continuing operations before income taxes, fixed charges, amortization of capitalized interest, distributed income of equity investees, and losses before tax of equity investees for which charges arising from guarantees are included in fixed charges, minus capitalized interest and minority interest in pre-tax income of subsidiaries that have not incurred fixed charges. Fixed charges consist of interest expensed and capitalized, amortization of debt discount and expense and premium and one-third of rental payments which is considered as being representative of the interest factor implicit in our operating leases. Earnings were insufficient to cover fixed charges by $53.6 million in 2001. For the year ended September 30, 2003, on a pro forma basis as adjusted for our acquisition of Star and to give affect to the offering and the related transactions, our ratio of earnings to fixed charges would have been 1.02.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291080_fidelity_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291080_fidelity_prospectus_summary.txt
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+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291124_portola_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291124_portola_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291138_portola_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291138_portola_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c6a574bd8206c1b192b81473343c3eaf3a22b5c5
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001291138_portola_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291147_portola_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291147_portola_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c6a574bd8206c1b192b81473343c3eaf3a22b5c5
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001291147_portola_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291149_tech_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291149_tech_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c6a574bd8206c1b192b81473343c3eaf3a22b5c5
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001291149_tech_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001291239_portola_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001291239_portola_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c6a574bd8206c1b192b81473343c3eaf3a22b5c5
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001291239_portola_prospectus_summary.txt
@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights material information about our business and the notes. This summary of material information contained elsewhere in this prospectus is not complete and does not contain all of the information that may be important to you. For a more complete understanding of our business and the notes, you should read this entire prospectus, including the sections entitled Risk factors and Description of notes and our consolidated financial statements and the consolidated financial statements of Tech Industries, Inc. ( Tech Industries ) and related notes included elsewhere in this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ended August 31 of each year (e.g., fiscal 2003 is our fiscal year ended on August 31, 2003). Unless otherwise indicated, all references to our pro forma results for fiscal 2003 give pro forma effect to our acquisition of Tech Industries, the sale of the notes in a private placement in January 2004 and the application of the net proceeds therefrom and the amendment and restatement of our senior secured credit facility, as if such transactions had occurred on September 1, 2002. Portola Packaging, Inc. We are a leading designer, manufacturer and marketer of plastic closures, bottles and related equipment used in the non-carbonated beverage and institutional food markets. In September 2003 we entered the cosmetic, fragrance and toiletry ( CFT ) markets with the acquisition of Tech Industries, a leading provider of closures in these markets. For the twelve months ended February 29, 2004, we generated pro forma sales of $245.2 million and pro forma income from operations of $9.3 million. We believe that we are the sole or largest supplier to many of our customers of the products we supply. Our consistent product quality and customer service have allowed us to develop strong relationships with our customers, and we have supplied products to our top 25 customers for an average of 13 years. We sold over 12.6 billion closures (pro forma) in fiscal 2003 to over 1,000 customers under the names Snap Cap, Nepco, Portola, Tech Industries and other brand names. Closure sales represented a majority of our 2003 pro forma sales. We sell our products to such beverage, food and consumer product companies as Dean Foods, Dairyworld Foods, Dairy Crest, Arla Dairies, Kroger, Perrier Water/ Nestle, Est e Lauder, Avon and Coca-Cola. Our products provide our customers with a number of value-added benefits, such as the ability to increase the security and safety of their products by making them tamper evident and leak-resistant. Many features of our products have been developed through our extensive research and development efforts. For example, we developed the tear strip feature that has become a standard tamper evident mechanism for non-carbonated beverage and food products. In addition, we have developed technology and know-how that have enabled us to achieve manufacturing efficiencies that we believe provide us with a significant competitive advantage. We hold more than 125 domestic and foreign patents, with over 70 additional patent applications pending, on the design and manufacture of container closures and containers, as well as compatible neck finishes. We produce a wide range of closures to satisfy a great number of application and customer requirements, and these products represented approximately 75% of our sales in fiscal 2003. The following describes our principal plastic closure product lines: Closures for gallon and half-gallon plastic containers. We are a leading provider of 38 mm closures used primarily for gallon and half-gallon plastic containers for milk and fruit juices in the United States and similar plastic containers for milk in Mexico and the United Kingdom. These closures represented a majority of our total closure sales in fiscal 2003. Five-gallon closures. We are a leading provider of plastic closures for five-gallon returnable glass and plastic water cooler bottles in the United States, and we also sell these products in Canada, Mexico, Europe and Asia. Other food and beverage closures. We produce a variety of specialty closures for the beverage and food markets. These products include (i) wide mouth closures for plastic containers used in institutional food applications such as packaging for condiments, mayonnaise and salad dressing, (ii) re-closeable plastic 12,735 (1,311 ) 3,009 14,433 1,789 16,222 Income (loss) before income taxes 340 5,333 (4,200 ) 1,473 (1789 ) (316 ) Income tax expense 2,071 Buildings 39 $ 340 $ 8 $ 4 $ Machinery and equipment 7 6,785 970 485 46 Furniture and fixtures 5 15 3 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and liquidity and the development of the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. The following listing represents some, but not necessarily all, of the factors that may cause actual results to differ from those anticipated or predicted: our ability to complete the integration of Tech Industries (or to integrate any future acquisitions) into our company; pricing pressures due to consolidation in our customers industries; risks of competition in our existing and future markets; increases in prices and availability of resin and our ability to pass on increases in resin prices to our customers; risks associated with new business development; risks related to conducting business internationally and international expansion; and the other risks described under the heading
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/CIK0001292429_tp_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001292429_tp_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4d5a60b4152c4a8ced77b5c0eb2b2a5c49c2b02b
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/CIK0001292429_tp_prospectus_summary.txt
@@ -0,0 +1 @@
+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+summary of the principal features of this offering of EYSs and separate notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Carrols Holdings Corporation, a Delaware corporation, as Carrols Holdings and, together with its consolidated operations, as we, our and us, unless otherwise indicated. Any reference to Carrols refers to our wholly-owned subsidiary, Carrols Corporation, a Delaware corporation, and its consolidated operations, unless otherwise indicated. We are a holding company and have no direct operations. Our principal assets are the capital stock of Carrols and any intercompany notes owed to Carrols Holdings, all of which will be pledged to the creditors under the new credit facility, as described more fully below. We use a 52-53 week fiscal year ending on the Sunday closest to December 31. For convenience, the dating of the financial information in this prospectus has been labeled as of, and for the years ended, December 31, 1999, 2000, 2001, 2002 and 2003. Similarly, all references herein to the six months ended June 29, 2003 and June 27, 2004 are referred to as the six months ended June 30, 2003 and 2004, respectively. Throughout this prospectus, we use the terms EBITDA and EBITDA margins because we believe they are useful financial indicators for measuring segment operating results as well as the ability, on a consolidated basis, to service and/or incur indebtedness. EBITDA, on a consolidated basis, should not be considered as an alternative to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculation. Management believes the most directly comparable measure to consolidated EBITDA calculated in accordance with GAAP is net cash provided from operating activities. See Reconciliation of Non-GAAP Financial Measures on page 72. Carrols Holdings Corporation Company Overview We are one of the largest restaurant companies in the United States operating 536 restaurants in 16 states as of June 30, 2004. We operate three restaurant brands that provide balance through diversification of our restaurant concepts and geographic dispersion. We own and operate two regional restaurant companies, Taco Cabana and Pollo Tropical (together referred to by us as our Hispanic Brands). We are also the largest Burger King franchisee in the world and have operated Burger King restaurants since 1976. For the year ended December 31, 2003, we had total revenues of $645.0 million, net cash provided from operating activities of $48.2 million and EBITDA of $83.7 million. The following charts reflect total revenues and EBITDA generated by our Hispanic Brands and Burger King restaurants for the year ended December 31, 2003 which illustrate our balance and diversity: Texas 118 5 123 Oklahoma 6 6 New Mexico 2 2 Georgia 1 1 Indiana 1 Connecticut 1 Indiana 5 Kentucky 10 Maine 5 Massachusetts 1 Michigan 26 New Jersey 2 New York 145 North Carolina 40 Ohio 83 Pennsylvania 12 South Carolina 21 Vermont UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in the EYSs and separate notes, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Table of Contents Hispanic Brands. We entered the quick-casual restaurant segment in 1998 with our acquisition of Pollo Tropical, Inc. and we subsequently acquired Taco Cabana, Inc. in late 2000. As of June 30, 2004, our Hispanic Brands were comprised of 184 company-owned and 34 franchised restaurants. Taco Cabana Our Taco Cabana restaurants combine generous portions of fresh, premium quality Tex-Mex and traditional Mexican style food in a festive setting with the convenience and value of quick-service restaurants. Menu items include flame-grilled beef and chicken fajitas, quesadillas, traditional Mexican and American breakfasts, other Tex-Mex dishes and fresh-made flour tortillas. Most menu items are made fresh daily in each of our Taco Cabana restaurants. Our Taco Cabana restaurants also offer a distinctive salsa bar as well as a variety of beverage choices, including margaritas and beer. Taco Cabana pioneered the Mexican patio caf concept with its first restaurant in San Antonio, Texas in 1978. As of June 30, 2004, we owned and operated 124 Taco Cabana restaurants located in Texas and Oklahoma and franchised nine Taco Cabana restaurants. For the year ended December 31, 2003, our Taco Cabana restaurants generated total revenues of $181.5 million and EBITDA of $24.4 million. In addition, for 2003, our Taco Cabana restaurants generated average annual sales per restaurant of $1.5 million and average EBITDA per restaurant of $0.2 million. Pollo Tropical Our Pollo Tropical restaurants feature fresh grilled chicken marinated in a proprietary blend of tropical fruit juices and spices and authentic made from scratch side dishes. Our menu emphasizes freshness and quality with a focus on flavorful chicken served hot off the grill. Pollo Tropical restaurants combine high quality, distinctive menu items and an inviting tropical setting with the convenience and value of quick-service restaurants. Most menu items are made fresh daily in each of our Pollo Tropical restaurants. Pollo Tropical opened its first company-owned restaurant in 1988 in Miami. As of June 30, 2004, we owned and operated a total of 60 restaurants, 51 of which were located in south Florida and nine of which were located in central Florida. We also franchised 25 Pollo Tropical restaurants as of June 30, 2004, 20 of which were located in Puerto Rico, four in Ecuador and one in Miami. Since our acquisition of Pollo Tropical, we have expanded the brand by over 65% by opening 24 new company-owned restaurants. For the year ended December 31, 2003, our Pollo Tropical restaurants generated total revenues of $110.2 million and EBITDA of $22.6 million. In addition, for 2003, our Pollo Tropical restaurants generated average annual sales per restaurant of $1.8 million, which we believe is among the highest in the quick-casual segment, and average EBITDA per restaurant of $0.4 million. Burger King. Burger King is the second largest hamburger restaurant chain in the world and we are the largest Burger King franchisee in the world. Burger King restaurants feature flame-broiled hamburgers and other sandwiches, the most popular of which is the WHOPPER sandwich. The WHOPPER is a large, flame-broiled hamburger on a toasted bun garnished with mayonnaise, lettuce, onions, pickles and tomatoes. Burger King restaurants offer hamburgers, cheeseburgers, chicken and fish sandwiches, breakfast items, french fried potatoes, onion rings, salads, shakes, desserts and a variety of soft drinks and other beverages. In addition, promotional menu items are introduced periodically for limited periods. Burger King continually seeks to develop new products to enhance the menu of its restaurants. As of June 30, 2004, we operated 352 Burger King restaurants located in 13 Northeastern, Midwestern and Southeastern states. For the year ended December 31, 2003, our Burger King restaurants generated total revenues of $353.3 million and EBITDA of $36.8 million. In addition, for 2003, our Burger King restaurants generated average annual sales per restaurant of $1.0 million and average EBITDA per restaurant of $0.1 million. The Industry Total restaurant industry revenues in the United States for 2003 were $291.9 billion, an increase of 3.4% over 2002. The U.S. restaurant industry is comprised of five major segments: quick-service, quick-casual, family/ mid-scale, casual dining and fine dining restaurants. Sales in the overall restaurant industry are projected to increase at a compound annual growth rate of 4.8% between 2003 and 2008. AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The emerging quick-casual restaurant segment, which includes our Hispanic Brands, combines the convenience of quick-service restaurants with the menu variety, use of fresh ingredients, upscale decor and food quality of casual dining. We believe that the quick-casual restaurant segment is one of the fastest growing segments of the restaurant industry. Sales growth in 2003 of quick-casual chains in the Top 100 restaurant chains was 9.1% as compared to 5.1% for the overall Top 100 restaurant chains, which includes all five major segments. The quick-service restaurant segment is the largest segment of the U.S. restaurant industry. Technomic identifies eight major types of quick-service restaurants in the United States: hamburger; pizza/pasta; chicken; other sandwich; Mexican; ice cream/yogurt; donut and cafeteria/buffet. Sales at quick-service restaurants in the United States were $144.1 billion in 2003, representing 49% of total U.S. restaurant industry sales. The hamburger segment of the U.S. quick-service restaurant segment, which includes our Burger King restaurants, generated revenues of $50.7 billion in 2003 making it the largest segment of the U.S. quick-service restaurant market. Sales in the hamburger segment are projected to increase at a compound annual growth rate of 3.5% between 2003 and 2008. We believe that the quick-service restaurant segment meets consumers desire for a convenient, reasonably priced restaurant experience. Competitive Strengths We attribute our success in the quick-casual and quick-service restaurant segments to the following competitive strengths: Strong Brand Names. We believe our restaurant concepts are highly recognized brands in their market areas. Hispanic Brands Taco Cabana and Pollo Tropical are highly recognized quick-casual restaurant brands in their respective core markets. Of the 124 Taco Cabana restaurants we owned and operated as of June 30, 2004, 118 were concentrated in five major Texas markets: San Antonio, Houston, Dallas/Fort Worth, Austin and El Paso. All of the 60 Pollo Tropical restaurants we owned and operated as of June 30, 2004 were located in four counties in south and central Florida. We believe that the following factors have contributed to the success of our Hispanic Brands: strong brand awareness in their respective core markets; high quality, freshly prepared food; high frequency of visits and loyalty by core customers; and distinctive menu offerings that capitalize on the growing consumer preference for variety and ethnic foods. Burger King Since its introduction in 1954, the Burger King brand has become one of the most recognized brands in the restaurant industry. Each year Burger King spends between 4% and 5% of total system sales on advertising (a total of $2.3 billion over the past five years) to sustain and increase this high brand awareness. We believe that strong brand recognition, combined with food quality, value and convenience of Burger King restaurants, provide opportunities for growth for the Burger King brand. Stable and Diversified Cash Flows. We believe that the stability of our operating cash flows is due to the proven success of our quick-casual and quick-service restaurant concepts, the high degree of customer awareness of our brands and our consistent focus on effective restaurant operations. Over the past five years, our EBITDA margins have ranged between 12.6% and 14.4% and averaged 13.5%. Over the same period, net cash provided from operating activities has ranged from $39.1 million to $56.0 million and averaged $48.4 million. We also believe that multiple concepts operating in diverse geographic areas enable us to capitalize on regions that have rapidly growing populations and to further reduce our dependence on the economic performance of any one particular region or restaurant concept. Taco Cabana, with its quick-casual restaurants primarily located in Texas, CARROLS HOLDINGS CORPORATION (Exact Name of Registrant as Specified in its Charter) Table of Contents and Pollo Tropical, with its quick-casual restaurants primarily located in Florida, have provided us with geographic, brand and concept diversity. In addition, our Burger King restaurants are geographically dispersed over 13 states in the Northeast, Southeast and Midwest regions. Well Positioned to Continue to Capitalize on Growing Population in Our Core Markets. Due primarily to our acquisition of Taco Cabana in late 2000 as well as the development of new Taco Cabana and Pollo Tropical restaurants over the past five years, total revenues generated by our Hispanic Brands have increased from $83.8 million in 1999 to $291.7 million in 2003. During this time frame, total EBITDA generated by our Hispanic Brands has increased over 250% from $18.5 million in 1999 to $47.0 million in 2003. As of June 30, 2004, we collectively owned and operated or franchised more than 200 restaurants under our Hispanic Brands. Our Hispanic Brand restaurants are concentrated in two regions: Texas and Florida. We expect sales from these restaurants to benefit from the continued population growth in these regions and from the growth of the U.S. Hispanic population, both of which are expected to exceed the national average. According to the U.S. Census Bureau, the U.S. population is forecast to grow by 4.1% from 2005 to 2010 and the population in Texas and Florida is forecast to grow by 6.4% and 6.7%, respectively, during that same period. In addition, the growth of the Hispanic population is expected to outpace overall population growth and increase from 11.8% of the total U.S. population in 2000 to 18.2% by 2025. Largest Burger King Franchisee. We are the largest Burger King franchisee in the world. We believe that our leadership position, together with our experienced management team, effective management information systems, and a comprehensive infrastructure enable us to operate more efficiently and better enhance restaurant margins and overall performance levels than most other Burger King franchisees. These strengths also enable us to selectively acquire additional Burger King restaurants, continue to develop new restaurants and leverage this expertise across our Hispanic Brands. Experienced Management Team. Our senior management has extensive experience in the restaurant industry and has a long and successful history of developing, acquiring and operating quick-service and quick-casual restaurants. Management has successfully integrated the acquisitions of Taco Cabana and Pollo Tropical. We believe that our senior management team s experience in operating restaurants and knowledge of the demographic and other characteristics of our core markets provide us with a competitive advantage. Business Strategy Our business strategy is to continue to increase revenues and cash flows through the development of new restaurants and selective acquisitions. Our business strategy also includes improvements in sales at our restaurants through our marketing and product development activities and through our operating efficiencies as a result of our training and sophisticated management information systems. We also may have opportunities to expand our Hispanic Brands in additional markets through franchising and other arrangements. Our strategy is based on the following components: Leverage Strong Brand Names. We realize significant benefits as an owner and operator of the Taco Cabana and Pollo Tropical restaurant concepts and as a Burger King franchisee. These benefits are the result of the following: strong recognition of the Taco Cabana and Pollo Tropical brands in their core markets; ability to manage brand awareness, marketing and product development for our Hispanic Brands; widespread recognition of the Burger King brand and flagship WHOPPER product supported by a national advertising program; and ability to capitalize on Burger King s product development capabilities. Total capital expenditures $ 3,627 $ 640 $ 2,784 $ 7,051 Number of restaurants remodeled Number of new restaurants 3 1 Table of Contents Grow Sales and Continue to Improve Operating Efficiencies. We maintain a disciplined commitment to increasing the profitability of our existing restaurants. Our strategy is to grow sales in our existing restaurants by continuing to develop new products for our Hispanic Brands, developing and enhancing the efficiency and quality of our proprietary advertising and promotional programs and improving the customer experience at all of our restaurants. Our large base of restaurants, skilled management team and sophisticated management information and operating systems enable us to optimize operating efficiencies for our restaurants. We are able to control restaurant labor and food costs, effectively manage our restaurant operations and ensure consistent application of operating controls through the use of our sophisticated management information and point-of-sale systems. Our size and, in the case of Burger King, the size of the Burger King system enable us to realize benefits from improved bargaining power for purchasing and cost management initiatives. We believe these factors provide the basis for increased restaurant level and company profitability. Open Additional Restaurants. We believe that many of our existing markets continue to provide opportunities for the development of new Taco Cabana, Pollo Tropical and Burger King restaurants. Our staff of real estate and development professionals are responsible for new restaurant development. Before developing a new restaurant, we conduct an extensive site selection and evaluation process that includes in-depth demographic, market and financial analyses. By selectively increasing the number of restaurants we operate in a particular market, we can increase brand awareness and effectively leverage our management oversight, corporate infrastructure and local marketing expenditures. We intend to use borrowings under our new credit facility and proceeds from future sale-leaseback transactions to fund capital expenditures for new restaurant development. A portion of the new credit facility ($ million) will be reserved to fund such capital expenditures. We believe there are further growth opportunities for our Hispanic Brands. We plan to open new restaurants in our existing markets which may be either free-standing buildings or restaurants contained within strip shopping centers (in-line restaurants) to further leverage our existing brand awareness. Operating in-line restaurants allows us to selectively expand our brand penetration and visibility in certain of our existing markets, while doing so at a lower cost than developing a restaurant as a free-standing building. We also believe that there may be opportunities to further expand these brands beyond their current core regions of Texas and south and central Florida. We believe there may be opportunities to expand the number of Burger King restaurants we operate through selective acquisitions from other franchisees and through development of new restaurants in our existing markets. We believe that selective acquisitions of additional Burger King restaurants would result in operating efficiencies from our proven abilities to reduce operating costs and achieve increased economies of scale by leveraging our infrastructure and operating systems. Explore Franchising and Other Arrangements. We may consider expanding our Hispanic Brands into new markets through franchising and other arrangements, such as joint ventures, which would provide us with additional cash flows through royalties, franchise and other fees. We believe this strategy will allow us to test new markets for future expansion without incurring significant capital expenditures required for developing new company owned and operated restaurants. 968 James Street Syracuse, New York 13203 (315) 424-0513 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Table of Contents The Transactions In connection with this offering, we will: effect a reclassification of our existing common stock and a number of other internal corporate transactions; enter into a $ million new credit facility; and conduct a tender offer and consent solicitation to repurchase all of Carrols 9 1/2% senior subordinated notes. The closing of this offering is conditioned upon our completion of these transactions. We estimate that we will sell EYSs and an additional $ million aggregate principal amount of separate notes as part of this offering. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. Assuming an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate note, we estimate that we will receive aggregate net proceeds of $ million from this offering of EYSs and separate notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. We will use these net proceeds, together with $ million of borrowings under the new credit facility, as follows: $ million to repurchase shares of our Class B common stock (issued in exchange for our existing common stock) and outstanding options from the existing stockholders, including certain members of management; $ million to repay all outstanding borrowings under the existing credit facility; $ million to repurchase all of Carrols 9 1/2% senior subordinated notes in the tender offer or through a redemption; and $ million to pay related fees and expenses and transaction bonuses to certain members of management. If the underwriters exercise their over-allotment option with respect to the EYSs in full, we will use all of the net proceeds we receive from the sale of additional EYSs under the over-allotment option ($ million) to repurchase shares of our Class B common stock held by certain of the existing stockholders, including certain members of management. We refer to the offering of the EYSs and the separate notes, our internal corporate transactions, the entering into of the new credit facility, the tender offer and consent solicitation, the repurchases of our existing common stock and stock options from the existing stockholders, the repayment in full of the existing credit facility and the retirement of Carrols 9 1/2% senior subordinated notes collectively as the transactions. Each of the transactions described above is conditioned upon our completion of each of the other transactions. Internal Corporate Transactions We have amended our certificate of incorporation and long-term incentive plans to provide for a single class of authorized common stock and to convert all outstanding stock options to purchase each of Carrols Holdings Taco Cabana class of common stock and Carrols Holdings Pollo Tropical class of common stock into options to purchase only Carrols Holdings Carrols class of common stock, which we refer to in this prospectus as our existing common stock. Joseph A. Zirkman, Esq. Vice-President, General Counsel c/o Carrols Corporation 968 James Street Syracuse, New York 13203 (315) 424-0513 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent For Service) Table of Contents Immediately prior to and in connection with this offering, we will reclassify our existing common stock into two classes of common stock: Class A common stock and Class B common stock. The shares of our existing common stock held by the existing stockholders will be reclassified into shares of Class B common stock. Concurrently with the closing of this offering, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from Madison Dearborn Capital Partners, L.P. and Madison Dearborn Capital Partners II, L.P., together, Madison Dearborn, and BIB Holdings (Bermuda) Ltd., which we refer to collectively in this prospectus as the existing financial investors. In addition, we will repurchase an aggregate of shares of our Class B common stock (issued in exchange for our existing common stock) from certain of our directors and officers, and repurchase options to purchase an aggregate of shares of our Class B common stock (issued in exchange for options to purchase our existing common stock) from certain of our directors, officers and current and former key employees. Options to purchase our Class B common stock (issued in exchange for options to purchase our existing common stock) held by certain of our directors, officers and current and former key employees and not repurchased by us in connection with this offering will be exchanged for an aggregate of shares of restricted Class B common stock to be issued under a newly-adopted restricted stock plan. In addition, certain members of management will be granted an aggregate of shares of restricted Class B common stock to be issued under such restricted stock plan. In this prospectus, we refer to all of the foregoing transactions as our internal corporate transactions. New Credit Facility Concurrently with the closing of this offering, Carrols will repay all outstanding borrowings due to the current lenders under its senior secured credit facility, which we refer to in this prospectus as the existing credit facility, and will amend and restate the existing credit facility with a new syndicate of lenders, including Lehman Brothers as lead arranger and bookrunner. In this prospectus, we refer to this amended and restated senior secured credit facility as the new credit facility. The new credit facility will be comprised of a secured revolving credit facility in a total principal amount of up to $ million (including $ million reserved for letters of credit) and a term loan facility consisting of senior secured notes in an aggregate principal amount of $ million. A portion of the new credit facility ($ million) will be reserved to fund capital expenditures for new restaurant development. While the new credit facility will permit us to pay dividends on our shares of Class A common stock and Class B common stock and interest to holders of the notes, it will contain significant restrictions on our ability to do so, and on our subsidiaries ability to make dividend and interest payments to us. The revolving credit facility will have a five-year maturity and the term loan facility will have a seven-year maturity. See Description of Other Indebtedness New Credit Facility. Tender Offer and Consent Solicitation In connection with this offering, we will commence a tender offer and consent solicitation with respect to all of Carrols outstanding 9 1/2% senior subordinated notes due 2008 for an expected total consideration of $ million. In this prospectus, we refer to these notes as Carrols 9 1/2% senior subordinated notes. As of June 30, 2004, $170 million aggregate principal amount of Carrols 9 1/2% senior subordinated notes were outstanding. The closing of this offering will be conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of Carrols 9 1/2% senior subordinated notes outstanding in order to delete the restrictive covenants contained in the indenture governing those notes, and the consummation of the tender offer and consent solicitation will be conditioned upon the closing of this offering. Holders that provide consents will be obligated to tender and holders who tender will be obligated to consent. After we receive the required consents, we intend to enter into a supplemental indenture to remove the restrictive covenants contained in the indenture to facilitate this offering. We cannot assure you that the tender offer and consent solicitation will be consummated on the terms described above. If any notes are not tendered pursuant to the tender offer, we intend to redeem such outstanding notes. The notes are redeemable at our option on or after December 1, 2003 at a price SEE TABLE OF ADDITIONAL REGISTRANTS Table of Contents of 104.75% of the principal amount if redeemed before December 1, 2004. We will use a portion of the net proceeds from this offering and borrowings under the new credit facility to pay for Carrols 9 1/2% senior subordinated notes accepted for purchase in the tender offer and consent solicitation or redeemed after this offering. The Existing Stockholders The existing financial investors and certain of our directors, officers and current and former key employees are the owners of all our outstanding existing common stock (and, in the case of our directors, officers and current and former key employees, outstanding options to purchase our existing common stock) prior to this offering. In this prospectus, we refer to these owners as the existing stockholders. As discussed above, the existing stockholders will be selling an aggregate of shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), and options to purchase shares of our Class B common stock (issued in exchange for options to purchase an aggregate of shares of our existing common stock) to us for $ million, which we will purchase with a portion of the proceeds of this offering, or shares of our Class B common stock (issued in exchange for an aggregate of shares of our existing common stock), for $ million if the underwriters exercise their over-allotment option with respect to the EYSs. Following the completion of our internal corporate transactions and upon the consummation of the other transactions, we anticipate that the existing financial investors will own an aggregate of shares of our outstanding Class B common stock, representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. In addition, we anticipate that the other existing stockholders will own an aggregate of shares of our outstanding Class B common stock (including an aggregate of shares of restricted Class B common stock issued under a newly adopted restricted stock plan), representing approximately % of our outstanding capital stock, or an aggregate of shares representing approximately % of our outstanding capital stock, if the underwriters over-allotment option with respect to the EYSs is exercised in full. Exchange Rights of Class B Common Stockholders After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. Each share of Class B common stock will be exchangeable into EYSs at a fixed rate of shares of Class B common stock for one EYS. After the second anniversary of the consummation of the offering, if the EYSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert one share of Class B common stock into one share of Class A common stock. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the EYSs in full) exchangeable into EYSs (or EYSs if the underwriters exercise their over-allotment option in full). For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes (including upon the issuance of additional EYSs in exchange for our Class B common stock) and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described herein. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. For additional information, see Material U.S. Federal Income Tax Consequences. Copies to: Wayne A. Wald, Esq. Katten Muchin Zavis Rosenman 575 Madison Avenue New York, New York 10022 (212) 940-8800 Ris B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000 Table of Contents Our Corporate Structure After this Offering The following chart reflects our corporate structure immediately after this offering (without giving effect to the exercise of the underwriters over-allotment option with respect to the EYSs), including percentages of voting control: Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. Table of Contents General Information About This Prospectus Throughout this prospectus, unless otherwise noted, we have assumed: no exercise of the underwriters over-allotment option with respect to the EYSs; the reclassification of our existing common stock (and options to purchase our existing common stock); the purchase of all of Carrols 9 1/2% senior subordinated notes in the tender offer and consent solicitation for aggregate consideration of $ million, including accrued and unpaid interest to the tender purchase date; a % annual interest rate on the notes, which is subject to change depending on market conditions prior to the pricing date; and an initial public offering price of $ per EYS (which represents the midpoint of the range set forth on the cover page of this prospectus) comprised of $ allocated to one share of Class A common stock and $ (100% of the stated principal amount) allocated to each note, and 100% of the stated principal amount of each separate note. Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of EYSs, including the shares of Class A common stock and notes represented by such EYSs, and $ million aggregate principal amount of separate notes. Recent Developments We restated our financial statements, including applicable footnotes, for periods ended prior to December 31, 2003 to report real estate transactions for 86 restaurants consummated during 1991 to 2000 as financing transactions under SFAS No. 98, Accounting for Leases , rather than as sale/leaseback transactions. The restatement was due to lease provisions in certain of our sale/leaseback transactions, which in our opinion have minimal commercial impact upon the relevant terms of the leases. Had we been aware of the potential impact of these provisions upon our financial statements, we believe that both we and the respective lessors would have agreed to exclude those provisions from each lease without affecting any of the material terms of such leases. We may amend these leases in the future to address these provisions and to qualify them for treatment as operating leases as originally intended. However, we cannot assure you as to when or whether any or all of such leases will be amended. The impact of the restatement was to record on our balance sheets the property and equipment of the restaurants subject to these transactions and record the proceeds from these transactions (including the gains previously deferred) as a form of debt financing. The restatement also impacted our financial results by increasing the depreciation expense for the property and equipment subject to these transactions and recharacterizing the lease payments previously accounted for as rent expense for these restaurants as principal repayments and interest expense. The restatement had no impact on our liquidity and net cash flows. In addition, there was no impact on sale/leaseback transactions that were consummated in 2002 and 2003. As a result of the restatement, we were in default related to certain required financial leverage ratios and other covenants under the existing credit facility. We obtained a waiver from our senior secured lenders of any Table of Contents prior non-compliance and defaults resulting from the restatement. In addition, the existing credit facility was amended to exclude all adjustments resulting from this restatement on our financial covenant requirements and to treat on a prospective basis the specified leases as if no restatement or recharacterization had occurred. See Note 2 to the consolidated financial statements included elsewhere in this prospectus for a complete discussion of the restatement. Amounts affected by the restatement that appear in this prospectus have also been restated. Our Corporate Information Our principal executive office is located at 968 James Street, Syracuse, New York 13203, and our telephone number is (315) 424-0513. Our internet address is www.carrols.com. Such internet address is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. Carrols Holdings is a Delaware corporation, incorporated in 1986. Balance at June 30, 2004 (unaudited) $ Table of Contents If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The Offering Summary of the EYSs and Notes We are offering EYSs at an initial public offering price of $ per EYS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of separate notes at an assumed initial public offering price of 100% of their stated principal amount. The completion of the offering of separate notes is a condition to our sale of the EYSs and the completion of the offering of EYSs is a condition to our sale of the separate notes. Unless the context requires otherwise, the EYSs and the Class A common stock and notes represented by the EYSs, together with the separate notes, are referred to in this prospectus as the offered securities. What are EYSs? EYSs are securities comprised of Class A common stock and notes. Each EYS initially represents: one share of our Class A common stock; and a % note with $ principal amount. The ratio of Class A common stock to principal amount of notes represented by an EYS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each EYS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Similarly, if thereafter we elect to effect a two-for-one combination, from and after the effective date of the combination, each EYS will represent one share of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each EYS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. If additional notes are issued and such notes are issued with original issue discount, referred to as OID, or if we issue notes subsequent to an issuance of notes with OID, a portion of each holder s notes, whether held as separate notes or in the form of EYSs, will be exchanged without any further action on the part of the holder for a portion of the additional notes, so that each holder of separate notes or EYSs, as the case may be, will thereafter own indivisible note units comprised of the original notes and the additional notes in the same aggregate principal amount as such holder held prior to the automatic exchange. The principal amount of the original note and the additional note in each indivisible note unit will be identical. Accordingly, following an automatic exchange of notes, each note represented by an EYS and each separate note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. What payments can I expect to receive as a holder of EYSs or separate notes? Assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by the dividend policy to be adopted by our board of directors upon consummation of this offering, for the first four full fiscal quarters following the consummation of this offering, holders of the EYSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each EYS, and holders of the separate notes will receive $ per year per $ principal amount of their notes. We expect to make interest and dividend payments for the first four full fiscal quarters following the consummation of this offering, quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. LIABILITIES AND STOCKHOLDERS EQUITY Due to unconsolidated subsidiary $ $ Total current liabilities Total liabilities $ $ Income (loss): Investment income (loss) from unconsolidated subsidiary $ (6,074 ) $ 9,714 $ 2,368 Expenses: General and administrative Net income (loss) $ (6,074 ) $ 9,714 $ 2,356 Adjustments to reconcile net income (loss) to net increase in cash and cash equivalents: Decrease (increase) in investment in unconsolidated subsidiary 6,074 (9,714 ) (2,368 ) Increase in due to unconsolidated subsidiary Title of Each Class of Securities to be Registered Proposed Maximum Aggregate Offering Price (1) Amount of Registration Fee Enhanced Yield Securities (EYSs) (2) Shares of Class A Common Stock, par value $0.01 per share (3) % Senior Subordinated Notes (4) Subsidiary Guarantees of % Senior Subordinated Notes (5) Total $ 475,000,000 $ 60,183 * Table of Contents You will be entitled to receive quarterly interest payments for the first four full fiscal quarters following the consummation of this offering, at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by EYSs, approximately $ per EYS per year, subject to our right to defer interest payments on the notes for an aggregate period not to exceed eight quarters prior to , 2009 and on up to four occasions after , 2009 for up to two quarters per occasion, so long as in each case we are not otherwise in default under the indenture governing the notes. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Other Indebtedness New Credit Facility. Holders of the EYSs will also receive quarterly dividend payments on the shares of our Class A common stock represented by the EYSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness. Specifically, the indenture governing the notes and the new credit facility will restrict our ability to declare and pay dividends on our Class A common stock as described under Dividend Policy and Restrictions, Description of Notes and Description of Other Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and Class B common stock. We cannot assure you that we will pay dividends at this level in the future, if at all. Any dividends paid to one class of our common stock must be paid to the other. Can the board of directors of the Company modify or repeal the dividend policy with respect to the Class A common stock and the Class B common stock? Yes. Our board of directors may, in its discretion, modify or repeal the dividend policy described above to comply with the requirements of applicable law or our indebtedness or for any other reason that the board of directors believes to be in the interest of our stockholders. Will my rights as a holder of EYSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of EYSs you are the beneficial owner of the Class A common stock and notes represented by your EYSs. As such, through your broker or bank and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and notes, as applicable, would have through its broker or bank and DTC. Do I have voting rights as a holder of EYSs? EYSs have no voting rights separate and apart from the underlying securities. As a holder of EYSs, you will be able to vote with respect to the underlying shares of Class A common stock. The existing stockholders, through their ownership of shares of Class B common stock, will own % of the voting power of our common stock outstanding immediately following the offering of the EYSs (or % if the over-allotment option with respect to the EYSs is exercised in full). Shares of our Class A common stock and shares of our Class B common stock are entitled to the same voting rights per share and vote together as a single class on all matters with respect to which holders are entitled to vote. * Previously paid. (1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. (2) The EYSs represent shares of the Class A common stock and $ million aggregate principal amount of % senior subordinated notes of Carrols Holdings Corporation ( Carrols Holdings ), including EYSs subject to the underwriters over-allotment option to purchase additional EYSs, and an indeterminate number of EYSs of the same series which may be received by holders of EYSs in the future on one or more occasions in replacement of the EYSs being offered hereby in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below. (3) Includes shares of Class A common stock subject to the underwriters over-allotment option to purchase additional EYSs. (4) Includes $ million aggregate principal amount of Carrols Holdings % senior subordinated notes issued in the form of EYSs, which are subject to the underwriters over-allotment option to purchase additional EYSs. In addition, $ million aggregate principal amount of senior subordinated notes will be sold separately, not in the form of EYSs, to the public in connection with this offering. Also includes an indeterminate principal amount of senior subordinated notes of the same series as the senior subordinated notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of EYSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. (5) Each of the subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the notes being registered hereby. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents Will the EYSs be listed on an exchange? Yes. We will apply to have our EYSs listed on the under the symbol . Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the EYSs to a minimum number of public holders. Will the shares of our Class A common stock and the notes represented by the EYSs be separately listed on an exchange? No. The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on the have been satisfied as may be necessary to satisfy applicable listing requirements. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on the have been satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The Class A common stock and notes represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Will the separate notes be the same as the notes issued as a component of the EYSs? Yes. The separate notes will be identical to the notes represented by EYSs, will have the same CUSIP number, and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of separate notes and holders of notes represented by EYSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes. In what form will the offered securities be issued? The offered securities will be issued in book-entry form only. This means that you will not be a registered holder of EYSs or the securities represented by the EYSs, or the separate notes, and you will not receive a certificate for your EYSs or the securities represented by your EYSs or the separate notes. You must rely on your broker, bank or other DTC nominee that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of the offered securities. Can I separate my EYSs into shares of Class A common stock and notes or combine shares of Class A common stock and notes to form EYSs? Yes. Holders of any EYSs may at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, bank or other DTC nominee, separate the EYSs into the shares of our Class A common stock and the notes represented thereby. Similarly, unless the EYSs have previously been automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker, bank or other DTC nominee, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation and combination of EYSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or financial intermediary. See Description of EYSs Book-Entry Settlement and Clearance Separation and Combination. Will my EYSs automatically separate into shares of common stock and notes upon the occurrence of certain events? Yes. Separation of all of the EYSs will occur automatically upon the occurrence of any redemption of the notes, whether in whole or in part, upon the maturity of the notes, upon the continuance of a payment default for 90 days under the indenture governing the notes or upon certain bankruptcy events. Table of Contents What will happen if we issue additional EYSs or notes of the same series in the future? We may in the future sell additional EYSs and/or notes of the same series, which will have terms that are identical to those of the EYSs or notes being sold in this offering. Additional EYSs will represent the same proportion of Class A common stock and notes as are represented by the then outstanding EYSs. In addition, we will be required to issue additional EYSs in the future upon the exercise of exchange rights by us or the holders of our Class B common stock. If we issue notes in the future (whether or not in the form of EYSs) and these notes are sold with OID for U.S. federal income tax purposes, holders of the notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder of notes will own a pro rata portion of the new notes and the old notes. The aggregate principal amount of new notes and old notes held by any holder after the exchange will be the same as the aggregate principal amount of the notes held by such holder prior to the exchange. Accordingly, following an automatic exchange of notes, each note will consist of an indivisible note unit with an aggregate principal amount equal to the aggregate principal amount of the original note immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades for up to 24 hours. See Description of EYSs Book Entry Settlement and Clearance Procedures Relating to Subsequent Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our EYSs or notes. The tax and bankruptcy implications of an automatic exchange are summarized below and are described in more detail in Risk Factors Risks Relating to the EYSs, the Shares of Our Class A Common Stock and the Notes and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim under applicable securities laws against us or the underwriters with respect to the full amount of notes purchased by you. What are the U.S. federal income tax consequences of an investment in the EYSs? Certain of the U.S. federal income tax consequences of an investment in EYSs are uncertain. We intend to treat the purchase of EYSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing EYSs, you will agree to such treatment. You must allocate the purchase price of the EYSs between the shares of our Class A common stock and the notes in proportion to their respective initial fair market values, which will establish your initial tax basis in the shares of our Class A common stock and the notes. We expect to report the initial fair market value of each share of our Class A common stock as $ and the initial fair market value of each $ principal amount of the notes as $ , and by purchasing EYSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusions (on account of interest) may be increased. We intend to treat the notes included in the EYSs as debt for U.S. federal income tax purposes, and we intend to deduct interest on such notes for tax purposes. Such position is subject to challenge by the Internal Revenue Service (the IRS ). If the notes are treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as dividends, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future after-tax cash flow and adversely affect our ability to make interest and dividend payments. In addition, if the notes are treated as equity, payments on the notes to foreign holders generally would be subject to U.S. federal withholding taxes, and we could be liable for withholding taxes that were not collected on our prior interest payments to foreign holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Dividends paid on our Class A common stock through 2008 are expected to qualify for taxation to non-corporate EYS holders at long-term capital gain rates. Interest income on the notes will be taxable to U.S. individuals at ordinary income tax rates. Table of Contents TABLE OF ADDITIONAL REGISTRANTS Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents What are the U.S. federal income tax consequences of a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of EYSs or notes of the same series are uncertain. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes and such notes are issued with OID or are issued after an issuance of notes with OID, each holder of EYSs or separate notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above. As a result of these exchanges, the OID associated with the issuance of the new notes will be effectively spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. We intend to take the position that any subsequent issuance of notes, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of EYSs, for a portion of the notes subsequently issued. In that event, you generally would have to recognize the gain (if any) realized by you on such exchange, but any loss realized by you on the exchange would most likely be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would equal the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in their taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of EYSs and separate notes, and each holder of EYSs and separate notes will, by purchasing EYSs or notes, agree to report OID in a manner consistent with this approach. However, the IRS might assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and may challenge your reporting OID on your tax returns. Immediately following an exchange of notes, we will file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in OID attributable to the notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the EYSs or instruments similar to the EYSs, we urge you to consult your own tax advisor concerning the tax consequences to you of an investment in the EYSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the EYSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and financial reporting of unit securities, such as the EYSs, comprised of common stock and notes. Any accounting treatment followed by us for the EYSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting treatment for the EYSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Significant Accounting Policies. If the accounting treatment followed by us for the EYSs changes, the trading value of the EYSs or the notes and the Class A common stock represented thereby may decline. State or Other Jurisdiction of Incorporation or Organization Table of Contents Summary of the Common Stock Issuer Carrols Holdings Corporation Shares of Class A common stock represented by EYSs shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Shares of Class B common stock to be outstanding following the offering shares, or shares if the underwriters exercise their over-allotment option with respect to the EYSs in full. Voting rights Subject to applicable law, each outstanding share of our Class A common stock and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class. Dividends You and the holders of our Class B common stock will receive quarterly dividends on the shares of our common stock if, and to the extent, dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the indenture governing the notes and the new credit facility both will restrict our ability to declare and pay dividends on our common stock as described in detail under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, dividends for the first four full fiscal quarters following the consummation of this offering will be approximately $ per share of our Class A common stock and $ per share of our Class B common stock. Under our certificate of incorporation, for each quarterly dividend payment period, if we declare and pay dividends on our Class A common stock, the holders of each share of our Class B common stock will be entitled to dividend payments equal to times the amount of dividends paid on each share to the holders of our Class A common stock. During the quarter in which the consummation of the offering occurs and through the dividend payment date with respect to the quarter ended , if for any of those periods the amount of cash to be distributed is insufficient to pay dividends at the levels described above on our Class A common stock and Class B common stock, any shortfall will first reduce the dividend on the Class B common stock to zero prior to reducing the dividend on the Class A common stock. Dividends on the Class B common stock will not be increased in any subsequent quarter to reflect any such previous reduction. Dividend payments are not mandatory or guaranteed and holders of our common stock do not have any legal right to receive, or require us to pay, dividends. Furthermore, our board of directors may, in its sole discretion, amend or repeal this dividend policy Primary Standard Industrial Classification Code Number Table of Contents with respect to the Class A and Class B common stock at any time. Our board of directors may decrease the level of dividends for the Class A and Class B common stock below the expected dividend rates set forth above or discontinue entirely the payment of dividends. See Risk Factors Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. You may not receive the level of dividends provided for in the dividend policy or any dividends at all and Dividend Policy and Restrictions. Dividend payment dates If declared, dividends for the first four full fiscal quarters following the consummation of this offering will be paid quarterly on the day of each , , and to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Listing Our shares of Class A common stock will not be listed for separate trading on the unless and until a sufficient number of shares are held separately and not in the form of EYSs and other conditions for listing on as may be necessary are satisfied. If more than the required number of our outstanding shares of Class A common stock are no longer held in the form of EYSs and other conditions for listing on are satisfied for a period of 30 consecutive trading days, we will apply to list the shares of our Class A common stock for separate trading on the . The notes and Class A common stock represented by the EYSs will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by affiliates as that term is defined in Rule 144 under the Securities Act. Our shares of Class B common stock will not be listed for separate trading and will have limitations on their transferability. Rights to exchange shares of Class B common stock for EYSs or shares of Class A common stock After the second anniversary of the consummation of this offering, either the holders of the Class B common stock may elect, or we may require such holders, to exchange the Class B common stock for EYSs or, if the EYSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock, subject to certain restrictions. For a complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. I.R.S. Employer Identification Number Table of Contents Summary of Notes When we refer to the notes in this prospectus, we are referring to the notes represented by the EYSs and the separate notes. Issuer Carrols Holdings Corporation Notes represented by EYSs being offered to the public $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Notes being offered to the public separately, not in the form of EYSs $ million aggregate principal amount. Notes to be outstanding following the offering $ million aggregate principal amount (or $ million aggregate principal amount if the underwriters exercise their over-allotment option with respect to the EYSs in full). Interest rate % per year. Interest payment dates Interest on the notes will be payable quarterly in arrears on the day of each , , and commencing , 2004 to holders of record on the day or, if such day is not a business day, on the immediately preceding business day of such month. Maturity date The notes will mature on , 2016. Interest deferral We may, at our election, subject to certain restrictions, defer interest payments on the notes. We may defer interest payments prior to , 2009 on one or more occasions during this period for up to an aggregate period of eight quarters. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on the notes on up to four occasions for up to two quarters per occasion. However, we may not defer interest on more than one occasion after , 2009 unless and until all previously deferred interest (and interest on deferred interest) has been paid in full. The new credit facility will contain provisions that will require us under certain circumstances to defer interest payments on the notes pursuant to our option under the indenture to defer such payments. Deferred interest on the notes will bear interest at the same rate per annum as the stated rate of interest applicable to the notes, compounded quarterly, until paid in full. At the end of any interest deferral period, we will be obligated to resume quarterly payments of interest on the notes, including interest on deferred interest. All interest deferred prior to , 2009, must be repaid by us on or prior to , 2009. All interest deferred after , 2009, must be repaid by us on or before maturity. Carrols Corporation Delaware 5812 16-0958146 Cabana Bevco LLC Texas 5810 74-2974628 Cabana Beverages, Inc. Texas 5810 74-2616290 Carrols J.G. Corp. Delaware 5812 16-1440019 Carrols Realty Holdings Corp. Delaware 6500 16-1443701 Carrols Realty I Corp. Delaware 6500 16-1440018 Carrols Realty II Corp. Delaware 6500 16-1440017 Get Real, Inc. Delaware 5810 06-1387866 Pollo Franchise, Inc. Florida 5812 65-0446291 Pollo Operations, Inc. Florida 5812 65-0446289 Quanta Advertising Corp. New York 7310 16-1033405 Taco Cabana, Inc. Delaware 5810 74-2201241 TC Bevco LLC Texas 5810 74-2974633 TC Lease Holdings III, V and VI, Inc. Texas 6500 74-2642647 T.C. Management, Inc. Delaware 5810 74-2686352 Texas Taco Cabana, L.P. Texas 5810 74-2686346 TP Acquisition Corp. Texas 5810 74-2673996 The address, including zip code, of the principal executive offices of each additional registrant is: 968 James Street, Syracuse, New York 13203. Their telephone number at that address is (315) 424-0513. Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our common stock. For a detailed description of interest deferral provisions of the indenture see Description of Notes Terms of the Notes Interest Deferral. In the event that interest payments on the notes are deferred, you would be required to recognize interest income for U.S. federal income tax purposes even if you do not currently receive the related cash interest payments. Ranking The notes will be unsecured and subordinated in right of payment to all of our existing and future senior indebtedness, including our guarantee under the new credit facility; equal in right of payment to our other existing and future senior subordinated indebtedness; and effectively subordinated to all indebtedness of our existing and future subsidiaries that are not guarantors of the notes. As of June 30, 2004, after giving pro forma effect to the transactions, we would have had approximately $ million of total consolidated indebtedness, of which $ million would have been senior to the notes. Note guarantees The notes will be fully, unconditionally and jointly and severally guaranteed on an unsecured senior subordinated basis by each of our existing domestic subsidiaries and all future domestic subsidiaries that are borrowers or become guarantors under the new credit facility or any successor credit facility, other than certain inactive or immaterial subsidiaries that we may designate as unrestricted subsidiaries. Any guarantees will rank equally with all subsidiary guarantors other unsecured senior subordinated indebtedness, and will be subordinated in right of payment to any subsidiary guarantors senior indebtedness, including their borrowings or guarantees under the new credit facility. Optional redemption On or after , 2009, we may redeem some or all of the notes at any time at the redemption prices described in the section Description of Notes Optional Redemption. In addition, upon the occurrence of a tax event (as defined in the indenture governing the notes), we may, at our option, redeem the notes at any time at a redemption price of 100% of the principal amount to be redeemed plus accrued and unpaid interest to the redemption date. Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, dated August 25, 2004 CARROLS HOLDINGS CORPORATION Enhanced Yield Securities (EYSs) representing shares of Class A common stock and $ % senior subordinated notes due 2016 and $ % senior subordinated notes due 2016 Table of Contents Mandatory offer to repurchase If we experience specific kinds of changes in control, we must offer to repurchase the notes at 101% of their stated principal amount, plus accrued and unpaid interest, if any, to the date of redemption. In order to exercise that right, a holder must separate its EYSs into the shares of Class A common stock and notes represented thereby and hold the notes separately. See Description of Notes Repurchase at the Option of Holders. Procedures relating to subsequent issuances The indenture governing the notes will provide that in the event we issue additional notes (including any issuance of EYSs in exchange for shares of Class B common stock) having identical terms as the notes but a different CUSIP number and such notes are issued with OID, each holder of EYSs or the separate notes, as the case may be, agrees that a portion of such holder s notes, whether held as part of EYSs or separately, will be automatically exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of EYSs or the separate notes, as the case may be, will own an indivisible unit composed of notes of each separate issuance in the same proportion as each holder. However, the aggregate stated principal amount of notes owned by each other holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against us with respect to the full amount of notes purchased by such holder. However, subsequent issuances of notes by us may adversely affect the tax and non-tax treatment of the EYSs and notes. See Risk Factors Subsequent issuances of notes may adversely affect your tax treatment. Restrictive Covenants The indenture governing the notes will contain covenants that, among other things, limit our ability and that of the restricted subsidiaries to: incur additional indebtedness and issue preferred equity; pay dividends or make other distributions in respect of our shares or to make other types of restricted payments or investments; sell assets; agree to payment restrictions affecting our restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; create liens; and enter into new lines of business. This is our initial public offering of EYSs and senior subordinated notes. We are offering EYSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2016. Each EYS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. We are also selling separately, not in the form of EYSs, an additional $ million aggregate principal amount of % senior subordinated notes due 2016, which we refer to in this prospectus as the separate notes. The completion of the offering of the separate notes is a condition to our sale of the EYSs, and the completion of the offering of the EYSs is a condition to our sale of the separate notes. In addition, the completion of the internal corporate transactions described herein is a condition to our offering of the EYSs and the separate notes, and the completion of the offering of the EYSs and the separate notes is a condition to the consummation of the internal corporate transactions. The notes mature on , 2016. We may defer or may be required to defer interest payments on the notes under specified circumstances and subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 140 and Description of Other Indebtedness New Credit Facility on page 123. Deferred interest on the notes will bear interest quarterly at a rate equal to the stated annual rate of interest on the notes divided by four. Upon a subsequent issuance by us of EYSs or additional notes of the same series, a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your EYSs or separate notes will be replaced with new EYSs or new notes. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new EYSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Description of Notes Covenants Relating to EYSs Procedures Relating to Subsequent Issuance on page 147 and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 179. Holders of EYSs will have the right to separate the EYSs into the shares of our Class A common stock and the notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our Class A common stock and notes may, unless the EYSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form EYSs. Separation of all of the EYSs will occur automatically upon the occurrence of certain events described in this prospectus. We will apply to list the EYSs on the under the symbol . The notes represented by the EYSs and the separate notes will not be listed on any exchange. Our shares of Class A common stock initially will not be listed for separate trading on any exchange. We anticipate that the initial public offering price will be between $ and $ per EYS and the public offering price of the separate notes will be 100% of their stated principal amount. Investing in the EYSs, shares of our Class A common stock and/or the notes involves risks.
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights material information contained in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors and our consolidated financial statements and accompanying notes included in this prospectus, before making an investment decision. Unless otherwise stated, all references in the prospectus to us, our, Egenera, we, the company and similar designations refer to Egenera, Inc. and its wholly-owned subsidiaries. Our Business Overview Egenera designs, markets and supports a unique computing platform which enables enterprises to implement utility computing. Utility computing is an emerging model in which datacenter computing resources can be dynamically allocated as needed to run software applications. We believe that utility computing represents the next major transformation of the corporate datacenter computing environment, comparable to the impact of mainframes and distributed computing in prior decades. Our flagship product, the Egenera BladeFrame system, combines our unique virtualization and management software, which we refer to as PAN Manager software, with our innovative hardware platform to enable utility computing. Our virtualization technology replaces traditional datacenter hardware components with software equivalents so that they can be dynamically assigned and centrally managed. This technology enables enterprises to securely and effectively share and manage datacenter resources across applications, reducing the need for dedicated servers and accompanying network infrastructure. In addition, our system can provide data for customers who wish to build the capability to track actual usage of computing resources by business units within the enterprise. With our technology, our customers are able to simplify their datacenter environments, reduce capital and operational costs and achieve greater business agility. Our BladeFrame system provides an integrated platform for utility computing and is based on our unique architecture, which we refer to as a processing area network, or PAN. This architecture disaggregates the processing, storage and networking resources that are traditionally housed in individual servers into pooled assets. The BladeFrame system combines our PAN Manager software, an integrated high-speed network and blade servers based on Intel processors. The system is designed to support mission-critical software applications running on the Linux and Microsoft Windows Server 2003 operating systems. Our virtualization technology enables any server in the BladeFrame system to run Linux- or Windows Server 2003-based applications at any time without the labor- and time-intensive recabling and reconfiguration of datacenter hardware components needed with traditional servers. This capability allows customers to reallocate processing capacity as needed to increase resource utilization and to cost-effectively provide backup and disaster-recovery services. The management functionality of PAN Manager software provides features such as failover, security, clustering, partitioning and resource management. The BladeFrame system is physically simple and easy to install and substantially reduces datacenter complexity by eliminating most cabling and consolidating connections to data communications and storage networks. We first marketed our BladeFrame system to enterprise customers in industries considered to be early adopters of information technology, such as financial services firms and Internet service providers. We currently market our products to companies in a broad range of industries, including telecommunications, information technology services and healthcare, as well as to government agencies. Within the United States, our sales model is primarily direct, although we use resellers and systems integrators to sell to the federal government. In Europe, we use both a direct sales force and resellers. Our sales in Asia are through regional resellers, with local channel support provided by us. We provide our customers with comprehensive support services, including maintenance, installation and training, to help them maximize the benefits of our BladeFrame system to their enterprises. Our customer service organization provides hardware and software support services to customer sites worldwide, 24 hours a day, 365 days a year, to help ensure that our products remain highly available and operate Cash flows from investing activities: Maturities (purchases) of short-term investments (8,237 ) 14,448 Purchases of property and equipment (4,901 ) (4,311 ) (6,222 ) (1,933 ) (820 ) Proceeds from disposal of property and equipment 6 Table of Contents efficiently. These services are delivered through a combination of remote and on-site service, both directly by us and through our authorized service providers. At the option of the customer, we also use automated remote support features designed into our systems to continuously monitor, diagnose and resolve issues. Our Industry While the demands on datacenter computing infrastructure continually increase, traditional datacenter architecture has not changed materially for decades. A traditional server contains many datacenter hardware components and connections, which prevent the server from being repurposed, or used by other software applications, without recabling and reconfiguring server, network and storage resources. As a result, enterprises typically purchase a dedicated server for each software application and buy for peak demand even if the average capacity required to run that application is considerably less than the total processing capacity of the server. Enterprises also typically purchase a backup server for mission-critical applications to provide dedicated processing capacity to replace the primary server in the case of failure. Backup servers are often allocated on a one-to-one basis due to the inflexibility of traditional servers and the mission-critical nature of the software applications they support. By definition, these backup servers are almost always running at zero utilization. Many businesses are establishing further redundancy for disaster recovery, requiring additional infrastructure in alternate locations, adding even more cost and complexity. Additionally, an enterprise must interconnect its infrastructure through a complex network of switches and cabling, which is also typically built on a redundant basis to avoid any single point of failure. The result is often an enterprise with underutilized assets and a growing staff of information technology professionals to manage a complex and inefficient datacenter environment. Enterprises increasingly demand more flexible datacenter infrastructure that can deliver improved service levels to both business units and customers at the same time as they attempt to lower total cost of ownership of their datacenters. We view total cost of ownership as the direct and indirect costs incurred over the life of datacenter equipment, including acquisition, or capital costs, and the deployment, operation, support and retirement costs, or operational costs. We believe our BladeFrame system meets these important customer goals in a differentiated manner. Therefore, we believe there is a significant market opportunity for our platform to become the foundation of the next-generation datacenter. Our Solution We introduced a new approach to enterprise computing with our BladeFrame system, which enables our customers to dynamically allocate computing resources on an as-needed basis. Our unique PAN architecture creates a utility computing environment by disaggregating processing, storage and networking resources into pooled assets. These resources come together to support a software application and, when no longer required, are released into the asset pools for use by other software applications. Our PAN Manager software enables this through its integrated management capabilities and by replacing traditional hardware components such as internal disk, network interfaces and switches, storage interfaces and keyboard/video/mouse switches with software equivalents. In particular, the virtualization of internal disk and network and storage interfaces, which typically create a fixed identity by which a server is known to data communication and storage networks, is what allows any BladeFrame server to be dynamically repurposed and assigned any server identity on an as-needed basis. A BladeFrame system can accommodate up to 24 servers of varying configurations. An individual BladeFrame server consists of a processing unit called a processing blade plus the virtual software components that have been assigned to the processing blade. We believe our BladeFrame system creates the following benefits: Architectural flexibility and increased utilization. The interchangeable nature of processing blades in a BladeFrame system enables our PAN Manager software to increase server utilization by repurposing the same processing blade to run different software applications on an as-needed basis. Cost-effective high availability and disaster recovery. Since a processing blade can assume any server identity, our PAN Manager software can redeploy the identity of a failed blade on to any other blade. This capability minimizes downtime and delivers high availability for enterprise UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents software applications, without requiring a backup blade for every primary blade. A similar approach can be applied across BladeFrame systems for disaster recovery. Physical simplicity. Our BladeFrame system virtualizes datacenter hardware components, eliminates cabling from individual servers and consolidates connections to data communications and storage networks. This simplifies datacenter environments, reduces space requirements and minimizes failure points, thereby reducing capital and operational costs. Ease of management. Our products are easy to install and can be integrated into a customer s current datacenter environment. Through PAN Manager software, servers can be configured, deployed or repurposed in minutes, reducing application time-to-market and lowering ongoing operational costs. Open, scalable and upgradeable system. Our BladeFrame system uses Intel processors and supports both the Linux and Microsoft Windows Server 2003 operating systems. Processing capacity can be increased or decreased by adding or removing processing blades while the system is running. As faster processors become available, customers can upgrade easily by adding new processing blades to their existing BladeFrame systems. Our Strategy Our objective is to become the industry leader in utility computing. We believe that our ability to lower our customers datacenter total cost of ownership and improve their business agility will enable us to achieve this goal. We seek to reach this objective by employing the following key strategies: Maintain a leadership position in utility computing by monitoring and anticipating the evolving needs of our customers and continuing to develop products to meet these needs Expand our customer base and increase sales to existing customers Enhance our ability to address customers comprehensive needs through additional relationships with independent software vendors and complementary technology providers Accelerate our growth by expanding relationships with resellers, systems integrators and original equipment manufacturers Continue to deliver premier customer service Attract, hire and retain a highly skilled team of professionals Concurrent Private Placement Concurrent with this offering, we are offering an additional shares of our common stock to private equity funds managed by two of our existing venture capital investors, Crosslink Capital, Inc. and Technology Crossover Ventures, which we refer to as our subscription holders in this prospectus, pursuant to the terms of an IPO allocation agreement, dated as of December 22, 2003. Under this agreement, the subscription holders each have the right to purchase from us that number of shares as is sufficient to enable them to maintain their current respective ownership percentages in our company, after giving effect to the number of shares of common stock we sell in this offering but not including any shares we sell to the underwriters pursuant to their option to purchase additional shares. The purchase price in the concurrent private placement will be $ per share, representing the initial public offering price on the cover of this prospectus, less underwriting discounts and commissions. The offering to the subscription holders will be effected in a concurrent private placement at the time we close this offering. This prospectus shall not be deemed to be an offer to sell, or a solicitation of an offer to buy, any securities in the concurrent private placement. Table of Contents Early Stage Company We are an early stage company and an investment in our common stock involves risks. We have a limited operating history, have incurred losses in every quarter since our inception and have an accumulated deficit of $127.8 million as of March 31, 2004. In addition, utility computing is still in its infancy and we operate in an industry characterized by rapid change. For a discussion of the factors you should consider before deciding to invest in our stock, see the section of this prospectus entitled Risk Factors beginning on page 8. Company Information We were incorporated in Delaware in March 2000. Our principal offices are located at 165 Forest Street, Marlborough, Massachusetts 01752. The telephone number of our principal executive offices is (508) 858-2600. Our Internet address is www.egenera.com. The information contained on our website is not incorporated by reference and should not be considered a part of this prospectus. Our website address is included in this prospectus as an inactive textual reference only. Trademarks or service marks appearing in this prospectus are the property of their respective holders. Egenera, Egenera stylized logos and BladeFrame are registered trademarks of Egenera in the United States and other countries. BladePlane, cBlade, Control Blade, PAN Manager, pBlade, Processing Blade, sBlade and Switch Blade are unregistered trademarks of Egenera in the United States and other countries. All other product names, service marks and trademarks mentioned herein are trademarks of their respective owners. 165 Forest Street Marlborough, Massachusetts 01752 (508) 858-2600 (Address Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Except as otherwise noted or the context otherwise requires, we have presented information in this prospectus based on the following assumptions: a one-for- reverse split of all of our outstanding shares of common stock to be effected immediately prior to the date of this prospectus; the purchase by the subscription holders of an aggregate of shares of our common stock in the concurrent private placement at an assumed offering price of $ per share; the automatic conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 103,282,826 shares of common stock upon the closing of this offering; no exercise by the underwriters of the option to purchase up to an additional shares of common stock in this offering; and the adoption by our board of directors and stockholders of our restated certificate of incorporation and our amended and restated by-laws. Total revenues 100 100 100 100 100 Cost of revenue: Product 62 57 53 55 62 Service 3 4 3 3 Robert M. Dutkowsky Chairman, President and Chief Executive Officer Egenera, Inc. 165 Forest Street Marlborough, Massachusetts 01752 (508) 858-2600 (Name, Address Including Zip Code and Telephone Number, Including Area Code, of Agent for Service) (1) Includes stock-based compensation of $12 in the period ended December 31, 2000; $170, $13,693 and $8,959 in the years ended December 31, 2001, 2002 and 2003, respectively; and $2,274 and $13,506 in the three months ended March 31, 2003 and 2004, respectively. (2) Pro forma information assumes the conversion of all outstanding shares of our convertible preferred stock into common stock, which will occur automatically upon the closing of this offering. Revenue: Product 100 % 95 % 92 % 93 % 94 % Service 5 8 7 As a percentage of total revenues: Revenue: Product 93 % 89 % 93 % 93 % 94 % Service 7 11 7 7 Copies to: Mark G. Borden, Esq. Peter B. Tarr, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 (617) 526-6000 Thomas F. Sheehan Senior Vice President and Chief Financial Officer Egenera, Inc. 165 Forest Street Marlborough, Massachusetts 01752 (508) 858-2600 William J. Whelan, III, Esq. Cravath, Swaine Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019 (212) 474-1000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 24,653 Working capital 30,064 Total assets 61,654 Long-term debt, net of current portion 38 Redeemable convertible preferred stock 142,928 Total stockholders equity (deficit) (106,165 ) The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Table of Contents
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+F-1/A You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. We are not offering these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date of this prospectus. TABLE OF CONTENTS Presentation of Financial Information ii Exchange Rates iii Summary 1
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+Operating profit (loss) of the Company and subsidiary companies 369 85 (1,634 ) (8 ) 334 43 259 1,337 171 Share of profits less losses of associated companies (737 ) (366 ) 48 336 591 76 236 356 Operating profit (loss) of the Company and subsidiary companies 369 85 (1,634 ) (8 ) 334 43 259 1,337 171 Share of profits less losses of associated companies (737 ) (366 ) 48 336 591 76 236 356 Table of Contents MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion should be read in conjunction with our combined financial statements and the related notes included elsewhere in this prospectus. Our combined financial statements have been prepared in accordance with Hong Kong GAAP, which differs in some material respects from US GAAP. For a discussion of these differences and a reconciliation of net profit (loss) attributable to shareholders and shareholders deficits to US GAAP, see note 34 to our combined financial statements. Basis of Preparation of Financial Statements We were formed in March 2004 in preparation for a restructuring by Hutchison Whampoa during the third quarter of 2004. In connection with the restructuring, Hutchison Whampoa and a number of its affiliates transferred to us their holdings in certain mobile and fixed-line telecommunications businesses. We also issued additional ordinary shares in the restructuring to capitalize substantially all of the outstanding loans from Hutchison Whampoa group, net of receivables from such companies, in the aggregate amount of HK$20,869 million (US$2,676 million). See The Restructuring for a description of the principal steps taken in connection with the restructuring. The restructuring has been accounted for as a reorganization of businesses under common control, in a manner similar to a pooling of interests. Our combined financial statements have been prepared as if our company and the structure of our ownership of our subsidiaries had been in existence at all dates and during all periods presented, and include the accounts of the direct and indirect subsidiaries and the interests and investments in associated companies and jointly controlled entities contributed to us by the Hutchison Whampoa group in connection with the restructuring. The results of operations of subsidiaries, associated companies and jointly controlled entities acquired or disposed of during a year are included in our combined financial statements commencing from the effective dates of their acquisition or up to the effective dates of their disposal, as the case may be. Associated companies and jointly controlled entities are accounted for under the equity method, which means that their profits net of losses are incorporated into our combined profit and loss accounts in proportion to the aggregate voting interest owned by us in the relevant company or entity from time to time. See notes 2, 3A, 3D and 3E to our combined financial statements. We group our subsidiaries into the following five business segments for financial reporting purposes, based on their geographic area of operation and principal business line: Hong Kong mobile (including Macau); Hong Kong fixed-line; India; Thailand; and Others (comprising Sri Lanka, Paraguay and Ghana). These segments accounted for 34.5%, 16.1%, 44.5%, 3.5% and 1.4% of our total turnover, respectively, in 2003 and 25.4%, 17.8%, 46.5%, 8.8% and 1.5% of our total turnover, respectively, in the first six months of 2004. See Results of Operations. The results of operations of our Macau mobile business are aggregated with our Hong Kong mobile business because our Macau mobile operating company is a subsidiary of the Hong Kong mobile operating company, shares the same management and is significantly smaller, in terms of financial results and subscriber numbers, than our Hong Kong business. We have one principal associated company, Partner, which is a mobile telecommunications operator in Israel. In 2001 and for part of 2002, we had one group of jointly controlled entities, Hutchison Global Crossing Limited, which was subsequently renamed Hutchison Global Communications Limited, or Hutchison Global Communications, and its subsidiaries and related data center companies. These entities became our consolidated subsidiaries in May 2002. Hutchison Global Communications and its subsidiaries comprise our Hong Kong fixed-line operations. We had an operating loss of HK$1,688 million in 2001 and an operating profit of HK$306 million in 2002, HK$925 million (US$119 million) in 2003 and HK$1,693 million (US$217 million) in the first six months of 2004. The operating loss in 2001 included a one-time provision for impaired network equipment in the amount of HK$1,535 million relating to the Hong Kong mobile operations. The increase in operating profit in 2002 was due primarily to improved performance from our Hong Kong mobile operations (including Macau), as well as increased contributions from Partner, our associated company. The increase in operating profit in 2003 was due primarily to continued strong subscriber growth from Hutch India and increased contributions from our Hong Kong fixed-line operations and from Partner, our associated company. Our operating profit increased in the first six months of 2004 compared to the same period in 2003, due primarily to a one-time profit generated from the placement of shares in Hutchison Global Communications Holdings, as described below, and also due to continued strong subscriber growth from Hutch India and increased contributions from our Hong Kong fixed-lined operations and Partner. See Results of Operations for a more detailed discussion of the reasons for the increase in our operating profit in 2002, 2003 and the first six months of 2004. We cannot assure you that we will record an operating profit in 2004 or in future periods. We currently expect that our operating expenses for our Hong Kong mobile operations in the second half of 2004 will be higher than in the first half of 2004 as a result of increasing depreciation and amortization of subscriber acquisition costs relating to 3G operations and the deferral of capital expenditures relating to 3G operations from the first half to the second half of 2004. We do not expect that such expenses will be offset by a parallel increase in revenues during this period. Our combined financial statements may not reflect what our historical financial condition and results of operations would have been if we had operated as a separate group of companies, instead of as a part of the Hutchison Whampoa group. In addition, our combined financial statements are not necessarily indicative of our future financial condition or results of operations. See Risk Factors Risks Relating to Our Business Our historical financial condition and results of operations may have been different had we been operated as a stand-alone enterprise. We do not expect the restructuring and our operations as a separate group of companies to result in material changes in our results of operations or trends. Many of the transactions and services Total guaranteed 4,717 4,717 605 605 Covered by letters of comfort by a related company 4,110 4,110 527 527 Amounts due to related companies 23,299 374 2,987 Table of Contents between our group and the Hutchison Whampoa group prior to the restructuring will continue on the same terms, as further described in Certain Relationships and Related Party Transactions Other ongoing transactions between us and the Hutchison Whampoa group, and we will continue to benefit from the same management team with their experience in the telecommunications industry. On the other hand, the Hutchison Whampoa group will no longer provide new guarantees and/or other forms of new credit support to us following the restructuring, and we will need to procure funding for our capital expenditure requirements as an independent group of companies. We have put in place arrangements, as further described in Liquidity and Capital Resources Capital Resources, which we believe will be sufficient, together with cash flows from operations and amounts available under our existing undrawn loan facilities, to meet our expected liquidity and capital expenditure needs for the next twelve months. Factors Affecting Our Results of Operations New Licenses and Acquisitions In recent years, we have expanded our operations through the acquisition of new telecommunications licenses, as well as through the acquisition of interests in existing third-party telecommunications operators in most of our business segments. The start-up of newly licensed operations and the acquisition and subsequent integration of newly acquired third-party telecommunications operators generally entail significant capital and operating expenditures, including license fees, cash consideration paid or debt incurred in connection with the acquisition, purchase of new equipment, build-out and maintenance of networks, marketing of new products and services and the addition of employees. If successful, new operations and acquisitions may also lead to significant subscriber and revenue growth. Accordingly, new operations and acquisitions affect the comparability of the results of our operations for different periods. Our major new license awards, start-up operations and acquisitions in recent years include the following: 2001 Hong Kong mobile operations. In August 2001, Hutchison Telecom commenced its GSM dualband network operations in Macau, and in October 2001, it acquired a new 3G mobile telecommunications license in Hong Kong. Indian operations. In August 2001, Hutch India acquired new mobile telecommunications licenses for Chennai and the service areas of Karnataka and Andhra Pradesh. 2002 Hong Kong fixed-line operations. In May 2002, Hutchison Whampoa purchased the 50% interest that it did not own in Hutchison Global Crossing Limited, then a jointly controlled entity, which was subsequently renamed Hutchison Global Communications Limited, and its subsidiaries and related data center companies. As a result of this purchase, these entities became our consolidated subsidiaries. Indian operations. In June 2002, Hutch India commenced its GSM network operations in Chennai and in the service areas of Karnataka and Andhra Pradesh. 2003 Indian operations. In August 2003, Hutch India acquired Aircel Digilink India Limited, which owned mobile telecommunications licenses in the service areas of Rajasthan, Uttar Pradesh (East) and Haryana. In addition, in November 2003, Hutch India acquired an existing mobile telecommunications license for the service area of Punjab. Turnover 15 19 59 18 Embedded derivatives Dollars into NIS 41 209 Table of Contents Thai operations. In February 2003, Hutchison CAT Wireless MultiMedia Limited, or Hutchison CAT, began marketing Hutch brand mobile telecommunications services in central Thailand. 2004 Hong Kong mobile operations. In January 2004, Hutchison Telecom began offering 3G mobile telecommunications services in Hong Kong. Hong Kong fixed-line operations. Our current ownership interest in Hutchison Global Communications Holdings, the holding company of Hutchison Global Communications, resulted from a transaction concluded in March 2004, involving the purchase by Hutchison Global Communications Holdings (formerly known as Vanda) of a wholly-owned subsidiary of Hutchison Whampoa that operated its fixed-line telecommunications business. Hutchison Global Communications Holdings made the purchase in exchange for an issue of new shares and convertible notes in Hutchison Global Communications Holdings to the Hutchison Whampoa group. Hutchison Whampoa had held a 37.06% interest in Hutchison Global Communications Holdings since September 2003. As a result of the new shares issued to the Hutchison Whampoa group and the subsequent placement by the Hutchison Whampoa group of some of these shares, we now hold approximately a 52.55% interest in Hutchison Global Communications Holdings. See Business Hong Kong fixed-line business Overview. Indian operations. In February and March 2004, Hutch India acquired new telecommunications licenses for the service areas of Uttar Pradesh (West) and West Bengal, respectively. Aircel Digilink India Limited (part of Hutch India) has entered into a preliminary agreement to acquire 100% of Aircel Limited and Aircel Cellular Limited , which we refer to collectively as Aircel, from Aircel Tele Ventures Limited. The total consideration that would be payable in connection with the Aircel acquisition is INR16.3 billion (approximately HK$2.8 billion) (including assumed debt of approximately INR4.3 billion (approximately HK$0.7 billion)). The consideration is expected to be financed by debt at the Indian operating company level. See Business India Recent Acquisition. Vietnam. On July 12, 2004, we entered into a business cooperation contract for establishing and operating a new CDMA2000 1X network in Vietnam with a local partner. See Business Other Countries. Our associated company, Partner, which is accounted for in our combined financial statements under the equity method, has also expanded its operations in Israel in recent years through the acquisition of additional spectrum for mobile telecommunications. In December 2001, Partner was awarded two bands of spectrum: one band of 10 MHz of paired spectrum in the 1800 MHz spectrum, which it has deployed to enhance its GSM capacity, and one band comprising 10 MHz of paired, and 5 MHz of unpaired, new 2100 MHz spectrum, which it plans to deploy to provide 3G mobile telecommunications services. Since April 2002, we have increased our aggregate voting interest in Partner from 35.1% to approximately 43.1%, which resulted in a corresponding increase in our share of that company s profits less losses reflected in our combined profit and loss accounts. See Business Israel Overview. Accumulated Losses Our group comprises mobile and fixed-line telecommunications operations at different stages of maturity. Net losses accumulated prior to 2001, and in 2002 and 2003, relate primarily to start-up losses incurred by the operations following the commencement of business and the expansion of service operations. Table of Contents In Hong Kong, the Hutchison Whampoa group began its mobile telecommunications businesses in 1985 with the provision of analog mobile telecommunications services, and expanded into digital mobile telecommunications services in 1995. In August 2001, GSM dualband mobile telecommunications operations commenced in Macau. In January 2004, Hutchison Whampoa became the first mobile telecommunications services provider in Hong Kong to offer 3G services. The overall results of operations of our Hong Kong and Macau mobile telecommunications businesses turned from net losses into profit in 2002. Our fixed-line telecommunications operations began in 2000 when we acquired a jointly controlled interest in Hutchison Global Crossing Limited, which was subsequently renamed Hutchison Global Communications Limited. Our fixed-line operations recorded a net profit in 2003. Hutch India s operations began in late 1995 with the offering of mobile telecommunications services in Mumbai, and have since then continued to grow annually through the expansion of its mobile telecommunications network services in India. Hutch India developed its mobile telecommunications services in Delhi, Kolkata and the state of Gujarat in 2000, commenced mobile telecommunications services in Karnataka (which includes Bangalore), Chennai and Andhra Pradesh (which includes Hyderabad) in mid-2002, and in Uttar Pradesh (East), Haryana and Rajasthan in August 2003, respectively. In November 2003, Hutch India acquired a license for the service area of Punjab and commenced mobile telecommunications services in Punjab in March 2004. The combined results of operations of Hutch India became profitable in 2003, compared to start-up net losses in 2002, 2001 and prior years. Our Thai businesses began commercial operations in February 2003 and recorded start-up losses in 2003. In Israel, Partner s commercial operations commenced in 1999, and Partner became profitable in 2002. In other countries, our mobile telecommunications services commenced in Sri Lanka and in Ghana in 1998, and in Paraguay in 2000. The operations in those countries have generated individual start-up losses. Our telecommunications operations on a combined basis have reported net losses in 2001, 2002 and 2003. We reported a net profit for the first six months of 2004 (including a one-time profit of HK$1,300 million from the placement of shares in Hutchison Global Communications Holdings). The net losses of HK$1,889 million reported in 2001 primarily reflected net losses incurred for our Hong Kong mobile operations, mainly due to a one-time provision for impaired network equipment in the amount of HK$1,535 million. The provision for impairment was made after an asset impairment review conducted in accordance with the provisions of a new accounting standard issued on January 1, 2001 and effective for financial statements relating to periods beginning on or after January 1, 2001. The net losses of HK$986 million reported in 2002 primarily reflected pre-operating expenditure incurred for our Thai businesses, losses incurred for our Hong Kong fixed-line operations, and combined losses for Hutch India s operations due to the start-up network expansion in the service areas of Chennai, Andhra Pradesh and Karnataka, partially offset by operating profits from our Hong Kong mobile operations. However, the net losses in 2003 were reduced by 78% from HK$986 million in 2002 to HK$214 million in 2003 due primarily to the increase in net earnings contributions from Hutch India, our Hong Kong fixed-line operations and from our associated company, Partner. As a result of a one-time profit generated from the placement of shares in Hutchison Global Communications Holdings, strong growth in India and increased contributions from Partner and our Hong Kong fixed-line operations, we recorded a net profit of HK$773 million for the first six months of 2004. Without this one-time profit, we would have recorded a net loss for the first six months of 2004. It is likely that we will continue to record Shareholders deficits under Hong Kong GAAP (6,072 ) (6,375 ) (5,376 ) Adjustments: Revenue recognition (a) (15 ) (19 ) 6 Customer acquisition costs (b) (235 ) (510 ) Capitalisation of interest expense (c) 116 105 101 Intangible assets-licenses (d) 1,074 1,054 998 Liability for licenses (d) (1,147 ) (1,265 ) (1,279 ) Business combinations (e) 3,932 3,372 3,230 Goodwill reclassified to intangible assets (e) (4,099 ) (3,543 ) (3,399 ) Impairment-goodwill (f) (798 ) (719 ) (679 ) Sale and leaseback transaction (g) (81 ) (72 ) (66 ) Deferral of financing fees (j) 40 21 Derivatives (h) (13 ) (45 ) (15 ) Restricted investments (g) 2,544 2,440 2,329 Capital lease obligations (g) (2,544 ) (2,440 ) (2,329 ) Deferred taxes (i) (13 ) (2 ) (7 ) Minority interest (2 ) (7 ) 52 Capitalisation of loans net of related interest Table of Contents losses in some future periods, and we cannot assure you that we will record a net profit in 2004 or in future periods. Trends in Our Industry and Markets Our results of operations are affected to a large degree by developments and trends in the mobile and fixed-line telecommunications sector generally, and more specifically in the markets in which we operate. These developments and trends include increasing competition within most of our markets, regulatory changes, growing levels of subscriber penetration and usage, the availability of licenses with respect to additional coverage areas and spectrum, technological advances in services and equipment and consolidation within the telecommunications industry. See Risk Factors Risks Relating to Our Business and Risk Factors Risks Relating to the Telecommunications Industry Generally. In less developed markets such as India, Thailand, Sri Lanka, Paraguay and Ghana, where the proportion of mobile telecommunications subscribers to the general population remains relatively low, the number of our subscribers and their usage volume has grown rapidly in recent years, contributing to higher turnover and earnings. However, the effect of growing competition among existing telecommunications operators has resulted in declines in tariff levels and increases in subscriber acquisition costs. In more developed markets, such as Hong Kong and Israel, where subscriber penetration is close to or above 100%, subscriber and traffic growth and tariff decline rates have generally started to stabilize. However, we believe opportunities for further revenue growth in these markets remain as a result of our introduction of new services and technologies, such as data transmission and 3G mobile telecommunications services. As prevailing conditions in the various markets in which we operate differ so significantly and are subject to countervailing influences and developments within and across markets, it is difficult for us to predict overall trends in our operating performance. See Risk Factors Risks Relating to Markets Where We Operate. With respect to our fixed-line operations, the liberalization of the local fixed telecommunications network services market in Hong Kong beginning in January 2003 has resulted in new entrants into the local fixed network market and increasing competition, which have resulted in, and we expect will continue to result in, lower tariff levels. However, we believe that as a result of such liberalization, opportunities will arise from the overall growth in the telecommunications industry, including in the areas of voice and data services, provision of bandwidth to and from mainland China, as well as in the international bandwidth market. New interconnection regulations in India became effective on February 1, 2004. These new regulations introduced a number of changes to the arrangements among telecommunications operators for the interconnection of calls. While many of these changes will have some impact on Hutch India s operations, the most significant change was the establishment of a specified uniform charge to be paid to all telecommunications operators for terminating incoming international calls. Prior to the effectiveness of the new regulations, the termination charge was determined by negotiation among telecommunications operators. The rate established by the new regulations is INR0.30 per minute, which is substantially lower than the negotiated rates that Hutch India previously received. If the change in interconnection regulations had been effective during 2003, we estimate that Hutch India s revenue and operating profit in 2003 would have been reduced in each case by HK$62 million (US$8 million). For more information about the new regulations, see Regulation India Regulations governing mobile operations Interconnection. In Israel, the Ministry of Communications has announced that it is considering regulatory changes to interconnection rates, call termination rates for international calls and SMS, to provide for an annual review of these rates and to change the billing units. If adopted, these changes would have a material Table of Contents adverse effect on Partner s earnings and financial position. For further information, see Risk Factors Risks Relating to Markets Where We Operate Partner operates in a highly regulated telecommunications market in which the regulator s decisions, including those relating to tariffs may materially and adversely affect Partner s financial condition and the results of its operations and Regulation Israel Regulation by the Ministry of Communications. Changes in Economic Conditions Our results of operations are affected by economic conditions in Hong Kong, India, Thailand, Israel and in the other countries in which we operate, directly or indirectly, through our subsidiaries and our associated companies. In periods of slow economic growth, demand for telecommunications and other services tends to be adversely affected. See Risk Factors Risks Relating to Markets Where We Operate. Our operations outside of Hong Kong accounted for approximately 49% of our turnover in 2003, compared to 40% in 2002 and 36% in 2001. These percentages do not include the contribution of our operations in Israel to our business since Partner is accounted for in our combined financial statements using the equity method. Ownership of Indian Operations We hold direct and indirect equity interests in six mobile telecommunications operators in India, which comprise the Indian operations and which we refer to as Hutch India. Foreign ownership restrictions in the Indian telecommunications industry set forth in the Indian government s Industrial Policy and in the telecommunications licenses held by the Hutch India mobile telecommunications operators, as discussed in further detail in Regulation India, prohibit us from holding more than 49% of the direct voting equity interests in the Hutch India mobile telecommunications operators. Indian shareholders must hold at least 51% of the voting equity interests in the Hutch India mobile telecommunications operators. Our investments in India therefore have taken the form of direct minority holdings through our wholly-owned subsidiaries. In addition, we also hold direct and indirect minority interests in Indian companies through which we and the Kotak Mahindra group, a leading Indian financial service group, jointly invest in the operators. The Kotak Mahindra group owns the majority of the equity interests in the Hutch India mobile telecommunications operators. See Business India Ownership. The Hutch India mobile telecommunications operators are consolidated into our combined financial statements included in this prospectus, notwithstanding the fact that we do not own a majority of the voting equity interests in the Hutch India mobile telecommunications operators. They are consolidated as our subsidiaries under Hong Kong GAAP, the accounting principles under which our combined financial statements are prepared, in accordance with Statement of Standard Accounting Practice 32, Consolidated Financial Statements and Accounting for Investments in Subsidiaries, because we have the majority of the economic risks and rewards from these subsidiaries on a long-term basis after taking into consideration a number of factors. For further information, see note 3A to our combined financial statements. The Hutch India mobile telecommunications operators are consolidated and treated as subsidiaries under US GAAP on the basis of our determination under applicable accounting guidelines that we have been the primary beneficiary of the Hutch India mobile telecommunications operators from the date of their acquisition or incorporation. For further information, see note 34(i) to our combined financial statements. The share of our after-tax profits that is attributed to the interests held by Indian shareholders in the Hutch India mobile telecommunications operators is reflected as minority interests in our combined profit and loss account. As discussed in further detail under Business India Ownership Planned consolidation and initial public offering of Indian operators, we and the Indian shareholders have entered into agreements, or reached agreements in principle, to consolidate our and their interests in the Indian Euros into NIS Table of Contents operators into an Indian holding company and to effect an initial public offering of the Indian holding company. Following any such initial public offering, it is possible that Hutch India will cease to be consolidated in our financial statements and will instead be classified as an associated company of our group. If this were the case, the resulting effect upon our net profit (loss) attributable to shareholders would be confined to the dilution resulting from the initial public offering in India. The presentation of our profit and loss amount and balance sheet would, however, be very different if Hutch India ceases to be consolidated and is accounted for under the equity method in our combined financial statements. The principal accounting consequences pursuant to Hong Kong GAAP would be as follows: each of the line items (including turnover and operating profit (loss)) of our consolidated profit and loss accounts would be reduced as a result of the exclusion of Hutch India; there would be a corresponding reduction in the deduction for minority interests representing other shareholders interests in Hutch India; and there would be an increase in the share of profits less losses of associated companies and jointly controlled entities, corresponding to our percentage share in Hutch India s profits (losses). The impact upon our combined balance sheet pursuant to Hong Kong GAAP would be a reduction in each of the balance sheet line items, offset by a reduction in minority interest and an increase in investments in associated companies and jointly controlled entities. See Business India Ownership Planned consolidation and initial public offering of Indian operators for an illustration of the accounting effects of such deconsolidation. The effects of the initial public offering of the Indian holding company on our combined financial accounts would depend, among other factors, upon our resulting direct and indirect equity interest in the Indian holding company, the future results of the individual Indian operations, the valuation of the Indian holding company and the net proceeds raised. There can be no assurance that the proposed consolidation or the initial public offering of the Indian holding company will occur within the time frame or in the manner as currently contemplated, or that Hutch India will continue to be consolidated into our financial statements following such initial public offering. Critical Accounting Policies The preparation of financial statements often requires the selection of specific accounting methods and policies from several acceptable alternatives. Furthermore, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in our combined balance sheet, the turnover and expenses in our combined profit and loss account and the information that is contained in the significant accounting policies and notes to our combined financial statements. Our management bases its estimates and judgments on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from these estimates and judgments under different assumptions or conditions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies under Hong Kong GAAP and US GAAP that affect our reported financial condition and results of operations. For a further discussion of the application of these and other accounting policies, see notes 3 and 34 to our combined financial statements and Reconciliation to US GAAP. Long-lived Assets We have substantial investments in tangible and intangible long-lived assets, primarily our mobile and fixed-line telecommunications networks and licenses. Changes in technology or changes in our Table of Contents intended use of these assets may cause the estimated period of use or value of these assets to change. We consider our asset impairment accounting policy to be a policy that requires one of the most extensive applications of judgments and estimates by our management. Intangible and tangible assets, except investment properties, are tested for impairment when an event occurs that might affect asset carrying values. We continually monitor our businesses, markets and business environments and make judgments and assessments about whether such an event has occurred. A provision for impairment in value is recognized with respect to an asset to the extent that the carrying amount cannot be recovered either by selling the asset or from the discounted future earnings from operating the asset. Under US GAAP, the impairment review first compares the future undiscounted cash flows expected to be generated from the continued use and ultimate disposition of an asset with the book value of the asset. If these cash flows are not sufficient to recover the book value of the asset, an impairment charge is recognized based on the comparison between the discounted value of these cash flows and the book value of the asset. The impairment charge is recognized in our combined profit and loss account. Management judgment is required in the area of asset impairment, particularly in assessing: (1) whether an event has occurred that may affect asset values; (2) whether the carrying value of an asset can be supported by the net present value of future cash flows from the asset, estimated using cash flow projections; and (3) whether the cash flow is discounted using an appropriate rate. Changing the assumptions selected by management to determine the level, if any, of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could significantly affect our reported financial condition and results of operations. Our asset impairment review assesses the recoverable values of the relevant asset based on our estimates of such value from continued use of the asset and its eventual disposition or our best estimate of the fair value of the asset based on industry trends and reference to market rates and comparable transactions. If an asset write-down is not considered necessary, the asset s estimated useful life and salvage value are reviewed to determine if any adjustments are necessary. As a result of our review for impairment of our intangible and tangible assets, as of December 31, 2001, an impairment charge of HK$1,535 million was recorded in our combined profit and loss account in respect of network equipment pertaining to our Hong Kong mobile operations. No asset impairment write-down was required in 2002, 2003 or the first six months of 2004. However, a write-off of prepaid capacity and maintenance in the amount of HK$226 million was recorded in 2002, as a result of the bankruptcy of Asia Global Crossing, a former shareholder of Hutchison Global Communications. Our 2G and 3G telecommunications spectrum licenses are stated at cost for the period from their acquisition to the dates of first commercial usage of the related spectrum. As of June 30, 2004, we tested our 2G and 3G licenses for impairment as part of our overall impairment review of our cash generating units. Considering the discounted future cash flows expected from operating networks under these licenses, the operability of these networks, the underlying technology and the competitive regulatory and overall telecommunications market environment, our management concluded that these assets were not impaired. There has been no write-down for our 3G operations. The asset impairment test on the 3G operations has been performed in accordance with Statement of Standard Accounting Practice 31, Impairment of Assets, issued by the Hong Kong Institute of Certified Public Accountants. For the US GAAP financial statements, the impairment test has been performed in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Table of Contents Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of our share of the net assets of the acquired subsidiary company, associated company or jointly controlled entity at the date of its acquisition. Goodwill is recorded in our combined balance sheet as a separate asset or, as applicable, included within investments in associated companies and jointly controlled entities, and is amortized using the straight-line method over its estimated useful economic life, not exceeding 20 years. The useful economic life is determined by management s estimates and certain assumptions. Under Hong Kong GAAP, we perform an impairment review to ensure that our assets, including goodwill, are carried at no more than their recoverable amount if there is an indication of impairment. Under US GAAP, we perform an annual impairment test for goodwill based on the fair value of the operating segment or one reporting level below the operating segment. The fair value of the reporting unit is compared to its carrying amount on an annual basis to determine if there is a potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent of the difference. Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts relating to estimated losses resulting from the inability of our subscribers to make required payments. We base our allowance on the likelihood of recoverability of accounts receivable based on the aging of the balances, our historical write-off experience, net of recoveries, changes in the credit quality of our customers, and taking into account current collection trends that are expected to continue. These estimated allowances are periodically reviewed as we analyze our subscribers payment history. The allowance charged to expenses is determined in respect of specific debts doubtful of collection, calculated as a specified percentage of the outstanding balance in each debt age group, with the percentage of the allowance increasing as the age of the debt increases. Actual customer collections could differ from our estimates. For example, if the financial condition of our customers were to deteriorate, additional allowances may be required. Our bad debt expenses as a percentage of turnover were 1.6%, 2.2% and 3.9% in 2001, 2002 and 2003, respectively. Our provision for bad debt expenses increased from HK$99 million in 2001 to HK$169 million in 2002 mainly reflecting the business growth in India. As a result of a provision for bad debt expenses of HK$213 million (US$27 million) in 2003 for our Thai operations, our provision for bad debt expenses increased to HK$397 million (US$51 million) in 2003. See Risk Factors Risks Relating to Our Business We may encounter operational and control difficulties when commencing businesses in new markets. Deferred Taxation Deferred tax is provided, using the liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying values in our combined financial statements. Deferred tax liabilities are provided in full on all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences (including tax losses) can be utilized. In effect, valuation allowances are included in respect of deferred tax assets when it is more likely than not that no such assets will be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Our assumptions regarding future profitability and the anticipated timing of utilizing the tax holiday period available to our Indian businesses require significant judgment, and significant changes in these assumptions from period to period may have a material impact on our reported financial condition and results of operations. As of December 31, 2003, we had recognized HK$910 million (US$117 million) in deferred tax assets. Punjab 34 14 13 39 Uttar Pradesh (West) 16 36 15 33 West Bengal 45 Table of Contents Depreciation of Property, Plant and Equipment Our business is capital intensive. Depreciation of operating assets constitutes a substantial operating cost for us. The cost of our property, plant and equipment, principally telecommunications and network equipment, is charged to depreciation expense over their estimated useful lives. We depreciate our telecommunications and network equipment using the straight-line method over their estimated useful lives. We periodically review changes in our technology and industry conditions, asset retirement activity and salvage values to determine adjustments to estimated remaining useful lives and depreciation rates. Actual economic lives may differ from our estimated useful lives. Periodic reviews could result in a change in our depreciable lives and therefore our depreciation expense in future periods. Amortization of Telecommunications Spectrum Licenses Our 2G and 3G telecommunications spectrum licenses are amortized on a straight-line basis over the license period from the date of the first commercial usage of the related spectrum. The legal length of the license period is used as the amortization period. The actual economic lives may differ from the license period, which could impact the amount of amortization expense. Revenue Recognition Our postpaid and prepaid revenues are generated based on tariff plans. Postpaid revenues are recognized upon delivery of services and when collectibility is reasonably assumed, and prepaid revenues are recognized based on the prepaid billing system when the services have been provided to the prepaid customers or when the services periods have been expired. Revenues and related expenses associated with the sale of wireless handsets and accessories are recognized when the products are delivered and accepted by the distributors or dealers, or directly by customers when it is considered to be a separate earnings process from the sale of wireless services. In Thailand, our wireless handsets cannot be used on any other network or without purchasing our service. As a result, under US GAAP, the handset sales are not separated from the service contracts and the handset and service fees are accounted for as one unit of accounting and recognized over the estimated customer life. Revenues generated from the sale of wireless handsets and accessories are immaterial to our total turnover. Effective July 1, 2003, we adopted Emerging Issues Task Force No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, or EITF 00-21. The adoption of EITF 00-21 had no impact on our financial condition and results of operations. Foreign Exchange Our reporting currency is Hong Kong dollars. The accounts of our overseas subsidiaries and associated companies and jointly controlled entities are translated into Hong Kong dollars using the year-end rates of exchange for the balance sheet and the average rates of exchange for the year for the profit and loss items. A significant portion of our turnover, operating profit (loss), assets and loans are related to our overseas operations, and are generally denominated in currencies other than our reporting currency. Accordingly, fluctuations in the exchange rate between our reporting currency, the Hong Kong dollar, Indian Rupee, Thai Baht, U.S. dollar and New Israeli Shekel could have a significant impact on our reported profit (loss), assets or liabilities. (HK$ in millions, except percentages) Hong Kong mobile (including Macau) 3,970 63.8 % 3,730 48.7 % Hong Kong fixed-line 860 11.2 India 2,165 34.8 2,974 38.9 Thailand 37 0.6 34 0.5 Others 54 0.8 Number of service areas 23 11 48 13 57 Size of service areas (in square kilometers, in thousands)(1) 3,166 1,232 39 1,441 46 Population in service areas (in millions)(2) 1,027 419 41 572 Table of Contents Results of Operations Introduction The following is a brief description of the major line items in our combined profit and loss account. Turnover Turnover consists of fees and revenues generated by our mobile and fixed-line telecommunications operations. Turnover does not include Partner s revenues, as those are accounted for under the equity method of accounting. Partner s results of operations are reflected in our share of profits less losses of associated companies, which are then included in our operating profit. In 2003, turnover from our mobile telecommunications operations contributed approximately 84% of our total turnover and consisted mainly of the following: Network revenues. These revenues are derived from our principal business activity of providing telecommunications services to subscribers through our mobile telecommunications networks. Network revenues principally include: - Fees from voice and data services. Fees paid by subscribers to our mobile telecommunications operations are generally based on a subscriber s actual airtime usage. They also include connection and monthly fees. Fees for voice services are received on either a prepaid or a postpaid basis. Fees from data services are generally based on non-voice, value-added services, including SMS, high speed information services, text-based information and content services, GPRS and MMS. In 2003, fees from voice and data services contributed to approximately 80% of turnover from our mobile operations, with fees from data services contributing to approximately 13% of such turnover. - Roaming fees. These fees are collected from other mobile telecommunications operators for outbound and inbound calls by their subscribers who use our network and from our subscribers who roam on networks in other countries. In 2003, roaming fees contributed to approximately 12% of turnover from our mobile operations. - Interconnection revenue share. These fees are collected from other telecommunications operators for terminating their calls on our network. In some of the other countries in which we operate, such as India, Thailand, Paraguay and Ghana, a calling party pays system has been implemented under which we receive higher interconnection payments from other telecommunications providers for calls made by their subscribers to subscribers on our network, but do not receive airtime fees from our subscribers for incoming calls. In 2003, interconnection revenues contributed to less than 1% of turnover from our mobile operations. Hardware revenues. These revenues relate principally to the sale of mobile telecommunications handsets and related accessories. We sell handsets to subscribers in all of our markets except India, typically at a discounted price to their cost, in order to attract new subscribers. In 2003, hardware revenues contributed to approximately 5% of turnover from our mobile operations. We believe that the main drivers of turnover from our mobile telecommunications operations in the future will be subscriber and usage volume growth in the less developed markets, such as India and Thailand, and the increasing use of data transmission services and the transition from 2G to 3G services in more developed markets, such as Hong Kong. In 2003, turnover from our Hong Kong fixed-line operations contributed approximately 16% of our total turnover and consisted mainly of the following: Fees from data services. These fees are derived mainly from the provision of the following services: - connectivity to our fixed-line network for mobile telecommunications operators, 2,591 634 1,581 1,649 Deferred tax assets Hong Kong and Macau Mobile telecommunications 662 558 474 400 India 576 519 379 295 Thailand 55 62 Table of Contents - leasing of local lines on a wholesale basis to customers including telecommunications carriers, other fixed-line operators and Internet service providers, - connectivity to our fixed-line network for large corporations, financial institutions, multinational organizations and government bodies, - business broadband services to small- and medium-sized enterprises, and - broadband services to schools. In 2003, these fees contributed approximately 42% of turnover from our Hong Kong fixed-line operations. Fees from local voice services. These fees are derived from the provision of basic voice and fax services and value-added services, such as call waiting and call forwarding, to residential customers, as well as a wide range of voice connectivity services to business customers. In 2003, fees from local voice services contributed approximately 28% of turnover from our Hong Kong fixed-line operations. Fees from international direct dialing services. These fees relate to international direct dialing, or IDD, voice and fax services provided to residential and business customers. Traffic to and from mainland China accounts for approximately half of these fees. In the wholesale market, we provide voice interconnection and local termination to international voice carriers. In 2003, fees from IDD contributed approximately 13% of turnover from our Hong Kong fixed-line operations. Fees from residential broadband services. These fees relate to broadband Internet access provided to residential customers through telecommunications cables with speeds up to 10Mbps. In 2003, these fees contributed approximately 10% of turnover from our Hong Kong fixed-line operations. Fees from international bandwidth. These fees are derived from the sale of international private leased circuits, Internet protocol transit and indefeasible rights of use to multinational corporations, international voice telephony resellers, international carriers and Internet service providers both in Hong Kong and overseas. In 2003, fees from international bandwidth contributed approximately 7% of turnover from our Hong Kong fixed-line operations. In the future, we believe that fees from data services, which historically have carried a higher margin, will remain a key contributor to turnover from our Hong Kong fixed-line operations. We also expect to continue to explore the benefits of owning what we believe to be Hong Kong s most extensive fiber-optic building-to-building network capable of providing voice and data telecommunications services, as well as growing our regional presence as a carrier of international bandwidth. Operating Expenses Our principal operating expenses are: Cost of inventories sold. These expenses relate principally to the cost of purchasing mobile telecommunications handsets and related accessories. Staff costs. These expenses include all personnel-related expenses, primarily wages and salaries and employee benefits. Depreciation and amortization. These expenses, which are non-cash items, include depreciation of fixed assets, amortization of telecommunications license fees and amortization of subscriber acquisition costs in some of our mobile operations. Leasehold land is depreciated Table of Contents over the remaining period of the lease. Buildings are depreciated on the basis of expected life of 50 years, or the remainder thereof, or over the remaining period of the leases, whichever is less. Other fixed assets are depreciated at various rates calculated to write off their costs over their estimated useful lives on a straight-line basis. Costs of acquiring 3G and other telecommunications spectrum licenses are amortized over the periods of the licenses from the date of commencement of commercial operations. Subscriber acquisition costs are costs incurred to acquire a mobile subscriber. These costs include handset subsidies (if any), dealer commissions, direct sales and distribution costs and other related costs. Our policy with respect to some of our mobile operations has been to capitalize these costs on the date of the subscriber acquisition and thereafter to amortize the capitalized amount over a 36-month period. This policy has been applied to both the CDMA2000 1X operations in Thailand and, since January 2004, to our Hong Kong 3G mobile operations. However, if at any time a subscriber churns off the network during the 36-month period, any unamortized acquisition costs related to that subscriber are immediately expensed in our combined profit and loss account. As of December 31, 2003, our unamortized subscriber acquisition costs amounted to HK$202 million (US$26 million). Other operating expenses (net). These expenses, which are recorded net of non-operating income items, include: - Network costs. These costs mainly include interconnection, roaming and IDD charges paid to other telecommunications operators to carry calls originating from our subscribers, as well as cell site and leased line rental fees paid to lessors. These costs accounted for approximately 52% of our other operating expenses in 2003, before capitalized costs and other credits of expenses. - Other network operating costs. These costs mainly include utilities and other costs associated with network maintenance. These costs accounted for approximately 15% of our other operating expenses in 2003, before capitalized costs and other credits of expenses. - General and administrative expenses. These costs accounted for approximately 11% of our other operating expenses in 2003, before capitalized costs and other credits of expenses. - Selling and distribution expenses. These expenses mainly include sales and marketing expenses and dealer and sales commissions paid to dealers and sales agents for the acquisition of subscribers, to the extent such expenses are not capitalized as part of subscriber acquisition costs in some of our mobile operations. These costs accounted for approximately 16% of our other operating expenses in 2003, before capitalized costs and other credits of expenses. - Capitalized costs (credit). These costs, which are credited against other operating expenses in our combined profit and loss account, are directly attributable to expenses incurred in connection with network build-out and form part of the capitalized costs of mainly network fixed assets. These costs mainly relate to the CDMA2000 1X operations in Thailand and our 3G mobile operations in Hong Kong. In 2003, these costs totalled HK$333 million (US$43 million). We believe the main driver of our operating expenses in the future will be increased depreciation and amortization and network operating costs as a result of capital expenditures related to new license acquisitions and network expansion in our less developed markets and 3G mobile telecommunications network build-out in our more developed markets. Table of Contents Year ended December 31, See Results of Operations Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 and Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 for a more detailed discussion on the reasons for the changes in other operating expenses in 2002 and 2003. See also Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 for a discussion of other operating expenses during these periods. Share of profits less losses of associated companies This item reflects our share, under the equity method of accounting, of the profits net of losses of our associated companies, including principally Partner, the Israeli mobile telecommunications operator. In 2003, our share of profits net of losses of associated companies included an operating profit of HK$595 million (US$76 million) of Partner and an operating loss of HK$4 million (US$0.5 million) of Vanda and its subsidiaries when they were accounted for as associated companies for part of 2003. Share of profits less losses of jointly controlled entities This item reflects our share, under the equity method of accounting, of the losses of our jointly controlled entities, Hutchison Global Communications (the entity through which we conduct our Hong Kong fixed-line operations) and its subsidiaries and related data center companies, prior to May 2002. These entities became our consolidated subsidiaries in May 2002. Our share of losses of Hutchison Global Communications and its subsidiaries and the related data center companies for the four-month period in 2002 was HK$22 million. Interest and other finance costs, including share of associated companies and jointly controlled entities This item principally consists of interest and other costs relating to our debt, as well as our share of the interest and other finance costs of our associated companies, including Partner, and our jointly controlled entity, Hutchison Global Communications, and its consolidated subsidiaries until May 2002 (when they became our consolidated subsidiaries). Minority interests This item reflects the share of our after-tax profits that is attributed to minority interests held by third parties in our consolidated companies, including the interests of Indian shareholders in Hutch India. See Overview Ownership of Indian Operations. Six months ended June 30, Foreign currency: Thai Baht: Fixed rate 785 785 785 Average weighted rate(1) 2.47 % 2.47 % 2.47 % Variable rate(2) 2,125 241 1,765 41 41 61 4,274 4,274 Average weighted rate(1) 2.21 % 1.94 % 2.31 % 1.50 % 1.50 % 1.50 % 2.21 % 2.21 % Sub-total 2,910 241 1,765 41 41 Our turnover increased by 52.1% from HK$4,532 million in the six months ended June 30, 2003 to HK$6,891 million (US$883 million) in the same period in 2004. The increase was mainly due to additional turnover contributed by Hutch India, the Thai operations and our Hong Kong fixed-line operations. More specifically, the increase resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 25.4% of turnover in the first six months of 2004, compared to 38.7% in the same period in 2003. Turnover was HK$1,749 million (US$224 million) in the six months ended June 30, 2004 compared to HK$1,752 million in the same period in 2003. Turnover from our Hong Kong postpaid subscribers decreased by 2.2% from HK$1,422 million in the six months ended June 30, 2003 to HK$1,391 million (US$178 million) in the same period in 2004. This decrease was principally due to the reduction in tariffs resulting from the ongoing pressure of discounts offered by our competitors. The effect of our tariff reductions was partially offset by an increase in the number of our Hong Kong postpaid subscribers from approximately 1.03 million as of June 30, 2003 to 1.16 million as of June 30, 2004. Turnover from our Hong Kong prepaid subscribers increased by 5.3% from HK$94 million in the six months ended June 30, 2003 to HK$99 million (US$13 million) in the same period in 2004. This increase reflected primarily the effects of the outbreak in Hong Kong of severe acute respiratory syndrome (SARS) during the first half of 2003, as visits to Hong Kong by business and leisure travelers who typically use prepaid services decreased during that period. The number of our Hong Kong prepaid subscribers increased from approximately 0.62 million as of June 30, 2003 to approximately 0.80 million as of June 30, 2004. Hardware revenues decreased by 6.6% from HK$198 million in the six months ended June 30, 2003 to HK$185 million (US$24 million) in the same period in 2004, mainly as a result of the decrease in the average selling price of our 2G handsets. Hong Kong fixed-line operations. Our Hong Kong fixed-line operations accounted for 17.8% of our turnover in the first six months of 2004, compared to 17.0% in the same period in 2003. Turnover from our Hong Kong fixed-line operations increased by 59.7% from HK$769 million in the six months ended June 30, 2003 to HK$1,228 million (US$157 million) in the same period in 2004. This increase was primarily due to increased revenues from our international bandwidth, local and international voice and residential broadband services and includes a 100% share of Hutchison Global Communications Holdings revenue for four months. The total number of residential voice lines in our network increased from approximately 188,000 as of June 30, 2003 to approximately 225,000 as of June 30, 2004, mainly due to an expansion in our service coverage area in 2004, while the number of residential broadband subscribers Table of Contents increased from approximately 96,000 as of June 30, 2003 to approximately 146,000 as of June 30, 2004. Also contributing to the increase in turnover was the consolidation of the results of Hutchison Global Communications Holdings (formerly Vanda) as a result of the Vanda transaction, described in further detail in Overview Factors Affecting Our Results of Operations New Licenses and Acquisitions, which also included the acquisition of PowerCom Network Hong Kong Limited, which we refer to as PowerCom, described in further detail in Business Hong Kong fixed-line business Competition. Indian operations. Hutch India accounted for 46.5% of our turnover in the first six months of 2004, compared to 43.0% in the same period in 2003. Turnover from Hutch India increased by 64.1% from HK$1,951 million in the six months ended June 30, 2003 to HK$3,202 million (US$411 million) in the same period in 2004, primarily due to an increase in the total number of subscribers. Turnover from prepaid subscribers increased from HK$598 million in the six months ended June 30, 2003 to HK$1,418 million (US$182 million) in the same period in 2004. The increase was principally a result of substantial growth in the number of prepaid subscribers from approximately 1.93 million as of June 30, 2003 to approximately 4.27 million as of June 30, 2004. This growth was mainly attributable to the introduction of the calling party pays system in the second quarter of 2003, as well as reduced tariffs due to increased competition from CDMA and other GSM mobile telecommunications operators. Turnover from postpaid subscribers also increased by 42.9% from HK$1,085 million in the six months ended June 30, 2003 to HK$1,551 million (US$199 million) in the same period in 2004. The increase, which more than offset the effects of the tariff reductions, was mainly due to an increase in the number of postpaid subscribers from approximately 0.67 million as of June 30, 2003 to approximately 1.48 million as of June 30, 2004, primarily as a result of the continued subscriber growth and expanded operations in Rajasthan, Haryana and Uttar Pradesh (East). Revenues from postpaid roaming services increased by 20.1% from HK$184 million in the six months ended June 30, 2003 to HK$221 million (US$28 million) in the same period in 2004, principally as a result of Hutch India s expanded network coverage area. Although MOU per postpaid subscriber increased by 21.6%, ARPU for postpaid subscribers of Hutch India decreased by 14.5% (in local currency terms) in the six months ended June 30, 2004 compared to the same period in 2003, mainly reflecting the effects of the tariff reductions as a result of increased competition. MOU per prepaid subscriber increased by 45%, and ARPU for prepaid subscribers declined by 17% (in local currency terms) in the six months ended June 30, 2004 compared to the same period in 2003, as a result of the reductions in tariffs. Thai operations. Hutchison CAT began marketing Hutch brand mobile telecommunications services in Thailand in February 2003. The Thai operations accounted for 8.8% of our turnover in the first six months in 2004, compared to 0.4% in the same period in 2003. Turnover from the Thai operations increased from HK$16 million in the six months ended June 30, 2003 to HK$604 million (US$77 million) in the same period in 2004. While the entire turnover from the Thai operations in the six months ended June 30, 2003 was attributable to revenues from postpaid subscribers, the Thai operations began offering prepaid services in March 2004. By June 30, 2004, revenues from prepaid subscribers had contributed 1.3% to the total turnover for that six-month period, due to the launch in March 2004, but prepaid subscribers made up 19.0% of total subscribers as of that date. As of June 30, 2004, the Hutch brand service had approximately 530,000 subscribers, compared to approximately 20,000 as of June 30, 2003. Other operations. Turnover from other operations consists of revenues from our mobile telecommunications operators in Sri Lanka, Paraguay and Ghana. These operations collectively accounted for 1.5% of our turnover in the first six months in 2004, compared to 0.9% in the same period in 2003. Turnover from other operations increased from HK$44 HK$ millions HK$ millions HK$ millions HK$ millions Deferred tax assets 1,293 1,139 910 695 Deferred tax liabilities 46 Our operating profit increased in the first six months in 2004, primarily due to profit generated by the placement of shares in Hutchison Global Communications Holdings as described below, and also due to continued strong subscriber growth from Hutch India and increased contributions from our associated company, Partner, the Israeli mobile communications operator in which we have approximately a 43.1% ownership interest, as discussed below, and from our Hong Kong fixed-line operations. The operating profit margin of our Hong Kong mobile operations (including Macau) decreased from a positive margin of 15.8% in the first six months in 2003 to a negative margin of (2.2)% in the same period in 2004, mainly as a result of increased other operating expenses, depreciation and amortization and staff costs, all related to the 3G operations, as further discussed below. We currently expect that our operating expenses for our Hong Kong mobile operations in the second half of 2004 will be higher than in the first half of 2004 as a result of increasing depreciation and amortization of subscriber acquisition costs relating to 3G operations and the deferral of capital expenditures relating to 3G operations from the first half to the second half of 2004. We do not expect that such expenses will be offset by a parallel increase in revenues during this period. The operating profit margin of our Hong Kong fixed-line operations decreased from 11.2% in the first six months in 2003 to 8.9% in the same period in 2004. The decrease in the operating profit margin of our Hong Kong fixed-line operations was offset by a HK$27 million decrease in depreciation as a result of a change in our estimate of the useful lives of certain assets, effective as of January 1, 2004. The operating profit margin of Hutch India increased from 11.3% in the first six months in 2003 to 13.3% in the same period in 2004. As a result of the foregoing, our combined operating profit margin, excluding Partner, increased from 5.7% in the first six months in 2003 to 19.4% in the same period in 2004. Our operating profit for the first six months in 2004 includes a profit of HK$1,300 million (US$167 million) from the placement of shares in Hutchison Global Communications Holdings, as further described in Overview Factor Affecting Our Results of Operations New Licenses and Acquisitions. Excluding the one-time gains from the placement of Hutchison Global Communications Holdings shares, our combined operating profit would have declined to HK$393 million, and our combined operating profit margin to 5.7%, in the first six months in 2004. Our US GAAP operating profit does not include the results of our associated companies. Table of Contents The increase in other operating expenses in the first six months of 2004 resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 23.9% of our other operating expenses in the first six months of 2004, compared to 30.2% in the same period in 2003. Other operating expenses increased by 21.6% from HK$753 million in the six months ended June 30, 2003 to HK$916 million (US$117 million) in the same period in 2004. This was mainly attributable to the 29.9% increase in network costs and other network operating costs, from HK$582 million in the six months ended June 30, 2003 to HK$756 million (US$97 million) in the same period in 2004. Interconnection charges and roaming expenses increased in the first half of 2004, when compared to the same period in 2003 during the SARS outbreak, due to the larger number of travelers in Hong Kong and increased volume of business travels outside of Hong Kong by our postpaid subscribers in the first half of 2004. In addition, network operating costs increased in the first six months of 2004 as a result of the launch of 3G services in January 2004, as well as an increase in call volume from our 2G services. Part of this increase was a result of the direct expensing of network costs following the launch of 3G services in January 2004; these costs were capitalized previously. In the six months ended June 30, 2003, network costs in the amount of HK$118 million were capitalized, while only HK$24 million (US$3 million) of such costs were capitalized in the first six months of 2004. Hong Kong fixed-line operations. Our Hong Kong fixed-line operations accounted for 11.1% of our other operating expenses in the first six months of 2004, compared to 12.3% in the same period in 2003. Other operating expenses from our Hong Kong fixed-line operations increased by 38.2% from HK$306 million in the six months ended June 30, 2003 to HK$423 million (US$54 million) in the same period in 2004, mainly due to network expansion. Indian operations. Hutch India accounted for 55.1% of our other operating expenses in the first six months of 2004, compared to 51.4% in the same period in 2003. Other operating expenses from Hutch India increased by 64.8% from HK$1,283 million in the six months ended June 30, 2003 to HK$2,114 million (US$271 million) in the same period in 2004. The increase was primarily due to a significant increase in network costs and other network operating costs, which, taken together, increased by 46.4% from HK$948 million in the six months ended June 30, 2003 to HK$1,388 million (US$178 million) in the same period in 2004. The increase in network costs and other network operating costs was mainly attributable to the continued growth in the number of subscribers and in the scope of operations, including as a result of the acquisition by Hutch India of Aircel Digilink India Limited in August 2003 and the continued build-out of networks in Chennai, Karnataka and Andhra Pradesh. The continued growth in subscribers resulted in significant increases in interconnection, roaming and IDD charges, and the continued build-out of networks resulted in increased rental fees for cell sites and leased lines. Selling and distribution expenses also increased by 133.3% from HK$114 million in the six months ended June 30, 2003 to HK$266 million (US$34 million) in the same period in 2004 as a result of subscriber growth. Thai operations. The Thai operations accounted for 7.8% of our other operating expenses in the first six months of 2004, compared to 4.5% in the same period in 2003. Other operating expenses from the Thai operations increased by 165.5% from HK$113 million in the six months ended June 30, 2003 to HK$300 million (US$38 million) in 2004. This increase was primarily due to increases in network build-out and Hutchison CAT s advertising and selling and distribution expenses. Other operating expenses in the first six months of 2004 also included a provision for inventory revaluation of HK$91 million (US$12 million), as well as a provision for bad debt expenses of HK$30 million (US$3.8 million). See Risk Factors Risks Relating to Our Business We may encounter operational and control difficulties when commencing businesses in new markets. Table of Contents Other operations. Our operations in Sri Lanka, Paraguay and Ghana together accounted for 2.1% of our other operating expenses in the first six months of 2004, compared to 1.6% in the same period in 2003. Other operating expenses from these operations increased from HK$41 million in the six months ended June 30, 2003 to HK$81 million (US$10 million) in the same period in 2004, principally as a result of increases in network operating costs and selling and distribution expenses. These increases were primarily due to growth in the number of our subscribers and the continued build-out of our networks in these markets. We expect other operating expenses to increase by approximately 40% to 50% in 2004, principally reflecting an anticipated increase in network costs and other network operating costs resulting from network expansions in Hutch India, our Hong Kong mobile and fixed-line operations and the Thailand operations. Selling and distribution expenses are also expected to increase significantly due to these expansions. Share of profits less losses of associated companies Our share of profits less losses of associated companies increased by 50.8% from HK$236 million in the first six months of 2003 to HK$356 million (US$46 million) in the same period in 2004. This increase principally reflected an increase in the operating profit of Partner. Partner is listed on Nasdaq, the London Stock Exchange and the Tel Aviv Stock Exchange, and reports its financial results under US GAAP. Based on the information disclosed in Partner s current report on Form 6-K filed for the six months ended June 30, 2004, Partner s revenues increased by 17.3% from NIS2,109 million (equivalent to HK$3,658 million) in the six months ended June 30, 2003 to NIS2,473 million (equivalent to HK$4,289 million) (US$550 million) in the same period in 2004. This increase was primarily due to subscriber growth of approximately 13.0%, which was partially offset by lower ARPU. Partner s cost of revenues increased by 13.1% from NIS1,520 million (equivalent to HK$2,636 million) in the six months ended June 30, 2003 to NIS1,719 million (equivalent to HK$2,982 million) (US$382 million) in the same period in 2004, mainly reflecting higher interconnection charges resulting from subscriber growth. Partner s selling and marketing expenses increased by 5.0% from NIS160 million (equivalent to HK$278 million) in the six months ended June 30, 2003 to NIS168 million (equivalent to HK$291 million) (US$37 million) in the same period in 2004, while its general and administrative expenses increased by 5.0% from NIS80 million (equivalent to HK$139 million) in the six months ended June 30, 2003 to NIS84 million (equivalent to HK$146 million) (US$19 million) in the same period in 2004. As a result of the foregoing, Partner s operating profit increased by 44.0% from NIS348 million (equivalent to HK$604 million) in the six months ended June 30, 2003 to NIS501 million (equivalent to HK$869 million) (US$111 million) in the same period in 2004. Interest and other finance costs, including share of associated companies Interest and other finance costs, including our share of such costs of associated companies, increased by 10.4% from HK$500 million in the six months ended June 30, 2003 to HK$552 million (US$71 million) in the same period in 2004. This increase was primarily due to a larger amount of outstanding borrowings by Hutch India as well as an increase in finance costs from the Hong Kong mobile operations (including Macau) and an increase in interest and other finance costs related to network build-out in the Thailand operations, which was partially offset by lower interest rates relating to borrowings by Hutch India. The amount outstanding under existing bank facilities in Thailand increased from HK$2.8 billion in the first six months of 2003 to HK$6.0 billion in the same period in 2004. Profit (loss) before taxation As a result of the foregoing, we recorded a profit before taxation of HK$1,141 million (US$146 million) in the six months ended June 30, 2004, compared to a loss before taxation of HK$5 million in U.S. dollars: Variable rate 63 4 67 67 Average weighted rate(1) 2.87 % 4.36 % 2.94 % 2.94 % Sub-total 63 4 67 Our turnover increased by 32.0% from HK$7,654 million in 2002 to HK$10,104 million (US$1,296 million) in 2003, mainly due to additional turnover contributed by Hutch India and by our Hong Kong fixed-line operations. More specifically, the increase resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 34.5% of our turnover in 2003, compared to 48.7% in 2002. Turnover decreased by 6.6% from HK$3,730 million in 2002 to HK$3,485 million (US$447 Table of Contents million) in 2003, primarily due to a 9.5% decrease in turnover from our Hong Kong postpaid subscribers from HK$3,059 million in 2002 to HK$2,767 million (US$355 million) in 2003. This decrease was principally due to the ongoing impact in 2003 of a reduction in tariffs due to discounts offered by our competitors starting in the second half of 2002. The effect of this reduction in tariffs was partially offset by an increase in the number of our Hong Kong postpaid subscribers from approximately 1.04 million as of December 31, 2002 to approximately 1.11 million as of December 31, 2003. Turnover from our Hong Kong prepaid subscribers decreased by 12.9% from HK$217 million in 2002 to HK$189 million (US$24 million) in 2003 primarily due to the tariff reduction. The number of our Hong Kong prepaid subscribers decreased slightly from approximately 0.73 million as of December 31, 2002 to approximately 0.72 million as of December 31, 2003. Hardware revenues increased by 15.0% from HK$367 million in 2002 to HK$422 million (US$54 million) in 2003, principally as a result of the increase in the number of postpaid subscribers, who typically purchase handsets and related accessories. Despite an increase in MOU per postpaid subscriber of 7.2% in 2003, ARPU for postpaid subscribers from our Hong Kong mobile operations declined by 6.8% as a result of the tariff reductions resulting from increased price competition. Hong Kong fixed-line operations. Our Hong Kong fixed-line operations accounted for 16.1% of our turnover in 2003, compared to 11.2% in 2002. Turnover from our Hong Kong fixed-line operations increased by 89.3% from HK$860 million in 2002 to HK$1,628 million (US$209 million) in 2003. This increase was primarily due to the inclusion in 2003 of the full year results of operations of Hutchison Global Communications and its subsidiaries and related data center companies, which became our consolidated subsidiaries in May 2002, compared to being included for only eight months in 2002. The increase in turnover also reflected growth on a full-year comparable basis in the turnover of these entities, which increased by 30.0% from HK$1,252 million in 2002 to HK$1,628 million (US$209 million) in 2003. This increase was attributable to higher revenues from data services, mainly due to the addition of new corporate and carrier customers, as well as an increase in residential voice, IDD and residential broadband services. The total number of residential voice lines in our network increased from approximately 152,000 as of December 31, 2002 to approximately 212,000 as of December 31, 2003, mainly due to an expansion in our service coverage area in 2003, while the number of residential broadband subscribers increased from approximately 67,000 as of December 31, 2002 to approximately 120,000 as of December 31, 2003. However, our tariff levels declined, principally as a result of increased competition from other telecommunications operators. Indian operations. Hutch India accounted for 44.5% of our turnover in 2003, compared to 38.9% in 2002. Turnover from Hutch India increased by 51.2% from HK$2,974 million in 2002 to HK$4,497 million (US$577 million) in 2003, primarily due to an increase in the total number of subscribers. Turnover from prepaid subscribers increased from HK$805 million in 2002 to HK$1,706 million (US$219 million) in 2003. This increase was principally a result of a substantial growth in the number of prepaid subscribers from approximately 1.33 million as of December 31, 2002 to approximately 3.19 million as of December 31, 2003. This growth was mainly attributable to the introduction of the calling party pays system in the second quarter of 2003, as well as reduced tariffs due to increased competition from CDMA and other GSM mobile telecommunications operators. Turnover from postpaid subscribers also increased by 20.2% from HK$1,939 million in 2002 to HK$2,331 million (US$299 million) in 2003. This increase was mainly due to an increase in the number of postpaid subscribers from approximately 682,500 as of December 31, 2002 to approximately 906,100 as of December 31, 2003, resulting primarily from the continued subscriber growth and expanded operations in Rajasthan, Haryana and Uttar Pradesh (East) as a result of the acquisition by Hutch India of Aircel Digilink India Limited in August 2003. Revenues from postpaid roaming services increased by 77.4% from HK$212 million in 2002 to HK$376 million (US$48 million) in 2003, principally as a result of the expanded network coverage area. (1) Including our share of losses of Hutchison Global Communications and its subsidiaries and related data center companies, in the amount of HK$22 million, as jointly controlled entities before they became our consolidated subsidiaries in May 2002. (2) Including our share of losses of Vanda and its subsidiaries, in the amount of HK$4 million, as associated companies for part of 2003. Our operating profit increased in 2003 due primarily to continued strong subscriber growth from Hutch India and increased contributions from our Hong Kong fixed-line operations and from our associated company, Partner, the Israeli mobile telecommunications operator in which we have approximately a 43.1% ownership interest, as discussed below. The operating profit margin of our Hong Kong fixed-line operations increased from a negative margin of (31.0)% in 2002 to a positive margin of 14.2% in 2003. The operating profit margin of Hutch India increased from 2.3% in 2002 to Total 4,738 5,686 2,388 43 47 Operating profit (loss) (368 ) (420 ) (1,688 ) 306 925 119 495 1,693 217 Interest and other finance costs, including share of associated companies and jointly controlled entities 1,267 863 1,009 1,087 1,026 132 500 552 Operating profit (loss) (368 ) (420 ) (1,688 ) 306 925 119 495 1,693 217 Interest and other finance costs, including share of associated companies and jointly controlled entities 1,267 863 1,009 1,087 1,026 132 500 552 Table of Contents The increase in other operating expenses in 2003 resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 24.8% of our other operating expenses in 2003, compared to 37.2% in 2002. Other operating expenses from our Hong Kong mobile operations (including Macau) decreased by 17.5% from HK$1,785 million in 2002 to HK$1,472 million (US$189 million) in 2003. Network costs and other network operating costs, taken together, decreased by 18.4% from HK$1,407 million in 2002 to HK$1,148 million (US$147 million). This decrease was principally a result of the ongoing impact of a decrease in cell site and leased line rental fees following successful negotiations with our lessors in 2002. In addition, interconnection and international direct dialing charges decreased in 2003 as a result of reduced tariffs charged by telecommunications carriers, especially in China, which decrease was partially offset by an increase in outgoing call volume. Other operating expenses in 2003 included a credit for capitalized costs in the amount of HK$308 million (US$39 million), relating to 3G network costs incurred in connection with the installation of fixed assets prior to the commencement of 3G services in January 2004, compared to a credit for capitalized costs of HK$193 million in 2002. Hong Kong fixed-line operations. Our Hong Kong fixed-line operations accounted for 9.9% of our other operating expenses in 2003, compared to 13.1% in 2002. Other operating expenses from our Hong Kong fixed-line operations decreased by 6.8% from HK$632 million in 2002 to HK$589 million (US$76 million) in 2003. Other operating expenses in 2002 included a write-off of prepaid capacity and maintenance costs in the amount of HK$226 million due to the bankruptcy of the provider of such capacity in 2002. Excluding this write-off, network costs and other network operating costs, taken together, increased by 57.8% from HK$417 million in 2002 to HK$658 million (US$84 million) in 2003, primarily due to the inclusion in 2003 of the full year results of operations of Hutchison Global Communications and its subsidiaries and related data center companies, which became our consolidated subsidiaries in May 2002, as well as growth on a full-year comparable basis in such expenses resulting from the expansion in our service coverage area in 2003. Indian operations. Hutch India accounted for 46.2% of our other operating expenses in 2003, compared to 44.7% in 2002. Other operating expenses from Hutch India increased by 27.7% from HK$2,145 million in 2002 to HK$2,739 million (US$351 million) in 2003, due primarily to a significant increase in network costs and other network operating costs, which, taken together, increased by 50.6% from HK$1,361 million in 2002 to HK$2,050 million (US$263 million) in 2003. This increase was mainly attributable to the continued growth in the number of subscribers and in the scope of operations, including as a result of the acquisition by Hutch India of Aircel Digilink India Limited in August 2003 and the continued build-out of networks in Chennai, Karnataka and Andhra Pradesh, where Hutch India commenced commercial operations in 2002. The continued growth in our subscribers resulted in significant increases in interconnection, roaming and IDD charges, and the continued build-out of networks has resulted in increased rental fees for cell sites and leased lines. Selling and distribution expenses also increased by 59.9% from HK$354 million in 2002 to HK$566 million (US$73 million) in 2003 as a result of subscriber growth. The increase in other operating expenses was partially offset by a one-time refund of license fees of approximately HK$134 million (US$17 million) in 2003 due to a revision of the method of calculating license fees by the Department of Telecommunications of India, or DoT. Thai operations. The Thai operations accounted for 17.3% of our other operating expenses in 2003, compared to 3.5% in 2002. Other operating expenses from the Thai operations increased from HK$168 million in 2002 to HK$1,028 million (US$132 million) in 2003, primarily due to increases in network related costs of BFKT (Thailand) Limited, or BFKT, a telecommunications network company in which we hold a 49% economic interest, and Hutchison CAT s general and administrative expenses and selling and distribution expenses. Table of Contents These increases were attributable to the build-out and maintenance of the mobile telecommunications network by BFKT and the commencement of Hutchison CAT s marketing services in February 2003. Other operating expenses in 2003 also included a provision for bad debt expenses of HK$213 million (US$27 million), as well as a provision for capitalized subscriber acquisition costs of HK$234 million (US$30 million) relating to voluntarily and involuntarily churned subscribers. See Risk Factors Risks Relating to Our Business We may encounter operational and control difficulties when commencing businesses in new markets. Other operations. Our operations in Sri Lanka, Paraguay and Ghana together accounted for 1.8% of our other operating expenses in 2003, compared to 1.5% in 2002. Other operating expenses from these operations increased by 47.9% from HK$73 million to HK$108 million (US$14 million) in 2003, principally as a result of increases in network operating costs and selling and distribution expenses. These increases were primarily due to growth in the number of our subscribers and the continued build-out of our networks in these markets. Share of profits less losses of associated companies Our share of profits less losses of associated companies increased by 75.9% from HK$336 million in 2002 to HK$591 million (US$76 million) in 2003. This increase principally reflected an increase in the operating profit of Partner. Partner is listed on Nasdaq, the London Stock Exchange and the Tel Aviv Stock Exchange, and reports its financial results under US GAAP. Based on the information disclosed in Partner s annual report on Form 20-F filed for the year ended December 31, 2003, Partner s revenues increased by 10.2% from NIS4,055 million (equivalent to HK$6,676 million) in 2002 to NIS4,468 million (equivalent to HK$7,622 million) (US$977 million) in 2003. This increase was primarily due to subscriber growth of approximately 14%, which was partially offset by lower ARPU. Partner s cost of revenues increased marginally from NIS3,069 million (equivalent to HK$5,053 million) to NIS3,136 million (equivalent to HK$5,350 million) (US$686 million), as higher interconnection charges resulting from subscriber growth was partially offset by lower interconnection tariffs. Partner s selling and marketing expenses remained relatively stable at NIS314 million (equivalent to HK$536 million) (US$69 million) in 2003 compared to NIS308 million (equivalent to HK$507 million) in 2002, while its general and administrative expenses increased by 12.5% from NIS144 million (equivalent to HK$237 million) in 2002 to NIS162 million (equivalent to HK$276 million) (US$35 million) in 2003. As a result of the foregoing, Partner s operating profit increased by 60.4% from NIS533 million (equivalent to HK$878 million) in 2002 to NIS855 million (equivalent to HK$1,459 million) (US$187 million) in 2003. Hong Kong dollar equivalents for these purposes are calculated using an effective average exchange rate of HK$1.6464=NIS1.00 for 2002 and HK$1.706=NIS1.00 for 2003, respectively. Partner reports its ARPUs and MOUs on a blended basis for its prepaid and postpaid subscribers in its annual reports on Form 20-F. Based on information disclosed in Partner s annual report on Form 20-F filed for the year ended December 31, 2003, Partner s blended ARPU declined by 6.6% (in local currency terms) in 2003, mainly due to a 10% decrease in interconnection rates as mandated by the Israeli Ministry of Communications effective January 1, 2003, while its blended MOU remained stable in 2003. Share of profits less losses of jointly controlled entities We had no interest in any jointly controlled entities in 2003. We had a loss relating to jointly controlled entities of HK$22 million in 2002. The loss in 2002 principally reflected our share of the loss before interest and taxation of Hutchison Global Communications and its subsidiaries and related data center companies prior to their becoming our consolidated subsidiaries in May 2002. (HK$ in millions, except percentages) Hong Kong mobile (including Macau) 3,748 70.2 % 1,785 37.2 % Hong Kong fixed-line 632 13.1 India 1,421 26.6 2,145 44.7 Thailand 60 1.1 168 3.5 Others 110 2.1 Our turnover increased by 22.9% from HK$6,226 million in 2001 to HK$7,654 million in 2002. This increase mainly reflected an increase in turnover from Hutch India, as well as the consolidation of Table of Contents Hutchison Global Communications and its subsidiaries and related data center companies beginning in May 2002, when they became our consolidated subsidiaries. More specifically, the increase resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 48.7% of our turnover in 2002, compared to 63.8% in 2001. Turnover from our Hong Kong mobile operations (including Macau) decreased by 6.0% from HK$3,970 million in 2001 to HK$3,730 million in 2002, primarily due to a decrease in turnover from postpaid subscribers. Turnover from our Hong Kong postpaid subscribers decreased by 7.4% from HK$3,304 million in 2001 to HK$3,059 million in 2002. This decrease was principally the result of a reduction in tariffs due to discounts offered by our competitors starting in the second half of 2002. A decrease in the number of our Hong Kong postpaid subscribers from approximately 1.13 million as of December 31, 2001 to 1.04 million as of December 31, 2002 also contributed to the decrease in turnover from postpaid subscribers in 2002. Turnover from our Hong Kong prepaid subscribers increased by 59.6% from HK$136 million in 2001 to HK$217 million in 2002. This increase was primarily due to an increase in the number of our Hong Kong prepaid subscribers from approximately 0.53 million as of December 31, 2001 to approximately 0.73 million as of December 31, 2002. Hardware revenues decreased by 17.0% from HK$442 million in 2001 to HK$367 million in 2002, principally as a result of the decrease in the number of postpaid subscribers, who typically purchase handsets and related accessories. Despite the tariff reductions resulting from increased price competition, ARPU for postpaid subscribers from our Hong Kong mobile operations increased by 9.8% in 2002, principally as a result of an increase in MOU per postpaid subscriber of 17.7%. Hong Kong fixed-line operations. Turnover from our Hong Kong fixed-line operations in 2002, after Hutchison Global Communications and its subsidiaries and related data center companies became our consolidated subsidiaries in May 2002, was HK$860 million and accounted for 11.2% of our turnover in 2002. Indian operations. Hutch India accounted for 38.9% of our turnover in 2002, compared to 34.8% in 2001. Turnover from Hutch India increased by 37.4% from HK$2,165 million in 2001 to HK$2,974 million in 2002, primarily due to an increase in the total number of subscribers. Turnover from prepaid subscribers increased by 62.0% from HK$497 million in 2001 to HK$805 million in 2002. This increase was principally the result of a substantial growth in the number of prepaid subscribers from approximately 564,600 as of December 31, 2001 to approximately 1.33 million as of December 31, 2002, as Hutch India expanded its presence in Chennai, Andhra Pradesh and Karnataka and commenced mobile telecommunications services in these areas in mid-2002. Reduced tariffs due to increased competition also contributed to the increase in the number of prepaid subscribers. Turnover from postpaid subscribers increased by 28.1% from HK$1,514 million in 2001 to HK$1,939 million in 2002. This increase was mainly due to an increase in the number of postpaid subscribers from approximately 567,000 as of December 31, 2001 to approximately 682,500 as of December 31, 2002 as a result of Hutch India s expanded operations. Postpaid roaming revenues declined by 5.8% from HK$225 million in 2001 to HK$212 million in 2002, principally as a result of reduced tariffs due to price competition. ARPU for postpaid subscribers of Hutch India increased by 14.7% (in local currency terms) in 2002, as MOU per postpaid subscriber increased by 31.0% in 2002, reflecting the favorable results of tariff reductions due to increased competition. ARPU for prepaid subscribers decreased by 23.8% (in local currency terms), reflecting these tariff reductions, while MOU per prepaid subscriber increased by 7.4%. The decrease in other operating expenses in 2002 resulted from the following factors: Hong Kong mobile operations (including Macau). Our Hong Kong mobile operations (including Macau) accounted for 37.2% of our other operating expenses in 2002, compared to 70.2% in 2001. Other operating expenses from our Hong Kong mobile operations (including Macau) decreased by 52.4% from HK$3,748 million in 2001 to HK$1,785 million in 2002. Network costs and other network operating costs, taken together, decreased from HK$1,617 million in 2001 to HK$1,407 million in 2002, mainly due to the reduction of interconnection and IDD charges as a result of reduced tariffs charged by telecommunications providers. Other operating expenses in 2001 included a one-time provision for impaired network equipment in the amount of HK$1,535 million. Other operating expenses in 2002 also included a credit for capitalized costs of HK$193 million, relating to 3G network costs incurred in connection with the installation of fixed assets prior to commencement of 3G services in January 2004, compared to a credit of HK$113 million in 2001. Hong Kong fixed-line operations. Other operating expenses from our Hong Kong fixed-line operations in 2002, after Hutchison Global Communications and its subsidiaries and related data center companies became our consolidated subsidiaries in May 2002, amounted to HK$632 million and accounted for 13.1% of our other operating expenses in 2002. Other operating expenses in 2002 included a write-off of prepaid capacity and maintenance costs in the amount of HK$226 million due to the bankruptcy of the provider of such capacity in 2002. Indian operations. Hutch India accounted for 44.7% of our other operating expenses in 2002, compared to 26.6% in 2001. Other operating expenses from Hutch India increased by 50.9% from HK$1,421 million in 2001 to HK$2,145 million in 2002, primarily due to the growth Table of Contents in network costs and other network operating costs, which, taken together, increased by 35.8% from HK$1,002 million in 2001 to HK$1,361 million in 2002. This increase was mainly attributable to growth in the number of subscribers and in the scope of operations, and the continued network build-out in Chennai, Andhra Pradesh and Karnataka by Hutch India beginning in August 2001. This subscriber growth resulted in increases in interconnection, roaming and IDD charges, and the continued build-out of networks resulted in increased rental fees for cell sites and leased lines. This growth also resulted in an increase in selling and distribution expenses from HK$150 million in 2001 to HK$354 million in 2002, as well as an increase in general and administrative expenses. Thai operations. The Thai operations accounted for 3.5% of our other operating expenses in 2002, compared to 1.1% in 2001. Other operating expenses from the Thai operations increased from HK$60 million in 2001 to HK$168 million in 2002, primarily due to an increase in BFKT s network operating costs due to network build-out and in Hutchison CAT s general and administrative expenses attributable to preparation for commencement of marketing services. Others. Our operations in Sri Lanka, Paraguay and Ghana together accounted for 1.5% of our other operating expenses in 2002, compared to 2.1% in 2001. Other operating expenses from these operations decreased by 33.6% from HK$110 million in 2001 to HK$73 million in 2002, primarily as a result of decreases in general and administrative and selling and distribution expenses, reflecting better cost controls in these operations. Share of profits less losses of associated companies We recorded a share of profits of associated companies of HK$48 million in 2001, compared to a share of profits of HK$336 million in 2002. This principally reflected an increase in Partner s operating profit. Based on information disclosed in Partner s annual report on Form 20-F filed for the year ended December 31, 2003, on a US GAAP basis, Partner s revenues increased by 24.8% from NIS3,249 million (equivalent to HK$5,739 million) in 2001 to NIS4,055 million (equivalent to HK$6,676 million) in 2002. This increase was primarily due to subscriber growth. Partner s cost of revenues increased by 12.9% from NIS2,719 million (equivalent to HK$4,803 million) in 2001 to NIS3,069 million (equivalent to HK$5,053 million) in 2002, primarily as a result of higher interconnection charges resulting from subscriber growth and increased subscriber usage, which was partially offset by a decrease in its license amortization expenses as a result of the extension of its license until 2022. Partner s selling and marketing expenses increased by 5.1% from NIS293 million (equivalent to HK$518 million) in 2001 to NIS308 million (equivalent to HK$507 million) in 2002, primarily due to increased marketing efforts in response to increased competition. Partner s general and administrative expenses increased by 7.5% from NIS134 million (equivalent to HK$237 million) in 2001 to NIS144 million (equivalent to HK$237 million) in 2002, principally as a result of increased insurance costs and also reflecting a refund in 2001 from a fixed-line telecommunications operator following the Israeli Ministry of Communications interim settlement regarding a dispute on bad debt collection. As a result of the foregoing, Partner s operating profit increased from NIS103 million (equivalent to HK$182 million) in 2001 to NIS533 million (equivalent to HK$878 million) in 2002. Hong Kong dollar equivalents for these purposes are calculated using an effective average exchange rate of HK$1.7664=NIS1.00 for 2001 and HK$1.6464=NIS1.00 for 2002, respectively. Based on information disclosed in Partner s annual report on Form 20-F filed for the year ended December 31, 2003, Partner s blended ARPU declined by 14.5% (in local currency terms) in 2002, mainly reflecting the increased proportion of prepaid subscribers in 2002, who have historically generated lower ARPU. Partner s blended MOU declined by 11.9% in 2002, mainly reflecting the increased proportion of prepaid subscribers with lower MOU per subscriber. Table of Contents Share of profits less losses of jointly controlled entities We had a loss relating to our jointly controlled entities of HK$102 million in 2001, compared to a loss of HK$22 million in 2002. The decrease in such loss from 2001 to 2002 was mainly attributable to the consolidation of Hutchison Global Communications and its subsidiaries and related data center companies commencing in May 2002. On a full-year comparable basis, the turnover of these entities increased by 14.9% from HK$1,090 million in 2001 to HK$1,252 million in 2002 as a result of growth in turnover from data services, residential broadband services, the leasing of international bandwidth and local voice services, which was partially offset by a decrease in turnover from IDD services. This increase was more than offset by a 14.3% increase in total other operating expenses of these entities from HK$797 million in 2001 to HK$911 million in 2002, mainly as a result of a write-off of prepaid capacity and maintenance costs in the amount of HK$226 million due to the bankruptcy of the provider of such capacity in 2002, together with increases in depreciation and in selling, general and administrative expenses. As a result, the operating loss of Hutchison Global Communications and its subsidiaries and related data center companies on a full-year comparable basis increased from HK$230 million in 2001 to HK$350 million in 2002. Interest and other finance costs, including share of associated companies and jointly controlled entities Interest and other finance costs, including our share of such costs of associated companies and jointly controlled entities, increased by 7.7% from HK$1,009 million in 2001 to HK$1,087 million in 2002. This increase was principally a result of an increase in interest and other finance costs of Hutch India and our Hong Kong fixed-line operations due to additional borrowings to fund network expansion, and from the Thai operations due to an increase in loan drawdowns to fund network build-out. These increases were partially offset by lower interest and other finance costs from our Hong Kong mobile operations (including Macau), primarily as a result of lower market interest rates. Loss before taxation As a result of the foregoing, we recorded a loss before taxation of HK$781 million in 2002, compared to a loss before taxation of HK$2,697 million in 2001. Deferred taxation charge (credit) We recorded a net deferred taxation charge of HK$156 million in 2002, compared to a net deferred taxation credit of HK$406 million in 2001. The net deferred taxation charge in 2002 mainly related to taxation charges on profits attributable to Hutch India and our Hong Kong mobile operations (including Macau). The net deferred taxation credit in 2001 resulted mainly from deferred tax credits relating to the expected future tax benefits from Hutch India. Net Loss attributable to shareholders As a result of the foregoing, we recorded a loss after taxation of HK$943 million in 2002, compared to a loss after taxation of HK$2,291 million in 2001, and we recorded a loss attributable to shareholders of HK$986 million in 2002, compared to a loss attributable to shareholders taxation of HK$1,889 million in 2001. Liquidity and Capital Resources Capital Requirements Our liquidity and capital requirements relate principally to the following: capital expenditures for the continuing build-out and expansion of our networks in the markets where we operate, including purchases of fixed assets and licenses and acquisitions of At 1 January 2004 20 6,172 2,209 8,401 Exchange translation differences 3 (12 ) (2 ) (11 ) Charge for the period 6 702 354 1,062 Disposals (91 ) (75 ) (166 ) Transfer between categories We anticipate that our capital expenditures in 2004 will be approximately 35% to 40% higher than the 2003 level due to build-out and expansion of our networks, and will decrease to approximately the same level in 2005 and 2006 as in 2003, depending upon subscriber growth and network expansion activities. We expect that our principal capital expenditure requirements for these years will include the following: continued build-out of the 2G mobile telecommunications network in India, accounting for approximately 41% of our estimated capital expenditures in 2004; continued build-out of the CDMA2000 1X mobile telecommunications network in Thailand, accounting for approximately 29% of our estimated capital expenditures in 2004; and continued build-out of the 3G mobile telecommunications network in Hong Kong, accounting for approximately 14% of our estimated capital expenditures in 2004. At 1 January 2004 (6,141 ) (234 ) (6,375 ) Company and subsidiary companies profit for the period 617 617 Share of results of associated companies 156 156 Waiver of loan from an intermediate holding company 146 146 Exchange translation differences 80 (HK$ in millions, except percentages) Hong Kong mobile (including Macau) 753 30.2 % 916 23.9 % Hong Kong fixed-line 306 12.3 423 11.1 India 1,283 51.4 2,114 55.1 Thailand 113 4.5 300 7.8 Others 41 1.6 The increase in borrowings of our Hong Kong mobile (including Macau) operations in 2002 was due to the drawdown under bridge loan facilities to finance the rollout of our 3G network in Hong Kong. The decrease in 2003 was due to the repayment of HK$1,900 million of a 2G syndicated bank loan, partially offset by a further drawdown under the 3G bridge loan facilities. The decrease in borrowings of our Hong Kong fixed-line operations in 2003 was due to refinancing through loans from the Hutchison Whampoa group. As of June 30, 2004, bank loans and other interest-bearing third-party borrowings by our subsidiaries amounted to HK$14,820 million (US$1,900 million). As of June 30, 2004, 28.4% of these borrowings were denominated in Hong Kong dollars, 26.7% in Indian Rupee, 16.1% in Thai Baht, 22.5% in Japanese Yen, 5.8% in U.S. dollars and 0.5% in other currencies comprising Singapore dollars, Malaysian Ringgit and Renminbi. Of the total borrowings as of such date, 36.6% was repayable within one year, 62.4% was repayable between one to three years, 0.7% was repayable between three to five years and 0.3% was repayable after five years. In 2003, the weighted average interest rate of our borrowings was 2.3% for our Hong Kong mobile operations (including Macau), 3.2% for our Hong Kong fixed-line operations, 8.6% for Hutch India and 3.3% for the Thai operations. The overall weighted average interest rate was 4.8%. As of June 30, 2004, HK$10,516 million (US$1,348 million) of the borrowings were guaranteed by Hutchison Whampoa and its affiliates, and HK$1,842 million (US$236 million) was secured by the pledge of our assets. In addition, HK$4,110 million of the borrowings was covered by letters of comfort from Hutchison International Limited, or Hutchison International, a subsidiary of Hutchison Whampoa. Following the restructuring, we will pay, or will procure that the relevant members of our group whose borrowings are supported will pay, fees in respect of the issuance of guarantees and the provision of indemnities and security by Hutchison Whampoa or Hutchison International. We will also counter-indemnify Hutchison Whampoa or the relevant member of the Hutchison Whampoa group in respect of the guarantees, indemnities and security provided by Hutchison Whampoa or any such member of the Hutchison Whampoa group in respect of third-party borrowings of our group. See Liquidity and Capital Resources Capital Resources and Certain Relationships and Related Party Transactions Financial assistance to our company by connected persons Financial assistance by the Hutchison Whampoa group to our group for a more detailed description of these guarantees, indemnities and security and the related counter-indemnity arrangement. US GAAP(2) Net profit (loss) attributable to shareholders (844 ) (358 ) (46 ) (135 ) 647 US GAAP(2) Net profit (loss) attributable to shareholders (844 ) (358 ) (46 ) (135 ) 647 (1) Including bank loans and other interest-bearing third-party borrowings. Excluding HK$22,360 million (US$2,867 million) of net loans as of December 31, 2003 from Hutchison Whampoa and its affiliates, which were included in the shareholder loans capitalized in connection with the restructuring. Also excluding HK$162 million (US$21 million) of interest-free loans as of December 31, 2003 from minority shareholders of certain operating companies, which do not have fixed repayment terms. (2) Comprises non-convertible and unsecured debentures issued by Hutch India between 1999 and 2002. (1) Does not include preference shares in the amount of INR11,715 million (HK$1,987 million) issued to us by one of the Indian entities through which we hold all or a portion of our indirect equity interest in each of the operators. See Business India Ownership. (2) Does not include convertible notes in the aggregate amount of HK$3,200 million issued by Vanda in connection with its acquisition of the fixed-line telecommunications business of a wholly-owned subsidiary of Hutchison Whampoa. See Overview Factors Affecting Our Results of Operations New Licenses and Acquisitions. Capital Resources We have traditionally met our working capital and other capital requirements principally from cash flow from our operating activities, borrowings by our subsidiaries from banks based on guarantees and/ or pledges provided by Hutchison Whampoa and its affiliates, and loans from Hutchison Whampoa and its affiliates. As of June 30, 2004, we had net current liabilities of HK$5,484 million (US$703 million), comprising a current portion of bank loans and other loans equal to HK$5,421 million (US$695 million) and other net current liabilities of HK$63 million (US$8 million). As of December 31, 2003, we had net current liabilities of HK$6,250 million (US$801 million), comprising a current portion of bank loans and other loans equal to HK$5,483 million (US$703 million) and other net current liabilities of HK$767 Table of Contents million (US$98 million), compared to net current liabilities of HK$6,017 million as of December 31, 2002 and HK$2,508 million as of December 31, 2001. The decrease in net current liabilities in the first half of 2004 compared to 2003 was attributable to an increase in current assets partially offset by an increase in short-term borrowings related to the Vanda transaction. The decrease in non-current liabilities in 2003 compared to 2002 was mainly attributable to the decrease in short-term borrowings from HK$6,354 million in 2002 to HK$5,483 million in 2003, mainly due to the extension of repayment terms of various short-term borrowings, which resulted in these borrowings being reclassified as long-term liabilities. The significant increase in net current liabilities in 2002 compared to 2001 was primarily a result of a significant increase in short-term borrowings. The increase in short-term borrowings from HK$2,306 million in 2001 to HK$6,354 million in 2002 was mainly attributed to the Hong Kong mobile, Indian and Thai operations. In particular, HK$1,900 million was reclassified from long-term debt to short-term debt in 2002 in respect of a long-term syndicated loan to the Hong Kong mobile operation maturing in 2003. The increase in short-term borrowings of HK$1,699 million in India and HK$1,003 million in Thailand was due to drawdowns under bank facilities maturing in 2003 to finance the network rollout. See note 20 to our combined financial statements. Our net cash inflows from operating activities in the six months ended June 30, 2004 amounted to HK$1,100 million (US$141 million), compared to HK$342 million of cash inflows in the same period in 2003. The increase in net cash inflows from operating activities was mainly due to a working capital outflow of HK$553 million in the six months ended June 30, 2003, compared to a working capital inflow of HK$1 million (US$0.13 million) in the same period in 2004. Funds from operations also increased to HK$1,099 million (US$141 million) in the six months ended June 30, 2004, compared to HK$895 million in the same period in 2003. Our net cash inflows from operating activities amounted to HK$1,004 million (US$129 million) in 2003, compared to HK$1,821 million in 2002. We had net cash outflow from operating activities of HK$133 million in 2001. The increase in net cash inflows from operating activities in 2003 was mainly due to higher funds from operations of HK$2,059 million (US$264 million) in 2003, compared to HK$848 million in 2002, which was partially offset by a working capital outflow of HK$1,055 million (US$135 million) in 2003, compared to a working capital inflow of HK$973 million in 2002. The working capital outflow in 2003 consisted primarily of an increase in amounts due from debtors and prepayments of HK$755 million (US$97 million), mainly reflecting the increase in receivables from our increased subscriber base, and an increase in inventory, consisting mainly of handsets, of HK$570 million (US$73 million). The increase in funds from operations reflected reduced losses in 2003. The increase in net cash inflows from operating activities in 2002 was principally the result of a HK$973 million working capital inflow, compared to working capital outflow of HK$587 million in 2001, as well as an increase in funds from operations to HK$848 million in 2002 from HK$454 million in 2001. The working capital inflow in 2002 consisted primarily of an increase in amounts due to related companies in the amount of HK$844 million. The increase in funds from operations was due to reduced losses in 2002. Our trade receivables increased from HK$333 million in 2001 to HK$586 million as of December 31, 2002, to HK$895 million (US$115 million) as of December 31, 2003 and to HK$1,395 million (US$179 million) as of June 30, 2004. These increases were primarily due to increases in turnover resulting from growth in our subscriber base. The average collection time for our trade receivables was 20 days in 2001, 28 days in 2002, 32 days in 2003 and 37 days in the first half of 2004. The increase in the average collection time in 2002 was mainly due to the consolidation of the Hong Kong fixed-line operations during the year, which typically has a longer collection period than our mobile operations. The increase in the average collection time in 2003 and the first half of 2004 was mainly due to the Thai operations, which experienced collection difficulties resulting in bad debt provisions. See Business Thailand Overview. Table of Contents Our inventory, consisting mainly of handsets, decreased from HK$79 million in 2001 to HK$58 million as of December 31, 2002, increased to HK$628 million (US$81 million) as of December 31, 2003 and increased to HK$724 million (US$93 million) as of June 30, 2004. The decrease in 2002 was mainly due to a handset inventory provision by the Hong Kong mobile operations of HK$38 million, and the increase in inventory level in 2003 and the first half of 2004 mainly reflected the commencement of CDMA2000 1X operations in Thailand. Average inventory turnover, excluding the Thai operations, decreased from 65 days in 2001 to 57 days in 2002 and increased to 78 days in 2003 and to 117 days in the first half of 2004, mainly due to increased inventories in the Hong Kong mobile operations and other mobile operations. Sales of handsets are not included in the turnover of the Thai operations. Our trade payables increased from HK$679 million as of December 31, 2001 to HK$709 million as of December 31, 2002, to HK$941 million (US$121 million) in 2003 and to HK$1,264 million (US$162 million) as of June 30, 2004. These increases were mainly due to increased operations in most of our service areas, which were partially offset by shorter payment terms. The average payment time for our trade payables decreased from 40 days in 2001 to 34 days in both 2002 and 2003 and to 33 days in the first half of 2004. The decrease of payment time in 2002 was mainly due to a reduction in the payment time of the Indian operations. Our net cash outflows from investing activities amounted to HK$1,477 million (US$189 million) in the six months ended June 30, 2004, compared to HK$2,511 million in the same period in 2003. In the first six months of 2004, we had a profit on disposal of partial interest related to the Vanda transaction which accounted for HK$1,578 million (US$202 million) of our net cash outflows. Our net cash outflows from investing activities activities amounted to HK$6,482 million (US$831 million) in 2003, compared to HK$5,507 million in 2002 and HK$3,487 million in 2001. Net cash outflows from investing activities consist mainly of capital expenditures on 2G, 3G and fixed-line network build-out. The increase in net cash outflows from investing activities in 2003 was partially due to an increase in purchase of fixed assets from HK$4,240 million in 2002 to HK$5,573 million (US$714 million) in 2003, an increase in subscriber acquisition costs of HK$490 million (US$63 million) as a result of the start-up of CDMA2000 1X operations in Thailand, and an increase in purchase of telecommunications licenses from HK$52 million in 2002 to HK$343 million (US$44 million) in 2003, which were partially offset by a decrease in the purchase of subsidiary and associated companies from HK$1,248 million in 2002 to HK$152 million (US$19 million) in 2003. The increase in net cash outflows from investing activities in 2002 was primarily the result of an increase in purchase of fixed assets from HK$2,248 million in 2001 to HK$4,240 million in 2002, a decrease in repayments from jointly controlled entities from HK$561 million in 2001 to none in 2002 and an increase in the purchase of associated companies from HK$1 million in 2001 to HK$522 million in 2002, reflecting Hutchison Whampoa s acquisition of the remaining 50% interest in Hutchison Global Communications and its subsidiaries and related data center companies it did not own at the time, which were partially offset by a decrease in purchase of telecommunications licenses from HK$767 million in 2001 to HK$52 million in 2002 and a decrease in purchase of subsidiary companies from HK$909 million in 2001 to HK$726 million in 2002. Our net cash inflows from financing activities, including loans from Hutchison Whampoa and its affiliates, amounted to HK$720 million (US$92 million) and HK$1,240 million (US$159 million) in the six months ended June 30, 2004 and 2003, respectively, and HK$4,612 million (US$591 million) in 2003, compared to HK$6,035 million in 2002 and HK$3,564 million in 2001. These amounts mainly reflected a net increase in loans in the amount of HK$2,243 million (US$288 million) and HK$678 million (US$87 million) in the
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+PROSPECTUS SUMMARY This summary provides an overview of selected information contained elsewhere in this prospectus. Because this is a summary, it does not contain all of the information that you should consider before investing in our common stock. Therefore, you should read the following summary together with the more detailed information set forth in this prospectus, including the risks of purchasing our common stock discussed under the Risk Factors section and our consolidated financial statements and the notes to these financial statements appearing elsewhere in this prospectus. Unless we indicate otherwise, the information in this prospectus assumes that the underwriters will not exercise their option to purchase additional shares to cover over-allotments. General We are a bank holding company headquartered approximately 15 miles southwest of downtown Houston in Sugar Land, Texas, the largest city in fast growing Fort Bend County. As of June 30, 2004, we had total assets of $1.1 billion, total loans of $512.4 million, total deposits of $856.3 million and total shareholders equity of $25.8 million. We derive substantially all of our income from the operation of our wholly-owned bank subsidiary, Southern National Bank of Texas. As of June 30, 2003, the most recent date for which this information is available, we were the largest independent banking organization headquartered in Fort Bend County in terms of deposits, where we ranked second in total deposits with a 12.7% market share. We were also the fifth largest independent commercial banking organization headquartered in the greater Houston area as measured by total assets as of June 30, 2004. Since our targeted customer is the middle market business and real estate borrower, 73.4% of our loan portfolio as of June 30, 2004 was comprised of business and industrial, construction and land development and commercial mortgage loans. Southern National Bank was chartered in 1985 in southwest Houston. In 1995, we relocated our main banking facility to its current location in Sugar Land, where we serve our primary market of Fort Bend County. We opened our other two branches in what we believe are two of Houston s most attractive market areas. In 1990, we opened a branch in Memorial Hermann Southwest Hospital, the largest not-for-profit multi-hospital system in Houston. The hospital attracts a large number of physicians and other medical professionals. We have developed an expertise in serving the personal and business needs of this high net worth group and seek to attract their personal and professional business. In 2000, we established our Uptown-Post Oak location in Houston s upscale Galleria commercial area, which also serves the affluent Tanglewood, Memorial and River Oaks residential communities. Our Community Banking Strategy In order to attract customers, we utilize a two-pronged strategy: (1) provide a level of customer service that other banks are unable or unwilling to provide and (2) support community and charitable organizations by encouraging our employees to volunteer their time and allowing the organizations to use our facilities for their meetings and events. We support over 200 charitable organizations, many of which regularly use our facilities, providing our officers an opportunity to solicit business from leaders in the community as well as the organizations themselves. This strategy, coupled with our ongoing business development efforts, has been successful, as we have grown loans at a five-year average annual compounded growth rate of 23.1%. In addition, we have grown income 52.3% from June 30, 2003 to June 30, 2004, which resulted in a return on equity of 17.30% for the six months ended June 30, 2004. All of this growth was achieved without any acquisitions and with a limited amount of advertising. The cornerstone of our community banking strategy is to provide what we believe to be an unparalleled level of personal service. We differentiate ourselves among the many financial institutions in our markets by forging relationships based on old-fashioned, person-to-person customer service. We believe that a community-oriented culture is most effective where our customers and our employees establish long-term, mutually beneficial, relationships. Our community banking approach focuses on readily accessible, centralized management and streamlined decision making procedures that allow us to respond quickly to Deferred tax assets: Tax loss carryforwards $ $ 16 Allowance for loan losses 1,858 1,282 Depreciable assets 34 Deferral of loan origination income 318 238 Unrealized loss on available for sale securities 901 Accrued bonus 69 62 Other Table of Contents the needs of our customers. In fact, we designed our branches to allow our customers access to our executives and employees through our open lobby layout. We believe that our personal service emphasis puts us at a competitive advantage relative to the other banks in our market and has been an instrumental contributing factor to the growth that we have experienced. The second part of our community banking strategy centers on making our organization and our officers and employees visible participants in, and supporters of, philanthropic activities and events. Our attractive, spacious facilities, which are replicas of buildings designed by Thomas Jefferson, provide a hospitable meeting venue for charitable organizations as well as our customers. Making our facilities available to the community and participating heavily in community activities enables us to meet and attract the type of customers we seek. We believe that the residents of our community have reciprocated our commitment to the community by giving us their business. Market Our primary market, Fort Bend County, is one of the fastest growing counties by population in the United States. From 2000 to 2003, Fort Bend County s population increased 18.4% and it was the second fastest growing county in the United States among counties with over 250,000 people. Fort Bend County is projected to grow 18.1% in the next five years versus a 5.3% growth rate projected for the U.S. as a whole. Job growth in Fort Bend County also continues to be robust, with the number of jobs having increased 64.6% from 1990 to 2003, compared with 19.2% for the U.S. Fort Bend County possesses strong wealth demographics in that 32.2% of the households in the county earn in excess of $100,000, compared with only 16.2% of households in the U.S. having attained that level. Similarly, the greater Houston economy appears strong, having diversified from an earlier dependence on the energy industry. Management Our business strategy relies heavily on the guidance of our senior management team. Our five executive officers have an aggregate of 117 years of banking experience, with 63 of those years having been spent with us. We believe that our low employee turnover rate provides customers with a beneficial continuity of the service that is rare in the banking industry. Business Strategies Combining a hospitable banking environment, community involvement and employees dedicated to customer service, our objective is to be the premier independent community-oriented financial institution in Fort Bend County while maintaining a competitive presence in our other markets. In order to achieve that objective, we plan to focus on the following key strategies: Continue our expansion and increase our market share via de novo branching opportunities in Fort Bend County and other high growth markets. We believe that the Fort Bend County communities of Katy, Richmond/Rosenberg and other parts of Sugar Land provide excellent branching opportunities. Other areas for consideration and evaluation, based on growth and demographics, are also in the greater Houston metropolitan area, such as Lake Jackson/ Angleton and Pearland. During 2002 and 2003, we bolstered our infrastructure to support future growth by adding significant staffing in the areas of lending, loan operations, loan collections, deposit operations, audit, compliance, investments, accounting and information systems. Historically, we have operated a limited number of branch offices with a high deposit base per office, and it is our plan to establish branches only in locations where we believe that we can readily grow the branch to at least $50 million in deposits. Increase our loan to deposit ratio. We will continue to grow our loan portfolio by expanding our commercial lending and hiring new loan officers. Our goal is to increase our loan to deposit ratio, over time, to the 70% to 80% range from 60% as of June 30, 2004. We will continue to offer new loan products, provided that we can offer them competitively. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Increase core deposits. Expansion of our core deposit base will provide us with a stable and low cost source of funding to continue to grow our loan portfolio. We have begun to diligently focus on attracting lower cost deposits from retail and middle market business customers. In addition, we intend to compete for select public funds, to the extent that they are from our immediate market area. Because real estate lending relationships do not often involve a high level of deposits, we plan to concentrate on business customers in an attempt to capture both their loan business and deposits. Making core deposits our major source of funding should improve our margin and overall profitability. Diversify revenue stream by increasing fee income. We plan to increase our fee income by offering new products, such as cash management services, to our existing customer base. In addition, we expect to market existing fee generating products like our lockbox product to attract new customers, such as municipalities. Pursue acquisition opportunities. While our expansion to date has resulted solely from internal growth, we now plan to consider making commercial bank acquisitions. In considering acquisition opportunities, we will look for select banking organizations in high growth markets that have a similar culture, sound asset quality and compatible management in order to develop our customer base. Our goal is to have any acquisition accretive to earnings per share within the first year of closing the transaction. Our principal executive office is located at 14060 Southwest Freeway, Sugar Land, Texas 77478, and our telephone number is (281) 269-7200. Our website address is www.snbtx.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information contained on our website as part of this prospectus. Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Recoveries: Business and industrial 185 41 37 11 58 Real estate 51 1 21 17 Consumer 113 11 23 26 SNB Bancshares, Inc. (Exact name of registrant as specified in its charter) Texas 6021 76-0472829 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 14060 Southwest Freeway Sugar Land, Texas 77478 (281) 269-7200 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Harvey E. Zinn President and Chief Executive Officer SNB Bancshares, Inc. 14060 Southwest Freeway Sugar Land, Texas 77478 (281) 269-7200 (Name, address, including zip code, and telephone number, including area code, of agent for service) Period-End Balance Sheet Data: Total assets $ 1,091,896 $ 747,436 $ 883,841 $ 574,594 $ 461,229 $ 366,539 $ 307,491 Total securities 533,477 308,027 412,620 177,200 128,865 77,689 80,627 Total loans 512,416 387,515 424,479 342,085 280,921 250,195 200,985 Allowance for loan losses 6,929 4,650 5,650 4,006 3,371 2,501 1,899 Total deposits 856,256 601,186 733,971 526,171 420,765 341,705 276,470 Shareholders equity 25,789 31,588 30,767 30,429 11,534 8,962 10,058 (Unaudited) Net income-as reported $ 2,676 $ 1,757 $ 3,417 $ 3,162 $ 2,457 Less total stock-based employee compensation expense determined under fair value based method net of related tax 30 30 60 Copies to: William T. Luedke IV Charlotte M. Rasche Bracewell Patterson, L.L.P. 711 Louisiana Street, Suite 2900 Houston, TX 77002-2781 (713) 223-2900 Frank Ed Bayouth II, Esq. Skadden, Arps, Slate, Meagher Flom LLP 1600 Smith Street, Suite 4400 Houston, TX 77002-7348 (713) 655-5100 (1) Interim period performance ratios are annualized. (2) The efficiency ratio is computed by dividing noninterest expense by net interest income plus noninterest income, excluding securities gains and losses. (3) At period end, except net charge-offs to average loans. (4) Computed by dividing period-end equity by fourth quarter average assets for annual periods and by second quarter average assets for interim periods. Conversion of 576,680 shares of Class B stock into 576,680 shares of common stock Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. Table of Contents
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+prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus carefully before making an investment decision, including the Risk Factors section and the consolidated financial statements and the notes to those statements. Us, we and Splinex refer to Splinex Technology Inc. and its predecessor, Splinex, LLC. Unless the context otherwise requires, all references to our common stock, $0.001 par value per share, reflect a 95,000 for 1 stock split that we will effect prior to, or at the same time as, the completion of the Merger, which we refer to as the Stock Split. Unless indicated otherwise, the information included in this prospectus assumes that no holders of securities convertible into Ener1, Inc. common stock elect to receive upon conversion of such securities the number of shares of our common stock that they would have received in the Distribution if the conversion of such securities had been effective prior to the record date for the Distribution. The companies Splinex Technology Inc. Splinex develops, licenses and services software that enables the generation, manipulation, viewing and image-based searching of complex, multi-dimensional mathematical objects and information. We believe end-users of our software products, such as mathematicians, scientists, graphic designers or digital artists working on complex graphical three dimensional (3D) problems will experience greater productivity through improved interaction with, enhanced visual representation and faster manipulation of, and greater technical and artistic precision in representing, multi-dimensional mathematical objects and information. Splinex was organized under the laws of the State of Delaware to conduct the business and operations of Splinex, LLC, a Florida limited liability company. Effective April 1, 2004, Splinex, LLC reorganized as a corporation and, as a result, contributed all of its assets, liabilities and operations to us. We began activity October 28, 2003. Until the Merger is completed, we will be a private company and all of our outstanding common stock will be held by Splinex, LLC. Once the registration statement of which this prospectus is a part is declared effective by the Securities and Exchange Commission (which we refer to as the SEC or the Commission ), we will be subject to the information and reporting requirements of the Securities Exchange Act of 1934. We will seek to have market-makers sponsor our common stock for quotation on the Over-the-Counter Bulletin Board, but we cannot assure you that our common stock will be quoted on this, or any other, market. This prospectus is part of a registration statement that we have filed with the Commission in order to register the Distribution and to register the resale of shares of our common stock held by the selling stockholders identified in this prospectus. Our executive offices are located at 550 West Cypress Creek Road, Suite 410, Fort Lauderdale, Florida, 33309 and our phone number is (954) 660-6565. Our website address is www.splinex.com. Our website and the information contained in or connected to it shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. Ener1, Inc. Ener1, Inc. ( Ener1 ) a Florida corporation, develops and markets its patented and patent-pending technologies related to lithium batteries, fuel cells and solar cells. Ener1 s goal is to be the technology leader in both lithium batteries and fuel cells. Ener1 is developing samples of products and components of lithium batteries based on its proprietary technologies, as well as additional technologies, materials and prototypes for new types of fuel cells and solar cells. Ener1 s common stock is registered under the Securities Act and is quoted on the Over-the-Counter Bulletin Board under the symbol ENEI.OB. Ener1 s website address is www.ener1.com. Ener1 s website Delaware 7372 20-0715816 (State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification Number) 550 West Cypress Creek Road Suite 410 Fort Lauderdale, Florida 33309 U.S.A. 954-660-6565 (Address and telephone number of Registrant s principal executive offices) Michael Stojda President and Chief Executive Officer 550 West Cypress Creek Road Suite 410 Fort Lauderdale, Florida 33309 U.S.A. 954-660-6565 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: Stephen I. Glover Gibson, Dunn Crutcher LLP 1050 Connecticut Ave., N.W. Washington, D.C. 20036-5306 Curtis Wolfe General Counsel Secretary Splinex Technology Inc. 550 West Cypress Creek Road Suite 410 Fort Lauderdale, Florida 33309 Table of Contents and the information contained in or connected to it shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. Ener1 Acquisition Corp. Ener1 Acquisition Corp. ( Ener1 Acquisition ), a Delaware corporation, was formed in July 2003 as a wholly-owned subsidiary of Ener1. Ener1 Acquisition has not had any operations since its formation other than in connection with the Merger. The Merger We, Ener1 and Ener1 Acquisition have agreed to merge Ener1 Acquisition with and into us on the terms and subject to the conditions set forth in the Merger Agreement dated as of June 9, 2004, as amended by the First Amendment to the Merger Agreement, dated October 13, 2004 and the Second Amendment to the Merger Agreement, dated December 23, 2004 (which we refer to collectively as the Merger Agreement ). We will survive the Merger. Immediately after the Merger, Splinex, LLC and Ener1 will own 95% and 5%, respectively, of our outstanding common stock. Splinex, LLC will not receive any new shares in the Merger and will continue to hold its existing shares of our common stock. Ener1 will receive 5,000,000 shares of our common stock in the Merger; we refer to these shares as the Merger Consideration. In exchange for the Merger Consideration, Ener1 has agreed to pay $150,000 of the expenses incurred in connection with the registration of the Distribution under the Securities Act, as well as to use its reasonable best efforts to assist us to have the Commission declare registration statement of which this prospectus is a part effective. Immediately following the Merger, Ener1 will declare a dividend of our common stock that Ener1 receives in the Merger and distribute our common stock to the Ener1 shareholders of record as of the close of business on the Ener1 Record Date. Each Ener1 shareholder of record on the Ener1 Record Date will receive its pro rata share of the Merger Consideration, rounded down to the nearest whole share. No fractional shares will be issued in the Distribution. The Ener1 Record Date will be the day the Merger is completed or the business day immediately preceding the day the Merger is completed, as determined by Ener1 s board of directors. We currently expect the Ener1 shareholders will receive approximately 0.01439 shares of our common stock for each share of Ener1 common stock they own as of the Ener1 Record Date. Ener1 shareholders will also continue to own their shares of Ener1 common stock. Holders of Ener1 s 5% Senior Secured Convertible Debentures due 2009 and holders of warrants to purchase Ener1 common stock that entitle the holders of the warrants to receive dividends paid on the Ener1 common stock when the warrants are exercised, may elect to receive, upon the conversion of the debentures and the exercise of the warrants, the shares of our common stock that they would have received in the Distribution if such conversion or exercise had been effected prior to or on the Ener1 Record Date. Holders of these debentures and warrants may also instead elect to have the conversion or exercise price of the debentures and warrants adjusted as a result of the Distribution. If any holders of these debentures or warrants elect to receive shares of our common stock upon conversion or exercise of their debentures or warrants, we will issue to them, at the time of such conversion or exercise, the number of shares of our common stock that they would have received in the Distribution if the conversion or exercise had been effective prior to or on the Ener1 Record Date. Ener1 shareholders are not being asked to approve the Merger or the Distribution and are not required to take any action in connection with the Merger or the Distribution. Ener1 shareholders do not need to make any payment for the shares of our common stock they will receive in the Distribution, nor do they need to surrender or exchange Ener1 common stock in order to receive our common stock. We believe our company will recognize a number of significant benefits as a result of the Merger and the Distribution, including the advantages that a company gains when its common stock can be publicly traded, such as a greater opportunity to obtain equity or debt financing in the public and private markets; an expanded investor base; increased flexibility to pursue acquisitions and other business alliances and combinations; and improved ability to attract, motivate and retain key personnel through equity incentive compensation. You should read The Merger Agreement Reasons for the Merger and the Distribution for a further description of these and other reasons for the Merger. APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. Table of Contents The legal terms of the Merger and the Distribution are set forth in the Merger Agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part. We encourage you to read the Merger Agreement carefully. Our relationship with Ener1 and Ener1 Group Dr. Peter Novak, who is one of our directors, and Messrs. Mike Zoi and Boris Zingarevich beneficially own an aggregate of 37.5% of the voting membership interests (and an aggregate of 38.25% of the economic membership interests) of Splinex, LLC, our sole stockholder prior to the Merger. They also collectively beneficially own all of the outstanding common stock of Ener1 Group, which owns approximately 88% of the outstanding common stock of Ener1. Dr. Novak and Mr. Zoi have also entered into consulting agreements with us. Each of Messrs. Zingarevich, Zoi and Dr. Novak is also a director of Ener1 Group and Mr. Zoi and Dr. Novak are also directors of Ener1. Bzinfin, S.A., a British Virgin Islands limited corporation that is indirectly owned by Boris Zingarevich and the entity through which he owns common stock of Ener1 Group, has entered into a revolving loan agreement with us under which we may borrow and reborrow up to $2,500,000 in aggregate principal amount from time to time upon our request. We refer to this loan agreement as the Revolving Loan Agreement. We may borrow funds under this agreement after the consummation of the Merger and prior to July 31, 2005. Loans under this agreement will bear simple interest at an annual rate of 5% and principal and interest must be repaid within two years of the date of the first disbursement. The maximum principal amount we may borrow under this agreement will be reduced by an amount equal to the cumulative gross proceeds we receive prior to July 31, 2005 from the sale of equity or debt securities or from any loans or other credit facilities extended to us. In November and December 2004, Ener1 Group loaned us a total of $250,000 to fund our working capital needs. These loans bear interest at an annual rate of 5% and must be repaid by the earlier of February 21, 2005 or five business days after we receive an aggregate of $1,250,000 from the following sources: (1) amounts borrowed under the Revolving Loan Agreement, (2) any private investment in our company or (3) our revenues. Kevin Fitzgerald, the chairman of our board of directors, is also chief executive officer and chairman of the board of directors of Ener1, and the sole director of Ener1 Acquisition. Curtis Wolfe, our director, general counsel and secretary, is also the executive vice president and general counsel of Ener1 Group. He receives his salary from Ener1 Group. At the end of every month, Ener1 Group invoices us at a rate equal to his base salary, plus 20% to cover benefits and other fixed costs, for the number of hours he worked for our company that month, based on the assumption that Mr. Wolfe works a total of 160 hours per month. Alexander Malovik 50%/49% None None Indirect Stockholder Owned 100% of ANTAO Ltd, which he contributed to Splinex Technology pursuant to his obligations under the Splinex, LLC operating agreement Boris Zingarevich 12.5%/12.75% Indirect Stockholder, Director Indirect Stockholder Indirect Stockholder and Beneficial owner of Bzinfin, which has entered into the Revolving Loan Agreement with Splinex Technology Mikhail Zingarevich 12.5%/12.75% Brother of Boris Zingarevich Brother of Boris Zingarevich Indirect Stockholder Peter Novak 12.5%/12.75% Chief Technology Officer, Indirect Stockholder, Director Consultant, Director, Indirect Stockholder Consultant, Director, Indirect Stockholder Mike Zoi 12.5%/12.75% President, Indirect Stockholder, Director Consultant, Director, Indirect Stockholder Consultant, Indirect Stockholder Kevin Fitzgerald None None Chairman, Chief Executive Officer, Stockholder Chairman Curtis Wolfe None General Counsel and Secretary None Director, General Counsel and Secretary To aid your understanding of the transactions that will occur as part of the Merger and the Distribution, we have included the following organizational charts for our company, Ener1 and Ener1 Acquisition prior to and following the Merger and Distribution: Table of Contents The information in this prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state. Subject to Completion, dated December 27, 2004 SPLINEX LOGO Common Stock Splinex Technology, Inc. is filing this prospectus in connection with: The dividend by Ener1, Inc. of 5,000,000 shares of our common stock which will be issued to Ener1, Inc. in connection with the merger of Ener1 Acquisition Corp., a wholly-owned subsidiary of Ener1, Inc. with and into our company (we refer to this merger as the Merger ) and distributed immediately following the Merger by Ener1, Inc. to its shareholders (we refer to this distribution as the Distribution ); The issuance of 171,724 shares of our common stock which we have agreed to issue to holders of securities convertible into Ener1, Inc. common stock that have the right to elect to receive, upon conversion of such securities, the number of shares of our common stock that they would have received in the Distribution if the conversion of such securities had been effective prior to the record date for the Distribution; and 34,445,457 shares of our common stock, which may be offered by the selling stockholders identified in this prospectus for their own account, including 30,000,000 shares of our common stock owned by the selling stockholders prior to the Merger and 4,445,457 shares of our common stock that we expect the selling stockholders who are also shareholders of Ener1, Inc. will receive in the Distribution. We will receive no part of the proceeds from sales made by the selling stockholders under this prospectus. We are paying the expenses incurred in registering the shares, but all selling and other expenses incurred by the selling stockholders will be borne by the selling stockholders. The selling stockholders and any participating brokers or dealers may be deemed to be underwriters within the meaning of the Securities Act, in which event any profit on the sale of shares by the selling stockholders, and any commissions or discounts received by the brokers or dealers, may be deemed to be underwriting compensation under the Securities Act. No public market currently exists for our common stock. We intend to seek to have market-makers sponsor our common stock for quotation on the Over-the-Counter Bulletin Board. We cannot assure you that our common stock will be quoted on the Over-the-Counter Bulletin Board. Investing in our common stock involves risks. See Risk Factors beginning on page 7. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Table of Contents PRE-MERGER AND DISTRIBUTION Splinex, LLC Members: A. Malovik B. Zingarevich (indirect) M. Zingarevich (indirect) P. Novak M. Zoi Managers: P. Novak M. Zoi L. Enilina A. Boecki Splinex Technology Inc. Directors: P. Novak K. Fitzgerald E. Dubrousky M. Stojda C. Wolfe Officers: M. Stojda, CEO G. Herlihy, CFO C. Wolfe, General Counsel and Secretary OTHER STOCKHOLDERS Ener1, Inc. Directors: K. Fitzgerald P. Novak M. Zoi R. Stewart K. Gruns Officers: K. Fitzgerald, CEO R. Paulfus, CFO R. Stewart, General Counsel and Secretary E. Shembel, VP Ener1 Acquisition Corp. Sole Director: K. Fitzgerald Officers: K. Fitzgerald, CEO and Secretary 88% Ener1 Group, Inc. Directors: B. Zingarevich M. Zoi P. Novak Officers: M. Zoi, President P. Novak, VP and Chief Technology Officer C. Wolfe, General Counsel and Secretary Stockholders: B. Zingarevich (indirect) P. Novak (indirect) M. Zoi (indirect) 88% 100% 100% 12% Table of Contents POST DISTRIBUTION Splinex, LLC Members: A. Malovik B. Zingarevich (indirect) M. Zingarevich (indirect) P. Novak M. Zoi Managers: P. Novak M. Zoi L. Enilina A. Boecki Splinex Technology Inc. Directors: P. Novak K. Fitzgerald E. Dubrousky M. Stojda C. Wolfe Officers: M. Stojda, CEO G. Herlihy, CFO C. Wolfe, General Counsel and Secretary OTHER STOCKHOLDERS Ener1 Group, Inc. Directors: B. Zingarevich M. Zoi P. Novak Officers: M. Zoi, President P. Novak, VP and Chief Technology Officer C. Wolfe, General Counsel and Secretary Stockholders: B. Zingarevich (indirect) P. Novak (indirect) M. Zoi (indirect) Ener1, Inc. Directors: K. Fitzgerald P. Novak M. Zoi R. Stewart K. Gruns Officers: K. Fitzgerald, CEO R. Paulfus, CFO R. Stewart, General Counsel and Secretary E. Shembel, VP 95% 88% 12% 4.4% .6% Table of Contents You should read Certain Relationships and Related Party Transactions Our company and Ener1, Inc. and some of its affiliates for a further discussion of our relationship with Ener1 and Ener1 Group. Conditions to completion of the Merger and the Distribution The respective obligations of the parties to the Merger Agreement to complete the Merger and the Distribution are subject to the satisfaction or waiver of various conditions, including: The representations and warranties of the parties to the Merger Agreement will be true and correct when made and on the date the Merger is consummated, which we refer to as the Closing Date, as though then made. The parties to the Merger Agreement shall have performed and complied with all agreements, covenants and conditions required by the Merger Agreement to be performed and complied with by them prior to the Closing Date. The parties shall have obtained any and all material consents and approvals required under third-party agreements and applicable law in connection with the execution, delivery and performance of the Merger Agreement. No preliminary or permanent injunction or other court order which would prevent the consummation of the Merger or the Distribution shall be in effect. The registration statement of which this prospectus is a part shall have become effective in accordance with the Securities Act and the Exchange Act. The obligations of Ener1 and Ener1 Acquisition to complete the Merger and the Distribution are also subject to the satisfaction or waiver of various conditions, including that the Revolving Loan Agreement shall be in full force and effect and the lender under this agreement shall not be in default in any respect under the revolving loan agreement. Termination of the Merger Agreement The parties to the Merger Agreement can mutually agree to terminate the Merger Agreement. In addition, either we or Ener1 Acquisition can unilaterally terminate the Merger Agreement in a number of situations, including: if the Merger is not consummated on or before January 31, 2005; provided that the party terminating the Merger Agreement is not in default with respect to its obligations under the Merger Agreement; Splinex may terminate the Merger Agreement if, as of the Closing Date, any of the specified conditions precedent relating to Ener1 and Ener1 Acquisition in the Merger Agreement have not been satisfied or if Ener1 Acquisition or Ener1 are otherwise in default under the Merger Agreement, or if at any time prior to the Closing Date it becomes apparent to Splinex that Ener1 Acquisition and Ener1 will be unable to so satisfy one or more of certain closing conditions in the Merger Agreement; or Ener1 Acquisition may terminate the Merger Agreement if, as of the Closing Date, any of the specified conditions precedent relating to Splinex in the Merger Agreement have not been satisfied or if Splinex is otherwise in default under the Merger Agreement or if at any time prior to the Closing Date it becomes apparent to Ener1 Acquisition that Splinex will be unable to so satisfy one or more of certain closing conditions in the Merger Agreement. Fairness opinion of Ener1 s financial advisor In deciding to approve the Merger Agreement and the Merger, the Ener1 board of directors considered an opinion delivered to the independent committee of the Ener1 board of directors by Capitalink, L.C., its financial advisor, that, as of June 7, 2004, based upon and subject to the assumptions, factors and Table of Contents limitations set forth in the opinion, the Merger Consideration is fair from a financial point of view to the Ener1 shareholders. The full text of the opinion is filed as an exhibit to the registration statement of which this prospectus is a part. We urge you to read the entire opinion carefully for the assumptions made, procedures followed, matters considered and limits of the scope of Capitalink s review in rendering its opinion. Capitalink s opinion was addressed to the independent committee of Ener1 s board of directors for the purpose of its evaluation of the Merger and does not address the relative merits of the Merger as compared to any alternative business strategy that Ener1 may have. Material U.S. federal income tax consequences of the Distribution We urge Ener1 shareholders to read Material U.S. Federal Income Tax Consequences of the Distribution included elsewhere in this prospectus for a discussion of the material U.S. federal income tax consequences of the Distribution applicable to Ener1 shareholders as of the Ener1 Record Date resulting from the Distribution. We and Ener1 are not aware of any authority directly on point indicating how the Internal Revenue Service, which we refer to as the IRS, will characterize the Distribution for federal income tax purposes. Ener1 intends to take the position that the Distribution will be treated as a distribution in respect of Ener1 common stock. If the Distribution is so treated by the IRS, then the Distribution will be taxable to Ener1 shareholders to the extent of Ener1 s current or accumulated earnings or profits at the time the Distribution occurs. Ener1 does not expect that it will have current or accumulated earnings or profits at the time the Distribution occurs. It is possible that the IRS may disagree with this characterization of the Distribution. Under these circumstances, Ener1 shareholders may be required to recognize taxable income in an amount up to the full fair market value of our common stock received in the Distribution. We also urge Ener1 shareholders to consult their own tax advisors regarding the tax consequences of the Distribution based on their individual circumstances. Current assets $ 175,075 $ 127,217 Current liabilities 207,539 625,459 Total assets 234,692 214,637 Stockholders equity (deficiency in assets) 27,153 (410,822 ) (1) Pro forma net loss and pro forma net loss per share give effect to consulting and executive officer employment agreements as if the agreements had been in effect for the entire period, the elimination of expenses in connection with the Merger and registration of the Distribution and the pro forma income tax effect of these pro forma adjustments. Table of Contents To aid your understanding of the relationships among us, our principals and Ener1 we have included the following chart: Splinex, LLC Relationship With Ownership Interest Table of Contents
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+S-1 Table of Contents Summary The following is a summary of the principal features of this offering of IDSs and senior subordinated notes and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. All references to we, us, our, our company, the Company or InSight Holdings in this prospectus mean InSight Health Services Holdings Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Holdings Corp. All references to InSight in this prospectus mean our wholly-owned subsidiary, InSight Health Services Corp., a Delaware corporation, and all entities and subsidiaries owned or controlled by InSight Health Services Corp. Our Business Overview We are a leading provider of diagnostic imaging services. We provide our services through the largest integrated network of fixed-site centers and mobile facilities focused in targeted regions throughout the United States. Our services include magnetic resonance imaging, or MRI, positron emission tomography, or PET, computed tomography, or CT, and other technologies. These services are non-invasive techniques that generate representations of internal anatomy on film or digital media which are used by physicians for the diagnosis and assessment of diseases and disorders. Our historical and pro forma revenues for the fiscal year ended June 30, 2003 were $237.8 million and $332.8 million, respectively. Our integrated network consists of 114 fixed-site centers and 119 mobile facilities within our targeted regions. This combination allows us to provide a full continuum of imaging services to better meet the needs of our customers, including healthcare providers, such as hospitals and physicians, and payors such as managed care organizations, Medicare, Medicaid and insurance companies. Our fixed-site centers include freestanding centers and joint ventures with hospitals and radiology groups. Physicians refer patients to our fixed-site centers based on our service reputation, state-of-the-art equipment, breadth of managed care contracts and convenient locations. Our mobile facilities provide hospitals and physician groups access to imaging technologies when they lack either the resources or patient volume to provide their own full-time imaging services or require incremental capacity. We enter into agreements with radiologists to provide professional services, which include supervision and interpretation of radiological procedures and quality assurance. We do not engage in the practice of medicine. The diagnostic imaging industry generated revenues in excess of $70 billion in the United States in 2000. MRI services have experienced substantial procedure volume growth, increasing at an estimated compounded annual growth rate, or CAGR, of 11.8% from 1999 through 2002 and are projected to grow at a CAGR of 10.1% from 2002 through 2009. PET and PET/ CT services have also experienced substantial procedure volume growth, increasing at an estimated CAGR of 96.7% from 1999 through 2002 and are projected to grow at a CAGR of 37.6% from 2002 through 2009. The diagnostic imaging industry is highly fragmented with many providers. Given our size and expertise, we believe we are well positioned to capitalize on the growth in the diagnostic imaging industry which is being driven by an aging population, increasing acceptance of diagnostic imaging, expanding applications of diagnostic imaging technologies and a currently stable reimbursement environment. Our Strengths Largest Integrated Network. Our network and business model provide our customers with a full continuum of imaging services from mobile facilities to fixed-site centers using multiple technologies. Table of Contents Regionally Focused Networks with Significant Market Presence. We have developed a significant presence in California, Arizona, New England, the Carolinas, Florida and the Mid-Atlantic states. Our regionally focused networks enhance our ability to serve our hospital customers, broaden our physician referral base and attract additional managed care customers. Diverse Base of Revenues. We serve a diverse portfolio of customers in 34 states. We have more than 1,000 contracts with managed care organizations and more than 300 contracts with hospitals and physician groups. During the fiscal year ended June 30, 2003, no single customer or fixed-site center accounted for more than 5% of our total revenues. State-of-the-Art Imaging Equipment. We operate state-of-the-art imaging equipment that allows us to perform the variety, quality and volume of procedures required by our customers. Our integrated network and experience give us the flexibility to quickly and efficiently upgrade our existing equipment as well as assess and deploy new imaging technologies. Robust Information Technology System. We have developed a proprietary information system known as InSight Radiology Information System, or IRIS. IRIS provides real-time support for our front and back office operations, including scheduling and administration of imaging procedures and billing and collections across both our fixed-site centers and mobile facilities. We have achieved logistical and cost efficiencies as well as expeditious acquisition integration by implementing IRIS. Experienced Management Team. We have a highly experienced senior management team with an average of 21 years of experience in the healthcare services industry. Our management has implemented a disciplined business model aimed at optimizing equipment utilization, labor productivity and service supply usage. Our senior executives have extensive experience in managing the expansion of healthcare service companies through internal growth and acquisitions. Our Strategy Maximize Utilization of Our Existing Equipment. We intend to increase procedure volumes by broadening our physician referral base and gaining additional managed care, hospital and physician group contracts. We are also focused on expanding imaging applications to maximize utilization of our existing equipment. Improve Operating Efficiency and Profitability. We plan to use our disciplined business model and IRIS to continue to increase the operating efficiency and profits of our fixed-site centers and mobile facilities, improve our accounts receivable collection and reduce our expenses as a percentage of revenues. Develop New Centers and Facilities. We intend to develop new fixed-site centers and mobile facilities within our existing targeted regional networks when attractive returns on investment can be achieved and sustained. Pursue Selective Acquisitions. We plan to continue to selectively acquire businesses which increase our market presence in our existing targeted regional networks or allow us to establish new regional networks. Recent Acquisitions CMI. On April 1, 2004, we acquired the stock of Comprehensive Medical Imaging, Inc., or CMI, a subsidiary of Cardinal Health, Inc., which owns and operates 21 fixed-site centers located in California, Arizona, Texas, Kansas, Pennsylvania and Virginia, from Cardinal Health, Inc., for $46.5 million. We refer to this acquisition as the CMI acquisition. CDL Medical Technologies. On August 1, 2003, we acquired 22 mobile facilities primarily operating in the Mid-Atlantic states from CDL Medical Technologies, Inc. for $49.9 million. We refer to this acquisition as the CDL acquisition. REVENUES $ 12,239 $ 10,372 COSTS OF OPERATIONS: Costs of services 6,666 4,710 Provision for doubtful accounts 27 Table of Contents Item 16. Exhibits and Financial Statement Schedules (a) Exhibits The following exhibits are filed as part of this registration statement. **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. Table of Contents Exhibit Index **1 .1 Form of Underwriting Agreement. 2 .1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Health Services Holdings Corp. ( InSight Holdings ), JWCH Merger Corp. and InSight Health Services Corp. ( InSight ), previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on July 2, 2001. 2 .2 Amendment No. 1 to Agreement and Plan of Merger, dated as of June 29, 2001, by and among InSight Holdings, JWCH Merger Corp. and InSight, previously filed and incorporated by reference from InSight s Annual Report on Form 10-K, filed on September 14, 2001. 2 .3 Amendment No. 2 to Agreement and Plan of Merger, dated as of October 9, 2001, by and among InSight Holdings, InSight Health Services Acquisition Corp. and InSight, previously filed and incorporated herein by reference from InSight s Current Report on Form 8-K, filed on October 9, 2001. 2 .4 Third Amendment and Restated Stockholders Agreement, dated as of October 10, 2002, among InSight Holdings, the JWCH Holders (as defined therein), the Halifax Holders (as defined therein), the Management Holders (as defined therein) and the Additional Holders (as defined therein), previously filed and incorporated herein by reference from InSight Holdings Quarterly Report on Form 10-Q, filed on February 14, 2003. 2 .5 Management Agreement, dated as of October 17, 2001, by and among J.W. Childs Advisors II, L.P., Halifax Genpar, L.P., InSight Holdings and InSight, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 2 .6 Asset Purchase Agreement, dated January 6, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .7 Amendment No. 1 to Asset Purchase Agreement, dated February 21, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .8 Amendment No. 2 to Asset Purchase Agreement, dated March 31, 2003, by and among InSight Health Corp., Comprehensive Medical Imaging Centers, Inc., Comprehensive Medical Imaging, Inc. and Cardinal Health 414, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K, filed on April 16, 2003. 2 .9 Asset Purchase Agreement, dated June 19, 2003, by and among InSight Health Corp., CDL Medical Technologies, Inc., Keith E. Loiselle and David J. Simile, previously filed and incorporated by reference from InSight Holdings Current Report on Form 8-K, filed on August 11, 2003. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents CMI-LA. On April 2, 2003, we acquired 13 fixed-site centers located in Southern California from CMI for $47.0 million. We refer to this acquisition as the Central Valley acquisition. These acquisitions significantly expanded our presence in the Los Angeles, Phoenix, Northern California markets and the Mid-Atlantic states. The Transactions The Offering. We are offering IDSs at an assumed initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. Our Recapitalization. In connection with this offering, J.W. Childs Equity Partners II, L.P., JWC-InSight Co-invest LLC, Halifax Capital Partners, L.P. and some of the individuals listed in Principal and Selling Stockholders, will contribute all of their equity interests to us in exchange for IDSs, shares of Class B common stock and $ in cash in the aggregate. In this prospectus, we refer to these owners as our existing equity investors and we refer to this contribution as the recapitalization. Following our recapitalization, our management will collectively hold an aggregate of IDSs and shares of Class B common stock. New Credit Facility. Concurrently with the closing of this offering, we will enter into a $ million new senior secured credit facility with a syndicate of financial institutions, including affiliates of CIBC World Markets Corp. and Banc of America Securities LLC as joint lead arrangers and joint book-managers. CIBC World Markets Corp. and Banc of America Securities LLC are also acting as joint book-running lead managers of this offering. In this prospectus, we refer to this credit facility as the new credit facility. We expect that the new credit facility will be comprised of a senior secured revolving credit facility with a total principal amount of up to $ million, which we refer to as the new revolver, and a senior secured term loan facility in an aggregate principal amount of $ million, which we refer to as the new term loan. We expect that the new revolver and the new term loan will each have a five-year maturity with no amortization of principal prior to maturity. The closing of this offering is conditioned upon the closing of the new credit facility. See Description of Certain Indebtedness New Credit Facility. As a result of the borrowings we expect to make initially under the new credit facility and the issuance of senior subordinated notes in this offering, we anticipate that upon the consummation of the offering we will have approximately $ million of total debt outstanding. Tender Offer and Consent Solicitation. Prior to this offering, InSight will commence a tender offer and consent solicitation with respect to all of the outstanding $250 million aggregate principal amount of 9 7/8% senior subordinated notes due 2011 issued by InSight, which we refer to as the existing senior subordinated notes for an expected aggregate consideration of $ million. The closing of this offering will be conditioned upon the receipt in InSight s tender offer and consent solicitation of at least a majority in the aggregate principal amount of the existing senior subordinated notes outstanding, and the consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. Our Corporate Information Our principal executive office is located at 26250 Enterprise Court, Suite 100, Lake Forest, California 92630, and our telephone number is (949) 282-6000. Our internet address is www.insighthealth.com. www.insighthealth.com is a textual reference only, meaning that the information contained on the website is not part of this prospectus and is not incorporated in this prospectus by reference. NET CASH PROVIDED BY OPERATING ACTIVITIES 9,367 4,034 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale, net (1,838 ) (359 ) Proceeds from sale of assets 85 2,095 Advances issued to affiliate (756 ) Cash paid for acquisition of Partnership assets (RCA/ CDL) (353 ) Distributions received from affiliate 280 Additions to property and equipment (581 ) (1,254 ) Other Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Table of Contents 2 .11 Amendment No. 1 to Stock Purchase Agreement dated April 1, 2004, by and among InSight Health Corp., Comprehensive Medical Imaging, Inc., Cardinal Health 414, Inc. and Cardinal Health, Inc., previously filed and incorporated herein by reference from InSight Holdings Current Report on Form 8-K , filed April 8, 2004. 3 .1 Certificate of Incorporation of InSight Holdings, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .2 Bylaws of InSight Holdings, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .3 Certificate of Incorporation of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .4 Bylaws of InSight, as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .5 Certificate of Incorporation of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .6 Bylaws of InSight Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .7 Certificate of Incorporation of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .8 Bylaws of Signal Medical Services, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .9 Certificate of Incorporation of Open MRI, Inc., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .10 Bylaws of Open MRI, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .11 Certificate of Incorporation of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .12 Bylaws of Maxum Health Corp., as amended, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .13 Certificate of Incorporation of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .14 Bylaws of Radiosurgery Centers, Inc., previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. Table of Contents 3 .16 Bylaws of Maxum Health Services Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .17 Certificate of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .18 Agreement of Limited Partnership of MRI Associates, L.P., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .19 Certificate of Incorporation of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .20 Bylaws of Maxum Health Services of North Texas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .21 Certificate of Incorporation of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .22 Bylaws of Maxum Health Services of Dallas, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .23 Certificate of Incorporation of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .24 Bylaws of NDDC, Inc., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .25 Certificate of Incorporation of Diagnostic Solutions Corp., as amended, previously filed and incorporated herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .26 Bylaws of Diagnostic Solutions Corp., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 3 .27 Certificate of Organization of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .28 Operating Agreement of Wilkes-Barre Imaging, L.L.C., previously filed and incorporated by reference herein from InSight s Registration Statement on Form S-4/ A, filed on March 25, 2002. 3 .29 Certificate of Organization of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .30 Operating Agreement of Orange County Regional PET Center-Irvine, LLC, as amended, filed herewith. 3 .31 Certificate of Organization of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .32 Operating Agreement of San Fernando Valley Regional PET Center, LLC, as amended, filed herewith. 3 .33 Certificate of Organization of Valencia MRI, LLC, as amended, filed herewith. 3 .34 Operating Agreement of Valencia MRI, LLC, as amended, filed herewith. Table of Contents 3 .36 Operating Agreement of Parkway Imaging Center, LLC, filed herewith. 3 .37 Certificate of Incorporation of InSight Imaging Services Corp., filed herewith. 3 .38 Bylaws of InSight Imaging Services Corp., filed herewith. 3 .39 Certificate of Incorporation of Comprehensive Medical Imaging, Inc., as amended, filed herewith. 3 .40 Bylaws of Comprehensive Medical Imaging, Inc., filed herewith. 3 .41 Certificate of Incorporation of Comprehensive Medical Imaging Centers, Inc., as amended, filed herewith. 3 .42 Bylaws of Comprehensive Medical Imaging Centers, Inc., filed herewith. 3 .43 Certificate of Incorporation of Comprehensive Medical Imaging-Biltmore, Inc., as amended, filed herewith. 3 .44 Bylaws of Comprehensive Medical Imaging-Biltmore, Inc., filed herewith. 3 .45 Certificate of Incorporation of Comprehensive OPEN MRI-East Mesa, Inc., as amended, filed herewith. 3 .46 Bylaws of Comprehensive OPEN MRI-East Mesa, Inc., filed herewith. 3 .47 Articles of Incorporation of TME Arizona, Inc., filed herewith. 3 .48 Bylaws of TME Arizona, Inc., filed herewith. 3 .49 Certificate of Incorporation of Comprehensive Medical Imaging-Fremont, Inc., as amended, filed herewith. 3 .50 Bylaws of Comprehensive Medical Imaging-Fremont, Inc., filed herewith. 3 .51 Certificate of Incorporation of Comprehensive Medical Imaging-San Francisco, Inc., as amended, filed herewith. 3 .52 Bylaws of Comprehensive Medical Imaging-San Francisco, Inc., filed herewith. 3 .53 Certificate of Incorporation of OPEN MRI-Garland, Inc., as amended, filed herewith. 3 .54 Bylaws of OPEN MRI-Garland, Inc., filed herewith. 3 .55 Certificate of Incorporation of IMI of Arlington, Inc., filed herewith. 3 .56 Bylaws of IMI of Arlington, Inc., filed herewith. 3 .57 Certificate of Incorporation of Comprehensive Medical Imaging-Fairfax, Inc., as amended, filed herewith. 3 .58 Bylaws of Comprehensive Medical Imaging-Fairfax, Inc., filed herewith. 3 .59 Certificate of Incorporation of IMI of Kansas City, Inc., as amended, filed herewith. 3 .60 Bylaws of IMI of Kansas City, Inc., filed herewith. 3 .61 Certificate of Incorporation of Comprehensive Medical Imaging-Bakersfield, Inc., as amended, filed herewith. 3 .62 Bylaws of Comprehensive Medical Imaging-Bakersfield, Inc., filed herewith. 3 .63 Articles of Organization of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .64 Operating Agreement of Comprehensive OPEN MRI-Carmichael/ Folsom, LLC, filed herewith. 3 .65 Articles of Organization of Syncor Diagnostics Sacramento, LLC, filed herewith. 3 .66 Operating Agreement of Synor Diagnostics Sacramento, LLC, filed herewith. Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprised of $ allocated to each senior subordinated note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately (not represented by IDSs). Our sale of IDSs and our offering of senior subordinated notes (not represented by IDSs) are conditioned upon each other. In addition, no purchaser, including our existing equity investors, or any entity, investment fund or account over which such purchaser exercises investment control is entitled to purchase both IDSs and separate senior subordinated notes in the offering. Furthermore, as part of our recapitalization described elsewhere in this prospectus, we also intend to issue IDSs to our existing equity investors in exchange for the interests they hold in our company (of which will be subject to the underwriters over-allotment option). Summary of the IDSs What are IDSs? IDSs are securities comprised of Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with a $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the senior subordinated notes and pay dividends in the amount contemplated by our anticipated initial dividend policy, you will receive in the aggregate approximately $ per year in interest on the senior subordinated notes and dividends on the Class A common stock represented by each IDS. We expect to make interest and dividend payments on , , and of each year to holders of record on the day of each such month, or, if such day is not a business day, the immediately preceding day that is a business day. Subject to certain restrictions, we may choose to defer interest payments on our senior subordinated notes. In addition, our board of directors, in its sole discretion, decides whether or not we will pay dividends and determines the amount of any such dividend payment on the shares of our common stock. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right to defer interest payments on our senior subordinated notes if we are not otherwise in default under the indenture, for an aggregate period not to exceed eight quarters prior to , 2009, and up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Interest Deferral. Table of Contents You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the new credit facility, the indenture governing our senior subordinated notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our senior subordinated notes restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions. In addition, the new credit facility restricts our ability to declare and pay dividends on our common stock as described under Initial Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock for the first year following consummation of this offering. However, our board of directors may, in its discretion, modify or repeal this initial dividend policy. We have not paid dividends in the past and we may not pay dividends at this level in the future or at all. Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the American Stock Exchange under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately (not represented by IDSs)? Yes. The senior subordinated notes sold separately (not represented by IDSs) will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use reasonable efforts to list our Class A common stock for separate trading on the American Stock Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. BALANCE AT JUNE 30, 2003 5,468,814 $ Operating income 948 1,267 Other income (expense): Interest expense (216 ) (464 ) Equity in gains from joint venture 112 Other, net 2 See Table of Additional Registrants on Following Pages Table of Contents In what form will IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and senior subordinated notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or combine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated as a result of the continuance of a payment default on the senior subordinated notes for 90 days, or the redemption, acceleration or maturity of any senior subordinated notes. Separation and combination of IDSs will occur promptly in accordance with DTC s procedures and upon receipt of instructions from your broker and may involve transaction fees charged by your broker and/or other financial intermediaries. Trading in the IDSs will not be suspended as a result of any such separation or recombination of IDSs. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All IDSs will automatically separate 90 days following the acceleration of the maturity of the senior subordinated notes for any reason, upon the continuance of a payment default on the senior subordinated notes for 90 days, upon the occurrence of any redemption, whether in whole or in part, of the senior subordinated notes or upon the maturity of the senior subordinated notes. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock, see Related Party Transactions Investor Rights Agreement. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. If such senior subordinated notes are issued with OID, all IDSs of the same series (including the IDSs being offered hereby) and all senior subordinated notes, whether held directly or in the form of IDSs, will be automatically exchanged for senior subordinated notes or IDSs, respectively, with new CUSIP numbers. This automatic exchange should not impair the rights any holder might otherwise have to assert a claim, under applicable securities laws, against us or the 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents underwriters, with respect to the full amount of senior subordinated notes purchased by such holder; however, as a result of such exchanges, the OID associated with the sale of the new senior subordinated notes effectively will be spread among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are uncertain. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal income tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. The value attributed to the shares of Class A common stock and senior subordinated notes represented by the IDSs have been established based on the fair market value of such shares of Class A common stock and senior subordinated notes at issuance. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to such allocation. Treatment of Senior Subordinated Notes. Based on the opinion of tax counsel, the senior subordinated notes should be treated as debt for United States federal income tax purposes and we intend to deduct interest on such senior subordinated notes for tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. Our tax deduction for interest may be put at risk in the future as a result of a future ruling by the Internal Revenue Service, or IRS, including an adverse ruling for other IDSs or an adverse ruling for our own IDSs and in the event of any such ruling, we may need to consider the effect of such developments on the determination of our future tax provisions and obligations. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. For a more complete discussion of the material United States federal income tax considerations in connection with an investment in IDSs or senior subordinated notes, see Material United States Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) are uncertain. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes and the agreement with the DTC will provide that, in the event that there is a subsequent issuance of senior subordinated notes with a new CUSIP number having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including Marilyn U. MacNiven-Young, Esq. Executive Vice President and General Counsel 26250 Enterprise Court Suite 100 Lake Forest, California 92630 (949) 282-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Because a subsequent issuance will affect the senior subordinated notes in the same manner, regardless of whether these senior subordinated notes are held as part of IDSs or separately, the combination of senior subordinated notes and shares of Class A common stock to form IDSs, or the separation of IDSs, should not affect your tax treatment. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes. If such an exchange is treated as a taxable exchange, a holder would recognize any gain realized on such exchange, but a loss realized likely would be disallowed. If the exchange of senior subordinated notes is treated as a taxable exchange, then your initial tax basis in the senior subordinated notes deemed to have been received in the exchange would be the fair market value of such senior subordinated notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such senior subordinated notes would begin on the day after the deemed exchange. Reporting of OID. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. We will immediately file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to the senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material United States Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprised of common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the Financial Accounting Standard Board, or FASB, the Emerging Issues Task Force or the Securities and Exchange Commission, or the SEC, may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies (Income Taxes and IDSs and Class B Common Stock). Copies to: Stephen C. Koval, Esq. Kaye Scholer LLP 425 Park Avenue New York, New York 10022 (212) 836-8000 Richard B. Aftanas, Esq. David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036-6522 (212) 735-3000 Table of Contents Summary of Senior Subordinated Notes Issuer InSight Health Services Holdings Corp. Senior subordinated notes represented by IDSs being offered to the public: by InSight Holdings $ million aggregate principal amount of % senior subordinated notes. by our existing equity investors $ million aggregate principal amount of % senior subordinated notes if the underwriters over-allotment option to purchase IDSs is exercised in full (which notes shall be offered from the senior subordinated notes represented by IDSs that we are issuing to our existing equity investors in this offering). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes represented by IDSs being issued to our existing equity investors $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the day of , , , and of each year, commencing , 2004 to holders of record on the day of each such month, or, if such day is not a business day, the business day immediately preceding such day of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS EQUITY: Common stock, $.001 par value, 10,000,000 shares authorized, 5,468,814 and 5,468,764 shares issued and outstanding at June 30, 2003 and 2002, respectively 5 5 Additional paid-in capital 87,081 87,586 Accumulated other comprehensive loss (403 ) (224 ) Retained earnings 4,931 Net income (loss) $ 4,922 $ BALANCE AT OCTOBER 17, 2001 9,349,227 $ Total current liabilities 1,500 492,160 24,913 (484,782 ) 33,791 Notes payable and capital lease obligations, less current portion 372,375 1,506 1,008 374,889 Other long-term liabilities 236 3,109 3,345 Stockholders equity 87,376 9 Income (loss) before income taxes (3,493 ) 3,502 Income (loss) before equity in income of consolidated subsidiaries (3,493 ) 3,502 9 Equity in income of consolidated subsidiaries 9 Net income $ 9 $ 9 $ 9 $ 3,502 $ (3,520 ) $ Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE Table of Contents During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture. See Description of Senior Subordinated Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material United States Federal Income Tax Considerations. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may not redeem the notes prior to , 2011. On and after , 2011 and prior to , 2016, we may redeem for cash all or part of the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the owners of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. After , 2016, we may redeem the senior subordinated notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes at a redemption price of 100% of the principal amount to be redeemed. If we redeem the senior subordinated notes in whole or in part, the senior subordinated notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. In addition, we may redeem the senior subordinated notes at any time at a redemption price of 100% of the principal amount to be redeemed if we received an opinion of counsel that the interest on the senior subordinated notes is not deductible for federal income tax purposes. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally by each of our direct and indirect wholly-owned Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents **4 .9 Investor Rights Agreement, dated , 2004, by and among InSight Holdings, the existing equity investors and certain members of management (named therein). **4 .10 Form of Senior Subordinated Note. **4 .11 Form of stock certificate of Class A common stock. **4 .12 Form of stock certificate of Class B common stock. **4 .13 Form of stock certificate of Class C common stock. **4 .14 Form of IDS certificate. **5 .1 Opinion of Kaye Scholer LLP. **5 .2 Opinion of Skadden, Arps, Slate, Meagher Flom LLP. **8 .1 Opinion of Kaye Scholer LLP as to certain tax matters. 10 .1 Credit Agreement, dated October 17, 2001, by and among InSight, Banc of America Securities LLC and First Union Securities, LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .2 Note Purchase Agreement, dated as of October 17, 2001, by and among InSight Health Services Acquisition Corp., InSight, InSight Holdings, the Subsidiary Guarantors (as defined therein), Banc of America Bridge LLC, and Banc of America Securities LLC, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .3 InSight Holdings 2001 Stock Option Plan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .4 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .5 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael A. Boylan, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .6 InSight Holdings 2001 Stock Option Plan Stock Option Agreement, dated June 29, 2001, by and between InSight Holdings and Michael S. Madler, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .7 Executive Employment Agreement, dated June 29, 2001, between InSight and Steven T. Plochocki, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .8 Executive Employment Agreement, dated June 29, 2001, between InSight and Patricia R. Blank, previously filed and incorporated herein by reference from InSight s Registration Statement on Form S-4, filed on December 27, 2001. 10 .9 First Amendment to Executive Employment Agreement, dated September 4, 2003, by and between InSight and Steven T. Plochocki, filed herewith. Table of Contents domestic subsidiaries existing on the closing of this offering and each of our future wholly-owned domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the new credit facility. Subsequent issuances may affect tax treatment The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated notes with a new CUSIP number having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of senior subordinated notes by us may affect the tax treatment of the IDSs and senior subordinated notes. See Material United States Federal Income Tax Consequences Material Consequences to U.S. Holders Senior Subordinated Notes Additional Issuances. Ranking of senior subordinated notes and guarantees InSight Holdings is a holding company and derives all of its operating income and cash flow from its subsidiaries. The senior subordinated notes will be our and any guarantor s unsecured senior subordinated indebtedness, will be subordinated in right of payment to all of our and any guarantor s existing and future senior indebtedness, including our borrowings and all guarantees of the subsidiary guarantors under the new credit facility. The senior subordinated notes and guarantees will rank pari passu in right of payment with all of our and any guarantor s existing and future senior subordinated indebtedness and trade payables except as discussed under Description of Senior Subordinated Notes Ranking. The senior subordinated notes will also be effectively subordinated to any of our and any guarantor s secured indebtedness to the extent of the value of the assets securing such secured indebtedness that do not secure the notes. Because we are a holding company, the senior subordinated GROSS PROFIT 2,179 3,071 OTHER INCOME (EXPENSES): Gain (loss) on sale of assets and securities (219 ) 4 Interest and dividends 55 Proposed Maximum Aggregate Amount of Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee(1) Table of Contents notes will be structurally subordinated to all indebtedness of our non-guarantor subsidiaries. The indenture governing the senior subordinated notes will permit us and the subsidiary guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis, assuming we had completed the CMI acquisition, the offering and the related transactions on , 2004: we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the new credit facility which would have been guaranteed on a senior secured basis by the subsidiary guarantors; and we would have had $ million of pari passu indebtedness outstanding, including trade payables. Restrictive covenants The indenture governing the senior subordinated notes will contain covenants with respect to us and our restricted subsidiaries that will restrict: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock; the payment of dividends on, and redemption of, capital stock; a number of other restricted payments, including investments; specified sales of assets; specified transactions with affiliates; the creation of a number of liens; and consolidations, mergers and transfers of all or substantially all of our assets. The indenture will also prohibit certain restrictions on distributions from our restricted subsidiaries. All the limitations and prohibitions described above are subject to a number of other important qualifications and exceptions described under Description of Senior Subordinated Notes Certain Covenants. Listing We do not currently anticipate that our senior subordinated notes will be listed separately on any exchange. Representation Letter None of the senior subordinated notes sold separately (not in the form of IDSs) in this offering, which we refer to as the separate notes may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our recapitalization. Furthermore, prior to the closing of this offering, each person purchasing separate notes in this offering will sign a representation letter in connection with these restrictions. See Underwriting. Income before minority interest 437 498 Minority interest Income Deposit Securities (IDSs)(2) Class A Common Stock, par value $0.001 per share(3) % Senior Subordinated Notes due 2019(4) Subsidiary Guarantee of % Senior Subordinated Notes(5) Total $675,000,000 $85,522.50 Table of Contents Summary of Capital Stock Issuer InSight Health Services Holdings Corp. Common stock We have shares of authorized Class A common stock, par value $0.001 per share, shares of authorized Class B common stock, par value $0.001 per share and shares of authorized Class C common stock, par value $0.001 per share. Class A common stock, Class B common stock and Class C common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Initial Dividend Policy and Restrictions. Furthermore, our bylaws provide that we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the SEC. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs In addition, we will enter into an agreement with our existing equity investors that provides that following the second anniversary of the consummation of this offering, and subject to certain conditions, at the option of the holder of such shares of Class B common stock, we will exchange with the purchasers of such shares into IDSs at an exchange rate of one IDS for one share of Class B common stock, subject to compliance with law and applicable agreements and provided that no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. See Related Party Transactions Investor Rights Agreement. Shares of Class A common stock represented by IDSs being offered to the public: by InSight Holdings shares. by our existing equity investors shares if the underwriters over-allotment option is exercised in full (which shares shall be offered from the shares of Class A common stock represented by IDSs that we are issuing to our existing equity investors in this offering). Shares of Class A common stock represented by IDSs being issued to our existing equity investors shares. Shares of common stock to be outstanding following the offering shares of Class A common stock all of which will be represented by IDSs and shares of Class B common stock. No shares of Class C common stock will be outstanding following the consummation of this offering. Table of Contents Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of Class A common stock and notes may no longer be combined to form IDSs. If no notes remain outstanding, all shares of Class B common stock not previously exchanged will become exchangeable for Class A common stock. See Description of IDSs Automatic Separation. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote. Our existing equity investors, through their ownership of IDSs and Class B common stock, will own % of the voting power of our common stock outstanding immediately following this offering. Dividends Dividends on shares of our common stock (Class A, B and C) will be paid if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the senior subordinated notes indenture and the new credit facility both restrict our ability to declare and pay dividends on our common stock, as described in detail under Initial Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, the initial dividend level will be approximately $ per share of our Class A common stock and approximately $ per share on our Class B common stock. Any time a dividend is paid to holders of Class A common stock, holders of Class B common stock will also be paid a dividend. The dividend on our Class B common stock will be adjusted by the same percentage as the percent change in the dividends on our Class A common stock. No shares of Class C common stock will be outstanding immediately following this offering and we do not anticipate that we will issue any shares of Class C common stock therefore we have not established a dividend policy with respect to shares of Class C common stock. Our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure that we will pay dividends at this level or at all in the future. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the day of each , , and of each year to holders of record on the day of such month or the immediately preceding business day. Listing We will apply to list the IDSs on the American Stock Exchange under the trading symbol . We do not anticipate that our common stock will trade on an exchange, and we currently do not expect an active trading market for our Class A common stock to develop. However, we will apply to list our Class A common stock for separate trading on the American Stock (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) promulgated under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price includes $ million aggregate principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (2) The IDSs represent underlying shares of the Class A common stock and $ million aggregate principal amount of underlying % senior subordinated notes of InSight Health Services Holdings Corp. ( InSight Holdings ). Includes IDSs subject to the underwriters over-allotment option and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes as discussed in note (4) below. (3) Represents shares of InSight Holdings Class A common stock included in the IDSs described above. (4) Includes $ million aggregate principal amount of InSight Holdings % senior subordinated notes included in the IDSs described above and an indeterminate principal amount of notes of the same series as the senior subordinated notes, which will be received by holders of senior subordinated notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the senior subordinated notes for identical portions of such additional senior subordinated notes. Also includes $ million principal amount of senior subordinated notes of the same series that will be issued separately (not represented by IDSs). (5) The subsidiary guarantors listed in the Table of Additional Registrants on the next page will guarantee the senior subordinated notes represented by the IDSs and the senior subordinated notes of the same series that will be issued separately from the IDSs. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine. Table of Contents Exchange if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the American Stock Exchange for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act.
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+Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001293898_medtech_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001293898_medtech_prospectus_summary.txt
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001293902_comet_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001293902_comet_prospectus_summary.txt
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001294171_woodforest_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001294171_woodforest_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary provides an overview of selected information contained elsewhere in this prospectus. Because this is a summary, it does not contain all of the information that you should consider before investing in our common stock. Therefore, you should read the following summary together with the more detailed information set forth in this prospectus, including the risks of investing in our common stock discussed in the Risk Factors section and our consolidated financial statements and the notes to these financial statements appearing elsewhere in this prospectus. Although we intend to convert to a C corporation for federal income tax purposes immediately prior to completion of this offering, we are currently a Subchapter S corporation. Accordingly, except where we indicate otherwise, our discussion of our financial condition and results of operations does not include the effect of a federal income tax. Further, unless we indicate otherwise, the information in this prospectus assumes that the underwriters will not exercise their option to purchase additional shares to cover over-allotments. General We are a financial holding company headquartered in The Woodlands, Texas, a rapidly expanding community located approximately 30 miles north of Houston. Our principal subsidiary, Woodforest National Bank, provides a wide range of commercial and consumer financial products and services from 144 locations throughout Texas as of June 30, 2004, 28 of which are traditional branches and 116 of which are in-store branches. As of June 30, 2004, we had $1.5 billion in total assets, $923.6 million in total loans, $1.3 billion in total deposits and $78.3 million in total shareholders equity. Based on total assets as of June 30, 2004, we are the fourth largest independent commercial banking organization headquartered in the greater Houston area. We have experienced substantial balance sheet growth while maintaining strong profitability ratios and sound asset quality. During the three calendar years ended December 31, 2003, our compounded average annual growth was 14.0% in assets, 15.3% in loans and 12.0% in deposits. We have also grown our earnings 29.1% in that same time period. Our pre-tax return on average assets for the six months ended June 30, 2004 was 1.76%, and our pre-tax return on equity was 33.32% for that same period. While achieving this growth, we have maintained our high credit quality. On a pro forma basis after giving effect to this offering and the transactions described in Developments Affecting Our Business After the Offering on page 5, for the six months ended June 30, 2004, our return on average assets would have been 1.07% and our return on average equity would have been 20.22% for the same period. Business We conduct our financial services business from both traditional branch bank offices located in our primary market of Montgomery and Harris Counties and branches located in stores operated by large retail chains in our primary market, other major market areas in Texas (the Dallas-Fort Worth, San Antonio and Austin metroplexes) and in several pockets in East and West Texas. Traditional Branches. At our 28 traditional branches, all of which are currently located in our primary market, we use detailed knowledge of the local market to provide a broad array of loan and deposit products, many of which can be tailored to an individual customer s needs. By providing these incremental services at our traditional branches, we give in-store customers access to a comprehensive suite of financial products. We originate a substantial portion of our commercial loans from our traditional branch locations, and these loans typically fund the operations of local businesses and the institutions considered most important to the community, such as church and medical facilities, which, as of June 30, 2004, constituted 18.5% of our total loan Total charge-offs (955 ) (899 ) Recoveries: Commercial and industrial 9 36 Real estate mortgage 70 27 Real estate construction 90 Consumer and other 39 Net cash provided by operating activities 18,473 14,973 Cash flows from investing activities Contingent consideration paid related to Merchant Choice Card Services acquisition (2,100 ) (2,100 ) Decrease in interest-bearing deposits in other financial institutions 1,810 7,585 Proceeds from maturities of available-for-sale securities 62,513 858 Proceeds from sales of available-for-sale securities 46,562 88,978 Proceeds from calls of held-to-maturity securities 331 856 Proceeds from maturities and principal repayments of held-to-maturity securities 1,008 882 Purchases of available-for-sale securities (179,010 ) (79,482 ) Net increase in loans (60,801 ) (38,313 ) Proceeds from sale of other real estate owned 4,065 5,485 Purchases of bank premises and equipment (13,342 ) (3,443 ) Proceeds from the sale of bank premises and equipment 11 $ 11,502 $ 329 $ $ 12,007 $ 505 $ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents portfolio. As of June 30, 2004, commercial and industrial, commercial real estate and construction and land development loans constituted 76.3% of our total loan portfolio. In-Store Branches. Under a series of long-term lease agreements with Wal-Mart and, to a lesser extent, under similar arrangements with the Kroger grocery store chain and several other stores, we have opened 116 in-store branches as of June 30, 2004, including 55 branches located in major market areas of Texas outside of our primary market. As the nation s largest retailer, Wal-Mart has historically been adept at establishing stores in locations that attract a high level of foot traffic. While our in-store branches are not primarily designed to be large deposit gatherers, they enable us to receive high customer visibility and generate new accounts, which helps us gather low cost deposits and generate fee income. As a result of our experience in this area, we have been able to reduce our average build out and premises cost of opening an in-store branch to approximately $165,000, which enables us to achieve profitability faster than at one of our new traditional branches. Spokes and Hub Strategy. In addition to increasing our customer base, the operation of both traditional and in-store branches strategically complement one another. For example, as a result of the product demands of our customers at those locations, our in-store branches have been a major source of fee income, while our traditional branches have been our principal source of net interest income as a result of our lending activities at those locations. In addition, our low cost deposits are deployed to fund loans at our traditional branches. In order to maximize cross-selling opportunities and capitalize more fully on the profit potential resulting from operating both types of branches, we have begun to implement a spokes and hub strategy. After leading into new markets with low cost, high account generating in-store branches, we leverage our in-store name recognition and established customer base by opening, in a proximate location, a traditional branch that offers a broad array of loan products and other financial services. When we implement our spokes and hub strategy, the combination of name recognition, fee income and low cost deposits derived from our in-store branches and the full product offerings at our traditional branches strengthens all branches comprising a particular spokes and hub network. Service and Convenience. We believe that we provide greater convenience and more responsive service than our competitors. Our in-store branches are open for business seven days a week (including four 24-hour locations). Our 8:00 p.m. cut-off time, the time by which customer transactions must be completed in order to be considered part of the current day s business, allows customers additional time to receive credit for deposits, and our seven days a week check processing gives retail and business customers ready access to updated current account data. We provide our business and consumer customers with a wide range of products and conveniences. Our cohesive and complementary senior management team and well-trained employees play an important role in our service-oriented growth strategy. Five of the bank s executive officers have served previously as presidents of independent community banks and are accustomed to making quick, responsive decisions. We provide our officers and employees with economic incentives, incentive plans and stock ownership. Through our KSOP plan, our employees are currently our third largest shareholder, owning approximately 19.4% of our common stock as of August 31, 2004. As owners of our common stock, our employees are provided incentives to conduct business with an owner s mentality. Market We believe that the demographic and economic characteristics of both our primary market of Montgomery and Harris Counties and the State of Texas will continue to support our growth plan. Between 2000 and 2002, Montgomery County was the sixth fastest growing county in the United States among counties with populations of 250,000 or more. We make the majority of our loans in Montgomery County where, as of June 30, 2003, we held a 19% deposit market share. The Woodlands, the principal community in Montgomery County, has ranked first in Texas since 1990 in new home sales and has ranked between fourth and seventh in the United States in the last six years. Harris County, the home to Houston, the fourth largest city in the U.S., is the third largest county in the nation. According to 2000 census data, Texas is the second most populous state and among the ten Number of new branches opened during the period: Traditional 2 1 1 2 1 10 N.M. N.M. In-store 14 17 21 (1) 44 11 Number of branches opened since January 1, 1999: Traditional 17 15 14 13 11 10 7.1 % 10.7 % In-store 109 95 78 57 13 Amendment No. 2 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents fastest growing states in the nation. The dollar amount of commercial bank deposits in Texas increased from $175.8 billion as of June 30, 1999 to $255.4 billion as of June 30, 2003. Our 28 traditional branches are located in Montgomery and Harris Counties, both of which are densely populated. Of our 116 in-store branches as of June 30, 2004, 45 are located in our primary market. The remaining in-store branches include three branches in counties near our primary market, 40 branches in the Dallas-Fort Worth area, 15 branches in the Austin-San Antonio region, ten branches in East Texas and three branches in West Texas. Strategies Our principal growth opportunities and operating strategies are the following: Capitalize on demographic growth and economic health in Texas and take advantage of the state of competition among financial institutions. The demographic and economic conditions in our primary market and other major market areas in Texas where we are located provide an attractive banking market for our products and services. We plan to attract customers whose financial services needs can no longer be served by smaller banks but still desire more personal service unavailable at larger institutions. Expand our leadership position in Texas in-store operations. We plan to open eight in-store locations in Texas during the third and fourth quarters of 2004 and 15 to 20 in-store locations in Texas in 2005, focusing on major market areas such as Houston, Dallas-Fort Worth, San Antonio, Austin and other high growth areas. Through our in-store operations, we plan to continue to attract low cost deposits, increase customer accounts, generate fees and further our name recognition. Expand our spokes and hub strategy. While our in-store branches can operate profitably on a stand-alone basis, we believe that we can provide better overall customer service and strengthen all contributing branches by effecting our spokes and hub strategy. We plan to continue our market penetration by adding three traditional branches during the remainder of 2004 and five to eight traditional branches in 2005, which could include areas other than Houston. Grow our fee income. Income from service charges on deposit accounts and other service charges and fees is our fastest growing income component, providing us with a predictable, stable source of income. Fee income constituted 27.2% of our total revenue for the six months ended June 30, 2004. We plan to grow our fee income by continuing to attract customers at our branches. Maintain high level of core deposits. From 1999 to 2003, our core deposits, comprised of our demand deposits, NOW checking, money market and savings accounts and certificates of deposit less than $100,000, increased 161.1% from $415.6 million to $1.1 billion. These low cost deposits represented 90.3% of our total deposits at June 30, 2004. Continued maintenance of our core deposit base provides us with a cost effective and stable source of funding for our earning assets. Continue to maintain asset quality. We have grown and increased our profitability while maintaining excellent asset quality, and we believe that our knowledge of our lending markets and conservative loan underwriting procedures will enable us to continue to do so in the future. At June 30, 2004, our ratio of nonperforming assets to total loans and other real estate was 0.85% and our net charge-offs to average loans was 0.17%. Consider suitable bank acquisitions that will complement and expand our business. In assessing potential acquisition candidates, we intend to focus on location, community demographics, credit quality, market share, culture, management and past operating performance. We have successfully integrated our two previous acquisitions and believe that we have the experience and capabilities necessary to integrate acquisitions successfully in the future. Maintain active community involvement. Active community involvement by our directors, officers and employees is important to our overall success in attracting customers. Community involvement not Total interest income 31,949 31,949 Interest Expense: Deposits 6,970 6,970 FHLB advances 110 110 Note payable 489 489 Debentures 25 25 Interest on TruPS 1,558 1,558 Federal funds purchased 3 Total interest income 31,949 32,254 Interest expense Savings, NOW and money market deposits 1,595 2,790 Time deposits 5,375 5,426 FHLB Advances 110 Note payable 489 619 Subordinated debentures payable 25 26 Junior subordinated debentures 1,558 Company obligated mandatorily redeemable trust preferred securities of subsidiary trusts 1,312 Federal funds purchased Land - $ 11,173 $ 6,857 Premises 5 - 40 37,921 28,846 Furniture, fixtures and equipment 5 - 10 27,750 30,427 Vehicles WOODFOREST FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) Table of Contents only enhances our overall image and name recognition, but it enables us to gain knowledge of the community, which allows us to be responsive in developing products and better able to assess the level of service that we provide. Our principal executive offices are located at 1330 Lake Robbins, Suite 100, The Woodlands, Texas 77380 and our telephone number is (832) 375-2505. Our website address is www.woodforest.com. Information contained in our website is not incorporated by reference into this prospectus and you should not consider information contained in our website as part of this prospectus. Table of Contents DEVELOPMENTS AFFECTING OUR BUSINESS AFTER THE OFFERING Immediately prior to the completion of this offering, we intend to take the following significant corporate actions which will affect our financial condition and results of operations after the offering: Declare a cash distribution of approximately $23.0 million to our existing shareholders prior to our conversion from a Subchapter S corporation to a C corporation for federal income tax purposes. We have operated as a Subchapter S corporation since 1998 and, although we have paid regular and substantial dividends on our common stock (largely to pay the taxes on the Subchapter S corporation earnings), we have accumulated certain undistributed earnings on which our existing shareholders have previously been taxed or will be subject to federal income tax through the date of our conversion to a C corporation. Immediately prior to the conversion, we plan to make a cash distribution of accumulated earnings to our existing shareholders. Our final determination of the amount of the cash distribution will be based on the amount of net proceeds projected to be raised in this offering. The projected net proceeds are based on management s estimate of the amount needed to increase our capital accounts following the cash distribution and the spin-off of Delta Card discussed below and to support our projected growth; Spin off the ownership interests in our wholly-owned subsidiary, Texas DCS, Ltd. (Delta Card), to our shareholders as of a record date prior to completion of this offering. In 2001, we acquired Delta Card, a merchant payment processing service that provides electronic credit verification for businesses that accept major credit and debit cards. The spin-off will be taxable to us as if Delta Card had been sold for its fair market value, and any gain will flow through to our existing shareholders due to our Subchapter S corporation status. In addition, the spin-off will be treated as a distribution of property to our existing shareholders, and as a result, is expected to be tax-free to us and Delta Card. See Delta Card Spin-Off. For the years ended December 31, 2003, 2002 and 2001, Delta Card generated pre-tax earnings for us of $2.5 million, $1.7 million and $1.1 million, respectively. After the spin-off, we will no longer receive these net earnings. On a pro forma basis giving effect only to the spin-off of Delta Card, our net earnings would have decreased by $1.4 million to $11.0 million for the six months ended June 30, 2004 and by $2.5 million to $21.5 million for the year ended December 31, 2003. In addition, our total assets would have decreased by $41.8 million to $1.4 billion as of June 30, 2004 and our total shareholders equity would have decreased by $41.4 million to $37.0 million; and Voluntarily terminate our status as a Subchapter S corporation and convert to a C corporation for federal income tax purposes. As a Subchapter S corporation, our earnings were not subject to federal income tax at the corporate level but were passed through to our shareholders, who incurred federal income tax liability for a portion of our earnings proportionate to their percentage of common stock ownership. Accordingly, we have not paid any federal income tax on our earnings since 1997. As a C corporation, we will be subject to federal income tax at the corporate level at an estimated effective rate of 33.0%, and any dividends paid to our shareholders will be subject to federal income tax at each shareholder s individual federal income tax rate. We do not intend to proceed with the cash distribution, Delta Card spin-off or conversion to a C corporation unless and until we and the underwriters have agreed on the offering price. In addition to the historical financial information provided in this prospectus, we have also included pro forma information showing our operating results and financial condition without including the operations of Delta Card and as if we had been taxed as a C corporation. See Unaudited Pro Forma Consolidated Financial Information and Pro Forma Selected Consolidated Financial Data. 1330 Lake Robbins, Suite 100 The Woodlands, Texas 77380 (832) 375-2505 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) (1) Assumes that the underwriters will not exercise their over-allotment option. If the underwriters exercise this option in full, shares of our common stock will be outstanding immediately after this offering. See Underwriting. (2) The number of shares of our common stock outstanding immediately after this offering does not include up to: 1,394,276 shares that we may issue upon the exercise of stock options outstanding as of June 30, 2004 at a weighted average exercise price of $11.27 per share (prior to adjustment of exercise prices for the Delta Card spin-off); and 1,185,000 shares that we may issue under our 2004 stock incentive plan approved by our shareholders in June 2004 and 8,000 shares that we may issue under our 1995 incentive stock option and nonstatutory stock option plan. Robert E. Marling, Jr. Chief Executive Officer 1330 Lake Robbins, Suite 100 The Woodlands, Texas 77380 (832) 375-2505 (Name, address, including zip code, and telephone number, including area code, of agent for service) Common Share Data(2): Basic earnings per share $ 0.41 $ 0.80 $ 0.89 $ 0.87 $ 1.71 $ 1.63 $ 1.07 Diluted earnings per share 0.40 0.78 0.87 0.86 1.69 1.62 1.07 Book value per share 3.83 5.56 5.35 5.48 5.43 4.39 Tangible book value per share(3) 3.24 2.38 2.23 2.19 2.43 1.14 Copies To: William T. Luedke IV Robert F. Gray, Jr. Charlotte M. Rasche Seth D. Wexler Bracewell & Patterson, L.L.P. Fulbright & Jaworski L.L.P. 711 Louisiana Street, Suite 2900 1301 McKinney, Suite 5100 Houston, TX 77002-2781 Houston, TX 77010-3095 (713) 223-2900 (713) 651-5151 (1) Includes the pro forma effect of federal income tax on our earnings as if we were a C corporation at the rate of 33%. (2) Adjusted for a four-for-one stock split effective September 12, 2001 and a three-for-one stock split effective July 1, 2000. (3) Calculated by dividing total assets, less total liabilities, goodwill and intangible assets, by shares outstanding at end of period. (4) Calculated by dividing service charges on deposit accounts by average deposit accounts, excluding time deposits. Information for the six months ended June 30, 2004 has been annualized. (5) Calculated by dividing noninterest income (excluding securities gains) by the sum of net interest income plus noninterest income (excluding securities gains). (6) At period end, except for net charge-offs to average loans, which is for periods ended at such dates. (7) Nonperforming loans consist of nonaccrual loans, loans contractually past due 90 days or more and restructured loans. (8) At period end, except for average shareholders equity to average total assets, which is for periods ended at such dates. (9) Average number of accounts for the six months ended June 30, 2003 is not available. Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Table of Contents
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+Prospectus Summary This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to China Unistone Acquisition Corporation. Unless otherwise specified, references to "China" or the "PRC" refer to the People's Republic of China as well as the Hong Kong Special Administrative Region and the Macau Special Administrative Region, but do not include Taiwan. Additionally, unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Further, the information in this prospectus has been adjusted to give retroactive effect to reflect the contribution to us by our initial stockholders of a total of 125,000 shares of common stock in July 2004. We are a blank check company organized under the laws of the State of Delaware on May 7, 2004. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business that has its primary operating facilities located in China. To date, our efforts have been limited to organizational activities. Opportunities for market expansion have emerged for businesses with operations in China due to certain changes in the PRC's political, economic and social policies as well as certain fundamental changes affecting the PRC and its neighboring countries. We believe that China represents both a favorable environment for making acquisitions and an attractive operating environment for a target business for several reasons, including, among other things, prolonged economic growth, attractive valuations for target businesses and increased government focus within China on privatizing assets, improving foreign trade and encouraging business and economic activity and China's recent entry into the World Trade Organization ("WTO"), the sole global international organization dealing with the rules of trade between nations, which may lead to a reduction on tariffs for industrial products, a reduction in trade restrictions and an increase in trading with the United States. Notwithstanding these facts, there are various risks of business acquisitions in China including, among others, the risk of increased government regulation, the risk that we may be unable to enforce our rights in China and the risk that China may revert back to former policies regarding privatization of business. Additionally, the PRC has not fully complied with all of its WTO obligations to date. This may lead to a deterioration of relations between China and other countries thereby straining trade dealings. For a more complete discussion of the risks relating to business acquisitions in China, see the section below entitled "Risk Factors." Although our efforts in identifying a prospective target business will not be limited to a particular industry, we initially intend to focus our search on businesses in the PRC that are engaged in providing physical and logistical infrastructure and support services to the banking and financial services industry. The PRC's accession as a member of the WTO in December 2001 was a catalyst for the opening up of the domestic banking and financial services industry to foreign participation. We believe that the liberalization of the banking and financial services industry in the PRC will force both the domestic and foreign banks and financial institutions to upgrade their operations to offer their customers a wider range of financial products and services, a greater breadth of services and a level of service quality that is in line with international standards. We believe that financial institutions will aggressively seek technology and outsourced solutions to resolve inefficiencies and lower costs so that they can compete effectively in the market place. The financial services industry has traditionally been one of the largest and most aggressive users of technology in developed countries like the United States and we believe this characteristic will emerge in China as well. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 4 Columbus Circle, 5th Floor, New York, New York 10019 and our telephone number is (646) 442-6965. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The Offering Securities offered:..................... 3,000,000 units, at $6.00 per unit, each unit consisting of: o one share of common stock; and o two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital determines that an earlier date is acceptable. In no event will EarlyBirdCapital allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering............................. 750,000 shares Number to be outstanding after this offering............................. 3,750,000 shares Warrants: Number outstanding before this offering............................. 0 Number to be outstanding after this offering............................. 6,000,000 warrants Exercisability....................... Each warrant is exercisable for one share of common stock. Exercise price....................... $5.00 Exercise period...................... The warrants will become exercisable on the later of: o the completion of a business combination with a target business, or o [________], 2005 [one year from the date of this prospectus]. The warrants will expire at 5:00 p.m., New York City time, on [________], 2008 [four years from the date of this prospectus] or earlier upon redemption. Redemption........................... We may redeem the outstanding warrants, with EarlyBirdCapital's prior consent: o in whole and not in part, o at a price of $.01 per warrant at any time after the warrants become exercisable, o upon a minimum of 30 days' prior written notice of redemption, and -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- o if, and only if, the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our: Units................................ [______] Common stock......................... [______] Warrants............................. [______] Offering proceeds to be held in trust:.. $15,300,000 of the proceeds of this offering ($5.10 per unit) will be placed in a trust account at JPMorgan Chase NY Bank maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the date of this prospectus. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $500,000). None of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination:............................ We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the majority of the shares of common stock voted by the public stockholders. We will proceed with a business combination only if a majority of the shares of common stock voted by the public stockholders are voted in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination:............................ Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust fund, including any interest earned on their portion of the trust fund, if the business combination is approved and completed. Liquidation if no business combination:............................ We will dissolve and promptly distribute only to our public stockholders the amount in our trust fund plus any remaining net assets if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Escrow of management shares:............ On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they owned before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be transferable during the escrow period and will not be released from escrow until [________], 2007 [three years from the date of this prospectus]. Risks In making your decision on whether to invest in our securities, you should take into account not only the risks of doing business in the PRC and the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider all of the risks set forth in the section entitled "Risk Factors" beginning on page 8 of this prospectus. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA The following table summarizes the relevant financial data for our business and should be read with our financial statements, which are included in this prospectus. We have not had any significant operations to date, so only balance sheet data is presented. <TABLE> <CAPTION> September 30, 2004 --------------------------------- June 22, 2004 (unaudited) As Adjusted ------------- ------------------ ----------- <S> <C> <C> <C> Balance Sheet Data: Working capital/(deficiency) ................. $ (965) $ (77,558) $15,823,917 Total assets ................................. 94,970 106,927 15,823,917 Total liabilities ............................ 70,935 83,010 -- Value of common stock which may be converted to cash ($5.10 per share) ..... -- -- 3,058,470 Stockholders' equity ......................... 24,035 23,917 12,765,447 </TABLE> The working capital deficiency excludes $25,000 and $101,475 of costs related to this offering which were paid prior to June 22, 2004 and September 30, 2004, respectively. These deferred offering costs have been recorded as a long-term asset and are reclassified against stockholders' equity in the "as adjusted" information. The "as adjusted" information gives effect to the sale of the units we are offering including the application of the related gross proceeds and the payment of the estimated remaining costs from such sale. The working capital and total assets amounts include the $15,300,000 being held in the trust fund, which will be available to us only upon the consummation of a business combination within the time period described in this prospectus. If a business combination is not so consummated, we will be dissolved and the proceeds held in the trust fund will be distributed solely to our public stockholders. We will not proceed with a business combination if public stockholders owning 20% or more of the shares sold in this offering vote against the business combination and exercise their conversion rights. Accordingly, we may effect a business combination if public stockholders owning up to approximately 19.99% of the shares sold in this offering exercise their conversion rights. If this occurred, we would be required to convert to cash up to approximately 19.99% of the 3,000,000 shares sold in this offering, or 599,700 shares of common stock, at an initial per-share conversion price of $5.10, without taking into account interest earned on the trust fund. Accordingly, these funds would not be available to us following a successful business combination. The actual per-share conversion price will be equal to: o the amount in the trust fund as of the record date for the determination of stockholders entitled to vote on the business combination plus any interest accrued through the record date, o divided by the number of shares of common stock sold in the offering. --------------------------------------------------------------------------------
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+PROSPECTUS SUMMARY This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the risk factors and the financial statements. Unless otherwise stated in this prospectus, references to "we," "us" or "our company" refer to Rand Acquisition Corporation. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Additionally, unless we tell you otherwise, the information in this prospectus has been adjusted to give retroactive effect to a 1.1428571-to-one stock dividend effected on October 7, 2004. We are a blank check company organized under the laws of the State of Delaware on June 2, 2004. We were formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a currently unidentified operating business with significant growth potential. To date, our efforts have been limited to organizational activities. Our efforts in identifying a prospective target business will not be limited to a particular industry. Instead, we intend to focus on various industries including logistics and distribution, infrastructure and manufacturing. We intend to concentrate on businesses that we believe are financially stable, are not likely to be subject to foreign competition or rapid technological change and have the opportunity for long-term growth. While we may seek to effect business combinations with more than one target business, our initial business combination must be with a target business whose fair market value is at least equal to 80% of our net assets at the time of such acquisition. Consequently, it is likely that we will have the ability to effect only a single business combination. Our offices are located at 450 Park Avenue, 10th Floor, New York, New York 10022 and our telephone number is (212) 644-3450. THE OFFERING Securities offered:.................. 4,000,000 units, at $6.00 per unit, each unit consisting of: o one share of common stock; and o two warrants. The units will begin trading on or promptly after the date of this prospectus. Each of the common stock and warrants may trade separately on the 90th day after the date of this prospectus unless EarlyBirdCapital determines that an earlier date is acceptable. In no event will EarlyBirdCapital allow separate trading of the common stock and warrants until we file an audited balance sheet reflecting our receipt of the gross proceeds of this offering. We will file a Current Report on Form 8-K, including an audited balance sheet, upon the consummation of this offering, which is anticipated to take place three business days from the date of this prospectus. The audited balance sheet will include proceeds we receive from the exercise of the over-allotment option if the over-allotment option is exercised prior to the filing of the Form 8-K. Common stock: Number outstanding before this offering....................... 1,000,000 shares Number to be outstanding after this offering.................. 5,000,000 shares Warrants: Number outstanding before this offering....................... 0 Number to be outstanding after this offering.................. 8,000,000 warrants Exercisability.................... Each warrant is exercisable for one share of common stock. Exercise price.................... $5.00 Exercise period................... The warrants will become exercisable on the later of: o the completion of a business combination with a target business, or o [________], 2005 [ONE YEAR FROM THE DATE OF THIS PROSPECTUS]. The warrants will expire at 5:00 p.m., New York City time, on [________], 2008 [FOUR YEARS FROM THE DATE OF THIS PROSPECTUS] or earlier upon redemption. Redemption........................... We may redeem the outstanding warrants: o in whole and not in part, o at a price of $.01 per warrant at any time after the warrants become exercisable, o upon a minimum of 30 days' prior written notice of redemption, and o if, and only if, the last sales price of our common stock equals or exceeds $8.50 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. Proposed OTC Bulletin Board symbols for our:........................... Units.............................. [______] Common stock....................... [______] Warrants........................... [______] Offering proceeds to be held in trust:.......................... $20,640,000 of the proceeds of this offering ($5.16 per unit) will be placed in a trust account at JPMorgan Chase NY Bank maintained by Continental Stock Transfer & Trust Company, pursuant to an agreement to be signed on the date of this prospectus. These proceeds will not be released until the earlier of the completion of a business combination or our liquidation. Therefore, unless and until a business combination is consummated, the proceeds held in the trust fund will not be available for our use for any expenses related to this offering or expenses which we may incur related to the investigation and selection of a target business and the negotiation of an agreement to acquire a target business. These expenses may be paid prior to a business combination only from the net proceeds of this offering not held in the trust fund (initially, approximately $655,000). None of the warrants may be exercised until after the consummation of a business combination and, thus, after the proceeds of the trust fund have been disbursed, the warrant exercise price will be paid directly to us. Stockholders must approve business combination:.............. We will seek stockholder approval before we effect any business combination, even if the nature of the acquisition would not ordinarily require stockholder approval under applicable state law. In connection with the vote required for any business combination, all of our existing stockholders, including all of our officers and directors, have agreed to vote the shares of common stock owned by them immediately before this offering in accordance with the majority of the shares of common stock voted by the public stockholders. We will proceed with a business combination only if a majority of the shares of common stock voted by the public stockholders are voted in favor of the business combination and public stockholders owning less than 20% of the shares sold in this offering exercise their conversion rights described below. Conversion rights for stockholders voting to reject a business combination:....................... Public stockholders voting against a business combination will be entitled to convert their stock into a pro rata share of the trust account, including any interest earned on their portion of the trust account, if the business combination is approved and completed. Liquidation if no business combination:....................... We will dissolve and promptly distribute only to our public stockholders the amount in our trust account plus any remaining net assets if we do not effect a business combination within 18 months after consummation of this offering (or within 24 months from the consummation of this offering if a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after consummation of this offering and the business combination has not yet been consummated within such 18 month period). Escrow of management shares:......... On the date of this prospectus, all of our existing stockholders, including all of our officers and directors, will place the shares they owned before this offering into an escrow account maintained by Continental Stock Transfer & Trust Company, acting as escrow agent. Subject to certain limited exceptions, these shares will not be transferable during the escrow period and will not be released from escrow until [________], 2007 [THREE YEARS FROM THE DATE OF THIS PROSPECTUS]. RISKS In making your decision on whether to invest in our securities, you should take into account not only the backgrounds of our management team, but also the special risks we face as a blank check company, as well as the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act of 1933, as amended, and, therefore, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider these and the other risks set forth in the section entitled "Risk Factors" beginning on page 8 of this prospectus.
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing in the back of this prospectus. You should carefully consider, among other things, the matters discussed in
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001295334_valley_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001295334_valley_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider. You should read the following summary together with the more detailed information set out in this prospectus, including the Risk Factors section beginning on page 8 and our financial statements and notes to those financial statements that appear elsewhere in this prospectus. Unless we indicate otherwise, all share, per share and financial information in this prospectus: assumes a public offering price of $18.00 per share, which is the mid-point of the range indicated on the front cover of this prospectus; does not give effect to the use of proceeds of the offering; assumes no exercise of the underwriter s option to purchase any of the additional 125,100 shares of our common stock subject to that option; and has been retroactively adjusted to reflect common stock splits of Valley Bank (5-for-4 split, effective February 14, 2000) and of Valley Bancorp (11-for-10 split, effective January 31, 2002). Valley Bancorp Valley Bancorp is a Nevada state-chartered bank holding company formed in mid-2001. We operate through Valley Bank, a Nevada state chartered bank that commenced operations in October 1998 with the mission of providing community banking services to Las Vegas and its neighboring suburbs. We provide a variety of lending and deposit products and services, focusing primarily on commercial construction and commercial real estate loans to small and medium size businesses and developers located in and around the Las Vegas, Nevada area. Valley Bank has three branches, including one in Las Vegas, one in Henderson, Nevada, a suburb of Las Vegas, and one in Pahrump, Nevada, which is 60 miles west of Las Vegas. We focus our banking business in two counties, Clark County, which includes Las Vegas and Henderson, and Nye County, where our Pahrump branch is located. We maintain a website at www.vbnv.com. Our address is 3500 W. Sahara Avenue, Las Vegas, Nevada 89102, and our telephone number is (702) 221-8600. At June 30, 2004, we had consolidated assets of $227.0 million, net loans of $173.5 million, deposits of $208.6 million, and stockholders equity of $17.2 million. Since December 31, 2000, we have achieved strong growth. Specifically, we have: increased our total assets from $90.6 million to $186.9 million at December 31, 2003, a three year compound annual growth rate of approximately 27%; increased total assets to $227.0 million, or approximately 21%, from December 31, 2003 to June 30, 2004; increased net loans from $64.6 million to $133.8 million at December 31, 2003, a three year compound annual growth rate of approximately 27%; increased net loans to $173.5 million, or approximately 30%, from December 31, 2003 to June 30, 2004; increased total deposits from $79.9 million to $169.8 million at December 31, 2003, a three year compound annual growth rate of approximately 29%; and increased total deposits to $208.6 million, or approximately 23%, from December 31, 2003 to June 30, 2004. Our Market Area We operate in the burgeoning communities in and around Las Vegas, Nevada. Specifically, we serve commercial and consumer customers throughout our primary market area of Clark and Nye Counties in You should rely only on the information contained in this prospectus. We and the underwriter have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. Information contained on our website is not part of this prospectus. Until , 2004, all dealers that effect transactions of these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions. Table of Contents Southern Nevada. Clark County is one of the fastest growing areas in the United States. Between 1990 and 2000, Clark County s population grew by 85.5%. Although smaller in size, Nye County also experienced substantial population growth between 1990 and 2000. The dramatic increase in population in Clark and Nye Counties has been fueled by a rise in economic opportunities available in Southern Nevada. Complementing the region s expanding employment opportunities has been the availability of relatively affordable housing. Strong economic growth in our primary market area has brought about an accompanying need for infrastructure. In addition to schools, growth in population has created a need for all types of retail services, providing significant commercial lending opportunities. Deposit growth has also followed population growth. Clark County saw deposits grow from $10 billion to $24 billion between June 1998 and June 2003, according to the FDIC. Consequently, we have been well positioned to capture some of this deposit growth. Our Business Activities We provide banking and other financial services throughout our primary market area to small and medium size businesses, with annual revenues ranging from $1 million to $100 million. Many of these small and medium size businesses comprise the infrastructure developing in and around Las Vegas to service the growing population. We also provide a broad range of deposit services and products, including personal checking and savings accounts and other banking products, including electronic banking, to consumers. Lending Activities We originate a variety of loans, including secured and unsecured commercial and real estate business loans, construction loans and land loans. Loans are generally structured according to purpose and collateral providing support to the credit. Through Valley Bank, we concentrate our lending activities in the following principal areas: Commercial real estate loans. At June 30, 2004, our commercial real estate loan portfolio, which includes commercial and industrial loans secured by real estate, totaled $94.8 million, or 53.8% of our total loan portfolio. Commercial and industrial loans. At June 30, 2004, our commercial and industrial loan portfolio totaled $31.7 million, or 18.0% of our total loan portfolio. Most of these loans are secured by collateral other than real estate. Construction and land development loans. At June 30, 2004, our construction and land development portfolio totaled $28.7 million, or 16.3% of our total loan portfolio. Raw land. At June 30, 2004, our raw land loan portfolio totaled $15.4 million, or 8.7% of our total loan portfolio. Deposit Activities Through our branches in Las Vegas, Henderson and Pahrump, Nevada, we provide a wide array of deposit products. We offer regular checking, savings, NOW and money market deposit accounts; fixed-rate, fixed maturity retail certificates of deposit ranging in terms from 30 days to five years; individual retirement accounts and non-retail certificates of deposit consisting of jumbo (generally greater than or equal to $100,000) certificates. At June 30, 2004, our deposit portfolio was comprised of 21.6% non-interest bearing deposits, as compared to 15.8% at December 31, 2003 and 10.4% at December 31, 2002. We intend to continue our efforts to attract deposits from our business lending relationships in order to reduce our cost of funds and improve our net interest margin. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Our Management We have assembled a senior management team with depth and breadth of experience in the financial services industry. All members of our senior management team have been with Valley Bank since its organization in 1998. Our management team is comprised of: Barry Hulin, President and Chief Executive Officer; Dick Holtzclaw, Executive Vice President and Chief Financial Officer; Steve Gilbert, Executive Vice President and Chief Credit Officer; and Sue Garland, Vice President, Operations. Our Strategy Our goal is to become a premier commercial bank for the long-term benefit of our shareholders, customers and employees by increasing shareholder value and providing high-quality customer service. From December 1998 to December 2003, we have grown from total assets of $10.3 million to total assets of $186.9 million, while improving our efficiency ratio from 250% to 65%. Over the next five years, we have targeted an annual return on average assets of at least 1%, a double-digit return on average equity and an efficiency ratio of 60% or less. In addition, we intend to manage our net interest margin to a target of 5%. In order to achieve these targets, our goal is to grow our assets approximately 25% and our loan portfolio approximately 20% annually. We intend to achieve these results by expanding our business with disciplined execution. Accordingly, we have designed the following principal operating strategy to continue our asset and earnings growth: Expanding Our Business Maintain and increase our customer base by positioning the bank as a premier commercial bank in Southern Nevada. Continue to grow our lending activities. Develop a retail franchise by capitalizing on our commercial lending franchise. Disciplined Execution Maintain high credit quality. Maintain pricing discipline. Focus on efficiency. For a more complete description of our business strategy, see Business Our Strategy. Pre-Effective Amendment No. 2 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The number of shares of our common stock offered assumes that the underwriter s over-allotment option is not exercised. If the over-allotment option is exercised in full, we will issue and sell an additional 125,100 shares. (2) The number of shares of our common stock outstanding after this offering is based on the number of shares outstanding on June 30, 2004 and excludes 250,000 shares of common stock issuable upon the exercise of stock options outstanding at June 30, 2004.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001295477_prestige_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001295477_prestige_prospectus_summary.txt
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+Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001295484_51job-inc_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001295484_51job-inc_prospectus_summary.txt
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+PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company, the common shares and ADSs being sold in this offering, and our consolidated financial statements and notes to these consolidated financial statements appearing elsewhere in this prospectus. 51job, Inc. Our Business We believe that we are a leading provider of integrated human resource services in China, with a strong focus on recruitment related services. Our recruitment related services are delivered in both print and online formats, and these two services are closely integrated to allow us to reach a wide and diverse audience. The Internet, web-based applications and human resource software are critical aspects of our services. We believe that we are the only significant nationwide provider of integrated print and online recruitment advertising services in China. We believe that our integrated advertising services allow us to attract a broad base of advertisers and provide us with a platform from which we can market our other human resource related services. In addition to recruitment advertising services, we also provide executive search and other complementary human resource related services for large and small employers. Our goal is to be a one-stop solution to human resource departments by providing recruitment and other human resource related services to employers. We are not aware of any publicly available third party market share analysis of the print or online recruitment advertising industries, the executive search industry or the other human resource related industries in which we operate in China. Accordingly, our statements in this prospectus with regard to what we believe to be our market position are based on our own analysis and review of our business and operations, the businesses and operations of entities that we view as our main competitors and data that we compile and analyze internally. These statements are solely the opinion of our management and have not been reviewed by third parties. Recruitment related services Our recruitment related services consist of our integrated print advertising and online recruitment services, as well as our executive search services. These services accounted for 93.9% of our revenues in 2003. Print advertising. Our customers advertise job positions in Career Post Weekly, a city-specific recruitment publication published once a week and distributed as an insert in major local newspapers and/or on a stand-alone basis. Career Post Weekly was produced in 19 cities in China as of June 30, 2004. We closely coordinate Career Post Weekly with our www.51job.com online recruitment website, and we post all recruitment advertisements appearing in Career Post Weekly on www.51job.com as well. Our print advertising business accounted for 62.3% of our revenues in 2003. Online recruitment services. www.51job.com is our online recruitment website which we promote as a destination site for employers and job seekers in China. www.51job.com contains all of the recruitment advertisements appearing in Career Post Weekly as well as additional advertisements that only appear online. We update our recruitment advertisements on an hourly basis. Job seekers post resum s on our website, and employers manage and organize their online review of resum s and candidates through the eHire web-based software tools on our website. We believe that we are the largest dedicated national recruitment website in China in terms of registered job user accounts and posted resum s, with approximately 6.9 million user accounts established since the launch of our website in 1999 and approximately 4.6 million resum s posted online as of June 30, 2004. Online recruitment services accounted for 26.2% of our revenues in 2003. Executive search. eSearch is our executive search service. Our search assignments are generally targeted at mid-level professional, managerial and junior executive positions. We believe that eSearch is a valuable complement to our Career Post Weekly and www.51job.com recruitment services. eSearch increases our Long term receivables due from related parties 2 47,346,156 46,928,889 5,670,068 Investment in subsidiaries Table of Contents Conventions That Apply to This Prospectus Unless otherwise indicated, references in this prospectus to: ADRs are to the American depositary receipts that evidence our ADSs; ADSs are to our American depositary shares, each of which represents two common shares; China or the PRC are to the People s Republic of China, excluding for the purpose of this prospectus Hong Kong, Macau and Taiwan; Nasdaq are to the Nasdaq National Market; RMB are to Renminbi, the legal currency of the PRC; shares or common shares are to our common shares, with par value US$0.0001 per share; U.S. GAAP are to the generally accepted accounting principles in the United States of America; and US$ are to U.S. dollars, the legal currency of the United States of America. Unless the context indicates otherwise, we, us, our company, our and 51job refer to 51job, Inc., its predecessor entities and subsidiaries, and, in the context of describing our operations, also include our affiliated entities. In addition, unless otherwise indicated, references in this prospectus to: 51net are to 51net.com Inc.; AdCo are to Shanghai Qianjin Culture Communication Co., Ltd.; AdCo Subsidiaries are to the subsidiaries of AdCo that conduct advertising businesses; Qian Cheng are to Beijing Qian Cheng Si Jin Advertising Co., Ltd.; RAL are to Shanghai Run An Lian Information Consultancy Co., Ltd.; Run An are to Beijing Run An Information Consultancy Co., Ltd.; Tech JV are to Qianjin Network Information Technology (Shanghai) Co., Ltd.; WFOE are to Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd.; and Wuhan AdCo are to Wuhan Mei Hao Qian Cheng Advertising Co., Ltd. Unless otherwise indicated, our financial information presented in this prospectus has been prepared in accordance with U.S. GAAP. Solely for your convenience, this prospectus contains translations of certain Renminbi amounts into U.S. dollar amounts at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translations of Renminbi amounts into U.S. dollar amounts have been made at the noon buying rate in effect on June 30, 2004, which was RMB8.2766 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See Risk Factors Risks Related to the People s Republic of China Governmental control of currency conversion may affect the value of your investment and The fluctuation of the Renminbi may materially and adversely affect your investment for discussions of the effects of currency control and fluctuating exchange rates on the value of our ADSs. On September 10, 2004, the noon buying rate was RMB8.2766 to US$1.00. We calculate the number of our print advertising pages by physically counting the number of paid advertising pages in each of our editions of Career Post Weekly. In calculating the number of paid advertising Table of Contents visibility with employers, attracts more experienced candidates to submit their resum s to us and positions us as a full service provider of recruitment solutions. Executive search services accounted for 5.4% of our revenues in 2003. Other human resource related services We offer a number of other value-added human resource services in areas such as training, software applications, business process outsourcing and surveys. These services accounted for 6.1% of our revenues in 2003. We launched our training services in 2001. We offer public and in-house courses and seminars in business management, marketing, human resource, sales, manufacturing, secretarial and other skills. We have also developed a proprietary personnel assessment system used for employee evaluation, training, development and recruitment. In addition, we organize large human resource conferences and networking events. In mid-2003, we launched a human resource management software package that allows employers to track attendance, payroll, vacation and other employee related information. In mid-2003, we also launched our business process outsourcing service through which we perform human resource administrative functions, such as payroll and benefits processing and tracking of compliance with local and national employment laws, on an outsourced basis. Employers and employees can access information through a web-based platform for communication and decision-making purposes, although the processing of these functions is outsourced to us. We also provide salary survey studies with analysis on compensation levels across various cities, industries and positions. We have introduced these services on a limited basis only, and they do not currently contribute meaningfully to our revenues. We face significant competition from various entities in our different businesses in each of the cities in which we operate. However, we believe that we are the only significant provider of integrated print and online recruitment advertising nationwide. Our Revenue Model Although we provide services to both employers and job seekers, we derive substantially all of our revenues from employers. We receive a majority of our revenues in the form of fees from employers for placing job advertisements in Career Post Weekly and on www.51job.com. We also receive fees from employers for access to our www.51job.com resum databases, for use of our eHire web-based software applications, for use of our eSearch executive search services and in connection with our other human resource related services. We have been profitable since 2002 on a full-year basis. In 2003, we recorded net income of RMB32.6 million (US$3.9 million), compared to net income of RMB3.9 million in 2002 and a net loss of RMB23.0 million in 2001. Our Market Opportunity We believe that the human resource services industry has significant growth potential in China. As conditions in China s growing economy become more liberalized and competitive, the role of human resource management within Chinese companies is growing in importance. As employers increasingly realize how critical identifying, attracting, developing and retaining qualified employees is to a firm s success, we expect employers will seek professional services across all segments of the human resource services industry value chain. Moreover, we believe that employers will increasingly seek services that are national as well as local in scope and will look to access these services through multiple channels. As human resource operations become more complex, we also believe there is potential for employers to outsource a significant portion of human resource administration and management and seek the service of third party providers, such as ourselves, to address these growing challenges. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents pages, we make adjustments to take into account differing page sizes and pages with mixed advertising and non-advertising content. This is a manual process that is subject to error, including errors in judgment as to the appropriate adjustments to be made. We define a unique employer in our online recruitment business as a customer that purchases our online recruitment services during a specified period. We make adjustments for multiple purchases by the same customer within a city to avoid double counting. Each employer is assigned a unique identification number in our management information system. Affiliates and branches of a given employer may, under certain circumstances, be counted as separate unique employers. Our calculation of the number of unique employers is subject to misidentification and other forms of error, including errors in judgment as to appropriate adjustments to be made to the data. We cannot assure you that our methodology, page counting, employer identification, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of the actual revenues we generate per page or actual numbers of customers, as the case may be. Table of Contents We believe that the following broad macroeconomic factors in China drive the growth of our industry: rapid economic growth and liberalization; growing number of business entities and, in particular, companies in the private sector; and substantial growth in job openings. In addition to the above macroeconomic factors, we believe that the following changes in the composition of China s labor market as well as changes in recruitment trends in China create significant opportunities for further growth and development in our industry: urbanization of the work force; large and growing skilled and white collar labor force; increasing acceptance of new channels of recruitment; and the growth of the Internet as an important distribution channel for the human resource services industry, especially for recruitment advertising. We believe there is significant opportunity for market expansion due to these factors. However, given its early development stage, the Chinese market for human resource services may ultimately develop in a manner and at a rate different from what we anticipate due to changes in China s economic condition, changes in regulation relating to our industry, changes in the way companies use third party human resource services, increasing competition in our markets and other factors. Our Strengths and Strategy Through our nationwide network of offices, we provide our clients with a variety of human resource services through multiple distribution channels. In addition to our focus on both print and online recruitment advertising, we have developed additional products and services to address many human resource management needs. We believe that we are a leader in many of our markets as a result of the following competitive strengths: our strong brand names help us enter new geographic markets and lines of business; with our large sales force, we can directly market our services to existing and potential clients in key geographic markets and industries; the integration of our print and online recruitment advertising businesses allows us to extend the reach of our advertisements to a broad audience of job seekers, while providing a cost-effective solution for employers; our range of human resource services and wide geographic footprint make us attractive to employers that require a broad range of human resource services in multiple markets; we have a strong technology platform, and we are developing a number of additional software and web-based human resource services; and our highly experienced senior management team has a proven track record. Our objective is to become the market leader in each of our recruitment and other human resource businesses. Our strategy is to continue investing in our brands, aggressively expand our sales force in existing markets, target new markets in China and continue developing innovative software and web-based applications to meet the human resource and job search needs of employers and job seekers. Notwithstanding these strengths, our ability to realize our objective and execute our strategy is subject to certain risks and uncertainties, including: significant competition in our businesses, including intense competition in many of our markets, and relatively low barriers to entry to all of our markets; Amendment No. 3 to Form F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents our ability to achieve or maintain necessary economies of scale; potential slowdowns or other adverse developments in the PRC economy; our dependence on local newspapers to publish and distribute Career Post Weekly; and general regulatory uncertainty, including with respect to our historical compliance with PRC restrictions on foreign ownership. Our Corporate Structure The PRC government regulates foreign ownership in entities providing advertising, Internet content and human resource related services. In May 2004, we restructured our operations to comply with current PRC foreign ownership limitations. Historically, certain of our operations were conducted by two affiliated entities, Run An and Qian Cheng, which are wholly owned, directly and indirectly, by Michael Lei Feng and Tao Wang, two of our executive officers. We entered into contractual arrangements with these two entities pursuant to which we bore all of their economic risks and received all of their economic rewards. In our consolidated financial statements, we have consolidated all of the interests of Run An and Qian Cheng under Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, or FIN 46. In connection with our restructuring in May 2004, we terminated or modified the agreements referred to above and entered into new agreements with these affiliated entities and with RAL, a new affiliated entity formed and wholly owned by two of our executive officers. Under these agreements, we continue to bear all of the economic risks and receive all of the economic rewards of these affiliated entities. Consequently, we expect to consolidate the interests of RAL, and to continue to consolidate the interests of Run An and Qian Cheng, under FIN 46. 51job, Inc. (Exact Name of Registrant as Specified in Its Charter) Not Applicable (Translation of Registrant s Name into English) Cayman Islands 7361 Not Applicable (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification No.) 21st Floor, Wen Xin Plaza 755 Wei Hai Road Shanghai 200041 People s Republic of China Attention: Rick Yan, Chief Executive Officer +(86-21) 3201-4888 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) (1) Does not include 51net HR, a dormant entity incorporated in the Cayman Islands and wholly owned by 51job, Inc., or Wang Jin Information Technology (Shanghai) Co., Ltd., a wholly owned subsidiary of 51net.com Inc. established in the PRC in June 2004 with no current operations. (2) Includes the subsidiaries of AdCo that conduct advertising businesses and Shanghai Cheng An Human Resources Co. Ltd., which provides outsourcing services, and Shanghai Wang Cai Trading Co., Ltd., which provides stationery and office supplies to our business customers. (3) Excludes Wuhan AdCo, which is set out separately in the chart. Tech JV, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues and receive substantially all of the cash payments from our clients. Under the terms of our contractual arrangements with Qian Cheng, the minority shareholder of Tech JV, AdCo and the AdCo Subsidiaries, WFOE receives all of the economic rewards and bears all of the economic risks of all of Qian Cheng s minority interests in Tech JV, AdCo and the AdCo Subsidiaries. National Registered Agents, Inc. 875 Avenue of the Americas, Suite 501 New York, New York 10001 (800) 767-1553 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Table of Contents Corporate Information We are a limited liability company that was incorporated in the Cayman Islands on March 24, 2000. Our principal executive offices are located at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai 200041, People s Republic of China. Our telephone number at this address is +(86-21) 3201-4888. Our registered office in the Cayman Islands is located at the offices of M C Corporate Services Limited, P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands. Our telephone number at this address is +(1-345) 949-8066. Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.51job.com. The information contained on our website is not incorporated by reference into this prospectus. Our agent for service of process is National Registered Agents, Inc., located at 875 Avenue of the Americas, Suite 501, New York, New York 10001. Copies to: Leiming Chen Shearman Sterling LLP 12th Floor, Gloucester Tower, The Landmark 11 Pedder Street Central, Hong Kong +(852) 2978-8000 William Barron Davis Polk Wardwell 18th Floor, The Hong Kong Club Building 3A Chater Road Central, Hong Kong +(852) 2533-3300 Table of Contents The Offering American Depositary Shares offered 5,250,000 ADSs, representing 10,500,000 common shares Price per ADS We currently estimate that the initial public offering price will be between US$11 and US$13 per ADS. The ADSs Each ADS represents two common shares, par value US$0.0001 per share. The ADSs will be evidenced by American Depositary Receipts, or ADRs. A nominee of the depositary will be the registered holder of the common shares underlying your ADSs. You will have the rights of an ADR holder as provided in a deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time, dated , 2004. You will be required to pay US$0.05 per ADSs for each issuance or cancellation of an ADS, a fee for each distribution of securities by the depositary based on the number of common shares deposited for issuance of ADSs, US$0.02 per ADS per year for depositary services, fees for transfer and registration of your common shares, and certain expenses incurred by the depositary. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled Description of American Depositary Shares. We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. We may amend or terminate the deposit agreement for any reason without your consent. If an amendment becomes effective, you will be considered, by continuing to hold your ADSs, to have agreed to be bound by the deposit agreement as amended. Over-allotment option We have granted a 30-day option (commencing from the date of this prospectus) to the underwriters to purchase up to an additional 787,500 ADSs to cover over-allotments of ADSs. Common shares outstanding immediately after this offering 53,593,979 common shares (or 55,168,979 common shares if the underwriters exercise the over-allotment option in full) Dividend policy We do not anticipate paying any cash dividends in the near future. Use of proceeds We estimate that we will receive net proceeds from this offering of approximately US$57.0 million, assuming an initial public offering price of US$12 per ADS, the midpoint of the estimated range of the initial public offering price. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately US$65.8 million. We intend to use the proceeds from this offering primarily to: provide working capital for the growth of our businesses; purchase software and equipment to enhance and upgrade our technology infrastructure and platforms; fund marketing efforts to build and maintain our brand name and image; and fund potential acquisitions of complementary businesses as such opportunities may arise from time to time. Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act of 1933, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus, but does not contain all the information that is important to you. You should read this entire prospectus carefully, including the section entitled
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus Summary The following is a summary of the principal features of this offering of IDSs and notes, and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Throughout this prospectus, we refer to Xerium Technologies, Inc., a Delaware corporation, together with its consolidated operations, as we, our and us, unless the context requires otherwise or otherwise indicated. Xerium Technologies, Inc. is a holding company and has no direct operations. Our Company Company Overview We are a leading global manufacturer and supplier of two categories of consumable products used in the production of paper clothing and roll covers. We have an extensive global footprint of 37 manufacturing facilities in 15 countries, strategically located in the major paper-producing regions of North America, Europe, South America and Asia-Pacific, and have approximately 4,000 employees worldwide. We market our products to the paper industry s leading producers through several brands that are well known in the industry. In 2003, we generated net sales of $560.7 million. Our clothing and roll covers play key roles in the formation and processing of paper along the length of a paper-making machine. Our products are in constant contact with the paper and, as a result, they have a significant effect on paper quality and the ability of a paper producer to differentiate its products. In addition, while clothing and roll covers represent only approximately 3% of a paper producer s production costs, they can help a paper producer reduce overall costs. Our clothing and roll covers allow paper producers to use less expensive raw materials (including recycled fiber), run paper-making machines faster and with fewer interruptions and decrease the amount of energy required in the expensive drying portion of the paper-making process. Accordingly, we believe our customers view us as a value-added supplier for their businesses. Clothing and roll covers wear down over time and must be regularly replaced in order for paper producers to sustain high quality paper output and operate efficiently. Roll covers also require regular refurbishment, and we provide refurbishment services for previously installed roll covers. Paper producers must typically replace clothing multiple times per year, refurbish roll covers multiple times per year and replace roll covers every two to five years. Our clothing and roll cover products are designed to withstand extreme temperature and pressure conditions, and are the result of considerable research and development and a sophisticated manufacturing process. Our clothing products are highly engineered synthetic textile belts that transport paper as it is processed along the length of a paper-making machine. Clothing plays a significant role in the forming, pressing and drying stages of paper production. Because paper-making machines vary widely in size and design, clothing is customized to each individual paper-making machine. Clothing can be in excess of 460 feet long and 30 feet wide. Our roll cover products provide a surface with the mechanical properties necessary to process the paper sheet in a cost-effective manner that delivers the sheet qualities desired by the paper producer. These products cover the rolls on a paper-making machine, which are the large steel cylinders over which clothing is mounted and between which the paper travels as it is processed. Like our clothing products, our roll cover products are customized to each individual paper-making machine. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Demand for our products and services is driven primarily by the volume of global paper production, which, according to the Food and Agriculture Organization of the United Nations, increased at a compound annual growth rate of approximately 2.9% from 1980 to 2003, with growth in every year but two during this period. The stability in the global volume of paper production results in stable demand for our products and services and causes our business to be largely unaffected by the historical volatility of paper prices and the corresponding swings in the profitability of paper producers. We estimate that there are approximately 7,800 paper-making machines worldwide, all of which require a regular supply of clothing and roll covers. Our experience is that our customers are typically reluctant to change suppliers of their clothing and roll covers, largely because these products must be customized to each individual paper-making machine and can significantly affect paper quality and production efficiency. We have found that our customers often believe that the risks to production associated with changing suppliers outweigh the potential benefits of the change. Key Strengths Global Market Leader with Well Known Brands We believe that we are the leading global manufacturer and supplier of roll covers with at least one-third of the global market share based on total sales in 2003 (excluding China, where accurate data is not available), and are among the top three global manufacturers of clothing, with approximately a 15% global market share based on total sales in 2003. Stable Demand for Our Products The steady growth in the volume of global paper production has resulted in stable demand for our products and services. Diversified Global Customer Base Including Leading Paper Producers We have a diversified customer base that includes all of the leading paper producers in North America and Europe. Strong Pipeline of Technologically Advanced Product Upgrades and New Products We currently have an extensive pipeline of product upgrades and new products under development. Strong Financial Performance We have increased our annual revenues, net cash provided by operating activities and Adjusted EBITDA since 2000, despite adverse conditions in the paper industry. For a discussion of the calculation of Adjusted EBITDA, see Selected Historical Consolidated Financial Data. Proven Management Team We have a highly experienced management team that has successfully implemented operational changes enabling us to strengthen our market and competitive position. Business Strategy The primary components of our strategy are to: Deliver Value to Our Customers We continually improve our existing products and introduce innovative new products and services. Argentina 1 1 (1) 1 (1) 0 1 0 Australia 1 1 0 0 1 0 Austria 1 1 0 0 0 1 Brazil 4 3 1 0 4 0 Canada 4 2 2 0 4 0 Finland 1 0 1 0 1 0 France 2 0 1 1 (2) 1 1 Germany 5 1 4 0 4 1 Italy 3 1 2 0 3 0 Japan 2 1 0 1 1 1 Mexico 1 0 1 0 1 0 Spain 1 1 0 0 1 0 Sweden 2 0 1 1 (2) 1 1 Switzerland 1 0 0 1 (2) 0 1 United Kingdom 3 1 2 0 1 2 United States 11 2 (3) 7 (3) 2 (4) 9 Income (loss) before provision for income taxes (4,896 ) 24,502 (677 ) 18,929 Provision (benefit) for income taxes (4,831 ) 10,647 Amendment No. 5 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Maintain Geographic Balance and Expand in High Growth Regions In addition to maintaining our leadership positions in the mature paper markets of North America and Europe, we continue to expand our manufacturing presence in the higher growth regions of South America and Asia. Continue to Improve our Productivity We have a successful record of improving our productivity through cost reduction programs and other productivity initiatives. Pursue Strategic Acquisitions We will continue to selectively pursue strategic acquisitions that we believe have potential to expand our product offerings and improve our competitiveness. Risk Factors An investment in the IDSs and the notes is subject to a number of risks and uncertainties. Before investing in the IDSs or the notes, you should carefully consider the following, as well as the more detailed discussion of risk factors and other information included in this prospectus: our high degree of leverage and significant debt service obligations; we are not required to make dividend payments on the Class A common stock at any particular level or at all; the risk that the notes will not be treated as debt for U.S. federal income tax purposes and that interest on the notes would therefore not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income and significantly reduce our future cash flow; the risk that we may not be able to retain existing customers or that we will experience a loss of sales to such customers; the risk of currency fluctuations; the risk of a significant decline in the prices of our products; the risk that we will not be able to develop and market new products successfully or that we will not be successful in competing against new technologies developed by competitors; the risk that the required payments with respect to our indebtedness and payments pursuant to our dividend policy could reduce the amount of funds available to devote to research and development, which could reduce our ability to develop new and innovative technologies, products and manufacturing processes and ultimately affect our ability to remain competitive; the risk of weaker economic conditions in the locations around the world where we conduct business; any future changes in government regulation; and any changes in U.S. or foreign government policies, laws and practices regarding the repatriation of funds or taxes. New Credit Facility Concurrently with the closing of this offering, we will enter into a new $535 million senior secured credit facility with a syndicate of financial institutions, including CIBC World Markets Corp., which will act as lead arranger Shares of Class A common stock held by existing equity investors 59,599,672 shares Voting power held by the existing equity investors 100% One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) (1) Such IDSs represent 23,934,267 shares of Class A common stock and $171.1 million aggregate principal amount of notes and assumes no exercise of the underwriters over-allotment option to purchase additional IDSs. For additional details see Principal Stockholders, The Transactions, and Related Party Transactions Proceeds from the Recapitalization and the Offering. The Class B common stock will have one vote per share. See Description of Capital Stock Class B Common Stock and Dividend Policy and Restrictions. The shares of Class B common stock will, at the option of the holder, be exchangeable for IDSs beginning on the second anniversary of the closing of this offering, as described under Related Party Transactions Investor Rights Agreement. The existing equity investors will have registration rights with respect to their IDSs, as described under Related Party Transactions Investor Rights Agreement. Registration rights may not be exercised during the lock-up period. See Underwriting. Use of Proceeds We estimate that we will receive gross proceeds from this offering of approximately $495.3 million assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus and an initial public offering price of 100% of the stated principal amount for each note sold separately (not represented by IDSs). Such proceeds consist of approximately $248.9 million of proceeds allocated to the sale of shares of Class A common stock represented by IDSs, approximately $201.1 million of proceeds allocated to the sale of notes represented by IDSs and approximately $45.3 million of proceeds from the sale of the notes sold separately. These proceeds, together with $435 million of borrowings under our new credit facility, will be used as follows: $774.0 million to repay existing net indebtedness, including all outstanding borrowings under our existing senior and mezzanine credit facilities; $62.6 million to purchase equity interests held by the existing investors; $54.8 million to pay underwriting discounts and commissions, fees related to our new credit facility and other fees and expenses; $10.6 million to pay transaction bonuses to certain of our officers and other members of senior management for completing this offering; $3.7 million for the legal reorganization of a portion of our international operations; $3.6 million cash reserve for income tax expenses; and $21.0 million for general corporate purposes and cash reserves. See Table of Additional Registrant Guarantors Table of Contents To the extent that the amount of proceeds of this offering exceeds or is less than the amount set forth above, the aggregate cash proceeds that the existing equity investors will receive in exchange for a portion of their equity interests will be increased or decreased by the same amount, net of the underwriting discount. If the underwriters exercise their over-allotment option in full, we will sell 4,218,750 additional IDSs to the underwriters to cover over-allotments and use all of the proceeds, net of the underwriting discount, to redeem 4,218,750 IDSs from certain of our existing equity investors. Including the notes represented by IDSs issued to our existing equity investors in connection with the recapitalization, we will have approximately $45.5 million more debt outstanding following the offering than immediately prior to the offering. Our Organizational Structure After this Offering The following diagram reflects our organizational structure immediately after the offering, including percentage of voting power (assuming no exercise of the underwriters over-allotment option to purchase additional IDSs): (1) Includes Class A common stock represented by IDSs and Class B common stock. (2) The following direct and indirect subsidiaries of Xerium Technologies, Inc. will guarantee the notes: XTI LLC, Xerium Technologies Limited, Huyck Australia Pty. Limited, Weavexx Corporation, Stowe-Woodward/Mount Hope Inc., Huyck Japan Limited, Stowe Woodward Mexico SA de CV, Huyck (UK) Limited, Huyck Limited, Stowe-Woodward (UK) Limited, Stowe-Woodward Limited, Xerium I (US) Limited, Xerium III (US) Limited, Weavexx Corporation, Xerium Inc., Huyck Licensco Inc., Huyck Europe Inc., Xerium IV (US) Limited, Stowe Woodward Licensco LLC, Stowe Woodward LLC and Xerium V (US) Limited. Michael O Donnell Chief Financial Officer One Technology Drive Westborough Technology Park Westborough, MA 01581 (508) 616-9468 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Our Corporate Information Our principal executive office is located at One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and our telephone number is (508) 616-9468. We were organized in 1999 in connection with the acquisition, sponsored by Apax, of the paper technology group of Invensys plc. Huyck , Mount Hope , Robec , Stowe Woodward , Wangner , Weavexx and Xerium are trademarks of ours. Copies to: John B. Ayer, Esq. Ropes & Gray LLP One International Place Boston, Massachusetts 02110 (617) 951-7000 David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. Table of Contents The Offering Summary of the IDSs and the Notes We are offering 28,125,000 IDSs at an initial public offering price of $16.00 per IDS (comprised of $7.15 allocated to each note and $8.85 allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus, and $45.3 million aggregate principal amount of notes sold separately (not represented by IDSs) at an initial public offering price of 100% of the stated principal amount for each note. As described below, assuming we make our scheduled interest payments and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the completion of this offering, holders of IDSs will receive interest on the notes represented by each IDS and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering, and holders of our separate notes will receive interest at an annual rate of % in the same period. Dividend payments, however, are not mandatory or guaranteed, and our board of directors may, in its discretion, amend, repeal or deviate from our initial dividend policy or otherwise decide not to declare one or more dividends or to declare dividends in different amounts. In addition, our ability to pay dividends will be restricted if we do not meet certain financial tests as set forth in the new credit facility and the indenture governing the notes. Further, our ability to pay dividends is restricted by Delaware law. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. See Risk Factors Risks Relating to Our Capital Structure and Dividend Policy and Restrictions. The initial dividend policy to be adopted by our board of directors upon completion of this offering reflects a basic judgment that our stockholders will be better served if we distribute our excess cash (as defined in the indenture) to them instead of reinvesting it in our business. Under the policy, cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends, up to the intended dividend rate set forth below, to the holders of our Class A common stock instead of being retained in our business. In considering our initial dividend rate, we have made assumptions regarding the levels of capital expenditures, interest expense and cash income taxes described under Dividend Policy and Restrictions that we believe are reasonable. Payments of dividends pursuant to our initial dividend policy and required payments with respect to indebtedness may mean that we will have less funds available for other corporate purposes, including to finance growth opportunities. See Risk Factors Risks Relating to Our Capital Structure. What are IDSs? IDSs are securities comprised of our Class A common stock and notes. Each IDS initially represents: one share of our Class A common stock; and a % note with $7.15 principal amount. The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split of our Class A common stock, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. Table of Contents represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. What payments can I expect to receive as a holder of IDSs? Assuming we make our scheduled interest payments on the notes and pay dividends in the amount contemplated by the initial dividend policy to be adopted by our board of directors upon the closing of this offering, you will receive interest on the notes and dividends on the Class A common stock represented by each IDS at an annual rate of $1.68 in the first year following the offering. You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes represented by your IDSs or approximately $0.91163 per IDS per year, subject to our right to defer interest payments on the notes if it is reasonably necessary to avoid default under our senior indebtedness and if we are not otherwise in default under the indenture, on one or more occasions for an aggregate period not to exceed eight quarters prior to 2009, and on up to four occasions after , 2009 for a period of up to two quarters per occasion. For a detailed description of these circumstances, see Description of Notes Terms of the Notes Interest Deferral and Description of Certain Indebtedness New Credit Facility. You will also be entitled to receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and are permitted by applicable law and the terms of the new credit facility, the indenture governing our notes and any other then-outstanding indebtedness of ours. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Notes Certain Covenants Limitation on Restricted Payments. In addition, the new credit facility restricts our ability to declare and pay dividends on our Class A common stock under certain circumstances as described under Dividend Policy and Restrictions and Description of Certain Indebtedness New Credit Facility Restricted Payments. Our board of directors will adopt an initial dividend policy upon the closing of this offering which contemplates that, subject to applicable law and the terms of our then existing indebtedness, we will pay dividends at an annual rate of $0.76838 per share on our Class A common stock in the first year following the offering. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our excess cash, up to the intended dividend rate, to them instead of reinvesting it in our business. Dividend payments, however, are not mandatory or guaranteed and are within the absolute discretion of our board of directors, who may decide, at any time and for any reason, not to pay dividends. There is no requirement that we pay dividends, even if we have sufficient cash and otherwise have the ability to do so. We expect to make interest and dividend payments, beginning on March 15, 2005, on the 15th day of each March, June, September and December to holders of record on the 5th day of each such month. On March 15, 2005, we expect to make a payment of $ per IDS, which is the amount payable in respect of interest and dividends computed, based upon our initial dividend rate and the annual interest rate on the notes, for the actual number of days elapsed from and including the completion of this offering and up to but excluding such interest and dividend payment date. Holders of our common stock do not have any legal right to receive or to require us to pay dividends. Further, our ability to pay dividends is restricted by Delaware law. See Dividend Policy and Restrictions. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate that includes provisions with respect to the separation, combination and adjustment of the Class A common stock and notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The notes represented by the IDSs will be governed by the indenture and the global note. Table of Contents Table of Additional Registrant Guarantors Exact Name of Registrant Guarantor as Specified in its Charter Table of Contents Will my rights as a holder of IDSs be any different than the rights of a beneficial owner of separately held Class A common stock and notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of separately held Class A common stock and notes, as applicable, would have. Do I have voting rights as a holder of IDSs? As a holder of IDSs, you will be able to vote with respect to the underlying shares of Class A common stock. IDSs have no voting rights separate and apart from the voting rights related to the underlying shares of Class A common stock. For a more detailed description of voting rights, see Description of Capital Stock. Will the terms of the notes represented by IDSs be the same as the terms of the notes sold separately (not represented by IDSs)? Yes. The terms of the notes sold separately (not represented by IDSs) will be identical in all respects to the terms of the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which they are eligible to vote under the indenture. Will the IDSs be listed on an exchange? We have applied to list the IDSs for trading on the New York Stock Exchange under the trading symbol XRM . In addition, we have applied to list the IDSs in Canadian dollars on the Toronto Stock Exchange under the trading symbol XR.un . Will the shares of our Class A common stock or notes be separately listed on an exchange? Our shares of Class A common stock will be listed on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. However, if for a period of 30 consecutive trading days a sufficient number of shares of Class A common stock is held separately, not represented by IDSs, by a sufficient number of holders to satisfy applicable requirements for separate trading on the New York Stock Exchange or any other exchange or quotation system on which the IDSs are then listed, we will apply to list the shares of our Class A common stock for separate trading on such exchange or quotation system. The notes will not be listed on any exchange or quotation system. The shares of our Class A common stock and notes will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended, which we refer to as the Securities Act, unless they are issued to or purchased by affiliates as that term is defined in Rule 144 under the Securities Act and under securities legislation in all the provinces and territories of Canada, subject to control person distribution rules under the applicable Canadian provincial and territorial securities laws. In what form will IDSs and the shares of our Class A common stock and the notes represented by the IDSs be issued? The IDSs and the shares of our Class A common stock and the notes represented by the IDSs will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs, and you will not receive a certificate for your IDSs or the securities represented by your IDSs. You must rely on your broker, custodian or other financial institution that will maintain your book-entry position to Total 43 15 23 6 33 State or Other Jurisdiction of Incorporation or Organization Table of Contents receive the benefits and exercise the rights of a holder of IDSs. In accordance with Delaware law, a registered holder of Class A common stock has the right to request a certificate representing its shares of Class A common stock. However, if a registered holder requests a certificated share on your behalf as a beneficial owner of IDSs, the IDSs beneficially owned by you must be separated into the Class A common stock and notes represented by such IDSs, and while the Class A common stock and the notes are separated your Class A common stock will not be eligible for inclusion in The Depository Trust Company s, or DTC, book-entry clearance and settlement system described under Description of IDSs Clearance and Settlement. How can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs? Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker, custodian or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes, whether represented by IDSs purchased in this offering or a subsequent offering and separated, or purchased separately in the secondary market, may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs unless the IDSs have previously been automatically separated as a result of the redemption of any notes, maturity of the notes. Separation and recombination of IDSs will be effective as of the close of business on the trading day that DTC receives instructions from a participant or custodian, provided that such instructions are received by 3:00 p.m., Eastern time, on that trading day, and will be effective on the next business day if DTC receives the instructions after 3:00 p.m, Eastern time, on a trading day. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or other financial intermediaries. We have been informed by DTC that the current fee per transaction per participant account for any separation or recombination is $4.50. This fee will be paid by the participant (your broker or other financial intermediary) and your broker or financial intermediary may pass along all or a portion of this fee to you. Any transactional fees charged by , as transfer agent, in connection with separation or recombination of the IDSs will be paid by us. Trading in the IDSs should not be affected as a result of any such separation or combination of IDSs unless a sufficient number of IDSs has separated so as to impair liquidity or result in delisting. See Description of IDSs Clearance and Settlement Separation and Recombination. Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events? Yes. Separation of all of the IDSs will occur automatically upon the continuance (without cure) of a payment default on the notes for 90 days; the occurrence of any redemption pursuant to the terms of the indenture, whether in whole or in part, of the notes; upon the acceleration or maturity of the notes; or if DTC no longer makes the IDSs eligible for deposit or ceases to be a registered clearing agency under the Security Exchange Act of 1934 and we are unable to find a successor depository. See Description of IDSs Automatic Separation . What will happen if additional IDSs or notes of the same series are issued in the future? Subsequently issued IDSs or notes will have terms that are identical to those of the IDSs and notes, respectively, sold in this offering, except that: if additional IDSs are issued 45 days or more from the closing of this offering, such IDSs will be immediately separable; and if additional IDSs are issued less than 45 days from the closing of this offering, such IDSs will be separable on and after the same date the IDSs issued in this offering may separate. If we issue notes of the same series (whether or not represented by IDSs) in the future and either such notes are issued with original issue discount, or OID, for U.S. federal income tax purposes, or we previously issued notes Primary Standard Industrial Classification Code Number Table of Contents of the same series with OID, holders of our notes outstanding prior to such issuance and purchasers of the newly issued notes will automatically exchange among themselves a portion of the notes they hold so that immediately following such automatic exchange, each holder will own a pro rata portion of the new notes and the old notes. The aggregate amount of new notes and old notes held by any holder prior to any such exchange will be the same as such holder holds subsequent to the exchange. Accordingly, following an automatic exchange of notes, each IDS will consist of Class A common stock and an inseparable note unit with an aggregate principal amount equal to the aggregate principal amount immediately prior to such exchange. This exchange will be effected automatically, without any action by the holders, through the facilities of DTC. DTC has advised us that the implementation of this automatic exchange may cause a delay in the settlement of trades of up to 24 hours. See Description of IDSs Clearance and Settlement Procedures relating to subsequent issuances. Due to a lack of legal authority, it is unclear whether an exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes, and our tax counsel, Ropes & Gray LLP, is unable to opine on this issue. See What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. Other than potential tax and bankruptcy implications and subject to market perception, we do not believe that the automatic exchange will affect the economic attributes of your investment in our IDSs or notes. The tax and bankruptcy implications of an automatic exchange are described in more detail below in What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? , in Risk Factors Risks Relating to our Capital Structure and in Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances. This automatic exchange should not impair the rights you might otherwise have to assert a claim, under applicable securities laws, against us or the underwriters, with respect to the full amount of notes purchased by you. We will immediately file with the Securities and Exchange Commission, or SEC, a Current Report on Form 8-K (or any successor form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributed to notes. What will be the U.S. federal income tax consequences in connection with an investment in the IDSs or notes? Certain aspects of the U.S. federal income tax consequences of the purchase in this offering, ownership and disposition of IDSs or notes are not entirely clear. The purchase of IDSs in this offering should be treated as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you agree to such treatment. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the IDSs, and it is possible the Internal Revenue Service, or IRS, could successfully challenge this treatment. IDS holders must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values at the time of issuance, which will establish their initial tax basis. Assuming an initial public offering price of $16.00 per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $8.85 and the initial fair market value of each $7.15 aggregate principal amount of notes as 100% of its stated principal amount, and by purchasing IDSs, you agree to such allocation. Because the allocation between shares of Class A common stock and notes is based on a determination of fair market value, our counsel is unable to opine on this allocation, and it is possible the IRS will successfully challenge this allocation. See Risk Factors Risks Relating to our Capital Structure. Our tax counsel is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes. For a discussion of this opinion, including important assumptions and limitations, see Material U.S. Federal Income Tax Consequences. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could materially increase our taxable income I.R.S. Employer Identification Number Table of Contents and significantly reduce our future cash flow. Such dividends likely would not qualify for the reduced tax rate described below. In addition, payments on the notes to foreign holders would be subject to U.S. federal withholding taxes at rates of up to 30% and we could be liable for withholding taxes on any such payments previously made to non-U.S. holders. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to expire in 2008, dividends paid by us, to the extent paid out of our tax earnings and profits, will generally be taxable for U.S. federal income tax purposes to holders of IDSs at long-term capital gains rates. Interest income on the notes will generally be taxable to holders of IDSs at ordinary income rates. If we defer the payment of interest on the notes, you will be required to include OID in income. For a more complete discussion of the material U.S. federal income tax consequences in connection with an investment in IDSs or notes, see Material U.S. Federal Income Tax Consequences. What will be the U.S. federal income tax consequences in connection with a subsequent issuance of notes? The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID (or any issuance of notes thereafter) upon a subsequent sale of IDSs or notes pursuant to an offering by us or upon exchange of our Class B common stock are not entirely clear. The indenture governing our notes and the agreements with DTC, will provide that, in the event there is a subsequent issuance of notes with OID, and upon each issuance of notes thereafter, each holder of IDSs or notes, as the case may be, agrees that a portion of such holder s notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, as described above under What will happen if we issue additional IDSs or notes of the same series in the future? . As a result of these exchanges, any OID associated with the issuance of new notes effectively will be spread among all holders of notes on a pro rata basis, which may adversely affect your tax treatment, as described below. OID generally is the excess, if any, of the stated redemption price at maturity of a note over its issue price. If the difference satisfies the statutory definition of being de minimis, there is no OID. It is unclear, however, whether the exchange of notes for subsequently issued notes will result in a taxable exchange for U.S. federal income tax purposes and, accordingly, our tax counsel is unable to opine on this issue. It is possible that the IRS might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. If the exchange of notes is treated as a taxable exchange, then your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (adjusted to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. Regardless of whether the exchange is treated as a taxable event, the exchange could result in holders having to include OID in taxable income prior to the receipt of cash and other potentially adverse U.S. federal income tax consequences. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees) and thus may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or notes or instruments similar to the IDSs or notes, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs or notes. For additional information, see Material U.S. Federal Income Tax Consequences. Huyck Australia Pty. Limited Australia 2221 Not Applicable Weavexx Corporation Canada 2221 Not Applicable Stowe-Woodward/Mount Hope Inc. Canada 3559 Not Applicable Huyck Japan Limited Japan 2221 Not Applicable Stowe Woodward Mexico SA de CV Mexico 3559 Not Applicable Huyck (UK) Limited United Kingdom 2221 Not Applicable Huyck Limited United Kingdom 2221 Not Applicable Stowe-Woodward (UK) Limited United Kingdom 3559 Not Applicable Stowe-Woodward Limited United Kingdom 3559 Not Applicable Xerium Technologies Limited United Kingdom 8741 Not Applicable Xerium I (US) Limited Delaware 2221 51-0394458 Xerium Inc. Delaware 8741 51-0394459 Xerium III (US) Limited Delaware 2221 51-0394460 Weavexx Corporation Delaware 2221 05-0387869 Huyck Licensco Inc. Delaware 2221 06-1260434 Huyck Europe Inc. Delaware 2221 56-1222792 Stowe Woodward Licensco LLC Delaware 3559 51-0394459 Stowe Woodward LLC Delaware 3559 51-0394459 Xerium IV (US) Limited Delaware 3559 51-0394461 Xerium V (US) Limited Delaware 3559 51-0394462 XTI LLC Delaware 8741 20-1296754 The address, including zip code, of the principal offices of the additional registrant guarantors listed above is: c/o Xerium Technologies, Inc., One Technology Drive, Westborough Technology Park, Westborough, Massachusetts 01581 and the telephone number, including area code, of the additional registrant guarantors at that address is (508) 616-9468. Table of Contents Summary of the Common Stock Issuer Xerium Technologies, Inc. Shares of Class A common stock represented by IDSs being offered hereby 28,125,000 shares of Class A common stock, or 32,343,750 shares if the underwriters over-allotment option is exercised in full. Shares of Class A common stock and Class B common stock outstanding following this offering 52,059,267 shares of Class A common stock, which includes 23,934,267 shares represented by IDSs issued to our existing equity investors in a recapitalization in connection with this offering. 4,912,500 shares of Class B common stock. Subject to the satisfaction of certain conditions, the shares of Class B common stock will, at the option of the holder, be exchanged for IDSs beginning on the second anniversary of the closing of this offering. See Related Party Transactions Investor Rights Agreement. Our Class A common stock and Class B common stock are identical in all respects and are entitled to the same rights, preferences and privileges, and vote together as a single class on all matters upon which the common stock is entitled to vote, except (1) as to dividend rights as described below under Dividends and under Dividend Policy and Restrictions, (2) the Class B common stock is exchangeable for IDSs and (3) the Class B common stock may not be combined with notes to form IDSs. Furthermore, our by-laws provide that, after completion of this offering, we may not issue Class A common stock as long as any IDSs are outstanding unless such shares are issued as part of IDSs. Following the automatic separation of the IDSs as a result of the redemption of any notes, maturity of the notes or otherwise, shares of Class A common stock and notes may no longer be combined to form IDSs. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single class on all matters presented to the stockholders for a vote, except as otherwise required by law. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy under which cash generated by our business in excess of operating needs and reserves for contingencies, interest and principal payments on indebtedness, and capital expenditures (including an amount sufficient to maintain our operations, properties and other assets and a limited amount to finance growth opportunities) would in general be distributed as regular quarterly dividends to the holders of our Class A common stock, up to the intended dividend rate set forth below, instead of being retained in our business. The initial dividend policy reflects a basic judgment that our stockholders will be better served if we distribute our Table of Contents The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated October 8, 2004 28,125,000 Income Deposit Securities (IDSs) Representing 28,125,000 Shares of Class A Common Stock and $201.1 million % Senior Subordinated Notes due 2019 and $45.3 million % Senior Subordinated Notes due 2019 Xerium Technologies, Inc. Table of Contents excess cash to them instead of reinvesting it in our business. We currently intend to pay dividends under this policy at an initial annual rate of $0.76838 per share of Class A common stock in the first year following this offering. We currently intend to pay an initial dividend on March 15, 2005 of $ per share of Class A common stock, which is the amount payable computed based upon the annual dividend rate described above and the actual number of days elapsed from and including the completion of this offering and up to, but excluding, such dividend payment date. For the remainder of the first year following the offering, quarterly dividends based upon the annual dividend rate referred to above will be $0.192095 per share. However, dividends will only be paid if and to the extent declared by our board of directors and permitted by applicable law, by the terms of the indenture governing the notes, and by applicable provisions of our other indebtedness, as described below and under Dividend Policy and Restrictions. Dividend payments are not mandatory or guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our by-laws prevent the payment of any regular cash dividends on our shares of Class B common stock. Accordingly, we do not anticipate that any such dividends will be paid. Under the indenture governing the notes, the dividends we may pay are, in general, limited to a basket of $45 million plus our excess cash. Excess cash is defined as our Adjusted EBITDA (as defined in the indenture) reduced by: cash interest expense, deferred or accrued interest, if any, not included in cash interest expense, cash income tax expense, net of cash refunds and cash income tax rebates, maintenance capital expenditures (except to the extent financed with insurance or condemnation proceeds) and growth capital expenditures (except to the extent financed through an incurrence of indebtedness, (until such indebtedness is repaid other than through a refinancing) or financed with insurance or condemnation proceeds or proceeds from asset sales), certain amounts paid to permanently reduce senior indebtedness prior to scheduled maturity, and any other amount added to Consolidated Net Income (as defined in the indenture) in calculating Adjusted EBITDA to the extent such amount represents a cash payment. Similar limitations on dividends and other distributions exist under the new credit facility. See Description of Certain Indebtedness New Credit Facility Restricted Payments. In addition, both the indenture and the new credit facility contain dividend suspension This offering consists in part of an offering of 28,125,000 Income Deposit Securities, or IDSs, in the United States and Canada representing 28,125,000 shares of our Class A common stock and $201.1 million aggregate principal amount of our % senior subordinated notes due 2019. Each IDS represents: one share of our Class A common stock; and a % senior subordinated note due 2019 with $7.15 principal amount. We are also offering separately (not represented by IDSs) $45.3 million aggregate principal amount of our % senior subordinated notes due 2019 in the United States and Canada, which, along with the notes represented by IDSs, we refer to as the notes. The offering of the IDSs and the offering of the separate notes are conditioned on each other. This is the initial public offering of our IDSs, the shares of Class A common stock and notes represented thereby, and the notes being offered separately from the IDSs. We anticipate that the public offering price per IDS will be between $15.20 and $16.80 and the public offering price of the notes sold separately (not represented by IDSs) will be 100% of their stated principal amount. Holders of IDSs will have the right to separate IDSs into the shares of Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, holders of our Class A common stock and the notes, may, at any time, unless the IDSs have automatically separated, combine the applicable number of shares of Class A common stock and principal amount of notes to form IDSs. Separation of IDSs will occur automatically upon the continuance of a payment default on the notes for 90 days, or a redemption or maturity of the notes. Following any automatic separation, shares of Class A common stock and notes may no longer be combined to form IDSs. We will be permitted to defer interest payments on our notes subject to the limitations described in Description of Notes Terms of the Notes Interest Deferral on page 152. The notes will be fully and unconditionally guaranteed, on an unsecured basis, by each of our direct and indirect wholly-owned United States domestic subsidiaries and certain of our direct and indirect wholly-owned foreign subsidiaries. Upon a subsequent issuance by us of notes of the same series (whether or not represented by IDSs) with original issue discount, and upon each subsequent issuance thereafter, a portion of the notes owned by you either directly or represented by IDSs will be automatically exchanged for an identical principal amount of notes issued in such subsequent issuance and, in such event, your IDSs or notes will be replaced with new IDSs or a unit consisting of your notes and new notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the new notes and IDSs to be issued to you upon such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see Risk Factors Risks Relating to our Capital Structure Subsequent issuances of notes pursuant to an offering by us or in connection with an exchange of Class B common stock may cause you to recognize original issue discount on page 36, Description of Notes Additional Notes on page 153, and Material U.S. Federal Income Tax Consequences Consequences to U.S. Holders Notes Additional Issuances on page 205. We have applied to list our IDSs on the New York Stock Exchange under the trading symbol XRM and in Canadian dollars on the Toronto Stock Exchange under the symbol XR.un . In addition, we have applied to list our shares of Class A common stock on the Toronto Stock Exchange under the symbol XR , but holders of shares of Class A common stock will not be able to trade such shares on the Toronto Stock Exchange until the applicable requirements for separate trading are satisfied, including that a sufficient number of shares are held separately, not represented by IDSs, by a sufficient number of holders. Our shares of Class A common stock will not initially be listed on any other exchange or quotation system, including the New York Stock Exchange. Investing in our IDSs, our Class A common stock and/or the notes involves risks. See
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+Prospectus summary" --> Prospectus summary The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under Risk factors, before deciding whether to buy our ADSs. Our business We believe we are one of the leading companies that specialize in providing online financial and listed company data and information in China in terms of popularity among Internet users that invest in stocks and access online financial information, as measured by their frequency of visits and user spending. According to a survey conducted by Taylor Nelson Sofres, an independent market intelligence provider: our website at www.jrj.com.cn was one of the most frequently visited websites that specialize in providing financial data and information in China during the six month period ended May 31, 2004 among a total of 47 websites identified by the participants in the survey that also specialize in providing financial data and information; and during the twelve month period ended December 31, 2003, Internet users in China spent more money purchasing financial products and services offered through our website than any other website in China that also specializes in providing financial data and information. We commissioned this survey, which was conducted independently by Taylor Nelson Sofres using its own survey methodologies, in part to support our belief stated in this prospectus that we are one of the leading companies that specialize in providing online financial and listed company data and information in China. Among the approximately 120,000 random telephone calls made by Taylor Nelson Sofres, during the period from June 10 to July 15, 2004, in six major cities throughout China, 270 individuals identified themselves as both Internet users and stock investors that used websites that specialize in providing financial data and information, and participated in the survey. We offer subscription-based services based on a single information platform that integrates data and information from multiple sources with features and functions such as data and information search, retrieval, delivery, storage and analysis. We deliver these features and functions using software tools we have developed, which we refer to as research tools. Our research tools combine: financial analysis tools which permit users to calculate and analyze quantitatively financial data; current and historical financial data and information for China s listed company stocks, bonds and mutual funds; categorized news and research reports; and online forums and bulletin boards, and, together with our screen layout and menu options, display them in a manner designed for ease of use. The content and technology comprising our integrated information platform is also designed to be adaptable so that as we develop new research tools and adopt new Table of Contents Conventions which apply to this prospectus Unless we indicate otherwise, all information in this prospectus reflects the following: no exercise by the underwriters of their option to purchase up to an additional 930,000 ADSs representing 4,650,000 ordinary shares; conversion of all outstanding preference shares to ordinary shares upon the closing of this offering; and none of the outstanding stock options has been exercised. Except where the context otherwise requires and for purposes of this prospectus only: we, us, our company and our refer to China Finance Online Co. Limited, or CFO Hong Kong, its subsidiary, China Finance Online (Beijing) Co., Ltd., or CFO Beijing, and in the context of describing our operations, also include our PRC-incorporated affiliate, Fuhua Innovation Technology Development Co., Ltd., or Fuhua; China or PRC refers to the People s Republic of China, excluding Taiwan, Hong Kong and Macau; Hong Kong refers to the Hong Kong Special Administrative Region of the People s Republic of China; and all references to Renminbi, RMB or yuan are to the legal currency of China, all references to U.S. dollars, dollars, $ or US$ are to the legal currency of the United States and all references to Hong Kong dollars or HK$ are to the legal currency of Hong Kong. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. This prospectus contains translations of Renminbi amounts into U.S. dollars at specified rates. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from Hong Kong dollars to U.S. dollars were made at the noon buying rates in The City of New York for cable transfers in Renminbi per U.S. dollar and in Hong Kong dollars per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rates, as of June 30, 2004, which were RMB8.2766 to US$1.00 and HK$7.8000 to US$1.00. We make no representation that the Renminbi and the Hong Kong dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. On October 1, 2004, the noon buying rates were RMB8.2766 to US$1.00 and HK$7.7971 to US$1.00. Table of Contents content and features, these new research tools, content and features can be easily integrated with our existing platform. Our service offerings permit users to subscribe to one or more of the six service packages we currently offer. Each service package contains one or more research tools. Our research tools include a number of features and functions that, we believe, are innovative and are not widely available in financial markets outside of China. Our service offerings can be accessed using our research tools and through our website at www.jrj.com.cn. JRJ is the abbreviation of Jin Rong Jie, which means financial industry in Chinese. As of June 30, 2004, we had a total of approximately 1.7 million registered users, and during the twelve months ended June 30, 2004, we had approximately 26,400 new subscribers and 11,400 repeat subscribers. Our registered users are Internet users who maintain a registered account with our website, and our subscribers are our registered users who also subscribe to one or more of our subscription-based services for a fee. New subscribers for a specified period are subscribers who subscribed to any of our service packages during that period who were not subscribers at the beginning of that period. Repeat subscribers for a specified period are subscribers who either have purchased more than one service package from us during that period, or have purchased our service packages in the past and have purchased at least one service package during that period. Our service offerings are used by and targeted at a broad range of investors in China, from individual investors managing their own money to professional investors, which consist of institutional investors managing large sums of money on behalf of their clients and high net worth individuals. In addition, our service offerings are targeted at other financial professionals such as investment bankers, stock analysts and financial reporters. Our research tools are designed for and tailored toward investors in China, allowing them to make informed investment decisions with respect to all of China s listed company stocks, bonds and mutual funds according to specifications and analyses determined by them. Our website users are not charged for visiting our website and obtaining basic financial information from our website, including real-time stock quotes and historical financial information for all of China s listed company stocks, bonds and mutual funds, financial news and research reports. Our integrated information platform, which allows users to select from a range of downloadable and web-based research tools, is available only through subscription. Our service offerings are designed to enhance our users and subscribers experience based on a number of factors: Comprehensive. We offer a broad range of data and information regarding China s listed company stocks, bonds and mutual funds, including basic financial data such as price and trading information, breaking economic and financial news, detailed historical data and information, financial analysis tools, market coverage and listed company analysis and online forums that facilitate our subscribers investment analysis efforts. Integrated. Our information platform integrates all of the research tools, data and other information we have developed or gathered, and displays them in a manner designed for ease of use. The content and technology comprising our integrated information platform is also designed to be adaptable so that as we develop new research tools, content and features, these new research tools, content and features can be easily integrated with our existing platform. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents Interactive. We have established online bulletin boards and discussion forums and have introduced stock alert services that send messages to our users mobile phones, allowing our users to extend their experience with our services beyond the Internet. Timely. We provide our subscribers and users access to real-time stock quotes, breaking financial news and updated research reports to allow them to stay current with the latest market developments. Unbiased. Our website presents third-party content, analysis and commentary, and computer generated quantitative analyses to provide our subscribers and users with a broad view of the financial markets in China. Because we do not formulate or publish any of our own views on this content, analysis or commentary, we believe that our subscribers and users view us as an unbiased provider of financial information. Easy to use. Our research tools and our website are designed with a screen layout, menu options and displays that we believe any user familiar with a computer will find easy to use. Research results are also displayed in a manner we designed for ease of use. Our website is designed to accommodate low bandwidth access to the Internet. We attract our users and subscribers through establishing and maintaining sponsorship arrangements with high-traffic Chinese Internet portals such as those operated by NetEase.com, Inc., Yahoo! Inc., Century Dragon Information Network Company Limited, Sohu.com Inc. and Sichuan Public Information Industry Company Limited (netease.com, yahoo.com.cn, 21cn.com, sohu.com and tfol.com), search engines such as those operated by Baidu.com, Inc. and Beijing 3721 Technology Co. Ltd. (baidu.com and 3721.com), online stock brokerage websites and news and financial information websites. Through these sponsorship arrangements, we place our website link on the financial web pages of our sponsors. In some cases, our website content is directly presented on their web pages. When users click for additional information on these financial web pages, they are redirected to our website. We believe that, as we develop brand awareness of our website and service offerings, we will be able to increasingly attract users directly to our website. To assist us in the delivery of comprehensive, timely and easy to use service offerings, we have developed a technology platform that utilizes the capabilities of the Internet. Our technology platform allows us to retrieve real-time stock quotes from both the Shanghai and Shenzhen Stock Exchanges, historical financial data and information on listed companies, bonds and mutual funds from data providers, research reports from 42 securities advisory companies and 36 securities brokerage companies each licensed to provide securities advisory services, commentaries from approximately 160 licensed individual securities advisors and news feeds from 267 news publishers and media companies. Our subscribers pay us an annual subscription fee ranging from RMB99 (US$12) for our most basic service package to RMB12,000 (US$1,450) for our most comprehensive service package, depending on the service package and features selected by the subscriber. Our subscription price for each of our six current service packages varies between these amounts. Substantially all of our revenue is derived from annual subscription fees for our service offerings. We receive subscription fees at the beginning of the subscribers subscription periods. We recognize these subscription fees as revenues ratably over a twelve month period. Amendment No. 3 to Form F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Our industry We are in China s financial data and information services industry. We offer our services through downloadable and web-based research tools and over the Internet. We believe that, if China s financial markets grow in the future, our base of users and subscribers will increase. We also believe the Internet is rapidly establishing itself as an effective channel for investors to manage their portfolios, research investments and trade securities in China. It is our view that the immediacy and interactive nature of the Internet, when combined with in-depth but easy-to-use analytical tools, can deliver to investors the information they need, on a timely basis, to help them with their specific investment needs. The Internet industry in China has experienced rapid growth during the past several years and is expected to continue to expand at a fast rate over the next few years. According to the China Internet Network Information Center, or CNNIC, the Chinese government body in charge of China s Internet infrastructure and domain names, in its 5th Statistical Survey on the Internet Development in China (January 2000) and 14th Statistical Survey on the Internet Development in China (July 2004), the number of Internet users in China has grown from approximately 9 million users in December 1999 to approximately 87 million on June 30, 2004, making China the second largest Internet market in the world in terms of total number of Internet users as of June 30, 2004. As a result of the Internet s growing popularity, we believe more people in China are looking beyond traditional media to the Internet as a source of information. We believe the prospect of long-term growth in China s financial markets and the need of investors for timely and trustworthy data and information, as well as the proliferation in the use of the Internet to search and process data and information, define our opportunity and will act as drivers of growth for our business. Our strengths and strategies Our goal is to become the leading provider of comprehensive financial data and information relating to securities and other financial instruments in China. Our success to date has been achieved by establishing and capitalizing on the following competitive strengths: We believe we have built a comprehensive database of historical financial data and information on China s listed companies, bonds and mutual funds with data and information dating back to December 1990, when the Shanghai and Shenzhen Stock Exchanges first opened for trading. Our service offerings are based on a single integrated information platform, which enables our subscribers to access and utilize a combination of financial analysis tools, real-time and historical data and information, news, research reports and online forums. The interactive nature of our website and service offerings allows our users and subscribers to personalize the information they access and analyze and, through our active monitoring, allows us to better understand their behavior and needs. We have brought together a management team with diverse experiences that we believe enables us to approach problems innovatively and creatively. Table of Contents In order to achieve our long-term goal and to increase our subscriber base, we intend to pursue the following strategies: increase our growing base of high-end subscribers, determined by us as subscribers who pay us an annual subscription fee of RMB2,400 (US$290) or more, by developing additional research tools, content and features targeted at their needs and by creating a sales and marketing team dedicated to them; expand our service offerings to additional financial products by developing research tools, features and content relating to other financial instruments such as currencies, futures and commodities, as these instruments become established in China s financial markets; continue to enhance our subscribers experience by expanding the amount and sources of information available to our subscribers, such as by adding new stock research sources and additional news feeds, and by introducing new and innovative research tools; strengthen our brand name recognition by maintaining and expanding our sponsorship arrangements with China s top Internet portals such as those operated by NetEase.com, Inc. and Yahoo! Inc. (netease.com and yahoo.com.cn), and by enhancing our existing format, content and service offerings, and utilize our brand name and user base to increase our online advertising revenues; and accelerate the introduction of new service offerings and add capabilities that we do not currently have through partnerships, joint ventures and acquisitions. We intend to use the net proceeds from this offering to implement our strategies outlined above, including by acquisitions and investments and by enhancing our existing operations. While as of the date of this prospectus, we have not allocated any specific portion of the net proceeds from this offering for any particular purpose, we expect to consider a number of factors for our use of proceeds, including our changing business needs, market developments, the availability of acquisition and investment opportunities and our ability to utilize funds from other sources, including our operating profits. Our challenges Our ability to realize our business objectives and execute our strategies is subject to certain risks and uncertainties, including the following: our business and our results of operations high dependency on the performance of China s securities markets. If China s securities markets were to decline, investors interest in China s securities markets could dampen, which could materially and adversely affect our revenue and profitability; potential competition from present and future competitors due to few substantial barriers to entry to China s online financial data and information services market, including potential competition from websites we currently maintain sponsorship arrangements with; the possibility that the PRC government could determine that the agreements that establish our operating structure do not comply with PRC government restrictions on foreign investment in the Internet industry, which could potentially subject us to severe penalties; the possibility that the PRC government could find that our current business operations do not comply with PRC regulations on securities advisory service providers, which could potentially subject us to severe penalties; China Finance Online Co. Limited Room 610B, 6/ F Ping an Mansion No. 23 Financial Street Xicheng District, Beijing 100032 China (86-10) 6621-0631 (Address and telephone number, including area code, of registrant s principal executive offices) Table of Contents our limited operating history, as our service offerings have only been commercially available since April 2001, and the challenge our limited operating history presents in evaluating our business and prospects; our dependence on the Shanghai and Shenzhen Stock Exchanges for real-time stock quotes and our dependence on other historical data providers for historical information; a significant portion of our gross revenues is generated from subscription fees for our more comprehensive service packages such as Grand Reference. For example, for the six months ended June 30, 2004, fees generated from sales of Grand Reference, our most comprehensive service package, were $2.8 million, representing 68.3% of our total subscription fees during the same period. Our future revenue growth depends on our ability to attract sufficient numbers of new and repeat subscribers to our more comprehensive service packages; and our dependence on our ability to develop or introduce new features and new research tools and the possibility that these new features and research tools may not be accepted by users. Our corporate structure Since we commercially launched our service offerings in April 2001, we have conducted substantially all of our operations in China through our wholly-owned subsidiary, CFO Beijing. As a wholly foreign-owned enterprise, CFO Beijing is not permitted under PRC law to provide Internet information content, which requires special licenses from the Ministry of Information Industry or its local branches. In addition, CFO Beijing, as a wholly foreign-owned enterprise, does not have the necessary licenses and permits under PRC law to operate an online advertising business. In order to comply with foreign ownership restrictions, we operate our website in China through Fuhua, which holds the licenses required to be an Internet content provider under the relevant PRC laws. Fuhua also holds the licenses and approvals required to operate our online advertising business. Wu Chen, a financial manager at International Data Group China, Ltd., a PRC company affiliated with IDG Technology Venture Investment, Inc. and IDG Technology Venture Investments, LP, two of our principal shareholders, and Jun Ning, our chairman and chief executive officer, hold 55% and 45% of the equity interests in Fuhua, respectively. We have entered into exclusive strategic alliance and servicing agreements with Fuhua in connection with the delivery of our financial data and information content through our website, www.jrj.com.cn, hosted by Fuhua. These exclusive agreements include agreements relating to the promotion of our service offerings through our website hosted by Fuhua, the license of our domain name to Fuhua, the lease of our equipment to Fuhua, the provision by us of technical support to Fuhua for the maintenance of servers and networks as well as other arrangements, providing us with the substantial ability to control Fuhua. We have been and are expected to continue to be dependent on Fuhua to host our website. We made a loan to each of Wu Chen and Jun Ning solely for purposes of capitalizing Fuhua. Pursuant to the loan agreements, Wu Chen and Jun Ning can only repay these loans by transferring all of their interests in Fuhua to us or a third party designated by us. In addition, we have entered into an option agreement with Wu Chen and Jun Ning pursuant to which we have been granted an exclusive option to purchase all of the equity of Fuhua if not prohibited from doing so by PRC laws. If and when the PRC government lifts current restrictions on foreign ownership of Internet content providers, we will exercise our right to purchase all of the equity interests in Fuhua, and to cancel the loans made to Wu Chen and Jun Ning in connection with that purchase. Messrs. Ning and Chen are not deriving any material personal benefits from these arrangements and will not receive any consideration, other than Total contractual obligations $ 298 $ 214 $ 79 $ CT Corporation System 111 Eighth Avenue, 13th Floor New York, New York 10011 (212) 894-8940 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents cancellation of the existing loans, upon future transfer of their entire equity interests in, or all of the assets of, Fuhua to us. When Jun Ning and Wu Chen transfer their interests in Fuhua to us or our designee, if the actual transfer price is higher than the principal amount of the loans, the amount exceeding the principal amount of the loans will be deemed as interest accrued on such loans and repaid by Jun Ning and Wu Chen to us. While Hong Kong law limits the maximum interest payment chargeable under a loan to 60% of the total principal amount per annum, we do not believe this limitation will have a material effect on our business and operations, or will result in a material amount being paid to the shareholders of Fuhua if and when they are permitted to transfer their interests in Fuhua to us. In May 2004, we repaid $60,000 to Jun Ning and Wu Chen for funds advanced by Jun Ning and Wu Chen, on our behalf, to capitalize Fuhua when Fuhua was initially incorporated in December 2000. Our offices Our principal executive office is located at Room 610B, 6/ F Ping an Mansion, No. 23 Financial Street, Xicheng District, Beijing, 100032, China, and our telephone number is (86-10) 6621-0631. Our website address is www.jrj.com.cn. The information on our website is not a part of this prospectus. Copies to: Howard Zhang, Esq. O Melveny Myers LLP Suite 3120, China World Tower I 1 Jian Guo Men Wai Avenue Beijing 100004 China Douglas C. Freeman, Esq. O Melveny Myers LLP Suite 1905, Tower Two Lippo Center 89 Queensway, Central Hong Kong SAR China Chris K. H. Lin, Esq. Simpson Thacher Bartlett LLP Asia Pacific Finance Tower, 7th Floor 3 Garden Road, Central Hong Kong SAR China Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents The offering The following assumes that the underwriters do not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated. ADSs offered by China Finance Online 5,000,000 ADSs ADSs offered by the selling shareholders 1,200,000 ADSs ADSs outstanding after the offering 6,200,000 ADSs Ordinary shares outstanding after the offering 99,329,933 shares ADS to ordinary share ratio 1:5 Nasdaq National Market symbol JRJC The ADSs Each ADS represents five ordinary shares, par value HK$0.001 (US$0.00013) per share. The ADSs will be evidenced by American Depositary Receipts, or ADRs. The depositary will be the holder of the ordinary shares underlying your ADSs and you will have rights as provided in the deposit agreement. Although we do not expect to pay dividends in the foreseeable future, in the event we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees for exchanges. You may turn in your ADSs to the depositary in exchange for ordinary shares underlying your ADSs. The depositary will charge you fees for exchanges. We may amend or terminate the deposit agreement without your consent, and if you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended. You should carefully read the section in this prospectus entitled Description of American Depositary Shares to better understand the terms of the ADSs. You should also read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. Depositary JPMorgan Chase Bank Over-allotment option The selling shareholders have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an additional 930,000 ADSs. Timing and settlement for ADSs The ADSs are expected to be delivered against payment on , 2004. The ADRs evidencing the ADSs will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or Table of Contents DTC, in New York, New York. In general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by DTC and its direct and indirect participants. Use of proceeds Our net proceeds from this offering are expected to be approximately $51.2 million (assuming an initial public offering price of $11.00, the mid-point of the estimated public offering price range shown on the front cover of this prospectus). We anticipate using approximately $30.0 million for acquisitions or investments in businesses, products or technologies, and the balance of approximately $21.2 million for the enhancement of our existing business and operations and for general corporate purposes. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus but might not contain all of the information that is important to you. Before investing in our common stock, you should read the entire prospectus carefully, including the "Risk Factors" section and our historical and pro forma consolidated financial statements and the notes thereto included elsewhere in this prospectus. We conduct our business primarily through our operating subsidiaries, each of which is a direct or indirect wholly owned subsidiary of The Kenan Advantage Group, Inc. For purposes of this prospectus, unless the context otherwise requires, all references herein to "our company," "Kenan Advantage," "KAG," "we," "us" and "our" refer to The Kenan Advantage Group, Inc. and its consolidated subsidiaries and their predecessors. Whenever we refer to information being provided as pro forma or on a pro forma basis, we are presenting the information assuming that our acquisitions of the fuels delivery operations of Beneto, Inc. and Carl Klemm, Inc., which we completed in May 2003 and June 2003, respectively, had occurred on January 1, 2003. Unless otherwise indicated, the information contained in this prospectus assumes that the underwriters' over-allotment option is not exercised. Our Company We are the largest independent fuels delivery carrier in North America. We make regular, local deliveries of refined petroleum products, such as gasoline, diesel and aviation fuels, to our customers. We believe our short-haul, "last mile" delivery of refined petroleum products from pipelines and refineries to gasoline stations, fuel marketers and other end users is a vital link in the country's energy distribution network. In 2002, this network distributed approximately 260 billion gallons of refined petroleum products that were consumed in the United States during that year. On a pro forma basis, we delivered approximately 21 billion gallons of refined petroleum products in 2003 to our customers using our network of 77 terminals and 93 satellite operations. With approximately $365 million in revenue and approximately $416 million in pro forma revenue for 2003, and approximately $104 million in revenue for the three months ended March 31, 2004, we are approximately six times larger than our next largest competitor. Our customer base includes most of the major oil companies, as well as truck stop chains, convenience stores, hypermarkets, aviation fuel marketers and other national and regional petroleum marketers. For most of our customers, we operate under contracts that have specified minimum levels of business. Each of our ten largest customers for 2003 has been a customer of ours for more than ten years. We are the only independent fuels delivery carrier with a nationwide network, with operations in 32 states and the ability to deliver within all 48 states of the continental United States, as well as Canada. Our nationwide network allows us to offer our national and regional customers broad distribution capabilities that are difficult for our smaller competitors to replicate. In addition, we seek to expand the services we offer our customers by providing value-added logistics solutions such as real-time delivery monitoring, inventory and supply source management, fleet scheduling and integrated billing and payment. These services, together with our nationwide footprint, make us a nationwide single source provider of supply chain solutions for petroleum and petrochemical products. We believe that with our size, capabilities, scope of services and geographic reach, we are well-positioned to capitalize on both our customers' continued outsourcing of their fuels delivery operations and our industry's trend towards consolidation. We have grown substantially through strategic acquisitions and internal growth. Prior to 1992, we provided fuels delivery services primarily in northeastern Ohio. By 1998, we had expanded throughout Ohio and into Michigan, Kentucky, West Virginia and western Pennsylvania. Since 2000, we have expanded from 14 to 32 states and expanded our infrastructure with six acquisitions and 17 private fleet conversions, through which we have taken ownership of our customers' private fleets and service the business they previously had serviced on their own. This expansion has allowed us to build the only independent national fuels delivery carrier in our industry. Between 1992 and 2003, we grew our revenue, organically and through acquisitions, from approximately $7 million to approximately $416 million on a pro forma basis, representing a compound annual growth rate of approximately 45%. We believe our size, capabilities and geographic scope will allow us to increase operating efficiencies for ourselves and our customers and improve driver productivity, as well as enable us to increase our revenue by expanding the services we provide to our customers and by capitalizing on industry trends. Our Industry The nationwide consumption of refined petroleum products, such as gasoline, diesel and aviation fuels, drives the underlying demand for delivery of these products from refiners to fuel marketers and other end users. Historically, consumption of gasoline and other refined petroleum products has been very stable, exhibiting compounded annual growth of approximately 1.4% from 1980 through 2002. The Energy Information Administration of the U.S. Department of Energy estimates that retail demand for refined petroleum products will increase between 2002 and 2025 at a compounded annual growth rate of 1.6%, a 44% increase over the total period. Unlike trucking companies that service the more cyclical retail and manufacturing sectors, demand for fuels delivery service is non-cyclical, although the industry experiences increased seasonal demand in periods of heightened driving activity in certain areas of the country. We estimate, based on industry sources, that approximately 264 billion gallons of refined petroleum products were consumed during 2003. We believe that substantially all of these 264 billion gallons were transported by truck at some point in the distribution process and, based on our revenue per gallon, represent a market in excess of $6 billion. Of this market, we estimate that 60% to 70%, or approximately 158 billion to 185 billion gallons, is still handled by the in-house private fleets of the major oil companies and other petroleum marketers. As major oil companies have renewed their focus on their core operations of oil and gas exploration, production, refining and marketing over the past few years, several have made the decision to outsource a number of their non-core functions, including their fuels delivery and logistics needs, in order to reduce costs and lower overhead. We are seeing this outsourcing trend take several forms. For example, some major oil companies and other petroleum marketers may choose to outsource a portion, or all, of their fuels delivery and logistics operations, while others may choose to outsource the logistics function only and retain control over their own private fleets. We believe an independent carrier with the infrastructure and technology capable of reliably serving the major petroleum marketers on a national and regional basis will be well-positioned to benefit from both of these outsourcing trends. The remaining 30% to 40% of the market is highly fragmented, served by more than 1,000 small regional or local carriers. Because our industry is characterized by stringent customer requirements relating to safety, significant insurance requirements and substantial federal and state regulatory requirements relating to safety, driver training, equipment and product handling, many of these companies are facing increased pressure from escalating insurance and operating costs, which has created a difficult environment for smaller carriers with lesser financial resources. As a result, many of these small regional and local carriers are being forced to exit the industry or partner with a larger company better equipped to meet these strict customer, insurance and regulatory requirements. In addition to the recent consolidation among the major oil companies, hypermarkets and super regional and national chains have emerged to replace many of the independent convenience stores and service stations served by many of our competitors. As our customers consolidate, we believe they will increasingly seek a delivery services provider with the size, infrastructure, capabilities, scope of services and geographic reach to service their entire operation, and, as a result, smaller carriers will face increasing pressure to consolidate. Our industry is characterized by high barriers to entry, such as the time and cost required to develop the capabilities necessary to handle hazardous material, the resources required to recruit and train drivers, substantial industry regulatory and insurance requirements and the significant capital investments required to build a fleet of equipment and establish a network of terminals. Total liabilities 175,372 252,511 Stockholders' equity: Convertible preferred stock 44,326 44,326 Common stock, at $0.0001 par value, 7,000,000 shares authorized at December 31, 2002 and 2003; and 200,800 and 240,800 shares issued and outstanding at December 31, 2002 and 2003, respectively Additional paid-in capital 200 1,232 Retained earnings 11,601 Balance at December 31, 2003 44,558 $ 44,326 240,800 $ $ 1,232 $ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 In addition, unlike most trucking companies, our core fuels delivery business has an average one-way trip length of approximately 35 miles. This shorter length of haul minimizes our exposure to the difficulties of recruiting and retaining a high quality workforce, because we are able to offer our drivers scheduled shifts that allow them to return home each day and allow them regularly scheduled days off. Furthermore, the new hours-of-service regulations that may reduce the productivity of other trucking companies are not expected to have an impact on our operations, because our scheduled shifts and scheduled time off already comply with these new regulations. Finally, unlike most other trucking companies, we service most of our customers under contracts that specify minimum levels of business. Our Strengths Leading Market Position. We are the largest independent fuels delivery carrier in North America and the only carrier with a nationwide network. With approximately $416 million in pro forma revenue for 2003 and approximately $104 million in revenue for the three months ended March 31, 2004, we are approximately six times larger than our next largest competitor. Our national footprint, with locations in 32 states that allows us to operate in all 48 states in the continental United States, enables us to serve customers with both national and regional shipping requirements and provides us with a significant network of operations. Our extensive network of 77 terminals and 93 satellite operations provides us with the flexibility to successfully handle volume fluctuations, which benefits our customers by helping to eliminate service disruptions and the need to use backup carriers at higher rates during peak periods. We believe that our geographic diversity, capabilities, industry reputation, broad offering of value-added logistics services and proprietary technology will increase our leading market position as our industry consolidates and our customers continue to outsource their fuels delivery operations. Commitment to Safety and Quality Leads to Strong Industry Reputation. We believe our customers' satisfaction and the success of our company is largely a result of our commitment to safety and quality. Our drivers, as the interface with the customer, play a critical role in helping us build and enhance our customer relationships. We dedicate significant time and resources to ensure our drivers have the proper experience and training, are supported by qualified field and terminal staff, have access to well-maintained equipment, operate in a safe and secure environment and are satisfied with their jobs. Our driver training exceeds federal and state requirements. Our commitment to safety and quality service has resulted in strong relationships with our customers. We provide delivery and logistics services to all of the ten largest petroleum marketers in the United States, including Amerada Hess, BP, ChevronTexaco, Citgo, ExxonMobil, Marathon Ashland, Shell, Sunoco and 7-Eleven. The strength of our reputation and our high rate of overall customer retention is evidenced by the fact that each of our ten largest customers for 2003 has been a customer of ours for more than ten years. We believe our industry reputation has made us the preferred partner of major oil companies and petroleum marketers, as well as the preferred employer of drivers and independent owner-operators. Industry-Leading Technology. We have developed and are currently implementing proprietary technology aimed at enhancing the efficiency of our operations and lowering our customers' costs. Our technology consists of hardware and software designed specifically for the petroleum transport sector, including the same fleet scheduling software package used by the major oil companies. Our technology enables us to provide customers with a seamless interface throughout their supply chains. For example, we have developed real-time analysis tools that allow us to continuously track our customers' inventory levels in order to minimize their inventory costs and optimize our delivery schedule and truck utilization. Our customers value this technology because it provides them with real-time data to help them lower their inventory costs. We are also developing tools to transmit delivery information to internal billing systems to ensure accuracy and timeliness of billing. Partner of Choice in a Consolidating Industry. As a result of our size and scope of operations relative to our competitors, as well as our strong industry reputation and our industry-leading technology, we believe we are the carrier of choice to acquire and integrate smaller carriers, as well as FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 to execute private fleet conversions for major oil companies and other petroleum marketers. Because our size allows us to benefit from economies of scale in purchasing items such as fuel, tires and insurance coverage, as well as in training drivers, we believe we are well-positioned to continue strategically acquiring and integrating smaller carriers who find the current operating environment difficult. In addition, we are the only carrier in the industry providing full-service fuels delivery and logistics services to customers on a regional and national basis, and we believe we are the partner of choice for large petroleum marketers, such as the major oil companies, that are considering outsourcing their petroleum delivery and logistics needs. Experienced Management Team. We have an experienced management team with an average of over 24 years in the industry. In 1991, our chief executive officer and chief financial officer founded the company that is now known as The Kenan Advantage Group. Our management team has extensive experience and a proven track record of growing our company organically, integrating strategic acquisitions, establishing the foundation necessary to service significant new customers and developing new business with existing customers. We believe our management team's experience in identifying, consummating and integrating acquisitions, as well as obtaining outsource contracts and converting private transportation fleets, affords us a competitive advantage in a consolidating industry. Our Strategy Capitalize on the Current Trend of Private Fleet Conversion. We believe there will continue to be significant revenue growth opportunities as major oil companies and other petroleum marketers increase their focus on core businesses and consider outsourcing non-core operations, such as fuels delivery and logistics. Because the delivery and logistics infrastructure maintained by our customers is difficult to manage and requires substantial internal expertise and resources, including capital spending and management focus, we believe an increasing number of petroleum marketers will choose to sell their internal truck fleets and outsource the delivery services currently provided by those fleets. With our ability to implement industry-leading safety and security programs, hiring and training programs, and key technology and other enhanced value-added systems such as inventory tracking and supply source management, we believe our outsourced delivery and logistics services offer an attractive opportunity to petroleum marketers seeking a viable, cost-effective option for reliable delivery across a large number of locations. Make Selective Acquisitions. We intend to continue growing through the acquisition of high-quality regional and local petroleum carriers. Overall, the fuels delivery and logistics services market is highly fragmented, consisting of over 1,000 regional and local carriers smaller than us. Many of these smaller or regional players are facing increased pressure from escalating insurance and operating costs, increasing customer demands for additional services and a stricter regulatory environment, and we believe this has created a very favorable environment for strategic acquirors. We have developed a defined process to effectively integrate new acquisitions without adversely affecting operations. Since 2000, we have completed six acquisitions, and we believe there are additional strategically attractive targets that would both complement our existing operations in high fuels consumption markets such as Texas, California and New England as well as expand our geographic reach. Deliver Value-Added Services to Our Customers. We offer a wide array of value-added services and features that complement the core delivery services we provide to our customers. Our advanced technology will enable us to extend our service offerings into areas we believe are critical to our customers through a variety of technology-based solutions, including web-based access to information in our fully integrated transportation management system. These solutions allow us to market value-added services to our customers, such as real-time delivery monitoring, inventory and supply source management, fleet scheduling, driver performance monitoring and integrated billing and payment. We believe we are the only provider in our industry capable of supplying all of these solutions to our customers. Provide Logistics Outsourcing Solutions. As our customers continue to focus on their core businesses, we believe they will increasingly rely on their primary carriers to provide comprehensive supply chain solutions. We intend to offer bulk transportation solutions to our customers by providing products and services such as scheduling services, best buy or optimal sourcing, fuel capital management, quality assurance and carrier settlement, brokerage services and real-time data. As a logistics provider, we will be able to purchase transportation services from both our company and other carriers, then package that transportation with other value-added services we provide. By managing the logistics function of our customers, we will be able to deliver a high-value solution to our customers while allowing our company to complement our core operations with a more flexible, non asset-based business model. Opportunistically Serve Existing Customers in Other Product Categories. Many of our existing customers also have delivery needs for other petroleum and non-petroleum based products, such as chemicals, lubricants, plastics and cement. We intend to expand into delivery of those products exhibiting similar characteristics to our core fuels delivery business, primarily those characterized by dedicated short-haul routes with no backhaul or requirement for the driver to make an overnight trip. In addition to refined petroleum products, approximately 7.0% of our pro forma revenue for 2003 and 7.6% of our revenue for the three months ended March 31, 2004 was derived from delivery services for the petrochemical industry, which we estimate has a total market size of approximately $5.7 billion. We believe continued growth in the petrochemical industry, along with expansion into delivery or logistics services for other related products, will provide additional growth opportunities for our company. Corporate Information We are a Delaware corporation formed in 2001. Our principal executive offices are located at 4895 Dressler Road, Canton, Ohio 44718, and our telephone number is (330) 491-0474. We are a holding company with no significant assets or operations other than direct or indirect ownership of 100% of the stock of our subsidiaries. Our website is located at www.thekag.com. Information contained on our website does not constitute a part of this prospectus. Amounts representing interest 4895 Dressler Road, Canton, Ohio 44718, (330) 491-0474 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) (1)The number of shares of common stock to be outstanding after this offering gives effect to (i) the issuance of shares of common stock as a dividend to effect a for 1 stock split of our common stock (assuming an initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus), effective immediately prior to the date set forth on the cover page of this prospectus and (ii) the automatic conversion to common stock of all outstanding shares of our preferred stock upon the closing of this offering, assuming an initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus. The number of shares to be outstanding after the offering excludes: shares of common stock issuable upon the exercise of options outstanding under our equity compensation plans, having a weighted average exercise price of $ per share; shares of common stock reserved for future grant under our equity compensation plans; shares of common stock issuable upon the exercise of outstanding warrants, at an exercise price of $ per share; shares of common stock issuable upon the exercise of outstanding options at an exercise price of $ per share, which options will only become exercisable if (i) our stock price is equal to or greater than $ (assuming an initial public offering price of $ , the midpoint of the range set forth on the cover page of this prospectus) 180 days after the date of this prospectus or (ii) prior to that date we are sold for a price per share that would result in certain of our current stockholders achieving an internal rate of return of 30% or more (the "Contingent Options"); and shares of common stock issuable upon the exercise of outstanding warrants, at an exercise price of $ per share, which warrants will only become exercisable if and to the extent the Contingent Options become exercisable. See "Description of Capital Stock." Dennis A. Nash, President and Chief Executive Officer The Kenan Advantage Group, Inc. 4895 Dressler Road, Canton, Ohio 44718 (330) 491-0474 (Name, address, including zip code, and telephone number, including area code, of agent for service) Net income (loss) per share Basic Diluted Copies to: Paul Jacobs, Esq. Roy L. Goldman, Esq. Fulbright & Jaworski L.L.P. 666 Fifth Avenue New York, New York 10103 Telephone (212) 318-3000 Fax (212) 318-3400 Kris F. Heinzelman, Esq. George A. Stephanakis, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Telephone (212) 474-1000 Fax (212) 474-3700 (1)Effective May 1, 2001, we completed the acquisition of Kenan Transport Company, a publicly-traded company founded in 1949 that had become the largest independent fuels delivery carrier in the industry (based on revenues), with operations focused in the southeast United States. Effective May 31, 2003, we acquired the fuels delivery operations of Beneto, Inc. ("Beneto"), which operates primarily in California, and effective June 30, 2003, we acquired substantially all the assets of Carl Klemm, Inc. ("Klemm"), which operates primarily in Wisconsin and Illinois. Because the results of operations of these entities are included in our financial results from the respective dates of acquisition, a comparison of our period-to-period financial results may not necessarily be meaningful. See "Unaudited Pro Forma Financial Data," which shows what our results of operations might have been had we acquired the Beneto and Klemm operations on January 1, 2003, and Note 2 to our consolidated financial statements included elsewhere in this prospectus. (2)Includes the results of operations of Kenan Transport Company from May 1, 2001. See "Certain Relationships and Related Transactions The Kenan Acquisition" and Note 2 to our consolidated financial statements included elsewhere in this prospectus. (3)Includes the results of operations of the fuels delivery operations of Beneto from May 31, 2003 and Klemm from June 30, 2003. See "Unaudited Pro Forma Financial Data" and Note 2 to our consolidated financial statements included elsewhere in this prospectus. (4)Gives effect to the acquisition of the fuels delivery operations of Beneto and Klemm, including the incurrence of $50.0 million of indebtedness to finance the acquisitions (including the transaction costs), as if the acquisitions had occurred on January 1, 2003. See "Unaudited Pro Forma Financial Data" and Note 2 to our consolidated financial statements included elsewhere in this prospectus. (5)Includes the actual results of operations of the fuels delivery operations of Beneto and Klemm described in note 1 above for the entire period. (6)Represents the non-cash charge related to the change in fair value of warrants issued to holders of our subordinated debt. The holders of these warrants have the right, which will terminate upon the closing of this offering, to require us to repurchase these warrants for an amount in cash based upon the fair market value of the underlying shares at any time beginning April 30, 2006 and earlier upon the occurrence of certain events. See "Description of Capital Stock Warrants" and Note 3 to our consolidated financial statements included elsewhere in this prospectus. (7)For a description of the management fees paid to Sterling Investment Partners Advisors, LLC, RFE Management Corporation and Sterling Ventures Limited, all of which are affiliates of two of our principal stockholders, see "Certain Relationships and Related Transactions." (8)Represents net income excluding, in the year ended December 31, 2003 (actual and pro forma), the non-cash charge of $13,687,000 related to the change in fair value of warrants issued to holders of our subordinated debt. This non-cash charge is not deductible for income tax purposes and therefore did not affect our tax provision. We believe this figure is useful in allowing management and our investors to compare our annual operating results without the accounting effect attributable to put rights attached to our warrants that will terminate following the closing of this offering. See note 6 above. However, Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective. (10)As of last day of period. (11)Excludes tractors owned by owner-operators. (12)As adjusted to reflect the amendment and restatement of our credit facility on July 13, 2004, including the effect of a charge of $2,254,000 (net of applicable tax benefit of $1,502,000) relating to the write-off of unamortized loan costs associated with the refinanced senior debt. (13)As adjusted to reflect the amendment and restatement of our credit facility described in note 12 above and our sale of shares of common stock at a price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and our use of proceeds, net of the underwriting discounts and commissions, to repay $ of outstanding indebtedness, including a prepayment fee of $392,500. In connection with the repayment of debt, we will write off deferred financing costs of $171,200 resulting from the early extinguishment of the subordinated notes. As a result of the prepayment fee and the write off, we will incur a charge of $338,200 (net of applicable tax benefit of $225,500). The increase in stockholders' equity also includes $17,930,000, which represents the carrying value of the put price for the warrants described in note 6 above, which put right expires upon the closing of this offering. See "Use of Proceeds" and "Capitalization." (14)Net of unamortized discount of $2,583,000 with respect to our subordinated notes that are being repaid with the proceeds of this offering. (15)Each share of our preferred stock is convertible into shares of common stock at any time after issuance, subject to adjustment. Each share of preferred stock outstanding will, upon the closing of this offering, automatically convert into the number of shares of common stock equal to the sum of (a) shares of common stock converted at the original conversion rate plus (b) the number of shares of common stock equal to the liquidation value per share divided by the initial public offering price of our common stock (the "adjustment feature"). The adjustment feature represents a beneficial conversion option to the existing holders of convertible preferred stock that will be recorded as a preferred stock dividend of approximately $ upon the closing of this offering (assuming an initial public offering price of $ , the midpoint of the range set forth on the cover page of this prospectus). If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "the issuers" mean, unless the context indicates otherwise, Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. and the terms "we," "our" and "us" refer collectively to the issuers and their subsidiaries and affiliates on a consolidated basis, after giving effect to the Transactions described below in this summary. The issuers' subsidiaries include: Nalco Holdings LLC, or Nalco Holdings, and its subsidiaries; Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, the issuers' subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. The Issuers Nalco Finance Holdings LLC was formed on January 14, 2004. Nalco Finance Holdings LLC's only assets are its ownership of 100% of the membership interests of Nalco Holdings LLC and 100% of the capital stock of Nalco Finance Holdings Inc. Nalco Finance Holdings LLC conducts all of its business through Nalco Holdings and its subsidiaries. Nalco Finance Holdings Inc. was incorporated on January 14, 2004. Nalco Finance Holdings Inc. has only nominal assets, does not currently conduct any operations and was formed solely to act as a co-issuer of the senior discount notes. For further information on our corporate structure, see "The Acquisition—Ownership Structure." Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where an offer or sale is not permitted. Subject to Completion, dated October 20, 2004 PRELIMINARY PROSPECTUS Nalco Finance Holdings LLC Nalco Finance Holdings Inc. $694,000,000 9.0% Senior Discount Notes due 2014 The 9.0% senior discount notes due 2014 will be issued on November 10, 2004 in exchange for the 9.0% senior discount notes due 2014 originally issued on January 21, 2004. The notes will mature on February 1, 2014. Nalco Finance Holdings LLC and Nalco Finance Holdings Inc., which we refer to collectively as the issuers, may redeem some or all of the notes at any time prior to February 1, 2009, at a price equal to 100% of the accreted value thereof, plus a "make-whole" premium. Thereafter, the issuers may redeem some or all of the notes at the redemption prices described in this prospectus. In addition, on or prior to February 1, 2007, the issuers may redeem up to 35% of the notes with the proceeds from certain equity offerings. The notes will be the issuers' joint and several unsecured obligations and rank equally with all of the issuers' future senior obligations and senior to the issuers' future subordinated indebtedness. The notes will be effectively subordinated to the issuers' future secured indebtedness to the extent of the assets securing that indebtedness and structurally subordinated to all indebtedness and other obligations of the issuers' subsidiaries, including Nalco Holdings LLC and Nalco Company. See
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+This summary highlights selected information in this prospectus, but it may not contain all of the information that you should consider before deciding to invest in the notes. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, which are included elsewhere in this prospectus. All references in this prospectus to "the issuers" mean, unless the context indicates otherwise, Nalco Finance Holdings LLC and Nalco Finance Holdings Inc. and the terms "we," "our" and "us" refer collectively to the issuers and their subsidiaries and affiliates on a consolidated basis, after giving effect to the Transactions described below in this summary. The issuers' subsidiaries include: Nalco Holdings LLC, or Nalco Holdings, and its subsidiaries; Nalco Company (formerly known as Ondeo Nalco Company) and its subsidiaries, which Suez S.A., or Suez, acquired in 1999; and the subsidiaries of Nalco International SAS that we have operated, but that were held separately from Nalco Company, including Nalco Belgium NV/SA (formerly known as Ondeo Nalco Belgium NV/SA), Nalco France (formerly known as Ondeo Nalco France), Nalco (Shanghai) Trading Co. Ltd. (formerly known as Ondeo Nalco (Shanghai) Trading Co. Ltd), Nalco Dutch Holdings B.V., Nalco Portuguesa (Quimica Industrial) Ltd. and Wyss Wassertechnik AG and their subsidiaries. We refer to these subsidiaries as the "Nalco International SAS Subsidiaries" in this prospectus. However, the issuers' subsidiaries exclude Ondeo Industrial Solutions LLC, a former subsidiary of Nalco Company that was transferred to Suez in connection with the Acquisition described below. The Issuers Nalco Finance Holdings LLC was formed on January 14, 2004. Nalco Finance Holdings LLC's only assets are its ownership of 100% of the membership interests of Nalco Holdings LLC and 100% of the capital stock of Nalco Finance Holdings Inc. Nalco Finance Holdings LLC conducts all of its business through Nalco Holdings and its subsidiaries. Nalco Finance Holdings Inc. was incorporated on January 14, 2004. Nalco Finance Holdings Inc. has only nominal assets, does not currently conduct any operations and was formed solely to act as a co-issuer of the senior discount notes. For further information on our corporate structure, see "The Acquisition—Ownership Structure." Our Company We are the leading global provider of integrated water treatment and process improvement services, chemicals and equipment programs for industrial and institutional applications. We are organized into three divisions which correspond to the end markets we serve: Industrial and Institutional Services, Energy Services and Paper Services. Our products and services are typically used in water treatment applications to prevent corrosion, contamination and the buildup of harmful deposits, or in production processes to enhance process efficiency and improve our customers' end products. Through our sales, research and marketing team of more than 6,500 technically trained professionals, we serve more than 60,000 customer locations. We focus on providing our customers with technologically advanced engineered solutions and services. These technologically advanced engineered solutions and services enable our customers to improve their business by increasing production yields, lowering manufacturing costs, extending asset lives and maintaining environmental standards. The cost of our technologically advanced engineering solutions and services represents a small share of our customers' overall production expense. We believe we offer the broadest product portfolio in our industry, including more than 5,000 products and 3,100 unique formulations. The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where an offer or sale is not permitted. Subject to Completion, dated October 20, 2004 PRELIMINARY PROSPECTUS Nalco Finance Holdings LLC Nalco Finance Holdings Inc. $694,000,000 9.0% Senior Discount Notes due 2014 The 9.0% senior discount notes due 2014 will be issued on November 10, 2004 in exchange for the 9.0% senior discount notes due 2014 originally issued on January 21, 2004. The notes will mature on February 1, 2014. Nalco Finance Holdings LLC and Nalco Finance Holdings Inc., which we refer to collectively as the issuers, may redeem some or all of the notes at any time prior to February 1, 2009, at a price equal to 100% of the accreted value thereof, plus a "make-whole" premium. Thereafter, the issuers may redeem some or all of the notes at the redemption prices described in this prospectus. In addition, on or prior to February 1, 2007, the issuers may redeem up to 35% of the notes with the proceeds from certain equity offerings. The notes will be the issuers' joint and several unsecured obligations and rank equally with all of the issuers' future senior obligations and senior to the issuers' future subordinated indebtedness. The notes will be effectively subordinated to the issuers' future secured indebtedness to the extent of the assets securing that indebtedness and structurally subordinated to all indebtedness and other obligations of the issuers' subsidiaries, including Nalco Holdings LLC and Nalco Company. See
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+PROSPECTUS SUMMARY The following summary contains basic information about our business and this offering. It does not contain all of the information that you should consider before investing in our common stock. You should read this prospectus, including Risk Factors and our consolidated financial statements and the accompanying notes, before making an investment decision. Our Company We provide an innovative service offering that enables residential real estate agents to capture and cultivate leads, and convert these leads into closed transactions. We generate leads for agent customers from our HouseValues.com and JustListed.com web sites, which cater to prospective home buyers and sellers. Our integrated offering couples these leads with our Market Leader online prospect management system and personalized coaching and training to help agent customers increase lead conversion. We generated revenues of $25.1 million in 2003 and $33.3 million for the nine months ended September 30, 2004. We have been profitable and cash flow positive since the end of 2001. As of September 30, 2004, we had approximately 9,850 customers. Our Industry According to REAL Trends, a real estate industry research firm, total residential real estate brokerage commissions and fees were approximately $60 billion in 2003. Because of the large dollar size of typical real estate commissions, prospective home buyers and sellers are valuable to real estate agents, and as a result agents invest heavily in advertising and marketing to generate clients. According to Borrell Associates, a media research firm, the real estate industry spent over $11 billion on advertising in 2003. The Internet makes an unprecedented amount of home information readily available to consumers and an increasing number of potential buyers and sellers are using the Internet in the early stages of their home buying or selling process. According to the National Association of Realtors, more than 70% of home buyers used the Internet in their home search in 2003. The large number of consumers who use the Internet to conduct research relating to the purchase or sale of a home represents an attractive pool of prospective clients for real estate agents, and the interactive and targeted nature of the Internet makes it possible to reach and communicate with these prospective clients in an efficient manner. Despite this opportunity, only approximately 11% of the advertising dollars spent in the real estate industry in the first half of 2004 was dedicated to online advertising, according to Borrell Associates. Our Advantage We provide the following benefits to residential real estate agents: Capture leads. We help agents attract new clients by providing them with leads on prospective home buyers and sellers in the neighborhoods in which they work. We provide each lead to only one agent and we guarantee our agent customers a minimum number of leads per month for a fixed monthly fee. Cultivate leads. Our Market Leader prospect management system assists our customers in building a pipeline of business by helping them organize, manage and communicate online with prospective home buyers and sellers in a highly automated fashion tailored for each prospect. Market Leader provides agents with web-based tools that allow them to track leads received from the HouseValues and JustListed services, conduct automated email follow-up campaigns with prospective clients, and track their sales pipeline, commissions and other success metrics. Expenses: Sales and marketing 56 51 46 43 46 Technology and product development 9 6 8 8 7 General and administrative 22 17 19 18 16 Depreciation and amortization of property and equipment 2 2 3 3 2 Amortization of intangible assets 1 1 2 Stock-based compensation 1 Consolidated Statements of Income Data: Revenues 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Expenses: Sales and marketing 51 45 47 39 45 53 46 45 48 Technology and product development 6 5 8 7 8 9 8 7 7 General and administrative 16 18 18 16 20 19 14 12 21 Depreciation and amortization of property and equipment 2 3 3 3 3 3 2 2 1 Amortization of intangible assets 2 2 2 2 2 Stock-based compensation 1 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Convert Leads. We provide agent customers with personalized telephonic and online coaching and training, as well as live in-market training seminars, to help them better serve their prospective clients and increase the likelihood that they will convert their leads into closed transactions. We also provide benefits to consumers by providing information to help them make a more informed decision before buying or selling a home. Our HouseValues.com service offers homeowners a free estimate of their home s current market value and suggested listing price. Homeowners enter information about their home on a short online form on the HouseValues.com web site. We automatically match this information with an agent customer, who is then able to provide the homeowner with a free comparative market analysis containing the agent customer s estimate of the value of the home. JustListed.com offers a free service for prospective home buyers that emails them listings on homes that meet their buying criteria. Prospective home buyers use our JustListed.com web site to specify the criteria they are seeking in a home. We automatically match this information with an agent customer, who is then able to email the prospective home buyer new home listings when such listings reach the market. We provide our service offering to agent customers for a monthly fixed fee pursuant to contracts that typically have an initial term of six months or one year, continuing thereafter on a month-to-month basis until terminated. Our contracts typically provide for the delivery of a monthly bundle of leads to each customer, a license to use our Market Leader system and coaching and training services. Under these contracts, agent customers must represent that they are licensed real estate agents. We do not conduct further due diligence concerning our agent customers. Our Strategy Our objective is to be the leading provider of services that enable residential real estate agents to capture and cultivate leads, and convert these leads into closed transactions. In doing so, we will seek to acquire an increasing share of real estate industry advertising expenditures, as these expenditures continue to migrate online. To achieve this goal, we are exploring and pursuing the following key strategies: Expanding our agent customer base; Efficiently selling excess leads; Creating new services to further capture agent online marketing expenditures; and Extending our business model to related markets such as residential mortgage-related services. Company Information We were incorporated in Washington in May 1999. Our principal executive offices are located at 15 Lake Bellevue Drive, Suite 100, Bellevue, Washington 98005. Our telephone number is (425) 454-0088. Corporate information about our company is available on our corporate web site at www.housevaluesinc.com. Information contained on our various web sites does not constitute part of this prospectus. Unless the context requires otherwise, in this prospectus the terms HouseValues, we, us and our refer to HouseValues, Inc. and our subsidiaries. HOUSEVALUES.COM is a registered trademark of HouseValues. This prospectus also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties. AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents THE OFFERING Common stock offered by HouseValues 4,166,667 shares Common stock offered by selling shareholders 2,083,333 shares Common stock to be outstanding after this offering 24,813,800 shares Use of proceeds The principal purposes of this offering are to create a public market for our common stock and to facilitate our access to the public capital markets. We are not undertaking our initial public offering to raise funds in order to satisfy any particular capital need or plans. We currently have no specific plan for using the net proceeds, although we may use the net proceeds in the following manner: approximately 50%, or $26 million, for expansion of our operations; approximately 10%, or $5 million, for capital expenditures; approximately 35%, or $18 million, for general corporate purposes; and approximately 5%, or $3 million, for working capital. We may use a portion of the net proceeds designated for expansion of operations to acquire or invest in businesses, products or technologies that are complementary to our own. We cannot specify with certainty the particular uses of the net proceeds among these different areas and, at the date hereof, cannot accurately predict the amounts that we may spend for any particular purpose. The amounts of our actual expenditures will be influenced by several factors, including the timing and extent of our expansion opportunities, the amount of cash generated or used by our operations and the occurrence of unforeseen opportunities and events. Accordingly, our management team will have broad discretion in using the net proceeds of this offering. We will not receive any of the proceeds from the sale of shares by the selling shareholders. See Use of Proceeds. Proposed Nasdaq National Market symbol SOLD The number of shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding as of September 30, 2004. This number does not include: an aggregate of 3,663,563 shares of common stock subject to outstanding options under our 1999 Stock Incentive Plan as of September 30, 2004, with a weighted average exercise price of $1.94 per share; an additional 189,304 shares of common stock reserved for issuance upon exercise of options that as of September 30, 2004 were available for grant under our 1999 Stock Incentive Plan; and an aggregate of 1,500,000 shares of common stock initially reserved for issuance under our 2004 Equity Incentive Plan, adopted in August 2004 and containing provisions that automatically increase its share reserves each year, as more fully described in Management Stock-Based Plans. Table of Contents Except as otherwise indicated, all information in this prospectus assumes: the conversion of all outstanding shares of Series A and Series B convertible preferred stock into an aggregate of 6,787,688 shares of common stock immediately prior to the completion of this offering; the filing of our amended and restated articles of incorporation and the effectiveness of our amended and restated bylaws; and no exercise of the underwriters over-allotment option. (unaudited) Current $ $ 1,292 $ 2,191 $ 1,791 $ 3,239 Deferred (427 ) 466 (48 ) 15 Lake Bellevue Drive, Suite 100 Bellevue, Washington 98005 (425) 454-0088 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Ian Morris Chief Executive Officer HouseValues, Inc. 15 Lake Bellevue Drive, Suite 100 Bellevue, Washington 98005 (425) 454-0088 (Name, address, including zip code, and telephone number, including area code, of agent for service) (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments $ 15,545 $ 15,545 $ 68,770 Working capital 11,231 11,231 64,456 Restricted cash 150 150 150 Total assets 21,637 21,637 74,287 Total liabilities 6,030 6,030 6,030 Redeemable convertible preferred stock 4,079 Total shareholders equity $ 11,528 $ 15,607 $ 68,257 2004 $ 145 $ 106 $ 7 $ 258 2005 579 28 607 2006 289 27 316 2007 24 24 2008 20 20 2009 6 Table of Contents
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+PROSPECTUS SUMMARY This summary highlights only selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001299033_calamos_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001299033_calamos_prospectus_summary.txt
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+elsewhere in this prospectus. This summary sets forth the material terms of this offering, but does not contain all of the information that you should consider before investing in our Class A common stock. You should read the entire prospectus carefully before making an investment decision, especially the risks of investing in our Class A common stock discussed under Risk Factors. Unless otherwise indicated, industry data are derived from publicly available sources, which we have not independently verified. Our Company Calamos Asset Management, Inc. provides investment advisory services through its subsidiaries to institutions and individuals, principally in the United States, and had $32.3 billion in client assets managed by its subsidiaries at June 30, 2004. We apply a proprietary investment process centered on risk management across an expanding range of investment strategies within the equity, balanced, convertible, high yield and alternative asset classes. We target clients seeking superior risk-adjusted returns over the long term. We make our range of investment strategies available to these clients, directly and through intermediaries, by offering an array of mutual fund and separate account products designed to suit their individual investment needs. Our investment philosophy is centered around our objective of providing our clients with superior risk-adjusted returns over the long term. While seeking to achieve these returns, we are focused on managing risk, which we define as the potential for loss and the variability of returns. We offer a variety of investment strategies that represent distinct balances, or profiles, of risk and reward. Our investment management team is led by John P. Calamos and Nick P. Calamos. As the originators of our investment philosophy, they have pursued a team approach for the implementation of that philosophy through our investment process. This team approach currently employs a single integrated investment team for the management of all portfolios, allowing for valuable contributions from different analysts within our company and creating a synergy of expertise that can be applied across many different investment strategies. Our investment strategies span the equity, balanced, convertible, high yield and alternative asset classes. We market our investment strategies to our target clients through a variety of products designed to suit their individual investment needs. Through our subsidiaries, we currently offer six types of investment products that fall into two categories: mutual funds, including eight registered open-end funds and three registered closed-end funds; and separate accounts, including institutional accounts, managed accounts, private client accounts and alternative investments. We believe our investment performance, broad range of investment strategies and diverse product offerings, coupled with an expanded sales effort with increased emphasis on open-end funds, have allowed us to grow our assets under management and revenues and position us for continued growth. Our assets under management have increased from $9.3 billion at December 31, 2001 to $32.3 billion at June 30, 2004, and our revenues and operating income before income taxes have increased from $47.3 million and $4.8 million, respectively, for the year ended December 31, 2001 to $162.4 million and $68.4 million, respectively, for the year ended December 31, 2003. For the six months ended June 30, 2004, our revenues and operating income before income taxes were $139.5 million and $57.4 million, respectively, as compared to $64.3 million and $24.2 million, respectively, for the six months ended June 30, 2003. We have been, and will continue to be, guided by our business strategies, namely: (1) maintaining superior investment performance, (2) focusing on serving long-term investors, (3) selectively expanding our investment strategies, (4) selectively expanding our products and distribution relationships and (5) capitalizing on our recognized and respected brand. Table of Contents In this prospectus, unless the context otherwise requires, references to we, us, our and our company refer to (1) Calamos Holdings, Inc., a Delaware corporation to be renamed Calamos Family Partners, Inc., its subsidiaries and their predecessor companies before consummation of the reorganization described in this prospectus under Reorganization and Holding Company Structure, and (2) Calamos Asset Management, Inc., a Delaware corporation, and its consolidated subsidiaries, including Calamos Holdings LLC and the subsidiaries of Calamos Holdings LLC, after consummation of the reorganization. Unless the context otherwise requires: Calamos Advisors refers to (1) Calamos Asset Management, Inc., an Illinois corporation, registered investment adviser and wholly owned subsidiary of Calamos Holdings, Inc., before consummation of the reorganization, and (2) Calamos Advisors LLC, a Delaware limited liability company, registered investment adviser and wholly owned subsidiary of Calamos Holdings LLC, after consummation of the reorganization; Calamos Financial Services refers to (1) Calamos Financial Services, Inc., an Illinois corporation, registered broker-dealer and wholly owned subsidiary of Calamos Holdings, Inc., before consummation of the reorganization, and (2) Calamos Financial Services LLC, a Delaware limited liability company, registered broker-dealer and wholly owned subsidiary of Calamos Holdings LLC, after consummation of the reorganization; Calamos Property Management refers to (1) Calamos Property Management, Inc., an Illinois corporation, and wholly owned subsidiary of Calamos Holdings, Inc., before consummation of the reorganization and (2) Calamos Property Management LLC, a Delaware limited liability company and wholly owned subsidiary of Calamos Holdings LLC, after consummation of the reorganization; and Calamos Family Partners, Inc. refers solely to Calamos Holdings, Inc., a Delaware corporation, and not to any of its subsidiaries. Calamos Holdings, Inc., will be renamed Calamos Family Partners, Inc. before consummation of the reorganization. The assets under management and other financial data presented in this prospectus with respect to the mutual funds we manage include the Calamos Growth and Income Portfolio, which is a portfolio of the Calamos Advisors Trust, a registered open-end investment company. However, references to the terms mutual funds and open-end funds in this prospectus do not otherwise include this portfolio. Assets under management increased by $13.0 billion, or 64%, to $33.2 billion as of September 30, 2004 from $20.2 billion as of September 30, 2003. This increase in assets under management was primarily due to increased net purchases of our mutual funds of $10.0 billion. The increase in mutual fund net purchases was largely attributable to a large closed-end fund offering and increased sales of the Calamos Growth Fund and Calamos Growth and Income Fund. Additionally, market appreciation accounted for $2.3 billion of the growth in assets under management. Total revenues increased by $36.6 million, or 82.0%, to $81.2 million for the three months ended September 30, 2004 from $44.6 million for the three months ended September 30, 2003. This increase was due to increases in both investment management fees and distribution and underwriting fees. Total operating expenses increased by $21.5 million, or 89%, to $45.8 million for the three months ended September 30, 2004 from $24.2 million for the three months ended September 30, 2003. This increase in total operating expenses was primarily due to increased employee compensation and benefits expense as well as increased distribution expense. Other income (expense), net was a net expense of $1.7 million for the three months ended September 30, 2004, as compared to a net expense of $6,000 for the three months ended September 30, 2003. This increase in net expense was primarily the result of an increase in interest expense resulting from the issuance of $150.0 million aggregate principal amount of Senior Unsecured Notes due 2011 in April 2004. Net income increased by $13.1 million, or 66%, to $33.1 million for the three months ended September 30, 2004 from $20.0 million for the three months ended September 30, 2003. Value/ 2002 .1 N/A Mid-cap blend Not rated Multi-cap core funds 1 162/684 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents During the nine months ended September 30, 2004, Calamos Family Partners, Inc. operated as an S corporation and was not subject to U.S. federal and certain state income taxes. Upon the consummation of this offering, we will be subject to U.S. federal, state and local income taxes applicable to C corporations. As a result, income taxes during the nine months ended September 30, 2004 are not indicative of our expected future income taxes following this offering. For more information on our pro forma income taxes, see Unaudited Pro Forma Financial Information. Reorganization Our business is presently conducted by subsidiaries of Calamos Family Partners, Inc., which was incorporated in Delaware on December 21, 2001 and is wholly owned by John P. Calamos, Nick P. Calamos, John P. Calamos, Jr. and three trusts for the benefit of Calamos family members. In June 2004, Calamos Family Partners, Inc. undertook a transaction, which we refer to as the Real Estate Distribution, pursuant to which Calamos Family Partners, Inc. distributed to its stockholders its interest in all of its real estate assets, consisting primarily of its corporate headquarters and related property and equipment with an aggregate fair value of $18.4 million as well as mortgage debt of $8.4 million. Those stockholders contributed those real estate assets to a new limited liability company wholly owned by them, Calamos Property Holdings LLC, which currently holds those assets through subsidiaries. We currently lease our existing headquarters from a subsidiary of Calamos Property Holdings LLC pursuant to a month-to-month lease under which we are obligated to pay monthly base rents and operating expenses in the amount of $69,959. A subsidiary of Calamos Property Holdings LLC is constructing a new headquarters facility for our occupancy. We have entered into a lease for these headquarters and expect to take occupancy in mid-2005. Monthly base rent under the lease will commence on the first day of the first month after which we receive possession of the leased premises and will initially be $237,183. Prior to the consummation of this offering, Calamos Family Partners, Inc. will undertake a transaction, which we refer to as the Formation Transaction. Pursuant to the Formation Transaction, Calamos Family Partners, Inc. and John P. Calamos will become the sole members of Calamos Holdings LLC. The Formation Transaction will establish Calamos Holdings LLC as the owner and operator of the business now conducted by subsidiaries of Calamos Family Partners, Inc. The completion of the Formation Transaction is a condition to this offering. On July 23, 2004, Calamos Family Partners, Inc. established a new company, Calamos Asset Management, Inc., as a Delaware corporation and became the sole owner of all of its capital stock. Calamos Asset Management, Inc. has not engaged in any business or other activities except in connection with its formation. Prior to the consummation of this offering, the certificate of incorporation of Calamos Asset Management, Inc. will be amended and restated to, among other things: create two classes of common stock, Class A and Class B common stock, and set forth the voting rights associated with each such class, and provide for the conversion of shares of its Class B common stock into, and the exchange of membership units in Calamos Holdings LLC (other than those held by us) for, shares of its Class A common stock, in each case on a one-for-one basis. Immediately following this offering, Calamos Asset Management, Inc. will use the net proceeds of this offering to: purchase 3,000,000 newly issued membership units directly from Calamos Holdings LLC; and purchase from Calamos Family Partners, Inc. 15,000,000 membership units in Calamos Holdings LLC (or 17,700,000 membership units if the underwriters exercise their overallotment option in full). In connection with its acquisition of membership units in Calamos Holdings LLC, Calamos Asset Management, Inc. will also become the sole Manager of Calamos Holdings LLC. As the sole Manager of AMENDMENT NO. 4 To Form S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 Table of Contents Calamos Holdings LLC, Calamos Asset Management, Inc. will continue to conduct the business now conducted by subsidiaries of Calamos Family Partners, Inc. As a result of the Real Estate Distribution, the Formation Transaction and the other transactions described above, which we collectively refer to as the Reorganization, immediately following this offering: we and Calamos Family Partners, Inc. will own approximately 18.0% and 81.8%, respectively, of the membership units in Calamos Holdings LLC (or approximately 20.7% and 79.1%, respectively, if the underwriters exercise their overallotment option in full); John P. Calamos will own approximately 0.2% of the membership units in Calamos Holdings LLC; outstanding shares of our Class A common stock, all of which will have been sold pursuant to this offering, will represent over 99.9% of our outstanding capital stock based on economic value; outstanding shares of our Class B common stock, all of which will continue to be owned by Calamos Family Partners, Inc., will represent less than 0.1% of our outstanding capital stock based on economic value; and outstanding shares of Class B common stock will represent approximately 97.8% of the combined voting power of all shares of our capital stock (or approximately 97.4% if the underwriters exercise their overallotment option in full). John P. Calamos, Nick P. Calamos, John P. Calamos, Jr. and the Calamos family trusts will continue to own all capital stock of Calamos Family Partners, Inc. upon consummation of this offering and, accordingly, will beneficially own all of the outstanding shares of our Class B common stock. As a result, members of the Calamos family will be able to exercise control over all matters requiring the approval of our stockholders, including the election of our directors and the approval of significant corporate transactions, and over our dividend policy and our access to capital. We intend to use $228.6 million of the net proceeds from our sale of shares of Class A common stock in this offering to purchase membership units in Calamos Holdings LLC from Calamos Family Partners, Inc. (or $270.2 million of the net proceeds if the underwriters exercise their overallotment option in full). In addition, after the pricing of this offering, we expect to grant options under our incentive compensation plan to John P. Calamos and Nick P. Calamos to purchase 177,273 and 113,636 shares, respectively, of our Class A common stock at an exercise price equal to the initial public offering price. We also expect to grant restricted stock units to John P. Calamos and Nick P. Calamos under the same plan with an aggregate dollar value of $975,000 and $625,000, respectively. Calamos Family Partners, Inc. has agreed to invest at least 50% of the after-tax net proceeds from its sale of membership units in Calamos Holdings LLC to us, estimated to be approximately $110 million, in investment products managed by our subsidiaries. Calamos Family Partners, Inc. has also agreed that it will maintain its investment in these investment products for not less than two years. All net profits of Calamos Family Partners, Inc. recognized prior to the Reorganization will be allocated to the stockholders of Calamos Family Partners, Inc. Net profits and losses of Calamos Holdings LLC recognized from and after consummation of the Reorganization will be allocated to the members of Calamos Holdings LLC pro rata in accordance with the percentages of their respective equity interests. Historically, Calamos Family Partners, Inc. operated as an S corporation and was not subject to U.S. federal and certain state income taxes. Upon the consummation of this offering, we will be subject to U.S. federal, state and local income taxes applicable to C corporations. As a result, our net income for the year ended December 31, 2004 and amounts available for the payment of dividends will be lower than Calamos Family Partners, Inc. s net income for that period and amounts available for the payment of dividends had the Reorganization not been consummated. Calamos Asset Management, Inc. (Exact name of registrant as specified in its charter) Delaware 6211 32-0122554 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (IRS Employer Identification Number) 1111 E. Warrenville Road Naperville, Illinois 60563 (630) 245-7200 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents The diagram below depicts our organizational structure immediately after the consummation of the Reorganization, excluding the 200,000 membership units in Calamos Holdings LLC owned directly by John P. Calamos. Global Growth and Income/ 1996 .2 0.47 World allocation funds 32 2 stars Global multi-cap core funds 3 High Yield/ 1999 .2 0.39 High yield bond funds 350 4 stars High current yield funds 3 James S. Hamman, Jr. Executive Vice President, General Counsel and Secretary Calamos Asset Management, Inc. 1111 E. Warrenville Road Naperville, Illinois 60563 (630) 245-7200 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Holding Company Structure We will be a holding company and, immediately after the consummation of the Reorganization, our sole asset will be our 18.0% equity interest in Calamos Holdings LLC (or 20.7% if the underwriters exercise their overallotment option in full). Our only business will be acting as the sole Manager of Calamos Holdings LLC, and, as such, we will operate and control all of the business and affairs of Calamos Holdings LLC. Net profits, net losses and distributions of Calamos Holdings LLC will be allocated and made to its members pro rata in accordance with the percentages of their respective equity interests. Accordingly, net profits and net losses of Calamos Holdings LLC will initially be allocated, and distributions by Calamos Holdings LLC will initially be made, approximately 18.0% to us and approximately 82.0% to Calamos Family Partners, Inc. and John P. Calamos, in the aggregate (or approximately 20.7% and 79.3%, respectively, if the underwriters exercise their overallotment option in full). In connection with our acquisition of membership units of Calamos Holdings LLC, we will become its sole Manager. Since we will operate and control all of the business and affairs of Calamos Holdings LLC as its sole Manager and cannot be removed as sole Manager, we will consolidate the financial results of Calamos Holdings LLC with ours. In light of Calamos Family Partners, Inc. s and John P. Calamos expected 82.0% aggregate ownership interest in Calamos Holdings LLC, we will reflect such ownership interest as a minority interest in our consolidated financial statements. Our historical results will be those of Calamos Family Partners, Inc., as our predecessor company. As a result, our net income, after excluding Calamos Family Partners, Inc. s and John P. Calamos minority interest, will represent 18.0% of Calamos Holdings LLC s net income, and similarly, outstanding shares of our Class A common stock will represent 18.0% of the outstanding membership units of Calamos Holdings LLC. As a member of Calamos Holdings LLC, we will incur U.S. federal, state and local income taxes on our proportionate share of any net taxable income of Calamos Holdings LLC. In accordance with the amended and restated limited liability company agreement pursuant to which Calamos Holdings LLC will be governed, we intend to cause Calamos Holdings LLC to continue to distribute cash on a pro rata basis to its members to the extent necessary to cover their tax liabilities, if any. Copies to: Michael J. Schiavone, Esq. Ralph Arditi, Esq. Shearman Sterling LLP Skadden, Arps, Slate, Meagher Flom LLP 599 Lexington Avenue Four Times Square New York, New York 10022 New York, New York 10036 Telephone: (212) 848-4000 Telephone: (212) 735-3000 Facsimile: (212) 848-7179 Facsimile: (212) 777-3860 Table of Contents The Offering Class A common stock offered by Calamos Asset Management, Inc. 18,000,000 shares of Class A common stock (or 20,700,000 shares if the underwriters exercise their overallotment option in full). Shares outstanding after the offering 18,000,000 shares of Class A common stock (or 20,700,000 shares if the underwriters exercise their overallotment option in full). 100 shares of Class B common stock. Use of proceeds We estimate that the net proceeds from our sale of shares of our Class A common stock in this offering will be approximately $274.3 million. We intend to use $45.7 million of these net proceeds to purchase 3,000,000 newly issued membership units directly from Calamos Holdings LLC and the remaining $228.6 million of net proceeds, to purchase from Calamos Family Partners, Inc. 15,000,000 membership units in Calamos Holdings LLC. If the underwriters exercise their overallotment option in full, we intend to use the additional $41.6 million of net proceeds to purchase from Calamos Family Partners, Inc. an additional 2,700,000 membership units in Calamos Holdings LLC. We intend to cause Calamos Holdings LLC to use approximately $6.1 million of the proceeds from our acquisition of membership units directly from it to make payments to certain of our employees in connection with the termination of our EAU plan, and approximately $39.6 million of the proceeds (1) to expand our alternative investment business, which consists of non-registered investment vehicles, primarily hedge funds, offered by us to qualified investors, and (2) for general corporate purposes. Calamos Family Partners, Inc. has agreed to invest at least 50% of the after-tax net proceeds from its sale of membership units in Calamos Holdings LLC to us, estimated to be approximately $110 million, in investment products managed by our subsidiaries. Calamos Family Partners, Inc. has also agreed that it will maintain its investment in investment products managed by our subsidiaries for not less than two years. Voting rights Each share of our Class A common stock will entitle its holder to one vote on all matters to be voted on by stockholders generally. The holders of our Class B common stock generally will have rights identical to holders of our Class A common stock, except that each share of Class B common stock will entitle its holder to a number of votes equal to: (1) ten, multiplied by the sum of (a) the aggregate number of shares of Class B common stock owned by such holder and (b) the aggregate number of membership units in Calamos Holdings LLC owned by such holder; divided by Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. CALCULATION OF REGISTRATION FEE Table of Contents (2) the number of shares of Class B common stock owned by such holder. Holders of our Class A common stock and Class B common stock generally will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law. Membership units in Calamos Holdings LLC to be outstanding after this offering 100,000,000 Conversion and Exchange Rights Shares of our Class B common stock are convertible into, and membership units of Calamos Holdings LLC not owned by us are exchangeable for, shares of our Class A common stock at any time on a one-for-one basis. If, immediately following this offering, Calamos Family Partners, Inc. and John P. Calamos exchanged all of their membership units in Calamos Holdings LLC for, and Calamos Family Partners, Inc. converted all outstanding shares of our Class B common stock into, shares of our Class A common stock, they would own an aggregate of approximately 82.0% of all outstanding shares of our Class A common stock (or 79.3% if the underwriters exercised their overallotment option in full). Dividend policy We currently intend to pay cash dividends on a quarterly basis and expect to declare our first quarterly dividend payment at an initial rate of $0.07 per share in the fourth quarter of 2004. We are a holding company and, as such, our ability to pay dividends is subject to the ability of our subsidiaries to provide cash to us. In accordance with the amended and restated limited liability company agreement pursuant to which Calamos Holdings LLC will be governed, we expect to cause Calamos Holdings LLC to pay distributions to its members pro rata to the extent necessary to enable such members, including us, to pay taxes incurred with respect to taxable income of Calamos Holdings LLC. Distributions by Calamos Holdings LLC in excess of such tax distributions, and the declaration and payment of future dividends by us, will be at the discretion of our board of directors and will depend on, among other things, general economic and business conditions, our strategic plans, our financial results and condition, contractual, legal and regulatory restrictions on the payment of dividends by us and our subsidiaries, and such other factors as our board of directors considers to be relevant. We are taxable as a corporation for U.S. federal income tax purposes and therefore holders of our Class A common stock will not be taxed directly on the earnings of Calamos Holdings LLC. Distributions of cash or other property that we pay to our stockholders will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution by us to our stockholders exceeds our current and accumulated earnings and profits, such excess will be treated Table of Contents as a tax-free return of capital to the extent of a holder s tax basis in our Class A common stock, and thereafter will be treated as a capital gain.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus and may not contain all of the information important to you. We urge you to carefully read this prospectus, including the "Risk Factors" section and the consolidated financial statements and related notes. Unless otherwise indicated, all information in this prospectus assumes (1) completion of the merger (as defined below) and (2) no exercise of the underwriters' over-allotment option. In this prospectus, unless the context requires otherwise, "Medex Holdings," the "company," "we," "us" and "our" each refers to Medex Holdings Corporation after the merger and MedVest Holdings Corporation ("MedVest") before the merger, in each case together with Medex, Inc., its wholly-owned operating subsidiary ("Medex"), and its other subsidiaries. As used in this prospectus, "pro forma" means that the information presented gives effect to the Jelco acquisition as if such transaction had occurred on January 1, 2003. See the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this prospectus. Our Business We are a leading global manufacturer and marketer of critical care disposable and non-disposable medical products. We have a portfolio of critical care products with established brands used by hospitals and alternate care facilities for diagnostic and therapeutic procedures. We offer our customers a complete fluid and drug infusion system comprised of infusion pumps, fluid and drug administration products and peripheral intravenous catheters, or "PIVCs," all of which function together to safely deliver measured doses of fluids and drugs into a patient's vascular system. We also manufacture and market invasive pressure monitoring systems, catheterization laboratory, or "cath lab," packs and accessories and respiratory products. We have a history of product innovation and development, and our products garner significant market share in both the U.S. and international markets. We estimate that over 78% of our net sales for the six months ended June 26, 2004 were generated by products for which we believe we have the number one or number two market position. For the six months ended June 26, 2004, we had net sales and operating earnings of $159.1 million and $35.7 million, respectively. We market our products through a dedicated global sales force of approximately 200 sales representatives and through a network of distributors to over 5,500 hospitals and alternate care settings in more than 80 countries. In the United States, we have long-standing relationships with some of the largest and most prominent group purchasing organizations ("GPOs") and integrated delivery networks ("IDNs"), which we believe position our sales force to sell our entire portfolio of products to the appropriate call point within the hospital during a single sales call. Outside the United States, our sales force is direct in 12 countries. We believe that having a direct sales force in foreign markets ensures that our products receive the appropriate focus and allows us to better understand local preferences so we can better serve these markets. We generated approximately 34.7% of our net sales for the six months ended June 26, 2004 outside North America. We believe that our products are known for their high quality, and that most of our products have established, well-recognized brand names. We categorize our products into the following primary product lines: Infusion Systems. Our infusion systems consist of a portfolio of complementary products, including infusion pumps, disposables for fluid and drug administration, and vascular access products, that function together to deliver fluids and drugs into a patient's vascular system. Our infusion pumps deliver measured doses of fluids and drugs to the patient's vascular system through our vascular access products, primarily PIVCs. Our infusion systems comprised approximately 80.8% of our net sales for the six months ended June 26, 2004. Pressure Monitoring Systems. We market a complete line of invasive pressure monitoring systems and related accessories that are used to measure various pressures within the body. For example, we market disposable, semi-reusable and reusable pressure transducers, which are used to Total operating expenses 202,772 1,756 271,542 Operating earnings 16,338 (1,756 ) 29,329 measure blood pressures within the body. Our pressure monitoring systems comprised approximately 9.1% of our net sales for the six months ended June 26, 2004. Cath Lab Packs and Accessories. Cath lab packs are sterilized pre-packaged trays that are assembled with single-use products selected by the cardiac catheterization and radiology laboratory personnel performing diagnostic and interventional catheterization procedures. Our cath lab packs and accessories comprised approximately 9.2% of our net sales for the six months ended June 26, 2004. Respiratory Products. Our respiratory products include medical devices used for oxygen administration, anesthesia, drug delivery and humidification. Our respiratory products comprised approximately 0.9% of our net sales for the six months ended June 26, 2004. The Critical Care Market We manufacture and distribute products in a $4.0 billion segment of the critical care products market. Primary hospital call points within this market include Intensive Care Units, Operating Rooms and Catheterization/Radiology departments. Critical care products typically account for a substantial portion of a hospital's total budget. We believe that breadth of product offering and scale are important in the critical care market as GPOs, IDNs and distributors seek to contract with suppliers that provide a wide range of products allowing them to negotiate favorable pricing and discounts across the spectrum of product offerings. We expect that growth in the critical care market will be driven primarily by: heightened focus on reducing adverse drug events; increased demand for single-use disposable products; an aging population; and increased focus on safety driving favorable government legislation. Competitive Strengths We believe that we are well positioned to grow our business and strengthen our market positions. We believe that the following competitive strengths contribute to our strong market share and will continue to provide us with significant opportunities to increase our sales: Exclusive Focus and Leadership in the Critical Care Market. We are exclusively focused on the fragmented critical care market. Within the categories of critical care in which we currently focus, over 78% of our net sales for the six months ended June 26, 2004 were generated by products for which we believe we have the number one or number two market position. We believe that our focus within the critical care market allows us to proactively identify industry trends and respond more quickly to these trends than our competitors. Provider of Complete System Solutions to Our Customers. We sell an integrated suite of critical care products allowing us to combine our products to meet the specific needs of our customers. For example, we can provide a complete infusion system solution that includes: hardware, such as syringe pumps; fluid and drug administration products, such as tubing, stopcocks and extension sets; and vascular access products, such as PIVCs. Providing our sales force with this comprehensive product portfolio allows them to sell complete system solutions during one sales call. Established Global Sales and Distribution Channels. We have a 200-person global sales and distribution infrastructure with direct sales in 13 countries, including the United States. We believe this infrastructure provides us with a significant competitive advantage as we introduce Total current assets 2,425 54,886 1,703 55,544 114,558 Property, plant and equipment, net 82,706 242 33,202 116,150 Goodwill 119,263 361 4,680 124,304 Other intangible assets, net 106,186 106,186 Investment in subsidiaries 103,400 16,309 22,749 (142,458 ) Other long-term assets 12,629 (1 ) 356 Total current assets 2,425 54,886 1,703 55,544 114,558 Property, plant and equipment, net 82,706 242 33,202 116,150 Goodwill 119,263 361 4,680 124,304 Other intangible assets, net 106,186 106,186 Investment in subsidiaries 103,400 16,309 22,749 (142,458 ) Other long-term assets 12,629 (1 ) 356 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 new products to the U.S. and international markets. Being direct in foreign markets allows us to understand local market practices and product preferences and also allows us to ensure that our products receive adequate sales force attention. Strong, Loyal and Diversified Customer Base. We have long-standing relationships with some of the largest and most prominent GPOs, IDNs, distributors and original equipment manufacturers ("OEMs") in the healthcare industry. Our products are used in over 5,500 hospitals and alternate care settings in more than 80 countries. We believe that our customers tend to remain loyal to our products because of our established brand names, high quality and proven service. Our end customer base, which consists of hospitals and alternate care settings, is diversified, with our top 10 customers representing less than 5% of our net sales for the year ended December 31, 2003. Leader in Product Innovation and Development. We believe that we are at the forefront of our industry in terms of product innovation across a range of products. We believe that we were the first to develop the safety PIVC. We also developed the industry leading syringe pump, which we continue to refine and enhance with features, such as PharmGuard, that help ensure patients receive proper dosages of fluids and drugs, thereby reducing the risk of adverse drug events. We also are currently conducting clinical trials for an anti-microbial material that can be molded or extruded into medical products, thereby reducing the likelihood of infections. We believe that our product innovation allows us to respond quickly to the changing needs of our customers. Experienced and Incentivized Management. Our senior management team has an average of approximately 20 years' experience within the healthcare industry. Dominick Arena, our president and chief executive officer, has over 26 years of experience in the critical care industry. Our management team has demonstrated the ability to launch new operations, introduce new products and integrate operations from acquisitions, including the Jelco acquisition. Business Strategy Our goal is to provide our customers with quality system solutions and value-added services for their critical care needs. We intend to strengthen our market leadership positions, maximize profitability and drive revenue growth through the following strategies: further penetrate our existing customer base; expand international sales; continue to develop innovative products; expand sales to the alternate care market; pursue strategic acquisitions; and reduce production and operating costs. History We were formed through a management buyout from Saint-Gobain completed in February 2001. Following the management buyout, we were largely focused on sales of our infusion systems, fluid and drug administration, pressure monitoring and cath lab products. In 2002, we acquired Inhalation Plastics Incorporated ("IPI"), which provided us with a respiratory franchise consisting of products used for oxygen administration, anesthesia and ventilator circuits, drug delivery and humidification. In May 2003, we acquired substantially all of the assets of the Jelco peripheral intravenous catheter business (the "Jelco business" or "Jelco") from Ethicon Endo-Surgery, Inc. ("Ethicon"), a wholly FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Our principal executive office is located at 2231 Rutherford Road, Carlsbad, California 92008, and our telephone number is (760) 602-4400. Our website can be found at www.medex.com. Information on our website is not deemed to be a part of this prospectus. MEDEX HOLDINGS CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware (State or other jurisdiction of incorporation or organization) 3841 (Primary Standard Industrial Classification Code Number) 20-1426741 (I.R.S. Employer Identification Number) 2231 Rutherford Road Carlsbad, California 92008 (760) 602-4400 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Dominick A. Arena President and Chief Executive Officer Medex Holdings Corporation 2231 Rutherford Road Carlsbad, California 92008 (760) 602-4400 (Name, address, including zip code, and telephone number, including area code, of agent for service) The Offering Common stock offered shares Common stock to be outstanding after this offering shares Use of proceeds We estimate that our net proceeds from this offering will be approximately $ million. We intend to use these net proceeds to: (1) redeem all of our outstanding participating preferred stock held by our equity sponsor for approximately $ million, all of our outstanding participating preferred stock held by management for approximately $ million, and all options to purchase shares of our participating preferred stock for approximately $ million; (2) redeem $ million of our outstanding 87/8% senior subordinated notes, including associated redemption premiums and accrued but unpaid interest thereon; (3) repay $ million of outstanding term loans under our credit facility; and (4) make a final lump sum payment of $ million to our equity sponsor to terminate our management agreement. Proposed NYSE symbol "MDX" Except as otherwise indicated, the number of shares of common stock stated to be outstanding after this offering gives effect to the common stock being sold by us in this offering and a for one stock split that we intend to effect through the merger immediately prior to the completion of this offering. Such number of shares of common stock excludes: 1,933,465 shares of common stock issuable upon exercise of options outstanding as of June 26, 2004, under our employee option plans, with a weighted average exercise price of $2.13 per share; and additional shares of common stock reserved for issuance under our employee option plans. You should read the discussion under "Management Employee Stock Option Plans" for additional information about our employee option plans. There has been no public market for our common stock prior to this offering. We and the underwriters will negotiate the initial public offering price at which our common stock will be sold in this offering. Factors that we and the underwriters will consider include: prevailing conditions in the securities markets at the time of this offering; the history of and prospects for our industry; an assessment of our management; our present operations; our historical results of operations; the trend of our net sales and earnings; our earnings prospects; recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and any other relevant factors. We cannot be sure that the initial public offering price will correspond to the price at which the common stock will trade in the public market following this offering or that an active trading market for the common shares will develop and continue after this offering. You should consider carefully all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the section entitled "Risk Factors" for an explanation of certain risks of investing in our common stock. Copies to: Steven J. Gavin Eryk J. Spytek Winston & Strawn LLP 35 West Wacker Drive Chicago, Illinois 60601 (312) 558-5600 Alejandro E. Camacho Clifford Chance US LLP 31 West 52nd Street New York, New York 10019 (212) 878-8000 Net income (loss) per share: Basic n/a $ 0.05 n/a $ (0.42 ) $ (0.36 ) $ (0.02 ) $ (0.17 ) $ 0.98 Diluted n/a $ 0.05 n/a $ (0.42 ) $ (0.36 ) $ (0.02 ) $ (0.17 ) $ 0.90 Weighted average number of shares used in per share calculations: Basic n/a 3,409 n/a 4,031 20,695 20,695 21,506 19,749 Diluted n/a 3,409 n/a 4,031 20,695 20,695 21,506 21,683 2002 First Quarter 23,684 330 1 Second Quarter 24,902 1,364 37 Thrid Quarter 24,939 618 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. (1)The predecessor's former parent company and the predecessor were purchased on October 27, 1999 by Compagnie de Saint-Gobain ("Saint-Gobain"). Saint-Gobain elected not to allocate any purchase price to the predecessor; accordingly the financial statements of the predecessor are presented on a historical basis. Both the predecessor's former parent company and Saint-Gobain charged certain general and administrative support services to the predecessor. In the opinion of management, these charges have been determined on a reasonable basis and reflect the expenses of the predecessor as operated by the parent. However, the charges for the support services were not necessarily indicative of the level of expenses that might have been incurred had the predecessor been operating as a stand-alone entity. (2)The information provided in the period from January 1, 2001 to February 8, 2001 is derived from our unaudited internal records for that period and includes allocations related to support functions provided by Saint-Gobain made by management. The information for the year ended December 31, 2001 has been included to provide more meaningful and comparable information to the readers of this prospectus but may not provide complete GAAP measures of our operations. (3)We report our quarterly financial results based on three fiscal month periods, with each fiscal month ending on a Saturday. Our fiscal year, however, ends on December 31, regardless of whether such date is a Saturday. As a result, our second and third quarters each consist of 91 days, but the number of days in our first and fourth quarters may vary. For example, in 2003 our first quarter consisted of 88 days and our fourth quarter consisted of 95 days, and in 2004 our first quarter consisted of 87 days and our fourth quarter will consist of 97 days. (4)Includes a purchase accounting adjustment of $5.9 million related to the write-up of Jelco inventory. (5)Includes a one-time charge for the Jelco acquisition of $8.4 million related to management retention and non-compete bonuses and compensation expense related to the payment of equity awards. (6)As a result of the Jelco acquisition, we decided to close our Costa Rica manufacturing facility and relocate our operations to Jelco's Monterrey, Mexico facility. (7)As a result of our recapitalization on May 21, 2003, we incurred losses related to the write-off of our debt issuance costs, resulting from the early payment of certain debt obligations. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box:
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in shares of our common stock or our New Secured Notes. You should read this entire prospectus carefully, including "Risk Factors" beginning on page 20 and our financial statements and the notes to those financial statements beginning on F-1 before making an investment decision. ABOUT iBASIS COMPANY OVERVIEW We are an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services. Our continuing operations consist of our Voice-Over-Internet-Protocol, or VoIP, business. We offer wholesale services through our worldwide network to carriers, telephony resellers and others around the world by operating through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia. During the third quarter of 2003, we introduced our retail prepaid calling card services and have marketed such services primarily to ethnic communities within major domestic markets through distributors. Our entry into the retail prepaid calling card business is based on our strategy to leverage our existing international VoIP network with additional enhanced services that have the potential to deliver higher margins than our wholesale international telecommunications services. In addition, the retail prepaid calling card business typically has a faster cash collection cycle than wholesale international telecommunications services. Beginning in the second quarter of 2004, our recently created operating segment, retail prepaid calling card services and other enhanced services ("Retail") became a reportable business segment, in addition to our international wholesale VoIP telecommunications services. Since we introduced our retail prepaid calling card services, revenue from our Retail business had been less than 10% of total revenue. In the second quarter of 2004, revenue from our Retail business exceeded 10% of total net revenue. We have a history of operating losses and, as of June 30, 2004, our accumulated deficit was $427.5 million and our stockholders' deficit was $54.2 million. We used $2.4 million and $3.2 million in cash from operations in the six months ended June 30, 2004 and the year ended December 31, 2003, respectively. These results are primarily attributable to the expenditures necessary to build our network and develop and expand our market. In June 2004, we completed a refinancing of our outstanding debt obligations. As part of the refinancing, we completed an exchange offer (the "Exchange Offer"), pursuant to which $37.3 million of our outstanding 5 3/4% Convertible Subordinated Notes due in March 2005 ("Existing Notes"), representing approximately 98% of the total amount of Existing Notes outstanding, were tendered for the same principal amount of new 6 3/4% Convertible Subordinated Notes due in June 2009 ("New Subordinated Notes"). Approximately $0.9 million of the Existing Notes remain outstanding after the Exchange Offer. Simultaneously with the Exchange Offer, we prepaid all $25.2 million of our 11 1/2% Senior Secured Notes due in January 2005 ("Existing Senior Notes") for cash equal to the principal amount plus accrued but unpaid interest and the issuance of warrants exercisable for an aggregate of 5,176,065 shares of our common stock, $0.001 par value per share ("common stock"), at $1.85 per share (the "Warrants"). We issued $29.0 million of new 8% Secured Convertible Notes due in June 2007, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We were incorporated as a Delaware corporation in 1996. Our principal executive offices are located at 20 Second Avenue, in Burlington, Massachusetts 01803 and our telephone number is (781) 505-7500. SUMMARY OF THE OFFERING We recently prepaid all $25.2 million of our Existing Senior Notes, pursuant to the terms of a Note Repurchase, Exchange and Termination Agreement, by and among us and the holders of our outstanding Existing Senior Notes, for cash equal to the principal amount of the Existing Senior Notes plus accrued interest and the issuance of the Warrants. Pursuant to the terms of a Note Purchase Agreement by and among us and the purchasers of the New Secured Notes, we simultaneously issued $29.0 million aggregate principal amount of our New Secured Notes, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We are registering the New Secured Notes and the shares of common stock underlying the New Secured Notes and the Warrants in accordance with registration rights agreements we entered into with holders of our Existing Senior Notes and our New Secured Notes. We are also registering 110,231 shares of our common stock that we issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. Our registration of the securities does not necessarily mean that the selling securityholders will convert the New Secured Notes or exercise any of the Warrants or sell any or all of the underlying securities we have registered. Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the New Secured Notes, the common stock issuable upon conversion of the New Secured Notes or upon exercise of the Warrants, or the common stock issued to our investment banker, Imperial Capital, LLC. For information regarding the selling securityholders and the resale of the securities, see "Selling Securityholders" and "Plan of Distribution." SUMMARY OF NEW SECURED NOTES <Table> <S> <C> ISSUER iBasis, Inc. NOTES OFFERED $29,000,000 aggregate principal amount of 8% Secured Convertible Notes due 2007. INTEREST PAYMENT DATES Interest is payable on June 15 and December 15 of each year, beginning on December 15, 2004. INTEREST 8% per annum in cash. MATURITY June 18, 2007 CONVERSION The New Secured Notes are convertible, in whole or in part, at any time prior to maturity into shares of common stock at a conversion price of $1.85 per share, subject to adjustment upon the occurrence of certain events. PROVISIONAL REDEMPTION The New Secured Notes are not redeemable prior to June 18, 2005, the twelve-month anniversary of the date of issuance. Thereafter, we will have the right to redeem some or all of the New Secured Notes at a redemption price equal to $1,000 per New Secured Note plus accrued and unpaid interest to the redemption date if the closing price of our common stock exceeds 150% of the conversion price for at least 20 trading days in any consecutive 30-trading day period ending on the trading day prior to the mailing of the notice of redemption. OPTIONAL REDEMPTION After June 18, 2006, the second anniversary of the date of issuance, we will be able to redeem the New Secured Notes, in whole or in part, at our option, at a redemption price equal to 102% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. REPURCHASE UPON A REPURCHASE EVENT Upon the occurrence of a repurchase event, the holders of the New Secured Notes will have the right to require us to repurchase </Table> <Table> <S> <C> the New Secured Notes in cash, or upon satisfaction of certain conditions and at our option, in shares of common stock, at a repurchase price of 105% of the principal amount of the New Secured Notes submitted for repurchase, plus accrued and unpaid interest to, but excluding, the repurchase date. A "repurchase event" includes a change of control under certain circumstances or a termination of listing of our common stock on a U.S. national securities exchange or trading on an established over-the-counter trading market in the U.S. SECURITY The New Secured Notes are secured by a perfected, second priority secured interest in substantially all of our tangible and intangible assets. The New Secured Notes are guaranteed by iBasis Global, Inc., iBasis Holdings, Inc. and iBasis Securities Corporation, each of which is a wholly-owned subsidiary of ours. SUBORDINATION The New Secured Notes are subordinated to the prior payment in full of our existing and future senior indebtedness. EVENTS OF DEFAULT The following events constitute "events of default" under the Indenture for the New Secured Notes by and between us and The Bank of New York as trustee (the "New Secured Note Indenture"): - failure to pay the principal or premium, if any, on any of the New Secured Notes when due; - failure to pay interest on the New Secured Notes when due if such failure continues for 30 days; - failure to deliver shares of our common stock, including cash for fractional shares, 5 days after conversion of a New Secured Note; - failure to perform any covenant in the New Secured Note Indenture if such failure continues for 45 days after notice is given; - failure to repurchase any New Secured Notes upon a repurchase event, or to provide written notice to the holders of the New Secured Notes of such an event; - our failure or the failure of any of our significant subsidiaries to make payment at maturity of other indebtedness in an aggregate principal amount in excess of $5 million if such failure continues for a period of 30 days after notice of such default; - our default or the default of any of our significant subsidiaries that results in the acceleration of indebtedness in an aggregate principal amount in excess of $5 million if such indebtedness shall not have been discharged or such acceleration shall not have been rescinded or annulled within 30 days after notice of such default; - we or any of our significant subsidiaries commences a voluntary proceeding seeking liquidation, reorganization </Table> <Table> <S> <C> or other relief, or consents to any such relief or the appointment a trustee, receiver, liquidator, custodian or similar official in an involuntary case against us or any such subsidiary, or makes a general assignment for the benefit of creditors or otherwise fails to pay debts when they become due; - an involuntary case or other proceeding is commenced against us or any of our significant subsidiaries seeking liquidation, reorganization or other relief with respect to us or our debts or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official, and such case remains undismissed and unstayed for a period of 60 days; - a default occurs under any of the security documents, the liens created by the security documents do not constitute valid and perfected liens, or any of the security documents ceases to be in full force and effect (other than expiration in accordance with their terms or modification, waiver, termination or release in accordance with the terms of the New Secured Note Indenture), and such default continues for a period of 15 days following written notice of such default; - our failure to make, when due, any transfer, delivery, pledge, assignment or grant of collateral required to be made by us, and such failure continues for 10 business days after notice of such failure; or - Any guarantee given by one of our subsidiaries pursuant to the New Secured Note Indenture is held to be unenforceable or invalid in any material respect or ceases to be in full force and effect, or any subsidiary denies its guarantee obligations. If an event of default occurs and continues to occur, the principal and premium on the New Secured Notes may be declared to be immediately due and payable. After acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding New Secured Notes under circumstances set forth in the New Secured Note Indenture, will be able to rescind the acceleration of all events of default, other than the payment of principal of the New Secured Notes that becomes due solely because of the acceleration and events of defaults that are cured or waived as provided in the New Secured Note Indenture. COVENANTS FINANCIAL COVENANTS Under the New Secured Note Indenture, we are prohibited from: - incurring additional indebtedness other than (i) indebtedness under the New Secured Notes and the subsidiary guarantees, (ii) issuing in excess of $38.18 million aggregate principal amount of the Existing Notes </Table> <Table> <S> <C> and the New Subordinated Notes, (iii) additional indebtedness that is PARI PASSU with or subordinate to the New Secured Notes, not to exceed $20,000,000 in principal amount outstanding at any time, (iv) indebtedness not otherwise covered by any other clause which is outstanding on the date of execution of the New Secured Note Indenture, (v) our indebtedness to any of our designated subsidiaries and indebtedness of any of our designated subsidiaries to us or another subsidiary, (vi) indebtedness secured by our assets that is incurred by us or any of our designated subsidiaries from any bank, commercial finance company, other commercial lender or financial institution in an amount not to exceed specified maximum thresholds set forth in the New Secured Note Indenture, (vii) our indebtedness or indebtedness of any of our subsidiaries incurred or issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other indebtedness of ours or any of our subsidiaries (other than intercompany indebtedness) outstanding on the date of execution of the New Secured Note Indenture or other indebtedness permitted to be incurred by us or our subsidiaries pursuant to the terms of the New Secured Note Indenture, (viii) indebtedness of a person existing at the time such person becomes one of our subsidiaries or assumed in connection with the acquisition by us of assets from such person, in an amount not to exceed $25 million in the aggregate, (ix) indebtedness that is subordinate to the New Secured Notes, not to exceed $114.5 million in the aggregate, (x) indebtedness arising from bonds or instruments securing our obligations or obligations of any of our designated subsidiaries incurred in the ordinary course of business, which bonds or other instruments do not secure other indebtedness, (xi) issuing capital stock that, by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 121 days after the date on which the New Secured Notes mature (such stock is referred to hereafter as "disqualified stock"), PROVIDED, that we may issue shares of disqualified stock if: (A) the fixed charge coverage ratio for our most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such disqualified stock is issued would have been at least 1.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the disqualified stock had been issued at the beginning of such four-quarter period; (B) no default or event of default shall have occurred and be continuing or would occur as a consequence thereof, and (C) the terms of such disqualified stock expressly provide that we shall not be required to redeem such disqualified stock at </Table> <Table> <S> <C> any time prior to the date on which all amounts due under the New Secured Note Indenture, including without limitation all principal and interest due under the New Secured Notes, have been indefeasibly paid in full; (xii) indebtedness incurred to finance the purchase, lease or improvements of property, provided that the aggregate amount of indebtedness does not exceed the lesser of 10% of our total assets or $10 million, (xiii) indebtedness incurred under foreign currency exchange agreements entered into for bona fide hedging purposes and not for speculative purposes, (xiv) indebtedness arising from honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such indebtedness is extinguished within 4 business days, and (xv) indebtedness of ours or any of our designated subsidiaries consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets. Under the New Secured Note Indenture, we may not, and we may not permit any of our subsidiaries to: - incur any lien on any property or proceeds except with respect to liens existing on the issue date or to be incurred pursuant to agreements existing on the issue date, or debt incurred to refinance such debt, liens on property that is acquired by us, or liens securing certain permitted secured indebtedness; - declare any dividend or make any distribution to any equity holders, purchase, redeem or otherwise acquire or retire for value any equity (other than permitted employee equity repurchases or pursuant to a permitted open-market stock repurchase plan), subject to a basket based on our consolidated net income after the issue date of the New Secured Notes, prepay any indebtedness that is contractually subordinated to the New Secured Notes prior to their stated maturity, or make certain other "restricted payments"; - make certain investments that are not consistent with our line of business; - issue preferred capital stock that could be redeemed prior to the maturity date of the New Secured Notes; - permit any restrictions to be imposed on the ability of our subsidiaries to pay dividends or transfer assets to us; - enter into any transactions with our affiliates on less-favorable terms than would have been obtained in a comparable transaction with an unrelated party and, in the event of any such transaction involving aggregate consideration in excess of $5.0 million, without an opinion of an investment banking firm of national </Table> <Table> <S> <C> standing as to the fairness of such transaction from a financial point of view; - consummate any asset sale unless we or one of our designated subsidiaries receives consideration equal to the fair market value of the assets sold, receives at least 75% of the net proceeds in cash, and, with respect to an asset sale involving equity interests of a designated subsidiary, we sell all of the equity interests we own. We must invest the proceeds from any asset sale in the development, manufacture, marketing, provision or sale of communications and communications-related services and products or any other business conducted by us on the issue date of the New Secured Notes, or use the proceeds to reduce our indebtedness; - permit any of our designated subsidiaries to guarantee our indebtedness, other than indebtedness under that certain Loan and Security Agreement, dated December 29, 2003, among us, iBasis Global, Inc. and Silicon Valley Bank ("Credit Agreement"), the New Secured Notes, the PARI PASSU indebtedness, and, to the extent permitted by the New Secured Note Indenture, currency hedge obligations; - acquire or create any additional domestic subsidiary after the date of the New Secured Note Indenture, unless such subsidiary shall become a subsidiary guarantor and execute a supplemental indenture; or - sell any shares of capital stock of a designated subsidiary, except to ourselves or another wholly-owned subsidiary, issuances of director's qualifying shares or sales to foreign nationals of shares of capital stock of foreign subsidiaries, or sales of common stock of a designated subsidiary, provided that the designated subsidiary would no longer be a designated subsidiary. NON-FINANCIAL COVENANTS Under the New Secured Note Indenture, we are required to: - duly and punctually pay the principal of and premium, if any, and interest on each of the New Secured Notes; - maintain an office or agency in the Borough of Manhattan, The City of New York, where the New Secured Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notice and demands to or upon us in respect of the New Secured Notes and New Secured Note Indenture may be served; - appoint a Trustee whenever necessary to avoid or fill a </Table> <Table> <S> <C> vacancy in the office of Trustee, so that at all times there will be a Trustee under the New Secured Note Indenture; - cause any paying agent that we appoint other than the Trustee to execute and deliver to the Trustee an instrument in which it agrees to (i) hold all sums in trust for the benefit of the holders of the New Secured Notes, (ii) give the Trustee notice of any failure by us to make any payment of the principal of and premium, if any, or interest on the New Secured Notes when the same is due and payable, and (iii) pay to the Trustee all sums held in trust upon an event of default under the New Secured Note Indenture. If we act as our own paying agent, we must, on or before each due date of the principal of, premium, if any, or interest on the New Secured Notes, set aside and hold in trust for the benefit of the holders of the New Secured Notes a sum sufficient to pay such principal, premium, if any, or interest becoming due, and we must notify the Trustee of our failure to take any such action or any failure to make any payment when due; - do all things necessary to preserve and keep in full force and effect our corporate existence and the corporate, partnership or other existence of the designated subsidiaries and our rights, licenses and franchises and the rights, licenses and franchises of any designated subsidiary; - agree not to claim or take advantage of any stay, extension or usury law or other law, whenever enacted, that would prohibit or forgive us from paying all or any portion of the principal of or interest on the New Secured Notes; - deliver to the Trustee within 120 days after the end of each fiscal year an officer's certificate, signed by our principal executive, principal financial or principal accounting officer, stating whether, to the best of their knowledge, the signer knows of any default under the New Secured Note Indenture that occurred during such period, and describing the nature of such default; - execute and deliver any further instruments and do any further acts, as may be requested by the Trustee, that are reasonably necessary to carry out the purposes of the New Secured Note Indenture; - pay or discharge any material tax, assessment, charge, or claim; - maintain with financially sound and reputable insurance companies insurance in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by </Table> <Table> <S> <C> companies engaged in the same or a similar business; and - file reports with the SEC in a timely manner. LISTING The New Secured Notes will not be listed on any national securities exchange or the Nasdaq Stock Market, but we expect that they may be eligible for trading in the PORTAL Market of the National Association of Securities Dealers, Inc. SUMMARY OF COMMON STOCK COMMON STOCK OFFERED BY iBASIS None. COMMON STOCK OFFERED BY SELLING Up to 20,851,740 shares of common stock that may be issued upon SECURITYHOLDERS conversion of the New Secured Notes and upon exercise of the Warrants, subject to adjustment upon the occurrence of certain events, and 110,231 shares of common stock that were issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. COMMON STOCK OUTSTANDING PRIOR TO THIS OFFERING 46,897,108 shares USE OF PROCEEDS Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the common stock issuable upon conversion of the New Secured Notes or upon the exercise of the Warrants. RISK FACTORS An investment in our securities is highly speculative and involves a high degree of risk. You should carefully read the "Risk Factors" section and all other information provided to you in this document in deciding whether to invest in our securities. OTC BULLETIN BOARD TRADING SYMBOL "IBAS" </Table>
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in shares of our common stock or our New Secured Notes. You should read this entire prospectus carefully, including "Risk Factors" beginning on page 20 and our financial statements and the notes to those financial statements beginning on F-1 before making an investment decision. ABOUT iBASIS COMPANY OVERVIEW We are an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services. Our continuing operations consist of our Voice-Over-Internet-Protocol, or VoIP, business. We offer wholesale services through our worldwide network to carriers, telephony resellers and others around the world by operating through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia. During the third quarter of 2003, we introduced our retail prepaid calling card services and have marketed such services primarily to ethnic communities within major domestic markets through distributors. Our entry into the retail prepaid calling card business is based on our strategy to leverage our existing international VoIP network with additional enhanced services that have the potential to deliver higher margins than our wholesale international telecommunications services. In addition, the retail prepaid calling card business typically has a faster cash collection cycle than wholesale international telecommunications services. Beginning in the second quarter of 2004, our recently created operating segment, retail prepaid calling card services and other enhanced services ("Retail") became a reportable business segment, in addition to our international wholesale VoIP telecommunications services. Since we introduced our retail prepaid calling card services, revenue from our Retail business had been less than 10% of total revenue. In the second quarter of 2004, revenue from our Retail business exceeded 10% of total net revenue. We have a history of operating losses and, as of June 30, 2004, our accumulated deficit was $427.5 million and our stockholders' deficit was $54.2 million. We used $2.4 million and $3.2 million in cash from operations in the six months ended June 30, 2004 and the year ended December 31, 2003, respectively. These results are primarily attributable to the expenditures necessary to build our network and develop and expand our market. In June 2004, we completed a refinancing of our outstanding debt obligations. As part of the refinancing, we completed an exchange offer (the "Exchange Offer"), pursuant to which $37.3 million of our outstanding 5 3/4% Convertible Subordinated Notes due in March 2005 ("Existing Notes"), representing approximately 98% of the total amount of Existing Notes outstanding, were tendered for the same principal amount of new 6 3/4% Convertible Subordinated Notes due in June 2009 ("New Subordinated Notes"). Approximately $0.9 million of the Existing Notes remain outstanding after the Exchange Offer. Simultaneously with the Exchange Offer, we prepaid all $25.2 million of our 11 1/2% Senior Secured Notes due in January 2005 ("Existing Senior Notes") for cash equal to the principal amount plus accrued but unpaid interest and the issuance of warrants exercisable for an aggregate of 5,176,065 shares of our common stock, $0.001 par value per share ("common stock"), at $1.85 per share (the "Warrants"). We issued $29.0 million of new 8% Secured Convertible Notes due in June 2007, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We were incorporated as a Delaware corporation in 1996. Our principal executive offices are located at 20 Second Avenue, in Burlington, Massachusetts 01803 and our telephone number is (781) 505-7500. SUMMARY OF THE OFFERING We recently prepaid all $25.2 million of our Existing Senior Notes, pursuant to the terms of a Note Repurchase, Exchange and Termination Agreement, by and among us and the holders of our outstanding Existing Senior Notes, for cash equal to the principal amount of the Existing Senior Notes plus accrued interest and the issuance of the Warrants. Pursuant to the terms of a Note Purchase Agreement by and among us and the purchasers of the New Secured Notes, we simultaneously issued $29.0 million aggregate principal amount of our New Secured Notes, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We are registering the New Secured Notes and the shares of common stock underlying the New Secured Notes and the Warrants in accordance with registration rights agreements we entered into with holders of our Existing Senior Notes and our New Secured Notes. We are also registering 110,231 shares of our common stock that we issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. Our registration of the securities does not necessarily mean that the selling securityholders will convert the New Secured Notes or exercise any of the Warrants or sell any or all of the underlying securities we have registered. Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the New Secured Notes, the common stock issuable upon conversion of the New Secured Notes or upon exercise of the Warrants, or the common stock issued to our investment banker, Imperial Capital, LLC. For information regarding the selling securityholders and the resale of the securities, see "Selling Securityholders" and "Plan of Distribution." SUMMARY OF NEW SECURED NOTES <Table> <S> <C> ISSUER iBasis, Inc. NOTES OFFERED $29,000,000 aggregate principal amount of 8% Secured Convertible Notes due 2007. INTEREST PAYMENT DATES Interest is payable on June 15 and December 15 of each year, beginning on December 15, 2004. INTEREST 8% per annum in cash. MATURITY June 18, 2007 CONVERSION The New Secured Notes are convertible, in whole or in part, at any time prior to maturity into shares of common stock at a conversion price of $1.85 per share, subject to adjustment upon the occurrence of certain events. PROVISIONAL REDEMPTION The New Secured Notes are not redeemable prior to June 18, 2005, the twelve-month anniversary of the date of issuance. Thereafter, we will have the right to redeem some or all of the New Secured Notes at a redemption price equal to $1,000 per New Secured Note plus accrued and unpaid interest to the redemption date if the closing price of our common stock exceeds 150% of the conversion price for at least 20 trading days in any consecutive 30-trading day period ending on the trading day prior to the mailing of the notice of redemption. OPTIONAL REDEMPTION After June 18, 2006, the second anniversary of the date of issuance, we will be able to redeem the New Secured Notes, in whole or in part, at our option, at a redemption price equal to 102% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. REPURCHASE UPON A REPURCHASE EVENT Upon the occurrence of a repurchase event, the holders of the New Secured Notes will have the right to require us to repurchase </Table> <Table> <S> <C> the New Secured Notes in cash, or upon satisfaction of certain conditions and at our option, in shares of common stock, at a repurchase price of 105% of the principal amount of the New Secured Notes submitted for repurchase, plus accrued and unpaid interest to, but excluding, the repurchase date. A "repurchase event" includes a change of control under certain circumstances or a termination of listing of our common stock on a U.S. national securities exchange or trading on an established over-the-counter trading market in the U.S. SECURITY The New Secured Notes are secured by a perfected, second priority secured interest in substantially all of our tangible and intangible assets. The New Secured Notes are guaranteed by iBasis Global, Inc., iBasis Holdings, Inc. and iBasis Securities Corporation, each of which is a wholly-owned subsidiary of ours. SUBORDINATION The New Secured Notes are subordinated to the prior payment in full of our existing and future senior indebtedness. EVENTS OF DEFAULT The following events constitute "events of default" under the Indenture for the New Secured Notes by and between us and The Bank of New York as trustee (the "New Secured Note Indenture"): - failure to pay the principal or premium, if any, on any of the New Secured Notes when due; - failure to pay interest on the New Secured Notes when due if such failure continues for 30 days; - failure to deliver shares of our common stock, including cash for fractional shares, 5 days after conversion of a New Secured Note; - failure to perform any covenant in the New Secured Note Indenture if such failure continues for 45 days after notice is given; - failure to repurchase any New Secured Notes upon a repurchase event, or to provide written notice to the holders of the New Secured Notes of such an event; - our failure or the failure of any of our significant subsidiaries to make payment at maturity of other indebtedness in an aggregate principal amount in excess of $5 million if such failure continues for a period of 30 days after notice of such default; - our default or the default of any of our significant subsidiaries that results in the acceleration of indebtedness in an aggregate principal amount in excess of $5 million if such indebtedness shall not have been discharged or such acceleration shall not have been rescinded or annulled within 30 days after notice of such default; - we or any of our significant subsidiaries commences a voluntary proceeding seeking liquidation, reorganization </Table> <Table> <S> <C> or other relief, or consents to any such relief or the appointment a trustee, receiver, liquidator, custodian or similar official in an involuntary case against us or any such subsidiary, or makes a general assignment for the benefit of creditors or otherwise fails to pay debts when they become due; - an involuntary case or other proceeding is commenced against us or any of our significant subsidiaries seeking liquidation, reorganization or other relief with respect to us or our debts or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official, and such case remains undismissed and unstayed for a period of 60 days; - a default occurs under any of the security documents, the liens created by the security documents do not constitute valid and perfected liens, or any of the security documents ceases to be in full force and effect (other than expiration in accordance with their terms or modification, waiver, termination or release in accordance with the terms of the New Secured Note Indenture), and such default continues for a period of 15 days following written notice of such default; - our failure to make, when due, any transfer, delivery, pledge, assignment or grant of collateral required to be made by us, and such failure continues for 10 business days after notice of such failure; or - Any guarantee given by one of our subsidiaries pursuant to the New Secured Note Indenture is held to be unenforceable or invalid in any material respect or ceases to be in full force and effect, or any subsidiary denies its guarantee obligations. If an event of default occurs and continues to occur, the principal and premium on the New Secured Notes may be declared to be immediately due and payable. After acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding New Secured Notes under circumstances set forth in the New Secured Note Indenture, will be able to rescind the acceleration of all events of default, other than the payment of principal of the New Secured Notes that becomes due solely because of the acceleration and events of defaults that are cured or waived as provided in the New Secured Note Indenture. COVENANTS FINANCIAL COVENANTS Under the New Secured Note Indenture, we are prohibited from: - incurring additional indebtedness other than (i) indebtedness under the New Secured Notes and the subsidiary guarantees, (ii) issuing in excess of $38.18 million aggregate principal amount of the Existing Notes </Table> <Table> <S> <C> and the New Subordinated Notes, (iii) additional indebtedness that is PARI PASSU with or subordinate to the New Secured Notes, not to exceed $20,000,000 in principal amount outstanding at any time, (iv) indebtedness not otherwise covered by any other clause which is outstanding on the date of execution of the New Secured Note Indenture, (v) our indebtedness to any of our designated subsidiaries and indebtedness of any of our designated subsidiaries to us or another subsidiary, (vi) indebtedness secured by our assets that is incurred by us or any of our designated subsidiaries from any bank, commercial finance company, other commercial lender or financial institution in an amount not to exceed specified maximum thresholds set forth in the New Secured Note Indenture, (vii) our indebtedness or indebtedness of any of our subsidiaries incurred or issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other indebtedness of ours or any of our subsidiaries (other than intercompany indebtedness) outstanding on the date of execution of the New Secured Note Indenture or other indebtedness permitted to be incurred by us or our subsidiaries pursuant to the terms of the New Secured Note Indenture, (viii) indebtedness of a person existing at the time such person becomes one of our subsidiaries or assumed in connection with the acquisition by us of assets from such person, in an amount not to exceed $25 million in the aggregate, (ix) indebtedness that is subordinate to the New Secured Notes, not to exceed $114.5 million in the aggregate, (x) indebtedness arising from bonds or instruments securing our obligations or obligations of any of our designated subsidiaries incurred in the ordinary course of business, which bonds or other instruments do not secure other indebtedness, (xi) issuing capital stock that, by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 121 days after the date on which the New Secured Notes mature (such stock is referred to hereafter as "disqualified stock"), PROVIDED, that we may issue shares of disqualified stock if: (A) the fixed charge coverage ratio for our most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such disqualified stock is issued would have been at least 1.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the disqualified stock had been issued at the beginning of such four-quarter period; (B) no default or event of default shall have occurred and be continuing or would occur as a consequence thereof, and (C) the terms of such disqualified stock expressly provide that we shall not be required to redeem such disqualified stock at </Table> <Table> <S> <C> any time prior to the date on which all amounts due under the New Secured Note Indenture, including without limitation all principal and interest due under the New Secured Notes, have been indefeasibly paid in full; (xii) indebtedness incurred to finance the purchase, lease or improvements of property, provided that the aggregate amount of indebtedness does not exceed the lesser of 10% of our total assets or $10 million, (xiii) indebtedness incurred under foreign currency exchange agreements entered into for bona fide hedging purposes and not for speculative purposes, (xiv) indebtedness arising from honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such indebtedness is extinguished within 4 business days, and (xv) indebtedness of ours or any of our designated subsidiaries consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets. Under the New Secured Note Indenture, we may not, and we may not permit any of our subsidiaries to: - incur any lien on any property or proceeds except with respect to liens existing on the issue date or to be incurred pursuant to agreements existing on the issue date, or debt incurred to refinance such debt, liens on property that is acquired by us, or liens securing certain permitted secured indebtedness; - declare any dividend or make any distribution to any equity holders, purchase, redeem or otherwise acquire or retire for value any equity (other than permitted employee equity repurchases or pursuant to a permitted open-market stock repurchase plan), subject to a basket based on our consolidated net income after the issue date of the New Secured Notes, prepay any indebtedness that is contractually subordinated to the New Secured Notes prior to their stated maturity, or make certain other "restricted payments"; - make certain investments that are not consistent with our line of business; - issue preferred capital stock that could be redeemed prior to the maturity date of the New Secured Notes; - permit any restrictions to be imposed on the ability of our subsidiaries to pay dividends or transfer assets to us; - enter into any transactions with our affiliates on less-favorable terms than would have been obtained in a comparable transaction with an unrelated party and, in the event of any such transaction involving aggregate consideration in excess of $5.0 million, without an opinion of an investment banking firm of national </Table> <Table> <S> <C> standing as to the fairness of such transaction from a financial point of view; - consummate any asset sale unless we or one of our designated subsidiaries receives consideration equal to the fair market value of the assets sold, receives at least 75% of the net proceeds in cash, and, with respect to an asset sale involving equity interests of a designated subsidiary, we sell all of the equity interests we own. We must invest the proceeds from any asset sale in the development, manufacture, marketing, provision or sale of communications and communications-related services and products or any other business conducted by us on the issue date of the New Secured Notes, or use the proceeds to reduce our indebtedness; - permit any of our designated subsidiaries to guarantee our indebtedness, other than indebtedness under that certain Loan and Security Agreement, dated December 29, 2003, among us, iBasis Global, Inc. and Silicon Valley Bank ("Credit Agreement"), the New Secured Notes, the PARI PASSU indebtedness, and, to the extent permitted by the New Secured Note Indenture, currency hedge obligations; - acquire or create any additional domestic subsidiary after the date of the New Secured Note Indenture, unless such subsidiary shall become a subsidiary guarantor and execute a supplemental indenture; or - sell any shares of capital stock of a designated subsidiary, except to ourselves or another wholly-owned subsidiary, issuances of director's qualifying shares or sales to foreign nationals of shares of capital stock of foreign subsidiaries, or sales of common stock of a designated subsidiary, provided that the designated subsidiary would no longer be a designated subsidiary. NON-FINANCIAL COVENANTS Under the New Secured Note Indenture, we are required to: - duly and punctually pay the principal of and premium, if any, and interest on each of the New Secured Notes; - maintain an office or agency in the Borough of Manhattan, The City of New York, where the New Secured Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notice and demands to or upon us in respect of the New Secured Notes and New Secured Note Indenture may be served; - appoint a Trustee whenever necessary to avoid or fill a </Table> <Table> <S> <C> vacancy in the office of Trustee, so that at all times there will be a Trustee under the New Secured Note Indenture; - cause any paying agent that we appoint other than the Trustee to execute and deliver to the Trustee an instrument in which it agrees to (i) hold all sums in trust for the benefit of the holders of the New Secured Notes, (ii) give the Trustee notice of any failure by us to make any payment of the principal of and premium, if any, or interest on the New Secured Notes when the same is due and payable, and (iii) pay to the Trustee all sums held in trust upon an event of default under the New Secured Note Indenture. If we act as our own paying agent, we must, on or before each due date of the principal of, premium, if any, or interest on the New Secured Notes, set aside and hold in trust for the benefit of the holders of the New Secured Notes a sum sufficient to pay such principal, premium, if any, or interest becoming due, and we must notify the Trustee of our failure to take any such action or any failure to make any payment when due; - do all things necessary to preserve and keep in full force and effect our corporate existence and the corporate, partnership or other existence of the designated subsidiaries and our rights, licenses and franchises and the rights, licenses and franchises of any designated subsidiary; - agree not to claim or take advantage of any stay, extension or usury law or other law, whenever enacted, that would prohibit or forgive us from paying all or any portion of the principal of or interest on the New Secured Notes; - deliver to the Trustee within 120 days after the end of each fiscal year an officer's certificate, signed by our principal executive, principal financial or principal accounting officer, stating whether, to the best of their knowledge, the signer knows of any default under the New Secured Note Indenture that occurred during such period, and describing the nature of such default; - execute and deliver any further instruments and do any further acts, as may be requested by the Trustee, that are reasonably necessary to carry out the purposes of the New Secured Note Indenture; - pay or discharge any material tax, assessment, charge, or claim; - maintain with financially sound and reputable insurance companies insurance in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by </Table> <Table> <S> <C> companies engaged in the same or a similar business; and - file reports with the SEC in a timely manner. LISTING The New Secured Notes will not be listed on any national securities exchange or the Nasdaq Stock Market, but we expect that they may be eligible for trading in the PORTAL Market of the National Association of Securities Dealers, Inc. SUMMARY OF COMMON STOCK COMMON STOCK OFFERED BY iBASIS None. COMMON STOCK OFFERED BY SELLING Up to 20,851,740 shares of common stock that may be issued upon SECURITYHOLDERS conversion of the New Secured Notes and upon exercise of the Warrants, subject to adjustment upon the occurrence of certain events, and 110,231 shares of common stock that were issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. COMMON STOCK OUTSTANDING PRIOR TO THIS OFFERING 46,897,108 shares USE OF PROCEEDS Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the common stock issuable upon conversion of the New Secured Notes or upon the exercise of the Warrants. RISK FACTORS An investment in our securities is highly speculative and involves a high degree of risk. You should carefully read the "Risk Factors" section and all other information provided to you in this document in deciding whether to invest in our securities. OTC BULLETIN BOARD TRADING SYMBOL "IBAS" </Table>
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+PROSPECTUS SUMMARY This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in shares of our common stock or our New Secured Notes. You should read this entire prospectus carefully, including "Risk Factors" beginning on page 20 and our financial statements and the notes to those financial statements beginning on F-1 before making an investment decision. ABOUT iBASIS COMPANY OVERVIEW We are an international telecommunications carrier that utilizes the Internet to provide economical international telecommunications services. Our continuing operations consist of our Voice-Over-Internet-Protocol, or VoIP, business. We offer wholesale services through our worldwide network to carriers, telephony resellers and others around the world by operating through various service agreements with local service providers in the United States, Europe, Asia, the Middle East, Latin America, Africa and Australia. During the third quarter of 2003, we introduced our retail prepaid calling card services and have marketed such services primarily to ethnic communities within major domestic markets through distributors. Our entry into the retail prepaid calling card business is based on our strategy to leverage our existing international VoIP network with additional enhanced services that have the potential to deliver higher margins than our wholesale international telecommunications services. In addition, the retail prepaid calling card business typically has a faster cash collection cycle than wholesale international telecommunications services. Beginning in the second quarter of 2004, our recently created operating segment, retail prepaid calling card services and other enhanced services ("Retail") became a reportable business segment, in addition to our international wholesale VoIP telecommunications services. Since we introduced our retail prepaid calling card services, revenue from our Retail business had been less than 10% of total revenue. In the second quarter of 2004, revenue from our Retail business exceeded 10% of total net revenue. We have a history of operating losses and, as of June 30, 2004, our accumulated deficit was $427.5 million and our stockholders' deficit was $54.2 million. We used $2.4 million and $3.2 million in cash from operations in the six months ended June 30, 2004 and the year ended December 31, 2003, respectively. These results are primarily attributable to the expenditures necessary to build our network and develop and expand our market. In June 2004, we completed a refinancing of our outstanding debt obligations. As part of the refinancing, we completed an exchange offer (the "Exchange Offer"), pursuant to which $37.3 million of our outstanding 5 3/4% Convertible Subordinated Notes due in March 2005 ("Existing Notes"), representing approximately 98% of the total amount of Existing Notes outstanding, were tendered for the same principal amount of new 6 3/4% Convertible Subordinated Notes due in June 2009 ("New Subordinated Notes"). Approximately $0.9 million of the Existing Notes remain outstanding after the Exchange Offer. Simultaneously with the Exchange Offer, we prepaid all $25.2 million of our 11 1/2% Senior Secured Notes due in January 2005 ("Existing Senior Notes") for cash equal to the principal amount plus accrued but unpaid interest and the issuance of warrants exercisable for an aggregate of 5,176,065 shares of our common stock, $0.001 par value per share ("common stock"), at $1.85 per share (the "Warrants"). We issued $29.0 million of new 8% Secured Convertible Notes due in June 2007, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We were incorporated as a Delaware corporation in 1996. Our principal executive offices are located at 20 Second Avenue, in Burlington, Massachusetts 01803 and our telephone number is (781) 505-7500. SUMMARY OF THE OFFERING We recently prepaid all $25.2 million of our Existing Senior Notes, pursuant to the terms of a Note Repurchase, Exchange and Termination Agreement, by and among us and the holders of our outstanding Existing Senior Notes, for cash equal to the principal amount of the Existing Senior Notes plus accrued interest and the issuance of the Warrants. Pursuant to the terms of a Note Purchase Agreement by and among us and the purchasers of the New Secured Notes, we simultaneously issued $29.0 million aggregate principal amount of our New Secured Notes, of which $25.2 million was used to prepay the Existing Senior Notes. The New Secured Notes are convertible into shares of common stock at $1.85 per share. We are registering the New Secured Notes and the shares of common stock underlying the New Secured Notes and the Warrants in accordance with registration rights agreements we entered into with holders of our Existing Senior Notes and our New Secured Notes. We are also registering 110,231 shares of our common stock that we issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. Our registration of the securities does not necessarily mean that the selling securityholders will convert the New Secured Notes or exercise any of the Warrants or sell any or all of the underlying securities we have registered. Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the New Secured Notes, the common stock issuable upon conversion of the New Secured Notes or upon exercise of the Warrants, or the common stock issued to our investment banker, Imperial Capital, LLC. For information regarding the selling securityholders and the resale of the securities, see "Selling Securityholders" and "Plan of Distribution." SUMMARY OF NEW SECURED NOTES <Table> <S> <C> ISSUER iBasis, Inc. NOTES OFFERED $29,000,000 aggregate principal amount of 8% Secured Convertible Notes due 2007. INTEREST PAYMENT DATES Interest is payable on June 15 and December 15 of each year, beginning on December 15, 2004. INTEREST 8% per annum in cash. MATURITY June 18, 2007 CONVERSION The New Secured Notes are convertible, in whole or in part, at any time prior to maturity into shares of common stock at a conversion price of $1.85 per share, subject to adjustment upon the occurrence of certain events. PROVISIONAL REDEMPTION The New Secured Notes are not redeemable prior to June 18, 2005, the twelve-month anniversary of the date of issuance. Thereafter, we will have the right to redeem some or all of the New Secured Notes at a redemption price equal to $1,000 per New Secured Note plus accrued and unpaid interest to the redemption date if the closing price of our common stock exceeds 150% of the conversion price for at least 20 trading days in any consecutive 30-trading day period ending on the trading day prior to the mailing of the notice of redemption. OPTIONAL REDEMPTION After June 18, 2006, the second anniversary of the date of issuance, we will be able to redeem the New Secured Notes, in whole or in part, at our option, at a redemption price equal to 102% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. REPURCHASE UPON A REPURCHASE EVENT Upon the occurrence of a repurchase event, the holders of the New Secured Notes will have the right to require us to repurchase </Table> <Table> <S> <C> the New Secured Notes in cash, or upon satisfaction of certain conditions and at our option, in shares of common stock, at a repurchase price of 105% of the principal amount of the New Secured Notes submitted for repurchase, plus accrued and unpaid interest to, but excluding, the repurchase date. A "repurchase event" includes a change of control under certain circumstances or a termination of listing of our common stock on a U.S. national securities exchange or trading on an established over-the-counter trading market in the U.S. SECURITY The New Secured Notes are secured by a perfected, second priority secured interest in substantially all of our tangible and intangible assets. The New Secured Notes are guaranteed by iBasis Global, Inc., iBasis Holdings, Inc. and iBasis Securities Corporation, each of which is a wholly-owned subsidiary of ours. SUBORDINATION The New Secured Notes are subordinated to the prior payment in full of our existing and future senior indebtedness. EVENTS OF DEFAULT The following events constitute "events of default" under the Indenture for the New Secured Notes by and between us and The Bank of New York as trustee (the "New Secured Note Indenture"): - failure to pay the principal or premium, if any, on any of the New Secured Notes when due; - failure to pay interest on the New Secured Notes when due if such failure continues for 30 days; - failure to deliver shares of our common stock, including cash for fractional shares, 5 days after conversion of a New Secured Note; - failure to perform any covenant in the New Secured Note Indenture if such failure continues for 45 days after notice is given; - failure to repurchase any New Secured Notes upon a repurchase event, or to provide written notice to the holders of the New Secured Notes of such an event; - our failure or the failure of any of our significant subsidiaries to make payment at maturity of other indebtedness in an aggregate principal amount in excess of $5 million if such failure continues for a period of 30 days after notice of such default; - our default or the default of any of our significant subsidiaries that results in the acceleration of indebtedness in an aggregate principal amount in excess of $5 million if such indebtedness shall not have been discharged or such acceleration shall not have been rescinded or annulled within 30 days after notice of such default; - we or any of our significant subsidiaries commences a voluntary proceeding seeking liquidation, reorganization </Table> <Table> <S> <C> or other relief, or consents to any such relief or the appointment a trustee, receiver, liquidator, custodian or similar official in an involuntary case against us or any such subsidiary, or makes a general assignment for the benefit of creditors or otherwise fails to pay debts when they become due; - an involuntary case or other proceeding is commenced against us or any of our significant subsidiaries seeking liquidation, reorganization or other relief with respect to us or our debts or seeking the appointment of a trustee, receiver, liquidator, custodian or similar official, and such case remains undismissed and unstayed for a period of 60 days; - a default occurs under any of the security documents, the liens created by the security documents do not constitute valid and perfected liens, or any of the security documents ceases to be in full force and effect (other than expiration in accordance with their terms or modification, waiver, termination or release in accordance with the terms of the New Secured Note Indenture), and such default continues for a period of 15 days following written notice of such default; - our failure to make, when due, any transfer, delivery, pledge, assignment or grant of collateral required to be made by us, and such failure continues for 10 business days after notice of such failure; or - Any guarantee given by one of our subsidiaries pursuant to the New Secured Note Indenture is held to be unenforceable or invalid in any material respect or ceases to be in full force and effect, or any subsidiary denies its guarantee obligations. If an event of default occurs and continues to occur, the principal and premium on the New Secured Notes may be declared to be immediately due and payable. After acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding New Secured Notes under circumstances set forth in the New Secured Note Indenture, will be able to rescind the acceleration of all events of default, other than the payment of principal of the New Secured Notes that becomes due solely because of the acceleration and events of defaults that are cured or waived as provided in the New Secured Note Indenture. COVENANTS FINANCIAL COVENANTS Under the New Secured Note Indenture, we are prohibited from: - incurring additional indebtedness other than (i) indebtedness under the New Secured Notes and the subsidiary guarantees, (ii) issuing in excess of $38.18 million aggregate principal amount of the Existing Notes </Table> <Table> <S> <C> and the New Subordinated Notes, (iii) additional indebtedness that is PARI PASSU with or subordinate to the New Secured Notes, not to exceed $20,000,000 in principal amount outstanding at any time, (iv) indebtedness not otherwise covered by any other clause which is outstanding on the date of execution of the New Secured Note Indenture, (v) our indebtedness to any of our designated subsidiaries and indebtedness of any of our designated subsidiaries to us or another subsidiary, (vi) indebtedness secured by our assets that is incurred by us or any of our designated subsidiaries from any bank, commercial finance company, other commercial lender or financial institution in an amount not to exceed specified maximum thresholds set forth in the New Secured Note Indenture, (vii) our indebtedness or indebtedness of any of our subsidiaries incurred or issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other indebtedness of ours or any of our subsidiaries (other than intercompany indebtedness) outstanding on the date of execution of the New Secured Note Indenture or other indebtedness permitted to be incurred by us or our subsidiaries pursuant to the terms of the New Secured Note Indenture, (viii) indebtedness of a person existing at the time such person becomes one of our subsidiaries or assumed in connection with the acquisition by us of assets from such person, in an amount not to exceed $25 million in the aggregate, (ix) indebtedness that is subordinate to the New Secured Notes, not to exceed $114.5 million in the aggregate, (x) indebtedness arising from bonds or instruments securing our obligations or obligations of any of our designated subsidiaries incurred in the ordinary course of business, which bonds or other instruments do not secure other indebtedness, (xi) issuing capital stock that, by its terms, or by the terms of any security into which it is convertible or for which it is exchangeable, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 121 days after the date on which the New Secured Notes mature (such stock is referred to hereafter as "disqualified stock"), PROVIDED, that we may issue shares of disqualified stock if: (A) the fixed charge coverage ratio for our most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such disqualified stock is issued would have been at least 1.5 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the disqualified stock had been issued at the beginning of such four-quarter period; (B) no default or event of default shall have occurred and be continuing or would occur as a consequence thereof, and (C) the terms of such disqualified stock expressly provide that we shall not be required to redeem such disqualified stock at </Table> <Table> <S> <C> any time prior to the date on which all amounts due under the New Secured Note Indenture, including without limitation all principal and interest due under the New Secured Notes, have been indefeasibly paid in full; (xii) indebtedness incurred to finance the purchase, lease or improvements of property, provided that the aggregate amount of indebtedness does not exceed the lesser of 10% of our total assets or $10 million, (xiii) indebtedness incurred under foreign currency exchange agreements entered into for bona fide hedging purposes and not for speculative purposes, (xiv) indebtedness arising from honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such indebtedness is extinguished within 4 business days, and (xv) indebtedness of ours or any of our designated subsidiaries consisting of guarantees, indemnities or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of assets. Under the New Secured Note Indenture, we may not, and we may not permit any of our subsidiaries to: - incur any lien on any property or proceeds except with respect to liens existing on the issue date or to be incurred pursuant to agreements existing on the issue date, or debt incurred to refinance such debt, liens on property that is acquired by us, or liens securing certain permitted secured indebtedness; - declare any dividend or make any distribution to any equity holders, purchase, redeem or otherwise acquire or retire for value any equity (other than permitted employee equity repurchases or pursuant to a permitted open-market stock repurchase plan), subject to a basket based on our consolidated net income after the issue date of the New Secured Notes, prepay any indebtedness that is contractually subordinated to the New Secured Notes prior to their stated maturity, or make certain other "restricted payments"; - make certain investments that are not consistent with our line of business; - issue preferred capital stock that could be redeemed prior to the maturity date of the New Secured Notes; - permit any restrictions to be imposed on the ability of our subsidiaries to pay dividends or transfer assets to us; - enter into any transactions with our affiliates on less-favorable terms than would have been obtained in a comparable transaction with an unrelated party and, in the event of any such transaction involving aggregate consideration in excess of $5.0 million, without an opinion of an investment banking firm of national </Table> <Table> <S> <C> standing as to the fairness of such transaction from a financial point of view; - consummate any asset sale unless we or one of our designated subsidiaries receives consideration equal to the fair market value of the assets sold, receives at least 75% of the net proceeds in cash, and, with respect to an asset sale involving equity interests of a designated subsidiary, we sell all of the equity interests we own. We must invest the proceeds from any asset sale in the development, manufacture, marketing, provision or sale of communications and communications-related services and products or any other business conducted by us on the issue date of the New Secured Notes, or use the proceeds to reduce our indebtedness; - permit any of our designated subsidiaries to guarantee our indebtedness, other than indebtedness under that certain Loan and Security Agreement, dated December 29, 2003, among us, iBasis Global, Inc. and Silicon Valley Bank ("Credit Agreement"), the New Secured Notes, the PARI PASSU indebtedness, and, to the extent permitted by the New Secured Note Indenture, currency hedge obligations; - acquire or create any additional domestic subsidiary after the date of the New Secured Note Indenture, unless such subsidiary shall become a subsidiary guarantor and execute a supplemental indenture; or - sell any shares of capital stock of a designated subsidiary, except to ourselves or another wholly-owned subsidiary, issuances of director's qualifying shares or sales to foreign nationals of shares of capital stock of foreign subsidiaries, or sales of common stock of a designated subsidiary, provided that the designated subsidiary would no longer be a designated subsidiary. NON-FINANCIAL COVENANTS Under the New Secured Note Indenture, we are required to: - duly and punctually pay the principal of and premium, if any, and interest on each of the New Secured Notes; - maintain an office or agency in the Borough of Manhattan, The City of New York, where the New Secured Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notice and demands to or upon us in respect of the New Secured Notes and New Secured Note Indenture may be served; - appoint a Trustee whenever necessary to avoid or fill a </Table> <Table> <S> <C> vacancy in the office of Trustee, so that at all times there will be a Trustee under the New Secured Note Indenture; - cause any paying agent that we appoint other than the Trustee to execute and deliver to the Trustee an instrument in which it agrees to (i) hold all sums in trust for the benefit of the holders of the New Secured Notes, (ii) give the Trustee notice of any failure by us to make any payment of the principal of and premium, if any, or interest on the New Secured Notes when the same is due and payable, and (iii) pay to the Trustee all sums held in trust upon an event of default under the New Secured Note Indenture. If we act as our own paying agent, we must, on or before each due date of the principal of, premium, if any, or interest on the New Secured Notes, set aside and hold in trust for the benefit of the holders of the New Secured Notes a sum sufficient to pay such principal, premium, if any, or interest becoming due, and we must notify the Trustee of our failure to take any such action or any failure to make any payment when due; - do all things necessary to preserve and keep in full force and effect our corporate existence and the corporate, partnership or other existence of the designated subsidiaries and our rights, licenses and franchises and the rights, licenses and franchises of any designated subsidiary; - agree not to claim or take advantage of any stay, extension or usury law or other law, whenever enacted, that would prohibit or forgive us from paying all or any portion of the principal of or interest on the New Secured Notes; - deliver to the Trustee within 120 days after the end of each fiscal year an officer's certificate, signed by our principal executive, principal financial or principal accounting officer, stating whether, to the best of their knowledge, the signer knows of any default under the New Secured Note Indenture that occurred during such period, and describing the nature of such default; - execute and deliver any further instruments and do any further acts, as may be requested by the Trustee, that are reasonably necessary to carry out the purposes of the New Secured Note Indenture; - pay or discharge any material tax, assessment, charge, or claim; - maintain with financially sound and reputable insurance companies insurance in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by </Table> <Table> <S> <C> companies engaged in the same or a similar business; and - file reports with the SEC in a timely manner. LISTING The New Secured Notes will not be listed on any national securities exchange or the Nasdaq Stock Market, but we expect that they may be eligible for trading in the PORTAL Market of the National Association of Securities Dealers, Inc. SUMMARY OF COMMON STOCK COMMON STOCK OFFERED BY iBASIS None. COMMON STOCK OFFERED BY SELLING Up to 20,851,740 shares of common stock that may be issued upon SECURITYHOLDERS conversion of the New Secured Notes and upon exercise of the Warrants, subject to adjustment upon the occurrence of certain events, and 110,231 shares of common stock that were issued to our investment banker, Imperial Capital, LLC, as partial compensation for services provided to us in connection with the Exchange Offer and the refinancing of the Existing Senior Notes. COMMON STOCK OUTSTANDING PRIOR TO THIS OFFERING 46,897,108 shares USE OF PROCEEDS Although we may receive cash upon the exercise of the Warrants, we will not receive any of the proceeds from the sale by the selling securityholders of the common stock issuable upon conversion of the New Secured Notes or upon the exercise of the Warrants. RISK FACTORS An investment in our securities is highly speculative and involves a high degree of risk. You should carefully read the "Risk Factors" section and all other information provided to you in this document in deciding whether to invest in our securities. OTC BULLETIN BOARD TRADING SYMBOL "IBAS" </Table>
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+PROSPECTUS SUMMARY Although we have highlighted important information about us and this offering in this summary, you should read this entire prospectus carefully, including the "Risk Factors" and "Forward-Looking Statements" sections, before making an investment decision. Unless otherwise indicated, the information contained in this prospectus (i) assumes that the underwriters' over-allotment option is not exercised, (ii) assumes our conversion from an S corporation under Subchapter S of the Internal Revenue Code to a C corporation under Subchapter C of the Internal Revenue Code occurs prior to the closing of this offering and (iii) has been restated to give retroactive effect to (1) our 500,000-for-1 split of our common stock, by means of a stock dividend, which we effected on August 11, 2004, and (2) our 0.908439145-for-1 reverse split of our common stock, which we effected on November 23, 2004. Our Company Overview We are the largest provider of payday cash advance services in the United States, as measured by the number of payday cash advance centers operated. As of September 30, 2004, we operated 2,290 payday cash advance centers in 34 states. Payday cash advances are small-denomination, short-term, unsecured advances that are typically due on the customer's next payday. We provide these services primarily to middle-income working individuals. We do not franchise any of our payday cash advance centers. We focus exclusively on payday cash advance services and do not provide check cashing, pawn lending, title lending or wire transfer or similar services. We believe our sole focus on payday cash advance services is a competitive strength that has allowed us to better reach and service our primary market of middle-income customers. For a table showing selected demographics of the customers we serve, see "Business Overview" beginning on page 67. In order for a new customer to be approved for a payday cash advance by us or by a lending bank, he or she is required to have a bank account and a regular source of income, such as a job. To obtain a payday cash advance, a new customer typically: presents the required documentation (usually proof of identification, a pay stub or other evidence of income, and bank statement); enters into an agreement governing the terms of the payday cash advance (including the customer's agreement to repay the cash advance in full on or before a specified due date, usually the customer's next payday typically two weeks after the date of the advance); writes a personal check to cover the amount of the payday cash advance plus charges for applicable fees and/or interest; and makes an appointment to return on the specified due date of the payday cash advance to repay the advance plus the applicable charges and to reclaim their check. Immediately upon completion of the approval process, the customers are given cash or a check drawn on our or a lending bank's account in the amount of the payday cash advance. The customers typically pay their payday cash advances by returning to one of our payday cash advance centers with cash. Upon a repayment in full, we are obligated to return our customers' personal checks. If a customer does not repay the outstanding payday cash advance in full on or before the due date, we will seek to collect from the customer directly and may deposit the customer's personal check. In most states in which we conduct business we make payday cash advances directly to our customers (which we refer to as the standard business model). In other states in which we conduct business we act as a processing, marketing and servicing agent through our payday cash advance centers for Federal Deposit Insurance Corporation (FDIC) insured, state-chartered banks that make payday cash advances to their customers pursuant to the authority of the laws of the state in which they are located and federal interstate Payday Cash Advance Approval: We determine whether to approve a payday cash advance to a customer. The lending banks determine whether to approve a payday cash advance to a customer and establish all of the underwriting criteria. Customer Agreements: We determine the terms, conditions and features of the payday cash advances in accordance with applicable state and federal law. The contractual advance documents are between us and the customer. All terms, conditions and features of the payday cash advances are determined by the lending banks in accordance with applicable state and federal law and the FDIC's guidelines to examiners relating to payday cash advances. The agreements are between the lending banks and their customers. Funding of Payday Cash Advances: We fund all payday cash advances from our operating cash and/or our revolving credit facility. The lending banks fund all payday cash advances. We do not repurchase or participate in the advances. Collection of Payday Cash Advances, Fees and Interest: We deposit all payments and receive 100% of the revenue. The lending banks receive 100% of repayments of payday cash advances, interest and fees which are deposited in their bank accounts. Processing, marketing and servicing fees are remitted to us twice per month by the lending banks. Risks: We are responsible for all losses associated with payday cash advances. The lending banks are contractually obligated for the losses on payday cash advances in an amount established as a percentage of the fees and/or interest charged by the lending banks to their customers. If actual payday cash advance losses exceed the percentage specified in the lending banks' agreements with us, our processing, marketing and servicing fees are reduced by the excess. As of September 30, 2004, we were making payday cash advances directly to customers under the standard business model in 1,760 of our payday cash advance centers in 29 states and serving as agent for the lending banks under the agency business model in 530 of our payday cash advance centers in five states. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Number of payday cash advances provided or processed (thousands) 10,179 8,388 Number of customers served (thousands) 1,174 1,209 Average duration of a payday cash advance (days) 15.1 15.5 Aggregate principal amount of payday cash advances provided or processed (thousands) $ 3,271,235 $ 2,739,094 Average amount of payday cash advance $ 321 $ 327 Average charge to customers for providing or processing a payday cash advance $ 52 $ 53 Our Industry The payday cash advance services industry has grown steadily since the early 1990s in response to a shortage of available short-term consumer credit alternatives from traditional banking institutions. We believe customers use short-term payday cash advances because they provide a simple, quick and confidential way to meet short-term cash needs between paydays while avoiding the potentially higher costs and negative credit consequences of other alternatives, which typically include overdraft privileges or bounced check protection, late bill payments, checks returned for insufficient funds and short-term collateralized loans. We believe the payday cash advance services industry is growing, fueled by overall increases in the population and increased consumer and legislative acceptance of payday cash advances. The number of jurisdictions with specific legislation and/or regulations permitting payday cash advances or small loans has grown from 16 states in 1997, the year in which we commenced operations, to 37 states and the District of Columbia as of September 30, 2004. See "Business Our Industry" beginning on page 70. Competitive Strengths Market Leader with Economies of Scale. With 2,290 payday cash advance centers located in 34 states as of September 30, 2004, we are the largest provider of payday cash advance services in the United States, with approximately twice as many payday cash advance centers as the next largest provider of payday cash advance services. We believe our scale provides us with a leadership position in the industry, allows us to leverage our brand name in opening payday cash advance centers in existing and new markets and enables us to benefit from economies of scale. We have centralized most payday cash advance center support functions, enabling us to continue to expand our network of payday cash advance centers while controlling our costs. Successful Execution of Growth Strategy. We believe we have successfully executed an effective growth strategy, including identifying attractive locations for new payday cash advance centers, rapidly entering into new leases and establishing the necessary processes and systems to manage the overall growth process. In the nine months ended September 30, 2004, we opened 346 new payday cash advance centers in 28 states, and in the year ended December 31, 2003, we opened 330 new centers in 30 states. Our payday cash advance centers, which we design to have the appearance of a mainstream financial institution, are typically located in middle-income shopping areas with high retail activity. Continued Focus on Government Affairs. We have experience with the legislative and regulatory environment in all of the states in which we operate as well as at the federal level. We are a founding member of an industry trade group that includes more than 100 other companies engaged in the payday cash advance services industry. Our internal government affairs team, together with the trade group, seeks to encourage favorable legislation that permits us to operate profitably within a balanced regulatory (Dollars in thousands) Georgia Revenues: Processing, marketing and servicing fees $ 1,028 $ 14,834 $ 23,462 $ 16,928 $ 7,169 Provision for agency bank losses Amendment No. 8 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 framework. In 2003, payday cash advance legislation we supported was adopted in five states, and in 2002, payday cash advance legislation we supported was adopted in six states. Ability to Respond Rapidly to Regulatory Changes. Our regulatory department, along with our internal government affairs team and outside counsel, monitors the various state and federal legislatures and rule-making bodies to keep abreast of changes in laws and regulations relevant to our business. We believe that our strong internal regulatory team and our ability to respond rapidly to regulatory developments enables us to seize opportunities for growth in new jurisdictions, permits us to conduct our business in compliance with often changing laws and regulations and allows us to react quickly to those changes. Rigorous Implementation of Payday Cash Advance Center-Level Controls. We believe that our management information systems, our cash management systems and our internal compliance systems are critical to our success and continued growth. We employ a proprietary point-of-sale system that is used to record transactions in our payday cash advance centers. This information is recorded daily and analyzed at our payday cash advance centers and at our headquarters. Exclusive Focus on Payday Cash Advance Services. We only offer payday cash advance services and do not engage in any other businesses such as check cashing, pawn lending, title lending, wire transfer services or other similar businesses in which many of our competitors engage. We believe that our single service focus has allowed us to better reach and service our primary market of middle-income customers and to expand our network of payday cash advance centers at a faster pace and with a more effective control environment than could a diversified multi-product company. Geographical Diversification of Our Payday Cash Advance Centers. With payday cash advance centers located in 34 states as of September 30, 2004, we believe we have developed a significant presence throughout the United States that helps us to mitigate the risk and possible financial impact of unfavorable changes in state legislation or in the economic environment of a particular region or state and allows us to take advantage of competitive opportunities in those markets. For the nine months ended September 30, 2004, no state accounted for more than 10.0% of our total revenues except for California which accounted for 10.9% of our total revenues. Management Team with Significant Expertise. Our highly experienced management team has substantial knowledge of the retail, specialty finance and payday cash advance industries. George D. Johnson, Jr., our Chairman and co-founder, is the former Chief Executive Officer of Extended Stay America and former President of Blockbuster's consumer products division. William M. Webster, IV, our Chief Executive Officer and co-founder, has served the executive branch of the United States government in various capacities and has extensive retail experience operating franchised restaurant locations. John T. Egeland, our President, has extensive experience in the consumer finance and banking industries. John I. Hill, our Executive Vice President and Chief Financial Officer, has extensive experience as a corporate chief financial officer and as an accountant with a national accounting firm. Business Strategy Continue to Open Payday Cash Advance Centers Systematically. A key objective of our growth strategy is to become the leading provider of payday cash advance services in each market we enter by rapidly opening proprietary, wholly-owned payday cash advance centers. Continued Revenue Growth at Mature Payday Cash Advance Centers. We believe we have an opportunity to continue to increase revenues at our payday cash advance centers that have been operating for at least 24 months. For the nine months ended September 30, 2004, total revenues at these centers increased 8.5% compared to the same period in 2003. In order to increase revenues at these centers, we employ a variety of advertising and marketing programs. Drive New Payday Cash Advance Center Operating Performance. In our 750 operating payday cash advance centers that have been open for less than 24 months as of September 30, 2004, we are striving to Missouri 43 46 47 51 54 62 Mississippi 42 40 40 41 48 51 Montana 5 8 North Carolina(1)(3) 125 126 124 118 118 118 Nebraska 9 10 11 11 14 24 New Hampshire 7 11 11 15 15 New Mexico 9 11 12 Nevada 6 8 10 Ohio 116 119 119 129 137 168 Oklahoma 53 65 Oregon 5 22 Pennsylvania(1) 67 82 93 98 100 101 South Carolina 83 83 85 86 90 102 South Dakota 8 10 10 Tennessee 45 53 54 56 58 59 Texas(1) 38 157 194 Virginia 56 80 92 104 Washington 32 33 35 35 47 72 Wisconsin 28 29 29 29 30 37 Wyoming 2 3 3 3 4 Advance America, Cash Advance Centers, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 6141 (Primary Standard Industrial Classification Code Number) 58-2332639 (I.R.S. Employer Identification No.) 135 North Church Street Spartanburg, South Carolina 29306 (864) 342-5600 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) match the operating performance of our centers that have been open for at least 24 months. To do this, our employees are evaluated and compensated, in part, based on their achievement of operational goals, which we adjust each year to account for the continued improvement in our business. Maximize the Efficiency of Our Infrastructure. We have made significant investments in technology, infrastructure and monitoring/compliance systems that are highly scalable. As we expand our network of payday cash advance centers, we expect that our general and administrative expenses will decline as a percentage of our revenues. Support Improvement of the Legislative and Regulatory Environment. Our goal is to work with policymakers and grass roots organizations to facilitate the implementation of a balanced, visible and predictable regulatory framework that protects the interests of the customers we serve while allowing us to operate profitably in every state. Challenges We face many operational hurdles and other challenges that could negatively affect the implementation of our business strategy and our competitive strengths. For example, we lack product and business diversification and, as a result, our future revenues and earnings may be disproportionately negatively impacted by external factors and may be more susceptible to fluctuations than more diversified companies. Our industry is highly regulated under federal, state and local law and changes in these laws and regulations could prevent us from operating our business and could subject us to liability. Our ability to execute our strategy depends on the prevailing laws and regulatory environment of each state in which we operate or seek to operate, which are subject to change at any time, and our ability to obtain and maintain any regulatory approvals, government permits or licenses that may be required. We rely on our relationships with the lending banks for a significant portion of our business, and if we are no longer able to process, market and service payday cash advances on behalf of the lending banks or if the lending banks choose to terminate their relationships with us, it could have a material adverse effect on us. Our agency relationships with the lending banks are also highly regulated and any changes in laws and regulations governing these relationships could have a material adverse effect on our business, results of operations and financial condition. Because of our relationships with the lending banks, we have significant off-balance sheet obligations and we would likely be contractually obligated to reimburse the lending banks if their uncollected payday cash advances exceed their contractual obligations. Our estimates of payday cash advance losses may also be inadequate, which could impair our financial condition. The nature of our business also subjects us to numerous litigation and regulatory proceedings, including those currently pending against us in Florida, Georgia and North Carolina, and an adverse outcome could materially adversely affect us through the imposition of damages, fines and injunctions, which could require us to alter or permanently cease our operations. For example, as a result of current litigation and regulatory proceedings, we have ceased operations in Georgia and we may have to cease operations in North Carolina. Our ability to execute our strategy will also depend in part on the degree of competition in new markets and the effect of such competition on our ability to attract new customers. Our industry has low barriers to entry, is highly fragmented and is very competitive, which could cause us to lose market share and revenues. General economic conditions in our markets could also negatively affect both the demand for payday cash advances and the collectibility of payday cash advances. The high concentration of our revenues in a few states could also adversely affect us. Media reports and public perception of payday cash advances as being predatory or abusive could also decrease demand for payday cash advances, subject us to increased regulatory scrutiny and legal proceedings and reduce our access to sources of financing. Our business strategy depends on our ability to compete for expansion opportunities in suitable locations, our ability to adapt our infrastructure and systems to accommodate our growth and our ability to obtain adequate financing for our expansion plans. The start-up costs and the losses from initial operations attributable to each of our newly opened payday cash advance centers place additional demands upon our William M. Webster, IV Chief Executive Officer 135 North Church Street Spartanburg, South Carolina 29306 (864) 342-5600 (864) 515-5603 (facsimile) (Name, address, including zip code, and telephone number, including area code, of agent for service) Advance America, Cash Advance Centers, Inc. is a Delaware corporation that was incorporated on August 11, 1997. Our principal executive offices are located at 135 North Church Street, Spartanburg, South Carolina 29306. Our telephone number at that location is (864) 342-5600. Copies to: Susan J. Sutherland, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 (212) 735-3000 (212) 735-2000 (facsimile) D. Mark McMillan, Esq. Merrick D. Hatcher, Esq. Bell, Boyd & Lloyd LLC 70 W. Madison St., Suite 3100 Chicago, Illinois 60602 (312) 372-1121 (312) 827-8000 (facsimile) John W. White, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019 (212) 474-1000 (212) 474-3700 (facsimile) THE OFFERING Common stock offered by us 14,333,333 shares Common stock offered by the selling stockholders 7,166,667 shares Common stock to be outstanding immediately after this offering 84,026,712 shares Over-allotment option 3,225,000 shares to be offered by the selling stockholders if the underwriters exercise their over-allotment option in full. Use of proceeds We intend to use substantially all of the approximately $180.6 million of net proceeds we receive from the sale of shares of common stock by us in this offering to repay outstanding debt. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders in this offering. Dividend policy Upon completion of this offering, our board of directors currently intends to adopt a policy of paying a quarterly cash dividend on each share of our common stock of 0.625% of the average of the closing sale prices of our common stock on the New York Stock Exchange on the last ten trading days of the prior quarter, not to exceed $.09 per share of common stock per quarter unless our board of directors determines otherwise, commencing the first quarter of 2005. Any determination to pay dividends, and the amount of any dividends, will be at the sole discretion of our board of directors and will depend upon many factors, including: our subsidiaries' payment of dividends to us; our net income, results of operations and cash flows and our other cash needs; our financial position and capital requirements; general business conditions and the outlook for our company; any legal, tax, regulatory and contractual restrictions on the payment of dividends, including restrictions under our revolving credit facility; and any other factors our board of directors deems relevant. Proposed New York Stock Exchange symbol AEA Unless otherwise indicated, all references to shares of our common stock to be outstanding after this offering and percentage ownership after this offering reflect: the issuance by us of shares of our common stock to our Chairman, certain of our stockholders and affiliated parties simultaneously with the closing of this offering at the initial public offering price in connection with our acquisition of certain aircraft that we use and the entity that owns our headquarters building, as referred to under "Certain Relationships and Related Party Transactions" on page 107; and the grant and assumed issuance by us of restricted shares of common stock under our 2004 Omnibus Stock Plan to certain of our directors, officers and employees on the closing of this offering, as referred to under "Management Equity Incentive Plans" on page 101. Assuming an initial public offering price of $14.00 per share (the midpoint of the price range set forth on the cover of this prospectus), an estimated 1,026,718 aggregate shares of common stock will be issued as described in the bullets above. However, the actual number of shares of common stock to be so issued will vary depending upon the final initial public offering price for our common stock. Accordingly, the total shares to be outstanding after this offering, percentage ownership after this offering and as adjusted per share data presented in this preliminary prospectus may change depending on the final initial public offering price for our common stock. Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. CALCULATION OF REGISTRATION FEE (1)Effective October 1, 2001, we filed an election to convert to S corporation status for federal and most state income tax purposes under Subchapter S of the Internal Revenue Code. Under Subchapter S, our stockholders pay federal and state income tax on our taxable income. In connection with this offering, we will revoke our Subchapter S election and once again become a C corporation under Subchapter C of the Internal Revenue Code (i.e., we will pay income tax on our taxable income). (2)Pro forma income tax expense shown here has been determined as if we had always been a C corporation rather than an S corporation beginning October 1, 2001. Pro forma income tax expense for 2001 includes nine months of actual income tax expense of $19.2 million for the period during that year for which we were subject to tax as a C corporation. Title of Each Class of Securities to Be Registered Amount to Be Registered(1) Proposed Maximum Offering Price per Share(2) Proposed Maximum Aggregate Offering Price Amount of Registration Fee(3)
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY This summary highlights selected information from this prospectus. The following summary information is qualified in its entirety by the information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information that you should consider before investing in the IDSs and senior subordinated notes. You should read the entire prospectus carefully, including the Risk Factors section, the Unaudited Pro Forma Condensed Financial Data and the historical financial statements of Buffets Holdings, Inc. and the accompanying notes to those statements. Unless the context indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc., the issuer of the IDSs and senior subordinated notes; (ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; and (iii) the terms we, our, ours, us and the company refer collectively to Buffets Holdings and its subsidiaries, including Buffets. The use of these terms is not intended to imply that Buffets Holdings and Buffets are not separate and distinct legal entities. Our Company Founded in 1983, Buffets is the twentieth largest restaurant operator in the United States and is the largest operator of company-owned stores in the buffet/grill segment, as measured in both sales and number of restaurants. Our restaurants are principally operated under the names Old Country Buffet and HomeTown Buffet. As of June 30, 2004, we had 360 company-owned restaurants and 20 franchised locations in 38 states. We offer excellent customer service, together with a convenient, value-priced selection of home-style cooked meals in a self-service buffet format. For fiscal 2004, we generated net sales of $942.8 million and served approximately 131 million customers. Our restaurants provide a high level of food quality and service through uniform operational standards developed at the corporate level. Freshness is ensured by preparing food in small batches of six to eight servings at a time, with preparations and production adapted to current customer traffic patterns. Our buffet restaurants utilize uniform menus, recipes and ingredient specifications, with certain discretion to adapt menus for regional preferences. We offer approximately 100 menu items at each meal, including entrees, soups, salads, fresh vegetables, non-alcoholic beverages and desserts. Typical entrees include chicken, carved roast beef, ham, shrimp, salmon, peppered pork loin, fish and casseroles. Our buffet restaurants use an all-inclusive pricing strategy designed to provide dining value to our customers. As of June 30, 2004, the meal price at our buffet restaurants for dinner ranged from $8.59 to $9.59 and for lunch from $6.49 to $7.19, with discounts offered to senior citizens and children. The average guest check in our restaurants, including our Tahoe Joe s Famous Steakhouses, for fiscal 2004 was $7.22. In order to further enhance our guests dining experience, we have focused on providing a level of customer service designed to enhance the self-service buffet format, including such features as limited table-side service and our scatter-bar layout. Our buffet restaurants average approximately 9,900 square feet in size and can generally seat between 225 and 400 people. On average, our buffet restaurants served approximately 7,000 customers per week during fiscal 2004. While we attract a broad demographic profile of customers, including families, senior citizens and singles, our customer surveys indicate that approximately two-thirds of our guests are married and over half are between the ages of 25 and 54 years old (the largest segment of the population within the United States). We have a national footprint of restaurant locations, which are strategically concentrated in particular regions to maximize penetration within those markets and achieve operating and advertising synergies. For example, our television advertising program in 38 designated market areas provided media coverage for 62% of our buffet restaurants during fiscal 2004. In addition, our restaurants are located in high customer traffic venues and include both freestanding units and units located in shopping centers and malls. As of June 30, 2004, 69% of our restaurants were located in shopping centers or malls and 31% were freestanding units. Table of Contents PRESENTATION OF FINANCIAL INFORMATION In 2002, we changed our fiscal year to 52 or 53 weeks ending on the Wednesday nearest June 30 of each year. Our new fiscal year is divided into four quarters of 12, 12, 16 and 12 or 13 weeks. Our transitional period ended July 3, 2002 consisted of 26 weeks divided into two periods of 16 and 10 weeks. Prior to the 26-week transitional period ended July 3, 2002, our fiscal year comprised 52 or 53 weeks ending on the Wednesday nearest December 31 of each year, and each fiscal year was divided into four periods of 16, 12, 12 and 12 or 13 weeks. Fiscal 2004 refers to the 52 weeks ended June 30, 2004; fiscal 2003 refers to the 52 weeks ended July 2, 2003; the 2002 transitional period refers to the 26-week transitional period ended July 3, 2002; fiscal 2001 refers to the 52 weeks ended January 2, 2002; fiscal 2000 refers to the 53 weeks ended January 3, 2001; and fiscal 1999 refers to the 52 weeks ended December 29, 1999. INDUSTRY AND MARKET DATA Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The industry and market data provided by Technomic, Inc., an independent research organization, is based on a report issued in January 2004 covering data from 1983 through 2002. While we believe the industry and market data is reliable and market definitions are appropriate, neither these surveys nor these definitions have been verified by any independent sources. TRADEMARKS We have proprietary rights to a number of trademarks important to our business, including Old Country Buffet , HomeTown Buffet , Granny s BuffetSM, Country Roadhouse Buffet Grill , Tahoe Joe s Famous SteakhouseSM, Country BuffetSM and Soup N Salad Unlimited . All other trademarks or service marks referred to in this prospectus are the property of their respective owners and are not our property. Table of Contents Industry Overview The restaurant industry is among the largest industries in the United States and according to Technomic, Inc., an independent research organization, has grown at an average annual rate of 7.3% from 1975 through 2002. The restaurant industry can be divided into three main segments: full-service restaurants, quick-service restaurants, and other miscellaneous establishments. Full-service restaurants include the mid-scale, casual dining and upscale (fine dining) segments. The mid-scale segment, which includes buffet/grill restaurants, is characterized by complete meals, menu variety and moderate prices. The casual dining segment, which typically has higher menu prices and generally offers alcoholic beverages, includes a small number of national chains, regional chains and independent operators. The quick-service segment is characterized by lower average checks, portable meals, fast service and convenience. We operate in the $3.0 billion buffet/grill sector within the mid-scale segment, which has grown at a compound annual growth rate of 6.2% from 1997 through 2002. We believe the appeals of the buffet concept are its full line of food offerings and all-you-care-to-eat format, and that this format drives greater price/value perception in the customer s eyes. Growth in the restaurant industry, and the buffet/grill segment in particular, has been driven by the increasing demands for dining ease and convenience among today s consumers. The restaurant industry s portion of the total food industry s dollar has grown significantly in the past two decades. According to Technomic, the restaurant industry s share of total food sales has increased from 23% in 1980 to approximately 31% in 2003. This growth is expected to continue as a result of several key lifestyle and demographic trends, including the continued increase in spending on food away from the home and on restaurant dining and the continued growth in disposable incomes among the key age groups of the population frequenting our restaurants. Our Competitive Strengths We believe our leading market position, strong cash flow, flexible cost structure, motivated and trained employees, centralized control measures, attractive unit level economics and proven management team will allow us to grow sales and increase profitability. Leading Market Position with National Scale. We are the twentieth largest restaurant operator in the United States and the largest operator of company-owned stores in the buffet/grill sector, as measured in both sales and number of restaurants. Strong Cash Flow Generation. Our strong operating results and favorable working capital characteristics are key drivers of our strong cash flow. Over the last seven fiscal years, our maintenance capital expenditures have averaged approximately 1.2% of sales, while our ongoing maintenance expenses have averaged approximately 2.0% of sales. Flexible Operating Model. As a buffet-style restaurant with a broad selection of food, we are not tied to a particular menu item enabling us to quickly modify our offerings in response to changes in customer preferences and food costs. Highly Trained and Motivated Employees. All of our buffet restaurant managers receive extensive training relating to all aspects of restaurant management at Buffets College, our training program operated out of our corporate headquarters. We further seek to reinforce our employees commitment through targeted retention programs and we believe our manager and employee turnover rates are among the lowest in the industry. Centralized Control Measures. We maintain rigorous financial controls, service and food quality in all of our buffet restaurants using uniform operational standards developed at the corporate level and implemented at the restaurant level. Attractive Unit Level Economics. Over 94% of our company-owned stores produced positive store-level cash flow for fiscal 2004, and we believe that our store-level cash flow before occupancy costs compares favorably to other restaurants in the buffet/grill sector on an equivalent basis. Arizona 4 8 12 California 95 1 96 Colorado 12 2 14 Connecticut 6 6 Delaware 1 1 Florida 2 2 Georgia 1 1 Idaho 1 1 Illinois 32 32 Indiana 11 11 Iowa 5 5 Kansas 2 2 Kentucky 3 3 Maine 1 1 Maryland 7 7 Massachusetts 9 9 Michigan 20 20 Minnesota 15 15 Missouri 11 11 Montana 1 1 Nebraska 3 3 New Jersey 8 8 New Mexico 2 2 New York 16 16 North Carolina 1 1 Ohio 20 20 Oklahoma 2 2 Oregon 7 7 Pennsylvania 20 20 Rhode Island 1 1 South Carolina 2 2 Tennessee 1 1 Texas 5 5 Utah 3 3 Virginia 9 9 Washington 16 16 Wisconsin 12 12 Wyoming 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Proven Management Team with Equity Ownership. Over the past 20 years, we have attracted and built an exceptionally talented and complementary executive management team with an average of over 20 years of restaurant industry experience and significant equity ownership of our company. Our Business Strategy Our goal is to provide exceptional value to maintain customer loyalty and drive increased guest traffic. We plan to continue to improve our operating performance through the following principal strategies: growth of same store sales and margin expansion through an emphasis on food quality, a focus on restaurant-level operations, theme-based meal promotions and a disciplined, return-on-investment based approach to advertising; disciplined restaurant development; and an emphasis on improving existing units that targets a high return on investment. Our Background Buffets was founded in 1983 to develop buffet-style restaurants under the name Old Country Buffet. In October 1985, Buffets successfully completed an initial public offering with seven restaurants, and by 1988 had 47 company-owned units and nine franchised units. In September 1996, Buffets merged with HomeTown Buffet, Inc., a similar publicly-held scatter-bar, buffet-style restaurant company established and developed by one of our co-founders. The merger brought the total number of restaurants to 346 company-owned restaurants and 24 franchised restaurants in 36 states at December 31, 1996. Buffets Holdings was formed by Caxton-Iseman Capital, Inc. in 2000. On October 2, 2000, we acquired Buffets in a buyout from its public shareholders. Caxton-Iseman Investments L.P. and certain other investors, including members of management, made an equity investment in us and became the beneficial owners of 100% of our existing common stock. Buffets Holdings is a holding company whose assets consist substantially of the capital stock of Buffets. The Transactions In connection with this offering: Buffets will enter into a $ million Amended Credit Facility; Buffets will issue $ million of Senior Notes due 2014; Buffets will conduct a tender offer and consent solicitation to repurchase its 11 1/4% Senior Subordinated Notes due 2010 ( Buffets 11 1/4% Notes ); we will conduct a tender offer and consent solicitation to repurchase all of our 13 7/8% Senior Discount Notes due 2010 (our 13 7/8% Notes ) and will redeem any 13 7/8% Notes that remain outstanding after such tender offer; and we will effect a reclassification of our existing common stock into shares of our new Class A and Class B common stock and consummate other internal corporate transactions. See Related Party Transactions in Connection with this Offering. Assuming no exercise of the underwriters over-allotment option, we estimate that we will sell IDSs and an additional $ million aggregate principal amount of separate senior subordinated notes as part of this offering. Assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and 100% of the stated principal amount of each separate senior subordinated note, we estimate that we will receive aggregate net proceeds of $ million from this offering of IDSs and separate senior subordinated notes, after deducting underwriting discounts, commissions and other estimated transaction expenses. 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 1 .1* Form of Underwriting Agreement. 3 .1** Amended Certificate of Incorporation of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .2** By-Laws of Buffets Holdings, Inc. (incorporated by reference to Exhibit 3.2 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 3 .3** Articles of Incorporation of Buffets, Inc. (incorporated by reference to Exhibit 3.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (1) The Existing Credit Facility refers to the $310.0 million amended credit facility that we entered into on February 20, 2004. Exchange Rights of Class B Common Stockholders Upon the closing of this offering, our existing stockholders will hold shares of Class B common stock. The holders of our Class B common stock will have rights to exchange their Class B common stock for IDSs or, if the IDSs have been automatically separated or if the Class A common stock is listed for separate trading on a stock exchange, Class A common stock and/or our senior subordinated notes, subject to certain restrictions. Following the consummation of the transactions and through the maturity date of the notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. Following this offering, we expect that there will be shares of Class B common stock (or shares of Class B common stock if the underwriters exercise their over-allotment option with respect to the IDSs in full) exchangeable into IDSs (or IDSs if the underwriters exercise their over-allotment option in full). Subject to limited exceptions, until the second anniversary of the consummation of this offering, the investor rights agreement to be entered into among the Class B stockholders will restrict the holders of our Class B common stock from exercising their exchange rights if, following the 3 .4** By-laws of Buffets, Inc. (incorporated by reference to Exhibit 3.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .5** Articles of Incorporation of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .6** By-laws of Distinctive Dining, Inc. (incorporated by reference to Exhibit 3.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .7 Articles of Incorporation of HomeTown Buffet, Inc. 3 .8 By-laws of HomeTown Buffet, Inc. 3 .9** Articles of Incorporation of OCB Purchasing Co. (incorporated by reference to Exhibit 3.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .10** By-laws of OCB Purchasing Co. (incorporated by reference to Exhibit 3.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .11** Articles of Incorporation of OCB Restaurant Co. (incorporated by reference to Exhibit 3.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .12** By-laws of OCB Restaurant Co. (incorporated by reference to Exhibit 3.10 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .13** Articles of Incorporation of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.11 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .14** By-laws of Restaurant Innovations, Inc. (incorporated by reference to Exhibit 3.12 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 3 .15 Certificate of Incorporation of Tahoe Joe s, Inc. 3 .16 By-laws of Tahoe Joe s, Inc. 3 .17 Articles of Organization of Buffets Leasing Company, LLC 3 .18 By-laws of Buffets Leasing Company, LLC 3 .19 Articles of Organization of OCB Leasing Company, LLC 3 .20 By-laws of OCB Leasing Company, LLC 3 .21 Articles of Organization of HomeTown Leasing Company, LLC 3 .22 By-laws of HomeTown Leasing Company, LLC 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. Table of Contents exchange, the holders of our Class B common stock would hold less than 10% of the outstanding shares of our capital stock in the aggregate. For a more complete description of this exchange right and the terms of our Class A common stock and Class B common stock, see Description of Capital Stock. Other Information About This Prospectus Unless the context otherwise requires, references in this prospectus to this offering refer collectively to the offering of IDSs and $ million aggregate principal amount of senior subordinated notes offered separately. Throughout this prospectus, we have assumed an initial public offering price of $ per IDS (comprising $ principal amount allocated to each senior subordinated note and $ allocated to each share of Class A common stock, in each case that form part of an IDS), which represents the mid-point of the range set forth on the cover page of this prospectus. We have also assumed an initial public offering price for the separate senior subordinated notes of 100% of their stated principal amount. The information in this prospectus, unless otherwise indicated: does not take into account the exercise by the underwriters of their over-allotment option with respect to the IDSs; does not give effect to the issuance of IDSs upon conversion of the Class B common stock; and gives effect to the internal corporate transactions. Federal income tax expense (benefit) at statutory rate of 35% $ 9,834 $ (3,667 ) $ 6,417 $ 3,367 State income taxes, net of federal benefit 2,204 29 666 850 General business credits (932 ) (656 ) (1,769 ) (1,396 ) Goodwill amortization 3,767 Other 419 940 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) (1) Assumes no exercise of the underwriters over-allotment option. (2) Comprises a $ million term loan, a $ million revolving credit facility (which includes a $ million letter of credit sub-facility), a $ million letter of credit facility and a $ million synthetic letter of credit facility. See Table of Additional Registrants on Following Page Table of Contents The Offering We are offering IDSs at an assumed initial public offering price of $ per IDS (comprising $ allocated to each note and $ allocated to each share of Class A common stock), which represents the midpoint of the range set forth on the cover page of this prospectus. We are also offering $ million aggregate principal amount of our % senior subordinated notes separately from the IDSs. The offering of IDSs and the offering of the separate senior subordinated notes are conditioned upon each other. None of the senior subordinated notes sold separately from the IDSs in this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) holders of Class B common stock following our internal corporate transactions. Summary of the IDSs What are IDSs? IDSs are securities comprising Class A common stock and senior subordinated notes. Each IDS initially represents: one share of our Class A common stock; and a % senior subordinated note with $ principal amount. The ratio of Class A common stock to principal amount of senior subordinated notes represented by an IDS is subject to change in the event of a stock split, combination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of senior subordinated notes as it previously represented. Likewise, if we effect a combination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a combined or reclassified basis, as applicable, and the same principal amount of senior subordinated notes as it previously represented. What payments can I expect to receive as a holder of IDSs? You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of senior subordinated notes represented by your IDSs or approximately $ per IDS per year, subject to our right, under certain circumstances, to defer interest payments. For a detailed description of these circumstances, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the Amended Credit Facility, the indenture governing our senior subordinated notes, the indenture governing Buffets senior notes and any of our other then outstanding indebtedness, specifically, our ability to declare and pay dividends on our common stock as described under Dividend Policy and Restrictions. Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We have not paid dividends in the past and we cannot assure you that we will pay dividends at this level in the future or at all. Holders of our common stock do not have any legal right to receive, or require us to pay, dividends. We expect to make interest and dividend payments, if any, on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Expected to close as of the end of the period 13 3 H. Thomas Mitchell, Esq. Executive Vice President General Counsel and Secretary 1460 Buffet Way Eagan, Minnesota 55121 (651) 994-8608 Table of Contents Will my rights as a holder of IDSs be any different from the rights of a beneficial owner of separately held Class A common stock and senior subordinated notes? No. As a holder of IDSs you are the beneficial owner of the Class A common stock and senior subordinated notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, or DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our senior subordinated notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held Class A common stock and senior subordinated notes, as applicable, would have through its broker or other financial institution and DTC. What instruments will govern my rights as an IDS holder? Your rights as an IDS holder will be governed by a global IDS certificate which includes provisions with respect to the separation, combination and adjustment of the Class A common stock and senior subordinated notes represented by the IDSs. The Class A common stock represented by the IDSs will be governed by our restated certificate of incorporation and the global stock certificate for our Class A common stock. The senior subordinated notes represented by the IDSs will be governed by the indenture, including the guarantees, and the global note. Will the IDSs be listed on an exchange? We will apply to list the IDSs for trading on the under the trading symbol . Will the terms of the senior subordinated notes represented by IDSs be the same as the notes sold separately from the IDSs? Yes. The senior subordinated notes sold separately from the IDSs will be identical in all respects to the senior subordinated notes represented by IDSs and will be part of the same series of notes issued under the same indenture. Accordingly, holders of senior subordinated notes sold separately and holders of senior subordinated notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of senior subordinated notes they hold, on all matters on which they were eligible to vote under the indenture. Will the shares of our Class A common stock and senior subordinated notes represented by the IDSs be separately listed on an exchange? We currently do not expect an active trading market for our Class A common stock or senior subordinated notes to develop. However, we will use commercially reasonable efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and senior subordinated notes offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, unless they are held by affiliates as that term is defined in Rule 144 under the Securities Act. In what form will IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately be issued? The IDSs, the shares of our Class A common stock and senior subordinated notes represented by the IDSs and the senior subordinated notes sold separately will be issued in book-entry form only. This means that you will not be a registered holder of IDSs, the securities represented by the IDSs or the senior subordinated notes sold separately and you will not receive a certificate for your IDSs, the securities represented by your IDSs or the senior subordinated notes sold separately. You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or senior subordinated notes. However, a holder of common stock, including 3 .23 Articles of Organization of Tahoe Joe s Leasing Company, LLC 3 .24 By-laws of Tahoe Joe s Leasing Company, LLC 3 .25* Form of Amended and Restated Certificate of Incorporation of Buffets Holdings, Inc. to be adopted concurrently with the closing of this offering. 3 .26* Form of Amended and Restated By-laws of Buffets, Inc. to be adopted concurrently with the closing of this offering. 4 .1** Indenture, dated as of June 28, 2002, among Buffets, Inc., the Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. (Name, address, including zip code, and telephone number, including area code, of agent for service of process) Table of Contents a holder of an IDS that requests that the IDS be separated, has a legal right under Delaware law to request that we issue a certificate for such common stock. Can I separate my IDSs into shares of Class A common stock and senior subordinated notes or recombine shares of Class A common stock and senior subordinated notes to form IDSs? Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series, may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and senior subordinated notes represented thereby. Any holder of shares of our Class A common stock and senior subordinated notes may, at any time, through his or her broker, custodian or other financial institution, combine the applicable number of shares of Class A common stock and senior subordinated notes to form IDSs unless the IDSs have previously been automatically separated. Separation and combination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See Description of IDSs Book-Entry Settlement and Clearance Separation and Combination. Will my IDSs automatically separate into shares of Class A common stock and senior subordinated notes upon the occurrence of certain events? Yes. All outstanding IDSs will automatically separate upon the occurrence of any of the following: a payment default on the senior subordinated notes that continues without cure for 90 days; any redemption, whether in whole or in part, of the senior subordinated notes; the date on which principal on the senior subordinated notes becomes due and payable whether at the stated maturity or upon acceleration; or the DTC s becoming unwilling or unable to continue as securities depositary with respect to the IDSs or ceasing to be a registered clearing agency under the Securities Exchange Act of 1934 and our being unable to find a successor depositary. Following any such automatic separation, shares of Class A common stock and senior subordinated notes may no longer be combined to form IDSs. What will happen if we issue additional IDSs or senior subordinated notes of the same series in the future? We may conduct future financings by selling additional IDSs or senior subordinated notes of the same series, which will have terms that are identical to those of the IDSs being sold in this offering and will represent the same proportion of Class A common stock and senior subordinated notes as is represented by the then outstanding IDSs. In addition, we may in the future issue IDSs in exchange for shares of Class B common stock. See Description of Capital Stock Class B Common Stock Conversion. Although the senior subordinated notes represented by such IDSs will have terms that are identical (except for the issuance date) to the senior subordinated notes being sold in this offering and will be part of the same series of senior subordinated notes for all purposes under the indenture, it is possible that the new senior subordinated notes will be sold, issued or deemed to be issued with original issue discount, or OID, for United States federal income tax purposes. Upon the issuance of any such senior subordinated notes with OID, and upon any issuance of senior subordinated notes thereafter, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding senior subordinated notes not represented by IDSs will automatically exchange a ratable portion of their outstanding senior subordinated notes for a portion of the new senior subordinated notes, whether held directly or in the form of IDSs, and will thereafter hold an inseparable unit consisting of new senior subordinated notes and old senior subordinated notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new senior subordinated notes among all holders of senior subordinated notes on a pro rata basis, which may adversely affect your tax treatment. See What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? In addition, if such senior subordinated notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of With Copies to: John C. Kennedy, Esq. Paul, Weiss, Rifkind, Wharton Garrison LLP 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 Mark C. Smith, Esq. Skadden, Arps, Slate, Meagher Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 Table of Contents the senior subordinated notes or a bankruptcy of the company prior to the maturity of the senior subordinated notes. See Risk Factors Risks Relating to the IDSs, the Shares of Class A Common Stock and the Senior Subordinated Notes Represented by the IDSs, and the Senior Subordinated Notes Offered Separately Subsequent issuances of senior subordinated notes may cause you to recognize OID and may be treated as a taxable exchange by you. We will promptly file a Current Report on Form 8-K (or any other applicable form) to announce and quantify any changes in the ratio of IDS components or changes in OID attributable to the senior subordinated notes. What will be the United States federal income tax consequences of an investment in the IDSs? The United States federal income tax consequences of the purchase, ownership and disposition of IDSs or senior subordinated notes in this offering are not entirely clear. Treatment of Purchase of IDSs. The purchase of IDSs in this offering should be treated for United States federal tax purposes as the purchase of shares of our Class A common stock and senior subordinated notes, rather than as the purchase of a single integrated security, and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and senior subordinated notes in proportion to their respective initial fair market values, which will establish your initial tax basis in each component of the IDSs. Assuming an initial public offering price of $ per IDS, which represents the mid-point of the range set forth on the cover page of this prospectus, we expect to report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of senior subordinated notes as $ , and by purchasing IDSs, you will agree to and be bound by such allocation. Treatment of Senior Subordinated Notes. We believe that the senior subordinated notes should be treated as debt for United States federal income tax purposes. If the senior subordinated notes were treated as equity rather than debt for United States federal income tax purposes, then the stated interest on the senior subordinated notes could be treated as a dividend, and interest on the senior subordinated notes would not be deductible by us for United States federal income tax purposes. Such payments would likely not qualify for the special dividend rate described below. This would adversely affect our financial position, cash flow, and liquidity, and could affect our ability to make interest or dividend payments on the senior subordinated debt and the common stock and may affect our ability to continue as a going concern. In addition, payments on the senior subordinated notes to foreign holders would be subject to United States federal withholding tax at rates up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes. Under current legislation, which is scheduled to sunset in 2008, dividends paid by us will generally be taxable to you at long-term capital gains rates to the extent of our earnings and profits. Any interest paid on the senior subordinated notes will generally be taxable at ordinary income rates. If we defer any interest payments on the notes, holders would be required to include OID in income. See Material U.S. Federal Income Tax Consequences. What will be the United States federal income tax consequences of a subsequent issuance of senior subordinated notes? The United States federal income tax consequences to you of the subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) including an issuance of IDSs in exchange of Class B common stock are not entirely clear. Exchange of Senior Subordinated Notes. The indenture governing the senior subordinated notes will provide that, in the event that there is a subsequent issuance of senior subordinated notes having terms that are otherwise identical (other than the issuance date) in all material respects to the senior subordinated notes represented by the IDSs, including an issuance of senior subordinated notes upon an exchange of shares of Class B common stock, but that are issued with OID, each holder of IDSs or 4 .2** Form of Exchange Note (incorporated by reference to Exhibit A to Exhibit 4.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 4 .3** First Supplemental Indenture ( Subsidiary Guaranty ), dated as of September 26, 2003, among HomeTown Buffet Merger Company, Inc., Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .4** Second Supplemental Indenture, dated as of November 5, 2003, between Tahoe Joe s, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on November 7, 2003 (SEC file No. 033-00171)). 4 .5** Third Supplemental Indenture, dated as of December 10, 2003 among NSHE Bennington, LLC, Buffets, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on January 27, 2004 (SEC file No. 033-00171)). 4 .6** Fourth Supplemental Indenture, dated as of February 20, 2004 among Buffets Holdings, Inc., Buffets, Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 4 .7** Indenture, dated as of May 18, 2004, between Buffets Holdings, Inc. and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .8** Form of Exchange Security (incorporated by reference to Exhibit B to Exhibit 4.1 to Buffets Holdings, Inc. s Registration Statement on Form S-4, filed with the Commission on June 25, 2004 (SEC file No. 333-116897)). 4 .9* Form of Indenture among Buffets Holdings, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, as trustee, relating to the senior subordinated notes. 4 .10* Form of Senior Subordinated Note (included in Exhibit 4.9). 4 .11* Form of Investor Agreement by and between Buffets Holdings, Inc. and Caxton-Iseman Investments L.P. and certain other parties named therein. 4 .12* Form of Stock Certificate for Buffets Holdings, Inc. Class A Common Stock. 4 .13* Form of Stock Certificate for Buffets Holdings, Inc. Class B Common Stock. 4 .14* Form of Global IDS Certificate. 5 .1* Legality Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP. 5 .2* Legality Opinion of Faegre Benson LLP. 8 .1* Opinion of Paul, Weiss, Rifkind, Wharton Garrison LLP as to certain tax matters. 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .1** Credit Agreement, dated as of June 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the lenders party thereto and Credit Suisse First Boston, as administrative agent and as collateral agent for the lenders (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .2** Amendment Agreement, dated as of February 20, 2004, to the Credit Agreement dated as of July 28, 2002, among Buffets, Inc., Buffets Holdings, Inc., the Subsidiaries named therein, the Lenders named therein and Credit Suisse First Boston, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to Buffets, Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .3** Management and Fee Agreement, dated October 2, 2000, by and among Buffets, Inc. and Caxton-Iseman Capital, Inc. (incorporated by reference to Exhibit 10.2 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .4** Amended and Restated Management and Fee Agreement, dated as of February 20, 2004, by and between Buffets, Inc. and CxCIC LLC (the Amended Management Agreement ) (incorporated by reference to Exhibit 10.2 to Buffets Inc. s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2004 (SEC file No. 033-00171)). 10 .5* Form of Termination Agreement in respect of the Amended Management Agreement by and between Buffets, Inc. and CxCIC LLC. 10 .6** Management and Fee Agreement, dated October 2, 2000, by and between Buffets, Inc. and Sentinel Capital Partners, L.L.C. (incorporated by reference to Exhibit 10.3 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .7** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and Roe E. Hatlen (incorporated by reference to Exhibit 10.4 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .8** Advisory Agreement, dated September 28, 2000, by and among Buffets Holdings, Inc., Buffets, Inc. and C. Dennis Scott (incorporated by reference to Exhibit 10.5 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .9** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and David Goronkin (incorporated by reference to Exhibit 10.7 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .10** Guaranty, dated September 28, 2000, from Buffets, Inc. to U.S. Bank National Association in connection with a Promissory Note and Pledge Agreement by and among U.S. Bank National Association and R. Michael Andrews, Jr. (incorporated by reference to Exhibit 10.8 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). 10 .11** Promissory Note and Pledge Agreement, dated February 20, 2002, among David Goronkin, Pamela Goronkin and Buffets, Inc. (incorporated by reference to Exhibit 10.9 to Buffets, Inc. s Registration Statement on Form S-4, filed with the Commission on August 16, 2002 (SEC file No. 333-98301)). Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (Calculation table and footnotes on following page) The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. Table of Contents separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued senior subordinated notes, held either as part of IDSs or separately, and each holder of existing senior subordinated notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old senior subordinated notes and the newly issued senior subordinated notes. The aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. It is unclear whether the exchange of senior subordinated notes for subsequently issued senior subordinated notes will result in a taxable exchange for United States federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Regardless of whether the exchange of senior subordinated notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash and in other potentially adverse U.S. federal income tax consequences to holders. Following any subsequent issuance of senior subordinated notes with OID (or any issuance of senior subordinated notes thereafter) and resulting exchange, we (and our agents) will report any OID on the subsequently issued senior subordinated notes ratably among all holders of IDSs and separately held senior subordinated notes, and each holder of IDSs and separately held senior subordinated notes will, by purchasing IDSs or senior subordinated notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued senior subordinated notes (and their transferees) and they may challenge a holder s reporting of OID on its tax returns. Such a challenge could create significant uncertainties in the pricing of IDSs and senior subordinated notes and could adversely affect the market for IDSs and senior subordinated notes. Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see Material U.S. Federal Income Tax Consequences. What is the initial and prospective accounting treatment of the IDSs? There is no explicit guidance under generally accepted accounting principles regarding the accounting and reporting for unit securities comprising common stock and notes like the IDSs. Any accounting followed by us for the IDSs may be subject to future scrutiny and challenge. Authoritative accounting bodies such as the FASB, EITF or SEC may issue future guidance, rules or interpretations which may require us to adjust our accounting for our IDSs. For our interpretation of the accounting treatment based on existing guidance available, see Management s Discussion and Analysis Critical Accounting Policies Accounting Treatment for IDSs and Class B Common Stock. Table of Contents Summary of the Capital Stock Issuer Buffets Holdings, Inc. Common stock As a result of our internal corporate transactions, we will have shares of authorized Class A common stock, par value $0.01 per share, shares of authorized Class B common stock, par value $0.01 per share and shares of authorized Class C common stock, par value $0.01 per share. No shares of Class C common stock will be outstanding upon the closing of this offering. Class A common stock and Class B common stock are identical in all respects, except that only Class A common stock is eligible to be included in IDSs and each class carries different dividend rights. See Dividend Policies and Restrictions. Furthermore, our by- laws provide that, as long as any IDSs are outstanding, we may only issue additional shares of Class A common stock as part of IDSs and pursuant to a registration statement that has been declared effective by the Securities and Exchange Commission. Unless the context otherwise requires, references to our common stock throughout this prospectus refer to our Class A common stock, Class B common stock and Class C common stock. Exchange for IDSs Following the consummation of the Transactions and through the maturity date of the senior subordinated notes, and subject to the lock-up period, each share of Class B common stock will be exchangeable into IDSs at a fixed rate of shares of Class B common stock for one IDS. If the IDSs have automatically separated or if the shares of our Class A common stock are listed for separate trading on a stock exchange, the holders of the Class B common stock may convert each share of Class B common stock into shares of Class A common stock and $ of senior subordinated notes. All exchanges are subject to compliance with law and applicable agreements and no such exchange can be made if at that time a default or event of default under the indenture has occurred and is continuing or during any interest deferral period or after the end of any interest deferral period until all deferred interest (including interest accrued thereon) has been paid in full. Shares of Class A common stock represented by IDSs being offered to the public by Buffets Holdings shares (or shares assuming the underwriters exercise their over-allotment option in full). Shares of common stock to be outstanding following the offering shares of Class A common stock, all of which will be represented by IDSs (or shares assuming the underwriters exercise their over-allotment option in full) and shares of Class B common stock. If all outstanding shares of Class B common stock were exchanged for IDSs, shares of Class A common stock would be outstanding. Voting rights Each outstanding share of our common stock will carry one vote per share and all classes of common stock will vote as a single Table of Contents class on all matters presented to the stockholders for a vote, except that our amended and restated certificate of incorporation will provide that for such time as Caxton-Iseman Capital together with its affiliates and related parties beneficially own at least 10% or 5% of our equity, whether in the form of Class A or Class B common stock, it will be entitled to nominate two directors or one director, respectively. Dividends Upon completion of this offering, our board of directors will adopt a dividend policy which reflects a basic judgment that our stockholders would be better served if we distributed our excess cash to them instead of retaining it in our business. We currently intend to pay an initial dividend with respect to the period commencing on the completion of this offering and ending based on a quarterly dividend level of and per share of Class A common stock and Class B common stock, respectively, and to continue to pay quarterly dividends at these rates for the remainder of the first full year following the closing, but only if and to the extent dividends are declared by our board of directors and permitted by applicable law, the terms of the Amended Credit Facility, the indenture governing Buffets Senior Notes and the indenture governing the senior subordinated notes. Dividend payments are not guaranteed and our board of directors may decide, in its absolute discretion, at any time and for any reason, not to pay dividends. Our amended and restated certificate of incorporation will provide that in the event we declare and pay dividends on our Class A common stock we must declare and pay dividends on our Class B common stock at a level that is times the dividends per share on the Class A common stock. This ratio is intended to provide our current owners with a yield on their Class B common stock in respect of the first year following the closing of the offering approximately equivalent to the yield they would receive on an equivalent value of IDSs. Under the indenture governing the senior subordinated notes, the dividends we may pay are, in general, limited to our excess cash. Excess cash is defined as our EBITDA (as defined in the indenture) reduced by cash interest expense, deferred interest, cash income tax expense, maintenance capital expenditures, excess growth capital expenditures, certain restructuring costs included in the definition of EBITDA and repayment of indebtedness, plus the net cash proceeds from any sale of Tahoe Joe s, Inc. See Description of Senior Subordinated Notes Certain Covenants Limitation on Restricted Payments . Similar limitations on dividends and other distributions exist under the Amended Credit Facility and the Buffets Senior Notes. See Description of Other Indebtedness. In addition, the indenture and the Amended Credit Facility contain dividend suspension provisions under which we would be prohibited from paying dividends on our capital stock during any interest deferral period, while any deferred interest remains unpaid or if we fail to satisfy certain financial ratios. Table of Contents (Continued from cover) CALCULATION OF REGISTRATION FEE Table of Contents See Dividend Policy and Restrictions. Dividend payment dates If declared, dividends on our Class A common stock and Class B common stock will be paid quarterly on the 15th day of February, May, August and November of each year to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day. Listing We will apply to list the IDSs on the under the trading symbol . We will use commercially reasonable efforts to cause our Class A common stock to be listed for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the then applicable minimum requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates as that term is defined in Rule 144 under the Securities Act of 1933. Table of Contents Summary of Senior Subordinated Notes Issuer Buffets Holdings, Inc. Senior subordinated notes being offered to the public represented by IDSs $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). Senior subordinated notes being offered to the public separately (not represented by IDSs) $ million aggregate principal amount of % senior subordinated notes. Senior subordinated notes to be outstanding following the offering $ million aggregate principal amount of % senior subordinated notes (or $ million aggregate principal amount assuming the underwriters exercise their over-allotment option in full). If all outstanding Class B common stock were exchanged for IDSs, $ million of the senior subordinated notes would be outstanding. Interest rate % per year. Interest payment dates Interest will be paid quarterly in arrears on the 15th day of February, May, August and November of each year, commencing , 2004 to holders of record on the first day of each such month, or, if such day is not a business day, the business day immediately preceding such first day, of such month. Interest deferral Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on one or more occasions for up to eight quarters in the aggregate, meaning that the eight quarters of deferred interest must be paid no later than , 2009. In addition, after , 2009, we may, subject to certain restrictions, defer interest payments on our senior subordinated notes on up to four occasions for no more than two quarters per occasion, provided that at the end of any interest deferral period following , 2009, we may not further defer interest unless and until all deferred interest including interest accrued on deferred interest is paid in full. Deferred interest on the senior subordinated notes will bear interest at the same rate as the stated rate on the senior subordinated notes, compounded quarterly, until paid in full. During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on our capital stock. For a detailed description of interest deferral provisions of the indenture, see Description of Senior Subordinated Notes Terms of the Notes Interest Deferral. In the event that interest payments on the senior subordinated notes are deferred, you would be required to include accrued Proposed Maximum Title of Each Class of Securities Aggregate Offering Amount of to be Registered Price(1) Registration Fee(1) Table of Contents interest in your income for U.S. federal income tax purposes on an economic accrual basis even if you do not receive any cash interest payments. See Material U.S. Federal Income Tax Consequences. Maturity date The senior subordinated notes will mature on , 2019. Optional redemption We may, at our option, redeem all, but not less than all, of the Notes at any time, at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest to the redemption date, if for U.S. federal income tax purposes we are not, or would not be, in the opinion of a nationally recognized tax counsel experienced in such matters, permitted to deduct all or a substantial portion of the interest payable on the senior subordinated notes from our income. Except as described above, we may not redeem the senior subordinated notes prior to , 2009. On and after , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days notice by mail to the holders of senior subordinated notes, at the redemption prices set forth under Description of Senior Subordinated Notes Optional Redemption. If we redeem the notes in whole or in part, the notes and common stock represented by each IDS will be automatically separated and cannot thereafter be combined. Change of control Upon the occurrence of a change of control, as defined under Description of Senior Subordinated Notes Change of Control, each holder of senior subordinated notes will have the right to require us to repurchase that holder s senior subordinated notes at a price equal to 101% of the principal amount of the senior subordinated notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. If senior subordinated notes are held in the form of IDSs, in order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and senior subordinated notes represented thereby and hold the senior subordinated notes separately. Guarantees of senior subordinated notes The senior subordinated notes will be jointly and severally and fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by each of our direct and indirect domestic subsidiaries existing on the closing of this offering and each of our future domestic restricted subsidiaries that incur indebtedness or issue shares of preferred stock or certain capital stock that is redeemable at the option of the holder. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the Amended Credit Facility as well as those issued under Buffets Senior Notes. Procedures relating to subsequent issuances The indenture governing the senior subordinated notes will provide that in the event we issue additional senior subordinated Income Deposit Securities (IDSs)(2) Table of Contents notes having terms that are otherwise identical to the senior subordinated notes (except for the issuance date), including any issuance of IDSs in exchange for shares of Class B common stock, but that are issued with OID, each holder of IDSs or separately held senior subordinated notes, as the case may be, agrees that, upon such issuance and any issuance of senior subordinated notes thereafter, a portion of such holder s senior subordinated notes, whether held as part of IDSs or separately, will be automatically exchanged for a portion of the senior subordinated notes acquired by the holders of such subsequently issued senior subordinated notes, and the records of any record holders of senior subordinated notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, without any action by such holder, each holder of IDSs or separately held senior subordinated notes, as the case may be, will own senior subordinated notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of senior subordinated notes owned by each holder will not change as a result of such subsequent issuance and exchange. The automatic exchange of senior subordinated notes summarized above should not impair the rights any holder would otherwise have to assert a claim under applicable securities laws against the company or any of its agents, including the underwriters, with respect to the full amount of senior subordinated notes purchased by such holder. However, any subsequent issuance of senior subordinated notes by the company may adversely affect the tax and non-tax treatment of the
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+PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. --------------------------------------------------------------------------- | The shares of common stock offered by Hometown Community | | Bancshares are not deposits or savings accounts or savings deposits and | | are not insured or guaranteed by the FDIC or any other governmental | | agency. | --------------------------------------------------------------------------- HOMETOWN COMMUNITY BANCSHARES Hometown Community Bancshares, Inc. was incorporated under the laws of the State of Georgia on May 12, 2004, primarily to hold all of the capital stock of its proposed Georgia banking subsidiary, Hometown Community Bank (Proposed). We may not acquire the capital stock of Hometown Community Bank without the prior approval of the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance (the "Georgia Department"). Hometown Community Bancshares, Inc. will file an application for Federal Reserve and Georgia Department approval once it obtains preliminary approval of the application for the charter for Hometown Community Bank from the Georgia Department. Hometown Community Bancshares, Inc. initially will engage in no business other than owning and managing Hometown Community Bank. Our mailing address and telephone number are currently PO Box 218, Braselton, Georgia 30517, (706) 654-3199. HOMETOWN COMMUNITY BANK Hometown Community Bank is being formed to engage in a general commercial banking business, emphasizing personalized banking services to independent developers, contractors, subcontractors, and suppliers, small-to-medium businesses, and, to a lesser extent, homeowners and consumers. See "Proposed Business - Lending Activities." Our organizers filed an application with the Georgia Department on September 7, 2004 to charter Hometown Community Bank as a Georgia banking corporation. The organizers also filed an application on September 7, 2004 with the FDIC for insurance of the deposits of Hometown Community Bank. Hometown Community Bank may not conduct any banking business until the Georgia Department grants final approval of Hometown Community Bank's application and issues its charter and the FDIC grants it deposit insurance. The issuance of a charter will depend, among other things, upon compliance with certain legal requirements that may be imposed by the Georgia Department, including initial capitalization of Hometown Community Bank of an amount which we believe will be not less than $8,000,000. In order to receive deposit insurance, Hometown Community Bank must also comply with certain legal requirements that may be imposed by the FDIC. See "The Offering" and "Supervision and Regulation." Additionally, we must obtain the approval of the Federal Reserve and the Georgia Department to become a bank holding company before acquiring the capital stock of Hometown Community Bank. We believe that our market area represents a diverse market with a growing population and economy and that the community will enthusiastically welcome and support a new locally owned and operated commercial bank. The market area is primarily rural, however, increasingly more farmland is being developed into subdivisions and commercial projects as the area converts into a bedroom community for commuters working in Gwinnett County, Georgia and as new businesses take advantage of the distribution opportunities presented by our market's interstate highways. As a community bank, Hometown Community Bank will be designed to serve the needs of local residents and small- to medium-sized businesses within this growing economy by providing superior customer service. Within 12-18 months of formation, Hometown Community Bank plans to have two bank site locations within a mile radius of two major interstate highways and adjacent to a single highway that will connect the branches. I-85 intersects Highway 53 in Braselton at exit 129. I-985 intersects Highway 53 in Oakwood at exit 16. Hometown Community Bank plans to locate on Highway 53 in Braselton and Oakwood. It is approximately 12 miles on Highway 53 between I-85 in Braselton and I-985 in Oakwood. The bank will market its products and services to potential bank customers along this corridor and its connector roads. See "Proposed Business." Hometown Community Bank is being formed to take advantage of the growth in this market area. On April 8, 2004, the U.S. Census Bureau released a study of the one hundred fastest growing counties in America from April 1, 2000 to July 1, 2003. All four of the counties that lie within our market, Barrow (41st), Gwinnett (55th), Jackson (79th) and Hall (98th) are among the 100 fastest growing counties in America. According to the U.S. Census Bureau, the State of Georgia grew 6.09% from April 1, 2000 to July 1, 2003. The counties of Barrow, Gwinnett, Jackson and Hall grew 15.90%, 14.43%, 13.01% and 12.05%, respectively, during this same time period. C. Sean Childers, the proposed President and Chief Executive Officer of Hometown Community Bank and the current President and Chief Executive Officer of Hometown Community Bancshares, has over thirteen years of experience in the commercial banking industry. Ted Murphy, Vice Chairman and consultant to Hometown Community Bank, was employed over forty-five years in the commercial banking industry and has over twenty-five years of experience as a bank's Chief Executive Officer, President and Board member. We believe that Mr. Childers' and Mr. Murphy's banking experience and the extensive business experience and contacts of the organizers in the Braselton/Oakwood area should create immediate business opportunities for Hometown Community Bank. See "Management." We are presently engaged in completing the tasks necessary to open Hometown Community Bank, although no assurances can be given that it will open for business or that the projected opening date can be achieved. Our temporary offices are located at 74 Lagree Duck Road, Braselton, Georgia 30517. We currently plan for Hometown Community Bank to be located near this office at 6700 Highway 53, Braselton, Georgia 30517. THE ORGANIZERS The organizers of Hometown Community Bancshares and Hometown Community Bank are Amyn A. Meghani, C. Sean Childers, Wendell Butler, Dr. Terry Elrod, Martha Martin, Ted Murphy, C.K. Patel and Monk Tolbert. Additional individuals may be added as organizers, subject to regulatory approval. All of the organizers are directors of Hometown Community Bancshares and are expected to serve as directors of Hometown Community Bank. See "Management." Our organizers (together with members of their immediate families) intend to purchase an aggregate of at least 166,500 shares (or 20.8% of the minimum shares offered) of the common stock to be sold in this offering. The organizers may subscribe for up to 100% of the shares in the offering if necessary to help us achieve the minimum subscription level necessary to release subscription proceeds from escrow, and some organizers may decide to purchase additional shares even if the minimum subscription amount has been achieved. Any shares purchased by the organizers, including any shares purchased in excess of their original commitment, will be purchased for investment and not with a view to the resale of such shares. Because purchases by the organizers may be substantial, investors should not place any reliance on the sale of a specified minimum offering amount as an indication of the merits of this offering or that an organizer's investment decision is shared by unaffiliated investors. See "The Offering" and "Management." In consideration of their efforts in organizing Hometown Community Bank and Hometown Community Bancshares and their commitment to serve as the initial directors, we intend, subject to regulatory approval, to issue to each organizer warrants to purchase shares of our common stock at the original offering price of $10.00 per share to be exercised, subject to vesting, at any time within ten years of the opening date of Hometown Community Bank. Each organizer will be awarded one warrant for each share purchased. Based on the proposed purchases by the organizers, the organizers will be granted a total of 166,500 warrants for the organizers as a group. The warrants will vest in three equal annual installments beginning on the first anniversary of Hometown Community Bank's opening for business and ending on the third anniversary of Hometown Community Bank's opening for business, contingent upon continued service on our Board of Directors and the Board of Directors of Hometown Community Bank. If Hometown Community Bank's capital falls below regulatory minimums established by the Georgia Department and the FDIC, the Georgia Department can direct that the warrants must be exercised or forfeited. The Warrants will not be transferable. THE OFFERING Security Offered Common stock of Hometown Community Bancshares, par value $.01 per share Offering Price $10.00 per share Number of Shares Offered Minimum: 800,000 Maximum: 1,200,000 Use of Proceeds We will use the net proceeds of the offering (gross proceeds less offering expenses, which are estimated to be $140,000) to capitalize Hometown Community Bank through the purchase of its capital stock, subject to regulatory approval; to pay our organizational expenses; and to provide working capital. We will use a minimum of $7,500,000 of the net proceeds to capitalize Hometown Community Bank. We plan to retain sums in excess of the minimum necessary to capitalize Hometown Community Bank and initially invest the sums in United States government securities or as a deposit at Hometown Community Bank. While we have no reason to believe this will occur, we may be required by the Georgia Department or the FDIC to capitalize Hometown Community Bank at a level in excess of the minimum of $7,500,000, in which case we would have to receive net proceeds in the offering in excess of the minimum or obtain additional capital from other sources. If the Georgia Department requires that Hometown Community Bank be capitalized with an amount in excess of the minimum of $7,500,000, we plan to seek additional subscriptions up to the maximum subscription of $12,000,000 to fund those amounts. Neither the Georgia Department of Banking nor the FDIC has raised the possibility of an increase in the minimum capital requirement as part of their review approvals. See "Risk Factors - If the Minimum Offering Amount is Raised and the Funds are Released from Escrow but Hometown Community Bank Does Not Open Because Necessary Regulatory Approvals Have Not Been Obtained, Investors Will Receive Less Than Their Full Subscription Amount." Hometown Community Bank will use the capital received from the sale of its stock to us to provide working capital to be used for business purposes, including making loans and investments. See "Use of Proceeds - By Hometown Community Bank." Return of Less Than If the conditions for releasing subscription funds Subscription Amount from escrow are met and such funds are released but final regulatory approval to commence banking operations is not obtained from the Georgia Department or the FDIC or Hometown Community Bank does not open for any other reason, it is possible that subscribers could be returned an amount less than their original investment. See "Risk Factors - If the Minimum Offering Amount is Raised and the Funds are Released from Escrow but Hometown Community Bank Does Not Open Because Necessary Regulatory Approvals Have Not Been Obtained, Investors Will Receive Less Than Their Full Subscription Amount." Conditions to Offering This offering will be terminated and all subscription funds will be returned promptly to subscribers unless on or before March 31, 2005 (or such later date if we extend the offering for additional periods not to extend beyond September 30, 2005), * we have accepted subscriptions and payment in full for a minimum of 800,000 shares; * we have obtained approval of the Federal Reserve and the Georgia Department to acquire the capital stock of Hometown Community Bank and to become a bank holding company; and * Hometown Community Bank has received prelim- inary approval of its application for a charter from the Georgia Department and of its application for deposit insurance from the FDIC. We do not expect that there will be any problems obtaining these regulatory approvals. Subscription proceeds for shares will be deposited promptly in an escrow account with Nexity Bank, as escrow agent under the terms of an escrow agreement pending the satisfaction of the conditions set forth above or the termination of the offering. Subscriptions are binding on subscribers and may not be revoked by subscribers except with our consent. Any subscription proceeds accepted after satisfaction of the conditions set forth above but before termination of this offering will not be deposited in escrow but will be available for our immediate use to fund offering and organizational expenses and for working capital. See "The Offering."
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+S-1/A Table of Contents IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS Content of Prospectus You should rely only on the information contained in this prospectus. We and the underwriters have not authorized anyone to provide you with different information. If you receive any other information, you should not rely on it. You should not assume that the information in this prospectus is accurate as of any date other than the date at the bottom of the front cover page. We include cross-references in this prospectus to the captions herein under which you can find additional related information. The table of contents lists the pages on which these captions are located. You can find a listing of the pages where the principal terms are defined under Index of Principal Terms beginning on page 92. In this prospectus, the term we refers to Volkswagen Auto Lease Underwritten Funding, LLC. Limitations on Offers or Solicitations We do not intend this document to be an offer or solicitation: (1) if used in a jurisdiction where the offer or solicitation is not authorized; (2) if the person making the offer or solicitation is not qualified to do so; or (3) if the offer or solicitation is made to anyone to whom it is unlawful to make the offer or solicitation. Dealer Prospectus Delivery Requirements Until 90 days after the date of this prospectus, all dealers that effect transactions in the notes, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters with respect to their unsold allotments or subscriptions. The transferor, VW Credit, Inc., VW Credit Leasing, Ltd. and the issuer have filed with the Securities and Exchange Commission (the Commission ) a Registration Statement under the Securities Act of 1933, as amended, with respect to the notes being offered in this prospectus. This prospectus does not contain all of the information in the Registration Statement. The Registration Statement is available for inspection and copying at the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. VW Credit, Inc., on behalf of the issuer, will also file or cause to be filed with the Commission periodic reports required under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. Table of Contents SUMMARY This summary highlights selected information from this prospectus and may not contain all of the information that you need to consider in making your investment decision. This summary provides an overview of certain information to aid your understanding and is qualified in its entirety by the full description of this information appearing elsewhere in this prospectus. You should carefully read this entire prospectus to understand all of the terms of the offering. Basic Terms of the Notes Issuer: Volkswagen Auto Lease Trust 2004-A Transferor: Volkswagen Auto Lease Underwritten Funding, LLC Servicer: VW Credit, Inc. Administrator: VW Credit, Inc. Owner Trustee: The Bank of New York (Delaware) Indenture Trustee: Citibank, N.A. Origination Trust: VW Credit Leasing, Ltd. Transaction SUBI Trustee: U.S. Bank National Association Swap Counterparty: . The swap counterparty currently has (a) a long-term unsecured debt rating of at least A and a short-term unsecured debt rating of at least A-1 from Standard Poor s and (b) either (i) a long-term unsecured debt rating of at least A1 and a short-term unsecured debt rating of at least Prime-1 from Moody s, or (ii) if the swap counterparty does not have a short-term unsecured debt rating from Moody s, then a long-term unsecured debt rating of at least Aa3 from Moody s. Notes to be Offered: Class A-1 Notes: $321,000,000 Class A-2 Notes: $437,000,000 Class A-3 Notes: $326,000,000 Class A-4-A Notes: Class A-4-B Notes: $416,000,000 Interest Rates: Class A-1 Notes: % Class A-2 Notes: % Class A-3 Notes: % Class A-4 Notes: % Class A-4-A Notes: % Class A-4-B Notes: LIBOR + % Interest Basis: Class A-1 Notes, and Class A-4-B Notes: Actual number of days elapsed and a 360-day year Class A-2 Notes, Class A-3 Notes and Class A-4-A Notes: A 360-day year of twelve 30-day months Cutoff Date: Close of business on July 31, 2004 Credit Enhancement: A reserve account and overcollateralization Payment Dates: The 20th day of each month or the next business day, if that day is not a business day First Payment Date: October 20, 2004 Table of Contents NOTICE TO RESIDENTS OF THE UNITED KINGDOM THIS PROSPECTUS MAY ONLY BE COMMUNICATED OR CAUSED TO BE COMMUNICATED IN THE UNITED KINGDOM TO PERSONS AUTHORISED TO CARRY ON A REGULATED ACTIVITY ( AUTHORISED PERSONS ) UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000 ( FSMA ) OR TO PERSONS OTHERWISE HAVING PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND QUALIFYING AS INVESTMENT PROFESSIONALS UNDER ARTICLE 19 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001, AS AMENDED OR TO PERSONS QUALIFYING AS HIGH NET WORTH PERSONS UNDER ARTICLE 49 OF THAT ORDER OR, IF DISTRIBUTED IN THE UNITED KINGDOM BY AUTHORISED PERSONS, ONLY TO PERSONS QUALIFYING AS INVESTMENT PROFESSIONALS UNDER ARTICLE 14 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (PROMOTION OF COLLECTIVE INVESTMENT SCHEMES) (EXEMPTIONS) ORDER 2001 ( CIS ORDER ) OR TO PERSONS QUALIFYING AS HIGH NET WORTH PERSONS UNDER ARTICLE 22 OF THE CIS ORDER OR TO ANY OTHER PERSON TO WHOM THIS PROSPECTUS MAY OTHERWISE LAWFULLY BE COMMUNICATED OR CAUSED TO BE COMMUNICATED. NO PROSPECTUS RELATING TO THE NOTES HAS BEEN REGISTERED IN THE UNITED KINGDOM AND ACCORDINGLY, THE NOTES MAY NOT BE, AND ARE NOT BEING, OFFERED IN THE UNITED KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESSES OR EXCEPT IN CIRCUMSTANCES WHICH WOULD NOT RESULT IN AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995, AS AMENDED. NEITHER THIS PROSPECTUS NOR THE NOTES ARE OR WILL BE AVAILABLE TO OTHER CATEGORIES OF PERSONS IN THE UNITED KINGDOM AND NO ONE FALLING OUTSIDE SUCH CATEGORIES IS ENTITLED TO RELY ON, AND THEY MUST NOT ACT ON, ANY INFORMATION IN THIS PROSPECTUS. THE COMMUNICATION OF THIS PROSPECTUS TO ANY PERSON IN THE UNITED KINGDOM OTHER THAN THE CATEGORIES STATED ABOVE IS UNAUTHORIZED AND MAY CONTRAVENE THE FSMA. Table of Contents Final Scheduled Payment Dates: Class A-1 Notes: September 20, 2005 Class A-2 Notes: January 22, 2007 Class A-3 Notes: July 20, 2007 Class A-4-A Notes: August 20, 2010 Class A-4-B Notes: ] Closing Date: Expected on or about September 29, 2004 Transaction Structure General Motor vehicle dealers in the Volkswagen and Audi network of dealers have assigned closed-end retail lease contracts and the related leased vehicles to VW Credit Leasing, Ltd., which we call the origination trust. Some of the leases and the related leased vehicles assigned to VW Credit Leasing, Ltd. have been allocated to a separate pool of assets, which we call the Transaction SUBI. The Transaction SUBI is a beneficial interest in the origination trust, which represents rights in, but not direct ownership of, the leases and vehicles in that pool. The Transaction SUBI, not the vehicles and leases in the pool, will be transferred to Volkswagen Auto Lease Trust 2004-A, a Delaware statutory trust, which we call the issuer. Neither the issuer nor holders of the issuer s notes will have any interest in assets other than those in that pool. Payment of the notes will be backed by the Transaction SUBI. The issuer will apply the net proceeds from the issuance and sale of the notes to purchase the Transaction SUBI. In addition to the notes, the issuer is also issuing subordinated certificates. The issuer is not offering the certificates under this prospectus. The transferor will initially retain all of the certificates. The issuer will rely upon collections from the pool s leases, proceeds from the disposition of the related leased vehicles and funds on deposit in specified accounts to make payments on the notes. The issuer will be solely liable for payments on the notes. VW Credit, Inc. will be the servicer for the origination trust and, as servicer, will collect amounts due under the leases and dispose of the related vehicles when the leases terminate or when vehicles relating to defaulted leases are repossessed. Limited Assets Noteholders are entitled to receive payments of interest and principal from the issuer only to the extent that collections from the issuer s assets and funds on deposit in specified accounts are sufficient to make those payments. Priority of Principal Payments The timing of payments of principal on the notes is largely dependent on the timing of collections of cash flows generated by the underlying assets. Principal will be paid on your notes on each payment date in an amount generally equal to the available principal distribution amount generated by the underlying pool of leases and proceeds from the sale of the leased vehicles. Principal payments on the notes generally will be made to the holders of the notes sequentially, so that no principal will be paid on any class of the notes until each class of notes with a lower numerical designation has been paid in full. For example, no principal will be paid on the Class A-2 notes until the Class A-1 notes have been paid in full. Upon the occurrence of an event of default and an acceleration of the notes, however, all payments of principal will be made, first to the Class A-1 notes until they have been paid in full, and then to the other classes of notes pro rata until those classes have been paid in full. Any unpaid principal amount of each class of notes will be payable in full on the final scheduled payment date for that class. Following the occurrence of an event of default and prior to the acceleration of the notes, the issuer will make distributions on each payment date in accordance with the priorities set forth below under Payment Waterfall. For more detailed information concerning payments of principal, you should refer to Additional Information Regarding the Notes Payments on the Notes and Description of the Notes Principal. Overcollateralization The overcollateralization amount is the amount by which the securitization value of the leases and leased assets allocated to the Transaction SUBI exceeds the outstanding principal balance of the notes. As of the closing date, the overcollateralization amount will be $209,401,709.41. The overcol- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Volkswagen Auto Lease Trust 2004-A (Issuer with respect to the Notes) Volkswagen Auto Lease Underwritten Funding, LLC (Originator of the Note Issuer and Transferor of the Transaction SUBI Certificate to the Note Issuer) (Exact name of registrant as specified in its charter) VW Credit Leasing, Ltd. (Issuer with respect to the Transaction SUBI Certificate) Delaware 6189 11-365048-3 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 3800 Hamlin Road Auburn Hills, Michigan 48326 (248) 754-5000 (Address, including zip code, and telephone number, including area code, of the principal executive offices of Volkswagen Auto Lease Trust 2004-A, Volkswagen Auto Lease Underwritten Funding, LLC and VW Credit Leasing, Ltd.) Allen Strang, Esq. VW Credit, Inc. 3800 Hamlin Road Auburn Hills, Michigan 48326 (248) 754-5396 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Stuart M. Litwin, Esq. Mayer, Brown, Rowe Maw LLP 190 South LaSalle Street Chicago, Illinois 60603 (312) 782-0600 TRANSACTION OVERVIEW v SUMMARY 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001303056_autocam_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001303056_autocam_prospectus_summary.txt
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes included elsewhere in this prospectus. For an explanation of market and industry data, see "Market and Industry Data." OUR COMPANY GENERAL We are a leading independent manufacturer of a diverse mix of highly engineered, precision-machined, metal alloy components for many of the world's leading Tier I automotive parts suppliers. We focus on higher value-added products and emphasize product categories likely to benefit from technological innovation. Within each of our product categories, we strive to migrate our product portfolio up the "value pyramid" described below by focusing on sub-assemblies, complete assemblies and other products that we believe generate margins above most of our peers. Our technology and manufacturing know-how allows us to produce complex parts requiring extremely close tolerances in the single digit micron range, with one micron equaling 1/88th the width of a human hair. Given the high performance and safety critical nature of the applications where our parts are used, our products very often approach zero-defect quality levels. We believe that over 80% of our sales are generated in product categories, including power steering, fuel injection, airbags and electric motors, where we hold a number one market position relative to other independent manufacturers. We believe our scale and precision manufacturing capabilities provide a significant competitive advantage over our independent competitors, many of which are smaller and lack the capital or technology to compete effectively with us. In addition, our scale allows us to pursue long production runs of high volume parts, enabling us to lower average manufacturing costs. Our in-house application engineering expertise allows us to fully integrate with customers' application design and engineering efforts during the prototyping stage, further entrenching our competitive position. Our expertise has allowed us to achieve sole-source contracts covering an estimated 80% of our 2003 sales, which we believe provides greater visibility and stability to earnings and cash flow. For the year ended December 31, 2001, we generated total sales of $236.5 million, for the year ended December 31, 2002, we generated total sales of $275.1 million, for the year ended December 31, 2003, we generated total sales of $323.2 million, for the three months ended June 30, 2004, we generated total sales of $91.6 million and for the six months ended June 30, 2004, we generated total sales of $184.5 million. We believe we are well positioned to continue to increase our sales as we continue to benefit from favorable industry trends. OUR PRODUCTS Our products include precision-machined automotive components, sub-assemblies and assemblies. Generally, our products are platform neutral because they are not tied to any specific OEM models or platforms. We sell our products principally to North American and European Tier I automotive suppliers, which integrate these components into their own product offerings. These product offerings are in turn sold directly to OEMs primarily for the manufacture of new passenger vehicles and light trucks. A normal product life cycle for our products is typically five to seven years. We specifically target product categories that leverage our unique competencies and that we expect will further entrench our leading market positions. To this end, we are guided by a conceptual framework we refer to as the Autocam "value pyramid." We use the value pyramid to guide decisions regarding which product categories to target, which new business opportunities to pursue within the 10.875% Senior Subordinated Notes due 2014 offered pursuant to this prospectus. We sometimes refer to the outstanding notes and the exchange notes collectively as the "notes." Unless otherwise indicated, all references in this prospectus to fiscal years are to the year ending on December 31. Unless the context requires otherwise, all references in this prospectus to "2003," "2002" and "2001" relate to the fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ---------------------- WHERE YOU CAN FIND MORE INFORMATION This prospectus does not contain all of the information in that registration statement. For further information with respect to us and the notes, see the registration statement, including the exhibits. You may read and copy any document we file at the Securities and Exchange Commission's (the "SEC's") public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Statements made in this prospectus as to the contents of any contract, agreement, or other documents referred to are not necessarily complete. For a more complete understanding and description of each contract, agreement or other document filed as an exhibit to the registration statement, we encourage you to read the documents contained in the exhibits. each product category and which existing programs to exit. Our ultimate goal is to move our product offering up the value pyramid. The higher levels of the value pyramid generally include products where we are involved from the prototype-stage, specialty products, sub-assemblies, assemblies and selected products for niche applications. These products typically have the following characteristics: - high engineering and design content; - very close manufacturing tolerances at high volumes; - use of proprietary manufacturing know-how and specialty manufacturing equipment; and - high customer switching costs. We manufacture and sell over 200 types of precision automotive components for five primary product categories. Below is an overview of what we believe is our market position and market share and the market size of our five primary product categories. <Table> <Caption> MARKET OVERALL POSITION MARKET AMONG SIZE(2) OUR PERCENTAGE INDEPENDENT (IN MARKET OF OUR PRODUCT CATEGORY SUPPLIERS(1) MILLIONS) SHARE(2) 2003 SALES ---------------- ------------ --------- -------- ---------- <S> <C> <C> <C> <C> Fuel Injection(3)....................... #1 $770 13% 34% Power Steering.......................... #1 984 12 31 Electric Motors......................... #1 223 15 13 Braking................................. #4 275 10 8 Airbags................................. #1 203 9 6 </Table> --------------- (1) Management estimate of market position among independent suppliers and does not take into account products made by Tier I suppliers. (2) Management estimate of overall market size and our market share, including independent and Tier I suppliers. (3) For purposes of determining market position, market size and market share, fuel injection reflects only light-vehicle fuel injection products. Our 2003 sales includes sales of heavy vehicle fuel injection products. We are a leading independent manufacturer of precision-machined components, sub-assemblies and assemblies in all five product categories in which we operate. - Fuel injection has historically been our largest product category. Within the fuel injection product category, we manufacture components like disk checks, pole pieces, valves, seat guides, diesel pump bodies, diesel cases, sleeves and inlet tubes. These components are integrated into products that are sold primarily into the North American operations of OEMs. - Power steering has historically been our second largest product category. Within the power steering product category, we manufacture valve assemblies, as well as components like sleeves, torsion bars, input shafts, pinions and worms. These components are integrated into products that are sold primarily into the European operations of OEMs. - Our products within the electric motors product category primarily include gears, gear sub-assemblies and worm shafts. These components are integrated into products that are sold primarily into the European operations of OEMs. - Within the braking product category, we manufacture components like sleeves, push rods, seats and valve rods. These components are integrated into products that are sold into European and North American operations of OEMs. We are not currently required to file periodic reports or any other information required by the Securities Exchange Act of 1934, as amended. However, under the indenture for the notes, we have agreed to furnish to holders of the notes, within the time periods specified in the SEC's rules and regulations, all quarterly and annual financial information that would be required to be filed with the SEC on Forms 10-Q and 10-K if we were required to file such forms and all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file these reports. Following the consummation of the exchange offer, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept these filings) and make this information available to securities analysts and prospective investors upon request. In addition, we have agreed that we will furnish to holders and securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as amended, or the Securities Act, until we have either exchanged the outstanding notes pursuant to the exchange offer or until holders of the outstanding notes have disposed of their notes pursuant to an effective registration statement under the Securities Act. ---------------------- MARKET AND INDUSTRY DATA Market and industry data included in this prospectus, including all market share and market size data, are based on estimates of our management. These estimates have been derived from our management's knowledge and experience in the markets in which we operate, as well as information obtained from internal research and surveys, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Estimates about the end use markets for our products and the automotive industry have been derived from the sources above and from independent industry surveys from CSM Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market research firm for the automotive industry. Although we believe that these sources are generally reliable, we have not independently verified data from these sources or obtained third party verification of market share data and do not guarantee the accuracy or completeness of this information. In addition, data regarding market position and market share within our industry is intended to provide general guidance but is inherently imprecise. References herein to our being a leader in a market or product category refers to our having a leading market share position among "independent" manufacturers, unless the context otherwise requires. In many cases, the in-house machining operations of our Tier I customers manufacture similar products to our products. References to our market position among "independent" manufacturers exclude products produced by Tier I suppliers. References to the market size of such markets refer to the entire market, including products produced by our Tier I customers and independent manufacturers. References in this prospectus to - Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon Corporation, who sell directly to original equipment vehicle manufacturers, - OEMs refer to original equipment vehicle manufacturers like DaimlerChrysler Corporation, Ford Motor Company or General Motors Corporation, and - Tier II suppliers refer to suppliers like us who sell components, sub-assemblies and assemblies to Tier I suppliers. ---------------------- - We entered the airbag market in 2001 when we acquired some of the assets of Chicago based Har Technologies, Inc., or Har Technologies, which we regarded as a leader in machined airbag components in North America at that time. Within the airbag product category, we presently manufacture components like collars, adaptors, projectiles, chargeholders and diffusers. These components are integrated into products that are sold primarily into the North American operations of OEMs. In addition to our core product categories, we also manufacture components and assemblies for other automotive applications and for medical devices. Components for use in medical devices include hand pieces for use in ophthalmic surgery and laser cut coronary and aortic stents. Our customers are among the leaders in their respective markets for ophthalmic surgical devices and minimally invasive stent delivery systems. INDUSTRY TRENDS We primarily operate within the automotive parts industry. The markets in that industry in which we operate are very fragmented, niche markets where most of our independent competitors are much smaller. Currently, we believe several significant existing and emerging trends are impacting the automotive industry. We believe our business is well positioned to benefit from these trends, including: - Outsourcing Trends by Tier I Suppliers; - Increasing Demand for Global Capabilities; - Increasing Demand for Safety and Convenience Features; - Diesel Fuel Trends; and - Continued Penetration of Import Brand OEMs in North America. COMPETITIVE STRENGTHS - Industry leader in strategically targeted markets; - Business visibility supported by long-term contracts; - Well entrenched positions with Tier I customer base; - Diverse business mix; - Culture of lean manufacturing and continuous improvement; and - Experienced and motivated management team. BUSINESS STRATEGY Our goals are to continue to increase our leading market position and leverage our manufacturing expertise and customer relationships to increase our sales and cash flow. Our strategy to achieve these goals includes the following initiatives: - Focus on high growth and higher value-added product offerings; - Align sales and marketing efforts with leading Tier I suppliers; - Exploit technical manufacturing strength; - Continuously pursue productivity improvements and lean manufacturing; and - Selectively pursue strategic acquisitions. FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. You can generally identify forward-looking statements by our use of forward-looking terminology like "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward looking statements contained in this prospectus. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: - risks associated with our substantial indebtedness, leverage and debt service; - risks related to the notes and to high yield securities generally; - the cyclical nature of the automotive industry; - performance of our business and future operating results; - general business and economic conditions, particularly an economic downturn; - the loss of one or more significant customers; - changes in prices in and availability of raw materials; - risks of increased competition and pricing pressures in our existing and future markets; - loss of any key executives; - increases in the cost of compliance with laws and regulations, including environmental laws and regulations; - risks related to our acquisition strategy and integration of acquired businesses; - fluctuations in currency exchange and interest rates; - risks associated with international operations; - catastrophic loss of any of our key manufacturing facilities; - seasonality; and - the other risks described as "Risk Factors" beginning on page 10. All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. RECENT DEVELOPMENTS On June 21, 2004, Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of Parent, merged with and into Holdings with Holdings continuing as the surviving corporation. The total amount of consideration paid in the merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock of Holdings, payments to owners of outstanding common stock of Holdings and the payment of transaction costs incurred by Holdings, was approximately $395.0 million. The acquisition was financed with the net proceeds from the issuance of the outstanding notes, borrowings under our new senior credit facilities and a common equity contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C. Kennedy, our president. The transaction is referred to in this prospectus as the "acquisition." See "Acquisition." THE FINANCIAL SPONSORS GSCP 2000 Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have invested $15 billion in over 500 companies. These Goldman Sachs private equity funds make investments on a global basis in a wide variety of transactions including private equity, leveraged buyouts and venture capital. GSCP 2000 is the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000 family of funds was formed in July 2000 with total committed capital of $5.25 billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its employees and the remainder by institutional and individual investors. TRP TRP is a $265 million private equity fund that makes leveraged investments in growth-oriented companies operating in the transportation and transportation services industry. TRP's philosophy is to identify attractive investment situations where it can work in partnership with management to support growth. TRP's principals have extensive operating and investing experience in the transportation industry. TRP focuses on businesses having enterprise values of up to $500 million. TRP, along with its predecessor fund, Penske Capital Partners, has been responsible for managing over $600 million of equity capital. Current investors in TRP include both strategic investors and financial institutions. OWNERSHIP STRUCTURE The following chart sets forth our ownership structure. (Micron Holdings Flow Chart) THE NOTES Issuer........................ Autocam Corporation, a Michigan corporation. Securities Offered............ $140,000,000 aggregate principal amount of 10.875% senior subordinated notes due 2014. Maturity Date................. June 15, 2014. Interest Rate................. 10.875% per annum. Ranking....................... The notes will be our general unsecured senior subordinated obligations, will be subordinated to our existing and future senior indebtedness and will rank equally with our future senior subordinated indebtedness. In addition, the notes will effectively rank junior to our secured indebtedness and to the secured indebtedness of all of our subsidiaries to the extent of the value of the assets securing the indebtedness and will be structurally subordinated to all liabilities of our subsidiaries that are not guaranteeing the notes. Because the notes are subordinated, in the event of bankruptcy, liquidation or dissolution, holders of the notes will not receive any payment until holders of senior indebtedness have been paid in full. As of June 30, 2004 (other than intercompany indebtedness): - Autocam had outstanding $44.0 million of senior indebtedness consisting of borrowings under our new senior credit facilities, no senior subordinated indebtedness outstanding other than the notes and no indebtedness outstanding that is subordinate to the notes; - our subsidiaries that guaranteed the notes had no indebtedness outstanding (other than guarantees of indebtedness of Autocam) and $20.4 million of trade payables and other liabilities; and - our subsidiaries that did not guarantee the notes had $83.8 million of indebtedness outstanding, including E62.7 ($75.8 million as of June 30, 2004) of borrowings under our new senior credit facilities, and $89.2 million of trade payables and other liabilities. See "Description of Notes -- Subordination." Guarantees.................... The notes will be guaranteed by Holdings, our direct parent, all of our existing and future domestic restricted subsidiaries and one of our foreign subsidiaries, Autocam Europe B.V. See "Description of Notes -- The Guarantees." The guarantees will be general unsecured obligations of each guarantor, will be subordinated to any existing and future senior indebtedness of our guarantors and will rank equally with any senior subordinated indebtedness of our guarantors. Optional Redemption........... We cannot redeem the notes until June 15, 2009, except as described in the preceding paragraph and as described below. On or after June 15, 2009, we may redeem all or a portion of the notes at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but not including, the redemption date. See "Description of Notes -- Optional Redemption." Optional Redemption After Equity Offerings.............. At any time prior to June 15, 2007, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes at a purchase price equal to 110.875% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the redemption date, in an amount up to the net cash proceeds of one or more specified equity offerings or contributions if at least 65% of the aggregate principal amount of the notes originally issued under the indenture remain outstanding after the redemption. See "Description of Notes -- Optional Redemption." Mandatory Offer to Repurchase.................... If we sell assets without applying the net proceeds in a specified manner, or experience specified change of control events, each holder of notes may require us to repurchase all or a portion of its notes at a price of 101% of the principal amount of the notes, plus accrued and unpaid interest to, but not including, the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders." Our new senior credit facilities may restrict us from repurchasing any of the notes, including any repurchase we may be required to make as a result of a change of control or certain asset sales. See "Risk Factors -- Risks Related to the Notes -- We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture." Covenants..................... The indenture governing the notes contains covenants that limit our ability and the ability of our restricted subsidiaries to: - incur additional indebtedness or issue disqualified stock or preferred stock; - pay dividends on, redeem or repurchase our capital stock; - make investments or acquisitions; - create liens; - sell assets; - restrict dividends or other payments to us; - guarantee indebtedness; - engage in transactions with affiliates; and - consolidate, merge or transfer all or substantially all of our assets. These covenants are subject to important exceptions and qualifications, which are described under the heading "Description of Notes" in this prospectus. Trustee....................... J.P. Morgan Trust Company, National Association. Governing Law................. New York. ---------------------- RISK FACTORS You should carefully consider all the information in this prospectus prior to deciding to invest in the notes. In particular, we urge you to consider carefully the factors set forth under "Risk Factors" beginning on page 10 of this prospectus.
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001304366_community_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001304366_community_prospectus_summary.txt
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This is only a summary and does not contain all the information that you should consider before investing in our common stock. You should read the entire prospectus, including Risk Factors and our consolidated financial statements and related notes appearing elsewhere in this prospectus, before deciding to invest in our common stock. Unless we indicate otherwise, the number of shares as well as all share, per share and financial information in this prospectus: assumes a public offering price of $19.00 per share, which is the mid-point of the range indicated on the front cover of this prospectus; does not give effect to the use of proceeds of the offering; assumes no exercise of the underwriters over-allotment option to purchase any of the additional 330,000 shares of our common stock subject to that option; and has been retroactively adjusted to reflect a 5 for 1 stock split of Community Bancorp effective on September 27, 2004. Community Bancorp We are the bank holding company for Community Bank of Nevada, a Nevada chartered bank headquartered in Las Vegas. We deliver a complete array of commercial bank products and services with an emphasis on customer relationships and personalized service. At September 30, 2004, we had total assets of $536 million, gross loans of $388 million, total deposits of $481 million and stockholders equity of $37.0 million. Upon completion of this offering, measured by total assets, we will be one of the largest publicly-traded Nevada community banks. Since our inception in July 1995, our business model has produced strong growth, including a 15.6% growth in assets for the first nine months of 2004. In addition to consistent balance sheet growth, we have been profitable every year since 1995. Our return on average equity, or ROE, and return on average assets, or ROA, for the first nine months of 2004 were 18.1% and 1.18%, respectively, with net income of $4.6 million. In large part, our growth has been fueled by the significant growth in the greater Las Vegas area. Diminished growth of this market in the future could have a significant adverse impact on our continued growth and profitability. See
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001304562_millstream_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001304562_millstream_prospectus_summary.txt
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@@ -0,0 +1 @@
+Prospectus Summary 1
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001305507_arlington_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001305507_arlington_prospectus_summary.txt
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+Prospectus Summary 1 Risk Factors 9 Cautionary Statement Regarding Forward-Looking Statements 21 Industry and Market Data 22 Unaudited Pro Forma Financial Information 23 Use of Proceeds 30 Dividend Policy 31 Capitalization 33 Dilution 34 Selected Combined Financial and Other Data 35 Management's Discussion and Analysis of Financial Condition and Results of Operations 37 Industry 46 Business 52 Our Secured Credit Facility 75 Management 77 Principal and Selling Shareholders 79 Related Party Transactions 80 Registrar and Transfer Agent 82 Shares Eligible for Future Sale 83 Description of Share Capital 84 Tax Considerations 91 Underwriting 99 Expenses of Issuance and Distribution 103 Legal Matters 104 Experts 104 Where You Can Find More Information 104 Enforceability of Civil Liabilities Under U.S. Federal Securities Laws and Other Matters 105 Glossary of Shipping Terms 106 Index to Predecessor Combined Carve-out Financial Statements F-1 We intend to apply for and expect to receive consent under the Exchange Control Act 1972 (and its related regulations) from the Bermuda Monetary Authority for the issue and transfer of the common shares to and between non-residents of Bermuda for exchange control purposes provided our shares remain listed on an appointed stock exchange, which includes the New York Stock Exchange. This prospectus will be filed with the Registrar of Companies in Bermuda in accordance with Bermuda law. In granting such consent and in accepting this prospectus for filing, neither the Bermuda Monetary Authority nor the Registrar of Companies in Bermuda accepts any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus. Dealer Prospectus Delivery Obligation Until , 2004, 25 days after the date of this prospectus, all dealers that buy, sell or trade the common shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. Prospectus Summary This summary highlights information contained elsewhere in this prospectus. Before investing in our common shares you should read this entire prospectus carefully, including the section entitled "Risk Factors" and our financial statements and related notes for a more complete understanding of our business and this offering. Unless we specify otherwise, all references and data in this prospectus to our business, our vessels and our fleet refers to our fleet of six vessels that we expect to acquire simultaneously with the closing of this initial public offering. Unless we specify otherwise, all references in this prospectus to "we," "our," "us" and the "Company" refer to Arlington Tankers Ltd. and our subsidiaries. All references in this prospectus to "$," "U.S.$" and "Dollars," refer to U.S. dollars. See the "Glossary of Shipping Terms" included in this prospectus for definitions of certain terms used in this prospectus that are commonly used in the tanker shipping industry. OUR COMPANY We are a newly formed company that was incorporated in September 2004 under the laws of Bermuda. We have agreed to acquire a fleet of six tankers consisting of two V-MAX tankers, which are specially designed VLCCs, or very large crude carriers ranging in size from 200,000 to 320,000 dwt, two Panamax tankers, which are tankers ranging in size from 50,000 to 80,000 dwt, and two Product tankers, which are tankers designed to carry a wide range of products including crude oil and clean and dirty products. We refer to these tankers collectively as our Fleet. We are currently a jointly owned subsidiary of Stena AB (publ), a Swedish company, and Concordia Maritime AB (publ), a Swedish company which is an affiliate of Stena. Stena is one of the largest privately held companies in Sweden with over 6,700 employees. Concordia has been involved in the shipping business for over 20 years and its series B shares are publicly traded on the O list of the Stockholm stock exchange under the symbol "CCOR B." We have agreed to time charter our tankers to subsidiaries of Stena and Concordia for five years with three one-year options which can be exercised by the charterers. A time charter is a contractual arrangement under which a shipowner is paid for the use of a vessel on a per day basis for a fixed period of time and the shipowner is responsible for providing the crew and paying vessel operating expenses while the charterer is responsible for paying the voyage expenses. Our time charters provide for a fixed base charter rate and the potential to earn additional revenue. We intend to pay quarterly dividends to the holders of our common shares in amounts substantially equal to our available cash in January, April, July and October of each year commencing January 2005. We expect our available cash will be equal to the charterhire received by us under our time charters, less cash expenses and any reserves established by our board of directors. Based on the assumptions and other matters set forth below under "Dividend Policy," including that 15,500,000 common shares will be outstanding upon completion of this offering and subject to the matters set for under "Risk Factors—We cannot assure you that we will pay any dividends," the total amount of dividends we intend to pay with respect to the twelve month period following the completion of this offering is estimated to be $1.97 per share. For information regarding the amount of dividends we intend to pay and the assumptions and other matters on which these dividend amounts are based, please see "Dividend Policy" below. OUR FLEET We have agreed to purchase the two V-MAX tankers from subsidiaries of Concordia, the two Product tankers from subsidiaries of Stena and the two Panamax tankers from two companies owned 75% by Stena and 25% by Fram Shipping Ltd., a Bermuda company. The total purchase price for these vessels will be equal to the net proceeds from the sale of 11,450,000 common shares pursuant to this offering, borrowings of $135 million under our secured credit facility and the issuance concurrently with the closing of this offering of 4,050,000 common shares to subsidiaries of Concordia and Stena and the two companies owned by Stena and Fram. The actual purchase price for our Fleet will vary depending on the final offering price per share. Assuming an offering price of $17.50 per share, the mid-point of the initial public offering price range, the purchase price for our Fleet will be approximately $389.7 million. We expect to pay for and take delivery of our vessels simultaneously with the closing of this offering. The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PRELIMINARY PROSPECTUS Subject to Completion November 2, 2004 11,450,000 Shares Arlington Tankers Ltd. Common Shares This is the initial public offering of our common shares. No public market currently exists for our common shares. We are offering all of the 11,450,000 common shares offered by this prospectus. We expect the public offering price to be between $16.50 and $18.50 per share. We have applied to list our common shares on the New York Stock Exchange under the symbol "ATB." Investing in our common shares involves a high degree of risk. Before buying any shares you should carefully read the discussion of material risks of investing in our common shares in "Risk Factors" beginning on page 9 of this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Share Total Public offering price $ $ Underwriting discounts and commissions $ $ Proceeds, before expenses to us $ $ The underwriters may also purchase up to an additional 1,717,500 of our common shares from several shareholders at the public offering price, less the underwriting discounts and commissions payable by them, to cover over-allotments, if any within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discount and commissions will be $ and the total proceeds, before expenses, to the selling shareholders will be $ . The underwriters are offering the common shares as set forth under "Underwriting." Delivery of the common shares will be made on or about , 2004. UBS Investment Bank Jefferies & Company, Inc. Bear, Stearns & Co. Inc. Fortis Securities LLC HSBC Our Fleet will be one of the youngest in the world with an average age of approximately 1.5 years compared to the world average of 12.3 years for all tankers according to Clarkson Research Studies Ltd. All of our tankers have double hulls and are of very high quality. Our V-MAX tankers were designed by Stena and Concordia to provide more efficient transportation and increased safety over standard VLCCs. The body of the V-MAX tanker is wider than a conventional VLCC which enables the vessel to carry more cargo at a shallower draft which lowers transportation costs. Our V-MAX tankers also have two rudders and propellers which improve vessel maneuverability and port access. Our Panamax tankers have fully epoxy coated tanks and a tank design that permit the vessels to change from transporting dirty to clean petroleum products faster than a standard vessel of this class. Our Product tankers have one of the most efficient designs for vessels in this class with 10 completely independent multiple-grade cargo segregations providing increased flexibility over the six segregations standard in Product tankers and more powerful engines compared to other vessels in this class. Our V-MAX tankers currently trade from West Africa to North America and carry crude oil. Our Panamax tankers currently trade in the North, South and Central Americas and primarily carry crude oil, but occasionally carry dirty products, such as fuel oil. Our Product tankers currently trade primarily in the Caribbean and the Transatlantic and primarily carry clean products such as gasoline, diesel and jet fuel. STRATEGY Our strategy is designed to generate stable cash flow through long term fixed rate charters with the potential to earn additional revenue while reducing our exposure to volatility in the market for seaborne oil and oil product transportation. We intend to pay dividends substantially equal to our available cash in accordance with our dividend policy. To pursue our strategy, we intend to: acquire our six newly built, high quality tankers that will comprise our fleet; time charter our tankers to experienced charterers; charter our tankers under long term fixed rate charters that have the potential to earn additional revenue; and arrange for fixed rate ship management contracts with an experienced ship manager. COMPETITIVE STRENGTHS We believe that our diversified Fleet, together with our contractual arrangements with the charterers and the ship manager, give us a number of competitive strengths, including: one of the youngest fleets of tankers in the world; fixed rate, five year time charters intended to provide stable cash flow, reducing our exposure to volatility in tanker spot rates and preserving the opportunity to earn additional revenue; and fixed operating costs under our ship management agreements. THE TIME CHARTERS We have agreed to time charter the two V-MAX tankers to the two wholly-owned subsidiaries of Concordia that currently own and time charter those tankers to Sun International Limited, an indirect wholly-owned subsidiary of Sunoco, Inc., and to charter the two Panamax tankers and two Product tankers to Stena Bulk AB, a wholly-owned subsidiary of Stena. Our purchase of the V-MAX tankers from the wholly-owned subsidiaries of Concordia and our chartering of these vessels back to these Concordia subsidiaries will not affect the existing fixed rate charters with Sun International which expire in approximately three years. The daily base time charter rate for each of our vessels, which we refer to as Basic Hire, will be payable to us monthly in advance and will increase annually by an amount equal to the annual increase in the fee payable under the applicable ship management agreement. In addition to the Basic Hire, the charterers have agreed to pay us an additional payment, quarterly in arrears, which we refer to as Additional Hire. The Additional Hire, if any, payable in respect of a vessel, other than the V-MAX tankers as described below, will be equal to 50% of a weighted average hire after deduction of the Basic Hire in effect for that quarter. This weighted average hire will generally be calculated using: for periods that the vessel is subchartered by the charterer under a time charter, the daily hire received by the charterer on the vessel, net of specified fees incurred by the charterer; and for periods that the vessel is not subchartered by the charterer under a time charter, average spot rates, which are rates for the immediate chartering of a vessel usually for a single voyage, determined by a shipbrokers' panel for the routes traditionally served by each of our vessel types and other parameters set forth in the Charters. In the case of the current time charters with Sun International, we will receive Additional Hire equal to the difference between the amount paid by Sun International under its time charters and the Basic Hire, less specified fees incurred by the charterer. We will immediately begin earning Additional Hire under the V-MAX tanker charters because those vessels are currently time chartered to Sun International by subsidiaries of Concordia for approximately three additional years for an amount per day in excess of the Basic Hire payable to us in respect of those vessels. However, we cannot assure you that we will receive any other Additional Hire. THE SHIP MANAGEMENT AGREEMENTS To give us added certainty with respect to the costs of operating our vessels, we are entering into fixed rate ship management agreements with Northern Marine Management Ltd., which we refer to as Northern Marine, a wholly owned subsidiary of Stena. Under the ship management agreements, Northern Marine is responsible for all technical management of the vessels, including crewing, maintenance, repair, drydocking, vessel taxes, insurance, other vessel operating expenses and specified capital expenditures. Under the ship management agreements, we have agreed to pay Northern Marine a flat fee per day per vessel for these services, which increases 5% every year. Northern Marine provides technical and crewing management and payroll and support sources to the Stena Sphere shipping divisions and approximately 10 other clients, including ChevronTexaco Corporation, Technip Offshore UK and Gulf Marine Management. Northern Marine has offices in Glasgow, Aberdeen, Mumbai, Kiel, Houston, Manila, Rotterdam and Singapore and has over 4,400 seafarers employed on approximately 90 vessels. DIVIDEND POLICY We intend to pay dividends denominated in U.S. dollars to the holders of our common shares in January, April, July and October of each year in amounts substantially equal to the charterhire received by us under the Charters, less cash expenses and any reserves established by our board of directors. Based on the assumptions and the other matters set forth below, we expect to pay an initial quarterly dividend in January 2005 estimated to be $0.32 per share, which amount reflects the period between the commencement of our operations which is assumed to be November 1, 2004 and December 31, 2004. We estimate our second quarterly dividend in April 2005, which will reflect a full quarter of operations, to be $0.49 per share. Under Bermuda law a company may not declare or pay dividends if there are reasonable grounds for believing either that the company is, or would after the payment be, unable to pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the sum of its liabilities and its issued share capital (par value) and share premium accounts (share premium being the amount of consideration paid for the subscription of shares in excess of the par value of those shares). As a result, in future years, if the realizable value of our assets decreases, our ability to pay dividends in the amounts set forth below will require our shareholders to approve resolutions reducing our share premium account by transferring an amount to our contributed surplus account. The table below sets forth amounts that would be available to us for the payment of dividends for each of the twelve month periods set forth below assuming that: the Basic Hire is paid on all of our tankers, all of our tankers are on hire for 360 days per twelve month period and no Additional Hire is paid other than the Additional Hire based on the current time charters with Sun International; we have no cash expenses or liabilities other than the ship management agreements, our current directors' fees, the current salaries and benefits of our President and our Chief Financial Officer, currently anticipated administrative and other expenses and interest under the credit facility, we have fixed the interest rate under our secured credit facility at 5.0% through a swap arrangement and, except in the case of our ship management agreements, none of our expenses increase during those periods; we do not pay any taxes or have to fund any required capital expenditures with respect to our vessels; no cash reserves are established by our board of directors; we remain in compliance with our credit facility which requires, among other things, that the market value of our vessels exceeds 140% of our borrowings under the facility in order for us to pay dividends; 15,500,000 common shares are outstanding upon completion of this offering, no common shares or other securities are issued following the closing of this offering and we do not borrow any additional funds; we purchase all six vessels simultaneously with the closing of this offering; and the Charters commence on November 1, 2004 and the charterers do not exercise any options to extend the terms of the Charters. The table below does not reflect noncash charges that we will incur, which are expected to consist primarily of depreciation on our vessels. The timing and amount of dividend payments will be determined by our board of directors and will depend on our cash earnings, financial condition, cash requirements and availability and the provisions of Bermuda law affecting the payment of dividends and other factors. Other than the fees under our ship management agreements, none of our fees or expenses are fixed. The table does not take into account any expenses we will incur in the event the subsidiaries of Concordia and Stena and the two companies owned by Stena and Fram exercise their rights to have us register their shares under a registration rights agreement we have entered into with them in respect of their shares. See "Principal and Selling Shareholders." We cannot assure you that our future dividends will in fact be equal to the amounts set forth below or elsewhere in this prospectus. The amount of future dividends set forth in the table below represents only an estimate of future dividends based on our charter contracts, ship management agreements and an estimate of our other expenses and assumes that none of our expenses increase in the future. The amount of future dividends, if any, could be affected by various factors, including the loss of a vessel, required capital expenditures, reserves established by our board of directors, increased or unanticipated expenses, a change in our dividend policy, additional borrowings or future issuances of securities, many of which will be beyond our control. As a result, the amount of dividends actually paid may vary from the amounts currently estimated and such variations may be material. There can be no assurance that any dividends will be paid. See "Risk Factors—We cannot assure you that we will pay any dividends" and "—Our Charters expire in 2009, unless extended at the option of the Charterers, and we may not be able to recharter our vessels profitably." Based on the assumptions and other matters in the preceding paragraphs, the amount of cash available for dividends for each of the twelve month periods set forth below would be as follows. Twelve Month Period 1 2 3 4 5 (in millions of $, except per share amounts) Basic Hire 49.4 50.1 50.8 51.5 52.3 V-MAX Additional Hire 2.7 2.4 1.7 — — Other Additional Hire1 — — — — — Vessel operating expenses (13.5 ) (14.2 ) (14.9 ) (15.7 ) (16.5 ) Administrative expenses (1.2 ) (1.2 ) (1.2 ) (1.2 ) (1.2 ) Cash interest expense (6.8 ) (6.8 ) (6.8 ) (6.8 ) (6.8 ) Available cash 30.6 30.3 29.6 27.8 27.8 Dividends per share (accrued) 1.97 1.95 1.90 1.79 1.79 (1) Additional Hire for our Panamax tankers and Product tankers is assumed to be zero for purposes of this estimate. Our Credit Facility We have entered into a secured loan facility agreement with Fortis Bank (Nederland) N.V. and HSBC Bank plc. for a secured term loan facility in the aggregate amount of $135 million. The credit facility matures in five years and bears an annual interest rate of 1.00% over LIBOR (or 1.25% if the loans outstanding under the facility are more than 50% of the value of our vessels). We intend to use borrowings under this credit facility to pay a portion of the cash purchase price for our vessels. We are required to make quarterly payments of interest and to refinance the principal amount outstanding prior to or at maturity of the credit facility in five years. Borrowings under our credit facility are guaranteed by each of our subsidiaries and are secured by mortgages over all of our vessels, assignments of earnings and of insurances, pledges over the shares of our subsidiaries and assignments of our interests in the Charters and the ship management agreements. Our credit facility provides that we may not pay dividends if there is a default under the facility. Our credit facility also imposes other operating and financial restrictions on us, including a requirement that Northern Marine remain as technical manager for our vessels and a requirement that the market value of our vessels exceeds 140% of our borrowings under the facility in order for us to pay dividends. The Offering OVERVIEW Issuer Arlington Tankers Ltd., a newly incorporated Bermuda company. Common shares outstanding prior to this offering None. Our initial capitalization consists of 12,000 founder shares, par value $1.00 per share. Stena and Concordia each own 6,000 founder shares. Common shares offered to the public in this offering 11,450,000 shares. Other common shares to be issued 4,050,000 shares to subsidiaries of Concordia and Stena and two companies owned by Stena and Fram. Common shares to be outstanding after this offering 15,500,000 shares (including the 4,050,000 shares we intend to issue to subsidiaries of Concordia and Stena and two companies owned by Stena and Fram). Approximately 73.9% of the shares to be outstanding after this offering will be held by public shareholders and approximately 26.1% will be held by subsidiaries of Concordia and Stena and two companies owned 75% by Stena and 25% by Fram (Concordia, 17.2%, Stena, 7.7%, Fram, 1.2%). Over-allotment option The subsidiaries of Concordia and Stena and the two companies owned by Stena and Fram have granted the underwriters the pro rata right to purchase up to 1,717,500 common shares to cover over-allotments. We will not receive any proceeds from any exercise of the over-allotment option. Use of proceeds To pay a portion of the cash purchase price for our Fleet. Purpose of transactions and offering To allow the Company to purchase the six vessels from subsidiaries of Concordia and Stena and two companies owned by Stena and Fram and to allow the public to invest in the future operations of the Company. Proposed New York Stock Exchange Symbol ATB. TRANSACTION SEQUENCE Prior to the commencement of this offering, we and our subsidiaries were organized in Bermuda. Following such organization, our subsidiaries entered into the memoranda of agreement to purchase our vessels, the time charters and the ship management and related agreements. Prior to the closing of this offering, we and our subsidiaries intend to enter into our secured credit agreement. We expect to complete the purchase of our vessels and the borrowing under our credit agreement simultaneously with the closing of the offering. We intend to use the net proceeds from the sale of 11,450,000 common shares in this offering and borrowings of $135 million under our credit agreement and to issue 4,050,000 common shares to subsidiaries of Concordia and Stena and to two companies owned by Stena and Fram to pay the purchase price for our vessels. Our executive offices are located at First Floor, The Hayward Building, 22 Bermudiana Road, Hamilton HM 11, Bermuda. Our telephone number at that address is (441) 292-4456. Summary Combined Financial and Other Data The following summary combined financial and other data summarizes our historical combined financial and other information. The summary combined financial data set forth below for the years ended December 31, 2003, 2002 and 2001 have been derived from our audited predecessor combined carve-out financial statements included in this prospectus. The summary combined financial data set forth below for the six months ended June 30, 2004 and 2003 have been derived from our unaudited interim predecessor combined carve-out financial statements included in this prospectus. The summary combined financial and other data are not indicative of the results we would have achieved had we operated as an independent company or of our future results. This information should be read in conjunction with "Selected Combined Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical predecessor combined carve-out financial statements and the notes thereto included elsewhere in this prospectus. Year ended December 31, Six months ended June 30, 2003 2002 2001 2004 2003 (in thousands of $) Statement of operations data: Total operating revenues, net 28,838 26,504 18,513 23,504 14,677 Operating income 14,433 12,446 7,197 11,792 7,273 Net income 5,913 5,769 1,832 7,799 4,320 Balance sheet data (at end of period): Cash 1,194 590 6,371 1,280 Total assets 192,416 162,200 174,951 292,007 Combined predecessor equity 15,710 9,773 3,980 61,509 Cash flow data: Net cash provided by operating activities 15,375 13,011 6,598 13,055 8,035 Net cash used in investing activities (36,488 ) (244 ) (66,596 ) (102,360 ) (16,621 ) Net cash provided by (used in) financing activities 21,717 (18,548 ) 66,369 89,391 9,068 Fleet data: Number of tankers owned (end of period) 2 2 2 6 (1) 2 Average daily time charter equivalent(2): V-MAX tankers 39,513 36,082 39,039 40,541 40,544 Panamax tankers(3) — — — 19,760 — Product tankers(4) — — — 18,000 — (1) Includes two Panamax tankers which are 75%-owned. The remaining 25% is owned by Fram. (2) Time charter equivalent, or TCE, is a standard industry measure of the average daily revenue performance of a vessel. This is calculated by dividing total operating revenues, net less voyage expenses by the number of days from discharge to discharge. Total operating revenues, net are operating revenues minus commission. Voyage expenses are fuel costs and port fees. Days spent off hire are excluded from this calculation. (3) Reflects the results of the Stena Companion and Stena Compatriot which commenced operations on January 18, 2004 and April 15, 2004, respectively. (4) Reflects the results of the Stena Concord and the Stena Consul which commenced operations on February 26, 2004 and March 26, 2004, respectively. The TCE for the Product tankers is based on daily charter rates under time charters from two Stena subsidiaries to another Stena subsidiary which in turn subcharters the vessels to third parties. Risk Factors You should carefully consider the following information about risks, together with the other information contained in this prospectus before making an investment in our common shares. Some of the following risks relate principally to us and our business and the industry in which we operate. Other risks relate principally to the securities market and ownership of our shares. If any of the circumstances or events described below actually arises or occurs, our business, results of operations and financial condition could be materially adversely affected. In any such case, the market price of our common shares could decline, and you may lose all or part of your investment.
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+PROSPECTUS SUMMARY Because this is only a summary, it does not contain all the information that may be important to you. You should read this entire document, including Risk Factors and our consolidated financial statements and unaudited pro forma consolidated financial statements and notes to those statements included in this document, before making an investment decision. Unless the context otherwise indicates, in the following summary financial data for periods prior to July 1, 2004 and as of any date prior to June 30, 2004 include financial data related to businesses retained by China Netcom Group as part of Our Included Businesses, as that term is defined and explained in Restructuring . See Restructuring for further information. Our Company We are a leading fixed-line telecommunications operator in China and a leading international data communications operator in the Asia-Pacific region. Our northern service region in China consists of Beijing Municipality, Tianjin Municipality, Hebei Province, Henan Province, Shandong Province and Liaoning Province. Our southern service region in China consists of Shanghai Municipality and Guangdong Province. We are the dominant provider of fixed-line telephone services, broadband and other Internet-related services, and business and data communications services in our northern service region in China. We primarily target business and residential customers in selected high-density areas in our southern service region in China. We are also the only telecommunications company in China that operates an extensive network and offers international data services in the Asia-Pacific region. We offer a full range of fixed-line telecommunications services, including: fixed-line telephone services (including Personal Handyphone System, or PHS, service), consisting of local, domestic long distance and international long distance services; broadband and other Internet-related services, including DSL and LAN services; business and data communications services, including managed data and leased line services; and international telecommunications services, including international voice, managed data and leased line services. We own and operate extensive local networks in our northern service region, including the last mile infrastructure, which is costly for our competitors to replicate. We also own and operate limited local networks in selected major cities in our southern service region. We operate a high-speed and reliable intra- and inter-provincial transport network in our northern and southern service regions. We also operate an advanced fiber-optic network connecting major cities in the Asia-Pacific region. This network infrastructure enables us to provide a wide range of fixed-line telecommunications services. We have an extensive customer base in our northern service region in China, with a total of 77.6 million fixed-line subscribers as of June 30, 2004. As of June 30, 2004, our market share in our northern service region in China was 94.6% in terms of numbers of fixed-line subscribers. We are capitalizing on this large customer base and extensive fixed-line network to develop our fast growing broadband and PHS services in China. The number of our broadband subscribers grew from approximately 116,900 at the end of 2001 to approximately 4.2 million as of June 30, 2004. Our broadband market share in our northern service region increased from 75.3% at the end of 2001 to 92.9% as of June 30, 2004. However, we are facing increasing competition in many aspects of our business, which has reduced our average realized tariffs, usage volume per subscriber and revenue growth rate. Our regional connectivity, combined with our dominant position in Beijing, which serves as headquarters for many large Chinese corporations and the China operations of many large multinationals, provides us with a strong base for further expanding our corporate and international telecommunications businesses. Our Restructuring Our current principal operating subsidiary, China Netcom (Group) Company Limited, or CNC China, was incorporated as a domestic limited liability company in August 1999 as a facilities-based Profit/(loss) after taxation 7,399 6,520 (11,112 ) (1,342 ) 4,272 4,875 589 Minority interests 1 Profit/(loss) after taxation 7,399 6,520 (11,112 ) (1,342 ) 4,272 4,875 589 Minority interests 1 Minority interests 1 Interest income 32 (1) (5 ) 27 3 Dividend income 7 (1) (2 ) 5 Share of losses of Associated companies (1 ) (5) Profit/(loss) after taxation 7,399 15.2 6,520 12.0 (11,112 ) (18.5 ) 4,272 14.7 4,875 15.0 Minority interests 1 (RMB in millions) Short-term debt 29,744 18,688 11,056 Short-term capacity purchase payable 140 140 Long-term debt 28,606 5,931 7,354 6,239 3,876 3,705 1,501 Operating lease commitments 3,615 470 926 613 241 227 1,138 Capital commitments 8,199 4,955 2,592 645 5 1 Profit/(loss) after taxation 7,399 6,520 (11,112 ) (1,342 ) 4,272 4,875 589 Minority interests 1 Loss after taxation (11,112 ) 2,740 (8,372 ) (1,011 ) Minority interests 1 Operating profit before interest income, dividend income and deficit on revaluation of fixed assets 8,562 312 8,874 1,072 Interest income 32 (1 ) (5 ) 27 3 Dividend income 7 (1 ) (2 ) 5 Profit from operations 8,601 305 8,906 1,076 Finance costs (1,604 ) (6 ) 400 (1,204 ) (145 ) Share of losses of Associated companies (1 ) (5 ) Table of Contents telecommunications operator in China. We were established on October 22, 1999 to facilitate investments by foreign investors in CNC China. In November 2001, China s State Council approved a comprehensive restructuring plan relating to the fixed-line telecommunications sector. Pursuant to the restructuring plan, the telecommunications assets of the former China Telecommunications Group Corporation, or China Telecom Group, in ten northern provinces in China were combined with China Netcom (Holdings) Company Limited, or China Netcom Holdings and Jitong Communications Company Limited to form China Network Communications Group Corporation, or China Netcom Group. China Telecom Group retained the telecommunications assets in the remaining 21 provinces. Under the restructuring plan, both China Netcom Group and China Telecom Group were permitted to operate nationwide fixed-line telecommunications networks and provide nationwide fixed-line telecommunications services. As a result of a series of asset and share transfers and ownership restructurings in anticipation of the global offering, our business is now comprised of China Netcom Group s and China Netcom Holdings former operations in Beijing Municipality, Tianjin Municipality, Hebei Province, Henan Province, Shandong Province, Liaoning Province, Shanghai Municipality and Guangdong Province and their international operations (including most of those of Asia Netcom Corporation Limited, or Asia Netcom). Relationship with China Netcom Group We are a subsidiary of, and are controlled by, China Netcom Group, a wholly state-owned enterprise. Upon completion of the global offering, China Netcom Group will indirectly own 72.3% of our issued share capital (or 70.5% if the underwriters exercise the over-allotment option in full). In addition, a number of our senior management members and directors also serve as officers of China Netcom Group. The PRC government controls China Netcom Group, and exercises control over us through China Netcom Group, as our ultimate controlling shareholder primarily by appointing members of our board, subject to our articles of association. Following our restructuring, China Netcom Group has retained the ownership, and continues to control most aspects of the operation, of the fixed-line telecommunications networks outside our northern and southern service regions and provides telecommunications services using those networks. In connection with our restructuring, we have entered into various agreements with China Netcom Group relating to the provision of ongoing telecommunications and other services, including agreements for interconnection settlement, engineering and information technology services, materials procurement, telecommunications facilities leasing and property leasing. General Information Our principal executive offices are located at Building C, No. 156 Fuxingmennei Avenue, Xicheng District, Beijing, PRC 100031. Our telephone number is (86-10) 6642-9253. RMB RMB RMB RMB RMB million million million million million Rental income from properties leased to related companies (v)a, (v)c 1 1 4 (In US$ (in RMB (In US$ (in RMB million) million) million) million) Consolidated owner s equity under HK GAAP 59,206 62,213 43,376 5,241 42,869 5,180 US GAAP adjustments: Revaluation of fixed assets (a ) 22,796 2,755 22,796 2,754 Depreciation of revalued fixed assets (a ) (1,685 ) (204 ) Convertible preference shares and corresponding share premium (c ) (2,637 ) (2,637 ) (2,637 ) (319 ) (2,637 ) (319 ) Difference in distribution to owners upon Reorganization (e ) 166 20 Amortisation of goodwill (e ) 5 1 Others 23 (16 ) (13 ) (2 ) (9 ) (2 ) Tax effect on the above adjustments (d ) (11 ) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents THE GLOBAL OFFERING Unless otherwise indicated, information in this document assumes that the underwriters will not exercise the over-allotment option to purchase additional ADSs. See Underwriting . Offering by us (including 104,598,000 shares offered to the public in Hong Kong) 950,895,000 shares. Offering by the selling shareholders China Netcom Group Corporation (BVI) Limited; the Chinese Academy of Sciences; Information and Network Center of the State Administration of Radio, Film and Television; China Railways Telecommunications Center; Shanghai Alliance Investment Limited; and Shandong Provincial State-owned Assets Supervision and Administration Commission are selling an aggregate of 95,089,000 shares in the global offering. As a result of the global offering, the selling shareholders aggregate ownership interest in us will be reduced from 91.9% to 76.9%, or 75.0% if the underwriters over-allotment option is exercised in full. Global offering The global offering consists of a U.S. offering, an international offering and a Hong Kong public offering of an aggregate of 1,045,984,000 shares, accounting for approximately 16.2% of the total number of shares outstanding immediately after the completion of the global offering. U.S. offering 470,693,000 shares in the form of shares or ADSs in a public offering in the United States and on a private placement basis in Canada. International offering 470,693,000 shares in the form of shares or ADSs offered outside of the United States and Canada, and to professional and institutional investors in Hong Kong. Hong Kong public offering 104,598,000 shares offered for public subscription in Hong Kong. The Hong Kong public offering is conditional upon the listing committee of the Hong Kong Stock Exchange granting the listing of and permission to trade in our shares. If the number of shares validly applied for in the Hong Kong public offering represents a multiple of: (1) 15 times or more but less than 50 times, (2) 50 times or more but less than 100 times, or (3) 100 times or more, of the number of shares initially available in such offering, then an additional 209,197,500 shares, 313,796,000 shares or 418,394,000 shares, respectively, will be reallocated to the Hong Kong public offering, such that the additional shares, when aggregated with the shares initially available in the Hong Kong public offering, will represent approximately 30% in the case of (1) above, approximately 40% in the case of (2) above and approximately 50% in the case of (3) above, respectively, of the total number of shares initially available in the global offering, without giving effect to the underwriters over-allotment option. In such case, the number of ADSs allocated to the U.S. offering and/or the international offering will be correspondingly reduced in such manner as the joint global coordinators deem appropriate. Any unsold shares in the Hong Kong public offering may be reallocated to the U.S. offering and the international offering. The Minority interests 4 4 RMB RMB RMB RMB million million million million Cash and cash equivalents 6,950 6,690 6,283 3,116 Time deposits with original maturities over three months 2 112 33 At January 1, 2001, December 31, 2001, 2002 and 2003, June 30, 2004 25,000,000,000 1,000,000,000 8,277 7,741,782 309,671 Shares issued (note (c)) 1,600,000 64,000 1 64,000 1 Issue of convertible preference shares (note (d)) 7,741,782 309,671 3 309,671 At December 31, 2001, 2002 and 2003, June 30, 2004 5,492,258,218 219,690,329 1,816 7,741,782 309,671 AMENDMENT NO. 2 TO THE FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents joint global coordinators also have discretion to reallocate additional shares to the Hong Kong public offering from the U.S. offering and/or the international offering. Joint global coordinators and joint global bookrunners China International Capital Corporation Limited, Citigroup Global Markets Asia Limited and Goldman Sachs (Asia) L.L.C. (in alphabetical order). Over-allotment option We and the selling shareholders have granted an option to the U.S. and international underwriters to purchase an aggregate of 7,844,850 additional ADSs, representing 156,897,000 shares, at the initial public offering price, exercisable in whole or in part by the joint global coordinators on behalf of the U.S. and international underwriters. Shares Our ordinary shares, par value US$0.04 per share, which will be listed on the Hong Kong Stock Exchange. ADSs Each ADS represents 20 shares. To understand the terms of the ADSs, you should carefully read the section in this document entitled Description of American Depositary Shares . We also encourage you to read the deposit agreement, which is on file with the United States Securities and Exchange Commission. Price per ADS or share in the U.S. and international offerings The initial public offering price per ADS is expected to be between US$20.24 and US$23.12, equivalent to between HK$7.88 and HK$9.00 per share at the exchange rate of HK$7.7868 to US$1.00, the noon buying rate on October 22, 2004. The initial public offering price for ADSs in the U.S. and international offerings is payable in U.S. dollars and the initial public offering price for shares in the Hong Kong public offering is payable in Hong Kong dollars. The price per ADS and price per share will include any brokerage fees, Hong Kong Securities and Futures Commission transaction levies, investor compensation levies and Hong Kong Stock Exchange trading fees payable in connection with the initial sale and purchase of the shares and ADSs. These fees and levies will be paid to the relevant authorities or brokers by us and the selling shareholders. Price per share in the Hong Kong public offering The initial public offering price per share in the Hong Kong public offering, when increased by a 1% brokerage fee, a 0.005% Hong Kong Securities and Futures Commission transaction levy, a 0.002% investor compensation levy and a 0.005% Hong Kong Stock Exchange trading fee payable by purchasers, is effectively equivalent to the initial public offering price per ADS in the U.S. and international offerings, based on an exchange rate of HK$7.7868 to US$1.00, the noon buying rate on October 22, 2004, and adjusted for the ratio of 20 shares per ADS. Shares outstanding immediately after this global offering 6,450,895,000 shares, including shares represented by ADSs, or 6,593,529,000 shares if the underwriters over-allotment option is exercised in full. Deferred tax liabilities Revenue recognition (762 ) (35 ) (797 ) (5 ) (802 ) 90 Fixed assets depreciation (6,963 ) (1,176 ) (8,139 ) (970 ) (9,109 ) 7,746 Deferred cost (332 ) 113 (219 ) 69 (150 ) (95 ) Interest capitalisation (510 ) (94 ) (604 ) (126 ) (730 ) (102 ) Others (40 ) (22 ) (62 ) (19 ) (81 ) China Netcom Group Corporation (Hong Kong) Limited (Exact name of Registrant as specified in its charter) Hong Kong 4812 Not applicable (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) Building C, No. 156 Fuxingmennei Avenue Xicheng District, Beijing 100031, PRC (86-10) 6642-9253 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) CT Corporation System 111 Eighth Avenue, 13th Floor New York, New York 10011 (212) 894-8940 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents Timing of global offering The following is a tentative timetable of key events in the global offering: Hong Kong public offering commences November 4, 2004 (Hong Kong Time) Hong Kong public offering closes November 9, 2004 (Hong Kong Time) Pricing of global offering November 9, 2004 (New York Time) Final allocation of shares November 16, 2004 (Hong Kong Time) Trading of ADSs commences on the New York Stock Exchange November 16, 2004 (New York Time) Trading of shares commences on the Hong Kong Stock Exchange November 17, 2004 (Hong Kong Time) Five business day gap between pricing and trading of shares The shares offered in the global offering will not commence trading on the Hong Kong Stock Exchange until all of the conditions contained in the underwriting agreement for the Hong Kong public offering have been satisfied, which is expected to be five Hong Kong business days after the date of pricing of the shares. The ADSs offered in the global offering are expected to commence trading on the New York Stock Exchange on the business day in New York immediately preceding the day when trading of the shares commences on the Hong Kong Stock Exchange. You will not be able to sell or otherwise deal in the shares or ADSs prior to the commencement of their trading on the Hong Kong Stock Exchange or the New York Stock Exchange. Payment and delivery The underwriters expect to deliver the ADSs in New York, New York to purchasers on or around November 17, 2004. Use of proceeds We estimate that the net proceeds received by us from the global offering will be approximately US$966 million, after deducting the underwriting discounts and expenses payable by us in the global offering and assuming an initial public offering price of US$21.68 per ADS, the midpoint of the range set forth on the cover page of this document. Of the net proceeds, we expect up to 50% of the net proceeds, or US$483 million, will be used for expansion and upgrading of our telecommunications network infrastructure, including support and information systems; 30% of the net proceeds, or up to US$290 million, will be used for repayment of debt; 10% of the net proceeds, or up to US$97 million, will be used for development of new applications and services; and the remaining net proceeds will be used for general corporate purposes, such as working capital and business expansion. We estimate that the net proceeds received by the selling shareholders from the global offering will be approximately US$97 million, after deducting the underwriting discounts and expenses payable by the selling shareholders. We will not receive any of the proceeds from the sale of shares by the selling shareholders. Dividend policy We intend to declare and pay annual dividends to shareholders in 2004 and in future periods. The dividend payment to the public With copies to: Gregory G.H. Miao Jon L Christianson Skadden, Arps, Slate, Meagher Flom LLP East Wing Office, Level 4 China World Trade Center No. 1, Jianguomenwai Dajie Beijing 100004, PRC Tel: (86-10) 6505-5511 Fax: (86-10) 6505-5522 Matthew Bersani Shearman Sterling LLP 12/ F, Gloucester Tower The Landmark 11 Pedder Street Central, Hong Kong Tel: (852) 2978-8000 Fax: (852) 2978-8099 Table of Contents shareholders for 2004, irrespective of whether shares are newly issued by us or are existing shares acquired from a selling shareholder, will be pro rated by us based on the period from the date of listing to December 31, 2004. Our decision to pay any dividend will depend on our results of operations, cash flows, financial condition, future prospects, statutory and regulatory restrictions on the payment of dividends by us and other factors that our board of directors deems relevant. See Dividend Policy . Lock-ups We, China Netcom Group, China Netcom Group Corporation (BVI) Limited and CNC Fund, L.P. have, subject to certain limited exceptions, agreed to a lock-up of our securities for a period of 180 days after the date of commencement of trading on the Hong Kong Stock Exchange. In addition, each of the Chinese Academy of Sciences, Information and Network Center of the State Administration of Radio, Film and Television, China Railways Telecommunications Center, Shanghai Alliance Investment Limited and Shandong Provincial State-owned Assets Supervision and Administration Commission has agreed with China Netcom Group: not to sell, transfer or otherwise dispose of any of our shares during the two-year period after the commencement of trading; and following the expiration of the two-year period after the commencement of trading, not to sell or transfer any of such shares without: necessary approvals from the relevant government authorities; and consent from China Netcom Group Corporation (BVI) Limited, which has a right of first refusal to purchase such shares. See Underwriting for further details of these and other lock-up arrangements relating to our shares. Listings The ADSs have been approved for listing, subject to notice of issuance, on the New York Stock Exchange under the symbol CN and our shares on the Hong Kong Stock Exchange under the stock code 906 . Balance at June 30, 2004 Balance at end of year/period 2,784 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. Table of Contents CONVENTIONS Definitions References in this document to we , us , the company or CNC Hong Kong mean China Netcom Group Corporation (Hong Kong) Limited and, as the context may require, its subsidiaries. References to China Netcom Group mean China Network Communications Group Corporation and, as the context may require, its subsidiaries, other than us and our subsidiaries. As used in this document: references to China or PRC mean the People s Republic of China, excluding, for purposes of this document, Hong Kong, Macau and Taiwan, and references to the central government mean the central government of the PRC; references to State Council mean the State Council of the PRC; references to our northern service region mean the six municipalities and provinces where we operate in northern China, consisting of Beijing and Tianjin Municipalities, and Hebei, Henan, Shandong and Liaoning Provinces, and references to our southern service region mean Shanghai Municipality and Guangdong Province; references to Ministry of Information Industry and MII mean the Ministry of Information Industry of the PRC government and references to the National Development and Reform Commission and the NDRC mean the National Development and Reform Commission of the PRC government; references to HKSE or Hong Kong Stock Exchange mean The Stock Exchange of Hong Kong Limited, and references to NYSE or New York Stock Exchange mean New York Stock Exchange, Inc; references to Renminbi or RMB are to the currency of the PRC, references to U.S. dollars or US$ are to the currency of the United States of America, and references to HK dollars or HK$ are to the currency of the Hong Kong Special Administrative Region of the PRC; and references to U.S. GAAP mean the generally accepted accounting principles in the United States, references to Hong Kong GAAP mean the generally accepted accounting principles in Hong Kong, and references to PRC GAAP mean the PRC Accounting Standards for Business Enterprises and the implementing rules thereof. Presentation of Information Relating to Assets Retained or Held by China Netcom Group Unless the text otherwise indicates, all financial information prior to and for the year ended December 31, 2003 includes Our Restructured Assets and Liabilities and the Distributed Assets and Liabilities and the related operations, as those terms are defined and explained in Restructuring . However, the Distributed Assets and Liabilities have been distributed to China Netcom Group, which was reflected as a net distribution of RMB 6,047 million to China Netcom Group on June 30, 2004. These assets and liabilities and associated operations are not ours and will not be available to generate revenues for us in the current or future periods except to the extent we have leased or otherwise acquired the right to use these distributed assets. Therefore, to more accurately reflect our operations and businesses going forward, other than the company data presented in Management s Discussion and Analysis of Financial Condition and Results of Operations , or unless the context otherwise indicates or requires, all company data provided in this document including, among other things, usage, number of access lines, market share and number of subscribers, reflect Our Included Businesses, as the term is defined and explained in Restructuring , and do not include those assets and businesses distributed to China Netcom Group on June 30, 2004. Translations for Convenience Unless otherwise indicated, translations of Renminbi and Hong Kong dollar amounts into U.S. dollars in this document are for the convenience of the reader only and were made at the rate of US$1.00 to RMB 8.2766 and US$1.00 to HK$7.8000, the noon buying rates in The City of New York for cable transfers payable in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on June 30, 2004. No representation is made that Renminbi or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars at that rate on June 30, 2004, on any other date or at all. Market Share Data Convention The statistical and market share information contained in this document has been derived from government and private sources, including the information published by the MII. Unless otherwise indicated, the information has not been verified by us independently. This statistical information may not be consistent with other statistical information from other sources within or outside China. (7) (70 ) (8) RMB RMB RMB US$ RMB US$ ASSETS Current assets Cash and bank deposits 10 6,952 6,802 6,316 763 3,119 377 Short-term investments 11 2,630 2,665 1,506 182 747 90 Accounts receivable 12 3,907 4,775 6,343 766 6,732 814 Inventories and consumables 13 1,339 1,007 1,238 150 1,152 139 Prepayments and other receivables 14 2,051 1,470 1,640 198 1,146 138 Due from intermediate holding company and fellow subsidiaries 24 813 672 449 54 58 Operating expenses Depreciation and amortisation (20,483 ) (1 ) 385 (16,433 ) (1,985 ) (2 ) 3,213 (3 ) 174 (4 ) 411 (7 ) (308 ) (8 ) 175 Network, operations and support (11,990 ) (1 ) 414 (12,387 ) (1,496 ) (3 ) (174 ) (7 ) (746 ) (8 ) 109 Staff costs (7,547 ) (1 ) 82 (7,685 ) (929 ) (7 ) (232 ) (8 ) 12 Selling, general and administrative (7,053 ) (1 ) 304 (7,943 ) (960 ) (4 ) (932 ) (7 ) (293 ) (8 ) 31 Other operating expenses (1,660 ) (1 ) 129 (1,594 ) (193 ) (7 ) (70 ) (8 ) CALCULATION OF REGISTRATION FEE Table of Contents SUMMARY CONSOLIDATED FINANCIAL DATA The following tables present our summary consolidated financial data as of and for the years ended December 31, 2001, 2002 and 2003 and as of and for the six months ended June 30, 2003 and 2004. You should read the summary consolidated financial data below together with our consolidated financial statements, including the notes thereto, included elsewhere in this document, and Management s Discussion and Analysis of Financial Condition and Results of Operations . Our consolidated financial statements report our results as if (1) Our Restructured Assets and Liabilities and the Distributed Assets and Liabilities, as defined and explained in Restructuring , and related operations had been transferred to us as of January 1, 2001, and (2) we had owned those assets and liabilities and conducted those operations throughout the relevant periods. See Restructuring and Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Results of Operations for a further discussion of our restructuring. We publish our financial statements in Renminbi. We have derived the summary consolidated income statement data for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004, the summary consolidated balance sheet data as of December 31, 2001, 2002 and 2003 and as of June 30, 2004 and the summary consolidated cash flow statement data for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004 from our consolidated financial statements. Our consolidated financial statements have been prepared in accordance with Hong Kong GAAP, which differ in significant respects from U.S. GAAP. For a discussion of material differences between Hong Kong GAAP and U.S. GAAP, see Note 36 to our consolidated financial statements included elsewhere in this document. Accumulated amortisation: Balance at January 1, 2004 (2 ) (487 ) (489 ) Amortisation for the period (1) Revenues from fixed-line telephone services include local usage fees, monthly fees, upfront installation fees, domestic and international long distance service charges, value-added service charges, interconnection fees from domestic carriers and upfront connection fees. (2) Revenues from business and data communications services include fees charged for managed data and leased line services. (3) See Management s Discussion and Analysis of Financial Condition and Results of Operations Factors Affecting Our Results of Operations Our Recent Restructurings Revaluation of our fixed assets for a discussion of this revaluation. (4) Basic earnings/(losses) per share for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004 set forth above has been computed by dividing profit/(loss) for the year/period by the weighted average number of ordinary shares during the year/period, which was 5,492 million in each of these years/periods. (5) Basic earnings/(losses) per ADS for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004 set forth above have been computed by multiplying basic earnings/(losses) per share for the year/period by 20, which is the number of shares represented by each ADS. 1,987 2,800 2,844 1,490 1,598 Exchange (gain)/loss, net (61 ) 2 142 35 (15 ) Bank charges 22 21 20 12 12 Amortisation of discount on foreign currency exchange forward contracts 31 25 20 11 Proposed Maximum Proposed Amount of Title of each class of Amount to be Offering Price Per maximum aggregate registration securities to be registered registered(1) Share offering price(2) fee(3) RMB RMB RMB US$ RMB RMB US$ (in millions) Consolidated Cash Flow Statement Data: Hong Kong GAAP Net cash inflow from operating activities 22,874 23,928 25,332 3,061 14,017 14,075 1,700 Net cash outflow from investing activities (41,461 ) (25,922 ) (27,001 ) (3,262 ) (10,322 ) (8,128 ) (982 ) Purchase of fixed assets and construction in progress (40,163 ) (25,814 ) (28,528 ) (3,446 ) (11,092 ) (8,947 ) (1,081 ) Net cash inflow/(outflow) from financing activities 18,420 1,734 1,262 152 (2,701 ) (9,114 ) (1,101 ) Ordinary shares, par value US$0.04 per share(4) 1,045,984,000 $1.16 US$1,213,341,440 US$153,730 RMB RMB RMB US$ (in millions, except per share and per ADS data) Consolidated Income Statement Data: Hong Kong GAAP Revenues 59,898 123 60,021 7,252 Operating profit before interest income, dividend income and deficit on revaluation of fixed assets 11,165 2,814 13,979 1,689 Profit/(loss) for the year (11,111 ) 2,740 (8,371 ) (1,011 ) Basic loss per share (2.02 ) (1.52 ) (1) (0.18 ) Basic loss per ADS (40.40 ) (30.40 ) (3.60 ) U.S. GAAP Profit for the year 6,160 597 6,757 818 Basic earnings per share 1.12 1.23 (1) 0.15 Basic earnings per ADS(2) 22.40 24.60 3.00 (1) The pro forma basic earnings per share for the six months ended June 30, 2004 set forth above has been computed by dividing pro forma profit for the six months ended June 30, 2004 by 5,500 million shares, assuming the one-to-one conversion of the redeemable preference shares into 7,741,782 ordinary shares had taken place on January 1, 2003. (2) The pro forma basic earnings per ADS for the six months ended June 30, 2004 set forth above has been computed by dividing pro forma profit for the six months ended June 30, 2004 by 275 million ADSs, assuming the one-to-one conversion of the redeemable preference shares into 7,741,782 ordinary shares had taken place on January 1, 2003. (1) Includes (a) shares that may be purchased by the underwriters pursuant to an over-allotment option and (b) all shares initially offered and sold outside the United States that may be resold from time to time in the United States. The shares are not being registered for the purpose of sales outside the United States. See Underwriting . (2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. (3) Previously paid. (4) American Depositary Shares issuable on deposit of the shares registered hereby will be registered under a separate registration statement on Form F-6. Each American Depositary Share represents 20 ordinary shares. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (1) Including PHS subscribers. (2) Fixed-line subscribers consist of all access lines in service as well as PHS subscribers. We calculate PHS subscribers based on the number of active telephone numbers for our PHS services. In cases where a PHS subscriber uses the same telephone number as an access line in service, the designation as a PHS subscriber or access line in service depends on which service is first activated. We increase our total number of fixed-line subscribers as soon as practicable after activation of the service. We remove a fixed-line subscriber from the total number of fixed-line subscribers as soon as practicable after the fixed-line subscriber deactivates the service voluntarily or three months after the date on which the fixed-line subscriber s bill becomes overdue. Prepaid and postpaid telephone card customers are not counted toward our fixed-line subscribers. (3) Usage for northern service region. Pulse is the billing unit for local telephone usage. See Regulation Tariff Setting . Table of Contents (4) We calculate DSL subscribers based on the number of active accounts. LAN subscribers consist of end-users and dedicated line users. We calculate LAN end-users based on the number of ports subscribed for. The number of LAN dedicated line users equals total monthly fees paid by such users divided by a set average revenue per unit. The current set revenue per unit is RMB 90. We consider an account active or a service subscribed for as soon as practicable after activations of the applicable service. We remove a subscriber from the total number of subscribers as soon as practicable after that subscriber deactivates the service voluntarily or three months after the date on which that subscriber s bill becomes overdue. (5) Calculated by dividing our fixed-line subscribers as of December 31, 2001, 2002 and 2003 and as of June 30, 2004 by combined fixed-line subscribers in our northern service region, as measured by the provincial telecommunications administrations. (6) Calculated by dividing our domestic long distance usage as of December 31, 2001, 2002 and 2003 and as of June 30, 2004 by combined domestic long distance usage, including fixed-line and mobile services, in our northern service region, as measured by the provincial telecommunications administrations. (7) Calculated by dividing our international long distance usage as of December 31, 2001, 2002 and 2003 and as of June 30, 2004 by combined international long distance usage, including fixed-line and mobile services, in our northern service region, as measured by the provincial telecommunications administrations. (8) Calculated by dividing the number of our broadband subscribers as of December 31, 2001, 2002 and 2003 and as of June 30, 2004 by the total number of broadband subscribers in our northern service region, as measured by provincial telecommunications administrations. (9) Any discrepancies between totals and the sums of the amounts listed are due to rounding. N/A means not available. Table of Contents
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diff --git a/parsed_sections/prospectus_summary/2004/CIK0001312731_global_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/CIK0001312731_global_prospectus_summary.txt
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+PROSPECTUS SUMMARY The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "Risk Factors" section, the financial statements and the notes to the financial statements. In addition, unless the context otherwise requires, references in this prospectus to "our company" or to "we," "us" or "our," or any like terms, are to Global One Enterprises Limited. References to "China" are to the People's Republic of China, and references to "Hong Kong" are to the Hong Kong, Special Administrative Region of China. All references to "RMB" or "Renminbi" are to the legal currency of China; to "HK dollars" or HK$" to legal currency of Hong Kong; and to "U.S. dollars" or "$" are to the legal currency of the United States. All monetary amounts in this prospectus originally denominated in currencies other than U.S. dollars have been translated into U.S. dollars at the exchange rates quoted by the FXCM Exchange Rates Quotation system prevailing at the dates indicated. OUR COMPANY We were formed as a public limited company under the laws of Hong Kong, on March 19, 2004. We aim to provide business management consulting services in greater China, initially concentrating on the Hong Kong market and eventually expanding into the People's Republic of China. We intend to work closely with our clients to improve their business performance, increase shareholder value and create competitive advantages, and as such may take equity in our clients as consideration for our services. We intend to offer business advisory and management consulting services which will include strategic advisory services, business plan preparation, marketing plan development, advice on mergers, acquisitions, restructurings and the sales of businesses, and advising overseas investors on investments in Hong Kong and China. We currently have clients in a number of diverse industries ranging from furniture manufacturing to internet communication services. See "Description of Our Business." Our principal offices are located at Central Plaza, Suite 2001, 18 Harbour Road, Hong Kong; our telephone number is (852) 25-11-93-28. SUMMARY FINANCIAL DATA The following summary financial data summarizes our historical financial information from March 19, 2004 (Inception) through June 30, 2004. This summary financial data should be read in conjunction with our audited financial statement included elsewhere in this prospectus. PERIOD FROM MARCH 19, 2004 (INCEPTION) THROUGH JUNE 30, 2004 Net revenues Nil Loss from operations $ 19,575 Net loss $ 19,575 Net loss from operations per share of common stock Basic and diluted Less than ($0.01) Total assets $ 387,129 Total liabilities $ 6,694 Shareholders' equity $ 380,435 Number of ordinary shares issued and outstanding 136,410,000
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+Prospectus Summary 1
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+S-1/A You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. All share amounts and per share data contained in this prospectus have been adjusted to reflect a 291.351127 for one stock split that we effected on June 16, 2004. Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of the overallotment option to purchase up to 1,125,000 additional shares from us and that the shares to be sold in this offering are sold at $14.00 per share, which is the midpoint of the range indicated on the front cover of this prospectus. 2004 $ 17 2005 13 2006 13 2007 Total future minimum lease payments 44 Less amount representing interest SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 We have historically operated as an S corporation and were not subject to U.S. federal and certain state income taxes. Prior to completion of this offering we will become subject to the additional taxes applicable to C corporations. IPO Date Grant of Fully Vested Restricted Stock Units—Significant Loss for the Third Quarter of 2004 and Future Amortization Expense Assuming an initial public offering price of $14.00 per share, which is the midpoint of the range indicated on the front cover of this prospectus, we expect to grant fully vested restricted stock units with an aggregate value of $68.9 million to 15 management level employees at the time of this offering. Joseph M. Harvey, our president, will receive the largest allocation of restricted stock units, which will have a value of $14.6 million based on an assumed initial public offering price of $14.00 per share. If the initial public offering price per share is higher than $14.00, however, the aggregate value of the fully vested restricted stock units that we grant will be greater. As a result of the grant of these fully vested restricted stock units, we expect to record a significant non-cash compensation expense during the third quarter of 2004 as well as an intangible asset of approximately $15.4 million on our statement of financial condition reflecting the independently determined value of the agreements we will receive from each of these management level employees not to compete with us prior to February 2008. The non-cash compensation expense we will record will equal the value of the fully vested restricted stock units granted based on the initial public offering price of the underlying common stock ($68.9 million assuming an initial public offering price of $14.00 per share), reduced by the $15.4 million non-competition agreement intangible asset and approximately $2.4 million of cumulative compensation cost recorded on our existing Stock Appreciation Rights Plan, which we will terminate at that time. Accordingly, assuming an initial public offering price per share of $14.00, we expect to record a non-cash compensation expense in the third quarter of 2004 of approximately $51.1 million in connection with the grant of these fully vested restricted stock units. As a result of this non-cash compensation expense, we expect that our operating expenses for the quarter ending September 30, 2004 and for this fiscal year will be significantly higher than in prior periods and that we will record a substantial net loss for this quarter and may record a net loss for this fiscal year. Moreover, we will amortize the intangible asset over the period of the non-competition covenants, which will result in a non-cash amortization expense in these future periods, thereby reducing our earnings in those periods. Asset Management As of July 31, 2004, we managed $15.1 billion in assets in the following types of accounts: $7.7 billion in seven closed-end investment companies ("closed-end mutual funds"). Closed-end mutual funds sell a finite number of shares to investors who then trade these shares on a stock exchange. Investors buy shares from, and sell shares to, other investors through the exchange and the price per share is determined by supply and demand. Accordingly, the closed-end mutual fund assets that we manage generally vary due to the market appreciation or depreciation of the securities held in the portfolio; $4.1 billion in five open-end mutual funds. Open-end mutual funds are continually offered and are not listed on a stock exchange. Open-end mutual funds issue new shares for investor purchases and repurchase shares from those shareholders who sell. The share price for purchases and repurchases of open-end mutual funds is determined by each fund's net asset value, which is calculated at the end of each fund business day. The open-end mutual fund assets that we manage vary with both market appreciation and depreciation and the level of new purchases of or withdrawals from a fund; and $3.3 billion in 40 institutional separate accounts. Institutional separate accounts are private accounts for institutional investors such as pension and endowment funds. We typically maintain full investment discretion over such accounts although the client retains the ability to terminate our advisory relationship. The institutional separate account assets that we manage vary primarily with market appreciation and depreciation. Flows into and out of such accounts also affect institutional separate account assets, although to a lesser extent than with open-end mutual fund assets because such activity occurs less frequently. AMENDMENT NO. 6 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 The assets that we manage have increased greatly from $6.6 billion since the beginning of 2003 due to the launch of three closed-end mutual funds, a strong market for REIT securities and positive net flows into open-end mutual funds. Historical rates of growth in the assets that we manage are not necessarily indicative of future results, however, and the level of growth we have experienced since 2003 may not be sustainable in the future due to changing market conditions. For example, the market conditions for public offerings of the shares of closed-end mutual funds may not be as favorable in the future and the market for REIT securities could weaken. In addition to our investment advisory services, Asset Management provided portfolio consulting services for $1.4 billion in assets as of July 31, 2004, which we do not include in the assets we manage. As portfolio consultant, we provide services in connection with investment products distributed by third parties that contain relatively static portfolios of securities. The stock and bond markets were volatile in the second quarter of 2004 amid concerns that the Federal Reserve would raise interest rates in response to economic data that indicate strong growth in the U.S. economy. In particular, real estate stock prices declined by approximately 5.8% during the second quarter of 2004, including a decline of approximately 14.6% in April 2004 as investors may have viewed real estate securities less favorably in a rising interest rate environment where the returns on less risky investments become relatively more attractive. As a result, the real estate securities that we manage decreased to $12.1 billion as of June 30, 2004 from $12.6 billion as of March 31, 2004 and the total assets that we manage decreased to $15.0 billion as of June 30, 2004 from $15.5 billion as of March 31, 2004. For this reason, and because of the increased volatility in the capital markets which results from a changing interest rate environment, rising interest rates could also negatively affect net flows into open-end mutual funds and institutional separate accounts and our ability to offer new closed-end mutual funds. A decline in the assets we manage will negatively affect our revenue and net income. Pursuant to investment advisory agreements, we furnish a continuous investment program for each of the mutual funds for which we act as investment advisor, make day-to-day investment decisions for each fund, and manage each fund's investments in accordance with the fund's stated policies. In addition, pursuant to the investment advisory agreements, and subject to the approval of each fund's board of directors, we provide our executive and other officers to serve as officers of the fund. Mr. Steers serves as chairman and Mr. Cohen serves as a director on the board of directors of each fund. The Securities and Exchange Commission has recently adopted new rules requiring that at least 75% of a mutual fund's directors, including the chairperson of the board of directors, be independent of the mutual fund's investment advisor and that the independent directors hold quarterly meetings without fund executives. The Securities and Exchange Commission has also adopted new rules that will require mutual fund shareholder reports to discuss, in reasonable detail, the material factors and conclusions that formed the basis for the approval by a mutual fund's board of directors of any investment advisory agreement, including the fees payable under the agreement. Asset Management's continued receipt of revenue is, accordingly, subject to the risk that mutual fund boards of directors may determine not to renew investment advisory and administration agreements with us or that they may renew such agreements at lower fee rates than are then in effect. All of the mutual funds for which we are the investment advisor are funds that we established and are marketed under the Cohen & Steers name. The mutual funds that we manage are: Closed-end Mutual Funds Open-end Mutual Funds Cohen & Steers Total Return Realty Fund, Inc. Cohen & Steers Realty Shares, Inc. Cohen & Steers Advantage Income Realty Fund, Inc. Cohen & Steers Special Equity Fund, Inc. Cohen & Steers Quality Income Realty Fund, Inc. Cohen & Steers Equity Income Fund, Inc. Cohen & Steers Premium Income Realty Fund, Inc. Cohen & Steers Institutional Realty Shares, Inc. Cohen & Steers REIT and Preferred Income Fund, Inc. Cohen & Steers Utility Fund, Inc. Cohen & Steers REIT and Utility Income Fund, Inc. Cohen & Steers Select Utility Fund, Inc. COHEN & STEERS, INC.* (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 6282 (Primary Standard Industrial Classification Code Number) 14-1904657 (I.R.S. Employer Identification No.) 757 Third Avenue New York, NY 10017 Telephone: (212) 832-3232 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) When we waive investment advisory fees or bear expenses otherwise payable by a mutual fund, this provides a direct benefit to the mutual fund investors by lowering the expenses associated with investing in the fund and improving the fund's investment performance. These agreements to waive fees and bear expenses reduce our revenue and increase our expenses, and thereby reduce our operating income, by an amount equal to the fees waived or expenses borne. We agree to waive investment advisory fees and bear expenses payable by a mutual fund because we believe this enhances the sales effort for the fund and thereby increases the assets that we manage. Although the agreements we have with closed-end mutual funds to waive investment advisory fees otherwise payable by the funds specify that they are to begin to expire in 2006 and continuing through 2012, this would reduce the investment performance of the funds and may not occur. Each of our investment advisory agreements with a mutual fund, including the fees payable under the agreement, is subject, following the initial two year term, to annual approval by the mutual fund's board of directors, including at least a majority of the independent directors. These directors have a fiduciary duty to the mutual fund shareholders. Moreover, as discussed above, the Securities and Exchange Commission has recently adopted new rules enhancing the independence of mutual fund boards of directors and requiring detailed disclosure in mutual fund shareholder reports regarding the material factors and conclusions that formed the basis for the approval by a mutual fund's board of directors of any investment advisory agreement, including the fees payable under the agreement. Mutual fund boards of directors may determine not to renew investment advisory and administration agreements with us or they may not allow our agreements to waive fees to expire. In addition, open-end mutual fund shareholders may withdraw their assets at any time. See "Related Party Transactions—Agreements to Waive Investment Advisory Fees and Bear Expenses." Assets Managed The assets we manage have increased at a compound annual rate of growth of 35%, to $15.1 billion at July 31, 2004 from $3.8 billion at December 31, 1999, although this was a decline from $15.5 billion at March 31, 2004. Of the $11.3 billion increase in the assets we managed from December 31, 1999 to July 31, 2004, 62% was attributable to net flows and 38% was attributable to net appreciation. Much of this growth was in 2003 and the first quarter of 2004. Changes in the assets we manage can come from two sources—market appreciation (or depreciation) and inflows (or outflows). Market appreciation increases the assets we manage because the share prices of the existing securities we are managing increase. Conversely, the assets we manage decrease as security prices decline. We refer to the net effect of market appreciation and depreciation of the assets that we manage over a period as net appreciation (or net depreciation). Closed-end mutual fund offerings and inflows into open-end mutual funds and institutional separate accounts have the effect of increasing the assets we manage as existing or new clients provide us with more money to manage. Conversely, outflows from open-end mutual funds or institutional separate accounts decrease the assets we manage. We refer to the net effect of inflows and outflows on the assets that we manage over a period as net flows. Much of this recent growth in the assets we manage can be attributed to our presence in the real estate securities market. REIT securities have experienced strong market appreciation over the past several years and have gained a wider acceptance by individual and institutional investors as an asset class based on their diversification benefits, income characteristics and growth potential. In addition, we have launched six of the seven closed-end mutual funds that we manage since May 2001, including two such funds which started in 2004 with aggregate initial assets of $2.9 billion. We have also added to the assets we manage through net sales of shares of open-end mutual funds, one of which was started in 2000 and one of which was started in 2004. The following tables set forth a breakdown of the changes in the total assets we managed since 1999 attributable to net flows and net appreciation and a breakdown of the total assets we managed by account and security type as of the dates shown, and the compound annual growth rates (CAGR) for the assets we managed since December 31, 1999. Lawrence B. Stoller, Esq. Senior Vice President and General Counsel Cohen & Steers, Inc. 757 Third Avenue New York, NY 10017 Telephone: (212) 832-3232 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Vincent Pagano, Jr., Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, NY 10017-3954 Telephone: (212) 455-2000 Facsimile: (212) 455-2502 Leonard B. Mackey, Jr., Esq. Clifford Chance US LLP 31 West 52nd Street New York, NY 10019 Telephone: (212) 878-8000 Facsimile: (212) 878-8375 (1) Corporate preferred stocks include traditional preferred stocks as well as "hybrid-preferred securities." Hybrid-preferred securities are forms of subordinated debt with many features, such as exchange listing and deferral, that replicate those of traditional preferred stock. (2) Includes corporate bonds. Operating income (loss) 425 1,976 (2,038 ) 4,113 3,320 (122 ) 1,471 Total non-operating income 4 224 57 73 30 8 Operating income (loss) 425 1,976 (2,038 ) 4,113 3,320 (122 ) 1,471 Total non-operating income 4 224 57 73 30 8 Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective. Total Return Strategy for investing mainly in REITs and/or utilities with the objective of increasing total return by balancing capital appreciation and current income for the investor Cohen & Steers Realty Shares, Inc. Cohen & Steers Institutional Realty Shares, Inc. Cohen & Steers Utility Fund, Inc. Cohen & Steers Total Return Realty Fund, Inc. 18 institutional separate accounts Equity Income Strategy for investing mainly in REITs and/or utilities with the primary objective of providing above average current income for the investor Cohen & Steers Equity Income Fund, Inc. 19 institutional separate accounts Total Return and Equity Income with Leverage Same as Total Return and Equity Income, but includes capital raised from borrowing money or the issuance of debt or preferred stocks Cohen & Steers Advantage Income Realty Fund, Inc. Cohen & Steers Quality Income Realty Fund, Inc. Cohen & Steers Premium Income Realty Fund, Inc. Cohen & Steers REIT and Utility Income Fund, Inc. Cohen & Steers Select Utility Fund, Inc. Cohen & Steers REIT and Preferred Income Fund, Inc. Special Equity Strategy for investing mainly in REITs with the objective of maximizing capital appreciation for the investor Cohen & Steers Special Equity Fund, Inc. 2 institutional separate accounts REIT Preferred Stocks Strategy for investing in REIT preferred stocks with the objective of high current income for the investor 1 institutional separate account Our Historical Investment Performance The following table presents the average annualized performance, net of all expenses borne by mutual fund shareholders or institutional separate account clients but not fees waived or expenses borne by us, of each of the mutual funds for which we are the investment advisor and of institutional separate accounts in the aggregate for each strategy for which we have at least one continuous year of institutional separate account investment activity for the one, five and ten year periods ended July 31, 2004 and for the period from the inception date to July 31, 2004. The past investment performance of the mutual funds and institutional separate accounts for which we are the investment advisor is no guarantee of future performance, and each of these mutual funds and institutional separate accounts has experienced negative performance over various time periods in the past and may do so again in the future. The past investment performance for certain of these mutual funds would have been lower if we had not waived fees or borne expenses otherwise payable by these mutual funds. The following table also presents the returns of the National Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index, Morgan Stanley Current provision—state and local $ 647 $ 663 $ 199 Deferred provision (benefit)—state and local If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. (1) Performance information for periods of less than one year represents actual performance and is not annualized. (2) We bear all of the expenses of Cohen & Steers Institutional Realty Shares. If we had not borne these expenses, this fund's return would have been lower by approximately 0.13% for the last 12 months and 0.15% on an annualized basis since inception. (3) We currently bear expenses for Cohen & Steers Utility Fund. If we had not borne these expenses, this fund's total return would have been lower. Because this fund commenced operations so recently, we cannot accurately estimate how much lower the return would have been. (4) We currently waive a portion of the investment advisory fee for Cohen & Steers Advantage Income Realty Fund. If these fees had not been waived, this fund's total return would have been approximately 0.60% lower on an annualized basis. (5) We currently waive a portion of the investment advisory fee for Cohen & Steers Quality Income Realty Fund. If these fees had not been waived, this fund's total return would have been approximately 0.48% lower on an annualized basis. (6) We currently waive a portion of the investment advisory fee for Cohen & Steers Premium Income Realty Fund. If these fees had not been waived, this fund's total return would have been approximately 0.38% lower on an annualized basis. (7) We currently waive a portion of the investment advisory fee for Cohen & Steers REIT and Utility Income Fund. If these fees had not been waived, this fund's total return would have been approximately 0.10% lower. (8) We currently waive a portion of the investment advisory fee for Cohen & Steers Select Utility Fund. If these fees had not been waived, this fund's total return would have been approximately 0.07% lower. (9) We currently bear expenses for Cohen & Steers Special Equity Fund. If we had not borne these expenses, this fund's total return would have been lower by approximately 0.49% for the last 12 months, 0.21% on an annualized basis for the last five years and 0.15% on an annualized basis since inception. (10) The NAREIT Equity REIT Index is an unmanaged, market-capitalization-weighted index of all publicly traded REITs that invest predominantly in the equity ownership of real estate. The index is designed to reflect the performance of all publicly traded equity REITs as a whole. (11) The Morgan Stanley REIT Preferred Index is an unmanaged index that is designed to reflect the performance of all publicly traded REIT preferred stocks as a whole. (12) The Dow Jones Wilshire Real Estate Securities Index is an unmanaged index that is a broad measure of publicly traded real estate securities, such as REITs and real estate operating companies. (13) The S&P 500 Index is an unmanaged index of common stocks that is frequently used as a general measure of stock market performance. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. * Prior to the consummation of the offering registered by this Registration Statement and pursuant to the reorganization for the purpose of redomestication and reorganization into a holding company structure described in this Registration Statement, Cohen & Steers, Inc. will become the parent holding company of Cohen & Steers Capital Management, Inc. and, together with its direct and indirect subsidiaries (including Cohen & Steers Capital Management, Inc.), succeed to the business now conducted by Cohen & Steers Capital Management, Inc. and its subsidiaries. Each Investment Banking engagement for which a fee is earned is generally highly profitable. However, only a limited proportion of Investment Banking engagements result in a completed transaction for which a fee is earned and, accordingly, the employees of Investment Banking spend significant amounts of time on transactions that are not completed and for which no fee will be earned. As a result, the revenue and profitability of Investment Banking can be very volatile. For example, Investment Banking had net income of $3.2 million on $11.3 million of revenue in 2003, a 13.7% decrease in revenue and a 15.2% decrease in net income as compared to net income of $3.8 million on $13.1 million of revenue in 2002. Of the 21 clients from which Investment Banking has generated revenue since it was established in 1999, four are companies in which Asset Management has invested client assets. Investment Banking assisted these companies in raising capital by finding investors willing to invest in these companies' securities and generated revenue of: Our business is presently conducted by Cohen & Steers Capital Management, Inc. and its subsidiaries. Cohen & Steers Capital Management, Inc. was incorporated as a New York corporation in 1986 and is wholly owned by our principals and two trusts benefiting their families. Cohen & Steers, Inc. is a Delaware corporation that was formed on March 17, 2004. Cohen & Steers, Inc. has not engaged in any business or other activities except in connection with its formation and the reorganization whereby Cohen & Steers, Inc. will become the parent holding company of Cohen & Steers Capital Management, Inc. and, together with its direct and indirect subsidiaries (including Cohen & Steers Capital Management, Inc.), continue to conduct the business now conducted by Cohen & Steers Capital Management, Inc. and its subsidiaries. Completion of the reorganization is a condition to the consummation of this offering. See "Reorganization and S Corporation Status—Reorganization." Our principal executive offices are located at 757 Third Avenue, New York, NY 10017, and our telephone number is (212) 832-3232. Our Web site is located at www.cohenandsteers.com. The information on our Web site is not a part of this prospectus. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion Preliminary Prospectus dated August 12, 2004 PROSPECTUS 7,500,000 Shares Cohen & Steers, Inc. Common Stock The Offering Common stock offered 7,500,000 shares Shares outstanding after the offering 34,200,000 shares Use of proceeds We estimate that our net proceeds from this offering will be approximately $93.1 million. We intend to use these net proceeds to enhance our asset management platform by expanding our investment capabilities, launching new products, and expanding distribution, and for general corporate purposes. See "Use of Proceeds." Dividend policy We intend to pay cash dividends on a quarterly basis and expect to declare our first quarterly dividend payment at an initial rate of $0.10 per share for the third quarter of 2004. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition and earnings, legal requirements and other factors as our board of directors deems relevant. See "Dividend Policy." Voting rights Each share of common stock will entitle its holder to one vote per share.
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+PROSPECTUS SUMMARY You should read the entire prospectus, including the information set forth in Risk Factors before making an investment decision. CONSOL Energy We are a multi-fuel energy producer and energy services provider that primarily serves the electric power generation industry in the United States. That industry generates approximately two-thirds of its output by burning coal or gas, the two fuels we produce. At December 31, 2003, we produced high-Btu bituminous coal from 20 mining complexes in the United States and Australia. Coal produced from our mines has a high-Btu content which creates more energy per unit when burned compared to coals with lower Btu content. As a result, coals with greater Btu content can be more efficient to use. We also produce pipeline-quality coalbed methane gas from our coal properties in Pennsylvania, Virginia and West Virginia and conventional gas from our properties in Tennessee and Virginia. We believe that the use of coal and gas to generate electricity will grow as demand for power increases. Historically, we rank among the largest coal producers in the United States based upon total revenue, net income and operating cash flow. Our production of approximately 60 million tons of coal in 2003 accounted for approximately 5% of the total tons produced in the United States and approximately 12% of the total tons produced east of the Mississippi River during that year. We are one of the premier coal producers in the United States by several measures: We mine more high-Btu bituminous coal than any other United States producer; We are the largest coal producer, in terms of tons produced, east of the Mississippi River; We have the second largest amount of recoverable coal reserves among United States coal producers; and We are the largest United States producer of coal from underground mines. We also rank as one of the largest coalbed methane gas companies in the United States based on both our proved reserves and our current daily production. Our industry position is highlighted by several measures: We possess one of the largest coalbed methane reserve bases among publicly traded oil and gas companies in the United States with approximately 1.0 trillion cubic feet of net proved reserves of gas; Our principal coalbed methane operations produce gas from coal seams with a high gas content; We currently have approximately 146 million cubic feet of gross average daily production; At December 31, 2003, we operated more than 1,500 wells connected by approximately 800 miles of gathering lines and associated infrastructure; and Our facilities have the capacity to transport 250 million cubic feet of gas per day. Additionally, we provide energy services, including terminal services, industrial supply services and coal waste disposal services. We are developing our land assets that we previously used primarily to support our coal operations. CONSOL Energy was organized as a Delaware corporation in 1991. Our address is CONSOL Plaza, 1800 Washington Road, Pittsburgh, Pennsylvania 15241-1421 and our telephone number is (412) 831-4000. Sales Produced Coal $ 1,683 $ 1,693 $ (10 ) (0.6 )% Produced Coal Related Party 1 Total Sales 2,043 2,003 40 2.0 % Freight Revenue 114 134 (20 ) Freight Revenue Related Party 1 Wages and salaries $ 29 $ 27 $ 2 7.4 % Other post employment and pension costs 11 6 5 83.3 % Professional consulting and other purchased services 15 11 4 36.4 % Other 23 22 Payroll taxes $ 32 $ 35 $ (3 ) (8.6 )% Property and other taxes 23 28 (5 ) (17.9 )% Capital stock and franchise tax 1 6 (5 ) (83.3 )% Production taxes 104 103 Segment assets $ 2,926,259 $ 594,955 $ 163,372 $ 614,146 $ 4,298,732 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents
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+PROSPECTUS SUMMARY This summary highlights the key information contained in this prospectus. Because it is a summary, it does not contain all the information you should consider before investing in our common stock. You should read carefully this entire prospectus. In particular, you should read the section entitled "Risk Factors" and the consolidated financial statements and the notes relating to those statements included elsewhere in this prospectus. The fiscal year of Carter's ends on the Saturday in December or January nearest the last day of December. The terms "baby" and "young children" have specific meanings when used in the children's apparel industry. References to "baby" in this prospectus mean newborns through approximately age one, or up to size 9 months, and references to "young children" in this prospectus mean children from approximately age one to six, or children's clothing size 12 months to size 7. References to share and market share in this prospectus mean market share expressed as a percentage of total retail revenues of a market unless otherwise indicated. Our Business We are the largest branded marketer of apparel for babies and young children in the United States with a 6.7% market share of the growing $18.4 billion market in 2003, up substantially from our market share of 4.8% in 2002. Over our 139 years of operation, Carter's has become one of the most highly recognized and most trusted brand names in the children's apparel industry. We focus on providing high-quality, essential products at prices that deliver an attractive value to consumers. We believe the value proposition of our products appeals to a broad range of consumers, and our multi-channel sales strategy allows us to reach consumers where they shop. We sell our products under the Carter's and Carter's Classics brands in our wholesale channel, which includes approximately 300 department store, national chain, and specialty store accounts. Additionally, we currently operate 174 Carter's retail stores located primarily in premier outlet centers throughout the United States. We also sell our products in the mass channel under the Tykes brand in over 1,200 Target stores and under our Child of Mine brand in over 3,000 Wal-Mart stores nationwide. For the fiscal year ended January 3, 2004, our wholesale channel represented 51% of our total net sales, our retail stores represented 37% of our total net sales, and our mass channel represented 12% of our total net sales. Since 1992, when the current management team joined Carter's, we have increased net sales from $227 million to $704 million in fiscal 2003. Over the past five years, we have increased net sales at a compound annual growth rate of 11.8%, and we have increased operating income from $27.4 million in fiscal 1998 to $74.6 million in fiscal 2003, yielding a compound annual growth rate of 22.2%. During this five-year period, our pre-tax results were decreased in 1999 by closure costs of $7.1 million, in 2001 by acquisition-related charges of $11.3 million, debt extinguishment charges of $12.5 million, and closure costs of $4.0 million, and in 2003 by debt extinguishment charges of $9.5 million, a management fee termination charge of $2.6 million, and closure costs of $1.0 million. We market essential, high-volume core apparel products for babies and young children, including bodysuits, pajamas, blanket sleepers, gowns, bibs, towels, washcloths, and receiving blankets. Our top ten baby and sleepwear core products accounted for more than 80% of our baby and sleepwear net sales in fiscal 2003. We believe these core products are consumer staples and are insulated from changes in fashion trends. Whether they are shopping for their own children or purchasing gifts, consumers provide consistent demand for our products as they start wardrobes for the approximately four million babies born each year and replace clothing their children outgrow. In fiscal 2003, we sold over 148 million units of Carter's products to our wholesale and mass channel customers and through our retail stores, an increase of approximately 42% from fiscal 2002. We are the largest brand of apparel for babies and young children in the department store, national chain, outlet, specialty store, and off-price sales channels with 9.3% of the market in 2003, up from 7.3% in 2002. Our aggregate market shares in 2003 in these channels were approximately 25% for apparel and related products for newborns, also known as layette, and 27% for sleepwear for babies and young children. These market shares represent greater than four and three times, respectively, the market shares of the next largest brand in each category. In these channels, our share of the playclothes market for babies and young children grew from 4.8% in 2002 to 7.1% in 2003. Our top wholesale customers are leading retailers in the United States, including Kohl's, Babies "R" Us, JCPenney, Sears, May Company, and Federated. In the fourth quarter of fiscal 2000, we began selling our products in the mass channel by launching the Tykes brand in all Target stores nationwide. In June of 2003, we began shipping products under our Child of Mine brand. Our Child of Mine products are now being sold in substantially all Wal-Mart stores nationwide. In addition, we currently extend the reach of the Carter's, Carter's Classics, Tykes, and Child of Mine brands in our channels through licensing arrangements with 14 marketers of related baby and young children's products. Collectively, our licensees generated $142.4 million of branded wholesale and mass channel sales in fiscal 2003, resulting in $11.0 million of royalty income to us. See "Business Products and Markets Licensed Products" for a listing of our licensees. Our Competitive Strengths We attribute our market leadership, significant opportunities for continued growth, and increased profitability to the following competitive strengths: Superior Brand Power. Over the past 139 years of providing quality baby and young children's apparel, we have successfully established Carter's as a high-quality, trusted, and leading brand among consumers. Ninety-five percent of mothers and grandmothers surveyed knew the Carter's name, and over 85% had purchased Carter's products. We believe consumers have a strong, emotional connection to the Carter's brand, and this consumer trust provides us with substantial brand equity. Essential, High-Volume Core Product Strategy. We develop and market essential, high-volume apparel products that consumers purchase frequently. The majority of our core styles continue from year to year with variations only to color, fabric, or artistic applications. In the past five years, we have expanded our design team in order to improve our artistic capabilities. Over 95% of baby sales to our wholesale and mass channel customers in fiscal 2003 were of products that we regularly replenish to these customers. This regular replenishment increases our productivity and creates a more stable and predictable revenue base. Multiple Sales Channels with Broad Consumer Reach. Our multi-channel sales strategy allows us to reach consumers with varying demographic and socio-economic characteristics. In addition to our established wholesale strengths and retail store presence, we sell our products to mass channel stores under the Tykes brand in all Target stores and under our Child of Mine brand in substantially all Wal-Mart stores nationwide. We believe this new channel allows us to extend our reach to a new group of consumers. Operational Expertise. We believe that our skill at servicing our customers and our own retail stores with on-time deliveries of high-quality products, our ability to monitor and analyze their inventory levels based on weekly sales data, and our ability to replenish their inventory on a timely basis, have been key drivers in building our market share in the wholesale, retail, and mass channels. Balance at August 14, 2001 $ $ 8 $ Balance at August 14, 2001 $ $ 8 $ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Global Sourcing Network. Over the past five years, we have successfully developed a global sourcing network for our products in over 15 countries with approximately 100 vendors. This global sourcing initiative has enabled us to both improve product quality and reduce product costs. This has allowed us to continue to improve the value proposition of our products for our consumers and establish significant capacity for growth. Strong Management Team With a Proven Track Record. We have a strong and experienced management team, with our five senior executives averaging more than 20 years of experience in the textile and apparel industries. Since joining Carter's in 1992, our management team has been responsible for increasing net sales at a compound annual growth rate of approximately 11%. In recent years, we have expanded the management team to provide additional expertise in the mass and retail channels, global sourcing, supply-chain logistics, and merchandising. Prior to this offering, our five senior executives benefically own 10.1% of the equity of our company. After this offering, our five senior executives will continue to beneficially own approximately 8.5% of the equity of our company or 8.4% if the underwriters choose to exercise in full their option to purchase additional shares. Our Growth Strategy We intend to continue to increase sales and profitability by strengthening our position as the leading apparel brand in the $18.4 billion United States apparel market for babies and young children and growing our market share. Our strategy includes: Core Product Focus. We intend to expand our strong market shares by continuing to drive core product growth through fabric improvements, new artistic applications, new packaging and presentation strategies, and increased leverage of our brand. In addition, we will continue to provide our major customers with display units that present our core products more visibly on their retail floors. We will also continue to drive market share gains through emphasis on competitive pricing for all core products and clear communication of value and product benefits to consumers. Leverage Carter's Brands in the Large, Fragmented Playclothes Market. We have a significant opportunity to expand our brands' market share in the highly fragmented, $13 billion playclothes market for babies and young children. In 2003, this market was more than five times the size of the markets for layette and sleepwear combined. We intend to continue to increase sales of our core playclothes products such as t-shirts, leggings, shorts, casual pants, jumpsuits, rompers, and creepers by offering quality products at attractive prices and leveraging our strengths with our existing customers and consumer base. In the most recent four fiscal quarters, our wholesale playclothes revenue increased over 18% as compared to the previous four fiscal quarters. Expand Presence in Mass Channel. Thirty-one percent of sales in the $18.4 billion United States apparel market for babies and young children is generated through mass channel stores nationwide. Over the past three years, we have built a strong presence in the mass channel with the launch of Tykes in fiscal 2000 at Target and Child of Mine at Wal-Mart in fiscal 2003. During this period, consolidated revenue grew, resulting in higher gross profit overall but lower gross profit as a percentage of net sales as wholesale and mass channel revenues generally yield lower margins than similar products sold through our retail channel. In 2003, Wal-Mart and Target together represented 76% of mass channel sales of apparel products for babies and young children in the United States. We believe we have a significant opportunity to grow our brands in the mass channel over the next several years. We have recently announced our intent to replace the Tykes brand name in Target stores with our Just One Year brand beginning in December 2004. AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Extend Reach and Increase Productivity of Retail Stores. We intend to continue to increase the percentage of core products in our retail stores, creating an easier shopping environment with improved product adjacencies, and implementing simple, more effective promotions and clearer in-store communications. We believe these initiatives will increase store productivity. We intend to add eight to ten retail stores per year. In fiscal 2003, all of our retail stores that had been open for more than twelve months were profitable. Generally, new stores are profitable within the first year of operation and produce a payback of initial investment within one year after opening. Continue Expansion of Global Sourcing. We define full-package global sourcing as the purchase of complete, ready-for-sale products from vendors located primarily in the Far East. Full-package global sourcing now accounts for approximately 90% of our total product mix and enhances our speed to market. We believe cost reduction and margin improvement are possible as we further expand and leverage our global sourcing. Optimize Supply Chain. We have significant opportunities to continue to improve our supply chain. We are committed to further shortening product lead times and creating a more effective distribution model through a variety of operational and sourcing initiatives. In addition, our core product focus allows us to continue to reduce product complexity. We expect these initiatives will enable us to improve demand forecasting, lower distribution costs, and increase inventory turns. General We are incorporated in the State of Delaware. We reincorporated in Delaware on September 30, 2003, and changed our name to Carter's, Inc. Prior to the reincorporation, we were named Carter Holdings, Inc., and we were a Massachusetts corporation. Our principal executive offices are located at The Proscenium, 1170 Peachtree Street NE, Suite 900, Atlanta, Georgia 30309. Our telephone number is (404) 745-2700. Our website address is www.carters.com. Information contained on our website or that can be accessed through our website is not incorporated by reference in this prospectus. You should not consider information contained in or accessible through our website to be part of this prospectus. In August 2001, Berkshire Fund V, Limited Partnership, Berkshire Fund V Coinvestment Fund, Limited Partnership, and Berkshire Investors LLC, each of which is an investment fund affiliated with Berkshire Partners LLC, purchased control of our Company from Investcorp S.A., which had been our controlling stockholder since acquiring us in 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Overview." Our management team has remained in place since 1992 and has provided continuity to our business through both of these acquisitions. Berkshire Partners is a Boston-based private investment firm that invests in businesses in a wide variety of industries that offer strong growth prospects and are supported by high-quality management teams.
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+PROSPECTUS SUMMARY You should read the following summary together with the entire prospectus, including the more detailed information in our consolidated financial statements and related notes appearing elsewhere in this prospectus. You should carefully consider, among other
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+elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. You should read the entire prospectus carefully, especially Risk factors beginning on page 9 and our consolidated financial statements and related notes, before deciding to invest in our common stock. Except as otherwise noted, all information in this prospectus assumes no exercise of the underwriters option to purchase additional shares of our common stock, assumes an initial public offering price of $16.00 per share, which is the mid-point of the range set forth on the front cover of this prospectus, and reflects an amendment to our Delaware certificate of incorporation and the reclassification of all of our classes of common stock into one new class of common stock, all of which have occurred in connection with this offering. In this prospectus, we use the terms Domino s Pizza, Domino s, we, us and our to refer to Domino s Pizza, Inc. and its subsidiaries. In this prospectus, we rely on and refer to information regarding the U.S. quick service restaurant sector, the U.S. quick service restaurant pizza category and its components and competitors (including us) from the CREST report prepared by NPD Foodworld , a division of the NPD Group, or Crest, as well as market research reports, analyst reports and other publicly-available information. Although we believe this information to be reliable, we have not independently verified it. Domestic sales information relating to the U.S. quick service restaurant sector, the U.S. quick service restaurant pizza category and U.S. pizza delivery and carry-out represent reported consumer spending obtained by Crest from customer surveys. This information relates to both our company-owned and franchise stores. Unless otherwise indicated, all U.S. industry data included in this prospectus is based on reported consumer spending obtained by Crest from customer surveys. Domino s Pizza, Inc. We are the number one pizza delivery company in the United States, based on reported consumer spending, with a leading presence internationally. We pioneered the pizza delivery business and have built the Domino s Pizza brand into one of the most widely-recognized consumer brands in the world. We operate through a network of more than 7,450 company-owned and franchise stores, located in all 50 states and in more than 50 countries. In addition, we operate 18 regional dough manufacturing and distribution centers in the contiguous United States and eight dough manufacturing and distribution centers outside the contiguous United States. The foundation of our system-wide success and leading market position is our strong relationship with our franchisees, comprised of nearly 2,000 owner-operators dedicated to the success of our company and the Domino s Pizza brand. Over our 44-year history, we have developed a simple business model focused on our core strength of delivering quality pizza in a timely manner. This business model includes a delivery-oriented store design with low capital requirements, a focused menu of pizza and complementary side items, committed owner-operator franchisees and a vertically-integrated distribution system. Our earnings are driven largely from retail sales at our franchise stores, which generate royalty payments and distribution revenues to us. We also generate earnings through retail sales at our company-owned stores. In the last three years, we outperformed our two national competitors in domestic same store sales growth. Same store sales at our international stores increased 4.0% and 6.4% in 2003 and the quarter ended March 21, 2004, respectively. The first quarter of 2004 marked our 41st Store count at December 29, 2002 577 4,271 4,848 2,382 7,230 Openings 5 127 132 224 356 Closings (4 ) (72 ) (76 ) (83 ) (159 ) Transfers (1 ) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents consecutive quarter of international same store sales growth. We believe that strong sales volume, combined with our efficient store and business models, generates attractive franchisee and company-level returns. We operate our business in three segments: domestic stores, domestic distribution and international. Domestic stores. The domestic stores segment, comprised of 4,344 franchise stores and 576 company-owned stores, generated revenues of $519.9 million and $122.6 million and income from operations of $127.1 million and $31.8 million during 2003 and the quarter ended March 21, 2004, respectively. Domestic distribution. Our domestic distribution segment, which distributes food, equipment and supplies to all of our domestic company-owned stores and approximately 98% of our domestic franchise stores, generated revenues of $717.1 million and $170.9 million and income from operations of $45.9 million and $10.9 million during 2003 and the quarter ended March 21, 2004, respectively. International. Our international segment, which oversees 2,534 franchise stores and operates 19 company-owned stores outside the contiguous United States and also distributes food and supplies in a limited number of these markets, generated revenues of $96.4 million and $25.3 million and income from operations of $28.1 million and $7.5 million during fiscal 2003 and the quarter ended March 21, 2004, respectively. On a consolidated basis, we generated revenues of $1.3 billion and $318.8 million and income from operations, after deducting $41.7 million and $6.7 million of unallocated corporate and other expenses, of $159.5 million and $43.5 million in 2003 and the quarter ended March 21, 2004, respectively. Net income was $39.0 million and $18.4 million in 2003 and the quarter ended March 21, 2004, respectively. As of March 21, 2004, our total outstanding long-term debt was $942.3 million. We have been able to increase our income from operations through strong domestic and international same store sales growth over the past five years, the addition of more than 1,200 stores worldwide over that time and strong performance by our distribution business. Over this same time period, we increased our net income in each year except 2003 during which we incurred significant recapitalization-related expenses. This growth was achieved with limited capital expenditures by us, since a significant portion of our earnings is derived from retail sales by our franchisees. Industry overview The U.S. quick service restaurant pizza category is large, growing and highly fragmented. With sales of $32.3 billion in the twelve months ended November 2003, the U.S. quick service restaurant pizza category is the second largest category within the $180.2 billion U.S. quick service restaurant sector. The U.S. quick service restaurant pizza category is comprised of delivery, dine-in, carry-out and drive-through. We operate primarily within U.S. pizza delivery, which with $11.7 billion of sales accounted for 36% of total U.S. quick service restaurant pizza category sales in the twelve months ended November 2003. Total U.S. pizza delivery sales grew by 0.4% during that period. We believe that this growth is the result of well-established demographic and lifestyle trends driving increased consumer emphasis on convenience. We and our top two Table of Contents 4. Income taxes The differences between the United States Federal statutory income tax provision (using the statutory rate of 35%) and the Company s consolidated income tax provision for 2001, 2002 and 2003 are summarized as follow: (In thousands) 2001 2002 2003 Federal income tax provision based on the statutory rate $ 21,097 $ 33,661 $ 21,852 State and local income taxes, net of related Federal income taxes 1,588 1,904 1,215 Non-resident withholding and foreign income taxes 3,726 3,829 4,163 Foreign tax and other tax credits (4,158 ) (4,506 ) (4,962 ) Losses attributable to foreign subsidiaries 281 325 593 Non-deductible expenses 498 471 551 Other 474 AMENDMENT No. 4 to FORM S-1 REGISTRATION STATEMENT Under Securities Act of 1933 Table of Contents competitors account for approximately 47% of U.S. pizza delivery, based on reported consumer spending, with the remaining 53% attributable to small regional chains and individual establishments. We also compete in carry-out, which together with pizza delivery are the largest and fastest-growing components of the U.S. quick service restaurant pizza category. U.S. carry-out pizza had $12.4 billion of sales in the twelve months ended November 2003 and grew by 2.4% during that period. While our primary focus is on pizza delivery, we are also favorably positioned to compete in carry-out given our strong brand, convenient store locations and quality, affordable menu offerings. In contrast to the United States, international pizza delivery is relatively underdeveloped, with only Domino s and one other competitor having a significant multinational presence. We believe that demand for international pizza delivery is large and growing, driven by international consumers increasing emphasis on convenience. Our competitive strengths We believe that our competitive strengths include the following: Strong and proven growth and earnings model. Over our 44-year history, we have developed a focused growth and earnings model anchored by store-level economics, which provide an entrepreneurial incentive for our franchisees, generate demand for new franchises and are the foundation for the strength of our system. #1 pizza delivery company in the United States with a leading international presence. We are the number one pizza delivery company in the United States with a 19.8% share based on reported consumer spending, and we have a leading presence in the key international markets in which we compete. Strong brand awareness. We believe our Domino s Pizza brand is one of the most widely-recognized consumer brands in the world and that consumers associate our brand name with quality pizza delivered in a timely manner. Our internal distribution system. Our profitable, vertically-integrated distribution system enhances the quality and consistency of our products, enhances our relationships with franchisees, leverages economies of scale to offer lower costs to our stores and allows our store managers to better focus on store operations and customer service. Strong leadership team with significant ownership. We have a strong, knowledgeable leadership team with significant industry expertise and meaningful equity ownership in our company. DOMINO S PIZZA, INC. (Exact name of registrant as specified in its charter) Delaware 5812 38-2511577 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 30 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106 (734) 930-3030 (Address, including zip code, and telephone number, including area code, of registrant s principal executive offices) Table of Contents Our business strategy We intend to achieve further growth and strengthen our competitive position through the continued implementation of our business strategy, which includes the following key elements: Continue to execute on our mission statement. Our mission statement is Exceptional people on a mission to be the best pizza delivery company in the world, and we implement this mission statement by focusing on four strategic initiatives: PeopleFirst, Build the Brand, Maintain High Standards and Flawless Execution. Grow our leading position in an attractive industry. As the leader in U.S. pizza delivery, we believe that our convenient store locations, simple operating model, widely-recognized brand and efficient distribution system are competitive advantages that position us to capitalize on future growth. Leverage our strong brand awareness. We believe that the strength of our Domino s Pizza brand makes us one of the first choices of consumers seeking a convenient, quality and affordable meal, and we intend to continue to promote our brand name and enhance our reputation as the leader in pizza delivery. Expand and optimize our domestic store base. We plan to continue expanding our base of domestic stores to take advantage of the attractive growth opportunities in U.S. pizza delivery and to strategically acquire franchise stores and refranchise company-owned stores. Continue to grow our international business. We believe we will achieve continued growth internationally as a result of the store-level economics of our business model, the growing international demand for delivered pizza and strong global recognition of the Domino s Pizza brand. David A. Brandon Chairman and Chief Executive Officer 30 Frank Lloyd Wright Drive Ann Arbor, Michigan 48106 (734) 930-3030 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The offering Common stock offered: By us 9,375,000 shares By the selling stockholders 14,687,500 shares Total offered hereby 24,062,500 shares Common stock to be outstanding immediately after this offering 65,722,516 shares The common stock to be outstanding after this offering is based on the number of shares outstanding after our reclassification and excludes 5,670,766 shares of our non-voting common stock issuable upon the exercise of outstanding options at a weighted average exercise price equal to $4.31 per share, of which options to purchase 3,688,838 shares were exercisable as of March 21, 2004, 5,600,000 shares of our common stock issuable under our 2004 Equity Incentive Plan and 1,000,000 shares of our common stock issuable under our 2004 Employee Stock Purchase Plan. Use of proceeds We intend to use the approximately $136.7 million of net proceeds to us from this offering to redeem, at 108.25% of the principal amount thereof plus accrued and unpaid interest, approximately $125.5 million aggregate principal amount of Domino s, Inc. s outstanding 8 % senior subordinated notes. We will not receive any of the net proceeds from the sale of shares of common stock by the selling stockholders. Proposed New York Stock Exchange symbol: DPZ Dividend policy Our board of directors currently intends to pay regular quarterly dividends on our common stock at an initial annual rate of $0.26 per share. The first dividend is expected to be paid during the fourth quarter of 2004. The declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, restrictions in our debt agreements and other factors deemed relevant by our board of directors.
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+Prospectus Summary 1 Risk Factors 7 Use of Proceeds 16 Overview of the Gold Industry 17 Operation of the Gold Bullion Market 23 Analysis of Movements in the Price of Gold 26 Business of the Trust 28 Description of the Trust 33 The Sponsor 35 The Trustee 37 The Custodian 38 The Marketing Agent 39 Description of the Shares 42 Custody of the Trust's Gold 44 Description of the Custody Agreements 47 Creation and Redemption of Shares 51 Description of the Trust Indenture 57 United States Federal Tax Consequences 67 ERISA and Related Considerations 71 Plan of Distribution 72 Legal Proceedings 75 Legal Matters 75 Experts 75 Where You Can Find More Information 75 Report of Independent Registered Public Accounting Firm F-1 Statement of Financial Condition F-2 Until December 11, 2004 (25 days after the date of this prospectus), all dealers effecting transactions in the Shares, whether or not participating in this distribution, may be required to deliver a prospectus. This requirement is in addition to the obligations of dealers to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions. The information contained in the sections captioned "Overview of the Gold Industry," "Operation of the Gold Bullion Market" and "Analysis of Movements in the Price of Gold" is based on information obtained from sources that the Sponsor believes are reliable. This prospectus summarizes certain documents and other information in a manner the Sponsor believes to be accurate. In making an investment decision, you must rely on your own examination of the Trust, the gold industry, the operation of the gold bullion market and the terms of the offering and the Shares, including the merits and risks involved. Although the Sponsor believes this information to be reliable, the accuracy and completeness of this information is not guaranteed and has not been independently verified. Prospectus Summary This is only a summary of the prospectus and, while it contains material information about the Trust and its Shares, it does not contain or summarize all of the information about the Trust and the Shares contained in this prospectus which is material and/or which may be important to you. You should read this entire prospectus, including
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+PROSPECTUS SUMMARY This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully, especially the "Risk Factors" section and our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in shares of our common stock. Theravance, Inc. Our Company We are a biopharmaceutical company with a pipeline of product candidates that we discovered and expect to develop in collaboration with partners or on our own. In approximately seven years of operation, four product candidates discovered by us have advanced into clinical trials, one of which is currently in Phase 3 and one of which is currently in Phase 2. Further, we have seven additional product candidates discovered by us in preclinical studies. We are focused on the discovery, development and commercialization of small molecule medicines for unmet medical needs across a number of therapeutic areas including respiratory disease, bacterial infections, overactive bladder and gastrointestinal disorders. None of our products have been approved for marketing and sale to patients and we have not received any product revenue to date. Our strategy focuses on the discovery, development and commercialization of medicines with superior efficacy, convenience, tolerability and/or safety. By primarily focusing on biological targets that have been either clinically validated by existing medicines or by potential medicines in late-stage clinical trials, we can leverage years of available knowledge regarding a target's activity and the animal models used to test potential medicines against such targets. We move a product candidate into development after it demonstrates superiority to such medicines or drugs in animal models that we believe correlate to human clinical experience. This strategy is designed to reduce technical risk and increase productivity. We believe that we can enhance the probability of successfully developing and commercializing medicines by identifying at least two structurally different product candidates, whenever practicable, for development in each therapeutic program. Our Relationship with GlaxoSmithKline 2002 Collaboration. In November 2002, we entered into a long-acting beta2 agonist (LABA) collaboration agreement with GlaxoSmithKline (GSK) to develop and commercialize product candidates for the treatment of asthma and chronic obstructive pulmonary disease (COPD). LABAs are medicines that work by relaxing the muscles that line the airways, allowing the airways to expand and leading to relief and/or prevention of many of the symptoms of asthma and COPD. These LABA product candidates are intended to be administered via inhalation once-daily both as a single new medicine and as part of a new combination medicine with an inhaled corticosteroid. Under the terms of the collaboration with GSK, each company contributed four LABA product candidates to the collaboration. GSK is responsible for all development and commercialization costs associated with these eight product candidates and will pay us based upon our product candidates reaching clinical, regulatory and commercial milestones. We will make regulatory and commercial milestone payments to GSK if GSK files for regulatory approval and launches a medicine containing a LABA product candidate discovered by GSK. In addition, we will receive the same royalty rate on product sales of medicines from the collaboration regardless of whether the product candidate originated with us or with GSK. The royalty structure would result in an average percentage royalty rate in the low to mid-teens at annual net sales up to approximately $4 billion, and the average royalty rate would decline to single digits at annual net sales of more than $6 billion. Sales of single agent LABA medicines and combination LABA/inhaled corticosteroid medicines would be combined for the purposes of this royalty calculation. 2004 Strategic Alliance. In March 2004, we entered into a strategic alliance with GSK whereby GSK received an option to license product candidates from all of our other current and future drug discovery and development programs initiated prior to September 1, 2007, on pre-determined terms and on an exclusive, worldwide basis. If GSK exercises its option to license any of our programs, we will receive an upfront payment, additional payments if future milestones are achieved and royalties on any future sale of medicines developed from these programs. In addition, GSK would fund all of the development and commercialization costs for product candidates in such programs. Consistent with our strategy, we will be obligated at our sole cost to discover two structurally different product candidates for certain programs that GSK opts in to. In August 2004, GSK exercised its right to opt in to our long-acting muscarinic antagonist program for the treatment of COPD and informed us of its decision not to opt in to our bacterial infections program, in each case pursuant to the terms of the strategic alliance. GSK currently owns all of our Class A common stock, which represents approximately 19.7% of our outstanding stock before the offering. GSK's ownership of our stock could increase to approximately 60% through the issuance by us to GSK of the number of shares of our common stock that we may be required to redeem from our stockholders as described below. In July 2007, GSK has the right to require us to redeem, and upon notice of such redemption, each stockholder (including GSK, to the extent GSK holds common stock) will automatically be deemed to have submitted for redemption, 50% of our common stock held by such stockholder at $54.25 per share. This right is referred to in this prospectus as the "call." If GSK does not exercise this right, then in August 2007, each of our stockholders (including GSK, to the extent GSK holds common stock) has the right to require us to redeem up to 50% of their common stock at $19.375 per share. This right is referred to in this prospectus as the "put." In either case, GSK is contractually obligated to pay to us the funds necessary for us to redeem the shares of common stock from our stockholders; however, GSK's maximum obligation for the shares subject to the put is capped at $525 million. We are under no obligation to effect the call or the put until we receive such funds from GSK. Alternatively, if our stockholders exercise the put, GSK may choose to purchase the shares of common stock put directly from our stockholders. If GSK's ownership of our stock increases to more than 50% as a result of the call or the put, GSK will receive an extension of its exclusive option to our programs initiated prior to September 1, 2012; otherwise, this exclusive option does not apply to programs initiated after September 1, 2007. Our Programs We currently have seven programs focused on discovering and developing new medicines. Three of these programs have product candidates in Phase 1, Phase 2 or Phase 3 clinical trials: Asthma and COPD: Long-Acting Beta2 Agonists (LABA). We and GSK each have contributed four product candidates to our LABA collaboration. Of the pool of eight candidates, five are in clinical trials, two completed Phase 2a clinical trials in the fourth quarter of 2003, one completed a Phase 1 clinical trial in the fourth quarter of 2003 and two are in Phase 1 clinical trials. The current lead product candidate, GSK 159797, which was discovered by us, and a product candidate discovered by GSK are undergoing further safety and efficacy studies necessary before commencing Phase 2b clinical trials. According to IMS Health, the market for inhaled products containing long-acting beta2 agonists in the United States, Japan and Europe was approximately $4.5 billion in 2003. Bacterial Infections. Our lead antibiotic product candidate, telavancin, is a rapidly bactericidal, injectable antibiotic. In January 2004, we completed a Phase 2 clinical trial in complicated skin and soft tissue infections comparing the clinical results of telavancin with current standard antibiotic therapy. In addition to continuing Phase 2 clinical trials, we initiated a Phase 3 clinical trial in complicated skin and soft tissue infections in September of 2004 and currently plan to begin a Phase 3 clinical trial in hospital acquired pneumonia by the end of 2004. The primary market that we are targeting represents, according to IMS Health and AMR, Inc., approximately 32 million patient treatment days with antibiotics effective against infections caused by drug-resistant Gram-positive bacteria. According to IMS Health, from 1998 to 2003, treatment days in this category grew at a rate of 12% annually and worldwide sales in this category totaled $730 million in 2003. Vancomycin, a generic medicine, leads this portion of the injectible antibiotic market with annual worldwide sales of approximately $370 million. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Overactive Bladder (OAB). Our lead product candidate for OAB is TD-6301. We initiated the first Phase 1 clinical trial of TD-6301 in December 2003. We plan to initiate additional Phase 1 clinical trials in 2004. According to IMS Health, the market for medicines to treat OAB in the United States, Japan and Europe was approximately $1.5 billion in 2003. Other Programs. In addition, we have three other programs in preclinical studies in the areas of asthma and COPD (including our long-acting muscarinic antagonist program that GSK has exercised its opt-in right to under the strategic alliance), gastrointestinal disease and anesthesia. The seventh program, in the areas of asthma and COPD, is in the lead-optimization stage. Our Strategy Our objective is to discover, develop and commercialize new medicines with superior efficacy, convenience, tolerability and/or safety. The key elements of our strategy are to: Apply our expertise in multivalency primarily to validated targets to efficiently discover and develop superior medicines in large markets. Our drug discovery efforts are based on our expertise in multivalency. Multivalency involves the simultaneous attachment of a single molecule to multiple binding sites on one or more biological targets. We believe that by applying our expertise in multivalency we can discover medicines that will be superior to many market-leading medicines by substantially improving potency, duration of action and/or selectivity. Identify two structurally different product candidates in each therapeutic program whenever practicable. We believe that we can increase the likelihood of successfully bringing superior medicines to market by identifying two structurally different product candidates for development, whenever practicable. Partner with global pharmaceutical companies to accelerate development and commercialization of our product candidates. Our strategy is to seek collaborations with leading global pharmaceutical companies, such as GSK, to accelerate development and commercialization of our product candidate pipeline at the strategically appropriate time. Leverage the extensive experience of our people. We have an experienced senior management team with many years of experience discovering, developing and commercializing new medicines with companies such as Bristol-Myers Squibb Company, Merck & Co., Genentech, Inc., Millennium Pharmaceuticals, Inc., Pfizer Inc and GSK. Improve, expand and protect our technical capabilities. We have created a substantial body of know-how and trade secrets in the application of our multivalency approach to drug discovery. We expect to continue to make substantial investments in multivalency and other technologies to maintain what we believe are our competitive advantages in drug discovery. Private Share Sale to GSK Concurrently with the closing of this offering, we expect GSK to purchase from us in a private sale 318,929 shares of our Class A common stock (or 366,768 shares if the underwriters' overallotment option is exercised in full) at a price per share equal to the initial public offering price. Assuming an initial public offering price of $14.00 per share, GSK will pay approximately $4.4 million for these shares (or approximately $5.1 million if GSK purchases 366,768 shares). Company Information We were incorporated on November 19, 1996 under the name Advanced Medicine, Inc. In April 2002, we changed our name to Theravance, Inc. Unless the context otherwise requires, any reference to "Theravance," "we," "our" and "us" in this prospectus refers to Theravance, Inc., a Delaware corporation, and its subsidiary. Our principal executive offices are located at 901 Gateway Boulevard, South San Francisco, California 94080, and our telephone number is (650) 808-6000. Theravance and the Theravance logo are registered trademarks of Theravance, Inc. Trademarks, tradenames or service marks of other companies appearing in this prospectus are the property of their respective owners. Amendment No. 7 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 THE OFFERING Common stock we are offering 5,200,000 shares Common stock to be outstanding after this offering 41,658,986 shares Class A common stock to be outstanding after this offering 9,286,670 shares Use of proceeds We estimate that our net proceeds from this offering will be approximately $65.3 million at an assumed initial public offering price of $14.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses. We expect to use the net proceeds of this offering to fund our Phase 3 clinical trials for telavancin. See "Use of Proceeds." Proposed Nasdaq National Market symbol THRX The number of shares of common stock to be outstanding after the offering is based on 36,458,986 shares of common stock outstanding as of June 30, 2004. The number of shares of Class A common stock to be outstanding after the offering is based on 8,967,741 shares of Class A common stock outstanding as of June 30, 2004 and 318,929 shares of Class A common stock that we expect to issue to GSK in a concurrent private sale upon the closing of this offering. GSK owns all of our outstanding Class A common stock. Our Class A common stock has rights and obligations substantially the same as our common stock except that (i) our Class A common stock is not subject to the call and the put, and (ii) depending on GSK's ownership of our Class A common stock, the Class A common stock has the right to designate up to one-third of the members of our board of directors and up to one-half of the independent members of our board of directors. See "Description of Capital Stock Common Stock Call and Put Arrangements with GSK Voting Rights for the Election of Directors/Board of Directors Composition." The number of shares of common stock and Class A common stock to be outstanding after this offering does not take into account: 8,692,642 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 2004 with a weighted average exercise price of $7.17 per share; 64,908 shares of common stock issuable upon exercise of outstanding warrants as of June 30, 2004 with a weighted average exercise price of $9.13 per share; and an additional 735,357 shares reserved as of June 30, 2004 for future stock option grants and purchases under our equity compensation plans. See "Management Equity Benefit Plans" and note 12 of the notes to our consolidated financial statements. In addition, except where we state otherwise, the information we present in this prospectus reflects: the adoption of our restated certificate of incorporation and restated bylaws to be effective upon the completion of this offering; no exercise of the underwriters' overallotment option; and a one for 1.55 reverse stock split of our outstanding common stock and Class A common stock, effective as of September 27, 2004. (unaudited) Consolidated Balance Sheet Data Cash, cash equivalents and marketable securities $ 188,010 $ 257,779 Working capital 162,008 231,777 Total assets 219,001 288,770 Long-term liabilities 62,056 62,056 Accumulated deficit (417,145 ) (417,145 ) Total stockholders' equity (deficit) 127,297 197,066 901 Gateway Boulevard South San Francisco, California 94080 (650) 808-6000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/IWSH_wright_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/IWSH_wright_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..be2f0a2707abe6f538ce6eb1d1e2332b8475c4bb
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/IWSH_wright_prospectus_summary.txt
@@ -0,0 +1 @@
+SUMMARY This section contains a summary of all material terms of the Prospectus. Because this is a summary, it does not contain all the information that may be important to you. You should read the entire Prospectus, including our historical and pro forma consolidated financial statements and the notes to those financial statements included in this Prospectus. Unless otherwise indicated, references in this document to "we," "us," "our," or "National Patent Development" mean National Patent Development Corporation and its subsidiaries. National Patent Development National Patent Development was incorporated on March 10, 1998 as a wholly-owned subsidiary of GP Strategies Corporation. In July 2002, GP Strategies announced that it was actively considering transferring certain of its non-core assets into National Patent Development and spinning-off National Patent Development to the stockholders of GP Strategies. On November 14, 2002, GP Strategies filed a ruling request with the Internal Revenue Service with respect to the federal tax consequences of the proposed spin-off, and received a favorable ruling on March 21, 2003. On February 12, 2004, National Patent Development was recapitalized whereby the authorized capital was changed to 10,000,000 shares of preferred stock and 30,000,000 shares of common stock. Following the distribution, we will own 100% of the stock of MXL Industries, Inc., or MXL. The primary business of MXL is the manufacture of polycarbonate parts requiring adherence to strict optical quality specifications, and the application of abrasion and fog resistant coatings to those parts. MXL also designs and constructs injection molds for a variety of applications. We will also own a 64% interest in Five Star Products, Inc., or Five Star, a publicly held company that is a leading distributor in the United States of home decorating, hardware, and finishing products, and certain of GP Strategies' other non-core assets, including an investment in a publicly held company, Millennium Cell Inc.; an approximately 15.3% interest in a private company, Valera Pharmaceuticals, Inc. (formerly Hydro Med Sciences, Inc.); certain real estate; and the right to receive an additional capital contribution from GP Strategies out of certain proceeds, if any, from a litigation and arbitration claim. Our principal office is located at 777 Westchester Avenue, White Plains, NY 10604, and our telephone number is (914) 249-9700. The Spin-Off The following is a brief set of questions and answers about the spin-off. What is the spin-off? The spin-off is the method by which GP Strategies will be separated into two independent, publicly held companies: o GP Strategies, which will own and operate GP Strategies' manufacturing & process business and information technology business through its wholly-owned subsidiary, General Physics Corporation as well as GP Strategies' simulation business through its majority owned subsidiary, GSE Systems Inc.; and o National Patent Development, which will own and operate GP Strategies' optical plastics business through its subsidiary, MXL, and will own 64% of Five Star and certain of GP Strategies' other non-core assets. Why is GP Strategies spinning off National Patent o To permit GP Strategies to improve its Development? borrowing capacity, thereby satisfying its need to raise additional funds as well as achieving other corporate benefits. o To allow financial markets to evaluate GP Strategies and National Patent Development separately. o To give National Patent Development's management more flexibility to take advantage of growth opportunities. What will I receive in the spin-off? GP Strategies will distribute one share of National Patent Development common stock for every share of GP Strategies common stock or Class B capital stock owned as of the record date. You will continue to own your GP Strategies stock. How will GP Strategies distribute National Patent Development's Common Stock to me? National Patent Development stock will be issued as uncertificated shares registered in book-entry form through the direct registration system. No certificates representing National Patent Development common stock will be mailed to registered holders of GP Strategies common stock in the ordinary course. If you are a stockholder of record of GP Strategies stock on the record date, National Patent Development's transfer agent, Computershare Investor Services LLC, will hold your book-entry shares. On or about November 24, 2004, Computershare Investor Services LLC will mail you a direct registration transaction advice reflecting your ownership interest in shares of National Patent Development common stock. When you receive this advice, you will receive information explaining the direct registration system and telling you how to obtain physical certificates if you desire to do so. You will not receive new GP Strategies stock certificates. Notwithstanding the foregoing, holders of legended stock certificates representing GP common stock or Class B capital stock will receive legended physical stock certificates representing their National Patent Development common stock. When is the record date? The record date is November 18, 2004. What if I hold my shares of GP Strategies stock through my stockborker, bank or other nominee? If you hold your shares of GP Strategies stock through your stockbroker, bank or other nominee, you are probably not a stockholder of record and your receipt of National Patent Development common stock depends on your arrangements with the nominee that holds your shares of GP Strategies stock for you. We anticipate that stockbrokers and banks generally will credit their customers' accounts with National Patent Development common stock on or about November 24, 2004, but you should check with your stockbroker, bank or other nominee. Following the spin-off, you may instruct your stockbroker, bank or other nominee to transfer your shares of National Patent Development common stock into your own name. What is National Patent Development's dividend policy? We currently anticipate that no cash dividends will be paid on our common stock in the foreseeable future in order to conserve cash for the repayment of debt, future acquisitions, and capital expenditures. We expect that our Board of Directors will periodically reevaluate this dividend policy, taking into account our operating results, capital needs, debt restrictions and other factors. How will National Patent Development's common stock trade? We expect that National Patent Development common stock trade? will be quoted on the OTC Bulletin Board under the symbol " ", and that regular trading will begin on November 26, 2004. Will my shares of GP Strategies continue to trade after the spin-off? Yes, GP Strategies common stock will continue to be listed and trade on the New York Stock Exchange under the symbol "GPX." However, we cannot provide you with any assurance as to the price at which the GP Strategies shares will trade following the distribution. Is the spin-off taxable for U.S. tax purposes? No; the Internal Revenue Service has ruled that the spin-off will be tax-free for U.S. tax purposes. To review tax consequences in detail, see pages 17-20. What are the risks involved in owning National Patent Development common stock? The separation of National Patent Development from GP Strategies presents certain risks. For example, National Patent Development has no prior history of operating as an independent company. Certain other risks are associated with owning National Patent Development common stock due to the nature of its business and the markets in which it competes. You are encouraged to carefully consider these risks, which are described in greater detail on pages 11-13. Will GP Strategies and National Patent Development be related in any way after the spin-off? GP Strategies will not own any National Patent Development common stock after the spin-off, and National Patent Development will operate as an independent, publicly held company. Several of National Patent Development's directors and officers are also directors and officers of GP Strategies. GP Strategies will enter into agreements with National Patent Development to allocate responsibility for liabilities (including tax and other contingent liabilities associated with their respective businesses or otherwise to be assumed by National Patent Development or GP Strategies), to separate their businesses, and for GP Strategies and National Patent to provide management services to each other. GP Strategies and National Patent Development will also provide certain guarantees of each others' financial obligations. These agreements are described in greater detail on pages 21-23. What do I need to do now? You are not required to take any action, although we urge you to read this entire document carefully. No stockholder approval of the distribution is required or sought. We are not asking you for a proxy and you are requested not to send us a proxy. No action is required on your part to receive your National Patent Development shares. You will not be required either to pay anything for the new shares or to surrender any shares of GP Strategies stock. What We Have Already Accomplished to Prepare for the Spin-Off Board Appointments GP Strategies has elected seven directors to begin their service on National Patent Development's Board. See pages 56-57. Senior Management Appointments The National Patent Development board of directors has elected Jerome I. Feldman as Chairman and Chief Executive Officer, Scott N. Greenberg as Chief Financial Officer, and Andrea D. Kantor as Vice President and General Counsel. See pages 58-59. Information Regarding the Spin-Off and National Patent Development Before the spin-off, you should direct inquiries relating to the spin-off to: Computershare Investor Services LLC GP Strategies Corporation P.O. Box A3504 777 Westchester Avenue Chicago, IL 60690-3504 White Plains, NY 10604 Telephone: 312-360-5430 Telephone: 914-249-9700 Attn: Andrea Kantor After the spin-off, you should direct inquiries relating to an investment in National Patent Development common stock to: ......... National Patent Development Corporation ......... 777 Westchester Avenue ......... White Plains, NY 10604 ......... Telephone: 914-249-9700 ......... Attn: Lydia DeSantis After the spin-off, the transfer agent and registrar for National Patent Development's common stock will be: Computershare Investor Services LLC P.O. Box 2388 Chicago, IL 60690-3504 Telephone: 312-360-5430
\ No newline at end of file
diff --git a/parsed_sections/prospectus_summary/2004/KLIC_kulicke_prospectus_summary.txt b/parsed_sections/prospectus_summary/2004/KLIC_kulicke_prospectus_summary.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ad3311ad7b386004d076ee82bf3ef6fc3e694c05
--- /dev/null
+++ b/parsed_sections/prospectus_summary/2004/KLIC_kulicke_prospectus_summary.txt
@@ -0,0 +1,1942 @@
+summary, it does not contain all of the information that you should consider before investing. You should read this entire prospectus carefully, including the section entitled
+ Risk Factors and our financial statements and the notes to our financial statements, before making an investment decision. 
+ 
+ We design, manufacture and market capital equipment, packaging materials and test interconnect products as well as service, maintain, repair and upgrade
+equipment, all used to assemble or test semiconductor devices. We are currently the world s leading supplier of semiconductor wire bonding assembly equipment, according to VLSI Research, Inc. Our business is currently divided into three product
+segments: 
+ 
+
+ 
+ 
+equipment; 
+ 
+
+ 
+ 
+packaging materials; and 
+ 
+
+ 
+ 
+wafer and package test interconnect products. 
+ 
+ We believe we are the only major supplier to the semiconductor assembly industry that can provide customers with semiconductor wire bonding equipment
+along with the complementary packaging materials and test interconnect products that actually contact the surface of the customer s semiconductor devices. We believe that the ability to control all of these assembly related products provides us
+with a significant competitive advantage and should allow us to develop system solutions to the new technology challenges inherent in assembling and packaging next-generation semiconductor devices. 
+ 
+ Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956.
+Our principal offices are located at 2101 Blair Mill Road, Willow Grove, Pennsylvania 19090 and our telephone number is (215) 784-6000. We maintain a website with the address www.kns.com. We are not including the information contained on our
+website as a part of, or incorporating it by reference into, this prospectus. 
+ 
+ The Offering 
+ 
+
+ Issuer
+
+ 
+Kulicke and Soffa Industries, Inc.
+
+ Securities Offered
+
+ 
+140,000 shares of our common stock, without par value.
+
+ Pension Plan
+
+ 
+The common stock is being offered by this prospectus for the account of a trust that was formed in January 1987 to allow us to fund our obligations under the pension plan. We authorized the
+issuance of 140,000 shares of our common stock to be contributed to the trust to meet certain of our obligations to the pension plan. Reliance Trust Company is trustee of the pension plan. A committee, consisting of officers and employees of
+our company, currently administers the pension plan.
+
+ Use of Proceeds
+
+ 
+We will not receive any proceeds from the sale of our common stock offered by this prospectus. The proceeds will be retained by the trust to fund the pension plan s future obligations to
+participants.
+
+ Plan of Distribution
+
+ 
+The common stock may be offered and sold by the trustee from time to time directly or through broker-dealers. The common stock may be sold in one or more transactions at market prices
+prevailing at the time of sale or at prices determined on a negotiated or competitive bid basis. See Plan of Distribution. 
+
+ 
+
+ - 1 - 
+
+Table of Contents
+
+ Dividend Policy
+
+ 
+We do not intend to declare or pay cash dividends on our common stock in the foreseeable future. We intend to retain earnings to finance the growth of our business.
+
+ Listing of Common Stock
+
+ 
+Our common stock is listed on the Nasdaq National Market under the symbol KLIC. 
+
+ Risk Factors
+
+ 
+Investing in the common stock involves risks. See Risk Factors and other information contained elsewhere in this prospectus for a description of certain risks you should consider
+before making an investment decision.
+
+ 
+
+ - 2 - 
+
+Table of Contents
+
+ 
+RISK FACTORS 
+ 
+ You should
+carefully consider all of the information contained in this prospectus and the financial statements and other documents summarized in this prospectus, including the risks described below, before making an investment decision. The risks described
+below are not the only ones facing our company. Additional risks not currently known to us or that we currently consider less significant may also impair our business operations. 
+ 
+ Our business, financial condition, or results of operations could be materially, adversely affected by any of these
+risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. 
+ 
+ This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
+anticipated in such forward-looking statements for many different reasons, including the risks faced by us described below and elsewhere in this prospectus. 
+ 
+
+The semiconductor industry is volatile with sharp periodic downturns and slowdowns 
+ 
+ Our operating results are significantly affected by the capital expenditures
+of large semiconductor manufacturers and their subcontract assemblers and by those of vertically integrated manufacturers of electronic systems. Expenditures by semiconductor manufacturers and their subcontract assemblers and by vertically
+integrated manufacturers of electronic systems depend on the current and anticipated market demand for semiconductors and products that use semiconductors, including personal computers, telecommunications equipment, consumer electronics, and
+automotive goods. Significant downturns in the market for semiconductor devices or in general economic conditions reduce demand for our products and materially and adversely affect our business, financial condition and operating results. 
+
+ 
+ Historically, the semiconductor industry has been volatile, with periods
+of rapid growth followed by industry-wide retrenchment. These periodic downturns and slowdowns have adversely affected our business, financial condition and operating results. They have been characterized by, among other things, diminished product
+demand, excess production capacity, and accelerated erosion of selling prices. These downturns historically have severely and negatively affected the industry s demand for capital equipment, including the assembly equipment, the packaging
+materials and test interconnect solutions that we sell. 
+ 
+ The
+semiconductor industry experienced recent downturns in fiscal 1998 through the first half of fiscal 1999, in fiscal 2001 through the first three quarters of fiscal 2003 and we are currently seeing a slowing in customer demand for our wire bonders.
+In the 1998-1999 downturn, our net sales declined from approximately $501.9 million in fiscal 1997 to $411.0 million in fiscal 1998. In the 2001-2003 downturn, our net sales declined from approximately $877.6 million in fiscal 2000 to $441.6 million
+in fiscal 2002. The business environment was improved in the fourth quarter of fiscal 2003 through the first nine months of fiscal 2004 but we have experienced slowing in demand for our wire bonders in our fourth quarter of fiscal 2004 and we
+anticipate further slowing in demand for our wire bonders in the first fiscal quarter of 2005. There can be no assurances regarding the level of demand for our products, and in any case, we believe the historical volatility both upward and
+downward will persist. Any downturn may be more severe and prolonged than those experienced in the past. Downturns adversely affect our business, financial condition and operating results. 
+ 
+ We may experience increasing price pressure 
+ 
+ Our historical business strategy for many of our products has focused on
+product performance and customer service more than on price. The length and severity of the most recent economic downturn increased cost pressures on our customers and we have observed increasing price sensitivity on their part. In response, we
+
+ 
+
+ - 3 - 
+
+Table of Contents
+
+ are actively seeking to reduce our cost structure by moving operations to lower cost areas and by reducing other
+operating costs. If we are unable to realize prices that allow us to continue to compete on the basis of performance and service, our financial condition and operating results may be materially and adversely affected. 
+ 
+ Our quarterly operating results fluctuate significantly and may
+continue to do so in the future 
+ 
+ In the past, our
+quarterly operating results have fluctuated significantly; we expect that they will continue to fluctuate. Although these fluctuations are partly due to the volatile nature of the semiconductor industry, they also reflect other factors, many of
+which are outside of our control. 
+ 
+ Some of the factors that may
+cause our revenues and/or operating margins to fluctuate significantly from period to period are: 
+ 
+
+ 
+ 
+market downturns; 
+ 
+
+ 
+ 
+the mix of products that we sell because, for example: 
+ 
+
+ 
+ 
+our test division has lower margins than assembly equipment and packaging materials; 
+ 
+
+ 
+ 
+some lines of equipment within our business segments are more profitable than others; and 
+ 
+
+ 
+ 
+some sales arrangements have higher margins than others; 
+ 
+
+ 
+ 
+the volume and timing of orders for our products and any order postponements; 
+ 
+
+ 
+ 
+virtually all of our orders are subject to cancellation, deferral or rescheduling by the customer without prior notice and with limited or no penalties; 
+ 
+
+ 
+ 
+changes in our pricing, or that of our competitors; 
+ 
+
+ 
+ 
+higher than anticipated costs of development or production of new equipment models; 
+ 
+
+ 
+ 
+the availability and cost of the components for our products; 
+ 
+
+ 
+ 
+unanticipated delays in the introduction of our new products and upgraded versions of our products and market acceptance of these products when introduced; 
+
+ 
+
+ 
+ 
+customers delay in purchasing our products due to customer anticipation that we or our competitors may introduce new or upgraded products; and 
+ 
+
+ 
+ 
+our competitors introduction of new products. 
+ 
+ Many of our expenses, such as research and development, selling, general and administrative expenses and interest expense, do not vary directly with our
+net sales. As a result, a decline in our net sales would adversely affect our operating results. In addition, if we were to incur additional expenses in a quarter in which we did not experience comparable increased net sales, our operating results
+would decline. In a downturn, we may have excess inventory, which is required to be written off. Some of the other factors that may cause our expenses to fluctuate from period-to-period include: 
+ 
+
+ 
+ 
+the timing and extent of our research and development efforts; 
+ 
+
+ - 4 - 
+
+Table of Contents
+
+ 
+ 
+severance, resizing and the costs of relocating or closing down facilities; 
+ 
+
+ 
+ 
+inventory write-offs due to obsolescence; and 
+ 
+
+ 
+ 
+inflationary increases in the cost of labor or materials. 
+ 
+ Because our revenues and operating results are volatile and difficult to predict, we believe that consecutive period-to-period comparisons of our
+operating results may not be a good indication of our future performance. 
+ 
+ We may not be able to rapidly develop, manufacture and gain market acceptance of new and enhanced products required to maintain or expand our business 
+ 
+ We believe that our continued success depends on our ability to continuously
+develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must timely introduce these products and product enhancements into the market in response to customers demands for higher performance
+assembly equipment, leading-edge materials and for test interconnect solutions customized to address rapid technological advances in integrated circuits and capital equipment designs. Our competitors may develop new products or enhancements to their
+products that offer performance, features and lower prices that may render our products less competitive. The development and commercialization of new products requires significant capital expenditures over an extended period of time, and some
+products that we seek to develop may never become profitable. In addition, we may not be able to develop and introduce products incorporating new technologies in a timely manner that will satisfy our customers future needs or achieve market
+acceptance. 
+ 
+ Most of our sales and a substantial portion
+of our manufacturing operations are located outside of the United States, and we rely on independent foreign distribution channels for certain product lines; all of which subject us to risks from changes in trade regulations, currency fluctuations,
+political instability and war 
+ 
+ Approximately 87% of
+our net sales for the nine months ending June 30, 2004, 80% of our net sales for fiscal 2003, 74% of our net sales for fiscal 2002 and 66% of our net sales for fiscal 2001 were attributable to sales to customers for delivery outside of the United
+States, in particular to customers in the Asia/Pacific region. We expect this trend to continue. Thus, our future performance will depend, in significant part, on our ability to continue to compete in foreign markets, particularly in Asia/Pacific.
+These economies have been highly volatile, resulting in significant fluctuation in local currencies, and political and economic instability. These conditions may continue or worsen, which may materially and adversely affect our business, financial
+condition and operating results. 
+ 
+ We also rely on non-United
+States suppliers for materials and components used in our products, and most of our manufacturing operations are located in countries other than the United States. We manufacture our automatic ball bonders and bonding wire in Singapore, capillaries
+in Israel and China, bonding wire in Switzerland, test products in Taiwan, China, France, and Scotland and we have sales, service and support personnel in China, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan and Europe. We
+also rely on independent foreign distribution channels for certain of our product lines. As a result, a major portion of our business is subject to the risks associated with international, and particularly Asia/Pacific, commerce, such as:
+
+ 
+
+ 
+ 
+terrorism, war and civil disturbances or other events that may limit or disrupt markets; 
+ 
+
+ 
+ 
+expropriation of our foreign assets; 
+ 
+
+ - 5 - 
+
+Table of Contents
+
+ 
+ 
+longer payment cycles in foreign markets; 
+ 
+
+ 
+ 
+international exchange restrictions; 
+ 
+
+ 
+ 
+restrictions on the repatriation of our assets, including cash; 
+ 
+
+ 
+ 
+possible disagreements with tax authorities regarding transfer pricing regulations; 
+ 
+
+ 
+ 
+the difficulties of staffing and managing dispersed international operations; 
+ 
+
+ 
+ 
+episodic events outside our control such as, for example, the outbreak of Severe Acute Respiratory Syndrome; 
+ 
+
+ 
+ 
+tariff and currency fluctuations; 
+ 
+
+ 
+ 
+changing political conditions; 
+ 
+
+ 
+ 
+labor conditions and costs; 
+ 
+
+ 
+ 
+foreign governments monetary policies and regulatory requirements; 
+ 
+
+ 
+ 
+less protective foreign intellectual property laws; and 
+ 
+
+ 
+ 
+legal systems which are less developed and which may be less predictable than those in the United States. 
+ 
+ Because most of our foreign sales are denominated in United States dollars, an increase in value of the United States dollar
+against foreign currencies, particularly the Japanese yen, will make our products more expensive than those offered by some of our foreign competitors. Our ability to compete overseas in the future may be materially and adversely affected by a
+strengthening of the United States dollar against foreign currencies. Because we have significant assets, including cash, outside the United States, those assets are subject to risks of seizure, and it may be difficult to repatriate them, or
+repatriation may result in the payment by us of significant United States taxes. 
+ 
+ Our international operations also depend upon favorable trade relations between the United States and those foreign countries in which our customers, subcontractors, and materials suppliers have operations. A
+protectionist trade environment in either the United States or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our
+ability to sell our products in foreign markets. In addition, any change to existing United States laws or the enactment of new laws penalizing United States companies for reducing the number of United States based employees and hiring more
+employees in foreign countries may adversely affect our business, financial condition and operating results. 
+ 
+ We may not be able to consolidate manufacturing facilities without incurring unanticipated costs and disruptions to our business 
+
+ 
+ In an effort to further reduce our cost structure, we have initiated a
+process of closing some of our manufacturing facilities and expanding others. We may incur significant and unexpected costs, delays and disruptions to our business during this consolidation process. Because of unanticipated events, including the
+actions of governments, employees or customers, we may not realize the synergies, cost reductions and other benefits of any consolidation to the extent or within the timeframe that we currently expect. 
+ 
+
+ - 6 - 
+
+Table of Contents
+
+ Our business depends on attracting and retaining management, marketing and technical employees
+
+ 
+ As with many other technology companies, our future
+success depends on our ability to hire and retain qualified management, marketing and technical employees. In particular, we periodically experience shortages of engineers. If we are unable to continue to attract and retain the managerial, marketing
+and technical personnel we require, our business, financial condition and operating results could be materially and adversely affected. 
+ 
+ Difficulties in forecasting demand for our product lines may lead to periodic inventory shortages or excesses 
+ 
+ We typically operate our business with a relatively short backlog. As a
+result, we sometimes experience inventory shortages or excesses. We generally order supplies and otherwise plan our production based on internal forecasts of demand. We have in the past, and may again in the future, fail to forecast accurately
+demand for our products, in terms of both volume and configuration for either our current or next-generation wire bonders. This has led to and may in the future lead to delays in product shipments or, alternatively, an increased risk of inventory
+obsolescence. If we fail to forecast accurately demand for our products, including assembly equipment, packaging materials and test interconnect solutions, our business, financial condition and operating results may be materially and adversely
+affected. 
+ 
+ Advanced packaging technologies other than
+wire bonding may render some of our products obsolete 
+ 
+ Advanced packaging technologies have emerged that may improve device performance or reduce the size of an integrated circuit package, as compared to traditional die and wire bonding. These technologies include flip chip and chip scale
+packaging. Some of these advanced technologies eliminate the need for wires to establish the electrical connection between a die and its package. The semiconductor industry may, in the future, shift a significant part of its volume into advanced
+packaging technologies, such as those discussed above, which do not employ our products. We completed the divestiture of our advanced packaging technologies segment in February 2004. If a significant shift to advanced packaging technologies were to
+occur, demand for our wire bonders and related packaging materials may be materially and adversely affected. 
+ 
+ Because a small number of customers account for most of our sales, our revenues could decline if we lose a significant customer 
+
+ 
+ The semiconductor manufacturing industry is highly concentrated, with a
+relatively small number of large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic systems purchasing a substantial portion of our semiconductor assembly equipment, packaging materials
+and test interconnect solutions. Sales to a relatively small number of customers account for a significant percentage of our net sales. In the nine months ending June 30, 2004 and in fiscal 2003 and 2002, sales to Advanced Semiconductor Engineering,
+our largest customer, accounted for 17%, 13% and 13%, respectively, of our net sales. 
+ 
+ We expect that sales of our products to a small number of customers will continue to account for a high percentage of our net sales for the foreseeable future. Thus, our business success depends on our ability to
+maintain strong relationships with our important customers. Any one of a number of factors could adversely affect these relationships. If, for example, during periods of escalating demand for our equipment, we were unable to add inventory and
+production capacity quickly enough to meet the needs of our customers, they may turn to other suppliers making it more difficult for us to retain their business. Similarly, if we are unable for any other reason to meet production or delivery
+schedules, particularly during a period of escalating demand, our relationships with our key customers could be adversely affected. If we lose orders from a significant customer, or if a significant customer reduces its orders substantially, these
+losses or reductions may materially and adversely affect our business, financial condition and operating results. 
+ 
+
+ - 7 - 
+
+Table of Contents
+
+ We depend on a small number of suppliers for raw materials, components and subassemblies. If our
+suppliers do not deliver their products to us, we would be unable to deliver our products to our customers 
+ 
+ Our products are complex and require raw materials, components and subassemblies having a high degree of reliability, accuracy and performance. We rely on
+subcontractors to manufacture many of these components and subassemblies and we rely on sole source suppliers for some important components and raw materials, including gold. In addition, we do not have long-term contracts with many of our
+suppliers. As a result, we are exposed to a number of significant risks, including: 
+ 
+
+ 
+ 
+lack of control over the manufacturing process for components and subassemblies; 
+ 
+
+ 
+ 
+changes in our manufacturing processes, in response to changes in the market, which may delay our shipments; 
+ 
+
+ 
+ 
+our inadvertent use of defective or contaminated raw materials; 
+ 
+
+ 
+ 
+the relatively small operations and limited manufacturing resources of some of our suppliers, which may limit their ability to manufacture and sell subassemblies, components or
+parts in the volumes we require and at acceptable quality levels and prices; 
+ 
+
+ 
+ 
+reliability or quality problems with certain key subassemblies provided by single source suppliers as to which we may not have any short term alternative; 
+
+ 
+
+ 
+ 
+shortages caused by disruptions at our suppliers and subcontractors for a variety of reasons, including work stoppage or fire, earthquake, flooding or other natural disasters;
+
+ 
+
+ 
+ 
+delays in the delivery of raw materials or subassemblies, which, in turn, may delay our shipments; and 
+ 
+
+ 
+ 
+the loss of suppliers as a result of the consolidation of suppliers in the industry. 
+ 
+ If we are unable to deliver products to our customers on time for these or any other reasons; if we are unable to meet
+customer expectations as to cycle time; or if we do not maintain acceptable product quality or reliability, our business, financial condition and operating results may be materially and adversely affected. 
+ 
+ Our test division and our diversification presents significant
+management and operating challenges 
+ 
+ During fiscal
+2001, we acquired two companies that design and manufacture test interconnect solutions, Cerprobe Corporation and Probe Technology Corporation, and combined their operations to create our test division. Since its acquisition in 2001, this division
+has not performed to our expectation. Problems have included difficulties in rationalizing duplicate products and facilities, and in integrating these acquisitions. Our plan to correct these problems centers on the following steps: standardize
+production processes between the various test manufacturing sites, create and ramp production of our highest volume products in a new lower cost site in China and/or outsource production where appropriate, then rationalize excess capacity by
+converting existing higher cost, low volume manufacturing sites to service centers. If we are unable to successfully implement this plan, our operating margins and results of operations will continue to be adversely affected by the performance of
+our test division. 
+ 
+
+ - 8 - 
+
+Table of Contents
+
+ More generally, our diversification strategy has increased demands on our management, financial resources
+and information and internal control systems. Our success will depend, in part, on our ability to manage and integrate our test division and our equipment and packaging materials businesses and to continue successfully to implement, improve and
+expand our systems, procedures and controls. If we fail to integrate our businesses successfully or to develop the necessary internal procedures to manage diversified businesses, our business, financial condition and operating results may be
+materially and adversely affected. 
+ 
+ Although we have no current
+plans to do so, we may from time to time in the future seek to expand our business through acquisition. In that event, the success of any such acquisition will depend, in part, on our ability to integrate and finance (on acceptable terms) the
+acquisition. 
+ 
+ We may be unable to continue to compete
+successfully in the highly competitive semiconductor equipment, packaging materials and test interconnect solutions industries 
+ 
+ The semiconductor equipment, packaging materials and test interconnect solutions industries are very competitive. In the semiconductor equipment and test
+interconnect solutions markets, significant competitive factors include performance, quality, customer support and price. In the semiconductor packaging materials industry, competitive factors include price, delivery and quality. 
+ 
+ In each of our markets, we face competition and the threat of competition
+from established competitors and potential new entrants, some of which have or may have significantly greater financial, engineering, manufacturing and marketing resources than we have. Some of these competitors are Asian and European companies that
+have had and may continue to have an advantage over us in supplying products to local customers who appear to prefer to purchase from local suppliers, without regard to other considerations. 
+ 
+ We expect our competitors to improve their current products 
+performance, and to introduce new products and materials with improved price and performance characteristics. Our competitors may independently develop technology that is similar to or better than ours. New product and materials introductions by our
+competitors or by new market entrants could hurt our sales. If a particular semiconductor manufacturer or subcontract assembler selects a competitor s product or materials for a particular assembly operation, we may not be able to sell products
+or materials to that manufacturer or assembler for a significant period of time because manufacturers and assemblers sometimes develop lasting relations with suppliers, and assembly equipment in our industry often goes years without requiring
+replacement. In addition, we may have to lower our prices in response to price cuts by our competitors, which may materially and adversely affect our business, financial condition and operating results. We cannot assure you that we will be able to
+continue to compete in these or other areas in the future. If we cannot compete successfully, we could be forced to reduce prices, and could lose customers and market share and experience reduced margins and profitability. 
+ 
+ Our success depends in part on our intellectual property, which we may
+be unable to protect 
+ 
+ Our success depends in part on
+our proprietary technology. To protect this technology, we rely principally on contractual restrictions (such as nondisclosure and confidentiality provisions) in our agreements with employees, subcontractors, vendors, consultants and customers and
+on the common law of trade secrets and proprietary know-how. We also rely, in some cases, on patent and copyright protection. We may not be successful in protecting our technology for a number of reasons, including the following:
+
+ 
+
+ 
+ 
+employees, subcontractors, vendors, consultants and customers may violate their contractual agreements, and the cost of enforcing those agreements may be prohibitive, or those
+agreements may be unenforceable or more limited than we anticipate; 
+ 
+
+ 
+ 
+foreign intellectual property laws may not adequately protect our intellectual property rights; 
+ 
+
+ - 9 - 
+
+Table of Contents
+
+ 
+ 
+our patent and copyright claims may not be sufficiently broad to effectively protect our technology; our patents or copyrights may be challenged, invalidated or circumvented; and we
+may otherwise be unable to obtain adequate protection for our technology. 
+ 
+ In addition, our partners and alliances may also have rights to technology that we develop. We may incur significant expense to protect or enforce our intellectual property rights. If we are unable to protect our
+intellectual property rights, our competitive position may be weakened. 
+ 
+ Third parties may claim we are infringing on their intellectual property, which could cause us to incur significant litigation costs or other expenses, or prevent us from selling some of our products
+
+ 
+ The semiconductor industry is characterized by rapid
+technological change, with frequent introductions of new products and technologies. Industry participants often develop products and features similar to those introduced by others, creating a risk that their products and processes may give rise to
+claims that they infringe on the intellectual property of others. We may unknowingly infringe on the intellectual property rights of others and incur significant liability for that infringement. If we are found to have infringed on the intellectual
+property rights of others, we could be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to
+obtain or may not be available at all. Similarly, changing or re-engineering our products or processes to avoid infringing the rights of others may be costly, impractical or time consuming. 
+ 
+ Occasionally, third parties assert that we are, or may be, infringing on or
+misappropriating their intellectual property rights. In these cases, we will defend against claims or negotiate licenses where we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual
+questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from our business. 
+ 
+ Some of our customers are parties to litigation brought by the Lemelson Medical, Education and Research Foundation Limited Partnership
+( Lemelson ), in which Lemelson claims that certain manufacturing processes used by those customers infringe patents held by Lemelson. We have never been named a party to any such litigation. Some customers have requested that we indemnify
+them to the extent their liability for these claims arises from use of our equipment. We do not believe that products sold by us infringe valid Lemelson patents. If a claim for contribution were to be brought against us, we believe we would have
+valid defenses to assert and also would have rights to contribution and claims against our suppliers. We have not incurred any material liability with respect to the Lemelson claims or any other pending intellectual property claim to date and we do
+not believe that these claims will materially and adversely affect our business, financial condition or operating results. The ultimate outcome of any infringement or misappropriation claim that might be made, however, is uncertain and we cannot
+assure you that the resolution of any such claim would not materially and adversely affect our business, financial condition and operating results. 
+ 
+ We may be materially and adversely affected by environmental and safety laws and regulations 
+ 
+ We are subject to various federal, state, local and foreign laws and
+regulations governing, among other things, the generation, storage, use, emission, discharge, transportation and disposal of hazardous material, investigation and remediation of contaminated sites and the health and safety of our employees.
+Increasingly, public attention has focused on the environmental impact of manufacturing operations and the risk to neighbors of chemical releases from such operations. 
+ 
+ Proper waste disposal plays an important role in the operation of our manufacturing plants. In many of our facilities we
+maintain wastewater treatment systems that remove metals and other contaminants from process 
+ 
+
+ - 10 - 
+
+Table of Contents
+
+ wastewater. These facilities operate under permits that must be renewed periodically. A violation of those permits may
+lead to revocation of the permits, fines, penalties or the incurrence of capital or other costs to comply with the permits, including potential shutdown of operations. 
+ 
+ In the future, existing or new land use and environmental regulations may: (1) impose upon us the need for additional
+capital equipment or other process requirements, (2) restrict our ability to expand our operations, (3) subject us to liability for, among other matters, remediation, and/or (4) cause us to curtail our operations. We cannot assure you that any costs
+or liabilities associated with complying with these environmental laws will not materially and adversely affect our business, financial condition and operating results. 
+ 
+ We have significant intangible assets and goodwill, which we are required to evaluate annually 
+ 
+ In fiscal 2002 and 2003, we recorded substantial write-downs of goodwill.
+However, our financial statements continue to reflect significant intangible assets and goodwill. We are required to perform an impairment test at least annually to support the carrying value of goodwill and intangible assets. Should we be required
+to recognize additional intangible or goodwill impairment charges, our financial condition would be adversely affected. 
+ 
+ Anti-takeover provisions in our articles of incorporation and bylaws, and under Pennsylvania law may discourage other companies from attempting to
+acquire us 
+ 
+ Some provisions of our articles of
+incorporation and bylaws and of Pennsylvania law may discourage some transactions where we would otherwise experience a fundamental change. For example, our articles of incorporation and bylaws contain provisions that: 
+ 
+
+ 
+ 
+classify our board of directors into four classes, with one class being elected each year; 
+ 
+
+ 
+ 
+permit our board to issue blank check preferred stock without stockholder approval; and 
+ 
+
+ 
+ 
+prohibit us from engaging in some types of business combinations with a holder of 20% or more of our voting securities without super-majority board or stockholder approval.
+
+ 
+ Further, under the Pennsylvania Business
+Corporation Law, because our bylaws provide for a classified board of directors, stockholders may remove directors only for cause. These provisions and some other provisions of the Pennsylvania Business Corporation Law could delay, defer or prevent
+us from experiencing a fundamental change and may adversely affect our common stockholders voting and other rights. 
+ 
+ Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, or other acts of violence or war may
+affect the markets in which we operate and our profitability 
+ 
+ Terrorist attacks may negatively affect our operations. There can be no assurance that there will not be further terrorist attacks against the United States or United States businesses. These attacks or armed conflicts may directly impact
+our physical facilities or those of our suppliers or customers. Our primary facilities include administrative, sales and R&D facilities in the United States and manufacturing facilities in the United States, Israel, Singapore and China. Also,
+these attacks have disrupted the global insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for all of our facilities. Furthermore, these attacks may make travel and the
+transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the United States and overseas. The existing conflicts in Afghanistan and Iraq, and particularly in Israel, where we
+maintain a manufacturing facility, or any broader conflict, could have a further impact on our domestic and international sales, our supply chain, 
+ 
+
+ - 11 - 
+
+Table of Contents
+
+ our production capability and our ability to deliver product to our customers. Political and economic instability in some
+regions of the world could negatively impact our business. The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. 
+
+ 
+ We may be unable to generate enough cash to service our debt
+
+ 
+ Our ability to make payments on our indebtedness and
+to fund planned capital expenditures and other activities will depend on our ability to generate cash in the future. If our convertible debt is not converted to our common shares, we will be required to make annual cash interest payments of $1.7
+million in each of fiscal years 2005 through 2008, $821 thousand in fiscal 2009 and $488 thousand in fiscal 2010 on our aggregate $270 million of convertible subordinated debt. Principal payments of $205.0 million and $65.0 million on the
+convertible subordinated debt are due in fiscal 2009 and 2010, respectively. Our ability to make payments on our indebtedness is affected by the volatile nature of our business, and general economic, competitive and other factors that are beyond our
+control. Our indebtedness poses risks to our business, including that: 
+ 
+
+ 
+ 
+we must use a substantial portion of our consolidated cash flow from operations to pay principal and interest on our debt, thereby reducing the funds available for working capital,
+capital expenditures, acquisitions, product development and other general corporate purposes; 
+ 
+
+ 
+ 
+insufficient cash flow from operations may force us to sell assets, or seek additional capital, which we may be unable to do at all or on terms favorable to us; and
+
+ 
+
+ 
+ 
+our level of indebtedness may make us more vulnerable to economic or industry downturns. 
+ 
+ We cannot assure you that our business will generate cash in an amount sufficient to enable us to service interest,
+principal and other payments on our debt, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on
+commercially reasonable terms, if at all. 
+ 
+ We are not
+restricted under the agreements governing our existing indebtedness from incurring additional debt in the future. If new debt is added to our current levels, our leverage and our debt service obligations would increase and the related risks
+described above could intensify. 
+ 
+ Our stock price has
+been and is likely to continue to be highly volatile 
+ 
+ In recent years, the price of our common stock has fluctuated greatly. These price fluctuations have sometimes been rapid and severe. The price of our common stock may continue to fluctuate greatly in the future due to a variety of factors,
+including: 
+ 
+
+ 
+ 
+quarter to quarter variations in our operating results; 
+ 
+
+ 
+ 
+differences in our revenue or earnings from levels expected by securities analysts as well as changes in their recommendations; 
+ 
+
+ 
+ 
+changes in the ratings of our notes 
+ 
+
+ 
+ 
+announcements of technological innovations or new products by us or other companies; and 
+ 
+
+ 
+ 
+slowdowns or downturns in the semiconductor industry. 
+ 
+
+ - 12 - 
+
+Table of Contents
+
+ One or more of these factors could significantly harm our business and cause a decline in the price of our common stock
+in the public market, which could adversely affect your investment as well as our business and financial operations. 
+ 
+ We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock, and the new
+equity securities that we may issue could include preferred stock that may have rights and preferences that are superior to the rights of holders of our common stock 
+ 
+ The issuance of additional equity securities or securities convertible into equity securities will result in dilution of
+existing stockholders equity interests in us. Our board of directors has the authority to issue, without vote or action of stockholders, shares of preferred stock in one or more series, and has the ability to fix the rights, preferences,
+privileges and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the
+rights of holders of our common stock. Our board of directors has no present intention of issuing any such preferred stock, but reserves the right to do so in the future. In addition, we are authorized to issue, without stockholder approval, up to
+an aggregate of 200 million shares of common stock, of which approximately 51.0 million shares were outstanding as of June 30, 2004. We are also authorized to issue, without stockholder approval, securities convertible into either shares of common
+stock or preferred stock. 
+ 
+ We do not expect to pay
+dividends on our common stock in the foreseeable future 
+ 
+ Although our shareholders may receive dividends if, as and when declared by our board of directors, we do not intend to pay dividends on our common stock in the foreseeable future. Therefore, you should not purchase our common stock if you
+need immediate or future income by way of dividends from your investment. 
+ 
+
+ - 13- 
+
+Table of Contents
+
+ 
+USE OF PROCEEDS 
+ 
+ We will
+not receive any proceeds from the sale of our common stock offered pursuant to this prospectus. The proceeds will be retained by the trust to fund the pension plan s future obligations to participants. 
+ 
+
+ - 14 - 
+
+Table of Contents
+
+ 
+PRICE RANGE OF COMMON STOCK 
+ 
+ Our
+common stock is listed and traded on the Nasdaq National Market under the symbol KLIC. The following table sets forth, for the periods indicated, the range of high and low per share sale prices for our common stock. On September 29,
+2004, the last reported sale price of our common stock was $5.67 per share. 
+ 
+
+ 
+ 
+Common Stock Price
+
+ 
+ 
+High
+
+ 
+Low
+
+ Year ended September 30, 2002:
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ First Quarter
+
+ 
+$
+18.97
+ 
+$
+9.78
+
+ Second Quarter
+
+ 
+ 
+21.65
+ 
+ 
+14.32
+
+ Third Quarter
+
+ 
+ 
+21.67
+ 
+ 
+10.65
+
+ Fourth Quarter
+
+ 
+ 
+12.93
+ 
+ 
+2.85
+
+ Year ended September 30, 2003:
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ First Quarter
+
+ 
+$
+6.74
+ 
+$
+1.91
+
+ Second Quarter
+
+ 
+ 
+7.59
+ 
+ 
+4.39
+
+ Third Quarter
+
+ 
+ 
+8.00
+ 
+ 
+4.61
+
+ Fourth Quarter
+
+ 
+ 
+13.25
+ 
+ 
+5.99
+
+ Year ended September 30, 2004:
+
+ 
+ 
+ 
+ 
+ 
+ 
+
+ First Quarter
+
+ 
+$
+17.20
+ 
+$
+10.83
+
+ Second Quarter
+
+ 
+ 
+16.72
+ 
+ 
+10.51
+
+ Third Quarter
+
+ 
+ 
+12.80
+ 
+ 
+9.61
+
+ Fourth Quarter (through September 29, 2004)
+
+ 
+ 
+10.95
+ 
+ 
+4.80
+
+ 
+ As of September 22,
+2004, we had approximately 536 stockholders of record. 
+ 
+ 
+DIVIDEND POLICY 
+ 
+ The payment of
+dividends on our common stock is within the discretion of our board of directors. We have not historically paid cash dividends on our common stock and we do not expect to declare cash dividends on our common stock in the near future. We intend to
+retain earnings to finance the growth of our business. 
+ 
+
+ - 15 - 
+
+Table of Contents
+
+ 
+CAPITALIZATION 
+ 
+ The following
+table shows our unaudited cash, cash equivalents and short-term investments, and capitalization as of June 30, 2004 on an actual basis. This table should be read in conjunction with our financial statements, related notes and the other information
+included or referred to in this prospectus. 
+ 
+
+ 
+ 
+As of June 30, 2004
+
+ 
+
+ 
+ 
+(in thousands, except share
+data)
+ 
+
+ Cash, cash equivalents and short-term investments
+
+ 
+$
+138,177
+ 
+
+ 
+ 
+
+ Restricted cash
+
+ 
+ 
+3,266
+ 
+
+ 
+ 
+
+ Short-term obligations:
+
+ 
+ 
+ 
+ 
+
+ Current portion of long-term debt
+
+ 
+ 
+219
+ 
+
+ 
+ 
+
+ Long-term obligations:
+
+ 
+ 
+ 
+ 
+
+ 5.25% Convertible Subordinated Notes due 2006(1)
+
+ 
+ 
+54,000
+ 
+
+ 1% Convertible Subordinated Notes due 2010
+
+ 
+ 
+65,000
+ 
+
+ 0.5% Convertible Subordinated Notes due 2008
+
+ 
+ 
+205,000
+ 
+
+ Bank borrowings, net of current portion
+
+ 
+ 
+5,317
+ 
+
+ Capitalized leases, net of current position
+
+ 
+ 
+318
+ 
+
+ Other long-term liabilities
+
+ 
+ 
+37,313
+ 
+
+ 
+ 
+
+ Total long-term obligations
+
+ 
+ 
+366,948
+ 
+
+ 
+ 
+
+ Stockholders equity:
+
+ 
+ 
+ 
+ 
+
+ Preferred Stock, without par value; 5 million shares authorized; none issued or outstanding
+
+ 
+ 
+ 
+ 
+
+ Common Stock, without par value; 200 million shares authorized; 51,023,663 issued and outstanding(2)
+
+ 
+ 
+213,010
+ 
+
+ Retained Deficit
+
+ 
+ 
+(143,243
+)
+
+ Accumulated other comprehensive loss
+
+ 
+ 
+(6,925
+)
+
+ 
+ 
+
+ Total Stockholders Equity
+
+ 
+ 
+62,842
+ 
+
+ 
+ 
+
+ Total Capitalization
+
+ 
+$
+430,009
+ 
+
+ 
+ 
+
+(1)
+On August 19, 2004, we redeemed all of our outstanding 5.25% Convertible Subordinated Notes due 2006. 
+
+(2)
+Excludes (i) 9.2 million shares as of June 30, 2004 issuable upon exercise of outstanding stock options, (ii) 10.1 million shares issuable upon conversion of the 0.5% Convertible
+Subordinated Notes due 2008, (iii) 2.7 million shares issuable upon conversion of the 5.25% Convertible Subordinated Notes due 2006 and (iv) 5.1 million shares issuable upon conversion of the 1% Convertible Subordinated Notes due 2010.
+
+ 
+
+ - 16 - 
+
+Table of Contents
+
+ 
+BUSINESS 
+ 
+ We design, manufacture
+and market capital equipment, packaging materials and test interconnect products as well as service, maintain, repair and upgrade equipment, all used to assemble or test semiconductor devices. We are currently the world s leading supplier of
+semiconductor wire bonding assembly equipment, according to VLSI Research, Inc. Our business is currently divided into three product segments: 
+ 
+
+ 
+ 
+equipment; 
+ 
+
+ 
+ 
+packaging materials; and 
+ 
+
+ 
+ 
+wafer and package test interconnect products. 
+ 
+ We completed the divestiture of our advanced packaging technologies segment in February 2004. 
+ 
+ Our goal is to be both the technology leader, and the lowest cost supplier,
+in each of our major lines of business. We believe we are the only major supplier to the semiconductor assembly industry that can provide customers with semiconductor wire bonding equipment along with the complementary packaging materials and test
+interconnect products that actually contact the surface of the customer s semiconductor devices. We believe that the ability to control all of these assembly related products provides us with a significant competitive advantage, and should
+allow us to develop system solutions to the new technology challenges inherent in assembling and packaging next-generation semiconductor devices. 
+ 
+ The semiconductor industry has been historically volatile, with periods of rapid growth followed by downturns. In response to recent downturns, we shifted
+our strategy, focusing on our larger, more established product lines, and divesting or discontinuing smaller or more speculative businesses. Additionally, we continuously seek to further reduce our cost structure both by moving operations to lower
+cost areas, moving away from non-core businesses and increasing productivity. We believe the historical volatility of the semiconductor industry both upward and downward will persist. 
+ 
+ Kulicke and Soffa Industries, Inc. was incorporated in Pennsylvania in 1956.
+Our principal offices are located at 2101 Blair Mill Road, Willow Grove, Pennsylvania 19090 and our telephone number is (215) 784-6000. We maintain a website with the address www.kns.com. We are not including the information contained on our website
+as a part of, or incorporating it by reference into, this prospectus. We make available free of charge (other than an investor s own Internet access charges) on or through our website our annual report on Form 10-K, quarterly reports on Form
+10-Q, current reports on Form 8-K, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or otherwise furnished to the SEC. 
+ 
+ Our logo appearing on the front and back covers of this prospectus and
+Maxum , Maxum Plus , Nu-Tek , WaferPRO , Triton RDA and DuraPlus are trademarks of Kulicke and Soffa Industries, Inc. Other brands, names and trademarks contained in this prospectus are the
+property of their respective owners. 
+ 
+
+ - 17 - 
+
+Table of Contents
+
+ Products and Services 
+ 
+ We offer a range of wire bonding equipment and spare parts, packaging materials, and test interconnect products. Set forth below is a table listing the
+net sales from continuing operations for each business segment for our fiscal years ended September 30, 2001, 2002, and 2003, and for the nine month periods ended June 30, 2003 and June 30, 2004: 
+ 
+
+ 
+ 
+Fiscal Year Ended September 30,
+
+ 
+Nine Months Ended
+June 30,
+
+ 
+ 
+2001(1)
+
+ 
+2002
+
+ 
+2003(2)
+
+ 
+2003
+
+ 
+2004
+
+ 
+ 
+(in thousands)
+
+ Equipment
+
+ 
+$
+249,952
+ 
+$
+169,469
+ 
+$
+198,447
+ 
+$
+145,880
+ 
+$
+312,172
+
+ Packaging materials
+
+ 
+ 
+150,945
+ 
+ 
+157,176
+ 
+ 
+174,471
+ 
+ 
+128,987
+ 
+ 
+167,418
+
+ Test interconnect
+
+ 
+ 
+116,890
+ 
+ 
+114,698
+ 
+ 
+104,882
+ 
+ 
+78,319
+ 
+ 
+90,678
+
+ Other(3)
+
+ 
+ 
+595
+ 
+ 
+222
+ 
+ 
+135
+ 
+ 
+135
+ 
+ 
+ 
+
+ 
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+ 
+$
+518,382
+ 
+$
+441,565
+ 
+$
+477,935
+ 
+$
+353,321
+ 
+$
+570,268
+
+ 
+ 
+
+ 
+
+ 
+
+ 
+
+ 
+
+(1)
+In the first quarter of fiscal 2001, we acquired two test interconnect companies, Cerprobe Corporation and Probe Technology Corporation, creating our test interconnect segment.
+
+(2)
+In the fourth quarter of fiscal 2003, we sold the assets related to the saw and hard material blade businesses that were part of the equipment segment and packaging materials
+segment, respectively. Those businesses had fiscal 2003 revenue of $11.3 million. 
+
+(3)
+Comprised of sales associated with our substrate business that was closed in fiscal 2002. 
+ 
+ As the above chart indicates, our equipment sales are highly volatile, based on the semiconductor industry s need for
+new capability and capacity, whereas packaging materials and test interconnect sales, in general, tend to be more stable, following the trend of total semiconductor unit production. 
+ 
+ See Note 13 to our Notes to Consolidated Financial Statements for financial results by business segment. 
+ 
+ Equipment 
+ 
+ Our principal equipment product line is our family of wire bonders, which are used to connect very fine wires, typically
+made of gold, aluminum or copper, between the bond pads of a semiconductor die and the leads on the integrated circuit (IC) package to which the die has been attached. We offer both ball and wedge type wire bonders in automatic and manual
+configurations. Automatic IC ball bonders represent a large majority of our wire bonder business. We believe that our wire bonders offer competitive advantages by providing customers with high productivity/throughput and superior package
+quality/process control. Especially important is the machine s ability to perform very fine pitch bonding as well as create the sophisticated wire loop shapes that are needed in the assembly of advanced semiconductor packages. 
+ 
+ The largest portion of our wire bonder revenue comes from the sale of IC ball
+bonders. As part of our competitive strategy, we have been introducing new models of IC ball bonders every 15 to 24 months, with each new model designed to increase both productivity and process capability compared to its predecessor. In May 2002,
+we began marketing the Maxum IC ball bonder, which offered up to 20% more productivity
+than its predecessor. In the second quarter of fiscal 2004, we began shipping the Maxum Plus to customers offering further productivity increases, as well as process capability improvements. In addition, in January of 2003, we began shipping the Nu-Tek , a new automatic wire bonder optimized for low lead count ICs and discrete device applications, which are both segments of the
+market where we had not previously participated. 
+ 
+ We also
+produce other models of wire bonders, targeted at specific market niches, including: the Model 8098, a large area ball bonder designed for wire bonding hybrid, chip on board, and other large area applications; the WaferPRO , for wafer level bumping for area array applications; the Triton RDA , a wedge bonder designed for ribbon bonding; the Model 8060 and Model 8090 wedge bonders; and the
+4500 series of manual wire bonders. 
+ 
+ As part of our efforts to
+reduce the cost of our wire bonders, we transferred our automatic ball bonder manufacturing from Willow Grove, Pennsylvania to Singapore in fiscal 2000. Further cost reductions were achieved in fiscal 2003 by integrating China-based vendors into our
+supply chain. 
+ 
+
+ - 18 - 
+
+Table of Contents
+
+ We believe that our industry knowledge and technical experience have positioned us to deliver innovative,
+customer-specific offerings that reduce the cost of owning our equipment over its useful life. In response to customer trends in outsourcing packaging requirements, we provide repair and maintenance services, a variety of equipment upgrades, machine
+and component rebuild activities and expanded customer training through a customer operations group. 
+ 
+ Packaging Materials 
+ 
+ We manufacture and market a range of semiconductor packaging materials and expendable tools for the semiconductor assembly market, including very fine gold, aluminum and copper wire, capillaries, wedges, die collets and saw blades, all of
+which are used in packaging and assembly processes. Our packaging materials are designed for use on both our own and our competitors assembly equipment. A wire bonder uses a capillary or wedge tool and bonding wire much like a sewing machine
+uses a needle and thread. 
+ 
+ Our principal products are:
+
+ 
+ Bonding Wire. We manufacture very fine gold, aluminum
+and copper wire used in the wire bonding process. This wire is bonded to the chip surface and package substrate by the wire bonder and becomes a permanent part of the customer s semiconductor package. We produce wire to a wide range of
+specifications, which can satisfy most wire bonding applications across the spectrum of semiconductor packages. 
+ 
+ Expendable Tools. Our expendable tools include a wide variety of capillaries, wedges, die collets and wafer saw blades. The capillaries and wedges
+actually attach the wire to the semiconductor chip, allow a precise amount of wire to be paid out to form a permanent wire loop, then attach the wire to the package substrate, and finally cut the wire so that the bonding process can be repeated
+again. Die collets are used to pick up and place die into packages before the wire bonding process. Our hub blades are used to cut silicon wafers into individual semiconductor die. 
+ 
+ Test Interconnect 
+ 
+ We offer a broad range of fixtures used to temporarily contact a semiconductor device while it is still in the wafer format (wafer probing), thereby
+providing electrical connections to automatic test equipment. We also offer test sockets used to test the final semiconductor package (package or final testing). Our principal test interconnect products are: 
+ 
+ Probe cards. Probe cards consist of a complex, multilayer printed
+circuit board (PCB) upon which are attached numerous probe needles designed to make temporary contact to each of the bond pads or bumps on a die while it is still in a wafer format, providing electrical connections to automatic test equipment.
+
+ 
+ Automatic Test Equipment (ATE) interface assemblies.
+ATE interface assemblies, sometimes called space transformers, typically consist of mechanical docking hardware and intricate, multilayer PCBs, which mechanically connect the ATE to a wafer prober and carry electrical signals to a probe card, and
+ultimately the semiconductor device under test. 
+ 
+ Test
+sockets. Test sockets hold packaged semiconductor devices while making electrical connections to their leads through spring loaded contacts. 
+ 
+ Changes in the design of a semiconductor device often require changes in the probe card, test socket and, in certain cases, the ATE test board used to
+test that semiconductor. Customers generally purchase new 
+ 
+
+ - 19 - 
+
+Table of Contents
+
+ versions of these custom-designed products each time there is a design change in the semiconductor being tested, which
+means our products are at risk with each design change. Changes in semiconductor design and processes drive improvements in test interconnect technology in order to support significant increases in the number and density of bond pads or leads being
+tested and the speed of the electrical signals being tested. Examples of the new families of probe cards we have introduced include the DuraPlus and advanced epoxy products. 
+ 
+ Customers 
+ 
+ Our major customers include large semiconductor manufacturers and their subcontract assemblers and vertically integrated manufacturers of electronic
+systems. Some of these major customers are: 
+ 
+
+ Semiconductor Manufacturers
+
+ 
+ Semiconductor Assemblers
+
+ 
+ Vertically Integrated
+ Manufacturers
+
+Advanced Micro Devices
+ 
+Advanced Semiconductor Engineering
+ 
+ IBM
+
+Agere
+ 
+Amkor Technologies
+ 
+ Motorola
+
+Conexant
+ 
+ChipPAC
+ 
+ NEC International
+
+Infineon Technologies
+ 
+Siliconware Precision Industries
+ 
+ Philips Electronics
+
+Intel
+ 
+ 
+ 
+ Samsung
+
+LSI Logic
+ 
+ 
+ 
+ Seagate
+
+Micron
+ 
+ 
+ 
+ 
+
+National Semiconductor
+ 
+ 
+ 
+ 
+
+STMicroelectronics
+ 
+ 
+ 
+ 
+
+Texas Instruments
+ 
+ 
+ 
+ 
+
+ 
+ These customers
+sometimes vary year to year based on their capital investment and operating expense budgets. The chart below shows our top ten end-use customers, based on net sales, for each of the last three fiscal years: 
+ 
+
+ Fiscal 2001
+
+ 
+ Fiscal 2002
+
+ 
+ Fiscal 2003
+
+1. Texas Instruments
+ 
+1. Advanced Semiconductor Engineering
+ 
+1. Advanced Semiconductor Engineering
+
+2. STMicroelectronics
+ 
+2. STMicroelectronics
+ 
+2. STMicroelectronics
+
+3. Micron
+ 
+3. Siliconware Precision Industries
+ 
+3. Intel
+
+4. Advanced Semiconductor Engineering
+ 
+4. Intel
+ 
+4. Amkor Technologies
+
+5. Intel
+ 
+5. Texas Instruments
+ 
+5. Texas Instruments
+
+6. Infineon Technologies
+ 
+6. Infineon Technologies
+ 
+6. Infineon Technologies
+
+7. Lexmark
+ 
+7. Amkor Technologies
+ 
+7. National Semiconductor
+
+8. Amkor Technologies
+ 
+8. National Semiconductor
+ 
+8. Philips Electronics
+
+9. Philips Electronics
+ 
+9. Samsung
+ 
+9. ST Assembly Test
+
+10. Agere
+ 
+10. Philips Electronics
+ 
+10. Siliconware Precision Industries
+
+ 
+ We believe that
+developing long-term relationships with our customers is critical to our success. By establishing these relationships with semiconductor manufacturers, semiconductor subcontract assemblers, and vertically integrated manufacturers of electronic
+systems, we gain insight into our customers future IC packaging strategies. This information assists us in our efforts to develop material, equipment and process solutions that address our customers future assembly requirements.
+
+ 
+ International Operations 
+ 
+ We sell our products to semiconductor manufacturers, semiconductor
+subcontract assemblers, and vertically integrated manufacturers of electronic systems, which are primarily located in or have operations in 
+ 
+
+ - 20 - 
+
+Table of Contents
+
+ the Asia/Pacific region. Approximately 87% of our net sales for the nine months ended June 30, 2004, 79% of our fiscal
+2003 net sales, 72% of our fiscal 2002 net sales, and 62% of our fiscal 2001 net sales were for delivery to customer locations outside of the United States. The majority of these foreign sales were destined for customer locations in the Asia/Pacific
+region, including Taiwan, Malaysia, Singapore, Korea, Japan, and the Philippines. Our shipments to customers in China have historically been a small portion of our sales, however, we expect this portion to increase as some of our customers increase
+their production capacity in China. We expect sales outside of the United States to continue to represent a majority of our future revenues. 
+ 
+ Similarly, a majority of our manufacturing operations are also in countries other than the U.S., including major manufacturing operations located in
+Singapore, Israel, and China with other smaller facilities in France, Japan, Scotland, Switzerland and Taiwan. Risks associated with our international operations include risks of foreign currency and foreign financial market fluctuations,
+international exchange restrictions, changing political conditions and monetary policies of foreign governments, war, civil disturbances, expropriation, and other events that may limit or disrupt markets. 
+ 
+ Sales and Customer Support 
+ 
+ Through the end of fiscal 2003 we operated a single sales management team to
+coordinate global activities and provide local support in each country where our customers are located. Our country and regional managers rely on a combination of a direct sales force, manufacturers representatives and distributors for the
+sale of our various product lines. 
+ 
+ We believe that providing
+comprehensive worldwide sales, service, training and support are important competitive factors in the semiconductor equipment industry, and we have managed these functions as a global customer operations group. In order to support our customers,
+whose semiconductor assembly operations are located primarily outside of the United States, we have sales, service, and support personnel based in China, Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Europe with
+applications labs in Singapore, Japan, Israel, Taiwan, and Germany. Our local presence enables us to provide timely customer service and support by positioning our service representatives and spare parts near customer facilities, and affords
+customers the ability to place orders locally and to deal with service and support personnel who speak the customer s language and are familiar with local country practices. 
+ 
+ Subsequent to the end of fiscal 2003 we reorganized some of these customer operations along product lines with one group
+focused on wire bonder related products, and another on test related products. 
+ 
+ Backlog 
+ 
+ At June 30, 2004, we had a backlog of
+customer orders totaling $104.0 million, compared to $111.8 million at March 31, 2004 and $49.3 million at June 30, 2003. Our backlog consists of customer orders which are scheduled for shipment within 12 months. Virtually all orders are subject to
+cancellation, deferral or rescheduling by the customer with limited or no penalties. Because of the possibility of customer changes in delivery schedules or cancellations and potential delays in product shipments, our backlog as of any particular
+date may not be indicative of revenues for any succeeding quarterly period. 
+ 
+ Manufacturing 
+ 
+ The Company believes excellence
+in manufacturing can create competitive advantage, both through lower costs, and superior responsiveness. In order to achieve these goals, we manage our manufacturing operations through a single organization, and are trending to fewer, larger
+factories taking advantage of economies of scale and the cost savings available in low labor cost areas. 
+ 
+ Equipment. Our equipment manufacturing activities consist primarily of integrating outsourced parts and subassemblies, and testing the finished
+product to customer specifications. During fiscal 2003 most 
+ 
+
+ - 21 - 
+
+Table of Contents
+
+ equipment manufacturing took place in Singapore, with small numbers of machines built in Willow Grove, Pennsylvania, and
+Haifa, Israel (which was sold in August 2003). We believe the outsourcing model enables us to minimize our fixed costs and capital expenditures and allows us to focus on product differentiation through technology innovations in system design and
+manufacturing quality control. Just-in-time inventory management has reduced our manufacturing cycle times and reduced our on-hand inventory requirements. We have obtained ISO 9001 certification for our equipment manufacturing facilities in Willow
+Grove, Pennsylvania and Singapore. 
+ 
+ Packaging Materials.
+We manufacture expendable tools at facilities in Yokneam, Israel and Suzhou, China, and bonding wire at facilities in Singapore and Thalwil, Switzerland. We manufacture blades for wafer sawing in Santa Clara, California. The bonding wire
+facility in Switzerland has received ISO 9001 certification, the bonding wire facility in Singapore has received QS9000 and ISO 14001 certifications, the blade facility in California has received ISO 9002 certification, the bonding tools facility,
+in Yokneam, Israel has received ISO 9001 and ISO 14001 certifications, and the bonding tools facility in Suzhou, China has received ISO 9001 and ISO 14001 certifications. 
+ 
+ Test Interconnect Products. We manufacture test probe cards in various facilities located in: Gilbert, Arizona;
+Hayward and San Jose, California; Hsin Chu, Taiwan; E. Kilbride, Scotland; Singapore; and Corbeil, France. We began manufacturing test probe cards in Suzhou, China in fiscal 2004. ATE interface assemblies are manufactured in Gilbert, Arizona and
+test sockets in Hayward, California and Singapore. As part of our ongoing cost reduction activities, the Company closed the ATE test board facility in Dallas, Texas in the third quarter of fiscal 2003, moving to an outsource strategy for this
+product line. 
+ 
+ Research and Product Development 
+ 
+ Many of our customers generate technology roadmaps describing the future
+manufacturing capability requirements needed to support their product development plans. Our research and product development activities are organized so that our products anticipate our customers requirements. This can happen, either through
+continuous improvement of our existing products, including upgrades for products already installed in customers facilities, or through the creation of next generation products. Examples of continuous improvement include the Nutek and Maxum
+Plus wire bonders mentioned above both improvements of the Maxum our advanced epoxy line of probe cards, and our DuraCap line of bonding tools. A major next generation wire bonder effort is also underway, with that product scheduled
+for launch in fiscal 2005. Whether the Company proceeds via continuous improvement, or via next generation technology development, our goal is technology leadership in each of our major product lines. 
+ 
+ Our net expenditures for research and development totaled approximately $25.8
+million, $39.0 million, $52.9 million, and $62.7 million during the nine months ended June 30, 2004 and the fiscal years ended September 30, 2003, 2002 and 2001, respectively. We have received funding from certain customers and government agencies
+pursuant to specific contracts or other arrangements for the performance of specified research and development activities. Such amounts are recognized as a reduction of research and development expense when specified activities have been performed.
+During the fiscal years ended September 30, 2003, 2002, and 2001, such funding totaled approximately $383 thousand, $426 thousand, and $1.0 million, respectively. 
+ 
+ Competition 
+ 
+ The market for semiconductor equipment, packaging materials, and test interconnect products is intensely competitive. Significant competitive factors in
+the semiconductor equipment market include price, as well as speed/throughput, production yield and customer support, each of which contribute to lower the overall cost per package being manufactured. Our major equipment competitors with respect to
+wire bonders are ASM Pacific Technology Ltd. and Shinkawa. 
+ 
+
+ - 22 - 
+
+Table of Contents
+
+ Competitive factors in the semiconductor packaging materials industry include performance, price,
+delivery, life of the product, and quality. Our significant packaging materials competitors include: 
+ 
+
+ 
+ 
+Bonding tools: Gaiser Tool Co., Small Precision Tools, Inc. and PECO 
+ 
+
+ 
+ 
+Saw blades: Disco Corporation 
+ 
+
+ 
+ 
+Bonding wire: Tanaka Electronic Industries, Sumitomo Metal Mining, Heraeus, and Nippon Metal 
+ 
+ Our test products face competition from a few large international firms as well as many small regional firms. Our
+significant competitors include: 
+ 
+
+ 
+ 
+Wafer test: Japan Electronic Materials, Form Factor Inc., and Micronics 
+ 
+
+ 
+ 
+Package test: Everett Charles Technologies, Yamaichi, Johnstech, and Synergetix 
+ 
+ In each of the markets we serve, we face competition and the threat of competition from established competitors and
+potential new entrants, some of which have greater financial, engineering, manufacturing and marketing resources than we have. Some of these competitors are Asian and European companies that have had and may continue to have an advantage over us in
+supplying products to local customers because many of these customers appear to prefer to purchase from local suppliers, without regard to other considerations. 
+ 
+
+Intellectual Property 
+ 
+ Where circumstances warrant, we seek to obtain patents on inventions governing new products and processes developed as part of our ongoing research,
+engineering and manufacturing activities. We currently hold a number of United States patents, some of which have foreign counterparts. We believe that the duration of our patents generally exceeds the life cycles of the technologies disclosed and
+claimed in the patents. Although the patents we hold or may obtain in the future may be of value, we believe that our success will depend primarily on our engineering, manufacturing, marketing and service skills. 
+ 
+ In addition, we believe that much of our important technology resides in our
+trade secrets and proprietary software. As long as we rely on trade secrets and unpatented knowledge, including software, to maintain our competitive position, there is no assurance that competitors may not independently develop similar technologies
+and possibly obtain patents containing claims applicable to our products and processes. Our ability to defend ourselves against these claims may be limited. In addition, although we execute non-disclosure and non-competition agreements with certain
+of our employees, customers, consultants, selected vendors and others, there is no assurance that such secrecy agreements will not be breached, or that they can be enforced. 
+ 
+ Environmental Matters 
+ 
+ We are subject to various federal, state, local and foreign laws and regulations governing, among other things, the generation, storage, use, emission,
+discharge, transportation and disposal of hazardous materials and the health and safety of our employees. In addition, we are subject to environmental laws which may require investigation and cleanup of any contamination at facilities we own or
+operate or at third party waste disposal sites we use or have used. These laws could impose liability even if we did not know of, or were not responsible for, the contamination. 
+ 
+ We have in the past and will in the future incur costs to comply with environmental laws. We are not, however, currently
+aware of any costs or liabilities relating to environmental matters, including any claims or actions under environmental laws or obligations to perform any cleanups at any of our facilities or any third party waste disposal sites, that we expect to
+have a material adverse effect on our business, financial condition or operating results. It is possible, however, that material environmental costs or liabilities may arise in the future. 
+ 
+
+ - 23 - 
+
+Table of Contents
+
+ Employees 
+ 
+ At June 30, 2004, we had 3,089 permanent employees and 233 temporary employees worldwide. The only employees represented by a labor union are the bonding
+wire employees in Singapore. Generally, we believe our employee relations to be good. Competition in the recruiting of personnel in the semiconductor and semiconductor equipment industry is intense, particularly with respect to software engineering.
+We believe that our future success will depend in part on our continued ability to hire and retain qualified management, marketing and technical employees. 
+ 
+ Property 
+ 
+ Our major operating facilities are described in the table below: 
+ 
+
+ Facility
+
+ 
+ Approximate
+ Size
+
+ 
+ Function
+
+ 
+ Products
+ Manufactured
+
+ 
+ Lease
+ Expiration
+ Date
+
+ 
+ 
+ 
+ 
+
+ 
+ 
+ 
+ 
+
+ Willow Grove, Pennsylvania
+
+ 
+220,000 sq.ft. (1)
+ 
+Corp. headquarters, manufacturing, technology center, sales and service
+ 
+Wedge, large area bonders
+ 
+(1) N/A
+
+ Suzhou, China
+
+ 
+134,700 sq.ft. (2)
+ 
+Manufacturing
+ 
+Capillaries
+ 
+October 2007
+
+ Singapore
+
+ 
+84,800 sq.ft. (2)
+ 
+Manufacturing, technology center, assembly systems
+ 
+Wire bonders, probe cards
+ 
+August 2005
+
+ Gilbert, Arizona
+
+ 
+83,000 sq.ft. (4)
+ 
+Manufacturing, sales and service
+ 
+Probe cards, ATE interface assemblies
+ 
+May 2012
+
+ Yokneam, Israel
+
+ 
+53,800 sq.ft. (1)
+ 
+Manufacturing, technology center
+ 
+Capillaries, wedges, die collets
+ 
+(1) N/A
+
+ Singapore
+
+ 
+38,400 sq.ft. (2)
+ 
+Manufacturing
+ 
+Bonding wire
+ 
+May 2006
+
+ Hsin Chu, Taiwan
+
+ 
+36,800 sq.ft (2)
+ 
+Manufacturing
+ 
+Probe cards
+ 
+July 2009
+
+ Hayward, California
+
+ 
+35,900 sq.ft. (2)
+ 
+Manufacturing, sales and service
+ 
+Test sockets / contactors
+ 
+January 2005
+
+ San Jose, California
+
+ 
+34,100 sq.ft. (2)
+ 
+Manufacturing, sales and service
+ 
+Probe cards
+ 
+August 2007
+
+ Thalwil, Switzerland
+
+ 
+15,100 sq.ft. (2)
+ 
+Manufacturing
+ 
+Bonding wire
+ 
+(3)
+
+(1)
+This facility is subject to an Agreement to Sell and Purchase Real Estate, pursuant to which the Company agreed to sell the building for $11.2 million. The closing of the sale is
+subject to customary conditions and is scheduled to occur in November of 2004. The Company currently expects to lease the building for one year following the closing of the sale for annual rent of $1.2 million. The Company expects to lease a new
+headquarters building in the same area beginning in December of 2005. 
+ 
+
+ - 24 - 
+
+Table of Contents
+
+(2)
+Leased. 
+
+(3)
+Cancelable semi-annually upon six months notice. 
+
+(4)
+This facility is owned by CRPB Investors, LLC ( CRPB ). Our subsidiary, K&S Interconnect, Inc., owns a 36% interest in CRPB. K&S Interconnect, Inc. has entered
+into a long-term lease with CRPB, the initial term of which expires in May 2012, with seven options to extend the lease for successive five-year terms. 
+ 
+ We also rent space for sales and service offices in: Santa Clara, California; Southbury, Connecticut; Austin, Texas; China;
+Germany; Hong Kong; Japan; Korea; Malaysia; the Philippines; Taiwan; and Thailand and operate smaller manufacturing facilities in Santa Clara, California; France; and Scotland. We believe that our facilities generally are in good condition.
+
+ 
+
+ - 25 - 
+
+Table of Contents
+
+ 
+MANAGEMENT 
+ 
+ Directors and Executive Officers
+
+ 
+ Brian R. Bachman has been a director of our
+Company since 2003. His present term expires in 2008. Mr. Bachman is a private investor. From 2000 to 2002, Mr. Bachman served as Chief Executive Officer and Vice Chairman of Axcelis Technologies, a Company that produces equipment used in the
+fabrication of semiconductors, and from 1996 to 2000, he served as Senior Vice President and Group Executive of Eaton Corporation, an industrial manufacturing Company. From 1991 to 1995, Mr. Bachman served as Vice President and Business Group
+General Manager of Philips Semiconductors, a semiconductor supplier. He currently serves on the Board of Directors of Keithley Instruments and Ultra Clean Holdings, Inc., and as an adjunct professor at the Northwestern University Kellogg-McCormick
+MMM Program since 2002. Mr. Bachman is 59 years old. 
+ 
+ Philip
+V. Gerdine, Ph.D. (since 1964) and Certified Public Accountant (since 1973) has been a director of our Company since 2000. His present term expires in 2008. Mr. Gerdine is an independent consultant. From 1989 to September 1998, Mr. Gerdine
+served as Executive Director of Siemens AG and the Managing Director of the Plessey Company PLC, a developer of communications and electronic components. Formerly, Mr. Gerdine served as Vice President-Corporate Development of Siemens Corporation, a
+Company that designs, develops and manufactures electronic systems. He also has held senior management positions with General Electric Co., Price Waterhouse and The Boston Consulting Group and he currently serves as a director of Applied Materials,
+Inc. Mr. Gerdine is 65 years old. 
+ 
+ C. Scott Kulicke has
+been the Chief Executive Officer of our Company since 1979 and Chairman of the Board of Directors since 1984. His present term as a director expires in 2007. He first became an officer of the Company in 1976 and has held a number of executive
+positions with us since that time. Mr. Kulicke is 55 years old. 
+ 
+ John A. O Steen has been a director of our Company since 1998. His present term expires in 2006. Mr. O Steen served as Executive Vice President, Business Development (March, 2003 May, 2004), Executive Vice President
+of Operations (July 1998 to February 2003) and Executive Vice President (January to June 1998) of Cornerstone Brands, Inc., a consumer catalog company. From 1991 to 1998, Mr. O Steen served as Chairman and Chief Executive Officer of Cinmar,
+L.P., a mail order catalog company that was acquired by the predecessor of Cornerstone Brands in September 1995. Before that time, Mr. O Steen served as President, Chief Executive Officer and a director of Cincinnati Microwave, Inc., a
+manufacturer of electronic products. He currently serves as a director of Cornerstone Brands, Inc. and Riggs Heinrich Media, Inc. Mr. O Steen is 60 years old. 
+ 
+ Allison F. Page has been a director of our Company since 1962. His present term expires in 2005. Mr. Page is a
+retired partner in the Philadelphia law firm of Pepper Hamilton LLP. Mr. Page is 81 years old. 
+ 
+ MacDonell Roehm, Jr. has been a director of our Company since 1984. His present term expires in 2006. From September 2002 to April 2003, Mr. Roehm served as Chief Executive Officer of CH4 Pty Ltd, a natural
+resources company. From 2000 to 2001, Mr. Roehm served as Chairman and Chief Executive Officer of Mackenzie-Childs Ltd., a manufacturer and retailer of furniture and home accessories. Mr. Roehm was hired by Mackenzie-Childs Ltd. to implement
+remedial action plans, and on November 28, 2000, Mackenzie-Childs Ltd. filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code, seeking reorganization to provide a framework under which those remedial action plans could be
+executed. From 1999 to 2000, Mr. Roehm served as Chairman of Australian Ventures LLC, a private equity fund, and from 1998 to 1999, he served as Chairman and Chief Executive Officer of Crooked Creek Capital LLC, a provider of strategic, operational
+and financial restructuring services. From 1994 until 1998, Mr. Roehm served as Chairman, President and Chief Executive Officer of Bill s Dollar Stores, Inc., a chain of retail convenience stores. Before that time, he served as Managing
+Director of AEA Investors, Inc., a private investment firm. Mr. Roehm also serves on the Board of Directors of CH4 Pty. Ltd. Mr. Roehm is 65 years old. 
+ 
+
+ - 26 - 
+
+Table of Contents
+
+ Barry Waite has been a director of our Company since 2003. His present term expires in 2007. From
+May 1998 until his retirement in May 2002, Mr. Waite served as President and Chief Executive Officer of Chartered Semiconductor, a major wafer foundry. From 1982 to 1998, Mr. Waite held positions of increasing responsibility with Motorola
+Corporation, Semiconductor Product Sector, including Senior Vice President and General Manager, Europe, Middle East and Africa (1997 to 1998) and Senior Vice President and General Manager Microprocessor and Memory Technology Group (1993-1997). Mr.
+Waite serves on the Board of Directors of ZETEX PLC. Mr. Waite is 56 years old. 
+ 
+ C. William Zadel has been a director of our Company since 1989. His present term expires in 2005. Mr. Zadel is Chairman and Chief Executive Officer of Mykrolis Corporation, a multinational company focused on
+developing, manufacturing and marketing technically advanced filtration, purification and control products for the global semiconductor industry. Mykrolis is the former microelectronics division of Millipore Corporation. Before becoming Chief
+Executive Officer of Mykrolis at its separation from Millipore in August 2001, Mr. Zadel was Chairman and Chief Executive Officer of Millipore since April of 1996. He currently serves as a director of Matritech, Inc. Mr. Zadel is 61 years old.
+
+ 
+ Charles Salmons holds the position of Senior Vice
+President, Product Development. He was appointed Senior Vice President, Product Development in September 2002. He joined us in 1978, and has held positions of increasing responsibility throughout the accounting, engineering and manufacturing
+organization. Mr. Salmons first became an officer of the Company in 1992, and in 1994, he became Vice President of Operations and was named General Manager, Wire Bonder Operations in 1998. He was appointed Senior Vice President, Customer Operations
+in 1999. Mr. Salmons is 49 years old. 
+ 
+ Jack G. Belani
+holds the position of Vice President of Business Units and Marketing. He was appointed to this position in February 2002. Before this, he was President of the Wire Bonding Division for a year. He became an officer of the Company upon joining us
+in April 1999 as Vice President and President of our high density substrate group. Before joining us, he served for more than three years as Vice President of Assembly & Packaging in the Worldwide Manufacturing Group of Cypress Semiconductor
+Corporation. Before Cypress, he was with National Semiconductor Corporation for approximately 18 years in a variety of technical and managerial positions and one year with Advanced Micro Devices as a Bipolar Memory Wafer Fabrication Process
+Development Engineer. Mr. Belani is 51 years old. 
+ 
+ Maurice
+E. Carson holds the position of Vice President, Chief Financial Officer. He was appointed to this position when he joined us in September 2003. From 1996 until he joined us in 2003, Mr. Carson served in various finance positions culminating as
+the Vice President, Finance and Corporate Controller for Cypress Semiconductor Corporation. Before Cypress he was with Ephigraphx as the Chief Operating Officer. Mr. Carson is 47 years old. 
+ 
+ Bruce Griffing holds the position of Vice President, Engineering and
+Product Development. He was appointed to this position when he joined us in September 2004. From 2001-2003 Dr. Griffing served as Vice President and Chief Technology Officer of DuPont Photomask, a company that provides microimaging solutions. Before
+DuPont Photomask, Dr. Griffing worked for General Electric from 1979-2001, serving as a Laboratory Manager from 1986 to 2001. Dr. Griffing received his Ph.D in Physics from Purdue University in 1979. Dr. Griffing is 54 years old. 
+ 
+ Oded Lendner holds the position of Vice President World Wide
+Operations. He was appointed to this position in January, 2002. Before this he was President of the Microelectronics division for one year. He joined our Israeli subsidiary in 1989 and has held positions of increasing responsibility throughout the
+manufacturing organization, and was named Deputy Managing Director Operations in Israel in 1993. He relocated to the United States and first became an officer of the Company in 1996 as the Vice President Operations for the Equipment group. In 1999
+he became Vice President Ball Bonder Business unit and Managing Director of K&S Singapore. Mr. Lendner is 44 years old. 
+ 
+
+ - 27 - 
+
+Table of Contents
+
+ Executive Compensation
\ No newline at end of file
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@@ -0,0 +1 @@
+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. While we have highlighted what we believe is the most important information about us and this offering in this summary, you should read the entire prospectus carefully, including the Risk Factors and Special Note Regarding Forward-Looking Statements sections and our consolidated financial statements and the notes to those financial statements before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to we, us, our and MarketAxess refer to the consolidated operations of MarketAxess Holdings Inc., and its primary operating subsidiaries, MarketAxess Corporation and MarketAxess Europe Limited. Summary of Conflicts of Interest of the Underwriters The underwriters of this offering have several potential conflicts of interest. These potential conflicts are due to the fact that affiliates of the underwriters are stockholders and broker-dealer clients of MarketAxess. There are also potential conflicts of interest between the underwriters, on the one hand, and MarketAxess, on the other hand. For more information, see Prospectus Summary Conflicts of Interest of the Underwriters Stock Ownership, Prospectus Summary Conflicts of Interest of the Underwriters Revenues, Prospectus Summary Conflicts of Interest of the Underwriters Board of Directors, Prospectus Summary Conflicts of Interest of the Underwriters Other Businesses and Prospectus Summary Dependence on Our Broker-Dealer Clients Who Are Also Our Stockholders. Our Business MarketAxess operates one of the leading platforms for the electronic trading of corporate bonds and certain other types of fixed-income securities. Our electronic trading platform is accessed by our broker-dealer and institutional investor clients either via a direct connection or over the Internet. Our more than 500 active institutional investor client firms (firms that have executed at least one trade through our electronic trading platform between October 2003 and September 2004) can access the aggregate liquidity provided by the collective interest of our 19 broker-dealer clients in buying or selling bonds through our platform. We also provide data and analytical tools that help our clients make trading decisions and we facilitate the trading process by electronically communicating order information between trading counterparties. Since our inception, the majority of our revenues has been generated from the trading of U.S. high-grade corporate bonds, although an increasing percentage of our revenues has recently been derived from the trading of European high-grade corporate bonds. The vast majority of our commissions are generated from transactions between a broker-dealer client and an institutional investor client. Our multi-dealer trading platform allows our institutional investor clients to simultaneously request competing, executable bids or offers from our broker-dealer clients, and execute trades with the broker-dealer of their choice from among those that choose to respond. We offer our broker-dealer clients a solution that enables them to efficiently reach our institutional investor clients for the distribution and trading of bonds. In addition to U.S. high-grade corporate bonds and European high-grade corporate bonds, we also offer our clients the ability to trade emerging markets bonds, which we define as sovereign and corporate bonds issued by entities domiciled in an emerging markets country, including both high-grade and non-investment grade debt. To date, however, emerging markets bonds do not represent a significant component of our revenues. In addition, we recently started to provide our institutional investor clients with the ability to trade U.S. Treasury securities electronically through our broker-dealer clients in the inter-dealer market. We derive our revenues primarily from commissions paid by our broker-dealer clients for trades executed on our platform (which represented 92% of our revenues for the nine months ended September 30, 2004) and, to a lesser extent, from information and user access fees charged to our clients (which represented 3% of our revenues for the nine months ended September 30, 2004) and license fees for access to our trading platform charged to certain of our broker-dealer clients (which represented 3% of our revenues for the nine months ended September 30, 2004). Traditionally, bond trading has been a manual process with product and price discovery conducted over the telephone between two or more parties. This traditional process, which is still how most corporate bonds are traded, has a number of shortcomings resulting primarily from the lack of a central trading facility for these securities, which creates difficulty matching buyers and sellers for particular issues. In recent years, an Total commissions 65 83 90 90 92 Information and user access fees 0 2 2 2 3 License fees 0 5 7 7 3 Interest income 32 4 1 1 1 Other 3 6 0 0 Total trading volume (unaudited) (in billions) $ 11.7 $ 48.4 $ 192.2 Total commissions (in millions) 4.3 15.6 52.8 Net income (loss) (in millions) (65.1 ) (36.1 ) 4.2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (a) During the six months ended June 30, 2004, we reduced the valuation allowance relating to our deferred tax assets by $42.6 million from $64.3 million to $21.7 million due to the fact that we had achieved multiple quarters of profitability and, therefore, it became more likely than not that we would be able to utilize our net operating loss carryforwards. Without giving effect to this reduction of the valuation allowance, our net income for the three months ended June 30, 2004 would have been $1.4 million. Without giving effect to this reduction of the valuation allowance, our net income for the three months ended September 30, 2004 would have been $5.6 million. For more information, see Management s Discussion and Analysis of Financial Condition and Results of Operations Recent Developments. Amendment No. 9 to Form S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Our Competitive Strengths Trading Volume. Our trading volume across all of our products was $192.2 billion in 2003 and $218.8 billion for the nine months ended September 30, 2004. Our trading volume, particularly in U.S. high-grade corporate bonds and in European high-grade corporate bonds, combined with the participation on our platform of our broker-dealer and institutional investor clients, attracts client attention and order flow, thereby, we believe, further increasing the liquidity of the securities available on our platform. As broker-dealers and institutional investors increase the proportion of their activity conducted on our platform and as new clients join the platform, we expect the liquidity of the securities available on our platform to continue to increase. Execution Benefits to Institutional Investor Clients. Our electronic trading platform enables institutional investors to simultaneously request competing bids or offers from our broker-dealer clients. We believe that this creates an environment that motivates our broker-dealer clients to provide competitive prices. We believe that we provide improved efficiency by reducing the time and labor required to conduct broad product and price discovery. Our electronic trading platform allows our institutional investor clients to find securities of the product types traded on our platform that match their specific risk and return objectives, and efficiently make changes in asset allocation. Execution Benefits to Broker-Dealer Clients. We enable our broker-dealer clients to broaden their distribution by participating in transactions to which they otherwise may not have had access, without adding additional sales professionals. As a result, we believe they can achieve enhanced bond inventory turnover, which may help them to limit their credit exposure. Improved Trading Accuracy, Efficiency and Compliance. By processing trades electronically, our platform provides an automated audit trail for each stage in the trading cycle, offering our clients a useful tool for their risk monitoring and compliance. We believe that the automated audit trail, together with the ability to request competing bids and offers from multiple broker-dealers, enhances fiduciaries ability to demonstrate best execution. In addition, we believe that the ability to automate transaction processing (commonly referred to as straight-through processing) improves accuracy and efficiency by reducing the number of times data need to be manually entered. Robust, Scalable Technology Platform. We have developed proprietary technology that is highly secure and fault-tolerant, and that provides adequate capacity for our current operations and substantial growth. Our highly scalable systems are designed to accommodate additional volume, products and clients with relatively little modification and low incremental costs. Proven Innovator with an Experienced Management Team. Since our inception, we have consistently been an innovator in the fixed-income securities markets, introducing new functionality to our platform to meet the needs of broker-dealers and institutional investors. Our management team is comprised of executives with an average of more than 20 years experience in the securities industry. Potentially offsetting these competitive strengths is the highly competitive nature of the electronic trading industry in which we operate. The four main areas of competition which we face are traditional bond trading conducted over the telephone, bond trading conducted between broker-dealers and institutional investors using e-mail, other electronic trading platforms, and market data and information vendors. Competitors, including companies in which some of our broker-dealer clients have invested, have developed or have announced their intention to explore the development of electronic trading platforms that compete or will compete with us. Our Strategy Our objective is to provide the leading global electronic trading platform for fixed-income securities, connecting broker-dealers and institutional investors to enable them to communicate and trade more easily and efficiently. We believe that our strong competitive position, our large network of clients and our proven ability to introduce new products and services that anticipate and respond to client needs will enable us to achieve this goal. The key elements of our strategy include: enhance the liquidity of securities traded on our platform and broaden our client base in our existing markets; leverage our existing technology and client relationships to expand into new segments of the fixed-income securities market; continue to strengthen and expand our trade-related service offerings; expand our data and information services offerings; and pursue strategic alliances and select acquisitions. Conflicts of Interest of the Underwriters The underwriters of this offering have several potential conflicts of interest. These potential conflicts are due to the fact that affiliates of the underwriters are stockholders and broker-dealer clients of MarketAxess. There are also conflicts of interest between the underwriters, on the one hand, and MarketAxess, on the other hand. These conflicts of interest are more fully described below: prior to the completion of this offering, affiliates of the underwriters own 50.4% of the outstanding shares of our common stock and non-voting common stock, and have the right to purchase additional shares of common stock issuable upon exercise of a warrant to purchase 5,000,002 shares of common stock; a substantial portion of our revenues are derived from broker-dealer clients that are affiliates of certain of the underwriters; one of the members of our Board of Directors was designated by, and is an employee of, one of the underwriters; affiliates of the underwriters currently trade fixed-income securities by means other than our electronic trading platform and we expect that they will continue to do so in the future; and the underwriters, directly or through affiliates, have invested in, developed and use competing electronic trading platforms, including their own proprietary services. As an example of these potential conflicts of interest, in their capacity as broker-dealer clients, these entities would presumably favor lower commissions, but in their capacity as stockholders, these entities would presumably favor higher commissions. As another example, in their capacity as underwriters, these entities would be disinclined to waive the 180-day lock-up agreements entered into with substantially all of our stockholders, but in their capacity as stockholders, they may be more inclined to agree to a waiver of such lock-up agreements. Stock Ownership MarketAxess was formed in April 2000 by affiliates of Bear Stearns, Chase Manhattan Bank and J.P. Morgan. Since our formation, we have received substantially all of our equity financing from certain of our broker-dealer clients, including (through affiliates) Credit Suisse First Boston LLC and J.P. Morgan Securities Inc., the joint book-running managers of this offering. We have also received equity investments from affiliates of Banc of America Securities LLC, Bear Stearns Co. Inc. and UBS Securities LLC, each of which is an underwriter of this offering. Prior to this offering, assuming the conversion of our outstanding preferred stock into common stock and assuming the exercise in full of a warrant to purchase 5,000,002 shares of our common stock held by affiliates of six of our broker-dealer clients (including affiliates of four of the underwriters), at an exercise price of $0.003 per share, the underwriters named in this prospectus owned, in the aggregate, through affiliates, approximately 50.4% of our outstanding voting and non-voting common stock. Following this offering, those same broker-dealer clients will own, in the aggregate, through affiliates, approximately 42.4% of our common stock (or approximately 41.4% of our common stock if the underwriters option to purchase additional shares is exercised in full). To the extent that some or all of these broker-dealer clients or their affiliates vote similarly, they are likely to be able to influence decisions requiring approval by our stockholders. See Principal Stockholders. Several of our broker-dealer clients who are not underwriters of this offering have also made equity investments in MarketAxess. Specifically, ABN Amro, BNP Paribas, Deutsche Bank and Lehman Brothers, or their affiliates, are stockholders of MarketAxess. 140 Broadway, 42nd Floor New York, NY 10005 Telephone: (212) 813-6000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant s Principal Executive Offices) Revenues We have historically earned a substantial portion of our commissions from the five broker-dealer clients that are (or whose affiliates are) underwriters of this offering. For the year ended December 31, 2001, $2.5 million or 58.1% of our commissions, for the year ended December 31, 2002, $8.2 million or 52.9% of our commissions, for the year ended December 31, 2003, $20.9 million or 39.7% of our commissions, and for the nine months ended September 30, 2004, $17.6 million or 34.2% of our commissions, were generated by these five broker-dealer clients. Our historical revenues from these five broker-dealer clients approximate our commissions from these broker-dealer clients as approximately 88.4% of our aggregate revenues during these periods were from commissions. Board of Directors We currently have eight directors, seven of whom are not our employees. Of our seven non-employee directors, one is an employee of one of the underwriters of this offering that is an affiliate of a stockholder of MarketAxess. Upon the closing of this offering, this entity will no longer have the contractual right to designate a member of our Board of Directors. However, this director will remain on our Board of Directors at least until our next annual meeting of stockholders (currently expected to be in the second quarter of 2005) unless he resigns or otherwise relinquishes his board seat prior to that time. Reduced involvement of these broker-dealer clients after this offering due to their loss of the right to designate a member of our Board of Directors, or the potential reduction in the level of their equity ownership if these entities should sell shares of our common stock following the completion of this offering, may cause them to reduce or discontinue their use of our electronic trading platform and other services, which could negatively impact the use of our platform by our institutional investor clients and result in a reduction in our revenues and net income. Other Businesses Affiliates of the underwriters of this offering currently trade fixed-income securities by means other than our electronic trading platform and we expect them to continue to do so in the future. Affiliates of the underwriters buy and sell fixed-income securities directly with their clients through traditional bond trading methods, including telephone conversations, e-mail messaging and other electronic means of communication, including proprietary, single-dealer systems. We cannot be assured that the primary commitments of such affiliates of the underwriters will not be to one of our competitors. Other companies, including some in which affiliates of certain of the underwriters have invested, have developed electronic trading platforms that compete or will compete with us. Furthermore, affiliates of the underwriters have made, or may in the future make, investments in or enter into agreements with other businesses that directly or indirectly compete with us. Determination of Initial Public Offering Price Prior to this offering, there has been no public market for our common stock. We and the representatives of the underwriters, including the qualified independent underwriter, will negotiate the initial public offering price. The various factors that will be considered are set forth below: prevailing conditions in the equity markets generally; comparable company analysis: a group of publicly-traded companies that are intermediaries, marketplaces and transaction processors for the securities trading industry was selected, each of which the representatives believe to be comparable to us or whose customer base or industry trends are similar to ours; and analyses were conducted of the stock price to projected earnings multiples and enterprise value to projected revenue multiples, in each case for the fiscal years ending December 31, 2004 and December 31, 2005, as well as recent movements and trends in the market prices of securities of these comparable companies and their comparative margins and growth rates; an analysis of our historical revenues, earnings and operating margins, including an analysis of the trend of our revenues, earnings and margins, the volatility associated with those trends and the fact that we began operating profitably only last year; Richard M. McVey Chief Executive Officer MarketAxess Holdings Inc. 140 Broadway, 42nd Floor New York, NY 10005 (212) 813-6000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code of Agent for Service) prevailing conditions in the bond markets, particularly with respect to the overall trading volumes for U.S. and European high-grade corporate bonds; investor demand for our common stock; the history of and prospects for electronic trading of corporate bonds; the potential impact of competition on our financial performance; and an assessment of our management and its ability to achieve its projected financial and operational performance. Affiliates of certain of the underwriters owned more than 10% of our preferred equity outstanding prior to the completion of this offering, and therefore we are conducting this offering in accordance with the applicable provisions of Rule 2720 of the National Association of Securities Dealers, Inc. Conduct Rules, which require that the initial public offering price of the shares of common stock offered hereby not be higher than that recommended by a qualified independent underwriter meeting certain standards. UBS Securities LLC is acting as the qualified independent underwriter in pricing this offering. An entity affiliated with UBS Securities LLC owns an aggregate of 333,334 shares of our common stock immediately prior to the completion of this offering. The National Association of Securities Dealers, Inc. has concurred with us that UBS Securities LLC meets the requirements of a qualified independent underwriter in connection with this offering. See Underwriting for more information. Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that our common stock will trade in the public market at or above the initial public offering price. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of the factors described above and the initial public offering price may be above or below that range. Determination of Historical Fair Market Value of Our Common Stock Options have been granted to employees, and shares have been allocated to affiliates of certain of our broker-dealer clients who are also our stockholders under a warrant issued to those stockholders at the time they made an equity investment in us, in each case at fair market value. We determined the fair market value of these options and warrants using the Black-Scholes option-pricing model. To assist management in determining the fair market value of the shares issuable, a key input to the Black-Scholes model, independent valuations of our common stock were undertaken as of December 31, 2001, December 31, 2002, September 30, 2003 and December 31, 2003. A number of factors were considered in the valuations, including our then-current financial condition, our future earnings capacity and cash flow generation, the market price of publicly-traded corporations in similar lines of business and the values of prior sales of our preferred stock. A number of significant factors contributed to the rapid increase in the value of our common stock during this time period. During the year ended December 31, 2003, our total trading volume increased significantly. In addition, we added significant additional broker-dealer clients and additional institutional investor clients. Finally, the improvement in our financial performance resulted in a shift in net income from a loss of $36.1 million in 2002 to income of $4.2 million in 2003. We have granted options to employees and directors at various prices. Specifically, from January 1, 2001 to December 31, 2002, we granted options with an exercise price of $2.70 per share; from January 1, 2003 to September 30, 2003, we granted options with an exercise price of $7.92 per share; from October 1, 2003 to March 31, 2004, we granted options with an exercise price of $13.95 per share; from April 1, 2004 to September 23, 2004, we granted options with an exercise price of $17.01 per share; and since September 24, 2004, we have granted options with an exercise price of $9.51 per share. We have restated our consolidated financial statements for the years ended December 31, 2001, December 31, 2002 and December 31, 2003, as well as for the three-month periods ended March 31, 2004 and June 30, 2004, to (a) record additional compensation expense, primarily as the result of the issuance of stock options to employees with exercise prices per share subsequently determined for financial reporting purposes to be below the fair market value per share of our common stock at the date of such grants and (b) increase the amount of warrant-related expense for the same reason. Consequently, for financial reporting purposes, the fair market value of the common stock was $2.89 per share between January 1, 2001 and March 23, 2001, $4.83 Expenses Employee compensation and benefits 369 % 130 % 46 % 48 % 44 % Depreciation and amortization 78 36 8 9 4 Technology and communications 79 21 8 8 8 Professional and consulting fees 196 25 7 7 5 Warrant-related expense 113 46 9 8 4 Marketing and advertising 27 14 4 4 3 Moneyline revenue share 6 4 3 3 2 Restructuring charges 125 (4 ) 0 0 0 General and administrative 93 21 7 6 Copies to: Adam J. Kansler, Esq. Brian B. Margolis, Esq. Proskauer Rose LLP 1585 Broadway New York, NY 10036 (212) 969-3000 Luciana Fato, Esq. Davis Polk Wardwell 450 Lexington Avenue New York, NY 10017 (212) 450-4000 (unaudited) Percentage of commissions generated by broker-dealer client stockholders and their respective affiliates 81.8% 79.0 % 62.5 % 63.2 % 57.6 % Percentage of total revenues generated by broker-dealer client stockholders and their respective affiliates 78.6% 66.4 % 57.0 % 57.4 % 53.5 % Our broker-dealer clients are not restricted from buying and selling fixed-income securities, directly or through their own proprietary or third-party platforms, with institutional investors. For more information, see Risk Factors. Board of Directors We currently have eight directors, seven of whom are not our employees. Of those seven non-employee directors, two are employees of entities that are affiliates of broker-dealer clients and stockholders of MarketAxess. Upon the closing of this offering, those entities will no longer have the contractual right to designate members of our Board of Directors. However, the two directors that are employees of entities that are broker-dealer clients and stockholders of MarketAxess will remain on our Board of Directors at least until our next annual meeting of stockholders (currently expected to be in the second quarter of 2005) unless they resign or otherwise relinquish their board seat prior to that time. Other Businesses Our broker-dealer clients currently trade fixed-income securities by means other than our electronic trading platform and we expect them to continue to do so in the future. Our broker-dealer clients buy and sell fixed-income securities directly with their clients through traditional bond trading methods, including telephone conversations, e-mail messaging and other electronic means of communication, including proprietary, single-dealer systems. We cannot be assured that such broker-dealers primary commitments will not be to one of our competitors. Other companies, including some in which certain of our broker-dealer clients or their affiliates have invested, have developed electronic trading platforms or have announced their intention to explore the development of electronic trading platforms that compete or will compete with us. Furthermore, our broker-dealer clients or their affiliates have made, or may in the future make, investments in or enter into agreements with other businesses that directly or indirectly compete with us. Stock Ownership by Our Broker-Dealer Clients Nine of our broker-dealer clients (ABN Amro, BNP Paribas, Banc of America, Bear Stearns, Credit Suisse First Boston, Deutsche Bank, JPMorgan, Lehman Brothers and UBS), or their affiliates, are stockholders of ours. Prior to this offering, assuming the conversion of our outstanding preferred stock into Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. common stock and assuming the exercise in full of a warrant to purchase 5,000,002 shares of our common stock held by affiliates of six of our broker-dealer client stockholders (including affiliates of four of the underwriters), at an exercise price of $0.003 per share, these nine broker-dealer clients owned, in the aggregate, directly or through affiliates, 19,674,861 shares of our common stock and our non-voting common stock, representing approximately 74.3% of our outstanding voting and non-voting common stock and shares issuable upon exercise of the warrant described above. Following this offering, those same broker-dealer clients will own, in the aggregate, through affiliates, approximately 62.5% of our outstanding common stock and non-voting common stock and shares issuable upon exercise of the warrant described above (or approximately 61.1% if the underwriters over-allotment option is exercised in full). To the extent that some or all of these broker-dealer clients or their affiliates vote similarly, they are likely to be able to influence decisions requiring approval by our stockholders. See Principal Stockholders. Conflicts of Interest For more information concerning the potential conflicts of interest that may arise as a result of the various roles (broker-dealer client, stockholder and underwriter) played by certain of our broker-dealer clients, please see the section
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+S-1 SUMMARY The Company Miller Industries, Inc. is the world s largest manufacturer of vehicle towing and recovery equipment, with executive offices in Ooltewah, Tennessee and Atlanta, Georgia and manufacturing operations in Tennessee, Pennsylvania, France and England. Since 1990, we have developed or acquired several of the most well-recognized brands in the towing and recovery equipment manufacturing industry. Our strategy has been to diversify our line of products and increase our market share in the industry through a combination of internal growth and development and acquisitions of complementary businesses. In February 1997, we formed our towing services division, RoadOne, to offer a broad range of towing and transportation services. We subsequently disposed of all towing services operations. In addition, we have made the decision to sell our distribution group. As a result of these decisions, both the towing services segment and the distribution group have been classified as discontinued operations. As of December 31, 2003, we had sold or closed all of our RoadOne terminals and one distributor location. We were incorporated in the State of Tennessee in April 1994. The address of our principal executive offices is 8503 Hilltop Drive, Ooltewah, Tennessee 37363, and our telephone number is (423) 238-4171. We invite you to visit our web site at http://www.millerind.com. The information contained on our web site is not incorporated in this prospectus. The Offering This prospectus covers 1,317,707 shares of our common stock, $0.01 par value, that may be offered for resale from time to time by certain of our shareholders who are identified later in this prospectus. We will not receive any of the proceeds from the sale of the shares by the selling shareholders. Common stock offered 1,317,707 shares Common stock to be outstanding after the offering 10,661,743 shares New York Stock Exchange symbol MLR
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+PROSPECTUS SUMMARY 1
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+PROSPECTUS SUMMARY Our Business We are a multi-state managed care organization that arranges for the delivery of health care services to persons eligible for Medicaid and other programs for low-income families and individuals. We were founded in 1980 by C. David Molina, M.D. as a provider organization serving the Medicaid population through a network of primary care clinics in California. In 1994, we received our license as a health maintenance organization, or HMO, and began operating as a health plan. Over the past several years, we have taken advantage of attractive expansion opportunities. We established a Utah health plan in 1997 and later acquired health plans in Michigan and Washington. We now operate health plans in California, Washington, Michigan and Utah. Our annual revenue has grown from $135.9 million in 1998 to $793.5 million in 2003, while our net income grew from $2.6 million to $42.5 million over the same period. As of December 31, 2003, we had approximately 564,000 members. From our inception, we have designed our company to work with government agencies to serve low-income populations. Low-income families and individuals have distinct social and medical needs and are characterized by their cultural, ethnic and linguistic diversity. Our success has been driven by our expertise in working with government programs, experience with low-income members, 24 years of owning and operating primary care clinics, our cultural and linguistic expertise and our focus on operational and administrative efficiency. Recent Developments On February 23, 2004, we signed a definitive agreement to acquire, by merger with our newly formed subsidiary, the capital stock of Health Care Horizons, Inc., which is the parent company of New Mexico-based Cimarron Health Plan, for approximately $69.0 million, subject to adjustments. Health Care Horizons, Inc. has approximately $6.9 million in outstanding bank debt. We intend to fund the acquisition through available cash and expect to close the transaction by the third quarter of 2004, subject to regulatory approvals, the approval of Health Care Horizons, Inc. s shareholders and other closing conditions. Cimarron membership is comprised of approximately 66,000 Medicaid members and approximately 38,000 commercial members as of February 1, 2004. We expect to divest or transition the Cimarron commercial membership to focus on the Medicaid business. New Mexico represents a new market for us. We estimate the acquisition will generate annualized Medicaid revenues in the range of $255.0 million to $265.0 million in 2004. We expect the acquisition to result in approximately $0.05 to $0.07 of accretion to our earnings per share for the second half of 2004, assuming closing on July 1, 2004, and $0.14 to $0.18 of accretion to our earnings per share on an annualized basis subsequent to completion of integration which we expect to occur during 2005. On February 27, 2004, our Washington subsidiary signed a definitive agreement to acquire the Medicaid and Basic Health contracts of Premera Blue Cross of Washington for $18.0 million, subject to regulatory approvals. As of February 1, 2004, the contracts to be transferred covered approximately 66,000 Medicaid and Basic Health members. The Basic Health program is similar to Medicaid but receives no federal funding. We expect the acquisition to close in the third quarter of 2004. We believe the addition of these members at closing will give us approximately 45% of eligible Medicaid and Basic Health members in Washington. We expect the acquisition to result in approximately $0.10 to $0.12 of accretion to our earnings per share for the second half of 2004, assuming closing on July 1, 2004, and $0.20 to $0.25 of accretion to our earnings per share on an annualized basis. U.S. Treasury and agency securities $ 35,989 $ 58 $ 11 $ 36,036 Municipal securities 47,948 26 1 47,973 Corporate bonds 14,798 16 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Our Industry Medicaid provides health care coverage to low-income families and individuals and is jointly funded by state and federal governments. Each state establishes its own eligibility standards, benefit packages, payment rates and program administration within federal guidelines. In 2002, Medicaid covered approximately 51.0 million individuals, with 50% of those being children, according to the Kaiser Commission on Medicaid and the Uninsured. The federal Centers for Medicare and Medicaid Services estimates the total health care expenditures for Medicaid and the State Children s Health Insurance Program was $263.6 billion in 2002 and projects total outlays will reach $432.5 billion in 2008. Under traditional Medicaid programs, health care services are made available to low-income individuals in a largely uncoordinated manner. Beneficiaries typically receive minimal preventive care and have limited access to primary care physicians. Treatment is often postponed until medical conditions become more acute, leading to higher utilization of costly emergency room services. In addition, providers are paid on a fee-for-service basis and lack incentives to monitor utilization and control costs. In response, the federal government has expanded the ability of state Medicaid agencies to explore and, in many cases, mandate the use of managed care for Medicaid beneficiaries. From 1996 to 2002, enrollment in Medicaid managed care programs increased from approximately 13.3 million to approximately 23.1 million, according to the Centers for Medicare and Medicaid Services. All states in which we operate have mandated Medicaid managed care programs. Our Approach We have built a successful Medicaid managed care company by integrating those capabilities that we believe have allowed us to compete in our industry. Our approach to managed care is based on the following key attributes: Experience. We have significant expertise as a government contractor and a strong track record of obtaining and renewing contracts. We have served Medicaid beneficiaries as a provider and a health plan for 24 years. In that time we have developed and forged strong relationships with the constituents whom we serve members, providers and government agencies. Administrative Efficiency. We maintain a disciplined focus on business processes, seeking to centralize functions where practical and standardize practices where appropriate across our health plans. As a result, we believe our administrative efficiency is among the best in our industry. In addition, we have designed our administrative and operational infrastructure to be scalable for rapid and cost-effective expansion in new and existing markets. Proven Expansion Capability. We have successfully replicated our business model in existing and new markets through the acquisition of health plans, the development of new operations and the transition of members from other plans. The establishment of our health plan in Utah reflects our ability to replicate our business model in new states, while acquisitions in Michigan and Washington demonstrates our ability to acquire and successfully integrate existing operations in new and existing markets, respectively. We are now the market leader in Utah and Washington, and we have the third largest enrollment in Michigan and the third largest enrollment among non-governmental health plans in California. Flexible Care Delivery Systems. Our systems for delivery of health care services are diverse and readily adaptable to different markets and changing conditions. We contract with providers that are suited, based on proximity, culture, language and experience, to provide services to our members. In addition, we operate 21 primary care clinics in California. These clinics require low capital expenditures, minimal startup time and are profitable. Our clinics provide select communities with access to primary care and provide us with insights into physician practice patterns, first hand knowledge of the needs of our members, and a platform to pilot new programs. (in thousands) California 254,000 45.0 % $ 277,222 35.0 % 5 Varies between June 30, 2004 and March 31, 2005 Washington 183,000 32.5 % $ 334,462 42.2 % 2 December 31, 2004 and December 31, 2005 Michigan 82,000 14.5 % $ 90,674 11.5 % 1 September 30, 2004 Utah 45,000 8.0 % $ 89,425 11.3 % Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Cultural and Linguistic Expertise. We have significant expertise in developing targeted health care programs for our culturally diverse members. We contract with a broad network of providers who have the capabilities to address the language and cultural needs of our members. We believe we are well-positioned to successfully serve this growing population. Proven Medical Management. We believe our experience as a provider helps us to improve medical outcomes for our members. We carefully monitor day-to-day medical management in order to provide appropriate care to our members and ensure an efficient delivery network. We have also designed and implemented disease management and health education programs that address the particular health care needs of our members. Our Strategy Our objective is to be the leading managed care organization serving beneficiaries of Medicaid and other government-sponsored managed care programs for low-income families and individuals. To achieve this objective, we intend to: maintain our focus on serving low-income families and individuals, increase our membership through internal growth, development of new plans and acquisitions in existing and new markets, continue to actively manage our medical costs, and maximize our operational efficiencies. Our Company Molina Healthcare, Inc. was incorporated in California in 1999, as the parent company of our health plan subsidiaries, under the name American Family Care, Inc. We changed our name to Molina Healthcare, Inc. in March of 2000. We reincorporated in Delaware on June 26, 2003. Our principal executive offices are located at One Golden Shore Drive, Long Beach, CA 90802, and our telephone number is (562) 435-3666. Our website is located at www.molinahealthcare.com. Information contained on our website or linked to our website is not a part of this prospectus. Our company is the federally registered owner of the Molina service mark and name. All other product names, trademarks, service marks and trade names referred to are the property of their respective owners. One Golden Shore Drive Long Beach, CA 90802 (562) 435-3666 (Address, including zip code, and telephone number including area code, of registrant s principal executive offices) Operating Statistics: Medical care ratio (2) 81.5 % 82.5 % 83.1 % 84.0 % Marketing, general and administrative expense ratio (3) 8.5 % 9.5 % 7.8 % 8.8 % Members (4) 405,000 489,000 564,000 672,000 J. Mario Molina, M.D. President and Chief Executive Officer One Golden Shore Drive Long Beach, CA 90802 (562) 435-3666 (Name, address, including zip code, and telephone number including area code, of agent for service) (1) The pro forma data gives effect to the acquisition of Health Care Horizons, Inc. (including the commercial line of business) as if the pending acquisition had occurred at January 1, 2003, and excludes the pending Washington transaction. (2) Medical care ratio represents medical care costs as a percentage of premium and other operating revenue. Other operating revenue includes revenues related to our California clinics and reimbursements under various risk and savings sharing programs. The medical care ratio is a key operating indicator used to measure our performance in delivering efficient and cost effective healthcare services. Changes in the medical care ratio from period to period result from changes in Medicaid funding by the states, our ability to effectively manage costs, and changes in accounting estimates related to incurred but not reported claims. See Management s Discussion and Analysis of Financial Condition and Results of Operations for further discussion. (3) Marketing, general and administrative expense ratio represents such expenses as a percentage of total operating revenue. (4) Number of members at end of year, excluding the pending Washington transaction. (5) The as adjusted data gives effect to our receipt of approximately $61.6 million net proceeds from the sale of 2,000,000 shares of common stock offered by us at an assumed offering price of $32.70 per share after deducting estimated underwriting discounts and commissions and estimated offering expenses. Copies to: Mark J. Mihanovic, Esq. Karen I. Calhoun, Esq. McDermott, Will & Emery 2049 Century Park East, Suite 3400 Los Angeles, CA 90067 (310) 277-4110 William J. Grant, Jr., Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 (212) 728-8000 Table of Contents
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+PROSPECTUS SUMMARY This summary highlights the information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under Risk Factors. Monolithic Power Systems is a high performance analog and mixed-signal semiconductor company. We design, develop, and market proprietary, advanced analog and mixed-signal semiconductors for large and high growth markets. Our semiconductors, or integrated circuits (ICs), are used in a variety of electronic products, such as notebook computers, flat panel displays, cellular handsets, digital cameras, wireless local area network (LAN) access points, home entertainment systems, and personal digital assistants. Analog and mixed-signal ICs are used to interface with real world signals, such as pressure, light, or sound. We differentiate our ICs by offering solutions that are more highly-integrated, smaller in size, more energy efficient, more accurate with respect to performance specifications, and, accordingly, more cost-effective than many competing solutions. Our ability to offer these benefits to customers is enabled by our three core strengths: our deep system-level and applications knowledge, our strong analog and mixed-signal design expertise, and our proprietary process technology for the design and manufacture of our ICs. We are focused on delivering products for large and high growth markets, currently targeting the computing, consumer electronics, and wireless markets. In 2004, according to International Data Corporation (IDC), these markets, including the notebook computer, flat panel display, cellular handset, and personal data assistant markets, are expected to represent unit sales of over 700 million in the aggregate. There are a number of trends driving growth in these target markets, including a drive toward smaller devices that incorporate smaller and more highly integrated ICs, a focus on enhanced audio and visual experiences, and continuing growth in wireless connectivity. While these trends have driven growth in our target markets, they have also presented new challenges for suppliers of ICs into these markets. For example, in the cellular handset and notebook computing areas, customers are looking for semiconductors that are both smaller and more highly-integrated and that are more energy efficient. Similarly, in the flat panel television market, customers are looking for semiconductors that offer advanced sound and image quality, while simultaneously enabling them to make their products more affordable. We deliver products to our customers that are highly-integrated, small in size, energy efficient, accurate, and cost-effective, positioning us well to address these industry trends. Our product families currently include: Cold cathode fluorescent lamp (CCFL) backlight inverter ICs, used in lighting electronic displays, such as those found in notebook computers and flat panels; Direct current (DC) to DC converter ICs, used to convert and control voltages within a variety of electronic devices; Light emitting diode (LED) driver ICs, used in lighting displays, such as those found in cellular handsets and personal digital assistants; and Audio amplifier ICs, used to amplify sound and particularly well-suited for increasingly smaller and/or portable electronic devices. In 2002 and 2003, respectively, our CCFL backlight inverter product family accounted for 79.4% and 69.8% of our revenues, our DC to DC converter product family accounted for 3.2% and 22.9% of SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Table of Contents our revenues, our LED driver product family accounted for 3.4% and 6.0% of our revenues, and our audio amplifier product family accounted for 14.0% and 1.3% of our revenues. In the nine months ending September 30, 2004, our CCFL backlight inverter product family accounted for 49.2% of our revenues, our DC to DC converter product family accounted for 38.5% of our revenues, our LED driver product family accounted for 10.1% of our revenues, and our audio product family accounted for 2.2% of our revenues. We sell our products primarily to third parties with whom we have distribution arrangements and through our direct sales and applications support organization to original design manufacturers, who typically design and manufacture electronic products on behalf of original equipment manufacturers, to electronic manufacturing service providers, who typically provide manufacturing services for original equipment manufacturers or for other electronic product suppliers, and to original equipment manufacturers. Our significant direct customers are Asian Information Technology, Uppertech, and Yosun, all three of which are distributors. For the nine months ended September 30, 2004, these customers represented 27%, 20%, and 10% of our total revenues, respectively. Our semiconductors are ultimately contained in electronic products sold by original equipment manufacturers such as Acer, Dell, Hewlett-Packard, and IBM in the computing industry, LG Electronics, Samsung, and Sharp in the consumer electronics industry, and Apple, Dell, LG Electronics, and Motorola in the wireless industry. Our competitive differentiation in the analog and mixed-signal semiconductor industry is founded on our three core strengths: our deep system-level and applications knowledge, our strong analog and mixed-signal design expertise, and our proprietary process technology. Our deep system-level and applications knowledge is important because it allows us to work closely with our customers to identify new product opportunities and areas of potential integration, as well as to reduce our customers time to market. We have also assembled a strong team of analog and mixed-signal design engineers that average over 15 years of design experience. Through our analog and mixed-signal design expertise, we have developed a portfolio of intellectual property and know-how that we are able to apply across our products and markets. Finally, our proprietary process technology for design and manufacturing is a source of competitive differentiation as it allows us to integrate power devices, analog circuitry, and digital circuitry onto a single chip in a cost-effective manner. Our proprietary process technology offers many benefits over conventional analog and mixed-signal process technologies. A key deficiency of conventional analog and mixed-signal process technologies is that they generally cannot support integration of power devices into ICs at high power levels without resulting in either unacceptably large semiconductors or significant levels of power loss. High levels of power loss result in significant heat dissipation, which then must be managed to avoid harm to a system. To avoid these problems, many other analog and mixed-signal semiconductor vendors design solutions comprised of multiple chips. Our process technology overcomes this limitation, allowing us to deliver smaller, single-chip solutions with strong degrees of both efficiency and accuracy. In addition, we believe that having one process technology that is broadly applicable across a wide range of analog and mixed-signal applications simplifies our design process and results in higher design productivity. Through our process technology, we are able to simplify our manufacturing process, improve our yields, and lower our manufacturing costs. We utilize a fabless business model, working with third parties to manufacture our ICs, rather than manufacturing our ICs ourselves. In contrast to many fabless semiconductor companies that utilize standard process technologies, we have developed our own proprietary process technology and collaborate with our foundry manufacturing partners to install our technology on their equipment in their facilities for use solely on our behalf to manufacture our products. AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 Table of Contents Our goal is to be a leading provider of proprietary, advanced analog and mixed-signal ICs. To accomplish our goal, we intend to: Focus on large and high growth markets; Leverage our core strengths to expand our product portfolio; Continue to invest in research and development to extend our technology leadership position; and Expand our sales and applications support organization globally. As of September 30, 2004, we had 142 employees located in the United States, Taiwan, China, and Korea. Of these employees, approximately 39% were dedicated to research and development. While we believe we compete favorably in the markets we serve, we face a variety of challenges. We are engaged in multiple legal proceedings with O2 Micro, Inc. and its parent corporation, O2 Micro International Limited. We refer to O2 Micro and O2 Micro International together as O2. These proceedings involve various claims and counterclaims in the United States and Taiwan by O2 and us alleging, among other things, patent infringements and misappropriation of trade secrets, all of which relate to our CCFL backlight inverter product family. O2 has obtained an injunction in Taiwan prohibiting us from manufacturing, designing, displaying, importing, or selling two of our most significant products in Taiwan, either directly or through a third party acting at our request. The underlying patent dispute in both the United States and the Taiwanese litigation involves issues that could affect all of our CCFL backlight inverter products used in the United States and Taiwan. Revenues from our CCFL backlight inverter product family were $16.9 million or 70% of total revenue in 2003 and $16.2 million or 49% of total revenue in the first nine months of 2004, of which we believe products used in or shipped to Taiwan represented a significant portion. The litigation described above could result in us having to pay fines or substantial money damages to O2 and/or to our customers. We could also be prevented by an injunction from selling any or all of our CCFL backlight inverter products into the U.S. and/or Taiwan, either directly or through the distribution arrangements we currently employ. A significant portion of our expected future revenues over the next several years is expected to come from users of our CCFL backlight inverter product family in Taiwan. Linear Technology Corporation has filed a complaint with the U.S. International Trade Commission (ITC) alleging that two of our products within our DC to DC converter product family infringe certain of its patents. It is possible that Linear could attempt to expand its complaint to include other products. Linear s complaint requests that the ITC issue an exclusion order and a cease and desist order that would prevent these products from being used in the U.S. Our DC to DC converter products are expected to account for a significant portion of our future revenues over the next several years. Microsemi Corporation has sued us in the United States District Court for the Central District of California alleging that our products infringe four of its patents. Based upon the description of the technology contained in Microsemi s complaint, we believe that Microsemi may contend that one or more of our CCFL backlight inverter products infringes its patents. The complaint requests an injunction to prevent us from allegedly infringing the patents, as well as unspecified damages, attorneys fees, costs, and expenses. In 2003 and the nine months ended September 30, 2004, MONOLITHIC POWER SYSTEMS, INC. (Exact name of Registrant as specified in its charter) Table of Contents revenues from our CCFL backlight inverter product family were $16.9 million and $16.2 million, respectively, or 70% and 49% of total revenue. Our CCFL backlight inverter products are expected to account for a significant portion of our future revenues over the next several years. In November 2004, Micrel, Incorporated sued us in the United States District Court for the Northern District of California alleging that our products infringe two of its patents. Michael Hsing, our Chief Executive Officer, and another of our employees are named inventors on both of Micrel s patents and Jim Moyer, our Chief Design Engineer, is a named inventor on one of them. Micrel s complaint does not identify which claims in the two patents are allegedly infringed nor does it identify which of our products supposedly infringe the patent claims. However, because Micrel s patents relate to semiconductor manufacturing processes and semiconductor design elements rather than a specific device, all of our products could potentially be implicated. Micrel s complaint requests an injunction to prevent us from allegedly infringing the patents, as well as unspecified damages, attorneys fees, costs, and expenses. We strongly advise you to read Risk Factors and Business Legal Proceedings for a more detailed description of the litigation described above. In addition, we have a history of losses, a limited operating history, and a limited number of products as compared to many of our competitors that have longer operating histories, greater name recognition, more established customer relationships, more diversified product offerings, and greater resources than we do. While we have recently experienced significant growth, we must continue to develop our operational, accounting, and management systems to manage any future growth, and we must continue to expand our product offerings and broaden our customer base to further grow our business. We were incorporated in California in 1997 and reincorporated into Delaware in November 2004. Our executive offices are located at 983 University Avenue, Building A, Los Gatos, CA 95032. Our telephone number is (408) 357-6600. Our e-mail address is investors@monolithicpower.com, and our web site is www.monolithicpower.com. Information contained on our web site is not a part of this prospectus. Delaware 3674 77-0466789 (State or Other Jurisdiction of Incorporation or Organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 983 University Avenue, Building A Los Gatos, CA 95032 (408) 357-6600 (Address, including zip code, and telephone number, including area code, of Registrant s principal executive offices) $7.77 and below 26,984,018 $8.00 26,828,695 $8.23 and above 26,684,018 Common stock we are offering 4,000,000 shares Common stock the selling stockholders are offering 1,500,000 shares Proposed Nasdaq National Market symbol MPWR Use of proceeds For general corporate purposes, including working capital, marketing, research and development and capital expenditures. For more information, see Use of Proceeds. The number of shares of common stock to be outstanding after this offering is based on 22,828,695 shares of common stock outstanding as of September 30, 2004, including the assumed conversion of all outstanding preferred stock into 15,720,704 shares of common stock at an assumed initial public offering price of $8.00 per share. The terms of our Series D preferred stock include certain antidilution provisions which, if the initial public offering price is below $8.23, will increase the number of shares of common stock to be issued when our preferred stock is automatically converted into common stock upon consummation of this offering. The amount of the increase, if any, would be a function of the size of the difference between $8.23 and the offering price, but would under no circumstances exceed 300,000 shares of common stock. Thus, at an offering price up to and including $7.77, the 15,576,027 outstanding shares of preferred stock would convert upon closing of this offering into 15,876,027 shares of common stock, at an offering price above $7.77 but below $8.23 into a number of shares of common stock between 15,876,027 and 15,576,027 (e.g., 15,720,704 shares at an offering price of $8.00 per share), and at an offering price at or above $8.23 into 15,576,027 shares of common stock. Except as otherwise indicated, whenever we present the number of shares of common stock outstanding, we have: based this information on the shares outstanding as of September 30, 2004, excluding: 7,471,583 shares of common stock issuable upon exercise of outstanding options at a weighted average exercise price of $4.25 per share; 2,716,450 shares of common stock available for future issuance under our existing stock option plan and our stock option plan adopted in connection with this offering; 200,000 shares of common stock reserved for issuance under our employee stock purchase plan adopted in connection with this offering; Michael Hsing President and Chief Executive Officer Monolithic Power Systems, Inc. 983 University Avenue, Building A Los Gatos, CA 95032 (408) 357-6600 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents 93,718 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.94 per share; and 176,740 shares of common stock, subject to vesting, issued for $0.001 per share to certain of our employees on October 5, 2004 and October 28, 2004; given effect to the automatic conversion of our outstanding preferred stock into common stock upon completion of this offering; assumed the exercise of warrants to purchase 120,000 shares of Series C preferred stock at an exercise price of $2.25 per share; assumed no exercise of options after September 30, 2004; and assumed no exercise of the underwriters over-allotment option. Monolithic Power Systems and MPS are among the trademarks of Monolithic Power Systems, Inc. This prospectus also contains brand names, trademarks, and service marks of companies other than Monolithic Power Systems, and these brand names, trademarks, and service marks are the property of their respective holders. This prospectus contains market data and industry forecasts that were obtained from industry publications. These publications generally state that the information contained therein has been obtained from sources believed to be reliable. While we believe that these market data and industry forecasts are reliable, we have not independently verified such information. Copies to: Steven E. Bochner, Esq. Eric John Finseth, Esq. Christine S. Wong, Esq. Zachary S. Bogue, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, CA 94304 (650) 493-9300 Robert T. Clarkson, Esq. Daniel R. Mitz, Esq. Meredith Berkowitz, Esq. Stephen E. Gillette, Esq. Jones Day 2882 Sand Hill Road, Suite 240 Menlo Park, CA 94025 (650) 739-3939 Table of Contents SUMMARY CONSOLIDATED FINANCIAL DATA Our summary consolidated financial data is presented in the following table to aid you in your analysis of a potential investment in our common stock. You should read this data together with Management s Discussion and Analysis of Financial Condition and Results of Operations, for each of the three years in the period ended December 31, 2003 and for the nine months ended September 30, 2003 and 2004 and our consolidated financial statements and related notes appearing elsewhere in this prospectus. The summary consolidated statement of operations data for each of the three years ended December 31, 2003 have been derived from our audited consolidated financial statements which are included elsewhere in this prospectus, and the summary consolidated statement of operations data for the years ended December 31, 1999 and December 31, 2000 have been derived from our audited consolidated financial statements not included elsewhere in this prospectus. The summary consolidated balance sheet data as of September 30, 2004 and the summary consolidated statement of operations data for the nine months ended September 30, 2004 and September 30, 2003 have been derived from our unaudited consolidated financial statements which are included elsewhere in this prospectus. Pro forma net loss per common share reflects the conversion of all outstanding preferred stock into common stock at an assumed initial offering price of $8.00 per share from the beginning of the period presented or at the date of original issuance, if later. The as adjusted balance sheet data assumes the conversion of all outstanding convertible preferred stock into common stock at an assumed initial offering price of $8.00 per share and reflects our receipt of the estimated net proceeds from our sale of 4,000,000 shares of common stock in this offering at an assumed initial public offering price of $6.85 per share after deducting the estimated underwriting discounts and commissions and the estimated expenses of this offering. As described on page 5, the number of shares of common stock issuable upon conversion of all outstanding preferred stock will vary depending on the initial offering price per share. Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. Consolidated Balance Sheet Data: Cash and cash equivalents $ 15,683 $ 43,363 Short-term investments Restricted assets 5,977 5,977 Working capital 13,528 41,208 Total assets 35,077 62,757 Redeemable convertible preferred stock 19,418 Convertible preferred stock 11,163 Total stockholders equity 5,028 52,126 The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall then become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine. Table of Contents RISK FACTORS An investment in our common stock is very risky. You should carefully consider the risks described below, together with all of the other information in this prospectus, before making a decision to invest in our common stock. If any of the following risks actually occur, our business, financial condition, operating results, and growth prospects could be adversely affected. In such an event, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. Risks Related to Our Business and Industry We have a history of losses, and we may not achieve or sustain profitability on a quarterly or annual basis. We have incurred losses on an annual basis since our inception. As of September 30, 2004, we had an accumulated deficit of $20.8 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business. Our operating expenses include general and administrative expenses, selling and marketing expenses, litigation expenses, stock based compensation expenses, and research and development expenses relating to products that will not be introduced and will not generate revenues until later periods, if at all. We may not achieve or sustain profitability on a quarterly or annual basis in the future. If we are unsuccessful in our current lawsuits with O2 Micro International Limited in either the U.S. or in Taiwan, we could be prevented from selling many of our products and/or be required to pay substantial damages or fines. Any unfavorable outcome would cause our revenues to decline significantly and severely harm our business and operating results. We are engaged in multiple legal proceedings with O2 Micro, Inc. and its parent corporation, O2 Micro International Limited. We refer to O2 Micro and O2 Micro International together as O2. These proceedings involve various claims and counterclaims in the United States and Taiwan by O2 and us alleging, among other things, patent infringements and misappropriation of trade secrets, all of which relate to our CCFL backlight inverter product family. O2 has obtained an injunction in Taiwan prohibiting us from manufacturing, designing, displaying, importing, or selling two of our most significant products in Taiwan, either directly or through a third party acting at our request. While we believe, based on the advice of our Taiwan counsel Chen and Lin, that our course of business is in compliance with this injunction, O2 has attempted on several occasions to convince the court otherwise. Although the injunction specifically names only our MP 1011A and MP 1015 CCFL products, the underlying patent dispute in both the United States and the Taiwanese litigation involves issues that could affect all of our CCFL backlight inverter products used in the United States and Taiwan. Revenues from our CCFL backlight inverter product family were $16.9 million or 70% of total revenue in 2003 and $16.2 million or 49% of total revenue in the first nine months of 2004, of which we believe products used in or shipped to Taiwan represented a significant portion. O2 has also taken legal action against Advanced Semiconductor Manufacturing Corporation of Shanghai (ASMC), our wafer manufacturer, and some of our customers and users of our products in the United States and Taiwan. We generally agree to indemnify our customers against patent infringement claims, and we are currently defending one of our customers (at our expense) against a claim by O2. All of these legal proceedings are complex. We describe the proceedings and related events in detail under Business Legal Proceedings, and we strongly advise investors to read that section carefully. The legal proceedings in which we are involved expose us to the following risks: 1. We could be ordered to pay monetary fines and/or damages if we are found to be in violation of the Taiwan injunction or liable to O2 on its claims against us; Table of Contents 2. We could be prevented from selling many of our products, either into Taiwan, directly or through the distribution arrangements we currently employ, or in the U.S.; 3. We could be liable to ASMC or to customers who have purchased our products and whom we have indemnified against liability for damages arising from claims by O2 or others that our products infringe patents of O2 or others; 4. Our management team could be required to devote so much time, effort and energy to the legal proceedings that the rest of our business suffers; 5. Our customers and end-users of our products could decide not to use our products, or ASMC could decide to reduce or eliminate its manufacturing service to us, in an attempt to avoid litigation with O2, or, if they have been or are sued directly by O2, our products, or their accounts payable to us, could be seized from them; and 6. Interim developments in the various legal proceedings may contribute to increased volatility in our stock price as the market assesses the impact of those developments on the likelihood that we will or will not ultimately prevail in the litigation with O2. The outcomes described above could result in us having to pay fines or substantial money damages to O2 and/or to our customers. We could also be prevented by an injunction from selling any or all of our CCFL backlight inverter products into the U.S. and/or Taiwan, either directly or through the distribution arrangements we currently employ. A significant portion of our expected future revenues over the next several years is expected to come from users of our CCFL backlight inverter product family in Taiwan. Even if we are ultimately successful, we could lose customers or our relationship with ASMC could be harmed due to the uncertainty surrounding the litigation. Any of these results would have a material and adverse effect on our results of operations for one or more quarters, and any injunction that prohibits us from selling significant products for any length of time would have an immediate and drastic negative effect on our business and results of operations. Until the litigation is resolved, we will continue to incur substantial legal expenses, which vary directly with the level of activity in the legal proceedings. This level of activity is not entirely within our control, as we often need to respond to legal action by O2. Consequently, we may find it difficult to predict the legal expenses for any given quarter, which will impair our ability to forecast our results of operations for that quarter. We are aware that O2 has recently been issued at least one other U.S. patent that is a continuation of the patents it has accused us of infringing, has also filed for a U.S. patent that would be a continuation of the patents it has accused us of infringing, and has filed for related patents in other Asian counties. We are not aware that any foreign patents have been issued in response to these patent applications and do not know when, if ever, any such patent will issue. Nevertheless, we expect O2 may pursue claims against us based on this additional issued U.S. patent or any other additional U.S. or foreign patents that O2 may obtain in the future. In this regard, O2 often has sued us on additional patents as they have issued, including suits on two additional patents filed in October 2004. Depending on the scope and severity of those claims, any injunctions that may be issued against us, or damages that may be awarded against us, could have a material and adverse effect on our business and results of operations. This risk factor only summarizes the various legal proceedings and related events. We strongly advise you to read Business Legal Proceedings for a more detailed description. Table of Contents The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. Subject to Completion. Dated November 17, 2004. 5,500,000 Shares Monolithic Power Systems, Inc. Common Stock Table of Contents If we are unsuccessful in our current patent infringement lawsuits with Linear Technology Corporation, Microsemi Corporation, and Micrel, Incorporated, we could be prevented from selling many of our products and/or be required to pay substantial damages or fines. Any unfavorable outcome would cause our revenues to decline significantly and severely harm our business and operating results. In July 2004, Linear Technology Corporation (Linear) filed a complaint with the U.S. International Trade Commission (ITC) alleging that two of our products, the MP 1556 and the EV 0063 (products within our DC to DC converter product family), infringe their U.S. Patent Nos. 5,481,178 and 6,580,258. It is possible that Linear could attempt to expand its complaint to include other products. Linear s complaint requests that the ITC issue an exclusion order and a cease and desist order that would prevent these products from being used in the U.S. Sales of our products identified by Linear in its complaint accounted for less than 1% of our revenues for each of 2003 and the nine months ended September 30, 2004. However, if Linear successfully adds other products to its initial claim, then the scope of the ITC proceeding could be expanded to include, among other of our products, most or all of our DC to DC converter products. Our DC to DC converter products are expected to account for a significant portion of our future revenues over the next several years. This matter has been set for trial before the ITC commencing March 30, 2005. In October 2004, Microsemi Corporation (Microsemi) sued us in the United States District Court for the Central District of California alleging that our products infringe four of its patents. Microsemi s complaint does not identify which claims in the four patents are allegedly infringed nor does it identify which of our products supposedly infringe the patent claims. Based upon the description of the technology contained in Microsemi s complaint, we believe that Microsemi may contend that one or more of our CCFL backlight inverter products infringes its patents. The complaint requests an injunction to prevent us from allegedly infringing the patents, as well as unspecified damages, attorneys fees, costs, and expenses. Because the litigation is in a very preliminary stage, however, it is difficult to predict how it will proceed or what the ultimate outcome will be. In 2003 and the nine months ended September 30, 2004, revenues from our CCFL backlight inverter product family were $16.9 million and $16.2 million, respectively, or 70% and 49% of total revenue. Our CCFL backlight inverter products are expected to account for a significant portion of our future revenues over the next several years. In November 2004, Micrel, Incorporated (Micrel) sued us in the United States District Court for the Northern District of California alleging that our products infringe two of its patents. Michael Hsing, our Chief Executive Officer, and another of our employees are named inventors on both of Micrel s patents and Jim Moyer, our Chief Design Engineer, is a named inventor on one of them. Micrel s complaint does not identify which claims in the two patents are allegedly infringed nor does it identify which of our products supposedly infringe the patent claims. However, because Micrel s patents relate to semiconductor manufacturing processes and semiconductor design elements rather than a specific device, all of our products could potentially be implicated. Micrel s complaint requests an injunction to prevent us from allegedly infringing the patents, as well as unspecified damages, attorneys fees, costs, and expenses. Because the litigation is in a very preliminary stage, it is difficult to predict how it will proceed or what the ultimate outcome will be. We have, however, conducted an initial review of the Micrel patents and compared them with the manufacturing processes and design elements we use for our products. Based on this initial review, we believe that we have meritorious defenses to all of Micrel s claims. If we do not prevail in the Linear litigation, the Microsemi litigation, or the Micrel litigation, we could be enjoined from selling one or more of our products into the U.S., either directly or indirectly. Because many of our products are sold indirectly by our customers back into the U.S., a U.S. injunction covering one or more of our products would likely substantially reduce sales of those products. In addition, if we do not prevail in the Microsemi or Micrel litigation, we could be ordered to pay monetary damages to Microsemi and/or Micrel. We could also be liable to customers who have purchased our products and whom we have indemnified against liability for damages arising from claims that our This is an initial public offering of shares of common stock of Monolithic Power Systems, Inc. Monolithic Power Systems is offering 4,000,000 of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional 1,500,000 shares. Monolithic Power Systems will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $7.00 and $9.00. Application has been made for quotation on the Nasdaq National Market under the symbol MPWR . See Risk Factors on page 9 to read about certain factors you should consider before buying shares of the common stock. Table of Contents products infringe the intellectual property rights of others. Even if we are ultimately successful in the litigation with Linear, Microsemi, and Micrel, we could lose customers in the interim due to the surrounding uncertainty. Any of these results would have a material and adverse effect on our results of operations for one or more quarters, and any injunction that prohibits us from selling significant products for any length of time would have an immediate and drastic negative effect on our business and results of operations. As described in Management s Discussion of Financial Condition and Results of Operations Overview Patent Litigation, until our litigation with Linear, Microsemi, and Micrel is resolved we will continue to incur substantial legal expenses that vary with the level of activity in the legal proceedings. This level of activity is not entirely within our control as we may need to respond to legal action by Linear, Microsemi, or Micrel. Consequently, we may find it difficult to predict the legal expenses for any given quarter, which will impair our ability to forecast our results of operations for that quarter. It is likely that these expenses will increase leading up to and during our Linear trial scheduled for March 2005. Interim developments in these lawsuits may also may contribute to increased volatility in our stock price as the market assesses the impact of those developments on the likelihood that we will or will not ultimately prevail. This risk factor only summarizes the various legal proceedings and related events. We strongly advise you to read Business Legal Proceedings for a more detailed description. We may incur a deemed dividend in connection with this offering for the period in which this offering occurs, which would increase our net loss per share and could reduce the trading price of our common stock. We may record a deemed dividend on our Series D redeemable convertible preferred stock (Series D) upon our initial public offering as the conversion terms include a provision to reduce the conversion price in connection with an initial public offering at a price per share of $8.22 or less. In accordance with EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, we determine the incremental shares issuable pursuant to the conversion price adjustment at the time of our initial public offering and compute the deemed dividend based on the fair value of our common stock at the commitment date, which is November 2004 when such terms were modified to limit the maximum additional shares to 300,000. Based on an assumed initial public offering price of $8.00 per share, the deemed dividend will be $1,157,464, at an assumed initial public offering price of $7.77 per share and below, the deemed dividend will be $2,400,000, and at an assumed initial public offering price of $8.23 and above, there will be no deemed dividend. We believe that this deemed dividend will likely increase our net loss per share that would otherwise be reported. This could result in a decline in the trading price of our common stock. Due to our limited operating history, we may have difficulty both in accurately predicting our future revenues and appropriately budgeting for our expenses. We were incorporated in 1997 and did not begin generating meaningful revenues until 2000. As a result, we have only a short history from which to predict future revenues. This limited operating experience combined with the rapidly evolving nature of the markets into which we sell our products, as well as other factors which are beyond our control, reduces our ability to accurately forecast quarterly or annual revenues. We are currently expanding our staffing and increasing our expense levels in anticipation of future revenue growth. If our revenues do not increase as anticipated, significant losses could result due to our higher expense levels. We expect our operating results to fluctuate from quarter to quarter and year to year, which may make it difficult to predict our future performance and could cause our stock price to decline. Our revenues, expenses, and results of operations are difficult to predict, have varied significantly in the past and will continue to fluctuate significantly from quarter to quarter and year to year in the future due to a number of factors, many of which are beyond our control. For example, our revenues Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Table of Contents for the first quarter of each year tend to be significantly less than the revenues for the last quarter of the previous year. We expect fluctuations to continue for a number of reasons, including: the timing of developments in our litigation matters with O2, Linear, Microsemi, and Micrel and the related expenses; general economic conditions in the countries where our products are used; seasonality and variability in the computer, consumer electronics, and wireless markets; the timing of new product introductions by us and our competitors; the scheduling, rescheduling, or cancellation of orders by our customers; the cyclical nature of demand for our customers products; inventory level and product obsolescence; our ability to develop new process technologies and achieve volume production; changes in manufacturing yields; movements in exchange rates, interest rates, or tax rates; and the availability of adequate supply commitments from our outside suppliers. Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter or year-over-year comparisons to predict our future financial performance. Unfavorable changes in any of the above factors may seriously harm our business and cause our stock price to decline. The highly cyclical nature of the semiconductor industry, which has produced significant and sometimes prolonged downturns, could materially adversely affect our operating results, financial condition, and cash flows. The semiconductor industry has historically been highly cyclical and, at various times, has experienced significant downturns and wide fluctuations in supply and demand. These conditions have caused significant variances in product demand, production capacity and rapid erosion of average selling prices. Although the semiconductor industry has recently experienced strong demand, the industry may experience severe or prolonged downturns in the future, which could result in pricing pressure on our products as well as lower demand for our products. Because a significant portion of our expenses is fixed in the short term or is incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall of sales. This could materially adversely affect our operating results, financial condition, and cash flows. If demand for our products declines in the major end markets that we serve, our revenues will decrease. Applications of our products in the computer, consumer electronics and wireless markets have and we believe will continue to account for a majority of our revenues. In addition, within these markets we are dependent upon a small number of products. We are particularly dependent on the computing market, including notebook and flat panel monitor applications, and we expect that a significant level of our revenues and operating results will continue to be dependent upon notebook and flat panel monitor applications for at least the near term. If demand for our products declines in the major end markets that we serve, our revenues will decrease. Per Share Total other income (expense), net 40 29 (172 ) 57 170 125 Table of Contents We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our operations and financial position. We market our products through distribution arrangements and through our direct sales and applications support organization to customers that include original equipment manufacturers, original design manufacturers, and electronic manufacturing service providers. Receivables from our customers are not secured by any type of collateral and are subject to the risk of being uncollectible. Significant deterioration in the liquidity or financial position of any of our major customers or any group of our customers could have a material adverse impact on the collectibility of our accounts receivable and our future operating results. In addition, in 2003, CTP, Yosun, and Ambit/Unique Logistics, third parties with whom we currently have or formerly had distribution arrangements, accounted for 30%, 16%, and 14% of our revenues, respectively. We terminated our distribution arrangement with CTP in March 2004, and entered into expanded distribution agreements with Asian Information Technology, or AIT, and Uppertech. In the nine months ended September 30, 2004, AIT, Uppertech, and Yosun, each of which is a distributor, accounted for 27%, 20%, and 10% of our revenues, respectively. Any future termination or loss of a distribution arrangement could reduce customers willingness or ability to purchase our products and could thereby reduce our revenues and adversely affect our future operating results. We primarily conduct our sales on a purchase order basis, rather than pursuant to long-term supply contracts. The loss of any significant customer, any material reduction in orders by any of our significant customers or by their OEM customers, the cancellation of a significant customer order, or the cancellation or delay of a customer s or OEM s significant program or product could reduce our revenues and adversely affect our operations and financial position. For example, revenues from our audio amplifier product family declined from 14.0% of total revenues in 2002 to 1.3% of total revenues in 2003. The decline was due to the loss of one major customer who placed a large non-recurring order in the third and fourth quarters of 2002. Moreover, we believe a high percentage of our products are eventually sold to a small number of end customer original equipment manufacturers, or OEMs, such as Dell, Hewlett-Packard, IBM, and Sony. Although we communicate with OEMs in an attempt to achieve design wins, which are decisions by OEMs and/or original design manufacturers to use our products, we do not have agreements with any of these end customers, formal or informal. Therefore, there can be no assurance that they will continue to choose to incorporate our ICs into their products. We cannot be certain that we will continue to achieve design wins from large OEMs, that our direct customers will continue to be successful in selling to OEMs, or that the OEMs will be successful in selling products which incorporate our ICs. We have recently had to improve our internal accounting systems and controls, and if we fail to make continued improvements, our business may suffer. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. As we have been an early stage private company, we have had limited accounting personnel and other resources with which to address our internal controls and procedures. As a result, when our auditors audited our financial statements as of and for the year ended December 31, 2003, they identified in their report to our audit committee three significant deficiencies in our internal accounting controls. Two of these significant deficiencies rose to the level of material weaknesses, while the third was considered a reportable condition. The two material weaknesses were that (i) we lacked certain formalized accounting policies and procedures, including written procedures for the monthly, quarterly, and annual closing of our financial books and records and (ii) we lacked sufficient staff in our accounting and information Total other income (expense), net 40 29 (172 ) 57 170 125 Total Table of Contents technology departments. The reportable condition was that our accounting personnel lacked adequate training on our enterprise resource planning system. The report also contained other observations and recommendations, none of which rose to the level of a reportable condition. Following our receipt of this report, we consulted with our audit committee and undertook remedial steps to address these deficiencies, including hiring additional staff, training our new and existing staff, and establishing monthly, quarterly, and annual closing procedures. We believe our actions remedied the material weaknesses and reportable conditions in our internal controls. At the direction of our audit committee, we engaged our external auditors to audit our financial statements for the quarter ended March 31, 2004. In their report to the audit committee following this audit, the material weaknesses and reportable condition previously identified were no longer reported; however, other matters that did not constitute material weaknesses or reportable conditions were identified. These other matters included control deficiency recommendations relating to: hiring a financial analyst to assist with management reporting and analysis; enhancing certain cost accounting procedures; modifying or documenting policies relating to certain other reserve and accrual procedures and closing procedures; and documenting information security policies. In response to these recommendations, we intend to hire a financial analyst following this offering. We have implemented the other recommendations relating to cost accounting and other reserve, accrual, and closing procedures in connection with our June 30 and September 30, 2004 quarterly closes, and we have also completed documentation of our information security policies. These other control deficiencies did not have a material impact on our financial statements and, as they all have now been addressed, are not expected to have any future material impact on our financial statements. If, however, we fail to continue to adequately staff our accounting and finance function and maintain internal controls adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, our business may suffer. The loss of any of our key personnel or the failure to attract or retain specialized technical and management personnel could impair our ability to grow our business. Our future success depends upon our ability to attract and retain highly qualified technical and managerial personnel. We are particularly dependent upon the continued services of Michael Hsing, our President and Chief Executive Officer, who founded our company and developed our proprietary process technology. Also, personnel with highly skilled analog and mixed-signal design engineering expertise are scarce and competition for personnel with these skills is intense. There can be no assurance that we will be able to retain existing key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel in the future. If we are unable to retain the services of existing key employees or are unsuccessful in attracting new highly qualified employees, our business could be harmed. In addition, Tim Christoffersen and Dave Satterfield, our Chief Financial Officer and Controller, have served in those positions since only June 2004 and February 2004, respectively. Accordingly, our finance team has worked together for a relatively short period. Any failure of our finance team to communicate or work together effectively could adversely affect our business and results of operations. Initial public offering price $ $ Underwriting discount $ $ Proceeds, before expenses, to Monolithic Power Systems $ $ Proceeds, before expenses, to the Selling Stockholders $ $ To the extent that the underwriters sell more than 5,500,000 shares of common stock, the underwriters have the option to purchase up to an additional 825,000 shares from Monolithic Power Systems at the initial public offering price less the underwriting discount. Table of Contents We currently depend on one third-party supplier to provide us with wafers for our products. If our wafer supplier fails to provide us sufficient wafers at acceptable yields and at anticipated costs, our revenues and gross margins may decline. We have a supply arrangement for the production of wafers with ASMC. Although certain aspects of our relationship with ASMC are contractual, many important aspects of this relationship depend on their continued cooperation. We began this relationship with ASMC in 2001 and commenced volume production at ASMC s facilities in the first half of 2003. In October 2004, O2 sued ASMC for patent infringement based on its manufacture of our products, and it is possible that our relationship with ASMC could be materially and adversely affected by the O2 litigation. ASMC has not indicated that they will seek indemnification from us in this matter, nor has it declined to accept, or threatened not to accept, new orders from us; however, there can be no assurance that ASMC will not seek indemnity or cease accepting orders from us in the future. If ASMC were to terminate our relationship, we would seek to replace them with another wafer supplier; however, we estimate that qualifying another wafer supplier and ramping up volume production would take approximately six to twelve months. There can be no assurance that such manufacturer would be successfully qualified, or, if qualified, would provide wafers at a sufficient yield or in desired quantities. Also, there can be no assurance that other potential wafer manufacturers would enter into an agreement with us or give us acceptable pricing terms due to the threat of litigation. We cannot assure you that we will continue to work successfully with ASMC in the future, that they will continue to provide us with sufficient capacity at their foundries to meet our needs, or that they will not seek an early termination of their wafer supply agreement with us. In addition, the fabrication of ICs is a highly complex and precise process. Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous ICs on each wafer to be non-functional, thereby reducing yields. The failure of ASMC to supply us wafers at acceptable yields could prevent us from fulfilling our customers orders for our products and would likely cause a decline in our revenues. Although we provide ASMC with rolling forecasts of our production requirements, their ability to provide wafers to us is limited by the available capacity of the facilities in which they manufacture wafers for us. An increased need for capacity to meet internal demands or demands of other customers could cause ASMC to reduce capacity available to us. ASMC may also require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions in order to acquire the wafer supply necessary to meet our customers requirements. If ASMC extends lead times, limits supplies, or increases prices due to capacity constraints or other factors, our revenues and gross margins may decline. Further, as is common in the semiconductor industry, our customers may reschedule or cancel orders on relatively short notice. We are required under our agreement with ASMC to order wafers at least three months in advance. If we cancel these orders after ASMC s commencement of manufacturing, which generally occurs six to fourteen weeks before scheduled delivery of the wafers, we must pay cancellation fees to ASMC. If our customers cancel orders after we have ordered the corresponding wafers from ASMC, we may be forced to incur cancellation fees or to purchase wafers that we may not be able to resell, which would adversely affect our operating results, financial condition, and cash flows. We might not be able to deliver our products on a timely basis if our relationships with our assembly and test subcontractors are disrupted or terminated. All of our products are assembled by third-party subcontractors and a small percentage of our testing is performed by third-party subcontractors. We do not have any ongoing agreements with these subcontractors. As a result, we may not have direct control over product delivery schedules or product quality. Also, due to the amount of time typically required to qualify assembly and test subcontractors, The underwriters expect to deliver the shares against payment in New York, New York on , 2004. Goldman, Sachs & Co. Merrill Lynch & Co. Deutsche Bank Securities Piper Jaffray Table of Contents we could experience delays in the shipment of our products if we were forced to find alternate third parties to assemble or test our products. Any future product delivery delays or disruptions in our relationships with our subcontractors could have a material adverse effect on our operating results, financial condition, and cash flows. Failure to protect our proprietary technologies or maintain the right to certain technologies may negatively affect our ability to compete. Third parties such as O2, Linear, Microsemi, and Micrel have asserted and other third parties could assert that our products infringe their intellectual property rights, which could result in restrictions or prohibitions on the sale of our products and/or cause us to pay license fees and damages. We rely heavily on our proprietary technologies. Our future success and competitive position depend in part upon our ability to obtain and maintain protection of certain proprietary technologies used in our products. We pursue patents for some of our new products and unique technologies, and we also rely on a combination of nondisclosure agreements and other contractual provisions, as well as our employees commitment to confidentiality and loyalty, to protect our technology, know-how, and processes. Despite the precautions we take, it may be possible for unauthorized third parties to copy aspects of our current or future technology or products or to obtain and use information that we regard as proprietary. We intend to continue protecting our proprietary technology, including through patents. There can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated, or circumvented by others. Furthermore, the laws of the countries in which our products are or may be developed, manufactured, or sold may not protect our products and intellectual property rights to the same extent as laws in the United States. Our failure to adequately protect our proprietary technologies could harm our business. The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights, such as our litigation matters with O2, Linear, Microsemi, and Micrel. Patent infringement is an ongoing risk, in part because other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigation may be necessary to enforce our intellectual property rights, and we may have to defend ourselves against infringement claims. Such litigation is very costly and may divert our management s resources. We spent $4.3 million or 17.9% of revenue in 2003, and $4.8 million or 14.8% of revenue in the first nine months of 2004, on patent litigation expenses, and we expect patent litigation expenses to increase in absolute dollars in 2005. Further, we have agreed to indemnify our customers in some circumstances against liability from infringement by our products. In the event any third party were to make an infringement claim against us or our customers, we could be enjoined from selling selected products, including, but potentially not limited to, products in our CCFL backlight inverter family in the O2 matters, products in our DC to DC converter product family in the Linear matter, our CCFL backlight inverter products in the Microsemi matter, and/or potentially all of our products in the Micrel matter, or could be required to indemnify our customers or pay royalties or other damages to third parties. If we were unable to obtain necessary licenses or other rights on acceptable terms, we would either have to change our products so that they did not infringe or stop selling the infringing products, which could have a material adverse effect on our operating results, financial condition, and cash flows. We derive a substantial majority of our revenues from direct or indirect sales to foreign customers and have significant foreign operations, which may expose us to political, regulatory, economic, foreign exchange, and operational risks. We derive a substantial majority of our revenues from direct or indirect sales to foreign customers, including 98.6% for 2003 and 98.7% for the first nine months of 2004 from sales either directly or through Prospectus dated , 2004. Table of Contents distribution arrangements to parties located in Asia, a majority of which represents revenues from parties with whom we have distribution arrangements for resale to users of our products in Taiwan. As a result, we are subject to increased risks due to this concentration of business and operations. There are risks inherent in doing business internationally, including: changes in, or impositions of, legislative or regulatory requirements, including tax laws in the United States and in the countries in which we manufacture or sell our products; trade restrictions; transportation delays; work stoppages; economic and political instability; changes in import/export regulations, tariffs, and freight rates; longer accounts receivable collection cycles and difficulties in collecting accounts receivables; difficulties in collecting receivables and enforcing contracts generally; currency exchange rate fluctuations; and less effective protection of intellectual property. Our manufacturing partners are subject to extensive government regulation, which could increase our costs or limit our ability to sell products and conduct activities in China. Most of our manufacturing partners, including ASMC, our current foundry, are located in China. In addition, we are currently in the process of establishing a facility in China, initially for the testing of our ICs. The Chinese government has broad discretion and authority to regulate the technology industry in China. China s government has implemented policies from time to time to regulate economic expansion in China. It also exercises significant control over China s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. New regulations or the readjustment of previously implemented regulations could require us and our manufacturing partners to change our business plans, increase our costs, or limit our ability to sell products and conduct activities in China, which could adversely affect our business and operating results. In addition, the Chinese government and provincial and local governments have provided, and continue to provide, various incentives to encourage the development of the semiconductor industry in China. Such incentives include tax rebates, reduced tax rates, favorable lending policies, and other measures, some or all of which may be available to our manufacturing partners and to us with respect to the facility we propose to establish in China. Any of these incentives could be reduced or eliminated by governmental authorities at any time. Any such reduction or elimination of incentives currently provided to our manufacturing partners could adversely affect our business and operating results. We may be unsuccessful in developing and selling new products or in penetrating new markets required to maintain or expand our business. We operate in a dynamic environment characterized by rapidly changing technologies and industry standards and technological obsolescence. Our competitiveness and future success depend on our ability to design, develop, manufacture, assemble, test, market, and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could have a material adverse effect on our competitive position within these markets. Our failure to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues, and/or a loss of market share to competitors. Table of Contents Table of Contents The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementation factors, including: timely and efficient completion of process design and device structure improvements; timely and efficient implementation of manufacturing, assembly, and test processes; product performance; the quality and reliability of the product; and effective marketing, sales and service. To the extent that we fail to introduce new products or penetrate new markets, our revenues and financial condition could be materially adversely affected. Because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products. The introduction of new products presents significant business challenges because product development plans and expenditures must be made up to two years or more in advance of any sales. It takes us up to 12 months or more to design and manufacture a new product prototype. Only after we have a prototype do we introduce the product to the market and begin selling efforts in an attempt to achieve design wins. This sales process, which averages 6 to 12 months, requires us to expend significant sales and marketing resources without any assurance of success. Volume production of products that use our ICs, if any, may not be achieved for an additional 3 to 6 months after an initial sale. Sales cycles for our products are lengthy for a number of reasons: our customers usually complete an in-depth technical evaluation of our products before they place a purchase order; the commercial adoption of our products by original equipment manufacturers, or OEMs, and original device manufacturers is typically limited during the initial release of their product to evaluate product performance and consumer demand; our products must be designed into a customer s product or system; and the development and commercial introduction of our customers products incorporating new technologies frequently are delayed. As a result of our lengthy sales cycles, we may incur substantial expenses before we earn associated revenues because a significant portion of our operating expenses is relatively fixed and based on expected revenues. The lengthy sales cycles of our products also make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their orders. Our sales are made by purchase orders. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, backlog is not always a good indicator of our future sales. If customer cancellations or product changes occur, we could lose anticipated sales and not have sufficient time to reduce our inventory and operating expenses. Our products must meet exacting specifications, and undetected defects and failures may occur, which may cause customers to return or stop buying our products and may expose us to product liability risk. Our customers generally establish demanding specifications for quality, performance, and reliability that our products must meet. Integrated circuits as complex as ours often encounter Table of Contents development delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require product replacement or recall. We have from time to time in the past experienced product quality, performance or reliability problems. If defects and failures occur in our products, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, and product returns or discounts, any of which would harm our operating results. In addition, product liability claims may be asserted with respect to our technology or products. Although we currently have insurance, there can be no assurance that we have obtained a sufficient amount of insurance coverage, that asserted claims will be within the scope of coverage of the insurance, or that we will have sufficient resources to satisfy any asserted claims. We compete against many companies with substantially greater financing and other resources, and our market share may be reduced if we are unable to respond to our competitors effectively. The analog and mixed-signal semiconductor industry is highly competitive, and we expect competitive pressures to continue. Our ability to compete effectively and to expand our business will depend on our ability to continue to recruit applications and design talent, our ability to introduce new products, and our ability to maintain the rate at which we introduce these new products. We compete with several domestic and international semiconductor companies, many of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. We are in direct and active competition, with respect to one or more of our product lines, with at least 10 manufacturers of such products, of varying size and financial strength. The number of our competitors has grown due to expansion of the market segments in which we participate. We consider our primary competitors to include Intersil Corporation, Linear, Maxim Integrated Products, Micrel, Microsemi, National Semiconductor Corporation, O2, Semtech Corporation, STMicroelectronics, and Texas Instruments. We expect continued competition from existing competitors as well as competition from new entrants in the semiconductor market. Our ability to compete successfully in the rapidly evolving area of integrated circuit technology depends on several factors, including: our success in designing and manufacturing new products that implement new technologies; our ability to recruit applications and design talent; our protection of our processes, trade secrets, and know-how; our ability to maintain high product quality, reliability, and customer support; the pricing policies of our competitors; the performance of competitors products; our ability to deliver in large volume on a timely basis; and our manufacturing, distribution, and marketing capability. We cannot assure you that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering this market. Our current backlog may not be indicative of future sales. Due to the nature of our business, in which order lead times may vary, and customers are generally allowed to reschedule or cancel orders on short notice, we believe that backlog is not Table of Contents necessarily a good indicator of future sales. Our quarterly revenues also depend on orders booked and shipped in that quarter. Because lead times for the manufacturing of our products generally take 6 to 8 weeks, we often must build in advance of orders. This subjects us to certain risks, most notably the possibility that expected sales will not materialize, leading to excess inventory, which we may be unable to sell to other customers. Therefore, our backlog may not be a reliable indicator of future sales. Major earthquakes or other natural disasters and resulting systems outages may cause us significant losses. Our corporate headquarters, the production facilities of our third-party wafer supplier, a portion of our assembly and research and development activities, and certain other critical business operations are located in or near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and could be materially and adversely affected in the event of a major earthquake. Much of our revenues, as well as our manufacturers and assemblers, are concentrated in Southeast Asia. Such concentration increases the risk that other natural disasters, labor strikes, terrorism, war, political unrest, epidemics, and/or health advisories like Sudden Acute Respiratory Syndrome or bird flu could disrupt our operations. In addition, we rely heavily on our internal information and communications systems and on systems or support services from third parties to manage our operations efficiently and effectively. Any of these are subject to failure due to a natural disaster or other disruption. System-wide or local failures that affect our information processing could have material adverse effects on our business, financial condition, operating results, and cash flows. We intend to expand our operations, which may strain our resources and increase our operating expenses. We plan to expand our operations, domestically and internationally, and may do so through internal growth, strategic relationships, or acquisitions. We expect that this expansion will strain our systems and operational and financial controls. In addition, we are likely to incur significantly higher operating costs. To manage our growth effectively, we must continue to improve and expand our systems and controls. If we fail to do so, our growth will be limited. If we fail to effectively manage our planned expansion of operations, our business and operating results may be harmed. We may engage in future acquisitions that dilute the ownership interests of our stockholders and cause us to incur debt or to assume contingent liabilities, and we may be unable to successfully integrate these companies into our operations, which would adversely affect our business. As a part of our business strategy, we expect to review acquisition prospects that would complement our current product offerings, enhance our design capability or offer other growth opportunities. While we have no current agreements and no active negotiations underway with respect to any acquisitions, we may acquire businesses, products or technologies in the future. In the event of future acquisitions, we could use a significant portion of our available cash, issue equity securities which would dilute current stockholders percentage ownership, and/or incur substantial debt or contingent liabilities. Such actions by us could impact our operating results and/or the price of our common stock. In addition, if we are unsuccessful in integrating any acquired company into our operations or if integration is more difficult than anticipated, we may experience disruptions that could harm our business. Net income (loss) attributable to common stockholders $ (948 ) $ (727 ) $ (1,088 ) $ (921 ) $ (2,210 ) $ (2,018 ) $ (169 ) $ Table of Contents Risks Related to This Offering If the initial public offering price of our common stock in this offering is less than $8.23 per share, the conversion ratio of our Series D preferred stock will be adjusted pursuant to a formula, increasing the number of shares of common stock into which it converts. As a result, you would suffer additional dilution. If the initial public offering price in this offering is less than $8.23 per share, the conversion ratio of our Series D preferred stock will be adjusted according to a formula. The number of shares of common stock into which the Series D preferred stock would convert upon the closing of this offering would increase as the price per share at which we sell common stock in this offering declines below $8.23. The number of shares of common stock to be outstanding after this offering assumes an initial public offering price of $8.00 per share, the mid-point of the estimated price range shown on the cover of this prospectus. If the initial public offering price is below $8.23 per share, the number of shares of common stock to be outstanding after this offering would increase and you would suffer additional dilution. For instance, at an offering price up to and including $7.77, the 15,576,027 outstanding shares of preferred stock would convert upon closing of this offering into 15,876,027 shares of common stock, at an offering price above $7.77 but below $8.23 into a number of shares of common stock between 15,876,027 and 15,576,027, and at an offering price at or above $8.23 into 15,576,027 shares of common stock. There has been no prior public market for our common stock, and an active public market may not develop. Prior to this offering, there has been no public market for our common stock. We cannot assure you that an active trading market will develop or be sustained or that the market price of our common stock will not decline. The initial public offering price for the shares of our common stock will be determined by us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. We do not know the extent to which investor interest will lead to the development of an active public market. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price which you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technology by using our shares as consideration. We expect our stock price to be volatile. The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including: the depth and liquidity of the market for our common stock; developments generally affecting the semiconductor industry; commencement of or developments relating to our involvement in litigation, including the ongoing O2, Linear, Microsemi, and/or Micrel litigation matters; investor perceptions of us and our business; changes in securities analysts expectations or our failure to meet those expectations; actions by institutional or other large stockholders; terrorist acts; actual or anticipated fluctuations in our results of operations; Table of Contents developments with respect to intellectual property rights; announcements of technological innovations or significant contracts by us or our competitors; introduction of new products by us or our competitors; our sale of common stock or other securities in the future; conditions and trends in technology industries; changes in market valuation or earnings of our competitors; changes in the estimation of the future size and growth rate of our markets; our results of operations and financial performance; and general economic, industry and market conditions. In addition, the stock market in general often experiences substantial volatility that is seemingly unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Sales of substantial amounts of our common stock could harm the market price of our stock. A substantial amount of our shares will be eligible for sale shortly after this offering. If our stockholders sell substantial amounts of common stock in the public market soon after the lock-up period ends, the market price of our common stock could fall. Based on shares outstanding as of September 30, 2004, upon completion of this offering, we will have 26,828,695 shares of common stock outstanding at an assumed public offering price of $8.00, the mid-point of the estimated price range shown on the cover of this prospectus. Of these shares, the 5,500,000 shares sold in this offering will be freely tradable. Another 21,124,111 shares will be eligible for sale in the public market 180 days from the date of this prospectus, all of which are subject to lock-up agreements with us and/or the underwriters. Either we or the underwriters may in our respective sole discretion and at any time without notice, release all or any portion of the securities from the restrictions imposed by our respective lock-up agreements with securityholders prior to the expiration of such 180-day period. The remaining 204,584 shares are restricted securities that will become eligible for sale in the public market pursuant to Rule 144 at various dates in the future. The sale of a significant number of these shares could cause the price of our common stock to decline. For more detailed information, see Shares Eligible for Future Sale. Because of their significant stock ownership, our officers and directors will be able to exert significant influence over our future direction. Executive officers, directors, and entities affiliated with them will, in the aggregate, beneficially own approximately 30.2% of our outstanding common stock following the completion of this offering. Additionally, Jim Jones, one of our directors, is associated with BAVP, L.P., which will own approximately 8.9% of our outstanding common stock following the completion of this offering. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. For more detailed information, see Principal and Selling Stockholders. Management will have broad discretion over the use of proceeds from this offering. The net proceeds from this offering will be used for general corporate purposes, including working capital and capital expenditures. We currently anticipate spending a portion of the net proceeds on sales and marketing activities, research and development activities, general and administrative matters, Table of Contents
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+Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Net Revenue Net revenue increased $62.0 million, or 26%, to $299.3 million for the year ended December 31, 2003, from $237.3 million for the year ended December 31, 2002. This increase was primarily due to an increase in gross shipments of our existing products and to the introduction of various new products that were favorably received by customers. In particular, net revenue in the EMEA region grew by $31.4 million, or 46%, year over year. This increase was partially offset by a $14.1 million increase in rebates and cooperative marketing costs, primarily in North America, associated with increased product sales. Net revenue for the years ended December 31, 2002 and 2003 was reduced for cooperative marketing expenses in the amount of $15.4 million and $23.5 million, respectively, deemed to be sales incentives under Emerging Issues Task Force ( EITF ) 01-9. Cost of Revenue and Gross Margin Cost of revenue increased $38.3 million, or 22%, to $215.5 million for the year ended December 31, 2003 from $177.1 million for the year ended December 31, 2002. Our gross margin improved to 28.0% for the year ended December 31, 2003, from 25.4% for the year ended December 31, 2002. The improvement in gross margin was primarily due to a favorable shift in product mix, especially of newer products which often carry higher gross margins, as well as due to operational efficiency and supply chain management programs Table of Contents that reduced inbound freight costs by $2.1 million and excess and obsolete inventory charges by approximately $4.4 million. Furthermore, we were able to negotiate better pricing with our contract manufacturers and chip vendors due to increased volumes. Operating Expenses Research and development. Research and development expenses increased $861,000, or 12% to $8.2 million for the year ended December 31, 2003, from $7.4 million for the year ended December 31, 2002. The increase was primarily due to increased headcount and salary increases for existing employees of $1.3 million, general overhead increases of approximately $336,000 offset by $830,000 in lower product development costs, which include product certification costs. Sales and marketing. Sales and marketing expenses increased $16.3 million or 50% to $49.0 million for the year ended December 31, 2003, from $32.6 million for the year ended December 31, 2002. This was primarily due to (i) $3.9 million in increased expenses related to the addition of sales and marketing personnel and salary increases for existing employees; (ii) increased sales volume, product promotion, advertising and outside technical support expenses of $9.8 million; and (iii) freight out charges of $1.5 million. Furthermore, we incurred additional costs associated with entering new and expanding our presence in markets such as China, Italy, Japan, Spain and Sweden. General and administrative. General and administrative expenses increased $874,000, or 11% to $9.0 million for the year ended December 31, 2003, from $8.1 million for the year ended December 31, 2002. The increase was primarily attributable to an increase in cost associated with operating as a public company, including increased directors and officers insurance of $550,000 and professional services of $478,000, comprised of systems consulting, accounting and legal fees. This increase was offset by reduced payroll expenses of approximately $220,000 mainly as a result of lower bonus payments. Goodwill amortization. Goodwill amortization expense was zero for the year ended December 31, 2003 and 2002. There was no impairment charge that management believed necessary in the years ended December 31, 2002 and 2003. Amortization of deferred stock-based compensation. During the year ended December 31, 2003, we recorded amortization of deferred stock-based compensation of $128,000 in cost of revenue, $454,000 in research and development expenses, $715,000 in sales and marketing expenses, and $476,000 in general and administrative expenses. This compared to $144,000 in cost of revenue, $306,000 in research and development expenses, $346,000 in sales and marketing expenses and $867,000 in general and administrative expenses in the year ended December 31, 2002. The remaining balance of deferred stock-based compensation of $4.2 million will continue to be amortized on a straight line basis until 2007. Interest Income, Interest Expense and Other Income (Expense), Net The aggregate of interest income, interest expense, and other income (expense), net, decreased $544,000, to a net expense of $596,000 for the year ended December 31, 2003, from a net expense of $1.1 million for the year ended December 31, 2002. This decrease was attributable to increased interest income of $245,000 due to an increase in the average cash balance. Additionally, interest expense was reduced by $339,000 following the repayment of the Nortel Note. Extinguishment of Debt During the year ended December 31, 2003 we used $20.0 million of the initial public offering proceeds, to repay debt that had a carrying value of $14.1 million. The repayment of debt resulted in the recognition of an extinguishment of debt charge of $5.9 million in the third quarter of 2003 due to the acceleration of interest expense equal to the unamortized discounted balance at the date of repayment. 2004 $ 1,033 2005 153 2006 Table of Contents Provision (Benefit) for Income Taxes We recorded a benefit for income taxes of $3.5 million for the year ended December 31, 2003, compared to a provision for income taxes of $1.3 million for the year ended December 31, 2002. This benefit was primarily due to the reversal of the valuation allowance against our deferred tax assets of $9.8 million recorded in the second quarter of 2003. The valuation allowance was reversed because we determined that it is more likely than not that certain future tax benefits will be realized. This benefit was partially offset by an increase in tax of $2.6 million for debt extinguishment, which is treated as a permanent non-deductible expense for tax purposes. The year ended December 31, 2002 included a benefit associated with the change to valuation allowance on deferred tax assets of $3.8 million, arising from, among other factors, the utilization of net operating loss tax carry forwards. Net Income Net income increased $5.0 million, to $13.1 million for the year ended December 31, 2003 from $8.1 million for the year ended December 31, 2002. This increase was due to an increase in gross profit of $23.6 million, a benefit in the income tax provision of $4.9 million, offset by a charge for the extinguishment of debt, related to a note payable to Nortel Networks, of $5.9 million and an increase in operating expenses of $18.2 million. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Net Revenue Net revenue increased $44.9 million, or 23%, to $237.3 million for the year ended December 31, 2002, from $192.4 million for the year ended December 31, 2001. This increase was primarily due to an increase in gross shipments associated with the introduction of new wireless LAN and broadband gateway products such as our 802.11b Wireless PC Card NIC and our Cable/ DSL Web Safe Gateway during 2002, partially offset by an increase in rebates and cooperative marketing costs of $9.2 million associated with increased retail product sales. Net revenue for years ended December 31, 2001 and 2002 was reduced for cooperative marketing expenses in the amount of $10.3 million and $15.4 million, respectively, deemed to be sales incentives under Emerging Issues Task Force Issue ( EITF ) 01-9. The adoption of EITF Issue 01-9 did not have an impact on net income because there was a corresponding reduction in sales and marketing expenses. Cost of Revenue and Gross Margin Cost of revenue increased $4.3 million, or 2%, to $177.1 million for the year ended December 31, 2002 from $172.8 million for the year ended December 31, 2001. However, our gross margin improved to 25.4% for the year ended December 31, 2002, from 10.2% for the year ended December 31, 2001. This improvement in gross margin was due primarily to operational efficiency programs we implemented that led to a reduction in both the average material cost per product and the level of price protection expenses paid to our channel partners. This improvement in gross margin was partially offset by an increase in air freight expenses. Operating Expenses Research and development. Research and development expenses increased $2.9 million, or 66%, to $7.4 million for the year ended December 31, 2002, from $4.4 million for the year ended December 31, 2001. This increase was primarily due to increased headcount and salary increases for existing employees of $1.8 million, an increase in costs associated with outsourced engineering of $1.3 million, and an increase in certification expenses paid to third parties of $440,000. These increases were offset by the absence in 2002 of a charge of $645,000 associated with the discontinuation of a product development project in 2001. Sales and marketing. Sales and marketing expenses increased $8.4 million, or 34%, to $32.6 million for the year ended December 31, 2002, from $24.3 million for the year ended December 31, 2001. This increase was primarily due to increased salary and related expenses for additional sales and marketing Table of Contents Summary Consolidated Financial Data The following tables summarize consolidated financial data regarding our business and should be read together with Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this prospectus. Year Ended December 31, Table of Contents personnel and increased compensation for existing personnel of $4.8 million, and increased product promotion, advertising and outside technical support expenses of $3.6 million. General and administrative. General and administrative expenses increased $2.2 million, or 37%, to $8.1 million for the year ended December 31, 2002, from $5.9 million for the year ended December 31, 2001. This increase was primarily due to increased salary expenses of $1.6 million for additional employees and increased compensation expenses for existing personnel, and $285,000 related to depreciation expense and bad debt allowance. Goodwill amortization. Goodwill amortization expenses decreased to zero for the year ended December 31, 2002, from $335,000 for the year ended December 31, 2001 due to the discontinuation of goodwill amortization under SFAS 142 effective January 1, 2002. Amortization of deferred stock-based compensation. During the year ended December 31, 2002, we recorded amortization of deferred stock-based compensation in cost of revenue of $144,000, $306,000 in research and development expenses, $346,000 in sales and marketing expenses, and $867,000 in general and administrative expenses. Other Income (Expense), Net Other expense, net remained approximately the same at $1.1 million for both the years ended December 31, 2002 and 2001. During these periods, an increase in interest expense of $301,000 primarily due to imputed interest associated with the Nortel note payable offset by a reduction in foreign exchange losses of $470,000 due to a decline in the value of the Japanese yen and other foreign currencies as compared to the United States dollar. Provision for Income Taxes Provision for income taxes decreased by $1.7 million from $3.1 million for the year ended December 31, 2001 to $1.3 million for the year ended December 31, 2002. This decrease occurred because we were able to reduce taxable income by utilizing almost all of our approximately $7.7 million of federal net operating loss carry forwards. Net Income (Loss) Net income was $8.1 million in 2002 versus a net loss of $19.5 million in 2001. This improvement of $27.6 million was due to an increase in gross profit of $40.6 million, offset by an increase in operating expenses of $14.7 million. Net income was also higher in 2002 due to a reduction in provision for income taxes of $1.7 million. Net income (loss) per share attributable to common stockholders: Basic $ (0.72 ) $ 0.09 $ 0.12 $ 0.17 $ 0.08 $ 0.57 $ (0.15 ) $ 0.14 Diluted $ (0.72 ) $ 0.09 $ 0.10 $ 0.15 $ 0.07 $ 0.48 $ (0.15 ) $ 0.12 Our net revenue increased sequentially in each quarter between the quarter ended March 31, 2002 and the quarter ended December 31, 2003, except for the quarter ended March 30, 2003. The revenue growth was primarily due to the introduction of new products that gained rapid market acceptance, the addition of new retail outlets and increasing penetration of the EMEA market. The sequential decrease in revenue in the quarter ended March 30, 2003 was due to geo-political instability, timing of introduction of products by both us and our competitors, and traditional seasonal demand patterns. Our gross margin has increased sequentially in each quarter between the quarter ended March 31, 2002 and the quarter ended December 31, 2003, except for a slight decline in the quarter ended September 29, 2002. The increase in gross margin was primarily due to our ability to decrease product costs faster than the decline in average selling prices and the introduction of new products which often carry higher gross margins, partially offset by increases from inbound freight costs. The decrease in gross margin for the quarter ended September 29, 2002 was due primarily to increased cooperative marketing costs and price protection in that quarter. The amount of research and development expenses increased in the four quarters from the three months ended March 31, 2002, primarily due to additional headcount and salary increases for existing employees, as well as increases in payments to suppliers for design services and certification expenses paid to third parties. Research and development expenses declined slightly in the two quarters ended March 30, 2003 and June 29, 2003 due to reduced certification expenses and a reduction in payments to suppliers for design services. For the two quarters ended September 28, 2003 and December 31, 2003 the expenses again increased due to increased headcount and costs associated with the introduction of new products. Table of Contents The amount of sales and marketing expenses increased in each of the eight quarters starting with the quarter ended March 31, 2002, due to increased product promotion, advertising and outside service expenses associated with growth in revenues, an increase in salary expenses for additional sales and marketing personnel, and compensation expenses for existing personnel. Sales and marketing expenses grew as a percentage of net revenue in the quarters ended March 30, 2003 and June 29, 2003 due to increases in headcount and technical support relating to geographic expansion as well as the timing and channel mix of marketing expenditures. The amount of general and administrative expenses have remained relatively constant during the quarters indicated above with a slight increase in recent quarters due to additional headcount and the associated costs that the company has to bear with becoming public. Liquidity and Capital Resources As of December 31, 2003 we had cash, cash equivalents and short-term investments totaling $73.6 million. Short term investments accounted for $12.4 million of this balance. Our cash balance increased from $19.9 million as of December 31, 2002 to $61.2 million as of December 31, 2003. Operating activities during the year ended December 31, 2003 used $26.4 million, primarily for working capital to support the increase in our net revenue. Investing activities during the year ended December 31, 2003 used $14.9 million for the purchase of short-term investments and property and equipment. During the year ended December 31, 2003, financing activities provided $82.6 million, primarily resulting from the issuance of common stock in our initial public offering, partially offset by the repayment of a line of credit and the Nortel Note. Our days sales outstanding increased from 55 days as of December 31, 2002 to 81 days as of December 31, 2003. This increase was attributable primarily to channel mix in the fourth quarter of 2003 moving more towards retail, which generally has longer payment terms. Our accounts payable and payable to related parties, in aggregate, increased from $24.3 million at December 31, 2002 to $30.9 million at December 31, 2003. The increase of $6.6 million is due to the timing of inventory receipts. The shift of amounts payable between related party and third party accounts payable of approximately $7.3 million is due to the diversification of our contracting manufacturing base to more vendors. Inventory grew by $14.5 million from $24.8 million at December 31, 2002 to $39.3 million at December 31, 2003, to support increased product shipments to customers. The primary areas of growth were finished goods at $6.7 million and in-transit inventory at $7.3 million. In the quarter ended December 31, 2003 we experienced inventory turns of approximately 6.3 times, down from approximately 8.5 times in the quarter ended December 31, 2002. Our cash balance increased from $9.2 million as of December 31, 2001 to $19.9 million as of December 31, 2002. Operating activities during 2002 provided cash of $15.2 million primarily from net income of $8.1 million, non-cash items of $4.2 million and contribution from working capital of $2.8 million. This increase was attributable primarily to an increase in the amount of our net revenues occurring during the last month of the quarter ended December 31, 2002 compared to the last month of the quarter ended December 31, 2001. Investing activities for this period used $3.2 million due to purchases of property and equipment. Financing activities for this period used cash of $1.2 million due to issuance costs of $1.2 million associated with the repurchase of our Series A preferred stock offset by proceeds from the issuance of our Series C preferred stock. We have a revolving line of credit agreement with Comerica Bank-California that provides for a maximum line of credit of $20.0 million, which includes direct loans, letters of credit, foreign exchange contracts, and corporate credit cards. Availability under this line of credit is based on a formula of eligible accounts receivable balances. Direct borrowings bear interest at the bank s prime rate plus 75 basis points. Borrowings are collateralized by all of our assets. The credit line contains covenants, including but not limited to certain financial covenants based on earnings before interest, taxes, depreciation and amortization, We lease office space and equipment under non-cancelable operating leases with various expiration dates through March 2006. Rent expense was $1.2 million for the year ended December 31, 2001, $959,000 for the year ended December 31, 2002 and $1.1 million for the year ended December 31, 2003. The terms of the facility lease provide for rental payments on a graduated scale. We recognize rent expense on a straight-line basis over the lease period, and have accrued for rent expense incurred but not paid. We enter into various inventory-related purchase agreements with suppliers. Generally, under these agreements, 50% of the orders are cancelable by giving notice 46 to 60 days prior to the expected shipment date and 25% of orders are cancellable by giving notice 31-45 days prior to the expected shipment date. Orders are non cancellable within 30 days prior to the expected shipment date. At December 31, 2003, we had approximately $27.5 million in non-cancelable purchase commitments with suppliers. International Restructuring By the end of 2004, we plan to reorganize our foreign subsidiaries and entities to manage and optimize our international operations. This project will require us to form and develop new corporate entities and Table of Contents implement intercompany charging structures in our sales order, purchase order, inventory, accounts receivable, accounts payable and other modules. We plan to reconfigure our management information systems in order to support these new foreign and other corporate entities. As part of the restructuring, we must amend a number of our customer and supplier agreements, which will require the consent of our third-party customers and suppliers. The restructuring will require substantial efforts by our staff as we modify our organizational structure and add personnel to support new business processes and reporting between us and these new entities. Therefore, the restructuring will result in increased staffing requirements and related expenses. In addition, we may be unable to implement successfully the changes required to support and obtain the benefits of the new structure. We cannot assure you that the restructuring will not cause unanticipated interruptions to our business operations that result in loss or delay in revenue causing a material adverse effect on our financial results. Failure to successfully execute the restructuring or other factors outside our control could negatively impact the timing and extent of any benefit we receive from the restructuring. See Risk Factors We intend to implement an international restructuring, which may strain our resources and increase our operating expenses. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate significant estimates used in preparing our financial statements including those related to sales returns and allowances; bad debt; inventory reserves; vendor rebates and deferred taxes. We base our estimates on historical experience, underlying run rates and various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates. The following are critical judgments, assumptions, and estimates used in the preparation of the consolidated financial statements. Revenue Recognition Revenue from product sales is generally recognized at the time the product is shipped, provided that persuasive evidence of an arrangement exists, title and risk of loss has transferred to the customer, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Currently, for our international customers, title passes upon delivery to the port of destination and for select retailers in the United States to whom we sell directly title passes upon their receipt of product. At the end of each quarter, we estimate and defer revenue related to the product that is in-transit to international customers and retail customers in the United States that purchase direct from us based upon title passage. We use an estimated number of days based on historical transit periods for different geographies to estimate the amount of revenue to be deferred. In addition, we monitor distributor and reseller channel inventory levels to identify any excess inventory in the channel that may be subject to stock rotation rights for US customers only. Gross revenue is reduced for estimated returns for stock rotation and warranty, price protection programs, customer rebates and cooperative marketing expenses deemed to be a sales incentive under Emerging Issues Task Force, or EITF, Issue 01-9, to derive net revenue. At the time of each sales transaction, we assess whether collection of the receivable is reasonably assured. We assess collectibility and creditworthiness of our customer s based on a number of factors, including past transaction history; independent reports from recognized credit rating bureaus, financial statements of the customer and where appropriate, interviews and discussions held with senior financial management of the customer. We do not request collateral from our customers. If we determine that collection is not reasonably assured, we defer revenue until receipt of cash. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments and estimates. Prior to January 1, 2001, revenue on shipments to domestic distributors was deferred until resale to end-users because we could not reasonably estimate the amount of future returns. Revenue on all shipments to Deferred tax assets: Net operating loss carry-forwards $ 182 $ 180 Accruals and allowances 9,275 9,050 Other (in thousands, except per share data) Consolidated Statement of Operations: Net revenue(1) $ 111,856 $ 176,663 $ 192,440 $ 237,331 $ 299,302 Gross profit 20,591 31,132 19,645 60,215 83,842 Income (loss) from operations (6,474 ) 4,752 (15,303 ) 10,612 16,037 Net income (loss) (6,544 ) 2,654 (19,484 ) 8,139 13,097 Deemed dividend on preferred stock (2,601 ) (17,881 ) Table of Contents international distributors was recognized upon cash collection, as the company had not established a history of collection with foreign distributors. In 2001, we determined that we had accumulated sufficient historical evidence with respect to returns and cash collections with our distributors to enable us to make reasonable estimates for all shipments on or after January 1, 2001. Allowances for Returns due to Stock Rotation and Warranty, Price Protection Programs, Other Sales Incentives and Doubtful Accounts Management makes estimates of potential future product returns, price protection claims and other sales incentives related to current period revenue. Such estimates are based on historical returns or claims rates, channel inventory levels, current economic trends and changes in customer demand and acceptance of our products. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments and estimates. We evaluate our ability to collect our receivables based on a combination of factors. We regularly analyze our significant customer accounts, and, when we become aware of a specific customer s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer s operating results or financial position, we record a specific allowance for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record allowances for bad debt for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of receivables could be further adjusted. As of December 31, 2003, we have provided allowances for a total of $1.3 million for doubtful accounts, $2.6 million for price protection, and $4.8 million for sales returns. After applying these allowances to our gross accounts receivable balance of $83.6 million, we had $74.9 million in net accounts receivable outstanding as of December 31, 2003. Valuation of Inventory We value our inventory at the lower of cost or market, cost being determined using the first-in, first-out method. We continually assess the value of our inventory and will periodically write down its value for estimated excess and obsolete inventory based upon assumptions about future demand and market conditions. On a quarterly basis, we review inventory quantities on hand and on order, under non-cancelable purchase commitments, in comparison to our estimated forecast of product demand for the next nine months. As demonstrated during 2001, 2002 and 2003 demand for our products can fluctuate significantly. If actual demand is lower than our forecasted demand we could be required to record additional inventory write-downs, which would have a negative effect on our gross margin. Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a full valuation allowance as of December 31, 2001 and 2002, because, based on the available evidence, we believed at that time it was more likely than not that we would not be able to utilize all of our deferred tax assets in the future. During the year ended December 31, 2003 we reversed $9.8 million from the valuation allowance because in management s judgment it is more likely than not that such assets will be realized in the future. Table of Contents Stock-based Compensation Our stock-based employee compensation plans are described more fully in Note 10 to the consolidated financial statements. We account for those plans under the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25 and related interpretations. We amortize stock-based compensation using the straight-line method over the vesting periods of the related options, which are generally four years. We have recorded deferred stock-based compensation representing the difference between the deemed fair value of our common stock for accounting purposes and the option exercise price. We determined the deemed fair value of our common stock based upon several factors, including a valuation report from an independent appraiser, trends in the broad market for technology stocks and the expected valuation we would obtain in an initial public offering. We recorded deferred stock-based compensation of $6.7 million and $1.0 million for stock options granted to employees during the years ended December 31, 2002, and 2003, respectively. We amortized $1.7 million and $1.8 million of this amount in the years ended December 31, 2002 and 2003, respectively. Had different assumptions or criteria been used to determine the deemed fair value of our common stock, materially different amounts of stock-based compensation could have been reported. Pro forma information regarding net income (loss) and net income (loss) per share is required in order to show our net income (loss) as if we had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148. This information is contained in Note 1 to our consolidated financial statements. The fair value of options and shares issued pursuant to our option plans at the grant date were estimated using the Black-Scholes option-pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. We use projected volatility rates, which are based upon historical volatility rates experienced by comparable public companies. Because our employee stock options have characteristics significantly different from those of publicly traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options. The effects of applying pro forma disclosures of net income (loss) and net income (loss) per share are not likely to be representative of the pro forma effects on net income and earnings per share in the future years for the following reasons: (1) the number of future shares to be issued under these plans is not known and (2) the assumptions used to determine the fair value can vary significantly. Quantitative and Qualitative Disclosure Regarding Market Risk We do not use derivative financial instruments in our investment portfolio. We have an investment portfolio of fixed income securities that are classified as available-for-sale securities. These securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. We attempt to limit this exposure by investing primarily in short-term securities. Due to the short duration and conservative nature of our investment portfolio a movement of 10% by market interest rates would not have a material impact on our operating results and the total value of the portfolio over the next fiscal year. We are exposed to risks associated with foreign exchange rate fluctuations due to our international manufacturing and sales activities. We generally have not hedged currency exposures. These exposures may change over time as business practices evolve and could negatively impact our operating results and financial condition. All of our sales are denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and therefore reduce the demand for our products. Such a decline in the demand could reduce sales and/or result in operating losses. Table of Contents Related Party Transactions For a description of our related party transactions, see Certain Relationships and Related Transactions. Recent Accounting Pronouncements In November 2002, the EITF reached a consensus on Issue 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue 00-21 applies to revenue arrangements entered into in reporting periods beginning after June 15, 2003. The adoption of EITF Issue 00-21 did not have a material impact on the financial position, results of operations or cash flows of the company. In December 2003, the Financial Accounting Standards Board ( FASB ) issued a revision to Interpretation number 46, Consolidation of variable interest entities, and interpretation of ARB Opinion No. 51 (FIN 46R). FIN 46R clarifies the application of ARB 51 Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support provided by any parties, including the equity holders. FIN 46R requires the consolidation of these entities, known as variable interest entities ( VIE s ), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity s expected losses, receive a majority of the entity s expected residual returns, or both. Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the interpretation for public companies to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the unmodified provisions of the interpretation to entities that were previously considered special-purpose entities in practice and under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. Among the scope expectations, companies are not required to apply FIN 46R to an entity that meets the criteria to be considered a business as defined in the interpretation unless one or more of four named conditions exist. FIN 46R applies immediately to a VIE created or acquired after January 31, 2003. The company does not have any interests in VIE s and the adoption of FIN 46R is not expected to have a material impact on the company s financial position, results of operations or cash flows. Change in Auditors Deloitte Touche LLP previously served as our independent accountants as well as the independent accountants for our prior parent Nortel Networks. In February 2002, concurrent with Nortel Networks selling its remaining ownership of our capital stock, we changed from Deloitte Touche to PricewaterhouseCoopers LLP as our independent auditors. Our board of directors approved the decision to change accountants. In connection with the audit of the fiscal year ended December 31, 2000, we had no disagreements with Deloitte Touche LLP on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused Deloitte Touche LLP to make reference in connection with their opinion to the subject matter of the disagreement. The audit report of Deloitte Touche LLP on our consolidated financial statements for the year ended December 31, 2000, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. Table of Contents Principal Accountant Fees and Services Total fees billed by PricewaterhouseCoopers LLP for the audits of our financial statements and other services during the year ended December 31, 2003 amounted to $1,105,000. Of this amount, $873,000 was related to professional services provided as part of our initial public offering. The aggregate fees for tax compliance and tax advisory services billed by PricewaterhouseCoopers LLP during the year ended December 31, 2003 were $313,000. During the year ended December 31, 2003, PricewaterhouseCoopers LLP rendered no other services for us. Table of Contents BUSINESS General We design, develop and market technologically advanced, branded networking products that address the specific needs of small business, which we define as a business with fewer than 250 employees, and home users. We supply innovative networking products that meet the ease-of-use, quality, reliability, performance and affordability requirements of these users. Our broad suite of approximately 100 products enables users to share Internet access, peripherals, files, digital multimedia content and applications among multiple personal computers, or PCs, and other Internet-enabled devices. Our products are grouped into three major segments within the small business and home markets: Ethernet networking products, broadband products and wireless networking products, with each product group including a combination of switches, adapters, and wired and wireless routers and gateways. We sell our products primarily through a global sales channel network, which includes traditional retailers with over 7,100 locations worldwide, online retailers, direct market resellers, or DMRs, value added resellers, or VARs, and broadband service providers. Industry Background A number of factors are driving today s increasing demand for networking products within small businesses and homes. As the number of computing devices, such as PCs, has increased in recent years, networks are being deployed in order to share information and resources among users and devices. This information and resource sharing occurs internally, through a local area network, or LAN, or externally, via the Internet. To take advantage of complex applications, advanced communication capabilities and rich multimedia content, users are upgrading their Internet connections by deploying high-speed broadband access technologies. Users also seek the convenience and flexibility of operating their PCs, laptops and related computing devices in a more mobile, or wireless, manner. Finally, as the usage of networks, including the Internet, has increased, users have become much more focused on the security of their connections and the protection of the data within their networks. The number of PCs within small businesses and homes is increasing due to the increased affordability and capabilities of these devices. Small businesses and homes are deploying multiple PCs within these environments. According to International Data Corporation, or IDC, at the end of 2002, 69% of U.S. businesses with less than 100 employees have multiple PCs, while only 32% have deployed networks. As the number of PCs has grown and users have become more familiar with and dependent upon their capabilities, users are seeking networks that enable them to share devices (printers and storage), access data and rich content (pictures, music and video files), leverage collaborative applications (email and instant messaging) and share Internet access. Furthermore, home users desire the ability to play digital audio and video content stored on a PC or the Internet, on consumer electronic devices like stereos, home theatres and TVs. In addition, demand is growing for the ability to make low cost, feature-rich telephone calls using Internet protocol, a technology known as voice-over-IP. As small business and home users increasingly need to access and interact with bandwidth intensive files and applications, they are demanding an upgrade from dial-up connections to broadband connections, using cable or digital subscriber line, or DSL, modems, which enable Internet access at speeds up to 20 times faster than dial-up modems. Broadband Internet access services have become increasingly affordable and available, thereby fueling penetration of these services. According to IDC, the number of DSL and cable modem broadband Internet connections worldwide is expected to increase from 58.6 million in 2002 to 183.9 million in 2006, reflecting a compound annual growth rate of 33%. Increasingly, networking products are being deployed within small businesses and homes in order to share these high-speed Internet connections among multiple users and devices. As wireless technologies have become more prevalent, cost-efficient and easy-to-use and install, small business and home users increasingly value the flexibility to wirelessly access and interact with their networks, including the Internet. For small businesses or homes, wireless LANs provide mobility for users and can be an affordable alternative to a wired network. Users are also able to utilize their notebook computers to access networks from a variety of locations, including their homes, offices and various other Table of Contents hot spot locations, such as airports, cafes and university campuses. The adoption of industry standards for wireless LAN communications has helped spur the proliferation of a variety of wireless products for both the small business and home markets. Cahners In-Stat/ MDR estimates that the total number of worldwide shipments of wireless LAN equipment, including both network interface cards, or NICs, access points and digital media adapters, will grow from 49.0 million in 2003 to 123.8 million in 2006, reflecting a compound annual growth rate of 36%. With the proliferation of networks, maintaining the security of information and protecting the privacy of communication becomes essential to both small business and home users alike. Unlike the private dedicated communication networks of past decades, which were relatively secure from intruders, the Internet and networks connected to it are increasingly susceptible to security threats. In recent years, there has been a heightened awareness of the need to protect against breaches of network security. Accordingly, there has been an increase in the demand for security related products, or the integration of security features into networking products such as Internet routers and wireless networking equipment, to protect information on networks and to limit the usage of networks only to authorized individuals. Networking products for the small business and home markets are primarily classified into three broad categories: Ethernet networking products, including switches (multiple port devices used to network PCs and peripherals), NICs or network adapters, and bridges (devices that connect PCs and other equipment to a network), and peripheral servers such as print servers (devices that manage printing on a network). Broadband products, including routers (intelligent devices used to connect two networks together, such as a local area network and the Internet), gateways (a router with an integrated modem for Internet access), and products that include an integrated wireless access point such as a wireless gateway. Wireless networking products, including access points (devices that provide a wireless link between the wired network and wireless devices) and wireless NICs or network adapters, and media adapters and bridges (devices that wirelessly connect PCs, stereos, TVs and other equipment to a network). A small business network can consist of: multiple PCs; peripherals such as printers and storage devices; a network connection device such as a router, which often includes security functionality; a wired or wireless network adapter for each personal computer; and a central network controller such as a switch. A home network can consist of: one or more PCs and possibly consumer electronic devices to be networked; peripherals such as printers and scanners; Internet access devices such as a router or a gateway; a wired or wireless network adapter for each personal computer; and a bridge , or a media adapter, that connects consumer electronic device such as game consoles, TVs, stereos, and telephones. Within both the small business and home markets, devices are typically linked together through Ethernet cables or, increasingly, wireless connections. In-home power lines can also be used to transmit data among components to form a home network. Small business and home users demand a complete set of wired and wireless networking and broadband solutions that are tailored to their specific needs and budgets and also incorporate the latest networking technologies. These users require the continual introduction of new and refined products. Small business and home users often lack extensive IT resources and technical knowledge and therefore demand plug-and-play Patrick C.S. Lo 47 Chairman and Chief Executive Officer Raymond P. Robidoux 54 President Jonathan R. Mather 53 Executive Vice President and Chief Financial Officer Mark G. Merrill 49 Chief Technology Officer Michael F. Falcon 48 Vice President of Operations Christopher C. Marshall 47 Vice President of Finance Charles T. Olson 48 Vice President of Engineering David Soares 37 Vice President of Europe, Middle East and Africa Sales Michael A. Werdann 35 Vice President of North American Sales Ralph E. Faison(1) 45 Director A. Timothy Godwin(2) 54 Director Linwood A. Lacy, Jr.(2) 58 Director Gerald A. Poch(1) 57 Director Gregory J. Rossmann(1) 42 Director Stephen D. Royer(2) Table of Contents or easy-to-install and use solutions. These users demand reliable products that require little or no maintenance, and are supported by effective technical support and customer service. We believe that these users also prefer the convenience of obtaining a networking solution from a single company with whom they are familiar; as these users expand their networks, they tend to be loyal purchasers of that brand. In addition, purchasing decisions of users in the small business and home markets are also driven by the affordability of networking products. To provide reliable, easy-to-use products at an attractive price, we believe a successful supplier must have a company-wide focus on the unique requirements of this market and the operational discipline and cost-efficient company infrastructure and processes that allow for efficient product development, manufacturing and distribution. Our Strategy Our objective is to be the leading provider of innovative networking products that address the needs of the small business and home markets. The following are key elements of our strategy: Be first to market with innovative products. We believe that our experience in the small business and home markets, along with our access to technology road maps through our relationships with leading semiconductor and software companies, enable us to quickly introduce innovative products to the market. We intend to strengthen current relationships and forge new relationships with emerging suppliers of software and semiconductor technology. We intend to continue to invest in internal research and development activities designed to enhance our products to satisfy the wide range of evolving networking requirements in small businesses and homes. We plan to further broaden our product portfolio into new areas that will complement our current product offerings while leveraging our brand, channel presence and operational efficiency. For example, we believe our recent introduction of 108 Mbps 802.11g wireless products address an important market opportunity. Expand and enhance our sales channels. We believe that the most effective way to sell networking products to the small business and home markets is through a diverse worldwide set of traditional retailers, online retailers, DMRs, VARs and broadband service providers. We plan to expand relationships with our retail network, and continue to add new resellers. For example, in 2003 we began selling our products in North America at such retailers as Microcenter and Office Depot and at international retailers such as Legend Group (China) and PC Specialist (Germany). In addition, we have recently entered into an agreement with Softbank BB Corp. for the exclusive distribution of our products in Japan. Similarly, we intend to continue to work closely with the VAR channel, by expanding the number of our relationships as well as developing products specifically addressing their customers needs. We are increasingly developing and enhancing relationships with broadband service providers in North America and internationally and have, as an example, begun reselling our products through Time-Warner Cable and Comcast in the United States, Telstra in Australia and Tele Denmark. We intend to continue these initiatives and expect to pursue similar relationships with broadband service providers in the future. Extend our geographic presence. We believe that one of our most significant competitive advantages is our global presence. We derive substantial revenue from each of the North American, EMEA and Asia Pacific markets. In 2003, 42% of our net revenue was generated from international sales. We view several international markets as opportunities for continued significant growth for our business. We have recently entered the Chinese market by establishing sales offices which serve the local retailers and VARs. We intend to continue to expand our geographic presence by targeting emerging and growing markets, such as China and India, either through direct investment or teaming with existing local companies. In addition, we plan to leverage our success in European countries, such as Italy, that are experiencing growing demand for networking products. From time to time, we may also consider acquisitions, strategic alliances or joint ventures to increase our penetration in identified markets. Expand our marketing initiatives. NETGEAR is one of the most widely recognized brands in the small business and home networking markets, known for affordable, reliable and easy-to-use products. We believe that the purchasing decisions of small business and home users are influenced by brand recognition. Consequently, we have made significant investments to establish the NETGEAR brand, our GearGuy logo and Table of Contents the consistent and recognizable design of our products. We intend to continue building our brand identity through product design, packaging, public relations, advertising campaigns and other marketing efforts. Enhance operational efficiencies. We believe one of the keys to our success in operating a profitable business within the small business and home networking markets has been our ability to control operational costs while continuing to provide first-to-market, innovative products. We have implemented processes to manage product development efficiency, inventory and channel costs, and overall operating expenses. We plan to continue to invest in personnel, technology and processes to enhance our operational discipline and efficiencies with respect to product development, manufacturing, demand assessment and supply chain and channel inventory management. By focusing on operational efficiencies, we intend to continue to meet the demands of our target markets for affordable, high quality products while maintaining a profitable business model. Products Our extensive product line currently includes approximately 100 different products. These products are available in multiple configurations to address the needs of our customers in each geographic region in which our products are sold. Our Ethernet networking products have historically generated a majority of our net revenue. However, in recent periods, the percentage of our net revenue attributable to broadband and wireless networking products has increased. Our products target the following three major segments within the small business and home markets: Ethernet networking products, including switches, NICs or adapters, bridges and print servers; broadband products, including wired and wireless routers and gateways; and wireless networking products, including access points, wireless NICs or adapters, and media adapters and bridges. Computer equipment $ 2,129 $ 2,722 Furniture, fixtures and leasehold improvements 399 794 Software 2,878 3,236 Machinery 1,032 2,216 Construction in progress Table of Contents We customize our products to meet the specific needs of both the small business and home markets, tailoring various elements of the product design, including component specification, physical characteristics such as casing, design and coloration, and specific hardware and software features to meet the needs of these markets. However, we leverage many of our technological developments, high volume manufacturing, technical support and engineering infrastructure across both markets to maximize business efficiencies. Our small business products are designed with an industrial appearance, including metal cases, and for some product categories, the ability to mount the product within standard data networking racks. These products typically include higher port counts, higher data transfer rates and other performance characteristics designed to meet the needs of a small business user. For example, we offer data transfer rates up to one Gigabit per second for our business products to meet the higher capacity requirements of business users. These products are also designed to support transmission modes such as fiber optic cabling, which is common in more sophisticated business environments. Security requirements within our broadband products include firewall and virtual private network capabilities that allow for secure interactions between remote offices and business headquarter locations. Our wireless product offerings for the small business market include higher transfer rates as well as enhanced security capabilities often required in a business setting. Our current development efforts for Ethernet networking products for the small business market include expanding our network management capabilities such as Layer 3 managed switching functionality, as well as offering higher port counts and densities for Fast Ethernet and Gigabit products to support the needs of growing small business customers. For our broadband products in the small business market, we plan to continue enhancing the capabilities of our routers with advanced firewall and virtual private network capabilities and to permit voice calls over the Internet. We expect that these capabilities will be offered in both traditional copper cabling as well as wireless connectivity modes including 802.11b, dual-mode 802.11b/g and tri-mode 802.11a/b/g. Developments in the wireless networking product area include additional 802.11b/g and tri-mode 802.11a/b/g capabilities for access points and NICs, offering advanced speeds, security and backward compatibility. Our home products are designed with pleasing visual and physical aesthetics that are more desirable in a home environment. For example, products featuring our Platinum series physical designs have a silver/gray coloring and lighter plastic casings to appeal to home users. Our Ethernet products for the home market use a lower cost electrical component design and contain lower port counts to meet the increased price sensitivity and specific data networking requirements of home consumers. Our wireless offerings in the home support sufficient data transfer rates for most home user applications, but at a lower price than higher capacity wireless offerings for the small business market. Our broadband products are available with features such as parental control capabilities and firewall security, to allow for safer, more controlled Internet usage in families with children. Our broadband products designed for the home market also contain advanced installation software that guides a less sophisticated data networking user through the installation process with their broadband service provider, using a graphical user interface and simple point and click operations. Our home product offerings include wall-plug data transmission modes which allow home users to take advantage of their existing electrical wiring infrastructure for transmitting data among network components. We are developing a substantial number of new product offerings for the home market. Our current development efforts for Ethernet networking products include expanding our product lines using in-home power lines to form a network, low cost Gigabit Ethernet NICs, and engineering redesigns to allow for price and cost reductions in our switch line. For our broadband products, we plan to expand our portfolio of wired and wireless gateways with integrated asynchronous DSL and cable modem capabilities, with enhanced ease-of-setup installation and ease-of-use capabilities. We expect these capabilities will be offered in both traditional copper cabling as well as 802.11b, and 802.11g wireless connectivity modes. Our development efforts in the wireless networking product area include expanding our line of 802.11g access points, routers and gateways, NICs and bridges with faster speeds, expanded range and enhanced security. Other developments include a USB disk attachable 108 Mbps 802.11g wireless router to wirelessly share files or remote access while away from home and our recently announced wireless digital music player for streaming digital music from PCs or from the Internet to play on traditional analog stereos in the home. Net income (loss) per share attributable to common stockholders: Basic $ (0.25 ) $ 0.00 $ (0.66 ) $ (0.46 ) $ 0.55 Table of Contents Competitive Strengths Since our inception in 1996, we have been solely focused on the networking needs of the small business and home markets. We provide a broad family of innovative networking products and have shipped over 22 million units worldwide. Over the course of the past seven years, we have built a significant market share in several of the geographic and product markets we serve. We believe that the NETGEAR brand name is widely recognized for quality products that meet the networking needs of small business and home users worldwide. Reliable, Easy-to-Use, Affordable Products. We design quality products, perform rigorous technology evaluation and conduct significant product testing, which we believe allow us to achieve a high degree of customer satisfaction and a low rate of product returns and defects. Our networking products are easy to install, use and maintain and minimize the need for users to perform hardware or software configuration. For example, our proprietary, Internet browser-based Smart Wizard application provides users with simple graphical step-by-step installation instructions, including the automatic detection of their Internet connection type in order to automatically configure their routers or gateways. We also provide comprehensive technical support and customer service. Our products satisfy the budgetary requirements of small businesses and home users. Broad Product Offering. We offer an extensive range of networking products to users within the small business and home markets, including routers, gateways, access points, switches and NICs. Our product line includes approximately 100 products that are available in multiple configurations to serve the geographic region in which they are sold. Our products are designed for a variety of networking environments, including traditional Ethernet cabling and wireless as well as emerging in-home electrical wiring communication. We offer broadband products for a wide range of connection types, such as DSL and cable modems. Our wireless products include wireless LAN and security functionality to address the increasing mobility and security requirements of users. We believe users in the small business and home markets prefer to purchase all of their networking products from one vendor. We therefore believe the breadth of our product line represents a competitive strength due to our ability to meet a wide range of their networking needs. Extensive Global Channel Presence. We sell our products in North America, EMEA and Asia Pacific through an extensive network of sales channels. Our net revenue is well balanced worldwide, with 58% of our net revenue in 2003 being derived from sales in North America and 42% derived from international sales. Our worldwide channel presence enables our end-user customers to purchase our products with the same ease with which they purchase personal computers and software. We currently sell products through traditional retailers with more than 3,700 retail locations in North America, including Best Buy, Circuit City, CompUSA, Costco, Fry s Electronics, MicroCenter, Office Depot and Staples domestically, and over 3,300 international retail locations, such as MediaMarkt (Germany, Austria) and PC World (UK) in Europe, and Harris (Australia) in Asia Pacific. Our broad product offering and sales volume enables us to command substantial shelf space at our traditional retailers worldwide, which we believe is a significant competitive advantage in our target markets. We also sell through online stores such as Amazon.com and Buy.com. We have a significant DMR presence, in both catalog sales and direct marketing channels, including relationships with CDW and PC Connection domestically and Misco Global and Insight Direct both domestically and internationally. We have relationships with thousands of VARs worldwide, including over 8,000 domestically and more than 3,000 internationally, which participate in our Powershift Partner program. This program provides incentives and training to select members who meet quarterly sales goals. In addition, we recently began selling our products through broadband service providers such as Time-Warner Cable and Comcast domestically, and Telstra in Australia and Tele Denmark. History of Product Innovation. The product requirements of small business and home networking users are continually changing with the rapid adoption of new technologies. We believe that our experience, market presence, and global reach enable us to identify trends in product demand and rapidly introduce products to meet that demand. Our corporate headquarters are located in Santa Clara in the heart of the Silicon Valley. From this location we team with a number of leading semiconductor and software companies in order to offer products that incorporate emerging technologies. In addition, our internal research and development efforts focus on designing products that meet the requirements of both the small business and home markets. We believe that the combination of our demand assessment capabilities and our technology collaborations often provides us with * These customers purchase our products directly from us. The remaining customers on this list buy their products through our wholesale distributors. Total 59 % 52 % Table of Contents We are currently developing and enhancing relationships with broadband service providers in North America and internationally and have recently signed agreements with Time-Warner Cable and Comcast to distribute our products to their subscribers. Research and Development As of December 31, 2003, we had 30 employees engaged in research and development. We believe that our success depends on our ability to develop products that meet the changing user needs and to anticipate and proactively respond to evolving technology in a timely and cost-effective basis. Accordingly, we have made investments in our research and development department in order to effectively evaluate new technologies and develop new products. Our research and development employees work closely with our manufacturing partners to bring our products to market in a timely, high quality and cost-efficient manner. We identify and qualify new technologies, and we work closely with our various technology suppliers and manufacturing partners to develop products using one of two manufacturing methodologies as described below. ODM. Under the ODM methodology, which we use for most of our product development activities, we define the product concept and specification and perform the technology selection. We then coordinate with our technology suppliers while they develop the chipsets, software drivers and detailed circuit designs. If additional software is required, we either develop the software in-house, subcontract the development of the software, or purchase it from a third-party vendor. Once prototypes are completed, we work with our ODMs to complete the debugging and systems integration and testing. Our ODMs conduct all of the agency approval processes for electrical safety and electromagnetic interference. After completion of the final tests, agency approvals and product documentation, the product is released for production. OEM. Under the OEM methodology, which we use for a limited number of products, we define the product specification and then purchase the product from OEM suppliers that have existing products fitting our design requirements. Once a technology supplier s product is selected, we work with the OEM supplier to complete the cosmetic changes to fit into our mechanical and packaging design, as well as our documentation standard. If software is involved, the look and feel of the software is modified by the OEM supplier to meet our standards. The OEM supplier completes regulatory approvals on our behalf. When all design verification and regulatory testing is completed, the product is released for production. Our internal research and development efforts focus on improving the industrial design of our products and enhancing their ease-of-use through the development of software such as our proprietary Smart Wizard application. Our total research and development expenses were $4.4 million in 2001, and $7.7 million in 2002 and $8.7 million in 2003. Manufacturing Our primary manufacturing contractors are Ambit Microsystems (recently acquired by Foxconn), Cameo Communications Inc., Delta Electronics, SerComm Corporation and Z-Com, Inc., all of which are headquartered in Taiwan. The actual manufacturing of our products occurs both in Taiwan and mainland China. We distribute our manufacturing among these key suppliers to avoid excessive concentration with a single supplier. Delta Electronics is associated with Delta International Holding Ltd., one of our stockholders. In addition to their responsibility for the manufacturing of our products, our manufacturers purchase all necessary parts and materials to produce complete, finished goods. To maintain quality standards for our suppliers, we have established our own product testing and quality organization based in Hong Kong, which is responsible for auditing and inspecting product quality on the premises of our subcontractors. We obtain other key components, such as connector jacks, plastic casings, physical layer transceivers and switching fabric semiconductors, from limited sources. We currently outsource warehousing and distribution logistics to three third party logistics providers who are responsible for warehousing, customer order fulfillment and distribution of products. In addition, these parties are also responsible for some final packaging of our products including bundling components to form Table of Contents kits, and inserting appropriate documentation and power adapters. APL Logistics Americas Ltd in Walnut, California serves the Americas region, Kerry Logistics Ltd in Hong Kong is our logistics provider serving the Asia Pacific region, and Furness Logistics BV in the Netherlands serves the EMEA regions. Sales and Marketing As of December 31, 2003, we had 85 employees in our sales department and 14 employees in our marketing department. We work directly with our resellers on market development activities, such as co-advertising, in-store promotions and demonstrations, event sponsorship and sales associate training. We also participate in major industry trade shows and marketing events. Our marketing department is comprised of our product marketing and corporate marketing groups. Our product marketing group focuses on product strategy, product development roadmaps, the new product introduction process, product lifecycle management, demand assessment and competitive analysis. The group works closely with our sales and research and development groups to align our product development roadmap to meet key channel technology requirements from a strategic perspective. The group also ensures that product development activities, product launches, channel marketing program activities, and ongoing demand and supply planning occur in a well-managed, timely basis in coordination with our development, manufacturing, and sales groups, as well as our ODM, OEM and sales channel partners. Our corporate marketing group is responsible for defining and building our corporate brand. The group focuses on defining our mission, brand promise and marketing messages on a worldwide basis. This group also defines the marketing approaches in the areas of advertising, public relations, events, channel programs and our web delivery mechanisms. These marketing messages and approaches are customized for both the small business and home markets through a variety of delivery mechanisms designed to effectively reach end users in a cost-efficient manner. The needs of our small business and home customers differ, and therefore our marketing initiatives for each of these segments are distinct. In the small business market, we have focused on emphasizing our product line expansion, such as our introduction of a 24 port smart switch with gigabit ports, performance and reliability, and on channel development, while in the home market we have emphasized our wireless offerings, ease-of-use and aesthetics. In both markets, we have focused on developing the NETGEAR brand name, expanding our advertising programs and increasing public awareness through high visibility in the technical and popular press. We conduct much of our international sales and marketing operations through NETGEAR International, Inc., our domestic subsidiary, as well as through NETGEAR Deutschland GmbH, a German company and wholly-owned subsidiary of NETGEAR International, Inc. Technical Support We provide technical support to our customers through a combination of limited permanent employees and an extensive use of subcontracted, outsourcing resources. Although we design our products to require minimal technical support, if a customer requires assistance, we provide free, high-quality technical advice worldwide over the phone and Internet. We currently subcontract first and second level technical support for our products, and as of December 31, 2003 we are utilizing 279 part-time and full-time individuals to answer customers technical questions. First level technical support represents the first team member a customer will reach with questions; and, typically, these individuals are able to answer routine technical questions. If they are unable to resolve the issue, the first level support member will forward the customer to our more highly trained second level support group. The most difficult or unique questions are forwarded to NETGEAR employees. This eight person in-house staff provides the most sophisticated support when customer issues require escalation. In addition to providing third level technical support, these internal NETGEAR employees design our technical support database and are responsible for training and managing our outsourced sub-contractors. We Table of Contents utilize the information gained from customers by our technical support organization to enhance our current and future products. In North America, the United Kingdom and Australia, the first and second level technical support is provided 24 hours a day, 7 days a week, 365 days a year on toll-free lines. Local language support is also available during local business hours in China, France, Germany, Italy, Japan, Korea, Spain and Sweden. Competition The small business and home networking markets are intensely competitive and subject to rapid technological change. We expect competition to continue to intensify. Our principal competitors include: within the small business networking market, companies such as 3Com, Allied Telesyn, The Linksys division of Cisco Systems, Dell Computer, D-Link, Hewlett-Packard and Nortel Networks; and within the home networking market, companies such as Belkin Corporation, D-Link, The Linksys division of Cisco Systems and Microsoft. Other current competitors include numerous local vendors such as Correga and Melco/ Buffalo Technology in Japan and TP-Link in China. Our potential competitors include consumer electronics vendors who could integrate networking capabilities into their line of products. Many of our existing and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical, sales, marketing and other resources. As a result, they may have more advanced technology, larger distribution channels, stronger brand names, better customer service and access to more customers than we do. For example, Dell Computer has significant brand name recognition and has an advertising presence substantially greater than ours. Similarly, Cisco Systems is well recognized as a leader in providing networking solutions to businesses and has substantially greater financial resources than we do. Several of our competitors, such as Linksys division of Cisco Systems and D-Link, offer a range of products that directly compete with most of our product offerings. Several of our other competitors primarily compete in a more limited manner. For example, Hewlett-Packard sells networking products primarily targeted at larger businesses or enterprises. However, the competitive environment in which we operate changes rapidly. Other large companies with significant resources could become direct competitors, either through acquiring a competitor or through internal efforts. We believe that the principal competitive factors in the small business and home markets for networking products are: product breadth; size and scope of the sales channel; brand name; timeliness of new product introductions; product performance, features, functionality and reliability; price; ease-of-installation, maintenance and use; and customer service and support. We believe that we compete favorably in each of these categories. To remain competitive, we believe we must invest significant resources in developing new products, enhancing our current products, expanding our sales channels and maintaining customer satisfaction worldwide. Diluted $ (0.25 ) $ 0.00 $ (0.66 ) $ (0.46 ) $ 0.49 Table of Contents Intellectual Property We believe that our continued success will depend primarily on the technical expertise, speed of technology implementation, creative skills and management abilities of our officers and key employees, plus ownership of a limited but important set of copyrights, trademarks, trade secrets and patents. We primarily rely on a combination of copyright, trademark and trade secret and patent laws, nondisclosure agreements with employees, consultants and suppliers and other contractual provisions to establish, maintain and protect our proprietary rights. We hold an issued United States design patent relating to our home product design, and currently have at least five pending United States patent applications related to technology and products offered by us. In addition, we rely on third-party licensors for patented hardware and software license rights in technology that are incorporated into and are necessary for the operation and functionality of our products. We typically retain limited exclusivity over intellectual property we jointly develop with our OEM and ODM manufacturers. Our success will depend in part on our continued ability to have access to these technologies. We have trade secret rights for our products, consisting mainly of product design, technical product documentation and software. We also own and use distinctive trademarks on or in connection with our products, including NETGEAR, the GearGuy logo, FirstGear, ProSafe and Web Safe. NETGEAR is a trademark registered in Argentina, Australia, Brazil, Canada, the European Union, Japan, New Zealand and the United States. We have obtained or applied for registration for the Everybody s Connecting trademark in Australia, the European Union, Japan, Korea and the United States. We have registered several Internet domain names that we use for electronic interaction with our customers including dissemination of product information, marketing programs, product registration, sales activities, and other commercial uses. Employees As of December 31, 2003, we had 207 employees, with 107 in sales, marketing and technical support, 30 in research and development, 39 in operations, and 31 in finance, information systems and administration. We have never had a work stoppage among our employees and no personnel are represented under collective bargaining agreements. We consider our relations with our employees to be good. TriNet Employer Group, Inc. provides human resource services to NETGEAR and our employees including payroll, employee relations and certain employee benefit plans. TriNet is an employer services company contracted by us to perform certain employer responsibilities on our behalf, and TriNet is the employer of record for payroll, benefits and other functions involving our employment related administration. Our agreement with TriNet is terminable by either party with 30 days notice. Properties Our principal administrative, sales, marketing and research and development facilities occupy approximately 56,000 square feet in an office complex in Santa Clara, California, under a lease that expires in December 2004. Several of our domestic sales employees perform their duties using leases of individual offices. Our international sales personnel reside in local sales offices in Australia, China, France, Germany, Italy, Japan, Korea, Spain, Sweden, and the United Kingdom. We also have operations personnel using a facility in Hong Kong, which is subleased from our third party logistics provider, Kerry Logistics. We believe our existing facilities are adequate for our current needs. We use third parties to provide warehousing services to us, consisting of facilities in Southern California, Hong Kong and the Netherlands. Legal Proceedings We are not currently a party to any material legal proceedings. We may be subject to various claims and legal actions arising in the ordinary course of business from time to time. (1) Messrs. Ralph E. Faison, Gerald A. Poch and Gregory D. Rossmann are members of the compensation committee. (2) Messrs. A. Timothy Godwin, Linwood A. Lacy, Jr. and Stephen D. Royer are members of the audit committee. Patrick C.S. Lo has served as our Chairman and Chief Executive Officer since March 2002. From September 1999 to March 2002, he served as our President, and since our inception in 1996 to September 1999, he served as Vice President and General Manager. Mr. Lo joined Bay Networks, a networking company, in August 1995 to launch a division targeting the small business and home markets and established the NETGEAR division in January 1996. From 1983 until 1995, Mr. Lo worked at Hewlett-Packard Company, a computer and test equipment company, where he served in various management positions in software sales, technical support, network product management, sales support and marketing in the United States and Asia, most recently as the Asia/Pacific marketing director for Unix servers. Mr. Lo received a B.S. degree in Electrical Engineering from Brown University. Raymond P. Robidoux has served as our President since July 2002. From July 2001 to May 2002, Mr. Robidoux worked at Quantum Corporation, a data technology company, where he served as senior vice president and general manager of the networked attached storage division. From March 1997 to March 2001, Mr. Robidoux was at Compaq Computer, where he served as vice president of its North America consumer business group, focused on sales, marketing and service, from March 1999 to March 2001, and as vice president of business planning and operations from March 1997 to February 1999. Prior to that, he held various management positions in the computer hardware industry, including sales, marketing and product development. Mr. Robidoux received a B.S. degree in Aerospace Engineering from California State Polytechnic University and an M.B.A. from Pepperdine University. Jonathan R. Mather has served as our Executive Vice President and Chief Financial Officer since October 2003 and served as our Vice President and Chief Financial Officer since August 2001. From July 1995 to March 2001, Mr. Mather worked at Applause Inc., a consumer products company, where he served Cost of revenue: Cost of revenue 34,685 41,326 48,188 52,773 49,246 49,889 54,691 61,506 Amortization (recovery) of deferred stock-based compensation 66 20 22 36 (11 ) 42 46 Table of Contents as president and chief executive officer from 1998 to 2001, as chief financial officer and chief operating officer from 1997 to 1998 and as chief financial officer from 1995 to 1997. From 1985 to 1995, Mr. Mather was at Home Fashions Inc., a consumer products company, where he served as chief financial officer from 1992 to 1995, and as vice president, finance of an operating division, Louverdrape, from 1988 to 1992. Prior to that, he spent more than two years at the semiconductor division of Harris Corporation, a communications equipment company, where he served as the finance manager of the offshore manufacturing division. He has also worked in public accounting for four years with Coopers Lybrand (now part of PricewaterhouseCoopers LLP) and for two years with Ernst Young. Mr. Mather is a certified management accountant (CMA) and is also a chartered accountant from the Institute of Chartered Accountants in Sri Lanka, where Mr. Mather received his undergraduate B.A. degree equivalent. Mr. Mather received an M.B.A. from Cornell University, New York. Mark G. Merrill has served as our Chief Technology Officer since January 2003. From September 1999 to January 2003, he served as Vice President of Engineering and served as Director of Engineering from September 1995 to September 1999. From 1987 to 1995, Mr. Merrill worked at SynOptics Communications, a local area networking company, which later merged with Wellfleet to become Bay Networks, where his responsibilities included system design and analog implementations for SynOptic s first 10BASE-T products. Mr. Merrill received both a B.S. degree and an M.S. degree in Electrical Engineering from Stanford University. Michael F. Falcon has served as our Vice President of Operations since November 2002. From September 1999 to November 2002, Mr. Falcon worked at Quantum Corporation, a data technology company, where he served as Vice President of Operations and supply chain management. From April 1999 to September 1999, Mr. Falcon was at Meridian Data, a storage company acquired by Quantum Corporation, where he served as vice president of operations. From February 1989 to April 1999, Mr. Falcon was at Silicon Valley Group, a semiconductor equipment manufacturer, where he served as director of operations, strategic planning and supply chain management. Prior to that, he served in management positions at SCI Systems, an electronics manufacturer, Xerox Imaging Systems, a provider of scanning and text recognition solutions, and Plantronics, Inc., a provider of lightweight communication headsets. Mr. Falcon received a B.A. degree in Economics from the University of California, Santa Cruz and has completed coursework in the M.B.A. program at Santa Clara University. Christopher C. Marshall has served as our Vice President of Finance since November 2003. From January 2000 to June 2003, Mr. Marshall served as Vice President Finance and Chief Accounting Officer at BackWeb Technologies Ltd., a publicly-traded company that is a provider of offline Web software. From October 1998 to November 1999, Mr. Marshall served as Vice President Finance and corporate controller at Supercom Inc., a PC assembly and distribution company. Prior to joining Supercom, from August 1997 to October 1998 Mr. Marshall served as controller for S-Vision, a company focused on lighting technology research for scientific applications. Mr. Marshall has also served over twelve years in various financial management positions at Intel Corp. Mr. Marshall earned a B.Sc. at University College, Cardiff, U.K. a M.B.A. at London Business School and a M.A. at University College London. Mr. Marshall is a Fellow of the Institute of Chartered Accountants. Charles T. Olson has served as our Vice President of Engineering since January 2003. From July 1978 to January 2003, Mr. Olson worked at Hewlett-Packard Company, a computer and test equipment company, where he served as director of research and development for ProCurve networking from 1998 to 2003, as research and development manager for the Enterprise Netserver division from 1997 to 1998, and, prior to that, in various other engineering management roles in Hewlett-Packard s Unix server and personal computer product divisions. Mr. Olson received a B.S. degree in Electrical Engineering from the University of California, Davis and an M.B.A. from Santa Clara University. David Soares has served as our Vice President of Europe, Middle East and Africa (EMEA) Sales since December 2003. Mr. Soares joined us in January 1998, and served as EMEA Managing Director from April 2000 to November 2003, United Kingdom and Nordic Regional Manager from February 1999 to March 2000 and United Kingdom Country Manager from January 1998 to January 1999. Prior to joining us, Mr. Soares Table of Contents was at Hayes Microcomputer Products, a manufacturer of dial-up modems. Mr. Soares attended Ridley College, Ontario Canada. Michael A Werdann has served as our Vice President of American Sales since December 2003. Since joining us in 1998, Mr. Werdann has served as our United States Director of Sales, E-Commerce and DMR from December 2002 to 2003 and as our Eastern regional sales director from October 1998 to December 2002. Prior to joining us, Mr. Werdann worked for three years at Iomega Corporation, a computer hardware company, as a sales director for the value added reseller sector. Mr. Werdann holds a B.S. Degree in Communications from Seton Hall University. Ralph E. Faison has served as one of our directors since August 2003. From February 2003 to the present, Mr. Faison has served as chief executive officer of Andrew Corporation, a public company and a manufacturer of communications equipment and systems, and from June 2002 to the present, Mr. Faison has also served as president and a director of Andrew Corporation. From June 2002 to February 2003, Mr. Faison served as chief operating officer of Andrew Corporation. From June 2001 to June 2002, Mr. Faison served as president and chief executive officer of Celiant Corporation, a manufacturer of power amplifiers and wireless radio frequency systems, which was acquired by Andrew Corporation in June 2002. From October 1997 to June 2001, Mr. Faison was vice president of the New Ventures Group at Lucent Technologies, a communications service provider, and from 1995 to 1997, he was vice president of advertising and brand management at Lucent Technologies. Prior to joining Lucent, Mr. Faison held various positions at AT T, a voice and data communications company, including as vice president and general manager of AT T s wireless business unit and manufacturing vice president for its consumer products unit in Bangkok, Thailand. He is a member of the board of directors of WatchMark Corporation, a telecommunications company and a member of the board of directors of The Chicago Executives Club. Mr. Faison received a B.A. degree in marketing from Georgia State University and a M.S. degree in management as a Sloan Fellow from Stanford University. A. Timothy Godwin has served as one of our directors since August 2003. From July 1989 to January 1997, Mr. Godwin worked at Tech Data Corporation, an information technology products distributor, in various capacities including serving as a member of its board of directors, vice chairman focusing on worldwide finance and administration, president and chief operating officer, chief financial officer and senior vice president of finance. From 1974 to June 1989, Mr. Godwin was employed by Price Waterhouse (now part of PricewaterhouseCoopers LLP), most recently as an audit partner from July 1987 to June 1989. Mr. Godwin is a Certified Public Accountant and received a B.S. degree in Accounting from the University of West Florida. Linwood A. Lacy, Jr. has served as one of our directors since September 2002. From July 1998 to July 2001, Mr. Lacy served as chairman of 4Sure.com, a direct marketer of computer and technology products. From October 1996 to October 1997, Mr. Lacy served as president and chief executive officer of Micro Warehouse Incorporated, a micro computer direct-marketing company. From 1985 to May 1996, he served as the co-chairman and chief executive officer of Ingram Micro, Inc., a microcomputer products distributor and a then wholly-owned subsidiary of Ingram Industries Inc. From April 1996 to May 1996, Mr. Lacy served as vice chairman of Ingram Industries Inc.; from June 1995 to April 1996, he served as its president and chief executive officer; and from December 1993 to June 1995, he served as its president. Mr. Lacy is a director of EarthLink, Inc., a public company, as well as a director of several private companies, including Ingram Industries Inc. Mr. Lacy received both a B.S. degree in Chemical Engineering and an M.B.A from the University of Virginia. Gerald A. Poch has served as one of our directors since March 2000. From January 2000 to the present, Mr. Poch has served as a Managing Director of Pequot Capital Management, Inc. and co-head of Pequot Ventures. Since August 1998, Mr. Poch has been one of the leaders of the venture capital team responsible for the growth and strategic direction of the group. From August 1996 to June 1998, he was the chairman, president and chief executive officer of G.E. Capital Information Technology Solutions, Inc., a technology solutions provider. Prior to that, he served as co-founder, co-chairman and co-president of AmeriData Technologies, Inc. (the predecessor company of G.E. Capital Information Technology Solutions, Inc.), a value- Net income (loss) attributable to common stockholders: $ (6,544 ) $ Net income (loss) attributable to common stockholders $ (6,544 ) $ Table of Contents added reseller and systems integrator of hardware and software systems. Mr. Poch is a director of BriteSmile, Inc., Analex Corp. and Andrew Corporation, which are public companies, as well as a director of several private companies. Mr. Poch received a B.S. degree from the University of Connecticut and a J.D. degree cum laude from Boston University Law School. Gregory J. Rossmann has served as one of our directors since February 2002. From April 2000 to the present, Mr. Rossmann has served as a General Partner of Pequot Private Equity Fund II L.P. From April 1994 to April 2000, Mr. Rossmann served as Managing Director and partner at Broadview International, an investment banking firm. From June 1991 to April 1994, he worked at Dynatech Corporation, a technology holding company, where he served as manager of new business development. Prior to that, he was a co-founder of Telemaster Corporation. Mr. Rossmann is a director of several private companies. Mr. Rossmann received a B.S. degree in Electrical Engineering from the University of Cincinnati and an M.B.A. from Santa Clara University. Stephen D. Royer has served as one of our directors since September 2000. From 1991 to the present, Mr. Royer has been with Shamrock Capital Advisors, Inc., a merchant banking company, where he has served as a Managing Director for more than five years. Mr. Royer is a director of several private companies. Mr. Royer received a B.A. degree in Quantitative Economics from Stanford University and an M.B.A. degree from the University of California in Los Angeles. Board Composition Our board of directors currently consists of seven members, who are Messrs. Lo, Faison, Godwin, Lacy, Poch, Rossmann and Royer. Mr. Lo is the only management member of our board of directors. Our directors hold office until their successors have been elected or qualified or until the earlier of their death, resignation, disqualification or removal. There are no family relationships among any of our directors and executive officers. Director Compensation Our non-employee directors receive $1,000 per meeting and are entitled to reimbursement of business, travel and other related expenses incurred in connection with their attendance at meetings of the board of directors and committee meetings. The chairman of our audit committee receives an additional $1,000 per committee meeting attended and the chairman of the compensation committee receives an additional $500 per meeting attended. In addition, our directors, including non-employee directors, are eligible to receive stock options under our 2003 Stock Option Plan. New non-employee directors who join our board of directors are entitled to receive automatic, non-discretionary initial options to acquire 25,000 shares of our common stock, subject to three-year vesting. Directors who have served at least six months with us receive an annual option of 15,000 shares at each annual meeting starting at our 2004 meeting, which will be subject to one-year vesting, under our 2003 Stock Plan. See Benefit Plans Director Option Program. Board Committees Our board of directors has the authority to appoint committees to perform certain management and administrative functions. Our board of directors currently has an audit committee and a compensation committee. Audit Committee Our audit committee is responsible for annually recommending independent accountants, preparing the reports, statements or charters as may be required by Nasdaq or the securities laws, and reviewing: the adequacy of our system of internal accounting controls; our audited financial statements and reports and discussing the statements and reports with management, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; and (1) Each of our executive s bonus is earned in 2003, subject to the review and approval of our Board, and paid in 2004. (2) All other compensation consists of discretionary matching contributions to our 401(k) plan on behalf of each named executive officer, unless otherwise stated. Excludes prerequisites and personal benefits, securities or property to the extent such benefits do not exceed the lesser of either $50,000 or 10% of the total annual sales, and bonus for the named executive officer. (3) Mr. Mather received other compensation consisting of a $1,500 matching contribution to our 401(k) plan on his behalf and a tax protected housing allowance of $37,569 for the year. (4) Ms. Adams received other compensation consisting of a $41,177 housing allowance, $41,424 moving expenses, $18,193 in bonus payments related to calendar year 2002, and $8,269 in payments resulting from her separation from us. (1) On January 1, 2000, we adopted Emerging Issues Task Force, or EITF, Issue 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendor s Products, and as a consequence, record cooperative marketing costs as a reduction in net revenue. Prior to January 1, 2000, it was not practical for us to determine the amount of cooperative marketing costs to record as a reduction of net revenue, and such amounts were included as sales and marketing expense. December 31, 2003 Patrick C.S. Lo 996,761 11,442,816 Raymond P. Robidoux 140,264 255,778 1,527,475 2,785,422 Jonathan R. Mather 231,022 165,020 3,396,023 2,425,794 Leslie A. Adams 51,041 123,959 509,900 1,238,350 Mark G. Merrill 562,871 8,236 6,415,174 82,279 Employment Agreements and Change of Control Arrangements We have entered into employment agreements with the following of our named executive officers and current executive officers. Each agreement may be terminated by either us or the executive officer at any time with or without cause. In addition, the employment agreements provide for annual salary and bonus amounts and severance benefits, as may be adjusted from time to time by the board of directors. On December 3, 1999, we entered into an employment agreement with Patrick C.S. Lo, our Chairman and Chief Executive Officer. The agreement provides that if within one year following a change of control of the company, Mr. Lo is terminated without cause or resigns for good reason, he is entitled to full acceleration of any unvested portion of his stock options, and severance payments at his final base salary rate for a period of one year after his termination or resignation. If Mr. Lo is terminated without cause, he is entitled to receive severance payments at his final base salary rate for a period of one year and will continue to have his stock options vest for one year after such termination. On December 9, 1999, we entered into an employment agreement with Mark G. Merrill, our Chief Technology Officer. The agreement provides that if within one year following a change of control of the company, Mr. Merrill is terminated without cause or resigns for good reason, he is entitled to receive two years acceleration of any unvested portion of his stock options. If Mr. Merrill is terminated without cause, he is entitled to receive severance payments at his final base salary rate for 26 weeks and will continue to have his stock options vest for one year after such termination. On July 15, 2002, we entered into an employment agreement with Raymond P. Robidoux, our President and on August 10, 2001, we entered into an employment agreement with Jonathan R. Mather, our Executive Vice President and Chief Financial Officer. The agreements provide that if within one year following a change of control of the company the officer is terminated without cause or resigns for good reason, he is entitled to receive two years acceleration of any unvested portion of his stock options. If the officer is terminated without cause, he is entitled to receive severance payments at his final base salary rate for a period of 39 weeks and will continue to have his stock options vest for one year after such termination. On November 4, 2002, we entered into an employment agreement with Michael F. Falcon, our Vice President of Operations. On January 6, 2003, we entered into an employment agreement with Charles T. Olson, our Vice President of Engineering. On November 3, 2003, we entered into an employment agreement with Michael A. Werdann, our Vice President of America Sales. On November 14, 2003, we entered into an employment agreement with Christopher C. Marshall, our Vice President of Finance. Each of these agreements provide that if within one year following a change of control of NETGEAR, the officer is terminated without cause or resigns for good reason, he is entitled to receive two years acceleration of any Table of Contents unvested portion of his stock options, except that Mr. Falcon is entitled to receive one year acceleration of any unvested portion of his stock options. If the officer is terminated without cause, he is entitled to receive severance payments at his final base salary rate for a period of 26 weeks and will continue to have his stock options vest for one year after such termination, except that Mr. Marshall will continue to have his stock options vest for six months after such termination. Benefit Plans 2000 Stock Option Plan Our 2000 Stock Option Plan, or the 2000 Stock Plan, was adopted by our board of directors in April 2000 and our stockholders initially approved our plan in April 2000. As of February 20, 2004, options to purchase an aggregate of 4,986,747 shares of our common stock were outstanding and remain subject to the terms of the agreements evidencing those options and the terms of the 2000 Stock Plan. Our board of directors determined that upon the closing of our initial public offering, no future options were to be granted under our 2000 Stock Plan, and all remaining authorized options have become issuable under our 2003 Stock Plan. The 2000 Stock Plan provides that in the event of (1) the direct or indirect sale by stockholders of more than 50% of our voting stock, (2) our merger with or into another corporation, (3) the sale of all or substantially all of our assets, or (4) our liquidation or dissolution, the successor corporation may assume or substitute for each option. If the successor corporation does not assume or substitute for the options, the options will become fully vested and exercisable as of ten days prior to the proposed transaction, provided that such options will terminate if not exercised prior to the acquisition or other transaction. 2003 Stock Plan Our board of directors adopted the 2003 Stock Plan in April 2003, and our stockholders approved the plan in July 2003. This plan provides for the grant of incentive stock options to our employees and nonstatutory stock options, stock purchase rights and stock appreciation rights to our employees, directors and consultants. Number of Shares of Common Stock Available Under the 2003 Stock Plan. Approximately 1.6 million shares of our common stock have been reserved for issuance pursuant to our 2003 Stock Plan. As of February 20, 2004, options to purchase an aggregate of 314,875 shares of our common stock were outstanding under the 2003 Plan and 1,305,674 remain available for future grant. If an option, stock purchase right or stock appreciation right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased shares which were subject to such award will become available for future grant or sale under our plan (unless our plan has terminated). However, shares that have actually been issued under our plan, upon exercise of an option, stock purchase right or stock appreciation right, will not be returned to our plan and will not be available for future distribution under our plan, except if shares of restricted stock are repurchased by us at their original price, in which case such shares will be available for future grant under our plan. Administration of the 2003 Stock Plan. Our board of directors, or one or more committees appointed by our board, administers our 2003 Stock Plan. In the case of awards intended to qualify as performance based compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, the committee will consist of two or more outside directors within the meaning of Section 162(m). The administrator has the power to determine the terms of the options, stock purchase rights or stock appreciation rights granted, including the exercise price (which may be changed by the administrator after the date of grant), the number of shares subject to each award, the exercisability of the awards and the form of consideration payable upon exercise. Options. The administrator will determine the exercise price of options granted under our 2003 Stock Plan. The terms of our 2003 Stock Plan allow the administrator to grant options at exercise prices that are equal to or above fair market value. After termination of one of our employees, directors or consultants, he or Table of Contents she may exercise his or her option for the period of time stated in the option agreement. If termination is due to death or disability, the option will generally remain exercisable for 12 months following such termination. In all other cases, the option will generally remain exercisable for three months. However, an option may never be exercised later than the expiration of its term. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding capital stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the date of grant. The administrator determines the term of all other options. No optionee may be granted options to purchase more than 750,000 shares in any fiscal year. In connection with his or her initial service, an optionee may be granted additional options to purchase up to 750,000 shares. Stock Purchase Rights. Our 2003 Stock Plan allows the administrator to issue stock purchase rights at purchase prices that are equal to or above fair market value of the shares. Unless the administrator determines otherwise, the restricted stock purchase agreement, the agreement between us and an optionee which governs the terms of his or her stock purchase rights, will grant us a repurchase option that we may exercise upon the voluntary or involuntary termination of the optionee s service with us for any reason including death or disability. The purchase price for shares we repurchase will generally be the original price paid by the optionee. The administrator determines the rate at which our repurchase option will lapse. Stock Appreciation Rights. A stock appreciation right is the right to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. We may pay the appreciation in either cash or in shares of our common stock. Stock appreciation rights are subject to the terms established by the administrator and become exercisable as specified by the administrator in a notice of grant. Transferability of Awards. Unless the administrator determines otherwise, our 2003 Stock Plan does not allow for the transfer of awards other than by will or by the laws of descent and distribution, and only the participant may exercise an award during his or her lifetime. Adjustments upon Change in Control. Our 2003 Stock Plan provides that in the event of our change in control, including the sale of all or substantially all of our assets, the successor corporation will assume or substitute for each option or right. Any outstanding options or rights not assumed or substituted for will be fully exercisable, including as to shares that would not otherwise have been vested and exercisable, for a period of 15 days from the date of notice to the optionee. The option or right will terminate at the end of the 15-day period. Amendment and Termination of Our 2003 Stock Plan. Our 2003 Stock Plan will automatically terminate in 2013, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate our 2003 Stock Plan provided it does not adversely affect any award previously granted under our plan. Director Option Program The director option program is part of our 2003 Stock Plan and provides for the automatic, periodic grant of nonstatutory stock options to our non-employee directors. Each non-employee director who joins our board receives an initial option to purchase 25,000 shares when such person first becomes a non-employee director, except for those directors who became non-employee directors through the termination of their employment with us. In addition, beginning in 2004, each non-employee director who has been a director for at least six months will receive a subsequent option to purchase 15,000 shares following each annual meeting of our stockholders. All options granted under our director option program have a term of ten years and an exercise price equal to the fair market value of our common stock on the date of grant. Each initial option becomes exercisable as to one-third of the shares subject to the option on each anniversary of the date of grant, provided the individual remains a non-employee director on such dates. Each subsequent option becomes exercisable as to 100% of the shares subject to the option on the first anniversary of the grant date, provided the individual remains a service provider on such date. If an outside director terminates service, he or she may generally exercise his or her options for 12 months following such termination or five years if Table of Contents termination is due to a qualifying retirement. In the event of our change in control, each non-employee director option will vest in full. 2003 Employee Stock Purchase Plan Our board of directors adopted the 2003 Employee Stock Purchase Plan in April 2003, and our stockholders approved the plan in July 2003. Number of Shares of Common Stock Available Under Our Plan. As of December 31, 2003, a total of 500,000 shares of our common stock were available for sale under the 2003 Employee Stock Purchase Plan. Administration of Our Plan. Our board of directors, or any committee appointed by our board, administers our plan and has full and exclusive authority to interpret its terms and to determine eligibility under it. Eligibility to Participate. Our employees and employees of designated subsidiaries are eligible to participate if they are customarily employed by us or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted an option to purchase stock under our plan if such employee: immediately after the grant owns stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock; or whose rights to purchase stock under all of our employee stock purchase plans accrue at a rate that exceeds $25,000 worth of stock for each calendar year. Offering Periods and Contributions. Our 2003 Employee Stock Purchase Plan is intended to qualify for preferential tax treatment under Section 423 of the Internal Revenue Code of 1986, as amended, and contains consecutive six-month offering periods. Although the first offering period under this plan started on the effective date of our initial public offering and ended on January 31, 2004, offering periods generally start on the first trading day on or after February 1 and August 1 of each year. Our plan permits participants to purchase shares of our common stock through payroll deductions of up to 10% of their eligible compensation, which includes a participant s base straight time gross earnings, commissions, overtime and shift premiums, but excludes all other compensation paid to our employees. A participant may purchase no more than 10,000 shares during any six-month offering period. Purchase of Shares. Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month offering period. The price is 85% of the lower of the fair market value of our common stock at the beginning of an offering period or on the last day of the offering period. Participants may end their participation at any time during an offering period, and will be paid their accumulated payroll deductions upon withdrawal. Participation ends automatically three months following termination of employment with us unless terminated earlier at the participants request. Transferability of Rights. A participant may not transfer rights granted under our plan other than by will or the laws of descent and distribution. Adjustments Upon Change in Control. In the event of our change in control, including the sale of all or substantially all of our assets, a successor corporation may assume or substitute for each outstanding option. If the successor corporation does not
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+PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. As an investor or prospective investor in our common shares you should read this entire prospectus carefully, including the section entitled "Risk Factors" and our financial statements and related notes for a more complete understanding of our business and this offering. Unless we specify otherwise, all references and data in this prospectus to our business, our vessels and our fleet refers to our fleet of 46 vessels and option to purchase one additional vessel that we acquired in the first quarter of 2004. Overview We were formed in October 2003 as a wholly owned subsidiary of Frontline Ltd. (NYSE: FRO), which we believe is one of the largest owners and operators of large crude oil tankers in the world. On June 16, 2004 Frontline distributed 25% of our common shares to its shareholders, with each Frontline shareholder receiving one of our common shares for every four Frontline shares held. On June 17, 2004, our common shares began trading on the New York Stock Exchange under the ticker symbol "SFL". On September 24, 2004, Frontline made a further distribution of approximately 10% of its holdings of our common shares to its shareholders, with each Frontline shareholder receiving one of our common shares for every ten Frontline shares held. We purchased our fleet of 46 crude oil tankers from Frontline, which we have chartered under long term, fixed rate charters to Frontline Shipping Limited, a wholly owned subsidiary of Frontline that we refer to as the Charterer. We also acquired from Frontline an option to purchase one additional VLCC tanker, which we expect to exercise before the end of 2004. The Charterer was initially capitalized with $250 million in cash provided by Frontline to support its obligation to make payments to us under the charters. We have also entered into fixed rate management and administrative services agreements with Frontline Management (Bermuda) Ltd., which we refer as Frontline Management, also a wholly owned subsidiary of Frontline, to provide for the operation and maintenance of our vessels and administrative support services. These arrangements are intended to provide us with stable cash flow and reduce our exposure to volatility in the markets for seaborne oil transportation services. Our Fleet The vessels we acquired from Frontline, including the vessel under option, consist of 23 very large crude carriers, or VLCCs, each having a capacity of 275,000 to 308,000 dwt, and 24 Suezmax tankers, each having a capacity of 142,000 to 169,000 dwt. Our fleet is one of the largest tanker fleets in the world, with a combined deadweight tonnage of 10.5 million dwt, and has an average age of 8.6 years as of December 31, 2003. Thirteen of our VLCCs and 16 of our Suezmax tankers are of double hull construction, with the remainder being modern single hull or double sided vessels built since 1990. Our tankers primarily transport crude oil. VLCCs, due to their size, principally operate on routes from the Middle East to the Far East, Northern Europe, the Caribbean and the Louisiana Offshore Oil Port, or LOOP. Suezmax tankers are similarly designed for worldwide trade, although the trade for those vessels is mainly in the Atlantic basin on routes between Northern Europe, the Caribbean and the United States. Eight of our Suezmax tankers are oil/bulk/ore carriers, or OBO carriers, which can be configured to carry either oil or dry cargo as market conditions warrant. Strategy Our long term charters with the Charterer are our sole source of operating income. We currently plan to grow our fleet and to replace vessels as they are retired with modern double hull vessels to maintain stable cash flow and the quality of our fleet. We expect that our replacement and growth vessels will be either existing or newly built VLCC or Suezmax tankers. Depending on market conditions, we may charter any additional vessels that we acquire on long or short term time charters or in the spot markets. We may also seek to diversify our customer base by securing charters with companies other than the Charterer. Competitive Strengths We believe that our fleet, together with our contractual arrangements with Frontline, give us a number of competitive strengths, including: o one of the largest and most modern VLCC and Suezmax fleets in the world; o fixed rate, long term charters intended to reduce our exposure to volatility in tanker rates; o profit sharing potential when the Charterer's earnings from deploying our vessels exceed certain levels; o substantially fixed operating costs under our management agreements; o a charter counterparty initially capitalized with $250 million to support its obligation to make charter payments to us; and o vessels managed by Frontline Management, which we believe is one of the industry's most experienced operators of tankers. Fleet Purchase Agreement Pursuant to a fleet purchase agreement executed in December 2003, we acquired from Frontline 46 vessel owning subsidiaries and one subsidiary that holds an option to purchase an additional vessel for an aggregate purchase price of $950 million, excluding working capital and other intercompany balances retained by Frontline. We also assumed senior secured indebtedness with respect to our fleet of 46 vessels in the amount of approximately $1.158 billion. The purchase price for the fleet and the refinancing of the existing senior secured indebtedness were financed through a combination of the net proceeds from the sale of $580 million 8.5% senior notes, due 2013, that we issued in December 2003, funds from a $1.058 billion senior secured credit facility and a deemed equity contribution from Frontline. The charters and the management agreements were each given economic effect as of January 1, 2004. Time Charters We have chartered the vessels that we acquired from Frontline to the Charter under long term time charters, which will extend for various periods depending on the age of the vessels, ranging from approximately seven to 23 years. With certain exceptions, the daily base charter rates, which are payable to us monthly in advance, for a maximum of 360 days per year (361 days per leap year), are as follows: Year VLCC Suezmax ---- ---- ------- 2003 to 2006..................................... $25,575 $21,100 2007 to 2010..................................... $25,175 $20,700 2011 and beyond.................................. $24,175 $19,700 These daily base charter rates are subject to reductions after some periods and to deferral rights that we describe more fully in this prospectus under "Business-Charter Arrangements." In addition to the base charter rates, the Charterer has agreed to pay us a profit sharing payment equal to 20% of its excess revenues, calculated annually on a time charter equivalent, or TCE, basis, realized by the Charterer for our fleet above a weighted average rate of $25,575 per day for each VLCC and $21,100 per day for each Suezmax tanker. The Charterer The Charterer was initially capitalized by Frontline with $250 million in cash, which serves to support the Charterer's obligations to make charter payments to us. The Charterer is entitled to use these funds only (1) to make charter payments to us and (2) for reasonable working capital to meet short term voyage expenses. The Charterer's obligations to us under the charters are secured by a lien over all the assets of the Charterer and a pledge of the equity interests of the Charterer. The Charterer is a Bermuda corporation and a wholly owned subsidiary of Frontline, formed to charter the vessels in our fleet and to engage in matters necessary or incidental to that business. Under its constituent documents, the Charterer is not permitted to engage in other businesses or activities and is required to have at least one independent director on its board of directors whose consent is required to approve bankruptcy actions and other extraordinary transactions. Management and Administrative Services Agreements To give us added certainty with respect to the costs of operating our vessels, our vessel owning subsidiaries have entered into fixed rate management agreements with Frontline Management. Under the management agreements, Frontline Management is responsible for all technical management of the vessels, including crewing, maintenance, repair, capital expenditures, drydocking, vessel taxes, maintaining insurance and other vessel operating expenses. Frontline Management will also reimburse us for all lost charter revenue caused by our vessels being off hire for more than five days per year on a fleet-wide basis. Under the management agreements, we pay Frontline Management a fixed fee of $6,500 per day per vessel for all of these services, for as long as the relevant charter is in place. Frontline has guaranteed to us Frontline Management's performance under these management agreements. We have also entered into an administrative services agreement with Frontline Management under which Frontline Management provides us with administrative support services. We and each of our vessel owning subsidiaries pay Frontline Management a fixed fee of $20,000 per year for its services under the agreement, and agree to reimburse Frontline Management for reasonable third party costs. Because Frontline Management has assumed full managerial responsibility for our fleet and our administrative services, we currently do not have management or employees who are not also officers or employees of Frontline. We have one independent director, while each of our other directors is also a director or executive officer of Frontline. Corporate Structure The following diagram depicts our ownership and contractual structure: -------------- Frontline Ltd. (NYSE:FRO) -------------- | | | ----------------------------------------------------------- | | | 100% 100% 63.5% | | | -------------------- -------------------------- --------------------- Frontline Management Frontline Shipping Limited Ship Finance (Bermuda) Ltd. (Charterer) International Limited (Frontline Managment) -------------------- -------------------------- --------------------- ^ | | | | Fixed rate 100% | | charter payments | | | ------------- | |---------------------> Vessel Owning |--------------------------------------------------- Subsidiaries Fixed payments for vessel management and administration ------------- Our Contractual Cash Flow The following table sets forth the aggregate contracted charter revenue that is payable to us under our charters with the Charterer, together with the management fees that are payable by us under the management agreements and the administrative services agreement, but does not include any debt service or other expenses. These figures do not include any profit sharing payments or reflect charter payment deferrals. These amounts are based on our current fleet of 46 vessels and include the additional VLCC under option from January 1, 2005. This table assumes that all parties fully perform their obligations under the relevant agreements and that none of the charters are terminated due to loss of the vessel or otherwise, except for the charters for our non-double hull vessels, which are assumed to be terminated after 2010. Factors beyond our control may affect other parties' ability to satisfy their contractual obligations to us, and we cannot assure you that these results will actually be achieved. These factors may include, among others, a decline in tanker charter rates that could prevent the Charterer from earning sufficient revenue to satisfy its obligation to us if the $250 million cash reserve provided by Frontline is not sufficient to cover any deficiency. Please see "Risk Factors-Risks Relating to Our Business-We depend on the Charterer for all of our operating cash flow" and "The Charterer's ability to pay charterhire to us could be materially and adversely affected by volatility in the tanker markets". For more complete information about the rates and terms of our charters, please see "Business-Charter Arrangements". Net Management and Contracted Charter Administrative Cash Year Payments Fees Payments ---- -------- ---- -------- (dollars in millions) 2004............................... $385.9 $110.9 $275.0 2005............................... 394.1 112.9 281.2 2006............................... 394.1 112.9 281.2 2007............................... 387.3 112.9 274.4 2008............................... 388.4 113.3 275.1 2009............................... 383.0 112.9 270.1 2010............................... 370.4 112.9 257.5 2011............................... 226.6 69.9 156.7 2012............................... 219.4 70.1 149.3 2013............................... 214.1 69.9 144.2 2014 and beyond.................... 1,517.1 496.8 1,020.3 Total.............................. $4,880 $1,495.4 $3,385.0 The Offering Common shares offered by the selling 1,600,000 common shares shareholders Common shares outstanding prior to this 73,925,837 common shares offering (as of June 30, 2004) Risk Factors See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common shares. New York Stock Exchange symbol "SFL" <PAGE> SUMMARY
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+PROSPECTUS SUMMARY This summary highlights all material information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in shares of our common stock. We encourage you to read this entire prospectus carefully, including Risk Factors beginning on page 8 and our consolidated financial statements and the notes to those financial statements beginning on page F-1, before making an investment decision. Unless otherwise noted, all of the financial information in this prospectus is consolidated financial information for Tempur-Pedic International Inc. or its predecessors. As used in this prospectus, the terms the Company and Tempur-Pedic International refer to Tempur-Pedic International Inc. only and the terms we, our, ours and us refer to Tempur-Pedic International and its consolidated subsidiaries. Unless otherwise noted in this prospectus, all references to dollars are to United States dollars. TEMPUR , Tempur-Pedic , Tempur-Med , Swedish Sleep System , Airflow System , The Celebritybed by Tempur-Pedic and Dual Airflow System are our trademarks, trade names and service marks. All other trademarks, trade names and service marks used in this prospectus are the property of their respective owners. Tempur-Pedic International Inc. We are a rapidly growing and market leading, vertically-integrated manufacturer, marketer and distributor of premium visco-elastic mattresses and pillows that we sell globally in 60 countries primarily under the Tempur and Tempur-Pedic brands. We believe our premium mattresses and pillows are more comfortable than standard bedding products because our proprietary visco-elastic pressure-relieving material is temperature sensitive, has a high density and conforms to the body to therapeutically align the neck and spine, thus reducing neck and lower back pain, two of the most common complaints about other sleep surfaces. In the most recent survey of mattresses published by Consumers Digest in April 2003, one of our mattresses was named among the eight best buys of the mattress industry in the applicable price range. In October 2004, one of our pillows was named by Consumers Digest among the best buys in the industry. In September 2004, we were added to the list of approved products by Good Housekeeping magazine, which earned us the privilege to display the Good Housekeeping Seal across our entire line of mattresses. Consumer surveys commissioned on our behalf in recent years have indicated that our products achieve satisfaction ratings generally ranging from 80% to 92%. In the three years ended December 31, 2003, our total net sales grew at a compound annual rate of approximately 47%, and for the nine months ended September 30, 2004, we had total net sales of $486.5 million, which represented a 42% increase in net sales as compared to the nine months ended September 30, 2003. We sell our products through four distribution channels: retail (furniture and specialty stores, as well as department stores internationally); direct (direct response and internet); healthcare (chiropractors, medical retailers, hospitals and other healthcare channels); and third party distributors. In the United States, we sell a majority of our mattresses and pillows through furniture and specialty retailers. International sales account for approximately 37% of our total net sales. The International Sleep Products Association (ISPA) estimates that the United States wholesale market for mattresses and foundations in 2003 was approximately $5.0 billion. We believe the international mattress market is generally the same size as the domestic mattress market. According to ISPA, from 1991 to 2003, mattress unit sales grew in the United States at an average of approximately 500,000 units annually, with approximately 22.0 million mattress units sold in the United States in 2003, although sales decreased during the 2000 to 2002 period. We believe a similar number of mattress units were sold outside the United States in 2003. ISPA further estimates that approximately 20% of those mattress units were sold at retail price points greater than $1,000, which is the premium segment of the market we target and which we believe is the fastest growing segment in the industry. Net increase (decrease) in cash and cash equivalents 474 6 36 (3,550 ) (3,034 ) Cash and cash equivalents at beginning of period 1,527 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents Most standard mattresses are made using innersprings and most innerspring mattresses are sold for under $1,000. Alternatives to standard and premium innerspring mattresses include visco-elastic and other foam mattresses, as well as airbeds and waterbeds. Four large manufacturers (Sealy Corporation, Serta, Inc., Simmons Company and The Spring Air Company) dominate the standard innerspring mattress market in the United States. The balance of the United States wholesale mattress market is fragmented, with a large number of other manufacturers, many of which operate primarily on a regional basis. Standard innerspring mattresses represent approximately 80% of the overall mattress market in the United States. The medical community is also a large consumer of mattresses to furnish hospitals and nursing homes. In the United States, there are over 15,400 nursing homes with a total bed count in excess of 1.7 million. Medical facilities typically purchase twin mattresses with standard operating functions such as adjustable height and mechanisms to turn patients to prevent pressure ulcers (or bedsores). We believe that as the United States population ages, the healthcare market for mattresses will continue to grow. Based on our market research, we estimate that the United States retail market for pillows is approximately $1.1 billion. The United States pillow market has a traditional and specialty segment. Specialty pillows include all alternatives to traditional pillows, including visco-elastic, foam, sponge rubber and down. We believe the international pillow market is generally the same size as the domestic pillow market. We are the leading global manufacturer, marketer and distributor of premium visco-elastic mattresses and pillows, with an estimated 70% market share in 2003 in both the United States and internationally. We believe consumer demand for our premium products in the United States is driven primarily by increased housing and home furnishing purchases by the baby boom generation, significant growth in our core demographic market as the baby boom generation ages, increased awareness of the health benefits of a better quality mattress, and shifting consumer preference from firmness to comfort. As consumers continue to prefer alternatives to standard innerspring mattresses, our products become more widely available and our brand gains broader consumer recognition, we expect that our premium products will continue to attract sales away from the standard mattress market. Our principal executive office is located at 1713 Jaggie Fox Way, Lexington, Kentucky 40511 and our telephone number is (800) 878-8889. We were incorporated under the laws of the State of Delaware in September 2002. Competitive Strengths We believe we are well-positioned for continued growth in our target markets, and that the following competitive strengths differentiate us from our competitors: Superior Product Offering. Our proprietary visco-elastic mattresses and pillows contour to the body more naturally and provide better spinal alignment, reduced pressure points, greater relief of lower back and neck pain, and better sleep quality than traditional bedding products. In addition, we continue to leverage our unique and proprietary manufacturing process to develop new products and refine existing products to meet the changing demands and preferences of consumers. Our innovative products distinguish us from the major manufacturers of standard innerspring mattresses and traditional pillows in the United States, which we believe offer generally similar products and must compete primarily on price. Increasing Global Brand Awareness. We believe consumers in the United States and internationally increasingly associate our brand name with premium quality products that enable better overall sleep. We believe our Tempur brand s global recognition is reinforced by our high level of customer satisfaction. Furthermore, we believe our direct response business and associated multi-channel advertising in our domestic and international markets have enhanced awareness of our brand. Balance, November 1, 2002 $ $ 146,464 $ 4,864 $ 2,348 $ (100 ) $ $ (143 ) $ $ $ 153,433 Net loss (3,247 ) (3,247 ) Foreign currency translation adjustments, net of tax 1,418 1,418 Dividends on preferred stock 1,958 (1,958 ) Amortization of deferred stock compensation 2 AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Table of Contents Diversified Product Offerings Sold Globally Through Multiple Distribution Channels. Our diversified product offerings include mattresses, pillows and other products, primarily adjustable beds, which we sell through multiple distribution channels including retail, direct, healthcare and third party distributor channels. For the nine months ended September 30, 2004, mattress, pillow and other product sales, primarily adjustable beds, represented 63%, 21% and 16%, respectively, of our net sales. For the nine months ended September 30, 2004, our retail channel represented 71% of our net sales, with our direct, healthcare and third party distributor channels representing 15%, 7% and 7%, respectively. Strong Financial Performance. Over the last several years, our diversified business model has enabled us to achieve rapidly growing revenues and strong gross and operating margins, with low maintenance capital expenditure and working capital requirements. Further, our vertically-integrated operations generated an average of approximately $470,000 in net sales per employee in 2003, which we believe is more than 2.0 times the average for three of the major bedding manufacturers in the United States. Our strong financial performance gives us the flexibility to invest in our manufacturing operations, enhance our sales force and marketing, invest in information systems and recruit talented management and other personnel. Significant Growth Opportunities. We believe we have significant growth opportunities because we have penetrated only a small percentage of our addressable market. Furthermore, we have recently begun to expand our direct response business in our European markets, based on our similar, successful initiatives in the United States and in the United Kingdom, to reach a greater number of consumers and increase our brand awareness. In addition, we currently supply only a small percentage of the approximately 15,400 nursing homes and 5,000 hospitals in the United States (with a collective bed count in excess of 2.7 million). Management Team with Proven Track Record. Since launching our United States operations in 1992, Robert Trussell, Jr. has helped grow our company into a global business with approximately $486.5 million in total net sales for the nine months ended September 30, 2004. Furthermore, Mr. Trussell has assembled a highly experienced management team with significant sales, marketing, consumer products, manufacturing, accounting and treasury expertise. As of November 16, 2004, the management team and certain key employees owned approximately 7.8% of our common equity on a fully-diluted basis, after giving effect to the vesting of all outstanding options (6.8% after this offering). Business Strategy Our goal is to become the leading global manufacturer, marketer and distributor of premium mattresses and pillows by pursuing the following key initiatives: Maintain Focus on Core Products. We utilize a vertically-integrated, proprietary process to manufacture a comfortable, durable and high quality visco-elastic pressure-relieving material. Although this material could be used in a number of different products, we are currently committed to maintaining our focus primarily on premium mattresses and pillows. We believe our focused sales, marketing and product strategies will enable us to increase market share in the premium market, while maintaining our margins and our ability to generate free cash flow. Continue to Build Global Brand Awareness. We plan to continue to invest in increasing our global brand awareness through targeted marketing and advertising campaigns that further associate our brand name with better overall sleep and premium quality products. We estimate that our current advertising campaign yields 3.6 billion consumer impressions per month via television, radio, magazines and newspapers. Tempur-Pedic International Inc. (Exact name of registrant as specified in its charter) Table of Contents Further Penetrate U.S. Retail Channel. In the United States, the retail sales division is our largest sales division. Since the beginning of the year, we have added approximately 1,200 furniture retailers to our base in the United States. We now sell our products in approximately 3,900 such stores as well as approximately 1,500 specialty retail stores in the United States. We plan to build and maintain our base of furniture retailers and specialty retailers. In order to continue to penetrate this channel, we have increased our salesforce and have increased the number of personnel who train retail salespersons to sell our products more effectively. We believe we are able to more effectively attract and retain retailers because our premium products provide retailers with higher per unit profits than standard innerspring products. Continue to Expand Internationally. We plan to increase international sales growth by further penetrating each of our existing distribution channels. Increase Growth Capacity. We intend to continue to invest in our operating infrastructure to meet the requirements of our rapidly growing business. Currently, we manufacture our products in two highly automated, vertically-integrated facilities located in Aarup, Denmark and Duffield, Virginia. Over the past three years, we have invested more than $50.0 million to upgrade and expand these facilities. To accommodate our anticipated growth, we plan to invest an additional $75.0 to $100.0 million to increase productivity and expand manufacturing capacity during the next several years, including the development and construction of an additional manufacturing facility in Albuquerque, New Mexico. We commenced construction of the Albuquerque manufacturing facility in September 2004 and expect to complete construction before the end of the third quarter of 2006. We also plan to continue to enhance our internal information technology systems and our product distribution network, as well as augment our personnel in management, sales, marketing and customer service. TA Associates, Inc. and Friedman Fleischer & Lowe TA Associates, Inc. (TA) manages $5.0 billion of capital for buyouts and private equity investments in profitable growth companies in the consumer, technology, financial services, business services and healthcare industries. Founded in 1968, TA has a staff of over 40 investment professionals operating from offices in Boston, Massachusetts, Menlo Park, California, and London, and has invested in approximately 350 companies over its 35-year history. Friedman Fleischer & Lowe, LLC (FFL) is a San Francisco-based private equity firm specializing in value-added investing. FFL s principals have invested approximately $2.0 billion in more than 50 companies over the past 20 years across many industry sectors. The principals have over 90 years of combined experience as investors, senior operating executives and advisors. As of November 16, 2004, TA and FFL owned 61.3% of our fully diluted common stock, after giving effect to the vesting of all outstanding options (51.7% after this offering). Delaware 2510 33-1022198 (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification Number) 1713 Jaggie Fox Way Lexington, Kentucky 40511 800-878-8889 (Address, including zip code, and telephone number, including area code, of the registrant s principal executive offices) Robert B. Trussell, Jr., President and Chief Executive Officer Tempur World, Inc. 1713 Jaggie Fox Way Lexington, Kentucky 40511 800-878-8889 (Name, address, including zip code, and telephone number, including area code, of agent for service) Table of Contents The Offering Common stock offered by selling stockholders in this offering 12,000,000 shares Common stock outstanding on November 16, 2004 97,894,871 shares Use of proceeds We will not receive any proceeds from the sale of shares by the selling stockholders. The selling stockholders will receive all net proceeds from the sale of our common stock offered in this prospectus. See Use of Proceeds. New York Stock Exchange symbol TPX The number of shares of our common stock outstanding on November 16, 2004 excludes: 5,956,904 shares of our common stock issuable upon the exercise of stock options outstanding as of November 16, 2004, 1,347,446 of which options were then exercisable; and 7,850,000 shares of our common stock reserved for future grant under our 2003 Equity Incentive Plan. In addition, the underwriters have a 30-day option to purchase up to 1,800,000 additional shares from the selling stockholders to cover over-allotments. Some of the disclosures in this prospectus would be different if the underwriters exercised their over-allotment option. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option. Copies to: John R. Utzschneider, Esq. Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 617-951-8000 Rod Miller, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 212-310-8000 Earnings (loss) per share(4) Basic $ (0.67 ) $ 3.32 $ 3.21 $ 0.52 Diluted $ (0.67 ) $ 0.39 $ 0.28 $ 0.50 Weighted average shares (in thousands) Basic 7,815 11,330 8,091 97,601 Diluted 7,815 95,331 93,143 102,933 Less amount representing interest Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. (1) Includes $9.8 million in non-cash charges for the two months ended December 31, 2002 relating to the step-up in inventory as of November 1, 2002 relating to the Tempur acquisition. (2) Includes $9.3 million in non-cash charges for the year ended December 31, 2003 comprised of $5.1 million in amortization of definite-lived intangibles and $4.2 million in non-cash stock-based compensation expense relating to stock option grants and acceleration. (3) Includes $13.7 million in debt extinguishment charges for the year ended December 31, 2003 relating to the write-off of deferred financing fees, the write-off of original issue discount and prepayment penalties in connection with the recapitalization. (4) Predecessor company earnings per share has been omitted as such information is not considered meaningful due to the change in capital structure. (5) As of December 31, 2003, we had approximately $60.2 million in restricted cash for the redemption of an aggregate principal amount of $52.5 million of our Senior Subordinated Notes, the payment of a redemption premium of approximately $5.4 million and accrued interest expense of approximately $2.4 million to be paid in January 2004. (6) Information as of December 31, 2003 includes $52.5 million in aggregate principal amount of our Senior Subordinated Notes that were redeemed on January 23, 2004. (7) Number of units sold is before consideration of returned mattresses and pillows and excludes units shipped to fulfill warranty claims and promotional activities. (8) Number of units sold, net is after consideration of returned mattresses and pillows and excludes units shipped to fulfill warranty claims and promotional activities. Income (loss) before income taxes 11 14 (4 ) 5 13 13 17 Income tax provision 5 5 1 3 5 5 CALCULATION OF REGISTRATION FEE Table of Contents
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+Table of Contents SUMMARY The following summary highlights information contained elsewhere in this solicitation statement. Accordingly, this summary may not contain all of the information that may be important to you. We urge you to read and review carefully this entire solicitation statement, including the section entitled Risk Factors, and the financial statements included herein, as well as the other documents to which this solicitation statement refers, in order to understand fully Telecom, the restructuring, this APE solicitation and the terms of the notes to be issued and cash consideration and cash interest payments to be made pursuant to the APE. The following discussion is not indicative of our current or future results of operations, liquidity or funding, and should be read in conjunction with, and is qualified in its entirety by, the sections entitled Risk Factors and Operating and Financial Review and Prospects. Telecom Argentina S.A. Overview We are a sociedad an nima organized under Argentine law. We provide public telecommunications services in Argentina, in particular fixed-line local, national and international long distance services, as well as data transmission and access to Internet service, and through our subsidiaries, we provide mobile telecommunications services in Argentina and Paraguay and publish telephone directories. Our headquarters are located at Alicia Moreau de Justo 50 (C1107AAB) Buenos Aires, Argentina and the telephone number of our principal executive offices is 011-54-11-4968-4000. As a consequence of a number of developments, including the deterioration of the economic environment in Argentina, the devaluation and volatility of the Argentine peso (the peso or P$), the conversion into pesos of our rates at the ratio of P$1.00=US$1.00 and uncertainties surrounding the adjustment of our regulated tariffs, in the first half of 2002 we announced the suspension of payments of principal and interest on our outstanding debt. As of December 31, 2003, we had the following unconsolidated outstanding debt (calculated in U.S. dollar equivalents): approximately US$1,677 million aggregate principal face amount of outstanding notes issued under our medium term note programs; approximately US$876 million aggregate principal face amount of outstanding loans owed to financial institutions relating to working capital loans, debt issuances and trade financings; and approximately US$248 million in accrued but unpaid interest (including penalties and post-default interest rate increases) on our outstanding notes and outstanding loans, calculated, in each case at the rate specified in these notes and loans. In addition to the unconsolidated outstanding debt described above, we also have commercial obligations, which include accounts payable, intercompany and related party accounts payable, obligations to pay taxes, salaries and social security payments (including obligations to any federal, provincial or municipal tax or social security authorities) and other liabilities, including agency fees under outstanding syndicated loans. Additionally, our subsidiaries have outstanding debt obligations and other liabilities. Generally, we have been paying our commercial obligations as they become due and intend to remain current in these obligations. Accordingly, we are not soliciting the participation of our commercial creditors in the APE, as we will presume that our commercial creditors have consented to the APE because the APE will not affect their legal, equitable or contractual rights. See Summary of the APE Process Approval of an APE . Minority interest 33 32 Foreign currency translation adjustments 22 Table of Contents The equivalent of US$2,701 million of our outstanding debt to be restructured includes the aggregate principal face amount of the equivalent of US$2,553 million plus principal face amount adjustment of the equivalent of approximately US$148 million, each calculated as of December 31, 2003. See Capitalization for more information about our recent unconsolidated debt totals as of March 31, 2004. Recent Developments Marginal Improvement in the Argentine Economy During 2003 and the first three months of 2004 The Argentine economy improved marginally during 2003. The peso appreciated against the U.S. dollar, ending with a rate of P$2.93 per US$1.00 as of December 31, 2003 compared to P$3.80 per US$1.00 as of June 30, 2002 and P$3.37 per US$1.00 as of December 31, 2002. Inflation also slowed as the Argentine consumer price index increased by 3.7% during 2003 compared to an increase of 41% in 2002. However, despite these changes and certain other improvements in Argentine financial indicators, the cumulative economic, social and political deterioration caused by the events of 2002 remains largely unaffected, and Argentine real gross domestic product is still far below pre-crisis levels, rising by 8.7% in 2003, after decreases of 10.9% in 2002, 4.4% in 2001, 0.8% in 2000 and 3.4% in 1999. Moreover, while the key components of our business remained strong in 2003 and our operating results were enhanced by the appreciation of the Argentine peso and the impact of our cost reduction initiatives, resulting in consolidated net income of P$351 million for the year ended December 31, 2003 compared to a consolidated net loss of P$4,386 million for the year ended December 31, 2002, our operating results and financial condition remain highly vulnerable to fluctuations in the Argentine economy. During the first three months of 2004, the peso appreciated against the U.S. dollar, ending with a rate of P$2.86 per US$1.00 as of March 31, 2004 compared to P$2.93 per US$1.00 as of December 31, 2003. Inflation remained stable as the Argentine consumer price index increased by 1.1% during the first three months of 2004. Recent Financial Results On May 10, 2004 Telecom announced its unaudited interim consolidated financial results for the three months ended March 31, 2004. Telecom reported consolidated net income of approximately P$124 million, compared to P$907 million on the first three months of 2003, principally as a result of lower foreign currency gains. Telecom s consolidated net revenues for the first three months of 2004 were P$1,017 million, compared to P$851 million for the first three months of 2003. The increase in revenues reflected recovery in demand for telecommunications services, particularly for cellular services in Argentina. See Operating and Financial Review and Prospects Recent Developments. Current Legal Proceedings We are aware of two involuntary bankruptcy petitions, or pedidos de quiebra, for an aggregate amount of US$356,787 and eight summary attachment proceedings, or juicios ejecutivos, that have been filed against us by persons alleging to be holders of our outstanding notes for the aggregate value of the equivalent of approximately US$2.2 million (based on exchange rates as of May 31, 2004). We have not been served process with respect to the bankruptcy petitions. We have been served process and have filed the required formal responses for each of the juicios ejecutivos. In addition, certain attachments have been granted over an aggregate amount of approximately US$3.5 million (based on exchange rates as of May 31, 2004) of funds and assets of Telecom. We do not expect that these bankruptcy petitions or summary attachment proceedings and attachments will result in Telecom being declared bankrupt. However, there is a significant likelihood that we will have to commence reorganization (concurso) proceedings if we are unable to consummate the APE expeditiously and if claims of this nature increase. Table of Contents Majority Shareholder Structure Since 1990, our principal shareholder has been Nortel Inversora S.A., or Nortel. Nortel owns approximately 54.74% of our capital stock, including all of our Class A common shares and 8.5% of our Class B common shares. Nortel is a holding company that was formed in 1990 by a consortium including Telecom Italia S.p.A., or Telecom Italia, a member of the Telecom Italia Group (as defined under Major Shareholders and Related Party Transactions Major Shareholders ), and France Cables et Radio S.A., or FCR, a member of the France Telecom Group (as defined under Major Shareholders and Related Party Transactions ). At the time that Nortel was formed, Telecom entered into a management agreement with Telecom Italia and FCR, whom we refer to collectively as the Operators, pursuant to which the Operators agreed to manage the business of Telecom and to provide services, expertise and technical know-how with respect to Telecom s activities. See Information on Telecom Our Business Management Agreement. Until December 19, 2003, the Telecom Italia Group and the France Telecom Group (as defined under Major Shareholders and Related Party Transactions ) each owned a 50% interest in the common stock of Nortel. We have been informed that on December 19, 2003, the France Telecom Group and the Telecom Italia Group transferred their respective shareholdings in Nortel to a new Argentine company named Sofora Telecomunicaciones Sociedad An nima, or Sofora. After this transfer, the France Telecom Group sold a 48% interest in the total share capital of Sofora to W de Argentina Inversiones, S.L., a holding company incorporated in the Kingdom of Spain, and a company of the Werthein family, which we refer to as the Werthein Group, for US$125 million, including a call option on the remaining 2%, exercisable from January 31, 2008 to December 31, 2013. Concurrently, the Telecom Italia Group purchased from Werthein Group two call options for US$60 million, one for the purchase of 48% of Sofora s share capital, which can be exercised within 15 days of December 31, 2008, and an additional call option on 2% of Sofora s share capital, which can be exercised between December 31, 2008 and December 31, 2013. The SC has approved the transaction and authorized the Telecom Italia Group to continue as exclusive Operator of Telecom. In connection with these transactions, a shareholders agreement between Telecom Italia Group and the Werthein Group for the joint management of Sofora, Nortel, Telecom and its affiliates was executed. We have been informed that, as a result of these transactions, the Telecom Italia Group holds 50%, the Werthein Group holds 48% and the France Telecom Group holds 2% of Sofora s capital stock. Sofora owns 100% of the common stock, and 67.78% of the capital stock of Nortel. See Major Shareholders and Related Party Transactions Major Shareholders. Board Composition Upon the France Telecom Group s transfer of 96% of its Sofora shares to the Werthein Group on December 19, 2003, two directors and two alternate directors who were previously nominated by FCR to Telecom s board resigned from Telecom s Board of Directors. Since then, in addition to Alberto Messano and Amadeo Ram n V zquez, Oscar Carlos Cristianci, Gerardo Werthein, Ra l Antonio Miranda and Julio Pedro Naveyra have been elected as directors. In addition to Guillermo Alberto Brizuela and Franco Alfredo Livini, Adri n Werthein, Ignacio Abel Gonz lez Garc a, Luis Mar a G mez Iza and Osvaldo Canova have been elected as alternate directors of Telecom s Board of Directors. Adri n Werthein and Gerardo Werthein are affiliated with the Werthein Group. Amadeo Ram n V zquez, Ra l Antonio Miranda and Julio Pedro Naveyra are independent directors. Osvaldo Canova and Ignacio Abel Gonz lez Garc a are independent alternate directors. Current Tax credits 98 17 Prepaid expenses 17 16 Advances to employees 5 8 Other 30 Total as of December 31, 2002 20,717 238 897 Cash $ 3 $ 3 Banks 8 Not due Payable on demand 4,252 (a) Second quarter 2004 2,741 389 48 417 2 45 99 24 Third quarter 2004 26 5 10 2 6 Fourth quarter 2004 1 12 2 6 First quarter 2005 33 2 6 1 Apr. 2005 thru Mar. 2006 57 3 11 8 Apr. 2006 thru Mar. 2007 5 4 10 2 Apr. 2007 thru Mar. 2008 2 3 4 2 Apr. 2008 thru Mar. 2009 1 16 3 2 Apr. 2009 thru Mar. 2010 93 2 2 Apr. 2010 and thereafter 2 99 3 Table of Contents Name Change Effective April 12, 2004, Telecom legally changed its name to Telecom Argentina S.A. Payment Default and Restructuring Purpose of the APE The continuing economic crisis in Argentina has had a number of negative effects on the Argentine economy that have adversely affected our financial condition. The devaluation in 2002 of the Argentine peso caused the cost, in peso terms, of servicing our U.S. dollar-denominated indebtedness to increase significantly, and resulted in material foreign exchange losses. For the fiscal year ended December 31, 2002, we reported a net loss of P$4,386 million, compared to net income of P$100 million for the fiscal year ended December 31, 2001, principally as a result of the macroeconomic environment in Argentina, including the devaluation and subsequent volatility of the peso and the effects of inflation adjustment on our financial statements. Also, the inability of Telecom to increase regulated tariffs after the pesification of regulated tariffs at a rate of US$1=P$1 enforced by the Argentine government, the decrease in traffic in our basic telephony business (mainly in domestic and international long distance services) and the declines in both traffic and average revenue per user in the mobile business had an impact on net income. The macroeconomic factors described above led to our announcement of a suspension of payments of principal and interest on our financial debt obligations in April and June 2002. For the year ended December 31, 2003, we reported net income of P$351 million, compared to a net loss of P$4,386 million for the year ended December 31, 2002, principally attributable to the positive impact of the appreciation of the Argentine peso on our foreign exchange position and the effect of cost reduction initiatives. However, our operations and financial condition have been, and continue to be, significantly impacted by the macroeconomic environment in Argentina, particularly the volatility of the peso, uncertainty concerning inflation and the effects of inflation adjustment and the continued lack of tariff adjustments. As a result, our liquidity and overall financial condition continue to be strained. After announcing the suspension of payments in 2002, we engaged in discussions and negotiations with representatives of holders of outstanding debt, including discussions on alternative restructuring proposals. In these discussions our creditors expressed a wide range of preferences, and, in some cases, conflicting preferences, as to the terms of a restructuring. In January 2004 we announced a comprehensive plan to restructure our outstanding debt. Since that time, we have engaged in further discussions and negotiations with representatives of holders of our outstanding debt, including banks, export credit agencies and other institutions holding our outstanding loans, and representatives of holders of our notes. Based on the feedback we received in these recent discussions, we have made changes to our initial restructuring proposal in order to, among other things, simplify the proposal and, in light of recent improvements in Telecom s operations, to achieve support from certain creditors based on their assurances of support for a modified proposal. We have attempted to satisfy as many of the concerns expressed by our creditors as we deemed possible in order to receive the support of the requisite majorities, while still enabling us to operate effectively in the context of an uncertain macroeconomic environment in Argentina. Our proposal includes a set of three options that address distinct preferences expressed by certain creditors. These options include: an option to restructure the full face principal amount including principal face amount adjustment of outstanding debt with new debt to be repaid over a longer period of time, and at a lower rate of interest, rather than have debt restructured at a discount to its face value including principal face amount adjustment; an option to be repaid over a shorter period of time at a higher fixed rate of interest, but without receiving the full principal face amount, including principal face amount adjustment, of outstanding debt; holders electing this option agree that up to 37.5% of their outstanding debt amount including Table of Contents principal face amount adjustment may be allocated to the cash consideration at less than the full principal face amount of the original debt; and a preference for receiving cash consideration at less than the full principal face amount of the original debt instead of continuing to hold debt obligations at a discount. Although we have incorporated some of the concerns raised by our creditors in our discussions with them, not all of the concerns raised by these creditors are reflected in our restructuring plan. The purpose of this APE solicitation is to restructure our outstanding debt on terms that we anticipate will enable us to service our debt, in order to improve our financial condition and liquidity. If the APE solicitation fails, we may enter into reorganization (concurso) or become subject to bankruptcy (quiebra) proceedings. If the minimum required participation in Option A, level of creditor consent, court approval of the APE and certain other conditions are satisfied or waived, the rights of all holders of our outstanding debt would be affected whether or not they participate in this APE solicitation. In contrast, a successful APE solicitation will not be binding on, or have any impact on, our commercial creditors, other than as the restructuring will affect availability to meet our liabilities generally in the future. See The APE Solicitation Summary of the APE Process. Failure of the Restructuring A substantial portion of our outstanding debt is denominated in foreign currency and is governed by foreign law. Notwithstanding the economic crisis in Argentina and subsequent devaluation and pesification, Telecom has recorded its outstanding obligations at their respective original foreign currencies in the expectation that the debt restructuring would be completed successfully. If a restructuring plan pursuant to the APE is not completed, our management will analyze different courses of action in order to preserve the continuity of Telecom s operations. As discussed in Note 12 to Telecom s consolidated financial statements as of and for the year ended December 31, 2003, such actions may include pursuing legal arguments to support the pesification of foreign-currency denominated debt governed by foreign law. In this event, Telecom would seek to treat the foreign-currency denominated debt of Telecom and its subsidiaries as having been pesified at a rate of P$1 to US$1 or its equivalent in other foreign currencies. In addition, if the minimum required participation in Option A or the level of creditor consent is not satisfied or if certain other conditions are not satisfied or waived, this APE solicitation will fail and there is a significant likelihood that we will have to commence Argentine reorganization (concurso) or become subject to bankruptcy (quiebra) proceedings. The reorganization (concurso) and APE processes are similar in some respects and it is impossible to say whether our creditors will be treated more or less favorably in a concurso or in the APE. See Risk Factors Risks Associated with the APE Solicitation . If the restructuring is not consummated, there is a significant likelihood that we will have to commence reorganization proceedings or face bankruptcy proceedings for a discussion of the expected consequences of a reorganization (concurso) or bankruptcy (quiebra) proceeding. The process of reorganization (concurso) and bankruptcy (quiebra) proceedings is subject to considerable uncertainty because they will be governed by a statute that was amended in 2002, and substantial aspects of the amended statute have not yet been applied or interpreted by the courts. Consequently, the actual outcome might be less favorable or more favorable for creditors than the consequences described in this document in ways we cannot foresee. Future of Telecom if the Restructuring is Successful If the APE is granted court approval in the form in which it has been proposed by us and the conditions to this APE are satisfied or waived, all principal, interest and all other claims relating to our outstanding debt will Net income (loss) before income tax and minority interest 365 (5,715 ) 212 Income tax benefit, net 7 1,304 (112 ) Minority interest (21 ) Current Voice, data and Internet $ 386 $ 519 Wireless (i) 272 363 Directories publishing 35 $ 25 $ Net loss before income tax and minority interest (4,636 ) (996 ) (83 ) (5,715 ) Income tax 1,104 186 14 1,304 Minority interest 25 $ 25 $ Table of Contents be replaced by the notes and the Option C cash consideration and the cash interest payments (computed as described in this solicitation statement in respect of the period from January 1, 2004 to the issuance date) pursuant to the APE solicitation. We believe that the restructuring contemplated by this solicitation statement would result in a level of debt that we are capable of servicing for the term of the notes without requiring us to refinance all or any portion thereof in the capital markets or otherwise. This belief is based on a number of assumptions about macroeconomic factors that would affect key components of our business, including, without limitation: an exchange rate of Argentine pesos to U.S. dollars in the range of P$3.00 to P$5.00 per US$1.00 for the term of the notes. If the Argentine peso depreciates below these ranges for a significant period of time, our ability to service our notes, which will be largely denominated in non-peso currencies, could be materially adversely affected; lower rates of inflation for the term of the notes than those experienced in 2002. We have assumed that inflation rates will range from a high of 12.8% in 2005 to 7.5% in 2011. If inflation rates return to the levels that existed during the first nine months of 2002 or exceed these levels, a reduction in real wages would persist, which could reduce demand for our services and reduce the amount of revenues we collect to service our debt. In addition, continued inflation could result in further depreciation of the Argentine peso, which would impact our ability to service our euro- and U.S. dollar-denominated debt; that we will eventually be permitted to implement tariff adjustments for basic charges, measured service charges and other rates for our services at least sufficient to offset most of the effects of inflation. If rates are not adjusted, we may not be able to collect the anticipated revenues and cash inflows to service our debt following the restructuring; and moderate growth in Argentine real gross domestic product. The growth in Argentine real gross domestic product is a driver for many of our service revenues, given the correlation of our business to the overall Argentine economy. If Argentine real gross domestic product grows at a rate that is substantially lower than the moderate rate that we expect, this would adversely impact the demand for our services and, subsequently, our ability to service our debt. We assume that Argentine real gross domestic product will increase by 3.0% annually through 2011. We have made macroeconomic assumptions that we believe are conservative because these macroeconomic assumptions involve factors that are not within our control. To the extent that actual macroeconomic conditions are better than our assumptions and our financial results benefit from the improvements, we expect to be able to prepay indebtedness subject to the Mandatory Prepayment with Excess Cash provision in the terms of the notes. See the Mandatory Prepayment with Excess Cash covenant described under Description of the Notes Certain Covenants of Telecom. We currently expect that cash on hand and cash from operations will be sufficient to allow us to continue to operate our business until the notes are issued and meet our financial obligations related to the restructuring. We estimate that our restructuring obligations will include up to approximately the equivalent of US$663 million of cash consideration to be paid to holders of our outstanding debt who elect (or are allocated into) Option C pursuant to the APE. In addition, we expect to pay holders of our outstanding debt who elect to have their outstanding debt restructured under Option A or Option B an Option A/B cash interest payment on the issuance date, which will be up to the equivalent of approximately US$114 million, in the aggregate, and to pay an Option C cash interest payment on the issuance date to holders of our outstanding debt who elect to have their outstanding debt restructured under Option C which will be up to the equivalent of US$5 million. The cash interest payments for the period from January 1, 2004 to the issuance date will be computed as set forth in The APE Solicitation Issuance Date . The estimates provided herein assume that the consummation of the APE occurs on October 15, 2004. We will also require approximately the equivalent of an additional US$25 million in $ 11 $ (1) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as the sum of (a) pretax income (loss) from continuing operations before adjustment for minority interests in consolidated subsidiaries or equity gain or loss from related companies,(b) fixed charges and (c) amortization of capitalized interest minus (d) capitalized interest. A fixed charge is defined as the sum of: (1) all interest, whether expense or capitalized, (2) amortization of debt issue costs and (3) the interest-related portion of rental expense. Under Argentine GAAP, the earnings to fixed charges ratio for the year ended December 31, 2002 indicates less than one-to-one coverage. Consequently, earnings for this period are inadequate to cover fixed charges. A total amount of earnings of P$5,667 million is required to attain a ratio of one-to-one determined under Argentine GAAP for the year ended December 31, 2002. Under U.S. GAAP, the ratios related to the years ended December 31, 2002 and 2001 indicate less than one-to-one coverage. Consequently, earnings for these periods are inadequate to cover fixed charges. A total amount of earnings of P$2,861 million and P$3,379 million is required to attain a ratio of one-to-one determined under U.S. GAAP for the years ended December 31, 2002 and 2001, respectively. Table of Contents Restructuring Tables The tables below set forth our aggregate scheduled payments under our unconsolidated outstanding debt as of December 31, 2003 for the years indicated and compares the aggregate scheduled payments under the notes for the same years and for the term of the notes after the restructuring. For purposes of the post-restructuring tables below, we assume the following: that interest on our principal face amount of outstanding debt denominated in U.S. dollars, euro and Japanese yen restructured under Option A will be capitalized in an amount of interest equal to the principal face adjustment and our peso-denominated outstanding loans restructured under Option A will be capitalized in an amount of interest equal to the principal face adjustment and adjusted based on the CER from June 25, 2002 through December 31, 2003; that we will make an Option A/B cash interest payment in respect of the period from January 1, 2004 to the issuance date to holders who have their outstanding debt restructured under Option A or Option B at a rate of 5.53% for the series A notes denominated in dollars (or 4.83% for euro-, 1.93% for yen- or 3.23% for peso-denominated series A notes) and 9% for the series B notes; our euro-denominated outstanding debt is converted into dollars at an exchange rate of 0.7954 per US$1.00, our yen-denominated outstanding loans are converted into dollars at an exchange rate of 107.09 per US$1.00 and our peso-denominated outstanding loans are converted into dollars at an exchange rate of P$2.93 per US$1.00, the exchange rates in effect as of December 31, 2003; only scheduled redemptions of principal on the notes are made in the case of the first post-restructuring table, and that a single prepayment of excess cash is applied on October 15, 2004, in the case of the second post-restructuring table; the issuance date occurs on October 15, 2004 (although we cannot assure you that we will receive reviewing court approval of the APE by that date); and holders of dollar denominated debt either elect Option B or elect to receive new notes in U.S. dollars. Option B and Option C are Fully Subscribed For purposes of the first post-restructuring table, we assume that Option B and Option C are fully subscribed and that the Modified Dutch Auction results in a purchase price of 850 dollars, euro, Japanese yen and pesos per 1,058 dollars, euro, Japanese yen and pesos, as applicable, of principal face amount and principal face amount adjustment of outstanding debt. Consequently, the post-restructuring table below assumes that participating holders elect, or are deemed to elect, to: restructure the equivalent of US$500 million of outstanding debt and principal face amount adjustment with US$500 million of series A notes; restructure the equivalent of US$1,376 million of outstanding debt and principal face amount adjustment with US$1,301 million of series B notes; and retire the equivalent of the remaining US$825 million of outstanding debt and principal face amount adjustment under Option C for a cash payment of US$663 million. The equivalent of US$2,701 million of outstanding debt to be restructured includes the aggregate principal face amount of the equivalent of US$2,553 million plus principal face amount adjustment of the equivalent of approximately US$148 million. See Capitalization for an explanation of our estimated capitalization as a result of the restructuring. See Operating and Financial Review and Prospects Liquidity and Capital Resources Debt Service for information regarding our aggregate scheduled payments under our consolidated outstanding debt after the (1) Peso-denominated debt, euro-denominated debt and yen-denominated debt have been converted to U.S. dollars based on exchange rates as of December 31, 2003. (2) As of December 31, 2003, accrued but unpaid interest, calculated using the contractual interest rate or applicable statutory rate on the principal amount of all outstanding debt including penalties or post-default interest rate increases under the terms of the relevant outstanding debt, was US$245 million on non-peso denominated outstanding debt and US$3 million on peso-denominated outstanding debt. (3) Includes CER adjustments, as applicable, as of December 31, 2003. (4) These amounts do not reflect any amortization of the aggregate cost of the restructuring. In addition to these obligations and our operating cash requirements, we will require cash to fund capital Long-term Debt: Long-term debt 86 Total long-term debt 86 $ 30 $ $ 39 $ Salaries and social security $ 48 $ 23 $ 41 $ 112 Depreciation of fixed assets 379 17 53 449 Amortization of intangible assets 10 1 17 28 Taxes 28 3 31 Turnover tax 31 31 Materials and supplies 26 1 5 32 Transportation and freight 3 1 2 6 Energy, water and others 6 1 1 8 Bad debt expense 7 7 Interconnection costs 28 28 Cost of international outbound calls 21 21 Lease of circuits 11 11 Rental expense 8 2 2 12 Fees for debt restructuring 5 5 Fees for services 9 5 7 21 Management fees 1 1 Advertising 5 5 Commissions 5 4 27 36 Others 22 3 4 (1) Peso-denominated debt, euro-denominated debt and yen-denominated debt have been converted to U.S. dollars based on exchange rates as of December 31, 2003. (2) These amounts do not reflect any amortization of the aggregate cost of the restructuring. In addition to these obligations and our operating cash requirements, we will require cash to fund capital expenditures, to fund costs of the restructuring, make an estimated Option A/B cash interest payment of the equivalent of up to US$119 million in the aggregate under Option A. The cash interest payments will be computed as set forth in The APE Solicitation Issuance Date and assuming the consummation of the APE occurs on October 15, 2004. (3) This amount reflects the application of US$663 million of cash consideration toward prepayment of the notes. The tables above are for illustrative purposes only. The actual amount of our debt after the restructuring will depend on the actual and deemed elections made by participating holders and non-participating holders. Moreover, the actual amount of our debt after the restructuring will depend on any adjustments for proration that we make with respect to Option B and Option C, and to the reviewing court s cramdown of non-participating holders. Finally, the amount of our outstanding debt expressed in pesos (or, if applicable, dollars) will vary based upon prevailing exchange rates. Total due 157 5,676 (a) Not due Payable on demand 4,315 (a) First quarter 2004 2,441 410 77 451 50 91 23 Second quarter 2004 9 15 2 11 58 2 Third quarter 2004 4 14 7 2 Fourth quarter 2004 1 44 3 9 Jan. 2005 thru Dec. 2005 36 30 3 12 1 Jan. 2006 thru Dec. 2006 6 4 9 2 Jan. 2007 thru Dec. 2007 2 3 4 2 Jan. 2008 thru Dec. 2008 2 64 2 2 Jan. 2009 thru Dec. 2009 60 12 1 2 Jan. 2010 and thereafter 1 93 2 Current Tax credits $ 33 $ 67 Prepaid expenses 32 17 Advances to employees 4 5 Other 34 $ 33 $ Total due 157 5,676 (e) Not due Payable on demand 4,315 First quarter 2004 2,441 410 46 451 50 60 23 Second quarter 2004 9 15 2 11 58 2 Third quarter 2004 4 14 7 2 Fourth quarter 2004 1 44 3 9 Jan. 2005 thru Dec. 2005 36 30 3 12 1 Jan. 2006 thru Dec. 2006 6 4 9 2 Jan. 2007 thru Dec. 2007 2 3 4 2 Jan. 2008 thru Dec. 2008 2 64 2 2 Jan. 2009 thru Dec. 2009 60 12 1 2 Jan. 2010 and thereafter 1 93 2 Table of Contents Telecom Personal Restructuring Concurrently with our APE solicitation, Telecom Personal (of which we own a 99.99% equity interest) is conducting an APE solicitation in which it is soliciting its existing creditors to approve an APE to restructure the equivalent of approximately US$599 million of Telecom Personal s unconsolidated outstanding debt as of December 31, 2003, including approximately the equivalent of US$27 million principal amount of intercompany obligations owed to Telecom, by issuing loans to its existing creditors with new payment terms and by paying cash consideration and making partial cash interest payments. The terms of Telecom Personal s loans pursuant to its restructuring are expected to be similar to the terms of Telecom s unlisted notes pursuant to its APE. For a discussion of the consideration options Telecom Personal will make available to each of its existing creditors pursuant to its APE solicitation, see The APE Solicitation Telecom Personal Restructuring Proposal. There is no guarantee that Telecom Personal will complete its restructuring plan on the terms described in this solicitation statement. Telecom Personal is currently discussing its restructuring proposal with representatives of its creditors, and Telecom is not certain whether Telecom Personal will complete its restructuring plan on the terms described above. Telecom s APE is not conditioned upon the completion of the Telecom Personal restructuring; however, Telecom has the right, in its sole discretion, to terminate the APE at any time prior to March 31, 2005 if Telecom Personal has not executed its APE Agreement, unless Telecom has already received court approval for the APE. Telecom Personal s APE solicitation does not include Telecom Personal s outstanding guarantee of approximately the equivalent of US$42.6 million principal face amount of financial indebtedness of N cleo S.A., or N cleo, our Paraguayan mobile telephony subsidiary. N cleo is currently negotiating a restructuring of its financial indebtedness with its creditors. See Operating and Financial Review and Prospects Ongoing Restructuring Efforts Repurchase and Cancellation of Outstanding Indebtedness. If N cleo is not able to restructure the indebtedness underlying Telecom Personal s guarantee prior to the completion of Telecom Personal s restructuring, Telecom Personal expects to amend its APE solicitation in a manner in which the interests of the beneficiaries of the guarantee will be provided with the same consideration as the other holders of Telecom Personal s financial indebtedness. See The APE Solicitation Telecom Personal Restructuring Proposal. Summary of the APE Process The APE An APE is a private restructuring agreement between a debtor and a certain percentage of its unsecured creditors affected by the restructuring that is submitted to a reviewing court for approval pursuant to the Argentine Bankruptcy Law. The Argentine Bankruptcy Law requires the debtor to obtain the level of creditor consent in order to obtain court approval. Upon approval by the reviewing court, an APE becomes binding on all the debtor s unsecured creditors affected by the restructuring proposal contained in the APE, whether or not those creditors have participated in the negotiation and execution of the APE. An APE enables debtors and creditors to negotiate a restructuring and avoid a bankruptcy (quiebra), without being subject to many of the procedural and substantive encumbrances and limitations of a reorganization (concurso) procedure. Filing an APE Application The Argentine Bankruptcy Law requires an APE proposal to treat all similarly-situated unsecured creditors equally; however, different options may be offered to creditors of the same category (class). An APE must describe the debtor s proposed new terms and conditions for payment of its outstanding indebtedness. The terms and conditions may include partial forgiveness of debt, extensions of maturity dates and any other valid options agreed to by the requisite majorities. For purposes of our APE, all holders of our outstanding debt will constitute a single category (class). Accrued interest 522 Penalty interest Table of Contents Our Argentine counsel have advised us that the filing of an APE should automatically stay all monetary judicial proceedings against the debtor based on claims relating to unsecured debt to be restructured pursuant to the APE, including proceedings initiated prior to this filing, provided that the debtor complies with certain requirements set forth under Argentine Bankruptcy Law. See Risk Factors Risks Associated with the APE Solicitation. A debtor must file the following documents with its APE: an assets and liabilities statement as of a recent date prior to the filing, as defined in Description of the APE Provisions Governing Submission of Outstanding Debt Assets and Liabilities Statement and Creditors List ; a schedule listing its creditors; a schedule listing pending lawsuits and administrative procedures against it; its accounting books and accounting-related records; and the amount of outstanding indebtedness held by unsecured creditors that have executed the APE and the percentage they represent in relation to all unsecured creditors. Our assets and liabilities statement will be dated as of the cut-off date, which will be no more than 60 days prior to the APE filing date. Approval of an APE Our Argentine counsel have advised us that the reviewing court will approve an APE if the application for court approval complies with all the formal requirements set forth above, if the level of creditor consent has been satisfied and if the reviewing court does not find the APE to be abusive or fraudulent. However, we do not know how the reviewing court will interpret this standard or construe the statutory rules applicable to APE proceedings. See Risk Factors Risks Associated with the APE Solicitation Because the APE is a new statutory mechanism with few court cases involving these proceedings in Argentina, you may receive different treatment than we propose under the terms of the APE. In the case of a reorganization (concurso), the Argentine Bankruptcy Law provides that, in the case of negotiable obligations issued in series, such as our outstanding notes, the courts will consider for the purposes of the voting procedure that the votes of all holders of a series of these negotiable obligations that support a reorganization plan will be counted as one vote in favor of the reorganization plan, and whatever amount of principal and accrued interest they hold will be added to that of other creditors also supporting the reorganization plan, while the votes of all other holders of these negotiable obligations who have not consented to the reorganization plan will be counted as one vote against, and whatever amount of principal and accrued interest they hold will be added to the amount recorded for creditors opposing the reorganization plan. Our Argentine counsel have advised us that we should expect the same principles to apply in determining support for our APE. However, three recent judicial decisions issued by three different Argentine commercial courts determined that the debt held by holders who do not attend the relevant meeting or the debt held by holders who abstain from voting in the relevant meeting will not be counted for purposes of calculating the majorities required to receive court approval of the APE. Two of these three decisions are currently being appealed. Therefore, we cannot assure you how the reviewing court will compute the majorities required by the Argentine Bankruptcy Law to approve the APE. The debtor must publish the filing of an APE in the official gazette in the jurisdiction in which the debtor is domiciled and the jurisdictions in which it has business operations, in an Argentine newspaper of major circulation, and in the official gazette of the reviewing court s jurisdiction for five Argentine court days. Table of Contents Following the last day of the publication of the announcement, creditors have ten Argentine court days to file their oppositions to the APE. We refer to this period as the objection period. Creditors may contest an APE on the following grounds, among others: misrepresentation by the debtor of its assets or liabilities in the assets and liabilities statement filed with the reviewing court; or failure of the debtor to obtain the support of the requisite majorities. The reviewing court may admit evidence if necessary in order to rule on issues raised in the objection period. This evidence is required to be submitted within the ten Argentine court day period following the end of the objection period and is required to be ruled on within the following ten Argentine court days. However, given the few judicial interpretations by Argentine courts of proceedings involving APE agreements, we cannot assure you that our APE, or any objection thereto, if and when filed, will be resolved expeditiously. We understand from our Argentine counsel that experience in reorganization (concurso) proceedings suggests this objection period may be extended substantially, even to a period of several months. Accordingly, you may experience significant delays in receiving the notes or cash consideration or cash interest payments as applicable to be delivered pursuant to the APE or we may be unable to consummate the APE at all. In addition, although the Argentine Bankruptcy Law does not expressly provide so with respect to an APE, case law developed in the context of reorganization (concurso) proceedings suggests that the reviewing court may refuse to approve an APE if the APE fails to meet certain minimum fairness standards. Subject to applicable law, our APE will provide that creditors participating in the APE, which we refer to as participating holders, representing the Requisite Termination Majorities, may elect to terminate the APE under the following circumstances, among others: failure by us to file the APE on or before December 15, 2004; and a failure of the reviewing court to approve the APE within six months of the APE filing date, if no objections to the APE are filed with the reviewing court, or within 18 months of the APE filing date, if any objection to the APE is filed with the reviewing court. Once the APE is granted court approval, the APE will be binding on all holders of our outstanding unsecured indebtedness affected by the restructuring proposal contained in the APE, whether or not those creditors have participated in the negotiation or execution of the APE and whether or not those creditors voted against the APE. The APE will not be binding on our commercial creditors. The APE agreement will provide that commercial creditors will be paid in a timely manner in accordance with the terms of our commercial debt. As a result, we will presume the consent of our commercial creditors to the APE agreement. Net income (loss) before income tax 190 115 (93 ) 212 Income tax (86 ) (59 ) Table of Contents TIMELINE FOR THE APE PROCESS This timeline has been prepared based on our best estimate of when expected events will occur, but the APE process may take substantially longer than we have indicated in this timeline. To our knowledge, proceedings involving APE agreements have been tested in only a few cases to date by Argentine courts. Consequently, Argentine courts may construe the statutory rules applicable to these proceedings in a manner differently than we do, resulting in changes to this timeline. We understand from our Argentine counsel that the experience in reorganization (concurso) proceedings suggests that the objection period (as described under Summary of the APE Process ) may be extended by the reviewing court by up to several months. Furthermore, unforeseen changes to Argentine law or other events could cause the actual timeline to differ from the description set forth below. Finally, we prepared this timeline on the assumption that the APE process will be successful. Date and Time Table of Contents The APE Solicitation Purpose of the APE Solicitation and the APE The purpose of this APE solicitation is to obtain from holders of our outstanding debt either powers of attorney authorizing the settlement agent or the commitment of holders of outstanding loans (a) to execute the APE and (b) to attend and vote affirmatively at any meeting of holders of our outstanding notes that might be required to confirm and give effect to the APE. We are proposing the APE in order to reduce the total amount of our outstanding debt to levels we estimate our operations can sustain. For purposes of the APE, all holders of our outstanding debt will constitute a single category (class). Adjustment Based on Accrued Interest For purposes of calculating the outstanding debt to be restructured pursuant to the APE, we will increase the principal face amount of outstanding debt to be restructured by making an adjustment corresponding to a portion of the accrued but unpaid interest on all of our outstanding debt (except for our commercial obligations, as described herein) for the period from June 25, 2002 through December 31, 2003 (regardless of whether the holders of such debt have participated in the APE). The amount of the adjustment has been determined by multiplying the outstanding principal of each outstanding note or outstanding loan denominated in U.S. dollars, euro, pesos or Japanese yen (excluding accrued but unpaid interest, penalties and post-default interest rate increases) as of December 31, 2003 by a factor equal to 1.058 (1.058-1). The adjustment amount represents an amount equal to U.S. six-month LIBOR plus 3% on the aggregate principal face amount of our outstanding debt, less the aggregate amount of partial payment of past due interest we paid to holders of our outstanding debt in June 2003 for the period beginning on June 25, 2002 and ending on December 31, 2002. On the issuance date, we will make an adjustment with respect to our outstanding loans denominated in pesos based on a stabilization coefficient calculated by the Argentine Central Bank. The principal face amount adjustment does not represent the contractual amount of accrued but unpaid interest on the aggregate principal face amount of our outstanding debt for the June 25, 2002 to December 31, 2003 period. Accordingly, the principal face amount adjustment may represent less than or more than the contractual or statutory rate of interest (and penalties and post-default interest rate increases, if applicable) on any specific series of outstanding notes or any specific outstanding loan. See The APE Solicitation Terms of the APE Solicitation Overview Principal Face Amount Adjustment. In connection with debt restructured under Option A, an amount of accrued but unpaid interest equal to the principal face adjustment will be capitalized, or added to the amount of debt to be restructured. Because the principal face amount adjustment will not be deemed to Subtotal 9,145 10,537 - Accrued interest 747 564 - Penalty interest 104 CASH FLOWS FROM INVESTING ACTIVITIES Fixed asset acquisitions (86 ) (17 ) Intangible asset acquisitions (2 ) (Increase) decrease in investments not considered as cash and cash equivalents 5 Government bonds $ 52 $ Total cash flows from investments not considered as cash equivalents $ 5 $ Cash flows from investing activities: Acquisition of fixed assets and intangible assets (12 ) (7 ) (19 ) Decrease (increase) in investments not considered as cash and cash equivalents 46 (12 ) Total cash flows provided by (used in) investing activities (82 ) Events Table of Contents be capitalized for holders of outstanding debt who receive consideration under Option B or Option C and such principal face amount adjustment will be considered relinquished by operation of law on the issuance date, these holders will not receive 100% of their principal face amount plus principal face amount adjustment. The aggregate amount of principal face adjustment with respect to our outstanding debt resulting from these calculations equals approximately the equivalent of US$148 million. Option A/B Cash Interest Payment on Outstanding Debt to Holders Who Elect Option A and Option B If the APE is completed in the form we have proposed, holders who elect Option A and Option B will receive, in addition to their notes, an Option A/B cash interest payment on an amount equal to the new principal face amount of their notes to be issued under Option A and Option B for the period from January 1, 2004 to the issuance date, accrued at a rate equal to 5.53% for series A notes denominated in dollars (or 4.83% for euro-, 1.93% for yen- or 3.23% for peso-denominated series A notes) and 9% for series B notes. This Option A/B cash interest payment may be more or less than the amount of interest that would have accrued on the outstanding debt during this period under the terms of the outstanding debt. We expect that this Option A/B cash interest payment, in the aggregate, will be equal to the equivalent of up to approximately US$114 million, assuming an issuance date of October 15, 2004. We will make the Option A/B cash interest payment in the same currency as the notes issued to the holder. Except for the capitalization of principal face adjustment relating to debt restructured under Option A and the Option A/B cash interest payment described in this section, holders of outstanding debt will not be entitled to receive any accrued interest (including penalties and post-default interest rate increases) on their outstanding debt in respect of any period ending on or before the issuance date. Option C Cash Interest Payment If the APE is completed in the form we have proposed, holders who receive Option C cash consideration will receive, in addition to the cash consideration, a cash interest payment covering the period from January 1, 2004 to the issuance date. This Option C cash interest payment will be calculated based on the amount of interest that has accrued on the US$663 million of available cash in Option C from January 1, 2004 until the issuance date, and will be paid at an annual rate equal to the federal funds target rate. Holders who receive cash consideration under Option C will receive this payment in equivalent U.S. dollars. Remaining Unpaid Existing Indebtedness By granting a power of attorney contained in the letter of transmittal or, if you are a holder of outstanding loans or commissions by Current Voice, data and Internet $ 379 $ 386 Wireless (i) 268 272 Directories publishing 24 NON CURRENT INVESTMENTS Government bonds Argentina 2004 Bond US$1 Total government bonds Current assets Cash and banks Bank accounts US$ 2 2.86000 $ 6 $ 4 G 1,183 0.0004839 1 2 Investments Time deposits US$ 406 2.86000 1,162 885 EURO 318 3.51610 1,118 776 G 3,387 0.0004839 2 4 Government bonds US$ 6 2.86000 17 EURO 69 Accounts receivable US$ 21 2.86000 59 55 SDR 2 G 140,873 0.0004839 69 66 Other receivables Tax credits US$ 20 2.86000 59 42 G 2,122 0.0004839 1 1 Prepaid expenses G 5,938 0.0004839 3 1 Others G 5,865 0.0004839 2 2 Non-current assets Investments Government bonds US$ (1) The consideration per P$1,000 principal face amount of peso-denominated outstanding loans will be adjusted based on the CER through the issuance date. (2) Holders who receive Option A or Option B will also receive the Option A/B cash interest payment, and Holders who receive Option C will also receive the Option C cash interest payment, each as described in this solicitation statement. (3) Assumes holders who elect to receive Option B have 37.5% of their outstanding debt and principal face amount adjustment allocated to Option C. (4) Holders who elect Option B will receive US$1,000 principal amount of series B notes for each 1,058 principal face amount and principal face amount adjustment of outstanding debt in dollars, or the U.S. dollar equivalent of 1,058 principal face amount and principal face amount adjustment of outstanding debt denominated in euro, yen or pesos. Series B notes will only be denominated in U.S. dollars. (5) Includes principal face amount adjustment, calculated as described above under Principal Face Amount Adjustment. In connection with debt restructured under Option A, an amount of accrued but unpaid interest equal to the principal face adjustment will be capitalized, or added to the amount of debt to be restructured. Because holders of outstanding debt who elect to receive consideration under Option B or Option C will not receive 100% of their principal face amount adjustment, the principal face amount adjustment will not be deemed to be capitalized for the holders, and will be considered relinquished by operation of law on the issuance date. Current liabilities(2) 10,541 10,608 Non-current liabilities 317 364 Minority Interest 33 9 Foreign currency translation adjustments 22 Cash $ 3 $ 3 Banks 23 14 Currency-like bonds (i) Table of Contents Date and Time Table of Contents (6) Holders who elect Option C will receive US$740-US$850 in dollars for each 1,058 principal face amount and principal face amount adjustment or the U.S. dollar equivalent of 1,058 principal face amount and principal face amount adjustment of outstanding debt denominated in euro, yen or pesos. Option C cash consideration will be paid in equivalent U.S. dollars only. Modified Dutch Auction If you elect Option C, you will be required to select a price, within the range of 740 to 850 per 1,058 principal face amount plus principal face amount adjustment at which you would be willing to retire your outstanding debt under this option. Based upon the selections of all holders who choose Option C, we will determine the lowest single purchase price that will allow us to purchase the equivalent of up to US$825 million principal amount of outstanding debt and principal face amount adjustment (calculated based on the exchange rates as indicated under Introduction Calculation of U.S. Dollar Equivalents. ) for up to US$663 million. All outstanding debt retired under Option C will be purchased at the same purchase price regardless of whether a participating holder selected a lower price. Holders who elect (or are prorated into Option C) will receive their cash consideration in equivalent U.S. dollars. If Option C is oversubscribed, we will first accept for purchase and payment all outstanding debt from holders who elected Option C at a price below the purchase price determined based on the holders price selections. We will then accept for purchase and payment all outstanding debt from holders who elected Option C at the purchase price on a pro rata basis, proportional to the amount of debt held by holders who requested to retire debt under Option C at the purchase price. See The APE Solicitation Terms of the APE Solicitation Option C Modified Dutch Auction. Allocation of Outstanding Debt Under Option B to Option C if Option C is Undersubscribed If Option C is undersubscribed, holders who elect to receive Option B will have up to 37.5% of their outstanding debt allocated to Option C. This allocation will take place prior to any proration that may be required. These holders whose debt is allocated to Option C because it is undersubscribed will be deemed to have selected 850 per 1,058 principal face amount plus principal face amount adjustment, the highest price within the Modified Dutch Auction range, as their bid with respect to their outstanding debt that has been allocated into Option C. Purchase of Notes if Option C Remains Undersubscribed After 37.5% Allocation If Option C remains undersubscribed after the allocation of outstanding debt under Option B to Option C, then within 45 days of the issuance date, we will apply the cash difference between the US$663 million of cash available under Option C less the U.S. dollar amount that is finally allocated into Option C to purchase notes through Market Purchase or Optional Redemption transactions or a Note Payment (as these terms are defined in Description of the Notes Certain Definitions ). Events Table of Contents Proration Participation in Option B and Option C will be limited, based on the principal face amount and principal face amount adjustment of our outstanding debt that can be retired under these two options. The specified limits on Option B and Option C are as follows: up to US$1,376 million principal face amount of our outstanding debt and principal face amount adjustment that may be retired under Option B; and up to US$825 million principal face amount of our outstanding debt and principal face amount adjustment that may be retired under Option C. Consequently, if holders of outstanding debt elect to retire outstanding debt under either of these two options in excess of the limit for that option, proration will be required. In addition, if Option C is undersubscribed, holders who elect to receive Option B will have up to 37.5% of their outstanding debt allocated to Option C. This allocation will take place prior to any proration that may be required. We will prorate as follows: If you selected Option B and Option B is oversubscribed, we will first allocate the remaining portion of your outstanding debt into Option C until we reach the limit for Option C. Once we have reached the limit for Option C, we will allocate the remaining portion of your outstanding debt into Option A. If you selected Option C and Option C is oversubscribed, we will allocate the oversubscribed portion of your outstanding debt into Option A. There is no limit on the size of the participation in Option A. Please see The APE Solicitation Terms of the APE Solicitation Proration. Exchange of Outstanding Debt to be Restructured On the issuance date, immediately prior to the cancellation of the outstanding debt, we will instruct the settlement agent to, at the request of holders of outstanding debt who have elected Option B, exchange all or a portion of the outstanding loans or outstanding notes to be restructured. Upon the request of a participating holder of outstanding loans or outstanding notes who has elected Option B, we will instruct the settlement agent to exchange all or a portion of the holder s outstanding loans or outstanding notes to be restructured under Option B (or, in the event of allocation into Option A, under Option A) for an equal amount of outstanding notes or outstanding loans held by other holders that would otherwise be retired under Option C. In this exchange, holders of outstanding loans requesting an exchange would receive outstanding notes to be refinanced pursuant to the APE and holders of our outstanding notes requesting exchange would receive outstanding loans to be refinanced pursuant to the APE. This exchange will be subject to availability based on the Accumulated other comprehensive income (a) $ 19 $ Total as of December 31, 2003 21,734 182 (76 )(a) Table of Contents amount of outstanding notes and outstanding loans to be retired under Option C, to proration among holders requesting such an exchange, and to timely delivery of any documentation required by Telecom relating to the exchange, including an assignment of the outstanding loan in order to effect the exchange in a form to be provided by the settlement agent. Under this exchange of outstanding loans for outstanding notes to be retired under Option C, and this exchange of outstanding notes for outstanding loans, holders will receive the same amount of consideration (in the same currency) pursuant to the APE solicitation that they would have otherwise received in the absence of this exchange. This exchange may impact the form of consideration that consenting holders to the exchange receive pursuant to the APE, because holders of outstanding loans who select Option B and agree to the exchange may receive listed notes instead of the unlisted notes that they otherwise would have received, and holders of outstanding notes who select Option B and agree to the exchange will, to the extent the exchange is effected, receive unlisted notes instead of the listed notes that they otherwise would have received. Expiration Date 3:00 p.m., New York City time, 4:00 p.m., Buenos Aires time, on July 21, 2004, subject to our ability to extend that time and date in our sole discretion but in any event not later than December 31, 2004, in which case the expiration date will mean the latest time and date to which the expiration date is extended. We will announce any extension of the expiration date no later than 9:00 a.m., New York City time, 10:00 a.m., Buenos Aires time, on the business day after the previously scheduled expiration date and will publish a notice of such extension as set forth in The APE Solicitation Announcements of Extension, Amendment or Termination. See The APE Solicitation Expiration Date; Extensions; Amendments; Termination. Issuance Date We expect to deliver the notes to be issued and cash interest payments to be paid pursuant to the APE to holders who elect Option A and Option B for a portion of the interest accrued on the outstanding debt from January 1, 2004 to the issuance date, and the cash consideration and the Option C cash interest payment to be paid to holders who elect Option C on the issuance date, which shall be as soon as practicable after receiving court approval of the APE and the other conditions to the APE are satisfied or waived but no later than 90 days from either reviewing court approval or any other deadline imposed by the reviewing court if the reviewing court decides that non-participating creditors can elect any options within a specific deadline. Interest on the notes will begin to accrue on the issuance date and will be payable on the next scheduled interest payment date. In the event that the issuance date does not occur prior to October 15, 2004, any amortization payments scheduled to become due prior to the issuance date will be paid on the issuance date. See The APE Solicitation Issuance Date. $ 39 $ Table of Contents Revocation of Powers of Attorney Holders of outstanding debt that elect to participate in this APE solicitation by granting a power of attorney with respect to their outstanding debt by duly executing a letter of transmittal will not have the right to revoke their powers of attorney except as described in The APE Solicitation Revocation. Revocation of Commitments to Execute the APE Holders of outstanding loans that elect to participate in this APE solicitation by committing to sign the APE directly with respect to their outstanding loans in the letter of transmittal will not have the right to revoke their commitment except as described in The APE Solicitation Revocation. No Planned Meetings for Holders of Outstanding Notes We do not plan to hold meetings for holders of our outstanding notes to vote in favor of or against the APE unless a meeting is required by the reviewing court to allow holders of outstanding notes to vote. Holders of outstanding notes who wish to vote against the APE must attend and vote at the meeting, if a meeting is held. If no meeting is held, holders of outstanding notes will not have any means by which they may vote against the APE. Holders of outstanding notes may not vote against the APE if they have submitted their outstanding notes and consented to the APE by granting a power of attorney by duly executing a letter of transmittal to the settlement agent unless the previously submitted outstanding notes, duly executed letter of transmittal and powers of attorney contained therein have been properly withdrawn as a result of an APE amendment that is materially adverse to one or more holders as discussed in The APE Solicitation Procedures for Participating in the APE Solicitation Meetings for Holders of Outstanding Notes. Extensions; Amendments; Termination We expressly reserve the right, in our sole discretion, subject to applicable law, at any time or from time to time, to terminate this APE solicitation prior to the expiration date, subject to the conditions set forth herein, waive any of the conditions to this APE solicitation contained in clauses (c) through (f) as set forth in The APE Solicitation Conditions to the APE Solicitation ; extend this APE solicitation, but not later than December 31, 2004, or amend this APE solicitation in respect of the outstanding debt, subject to applicable law. Any amendment applicable to this APE solicitation will apply to all powers of attorney and commitments granted pursuant to this APE Current assets Cash and banks Bank accounts US$ 1 2.930 $ 4 $ G 1,529 0.0005 2 3 Investments Time deposits US$ 302 2.930 885 343 EURO 211 3.684 776 296 G 8,345 0.0005 4 Government bonds US$ 123 EURO 19 3.684 69 Accounts receivable US$ 19 2.930 55 46 SDR 1 4.354 2 GF 2 G 134,907 0.0005 66 60 Other receivables Tax credits US$ 14 2.930 42 G 2,270 0.0005 1 Prepaid expenses G 1,485 0.0005 1 Others US$ 7 G 6,454 0.0005 2 2 Non-current assets Investments Government bonds US$ 12 2.930 35 Accrued interest 589 Penalty interest Table of Contents solicitation other than those properly withdrawn as a result of an APE amendment that is materially adverse to one or more holders. If we choose to terminate or extend the APE solicitation, waive any material condition or make any material amendment to the APE solicitation, we will publish a notice of such action as set forth in The APE Solicitation Announcements of Extension, Amendment or Termination. See The APE Solicitation Expiration Date; Extensions; Amendments; Termination. After the execution of the APE and before the reviewing court approval, the APE may be terminated as described in Description of the APE Termination of the APE Agreement. Conditions to the APE Solicitation This APE solicitation is subject to the terms and conditions set forth under The APE Solicitation Conditions to the APE Solicitation. This APE solicitation and the execution of the APE is subject to the condition that holders of our outstanding debt elect to retire at least the equivalent of US$300 million of outstanding debt and principal face amount adjustment under Option A, which we refer to as the minimum required participation . This APE solicitation is also subject to consent to the APE by or on behalf of the requisite majorities, which we refer to as the level of creditor consent . The requisite majorities are holders representing a majority in number of the holders of our outstanding debt accounting for at least two-thirds, or any lower percentage that may be required by Argentine law, of the outstanding principal and accrued interest (determined in accordance with the contractual or applicable statutory terms of our outstanding notes and outstanding loans) on our outstanding debt. As of March 31, 2004, we had the equivalent of approximately US$2,816 million of unconsolidated outstanding debt (including accrued but unpaid interest, penalties and post-default interest rate increases). How to Participate if You Are a Beneficial Owner of Outstanding Notes Through a Securities Intermediary If you are a beneficial owner whose outstanding notes are held by a broker, dealer, commercial bank, trust company or other securities intermediary and you wish to participate in this APE solicitation, you should promptly execute a letter of instruction, which we refer to as an instruction letter, and deliver it to that securities intermediary and/or follow that securities intermediary s internal procedures in order to instruct that securities intermediary to submit outstanding notes and grant a power of attorney to execute the APE on your behalf. Instruction letters should be delivered to your securities intermediary well in advance of the expiration date because your securities intermediary will be required to deliver a signed letter of transmittal to the settlement agent and have that letter of transmittal notarized and if executed outside of Argentina, either apostilled, in accordance with The Hague Convention, or consularized by an Argentine Consulate, prior to the expiration date in order to validly grant a power of attorney with respect to Table of Contents your outstanding notes. We will not be responsible if you or your securities intermediary fails to meet any delivery deadlines. See The APE Solicitation Procedures for Participating in the APE Solicitation How to Participate if You Hold Outstanding Notes. How to Participate if You Hold Outstanding Notes Through Euroclear or Clearstream, Luxembourg or if You Are a DTC Participant If your outstanding notes are held through Euroclear Bank S.A./N.V., as operator of the Euroclear System, or Euroclear, or Clearstream Banking, soci t anonyme, or Clearstream, Luxembourg, you must comply with the procedures established by Euroclear or Clearstream, Luxembourg, as applicable, to participate in this APE solicitation. Euroclear and Clearstream, Luxembourg intend to collect from their direct participants (a) instructions to submit outstanding notes held by them on behalf of their direct participants in this APE solicitation and block any transfer of outstanding notes so submitted until the completion of the APE process and (b) irrevocable authorizations to disclose the names of the direct participants and information about the foregoing instructions. Upon the receipt of these instructions, Euroclear and Clearstream, Luxembourg will advise the settlement agent of the principal amount of outstanding notes for which powers of attorney are being granted and other required information. Euroclear and Clearstream, Luxembourg may impose additional deadlines in order to properly process these instructions. As a part of submitting through Euroclear or Clearstream, Luxembourg, you are required to become aware of any these deadlines. If you hold outstanding notes as a participant in the Depositary Trust Company, or DTC system, the settlement agent and DTC have confirmed that this APE solicitation is eligible for DTC s Automated Tender Offer Program, or ATOP. Accordingly, DTC participants must electronically transmit their acceptance of this APE solicitation in accordance with DTC s ATOP procedures. DTC will then send a computer-generated message, or an Agent s Message, to the settlement agent. Notes submitted in accordance with DTC s ATOP procedures will be blocked for transfer until the completion of the APE process. See The APE Solicitation Procedures for Participating in the APE Solicitation. In addition, if you hold outstanding notes through Euroclear or Clearstream, Luxembourg or as a DTC Participant, you must sign a letter of transmittal, have that letter of transmittal notarized and if executed outside of Argentina, either apostilled, in accordance with The Hague Convention, or consularized by an Argentine Consulate, and deliver the letter of transmittal to the Total as of December 31, 2002 (10,104 ) (1,983 )(d) Table of Contents settlement agent prior to the expiration date. If you fail to deliver the letter of transmittal, you will not be eligible to participate in this APE solicitation. Holders of outstanding notes in Luxembourg may contact the Luxembourg agent for assistance in completing these procedures. Submission of Outstanding Notes Providing instructions to submit outstanding notes and granting a power of attorney will affect a beneficial owner s right to sell or transfer its outstanding notes. Outstanding notes of participating holders will be blocked in the account held at Euroclear, Clearstream, Luxembourg or DTC. As a result, holders of outstanding notes will not be able to transfer their outstanding notes once submitted unless the APE is terminated, in which case your right to trade your outstanding notes will be restored promptly after the termination date. On the termination date, Telecom will instruct the settlement agent to authorize DTC, Euroclear and Clearstream, Luxembourg to unblock the outstanding notes for trading. How to Participate if You Are a Registered Holder of Outstanding Loans If you are a registered holder of outstanding loans, you must deliver a duly executed letter of transmittal, notarized and if executed outside of Argentina, either apostilled, in accordance with The Hague Convention, or consularized by an Argentine consulate, relating to your outstanding loans to the settlement agent. If you are a registered holder of outstanding loans and agree to participate in this APE solicitation, we will require that you indicate in your duly executed letter of transmittal that you are granting the settlement agent a power of attorney to execute the APE on your behalf or you are committing to sign the APE directly. Settlement and Delivery of Listed Notes The listed notes will be accepted for clearance by Euroclear, Clearstream, Luxembourg and DTC. Beneficial interests in the listed notes will be shown on, and transfers thereof will be effected only through, the book-entry records maintained by Euroclear, Clearstream, Luxembourg and (in the case of the notes issued in the APE to holders of Telecom s currently outstanding Series C notes only) DTC. See Description of the Notes Form of Notes; Book-Entry System. Investors who are not eligible to hold securities through DTC may be required to obtain definitive notes. If you require a definitive note you must contact the settlement agent immediately. See Description of the Notes Form of Notes; Book-Entry System Issuance of Definitive Notes. Delivery of Unlisted Notes The unlisted notes we issue to holders of outstanding loans following court approval of the APE will be delivered to the address that you specify in the letter of transmittal. The unlisted notes will be delivered Table of Contents in certificated form. See The APE Solicitation Procedures for Participating in the APE Delivery of Unlisted Notes, Cash Consideration and Cash Interest Payments for Outstanding Loans. Consequences to Non-Participating Holders of Outstanding Debt if Court Approval is Granted If court approval of the APE is granted, non-participating holders, or holders of our outstanding debt that have not granted a power of attorney in favor of the Settlement Agent or have not signed the APE directly, with respect to any portion of their outstanding debt, will have such portion of their outstanding debt allocated into Option A, or, if the reviewing court decides to allocate consideration in a different manner, will receive the consideration determined by the reviewing court at the time the reviewing court approves the APE, subject only to the overall limit of Option B and Option C. Non-participating holders will be crammed down in accordance with the terms of the court approval. As part of the cramdown, the reviewing court may require that non-participating holders receive notes and/or cash consideration in a manner different than as contemplated in our APE. See Risk Factors Risks Associated with the APE Solicitation and Description of the APE Treatment of Holders of Outstanding Debt Who Do Not Participate in the APE Solicitation Cramdown of Non-Participating Holders Upon Court Approval. By providing your consent to the APE you are agreeing to receive your consideration in accordance with any allocation and proration of the oversubscribed options or to otherwise receive your consideration that results from the reviewing court s decision to allocate the consideration offered to non-participating holders in a different manner, as we have contemplated in the APE. Taxation A United States holder who receives only cash for outstanding notes of a particular series pursuant to the APE generally will recognize gain or loss, if any, for U.S. federal income tax purposes. The tax treatment of a United States holder who receives both cash and listed notes for outstanding notes of a particular series will depend on whether the submission of outstanding notes and receipt of cash and listed notes pursuant to the APE is treated as a tax-free recapitalization. The listed notes should be subject to the U.S. Treasury regulations for debt instruments issued with original issue discount. Their treatment under these rules is not clear, however, in particular because of potential alternative payment schedules. For a discussion of the U.S. federal income tax consequences for United States holders of the submission of outstanding notes and receipt of (a) cash or (b) cash and listed notes pursuant to the APE, including pursuant to a cramdown, and Table of Contents the ownership and disposition of listed notes received pursuant to the APE. Holders of outstanding loans and holders of notes who elect to receive unlisted notes pursuant to the APE are urged to consult their tax advisers with regard to the application of U.S. federal income tax laws to their particular situation as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. For a discussion of Argentine tax considerations for Argentine holders of outstanding debt that exchange their outstanding debt for the notes and cash consideration and receive cash interest payments, see Certain Argentine Tax Considerations. For a discussion of Luxembourg tax considerations, see Certain Luxembourg Tax Considerations. Information Agent GSC Proxitalia SpA is the global information agent for this APE solicitation in Europe. The address and telephone number of the information agent are set forth on the back cover page of this solicitation statement. Luxembourg Agent BNP Paribas Securities Services, Luxembourg Branch will act as Luxembourg agent with respect to the APE solicitation. Solicitation Agents Morgan Stanley & Co. Incorporated and its affiliates are acting as solicitation agents for this APE solicitation. MBA Banco de Inversiones S.A. will act as solicitation agent in Argentina only. The addresses and telephone numbers of the solicitation agents are set forth on the back cover page of this solicitation statement. Settlement Agent The Bank of New York is the settlement agent for this APE solicitation. The address and telephone number of the settlement agent are set forth on the back cover page of this solicitation statement. Brokerage Commissions You are not required to pay any brokerage commissions to the information agent, the settlement agent or the solicitation agents. Processing Fee A processing fee will be paid by Telecom to certain banks and financial institutions for processing consents of outstanding notes accepted where the aggregate principal amount of outstanding notes delivered by the holder of the outstanding note in accordance with the APE is less than or equal to the equivalent of US$100,000 in the relevant currency (calculated based on the exchange rates as indicated under Introduction Calculation of U.S. Dollar Equivalents ). The processing fee in respect of outstanding notes properly delivered and accepted by us will be paid to the bank or financial institution (each of whom we refer to as a processor ), if any, designated by the beneficial owner of those outstanding notes and will be equal to Total non-current investments 21 10 Table of Contents cash to fund remaining costs of the restructuring, including administrative and other costs of the exchange of outstanding debt once the APE is approved, regulatory and filing fees for the notes and court, legal and advisory fees in connection with the APE and the restructuring. In the event that the issuance date does not occur prior to October 15, 2004, any amortization payments scheduled to become due prior to the issuance date will be paid on the issuance date. In addition to these obligations and our operating cash requirements, we will also require cash to fund capital expenditures. Although we currently believe that we will have sufficient cash to meet these cash requirements, due to various uncertainties, including the timing of the APE approval process, the actual amount of restructuring expenses and the state of the Argentine economy, we cannot assure you that we will have sufficient cash to meet all of our financial obligations related to the restructuring, or that, after the issuance date, we will be able to pay interest or principal on the notes on a timely basis. See Risk Factors Risks Associated with the Notes, Risk Factors Relating to Argentina and Risks Associated with Telecom and Its Operations. Assuming the successful completion of the APE, we expect to manage our operations in a manner that will allow us to generate revenues and cash flows in order to meet our financial obligations. We will strive to continue to control operating costs and to maximize the use of our installed network capacity. We plan to maintain our fixed line networks in order to assure continued quality of service, to enhance our wireless networks by transitioning from TDMA to GSM technology and to continue to expand our Internet services, particularly our ADSL Internet service. We note, however, that the notes will impose certain restrictions that will limit our ability to finance our future operations and make capital expenditures and other investments. The statements above constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. Actual results may differ materially from those assumptions and expectations described above as a result of various factors, including the factors discussed under Special Note Regarding Forward-Looking Statements. Summary Ratio of Earnings to Fixed Charges Telecom s ratio of earnings to fixed charges (1) under Argentine GAAP and U.S. GAAP is as follows: As of and for fiscal year ended Table of Contents 0.50% of the aggregate principal amount of the outstanding notes in respect of which that designation is made. Notwithstanding the above, no processing fee will exceed the equivalent of US$500,000 (in the relevant currency) for any bank or financial institution and its affiliates, for processing the submissions of outstanding notes. No processing fee will be available to banks or financial institutions for processing or assisting in submissions of outstanding loans. Beneficial owners will be able to designate processors in the accompanying instruction letter. In order for any processor to receive the processing fee, the processing fee form contained in the letter of transmittal must be completed and sent to the settlement agent at the address set forth on the back cover of the letter of transmittal prior to the expiration date. Processors must follow the directions in the Letter of Transmittal in order to be eligible for the processing fee. Further Information Any questions or requests for assistance concerning this APE solicitation, including with respect to notarization and the apostille or consularization for the letter of transmittal, may be directed to the solicitation agents, the information agent or the Luxembourg agent at their respective addresses and telephone numbers set forth on the back cover page of this solicitation statement. Additional copies of this solicitation statement and the letter of transmittal may be obtained by contacting either the information agent or the Luxembourg agent at their respective addresses and telephone numbers set forth on the back cover page of this solicitation statement.
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+PROSPECTUS SUMMARY The following summary contains information about our business. It does not contain all of the information that you need to consider in making an investment decision. You should read this entire prospectus carefully, including the information under
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